Citation:
2012 TCC 120
Date:
20120412
Docket: 2009-3734(IT)G
BETWEEN:
PRICE
WATERHOUSE COOPERS INC.
ACTING
IN THE CAPACITY OF TRUSTEE IN BANKRUPTCY
OF
BIOARTIFICIAL GEL TECHNOLOGIES (BAGTECH) INC.,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS
FOR JUDGMENT
Bédard
J.
[1]
During
the taxation years ending on December 31, 2004 and 2005 (the relevant years), Bioartificial
Gel Technologies (BAGTECH) Inc. (Bagtech) incurred scientific research and
experimental development (SR&ED) expenses and SR&ED capital
expenditures. To determine Bagtech’s investment tax credit (ITC) for SR&ED for
the relevant years, the Minister of National Revenue (the Minister) concluded
that Bagtech was not a “Canadian-controlled private corporation” (CCPC) within
the meaning of subsection 125(7) of the Income Tax Act (the ITA).
The Minister, therefore, concluded that, during the relevant years, Bagtech was
a “non-qualifying corporation” within the meaning of subsection 127(9) of
the ITA and was not entitled to the “refundable investment tax credit” provided
for in subsection 127.1(1) of the ITA.
[2]
The
only issue in this case is whether Bagtech was a CCPC under subsection 125(7)
of the ITA. That definition reads as follows:
125(7) In this section,
. . .
“Canadian-controlled private
corporation”
means a private corporation that is a Canadian corporation other than
(a) a corporation
controlled, directly or indirectly in any manner whatever, by one or more
non-resident persons, by one or more public corporations (other than a
prescribed venture capital corporation), by one or more corporations described
in paragraph (c), or by any combination of them,
(b) a corporation
that would, if each share of the capital stock of a corporation that is owned
by a non-resident person, by a public corporation (other than a prescribed
venture capital corporation), or by a corporation described in paragraph (c)
were owned by a particular person, be controlled by the particular person,
(c) a corporation
a class of the shares of the capital stock of which is listed on a designated
stock exchange, or
(d) in applying
subsection (1), paragraphs 87(2)(vv) and (ww) (including, for
greater certainty, in applying those paragraphs as provided under paragraph
88(1)(e.2)), the definitions “excessive eligible dividend designation”, “general
rate income pool” and “low rate income pool” in subsection 89(1) and
subsections 89(4) to (6), (8) to (10) and 249(3.1), a corporation that has made
an election under subsection 89(11) and that has not revoked the election under
subsection 89(12);
[3]
The
appellant essentially contends that a “particular person” does not control
Bagtech simply because they hold more than 50% of the voting shares, since the
person is bound by the unanimous shareholders’ agreement (the USA), which
prevents them from electing a majority of Bagtech’s directors (see
Appendix 1). However, the respondent contends that, for the purposes of
paragraph (b) of the definition of the expression “Canadian-controlled
private corporation” in subsection 125(7) of the ITA, shareholders’
agreements or unanimous shareholders’ agreements may not be taken into
consideration. The respondent submits that, in the event that the Court
concludes that the existence of a unanimous shareholders’ agreement must be taken
into consideration in determining whether the “control” referred to in
paragraph (b) of the definition of the expression “Canadian-controlled
private corporation” is exercised by the “particular person”, the “particular
person” nonetheless had de jure control during the relevant years. The
respondent’s submission is that if the clauses in the nature of a unanimous
shareholders’ agreement are taken into consideration, legal control was not
withdrawn from the non-resident shareholders, who together form the majority
shareholders, since:
(a) the
clauses in the nature of a unanimous shareholders’ agreement did not operate to
withdraw de jure control from the non-resident shareholders, who form
the majority; and
(b) a
majority of the clauses in the unanimous shareholders’ agreement provide that
they will be implemented by ordinary resolution. The non-residents, therefore, control
the decision-making in relation to those clauses.
[4]
The
parties agreed to an [TRANSLATION] “agreement
as to the facts, issue and documents” (Exhibit A-1), of which I reproduce
the section on the facts in full here:
[Translation]
AGREEMENT
AS TO THE FACTS, ISSUE AND DOCUMENTS
FILED
BY CONSENT
1. RELEVANT FACTS
ADMITTED BY THE PARTIES
1.1
Bioartificial
Gel Technologies (BAGTECH) Inc. (“Bagtech”) was incorporated on March 8,
1996, under the Canada Business Corporations Act (“CBCA”).
1.2
It
is a taxable Canadian corporation as defined in subsection 89(1) of the Income
Tax Act (Canada) (“ITA”).
1.3
After
it acquired patented technologies, Bagtech specialized in cutting-edge medical
technologies, including the development of several ranges of moist bandages
that assist in speeding the scarring process for various types of wounds.
1.4
Since
it began operating, and throughout the 2004 and 2005 taxation years, each
ending on December 31 (“2004 and 2005 taxation years”), Bagtech carried on
scientific research and experimental development activities (“SR&ED”).
1.5
During
the 2004 taxation year, Bagtech incurred SR&ED operating expenses in the
amount of $1,017,722 and SR&ED capital expenditures in the amount of $431,517.
1.6
During
the 2005 taxation year, Bagtech incurred SR&ED operating expenses in the
amount of $1,461,189 and SR&ED capital expenditures in the amount of $69,641.
1.7
Bagtech’s
authorized capital stock is composed of Class A, B, C, D and E shares.
1.8
Only
Class A shares are voting and participating.
1.9
Class
B and C shares bear a non-cumulative dividend at a maximum rate of 8% and
are redeemable in the amount of the stated capital.
1.10
Class
D and E shares bear a non-cumulative dividend at a maximum rate of 8% and
are redeemable at the stated amount plus a premium equivalent to the difference
between the stated amount and the fair market value of property received by the
company at the time the shares were issued.
1.11
Throughout
the 2004 and 2005 taxation years, only one Class D share was issued and
outstanding, at the time of incorporation, in the name of Guy Fortier (“Fortier”),
a Canadian resident, in consideration for certain technologies.
1.12
All
other issued and outstanding shares were Class A shares.
1.13
In
the first round of financing, carried out in 1998, the Fonds régional de
solidarité de l’île de Montréal (Quebec, Canada) (“FRSIM”) and the Fonds
de Solidarité des travailleurs du Québec (F.T.Q.) (Quebec, Canada) (“FSTQ”)
participated in the subscription for Class A shares of Bagtech.
1.14
The
other investors were a group represented by the founders of Bagtech, and only
investors resident in Canada were shareholders of Bagtech.
1.15
In
1999, two European “business angels” subscribed to the capital stock of Bagtech,
and in 2000, two other venture capital corporations subscribed to the capital
stock: SGF Santé Inc. (Quebec, Canada) (“SGF”) and Finedix B.V. (Amsterdam, Netherlands) (“Finedix”).
1.16
In
2002, the following venture capital corporations subscribed to the capital
stock of Bagtech : Medco SA (Geneva, Switzerland) (“Medco”),
Schroder & Co. Bank AG (Zurich, Switzerland) (“Schroder”) and
Gutrafin Limited (London, England) (“Gutrafin”), with the result that 45.31%
of the outstanding Class A shares were then held by non-residents of
Canada.
1.17
In
2003, in an additional round of financing, a number of shareholders acquired
new Class A shares of Bagtech: the venture capital corporation Auriga
Ventures II (Paris, France) (“Auriga”) and two “business angels”, Youri
Popowski (Geneva, Switzerland) (“Popowski”) and Investissements Onami
inc. (Quebec, Canada) (“Onami”).
1.18
On
September 11, 2003, the Bagtech shareholders signed a document entitled [Translation] “unanimous
shareholders’ agreement” (“USA”), which included the following clauses:
“RULES OF INTERNAL
GOVERNANCE
Article 3.1 Subject
to the following provisions, the Shareholders agree, during the term of this
Agreement, to take the necessary measures and to use the voting rights
associated with the Shares they hold to elect and continue seven Directors on
the Board of Directors.
Article 3.2 On the date of this
Agreement, the Shareholders agree that the Board of Directors shall be composed
of representatives appointed by the Shareholders as hereinafter set out:
Group A 2 Directors (including
Marie-Pierre Faure)
Group B 3 Directors
(including one appointed jointly by FSTQ and FRSIM, one appointed by SGF and
one appointed by Auriga)
Group C 2 Directors (including
André Lamotte)”
1.19
Under
the definition set out in article 1.21 of the USA, Group A is
composed of the following shareholders: Marie-Pierre Faure (“Faure”),
Fortier, Richard J. Deckelbaum (“Deckelbaum”), Jean Emmanuel Raphael
Guetta (“Guetta”), Amaze through its delegated director, Richard Émile
Azera (“Amaze”), Jean-François Brisson (“Brisson”), Marie-Claude
Lévesque (“Lévesque”), Marielle Robert (“Robert”), Popowski and
Onami.
1.20
Under
the definition set out in article 1.22 of the USA, Group B is composed of
the following shareholders: SGF, FSTQ, FRSIM, Finedix and Auriga, of which SGF appoints
one director and FSTQ and FRSIM jointly appoint a second director.
1.21
Under
the definition set out in article 1.22 of the USA, Group C is composed of
the following shareholders: Medco, Gutrafin and Schroder, which appoints two
directors, including Collin Bier who is to act as chair of the board of
directors.
1.22
On
December 31, 2004, over 60% of the Class A shares outstanding were held by
non-residents of Canada.
1.23
In
the period from January 1 to July 21, 2005, the shareholders of
Bagtech were the same as the shareholders on December 31, 2004.
1.24
On
July 22, 2005, other investors subscribed to the capital stock of Bagtech:
HSBC (Switzerland), Auxitec (France), Ayman (Switzerland) and Bagadine
(France).
1.25
Following
the subscriptions of those investors for shares in the capital stock of Bagtech,
clauses 3.1 and 3.2 of the USA were changed by amendment to the USA dated
July 22, 2005, to indicate that the number of directors of Bagtech would
be increased to eight from seven, and that the number of directors appointed by
Group C would increase to three from two, one of whom would be appointed
by Bagadine.
1.26
On
December 31, 2005, over 70% of the Class A shares outstanding were
held by non-residents of Canada.
1.27
When
Bagtech’s original return for its 2004 and 2005 taxation years was filed, the
corporation was not designated as a “Canadian-controlled private corporation” (“CCPC”).
1.28
On
or about June 1, 2007, under subsection 127.1(1) of the ITA, an
amended prescribed form was filed for the 2004 and 2005 taxation years, to have
Bagtech’s status recorded as a CCPC and an “eligible corporation”, for it to be
given the applicable refundable investment tax credits at the 35% rate
instead of the 20% initially claimed, and to have a portion of that credit
refunded to it.
1.29
On
October 21, 2008, Bagtech made an assignment of property and Price
Waterhouse Coopers Inc. was appointed as trustee in the bankruptcy of Bagtech.
1.30
On
November 3, 2008, CRA issued its decision that Bagtech was not, in its opinion,
a Canadian-controlled private corporation during the 2004 and 2005 taxation
years.
1.31
On
April 9, 2009, CRA issued a “notice of determination of loss” for the 2004
and 2005 taxation years.
Analysis
and Conclusion
[5]
Under
paragraph (b) of the definition of a CCPC in subsection 125(7)
of the ITA, a corporation is not a CCPC where, if each share of the corporation
that is owned by a non-resident person or a public corporation were owned by a “particular
person”, the corporation would be controlled by the particular person.
[6]
As
was held in Sedona Networks Corp. v. The Queen, 2007 FCA 169, the
paragraph (b) analysis must be done in two stages. First, it is
necessary to determine who the non-resident persons and public corporations
are, and assume that their shares are owned by a “particular person”. Second,
once that attribution is made, it is necessary to determine whether the
corporation is controlled by that “particular person”. In the case, the
evidence is that on December 31, 2004, 62.52% of the outstanding Class A
shares of Bagtech (Class A shares being the only voting shares of Bagtech
during that year) were held by non-residents of Canada. The evidence also is
that on December 31, 2005, 70.42% of the outstanding Class A shares
of Bagtech (Class A shares being the only voting shares of Bagtech during
that year) were held by non-residents of Canada.
[7]
The
question to be answered now is: while the “particular person” held 62.52% and
70.42% of the outstanding Class A shares of Bagtech on December 31,
2004, and December 31, 2005, respectively, did the “particular person”
actually control Bagtech during those years? To answer that question, the
meaning of the word “control” for the purposes of the ITA must be determined.
[8]
The
courts have had to rule on the issue of control a number of times, since there
is no definition in the ITA.
[9]
The
leading case with respect to control is Buckerfield’s Ltd. v. Minister of
National Revenue, [1965] 1 Ex. C.R. 299, in which President Jackett wrote:
Many
approaches might conceivably be adopted in applying the word “control” in a
statute such as the Income Tax Act to a corporation. It might, for
example, refer to control by “management”, where management and the board of
directors are separate, or it might refer to control by the board of directors.
. . . The word “control” might conceivably refer to de facto control by
one or more shareholders whether or not they hold a majority of shares. I am of
the view, however, that in Section 39 of the Income Tax Act [the former
section dealing with associated companies], the word “controlled” contemplates the
right of control that rests in ownership of such a number of shares as carries
with it the right to a majority of the votes in the election of the board of
directors. [Emphasis added.] See British American Tobacco Co. v. I.R.C.,
[1943] 1 All E.R. 13, where Viscount Simon L. C., at page 15, says:
The
owners of the majority of the voting power in a company are the persons who are
in effective control of its affairs and fortunes.
[10]
That
excerpt from the decision of the Exchequer Court was subsequently cited and
approved on a number of occasions by the Supreme Court of Canada (the SCC), in
particular in Minister of National Revenue v. Dworkin Furs (Pembroke) Ltd.,
[1967] S.C.R. 223, Vina-Rug (Canada) Ltd. v. Minister of National Revenue,
[1968] S.C.R. 193, R. v. Imperial General Properties Ltd., [1985]
2 S.C.R. 288, and Duha Printers (Western) Ltd. v. The Queen, [1998] 1 S.C.R.
795.
[11]
It
is clear from that case law that, for the purposes the ITA, “control” of a corporation
means de jure control and not de facto control. In short, Buckerfield’s
stands for the proposition that the test consists in deciding whether the
majority shareholder enjoys “majority control” over the “affairs and fortunes”
of the corporation, as manifested in “ownership of such a number of shares as
carries with it the right to a majority of the votes in the election of the
board of directors”.
[12]
One
important clarification was subsequently added to the comments made by
President Jackett in Buckerfield’s. Indeed, in Imperial General
Properties Ltd., supra, at para. 11, the SCC stated that, in
determining de jure control, “the court is not limited to a highly
technical and narrow interpretation of the legal rights attached to the shares
of a corporation”. In fact, the highest court in the land essentially
reiterated what had been said by Thurlow J. in Donald Applicators Ltd. v. Minister
of National Revenue, [1969] 2 Ex. C.R. 43, affirmed by [1971] S.C.R. v, and
held that “[n]either is the court constrained to examine those rights in the
context only of their immediate application in a corporate meeting”, and that,
on the contrary, “these rights must be assessed in their impact ‘over the long
run’” (Imperial General Properties Ltd., supra, at para. 11).
[13]
While
under the legislation that governs the corporation, directors generally have
the express right to manage the corporation’s day-to-day activities, the
majority shareholder exercises that control indirectly by virtue of their right
to elect the board of directors. Accordingly, it is unquestionably the majority
shareholder, and not the directors themselves, who exercise control of the
corporation “over the long run”: see British American Tobacco Co. v. I.R.C.,
[1943] 1 All E.R. 13, at p. 15.
[14]
The
final important authority regarding the de jure control rule laid down
in Buckerfield’s is, of course, Duha Printers, a decision of the
SCC.
[15]
In
that case, the fact that the relevant test was de jure control was not
really disputed by the parties. The dispute related, rather, to the factors
that may be taken into consideration in the determination of whether there is de
jure control.
[16]
Iacobucci
J. commenced his analysis by reiterating that “to apply formalistically a test
like that set out in Buckerfield’s, without paying appropriate heed to
the reason for the test, can lead to an unfortunately artificial result” (Duha
Printers, supra, at para. 37). On that point, it should be recalled
that the central objective of the Buckerfield's test is to determine
where effective control of the corporation lies.
[17]
The
SCC then concluded that, as a general rule, “external agreements are not to be
taken into account as determinants of de jure control”: at paras. 51
and 55.
[18]
The
SCC’s reasoning is justified by the principle that de jure control is
the control conferred by the majority vote in a corporation. While the SCC has
sometimes been prepared to examine factors other than a corporation’s share
register, its review has always been restricted only to the constating documents,
not external agreements. The only exception is found in cases like Minister
of National Revenue v. Consolidated Holding Co., [1974] S.C.R. 419, where
the very capacity to act was limited by external documents, but that exeption
has emerged only in cases where the shares were held by trustees: at
paras. 48 to 50.
[19]
Iacobucci
J. also placed some weight on the fact that “taxpayers rely heavily on whatever
certainty and predictability can be gleaned from the Income Tax Act”. Accordingly,
in the opinion of the SCC, “a simple test such as that which has been followed
since Buckerfield’s” is desirable: para. 52. “The de
facto concept was rejected because it involves ascertaining control in
fact, which can lead to a myriad of indicators which may exist apart from
these sources”: para. 58.
[20]
Accordingly,
Iacobucci J. dismissed the possibility of reviewing external agreements in
the de jure control analysis, and stated:
. .
. agreements among shareholders, voting agreements, and the like are, as a
general matter, arrangements that are not examined by courts to ascertain
control. In my view, this is because they give rise to obligations that
are contractual and not legal or constitutional in nature. (para. 59)
[21]
Iacobucci J.
then examined the question of whether a unanimous shareholders’ agreement must
be qualified as contractual in nature, or in the nature of a constating
document.
[22]
The
SCC settled the issue by deciding that a unanimous shareholders’ agreement is “a
corporate law hybrid, part contractual and part constitutional in nature” (para. 66).
That being said, the SCC was careful to go on to say that the constitutional
element of the unanimous shareholders’ agreement is even more potent than its
contractual features: para. 67.
[23]
Accordingly,
if an agreement can be considered to be a unanimous shareholders’ agreement (USA) within the meaning of the Canada Business Corporations Act (the CBCA), it must
be taken into consideration just like the corporation’s constating documents in
order to determine de jure control. The legal reasoning underlying the
principle that a unanimous shareholders’ agreement may play a vital role in the
de jure control analysis is summarized well by the following comments of
Iacobucci J.:
As
I have said, the essential purpose of the Buckerfield’s test is to
determine the locus of effective control of the corporation. To my mind,
it is impossible to say that a shareholder can be seen as enjoying such control
simply by virtue of his or her ability to elect a majority of a board of
directors, when that board may not even have the actual authority to make a
single material decision on behalf of the corporation. The de jure
control of a corporation by a shareholder is dependent in a very real way on
the control enjoyed by the majority of directors, whose election lies within
the control of that shareholder. When a constating document such as a USA provides that the legal authority to manage the corporation lies other than with the
board, the reality of de jure control is necessarily altered and the
court must acknowledge that alteration. (para. 70)
[24]
In
other words, the share register should be examined having regard to the
relevant legislative provisions governing the corporations (in this instance,
the CBCA) and the corporation’s constating documents (to which unanimous
shareholders’ agreements must be seen as analogous). However, external
agreements play no role in this analysis, since they are relevant only to de
facto control.
[25]
Lastly,
the SCC concludes by cautioning that “the simple fact that the shareholders of
a corporation have entered into a USA does not have the automatic effect of
removing de jure control from a shareholder who enjoys the majority of
the votes in the election of the board of directors”. The extent to which the
provisions of a unanimous shareholders’ agreement restrict or abrogate the
directors’ powers must be examined (para. 81): “it is possible to
determine whether de jure control has been lost as a result of a USA by
asking whether the USA leaves any way for the majority shareholder to exercise
effective control over the affairs and fortunes of the corporation in a way
analogous or equivalent to the power to elect the majority of the board of
directors (as contemplated by the Buckerfield’s test)” (para. 82).
[26]
Paragraph 85
of Duha Printers provides an excellent summary of the current law
relating to the concept of “control”. That paragraph reads as follows:
[85] It may be
useful at this stage to summarize the principles of corporate and taxation law
considered in this appeal, in light of their importance. They are as
follows:
(1) Section
111(5) of the Income Tax Act contemplates de jure, not de
facto, control.
(2) The
general test for de jure control is that enunciated in Buckerfield’s,
supra: whether the majority shareholder enjoys “effective control” over
the “affairs and fortunes” of the corporation, as manifested in “ownership of
such a number of shares as carries with it the right to a majority of the votes
in the election of the board of directors”.
(3) To
determine whether such “effective control” exists, one must consider:
(a) the
corporation’s governing statute;
(b) the
share register of the corporation; and
(c) any
specific or unique limitation on either the majority shareholder’s
power to control the election of the board or the board’s power to
manage the business and affairs of the company, as manifested in either:
(i) the
constating documents of the corporation; or
(ii) any
unanimous shareholder agreement.
(4) Documents
other than the share register, the constating documents, and any unanimous
shareholder agreement are not generally to be considered for this purpose.
(5) If
there exists any such limitation as contemplated by item 3(c), the majority
shareholder may nonetheless possess de jure control, unless there
remains no other way for that shareholder to exercise “effective control” over
the affairs and fortunes of the corporation in a manner analogous or equivalent
to the Buckerfield’s test.
[27]
While
Duha Printers clearly stands for the proposition that a unanimous
shareholders’ agreement must be taken into consideration in determining de
jure control, the Minister submits that an agreement of that nature must
have no influence on the second stage of the analysis (that is, the
determination of control of a corporation by a “particular person”) for the
purposes of paragraph (b) of the definition of a CCPC. Paragraph
21 of technical interpretation 2008–0265902I7 – Canadian‑Controlled
Private Corporation provides a fairly good summary of the Minister’s argument
on this point. That paragraph reads as follows:
[Translation]
21. In that specific
case, indeed as a general proposition, we reiterate our position that a USA has no impact on the second stage of the analysis (i.e. determination of control of a
corporation by the hypothetical particular person) for the purposes of
paragraph (b) of the definition of CPCC in subsection 125(7).
It still seems to us that the determination provided for in the second stage of
the analysis is purely arithmetical. The case law in no way rejects that
approach; on the contrary, the Federal Court of Appeal unreservedly holds that
mere possession of shares by a non-resident majority is sufficient to give the
non-residents control for the purposes of paragraph (b) of the definition
of CCPC in subsection 125(7). In any event, as stated in the Document, the
hypothetical particular person is not a party to any unanimous shareholders’
agreement or deemed to be such for the purposes of paragraph (b) of
the definition of CCPC in subsection 125(7).
CRA, Technical Interpretation
2008-0265902I7, “Canadian-Controlled Private Corporation” (May 6, 2008), at
para. 21.
[28]
At
this point, I think it will be useful to summarize the circumstances in which Parliament
added paragraph (b) to the definition of a CCPC. It was added by
S.C. 1998, c. 19, subsection 145(2), and evidently runs counter
to the decision of the Federal Court of Appeal in Silicon Graphics Ltd. v.
The Queen, [2003] 1 F.C. 447, in which the Court held that “simple
ownership of a mathematical majority of shares by a random aggregation of
shareholders in a widely held corporation with some common identifying feature
(e.g. place of residence) but without a common connection does not constitute de
jure control as that term has been defined in the case law” (at para. 36).
The comments by the Federal Court of Appeal were made in the context of an
analysis of the applicable law before new paragraph (b) was added to the
definition of a CCPC.
[29]
In
this regard, the purpose of the provision is, moreover, clearly laid out in the
relevant technical notes published by the Minister of Finance:
Currently,
a corporation is a CCPC if it is a private corporation and a Canadian
corporation (both of which terms are defined in subsection 89(1) of the Act),
and it is not controlled, directly or indirectly in any manner whatever by one
or any combination of public corporations (other than prescribed venture
capital corporations) or non-resident persons. This amendment ensures that two
other types of corporation are not CCPCs. The first type are corporations that,
if they are not actually controlled by non-residents, avoid that status only
because their shares are widely held. The second type are corporations the
shares of which are listed on a foreign stock exchange.
A
corporation the voting shares of which are distributed among a large number of
persons is usually not considered to be controlled by any group of its
shareholders, provided the shareholders do not act together to exercise
control. As a result, it may be argued that a private Canadian corporation that
is owned by a number of non-residents or public corporations is not controlled
by non-residents or public corporations, and is thus a CCPC. New paragraph (b)
of the CCPC definition clarifies that this is not the case. Paragraph (b)
requires non-residents’ and public corporations’ shareholdings – not only of
the corporation in question, but of all corporations – to be notionally
attributed to one hypothetical person. If that person would control the corporation,
then the corporation is not a CCPC.
Department
of Finance of Canada, Explanatory Notes Relating to Income Tax
(December 8, 1997), s. 125(7), “Canadian-controlled private
corporation”.
[30]
The
practical result is, therefore, that paragraph (b) of the definition of
a CCPC creates a legal fiction. This kind of alteration of reality was
thoroughly canvassed by the SCC in R. v. Verrette, [1978] 2 S.C.R.
838. Writing for the Court, Mr. Justice Beetz characterized this kind
of legal fiction as a “deeming provision” and explained its effect as follows:
A deeming provision
is a statutory fiction; as a rule it implicitly admits that a thing is not what
it is deemed to be but decrees that for some particular purpose it shall be
taken as if it were that thing although it is not or there is doubt as to
whether it is. (p. 845)
[31]
The
purpose and application of a deeming provision was then examined in detail by
the Federal Court of Appeal in Attorney General of Canada v. Scarola,
2003 FCA 157, [2003] 4 F.C. 645, in which Létourneau J. based his
explanation in part on the following French doctrine:
Fiction
is a process that, as repeatedly noted, is part of the pragmatics of law. It
consists first in misrepresenting the facts, stating them to be other than what
they really are and extracting from that very adulteration and that false
supposition the legal consequences that would flow from the dissembled truth,
if that truth existed beyond the cloak of external appearances. (para. 19)
[32]
In
Survivance v. Canada, 2006 FCA 129, at para. 55, the Court stated: “Insofar
as [a legal fiction] effectively alters reality, its meaning should be limited
to what is clearly expressed. A deeming provision cannot otherwise modify the
actual situation that obtains.”
[33]
Indeed,
those comments are consistent with those of the SCC in Shell Canada Ltd. v. Canada,
[1999] 3 S.C.R. 622, in which Madam Justice McLachlin, as she then was, stated,
in comments that have been repeatedly cited since then:
The
Act is a complex statute through which Parliament seeks to balance a myriad of
principles. This Court has consistently held that courts must therefore
be cautious before finding within the clear provisions of the Act an unexpressed
legislative intention: . . . . (par. 43)
[34]
Accordingly,
I am of the opinion that, in spite of the particular characteristics of
paragraph (b) of the definition of a CCPC, it must be read in its
entire context and in its ordinary and grammatical sense harmoniously with the
scheme of the Act, the object of the Act and the intention of Parliament: see Ludco
Enterprises Ltd. v. The Queen, 2001 SCC 62, [2001] 2 S.C.R. 1082, at
para. 36.
[35]
Consequently,
the legal effects of this legal fiction, which are superimposed on the truth
that is being pushed aside, mean that the “particular person” to whom we are
referring here is deemed to have the same rights and to be subject to the same
obligations as the non-resident owners of the shares of the corporation in
question.
[36]
Subsection 146(3)
of the CBCA provides:
A purchaser or
transferee of shares subject to a unanimous shareholder agreement is deemed to
be a party to the agreement.
[37]
Considering
everything that has been discussed here, I therefore find it very difficult to
defend the position that the “particular person” referred to in paragraph (b)
of the definition of a CPCC cannot be deemed, in determining de jure
control, having regard to the alteration of the facts imposed by the provision,
to be a party to the unanimous shareholders’ agreements then in effect.
[38]
The
Minister contends that the effect of having regard to a unanimous shareholders’
agreement in effect at the time the test of the hypothetical shareholder is
examined could be to skew the analysis of control of the corporation in
question, since when the unanimous shareholders’ agreement in question was
written, the shareholders of the corporation could certainly not have foreseen
that the fictitious shareholder for which the provision provides would join in
the future. Accordingly, in order to avoid unusual or undesirable results, the
Minister concludes that it is preferable not to deem the hypothetical
shareholder to be a party to the unanimous shareholders’ agreements then in
effect. The Minister explains:
Where
Canadian residents do not own enough shares to elect a majority of the board of
directors, the objective and effect of the presumption in paragraph (b)
of the CCPC definition is to treat the hypothetical person as having the
ability to exercise effective control over the affairs and fortunes of the
corporation in a way analogous to the power to elect the majority of directors.
That is so because the hypothetical person is not a party to a unanimous
shareholder agreement nor is that person deemed to be a party to it. In our
view, it would be contrary to both the text and the purpose of the provision to
consider that the fiction of control created by the application of
paragraph (b) of the CCPC definition could be diluted by an
agreement that restricts the powers of the directors of a corporation to
allocate them to shareholders that would never include the hypothetical
shareholder.
See:
Andrew W. Dunn, Ron Durand, Phil Jolie, and Mark Symes, “Canada Revenue Agency
Round Table,” Report of the Proceedings of the Sixty‑First Tax
Conference, 2009 Conference Report (Toronto; Canada Tax Foundation, 2009), at pages
3:14-3:15.
[39]
In
my view, the answer is inescapable. The result appears incongruous only if we
choose not to have regard to the fiction. It is not incongruous if the fiction
is given full effect.
[40]
In
my humble opinion, we need only imagine a situation where all of the
shareholders that are non-residents or that are public corporations decided,
for some reason, to sell all their shares in the corporation to the same
purchaser. It is undeniable that, in such a case, the purchaser of the shares
would be a party to any unanimous shareholders’ agreement then in effect.
[41]
I
could not agree more with the Federal Court of Appeal, when it stated: “There
would be a risk of creating intolerable uncertainty if the courts could override
a deeming provision of general application solely because the result it
produces in a particular case seemed undesirable to them. Parliament is well
aware of the effect of the presumptions it enacts, and it is up to Parliament
to set limits on their scope.” (Survivance, supra, at para.
79).
[42]
In
this case, paragraph (b) of the definition of a CCPC is a provision
of general application and it is the role of the courts to give effect to it.
[43]
In
conclusion, I am of the opinion that the hypothetical shareholder contemplated
in paragraph (b) of the definition of “Canadian-controlled private
corporation” in subsection 125(7) of the ITA is bound by the Bagtech USA signed
in 2003, and subsequently by the amendments made in 2005.
[44]
The
question that should now be answered is: must the clauses of a USA governing the election of a corporation’s directors be taken into consideration in the
determination of de jure control of the corporation?
[45]
In
my opinion, before answering that question, we need a clear understanding of
the nature of a unanimous shareholders’ agreement for the purposes of the CBCA.
Subsection 146(1) of the CBCA reads as follows:
An otherwise lawful written
agreement among all the shareholders of a corporation, or among all the
shareholders and one or more persons who are not shareholders, that restricts,
in whole or in part, the powers of the directors to manage, or supervise the
management of, the business and affairs of the corporation is valid.
[46]
Subsection 146(1)
of the CBCA seems to be setting four requirements that an agreement must meet
in order to be qualified as a unanimous shareholders’ agreement. First, the
agreement obviously must be lawful and meet the general requirements for
contractual validity. Second, the agreement must be in writing, and it should
be noted that this requirement is indeed a prerequisite for validity and not
merely evidentiary. It must also be entered into by all the shareholders of a
corporation, whether among themselves or with third parties. And third, it must
restrict, in whole or in part, the powers of the directors to manage or
supervise the management of the business and affairs of the corporation. An
agreement signed by all the shareholders that merely increases the number of
votes required for certain actions to be taken by the shareholders, in
accordance with subsection 6(3) of the CBCA, may, in exceptional
situations, be a unanimous shareholders’ agreement, even if it does not
restrict or abrogate any of the directors’ powers. However, that is the only
exception, under both Quebec and federal law: see Paul MARTEL, Entreprises
et sociétés, Collection de droit 2011‑2012, École du Barreau du
Québec, vol. 9, 2011, pp. 41 et seq.
[47]
These
four requirements that a unanimous shareholders’ agreement must meet in order
to be valid were also reiterated by the SCC in the only case that has examined
unanimous shareholders’ agreements in detail: Duha Printers, supra.
[47]
[48]
The
CBCA, the Ontario Business Corporations Act and the Civil Code of
Québec, for example, all provide for an express exception to the
prohibition on fettering the power of the directors. Thus the various Canadian
statutes governing business corporations provide that unanimous shareholders’
agreements will be valid, notwithstanding the common law principle that shareholders,
even acting unanimously, may not fetter the board’s power to manage or
supervise the management of the business and affairs of the corporation or
prevent it from performing its legal duty to do so. (The prohibition on
fettering the powers of the directors seems to originate in Automatic Self
Cleansing Filter Syndicate Co. Ltd. v. Cuninghame, [1906] 2 Ch. 34 (C.A.). The
principle was then reiterated in Motherwell v. Schoof, [1949] 4 D.L.R.
812 (Alta. S.C.) and Atlas Development Co. v. Calof (1963), 41 W.W.R.
575 (Man. Q.R.).)
[49]
In
fact, before there were unanimous shareholders’ agreements, the ability of
shareholders to control the corporation was limited to the power to elect and
dismiss directors. When unanimous shareholders’ agreements became part of
corporate law, they fundamentally altered the landscape by creating a mechanism
whereby shareholders can strip directors of their management powers in whole or
in part.
[50]
Moreover,
a unanimous shareholders’ agreement does not merely limit the directors’
powers. It has a positive aspect in that it provides that the shareholders may
exercise the powers they have taken away from the directors.
[51]
In
and of themselves, unanimous shareholders’ agreements make it possible for shareholders
to considerably depart from the standard rules of corporate law; they bring a
degree of flexibility to the some of the rather rigid and arid old principles.
[52]
In
addition, and as I noted earlier, regarding legal recognition of USAs, the SCC
clarified a number of aspects of a unanimous shareholders’ agreement in Duha
Printers, supra. Writing for the SCC, Iacobucci J. said that a unanimous
shareholders’ agreement is “a corporate law hybrid, part contractual and part
constitutional in nature” (Duha Printers, supra, para. 66).
[53]
That
being said, the SCC was careful to go on to say that the “constitutional
element of the USA is even more potent than its contractual features”: paras.
67 and 68.
[54]
Another
important element of a unanimous shareholders’ agreement is obviously that it
can be binding on future shareholders. In fact, a purchaser or transferee of
shares is deemed, under an irrebutable presumption, to be a party to the unanimous
shareholders’ agreement: see subsection 146(3) of the CBCA However, if the
purchaser or transferee is not informed of the existence of the unanimous
shareholders’ agreement, by an endorsement on the share certificate or
otherwise, the shareholder may, no later than 30 days after he becomes
aware of the existence of the unanimous shareholders’ agreement, rescind the
transaction by which he has acquired the shares: see subsection 146(4) of
the CBCA.
[55]
It
also seems to me to be essential to conclude this overview of unanimous
shareholders’ agreements by stressing that the very nature of unanimous
shareholders’ agreements is to restrict the directors’ power and expand the
power of shareholders in the management of the corporation: see Paul MARTEL, Entreprises
et sociétés, Collection de droit 2011-2012, École du Barreau du Québec,
vol. 9, 2011, p. 41 et seq.; Normand RATTI, La convention
unanime des actionnaires, (1986) C.P. du N. 93. The SCC could not have
been clearer on this point, stating that “[u]nlike an ‘ordinary’ shareholder
agreement, which cannot interfere with the exercise of the directors’ powers, a
USA can and must do so”. (Duha Printers, supra, at para. 71).
Ultimately, the effect of a unanimous shareholders’ agreement restricting the
directors’ power must be to substitute the shareholders for the directors in
the exercise of their rights, powers and responsibilities, to the extent of the
restriction: see subsection 146(5) of the CBCA. Instead of removing the
administrators, a unanimous shareholders’ agreement simply strips them of their
powers and rights and their associated responsibilities. The CBCA also provides
that the directors shall manage the business of a corporation “[s]ubject to any
unanimous shareholder agreement” (see subs. 102(1) of the CBCA), and
expressly requires that the directors and officers comply with the provisions
of such an agreement: see subsection 122(2) and section 247 of the CBCA.
[56]
The
question that should now be answered is: can a unanimous shareholders’
agreement contain clauses other than clauses relating to the management of a
corporation? If so, are only those clauses restricting the directors’ power
covered by the provisions of the applicable corporations legislation relating
to unanimous shareholders’ agreements? In other words, do only the clauses that
restrict the directors’ power create the presumption that they may be set up
against new shareholders?
[57]
Although
the agreement is described as a unanimous shareholders’ agreement, it must be
kept in mind that an agreement signed by all shareholders, the only effect of
which is to restrict the directors’ power, cannot be considered to be a unanimous
shareholders’ agreement within the meaning of the CBCA and cannot be set up
against future shareholders: see Paul MARTEL, La société par actions au
Québec, vol. 1, Les aspects juridiques, Montréal, Wilson &
Lafleur, 2011, paras. 27-34.
[58]
Conversely,
an agreement entered into by all shareholders of a corporation that restricts
the directors’ power can be qualified as a unanimous shareholders’ agreement
notwithstanding the fact that it is called something else: see Paul MARTEL, La
société par actions au Québec, supra, paras. 27‑34, Alteco
v. The Queen, [1993] T.C.J. No. 213 (QL), [1993] 2 C.T.C.
2087, at para. 35.
[59]
Moreover,
the question of whether an agreement is a unanimous shareholders’ agreement,
when some of its provisions restrict the directors’ powers, is still controversial:
see Nathalie BEAUREGARD and François AUGER, Les conventions entre
actionnaires, Journées d’études fiscales, (Montréal, Canadian Tax
Foundation, 2010), p. 12.
[60]
Well
before being appointed to the bench, Iacobucci J. had spoken on this point:
The statutory provision relating
to unanimous shareholder agreements are found in ss. 2(1) and 146 of the CBCA,
and ss. 1(1), 45 and 108 of the OBCA. Note that the distinguishing feature of a
“unanimous shareholder agreement” in the statutes is that it “restricts, in
whole or in part, the powers of the directors to manage [or, in the OBCA, to
supervise the management of] the business and affairs of the corporation”.
Suppose an agreement between all the shareholders of the corporation restricts
the authority of the directors, but also contains other agreements, relating to
such matters as buy-sell arrangements, requisite shareholders votes on the
undertaking of fundamental changes, shareholder voting agreements, etc. Is the whole
agreement a “unanimous shareholder agreement”, or only that part that relates
to the authority of the directors? Do the words “in whole or in part” in CBCA
s. 146(2) and OBCA s. 108(3) refer to the “written agreement”, or do they refer
to the restriction of the powers of directors? The distinction may be
important. For example, a transferee of shares with notice of a common law
voting agreement is not bound by the agreement (because of the absence of
privity of contract); see Greenhalgh v. Mallard, [1943] 2 All E.R. 234 (C.A.).
However, a transferee of shares subject to a u.s.a. is bound by the u.s.a.; see
CBCA s. 146(4), OBCA s. 108(4) (although note the limitation contained in CBCA
s. 49(8), OBCA s. 56(3)).
See: Frank IACOBUCCI, Canadian
Corporation Law: Some Recent Shareholder Developments, The Cambridge
Lecture 1981, complied by N. Eastham and B. Krivy, 1982, p. 88, at
pages 92 to 95.
[61]
A
number of authors, Paul Martel being just one, nonetheless maintain that a USA
may contain clauses other than clauses relating to the management of the
corporation, but that still, [Translation] “only clauses restricting the directors’
power are covered by the provisions of the legislation relating to unanimous
agreements, and the presumption that those provisions create in respect of new
shareholders applies only to those clauses and not to the rest of the agreement”
(see Paul MARTEL, Les conventions entre actionnaires, Montréal, Wilson &
Lafleur, 2007, pp. 340-341). Paul Martel also argues that it would be preferable
to incorporate the two types of clauses in separate agreements:
[Translation]
In general, administration
clauses should be treated, in practice, as apples, and other clauses as
oranges, and they should be in two separate documents. Particularly at the
provincial level, it is difficult to have purchase and sale clauses take the
form of a restriction on the directors’ power, and it is virtually impossible
to do so for voting and corporate clauses. Administration clauses, a “unanimous
agreement” in the sense of the Act, will automatically be binding on new
shareholders (mind that the share certificates are endorsed to that effect),
while the other clauses will be binding on new shareholders who expressly
adhere to them, with the authorization of the signatories.
See: Paul MARTEL, Les conventions entre
actionnaires,
supra, at page 341.
[62]
Daniel
Lafortune shares that opinion and writes:
[Translation]
That being the case, is a
stranger to the agreement who becomes a shareholder bound by the shareholders’
agreement? A distinction must be made in that regard. Are we dealing with
provisions in the nature of a unanimous agreement or provisions of an entirely
different nature?
For provisions that are not in
the nature of a unanimous agreement, the rule is simple. By operation of the
principle of the relative effect of contracts, strangers are not bound by the
agreement, unless they agree to be.
See: Daniel LAFORTUNE, La
convention d’actionnaires (2002), 36 R.J.T. 197, at page 217.
[63]
The
Superior Court of Quebec also seems to be of the opinion that a unanimous
shareholders’ agreement is divisible, and, indeed, gives an excellent summary
of that approach in Leblanc v. Fertek Inc., REJB 2000‑20884,
[2000] J.Q. No. 4045 (QL). In that decision, Mr. Justice Dalphond dealt
differently with clauses in the nature of a unanimous shareholders’ agreement that
appear in a simple shareholders’ agreement:
[Translation]
49 The
agreement among the shareholders dated January 31, 1996, as indicated in
its fifth “Whereas”, has two objectives: to record the shareholders’ agreement
regarding management of the corporation and regarding the ownership and
transfer of their shares.
50 The first
aspect is a unanimous shareholders’ agreement within the meaning of s. 146(2)
of the CBCA, since it is an agreement in writing signed by all the shareholders
relating to the management of the business and affairs of the corporation.
51 The purpose
of a unanimous shareholders agreement, or a declaration by the sole shareholder
to the same effect, is essentially to restrict the powers of the directors of
the corporation, not the ownership of shares. Indeed, it is because that is the
purpose of this kind of agreement that it can be made by a sole shareholder, as
provided by subs. 146(3) of the CBCA. The directors and officers of the
corporation, including Tassé, shall comply with the agreement (s. 122(2) of
the CBCA).
52 The second
aspect of the agreement deals with questions relating to ownership of shares
and not the management of the corporation. That class of agreement does not
need to be agreed to by all shareholders. Accordingly, we see agreements among
shareholders representing only a majority, governing their right to vote at
annual general meetings, for example, or granting them first refusal rights in
the event that shares are sold. The validity of an agreement of that nature has
long been recognized (Bergeron v. Ringuet, [1960] S.C.R. 672, [1958]
B.R. 222) and it is government by the civil law of contracts, unless there are
specific provisions in legislation that applies to the corporation, such as the
CBCA or the Securities Act. Because it is a contract, there must be at
least two parties, because a person cannot contract with themself.
53 To
summarize, the two aspects of the agreement made between the shareholders in
January 1996 must not be confused, even though they appear in the same document.
(at
paras. 49 to 53)
[64]
However,
other authors believe that a unanimous shareholders’ agreement may deal with
incidental subjects that do not directly affect the internal management of the
corporation. Kevin P. McGuinness writes:
12.209 In
addition, provisions are scattered throughout both the OBCA and the CBCA
indicating various subjects that may be dealt with in a USA, aside from the general authority to restrict the power of the directors.
. . .
12.212 . . . the
question is sometimes raised as to whether a unanimous agreement may deal with
matters outside the management of the corporation. . . . it is doubtful that
the inclusion of any such collateral provisions would adversely affect the
validity of a unanimous shareholder agreement or its status as such. It has
always been open to the shareholders to regulate their own relationship.
See Kevin P. McGUINNESS, Canadian
Business Corporations Law, 2nd ed., Markham, LexisNexis, 2007, pages 1215
to 1218
[65]
After
noting that, in his opinion, a unanimous shareholders’ agreement may contain
various incidental provisions that are not intended to restrict directors’
powers, without jeopardizing the validity of the agreement, Mr. McGuinness
lists a number of incidental questions that may be addressed in a unanimous
shareholders’ agreement, including the election of directors (pages 1215
to 1216).
[66]
The
Alberta Court of Queen’s Bench also supported that position, to a certain
extent, in Wood v. Wood, [2004] A.J. No. 1230 (QL), 2004 ABQB 775, where
it expressly recognized the validity of a clause in a unanimous shareholders’
agreement relating to the election of the board of directors:
8 The USA
provided that the directors of the company would be Mr. Wood, Jennifer Wood and
Mrs. Wood so long as each remained a shareholder. Two directors would
constitute a quorum. If either Mr. Wood or Jennifer Wood ceased to be a
director, the other would be “exclusively entitled to appoint a replacement
director”. If Mrs. Wood should cease to be a director, she would not be
replaced. (au par. 8)
[67]
Iacobucci
J. made a very interesting observation before he was appointed to the bench: see
Frank IACOBUCCI, Canadian Corporation Law: Some Recent Shareholder
Developments, op. cit. In fact, he first just reminds us simply
that a unanimous shareholders’ agreement appeared in the Canadian corporate law
with section 146 of the CBCA, and the concept was subsequently adopted in
a majority of corporations laws, including by section 146 of the Alberta act, the Alberta Business Corporations Act, RSA 2000, c. B‑9.
[68]
Iacobucci
J. noted that section 146 of the Alberta act seems to expand the scope of
a USA beyond what is provided in the CBCA. Although the main purpose of a USA, at least under the federal statute, is to restrict the directors’ power, section 146 of
the Alberta act, which is set out in Appendix 2, does seem to have
expanded its scope. Briefly, under section 146 of the Alberta act, abrogating
the powers of directors and assigning them to the shareholders is merely one
possible purpose of a USA: see paragraph 146(1)(c). That section
provides that a USA may provide for the manner of electing directors: see
paragraph 146(1)(b). After canvassing the issue, Iacobucci J.
makes the following comments:
The new Alberta Business
Corporations Act adopts and extends the u.s.a. concept [section 146]. After
acknowledging that the primary approach of the CBCA u.s.a. provisions reflected
a desire to have shareholders rather than directors manage a closely-held
company, the designers of the Alberta statute felt that the u.s.a. should be
expanded in scope to make the device even more useful and to clarify some of
the problems which were felt to be present in the CBCA provisions.
With respect to the expanded
scope of the u.s.a., the Alberta section allows the entrenchment of any
provision concerning the internal affairs and organization of the corporation. The
Alberta definition of a u.s.a. includes an agreement which does any one of the
following:
(1) regulates
the rights and liabilities of shareholders, as shareholders, among themselves
or between themselves and any other party to the agreement;
(2) regulates the election
of directors;
(3) provides
for the management of the business and affairs of the corporation, including
the restriction or abrogation, in whole or in part, of the powers of the
directors;
(4) includes
any other matter that may be contained in a u.s.a. pursuant to any of other
provision of the Alberta Business Corporations Act.
See: Frank IACOBUCCI, Canadian
Corporation Law: Some Recent Shareholder Developments, op. cit., at
pages 92 to 95.
[69]
On
reading section 146 of the Alberta statute, we must conclude that the Alberta legislature intended to expand the scope of a unanimous shareholders’ agreement. The
section expressly provides that a shareholders’ agreement may include a number
of elements other than abrogating the powers of the board of directors: see
subsection 146(1). Moreover, the Alberta act expressly provides that a unanimous
shareholders’ agreement is binding on future shareholders, even if it contains
provisions that have nothing to do with restrictions on the directors’ power of
management and oversight: see subsections 146(2) and (3).
[70]
Some
useful conclusions can be drawn from this comparative examination of the
federal and Alberta legislation.
[71]
First,
if a unanimous shareholders’ agreement, as first provided for by the CBCA,
could, from the outset, have included provisions other than restrictions on the
power of the directors, why did Alberta subsequently see fit to make
substantial changes to the wording of the CBCA? Other jurisdictions, such as
Quebec and Manitoba, have merely reiterated the essence of section 146 of
the CBCA (see the Business Corporations Act, RSQ, c. S‑31.1, section 213
and The Corporations Act, C.C.S.M., c. C225, subsection 140(2)).
Why would one legislature go to the effort of specifying, in its corporations
act, that a unanimous shareholders’ agreement may do more than restrict, in
whole or in part, the powers of the board of directors, if the CBCA already
permitted that?
[72]
Second,
why did Parliament not make it clear, similarly to Alberta, that a unanimous
shareholders’ agreement may include provisions other than provisions abrogating
the directors’ powers of management and oversight, when it would have been easy
to do so if that had been its intention?
[73]
In
another vein, I would briefly note that a number of doctrinal opinions are to
the effect that if someone tried to take advantage of the benefits of unanimous
shareholders’ agreements by incorporating minor restrictions on the powers of
directors, simply to satisfy that requirement, a court could declare those
restrictions to be insufficient and refuse to characterize the document as a unanimous
shareholders’ agreement: see Nathalie BEAUREGARD and François AUGER, Les
conventions entre actionnaires, op. cit., page 12. I would note
immediately that in my opinion, that position must be rejected.
[74]
It
is apparent from this analysis that the question of whether unanimous
shareholders’ agreements may contain only clauses restricting the power of
directors remains to be settled.
[75]
The
question that should now be asked is: in examining de jure control, must
clauses limiting the right of the majority shareholder to elect the directors
of a corporation incorporated under the CBCA be considered, if those clauses
appear in a unanimous shareholders’ agreement that also restricts the
directors’ power?
[76]
One
school of thought holds that in examining de jure control, a unanimous
shareholders’ agreement should be examined, as constituting a single
instrument, particularly in relation to clauses whose sole effect is to
restrict the power of the majority shareholders to elect the directors.
Referring expressly to Duha Printers, Nathalie Beauregard and François
Auger opine:
[Translation]
Accordingly, a unanimous
shareholders’ agreement whose clauses restrict the ability of the majority
shareholder to elect the members of the board of directors or that
substantially fetters the directors’ power to manage the corporation may have an
impact on the de jure control of the corporation. This type of clause
will therefore have to be scrutinized closely at the time the unanimous
shareholders’ agreement is signed.
See: Nathalie BEAUREGARD and François
AUGER, Les conventions entre actionnaires, supra, p. 18
[77]
Other
authors take a more nuanced approach, and say that in examining the de jure
control of a corporation, while Duha Printers may seem to support the
proposition that a unanimous shareholders’ agreement must be read as inseverable,
only the provisions that concretely restrict the directors’ powers must be
taken into consideration:
It may seem strange that the
restriction of the powers of directors is the feature that permits other
unrelated provisions of the agreement, namely, those dealing with the election
of the directors, to be taken into account in determining de jure
control, especially since the very restriction of the directors' powers might
make one wonder why the ability to elect them should continue to be the litmus
test for “effective control”.
See: Robert COUZIN, Some
Reflections on Corporate Control, 2005, vol. 53, Can. Tax. J., 305, p. 318
[78]
That
line of thought, or at least the criticism it levels at the conclusions reached
by the SCC, seems to better reflect certain fundamental principles of corporate
law, and to some degree converge with the position advocated by Paul Martel, who
contends that a unanimous shareholders’ agreement may address subjects other
than the management of the corporation; however, [Translation] “only clauses
that restrict the power of the directors are governed by the provisions of the
act relating to unanimous shareholders’ agreements, and the presumption they
create regarding new shareholders applies only to those clauses, and not to the
rest of the agreement” (Paul Martel, Les conventions entre actionnaires,
op. cit., pp. 340‑341.).
[79]
Moreover,
we would note that the Superior Court of Quebec has clearly held that a unanimous
shareholders’ agreement is severable; in fact, it gave an excellent summary of
this approach in Leblanc v. Fertek Inc., supra. In that case,
involving an application for an injunction under section 247 of the CBCA
because of failure to comply with a unanimous shareholders’ agreement, Dalphond J.
accorded different treatment to clauses in the nature of a unanimous
shareholders’ agreement that appeared in a simple shareholders’ agreement. It
should be noted, however, that the case related to corporate law and not the
application of Duha Printers in determining de jure control.
[80]
For
my part, I agree with both the interpretation of Duha Printers offered
by Robert Couzin and with his criticism of that decision: see Robert Couzin, Some
Reflections on Corporate Control, supra, at pages 317 to 320.
[81]
However,
a careful reading of paragraph 85 of the decision in Duha Printers leads
me to conclude that any restriction on the power of the majority shareholder to
elect the directors, set out in the constating document of the corporation or
in a unanimous shareholders’ agreement, must be considered in the determination
of de jure control.
[82]
I
agree that this is an unusual result. A restriction on the election of
directors will not be relevant to the analysis of de jure control if it
appears in a voting agreement, while the same restriction will be relevant if
it is in a unanimous shareholders’ agreement. That being said, we have no
choice but to follow the doctrine of the SCC, even though it may seem
illogical.
[83]
It
would have been an easy matter for the SCC to write that in deciding whether
there is “effective control”, both any restriction on the majority shareholder’s
power to elect the directors as manifested in the constating document of the
corporation and any restriction on the power of the directors to manage the
business and affairs of the corporation as manifested in any unanimous
shareholders’ agreement must be taken into consideration.
[84]
However,
the SCC states, instead, that we must have regard to either of these
restrictions in either of those documents.
[85]
I
am, therefore, of the opinion that, as a general rule, a clause in a unanimous
shareholders’ agreement that restricts the ability of the majority shareholders
to elect the directors must be taken into account in the determination of the de
jure control of a corporation, in the light of Duha Printers.
[86]
To
summarize, I am of the opinion:
(i)
that
a unanimous shareholders’ agreement must be taken into consideration for the
purposes of paragraph (b) of the definition of the expression “Canadian-controlled
private corporation” in subsection 125(7) of the ITA; and
(ii)
that
a restriction on the right of the majority shareholder to elect the directors,
set out in a written unanimous shareholders agreement, must be taken into
consideration in the determination of the de jure control of a
corporation.
[87]
The
analysis I have done of the clauses of the USA that are genuinely in the nature
of a unanimous shareholders’ agreement (that is, that restrict the power of the
directors), which I have identified (see Appendix 3), has persuaded me
that they are minor restrictions on their power. In my opinion, the clauses do
not operate to strip the hypothetical shareholder of de jure control.
[88]
We
will now examine the provisions of the USA relating to the election of
directors that were in effect during the 2004 taxation year.
[89]
Under
paragraph 3.2 of the USA, the directors are elected by three groups:
Group A, Group B and Group C. Because the “particular person”
would have certain Class A shares, they would be a member of each of those
groups.
[90]
Because
the directors chosen by Group A are elected by residents of Canada and two
of the three directors chosen by Group B are elected by residents of
Canada, the “particular person” contemplated by paragraph (b) of
the definition of a CCPC could appoint only one of the five directors chosen by
the members of those groups.
[91]
Because
none of the three members of Group C is a resident of Canada, the “particular person” could appoint both directors elected by that group.
[92]
Accordingly,
notwithstanding the fact that the “particular person” would hold more
than 50% of the Class A shares of Bagtech, under the USA, it could not elect a majority of the directors: under the USA, it is residents of Canada who elect a majority of the directors, that is, four of the seven directors. As a
result, the “particular person” could not, during the 2004 taxation year, have
controlled Bagtech within the meaning of paragraph (b) of the definition
of a CCPC in subsection 125(7) of the ITA.
[93]
We
will now examine the clauses of the USA that were in effect during the 2005
taxation year.
[94]
Under
paragraph 3.2 of the USA, the directors are elected by three groups:
Group A, Group B and Group C. Because the “particular person”
would have certain Class A shares, they would be a member of each of those
groups.
[95]
Because
none of the three members of Group C is a resident of Canada, the “particular person” could appoint the directors elected by the group: two
directors, from January 1 to July 21, and three directors, starting
on July 22.
[96]
Accordingly,
notwithstanding the fact that the “particular person” would hold more
than 50% of the Class A shares of Bagtech, under the USA, it could
not elect a majority of the directors: under the USA, it is residents of Canada
who elect four of the seven directors, from January 1 to July 21, and
four of the eight directors, from July 22 to December 31. As a
result, the “particular person” could not, during the 2005 taxation year, have
controlled Bagtech within the meaning of paragraph (b) of the
definition of a CCPC in subsection 125(7) of the ITA.
[97]
Accordingly,
I am of the opinion that Bagtech was a “Canadian-controlled private corporation”
within the meaning of subsection 125(7) of the ITA during the 2004 and
2005 taxation years and, therefore, that it was entitled to the “refundable
investment tax credit” provided for in subsection 127.1(1) of the ITA.
[98]
For
all these reasons, the appeal is allowed with costs.
Signed at Ottawa, Canada, this 12th day of April 2012.
“Paul
Bédard”
Translation certified true
on this 9th day of January 2013.
François Brunet, Revisor
UNANIMOUS SHAREHOLDER AGREEMENT
(RELEVANT
PORTION)
UNANIMOUS AGREEMENT
AMONG THE SHAREHOLDERS
OF BIOARTIFICIAL GEL
TECHNOLOGIES (BAGTECH) INC.
signed at Montréal, Quebec, on September 11, 2003
BETWEEN: INVESTISSEMENTS
ONAMI INC., having its principal place of business at 285 avenue
Clarke, suite 202, Westmount, Quebec, Canada H3Z 2E3, represented herein by
Hanan Ghraoui, who is duly authorized for the purposes hereof, as she has
declared;
(hereinafter
“Onami”)
AND: AURIGA
VENTURES II,
Fonds Commun de Placements à Risques, represented by the management company Auriga
Partners, a limited liability company with management and supervisory boards
and capital of 456,250 Euros, having its head office at 18 avenue
Matignon, 75008 Paris, represented herein by Jacques Chatain, who is duly
authorized for the purposes hereof;
(hereinafter
“Auriga”)
AND: YOURI
POPOWSKI,
businessman, domiciled and residing at 16 rue Michel Servet, Geneva,
Switzerland, 1206;
(hereinafter
“Popowski”)
AND: MEDCO
SA, a
limited liability company duly constituted under the laws of Switzerland,
having its head office at 11 rue de la Rôtisserie, CH-1204, Geneva,
Switzerland, represented herein by Ferdinand O. Walser, who is duly authorized
for the purposes hereof, as he has declared;
(hereinafter
“Medco”)
AND: GUTRAFIN
LIMITED,
a limited liability company duly constituted under the laws of Switzerland,
having a place of business at 40 Egerton Crescent, London, England
5W3 2EB, represented herein by Francis C. Lang, who is duly authorized for
the purposes hereof, as he has declared;
(hereinafter
“Gutrafin”)
AND: SCHRODER
& CO. BANK AG,
acting on behalf of its clients, a commercial bank duly constituted under the
laws of Switzerland, having its head office at Central 2, Zurich, Switzerland,
represented herein by Antonio Winspeare Guicciardi, who is duly authorized for
the purposes hereof, as he has declared;
(hereinafter
“Schroder”)
AND: FONDS
DE SOLIDARITÉ DES TRAVAILLEURS DU QUÉBEC (F.T.Q.), a legal person constituted
under the Act to establish the Fonds de solidarité des travailleurs du
Québec (F.T.Q.), having its head office at 8717 rue Berri, Montréal, Quebec
H2M 2T9, represented by and acting through Daniel Laporte, who is duly
authorized for the purposes hereof, as he has declared;
(hereinafter
“FSTQ”)
AND: FONDS
RÉGIONAL DE SOLIDARITÉ ÎLE DE MONTRÉAL, SOCIÉTÉ EN COMMANDITE, a limited
partnership duly constituted under the laws of Quebec, acting through its
general partner Gestion du fonds regional de solidarité Île de Montréal Inc.,
having its principal place of business 255 rue St-Jacques Ouest,
3rd floor, Montréal, Québec H2Y 1M6, itself represented by and acting
through André Savard, who is duly authorized for the purposes hereof, as he has
declared;
(hereinafter
“FRSIM”)
AND: SGF
SANTÉ INC.,
a company legally constituted under the laws of Quebec, having its head office
at 600 rue de la Gauchetière Ouest, suite 1700, Montréal, Quebec,
represented by and acting through Francis Bellido and Marc Paquet, who are duly
authorized for the purposes hereof, as they have declared;
2
(hereinafter
“SGF”)
AND: FINECIX
B.V.,
a limited liability company duly constituted under the laws of the
Netherlands, having its head office at (1043 EJ) Teleportboulevard 140,
Amsterdam, Netherlands, represented by and acting through Willem van Wettum,
general manager, who is duly authorized for the purposes hereof, as he has
declared;
(hereinafter
“Finedix”)
AND: GUY
FORTIER,
residing and domiciled at 3428 rue Marcil, Montréal, Quebec H4A 2Z3;
(hereinafter
“Fortier”)
AND: MARIE-PIERRE
FAURE,
residing and domiciled at 1109 Place Guertin, Ville St-Laurent, Quebec H4M 1X5;
(hereinafter
“Faure”)
AND: RICHARD
J. DECKELBAUM,
residing and domiciled at 8 Harvard Lane, Hastings-on-Hudson, New York 10806, U.S.A.;
(hereinafter
“Deckelbaum”)
AND: JEAN-FRANÇOIS
BRISSON,
residing and domiciled at 3020 Contrecoeur, Montréal, Quebec, H1L 3Z8
(hereinafter
“Brisson”)
AND: 9079-1039
QUÉBEC INC.,
a company legally constituted under the laws of Quebec, having its head office
at 1109 Place Guertin, Ville St-Laurent, Quebec H4L 1X5, represented by and
acting through Marie-Pierre Faure, its president, who is duly authorized for
the purposes hereof, as she has declared;
(hereinafter
“9079”)
3
AND: AMAZE
INTERNATIONAL SPRL,
a corporation duly constituted under the laws of Belgium, having a place of
business at 206 Avenue de Messidor, Brussels 1180, represented by and acting
through Richard Émile Azera, its delegated director, who is duly authorized for
the purposes hereof, as he has stated;
(hereinafter
“AMAZE”)
AND: JEAN
EMMANUEL RAPHAEL GUETTA,
residing and domiciled at 19 Church Mount, London N2 0RW, United Kingdom;
(hereinafter
“Guetta”)
AND: RICHARD
ÉMILE AZERA,
residing and domiciled at 206 Avenue Messidor, 1180 Brussels, Belgium;
(hereinafter
“Azera”)
AND: MEDICAL
SCIENCE PARTNERS INTERNATIONAL (MSPI), a Singapore general
partnership, represented by and acting through André Lamotte, partner, who is
duly authorized for the purposes hereof, as he has stated;
(hereinafter
“MSPI”)
AND: MARIE-CLAUDE
LÉVESQUE,
domiciled and residing at 3460 Peel #1515, Montréal, Quebec H3A 2M1;
(hereinafter
“Lévesque”)
AND: MARIELLE
ROBERT,
domiciled and residing at 6979 De Lanaudière #2, Montréal, Quebec H2B 1Y1;
(hereinafter
“Robert”)
(Onami,
Auriga, POPOWSKI, Medco, Gutrafin, Schroder, MSPI, FSTQ, FRSIM, Fortier,
Deckelbaum, Brisson, 9079, AMAZE, Guetta, SGF and Finedix, Lévesque and Robert
being hereinafter collectively referred to as the “Shareholders”)
4
AND: BIOARTIFICIAL
GEL TECHNOLOGIES (BAGTECH) INC., a corporation legally constituted under the Canada
Business Corporations Act, having its head office at 400 rue de Maisonneuve
ouest, suite 1156,
Montréal, Quebec H2A 1L4, represented by and acting through Marie-Pierre
Faure, its president, who is duly authorized for the purposes hereof, as she
has declared;
(hereinafter
the “Corporation”)
WHEREAS the Corporation’s
authorized capital stock is composed of an unlimited number of Class A, B, C, D
and E shares without par value, of which there are 8,162,749 Class A
shares and 1 Class D share issued and outstanding;
WHEREAS the shares of the
Corporation that are outstanding (or reserved for issue) are divided among the
shareholders, as of the date hereof, in the proportions set out below as among
the shareholders, who are the beneficial owners thereof by good and valid
title, free and clear of any priority, mortgage or encumbrance whatsoever;
|
Shareholders
|
Number and Class of
Shares
|
%
|
|
|
|
|
|
Faure
|
1,041,280 Class A shares
|
12.76
|
|
FRSIM
|
771,980 Class A shares
|
9.46
|
|
Fortier
|
547,610 Class A shares and 1 Class D share
|
6.71
|
|
SGF
|
540,541 Class A shares
|
6.62
|
|
Finedix
|
472,973 Class A shares
|
5.79
|
|
Schroder
|
837,897 Class A shares
|
10.27
|
|
Medco
|
761,031 Class A shares
|
9.32
|
|
Gutrafin
|
648,649 Class A shares
|
7.95
|
5
|
Shareholders
|
Number and Class of
Shares
|
%
|
|
FSTQ
|
135,135 Class A shares
|
1.66
|
|
9079
|
90,037 Class A shares
|
1.10
|
|
Deckelbaum
|
61,804 Class A shares
|
0.76
|
|
AMAZE
|
47,393 Class A shares
|
0.58
|
|
Guetta
|
47,393 Class A shares
|
0.58
|
|
Brisson
|
2,000 Class A shares
|
0.03
|
|
MSPI
|
195,135 Class A shares
|
2.39
|
|
Auriga
|
1,621,621 Class A shares
|
19.87
|
|
Popowski
|
270,270 Class A shares
|
3.31
|
|
Lévesque
|
15,000 Class A shares
|
0.18
|
|
Robert
|
15,000 Class A shares
|
0.18
|
|
Onami
|
40,000 Class A shares
|
0.49
|
|
TOTAL
|
8,162,749 Class A shares, 1
Class D share
|
100.0
|
WHEREAS each of the
Shareholders declares that it is the beneficial owner, directly or on behalf of
its clients (in the case of Schroder), as of the date hereof, by good and valid
title, free and clear of any charge, priority, mortgage or encumbrance
whatsoever, of the number of Class A or Class D shares indicated alongside
its name in the foregoing table;
WHEREAS in addition to the
360,270 Class A shares of the capital of the Corporation reserved for the
employees of the Corporation for the purposes of its profit-sharing program,
the 195,135 Class A shares of the capital of the Corporation reserved for
MSPI under a consultancy agreement made between MSPI and the Corporation, the
81,000 warrants (at $1.85 per share) issued to FRSIM and the share purchase
option granted to Garantie Québec under a loan offer accepted by the
Corporation on July 17, 2001, under which Garantie Québec may purchase 75,502
common shares of the capital of the Corporation at a price of $1.85 per share
(the “GQ-2001 Option”), no option or other right to purchase shares of
the Corporation or other securities convertible into shares has been authorized
or is outstanding, and no agreement has been made to issue such option or other
right;
6
WHEREAS Faure declares that
she is directly the owner, on the date hereof, by good and valid title, free
and clear of any priority, mortgage or encumbrance, of all of the currently
issued and outstanding common shares of the capital stock of 9079;
WHEREAS Azera declares that
he is directly the owner, on the date hereof, by good and valid title, free and
clear of any priority, mortgage or encumbrance, of all of the currently issued
and outstanding common shares of the capital stock of AMAZE;
WHEREAS no option or other
right to purchase shares or other securities convertible into shares of 9079
has been authorized or is outstanding, and no agreement has been made to issue
such option or other right;
WHEREAS no option or other
right to purchase shares or other securities convertible into shares of AMAZE
has been authorized or is outstanding, and no agreement has been made to issue
such option or other right;
WHEREAS no option or other
right to purchase shares or other securities convertible into shares of Finedix
has been authorized or is outstanding, and no agreement has been made to issue
such option or other right;
WHEREAS the parties hereto
have agreed that it is in the best interests to agree to certain terms and
conditions governing the ownership and transfer of the Shares in the capital
stock of the Corporation, the issued and outstanding shares in the capital
stock of 9079 and the issued and outstanding shares in the capital stock of
AMAZE and Finedix and all other voting or participating shares subsequently
acquired in the capital stock of the Corporation, 9079, AMAZE and Finedix and
the exercise of the rights associated with such shares; and
WHEREAS the parties have
agreed to cancel and replace the Initial Shareholders Agreements (as defined in
this Agreement) by this Agreement.
NOW THEREFORE, THE PARTIES AGREE
AS FOLLOWS:
1.
DEFINITIONS
In
this Agreement, the following expressions and words have the following
meanings, unless otherwise indicated by the context:
1.1
“Shareholders”
means the persons identified in the preamble and any natural or legal person
who may become a party to this Agreement as a registered holder or authorized transferee
of Shares in the Corporation (in which event, the provisions of this Agreement
shall be interpreted mutatis mutandis);
7
1.2
“Institutional
Shareholders” means, collectively, Auriga, Medco, Gutrafin, Schroder, FSTQ,
SGF, FRSIM and Finedix, and “Institutional Shareholder” means any one of
them individually;
1.3
“Shares”
means (i) the shares of the Corporation held by the Shareholders, (ii) the
shares acquired by the treasury of the Corporation or by one of the
Shareholders during the term of this Agreement, and (iii) any share resulting
from the consolidation, splitting or other reorganization of the capital stock
of the Corporation;
1.4
“Voting
Share” means the issued and outstanding shares of the capital stock of the
Corporation that give the right to vote at any meeting of the Shareholders of
the Corporation, which are, on the date hereof, the Class A shares of the
capital stock of the Corporation;
1.5
“Offered
Shares” has the meaning assigned to that expression in paragraph 5.1;
1.6
“Participating
Shares” means the shares of the capital stock of the Corporation that, at
any time, give the holders the right (i) to share in the residue of the
Corporation’s property upon dissolution or upon voluntary or forced
liquidation, and (ii) to participate in the profits or surplus assets of the
Corporation;
1.7
“Director”
means a natural person who sits on the Board of Directors;
1.8
“undiluted
base” means the total number of Voting Shares issued and outstanding;
1.9
“Alienate”
(and “Alienation”) means to mortgage, with or without dispossession, to
encumber by a charge, an option to purchase or an option to sell, or otherwise
commit as legal or conventional security, or otherwise alienate in anyway
whatsoever, or any attempt to perform any such transaction;
1.10
“Bank”
has the meaning assigned to that word in paragraph 10.2;
1.11
“Transferor”
has the meaning assigned to that word in paragraph 4.2;
1.12
“Transfer”
means to sell, transfer, exchange, give, dispose of or otherwise assign in any
manner whatsoever, or any attempt to perform any such transaction, and the act of
doing any of those things;
1.13
“Committees”
means, collectively, any committee created by the Board of Directors;
8
1.14
“Board
of Directors” means the Board of Directors of the Corporation and of each
of its Subsidiaries, as the case may be;
1.15
“Control”
(of) an entity means possession by a person, other than as creditor, of
securities that carry more than 50% and thus enable that person to elect a
majority of the directors of the entity in question;
1.16
“Agreement”
means this Shareholders’ Agreement and any rider, amendment or alteration that
may be made to it in writing, and the Agreement may also be referred to from
time to time by the expression “this Agreement”;
1.17
“Initial
Shareholders’ Agreements” means the agreements among the Shareholders of
the corporation signed on December 13, 2000, and December 4, 2002;
1.18
“Subscription
Agreement” means the subscription agreement signed by Gutrafin, Auriga,
Medco, Popowski, Schroder, Onami and the Corporation on the date hereof;
1.19
“Founders”
means Faure, Fortier, Deckelbaum, Guetta, Azera and Brisson;
1.20
“Subsidiary”
means any legal controlled, at present or in future, directly or indirectly, by
the Corporation;
1.21
“Group
A” means the Founders, Lévesque, Robert, Popowski and Onami;
1.22
“Group
B” means SGF, FSTQ, FRSIM, Finedix and Auriga;
1.23
“Group
C” means Medco, Gutrafin and Schroder;
1.24
“Permanent
Incapacity” means a physical or mental incapacity or any illness whatsoever
lasting for a consecutive period of more than six months, or 12 months,
cumulatively, over a consecutive period of 18 months, which prevents the person
concerned from attending to their usual business and performing their normal
functions, tasks and responsibilities for the Corporation, where there is no
reason to believe that it will be resolved during the lifetime of the person;
or
1.25
“Fair
Market Value” means, unless otherwise indicated in this Agreement, the fair
market value from time to time of all of the participating Shares or all of the
shares of the Corporation, as the case may be, as determined based on the value
of the Corporation’s business (at the expense of the Corporation and with no
discount for minority participation or premium for controlling position) by an
independent valuator who is a
9
member of the Canadian Institute of Chartered Business
Valuators chosen unanimously by the members of the Board of Directors or, in
the event that a unanimous decision is not reached, on application by the
vendor Shareholder, by a judge of the Superior Court of Quebec sitting in the
Judicial District of Montréal, within 60 days following the appointment of the
valuator or within such other time as may be provided in this Agreement; and
where the Fair Market Value of any participating Share must be determined, it
shall be equal to the fair market value as determined by the independent
valuator in accordance with the foregoing, divided by the number of
participating Shares then outstanding;
1.26
“Good
Faith Offer” means an offer made to a Shareholder by a person other than a
Related Person of the Shareholder for the Transfer in whole or in part of the
Shares and Convertible Securities of which the Shareholder is the beneficial
owner and where that person establishes, by producing an irrevocable bank
letter of credit, that they have the necessary financial resources at the time
the offer is made to complete the cash purchase of the Shares and Convertible
Securities;
1.27
“Person”
includes a natural person, a legal person, including a company, a business
corporation or a cooperative, a partnership, including a partnership
constituted under the Civil Code of Québec, a trust, a succession, an
association of persons whether or not incorporated, a joint venture, a state or
a regulatory or self-regulating body, or a board, office, commission or other
public body. Unless otherwise indicated by the context, any reference to a
corporation refers to any legal person, including a company, a business
corporation, a cooperative or any other incorporated entity, and any
partnership;
1.28
“Related
Person” means, in respect of any other Person, any Person who is not dealing
with such other Person at arm’s length, within the meaning assigned to that
expression by subsection 251(1) of the Income Tax Act (Canada);
1.29
“Leaves
Voluntarily” means leaves of their own accord;
1.30
“Convertible
Security” means any right, option, warrant or other security (within the
meaning of the Securities Act (Quebec) conferring the right to acquire
Shares or that may be converted into or exchanged for Shares;
1.31
“Book
Value” means the book value of the Shares of the Corporation established in
accordance with the Corporation’s audited annual financial statements,
consolidated where applicable, for the fiscal year preceding the event that
gave rise to the determination of the book value, and adjusted to reflect
subsequent events, such financial statements to be prepared by the
10
Auditors applying the generally accepted accounting
principles, consistently applied, and accompanied by a report by the Auditors;
and
1.32
“Auditors”
means the Corporation’s auditors on the date of the event in respect of which a
request is made to the Auditors.
2.
GENERAL
AGREEMENTS
2.1
The
parties to this Agreement agree, mutually and irrevocably, for the term of the
Agreement, to do anything that is required and to govern themselves in all
respects in such a way as to give full effect to the provisions of the
Agreement.
2.2
The
Shareholders shall guarantee compliance with section 13 by the persons whom the
Shareholders, respectively, put forward to sit on the Board of Directors.
2.3
Every
Shareholder who is entitled to appoint one or more Director and who Transfers
all of their Shares shall immediately secure the resignation of the persons
they appointed to the Board of Directors and to Committees.
3.
RULES
OF INTERNAL GOVERNANCE
3.1
Subject
to the following provisions, the Shareholders agree, during the term of this
Agreement, to take the necessary measures and to use the voting rights
associated with the Shares they hold to elect and continue seven Directors on
the Board of Directors.
3.2
On
the date of this Agreement, the Shareholders agree that the Board of Directors
shall be composed of representatives appointed by the Shareholders as
hereinafter set out:
Group A 2
Directors (including Marie-Pierre Faure)
Group B 3
Directors (including one appointed jointly by FSTQ and FRSIM, one appointed by
SGF and one appointed by Auriga)
Group C 2 Directors
(including André Lamotte)
In
addition, FSTQ and FRSIM may jointly appoint an observer to the Board of
Directors who shall be entitled to receive all notices of meetings and all
documents accompanying such notices.
11
On
the date of this Agreement and for as long as the majority of the Shareholders
so agree, Colin Bier shall act as Chair of the Board of Directors. Colin Bier
is a Director appointed by the Group C Shareholders.
3.3
The
Shareholders further agree that each of the Institutional Shareholders may, at
its option, be represented on any Committee by a number of representatives
proportional to the percentage of Voting Shares of the capital stock of the
Corporation that it holds, on an undiluted basis, provided that there shall be
a minimum of one representative.
3.4
The
Shareholders agree to take the necessary measures and to use the voting rights
associated with the Shares they hold to make a by-law providing:
3.4.1
that
at least six meetings of the Board of Directors will be held each year with a
maximum of two months between meetings;
3.4.2
that
a notice of meeting shall be delivered by hand or sent by registered or
certified mail or by facsimile, provided that, if sent by facsimile, receipt by
the addressees is confirmed and as soon as possible thereafter an original copy
of the notice of meeting is sent by special delivery, at least 10 business days
before the date of a meeting; however, emergency meetings of the Board of
Directors may be convened on at least 48 hours’ notice. Such notice shall
contain the place, date and time of the meeting and shall be accompanied by a
detailed agenda, the minutes of the previous meeting and any document that will
enable the Directors to form an informed opinion about the proposed agenda items.
In addition, the general by-laws of the Corporation shall provide that meetings
of the Board of Directors may be held by telephone;
3.4.3
that
the presence of a representative of each of Group A, Group B and Group C who is
in office at the time is needed in order to establish quorum for any meeting of
the Board of Directors. If, as a result of the absence of the representative of
any of those groups, there is no quorum, the meeting shall be adjourned to a
date no earlier than five business days, or in the case of an emergency
meeting, two business days, from the date of the initial meeting. Quorum for
the resumed meeting shall be a majority of the Directors present;
3.4.4
the
by-laws shall provide that each of the Directors appointed by the Institutional
Shareholders may convene a meeting of the Board of Directors or of any
Committee;
12
3.4.5
that
quorum at any Shareholders’ meeting may not be achieved unless the Shareholders
who together hold 50% plus one of the voting rights associated with the
outstanding Shares, and quorum shall require that the Institutional
Shareholders be present. If there is no quorum at a Shareholders’ meeting, the
meeting shall be adjourned to a date no earlier than five business days from
the date of the initial meeting. Quorum for the resumed meeting shall be a
majority of the Shareholders present;
3.4.6
that
the Shareholders on the Board of Directors or any Committee of the Corporation,
other than a person paid or employed by the Corporation, shall be entitled to
reimbursement for their travel expenses and to an honorarium of $500.00 (plus
GST and QST) for each meeting that they attend, it being agreed that before a
first public issue by the Corporation, any employee of an Institutional
Shareholder shall waive their honorarium.
3.5
In
the event that a vacancy arises on the Board of Directors (whether by reason of
death or illness or any other similar reason) or that a Shareholder decides to
withdraw a representative that it is entitled to appoint to be elected to the
Board of Directors, the other Shareholders agree to fill the vacant position or
remove that representative in accordance with the instructions given by the
Shareholder that is entitled to fill the position under this Agreement.
3.6
Notwithstanding
paragraph 13.1.3 of this Agreement, the Shareholders agree to create a
management committee that will be composed of Marie-Pierre Faure, the general
manager of the Corporation (who will be appointed from time to time by the
Board of Directors in accordance with the by-laws of the Corporation), a
representative appointed by a majority vote of the votes held by the members of
Group B (it being agreed that Group B may replace that representative from time
to time at its own option) and a representative appointed by a majority vote of
the votes held by the members of Group C (it being agreed that Group C may
replace that representative from time to time at its own option). The committee
shall have as its primary function advising the Board of Directors, ensuring
that decisions made by the Board of Directors are carried out, and performing
any duty that may be delegated to it from time to time by the Board of
Directors. The decisions of the Committee shall be made by unanimous vote of
the members present, provided that there is quorum. Quorum at any meeting of
the management committee shall be achieved if there are two members present,
but no meeting of the committee may be validly held without a representative of
Group B or Group C present.
13
4. PROHIBITION
ON TRANSFER OR ALIENATION
4.1
The
Shareholders agree that they are not entitled to Transfer any Share or
Convertible Security held by them, or any right or interest thereunder, or to
Alienate any such Share or Convertible Security or any right or interest
thereunder, unless the Transfer is made or the Alienation effected in
accordance with the provisions of the Agreement. In addition, by reason of the
strategic role played by Faure in the Corporation, Faure or 9079 further agree
not to Transfer or Alienate the Shares or Convertible Securities they hold on
the date of this Agreement, or may later hold in the Corporation, before June
30, 2009.
Notwithstanding the
foregoing, Faure and/or 9079 shall be at liberty to Transfer their Shares, on
the same basis as the other Shareholders, if (i) the Transfer or successive Transfers
relate, cumulatively, to fewer than 282,829 Class A shares and Faure and
9079 together continue to hold a minimum of 848,488 Class A shares after such Transfer
or successive Transfers, or (ii) such Transfer results from the application of
the provisions set out in any of the following sections of this Agreement:
-
section
7 (Option);
-
section
8 (Drag-Along Right);
-
section
10 (Put Option); and
-
section
11 (Exit).
4.2
Notwithstanding
section 6, a Shareholder (the “Transferor”) may at any time Transfer its
Shares or Convertible Securities, in whole or in part, without having to offer
them first to the other Shareholders, provided that such Transfer is made to a
legal person the Shareholder controls and the sole objects and activities of
which are to hold shares and securities. The Directors shall be required to
authorize such Transfer notwithstanding any other provision of the charter or
by-laws of the Corporation, provided:
4.2.1
that
the Transferee (i) confirms to the other Shareholders its irrevocable consent
to be bound by the provisions of the Agreement in the form of Schedule 4.2,
(ii) succeeds and is substituted for the Transferor in all of the Transferor’s
rights, benefits, obligations and responsibilities, and (iii) agrees not to
issue shares or convertible securities of its capital stock to persons other
than the Transferor; and
4.2.2
that
the Shares or Convertible Securities that are Transferred become subject to the
provisions of the Agreement.
4.3
Notwithstanding
the provisions of this Agreement, the parties acknowledge that each of FSTQ and
FRSIM may at any time Transfer its Shares and Convertible Securities, as the
case may be, in whole or in part, without having to offer them to the other
Shareholders, provided that such Transfer is made to
14
a
regional solidarity fund, a specialized fund or any other investment fund that
it shall in all cases post as a member of its network and in which it holds the
majority of voting and participating shares or membership shares. The Directors
shall be required to authorize such Transfer notwithstanding any other
provision of the charter or by-laws of the Corporation, without prior
authorization by the Shareholders, provided:
4.3.1
that
the Transferee or Transferees confirm in writing to the other Shareholders
their irrevocable consent to be bound by the provisions of this Agreement, in
the form of Schedule 4.2;
4.3.2
that
the Transferee or Transferees succeed and are substituted for FSTQ or FRSIM, as
the case may be, in all its rights, benefits, obligations and responsibilities;
and
4.3.3
that
the Shares and Convertible Securities remain subject to the provisions of this
Agreement.
4.4
Notwithstanding
the provisions of this Agreement, the parties acknowledge that SGF may at any
time Transfer the Shares and Convertible Securities that it holds, in whole or in
part, as the case may be, without having to offer them to the other
Shareholders, provided that such Transfer is made (i) to any successor or
assign designated in accordance with the provisions of its incorporating
statute or incorporating document or any other legislation to which it may be
subject, (ii) to any Person belonging to the same group as the Société Générale
de Financement du Québec or having similar objects, as such objects are set out
in its incorporating statute or incorporating document, and to which the Shares
and Convertible Securities held by SGF, as the case may be, maybe Transferred,
whether free of charge or for onerous consideration, by decision of the
Government of Quebec or SGF, or (iii) to any Person under the Control of SGF,
or (iv) to any Person in which the Government of Quebec, directly or
indirectly, holds a financial participation or of which the Government of
Quebec appoints a majority of the members of the board, or any person
ultimately controlled by such Person, provided, however, in all cases set out
in this section,
4.4.1
that
the transferee of such shares confirms to the Shareholders its irrevocable
consent to be bound by the provisions of this Agreement in the form of Schedule
4.2;
4.4.2
that
the transferee succeeds and is substituted for SGF in all its rights, benefits,
obligations and responsibilities; and
4.4.3
that
the Shares and Convertible Securities transferred by SGF remain subject to the
provisions of the Agreement.
4.5
Notwithstanding
the provisions of this Agreement, Schroder may at any time transfer his Shares
and Convertible Securities, in whole or in part, as the case
15
may
be, that he holds without having to offer them to the other Shareholders,
provided that such Transfer is made to any beneficiary who is a client of
Schroder on behalf of whom the said Shares and Convertible Securities are held
on this date by Schroder as trustee, provided:
4.5.1
that
the transferee of the said Shares confirms to the Shareholders its irrevocable
consent to be bound by the provisions of this Agreement in the form of Schedule
4.2; and
4.5.2
that
the Shares and Convertible Securities transferred by Schroder remain subject to
the provisions of the Agreement.
4.6
Without
prejudice to any other remedy, any Transfer made or Alienation effected
contrary to this Agreement, whether directly or indirectly, shall be null, void
and of no effect, both as against the other Shareholders and as against the
Corporation, and may not be entered in the registers.
4.7
Faure
agrees that certain of her ownership rights in the shares of 9079 and
securities convertible into voting shares that she holds or may hold in the
capital stock of 9079 shall be restricted in that she is not entitled to Transfer
or Alienate, directly or indirectly, any shares of 9079, or any other right or
interest in or under those shares, unless she has obtained the prior written
agreement of each of the Institutional Shareholders, which consent may be
denied at the discretion of each Institutional shareholder. In addition, Faure
agrees to ensure that no share in the capital stock of 9079 shall be issued
unless 9079 has obtained the prior written consent of each of the Institutional
Shareholders, which consent may be denied at the discretion of each
Institutional Shareholder.
4.8
Azera
agrees that certain of his ownership rights in the shares of AMAZE and
securities convertible into voting shares that he holds or may hold in the
capital stock of AMAZE shall be restricted in that he is not entitled to Transfer
or Alienate, directly or indirectly, any shares of AMAZE, or any other right or
interest in or under those shares, to any natural or legal person doing
research, development or marketing in the field of hydrogel. Azera further
agrees to ensure that no share in the capital stock of AMAZE, or security
convertible into voting shares of AMAZE, shall be issued to any natural or
legal person doing research, development or marketing in the field of hydrogel.
4.9
Notwithstanding
paragraph 4.8 above, Azera and AMAZE agree to offer all Voting Shares and
Convertible Securities held by AMAZE, in the event that a change of control of
AMAZE takes place, it being agreed that the Voting Shares and Convertible
Securities will be offered in accordance with the procedure described in
section 6.
16
4.10
The
Share certificates issued or that may be issued by the Corporation, and the
certificates representing the shares issued or that may be issued by 9079, by
AMAZE and by Finedix, shall bear a notice that they are subject to the terms
and conditions of this Agreement and that they may not be Transferred or
Alienated otherwise than in accordance with this Agreement.
4.11
In
the event that, at any time during the period beginning on the date hereof and
ending on December 13, 2005 (inclusive), a change of the direct, indirect
or ultimate Control of Finedix were to take place in favour of any Person who
is not a member of the group (as that expression is defined in the Canada
Business Corporations Act) of which Finedix is a member on the date hereof
(the “Group”) and that Person is not engaged in research, development or
marketing in the field of hydrogel, Finedix shall, immediately upon such change
of Control becoming effective and without the need for any further formality,
cease to enjoy the rights provided in section 3 (Internal Governance), sections
10 and 11 (Put Option and Exit) and section 13 (Conduct of Business) hereof,
provided, however, that if the other Institutional Shareholders consent, at
their entire discretion, such rights may be reassigned to it. Finedix
acknowledges that this paragraph is reasonable for the protection of the rights
of the other Institutional Shareholders.
4.12
In
the event that a change of the direct, indirect or ultimate Control of Finedix
were to take place in favour of any Person who is not a member of the Group and
that Person is engaged in research, development or marketing in the field of
hydrogel, Finedix shall give prior notice in writing to the Corporation, and
upon receipt of such notice by the Corporation, the Corporation and the Group
shall negotiate, in good faith, an agreement in respect of scientific
collaboration and, where applicable, an agreement in respect of the sharing of
new intellectual property, which agreement shall be approved by the other
Institutional Shareholders, whose approval shall not be withheld except for
valid reason.
4.13
In
the event that a change of the direct, indirect or ultimate Control of Finedix
were to take place in favour of any Person who is not a member of the Group and
that Person is engaged in research, development or marketing in the field of
hydrogel, Finedix shall, immediately upon such change of Control becoming
effective and without the need for any further formality, cease to enjoy the
rights provided in section 3 (Internal Governance), section 5 (Right of
First Refusal), sections 8 to 11 (Drag-along Right, Put Option, Public
Issue and Exit) and section 13 (Conduct of Business) hereof, provided, however,
that if the other Institutional Shareholders consent, at their entire
discretion, such rights may be reassigned to it. Finedix acknowledges that this
paragraph is reasonable for the protection of the rights of the other
Institutional Shareholders.
17
5.
RIGHT
OF FIRST REFUSAL
Any issue and distribution of Shares or Convertible
Securities of the Corporation shall be made as follows:
5.1
The
Board of Directors shall determine the number and class of Shares to be issued,
and the price, terms and conditions and attributes of the Shares or Convertible
Securities (the “Shares Offered”). The secretary shall communicate that
information in writing, together with a copy of the resolution adopted by the
Directors, to the Institutional Shareholders and shall inform them of the
number of Shares Offered for which each of them is entitled to subscribe (the “Offer”);
5.2
The
Shares Offered shall be offered first to all Institutional Shareholders,
Guetta, AMAZE, Popowski and Onami, who may subscribe for them, by preference,
within 30 days following receipt of the Offer, pro rata to the number of
Voting Shares they hold as a proportion of the total number of Voting Shares
held among them on that date;
5.3
If
an Institutional Shareholder, Guetta, AMAZE, Popowski or Onami wishes to
exercise their right of first refusal, they shall so inform the Corporation, in
writing, within the said 30 days; the notice shall state the number of Shares
Offered that the Institutional Shareholder, Guetta, AMAZE, Popowski or Onami
wishes to acquire;
5.4
If,
on the expiry of the said 30 days, FRSIM has not served notice of its
intention to acquire all of the Shares Offered to which it is entitled (for
greater certainty, the parties confirm that the provisions of this
paragraph 5.4 cannot apply if FRSIM were to serve notice of such
intention), the secretary shall immediately so notify FSTQ in writing, and send
a copy of the notice to the other Institutional Shareholders. FSTQ may then,
within 5 business days following receipt of the notice from the Secretary,
acquire the Shares Offered to which FRSIM would have been entitled;
5.5
If,
on the expiry of the said 30 days, Guetta, AMAZE, Popowski, Onami or an Institutional
Shareholder other than FRSIM has not served notice of its intention to acquire
all of the Shares Offered to which it is entitled, the secretary shall
immediately so notify, in writing, the Institutional Shareholders who have
fully subscribed for their quota, and the said Institutional Shareholders may
then, within 5 business days following receipt of the notice from the
Secretary, acquire the Shares Offered that have not found a taker, pro rata to
the number of Voting Shares that the Shareholders wishing to acquire them hold
among them on that date.
18
5.6
If
the provisions of paragraph 5.4 are applicable and FSTQ waives its right
to acquire the portion of the Shares Offered to FRSIM, the said Shares Offered,
and the Shares Offered in respect of which any other Institutional Shareholder,
Guetta, AMAZE, Popowski or Onami has not served notice, in accordance with
paragraph 5.3, of its intent to acquire, shall be offered to the
Institutional Shareholders, Guetta, AMAZE, Popowski or Onami, which have subscribed
for their quota, by the secretary of the Corporation sending them notice in
writing on the expiry of the 5 days provided for in paragraph 5.4
hereof, and they may then, within 5 business days following receipt of
such notice, acquire the Shares Offered that have not found a taker, pro rata
to the number of Voting Shares that the Shareholders wishing to acquire them
hold among them on that date;
5.7
If
the provisions of paragraph 5.4 are applicable and FSTQ acquires the
Shares Offered to which FRSIM would have been entitled, the Shares Offered in
respect of which any Institutional Shareholder (other than FRSIM), Guetta,
AMAZE, Popowski or Onami has not served notice of its intent to acquire shall
be offered to the Institutional Shareholders, Guetta, AMAZE, Popowski or Onami,
which have subscribed for their quota, by the secretary of the Corporation
sending notice in writing to that effect immediately after the expiry of the
5 days provided for in paragraph 5.4 hereof, and they may, within 5
business days following receipt of such notice, purchase the Shares Offered
that have not found a taker, pro rata to the number of Voting Shares that the
Shareholders wishing to acquire them hold among them;
5.8
If
the issue of Shares Offered has not been subscribed in full in the manner
provided in this section, the unsubscribed Shares Offered may be issued by the
Corporation to the other Shareholders who hold Voting Shares and then to third
parties, provided that such third parties agree to be bound by this Agreement,
in the form of Schedule 4.2;
5.9
The
provisions of this section 5 shall not apply to issues of Shares to:
(i) employees of the Corporation under the Share purchase option plan
adopted by the Corporation December 4, 2002, for a maximum of 360,270
Shares; (ii) FRSIM, if and only if such issue is pursuant to the exercise
of 81,000 warrants issued to FRSIM; (iii) MSPI, if and only if such issue
is pursuant to the consultation agreement between MSPI and the Corporation
dated November 11, 2002, for a maximum of 195,135 Class A shares of the
capital stock of the Corporation; (iv) the persons referred to in
section 21 of this agreement for the purposes of exercising the Options
granted to them; (v) any of the Institutional Shareholders of Popowski or Onami,
under the Subscription Agreement; and (vi) Garantie Québec, if and only if
such issue is pursuant to the exercise of Option GQ-2001;
19
5.10
Except
in respect of paragraph 5.4 and solely for the purposes of this section 5,
it is agreed that for the purposes of calculating the Voting Shares and Shares
held by FSTQ, the Voting Shares held by FRSIM shall be added to the Voting
Shares held by FSTQ.
6.
PRIORITY
RIGHT TO PURCHASE
6.1
In
cases in which a Shareholder (hereinafter the “Vendor”) wishes to
Transfer its Shares and, where applicable, its Convertible Securities, the
Vendor shall offer all and not a portion of its Shares and, where applicable,
its Convertible Securities (hereinafter the “Securities Offered”), in
priority, subject to the following, to the other Shareholders who hold Voting
Shares (collectively the “Beneficiaries”) in accordance with the
provisions of this section. If the decision of the Vendor to Transfer the
Securities Offered is prompted by a Good Faith Offer, again relating to all of
the Securities Offered, the Vendor shall then so inform the Beneficiaries,
communicate to them the full content of the offer made to it and the identity
of the interested purchaser (the “Acquirer”), and confirm to them in
writing its intent to accept the said offer if the priority rights to purchase
provided in this section are not exercised by the Beneficiaries (the offer
initiated by the Vendor or, where applicable, the Good Faith Offer, hereinafter
the “Offer”);
6.2
The
Offer shall be made by the Vendor by notice given to the Beneficiaries,
stipulating (i) in the case of an Offer initiated by the Vendor, the
asking price (which shall be payable only in cash or by bank note) and the
terms and conditions applicable to the proposed Transfer, or (ii) in the
case of a Good Faith Offer, the terms of the offer and a copy of the Good Faith
Offer (collectively, in both cases, the “Terms of Transfer”). The notice
of Offer shall constitute an irrevocable offer by the Vendor in respect of the
Transfer of the Securities Offered to the Beneficiaries;
6.3
Each
of the Beneficiaries shall then have the exclusive right (the “Priority
Right to Purchase”) to purchase the Securities Offered, unconditionally, in
whole and not in part, pro rata to the total number of Shares it then holds as
a proportion of the total number of Shares then held by the Beneficiaries
(excluding the Shares held by the Vendor);
6.4
A
Beneficiary’s Priority Right to Purchase shall be exercised by giving notice to
the Vendor within 45 days following receipt of the Offer and agreeing (i)
to abide by each and every one of the Terms of Transfer, and (ii) to complete
the transaction within 30 days following the date on which all of the
Securities Offered by the Vendor find takers among the Beneficiaries; in the
event of failure to so inform the Vendor within the time allowed, a Beneficiary
will be presumed to have waived its Priority Right to Purchase;
20
6.5
If
one of the Beneficiaries does not exercise or waive its Priority Right to
Purchase and one or more of the other Beneficiaries has duly exercised it (“Beneficiary
Purchasers”), the Vendor shall then give a new notice of offer in writing
(the “Second Notice”) to the Beneficiary Purchasers within three
business days following the expiry of the time allowed for response in
paragraph 6.4 to inform them that if they wish, they may acquire the
balance of the Securities Offered, pro rata to the total number of Shares that
each of the Beneficiary Purchasers holds as a proportion of the total number of
Shares held by the Beneficiary Purchasers (excluding the Shares held by the
Vendor and the Shares that are part of the balance of the Securities Offered);
6.6
The
provisions of paragraphs 6.3 and 6.4 shall apply, mutatis mutandis,
to the exercise of the rights of the Beneficiary Purchasers under
paragraph 6.5, with the exception of the time allowed for response, which
shall be 10 days;
6.7
If
all of the Securities Offered have not been accepted on the terms set out in
paragraph 6.5, no Security Offered shall be deemed to have been purchased, and
subject to the Right of Co-sale provided in section 7 and the provisions
of paragraph 6.8, the Vendor may Transfer all of the Securities Offered, but
not part thereof only, to any person other than a party hereto, provided that
they are Transferred in exact compliance with the Terms of Transfer. However,
if the Transfer is not completed within 30 days following the expiry of the
final time applicable under this paragraph 6.7 or if, where applicable,
the Transfer may not be made in full compliance with the Terms of Transfer, the
Vendor may not then Transfer the Securities Offered and shall, if it still
wishes to Transfer them, offer them again in accordance with the provisions of
this paragraph 6.7;
6.8
If
the Transfer is made to the Acquirer, it may not be completed by the Vendor
unless the Acquirer agrees to be bound by each of the provisions hereof as if
it had been an original party to the Agreement and in compliance with all of
the terms and conditions, in the agreement form attached in Schedule 4.2;
the Securities Offered that are then purchased shall continue to be “Shares” or
“Convertible Securities”, as the case may be, within the meaning of this
Agreement. If these agreements are not obtained, the Transfer shall be void and
of no effect;
6.9
For
the purposes of section 6, if the Vendor receives a proposal for the Transfer
of Securities Offered and the proposal cannot be considered to be a “Good Faith
Offer” because it does not meet the requirements set out in
subparagraph 1.23, the Vendor may not accept the proposal and shall obtain
a new offer that meets the said requirements before presenting it again to the
Beneficiaries and triggering the Priority Rights to Purchase provided in
section 6.
21
7.
RIGHT
OF CO-SALE
7.1
Notwithstanding
the provisions of section 6, if a Vendor or Vendors who together hold more than
50.1% of the issued and outstanding Voting Shares, on an undiluted basis, agree
to Transfer all of their Shares under a Good Faith Offer, each of the
Beneficiaries may, within 45 days of receipt of the notice provided
in 6.1, instead of exercising the Priority Right to Purchase provided in
section 6, give notice to the Vendor(s) that they also wish to dispose (the “Right
of Co-sale” of all of their Shares (the “Drag-along Shares”) to the
Acquirer pursuant to the offer provided in 6.1. In such a case and subject
to 7.2, the Vendor(s) can only dispose of their Shares to said Acquirer if the
Acquirer proceeds with the simultaneous acquisition of all Shares held by the
Beneficiaries who will have given the notice provided for above under the terms
of the offer provided for in 6.1. The exercise of said Right of Co-sale and the
sale of the Shares to the Acquirer following the exercise of such a right do
not result in the application of section 6;
7.2
The
Shareholders acknowledge and agree that the representations and warranties
imposed or other undertakings that may be agreed to by the Vendor may not and
must not be imposed on Auriga, Medco, Gutrafin, Schroder, FSTQ, Finedix, FRSIM,
AMAZE, Guetta, Popowski, Onami or SGF. Without limiting the generality of the
foregoing, each of the Institutional Shareholders, AMAZE, Guetta, Popowski or
Onami may not be required to give, to anyone other then them, representations
or warranties stating: (i) that it is the sole registered and beneficial owner
of its Shares and Convertible Securities, with the exception of the Shares and
Convertible Securities held by Schroder as trustee for its clients, where
applicable; (ii) that such Shares and Convertible Securities, if
applicable, are free and clear of any appropriation; and (iii) that it may
Transfer them on the terms stipulated above without restriction other than
those set out in paragraph 7.2;
7.3
If
a Beneficiary does not exercise its Right of Co-Sale by giving notice to the
Vendor(s) within the time allowed, that Beneficiary shall be deemed to have
waived its Right of Co-Sale;
7.4
On
the expiry of the time provided in paragraph 7.1, the Vendor(s) shall give
notice to the Acquirer of the number of Drag-along Securities which, by
operation of the Right of Co-sale, are added to the Shares covered by the
Offer. The Vendor may not Transfer the Shares covered by the Offer unless the
Acquirer purchases the Drag-along Securities at the same time as it purchases the
Shares covered by the Offer;
7.5
If
a Beneficiary does not exercise its Right of Co-sale under paragraph 7.1,
no Transfer may be made to an Acquirer before the Acquirer agrees to be bound
by this Agreement, in the agreement form attached in Schedule 4.2;
22
7.6
If
the Transfer to the Acquirer is not completed within 90 days following the
expiry of the time provided in paragraph 7.1, the Vendor(s) may no longer
Transfer the Shares covered by the Offer to the Acquirer, and if they still
wish to Transfer them they shall offer them again in accordance with the
provisions of sections 6 and 7;
7.7
The
rights of each of the Beneficiaries provided in this section 7 shall be
exercised independently.
8.
DRAG-ALONG
RIGHT
8.1
Notwithstanding
the provisions of section 7, if Shareholders representing more
than 60% of the issued and outstanding Voting Shares (on an undiluted
basis) (the “Vendors”) agree to Transfer all of their Shares under a
Good Faith Offer for the acquisition of all of the Shares (the “Offer”),
the Vendors may give notice to the Beneficiaries, within 45 days of
receipt of the Offer, requiring the Beneficiaries to sell all their Shares (the
“Drag-along Shares”) to the Acquirer (the “Drag-along Right”), in
which case the Beneficiaries shall be obliged to sell all the Drag-along Shares
to the Acquirer, on the terms and conditions of the Offer which shall apply mutatis
mutandis. The exercise of the Drag-along Right and the sale of the Shares
of the Beneficiaries to the Acquire by virtue of the exercise of the Drag-along
Right shall not trigger the application of sections 6 and 7;
8.2
The
Shareholders acknowledge and agree that the representations and warranties
imposed or an undertaking that may be given by the Vendor(s) may not and must
not be imposed on Auriga, Medco, Gutrafin, Schroder, FSTQ, Finedix, FRSIM,
AMAZE, Guetta, Popowski, Onami or SGF. Without limiting the generality of the
foregoing, each of the Institutional Shareholders, AMAZE, Guetta, Popowski or
Onami may not be required to give, to anyone other then them, representations
or warranties stating: (i) that it is the sole registered and beneficial owner
of its Shares and Convertible Securities, with the exception of the Shares and
Convertible Securities held by Schroder as trustee for its clients, where
applicable; (ii) that such Shares and Convertible Securities, if applicable,
are free and clear of any appropriation; and (iii) that it may Transfer
them on the terms stipulated above without restriction other than those set out
in paragraph 8.2;
8.3
If
the Vendor(s) do not exercise their Drag-along Right by giving notice to the
Beneficiaries within the time allowed, that Vendors shall be deemed to have waived
their Drag-along Right;
23
8.4
If
the Transfer to the Acquirer is not completed within 90 days following the
expiry of the time provided in paragraph 8.1, the Vendor(s) may no longer Transfer
the Shares covered by the Offer to the Acquirer, and if they still wish to
Transfer them they shall offer them again in accordance with the provisions of
sections 6 and 7.
9.
PUBLIC
ISSUE
9.1
In
the event that the Corporation intends to make a public issue by prospectus, it
shall inform the Institutional Shareholders, AMAZE, Guetta, Popowski and Onami
as soon as possible and no later than 30 days before the scheduled date for
filing any preliminary prospectus or shelf prospectus with the Commission des valeurs
mobilières du Québec or any other securities regulator that may have
jurisdiction;
9.2
The
notice given by the Corporation shall, inter alia, offer the
Institutional Shareholders, AMAZE, Guetta, Popowski and Onami the opportunity
to qualify the Shares they then hold in order to allow them to be resold under
the terms of the prospectus or otherwise, in the proportion described in
paragraph 9.3 hereof, subject to the provisions of paragraph 9.4
hereof;
9.3
In
the event that the Corporation enters into a firm underwriting agreement or
best efforts commitment in relation to such public issue by prospectus, it
shall allow the Institutional Shareholders, AMAZE, Guetta, Popowski and Onami
to sell 75% of their Shares to the firm underwriter or through the agent;
9.4
In
the event that the firm underwriter or agent is of the opinion that it cannot
reasonably sell the Shares of the Institutional Shareholders, AMAZE, Guetta,
Popowski and Onami and of the Corporation, the Institutional Shareholders shall
be deemed to have waived their resale rights in respect of their Shares, for
the portion that cannot reasonably be sold, each pro rata to the number of
shares held by it as a proportion of the total number of shares held by the
Institutional Shareholders, AMAZE, Guetta, Popowski and Onami;
9.5
In
addition, where the Institutional Shareholders, AMAZE, Guetta, Popowski and
Onami retain Shares following a public issue by prospectus, it is understood
and agreed that the Corporation and the other Shareholders shall make
reasonable efforts to ensure that no Share held by the Institutional
Shareholders, AMAZE, Guetta, Popowski and Onami is placed in escrow, and all
Shares to be placed in escrow shall be taken from the block held by the other
Shareholders before the Shares held by the Institutional Shareholders, AMAZE,
Guetta, Popowski and Onami are placed in escrow and, in so far as is acceptable
to the regulatory authorities concerned, all Shares held by the Institutional
Shareholders, AMAZE, Guetta, Popowski and Onami shall be
24
released
from escrow before the Shares held by the other Shareholders are released from
escrow;
9.6
It
is agreed that in any public issue covered by this section, all costs
associated with the preparation of the prospectus and all related costs and the
fees of the firm underwriter or agent shall be borne by the Corporation, and
the Institutional Shareholders, AMAZE, Guetta, Popowski and Onami shall bear no
liability for such costs.
10.
PUT
OPTION
10.1
The
Parties hereby declare their common intention to provide the Shareholders with
liquidity no later than December 31, 2008, by transferring all of the Shares or
assets of the Corporation or by public issue;
In
the event of a public issue, the Institutional Shareholders (and their
successors) shall be entitled to a priority right for the placement of their
Shares for up to 75% of their participation, subject to the applicable
legislation and regulations and the requirements that may be imposed by the
Bank (as hereinafter defined);
10.2
In
the event that the public issue has not been made by December 31, 2008,
and the transfer of all of the Shares or assets of the Corporation has not
taken place, the Parties agree that a commercial bank of international repute
specializing in high-level transactions and independent of the Parties (the “Bank”)
and selected by majority vote of the Institutional Shareholders shall be
retained with the mission of assisting them and studying (i) the possibility of
the Shares being accepted for listing on a regulated financial instrument
market or (ii) a transfer of all of the Shares or assets of the Corporation.
The Parties agree to make their best efforts for the success of the mandate
given to the Bank, and the Corporation agrees in this respect to disclose all
necessary information to the Bank and give it access to its premises. The Bank
shall account regularly on the progress of its mission to the Chair of the
Board of Directors who shall so inform the Institutional Shareholders and the
other Shareholders. If the Bank does not complete the mission assigned under
its mandate within six months, the mandate shall be null and void;
10.3
In
the event that neither a public issue nor a transfer of all of the Shares or
assets of the Corporation has taken place by June 30, 2009, and that an
Institutional Shareholder or Shareholders receives a cash offer to purchase
from a Third Party (the “Offeror”) for all of the Shares of the
Corporation existing on the date of such offer, for a price corresponding to
100% of the stated capital of the Corporation (the “Offer to Purchase”),
which Offer to Purchase has been approved by a two-thirds vote of the
Institutional
25
Shareholders
within one month of receipt by them, the other Shareholders expressly agree
either (i) to transfer to the Offeror with the Institutional Shareholders all of
their Shares, on the same terms as the Institutional Shareholders, or (ii) to
make an alternative offer to purchase (the “Alternative Offer”) to the
Institutional Shareholders, within three months of the notice given by the
Institutional Shareholders and their acceptance of the offer to Purchase,
relating to all of the Shares of the Institutional Shareholders, provided that
in the case referred to in subparagraph (ii) the Institutional
Shareholders shall transfer all of their Shares to the maker of, and on the
terms and conditions of, the Alternative Offer, where the Alternative Offer is
higher than the initial Offer to Purchase;
In
the event that the other Shareholders do not give notice to the Institutional
Shareholders of their Alternative Offer within the aforesaid three months, the
other Shareholders shall transfer to the Institutional Shareholders, on the
same terms as the Institutional Shareholders, all of their shares to the
Offeror [sic‑Tr.];
10.4
In
the interests of the Parties and the Corporation, the Institutional
Shareholders and the other Shareholders agree, in order to give effect to the
liquidity provided in the foregoing paragraphs on the best terms, to inform
each other in good faith of the initiation and progress of all talks that any
of them may engage in with a third party with a view to a Share Transfer. In
addition, starting on the date of the mandate given to the Bank under paragraph
10.2 and for the six-month period provided in paragraph 10.2, the Parties have
agreed not to initiate or conduct talks with a view to a Share Transfer
otherwise than through that Bank and in cooperation with the other Parties.
11.
EXIT
11.1
Notwithstanding
any other provision hereof to the contrary, if 9079 or Faure (the “Offeror”):
11.1.1
Voluntarily
Leaves the service of the Corporation before November 30, 2005, or
11.1.2
Voluntarily
Leaves the service of the Corporation on or after November 30, 2005, but
before November 30, 2006, or
11.1.3
is
dismissed, with cause; or
11.1.4
ceases
to be employed by the Corporation for any reason other than those referred to
in subparagraphs 11.1.1 to 11.1.3; or
26
11.1.5
dies
(in the case of Faure only); or
11.1.6
becomes
affected by a Permanent Incapacity (in the case of Faure only); or
11.1.7
their
Shares are seized and such seizure is not contested in good faith within five
days, or if, where the seizure is contested and judgment is given, a third
party acquirer takes possession of their Shares; or
11.1.8
becomes
bankrupt or insolvent within the meaning of any insolvency legislation; or
11.1.9
is
guilty of theft, fraud or embezzlement from the Corporation, or is guilty of
any other criminal offence that harms the reputation of the Corporation; or
11.1.10 directly or indirectly
does anything that violates any of the non-competition and non-solicitation
undertakings set out in section 12, or that is prejudicial to the interests of
the Corporation, and such default is not remedied within five business days
following receipt of a notice in writing from any of the Shareholders stating
the default complained of; or
11.1.11 refuses, neglects or
omits to comply with the provisions of this Agreement and such default is not
remedied within five business days following receipt of a notice in writing
signed by one of the Shareholders stating the default complained of;
an
exclusive and irrevocable option to acquire all of the Shares held, directly or
indirectly, by the Offeror (the “Shares Offered”) is granted on the date
hereof by the Offeror (i) in the cases provided in subparagraphs 11.1.5,
11.1.6 and 11.1.8, to the Corporation and the Institutional Shareholders
holding Voting Shares (the “Beneficiary Shareholders”) (the Corporation
and the Beneficiary Shareholders being sometimes collectively designated
hereinafter as the “Beneficiaries”) and (ii) in all cases other than
those referred to in subparagraphs 11.1.5, 11.1.6 and 11.1.8, to the
Corporation alone, at the price and on the terms and conditions hereinafter
provided;
11.2
If
the Offeror Voluntarily Leaves the service of the Corporation on or after
November 30, 2006, an exclusive and irrevocable option to acquire all of
the Shares held, directly or indirectly, by the Offeror (the “Shares Offered”)
is granted on the date hereof by the Offeror to the Corporation, at the price
and on the terms hereinafter provided;
11.3
The
option may be exercised during the three months following the date on which the
Corporation or the Beneficiary Shareholders become aware of the event (the “Exercise
Period”);
27
11.4
In
order to exercise the option, the Corporation or the Beneficiary Shareholders
shall send notice in writing to the Offeror, during the Exercise Period,
stating their intention to take up the option to which they are entitled;
11.5
In
the cases referred to in subparagraphs 11.1.5, 11.1.6 and 11.1.8, the
Beneficiary Shareholders shall determine, by majority vote, in a vote
representing a majority of the votes for the Voting Shares they hold among
them, whether the option will be exercised by them personally or by the
Corporation. If they opt to exercise the option personally, the Shares Offered
shall be divided among them pro rata to the number of Voting Shares they then
hold as a proportion of all of the Voting Shares then held by the Beneficiary
Shareholders, unless all of the Beneficiary Shareholders agree to proceed
otherwise;
11.6
The
sale price of the Shares Offered shall be equal to:
11.6.1
in
the case of the events referred to in subparagraphs 11.1.9, 10% of the Fair
Market Value of the Shares Offered;
11.6.2
in
the case of the events referred to in subparagraphs 11.1.1, 11.1.3, 11.1.10 and
11.1.11, 25% of the Fair Market Value of the Shares Offered;
11.6.3
in
the case of the event referred to in subparagraph 11.1.2, 50% of the Fair
Market Value of the Shares Offered;
11.6.4
in
the case of the event referred to in subparagraph 11.2, 75% of the Fair
Market Value of the Shares Offered;
11.6.5
in
the case of the events referred to in subparagraphs 11.1.4, 11.1.5,
11.1.6, 11.1.7 and 11.1.8, the Fair Market Value of the Shares Offered;
11.7
The
sale price shall be payable upon completion of the transaction, which shall
take place at the head office of the Corporation, no later than 2:00 p.m. on
the 30th day following the date on which the option is taken up. However, in
the event that the option to acquire the Shares Offered belongs ab initio
to the Corporation alone and, by reason of the financial tests set out in the Canada
Business Corporations Act, the Corporation is unable to purchase all of the
Shares Offered, the exercise of the option provided in paragraph 11.3 shall be
postponed to the date on which the Corporation is able to purchase all or part
of the Shares Offered, but the Corporation shall have no more than two years to
purchase all of the Shares Offered.
28
12.
NON-COMPETITION
AND NON-SOLICITATION
12.1
Faure
declares that she is a shareholder of a company known as Caprion
Pharmaceuticals Ltd. but holds no office or position as a director, manager or
employee of that company, and the Corporation agrees to this. In addition, the
Corporation acknowledges and agrees that she is a shareholder and director of
the companies known as Valoribio Inc., EquiVision Inc. and IPPM S.A.;
12.2
Subject
to 12.1, Faure undertakes and agrees, throughout the period during which she
holds Shares and for a period of 24 months following the year that follows the
date when she is voluntarily or involuntarily divested of her Shares, not to
operate, directly or indirectly, any active business that is engaged in
research, development or marketing in the field of hydrogel, or to engage in,
be involved in or advise, or make loans to or guarantee the obligations of, any
such business. The territory to which this clause applies is defined as North
America and Europe;
12.3
With
the exception of the activities ordinarily engaged in as a professor at the
Université du Québec à Montréal, Fortier undertakes and agrees, throughout the
period during which he holds Shares and for a period of 24 months following the
year that follows the date when he is voluntarily or involuntarily divested of
his Shares, not to operate, directly or indirectly, any active business that is
engaged in research, development or marketing in the cosmetic, cosmeceutical
and medical/therapeutic industries relating to skin care in general, including,
but not limited to, the treatment of wounds, or to engage or be involved in
such activities or advise any business in similar areas, or make loans to or
guarantee the obligations of any person involved in such activities. The
territory to which this clause applies is defined as North America and Europe;
12.4
Faure
further undertakes and agrees, throughout the period during which she holds
Shares and for a period of 24 months following the year that follows the date
when she is voluntarily or involuntarily divested of her Shares, not to
solicit, do business with or attempt to do business with, anywhere whatsoever,
directly or indirectly, any of the clients of the Corporation or any Subsidiary
of the Corporation;
12.5
Faure
further undertakes and agrees, throughout the period during which she holds
Shares and for a period of 24 months following the year that follows the date
when she is voluntarily or involuntarily divested of her Shares, not to solicit
or engage, directly or indirectly, as an employee or consultant or in any other
capacity, any employee, director or officer (hereinafter collectively the “employees”)
working full-time or part-time for the Corporation or for any Subsidiary, or to
attempt, directly or indirectly, to encourage any employee to leave their
employment with the Corporation or any Subsidiary;
29
12.6
Each
of Fortier and Faure further undertakes and agrees, throughout the period
during which they hold shares and for a period of 24 months following the date
on which they are voluntarily or involuntarily divested of their shares, not to
attempt, directly or indirectly, to encourage or persuade any supplier to
terminate its business relationship, in whole or in part, with the Corporation
or with any Subsidiary of the Corporation;
12.7
In
the event that either Fortier or Faure fails to comply with any of the
foregoing undertakings, they hereby agree, without prejudice to the other
rights and remedies of the Corporation and the Shareholders, to pay to the
Corporation, on simple demand, immediately upon being in default, a penalty of
$2,000 per day of default, without further formality or notice;
12.8
Each
of Fortier and Faure acknowledges that failure to comply with the provisions of
this section will cause serious and irreparable harm to the other Shareholders
and the Corporation. Accordingly, in the event of such breach, the other
Shareholders or the Corporation may immediately initiate injunction
proceedings, in addition to the penalty that might be claimed under paragraph
12.7;
12.9
Payment
of any penalty under this section, or any legal action initiated by the
Beneficiaries of the undertakings set out in this section, may not in any way
constitute permission for any default to occur or continue;
12.10
It
is agreed that the foregoing prohibitions on competition and solicitation are
separate and distinct stipulations from each other, and accordingly that if any
prohibition is found to be unenforceable, the other restrictive clauses will
not thereby be found to be unenforceable;
12.11
Each
of Fortier and Faure expressly declares and acknowledges that the undertakings
hereinbefore set out are an essential condition for their holding Shares, that
the territories referred to extend to territories where the Corporation
actively does business, that the undertakings given by them hereunder are
reasonable in terms of the duration, the territory, the activities and the
persons covered, and that they have had an opportunity to consult their legal
advisor (or any other advisor they may see fit to consult) in relation to the
transactions and obligations set out herein, including, but not limited to, the
obligations provided in this section 12.
13.
CONDUCT
OF BUSINESS
13.1
Beginning
on the date hereof, and for as long as Auriga, Medco, Gutrafin, Schroder, SGF,
Finedix and FSTQ, acting jointly with FRSIM, are Shareholders and hold at least
5% of the Voting Shares on an undiluted basis
30
(it
being agreed, for greater certainty, that in the case of FSTQ, acting jointly
with FRSIM, they shall jointly (and not individually) hold at least 5% of the
Voting Shares on an undiluted basis) or are creditors of the Corporation, any
act, decision, resolution or bylaw relating to the matters hereinafter
described may not be taken, made or applied (i) without being first approved by
the Shareholders who hold at least 75% of the issued Voting Shares and (ii)
without being first consented to as provided by law or by the articles or
bylaws of the Corporation;
13.1.1
any
change to the charter of the Corporation;
13.1.2
the
Transfer or Alienation of all or a substantial portion of the assets of the
Corporation or the granting of an option to that effect;
13.1.3
the
dissolution or voluntary winding-up of the Corporation, or the consolidation,
joining, reorganization, association (by way of partnership, joint venture or
otherwise) or merger of the Corporation with another person, or the creation of
a Subsidiary;
13.1.4
a
declaration of bankruptcy, assignment for the benefit of creditors or filing of
a proposal or notice of intent under the Bankruptcy and Insolvency Act
of Canada or any other act done by the Corporation under a law relating to
insolvency or the filing of an arrangement or proposed arrangement under the Companies’
Creditors Arrangement Act (C-36), and the selection of a trustee, where
applicable;
13.1.5
any
decision involving a significant change in the nature of the objectives of the
Corporation, and in particular any change in the place of the head office or
the moving or establishment of any of its principal places of business outside
Quebec;
13.2
To
obtain the prior approval required under 13.1, the Corporation shall send a
notice to the Shareholders explaining the action, decision, resolution or bylaw
that requires their approval, together with all documents needed for making a
decision, in accordance with the general bylaws of the Corporation. The
approval or refusal of each Shareholder shall be exercised by giving notice to
the Corporation within 21 days, or within 10 days if the Corporation specifies
that it is urgent, following receipt of the complete notice from the
Corporation, failing which any Shareholder who has not responded shall be
deemed to have refused. Each of the Subsidiaries of the Corporation shall be
bound mutatis mutandis by this section, and the Corporation shall ensure
that each of its Subsidiaries complies with it;
31
13.3
In
the event that a Shareholder, one of the Persons designated by that Shareholder
to hold a position as a member of the Board of Directors or of the Committees
under the provisions of section 3 hereof, or any Person related to them within
the meaning of Canadian tax legislation (collectively, the “Person Concerned”)
is a party to a significant or substantial contract or draft contract with the
Corporation or one of its subsidiaries (the “Contract”), or the Person
Concerned is a director, officer, manager or shareholder of a party to the
Contract or is related to one of them within the meaning of Canadian tax
legislation, or the Person Concerned holds any other significant or substantial
interest in that party to the Contract, such interest shall be disclosed to the
Board of Directors or the Shareholders of the Corporation, as the case may be,
in accordance with the procedure set out in section 120 of the Canada
Business Corporations Act, as adapted to take into account the foregoing
provisions, and the Person Concerned (including any individual designated by it
to sit on the Board of Directors) shall then abstain from voting on any matter
that might be submitted to the Board of Directors or the Shareholders of the
Corporation in relation to the signing, cancellation, extension or renal of the
Contract, the enforcement of the provisions of the Contract, or any recourse,
arbitration, demand, action or other proceeding arising under the Contract, it
being stipulated, however, that the prohibition on voting shall not affect
matters relating to the day-to-day management of the Contract in the ordinary
course of business, in respect of which the Person Concerned retains its right
to vote after disclosing its interest. For greater clarity, SGF is deemed to be
related only to the Société Générale de Financement du Québec and the
corporations under its control.
13.4
No
issue of a security of the Corporation shall be made without the prior express
agreement of the Shareholders representing at least 50% of the capital stock on
an undiluted basis.
13.5
No
issue of a security of the Corporation shall be made without the prior express
agreement of the Shareholders representing at least 50% of the capital stock on
an undiluted basis.
14.
ARBITRATION
14.1
Arbitration
Subject
to their mandatory injunctive remedies, the parties hereto agree to submit to
arbitration, to the exclusion of the common law courts, any real or apprehended
dispute relating to their respective rights under this Agreement, in the
following manner:
32
14.1.1
the
applicant shall designate an arbitrator and give notice to the arbitrator and
the respondent stating the identity of each of them and stating the general
nature of the issue submitted and the remedies sought;
14.1.2
the
respondent shall, within 10 days following receipt of the notice, appoint an
arbitrator and inform the applicant and the arbitrator designated under
subparagraph 14.1.1, in writing, failing which the arbitrator designated
under subparagraph 14.1.1 shall sit alone and paragraphs 14.3 to 14.5
hereinafter shall apply mutatis mutandis to any such situation;
14.1.3
the
two arbitrators so appointed shall, within 30 days following the appointment of
the second arbitrator, designate a third arbitrator who shall be a member in
good standing of the Barreau du Québec, who shall act as chairperson. If the
two arbitrators are unable to agree on the choice of a third arbitrator within
the time allowed, the Corporation Shall, within 10 days following the expiry of
that time, make application to the court to designate the third arbitrator. In
the event that the Corporation fails to do so within the time allowed, one of
the parties could make application at the expense of the Corporation;
14.2
Sole
arbitrator
In
order to minimize the costs associated with the arbitration, the parties may,
by a written agreement signed by each of them, agree to appoint a sole
arbitrator;
14.3
Procedure
The
arbitration procedure shall be as set out in Book VII of the Code of Civil
Procedure of Quebec. The notice of arbitration given by the applicant shall
state whether the applicant intends that the arbitrators hear the dispute as
conciliators and they shall act as such if the respondent states in its written
notice that the arbitrator chosen by the respondent consents;
14.4
Hearing
and homologation
14.4.1
The
arbitrators shall be authorized to set the places, dates and times of hearing
and may, on their own initiative, before or during the hearing, allow any
change to the request for arbitration and any cross-claim;
14.4.2
Unless
there is an agreement to the contrary between the parties, the hearing shall
begin no later than the 30th day following the appointment of the third
arbitrator or, where applicable, of the sole arbitrator, and the arbitral award
shall be given no later than 90 days after that appointment. The
arbitrator or arbitrators, as the case may be,
33
subject
to the 90 days allowed, shall release their decision in writing to the parties
to the dispute within 30 days following the conclusion of the hearing, and their
award, whether unanimous or by majority vote, shall set out the reasons for
decision and shall be signed by each of the arbitrators;
14.4.3
When
the arbitral award has been duly homologated by the court in accordance with
article 946 of the Code of Civil Procedure it shall be final and binding on all
parties to the dispute and on their successors and assigns;
14.5
Replacement
In
the event that an arbitrator refuses or is unable to act, another arbitrator
shall be designated to replace that arbitrator by the person or persons who
appointed that arbitrator. If the replacement is not made within 15 days
following a notice to that effect given to the person or persons who are to
appoint that arbitrator, the vacancy shall be filled by the court on
application by the Corporation, or failing such application, on application by
one of the parties;
14.6
Fees
The
fees of the arbitrators and the other costs shall be borne by the party
designated in the arbitral award.
15.
TERM
OF THE AGREEMENT
15.1
With
respect to each of the Shareholders, this Agreement shall be in force and have
full effect provided that (i) all of the Shareholders have signed this
Agreement and (ii) the Shareholder holds Shares; when a Shareholder ceases to
hold Shares, this Agreement shall automatically terminate and become void and
of no effect with respect to that Shareholder, subject to the then current
obligations to the Corporation, the Subsidiaries and the other Shareholders
under this Agreement;
15.2
This
Agreement shall automatically terminate and become void and of no effect with
respect to all of the Shareholders:
(i)
if
the Corporation declares bankruptcy or makes an authorized assignment of its
assets for the benefit of its creditors in general, or is dissolved or
voluntarily winds up;
(ii)
if
the Shareholders agree to terminate it, by consent; or
(iii)
if
the Corporation completes a public issue of its Shares by prospectus and the
Shares are listed on a recognized North American stock exchange.
34
16.
UNDERTAKINGS
BY FAURE
16.1
Faure
undertakes to comply with each and everyone of the undertakings given by 9079
under this Agreement as if the undertakings were given by her, and Faure shall
be solidarily liable for the said undertakings with 9079.
16.2
Faure
undertakes not to do anything that could, directly or indirectly, violate the
provisions or the spirit of this Agreement.
17.
UNDERTAKINGS
BY AZERA
17.1
Azera
undertakes to comply with each and everyone of the undertakings given by AMAZE
under this Agreement as if the undertakings were given by him, Azera Faure
shall be solidarily liable for the said undertakings with AMAZE.
17.2
Azera
undertakes not to do anything that could, directly or indirectly, violate the
provisions or the spirit of this Agreement.
18.
COMPULSORY
REDEMPTION
18.1
Notwithstanding
any other provision of this Agreement to the contrary, if a Shareholder, other
than Faure or Gestion (the “Offeror”):
18.1.1
dies
(as the case may be); or
18.1.2
becomes
affected by a Permanent Incapacity (in the case of Brisson only); or
18.1.3
becomes
bankrupt or insolvent within the meaning of any legislation governing
insolvency;
the
other Shareholders who hold Voting Shares (the “Co-shareholders”) may
then require, by notice sent to the Offeror within 30 days following the date
on which the applicable event is brought to the attention of the Co‑shareholders,
that the Corporation or the Co-shareholders purchase all of the Participating
Shares and Voting Shares held by the Offeror (the “Shares Redeemed”),
for a purchase price equal to the Fair Market Value of the Shares Redeemed on
the date of that event, in accordance with the procedure described in section
6. The Co-shareholders shall then determine, within 15 days of the said notice,
by a majority of the votes associated with the Voting Shares they hold among
them, whether the Shares Redeemed will be purchased by them personally or by
the Corporation. If the Co-shareholders opt to purchase personally, the Shares
Redeemed shall be divided pro rata among them in proportion to the number of
Voting Shares they then hold;
35
18.2
In
the event that the right granted under this section is exercised, the purchase
of the Offeror’s Shares shall be completed within 30 days following the receipt
of the notice of exercise of the right. On that occasion, the parties concerned
must sign all the documents and do everything that is appropriate or necessary
for that purpose;
18.3
The
sale price of a bankrupt Shareholder’s Shares will then be payable to that
Shareholder’s trustee in bankruptcy within 10 days of receipt by the
Corporation of the valuation report stating the Fair Market Value of the
Shares;
18.4
Accordingly,
each Shareholder binds and obliges its legal representatives or liquidators or
the trustee in bankruptcy of that Shareholder, in advance, to Transfer the
absolute title to its Shares and to sign and deliver all documents and do
everything that is appropriate or necessary in order to Transfer its Shares
fully and without reservation in accordance with paragraph 18.2 above.
19.
CONFIDENTIALITY
19.1
Each
of the Shareholders agrees to maintain the confidentiality of all confidential
intelligence and information concerning the Corporation and its subsidiaries,
as the case may be, to which it may have access as a Shareholder or otherwise,
and even if it subsequently ceases to be a Shareholder bound by the provisions
of this Agreement, subject to the rights of the Shareholders:
19.1.1
to
present all relevant information to any potential acquirer of their Shares,
with the exception of industrial secrets and any information relating to
intellectual property relating to the Corporation or its subsidiaries, for the
purpose of enabling it to determine whether to acquire the Shares; and
19.1.2
to
publish or otherwise advertise, for advertising disclosure purposes, the
existence of their participation in the capital stock of the Corporation, the
nature of the Corporation’s activities, their respective size according to
various criteria such as their turnover, or the number of their employees;
19.1.3
provide
such intelligence and information to their controlling Shareholders and
employees whose functions require that they be aware of it;
without
having to obtain the prior written consent of the Corporation, provided that in
the case referred to in paragraph 19.1.1 hereof, the Shareholder in
question shall obtain a confidentiality agreement from any Person to whom the
information is disclosed prior to disclosure;
36
19.2
The
above undertakings do not apply to intelligence or information that (i) is or
becomes in the public domain, (ii) is provided to a Shareholder by any third
party bound by a relevant confidentiality agreement, or (iii) must be disclosed
by law or pursuant to a judgment, decision or order or a court of competent
jurisdiction.
20.
REDEMPTION
OF CLASS D SHARE ISSUED TO FORTIER
20.1
In
the exercise of the right of redemption associated with the Class D share of
the capital stock of the Corporation issued to Fortier, the Corporation shall
pay the redemption price of the Class D share (the “Redemption Price”)
within 10 days following the delivery of the Corporation’s audited annual
financial statements to the Corporation by the Auditors for the year during
which the right is exercised (the “Year of Exercise”), it being agreed,
however, that notwithstanding any contrary provision in the bylaws of the
Corporation, Fortier may not require the Corporation to redeem the said Class D
share before December 20, 2003. Payment of the Redemption Price shall be
made in several instalments if the Redemption Price is greater than 7.5% of the
annual funds self-managed by the Corporation as determined by the said audited
annual financial statements (the “Maximum Payment”). In that case, the
Corporation shall pay Fortier the Maximum Payment and the payment of the
balance of the full Redemption Price upon receipt of the audited annual
financial statements of the Corporation for the year in question;
20.2
The
Class D share redeemed by the Corporation under paragraph 20.1 shall be
delivered to the Corporation and cancelled upon payment of the first instalment
of the Redemption Price.
21.
ANTI-DILUTION
OPTION
21.1
In
the event that the Corporation issues Voting Shares, one or more times, for a
total amount greater than $2,000,000 at an average Share price lower than $1.85
(excluding any issue of Voting Shares reserved for employees of the
Corporation, under a remuneration policy of the Corporation, that being 360,270
Class A Shares to date) until the transfer or listing of all Shares of the
Corporation, each of Medco, Auriga, Schroder, Popowski, Gutrafin and Onami (the
“Beneficiaries”) will then have the option (the “Option”) to
subscribe and purchase, in whole or in part, a number of Voting Shares of the capital
of the Corporation determined for each of them according to the following
formula (the “Shares under Option”):
(A/B)
– C = D
or:
37
A = the total amount
invested by the Beneficiary for the subscription of Voting Shares under the
subscription agreement between Medco, Auriga, Schroder, Popowski, Gutrafin,
Onami and the Corporation dated September 11, 2003 (the “2003 Subscription
Agreement”);
B = the share price for the
new Voting Share issue;
C = the total number of
Voting Shares subscribed by that Beneficiary under the 2003 Subscription
Agreement; and
D = the number of Shares
under Option.
21.2
Once
the Corporation issues Voting Shares, one or more times, for a total amount
greater than $2,000,000, the Option may be exercised by the Beneficiaries as
many times as there are issues of Voting Shares by the Corporation at a price
lower than $1.85, whether it is below or above the $2,000,000 threshold;
21.3
The
price for exercising the Option, that is, the issue price for the Shares under
Option, shall be a total par value of $1.00, for each exercise of an Option,
with no other consideration or cost for the Beneficiaries;
21.4
If
the terms of article 21.1 are met, the Option may be exercised by the
Beneficiaries on the date of any new issue of Voting Shares;
21.5
To
exercise the Option, each Beneficiary shall give the notice in writing to the
Corporation and attach $1.00 to the notice in payment of the issue price of the
Shares under Option;
21.6
On
the date of receipt by the Corporation of the notice of exercise and payment of
the issue price of the Shares under Option, the Corporation shall issue the
Shares under Option, in the same class as the shares issued to a new entrant,
to the Beneficiaries, and shall forthwith deliver a certificate representing
the Shares to them.
21.7
If,
at any time before any exercise of the Option, the Voting Shares of the capital
stock of the Corporation are amended from time to time:
21.7.1
by
a reduction or adjustment to the number of outstanding Voting Shares, as a
result of a consolidation;
21.7.2
by
an increase in the number of outstanding Voting Shares, as a result of a split;
21.7.3
by
a change, reclassification, redesignation, conversion or consolidation of
Voting Shares with the result that they are then another class of shares;
38
21.7.4
by
a merger or joining with another legal person or the transfer of all or
virtually all of the assets of the Corporation to another legal person, the
effect of which is the issue of voting and participating shares in the legal
person resulting from the merger or joining or in the transferee of the assets
of the Corporation; or
21.7.5
by
any other reorganization of the capital,
a
proportional adjustment or change will be made in the number and price of the
securities to be issued at the time of exercise of the Option, to ensure that
after the occurrence of such an event, the Beneficiaries are in a position that
is no more or less favourable than immediately before the occurrence of the
event. Fractions of shares resulting from the changes referred to above will
not be taken into account.
39
Amendments to the Unanimous Shareholders Agreement
[Translation]
AMENDMENTS TO THE
BIOARTIFICIAL GEL TECHNOLOGIES (BAGTECH) INC. UNANIMOUS SHAREHOLDERS AGREEMENT
dated September 11,
2003
(the “Unanimous
Agreement”)
The
undersigned shareholders agree to amend the Unanimous Agreement as follows:
Replace
sections 3.1 and 3.2 of the Unanimous Agreement with the following:
3.1
`Subject
to the following provisions, the Shareholders agree, during the term of this
Agreement, to take the necessary measures and to use the voting rights
associated with the Shares they hold to elect and continue eight
Directors on the Board of Directors.
3.2
On
the date of this Agreement, the Shareholders agree that the Board of Directors
shall be composed of representatives appointed by the Shareholders as
hereinafter set out:
Group A 2
Directors (including Marie-Pierre Faure)
Group B 3
Directors (including one appointed jointly by FSTQ and FRSIM, one appointed by
SGF and one appointed by Auriga)
Group C 2 Directors
(including André Lamotte) and 1 designated by Bagadine
In
addition, FSTQ and FRSIM may jointly appoint an observer to the Board of
Directors who shall be entitled to receive all notices of meetings and all
documents accompanying such notices.
On
the date of this Agreement and for as long as the majority of the Shareholders
so agree, Colin Bier shall act as Chair of the Board of Directors. Colin Bier
is a Director appointed by the Group C Shareholders.
Add section 4.6(a) to the
Unanimous Agreement:
4.6(a) Notwithstanding
the provisions of this Agreement, Bagadine may, at any time, transfer its
Shares and Convertible Securities, in whole or in part, as the case may be,
that it holds without having to offer them to the other Shareholders, provided
that such Transfer is made to the Groupe Chevrillon & Associés and the
natural persons or legal persons that are (i) members of the Groupe Chevrillon
& Associés; (ii) shareholders of the Groupe Chevrillon & Associés; or
(iii) members of a management body of the Groupe Chevrillon & Associés or
having a management body in common with the Groupe Chevrillon & Associés.
The Groupe Chevrillon & Associés is defined hereby as the partnership
Chevrillon & Associés, the natural persons or legal persons that are direct
or indirect shareholders, or members of a management body of the partnership
Chevrillon & Associés or its parent, sibling or children companies,
provided that:
4.6.1
the
transferee of the said Shares confirms to the Shareholders its irrevocable
consent to be bound by the provisions of this Agreement in the form of Schedule
4.2;
4.6.2
the
Shares and Convertible Securities transferred by Bagadine remain subject to the
provisions of the Agreement; and
4.6.3
that
the assignment does not operate to affect the status of private company within
the meaning of the Securities Act (Quebec);
Appendix 2
Article 146 “Unanimous shareholder agreement”
(1) A unanimous shareholder agreement may
provide for any or all of the following:
(a) the regulation of the rights and liabilities
of the shareholders, as shareholders, among themselves or between themselves
and any other party to the agreement;
(b) the regulation of the election of
directors;
(c) the management of the business and
affairs of the corporation, including the restriction or abrogation, in whole
or in part, of the powers of the directors;
(d) any other matter that may be contained in a
unanimous shareholder agreement pursuant to any other provision of this Act.
(2) If
a unanimous shareholder agreement is in effect at the time a share is issued by
a corporation to a person other than an existing shareholder,
(a) that person is deemed to be a party to
the agreement whether or not the person had actual knowledge of it when the
share certificate was issued,
(b) the issue of the share certificate
does not operate to terminate the agreement, and
(c) if that person is a bona fide
purchaser without actual knowledge of the unanimous shareholder agreement, that
person may rescind the contract under which the shares were acquired by giving
a notice to that effect to the corporation within a reasonable time after the
person receives actual knowledge of the unanimous shareholder agreement.
(3) If
a unanimous shareholder agreement is in effect when a person who is not a party
to the agreement acquires a share of a corporation, other than under subsection
(2),
(a) the person who acquired the share is deemed
to be a party to the agreement whether or not the person had actual knowledge
of it when the person acquired the share, and
(b) neither the acquisition of the share nor the
registration of that person as a shareholder operates to terminate the
agreement.
(4) If
(a) a person referred to in subsection (3) is a
protected purchaser as defined in the Securities Transfer Act and did
not have actual knowledge of the unanimous shareholder agreement, and
(b) the person’s transferor’s share certificate
did not contain a reference to the unanimous shareholder agreement,
that person may, within 30 days after the person acquires actual
knowledge of the existence of the agreement, send to the corporation a notice
of objection to the agreement.
(5) If a
person sends a notice of objection under subsection (4),
(a) the person is entitled to be paid by the
corporation the fair value of the shares held by the person, determined as of
the close of business on the day on which the person became a shareholder, and
(b) section 191(4) and (6) to (20) apply, with
the necessary changes, as if the notice of objection under subsection (4) were
a written objection sent to the corporation under section 191(5).
(6) A
transferee who is entitled to be paid the fair value of the transferee’s shares
under subsection (5) also has the right to recover from the transferor by
action the amount by which the value of the consideration paid for the
transferee’s shares exceeds the fair value of those shares.
(7) A
shareholder who is a party or is deemed to be a party to a unanimous
shareholder agreement has all the rights, powers and duties and incurs all the
liabilities of a director of the corporation to which the agreement relates to
the extent that the agreement restricts the powers of the directors to manage
the business and affairs of the corporation, and the directors are thereby
relieved of their duties and liabilities, including any liabilities under
section 119 or any other enactment, to the same extent.
(8) A
unanimous shareholder agreement may not be amended without the written consent
of all those who are shareholders at the effective date of the amendment.
(9) A
unanimous shareholder agreement may exclude the application to the agreement of
all but not part of this section.
Appendix 3
Complete
list of provisions of the Bagtech Unanimous Shareholders Agreement that
expressly limit the directors’ power:
·
Under
paragraph 3.2, “for as long as the majority of the Shareholders so agree,
Colin Bier shall act as Chair of the Board of Directors.” This means that the
power to appoint the Chair of the Board is at least temporarily removed from
the directors.
·
Subparagraph
3.4.1 requires that the directors hold “at least six meetings of the Board of
Directors each year with a maximum of two months between meetings.”
·
Subparagraph
3.4.3 provides that “the presence of a representative of each of Group A, Group
be and Group C is needed in order to establish quorum for any meeting of the
Board of Directors.”
·
Paragraphs
4.2 and 4.3 provide for two situations in which certain shareholders will be
authorized, on certain conditions, to transfer their shares, and “the Directors
shall be required to authorize such Transfer notwithstanding any other
provision of the charter or bylaws of the Corporation.”
·
Paragraph
10.2 provides that “in the event that the public issue has not been made by
December 31, 2008, and the transfer of all of the Shares or assets of the
Corporation has not taken place, the Parties agree that a bank selected by
majority vote of the Institutional Shareholders shall be retained with the
mission of assisting them and studying” certain issues.
·
Paragraphs
11.5 and 18.1 provide that if a shareholder dies, becomes affected by a
permanent incapacity or becomes bankrupt or insolvent, “the Co-shareholders
shall then determine . . . by a majority of the votes . . . whether the Shares
Redeemed will be purchased by them personally or by the Corporation.”
·
Paragraph
13.4 stipulates that “no issue of a security of the Corporation shall be made
without the prior express agreement of the Shareholders representing at least 50%
of the capital stock on an undiluted basis.”
Complete
list of the provisions of the agreement that are in the nature of a USA under
subsection 6(3) of the CBCA
Note that
under subsection 6(3) of the CBCA, an agreement signed by all the shareholders
that increases the number of votes required in order for the shareholders to
adopt certain measures may, as an exception, enjoy the status of a USA, even if it does not restrict or remove any power of the administrators. However, this
is the only exception, under both the Quebec legislation and the Canadian
legislation.
·
Paragraph
13.1 provides that several decisions that should ordinarily be ratified by
special resolution of the shareholders (and thus by a two-thirds vote, under
subsection 2(1) of the CBCA) must be agreed to by a three-quarters vote.
Email this Content