Exhibit 99A
CINAR CORPORATION
ARRANGEMENT INVOLVING
CINAR CORPORATION
and
4113683 CANADA INC.
and
3918203 CANADA INC.
NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
and
MANAGEMENT PROXY CIRCULAR
OF CINAR CORPORATION
January 14, 2004.
[CINAR LOGO]
[CINAR LOGO]
January 14, 2004
Dear CINAR Shareholder:
The Board of Directors cordially invites you to attend a special meeting (the
"Meeting") of shareholders of CINAR Corporation ("CINAR") to be held at 11:00
a.m. (Eastern time) on Tuesday, February 17, 2004 in the Salon Hochelaga 4,
Fairmont Queen Elizabeth Hotel, 900 Rene-Levesque Boulevard West, Montreal,
Quebec, Canada.
On October 30, 2003, CINAR entered into an arrangement agreement with 4113683
Canada Inc. ("Newco"), pursuant to which Newco will, subject to receiving all
required approvals, including the approval of shareholders of CINAR and the
satisfaction of certain other conditions, become the owner of all of the
Variable Multiple Voting Shares and Limited Voting Shares of CINAR
(collectively, the "CINAR Shares").
At the Meeting, you will be asked to consider and approve a plan of arrangement
(the "Arrangement") providing for the acquisition of all of the CINAR Shares by
Newco. Holders of Limited Voting Shares will also be asked to approve a
reduction in the stated capital of the Limited Voting Shares, which will allow
CINAR to complete the transaction as an arrangement.
Under the Arrangement, you will receive US$3.60 per share in cash. In addition,
if certain specified litigation (the "Specified Litigation") is settled or
subject to a final court decision and certain other conditions are met prior to
the date which is five business days prior to the Meeting (the "Settlement
Deadline"), then the purchase price per share will be increased by an amount
equal to the pro rata amount per share of the net proceeds of the Specified
Litigation, less US$400,000, all as more particularly described in the
Management Proxy Circular for the Meeting (the "Circular"). This portion of the
purchase price will only be paid after CINAR has actually received all of the
net litigation proceeds.
If the conditions referred to in the preceding paragraph are not satisfied
and/or certain other conditions are not met by the Settlement Deadline, then you
will receive pursuant to the Arrangement, as additional consideration for your
CINAR Shares, non-transferable contingent cash entitlements ("CCEs") created by
3918203 Canada Inc., the parent of Newco. The CCEs will represent an entitlement
to receive your pro rata share of an amount equal to 70% of the net proceeds of
the Specified Litigation, if any, once all of the Specified Litigation has been
finally adjudicated or settled, all as more particularly described in the
Circular.
The CCE structure was developed to ensure that any net amount received in
connection with the Specified Litigation will contribute to increase the
aggregate consideration to be paid to CINAR Shareholders under the Arrangement.
Due to the complex nature of CINAR's claims and the counterclaims against CINAR,
and the lack of knowledge as to the financial position of the defendants to
CINAR's claims, management is unable to estimate the net amount, if any, that
may be recovered from the Specified Litigation, or the timing of the payment to
CINAR Shareholders of the applicable amounts.
For the Arrangement to proceed, (i) the special resolution described in the
attached circular to reduce the stated capital of the Limited Voting Shares must
be approved by two-thirds of the votes cast at the Meeting by holders of CINAR's
Limited Voting Shares voting as a separate class, and (ii) the special
resolution approving the Arrangement must be approved by at least two-thirds of
the votes cast at the Meeting by holders of CINAR's Variable Multiple Voting
Shares and Limited Voting Shares, each voting as a separate class. The
Arrangement is also subject to certain regulatory approvals, Court approval and
other conditions.
Micheline Charest, Ronald Weinberg and certain corporations associated with them
(collectively, the "Founders") have entered into a Voting Support Agreement with
Newco, pursuant to which they have irrevocably agreed to vote all CINAR Shares
owned by them in favour of the Arrangement. The Founders hold approximately 96%
of the outstanding Variable Multiple Voting Shares, which represent a sufficient
number of Variable Multiple Voting Shares to ensure approval of the Arrangement
by the Variable Multiple Voting Shares as a class.
The Board of Directors of CINAR has considered at length the proposed
acquisition of CINAR and other strategic alternatives for maximizing shareholder
value. THE BOARD OF DIRECTORS HAS DETERMINED UNANIMOUSLY THAT THE ARRANGEMENT IS
IN THE BEST INTERESTS OF CINAR. ACCORDINGLY, THE BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE ARRANGEMENT AND RECOMMENDS THAT HOLDERS OF LIMITED
VOTING SHARES VOTE FOR THE RESOLUTION APPROVING THE REDUCTION IN THE STATED
CAPITAL OF THE LIMITED VOTING SHARES AND THAT THE CINAR SHAREHOLDERS VOTE FOR
THE RESOLUTION APPROVING THE ARRANGEMENT. The resolution approving the reduction
in the stated capital of the Limited Voting Shares will only be implemented if
the resolution approving the Arrangement is passed by CINAR Shareholders. The
Arrangement cannot be completed if the resolution approving the reduction in the
stated capital of the Limited Voting Shares is not approved.
Included with this letter is a Notice of Special Meeting, the Circular, forms of
Proxy, a Letter of Transmittal and an authorisation letter to be signed by
certain CINAR Shareholders who are resident in the United States authorising
Newco to, among other things, apply for a certificate under section 116 of the
Income Tax Act (Canada) on behalf of such CINAR Shareholders.
The accompanying Circular provides a detailed description of the Arrangement,
information regarding a fairness opinion received by the Board of Directors from
its financial advisor, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and a
discussion of certain tax matters. A summary of certain of the information in
the Circular concerning the Arrangement begins on page 1 of the Circular. We
urge you to consider carefully all of the information in the Circular. If you
require assistance, please consult your financial, legal or other professional
advisors. If you require assistance in voting your CINAR Shares, if you require
additional proxy materials or if you have any questions concerning the letter of
transmittal or withholding tax requirements, please contact Georgeson
Shareholder Communications Inc. at the address or telephone number set out on
page 1 of the Circular.
It is important that your CINAR Shares be represented at the Meeting. Whether or
not you are able to attend the Meeting in person, please complete, sign and date
the enclosed form of proxy and return it in the envelope provided as soon as
possible. Completing and returning the enclosed form of proxy will not limit
your right to vote in person if you wish to attend the Meeting and vote
personally.
You will only receive the consideration payable for your CINAR Shares after your
Letter of Transmittal has been received by Computershare Trust Company of Canada
("Computershare") and, in the case of your share of the amount based on the net
proceeds of the Specified Litigation, if any, after all of such net proceeds
have been received by CINAR in full. Please read the instructions in the Letter
of Transmittal carefully. If the special resolutions approving the reduction of
stated capital and the Arrangement are not approved at the Meeting, or any
adjournment or postponement thereof, or if the Arrangement does not otherwise
proceed, your CINAR share certificates will be returned to you by Computershare.
TO RECEIVE 100 % OF THE AGGREGATE CONSIDERATION PAYABLE UNDER THE ARRANGEMENT,
YOU MUST COMPLY WITH THE REQUIREMENTS DESCRIBED IN THE CIRCULAR UNDER THE
HEADING "INFORMATION CONCERNING THE MEETING - PROCEDURE FOR PAYMENT TO CINAR
SHAREHOLDERS". FAILURE TO COMPLY WITH THESE REQUIREMENTS MAY RESULT IN 25% (PLUS
AN ADDITIONAL 12% IF YOU ARE A CORPORATION) OF THE AGGREGATE CONSIDERATION
PAYABLE TO YOU BEING WITHHELD BY NEWCO AND REMITTED TO THE APPROPRIATE TAX
AUTHORITIES.
If you are a non-resident of Canada and have any questions regarding your
obligations, please contact Georgeson Shareholder Communictions Inc. at the
address or telephone number set out on page 1 of the Circular.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES OF
THE ARRANGEMENT IN THEIR PARTICULAR CIRCUMSTANCES.
The completion of the Arrangement will occur as soon as practicable after the
Meeting.
On behalf of CINAR, I would like to thank all CINAR Shareholders for their
support in connection with this transaction as we prepare to take part in this
important event for CINAR.
Yours very truly,
(signed) Robert Despres
Robert Despres, O.C.
Chairman of the Board
[CINAR LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a special meeting (the "Meeting") of holders
(collectively, the "CINAR Shareholders") of Variable Multiple Voting Shares and
Limited Voting Shares of CINAR Corporation ("CINAR") will be held at 11:00 a.m.
(Eastern time) on Tuesday, February 17, 2004 in the Salon Hochelaga 4, Fairmont
Queen Elizabeth Hotel, 900 Rene-Levesque Boulevard West, Montreal, Quebec,
Canada.
The purposes of the Meeting are:
1. for holders of Limited Voting Shares to consider, and if deemed
advisable, to pass, with or without variation, a special resolution
approving a reduction in the stated capital of the Limited Voting
Shares by $323,206,000 and providing that such reduction be effected
by increasing CINAR's contributed surplus by the same amount and
transferring such amount from contributed surplus to reduce the amount
of CINAR's deficit by the same amount;
2. pursuant to an order (the "Interim Order") of the Superior Court of
Quebec dated January 12, 2004, for all CINAR Shareholders to consider
and, if deemed advisable, to pass a special resolution approving a
plan of arrangement pursuant to section 192 of the Canada Business
Corporations Act pursuant to which 4113683 Canada Inc. will acquire
all of the issued and outstanding Variable Multiple Voting Shares and
Limited Voting Shares of CINAR, all as more particularly described in
the accompanying Management Proxy Circular (the "Circular") of CINAR;
and
3. to transact such other business as may properly be brought before the
Meeting.
Dated at Montreal, Quebec, this 14th day of January, 2004.
BY ORDER OF THE BOARD OF DIRECTORS
(signed) Stuart C. Snyder
Stuart C. Snyder
President and Chief Executive Officer
CINAR SHAREHOLDERS UNABLE TO ATTEND THE MEETING ARE REQUESTED TO COMPLETE THE
ENCLOSED FORM OF PROXY AND TO RETURN IT IN THE ENVELOPE PROVIDED FOR THAT
PURPOSE. PROXIES MUST BE DEPOSITED WITH COMPUTERSHARE TRUST COMPANY OF CANADA,
PROXY DEPARTMENT, 100 UNIVERSITY AVENUE, 9TH FLOOR, TORONTO, ONTARIO, CANADA M5J
2Y1, NO LATER THAN THE CLOSE OF BUSINESS ON THE LAST BUSINESS DAY PRIOR TO THE
DATE OF THE MEETING, OR WITH THE CHAIRMAN OF THE MEETING PRIOR TO THE
COMMENCEMENT THEREOF.
SI VOUS DESIREZ RECEVOIR UN EXEMPLAIRE EN FRANCAIS DU PRESENT AVIS DE
CONVOCATION DE L'ASSEMBLEE EXTRAORDINAIRE ET DE LA CIRCULAIRE DE SOLLICITATION
DE PROCURATION PAR LA DIRECTION, VEUILLEZ VOUS ADRESSER A LA SOCIETE DE FIDUCIE
COMPUTERSHARE DU CANADA, SERVICE DE PROCURATION, 100 UNIVERSITY AVENUE, 9TH
FLOOR, TORONTO (ONTARIO) M5J 2Y1.
TABLE OF CONTENTS
PAGE
SUMMARY........................................................................1
Reduction of Stated Capital..................................................1
The Arrangement..............................................................1
CCEs.........................................................................2
Newco and NewCanCo...........................................................3
Recommendation of CINAR's Board of Directors.................................3
Opinion of CINAR's Financial Advisor.........................................4
Approvals Required...........................................................4
Voting Support Agreement.....................................................5
The Arrangement Agreement....................................................5
Effective Time of the Arrangement............................................7
Procedure for Payment to CINAR Shareholders..................................7
Dissent Rights..............................................................11
Certain Income Tax Considerations for Beneficial Holders....................11
NOTICE TO UNITED STATES SHAREHOLDERS..........................................13
GLOSSARY OF TERMS.............................................................14
INFORMATION CONCERNING THE MEETING............................................26
Management Proxy Circular...................................................26
Solicitation of Proxies.....................................................26
Appointment of Proxyholders.................................................27
Revocation of Proxies.......................................................27
Discretion Exercised by Proxies.............................................27
Beneficial Holders of CINAR Shares..........................................28
Dissenting Shareholder Rights...............................................29
Voting Shares and Principal Holders.........................................29
Procedure for Payment to CINAR Shareholders.................................31
REDUCTION OF STATED CAPITAL...................................................36
THE ARRANGEMENT...............................................................37
Background and Reasons for the Arrangement..................................37
Recommendation of the Board of Directors....................................40
Opinion of CINAR's Financial Advisor........................................42
CINAR Shareholder Approval and the Special Meeting..........................43
Court Approval of the Arrangement and Completion of the Arrangement.........44
Regulatory Matters..........................................................44
Interests of Certain Persons in the Arrangement.............................45
Voting Support Agreement....................................................47
Arrangements Respecting CINAR Options and Performance Units.................48
Expenses....................................................................48
THE ARRANGEMENT AGREEMENT.....................................................49
Consideration Payable.......................................................49
Representations and Warranties..............................................51
Covenants...................................................................52
Covenants Regarding Non-Solicitation........................................52
Conditions to Closing.......................................................53
Termination and Payment of Break Fees and Expenses..........................56
CCEs..........................................................................57
Form of CCEs................................................................57
Structure...................................................................58
Payment of CCE Amount.......................................................58
Segregation of Cash Proceeds................................................62
Funding of Litigation.......................................................63
Litigation Committee........................................................63
Conduct of Specified Litigation.............................................66
Amendments to CCE Agreement.................................................66
Termination Date............................................................67
Reports.....................................................................67
Risk Factors Relating to the CCEs...........................................68
Settlement Negotiations.....................................................69
SPECIFIED LITIGATION..........................................................69
BRB.........................................................................69
Claude Robinson.............................................................70
Louis Fournier..............................................................70
Weinberg and Charest........................................................70
Globe-X.....................................................................72
SACD Royalties..............................................................73
ARRANGEMENT MECHANICS.........................................................74
Payment for CINAR Shares....................................................74
INFORMATION RELATING TO NEWCO AND NEWCANCO....................................76
PRICE RANGE AND TRADING VOLUME OF CINAR SHARES................................76
TAX CONSIDERATIONS FOR BENEFICIAL HOLDERS.....................................77
Principal Canadian Federal Income Tax Considerations........................77
United States Federal Income Tax Considerations.............................81
DISSENTING SHAREHOLDER RIGHTS.................................................85
EXECUTIVE COMPENSATION........................................................87
Compensation of Named Executive Officers....................................87
Options and SARs............................................................89
Termination of Employment, Change in Responsibilities and Employment
Contracts...................................................................91
Compensation of Directors...................................................94
Compensation Pursuant to Performance Incentive Plans........................94
Report on Executive Compensation by the Management Resources and
Compensation Committee......................................................95
Performance Graph...........................................................96
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS.............96
STATEMENT OF CORPORATE GOVERNANCE PRACTICES...................................96
EFFECT OF THE ARRANGEMENT ON MARKETS AND LISTINGS.............................97
CERTAIN REGULATORY AND LEGAL MATTERS..........................................97
AVAILABILITY OF DOCUMENTS.....................................................97
APPROVAL OF CIRCULAR BY CINAR BOARD OF DIRECTORS..............................97
APPENDIX A - ARRANGEMENT AGREEMENT...........................................A-1
APPENDIX B-I - APPLICATION FOR INTERIM AND FINAL ORDERS AND NOTICE OF
PRESENTATION OF THE FINAL ORDER............................................B-I-1
APPENDIX B-II - INTERIM ORDER.............................................B-II-1
APPENDIX C - PLAN OF ARRANGEMENT.............................................C-1
APPENDIX D - PROPOSED FORM OF CCE AGREEMENT..................................D-1
APPENDIX E - ARRANGEMENT RESOLUTION..........................................E-1
APPENDIX F - STATED CAPITAL RESOLUTION.......................................F-1
APPENDIX G - MERRILL LYNCH FAIRNESS OPINION..................................G-1
APPENDIX H - SECTION 190 OF THE CBCA.........................................H-1
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS CIRCULAR.
THE SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS CIRCULAR AND THE
ATTACHED APPENDICES. CINAR SHAREHOLDERS SHOULD READ THE ENTIRE CIRCULAR,
INCLUDING THE APPENDICES. CAPITALIZED TERMS USED HEREIN WITHOUT DEFINITION HAVE
THE MEANING ASCRIBED TO SUCH TERMS IN THE GLOSSARY OF TERMS OR ELSEWHERE IN THIS
CIRCULAR. IN THIS CIRCULAR, DOLLAR AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS
UNLESS OTHERWISE STATED.
- --------------------------------------------------------------------------------
For assistance in voting your CINAR Shares, if you require additional proxy
materials or if you have any questions concerning the Letter of Transmittal or
withholding tax requirements, PLEASE CONTACT:
Georgeson Shareholder
66 Wellington Street West
TD Tower - Suite 5210
Toronto Dominion Centre
Toronto, Ontario M5K 1J3
English and French North American Toll Free Number:
1-866-666-5217
- --------------------------------------------------------------------------------
REDUCTION OF STATED CAPITAL
CINAR, as the applicant for the Final Order, will be required to meet a
statutory solvency test under subsection 192(2) of the CBCA. The test stipulates
that CINAR will be deemed insolvent if the realizable value of its assets is
less then the aggregate of its liabilities and stated capital of all classes.
CINAR has accumulated a large deficit over the past few years as a result of
which the realizable value of its assets is now significantly lower than the
aggregate of its liabilities and stated capital. Therefore, to not be deemed to
be insolvent by virtue of subsection 192(2) of the CBCA, and to be able to use
the arrangement provisions of the CBCA, CINAR is proposing to reduce the stated
capital of the Limited Voting Shares by $323,206,000, and to effect such
reduction by increasing CINAR's contributed surplus by the same amount and
transferring such amount from contributed surplus to reduce its deficit by the
same amount. The Stated Capital Resolution will only be implemented if the
Arrangement Resolution is passed by CINAR Shareholders. See "Reduction of Stated
Capital".
THE ARRANGEMENT
The Plan of Arrangement provides for the acquisition of all the CINAR Shares by
Newco and for the amalgamation of Newco and CINAR to form Amalco immediately
thereafter. Amalco will be wholly-owned by NewCanCo. Pursuant to the
Arrangement, CINAR Shareholders (other than CINAR Shareholders who validly
exercise their Dissent Rights) will receive from Newco for each CINAR Share
Aggregate Consideration as follows:
(i) US$3.60 in cash; plus
(ii) in the event that Newco has delivered written notice to CINAR prior to the
Settlement Deadline that it is satisfied that the conditions to the payment
of the Net Litigation Amount set forth in the Arrangement Agreement have
been fulfilled or that it has waived such conditions, an amount in cash
equal to the PRO RATA amount per CINAR Share of the Net Litigation Amount
(which amount will only be payable after CINAR has received in full all of
the Net Litigation Proceeds); or
(iii) in the event that Newco has not delivered written notice to CINAR prior to
the Settlement Deadline that it is satisfied that the conditions to the
payment of the Net Litigation Amount set forth in the Arrangement Agreement
have been fulfilled or that it has waived such conditions, one CCE created
and allocated by the Manager.
See "The Arrangement Agreement - Consideration Payable".
CINAR Options and CINAR Performance Units not exercised prior to the Effective
Time will be cancelled on the Effective Date. See "The Arrangement -
Arrangements Respecting CINAR Options and Performance Units".
CCES
In the event that the conditions to the payment of the Net Litigation Amount set
forth under the heading "The Arrangement Agreement - Consideration Payable" in
this Circular have not been fulfilled prior to the Settlement Deadline, then at
the Effective Time the CCE Agreement, substantially in the form attached hereto
as Appendix D, will be executed by the parties thereto and one CCE shall be
created and allocated by the Manager to the CINAR Shareholders for each
outstanding CINAR Share without distinction as to class (other than CINAR Shares
in respect of which a CINAR Shareholder has validly exercised Dissent Rights).
The CCEs will be not be assignable or otherwise transferable except by sole
operation of law or testamentary will. No certificate or other evidence of a CCE
will be issued other than an appropriate notation in the CCE Register. Each CCE
will only represent an entitlement to be paid the CCE Amount by the Manager. The
CCEs shall not confer or be construed as conferring upon a CCE Payee: (i) any
right or interest whatsoever as a shareholder or other security holder of CINAR
or the Manager, including the right to vote at, to receive notice of, or to
attend, meetings of shareholders or other security holders or any other
proceedings of CINAR or the Manager, or the right to receive dividends and other
distributions payable on the shares or other securities of CINAR or the Manager;
(ii) any other equity or ownership interest in CINAR or the Manager; or (iii)
any other right not expressly granted pursuant to the CCE Agreement. The CCEs
will represent unsecured obligations of the Manager and will not be entitled to
the benefit of any security in any of the assets of the Manager or CINAR. Any
amounts payable pursuant to the CCEs will not be related to the operations or
other assets of CINAR or the Manager. See "CCEs - Form of CCEs".
A Litigation Committee comprised of three persons will be established: G. Wesley
Voorheis, appointed by the Manager; Lisa de Wilde, appointed by the current
directors of CINAR; and an Independent Member agreed upon by the other two
members. The members of the Litigation Committee shall have the sole power and
duty to direct and supervise all matters involving the Specified Litigation. The
Manager Member shall have primary responsibility for the day-to-day direction
and supervision of the Specified Litigation. However, all Strategic Decisions
require the approval of a majority of the members of the Litigation Committee
(provided that the Manager Member must be included in such majority) and all
Settlement Decisions require the unanimous approval of the members Litigation
Committee (other than the Independent Member).
The Members of the Litigation Committee will receive compensation for their
services in an amount to be determined by agreement between the Manager and the
members of the Litigation Committee (which may include an additional amount
payable to the Manager Member). They will be entitled to reimbursement for all
reasonable expenses and disbursements incurred by them in connection with the
discharge of their duties. The Members of the Litigation Committee shall be
indemnified from and against all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, reasonable expenses and reasonable
disbursements of any kind or nature whatsoever that may be imposed on, asserted
against or incurred by them under the CCE Agreement, other than as a result of
their own wilful misconduct or bad faith. See "CCEs - Litigation Committee".
As promptly as practicable, but in no event later than 30 days, after the
earlier of (x) the Termination Date, and (y) the last to occur of the events set
forth under the heading "CCEs - Payment of CCE Amount" in this Circular, CINAR
shall determine the CCE Net Litigation Proceeds. Following the procedure set
forth in the CCE Agreement for the confirmation of the CCE Net Litigation
Proceeds and the CCE Amount, the Manager shall pay the CCE Amount in respect of
each CCE to the CCE Payees. See "CCEs - Payment of CCE Amount".
If it appears that by the Termination Date not all of the Specified Litigation
will have been subject to Final Adjudication and/or it appears that at the
Termination Date there will remain outstanding any Third Party Rights for which
any of the CINAR Entities may be liable, the Manager shall, at the option of the
Manager Member or the CINAR Member, make such applications or submissions to
applicable securities regulatory or other agencies for the purposes of seeking
an extension to the Termination Date for up to an additional two years, provided
that such extension does not necessitate registration of the CCEs under
applicable securities legislation or result in CINAR or the Manager becoming a
reporting issuer under such legislation. If such applications are successful
prior to the Termination Date or it is determined prior to the Termination Date
that no such regulatory relief is required, the Termination Date shall be
extended to the date permitted by such regulatory relief or, if no such
regulatory relief is required, the later of the dates chosen by the Manager
Member and the CINAR Member, provided that the latest Termination Date shall be
the fifth anniversary of the execution of the CCE Agreement.
Until the CCE Payment Date, the Manager will furnish a report to the CCE Payees
(i) annually, within ninety days of each anniversary of the Effective Date,
which report will provide a summary of any material developments relating to the
Specified Litigation during the year ended on such anniversary date, together
with an unaudited cash receipt and disbursement statement relating to the
Specified Litigation for the year ended on such anniversary date, and (ii) in
the event that, in the opinion of the Manager, a material event relating to the
Specified Litigation has occurred, within 60 days of the occurrence of such
event, which report will provide details of such material event.
RISK FACTORS RELATING TO THE CCES
There are certain risk factors relating to the CCEs that should be considered by
CINAR Shareholders in evaluating whether to approve the Arrangement. See "CCEs -
Risk Factors Relating to the CCEs".
NEWCO AND NEWCANCO
Newco and NewCanCo were incorporated under the CBCA on March 20, 2003 and July
20, 2001, respectively. Neither has carried on any material business or activity
other than in connection with the Arrangement. The registered office of Newco is
located at Suite 2300, 200 King Street West, Toronto, Ontario M5H 3W5, and the
registered office of NewCanCo is located at Toronto Dominion Bank Tower, P.O.
Box 20, Suite 4200, 66 Wellington Street West, Toronto-Dominion Centre, Toronto,
Ontario, M5K 1N6. See "Information Relating to Newco and NewCanCo".
The Newco Parties do not hold any CINAR Shares as of the date of this Circular.
RECOMMENDATION OF CINAR'S BOARD OF DIRECTORS
THE BOARD OF DIRECTORS HAS DETERMINED UNANIMOUSLY THAT THE ARRANGEMENT IS IN THE
BEST INTERESTS OF CINAR. ACCORDINGLY, THE BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE ARRANGEMENT AND RECOMMENDS THAT HOLDERS OF LIMITED VOTING SHARES
VOTE FOR THE STATED CAPITAL RESOLUTION AND THAT THE CINAR SHAREHOLDERS VOTE FOR
THE ARRANGEMENT RESOLUTION AT THE MEETING. The Stated Capital Resolution will
only be implemented if the Arrangement Resolution is passed by CINAR
Shareholders. The Arrangement cannot be completed if the Stated Capital
Resolution is not approved. See "Reduction of Stated Capital", "The Arrangement
- - Recommendation of the Board of Directors" and "The Arrangement - Background
and Reasons for the Arrangement".
OPINION OF CINAR'S FINANCIAL ADVISOR
Merrill Lynch has provided its opinion to the Board of Directors that, as of
October 30, 2003, based upon and subject to the various considerations set forth
in the Merrill Lynch Fairness Opinion, the Aggregate Consideration payable to
CINAR Shareholders pursuant to the Arrangement Agreement is fair from a
financial point of view to the CINAR Shareholders. Merrill Lynch expressed no
opinion or recommendation as to how CINAR Shareholders should vote on the
Arrangement Resolution at the Meeting. See "The Arrangement -- Opinion of
CINAR's Financial Advisor" in this Circular and the complete text of the Merrill
Lynch Fairness Opinion set out in Appendix G to this Circular, which should be
read in its entirety.
APPROVALS REQUIRED
CINAR SHAREHOLDER APPROVAL
The Meeting will be held at 11:00 a.m. (Eastern time) on Tuesday, February 17,
2004 in the Salon Hochelaga 4, Fairmont Queen Elizabeth Hotel, 900 Rene-Levesque
Boulevard West, Montreal, Quebec, Canada. At the Meeting, holders of Limited
Voting Shares will be asked to approve the Stated Capital Resolution and all
CINAR Shareholders will be asked to approve the Arrangement Resolution. The
Stated Capital Resolution must be approved by at least two-thirds of the votes
cast by holders of Limited Voting Shares, present or voting by proxy at the
Meeting. Pursuant to the Interim Order, the Arrangement Resolution must be
approved by at least two-thirds of the votes cast by holders of Multiple Voting
Shares and at least two-thirds of the votes cast by holders of Limited Voting
Shares, in each case present or voting by proxy at the Meeting, each voting as a
separate class. See "The Arrangement -- CINAR Shareholder Approval and the
Special Meeting".
COURT APPROVAL
An arrangement under the CBCA requires approval by the Court pursuant to the
Final Order. Prior to the mailing of the Circular, CINAR obtained the Interim
Order providing for the calling and holding of the Meeting and other procedural
matters. Subject to the approval of the Stated Capital Resolution by the holders
of Limited Voting Shares, the approval of the Arrangement Resolution by the
CINAR Shareholders at the Meeting and the satisfaction of certain other
conditions, the hearing in respect of the Final Order is scheduled to take place
on or about February 19, 2004 at 9:00 a.m. (Eastern time) in Room 16.10 of the
Montreal Courthouse located at 1 Notre-Dame Street East, Montreal, Quebec,
Canada. See "The Arrangement -- Court Approval of the Arrangement and Completion
of the Arrangement".
REGULATORY APPROVALS
The completion of the Arrangement is subject to obtaining certain governmental
consents and approvals (including the Regulatory Approvals). The CINAR Shares
are currently subject to the Cease-Trade Orders. CINAR has obtained from the
applicable Canadian securities regulatory authorities orders lifting the
Cease-Trade Orders to permit completion of the Arrangement. The completion of
the Arrangement is subject to the Cease-Trade Orders having been completely
lifted at the Effective Time. Work is in progress to satisfy all regulatory
requirements and to complete all of the filings required to obtain the
Appropriate Regulatory Approvals. See "The Arrangement -- Regulatory Matters".
While there can be no assurance that the Appropriate Regulatory Approvals will
be obtained prior to the Meeting, or at all, CINAR and Newco are seeking to
obtain the Appropriate Regulatory Approvals or to satisfactorily resolve all
such regulatory requirements. CINAR and Newco are seeking to ensure that all
Appropriate Regulatory Approvals will have been obtained or otherwise
satisfactorily resolved by the time of or shortly after the Meeting.
VOTING SUPPORT AGREEMENT
Pursuant to the Voting Support Agreement, the Founders irrevocably agreed: (i)
to vote the CINAR Shares held by them in favour of the Arrangement at the
Meeting; (ii) to vote the CINAR Shares held by them against any matter or
proposal which would delay or be inconsistent with the Arrangement; and (iii)
not to exercise their Dissent Rights in respect of the Arrangement Resolution.
The Founders hold in the aggregate approximately 96% of the outstanding Multiple
Voting Shares, which represent a sufficient number of Multiple Voting Shares to
ensure approval of the Arrangement by the holders of the Multiple Voting Shares,
voting separately as a class.
THE ARRANGEMENT AGREEMENT
COVENANTS REGARDING NON-SOLICITATION
Pursuant to the Arrangement Agreement, CINAR has agreed that it will not,
directly or indirectly, through any officer, director, employee, representative
or agent of CINAR or any of the other CINAR Entities: (i) solicit, initiate or
knowingly encourage (including by way of furnishing non-public information or
entering into any form of agreement, arrangement or understanding) the
initiation of any inquiries or proposals regarding an Acquisition Proposal; (ii)
participate in any discussions or negotiations regarding any Acquisition
Proposal; (iii) withdraw or modify in a manner adverse to Newco the approval of
the Board of Directors of the Arrangement; (iv) approve or recommend any
Acquisition Proposal; or (v) enter into any agreement related to any Acquisition
Proposal.
However, the Arrangement Agreement does not prevent the Board of Directors from:
(i) complying with CINAR's disclosure obligations under applicable Laws with
respect to an Acquisition Proposal; (ii) considering, negotiating or discussing
(and providing non-public information in response to) a Superior Proposal; or
(iii) withdrawing or modifying its recommendation that CINAR Shareholders vote
in favour of the Arrangement if the Board of Directors has determined that an
Acquisition Proposal is a Superior Proposal. CINAR must notify Newco of any
Acquisition Proposal or of any inquiry that could lead to an Acquisition
Proposal.
CINAR has agreed not to accept, approve, recommend or enter into any agreement,
relating to an Acquisition Proposal (other than a confidentiality agreement) on
the basis that it would constitute a Superior Proposal unless: (i) such
Acquisition Proposal is, in the reasonable opinion of the Board of Directors,
fully financed; (ii) such Acquisition Proposal was received by CINAR prior to
the Meeting; (iii) CINAR has provided Newco with a copy of the Acquisition
Proposal document which the Board of Directors has determined would be a
Superior Proposal (together with evidence that such Acquisition Proposal is
fully financed); and (iv) five Business Days shall have elapsed from the later
of the date Newco receives notice of CINAR's proposed determination to accept,
approve, recommend or enter into any agreement relating to such Acquisition
Proposal, and the date Newco received a copy of the Acquisition Proposal.
CINAR has agreed that Newco shall have the opportunity, but not the obligation,
during such five Business Day period to offer to amend the terms of the
Arrangement Agreement and the Arrangement. The Board of Directors will review
any offer by Newco to amend the terms of the Arrangement Agreement in good faith
in order to determine, in its discretion in the exercise of its fiduciary
duties, whether Newco's offer to amend the terms of the Arrangement Agreement
upon acceptance by CINAR would result in the Acquisition Proposal not being a
Superior Proposal. If the Board of Directors so determines, it will enter into
an amended agreement with Newco reflecting Newco's amended proposal. If the
Board of Directors continues to believe, in good faith and after consultation
with its financial advisors and outside counsel, that the Acquisition Proposal
is nonetheless a Superior Proposal and therefore rejects Newco's amended
proposal, CINAR will pay the Break Fee to Newco and CINAR may approve,
recommend, accept or enter into an agreement, understanding or arrangement with
respect to the Superior Proposal and CINAR may proceed with such approvals,
consents, filings, of or required by Governmental Entities and such other
Persons as CINAR shall consider appropriate in order to consummate such Superior
Proposal.
CINAR or Newco may require that the Meeting be adjourned or delayed for up to
ten Business Days in the event that an Acquisition Proposal which could be a
Superior Proposal is publicly announced or submitted to CINAR. See "The
Arrangement Agreement - Covenants Regarding Non-Solicitation".
CONDITIONS TO THE ARRANGEMENT
The obligations of Newco and CINAR to complete the Arrangement are subject to
the satisfaction or waiver, where permissible, at or before the Effective Time,
of certain customary conditions set forth in the Arrangement Agreement,
including obtaining approval of the Arrangement Resolution by CINAR
Shareholders, obtaining approval of the Arrangement by the Court, receipt of all
consents, orders, authorisations, approvals and waivers of or from Governmental
Entities required or reasonably considered to be necessary or desirable for the
completion of the Arrangement, receipt of certain other third party consents and
holders of not more than 10% of the CINAR Shares exercising their Dissent
Rights. See "The Arrangement Agreement - Conditions to Closing".
TERMINATION AND PAYMENT OF BREAK FEES AND EXPENSES
The Arrangement Agreement may be terminated by mutual agreement of CINAR and
Newco at any time prior to the Effective Time. Either CINAR or Newco may
terminate the Arrangement Agreement if:
(i) any Law is passed making the completion of the Arrangement illegal or
otherwise prohibited; or
(ii) the CINAR Shareholders fail to approve the Arrangement Resolution at the
Meeting.
In addition, if the Effective Date does not occur on or prior to March 5, 2004,
the Arrangement Agreement will terminate, provided that CINAR and Newco may
mutually agree to extend such date and provided further that, if the parties
would be in a position to complete the Arrangement on March 5, 2004 except that
the condition of obtaining all consents, orders, authorisations, approvals and
waivers of or from Governmental Entities required or reasonably considered to be
necessary or desirable for the completion of the Arrangement has not been
fulfilled or waived, the date shall be automatically extended to April 30, 2004.
Newco or CINAR may terminate the Arrangement Agreement prior to the Effective
Time if any condition in the respective party's favour has not been satisfied at
or prior to the Effective Time (subject in some cases to a cure period extending
until the later of March 5, 2004 and 30 days from the notice relating to the
non-fulfillment of the applicable condition), other than as a result of a
default by the terminating party.
The Arrangement Agreement may be terminated by CINAR upon any determination by
the Board of Directors that an Acquisition Proposal constitutes a Superior
Proposal, subject to compliance with the Arrangement Agreement.
The Arrangement Agreement may be terminated by Newco if:
(i) the Board of Directors shall have withdrawn, modified in a manner adverse
to Newco or failed to reaffirm in the manner and within the period required
by the Arrangement Agreement the Board of Directors' approval or
recommendation of the Arrangement (other than as a direct result of and in
direct response to a material breach by Newco of its obligations under the
Arrangement Agreement);
(ii) the Board of Directors shall have approved or recommended any Superior
Proposal;
(iii) the Board of Directors shall have determined that any Acquisition Proposal
is a Superior Proposal;
(iv) the Board of Directors shall have resolved to take any of the foregoing
actions; or
(v) CINAR proposes to enter into an agreement for, or to accept or to support,
an Acquisition Proposal.
CINAR is required to pay the Break Fee to Newco and reimburse Newco for all of
its out-of-pocket expenses to a maximum of $2,500,000 plus, without duplication,
all expenses incurred by Newco with respect to the CCE structure, if:
(i) the Arrangement Agreement is terminated in the circumstances described in
the two preceding paragraphs; or
(ii) an Acquisition Proposal shall have been made to the CINAR Shareholders or
any Person shall have publicly announced an intention to make an
Acquisition Proposal and, after such Acquisition Proposal shall have been
made known, made or announced, the CINAR Shareholders shall fail to approve
the Arrangement Resolution as required by the Interim Order and all
applicable Laws and any Acquisition Proposal is completed within six months
of the Meeting.
In addition, subject to extension of time periods under the Arrangement
Agreement, in the event that: (i) the Arrangement Resolution is not duly
approved by the CINAR Shareholders at the Meeting; (ii) the Meeting is not held
by March 4, 2004; or (iii) the Arrangement is not completed, and in any such
case the Break Fee is not payable, CINAR shall reimburse Newco for all
out-of-pocket costs and expenses incurred by it from and after August 30, 2003
in connection with the transactions contemplated by the Arrangement Agreement up
to a maximum of $1,500,000, plus, without duplication, all expenses incurred by
Newco with respect to the CCE structure. See "The Arrangement Agreement --
Termination and Payment of Break Fees and Expenses".
EFFECTIVE TIME OF THE ARRANGEMENT
The Arrangement is expected to be completed as soon as practicable after the
requisite CINAR Shareholder and Court approvals have been obtained and all other
applicable conditions precedent to the Arrangement have been satisfied or
waived. See "The Arrangement -- Court Approval of the Arrangement and Completion
of the Arrangement".
PROCEDURE FOR PAYMENT TO CINAR SHAREHOLDERS
If the requisite approvals are obtained from the CINAR Shareholders, the Court
and certain regulatory authorities, and the Arrangement is completed, Newco will
acquire all of the outstanding CINAR Shares. For CINAR Shareholders (other than
CINAR Shareholders who validly exercise their Dissent Rights) to receive the
Aggregate Consideration (less any applicable withholding or other taxes) payable
on the acquisition of CINAR Shares, CINAR Shareholders must complete and sign
the enclosed Letter of Transmittal and return it, together with the certificates
representing their CINAR Shares, to the Depositary in accordance with the
instructions in the Letter of Transmittal. A security return envelope is
enclosed to assist CINAR Shareholders in delivering their CINAR Shares.
WITHHOLDING TAX
AS A RESULT OF THE CINAR SHARES BEING DELISTED FROM THE TSX AND NASDAQ, THE
CINAR SHARES ARE "TAXABLE CANADIAN PROPERTY" FOR THE PURPOSES OF THE CANADIAN
TAX ACT AND "TAXABLE QUEBEC PROPERTY" FOR THE PURPOSES OF THE QUEBEC TAX ACT. AS
A RESULT, NEWCO MUST WITHHOLD AND REMIT TO CCRA 25% (AND IN THE CASE OF A CINAR
SHAREHOLDER WHICH IS A CORPORATION, A FURTHER 12% MUST BE WITHHELD AND REMITTED
TO THE MRQ) OF THE AGGREGATE CONSIDERATION PAYABLE TO A NON-RESIDENT FOR HIS
CINAR SHARES UNLESS SUCH NON-RESIDENT PROVIDES NEWCO WITH A SECTION 116
CERTIFICATE SPECIFYING A CERTIFICATE LIMIT WHICH IS NOT LESS THAN THE VALUE OF
THE AGGREGATE CONSIDERATION PAYABLE TO SUCH NON-RESIDENT AND, IF APPLICABLE, A
QUEBEC CERTIFICATE SPECIFYING ESTIMATED PROCEEDS WHICH ARE NOT LESS THAN THE
VALUE OF THE AGGREGATE CONSIDERATION PAYABLE TO SUCH NON-RESIDENT. ACCORDINGLY,
IN ORDER TO RECEIVE 100% OF THE AGGREGATE CONSIDERATION PAYABLE UNDER THE
ARRANGEMENT, A CINAR SHAREHOLDER RESIDENT IN CANADA AND A CINAR SHAREHOLDER WHO
IS A NON-RESIDENT MUST SATISFY THE FOLLOWING REQUIREMENTS, INSOFAR AS THEY ARE
APPLICABLE TO HIM.
CANADIAN RESIDENTS
IN ORDER TO RECEIVE 100% OF THE AGGREGATE CONSIDERATION PAYABLE UNDER THE
ARRANGEMENT, A BENEFICIAL HOLDER RESIDENT IN CANADA WILL BE REQUIRED TO PROVIDE
THE FOLLOWING PROOF OF HIS CANADIAN RESIDENCY STATUS (THE "PROOF OF RESIDENCY")
(OR OTHERWISE ESTABLISH TO THE SATISFACTION OF NEWCO THAT AT ALL RELEVANT TIMES,
FOR THE PURPOSES OF THE CANADIAN TAX ACT, HE IS RESIDENT, OR DEEMED TO BE
RESIDENT, IN CANADA):
(I) IF YOU ARE A BENEFICIAL HOLDER RESIDENT IN CANADA AND YOUR CINAR SHARES ARE
REGISTERED IN YOUR NAME, YOU MUST SO INDICATE BY COMPLETING THE APPROPRIATE
SECTIONS OF THE LETTER OF TRANSMITTAL AND PROVIDE YOUR SOCIAL INSURANCE
NUMBER (IF YOU ARE AN INDIVIDUAL) OR YOUR TRUST NUMBER OR BUSINESS NUMBER
(IF YOU ARE NOT AN INDIVIDUAL) IN THE LETTER OF TRANSMITTAL. IF YOU ARE NOT
SURE WHETHER YOUR CINAR SHARES ARE REGISTERED IN YOUR NAME, PLEASE CONTACT
YOUR INVESTMENT ADVISOR; OR
(II) IF YOU ARE AN INTERMEDIARY COMPLETING A LETTER OF TRANSMITTAL ON BEHALF OF
BENEFICIAL HOLDERS RESIDENT IN CANADA, OR IF A LETTER OF TRANSMITTAL IS
BEING COMPLETED BY A SECURITIES DEPOSITORY FOR BENEFICIAL HOLDERS RESIDENT
IN CANADA YOU MUST SO INDICATE BY COMPLETING THE APPROPRIATE SECTIONS OF
THE LETTER OF TRANSMITTAL AND, IN EITHER CASE, THE INTERMEDIARY FOR SUCH
BENEFICIAL HOLDERS MUST SEND TO THE DEPOSITARY A LIST SETTING OUT THE NAME
AND ADDRESS OF EACH BENEFICIAL HOLDER ON WHOSE BEHALF SUCH LETTER OF
TRANSMITTAL IS BEING COMPLETED, THE NUMBER AND CLASS OF CINAR SHARES HELD
BY THE INTERMEDIARY OR SECURITIES DEPOSITORY, AS THE CASE MAY BE, ON BEHALF
OF EACH SUCH BENEFICIAL HOLDER AND THE SOCIAL INSURANCE NUMBER (IN THE CASE
OF INDIVIDUAL BENEFICIAL HOLDERS) OR TRUST NUMBER OR BUSINESS NUMBER (IN
THE CASE OF BENEFICIAL HOLDERS WHO ARE NOT INDIVIDUALS) OF EACH SUCH
BENEFICIAL HOLDER.
YOUR PROOF OF RESIDENCY MUST BE RECEIVED BY THE DEPOSITARY NO LATER THAN THE
EARLIER OF (I) THE DATE UPON WHICH THE AGGREGATE CONSIDERATION IS PAYABLE TO YOU
PURSUANT TO THE PLAN OF ARRANGEMENT, AND (II) THE DATE WHICH IS 25 DAYS AFTER
THE END OF THE MONTH IN WHICH THE EFFECTIVE DATE OCCURS. IF YOUR PROOF OF
RESIDENCY IS NOT RECEIVED BY THE DEPOSITARY BY THAT TIME, NEWCO SHALL BE
ENTITLED TO WITHHOLD 25% OF THE AGGREGATE CONSIDERATION PAYABLE TO YOU (AND IN
THE CASE OF A BENEFICIAL HOLDER WHICH IS A CORPORATION, NEWCO SHALL BE ENTITLED
TO WITHHOLD A FURTHER 12% OF THE AGGREGATE CONSIDERATION PAYABLE TO YOU). IF
YOUR PROOF OF RESIDENCY IS NOT RECEIVED BY THE DEPOSITARY WITHIN 25 DAYS AFTER
THE END OF THE MONTH IN WHICH THE EFFECTIVE DATE OCCURS, THE AMOUNT OF THE
AGGREGATE CONSIDERATION PAYABLE TO YOU WHICH HAS BEEN WITHHELD WILL BE REMITTED
TO CCRA (AND, IF APPLICABLE, THE MRQ). YOU SHOULD NOTE THAT THE AGGREGATE
CONSIDERATION INCLUDES NOT ONLY THE CASH PORTION, BUT ALSO THE VALUE OF THE CCES
ALLOCATED TO YOU PURSUANT TO THE ARRANGEMENT.
NON-RESIDENTS OF CANADA
IN ORDER TO RECEIVE 100% OF THE AGGREGATE CONSIDERATION PAYABLE UNDER THE
ARRANGEMENT, A BENEFICIAL HOLDER WHO IS A NON-RESIDENT WILL BE REQUIRED TO
PROVIDE A SECTION 116 CERTIFICATE SPECIFYING A CERTIFICATE LIMIT WHICH IS NOT
LESS THAN THE VALUE OF THE AGGREGATE CONSIDERATION PAYABLE TO SUCH NON-RESIDENT
BENEFICIAL HOLDER AND, IN THE CASE OF A NON-RESIDENT BENEFICIAL HOLDER WHICH IS
A CORPORATION, A QUEBEC CERTIFICATE SPECIFYING ESTIMATED PROCEEDS WHICH ARE NOT
LESS THAN THE VALUE OF THE AGGREGATE CONSIDERATION PAYABLE TO SUCH NON-RESIDENT
BENEFICIAL HOLDER NO LATER THAN THE EARLIER OF (I) THE DATE UPON WHICH THE
AGGREGATE CONSIDERATION IS PAYABLE TO YOU PURSUANT TO THE PLAN OF ARRANGEMENT,
AND (II) THE DATE WHICH IS 25 DAYS AFTER THE END OF THE MONTH IN WHICH THE
EFFECTIVE DATE OCCURS. IF YOUR SECTION 116 CERTIFICATE IS NOT RECEIVED BY THE
DEPOSITARY BY THAT TIME, NEWCO SHALL BE ENTITLED TO WITHHOLD 25% OF THE
AGGREGATE CONSIDERATION PAYABLE TO YOU (AND IN THE CASE OF A BENEFICIAL HOLDER
WHICH IS A CORPORATION, IF YOUR QUEBEC CERTIFICATE IS NOT RECEIVED BY THE
DEPOSITARY BY THAT TIME, NEWCO SHALL BE ENTITLED TO WITHHOLD A FURTHER 12% OF
THE AGGREGATE CONSIDERATION PAYABLE TO YOU). IF YOUR SECTION 116 CERTIFICATE
AND, IF APPLICABLE, YOUR QUEBEC CERTIFICATE, IS NOT RECEIVED BY THE DEPOSITARY
WITHIN 25 DAYS AFTER THE END OF THE MONTH IN WHICH THE EFFECTIVE DATE OCCURS,
THE AMOUNT OF THE AGGREGATE CONSIDERATION PAYABLE TO YOU WHICH HAS BEEN WITHHELD
WILL BE REMITTED TO CCRA (AND, IF APPLICABLE, THE MRQ). IF AMALCO RECEIVES
LETTERS FROM CCRA AND THE MRQ, IN A FORM SATISFACTORY TO THE DEPOSITARY AND
AMALCO, CONFIRMING THAT THE REMITTANCE OF THE WITHHELD AMOUNT TO CCRA AND THE
MRQ CAN BE DELAYED, THE AMOUNT OF THE AGGREGATE CONSIDERATION PAYABLE TO YOU
WHICH HAS BEEN WITHHELD WILL CONTINUE TO BE HELD BY THE DEPOSITARY UNTIL THE
FIRST TO OCCUR OF: (I) THE RECEIPT BY THE DEPOSITARY OF YOUR SECTION 116
CERTIFICATE AND, IF APPLICABLE, YOUR QUEBEC CERTIFICATE, IN WHICH CASE SUCH
AMOUNT WILL BE PAID TO YOU; AND (II) THE EXPIRY OF THE TIME PERIODS SPECIFIED IN
SUCH LETTERS, IN WHICH CASE SUCH AMOUNT WILL BE REMITTED TO CCRA (AND, IF
APPLICABLE, THE MRQ). IF THE CERTIFICATE LIMIT OF YOUR SECTION 116 CERTIFICATE
(AND THE ESTIMATED PROCEEDS SPECIFIED IN YOUR QUEBEC CERTIFICATE, WHERE
APPLICABLE) DELIVERED TO THE DEPOSITARY IS FOR AN AMOUNT WHICH IS LESS THAN THE
VALUE OF THE AGGREGATE CONSIDERATION PAYABLE TO YOU, NEWCO SHALL BE ENTITLED TO
WITHHOLD AN AMOUNT EQUAL TO 25% OF THE AMOUNT BY WHICH THE VALUE OF THE
AGGREGATE CONSIDERATION PAYABLE TO YOU EXCEEDS THE CERTIFICATE LIMIT (AND NEWCO
SHALL BE ENTITLED TO WITHHOLD AN ADDITIONAL 12% OF THE AMOUNT BY WHICH THE VALUE
OF THE AGGREGATE CONSIDERATION PAYABLE TO YOU EXCEEDS THE ESTIMATED PROCEEDS
SPECIFIED IN YOUR QUEBEC CERTIFICATE IF YOU ARE A CORPORATION). ANY AMOUNTS SO
WITHHELD WILL BE REMITTED AT THE TIMES AND IN THE MANNER DESCRIBED ABOVE. YOU
SHOULD NOTE THAT THE AGGREGATE CONSIDERATION INCLUDES NOT ONLY THE CASH PORTION,
BUT ALSO THE VALUE OF THE CCES ALLOCATED TO YOU PURSUANT TO THE ARRANGEMENT.
RESIDENTS OF THE UNITED STATES - SECTION 116 CERTIFICATE
NEWCO HAS MADE ARRANGEMENTS WITH CCRA TO APPLY FOR A SECTION 116 CERTIFICATE ON
BEHALF OF CERTAIN NON-RESIDENT BENEFICIAL HOLDERS WHO ARE RESIDENT IN THE UNITED
STATES. IF YOU ARE A BENEFICIAL HOLDER RESIDENT IN THE UNITED STATES AND YOUR
CINAR SHARES ARE REGISTERED IN YOUR NAME, IN ORDER FOR NEWCO TO APPLY ON YOUR
BEHALF FOR A SECTION 116 CERTIFICATE YOU MUST MEET THE FOLLOWING CONDITIONS AND
SO INDICATE BY COMPLETING THE APPROPRIATE SECTIONS OF THE LETTER OF TRANSMITTAL:
(I) YOU MUST BE RESIDENT IN THE UNITED STATES, AND NOT BE A TRUST (EXCLUDING AN
IRA), A PARTNERSHIP OR AN LLC;
(II) YOU MUST NOT BENEFICIALLY OWN, IN THE AGGREGATE, MORE THAN 10,000 CINAR
SHARES;
(III) YOU MUST COMPLETE THE AUTHORISATION LETTER (A COPY OF WHICH IS INCLUDED
WITH THIS CIRCULAR) AND RETURN IT WITH THE LETTER OF TRANSMITTAL TO THE
DEPOSITARY AT THE ADDRESS INDICATED IN THE LETTER OF TRANSMITTAL; AND
(IV) YOU MUST ATTACH TO THE AUTHORISATION LETTER PROOF OF YOUR UNITED STATES
RESIDENCY STATUS. FOR INDIVIDUALS, THIS MAY CONSIST OF A COPY OF YOUR MOST
RECENT UNITED STATES INCOME TAX RETURN OR A LETTER FROM THE IRS CONFIRMING
YOUR UNITED STATES RESIDENCY STATUS. IF YOU ARE A CORPORATION, YOU MUST
ATTACH COPIES OF YOUR CHARTER AND YOUR MOST RECENT UNITED STATES INCOME TAX
RETURN. HOWEVER, IF ON THE DISPOSITION OF YOUR CINAR SHARES YOU WILL
REALIZE A LOSS, PROOF OF YOUR UNITED STATES RESIDENCY STATUS WILL NOT BE
REQUIRED AS LONG AS YOU ATTACH TO THE AUTHORISATION LETTER A BROKER'S
STATEMENT OR OTHER DOCUMENTATION SUBSTANTIATING THE COST BASE OF THE CINAR
SHARES THAT YOU BENEFICIALLY OWN.
IF YOU ARE AN INTERMEDIARY COMPLETING A LETTER OF TRANSMITTAL ON BEHALF OF
CLIENTS WHO ARE RESIDENT IN THE UNITED STATES, OR IF YOU ARE A SECURITIES
DEPOSITORY COMPLETING A LETTER OF TRANSMITTAL FOR BENEFICIAL HOLDERS RESIDENT IN
THE UNITED STATES AND WHO, IN EACH CASE, DO NOT BENEFICIALLY OWN MORE THAN
10,000 CINAR SHARES, OTHER THAN TRUSTS (EXCLUDING IRAS), PARTNERSHIPS OR LLCS,
YOU MUST SO INDICATE BY COMPLETING THE APPROPRIATE SECTIONS OF THE LETTER OF
TRANSMITTAL AND, IN EITHER CASE, THE INTERMEDIARY FOR SUCH BENEFICIAL HOLDERS
MUST SEND TO THE DEPOSITARY:
(I) A LIST SETTING OUT THE NAME AND ADDRESS OF EACH BENEFICIAL HOLDER WHO IS A
RESIDENT OF THE UNITED STATES AND ON WHOSE BEHALF SUCH LETTER OF
TRANSMITTAL IS BEING COMPLETED AND THE NUMBER AND CLASS OF CINAR SHARES
BENEFICIALLY OWNED BY EACH SUCH BENEFICIAL HOLDER; AND
(II) THE DOCUMENT MENTIONED IN PARAGRAPH (III) ABOVE COMPLETED BY EACH SUCH
BENEFICIAL HOLDER AND THE APPLICABLE DOCUMENTS MENTIONED IN PARAGRAPH (IV)
ABOVE FOR EACH SUCH BENEFICIAL HOLDER.
ANY BENEFICIAL HOLDERS RESIDENT IN THE UNITED STATES WHO DO NOT MEET THE
FOREGOING CONDITIONS WILL BE REQUIRED TO OBTAIN AND DELIVER TO THE DEPOSITARY BY
THE APPROPRIATE TIME THEIR OWN SECTION 116 CERTIFICATES, FAILING WHICH NEWCO
SHALL BE ENTITLED TO WITHHOLD 25% OF THE AGGREGATE CONSIDERATION PAYABLE TO SUCH
BENEFICIAL HOLDERS AND WILL REMIT ANY AMOUNT SO WITHHELD TO THE CCRA.
RESIDENTS OF THE UNITED STATES - QUEBEC CERTIFICATE
NEWCO HAS MADE ARRANGEMENTS WITH THE MRQ TO APPLY FOR A QUEBEC CERTIFICATE ON
BEHALF OF CERTAIN BENEFICIAL HOLDERS WHICH ARE CORPORATIONS RESIDENT IN THE
UNITED STATES, OTHER THAN LLCS. IF YOU ARE A BENEFICIAL HOLDER WHICH IS A
CORPORATION, OTHER THAN AN LLC, RESIDENT IN THE UNITED STATES AND YOUR CINAR
SHARES ARE REGISTERED IN YOUR NAME, IN ORDER FOR NEWCO TO APPLY ON YOUR BEHALF
FOR A QUEBEC CERTIFICATE, YOU MUST MEET THE FOLLOWING CONDITIONS AND SO INDICATE
BY COMPLETING THE APPROPRIATE SECTIONS OF THE LETTER OF TRANSMITTAL:
(I) YOU MUST BE A CORPORATION, OTHER THAN AN LLC;
(II) YOU MUST NOT BENEFICIALLY OWN, IN THE AGGREGATE, MORE THAN 10,000 CINAR
SHARES;
(III) YOU MUST COMPLETE THE AUTHORISATION LETTER (A COPY OF WHICH IS INCLUDED
WITH THIS CIRCULAR) AND RETURN IT WITH THE LETTER OF TRANSMITTAL TO THE
DEPOSITARY AT THE ADDRESS INDICATED ON THE LETTER OF TRANSMITTAL; AND
(IV) YOU MUST ATTACH TO THE AUTHORISATION LETTER PROOF OF YOUR UNITED STATES
RESIDENCY STATUS CONSISTING OF A COPY OF YOUR CORPORATE CHARTER AND A COPY
OF YOUR MOST RECENT UNITED STATES INCOME TAX RETURN. HOWEVER, IF YOU WILL
REALIZE A LOSS ON THE DISPOSITION OF YOUR CINAR SHARES, PROOF OF YOUR
UNITED STATES RESIDENCY STATUS WILL NOT BE REQUIRED AS LONG AS YOU ATTACH
TO THE AUTHORISATION LETTER A BROKER'S STATEMENT OR OTHER DOCUMENTATION
SUBSTANTIATING THE COST BASE OF THE CINAR SHARES THAT YOU BENEFICIALLY OWN.
IF YOU ARE AN INTERMEDIARY COMPLETING A LETTER OF TRANSMITTAL ON BEHALF OF
CLIENTS WHICH ARE CORPORATIONS, OTHER THAN LLCS, RESIDENT IN THE UNITED STATES,
OR IF YOU ARE A SECURITIES DEPOSITORY COMPLETING A LETTER OF TRANSMITTAL FOR
BENEFICIAL HOLDERS WHICH ARE CORPORATIONS, OTHER THAN LLCS, RESIDENT IN THE
UNITED STATES, YOU MUST SO INDICATE BY COMPLETING THE APPROPRIATE SECTION OF THE
LETTER OF TRANSMITTAL AND, IN EITHER CASE, THE INTERMEDIARY MUST SEND TO THE
DEPOSITARY:
(I) A LIST SETTING OUT THE NAME AND ADDRESS OF THE BENEFICIAL HOLDERS RESIDENT
IN THE UNITED STATES WHICH ARE CORPORATIONS, OTHER THAN LLCS, ON WHOSE
BEHALF SUCH LETTER OF TRANSMITTAL IS BEING COMPLETED AND THE NUMBER AND
CLASS OF CINAR SHARES BENEFICIALLY OWNED BY EACH SUCH BENEFICIAL HOLDER;
AND
(II) THE DOCUMENT MENTIONED IN PARAGRAPH (III) ABOVE COMPLETED BY EACH SUCH
BENEFICIAL HOLDER AND THE APPLICABLE DOCUMENTS MENTIONED IN PARAGRAPH (IV)
ABOVE FOR EACH SUCH BENEFICIAL HOLDER.
ANY NON-RESIDENT BENEFICIAL HOLDER WHICH IS A CORPORATION WHICH DOES NOT MEET
THE FOREGOING CONDITIONS, INCLUDING AN LLC, WILL BE REQUIRED TO OBTAIN AND
DELIVER TO THE DEPOSITARY BY THE APPROPRIATE TIME ITS OWN QUEBEC CERTIFICATE,
FAILING WHICH NEWCO SHALL BE ENTITLED TO WITHHOLD 12% OF THE AGGREGATE
CONSIDERATION PAYABLE TO SUCH BENEFICIAL HOLDER AND WILL REMIT ANY AMOUNT SO
WITHHELD TO THE MRQ.
NO ASSURANCE NEWCO WILL OBTAIN SECTION 116 CERTIFICATE AND QUEBEC CERTIFICATE
WHILE NEWCO WILL MAKE REASONABLE COMMERCIAL EFFORTS TO OBTAIN A SECTION 116
CERTIFICATE AND A QUEBEC CERTIFICATE ON BEHALF OF NON-RESIDENTS WHO COMPLY WITH
THE FOREGOING REQUIREMENTS WITHIN THE PARAMETERS FOR OBTAINING SUCH SECTION 116
CERTIFICATE AND QUEBEC CERTIFICATE SET OUT BY CCRA AND THE MRQ, RESPECTIVELY,
THERE IS NO ASSURANCE THAT NEWCO WILL OBTAIN SUCH A SECTION 116 CERTIFICATE
AND/OR A QUEBEC CERTIFICATE ON A TIMELY BASIS OR AT ALL.
DISSENT RIGHTS
CINAR Shareholders who properly exercise their Dissent Rights will be entitled
to be paid the fair value of their CINAR Shares. The Dissent Procedures require
that a CINAR Shareholder who wishes to dissent must provide a Dissent Notice to
CINAR not later than 5:00 p.m. (Eastern time) on the second Business Day
preceding the Meeting. IT IS IMPORTANT THAT CINAR SHAREHOLDERS WHO WISH TO
EXERCISE THEIR DISSENT RIGHTS STRICTLY COMPLY WITH THIS REQUIREMENT, WHICH IS
DIFFERENT FROM THE STATUTORY DISSENT PROVISIONS OF THE CBCA WHICH WOULD PERMIT A
DISSENT NOTICE TO BE PROVIDED AT OR PRIOR TO THE MEETING. See the information
under the heading "Dissenting Shareholder Rights" in this Circular for a
description of the Dissent Procedures.
CERTAIN INCOME TAX CONSIDERATIONS FOR BENEFICIAL HOLDERS
Beneficial Holders should read carefully the information under the heading "Tax
Considerations for Beneficial Holders" in this Circular, which qualifies the
information set forth below, and should consult their tax advisors.
PRINCIPAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In general, a Beneficial Holder who is resident in Canada, who holds CINAR
Shares as capital property and who disposes of such shares to Newco pursuant to
the Plan of Arrangement will realize a capital gain (or capital loss) equal to
the amount by which the proceeds of disposition of the CINAR Shares, net of any
reasonable costs of disposition, exceed (or are less than) the aggregate
adjusted cost base of the CINAR Shares to the Beneficial Holder.
A Beneficial Holder who is not resident in Canada and who holds CINAR Shares as
capital property will be subject to tax in Canada in respect of any capital gain
realized on the sale of the CINAR Shares to Newco under the Plan of Arrangement
since those shares constitute "taxable Canadian property" to such Beneficial
Holder, unless they constitute "treaty-protected properties" within the meaning
of the Canadian Tax Act. Whether or not a Beneficial Holder who is not resident
in Canada is subject to Canadian income tax, such Beneficial Holder will be
subject to the withholding and notification procedure in Section 116 of the
Canadian Tax Act and, in the case of a non-resident Beneficial Holder which is a
corporation, in Sections 1097 and following of the Quebec Tax Act. See
"Information Concerning the Meeting - Procedure for Payment to CINAR
Shareholders - Withholding Tax".
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The sale of CINAR Shares pursuant to the Plan of Arrangement, including as a
result of the exercise of Dissent Rights, will be a taxable transaction for
United States federal income tax purposes. Accordingly, a United States
shareholder generally will recognize gain or loss in an amount equal to the
difference between the amount of cash plus, if the Specified Litigation has not
been subject to Final Adjudication prior to the Settlement Deadline and the
Beneficial Holder has not exercised its Dissent Rights, the fair market value of
any CCEs received and the Beneficial Holder's adjusted tax basis in the CINAR
Shares surrendered. If the CCEs do not have a readily ascertainable fair market
value, a United States shareholder would not be able to claim a loss on the sale
of its CINAR Shares until such time as the CCEs have a readily ascertainable
fair market value or all payments in respect of the CCEs have been received and
would recognize gain, if any, with respect to the CCEs only as cash payments
were received.
United States shareholders are strongly encouraged to consult with their own tax
advisors regarding the tax consequences to them of selling their CINAR Shares
and to read the portion of this Circular entitled "Tax Considerations for
Beneficial Holders - United States Federal Income Tax Considerations."
NOTICE TO UNITED STATES SHAREHOLDERS
CINAR IS A CANADIAN ISSUER AND HAS PREPARED THIS CIRCULAR IN ACCORDANCE WITH THE
DISCLOSURE REQUIREMENTS OF CANADA. CINAR SHAREHOLDERS SHOULD BE AWARE THAT SUCH
REQUIREMENTS ARE DIFFERENT FROM THOSE OF THE UNITED STATES.
CINAR SHAREHOLDERS SHOULD BE AWARE THAT THE PROPOSED ARRANGEMENT MAY HAVE TAX
CONSEQUENCES BOTH IN THE UNITED STATES AND IN CANADA. UNITED STATES INCOME TAX
CONSEQUENCES FOR CINAR SHAREHOLDERS WHO ARE RESIDENT IN, OR CITIZENS OF, THE
UNITED STATES ARE SUMMARIZED UNDER THE HEADING "TAX CONSIDERATIONS FOR
BENEFICIAL HOLDERS - UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS", WHILE
CANADIAN INCOME TAX CONSEQUENCES FOR SUCH CINAR SHAREHOLDERS ARE SUMMARIZED
UNDER THE HEADING "TAX CONSIDERATIONS FOR BENEFICIAL HOLDERS - PRINCIPAL
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS - NON-RESIDENTS OF CANADA" IN THIS
CIRCULAR. HOWEVER, SUCH RESIDENTS OR CITIZENS ARE URGED TO CONSULT THEIR TAX
ADVISORS AS TO THE APPLICATION OF U.S. FEDERAL INCOME TAX LAW TO THEIR
PARTICULAR CIRCUMSTANCES, AS WELL AS TO ANY STATE, LOCAL OR FOREIGN INCOME OR
OTHER TAX CONSEQUENCES OF THE PROPOSED ARRANGEMENT DESCRIBED IN THIS CIRCULAR.
THE ENFORCEMENT BY CINAR SHAREHOLDERS OF CIVIL LIABILITIES UNDER THE UNITED
STATES FEDERAL SECURITIES LAWS MAY BE AFFECTED ADVERSELY BY THE FACT THAT CINAR
IS INCORPORATED UNDER THE LAWS OF CANADA, THAT MOST OF ITS DIRECTORS AND
OFFICERS ARE RESIDENTS OF CANADA AND SOME OR ALL OF THE EXPERTS NAMED IN THE
CIRCULAR MAY BE RESIDENTS OF CANADA, AND THAT A SUBSTANTIAL PORTION OF THE
ASSETS OF CINAR AND SAID PERSONS MAY BE LOCATED OUTSIDE THE UNITED STATES. AS A
RESULT, IT MAY BE DIFFICULT FOR CINAR SHAREHOLDERS TO EFFECT SERVICE OF PROCESS
WITHIN THE UNITED STATES UPON SUCH PERSONS OR TO ENFORCE AGAINST THEM JUDGMENTS
OF COURTS OF THE UNITED STATES PREDICATED UPON CIVIL LIABILITIES UNDER THE
UNITED STATES FEDERAL SECURITIES LAWS OR THE SECURITIES OR "BLUE SKY" LAWS OF
ANY STATE WITHIN THE UNITED STATES. UNITED STATES SHAREHOLDERS SHOULD NOT ASSUME
THAT CANADIAN COURTS (I) WOULD ENFORCE JUDGMENTS OF UNITED STATES COURTS
OBTAINED IN ACTIONS AGAINST CINAR OR SUCH DIRECTORS, OFFICERS AND EXPERTS
PREDICATED UPON THE CIVIL LIABILITY PROVISIONS OF THE UNITED STATES FEDERAL
SECURITIES LAWS OR THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE WITHIN THE
UNITED STATES OR (II) WOULD ENFORCE, IN ORIGINAL ACTIONS, LIABILITIES AGAINST
CINAR OR SUCH DIRECTORS, OFFICERS AND EXPERTS PREDICATED UPON THE UNITED STATES
FEDERAL SECURITIES LAWS OR ANY STATE SECURITIES OR "BLUE SKY" LAWS.
CINAR IS SUBJECT TO THE INFORMATIONAL REQUIREMENTS OF THE U.S. EXCHANGE ACT AND,
IN ACCORDANCE THEREWITH, FILES REPORTS, MANAGEMENT PROXY CIRCULARS AND OTHER
INFORMATION WITH THE SEC. SUCH REPORTS, MANAGEMENT PROXY CIRCULARS AND OTHER
INFORMATION CAN BE INSPECTED AND COPIED AT PRESCRIBED RATES AT THE PUBLIC
REFERENCE FACILITIES MAINTAINED BY THE SEC AT 450 FIFTH STREET, N.W., JUDICIARY
PLAZA, WASHINGTON, D.C. 20549, AND FREE COPIES THEREOF MAY BE OBTAINED AT THE
SEC'S INTERNET WEBSITE (HTTP://WWW.SEC.GOV). COPIES OF SUCH MATERIAL CAN ALSO BE
OBTAINED BY MAIL, UPON PAYMENT OF THE SEC'S CUSTOMARY CHARGES, BY WRITING TO THE
PRINCIPAL OFFICE OF THE SEC AT 450 FIFTH STREET, N.W., JUDICIARY PLAZA,
WASHINGTON, D.C. 20549.
GLOSSARY OF TERMS
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE FOLLOWING TERMS SHALL HAVE THE
MEANINGS SET FORTH BELOW WHEN USED IN THIS CIRCULAR. THESE DEFINED TERMS MAY NOT
CONFORM EXACTLY TO THE DEFINED TERMS USED IN THE APPENDICES TO THIS CIRCULAR.
"ACQUISITION FACILITY" has the meaning ascribed thereto under the heading
"Information Relating to Newco and NewCanCo - Acquisition Financing".
"ACQUISITION PROPOSAL" means any merger, amalgamation, statutory arrangement,
take-over bid, sale of material assets (or any lease, long-term supply agreement
or other arrangement having the same economic effect as a sale of material
assets), liquidation, material sale of shares or rights or interests therein or
thereto or similar transactions involving any of the CINAR Entities, or a
proposal to do so, excluding the Arrangement.
"ACT OF THE PAYEES" means any request, demand, authorization, direction, notice,
consent, waiver or other action provided by the CCE Agreement to be given or
taken by CCE Payees which may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such CCE Payees in person
or by their agents duly appointed in writing; and, except as otherwise expressly
provided in the CCE Agreement, such action shall become effective when such
instrument or instruments, executed by the requisite percentage of the CCE
Payees in accordance with the CCE Agreement, are delivered to the members of the
Litigation Committee and, where it is expressly required by the CCE Agreement,
to CINAR and the Manager. Unless otherwise expressly provided to the contrary in
the CCE Agreement, the Act of the Payees holding a majority of the outstanding
CCEs shall constitute the Act of the Payees.
"AFFILIATE" has the meaning ascribed thereto by the CBCA on the date of the CCE
Agreement.
"AFR" has the meaning ascribed thereto under the heading "Tax Considerations for
Beneficial Holders - United States Federal Income Tax Considerations - Tax
Consequences of Owning CCEs" in this Circular.
"AGGREGATE CCE AMOUNT" means an amount equal to the CCE Net Litigation Proceeds,
multiplied by the CCE Percentage.
"AGGREGATE CONSIDERATION" has the meaning ascribed thereto under the heading
"The Arrangement Agreement - Consideration Payable" in this Circular.
"AGGREGATE INTERIM PAYMENT AMOUNT" has the meaning ascribed thereto under the
heading "CCEs - Payment of CCE Amount" in this Circular.
"AMALCO" means the corporation resulting from the amalgamation of Newco and
CINAR at the Effective Time pursuant to the Arrangement.
"APPROPRIATE REGULATORY APPROVALS" means those sanctions, rulings, consents,
orders, exemptions, permits and other approvals (including the lapse, without
objection, of a prescribed time under a statute, rule or regulation that states
that a transaction may be implemented if a prescribed time lapses following the
giving of notice without an objection being made) of Governmental Entities,
regulatory agencies or self regulatory organizations, as set out in Schedule
1.1A to the Arrangement Agreement.
"ARRANGEMENT" means the arrangement involving Newco, NewCanCo and CINAR under
section 192 of the CBCA on the terms and conditions set forth in the Plan of
Arrangement, subject to any amendments or variations thereto made in accordance
with the terms of the Arrangement Agreement and the Plan of Arrangement, or made
at the direction of the Court in the Final Order.
"ARRANGEMENT AGREEMENT" means the Arrangement Agreement between Newco and CINAR
made as of October 30, 2003, a copy of which is attached as Appendix A to this
Circular, providing for, among other things, the Arrangement, as same may be
amended from time to time.
"ARRANGEMENT RESOLUTION" means the special resolution of the CINAR Shareholders
concerning the Plan of Arrangement, substantially in the form set out in
Appendix E to this Circular.
"ARTICLES OF ARRANGEMENT" means the articles of arrangement of CINAR to be filed
with the Director in connection with the Arrangement.
"ASSIGNMENT OF RIGHTS AGREEMENT" has the meaning ascribed thereto under the
heading "The Arrangement - Interests of Certain Persons in the Arrangement -
Turnstile" in this Circular.
"ASSOCIATE" has the meaning ascribed thereto by the CBCA.
"AUTHORISATION LETTER" means the letter to be executed by certain Non-Residents
who are residents of the United States, a copy of which is included with this
Circular, authorising Newco to, among other things, apply for a Section 116
Certificate and, where applicable, a Quebec Certificate on behalf of such
Non-Residents.
"BENEFICIAL HOLDER" has the meaning ascribed thereto under the heading
"Information Concerning the Meeting - Beneficial Holders of CINAR Shares" in
this Circular.
"BOARD OF DIRECTORS" means the board of directors of CINAR.
"BRB" means BRB International, S.A.
"BRB LITIGATION" has the meaning ascribed thereto under the heading "Specified
Litigation - BRB" in this Circular.
"BREAK FEE" means the fee in the amount of US$2,875,000 payable by CINAR to
Newco in the circumstances described under the heading "The Arrangement
Agreement - Termination and Payment of Break Fees and Expenses".
"BUSINESS DAY" means any day other than a Saturday, a Sunday or any other day on
which the principal chartered banks located in Montreal, Quebec or Toronto,
Ontario, are not open for business during normal banking hours.
"CANADIAN TAX ACT" means the INCOME TAX ACT (Canada), as amended.
"CARSON-DELLOSA" means Carson-Dellosa Publishing Company, Inc, a corporation
incorporated under the laws of North Carolina.
"CASH EQUIVALENTS" means: (a) obligations issued or guaranteed by the Government
of Canada or any province of Canada or any agency or instrumentality thereof;
(b) term deposits, guaranteed investment certificates, certificates of deposit
or bankers' acceptances of or guaranteed by any Canadian chartered bank or other
financial institution, the short-term debt or deposits of which have been rated
at least investment grade by Standard & Poor's Corporation, Moody's Investors
Service, Inc. or Dominion Bond Rating Service Limited; and (c) commercial paper
rated at least investment grade or the equivalent by Standard & Poor's
Corporation, Moody's Investors Service, Inc. or Dominion Bond Rating Service
Limited; in each case either maturing within 365 days after the date of
acquisition or for which the Manager believes that there will be a liquid market
for the resale thereof within such 365 day period.
"CASH PORTION" has the meaning ascribed thereto under the heading "The
Arrangement Agreement - Consideration Payable" in this Circular.
"CBCA" means the CANADA BUSINESS CORPORATIONS ACT, as now in effect and, except
where otherwise expressly provided in this Circular, as it may be amended from
time to time prior to the Effective Date.
"CCE" has the meaning ascribed thereto under the heading "The Arrangement
Agreement - Consideration Payable" in this Circular.
"CCE AGREEMENT" means the contingent cash entitlement agreement to be dated as
of the Effective Date among NewCanCo, CINAR, G. Wesley Voorheis and Lisa de
Wilde pursuant to which the CCEs are to be created and allocated.
"CCE AMOUNT" means for each CCE the amount determined by dividing the Aggregate
CCE Amount by the total number of CCEs outstanding on the CCE Payment Date.
"CCE DEDUCTIBLE PORTION" has the meaning ascribed thereto under the heading
"CCEs - Payment of CCE Amount" in this Circular.
"CCE DEDUCTIBLE PORTION OF EXPENSES" has the meaning ascribed thereto under the
heading "CCEs - Payment of CCE Amount" in this Circular.
"CCE EXPENSES" has the meaning ascribed thereto under the heading "CCEs -
Payment of CCE Amount" in this Circular.
"CCE NET LITIGATION PROCEEDS" has the meaning ascribed thereto under the heading
"CCEs - Payment of CCE Amount" in this Circular.
"CCE NET LITIGATION PROCEEDS CERTIFICATE" has the meaning ascribed thereto under
the heading "CCEs - Payment of CCE Amount" in this Circular.
"CCE PAYEE" means a Person who appears in the CCE Register as having a CCE.
"CCE PAYMENT DATE" means the date on which the CCE Amount is paid by the Manager
to the CCE Payees, which shall be established pursuant to the CCE Agreement (or
the date on which it is determined by a majority of the members of the
Litigation Committee that the CCE Net Litigation Proceeds shall be nil or a
negative amount).
"CCE PERCENTAGE" means 70% multiplied by, in the case that any CINAR
Shareholders validly exercise their Dissent Rights and are ultimately entitled
to be paid fair value for their CINAR Shares, a fraction, the numerator of which
shall be the aggregate number of CINAR Shares in respect of which CINAR
Shareholders (i) do not validly exercise their Dissent Rights, or (ii) validly
exercise their Dissent Rights, but are ultimately not entitled, for any reason,
to be paid fair value for their CINAR Shares, and the denominator of which shall
be the number of CINAR Shares issued and outstanding immediately prior to the
Effective Time.
"CCE REGISTER" means the register which the Manager shall cause to be kept at
the Manager's principal office in which the Manager shall provide for the
registration of CCEs.
"CCE TAX BENEFITS" has the meaning ascribed thereto under the heading "CCEs -
Payment of CCE Amount" in this Circular.
"CCE TAXABLE PORTION" has the meaning ascribed thereto under the heading "CCEs -
Payment of CCE Amount" in this Circular.
"CCE TAXES" has the meaning ascribed thereto under the heading "CCEs - Payment
of CCE Amount" in this Circular.
"CCRA" means the Canada Customs and Revenue Agency.
"CDS" means The Canadian Depository for Securities Limited and any successor to
its depository business.
"CEASE-TRADE ORDERS" means the cease-trade orders issued by the securities
regulatory authorities in the provinces of Quebec, Ontario, Manitoba,
Saskatchewan, Alberta and British Columbia.
"CFC" has the meaning ascribed thereto under the heading "Tax Considerations for
Beneficial Holders - United States Federal Income Tax Considerations - Tax
Consequences of Selling CINAR Shares" in this Circular.
"CINAR" means CINAR Corporation, a corporation incorporated under the laws of
Canada and, with respect to the period after the Effective Time, where the
context requires, any reference to CINAR shall be deemed to be a reference to
Amalco.
"CINAR ACTION" has the meaning ascribed thereto under the heading "Specified
Litigation - Weinberg and Charest" in this Circular.
"CINAR ARTICLES" means the articles of incorporation of CINAR, as amended and
currently in force.
"CINAR BY-LAWS" means the by-laws of CINAR, as currently in force.
"CINAR EDUCATION" means CINAR Education, Inc., a corporation incorporated under
the laws of Delaware.
"CINAR ENTITIES" means, collectively, CINAR and its Subsidiaries.
"CINAR MEMBER" has the meaning ascribed thereto under the heading "CCEs -
Litigation Committee".
"CINAR OPTIONS" means the issued and outstanding options to purchase Limited
Voting Shares granted under the CINAR Stock Option Plan.
"CINAR OPTIONHOLDERS" means the holders of CINAR Options.
"CINAR PERFORMANCE UNIT PLAN" means the Performance Unit Plan of CINAR for key
employees, senior officers and outside directors of CINAR, as amended.
"CINAR PERFORMANCE UNITS" means the performance units granted under the CINAR
Performance Unit Plan.
"CINAR SHAREHOLDERS" means the registered holders of CINAR Shares.
"CINAR SHARES" means the Multiple Voting Shares and Limited Voting Shares.
"CINAR STOCK OPTION PLAN" means the CINAR Stock Option Plan, as amended to the
date of the Arrangement Agreement.
"CIRCULAR" means this management proxy circular, including all appendices
hereto, to be sent to the CINAR Shareholders in connection with the Meeting.
"CLAIM" means any claim, demand, action, suit, litigation, charge, prosecution
or other proceeding.
"CLIFFORD INVESTMENT" has the meaning ascribed thereto under the heading "The
Arrangement - Interests of Certain Persons in the Arrangement - Turnstile" in
this Circular.
"CODE" has the meaning ascribed thereto under the heading "Tax Considerations
for Beneficial Holders - United States Federal Income Tax Considerations" in
this Circular.
"COMPENSATION COMMITTEE" has the meaning ascribed thereto under the heading
"Executive Compensation - Report on Executive Compensation by the Management
Resources and Compensation Committee" in this Circular.
"CONFIDENTIALITY AND STANDSTILL AGREEMENT" has the meaning ascribed thereto
under the heading "The Arrangement - Background and Reasons for the Arrangement"
in this Circular.
"COURT" means the Superior Court of Quebec.
"CVMQ" means the Commission des valeurs mobilieres du Quebec.
"DEDUCTIBLE PORTION" has the meaning ascribed thereto under the heading "The
Arrangement Agreement - Consideration Payable" in this Circular.
"DEDUCTIBLE PORTION OF EXPENSES" has the meaning ascribed thereto under the
heading "The Arrangement Agreement - Consideration Payable" in this Circular.
"DEMAND FOR PAYMENT" has the meaning ascribed thereto under the heading
"Dissenting Shareholder Rights" in this Circular.
"DEPOSITARY" means Computershare Trust Company of Canada at its office set out
in the Letter of Transmittal.
"DETERMINATIONS" has the meaning ascribed thereto under the heading "CCEs -
Payment of CCE Amount" in this Circular.
"DIRECTOR" means the Director appointed under Section 260 of the CBCA.
"DISSENT NOTICE" means a written objection to the Arrangement Resolution made by
a CINAR Shareholder in accordance with the Dissent Procedures.
"DISSENT PROCEDURES" means the dissent procedures described under the heading
"Dissenting Shareholder Rights" in this Circular.
"DISSENT RIGHTS" means the rights of a CINAR Shareholder to dissent in respect
of the Arrangement Resolution in compliance with the Dissent Procedures.
"DISSENTING SHAREHOLDER" means a CINAR Shareholder who dissents in respect of
the Arrangement Resolution in compliance with the Dissent Procedures.
"DPSP" means a deferred profit sharing plan.
"EDUCATION DIVISION COMPANIES" means CINAR Education, CINAR Multimedia Education
Limited and any Subsidiaries thereof.
"EFFECTIVE DATE" means the date upon which the Plan of Arrangement becomes
effective as established by the date of issue shown on the Certificate of
Arrangement issued by the Director pursuant to subsection 192(7) of the CBCA.
"EFFECTIVE TIME" means 12:01 a.m. (Eastern time) on the Effective Date.
"EMPLOYEE EXPENSES" has the meaning ascribed thereto under the heading "CCEs -
Litigation Committee" in this Circular.
"EMPLOYMENT AGREEMENT" has the meaning ascribed thereto under the heading "The
Arrangement - Interests of Certain Persons in the Arrangement - Turnstile" in
this Circular.
"EXPENSES" has the meaning ascribed thereto under the heading "The Arrangement
Agreement - Consideration Payable" in this Circular.
"FINAL ADJUDICATION" means, in respect of any Specified Litigation, that such
Specified Litigation has been fully and finally settled or subject to final
binding (without right of appeal) adjudicative determination.
"FINAL ORDER" means the order of the Court approving the Arrangement as such
order may be amended at any time prior to the Effective Date or, if appealed,
then, unless such appeal is withdrawn or denied, as affirmed.
"FIRM" has the meaning ascribed thereto under the heading "CCEs - Payment of CCE
Amount" in this Circular.
"FIRM EXPENSES" has the meaning ascribed thereto under the heading "CCEs -
Payment of CCE Amount" in this Circular.
"FOUNDER OPTION PROCEEDINGS" means the proceedings relating to the Founder
Options which the Founders were claiming the due exercise of, while CINAR was
maintaining the position that the Founder Options were not duly exercised and
that the issuance of CINAR Shares pursuant to the purported exercise of the
Founder Options was not permitted by Law prior to expiry of such options, and
which proceedings were the subject of a final and binding decision of an
arbitration panel dated November 28, 2003.
"FOUNDER OPTIONS" means the CINAR Options to acquire up to 840,000 CINAR Shares
which were the subject of the Founder Option Proceedings.
"FOUNDERS" means Ronald Weinberg, Micheline Charest, 153114 Canada Inc. and
295055 Canada Inc.
"FOURNIER LITIGATION" has the meaning ascribed thereto under the heading
"Specified Litigation - Louis Fournier" in this Circular.
"GLOBE-X COMPANIES" means Globe-X Management Ltd. and Globe-X Canadiana, Ltd.
"GOVERNMENTAL ENTITY" means any (i) multinational, federal, provincial, state,
regional, municipal, local or other government, governmental or public
department, central bank, court, tribunal, arbitral body, commission, board,
bureau or agency, domestic or foreign; (ii) any subdivision, agent, commission,
board or authority of any of the foregoing; or (iii) any quasi-governmental or
private body exercising any regulatory, expropriation or taxing authority under
or for the account of any of the foregoing.
"GRANT PRICE" has the meaning ascribed thereto under heading "Executive
Compensation - Compensation Pursuant to Performance Incentive Plans - CINAR
Performance Unit Plan" in this Circular.
"GROSS INTERIM PAYMENT AMOUNT" has the meaning ascribed thereto under the
heading "CCEs - Payment of CCE Amount" in this Circular.
"HIGHREACH LEARNING" means HighReach Learning, Inc., a corporation incorporated
under the laws of North Carolina.
"INDEPENDENT MEMBER" has the meaning ascribed thereto under the heading "CCEs -
Litigation Committee" in this Circular.
"INTEREST EXPENSES" has the meaning ascribed thereto under the heading "CCEs -
Funding of Litigation" in this Circular.
"INTERIM MANAGER AMOUNT" has the meaning ascribed thereto under the heading
"CCEs - Payment of CCE Amount" in this Circular.
"INTERIM ORDER" means the interim order of the Court, as the same may be
amended, in respect of the Arrangement, a copy of which is attached as Appendix
B-II to this Circular.
"INTERIM PAYMENT AMOUNT" for each CCE equals the amount determined by dividing
the Aggregate Interim Payment Amount by the total number of CCEs outstanding on
the date that the payment of the Aggregate Interim Payment Amount is made to the
CCE Payees.
"INTERMEDIARY" has the meaning ascribed thereto under the heading "Information
Concerning the Meeting - Beneficial Holders of CINAR Shares" in this Circular.
"IRA" means an individual retirement account.
"IRS" has the meaning ascribed thereto under the heading "Tax Considerations for
Beneficial Holders - United States Federal Income Tax Considerations" in this
Circular.
"LAWS" means all laws, statutes, regulations, statutory rules, codes,
ordinances, decrees, rules, standards, orders-in council, by-laws, principles of
law, published policies and guidelines (whether or not having the force of law),
judicial or arbitral or administrative or ministerial or departmental or
regulatory judgments, orders, decisions, rulings or awards, including general
principles of common and civil law, and terms and conditions of any grant of
approval, permission, authority or license of any Governmental Entity, statutory
body or self-regulatory authority (including stock exchanges or markets), and
the term "applicable" with respect to such Laws and in the context that refers
to one or more Persons, means that such Laws apply to such Person or Persons or
its or their business, undertaking, property or securities and emanate from a
Person having jurisdiction over the Person or Persons or its or their business,
undertaking, property or securities.
"LETTER OF AGREEMENT" has the meaning ascribed thereto under the heading "The
Arrangement - Background and Reasons for the Arrangement" in this Circular.
"LETTER OF TRANSMITTAL" means the letter of transmittal for use by CINAR
Shareholders, delivered with this Circular which, when duly completed and
returned to the Depositary together with the certificate(s) representing a CINAR
Shareholder's CINAR Shares and all other required documents, will enable a CINAR
Shareholder to receive the Aggregate Consideration (less any applicable
withholding or other taxes) payable in respect of his, her or its CINAR Shares.
"LIMITED VOTING SHARES" means the Limited Voting Shares in the capital of CINAR.
"LITIGATION ACCOUNT" has the meaning ascribed thereto under the heading "CCEs -
Segregation of Cash Proceeds" in this Circular.
"LITIGATION COMMITTEE" has the meaning ascribed thereto under the heading "CCEs
- - Litigation Committee" in this Circular.
"LITIGATION COMMITTEE EXPENSES" has the meaning ascribed thereto under the
heading "CCEs - Litigation Committee" in this Circular.
"LITIGATION PAYMENTS" means all compensation, damages, penalties, interest,
costs and other payments in the form of cash or Cash Equivalents, if any, paid,
payable or to become payable by the CINAR Entities in or in relation to the
Specified Litigation or in respect of any Third Party Rights, whether such
compensation, damages, penalties, interest, costs or other payments are paid,
payable or will become payable pursuant to a court order made at trial or upon
appeal or pursuant to the terms of any settlement agreement (whether paid or
becoming payable before or after the date of the CCE Agreement). For greater
certainty, the set-off by any of the CINAR Entities of any Litigation Proceeds
against any Litigation Payment which would otherwise have been payable by any of
the CINAR Entities shall be deemed to be a payment by the CINAR Entities of such
Litigation Payment.
"LITIGATION PROCEEDS" means all compensation, damages, penalties, interest,
costs and other payments in the form of cash or Cash Equivalents, if any,
received by the CINAR Entities in the Specified Litigation, whether such
compensation, damages, penalties, interest, costs or other payments are
recovered or received pursuant to a court order made at trial or upon appeal or
pursuant to the terms of any settlement agreement (whether received before or
after the date of the CCE Agreement). For greater certainty, the set-off by any
of the CINAR Entities of any Litigation Proceeds against any Litigation Payment
which would otherwise have been payable by any of the CINAR Entities shall be
deemed to be a receipt by the CINAR Enities of such Litigation Proceeds.
"LLC" means a limited liability company.
"MANAGER" means NewCanCo.
"MANAGER MEMBER" has the meaning ascribed thereto under the heading "CCEs -
Litigation Committee" in this Circular.
"MATERIAL ADVERSE CHANGE" (i) when used in connection with CINAR, means any
change, effect, event or occurrence that is, or could reasonably be expected to
be, material and adverse to the business, operations or financial condition of
the CINAR Entities on a consolidated basis other than any change, effect, event
or occurrence relating to (A) the global economy or securities markets in
general; (B) any change in the trading price of the CINAR Shares related to the
Arrangement or unrelated to any change, effect, event, occurrence or state of
facts which is or could reasonably be expected to be material and adverse to the
business, assets, liabilities, operations or financial condition of the CINAR
Entities, and (ii) when used in connection with the Education Division Companies
means any change, effect, event or occurrence (other than relating to the global
economy in general) in respect of the Education Division Companies that is, or
could reasonably be expected to be, material and adverse to the business,
operations or financial condition of the Education Division Companies on a
consolidated basis.
"MATERIAL ADVERSE EFFECT" (i) when used in connection with CINAR, means any
matter, condition, event, development or action that has an effect that is, or
could reasonably be expected to be, material and adverse to the business,
operations or financial condition of the CINAR Entities on a consolidated basis
other than any change, effect, event or occurrence relating to (A) the global
economy or securities markets in general; (B) any change in the trading price of
the CINAR Shares related to the Arrangement or unrelated to any change, effect,
event, occurrence or state of facts which is or could reasonably be expected to
be material and adverse to the business, assets, liabilities, operations or
financial condition of the CINAR Entities, and (ii) when used in connection with
the Education Division Companies means any matter, condition, event, development
or action (other than relating to the global economy in general) in respect of
the Education Division Companies that has an effect that is, or could reasonably
be expected to be, material and adverse to the business, operations or financial
condition of the Education Division Companies on a consolidated basis.
"MEETING" means the special meeting of CINAR Shareholders, including any
adjournments and postponements thereof, to be called and held in accordance with
the Interim Order to consider the Arrangement and the reduction of the stated
capital of the Limited Voting Shares.
"MEETING MATERIALS" has the meaning ascribed thereto under the heading
"Information Concerning the Meeting - Beneficial Holders of CINAR Shares" in
this Circular.
"MERRILL LYNCH" means Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"MERRILL LYNCH FAIRNESS OPINION" means the written opinion dated October 30,
2003 from Merrill Lynch delivered to the Board of Directors in connection with
the Arrangement, a copy of which is attached as Appendix G to this Circular.
"MOTION TO DISMISS A TRUSTEE" has the meaning ascribed thereto under the heading
"Specified Litigation - Weinberg and Charest" in this Circular.
"MRQ" means the ministere du Revenu du Quebec.
"MULTIPLE VOTING SHARES" means the Variable Multiple Voting Shares in the
capital of CINAR.
"NASDAQ" means the NASDAQ National Market.
"NAMED EXECUTIVE OFFICERS" has the meaning ascribed thereto under the heading
"Executive Compensation - Compensation of Named Executive Officers" in this
Circular.
"NET LITIGATION AMOUNT" means an amount equal to the Net Litigation Proceeds,
less the aggregate of US$400,000 and any costs and expenses, including legal
fees and disbursements, incurred by Amalco or its predecessor corporations in
collecting any portion of the Net Litigation Proceeds which has not been
received in full by CINAR prior to the Settlement Deadline.
"NET LITIGATION PROCEEDS" has the meaning ascribed thereto under the heading
"The Arrangement Agreement - Consideration Payable" in this Circular.
"NEWCANCO" means 3918203 Canada Inc., a corporation incorporated under the laws
of Canada.
"NEWCO" means 4113683 Canada Inc., a corporation incorporated under the laws of
Canada, which is a wholly-owned subsidiary of NewCanCo, and with respect to the
period after the Effective Time, where the context requires, any reference to
Newco shall be deemed to be a reference to Amalco.
"NEWCO PARTIES" has the meaning ascribed thereto under the heading "Information
Relating to Newco and NewCanCo" in this Circular.
"NON-RESIDENT" means a Person who beneficially owns CINAR Shares who has not
established to the satisfaction of Newco that at all relevant times, for the
purposes of the Canadian Tax Act, he is resident, or deemed to be resident, in
Canada.
"NOTICE OF AGREEMENT" has the meaning ascribed thereto under the heading "CCEs -
Payment of CCE Amount" in this Circular.
"NOTICE OF MEETING" means the notice of special meeting of CINAR Shareholders
accompanying this Circular.
"NOTICE OF OBJECTION" has the meaning ascribed thereto under the heading "CCEs -
Payment of CCE Amount" in this Circular.
"OFFER" has the meaning ascribed thereto under the heading "The Arrangement -
Voting Support Agreement" in this Circular.
"OFFER TO PAY" means a written offer by CINAR to pay a Dissenting Shareholder
the fair value of the Dissenting Shareholder's CINAR Shares.
"OSC" means the Ontario Securities Commission.
"OSC RULE 61-501" means OSC Rule 61-501 - Insider Bids, Issuer Bids, Going
Private Transactions and Related Party Transactions, as in effect on the date
hereof.
"PERSON" includes any individual, firm, partnership, limited liability company,
unlimited liability company, joint venture, venture capital fund, association,
trust, trustee, executor, administrator, legal personal representative, estate,
group, body corporate, corporation, unincorporated association or organization,
Governmental Entity, syndicate or other entity, whether or not having legal
status.
"PFIC" has the meaning ascribed thereto under the heading "Tax Considerations
for Beneficial Holders - United States Federal Income Tax Considerations - Tax
Consequences of Selling CINAR Shares" in this Circular.
"PINK SHEETS" has the meaning ascribed thereto under the heading "The
Arrangement - Recommendation of the Board of Directors" in this Circular.
"PLAN OF ARRANGEMENT" means the plan of arrangement proposed under section 192
of the CBCA substantially in the form of Appendix C attached to this Circular,
as amended, modified or supplemented from time to time in accordance with
Section 7.1 of the Arrangement Agreement or in accordance with any direction of
the Court.
"POLICY Q-27" means CVMQ Policy Statement Q-27 - Protection of Minority
Securityholders in the Course of Certain Transactions, as in effect on the date
hereof.
"PRE-EFFECTIVE DATE PERIOD" means the period beginning on the date of execution
of the Arrangement Agreement to and including the Effective Time.
"PRIME" means the annual rate of interest announced by the Royal Bank of Canada
from time to time as being a reference rate then in effect for determining
interest rates on commercial loans made in Canadian dollars in Canada.
"PRINCIPAL SHAREHOLDERS" means Ronald Weinberg, Micheline Charest, 153114 Canada
Inc., 2950995 Canada Inc., 3238369 Canada Inc. and McRaw Holdings Inc.
"PROPERTIES" has the meaning ascribed thereto under the heading "The Arrangement
- - Interests of Certain Persons in the Arrangement - Turnstile" in this Circular.
"QUEBEC CERTIFICATE" means a certificate issued by the MRQ pursuant to section
1098 or 1100 of the Quebec Tax Act.
"QUEBEC TAX ACT" means the TAXATION ACT (Quebec) as amended.
"RECORD DATE" means January 16, 2004, the date fixed by the Interim Order for
the purpose of determining the CINAR Shareholders entitled to receive notice of
the Meeting.
"RELEASE" means the release dated October 30, 2003 executed by the Principal
Shareholders in favour of the Releasees.
"RELEASEES" means CINAR and all its subsidiaries and affiliates and their
respective directors, officers (past, present and future) personally and in
their capacities as such and their representatives and agents (past, present and
future) and Newco and all its subsidiaries and affiliates and their respective
directors, officers and shareholders (past, present and future).
"RESP" means a registered education savings plan.
"RESOLUTION" has the meaning ascribed thereto under the heading "CCEs - Payment
of CCE Amount" in this Circular.
"RRIF" means a registered retirement income fund.
"RRSP" means a registered retirement savings plan.
"SEC" means the United States Securities and Exchange Commission.
"SECTION 116 CERTIFICATE" means a certificate issued by the CCRA pursuant to
subsection 116(2) or 116(4) of the Canadian Tax Act.
"SECURITIES DEPOSITORY" means CDS and the Depository Trust & Clearing
Corporation and any successor to its depository business and any other Person
recognized as a depository by a securities regulatory authority in Canada or the
United States.
"SETTLEMENT DEADLINE" has the meaning ascribed thereto under the heading "The
Arrangement Agreement - Consideration Payable" in this Circular.
"SETTLEMENT DECISION" means any decision to grant consent to the settlement of
any aspect or portion of the Specified Litigation or otherwise to dismiss with
prejudice any claim of or against a CINAR Entity in the Specified Litigation
(and any other determination specified in Section 5.1(b) of the CCE Agreement
relating to such a decision).
"SPECIFIED LITIGATION" has the meaning ascribed thereto under the heading "The
Arrangement Agreement - Consideration Payable" in this Circular.
"STATED CAPITAL RESOLUTION" has the meaning ascribed thereto under the heading
"Reduction of Stated Capital" in this Circular.
"STRATEGIC DECISION" means, with respect to the Specified Litigation, any
decision that involves the appeal of any aspect of the case (whether after a
verdict or on an interlocutory basis), the addition of any Claim or party,
changing legal counsel or the basis for payment of the fees of counsel, any
admission of liability with respect to any Claim against a CINAR Entity in the
Specified Litigation, or any other proposed decision or determination that, in
the opinion of outside counsel representing the CINAR Entities in the Specified
Litigation, represents a material change or development in strategy with respect
to the Specified Litigation and results in a substantial likelihood that the
recovery or receipt by the CINAR Entities of any amount of Litigation Proceeds
(whether pursuant to a court order at trial or upon appeal or pursuant to the
terms of any settlement agreement) will be delayed or the payment of any amount
of Litigation Payments (whether pursuant to a court order at trial or upon
appeal or pursuant to the terms of any settlement agreement) will be
accelerated; provided, however, a Strategic Decision shall not include any
action that constitutes (in whole or in part) a Settlement Decision.
"SUBSIDIARY" has the meaning ascribed thereto in the CBCA on October 30, 2003.
"SUPERIOR PROPOSAL" means an unsolicited BONA FIDE written Acquisition Proposal
that the Board of Directors determines in good faith, after consultation with
financial advisors and outside counsel advising the Board of Directors, that:
(i) the failure to consider, negotiate or discuss (and provide non-public
information in response to) such Acquisition Proposal would be inconsistent with
its fiduciary duties; and (ii) such Acquisition Proposal would, if consummated
in accordance with its terms, result in a transaction which is: (A) more
favourable to the CINAR Shareholders than the Arrangement; and (B) has a value
per CINAR Share greater than the per share value attributable thereto under the
Arrangement.
"TAIL PERIOD" has the meaning ascribed thereto under the heading "The
Arrangement - Voting Support Agreement" in this Circular.
"TAX BENEFITS" has the meaning ascribed thereto under the heading "The
Arrangement Agreement - Consideration Payable" in this Circular.
"TAXABLE PORTION" has the meaning ascribed thereto under the heading "The
Arrangement Agreement - Consideration Payable" in this Circular.
"TAXES" has the meaning ascribed thereto under the heading "The Arrangement
Agreement - Consideration Payable" in this Circular.
"TERMINATION DATE" means the third anniversary of the execution of the CCE
Agreement, subject to extension pursuant to Section 7.1 the CCE Agreement.
"THIRD PARTY RIGHTS" has the meaning ascribed thereto under the heading "The
Arrangement Agreement - Consideration Payable" in this Circular.
"TSX" means the Toronto Stock Exchange.
"TURNSTILE" means Turnstile Entertainment, LLC.
"TURNSTILE SETTLEMENT AGREEMENT" has the meaning ascribed thereto under the
heading "The Arrangement - Interests of Certain Persons in the Arrangement -
Turnstile" in this Circular.
"UNCONNECTED U.S. SHAREHOLDERS" has the meaning ascribed thereto under the
heading "Tax Considerations for Beneficial Holders - United States Federal
Income Tax Considerations" in this Circular.
"UNITED STATES SHAREHOLDER" has the meaning ascribed thereto under the heading
"Tax Considerations for Beneficial Holders - United States Federal Income Tax
Considerations - Tax Consequences of Selling CINAR Shares" in this Circular.
"U.S. EXCHANGE ACT" means the United States SECURITIES EXCHANGE ACT OF 1934, as
amended, and the rules and regulations promulgated thereunder.
"U.S. SECURITIES ACT" means the United States SECURITIES ACT OF 1933, as
amended, and the rules and regulations promulgated thereunder.
"VOTING INSTRUCTION FORM" has the meaning ascribed thereto under the heading
"Information Concerning the Meeting - Beneficial Holders of CINAR Shares" in
this Circular.
"VOTING SUPPORT AGREEMENT" means the voting support agreement dated October 30,
2003 among the Founders and Newco.
"VOTING TRUST AGREEMENT" has the meaning ascribed thereto under the heading
"Information Concerning the Meeting - Voting Shares and Principal Holders" in
this Circular.
"WEINBERG DEFENDANTS" has the meaning ascribed thereto under the heading
"Specified Litigation - Weinberg and Charest" in this Circular.
- --------------------------------------------------------------------------------
For assistance in voting your CINAR Shares, if you require additional proxy
materials or if you have any questions concerning the Letter of Transmittal or
withholding tax requirements, PLEASE CONTACT:
Georgeson Shareholder
66 Wellington Street West
TD Tower - Suite 5210
Toronto Dominion Centre
Toronto, Ontario M5K 1J3
English and French North American Toll Free Number:
1-866-666-5217
- --------------------------------------------------------------------------------
INFORMATION CONCERNING THE MEETING
MANAGEMENT PROXY CIRCULAR
NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATION WITH RESPECT TO MATTERS SET
FORTH IN THIS CIRCULAR AND, IF GIVEN OR MADE, SUCH REPRESENTATION SHOULD NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS CIRCULAR DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO ACQUIRE, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR PROXY SOLICITATION.
Unless otherwise indicated: (a) the information set out in this Circular is
given as of January 14, 2004; and (b) all dollar amounts set out in this
Circular are expressed in Canadian funds.
SOLICITATION OF PROXIES
This Circular is furnished in connection with the solicitation of proxies by and
on behalf of the management of CINAR for use at the Meeting to be held at 11:00
a.m. (Eastern time) on Tuesday, February 17, 2004 in the Salon Hochelaga 4,
Fairmont Queen Elizabeth Hotel, 900 Rene-Levesque Boulevard West, Montreal,
Quebec, Canada and at any adjournment of the Meeting. AT THE MEETING, HOLDERS OF
LIMITED VOTING SHARES WILL CONSIDER AND VOTE UPON THE STATED CAPITAL RESOLUTION
AND ALL CINAR SHAREHOLDERS WILL CONSIDER AND VOTE UPON THE ARRANGEMENT
RESOLUTION.
THE BOARD OF DIRECTORS HAS DETERMINED UNANIMOUSLY THAT THE ARRANGEMENT IS IN THE
BEST INTERESTS OF CINAR. ACCORDINGLY, THE BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE ARRANGEMENT AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF LIMITED
VOTING SHARES VOTE FOR THE STATED CAPITAL RESOLUTION AND THAT CINAR SHAREHOLDERS
VOTE FOR THE ARRANGEMENT RESOLUTION AT THE MEETING. The Stated Capital
Resolution will only be implemented if the Arrangement Resolution is passed by
CINAR Shareholders. The Arrangement cannot be completed if the Stated Capital
Resolution is not approved. See "Reduction of Stated Capital", "The Arrangement
- - Background and Reasons for the Arrangement" and "The Arrangement -
Recommendation of the Board of Directors".
The solicitation of proxies will be conducted primarily by mail. Certain proxies
may also be solicited by telephone, fax, e-mail, the Internet, advertisement or
in person by directors, officers or employees of CINAR, for which no additional
compensation will be paid, or by employees of Georgeson Shareholder
Communications Inc. CINAR has retained the services of Georgeson Shareholder
Communications Inc. to solicit proxies from CINAR Shareholders in Canada and the
United States on behalf of management of CINAR for use at the Meeting. Georgeson
Shareholder Communications Inc. is also available to CINAR Shareholders to
respond to questions concerning voting CINAR Shares, completion of the Letter of
Transmittal and satisfaction of withholding tax requirements and to provide
further proxy material if required. CINAR will compensate Georgeson Shareholder
Communications Inc. for its services, including reimbursement for expenses, and
will indemnify Georgeson Shareholder Communications Inc. in respect of certain
liabilities which may be incurred by it in performing these services. Such
compensation is not expected to exceed $100,000. The cost of preparing,
assembling and mailing this Circular, the Notice of Meeting, the forms of proxy
and other materials relating to the Meeting has been or will be borne by CINAR.
Except for the fees payable to Georgeson Shareholder Communications Inc., CINAR
does not anticipate paying any commission or remuneration to any broker, dealer,
salesman or other person for soliciting proxies.
APPOINTMENT OF PROXYHOLDERS
THE PERSONS APPOINTED AS PROXYHOLDER IN THE ENCLOSED FORM OF PROXY ARE DIRECTORS
OR OFFICERS OF CINAR. A CINAR SHAREHOLDER MAY APPOINT A PERSON OTHER THAN THOSE
DESIGNATED IN THE ENCLOSED FORM OF PROXY TO ACT AS HIS OR HER PROXYHOLDER AND
ATTEND AND VOTE ON HIS OR HER BEHALF AT THE MEETING. TO DO SO, THE CINAR
SHAREHOLDER MUST EITHER STRIKE THE NAMES OF THE PERSONS DESIGNATED ON THE FORM
OF PROXY AND INSERT THE NAME OF ANOTHER PERSON IN THE BLANK SPACE PROVIDED FOR
THAT PURPOSE IN THE FORM OF PROXY OR COMPLETE ANOTHER ACCEPTABLE FORM OF PROXY.
THE PERSON DESIGNATED BY THE CINAR SHAREHOLDER TO ACT AS A PROXYHOLDER NEED NOT
BE A CINAR SHAREHOLDER.
In all cases, a duly completed form of proxy must be deposited with
Computershare Trust Company of Canada, Proxy Department, 100 University Avenue,
9th Floor, Toronto, Ontario, Canada M5J 2Y1, no later than the close of business
on the last business day prior to the date of the Meeting, or with the Chairman
of the Meeting prior to the commencement of the Meeting.
REVOCATION OF PROXIES
A CINAR Shareholder may revoke his or her proxy at any time before it is acted
upon by delivering an instrument in writing executed by the CINAR Shareholder or
by the CINAR Shareholder's attorney authorized in writing or, if the CINAR
Shareholder is a corporation, under its corporate seal or by an officer or
attorney thereof duly authorized, to the registered office of CINAR (1055
Rene-Levesque Blvd. East, Montreal, Quebec, Canada H2L 4S5) at any time up to
the close of business on the last business day prior to the date of the Meeting,
or to the Chairman of the Meeting prior to the commencement of the Meeting, or
in any other manner permitted by law.
DISCRETION EXERCISED BY PROXIES
During any vote by ballot, the persons named in the enclosed forms of proxy will
exercise the voting rights attached to the CINAR Shares from which they derive
their powers according to the instructions received from the authorizing CINAR
Shareholder regarding any matter on which a decision is foreseen. UNLESS
CONTRARY INSTRUCTIONS ARE GIVEN, THE VOTING RIGHTS ATTACHED TO CINAR SHARES
REPRESENTED BY PROPERLY EXECUTED PROXIES APPOINTING THE PERSONS DESIGNATED IN
THE PRINTED PORTION OF THE ENCLOSED FORMS OF PROXY WILL BE VOTED BY THE PERSONS
DESIGNATED IN SUCH PRINTED PORTION FOR THE ARRANGEMENT RESOLUTION AND FOR THE
STATED CAPITAL RESOLUTION.
THE BOARD OF DIRECTORS HAS DETERMINED UNANIMOUSLY THAT THE ARRANGEMENT IS IN THE
BEST INTERESTS OF CINAR. ACCORDINGLY, THE BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE ARRANGEMENT AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF LIMITED
VOTING SHARES VOTE FOR THE STATED CAPITAL RESOLUTION AND THAT CINAR SHAREHOLDERS
VOTE FOR THE ARRANGEMENT RESOLUTION AT THE MEETING. The Stated Capital
Resolution will only be implemented if the Arrangement Resolution is passed by
CINAR Shareholders. See "Reduction of Stated Capital", "The Arrangement -
Background and Reasons for the Arrangement" and "The Arrangement -
Recommendation of the Board of Directors". The Arrangement cannot be completed
if the Stated Capital Resolution is not approved.
The form of proxy confers on the persons named therein the power to vote in
their discretion regarding any amendment or modification to the business
mentioned in the Notice of Meeting or regarding any other business that may
properly come before the Meeting. Management of CINAR has no knowledge of
amendments, modifications or other business that may come before the Meeting.
Should amendments, modifications or other business properly come before the
Meeting, the persons named in the form of proxy may vote according to the best
of their judgment.
BENEFICIAL HOLDERS OF CINAR SHARES
ONLY CINAR SHAREHOLDERS OR THE PERSONS THEY APPOINT AS THEIR PROXIES ARE
PERMITTED TO VOTE AT THE MEETING. However, in many cases, shares beneficially
owned by a person (A "BENEFICIAL HOLDER") are registered either: (i) in the name
of an intermediary (an "INTERMEDIARY") that the Beneficial Holder deals with in
respect of the CINAR Shares, such as a securities dealer or broker, a bank, a
trust company, or a trustee or administrator in the case of a self-administered
RRSP, RRIF, RESP or similar plan; or (ii) in the name of a Securities Depository
of which the Intermediary is a participant. In accordance with National
Instrument 54-101 of the Canadian Securities Administrators entitled
"Communication with Beneficial Owners of Securities of a Reporting Issuer",
CINAR has distributed copies of the Notice of Meeting, this Circular, the forms
of proxy, the Letter of Transmittal and the Authorisation Letter (collectively,
the "MEETING MATERIALS") to the Securities Depositories and Intermediaries for
distribution to Beneficial Holders. Intermediaries are required to forward the
Meeting Materials to Beneficial Holders, and often use a service company for
this purpose. Beneficial Holders will either:
a) typically, be provided with a computerized form (often called a
"VOTING INSTRUCTION FORM") which is not signed by the Intermediary and
which, when properly completed and signed by the Beneficial Holder and
returned to the Intermediary or its service company, will constitute
voting instructions from the Beneficial Holder which the Intermediary
must follow. The Beneficial Holder will generally be given a page of
instructions which contains a removable label containing a bar-code
and other information. In order for the applicable computerized form
to validly constitute a voting instruction form, the Beneficial Holder
must remove the label from the instructions and affix it to the
computerized form, properly complete and sign the form and submit it
to the Intermediary or its service company in accordance with the
instructions of the Intermediary or service company. In certain cases,
the Beneficial Holder may provide such voting instructions to the
Intermediary or its service company through the Internet or through a
toll-free telephone number; or
b) less commonly, be given a proxy form which has already been signed by
the Intermediary (typically by a facsimile, stamped signature), which
is restricted to the number of shares beneficially owned by the
Beneficial Holder, but which otherwise has not been completed. In this
case, the Beneficial Holder who wishes to submit a proxy should
properly complete the proxy form and submit it to Computershare Trust
Company of Canada, Proxy Department, 100 University Avenue, 9th Floor,
Toronto, Ontario, Canada M5J 2Y1.
In either case, the purpose of these procedures is to permit Beneficial Holders
to direct the voting of the securities which they beneficially own. A Beneficial
Holder may revoke voting instructions which have been given to an Intermediary
at any time by written notice to the Intermediary.
Should a Beneficial Holder who receives a voting instruction form wish to vote
at the Meeting in person (or have another person attend and vote on behalf of
the Beneficial Holder), the Beneficial Holder should print his or her own name,
or that of such other person, on the voting instruction form and return it to
the Intermediary or its service company. Should a Beneficial Holder who receives
a proxy form wish to vote at the Meeting in person (or have another person
attend and vote on behalf of the Beneficial Holder), the Beneficial Holder
should strike out the names of the persons set out in the proxy form and insert
the name of the Beneficial Holder or such other person in the blank space
provided and submit it to Computershare Trust Company of Canada at the address
set out above.
IN ALL CASES, BENEFICIAL HOLDERS SHOULD CAREFULLY FOLLOW THE INSTRUCTIONS OF
THEIR INTERMEDIARY, INCLUDING THOSE REGARDING WHEN, WHERE AND BY WHAT MEANS THE
VOTING INSTRUCTION FORM OR PROXY FORM MUST BE DELIVERED.
DISSENTING SHAREHOLDER RIGHTS
Pursuant to the provisions of the Interim Order, CINAR Shareholders have been
granted the right to dissent with respect to the Arrangement Resolution. If the
Arrangement becomes effective, a CINAR Shareholder who dissents will be entitled
to be paid the fair value of the CINAR Shares held by such CINAR Shareholder.
This right to dissent is described in this Circular under the heading
"Dissenting Shareholder Rights". The Dissent Procedures require that a CINAR
Shareholder who wishes to exercise his Dissent Rights must provide a Dissent
Notice to CINAR, c/o Computershare Trust Company of Canada, Attention: Corporate
Actions, 100 University Avenue, 9th Floor, Toronto, Ontario, Canada M5J 2Y1,
facsimile number: (416) 981-9663, not later than 5:00 p.m. (Eastern Time) on the
second Business Day preceding the Meeting. IT IS IMPORTANT THAT CINAR
SHAREHOLDERS WHO WISH TO EXERCISE THEIR DISSENT RIGHTS STRICTLY COMPLY WITH THIS
REQUIREMENT, WHICH IS DIFFERENT FROM THE STATUTORY DISSENT PROVISIONS OF THE
CBCA WHICH WOULD PERMIT A DISSENT NOTICE TO BE PROVIDED AT OR PRIOR TO THE
MEETING. FAILURE TO COMPLY STRICTLY WITH THE DISSENT PROCEDURES MAY RESULT IN
THE LOSS OR UNAVAILABILITY OF DISSENT RIGHTS.
Only CINAR Shareholders are entitled to dissent from the Arrangement Resolution.
Beneficial Holders should refer to the information under the heading "Dissenting
Shareholder Rights" in this Circular for a description of what they need to do
to have the Dissent Rights exercised in respect of the CINAR Shares they
beneficially own.
VOTING SHARES AND PRINCIPAL HOLDERS
CINAR's authorized share capital consists of an unlimited number of Multiple
Voting Shares, an unlimited number of Limited Voting Shares and an unlimited
number of Preferred Shares, issuable in series. As of January 14, 2004, there
were 5,233,402 Multiple Voting Shares, 34,735,998 Limited Voting Shares and no
Preferred Shares outstanding. Limited Voting Shares are entitled to one vote per
Limited Voting Share. Multiple Voting Shares are entitled to 13.61 votes per
Multiple Voting Share (rounded to the nearest one hundredth).
Pursuant to the Interim Order, the Court has fixed January 16, 2004 as the
Record Date for the purposes of determining CINAR Shareholders entitled to
receive notice of the Meeting. Pursuant to the CBCA, CINAR is required to
prepare, no later than ten days after the Record Date, an alphabetical list of
CINAR Shareholders entitled to vote as of the Record Date that shows the number
of CINAR Shares held by each CINAR Shareholder. A CINAR Shareholder whose name
appears on the list referred to above is entitled to vote the CINAR Shares shown
opposite his or her name at the Meeting. The list of CINAR Shareholders is
available for inspection by CINAR Shareholders during usual business hours at
the head office of CINAR and will be available for inspection by CINAR
Shareholders at the Meeting.
To be approved, the Stated Capital Resolution requires the affirmative vote of
not less than two-thirds of the votes cast by holders of Limited Voting Shares
present in person or represented by proxy and entitled to vote at the Meeting.
To be approved, the Arrangement Resolution requires the affirmative vote of not
less than two-thirds of the votes cast by holders of Multiple Voting Shares
voting separately as a class and not less than two thirds of the votes cast by
holders of Limited Voting Shares voting separately as a class, in each case
present in person or represented by proxy and entitled to vote at the Meeting.
For these purposes, any spoiled votes, illegible votes, defective votes and
abstentions will not be considered votes cast.
To the knowledge of the directors and officers of CINAR, as at January 14, 2004,
the only persons who beneficially owned, directly or indirectly, or exercised
control or direction over CINAR Shares carrying more than 10% of the votes
attached to any class of CINAR Shares entitled to vote in connection with any
matters being proposed for consideration at the Meeting were the following:
PERCENTAGE OF
TOTAL VOTING
RIGHTS (OTHER
PERCENTAGE PERCENTAGE THAN THOSE
OF ISSUED OF ISSUED PERCENTAGE RELATING TO THE
NAME AND NUMBER OF MULTIPLE NUMBER OF LIMITED OF TOTAL CINAR SHARES HELD
NAME AND MUNICIPALITY MULTIPLE VOTING VOTING LIMITED VOTING VOTING BY CHAREST /
OF RESIDENCE SHARES SHARES VOTING SHARES SHARES RIGHTS WEINBERG(1))
Micheline Charest..... 2,378,084(2) 45.44% 19,504(2) --(3) 30.56% --
Montreal, Quebec
Ronald A. Weinberg.... 2,633,366(4) 50.32% 2,324(4) --(3) 33.83% --
Montreal, Quebec
FMR Corp.............. -- -- 5,312,500 15.29% 5.01% 14.07%
Boston,
Massachusetts
Heartland Advisors,
Inc.(5)............... -- -- 4,057,500 11.68% 3.83% 10.75%
Milwaukee, Wisconsin
____________________
(1) On March 15, 2002, the CVMQ approved a settlement agreement with Ms.
Charest and Mr. Weinberg pursuant to which, among other things, Ms. Charest
and Mr. Weinberg undertook to abstain for a period of five years, in
connection with the election of directors, from exercising the voting
rights attached to any CINAR Shares held by them, directly or indirectly.
The settlement agreement provides that Ms. Charest and Mr. Weinberg may
create a voting trust, the trustee of which shall be Canadian and shall be
approved by the Director of Compliance and Enforcement of the CVMQ. In
conformity with the settlement agreement, Ms. Charest and Mr. Weinberg
entered into a voting trust agreement (the "VOTING TRUST AGREEMENT") on
April 19, 2002 whereby Mr. Robert Despres acts as trustee for the CINAR
Shares held by Ms. Charest and Mr. Weinberg, directly or indirectly, with
respect to matters relating to the election of directors of CINAR.
(2) The 2,378,084 Multiple Voting Shares and 19,504 Limited Voting Shares are
held by a corporation controlled by Ms. Charest.
(3) Less than 0.1%.
(4) Of the 2,633,366 Multiple Voting Shares, 2,093,366 are held by a
corporation controlled by Mr. Weinberg and 540,000 are held by Mr. Weinberg
directly. Mr. Weinberg holds the 2,324 Limited Voting Shares directly.
(5) Mr. William J. Nasgovitz, the President and principal shareholder of
Heartland Advisors, Inc., could be deemed, as a result of his position
with, and his stock ownership of, Heartland Advisors, Inc., to be conferred
voting and/or investment power over the CINAR Shares which Heartland
Advisors, Inc. beneficially owns.
The CINAR By-laws provide that a quorum of CINAR Shareholders is present at a
meeting of Shareholders, irrespective of the number of persons actually present
at the meeting, if the holders of CINAR Shares representing at least 10% of the
voting rights attached to all CINAR Shares bearing the right to vote at the
meeting are present in person or represented either by proxy or by an individual
acting on behalf of a body corporate or association and duly authorized by a
resolution of the board of directors or governing body of the body corporate or
association to represent it at meetings of CINAR Shareholders.
PROCEDURE FOR PAYMENT TO CINAR SHAREHOLDERS
If the requisite approvals are obtained from the CINAR Shareholders, the Court
and certain regulatory authorities, and the Arrangement is completed, Newco will
acquire all of the outstanding CINAR Shares. For CINAR Shareholders (other than
CINAR Shareholders who validly exercise their Dissent Rights) to receive the
Aggregate Consideration (less any applicable withholding or other taxes) payable
on the acquisition of CINAR Shares, CINAR Shareholders must complete and sign
the enclosed Letter of Transmittal and return it, together with the certificates
representing their CINAR Shares, to the Depositary in accordance with the
instructions in the Letter of Transmittal. A security return envelope is
enclosed to assist CINAR Shareholders in delivering their CINAR Shares.
WITHHOLDING TAX
AS A RESULT OF THE CINAR SHARES BEING DELISTED FROM THE TSX AND NASDAQ, THE
CINAR SHARES ARE "TAXABLE CANADIAN PROPERTY" FOR THE PURPOSES OF THE CANADIAN
TAX ACT AND "TAXABLE QUEBEC PROPERTY" FOR THE PURPOSES OF THE QUEBEC TAX ACT. AS
A RESULT, NEWCO MUST WITHHOLD AND REMIT TO CCRA 25% (AND IN THE CASE OF A CINAR
SHAREHOLDER WHICH IS A CORPORATION, A FURTHER 12% MUST BE WITHHELD AND REMITTED
TO THE MRQ) OF THE AGGREGATE CONSIDERATION PAYABLE TO A NON-RESIDENT FOR HIS
CINAR SHARES UNLESS SUCH NON-RESIDENT PROVIDES NEWCO WITH A SECTION 116
CERTIFICATE SPECIFYING A CERTIFICATE LIMIT WHICH IS NOT LESS THAN THE VALUE OF
THE AGGREGATE CONSIDERATION PAYABLE TO SUCH NON-RESIDENT AND, IF APPLICABLE, A
QUEBEC CERTIFICATE SPECIFYING ESTIMATED PROCEEDS WHICH ARE NOT LESS THAN THE
VALUE OF THE AGGREGATE CONSIDERATION PAYABLE TO SUCH NON-RESIDENT. ACCORDINGLY,
IN ORDER TO RECEIVE 100% OF THE AGGREGATE CONSIDERATION PAYABLE UNDER THE
ARRANGEMENT, A CINAR SHAREHOLDER RESIDENT IN CANADA AND A CINAR SHAREHOLDER WHO
IS A NON-RESIDENT MUST SATISFY THE FOLLOWING REQUIREMENTS, INSOFAR AS THEY ARE
APPLICABLE TO HIM.
CANADIAN RESIDENTS
IN ORDER TO RECEIVE 100% OF THE AGGREGATE CONSIDERATION PAYABLE UNDER THE
ARRANGEMENT, A BENEFICIAL HOLDER RESIDENT IN CANADA WILL BE REQUIRED TO PROVIDE
THE FOLLOWING PROOF OF HIS CANADIAN RESIDENCY STATUS (THE "PROOF OF RESIDENCY")
(OR OTHERWISE ESTABLISH TO THE SATISFACTION OF NEWCO THAT AT ALL RELEVANT TIMES,
FOR THE PURPOSES OF THE CANADIAN TAX ACT, HE IS RESIDENT, OR DEEMED TO BE
RESIDENT, IN CANADA):
(I) IF YOU ARE A BENEFICIAL HOLDER AND YOUR CINAR SHARES ARE REGISTERED IN YOUR
NAME, YOU MUST PROVIDE YOUR SOCIAL INSURANCE NUMBER (IF YOU ARE AN
INDIVIDUAL) OR YOUR TRUST NUMBER OR BUSINESS NUMBER (IF YOU ARE NOT AN
INDIVIDUAL) IN THE LETTER OF TRANSMITTAL. IF YOU ARE NOT SURE WHETHER YOUR
CINAR SHARES ARE REGISTERED IN YOUR NAME, PLEASE CONTACT YOUR INVESTMENT
ADVISOR; OR
(II) IF YOU ARE AN INTERMEDIARY COMPLETING A LETTER OF TRANSMITTAL ON BEHALF OF
BENEFICIAL HOLDERS RESIDENT IN CANADA, OR IF A LETTER OF TRANSMITTAL IS
BEING COMPLETED BY A SECURITIES DEPOSITORY FOR BENEFICIAL HOLDERS RESIDENT
IN CANADA, IN EITHER CASE, THE INTERMEDIARY FOR SUCH BENEFICIAL HOLDERS
MUST SEND TO THE DEPOSITARY A LIST SETTING OUT THE NAME AND ADDRESS OF EACH
BENEFICIAL HOLDER ON WHOSE BEHALF SUCH LETTER OF TRANSMITTAL IS BEING
COMPLETED, THE NUMBER AND CLASS OF CINAR SHARES HELD BY THE INTERMEDIARY OR
SECURITIES DEPOSITORY, AS THE CASE MAY BE, ON BEHALF OF EACH SUCH
BENEFICIAL HOLDER AND THE SOCIAL INSURANCE NUMBER (IN THE CASE OF
INDIVIDUAL BENEFICIAL HOLDERS) OR TRUST NUMBER OR BUSINESS NUMBER (IN THE
CASE OF BENEFICIAL HOLDERS WHO ARE NOT INDIVIDUALS) OF EACH SUCH BENEFICIAL
HOLDER.
YOUR PROOF OF RESIDENCY MUST BE RECEIVED BY THE DEPOSITARY NO LATER THAN THE
EARLIER OF (I) THE DATE UPON WHICH THE AGGREGATE CONSIDERATION IS PAYABLE TO YOU
PURSUANT TO THE PLAN OF ARRANGEMENT, AND (II) THE DATE WHICH IS 25 DAYS AFTER
THE END OF THE MONTH IN WHICH THE EFFECTIVE DATE OCCURS. IF YOUR PROOF OF
RESIDENCY IS NOT RECEIVED BY THE DEPOSITARY BY THAT TIME, NEWCO SHALL BE
ENTITLED TO WITHHOLD 25% OF THE AGGREGATE CONSIDERATION PAYABLE TO YOU (AND IN
THE CASE OF A BENEFICIAL HOLDER WHICH IS A CORPORATION, NEWCO SHALL BE ENTITLED
TO WITHHOLD A FURTHER 12% OF THE AGGREGATE CONSIDERATION PAYABLE TO YOU). IF
YOUR PROOF OF RESIDENCY IS NOT RECEIVED BY THE DEPOSITARY WITHIN 25 DAYS AFTER
THE END OF THE MONTH IN WHICH THE EFFECTIVE DATE OCCURS, THE AMOUNT OF THE
AGGREGATE CONSIDERATION PAYABLE TO YOU WHICH HAS BEEN WITHHELD WILL BE REMITTED
TO CCRA (AND, IF APPLICABLE, THE MRQ). YOU SHOULD NOTE THAT THE AGGREGATE
CONSIDERATION INCLUDES NOT ONLY THE CASH PORTION, BUT ALSO THE VALUE OF THE CCES
ALLOCATED TO YOU PURSUANT TO THE ARRANGEMENT.
NON-RESIDENTS OF CANADA
IN ORDER TO RECEIVE 100% OF THE AGGREGATE CONSIDERATION PAYABLE UNDER THE
ARRANGEMENT, A BENEFICIAL HOLDER WHO IS A NON-RESIDENT WILL BE REQUIRED TO
PROVIDE A SECTION 116 CERTIFICATE SPECIFYING A CERTIFICATE LIMIT WHICH IS NOT
LESS THAN THE VALUE OF THE AGGREGATE CONSIDERATION PAYABLE TO SUCH NON-RESIDENT
BENEFICIAL HOLDER AND, IN THE CASE OF A NON-RESIDENT BENEFICIAL HOLDER WHICH IS
A CORPORATION, A QUEBEC CERTIFICATE SPECIFYING ESTIMATED PROCEEDS WHICH ARE NOT
LESS THAN THE VALUE OF THE AGGREGATE CONSIDERATION PAYABLE TO SUCH NON-RESIDENT
BENEFICIAL HOLDER NO LATER THAN THE EARLIER OF (I) THE DATE UPON WHICH THE
AGGREGATE CONSIDERATION IS PAYABLE TO YOU PURSUANT TO THE PLAN OF ARRANGEMENT,
AND (II) THE DATE WHICH IS 25 DAYS AFTER THE END OF THE MONTH IN WHICH THE
EFFECTIVE DATE OCCURS. IF YOUR SECTION 116 CERTIFICATE IS NOT RECEIVED BY THE
DEPOSITARY BY THAT TIME, NEWCO SHALL BE ENTITLED TO WITHHOLD 25% OF THE
AGGREGATE CONSIDERATION PAYABLE TO YOU (AND IN THE CASE OF A BENEFICIAL HOLDER
WHICH IS A CORPORATION, IF YOUR QUEBEC CERTIFICATE IS NOT RECEIVED BY THE
DEPOSITARY BY THAT TIME, NEWCO SHALL BE ENTITLED TO WITHHOLD A FURTHER 12% OF
THE AGGREGATE CONSIDERATION PAYABLE TO YOU). IF YOUR SECTION 116 CERTIFICATE
AND, IF APPLICABLE, YOUR QUEBEC CERTIFICATE, IS NOT RECEIVED BY THE DEPOSITARY
WITHIN 25 DAYS AFTER THE END OF THE MONTH IN WHICH THE EFFECTIVE DATE OCCURS,
THE AMOUNT OF THE AGGREGATE CONSIDERATION PAYABLE TO YOU WHICH HAS BEEN WITHHELD
WILL BE REMITTED TO CCRA (AND, IF APPLICABLE, THE MRQ). IF AMALCO RECEIVES
LETTERS FROM CCRA AND THE MRQ, IN A FORM SATISFACTORY TO THE DEPOSITARY AND
AMALCO, CONFIRMING THAT THE REMITTANCE OF THE WITHHELD AMOUNT TO CCRA AND THE
MRQ CAN BE DELAYED, THE AMOUNT OF THE AGGREGATE CONSIDERATION PAYABLE TO YOU
WHICH HAS BEEN WITHHELD WILL CONTINUE TO BE HELD BY THE DEPOSITARY UNTIL THE
FIRST TO OCCUR OF: (I) THE RECEIPT BY THE DEPOSITARY OF YOUR SECTION 116
CERTIFICATE AND, IF APPLICABLE, YOUR QUEBEC CERTIFICATE, IN WHICH CASE SUCH
AMOUNT WILL BE PAID TO YOU; AND (II) THE EXPIRY OF THE TIME PERIODS SPECIFIED IN
SUCH LETTERS, IN WHICH CASE SUCH AMOUNT WILL BE REMITTED TO CCRA (AND, IF
APPLICABLE, THE MRQ). IF THE CERTIFICATE LIMIT OF YOUR SECTION 116 CERTIFICATE
(AND YOUR QUEBEC CERTIFICATE, WHERE APPLICABLE) DELIVERED TO THE DEPOSITARY IS
FOR AN AMOUNT WHICH IS LESS THAN THE VALUE OF THE AGGREGATE CONSIDERATION
PAYABLE TO YOU, NEWCO SHALL BE ENTITLED TO WITHHOLD AN AMOUNT EQUAL TO 25% OF
THE AMOUNT BY WHICH THE VALUE OF THE AGGREGATE CONSIDERATION PAYABLE TO YOU
EXCEEDS THE CERTIFICATE LIMIT (AND NEWCO SHALL BE ENTITLED TO WITHHOLD AN
ADDITIONAL 12% OF THE AMOUNT BY WHICH THE VALUE OF THE AGGREGATE CONSIDERATION
PAYABLE TO YOU EXCEEDS THE ESTIMATED PROCEEDS SPECIFIED IN YOUR QUEBEC
CERTIFICATE IF YOU ARE A CORPORATION). ANY AMOUNTS SO WITHHELD WILL BE REMITTED
AT THE TIMES AND IN THE MANNER DESCRIBED ABOVE. YOU SHOULD NOTE THAT THE
AGGREGATE CONSIDERATION INCLUDES NOT ONLY THE CASH PORTION, BUT ALSO THE VALUE
OF THE CCES ALLOCATED TO YOU PURSUANT TO THE ARRANGEMENT.
RESIDENTS OF THE UNITED STATES - SECTION 116 CERTIFICATE
NEWCO HAS MADE ARRANGEMENTS WITH CCRA TO APPLY FOR A SECTION 116 CERTIFICATE ON
BEHALF OF CERTAIN NON-RESIDENT BENEFICIAL HOLDERS WHO ARE RESIDENT IN THE UNITED
STATES. IF YOU ARE A BENEFICIAL HOLDER RESIDENT IN THE UNITED STATES AND YOUR
CINAR SHARES ARE REGISTERED IN YOUR NAME, IN ORDER FOR NEWCO TO APPLY ON YOUR
BEHALF FOR A SECTION 116 CERTIFICATE YOU MUST MEET THE FOLLOWING CONDITIONS AND
SO INDICATE BY COMPLETING THE APPROPRIATE SECTIONS OF THE LETTER OF TRANSMITTAL:
(I) YOU MUST BE RESIDENT IN THE UNITED STATES, AND NOT BE A TRUST (EXCLUDING AN
IRA), A PARTNERSHIP OR AN LLC;
(II) YOU MUST NOT BENEFICIALLY OWN, IN THE AGGREGATE, MORE THAN 10,000 CINAR
SHARES;
(III) YOU MUST COMPLETE THE AUTHORISATION LETTER (A COPY OF WHICH IS INCLUDED
WITH THIS CIRCULAR) AND RETURN IT WITH THE LETTER OF TRANSMITTAL TO THE
DEPOSITARY AT THE ADDRESS INDICATED IN THE LETTER OF TRANSMITTAL; AND
(IV) YOU MUST ATTACH TO THE AUTHORISATION LETTER PROOF OF YOUR UNITED STATES
RESIDENCY STATUS. FOR INDIVIDUALS, THIS MAY CONSIST OF A COPY OF YOUR MOST
RECENT UNITED STATES INCOME TAX RETURN OR A LETTER FROM THE IRS CONFIRMING
YOUR UNITED STATES RESIDENCY STATUS. IF YOU ARE A CORPORATION, YOU MUST
ATTACH COPIES OF YOUR CHARTER AND YOUR MOST RECENT UNITED STATES INCOME TAX
RETURN. HOWEVER, IF ON THE DISPOSITION OF YOUR CINAR SHARES YOU WILL
REALIZE A LOSS, PROOF OF YOUR UNITED STATES RESIDENCY STATUS WILL NOT BE
REQUIRED AS LONG AS YOU ATTACH TO THE AUTHORISATION LETTER A BROKER'S
STATEMENT OR OTHER DOCUMENTATION SUBSTANTIATING THE COST BASE OF THE CINAR
SHARES THAT YOU BENEFICIALLY OWN.
IF YOU ARE AN INTERMEDIARY COMPLETING A LETTER OF TRANSMITTAL ON BEHALF OF
CLIENTS WHO ARE RESIDENT IN THE UNITED STATES, OR IF YOU ARE A SECURITIES
DEPOSITORY COMPLETING A LETTER OF TRANSMITTAL FOR BENEFICIAL HOLDERS RESIDENT IN
THE UNITED STATES AND WHO, IN EACH CASE, DO NOT BENEFICIALLY OWN MORE THAN
10,000 CINAR SHARES, OTHER THAN TRUSTS (EXCLUDING IRAS), PARTNERSHIPS OR LLCS,
YOU MUST SO INDICATE BY COMPLETING THE APPROPRIATE SECTIONS OF THE LETTER OF
TRANSMITTAL AND, IN EITHER CASE, THE INTERMEDIARY FOR SUCH BENEFICIAL HOLDERS
MUST SEND TO THE DEPOSITARY:
(I) A LIST SETTING OUT THE NAME AND ADDRESS OF EACH BENEFICIAL HOLDER WHO IS A
RESIDENT OF THE UNITED STATES AND ON WHOSE BEHALF SUCH LETTER OF
TRANSMITTAL IS BEING COMPLETED AND THE NUMBER AND CLASS OF CINAR SHARES
BENEFICIALLY OWNED BY EACH SUCH BENEFICIAL HOLDER; AND
(II) THE DOCUMENT MENTIONED IN PARAGRAPH (III) ABOVE COMPLETED BY EACH SUCH
BENEFICIAL HOLDER AND THE APPLICABLE DOCUMENTS MENTIONED IN PARAGRAPH (IV)
ABOVE FOR EACH SUCH BENEFICIAL HOLDER.
ANY BENEFICIAL HOLDERS RESIDENT IN THE UNITED STATES WHO DO NOT MEET THE
FOREGOING CONDITIONS WILL BE REQUIRED TO OBTAIN AND DELIVER TO THE DEPOSITARY BY
THE APPROPRIATE TIME THEIR OWN SECTION 116 CERTIFICATES, FAILING WHICH NEWCO
SHALL BE ENTITLED TO WITHHOLD 25% OF THE AGGREGATE CONSIDERATION PAYABLE TO SUCH
BENEFICIAL HOLDERS AND WILL REMIT ANY AMOUNT SO WITHHELD TO CCRA.
RESIDENTS OF THE UNITED STATES - QUEBEC CERTIFICATE
NEWCO HAS MADE ARRANGEMENTS WITH THE MRQ TO APPLY FOR A QUEBEC CERTIFICATE ON
BEHALF OF CERTAIN BENEFICIAL HOLDERS WHICH ARE CORPORATIONS RESIDENT IN THE
UNITED STATES, OTHER THAN LLCS. IF YOU ARE A BENEFICIAL HOLDER WHICH IS A
CORPORATION, OTHER THAN AN LLC, RESIDENT IN THE UNITED STATES AND YOUR CINAR
SHARES ARE REGISTERED IN YOUR NAME, IN ORDER FOR NEWCO TO APPLY ON YOUR BEHALF
FOR A QUEBEC CERTIFICATE, YOU MUST MEET THE FOLLOWING CONDITIONS AND SO INDICATE
BY COMPLETING THE APPROPRIATE SECTIONS OF THE LETTER OF TRANSMITTAL:
(I) YOU MUST BE A CORPORATION, OTHER THAN AN LLC;
(II) YOU MUST NOT BENEFICIALLY OWN, IN THE AGGREGATE, MORE THAN 10,000 CINAR
SHARES;
(III) YOU MUST COMPLETE THE AUTHORISATION LETTER (A COPY OF WHICH IS INCLUDED
WITH THIS CIRCULAR) AND RETURN IT WITH THE LETTER OF TRANSMITTAL TO THE
DEPOSITARY AT THE ADDRESS INDICATED ON THE LETTER OF TRANSMITTAL; AND
(IV) YOU MUST ATTACH TO THE AUTHORISATION LETTER PROOF OF YOUR UNITED STATES
RESIDENCY STATUS CONSISTING OF A COPY OF YOUR CORPORATE CHARTER AND A COPY
OF YOUR MOST RECENT UNITED STATES INCOME TAX RETURN. HOWEVER, IF YOU WILL
REALIZE A LOSS ON THE DISPOSITION OF YOUR CINAR SHARES, PROOF OF YOUR
UNITED STATES RESIDENCY STATUS WILL NOT BE REQUIRED AS LONG AS YOU ATTACH
TO THE AUTHORISATION LETTER A BROKER'S STATEMENT OR OTHER DOCUMENTATION
SUBSTANTIATING THE COST BASE OF THE CINAR SHARES THAT YOU BENEFICIALLY OWN.
IF YOU ARE AN INTERMEDIARY COMPLETING A LETTER OF TRANSMITTAL ON BEHALF OF
CLIENTS WHICH ARE CORPORATIONS, OTHER THAN LLCS, RESIDENT IN THE UNITED STATES,
OR IF YOU ARE A SECURITIES DEPOSITORY COMPLETING A LETTER OF TRANSMITTAL FOR
BENEFICIAL HOLDERS WHICH ARE CORPORATIONS, OTHER THAN LLCS, RESIDENT IN THE
UNITED STATES, YOU MUST SO INDICATE BY COMPLETING THE APPROPRIATE SECTIONS OF
THE LETTER OF TRANSMITTAL AND, IN EITHER CASE, THE INTERMEDIARY MUST SEND TO THE
DEPOSITARY:
(I) A LIST SETTING OUT THE NAME AND ADDRESS OF THE BENEFICIAL HOLDERS RESIDENT
IN THE UNITED STATES WHICH ARE CORPORATIONS, OTHER THAN LLCS, ON WHOSE
BEHALF SUCH LETTER OF TRANSMITTAL IS BEING COMPLETED AND THE NUMBER AND
CLASS OF CINAR SHARES BENEFICIALLY OWNED BY EACH SUCH BENEFICIAL HOLDER;
AND
(II) THE DOCUMENT MENTIONED IN PARAGRAPH (III) ABOVE COMPLETED BY EACH SUCH
BENEFICIAL HOLDER AND THE APPLICABLE DOCUMENTS MENTIONED IN PARAGRAPH (IV)
ABOVE FOR EACH SUCH BENEFICIAL HOLDER.
ANY NON-RESIDENT BENEFICIAL HOLDER WHICH IS A CORPORATION WHICH DOES NOT MEET
THE FOREGOING CONDITIONS, INCLUDING AN LLC, WILL BE REQUIRED TO OBTAIN AND
DELIVER TO THE DEPOSITARY BY THE APPROPRIATE TIME ITS OWN QUEBEC CERTIFICATE,
FAILING WHICH NEWCO SHALL BE ENTITLED TO WITHHOLD 12% OF THE AGGREGATE
CONSIDERATION PAYABLE TO SUCH BENEFICIAL HOLDER AND WILL REMIT ANY AMOUNT SO
WITHHELD TO THE MRQ.
NO ASSURANCE NEWCO WILL OBTAIN SECTION 116 CERTIFICATE AND QUEBEC CERTIFICATE
WHILE NEWCO WILL MAKE REASONABLE COMMERCIAL EFFORTS TO OBTAIN A SECTION 116
CERTIFICATE AND A QUEBEC CERTIFICATE ON BEHALF OF NON-RESIDENTS WHO COMPLY WITH
THE FOREGOING REQUIREMENTS WITHIN THE PARAMETERS FOR OBTAINING SUCH SECTION 116
CERTIFICATE AND QUEBEC CERTIFICATE SET OUT BY CCRA AND THE MRQ, RESPECTIVELY,
THERE IS NO ASSURANCE THAT NEWCO WILL OBTAIN SUCH A SECTION 116 CERTIFICATE
AND/OR A QUEBEC CERTIFICATE ON A TIMELY BASIS OR AT ALL.
PLAN OF ARRANGEMENT
The Plan of Arrangement provides that at the Effective Time, with respect to
each CINAR Share (other than CINAR Shares in respect of which the CINAR
Shareholder has exercised Dissent Rights).
(i) the registered holder thereof shall cease to be the registered holder of
such CINAR Share and the name of such registered holder shall be removed
from the register of CINAR Shareholders as of the Effective Time;
(ii) the certificate representing such CINAR Share shall be deemed to have been
cancelled as of the Effective Time; and
(iii) the registered holder thereof shall be deemed to have executed and
delivered all consents, releases, assignments and waivers, statutory or
otherwise, required to transfer such CINAR Share to Newco in accordance
with the Plan of Arrangement.
If any CINAR Shareholder fails for any reason to deliver to the Depositary for
cancellation the certificates formerly representing CINAR Shares (or an
affidavit of loss and bond), together with a duly completed Letter of
Transmittal and other required documents, on or before the sixth anniversary of
the Effective Date, such CINAR Shareholder shall be deemed to have donated and
forfeited to Amalco the cash, net of any applicable withholding or other taxes,
held by the Depositary in trust for such CINAR Shareholder pursuant to the Plan
of Arrangement and any other rights under the CCEs to which such CINAR
Shareholder is entitled. Subject to the previous sentence, at and after the
Effective Time, any certificate formerly representing CINAR Shares shall
represent only the right to receive the consideration provided in the Plan of
Arrangement in accordance with the Plan of Arrangement, provided that such
certificates shall, on the sixth anniversary of the Effective Date, cease to
represent a claim of any nature whatsoever, shall be deemed to have been
surrendered to Amalco and shall be cancelled.
Any use of mail to transmit certificate(s) for CINAR Shares and the related
Letter of Transmittal is at the risk of the CINAR Shareholder. If these
documents are mailed, it is recommended that registered mail, with return
receipt requested, properly insured, be used.
A CINAR Shareholder who has complied with the procedures set out in this section
"Procedure for Payment to CINAR Shareholders" will receive payment for his or
her CINAR Shares at the time and in the manner specified under the heading
"Arrangement Mechanics - Payment for CINAR Shares".
All amounts payable after the Effective Date by the Manager on or in respect of
any CCEs to a payee thereof before the delivery by such payee of a duly
completed Letter of Transmittal together with the certificate formerly
representing such payee's CINAR Shares (or an affidavit of loss and bond) and
other required documents shall be paid or made to the Depositary to be held by
it in trust for such payee. All monies so held in trust by the Depositary shall
be invested by it in interest bearing trust accounts upon such terms as the
Depositary may deem appropriate. Subject to the provisions of the Plan of
Arrangement regarding the extinction of the rights of the former CINAR
Shareholders, the Depositary shall pay and deliver to any such payee, as soon as
reasonably practicable after the delivery to the Depositary for cancellation of
the certificates formerly representing such payee's CINAR Shares (or an
affidavit of loss and bond) together with a duly completed Letter of Transmittal
and other required documents, all amounts, net of any applicable withholding or
other taxes, held by the Depositary in trust for such payee pursuant to the Plan
of Arrangement, with any interest on the funds so held in trust to be for the
sole benefit of the Manager.
If any certificate which immediately prior to the Effective Time represented
CINAR Shares that were acquired by Newco has been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the CINAR Shareholder claiming
such certificate to be lost, stolen or destroyed and the delivery of a duly
completed Letter of Transmittal, in exchange for such lost, stolen or destroyed
certificate, (a) within ten Business Days after the later of (i) the Effective
Date, and (ii) the delivery to the Depositary of a duly completed Letter of
Transmittal, an affidavit of loss and the bond or other indemnity referred to
below, Amalco will cause the Depositary:
(A) to forward or cause to be forwarded by first class mail to the CINAR
Shareholder at the address specified in the Letter of Transmittal;
(B) if requested by the CINAR Shareholder in the Letter of Transmittal, to make
available at the offices of the Depositary for pick up by the CINAR
Shareholder; or
(C) if the Letter of Transmittal neither specifies an address nor contains a
request as described in (B) above, to forward or cause to be forwarded by
first class mail to the CINAR Shareholder at the address of the CINAR
Shareholder as shown on the share register maintained by CINAR immediately
prior to the Effective Time;
a cheque in United States dollars representing the Cash Portion payable for such
CINAR Shares, net of any applicable withholding or other taxes, and (b) within
ten Business Days after the later of (i) the receipt by CINAR of all of the Net
Litigation Proceeds in full, and (ii) the delivery to the Depositary of a duly
completed Letter of Transmittal, an affidavit of loss and the bond or other
indemnity referred to below, Amalco will cause the Depositary:
(D) to forward or cause to be forwarded by first class mail to the CINAR
Shareholder at the address specified in the Letter of Transmittal;
(E) if requested by the CINAR Shareholder in the Letter of Transmittal, to make
available at the offices of the Depositary for pick up by the CINAR
Shareholder; or
(F) if the Letter of Transmittal neither specifies an address nor contains a
request as described in (E) above, to forward or cause to be forwarded by
first class mail to the CINAR Shareholder at the address of the CINAR
Shareholder as shown on the share register maintained by CINAR immediately
prior to the Effective Time;
a cheque in United States dollars representing the portion of the Net Litigation
Amount payable for such CINAR Shares, net of any applicable withholding or other
taxes. When authorizing such payment in exchange for any lost, stolen or
destroyed certificate, the Person to whom a cheque is to be issued shall, as a
condition precedent to such issuance, give a bond satisfactory to Amalco and the
Depositary in such sum as Amalco may direct or otherwise indemnify Amalco and
the Depositary in a manner satisfactory to them against any claim that may be
made against Amalco or the Depositary with respect to the certificate alleged to
have been lost, stolen or destroyed.
CINAR SHAREHOLDERS WHOSE CINAR SHARES ARE REGISTERED IN THE NAME OF AN
INTERMEDIARY SHOULD CONTACT THAT INTERMEDIARY FOR INSTRUCTIONS AND ASSISTANCE IN
DELIVERING SHARE CERTIFICATES REPRESENTING THEIR CINAR SHARES. See "Information
Concerning the Meeting -- Beneficial Holders of CINAR Shares".
REDUCTION OF STATED CAPITAL
CINAR, as the applicant for the Final Order, will be required to meet a
statutory solvency test under subsection 192(2) of the CBCA. The test stipulates
that CINAR will be deemed insolvent:
(a) if it is unable to pay its liabilities as they become due; or
(b) if the realizable value of its assets are less then the aggregate of
its liabilities and stated capital of all classes.
Although CINAR is able to pay its liabilities as they become due, CINAR has
accumulated a large deficit over the past few years as a result of which the
realisable value of its assets is now significantly lower than the aggregate of
its liabilities and stated capital. Therefore, to not be deemed to be insolvent
by paragraph (b) of subsection 192(2) of the CBCA, and to be able to use the
arrangement provisions of the CBCA, CINAR is proposing to reduce the stated
capital of the Limited Voting Shares. Section 38(1)(c) of the CBCA permits a
corporation to reduce its stated capital by an amount that is not represented by
realizable assets. At the Meeting, holders of Limited Voting Shares will be
asked to consider, and if deemed advisable, to pass a special resolution (the
"STATED CAPITAL RESOLUTION") to reduce the stated capital of the Limited Voting
Shares by $323,206,000, and to effect such reduction by increasing CINAR's
contributed surplus by the same amount and transferring such amount from
contributed surplus to reduce CINAR's deficit by the same amount, provided that
such reduction of the stated capital of the Limited Voting Shares will only be
implemented if the Arrangement Resolution is passed by CINAR Shareholders. The
reduction of the stated capital of the Limited Voting Shares will enable CINAR
to meet the statutory solvency test in section 192(2) of the CBCA in
anticipation of the Arrangement. A copy of the Stated Capital Resolution is
attached as Appendix F to this Circular.
To be effective, the Stated Capital Resolution must be approved by at least
two-thirds of the votes cast in respect thereof by holders of Limited Voting
Shares, present in person or represented by proxy at the Meeting.
The reduction in the stated capital of the Limited Voting Shares will not result
in any immediate tax consequences to CINAR Shareholders, but will cause a
corresponding reduction in the paid-up capital of the Limited Voting Shares for
Canadian income tax purposes. Holders of Limited Voting Shares should not be
affected by this reduction, unless their Limited Voting Shares are subsequently
purchased by CINAR itself. Holders of Limited Voting Shares who intend to
exercise their Dissent Rights should refer to the heading "Tax Considerations
for Beneficial Holders - Principal Canadian Federal Income Tax Considerations -
Residents of Canada - Exercise of the Right to Dissent" and "Tax Considerations
for Beneficial Holders - Principal Canadian Federal Income Tax Considerations -
Non-Residents of Canada - Exercise of the Right to Dissent" in this Circular and
consult their own tax advisors in this regard.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF LIMITED VOTING
SHARES VOTE FOR THE STATED CAPITAL RESOLUTION. THE STATED CAPITAL RESOLUTION
WILL ONLY BE IMPLEMENTED IF THE ARRANGEMENT RESOLUTION IS PASSED BY CINAR
SHAREHOLDERS. THE ARRANGEMENT CANNOT BE COMPLETED IF THE STATED CAPITAL
RESOLUTION IS NOT APPROVED.
THE ARRANGEMENT
BACKGROUND AND REASONS FOR THE ARRANGEMENT
The provisions of the Arrangement Agreement are the result of arm's-length
negotiations conducted among representatives of CINAR and Newco and their legal
and financial advisors. The following is a summary of the events, meetings,
negotiations and discussions that preceded the execution of the Arrangement
Agreement.
During the past several years, CINAR has been subject to a number of
extraordinary non-operating developments that have had a material adverse impact
on CINAR's financial performance and its operations. These events include:
o CINAR had made certain improper claims for government incentives. During
2000, CINAR reached an agreement with the tax authorities in both the
Canadian federal and Quebec tax jurisdictions under which CINAR agreed to
repay amounts inappropriately received, with interest and penalties, and to
withdraw outstanding applications that had been inappropriately filed;
o hundreds of related party transactions involving certain former directors
and former officers of CINAR and entities controlled by these individuals
were improperly recorded and not disclosed by CINAR in its previously
reported financial results for the year ended November 30, 1998 and prior
periods. As a result CINAR commenced a claim against Ronald Weinberg,
Micheline Charest, Hasanain Panju and certain of their affiliated companies
for a total of $28,620,469 in damages relating to various related party
transactions and is seeking an accounting of the profits realized by Mr.
Weinberg, Ms. Charest, Mr. Panju and companies controlled by them through
the direct or indirect use of certain assets of CINAR. The defendants have
filed pleas and counter-claims;
o in early 2000, it was discovered that CINAR had invested funds with Globe-X
Management Limited, a Bahamian investment company, without the knowledge or
authorization of the Board of Directors. As a result of the nature of the
unauthorized investments, CINAR has been unable to recover all of the
invested funds. To date CINAR has recovered in excess of US$70,000,000 and
a balance of approximately US$38,000,000 remains. On January 23, 2003,
CINAR increased by $59,315,360 its claim against Mr. Weinberg and Mr. Panju
to recover the amount it had then failed to recover from the Globe-X
Companies;
o CINAR has had to restate its financial statements for the year ended
November 30, 1998 to reflect the foregoing developments, which restated
statements have not been audited. In addition, CINAR was unable to issue
consolidated audited financial statements for the years ended November 30,
1999 and 2000;
o concurrently with the public disclosure of the unauthorized investments and
undisclosed related party transactions discussed above, trading in the
CINAR Shares was halted on both the TSX and NASDAQ in March 2000. The CINAR
Shares were delisted by the TSX and NASDAQ on August 30, 2001 and August 2,
2000, respectively;
o on April 19, 2000, the CVMQ issued a cease-trade order against all the
securities of CINAR. Subsequently, cease-trade orders were issued by the
securities regulatory authorities in the provinces of Ontario, Manitoba,
Saskatchewan, Alberta and British Columbia; and
o on March 15, 2002, the CVMQ approved a settlement agreement with Ms.
Charest and Mr. Weinberg pursuant to which, among other things, Ms. Charest
and Mr. Weinberg undertook to abstain for a period of five years, in
connection with the election of directors, from exercising the voting
rights attached to any CINAR Shares held by them, directly or indirectly.
Ms. Charest and Mr. Weinberg also each agreed to pay a $1,000,000 fine to
the CVMQ in relation to the events described above which occurred during
their tenure at CINAR. The settlement agreement provides that Ms. Charest
and Mr. Weinberg may create a voting trust, the trustee of which shall be
Canadian and shall be approved by the Director of Compliance and
Enforcement of the CVMQ. In conformity with the settlement agreement, Ms.
Charest and Mr. Weinberg entered into a voting trust agreement on April 19,
2002 whereby Mr. Robert Despres acts as trustee for the CINAR Shares held
by Ms. Charest and Mr. Weinberg, directly or indirectly, with respect to
matters relating to the election of directors of CINAR. At an annual and
special meeting of CINAR Shareholders held on April 29, 2002, nine new
directors were elected to form the Board of Directors, and an additional
director was subsequently appointed.
After a change of management in early 2000, CINAR's new management engaged
Merrill Lynch on July 28, 2000 to explore strategic options that would serve to
maximize future shareholder value, including any proposed business combinations,
partnerships or mergers. To carry out its mandate, Merrill Lynch required
historical financial information and projections regarding future performance.
This information was provided in early 2001. On January 26, 2001, CINAR
announced that the Board of Directors had authorized Merrill Lynch to approach
parties who may have had an interest in consummating a transaction involving
CINAR. Merrill Lynch identified 60 parties who may have been interested in
entering into a transaction with CINAR. In early 2001, Merrill Lynch provided 34
of such parties with a descriptive memorandum containing information about
CINAR. Of those 34 parties, 16 submitted non-binding expressions of interest by
late April 2001. Twelve parties proceeded to the second phase and were provided
with more detailed information and attended presentations by CINAR's management.
By July 6, 2001, eight parties had submitted bids for all of CINAR or for
specific parts of CINAR's business. Of these eight, only one was felt to reflect
acceptable value for CINAR Shareholders and CINAR elected to move forward with
that party and granted it an exclusive period to complete an examination of
CINAR's books and records. On November 6, 2001, CINAR announced that these
discussions had been terminated. Subsequently, through Merrill Lynch, CINAR
engaged in follow-up discussions with certain other potential buyers. However,
these discussions did not lead to an acceptable offer. This process was
summarized in an open letter to CINAR Shareholders dated December 4, 2001.
In the letter of December 4, 2001, CINAR announced that, notwithstanding that it
believed a transaction could be entered into, it was only prepared to enter into
a transaction if acceptable value could be obtained for CINAR Shareholders.
Consistent with this position, in the fall of 2002, the new Board of Directors
had decided to accelerate the deployment of a major restructuring plan, the
principal objective of which was to assure the ongoing viability of CINAR. With
this in mind, the Board of Directors recruited and hired a new President and
Chief Executive Officer while at the same time continuing to communicate that it
was open to considering a transaction which could maximize value for CINAR
Shareholders. Merrill Lynch continued to receive enquiries in respect of a sale
of the company. In early 2003, CINAR publicly reiterated several times that it
was open to considering a transaction which could maximize value for CINAR
Shareholders and that it was receiving enquiries in respect of the sale of CINAR
through Merrill Lynch.
On April 1, 2003, at the request of Newco , Robert Despres, the Chairman of the
Board of Directors, Stuart C. Snyder, CINAR's President and Chief Executive
Officer, and CINAR's financial and legal advisors met with Michael Hirsh, Toper
Taylor and Newco's financial and legal advisors. At this meeting, Newco
presented a draft letter dated April 1, 2003 setting out proposed terms of a
transaction to acquire all of the issued and outstanding CINAR Shares at a price
of US$3.25 per CINAR Share payable in cash on closing. The letter also stated
that the Founders had executed a voting support agreement with Newco whereby
they agreed to support the proposed transaction at a price of US$3.25 per share.
At the April 1, 2003 meeting, Newco requested a period of exclusivity during
which they would conduct due diligence. CINAR, after consulting with its Board
of Directors, advised Newco that since Newco had not yet conducted any due
diligence, it was premature for CINAR to indicate whether or not it was
supportive of the proposed transaction or to provide Newco with a period of
exclusivity during which Newco would conduct due diligence and negotiate the
terms of a transaction.
On April 29, 2003, CINAR entered into a confidentiality and standstill agreement
with Newco (the "CONFIDENTIALITY AND STANDSTILL AGREEMENT") and CINAR forwarded
preliminary due diligence information to Newco. Throughout the next several
months, Newco requested additional due diligence information and CINAR provided
this information to Newco.
During Newco's due diligence period, CINAR continued with its consideration of
all strategic alternatives available to CINAR for maximizing shareholder value,
including an extensive review of parties who may have had interest in
participating in the sale process. Throughout the balance of the spring and
summer, 2003, Merrill Lynch contacted various parties that were considered to be
potentially interested in purchasing all or part of CINAR's business. From
January 2003 until June 2003, twelve parties entered into confidentiality
agreements with CINAR with a view to conducting a due diligence investigation of
CINAR. At the same time, the Board of Directors, through its financial advisors,
reviewed various strategic options, including the sale of CINAR as a whole and
the sale of parts of CINAR's business. By July 2003, several parties had
submitted written proposals expressing an interest in purchasing all of CINAR's
business, and several additional parties made proposals to acquire parts of
CINAR's business.
On June 19, 2003, Newco expressed in writing that, subject to certain
conditions, it remained interested in acquiring all of the outstanding shares of
CINAR. Newco confirmed in its letter that the Founders remained committed to the
proposed transaction at US$3.25 per share. The letter also stated that after
numerous and extensive discussions and negotiations between representatives of
Newco and senior executives of CINAR, Newco was prepared to discuss increasing
the price per share to take into account a portion of CINAR's recovery from
certain outstanding litigation, such recovery to be calculated net of CINAR's
costs and any claims or settlement amount paid by it. The terms of the written
proposal of June 19, 2003 were subject to further due diligence.
On June 27, 2003, the Board of Directors met again with its financial and legal
advisors. At that meeting, Merrill Lynch made a presentation on the proposals
made by the parties interested in acquiring all or part of CINAR's business and
the alternatives available to CINAR to maximize value. At the end of the
meeting, the Board of Directors appointed three directors to meet with certain
parties that were expressing the most serious interest in a purchase of all of
CINAR's business. These representatives of the Board of Directors subsequently
met with several groups representing interested purchasers and indicated that
each party should finalize its due diligence in the following weeks.
On August 1, 2003, Merrill Lynch, on behalf of CINAR, wrote to the interested
parties asking them to submit firm offers to acquire all or part of CINAR by
August 20, 2003. On August 20, 2003, five parties submitted written proposals.
Further discussions ensued with each of the parties. Throughout this period, the
Board of Directors was kept apprised of all material developments in this
process.
On August 27, 2003, senior executives of CINAR and representatives of Newco and
their respective legal and financial advisors met in Montreal to continue to
negotiate the price and terms of a potential transaction.
On August 29, 2003, the Board of Directors met with its financial and legal
advisors. After discussion, the Board of Directors authorized two directors and
its financial and legal advisors to meet with the representatives of Newco to
negotiate the terms of the offer submitted by Newco on August 20, 2003,
including an increase in the US$3.35 fixed Cash Portion of the offer submitted
by Newco. Later that same day, representatives of Newco and CINAR and their
legal and financial advisors met to negotiate the terms of a letter of intent.
As a result of these negotiations and discussions, the parties reached agreement
on a letter of intent (the "LETTER OF Agreement") pursuant to which, among other
things, CINAR agreed to enter into exclusive negotiations with Newco regarding a
definitive agreement for the acquisition by Newco of all the outstanding CINAR
Shares. The Letter of Agreement contemplated a purchase price per share of
US$3.60, provided that the Founders did not have any entitlements in respect of
the Founder Options. If the Founders did have such an entitlement, the purchase
price per share was to be adjusted downwards.
Pursuant to the Letter of Agreement, CINAR granted an initial 30 day exclusivity
period to Newco to negotiate and execute a definitive agreement. Throughout the
period of August 29 to October 30, 2003, the parties exchanged drafts of the
Arrangement Agreement. Also during this period, Newco conducted further due
diligence investigations with respect to CINAR's business. The Board of
Directors was kept informed as to the progress of negotiations and the working
group took direction in respect of such negotiations from the Board of
Directors. The exclusivity period agreed to in the Letter of Agreement was
extended several times.
On October 3, 10, 27 and 28, 2003, members of management and representatives of
Merrill Lynch and Heenan Blaikie LLP made presentations to the Board of
Directors in connection with the proposed transaction between CINAR and Newco.
On October 30, 2003, Merrill Lynch provided their written opinion to the Board
of Directors to the effect that the Aggregate Consideration payable pursuant to
the Arrangement Agreement was fair from a financial point of view to the CINAR
Shareholders. At the same meeting, the Board of Directors received an update on
the status of the negotiations and a full report from CINAR's working group.
After considering all of the factors it deemed relevant, including the Merrill
Lynch Fairness Opinion, the Board of Directors on that date unanimously
determined that the Arrangement was in the best interests of CINAR and that they
would recommend that the CINAR Shareholders vote in favour of the Arrangement
Resolution. The Board of Directors authorized CINAR to enter into the
Arrangement Agreement on that date.
On October 30, 2003, CINAR and Newco entered into the Arrangement Agreement and
the terms of the transaction were publicly announced by way of a press release.
Throughout the negotiations between CINAR and Newco, Micheline Charest and
Ronald Weinberg and their legal advisors separately negotiated with Newco the
terms of the Voting Support Agreement. CINAR and its legal advisors were made
aware of these separate negotiations. The Voting Support Agreement with Ms.
Charest and Mr. Weinberg was also signed on October 30, 2003.
On November 28, 2003, an arbitration panel ruled that the Founders were not
entitled to exercise the Founder Options. As a result, the Cash Portion will be
US$3.60.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS HAS DETERMINED UNANIMOUSLY THAT THE ARRANGEMENT IS IN THE
BEST INTERESTS OF CINAR. ACCORDINGLY, THE BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE ARRANGEMENT AND UNANIMOUSLY RECOMMENDS THAT CINAR SHAREHOLDERS VOTE
IN FAVOUR OF THE ARRANGEMENT RESOLUTION AT THE MEETING.
In reaching its determination and making this recommendation, the Board of
Directors considered a number of factors, including the following:
(i) the process undertaken by the Board of Directors to seek alternative
transactions and that the terms of the Arrangement are the most favourable
to CINAR Shareholders relative to other proposals received by CINAR;
(ii) the opinion set out in the Merrill Lynch Fairness Opinion to the effect
that, as of the date of the Arrangement Agreement, the Aggregate
Consideration payable pursuant to the Arrangement Agreement is fair from a
financial point of view to the CINAR Shareholders;
(iii) the Cash Portion is payable in cash shortly after the Effective Time;
(iv) CINAR Shareholders will benefit from CINAR prevailing in the Founder Option
Proceedings, in which event they shall receive US$1,199,082 (US$0.03 per
CINAR Share) which would otherwise have been paid exclusively to the
Founders;
(v) any net amount received in connection with the Specified Litigation will
contribute to increase the Aggregate Consideration to be paid to CINAR
Shareholders under the Arrangement;
(vi) the difficulty of providing liquidity to CINAR Shareholders in the near
term, considering the damage done to CINAR's reputation and the difficulty
of having the Cease-Trade Orders rescinded and the CINAR Shares listed on a
recognized stock market in Canada and the United States;
(vii) the requirement that the Arrangement be approved by a special resolution
passed by not less than two-thirds of the votes cast at the Meeting by the
holders of Multiple Voting Shares and Limited Voting Shares, each voting as
a separate class, and by the Court which, CINAR is advised, will consider,
among other things, the fairness of the Arrangement to the CINAR
Shareholders;
(viii) the terms and conditions of the Arrangement Agreement generally,
including the amount of, and circumstances in which, the Break Fee is
payable by CINAR, and the fact that the terms of the Arrangement Agreement
do not prevent the Board of Directors from accepting a Superior Proposal;
(ix) that the two largest holders of Multiple Voting Shares, Micheline Charest
and Ronald Weinberg, have agreed, pursuant to the Voting Support Agreement,
to vote in favour of the Arrangement Resolution;
(x) the historical market prices and trading information of the CINAR Shares on
the over-the counter market in the United States (the "PINK SHEETS");
(xi) the Cash Portion represents a premium of approximately 28% over the volume
weighted average trading price on the Pink Sheets of the Limited Voting
Shares for the six month period immediately preceding the first public
announcement of the Arrangement;
(xii) the risk associated with, as an alternative to the Arrangement, continuing
to execute CINAR's strategic plan as an independent entity; and
(xiii) pursuant to the Interim Order, CINAR Shareholders have the right to
dissent and be paid the fair value of their CINAR Shares.
In reaching its determination, the Board of Directors also considered and
evaluated, among other things: (i) information concerning the business,
operations, property, assets, financial condition, operating results and
prospects of CINAR; (ii) current industry, economic and market conditions and
trends and its expectations of the future of the industry; and (iii) the
expected likelihood of receiving regulatory clearances for the Arrangement.
The foregoing discussion of the information and factors considered and given
weight by the Board of Directors is not intended to be exhaustive, but is
believed to include all material factors considered by the Board of Directors.
In addition, in reaching the determination to approve and recommend the
Arrangement, the Board of Directors did not assign any relative or specific
weights to the foregoing factors which were considered, and individual directors
may have given different weights to different factors. The Board of Directors
is, however, unanimous in its recommendation to the CINAR Shareholders that the
Arrangement Resolution be approved at the Meeting.
OPINION OF CINAR'S FINANCIAL ADVISOR
In connection with CINAR's consideration of various strategic alternatives,
CINAR retained Merrill Lynch as its financial advisor. Merrill Lynch was engaged
by CINAR to assist with considering and analysing various strategic
alternatives, including possible acquisition proposals. In addition, Merrill
Lynch was engaged to advise and assist CINAR in performing valuation analysis,
structuring, planning and negotiating a possible merger, sale or other strategic
transaction, as well as to provide an opinion as to the fairness of the
consideration to be received as part of a transaction.
The full text of the Merrill Lynch Fairness Opinion, which sets forth, among
other things, assumptions made, procedures followed, matters considered and
limitations on the scope of the review undertaken by Merrill Lynch in rendering
its fairness opinions, is attached as Appendix G to this Circular. CINAR
Shareholders are urged to read the Merrill Lynch Fairness Opinion carefully and
in its entirety. The Merrill Lynch Fairness Opinion addresses only the fairness
of the Aggregate Consideration pursuant to the Arrangement Agreement, from a
financial point of view, to holders of CINAR Shares, and does not constitute a
recommendation to any CINAR Shareholder as to how such Person should vote at the
Meeting. The summary of the Merrill Lynch Fairness Opinion set forth in this
Circular is qualified in its entirety by reference to the full text of the
Merrill Lynch Fairness Opinion. Merrill Lynch has provided its written consent
to the inclusion of the Merrill Lynch Fairness Opinion in this Circular.
MERRILL LYNCH FAIRNESS OPINION
In preparing its fairness opinion, Merrill Lynch:
(i) reviewed certain publicly available business and financial information
relating to CINAR that Merrill Lynch deemed to be relevant;
(ii) reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
CINAR;
(iii) conducted discussions with members of senior management and
representatives of CINAR concerning the matters described in clauses (i)
and (ii) above;
(iv) reviewed the market prices for CINAR Shares on the Pink Sheets as provided
by the National Quotation Bureau;
(v) reviewed the historical financial performance and results of operations of
CINAR;
(vi) compared the proposed financial terms of the Arrangement with the financial
terms of certain other transactions that Merrill Lynch deemed to be
relevant;
(vii) had discussions with CINAR's auditors regarding CINAR's financial
performance and audited financial statements;
(viii) participated in certain discussions and negotiations among
representatives of CINAR and Newco and their financial and legal advisors;
(ix) reviewed information regarding the background and status of the Specified
Litigation and had discussions with CINAR's legal counsel and management
regarding the Specified Litigation;
(x) reviewed a draft dated October 27, 2003 of the Arrangement Agreement; and
(xi) reviewed such other financial studies and analyses and took into account
such other matters as Merrill Lynch deemed necessary, including its
assessment of general economic, market and monetary conditions.
In preparing the Merrill Lynch Fairness Opinion, Merrill Lynch assumed and
relied on the accuracy and completeness of all information supplied or otherwise
made available to Merrill Lynch, discussed with or reviewed by or for Merrill
Lynch, or publicly available, and has not assumed any responsibility for
independently verifying such information or undertaken an independent evaluation
or appraisal of any of the assets or liabilities of CINAR or been furnished with
any such evaluation or appraisal, nor has Merrill Lynch evaluated the solvency
or fair value of CINAR under any provincial or federal laws relating to
bankruptcy, insolvency or similar matters. With respect to the financial
forecast information furnished to or discussed with Merrill Lynch by CINAR,
Merrill Lynch assumed that such financial forecast information was reasonably
prepared and reflected the best currently available estimates and judgments of
CINAR's management as to the expected future financial performance of CINAR. The
Merrill Lynch Fairness Opinion is necessarily based on market, economic and
other conditions as they existed and were able to be evaluated on, and the
information made available to it as of, October 30, 2003.
In preparing the Merrill Lynch Fairness Opinion, Merrill Lynch relied upon the
judgment of CINAR's legal counsel and management as to the potential outcomes of
the Specified Litigation, including the expectations of CINAR's management
regarding the terms of potential settlements of the Specified Litigation.
Merrill Lynch has not been requested, and has not undertaken, to independently
evaluate or verify such judgment and expectations or make any valuation of the
Specified Litigation to CINAR, and Merrill Lynch expresses no opinion with
respect thereto or with respect to the value of the CCEs.
Merrill Lynch acted as financial advisor to the Board of Directors of CINAR in
connection with the Arrangement and will receive a fee for its services, a
significant portion of which is contingent upon the consummation of the
Arrangement. In addition, CINAR has agreed to indemnify Merrill Lynch for
certain liabilities arising out of its engagement. Merrill Lynch has, in the
past, provided financial advisory services to CINAR and has received fees for
the rendering of such services. In addition, Merrill Lynch has an investment in
the TD Capital Group Limited's Canadian Private Equity Partners Fund (which is
one of the indirect shareholders of Newco) and, in the ordinary course of its
business, Merrill Lynch may actively trade the CINAR Shares, as well as
securities of The Toronto Dominion Bank (which holds directly or indirectly all
of the outstanding shares of TD Capital Group Limited), for its own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
Merrill Lynch expressed no opinion or recommendation as to how CINAR
Shareholders should vote on the Arrangement Resolution at the Meeting, or as to
the prices at which the CINAR Shares would trade following the announcement of
the Arrangement.
On the basis of and subject to the foregoing, Merrill Lynch is of the opinion
that, as of October 30, 2003, the Aggregate Consideration is fair from a
financial point of view to CINAR Shareholders.
CINAR SHAREHOLDER APPROVAL AND THE SPECIAL MEETING
The Meeting will be held at 11:00 a.m. (Eastern time) on Tuesday, February 17,
2004 in the Salon Hochelaga 4, Fairmont Queen Elizabeth Hotel, 900 Rene-Levesque
Boulevard West, Montreal, Quebec, Canada. At the Meeting, holders of Multiple
Voting Shares and Limited Voting Shares, voting as separate classes, will be
asked to approve the Arrangement Resolution.
Pursuant to the Interim Order, the Arrangement Resolution must be approved by
not less than two-thirds of the votes cast by holders of Multiple Voting Shares
and by not less than two-thirds of the votes cast by holders of Limited Voting
Shares, voting as separate classes, in each case present or voting by proxy at
the Meeting. As at January 14, 2004, there were outstanding: (i) 5,233,402
Multiple Voting Shares; and (ii) 34,735,998 Limited Voting Shares which are
entitled to be voted at the Meeting.
Each holder of Multiple Voting Shares is entitled to 13.61 votes for each
Multiple Voting Share and each holder of Limited Voting Shares is entitled to
one vote for each Limited Voting Share.
COURT APPROVAL OF THE ARRANGEMENT AND COMPLETION OF THE ARRANGEMENT
An arrangement under the CBCA requires approval by the Court. Prior to the
mailing of this Circular, CINAR obtained the Interim Order providing for the
calling and holding of the Meeting and other procedural matters. A copy of the
Application for Interim and Final Orders relating to the Arrangement is attached
hereto as Appendix B-I and a copy of the Interim Order is attached hereto as
Appendix B-II.
Subject to the approval of the Stated Capital Resolution and the Arrangement
Resolution by the CINAR Shareholders at the Meeting and the satisfaction of
certain other conditions, the hearing in respect of the Final Order is scheduled
to take place on or about Thursday, February 19, 2004 at 9:00 a.m. (Eastern
time) in Room 16.10 of the Montreal Courthouse, located at 1 Notre-Dame Street
East, Montreal, Quebec, Canada. Pursuant to the Interim Order, any CINAR
Shareholder who wishes to appear or be represented at the application for the
Final Order must file an appearance in the Court record and serve it on Heenan
Blaikie LLP, CINAR's counsel, on or before February 5, 2004. If such appearance
is filed with a view to contesting the application for the Final Order, the
appearing CINAR Shareholder must also serve on Heenan Blaikie LLP and file in
the Court record, on or before February 12, 2004, a written contestation
supported as to the facts by affidavit(s), and exhibit(s), if any. A CINAR
Shareholder who fails to file and serve such a written contestation shall not be
permitted to contest the application for the Final Order. On the application for
the Final Order, the Court will consider, among other things, the fairness and
reasonableness of the Arrangement. The Court may approve the Arrangement in any
manner the Court may direct, subject to compliance with such terms and
conditions, if any, as the Court deems fit.
Assuming the Final Order is granted and the other conditions to closing
contained in the Arrangement Agreement are satisfied or waived, it is
anticipated that the following will occur substantially simultaneously: Articles
of Arrangement for CINAR will be filed with the Director under the CBCA to give
effect to the Arrangement and the various other documents necessary to
consummate the transactions contemplated under the Arrangement Agreement will be
executed and delivered. At least five Business Days prior to Amalco being
required to make any payment contemplated by the Plan of Arrangement, Amalco
will provide the Depositary with sufficient funds to enable the Depositary to
make such payments.
Subject to the foregoing (including the satisfaction of other conditions
precedent), it is expected that the Effective Time will occur as soon as
practicable after the requisite CINAR Shareholder approvals have been obtained
and the Final Order is granted.
REGULATORY MATTERS
Neither Newco nor CINAR is aware of any material licenses or regulatory permits
that it holds which might be adversely affected by the Arrangement or of any
material approval or other action by any federal, provincial, state or foreign
government or any administrative or regulatory agency that would be required to
be obtained prior to the Effective Date, except for orders revoking the
Cease-Trade Orders. Work is in progress to satisfy all such regulatory
requirements and to complete all filings in respect of such requirements.
CINAR currently indirectly holds a 20% voting interest in Teletoon Canada Inc.,
which has been issued a broadcasting licence for a national specialty television
programming undertaking. Following the completion of the Arrangement, pursuant
to the BROADCASTING ACT (Canada) and the regulations made thereunder,
notification of the Arrangement and the related transactions must be provided by
Teletoon Canada Inc. to the Canadian Radio-television and Telecommunications
Commission within 30 days following the completion thereof. This filing
requirement is based on CINAR's understanding that: (i) the Person that will
ultimately own CINAR's indirect voting interest in Teletoon Canada Inc. does not
currently hold, directly or indirectly, any voting interests of Teletoon Canada
Inc. and, after the Effective Time, will control only 20% of the voting
interests of Teletoon Canada Inc.; and (ii) CINAR does not currently have
effective control of Teletoon Canada Inc.
CINAR's securities are currently the subject of the Cease-Trade Orders and can
only be transferred pursuant to an exemption therefrom. CINAR has obtained from
the applicable Canadian securities regulatory authorities orders lifting the
Cease-Trade Orders to permit completion of the Arrangement. The completion of
the Arrangement is subject to the Cease-Trade Orders having been completely
lifted at the Effective Time. See also item (x) under "Arrangement Agreement -
Conditions of Closing - Conditions for the Benefit of Newco".
While there can be no assurance that the Appropriate Regulatory Approvals will
be obtained prior to the Meeting, or at all, CINAR and Newco are seeking to
obtain the Appropriate Regulatory Approvals or to satisfactorily resolve all
such regulatory requirements. CINAR and Newco are seeking to ensure that all
Appropriate Regulatory Approvals will have been obtained or otherwise
satisfactorily resolved by the time of or shortly after the Meeting.
INTERESTS OF CERTAIN PERSONS IN THE ARRANGEMENT
At the Effective Time, the current directors on the Board of Directors will be
replaced by the individuals named in the Plan of Arrangement.
CINAR and its subsidiaries have entered into written employment agreements with
various senior executives. The terms of these agreements vary, but all contain a
provision which substantially stipulates that if the executives' employment ends
involuntarily and without cause, in circumstances unrelated to a "change of
control", the executives will receive a separation package including lump sum
compensation in relation to a fixed period, the continuation of all benefits for
the same period and an additional amount equal to the PRO RATED average of the
bonus paid to the person over the two preceding financial years.
Certain senior executives have agreed to be bound by non-solicitation and/or
non-competition obligations for a fixed period of between 12 and 24 months after
their employment with CINAR ends.
The employment agreements of certain senior executives stipulate that if the
executive's employment ends involuntarily and without cause, in circumstances
related to a "change of control", then the executives will receive a separation
package including lump sum compensation in relation to a fixed period, the
continuation of all benefits for the same period and an additional amount equal
to the PRO RATED average of the bonus paid to the person over the two preceding
financial years. In addition, certain Named Executive Officers have rights under
their employment agreements which arise as a result of a "change of control".
See "Executive Compensation - Termination of Employment, Change in
Responsibilities and Employment Contracts". The Arrangement will constitute a
"change of control" of CINAR for such purposes.
In addition, certain of CINAR's senior executives are entitled to the payment of
retention bonuses in the case of a "change of control" of CINAR. The Arrangement
will constitute a "change of control" of CINAR for such purpose. The aggregate
amount payable in respect of such retention bonuses will be approximately
$100,000. See "Executive Compensation - Termination of Employment, Change in
Responsibilities and Employment Contracts".
Pursuant to the CINAR Performance Unit Plan, CINAR Performance Units become
immediately exercisable in the event of a "change of control" of CINAR. The
Arrangement will constitute a "change of control" for the purposes of the CINAR
Performance Unit Plan. All outstanding CINAR Performance Units have been
exercised subject to completion of the Arrangement. The aggregate contingent
obligation of CINAR under the CINAR Performance Units, after giving effect to
the Arrangement, is $2,776,184.
The Arrangement Agreement provides that all rights to indemnification existing
as of the date of the Arrangement Agreement in favour of officers and directors
of the CINAR Entities as provided in the articles, by-laws and similar
constating documents of the CINAR Entities or in indemnification agreements in
effect on the date of the Arrangement Agreement, will survive the Arrangement
for a period of not less than six years from the Effective Time. The Arrangement
Agreement also provides that, for not less than six years from the Effective
Time, there shall be maintained in effect, subject to availability, coverage
equivalent to that in effect under current policies of directors' and officers'
liability insurance maintained by the CINAR Entities which, on an aggregate
policy basis, is not substantially less advantageous, with respect to matters
occurring prior to the Effective Time.
Merrill Lynch has an investment in the TD Capital Group Limited's Canadian
Private Equity Partners Fund.
TURNSTILE
On January 15, 2003, CINAR entered into an employment agreement (the "EMPLOYMENT
AGREEMENT") with Stuart C. Snyder, pursuant to which Mr. Snyder was engaged as
CINAR's President and Chief Executive Officer.
In connection with the execution of the Employment Agreement, as of January 15,
2003 CINAR entered into an agreement (the "ASSIGNMENT OF RIGHTS AGREEMENT") with
Turnstile pursuant to which Turnstile agreed to assign to CINAR the live stage
touring rights for six entertainment properties. Turnstile initially identified
two properties for assignment to CINAR, namely, "CLIFFORD THE BIG RED DOG" and
one other production. In both cases, CINAR's acceptance of such assignment was
conditional on Turnstile satisfying the Board of Directors with respect to
certain obligations set forth in the Assignment of Rights Agreement. The
remaining four entertainment properties were subject to CINAR's acceptance with
no right of recourse from Turnstile should CINAR refuse to accept them. Mr.
Snyder is a founder, principal and one of the shareholders of Turnstile. As a
condition of his employment by CINAR, Mr. Snyder's interest in Turnstile was
placed in a blind trust.
CINAR's position is that Turnstile failed to satisfy its obligations set forth
in the Assignment of Rights Agreement and that CINAR had no legal obligation to
accept the assignment of rights for either of the two properties identified for
assignment to CINAR or to proceed with the production of live stage touring
shows based thereon. Turnstile disputed CINAR's position.
In December 2003 and early January 2004, Newco, as the potential acquiror of
CINAR and having no interest in pursuing live entertainment activities, entered
into negotiations with Turnstile to settle the dispute between CINAR and
Turnstile concerning the Assignment of Rights Agreement.
CINAR and Turnstile entered into a settlement agreement (the "TURNSTILE
SETTLEMENT AGREEMENT") as of January 12, 2004. CINAR has agreed, pursuant to the
Turnstile Settlement Agreement, to invest US$1,500,000 (the "CLIFFORD
INVESTMENT") in "CLIFFORD THE BIG RED DOG". Subject to the royalty owing by
Turnstile to Scholastic Entertainment Inc., CINAR shall recoup the Clifford
Investment and any additional amounts invested by CINAR in "CLIFFORD THE BIG RED
DOG" on a PRO RATA and PARI PASSU basis with the other investor in "CLIFFORD THE
BIG RED Dog". Once CINAR has recouped the Clifford Investment, CINAR, the other
investor and Turnstile shall be entitled to receive certain amounts generated
by, or in respect of "CLIFFORD THE BIG RED DOG". If the Arrangement becomes
effective on or prior to March 15, 2004, CINAR will pay, only until March 31,
2004, the overhead related to the running of the live stage touring division of
CINAR. However, subject to certain exceptions, if the Arrangement becomes
effective after March 15, 2004, CINAR will pay, the aforementioned overhead for
a period of 45 days commencing on the Effective Date. In all cases, CINAR shall
pay Mr. Mazer's salary until the end of the month in which the Arrangement
becomes effective. Should additional funding be required to carry out the
production and tour of "CLIFFORD THE BIG RED DOG", CINAR shall at its sole
discretion, based on sound business judgment, determine if it wishes to advance
additional funds for "CLIFFORD THE BIG RED DOG". Turnstile shall be entitled to
receive a 3% management fee on those additional net cash revenues generated on
"CLIFFORD THE BIG RED DOG" after CINAR recoups the Clifford Investment and any
additional amounts invested by CINAR in such production. On the Effective Date,
CINAR shall be deemed to immediately assign and transfer to Turnstile the
ownership of all furniture, equipment and leaseholds located at its New York
City premises. CINAR shall retain the ownership of Coliseum Entertainment, Inc.,
the entity created by CINAR to carry out its live stage touring activities,
which in turn owns Coliseum Live Entertainment, Inc. The provisions of the
Assignment of Rights Agreement relating to "CLIFFORD THE BIG RED DOG" were
replaced by the terms and conditions of the Turnstile Settlement Agreement. The
Assignment of Rights Agreement was further amended to stipulate that CINAR has
no obligation to participate in the other productions contemplated in such
agreement, and each of CINAR and Turnstile granted to each other a full and
final mutual release and discharge for all claims arising directly or indirectly
in respect of such proposed production. On the Effective Date, the Assignment of
Rights Agreement shall automatically be terminated and each of CINAR and
Turnstile shall be deemed to have granted to each other a full and final mutual
release and discharge for all claims arising directly or indirectly from the
Assignment of Rights Agreement.
Contemporaneously with the Turnstile Settlement Agreement, CINAR entered into
agreements with Mr. Snyder and Mr. Mazer to amend their respective employment
agreements with CINAR. The employment agreements of Mr. Snyder and Mr. Mazer
have been amended to, among other things, on the Effective Date delete the
non-competition and non-solicitation clauses previously contained in such
employment agreements. The employment agreements of Mr. Snyder and Mr. Mazer
have also been amended to provide that, if the Arrangement becomes effective,
each of Mr. Snyder and Mr. Mazer will exercise his right to immediately
terminate his employment agreement and CINAR has agreed to waive the three
months' prior written notice of such termination which it would otherwise be
entitled to receive under each such employment agreement.
On January 14, 2004, the Board of Directors approved the Turnstile Settlement
Agreement negotiated by Newco in order to enhance the likelihood of success of
the Arrangement. Mr. Snyder declared his interest in the Turnstile Settlement
Agreement and abstained from voting thereon.
The Turnstile Settlement Agreement is a "related party transaction" within the
meaning of OSC Rule 61-501 and Policy Q-27. As neither the fair market value of
the subject matter of, nor the fair market value of the consideration for, the
Turnstile Settlement Agreement is greater than 25% of CINAR's market
capitalization, the Turnstile Settlement Agreement is exempt from the formal
valuation and minority approval requirements of OSC Rule 61-501 and Policy Q-27.
CINAR's market capitalization, as at December 31, 2003, calculated in accordance
with applicable securities laws, was US$144,700,000. The Board of Directors,
acting in good faith, has determined that the fair market value of the subject
matter of, and the fair market value of the consideration for, the Turnstile
Settlement Agreement represents, in each case, approximately 3% to 4% of CINAR's
market capitalization at December 31, 2003, calculated in accordance with
applicable securities laws.
VOTING SUPPORT AGREEMENT
Pursuant to the Voting Support Agreement, the Founders irrevocably agreed: (i)
to vote the CINAR Shares held by them in favour of the Arrangement at the
Meeting; (ii) to vote the CINAR Shares held by them against any matter or
proposal which would delay or be inconsistent with the Arrangement; and (iii)
not to exercise their Dissent Rights in respect of the Arrangement Resolution.
The Founders hold in the aggregate approximately 96% of the outstanding Multiple
Voting Shares, which represent a sufficient number of Multiple Voting Shares to
ensure approval of the Arrangement by the Multiple Voting Shares as a class.
Pursuant to the Voting Support Agreement, the Founders have also agreed that
they shall not during the term of the Voting Support Agreement (i) take any
action of any kind which may reduce the likelihood of success of the
Arrangement, or (ii) until the date which is 180 days following the earlier of
(A) the date on which the Arrangement Agreement is terminated, and (B) the date
(which shall not be earlier than April 30, 2004) on which the Founders deliver
notice of termination of the Voting Support Agreement (the "TAIL PERIOD"), take
any action or inaction to solicit, initiate, encourage, assist or participate in
proposals or offers from any person in connection with the acquisition or
disposition of any of the CINAR Shares held by the Founders or any amalgamation,
merger, arrangement, sale of all or any substantial part of the assets of CINAR,
tender or exchange offer, take-over bid, reorganization, recapitalization,
liquidation or winding-up, or other business combination, or any other
transaction directly or indirectly relating to a sale of the CINAR Shares held
by the Founders or which interferes with, delays or would otherwise be
inconsistent with the Arrangement (any of the foregoing inquiries or proposals,
whether in writing or otherwise, being referred to herein as an "OFFER").
Further, subject to certain limited exceptions, the Founders have agreed that
they shall not sell, transfer, tender or assign or agree to sell, transfer,
tender or assign any of the CINAR Shares held by the Founders, or agree to vote
the CINAR Shares held by them in favour of any Offer, or take any action in
furtherance of any of the foregoing, other than the Arrangement, prior to the
end of the Tail Period.
RELEASE
Contemporaneously with the execution of the Voting Support Agreement, the
Principal Shareholders executed the Release in favour of the Releasees. Pursuant
to the Release, the Principal Shareholders and any company or other entity owned
or controlled by any one or more of them released, conditional upon the closing
of the transactions contemplated by the Arrangement Agreement, the Releasees of
and from, among other things, any and all actions, claims and demands any of the
Principal Shareholders ever had, now has or hereafter can, shall or may have for
or by reason of or in respect of any cause, act, manner or thing whatsoever
existing up to and including the date of the closing of the transactions
contemplated by the Arrangement Agreement. The Release does not apply to certain
claims, including certain claims to which CINAR is not a party, the CINAR
Action, the Founder Option Proceedings, the Motion to Dismiss a Trustee (subject
to certain exceptions) and claims where the Principal Shareholders or any
company or other entity owned or controlled by any one or more of them are
acting as defendants.
The Founders also agreed to submit the Founder Option Proceedings to binding
arbitration to determine whether the Founders should have been entitled to
exercise the Founder Options. On November 28, 2003, an arbitration panel ruled
that the Founders were not entitled to exercise the Founder Options.
ARRANGEMENTS RESPECTING CINAR OPTIONS AND PERFORMANCE UNITS
As of the date hereof, there are CINAR Options outstanding which are exercisable
to acquire 194,500 Limited Voting Shares at exercise prices significantly in
excess of the Cash Portion. Each CINAR Option which is not exercised prior to
the Effective Time will be cancelled at that time without any consideration
therefor or any obligation to issue any of the securities of CINAR underlying
the CINAR Options and without any further rights or entitlements of the holders
thereof. Each CINAR Optionholder has executed and delivered to CINAR an
instrument pursuant to which he or she consents, subject to the completion of
the Arrangement, to the cancellation, for no consideration, of his or her CINAR
Options not exercised prior to the Effective Time.
As of the date hereof, there are 495,000 CINAR Performance Units outstanding, of
which 315,000 CINAR Performance Units were granted to executive officers of
CINAR during the financial year ended November 30, 2003 and 180,000 CINAR
Performance Units were granted to the directors of CINAR during the financial
year ended November 30, 2002. The CINAR Performance Unit Plan stipulates that,
in the event of a "change of control" of CINAR, all unexercised CINAR
Performance Units will become immediately exercisable, subject to completion of
the "change of control". The Arrangement will constitute a "change of control"
for the purposes of the CINAR Performance Unit Plan. The aggregate contingent
obligation of CINAR under the CINAR Performance Units, after giving effect to
the Arrangement is $2,776,184. Each CINAR Performance Unit which is not
exercised prior to the Effective Time will be cancelled at that time without any
consideration therefor and without any further rights or entitlements of the
holders thereof. Each holder of a CINAR Performance Unit has executed and
delivered to CINAR an instrument pursuant to which he or she has agreed to
exercise his or her CINAR Performance Units subject to completion of the
Arrangement.
EXPENSES
The estimated fees, costs and expenses of CINAR in connection with the
Arrangement including, without limitation, financial advisors' fees, filing
fees, legal and accounting fees, proxy solicitation fees and printing and
mailing costs are anticipated to be approximately $3,900,000.
THE ARRANGEMENT AGREEMENT
The following is a summary of the material terms of the Arrangement Agreement.
CINAR Shareholders are urged to read the Arrangement Agreement in its entirety,
a copy of which is attached as Appendix A to this Circular.
CONSIDERATION PAYABLE
The Plan of Arrangement provides for the acquisition of all the CINAR Shares by
Newco and for the amalgamation of Newco and CINAR to form Amalco immediately
thereafter. Amalco will be wholly-owned by NewCanCo. Pursuant to the
Arrangement, CINAR Shareholders (other than CINAR Shareholders who validly
exercise their Dissent Rights) will receive from Newco for each CINAR Share the
following consideration:
(i) US$3.60 in cash (the "CASH PORTION"); plus
(ii) in the event that Newco has delivered written notice to CINAR prior to the
day which is five Business Days prior to the Meeting (the "SETTLEMENT
DEADLINE") that it is satisfied that the following conditions to the
payment of the Net Litigation Amount have been fulfilled or that it has
waived such conditions, an amount in cash equal to the PRO RATA amount per
CINAR Share of the Net Litigation Amount (which shall only be payable after
the receipt by CINAR in full of all of the Net Litigation Proceeds):
(a) all of the Specified Litigation has been subject to Final
Adjudication;
(b) any co-defendant of a CINAR Entity in any of the Specified Litigation
shall be released from any liability in respect of such Specified
Litigation or shall have released the CINAR Entities and their
respective officers, directors and employees (including, for greater
certainty, former officers, directors and employees) from any claim of
contribution or indemnity such Person may have as against the CINAR
Entities and their respective officers, directors and employees
(including, for greater certainty, former officers, directors and
employees);
(c) the CINAR Entities and their respective officers, directors and
employees (including, for greater certainty, former officers,
directors and employees) shall have been fully released from any
obligations to indemnify or make contributions to any Person in
connection with or related to the Specified Litigation or any Third
Party Rights and the CINAR Entities and their respective officers,
directors and employees (including, for greater certainty, former
officers, directors and employees) shall have been fully released from
any liability in connection with or related to any Specified
Litigation in which they are not directly named as defendants; (d)
Newco shall have been provided with all information (including
confirmation of service providers as to final account amounts) which
it may reasonably request with respect to the determination of the Net
Litigation Proceeds;
(e) Newco is satisfied, acting reasonably, with the determination of the
Net Litigation Proceeds (including that all actual or contingent
professional fees and expenses have been accounted for), the amounts
to be paid in respect thereof and the manner for such payment; and
(f) the Final Adjudication of the Specified Litigation resulted in each of
the CINAR Entities and their respective officers, directors and
employees (including for greater certainty, former officers, directors
and employees) having been fully and irrevocably released in form
satisfactory to the Purchaser acting reasonably; or
(iii) in the event that Newco has not delivered written notice to CINAR prior to
the Settlement Deadline that it is satisfied that the conditions to the
payment of the Net Litigation Amount set forth in paragraphs (a) to (f)
above have been fulfilled or that it has waived such conditions, one
contingent cash entitlement (a "CCE") created and allocated by the Manager.
The amounts payable pursuant to items (i), (ii) and (iii) above are collectively
referred to in this Circular as the "AGGREGATE CONSIDERATION".
CINAR Options and CINAR Performance Units not exercised prior to the Effective
Time will be cancelled on the Effective Date.
No settlement of any Specified Litigation shall provide for any obligation on
the part of a CINAR Entity (other than to pay a cash amount in respect of the
settlement), including indemnifying any Person or guaranteeing the obligation of
any Person, without the prior written consent of Newco which may be arbitrarily
withheld.
For the purposes of calculating the Net Litigation Proceeds:
"NET LITIGATION PROCEEDS" means the amount, if any, by which the amount received
by the CINAR Entities in the Specified Litigation, including on account of the
settlement of any Specified Litigation, (after deducting Taxes, if any, deemed
payable thereon by the CINAR Entities as provided below) exceeds: (i) any
amounts paid or payable by the CINAR Entities in or in relation to the Specified
Litigation (including any amounts paid or payable by the CINAR Entities on
account of the settlement of any Specified Litigation or to a person in respect
of a Third Party Right); (ii) all litigation, settlement and other out-of-pocket
expenses relating to the Specified Litigation and the Founder Option Proceedings
unpaid as of August 29, 2003 or arising thereafter, including, all expenses
incurred to determine Net Litigation Proceeds, all expenses (including
professional fees) incurred by Newco and the CINAR Entities with respect to the
CCEs and all other related third party and professional costs; and (iii) any
expenses incurred by the CINAR Entities prior to the distribution of the Net
Litigation Proceeds in connection with any actual or alleged violation by any
CINAR Entity or any of its directors, officers or employees (including, for
greater certainty, former officers, directors, and employees) of any Law,
including all expenses (including professional fees) incurred in connection with
any investigation by any Governmental Entity (including the CCRA, any provincial
taxing authority, the IRS, or any taxing authority in any jurisdiction,
including any sales tax authority) of any such actual or alleged violation of
Law or defending any charges (or the equivalent) laid or threatened in
connection with any such actual or alleged violation of any Law, and any fines,
penalties or other amounts which the CINAR Entities agree or are required to pay
as a result of any such actual or alleged violation of any Law (the amounts
referred to in (ii) and (iii) are referred to collectively as "EXPENSES"). The
amounts referred to in (i), (ii) and (iii) of this definition shall be reduced
by the Tax benefits, if any, deemed available to the CINAR Entities (as provided
below) of making such payments.
"TAXES" means the income tax that would be payable by the CINAR Entities on the
Taxable portion (determined as described below) of the amount received by them,
assuming: (i) a combined federal-provincial tax rate of 36.62% (or if the amount
is taxable in a taxation year ending after 2003, provided the general Ontario
tax rate is 11% or lower for that taxation year, a rate of 33.02%); and (ii)
that the CINAR Entities have no tax losses, credits or deductions available to
them to reduce Taxes.
"TAX BENEFITS" means the income tax savings that would be available to the CINAR
Entities on the Deductible portion (determined as described below) of a payment
or the Deductible portion of Expenses related to or in connection with the
settlement or litigation, or actual or alleged violation of Law, as the case may
be, assuming a combined federal-provincial tax rate of 36.62% (or if the amount
is deductible in a taxation year ending after 2003, provided the general Ontario
tax rate is 11% or lower for that taxation year, a rate of 33.02%).
The "TAXABLE PORTION" of an amount received by the CINAR Entities and the
"DEDUCTIBLE PORTION" of a payment made by the CINAR Entities and the "DEDUCTIBLE
PORTION OF EXPENSES" related to any amount so received or paid, shall be
determined by Newco and CINAR in the following manner. Once a Specified
Litigation has been subject to Final Adjudication, or, in the case of Expenses
referred to in (iii) of the definition of Net Litigation Proceeds, prior to the
payment of Net Litigation Amount, Newco and CINAR shall, in consultation with
their respective tax advisors, determine the Taxable portion or Deductible
portion and Deductible portion of Expenses that is the subject matter of and/or
related to the Final Adjudication or actual or alleged violation of Law, as the
case may be.
Notwithstanding the foregoing, if the Taxable portion or Deductible portion of
an amount or the Deductible portion of Expenses, as the case may be, has not
been determined within six months after all of the Specified Litigation has been
subject to Final Adjudication, including CINAR being released from all Third
Party Rights, then any amount which has not already been determined not to
constitute a Taxable portion or Deductible portion of an amount or Deductible
portion of Expenses, as the case may be, shall be deemed to constitute a Taxable
portion of an amount received by the CINAR Entities or not to be a Deductible
portion of a payment made by the CINAR Entities or not to be a Deductible
portion of Expenses, as the case may be.
"SPECIFIED LITIGATION" means the matters referred to under the heading
"Specified Litigation" in this Circular and, for greater certainty, does not
include the Founder Option Proceedings. The Specified Litigation will include
all Claims and counter-Claims in effect at the time of the completion of the
Arrangement (and any amendments thereto) together with any Claims and
counter-Claims relating to the Specified Litigation that may arise thereafter
(and any amendments thereto). For greater certainty, the Specified Litigation
shall be deemed to include any further Claims, counter-Claims, joinder of
parties, warranty Claims and recursory Claims arising out of or related to the
facts alleged in the proceedings specified under the heading "Specified
Litigation" in this Circular by any Person, and Claims and counter-Claims
include any Claim or counter-Claim (including any possible Claim or
counter-Claim and any amendment to a Claim or counter-Claim) against a Person
(including a co-defendant of a CINAR Entity) who reasonably has or would have a
right of contribution or indemnity or similar right, contingent or otherwise, as
against a CINAR Entity ("THIRD PARTY RIGHTS") in respect of such Claim or
counter-Claim.
REPRESENTATIONS AND WARRANTIES
The Arrangement Agreement contains certain customary representations and
warranties of CINAR relating to, among other things, its due incorporation and
organization, capitalization, operations, financial condition and authority to
enter into the Arrangement Agreement and to consummate the Arrangement. The
Arrangement Agreement also contains certain customary representations and
warranties of Newco relating to, among other things, its due incorporation and
organization, authority to enter into the Arrangement Agreement and to
consummate the Arrangement, status as not a "non-Canadian" within the meaning of
the INVESTMENT CANADA ACT and having obtained written commitments for all equity
and debt financing required by Newco to complete the Arrangement and pay the
Cash Portion in accordance with the Arrangement Agreement.
COVENANTS
Pursuant to the Arrangement Agreement, CINAR has agreed that until the earlier
of the termination of the Arrangement Agreement and the Effective Date, except
as contemplated by the Arrangement Agreement or the Plan of Arrangement, with
the consent of Newco or with respect to any binding commitments which were
disclosed by CINAR to Newco in accordance with the Arrangement Agreement, each
of the CINAR Entities shall carry on its business in, and only in, the ordinary
and regular course in substantially the same manner as conducted prior to the
execution of the Arrangement Agreement and, to the extent consistent with such
business, use all reasonable efforts to preserve intact its present business
organization and keep available the services of its present officers and
employees and others having business dealings with it to the end that its
goodwill and business shall be maintained. It has also agreed to customary
negative and positive covenants.
Newco has covenanted in the Arrangement Agreement, in addition to other
customary covenants, to perform all obligations required or desirable to be
performed by it under the Arrangement Agreement and to do all such other acts
and things as may be necessary or desirable in order to consummate and make
effective, as soon as reasonably practicable, the transactions contemplated by
the Arrangement Agreement.
COVENANTS REGARDING NON-SOLICITATION
Pursuant to the Arrangement Agreement, CINAR has agreed that it will not,
directly or indirectly, through any officer, director, employee, representative
or agent of CINAR or any of the other CINAR Entities: (i) solicit, initiate or
knowingly encourage (including by way of furnishing non-public information or
entering into any form of agreement, arrangement or understanding) the
initiation of any inquiries or proposals regarding an Acquisition Proposal; (ii)
participate in any discussions or negotiations regarding any Acquisition
Proposal; (iii) withdraw or modify in a manner adverse to Newco the approval of
the Board of Directors of the Arrangement; (iv) approve or recommend any
Acquisition Proposal; or (v) enter into any agreement related to any Acquisition
Proposal.
However, the Arrangement Agreement does not prevent the Board of Directors from:
(i) complying with CINAR's disclosure obligations under applicable Laws with
respect to an Acquisition Proposal; (ii) considering, negotiating or discussing
(and providing non-public information in response to) a Superior Proposal; or
(iii) withdrawing or modifying its recommendation that CINAR Shareholders vote
in favour of the Arrangement if the Board of Directors has determined that an
Acquisition Proposal is a Superior Proposal.
CINAR has agreed not to accept, approve, recommend or enter into any agreement
relating to an Acquisition Proposal (other than a confidentiality agreement) on
the basis that it would constitute a Superior Proposal unless: (i) such
Acquisition Proposal is, in the reasonable opinion of the Board of Directors,
fully financed; (ii) such Acquisition Proposal was received by CINAR prior to
the Meeting; (iii) CINAR has provided Newco with a copy of the Acquisition
Proposal document which the Board of Directors has determined would be a
Superior Proposal (together with evidence that such Acquisition Proposal is
fully financed); and (iv) five Business Days shall have elapsed from the later
of the date Newco receives notice of CINAR's proposed determination to accept,
approve, recommend or enter into any agreement relating to such Acquisition
Proposal, and the date Newco received a copy of the Acquisition Proposal.
CINAR has agreed that Newco shall have the opportunity, but not the obligation,
during such five Business Day period, to offer to amend the terms of the
Arrangement Agreement and the Arrangement. The Board of Directors will review
any offer by Newco to amend the terms of the Arrangement Agreement in good faith
in order to determine, in its discretion in the exercise of its fiduciary
duties, whether Newco's offer to amend the terms of the Arrangement Agreement
upon acceptance by CINAR would result in the Acquisition Proposal not being a
Superior Proposal. If the Board of Directors so determines, it will enter into
an amended agreement with Newco reflecting Newco's amended proposal. If the
Board of Directors continues to believe, in good faith and after consultation
with its financial advisors and outside counsel, that the Acquisition Proposal
is nonetheless a Superior Proposal and therefore rejects Newco's amended
proposal, CINAR will pay the Break Fee to Newco and CINAR may approve,
recommend, accept or enter into an agreement, understanding or arrangement with
respect to the Superior Proposal and CINAR may proceed with such approvals,
consents, filings, of or required by Governmental Entities and such other
Persons as CINAR shall consider appropriate in order to consummate such Superior
Proposal.
CINAR shall promptly reaffirm its recommendation of the Arrangement by press
release: (i) after any Acquisition Proposal (which is determined not to be a
Superior Proposal) is publicly announced or made; (ii) after Newco increases (by
written notice to CINAR), within five Business Days after receiving written
notice from CINAR pursuant to the Arrangement Agreement, the consideration
offered under the Arrangement to match or better the consideration under a
Superior Proposal; or (iii) unless doing so would violate the fiduciary duties
of its directors, within three Business Days after receipt by CINAR of a written
request by Newco to do so.
CINAR or Newco may require that the Meeting be adjourned or delayed for up to
ten Business Days in the event that an Acquisition Proposal which could be a
Superior Proposal is publicly announced or submitted to CINAR.
CONDITIONS TO CLOSING
CONDITIONS IN FAVOUR OF BOTH CINAR AND NEWCO
The Arrangement Agreement provides that the obligations of Newco and CINAR to
complete the Arrangement are subject to the satisfaction or waiver, where
permissible, at or before the Effective Time, of certain customary conditions,
including the following:
(i) the Interim Order shall have been obtained in form and substance
satisfactory to each of CINAR and Newco, acting reasonably;
(ii) the Arrangement Resolution shall have been approved by CINAR Shareholders
at the Meeting in accordance with the requirements of the Interim Order;
(iii) the Final Order shall have been obtained in form and substance
satisfactory to CINAR and Newco, acting reasonably, and shall not have been
set aside or modified in a manner unacceptable to CINAR or Newco on appeal
or otherwise;
(iv) all other consents, orders, authorizations, approvals and waivers of or
from Governmental Entities, including regulatory and judicial approvals and
orders, required or reasonably considered to be necessary or desirable for
the completion of the Arrangement shall have been obtained or received from
applicable Governmental Entities having jurisdiction in the circumstances,
and all other applicable regulatory requirements and conditions shall have
been complied with;
(v) there shall not exist any prohibition under applicable Law against the
completion of the Arrangement;
(vi) there shall not be in force any order or decree restraining or enjoining
the consummation of the Arrangement and there shall be no proceeding,
whether of a judicial or administrative nature or otherwise, brought by a
Governmental Entity that related to or results from the transactions
contemplated under the Arrangement Agreement that would, if successful,
result in an order or ruling that would preclude completion of the
Arrangement in accordance with the terms and conditions of the Arrangement
Agreement or the Plan of Arrangement or would otherwise be inconsistent
with any approvals which have been obtained;
(vii) all existing cease-trade orders made by any court or applicable securities
or other regulatory authorities with respect to the securities of CINAR, to
the extent required to duly permit the completion of the transactions
contemplated by the Arrangement Agreement, shall have been terminated
immediately prior to the Effective Date; and
(viii) the Arrangement Agreement shall not have been terminated pursuant to
Article 7 thereof.
CONDITIONS IN FAVOUR OF NEWCO
The Arrangement Agreement provides that the obligation of Newco to complete the
Arrangement is subject to the satisfaction on or before the Effective Time of a
number of additional conditions, including the following, each of which may be
waived by Newco:
(i) each of the acts, undertakings, covenants, obligations and agreements of
CINAR to be performed at or before the Effective Time pursuant to the terms
of the Arrangement Agreement shall have been duly performed by it;
(ii) all of the representations and warranties of CINAR made in or under the
Arrangement Agreement shall be true and correct (for representations or
warranties qualified as to materiality, true and correct in all respects,
and for all other representations and warranties true and correct in all
material respects) as at the Effective Time;
(iii) all consents, authorizations, waivers, orders, licenses and approvals from
or notifications to any Persons required under the terms of any of the
contracts, leases or licences with respect to the acquisition of control of
CINAR by Newco, or otherwise required in connection with the consummation
of the transactions contemplated under the Arrangement Agreement, including
consents or notifications required for change of key personnel or
withdrawal of Mr. Weinberg and Ms. Charest from the activities of CINAR, in
form and substance satisfactory to Newco, shall have been duly obtained or
given, as the case may be, at or before the Effective Time, except for any
the failure to obtain or provide which could not reasonably be expected to
have a Material Adverse Effect on CINAR or the Education Division
Companies; provided that the failure to obtain one or more of following
consents shall be deemed to have a Material Adverse Effect on CINAR or the
Education Division Companies: the consent of the Public Broadcasting
Service in connection with CINAR's "Caillou" and "Zoboomafo" properties and
the consent of WGBH Educational Foundation with respect to CINAR's "Arthur"
property;
(iv) there shall have been no material adverse change in the business, condition
(financial or otherwise), results of operations, assets, liabilities or
prospects of either (a) CINAR on a consolidated basis; or (b) the Education
Division Companies on a consolidated basis, or a material disruption of or
a material adverse change with respect to Canadian or U.S. financial,
banking or the capital markets generally, which would make it, in the
judgment of Newco, acting reasonably, inadvisable to proceed with or
complete the Arrangement or which could reasonably be expected to prevent,
impair or make impracticable the completion of the Arrangement or the
ability of Newco to fund the consideration payable in respect of the CINAR
Shares;
(v) all of the CINAR Options shall have been (a) exercised prior to the
Effective Time, or (b) duly cancelled;
(vi) all of the CINAR Performance Units shall have been (a) exercised and any
liabilities thereunder satisfied prior to the Effective Time, or (b) duly
cancelled, with such releases or other instruments as Newco, acting
reasonably, may request to confirm that the holders of such CINAR
Performance Units shall not have any actual or contingent entitlements to
any portion of the Net Litigation Amount in respect of any such CINAR
Performance Unit or any other entitlements other than to receive, for each
CINAR Performance Unit, the difference between the Grant Price and an
ending value calculated based on a fair market value at the determination
date of US$3.57;
(vii) the Board of Directors shall (a) have made and shall not have modified or
amended in a manner adverse to Newco, an affirmative recommendation that
the CINAR Shareholders approve the Arrangement, and (ii) have adopted all
necessary resolutions, and all other necessary actions shall have been
taken by each of the CINAR Entities, to permit the consummation of the
Arrangement;
(viii) the holders of not more than 10% of the CINAR Shares shall have given
notice of their exercise of the Dissent Rights;
(ix) no proceeding of the type described in item (vi) under "The Arrangement
Agreement -- Conditions to Closing-- Conditions in Favour of Both CINAR and
Newco" shall have been threatened. Further, no adverse Claim (whether, for
greater certainty, by a Governmental Entity or any other Person or Persons)
shall be commenced or be pending or threatened and no Law shall have been
proposed, enacted, promulgated or applied, in either case, (A) to
cease-trade, enjoin, prohibit or impose material conditions on the
Arrangement or the transactions contemplated in the Arrangement Agreement,
(B) to cease-trade, enjoin, prohibit or impose material conditions on the
right of Newco to own or exercise full rights of ownership of the
securities of CINAR upon completion of the Arrangement, (C) to prohibit or
restrict the completion of the Arrangement in accordance with the terms of
the Arrangement Agreement or otherwise relating to the Arrangement, or (D)
which could reasonably be expected to have a Material Adverse Effect on
CINAR or the Education Division Companies;
(x) if CCEs are proposed to be created then all Appropriate Regulatory
Approvals to the creation thereof have been obtained and CINAR shall have
provided Newco with a basis upon which Newco can reasonably believe that
all Appropriate Regulatory Approvals so as to ensure that Newco and the
Manager, as the case may be, ceases to be or is not, as the case may be, a
reporting issuer (or the equivalent) will be obtained within a customary
period following the Effective Date;
(xi) no information, events or circumstances shall have become known to Newco,
occurred or arisen, as applicable, during the Pre-Effective Date Period, as
a result of which Newco determines that Net Litigation Proceeds could
reasonably be expected to be a negative amount; and
(xii) neither Ronald Weinberg nor Micheline Charest shall be an officer,
director, employee, partner or limited partner (directly or indirectly) of
any CINAR Entity (other than a wholly inactive partnership) as at the
Effective Date.
CONDITIONS IN FAVOUR OF CINAR
The Arrangement Agreement provides that the obligation of CINAR to complete the
Arrangement is subject to the satisfaction, at or before the Effective Time, of
a number of additional conditions, including the following, each of which may be
waived by CINAR:
(i) each of the acts, undertakings, covenants, obligations and agreements of
Newco to be performed at or before the Effective Time pursuant to the terms
of the Arrangement Agreement shall have been duly performed by it;
(ii) all of the representations and warranties of Newco made in or under the
Arrangement Agreement shall be true and correct (for representations or
warranties qualified as to materiality, true and correct in all respects,
and for all other representations and warranties, true and correct in all
material respects) as at the Effective Time;
(iii) the debt and equity financing commitments made to Newco by its lenders and
investors, respectively, shall have been completed and sufficient funds
shall have been advanced or shall be available to Newco pursuant to such
financing commitments, such that at the Effective Time Newco will have or
have immediate access to sufficient funds to take up and pay for CINAR
Shares at the Effective Time and Newco shall have provided reasonable
evidence thereof to CINAR; and
(iv) directors' and officers' liability insurance (containing coverage
equivalent to that in effect under the policies of the directors' and
officers' liability insurance maintained by CINAR Entities as at the date
of the Arrangement Agreement) shall be available in respect of matters
prior to the Effective Time for not less than six years from the Effective
Date.
TERMINATION AND PAYMENT OF BREAK FEES AND EXPENSES
The Arrangement Agreement may be terminated by mutual agreement of CINAR and
Newco at any time prior to the Effective Time.
Either CINAR or Newco may terminate the Arrangement Agreement if:
(i) any Law is passed making the completion of the Arrangement illegal or
otherwise prohibited; or
(ii) the CINAR Shareholders fail to approve the Arrangement Resolution at the
Meeting.
In addition, if the Effective Date does not occur on or prior to March 5, 2004,
the Arrangement Agreement will terminate, provided that CINAR and Newco may
mutually agree to extend such date and provided further that, if the parties
would be in a position to complete the Arrangement on March 5, 2004 except that
the condition of obtaining all consents, orders, authorisations, approvals and
waivers of or from Governmental Entities required or reasonably considered to be
necessary or desirable for the completion of the Arrangement has not been
fulfilled or waived, the date shall be automatically extended to April 30, 2004.
Newco or CINAR may terminate the Arrangement Agreement prior to the Effective
Time if any condition in the respective party's favour has not been satisfied at
or prior to the Effective Time (subject in some cases to a cure period extending
until the later of March 5, 2004 and 30 days from the notice relating to the
non-fulfillment of the applicable condition), other than as a result of a
default by the terminating party.
The Arrangement Agreement may be terminated by CINAR upon any determination by
the Board of Directors that an Acquisition Proposal constitutes a Superior
Proposal, subject to compliance with the Arrangement Agreement.
The Arrangement Agreement may be terminated by Newco if:
(i) the Board of Directors shall have withdrawn, modified in a manner adverse
to Newco or failed to reaffirm in the manner and within the period required
by the Arrangement Agreement the Board of Directors' approval or
recommendation of the Arrangement (other than as a direct result of and in
direct response to a material breach by Newco of its obligations under the
Arrangement Agreement);
(ii) the Board of Directors shall have approved or recommended any Superior
Proposal;
(iii) the Board of Directors shall have determined that any Acquisition Proposal
is a Superior Proposal;
(iv) the Board of Directors shall have resolved to take any of the foregoing
actions; or
(v) CINAR proposes to enter into an agreement for, or to accept or to support,
an Acquisition Proposal.
CINAR is required to pay the Break Fee to Newco and reimburse Newco for all of
its out-of-pocket expenses to a maximum of $2,500,000 plus, without duplication,
all expenses incurred by Newco with respect to the CCE structure, if:
(i) the Arrangement Agreement is terminated in the circumstances described in
the two preceding paragraphs; or
(ii) an Acquisition Proposal shall have been made to the CINAR Shareholders or
any Person shall have publicly announced an intention to make an
Acquisition Proposal and, after such Acquisition Proposal shall have been
made known, made or announced, the CINAR Shareholders shall fail to approve
the Arrangement Resolution as required by the Interim Order and all
applicable Laws and any Acquisition Proposal is completed within six months
of the Meeting.
In addition, subject to extension of time periods under the Arrangement
Agreement, in the event that: (i) the Arrangement Resolution is not duly
approved by the CINAR Shareholders at the Meeting; (ii) the Meeting is not held
by March 4, 2004; or (iii) the Arrangement is not completed, and in any such
case the Break Fee is not payable, CINAR shall reimburse Newco for all
out-of-pocket costs and expenses incurred by it from and after August 30, 2003
in connection with the transactions contemplated by the Arrangement Agreement up
to a maximum of $1,500,000, plus, without duplication, all expenses incurred by
Newco with respect to the CCE structure.
CINAR shall not be required to pay the Break Fee or reimburse Newco for any of
the expenses described above if at the time such obligation otherwise arises,
CINAR is entitled to terminate the Arrangement Agreement (subject to the expiry
of any cure periods, if applicable) as a result of any of the conditions
precedent in favour of CINAR (other than the condition in item (iv) of "The
Arrangement Agreement - Conditions to Closing - Conditions in Favour of CINAR")
not having been satisfied.
CCES
In the event that the conditions to the payment of the Net Litigation Amount set
forth under the heading "The Arrangement Agreement - Consideration Payable" in
this Circular have not been fulfilled prior to the Settlement Deadline, then at
the Effective Time the CCE Agreement, substantially in the form attached hereto
as Appendix D, will be executed by the parties thereto and one CCE will be
created and allocated by the Manager to the CINAR Shareholders for each
outstanding CINAR Share without distinction as to class (other than CINAR Shares
in respect of which a CINAR Shareholder has validly exercised Dissent Rights).
The following is a summary of the material terms of the CCE Agreement. This
summary is not intended to be complete and is qualified in its entirety by the
actual provisions of the CCE Agreement.
FORM OF CCES
The CCEs will not be assignable or otherwise transferable except by sole
operation of law or by testamentary will. No certificate or other evidence of a
CCE will be issued other than an appropriate notation in the CCE Register. Each
CCE will only represent an entitlement to be paid the CCE Amount by the Manager.
The CCEs shall not confer or be construed as conferring upon a CCE Payee: (i)
any right or interest whatsoever as a shareholder or other security holder of
CINAR or the Manager, including the right to vote at, to receive notice of, or
to attend, meetings of shareholders or other security holders or any other
proceedings of CINAR or the Manager, or the right to receive dividends and other
distributions payable on the shares or other securities of CINAR or the Manager;
(ii) any other equity or ownership interest in CINAR or the Manager; or (iii)
any other right not expressly granted pursuant to the CCE Agreement. The CCEs
will represent unsecured obligations of the Manager and will not be entitled to
the benefit of any security in any of the assets of the Manager or CINAR. Any
amounts payable pursuant to the CCEs will not be related to the operations or
assets of CINAR or the Manager.
STRUCTURE
CCEs will be allocated and managed by the Manager. The creation of CCEs shall be
subject to all Appropriate Regulatory Approvals (including approvals or orders
of the applicable securities regulatory authority in each of the provinces of
Canada) to the creation and allocation thereof having been obtained and CINAR
having provided Newco with a basis upon which Newco can reasonably believe that
all Appropriate Regulatory Approvals (including approvals or orders of the
applicable securities regulatory authority in each of the provinces of Canada)
so as to ensure that CINAR and the Manager, as the case may be, ceases to be or
is not, as the case may be, a reporting issuer (or the equivalent) will be
obtained within a customary period following the Effective Date.
PAYMENT OF CCE AMOUNT
As promptly as practicable, but in no event later than 30 days, after the
earlier of (x) the Termination Date, and (y) the last to occur of:
(i) the Final Adjudication of all of the Specified Litigation having occurred
and having resulted in each of the CINAR Entities and their respective
officers, directors and employees (including, for greater certainty, former
officers, directors and employees) having been fully and irrevocably
released from any liability in respect of the Specified Litigation;
(ii) every co-defendant of a CINAR Entity in any of the Specified Litigation
having been fully and irrevocably released from any liability in respect of
the Specified Litigation or having fully and irrevocably released the CINAR
Entities and their respective officers, directors and employees (including,
for greater certainty, former officers, directors and employees) from any
claim of contribution or indemnity such Person may have as against the
CINAR Entities and their respective officers, directors and employees
(including, for greater certainty, former officers, directors and
employees);
(iii) the CINAR Entities and their respective officers, directors and employees
(including, for greater certainty, former officers, directors and
employees) having been fully and irrevocably released from any obligations
to indemnify or make contributions to any Person in connection with or
related to the Specified Litigation and the CINAR Entities and their
respective officers, directors and employees (including, for greater
certainty, former officers, directors and employees) having been fully and
irrevocably released from any liability in connection with or related to
any Specified Litigation or Third Party Rights in which they are not
directly named as defendants; and
(iv) the receipt by the CINAR Entities of all of the Litigation Proceeds (or a
determination having been made by a majority of the members of the
Litigation Committee that the CCE Net Litigation Proceeds shall be nil or a
negative amount);
CINAR shall deliver to the Litigation Committee and the Manager a certificate
(the "CCE NET LITIGATION PROCEEDS CERTIFICATE") setting forth in reasonable
detail the calculation of the CCE Net Litigation Proceeds.
"CCE NET LITIGATION PROCEEDS" shall be calculated by taking:
(i) the Litigation Proceeds (after deducting CCE Taxes, if any, assumed payable
thereon by the CINAR Entities at the assumed tax rate as hereinafter
provided) (excluding, for greater certainty, from the calculation of CCE
Net Litigation Proceeds in the event that the CCE Net Litigation Proceeds
are being calculated as a result of the occurrence of the Termination Date,
any Litigation Proceeds received or receivable by a CINAR Entity after the
Termination Date), together with interest earned by the Manager on the
Litigation Account net of taxes assumed payable on the interest at an
assumed combined federal-provincial tax rate of 40.37%;
and deducting therefrom the aggregate of:
(ii) all Litigation Payments and litigation, settlement and other out-of-pocket
expenses relating to the Specified Litigation and the Founder Option
Proceedings unpaid as of August 29, 2003 or arising thereafter, including,
all Firm Expenses, all Interest Expenses, all Employee Expenses, all
Litigation Committee Expenses, all expenses incurred to determine the CCE
Net Litigation Proceeds, all expenses (including professional fees)
incurred by Newco, the Manager and the CINAR Entities with respect to the
CCEs, including the administration of the CCEs pursuant to the CCE
Agreement, and all other related third party and professional costs;
(iii) any expenses incurred by the CINAR Entities prior to the payment of all of
the Aggregate CCE Amount in connection with any actual or alleged violation
prior to the Effective Date by any CINAR Entity or any of its directors,
officers or employees (including, for greater certainty, former officers,
directors and employees) of any Law which occurred or is alleged to have
occurred prior to the Effective Date, including all expenses (including
professional fees) incurred in connection with any investigation by any
Governmental Entity (including the CCRA, any provincial taxing authority,
the IRS, or any taxing authority in any jurisdiction, including any sales
tax authority) of any such actual or alleged violation of Law or defending
any charges (or the equivalent) laid or threatened in connection with any
such actual or alleged violation of any Law, and any fines, penalties or
other amounts which the CINAR Entities agree or are required to pay as a
result of any such actual or alleged violation of any Law; and
(iv) in the event that the CCE Net Litigation Proceeds are being calculated as a
result of the occurrence of the Termination Date, a reserve in an amount
determined by the Manager, acting reasonably, sufficient to pay any
Litigation Payments and CCE Expenses which may become payable by the CINAR
Entities, including in or in relation to any remaining Specified Litigation
or Third Party Rights which have not been subject to Final Adjudication.
The amounts referred to in (ii) and (iii) above (other than the Litigation
Payments) are referred to collectively as the "CCE EXPENSES". The amounts
referred to in (ii) and (iii) above shall be reduced by the CCE Tax benefits, if
any, deemed available to CINAR Entities (as hereinafter provided) of making such
payments. For greater certainty, CCE Payees shall have no liability in the event
that the CCE Net Litigation Proceeds are negative.
For the purposes of the CCE Agreement and the calculation of CCE Net Litigation
Proceeds:
(v) "CCE TAXES" means the income tax that would be payable by the CINAR
Entities on the CCE Taxable portion of the amount received by them,
assuming: (A) a combined federal-provincial tax rate of 36.62% (or if the
amount is taxable in a taxation year ending after 2003, provided the
general Ontario tax rate is 11% or lower for that taxation year, a rate of
33.02%); and (B) that the CINAR Entities have no tax losses, credits or
deductions available to them to reduce CCE Taxes;
(vi) "CCE TAX BENEFITS" means the income tax savings that would be available to
the CINAR Entities on the CCE Deductible portion of a payment or the CCE
Deductible portion of Expenses related to or in connection with the
settlement or litigation, or actual or alleged violation of Law, as the
case may be, assuming a combined federal-provincial tax rate of 36.62% (or
if the amount is deductible in a taxation year ending after 2003, provided
the general Ontario tax rate is 11% or lower for that taxation year, a rate
of 33.02%);
(vii) the "CCE TAXABLE PORTION" of an amount received by the CINAR Entities and
the "CCE DEDUCTIBLE PORTION" of a payment made by the CINAR Entities and
the "CCE DEDUCTIBLE PORTION OF EXPENSES" related to any amount so received
or paid, shall be determined by the Litigation Committee in the following
manner. Once an item of Specified Litigation has been subject to Final
Adjudication (or, in respect of the Final Adjudication of the Founder
Option Proceedings, the BRB Litigation and the Fournier Litigation, which
has already occurred, forthwith following the execution of the CCE
Agreement) or, in the case of CCE Expenses referred to in item (iii) of the
definition of "CCE Net Litigation Proceeds" above and any other CCE
Expenses that do not relate specifically to any particular item of
Specified Litigation, prior to the payment of the Aggregate CCE Amount, the
Litigation Committee shall, in consultation with its tax advisors,
determine the CCE Taxable portion, CCE Deductible portion and CCE
Deductible portion of Expenses that is the subject matter of and/or related
to the Final Adjudication or actual or alleged violation of Law or the CCEs
generally, as the case may be. In making such determination, the Litigation
Committee will take into account any limitations or restrictions on
effective deductibility as a result of Newco acquiring control of CINAR.
Such determination of the Litigation Committee to be effective must be
approved by the CINAR Member and the Manager Member. Notwithstanding the
foregoing, if the CCE Taxable portion, CCE Deductible portion or the CCE
Deductible portion of Expenses, as the case may be, has not been determined
by the earlier of (A) six months after all of the Specified Litigation has
been subject to Final Adjudication, including CINAR being released from all
Third Party Rights, and (B) the date determined pursuant to the first
paragraph under the heading "CCEs -- Payment of CCE Amount" in this
Circular, then any amount which has not already been determined not to
constitute a CCE Taxable portion, a CCE Deductible portion or a CCE
Deductible portion of Expenses, as the case may be, shall be deemed to
constitute a CCE Taxable portion of an amount received by the CINAR
Entities or not to be a CCE Deductible portion of a payment made by the
CINAR Entities or not to be a CCE Deductible portion of Expenses, as the
case may be; and
(viii) CCE Net Litigation Proceeds shall be calculated in United States dollars.
For the purposes of calculating CCE Net Litigation Proceeds:
(A) the amount of any Litigation Proceeds received in a currency other
than United States dollars shall be the amount actually deposited into
the Litigation Account on account of such Litigation Proceeds at the
actual exchange rate at which such Litigation Proceeds are converted;
(B) the amount of any Litigation Payment paid or payable in a currency
other than United States dollars shall be the amount required to be
withdrawn from the Litigation Account in United States dollars in
order to make such Litigation Payment at the actual exchange rate at
which such withdrawn funds are converted in order to make such
Litigation Payment; and
(C) the amount of any CCE Expenses paid or payable in a currency other
than United States dollars shall be the amount required to be
withdrawn from the Litigation Account in United States dollars in
order to pay such CCE Expenses at the actual exchange rate at which
such withdrawn funds are converted in order to pay such CCE Expenses
or, if such CCE Expenses are paid directly from amounts provided by
CINAR, as decribed under the heading "CCEs - Funding of Litigation" in
this Circular which are repaid using Canadian funds obtained by
converting United States dollars withdrawn from the Litigation
Account, the amount of such CCE Expenses shall be the amount required
to be withdrawn from the Litigation Account in United States dollars
in order to repay such amounts provided by CINAR at the actual
exchange rate at which such withdrawn funds are converted in order to
repay such amounts.
The CCE Net Litigation Proceeds Certificate shall set forth in reasonable
detail:
(i) the amount of the Litigation Proceeds received by the CINAR Entities, if
any;
(ii) the amount of the Litigation Payments paid, payable or to become payable by
or on behalf of the CINAR Entities, if any;
(iii) an itemized list in reasonable detail of all CCE Expenses;
(iv) the calculation of the CCE Amount as well as the details of any Interim
Payment Amount to be credited against the CCE Amount;
(v) any assumptions underlying the determination of any item used in making the
necessary calculations; and
(vi) any financial or other documentation reasonably necessary to sufficiently
support such calculations.
Within 30 days of delivery of the CCE Net Litigation Proceeds Certificate, each
member of the Litigation Committee shall give written notice to CINAR, the
Manager and each other member of the Litigation Committee specifying whether he
or she agrees with or objects (a "NOTICE OF AGREEMENT" and a "NOTICE OF
OBJECTION", respectively) to the CCE Net Litigation Proceeds Certificate and the
CCE Amount. Any Notice of Objection shall set forth in reasonable detail each of
the objections to the calculations, valuations, methodologies, lists,
computations, assumptions and other information (collectively, the
"DETERMINATIONS") that the member of the Litigation Committee delivering the
Notice of Objection has to the CCE Net Litigation Proceeds Certificate.
If at least two of the members of the Litigation Committee deliver a Notice of
Agreement and any CCE Amount is payable, the Manager shall establish the CCE
Payment Date. If at least two of the members of the Litigation Committee deliver
a Notice of Objection within such 30 day period, the Manager shall continue to
hold all amounts in the Litigation Account (subject to such amounts being used,
among other things, to pay Litigation Payments and CCE Expenses for or on behalf
of the CINAR Entities or the Litigation Committee and fund any Gross Interim
Payment Amount) until a Resolution is obtained pursuant to the procedures set
forth below.
Within ten days of the delivery of the second Notice of Objection, the members
of the Litigation Committee shall submit the portions of the Determinations set
forth in the CCE Net Litigation Proceeds Certificate that are in dispute to
Richter, Usher & Vineberg (or such other independent public accounting firm of
national standing selected jointly by the Manager Member and the CINAR Member)
(the "FIRM"). The Firm shall be instructed to determine as soon as is
practicable whether the Determinations set forth in the CCE Net Litigation
Proceeds Certificate that are in dispute are correct (without taking into
account any Firm Expenses). If the Firm determines that such Determinations are
correct, the CCE Amount shall be as set forth in the CCE Net Litigation Proceeds
Certificate reduced by an amount equal to the CCE Percentage of the Firm
Expenses divided by the total number of CCEs outstanding on the CCE Payment
Date, and each member of the Litigation Committee shall be deemed to have
delivered a Notice of Agreement with respect to such CCE Net Litigation Proceeds
Certificate and the Manager shall establish the CCE Payment Date. If the Firm
determines that any of the Determinations set forth in the CCE Net Litigation
Proceeds Certificate are incorrect in any respect (whether or not material), the
Firm's resulting calculation of the CCE Amount (which shall take into account
the Firm Expenses) shall be binding on all parties to the CCE Agreement (the
"RESOLUTION") and the Manager, upon receiving notice of such Resolution, shall
set the CCE Payment Date. All costs and expenses billed by the Firm in
connection with the performance of its duties described herein (the "FIRM
EXPENSES") shall be paid by the Manager on behalf of CINAR out of, and to the
extent of, the funds in the Litigation Account and shall be included in the CCE
Expenses. If any member of the Litigation Committee does not deliver a Notice of
Agreement or a Notice of Objection to the CCE Net Litigation Proceeds
Certificate within the 30 day period described above, such member of the
Litigation Committee shall be deemed to have delivered a Notice of Agreement
with respect to such CCE Net Litigation Proceeds Certificate.
At any time prior to the establishment of a CCE Payment Date, provided that
there are no amounts owing to CINAR in respect of amounts advanced by CINAR as
described under the heading "CCEs - Funding of Litigation" in this Circular, the
Manager may, in its sole discretion, make payment to the CCE Payees in respect
of the CCEs and to itself in such amount (the "GROSS INTERIM PAYMENT AMOUNT") as
it may determine in its sole discretion to be advisable after taking a reserve
sufficient to provide for amounts which may be required to pay Litigation
Payments and other CCE Expenses which are or may become payable in respect of
Specified Litigation which has not been subject to Final Adjudication or which
has been subject to Final Adjudication, but amounts remain payable by any of the
CINAR Entities in respect of such Final Adjudication. Of the Gross Interim
Payment Amount, the CCE Percentage thereof (the "AGGREGATE INTERIM PAYMENT
AMOUNT") shall be paid to the CCE Payees and the balance thereof (100% less the
CCE Percentage thereof) (the "INTERIM MANAGER AMOUNT") shall be withdrawn from
the Litigation Account and retained by the Manager for its sole benefit.
If the CCE Amount is determined to be payable in accordance with the CCE
Agreement, the Manager shall establish the CCE Payment Date which shall be
within 15 days following the date on which the CCE Amount is finally determined.
On the CCE Payment Date, the Manager shall promptly cause the CCE Amount to be
delivered to each of the CCE Payees in respect of each CCE held by them by
cheque mailed to the address of each CCE Payee as reflected in the CCE Register
as of the close of business on the last Business Day prior to the CCE Payment
Date or, in the circumstances set forth in section 4.2 of the Plan of
Arrangement, to the Depositary to be held in trust by the Depositary and dealt
with in accordance with such section.
The determination of the CCE Amount pursuant to the procedures set forth in the
CCE Agreement, absent a mathematical error, shall be final and binding on CINAR,
the Manager and each CCE Payee.
The Manager shall be entitled to deduct and withhold, or cause to be deducted or
withheld, from the CCE Amount otherwise payable pursuant to the CCE Agreement
such amounts as it is required to deduct and withhold with respect to the making
of such payment under the Canadian Tax Act, or any provision of provincial,
local or foreign tax law. Following the payment of the Aggregate CCE Amount, any
amount remaining in the Litigation Account shall be withdrawn from the
Litigation Account and retained by the Manager for its sole benefit.
All amounts payable after the Effective Date by the Manager on or in respect of
any CCEs to a payee thereof before the delivery by such payee of a duly
completed Letter of Transmittal together with the certificate formerly
representing such payee's CINAR Shares (or an affidavit of loss and bond) and
other required documents shall be paid or made to the Depositary to be held by
it in trust for such payee. All monies so held in trust by the Depositary shall
be invested by it in interest bearing trust accounts upon such terms as the
Depositary may deem appropriate. Subject to the provisions of the Plan of
Arrangement regarding the extinction of the rights of the former CINAR
Shareholders, the Depositary shall pay and deliver to any such payee, as soon as
reasonably practicable after the delivery to the Depositary for cancellation of
the certificates formerly representing such payee's CINAR Shares (or an
affidavit of loss and bond) together with a duly completed Letter of Transmittal
and other required documents, all amounts, net of any applicable withholding or
other taxes, held by the Depositary in trust for such payee pursuant to the Plan
of Arrangement, with any interest on the funds so held in trust to be for the
sole benefit of the Manager.
SEGREGATION OF CASH PROCEEDS
CINAR shall, and shall cause the other CINAR Entities to, pay to the Manager all
Litigation Proceeds (after deducting CCE Taxes, if any, assumed payable thereon
by the CINAR Entities as provided in the CCE Agreement or, in the event that the
amount of the CCE Taxes is still in the process of being determined, after
deducting a reserve for such CCE Taxes in an amount determined by CINAR, acting
reasonably, with appropriate adjustments to be made as between the CINAR
Entities and the Manager forthwith following the amount of the CCE Taxes assumed
payable being finally determined) forthwith following receipt and such
Litigation Proceeds shall be held in trust in a separate appropiately designated
bank or investment account established by the Manager with a recognized major
financial institution and maintained in the form of cash or Cash Equivalents, in
each case denominated in United States dollars (collectively, the "LITIGATION
ACCOUNT"), free of any liens or encumbrances of any kind, until the CCE Payment
Date, provided that amounts in the Litigation Account shall be used from time to
time to fund:
(i) Litigation Payments and other CCE Expenses for or on behalf of the CINAR
Entities or the Litigation Committee;
(ii) any adjustments of CCE Taxes assumed payable as referred to above; and
(iii) any Gross Interim Payment Amount.
FUNDING OF LITIGATION
To the extent that there are insufficient funds in the Litigation Account to
fund the payments referred to in item (i) of the previous paragraph, CINAR will
provide up to $5,000,000 and no more (on a revolving basis) to fund such
payments. Any amounts so provided by CINAR shall be repaid on demand (and, in
any event, prior to the payment of the Aggregate CCE Amount) out of amounts
deposited in the Litigation Account together with interest thereon at Prime plus
5% (the "INTEREST EXPENSES"). Any exchange losses realized as a result of
depositing into the Litigation Account United States dollars resulting from the
conversion of Canadian dollars provided by CINAR in accordance with the
foregoing at the actual exchange rate at which such Canadian dollars are
converted in an amount less than the amount of United States dollars required to
be withdrawn from the Litigation Account in order to repay such advances at the
actual exchange rate at which such United States dollars are converted into
Canadian dollars shall constitute CCE Expenses. Any exchange gains realized as a
result of depositing in the Litigation Account United States dollars resulting
from the conversion of Canadian dollars provided by CINAR in accordance with the
foregoing at the actual exchange rate at which such Canadian dollars are
converted in excess of the amount of United States dollars required to be
withdrawn from the Litigation Account in order to repay such advances at the
actual exchange rate at which such United States dollars are converted into
Canadian dollars (after deducting CCE Taxes, if any, assumed payable thereon by
the CINAR Entities and the Manager at the assumed tax rate referred to above in
the definition of CCE Taxes) shall be credited against CCE Expenses.
LITIGATION COMMITTEE
A litigation committee (the "LITIGATION COMMITTEE") comprised of three persons
will be established: G. Wesley Voorheis (the "MANAGER MEMBER"), appointed by the
Manager; Lisa de Wilde (the "CINAR MEMBER"), appointed by the current directors
of CINAR; and a member (the "INDEPENDENT MEMBER") agreed to by the other two
members.
G. Wesley Voorheis is a partner of Voorheis & Co., a Toronto-based shareholder
advisory firm which provides strategic, legal and other advice primarily to
shareholders of public and private companies in Canada. Prior to the
establishment of Voorheis & Co., Mr. Voorheis was a partner in a major Toronto
law firm specializing in securities law and mergers and acquisitions.
Lisa de Wilde is currently a director of CINAR Corporation, Chair of its
Management Resources and Compensation Committee and member of its Audit
Committee. From 1994 to 2001, she was the President and Chief Executive Officer
of Astral Television Networks Inc. Ms. de Wilde is a lawyer and a former partner
at Heenan Blaikie LLP. She began her career at the Canadian Radio-television and
Telecommunications Commission as Legal Counsel and subsequently held the
position of Director General - Cable, Pay and Specialty Services.
The members of the Litigation Committee shall have the sole power and duty to
direct and supervise all matters involving the Specified Litigation (including
trial strategy and planning and settlement strategy) on behalf of the Manager
and the CINAR Entities; provided that all decisions and determinations with
respect to the Specified Litigation (including, any Settlement Decision or
Strategic Decision) shall be made in accordance with the CCE Agreement. The
Manager Member shall have primary responsibility for the day-to-day direction
and supervision of the Specified Litigation and may, without the approval of any
of the Manager, the CINAR Entities or any of the other members of the Litigation
Committee, make decisions and determinations in accordance with the CCE
Agreement with respect to the day-to-day conduct of the Specified Litigation and
such decisions shall be deemed to have been made on behalf of all of the members
of the Litigation Committee. The Manager Member shall have the power to, from
time to time, delegate any of his responsibilities and authorities under the CCE
Agreement to any other member of the Litigation Committee. Notwithstanding the
foregoing, (i) the approval of a majority of the members of the Litigation
Committee (provided that the Manager Member must be included in such majority)
shall be required for any Strategic Decision, and (ii) the unanimous approval of
the members of the Litigation Committee (other than the Independent Member)
shall be required for any Settlement Decision. Notwithstanding the foregoing, at
any time following the second anniversary of the Effective Date, the Manager
Member may require that the CINAR Entities offer to submit any of the Specified
Litigation to a binding arbitration process and the other members of the
Litigation Committee and CINAR shall do all things reasonably necessary to make
and give effect to such offer.
The members of the Litigation Committee may engage and direct employees of the
CINAR Entities or any affiliate of any of the CINAR Entities to respond to
discovery requests, attend and prepare for depositions, prepare for and testify
at trial, or take any other action that the members of the Litigation Committee
believe is necessary or prudent in prosecuting or defending the Specified
Litigation. If such an employee takes any such action, CINAR and the Manager
shall be entitled to treat as CCE Expenses (and CINAR shall be entitled to be
reimbursed) an amount equal to (i) (A) the hours that such employee is required
to work in connection with such engagement multiplied by (B) the hourly rate of
such employee (determined by dividing (x) the sum (without duplication) of (1)
the employee's annual salary payable in cash at the time of the engagement plus
(2) the employee's annual bonus for the prior financial year plus (3) the
employment taxes that the employer is required to pay with respect to such
amounts plus (4) the out-of-pocket costs of the CINAR Entities and their
affiliates, as the case may be, of all other employee benefits, including
employer-paid health care, employer-paid life insurance premiums, and employer
contributions to savings and pension plans, in respect of the employee, by (y)
the product of (1) 52 weeks less the number of weeks of vacation to which the
employee is entitled to during the current calendar year multiplied by (2) if
such employee is a full-time employee, 40, or if such employee is not a full
time employee, the number of hours that such employee is expected to work each
week), but only in the event that, and then only to the extent that, the
aggregate of all such amounts in respect of all employees and all engagements
exceeds $25,000, plus (ii) the out-of-pocket expenses incurred in connection
with such engagement (the "EMPLOYEE EXPENSES").
Except as otherwise expressly provided in the CCE Agreement, all decisions of
the Litigation Committee shall be taken by majority vote of the members of the
Litigation Committee; provided, however, that (i) the right to engage parties
(including employees of the CINAR Entities and their affiliates) to perform
services with respect to the day-to-day conduct of the Specified Litigation
shall be made by the Manager Member, (ii) decisions with respect to Strategic
Decisions shall be made by the applicable majority required for Strategic
Decisions, and (iii) decisions with respect to Settlement Decisions shall be
made by the applicable majority required for Settlement Decisions.
The following payments (the "LITIGATION COMMITTEE EXPENSES") shall be made by
the Manager on behalf of CINAR and shall constitute CCE Expenses:
(i) the payment to each member of the Litigation Committee of compensation for
his or her services in an amount to be determined by agreement between the
Manager and the members of the Litigation Committee (which may include an
additional amount payable to the Manager Member) until the CCE Payment Date
(or such earlier date as determined in accordance with the CCE Agreement);
(ii) except as otherwise expressly provided in the CCE Agreement, the payment to
or on behalf of the members of the Litigation Committee, upon the request
of the members of the Litigation Committee, of all reasonable expenses and
disbursements incurred or to be incurred by the members of the Litigation
Committee in connection with the discharge of their duties under the CCE
Agreement (including the reasonable compensation and the expenses and
disbursements of their counsel, accounting firms, tax experts, valuation
firms and other experts and third parties as contemplated in the CCE
Agreement and including premiums paid from time to time for liability
insurance coverage for the members of the Litigation Committee); and
(iii) the payments to the members of the Litigation Committee required in order
to indemnify the members of the Litigation Committee and hold them harmless
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, reasonable expenses and
reasonable disbursements of any kind or nature whatsoever (including, the
reasonable compensation and the expenses and disbursements of their
counsel, accounting firms, tax experts, valuation firms and other experts
and third parties as contemplated in the CCE Agreement) that may be imposed
on, asserted against or incurred by them under, or in connetion with their
duties pursuant to, the CCE Agreement, and the members of the Litigation
Committee shall be so indemnified under the CCE Agreement for their own
negligence, but the members of the Litigation Committee will not have the
right to be indemnified under the CCE Agreement for their own wilful
misconduct or bad faith.
The members of the Litigation Committee may resign at any time by giving written
notice thereof to CINAR and the Manager. The Manager Member may be removed at
any time by notice from the Manager delivered to the members of the Litigation
Committee and CINAR, and the Independent Member may be removed at any time by
notice from the Manager Member and the CINAR Member delivered to the members of
the Litigation Committee and CINAR.
If the Manager Member shall resign, be removed or become incapable of acting,
the Manager shall promptly appoint a qualified individual, who may be an
officer, director, employee or shareholder of the Manager, as the successor
Manager Member. If the Independent Member shall resign, be removed, or become
incapable of acting, or the CINAR Member shall resign or become incapable of
acting, a qualified individual shall be appointed as the successor Independent
Member or CINAR Member, as the case may be, by the unanimous agreement of the
remaining members of the Litigation Committee. In the event that as a result of
both the CINAR Member and the Independent Member resigning, being removed or
becoming incapable of acting, or the CINAR Member resigning, being removed or
becoming incapable of acting prior to the initial Independent Member being
agreed upon and appointed by the Manager Member and the CINAR Member, there is
neither a CINAR Member nor an Independent Member, the Manager Member shall first
appoint a qualified individual, who shall not be an officer, director, employee
or shareholder of the Manager or any of its affiliates, as the successor or
initial Independent Member, as the case may be. The Manager Member and the
Independent Member shall then appoint a qualified individual as the successor
CINAR Member by unanimous agreement. If, within 90 days after such resignation,
removal or incapacity, or the occurrence of such vacancy, a successor CINAR
Member or Independent Member, as the case may be, shall not have been appointed,
or the initial Independent Member has not been appointed within 30 days of the
execution and delivery of the CCE Agreement, the CCE Payees may appoint any
qualified individual who is willing to serve as a successor CINAR Member or
Independent Member, or the initial Independent Member, as the case may be, by an
Act of the Payees (excluding any CCE Payee which is a party to any of the
Specified Litigation or is an affiliate or associate of any Person which is a
party to any of the Specified Litigation from the determination of whether the
CCE Payees holding a majority of the outstanding CCEs have signed such Act, and
excluding the CCEs held by such CCE Payees from the total number of CCEs
outstanding) delivered to CINAR and the Manager. A successor member of the
Litigation Committee or initial Independent Member so appointed by the CCE
Payees shall be designated in his appointment as either a CINAR Member or an
Independent Member, as the case may be. If no successor member of the Litigation
Committee or initial Independent Member shall have been so appointed by the
Manager, the members of the Litigation Committee remaining in office or the CCE
Payees, and so accepted his or her appointment, any CCE Payee (other than a CCE
Payee which is a party to any of the Specified Litigation or is an affiliate or
associate of any Person which is a party to any of the Specified Litigation) may
on behalf of himself and all others similarly situated petition any court of
competent jurisdiction for the appointment of a qualified individual as a
successor member of the Litigation Committee. The Manager shall give notice of
each resignation, each removal and each incapacity of a member of the Litigation
Committee and each appointment of a successor member of the Litigation Committee
or the initial Independent Member to the CCE Payees.
CONDUCT OF SPECIFIED LITIGATION
None of the Manager or any CINAR Entity shall make any Settlement Decision
without obtaining prior approval from the applicable majority of the members of
the Litigation Committee as determined in accordance with the CCE Agreement.
In making any decision or determination with respect to the Specified Litigation
(including, any Settlement Decision or Strategic Decision), the Litigation
Committee shall act in good faith with a view to maximizing the present value of
the Litigation Proceeds and minimizing the present value of the Litigation
Payments and CCE Expenses. Without limiting the generality of the foregoing, in
connection with any Settlement Decision, the Litigation Committee shall
consider:
(i) the aggregate amount of Litigation Proceeds to be received and/or the
aggregate amount of Litigation Payments to be paid in connection with the
proposed settlement;
(ii) if consent to such settlement is withheld, the probability of the CINAR
Entities receiving greater Litigation Proceeds and/or paying lesser
Litigation Payments in connection with a subsequent settlement or other
resolution of the Specified Litigation;
(iii) the probable timing of such subsequent settlement or other resolution of
the Specified Litigation and the probable amount of any additional
Litigation Proceeds to be received and/or reduction in Litigation Payments
to be paid in connection therewith;
(iv) the discounted present value of such prospective additional Litigation
Proceeds and/or reduction in Litigation Payments; and
(v) the additional CCE Expenses expected to be incurred as a result of
postponing settlement or other resolution of the Specified Litigation and
the present value thereof.
The discount rate applicable to the value of such prospective additional
Litigation Proceeds, reduction in Litigation Payments and/or additional CCE
Expenses shall be established by a majority of the members of the Litigation
Committee (provided that the Manager Member must be included in such majority).
None of the Manager or any of the CINAR Entities shall initiate settlement
negotiations or expand settlement negotiations with respect to any aspect or
portion of the Specified Litigation without the prior unanimous approval of the
members of the Litigation Committee (other than the Independent Member), and the
Manager and CINAR agree that such powers shall vest with the Litigation
Committee as provided in the CCE Agreement. No member of the Litigation
Committee shall initiate settlement negotiations without first informing each
other member of the Litigation Committee of such settlement negotiations and
obtaining unanimous approval of the members of the Litigation Committee (other
than the Independent Member) to pursue such negotiations. If one or more members
of the Litigation Committee are allowed to entertain or initiate settlement
negotiations, such members of the Litigation Committee shall keep each other
member of the Litigation Committee reasonably informed regarding the status of
such negotiations (including any expansion of such negotiations) and any member
of the Litigation Committee shall, if such member of the Litigation Committee
requests, be allowed to participate in the settlement negotiations.
AMENDMENTS TO CCE AGREEMENT
CINAR, the Manager and the members of the Litigation Committee, in the sole and
absolute discretion of the members of the Litigation Committee, at any time and
from time to time, may, without the consent of any CCE Payees, enter into one or
more amendments to the CCE Agreement, for any of the following purposes:
(i) to evidence the succession of another Person to the position of Manager and
the assumption by any such successor of the covenants of the Manager;
provided that such succession and assumption are in accordance with the
terms of the CCE Agreement;
(ii) to evidence the succession of another Person as a successor member of the
Litigation Committee and the assumption by any successor of the covenants
and obligations of such member of the Litigation Committee; provided that
such succession and assumption are in accordance with the terms of the CCE
Agreement;
(iii) to add to the covenants of the Manager such further covenants,
restrictions, conditions or provisions as the Manager and the members of
the Litigation Committee shall consider to be for the protection of the CCE
Payees; provided that in each case, such provisions shall not materially
adversely affect the interests of the CCE Payees;
(iv) to cure any ambiguity, to correct or supplement any provision in the CCE
Agreement that may be defective or inconsistent with any other provision
therein, or to make any other provisions with respect to matters or
questions arising under the CCE Agreement; provided that in each case, such
provisions shall not materially adversely affect the interests of the CCE
Payees; or
(v) as may be necessary or appropriate to ensure that the creation and
allocation of the CCEs is exempt from the prospectus and registration
requirements of applicable Canadian provincial securities legislation and
the CCEs will not require registration under the U.S. Securities Act,
provided that such provisions shall not materially adversely affect the
interests of the CCE Payees.
With the consent of the CCE Payees holding not less than a majority of the
outstanding CCEs, by an Act of the Payees delivered to CINAR and the members of
the Litigation Committee, CINAR, the Manager and the members of the Litigation
Committee may enter into one or more amendments to the CCE Agreement for the
purpose of adding to, eliminating or changing any provisions of the CCE
Agreement. It shall not be necessary for any such Act of the Payees to approve
the particular form of any proposed amendment, but it shall be sufficient if
such Act of the Payees shall approve the substance thereof.
Promptly after the execution by CINAR, the Manager and the members of the
Litigation Committee of any such amendment, the Manager shall give notice
thereof to the CCE Payees.
TERMINATION DATE
If it appears that by the Termination Date not all of the Specified Litigation
will have been subject to Final Adjudication and/or it appears that at the
Termination Date there will remain outstanding any Third Party Rights for which
any of the CINAR Entities may be liable, the Manager shall, at the option of the
Manager Member or the CINAR Member, make such applications or submissions to
applicable securities regulatory or other agencies for the purposes of seeking
an extension to the Termination Date for up to an additional two years, provided
that such extension does not necessitate registration of the CCEs under
applicable securities legislation or result in CINAR or the Manager becoming a
reporting issuer under such legislation. If such applications are successful
prior to the Termination Date or it is determined prior to the Termination Date
that no such regulatory relief is required, the Termination Date shall be
extended to the date permitted by such regulatory relief or, if no such
regulatory relief is required, the later of the dates chosen by the Manager
Member and the CINAR Member, provided that the latest Termination Date shall be
the fifth anniversary of the execution of the CCE Agreement.
REPORTS
Until the CCE Payment Date, the Manager will furnish a report to the CCE Payees
(i) annually, within ninety days of each anniversary of the Effective Date,
which report will provide a summary of any material developments relating to the
Specified Litigation during the year ended on such anniversary date, together
with an unaudited cash receipt and disbursement statement relating to the
Specified Litigation for the year ended on such anniversary date, and (ii) in
the event that, in the opinion of the Manager, a material event relating to the
Specified Litigation has occurred, within 60 days of the occurrence of such
event, which report will provide details of such material event.
RISK FACTORS RELATING TO THE CCES
The following factors should be considered by CINAR Shareholders in evaluating
the CCEs and whether to approve the Arrangement. These risk factors should be
considered in conjunction with the other information contained in this Circular.
MANAGER
The Manager is a corporation incorporated for the purpose of effecting the
Arrangement and may have limited or no assets (other than the Litigation
Account) to satisfy its obligations in respect of the CCEs.
UNCERTAINTIES RELATING TO CLAIMS WHERE CINAR IS A PLAINTIFF
There is no assurance that CINAR will prevail in respect of those Claims forming
part of the Specified Litigation in which CINAR is a plaintiff. Even if CINAR
does prevail in one or more of such Claims, there is no assurance that the court
will award CINAR any monetary amount or that any such monetary amount will
exceed the expenses incurred by CINAR in pursuing such Claims. Even if CINAR
does prevail in respect of one or more such Claims and is awarded a monetary
amount, there is no assurance that CINAR will be able to successfully enforce or
execute any such order of the court.
UNCERTAINTIES RELATING TO CLAIMS WHERE CINAR IS A DEFENDANT
There is no assurance that CINAR will prevail in respect of those Claims forming
part of the Specified Litigation in which CINAR is a Defendant. Even if CINAR
does prevail in one or more such Claims, CINAR may incur significant expenses in
defending such Claims, and such expenses may equal or exceed the amounts (if
any) received by CINAR in respect of Claims in which CINAR is a plaintiff.
UNCERTAINTIES RELATING TO CCE EXPENSES
The CCE Expenses incurred by CINAR in pursuing the Specified Litigation and
certain other expenses which are deductible in calculating the Aggregate CCE
Amount may result in a significant reduction of the Aggregate CCE Amount or in
there not being any Aggregate CCE Amount.
CCE NET LITIGATION PROCEEDS NOT ESCROWED
CINAR shall, and shall cause the other CINAR Entities to, pay to the Manager all
Litigation Proceeds (after deducting CCE Taxes, if any, assumed payable thereon
by the CINAR Entities or, in the event that the amount of the CCE Taxes is still
in the process of being determined, after deducting a reserve for such CCE Taxes
in an amount determined by CINAR, acting reasonably, with appropriate
adjustments to be made as between the CINAR Entities and the Manager forthwith
following the amount of the CCE Taxes assumed payable being finally determined)
forthwith following receipt and such Litigation Proceeds shall be held in trust
in a separate appropriately designated bank or investment account established by
the Manager. The CCE Net Litigation Proceeds will not, however, be deposited
into an escrow or trust account held by a third party, such as a trust company.
There can be no assurance that creditors of the Manager will not be successful
in seizing some or all of the Net Litigation Proceeds or otherwise requiring
that some or all of the CCE Net Litigation Proceeds be used to satisfy some or
all of the Manager's liabilities, or that a creditor of CINAR will not be
successful in seizing some or all of the Litigation Proceeds or otherwise
requiring that some or all of the Litigation Proceeds be used to satisfy some or
all of CINAR's liabilities before such Litigation Proceeds are paid to the
Manager pursuant to the CCE Agreement to be held in the Litigation Account.
CCES NOT SECURED AND NOT SECURITIES OF THE MANAGER
The CCEs shall not confer or be construed as conferring upon a CCE Payee: (i)
any right or interest whatsoever as a shareholder or other security holder of
CINAR or the Manager, including the right to vote at, to receive notice of, or
to attend, meetings of shareholders or other security holders or any other
proceedings of CINAR or the Manager, or the right to receive dividends and other
distributions payable on the shares or other securities of CINAR or the Manager;
(ii) any other equity or ownership interest in CINAR or the Manager; or (iii)
any other right not expressly granted pursuant to the CCE Agreement. The CCEs
will represent unsecured obligations of the Manager and will not be entitled to
the benefit of any security in any of the assets of the Manager or CINAR.
SETTLEMENT NEGOTIATIONS
The CCE structure was developed to maximize shareholder value and to ensure that
any net amount received in connection with any of the Specified Litigation will
contribute to increase the Aggregate Consideration to be paid to CINAR
Shareholders under the Arrangement. Management of CINAR recognizes that if the
Specified Litigation is not settled or subject to a final court decision by the
Settlement Deadline, CINAR Shareholders will be entitled to receive an amount
equal to their PRO RATA shares of 70% of the CCE Net Litigation Proceeds and,
accordingly, there are certain benefits to reaching an adequate and appropriate
settlement prior to the Settlement Deadline in order to obviate the need for the
CCE structure. Accordingly, one of the top priorities of CINAR's management
since entering into the Arrangement Agreement has been to settle the Specified
Litigation. Management believes there is a window of opportunity from now until
the Settlement Deadline to settle the Specified Litigation and maximize the
Aggregate Consideration payable to CINAR Shareholders. However, no assurances
can be given in this regard.
CINAR's management has, therefore, been involved in settlement discussions with
each of the various parties involved in the Specified Litigation. In fact,
management has successfully settled the BRB Litigation and the Fournier
Litigation. CINAR has also entered into settlement discussions with Mr. Weinberg
and Ms. Charest, on the one hand, and Globe-X, on the other hand. CINAR's
management has attempted both global and individual settlement discussions with
each of these parties.
In the past several months, CINAR submitted several draft written settlement
proposals and has received the same from each of Mr. Weinberg and Ms. Charest,
on the one hand, and Globe-X, on the other hand. The latest proposals of CINAR's
management, in which CINAR's terms for a fair settlement between the parties
were outlined, were communicated to Mr. Weinberg, Ms. Charest and Globe-X on or
about December 9, 2003 and again to Globe-X on or about December 22, 2003. Given
the confidentiality of such discussions and the conditional nature of the
proposals, CINAR cannot, at this time, publicly announce its views as to a fair
and adequate settlement. The CCE structure helps to ensure that CINAR will not
be forced to enter into a settlement or settlements that do not reflect an
adequate recovery of its entitlements from the Specified Litigation. CINAR will
make a public announcement if an agreement with any or all of Globe-X, Mr.
Weinberg or Ms. Charest is made before the Settlement Deadline. CINAR is not
able to advise as to the likelihood that these negotiations will be successful
before the Settlement Deadline.
SPECIFIED LITIGATION
The Specified Litigation consists of the matters described below.
BRB
On or about August 8, 2000, the principals of BRB, a Spanish animation company,
instituted an action against CINAR, Micheline Charest and Ronald Weinberg in the
Superior Court of Quebec (Judicial District of Montreal), Court File No.
500-05-059449-007 (the "BRB LITIGATION"). BRB claimed approximately $78 million
for breach of contract, alleging that CINAR failed to complete an agreement to
purchase 100% of the shares of BRB and its affiliates. On November 24, 2003,
CINAR announced that it had reached an out-of-court settlement with BRB. CINAR
has paid BRB $450,000 as a complete and final settlement of BRB's action.
CLAUDE ROBINSON
On or about July 16, 1996, an action in damages in the amount of $2,523,000 was
instituted by Claude Robinson and Les Productions Nilem Inc. against CINAR,
Ronald Weinberg, Micheline Charest and ten other named defendants in the
Superior Court of Quebec (Judicial District of Montreal), Court File No.
500-05-021498-967. In this action, the plaintiffs requested the issuance of
various orders based on alleged illegal plagiarism of Claude Robinson's work in
a series produced by CINAR and others entitled "Robinson Sucroe". This case has
not yet been inscribed for proof and hearing. The plaintiffs have substantially,
but not fully, completed discoveries of all witnesses. The court has established
January 31, 2004 as the deadline for the plaintiffs to file the necessary
materials and indicate that their case is ready for proof and hearing. The
defendants, including CINAR, will then have 60 days to file their materials.
Counsel for the insurance company which is defending this action on behalf of
all the defendants has advised CINAR that the trial date will likely only be set
in March 2004. While it is not possible to predict the outcome of this case,
CINAR has been advised by counsel for the insurance company that there is a
reasonable probability of CINAR and the other defendants prevailing in this
case.
LOUIS FOURNIER
On or about May 23, 2000, Louis Fournier instituted an action against CINAR in
the Superior Court of Quebec (Judicial District of Montreal), Court File No.
500-05-058100-007 (the "FOURNIER LITIGATION"). The suit claimed damages of
approximately $1.8 million related to certain stock options in CINAR. Louis
Fournier and CINAR have agreed to a mutual and complete release with respect to
all the facts alleged in such action in return for the payment by CINAR to Louis
Fournier of $925,000, as to $308,333 on November 1, 2003 and as to the remaining
$616,667 on January 1, 2004.
WEINBERG AND CHAREST
An action instituted by CINAR and certain of its affiliated companies against
Ronald A. Weinberg, Micheline Charest and their holding companies, 153114 Canada
Inc., 2950995 Canada Inc., 3238369 Canada Inc. and McRaw Holdings Inc.,
(collectively, the "WEINBERG DEFENDANTS") and Hasanain Panju, in the Superior
Court of Quebec, Court File No. 500-05-062790-017, and a Cross Demand filed
therein against CINAR and certain of its affiliated companies by the Weinberg
Defendants and any further claims, counter-claims or recursory claims arising
out of or in relation to the facts alleged in such proceedings by any party
including, without limitation, any eventual recursory claims of any party to
such proceedings against the Globe-X Companies, Silicon Isle Limited, Norshield
International Limited, Comprehensive Investor Services Limited, or any of their
directors, officers or shareholders, or any of their affiliated companies and
any of their directors, officers or shareholders (the "CINAR ACTION"). The CINAR
Action is in the final stages of discovery and, subject to the expiry of the
stay agreement, could be set down for trial (the filing of the Declaration of
Readiness) within the next six months. After being set down for trial, it could
be another 18 months or more before a trial is held, following which it could
then be subject to further delays for any eventual appeals. While important
elements of the claims of both parties involve contested issues of fact and
credibility which will only be determined by an eventual judgment on the merits,
CINAR believes that its claims against the defendants in the CINAR Action have
significant merit and that the cross-claims of the defendants to the CINAR
Action lack merit, or are subject to compensation for other claims of CINAR. It
is difficult to predict the likelihood of recovery from the defendants in the
CINAR Action.
An action instituted by 153114 Canada Inc., 2950995 Canada Inc. and 3238369
Canada Inc., holding companies of Ronald A. Weinberg and/or Micheline Charest,
against Hasanain Panju in the Superior Court, Court File No. 500-05-065669-010.
CINAR is not a party to this action. This is an action taken by certain holding
companies of Mr. Weinberg and Ms. Charest for an accounting of their funds which
were administered by Mr. Panju for the account and benefit of the plaintiffs, as
well as an accounting for profits that were earned by Mr. Panju from the use of
such funds, for which the plaintiffs claim an aggregate of $18,077,146.23 in
respect of the return of their funds and the profits earned by Mr. Panju. Mr.
Panju has cross-claimed against the plaintiffs for $8,500,000 under various
heads of damages including unjust dismissal, moral damages and damages to his
reputation. Some of the transactions alleged in these proceedings to have been
effected by Mr. Panju are among the related party transactions referenced in the
CINAR Action. Thus, it is possible, though not likely, that CINAR might choose
at some stage to intervene in these proceedings. CINAR has no plans to intervene
at the present time.
An action instituted by Ronald A. Weinberg, Micheline Charest and their holding
companies, 153114 Canada Inc., 2950995 Canada Inc. and 3238369 Canada Inc., as
plaintiffs against Hasanain and Sukaina Panju before the Superior Court of
Justice of Ontario, Court File No. 64106/02. CINAR is not a party to this
action. This action is ancillary to the action described in the preceding
paragraph. The plaintiffs allege that certain of the funds of the plaintiffs
that Mr. Panju had allegedly appropriated were used to purchase real estate in
Ontario (which was subsequently transferred to his wife, Sukaina Panju) and,
accordingly, such real estate should be deemed to be held by Mr. Panju as
trustee in a constructive trust for the benefit of the plaintiffs. It is
possible, though not likely, that CINAR might choose at some stage to intervene
in these proceedings. CINAR has no plans to intervene at the present time.
An action instituted by 2950995 Canada Inc. and 3238369 Canada Inc., holding
companies of Micheline Charest and Ronald A. Weinberg, respectively, against
Mount Real Corporation, Mount Real Services Inc., Mount Real Financial
Management Services Corporation, Mount Real Acceptance Corporation and Gold
Triangle Technologies Ltd. in the Superior Court of Quebec, Court File No.
500-05-073956-029. CINAR is not a party to this action. This action is being
taken by certain holding companies of Mr. Weinberg and Ms. Charest against the
defendants, which are companies in which, it is alleged, Mr. Panju invested the
plaintiffs' funds without authorization. The plaintiffs thus seek both an
accounting and the return of all amounts invested in the defendants, which they
allege amount to $6,918,219.54. Some of the transactions alleged in these
proceedings to have been effected by Mr. Panju are among the related party
transactions referenced in the CINAR Action.
An Amended Motion for Declaratory Judgement or to Dismiss a Trustee, Motion for
Damages and Motion for Interlocutory and Final Injunction by Micheline Charest,
Ronald A. Weinberg, 153114 Canada Inc. and 2950995 Canada Inc. against Robert
Despres in the Superior Court of Quebec, Court File No. 500-17-016856-034
("MOTION TO DISMISS A TRUSTEE"). These proceedings have not yet been scheduled
for a hearing on the merits. CINAR is not a party to these proceedings at the
present time.
An action instituted by Ronald A. Weinberg, Micheline Charest and their holding
companies, 153114 Canada Inc., 2950995 Canada Inc., 3238369 Canada Inc., McRaw
Holdings Inc., 3359174 Canada Inc. and 336953 Canada Inc., against Ernst & Young
LLP in the Superior Court of Quebec, Court File No. 500-05-074589-27. The
plaintiffs claim damages in the amount of $194,087,927.13 and an indemnity up to
the amount of $28,620,469.00 that certain of the plaintiffs, who are also
defendants in the CINAR Action, may be obligated to pay as a result of the CINAR
Action. CINAR is not a party to this action. This action is being taken by Mr.
Weinberg, Ms. Charest and certain of their holding companies against Ernst &
Young LLP, who had been CINAR's auditors and, allegedly, the plaintiffs'
accountants and financial advisors prior to certain revelations in the spring of
2000. The plaintiffs allege that the errors and omissions of Ernst & Young LLP
in the performance of its duties as auditor to CINAR caused certain of the
plaintiffs to be wrongfully sued by CINAR in the CINAR Action and, accordingly,
they seek indemnification by Ernst & Young LLP for any amounts they might
eventually be ordered to pay CINAR in the CINAR Action. They further allege that
Ernst & Young LLP's actions, errors and omissions in the performance of its
duties as auditor of CINAR caused the value of the CINAR Shares held by certain
plaintiffs to decrease substantially, and that Ernst & Young LLP should be
liable for such decrease in value (which they allege to be $172,477,853.87).
They further allege that Ernst & Young LLP's actions, errors and omissions in
the performance of its contractual obligations to give sound accounting and
financial advice and to render quality accounting services to the plaintiffs
caused certain of the plaintiffs to be defrauded by Mr. Panju (for which they
claim $14,691,853.72) and resulted in the losses due to the investments in the
companies described above (for which they claim $6,918,219.54). As the
plaintiffs are asking to be indemnified by Ernst & Young LLP for any amount for
which they are found liable in the CINAR Action, it is possible, though not
likely, that CINAR might choose at some stage to intervene in these proceedings.
CINAR has no plans to intervene at the present time.
GLOBE-X
Any and all claims, present or future, of CINAR against, and any and all amounts
payable to CINAR by (i) the Globe-X Companies and Silicon Isle Ltd., and their
related companies, directors, officers and shareholders, including, without
limitation, Lowell Holden and Lynwood Bell; and/or (ii) Norshield International
Limited, CIS, Comprehensive Investor Services Ltd., and/or any of their related
companies, directors, officers and shareholders, including, without limitation,
John Xanthoudakis, Tom Muir and Robert Daviault, including, without limitation:
(a) an action instituted by CINAR for an indeterminate amount against Norshield
International Limited, the Globe-X Companies and Robert Daviault in 2000 in
the Supreme Court of Bahamas, Court File No. 300 of 2000. This action has
not been pursued by CINAR since March 2000 and has been largely superseded
by the liquidation proceedings taken by CINAR against the Globe-X Companies
in July 2002. No further action by CINAR is presently contemplated in these
proceedings;
(b) a petition instituted by CINAR in the Supreme Court of the Bahamas for the
winding-up of the Globe-X Companies, Court File Nos. 1502 and 1503 of 2002.
CINAR's petition to the Supreme Court of the Bahamas seeking the
liquidation of the Globe-X Companies was granted in September 2002. While
this decision has been appealed, it is enforceable notwithstanding such
appeal. CINAR does not know when the appeal will finally be resolved in
these proceedings. The liquidators of the Globe-X Companies appointed by
the Bahamian Court are presently attempting to realize on the assets of the
Globe-X Companies for the benefit of CINAR and any other creditors of the
Globe-X Companies. It is difficult to predict when the liquidators are
likely to be able to complete their task or to advise as to the likelihood
that the proceeds of the liquidation of the Globe-X Companies will be
sufficient to satisfy CINAR's claim;
(c) an action instituted by CINAR against the Globe-X Companies in the High
Court of Justice of Anguilla, Claim 0055 of 2002, requesting either the
recognition of an order of the Supreme Court of the Bahamas for the
winding-up of the Globe-X Companies or, in the alternative, a fresh
winding-up order, and the counterclaim filed therein by the Globe-X
Companies for damages aggregating approximately $66,000,000 for alleged
breach of contract, defamation and/or malicious falsehood. This action
instituted by CINAR has also been largely superseded by the legal
proceedings initiated in Anguilla by the liquidators of the Globe-X
Companies and CINAR is not contemplating pursuing this action at this time.
At this stage, it is difficult to predict when it is likely that this
litigation will be finally resolved. CINAR believes that the counterclaim
instituted by the Globe-X Companies for approximately $66,000,000 is
without merit;
(d) any and all future claims between the same parties related to, or arising
from, the facts alleged in the proceedings listed in (a) through (c);
(e) all amounts payable to CINAR in the liquidation of the Globe-X Companies;
and
(f) an action instituted by CINAR against John Xanthoudakis and Tom Muir before
the Superior Court of Quebec, Court File No. 500-05-075777-027. CINAR has
filed and served its statement of claim for this action. The defendants
filed a motion for particulars, to which CINAR responded. The defendants
subsequently requested to examine one of CINAR's representatives for
discovery. The defendants have, however, failed to identify the
representative who they wish to examine. This action is related to the
other claims listed above in items (a) to (e), and there are not likely to
be any further developments in this action until the status of the other
claims is clarified. At this stage, it is difficult to assess the
likelihood of CINAR prevailing in this claim and of recovering from the
defendants any amount awarded to CINAR by the court.
An action was instituted by the Globe-X Companies, Silicon Isle Ltd. and Lowell
Holden against CINAR, Ronald Weinberg, Barrie Usher, Lawrence Yelin and John
Does I-XX in the United States District Court for the Eastern District of
Pennsylvania, Court File No. 03-1831. This complaint alleges that plaintiffs
have been damaged by reason of allegedly false and misleading statements made in
CINAR press releases and periodic reports to CINAR Shareholders with respect to
the transactions that are the subject of CINAR's claims against the Globe-X
Companies and their affiliates. The complaint alleges that these statements
constitute securities fraud, defamation, libel, slander, breach of contract and
tortious interference with contracts, and were part of a pattern of alleged
"racketeering activity". The plaintiffs are seeking damages in an indeterminate
amount, alleged to be in excess of US$55,000,000, which, with respect to the
"racketeering" claim, may be subject to trebling, and interest and costs. CINAR
and another defendant have filed their defences, alleging, among other things,
that the statements were truthful. Discovery has yet to commence. CINAR believes
that this action is without merit.
SACD ROYALTIES
An action was instituted on or about February 26, 2003 by 11 plaintiffs,
subsequently reduced to eight, namely Patrick Granleese, Rick Jones, Thomas
LaPierre, Joseph Mallozzi, Paul Mullie, Bruce Robb, Anne-Marie Perrotta and Tean
Schultz. The lawsuit was initially against CINAR, CINAR Productions Inc., Clever
Curls Productions Inc., Mousecapades Productions Inc., Helene Charest and McRaw
Holdings Inc. as defendants and La Societe des Auteurs et Compositeurs
Dramatiques ("SACD") as the third party intervenor ("mise-en-cause"). The
lawsuit is before the Superior Court of Quebec,Court File No. 500-17-017177-030.
According to an amendment to the Plaintiffs' proceedings made on or about
November 3, 2003, the following entities have been added as co-defendants: Busy
Bear Productions Inc., Mysterious Productions Inc., Caillou Productions Inc.,
Four Me Productions Inc., Fancy Cape Productions Inc., Fancy Cape IV Productions
Inc. and Funnyzoo Productions Inc.
The Plaintiffs allege that they signed a number of contracts with CINAR in order
to write scripts for children's animation programs throughout the 1990s. In
these contracts, they "signed away" certain rights which would allegedly have
entitled them to obtain "royalty" benefits from the SACD. In other contracts
concluded between CINAR and Helene Charest, the latter was designated as the
writer of the same scripts and did in effect obtain "royalty" money from the
SACD. This money was later remitted by Helene Charest to McRaw Holdings Inc. or
CINAR.
CINAR agreed in late 1999, on a without prejudice basis, to remit to the SACD
all of the money which it had obtained via Helene Charest. The plaintiffs
nevertheless allege that they were "fraudulently misled" by the defendants and
that various defendants, including CINAR, construed this scheme in order to deny
the plaintiffs the royalty payments to which they would have otherwise been
entitled.
In terms of the damages sought by the plaintiffs, the principal conclusions of
the lawsuit seek various declarations and orders (which are essentially of an
injunctive nature) as well as monetary relief aimed principally at the
mise-en-cause SACD and not the defendants. As such, the first "set" of
conclusions with respect to CINAR are presented as alternative conclusions. In
these "alternative conclusions", the plaintiffs seek an award against CINAR of
$536,082.99 which is allegedly the out-of-pocket money, in capital and interest,
which the plaintiffs "lost" as a result of the abovementioned scheme. There are
other "principal conclusions" according to which the plaintiffs are asking that
CINAR and the other defendants be ordered, jointly and severally, to pay to them
the following amounts:
o $127,000 in other compensatory damages;
o $550,000 in exemplary and punitive damages;
o $70,000 in moral damages;
o yet to be quantified extra-judicial fees and disbursements;
o interest and costs.
As a result, the total potential liability of CINAR for damages in this matter
is presently at $1,283,082.99.
To the extent that this case proceeds to trial, CINAR's legal counsel has
advised that it estimates that a trial on the merits will be heard before the
Superior Court of Quebec in the fall of 2004 at the earliest.
ARRANGEMENT MECHANICS
The following is a summary of the material terms of the Plan of Arrangement.
This summary is not intended to be complete and is qualified in its entirety by
the actual provisions of the Plan of Arrangement. CINAR Shareholders are urged
to read the Plan of Arrangement in its entirety. The Plan of Arrangement is
attached as Appendix C to this Circular.
Pursuant to the Plan of Arrangement, at the Effective Time, the following shall
occur:
(a) each CINAR Share (other than CINAR Shares in respect of which the CINAR
Shareholder has exercised his Dissent Rights) shall be deemed to be
acquired by Newco for:
(i) US$3.60 in cash; plus,
(ii) in the event that Newco has delivered written notice to CINAR prior to
the Settlement Deadline that it is satisfied that the conditions to
the payment of the Net Litigation Amount set forth in the Arrangement
Agreement have been fulfilled or that it has waived such conditions,
an amount in cash equal to the PRO RATA amount per CINAR Share of the
Net Litigation Amount; or
(iii) in the event that Newco has not delivered written notice to CINAR
prior to the Settlement Deadline that it is satisfied that the
conditions to the payment of the Net Litigation Amount set forth in
the Arrangement Agreement have been fulfilled or that it has waived
such conditions, one CCE created and allocated by the Manager;
(b) each CINAR Share in respect of which the CINAR Shareholder has validly
exercised his Dissent Rights shall be deemed to be acquired by Newco;
(c) all CINAR Options, all CINAR Performance Units, all other securities and
all other rights or entitlements convertible or exchangeable for or with
securities of CINAR shall be cancelled without any consideration therefor
or any obligation to issue any of the securities of CINAR underlying the
CINAR Options or any other such securities or other rights or entitlements
and without any further rights or entitlements of the holders; and
(d) Newco and CINAR will amalgamate to form Amalco.
PAYMENT FOR CINAR SHARES
Within ten Business Days after the later of (i) the Effective Date, and (ii) the
delivery to the Depositary of a duly completed Letter of Transmittal and the
certificates representing CINAR Shares, Amalco shall cause the Depositary:
(A) to forward or cause to be forwarded by first class mail to the CINAR
Shareholder at the address specified in the Letter of Transmittal;
(B) if requested by the CINAR Shareholder in the Letter of Transmittal, to make
available at the offices of the Depositary for pick up by the CINAR
Shareholder; or
(C) if the Letter of Transmittal neither specifies an address nor contains a
request as described in (B) above, to forward or cause to be forwarded by
first class mail to the CINAR Shareholder at the address of the CINAR
Shareholder as shown on the share register maintained by CINAR immediately
prior to the Effective Time;
a cheque in United States dollars representing the cash payment required to be
delivered to such CINAR Shareholder in respect of the CINAR Shares for which a
duly completed Letter of Transmittal and the certificates representing same have
been delivered to the Depositary (less, in the event that Newco has delivered
written notice to CINAR prior to the Settlement Deadline that it is satisfied
that the conditions to the payment of the Net Litigation Amount set forth in the
Arrangement Agreement have been fulfilled or that it has waived such conditions,
but all of the Net Litigation Proceeds have not been received in full by CINAR
on or prior to the date which is ten Business Days prior to the date that such
cheque is required to be mailed or made available, the portion of the Net
Litigation Amount payable to such CINAR Shareholder), net of any applicable
withholding or other taxes.
In the event that Newco has delivered written notice to CINAR prior to the
Settlement Deadline that it is satisfied that the conditions to the payment of
the Net Litigation Amount set forth in the Arrangement Agreement have been
fulfilled or that it has waived such conditions, but all of the Net Litigation
Proceeds have not been received in full by CINAR on or prior to the date which
is ten Business Days prior to the date that a cheque is required to be mailed or
made available to the CINAR Shareholder in accordance with the preceeding
paragraph, within ten Business Days after the later of (i) the receipt by CINAR
of all of the Net Litigation Proceeds in full, and (ii) the delivery to the
Depositary of a duly completed Letter of Transmittal and the certificates
representing CINAR Shares, Amalco shall cause the Depositary:
(A) to forward or cause to be forwarded by first class mail to the CINAR
Shareholder at the address specified in the Letter of Transmittal;
(B) if requested by the CINAR Shareholder in the Letter of Transmittal, to make
available at the offices of the Depositary for pick up by the CINAR
Shareholder; or
(C) if the Letter of Transmittal neither specifies an address nor contains a
request as described in (B) above, to forward or cause to be forwarded by
first class mail to the CINAR Shareholder at the address of the CINAR
Shareholder as shown on the share register maintained by CINAR immediately
prior to the Effective Time;
a cheque in United States dollars representing the portion of the Net Litigation
Amount payable to such CINAR Shareholder in respect of the CINAR Shares for
which a duly completed Letter of Transmittal and the certificates representing
same have been delivered to the Depositary pursuant to the provisions of the
Plan of Arrangement, net of any applicable withholding or other taxes.
At least five business days prior to Amalco being required to make a payment to
CINAR Shareholders contemplated by the two preceding paragraphs, Amalco will
provide the Depositary with sufficient funds to enable the Depositary to make
such payments.
CINAR Shareholders are advised to review carefully the information under the
heading "Information Concerning the Meeting -- Procedure for Payment to CINAR
Shareholders" in this Circular and the Letter of Transmittal for a more detailed
description of the procedures to be followed by CINAR Shareholders in order to
receive the Aggregate Consideration payable in respect of their CINAR Shares
pursuant to the Arrangement.
CINAR Shareholders whose CINAR Shares are registered in the name of an
Intermediary should contact that Intermediary for instructions and assistance in
delivering those CINAR Shares. See "Information Concerning The Meeting --
Procedure for Payment to CINAR Shareholders".
INFORMATION RELATING TO NEWCO AND NEWCANCO
Newco was incorporated under the CBCA on March 20, 2003. The indirect
shareholders of Newco will include Michael Hirsh, Toper Taylor and TD Capital
Group Limited's Canadian Private Equity Partners Fund and its co-investors, if
any (including affiliates of the foregoing). Michael Hirsh was the co-founder
and former CEO of Nelvana Inc., which was one of the world's leading independent
animation companies. Toper Taylor was President of Nelvana's worldwide creative
development, merchandising, marketing and distribution. TD Capital Group
Limited's Canadian Private Equity Partners Fund is part of the private equity
arm of the Toronto-Dominion Bank. Newco was incorporated for the purpose of
effecting the Arrangement and has not otherwise carried on any material business
or activity. The registered office of Newco is located at Suite 2300, 200 King
Street West, Toronto, Ontario M5H 3W5.
NewCanCo was incorporated under the CBCA on July 20, 2001. The indirect
shareholders of NewCanCo will include Michael Hirsh, Toper Taylor and TD Capital
Group Limited's Canadian Private Equity Partners Fund and its co-investors, if
any (including affiliates of the foregoing). NewCanCo has not carried on any
material business or activity other than in connection with the Arrangement. The
registered office of NewCanCo is located at Toronto-Dominion Bank Tower, P.O.
Box 20, Suite 4200, 66 Wellington Street West, Toronto-Dominion Centre, Toronto,
Ontario, M5K 1N6.
Newco has advised CINAR that none of Newco, NewCanCo, any director or senior
officer of Newco or NewCanCo, or, to the knowledge of Newco, after reasonable
inquiry, any associate of a director or senior officer of Newco or NewCanCo, any
person or company holding more than 10% of any class of equity securities of
Newco or NewCanCo or any person or company acting jointly or in concert with
Newco or NewCanCo, (collectively, the "NEWCO PARTIES") own or exercise control
or direction over any securities of CINAR. Newco has advised CINAR that, to
Newco's knowledge after reasonable inquiry, during the six months preceding the
date of this Circular, none of the Newco Parties has acquired or sold any CINAR
Shares.
ACQUISITION FINANCING
In order to fund the Cash Portion, Newco has arranged an acquisition facility
with a Canadian chartered bank in the principal amount of $80,000,000 (the
"ACQUISITION FACILITY"). The Acquisition Facility will be guaranteed by NewCanCo
and will be secured by the shares of Newco and the CINAR Shares and the assets
and property of NewCanCo, Newco and CINAR. The Acquisition Facility contains
representations, warranties, positive, negative and financial covenants, events
of default and other clauses and conditions usual and customary for a financing
of that nature. The balance of the funding required to pay the Cash Portion will
be provided directly or indirectly by the shareholders of Newco.
PRICE RANGE AND TRADING VOLUME OF CINAR SHARES
The TSX and NASDAQ halted trading in the CINAR Shares in March 2000. As at the
close of business on August 30, 2001, the TSX de-listed the CINAR Shares as a
result of CINAR's failure to meet its listing requirements. NASDAQ also
de-listed the CINAR Shares effective on August 2, 2000. The CINAR Shares
continue, however, to trade in the United States on the Pink Sheets.
The following table sets forth, for the periods indicated, the high and low
closing prices and volume for the Limited Voting Shares on the Pink Sheets as
reported by Bloomberg L.P. in United States dollars.
HIGH LOW TOTAL VOLUME
June 2003 $2.75 $2.55 238,500
July 2003 2.88 2.50 475,900
August 2003 3.50 2.75 350,100
September 2003 3.50 3.00 379,500
October 2003 3.60 3.00 4,597,800
November 2003 3.65 3.50 3,195,954
December 2003 3.65 3.60 4,402,945
January 1-14, 2004 3.63 3.61 329,626
A press release disclosing the execution of the Arrangement Agreement was issued
on October 30, 2003. The closing price, as reported by Bloomberg L.P., of the
Limited Voting Shares on the Pink Sheets on October 29, 2003, the last trading
day before disclosure of the execution of the Arrangement Agreement, was
US$3.25.
Persons outside Canada who may acquire CINAR Shares with a settlement date
expected to occur on or after the Effective Date should note that CINAR's share
transfer register will close at the end of business on the Business Day
immediately preceding the Effective Date. Accordingly, such Persons will not be
able to have such CINAR Shares registered in their name. THE AGGREGATE
CONSIDERATION PAYABLE PURSUANT TO THE ARRANGEMENT SHALL ONLY BE PAID TO CINAR
SHAREHOLDERS WHOSE NAMES APPEAR ON CINAR'S SHARE REGISTER ON THE EFFECTIVE DATE,
OR AS SUCH CINAR SHAREHOLDERS MAY DIRECT. Therefore, Persons who acquire CINAR
Shares in the circumstances described above will need to ensure that they have
made appropriate arrangements with the vendor of such CINAR Shares to receive
the Aggregate Consideration payable in respect of such CINAR Shares. Newco's
obligations under the Arrangement will be completely satisfied by paying the
Aggregate Consideration to the CINAR Shareholders appearing on CINAR's share
register at the close of business on the Business Day immediately preceding the
Effective Date, and Newco shall have no liability or obligation to any Person
who claims to have acquired CINAR Shares, but whose name does not appear on
CINAR's share register at the close of business on the Business Day immediately
preceding the Effective Date. Vendors who sell CINAR Shares in the circumstances
described above should also note that they may not be able to effect good
delivery of such CINAR Shares.
TAX CONSIDERATIONS FOR BENEFICIAL HOLDERS
PRINCIPAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Heenan Blaikie, LLP, counsel to CINAR, the following is a
summary of the principal Canadian federal income tax considerations generally
applicable to a Benficial Holder who disposes of CINAR Shares to Newco pursuant
to the Plan of Arrangement or otherwise disposes of CINAR Shares in the manner
described under the heading "Dissenting Shareholder Rights" in this Circular.
This summary does not, however, apply to a Beneficial Holder who acquired CINAR
Shares on the exercise of employee stock options, and such holders should
consult their own tax advisors.
This summary is based on the current provisions of the Canadian Tax Act, the
Quebec Tax Act, the regulations pursuant to such legislation and counsel's
understanding of the current administrative and assessing practices of the CCRA
and the MRQ. The summary also takes into account all specific proposals to amend
the Canadian Tax Act, the Quebec Tax Act and the regulations issued thereunder
publicly announced by the Minister of Finance (Canada) or the Quebec Minister of
Finance prior to the date hereof, although there is no certainty that such
proposals will be enacted in the form proposed, if at all. The summary does not
otherwise take into account or anticipate any changes in law, whether by
judicial, governmental or legislative decision or action, or changes in
administrative and assessing practices, nor does it take into account
territorial or foreign income tax legislation or considerations or income tax of
a province other than Quebec. The income tax consequences under the Quebec Tax
Act are identical to those under Canadian Tax Act, except where otherwise
indicated. The provisions of provincial income tax legislation vary from
province to province in Canada and in some cases may materially differ from
federal income tax legislation.
The Canadian Tax Act contains provisions relating to securities held by certain
financial institutions (the mark-to-market rules). This summary does not take
into account the mark-to-market rules and any Beneficial Holders that are
"financial institutions" for the purpose of those rules should consult their own
tax advisors.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR SHOULD
IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE OR REPRESENTATIONS TO ANY PARTICULAR
BENEFICIAL HOLDER. ACCORDINGLY, BENEFICIAL HOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES.
RESIDENTS OF CANADA
This portion of the summary is applicable only to a Beneficial Holder who at all
relevant times, for purposes of the Canadian Tax Act, is, or is deemed to be,
resident in Canada, deals at arm's length with CINAR and Newco, is not
affiliated with CINAR or Newco, and holds the CINAR Shares as capital property.
The determination of whether the CINAR Shares are capital property to a
Beneficial Holder will depend upon his own particular circumstances. CINAR
Shares will generally be considered capital property to a Beneficial Holder
unless the Beneficial Holder holds such CINAR Shares in the course of carrying
on a business, or the Beneficial Holder has acquired them in a transaction or
transactions considered to be an adventure in the nature of trade. Certain
Beneficial Holders whose CINAR Shares might not otherwise qualify as capital
property may, in certain circumstances, treat CINAR Shares as capital property
by making an irrevocable election under subsection 39(4) of the Canadian Tax
Act.
SALE TO NEWCO PURSUANT TO THE PLAN OF ARRANGEMENT
A Beneficial Holder who disposes of CINAR Shares to Newco pursuant to the Plan
of Arrangement will realize a capital gain (or capital loss) equal to the amount
by which the proceeds of disposition of the CINAR Shares, net of any reasonable
costs of disposition, exceed (or are less than) the adjusted cost base of the
CINAR Shares to the Beneficial Holder.
Subject to the administrative practice set out in Interpretation Bulletin IT-426
discussed below, the proceeds of disposition of the CINAR Shares will be equal
to the aggregate of the amount of cash and the fair market value at the time of
receipt of CCEs received by a Beneficial Holder for his CINAR Shares. The cost
of a CCE to a Beneficial Holder will be equal to such fair market value. Because
the amount to be received as a result of the CCEs, if any, is uncertain, the
fair market value thereof is unclear. Beneficial Holders will be required to
value the CCEs based on all available facts and circumstances at the time they
file their income tax returns. A Beneficial Holder who disposes of a CCE will
realize a capital gain (or capital loss) to the extent that the proceeds
received therefor, net of any costs of disposition, exceed (or are less than)
the adjusted cost base of the CCE to the Beneficial Holder. A Beneficial Holder
who receives an interim payment under a CCE will realize a capital gain (or
capital loss) to the extent that the amount of the payment exceeds (or is less
than) the portion of the adjusted cost base of the CCE to the Beneficial Holder
that is reasonably attributable to that payment.
In Interpretation Bulletin IT-426, the CCRA provides that where shares of a
corporation are sold under an agreement whereby the proceeds of disposition are
at least partially determined pursuant to an earnout arrangement, it will accept
the use of the cost recovery method of reporting the capital gain or capital
loss on the sale of shares where certain conditions specified in IT-426 are met.
Under the cost recovery method, the vendor reduces his adjusted cost base of the
shares as amounts on account of the sale price become determinable. Once such an
amount on account of the sale price exceeds the adjusted cost base of the shares
(as reduced by any previous such amounts) the excess is considered to be a
capital gain that is realized at the time that the amount becomes determinable.
All such amounts that subsequently become determinable are treated as capital
gains at that subsequent time. A capital loss is recognized only when it can be
established that the total of the amounts to be paid cannot exceed the vendor's
adjusted cost base of the shares sold. A Beneficial Holder who may wish to
determine whether this administrative practice can apply to a disposition of the
CINAR Shares to Newco under the Plan of Arrangement should refer to IT-426 and
consult his own tax advisor.
A Beneficial Holder will be required to include in computing income one-half of
the amount of any resulting capital gain (a "taxable capital gain"), and may
deduct one-half of the amount of any resulting capital loss (an "allowable
capital loss") against taxable capital gains realized in the year of
disposition. Allowable capital losses not deducted in the taxation year in which
they are realized may be carried back and deducted in any of the three preceding
years or carried forward and deducted in any following year against taxable
capital gains realized in such years, to the extent and under the circumstances
specified in the Canadian Tax Act, including certain transitional provisions
relating to changes in the capital gains inclusion rate under the Canadian Tax
Act.
A capital loss otherwise arising upon the disposition of a CINAR Share by a
corporation may in certain circumstances be reduced by dividends previously
received or deemed to have been received thereon. Any such reduction will not
occur where the corporate Beneficial Holder owned the CINAR Share continuously
for 365 days or longer immediately before the disposition and such Beneficial
Holder (together with any persons with whom it did not deal at arm's length) did
not own more than 5% of the shares of any class or series of CINAR at the time
the relevant dividends were received or deemed to have been received. Similar
rules apply to a partnership or trust of which a corporation, partnership or
trust is a member or beneficiary. Beneficial Holders to whom these rules may be
relevant should consult their own tax advisors.
A "Canadian-controlled private corporation" (as defined in the Canadian Tax Act)
may be liable to pay, in addition to the tax otherwise payable under the
Canadian Tax Act, a 62/3% refundable tax on its investment income, including
taxable capital gains.
The realization of a capital gain (or capital loss) by an individual or a trust
(other than certain specified trusts) may affect the individual's or the trust's
liability for alternative minimum tax. Beneficial Holders should consult their
own tax advisors with respect to alternative minimum tax provisions.
A CCE WILL NOT BE A "QUALIFIED INVESTMENT" FOR A TRUST GOVERNED BY A RRSP, RRIF,
RESP OR DPSP. As a result, if a trust governed by an RRSP or RRIF acquires a
CCE, the fair market value thereof at the time it was acquired by the trust must
be included in the income of the annuitant under the RRSP or RRIF, as the case
may be. If such a trust subsequently disposes of the CCE, the annuitant is
entitled to a deduction equal to the lesser of the amount previously included in
the income of the annuitant and the proceeds of disposition of the CCE. A trust
governed by an RRSP or RRIF will be subject to tax on the income, including
capital gains, earned from the CCE. If a trust governed by a DPSP acquires a
CCE, the trust must pay a special tax equal to the fair market value of the CCE
at the time of acquisition. Upon a subsequent disposition of the CCE, the trust
would be entitled to a refund equal to the lesser of the amount of the special
tax previously imposed and the proceeds of disposition of the CCE. BENEFICIAL
HOLDERS THAT ARE TRUSTS GOVERNED BY AN RRSP, RRIF, DPSP OR RESP SHOULD CONSULT
THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM (AND TO THE
ANNUITANTS, BENEFICIARIES OR SUBSCRIBERS THEREUNDER) OF HOLDING CCES.
EXERCISE OF THE RIGHT TO DISSENT
As described under the heading "Dissenting Shareholder Rights" in this Circular,
a Beneficial Holder who dissents will be entitled to receive payment equivalent
to the fair value of his CINAR Shares. Under the current administrative
practices of the CCRA, Beneficial Holders who exercise their right of dissent in
respect of the Plan of Arrangement (which provides for an amalgamation) should
be considered to have disposed of their CINAR Shares for proceeds of disposition
equal to the amount paid therefor by the amalgamated corporation to the
dissenting Beneficial Holder, other than interest awarded by the court. Any
interest so awarded will be required to be included in the Beneficial Holder's
income. Because of uncertainties under the relevant legislation as to whether
such amounts paid to a dissenting Beneficial Holder should be treated entirely
as proceeds of disposition, or in part as the payment of a deemed dividend,
dissenting Beneficial Holders should consult with their own tax advisors in this
regard.
NON-RESIDENTS OF CANADA
This portion of the summary is applicable only to a Beneficial Holder who at all
relevant times, for purposes of the Canadian Tax Act, is not resident, nor
deemed to be resident, in Canada, deals at arm's length with CINAR and Newco, is
not affiliated with CINAR or Newco, holds the CINAR Shares as capital property
and does not use or hold, and is not deemed to use or hold, the CINAR Shares in
connection with carrying on a business in Canada. The Canadian Tax Act contains
provisions relevant to a non-resident insurer that carries on business in Canada
which this summary does not take into account. Accordingly, such Beneficial
Holders should consult their own tax advisors.
SALE TO NEWCO PURSUANT TO THE PLAN OF ARRANGEMENT
A non-resident Beneficial Holder will be subject to tax under the Canadian Tax
Act on any capital gain realized on a disposition of CINAR Shares to Newco under
the Plan of Arrangement since those shares constitute "taxable Canadian
property" to the Beneficial Holder, unless they constitute "treaty-protected
properties" within the meaning of the Canadian Tax Act. A non-resident
Beneficial Holder's capital gain (or capital loss) in respect of CINAR Shares
that constitute taxable Canadian property will be equal to the amount by which
the proceeds of disposition, net of any costs of disposition, exceed (or are
less than) the adjusted cost base of the CINAR Shares to the non-resident
Beneficial Holder. The Canadian income tax consequences of a non-resident
Beneficial Holder realizing a capital gain (or capital loss) are similar to
those described above under "Tax Considerations for Beneficial Holders --
Principal Canadian Federal Income Tax Considerations -- Residents of Canada --
Sale to Newco Pursuant to the Plan of Arrangement". Nevertheless, any capital
gain realized upon the disposition of the CINAR Shares may be exempt from tax
under the Canadian Tax Act pursuant to the provisions of an applicable income
tax treaty to which Canada is a party. For instance, under the CANADA-UNITED
STATES INCOME TAX CONVENTION (1980), a gain realized by a resident of the United
States (within the meaning of that Convention) on the disposition of CINAR
Shares will generally be exempt from Canadian tax since the value of the CINAR
Shares is not derived principally from real property situated in Canada. If a
capital gain in respect of the CINAR Shares would be exempt from tax under the
Canadian Tax Act because of an applicable international tax treaty to which
Canada is a party, any capital loss arising on the disposition of the CINAR
Shares will not be available to be used to offset a capital gain realized in
respect of another property, which may be subject to tax under the Canadian Tax
Act. A non-resident Beneficial Holder will be required to file a Canadian tax
return even if the gain arising from the disposition of the CINAR Shares is
exempt from tax because of an applicable international tax treaty to which
Canada is a party.
Whether or not a non-resident Beneficial Holder is subject to Canadian income
tax, such Beneficial Holder will be subject to the withholding and notification
procedures in Section 116 of the Canadian Tax Act and, in the case of a
corporate non-resident Beneficial Holder, in Sections 1097 and following of the
Quebec Tax Act. If a Section 116 Certificate and, if applicable, a Quebec
Certificate is not obtained pursuant to those provisions when required, Newco
will be required to withhold 25% of the purchase price of the CINAR Shares and
to remit that amount to the CCRA on account of the non-resident Beneficial
Holder's Canadian income tax. In the case of a corporate non-resident Beneficial
Holder, Newco will also be required to withhold 12% of the purchase price and to
remit that amount to the MRQ. Non-resident Beneficial Holders should consult
their own tax advisors for advice with respect to the potential income tax
consequences to them of having their CINAR Shares acquired pursuant to the Plan
of Arrangement.
EXERCISE OF THE RIGHT TO DISSENT
As described under the heading "Dissenting Shareholder Rights" in this Circular,
a Beneficial Holder who dissents will be entitled to receive payment equivalent
to the fair value of his CINAR Shares. Under the current administrative
practices of the CCRA, Beneficial Holders who exercise their right of dissent in
respect of the Plan of Arrangement (which provides for an amalgamation) should
be considered to have disposed of their CINAR Shares for proceeds of disposition
equal to the amount paid therefor by the amalgamated corporation to the
dissenting Beneficial Holder, other than interest awarded by the court. Any
interest so awarded will be subject to Canadian withholding tax at a rate of
25%. Such rate may be reduced under the provisions of an applicable income tax
treaty to which Canada is a party. Because of uncertainties under the relevant
legislation as to whether amounts paid to a dissenting Beneficial Holder should
be treated entirely as proceeds of disposition, or in part as the payment of a
deemed dividend which would also be subject to Canadian withholding tax,
dissenting Beneficial Holders should consult with their own tax advisors in this
regard.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of United States federal income tax considerations has
been prepared by Stroock & Stroock & Lavan LLP, United States counsel to CINAR.
The discussion describes the material United States federal income tax
consequences to Beneficial Holders that sell to Newco their CINAR Shares
pursuant to the Plan of Arrangement or otherwise dispose of their CINAR Shares
in the manner described under the heading "Dissenting Shareholder Rights" in
this Circular and who, for income tax purposes, are resident in the United
States and not in Canada, hold their CINAR Shares as a capital asset, do not use
or hold the CINAR Shares in carrying on a business through a permanent
establishment in Canada or in connection with a fixed base in Canada, whose
"functional currency" within the meaning of Section 985 of the Internal Revenue
Code of 1986, as amended (the "CODE") is the United States dollar, and, in the
case of individual investors, are also United States citizens (collectively,
"UNCONNECTED U.S. SHAREHOLDERS"). The tax consequences to Beneficial Holders
that are not Unconnected U.S. Shareholders may differ substantially from the tax
consequences discussed herein.
The discussion of United States federal income tax considerations does not take
into account the tax laws of the various state and local jurisdictions in the
United States or of any foreign jurisdiction. Moreover, the discussion provides
general information only and does not address all of the United States federal
income tax consequences that may be applicable to a particular holder subject to
special treatment under the United States federal income tax law or to any
particular holder in light of such holder's particular facts and circumstances.
In particular, except as otherwise explicitly noted, this discussion does not
describe the special considerations that may apply to certain taxpayers, such as
financial institutions, broker-dealers, life insurance companies, tax-exempt
organizations, investment companies, and other special status taxpayers (e.g.,
persons holding the CINAR Shares as part of a "straddle", "hedge" or "conversion
transaction"). In addition, this discussion does not address the tax treatment
of Unconnected U.S. Shareholders that own (or are deemed for United States tax
purposes to own) 10% or more of the total combined voting power of all classes
of voting stock of CINAR.
The discussion of United States federal income tax considerations is based upon
the provisions of the Code, its legislative history, existing and proposed
Treasury regulations thereunder, published rulings and court decisions, all as
in effect and existing on the date hereof and all of which are subject to change
at any time, possibly on a retroactive basis. The following discussion is not
binding on the Internal Revenue Service ("IRS") and CINAR has not received and
will not receive any rulings from the IRS with respect to any of the matters
summarized in this discussion. Therefore, there is no assurance that the IRS or
a court would agree with this summary. Moreover, there is no assurance that this
summary will not be rendered invalid as a result of subsequent changes in the
law, including changes to the Code or the interpretation thereof by the courts
or the IRS.
THIS DISCUSSION IS OF A GENERAL NATURE AND IS NOT INTENDED TO BE NOR SHOULD IT
BE CONSTRUED AS LEGAL OR TAX ADVICE TO ANY PARTICULAR BENEFICIAL HOLDER.
BENEFICIAL HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES OF SELLING THEIR CINAR SHARES AND OWNING CCES.
TAX CONSEQUENCES OF SELLING CINAR SHARES
IN GENERAL. The sale of CINAR Shares to Newco pursuant to the Plan of
Arrangement will be a taxable transaction for United States federal income tax
purposes. Accordingly, an Unconnected U.S. Shareholder that sells its CINAR
Shares generally will recognize gain or loss in an amount equal to the
difference between the "amount realized" on the sale and its adjusted tax basis
in the CINAR Shares surrendered. For this purpose, the "amount realized" will
include the amount of cash plus, if CCEs are issued, the fair market value of
any CCEs received by the Unconnected U.S. Shareholder. The adjusted tax basis of
any CCEs received will equal the fair market value of the CCEs on the day
received and the holding period of the CCEs will begin on the day following
their receipt.
Because the amount of the recovery, if any, in respect of the CCEs is uncertain,
the fair market value of the CCEs and therefore the amount of gain or loss to be
recognized where CCEs are issued is not clear. Under applicable Treasury
regulations, Unconnected U.S. Shareholders generally will be required to value
the CCEs based on all available facts and circumstances. If the CCEs do not have
a readily ascertainable fair market value, then the United States federal income
tax consequences of a sale of CINAR Shares will be determined under the "open
transaction" method. Under the open transaction method, the United States
federal income tax consequences of a sale of CINAR Shares by an Unconnected U.S.
Shareholder would be as described above except that the Unconnected U.S.
Shareholder would not be able to claim a loss on the sale of its CINAR Shares
until such time as the CCEs have a readily ascertainable fair market value or
all payments in respect of the CCEs have been received, would not take the CCEs
into account for purposes of determining gain on the sale of its CINAR Shares
and would have no tax basis in the CCEs. The applicable Treasury regulations
provide that only in "rare and extraordinary cases" is the value of property
received in connection with a sale so uncertain that open transaction treatment
is warranted.
Except as provided below in "Tax Considerations for Beneficial Holders - United
States Federal Income Tax Considerations - Tax Consequences of Selling CINAR
Shares - Passive Foreign Investment Company and Controlled Foreign Corporation,"
any gain or loss recognized by an Unconnected U.S. Shareholder on a sale of its
CINAR Shares will generally constitute capital gain or loss and will constitute
long-term capital gain or loss if the Unconnected U.S. Shareholder has held its
CINAR Shares for more than one year. The maximum individual income tax rate for
long-term capital gains is 15%. The deductibility of capital losses is subject
to limitation.
DISSENTING SHAREHOLDERS. As described below under the heading "Dissenting
Shareholder Rights," a Beneficial Holder that dissents will be entitled to
receive a cash payment in an amount equal to the fair value of its CINAR Shares
in exchange for such shares. Accordingly, an Unconnected U.S. Shareholder that
exercises its right to dissent will be required to recognize gain or loss in an
amount equal to the difference between the amount of cash received and its
adjusted tax basis in the CINAR Shares surrendered. Except as provided below in
"Tax Considerations for Beneficial Holders - United States Federal Income Tax
Considerations - Tax Consequences of Selling CINAR Shares - Passive Foreign
Investment Company and Controlled Foreign Corporation", any such gain or loss
will generally constitute capital gain or loss and will constitute long-term
capital gain or loss if the Unconnected U.S. Shareholder has held its CINAR
Shares for more than one year. The maximum individual income tax rate for
long-term capital gains is 15%. The deductibility of capital losses is subject
to limitation.
PASSIVE FOREIGN INVESTMENT COMPANY AND CONTROLLED FOREIGN CORPORATION. If CINAR
is a passive foreign investment company ("PFIC") or controlled foreign
corporation ("CFC") for United States federal income tax purposes, any gain
realized by an Unconnected U.S. Shareholder on the sale of its CINAR Shares
could, in certain circumstances, be treated as ordinary income rather than as
capital gain. CINAR would be a PFIC, if at least 75% of its gross income were
"passive income" (as defined in the Section 1297 of the Code) or at least 50% of
its gross assets, by average fair market value, were assets that produced or
were held for the production of passive income. CINAR does not believe it is or
has been a PFIC at any time since the first public offering of CINAR Shares to
United States persons in 1997. However, because the PFIC determination is made
annually on the basis of facts and circumstances that may be (or have been)
beyond CINAR's control, and because the classification (as passive or active)
and the principles and methodology for determining the fair market value of
CINAR's assets are unclear, there can be no assurance that CINAR is not now and
has not been a PFIC.
CINAR would be treated as a CFC if "United States Shareholders" owned (actually
or constructively) more than 50% of the total combined voting power or total
value of CINAR. For this purpose, the term "UNITED STATES Shareholder" means a
United States person who owns (actually or constructively) ten percent or more
of the total combined voting power of CINAR. In light of the ownership
requirements imposed upon CINAR to maintain its status as an "eligible Canadian
corporation," CINAR does not believe that it is a CFC for United States Federal
income tax purposes.
TAX CONSEQUENCES OF OWNING CCES
There are no authorities considering the United States federal income tax
treatment of rights that are substantially similar to the CCEs. As a result, the
United States federal income tax consequences of owning the CCEs is somewhat
uncertain and there can be no assurance that the IRS will not disagree with the
treatment described in this discussion. Accordingly, Unconnected U.S.
Shareholders holding CCEs are strongly encouraged to consult their own tax
advisors regarding the United States federal income tax consequences to them of
owning the CCEs.
CINAR and Newco intend to take the position, and the following discussion
assumes, that any payments made on the CCEs will be treated as payments under a
contract for the sale of CINAR Shares that are subject to the rules of Section
483 of the Code. Under Section 483, an Unconnected U.S. Shareholder that holds a
CCE will not be required to include any amount in income in respect of the CCE,
other than in connection with the sale of its CINAR Shares as described above in
"Tax Considerations for Beneficial Holders - United States Federal Income Tax
Considerations - Tax Consequences of Selling CINAR Shares", until payments on
the CCE are received, or in certain circumstances described below, the amount of
those payments becomes fixed. When a payment is received on the CCE, a portion
of the amount received will be treated under Section 483 as interest income that
is ordinary income to the holder. The balance of the amount received will be
treated as sales proceeds with the tax consequences described below.
The portion of any amount received in respect of a CCE treated as interest will
equal the excess of the amount received over its present value as of the date
the CCE was issued, calculated using as the discount rate the applicable federal
rate, (the "AFR"). The AFR is a rate reflecting an average of market yields on
Treasury debt obligations for different ranges of maturities that is published
monthly by the IRS. The maturity range of the relevant AFR will correspond to
the period from the date the CCE was issued to the date the payment is received.
Where a payment is due more than six months after it is fixed, the payment will
be discounted back to the date when it became fixed, using a discount rate equal
to the AFR that would apply under Section 483 to a payment on the CCE that is
made when the fixed payment is due, the discount on the deferred payment is
treated as interest accruing over the period of the deferral, and the discounted
amount is divided between interest and principal under Section 483 as if it were
paid in cash on the date it became fixed. An Unconnected U.S. Shareholder must
include the Section 483 interest in income under its regular method of
accounting (e.g., the accrual method or the cash method).
When a payment in respect of a CCE is received by an Unconnected U.S.
Shareholder, the Unconnected U.S. Shareholder will recognize gain equal to the
difference between the amount of the payment received, net of imputed interest
under Section 483, and the Unconnected U.S. Shareholder's tax basis in the CCE,
if any. If multiple payments may be received in respect of the CCE, the
Unconnected U.S. Shareholder may be required to allocate its tax basis, if any,
in the CCE among those payments. The method for making such an allocation is
unclear. If an Unconnected U.S. Shareholder receives a payment that is less than
its tax basis in the CCE, the Unconnected U.S. Shareholder may not be allowed a
loss until it is determined that no further payments in respect of the CCE will
be made. If an identifiable event occurs which establishes that no payments (or
no further payments) in respect of the CCE will be made, an Unconnected U.S.
Shareholder would be entitled to deduct as a capital loss, in the year of such
identifiable event, an amount equal to such Unconnected U.S. Shareholder's tax
basis, if any, in the CCE.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING
Under current Treasury regulations, the proceeds of a sale of CINAR Shares
(including any amount treated as interest under Section 483) through a United
States or United States related broker or paying agent will be subject to the
United States information reporting requirements and may be subject to backup
withholding. The backup withholding rate is currently 28%. United States
persons, including Unconnected U.S. Shareholders, generally can avoid the
imposition of United States backup withholding by providing the broker or paying
agent with a properly completed and executed Internal Revenue Service Form W-9.
Non-United States persons generally can avoid the imposition of United States
backup withholding by providing the broker or paying agent with a duly completed
and executed Internal Revenue Service Form W-8BEN. Backup withholding is not an
additional tax and any amounts withheld under the United States backup
withholding rules will be allowed as a refund or a credit against the
shareholder's United States federal income tax, provided certain required
information is furnished to the IRS.
DISSENTING SHAREHOLDER RIGHTS
Section 190 of the CBCA provides shareholders with the right to dissent from
certain resolutions of a corporation which effect extraordinary corporate
transactions or fundamental corporate changes. The Interim Order expressly
provides CINAR Shareholders with the right to dissent from the Arrangement
Resolution pursuant to section 190 of the CBCA and the Plan of Arrangement. Any
CINAR Shareholder who dissents from the Arrangement Resolution in compliance
with the Interim Order, section 190 of the CBCA and the Plan of Arrangement will
be entitled, in the event the Arrangement becomes effective, to be paid by CINAR
the fair value of the CINAR Shares held by such Dissenting Shareholder
determined as of the close of business on the day before the Final Order is
made.
Section 190 provides that a shareholder may only make a claim under that section
with respect to all the shares of a class held by the shareholder on behalf of
any one beneficial owner and registered in the shareholder's name. One
consequence of this provision is that a CINAR Shareholder may only exercise the
right to dissent under section 190 in respect of CINAR Shares which are
registered in that shareholder's name. In many cases, shares beneficially owned
by a Beneficial Holder are registered either: (a) in the name of an Intermediary
that the Beneficial Holder deals with in respect of the shares; or (b) in the
name of a clearing agency (such as CDS) of which the Intermediary is a
participant. Accordingly, a Beneficial Holder will not be entitled to exercise
the right to dissent under section 190 directly (unless the shares are
re-registered in the Beneficial Holder's name). A Beneficial Holder who wishes
to exercise the right to dissent should immediately contact the Intermediary
with whom the Beneficial Holder deals in respect of the shares and either: (i)
instruct the Intermediary to exercise the right to dissent on the Beneficial
Holder's behalf (which, if the shares are registered in the name of CDS or other
clearing agency, would require that the shares first be re-registered in the
name of the Intermediary); or (ii) instruct the Intermediary to re-register the
shares in the name of the Beneficial Holder, in which case the Beneficial Holder
would have to exercise the right to dissent directly.
Pursuant to the Interim Order, a CINAR Shareholder who wishes to dissent must
provide a Dissent Notice to CINAR, c/o Computershare Trust Company of Canada,
attention: Corporate Actions, 100 University Avenue, 9th Floor, Toronto,
Ontario, Canada M5J 2Y1, facsimile number: (416) 981-9663 not later than 5:00
p.m. (Eastern Time) on the second Business Day preceding the Meeting (or any
adjournment thereof). IT IS IMPORTANT THAT CINAR SHAREHOLDERS STRICTLY COMPLY
WITH THIS REQUIREMENT WHICH IS DIFFERENT FROM THE STATUTORY DISSENT PROVISIONS
OF THE CBCA WHICH WOULD PERMIT A DISSENT NOTICE TO BE PROVIDED AT OR PRIOR TO
THE MEETING. The filing of a Dissent Notice does not deprive a CINAR Shareholder
of the right to vote at the Meeting. However, the CBCA provides, in effect, that
a CINAR Shareholder who has submitted a Dissent Notice and who votes in favour
of the Arrangement Resolution will no longer be considered a Dissenting
Shareholder with respect to that class of shares voted in favour of the
Arrangement Resolution. The CBCA does not provide, and CINAR will not assume,
that a vote against the Arrangement Resolution or an abstention constitutes a
Dissent Notice, but a CINAR Shareholder need not vote his or her CINAR Shares
against the Arrangement Resolution in order to dissent. Similarly, the
revocation of a proxy conferring authority on the proxy holder to vote in favour
of the Arrangement Resolution does not constitute a Dissent Notice; however, any
proxy granted by a CINAR Shareholder who intends to dissent, other than a proxy
that instructs the proxy holder to vote against the Arrangement Resolution,
should be validly revoked (see "Information Concerning the Meeting -- Revocation
of Proxies" in this Circular) in order to prevent the proxy holder from voting
such CINAR Shares in favour of the Arrangement Resolution and thereby causing
the CINAR Shareholder to forfeit his or her right to dissent.
CINAR is required, within 10 days after the CINAR Shareholders adopt the
Arrangement Resolution, to notify each Dissenting Shareholder that the
Arrangement Resolution has been adopted. Such notice is not required to be sent
to any CINAR Shareholder who voted for the Arrangement Resolution or who has
withdrawn his or her Dissent Notice.
A Dissenting Shareholder must then, within 20 days after receipt of notice that
the Arrangement Resolution has been adopted or, if the Dissenting Shareholder
does not receive such notice, within 20 days after he or she learns that the
Arrangement Resolution has been adopted, send to CINAR a written notice (a
"DEMAND FOR Payment"), containing his or her name and address, the number and
class of CINAR Shares in respect of which he or she dissents, and a demand for
payment of the fair value of such CINAR Shares. Within 30 days after sending a
Demand for Payment, the Dissenting Shareholder must send to CINAR or its
transfer agent, Computershare Trust Company of Canada, the certificates
representing the CINAR Shares in respect of which he or she dissents. A
Dissenting Shareholder who fails to send certificates representing the CINAR
Shares in respect of which he or she dissents forfeits his or her Dissent
Rights. CINAR's transfer agent will endorse on any share certificates received
from a Dissenting Shareholder a notice that the holder is a Dissenting
Shareholder and will forthwith return the share certificates to the Dissenting
Shareholder.
After sending a Demand for Payment, a Dissenting Shareholder ceases to have any
rights as a holder of the CINAR Shares in respect of which the Dissenting
Shareholder has dissented other than the right to be paid the fair value of such
shares as determined under section 190, unless: (i) the Dissenting Shareholder
withdraws the Demand for Payment before CINAR makes an Offer to Pay; (ii) CINAR
fails to make a timely Offer to Pay to the Dissenting Shareholder and the
Dissenting Shareholder withdraws his or her Demand for Payment; or (iii) the
directors of CINAR revoke the Arrangement Resolution, in all of which cases the
Dissenting Shareholder's rights as a CINAR Shareholder are reinstated and such
shares shall be subject to the Arrangement if it has been completed.
In addition, pursuant to the Plan of Arrangement, CINAR Shareholders who duly
exercise such rights of dissent and who:
(a) are ultimately determined to be entitled to be paid fair value for their
CINAR Shares shall be deemed to have transferred their CINAR Shares to
Newco as at the Effective Time; or
(b) are ultimately determined not to be entitled, for any reason, to be paid
fair value for their CINAR Shares, shall be deemed to have participated in
the Arrangement on the same basis as any non-dissenting CINAR Shareholder
and shall receive the Aggregate Consideration on the basis described under
the heading "Arrangement Agreement - Consideration Payable" in this
Circular.
CINAR is required, not later than seven days after the later of the Effective
Date and the date on which CINAR received the Demand for Payment of a Dissenting
Shareholder, to send to each Dissenting Shareholder who has sent a Demand for
Payment an Offer to Pay for his or her CINAR Shares in an amount considered by
the Board of Directors to be the fair value thereof, accompanied by a statement
showing the manner in which the fair value was determined or a notification that
it is unable to lawfully pay Dissenting Shareholders for their CINAR Shares.
Every Offer to Pay for shares of the same class must be on the same terms. CINAR
must pay for the CINAR Shares of a Dissenting Shareholder within 10 days after
an Offer to Pay has been accepted by a Dissenting Shareholder, but any such
offer lapses if CINAR does not receive an acceptance thereof within 30 days
after the Offer to Pay has been made.
If CINAR fails to make an Offer to Pay for a Dissenting Shareholder's CINAR
Shares, or if a Dissenting Shareholder fails to accept an Offer to Pay which has
been made, CINAR may, within 50 days after the Effective Date or within such
further period as a court may allow, apply to a court to fix a fair value for
the CINAR Shares of Dissenting Shareholders. If CINAR fails to apply to a court,
a Dissenting Shareholder may apply to a court for the same purpose within a
further period of 20 days or within such further period as a court may allow. A
Dissenting Shareholder is not required to give security for costs in such an
application.
Upon an application to a court, all Dissenting Shareholders who have not
accepted CINAR's Offer to Pay will be joined as parties and bound by the
decision of such court, and CINAR will be required to notify each affected
Dissenting Shareholder of the date, place and consequences of the application
and of his or her right to appear and be heard in person or by counsel. Upon any
such application to a court, the court may determine whether any other person is
a Dissenting Shareholder who should be joined as a party, and the court will
then fix a fair value for the CINAR Shares of all Dissenting Shareholders. The
final order of a court will be rendered against CINAR in favour of each
Dissenting Shareholder and for the amount of the fair value of his or her CINAR
Shares as fixed by the court. The court may, in its discretion, allow a
reasonable rate of interest on the amount payable to each Dissenting Shareholder
from the Effective Date until the date of payment. An application to the court
by either CINAR or a Dissenting Shareholder must be made to the Superior Court
of Quebec, district of Montreal.
THE FOREGOING IS ONLY A SUMMARY OF THE DISSENTING SHAREHOLDER PROVISIONS OF THE
CBCA AND THE PLAN OF ARRANGEMENT, WHICH ARE TECHNICAL AND COMPLEX. A COMPLETE
COPY OF SECTION 190 OF THE CBCA IS ATTACHED TO THIS CIRCULAR AS APPENDIX H. IT
IS RECOMMENDED THAT ANY CINAR SHAREHOLDER WISHING TO AVAIL HIMSELF, HERSELF OR
ITSELF OF HIS, HER OR ITS DISSENT RIGHTS UNDER THOSE PROVISIONS SEEK LEGAL
ADVICE, AS FAILURE TO COMPLY STRICTLY WITH THE PROVISIONS OF THE CBCA AND THE
PLAN OF ARRANGEMENT MAY PREJUDICE THE RIGHT OF DISSENT. FOR A GENERAL SUMMARY OF
CERTAIN INCOME TAX IMPLICATIONS TO A DISSENTING SHAREHOLDER, SEE "TAX
CONSIDERATIONS FOR BENEFICIAL HOLDERS -- PRINCIPAL CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS". CINAR SHAREHOLDERS WHO ARE US RESIDENTS SHOULD ALSO SEE "TAX
CONSIDERATIONS FOR BENEFICIAL HOLDERS - UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS - TAX CONSEQUENCES OF SELLING CINAR SHARES" IN THIS CIRCULAR.
EXECUTIVE COMPENSATION
The aggregate cash compensation paid or payable by CINAR and its subsidiaries to
the executive officers of CINAR for services rendered during the financial years
of CINAR ended November 30, 2003, 2002 and 2001 was $3,072,171, $3,015,691 and
$4,084,746, respectively. The number of executive officers of CINAR who received
cash compensation during the financial years ended November 30, 2003, 2002 and
2001 was 20, 21 and 20, respectively.
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The table below sets out detailed information with respect to the compensation
of the President and Chief Executive Officer of CINAR and the four other most
highly compensated executive officers of CINAR (the "NAMED EXECUTIVE OFFICERS")
who were serving as executive officers for services rendered in all capacities
during each of the financial years ended November 30, 2003, 2002 and 2001 for
services rendered in all capacities as measured by base salary and incentive
bonuses. The information includes base salaries, bonus awards and all other
compensation.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------------------------------------------------------
AWARDS PAYOUTS
------------------------------------
SECURITIES
UNDER OPTIONS
NAME AND OTHER ANNUAL (LIMITED VOTING RESTRICTED LTIP ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION(1) SHARES)/SARS STOCK PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) GRANTED AWARDS ($) ($)
- --------------------------------------------------------------------------------------------------------------------------
Stuart C. Snyder 2003 US 395,833(3) TBD(4) 100,000(5) 200,000(6) -- -- --
(2)(20)
President and
Chief Executive
Officer
- --------------------------------------------------------------------------------------------------------------------------
George Rossi(7) 2003 129,750 135,415 -- -- -- -- 166,000(9)
Interim 2002 335,577 381,429(8) -- -- -- -- --
President, and 2001 300,000 300,000 -- -- -- -- --
Chief Executive
Officer, and
Senior
Vice-President
and Chief
Financial
Officer
- --------------------------------------------------------------------------------------------------------------------------
Stephen T. 2003 US 275,000(10) TBD(4) -- 10,000(13) -- -- --
Carson(20) 2002 US 272,115(10) US 189,750(11)(12) -- 10,000(13) -- -- --
President, CINAR 2001 US 250,000(10) US 100,000(12) -- 10,000(13) -- -- --
Education, Inc.,
and President,
Carson-Dellosa
Publishing
Company, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Matthew C. 2003 US 240,625(15) TBD(4) -- 100,000(6) -- -- --
Mazer(14)(20)
President, Live
Touring Division
- --------------------------------------------------------------------------------------------------------------------------
Patricia L. 2003 US 206,348(16) TBD(4) -- 10,000(13) -- -- --
Carson(20) 2002 US 200,000(16) US 124,000(11)(17) -- 10,000(13) -- -- --
Vice-President, 2001 US 194,230(16) US 75,000(17) -- 10,000(13) -- -- --
Carson-Dellosa
Publishing
Company, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Michael 2003 US 200,000(18) TBD(4) -- -- -- -- --
Mayberry(20) 2002 US 196,652(18) US 85,000(11)(19) -- -- -- -- --
Vice-President, 2001 US 171,000(18) US 75,000(19) -- -- -- -- --
CINAR
Education, Inc.,
and President,
HighReach
Learning, Inc.
- --------------------------------------------------------------------------------------------------------------------------
____________________
(1) For each of the Named Executive Officers other than Mr. Snyder, perquisites
do not exceed the lesser of $50,000 and 10% of the total of the salary and
bonus during the financial year.
(2) Mr. Snyder entered into an employment agreement with CINAR as of January
15, 2003 and became CINAR's President and Chief Executive Officer on
February 11, 2003, succeeding Mr. Rossi who was Interim President and Chief
Executive Officer.
(3) Represents the actual amount paid to Mr. Snyder for the period from
February 11, 2003 to November 30, 2003. Mr. Snyder's salary, in Canadian
funds, for such period was $552,424. Mr. Snyder's annual salary is
US$500,000.
(4) The bonus, if any, payable for the financial year ended November 30, 2003
cannot be determined until CINAR's audited financial statements for the
financial year ended November 30, 2003 are completed.
(5) Represents the amount paid to Mr. Snyder in respect of living expenses and
personal travel expenses. Pursuant to Mr. Snyder's employment agreement,
for a maximum period of twelve months, and under certain conditions, CINAR
shall pay to Mr. Snyder an amount of $10,000 per month in respect of living
expenses and personal travel expenses.
(6) Represents the number of CINAR Performance Units granted to the Named
Executive Officer.
(7) Mr. Rossi joined CINAR in November 2000 as Senior Vice-President and Chief
Financial Officer and succeeded Barry Usher as Interim President and Chief
Executive Officer on September 13, 2002. Mr. Rossi held these positions
until February 11, 2003 when he resumed his position as Senior
Vice-President and Chief Financial Officer. Mr. Rossi earned $134,397 and
$168,498 in salary and bonus as Interim President and Chief Executive
Officer during the financial years ended November 30, 2003 and 2002,
respectively. Mr. Rossi left CINAR on April 30, 2003.
(8) Mr. Rossi earned this bonus in the financial year ended November 30, 2002,
but $81,429 of said bonus was paid in the financial year ended November 30,
2003.
(9) Represents a three month severance package, including salary and a PRO RATA
share of bonus entitlements and other benefits.
(10) Mr. Carson's salary, in Canadian funds, for the financial years ended
November 30, 2003, 2002 and 2001 was $390,939, $427,711 and $386,074,
respectively.
(11) The bonus was earned in the financial year ended November 30, 2002 and paid
in the financial year ended November 30, 2003.
(12) Mr. Carson's bonus, in Canadian funds, for the financial years ended
November 30, 2002 and 2001 was $298,249 and $154,430, respectively
(13) Represents the number of outstanding CINAR Options held at the end of the
applicable financial year by each Named Executive Officer.
(14) Mr. Mazer was appointed President, Live Touring Division, on March 24,
2003.
(15) Represents the actual amount paid to Mr. Mazer for the period from March
24, 2003 to November 30, 2003. Mr. Mazer's salary, in Canadian funds, for
such period was $329,896. Mr. Mazer's annual salary is US$350,000.
(16) Ms. Carson's salary, in Canadian funds, for the financial years ended
November 30, 2003, 2002 and 2001 was $293,344, $314,360 and $299,950,
respectively.
(17) Ms. Carson's bonus, in Canadian funds, for the financial years ended
November 30, 2002 and 2001 was $194,903 and $115,823, respectively.
(18) Mr. Mayberry's salary, in Canadian funds, for the financial years ended
November 30, 2003, 2002 and 2001 was $280,000, $309,098 and $264,075,
respectively.
(19) Mr. Mayberry's bonus, in Canadian funds, for the financial years ended
November 30, 2002 and 2001 was $133,603 and $115,823, respectively.
(20) The remuneration is set out in US funds, given that it was paid in US
dollars.
OPTIONS AND SARS
OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
In light of the Cease-Trade Orders, no CINAR Options were granted to the Named
Executive Officers during the financial year ended November 30, 2003. Details of
the CINAR Stock Option Plan are set out under the heading "Executive
Compensation - Compensation Pursuant to Performance Incentive Plans - CINAR
Stock Option Plan" in this Circular. Certain Named Executive Officers were,
however, granted CINAR Performance Units during the financial year ended
November 30, 2003. The table below sets out the number of CINAR Performance
Units granted to Named Executive Officers during the financial year ended
November 30, 2003.
OPTION/SAR GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
- ------------------------------------------------------------------------------------------------
NAME SECURITIES % OF TOTAL EXERCISE OR MARKET VALUE OF EXPIRATION
UNDER OPTIONS/SARS BASE PRICE SECURITIES DATE
OPTIONS/SARS GRANTED TO ($/SECURITY) UNDERLYING
GRANTED EMPLOYEES IN OPTIONS/SARS ON
FINANCIAL YEAR THE DATE OF GRANT
($/SECURITY)
- ------------------------------------------------------------------------------------------------
Stuart C. Snyder 200,000(1) (2) 63.5 % US1.97(3) US1.97(3) January 15,
2008
- ------------------------------------------------------------------------------------------------
George Rossi -- -- -- -- --
- ------------------------------------------------------------------------------------------------
Stephen T. Carson -- -- -- -- --
- ------------------------------------------------------------------------------------------------
Matthew C. Mazer 100,000(1) (4) 31.7 % US2.32(3) US2.32(3) March 24,
2008
- ------------------------------------------------------------------------------------------------
Patricia L. Carson -- -- -- -- --
- ------------------------------------------------------------------------------------------------
Michael Mayberry -- -- -- -- --
- ------------------------------------------------------------------------------------------------
____________________
(1) Represents the number of CINAR Performance Units granted to the Named
Executive Officer.
(2) Mr. Snyder's CINAR Performance Units consitute a right to receive in cash
an amount equal to the difference between the Grant Price and the value of
his CINAR Performance Units on the date of exercise. See "Executive
Compensation - Compensation Pursuant to Performance Incentive Plans - CINAR
Performance Unit Plan". Twenty-five percent of Mr. Snyder's CINAR
Performance Units vested on February 1, 2003 and the balance will vest in
three equal tranches on February 1, 2004, 2005 and 2006. A condition of
exercise of Mr. Snyder's CINAR Performance Units is that at the time of
exercise the value of his CINAR Performance Units must be equal to (i) the
Grant Price for the first 50,000 CINAR Performance Units, (ii) the Grant
Price plus twenty percent for the next 50,000 CINAR Performance Units,
(iii) the Grant Price plus forty percent for the next 50,000 Performance
Units, and (iv) the Grant Price plus sixty percent for the last 50,000
CINAR Performance Units. In the event of a "change of control" (as defined
in the CINAR Performance Unit Plan), all outstanding CINAR Performance
Units will fully vest and be immediately exercisable and the condition
relating to achieving a certain percentage increase in the Grant Price in
order to exercise the CINAR Performance Units will no longer apply. The
Arrangement will be a change of control for the purposes of the CINAR
Performance Unit Plan.
(3) Determined by calculating the weighted average price at which the Limited
Voting Shares traded on the Pink Sheets during the period of 20 consecutive
trading days before the date of grant of the CINAR Performance Units to the
Named Executive Officer.
(4) Mr. Mazer's CINAR Performance Units consitute a right to receive in cash an
amount equal to the difference between the Grant Price and the value of his
CINAR Performance Units on the date of exercise. See "Executive
Compensation - Compensation Pursuant to Performance Incentive Plans - CINAR
Performance Unit Plan". Twenty-five percent of Mr. Mazer's CINAR
Performance Units vested on March 24, 2003 and the balance will vest in
three equal tranches on March 24, 2004, 2005 and 2006. A condition of
exercise of Mr. Mazer's CINAR Performance Units is that at the time of
exercise the value of his CINAR Performance Units must be equal to (i) the
Grant Price for the first 25,000 CINAR Performance Units, (ii) the Grant
Price plus twenty percent for the next 25,000 CINAR Performance Units,
(iii) the Grant Price plus forty percent for the next 25,000 CINAR
Performance Units, and (iv) the Grant Price plus sixty percent for the last
25,000 CINAR Performance Units. In the event of a "change of control" (as
defined in the CINAR Performance Unit Plan), all outstanding CINAR
Performance Units will fully vest and be immediately exercisable and the
condition relating to achieving a certain percentage increase in the Grant
Price in order to exercise the CINAR Performance Units will no longer
apply. The Arrangement will be a change of control for the purposes of the
CINAR Performance Unit Plan.
AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL
YEAR AND FINANCIAL YEAR-END OPTION/SAR VALUE
None of the Named Executive Officers acquired any CINAR Shares pursuant to the
exercise of CINAR Options, or exercised CINAR Performance Units, during the
financial year ended November 30, 2003. Until the Cease-Trade Orders cease to
apply or exemptions therefrom are obtained, the Named Executive Officers will
not be entitled to exercise their CINAR Options to acquire any CINAR Shares.
The following table summarizes, for each of the Named Executive Officers, the
number of CINAR Shares subject to unexercised CINAR Options under the CINAR
Stock Option Plan, and the number of unexercised CINAR Performance Units under
the CINAR Performance Unit Plan, as at November 30, 2003.
AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY
COMPLETED FINANCIAL YEAR AND FINANCIAL YEAR-END
OPTION/SAR VALUES
- ---------------------------------------------------------------------------------------------------------
SECURITIES
ACQUIRED AGGREGATE VALUE OF UNEXERCISED IN-THE-
ON VALUE UNEXERCISED OPTIONS/SARS AT MONEY OPTIONS/SARS AT FINANCIAL
EXERCISE REALIZED AT FINANCIAL YEAR-END YEAR-END
NAME (#) ($) (#) $
- ---------------------------------------------------------------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- --------------- --------------- ----------------
Stuart C.
Snyder -- -- 50,000(1) 150,000 (1) 408,629(2) 1,225,888 (2)
- ---------------------------------------------------------------------------------------------------------
George Rossi -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Stephen T.
Carson -- -- 10,000 (3) -- 0 (2) --
- ---------------------------------------------------------------------------------------------------------
Mathew C.
Mazer -- -- 25,000 (1) 75,000 (1) 135,776(2) 407,328 (2)
- ---------------------------------------------------------------------------------------------------------
Patricia L.
Carson -- -- 10,000 (3) -- 0 (2) --
- ---------------------------------------------------------------------------------------------------------
Michael
Mayberry -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
____________________
(1) Represents the number of CINAR Performance Units.
(2) Based upon US$3.58, which was the weighted average price of the Limited
Voting Shares on the Pink Sheets for the 20 consecutive trading days ending
November 30, 2003.
(3) Represents the number of CINAR Options.
TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS
Stuart Snyder joined CINAR in February 2003 as President and Chief Executive
Officer. Under Mr. Snyder's employment agreement he is entitled to receive an
annual salary of US$500,000. The term of his employment agreement is three
years. Upon achievement of specific performance targets set for him by the Board
of Directors, he is entitled to an annual bonus of US$375,000. Additional bonus
amounts, up to a maximum of US$375,000, could become payable if specific
performance targets are exceeded. In addition, for a maximum period of twelve
months, and under certain conditions, CINAR shall pay an amount of $10,000 per
month in respect of Mr. Snyder's living expenses and personal travel expenses.
Upon the occurrence of a "change of control" of CINAR, Mr. Snyder may terminate
his employment agreement upon at least three months' prior written notice, and
he may also terminate his employment agreement by giving at least one month's
prior written notice if his responsibilities as President and Chief Executive
Officer are modified substantially and unilaterally by the Board of Directors
without serious reason. CINAR has, in certain circumstances, agreed to waive the
three months' prior written notice requirement. See "Interests of Certain
Persons in the Arrangement - Turnstile". Subject to certain exceptions set out
in his employment agreement, he also may terminate his employment agreement upon
at least three months' prior written notice if CINAR accepts the assignment of
rights from Turnstile for either "CLIFFORD THE BIG RED DOG" or the other
production initially identified for assignment by Turnstile and subsequently
fails to proceed with the production of at least one such live stage touring
show based on the rights for one of the aforementioned shows. If CINAR sells at
least two of its three divisions (Entertainment, Education, Live Touring), Mr.
Snyder may terminate his employement agreement upon at least one month's prior
written notice. In the event of any such termination, or if Mr. Snyder's
employment is terminated in any other circumstances "without serious reason",
Mr. Snyder will be entitled to receive a termination payment equal to the lesser
of (i) two years' base salary and (ii) his base salary for the remaining balance
of the three year term of his employment agreement. In addition, Mr. Snyder
shall be paid his annual bonus on a PRO RATA basis based on the number of months
worked in the financial year during which his employment is terminated.
Mr. Rossi was employed by CINAR as its Interim President and Chief Executive
Officer from September 13, 2002 to February 11, 2003. Under his employment
agreement, as amended at the time of his appointment as Interim President and
Chief Executive Officer, Mr. Rossi received a monthly base salary of $27,083 and
an annual cash bonus totalling $216,664. Mr. Rossi held the position of Interim
President and Chief Operating Officer until February 11, 2003, when he resumed
his position as Senior Vice-President and Chief Financial Officer. Mr. Rossi's
employment agreement expired on April 30, 2003 and was not renewed. Mr. Rossi
received a three month severance package, including salary and a PRO RATA share
of his bonus and other benefits. Prior to September 13, 2002, Mr. Rossi was
employed by CINAR as its Senior Vice-President and Chief Financial Officer
pursuant to an employment agreement effective as of November 1, 2000.
Stephen T. Carson is employed by Carson-Dellosa, a wholly-owned subsidiary of
CINAR, as its President pursuant to a five-year employment agreement entered
into on April 30, 2002. Mr. Carson's current annual base salary is US$275,000
and will be increased by at least 10% of his original base salary no later than
the third anniversary of the employment agreement. Further, Mr. Carson's
employment agreement provides that if in any financial year EBITDA for
Carson-Dellosa or CINAR Education equals an amount ranging from 90% to 120% (or
higher) of the EBITDA budget for such subsidiary for that year, Mr. Carson will
be paid a commensurate annual bonus equal to an amount ranging from 5% to 50% of
Mr. Carson's base salary in respect of each of the two subsidiaries that attains
the relevant EBITDA. If Mr. Carson's employment is terminated for any reason,
other than termination by CINAR "for cause" or by resignation of Mr. Carson
without "good reason", prior to the date on which any bonus is required to be
paid to Mr. Carson, a bonus PRO RATED for the portion of the year during which
Mr. Carson was employed will be paid to Mr. Carson. If Mr. Carson's employment
is terminated "without cause" or if he resigns for "good reason" before the
third anniversary of his employment agreement, Mr. Carson will be entitled to
all of his compensation, bonuses and benefits then in effect for what would have
been the remaining term of his employment agreement, but for the termination. If
Mr. Carson's employment is terminated "without cause" or if he resigns for "good
reason" after the third anniversary of his employment agreement, Mr. Carson will
be entitled to a severance payment equal to two times his then base salary plus
an amount equal to the average of the bonuses paid to him for the two preceding
financial years. If Mr. Carson's employment is terminated "without cause" or if
he resigns for "good reason" after a "change of control" of CINAR, Mr. Carson
will be entitled to a severance payment equal to two times his then base salary
plus an amount equal to the average of the bonuses paid to him for the two
financial years immediately preceding the "change of control". The Arrangement
will constitute a "change of control" for the purpose of Mr. Carson's employment
agreement.
Matthew C. Mazer is employed as President, Live Touring Division, pursuant to a
three year employment agreement entered into on March 24, 2003. Mr. Mazer's
current annual base salary is US$350,000. His employment agreement states that,
upon achievement of specific performance targets established by the Board of
Directors, he will receive an annual bonus of US$175,000. Upon the occurrence of
a "change of control" of CINAR, Mr. Mazer may terminate his employment agreement
upon at least three months' prior written notice, and he may also terminate his
employment agreement by giving at least one month's prior written notice if his
responsibilities as President, Live Touring Division, are modified substantially
and unilaterally by the Board of Directors without serious reason. CINAR has, in
certain circumstances, agreed to waive the three months' prior written notice
requirement. See "Interests of Certain Persons in the Arrangement - Turnstile".
Subject to certain exceptions set out in his employment agreement, Mr. Mazer
also may terminate his employment agreement upon at least three months' prior
written notice if CINAR accepts the assignment of rights from Turnstile for
either "CLIFFORD THE BIG RED DOG" or the other production initially identified
for assignment by Turnstile and subsequently fails to proceed with the
production of at least one such live stage touring show based on the rights for
one of the aforementioned shows. If CINAR sells, closes or eliminates the Live
Touring Division, Mr. Mazer may terminate his employment agreement upon at least
one month's prior notice. In the event of any such termination, or if Mr.
Mazer's employment is terminated in any other circumstances "without serious
reason", Mr. Mazer will be entitled to receive a termination payment equal to
the lesser of (i) eighteen months' base salary, and (ii) his base salary for the
remaining balance of his three year term. In addition, Mr. Mazer shall be paid
his annual bonus on a PRO RATA basis based on the number of months worked in the
financial year during which his employment is terminated.
Patricia L. Carson is employed by Carson-Dellosa as its Vice-President pursuant
to a five year employment agreement entered into on April 30, 2002. Ms. Carson's
current annual base salary is US$200,000 and will be increased annually by at
least 5% of her then annual base salary on each of the second and third
anniversaries of her employment agreement. Further, Ms. Carson's employment
agreement provides that if in any financial year EBITDA for Carson-Dellosa or
CINAR Education equals an amount ranging from 90% to 120% (or higher) of the
EBITDA budget for such subsidiary for that year, Ms. Carson shall be paid a
commensurate annual bonus equal to an amount ranging from 8% to 80% of Ms.
Carson's base salary. If Ms. Carson's employment is terminated for any reason,
other than termination by CINAR "for cause" or by resignation of Ms. Carson
without "good reason", prior to the date on which any bonus is required to be
paid to Ms. Carson, a bonus PRO RATED for the portion of the year during which
Ms. Carson was employed will be paid to Ms. Carson. If Ms. Carson's employment
is terminated "without cause" or if she resigns for "good reason" before the
third anniversary of her employment agreement with CINAR, Ms. Carson will be
entitled to all of her compensation, bonuses and benefits then in effect for
what would have been the remaining term of her employment agreement, but for the
termination. If Ms. Carson's employment is terminated "without cause" or if she
resigns for "good reason" after the third anniversary of her employment
agreement, Ms. Carson will be entitled to a severance payment equal to two times
her then base salary plus an amount equal to the average of the bonuses paid to
her for the two preceding financial years. If Ms. Carson's employment is
terminated "without cause" or if she resigns for "good reason after a "change of
control" of CINAR, Ms. Carson will be entitled to a severance payment equal to
two times her then base salary plus an amount equal to the average of the
bonuses paid to her for the two financial years immediately preceding the
"change of control". The Arrangement will constitute a "change of control" for
the purposes of Ms. Carson's employment agreement.
Michael Mayberry is employed as the Vice-President of CINAR Education and
President of HighReach Learning, each a wholly-owned subsidiary of CINAR,
pursuant to a five year employment agreement entered into on May 2, 2002. Mr.
Mayberry's current annual base salary is US$200,000 and will be increased by 10%
of his original base salary on the third anniversary of his employment
agreement. Further, Mr. Mayberry's employment agreement provides that if in any
financial year EBITDA for HighReach Learning equals an amount ranging from 90%
to 120% (or higher) of the EBITDA budget for HighReach Learning for that year,
Mr. Mayberry will be paid a commensurate annual bonus equal to an amount ranging
from 6% to 52.5% of Mr. Mayberry's base salary. In addition, if in any financial
year EBITDA for CINAR Education equals an amount ranging from 90% to 120% (or
higher) of the EBITDA budget for CINAR Education for that year, Mr. Mayberry
will be paid a commensurate annual bonus equal to an amount ranging from 2% to
17.5% of Mr. Mayberry's base salary. If Mr. Mayberry's employment is terminated
"without cause" or if he resigns for "good reason", Mr. Mayberry will be
entitled to all of his compensation, bonuses and benefits then in effect for
what would have been the remaining term of his employment agreement, but for the
termination.
COMPENSATION OF DIRECTORS
Effective as of April 30, 2002, each director receives the following
compensation for services rendered during his or her term of office: (a) a basic
annual retainer for services as a director of $15,000 ($65,000 in the case of
the Chairman of the Board of Directors) payable in quarterly instalments; (b)
$1,000 for each meeting of the Board of Directors or a committee of the Board of
Directors attended in person or via telephone; (c) $5,000 per annum in lieu of
the proposed stock component of the director's compensation, until such time as
the CINAR Shares are listed on a stock exchange or quoted on a stock quotation
system; and (d) reimbursement for travel and other out-of-pocket expenses
incurred in attending Board of Directors or committee meetings. In addition,
committee chairs receive an additional annual retainer of $2,000.
In addition to the base compensation described above, non-executive directors
may also be granted CINAR Options under the CINAR Stock Option Plan. No CINAR
Options were granted to non-executive directors during the financial year ended
November 30, 2003.
During the financial years ended November 30, 2003, 2002 and 2001, CINAR paid to
its directors (including former directors) aggregate fees of $751,361, $567,224
and $339,750, respectively. Given his time commitment, the Chairman of the Board
of Directors is to be paid an additional non-recurring retainer of $75,000
payable commencing May 1, 2003 (an additional non-recurring retainer of $50,000
was paidin 2002).
COMPENSATION PURSUANT TO PERFORMANCE INCENTIVE PLANS
CINAR STOCK OPTION PLAN
CINAR maintains the CINAR Stock Option Plan for directors, officers and
employees of CINAR and its subsidiaries under which the Board of Directors or a
committee appointed for such purpose may periodically grant to CINAR directors,
officers or employees CINAR Options, in such numbers, under such terms and at
such exercise prices as are determined by the Board of Directors or such
committee.
CINAR Options to purchase 194,500 Limited Voting Shares are outstanding, of
which CINAR Options to purchase 191,500 Limited Voting Shares are held by
present and former directors or officers of CINAR.
During the financial year ended November 30, 2003, no CINAR Options were
exercised and no CINAR Shares were issued.
Each CINAR Option is exercisable during a period determined by the Board of
Directors or a committee appointed for such purpose, which period, in any event,
shall not exceed ten years. The CINAR Options are non-assignable. In the event
that an offer to purchase is made to all holders of CINAR Shares, all
unexercised CINAR Options will become exercisable immediately at a subscription
price to be determined by the Board of Directors or a committee appointed for
such purpose (not to be less than the exercise price as determined at the time
of the grant), but only to the extent necessary to enable a CINAR Optionholder
to tender his or her CINAR Shares should the CINAR Optionholder desire.
As a result of the Cease-Trade Orders, the Board of Directors cannot currently
grant any CINAR Options to any person nor can CINAR issue any CINAR Shares upon
an exercise of outstanding CINAR Options by directors, officers or employees
(unless the Cease-Trade Orders are lifted or an exemption therefrom is
obtained). In accordance with the terms of the CINAR Stock Option Plan, the
Board of Directors has, on occasion, granted an extension for the expiry date of
CINAR Options granted to directors, officers or employees who have left CINAR's
employment. However, in no event has the extended expiry date exceeded the
original expiry date of the CINAR Option so extended.
ANNUAL INCENTIVE PLAN
In 2003, CINAR established the Incentive Plan for Management of the
Entertainment Division. Starting with the 2003 financial year, upon achievement
of specific performance targets, performance bonuses of up to 30% of base salary
may be paid to members of management. Bonuses which may be payable under the
Incentive Plan for Management of the Entertainment Division for the financial
year ended November 30, 2003 will only be determined after completion of CINAR's
audited financial statements for such financial year.
RETENTION AND PERFORMANCE BONUSES
Given its particular circumstances, CINAR paid retention and performance bonuses
to its senior officers in each of the financial years ended November 30, 2002
and 2001. The aggregate amount of these bonuses in each such year was $2,050,762
and $1,906,721, respectively. For the financial year ended November 30, 2003,
CINAR has paid a performance bonus of $135,415 to George Rossi. Retention and
performance bonuses (if any) for its other senior officers for the financial
year ended November 30, 2003 will only be determined after completion of CINAR's
audited financial statements for such financial year.
CINAR PERFORMANCE UNIT PLAN
In October 2002, the Board of Directors adopted the CINAR Performance Unit Plan
in order to promote a spirit of entrepreneurship within CINAR and support a
business strategy based on profitable growth. Key employees, senior officers and
outside directors of CINAR are eligible to participate in the CINAR Performance
Unit Plan. On any given date, a CINAR Performance Unit consitutes a right to
receive, in cash, an amount equal to the appreciation in value of such CINAR
Performance Unit on such date calculated by multiplying the number of CINAR
Performance Units granted to an individual by the difference between the value
of a CINAR Performance Unit on such date and $10.00. The value of a CINAR
Performance Unit on a given date is calculated by multiplying by 10 the quotient
obtained by dividing the fair market value of a Limited Voting Share on such
date by the fair market value of a Limited Voting Share on the date such CINAR
Performance Units was granted (the "GRANT PRICE"). Pursuant to the CINAR
Performance Unit Plan, the fair market value of a Limited Voting Share, on a
given date when Limited Voting Shares are not readily tradeable on a recognized
stock exchange, is determined by calculating the weighted average price at which
the Limited Voting Shares traded on the Pink Sheets during the period of 20
consecutive trading days before such date. In the event of a "change of control"
(as defined in the CINAR Performance Unit Plan), all outstanding CINAR
Performance Units will fully vest and be exercisable and any condition relating
to achieving a certain increase in value of the CINAR Performance Units in order
to exercise the CINAR Performance Units will no longer apply. The Arrangement
will constitute a "change of control" for the purposes of the CINAR Performance
Unit Plan. During the financial year ended November 30, 2003, CINAR granted
315,000 CINAR Performance Units to certain senior officers at Grant Prices
ranging from US$1.97 to US$2.56.
REPORT ON EXECUTIVE COMPENSATION BY THE MANAGEMENT RESOURCES AND COMPENSATION
COMMITTEE
The Management Resources and Compensation Committee (the "COMPENSATION
COMMITTEE") provides advice and recommendations to the Board of Directors on
compensation for the President and Chief Executive Officer, and other executives
who report directly to the President and Chief Executive Officer, on policies,
practices and compensation programs that apply to the entire staff, financial
incentives, benefits and pension plans, as well as broad human resources issues.
The following persons were members of the Compensation Committee during the
financial year ended November 30, 2003: Lisa de Wilde (Chairperson), Marcel
Aubut, Robert Despres and David L. Simon, a majority of whom are unrelated to
CINAR. The Compensation Committee met five times during the year. Generally, the
President and Chief Executive Officer attends the meetings of the Compensation
Committee, except when matters related to his compensation are involved. He is
not entitled to vote at the meetings. The Compensation Committee Chairman
reports to the Board of Directors on Compensation Committee proceedings and
submits its recommendations to the Board of Directors for approval.
For senior officers of CINAR, the Compensation Committee favours an aggregate
compensation package including the following elements: (a) a base salary
sufficient to attract and retain first rate candidates; (b) a short-term bonus
plan, representing a substantial portion of the compensation and linked to the
achievement of defined annual objectives, as described under "Annual Incentive
Plan"; (c) a stock option plan or performance unit plan favouring the ongoing
employment or long-term retention of key officers (no CINAR Options have been
issued under the CINAR Stock Option Plan since April 1999); (d) a personal
benefits and group insurance plan comparable to industry standards; and (e)
sufficient protection in case of incapacity, death or a "change of control" of
CINAR.
The guiding principles behind the compensation policy are to provide incentives
to CINAR's executive officers to achieve results in order to provide CINAR
Shareholders with an added value on their investment, to retain the services of
CINAR's executive officers, to take into account the unique and difficult
circumstances of CINAR, to offer executive officers competitive compensation and
to minimize the importance of fixed compensation in order to put emphasis on the
variable components.
The Compensation Committee reviews and reports to the Board of Directors on
policies for assessing the performance of the President and Chief Executive
Officer and recommends to the Board of Directors the compensation of the
President and Chief Executive Officer.
The Compensation Committee relies on the advice, for the completion and revision
of the compensation policy, of independent consultants who provide data on
reference markets and comments on the proposed policy.
Submitted by the Management Resources and Compensation Committee:
Lisa de Wilde Marcel Aubut Robert Despres David L. Simon
PERFORMANCE GRAPH
The TSX and NASDAQ halted trading in the CINAR Shares in March 2000. As at the
close of business on August 30, 2001, the TSX delisted the CINAR Shares as a
result of CINAR's failure to meet its listing requirements. NASDAQ also delisted
the CINAR Shares effective on August 2, 2000. Consequently, the CINAR Shares
have not been traded on an organized market for more than three years.
In light of the foregoing, this Circular does not present a performance graph
illustrating the cumulative total return of an investment in the CINAR Shares.
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
The Board of Directors determined in February 1995 that total indebtedness of
directors and senior officers to CINAR shall not exceed $750,000. As of November
30, 2003, and without taking into account amounts claimed by CINAR from Ms.
Charest, Mr. Weinberg and Mr. Hasanain Panju, the former Chief Financial Officer
of CINAR, in connection with payments which CINAR alleges were improperly made
to them, no director, executive officer or senior officer or former director,
executive officer or senior officer of CINAR was indebted to CINAR. See
"Specified Litigation - Weinberg and Charest".
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
The corporate governance practices of CINAR were described in CINAR's Management
Proxy Circular dated March 10, 2003 previously provided to CINAR Shareholders.
CINAR has applied to the applicable securities regulatory authorities in Canada
to obtain orders deeming CINAR, subsequent to the completion of the Arrangement,
to cease to be a reporting issuer under the securities laws of each province in
which it is a reporting issuer. Following the completion of the Arrangement,
CINAR will govern itself in a manner consistent with its status as a corporation
that is not a reporting issuer and that is not publicly traded or listed on any
stock exchange.
EFFECT OF THE ARRANGEMENT
ON MARKETS AND LISTINGS
The CINAR Shares were delisted by NASDAQ on August 2, 2000 and by the TSX on
August 30, 2001. Upon completion of the Arrangement, the CINAR Shares will cease
to trade on the Pink Sheets and CINAR has applied to the applicable securities
regulatory authorities in Canada to obtain orders deeming CINAR, subsequent to
the completion of the Arrangement, to cease to be a reporting issuer under the
securities laws of each province in which it is a reporting issuer, and will
apply subsequent to the completion of the Arrangement to deregister the Limited
Voting Shares under the U.S. Exchange Act and cause CINAR to cease to be a
reporting issuer under the U.S. Exchange Act.
CERTAIN REGULATORY AND LEGAL MATTERS
The Arrangement, which will be completed pursuant to the CBCA, is subject to
CINAR Shareholder approval pursuant to the Interim Order. Before the Arrangement
can become effective, it must be approved by the Final Order. Copies of the
Application for Interim and Final Orders and the Notice of Presentation of the
Final Order, and the Interim Order are attached as Appendices B-I and B-II,
respectively, to this Circular. Any CINAR Shareholder may participate, be
represented and present evidence or arguments at the hearing in respect of the
Final Order, provided he or she complies with the provisions of the Interim
Order and the Notice of Presentation of the Final Order. CINAR Shareholders
should refer to "The Arrangement -- Court Approval of the Arrangement and
Completion of the Arrangement".
Certain legal matters in connection with the Arrangement will be passed upon by
Heenan Blaikie LLP and Stroock & Stroock & Lavan LLP on behalf of CINAR. As at
January 14, 2004 partners and associates of Heenan Blaikie LLP and Stroock &
Stroock & Lavan LLP owned beneficially, directly or indirectly, less than 1% of
the outstanding CINAR Shares, respectively.
AVAILABILITY OF DOCUMENTS
Copies of the following documents are available upon request from CINAR by
contacting Mark Chernin, Vice-President Business and Legal Affairs at (514)
843-7070:
(i) CINAR's 2002 Annual Report to Shareholders containing the comparative
financial statements for the year ended November 30, 2002 together with the
auditors' report thereon;
(ii) CINAR's interim financial statements for the periods ended February 28,
2003, May 31, 2003 and August 31, 2003; and
(iii) this Circular.
These documents are also available for review on the System for Electronic
Document Analysis and Retrieval (SEDAR) website at www.sedar.com.
APPROVAL OF CIRCULAR BY CINAR BOARD OF DIRECTORS
The information contained in this Circular relating to Newco and NewCanCo has
been provided by Newco and NewCanCo. This Circular and the sending,
communication and delivery thereof to the CINAR Shareholders have been
authorized and approved by the Board of Directors.
DATED at Montreal, Quebec, Canada this 14th day of January, 2004.
BY ORDER OF THE BOARD OF DIRECTORS
(SIGNED) Stuart C. Snyder
Stuart C. Snyder
President and Chief Executive Officer
APPENDIX A
4113683 CANADA INC.
- AND -
CINAR CORPORATION
- -----------------------------------------------------------------------------
ARRANGEMENT AGREEMENT
MADE AS OF OCTOBER 30, 2003
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
Article 1 DEFINITIONS AND pRINCIPLES OF INTERPRETATION.................A-1
1.1 Definitions................................................A-1
1.2 Currency..................................................A-10
1.3 Interpretation Not Affected Headings, etc.................A-10
1.4 Number and Gender.........................................A-11
1.5 Date for Any Action.......................................A-11
1.6 Entire Agreement..........................................A-11
1.7 Governing Law.............................................A-11
1.8 Schedules.................................................A-11
Article 2 ARRANGEMENT AND RELATED MATTERS.............................A-11
2.1 Implementation Steps by Cinar.............................A-11
2.2 Interim Order.............................................A-12
2.3 Articles of Arrangement...................................A-13
2.4 Proxy Circular............................................A-14
2.5 Preparation of Filings, etc...............................A-14
2.6 Net Litigation Proceeds Structure.........................A-15
Article 3 REPRESENTATIONS AND WARRANTIES..............................A-18
3.1 Representations and Warranties of Cinar...................A-18
3.2 Representations and Warranties of the Purchaser...........A-41
3.3 Non-Waiver................................................A-43
3.4 Survival..................................................A-43
Article 4 REGULATORY APPROVALS........................................A-43
4.1 Applications..............................................A-43
4.2 Obtaining of Appropriate Regulatory Approvals.............A-43
Article 5 Covenants...................................................A-43
5.1 Retention of Goodwill....................................A-43
5.2 Material Commitments.....................................A-44
5.3 Covenants of Cinar.......................................A-44
5.4 Covenants of Purchaser...................................A-49
5.5 Covenants Regarding Non-Solicitation.....................A-50
5.6 Notice by Cinar of Superior Proposal Determination.......A-52
5.7 Access to Information....................................A-53
5.8 Closing Matters..........................................A-53
5.9 Indemnification..........................................A-53
5.10 Actions to Satisfy Conditions............................A-54
Article 6 CONDITIONS..................................................A-54
6.1 Mutual Conditions Precedent..............................A-54
6.2 Additional Conditions Precedent to the
Obligations of the Purchaser.............................A-55
6.3 Additional Conditions Precedent to the
Obligations of Cinar.....................................A-58
6.4 Notice and Cure Provisions...............................A-59
6.5 Satisfaction of Conditions...............................A-60
Article 7 AMENDMENT AND TERMINATION...................................A-60
7.1 Amendment.................................................A-60
7.2 Mutual Understanding Regarding Amendments.................A-61
7.3 Rights of Termination.....................................A-61
Article 8 FEES, EXPENSES AND OTHER AMOUNTS PAYABLE....................A-62
8.1 Fees and Expenses.........................................A-62
8.2 Break Fee and Expense Reimbursement.......................A-62
8.3 Effect of Payment.........................................A-64
Article 9 GENERAL.....................................................A-64
9.1 Notices...................................................A-64
9.2 Assignment................................................A-65
9.3 Binding Effect............................................A-65
9.4 Waiver and Modification...................................A-66
9.5 Counterparts..............................................A-66
9.6 Public Disclosure.........................................A-66
9.7 Time of Essence...........................................A-66
9.8 Further Assurances........................................A-66
9.9 Invalidity of Provisions..................................A-67
SCHEDULES
Schedule 1.1A - Appropriate Regulatory Approvals................A-68
Schedule 2.6 - Contingent Payment Entitlements.................A-69
Schedule 3.1(a) - Jurisdictions, etc. of Cinar
Entities and Minority Interest Companies........A-78
ARRANGEMENT AGREEMENT
THIS AGREEMENT made as of the 30th day of October, 2003.
B E T W E E N:
4113683 CANADA INC., a corporation incorporated under the laws of Canada
(hereinafter referred to as the "PURCHASER")
- and -
CINAR CORPORATION, a corporation incorporated under the laws of Canada
(hereinafter referred to as "CINAR")
THIS AGREEMENT WITNESSES THAT, in consideration of the premises and the
respective covenants and agreements herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each of the parties hereto, the parties hereto hereby covenant
and agree as follows:
ARTICLE 1
DEFINITIONS AND PRINCIPLES OF INTERPRETATION
1.1 DEFINITIONS
In this Agreement, unless there is something in the subject matter or
context inconsistent therewith, the following capitalized words and terms shall
have the following meanings:
"ACQUISITION PROPOSAL" means any merger, amalgamation, statutory
arrangement, take-over bid, sale of material assets (or any lease,
long-term supply agreement or other arrangement having the same economic
effect as a sale of material assets), liquidation, material sale of shares
or rights or interests therein or thereto or similar transactions involving
any of the Cinar Entities, or a proposal to do so, excluding the
Arrangement;
"AFFILIATE" has the meaning ascribed thereto by the CBCA on the date
hereof;
"AGREEMENT" means this arrangement agreement including the schedules hereto
as the same may be supplemented or amended from time to time;
"APPROPRIATE REGULATORY APPROVALS" means those sanctions, rulings,
consents, orders, exemptions, permits and other approvals (including the
lapse, without objection, of a prescribed time under a statute, rule or
regulation that states that a transaction may be implemented if a
prescribed time lapses following the giving of notice without an objection
being made) of Governmental Entities, regulatory agencies or
self-regulatory organizations, as set out on Schedule 1.1A hereto;
"ARRANGEMENT" means the arrangement involving the Purchaser and Cinar under
the provisions of Section 192 of the CBCA on the terms and conditions set
forth in this Agreement resulting, INTER ALIA, in the acquisition by the
Purchaser of all of the outstanding shares in the capital of Cinar, all on
such terms as are consistent with the provisions hereof and are acceptable
to or required by the Purchaser, all as more particularly described in the
Plan of Arrangement;
"ARRANGEMENT RESOLUTION" means the special resolution of the Cinar
Shareholders, approving the Arrangement, such resolution to be in form and
substance acceptable to the Purchaser;
"ARTICLES OF ARRANGEMENT" means the articles of arrangement of Cinar to be
filed with the Director in connection with the Arrangement;
"BUSINESS DAY" means any day, other than a Saturday, Sunday or any other
day on which the principal chartered banks located in Montreal, Quebec or
Toronto, Ontario are not open for business during normal banking hours;
"CAPITAL LEASE" means any lease of any property (whether real, personal or
mixed) by any Person as lessee that, in accordance with GAAP, either would
be required to be classified and accounted for as a capital lease on a
balance sheet of such Person or would otherwise be disclosed as such in a
note to such balance sheet;
"CAPITALIZED LEASE OBLIGATIONS" means, as of any date, the amount of the
obligation of the lessee under a Capital Lease that, in accordance with
GAAP, would appear on a balance sheet of such lessee in respect of such
Capital Lease or otherwise be disclosed as such in a note to such balance
sheet;
"CBCA" means the CANADA BUSINESS CORPORATIONS ACT, as now in effect and,
except where otherwise expressly provided in this Agreement, as it may be
amended from time to time prior to the Effective Date;
"CHARTER DOCUMENTS" means articles and by-laws and similar constating
documents of a corporation;
"CINAR COUNSEL" means Heenan Blaikie LLP, or such other counsel as may be
designated by Cinar;
"CINAR DISCLOSURE LETTER" means that certain letter dated as of the date
hereof and delivered by Cinar to the Purchaser entitled "Arrangement
Agreement Disclosure Letter";
"CINAR EMPLOYEE PLAN" has the meaning ascribed thereto in Section 3.1(u);
"CINAR ENTITIES" means, collectively, Cinar and its Subsidiaries;
"CINAR FINANCIAL STATEMENTS" means the audited consolidated financial
statements of Cinar for the year ended November 30, 2002, and the unaudited
consolidated financial statements of Cinar for the three and six months
ended February 28, 2003 and May 31, 2003, respectively;
"CINAR INTELLECTUAL PROPERTY" means Intellectual Property acquired,
licensed to, created or developed by, for or on behalf of any of the Cinar
Entities by any Person, and all registrations, applications for
registration, reissues, extensions, renewals, divisions, continuations,
continuations-in-part, proprietary information, documentation, licences,
registered user agreements and other agreements relating to the foregoing,
including the trade-marks listed in Schedule 3.1(m) to the Cinar Disclosure
Letter;
"CINAR MEETING" means the special meeting of the Cinar Shareholders
(including any adjournments or postponements thereof) to be held to
consider and, if deemed advisable, to approve the Arrangement;
"CINAR OPTIONS" means the Cinar share purchase options granted under
Cinar's Stock Option Plan and being outstanding and unexercised on the date
hereof;
"CINAR PUS" means the performance units granted under Cinar's Performance
Unit Plan and being outstanding on the date hereof;
"CINAR SHAREHOLDERS" means the holders of Cinar Shares;
"CINAR SHARES" means the Multiple Voting Shares and the Limited Voting
Shares;
"CLAIM" means any claim, demand, action, suit, litigation, charge,
prosecution or other proceeding;
"CONFIDENTIALITY AGREEMENT" means the confidentiality and standstill
agreement dated April 29, 2003 between the Purchaser and Cinar;
"CONTRACT" means any contract, agreement, license, franchise, lease,
permit, arrangement, commitment or other right or obligation to which any
of the Cinar Entities is a party or by which any of the Cinar Entities is
bound or affected;
"COURT" means the Quebec Superior Court;
"CVMQ" means Commission des valeurs mobilieres du Quebec;
"DIRECTOR" means the Director appointed under Section 260 of the CBCA;
"DISSENT RIGHTS" means the rights of dissent in favour of Cinar
Shareholders in respect of the Arrangement as shall be described in the
Plan of Arrangement;
"EDUCATION DIVISION COMPANIES" means Cinar Education Inc., Cinar Multimedia
Education Limited and any Subsidiaries thereof;
"EFFECTIVE DATE" means the date upon which the Plan of Arrangement becomes
effective as established by the date of issue shown on the Certificate of
Arrangement issued by the Director pursuant to Section 192(7) of the CBCA;
"EFFECTIVE TIME" means 12:01 a.m. (Eastern Time) on the Effective Date;
"ERISA" means the Employee Retirement Income Security Act of 1974 (U.S.A.);
"FINAL ORDER" means the order of the Court approving the Arrangement as
such order may be amended at any time prior to the Effective Date or, if
appealed, then unless such appeal is withdrawn or denied, as affirmed;
"FOUNDER OPTION PROCEEDINGS" has the meaning ascribed thereto in Section
2.3;
"GAAP" means generally accepted accounting principles from time to time
approved by the Canadian Institute of Chartered Accountants, or any
successor institute, applicable as at the date on which any calculation or
determination is required to be made in accordance with generally accepted
accounting principles, and where the Canadian Institute of Chartered
Accountants includes a recommendation in its Handbook concerning the
treatment of any accounting matter, such recommendation shall be regarded
as the only generally accepted accounting principle applicable to the
circumstances that it covers;
"GOVERNMENTAL ENTITY" means any (i) multinational, federal, provincial,
state, regional, municipal, local or other government, governmental or
public department, central bank, court, tribunal, arbitral body,
commission, board, bureau or agency, domestic or foreign, (ii) any
subdivision, agent, commission, board, or authority of any of the
foregoing, or (iii) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account of
any of the foregoing;
"GUARANTEED INDEBTEDNESS" means, with respect to any Person, any obligation
of such Person guaranteeing or providing indemnification or insurance with
respect to, any indebtedness, lease, dividend, or other obligation (a
"PRIMARY OBLIGATION") of any other Person (the "PRIMARY OBLIGOR") in any
manner, including any obligation or arrangement of such Person:
(a) to purchase or repurchase any such primary obligation,
(b) to advance or supply funds (i) for the purchase or payment of any such
primary obligation or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth
or solvency or any balance sheet condition of the primary obligor,
(c) to purchase property, securities or services primarily for the purpose
of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or
(d) to indemnify the owner of such primary obligation against loss in
respect thereof;
"INCLUDING" means including without limitation;
"INDEBTEDNESS" of a Person means:
(a) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services (including reimbursement and
all other obligations with respect to surety bonds, letters of credit,
note purchase obligations and bankers' acceptances, whether or not
matured),
(b) all obligations of such Person evidenced by notes, bonds, debentures
or similar instruments or covenants to create the same,
(c) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreements with respect to
property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property),
(d) all Capitalized Lease Obligations of such Person and obligations under
sale leasebacks,
(e) all Guaranteed Indebtedness of such Person, (f) all Purchase-Money
Indebtedness of such Person,
(g) all obligations of such Person under commodity purchase or option
agreements or other commodity price hedging arrangements, in each case
whether contingent or matured,
(h) all obligations of such Person under any foreign exchange contract,
currency swap agreement, interest rate swap, cap or collar agreement
or other similar agreement or arrangement designed to alter the risks
of that Person arising from fluctuations in currency values or
interest rates, in each case whether contingent or matured,
(i) all redemption obligations of such Person in respect of redeemable
preferred shares and mandatory dividend obligations, and
(j) all indebtedness of any Person of the type referred to in the
preceding items of this definition secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon or in property (including accounts and
contract rights) owned by such Person, even if such Person has not
assumed or become liable for the payment of such Indebtedness;
"INTELLECTUAL PROPERTY" means:
(a) copyrights in any original works and all rights in any works not
subject to copyright, design elements, ordering of content, graphic
user interface, ideas or concepts, treatments, drafts or fictitious
characters;
(b) trade-marks, including both registered and unregistered trade-marks
and service marks, designs, logos, indicia, distinguishing guises,
trade dress, trade names, business names, any other source or business
identifiers, and all goodwill associated with the foregoing; and
(c) trade secrets, confidential information and know-how, innovations,
processes, technology, reports and studies, data, business
information, research designs, research results, patents and patent
applications and notes, prototypes, drawings, and design and
construction specifications;
"INTERIM ORDER" means the interim order of the Court made pursuant to the
application therefor contemplated by Section 2.2 hereof (or any variation
thereof);
"ITA" means the INCOME TAX ACT (Canada) as now in effect and as it may be
amended from time to time prior to the Effective Date;
"LAWS" means all laws, statutes, codes, ordinances, decrees, rules,
standards, orders-in-council, regulations, by-laws, statutory rules,
principles of law, published policies and guidelines (whether or not having
the force of law), judicial or arbitral or administrative or ministerial or
departmental or regulatory judgments, orders, decisions, rulings or awards,
including general principles of common and civil law, and terms and
conditions of any grant of approval, permission, authority or license of
any Governmental Entity, statutory body, or self-regulatory authority
(including stock exchanges or markets), and the term "applicable" with
respect to such Laws and in the context that refers to one or more Persons,
means that such Laws apply to such Person or Persons or its or their
business, undertaking, property or securities and emanate from a Person
having jurisdiction over the Person or Persons or its or their business,
undertaking, property or securities;
"LIENS" means any mortgage, hypothec, lien, pledge, security interest,
adverse claim, lease, option, right of third parties or other charge or
encumbrance, including the lien on retained title of a conditional vendor
and any easement, right of way or other encumbrance on title to real
property;
"LIMITED VOTING SHARES" means the Limited Voting Shares in the capital of
Cinar, as currently constituted;
"MATERIAL ADVERSE CHANGE" (i) when used in connection with Cinar means any
change, effect, event or occurrence that is, or could reasonably be
expected to be, material and adverse to the business, operations or
financial condition of the Cinar Entities on a consolidated basis other
than any change, effect, event or occurrence relating to (A) the global
economy or securities markets in general or (B) any change in the trading
price of the Cinar Shares related to the Arrangement or unrelated to any
change, effect, event, occurrence or state of facts which is or could
reasonably be expected to be material and adverse to the business, assets,
liabilities, operations or financial condition of the Cinar Entities and
(ii) when used in connection with the Education Division Companies means
any change, effect, event or occurrence (other than relating to the global
economy in general) in respect of the Education Division Companies that is,
or could reasonably be expected to be, material and adverse to the
business, operations or financial condition of the Education Division
Companies on a consolidated basis;
"MATERIAL ADVERSE EFFECT" (i) when used in connection with Cinar means any
matter, condition, event, development or action that has an effect that is,
or could reasonably be expected to be, material and adverse to the
business, operations or financial condition of the Cinar Entities on a
consolidated basis other than any change, effect, event or occurrence
relating to (A) the global economy or securities markets in general or (B)
any change in the trading price of the Cinar Shares related to the
Arrangement or unrelated to any change, effect, event occurrence or state
of facts which is or could reasonably be expected to be material and
adverse to the business, assets, liabilities, operations or financial
condition of the Cinar Entities and (ii) when used in connection with the
Education Division Companies means any matter, condition, event,
development or action (other than relating to the global economy in
general) in respect of the Education Division Companies that has an effect
that is, or could reasonably be expected to be, material and adverse to the
business, operations or financial condition of the Education Division
Companies on a consolidated basis;
"MATERIAL CHANGE" has the meaning ascribed thereto in the SECURITIES ACT
(Ontario);
"MATERIAL CONTRACT" of the Cinar Entities means (i) each Contract involving
current and future aggregate actual or contingent obligations to pay
(including advances) to or by a Cinar Entity of more than Cdn.$250,000
during the entire term (including, if applicable, any renewals thereof);
(ii) each Contract relating to current or future Indebtedness of
Cdn.$150,000 or more; (iii) each Contract related to litigation or
settlement thereof which does or could have any actual or contingent
obligations or entitlements of any of the Cinar Entities which have not
been fully satisfied prior to the date of this Agreement, other than such
Contracts which, individually or together, would have aggregate obligations
or entitlements of not more than Cdn.$150,000; (iv) each "output" Contract
(as such term is generally understood in the television production
industry); (v) any Contracts relating to live entertainment; (vi) any
Contract with any Governmental Entity for which a Cinar Entity is indebted
to or is to pay, to the knowledge of Cinar, the Government Entity
Cdn.$50,000 or more or for which a Government Entity is indebted or is to
pay, to the knowledge of Cinar, a Cinar Entity Cdn.$50,000 or more
(together with the documents previously or currently required to be
delivered to the Government Entity in order for a Cinar Entity to be paid
any such amount); (vii) any Contract that (A) limits or purports to limit
the ability of any of the Cinar Entities or any key executives of any of
the Cinar Entities, to compete in any line of business or with any Person
or in any geographic area or during any period of time, (B) in respect of
the Material Productions, limits or purports to limit in any material
respect the ability of any of the Cinar Entities to solicit any customers,
clients or service or product providers of the other parties thereto, (C)
requires any of the Cinar Entities to acquire, and as a result to market,
co-market or distribute any services or products, or provides for exclusive
distribution or representation rights to a Person to market or distribute,
any services or products; (viii) any joint venture, partnership (excluding
Cinar's productions) or shareholders' agreement; (ix) any Contract
involving a sharing of profits, losses, costs or liabilities by any of the
Cinar Entities with any third party including any co-production agreement
in respect of any of the Material Productions; (x) all Contracts relating
to the ownership by Cinar of underlying rights relating to any of the
Material Productions and (xi) any Contract the termination of which could
reasonably be expected to have a Material Adverse Effect on Cinar or the
Education Division Companies;
"MATERIAL FACT" has the meaning ascribed thereto in the SECURITIES ACT
(Ontario);
"MATERIAL PRODUCTIONS" means the following Cinar productions: Adventures of
Paddington Bear, Animal Crackers, Are You Afraid of the Dark, Arthur, Busy
World of Richard Scarry, Caillou, Country Mouse and City Mouse Adventures,
Little Lulu Show, Mona the Vampire, Mystery Files of Shelby Woo, Postcards
from Buster, Ripley's Believe It or Not!, Simon in the Land of Chalk
Drawings, Wombles, and Zoboomafoo;
"MATERIAL SUBSIDIARIES" means the Cinar Entities listed in Schedule 3.1(a)
attached hereto and designated therein as a "Material Subsidiary";
"MINORITY INTEREST COMPANIES" means Teletoon Canada Inc. and Lightspan,
Inc.;
"MISREPRESENTATION" has the meaning ascribed thereto in the Securities Act;
"MULTIPLE VOTING SHARES" means the Variable Multiple Voting Shares in the
capital of Cinar, as presently constituted;
"ORDINARY COURSE" or "ORDINARY COURSE OF BUSINESS" when used in relation to
the conduct of a Cinar Entity means any transaction which constitutes an
ordinary day-to-day business activity conducted in a manner consistent with
the existing practices of the applicable Cinar Entity;
"PERSON" includes any individual, firm, partnership, limited liability
company, unlimited liability company, joint venture, venture capital fund,
association, trust, trustee, executor, administrator, legal personal
representative, estate, group, body corporate, corporation, unincorporated
association or organization, Governmental Entity, syndicate or other
entity, whether or not having legal status;
"PLAN" means an "employee pension benefit plan" (as defined in Section 3(2)
of ERISA) which is subject to Title IV of ERISA or the minimum funding
standards under Section 412 of the United States Internal Revenue Code and
is or has been established or maintained, or to which contributions are or
have been made, by a Cinar Entity, or with respect to which a Cinar Entity
has any liability under ERISA;
"PLAN OF ARRANGEMENT" means, in relation to the Arrangement, the plan of
arrangement and any amendments or variations thereto made in accordance
with Section 7.1 or made at the direction of the Court in the Final Order;
"PRE-EFFECTIVE DATE PERIOD" means the period beginning on the date of
execution hereof to and including the Effective Time;
"PROXY CIRCULAR" means the management proxy circular of Cinar to be
prepared and sent to Cinar Shareholders in connection with the Cinar
Meeting, including the exhibits thereto;
"PURCHASE MONEY INDEBTEDNESS" means, with respect to any Person, all
obligations of such Person (i) consisting of the deferred purchase price of
any property, conditional sale obligations, obligations under any title
retention agreement and other purchase money obligations, in each case,
where the maturity of such obligation does not exceed the anticipated
useful life of the property or (ii) incurred to finance the acquisition of
such property, including additions and improvements;
"PURCHASER'S COUNSEL" means Goodman and Carr LLP, or such other counsel as
may be designated by the Purchaser;
"REPRESENTATIVES" has the meaning ascribed thereto in Section 5.7;
"SECURITIES ACT" means the SECURITIES ACT (Quebec), as now in effect and as
it may be amended from time to time prior to the Effective Date;
"SOLVENT" means, (i) with respect to any Person that is subject to
insolvency laws of Canada or any other country other than the United States
of America, that on a particular date, (A) the property of such Person is
sufficient, if disposed of at a fairly conducted sale under legal process,
to enable payment of all its obligations, due and accruing due, (B) such
Person has not ceased paying its current obligations in the ordinary course
of business as they generally become due; and (C) such Person is not for
any reason unable to meet its obligations as they generally become due,
and, (ii) with respect to any Person that is subject to insolvency laws of
the United States of America, that at a particular date (A) the fair value
of the property of such Person is greater than the total amount of
liabilities, including contingent liabilities, of such Person; (B) the
present fair saleable value of the assets of such Person is not less than
the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured; (C) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and
liabilities mature; and (D) such Person is not engaged in a business or
transaction, and is not about to engage in a business or transaction, for
which such Person's property would constitute an unreasonably small
capital. The amount of contingent liabilities (such as litigation,
guarantees and pension plan liabilities) at any time shall be computed as
the amount which, in light of all the facts and circumstances existing at
the time, represents the amount which can reasonably be expected to become
an actual or matured liability;
"SUBSIDIARY" has the meaning ascribed thereto by the CBCA on the date
hereof;
"SUPERIOR PROPOSAL" has the meaning ascribed thereto in Section 5.5(a);
"TAX" and "TAXES" means, with respect to any Person, (i) all income taxes
(including any tax on or based upon net income, gross income, income as
specially defined, earnings, profits or selected items of income) and all
capital taxes, gross receipts taxes, environmental taxes, sales taxes, use
taxes, AD VALOREM taxes, value added taxes (including goods and services
tax), transfer taxes, land transfer taxes, franchise taxes, license taxes,
withholding taxes, payroll taxes, employment taxes, Canada Pension Plan
(and any provincial pension plan) premiums, excise, social security
premiums, workers' compensation premiums, employment insurance or
compensation premiums, stamp taxes, occupation taxes, premium taxes,
property taxes, windfall profits taxes, alternative or add-on minimum
taxes, customs duties or other taxes, fees, imports, assessments or charges
of any kind whatsoever, together with any interest and any penalties or
additional amounts imposed by any taxing authority (domestic or foreign) on
such Person, and any interest, penalties, additional taxes and additions to
tax imposed with respect to the foregoing, and (ii) any liability of such
Person for the payment of any amount of the type described in the
immediately preceding clause (i) of another Person;
"TAX RETURNS" means all returns, declarations, reports, information returns
and statements required to be filed with any taxing authority relating to
Taxes (including any attached schedules), including any information return,
claim for refund, amended return and declaration of estimated Tax; and
"TERMINATION ENTITLEMENTS" means the entitlement to compensation from any
of the Cinar Entities, whether through cash payment or the entitlement to
be issued securities or other assets, of any Person as a result of the
Arrangement and the transactions to be carried out in connection therewith,
the particulars of which are set out in the Cinar Disclosure Letter.
1.2 CURRENCY
All amounts of money which are referred to in this Agreement are expressed
in lawful money of the United States unless otherwise specified.
1.3 INTERPRETATION NOT AFFECTED HEADINGS, ETC.
The division of this Agreement into articles, sections and other portions
and the insertion of headings are for convenience of reference only and shall
not affect the construction or interpretation of the provisions of this
Agreement. Unless otherwise indicated, all references to an article section or
other portion followed by a number and/or a letter refer to the specified
article, section or other portion of this Agreement. The terms "THIS AGREEMENT",
"HEREOF", "HEREIN", "HEREUNDER" and similar expressions refer to this Agreement
as a whole and not to any particular article, section or other portion hereof
and include any agreement or instrument supplementary or ancillary hereto.
1.4 NUMBER AND GENDER
Unless the context otherwise requires, words importing the singular number
only shall include the plural and VICE VERSA and words importing the use of
either gender shall include both genders and neuter.
1.5 DATE FOR ANY ACTION
In the event that any date on which any action is required to be taken
hereunder by any party is not a Business Day, such action shall be required to
be taken on the next succeeding day which is a Business Day.
1.6 ENTIRE AGREEMENT
This Agreement, the agreements and other documents herein referred to and
the Confidentiality Agreement, which shall remain in full force and effect,
constitute the entire agreement between the parties hereto pertaining to the
terms of the Arrangement and ancillary arrangements and supersede all other
prior agreements, understandings, negotiations and discussions, whether oral or
written, between the parties hereto with respect to the terms of the Arrangement
and such arrangements. For greater certainty, the Purchaser acknowledges that
the Confidentiality Agreement shall survive the termination of this Agreement.
1.7 GOVERNING LAW
This Agreement shall be governed by and be construed in accordance with the
laws of the Province of Quebec and the laws of Canada applicable therein and
shall be treated in all respects as a Quebec contract.
1.8 SCHEDULES
The following are the schedules attached to and incorporated by reference
in this Agreement:
- --------------------- -------- ------------------------------------------
Schedule 1.1A - Appropriate Regulatory Approvals
- --------------------- -------- ------------------------------------------
- --------------------- -------- ------------------------------------------
Schedule 2.6 - Contingent Payment Entitlements
- --------------------- -------- ------------------------------------------
- --------------------- -------- ------------------------------------------
Schedule 3.1(a) - Jurisdictions, etc. of Cinar Entities
and Minority Interest Companies
- --------------------- -------- ------------------------------------------
- --------------------- ---------------------------------------------------
ARTICLE 2
ARRANGEMENT AND RELATED MATTERS
2.1 IMPLEMENTATION STEPS BY CINAR
Cinar covenants in favour of the Purchaser that Cinar shall:
(a) as soon as reasonably practicable and in co-operation with the
Purchaser's Counsel, bring an application before the Court in a manner
and form acceptable to the Purchaser, acting reasonably, pursuant to
Section 192 of the CBCA for the Interim Order providing for, among
other things, the calling and holding of the Cinar Meeting on or about
December 11, 2003 and in any event by March 4, 2004, and thereafter
proceed with and diligently pursue obtaining the Interim Order;
(b) subject to Section 2.4, convene and hold the Cinar Meeting for the
purpose of the Cinar Shareholders considering the Arrangement
Resolution (and, provided that the prior approval therefor has been
obtained from the Purchaser (which approval shall not be unreasonably
withheld or delayed), for any other proper purpose as may be set out
in the notice for such meeting);
(c) if the Arrangement Resolution is approved at the Cinar Meeting by
Cinar Shareholders as required by the Interim Order, bring an
application, as soon as reasonably practicable after the Cinar
Meeting, before the Court pursuant to Section 192 of the CBCA for the
Final Order approving the Arrangement;
(d) if the Final Order is obtained, subject to the satisfaction or waiver
of the conditions set forth in Article 6, as soon as reasonably
practicable thereafter, file Articles of Arrangement, and such other
documents as may be required in connection therewith under the CBCA
with the Director to give effect to the Arrangement pursuant to
Section 192 of the CBCA;
(e) instruct Cinar Counsel to bring the applications referred to in
subsections (a) and (c) of this section in co-operation with
Purchaser's Counsel and on a timely basis; and
(f) permit the Purchaser and the Purchaser's Counsel to review and comment
upon drafts of all material to be filed by Cinar with the Court in
connection with the Arrangement (including the Proxy Circular) prior
to the service and filing of that material and give reasonable
consideration to such comments. Cinar shall also provide to the
Purchaser's Counsel on a timely basis copies of any notice of
appearance or other court documents served on Cinar or its counsel in
respect of the application for the Final Order or any appeal therefrom
and of any notice, whether written or oral, received by Cinar
indicating any intention to appeal the Final Order.
2.2 INTERIM ORDER
The notice of motion for the application referred to in Section 2.1(a)
shall request that the Interim Order provide:
(a) for the classes of Persons to whom notice is to be provided in respect
of the Arrangement and the Cinar Meeting and for the manner in which
such notice is to be provided;
(b) that the requisite approval for the Arrangement Resolution by the
Cinar Shareholders shall be, for each class of Cinar Shares,
two-thirds of the votes cast on the Arrangement Resolution by Cinar
Shareholders of such class present in person or by proxy at the Cinar
Meeting;
(c) that, in all other respects, the terms, restrictions and conditions of
the Charter Documents of Cinar, including quorum requirements and all
other matters, shall apply in respect of the Cinar Meeting;
(d) for the grant of the Dissent Rights; and
(e) for such other matters as the Purchaser may require subject to
obtaining the prior consent of Cinar, such consent not to be
unreasonably withheld.
2.3 ARTICLES OF ARRANGEMENT
The Articles of Arrangement shall, with such other matters as are necessary
to effect the Arrangement and all as subject to the provisions of the Plan of
Arrangement, implement the Plan of Arrangement. The Articles of Arrangement
shall be in form satisfactory to the Purchaser and Cinar, each acting
reasonably.
The Plan of Arrangement shall provide, INTER ALIA, for:
(a) a purchase price of $3.57 per Cinar Share, plus, in the event that the
Founder Option Proceedings (as hereinafter defined) have been fully
and finally settled or subject to final binding (without right of
appeal) adjudicative determination (a "FINAL ADJUDICATION") at least
five business days prior to the Cinar Meeting (the "SETTLEMENT
DEADLINE"), the PRO RATA amount per Cinar Share of the amount
determined by deducting from $1,199,082 any amount payable to the
Founders pursuant to the Final Adjudication of the Founder Option
Proceedings (provided that if this amount is negative, there shall be
no reduction in the price of $3.57 per Cinar Share), and for such
consideration to be payable fully in cash;
(b) if applicable, the provision of contingent payment entitlements as
contemplated in Section 2.6;
(c) in the event that the Founder Option Proceedings (as hereinafter
defined) have not been subject to Final Adjudication prior to the
Settlement Deadline, the deposit into an escrow account (the "ESCROW
Account") to be held by the Purchaser (and the manner of disbursing
such funds as contemplated by the following) of $1,199,082 (the
"ESCROW AMOUNT") on account of a portion of the $1,326,341.27
"in-the-money amount" in respect of the Cinar Options which are the
subject of the Founder Option Proceedings (as hereinafter defined),
determined by taking the aggregate price of $2,998,800 that would be
payable in cash at the Effective Time to the holders of such Cinar
Options pursuant to Section 2.3(a) in respect of the 840,000 Cinar
Shares underlying such Cinar Options (the "UNDERLYING SHARES") if at
such time they had been the holders of record of the Underlying
Shares, and deducting therefrom $1,672,458.73, being the agreed upon
U.S. dollar equivalent of the aggregate exercise price pursuant to the
terms of such Cinar Options in respect of the Underlying Shares, to be
paid to either: (x) Mr. Ronald Weinberg, Ms. Micheline Charest and/or
Persons controlled by them (collectively, the "FOUNDERS"), on the one
hand, or (y) the Cinar Shareholders, on the other hand, as a result of
the Final Adjudication of the matter of the 840,000 Cinar Options for
which the Founders have claimed the due exercise thereof and Cinar has
maintained the position that such Cinar Options (the "FOUNDER
OPTIONS") were not duly exercised and that the issuance of shares
pursuant to the purported exercise of such Cinar Options was not
permitted by Law prior to expiry and, as a result, no financial
entitlements or entitlements to acquire Cinar Shares apply in respect
thereof (collectively, the "FOUNDER OPTION PROCEEDINGS"); and
(d) the termination of all Cinar Options and all other securities or other
rights or entitlements convertible or exchangeable for or with shares
in the capital of Cinar without any consideration therefor or any
obligation to issue any of the securities of Cinar underlying the
Cinar Options or any other such securities or other rights or
entitlements and without any further rights or entitlements of the
holders at the Effective Time.
For greater certainty, in the event that the Founder Option Proceedings
have not been the subject of Final Adjudication prior to the Settlement
Deadline, the Escrow Amount less any amount payable to the Founders pursuant to
the Final Adjudication of the Founder Option Proceedings (the "NET ESCROW
AMOUNT"), shall be distributed to the holders of CCEs (as hereinafter defined)
together with, subject to Section 2.6, the distribution of Net Litigation
Proceeds.
2.4 PROXY CIRCULAR
As promptly as reasonably practicable after the execution and delivery of
this Agreement, with a view to completion on or about November 11, 2003 and in
any event by December 16, 2003, Cinar will prepare the Proxy Circular together
with any other documents required by the CBCA or other applicable Laws in
connection with the Arrangement and the Cinar Meeting. As promptly as reasonably
practicable after the execution and delivery of this Agreement, Cinar will file
the Proxy Circular and any other documentation required to be filed under
applicable Law in all jurisdictions where the Proxy Circular is required to be
filed by Cinar and mail or cause to be mailed the Proxy Circular and any other
documentation required to be mailed under applicable Law to the Cinar
Shareholders, the directors of Cinar, the auditors of Cinar and any other
required Persons, all in accordance with the terms of the Interim Order and
applicable Law. The Purchaser will provide such assistance as Cinar may
reasonably request in such regard.
Cinar shall diligently do all such acts and things as may be necessary to
comply, in all material respects, with National Instrument 54-101 of the
Canadian Securities Administrators in relation to the Cinar Meeting and, without
limiting the generality of the foregoing, shall, in consultation with the
Purchaser, use all reasonable efforts to abridge the timing contemplated by such
National Instrument as provided in Section 2.20 thereof.
2.5 PREPARATION OF FILINGS, ETC.
(a) Each of the Purchaser and Cinar shall proceed diligently, in a
co-ordinated fashion and use its reasonable best efforts to co-operate
in the preparation of the Proxy Circular as described in Section 2.4,
any exemption applications or orders and any other documents deemed
reasonably necessary by any of them to discharge their respective
obligations under applicable Laws in connection with the Arrangement.
(b) Each of the parties shall furnish to the other of them, on a timely
basis, all information as may be required to effectuate the foregoing
actions, and each covenants that, to its knowledge, no information so
furnished by it in writing in connection with those actions or
otherwise in connection with the consummation of the Arrangement will
contain any Misrepresentation. Each of the parties will ensure that
the information relating to it which is provided in the Proxy Circular
will not contain any Misrepresentation.
(c) Each of the parties shall promptly notify the other of them if, at any
time before the Effective Time, it becomes aware that the Proxy
Circular contains a Misrepresentation. In any such event, each of the
parties will co-operate in the preparation of a supplement or
amendment to the Proxy Circular, as the case may be, that corrects
that Misrepresentation, and Cinar will cause the same to be
distributed to the Cinar Shareholders and filed with each applicable
Governmental Entity as required under applicable Law.
(d) Cinar shall ensure that the Proxy Circular complies with all
applicable Laws. Without limiting the generality of the foregoing,
Cinar shall ensure that the Proxy Circular provides the Cinar
Shareholders with information in sufficient detail to permit them to
form a reasoned judgment concerning the matters to be placed before
them at the Cinar Meeting.
2.6 NET LITIGATION PROCEEDS STRUCTURE
It is acknowledged by the Purchaser that the Net Litigation Proceeds of the
Specified Litigation (as such terms are defined below), less $400,000 which
shall be retained by Cinar for its sole benefit, are to be distributed, on a PRO
RATA basis, to the Cinar Shareholders based on their respective holdings of
Cinar Shares (without preference as to class), including, to the extent that
Cinar is unsuccessful in the Founder Option Proceedings, the Founders as if they
were the holders of the Underlying Shares in respect of which the Final
Adjudication of the Founder Option Proceedings provides that they should have
been entitled to exercise the Founder Options; provided that it shall be a
condition precedent to making any such distribution of Net Litigation Proceeds
that (i) all of the Specified Litigation has been subject to Final Adjudication,
(ii) the Founder Option Proceedings have been subject to Final Adjudication,
(iii) any co-defendant of a Cinar Entity in any such matter shall be released
from any liability in respect of such Specified Litigation or shall have
released the Cinar Entities and their respective officers, directors and
employees (including, for greater certainty, former officers, directors and
employees) from any claim of contribution or indemnity such Person may have as
against the Cinar Entities and their respective officers, directors and
employees (including, for greater certainty, former officers, directors and
employees), (iv) the Cinar Entities and their respective officers, directors and
employees (including, for greater certainty, former officers, directors and
employees) shall have been fully released from any obligations to indemnify or
make contributions to any Person in connection with or related to Specified
Litigation or any Third Party Rights (as hereinafter defined) and the Cinar
Entities and their respective officers, directors and employees (including, for
greater certainty, former officers, directors and employees) shall have been
fully released from any liability in connection with or related to any Specified
Litigation in which they are not directly named as defendants, (v) the Purchaser
shall have been provided with all information (including confirmation of service
providers as to final account amounts) which it may reasonably request with
respect to the determination of the Net Litigation Proceeds, (vi) the Purchaser
is satisfied, acting reasonably, with the determination of the Net Litigation
Proceeds (including that all actual or contingent professional fees and expenses
have been accounted for), the amounts thereof to be so distributed and the
structure (tax and otherwise) and manner for such distribution, and (vii) the
Final Adjudication of the Specified Litigation resulted in each of the Cinar
Entities and their respective officers, directors and employees (including, for
greater certainty, former officers, directors and employees) having been fully
and irrevocably released in form satisfactory to the Purchaser acting
reasonably. No settlement of any Specified Litigation shall provide for any
obligation on the part of a Cinar Entity (other than to pay a cash amount in
respect of the settlement) including indemnifying any Person or guaranteeing the
obligation of any Person, without the prior written consent of the Purchaser
which may be arbitrarily withheld.
For the purposes of the foregoing:
"NET LITIGATION PROCEEDS" means the amount received by Cinar Entities
in the Specified Litigation, including on account of the settlement of
any Specified Litigation, (after deducting Taxes, if any, deemed
payable thereon by Cinar Entities as hereinafter provided) less the
aggregate of: (i) any amounts paid or payable by Cinar Entities in or
in relation to the Specified Litigation (including any amounts paid or
payable by Cinar Entities on account of the settlement of any
Specified Litigation or to a person in respect of a Third Party
Right), (ii) any amount in excess of $1,199,082 required to be paid to
the Founders pursuant to the Final Adjudication of the Founder Option
Proceedings, (iii) all litigation, settlement and other out-of-pocket
expenses relating to the Specified Litigation and the Founder Option
Proceedings unpaid as of August 29, 2003 or arising thereafter,
including, all expenses incurred to determine Net Litigation Proceeds,
all expenses (including professional fees) incurred by the Purchaser
and Cinar Entities with respect to the CCEs (as such term is defined
below) and all other related third party and professional costs, and
(iv) any expenses incurred by Cinar Entities prior to the distribution
of the Net Litigation Proceeds in connection with any actual or
alleged violation by any Cinar Entity or any of its current or former
directors, officers or employees (including, for greater certainty,
former officers, directors and employees) of any Law, including all
expenses (including professional fees) incurred in connection with any
investigation by any Governmental Entity (including the Canada Customs
and Revenue Agency, any provincial taxing authority, the United States
Internal Revenue Service, or any taxing authority in any jurisdiction,
including any sales tax authority) of any such actual or alleged
violation of Law or defending any charges (or the equivalent) laid or
threatened in connection with any such actual or alleged violation of
any Law, and any fines, penalties or other amounts which Cinar
Entities agree or are required to pay as a result of any such actual
or alleged violation of any Law (the amounts referred to in (iii) and
(iv) are referred to collectively as the "Expenses"). The amounts
referred to in (i), (ii), (iii) and (iv) of this definition shall be
reduced by the Tax benefits, if any, deemed available to Cinar
Entities (as hereinafter provided) of making such payments. For
greater certainty, the application of this provision will not give
rise to any liability on the part of the Cinar Shareholders in the
event that the Net Litigation Proceeds are negative.
For the purposes hereof, "TAXES" means the income tax that would be
payable by Cinar Entities on the Taxable portion (determined as
described below) of the amount received by them, assuming: (i) a
combined federal-provincial tax rate of 36.62% (or if the amount is
taxable in a taxation year ending after 2003, provided the general
Ontario tax rate is 11% or lower for that taxation year, a rate of
33.02%); and (ii) that Cinar Entities have no tax losses, credits or
deductions available to them to reduce Taxes.
For the purposes hereof, "TAX BENEFITS" means the income tax savings
that would be available to Cinar Entities on the Deductible portion
(determined as described below) of a payment or the Deductible portion
of Expenses related to or in connection with the settlement or
litigation, or actual or alleged violation of Law, as the case may be,
assuming a combined federal-provincial tax rate of 36.62% (or if the
amount is deductible in a taxation year ending after 2003, provided
the general Ontario tax rate is 11% or lower for that taxation year, a
rate of 33.02%).
The "TAXABLE PORTION" of an amount received by Cinar Entities and the
"DEDUCTIBLE PORTION" of a payment made by Cinar Entities and the
"DEDUCTIBLE PORTION OF EXPENSES" related to any amount so received or
paid, shall be determined by the Purchaser and Cinar in the following
manner. Once a Specified Litigation or the Founder Option Proceedings
have been subject to Final Adjudication, or, in the case of Expenses
referred to in subparagraph (iv) under "Net Litigation Proceeds"
above, prior to the distribution of Net Litigation Proceeds, the
Purchaser and Cinar shall, in consultation with their respective tax
advisors, determine the Taxable portion or Deductible portion and
Deductible portion of Expenses that is the subject matter of and/or
related to the Final Adjudication or actual or alleged violation of
Law, as the case may be. If the Purchaser and Cinar do not agree,
either of them shall be authorized to instruct tax advisors (selected
jointly by the Purchaser and Cinar) to contact Canada Customs and
Revenue Agency (the "CCRA") and to provide the CCRA with details of
the nature and quantum of the Final Adjudication and, if appropriate,
the Expenses incurred in connection therewith or with the actual or
alleged violation of Law, as the case may be, with a view to obtaining
a ruling, interpretation or other comfort from the CCRA as to the
Taxable portion, Deductible portion and/or the Deductible portion of
Expenses of or related to the Final Adjudication or Expense, as the
case may be. The determination of the level and/or type of comfort to
be sought from the CCRA shall be determined jointly by the Purchaser
and Cinar, each acting reasonably. Further, the Purchaser and Cinar
(acting jointly) may also determine to conduct proceedings objecting
to or appealing any determination by the CCRA with respect to any of
the foregoing matters.
Notwithstanding the foregoing, if the Taxable portion or Deductible
portion of an amount or the Deductible portion of Expenses, as the
case may be, has not been determined in accordance with the preceding
paragraph within six months after all of the Specified Litigation and
the Founder Option Proceedings have been subject to Final
Adjudication, including Cinar being released from all Third Party
Rights (as hereinafter defined), then any amount which has not already
been determined by both Cinar and the Purchaser in accordance with the
preceding paragraph not to constitute a Taxable portion or Deductible
portion of an amount or Deductible portion of Expenses, as the case
may be, shall be deemed to constitute a Taxable portion of an amount
received by Cinar or not to be a Deductible portion of a payment made
by Cinar or not to be a Deductible portion of Expenses, as the case
may be.
"SPECIFIED LITIGATION" means the matters referred to in Schedule A to
Schedule 2.6, and for greater certainty does not include the Founder
Option Proceedings. The Specified Litigation will include all Claims
and counter-Claims in effect at the time of the completion of the
arrangement transaction (and any amendments thereto) together with any
Claims and counter-Claims relating to the Specified Litigation that
may arise thereafter (and any amendments thereto). For greater
certainty, Claims and counter-Claims includes any Claim or
counter-Claim (including any possible Claim or counter-Claim and any
amendment to a Claim or counter-Claim) against a Person (including a
co-defendant of a Cinar Entity) who reasonably has or would have a
right of contribution or indemnity or similar right, contingent or
otherwise, as against a Cinar Entity ("THIRD PARTY RIGHTS") in respect
of such Claim or counter-Claim.
In the event that the conditions set forth in Subsections 2.6(i), 2.6(ii),
2.6(iii), 2.6(iv), 2.6(v), 2.6(vi) and 2.6(vii) have not been fulfilled, all as
hereinbefore provided, prior to the Settlement Deadline then contingent cash
entitlements ("CCES") will be provided to the Cinar Shareholders and, to the
extent that Cinar is unsuccessful in the Founder Option Proceedings, the
Founders as if they were the holders of the Underlying Shares in respect of
which the Final Adjudication of the Founder Option Proceedings provides that
they would have been entitled to exercise the Founder Options, entitling them to
Net Litigation Proceeds, with such entitlements to be provided in such form and
pursuant to such agreement as the Purchaser and Cinar may agree to, acting
reasonably, but consistent with the terms set out in Schedule 2.6. It shall be a
condition to providing such entitlements that any Appropriate Regulatory
Approvals therefor (including so as to ensure that such entitlements will not
prevent Cinar from obtaining rulings from all applicable securities Governmental
Entities for Cinar to cease being a reporting issuer immediately following the
Effective Date) have been obtained.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF CINAR
Cinar hereby represents and warrants to and in favour of the Purchaser as
follows and acknowledges that the Purchaser is relying upon such representations
and warranties in entering into this Agreement and the transactions contemplated
by this Agreement:
(a) ORGANIZATION AND GOOD STANDING - Except as disclosed in the Cinar
Disclosure Letter, each of the Cinar Entities and, to the knowledge of
Cinar, each of the Minority Interest Companies has been duly
incorporated or formed under all applicable Laws, is validly organized
and subsisting, has not been dissolved, is not an unlimited liability
company or other unlimited liability entity, has full corporate or
legal power, authority and capacity to own its properties and conduct
its businesses as currently owned and conducted and is up-to-date in
all corporate or partnership filings, or to the extent that it is not
up-to-date, such failure could not reasonably be expected to give rise
to a Material Adverse Effect to Cinar or the Education Division
Companies. All of the outstanding shares of capital stock and other
ownership interests of Cinar and each of the remaining Cinar Entities
and, to the knowledge of Cinar, of each of the Minority Interest
Companies are validly issued, fully paid and non-assessable and all
such shares and other ownership interests are owned directly or
indirectly, legally and beneficially by Cinar, free and clear of all
Liens other than those Liens listed in the Cinar Disclosure Letter or
pursuant to restrictions on transfer contained in Charter Documents
("PERMITTED LIENS"), and, except as disclosed in the Cinar Disclosure
Letter, there are no outstanding options, rights, entitlements,
understandings or commitments (contingent or otherwise) regarding the
right to acquire any such shares of capital stock or other ownership
interests in any of the Cinar Entities or in either of the Minority
Interest Companies. Cinar has disclosed in Schedule 3.1(a) hereto the
names, the jurisdictions of incorporation or organization, the
shareholders, members, owners and beneficiaries and the ownership
structure of each of the Cinar Entities other than Cinar as well as
the directors, officers and partners, as applicable, thereof. Such
schedule also sets out the jurisdiction of incorporation or
organization and the particulars of the ownership interest of the
Cinar Entities in the Minority Interest Companies.
No Cinar Entity has any ownership interest in any other Person, other
than as disclosed in Schedule 3.1(a) hereto.
(b) CAPACITY TO CARRY ON BUSINESS - Except as disclosed in the Cinar
Disclosure Letter, each of the Cinar Entities, and to the knowledge of
Cinar each of the Minority Interest Companies, is duly licensed,
registered and qualified as a corporation to do business and is in
good standing in each jurisdiction in which the nature of its current
business make such qualification necessary, and all such licences,
registrations and qualifications are valid and subsisting and in good
standing .
(c) SOLVENCY, ETC. -Except as described in the Cinar Disclosure Letter,
each of the Cinar Entities and to the knowledge of Cinar each of the
Minority Interest Companies, is Solvent. None of the Cinar Entities
and, to the knowledge of Cinar, neither of the Minority Interest
Companies has committed an act of bankruptcy, proposed a compromise or
arrangement to its creditors, had any petition for a receiving order
in bankruptcy filed against it, taken any proceeding with respect to a
compromise or arrangement, taken any proceeding to have itself
declared bankrupt or wound-up, taken any proceeding to have a receiver
appointed, had any encumbrancer take possession of any of its property
or assets, had an execution or distress become enforceable or become
levied upon any of its property or assets or had any insolvency or
receivership proceedings instituted against it which have not been
cured or remedied.
(d) CAPITALIZATION - The authorized capital of Cinar consists of an
unlimited number of Limited Voting Shares, an unlimited number of
Multiple Voting Shares and an unlimited number of preference shares
issuable in series. As of the date hereof, there are 34,735,998
Limited Voting Shares, 5,233,402 Multiple Voting Shares and no
preference shares issued and outstanding, and 4,054,382 Limited Voting
Shares and no Multiple Voting Shares are reserved, in the aggregate,
for issuance in respect of the Cinar Options. In addition, 495,000
Cinar PUs are currently outstanding, and are the only Cinar PUs, and
the aggregate contingent obligations under all Cinar PUs, including
after giving effect to the Arrangement, is Cdn$2,776,184. The dates of
issue, numbers, exercise prices and optionees of the Cinar Options
have been fully set out in the Cinar Disclosure Letter. The
particulars of all Cinar PUs, including the grantees thereof and all
relevant calculations for determining the contingent obligations
thereunder for each grantee, have also been fully set out in the Cinar
Disclosure Letter. Except as described in the preceding sentences of
this paragraph, there are no options, warrants, conversion privileges
or other rights, agreements, arrangements or commitments (pre-emptive,
contingent or otherwise) obligating any of the Cinar Entities to issue
or sell any shares of, or other ownership interests in, any of the
Cinar Entities or either of the Minority Interest Companies or
obligations of any kind convertible into or exchangeable for any
shares of, or other ownership interests in, any of the Cinar Entities
(or the shares or ownership interests of the Cinar Entities in the
Minority Interest Companies), nor is there outstanding any stock
appreciation rights, phantom equity or similar rights, agreements,
arrangements or commitments based upon the book value, income or any
other attribute of any of the Cinar Entities. All outstanding Cinar
Shares and all outstanding shares in the capital of each of the
remaining Cinar Entities have been duly authorized and are validly
issued and outstanding as fully paid and non-assessable shares, free
of pre-emptive rights. There are no outstanding bonds, debentures or
other evidences of indebtedness of any of the Cinar Entities having
the right to vote (or that are convertible for or exercisable into
securities having the right to vote) with the holders of the Cinar
Shares or the shareholders of any Cinar Entity on any matter. There
are no outstanding contractual obligations of any of the Cinar
Entities to repurchase, redeem or otherwise acquire any of its
outstanding securities or with respect to the voting or disposition of
any outstanding securities of any of the Cinar Entities, or any of the
shares they hold in the Minority Interest Companies.
(e) AUTHORITY AND NO VIOLATION
(i) Cinar has the requisite corporate power and authority to enter
into this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement by Cinar and the
consummation by Cinar of the transactions contemplated by this
Agreement have been duly authorized by its board of directors and
no other corporate proceedings on its part or on the part of any
other Cinar Entity are necessary to authorize this Agreement, or
the transactions contemplated hereby other than:
(A) with respect to the Cinar Meeting, Proxy Circular and other
matters relating solely to the implementation of the
Arrangement, the approval of the board of directors of
Cinar; and
(B) with respect to the completion of the Arrangement, subject
to the Interim Order, the approval of at least two-thirds of
the votes cast by the holders of each class of Cinar Shares
on the Arrangement Resolution by the Cinar Shareholders
present in person or represented by proxy at the Cinar
Meeting.
(ii) This Agreement has been duly executed and delivered by Cinar and
constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, subject to bankruptcy,
insolvency and other similar Laws affecting creditors' rights
generally, and to general principles of equity.
(iii) The board of directors of Cinar at its meeting on October 30,
2003 (A) determined unanimously that the Arrangement is in the
best interests of Cinar, (B) received an opinion from Merrill
Lynch Canada Inc. that, as of the date of this Agreement, the
consideration offered under the Arrangement for each Cinar Share
is fair from a financial point of view to the Cinar Shareholders
and (C) determined unanimously to support and to recommend that
the Cinar Shareholders vote in favour of the Arrangement
Resolution and will make such recommendation, and Cinar will so
represent in the Proxy Circular.
(iv) The approval of this Agreement, the execution and delivery by
Cinar of this Agreement and the performance by it of its
obligations hereunder and the completion of the Arrangement and
the transactions contemplated thereby, will not, except for the
Termination Entitlements or as disclosed in the Cinar Disclosure
Letter:
(A) result in a violation or breach of, require any consent to
be obtained under or give rise to any termination rights or
payment obligation under any provision of:
(1) the Charter Documents of any of the Cinar Entities,
including any unanimous shareholder agreement,
partnership agreement or any other agreement or
understanding with any party holding an ownership
interest in any of the Cinar Entities;
(2) subject to obtaining the Appropriate Regulatory
Approvals relating to the Cinar Entities, any Law,
regulation, order, judgment or decree; or
(3) any material license issued by any Governmental Entity
or any material Contract (including any shareholders or
other agreement relating to the Minority Interest
Companies, including any executed shareholders'
agreement relating to Teletoon Canada Inc.);
(B) except involving an aggregate amount of up to $4,000,000,
give rise to any right of termination or acceleration of
Indebtedness or cause any third party Indebtedness owing by
any of the Cinar Entities to come due before its stated
maturity or cause any available credit to cease to be
available;
(C) result in the imposition of any Lien upon any of the assets
of any of the Cinar Entities, or restrict, hinder, impair or
limit the ability of any of the Cinar Entities to carry on
its business as and where it is now being carried on or as
and where it is currently contemplated that it will be
carried on in the future; or
(D) except for the acceleration of vesting schedules for the
Cinar Options as contemplated by Section 5.3(b)(iii), result
in any payment (including severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming
due to any advisor, consultant or other service provider to
any of the Cinar Entities under any Contract or to any
director, officer or employee of any of the Cinar Entities
or increase any benefits otherwise payable under any Cinar
Employee Plan or result in the acceleration of time of
payment or vesting of any such benefits.
Except as otherwise disclosed in the Cinar Disclosure Letter, no
consent, approval, order or authorization of, or declaration or
filing with, any Governmental Entity or any other Person (for
such other Persons, in respect of a material Contract) is
required to be obtained by any of the Cinar Entities in
connection with the execution and delivery of this Agreement by
Cinar, the completion of the Arrangement or the consummation by
any of the Cinar Entities of the transactions contemplated
hereby, other than (i) any approvals required by the Interim
Order or the Final Order, (ii) filings with the Director under
the CBCA, and (iii) the Appropriate Regulatory Approvals relating
to the Cinar Entities.
(f) NO DEFAULTS - Subject to obtaining the Appropriate Regulatory
Approvals relating to Cinar and except as disclosed in the Cinar
Disclosure Letter, none of the Cinar Entities, and to the knowledge of
Cinar neither of the Minority Interest Companies, is in default under,
and there exists no event, condition or occurrence which, after the
giving of notice or lapse of time or both, would constitute such a
default or would give rise to a right of termination under any
material Contract or any material license from a Governmental Entity
or under other Contracts or licenses (with respect to such other
Contracts or licenses, other than defaults which could not
individually or in the aggregate reasonably be expected to have a
Material Adverse Effect on Cinar or the Education Division Companies)
including the termination of any option or right to produce additional
episodes or other animated programs or distribute or otherwise exploit
the property contemplated in such material Contract or license or
other Contracts, because of any action or omission, lapse of time or
other reasons.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS - Except for the Termination
Entitlements, except as disclosed in publicly available documents
filed by Cinar with the CVMQ prior to the date of this Agreement or
except as disclosed in the Cinar Disclosure Letter, each of the Cinar
Entities has in all material respects conducted its business only in
the ordinary and regular course of business consistent with past
practice and there has not occurred since November 30, 2002:
(i) any Material Adverse Change to Cinar or to the Education Division
Companies on or before the date hereof;
(ii) any material damage, destruction or loss, to the property, assets
or undertaking of any of the Cinar Entities, whether covered by
insurance or not, including any impairment or other adverse
effect on any material right, property, franchise or licence of
any Cinar Entity, whether by reason of the Arrangement or
otherwise;
(iii) any redemption, repurchase or other acquisition of shares (i) in
any of the Cinar Entities by any of the Cinar Entities or (ii) in
the Minority Interest Companies by either of the Minority
Interest Companies, or any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or
property) with respect to Cinar Shares or the shares of any of
the Minority Interest Companies;
(iv) any material increase in or modification of the compensation
(excluding bonuses which are paid in the ordinary and regular
course of business consistent with past practice) payable or to
become payable by any of the Cinar Entities to any of their
respective directors, officers or employees, or any grant to any
such director, officer or employee of any increase in severance
or termination pay;
(v) any material increase in or modification of any bonus, pension,
insurance or benefit arrangement (including the granting of stock
options, restricted stock awards, stock appreciation rights or
performance units and excluding bonuses which are paid in the
ordinary and regular course of business consistent with past
practice) made to, for or with any of the directors, officers or
employees of any of the Cinar Entities;
(vi) any acquisition or sale of its property or assets aggregating 1%
or more of Cinar's total consolidated tangible property and
assets as at November 30, 2002, other than in the ordinary and
regular course of business consistent with past practice or any
acquisition or sale of any Subsidiary which was material or any
of their respective property, assets or undertakings which would
be material to Cinar on a consolidated basis or to the Education
Division Companies on a consolidated basis;
(vii) (i) other than in the ordinary and regular course of business
consistent with past practice, any incurrence, assumption or
guarantee by any of the Cinar Entities of Indebtedness which
would alone relate to Cdn.$150,000 or more or which, in the
aggregate, would relate to Cdn.$500,000 or more. Furthermore, the
Cinar Entities have not incurred, assumed or guaranteed any
Indebtedness which remains outstanding which would alone relate
to Cdn.$150,000 or more or which, in the aggregate, would relate
to Cdn.$500,000 or more, other than the Indebtedness set forth in
the Cinar Disclosure Letter, which fully sets forth all of the
Indebtedness, the debtor from whom such Indebtedness is owed, the
Person to whom such Indebtedness is owed, if a guarantee, the
debtor whose obligations are being guaranteed and the essential
terms and conditions of such Indebtedness; (ii) any issuance or
sale of any securities convertible into or exchangeable for its
debt securities, or (iii) any issuance or sale of options or
other rights to acquire from it debt securities or any securities
convertible into or exchangeable for any such debt securities;
(viii) other than in the ordinary and regular course of business
consistent with past practice, any creation or assumption by it
of any Lien on any asset. Furthermore, the property and assets of
the Cinar Entities or any of them are not subject to any Lien,
other than those Liens set forth in the Cinar Disclosure Letter,
which fully sets forth all of the Liens to which the assets of
the Cinar Entities or any of them are subject;
(ix) other than in the ordinary and regular course of business
consistent with past practice, the making of any loan, advance or
capital contribution to or investment in any Person other than
loans and advances in an aggregate amount which do not exceed
$50,000 outstanding at any time;
(x) any entering into, amendment of, relinquishment, termination or
non-renewal by it of any material Contract or any material
license with any Governmental Entity, other than in the ordinary
and regular course of business consistent with past practice;
(xi) any resolution to approve a split, combination or
reclassification of any outstanding shares or ownership interests
in any of the Cinar Entities;
(xii) any material change in the accounting methods, principles or
practices of any of the Cinar Entities, other than those
expressly required by a change in GAAP arising subsequent to
November 30, 2002; or
(xiii) any agreement, arrangement or understanding to take any action
which, if taken prior to the date hereof, would have made any
representation or warranty set forth in this Agreement materially
untrue or incorrect as of the date when made.
(h) FINANCIAL STATEMENTS - The Cinar Financial Statements have been (and
any financial statement publicly disseminated by or on behalf of Cinar
during the Pre-Effective Date Period will be) prepared in accordance
with GAAP applied on a consistent basis (subject, in the case of such
unaudited financial statements, to the absence of notes and to usual,
non-material year end adjustments), the requirements of applicable
Governmental Entities and applicable securities Laws; such financial
statements present (or will present, as applicable) fairly, in all
material respects, the consolidated financial position and results of
operations of the Cinar Entities as of the respective dates thereof
and for the respective periods covered thereby and reflect appropriate
and adequate reserves in respect of contingent liabilities, if any, of
the Cinar Entities on a consolidated basis.
(i) ABSENCE OF UNDISCLOSED LIABILITIES - Except as disclosed in the Cinar
Disclosure Letter, none of the Cinar Entities has obligations or
liabilities of any nature (matured or unmatured, fixed or contingent)
other than:
(i) those set forth or adequately provided for in the balance sheet
included in Cinar's audited consolidated financial statements as
at and for the period ended November 30, 2002 (the "CINAR BALANCE
SHEET");
(ii) those incurred in the ordinary and regular course of business and
not required to be set forth in the Cinar Balance Sheet under
GAAP;
(iii) those incurred in the ordinary and regular course of business
since November 30, 2002 and consistent with past practice,
provided that any Indebtedness and any liabilities which could
reasonably be expected to have a Material Adverse Effect on Cinar
or the Education Division Companies have been disclosed herein;
and
(iv) those incurred in connection with the execution of this Agreement
and completion of the Arrangement.
(j) MATERIAL CONTRACTS AND LICENSES - The material licenses from
Governmental Entities and material Contracts of the Cinar Entities
have been fully listed in Schedule 3.1(j) to the Cinar Disclosure
Letter. None of the Cinar Entities, nor, to the knowledge of the Chief
Executive Officer or Chief Financial Officer of Cinar after reasonable
inquiry, any of the other parties thereto, is in material default or
breach of, in any respect, nor has any of the Cinar Entities received
any notice of default or termination under, any Contract or license
the termination of which could reasonably be expected to have a
Material Adverse Effect or to constitute a Material Adverse Change in
respect of Cinar or the Education Division Companies and, to the
knowledge of Cinar, except as disclosed in the Cinar Disclosure
Letter, there exists no state of facts which after notice or lapse of
time or both would constitute such a material default or breach or
would give rise to a right of termination, including the termination
of any option to produce additional episodes or other programs,
distribute or otherwise exploit the property contemplated in such
material Contracts or licenses. Except for the Termination
Entitlements or the material Contracts disclosed in the Cinar
Disclosure Letter, none of the Cinar Entities is a party to any
Contract not made in the ordinary and regular course of business or
which creates liabilities or obligations which are not in the ordinary
and regular course of business. True and complete copies of all Cinar
material Contracts and all material licenses from Governmental
Entities or, where such material Contracts or licenses are oral, true
and complete written summaries of the terms thereof, have been
furnished or otherwise made available to the Purchaser.
(k) BOOKS AND RECORDS - Except as set out in the Cinar Disclosure Letter
and except, to Cinar's knowledge, in respect of any matter, or any
matters taken together, which could not reasonably be expected to
result in a Material Adverse Effect to Cinar or the Education Division
Companies, the books, records and accounts of the Cinar Entities, in
all material respects, (i) have been maintained in accordance with
good business practices, (ii) are stated in reasonable detail and
accurately and fairly reflect the transactions and dispositions of the
assets of the Cinar Entities, and (iii) accurately and fairly reflect
the basis for Cinar's consolidated financial statements and the
Education Division Companies' unconsolidated financial statements.
Cinar has devised and maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (x)
transactions are executed in accordance with management's general or
specific authorization, and (y) transactions are recorded as necessary
(A) to permit preparation of financial statements in conformity with
GAAP or any other criteria applicable to such statements, and (B) to
maintain accountability for assets.
(l) LITIGATION, ETC. - Except as described in the Cinar Disclosure Letter,
(i) there is no Claim currently proceeding, pending or, to the
knowledge of Cinar, after due inquiry threatened against or relating
to any of the Cinar Entities or affecting any of their properties,
licenses or assets before any court or Governmental Entity or
regulatory authority or body nor is Cinar aware of any basis for any
such claim, action, proceeding or investigation which individually or
in the aggregate could reasonably be expected to have a Material
Adverse Effect on Cinar or the Education Division Companies or which
individually involves a Claim for more than Cdn.$50,000 or in the
aggregate involves Claims for more than Cdn.$250,000 and (ii) neither
any of the Cinar Entities nor their respective assets and properties
is subject to any outstanding judgment, order, writ, injunction or
decree. (m) INTELLECTUAL PROPERTY RIGHTS -
(i) Schedule 3.1(m) to the Cinar Disclosure Letter contains a list of
all of the properties which form a part of the Cinar Intellectual
Property.
(ii) Except as disclosed in the Cinar Disclosure Letter, Cinar has
provided to the Purchaser accurate and complete copies of all
material Contracts, material licences from Governmental Entities
and other material documentation maintained by the Cinar Entities
by which any of the Cinar Entities has acquired Intellectual
Property rights to the Cinar Intellectual Property. To the extent
that Intellectual Property rights to the Cinar Intellectual
Property are not currently reflected in a Contract, license or
other documentation maintained by a Cinar Entity, Cinar has
provided the Purchaser with a complete and accurate written
description of the source of the rights of the respective Cinar
Entities in such Cinar Intellectual Property. The Contracts,
licenses and other documentation referred to above, along with
any other Intellectual Property rights not reflected in
Contracts, licenses and other documentation but which have been
described to the Purchaser in writing as described above, are
sufficient to enable the Cinar Entities to carry on their
respective businesses as they are presently conducted, and as
they are proposed to be conducted in the future, in respect of
the Cinar Intellectual Property.
(iii) Cinar has made available to the Purchaser all material Contracts
and material licenses to which any of the Cinar Entities is a
party or by which any of them is bound in connection with the
licensing, distribution or other exploitation of the Cinar
Intellectual Property.
(iv) Except as may be specifically disclosed in this Agreement or in
the Cinar Disclosure Letter, there are no material limitations,
conditions, restrictions or other impediments to the exploitation
of the Cinar Intellectual Property by the Cinar Entities (in
respect of Cinar's entertainment division, such representation
relating solely to the Material Productions), including on the
licensing of the Cinar Intellectual Property by the Cinar
Entities to any other Person after completion of the Arrangement.
(v) The Cinar Intellectual Property has not been used or enforced, or
failed to be used or enforced, in a manner that would result in
or provide any basis for a default by, or a material reduction or
material dilution of the rights of, the Cinar Entities pursuant
to any of the agreements or licences entered into by the Cinar
Entities in respect of any of the Cinar Intellectual Property. To
the knowledge of Cinar after due inquiry, none of the Cinar
Entities has taken any action it is prohibited from taking, or
failed to take any action it is required to take, that would
result in or provide any basis for a default by, or a material
reduction or dilution of the rights of, each Cinar Entity
pursuant to any of the agreements or licences entered into by
such Cinar Entity in respect of any of the Cinar Intellectual
Property.
(vi) Except as disclosed in the Cinar Disclosure Letter, Cinar is not
aware of a claim of any infringement or breach of any
Intellectual Property of any other Person by any of the Cinar
Entities and no Cinar Entity has received any notice that any of
the Cinar Entities is infringing upon or breaching any
Intellectual Property rights of any other Person. Cinar is not
aware of any infringement or violation of any of the Intellectual
Property rights of any of the Cinar Entities by other Persons.
(vii) In all circumstances where necessary to permit the exploitation
of the Cinar Intellectual Property, the Cinar Entities have
renewed or made applications for renewal within the applicable
renewal periods for all material registered Cinar Intellectual
Property.
(viii) Except as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, the
Cinar Intellectual Property does not, to Cinar's knowledge,
contain any content, elements or matter which would be defamatory
of any Person or which would contravene any Laws or regulations
of any country, state, province or territory, including any
obscenity or hate Laws of the United States of America, Canada or
any other jurisdiction in which, to Cinar's knowledge, any Cinar
Intellectual Property is made available to the public (including
through subscriptions therefor or viewing fees).
(ix) The Cinar Entities have each employed reasonable measures to
identify and protect the security and integrity of the Cinar
Intellectual Property. All Cinar Intellectual Property created or
developed by or on behalf of the Cinar Entities was created or
developed by employees in the course of their employment, or by
contractors or consultants under the provisions of written
agreements that grant the applicable Cinar Entity all rights to
material prepared under such agreements necessary for the
exploitation of such rights. Except as disclosed in the Cinar
Disclosure Letter, all such employees and contractors have waived
their moral rights in such material in favour of the applicable
Cinar Entity and/or its licensees.
(x) Cinar or one or more of the other Cinar Entities own all right,
title and interest in and to the website domain names referred to
in Schedule 3.1(m) of the Cinar Disclosure Letter and to
copyright, software, trademarks and other intellectual property
relating thereto and have effected all registrations and filings
necessary to preserve and protect their respective rights in and
to such website domain names.
(n) TAX MATTERS
(i) Except as disclosed in the Cinar Disclosure Letter, (i) each of
the Cinar Entities has timely filed, or caused to be filed, all
Tax Returns required to be filed by them (all of which returns
were correct and complete in all material respects), (ii) the
Cinar Entities, taken as a whole, have made adequate provision in
their books and records for any Taxes accruing in respect of any
period subsequent to the period covered by Cinar's most recently
published consolidated financial statements, and (iii) since the
publication date of Cinar's most recently published consolidated
financial statements, no material Tax liability not reflected in
such statements or otherwise provided for has been assessed,
proposed to be assessed, incurred or accrued, including with
respect to Tax credits or analogous rights or incentives
previously claimed or utilized by any of the Cinar Entities.
The Cinar Entities, taken as a whole, have paid, or caused to be
paid, all Taxes that are due and payable in all material respects
or have provided adequate accruals in accordance with GAAP, which
are reflected in Cinar's most recently published consolidated
financial statements, for any Taxes for the period covered by
such financial statements that have not been paid, whether or not
shown as being due on any Tax Returns.
(ii) Except as disclosed in the Cinar Disclosure Letter or as reserved
in the Financial Statements, none of the Cinar Entities has
received any written notification that any material issues have
been raised (and are currently pending or threatened) by the
Canada Customs and Revenue Agency, the United States Internal
Revenue Service or any other taxing authority in any
jurisdiction, including any sales tax authority, in connection
with any of its Tax Returns, including with respect to tax
credits or other analogous rights or incentives previously
claimed or utilized by any of the Cinar Entities, and no waivers
of statutes of limitation have been given or requested with
respect to any of the Cinar Entities. The 1999 and previous
taxation years of Carson-Dellosa Publishing Company, Inc.,
HighReach Learning, Inc., Cinar Education, Inc. and Unique
Collating Service, Inc. have become statute-barred; all
assessments of Tax made against those companies for the 2000 and
following taxation years were paid when due, and adequate
reserves have been accrued on the most recently published
financial statements for those amounts owing but not yet due.
Except as disclosed in the Cinar Disclosure Letter or as reserved
in the Financial Statements, there are no material proposed (but
unassessed) additional Taxes relating to any of the Cinar
Entities and none has been asserted. Except as disclosed in the
Cinar Disclosure Letter, no Tax liens have been filed against any
of the Cinar Entities or any of their property or assets.
(iii) Each of the Cinar Entities has deducted and remitted to the
relevant Governmental Entities in all material respects on or
before the due dates therefor all income Taxes, employment
insurance contributions, pension plan contributions, employer
health Tax remittances and any Taxes or deductions or other
amounts which it is required by applicable Law or Contract to so
collect and remit to all Governmental Entities or other Persons
entitled to receive payment of such deduction.
(iv) Except as disclosed in the Cinar Disclosure Letter, the Cinar
Entities have, in all material respects, for each production
produced by a Cinar Entity which is listed in Schedule 3.1(j) of
the Cinar Disclosure Letter entitled "Cinar Corporation - Tax
Credit Refundable - August 31, 2003", taken all reasonable
administrative steps necessary to qualify for and to obtain the
production tax credit or the production services tax credit for
which such production has been assumed to qualify for, as
reflected in such schedule.
(v) Except as disclosed in the Cinar Disclosure Letter, including
without limitation subparagraph 3.1(e) thereof, the Cinar
Entities have, in all material respects, for each production
being currently produced by a Cinar Entity, taken all reasonable
steps necessary to qualify for and obtain the production tax
credit or the production services tax credit for which such
production has been assumed to qualify for, as reflected in the
financial structure prepared by the relevant Cinar Entity for
each such production.
(o) NON-ARMS LENGTH TRANSACTIONS
(i) Except for the Termination Entitlements or as disclosed in the
Cinar Disclosure Letter or in publicly available reports filed by
Cinar with the CVMQ prior to the date of this Agreement, none of
the Cinar Entities has made any payment or loan to, or has
borrowed any monies from or is otherwise indebted to, any present
or former officer, director, employee, shareholder or partner of
such company or any Person not dealing with it at arm's length
(within the meaning of the ITA) or any Affiliate of any of the
foregoing, except (A) as disclosed in the Cinar Financial
Statements, or (B) otherwise for amounts of up to Cdn.$10,000 per
individual and up to Cdn.$25,000 in the aggregate.
(ii) Except for the Termination Entitlements or as disclosed in the
Cinar Disclosure Letter or in publicly available reports filed by
Cinar with the CVMQ prior to the date of this Agreement, none of
the Cinar Entities is a party to any Contract with any present or
former officer, director, employee, shareholder or partner of
such company or any Person not dealing with it at arm's length
(within the meaning of the ITA) or any Affiliate of any of the
foregoing.
(p) EMPLOYEES, ETC. - The Cinar Disclosure Letter contain a complete and
accurate list, as the date of this Agreement, of:
(i) the names, titles and annual compensation entitlements of all
individuals who are employed or engaged by any of the Cinar
Entities on a full or part-time basis and all Persons (other than
lawyers and chartered accountants) who provide consulting or
other services to any of the Cinar Entities on a full or
part-time basis, including all individuals who may be considered
to be employees of any of the Cinar Entities pursuant to
applicable Law or equity, notwithstanding that they may have been
laid off or terminated or on a short term, long term or parental
leave, together with the location of their employment;
(ii) the date each such Person was hired or retained by the applicable
Cinar Entity or its predecessor; and
(iii) each Contract for the employment or engagement of any officer,
director, consultant or employee of the Cinar Entities requiring
annual compensation of Cdn.$75,000 or more.
(q) CONTINUED SERVICES - Except as disclosed in the Cinar Disclosure
Letter, none of the Cinar Entities has entered into any agreement or
made any arrangements with any of its employees or service providers
which could reasonably be expected to have the effect of depriving the
Cinar Entities of the continued services of any such Persons following
the Effective Date.
(r) TERMINATION RIGHTS - Except for the Termination Entitlements and,
subject to any applicable reinstatement or other statutory dismissal
recourse which may be available at Law to an employee, the employment
of all employees of the Cinar Entities may be terminated by the
applicable Cinar Entities on the giving of reasonable notice and/or
severance pay in accordance with applicable Law and no inducements to
accept employment with any of the Cinar Entities were offered to any
employees or service providers which have the effect of increasing the
period of notice of termination to which any such Person is entitled.
(s) EMPLOYEE PAYMENTS - Each of the Cinar Entities has paid to the date of
this Agreement all amounts due and payable on account of salary, fees,
bonus payments, commissions and all other remuneration to or on behalf
of any and all of its employees (other than payments which do not
exceed, in the aggregate, Cdn.$5,000 to any employee or Cdn $100,000
for all employees).
(t) LABOUR MATTERS
(i) Except as described in the management proxy circular prepared in
connection with the annual and special meeting of the Cinar
Shareholders held on April 9, 2003 or as disclosed in the Cinar
Disclosure Letter, none of the Cinar Entities is a party to any
written or oral policy, agreement, obligation or understanding
providing for severance or termination payments to, or any
employment agreement with, any director, officer or employee.
(ii) None of the Cinar Entities is a party to any collective
bargaining agreement nor subject to any application for
certification or threatened or apparent union-organizing
campaigns for employees not covered under a collective bargaining
agreement nor are there any current, pending or, to the knowledge
of Cinar after due inquiry, threatened strikes or lockouts at any
of the Cinar Entities or any charge of unfair labour practice
(other than routine individual grievances).
(iii) None of the Cinar Entities is subject to any material Claim for
wrongful dismissal, constructive dismissal or any other material
tort Claim, actual or, to the knowledge of Cinar, threatened, or
any litigation, actual or, to the knowledge of Cinar after due
inquiry, threatened, relating to employment or termination of
employment of employees or independent contractors, other than
those claims or such litigation which are disclosed in the Cinar
Disclosure Letter or any other claim or litigation in respect of
which the amount claimed individually does not exceed Cdn.$50,000
and in the aggregate with all such other Claims, the amounts
Claimed in respect of labour matters, do not exceed $250,000.
(iv) Except as disclosed in the Cinar Disclosure Letter, each of the
Cinar Entities has operated in accordance with all applicable
Laws with respect to employment and labour, including employment
and labour standards, occupational health and safety, pay equity,
workers' compensation, human rights and labour relations and
there are no current, pending or, to the knowledge of Cinar after
due inquiry, threatened proceedings before any board or tribunal
with respect to any employment or labour matters.
(u) EMPLOYEE BENEFIT PLANS
(i) The Cinar Disclosure Letter lists all the employee benefit,
health, welfare, supplemental employment benefit, bonus, pension,
profit sharing, deferred compensation, stock compensation, stock
option or purchase, retirement, hospitalization insurance,
medical, dental, legal, disability and similar plans or
arrangements or practices applicable to present or former
employees, directors or independent contractors of the Cinar
Entities which are currently maintained or participated in by the
Cinar Entities (the "CINAR EMPLOYEE PLANS").
(ii) All of the Cinar Employee Plans are registered where required by,
and are in good standing in all material respects under, all
applicable Laws or other legislative, administrative or judicial
promulgations applicable to the Cinar Employee Plans and, other
than routine claims for benefits, there are no actions, claims,
proceedings or governmental audits (and, to the knowledge of
Cinar, none are pending), relating to the Cinar Employee Plans .
(iii) All of the Cinar Employee Plans have been administered, invested
and funded in material compliance with their terms and all
applicable Laws or other legislative, administrative or judicial
promulgations applicable to the Cinar Employee Plans. There are
no unfunded liabilities, including on a going concern or solvency
basis based on reasonable actuarial assumptions, in respect of
the Cinar Employee Plans and all required contributions
thereunder have been made in accordance with all applicable Laws
or other legislative, administrative or judicial promulgations
applicable to the Cinar Employee Plans and the terms of such
Cinar Employee Plan. No contribution holidays have been taken in
respect of any Cinar Employee Plan.
(iv) No amendments to any Cinar Employee Plan have been promised and
no amendments to any Cinar Employee Plan will be made or promised
prior to the Effective Date which affect or pertain to the
employees of any of the Cinar Entities.
(v) True and complete copies of all the Cinar Employee Plans as
amended and, if available, current plan summaries and employee
booklets in respect thereof as are applicable to the employees of
the Cinar Entities and all related documents or, where oral,
written summaries of the terms thereof, have been made available
to Purchaser; for the purpose of the foregoing, related documents
means all current plan documentation and amendments relating
thereto, summary plan descriptions and summaries of material
modifications, if any, all related trust agreements, funding
agreements and similar agreements, the most recent annual reports
filed with any Governmental Entity, and the three most recent
actuarial reports, if any, related thereto.
(vi) Other than the Termination Entitlements, there are no agreements
or undertakings by any of the Cinar Entities to provide
post-retirement profit sharing, medical, health, life insurance
or other benefits to any present or former employee of any of the
Cinar Entities.
(vii) No Cinar Entity has established or maintains any Plan or has
incurred any liability to the Pension Benefit Guaranty
Corporation or any entity succeeding to any or all of its
functions under ERISA.
(v) REPORTS - Except as disclosed in the Cinar Disclosure Letter,
documents or information filed by Cinar under applicable securities
Laws since and including November 30, 2002, including Cinar's (a)
annual report to shareholders for the financial year ended November
30, 2002, (b) management proxy circular dated March 10, 2003 in
respect of the annual and special meeting of the Cinar Shareholders
held April 9, 2003, (c) interim consolidated financial statements for
the quarters ended February 28, 2003 and May 31, 2003, and (d)
material change reports filed and press releases issued between
December 1, 2002 and the date hereof, were as of their respective
dates, in compliance in all material respects with applicable
securities Laws and did not contain a Misrepresentation as at the time
at which they were filed with applicable securities regulatory
authorities. Except for any confidential material change reports in
respect of which copies have been provided to the Purchaser and in
respect of which there will be full public disclosure prior to, within
or concurrent with the public issuance of the Circular, none of such
documents or information, if originally so filed on a confidential
basis, remains confidential.
(w) COMPLIANCE WITH LAWS; INVESTIGATIONS - Except as disclosed in the
Cinar Disclosure Letter, the Cinar Entities, and to the knowledge of
Cinar the Minority Interest Companies, have complied with and are not
in violation of any applicable Laws, injunctions, orders, arbitral
awards, judgments or decrees, except to the extent that non-compliance
does not and could not reasonably be expected to have a Material
Adverse Effect on Cinar or the Education Division Companies. Without
limiting the generality of the foregoing, all securities of Cinar
(including all options, rights or other convertible or exchangeable
securities) have been issued in compliance with all applicable
securities Laws. Except as disclosed in the Cinar Disclosure Letter,
to the knowledge of Cinar (other than from news reports), none of the
Cinar Entities or any of their respective current or former directors,
officers or employees has been charged, or has been under active
investigation in the last twelve months by any Governmental Entity
(including the Canada Customs and Revenue Agency, any provincial
taxing authority, the United States Internal Revenue Service or any
taxing authority in any jurisdiction, including any sales tax
authority) in connection with any actual or alleged violation of any
Law which may directly or indirectly relate to or impact upon any
Cinar Entity. With respect to the investigation by the Surete du
Quebec and the inquiry by the RCMP as disclosed in the Cinar
Disclosure Letter, Cinar has no reason to believe or expect that any
Cinar Entity is or will be the target of, or materially adversely
affected by, these or any other investigations or inquiries by the
RCMP or the Surete du Quebec in relation to the unauthorized transfer
of funds from Canada to the Bahamas.
(x) GUARANTEES - Except as disclosed in the Cinar Disclosure Letter, none
of the Cinar Entities has given or agreed to give, nor is any of them
a party to or bound by, any guarantee of Indebtedness, indemnity or
suretyship of other obligations of any Person, nor is any of them
contingently responsible for such indemnity or suretyship or
obligations.
(y) RESTRICTIONS ON BUSINESS ACTIVITIES - Except as disclosed in the Cinar
Disclosure Letter, there is no arbitral award, judgment, injunction,
order or decree binding upon any of the Cinar Entities that has or
could reasonably be expected to have the effect of prohibiting,
restricting or materially impairing any business practice of any of
the Cinar Entities, any acquisition or disposition of property by any
of the Cinar Entities or the conduct of business by any of the Cinar
Entities as currently conducted.
(z) REGISTRATION RIGHTS - No holder of securities issued by Cinar has any
right to compel Cinar to register or otherwise qualify such securities
for public sale or distribution in Canada or the United States.
(aa) RIGHTS OF OTHER PERSONS - Except as disclosed in the Cinar Disclosure
Letter, no Person has any right of first refusal or option to purchase
or any other right of participation in any of the material properties
owned by any of the Cinar Entities, or any part thereof, nor is any
Person entitled to any material rebate, refund, payment, credit or
other benefit in the event that any product or service provided by any
Cinar Entity fails to achieve specified results, a specified level of
performance or other criteria.
(bb) FULL DISCLOSURE - Except as disclosed in the Cinar Disclosure Letter,
to the knowledge of the Chief Executive Officer and the Chief
Financial Officer of Cinar, all written information, materials and
documents prepared by or for the benefit of the Cinar Entities and
delivered or made available to the Purchaser in contemplation of the
transactions contemplated by this Agreement or as required by the
terms of this Agreement were true, complete and accurate in all
material respects as at their respective dates, except to the extent
that any inaccuracies have not had and could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect on Cinar or the Education Division Companies. No information
contained in this Agreement, in the schedules hereto, in the Cinar
Disclosure Letter, in the Cinar Financial Statements or other reports
delivered by Cinar to the Purchaser or any other written statement
furnished by or on behalf of any of the Cinar Entities to the
Purchaser contains a Misrepresentation, except to the extent that it
would not relate to a matter or circumstances which could reasonably
be expected to have a Material Adverse Effect on Cinar or the
Education Division Companies.
(cc) CEASE TRADE ORDERS - Except for the respective cease trade orders
issued by the CVMQ, the Ontario Securities Commission, the British
Columbia Securities Commission, the Alberta Securities Commission, The
Manitoba Securities Commission and the Saskatchewan Securities
Commission, no order ceasing or suspending trading in securities of
Cinar or prohibiting the sale of securities by Cinar is outstanding
and no proceedings for this purpose have been instituted or, to the
best of Cinar's knowledge, are pending, contemplated or threatened.
(dd) PAYMENT OF LIABILITIES - Since November 30, 2002, Cinar has continued
to pay, satisfy and discharge its obligations and liabilities in the
ordinary course of business.
(ee) INSURANCE - The Cinar Entities maintain such policies of insurance,
issued by responsible insurers, as are appropriate to their
businesses, property and assets (including libel, slander, liability
and directors and officers insurance), in such amounts and against
such risks and subject to such deductibles as are customarily carried
and insured against by owners of comparable businesses, properties and
assets. The proceeds of such policies are fully payable to the
applicable Cinar Entities. Disclosed in the Cinar Disclosure Letter is
a true and complete list setting forth all material insurance policies
now in full force and effect (specifying the insurer, the amount of
the coverage, the type of insurance, the amount of deductible, if any,
the policy number and any pending claims thereunder) maintained by the
Cinar Entities and true and complete copies of the most recent
inspection reports, if any, received from insurance underwriters as to
the condition of the assets of the Cinar Entities. All such policies
of insurance are in full force and effect and in good standing, and
will continue to be so until the Effective Date. None of the Cinar
Entities is in material default, whether as to the payment of premium
or otherwise, under the terms of any such policy, nor has any of the
Cinar Entities (i) failed to give any notice or present any material
claim under any such insurance policy in due and timely fashion or
(ii) received notice or otherwise became aware of any intent of an
insurer to either claim any default on the part of any of the Cinar
Entities or not to renew any policy of insurance on its expiry or to
materially increase any deductible or cost.
(ff) REAL PROPERTY - None of the Cinar Entities owns any real property.
Disclosed in the Cinar Disclosure Letter is a complete and accurate
list of all material immovable or real property licences, leases,
subleases and all agreements or offers to lease or sublease and which
are in force (collectively, the "LEASES") and any amendments,
extensions and/or additions thereto to which any Cinar Entity is a
party, by which any of them is bound, or in respect of which any of
them is entitled to benefit. Accurate and complete copies of all of
the Leases and of any and all material amendments, extensions and/or
additions thereto have been delivered to the Purchaser. The Leases are
valid, binding and enforceable in accordance with their terms subject
to bankruptcy and equitable remedies; except as disclosed herein, the
Leases have not been materially amended, supplemented or modified; and
the Leases are in good standing on the part of each relevant Cinar
Entity and the Cinar Entities are not in material default in payment
of rent or in the performance of any of their obligations thereunder.
In addition, to the best of Cinar's knowledge, the landlords under the
Leases are not in material breach of any of their obligations
thereunder. To the best of Cinar's knowledge, no state of facts exists
which after notice or lapse of time or both or otherwise would result
in a material breach or default under any of the Leases. Subject to
obtaining the consents as disclosed in the Cinar Disclosure Letter,
the execution of this Agreement and the consummation of the
transactions herein contemplated will not, in any way, require
landlord consent under any Lease or affect the validity,
enforceability or continuity of any of the Leases or result in any
modification thereof (including any additional payments or any
increase in the ongoing rent).
(gg) OBLIGATIONS - There are no material outstanding obligations relating
to any written notice or order issued by any Governmental Entity in
respect of any of the properties owned or leased by the Cinar Entities
or any of them received by any of the Cinar Entities alleging any
deficiency or non-compliance with any municipal agreements (including
any development or site plan agreements), building restrictions,
zoning or building laws or by-laws, building codes, fire codes or
environmental Laws.
(hh) EXPROPRIATION - No part of the property or assets of any of the Cinar
Entities has been taken, condemned or expropriated by any Governmental
Entity nor has any notice or proceeding in respect thereof been given
or commenced nor is Cinar aware of any intent or proposal to give such
notice or commence any such proceedings.
(ii) MINUTE BOOKS - The minute books of the Cinar Entities contain complete
copies of their respective Charter Documents. There are no
applications or filings outstanding or intended to be made which would
alter in any way the Charter Documents or corporate status of any of
the Cinar Entities. No resolutions or by-laws have been passed,
enacted, consented to or adopted by the directors (or any committee
thereof) or shareholders of any of the Cinar Entities, except those
contained in such minute books. Since April, 2002, the corporate
records of the Cinar Entities have been maintained in accordance with
all applicable statutory requirements and are complete and accurate,
other than certain minutes of meetings of Cinar's board of directors
(or a committee thereof) which have not been finalized (but either
drafts of which have been provided to the Purchaser or such minutes
would not disclose any matter, fact or circumstance which could
reasonably be expected to have a Material Adverse Effect to Cinar or
the Education Division Companies). The Purchaser acknowledges having
been advised that there is incompleteness and inaccuracies in respect
of the period prior to April, 2002. To Cinar's knowledge, no
incompleteness or inaccuracy in such minute books in respect of the
period prior to April, 2002 could relate to any matter, or any matters
taken together, which could reasonably be expected to result in a
Material Adverse Effect to Cinar or the Education Division Companies.
(jj) ADEQUACY OF ASSETS - The assets (including the Intellectual Property)
owned, licensed and leased by the Cinar Entities include all of the
assets reasonably necessary to conduct their respective businesses.
Except as disclosed in the Cinar Disclosure Letter, none of the Cinar
Entities requires any additional fixed assets, consents, waivers or
rights in order to enable it to continue carry on its business
immediately after the Effective Date in the same manner and in each of
the jurisdictions as currently carried on by it.
(kk) LICENSES - All licences that the Cinar Entities are required to obtain
that are related to their respective businesses or the ownership or
operation of their respective properties and assets have been
obtained, are disclosed in the Cinar Disclosure Letter and are
currently valid, in full force and effect and in good standing except
for such failure as could not individually or in the aggregate
reasonably be expected to have a Material Adverse Effect on Cinar or
the Education Division Companies. None of the Cinar Entities has
violated the terms or conditions of any such licence except for such
violations as could not individually or in the aggregate reasonably be
expected to have a Material Adverse Effect on Cinar or the Education
Division Companies. No notice of a violation of any such licence has
been received by any of the Cinar Entities or recorded or published,
and, to Cinar's knowledge, no proceeding is pending or threatened, to
revoke, suspend, cancel, prevent the renewal of, or limit any such
licence.
(ll) ENVIRONMENTAL - For purposes of this subsection:
"ENVIRONMENTAL LAWS" means all applicable federal, provincial, state,
local and foreign laws, imposing liability or standards of conduct for
or relating to the regulation of activities, materials, substances or
wastes in connection with or for or to the protection of human health,
safety, the environment or natural resources (including ambient air,
surface water, groundwater, wetlands, land surface or subsurface
strata, wildlife, aquatic species and vegetation) and under common
law;
"ENVIRONMENTAL LIABILITIES" means, with respect to any Person, all
liabilities, obligations, responsibilities, response, remedial and
removal costs, investigation and feasibility study costs, capital
costs, operation and maintenance costs, losses, damages, punitive
damages, property damages, natural resource damages, consequential
damages, treble damages, costs and expenses (including all fees,
disbursements and expenses of counsel, experts and consultants),
fines, penalties, sanctions and interest incurred as a result of or
related to any claim, suit, action, administrative order,
investigation, proceeding or demand by any Person, whether based in
contract, tort, implied or express warranty, strict liability,
criminal or civil statute or common law, relating to any environmental
matter including any arising under or related to any Environmental
Law, Environmental Permit, or in connection with any Release or
threatened Release or presence of a Hazardous Material whether on, at,
in, under, from or about or in the vicinity of any real or personal
property;
"ENVIRONMENTAL PERMITS" means all permits, licenses, written
authorizations, certificates, approvals, program participation
requirements, sign-offs or registrations required by or available with
or from any Governmental Entity under any Environmental Law;
"HAZARDOUS MATERIAL" means any substance, material or waste which is
regulated by, or forms the basis of liability now or hereafter under,
any Environmental Laws, including any material or substance which is:
(a) defined as a "solid waste", "hazardous waste", "hazardous
material", "hazardous substance", "dangerous good", "extremely
hazardous waste", "restricted hazardous waste", "pollutant",
"contaminant", "hazardous constituent", "special waste", "toxic
substance" or other similar term or phrase under any
Environmental Laws, or
(b) petroleum or any fraction or by-product thereof, asbestos,
substances used for drycleaning and the waste and breakdown
products thereof, polychlorinated biphenyls (PCB's), or any
radioactive substance; and
"RELEASE" means any release, threatened release, spill, emission,
leaking, pumping, pouring, emitting, emptying, escape, injection,
deposit, disposal, discharge, dispersal, dumping, leaching or
migration of Hazardous Material in the indoor or outdoor
environment, including the movement of Hazardous Material through
or in the air, soil, surface water, ground water or property.
Except as disclosed in the Cinar Disclosure Letter, each of the Cinar
Entities and their respective businesses, operations, and properties:
(i) has obtained and currently holds all material approvals and
authorizations from all Governmental Entities which are required
under all Environmental Laws (each of which is listed in the
Cinar Disclosure Letter);
(ii) is in material compliance with all Environmental Laws and all
terms and conditions of all material approvals from all
Governmental Entities,
(iii) has not received any order, request or notice from any Person
alleging a material violation of any Environmental Laws;
(iv) (A) is not a party to any litigation or administrative
proceeding, nor so far as it is aware, is any litigation or
administrative proceeding threatened against it or its property
or assets, which in either case (1) asserts or alleges that it
violated any Environmental Law, (2) asserts or alleges that it is
required to clean up, remove or take remedial or other response
action due to the Release of any Hazardous Substances, or (3)
asserts or alleges that it is required to pay all or a portion of
the cost of any past, present or future cleanup, removal or
remedial or other response action which arises out of or is
related to the Release of any Hazardous Substances; (B) is not
aware of any conditions existing currently or likely to exist
which could reasonably be expected to subject it to damages,
penalties, injunctive relief or cleanup costs under any
Environmental Law or which require or are likely to require
cleanup, removal, remedial action or other response pursuant to
applicable Environmental Law by it; and (C) is not subject to any
judgment, decree, order or citation related to or arising out of
applicable Environmental Law and has not been named or listed as
a potentially responsible party by any Governmental Entity in a
matter arising under any Environmental Law;
(v) to Cinar's knowledge after due internal inquiry, has not used,
owned operated, occupied or managed, had charge of or control
over, now or in the past, any real property that is not free of
contamination from any Hazardous Material except for such
contamination that could not reasonably be expected to adversely
impact the value or marketability of such real property and which
could not reasonably be expected to result in Environmental
Liabilities;
(vi) to Cinar's knowledge after due internal inquiry, has not caused,
suffered or permitted to occur any Release of Hazardous Materials
on, at, in, under, above, to, from or about any of the real
property used, owned, operated, occupied or managed by it or over
which it had charge of or control now or in the past by it;
(vii) is not involved in operations or knows of any facts,
circumstances or conditions, including any Release of Hazardous
Material, that could reasonably be expected to result in any
Environmental Liabilities; and
(viii) has delivered to Purchaser complete and accurate copies of all
environmental reports, studies, notices, assessments, audits,
information, evaluations and tests (collectively, "REPORTS")
relating to any real property, used, owned, operated, occupied or
managed by it or over which it had charge of or control now or in
the past which Reports are now, or with the exercise of
reasonable efforts by Cinar would be, in the possession or
control of any of the Cinar Entities.
(mm) COMPUTER SYSTEMS AND SOFTWARE - The computer systems and software of
the Cinar Entities, including personal computers and special purpose
systems and animation programs, are fully operational and have the
appropriate licensing and material documentation describing, among
other things, the operation of the hardware, software, required
maintenance, appropriate period run books or other operational
procedures, all operating systems, applications and utilities. The
documentation matches the implementation of the hardware and software
in use as of the date hereof.
(nn) FORWARD COMMITMENTS - All forward commitments by or to Cinar Entities
for supplies or services for use in connection with their respective
businesses, whether or not evidenced by written Contract, which are in
existence as of the date of this Agreement have been entered into by
the applicable Cinar Entity in the ordinary course of business and
upon terms and conditions consistent with its usual past practices.
(oo) TITLE TO ASSETS - Except as otherwise disclosed in the Cinar
Disclosure Letter, the Cinar Entities own all of the property and
assets reflected in the Cinar Financial Statements or used by them in
connection with the their respective businesses, with good and
marketable title thereto, free and clear of Liens. There are no Claims
currently proceeding, pending or, to the knowledge of Cinar,
threatened against or affecting any of the material properties owned
by the Cinar Entities or the occupancy or use thereof by the Cinar
Entities, in law or in equity, which could reasonably be expected to
affect the title to any such property or any part of such property or
the value of any such property.
(pp) FINDER'S FEES - No broker, finder or investment banker is entitled to
any fee or commission from Cinar for services rendered on behalf of
Cinar in connection with the transactions contemplated by this
Agreement, other than Merrill Lynch Canada Inc. and The Salter Group
which are entitled to be paid fees as described in the Cinar
Disclosure Letter.
(qq) NO SHAREHOLDERS' AGREEMENTS - To Cinar's knowledge, on the Effective
Date, there will be no shareholder agreements, voting agreements,
voting trust agreements, pooling agreements or other agreements to
which any of the Cinar Shareholders is a party in respect of any of
the Cinar Shares.
(rr) NO SHAREHOLDER RIGHTS PLAN - There is no shareholder rights plan in
respect of Cinar.
(ss) DELIVERABLES - The Cinar Disclosure Letter contains a complete
description of all "deliverables" outstanding to broadcasters or
distributors as at the date hereof in respect of the Material
Productions.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to Cinar as follows and
acknowledges that Cinar is relying on these representations and warranties in
entering into this Agreement and the transactions contemplated under this
Agreement:
(a) ORGANIZATION AND GOOD STANDING - the Purchaser is a corporation duly
incorporated, organized and subsisting under the CBCA.
(b) AUTHORITY AND NO VIOLATION
(i) The Purchaser has the requisite power and authority to enter into
this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement by the Purchaser and the
consummation by the Purchaser of the transactions contemplated by
this Agreement have been duly authorized by the board of
directors of the Purchaser and no other proceedings on its part
are necessary to authorize this Agreement or the transactions
contemplated hereby.
(ii) This Agreement has been duly executed and delivered by the
Purchaser and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms,
subject to bankruptcy, insolvency and other similar Laws
affecting creditors' rights generally, and to general principles
of equity.
(iii) The approval of this Agreement, the execution and delivery by
the Purchaser of this Agreement and the performance by it of its
obligations hereunder and the completion of the Arrangement and
the transactions contemplated thereby, will not result in a
violation or breach of, require any consent to be obtained under
or give rise to any termination rights or payment obligation
under any provision of:
(A) its Charter Documents, including any shareholders'
agreement;
(B) subject to obtaining the Appropriate Regulatory Approvals
relating to the Purchaser, any Laws, regulation, order,
judgment or decree; or
(C) any material Contract to which it is party or by which it is
bound or affected.
No consent, approval, order or authorization of, or
declaration or filing with, any Governmental Entity or other
Person is required to be obtained by the Purchaser in
connection with the execution and delivery of this
Agreement, the completion of the Arrangement or the
consummation by the Purchaser of the transactions
contemplated hereby other than the Appropriate Regulatory
Approvals relating to the Purchaser.
(c) PROXY CIRCULAR - The information to be contained in the Proxy Circular
or any amendment thereto relating to, and provided by or on behalf of,
the Purchaser will be accurate and complete in all material respects
as at the date thereof and will not contain a Misrepresentation as at
such date.
(d) CANADIAN STATUS OF PURCHASER - The Purchaser is not and is not deemed
to be a "non-Canadian" within the meaning of the INVESTMENT CANADA ACT
and no application for review and no notification under that Act is
required in connection with the Arrangement.
(e) FINANCING - The Purchaser is a newly formed corporation which has no
business other than in connection with the transactions contemplated
by this Agreement. The Purchaser has obtained written commitments for
all required equity financing (the "EQUITY COMMITMENTS") and has
executed a bank commitment letter (the "BANK COMMITMENT" and, together
with the Equity Commitments, the "FINANCING COMMITMENTS"). After
taking into consideration the funding under the Financing Commitments,
the Purchaser will have sufficient funds to consummate the
transactions contemplated hereby, including the payment of the per
share consideration for the outstanding shares of Cinar. Each of the
Financing Commitments is in full force and effect as of the date
hereof. The Purchaser is not, as of the date hereof, aware of any
fact, occurrence or condition that would cause any of the Financing
Commitments to be terminated or be ineffective or any of the
conditions contained therein not to be met.
(f) NON-COMPETE - An agreement has been entered into with Corus
Entertainment ("CORUS") under which the non-competition covenants
provided by Michael Hirsh to Corus will have been waived by Corus with
respect to this Agreement as at the Effective Time.
(g) ARM'S LENGTH - The Purchaser is entirely at arm's length with
Micheline Charest and Ronald A. Weinberg and no agreement (written or
verbal) or promises have been made to them, except for the voting
support agreement with such Persons dated October 30, 2003.
(h) Affiliates - The Purchaser has no "affiliates" (within the meaning of
subsection 2(2) of the Competition Act (Canada)).
3.3 NON-WAIVER
No investigations made by or on behalf of any party, at any time, shall
have the effect of waiving, diminishing the scope of or otherwise affecting any
representation or warranty made to such party herein or pursuant hereto.
3.4 SURVIVAL
Subject to Section 7.3(e), the representations and warranties of each of
Cinar and the Purchaser contained herein shall not survive the completion of the
Arrangement and shall expire and be terminated on the earlier of the termination
of this Agreement in accordance with its terms and the Effective Time.
ARTICLE 4
REGULATORY APPROVALS
4.1 APPLICATIONS
Cinar and the Purchaser covenant and agree to proceed diligently, in a
coordinated fashion, to apply for and obtain the Appropriate Regulatory
Approvals.
4.2 OBTAINING OF APPROPRIATE REGULATORY APPROVALS
For purposes of this Agreement, no Appropriate Regulatory Approval shall be
considered to have been obtained if it contains any condition that would put the
Purchaser at a material competitive disadvantage by comparison with its
competitors in any jurisdiction in which the Purchaser has, or following the
Arrangement will have, directly or through its Subsidiaries, significant
operations that are a material competitive disadvantage as compared with Cinar
as at the date hereof. In addition, at the option of the Purchaser, no
Appropriate Regulatory Approval shall be considered to have been obtained if an
appeal has been instituted from the granting of any Appropriate Regulatory
Approval and remains outstanding.
ARTICLE 5
COVENANTS
5.1 RETENTION OF GOODWILL
During the Pre-Effective Date Period, Cinar shall, subject to the fact that
a transaction involving its business is contemplated hereby, continue to carry
on its business and that of the other Cinar Entities in a manner consistent with
current practice in all material respects and in cooperation with the Purchaser
and use reasonable efforts to avoid the occurrence of any event that could
reasonably be expected to make any of the representations and warranties herein
contained materially inaccurate or untrue if such representations and warranties
were made each day from and including the date of this Agreement to and
including the Effective Date, and shall use reasonable efforts to preserve the
attendant goodwill of each Cinar Entity and to contribute to retention of that
goodwill, to preserve the value of all properties, to maintain all customer,
joint venture and service provider relationships, and to retain employees, but
subject to the following provisions of this Article 5. The following provisions
of this Article 5 are intended to be in furtherance of this general commitment.
5.2 MATERIAL COMMITMENTS
Subject to Section 5.3 (a)(xiv), during the Pre-Effective Date Period,
Cinar will consult on an ongoing basis with the Purchaser in order that the
representatives of the Purchaser will become more familiar with the philosophy
and techniques of the Cinar Entities (including with respect to Cinar's dealings
at the annual MIPCOM trade show), as well as with their business and financial
affairs and in order to provide experience as a basis for ongoing relationships
in connection with the acquisition of Cinar by the Purchaser as of the Effective
Date. These consultations will include any commitments, arrangements or
transactions proposed to be entered into that could reasonably be expected to
give rise to a material liability or commitment of any kind and will allow
sufficient time for the Purchaser to give reasonable consideration to the same.
Cinar and the Purchaser will develop procedures such that these consultations
will be carried out quickly and effectively without detracting from the ability
of Cinar to arrive at decisions in a timely manner. In addition, Cinar shall
provide to the Purchaser copies of any interim financial statements (and any
management reviewed drafts thereof) which may be prepared from time to time
during the Pre-Effective Date Period.
5.3 COVENANTS OF CINAR
(a) Cinar covenants and agrees that, until the Effective Date or the
earlier termination of this Agreement in accordance with Article 7,
except (i) with the consent of the Purchaser to any deviation
therefrom, (ii) with respect to any binding commitments which were
disclosed in the Cinar Disclosure Letter, or (iii) with respect to any
matter contemplated by this Agreement or the Plan of Arrangement, each
of the Cinar Entities shall:
(i) carry on its business in, and only in, the ordinary and regular
course in substantially the same manner as heretofore conducted
and, to the extent consistent with such business, use all
reasonable efforts to preserve intact its present business
organization and keep available the services of its present
officers and employees and others having business dealings with
it to the end that its goodwill and business shall be maintained
and at all times maintain, preserve and protect all of its
material assets and properties and keep the same in good repair,
working order and condition in all material respects and in
compliance with the terms of any material Contract and material
license binding it or its assets and property (taking into
consideration ordinary wear and tear) and from time to time make,
or cause to be made, all necessary or appropriate routine and
ordinary repairs, replacements and improvements thereto
consistent with industry practices;
(ii) not commence to undertake a substantial or unusual expansion of
its business facilities or an expansion that is out of the
ordinary and regular course of business consistent with prior
practice in light of current industry and economic conditions;
(iii) not declare or pay any dividends on or make any other
distributions on or in respect of the outstanding Cinar Shares or
split, combine or reclassify any Cinar Shares;
(iv) not amend the Charter Documents of any of the Cinar Entities;
(v) not allot, reserve, set aside or issue, authorize or propose the
allotment, reservation, setting aside or issuance of, or purchase
or redeem or propose the purchase or redemption of, any shares in
its capital stock or other equity interests of any of the Cinar
Entities or any class or securities convertible or exchangeable
into, or rights, warrants or options to acquire, any such shares
or other convertible or exchangeable securities, except for (i)
transactions between two or more wholly-owned Cinar Subsidiaries
or between Cinar and a wholly-owned Cinar Subsidiary, and (ii)
the issuance of Cinar Shares pursuant to fully vested Cinar
Options granted prior to the date hereof in accordance with the
provisions attaching thereto;
(vi) not amend, vary or modify, or take any other action under the
Cinar Stock Option Plan or the Cinar Performance Unit Plan,
except in accordance with Sections 5.3(a)(v) and 5.3 (b)(iv);
(vii) not acquire or agree to acquire any Cinar Shares or other
outstanding securities, whether by public or private transaction,
pursuant to any normal course or substantial issuer bid, or
otherwise, or any shares or other outstanding securities of any
Subsidiary;
(viii) other than ordinary course trade payables, not guarantee the
payment of Indebtedness or incur Indebtedness or issue or sell
any debt securities relating to any individual amount of
Cdn.$150,000 or more, or aggregate amount of Cdn.$500,000 or
more;
(ix) continue to provide the Purchaser and its Representatives with
information as reasonably requested by them from time to time
concerning the business, assets, liabilities and affairs of the
Cinar Entities, and with access (on a basis that does not detract
unreasonably from the performance of their business
responsibilities) to management and employees of the Cinar
Entities;
(x) use its reasonable efforts to comply promptly with all
requirements which applicable Laws may impose on the Cinar
Entities with respect to the transactions contemplated hereby and
by the Arrangement;
(xi) except as contemplated by Section 5.3(c) or as otherwise
consented to by the Purchaser, not reorganize, amalgamate or
merge it or any other Cinar Entity with any other Person;
(xii) not (1) satisfy or settle any Claims prior to the same being
due, except such as have been fully reserved against in the Cinar
Financial Statements or except as contemplated in Section 2.6
(but with respect to those contemplated in Section 2.6 only if
the result could not reasonably be expected to be a negative
amount of Net Litigation Proceeds and would not result in any
post-Effective Time obligations being applicable to any of the
Cinar Entities, and with respect to the Founder Option
Proceedings not effect any settlement other than for an amount
which does not exceed the "in-the-money" amount contemplated in
Section 2.3 and costs, if any); (2) relinquish any contractual
rights; (3) enter into any interest rate, currency or commodity
swaps, hedges or other similar financial instruments; (4)
commence any Claim out of the ordinary course of business or
amend or otherwise vary any existing Claim out of the ordinary
course of business; or (5) permit any other Cinar Entity to do
any of the foregoing;
(xiii) other than as contemplated in the Cinar Disclosure Letter and
other than those entered into pursuant to this Agreement, not
enter into any non-arm's length transactions or permit any of the
Cinar Entities to grant any of their employees any increase in
compensation or to pay any severance or termination amounts
whether or not such compensation, payment or amount is payable in
cash, or enter into any employment arrangements or Contract with
any Person (whether with an existing employee or a new employee)
or any agreement to pay severance amounts for termination or
termination packages (or enter into any commitment for such
payment);
(xiv) provide the Purchaser with a weekly report of all cheques and
other payment instruments issued and shall not make or permit any
other Cinar Entity to make any payment or series of related
payments to any Person (or Persons not at arm's length with each
other) (or enter into any commitment for such payment(s)) of (A)
Cdn.$50,000 or more which is not provided for in the budget
agreed to as between the Purchaser and Cinar or (B) Cdn.$100,000
or more, in either case, unless the Purchaser has consented
thereto in writing;
(xv) promptly advise the Purchaser in writing:
(A) of any event occurring subsequent to the date of this
Agreement that would render any representation or warranty
of Cinar contained in this Agreement, if made on or as of
the date of such event or the Effective Date, untrue,
inaccurate or incomplete in any material respect (for any
representation or warranty which expressly speaks solely of
a specific date, if it would have been untrue, inaccurate or
incomplete in respect of such date);
(B) of any Material Adverse Change, or any materially adverse
change in prospects of which Cinar becomes aware, in respect
of Cinar or the Education Division Companies;
(C) of any breach by Cinar of any covenant or agreement
contained in this Agreement; and
(D) of any death, disability, resignation, termination of
employment or other departure of any officer or senior
employee of any of the Cinar Entities;
(xvi) not "green light" or commit to or approve any material
expenditures to any new production, whether film or a live
production (including entering into or agreeing to enter into a
lease for any premises), or any new project; and
(xvii) not enter into any Contract for any licensing arrangements
which would require an aggregate advance (whether before or after
the Effective Time) of more than $50,000 or for any home video,
merchandising or related transactions.
(b) Cinar shall and shall cause each of the other Cinar Entities to
perform all obligations required or desirable to be performed by them
under this Agreement and shall do all such other acts and things as
may be necessary or desirable in order to consummate and make
effective, as soon as reasonably practicable, the transactions
contemplated in this Agreement and, without limiting the generality of
the foregoing, Cinar shall, subject to Sections 5.5 and 5.6, and where
appropriate shall cause the other Cinar Entities, provided that doing
so would not violate the fiduciary duties of Cinar's directors, to:
(i) recommend in the Proxy Circular and at the Cinar Meeting that the
Cinar Shareholders vote in favour of the Arrangement, and all
public comment by Cinar in relation to the Arrangement shall be
made in accordance with Section 9.6 and shall be consistent with
and supportive of such recommendation; and Cinar shall not act or
fail to act in any way that might reasonably be expected to
discourage Cinar Shareholders from voting in favour of the
Arrangement Resolution or that might encourage Cinar Shareholders
to vote against the Arrangement Resolution;
(ii) not withdraw its recommendation that Cinar Shareholders vote in
favour of the Arrangement;
(iii) use all reasonable efforts to (A) cause each holder of Cinar
Options to exercise their respective duly exercisable (including
through application of acceleration of vesting) Cinar Options to
acquire Cinar Shares prior to the Effective Date and to cancel
all other Cinar Options and (B) cause each holder of Cinar PUs to
exercise their respective Cinar PUs prior to the Effective Date
and to cancel all other Cinar PUs;
(iv) use all reasonable efforts to obtain the approval of the Cinar
Shareholders to the Arrangement;
(v) apply for and use all reasonable efforts to obtain all
Appropriate Regulatory Approvals relating to the Cinar Entities
and all consents and other approvals of third parties as may be
necessary or desirable for the consummation of the Arrangement
(together, the "THIRD PARTY APPROVALS"); provided, however, that,
without the Purchaser's prior written consent, no Indebtedness
shall be repaid out of the ordinary course, and no such agreement
evidencing or other arrangement with respect to, Indebtedness
shall be amended to increase the amount payable thereunder in a
material amount or otherwise to be materially more burdensome to
the Cinar Entities in order to obtain any Appropriate Regulatory
Approval or Third Party Approval;
(vi) together with the Purchaser to the extent it deems appropriate,
apply for and use all reasonable efforts to obtain the Interim
Order and the Final Order;
(vii) use all reasonable efforts to defend all lawsuits or other
legal, regulatory or other proceedings challenging or affecting
their property or assets, this Agreement or the consummation of
the transactions contemplated hereby;
(viii) to the extent necessary to permit implementation of the
Arrangement and as otherwise reasonably required by the
Purchaser, use all reasonable efforts to have lifted or rescinded
any injunction or restraining order or other order relating to
the Cinar Entities, including any cease trade orders of
securities regulatory authorities, which may adversely affect the
ability of the parties to consummate the transactions
contemplated hereby;
(ix) effect all necessary registrations, filings and submissions of
information required by Governmental Entities from any of the
Cinar Entities; and
(x) if for any reason whatsoever, except by reason of a material
breach by the Purchaser of its obligations hereunder, the
Arrangement cannot be completed on the basis contemplated by this
Agreement, negotiate in good faith with the Purchaser to
restructure the transactions contemplated by this Agreement and
the Plan of Arrangement on a mutually acceptable basis and with
completion of the Arrangement to occur on or before March 5, 2004
and, for greater certainty, if the transactions contemplated by
this Agreement and the Plan of Arrangement are so restructured,
Section 8.2 shall apply to the restructured transactions.
(c) During the Pre-Effective Date Period Cinar shall, and shall cause each
of the remaining Cinar Entities to, take such actions as are necessary
or desirable to facilitate the financing of the Arrangement or
reorganize the capital and assets of the Cinar Entities as the
Purchaser may reasonably require; provided, however, that no such
facilitation or reorganization will be undertaken if (i) it would
reduce the fixed per share consideration payable by the Purchaser to
the Cinar Shareholders pursuant to the Arrangement, (ii) the Purchaser
has not agreed to pay the reasonable actual out-of-pocket costs and
expenses for filing fees and external counsel and auditors which may
be incurred directly relating to such restructuring in the event that
the Final Order is not obtained or (iii) Cinar has not been provided
with appropriate undertakings to discharge and cancel any security
documents executed and delivered by Cinar Entities in the event that
the Final Order is not obtained.
(d) Cinar covenants and agrees that, except as otherwise consented to by
the Purchaser (which consent shall not be unreasonably withheld or
delayed) or in accordance with agreements entered into prior to the
date hereof, it shall not, and shall not permit any of the other Cinar
Entities to, acquire or agree to acquire, or enter into any lease of,
assets or properties of any Person, which transaction would require
payment of aggregate consideration of more than $50,000 or be material
to the Cinar Entities, taken as a whole, or material to the Education
Division Companies, taken as a whole, or to acquire or agree to
acquire any Person; and except in accordance with agreements entered
into prior to the date hereof, it will not, and will not permit any of
the other Cinar Entities to, sell, lease, transfer, mortgage,
hypothecate, or otherwise dispose of any of the assets or properties,
real, personal or mixed, movable or immovable, that are material,
individually or in the aggregate, to the business, assets, financial
condition or results of operations of the Cinar Entities taken as a
whole.
5.4 COVENANTS OF PURCHASER
The Purchaser hereby covenants and agrees to perform all obligations
required or desirable to be performed by it under this Agreement and to do all
such other acts and things as may be necessary or desirable in order to
consummate and make effective, as soon as reasonably practicable, the
transactions contemplated by this Agreement and, without limiting the generality
of the foregoing, to:
(a) apply for and use all reasonable efforts to obtain all Appropriate
Regulatory Approvals relating to the Purchaser and, in doing so, keep
Cinar informed, subject to applicable Laws, as to the status of the
proceedings related to obtaining the Appropriate Regulatory Approvals,
including, providing Cinar with copies of all related applications and
notifications, in draft form, in order for Cinar to provide its
reasonable comments, and providing Cinar with copies of all material
correspondence relating to the Appropriate Regulatory Approvals;
(b) defend all lawsuits or other legal, regulatory or other proceedings to
which it is a party challenging or affecting this Agreement or the
consummation of the transactions contemplated hereby;
(c) use all reasonable efforts to have lifted or rescinded any injunction
or restraining order or other order relating to the Purchaser which
may adversely affect the ability of the parties to consummate the
transactions contemplated hereby;
(d) effect all necessary registrations, filings and submissions of
information required by Governmental Entities from the Purchaser;
(e) use its reasonable efforts to (i) carry out the terms of the Interim
Order and Final Order applicable to it and (ii) comply promptly with
all requirements which applicable Laws may impose on the Purchaser
with respect to the transactions contemplated hereby and by the
Arrangement; and
(f) if for any reason whatsoever, except by reason of a material breach by
Cinar of its obligations hereunder, the Arrangement cannot be
completed on the basis contemplated by this Agreement, negotiate in
good faith with Cinar to restructure the transactions contemplated by
this Agreement and the Plan of Arrangement on a mutually acceptable
basis and with completion of the Arrangement to occur on or before
March 5, 2004 and, for greater certainty, if the transactions
contemplated by this Agreement and the Plan of Arrangement are so
restructured, Section 7.3(d) shall apply to the restructured
transactions.
5.5 COVENANTS REGARDING NON-SOLICITATION
(a) Subject to Section 5.6, Cinar shall not, directly or indirectly,
through any officer, director, employee, representative or agent of
Cinar or any of the other Cinar Entities, (i) solicit, initiate or
knowingly encourage (including by way of furnishing non-public
information or entering into any form of agreement, arrangement or
understanding) the initiation of any inquiries or proposals regarding
an Acquisition Proposal, (ii) participate in any discussions or
negotiations regarding any Acquisition Proposal, (iii) withdraw or
modify in a manner adverse to the Purchaser the approval of the board
of directors of Cinar of the transactions contemplated hereby, (iv)
approve or recommend any Acquisition Proposal, or (v) enter into any
agreement related to any Acquisition Proposal; provided, however,
that, subject to Section 5.6 but notwithstanding the preceding part of
this section and any other provision of this Agreement, nothing shall
prevent the board of directors of Cinar from (x) complying with
Cinar's disclosure obligations under applicable Law with respect to an
Acquisition Proposal; (y) considering, negotiating or discussing (and
providing non-public information in response to) an unsolicited, BONA
FIDE, written, Acquisition Proposal that the board of directors of
Cinar determines in good faith, after consultation with financial
advisors and outside counsel advising the board of directors of Cinar
that the failure to take such action would be inconsistent with its
fiduciary duties and that such Acquisition Proposal would, if
consummated in accordance with its terms, result in a transaction
which is (A) more favourable to the Cinar Shareholders than the
transaction contemplated by this Agreement, and (B) has a value per
Cinar Share greater than the per share value attributable thereto
under the transactions contemplated by this Agreement (any such
Acquisition Proposal being referred to herein as a "SUPERIOR
PROPOSAL"); or (z) from withdrawing or modifying its recommendation
that Cinar shareholders vote in favour of the Arrangement, if the
Cinar board of directors has so determined that an Acquisition
Proposal is a Superior Proposal.
(b) Cinar represents and warrants that, other than under this Agreement,
there is no current Acquisition Proposal that is a Superior Proposal.
Cinar shall immediately notify the Purchaser, at first orally and then
(if the Purchaser so requests) in writing, of all Acquisition
Proposals, of which Cinar's directors or officers become aware, or any
amendments to the foregoing, or any request for non-public information
relating to any of the Cinar Entities in connection with an
Acquisition Proposal or for access to the properties, books or records
of any of the Cinar Entities by any Person that informs Cinar that
such Person is considering making an Acquisition Proposal. Such notice
shall include, as soon as reasonably practicable after delivery of
such notice, a full description of the material terms and conditions
of any proposal and provide such details of the proposal, inquiry or
contact as the Purchaser may reasonably request including the identity
of the Person making such proposal, inquiry or contact. Such notice
shall include or be subsequently accompanied by as soon as reasonably
practicable after delivery of such notice, INTER ALIA, the written
statement of Cinar's board of directors regarding the value in
financial terms which such board of directors has, in consultation
with its financial advisers, determined should be ascribed to any
non-cash consideration included in the Acquisition Proposal.
(c) If Cinar receives a request for material non-public information from a
Person who has made an unsolicited BONA FIDE written Acquisition
Proposal and Cinar is permitted, subject to and as contemplated under
subsection (a) of this section, to negotiate the terms of such
Acquisition Proposal, then, and only in such case, the board of
directors of Cinar may, subject to the execution by such Person of a
confidentiality agreement (which shall in no respect be more
favourable to such Person than the terms of the Confidentiality
Agreement to the Purchaser), provide such Person with access to
information regarding Cinar and its Subsidiaries; provided, however,
that the Person making the Acquisition Proposal shall not be precluded
under such confidentiality agreement from making an Acquisition
Proposal which is a Superior Proposal and provided further that Cinar
sends a copy of any such confidentiality agreement to the Purchaser
promptly upon its execution and the Purchaser is provided with a list
of or copies of the information provided to such Person and
immediately provided with access to similar information to which such
Person was provided. Cinar agrees not to release any third party from
any existing or future confidentiality or standstill agreement to
which Cinar is a party.
(d) Cinar shall ensure that all officers, directors, employees and agents
of the Cinar Entities and any financial advisors or other advisors or
representatives retained by any of them are aware of the provisions of
this section, and it shall be responsible for any breach of this
section by its financial advisors or other advisors or representatives
or agents.
5.6 NOTICE BY CINAR OF SUPERIOR PROPOSAL DETERMINATION
Cinar shall not accept, approve, recommend or enter into any agreement
relating to an Acquisition Proposal (other than a confidentiality agreement) on
the basis that it would constitute a Superior Proposal unless (i) such
Acquisition Proposal is, in the reasonable opinion of Cinar's board of
directors, fully financed, (ii) such Acquisition Proposal was received by Cinar
prior to the Cinar Meeting, (iii) Cinar has provided the Purchaser with a copy
of the Acquisition Proposal document which the board of directors of Cinar has
determined would be a Superior Proposal (together with evidence that such
Acquisition Proposal is fully financed), and (iii) five Business Days shall have
elapsed from the later of the date the Purchaser receives notice of Cinar's
proposed determination to accept, approve, recommend or enter into any agreement
relating to such Acquisition Proposal, and the date the Purchaser received a
copy of the Acquisition Proposal. For greater certainty, Cinar shall not,
without the Purchaser's approval (not to be unreasonably withheld and delayed),
adjourn or delay the Cinar Meeting; provided that either Cinar or the Purchaser
may require that the Cinar Meeting be adjourned or delayed for up to ten
Business Days in the event that an Acquisition Proposal which could be a
Superior Proposal is publicly announced or submitted to Cinar.
During such five Business Day period, Cinar acknowledges that the Purchaser
shall have the opportunity, but not the obligation, to offer to amend the terms
of this Agreement and the Arrangement. The board of directors of Cinar will
review any offer by the Purchaser to amend the terms of this Agreement in good
faith in order to determine, in its discretion in the exercise of its fiduciary
duties, whether the Purchaser's offer to amend the terms of this Agreement upon
acceptance by Cinar would result in the Acquisition Proposal not being a
Superior Proposal. If the board of directors of Cinar so determines, it will
enter into an amended agreement with the Purchaser reflecting the Purchaser's
amended proposal. If the board of directors of Cinar continues to believe, in
good faith and after consultation with financial advisors and outside counsel,
that the Acquisition Proposal is nonetheless a Superior Proposal and therefore
rejects the Purchaser's amended proposal, Cinar will pay to the Purchaser the
break fee payable to the Purchaser under Section 8.2 as required thereunder, and
Cinar may approve, recommend, accept or enter into an agreement, understanding
or arrangement with respect to the Superior Proposal and Cinar may proceed with
such approvals, consents, filings, of or required by Governmental Entities and
such other Persons as Cinar shall consider appropriate in order to consummate
such Superior Proposal.
Cinar shall promptly reaffirm its recommendation of the Arrangement by
press release: (x) after any Acquisition Proposal (which is determined not to be
a Superior Proposal) is publicly announced or made; (y) after the Purchaser
increases (by written notice to Cinar), within five Business Days after
receiving written notice from Cinar pursuant to this section, the consideration
offered under the Arrangement to match or better the consideration under a
Superior Proposal; or (z) unless doing so would violate the fiduciary duties of
its directors, within three Business Days after receipt by Cinar of a written
request by the Purchaser to do so. Any such press release shall be prepared in
accordance with Section 9.6.
Cinar also acknowledges and agrees that each successive modification of any
Acquisition Proposal shall constitute a new Acquisition Proposal for purposes of
this section.
5.7 ACCESS TO INFORMATION
Subject to the remaining subsections of this section and applicable Laws,
upon reasonable notice, Cinar shall (and shall cause each of the other Cinar
Entities to) afford the Purchaser's officers, employees, counsel, accountants,
financiers (and their counsel) and other authorized representatives and advisors
("REPRESENTATIVES") reasonable access, during normal business hours from the
date hereof and until the earlier of the Effective Date or the termination of
this Agreement, to its properties, books, Contracts and records as well as to
its management personnel, and, during such period, Cinar shall (and shall cause
each of the other Cinar Entities to) furnish promptly to the Purchaser all
information concerning the business, properties and personnel of the Cinar
Entities as the Purchaser may reasonably request to conduct such inspections,
audits, interviews, investigations and other enquiries as the Representatives
may determine reasonably necessary in connection with the transactions
contemplated by this Agreement. The Purchaser acknowledges that certain
information provided to it under this section will be non-public and/or
proprietary in nature and will be subject to the terms of the Confidentiality
Agreement.
5.8 CLOSING MATTERS
Each of the Purchaser and Cinar shall deliver or cause to be delivered at
the closing of the transactions contemplated hereby such customary certificates,
resolutions and other closing documents as may be required by the other party
hereto, acting reasonably.
5.9 INDEMNIFICATION
(a) The Purchaser agrees that all rights to indemnification or exculpation
now existing in favour of present or former directors or officers of
Cinar Entities as provided in their Charter Documents or
indemnification agreements, copies of which have been provided to the
Purchaser prior to the date of the execution of this Agreement, in
effect on the date hereof shall survive the Arrangement and shall
continue in full force and effect for a period of not less than six
years from the Effective Date.
(b) The Purchaser shall cause to be maintained in effect, subject to
availability, for not less than six years from the Effective Date,
coverage equivalent to that in effect under the current policies of
the directors' and officers' liability insurance maintained by Cinar
Entities which, on an aggregate policy basis, is not substantially
less advantageous, with respect to matters occurring prior to the
Effective Time. The Purchaser shall provide timely notice to Cinar
following any determination that coverage as aforesaid will not be
available and in effect at the Effective Time. Cinar and the Purchaser
shall co-operate in obtaining such coverage.
(c) The provisions of this section are intended to be for the benefit of,
and shall be enforceable by, each present or former director or
officer of the Cinar Entities and their respective estates, heirs,
legal representatives and assigns (collectively, the "BENEFICIARIES")
and the Purchaser acknowledges that Cinar accepts the Purchaser's
covenants under this section as trustee for and on behalf of each of
such Beneficiaries.
5.10 ACTIONS TO SATISFY CONDITIONS
Each party agrees to take all such actions as are within its power to
control, and to use its reasonable best efforts to cause other actions to be
taken which are not within its power to control, so as to ensure compliance with
any conditions set forth in Article 6 which are for the benefit of any other
party, provided that in fulfilment of the foregoing covenant, the Purchaser
shall not be required to make any payments (except for filing and other
prescribed fees) or divest or otherwise deal with any assets owned or controlled
by it.
ARTICLE 6
CONDITIONS
6.1 MUTUAL CONDITIONS PRECEDENT
The respective obligations of each party to complete the transactions
contemplated by this Agreement shall be subject to the satisfaction, at or
before the Effective Time, of the following conditions precedent and the parties
shall cause such conditions to be fulfilled insofar as they relate to matters
within their respective control:
(a) INTERIM ORDER - The Interim Order shall have been obtained in form and
substance satisfactory to each of the parties, acting reasonably;
(b) APPROVAL OF ARRANGEMENT RESOLUTION - The Arrangement Resolution shall
have been approved by Cinar Shareholders at the Cinar Meeting in
accordance with the requirements of the Interim Order;
(c) FINAL ORDER - The Final Order shall have been obtained in form and
substance satisfactory to the parties, acting reasonably, and shall
not have been set aside or modified in a manner unacceptable to such
parties on appeal or otherwise;
(d) OTHER GOVERNMENTAL APPROVALS, ETC. - All other consents, orders,
authorizations, approvals and waivers of or from Governmental
Entities, including regulatory and judicial approvals and orders,
required or reasonably considered to be necessary or desirable for the
completion of the transactions contemplated under this Agreement or
under the Plan of Arrangement shall have been obtained or received
from applicable Governmental Entities having jurisdiction in the
circumstances, and all other applicable regulatory requirements and
conditions shall have been complied with;
(e) LEGAL PROHIBITION - There shall not exist any prohibition under
applicable Law against the completion of the Arrangement;
(f) GOVERNMENTAL ORDERS, DECREES, ETC. - There shall not be in force any
order or decree restraining or enjoining the consummation of the
transaction contemplated under this Agreement or under the Plan of
Arrangement and there shall be no proceeding, whether of a judicial or
administrative nature or otherwise brought by a Governmental Entity
that related to or results from the transactions contemplated under
this Agreement that would, if successful, result in an order or ruling
that would preclude completion of the transaction contemplated under
this Agreement or under the Plan of Arrangement in accordance with the
terms and conditions hereof or thereof or would otherwise be
inconsistent with any approvals which have been obtained.
(g) TERMINATION OF CEASE TRADE ORDERS - All existing cease trade orders
made by any court or applicable securities or other regulatory
authorities with respect to the securities of Cinar, to the extent
required to duly permit the completion of the transactions
contemplated by this Agreement, shall have been terminated immediately
prior to the Effective Date; and
(h) TERMINATION - This Agreement shall not have been terminated pursuant
to Article 7.
6.2 ADDITIONAL CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASER
The obligation of the Purchaser to complete the transactions contemplated
by this Agreement is also subject to the satisfaction, on or before the
Effective Time, of the following conditions precedent (each of which is for the
Purchaser's exclusive benefit and may be waived by the Purchaser and any one or
more of which, if not satisfied or waived, will relieve the Purchaser of any
obligation under this Agreement):
(a) ACTS, UNDERTAKINGS, ETC. - Each of the acts, undertakings, covenants,
obligations and agreements of Cinar to be performed at or before the
Effective Time pursuant to the terms of this Agreement or under
agreements contemplated hereby shall have been duly performed by it
and the Purchaser shall have received a certificate of the chief
executive and chief financial officers of Cinar to that effect, dated
as of the Effective Date;
(b) TRUTH AND ACCURACY OF REPRESENTATIONS OF CINAR AT THE EFFECTIVE TIME -
All of the representations and warranties of Cinar made in or under
this Agreement, including the representations and warranties made by
Cinar set forth in Section 3.1, shall be true and correct (for
representations or warranties qualified as to materiality, true and
correct in all respects, and for all other representations and
warranties, true and correct in all material respects) as at the
Effective Time and with the same effect as if made at and as of the
Effective Time (except to the extent such representations and
warranties speak solely of an earlier date, in which event such
representations and warranties shall have been true and correct as of
such earlier date, and except as such representations and warranties
may be affected by the occurrence of events or transactions expressly
contemplated and permitted by this Agreement) and the Purchaser shall
have received a certificate of the chief executive and chief financial
officers of Cinar to that effect, dated as of the Effective Date.
(c) RECEIPT OF ARRANGEMENT DOCUMENTATION, ETC. - All actions and
proceedings taken at or prior to the Effective Time in connection with
the performance by Cinar of its obligations under this Agreement shall
be satisfactory to the Purchaser and Purchaser's Counsel, acting
reasonably, and the Purchaser shall have received copies of all such
documentation or other evidence as it may reasonably request in order
to establish the consummation of the transactions contemplated under
this Agreement and the taking of all corporate proceedings in
connection with those transactions, in form and substance satisfactory
to the Purchaser and Purchaser's Counsel, acting reasonably.
(d) CONSENTS TO ASSIGNMENT - All consents, authorizations, waivers,
orders, licenses and approvals from or notifications to any Persons
required under the terms of any of the Contracts, Leases or licences
with respect to the acquisition of control of Cinar by the Purchaser,
or otherwise required in connection with the consummation of the
transactions contemplated under this Agreement, including consents or
notifications required for change of key personnel or withdrawal of
Mr. Weinberg and Ms. Charest from the activities of Cinar, in form and
substance satisfactory to the Purchaser, shall have been duly obtained
or given, as the case may be, at or before the Effective Time, except
for any the failure to obtain or provide which could not reasonably be
expected to have a Material Adverse Effect on Cinar or the Education
Division Companies; provided that, for greater certainty and without
limitation, the failure to obtain any one or more of the consents set
forth in Section 3.1(e)(iv) of the Cinar Disclosure Letter shall be
deemed to have a Material Adverse Effect on Cinar or the Education
Division Companies.
(e) NO MATERIAL ADVERSE CHANGE - There shall have been no material adverse
change in the business, condition (financial or otherwise), results of
operations, assets, liabilities or prospects of either (i) Cinar on a
consolidated basis or (ii) the Education Division Companies on a
consolidated basis, or a material disruption of or a material adverse
change with respect to Canadian or U.S. financial, banking or the
capital markets generally, which would make it, in the judgment of the
Purchaser, acting reasonably, inadvisable to proceed with or complete
the Arrangement or which could reasonably be expected to prevent,
impair or make impracticable completion of the Arrangement or the
ability of the Purchaser to fund the consideration payable in respect
of the Cinar Shares.
(f) CINAR OPTIONS - All of the Cinar Options shall have been (i) exercised
prior to the Effective Time or (ii) duly cancelled.
(g) CINAR PUS - All of the Cinar PUs shall have been (i) exercised and any
liabilities thereunder satisfied prior to the Effective Time or (ii)
duly cancelled, with such releases or other instruments as the
Purchaser, acting reasonably, may request to confirm that the holders
of such Cinar PU's shall not have any actual or contingent
entitlements to any of the Net Litigation Proceeds (as such term is
defined in Section 2.6) in respect of any such Cinar PUs or any other
entitlements other than to receive, for each Cinar PU, the difference
between the grant price (as described in the Cinar Disclosure Letter)
and an ending value calculated based on a fair market value at the
determination date (as described in the Cinar Disclosure Letter) of
$3.57.
(h) ACTIONS BY DIRECTORS - The board of directors of Cinar shall (i) have
made and shall not have modified or amended in a manner adverse to the
Purchaser, an affirmative recommendation that the Cinar Shareholders
approve the Arrangement and (ii) have adopted all necessary
resolutions, and all other necessary actions shall have been taken by
each of the Cinar Entities, to permit the consummation of the
Arrangement.
(i) DISSENT RIGHTS - The holders of not more than 10% of the Cinar Shares
shall have given notice of their exercise of the Dissent Rights.
(j) THREATENED CIVIL OR CRIMINAL PROCEEDINGS
(i) No proceeding of the type described in Section 6.1(f) shall have
been threatened. Further, no adverse Claim (whether, for greater
certainty, by a Governmental Entity or any other Person or
Persons) shall be commenced or be pending or threatened and no
Law shall have been proposed, enacted, promulgated or applied, in
either case, (A) to cease trade, enjoin, prohibit or impose
material conditions on the Arrangement or the transactions
contemplated therein or herein, (B) to cease trade, enjoin,
prohibit or impose material conditions on the right of the
Purchaser to own or exercise full rights of ownership of the
securities of Cinar upon completion of the Arrangement, (C) to
prohibit or restrict the completion of the Arrangement in
accordance with the terms hereof or otherwise relating to the
Arrangement or (D) which could reasonably be expected to have a
Material Adverse Effect on Cinar or the Education Division
Companies.
(ii) No criminal or quasi-criminal charges (or the equivalent) shall
have been laid, no investigation shall be pending and no
proceedings shall have been commenced or threatened by any
Governmental Entity (including the Canada Customs and Revenue
Agency, any provincial taxing authority, the United States
Internal Revenue Service or any taxing authority in any
jurisdiction, including any sales tax authority) against any
Cinar Entity or any current director, officer or employee of any
Cinar Entity alleging a violation of any Law which may directly
or indirectly relate to or impact upon any Cinar Entity, and no
information shall have become known to the Purchaser relating to
any actual or alleged violation of any Law by any Cinar Entity or
any current or former director, officer or employee of any Cinar
Entity, which would make it, in the judgment of the Purchaser,
acting reasonably, inadvisable to proceed with or complete the
Arrangement.
(k) APPROVALS RELATING TO CONTINGENT PAYMENT ENTITLEMENTS - If contingent
entitlements as contemplated in Section 2.6 are proposed to be issued
as therein provided then all Appropriate Regulatory Approvals
(including approvals or orders of the applicable securities
commissions in each of the provinces of Canada) to the issuance
thereof have been obtained and Cinar shall have provided the Purchaser
with a basis upon which the Purchaser can reasonably believe that all
Appropriate Regulatory Approvals (including approvals or orders of the
applicable securities commission in each of the Provinces of Canada)
so as to ensure that Cinar and any manager or issuer of such
entitlements, as the case may be, ceases to be or is not, as the case
may be, a reporting issuer (or the equivalent) will be obtained within
a customary period following the Effective Date.
(l) NET LITIGATION PROCEEDS - No information, events or circumstances
shall have become known to the Purchaser, occurred or arisen, as
applicable, during the Pre-Effective Date period, as a result of which
the Purchaser determines that Net Litigation Proceeds (as such term is
defined in Section 2.6) could reasonably be expected to be a negative
amount.
(m) FOUNDERS - Neither Ronald Weinberg nor Micheline Charest shall be an
officer, director, employee, partner or limited partner (directly or
indirectly) of any Cinar Entity (other than a wholly inactive
partnership) as at the Effective Date.
The Purchaser may not rely on the failure to satisfy any of the above
conditions precedent as a basis for non-compliance by the Purchaser with its
obligations under this Agreement if the condition precedent would have been
satisfied but for a default by the Purchaser in complying with its obligations
hereunder.
6.3 ADDITIONAL CONDITIONS PRECEDENT TO THE OBLIGATIONS OF CINAR
The obligation of Cinar to complete the transactions contemplated by this
Agreement is also subject to the satisfaction, at or before the Effective Time,
of the following conditions precedent (each of which is for Cinar's exclusive
benefit and may be waived by Cinar and any one or more of which, if not
satisfied or waived, will relieve Cinar of any obligation under this Agreement):
(a) ACTS, UNDERTAKINGS, ETC. - Each of the acts, undertakings, covenants,
obligations and agreements of the Purchaser to be performed at or
before the Effective Time pursuant to the terms of this Agreement or
under agreements contemplated hereby shall have been duly performed by
it and Cinar shall have received a certificate of a senior officer of
the Purchaser to that effect, dated as of the Effective Date.
(b) TRUTH AND ACCURACY OF REPRESENTATIONS OF THE PURCHASER AT EFFECTIVE
TIME - All of the representations and warranties of the Purchaser made
in or under this Agreement, including the representations and
warranties made by the Purchaser and set forth in Section 3.2, shall
be true and correct (for representations or warranties qualified as to
materiality, true and correct in all respects, and for all other
representations and warranties, true and correct in all material
respects) as at the Effective Time and with the same effect as if made
at and as of the Effective Time (except to the extent such
representations and warranties speak solely of an earlier date, in
which event such representations and warranties shall have been true
and correct as of such earlier date, and except as such
representations and warranties may be affected by the occurrence of
events or transactions contemplated and permitted by this Agreement)
and Cinar shall have received a certificate from a senior officer of
the Purchaser to that effect, dated as of the Effective Date.
(c) RECEIPT OF ARRANGEMENT DOCUMENTATION, ETC. - All actions and
proceedings taken at or prior to the Effective Time in connection with
the performance by the Purchaser of its obligations under this
Agreement shall be satisfactory to Cinar and Cinar's Counsel, acting
reasonably, and Cinar shall have received copies of all such
documentation or other evidence as it may reasonably request in order
to establish the consummation of the transactions contemplated under
this Agreement and the taking of all corporate proceedings in
connection with those transactions, in form and substance satisfactory
to Cinar and Cinar's Counsel, acting reasonably.
(d) FINANCING COMPLETED - The Financing Commitments (as defined in Section
3.2(e)) shall have been completed and sufficient funds shall have been
advanced or shall be available to the Purchaser pursuant to the
Financing Commitments, such that at the Effective Time the Purchaser
will have or have immediate access to sufficient funds to take up and
pay for the Cinar Shares at the Effective Time and the Purchaser shall
have provided reasonable evidence thereof to Cinar.
(e) INSURANCE - The directors' and officers' liability insurance (as set
forth in Section 5.9(b)) shall be available in respect of matters
prior to the Effective Time for not less than six years from the
Effective Date and the Purchaser shall have provided reasonable
evidence thereof to Cinar. The coverage shall be equivalent, on an
aggregate policy basis, in all substantive respects to that in effect
under the current insurance policies maintained by Cinar Entities.
Cinar may not rely on the failure to satisfy any of the above conditions
precedent as a basis for non-compliance by Cinar with its obligations under this
Agreement if the condition precedent would have been satisfied but for a default
by Cinar in complying with its obligations hereunder.
6.4 NOTICE AND CURE PROVISIONS
The Purchaser and Cinar will give prompt notice to the other of the
occurrence, or failure to occur, at any time from the date hereof until the
Effective Date, of any event or state of facts which occurrence or failure
would, or would be likely to:
(a) cause any of the representations or warranties of the other contained
herein to be untrue or inaccurate in any material respect on the date
hereof or on the Effective Date; or
(b) result in the failure to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by the other
hereunder at or prior to the Effective Time.
Neither the Purchaser nor Cinar may elect not to complete the
transactions contemplated hereby pursuant to the conditions precedent contained
in Sections 6.1, 6.2 and 6.3, or exercise any termination right arising
therefrom, unless forthwith and in any event prior to the filing of the Articles
of Arrangement for acceptance by the Director, the Purchaser or Cinar, as the
case may be, has delivered a written notice to the other specifying in
reasonable detail all breaches of covenants, representations and warranties or
other matters which the Purchaser or Cinar, as the case may be, is asserting as
the basis for the non-fulfilment of the applicable condition precedent or the
exercise of the termination right, as the case may be. If any such notice is
delivered, provided that the Purchaser or Cinar, as the case may be, is
proceeding diligently to cure such matter, if such matter is capable of being
cured, the other may not terminate this Agreement until the later of March 5,
2004 and the expiration of a period of 30 days from such notice, unless the
breach or matter relates to non-compliance by Cinar of its obligations under
Section 5.5 or 5.6 (in respect of which no cure period shall be available to
Cinar) or Section 5.7 (in respect of which the cure period shall be five
Business Days). If such notice has been delivered prior to the date of the Cinar
Meeting, such meeting shall be postponed until the expiry of such period. If
such notice has been delivered prior to the making of the application for the
Final Order or the filing of the Articles of Arrangement with the Director, such
application and such filing shall be postponed until the expiry of such period.
For greater certainty, in the event that such matter is cured within the time
period referred to herein (in the case of Cinar, provided further that such
matter is so cured without a Material Adverse Effect), this Agreement may not be
terminated as a result of the cured breach.
6.5 SATISFACTION OF CONDITIONS
The conditions set out in this Article shall be conclusively deemed to
have been satisfied, waived or released on the filing with the Director of a
certified copy of the Final Order and of the Articles of Arrangement required to
give effect to the Arrangement under Section 192 of the CBCA.
ARTICLE 7
AMENDMENT AND TERMINATION
7.1 AMENDMENT
This Agreement or the Plan of Arrangement may, at any time and from
time to time before and after the holding of the Cinar Meeting, but not later
than the Effective Time, be amended by mutual written agreement of the parties.
Without limiting the generality of the foregoing, any such amendment may:
(a) change the time for the performance of any of the obligations or acts
of the parties;
(b) waive any inaccuracies or modify any representation or warranty
contained herein or in any document to be delivered pursuant hereto;
(c) waive compliance with or modify any of the covenants contained herein
or waive or modify the performance of any of the obligations of the
parties; and
(d) waive compliance with and modify any conditions precedent herein
contained;
provided that, notwithstanding the foregoing, the terms of this Agreement and
the Plan of Arrangement shall not be amended in a manner materially prejudicial
to the Cinar Shareholders without the approval of the Cinar Shareholders given
in the same manner as required by law for the approval of the Arrangement or as
may be contemplated in the Arrangement Resolution or as may be ordered by the
Court.
7.2 MUTUAL UNDERSTANDING REGARDING AMENDMENTS
The parties agree that if the Purchaser or Cinar, as the case may be,
proposes any amendment or amendments to this Agreement or to the Plan of
Arrangement, the other will act reasonably in considering such amendment and if
the other and its shareholders are not prejudiced by reason of any such
amendment the other will co-operate in a reasonable fashion with the Purchaser
or Cinar, as the case may be, so that such amendment can be effected subject to
applicable Laws and the rights of the shareholders.
7.3 RIGHTS OF TERMINATION
(a) Subject always to Section 6.4 and the final paragraph of Section 6.2,
if any condition contained in Section 6.1 or 6.2 is not satisfied at
or before the Effective Time to the satisfaction of the Purchaser,
then the Purchaser may by notice to Cinar terminate this Agreement and
the obligations of the parties hereunder except as otherwise herein
provided.
(b) Subject always to Section 6.4, if any condition contained in Section
6.1 or 6.3 is not satisfied at or before the Effective Time to the
satisfaction of Cinar, then Cinar may by notice to the Purchaser
terminate this Agreement and the obligations of the parties hereunder
except as otherwise herein provided.
(c) This Agreement may, at any time before or after the holding of the
Cinar Meeting but not later than the Effective Time:
(i) be terminated by the mutual agreement of Cinar and the Purchaser
(without further action on the part of the Cinar Shareholders if
terminated after the holding of the Cinar Meeting);
(ii) be terminated by Cinar by notice to the Purchaser, upon any
determination by Cinar's board of directors that an Acquisition
Proposal constitutes a Superior Proposal, subject to compliance
with Section 5.6 and the payment by Cinar of the moneys payable
to the Purchaser under Section 8.2;
(iii) be terminated by the Purchaser by notice to Cinar upon the
occurrence of any of the events referenced in subparagraph (a) of
Section 8.2;
(iv) be terminated by the Purchaser or by Cinar by notice to the other
upon the failure of the Cinar Shareholders to approve the
Arrangement Resolution at the Cinar Meeting; or
(v) subject to Section 7.2, be terminated by either Cinar or the
Purchaser if there shall be passed any Law that makes
consummation of the transactions contemplated by this Agreement
illegal or otherwise prohibited.
(d) If the Effective Date does not occur on or prior to March 5, 2004 then
this Agreement shall terminate, provided that Cinar and the Purchaser
may mutually agree to extend such date and provided further that, if
the parties hereto would be in a position to complete the Arrangement
on March 5, 2004 except that the condition precedent in Section 6.1(d)
shall not have been fulfilled or waived, the date shall be
automatically extended to up to April 30, 2004.
(e) If this Agreement is terminated in accordance with the foregoing
provisions of this Section, no party shall have any further liability
to perform its obligations hereunder except as otherwise contemplated
hereby, and provided that, neither the termination of this Agreement
nor anything contained in this section, shall relieve any party from
any liability for any wilful and material breach by it of this
Agreement.
ARTICLE 8
FEES, EXPENSES AND OTHER AMOUNTS PAYABLE
8.1 FEES AND EXPENSES
Except as otherwise provided in this Article, each of the Purchaser and
Cinar shall be responsible for and bear all of its own fees, costs and expenses
(including the fees and disbursements of counsel, financial advisors,
accountants, actuaries, consultants and brokers, expenses of its advisors,
agents and other representatives) incurred at any time in connection with
pursuing or consummating this Agreement, the Plan of Arrangement and the
transactions contemplated hereby. The provisions of this section shall survive
the termination of this Agreement.
8.2 BREAK FEE AND EXPENSE REIMBURSEMENT
If:
(a) the board of directors of Cinar shall have withdrawn, modified in a
manner adverse to the Purchaser or failed to reaffirm in the manner
and within the period required by this Agreement the board's approval
or recommendation of the Arrangement (other than as a direct result of
and in direct response to a material breach by the Purchaser of its
obligations hereunder), or approved or recommended any Superior
Proposal, or determined at the conclusion of the process set out in
Sections 5.5 and 5.6 that any Acquisition Proposal is a Superior
Proposal, or resolved to take any of the foregoing actions, or Cinar
proposes to enter into an agreement for, or to accept or to support an
Acquisition Proposal (which shall remain conditional on compliance by
Cinar with its obligations under Sections 5.5 and 5.6), or
(b) an Acquisition Proposal shall have been made to the Cinar Shareholders
or any Person shall have publicly announced an intention to make an
Acquisition Proposal and after such Acquisition Proposal shall have
been made known, made or announced the Cinar Shareholders shall fail
to approve the Arrangement Resolution as required by the Interim Order
and all applicable Laws and any Acquisition Proposal is completed
within six months of the Cinar Meeting,
then Cinar (i) shall pay to the Purchaser $2,875,000 (the "TERMINATION FEE") in
immediately available funds to an account designated by the Purchaser and (ii)
shall reimburse the Purchaser for all out-of pocket costs and expenses incurred
in connection with the transactions contemplated by this Agreement, up to a
maximum of Cdn.$2,500,000 plus, without duplication, all expenses incurred by
the Purchaser with respect to the contingent payment entitlements structure (as
contemplated in Section 2.6). Such payment of the Termination Fee shall be due
at 11:00 a.m. on the first Business Day following the date of the happening of
the relevant event and such expense reimbursement shall be due promptly upon
receipt, but in no event later than two Business Days following receipt, of
supporting documentation therefor, other than with respect to item (a) above in
respect of which it shall be a condition precedent to Cinar entering into any
such agreement or acceptance that the Termination Fee and expense reimbursement
for amounts for which the Purchaser has provided supporting documents therefor
be concurrently paid to the Purchaser (without prejudice to the rights of the
Purchaser to request additional expense reimbursement thereafter, subject to the
maximums hereinbefore provided).
In addition, subject to extension of time periods under Section 7.3(d),
in the event that the Arrangement Resolution is not duly approved by the Cinar
Shareholders at the Cinar Meeting, the Cinar Meeting is not held by March 4,
2004 or the Arrangement is not completed, but assuming that the provisions of
the preceding paragraph are not applicable, Cinar shall reimburse the Purchaser
for all out-of-pocket costs and expenses incurred by it, from and after August
30 in connection with the transactions contemplated by this Agreement, up to a
maximum of Cdn.$1,500,000 plus, without duplication, all expenses incurred by
the Purchaser with respect to the contingent payment entitlements structure (as
contemplated in Section 2.6) in immediately available funds to an account
designated by the Purchaser, such payment to be made at 11:00 a.m. on the first
Business Day following the date of the Cinar Meeting at which the Cinar
Shareholders fail to approve the Arrangement or at 11:00 a.m. on March 4, 2004
if the Cinar Meeting have not been held prior thereto, or March 5, 2004 if the
Arrangement has not been completed by such date, as applicable, for amounts for
which the Purchaser has provided supporting documents therefor and otherwise
promptly upon receipt, but in no event later than two Business Days following
receipt, of supporting documents therefor.
The provisions of this section shall survive termination of this Agreement.
Notwithstanding the foregoing, no payments shall be required of Cinar
under this section if it would have been entitled as at the time the payment
obligation otherwise arises (or at such later date as cure periods contemplate)
to terminate this Agreement as a result of the conditions set out in Section 6.3
(other than Section 6.3(e), in respect of which payment shall be required of
Cinar as otherwise provided in this section) not being satisfied.
8.3 EFFECT OF PAYMENT
For greater certainty, the parties hereto agree that if Cinar pays to
the Purchaser all amounts required by Section 8.2 as a result of the occurrence
of any of the events referenced in such section, including reimbursement to the
Purchaser for all out-of-pocket costs and expenses incurred in connection with
the transactions contemplated by this Agreement as provided in such section, the
Purchaser shall have no other remedy for any breach of this Agreement by Cinar.
ARTICLE 9
GENERAL
9.1 NOTICES
All notices which may or are required to be given pursuant to any
provisions of this Agreement shall be given or made in writing as follows:
(a) in the case of the Purchaser:
4113683 Canada Inc.
16 Wychwood Park
Toronto, Ontario
M6G 2V5
Attention: Michael Hirsh
Facsimile No.: (416) 652-2708
with copies (which shall not constitute notice) to:
Goodman and Carr LLP
200 King Street West
Suite 2300
Toronto, Ontario
M5H 3W5
Attention: Lawrence Chernin
Facsimile No.: (416) 595-0567
- and -
Fasken Martineau DuMoulin LLP
Suite 4200
Toronto Dominion Bank Tower
Toronto Dominion Centre
Toronto, Ontario
M5K 1N6
Attention: J.A. Levin
Facsimile No.: (416) 364-7813
in the case of Cinar:
1055 Rene-Levesque Blvd. East
Montreal, Quebec
H2L 4S5
Attention: Stuart Snyder
Facsimile No.: (514) 843-6773
with a copy (which shall not constitute notice) to:
Heenan Blaikie LLP
Suite 2600, Royal Bank Plaza
200 Bay Street, South Tower
Toronto, Ontario
M5J 2J4
Attention: William K. Orr
Facsimile No.: 416-360-8425
The parties may change their respective addresses for notices by notice given in
the manner set out in this section. Any such notice or other communication shall
be in writing and, unless delivered personally to the addressee, or to a
responsible officer of the addressee, as applicable, shall be given by facsimile
and shall be deemed to have been given when: (i) in the case of a notice
delivered personally to the addressee, or to a responsible officer of the
addressee, as applicable, when so delivered; and (ii) in the case of a notice
delivered or given by facsimile, on the first Business Day following the day on
which it is sent.
9.2 ASSIGNMENT
No party may assign its rights or obligations under this Agreement or
the Arrangement without the prior written consent of the other party.
Notwithstanding the foregoing, Cinar acknowledges and agrees that the
Purchaser may elect to have some or all of the Cinar Shares purchased by an
Affiliate of the Purchaser rather than the Purchaser directly; provided that no
assignment of the Purchaser's purchase rights under this Agreement will relieve
the Purchaser of its payment obligations under this Agreement.
9.3 BINDING EFFECT
This Agreement and the Arrangement shall be binding upon and shall
enure to the benefit of the parties and their respective successors and
permitted assigns.
9.4 WAIVER AND MODIFICATION
Either party hereto may waive or consent to the modification of, in
whole or in part, any inaccuracy of any representation or warranty made to it
hereunder or in any document to be delivered pursuant hereto and may waive or
consent to the modification of any of the covenants herein contained for its
benefit or waive or consent to the modification of any of the obligations of the
other party hereto. Any waiver or consent to the modification of any of the
provisions of this Agreement, to be effective, must be in writing executed by
the party granting such waiver or consent.
9.5 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
9.6 PUBLIC DISCLOSURE
Any public or other announcement with respect to the Arrangement,
except as may be required by applicable Law, will be made only upon the mutual
agreement of Cinar and the Purchaser; provided, however, that in the event of a
request by any regulatory body for disclosure by any party or in the event of a
legal requirement to make disclosure, the party making such disclosure shall
consult with the other party prior to making any statement or press release and
each party shall use all reasonable efforts, acting in good faith, to agree upon
the text for such statement or press release. If a party is subject to a legal
requirement to make disclosure, that party shall have the final determination as
to the timing and content of such disclosure but shall make only such disclosure
as it, acting reasonably, believes to be necessary to comply with the legal
requirement or as is otherwise agreed to by each of the parties. Information
respecting this Agreement, the Arrangement and any of the transactions
contemplated hereby or thereby, including any subsequent negotiations and
procedures relating thereto, shall otherwise be kept in the strictest of
confidence by Cinar and the Purchaser and their respective authorized
representatives.
9.7 TIME OF ESSENCE
Time is of the essence of this Agreement.
9.8 FURTHER ASSURANCES
Each party hereto shall, from time to time, and at all times hereafter,
at the request of the other party hereto, but without further consideration, do
all such further acts and execute and deliver all such further documents and
instruments as shall be reasonably required in order to fully perform and carry
out the terms and intent hereof.
9.9 INVALIDITY OF PROVISIONS
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or equity, or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date hereinbefore written.
4113683 CANADA INC.
By: "LAWRENCE CHERNIN"
----------------------------------
CINAR CORPORATION
By: "STUART C. SNYDER"
----------------------------------
By: "ROBERT DESPRES"
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SCHEDULE 1.1A - APPROPRIATE REGULATORY APPROVALS
1. Lifting of cease trade orders of securities regulatory authorities in
the provinces of Quebec, Ontario, Manitoba, Saskatchewan, Alberta and
British Columbia orders issued in respect of CINAR securities
2. Interim and final orders of Quebec Superior Court approving the
Arrangement pursuant to section 192 of the CANADA BUSINESS
CORPORATIONS ACT
3. Application pursuant to section 50 of the QUEBEC SECURITIES ACT with
required information prescribed by regulation
4. Contingent Cash Entitlements - If applicable, MRRS Decision for
exemption from prospectus and registration requirements of the
provinces of Manitoba, New Brunswick, Nova Scotia, Prince Edward
Island and Newfoundland in respect of the issuance of the CCEs
5. Order of Canadian securities regulatory authorities in jurisdiction in
which CINAR is a reporting issuer deeming CINAR to no longer be a
reporting issuer upon the completion of the Arrangement.
SCHEDULE 2.6
CONTINGENT CASH ENTITLEMENTS
STRUCTURE: o Contingent Cash Entitlements ("CCEs") will be allocated or
managed by the Purchaser, Cinar or other separate entity
owned or controlled by the Purchaser or Cinar (the
"Manager"). The determination as to the appropriate Manager
and structure will be made by the Purchaser and Cinar prior
to mailing of the Proxy Circular after taking into account
tax and liability issues, securities laws and other relevant
considerations.
o It shall be a condition of any structure that appropriate
regulatory approvals (including rulings from applicable
regulators for Cinar to cease being, and to ensure that the
Manager (if other than Cinar) does not become, a reporting
issuer or registrant as a direct or indirect result of the
CCEs) have been obtained.
CCES o One CCE will be created for each outstanding share of Cinar
without distinction as to class and, in addition, one CCE
shall be created for each Underlying Share (as hereinafter
defined) in respect of which it is determined pursuant to
the full and final settlement or final binding (without
right of appeal) adjudicative determination (a "Final
Adjudication") of the Option Proceedings (as hereinafter
defined) the Founders were entitled to exercise options. The
CCEs will be non-transferable except by sole operation of
law or by testamentary will. No certificate or other
evidence of a CCE will be issued other than an appropriate
notation in a register to be maintained by or on behalf of
the Manager. Each CCE will represent an entitlement to be
paid a PRO RATA share of Net Litigation Proceeds (as defined
below).
SPECIFIED
LITIGATION o The litigation which will be the subject matter of the CCEs
will comprise the matters referred to in Schedule "A" (the
"Specified Litigation") and for greater certainty not the
Option Proceedings (as hereinafter defined). The Specified
Litigation will include all claims and counter-claims in
effect at the time of the completion of the arrangement
transaction (and any amendments thereto) together with any
claims and counterclaims relating to the Specified
Litigation that may arise thereafter (and any amendments
thereto). For greater certainty, claims and counterclaims
includes any claim or counterclaim (including any possible
claim or counterclaim and any amendment to a claim or
counterclaim) against a person (including a co-defendant of
Cinar) who reasonably has or would have a right of
contribution or indemnity or similar right, contingent or
otherwise, (a "Third Party Right") as against Cinar or any
of its affiliates (hereinafter collectively referred to as
"Cinar") in respect of such claim or counterclaim.
NET
LITIGATION
PROCEEDS o "Net Litigation Proceeds" means the amount received by Cinar
in the Specified Litigation, including on account of the
settlement of any Specified Litigation, (after deducting
Taxes, if any, deemed payable thereon by Cinar as
hereinafter provided) less the aggregate of: (i) any amounts
paid or payable by Cinar in or in relation to the Specified
Litigation (including any amounts paid or payable by Cinar
on account of the settlement of any Specified Litigation or
to a person in respect of a Third Party Right); (ii) any
amount in excess of $1,199,082 required to be paid to the
Founders pursuant to the Final Adjudication of the Option
Proceedings (as hereinafter defined) (the "Excess Amount");
(iii) all litigation, settlement and other out-of-pocket
expenses relating to the Specified Litigation and the Option
Proceedings unpaid as of August 29, 2003 or arising
thereafter, including all expenses incurred to determine Net
Litigation Proceeds, all expenses (including professional
fees) incurred by the Purchaser and Cinar with respect to
the CCEs, all expenses of the Litigation Committee including
fees or other compensation payable to members of the
Committee, fees and costs of any person retained by the
Committee or a Cinar Entity including lawyers and
accountants, etc., and any interest or other payments
referred to under "FUNDING OF LITIGATION"; and (iv) any
expenses incurred by Cinar prior to the distribution of the
Net Litigation Proceeds in connection with any actual or
alleged violation by Cinar or any of its current or former
directors, officers or employees of any Law, including all
expenses (including professional fees) incurred in
connection with any investigation by any Governmental Entity
(including the Canada Customs and Revenue Agency, any
provincial taxing authority, the United States Internal
Revenue Service, or any taxing authority in any
jurisdiction, including any sales tax authority) of any such
actual or alleged violation of Law or defending any charges
(or the equivalent) laid or threatened in connection with
any such actual or alleged violation of any Law, and any
fines, penalties or other amounts which Cinar agrees or is
required to pay as a result of any such actual or alleged
violation of any Law (the amounts referred to in (iii) and
(iv) are referred to collectively as the "Expenses"). The
amounts mentioned in (i), (ii), (iii) and (iv) shall be
reduced by the Tax benefits, if any, deemed available to
Cinar (as hereinafter provided) as a result of making such
payments. For greater certainty, holders of CCEs shall have
no liability in the event the Net Litigation Proceeds are
negative.
o For the purposes hereof, "Taxes" means the income tax that
would be payable by Cinar on the Taxable portion (determined
as described below) of the amount received by it, assuming:
(i) a combined federal-provincial tax rate of 36.62% (or if
the amount is taxable in a taxation year ending after 2003,
provided the general Ontario tax rate is 11% or lower for
that taxation year, a rate of 33.02%); and (ii) that Cinar
has no tax losses, credits or deductions available to it to
reduce Taxes.
o For the purposes hereof, "Tax benefits" means the income tax
savings that would be available to Cinar on the Deductible
portion (determined as described below) of a payment or the
Deductible portion of Expenses related to or in connection
with a settlement or litigation or actual or alleged
violation of Law, as the case may be, assuming a combined
federal-provincial tax rate of 36.62% (or if the amount is
deductible in a taxation year ending after 2003, provided
the general Ontario tax rate is 11% or lower for that
taxation year, a rate of 33.02%).
o The "Taxable portion" of an amount received by Cinar and the
"Deductible portion" of a payment made by Cinar and the
"Deductible portion of Expenses" related to any amount so
received or paid, shall be determined by the Litigation
Committee in the following manner. Once a Specified
Litigation or the Option Proceedings have been subject to
Final Adjudication, or, in the case of Expenses referred to
in subparagraph (iv) under "Net Litigation Proceeds" above,
prior to the distribution of Net Litigation Proceeds, the
Litigation Committee shall, in consultation with its tax
advisors, determine the Taxable portion or Deductible
portion and Deductible portion of Expenses that is the
subject matter of and/or related to such Final Adjudication
or actual or alleged violation of Law, as the case may be.
In making such determination, the Litigation Committee will
take into account any limitations or restrictions on
effective deductibility as a result of the Purchaser
acquiring control of Cinar. Such determination of the
Litigation Committee to be effective must be approved by the
Cinar representative and the Manager's representative. If
such approval is not obtained, any one or more members of
the Litigation Committee shall be authorized to instruct the
tax advisors to the Litigation Committee (such tax advisors
to be agreed upon the Cinar representative and the Manager's
representative) to contact Canada Customs and Revenue Agency
(the "CCRA") and to provide the CCRA with details of the
nature and quantum of the Final Adjudication and, if
appropriate, the Expenses incurred in connection therewith
or with the actual or alleged violation of Law, as the case
may be, with a view to obtaining a ruling, interpretation or
other comfort from the CCRA as to the Taxable portion,
Deductible portion and/or the Deductible portion of Expenses
of or related to the Final Adjudication or Expense, as the
case may be. The determination of the level and/or type of
comfort to be sought from the CCRA shall be determined by
the Litigation Committee (by majority approval, provided
that the representative of the Manager is included in the
majority). Further, the Litigation Committee may, by
majority vote (provided that the Manager's representative is
included in the majority) also determine to conduct
proceedings objecting to or appealing any determination by
the CCRA with respect to any of the foregoing matters.
o Notwithstanding the foregoing, if the Taxable portion or
Deductible portion of an amount or the Deductible portion of
Expenses, as the case may be, has not been determined in
accordance with the preceding paragraph by the earlier of
(a) the expiry of the Term (as defined below and as same may
be extended) or (b) within six months after all of the
Specified Litigation and the Option Proceedings have been
subject to Final Adjudication, including Cinar being
released from all Third Party Rights, then any amount which
has not already been determined in accordance with the
preceding paragraph not to constitute a Taxable portion or
Deductible portion of an amount or Deductible portion of
Expenses, as the case may be, shall be deemed to constitute
a Taxable portion of an amount received by Cinar or not to
be a Deductible portion of a payment made by Cinar or not to
be a Deductible portion of Expenses, as the case may be.
DISTRIBUTION
OF NET
LITIGATION
PROCEEDS o The Net Litigation Proceeds will only be distributed after
(i) all of the Specified Litigation has been subject to
Final Adjudication, (ii) the Final Adjudication of the
Specified Litigation resulted in each of the Cinar Entities
and their respective officers, directors and employees
(including, for greater certainty, former officers,
directors and employees) having been fully and irrevocably
released, (iii) any co-defendant of a Cinar Entity in any
such matter shall be released from any liability in respect
of such Specified Litigation or shall have released the
Cinar Entities and their respective officers, directors and
employees (including, for greater certainty, former
officers, directors and employees) from any claim of
contribution or indemnity such Person may have as against
the Cinar Entities and their respective officers, directors
and employees (including, for greater certainty, former
officers, directors and employees), (iv) the Cinar Entities
and their respective officers, directors and employees
(including, for greater certainty, former officers,
directors and employees) shall have been fully released from
any obligations to indemnify or make contributions to any
Person in connection with or related to Specified Litigation
or any Third Party Rights (as hereinafter defined) and the
Cinar Entities and their respective officers, directors and
employees (including, for greater certainty, former
officers, directors and employees) shall have been fully
released from any liability in connection with or related to
any Specified Litigation in which they are not directly
named as defendants, (v) the Net Litigation Proceeds have
been finally determined (subject to a Holdback if any, as
hereinafter referred to), and (vi) the Final Adjudication as
to whether or not the Founders were entitled to exercise
840,000 options (the "Option Proceedings"). If not all of
the Specified Litigation has been subject to Final
Adjudication and/or there remains outstanding any Third
Party Rights for which Cinar may be liable, Cinar may, in
its discretion, distribute the Net Litigation Proceeds
subject to a holdback (the "Holdback") of such amount as it
determines in its sole discretion advisable. The Holdback
(together with any interest earned thereon) will be utilized
to satisfy any remaining Specified Litigation and/or Third
Party Rights and all expenses incurred by Cinar in respect
thereof together with such other expenses and payments of
the type referenced to below under ESCROW OF NET LITIGATION
PROCEEDS with the balance if any to be distributed to the
holders of CCEs (net of taxes on interest deemed to be
earned on the Holdback in the same manner as described below
under ESCROW OF NET LITIGATION PROCEEDS) at such time as
Cinar determines, acting reasonably, that it no longer has
any liability for Specified Litigation, Third Party Rights
and/or any expenses relating thereto including any Expenses.
o Any of the $1,199,082 (the "Escrow Amount") deposited in
escrow on the closing of the arrangement transaction in the
event that the Option Proceedings have not been subject to
Final Adjudication at least five business days prior to the
special meeting of the Shareholders of Cinar to be held to
consider and, if deemed advisable approve the arrangement
transaction (the "Settlement Deadline") which remains after
the payment, if any, required to be made to the Founders
pursuant to the Final Adjudication of the Option Proceedings
shall be distributed to the holders of CCEs together with
the distribution of the Net Litigation Proceeds. For greater
certainty, in the event that the Option Proceedings have
been subject to Final Adjudication prior to the Settlement
Deadline, there shall be no amount deposited in escrow in
respect thereof and the amount which would otherwise have
been deposited in escrow shall be used to make the payment,
if any, required to be made to the Founders pursuant to the
Final Adjudication of the Option Proceedings, with the
balance, if any, to be dealt with in accordance with Section
2.3(a) of the Arrangement Agreement.
o 70% of the Net Litigation Proceeds will be paid to the
holders of CCEs and the balance retained by the Manager.
o The determination of Net Litigation Proceeds will be
calculated by Cinar and delivered to the Litigation
Committee prior to any distribution. If any two members of
the Litigation Committee object to the calculation of Net
Litigation Proceeds then the calculation will be made by
Cinar's auditors (or such other accounting firm selected
jointly by the Manager's representative and Cinar's
representative) whose determination will be final and
binding.
ESCROW OF NET
LITIGATION
PROCEEDS o Until distributed, all Net Litigation Proceeds will be
deposited in escrow into a separate escrow bank account
maintained by the Manager (the "Litigation Account") and
will not be commingled with its other funds. Such proceeds
will be invested in commercial paper or other money market
instruments (and interest earned net of tax payable thereon
by Cinar at an assumed tax rate of 40.37% will form part of
Net Litigation Proceeds). Proceeds so deposited together
with interest thereon will however be utilized to fund
expenses (including Expenses) and payments in respect of the
matters herein contemplated, including (a) any Expenses, (b)
payments made to settle Specified Litigation or satisfy any
judgments in respect thereof (and including any amounts paid
or payable by Cinar to a person in respect of a Third Party
Right), (c) any payment on account of the Excess Amount, and
(d) payment of any principal or interest outstanding on any
loans provided by Cinar to fund litigation as described
below under FUNDING OF LITIGATION.
FUNDING OF
LITIGATION o Expenses and other payments including payments for
settlement or judgments rendered against a Cinar Entity
relating to the Specified Litigation or in respect of Third
Party Rights and the Excess Amount are to be funded from
monies deposited in the Litigation Account. To the extent
that there are insufficient monies in the Litigation
Account, Cinar will provide up to $5,000,000 (Cdn.) and no
more (on a revolving basis) to fund such Expenses and
payments. Any amounts so provided by Cinar are to be repaid
to Cinar out of proceeds deposited in the Litigation Account
together with interest thereon at prime plus 5%.
LITIGATION
COMMITTEE o A Litigation Committee of three persons will be established
with one member to be appointed by the Manager, one member
appointed by the current directors of Cinar and a third
member (the "Independent") appointed by the other two
members.
o Unanimous approval of the Litigation Committee (other than
the Independent) will be required to approve any settlement,
provided that Cinar may, without the approval of the
Litigation Committee, settle or abandon any of the Specified
Litigation so as to comply with applicable laws and in
accordance with a procedure to be agreed upon between Cinar
and the Purchaser prior to the mailing to the shareholders
of Cinar of the management proxy circular of Cinar in
connection with the arrangement transaction;
o The Manager's representative may at any time following the
second anniversary of the closing of the arrangement
transaction require that Cinar submit any one or more of the
Specified Litigation to a binding arbitration process.
o Appropriate procedures to be put in place to deal with a
resignation of one or more members of the Litigation
Committee; and
o All expenses of the Litigation Committee will be reimbursed
out of Net Litigation Proceeds, including any compensation
payable to members of the Litigation Committee.
TERM The CCEs shall have a term ending on the earlier of (i) the
date that the last distribution of Net Litigation Proceeds
occurs, and (ii) three years from the date of the first issuance
of CCEs (the "Term"). Upon the expiry of the Term, Cinar will
distribute the amount then remaining in the Litigation Account
subject to a reserve determined by Cinar to pay for any payments
and Expenses including anticipated Expenses and payments in
respect of any remaining Specified Litigation or Third Party
Rights. The reserve may equal the amount then standing to the
credit of the Litigation Account in which event no distribution
will be made. If, at the end of the Term, not all of the
Specified Litigation together with the Option Proceedings shall
have been subject to Final Adjudication and/or there remains
outstanding any Third Party Rights for which Cinar may be liable,
Cinar shall, at the option of the nominee of the Manager on the
Litigation Committee or the nominee of the current directors of
Cinar on the Litigation Committee, make such applications or
submissions to applicable securities regulatory or other agencies
for the purpose of seeking an extension to the Term for up to an
additional two years, provided that such extension does not
necessitate registration of the CCEs under applicable securities
legislation or result in Cinar or the Manager becoming a
reporting issuer under such legislation.
REPORTS The Manager will furnish a report to the holders of CCEs (i)
annually, which report will provide a summary of any material
developments relating to the Specified Litigation together with
an unaudited cash receipt and disbursement statement relating to
the Specified Litigation, and (ii) in the event that, in the
opinion of the Manager, a material event relating to the
Specified Litigation has occurred.
SCHEDULE "A"
SPECIFIED LITIGATION
o An action instituted on August 8, 2000 by the two principals of
BRB International, S.A. ("BRB") against Cinar, certain of its
former officers and various other named defendants in the
Superior Court of Quebec (Judicial District of Montreal) Court
File No. 500-05-059449-007. BRB claims breach of contract,
alleging that Cinar failed to complete an agreement to purchase
100% of the shares of BRB and its affiliates.
o An action instituted by Cinar Corporation and affiliated
companies (collectively, "Cinar") against Ronald A. Weinberg,
Micheline Charest and their holding companies 153114 Canada Inc.,
2950995 Canada Inc., 3238369 Canada Inc. and McRaw Holdings Inc.
(collectively, the "Weinberg Defendants") and Hasanain Panju, in
the Superior Court of Montreal ("SMC") Court File No.
500-05-062790-017, and a Cross Demand filed therein against Cinar
by the Weinberg Defendants and any further claims, counter-claims
or recursory claims arising out of or in relation to the facts
alleged in such proceedings by any party including, without
limitation, any eventual recursory claims of any party to such
proceedings against Globe-X Management Limited, Globe-X Canadiana
Limited, Silicon Isle Limited, Norshield International Limited,
Comprehensive Investor Services Limited, or any of their
directors, officers or shareholders, or any of their affiliated
companies and any of their directors , officers or shareholders
(the "Cinar Action").
o An action instituted by 153114 Canada Inc., 2950995 Canada Inc.
and 3238369 Canada Inc., holding companies of Ronald A. Weinberg
and/or Micheline Charest, against Hasanain Panju in the Superior
Court, Court File No: 500-05-065669-010.
o An action instituted by Ronald A. Weinberg, Micheline Charest and
their holding companies 153114 Canada Inc., 2950995 Canada Inc.
and 3238369 Canada Inc. as Plaintiffs against Hasanain and
Sukaina Panju before the Superior Court of Justice of Ontario,
Court File No. 64106/02.
o An action by Claude Robinson and Les Productions Nilem Inc. as
Plaintiffs against Cinar Corporation, Les Films Cinar Inc.,
Ronald Weinberg, Micheline Charest and ten others as Defendants
in the Superior Court of Quebec (District of Montreal), Court
File No. 500-05-021498-967.
o An action instituted by 2950995 Canada Inc. and 3238369 Canada
Inc., holding companies of Micheline Charest and Ronald A.
Weinberg respectively, against Mount Real Corporation, Mount Real
Services Inc., Mount Real Financial Management Services
Corporation, Mount Real Acceptance Corporation and Gold Triangle
Technologies Ltd., in the Quebec Superior Court, Court File No.
500-05-073956-029.
o An Amended Motion for Declaratory Judgement or to Dismiss a
Trustee, Motion for Damages and Motion for Interlocutory and
Final Injunction by Micheline Charest, Ronald A. Weinberg, 153114
Canada Inc. and 2950995 Canada Inc. against Robert Despres in the
Superior Court of Quebec, SCM, Court File No. 500-17-016856-034.
o An action instituted by Ronald A. Weinberg, Micheline Charest and
their holding companies 153114 Canada Inc., 2950995 Canada Inc.,
3238369 Canada Inc., McRaw Holdings Inc., 3359174 Canada Inc. and
336953 Canada Inc. against Ernst & Young LLP Court File No.
500-05-074589-27 claiming damages in the amount of
Cdn$194,087,927.13 and an indemnity up to the amount of
Cdn$28,620,469.00 that certain of the Plaintiffs, who are also
defendants in the action SCM Court File No. 500-05-074589-027,
may be condemned to pay as a result of the action instituted by
Cinar Corporation and affiliated companies.
o An action instituted by Globe-X Management Ltd., Globe-X
Canadiana Ltd., Silicon Isle Ltd. and Lowell Holden against Cinar
Corporation, Ronald A. Weinberg, Barrie Usher, Lawrence P. Yelin
and John Does I-XX before the United States District Court for
the Eastern District of Pennsylvania, Court File No. 03-1831.
o Any and all claims, present or future, of Cinar against, and any
and all amounts payable to Cinar by (i) Globe-X Management, Ltd.,
Globe-X Canadiana, Ltd. and Silicon Isle Ltd., (collectively,
"Globe-X") and their related companies, directors, officers and
shareholders, including, without limitation, Lowell Holden and
Lynwood Bell; and/or (ii) Norshield International Limited, CIS,
Comprehensive Investor Services Ltd., and/or any of their related
companies, directors, officers and shareholders, including,
without limitation, John Xanthoudakis, Tom Muir and Robert
Daviault, including;
(a) An action instituted by Cinar Corporation against Norshield
International Limited, Globe-X Management, Ltd., Globe-X
Canadiana, Ltd. and Robert Daviault, in 2000 in the Supreme
Court of Bahamas, Court File No. 300 of 2000;
(b) A petition instituted by Cinar in the Supreme Court of the
Bahamas for the winding-up of Globe-X Management, Ltd., and
Globe-X Canadiana, Ltd., Court File Nos. 1502 and 1503 of
2002;
(c) An action instituted by Cinar Corporation against Globe-X
Management, Ltd., and Globe-X Canadiana, Ltd. (collectively,
"Globe-X") in the High Court of Justice of Anguilla, Claim
0055 of 2002, requesting either the recognition of an order
of the Supreme Court of the Bahamas for the winding-up of
Globe-X or, in the alternative, a fresh winding-up order and
the counterclaim filed therein by Globe-X for damages
aggregating approximately $66million;
(d) Any and all future claims between the same parties related
to, or arising from, the facts alleged in the proceedings
listed (a) through (c);
(e) All amounts payable to Cinar in the liquidation of Globe-X;
and
(f) An action instituted by Cinar Corporation against John
Xanthoudakis and Tom Muir before the Quebec Superior Court,
Court File No. 500-05-075777-027.
o An action by Patrick Granleese, Rick Jones, Thomas LaPierre,
Joseph Mallozzi, Paul Mullie, Anne-Marie Perrotta, Bruce Robb and
Tean Schultz as Plaintiffs against Cinar Corporation, Cinar
Productions Inc., Clever Curls Productions Inc., Mousecapades
Productions Inc., Helene Charest and McRaw Holdings Inc. as
Defendants and the Societe des auteurs et compositeurs
dramatiques (SACD) as Intervenor ("Mise-en-cause") in the file of
the Superior Court of Quebec (District of Montreal) bearing the
number 500-17-017117-030 (formerly 500-22-081448-030).
o An action instituted by Louis Fournier against Cinar Corporation
in the file of the Superior Court of Quebec, Court File No.
500-05-058100-007. Louis Fournier and Cinar have agreed to a
mutual and complete release with respect to all the facts alleged
in such action in return for the payment by Cinar to Louis
Fournier of an amount of Cdn$925,000, namely Cdn$308,333 on
November 1, 2003 and Cdn$616,667 on January 1, 2004. If such
amounts are not paid on their due dates, interest at annual rate
of 10%, compounded monthly, will accrue. The settlement documents
have yet to be executed
For greater certainty, Specified Litigation shall be deemed to include any
further claims, counter-claims, joinder of parties, warranty claims and
recursory claims arising out or related to the facts alleged in the foregoing
proceedings by any party.
CINAR Disclosure Letter-Schedule 3.1(a)-CINAR Entities
CINAR GROUP OF COMPANIES-CORPORATE CHART (LIMITED)
Seaways LLC
Twin Sisters
Productions, Inc.
MERGED with
Carson-Dellosa
Publishing
Company, Inc. CINAR
April 30, 2003 *CINAR EDUCATION, INC.(Delaware) CORPORATION
- ---------------- ----------------------------------------------------------------- ---------------------------------------------
*Carson-Dellosa *High Reach Learning, Inc. *Unique Collating *CINAR Music *CINAR Animation *CINAR
Publishing Company, (North Carolina) Service, Inc. Inc. Inc. PRODUCTIONS Inc.
Inc. (North Carolina)
Hata Farm
Productions Inc.
"Rinko: The
Best Bad Thing
Lassie
Productions Inc.
"Lassie"
Mousecapades
Productions Inc.
"CC Mouse"II
Mysterious
Productions Inc.
"Ripley's Cycles
I & II
Pond Life
Productions Inc.
"MumbleBumble
I & II
Lassie II
Productions Inc.
"Lassie II"
Clever Curis
Productions Inc.
"Little Lulu IV"
Pigtail II
Productions Inc.
"Emily II"
Seeker
Productions Inc.
"Kids Discover
the World"
Dust Cloud
Productions Inc
"Revenge of the
Land"
Make a Wish
Productions Inc.
"Velveteen Rabitt"
aka "The
Forgotten Attic"
Scarry
Productions Inc.
Formerly Snuggle
Bubble
Productions Inc.
Pigtail III
Productions Inc.
"Emily III"
Wombles
Productions Inc.
"The Wombles"
Cycles I, II
& III
Southern Cross
Productions Inc.
"Sally Marshall
is not an Alien"
Horm Rims
Productions Inc.
"Arthur IV"
32-Miles
Productions Inc.
"Heart: The
Marilyn Bell
Story"
Four Me
Productions Inc.
"Caillou" Cycles
II & III
Fancy Cape
Productions Inc.
"Mona the Vampire"
Cycles I, II
& III
Pet Squad
Productions Inc.
"Patrouille 03"
Noctambules
Productions Inc.
"Babalous II"
Pigtail IV
Productions Inc.
"Emily IV"
Campfire VI
Productions Inc.
"Are You Afraid
of the Dark?"
Cycles VI & VII
The Land of Chalk
Drawings
Productions Inc.
"Simon in the
Land of Chalk
Drawings"
Potatoes and
Dragons
Productions Inc.
"Potatoes and
Dragons"
Cycles I & II
Horn Rims IX
Productions Inc.
"Arthur" Cycle IX
Fancy Cape IV
Productions Inc.
Mona the Vampire"
Cycle IV
Creepschool
Productions Inc.
"Creepschool"
Caillou Special 1
Productions Inc.
"Caillou's Holiday
Movie"
Campfire Productions Inc. "AYAD - I-V" Bussy Bear Productions Inc. "Paddigton"
Quint films Productions Inc. "Million Dollar Babies" Caillou Productions Inc. "Caillou"
School Daze Productions Inc. "Chris Cross I & II" Funnyzoo Productions Inc. "Animal Crackers"
WOUND UP into CINAR Procuctions Inc. Pigtail Productions Inc. "Emily"
November 29, 1996 then Tumulte Productions Inc. "Un Hiver de Tourmente"
DISSOSLVED-November 30, 1996 Wimzie Productions Inc. "Wimzie"
AMALGAMETED into Busy Bear Productions Inc.
Queeg Productions Inc. "Dr. Xargle" and Sleep Room November 26, 1998-Busy Bear Prod. Inc.
Productions Inc. "Sleep Room' amalgamated int WOUND UP into CINAR Productions Inc.
Sleep Room Productions Inc. November 26, 1999 November 27, 1998
Shining Sword Productions Inc. "Ivanhoe II", Sleep Busy Bear Productions Inc.
Room Productions Inc. and Space Cases Productions DISSOLVED - February 10, 1999
Inc. "Space Cases"
WOUND UP into CINAR Productions Inc. Animal Junction Productions Inc. "Zoboomafoo"
November 29 1999 Bed & Breakfast Productions Inc. "Shelby Woo"
Lovebirds Productions Inc. "Who Gets the House?"
Oceanview Films Company Pete'n'Jake Productions Inc. "Both Sides of the Law"
Waterways LP Quill Pen Productions Inc. "Ghosts of Dickens Past"
WOUND UP into CINAR Corporation Test Tube Productions Inc. "Sci-Squad"
June 26, 2002 WOUND UP into CINAR Productions Inc.
CINAR Films (US) Inc. December 1, 2002
CINAR Public Television Group
DISSOLVED - September 30, 2002 IN LIQUIDATION
CINAR Computers Inc. CINAR Europe Ltd. (Ireland)
CINAR Media Inc. CINAR Europe Ltd. (UK)
WOUND UP into CINAR Corporation FilmFair Limited (UK)
November 29, 2002
CINAR Studios Inc. INACTIVE
WOUND UP into CINAR Animation Inc. CINAR Inca S.A. de C.V. (Mexico)
November 29, 2002 CINAR Multimedia Education Limited (Israel)
Flying Fish Films Inc. Fandango Studios S.A. de C.V. (Mexico)
DISSOLVED - November 29, 2002 Les Systemes Informatises Logidoc Inc.
3416020 Canada Inc.
WOUND UP into CINAR Corporation - June 26, 2002
3416020 Canada Inc. DISSOLVED - March 26, 2003
All companies, unless otherwise noted, are Canadian corporations/All
corporations, unless otherwise noted, are wholly owned by the indicated company
* denotes Material Subsidiaries
CINAR
CORPORATION
TELETOON Canada Inc. 3417174 Canada Inc. Lightspan, Inc.
(20%) ownership (Canada) (Delaware)
(Canada) 208,333 Common Shares
All companies, unless otherwise noted, are Canadian corporations /
All corporations, unless otherwise noted, are wholly owned by the indicated
company
APPENDIX B-I
APPLICATION FOR INTERIM AND FINAL ORDERS
AND NOTICE OF PRESENTATION OF THE FINAL ORDER
CANADA SUPERIOR COURT
(Commercial Division)
PROVINCE OF QUEBEC --------------------------------------------
DISTRICT OF MONTREAL
N(DEGREE): CINAR CORPORATION, a corporation having
its head office at 1055 Rene-Levesque Blvd.
East, Suite 900, in the city and district of
Montreal, Quebec, H2L 4S5
Petitioner
- and -
SHAREHOLDERS OF
CINAR CORPORATION
and
4113683 CANADA INC., a corporation having
its head office at 200 King Street West,
Suite 2300, Toronto, Ontario, M5H 3W5
and
3918203 CANADA INC., a corporation having
its head office at 66 Wellington Street
West, Suite 4200,
Toronto, Ontario, M5K 1N6
Mis-en-cause
---------------------------------------------
-----------------------------------------------------------------------------
APPLICATION FOR INTERIM AND FINAL ORDERS
RESPECTING AN ARRANGEMENT INVOLVING
CINAR CORPORATION, 4113683 CANADA INC. AND 3918203 CANADA INC.
(Arts. 20, 46 and 110 C.C.P. and
s. 192 CANADA BUSINESS CORPORATIONS ACT, R.S.C., 1985, c. C-44)
-----------------------------------------------------------------------------
TO ONE OF THE HONOURABLE JUDGES OF THE SUPERIOR COURT OF QUEBEC, SITTING IN
THE COMMERCIAL DIVISION IN AND FOR THE DISTRICT OF MONTREAL, PETITIONER CINAR
CORPORATION RESPECTFULLY SUBMITS THE FOLLOWING:
A. INTRODUCTION
1. Petitioner CINAR Corporation is a corporation incorporated pursuant to the
CANADA BUSINESS CORPORATIONS ACT, R.S.C. 1985, c. C-44 (the "CBCA") and a
reporting issuer within the meaning of the SECURITIES ACT (Quebec), R.S.Q.,
c. V-1.1, as well as in each of the other Provinces of Canada where such
concept exists;
2. Petitioner is an integrated entertainment and education company that
develops, produces, markets and distributes high-quality, non-violent
programming and supplemental education products for children, families and
educators worldwide;
3. As of December 12, 2003, the outstanding shares of Petitioner (the "CINAR
SHARES") were:
a) 5,233,402 Variable Multiple Voting Shares (the "MULTIPLE VOTING
SHARES"); and
b) 34,735,998 Limited Voting Shares (the "LIMITED VOTING SHARES");
4. Petitioner and Mise-en-cause 4113683 Canada Inc. ("NEWCO"), a corporation
wholly-owned by Mise-en-cause 3918203 Canada Inc. ("NEWCANCO"), have
entered into an arrangement agreement on October 30, 2003 (the "ARRANGEMENT
AGREEMENT"), pursuant to whch Newco will acquire all CINAR Shares, and
immediately thereafter Newco and Petitioner will amalgamate and continue as
one corporation. A copy of the Arrangement Agreement is annexed as Appendix
A to the draft Management Proxy Circular (the "MANAGEMENT PROXY CIRCULAR")
filed in support hereof as EXHIBIT R-1;
5. It is proposed that these transactions will be carried out by way of an
arrangement pursuant to section 192 CBCA (the "ARRANGEMENT"). The
Arrangement is further described in the Plan of Arrangement (the "PLAN OF
ARRANGEMENT") annexed as Appendix C to the Management Proxy Circular,
Exhibit R-1;
6. As will be more fully demonstrated hereinafter, it is impracticable for
Petitioner to effect the result contemplated by the Arrangement under any
provision of the CBCA other than section 192, and the proposed Arrangement
is fair and reasonable to Petitioner's shareholders (the "CINAR
SHAREHOLDERS");
7. The purpose of the present Application, made pursuant to the provisions of
section 192 CBCA, is twofold:
a) at the interim stage, to obtain an order that a meeting of CINAR
Shareholders be summoned to approve the Arrangement, as well as orders
relating to procedural matters (collectively, the "INTERIM ORDER");
and
b) at the final stage, if the Arrangement is duly approved by CINAR
Shareholders at this shareholders' meeting, to obtain a judgment
sanctioning the Arrangement (the "FINAL ORDER");
8. In support of the present Application, Petitioner submits the following
documents, all in draft form:
a) the Management Proxy Circular, together with its appendices, a copy of
which is filed in support hereof as EXHIBIT R-1;
b) a letter to CINAR Shareholders from the Chairman of the Board of
Directors of Petitioner (the "LETTER TO SHAREHOLDERS"), a copy of
which is filed in support hereof as EXHIBIT R-2;
c) a Notice of Special Meeting of Shareholders (the "NOTICE OF MEETING"),
a copy of which is filed in support hereof as EXHIBIT R-3;
d) forms of proxy (the "FORMS OF PROXY"), copies of which are filed EN
LIASSE in support hereof as EXHIBIT R-4;
e) a Letter of Transmittal (the "LETTER OF TRANSMITTAL"), a copy of which
is filed in support hereof as EXHIBIT R-5;
f) a Letter of Authorization (the "LETTER OF AUTHORIZATION"), a copy of
which is filed in support hereof as EXHIBIT R-6;
g) a Notice of Presentation of the Final Order (the "NOTICE OF
PRESENTATION OF THE FINAL ORDER"), a copy of which is filed in support
hereof as EXHIBIT R-7;
B. CONTEXT OF THE ARRANGEMENT
9. Over the past few years, Petitioner has been subject to a number of
extraordinary developments that have had a significant adverse impact on
Petitioner's financial performance and operations;
10. In March 2000, in relation with certain of these developments, trading in
the CINAR Shares was halted on both the NASDAQ National Market and the
Toronto Stock Exchange;
11. In April 2000, a cease trade order was issued by the COMMISSION DES VALEURS
MOBILIERES DU QUEBEC (the "CVMQ") prohibiting any transaction in the
securities of Petitioner. Similar cease trade orders were subsequently
issued by securities regulatory authorities in Ontario, Manitoba,
Saskatchewan, Alberta and British Columbia. (These cease trade orders will
collectively be referred to as the "CEASE TRADE ORDERS");
12. As a result of the Cease Trade Orders, CINAR Shareholders residing in
Canada have been completely prevented from trading CINAR Shares for more
than three years, while the only market on which CINAR Shareholders
residing outside of Canada can trade CINAR Shares is the over-the-counter
market in the United States (the "PINK SHEETS");
13. It is at the current time impossible for Petitioner to effect any
transaction involving CINAR Shares without a variation of the Cease Trade
Orders;
14. In parallel with the present Application pursuant to section 192 CBCA,
Petitioner has applied to the CVMQ and the five provincial securities
regulatory authorities mentioned above for orders to partially lift the
Cease Trade Orders to permit the completion of the Arrangement. The
completion of the Arrangement is subject to Petitioner obtaining such
orders;
15. Together with the required regulatory approvals, the approval of the
Arrangement by CINAR Shareholders and its subsequent sanctioning by this
Honourable Court would permit the Arrangement to proceed, allow CINAR
Shareholders residing in Canada to sell their CINAR Shares, which they have
been completely prevented from trading for more than three years, and
maximise shareholder value for all CINAR Shareholders;
C. THE ARRANGEMENT
16. If this Honourable Court renders the Interim Order sought by Petitioner, a
special meeting of CINAR Shareholders will be held on February 5, 2004 (the
"MEETING");
17. At the Meeting, CINAR Shareholders will be asked to approve the Arrangement
by way of a special resolution of the shareholders (the "ARRANGEMENT
RESOLUTION"), a copy of which is annexed as Appendix E to the Management
Proxy Circular, Exhibit R-1;
18. To be effective, the Arrangement Resolution must be approved by not less
than two-thirds of the votes cast by the holders of Multiple Voting Shares
and of Limited Voting Shares present in person or represented by proxy at
the Meeting, voting as separate classes;
19. The Arrangement provides that:
a) Each CINAR Share shall be acquired by Newco for the following
consideration (the "AGGREGATE CONSIDERATION"):
i) US$3.60 in cash per share; plus
ii) an amount equal to a portion of the net proceeds, if any, from
certain litigation involving Petitioner (the "SPECIFIED
LITIGATION"). The amount payable to Shareholders, which is based
on the outcome of the Specified Litigation, as well as the
conditions and manner according to which such payment shall be
made, are further described in the Plan of Arrangement, Appendix
C to the Management Proxy CIRCULAR, Exhibit R-1;
b) All outstanding and unexercised share purchase options, all
outstanding performance units, and all other securities and other
rights or entitlements respecting securities of Petitioner shall be
cancelled;
c) Petitioner and Newco shall amalgamate to form Amalco, which will take
the name CINAR Corporation;
d) All shares of Newco shall be converted into shares of Amalco, and all
CINAR Shares shall be cancelled;
the whole as more fully appears from the Plan of Arrangement, Appendix
C to the Management Proxy Circular, Exhibit R-1;
20. It is impracticable to effect the result contemplated by the Arrangement
under any provision of the CBCA other than section 192 for the following
reasons:
a) The transactions contemplated by the Arrangement Agreement require
that the amalgamation between Petitioner and Newco occur once Newco
has acquired the CINAR Shares, and thus could not be effected in a
single-step operation under any other provision of the CBCA;
b) Proceeding with these transactions in a multi-step operation would
result in significantly less beneficial tax consequences for the
corporation resulting from the amalgamation of Petitioner and Newco
and, in some circumstances, for certain CINAR Shareholders;
c) Only the arrangement procedure of section 192 CBCA provides the
flexibility required to effect the result contemplated by the
Arrangement Agreement while maximising shareholder value;
d) For all practical purposes, the amount of the consideration to be
received by CINAR Shareholders rests on the possibility to proceed in
a single-step operation by way of an arrangement pursuant to section
192 CBCA;
D. FAIRNESS TO CINAR SHAREHOLDERS
21. Petitioner's financial advisor, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MERRILL LYNCH AND Co.") has provided Petitioner's Board of Directors (the
"BOARD OF DIRECTORS") with a fairness opinion stating that the Aggregate
Consideration is fair from a financial point of view to CINAR Shareholders,
the whole as appears from the said fairness opinion dated October 30, 2003
(the "FAIRNESS OPINION"), a copy of which is annexed as Appendix G to the
Management Proxy Circular, Exhibit R-1.
22. Since the Fairness Opinion was provided to the Board of Directors, the
fixed cash portion of the Aggregate Consideration was increased from
US$3.57 per CINAR Share to US$3.60 per CINAR Share. This increase is the
result of a decision favourable to Petitioner that was rendered by a panel
of arbitrators on November 28, 2003;
23. The US$3.60 cash portion of the Aggregate Consideration represents a
premium of approximately 28% over the volume weighted average trading price
on the Pink Sheets of the Limited Voting Shares for the six-month period
immediately preceding the first public announcement of the Transaction;
24. CINAR Shareholders will indirectly benefit from the Specified Litigation in
that any net amount received within the context of these proceedings, if
any, will contribute to increase the Aggregate Consideration to be paid to
CINAR Shareholders pursuant to the Arrangement;
25. The Board of Directors has unanimously determined that the Arrangement is
in the best interests of Petitioner and will recommend that CINAR
Shareholders vote in favour of the Arrangement Resolution at the Meeting;
26. Over the past three years, the Board of Directors has explored strategic
options to maximise shareholder value. As part of this process, the Board
of Directors, through its financial advisor, Merrill Lynch and Co.,
thoroughly canvassed potential buyers and merger partners, identifying as
many as 60 parties who would be interested in entering into a transaction
with CINAR;
27. Of these, discussions with twelve parties progressed to the due diligence
stage, but after performing varying amounts of due diligence, only Newco
was prepared to make a cash offer at a valuation considered appropriate by
the Board of Directors and its advisors;
28. The terms of the Arrangement are the result of arm's-length negotiations
conducted among representatives of Petitioner and Newco and their legal and
financial advisors, and are the most favourable to CINAR Shareholders of
all proposals received by Petitioner;
29. Moreover, the Board of Directors considers that the terms and conditions of
the Arrangement Agreement are fair to CINAR Shareholders generally,
including the amount of the termination fee and the circumstances in which
it becomes payable by CINAR, and the fact that the terms of the Arrangement
Agreement do not prevent the Board of Directors from accepting an
unsolicited superior proposal;
30. On October 30, 2003, CINAR Shareholders holding approximately 96% of the
Multiple Voting Shares and less than 0.1% of the Limited Voting Shares
entered into a Voting Support Agreement with Newco pursuant to which they
irrevocably agreed to vote the CINAR Shares they hold in favour of the
Arrangement at the Meeting. This is sufficient to ensure approval of the
Arrangement by the holders of Multiple Voting Shares, but will not
materially affect the result of the vote of the holders of Limited Voting
Shares;
31. As the above demonstrates, the proposed Arrangement is fair and reasonable
to CINAR Shareholders;
E. RIGHT OF CINAR SHAREHOLDERS TO DISSENT
32. The Plan of Arrangement proposes that CINAR Shareholders will be entitled
to exercise a right of dissent with respect to their CINAR Shares, the
whole as appears from the Plan of Arrangement, Appendix C to the Management
Proxy Circular, Exhibit R-1;
33. Petitioner therefore asks this Honourable Court to issue, at the interim
stage, an order permitting CINAR Shareholders to dissent if the Arrangement
Resolution is approved, as well as an order stating that in order to
validly dissent, such CINAR Shareholder must, notwithstanding subsection
190(5) CBCA, provide Petitioner with a written objection to the Arrangement
Resolution no later than 5:00 p.m. (Eastern time) on the second business
day preceding the Meeting;
F. REDUCTION OF THE STATED CAPITAL AND SOLVENCY OF PETITIONER
34. Although Petitioner is able to pay its liabilities as they become due,
Petitioner must, in order not to be deemed insolvent within the meaning of
paragraph 192(2)(B) CBCA, ask holders of Limited Voting Shares to consider
and vote upon a special resolution to reduce the stated capital of the
Limited Voting Shares by $323,206,000 (the "STATED CAPITAL RESOLUTION"). A
copy of the Stated Capital Resolution is annexed as Appendix F to the
Management Proxy Circular, Exhibit R-1;
35. To be effective, the Stated Capital Resolution must be approved by at least
two-thirds of the votes cast in respect thereof by holders of Limited
Voting Shares present in person or represented by proxy at the Meeting;
36. If the Stated Capital Resolution is approved at the Meeting, Petitioner
will, at the time of the Final Order, be solvent within the meaning of
subsection 192(2) CBCA;
G. INTERIM AND FINAL ORDERS
37. Given the large number of CINAR Shareholders, Petitioner requests from this
Honourable Court to be dispensed from describing at length the CINAR
Shareholders in the description of the impleaded parties and asks this
Honourable Court to declare that all CINAR Shareholders and any transferees
of securities in Petitioner be deemed parties, as Mis-en-cause, to the
present proceedings;
38. Petitioner also requests from this Honourable Court a declaration
respecting the manner and timing of service of the present proceedings on
CINAR Shareholders and the documents required to be served on CINAR
Shareholders;
1. INTERIM ORDER
39. At the interim stage, Petitioner asks this Honourable Court to:
a) order that the Meeting be summoned;
b) issue orders as to the manner in which the Meeting must be called,
including orders as to the persons entitled to receive notice of the
Meeting, documents to be sent to persons entitled to notice and
persons entitled to attend the Meeting;
c) issue orders as to the use and solicitation of proxies;
d) issue orders as to the manner in which the Meeting must be held and
conducted and as to the vote required for the Arrangement to be
approved;
e) issue orders allowing CINAR Shareholders to dissent and providing for
the procedure to be followed by CINAR Shareholders wishing to dissent;
f) issue orders specifying the procedure to be followed by CINAR
Shareholders wishing to appear on and/or contest Petitioner's
application for the Final Order; and
g) order that Petitioner may, upon approval of the Arrangement, apply to
this Honourable Court for the Final Order, and set the date of the
hearing of same;
2. FINAL ORDER
40. Should the Arrangement Resolution be approved by CINAR Shareholders at the
Meeting, Petitioner will apply to this Honourable Court for the Final Order
sanctioning the Arrangement;
41. Petitioner will accordingly, at the final stage, ask this Honourable Court
to:
a) declare that service of the present Application made in accordance
with the Interim Order is valid and sufficient and amounts to service
on all CINAR Shareholders; and
b) sanction the Arrangement;
42. The present Application is well founded in fact and in law.
WHEREFORE PETITIONER PRAYS THIS HONOURABLE COURT, BY JUDGMENT TO INTERVENE
HEREIN, TO:
[1] DISPENSE Petitioner from describing at length the names of its
shareholders in the description of the impleaded parties;
[2] ORDER that all shareholders of Petitioner (the "CINAR SHAREHOLDERS")
and any transferees of Petitioner's Variable Multiple Voting Shares or
Limited Voting Shares (collectively, the "CINAR SHARES") be deemed
parties, as Mis-en-cause, to the present proceedings and be bound by
the terms of any order to be rendered herein;
A. ON THE APPLICATION FOR INTERIM ORDER
[3] GRANT the present Application for Interim Order;
AS TO THE MEETING
[4] ORDER Petitioner to call, hold and conduct a special meeting of CINAR
Shareholders (the "MEETING") to, among other things, consider and, if
deemed advisable, pass, with or without variation, a special
resolution substantially in the same form as set forth in Appendix E
to the Management Proxy Circular, Exhibit R-1 (the "ARRANGEMENT
RESOLUTION"), or as subsequently modified, to approve an arrangement
involving Petitioner, 4113683 Canada Inc. ("NEWCO") and 3918203 Canada
Inc. ("NEWCANCO") (the "ARRANGEMENT"), substantially in the same form
as set forth in the Plan of Arrangement (the "PLAN OF ARRANGEMENT"),
Appendix C to the Management Proxy Circular, Exhibit R-1, or as
subsequently modified;
[5] ORDER that the Meeting be summoned, held and conducted in accordance
with the Notice of Meeting of Shareholders (the "NOTICE OF MEETING"),
EXHIBIT R-3, the CBCA, the Articles and By-laws of Petitioner, the
terms of the Interim Order and any further order of this Court, and
the rulings and directions of the chair of the Meeting;
AS TO THE ARRANGEMENT
[6] ORDER that Petitioner be authorised, prior to or at the Meeting and
without any additional notice to CINAR Shareholders, to make such
amendments, revisions or supplements to the Plan of Arrangement as it
may determine, subject to the terms of the Arrangement Agreement (the
"ARRANGEMENT AGREEMENT"), Appendix A to the Management Proxy Circular,
Exhibit R-1, and ORDER that the Plan of Arrangement so amended,
revised or supplemented shall be the Plan of Arrangement submitted to
the Meeting and the subject of the Arrangement Resolution;
AS TO THE FORMS OF PROXY AND THE SOLICITATION OF PROXIES
[7] AUTHORISE Petitioner to use forms of proxy in substantially the same
form as EXHIBIT R-4 (the "FORMS OF PROXY"), subject to Petitioner's
ability to insert dates and other relevant information in the final
Forms of Proxy;
[8] AUTHORISE Petitioner, at its expense, to solicit proxies, directly and
through its officers, directors and employees, and through such agents
and representatives as it may retain for the purpose, and by mail or
such other forms of personal or electronic communication as it may
determine, subject to the terms of the Arrangement Agreement;
[9] ORDER that the procedure for the use of proxies at the Meeting shall
be as set out in the Management Proxy Circular, Exhibit R-1, provided
that Petitioner may in its discretion waive generally the time limits
for the deposit of proxies by CINAR Shareholders;
AS TO THE DOCUMENTS REQUIRED TO BE SENT TO PERSONS ENTITLED TO NOTICE
OF THE MEETING
[10] ORDER that a copy of the present Application for Interim and Final
Orders (the "APPLICATION"), a Notice of Presentation of the Final
Order substantially in the same form as EXHIBIT R-7 (the "NOTICE OF
PRESENTATION OF THE FINAL ORDER") and a copy of the Interim Order
shall be included in the Management Proxy Circular to be distributed
in the manner hereinafter described to the persons entitled to notice
of the Meeting;
[11] ORDER that notice of the Meeting be given, and service of the present
Application be made by mailing or delivering, in the manner
hereinafter described and to the persons hereinafter specified, a copy
of a French or English version, according to the election, if any,
made by the intended recipient, of the following documents
(collectively, the "MEETING AND APPLICATION MATERIAL"):
a) the Management Proxy Circular, together with its appendices, all
in substantially the same form as EXHIBIT R-1;
b) a letter to CINAR Shareholders from the Chairman of the Board of
Directors of Petitioner, substantially in the same form as
EXHIBIT R-2;
c) the Notice of Meeting, substantially in the same form as EXHIBIT
R-3;
d) the Forms of Proxy, substantially in the same form as EXHIBIT
R-4;
e) a Letter of Transmittal, substantially in the same form as
EXHIBIT R-5;
f) a Letter of Authorization, substantially in the same form as
EXHIBIT R-6
with such amendments thereto as Counsel for Petitioner may advise
are necessary or desirable, provided that such amendments are not
inconsistent with the terms of the Interim Order;
AS TO THE RECORD DATE FOR NOTICE AND VOTING
[12] DECLARE that the record date for the determination of CINAR
Shareholders entitled to receive the Meeting and Application Material
and to vote on the Arrangement Resolution shall be December 12, 2003
(the "RECORD DATE");
AS TO PERSONS ENTITLED TO NOTICE OF THE MEETING
[13] DECLARE that the only persons entitled to notice of the Meeting shall
be the registered CINAR Shareholders as they may appear on the records
of Petitioner as at the close of business on the Record Date,
non-registered CINAR Shareholders pursuant to and in conformity with
NATIONAL INSTRUMENT 54-101 RESPECTING COMMUNICATIONS WITH BENEFICIAL
OWNERS OF SECURITIES OF A REPORTING ISSUER and, in Quebec, with
REGULATION 54-101 RESPECTING COMMUNICATIONS WITH BENEFICIAL OWNERS OF
SECURITIES OF A REPORTING ISSUER (collectively "NI 54-101"), the
directors and auditors of Petitioner, the director appointed under
section 260 CBCA (the "DIRECTOR"), Newco and NewCanCo;
AS TO NOTICE OF THE MEETING AND SERVICE OF THE APPLICATION
[14] ORDER that the Meeting and Application Material shall be distributed:
a) in the case of registered CINAR Shareholders, by mailing same by
prepaid first class mail or by delivering same in person or by
recognised courier service to each and all registered CINAR
Shareholders as they may appear on the records of Petitioner as
at the close of business on the Record Date, at his or her
address as it may appear on the records of Petitioner as at that
time, the whole before the close of business on January 15, 2004;
b) in the case of non-registered CINAR Shareholders, by delivering
multiple copies of same to intermediaries and registered nominees
as they are defined in NI 54-101 to facilitate distribution to
non-registered CINAR Shareholders as set out in NI 54-101, the
whole before the close of business on January 12, 2004;
c) in the case of the directors of Petitioner, by delivering same in
person or by recognised courier service addressed to the
individual directors, the whole before the close of business on
January 15, 2004;
d) in the case of the auditors of Petitioner, by delivering same in
person or by recognised courier service addressed to the firm of
auditors, the whole before the close of business on January 15,
2004;
e) in the case of Newco and NewCanCo, by delivering same in person
or by recognised courier service to the solicitors for Newco and
NewCanCo, the whole before the close of business on January 15,
2004;
f) in the case of the Director, by delivering same in person or by
recognised courier service to the Director, the whole before the
close of business on January 15, 2004;
[15] DECLARE that such mailing or delivery constitutes good and sufficient
notice of the Meeting upon all such persons;
[16] DECLARE that such mailing or delivery constitutes good and sufficient
service of the present Application, and good and sufficient notice of
presentation of Petitioner's application for a final order as set out
below (the "APPLICATION FOR FINAL ORDER") on all Mis-en-cause, whether
those persons reside within Quebec or within another jurisdiction;
[17] ORDER that any accidental omission to give notice of the Meeting to,
or the non-receipt of such notice by, one or more of the persons
specified in the Interim Order shall not invalidate any resolution
passed at the Meeting or the proceedings herein, and shall not
constitute a breach of the Interim Order;
[18] ORDER that a copy of each of the French and English versions of the
Meeting and Application Material distributed to CINAR Shareholders
pursuant to the Interim Order shall be filed in the Court record
following distribution thereof;
AS TO DEEMED RECEIPT AND SERVICE OF MEETING AND APPLICATION MATERIAL
[19] DECLARE that the Meeting and Application Material shall be deemed, for
the purposes of the present proceedings, to have been received by
persons entitled to notice of the Meeting, and to have been served on
all Mis-en-cause:
a) in the case of distribution by prepaid first class mail, three
business days after delivery thereof to the post office;
b) in the case of delivery in person, upon receipt thereof at the
intended recipient's address; and
c) in the case of delivery by courier, one business day after
receipt by the courier;
AS TO THE RIGHTS OF DISSENT OF CINAR SHAREHOLDERS
[20] ORDER that registered CINAR Shareholders be entitled to exercise
rights of dissent and appraisal in accordance with and in compliance
with section 190 CBCA (except as the procedures of that section are
varied by the Interim Order) and the Plan of Arrangement, and to seek
fair value for their CINAR Shares, provided that any registered CINAR
Shareholder wishing to dissent (a) must have as a condition precedent
thereto provided a written dissent notice objecting to the Arrangement
Resolution to Petitioner, c/o Computershare Trust Company of Canada,
attention: Corporate Actions, 100 University Avenue, 9th Floor,
Toronto, Ontario, Canada M5J 2Y1, facsimile number: (416) 981-9663, no
later than 5:00 p.m. (Eastern time) on the second business day
immediately preceding the Meeting, and (b) must otherwise strictly
comply with section 190 CBCA. For the purposes of these proceedings,
the "court" referred to in section 190 CBCA means the Superior Court
of Quebec, district of Montreal;
AS TO PERSONS ENTITLED TO ATTEND AND TO VOTE AT THE MEETING
[21] DECLARE that the only persons entitled to attend the Meeting shall be:
a) the registered CINAR Shareholders as they may appear on the
records of Petitioner as at the close of business on the Record
Date, subject to the provisions of the Interim Order and subject
to the provisions of the CBCA and applicable securities
legislation, regulation and policy statements;
b) duly appointed proxy holders;
c) the officers, directors, auditors and advisors of Petitioner;
d) representatives of Newco and NewCanCo; and
e) other persons with the permission of the Chair of the Meeting;
[22] DECLARE that the only persons entitled to vote on the Arrangement
Resolution at the Meeting, either in person or by proxy, shall be the
registered CINAR Shareholders as they may appear on the records of
Petitioner as at the close of business on the Record Date, subject to
the provisions of the Interim Order and subject to the provisions of
the CBCA and applicable securities legislation, regulation and policy
statements;
AS TO THE MEETING AND TO THE VOTE ON THE ARRANGEMENT RESOLUTION
[23] ORDER that the Meeting be conducted at the time and location specified
in the Notice of Meeting, Exhibit R-3, and that Petitioner, if it
deems it advisable, be specifically authorised to adjourn or postpone
the Meeting on one or more occasions, without the necessity of first
convening the Meeting or first obtaining any vote of CINAR
Shareholders respecting the adjournment or postponement, subject to
the terms of the Arrangement Agreement;
[24] ORDER that the Meeting shall be a single meeting of CINAR
Shareholders, who with respect to the Arrangement Resolution shall
vote as separate classes, and that each CINAR Shareholder will be
entitled to one vote for each CINAR Share held;
[25] DECLARE that the vote required to pass the Arrangement Resolution,
with or without variation, shall be the affirmative vote of at least
two-thirds of the votes cast on the Arrangement Resolution by the
holders of Variable Multiple Voting Shares and of Limited Voting
Shares present in person or represented by proxy at the Meeting,
voting as separate classes;
[26] DECLARE that for the purposes of the vote on the Arrangement
Resolution, any spoiled votes, illegible votes, defective votes and
abstentions shall be deemed not to be votes cast by CINAR
Shareholders;
AS TO APPEARANCES AND CONTESTATION OF THE FINAL ORDER
[27] ORDER that any CINAR Shareholder wishing to appear on the Application
for Final Order shall:
a) file an appearance into the Court record and serve same on
Petitioner's Counsel of record on or before January 23, 2004;
and,
b) if such appearance is with the view to contesting the Application
for Final Order, serve on Petitioner's Counsel of record and file
in the Court record, on or before January 30, 2004, a written
contestation supported as to the facts by affidavit(s), and
exhibit(s) if any, without which such contestation the appearing
person shall not be permitted to contest the Application for
Final Order;
AS TO PRESENTATION OF THE FINAL ORDER
[28] ORDER that, upon the approval by CINAR Shareholders of the Arrangement
Resolution in the manner set forth in the Interim Order, Petitioner
may apply to this Honourable Court for a final order as set out below;
[29] ORDER that the Application for Final Order be presented on February 6,
2004 before the Superior Court of Quebec, sitting in Commercial
Division in and for the district of Montreal at the Montreal
Courthouse, located at 1 Notre-Dame Street East in Montreal, Quebec,
Room 16.10 at 9:00 a.m. or so soon thereafter as Counsel may be heard;
[30] ORDER the Master of the Rolls of the Superior Court to include the
Application for Final Order on the Roll of the Commercial Division of
the Superior Court of Quebec in Room 16.10 of the Montreal Courthouse
for February 6, 2004;
AS TO VARIANCE
[31] ORDER that Petitioner be entitled, at any time, to seek leave to vary
the Interim Order;
B. ON THE APPLICATION FOR FINAL ORDER
[32] GRANT the present Application for Final Order;
[33] DECLARE that the service of the present Application is valid and
sufficient as having been made in accordance with the Interim Order of
this Honourable Court and amounts to good and sufficient service on
all CINAR Shareholders;
[34] SANCTION the approval by CINAR Shareholders of the Arrangement
Resolution;
[35] THE WHOLE without costs.
MONTREAL, January 5, 2004
(S) Heenan Blaikie LLP
--------------------------------
HEENAN BLAIKIE LLP
Attorneys for Petitioner
CINAR CORPORATION
- ------------------------------------------------------------------------------
AFFIDAVIT
- ------------------------------------------------------------------------------
I, the undersigned, Mark Chernin, lawyer, residing and domiciled at 1,
Lauzon Street, in the City of Montreal (Borough of Pierrefonds), District of
Montreal, Province of Quebec, do solemnly affirm:
1. THAT I am the Vice-President Business and Legal Affairs of Petitioner
in the present case; and
2. THAT all of the facts alleged in the present APPLICATION FOR INTERIM
AND FINAL ORDERS RESPECTING AN ARRANGEMENT INVOLVING CINAR
CORPORATION, 4113683 CANADA INC. AND 3918203 CANADA INC. are true.
AND I HAVE SIGNED:
(SIGNED) Mark Chernin
--------------------------------
Mark Chernin
SOLEMNLY AFFIRMED TO before me
at Montreal, this 5th day of January, 2004
(SIGNED) ANNIE COTE
- ------------------------------------
Annie Cote #140 763
Commissioner of Oath for the judicial
districts of Laval and Montreal
- ------------------------------------------------------------------------------
NOTICE OF PRESENTATION OF THE FINAL ORDER
- ------------------------------------------------------------------------------
TAKE NOTICE that CINAR Corporation ("Petitioner") has filed an APPLICATION
FOR INTERIM AND FINAL ORDERS RESPECTING AN ARRANGEMENT INVOLVING CINAR
CORPORATION, 4113683 CANADA INC. AND 3918203 CANADA INC. (the "Application")
before the Superior Court of Quebec, district of Montreal.
The Application will be presented, for adjudication on the final order
contained therein (the "Final Order"), to the Superior Court of the judicial
district of Montreal IN ROOM 16.10 OF THE MONTREAL COURTHOUSE, LOCATED AT 1
NOTRE-DAME EAST, IN MONTREAL (QUEBEC) ON FEBRUARY 19, 2004 AT 9:00 A.M. or as
soon thereafter as Counsel may be heard.
Pursuant to the interim order issued by the Superior Court of Quebec on
January 6, 2004 (the "Interim Order"), if you wish to make representations
before the Court, you will be required to appear by filing an Appearance form at
the office of the Clerk of the Superior Court of the district of Montreal on or
before February 5, 2004, and to serve a copy of the said Appearance form within
the same time limit on Petitioner's Counsel, at the following address:
HEENAN BLAIKIE LLP
c/o Me Bernard Amyot
1250 Rene-Levesque Blvd. West, 25th floor
Montreal, Quebec H3B 4Y1
If you wish to contest the issuance by the Court of the Final Order, you
will be required, pursuant to the Interim Order, to prepare a written
contestation containing the reasons why the Court should not issue the Final
Order. This written contestation must be supported as to the facts by
affidavit(s), and exhibit(s) if any, and must be filed with the office of the
Clerk of the Superior Court of the district of Montreal on or before February
12, 2004, and served within the same time limit on Petitioner's Counsel, at the
above-mentioned address.
TAKE FURTHER NOTICE that, if you do not file a written contestation and/or
an appearance within the above-mentioned time limits, you will not be entitled
to contest the Final Order or make representations before the Court, and
Petitioner will be granted a judgment without further notice or extension.
If you wish to make representations or contest the issuance by the Court of
the Final Order, it is important that you take action within the time limits
indicated, either by retaining the services of an attorney who will represent
you and act in your name, or by doing so yourself in accordance with the
formalities of the law.
PLEASE ACT ACCORDINGLY.
MONTREAL, January 5, 2004
(S) HEENAN BLAIKIE LLP
-----------------------------------
HEENAN BLAIKIE LLP
Attorneys for Petitioner,
CINAR CORPORATION
APPENDIX B-II
INTERIM ORDER
SUPERIOR COURT
CANADA
PROVINCE OF QUEBEC
DISTRICT OF MONTREAL
No: 500-11-022143-040
DATE: January 12, 2004
______________________________________________________________________________
IN THE PRESENCE OF: THE HONOURABLE JOEL A. SILCOFF, J.S.C.
______________________________________________________________________________
CINAR CORPORATION
Petitioner
v.
SHAREHOLDERS OF CINAR CORPORATION
and
4113683 CANADA INC.
and
3918203 CANADA INC.
Mis-en-cause
______________________________________________________________________________
JUDGEMENT
______________________________________________________________________________
INTRODUCTION
[1] The Court is seized of Petitioner's APPLICATION FOR INTERIM AND FINAL
ORDERS RESPECTING AN ARRANGEMENT INVOLVING CINAR CORPORATION, 4113683 CANADA
INC. AND 3918203 CANADA INC. (the "APPLICATION").
[2] The Application, made pursuant to the provisions of section 192 CBCA,
contemplates a three-step procedure for obtaining the Court's approval for the
Arrangement (hereinafter defined) :
(i) The first step is obtaining an interim order that a meeting of CINAR
shareholders (collectively the "CINAR SHAREHOLDERS") be summoned to
approve the Arrangement, as well as orders relating to procedural
matters (collectively, the "INTERIM ORDER");
(ii) The second step is the calling and holding of the special meeting of
the CINAR Shareholders (the "MEETING") for the purpose, INTER ALIA, of
approving the Arrangement; and
(iii) The third step, if the Arrangement is approved by the CINAR
Shareholders at the shareholders' meeting, is the hearing to obtain a
final order approving the Arrangement (the "FINAL ORDER").
[3] At the interim stage of the Application, Petitioner asks that the Court:
"a) order that the Meeting be summoned;
b) issue orders as to the manner in which the Meeting must be
called, including orders as to the persons entitled to receive
notice of the Meeting, documents to be sent to persons entitled
to notice and persons entitled to attend the Meeting;
c) issue orders as to the use and solicitation of proxies;
d) issue orders as to the manner in which the Meeting must be held
and conducted and as to the vote required for the Arrangement to
be approved;
e) issue orders allowing CINAR Shareholders to dissent and providing
for the procedure to be followed by CINAR Shareholders wishing to
dissent;
f) issue orders specifying the procedure to be followed by CINAR
Shareholders wishing to appear on and/or contest Petitioner's
application for the Final Order; and
g) order that Petitioner may, upon approval of the Arrangement,
apply to the Court for the Final Order, and set the date of the
hearing of same."
[4] The present judgment will only address Petitioner's request for the
Interim Order.
THE FACTS
[5] Petitioner and Mise-en-cause 4113683 Canada Inc. ("NEWCO"), a
corporation wholly-owned by Mise-en-cause 3918203 Canada Inc. ("NEWCANCO"),
entered into an arrangement agreement on October 30, 2003 (the "ARRANGEMENT
AGREEMENT"), pursuant to which Newco will acquire all of the issued and
outstanding CINAR Variable Multiple Voting Shares and Limited Voting Shares,
(collectively the "CINAR SHARES") and immediately thereafter Newco and
Petitioner will amalgamate and continue as one corporation. The Arrangement
Agreement is annexed as Appendix A to the draft Management Proxy Circular (the
"MANAGEMENT PROXY CIRCULAR"), Exhibit R-1.
[6] It is proposed that these transactions will be carried out by way of an
arrangement pursuant to section 192 CBCA (the "ARRANGEMENT"). The Arrangement is
further described in the Plan of Arrangement (the "PLAN OF ARRANGEMENT") annexed
as Appendix C to the Management Proxy Circular, Exhibit R-1.
[7] For the reasons more fully described in the Application, Petitioner
alleges it is impracticable to effect the result contemplated by the Arrangement
under any provision of the CBCA other than section 192, and the proposed
Arrangement is fair and reasonable to Petitioner's shareholders (the "CINAR
SHAREHOLDERS").
[8] Contemporaneously with the present Application, Petitioner has applied
to the COMMISSION DES VALEURS MOBILIERES DU QUEBEC (the "CVMQ") and the five
other provincial securities regulatory authorities having jurisdiction for
orders to partially lift the cease trade orders, previously issued by each of
them, in order to permit the completion of the Arrangement. The completion of
the Arrangement is subject to and conditional upon Petitioner obtaining such
orders.
APPLICABLE LAW
[9] On an application for approval of the Arrangement under section 192
CBCA, Petitioner must satisfy the Court that :
a) the statutory requirements have been fulfilled;
b) the Arrangement is put forward in good faith; and
c) the Arrangement is fair and reasonable.
[10] For the purposes of the present judgment and the Interim Order sought,
the Court will limit its analysis to Petitioner's compliance with the statutory
requirements of the CBCA. The Court is satisfied, at the present time, that the
Arrangement is put forward in good faith. As to the matter of "fair and
reasonable", that determination is more appropriately dealt with at the time of
presentation of the Application seeking the Final Order.
[11] Regarding the fulfillment of the statutory requirements, the
Petitioner is required to establish, at this stage of the Application, that the
Arrangement:
a) constitutes an "arrangement" as defined under subsection 192(1)
CBCA;
b) that is not "insolvent" as defined in subsections 192 (2) (a)
&(b) CBCA; and
c) that it is not practicable for the Petitioner to effect a
fundamental change in the nature of an arrangement under any
other provision of the CBCA.
[12] See with respect to the above, RE ST. LAWRENCE & HUDSON RAILWAY CO.
[1998] O.J. No. 3934 (Ont. C.J. Gen. Div.), Blair, J. and authorities cited at
paragraph 14 of the judgment.
[13] Moreover, on an application for any interim or final order under
section 192 ff. CBCA, Petitioner shall give the Director appointed under section
260 CBCA, notice of the Application and the Director is entitled to appear and
be heard in person or by counsel (subsection 192(5) CBCA).
ANALYSIS
[14] As to the fulfillment of the statutory requirements:
THE ARRANGEMENT
[15] The Arrangement provides, INTER ALIA, the following:
(a) All CINAR shares will be acquired by Newco;
(b) The consideration for each share consists of a cash portion plus
an amount calculated in relation to the net proceeds, if any,
from certain litigation involving Petitioner;
(c) Petitioner and Newco will then amalgamate to form Amalco; and
(d) This sequence of transactions will occur on the same day, as part
of a single-step operation.
[16] The Court is satisfied that the Arrangement constitutes an
"arrangement" within the meaning of section 192 CBCA. It includes a
"combination" of various operations encompassed by section 192 CBCA (s.
192(1)(H)), namely:
(a) an "amalgamation" of Petitioner and Newco (s. 192(1)(B)); and
(b) an "exchange of securities" of Petitioner for "property, money or
other securities" of Newco (s. 192(1)(F)).
THE INSOLVENCY ISSUE
[17] Subsection 192(3) CBCA provides that the corporation applying for an
order approving an arrangement must not be insolvent within the meaning of
subsection 192(2) CBCA. As for the first test provided in subsection 192(2)(a),
Petitioner has produced, in support of its Application, a detailed affidavit of
Richard Genest, Senior Vice-President and Chief Financial Officer, supported by
relevant financial statements, confirming that in his opinion Petitioner is
currently able to pay its liabilities as they become due.
[18] With respect to the second solvency test provided in subsection 192
(2)(b), as stated in the Application, it is proposed that Petitioner's stated
capital will be reduced at the Meeting as a result of the adoption of the Stated
Capital Resolution, (as defined in the Management Proxy Circular, Exhibit R-1)
which will be submitted to the CINAR Shareholders prior to the vote on the
Arrangement Resolution (as defined in the Management Proxy Circular, Exhibit
R-1) and which is a condition of the completion of the Arrangement.
[19] Subject to the adoption of the Stated Capital Resolution, the Court is
satisfied that Petitioner will, at the time of the Final Order, be solvent
within the meaning of subsection 192(2) CBCA.
[20] See in this regard, FIRST CHOICE CAPITAL FUND LTD. v. SASKATCHEWAN
(DIRECTOR OF CORPORATIONS) (1999), 184 Sask. R. 267 (Sask. Q.B.) at p.12. See
also: Industry Canada (Corporations Canada), POLICY CONCERNING ARRANGEMENTS
UNDER SECTION 192 OF THE CBCA, at p. 2-3.
THE IMPRACTICABILITY TEST
[21] Subsection 192(3) CBCA provides that a corporation may apply to a
court for an order approving an arrangement "[w]here it is not practicable for
[the] corporation to effect a fundamental change in the nature of an arrangement
under any other provision of this Act".
[22] Petitioner's counsel in its PRECIS D'ARGEMENTATION submits :
"4. The "impracticability" test of subsection 192(3) CBCA should be
interpreted broadly and be considered from a practical business point
of view:
o RE ST. LAWRENCE & HUDSON RAILWAY CO., [1998] O.J. No. 3934 (Ont.
C.J. Gen. Div.), at par. 18 (...)
"The test is one of `practicability', not
`impossibility'. The Applicants need not prove that the
transactions contemplated in the Plan are impossible to
accomplish in some other way"
o PACIFICA PAPERS INC. v. JOHNSTONE, (2001) 15 B.L.R. (3d) 249
(B.C. S.C.) [conf. by (2001) 19 B.L.R. (3d) 62 (B.C. C.A.)], at
par. 59 (...)
"[W]hat is not practical must mean not practical in a
business sense so that reasonable and fair business
objectives can be pursued by corporations without onerous
time and financial constraints"
o IMPERIAL TRUST COMPANY v. CANBRA FOODS LTD, (1987) 50 Alta L.R.
(2d) 375 (Alta. Q.B.), at par. 39-41 (...)
"(1) The word `impracticable' is not synonymous with
`impossible';
(2) The statutory provisions are to be given a broad
scope and `impracticable' should be interpreted broadly; and
(3) The criterion to be applied to the interpretation
of `impracticable' must be a standard `to govern the affairs
of practical men engaged in business"
o See also: Industry Canada (Corporations Canada), POLICY
CONCERNING ARRANGEMENTS UNDER SECTION 192 OF THE CBCA, at p. 3,
par 2.07 (...)
"The Director endorses the view that the
impracticability requirement means something less than
"impossible" and, generally, that the test would be
satisfied by demonstrating that it would be inconvenient or
less advantageous to the corporation to proceed under other
provisions of the Act."
5. It is impracticable to effect the results contemplated by the
Arrangement in the present case, which involves an acquisition and an
amalgamation, under any provision of the CBCA other than section 192:
a) In order to effect first the acquisition of the CINAR Shares, and
then amalgamate CINAR and Newco, Petitioner would otherwise have
to use the take-over bid procedure of the CBCA, followed by an
amalgamation:
i) This could create adverse tax consequences because in
practice, the take-over bid and the amalgamation could not
be effected on the same day. Since both operations create
year-ends for tax purposes, proceeding by way of a take-over
bid followed at a subsequent date by an amalgamation would
produce multiple year-ends, which could, in particular,
accelerate the expiry of Petitioner's non-capital losses;
b) On the other hand, proceeding to the amalgamation without Newco
first acquiring the CINAR Shares would also cause negative tax
implications:
i) If the amalgamation involved the payment of a cash amount to
CINAR Shareholders, Amalco could potentially not be
considered a continuation of CINAR for tax purposes, and the
tax attributes of CINAR would not flow through to Amalco.
This would have significant negative tax implications for
Amalco;
ii) If the amalgamation involved the issuance of shares of
Amalco to CINAR Shareholders, followed by a cash redemption
of the shares in Amalco, two types of negative tax
implications could be created:
(1) Certain potentially beneficial tax provisions would not
be available to Amalco since the amalgamation would not
take place between a corporation and its wholly-owned
subsidiary;
(2) A portion of the redemption amount of the CINAR Shares
would be considered for certain CINAR Shareholders as a
dividend rather than as proceeds on the sale of shares;
6. For all practical purposes, the consideration to be received by CINAR
Shareholders rests on the possibility to proceed by way of a
single-step operation, which can only be done through an arrangement
under section 192 CBCA:
o See: PACIFICA PAPERS INC. v. JOHNSTONE, (2001) 15 B.L.R. (3d) 249
(B.C. S.C.) [conf. by (2001) 19 B.L.R. (3d) 62 (B.C. C.A.)], at
par. 59 (...)
"The Arrangement facilitates a one-step transaction
that enables the deemed exercise of the options and Norske's
acquisition of Pacifica's shares. This is in part what
Norske is paying for, and, for all practical purposes, the
success of the transaction, and the consideration to be
received by Pacifica's shareholders, turns on Pacifica being
able to deliver this certain result which it cannot do
except through an arrangement."
7. Furthermore, the context in which the Arrangement takes place
should be considered (E.G. trading of the CINAR Shares has been
halted since March 2000 on Nasdaq and the TSX, and Cease Trade
Orders have been in force since 2000);
8. If other regulatory approvals are obtained, the approval and
sanctioning of the Arrangement will allow CINAR Shareholders
residing in Canada to sell their CINAR Shares, thereby maximizing
value on shares that they have been completely prevented from
trading for more than three years; "
[23] The Court concurs with Petitioner's submissions in this regard.
[24] In view of the foregoing, considering the allegations of the
Application and the affidavit of Mark Chernin, Vice-President Business and Legal
Affairs, dated January 5, 2004 filed in support thereof, the Court is satisfied
that the impracticability test has been met.
NOTICE TO THE DIRECTOR
[25] The Court is satisfied that the requisite notice of the Application,
contemplated by subsection 192(5) CBCA, has been given to the Director. By
letters dated January 5, 2004 and January 7, 2004 addressed to Petitioner's
counsel by Louis Chronopoulos, Arrangements and Exemptions Officer, Corporations
Canada, he acknowledges receipt of the Application and related documents and
confirms in both letters that "the staff of the Director has determined that the
Director does not need to appear or to be heard on the (A)pplication".
EX PARTE APPLICATION
[26] The Application, seeking the Interim Order only, has been presented EX
PARTE.
[27] On this subject, Blair, J. in RE FIRST MARATHON INC., [1999] O.J. No.
2805 (Ont. S.C.J.), at par. 9 in dealing with an application under similar
provisions of the Ontario BUSINESS CORPORATIONS ACT concludes that no prior
notice to shareholders is required for the interim order, the purpose of such an
order being "simply to set the wheels in motion for the application process
relating to the arrangement and to establish the parameters for the holding of
shareholder meetings to consider approval of the arrangement in accordance with
the statute".
[28] See as well, M. et P. Martel, LA COMPAGNIE AU QUEBEC (VOLUME 1: LES
ASPECTS JURIDIQUES), Montreal, Wilson & Lafleur, 2002, at pp 19-74 and 19-75.
[29] The Court concurs with the foregoing analysis of the subject by Blair,
J. as well as that of Mtres Martel. In the circumstances of the present
Application, to require Petitioner to serve notice on all shareholders before
taking any steps would be unwarranted and only further complicate and delay the
process. Interested shareholders will not be prejudiced by the Interim Order and
will have ample opportunity, at any time prior or subsequent to the proposed
Meeting, if required and so advised, to petition the Court for appropriate
relief.
FOR THE FOREGOING REASONS, THE COURT:
[30] GRANTS, in part, Petitioner's Application for Interim Order;
[31] DISPENSES Petitioner from describing at length the names of its
shareholders in the description of the impleaded parties;
[32] ORDERS that all shareholders of Petitioner and any transferee of the
CINAR Shares be deemed parties, as Mis-en-cause, to the present proceedings and
be bound by the terms of this interim judgment unless otherwise modified or
amended;
AS TO THE MEETING
[33] ORDERS Petitioner to call, hold and conduct a special meeting of CINAR
Shareholders to, INTER alia, consider and, if deemed advisable, pass, with or
without variation, a special resolution substantially in the same form as set
forth in Appendix E to the Management Proxy Circular, Exhibit R-1 (the
"ARRANGEMENT RESOLUTION"), or as subsequently modified, to approve the
Arrangement involving Petitioner, Newco and NewCanCo, substantially in the form
set forth in the Plan of Arrangement, Appendix C to the Management Proxy
Circular, Exhibit R-1, or as subsequently modified;
[34] ORDERS that the Meeting be summoned, held and conducted in accordance
with the Notice of Meeting of Shareholders, Exhibit R-3 (the "NOTICE OF
MEETING"), the CBCA, the Articles and By-laws of Petitioner, the terms of this
Interim Order and, to the extent applicable, any further order of this Court, as
well as the rulings and directions of the chair of the Meeting;
[35] ORDERS that the Meeting be held on February 17, 2004, at the time and
place mentioned in the Notice of Meeting;
AS TO THE ARRANGEMENT
[36] ORDERS that Petitioner be authorized, prior to the mailing or delivery
of the Meeting and Application Material (hereinafter defined), to make such
non-material amendments, revisions or supplements to the Plan of Arrangement as
it may determine, subject to the terms of the Arrangement Agreement, and ORDERS
that the Plan of Arrangement if so amended, revised or supplemented be the Plan
of Arrangement submitted to the Meeting and the subject of the Arrangement
Resolution;
AS TO THE FORMS OF PROXY AND THE SOLICITATION OF PROXIES
[37] AUTHORISES Petitioner to use forms of proxy in substantially the same
form as Exhibit R-4 (the "FORMS OF PROXY"), subject to Petitioner's ability to
insert dates and other relevant information in the final Forms of Proxy;
[38] AUTHORISES Petitioner, at its expense, to solicit proxies, directly
and through its officers, directors and employees, and through such agents and
representatives as it may retain for that purpose, by mail or such other forms
of personal or electronic communication as it may determine, subject to the
terms of the Arrangement Agreement and to applicable statutory and regulatory
requirements;
[39] ORDERS that the procedure for the use of proxies at the Meeting be as
set out in the Management Proxy Circular, Exhibit R-1, provided that Petitioner
may in its discretion waive generally the time limits for the deposit of proxies
by CINAR Shareholders;
AS TO THE DOCUMENTS REQUIRED TO BE SENT TO PERSONS ENTITLED TO NOTICE OF
THE MEETING
[40] ORDERS that a copy of the Application, a Notice of Presentation of the
Final Order substantially in the same form as Exhibit R-7 (the "NOTICE OF
PRESENTATION OF THE FINAL ORDER") and a copy of this Interim Order be included
in the Management Proxy Circular to be distributed in the manner hereinafter
described to the persons entitled to notice of the Meeting;
[41] ORDERS that notice of the Meeting be given and service of the
Application be made by mailing or delivering, in the manner hereinafter
described and to the persons hereinafter specified, a copy of a French or
English version, according to the election, if any, made by the intended
recipient, of the following documents (collectively, the "MEETING AND
APPLICATION MATERIAL"):
a) the Management Proxy Circular, together with its appendices, all in
substantially the same form as Exhibit R-1;
b) a letter to CINAR Shareholders from the Chairman of the Board of
Directors of Petitioner, substantially in the same form as Exhibit
R-2;
c) the Notice of Meeting, substantially in the same form as Exhibit R-3;
d) the Forms of Proxy, substantially in the same form as Exhibit R-4;
e) a Letter of Transmittal, substantially in the same form as Exhibit
R-5;
f) a Letter of Authorization, substantially in the same form as Exhibit
R-6;
with such amendments thereto as Counsel for Petitioner may advise are
reasonably necessary or desirable, provided that such amendments are not
inconsistent with the terms of this Interim Order;
AS TO THE RECORD DATE FOR NOTICE AND VOTING
[42] DECLARES that the record date for the determination of CINAR
Shareholders entitled to receive the Meeting and Application Material and to
vote on the Arrangement Resolution shall be January 16, 2004 (the "RECORD
DATE");
AS TO PERSONS ENTITLED TO NOTICE OF THE MEETING
[43] DECLARES that the only persons entitled to notice of the Meeting shall
be the registered CINAR Shareholders as they may appear on the records of
Petitioner as at the close of business on the Record Date, non-registered CINAR
Shareholders pursuant to and in conformity with NATIONAL INSTRUMENT 54-101
RESPECTING COMMUNICATIONS WITH BENEFICIAL OWNERS OF SECURITIES OF A REPORTING
ISSUER and, in Quebec, with REGULATION 54-101 RESPECTING COMMUNICATIONS WITH
BENEFICIAL OWNERS OF SECURITIES OF A REPORTING ISSUER (collectively "NI
54-101"), the directors and auditors of Petitioner, the Director appointed under
section 260 CBCA, Newco and NewCanCo;
AS TO THE NOTICE OF MEETING AND SERVICE OF THE APPLICATION
[44] ORDERS that the Meeting and Application Material be distributed:
a) in the case of registered CINAR Shareholders, by mailing same by
prepaid first class mail or by delivering same in person or by
recognised courier service to each and all registered CINAR
Shareholders as they may appear on the records of Petitioner as at the
close of business on the Record Date, at his or her address as it may
appear on the records of Petitioner as at that time, the whole before
the close of business on January 21, 2004;
b) in the case of non-registered CINAR Shareholders, by delivering
multiple copies of same to intermediaries and registered nominees as
they are defined in NI 54-101 to facilitate distribution to
non-registered CINAR Shareholders as set out in NI 54-101, the whole
before the close of business on January 21, 2004;
c) in the case of the directors of Petitioner, by delivering same in
person or by recognised courier service addressed to the individual
directors, the whole before the close of business on January 21, 2004;
d) in the case of the auditors of Petitioner, by delivering same in
person or by recognised courier service addressed to the firm of
auditors, the whole before the close of business on January 21, 2004;
e) in the case of Newco and NewCanCo, by delivering same in person or by
recognised courier service to the solicitors for Newco and NewCanCo,
the whole before the close of business on January 21, 2004;
f) in the case of the Director, by delivering same in person or by
recognised courier service to the Director, the whole before the close
of business on January 21, 2004;
[45] DECLARES that such mailing or delivery constitutes good and sufficient
Notice of Meeting upon all such persons;
[46] DECLARES that such mailing or delivery constitutes good and sufficient
service of the Application, and good and sufficient notice of presentation of
Petitioner's application for a final order as set out in the Application (the
"APPLICATION FOR FINAL ORDER") on all Mis-en-cause, whether those persons reside
within the Province of Quebec or within another jurisdiction and to the extent
necessary, shorten the delays provide by law for service of the Application;
[47] ORDERS that a copy of each of the French and English versions of the
Meeting and Application Material distributed to CINAR Shareholders pursuant to
this Interim Order be filed in the Court record following distribution thereof;
AS TO DEEMED RECEIPT AND SERVICE OF MEETING AND APPLICATION MATERIAL
[48] DECLARES that the Meeting and Application Material shall be deemed,
for the purposes of the present proceedings, to have been received by persons
entitled to the Notice of Meeting, and to have been served on all Mis-en-cause:
a) in the case of distribution by prepaid first class mail, three
business days after delivery thereof to the post office;
b) in the case of delivery in person, upon receipt thereof at the
intended recipient's address; and
c) in the case of delivery by courier, one business day after receipt by
the courier;
AS TO THE RIGHTS OF DISSENT OF CINAR SHAREHOLDERS
[49] ORDERS that registered CINAR Shareholders be entitled to exercise
rights of dissent and appraisal in accordance with and in compliance with
section 190 CBCA (except as the procedures of that section are varied by this
Interim Order) and the Plan of Arrangement, and to seek fair value for their
CINAR Shares, provided that any registered CINAR Shareholder wishing to dissent
(a) must have as a condition precedent thereto provided a written dissent notice
objecting to the Arrangement Resolution to Petitioner, c/o Computershare Trust
Company of Canada, attention: Corporate Actions, 100 University Avenue, 9th
Floor, Toronto, Ontario, Canada M5J 2Y1, facsimile number: (416) 981-9663, no
later than 5:00 p.m. (Eastern time) on the second business day immediately
preceding the date of the Meeting, and (b) must otherwise strictly comply with
section 190 CBCA. For the purposes of these proceedings, the "court" referred to
in section 190 CBCA means the Superior Court of Quebec, district of Montreal;
AS TO PERSONS ENTITLED TO ATTEND AND TO VOTE AT THE MEETING
[50] DECLARES that the only persons entitled to attend the Meeting shall
be:
a) the registered CINAR Shareholders as they may appear on the records of
Petitioner as at the close of business on the Record Date, subject to
the provisions of this Interim Order and subject to the provisions of
the CBCA and applicable securities legislation, regulation and policy
statements;
b) duly appointed proxy holders;
c) the officers, directors, auditors and advisors of Petitioner;
d) representatives of Newco and NewCanCo; and
e) other persons with the permission of the Chair of the Meeting;
[51] DECLARES that the only persons entitled to vote on the Arrangement
Resolution at the Meeting, either in person or by proxy, shall be the registered
CINAR Shareholders as they may appear on the records of Petitioner as at the
close of business on the Record Date, subject to the provisions of this Interim
Order and subject to the provisions of the CBCA and applicable securities
legislation, regulations and policy statements;
AS TO THE MEETING AND THE VOTE ON THE ARRANGEMENT RESOLUTION
[52] ORDERS that the Meeting be conducted at the time and location
specified in the Notice of Meeting, Exhibit R-3, and that Petitioner, if it
deems it advisable, be specifically authorised to adjourn or postpone the
Meeting on one or more occasions, subject to the terms of the Arrangement
Agreement;
[53] ORDERS that the Meeting be a single meeting of CINAR Shareholders, who
with respect to the Arrangement Resolution shall vote as separate classes;
[54] DECLARES that the vote required to pass the Arrangement Resolution,
with or without variation, shall be the affirmative vote of at least two-thirds
of the votes cast on the Arrangement Resolution by the holders of Variable
Multiple Voting Shares and of Limited Voting Shares present in person or
represented by proxy at the Meeting, voting as separate classes;
[55] DECLARES that for the purposes of the vote on the Arrangement
Resolution, any spoiled votes, illegible votes, defective votes and abstentions
shall be deemed not to be votes cast by CINAR Shareholders;
AS TO APPEARANCES AND CONTESTATION OF THE FINAL ORDER
[56] ORDERS that any CINAR Shareholder wishing to appear on the Application
for Final Order shall:
a) file an appearance in the Court record and serve same on Petitioner's
Counsel of record, Heenan Blakie LLP, on or before February 5, 2004;
and,
b) if such appearance is with the view to contesting the Application for
Final Order, serve on Petitioner's said Counsel of record and file in
the Court record, on or before February 12, 2004, a written
contestation supported as to the facts by affidavit(s), and exhibit(s)
if any;
AS TO PRESENTATION OF THE FINAL ORDER
[57] ORDERS that, upon the approval by CINAR Shareholders of the
Arrangement Resolution in the manner set forth in this Interim Order, Petitioner
may apply to the Court for a final order as set out in the Application;
[58] ORDERS that the Application for Final Order be presented on Thursday,
February 19, 2004 before the Superior Court of Quebec, Commercial Division,
sitting in and for the district of Montreal at the Montreal Courthouse, located
at 1 Notre-Dame Street East in Montreal, Quebec, Room 16.10 at 9:00 a.m. or so
soon thereafter as Counsel may be heard;
[59] DIRECTS the Master of the Rolls of the Superior Court, Commercial
Division, to include the Application for Final Order on the Roll of the
Commercial Division for presentation in Room 16.10 of the Montreal Courthouse
for Thursday, February 19, 2004;
AS TO VARIANCE
[60] RESERVES to Petitioner the right, to seek leave to vary the terms of
this Interim Order;
[61] THE WHOLE without costs.
(S) JOEL A. SILCOFF
-----------------------------------
JOEL A. SILCOFF, J.S.C.
Me Bernard Amyot
Me Patrick Ferland
Me Eric Levy
Heenan Blaikie L.L.P.
Attorneys for Petitioner
Me Robert Pare
Fasken Martineau
Attorney for 4113683 Canada Inc. and 3918203 Canada Inc.
Date of hearing: January 6th, 2004
APPENDIX C
PLAN OF
ARRANGEMENT UNDER SECTION 192 OF THE
CANADA BUSINESS CORPORATIONS ACT
ARTICLE 1
DEFINITIONS AND INTERPRETATION
SECTION 1.1 DEFINITIONS
In this Plan of Arrangement, unless there is something in the subject
matter or context inconsistent therewith, the following terms shall have the
respective meanings set out below and grammatical variations of such terms shall
have corresponding meanings:
"4113683" means 4113683 Canada Inc., a corporation incorporated under
the CBCA;
"AMALCO" means the corporation resulting from the Amalgamation;
"AMALGAMATION" means the amalgamation of 4113683 and Cinar pursuant to
Subsection 2.2(d);
"ARRANGEMENT" means an arrangement under the provisions of Section 192
of the CBCA on the terms and conditions set forth in this Plan of
Arrangement, subject to any amendment or modification thereto made in
accordance with the terms of the Arrangement Agreement and this Plan of
Arrangement, or made at the direction of the Court in the Final Order;
"ARRANGEMENT AGREEMENT" means the arrangement agreement made as of the
30th day of October, 2003 between 4113683 and Cinar, as same may be amended
from time to time;
"BUSINESS DAY" means any day, other than a Saturday, Sunday or any
other day on which the principal chartered banks located in Montreal,
Quebec or Toronto, Ontario are not open for business during normal banking
hours;
"CBCA" means the CANADA BUSINESS CORPORATIONS ACt, as now in effect
and as same may be amended from time to time prior to the Effective Date;
"CCE AGREEMENT" means the contingent cash entitlement agreement to be
dated as of the Effective Date among 3918203 Canada Inc., Cinar and the
members of the Litigation Committee (as defined therein) pursuant to which
the CCEs are to be created and allocated;
"CCES" means the contingent cash entitlements to be created by 3918203
Canada Inc. pursuant to the CCE Agreement and to be allocated to the Cinar
Shareholders in payment for their Cinar Shares pursuant to the terms of the
CCE Agreement and the Arrangement;
"CERTIFICATE DATE" has the meaning ascribed thereto in Subsection
4.5(c);
"CINAR" means Cinar Corporation, a corporation incorporated under the
CBCA;
"CINAR OPTIONS" means the Cinar share purchase options granted under
the Cinar Stock Option Plan and being outstanding and unexercised
immediately prior to the Effective Time;
"CINAR PUS" means the performance units granted under the Cinar
Performance Unit Plan and being outstanding and unexercised immediately
prior to the Effective Time;
"CINAR PERFORMANCE UNIT PLAN" means Cinar's Performance Unit Plan, as
amended and restated;
"CINAR SHAREHOLDERS" means the registered holders of Cinar Shares;
"CINAR SHARES" means the Limited Voting Shares and Multiple Voting
Shares;
"CINAR STOCK OPTION PLAN" means Cinar's Stock Option Plan, as amended
and restated;
"CLAIM" means any claim, demand, action, suit, litigation, charge,
prosecution or other proceeding;
"CORPORATE NON-RESIDENT SHAREHOLDER" means a Non-Resident Shareholder
which has not established to the satisfaction of 4113683 that it is not a
corporation for the purposes of the TAXATION ACT (Quebec);
"COURT" means the Quebec Superior Court;
"DEPOSITARY" means Computershare Trust Company of Canada at its
principal office in Toronto;
"DIRECTOR" means the Director appointed under Section 260 of the CBCA;
"DISSENT PROCEDURES" has the meaning ascribed thereto in Section 3.1;
"EFFECTIVE DATE" means the date on which this Plan of Arrangement
becomes effective as established by the date of issue shown on the
Certificate of Arrangement to be issued by the Director pursuant to
Subsection 192(7) of the CBCA giving effect to the Arrangement;
"EFFECTIVE TIME" means 12:01 a.m. (Toronto time) on the Effective
Date;
"FINAL ADJUDICATION" in relation to any matter or proceeding means
that such matter or proceeding has been fully and finally settled or
subject to a final binding (without right of appeal) adjudicative
determination;
"FINAL ORDER" means the final order of the Court approving the
Arrangement following the application therefor contemplated by Section 2.1
of the Arrangement Agreement, as such order may be amended or modified by
the highest court to which appeal may be applied for;
"FOUNDER OPTIONS" means the Cinar Options to acquire the Underlying
Shares which were the subject of the Founder Option Proceedings;
"FOUNDER OPTION PROCEEDINGS" means the proceedings relating to the
Founder Options, which the Founders were claiming the due exercise of,
while Cinar was maintaining the position that the Founder Options were not
duly exercised and that the issuance of Cinar Shares pursuant to the
purported exercise of the Founder Options was not permitted by Law prior to
expiry and, as a result, no financial entitlements or entitlements to
acquire Cinar Shares applied in respect thereof, which proceedings were the
subject of a decision of an arbitration panel dated November 28, 2003;
"FOUNDERS" means Ronald Weinberg, Micheline Charest and/or Persons
controlled by them;
"GOVERNMENTAL ENTITY" means any (i) multinational, federal,
provincial, state, regional, municipal, local or other government,
governmental or public department, central bank, court, tribunal, arbitral
body, commission, board, bureau or agency, domestic or foreign, (ii) any
subdivision, agent, commission, board, or authority of any of the
foregoing, or (iii) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account of
any of the foregoing;
"INTERIM ORDER" means the interim order of the Court made in
connection with the approval of the Arrangement following the application
therefor contemplated by Section 2.1 of the Arrangement Agreement;
"LAWS" means all laws, statutes, codes, ordinances, decrees, rules,
standards, orders-in-council, regulations, by-laws, statutory rules,
principles of law, published policies and guidelines (whether or not having
the force of law), judicial or arbitral or administrative or ministerial or
departmental or regulatory judgments, orders, decisions, rulings or awards,
including general principles of common and civil law, and terms and
conditions of any grant of approval, permission, authority or license of
any Governmental Entity, statutory body, or self-regulatory authority
(including stock exchanges or markets);
"LETTER OF TRANSMITTAL" means the letter of transmittal to be
forwarded by Cinar to Cinar Shareholders together with the Proxy Circular
or such other equivalent form of letter of transmittal acceptable to
4113683, acting reasonably;
"LIMITED VOTING SHARES" means the Limited Voting Shares in the capital
of Cinar;
"MEETING" means the special meeting of the Cinar Shareholders
(including any adjournment or postponement thereof) to be held to, among
other things, consider and, if deemed advisable, approve the Arrangement by
way of special resolution (as defined in the CBCA);
"MULTIPLE VOTING SHARES" means the Variable Multiple Voting Shares in
the capital of Cinar;
"NET LITIGATION PROCEEDS" has the meaning ascribed thereto in the
Arrangement Agreement;
"NON-RESIDENT SHAREHOLDER" means any Person who beneficially owns
Cinar Shares who has not established to the satisfaction of 4113683 that at
all relevant times for the purposes of the INCOME TAX ACT (Canada) he is
resident, or deemed to be resident, in Canada;
"PERSON" includes any individual, firm, partnership, limited liability
company, unlimited liability company, joint venture, venture capital fund,
association, trust, trustee, executor, administrator, legal personal
representative, estate, group, body corporate, corporation, unincorporated
association or organization, Governmental Entity, syndicate or other
entity, whether or not having legal status;
"PREDECESSOR CORPORATIONS" has the meaning ascribed thereto in
Subsection 2.2(d);
"PROXY CIRCULAR" means the management proxy circular of Cinar dated
January 12, 2004 sent to Cinar Shareholders in connection with the Meeting,
including the schedules and appendices thereto and all amendments from time
to time made thereto;
"QUEBEC CERTIFICATE DATE" has the meaning ascribed thereto in
Subsection 4.6(c);
"QUEBEC REMITTANCE DATE" has the meaning ascribed thereto in
Subsection 4.6(d);
"QUEBEC WITHHELD AMOUNT" in respect of any Corporate Non-Resident
Shareholder means the amount withheld from the purchase price for the Cinar
Shares of such Corporate Non-Resident Shareholder pursuant to Subsection
4.6(a) or Subsection 4.6(b);
"REMITTANCE DATE" has the meaning ascribed thereto in Subsection
4.5(d);
"SETTLEMENT DEADLINE" means the date which is five Business Days prior
to the Meeting;
"UNDERLYING SHARES" means the 840,000 Cinar Shares underlying the
Founder Options; and
"WITHHELD AMOUNT" in respect of any Non-Resident Shareholder means the
amount withheld from the purchase price for the Cinar Shares of such
Non-Resident Shareholder pursuant to Subsection 4.5(a) or Subsection
4.5(b).
SECTION 1.2 NUMBER AND GENDER
In this Plan of Arrangement, unless the context otherwise requires, words
importing the singular number include the plural and VICE VERSA, and words
importing any gender include all genders.
SECTION 1.3 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this Plan of Arrangement into Articles, Sections,
Subsections and other parts and the insertion of headings are for convenience
only and shall not affect the construction or interpretation of this Plan of
Arrangement.
SECTION 1.4 DATE FOR ANY ACTION
In the event that any date on or by which any action is required or
permitted to be taken hereunder is not a Business Day, such action shall be
required to be taken on or by the next succeeding day which is a Business Day.
SECTION 1.5 TIME
All times expressed herein or in any Letters of Transmittal are local time
(Toronto, Ontario) unless otherwise stipulated herein or therein.
SECTION 1.6 CURRENCY
All references to currency in this Plan of Arrangement are to United States
dollars, being lawful money of the United States of America.
SECTION 1.7 STATUTORY REFERENCES
Unless otherwise expressly provided herein, any reference in this Plan of
Arrangement to a statute includes all regulations made thereunder, all
amendments to such statute or regulations in force from time to time, and any
statute or regulation that supplements or supersedes such statute or
regulations.
SECTION 1.8 APPENDICES
The following are the Appendices to this Plan of Arrangement, which form an
integral part hereof:
Appendix A - Share Provisions for Amalco Common Shares and Non-Voting
Common Shares
Appendix B - By-Law No. 1 of Amalco
ARTICLE 2
THE ARRANGEMENT
SECTION 2.1 BINDING EFFECT
This Plan of Arrangement will become effective at, and be binding at and
after, the Effective Time on (i) 4113683, (ii) Cinar, (iii) the Cinar
Shareholders, (iv) the holders of Cinar Options, and (v) the holders of Cinar
PUs.
SECTION 2.2 ARRANGEMENT
At the Effective Time, the following shall occur and shall be deemed to
occur in the following order without any further act or formality:
(a) each Cinar Share (other than Cinar Shares in respect of which the Cinar
Shareholder has validly exercised his right of dissent) shall be deemed to
be acquired by 4113683 for:
(i) $3.60 in cash; plus
(ii) in the event that 4113683 has delivered written notice to Cinar prior
to the Settlement Deadline that it is satisfied that the conditions to
the payment based on the amount of the Net Litigation Proceeds set
forth in Subsections 2.6(i), 2.6(ii), 2.6(iii), 2.6(iv), 2.6(v),
2.6(vi) and 2.6(vii) of the Arrangement Agreement have been fulfilled
or that it has waived such conditions, an amount in cash equal to the
PRO RATA amount per Cinar Share of the Net Litigation Proceeds less
the aggregate of $400,000 and any costs and expenses, including legal
fees and disbursements, incurred by Amalco or its predecessor
corporations in collecting any portion of the Net Litigation Proceeds
which has not been received in full by Cinar prior to the Settlement
Deadline; or
(iii) in the event that 4113683 has not delivered written notice to Cinar
prior to the Settlement Deadline that it is satisfied that the
conditions to the payment based on the amount of the Net Litigation
Proceeds set forth in Subsections 2.6(i), 2.6(ii), 2.6(iii), 2.6(iv),
2.6(v), 2.6(vi) and 2.6(vii) of the Arrangement Agreement have been
fulfilled or that it has waived such conditions, one CCE created and
allocated by 3918203 Canada Inc.;
(b) each Cinar Share in respect of which the Cinar Shareholder has validly
exercised his right of dissent shall be deemed to be acquired by 4113683 in
accordance with Article 3;
(c) with respect to each Cinar Share acquired in accordance with Subsection
2.2(a) or Subsection 2.2(b):
(i) the registered holder thereof shall cease to be the registered holder
of such Cinar Share and the name of such registered holder shall be
removed from the register of Cinar Shareholders as of the Effective
Time;
(ii) the certificate representing such Cinar Share shall be deemed to have
been cancelled as of the Effective Time; and
(iii) the registered holder thereof shall be deemed to have executed and
delivered all consents, releases, assignments and waivers, statutory
or otherwise, required to transfer such Cinar Share to 4113683 in
accordance with Subsection 2.2(a) or Subsection 2.2(b), as applicable;
and
(d) all Cinar Options, all Cinar PUs and all other securities and other rights
or entitlements convertible or exchangeable for or with securities of Cinar
shall be cancelled without any consideration therefor or any obligation to
issue any of the securities of Cinar underlying the Cinar Options or any
other such securities or other rights or entitlements and without any
further rights or entitlements of the holders thereof; and
(e) 4113683 and Cinar (sometimes hereinafter referred to as the "PREDECESSOR
CORPORATIONS") will amalgamate to form Amalco with the same effect as if
Section 186 of the CBCA was applicable to such amalgamation and in such
amalgamation:
(i) all of the property of the predecessor corporations immediately before
the Amalgamation will continue to be property of Amalco;
(ii) all of the liabilities of the predecessor corporations immediately
before the Amalgamation will continue to be liabilities of Amalco;
(iii) all existing causes of action, claims or liabilities to prosecution
of or against a predecessor corporation immediately before the
Amalgamation will be unaffected;
(iv) all civil, criminal or administrative actions or proceedings pending
by or against a predecessor corporation immediately before the
Amalgamation may continue to be prosecuted by or against Amalco;
(v) all convictions against, or rulings, orders or judgments in favour of
or against, a predecessor corporation immediately before the
Amalgamation may be enforced by or against Amalco;
(vi) the articles of arrangement in respect of the Arrangement shall be
deemed to be the articles of incorporation of Amalco and the
certificate in respect of the Arrangement shall be deemed to be the
certificate of incorporation of Amalco;
(vii) the name of Amalco will be "Cinar Corporation";
(viii) the registered office of Amalco shall be situated in the Province of
Quebec;
(ix) Amalco will be authorized to issue an unlimited number of common
shares and an unlimited number of non-voting common shares having
attached thereto the rights, privileges, restrictions and conditions
set forth in Appendix A hereto;
(x) no shares in the capital of Amalco shall be transferred without the
consent of the board of directors of Amalco by resolution or in
writing;
(xi) the number of shareholders of Amalco exclusive of persons who are in
its employment and exclusive of persons who, having formerly been in
the employment of Amalco, were, while in that employment, and have
continued after the termination of that employment to be shareholders
of Amalco, is limited to not more than fifty, two or more persons who
are the joint registered owners of one or more shares being counted as
one shareholder;
(xii) any invitation to the public to subscribe for securities of Amalco is
prohibited;
(xiii) each holder of a fractional share issued by Amalco is entitled to
exercise voting rights and to receive a dividend in respect of each
such fractional share to the extent of such fraction;
(xiv) Amalco has a lien on each share registered in the name of a
shareholder or his legal representative for a debt of that shareholder
to Amalco;
(xv) the directors of Amalco may appoint one or more additional directors,
who shall hold office for a term expiring not later than the close of
the next annual meeting of shareholders of Amalco, but the total
number of directors so appointed may not exceed one third of the
number of directors elected at the previous annual meeting of
shareholders;
(xvi) there shall be no restrictions on the businesses which Amalco is
authorized to carry on;
(xvii) the by-law of 4113683 attached hereto as Appendix B, until repealed,
amended, altered or added to, shall be By-Law No. 1 of Amalco;
(xviii) the articles of incorporation of Amalco shall provide that the
board of directors of Amalco without authorization of the shareholders
of Amalco may, from time to time, in such amounts and on such terms as
it deems expedient;
(1) borrow money upon the credit of Amalco;
(2) issue, reissue, sell or pledge debt obligations of Amalco;
(3) give a guarantee on behalf of Amalco to secure performance of an
obligation of any person; and
(4) charge, mortgage, hypothecate, pledge or otherwise create a
security interest in all or any of the currently owned or
subsequently acquired property and assets of Amalco, including,
without limiting the generality of the foregoing, real and
personal property, moveable and immoveable property, tangible and
intangible assets, book debts, rates, powers, franchises and
undertakings, to secure any obligation of Amalco;
(xix) the number of directors of Amalco shall be such number not more than
ten (10) nor less than one (1) as the board of directors of Amalco may
from time to time determine; and
(xx) the first directors of Amalco shall be the persons whose names and
municipalities of residence are set out below, who shall hold office
until the first annual meeting of shareholders of Amalco or the
signing of a resolution in lieu thereof or until their successors are
elected or appointed:
NAME MUNICIPALITY OF RESIDENCE
----- -------------------------
Michael Hirsh Toronto, Ontario
Joe Wiley Toronto, Ontario
John Loh Toronto, Ontario
(xxi) upon the Amalgamation, each common share of 4113683 shall be
converted into one common share of Amalco; and
(xxii) upon the Amalgamation, each Cinar Share shall be cancelled without
any repayment of capital in respect thereof;
provided that none of the foregoing shall occur or shall be deemed to occur
unless all of the foregoing occur.
ARTICLE 3
RIGHTS OF DISSENT
SECTION 3.1 RIGHTS OF DISSENT
Cinar Shareholders may exercise rights of dissent with respect to their
Cinar Shares pursuant to and in the manner set forth in Section 190 of the CBCA
in connection with the Arrangement, provided that, notwithstanding Subsection
190(5) of the CBCA, the written objection to the special resolution approving
the Arrangement referred to in Subsection 190(5) of the CBCA must be received by
Cinar not later than 5:00 p.m. on the second Business Day preceding the Meeting,
and as the same may be further modified by the Interim Order and/or the Final
Order (the "DISSENT PROCEDURES"), and Cinar Shareholders who duly exercise such
rights of dissent and who:
(a) are ultimately entitled to be paid fair value for their Cinar Shares shall
be deemed to have transferred such Cinar Shares to 4113683 at the Effective
Time; or
(b) are ultimately not entitled, for any reason, to be paid fair value for
their Cinar Shares shall be deemed to have participated in the Arrangement
on the same basis as any non-dissenting Cinar Shareholder as, at and from
the Effective Time, and, subject to Article 4, shall receive cash and CCEs
on the basis determined in accordance with Article 2 hereof;
but in no case shall Cinar, 4113683 or Amalco be required to recognize such
Cinar Shareholders as Cinar Shareholders at and after the Effective Time, and
the names of such Cinar Shareholders shall be deleted from the register of Cinar
Shareholders as of the Effective Time.
ARTICLE 4
PAYMENT OF CONSIDERATION
SECTION 4.1 PAYMENT TO REGISTERED HOLDERS
(a) Within ten Business Days after the later of (i) the Effective Date, and
(ii) the delivery to the Depositary of a duly completed Letter of
Transmittal and the certificates representing Cinar Shares, Amalco shall
cause the Depositary:
(A) to forward or cause to be forwarded by first class mail to the Cinar
Shareholder at the address specified in the Letter of Transmittal;
(B) if requested by the Cinar Shareholder in the Letter of Transmittal, to
make available at the offices of the Depositary for pick up by the
Cinar Shareholder; or
(C) if the Letter of Transmittal neither specifies an address nor contains
a request as described in (B) above, to forward or cause to be
forwarded by first class mail to the Cinar Shareholder at the address
of the Cinar Shareholder as shown on the share register maintained by
Cinar immediately prior to the Effective Time;
a cheque in United States dollars representing the cash payment required to
be delivered to such Cinar Shareholder in respect of the Cinar Shares for which
a duly completed Letter of Transmittal and the certificates representing same
have been delivered to the Depositary pursuant to the provisions hereof (less,
in the event that 4113683 has delivered written notice to Cinar prior to the
Settlement Deadline that it is satisfied that the conditions to the payment
based on the amount of the Net Litigation Proceeds set forth in Subsections
2.6(i), 2.6(ii), 2.6(iii), 2.6(iv), 2.6(v), 2.6(vi) and 2.6(vii) of the
Arrangement Agreement have been fulfilled or that it has waived such conditions,
but all of the Net Litigation Proceeds have not been received in full by Cinar
on or prior to the date which is ten Business Days prior to the date that such
cheque is required to be mailed or made available, the portion of such cash
payment payable pursuant to Subsection 2.2(a)(ii) to such Cinar Shareholder),
net of any applicable withholding or other taxes.
(b) In the event that 4113683 has delivered written notice to Cinar prior to
the Settlement Deadline that it is satisfied that the conditions to the
payment based on the amount of the Net Litigation Proceeds set forth in
Subsections 2.6(i), 2.6(ii), 2.6(iii), 2.6(iv), 2.6(v), 2.6(vi) and
2.6(vii) of the Arrangement Agreement have been fulfilled or that it has
waived such conditions, but all of the Net Litigation Proceeds have not
been received in full by Cinar on or prior to the date which is ten
Business Days prior to the date that a cheque is required to be mailed or
made available to the Cinar Shareholder pursuant to Subsection 4.1(a),
within ten Business Days after the later of (i) the receipt by Cinar of all
of the Net Litigation Proceeds in full, and (ii) the delivery to the
Depositary of a duly completed Letter of Transmittal and the certificates
representing Cinar Shares, Amalco shall cause the Depositary:
(A) to forward or cause to be forwarded by first class mail to the Cinar
Shareholder at the address specified in the Letter of Transmittal;
(B) if requested by the Cinar Shareholder in the Letter of Transmittal, to
make available at the offices of the Depositary for pick up by the
Cinar Shareholder; or
(C) if the Letter of Transmittal neither specifies an address nor contains
a request as described in (B) above, to forward or cause to be
forwarded by first class mail to the Cinar Shareholder at the address
of the Cinar Shareholder as shown on the share register maintained by
Cinar immediately prior to the Effective Time;
a cheque in United States dollars representing the portion of the cash
payment payable to such Cinar Shareholder pursuant to Subsection 2.2(a)(ii) in
respect of the Cinar Shares for which a duly completed Letter of Transmittal and
the certificates representing same have been delivered to the Depositary
pursuant to the provisions hereof, net of any applicable withholding or other
taxes.
(c) At least five Business Days prior to Amalco being required to make a
payment contemplated by this Section 4.1 or Section 4.3, Amalco will
provide the Depositary with sufficient funds to enable the Depositary to
make such payments, with such funds to be provided by bank transfer or
other means satisfactory to the Depositary, and such funds shall be held in
trust for the Cinar Shareholders and otherwise as contemplated in this Plan
of Arrangement. All amounts paid to the Cinar Shareholders pursuant to the
Arrangement shall be without interest and any interest earned on funds held
in trust for the Cinar Shareholders pursuant to this Subsection 4.1(c)
shall be for the sole benefit of Amalco.
SECTION 4.2 PAYMENTS
All amounts payable after the Effective Date by 3918203 Canada Inc. on or
in respect of any CCEs to a payee thereof before the delivery by such payee of a
duly completed Letter of Transmittal together with the certificate formerly
representing such payee's Cinar Shares (or an affidavit of loss and bond or
other indemnity pursuant to Section 4.3) shall be paid to the Depositary to be
held by it in trust for such payee. All monies so held in trust by the
Depositary shall be invested by it in interest bearing trust accounts upon such
terms as the Depositary may deem appropriate. Subject to the provisions of
Section 4.4, the Depositary shall pay and deliver to any such payee, as soon as
reasonably practicable after the delivery to the Depositary for cancellation of
the certificates formerly representing such payee's Cinar Shares (or an
affidavit of loss and bond or other indemnity pursuant to Section 4.3) together
with a duly completed Letter of Transmittal, all amounts, net of any applicable
withholding or other taxes, held by the Depositary in trust for such payee
pursuant to this Section 4.2, with any interest earned on the funds so held in
trust to be for the sole benefit of 3918203 Canada Inc.
SECTION 4.3 LOST CERTIFICATES
If any certificate which immediately prior to the Effective Time
represented Cinar Shares that were acquired by 4113683 pursuant to Subsection
2.2(a) has been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Cinar Shareholder claiming such certificate to be lost, stolen
or destroyed and the delivery of a duly completed Letter of Transmittal, in
exchange for such lost, stolen or destroyed certificate, (a) within ten Business
Days after the later of (i) the Effective Date, and (ii) the delivery to the
Depositary of a duly completed Letter of Transmittal, an affidavit of loss and
the bond or other indemnity referred to below, Amalco will cause the Depositary:
(A) to forward or cause to be forwarded by first class mail to the Cinar
Shareholder at the address specified in the Letter of Transmittal;
(B) if requested by the Cinar Shareholder in the Letter of Transmittal, to
make available at the offices of the Depositary for pick up by the
Cinar Shareholder; or
(C) if the Letter of Transmittal neither specifies an address nor contains
a request as described in (B) above, to forward or cause to be
forwarded by first class mail to the Cinar Shareholder at the address
of the Cinar Shareholder as shown on the share register maintained by
Cinar immediately prior to the Effective Time;
a cheque in United States dollars representing the purchase price payable
for such Cinar Shares pursuant to Subsection 2.2(a)(i), net of any applicable
withholding or other taxes, and (b) within ten Business Days after the later of
(i) the receipt by Cinar of all of the Net Litigation Proceeds in full, and (ii)
the delivery to the Depositary of a duly completed Letter of Transmittal, an
affidavit of loss and the bond or other indemnity referred to below, Amalco will
cause the Depositary:
(D) to forward or cause to be forwarded by first class mail to the Cinar
Shareholder at the address specified in the Letter of Transmittal;
(E) if requested by the Cinar Shareholder in the Letter of Transmittal, to
make available at the offices of the Depositary for pick up by the
Cinar Shareholder; or
(F) if the Letter of Transmittal neither specifies an address nor contains
a request as described in (E) above, to forward or cause to be
forwarded by first class mail to the Cinar Shareholder at the address
of the Cinar Shareholder as shown on the share register maintained by
Cinar immediately prior to the Effective Time;
a cheque in United States dollars representing the portion of the purchase
price payable for such Cinar Shares pursuant to Subsection 2.2(a)(ii), net of
any applicable withholding or other taxes. When authorizing such payment in
exchange for any lost, stolen or destroyed certificate, the person to whom a
cheque is to be issued shall, as a condition precedent to such issuance, give a
bond satisfactory to Amalco and the Depositary in such sum as Amalco may direct
or otherwise indemnify Amalco and the Depositary in a manner satisfactory to
them against any claim that may be made against Amalco or the Depositary with
respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 4.4 EXTINCTION OF RIGHTS
If any Cinar Shareholder fails for any reason to deliver to the Depositary
for cancellation the certificates formerly representing Cinar Shares (or an
affidavit of loss and bond or other indemnity pursuant to Section 4.3), together
with a duly completed Letter of Transmittal, on or before the sixth anniversary
of the Effective Date, such Cinar Shareholder shall be deemed to have donated
and forfeited to 4113683 the cash, net of any applicable withholding or other
taxes, held by the Depositary in trust for such Cinar Shareholder pursuant to
Subsection 4.1(c) and Section 4.2 and any other rights under the CCEs to which
such Cinar Shareholder is entitled. Subject to this Section 4.4, at and after
the Effective Time, any certificate formerly representing Cinar Shares shall
represent only the right to receive the consideration provided in Subsection
2.2(a) in accordance with this Plan of Arrangement, provided that such
certificates shall, on the sixth anniversary of the Effective Date, cease to
represent a claim of any nature whatsoever, shall be deemed to have been
surrendered to Amalco and shall be cancelled.
SECTION 4.5 CANADIAN FEDERAL WITHHOLDING TAXES
(a) If a certificate under Subsection 116(2) of the INCOME TAX ACT (Canada) is
delivered to 4113683 or the Depositary on behalf of 4113683 by a
Non-Resident Shareholder at or prior to the Effective Time, 4113683 or the
Depositary on behalf of 4113683 shall be entitled to withhold from the
aggregate purchase price payable pursuant to Subsection 2.2(a) for the
Cinar Shares beneficially owned by the Non-Resident Shareholder delivering
such certificate twenty-five percent (25%) of the amount, if any, by which
the purchase price payable pursuant to Subsection 2.2(a) for the Cinar
Shares beneficially owned by the Non-Resident Shareholder delivering such
certificate exceeds the certificate limit as defined in Subsection 116(2)
of the INCOME TAX ACT (Canada) and fixed by the Minister of National
Revenue in such certificate.
(b) If any Non-Resident Shareholder fails to deliver a certificate to 4113683
or the Depositary on behalf of 4113683 under Subsection 116(2) of the
INCOME TAX ACT (Canada) at or prior to the Effective Time, 4113683 or the
Depositary on behalf of 4113683 shall be entitled to withhold from the
aggregate purchase price payable pursuant to Subsection 2.2(a) for the
Cinar Shares beneficially owned by such Non-Resident Shareholder
twenty-five percent (25%) of such amount.
(c) Where 4113683 or the Depositary on behalf of 4113683 has withheld any
amount payable to a Non-Resident Shareholder and such Non-Resident
Shareholder delivers to 4113683 or the Depositary on behalf of 4113683,
after the Effective Time and within twenty-five (25) days after the end of
the month in which the Effective Time occurs (the "CERTIFICATE DATE"), a
certificate issued by the Minister of National Revenue under Subsection
116(2) or Subsection 116(4) of the INCOME TAX ACT (Canada):
(i) 4113683 or the Depositary on behalf of 4113683 shall pay to the
Receiver General on the Remittance Date twenty-five percent (25%) of
the amount, if any, by which the aggregate purchase price payable
pursuant to Subsection 2.2(a) for the Cinar Shares beneficially owned
by such Non-Resident Shareholder exceeds the certificate limit as
defined in Subsection 116(2) of the INCOME TAX ACT (Canada) and fixed
by the Minister of National Revenue in such certificate, and the
amount so paid shall be credited to 4113683 as payment on account of
the purchase price payable to such Non-Resident Shareholder pursuant
to Subsection 2.2(a) for the Cinar Shares beneficially owned by such
Non-Resident Shareholder;
(ii) 4113683 or the Depositary on behalf of 4113683 shall pay forthwith to
such Non-Resident Shareholder in accordance with Subsection 4.1(a) the
portion of the Withheld Amount that 4113683 or the Depositary on
behalf of 4113683 is not required to pay to the Receiver General in
accordance with Subsection 4.5(c)(i), and the amount so paid shall be
credited to 4113683 as payment on account of the purchase price
payable to such Non-Resident Shareholder pursuant to Subsection 2.2(a)
for the Cinar Shares beneficially owned by such Non-Resident
Shareholder; and
(iii) any interest or other income earned in connection with the Withheld
Amount shall be for the sole benefit of Amalco.
(d) Where 4113683 or the Depositary on behalf of 4113683 has withheld any
amount payable to any Non-Resident Shareholder under the provisions of
Subsection 4.5(a) or Subsection 4.5(b) and no certificate has been
delivered to 4113683 or the Depositary on behalf of 4113683 by such
Non-Resident Shareholder in accordance with the provisions of Subsection
4.5(c), such Withheld Amount shall be paid by 4113683 or the Depositary on
behalf of 4113683 to the Receiver General as contemplated by Subsection
116(5) of the INCOME TAX ACT (Canada) on the date chosen by 4113683, which
shall not be earlier than the 25th day, or later than the 30th day, after
the end of the month in which the Effective Time occurs, (the "REMITTANCE
DATE") on account of such Non-Resident Shareholder's liability for tax
under Part I of the INCOME TAX ACT (Canada), and the amount so paid shall
be credited to 4113683 on account of the purchase price payable to such
Non-Resident Shareholder pursuant to Subsection 2.2(a) for the Cinar Shares
beneficially owned by such Non-Resident Shareholder; provided, however,
that if the Canada Customs and Revenue Agency confirms in writing on or
before the Remittance Date that 4113683 or the Depositary on behalf of
4113683 may continue to hold the amount withheld until a later date without
adverse consequences to 4113683 or the Depositary, then 4113683 or the
Depositary on behalf of 4113683 shall continue to hold such amount on the
terms and conditions of this Section 4.5 and on the terms outlined in such
confirmation from the Canada Customs and Revenue Agency, and the
Certificate Date and the Remittance Date shall be deemed to have been
extended until such later date. Any interest or other income earned in
connection with the Withheld Amount shall be for the sole benefit of
Amalco.
(e) Nothing in this Section 4.5 shall limit the entitlement of 4113683 to
deduct and withhold amounts from any consideration payable to any Cinar
Shareholder pursuant to Section 4.7.
SECTION 4.6 QUEBEC WITHHOLDING TAXES
(a) If a certificate under Section 1098 of the TAXATION ACT (Quebec) is
delivered to 4113683 or the Depositary on behalf of 4113683 by a Corporate
Non-Resident Shareholder at or prior to the Effective Time, 4113683 or the
Depositary on behalf of 4113683 shall be entitled to withhold from the
aggregate purchase price payable pursuant to Subsection 2.2(a) for the
Cinar Shares beneficially owned by the Corporate Non-Resident Shareholder
delivering such certificate twelve percent (12%) of the amount, if any, by
which the purchase price payable pursuant to Subsection 2.2(a) for the
Cinar Shares beneficially owned by the Corporate Non-Resident Shareholder
delivering such certificate exceeds the estimated amount of the proceeds of
disposition as fixed by the Quebec Minister of Revenue in such certificate.
(b) If any Corporate Non-Resident Shareholder fails to deliver to 4113683 or
the Depositary on behalf of 4113683 a certificate under Section 1098 of the
TAXATION ACT (Quebec) at or prior to the Effective Time, 4113683 or the
Depositary on behalf of 4113683 shall be entitled to withhold from the
aggregate purchase price payable pursuant to Subsection 2.2(a) for the
Cinar Shares beneficially owned by such Corporate Non-Resident Shareholder
twelve percent (12%) of such amount.
(c) Where 4113683 or the Depositary on behalf of 4113683 has withheld any
amount payable to a Corporate Non-Resident Shareholder and such Corporate
Non-Resident Shareholder delivers to 4113683 or the Depositary on behalf of
4113683, after the Effective Time and within twenty-five (25) days after
the end of the month in which the Effective Time occurs (the "QUEBEC
CERTIFICATE DATE"), a certificate issued by the Quebec Minister of Revenue
under Section 1098 or Section 1100 of the TAXATION ACT (Quebec):
(i) 4113683 or the Depositary on behalf of 4113683 shall pay to the Quebec
Minister of Revenue on the Quebec Remittance Date twelve percent (12%)
of the amount, if any, by which the aggregate purchase price payable
pursuant to Subsection 2.2(a) for the Cinar Shares beneficially owned
by such Corporate Non-Resident Shareholder exceeds the estimated
amount of the proceeds of disposition as fixed by the Quebec Minister
of Revenue in such certificate, and the amount so paid shall be
credited to 4113683 as payment on account of the purchase price
payable to such Corporate Non-Resident Shareholder pursuant to
Subsection 2.2(a) for the Cinar Shares beneficially owned by such
Corporate Non-Resident Shareholder;
(ii) 4113683 or the Depositary on behalf of 4113683 shall pay forthwith to
such Corporate Non-Resident Shareholder in accordance with Subsection
4.1(a) the portion of the Quebec Withheld Amount that 4113683 or the
Depositary on behalf of 4113683 is not required to pay to the Quebec
Minister of Revenue in accordance with Subsection 4.6(c)(i), and the
amount so paid shall be credited to 4113683 as payment on account of
the purchase price payable to such Corporate Non-Resident Shareholder
pursuant to Subsection 2.2(a) for the Cinar Shares beneficially owned
by such Corporate Non-Resident Shareholder; and
(iii) any interest or other income earned in connection with the Quebec
Withheld Amount shall be fore the sole benefit of Amalco.
(d) Where 4113683 or the Depositary on behalf of 4113683 has withheld any
amount payable to any Corporate Non-Resident Shareholder under the
provisions of Subsection 4.6(a) or Subsection 4.6(b) and no certificate has
been delivered to 4113683 or the Depositary on behalf of 4113683 by such
Corporate Non-Resident Shareholder in accordance with the provisions of
Subsection 4.6(c), such Quebec Withheld Amount shall be paid by 4113683 or
the Depositary on behalf of 4113683 to the Quebec Minister of Revenue as
contemplated by Section 1101 of the TAXATION ACT (Quebec) on the date
chosen by 4113683, which shall not be earlier than the 25th day, or later
than the 30th day, after the end of the month in which the Effective Time
occurs, (the "QUEBEC REMITTANCE DATE") on account of such Corporate
Non-Resident Shareholder's liability for tax under the TAXATION ACT
(Quebec), and the amount so paid shall be credited to 4113683 on account of
the purchase price payable to such Corporate Non-Resident Shareholder
pursuant to Subsection 2.2(a) for the Cinar Shares beneficially owned by
such Corporate Non-Resident Shareholder; provided, however, that if the
Quebec Minister of Revenue confirms in writing on or before the Quebec
Remittance Date that 4113683 or the Depositary on behalf of 4113683 may
continue to hold the amount withheld until a later date without adverse
consequences to 4113683 or the Depositary, then 4113683 or the Depositary
on behalf of 4113683 shall continue to hold such amount on the terms and
conditions of this Section 4.6 and on the terms outlined in such
confirmation from the Quebec Minister of Revenue, and the Quebec
Certificate Date and the Quebec Remittance Date shall be deemed to have
been extended until such later date. Any interest or other income earned in
connection with the Quebec Withheld Amount shall be for the sole benefit of
Amalco.
(e) Nothing in this Section 4.6 shall limit the entitlement of 4113683 to
deduct and withhold amounts from any consideration payable to any Cinar
Shareholder pursuant to Section 4.7.
SECTION 4.7 ADDITIONAL WITHHOLDING TAXES
4113683 or the Depositary on behalf of 4113683 shall be entitled to deduct
and withhold from any consideration payable to any Cinar Shareholder any amounts
as 4113683 or the Depositary on behalf of 4113683 is required or permitted to
deduct and withhold with respect to such payment under Section 116 of the INCOME
TAX ACT (Canada) or any other provision of the INCOME TAX ACT (Canada), Sections
1097 and following of the TAXATION ACT (Quebec) or any other provision of the
TAXATION ACT (Quebec), the United States INTERNAL REVENUE CODE OF 1986 or any
provision of provincial, state, local or foreign tax Laws. To the extent that
amounts are so withheld, such withheld amounts shall be treated for all purposes
hereof as having been paid to the Cinar Shareholder in respect of which such
deduction and withholding was made, provided that such withheld amounts are
actually remitted to the appropriate taxing authority. To the extent that the
amount so required or permitted to be deducted or withheld from any payment to a
Cinar Shareholder exceeds the cash portion of the consideration otherwise
payable to such Cinar Shareholder, 4113683 or the Depositary on behalf of
4113683 is hereby authorized to sell or otherwise dispose of such portion of the
consideration as is necessary to provide sufficient funds to 4113683 or the
Depositary on behalf of 4113683 to enable it to comply with such deduction or
withholding requirement and neither 4113683 nor the Depositary shall be required
to notify the Cinar Shareholder thereof or remit to the Cinar Shareholder any
unapplied balance of the net proceeds of such sale.
ARTICLE 5
AMENDMENT
SECTION 5.1 AMENDMENT
(a) 4113683 and Cinar may amend, modify and/or supplement this Plan of
Arrangement at any time and from time to time prior to the Effective Time,
provided that any such amendment, modification or supplement must be
approved by each of 4113683 and Cinar in a written document which is filed
with the Court and, if made following the Meeting, approved by the Court
and communicated to Cinar Shareholders in the manner required by the Court
(if so required).
(b) Any amendment, modification or supplement to this Plan of Arrangement which
is directed by the Court following the Meeting shall be effective only if
(i) it is consented to in writing by 4113683 and Cinar, and (ii) if
required by the Court, it is consented to by the Cinar Shareholders in the
manner directed by the Court.
(c) Any amendment, modification or supplement to this Plan of Arrangement may
be made following the Effective Date unilaterally by Amalco, provided that
it concerns a matter which, in the reasonable opinion of Amalco, is of an
administrative nature required to better give effect to the implementation
of this Plan of Arrangement and is not adverse to the financial or economic
interests of any Cinar Shareholders.
ARTICLE 6
FURTHER ASSURANCES
SECTION 6.1 OTHER DOCUMENTS AND INSTRUMENTS
Notwithstanding that the transactions or events set out herein shall occur
and shall be deemed to occur in the order set out in this Plan of Arrangement
without any further authorization, act or formality, Cinar and 4113683 agree to
make, do and execute, or cause and cause to be made, done and executed, all such
further acts, deeds, agreements, transfers, assurances, instruments or documents
as may reasonably be required by either of them in order further to document or
evidence any of the transactions or events set out herein including, without
limitation, any resolutions of directors authorizing the issue, exchange,
transfer, purchase for cancellation or donation of shares and any share transfer
powers evidencing the transfer of shares and any receipts therefor.
NOTE TO READERS: COPIES OF APPENDIX A - SHARE PROVISIONS FOR AMALCO COMMON
SHARES AND NON-VOTING COMMON SHARES AND APPENDIX B - BY-LAW NO. 1 OF AMALCO ARE
AVAILABLE FROM CINAR UPON REQUEST
APPENDIX D
CONTINGENT CASH ENTITLEMENTS AGREEMENT
THIS CONTINGENT CASH ENTITLEMENTS AGREEMENT is made as of the ____ day of ___,
2004, among 3918203 Canada Inc.(the "MANAGER"), a corporation incorporated under
the laws of Canada, Cinar Corporation ("CINAR"), a corporation incorporated
under the laws of Canada and G. Wesley Voorheis and Lisa de Wilde.
WHEREAS 4113683 Canada Inc. (the "PURCHASER"), a subsidiary of the Manager, and
Cinar have entered into an arrangement agreement made as of the 30th day of
October, 2003 (the "ARRANGEMENT AGREEMENT") providing for a plan of arrangement
(the "PLAN OF ARRANGEMENT") under the provisions of Section 192 of the CBCA (as
hereinafter defined), pursuant to which the Purchaser will acquire all of the
Cinar Shares (as hereinafter defined), whereupon Cinar will become a
wholly-owned subsidiary of the Purchaser;
AND WHEREAS pursuant to the Plan of Arrangement, the Purchaser and Cinar will
amalgamate;
AND WHEREAS the Purchaser has agreed to complete the Plan of Arrangement
notwithstanding the existence of the Specified Litigation (as hereinafter
defined);
AND WHEREAS Cinar and the Purchaser wish to ensure that the consideration for
the Cinar Shares (as hereinafter defined) payable to the Cinar Shareholders (as
hereinafter defined) pursuant to the Plan of Arrangement is increased in an
equitable manner based on the proceeds that may be recovered by the Cinar
Entities (as hereinafter defined) in the Specified Litigation;
AND WHEREAS while the Cinar Entities will retain exclusive title to the claims
they have made in the Specified Litigation, the conduct of the Specified
Litigation will hereinafter be managed by the Litigation Committee (as
hereinafter defined) pursuant to the terms of this Agreement;
AND WHEREAS the Plan of Arrangement provides for the Manager to create and
allocate contingent cash entitlements to the Cinar Shareholders (as hereinafter
defined);
AND WHEREAS in consideration of the Manager agreeing to create and allocate
contingent cash entitlements to the Cinar Shareholders pursuant to the Plan of
Arrangement, the Purchaser has agreed to cause the Cinar Entities to pay all
Litigation Proceeds (as hereinafter defined) to the Manager to be held by the
Manager in the Litigation Account (as hereinafter defined) to be used by the
Manager for the purposes set forth in this Agreement, including funding
Litigation Payments (as hereinafter defined) and Expenses (as hereinafter
defined), and paying the CCE Payment Amount (as hereinafter defined) to the
payees of the contingent cash entitlements, with the balance of the Litigation
Account to be retained by the Manager for its sole benefit;
AND WHEREAS all things necessary have been done to make the contingent cash
entitlements, when created and allocated pursuant to the Plan of Arrangement,
the valid obligations of the Manager and to make this Agreement a valid
agreement of the Manager in accordance with its terms, and to ensure that the
creation and allocation of the contingent cash entitlements will be exempt from
the prospectus and registration requirements of applicable Canadian provincial
and territorial securities legislation and will not require registration under
the United States SECURITIES ACT OF 1933.
NOW THEREFORE, for and in consideration of the premises and the consummation of
the transactions referred to above, it is mutually covenanted and agreed as
follows:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1 DEFINITIONS.
Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Arrangement Agreement and the following
additional terms shall have the following meanings:
"ACT" when used with respect to any Payee, has the meaning ascribed
thereto in Section 1.6;
"AFFILIATE" has the meaning ascribed thereto by the CBCA on the date
hereof;
"AGGREGATE CCE PAYMENT AMOUNT" means an amount equal to the Net
Litigation Proceeds, multiplied by the CCE Percentage;
"AGGREGATE INTERIM PAYMENT AMOUNT" has the meaning ascribed thereto in
Section 2.5(a);
"AMALGAMATION" means the amalgamation of Cinar and the Purchaser
pursuant to the Arrangement;
"ARRANGEMENT" means the arrangement involving the Purchaser and Cinar
under the provisions of Section 192 of the CBCA on the terms and conditions
set forth in the Plan of Arrangement;
"ARRANGEMENT AGREEMENT" has the meaning ascribed thereto in the
recitals to this Agreement;
"ASSOCIATE" has the meaning ascribed thereto by the CBCA on the date
hereof;
"BOARD OF DIRECTORS" means the board of directors of Cinar;
"BRB LITIGATION" has the meaning ascribed thereto in Exhibit A to this
Agreement;
"BUSINESS DAY" means any day, other than a Saturday, Sunday or any
other day on which the principal chartered banks located in Montreal,
Quebec or Toronto, Ontario are not open for business during normal banking
hours;
"CASH EQUIVALENTS" means:
(a) obligations issued or guaranteed by the Government of Canada or any
province of Canada or any agency or instrumentality thereof;
(b) term deposits, guaranteed investment certificates, certificates of
deposit or bankers' acceptances of or guaranteed by any Canadian
chartered bank or other financial institution, the short-term debt or
deposits of which have been rated at least investment grade by
Standard & Poor's Corporation, Moody's Investors Service, Inc. or
Dominion Bond Rating Service Limited; and
(c) commercial paper rated at least investment grade or the equivalent by
Standard & Poor's Corporation, Moody's Investors Service, Inc. or
Dominion Bond Rating Service Limited;
in each case either maturing within 365 days after the date of
acquisition or for which the Manager believes that there will be a liquid
market for the resale thereof within such 365 day period;
"CBCA" means the CANADA BUSINESS CORPORATIONS ACT;
"CCE PAYMENT AMOUNT" for each CCE equals the amount determined by
dividing the Aggregate CCE Payment Amount by the total number of CCEs
outstanding on the CCE Payment Date;
"CCE PAYMENT DATE" means the date on which the CCE Payment Amount is
paid by the Manager to the Payees, which shall be established pursuant to
Section 2.6(a) (or the date on which it is determined by a majority of the
members of the Litigation Committee that the Net Litigation Proceeds shall
be nil or a negative amount);
"CCE PERCENTAGE" means 70% multiplied by, in the case that any Cinar
Shareholders validly exercise their rights of dissent in respect of the
Arrangement and are ultimately entitled to be paid fair value for their
Cinar Shares, a fraction, the numerator of which shall be the aggregate
number of Cinar Shares in respect of which Cinar Shareholders (i) do not
validly exercise their rights of dissent in respect of the Arrangement, or
(ii) validly exercise their rights of dissent in respect of the
Arrangement, but are ultimately not entitled, for any reason, to be paid
fair value for their Cinar Shares, and the denominator of which shall be
the number of Cinar Shares issued and outstanding immediately prior to the
Effective Time;
"CCE REGISTER" has the meaning ascribed thereto in Section 2.3(b);
"CCE REGISTRAR" has the meaning ascribed thereto in Section 2.3(b);
"CCES" means the contingent cash entitlements to be created by the
Manager pursuant to this Agreement and the Arrangement;
"CCRA" means the Canada Customs and Revenue Agency;
"CINAR" means Cinar Corporation, a corporation incorporated under the
laws of Canada, including, following the Amalgamation, the corporation
formed on the Amalgamation;
"CINAR ENTITIES" means, collectively, Cinar and its Subsidiaries
(determined immediately prior to the Effective Time);
"CINAR MEMBER" means Lisa de Wilde and her successors pursuant this
Agreement;
"CINAR SHAREHOLDERS" means the registered holders of Cinar Shares;
"CINAR SHARES" means the Multiple Voting Shares and Limited Voting Shares;
"CLAIM" means any claim, demand, action, suit, litigation, charge,
prosecution or other proceeding;
"DEDUCTIBLE PORTION" has the meaning ascribed thereto in Section 2.4(b);
"DEDUCTIBLE PORTION OF EXPENSES" has the meaning ascribed thereto in
Section 2.4(b);
"DETERMINATIONS" has the meaning ascribed thereto in Section 2.4(d);
"DIRECTOR" means the Director appointed pursuant to Section 260 of the
CBCA;
"EFFECTIVE DATE" means the date upon which the Plan of Arrangement
becomes effective as established by the date of issue shown on the
Certificate of Arrangement issued by the Director pursuant to Section
192(7) of the CBCA;
"EFFECTIVE TIME" means 12:01 a.m. (Eastern Time) on the Effective
Date;
"EMPLOYEES" has the meaning ascribed thereto in Section 3.2(e);
"EXPENSES" has the meaning ascribed thereto in Section 2.4(b);
"FINAL ADJUDICATION" means, in respect of any Specified Litigation,
that such Specified Litigation has been fully and finally settled or
subject to final binding (without right of appeal) adjudicative
determination;
"FIRM" has the meaning ascribed thereto in Section 2.4(g);
"FIRM EXPENSES" has the meaning ascribed thereto in Section 2.4(g);
"FOUNDERS" means Ronald Weinberg, Micheline Charest and/or Persons
controlled by them;
"FOUNDER OPTION PROCEEDINGS" means the Amended Motion for an Order to
modify the Registers of Cinar in relation to certain options of Multiple
Voting Shares and Limited Voting Shares of Cinar Corporation by Micheline
Charest, Ronald A. Weinberg, 153114 Canada Inc. and 2950955 Canada Inc.
against Cinar, with the number of options under dispute being 420,000
Multiple Voting Shares and 420,000 Limited Voting Shares, in the file of
the Superior Court of Quebec (Commercial Division) bearing the number
500-11-021343-039, which was the subject of a final and binding decision of
an arbitration panel dated November 28, 2003;
"FOURNIER LITIGATION" has the meaning ascribed thereto in Exhibit A to
this Agreement;
"GOVERNMENTAL ENTITY" means any (i) multinational, federal,
provincial, state, regional, municipal, local or other government,
governmental or public department, central bank, court, tribunal, arbitral
body, commission, board, bureau or agency, domestic or foreign, (ii) any
subdivision, agent, commission, board, or authority of any of the
foregoing, or (iii) any quasi-governmental or private body exercising any
regulatory, expropriation or taxing authority under or for the account of
any of the foregoing;
"GROSS INTERIM PAYMENT AMOUNT" has the meaning ascribed thereto in
Section 2.5(a);
"INDEPENDENT MEMBER" means the member of the Litigation Committee
appointed pursuant to Section 3.5(a) and his successors pursuant to this
Agreement;
"INTEREST EXPENSES" has the meaning ascribed thereto in Section 5.1(d);
"INTERIM MANAGER AMOUNT" has the meaning ascribed thereto in Section
2.5(a);
"INTERIM PAYMENT AMOUNT" for each CCE equals the amount determined by
dividing the Aggregate Interim Payment Amount by the total number of CCEs
outstanding on the date that the payment of the Aggregate Interim Payment
Amount is made to the Payees;
"LAWS" means all laws, statutes, codes, ordinances, decrees, rules,
standards, orders-in-council, regulations, by-laws, statutory rules,
principles of law, published policies and guidelines (whether or not having
the force of law), judicial or arbitral or administrative or ministerial or
departmental or regulatory judgments, orders, decisions, rulings or awards,
including general principles of common and civil law, and terms and
conditions of any grant of approval, permission, authority or license of
any Governmental Entity, statutory body, or self-regulatory authority
(including stock exchanges or markets), and the term "applicable" with
respect to such Laws and in the context that refers to one or more Persons,
means that such Laws apply to such Person or Persons or its or their
business, undertaking, property or securities and emanate from a Person
having jurisdiction over the Person or Persons or its or their business,
undertaking, property or securities;
"LIMITED VOTING SHARES" means the Limited Voting Shares in the capital
of Cinar;
"LITIGATION ACCOUNT" has the meaning ascribed thereto in Section 5.1(d);
"LITIGATION COMMITTEE" means the committee contemplated by Article 3
which as of the date of this Agreement consists of G. Wesley Voorheis and
Lisa de Wilde;
"LITIGATION PAYMENTS" means all compensation, damages, penalties,
interest, costs and other payments in the form of cash or Cash Equivalents,
if any, paid, payable or to become payable by the Cinar Entities in or in
relation to the Specified Litigation or in respect of any Third Party
Rights, whether such compensation, damages, penalties, interest, costs or
other payments are paid, payable or will become payable pursuant to a court
order made at trial or upon appeal or pursuant to the terms of any
settlement agreement (whether paid or becoming payable before or after the
date of this Agreement). For greater certainty, the set-off by any of the
Cinar Entities of any Litigation Proceeds against any Litigation Payment
which would otherwise have been payable by any of the Cinar Entities shall
be deemed to be a payment by the Cinar Entities of such Litigation Payment;
"LITIGATION PROCEEDS" means all compensation, damages, penalties,
interest, costs and other payments in the form of cash or Cash Equivalents,
if any, received by the Cinar Entities in the Specified Litigation, whether
such compensation, damages, penalties, interest, costs or other payments
are recovered or received pursuant to a court order made at trial or upon
appeal or pursuant to the terms of any settlement agreement (whether
received before or after the date of this Agreement). For greater
certainty, the set-off by any of the Cinar Entities of any Litigation
Proceeds against any Litigation Payment which would otherwise have been
payable by any of the Cinar Entities shall be deemed to be a receipt by the
Cinar Entities of such Litigation Proceeds;
"MANAGER" has the meaning ascribed thereto in the first paragraph of
this Agreement;
"MANAGER MEMBER" means G. Wesley Voorheis and his successors pursuant
to this Agreement;
"MULTIPLE VOTING SHARES" means the Variable Multiple Voting Shares in
the capital of Cinar;
"NET LITIGATION PROCEEDS" has the meaning ascribed thereto in Section
2.4(b);
"NET LITIGATION PROCEEDS CERTIFICATE" has the meaning ascribed thereto
in Section 2.4(a);
"NOTICE OF AGREEMENT" has the meaning ascribed thereto in Section
2.4(d);
"NOTICE OF OBJECTION" has the meaning ascribed thereto in Section
2.4(d);
"OFFICER'S CERTIFICATE" means a certificate signed by the chairman of
the Board of Directors, the president, any vice president, the controller,
the treasurer, the secretary or any assistant secretary, in each case of
Cinar, in his or her capacity as such an officer, and delivered to the
members of the Litigation Committee;
"OPINION OF COUNSEL" means a written opinion of counsel, who shall be
selected by a majority of the members of the Litigation Committee;
"PAYEE" means a Person whose name appears in the CCE Register as
having a CCE;
"PERSON" means and includes any individual, corporation, limited
partnership, general partnership, joint stock company, limited liability
corporation, joint venture, association, company, trust, bank, trust
company, pension fund, business trust or other organization, whether or not
a legal entity, and any Governmental Authority;
"PLAN OF ARRANGEMENT" has the meaning ascribed thereto in the recitals
to this Agreement;
"PRIME" means the annual rate of interest announced by the Royal Bank
of Canada from time to time as being a reference rate then in effect for
determining interest rates on commercial loans made in Canadian dollars in
Canada;
"PURCHASER" has the meaning ascribed thereto in the recitals to this
Agreement;
"RESOLUTION" has the meaning ascribed thereto in Section 2.4(g);
"SETTLEMENT DECISION" means any decision to grant consent to the
settlement of any aspect or portion of the Specified Litigation or
otherwise to dismiss with prejudice any claim of or against a Cinar Entity
in the Specified Litigation (and any other determination specified in
Section 5.1(b) relating to such a decision);
"SPECIFIED LITIGATION" means the matters referred to in Appendix A
and, for greater certainty, does not include the Founder Option
Proceedings. The Specified Litigation shall include all Claims and
counter-Claims in effect at the Effective Time (and any amendments thereto)
together with any Claims and counter-Claims relating to the Specified
Litigation that may arise thereafter (and any amendments thereto). For
greater certainty, the Specified Litigation shall be deemed to include any
further Claims, counter-Claims, joinder of parties, warranty Claims and
recursory Claims arising out of or related to the facts alleged in the
proceedings specified in Appendix A by any Person, and Claims and
counter-Claims include any Claim or counter-Claim (including any possible
Claim or counter-Claim and any amendment to a Claim or counter-Claim)
against a Person (including a co-defendant of any Cinar Entity) who
reasonably has or would have a right of contribution or indemnity or
similar right, contingent or otherwise, (a "THIRD PARTY RIGHT") as against
any Cinar Entity in respect of such Claim or counter-Claim;
"STRATEGIC DECISION" means, with respect to the Specified Litigation,
any decision that involves the appeal of any aspect of the case (whether
after a verdict or on an interlocutory basis), the addition of any Claim or
party, changing legal counsel or the basis for payment of the fees of
counsel, any admission of liability with respect to any Claim against a
Cinar Entity in the Specified Litigation, or any other proposed decision or
determination that, in the opinion of outside counsel representing the
Cinar Entities in the Specified Litigation, represents a material change or
development in strategy with respect to the Specified Litigation and
results in a substantial likelihood that the recovery or receipt by the
Cinar Entities of any amount of Litigation Proceeds (whether pursuant to a
court order at trial or upon appeal or pursuant to the terms of any
settlement agreement) will be delayed or the payment of any amount of
Litigation Payments (whether pursuant to a court order at trial or upon
appeal or pursuant to the terms of any settlement agreement) will be
accelerated; provided, however, a Strategic Decision shall not include any
action that constitutes (in whole or in part) a Settlement Decision;
"SUBSIDIARY" has the meaning ascribed thereto by the CBCA on the date
hereof;
"TAXABLE PORTION" has the meaning ascribed thereto in Section 2.4(b);
"TAX BENEFITS" has the meaning ascribed thereto in Section 2.4(b);
"TAXES" has the meaning ascribed thereto in Section 2.4(b);
"TAX ACT" means the INCOME TAX ACT (Canada), as amended from time to
time, and the regulations thereunder;
"TERMINATION DATE" means the third anniversary of the execution of
this Agreement, subject to extension pursuant to Section 7.1;
"THIRD PARTY RIGHT" has the meaning ascribed thereto in the definition
of Specified Litigation.
SECTION 1.2 HEADINGS.
In this Agreement, the headings are for convenience of reference only, do
not form a part of this Agreement and are not to be considered in the
interpretation of this Agreement.
SECTION 1.3 INTERPRETATION.
In this Agreement,
(a) words importing the masculine gender include the feminine and neuter
genders, corporations, partnerships and other Persons, and words in
the singular include the plural, and vice versa, wherever the context
requires;
(b) where the word "including" or "includes" is used in this Agreement it
means "including without limitation" or "includes without limitation",
respectively;
(c) all references to designated Articles, Sections and other subdivisions
are to the designated Articles, Sections and other subdivisions of
this Agreement;
(d) any reference to any document shall include a reference to any
schedule, amendment or supplement thereto or any agreement in
replacement thereof, all as permitted under such document;
(e) all accounting terms not otherwise defined will have the meanings
assigned to them by, and all computations to be made will be made in
accordance with, generally accepted accounting principles in Canada
from time to time;
(f) unless otherwise specified, any reference to a statute will include
and will be deemed to be a reference to the regulations and rules made
pursuant to it, and to all amendments made to the statute, the
regulations and the rules in force from time to time, and to any
statute, regulation or rule that may be passed which has the effect of
supplementing or superseding the statute referred to or the relevant
regulation or rule;
(g) any reference to a Person will include and will be deemed to be a
reference to any Person that is a successor to that Person;
(h) "hereof", "hereto", "herein", and "hereunder" mean and refer to this
Agreement and not to any particular Article, Section or other
subdivision.
SECTION 1.4 CURRENCY.
Except as otherwise expressly provided, all references to currency in this
Agreement are references to lawful money of the United States of America.
SECTION 1.5 DATE FOR ANY ACTION.
In the event that any date on which any action is required to be taken
hereunder by any of the parties hereto is not a Business Day, such action shall
be required to be taken on the next succeeding day that is a Business Day.
SECTION 1.6 ACTS OF PAYEES.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by
Payees may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Payees in person or by
their agents duly appointed in writing; and, except as herein
otherwise expressly provided, such action shall become effective when
such instrument or instruments, executed by the requisite percentage
of the Payees in accordance with this Agreement, are delivered to the
members of the Litigation Committee and, where it is hereby expressly
required, to Cinar and the Manager. Such instrument or instruments
(and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "ACT" of the Payees signing such
instrument or instruments. Unless otherwise expressly provided to the
contrary herein, the Act of the Payees holding a majority of the
outstanding CCEs shall constitute the Act of the Payees.
(b) The fact and date of the execution by any Person of any such
instrument or instruments may be proved in any reasonable manner that
the members of the Litigation Committee deem sufficient.
(c) The ownership of CCEs shall be proved by the CCE Register.
SECTION 1.7 NOTICES TO LITIGATION COMMITTEE, CINAR AND THE MANAGER.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Payees or other document provided or permitted by this Agreement to be
made upon, given or furnished to, or filed with:
(a) the members of the Litigation Committee by Cinar, the Manager or any
Payee shall be sufficient for every purpose hereunder if in writing
and delivered personally, or mailed, first-class postage prepaid, or
sent by a nationally recognized overnight courier to the members of
the Litigation Committee addressed to them c/o Goodman and Carr LLP,
2300-200 King Street West, Toronto, Ontario M5H 3W5, Attention:
Lawrence S. Chernin, or at any other address previously furnished in
writing to the Payees, Cinar and the Manager by the members of the
Litigation Committee; or
(b) Cinar or the Manager by the Litigation Committee or any member thereof
or by any Payee shall be sufficient for every purpose hereunder if in
writing and delivered personally, telecopied or mailed, first-class
postage prepaid, or sent by a nationally recognized overnight courier
to Cinar addressed to it c/o Goodman and Carr LLP, 2300-200 King
Street West, Toronto, Ontario M5H 3W5, Attention: Lawrence S. Chernin,
or to the Manager addressed to it c/o Goodman and Carr LLP, 2300-200
King Street West, Toronto, Ontario M5H 3W5, Attention: Lawrence S.
Chernin or at any other address previously furnished in writing to the
members of the Litigation Committee and the Payees by Cinar or the
Manager, as the case may be.
SECTION 1.8 NOTICE TO PAYEES.
Where this Agreement provides for notice to Payees, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid, to each Payee affected by such event,
at his, her or its address as it appears in the CCE Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Payees is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Payee shall affect the sufficiency of such notice with respect to
other Payees.
SECTION 1.9 SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Agreement by Cinar and the Manager
shall bind their respective successors and assigns, whether so expressed or not.
SECTION 1.10 BENEFITS OF AGREEMENT.
Nothing in this Agreement, express or implied, shall give to any Person
(other than the parties hereto, the Payees and their successors and permitted
assigns hereunder) any benefit or any legal or equitable right, remedy or claim
under this Agreement or under any covenant or provision herein contained, all
such covenants and provisions being for the sole benefit of the parties hereto,
the Payees and their successors and permitted assigns.
SECTION 1.11 GOVERNING LAW.
This Agreement and the CCEs shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein and shall be treated in all respects as Ontario contracts.
SECTION 1.12 SEVERABILITY CLAUSE.
In case any one or more of the provisions contained in this Agreement shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Agreement, and this Agreement shall be construed as if such
invalid or illegal or unenforceable provision had never been contained herein.
Upon such determination that any term or other provision is invalid, illegal or
unenforceable, the court or other tribunal making such determination is
authorized and instructed to modify this Agreement so as to effect the original
intent of the parties as closely as possible so that the transactions and
agreements contemplated herein are consummated as originally contemplated to the
fullest extent possible.
SECTION 1.13 COUNTERPARTS.
This Agreement may be signed in any number of counterparts, each of which
shall be deemed to constitute one and the same instrument.
SECTION 1.14 EFFECTIVENESS.
This Agreement shall be effective from and after the first creation and
allocation of CCEs in payment for Cinar Shares pursuant to the Arrangement. This
Agreement shall be deemed terminated and of no force or effect, and the parties
hereto shall have no liability hereunder, if the Arrangement Agreement is
terminated in accordance with its terms prior to the Effective Date.
SECTION 1.15 PAYEES NOT SHAREHOLDERS OR SECURITY HOLDERS OF CINAR OR THE
MANAGER.
Nothing in this Agreement or in being the payee of a CCE or otherwise,
shall, in itself, confer or be construed as conferring upon a Payee (i) any
right or interest whatsoever as a shareholder or other security holder of Cinar
or the Manager, including the right to vote at, to receive notice of, or to
attend, meetings of shareholders or other security holders or any other
proceedings of Cinar or the Manager, or the right to receive dividends and other
distributions payable on the shares or other securities of Cinar or the Manager,
(ii) any other equity or ownership interest in Cinar or the Manager, or (iii)
any other right not expressly granted pursuant to this Agreement. For greater
certainty, in the event that the Net Litigation Proceeds are being calculated as
a result of the occurrence of the Termination Date, upon the payment to the
Payees of the CCE Payment Amount, as calculated in accordance with this
Agreement, for each CCE, the Payees shall have no right to receive any further
payments hereunder in respect of the CCEs regardless of whether (i) any
additional Litigation Proceeds are received by the Cinar Entities following the
Termination Date, or (ii) the reserve taken when calculating the Net Litigation
Proceeds in an amount determined by the Manager, acting reasonably, sufficient
to pay any Litigation Payments and other Expenses which may become payable by
the Cinar Entities, including in or in relation to any remaining Specified
Litigation or Third Party Rights which have not been subject to Final
Adjudication on or prior to the Termination Date, is greater than the actual
amount of such Litigation Payments and other Expenses.
SECTION 1.16 CCES UNSECURED.
The CCEs represent unsecured obligations of the Manager and are not
entitled to the benefit of any security in any of the assets of the Manager or
Cinar.
SECTION 1.17 ENTIRE AGREEMENT.
This Agreement, the Arrangement Agreement and the Plan of Arrangement
represent the entire understanding of the parties hereto with reference to the
transactions and matters contemplated hereby and thereby and this Agreement
supersedes any and all other oral or written agreements heretofore made except
for the Arrangement Agreement. If and to the extent that any provision of this
Agreement is inconsistent or conflicts with the Arrangement Agreement or the
Plan of Arrangement, this Agreement shall govern and be controlling.
SECTION 1.18 LANGUAGE
This agreement has been drawn up in the English language at the request of
all of the parties. CE CONTRAT A ETE REDIGE EN ANGLAIS A LA DEMANDE DE TOUTES
LES PARTIES.
ARTICLE 2
CONTINGENT CASH ENTITLEMENTS
SECTION 2.1 CREATION AND ALLOCATION OF CCES.
The CCEs shall be created and allocated pursuant to this Agreement and the
Arrangement at the times and in the manner set forth in the Plan of Arrangement.
SECTION 2.2 NON-TRANSFERABLE.
The CCEs shall not be assignable or otherwise transferable by Payees,
except by sole operation of law or by testamentary will.
SECTION 2.3 NO CERTIFICATE; REGISTRATION; REGISTRATION OF TRANSFER;
CHANGE OF ADDRESS.
(a) The CCEs shall not be evidenced by a certificate or other instrument.
(b) The Manager shall cause to be kept at the Manager's principal office a
register (the register maintained in such office and in any other
office designated pursuant to this Section 2.3 being herein sometimes
referred to as the "CCE REGISTER") in which the Manager shall provide
for the registration of CCEs. The Secretary of the Manager is hereby
initially appointed "CCE Registrar" for the purpose of registering
CCEs and transfers of CCEs as herein provided in Section 2.2 and
Section 2.3(c).
(c) For the purposes of effecting any transfer permitted pursuant to
Section 2.2, every request made to the Manager to transfer a CCE must
be in writing and accompanied by a written instrument of transfer in
form reasonably satisfactory to the Manager and the CCE Registrar,
duly executed by the Payee thereof or his attorney duly authorized in
writing, personal representative or survivor and setting forth in
reasonable detail the circumstances relating to the transfer. Upon
receipt by the Manager of such written request, the CCE Registrar
shall, subject to his reasonable determination that the transfer
instrument is in proper form and the transfer otherwise complies with
the other terms and conditions herein, register the transfer of the
relevant CCEs in the CCE Register. All transfers of CCEs registered in
the CCE Register shall be the valid obligations of the Manager,
evidencing the same right, and shall entitle the transferee to the
same benefits and rights under this Agreement, as those held by the
transferor. No transfer of a CCE shall be valid until registered in
the CCE Register and any transfer not duly registered in the CCE
Register will be void AB INITIO.
(d) A Payee may make a written request to the CCE Registrar or the Manager
to change such Payee's address of record in the CCE Register. The
written request must be duly executed by the Payee or his attorney
duly authorized in writing. Upon receipt by the CCE Registrar or the
Manager of such written notice, the CCE Registrar shall promptly
record the change of address in the CCE Register.
SECTION 2.4 PAYMENT PROCEDURES.
(a) As promptly as practicable, but in no event later than 30 days, after
the earlier of (x) the Termination Date, and (y) the last to occur of:
(i) the Final Adjudication of all of the Specified Litigation having
occurred and having resulted in each of the Cinar Entities and
their respective officers, directors and employees (including,
for greater certainty, former officers, directors and employees)
having been fully and irrevocably released from any liability in
respect of the Specified Litigation;
(ii) every co-defendant of a Cinar Entity in any of the Specified
Litigation having been fully and irrevocably released from any
liability in respect of the Specified Litigation or having fully
and irrevocably released the Cinar Entities and their respective
officers, directors and employees (including, for greater
certainty, former officers, directors and employees) from any
claim of contribution or indemnity such Person may have as
against the Cinar Entities and their respective officers,
directors and employees (including, for greater certainty, former
officers, directors and employees);
(iii) the Cinar Entities and their respective officers, directors and
employees (including, for greater certainty, former officers,
directors and employees) having been fully and irrevocably
released from any obligations to indemnify or make contributions
to any Person in connection with or related to the Specified
Litigation and the Cinar Entities and their respective officers,
directors and employees (including, for greater certainty, former
officers, directors and employees) having been fully and
irrevocably released from any liability in connection with or
related to any Specified Litigation or Third Party Rights in
which they are not directly named as defendants; and
(iv) the receipt by the Cinar Entities of all of the Litigation
Proceeds (or a determination having been made by a majority of
the members of the Litigation Committee that the Net Litigation
Proceeds shall be nil or a negative amount);
Cinar shall deliver to the Litigation Committee and the Manager a
certificate (the "NET LITIGATION PROCEEDS CERTIFICATE") setting forth
in reasonable detail the calculation of the Net Litigation Proceeds.
(b) "NET LITIGATION PROCEEDS" shall be calculated by taking:
(i) the Litigation Proceeds (after deducting Taxes, if any, assumed
payable thereon by the Cinar Entities at the assumed tax rate as
hereinafter provided) (excluding, for greater certainty, from the
calculation of Net Litigation Proceeds in the event that the Net
Litigation Proceeds are being calculated as a result of the
occurrence of the Termination Date, any Litigation Proceeds
received or receivable by a Cinar Entity after the Termination
Date), together with interest earned by the Manager on the
Litigation Account net of taxes assumed payable thereon at an
assumed combined federal-provincial tax rate of 40.37%;
and deducting therefrom the aggregate of:
(ii) all Litigation Payments and litigation, settlement and other
out-of-pocket expenses relating to the Specified Litigation and
the Founder Option Proceedings unpaid as of August 29, 2003 or
arising thereafter, including, all Firm Expenses, all Interest
Expenses, all expenses and other payments contemplated by Section
3.2(e) or Section 3.4, all expenses incurred to determine the Net
Litigation Proceeds, all expenses (including professional fees)
incurred by the Purchaser, the Manager and the Cinar Entities
with respect to the CCEs, including the administration of the
CCEs pursuant to this Agreement, and all other related third
party and professional costs;
(iii) any expenses incurred by the Cinar Entities prior to the payment
of all of the Aggregate CCE Payment Amount in connection with any
actual or alleged violation by any Cinar Entity or any of its
directors, officers or employees (including, for greater
certainty, former officers, directors and employees) of any Law
which occurred or is alleged to have occurred prior to the
Effective Date, including all expenses (including professional
fees) incurred in connection with any investigation by any
Governmental Entity (including CCRA, any provincial taxing
authority, the United States Internal Revenue Service, or any
taxing authority in any jurisdiction, including any sales tax
authority) of any such actual or alleged violation of Law or
defending any charges (or the equivalent) laid or threatened in
connection with any such actual or alleged violation of any Law,
and any fines, penalties or other amounts which the Cinar
Entities agree or are required to pay as a result of any such
actual or alleged violation of any Law; and
(iv) in the event that the Net Litigation Proceeds are being
calculated as a result of the occurrence of the Termination Date,
a reserve in an amount determined by the Manager, acting
reasonably, sufficient to pay any Litigation Payments and
Expenses which may become payable by the Cinar Entities,
including in or in relation to any remaining Specified Litigation
or Third Party Rights which have not been subject to Final
Adjudication.
The amounts referred to in (ii) and (iii) above (other than the
Litigation Payments) are referred to collectively as the "EXPENSES".
For greater certainty, it is understood that any Taxes that may be
payable by the Manager as a result of the payment of the Litigation
Proceeds, if any, by the Cinar Entities to the Manager pursuant to
Section 5.1(d) do not constitute "Expenses" for the purposes of this
Agreement. The amounts referred to in (ii) and (iii) above shall be
reduced by the Tax benefits, if any, deemed available to the Cinar
Entities (as hereinafter provided) as a result of making such
payments. For greater certainty, Payees shall have no liability in the
event that the Net Litigation Proceeds are negative.
For the purposes of this Agreement and the calculation of Net
Litigation Proceeds:
(v) "TAXES" means the income tax that would be payable by the Cinar
Entities on the Taxable portion of the amount received by them,
assuming: (A) a combined federal-provincial tax rate of 36.62%
(or if the amount is taxable in a taxation year ending after
2003, provided the general Ontario tax rate is 11% or lower for
that taxation year, a rate of 33.02%); and (B) that the Cinar
Entities have no tax losses, credits or deductions available to
them to reduce Taxes;
(vi) "TAX BENEFITS" means the income tax savings that would be
available to the Cinar Entities be on the Deductible portion of a
payment or the Deductible portion of Expenses related to or in
connection with the settlement or litigation, or actual or
alleged violation of Law, as the case may be, assuming a combined
federal-provincial tax rate of 36.62% (or if the amount is
deductible in a taxation year ending after 2003, provided the
general Ontario tax rate is 11% or lower for that taxation year,
a rate of 33.02%);
(vii) the "TAXABLE PORTION" of an amount received by the Cinar
Entities and the "DEDUCTIBLE PORTION" of a payment made by the
Cinar Entities and the "DEDUCTIBLE PORTION OF EXPENSES" related
to any amount so received or paid, shall be determined by the
Litigation Committee in the following manner. Once an item of
Specified Litigation has been subject to Final Adjudication (or,
in respect of the Final Adjudication of the Founder Option
Proceedings, the BRB Litigation and the Fournier Litigation,
which has already occurred, forthwith following the execution of
this Agreement) or, in the case of Expenses referred to in item
(iii) of the definition of "Net Litigation Proceeds" above and
any other Expenses that do not relate specifically to any
particular item of Specified Litigation, prior to the payment of
the Aggregate CCE Payment Amount, the Litigation Committee shall,
in consultation with its tax advisors, determine the Taxable
portion, Deductible portion and Deductible portion of Expenses
that is the subject matter of and/or related to the Final
Adjudication or actual or alleged violation of Law or the CCEs
generally, as the case may be. In making such determination, the
Litigation Committee will take into account any limitations or
restrictions on effective deductibility as a result of the
Purchaser acquiring control of Cinar. Such determination of the
Litigation Committee to be effective must be approved by the
Cinar Member and the Manager Member. If such approval is not
obtained, any one or more members of the Litigation Committee
shall be authorized to instruct the tax advisors to the
Litigation Committee (such tax advisors to be agreed upon the
Cinar Member and the Manager Member) to contact CCRA and to
provide CCRA with details of the nature and quantum of the Final
Adjudication and, if appropriate, the Expenses incurred in
connection therewith or with the actual or alleged violation of
Law or with the CCEs generally, as the case may be, with a view
to obtaining a ruling, interpretation or other comfort from CCRA
as to the Taxable portion, Deductible portion and/or the
Deductible portion of Expenses of or related to the Final
Adjudication or actual or alleged violation of Law or the CCEs
generally, as the case may be. The determination of the level
and/or type of comfort to be sought from CCRA shall be determined
by the Litigation Committee (by majority approval, provided that
the Manager Member must be included in such majority). Further,
the Litigation Committee (by majority approval, provided that the
Manager Member must be included in such majority) may also
determine to conduct proceedings objecting to or appealing any
determination by CCRA with respect to any of the foregoing
matters. Notwithstanding the foregoing, if the Taxable portion,
Deductible portion or the Deductible portion of Expenses, as the
case may be, has not been determined in accordance with the
foregoing by the earlier of (A) six months after all of the
Specified Litigation has been subject to Final Adjudication,
including the Cinar Entities being released from all Third Party
Rights, and (B) the date determined pursuant to Section 2.4(a),
then any amount which has not already been determined by the
Litigation Committee in accordance with the foregoing not to
constitute a Taxable portion, a Deductible portion or a
Deductible portion of Expenses, as the case may be, shall be
deemed to constitute a Taxable portion of an amount received by
the Cinar Entities or not to be a Deductible portion of a payment
made by the Cinar Entities or not to be a Deductible portion of
Expenses, as the case may be; and
(viii) Net Litigation Proceeds shall be calculated in United States
dollars. For the purposes of calculating Net Litigation Proceeds:
(A) the amount of any Litigation Proceeds received in a currency
other than United States dollars shall be the amount
actually deposited into the Litigation Account on account of
such Litigation Proceeds at the actual exchange rate at
which such Litigation Proceeds are converted;
(B) the amount of any Litigation Payment paid or payable in a
currency other than United States dollars shall be the
amount required to be withdrawn from the Litigation Account
in United States dollars in order to make such Litigation
Payment at the actual exchange rate at which such withdrawn
funds are converted in order to make such Litigation
Payment;
(C) the amount of any Expenses paid or payable in a currency
other than United States dollars shall be the amount
required to be withdrawn from the Litigation Account in
United States dollars in order to pay such Expenses at the
actual exchange rate at which such withdrawn funds are
converted in order to pay such Expenses or, if such Expenses
are paid directly from amounts provided by Cinar pursuant to
Section 5.1(d) which are repaid using Canadian funds
obtained by converting United States dollars withdrawn from
the Litigation Account, the amount of such Expenses shall be
the amount required to be withdrawn from the Litigation
Account in United States dollars in order to repay such
amounts provided by Cinar at the actual exchange rate at
which such withdrawn funds are converted in order to repay
such amounts.
(c) The Net Litigation Proceeds Certificate shall set forth in reasonable
detail:
(i) the amount of the Litigation Proceeds received by the Cinar
Entities, if any;
(ii) the amount of the Litigation Payments paid, payable or to become
payable by or on behalf of the Cinar Entities, if any;
(iii) an itemized list in reasonable detail of all Expenses;
(iv) the calculation of the CCE Payment Amount as well as the details
of any Interim Payment Amount to be credited against the CCE
Payment Amount;
(v) any assumptions underlying the determination of any item used in
making the necessary calculations; and
(vi) any financial or other documentation reasonably necessary to
sufficiently support such calculations.
(d) Within 30 days of delivery of the Net Litigation Proceeds Certificate,
each member of the Litigation Committee shall give written notice to
Cinar, the Manager and each other member of the Litigation Committee
specifying whether he or she agrees with or objects (a "NOTICE OF
Agreement" and a "NOTICE OF OBJECTION", respectively) to the Net
Litigation Proceeds Certificate and the CCE Payment Amount. Any Notice
of Objection shall set forth in reasonable detail each of the
objections to the calculations, valuations, methodologies, lists,
computations, assumptions and other information (collectively, the
"DETERMINATIONS") that the member of the Litigation Committee
delivering the Notice of Objection has to the Net Litigation Proceeds
Certificate.
(e) If at least two of the members of the Litigation Committee deliver a
Notice of Agreement and any CCE Payment Amount is payable, the Manager
shall establish the CCE Payment Date in accordance with Section
2.6(a).
(f) If at least two of the members of the Litigation Committee deliver a
Notice of Objection within such 30 day period, the Manager shall
continue to hold all amounts in the Litigation Account (subject to
Section 5.1(d)) until a Resolution is obtained pursuant to the
procedures set forth in Section 2.4(g).
(g) Within ten days of the delivery of the second Notice of Objection, the
members of the Litigation Committee shall submit the portions of the
Determinations set forth in the Net Litigation Proceeds Certificate
that are in dispute to Richter, Usher & Vineberg (or such other
independent public accounting firm of national standing selected
jointly by the Manager Member and the Cinar Member) (the "FIRM"). The
Firm shall be instructed to determine as soon as is practicable
whether the Determinations set forth in the Net Litigation Proceeds
Certificate that are in dispute are correct (without taking into
account any Firm Expenses (as hereinafter defined)). If the Firm
determines that such Determinations are correct, the CCE Payment
Amount shall be as set forth in the Net Litigation Proceeds
Certificate reduced by an amount equal to the CCE Percentage of the
Firm Expenses divided by the total number of CCEs outstanding on the
CCE Payment Date, and each member of the Litigation Committee shall be
deemed to have delivered a Notice of Agreement with respect to such
Net Litigation Proceeds Certificate and the Manager shall establish
the CCE Payment Date in accordance with Section 2.6(a). If the Firm
determines that any of the Determinations set forth in the Net
Litigation Proceeds Certificate are incorrect in any respect (whether
or not material), the Firm's resulting calculation of the CCE Payment
Amount (which shall take into account the Firm Expenses) shall be
binding on all parties hereto (the "RESOLUTION") and the Manager, upon
receiving notice of such Resolution, shall set the CCE Payment Date in
accordance with Section 2.6(a). All costs and expenses billed by the
Firm in connection with the performance of its duties described herein
(the "FIRM EXPENSES") shall be paid by the Manager on behalf of Cinar
out of, and to the extent of, the funds in the Litigation Account and
shall be included in the Expenses.
(h) If any member of the Litigation Committee does not deliver a Notice of
Agreement or a Notice of Objection to the Net Litigation Proceeds
Certificate within the 30 day period described above, such member of
the Litigation Committee shall be deemed to have delivered a Notice of
Agreement with respect to such Net Litigation Proceeds Certificate.
SECTION 2.5 INTERIM PAYMENTS ON CCES.
(a) At any time prior to the establishment of a CCE Payment Date pursuant
to Section 2.6, provided that there are no amounts owing to Cinar
pursuant to Section 5.1(d), the Manager may, in its sole discretion,
make payment to the Payees in respect of the CCEs and to itself in
such amount (the "GROSS INTERIM PAYMENT AMOUNT") as it may determine
in its sole discretion to be advisable after taking a reserve
sufficient to provide for amounts which may be required to pay
Litigation Payments and other Expenses which are or may become payable
in respect of Specified Litigation which has not been subject to Final
Adjudication or which has been subject to Final Adjudication, but
amounts remain payable by any of the Cinar Entities in respect of such
Final Adjudication. Of the Gross Interim Payment Amount, the CCE
Percentage thereof (the "AGGREGATE INTERIM PAYMENT AMOUNT") shall be
paid to the Payees and the balance thereof (100% less the CCE
Percentage thereof) (the "INTERIM MANAGER AMOUNT") shall be withdrawn
from the Litigation Account and retained by the Manager for its sole
benefit. If the Manager determines to make a payment to the Payees and
itself pursuant to this Section 2.5, the Manager shall promptly (i)
cause the Interim Payment Amount to be delivered to each of the Payees
in respect of each CCE held by them by cheque mailed to the address of
each Payee as reflected in the CCE Register as of the close of
business on the last Business Day prior to such mailing or, in the
circumstances set forth in Section 4.2 of the Plan of Arrangement, to
the Depositary to be held in trust by the Depositary and dealt with in
accordance with such Section, and any such amount paid shall be
credited against the CCE Payment Amount ultimately required to be paid
pursuant to Section 2.6 and (ii) withdraw the Interim Manager Amount
from the Litigation Account and retain it for its sole benefit.
(b) The Manager shall be entitled to deduct and withhold, or cause to be
deducted or withheld, from the Interim Payment Amount otherwise
payable pursuant to this Agreement such amounts as it is required to
deduct and withhold with respect to the making of such payment under
the Tax Act, or any provision of provincial, local or foreign tax law.
To the extent that amounts are so withheld and paid over to or
deposited with the relevant Governmental Authority, such withheld
amounts shall be treated for all purposes of this Agreement as having
been paid to the Payee in respect of which such deduction and
withholding was made.
(c) The posting or delivery of the cheque required pursuant to Section
2.5(a) shall be deemed to be payment and shall satisfy and discharge
all liabilities for the payment of the Interim Payment Amount to the
extent of the sum represented thereby (plus the amount of any tax
required to be deducted and withheld as provided for in Section
2.5(b)) unless such cheque is not paid on due presentation. Subject to
applicable law, any Interim Payment Amount which is represented by a
cheque which has not been presented for payment or that otherwise
remains unclaimed for a period of six years from the date of mailing
of such cheque for the Interim Payment Amount shall be forfeited to
the Manager (subject to earlier termination of the rights of a Payee
pursuant to Section 4.4 of the Plan of Arrangement).
SECTION 2.6 PAYMENTS ON CCES.
(a) If the CCE Payment Amount is determined to be payable in accordance
with Section 2.4, the Manager shall establish the CCE Payment Date
which shall be within 15 days following the date on which the CCE
Payment Amount is finally determined. On the CCE Payment Date, the
Manager shall promptly cause the CCE Payment Amount to be delivered to
each of the Payees in respect of each CCE held by them by cheque
mailed to the address of each Payee as reflected in the CCE Register
as of the close of business on the last Business Day prior to the CCE
Payment Date or, in the circumstances set forth in Section 4.2 of the
Plan of Arrangement, to the Depositary to be held in trust by the
Depositary and dealt with in accordance with such Section.
(b) The determination of the CCE Payment Amount pursuant to the procedures
set forth in Section 2.4, absent a mathematical error, shall be final
and binding on Cinar, the Manager and each Payee.
(c) The Manager shall be entitled to deduct and withhold, or cause to be
deducted or withheld, from the CCE Payment Amount otherwise payable
pursuant to this Agreement such amounts as it is required to deduct
and withhold with respect to the making of such payment under the Tax
Act, or any provision of provincial, local or foreign tax law. To the
extent that amounts are so withheld and paid over to or deposited with
the relevant Governmental Authority, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the
Payee in respect of which such deduction and withholding was made.
(d) The posting or delivery of the cheque required pursuant to Section
2.6(a) shall be deemed to be payment and shall satisfy and discharge
all liabilities for the payment of the CCE Payment Amount to the
extent of the sum represented thereby (plus the amount of any tax
required to be deducted and withheld as provided for in Section
2.6(c)) unless such cheque is not paid on due presentation. Subject to
applicable law, any CCE Payment Amount which is represented by a
cheque which has not been presented for payment or that otherwise
remains unclaimed for a period of six years from the CCE Payment Date
shall be forfeited to the Manager (subject to earlier termination of
the rights of a Payee pursuant to Section 4.4 of the Plan of
Arrangement).
(e) Following the payment of the Aggregate CCE Payment Amount, any amount
remaining in the Litigation Account shall be withdrawn from the
Litigation Account and retained by the Manager for its sole benefit.
ARTICLE 3
THE LITIGATION COMMITTEE
SECTION 3.1 CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The members of the Litigation Committee undertake to perform such
duties and only such duties as are specifically set forth in this
Agreement. The members of the Litigation Committee shall exercise such
of the rights and powers vested in them by this Agreement, and use the
same degree of care and skill in their exercise, as a prudent man
would exercise or use under the circumstances in the conduct of his
own affairs; provided, however, that the members of the Litigation
Committee shall not be liable for any acts or omissions except to the
extent that they have engaged in wilful misconduct or acted in bad
faith.
(b) No provision of this Agreement shall be construed to relieve the
members of the Litigation Committee from liability for their own
wilful misconduct or bad faith, except that no provision of this
Agreement shall require the members of the Litigation Committee to
expend or risk their own funds or otherwise incur any financial
liability in the performance of any of their duties hereunder or in
the exercise of any of their rights or powers.
(c) The members of the Litigation Committee shall have the sole power and
duty to direct and supervise all matters involving the Specified
Litigation (including trial strategy and planning and settlement
strategy) on behalf of the Manager and the Cinar Entities; provided
that all decisions and determinations with respect to the Specified
Litigation (including any Settlement Decision or Strategic Decision)
shall be made in accordance with Section 5.1(b). The Manager Member
shall have primary responsibility for the day-to-day direction and
supervision of the Specified Litigation and may, without the approval
of any of the Manager, the Cinar Entities or any of the other members
of the Litigation Committee, make decisions and determinations in
accordance with Section 5.1(b) with respect to the day-to-day conduct
of the Specified Litigation and such decisions shall be deemed to made
on behalf of all of the members of the Litigation Committee. The
Manager Member shall have the power to, from time to time, delegate
any of his responsibilities and authorities under this Agreement to
any other member of the Litigation Committee. Notwithstanding the
foregoing, (i) the approval of a majority of the members of the
Litigation Committee (provided that the Manager Member must be
included in such majority) shall be required for any Strategic
Decision, and (ii) the unanimous approval of the members of the
Litigation Committee (other than the Independent Member) shall be
required for any Settlement Decision. Notwithstanding the foregoing,
at any time following the second anniversary of the Effective Date,
the Manager Member may require that the Cinar Entities offer to submit
any of the Specified Litigation to a binding arbitration process and
the other members of the Litigation Committee and Cinar shall do all
things reasonably necessary to make and give effect to such offer.
(d) The members of the Litigation Committee shall confer in person or by
telephone at least once per month, but in any event as frequently as
necessary to keep all members of the Litigation Committee informed
about material developments in the Specified Litigation, on at least
three days' prior notice. At least one such conference per month shall
include a briefing by the Manager Member that describes the progress
of the Specified Litigation and summarizes any material decisions or
determinations that were made without seeking the approval of the
other members of the Litigation Committee.
(e) The Manager Member shall preside at all meetings or conferences of the
members of the Litigation Committee.
(f) The members of the Litigation Committee shall establish procedures for
making decisions in an expedited manner in the case of exigent or
emergency circumstances arising in connection with the Specified
Litigation.
(g) The members of the Litigation Committee shall be deemed to be agents
of the Manager and the Cinar Entities for all purposes relating to
evidentiary privileges, including solicitor-client privileges.
SECTION 3.2 CERTAIN RIGHTS OF MEMBERS OF THE LITIGATION COMMITTEE; ACTIONS
OF THE MEMBERS OF THE LITIGATION COMMITTEE.
The members of the Litigation Committee undertake to perform such duties
and only such duties as are specifically set forth in this Agreement, and no
implied covenants or obligations shall be read into this Agreement against the
members of the Litigation Committee. In addition:
(a) the members of the Litigation Committee may rely and shall be
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order or other paper or document believed by them
to be genuine and to have been signed or presented by the proper party
or parties;
(b) whenever the members of the Litigation Committee shall deem it
desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the members of the
Litigation Committee may, in the absence of bad faith or wilful
misconduct on their part, rely upon an Officer's Certificate;
(c) the members of the Litigation Committee may engage and consult with
counsel of their selection and the written advice of such counsel
shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by them hereunder in good faith
and in reliance thereon;
(d) the members of the Litigation Committee may engage and consult with
accounting firms, tax experts, valuation firms and other experts and
third parties that they, in their sole and absolute discretion, deem
appropriate or necessary to enable them to discharge their duties
hereunder;
(e) the members of the Litigation Committee may engage and direct
employees of the Cinar Entities or any affiliate of any of the Cinar
Entities (collectively, the "EMPLOYEES") to respond to discovery
requests, attend and prepare for depositions, prepare for and testify
at trial, or take any other action that the members of the Litigation
Committee believe is necessary or prudent in prosecuting or defending
the Specified Litigation. If an Employee takes any action in
accordance with this Section 3.2(e), Cinar and the Manager shall be
entitled to treat as Expenses (and Cinar shall be entitled to be
reimbursed) an amount equal to (i) (A) the hours that the Employee is
required to work in connection with such engagement multiplied by (B)
the hourly rate of such Employee (determined by dividing (x) the sum
(without duplication) of (1) the Employee's annual salary payable in
cash at the time of the engagement plus (2) the Employee's annual
bonus for the prior fiscal year plus (3) the employment taxes that the
employer is required to pay with respect to such amounts plus (4) the
out-of-pocket costs of the Cinar Entities and their affiliates, as the
case may be, of all other employee benefits, including employer-paid
health care, employer-paid life insurance premiums, and employer
contributions to savings and pension plans, in respect of the
Employee, by (y) the product of (1) 52 weeks less the number of weeks
of vacation to which the Employee is entitled to during the current
calendar year multiplied by (2) if such Employee is a full-time
employee, 40, or if such Employee is not a full time employee, the
number of hours that such Employee is expected to work each week), but
only in the event that, and then only to the extent that, the
aggregate of all such amounts in respect of all Employees and all
engagements exceeds $25,000, plus (ii) the out-of-pocket expenses
incurred in connection with such engagement. Prior to commencing any
engagement, Cinar shall provide to the Litigation Committee an
estimate of the number of hours that Cinar expects that Employees will
expend in connection with the engagement, the position of the
Employees that it expects to work on the engagement, an estimate of
the hourly rate of such Employees, and an estimate of any material
out-of-pocket expenses Cinar expects to be incurred in connection with
such engagement. During the course of the engagement Cinar shall
submit to the Litigation Committee an update of the estimate
(including a statement of actual hours worked by each Employee and the
hourly rate of such Employee and actual out-of-pocket expenses
incurred) not less than monthly (or any shorter period as reasonably
requested by the engaging members of the Litigation Committee at the
time of the engagement) or at any time that Cinar knows that the
actual amount of work will materially exceed the initial estimate.
Cinar shall submit separate bills for each engagement at the end of
each fiscal quarter setting forth the name of the Employee that worked
on the engagement, the hours such Employee spent for such fiscal
quarter on such engagement (accompanied by appropriate billing sheets
prepared by such Employee), the hourly rate for such Employee
(accompanied by any reasonable evidence of such rate that the
Litigation Committee), and the out-of-pocket expenses incurred
(accompanied by receipts for any material item);
(f) the members of the Litigation Committee shall not be required to give
any bond or surety in respect of the execution of such powers or
otherwise in respect of this Agreement; and
(g) the members of the Litigation Committee may be Payees.
Except as otherwise expressly provided in this Agreement, all decisions of
the Litigation Committee shall be taken by majority vote of the members of the
Litigation Committee; provided, however, that (i) the right to engage parties
(including Employees) to perform services with respect to the day-to-day conduct
of the Specified Litigation shall be made by the Manager Member, (ii) decisions
with respect to Strategic Decisions shall be made by the applicable majority
required for Strategic Decisions as set forth in Section 3.1(c), and (iii)
decisions with respect to Settlement Decisions shall be made by the applicable
majority required for Settlement Decisions as set forth in Section 3.1(c).
SECTION 3.3 NOT RESPONSIBLE FOR RECITALS OR CREATION OF CCES.
The recitals contained herein shall be taken as the statements of Cinar and
the Manager, and the members of the Litigation Committee assume no
responsibility for their correctness. The members of the Litigation Committee
make no representations as to the validity or sufficiency of this Agreement or
the CCEs. The members of the Litigation Committee shall not be accountable or
liable for the use or application by the Cinar Entities of the Litigation
Proceeds or by the Manager of the Litigation Account. SECTION 3.4 COMPENSATION,
REIMBURSEMENT AND INDEMNIFICATION OF THE MEMBERS OF THE LITIGATION COMMITTEE.
The following payments shall be made by the Manager on behalf of Cinar and
shall constitute Expenses:
(a) the payment to each member of the Litigation Committee of compensation
for his or her services in an amount to be determined by agreement
between the Manager and the members of the Litigation Committee (which
may include an additional amount payable to the Manager Member) until
the CCE Payment Date (or such earlier date as determined in accordance
with Section 3.7);
(b) except as otherwise expressly provided herein, the payment to or on
behalf of the members of the Litigation Committee, upon the request of
the members of the Litigation Committee, of all reasonable expenses
and disbursements incurred or to be incurred by the members of the
Litigation Committee in connection with the discharge of their duties
under this Agreement (including the reasonable compensation and the
expenses and disbursements of their counsel, accounting firms, tax
experts, valuation firms and other experts and third parties as
contemplated in Section 3.2 and including premiums paid from time to
time for liability insurance coverage for the members of the
Litigation Committee); and
(c) the payments to the members of the Litigation Committee required in
order to indemnify the members of the Litigation Committee and hold
them harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs,
reasonable expenses and reasonable disbursements of any kind or nature
whatsoever (including the reasonable compensation and the expenses and
disbursements of their counsel, accounting firms, tax experts,
valuation firms and other experts and third parties as contemplated in
Section 3.2) that may be imposed on, asserted against or incurred by
them under, or in connection with their duties pursuant to, this
Agreement, and the members of the Litigation Committee shall be so
indemnified under this Agreement for their own negligence, but the
members of the Litigation Committee do not have the right to be
indemnified under this Agreement for their own wilful misconduct or
bad faith.
SECTION 3.5 APPOINTMENT OF INITIAL INDEPENDENT MEMBER; RESIGNATION AND
REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) Forthwith following the execution and delivery of this Agreement, the
Manager Member and the Cinar Member shall appoint an individual agreed
upon by them as the initial Independent Member.
(b) The members of the Litigation Committee may resign at any time by
giving written notice thereof to Cinar and the Manager.
(c) The Manager Member may be removed at any time by notice from the
Manager delivered to the members of the Litigation Committee and
Cinar, and the Independent Member may be removed at any time by notice
from the Manager Member and the Cinar Member delivered to the members
of the Litigation Committee and Cinar.
(d) In the event that any member of the Litigation Committee resigns, is
removed or becomes incapable of acting, then such member of the
Litigation Committee shall not be entitled to any compensation payable
pursuant to Section 3.4 from and after the date of his resignation,
removal or incapacity, except for indemnification payments pursuant to
Section 3.4(c) in respect of the period prior to such resignation,
removal or incapacity and reimbursement pursuant to Section 3.4(b) for
expenses incurred prior to such resignation, removal or incapacity.
(e) If the Manager Member shall resign, be removed or become incapable of
acting, the Manager shall promptly appoint a qualified individual, who
may be an officer, director, employee or shareholder of the Manager,
as the successor Manager Member. If the Independent Member shall
resign, be removed, or become incapable of acting, or the Cinar Member
shall resign or become incapable of acting, a qualified individual
shall be appointed as the successor Independent Member or Cinar
Member, as the case may be, by the unanimous agreement of the
remaining members of the Litigation Committee. In the event that as a
result of both the Cinar Member and the Independent Member resigning,
being removed or becoming incapable of acting, or the Cinar Member
resigning, being removed or becoming incapable of acting prior to the
initial Independent Member being appointed pursuant to Section 3.5(a),
there is neither a Cinar Member nor an Independent Member, the Manager
Member shall first appoint a qualified individual, who shall not be an
officer, director, employee or shareholder of the Manager or any of
its affiliates, as the successor or initial Independent Member, as the
case may be. The Manager Member and the Independent Member shall then
appoint a qualified individual as the successor Cinar Member by
unanimous agreement. If, within 90 days after such resignation,
removal or incapacity, or the occurrence of such vacancy, a successor
Cinar Member or Independent Member, as the case may be, shall not have
been appointed, or the initial Independent Member has not been
appointed within 30 days of the execution and delivery of this
Agreement, the Payees may appoint any qualified individual who is
willing to serve as a successor Cinar Member or Independent Member, or
the initial Independent Member, as the case may be, by an Act of the
Payees (excluding any Payee which is a party to any of the Specified
Litigation or is an affiliate or associate of any Person which is a
party to any of the Specified Litigation from the determination of
whether the Payees holding a majority of the outstanding CCEs have
signed such Act, and excluding the CCEs held by such Payees from the
total number of CCEs outstanding) delivered to Cinar and the Manager.
A successor member of the Litigation Committee or an initial
Independent Member so appointed by the Payees shall be designated in
his appointment as either a Cinar Member or an Independent Member, as
the case may be. The successor member of the Litigation Committee or
an initial Independent Member so appointed shall under the provisions
of this Section 3.5(e), forthwith upon his acceptance of such
appointment in accordance with this Section 3.5(e), become a successor
member of the Litigation Committee or the initial Independent Member,
as the case may be. If no successor member of the Litigation Committee
or initial Independent Member shall have been so appointed by the
Manager, the members of the Litigation Committee remaining in office
or the Payees, and so accepted his or her appointment, any Payee
(other than a Payee which is a party to any of the Specified
Litigation or is an affiliate or associate of any Person which is a
party to any of the Specified Litigation) may on behalf of himself and
all others similarly situated petition any court of competent
jurisdiction for the appointment of a qualified individual as a
successor member of the Litigation Committee (other than a Manager
Member) or an initial Independent Member.
(f) The Manager shall give notice of each resignation, each removal and
each incapacity of a member of the Litigation Committee and each
appointment of a successor member of the Litigation Committee or the
initial Independent Member to the Payees as provided for in Section
1.8. Each notice shall include the name and address of the successor
member of the Litigation Committee or the initial Independent Member,
as the case may be. If the Manager fails to send such notice within
ten days after acceptance of appointment by a successor member of the
Litigation Committee or the initial Independent Member, as the case
may be, the successor member of the Litigation Committee or the
initial Independent Member, as the case may be, shall cause the notice
to be given at the expense of the Manager.
SECTION 3.6 ACCEPTANCE OF APPOINTMENT BY THE INITIAL INDEPENDENT MEMBER AND
SUCCESSORS.
The initial Independent Member and every successor member of the Litigation
Committee appointed hereunder shall execute, acknowledge and deliver to Cinar,
the Manager and the retiring member of the Litigation Committee, if applicable,
an instrument accepting such appointment and a counterpart of this Agreement,
and thereupon such initial Independent Member or successor member of the
Litigation Committee, as the case may be, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the Independent Member or the retiring member of the Litigation Committee, as
the case may be, but, on request of Cinar, the Manager or the successor member
of the Litigation Committee, such retiring member of the Litigation Committee
shall execute and deliver an instrument transferring to such successor member of
the Litigation Committee all the rights, powers and trusts of the retiring
member of the Litigation Committee, provided that, notwithstanding any such
transfer, the retiring member shall continue to be entitled to receive
indemnification payments pursuant to Section 3.4(c) in respect of periods prior
to such retirement and reimbursement payments pursuant to Section 3.4(b) for
expenses incurred prior to such retirement.
SECTION 3.7 TERMINATION UPON PROVISION OF THE NET LITIGATION PROCEEDS
CERTIFICATE.
Once the Litigation Committee has provided the Net Litigation Proceeds
Certificate in accordance with Section 2.4 and the CCE Payment Amount has been
determined and the Aggregate CCE Payment Amount paid to the Payees in accordance
with Section 2.6, the rights of each member of the Litigation Committee to any
compensation payable pursuant to Section 3.4 shall terminate except for the
right to receive indemnification payments pursuant to Section 3.4(c) in respect
of periods prior to such termination and the right to receive reimbursement
payments pursuant to Section 3.4(b) for expenses incurred prior to such
termination.
ARTICLE 4
FURNISHING LISTS OF PAYEES
SECTION 4.1 MANAGER TO FURNISH MEMBERS OF THE LITIGATION COMMITTEE WITH
NAMES AND ADDRESSES OF PAYEES.
The Manager shall furnish or cause to be furnished to the members of the
Litigation Committee:
(a) in such form as the members of the Litigation Committee may reasonably
require, the names and addresses of the Payees within 15 days of the
Effective Date; and
(b) at such times as the members of the Litigation Committee may request
in writing, within five days after receipt by Manager of any such
request, a list, in such form as the members of the Litigation
Committee may reasonably require, of the names and the addresses of
the Payees as of a date not more than 15 days prior to the time such
list is furnished.
ARTICLE 5
COVENANTS
SECTION 5.1 PROSECUTION AND DEFENSE OF SPECIFIED LITIGATION; SETTLEMENT;
PERIODIC REPORTS.
(a) In each case as directed by the Litigation Committee pursuant to
Section 3.1(c), Cinar shall, and shall cause the other Cinar Entities
to, prosecute or defend the Specified Litigation, as applicable,
and/or seek a settlement of the Specified Litigation.
(b) (i) None of the Manager or any Cinar Entity shall make any Settlement
Decision without obtaining prior approval from the applicable majority
of the members of the Litigation Committee as determined in accordance
with the penultimate sentence of Section 3.1(c).
(ii) In making any decision or determination with respect to the
Specified Litigation (including any Settlement Decision or
Strategic Decision), the Litigation Committee shall act in good
faith with a view to maximizing the present value of the
Litigation Proceeds and minimizing the present value of the
Litigation Payments and Expenses. Without limiting the generality
of the foregoing, in connection with any Settlement Decision, the
Litigation Committee shall consider:
(A) the aggregate amount of Litigation Proceeds to be received
and/or the aggregate amount of Litigation Payments to be
paid in connection with the proposed settlement;
(B) if consent to such settlement is withheld, the probability
of the Cinar Entities receiving greater Litigation Proceeds
and/or paying lesser Litigation Payments in connection with
a subsequent settlement or other resolution of the Specified
Litigation;
(C) the probable timing of such subsequent settlement or other
resolution of the Specified Litigation and the probable
amount of any additional Litigation Proceeds to be received
and/or reduction in Litigation Payments to be paid in
connection therewith;
(D) the discounted present value of such prospective additional
Litigation Proceeds and/or reduction in Litigation Payments;
(E) the additional Expenses expected to be incurred as a result
of postponing settlement or other resolution of the
Specified Litigation and the present value thereof.
The discount rate applicable to the value of such
prospective additional Litigation Proceeds, reduction in
Litigation Payments and/or additional Expenses shall be
established by a majority of the members of the Litigation
Committee (provided that the Manager Member must be included in
such majority).
(c) Until all of the Specified Litigation has been subject to Final
Adjudication, each of the Manager, the Cinar Entities and the members
of the Litigation Committee shall cooperate in order to ensure that
(i) all of the members of the Litigation Committee, receive, by the
last Business Day of each fiscal quarter of Cinar, a report describing
the status of the Specified Litigation, which report shall describe,
in summary fashion, the total Expenses incurred through the date of
such report, the status of all pending court proceedings related to
the Specified Litigation, whether any new Claims or proceedings have
been brought by the Cinar Entities related to the Specified
Litigation, the status of any counter-Claims brought by the defendants
related to the Specified Litigation, and the status of any settlement
negotiations among the Cinar Entities and the other parties with
respect to the Specified Litigation, and (ii) except as otherwise
required by applicable law or court order, all of the members of the
Litigation Committee are granted access to any and all records,
documents, personnel and any other sources of information that are in
the possession, custody or control of the Cinar Entities as the
members of the Litigation Committee shall determine are reasonably
necessary or desirable in order to review Settlement Decisions and
Strategic Decisions, if any. The Manager and the Cinar Entities shall
cooperate with the members of the Litigation Committee in providing
the assistance of any of their officers and the Employees (subject to
the requirements of Section 3.2(e)) and, to the extent that the
Manager believes in its reasonable determination that it is required
to have Employees expend efforts in prosecuting or defending the
Specified Litigation, but does not have sufficient time to obtain
prior approval from the Litigation Committee for such efforts, Cinar
shall be entitled to be reimbursed for any reasonable amount of hours
expended in such effort in accordance with the principles of Section
3.2(e).
(d) Cinar shall, and shall cause the other Cinar Entities to, pay to the
Manager all Litigation Proceeds (after deducting Taxes, if any,
assumed payable thereon by Cinar as provided in Section 2.4(b) or, in
the event that the amount of the Taxes is still in the process of
being determined, after deducting a reserve for such Taxes in an
amount determined by Cinar, acting reasonably, with appropriate
adjustments to be made as between the Cinar Entities and the Manager
forthwith following the amount of the Taxes assumed payable being
finally determined) forthwith following receipt and such Litigation
Proceeds shall be held in trust in a separate appropriately designated
bank or investment account established by the Manager with a
recognized major financial institution and maintained in the form of
cash or Cash Equivalents, in each case denominated in United States
dollars (collectively, the "LITIGATION ACCOUNT"), free of any liens or
encumbrances of any kind, until the CCE Payment Date, provided that
amounts in the Litigation Account shall be used from time to time to
fund:
(i) Litigation Payments and Expenses for or on behalf of the Cinar
Entities or the Litigation Committee;
(ii) any adjustment of Taxes assumed payable as referred to above; and
(iii) any Gross Interim Payment Amount.
To the extent that there are insufficient funds in the Litigation
Account to fund the payments of the type referred to in (i) above from
time to time, Cinar will provide up to CDN$5,000,000 and no more (on a
revolving basis) to fund such payments. Any amounts so provided by
Cinar shall be repaid on demand (and, in any event, prior to the
payment of the Aggregate CCE Payment) out of amounts deposited in the
Litigation Account together with interest thereon at a rate per annum
equal to Prime plus 5% ("INTEREST EXPENSES"). Any exchange losses
realized as a result of depositing into the Litigation Account United
States dollars resulting from the conversion of Canadian dollars
provided by Cinar in accordance with the foregoing at the actual
exchange rate at which such Canadian dollars are converted in an
amount less than the amount of United States dollars required to be
withdrawn from the Litigation Account in order to repay such advances
at the actual exchange rate at which such United States dollars are
converted into Canadian dollars shall constitute Expenses. Any
exchange gains realized as a result of depositing in the Litigation
Account United States dollars resulting from the conversion of
Canadian dollars provided by Cinar in accordance with the foregoing at
the actual exchange rate at which such Canadian dollars are converted
in excess of the amount of United States dollars required to be
withdrawn from the Litigation Account in order to repay such advances
at the actual exchange rate at which such United States dollars are
converted into Canadian dollars (after deducting Taxes, if any,
assumed payable thereon by the Cinar Entities and Manager at the
assumed tax rate referred to in the definition of Taxes in Section
2.4(b)) shall be credited against Expenses.
(e) None of the Manager or any of the Cinar Entities shall initiate
settlement negotiations or expand settlement negotiations with respect
to any aspect or portion of the Specified Litigation without the prior
unanimous approval of the members of the Litigation Committee (other
than the Independent Member), and the Manager and Cinar agree that
such powers shall vest with the Litigation Committee as provided in
Section 3.1(c). No member of the Litigation Committee shall initiate
settlement negotiations without first informing each other member of
the Litigation Committee of such settlement negotiations and obtaining
unanimous approval of the members of the Litigation Committee (other
than the Independent Member) to pursue such negotiations. If one or
more members of the Litigation Committee are allowed to entertain or
initiate settlement negotiations, such members of the Litigation
Committee shall keep each other member of the Litigation Committee
reasonably informed regarding the status of such negotiations
(including any expansion of such negotiations) and any member of the
Litigation Committee shall, if such member of the Litigation Committee
requests, be allowed to participate in the settlement negotiations.
(f) If the Manager, any of the Cinar Entities, or any member of the
Litigation Committee receives any communication from any other party
to the Specified Litigation regarding possible settlement
negotiations, the party receiving the communication shall be entitled
to review such other party's proposals, provided that such receiving
party (i) shall inform each of the members of the Litigation Committee
regarding the fact (and content) of such communication and proposals
as promptly as possible (and under no circumstances more than three
days following receipt thereof) thereafter and (ii) shall not engage
in settlement negotiations or expand settlement negotiations without
the required permission of the Litigation Committee as set forth in
Section 5.1(e).
SECTION 5.2 PAYMENT OF CCE PAYMENT AMOUNT.
The Manager shall duly and promptly pay each Payee an amount equal to the
CCE Payment Amount in the manner provided for in Section 2.6 and in accordance
with the terms of this Agreement.
ARTICLE 6
AMENDMENTS
SECTION 6.1 AMENDMENTS WITHOUT CONSENT OF PAYEES.
(a) Cinar, the Manager and the members of the Litigation Committee, in the
sole and absolute discretion of the members of the Litigation
Committee, at any time and from time to time, may, without the consent
of any Payees, enter into one or more amendments hereto, for any of
the following purposes:
(i) to evidence the succession of another Person to the position of
Manager and the assumption by any such successor of the covenants
of the Manager herein; provided that such succession and
assumption are in accordance with the terms of this Agreement;
(ii) to evidence the succession of another individual as a successor
member of the Litigation Committee and the assumption by any
successor of the covenants and obligations of such member of the
Litigation Committee herein; provided that such succession and
assumption are in accordance with the terms of this Agreement;
(iii) to add to the covenants of the Manager such further covenants,
restrictions, conditions or provisions as the Manager and the
members of the Litigation Committee shall consider to be for the
protection of the Payees; provided that in each case, such
provisions shall not materially adversely affect the interests of
the Payees;
(iv) to cure any ambiguity, to correct or supplement any provision
herein that may be defective or inconsistent with any other
provision herein, or to make any other provisions with respect to
matters or questions arising under this Agreement; provided that
in each case, such provisions shall not materially adversely
affect the interests of the Payees; or
(v) as may be necessary or appropriate to ensure that the creation
and allocation of the CCEs is exempt from the prospectus and
registration requirements of applicable Canadian provincial
securities legislation and the CCEs will not require registration
under the United States SECURITIES ACT OF 1933, provided that
such provisions shall not materially adversely affect the
interests of the Payees.
(b) Promptly after the execution by Cinar, the Manager and the members of
the Litigation Committee of any amendment pursuant to the provisions
of this Section 6.1, the Manager shall give notice thereof to the
Payees in the manner provided in Section 1.8 setting forth in general
terms the substance of such amendment.
SECTION 6.2 AMENDMENTS WITH CONSENT OF PAYEES.
(a) With the consent of the Payees holding not less than a majority of the
outstanding CCEs, by Act of such Payees delivered to Cinar and the
members of the Litigation Committee, Cinar, the Manager and the
members of the Litigation Committee may enter into one or more
amendments hereto for the purpose of adding to, eliminating or
changing any provisions of this Agreement.
(b) It shall not be necessary for any Act of Payees under this Section 6.2
to approve the particular form of any proposed amendment, but it shall
be sufficient if such Act shall approve the substance thereof.
(c) Promptly after the execution by Cinar, the Manager and the members of
the Litigation Committee of any amendment pursuant to the provisions
of this Section 6.2, the Manager shall give notice thereof to the
Payees in the manner provided in Section 1.8 setting forth in general
terms the substance of such amendment.
SECTION 6.3 EXECUTION OF AMENDMENTS.
In executing any amendment permitted by this Article, the members of the
Litigation Committee shall be entitled to receive, and shall be fully protected
in relying upon, an Opinion of Counsel stating that the execution of such
amendment is authorized or permitted by this Agreement. The members of the
Litigation Committee may, but are not obligated to, enter into any such
amendment that affects the rights, privileges, covenants or duties of the
members of the Litigation Committee under this Agreement or otherwise.
SECTION 6.4 EFFECT OF AMENDMENTS.
Upon the execution of any amendment under this Article, this Agreement
shall be modified in accordance therewith, such amendment shall form a part of
this Agreement for all purposes and every Payee shall be bound thereby.
ARTICLE 7
TERMINATION DATE, REPORTS
SECTION 7.1 TERMINATION DATE.
If it appears that by the Termination Date not all of the Specified
Litigation will have been subject to Final Adjudication and/or it appears that
at the Termination Date there will remain outstanding any Third Party Rights for
which any of the Cinar Entities may be liable, the Manager shall, at the option
of the Manager Member or the Cinar Member, make such applications or submissions
to applicable securities regulatory or other agencies for the purposes of
seeking an extension to the Termination Date for up to an additional two years,
provided that such extension does not necessitate registration of the CCEs under
applicable securities legislation or result in Cinar or the Manager becoming a
reporting issuer under such legislation. If such applications are successful
prior to the Termination Date or it is determined prior to the Termination Date
that no such regulatory relief is required, the Termination Date shall be
extended to the date permitted by such regulatory relief or, if no such
regulatory relief is required, the later of the dates chosen by the Manager
Member and the Cinar Member, provided that the latest Termination Date shall be
the fifth anniversary of the execution of this Agreement.
SECTION 7.2 REPORTS.
Until the CCE Payment Date, the Manager will furnish a report to the
Payees:
(a) annually, within ninety days of each anniversary of the Effective
Date, which report will provide a summary of any material developments
relating to the Specified Litigation during the year ended on such
anniversary date, together with an unaudited cash receipt and
disbursement statement relating to the Specified Litigation for the
year ended on such anniversary date; and
(b) in the event that, in the opinion of the Manager, a material event
relating to Specified Litigation has occurred, within sixty days of
the occurrence of such event, which report will provide details of
such material event.
SECTION 7.3 NO LIABILITY.
The Manager shall not be liable to any Person in respect of any cash
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. Any amounts remaining unclaimed by Payees six years
after the CCE Payment Date (or such earlier date (i) immediately before that
time when the amounts would otherwise escheat to or become property of any
governmental authority or (ii) determined pursuant to Section 4.4 of the Plan of
Arrangement) shall become, to the extent permitted by applicable law, the
property of the Manager free and clear of any claims or interest of any Person
previously (or subsequently claiming to be) entitled thereto.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the date first above written.
3918203 CANADA INC.
By:
---------------------------------
Name:
Title:
CINAR CORPORATION
By:
---------------------------------
Name:
Title:
SIGNED, SEALED AND DELIVERED )
in the presence of )
)
)
)
-------------------------------------
G. Wesley Voorheis
-------------------------------------
Lisa de Wilde
EXHIBIT A
SPECIFIED LITIGATION
o An action instituted on August 8, 2000 by the two principals of BRB
International, S.A. ("BRB") against Cinar, certain of its former officers
and various other named defendants in the Superior Court of Quebec
(Judicial District of Montreal) Court File No. 500-05-059449-007 (the "BRB
LITIGATION"). BRB claims breach of contract, alleging that Cinar failed to
complete an agreement to purchase 100% of the shares of BRB and its
affiliates. On November 24, 2003, Cinar announced that it had reached an
out-of-court settlement with BRB. Cinar has paid BRB Cdn$450,000 as a
complete and final settlement of BRB's action.
o An action instituted by Cinar Corporation and affiliated companies
(collectively, "CINAR") against Ronald A. Weinberg, Micheline Charest and
their holding companies 153114 Canada Inc., 2950995 Canada Inc., 3238369
Canada Inc. and McRaw Holdings Inc. (collectively, the "WEINBERG
DEFENDANTS") and Hasanain Panju, in the Superior Court of Montreal ("SMC")
Court File No. 500-05-062790-017, and a Cross Demand filed therein against
Cinar by the Weinberg Defendants and any further claims, counter-claims or
recursory claims arising out of or in relation to the facts alleged in such
proceedings by any party including, without limitation, any eventual
recursory claims of any party to such proceedings against Globe-X
Management Limited, Globe-X Canadiana Limited, Silicon Isle Limited,
Norshield International Limited, Comprehensive Investor Services Limited,
or any of their directors, officers or shareholders, or any of their
affiliated companies and any of their directors , officers or shareholders
(the "CINAR ACTION").
o An action instituted by 153114 Canada Inc., 2950995 Canada Inc. and 3238369
Canada Inc., holding companies of Ronald A. Weinberg and/or Micheline
Charest, against Hasanain Panju in the Superior Court, Court File No:
500-05-065669-010.
o An action instituted by Ronald A. Weinberg, Micheline Charest and their
holding companies 153114 Canada Inc., 2950995 Canada Inc. and 3238369
Canada Inc. as Plaintiffs against Hasanain and Sukaina Panju before the
Superior Court of Justice of Ontario, Court File No. 64106/02.
o An action by Claude Robinson and Les Productions Nilem Inc. as Plaintiffs
against Cinar Corporation, Les Films Cinar Inc., Ronald Weinberg, Micheline
Charest and ten others as Defendants in the Superior Court of Quebec
(District of Montreal), Court File No. 500-05-021498-967.
o An action instituted by 2950995 Canada Inc. and 3238369 Canada Inc.,
holding companies of Micheline Charest and Ronald A. Weinberg respectively,
against Mount Real Corporation, Mount Real Services Inc., Mount Real
Financial Management Services Corporation, Mount Real Acceptance
Corporation and Gold Triangle Technologies Ltd., in the Quebec Superior
Court, Court File No. 500-05-073956-029.
o An Amended Motion for Declaratory Judgement or to Dismiss a Trustee, Motion
for Damages and Motion for Interlocutory and Final Injunction by Micheline
Charest, Ronald A. Weinberg, 153114 Canada Inc. and 2950995 Canada Inc.
against Robert Despres in the Superior Court of Quebec, SCM, Court File No.
500-17-016856-034.
o An action instituted by Ronald A. Weinberg, Micheline Charest and their
holding companies 153114 Canada Inc., 2950995 Canada Inc., 3238369 Canada
Inc., McRaw Holdings Inc., 3359174 Canada Inc. and 336953 Canada Inc.
against Ernst & Young LLP Court File No. 500-05-074589-27 claiming damages
in the amount of Cdn$194,087,927.13 and an indemnity up to the amount of
Cdn$28,620,469.00 that certain of the Plaintiffs, who are also defendants
in the action SCM Court File No. 500-05-074589-027, may be condemned to pay
as a result of the action instituted by Cinar Corporation and affiliated
companies.
o An action instituted by Globe-X Management Ltd., Globe-X Canadiana Ltd.,
Silicon Isle Ltd. and Lowell Holden against Cinar Corporation, Ronald A.
Weinberg, Barrie Usher, Lawrence P. Yelin and John Does I-XX before the
United States District Court for the Eastern District of Pennsylvania,
Court File No. 03-1831.
o Any and all claims, present or future, of Cinar against, and any and all
amounts payable to Cinar by (i) Globe-X Management, Ltd., Globe-X
Canadiana, Ltd. and Silicon Isle Ltd., (collectively, "GLOBE-X") and their
related companies, directors, officers and shareholders, including, without
limitation, Lowell Holden and Lynwood Bell; and/or (ii) Norshield
International Limited, CIS, Comprehensive Investor Services Ltd., and/or
any of their related companies, directors, officers and shareholders,
including, without limitation, John Xanthoudakis, Tom Muir and Robert
Daviault, including;
(a) An action instituted by Cinar Corporation against Norshield
International Limited, Globe-X Management, Ltd., Globe-X Canadiana,
Ltd. and Robert Daviault, in 2000 in the Supreme Court of Bahamas,
Court File No. 300 of 2000;
(b) A petition instituted by Cinar in the Supreme Court of the Bahamas for
the winding-up of Globe-X Management, Ltd., and Globe-X Canadiana,
Ltd., Court File Nos. 1502 and 1503 of 2002;
(c) An action instituted by Cinar Corporation against Globe-X Management,
Ltd., and Globe-X Canadiana, Ltd. (collectively, "GLOBE-X") in the
High Court of Justice of Anguilla, Claim 0055 of 2002, requesting
either the recognition of an order of the Supreme Court of the Bahamas
for the winding-up of Globe-X or, in the alternative, a fresh
winding-up order and the counterclaim filed therein by Globe-X for
damages aggregating approximately $66million;
(d) Any and all future claims between the same parties related to, or
arising from, the facts alleged in the proceedings listed (a) through
(c);
(e) All amounts payable to Cinar in the liquidation of Globe-X; and
(f) An action instituted by Cinar Corporation against John Xanthoudakis
and Tom Muir before the Quebec Superior Court, Court File No.
500-05-075777-027.
o An action by Patrick Granleese, Rick Jones, Thomas LaPierre, Joseph
Mallozzi, Paul Mullie, Anne-Marie Perrotta, Bruce Robb and Tean Schultz as
Plaintiffs against Cinar Corporation, Cinar Productions Inc., Clever Curls
Productions Inc., Mousecapades Productions Inc., Helene Charest and McRaw
Holdings Inc. as Defendants and the Societe des auteurs et compositeurs
dramatiques (SACD) as Intervenor ("Mise-en-cause") in the file of the
Superior Court of Quebec (District of Montreal) bearing the number
500-17-017117-030 (formerly 500-22-081448-030).
o An action instituted by Louis Fournier against Cinar Corporation in the
file of the Superior Court of Quebec, Court File No. 500-05-058100-007 (the
"FOURNIER LITIGATION"). Louis Fournier and Cinar have agreed to a mutual
and complete release with respect to all the facts alleged in such action
in return for the payment by Cinar to Louis Fournier of an amount of
Cdn$925,000, namely Cdn$308,333 on November 1, 2003 and Cdn$616,667 on
January 1, 2004.
APPENDIX E
ARRANGEMENT RESOLUTION
SPECIAL RESOLUTION OF THE CINAR SHAREHOLDERS
BE IT RESOLVED THAT:
1. the plan of arrangement (the ``Plan of Arrangement'') under Section 192 of
the CANADA BUSINESS CORPORATIONS ACT (the ``CBCA'') involving CINAR
Corporation (``CINAR''), the full text of which is set out as Appendix C to
the Management Proxy Circular (the ``Circular'') of CINAR dated January 14,
2004 and which is described in the Circular (as the Plan of Arrangement may
have been or may be amended, modified or supplemented) is hereby
authorized, approved and adopted;
2. notwithstanding that this special resolution has been passed (and the Plan
of Arrangement adopted) by the shareholders of CINAR or that the Plan of
Arrangement has been approved by the Superior Court of Quebec, the
directors of CINAR are hereby authorized and empowered, without further
notice to or approval of the shareholders of CINAR, (i) to amend the
Arrangement Agreement between CINAR and 4113683 Canada Inc. (the
"Arrangement Agreement") or the Plan of Arrangement to the extent permitted
by the Arrangement Agreement, and (ii) subject to the terms of the
Arrangement Agreement, not to proceed with the Plan of Arrangement;
3. any officer or director of CINAR is hereby authorized and directed for and
on behalf of CINAR to execute or cause to be executed, under the seal of
CINAR or otherwise, and to deliver or cause to be delivered to the Director
under the CBCA in accordance with the Arrangement Agreement for filing
articles of arrangement and such other documents, agreements or instruments
as such officer or director shall determine to be necessary or desirable to
give effect to the Plan of Arrangement, such determination to be
conclusively evidenced by the execution and delivery of such documents,
agreements or instruments; and
4. any officer or director of CINAR is hereby authorized and directed for and
on behalf of CINAR to execute or cause to be executed, under the seal of
CINAR or otherwise, and to deliver or cause to be delivered all such other
documents, agreements or instruments, and to perform or cause to be
performed all such other acts and things, as such officer or director shall
determine to be necessary or desirable to give full effect to this
resolution and the matters authorized hereby, such determination to be
conclusively evidenced by the execution and delivery of such documents,
agreements or instruments or the performing or causing to be performed of
such other acts or things.
APPENDIX F
SPECIAL RESOLUTION
OF HOLDERS OF LIMITED VOTING SHARES
OF CINAR CORPORATION
BE IT RESOLVED THAT :
1. the stated capital of the Limited Voting Shares of CINAR Corporation
("CINAR") be reduced by $323,206,000 and that such reduction be effected by
increasing CINAR's contributed surplus by the same amount and transferring
such amount from contributed surplus to reduce CINAR's deficit by the same
amount, provided that such reduction of the stated capital of the Limited
Voting Shares of CINAR will only be implemented if the special resolution
approving the plan of arrangement involving CINAR, 4113683 Canada Inc. and
3918203 Canada Inc., a copy of which special resolution is attached as
Appendix E to the Management Proxy Circular of CINAR dated January 14,
2004, is passed by the shareholders of CINAR; and
2. any officer or director of CINAR Corporation is hereby authorized and
directed for and on behalf of CINAR Corporation to execute or cause to be
executed, under the seal of CINAR Corporation or otherwise, and to deliver
or cause to be delivered all such documents, agreements and instruments,
and to perform or cause to be performed all such acts and things, as such
officer or director shall determine to be necessary or desirable to give
full effect to this resolution and the matters authorized hereby, such
determination to be conclusively evidenced by the execution and delivery of
such documents, agreements or instruments or the performing or causing to
be performed of such other acts or things.
APPENDIX G
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
World Financial Center
North Tower
250 Vesey Street
New York, NY 10281
[GRAPHIC OMITTED]
October 30, 2003
Board of Directors
CINAR Corporation
1055 Rene-Levesque East
Montreal, Quebec
H2L 4S5
Members of the Board of Directors:
CINAR Corporation (the "Company") and 4113683 Canada Inc. (the
"Purchaser"), a newly formed, wholly-owned subsidiary of TD Capital Group
Limited, Michael Hirsh and Toper Taylor, propose to enter into an arrangement
agreement dated October 30, 2003 (the "Arrangement Agreement") whereby all of
the issued and outstanding Variable Multiple Voting Shares and Limited Voting
Shares of the Company (the "Company Shares") will be acquired pursuant to a plan
of arrangement (the "Arrangement") for US$3.57 per share in cash and, if certain
specified litigation (the "Specified Litigation") is settled or subject to a
final court decision at least five business days prior to the special meeting
(the "Meeting") of shareholders of the Company, an additional amount equal to
the pro rata share of the net proceeds to be received by the Company pursuant to
such settlement or court decision, less US$400,000. If the Specified Litigation
is not settled or subject to a final court decision at least five business days
prior to the Meeting, rather than receiving a pro rata share of such proceeds,
each holder of the Company Shares will receive contingent cash entitlements
("CCEs"), as contemplated in the Arrangement Agreement. According to the terms
of the Arrangement, the cash price per share will be increased by up to an
additional US$0.03 if a dispute with the Company's co-founders regarding the
validity of their exercise of certain stock options is resolved in Cinar's
favor. The cash payments and other consideration which may be payable to the
holders of the Company Shares pursuant to the Arrangement are referred to as the
"Aggregate Consideration".
You have asked us whether, in our opinion, the Aggregate Consideration is
fair from a financial point of view to the holders of the Company Shares.
In arriving at the opinion set forth below, we have, among other things:
(1) reviewed certain publicly available business and financial information
relating to the Company that we deemed to be relevant;
(2) reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and
prospects of the Company;
(3) conducted discussions with members of senior management and
representatives of the Company concerning the matters described in
clauses (1) and (2) above;
(4) reviewed the market prices for the Company's shares on the Pink sheets
as provided by the National Quotation Bureau;
(5) reviewed the historical financial performance and results of
operations of the Company;
(6) compared the proposed financial terms of the Arrangement with the
financial terms of certain other transactions that we deemed to be
relevant;
(7) had discussions with the Company's auditors regarding the Company's
financial performance and audited financial statements;
(8) participated in certain discussions and negotiations among
representatives of the Company and the Purchaser and their financial
and legal advisors;
(9) reviewed information regarding the background and status of the
Specified Litigation and had discussions with the Company's legal
counsel and management regarding the Specified Litigation;
(10) reviewed a draft dated October 27, 2003 of the Arrangement Agreement;
and
(11) reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or been furnished with any such evaluation or
appraisal, nor have we evaluated the solvency or fair value of the Company under
any provincial or federal laws relating to bankruptcy, insolvency or similar
matters. In addition, we have not assumed any obligation to conduct any physical
inspection of the properties or facilities of the Company. With respect to the
financial forecast information furnished to or discussed with us by the Company,
we have assumed that it has been reasonably prepared and reflects the best
currently available estimates and judgment of the Company's management as to the
expected future financial performance of the Company. We have also assumed that
the final form of the Arrangement Agreement will be the same in all material
respects to the last draft reviewed by us.
In preparing our opinion, we have relied upon the judgment of the Company's
legal counsel and management as to the potential outcomes of the Specified
Litigation, including the expectations of the Company's management regarding the
terms of potential settlements of the Specified Litigation. We have not been
requested, and we have not undertaken, to independently evaluate or verify such
judgement and expectations or make any valuation of the Specified Litigation to
the Company, and we express no opinion with respect thereto or with respect to
the value of the CCEs.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof.
We are acting as financial advisor to the Company in connection with the
Arrangement and will receive a fee from the Company for our services, a
significant portion of which is contingent upon the consummation of the
Arrangement. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. We have, in the past, provided
financial advisory services to the Company and have received fees for the
rendering of such services.. In addition, Merrill Lynch has an investment in the
TD Capital Group Limited Canadian Private Equity Partners Fund and, in the
ordinary course of our business, we may actively trade the Company Shares, as
well as securities of The Toronto Dominion Bank (which holds directly or
indirectly all of the outstanding shares of TD Capital Group Limited), for our
own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to proceed with the Arrangement and does not constitute a
recommendation to any shareholder as to how such shareholder should vote on the
proposed Arrangement or any matter related thereto. In addition, you have not
asked us to address, and this opinion does not address, the fairness to, or any
other consideration of, the holders of any class of securities, creditors or
other constituencies of the Company, other than the holders of the Company
Shares.
We are not expressing any opinion herein as to the prices at which the
Company Shares will trade following the announcement of the Arrangement.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Aggregate Consideration is fair from a financial
point of view to the holders of the Company Shares.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
APPENDIX H -- SECTION 190 OF THE CBCA
190. (1)RIGHT TO DISSENT -- Subject to sections 191 and 241, a holder of
shares of any class of a corporation may dissent if the corporation is subject
to an order under paragraph 192(4)(d) that affects the holder or if the
corporation resolves to:
(a) amend its articles under section 173 or 174 to add, change or remove
any provisions restricting or constraining the issue, transfer or
ownership of shares of that class;
(b) amend its articles under section 173 to add, change or remove any
restriction on the business or businesses that the corporation may
carry on;
(c) amalgamate otherwise than under section 184;
(d) be continued under section 188;
(e) sell, lease or exchange all or substantially all its property under
subsection 189(3); or
(f) carry out a going-private transaction or a squeeze-out transaction.
(2) FURTHER RIGHT -- A holder of shares of any class or series of shares
entitled to vote under section 176 may dissent if the corporation resolves to
amend its articles in a manner described in that section.
(2.1) IF ONE CLASS OF SHARES -- The right to dissent described in
subsection (2) applies even if there is only one class of shares.
(3) PAYMENT FOR SHARES -- In addition to any other right the shareholder
may have, but subject to subsection (26), a shareholder who complies with this
section is entitled, when the action approved by the resolution from which the
shareholder dissents or an order made under subsection 192(4) becomes effective,
to be paid by the corporation the fair value of the shares in respect of which
the shareholder dissents, determined as of the close of business on the day
before the resolution was adopted or the order was made.
(4) NO PARTIAL DISSENT -- A dissenting shareholder may only claim under
this section with respect to all the shares of a class held on behalf of any one
beneficial owner and registered in the name of the dissenting shareholder.
(5) OBJECTION -- A dissenting shareholder shall send to the corporation, at
or before any meeting of shareholders at which a resolution referred to in
subsection (1) or (2) is to be voted on, a written objection to the resolution,
unless the corporation did not give notice to the shareholder of the purpose of
the meeting and of his right to dissent.
(6) NOTICE OF RESOLUTION -- The corporation shall, within ten days after
the shareholders adopt the resolution, send to each shareholder who has filed
the objection referred to in subsection (5) notice that the resolution has been
adopted, but such notice is not required to be sent to any shareholder who voted
for the resolution or who has withdrawn their objection.
(7) DEMAND FOR PAYMENT -- A dissenting shareholder shall, within twenty
days after receiving a notice under subsection (6) or, if the shareholder does
not receive such notice, within twenty days after learning that the resolution
has been adopted, send to the corporation a written notice containing:
(a) the shareholder's name and address;
(b) the number and class of shares in respect of which the shareholder
dissents; and
(c) a demand for payment of the fair value of such shares.
(8) SHARE CERTIFICATE-- A dissenting shareholder shall, within thirty days
after sending a notice under subsection (7), send the certificates representing
the shares in respect of which the shareholder dissents to the corporation or
its transfer agent.
(9) FORFEITURE -- A dissenting shareholder who fails to comply with
subsection (8) has no right to make a claim under this section.
(10) ENDORSING CERTIFICATE-- A corporation or its transfer agent shall
endorse on any share certificate received under subsection (8) a notice that the
holder is a dissenting shareholder under this section and shall forthwith return
the share certificates to the dissenting shareholder.
(11) SUSPENSION OF RIGHTS -- On sending a notice under subsection (7), a
dissenting shareholder ceases to have any rights as a shareholder other than the
right to be paid the fair value of their shares as determined under this section
except where:
(a) the shareholder withdraws that notice before the corporation makes an
offer under subsection (12),
(b) the corporation fails to make an offer in accordance with subsection
(12) and the dissenting shareholder withdraws the notice, or
(c) the directors revoke a resolution to amend the articles under
subsection 173(2) or 174(5), terminate an amalgamation agreement under
subsection 183(6) or an application for continuance under subsection
188(6), or abandon a sale, lease or exchange under subsection 189(9),
in which case the shareholder's rights are reinstated as of the date the
notice was sent.
(12) OFFER TO PAY-- A corporation shall, not later than seven days after
the later of the day on which the action approved by the resolution is effective
or the day the corporation received the notice referred to in subsection (7),
send to each dissenting shareholder who has sent such notice:
(a) a written offer to pay for his shares in an amount considered by the
directors of the corporation to be the fair value, accompanied by a
statement showing how the fair value was determined; or
(b) if subsection (26) applies, a notification that it is unable lawfully
to pay dissenting shareholders for their shares.
(13) SAME TERMS -- Every offer made under subsection (12) for shares of the
same class or series shall be on the same terms.
(14) PAYMENT -- Subject to subsection (26), a corporation shall pay for the
shares of a dissenting shareholder within ten days after an offer made under
subsection (12) has been accepted, but any such offer lapses if the corporation
does not receive an acceptance thereof within thirty days after the offer has
been made.
(15) CORPORATION MAY APPLY TO COURT -- Where a corporation fails to make an
offer under subsection (12), or if a dissenting shareholder fails to accept an
offer, the corporation may, within fifty days after the action approved by the
resolution is effective or within such further period as a court may allow,
apply to a court to fix a fair value for the shares of any dissenting
shareholder.
(16) SHAREHOLDER APPLICATION TO COURT-- If a corporation fails to apply to
a court under subsection (15), a dissenting shareholder may apply to a court for
the same purpose within a further period of twenty days or within such further
period as a court may allow.
(17) VENUE -- An application under subsection (15) or (16) shall be made to
a court having jurisdiction in the place where the corporation has its
registered office or in the province where the dissenting shareholder resides if
the corporation carries on business in that province.
(18) NO SECURITY FOR COSTS -- A dissenting shareholder is not required to
give security for costs in an application made under subsection (15) or (16).
(19) PARTIES-- On an application to a court under subsection (15) or (16),
(a) all dissenting shareholders whose shares have not been purchased by
the corporation shall be joined as parties and are bound by the
decision of the court; and
(b) the corporation shall notify each affected dissenting shareholder of
the date, place and consequences of the application and of their right
to appear and be heard in person or by counsel.
(20) POWERS OF COURT -- On an application to a court under subsection (15)
or (16), the court may determine whether any other person is a dissenting
shareholder who should be joined as a party, and the court shall then fix a fair
value for the shares of all dissenting shareholders.
(21) APPRAISERS -- A court may in its discretion appoint one or more
appraisers to assist the court to fix a fair value for the shares of the
dissenting shareholders.
(22) FINAL ORDER -- The final order of a court shall be rendered against
the corporation in favour of each dissenting shareholder and for the amount of
the shares as fixed by the court.
(23) INTEREST -- A court may in its discretion allow a reasonable rate of
interest on the amount payable to each dissenting shareholder from the date the
action approved by the resolution is effective until the date of payment.
(24) NOTICE THAT SUBSECTION (26) APPLIES -- If subsection (26) applies, the
corporation shall, within ten days after the pronouncement of an order under
subsection (22), notify each dissenting shareholder that it is unable lawfully
to pay dissenting shareholders for their shares.
(25) EFFECT WHERE SUBSECTION (26) APPLIES -- If subsection (26) applies, a
dissenting shareholder, by written notice delivered to the corporation within
thirty days after receiving a notice under subsection (24), may:
(a) withdraw their notice of dissent, in which case the corporation is
deemed to consent to the withdrawal and the shareholder is reinstated
to his full rights as a shareholder; or
(b) retain a status as a claimant against the corporation, to be paid as
soon as the corporation is lawfully able to do so or, in a
liquidation, to be ranked subordinate to the rights of creditors of
the corporation but in priority to its shareholders.
(26) LIMITATION -- A corporation shall not make a payment to a dissenting
shareholder under this section if there are reasonable grounds for believing
that:
(a) the corporation is or would after the payment be unable to pay its
liabilities as they become due;or
(b) the realizable value of the corporation's assets would thereby be less
than the aggregate of its liabilities.