SUPPORT AGREEMENT

Exhibit 10.1

EXECUTION VERSION

 

SUPPORT AGREEMENT

by and among

ROTHMANS INC.,

PHILIP MORRIS INTERNATIONAL INC.

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LATIN AMERICA AND CANADA HOLDINGS LIMITED

July 31, 2008

 

TABLE OF CONTENTS

 

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SUPPORT AGREEMENT

THIS AGREEMENT made the 31 ^st day of July, 2008,

BY AND AMONG:

Philip Morris International Inc. , a corporation existing under the laws of the Commonwealth of Virginia (hereinafter called “ Parent ”),

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Latin America and Canada Holdings Limited , a Nova Scotia limited liability company (hereinafter called “ Offeror ”),

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Rothmans Inc. , a corporation existing under the federal laws of Canada, (hereinafter called “ Company ”).

WHEREAS Parent has formed Offeror, its indirect, wholly-owned subsidiary, to acquire all of the Common Shares (as defined in this Agreement) not currently owned by Parent or Parent’s affiliates and is prepared to cause Offeror to make, and Offeror is prepared to make, the Offer (as defined in this Agreement);

AND WHEREAS the board of directors of the Company (the “ Board of Directors ”), acting upon the unanimous recommendation of the Special Committee (as defined in this Agreement), has determined, after receiving financial and legal advice, that the Offer is fair from a financial point of view to the Shareholders and that it would be in the best interests of the Company for the Board of Directors to co-operate with Offeror, take all reasonable actions to support the Offer and recommend acceptance of the Offer to Shareholders (as defined in this Agreement) in writing, all on the terms and subject to the conditions contained in this Agreement.

NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the mutual covenants and agreements set forth in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party, the parties hereby covenant and agree as follows:

ARTICLE 1

INTERPRETATION

 

1.1.	Definitions

In this Agreement (including the Schedules hereto), the following terms shall have the following meanings, and grammatical variations shall have the respective corresponding meanings, unless otherwise expressly stated or the context requires otherwise:

(a)

“ Acquisition Proposal ” means any offer, proposal or inquiry from any person or group of persons (other than Parent or any of Parent’s affiliates) after the date hereof, or any communications with any person or group of persons (other than Parent or any of Parent’s affiliates) after the date hereof, who, before the date hereof, made an offer, proposal or inquiry which would be an “Acquisition Proposal” if made after the date hereof, in each case, relating to: (i) any acquisition or purchase, direct or indirect, of assets representing 20% or more of the consolidated assets or contributing 20% or more of the consolidated revenue of the Company and the Company’s Subsidiaries or 20% or more of the voting or equity securities of the Company or any Significant Subsidiary (or rights or interests therein or thereto), (ii) any take-over bid or exchange offer that, if consummated, would result in such person or group of persons beneficially owning 20% or more of any class of voting or equity securities of the Company or any Significant Subsidiary, or (iii) a plan of arrangement, merger, amalgamation, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving the Company or any Significant Subsidiary;

 

(b)

“ Adverse Recommendation Change ” has the meaning set out in Section 6.2(d);

 

(c)

“ Affected Employees ” means those individuals who are employees of the Company or any of its Subsidiaries as of the Effective Time but are not subject to a collective agreement;

 

(d)

“ affiliate ” has the meaning ascribed thereto in the Securities Act, provided , for greater certainty, that the Company and its Subsidiaries (and their directors, other than any employees of Parent and its controlled Subsidiaries) shall not constitute affiliates of Parent or Offeror, and Parent and its Subsidiaries shall not constitute affiliates of the Company and its Subsidiaries;

 

(e)

“ Aggregate Consideration ” means $2,042,868,240, which is the amount of $30.00 per Common Share multiplied by 68,095,608, which is the number of Common Shares outstanding as of the date hereof;

 

(f)

“ Alternative Transaction ” has the meaning set out in Section 6.8(b)(i);

 

(g)

“ Applicable Securities Laws ” has the meaning set out in Section 2.1(b);

 

(h)

“ Board of Directors ” has the meaning set out in the Recitals to this Agreement;

 

(i)

“ Bonds ” means the 5.552% senior unsecured bonds, Series A in the principal amount of $150 million issued by RBH pursuant to the Trust Indenture dated as of December 21, 2004 and the First Supplemental Trust

 

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Indenture dated as of January 13, 2005 between RBH and CIBC Mellon Trust Company, as trustee;

 

(j)

“ business day ” means any day (other than a Saturday or Sunday) on which commercial banks located in the City of Toronto, Canada and the City of New York, United States, are open for the conduct of business;

 

(k)

“ Canadian GAAP ” means Canadian generally accepted accounting principles;

 

(l)

“ CBCA ” means the Canada Business Corporations Act (Canada) and the regulations thereto, as amended from time to time;

 

(m)

“ Change in Control Agreement ” means any agreement or other commitment, whether written or oral, between the Company or any of its Subsidiaries and any of their officers, directors or employees providing for payments, the acceleration of payments or other benefits in the event of a change in control or other similar transaction in respect of the Company or any of its Subsidiaries or in contemplation of any such event;

 

(n)

“ Circular ” has the meaning set out in Section 2.1(b);

 

(o)

“ Commissioner ” means the Commissioner of Competition appointed pursuant to Section 7 of the Competition Act;

 

(p)

“ Common Share ” means a common share in the capital of the Company together with the associated Right;

 

(q)

“ Company ” has the meaning set out in the Preamble;

 

(r)

“ Company Equity Awards ” means Options and Deferred Share Units, collectively;

 

(s)

“ Competition Act ” has the meaning set out in Section 6.1(b)(i);

 

(t)

“ Competition Act Approval ” means (i) the Commissioner shall have issued an advance ruling certificate under Section 102 of the Competition Act in respect of the purchase of the Common Shares by Offeror, or (ii) the waiting period under Part IX of the Competition Act shall have expired, been terminated or have been waived in accordance with the Competition Act and the Commissioner shall have advised Offeror in writing that the Commissioner is of the view that, at that time, grounds do not exist to initiate proceedings before the Competition Tribunal under the provisions of the Competition Act with respect to the purchase of the Common Shares by Offeror (or words to that effect);

 

(u)

“ Compulsory Acquisition ” has the meaning set out in Section 2.6;

 

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(v)

“ Confidentiality and Standstill Agreement ” means the confidentiality and standstill agreement dated June 3, 2008 by and among Parent, the Company and RBH;

 

(w)

“ Contaminant ” means any substance listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated by Environmental Laws;

 

(x)

“ Contemplated Transactions ” means the entering into of this Agreement, the Offer, the consummation of the transactions contemplated in this Agreement, including the Offer, the take-up of Common Shares under the Offer, any Compulsory Acquisition, any Subsequent Acquisition Transaction and any subsequent amalgamation of the Company and RBH;

 

(y)

“ Defense Expenses ” means reasonable attorneys’ fees and all other reasonable costs, expenses and obligations (including, without limitation, experts’ fees, travel expenses, court costs, retainers, transcript fees, duplicating, printing and binding costs) paid or incurred in connection with investigating, defending, being a witness in or participating in, or preparing to investigate, defend, be a witness in or participate in, any claim, action or proceeding for which indemnification is required under the terms of the indemnification agreements and obligations existing on the date hereof between a Parent Indemnitee and the Company or any of its Subsidiaries;

 

(z)

“ Deferred Share Units ” means the deferred share units credited to directors of the Company pursuant to the DSU Plan;

 

(aa)

“ Directors’ Circular ” has the meaning set out in Section 2.1(i);

 

(bb)

“ Disclosure Letter ” means the letter of disclosure dated the date of this Agreement and signed by one or more senior officers of the Company and delivered to Offeror at the time of the execution of this Agreement;

 

(cc)

“ DSU Plan ” means the Company’s deferred share unit plan for directors, with an effective date of December 1, 2000;

 

(dd)

“ Effective Time ” has the meaning set out in Section 2.1(e);

 

(ee)

“ Employee Plan ” means any employee benefit plan, bonus plan, deferred compensation plan, incentive compensation plan, share purchase plan, share appreciation plan, severance or termination pay plan, hospital insurance plan, life insurance plan, medical insurance plan, dental plan, disability plan, sick leave plan, weekly indemnity plan, vacation plan, supplemental unemployment benefit plan, profit sharing plan, pension plan, retirement savings plan, supplemental retirement plan, retirement compensation arrangement, retiree benefit plan, company car or car lease plan, car allowance, club membership or other perquisite plan, program,

 

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policy, practice, agreement, or other arrangement providing payments or benefits to, or entered into with, any current or former employee, officer or director of the Company or any of its Subsidiaries or any beneficiary or dependent thereof that is sponsored or maintained by the Company or any of its Subsidiaries or to which the Company or any of its Subsidiaries is party or obligated to contribute;

 

(ff)

“ Environmental Laws ” means all applicable federal, provincial, municipal and local Laws relating to the protection of the environment, the regulation of chemical substances and the transportation of dangerous goods;

 

(gg)

“ Expense Reimbursement Payment ” has the meaning set out in Section 7.2(b);

 

(hh)

“ Expense Reimbursement Payment Event ” has the meaning set out in Section 7.2(b);

 

(ii)

“ Expiry Time ” has the meaning set out in Section 2.1(f);

 

(jj)

“ Financial Advisor ” means BMO Nesbitt Burns Inc.;

 

(kk)

“ fully-diluted basis ” means, with respect to the number of outstanding Common Shares at any time, the number of Common Shares that would be outstanding if all Options and other rights to acquire Common Shares (but excluding the Rights prior to the Separation Time (as such term is defined in the Shareholder Rights Plan)) were exercised;

 

(ll)

“ Governmental Entity ” means:

 

(i)

any Canadian, foreign, multinational, federal, provincial, state, regional, municipal, local or other government, governmental or public department, ministry, 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;

 

(iii)

any self-regulatory authority or stock exchange or arbitral body; or

 

(iv)

any quasi-governmental or private body, including any tribunal, commission, regulatory agency or self-regulatory organization, exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing;

 

(mm)

“ Information ” means the information regarding the Company and its Subsidiaries that is included in the following documents that have been filed by the Company on the System for Electronic Document Analysis

 

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and Retrieval (commonly known as SEDAR): annual information form dated June 17, 2008, management information circular dated June 11, 2007, annual audited financial statements for the years ended March 31, 2008 and 2007 and the management’s discussion and analysis thereon, press releases filed since March 31, 2008, and material change reports filed since March 31, 2008;

 

(nn)

“ Investment Canada Act ” has the meaning set out in Section 6.1(b)(ii);

 

(oo)

“ Investment Canada Act Approval ” means the Minister, as defined for the purposes of the Investment Canada Act, shall have issued a notice pursuant to Part IV thereof that he is satisfied that the transaction contemplated by the Offer is likely to be of net benefit to Canada;

 

(pp)

“ Latest Mailing Time ” has the meaning set out in Section 2.1(b);

 

(qq)

“ Laws ” means any applicable laws including supranational, national, provincial, state, municipal and local, civil, commercial, banking, securities, Tax, personal and real property, security, environmental, water, energy, investment, property ownership, land use and zoning, sanitary, occupational health and safety laws, treaties, statutes, ordinances, judgments, decrees, injunctions, writs, certificates and orders, by-laws, rules, regulations, ordinances, protocols, codes, guidelines, policies, notices, directions or other requirements of any Governmental Entity;

 

(rr)

“ Material Adverse Effect ” means any change, effect, event, occurrence, state of facts or development that is, or could reasonably be expected to have, a material and adverse effect on the business, properties, assets, liabilities, obligations (whether absolute, accrued, conditional or otherwise), condition (financial or otherwise), Taxes payable or results of operations of the Company and its Subsidiaries taken as a whole, other than any change, effect, event, occurrence, state of facts or development:

 

(i)

relating to the Canadian, United States or global economies, political conditions (including the outbreak of war or acts of terrorism), business or regulatory conditions or financial, capital or securities markets in general;

 

(ii)

relating to a natural disaster;

 

(iii)

affecting the Canadian, United States or global tobacco industry in general;

 

(iv)

due to the execution, announcement or performance of this Agreement or consummation of the Contemplated Transactions, including, without limitation, any loss or threatened loss of, or adverse change or threatened adverse change in, the relationship of the Company or its Subsidiaries with any of their customers,

 

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suppliers, licensors, employees, financing sources, creditors or security holders ( provided that this clause (iv) shall not diminish the effect of, and shall be disregarded for purposes of, any representations or warranties of the Company in this Agreement);

 

(v)

due to a change in the market price or trading volume of the Common Shares or any general decline in the trading prices of, or any suspension of trading in, securities generally on the Toronto Stock Exchange ( provided that this clause (v) shall not prevent or otherwise affect a determination that any change, effect, event, occurrence, state of facts or development underlying such change or decline has resulted in, or contributed to, a Material Adverse Effect);

 

(vi)

due to any generally applicable change in applicable Laws or regulations or any interpretation thereof by a Governmental Entity (other than Orders, judgments, interpretations or decrees applicable primarily to the Company or any of its Subsidiaries) or in applicable generally accepted accounting principles;

 

(vii)

relating to or arising from the entry into or announcement or implementation of the Settlement, including without limitation any event of default under the Bonds resulting therefrom;

 

(viii)

relating to claims, investigations or lawsuits relating to smoking, product liability or health matters relating to the business of the Company and its Subsidiaries, whether known or unknown or in existence or not in existence on the date hereof;

 

(ix)

relating to the failure of the Company or its Subsidiaries to meet any internal or public projections, forecasts, estimates or operating plans with respect to revenues or earnings ( provided that this clause (ix) shall not prevent or otherwise affect a determination that any change, effect, event, occurrence, state of facts or development underlying such change or decline has resulted in, or contributed to, a Material Adverse Effect); or

 

(x)

directly resulting from any actions taken (or omitted to be taken) upon the written request of the Offeror or Parent or any of their affiliates or Subsidiaries to the Company ( provided that this clause (x) shall not prevent or otherwise affect a determination that any change, effect, event, occurrence, state of facts or development which existed prior to the time that Offeror or Parent makes such request has resulted in, or contributed to, a Material Adverse Effect);

 

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provided , however , that any change, effect, event, occurrence, state of facts or development referred to in clauses (i), (ii) and (iii) above does not disproportionately adversely affect the Company and its Subsidiaries, taken as a whole, relative to other competitors in the industry; and provided , further , that references in certain sections of this Agreement to dollar amounts are not intended to be, and shall not be deemed to be, illustrative or interpretive for purposes of determining whether a “Material Adverse Effect” has occurred;

 

(ss)

“ Minimum Tender Condition ” has the meaning set out in clause (a) of Schedule A;

 

(tt)

“ Negotiation Period ” has the meaning set out in Section 7.1(d)(ii)(C);

 

(uu)

“ Offer ” has the meaning set out in Section 2.1(a);

 

(vv)

“ Offer Price ” has the meaning set out in Section 2.1(a);

 

(ww)

“ Offeror ” has the meaning set out in the Preamble to this Agreement;

 

(xx)

“ Officer’s Certificate ” means a certificate of the Chief Executive Officer or other officer of the Company acceptable to Offeror in such officer’s capacity as an officer of the Company and not in such officer’s personal capacity;

 

(yy)

“ Options ” means outstanding options to acquire Common Shares pursuant to the Share Option Plan;

 

(zz)

“ Order ” means any order, writ, injunction, decree, judgment, settlement, award or stipulation issued, promulgated or entered into by or with any Governmental Entity;

 

(aaa)

“ Outside Date ” means December 1, 2008; provided that in the event the condition set forth in clause (b) of Schedule A is not satisfied, or mutually waived by both Offeror and the Company on or before the Outside Date, Offeror may, after consultation with the Company, unilaterally extend, by notice delivered to the Company on or prior to the original Outside Date, the Outside Date to January 2, 2009 and if such condition is not satisfied or waived on or before such extended Outside Date, Offeror may, after consultation with the Company, unilaterally extend, by notice delivered to the Company on or prior to such extended Outside Date, the Outside Date to February 2, 2009, provided that in each case there is a reasonable prospect of obtaining the applicable Regulatory Approval and Parent and the Offeror have complied with Sections 6.1(a), 6.1(b), 6.1(c) and 6.1(d), in which case the Outside Date shall be deemed to be for all purposes such extended date;

 

(bbb)

“ Parent ” has the meaning set out in the Preamble to this Agreement;

 

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(ccc)

“ Parent Assignee ” has the meaning set out in Section 7.2(e);

 

(ddd)

“ Parent Expense Reimbursement Payment ” has the meaning set out in Section 7.2(d);

 

(eee)

“ Parent Expense Reimbursement Payment Event ” has the meaning set out in Section 7.2(d);

 

(fff)

“ Parent Indemnitees ” has the meaning set out in Section 6.5(c)(i);

 

(ggg)

“ Parent Option ” has the meaning set out in Section 2.3(b);

 

(hhh)

“ Parent Shares ” has the meaning set out in Section 2.3(b);

 

(iii)

“ Parent Stock Price ” has the meaning set out in Section 2.3(b);

 

(jjj)

“ Parent Termination Payment ” has the meaning set out in Section 7.2(c);

 

(kkk)

“ Parent Termination Payment Event ” has the meaning set out in Section 7.2(c);

 

(lll)

“ party ” means a party to this Agreement, unless the context otherwise requires;

 

(mmm)

“ person ” includes an individual, general partnership, limited partnership, corporation, company, limited liability company, unincorporated organization, trust, trustee, executor, administrator or other legal representative;

 

(nnn)

“ RBH ” means Rothmans, Benson & Hedges Inc., a corporation existing under the federal laws of Canada;

 

(ooo)

“ Recommendation ” has the meaning set out in Section 2.2(a)(ii);

 

(ppp)

“ Regulatory Approvals ” means Competition Act Approval and Investment Canada Act Approval;

 

(qqq)

“ Regulatory Laws ” means the Competition Act and the Investment Canada Act;

 

(rrr)

“ Reporting Jurisdictions ” means all of the provinces of Canada collectively;

 

(sss)

“ Representatives ” has the meaning set out in Section 6.2(a);

 

(ttt)

“ Retiring Allowance Policy ” means the Company’s retiring allowance policy for outside directors of the Company, with an effective date of October 15, 1998, as amended December 20, 2000 and May 23, 2002;

 

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(uuu)

“ Right ” means a Common Share acquisition right issued pursuant to the Shareholder Rights Plan;

 

(vvv)

“ Securities Act ” means the Securities Act (Ontario);

 

(www)

“ Settlement ” means (i) the guilty plea on the date hereof by RBH to a breach of section 240(1)(a) of the Excise Act (Canada) in connection with aiding persons to sell or be in possession of tobacco products manufactured in Canada that were not packed and were not stamped in conformity with the Excise Act (Canada) and the $100 million fine in connection therewith, and (ii) the comprehensive agreement dated as of the date hereof between RBH, the Company and the Government of Canada and all provinces of Canada; and, for greater certainty, shall be interpreted for purposes of this Agreement in accordance with Section 1.3;

 

(xxx)

“ Shareholder Rights Plan ” means the shareholder rights plan agreement, dated as of July 25, 2006, between the Company and CIBC Mellon Trust Company, as rights agent;

 

(yyy)

“ Shareholders ” means the holders of Common Shares;

 

(zzz)

“ Shareholders Agreement ” means the unanimous shareholders agreement dated December 19, 1986, as amended, between the Company, FTR Holding S.A., and RBH;

 

(aaaa)

“ Share Option Plan ” means the share option plan of the Company, originally approved on March 14, 2000, and amended effective March 4, 2005 and July 24, 2007;

 

(bbbb)

“ Significant Subsidiary ” means any Subsidiary of the Company whose assets or revenue constitute 15% or more of the consolidated assets or consolidated revenue of the Company;

 

(cccc)

“ Special Committee ” means the committee of the Board of Directors comprised solely of certain non-management directors;

 

(dddd)

“ Subsequent Acquisition Transaction ” has the meaning set out in Section 2.6;

 

(eeee)

“ Subsidiary ” means, with respect to a specified body corporate, any body corporate of which more than 50% of the outstanding shares ordinarily entitled to elect a majority of the board of directors thereof (whether or not shares of any other class shall or might be entitled to vote upon the happening of any event or contingency) are at the time owned directly or indirectly by such specified body corporate and shall include any body corporate, partnership, joint venture or other entity over which it exercises direction or control or which is in a like relation to a Subsidiary (and, for

 

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the avoidance of doubt, RBH is a Subsidiary of Company and is not a Subsidiary of Parent or Offeror or of any of Parent’s affiliates);

 

(ffff)

“ Superior Proposal ” means any unsolicited Acquisition Proposal made by a third party to the Company in writing after the date hereof (i) on terms which the Board of Directors determines in good faith, after consultation with its outside legal counsel and outside financial advisor, to be more favorable from a financial point of view to the Shareholders (excluding any consideration of interests that any Shareholder may have other than as a shareholder of Company), taking into account all of the terms and conditions of such proposal and this Agreement (including any proposal or offer by Parent and Offeror to amend the terms of this Agreement or by Offeror to amend the terms of the Offer), and (ii) that the Board of Directors has determined in good faith, after receipt of advice from its outside legal counsel and outside financial advisor and taking into account all legal, financial, regulatory and other aspects of such proposal (including any conditions contained therein), is reasonably capable of being completed without undue delay; provided that for purposes of the definition of “Superior Proposal,” the references to “20%” in the definition of “Acquisition Proposal” shall be deemed to be references to “100%”;

 

(gggg)

“ Tax ” or “ Taxes ” means, with respect to any person, all Canadian, foreign, national, federal, state, local, municipal, departmental, provincial, branch or other taxes, charges, levies, imposts, duties, other assessments or similar charges of any kind whatsoever (including, without limitation, income, corporate, gross receipts, windfall profits, value added, severance, ad valorem, property, capital, net worth, production, sales, use, licence, excise, franchise, employment, real or personal property, environmental taxes, sales taxes, use taxes, value added taxes, transfer taxes, withholding or similar taxes, payroll taxes, employment taxes, pension plan premiums, severance taxes, Canada Pension Plan contribution, workers’ compensation premiums, employer health, employment insurance or compensation premiums, stamp taxes, occupation taxes, premium taxes, alternative or add-on minimum taxes, goods and services tax, customs duties, anti-dumping or countervailing duties or other taxes of any kind whatsoever imposed or charged by any Governmental Entity), together with any interest, penalties, fines or other similar additions imposed thereon or with respect thereto and any interest in respect of such interest, penalties, fines or additions;

 

(hhhh)

“ Termination Payment ” has the meaning set out in Section 7.2(a);

 

(iiii)

“ Termination Payment Event ” has the meaning set out in Section 7.2(a); and

 

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(jjjj)

“ Trust Indenture ” means, collectively, the Trust Indenture dated as of December 21, 2004 and the First Supplemental Trust Indenture dated as of January 13, 2005, between RBH and CIBC Mellon Trust Company, as trustee.

 

1.2.	Construction and Interpretation

In this Agreement, unless otherwise expressly stated or the context otherwise requires:

(a) references to “herein”, “hereby”, “hereunder”, “hereof” and similar expressions are references to this Agreement and not to any particular Section of or Schedule to this Agreement;

(b) references to a “Section” or a “Schedule” are references to a Section of or Schedule to this Agreement;

(c) words importing the singular shall include the plural and vice versa, and words importing gender shall include the masculine, feminine and neuter genders;

(d) the use of headings is for convenience of reference only and shall not affect the construction or interpretation hereof;

(e) references to any legislation or to any provision of any legislation shall include any modification or re-enactment thereof, any legislative provision substituted therefor and all regulations, rules and interpretations issued thereunder or pursuant thereto;

(f) references to any agreement or document shall be to such agreement or document (together with the schedules and exhibits attached thereto), as it may have been or may hereafter be amended, modified, supplemented, waived or restated from time to time;

(g) wherever the term “includes” or “including” is used, it shall be deemed to mean “includes, without limitation” or “including, without limitation”, respectively; and

(h) references to the knowledge of a party means the actual knowledge of the senior officers of such party and in the case of the Company and its Subsidiaries, means to the knowledge of the President and Chief Executive Officer of the Company, the Executive Vice President of the Company, the Vice President Finance and Chief Financial Officer of the Company, the Vice President Litigation and Regulatory Affairs and Vice President Human Resources of RBH and the Vice President General Counsel of RBH.

 

1.3.	Effect of Settlement

(a) For purposes of interpretation of this Agreement, the parties agree that the rights and obligations of the Company and its Subsidiaries under this Agreement, including all covenants, representations and warranties of the Company and its Subsidiaries and the consummation of the Contemplated Transactions, shall not be prejudiced or negatively affected by the Settlement.

 

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(b) For greater certainty, the parties agree that a Material Adverse Effect under this Agreement shall under no circumstances be constituted by the Settlement or changes, effects, events, occurrences or developments to the extent resulting from the Settlement, and any consideration or evaluation of whether the Company and its Subsidiaries are in compliance with any covenant, representation or warranty under this Agreement shall exclude consideration of the Settlement and changes, effects, events, occurrences or developments to the extent resulting from the Settlement.

(c) The parties agree that throughout this Agreement where reference is made to the Settlement, such references shall be interpreted to include any allegations, potential claims, charges, causes of action and other liabilities which are released by or are the subject of the Settlement and the facts, transactions, conduct, oral and written statements, representations, omissions and events which are the subject of such allegations, potential claims, charges, causes of action or liabilities, as well as the negotiation of the Settlement, the entry into and announcement of the Settlement and implementation of the Settlement in accordance with the terms thereof.

 

1.4.

Currency

Unless otherwise indicated, all dollar amounts referred to in this Agreement are expressed in Canadian dollars.

 

1.5.	Disclosure Letter

Contemporaneously with the execution and delivery of this Agreement, the Company is delivering to Offeror and Parent the Disclosure Letter required to be delivered pursuant to this Agreement, which is deemed to constitute an integral part of this Agreement and to modify the representations, warranties and covenants of the Company contained in this Agreement; provided that no disclosures set forth in the Disclosure Letter will modify any particular representation, warranty or covenant of the Company contained in this Agreement except for such disclosures, if any, as are specifically set forth in the Disclosure Letter under a Section heading that corresponds to the Section of the Agreement containing the particular representation, warranty or covenant or where the relevance of such disclosures is otherwise readily apparent from the disclosure contained in the Disclosure Letter.

 

1.6.

Schedules

The Schedules to this Agreement, as listed below, are an integral part of this Agreement:

 

 

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ARTICLE 2

THE OFFER

 

2.1.

The Offer

(a) Offeror and the Company shall promptly publicly announce the Company’s support of the Offeror’s offer (the “ Offer ”) to purchase all outstanding Common Shares, including Common Shares issuable upon the exercise of Options, but excluding all Common Shares owned by Offeror, Parent and their affiliates, at a price per Common Share of $30.00 in cash (the “ Offer Price ”). The term “Offer” shall include any amendments to, or extensions of, the Offer made in accordance with the terms of this Agreement, including, subject to Section 2.1(g), removing or waiving any condition or extending the date by which Common Shares may be deposited. Offeror shall not be required to make the Offer in any jurisdiction where it would be illegal to do so.

(b) The Offeror shall prepare the Offer and accompanying take-over bid circular (collectively, the “ Circular ”) in both the English and French languages, in all material respects in accordance with the Securities Act and the regulations thereunder and all other applicable securities Laws in the Reporting Jurisdictions and the CBCA (collectively, “ Applicable Securities Laws ”). Offeror shall mail the Circular in accordance with Applicable Securities Laws to each registered holder of Common Shares as soon as reasonably practicable and, in any event, not later than 11:59 p.m. (Toronto time) on August 10, 2008 (such time on such date being referred to in this Agreement as the “ Latest Mailing Time ”); provided , however , that if the mailing of the Circular is delayed by reason of:

(i) an injunction, order or any other action made or taken by a court or Governmental Entity of competent jurisdiction, then, provided that such injunction, order or other action is being contested or appealed by the Offeror, the Latest Mailing Time shall be extended to 11:59 p.m. (Toronto time) on the fifth business day following the date on which such injunction, order or other action ceases to be in effect;

(ii) the Offeror not having obtained any regulatory waiver, consent or approval that is necessary to permit the Offeror to mail the Offer, then, provided that such regulatory waiver, consent or approval is being actively sought, the Latest Mailing Time shall be extended to 11:59 p.m. (Toronto time) on the fifth business day following the date on which such waiver, consent or approval is obtained; or

(iii) the Company not having provided to Offeror the Directors’ Circular in accordance with Section 2.1(i), or not having provided Offeror with such other assistance in the preparation for mailing of the Circular as may be reasonably requested by Offeror in order that the Circular comply in all material respects with Applicable Securities Laws, or not having provided the lists referred to in Section 2.1(h)(vi), then the Latest Mailing Time shall be extended to 11:59 p.m. (Toronto time) on the fifth business day following the date on which the Company supplies such necessary documents, information, lists or other assistance.

 

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(c) If an Acquisition Proposal has been made that provides (or if successful would provide) to Shareholders greater value per Common Share than the value per Common Share that would be provided pursuant to the Offer (as determined by the Offeror, acting reasonably), and the Board of Directors has not determined whether the Acquisition Proposal is a Superior Proposal on or before the deadline for mailing the Offer set forth in Section 2.1(b) above, then such deadline shall be extended to provide Offeror a reasonable amount of time after (but in any event no later than five business days following) the delivery of notice to Offeror of the determination of the Board of Directors as to whether the Acquisition Proposal is a Superior Proposal.

(d) Prior to the printing of the Circular, Offeror shall provide the Company and its counsel with a reasonable opportunity to review and comment on it, recognizing that whether or not such comments are appropriate will be determined by Offeror, acting reasonably. Offeror shall file the Circular and any other documents required by Applicable Securities Laws in connection with the Circular with applicable securities regulatory authorities within the times and in the manner required by all Applicable Securities Laws.

(e) Provided all of the conditions to the Offer set out in Schedule A hereto shall have been waived (where permitted by this Agreement) by Offeror or satisfied, Offeror shall take up and pay for all of the Common Shares tendered under the Offer (such time, the “ Effective Time ”) as soon as reasonably practicable and, in any event, not later than three business days following the time at which Offeror becomes entitled to take up such Common Shares under the Offer pursuant to Applicable Securities Laws.

(f) The Offer shall be made in accordance with Applicable Securities Laws and shall expire not earlier than midnight (Vancouver time) at the end of the 35 ^th day after the date that the Offer was first commenced within the meaning of the Securities Act, subject to the right of Offeror to extend from time to time the period during which Common Shares may be deposited under the Offer (such time on such date, as the same may be extended in accordance with the following two sentences, is referred to in this Agreement as the “ Expiry Time ”). Offeror may extend the Expiry Time (i) in order to contest or appeal any injunction or order made by a Governmental Entity against the take-up and/or payment for the Common Shares tendered to the Offer or to seek any regulatory waiver, consent or approval which is necessary to permit Offeror to take up and pay for the Common Shares tendered to the Offer, provided that the Expiry Time shall not be extended beyond the Outside Date, (ii) after having taken up all of the Common Shares tendered to the Offer, in order to permit other Shareholders to tender their Common Shares to the Offer and (iii) if any of the conditions to the Offer set out in Schedule A hereto are not satisfied at the time at which the Offer would otherwise expire in accordance with its terms, provided that the Expiry Time shall not be extended beyond the Outside Date. If the condition set forth in clause (b) of Schedule A is not satisfied or waived on or prior to the Expiry Time, the Offeror shall, after consultation with the Company, extend the Expiry Time on one or more occasions for such number of days as is reasonably estimated by Offeror to be required for such condition to be satisfied, provided that the Expiry Time shall not be extended beyond the Outside Date. The Offer shall be subject to the conditions set forth in Schedule A to this Agreement. Offeror shall use all commercially reasonable best efforts to consummate the Offer, subject to the terms and conditions hereof and thereof. Offeror shall not terminate or withdraw the Offer

 

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prior to any scheduled Expiry Time without the prior written consent of the Company, except if this Agreement is terminated in accordance with its terms.

(g) Offeror may, in its sole discretion, modify or waive any term or condition of the Offer; provided that Offeror shall not, without the prior written consent of the Board of Directors (which consent may not be unreasonably withheld or delayed):

(i) increase the Minimum Tender Condition;

(ii) decrease or waive the Minimum Tender Condition, unless at the Expiry Time, at least 50.1% of the outstanding Common Shares (calculated on a fully diluted basis) have been tendered to the Offer and essentially simultaneously with such decrease or waiver, Offeror takes up all such tendered Common Shares and Offeror extends the Offer for a period of at least 10 days;

(iii) impose additional conditions to the Offer;

(iv) decrease the consideration per Common Share;

(v) decrease the number of Common Shares in respect of which the Offer is made;

(vi) change the amount or form of consideration payable under the Offer (other than to increase the total consideration per Common Share and/or add additional consideration or consideration alternatives); or

(vii) otherwise vary the Offer or any terms or conditions thereof (which, for the avoidance of doubt, does not include a waiver of a condition) in a manner that is adverse in a material respect to the Shareholders.

(h) The obligation of Offeror to mail the Offer is conditional on the prior satisfaction of the following conditions, all of which conditions are included for the sole benefit of Offeror and any or all of which may be waived by Offeror in whole or in part in its sole discretion (other than the condition set out in Section 2.1(h)(ix), which may be waived only with the consent of the Company) without prejudice to any other right it may have under this Agreement:

(i) this Agreement shall not have been terminated by the Company, Parent or Offeror in accordance with its terms;

(ii) no change, effect, event, circumstance, occurrence or state of facts (other than a change, effect, event, circumstance, occurrence or state of facts caused by Offeror, an affiliate of Offeror or any person acting jointly or in concert with Offeror or an affiliate of Offeror) shall have occurred that would render it impossible, as reasonably determined by Offeror, for the condition set out in clause (b) of Schedule A hereto to be satisfied by the Outside Date;

 

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(iii) RBH and the Company shall have taken all reasonable steps necessary to implement and comply with the terms of the Settlement, to the extent required by the terms thereof to be taken prior thereto;

(iv) the Company shall have complied in all material respects with its covenants in this Agreement;

(v) the Board of Directors, upon consultation with its financial and legal advisors and acting on the unanimous recommendation of the Special Committee, shall have unanimously (excluding abstaining directors) determined that the Offer is fair from a financial point of view to the Shareholders and that the Offer is in the best interests of the Company and, accordingly, shall have unanimously (excluding abstaining directors) approved the entering into and performance of this Agreement and shall have resolved to recommend that Shareholders accept the Offer and tender their Shares to the Offer, and shall not have withdrawn such recommendation or changed, modified or qualified such recommendation in a manner that has substantially the same effect as a withdrawal or taken any other action or made any other public statement in connection with the Offer that is inconsistent with such recommendation;

(vi) on or before the delivery of the Directors’ Circular, the Company shall have provided or caused to be provided to Offeror a list of all of the registered Shareholders and holders of Options, in each case in electronic form and current as of a date that is within five business days of the provision of such list to Offeror, and such list of participants in the book-based system and non-objecting beneficial owners of Common Shares as may be made available to the Company upon request, in each case including address and security holding information for each person, and the Company shall have from time to time thereafter promptly provided or caused to be provided supplements of such lists to reflect any changes to the Shareholders and holders of Options, as applicable;

(vii) the representations and warranties made by the Company in this Agreement shall be true and correct at and as of the date of the mailing of the Offer as if made at and as of such time (except for those expressly stated to speak at or as of an earlier time) without giving effect to, applying or taking into consideration any materiality or Material Adverse Effect qualifications already contained within such representation and warranty, except to the extent that any inaccuracies in the representations and warranties, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect;

(viii) no Material Adverse Effect shall have occurred since the date hereof;

(ix) no cease trade order, injunction or other prohibition at Law shall exist against Offeror making the Offer or taking up or paying for Common Shares deposited under the Offer or against the consummation of any of the other Contemplated Transactions; and

 

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(x) the Company shall have provided to Offeror an Officer’s Certificate, dated as of the date of the mailing of the Offer, confirming the satisfaction of all of the foregoing conditions, if requested by the Offeror.

(i) The Company shall prepare and make available for distribution contemporaneously and together with the Circular, in both the English and French languages, sufficient commercial copies of a directors’ circular relating to the Offer (the “ Directors’ Circular ”), prepared in all material respects in accordance with all Applicable Securities Laws, which shall set forth the recommendation of the Board of Directors described in Section 2.1(h)(v) and shall indicate the intentions referenced in Section 2.2(a)(iii), and the Company shall take all other reasonable action to support the Offer in accordance with, and subject to, the terms of this Agreement. The Company shall file the Directors’ Circular and any other documents required by Applicable Securities Laws in connection with the Directors’ Circular with applicable securities regulatory authorities within the times and in the manner required by all Applicable Securities Laws.

(j) The Company shall provide Offeror and its counsel with a reasonable opportunity to review and comment on the Directors’ Circular prior to its printing, recognizing that whether or not such comments are appropriate will be determined by the Company, acting reasonably. The Directors’ Circular shall include a copy of the written fairness opinion of the Financial Advisor referred to in Section 2.2(a)(i). Offeror shall provide to the Company upon request all information pertaining to the Offeror and its affiliates that is necessary or desirable for the preparation of the Directors’ Circular. Offeror represents, warrants and covenants that such information will be true, complete and correct in all material respects as at the date of the Directors’ Circular and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(k) The Company shall provide to Offeror an Officer’s Certificate, dated the date of the mailing of the Circular and again on the date of the first take-up by Offeror under the Offer, to the effect that the Company, as of such date, (i) has complied in all material respects with its covenants and obligations under this Agreement to be complied with at or prior to such date (without giving effect to, applying or taking into consideration any materiality or Material Adverse Effect qualification contained in such covenant or obligation) and (ii) the representations and warranties made by the Company in this Agreement are true and correct as of such date (except for those expressly stated to speak at or as of an earlier time), except where the failure of such representations and warranties (other than representations and warranties in Sections 3 (but only with respect to the numbers of outstanding equity securities of the Company), 6, 10, 11, 19 and 20(ii) of Schedule C) to be so true and correct, without giving effect to, applying or taking into consideration any materiality or Material Adverse Effect qualification already contained within such representation and warranty, would not reasonably be expected to have a Material Adverse Effect (but with respect to the representations and warranties in Section 9 of Schedule C, clause (iv) of the definition of Material Adverse Effect shall be disregarded);

(l) If, on or after the date hereof, the Board of Directors declares, sets aside for payment, makes or pays any dividend or other distribution payable in cash, securities, property or otherwise in respect of the Common Shares which dividend or distribution is payable or

 

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distributable to Shareholders on a record date which is prior to the date of transfer of such Common Shares into the name of Offeror or its nominee on the share register maintained by or on behalf of Company, then the Offer Price shall be reduced by the amount of the cash dividend or the value of any non-cash distribution; provided , however , that the foregoing shall not apply to any dividends which are declared and paid without any violation of Section 5.2(b). For the avoidance of doubt, this Section 2.1(l) shall not limit or supersede in any way the restrictions and obligations in Section 5.2(b).

 

2.2.	Fairness Opinion and Company Support for the Offer

(a) The Company represents and warrants to and in favour of Offeror, and acknowledges that Offeror is relying upon such representations and warranties in entering into this Agreement, that as of the date hereof:

(i) the Financial Advisor has delivered an oral opinion to the Board of Directors to the effect that the consideration to be received under the Offer is fair from a financial point of view to the Shareholders;

(ii) the Board of Directors, upon consultation with its financial and legal advisors and acting on the unanimous recommendation of the Special Committee, has unanimously (excluding abstaining directors) determined that the Offer is fair from a financial point of view to the Shareholders and that the Offer is in the best interests of the Company and, accordingly, has unanimously (excluding abstaining directors) approved the entering into and performance of this Agreement and has resolved to recommend that the Shareholders accept the Offer and tender their Shares to the Offer (the “ Recommendation ”); and

(iii) each member of the Board of Directors, as well as each senior officer of the Company and its Subsidiaries (who is aware of the Offer), has disclosed to the Board of Directors that he or she intends to tender all Common Shares owned by such member or officer to the Offer and has acknowledged and agreed that the Directors’ Circular, the Circular and the other documents relating to the Offer will indicate that the current intention of all members of the Board of Directors, and at least all senior officers of the Company and its Subsidiaries who are aware of the Offer, is to tender their Common Shares to the Offer.

(b) The Company shall provide to Offeror upon request all information pertaining to the Company and its Subsidiaries that is necessary or desirable for the preparation of the Circular. The Company represents, warrants and covenants that such information will be true, complete and correct in all material respects as at the date of the Circular and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company shall provide Offeror with such other assistance in the preparation of the Circular as may be reasonably requested by Offeror.

 

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2.3.	Outstanding Stock Options

(a) The parties acknowledge that all outstanding Options have vested and, subject to applicable Law, may be exercised by the holders of such Options in compliance with the terms and conditions of the Share Option Plan. Subject to receipt of any necessary stock exchange approvals, the Company shall amend the Share Option Plan and the outstanding Options to permit holders of Options to conditionally surrender their Options before the Expiry Time in exchange for a cash payment from the Company equal to the amount by which the Offer Price exceeds the exercise price under such Option (subject to any required withholding tax remittances), and upon such surrender, such Option will be cancelled and will cease to represent a right to receive Common Shares, unless such payment is not made.

(b) Subject to Applicable Securities Laws, Parent and the Company shall implement arrangements (including effectuating any necessary amendments to the Share Option Plan and the outstanding Options) to provide that to the extent that holders of Options do not exercise their Options pursuant to the Share Option Plan or surrender their Options as contemplated by Section 2.3(a), then as of the Effective Time and concurrently with the take-up of the Common Shares by the Offeror, each such remaining Option will be automatically exchanged for an option (a “ Parent Option ”) to purchase shares of common stock of Parent (“ Parent Shares ”) in an amount and at an exercise price determined as provided in this Section 2.3(b) and to be issued under, and subject to the terms of, Parent’s 2008 Performance Incentive Plan. The number of Parent Shares to be subject to each Parent Option shall be equal to (w) the product of (A) the number of Common Shares subject to such Option immediately prior to the Effective Time and (B) the Offer Price, divided by (x) the closing price of a Parent Share on the New York Stock Exchange on the date on which the Effective Time occurs (the “ Parent Stock Price ”); provided that any fractional shares resulting from such multiplication shall be rounded down to the nearest whole number. The exercise price per Parent Share under each Parent Option shall be equal to (y) the exercise price per Common Share at which such Option was exercisable immediately prior to the Effective Time divided by (z) the quotient obtained by dividing the Offer Price by the Parent Stock Price; provided that such exercise price shall be rounded up to the nearest whole cent. The foregoing formula for calculation of the number of Parent Shares and the exercise price of a Parent Option shall be subject to adjustment, if necessary, to satisfy the requirements that must be met to effect the exchange of Options for Parent Options on a tax-free rollover basis under the Income Tax Act (Canada). The expiration date of each Parent Option shall be the expiration date that was applicable to the corresponding Option prior to its conversion into such Parent Option.

(c) At the Effective Time, the Company will pay the Special Dividend Payments (as such term is defined in the Share Option Plan) which would otherwise be payable upon the exercise of Options pursuant to the Share Option Plan (subject to any required withholding tax remittances); provided , however , at the request of a holder of Options who is a U.S. taxpayer, such Special Dividend Payments shall be payable on the later of January 1, 2009 and the Effective Time.

(d) Prior to the Effective Time, the Company shall take, and shall be permitted (subject to Parent’s consent, not to be unreasonably withheld) to take, all actions necessary (including any necessary determinations and/or resolutions of the Board of Directors or a

 

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committee thereof and any necessary amendments) to effectuate the provisions of this Section 2.3.

 

2.4.	Deferred Share Units and Retiring Allowance for Outside Directors

(a) Following the Effective Time, the Company will pay all amounts owing to holders of Deferred Share Units (subject to any required withholding tax remittances) at such time as their outstanding Deferred Share Units are redeemed in accordance with the DSU Plan. For purposes of such redemptions, the “Market Value of a Common Share on the Redemption Date” shall be deemed to be the Offer Price.

(b) Following the Effective Time, the Company will pay, or cause to be paid, all amounts owing to directors under the Retiring Allowance Policy (subject to any required withholding tax remittances) in accordance with the Retiring Allowance Policy.

 

2.5.

Directors

After the date on which the Offeror and its affiliates take up and pay for at least a majority of the outstanding Common Shares (calculated on an undiluted basis), the Offeror shall be entitled to designate such number of directors (or, at Offeror’s election, request the resignation of such number of directors then on the Board of Directors), rounded up to the next whole number, to serve on the Board of Directors as will give Offeror representation of at least that number of directors which equals the product of (i) the total number of directors on the Board of Directors (giving effect to the election of any additional directors pursuant to this Section 2.5) and (ii) the percentage that the number of Common Shares beneficially owned by Offeror and its affiliates bears to the number of Common Shares then outstanding. Subject to applicable Law, the Company shall cause individuals designated by Offeror to constitute the same percentage as is on the Board of Directors (after giving effect to the foregoing provisions of this Section 2.5) to be on each committee of the Board of Directors. From and after such time that Offeror has a right pursuant to this Section 2.5 to designate a majority of the members of the Board of Directors and until the completion of a Compulsory Acquisition or a Subsequent Acquisition Transaction, the Company and Offeror shall use commercially reasonable best efforts to ensure that at least one of the independent directors (to be specified by Offeror) who is, as of the date of this Agreement, a member of the board of directors of RBH, shall continue to be one of the members of the board of directors of RBH. The Company shall take all actions necessary to cause Offeror’s designees to be elected or appointed to the Board of Directors, the committees thereof and the board of directors of RBH, including, subject to applicable Laws, increasing or decreasing the board or committee size at Offeror’s request, and, in the case of RBH, amending its articles of amalgamation and by-laws to increase or decrease the minimum and/or maximum number of directors provided therein and its by-laws to make the Canadian residency requirements consistent with the CBCA at Offeror’s request, and/or securing the resignations of incumbent directors specified by Offeror. Notwithstanding the foregoing provisions of this Section 2.5, until such time as Offeror has acquired direct or indirect ownership of all of the outstanding Common Shares, the Company shall use its commercially reasonable best efforts to cooperate with the Offeror to cause its Board of Directors as well as the board of directors of RBH to always comply with both the Canadian residency requirements of

 

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the CBCA and any applicable independence requirements for board or committee members under Applicable Securities Laws.

 

2.6.	Subsequent Acquisition Transaction

If the Offer has been accepted by holders of not less than 90% of the outstanding Common Shares as at the Expiry Time, excluding Common Shares held by or on behalf of Offeror or an “affiliate” (as such term is defined in the CBCA and, for the avoidance of doubt, excluding the Company and its Subsidiaries) of Offeror at the date of the Offer, and Offeror has taken up and paid for such Common Shares, Offeror shall use commercially reasonable best efforts to acquire (a “Compulsory Acquisition”) as soon as reasonably practicable all Common Shares not tendered to the Offer pursuant to Section 206 of the CBCA. If that statutory right of acquisition is not available, Offeror shall use its commercially reasonable best efforts to pursue other means of acquiring the remaining Common Shares not tendered to the Offer, including an amalgamation, statutory arrangement, amendment to articles, consolidation, capital reorganization or other transaction involving the Company, Offeror or an affiliate of the Offeror (a “ Subsequent Acquisition Transaction ”), provided that the consideration per Common Share offered in connection with such other means of acquiring such Common Shares shall be at least equivalent in value to, and in the same form as, the consideration per Common Share offered under the Offer. If Offeror takes up and pays for Common Shares under the Offer, the Company will use commercially reasonable best efforts to assist Offeror in connection with any Subsequent Acquisition Transaction.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF OFFEROR

Offeror hereby makes to the Company the representations and warranties set out in Schedule B to this Agreement, and acknowledges that the Company is relying upon these representations and warranties in connection with the entering into of this Agreement.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby makes to Offeror the representations and warranties set out in Schedule C to this Agreement, and acknowledges that Parent and Offeror are relying upon these representations and warranties in connection with the entering into of this Agreement and making the Offer.

ARTICLE 5

CONDUCT OF BUSINESS

 

5.1.	Conduct of Business by Company

Except as expressly contemplated or permitted by this Agreement or required by applicable Laws, or as may be consented to by Offeror in writing (which consent may not be unreasonably withheld, conditioned or delayed), from the date hereof until the earlier of the time of the appointment to the Board of Directors of at least a majority of directors designated by Offeror pursuant to Section 2.5 and the termination of this Agreement pursuant to Section 7.1,

 

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the Company shall, and shall cause its Subsidiaries to, continue to carry on its and their businesses in a manner consistent in all material respects with past practice, and use commercially reasonable best efforts to preserve intact its and their present business organizations and its and their significant business relationships and to retain the services of key officers and key employees. For greater certainty and in furtherance of this general commitment (but without limiting such general commitment), unless Offeror otherwise agrees in writing (which agreement shall not be unreasonably withheld, conditioned or delayed) or as otherwise expressly contemplated or permitted by this Agreement or as required by applicable Laws, the Company shall, and shall cause each of the Company’s Subsidiaries to:

(a) use commercially reasonable best efforts to preserve intact its and their respective assets, including real and intellectual property interests, contractual or other legal rights and claims in good standing;

(b) use commercially reasonable best efforts to keep available the services of its officers and employees as a group and to maintain and preserve the current relationships with suppliers, distributors, employees and others having business relationships with them;

(c) not amend its or their articles or by-laws or the terms of any of its or their outstanding securities (other than the Options or Share Option Plan, to the extent expressly permitted by this Agreement), including any outstanding bonds, debentures, notes, indebtedness or credit facilities;

(d) not issue, sell, pledge, lease, dispose of or otherwise encumber any securities of the Company or any Company Subsidiary or create any new Subsidiary, nor issue any options, warrants, calls, conversion privileges or rights of any kind to acquire Common Shares or any other securities of the Company or any Company Subsidiary (other than the issuance of Common Shares upon the exercise of currently outstanding Options in accordance with their terms (as they may be amended to the extent expressly permitted by this Agreement)), or redeem or purchase any of its or their outstanding securities (other than pursuant to a surrender of Options or a redemption of Rights if required under Section 5.3) and, without limiting the generality of the foregoing, not authorize, approve, agree to issue, issue or award any Options under the Share Option Plan or any other options to acquire Common Shares;

(e) except for changes in compensation for employees (including officers), which are made in the ordinary course of business consistent with past practice, not enter into, create, declare, adopt, amend, vary, modify or take any other action with respect to any Employee Plan (or otherwise increase or decrease compensation or benefits) for the benefit or welfare of any officer, director or employee, or similar rights or other benefits;

(f) except in relation to assets, properties, interests, rights or claims that are not, individually or collectively, material to the Company and its Subsidiaries taken as a whole, not abandon or fail to diligently pursue or maintain any application for any licence, permit, order, authorization, consent, approval or registration;

(g) other than to the extent required as a result of the Settlement and except for reasonable and customary expenses incurred in connection with the Contemplated Transactions,

 

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not make any capital expenditures which would result in the amounts set forth in the applicable capital expenditure budget (a copy of which has been provided to Parent and Offeror prior to the date hereof) being exceeded by more than 5%, nor incur or commit to incur expenditures in excess of $10 million to September 30, 2008 or $20 million to December 31, 2008 (in each case, in the aggregate for such period);

(h) not sell, lease, option, encumber or otherwise dispose of, or commit to sell, lease, option, encumber or otherwise dispose of, any assets or group of related assets (through one or more related or unrelated transactions), including any interest in any of the intellectual properties of the Company or any of its Subsidiaries, having a value in excess of $5 million in the aggregate;

(i) other than obligations of the Company and RBH to the extent required as a result of the Settlement and the entering into of a one-year revolving loan facility with JPMorgan Chase Bank, N.A. pursuant to a credit agreement dated as of July 31, 2008 and the financing support letter agreement by and among the Company, Parent and RBH, dated as of the date hereof, not incur, assume, guarantee, become obligated with respect to or commit to incur any indebtedness for borrowed money, other than in the ordinary course of business consistent with past practice;

(j) other than agreements and commitments required as a result of the Settlement, not enter into any agreement or series of agreements that would result in any agreement having a term in excess of 12 months and that would not be terminable by the Company or any of its Subsidiaries upon notice of 3 months or less from the date of the relevant agreement or modification of the agreement, or that would impose payment or other financial obligations on the Company or any of its Subsidiaries which would result in the relevant categories of capital expenditures set forth in the applicable master budget (a copy of which has been provided to Parent and Offeror prior to the date hereof) being exceeded by more than 5%, other than in the ordinary course of business consistent with past practice; provided that the Company shall not, and shall cause RBH to not, make any amendments or modifications to, or any waivers of rights or obligations under, or take or refrain from taking any actions resulting in non-compliance with the terms of the Settlement, to the extent required by the terms thereof to be taken prior to the Expiry Time, except in each case with Offeror’s prior written consent;

(k) other than as set forth in Section 6.2, not enter into any non-compete, non-solicitation, exclusivity, most-favored nation or similar agreement that would materially restrict the businesses of the Company or its Subsidiaries and, following the consummation of the Contemplated Transactions, Parent or any of Parent’s affiliates, or their ability to solicit, or transact with, customers or employees;

(l) not make any changes to existing accounting policies other than as required by applicable Law or by Canadian GAAP;

(m) other than to the extent required as a result of the Settlement, including any required repayment of the Bonds, not pay, discharge, settle, waive or satisfy any material claims, liabilities or obligations other than the payment, discharge, settlement, waiver or satisfaction, in the ordinary course of business consistent with past practice, of liabilities reflected or reserved

 

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against in Company’s consolidated financial statements or incurred in the ordinary course of business consistent with past practice;

(n) not engage in any transaction with any related parties (other than Parent, Offeror and their affiliates pursuant to the Contemplated Transactions), other than in the ordinary course of business consistent with past practice;

(o) not commit to or enter into any new arrangements, or modify any existing arrangements, between the Company and any Shareholder in its capacity as such;

(p) other than to the extent required as a result of the Settlement, including any required repayment of the Bonds, not commence or settle or assign any rights relating to or any interest in any material litigation, proceeding, claim, action, assessment or investigation involving the Company or a Company Subsidiary or a material asset of any of them;

(q) other than to the extent required as a result of the Settlement, including any required repayment of the Bonds, not waive, release, settle, compromise or amend in any material respect any legal rights or claims, actions or proceedings, in each case, in relation to assets, properties, interests, rights or claims that are, individually or in the aggregate, material to the Company and the Company Subsidiaries taken as a whole, other than waivers, releases, settlements, compromises or amendments not exceeding the amount reserved for in the financial statements for the fiscal year ended March 31, 2008 of the Company or that involve only the payment of monetary damages not in excess of $100,000 in the aggregate (excluding amounts to be paid under existing insurance policies) or otherwise pay, discharge or satisfy any claims, liabilities or obligations in excess of such amount, in each case other than in the ordinary course of business consistent with past practice;

(r) not enter into any interest rate, currency, equity or commodity swaps, hedges, derivatives, forward sales contracts or other similar financial instruments;

(s) use commercially reasonable best efforts to cause its current insurance (or reinsurance) policies or any of the coverage thereunder not to lapse, unless simultaneously with such termination, cancellation or lapse, replacement policies underwritten by insurance and re-insurance companies of nationally recognized standing providing coverage equal to or greater than the coverage under the cancelled, terminated or lapsed policies for substantially similar premiums are in full force and effect;

(t) not (i) acquire or agree to acquire (by merger, amalgamation, acquisition of stock or assets or otherwise) any person or other business organization