SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
FUELCELL ENERGY, INC.
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(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
PROPOSED
AGGREGATE NUMBER OF MAXIMUM
SECURITIES TO WHICH PRICE PER AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES TRANSACTION APPLIES(1) UNIT(2) VALUE(3) TOTAL FEE
-------------------------------------------------------------- ---------------------- --------- ----------- ---------
Common Shares of Global Thermoelectric Inc. .......... 29,201,450 $3.14 $91,692,553 $ 7,418
(1) This total represents Global Thermoelectric Inc. ("Global") common
shares to be acquired by FuelCell Energy, Inc. ("FuelCell") pursuant to
the Combination Agreement entered into between FuelCell and Global as
of August 4, 2003.
(2) This total represents Cdn.$4.25, the average of the high and low sales
price of Global Common Shares on the Toronto Stock Exchange on
September 30, 2003, converted to U.S. dollars by applying the exchange
rate on September 24, 2003, which was 1.3543 Canadian dollars for each
U.S. dollar.
(3) Proposed maximum value calculated pursuant to Rule 0-11 of the
Securities Exchange Act of 1934, as amended.
(4) Of the fee, $6,166 has been previously paid and $1,252 is paid
herewith.
[X] Fee paid previously with preliminary materials.
[ ] Check box, if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[FUELCELL ENERGY LOGO] [GLOBAL THERMOELECTRIC LOGO]
NOTICE OF THE SPECIAL MEETING OF STOCKHOLDERS
OF FUELCELL ENERGY, INC.
TO BE HELD OCTOBER 31, 2003
-AND-
NOTICE OF THE SPECIAL MEETING OF COMMON
SHAREHOLDERS OF
GLOBAL THERMOELECTRIC INC.
TO BE HELD OCTOBER 31, 2003
-AND-
NOTICE OF PETITION
-AND-
JOINT MANAGEMENT INFORMATION CIRCULAR
AND PROXY STATEMENT
WITH RESPECT TO AN ARRANGEMENT INVOLVING
FUELCELL ENERGY, INC.
-AND-
GLOBAL THERMOELECTRIC INC.
SEPTEMBER 30, 2003
[FUELCELL ENERGY LOGO]
September 30, 2003
Dear FuelCell Stockholder:
You are cordially invited to attend a special meeting of stockholders (the
"FuelCell Meeting") of FuelCell Energy, Inc., a Delaware corporation
("FuelCell"), to be held at 10:00 a.m. (Eastern time) on Friday, October 31,
2003 at the Sheraton Danbury Hotel, 18 Old Ridgebury Road, Danbury, Connecticut.
The FuelCell Meeting relates to the acquisition by FuelCell of Global
Thermoelectric Inc., an Alberta, Canada, corporation ("Global"), pursuant to the
terms of a combination agreement (the "Combination Agreement") dated as of
August 4, 2003 between FuelCell and Global. The Combination Agreement provides
for a share exchange whereby either exchangeable shares of an indirect
wholly-owned Canadian subsidiary of FuelCell or shares of FuelCell common stock
will be issued in consideration for all of the issued and outstanding common
shares of Global. Each exchangeable share will be exchangeable for one share of
FuelCell common stock.
Global is a leader in the development of solid oxide fuel cell ("SOFC")
products. Global is developing fuel cell products compatible with natural gas or
propane and is currently testing systems for residential and remote
applications. Global believes that it is also the world's largest manufacturer
and distributor of thermoelectric power generators for use in remote locations.
Thermoelectric generators produce electricity directly from heat and are used
for remote power applications in the pipeline, oil and gas and telecommunication
industries. Upon closing, FuelCell expects to integrate the businesses of the
combined companies and to significantly reduce the combined company's level of
cash expenditures, with head office functions consolidated into FuelCell's
Connecticut headquarters. The combined company will retain the name FuelCell
Energy, Inc. I will remain as Chairman, President and Chief Executive Officer,
and Joseph G. Mahler, FuelCell's Senior Vice President and Chief Financial
Officer, will assist me in leading the combined company in our respective roles.
Upon closing, FuelCell's board of directors will be expanded to up to thirteen
voting members to include at least one and a maximum of two designees of Global.
At the FuelCell Meeting, you will be asked to approve the Combination
Agreement and the transactions contemplated thereby, which include: (i) at the
election of each Global common shareholder (other than a dissenting shareholder)
who is a resident of Canada for purposes of the Income Tax Act (Canada), the
issuance of (a) shares of an indirect wholly-owned Canadian subsidiary of
FuelCell exchangeable for shares of FuelCell common stock or (b) shares of
FuelCell common stock, in exchange for the shareholder's Global common shares;
(ii) for each Global common shareholder (other than a dissenting shareholder)
who is not a resident of Canada for purposes of the Income Tax Act (Canada), the
issuance of shares of FuelCell common stock in exchange for the shareholder's
Global common shares; (iii) FuelCell's assumption of outstanding options to
purchase Global common shares; and (iv) FuelCell's assumption of the obligation
to issue FuelCell common stock upon conversion of Global's outstanding
Cumulative Redeemable Convertible Preferred Shares, Series 2 (which we refer to
collectively as the "Combination"). Details of the Combination are contained in
the joint management information circular and proxy statement (the "Joint Proxy
Statement") being delivered with this letter.
If the proposals contained in the Joint Proxy Statement are approved by
FuelCell's stockholders, Global's common shareholders and the Court of Queen's
Bench of Alberta, Global will become a consolidated subsidiary of FuelCell, and
each existing holder of common shares of Global will have the right to receive
between 0.279 and 0.342 exchangeable shares or shares of FuelCell common stock
in consideration for each Global common share held by such holder, determined in
accordance with the exchange ratio (as defined in the Combination Agreement) and
as otherwise set forth in the Joint Proxy Statement. Upon completion of the
Combination, and depending on the exchange ratio in effect at the time of
completion of the Combination,
Global common shareholders will own between approximately 17% and 20% of the
outstanding shares of FuelCell common stock, on a fully diluted basis.
FuelCell's board of directors has carefully considered and has unanimously
approved the terms and conditions of the Combination Agreement and the
Combination and recommends that the FuelCell stockholders approve the
Combination Agreement and the Combination. In reaching this conclusion, the
FuelCell board of directors considered, among other things, the opinion dated
August 1, 2003 of Lazard Freres & Co. LLC ("Lazard"), an investment banking firm
engaged by FuelCell, that, as of such date and based on and subject to the
factors and assumptions set forth in the opinion, the exchange ratio set forth
in the Combination Agreement is fair, from a financial point of view, to
FuelCell. A copy of Lazard's opinion, including the assumptions, qualifications
and other matters contained in the opinion, is included in the Joint Proxy
Statement as Annex E.
The respective obligations of FuelCell and Global to consummate the
Combination are subject to, among other conditions, FuelCell's stockholders'
approval of the Combination Agreement and the Combination at the FuelCell
Meeting and the approval of a plan of arrangement by Global's common
shareholders and by the Court of Queen's Bench of Alberta. If FuelCell's
stockholders do not approve the Combination Agreement and the Combination, or if
the plan of arrangement is not approved by Global's common shareholders and by
the Court of Queen's Bench of Alberta, then none of the proposals will be
implemented and the Combination will not be completed. THE FUELCELL BOARD OF
DIRECTORS BELIEVES THAT THE TERMS OF THE COMBINATION AGREEMENT AND THE
COMBINATION ARE FAIR TO THE HOLDERS OF FUELCELL COMMON STOCK AND ARE IN THE BEST
INTERESTS OF FUELCELL, HAS APPROVED THE COMBINATION AGREEMENT AND THE
COMBINATION AND RECOMMENDS THAT FUELCELL STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
COMBINATION AGREEMENT AND THE COMBINATION.
In view of the importance of the actions to be taken at the FuelCell
Meeting, you are urged to read the Joint Proxy Statement carefully and vote your
shares, regardless of the number of shares you own or whether you will attend
the FuelCell Meeting. Even if you will not attend the FuelCell Meeting, you can
vote your shares in any of three ways: (i) via the internet; (ii) by using a
toll-free telephone number; or (iii) by promptly completing, signing, dating and
returning the enclosed proxy card in the accompanying prepaid envelope.
Instructions for using these convenient voting methods appear on your proxy
card. You may, of course, attend the FuelCell Meeting and vote in person, even
if you have previously returned your proxy card or voted by telephone or via the
internet.
Sincerely,
/s/ Jerry D. Lietman
Jerry D. Leitman
Chairman, President and Chief
Executive Officer
2
FUELCELL ENERGY, INC.
3 GREAT PASTURE ROAD
DANBURY, CONNECTICUT 06813
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 31, 2003
---------------------
Notice is hereby given that a special meeting of stockholders (the
"FuelCell Meeting") of FuelCell Energy, Inc., a Delaware corporation
("FuelCell"), will be held at 10:00 a.m. (Eastern time) on Friday, October 31,
2003 at the Sheraton Danbury Hotel, 18 Old Ridgebury Road, Danbury, Connecticut
for the following purposes:
1. to consider and vote upon a proposal to approve the combination
agreement dated as of August 4, 2003 (the "Combination Agreement") between
FuelCell and Global Thermoelectric Inc., an Alberta corporation ("Global"),
and the transactions contemplated thereby, including the issuance of either
FuelCell common stock or shares of a Canadian subsidiary of FuelCell
exchangeable for shares of FuelCell common stock, in exchange for all
issued and outstanding Global common shares, the assumption by FuelCell of
outstanding Global options and the assumption by FuelCell of the obligation
to issue FuelCell common stock upon conversion of the outstanding Global
Cumulative Redeemable Convertible Preferred Shares, Series 2 (collectively
referred to as the "Combination"), as more fully described in the
accompanying Joint Management Information Circular and Proxy Statement; and
2. to transact such other business as may properly be presented to
the FuelCell Meeting or any adjournment or postponement thereof.
The respective obligations of FuelCell and Global to consummate the
Combination are subject to, among other conditions, FuelCell's stockholders'
approval of the Combination Agreement and the Combination at the FuelCell
Meeting and the approval of a plan of arrangement by Global's common
shareholders and by the Court of Queen's Bench of Alberta. If FuelCell's
stockholders do not approve the Combination Agreement and the Combination, or if
the plan of arrangement is not approved by Global's common shareholders and by
the Court of Queen's Bench of Alberta, then none of the proposals will be
implemented and the Combination will not be completed.
Only stockholders of record at the close of business on September 16, 2003,
will be entitled to notice of and to vote at the FuelCell Meeting and any
adjournments thereof. A list of stockholders of FuelCell entitled to vote at the
FuelCell Meeting will be available for inspection during normal business hours
for the ten days prior to the FuelCell Meeting at the offices of FuelCell,
located at 3 Great Pasture Road, Danbury, Connecticut 06813, and at the time and
place of the FuelCell Meeting.
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN YOUR PROXY CARD OR VOTE VIA
THE INTERNET OR THE TOLL-FREE TELEPHONE NUMBER AS INSTRUCTED ON YOUR PROXY CARD
SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND SO THAT THE
PRESENCE OF A QUORUM MAY BE ASSURED. THE GIVING OF A PROXY DOES NOT AFFECT YOUR
RIGHT TO VOTE IN PERSON IF YOU ATTEND THE FUELCELL MEETING. YOU MAY REVOKE YOUR
PROXY AT ANY TIME.
By Order of the Board of Directors,
/s/ Joseph G. Mahler
Joseph G. Mahler
Senior Vice President, CFO, Treasurer
and Secretary
Danbury, Connecticut
September 30, 2003
[GLOBAL THERMOELECTRIC LOGO]
September 30, 2003
Dear Global Common Shareholder:
You are cordially invited to attend a special meeting of the common
shareholders (the "Global Meeting") of Global Thermoelectric Inc., an Alberta
corporation ("Global"), to be held at 10:00 a.m. (Calgary time) on October 31,
2003 in Rooms 105 and 106 in the North Building of the TELUS Convention Centre,
136-8th Avenue S.E., Calgary, Alberta, Canada.
Global began a search for strategic partners in November 2000 and engaged
Citigroup Global Markets Inc. ("Citigroup," formerly Salomon Smith Barney Inc.)
in November 2002 to assist Global with a review of Global's strategic
alternatives and solicit proposals from interested third parties.
On April 8, 2003, Global entered into a combination agreement, amended as
of June 27, 2003 (the "Quantum Combination Agreement"), with Quantum Fuel
Systems Technologies Worldwide, Inc. ("Quantum") to combine Global and Quantum
in a share-for-share exchange. Under the terms of the Quantum Combination
Agreement, the Global board of directors was entitled to consider unsolicited
competing proposals from third parties, if Global's board of directors
determined the proposals to be "superior proposals" as that term was defined in
the Quantum Combination Agreement. On July 11, 2003, Global received an
unsolicited competing proposal from FuelCell Energy, Inc., a Delaware
corporation ("FuelCell"), that Global's board of directors determined to be a
superior proposal. Global furnished information to and entered into negotiations
and discussions with FuelCell about a possible business combination. Prior to
entering into a definitive agreement with FuelCell, Global terminated the
Quantum Combination Agreement in accordance with its terms and paid a U.S.$2
million termination fee.
On August 4, 2003 Global and FuelCell entered into a combination agreement
(the "Combination Agreement") to combine Global with FuelCell in a
share-for-share exchange. At the Global Meeting, you will be asked to approve an
arrangement and the transactions contemplated thereby (the "Arrangement") which
will combine the business of Global with that of FuelCell. FuelCell stockholders
will meet on the same day to consider the approval of the Combination Agreement
and the transactions contemplated thereby.
FuelCell, based in Danbury, Connecticut, is a world leader in the
development and manufacture of highly efficient hydrogen fuel cells for clean
electric power generation, currently offering Direct FuelCell(R)("DFC(R)") power
plant products ranging in size from 250 kilowatts to 2 megawatts for
applications up to 50 megawatts. FuelCell has developed strategic and commercial
distribution alliances for its carbonate DFC technology with MTU CFC Solutions
GmbH, a subsidiary of DaimlerChrysler AG in Europe; Marubeni Corporation in
Asia; and Caterpillar, Inc., PPL Energy Plus, Chevron Energy Solutions L.P. and
Alliance Power in the U.S. FuelCell is developing DFC technology for stationary
power plants with the U.S. Department of Energy through its Office of Fossil
Energy's National Energy Technology Laboratory. Upon closing, FuelCell expects
to integrate the businesses of the combined company and to significantly reduce
the combined company's level of cash expenditures, with head office functions
consolidated into FuelCell's Connecticut headquarters. Jerry D. Leitman,
FuelCell's Chairman, President and Chief Executive Officer, and Joseph G.
Mahler, FuelCell's Senior Vice President and Chief Financial Officer, will lead
the combined company in those respective roles. Upon closing, FuelCell's board
of directors will be expanded to up to thirteen voting members to include at
least one and a maximum of two designees of Global.
Under the terms of the Combination Agreement, if approved, (i) each Global
common shareholder (other than dissenting shareholders) who is a resident of
Canada for purposes of the Income Tax Act (Canada) will receive, at the
shareholder's election, either exchangeable shares or shares of FuelCell common
stock for each Global common share held by that shareholder at the effective
time of the Arrangement determined in accordance with the exchange ratio; and
(ii) each Global common shareholder (other than dissenting shareholders) who is
a non-resident of Canada for purposes of the Income Tax Act (Canada) will
receive shares of FuelCell common stock for each Global common share held by
that shareholder at the effective time of the Arrangement determined in
accordance with the exchange ratio. Each exchangeable share will be exchangeable
for one share of FuelCell common stock. The exchangeable shares will have
economic and voting rights equivalent to shares of FuelCell common stock and
have been conditionally approved for listing on the Toronto Stock Exchange.
Holding exchangeable shares rather than shares of FuelCell common stock may
appeal to Global shareholders resident in Canada for tax and investment reasons
that are summarized in the accompanying joint management information circular
and proxy statement (the "Joint Proxy Statement"). The FuelCell common stock
issuable pursuant to the Arrangement is expected to be listed on the Nasdaq
National Market. The exchange ratio will be determined by dividing U.S.$2.72
(approximately Cdn.$3.82 using an exchange rate of Cdn.$1.4048 to U.S.$1.00,
which was the exchange rate in effect on August 1, 2003) by the 20-day
volume-weighted average FuelCell common stock price ending three days prior to
the Global Meeting. The exchange ratio will not be less than 0.279 or more than
0.342 of FuelCell common stock. Using FuelCell's trailing 20-day volume-weighted
average stock price for the period ended September 30, 2003 for purposes of
calculating the exchange ratio and utilizing FuelCell's closing stock price on
September 30, 2003 of $11.70, each Global common shareholder would receive
approximately U.S.$3.26 (or approximately Cdn.$4.40 using an exchange rate of
Cdn.$1.3499 to U.S.$1.00) of exchangeable shares or FuelCell common stock at an
exchange ratio of 0.279 for each Global common share held. Upon completion of
the Arrangement and depending on the exchange ratio in effect at the time of
completion of the Arrangement, Global common shareholders will own between
approximately 17% and 20% of the outstanding shares of FuelCell common stock, on
a fully-diluted basis.
Global's board of directors has carefully considered and has unanimously
approved the terms and conditions of the Combination Agreement and has
determined that the Arrangement is fair to its holders of common shares and
preferred shares. In reaching this conclusion, the Global board of directors
considered, among other things, the opinion dated August 4, 2003 of Citigroup to
the effect that, as of such date and based on and subject to the considerations
and limitations set forth therein, the exchange ratio set forth in the
Combination Agreement was fair, from a financial point of view, to Global common
shareholders. The full text of Citigroup's opinion, which sets forth the
assumptions made, general procedures followed, matters considered and limits on
the review undertaken, is included in the Joint Proxy Statement as Annex F.
BASED ON THE FACTORS CONSIDERED BY THE BOARD OF DIRECTORS, THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT GLOBAL COMMON SHAREHOLDERS VOTE "FOR" THE
SPECIAL RESOLUTION TO APPROVE THE ARRANGEMENT, INCLUDED IN THE ACCOMPANYING
JOINT PROXY STATEMENT AS ANNEX A.
We have included with this booklet a form of proxy to enable you to vote at
the Global Meeting and a letter of transmittal to enable shareholders who are
residents of Canada for purposes of the Income Tax Act (Canada) to elect the
form of consideration you wish to receive if the Arrangement is approved, which
election must be made prior to the closing of the Arrangement. You will not
actually receive your exchangeable shares or FuelCell common stock until after
the closing of the Arrangement and you have returned a properly completed letter
of transmittal and share certificates. Please review the Joint Proxy Statement
carefully as it has been prepared to help you make an informed decision. You
should also carefully read the Risk Factors section which begins at page 27 of
the Joint Proxy Statement.
We hope that you will be able to attend the meeting. However, if you are
unable to attend the meeting in person, we urge you to complete the enclosed
form of proxy and return it, not later than the time specified in the Notice of
Special Meeting of Common Shareholders, in the postage-paid envelope provided.
Yours truly,
GLOBAL THERMOELECTRIC INC.
/s/ Peter Garrett
Peter Garrett
President and Chief Executive Officer
2
GLOBAL THERMOELECTRIC INC.
4908 - 52ND STREET S.E.
CALGARY, ALBERTA T2B 3R2
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NOTICE OF SPECIAL MEETING OF COMMON SHAREHOLDERS
TO BE HELD OCTOBER 31, 2003
---------------------
Notice is hereby given that a special meeting of the common shareholders
(the "Global Meeting") of Global Thermoelectric Inc., an Alberta corporation
("Global"), will be held at 10:00 a.m. (Calgary time) on October 31, 2003 in
Rooms 105 and 106 in the North Building of the TELUS Convention Centre, 136-8th
Avenue S.E., Calgary, Alberta, Canada for the following purposes:
1. to consider, pursuant to an Interim Order of the Court of Queen's
Bench of Alberta dated September 30, 2003, and, if deemed advisable, to
pass, with or without variation, a special resolution in the form of Annex
A to the accompanying joint management information circular and proxy
statement (the "Joint Proxy Statement") to approve an arrangement under
Section 193 of the Business Corporations Act (Alberta), all as more
particularly described in the Joint Proxy Statement; and
2. to transact such further or other business as may properly come
before the Global Meeting or any adjournment thereof.
Each person who is a holder of record of Global common shares at the close
of business on October 1, 2003 (the "Global Record Date") is entitled to notice
of, and to attend and vote at, the Global Meeting and any adjournment or
postponement thereof, provided that to the extent a person has transferred any
Global common shares after the Global Record Date and the transferee of such
shares establishes that the transferee owns the shares and demands not later
than ten days before the Global Meeting to be included in the list of holders
eligible to vote at the Global Meeting, the transferee will be entitled to vote
the shares at the Global Meeting.
Pursuant to the Interim Order, a copy of which is attached as Annex C to
the Joint Proxy Statement, registered common shareholders have been granted the
right to dissent in respect of the arrangement. If the arrangement becomes
effective, a dissenting common shareholder will be entitled to be paid the
judicially determined fair value of the Global common shares held by such
shareholder provided that Global, c/o Bennett Jones LLP, 4500, 855 - 2nd Street
S.W., Calgary, Alberta T2P 4K7, Attention: Mr. John MacNeil, or the chairman of
the Global Meeting, also c/o Bennett Jones LLP at the address above, shall have
received from such dissenting common shareholder no later than 24 hours before
the Global Meeting, a written objection to the resolution in respect of the
arrangement and the dissenting common shareholder shall have otherwise complied
with the provisions of Section 191 of the Business Corporations Act (Alberta),
as modified by the plan of arrangement and the Interim Order. The dissent right
is described in the accompanying Joint Proxy Statement, and the full text of
Section 191 of the Business Corporations Act (Alberta) is attached as Annex G to
the Joint Proxy Statement. FAILURE TO STRICTLY COMPLY WITH THE REQUIREMENTS SET
FORTH IN SECTION 191 OF THE BUSINESS CORPORATIONS ACT (ALBERTA), AS MODIFIED BY
THE PLAN OF ARRANGEMENT AND INTERIM ORDER, MAY RESULT IN THE LOSS OF ANY RIGHT
OF DISSENT. PERSONS WHO ARE BENEFICIAL OWNERS OF COMMON SHARES REGISTERED IN THE
NAME OF A BROKER, CUSTODIAN, NOMINEE OR OTHER INTERMEDIARY WHO WISH TO DISSENT
SHOULD BE AWARE THAT ONLY THE REGISTERED HOLDERS OF SUCH SHARES ARE ENTITLED TO
DISSENT. ACCORDINGLY, IF YOU ARE SUCH A BENEFICIAL OWNER OF COMMON SHARES
DESIRING TO EXERCISE YOUR RIGHT OF DISSENT, YOU MUST MAKE ARRANGEMENTS FOR THE
COMMON SHARES BENEFICIALLY OWNED BY YOU TO BE REGISTERED IN YOUR NAME PRIOR TO
THE TIME THE WRITTEN OBJECTION TO THE RESOLUTION IN RESPECT OF THE ARRANGEMENT
IS REQUIRED TO BE RECEIVED BY GLOBAL OR, ALTERNATIVELY, MAKE ARRANGEMENTS FOR
THE REGISTERED HOLDER OF YOUR COMMON SHARES TO DISSENT ON YOUR BEHALF.
Common shareholders are urged to complete, sign, date and return the
enclosed proxy promptly in the envelope provided and mail it to or deposit it
with Computershare Trust Company of Canada, 9th Floor, 100 University Avenue,
Toronto, Ontario, M5J 2Y1. To be effective, proxies must be received by
Computer-
share Trust Company of Canada, not later than 10:00 a.m. (Calgary time) on
October 29, 2003, or, if the Global Meeting is adjourned or postponed, not later
than 48 hours (excluding Saturdays, Sundays and holidays) before the time of the
adjourned or postponed Global Meeting, or any further adjournment or
postponement thereof.
DATED at Calgary, Alberta, September
30, 2003
By Order of the Board of Directors of
GLOBAL THERMOELECTRIC INC.
/s/ Paul A. Crilly
Paul A. Crilly
Vice President, Finance, Chief
Financial Officer and
Corporate Secretary
2
ACTION NO. 0301-14930
IN THE COURT OF QUEEN'S BENCH OF ALBERTA
JUDICIAL DISTRICT OF CALGARY
IN THE MATTER OF SECTION 193 OF THE
BUSINESS CORPORATIONS ACT (ALBERTA), R.S.A. 2000, AS AMENDED
AND IN THE MATTER OF AN ARRANGEMENT
PROPOSED BY GLOBAL THERMOELECTRIC INC. INVOLVING
GLOBAL THERMOELECTRIC INC., ITS COMMON SHAREHOLDERS
AND FUELCELL ENERGY, INC.
NOTICE OF PETITION
NOTICE IS HEREBY GIVEN that a Petition has been filed with the Court of
Queen's Bench of Alberta, Judicial District of Calgary (the "Court"), by Global
Thermoelectric Inc. ("Global") with respect to a proposed arrangement (the
"Arrangement") under Section 193 of the Business Corporations Act (Alberta),
R.S.A. 2000, c.B-9, as amended (the "ABCA") involving Global, its common
shareholders and FuelCell Energy, Inc. ("FuelCell"), which Arrangement is
described in greater detail in the Joint Management Information Circular and
Proxy Statement of Global and FuelCell dated September 30, 2003 accompanying
this Notice of Petition.
AND NOTICE IS FURTHER GIVEN that the Petition will be heard before the
presiding Justice in Chambers at the Court House, 611 -- 4th Street S.W.,
Calgary, Alberta, Canada, on October 31, 2003 at 2:00 p.m. (Calgary time) or as
soon thereafter as counsel may be heard.
At the hearing of the Petition, Global intends to seek the following:
(a) a declaration that the terms and conditions of the Arrangement are
fair to the persons affected;
(b) an order approving the Arrangement pursuant to the provisions of
Section 193 of the ABCA;
(c) a declaration that the Arrangement will, upon the filing of
Articles of Arrangement under the ABCA, be effective in accordance with its
terms; and
(d) such other and further orders, declarations and directions as the
Court may deem just.
ANY SECURITYHOLDER OF GLOBAL OR OTHER INTERESTED PARTY DESIRING TO SUPPORT
OR OPPOSE THE PETITION MAY APPEAR AT THE TIME OF HEARING IN PERSON OR BY COUNSEL
FOR THAT PURPOSE, PROVIDED SUCH SECURITYHOLDER OR OTHER INTERESTED PARTY FILES
WITH THE COURT AND SERVES UPON GLOBAL AND FUELCELL, ON OR BEFORE OCTOBER 23,
2003, A NOTICE OF INTENTION TO APPEAR, TOGETHER WITH ANY EVIDENCE OR MATERIALS
WHICH ARE TO BE PRESENTED TO THE COURT, SETTING OUT SUCH SECURITYHOLDER'S OR
OTHER INTERESTED PARTY'S ADDRESS FOR SERVICE BY ORDINARY MAIL AND INDICATING
WHETHER SUCH SECURITYHOLDER OR OTHER INTERESTED PARTY INTENDS TO SUPPORT OR
OPPOSE THE PETITION OR MAKE SUBMISSIONS. SERVICE ON GLOBAL AND FUELCELL IS TO BE
EFFECTED BY DELIVERY TO THE SOLICITORS FOR GLOBAL AND FUELCELL AT THE ADDRESSES
SET FORTH BELOW.
AND NOTICE IS FURTHER GIVEN that, at the hearing and subject to the
foregoing, the securityholders and any other interested persons will be entitled
to make representations as to, and the Court will be requested to consider, the
fairness of the Arrangement. If you do not attend, either in person or by
counsel, at the time, the Court may approve or refuse to approve the Arrangement
as presented, or may approve it subject to such terms and conditions as the
Court shall deem fit, without any further notice.
AND NOTICE IS FURTHER GIVEN that the Court, by an Interim Order dated
September 30, 2003, has given directions as to the calling and holding of a
special meeting of the common shareholders of Global for the purpose of such
shareholders voting upon a special resolution to approve the Arrangement and, in
particular, has directed that registered holders of common shares of Global
shall have the right to dissent under the provisions of Section 191 of the ABCA
upon compliance with the terms of the Interim Order.
AND NOTICE IS FURTHER GIVEN that the final order approving the Arrangement
will, if made, serve as the basis of an exemption from the registration
requirements of the United States Securities Act of 1933, pursuant to Section
3(a)(10) thereof, with respect to (i) the exchangeable shares and the shares of
FuelCell common stock to be issued to Global securityholders and (ii) FuelCell's
assumption of the obligation to issue FuelCell common stock upon conversion of
the Global Cumulative Redeemable Convertible Preferred Shares, Series 2 pursuant
to the Arrangement.
AND NOTICE IS FURTHER GIVEN that a copy of the Petition and other documents
in the proceedings will be furnished to any securityholder of Global or other
interested party requesting the same by the undermentioned solicitors for Global
and FuelCell upon written request delivered to such solicitors as follows:
Global: FuelCell:
Bennett Jones LLP Stikeman Elliott LLP
Barristers and Solicitors Barristers and Solicitors
4500 Bankers Hall East 4300 Bankers Hall West
855 -- 2nd Street S.W. 888 -- 3rd Street S.W.
Calgary, Alberta T2P 4K7 Calgary, Alberta T2P 5C5
Attention: Mr. Anthony L. Friend, Q.C. Attention: Christopher Nixon
DATED at the City of Calgary, in the Province of Alberta, this 30th day of
September, 2003.
By Order of the Board of Directors of
GLOBAL THERMOELECTRIC INC.
/s/ Peter Garrett
Peter Garrett
President and Chief Executive Officer
2
[FUELCELL ENERGY LOGO] [GLOBAL THERMOELECTRIC LOGO]
JOINT MANAGEMENT INFORMATION CIRCULAR
AND PROXY STATEMENT
This joint management information circular and proxy statement (the "Joint
Proxy Statement") is being furnished to holders of common stock of FuelCell
Energy, Inc., a Delaware corporation ("FuelCell"), in connection with the
solicitation of proxies by the board of directors of FuelCell for use at the
special meeting of FuelCell stockholders (the "FuelCell Meeting") to be held at
10:00 a.m. (Eastern time) on Friday, October 31, 2003 at the Sheraton Danbury
Hotel, located at 18 Old Ridgebury Road, Danbury, Connecticut, and any
adjournment or postponement thereof.
This Joint Proxy Statement is also being furnished to holders of common
shares of Global Thermoelectric Inc., an Alberta corporation ("Global"), in
connection with the solicitation of proxies by management of Global for use at
the special meeting of the Global common shareholders (the "Global Meeting"), to
be held at 10:00 a.m. (Calgary time) on October 31, 2003 in Rooms 105 and 106 in
the North Building of the TELUS Convention Centre, 136-8th Avenue S.E., Calgary,
Alberta, Canada and any adjournment or postponement thereof.
This Joint Proxy Statement and the accompanying form of proxy and letter of
transmittal will first be mailed to common shareholders of Global and
stockholders of FuelCell on or about October 2, 2003.
The information concerning FuelCell contained in this Joint Proxy
Statement, including the annexes attached hereto, has been provided by FuelCell,
and the information concerning Global contained in this Joint Proxy Statement,
including the annexes attached hereto, has been provided by Global. The
information concerning FuelCell and Global after the completion of the
combination of the two companies and the information used to derive the pro
forma financial information has been jointly provided by FuelCell and Global.
PLEASE SEE THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 27 FOR
CERTAIN CONSIDERATIONS RELEVANT TO APPROVAL OF THE PROPOSALS AND AN INVESTMENT
IN THE SECURITIES REFERRED TO IN THIS JOINT PROXY STATEMENT.
No person is authorized to give any information or to make any
representation not contained in this Joint Proxy Statement and, if given or
made, such information or representation should not be relied upon as having
been authorized. This Joint Proxy Statement does not constitute an offer to
sell, or a solicitation of an offer to purchase, any securities, or the
solicitation of a proxy, by any person in any jurisdiction in which such an
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so or to any person to whom it is
unlawful to make such an offer or solicitation of an offer or proxy
solicitation. Neither delivery of this Joint Proxy Statement nor any
distribution of the securities referred to in this Joint Proxy Statement shall,
under any circumstances, create an implication that there has been no change in
the information set forth herein since the date of this Joint Proxy Statement.
THE SHARES OF FUELCELL COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE
COMBINATION HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND
EXCHANGE COMMISSION OR ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OF THE
UNITED STATES OR PROVINCE OR TERRITORY OF CANADA, NOR HAS THE U.S. SECURITIES
AND EXCHANGE COMMISSION OR ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OF
THE UNITED STATES OR PROVINCE OR TERRITORY OF CANADA PASSED ON THE ADEQUACY OR
ACCURACY OF THIS JOINT PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NOTICE TO CANADIAN SHAREHOLDERS OF GLOBAL
FuelCell is organized under the laws of the State of Delaware, United
States. All of the directors and executive officers of FuelCell and many of the
experts named herein are residents of the United States. In addition,
substantial portions of the assets of FuelCell and of such individuals and
experts are located outside of Canada. As a result, it may be difficult or
impossible for persons who become securityholders of FuelCell to effect service
of process upon such persons within Canada with respect to matters arising under
Canadian securities laws or to enforce against them in Canadian courts judgments
predicated upon the civil liability provisions of Canadian securities laws.
There is some doubt as to the enforceability in the United States in original
actions, or in actions for enforcement of judgments of Canadian courts, of civil
liabilities predicated upon the Canadian securities laws. In addition, awards of
punitive damages in actions brought in Canada or elsewhere may be unenforceable
in the United States.
The disclosure relating to FuelCell included in this Joint Proxy Statement
has been prepared in accordance with U.S. securities laws. Canadian shareholders
of Global should be aware that these requirements may differ from Canadian
requirements. The financial statements of FuelCell included in this Joint Proxy
Statement have been prepared in accordance with U.S. generally accepted
accounting principles ("U.S. GAAP"), which differ in certain respects from
Canadian generally accepted accounting principles ("Canadian GAAP").
NOTICE TO UNITED STATES SHAREHOLDERS OF GLOBAL
The solicitation of proxies by Global is not subject to the requirements of
Section 14(a) of the United States Securities Exchange Act of 1934. Global is a
Canadian issuer subject to Canadian corporate and securities laws, and the
information in this Joint Proxy Statement with respect to the solicitation of
proxies from Global common shareholders has been prepared in accordance with
disclosure requirements applicable in Canada. Global shareholders in the United
States should be aware that these requirements are different from those of the
United States applicable to registration statements under the United States
Securities Act of 1933 and proxy statements under the United States Securities
Exchange Act of 1934.
The summary historical consolidated financial data of Global are presented
in Canadian dollars in accordance with Canadian GAAP, which differs in certain
respects from U.S. GAAP. Note 18 to Global's December 31, 2002 audited
consolidated financial statements (in Global's Annual Information Form for the
year ended December 31, 2002 included in Annex I to this Joint Proxy Statement)
provides a reconciliation of the measurement differences between Global's
financial statements and U.S. GAAP.
Enforcement by Global shareholders of civil liabilities under U.S.
securities laws may be affected adversely by the fact that Global is organized
under the laws of a jurisdiction other than the United States, that all of
Global's officers and directors are residents of Canada, that some of the
experts named in this Joint Proxy Statement may be residents of Canada, and that
all or a substantial portion of the assets of Global are and such persons may be
located outside of the United States.
FOR NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR
LICENSE HAS BEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE
FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE
STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY
DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY
SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY
UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY
PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO
ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT
WITH THE PROVISIONS OF THIS PARAGRAPH.
2
TABLE OF CONTENTS
PAGE
----
CHAPTER ONE -- THE COMBINATION.............................. 1
QUESTIONS AND ANSWERS ABOUT THE COMBINATION............... 1
SUMMARY................................................... 11
Overview of the Combination............................ 11
The Companies.......................................... 12
Reasons for the Combination............................ 14
Recommendation to FuelCell Stockholders................ 15
Recommendation to Global Common Shareholders........... 16
Opinions of Financial Advisors......................... 16
What Global Common Shareholders Will Receive in the
Transaction........................................... 16
Market Price Data...................................... 17
Stock Exchange Listings................................ 17
Who Can Vote at the Meetings........................... 18
Shareholder Votes Required............................. 18
Dissent Rights......................................... 18
Risk Factors........................................... 18
Regulatory Approvals................................... 18
Covenants of FuelCell and Global....................... 18
Conditions to the Completion of the Combination........ 19
Termination of the Combination Agreement............... 19
Termination and Expense Reimbursement Fees............. 19
Interests of Certain Persons........................... 20
No Solicitation........................................ 20
Transaction Documents.................................. 20
Tax Consequences of the Combination.................... 20
Comparative Per Share Data............................. 21
Summary Unaudited Pro Forma Condensed Combined
Financial Data........................................ 23
Summary Historical Financial Data of FuelCell.......... 24
Anticipated Accounting Treatment....................... 24
Summary Historical Consolidated Financial Data of
Global Under Canadian GAAP............................ 25
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS............................................. 26
RISK FACTORS.............................................. 27
Risks Related to the Combination....................... 27
Risks Related to the Operations of the Combined
Company............................................... 31
DESCRIPTION OF THE COMBINATION............................ 45
Overview of the Combination............................ 45
Background............................................. 46
Reasons for the Combination............................ 51
Recommendation of the FuelCell Board of Directors...... 54
Opinion of Lazard...................................... 57
Recommendation of the Global Board of Directors........ 62
Opinion of Citigroup................................... 63
Mechanics for Implementing the Combination and
Description of Exchangeable Shares.................... 68
PAGE
----
Retraction, Redemption and Call Rights Applicable to
Exchangeable Shares................................... 72
The Combination Agreement.............................. 81
Agreements of Certain Persons.......................... 88
Dissenting Shareholder Rights.......................... 88
Anticipated Accounting Treatment....................... 89
Business Combination Costs............................. 89
Procedures for Exchange by Global Common
Shareholders.......................................... 90
Stock Exchange Listings................................ 91
Eligibility for Investment in Canada................... 91
Other Regulatory Matters............................... 92
Resales of Exchangeable Shares and FuelCell Common
Stock................................................. 92
Ongoing Canadian Reporting Requirements................ 93
Interests of Certain Persons in the Combination........ 94
CHAPTER TWO -- CERTAIN FINANCIAL AND OTHER INFORMATION ABOUT
THE COMPANIES............................................. 96
BUSINESS OF FUELCELL...................................... 96
Market Opportunities for Distributed Generation........ 97
FuelCell's Development Program......................... 98
Solid State Energy Conversion Alliance ("SECA")........ 99
FuelCell's Strategy.................................... 100
More Information....................................... 100
Selected Consolidated Financial Data of FuelCell....... 100
BUSINESS OF CALLCO........................................ 102
BUSINESS OF EXCHANGECO.................................... 102
BUSINESS OF GLOBAL........................................ 103
Recent Developments.................................... 103
Selected Consolidated Financial Data of Global......... 103
THE COMBINED COMPANY...................................... 105
Pro Forma Condensed Combined Financial Information..... 105
Management of the Combined Company After the
Combination........................................... 106
Fiscal Year............................................ 106
Capitalization......................................... 106
COMPARATIVE MARKET PRICE DATA............................. 107
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES............ 108
COMPILATION REPORT........................................ 110
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS OF FUELCELL ENERGY, INC. ................... 110
CHAPTER THREE -- DESCRIPTION OF FUELCELL'S CAPITAL STOCK,
GLOBAL'S PREFERRED SHARES AND EXCHANGECO AND CALLCO SHARE
CAPITAL................................................... 120
FUELCELL CAPITAL STOCK.................................... 120
Authorized Capital Stock............................... 120
Common Stock........................................... 120
Preferred Stock........................................ 120
Warrants............................................... 121
2
PAGE
----
Anti-Takeover Effects of Provisions of Delaware and
Connecticut Law, the FuelCell Charter and FuelCell's
Bylaws................................................ 121
Limitation on Liability and Indemnification of Officers
and Directors......................................... 122
Global Series 2 Preferred Shares....................... 123
EXCHANGECO SHARE CAPITAL.................................. 124
Authorized Capital..................................... 124
Common Shares.......................................... 124
Exchangeable Shares.................................... 125
Transfer Agent and Registrar........................... 125
CALLCO SHARE CAPITAL...................................... 125
Authorized Capital..................................... 125
Common Shares.......................................... 125
COMPARISON OF SHAREHOLDER RIGHTS.......................... 125
CHAPTER FOUR -- INFORMATION ABOUT TAX CONSIDERATIONS........ 133
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS TO
SHAREHOLDERS........................................... 133
Introduction........................................... 133
Shareholders Resident in Canada........................ 133
Shareholders Not Resident in Canada.................... 138
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS TO
OPTIONHOLDERS.......................................... 139
UNITED STATES FEDERAL TAX CONSIDERATIONS TO
SHAREHOLDERS........................................... 140
United States Holders.................................. 141
Non-United States Holders.............................. 141
Controlled Foreign Corporation Considerations.......... 143
Passive Foreign Investment Company Considerations...... 143
Backup Withholding and Information Reporting........... 144
CHAPTER FIVE -- INFORMATION ABOUT THE MEETINGS AND VOTING... 146
THE GLOBAL SPECIAL MEETING -- INFORMATION FOR GLOBAL
COMMON SHAREHOLDERS.................................... 146
Solicitation and Voting of Proxies..................... 146
Advice to Beneficial Holders of Global Common Shares... 146
Recommendation of the Board of Directors............... 147
Appointment of Proxy and Discretionary Authority....... 147
Revocation of Proxies.................................. 147
Required Votes......................................... 148
Principal Holders of Common Shares..................... 148
THE FUELCELL SPECIAL MEETING -- INFORMATION FOR FUELCELL
STOCKHOLDERS........................................... 148
General................................................ 148
Purpose of the FuelCell Meeting........................ 148
Recommendation of the Board of Directors............... 148
Voting Proxies at the FuelCell Meeting and Revoking
Proxies............................................... 148
Quorum, Voting Rights, Abstentions and Broker
Non-Votes............................................. 149
Reasons for Seeking Stockholder Approval............... 150
Solicitation of Proxies and Expenses................... 150
Independent Auditors................................... 150
3
PAGE
----
Stockholder Proposals at the 2004 Annual Meeting....... 150
Dissenters' Appraisal Rights........................... 151
CHAPTER SIX -- FUELCELL EXECUTIVE COMPENSATION AND RELATED
INFORMATION............................................... 152
CHAPTER SEVEN -- GLOBAL EXECUTIVE COMPENSATION AND RELATED
INFORMATION............................................... 152
EXECUTIVE COMPENSATION.................................... 152
Stock Options.......................................... 153
Employment Contracts................................... 153
Compensation of Directors.............................. 154
Indebtedness to Global................................. 154
Interest of Insiders in Material Transactions.......... 154
CHAPTER EIGHT -- CERTAIN LEGAL AND OTHER INFORMATION........ 155
AUDITORS, TRANSFER AGENT AND REGISTRAR.................... 155
LEGAL MATTERS............................................. 155
AVAILABLE INFORMATION..................................... 155
Annex A Form of Arrangement Resolution
Annex B Combination Agreement
Annex C Interim Order
Annex D Plan of Arrangement
Annex E Lazard Fairness Opinion
Annex F Citigroup Fairness Opinion
Annex G Section 191 of the Business Corporations Act
(Alberta)
Annex H Additional Information About FuelCell
Annex I Additional Information About Global
4
CHAPTER ONE -- THE COMBINATION
QUESTIONS AND ANSWERS ABOUT THE COMBINATION
QUESTIONS AND ANSWERS FOR GLOBAL COMMON SHAREHOLDERS AND FUELCELL STOCKHOLDERS
The following questions and answers are designed to assist Global common
shareholders and FuelCell stockholders in making a decision on how to vote at
their respective meetings. A more detailed description of the Combination
follows the question and answer part of this Joint Proxy Statement. References
to the "Combination" in this Joint Proxy Statement refer to the share exchange
contemplated by the plan of arrangement (the "Plan of Arrangement") and the
transactions contemplated thereby, all as set forth in the Combination Agreement
dated as of August 4, 2003 (the "Combination Agreement") between FuelCell and
Global. The Combination provides for, among other things:
- with respect to each Global common shareholder who is a resident of
Canada for purposes of the Income Tax Act (Canada) (a "Canadian Global
common shareholder"), the issuance of, at the shareholder's election,
either (i) shares of an indirect wholly-owned Canadian subsidiary of
FuelCell exchangeable for shares of FuelCell common stock or (ii) shares
of FuelCell common stock, in exchange for the Global common shares held
by the shareholder;
- with respect to each Global common shareholder who is not a resident of
Canada for purposes of the Income Tax Act (Canada) (a "non-Canadian
Global common shareholder"), the issuance of shares of FuelCell common
stock, in exchange for the Global common shares held by the shareholder;
- the assumption by FuelCell of outstanding Global options; and
- the assumption by FuelCell of the obligation to issue shares of FuelCell
common stock upon conversion of Global's Cumulative Redeemable
Convertible Preferred Shares, Series 2 (the "Global Series 2 Preferred
Shares").
ONLY CANADIAN RESIDENTS MAY ELECT TO RECEIVE EXCHANGEABLE SHARES. ANY
ELECTION TO RECEIVE EXCHANGEABLE SHARES BY A GLOBAL SHAREHOLDER WHO IS NOT A
RESIDENT OF CANADA FOR PURPOSES OF THE INCOME TAX ACT (CANADA) WILL NOT BE
VALID, AND THE SHAREHOLDER WILL RECEIVE FUELCELL COMMON STOCK.
References in this Joint Proxy Statement to "we," "our," "us," and the
"combined company" refer to the combined operations of FuelCell and Global
assuming completion of the Combination, with Global operating as a consolidated
subsidiary of FuelCell. UNLESS OTHERWISE INDICATED, DOLLAR AMOUNTS ARE EXPRESSED
IN U.S. DOLLARS AND ASSUME A CURRENCY EXCHANGE RATE OF CDN.$1.4048 TO U.S.$1.00,
WHICH WAS THE APPROXIMATE EXCHANGE RATE ON AUGUST 1, 2003, THE LAST TRADING DAY
PRIOR TO THE EXECUTION OF THE COMBINATION AGREEMENT.
1. WHY DO FUELCELL AND GLOBAL WANT TO COMBINE THEIR BUSINESSES?
FuelCell and Global believe that the Combination will result in a
diversified company with complementary revenue streams, technologies, customers
and alliances that, on a combined basis, is well positioned to address
opportunities in the fuel cell power generation market. FuelCell and Global
believe that the Combination is a complementary strategic combination that will:
- create a company with both leading high temperature carbonate Direct
FuelCell(R) (DFC(R)) and solid oxide fuel cell ("SOFC") technology;
- strengthen FuelCell's position throughout the first phase of the SECA
program to develop SOFC products, and increases the chances that FuelCell
will be able to successfully compete for advancement through the next two
phases of the 10-year $139 million Solid State Energy Conversion Alliance
("SECA") program;
- increase FuelCell's and Global's technology base in a market where there
is significant growing interest from governmental and strategic partners;
- create a combined company with a strong balance sheet with an expected
cash balance of over $200 million;
- benefit shareholders of both companies by creating a stronger, more
diversified company with increased stock liquidity;
- consolidate operations with opportunities for cost efficiencies by
integrating research and development efforts, combining product
development and commercialization, integrating manufacturing operations
and consolidating general and administrative expenses; and
- result in an expanded technology and product profile as a provider of
distributed generation solutions.
2. WHAT WILL GLOBAL SHAREHOLDERS RECEIVE AS A RESULT OF THE COMBINATION?
Under the terms of the Combination Agreement and the Plan of Arrangement:
- each Canadian Global common shareholder (other than dissenting
shareholders) will receive for the Global common shares held by that
shareholder at the effective time of the Combination at the shareholder's
election either: (i) exchangeable shares of FCE Canada Inc., an indirect
wholly-owned Canadian subsidiary of FuelCell ("ExchangeCo"); or (ii)
shares of FuelCell common stock; and
- each non-Canadian Global common shareholder (other than dissenting
shareholders) will receive for the Global common shares held by that
shareholder at the effective time of the Combination shares of FuelCell
common stock.
Each exchangeable share will be exchangeable for one share of FuelCell
common stock. The exchangeable shares will have economic and voting rights
equivalent to shares of FuelCell common stock and have been conditionally
approved for listing on the Toronto Stock Exchange. YOU MUST ELECT TO RECEIVE
EXCHANGEABLE SHARES BY PROPERLY FILLING OUT, DATING, EXECUTING AND SENDING THE
ENCLOSED LETTER OF TRANSMITTAL TO COMPUTERSHARE TRUST COMPANY OF CANADA AT THE
ADDRESS SPECIFIED IN THE LETTER OF TRANSMITTAL, TOGETHER WITH YOUR CERTIFICATES
REPRESENTING GLOBAL COMMON SHARES IN RESPECT OF WHICH YOU ARE MAKING THE
ELECTION, WHICH MUST BE RECEIVED BY COMPUTERSHARE TRUST COMPANY OF CANADA BY THE
CLOSE OF BUSINESS ON THE LAST BUSINESS DAY BEFORE THE CLOSING OF THE
COMBINATION. SEE "-- DESCRIPTION OF THE COMBINATION -- PROCEDURES FOR EXCHANGE
BY GLOBAL COMMON SHAREHOLDERS." The number of shares of common stock or
exchangeable shares issued to each Global common shareholder will depend on the
exchange ratio in effect at the time the Combination is completed. The exchange
ratio is based on the 20-day volume-weighted average FuelCell stock price ending
three days prior to the Global Meeting. If FuelCell's 20-day volume-weighted
average stock price is:
- greater than $9.74, the exchange ratio will be 0.279;
- less than $7.96, the exchange ratio will be 0.342; and
- between $7.96 and $9.74, Global common shareholders will receive
approximately $2.72 (approximately Cdn.$3.82 using an exchange rate of
Cdn.$1.4048 to U.S.$1.00) of exchangeable shares or FuelCell common stock
for each Global common share held.
If, at any time prior to the effective time of the Combination, FuelCell's
15-day volume-weighted average stock price is less than $6.65, then Global has
the right to terminate the Combination Agreement without having to pay a
termination or expense reimbursement fee. For more information regarding this
termination provision, please see "-- Description of the Combination -- the
Combination Agreement -- Termination." As of September 24, 2003 FuelCell's
15-day volume-weighted average stock price was approximately $11.53.
2
The chart below illustrates the exchange ratio:
(CHART GRAPHIC)
By way of illustration, the following are four examples of the exchange
ratio calculation on the basis of a range of prices of FuelCell common stock.
For purposes of these examples, we have assumed a foreign currency exchange rate
of Cdn.$1.4048 to U.S.$1.00 (the exchange rate on August 1, 2003) for purposes
of valuing the shares of FuelCell common stock received. If the 20-day
volume-weighted average price of FuelCell common stock for the period ending
three days prior to the Global Meeting is:
- $7.50, then Global common shareholders will receive 0.342 shares of
FuelCell common stock for each Global common share held, with an
approximate value of Cdn.$3.60 per share;
- $8.35, then Global common shareholders will receive 0.326 shares of
FuelCell common stock for each Global common share held, with an
approximate value of Cdn.$3.82 per share;
- $9.35, then Global common shareholders will receive 0.291 shares of
FuelCell common stock for each Global common share held, with an
approximate value of Cdn.$3.82 per share; and
- $10.50, then Global common shareholders will receive 0.279 shares of
FuelCell common stock for each Global common share held, with an
approximate value of Cdn.$4.12 per share.
The Canadian dollar value of exchangeable shares or FuelCell common stock
actually received by Global common shareholders pursuant to the Combination is
subject to fluctuations in the trading price of FuelCell common stock and the
Canadian-U.S. dollar exchange rate between the determination date for the 20-day
volume-weighted average of FuelCell stock price and the date that Global's
common shareholders actually receive exchangeable shares or FuelCell common
stock following completion of the Combination.
Global will issue a press release prior to the Global Meeting advising you
of the final determination of the exchange ratio.
3. WHO WILL MANAGE THE COMBINED COMPANY AFTER THE COMBINATION?
The combined company will retain the name "FuelCell Energy, Inc." and be
headquartered in Danbury, Connecticut. It will have a twelve-member board of
directors which will include one designee of Global. In addition, FuelCell will
consider adding one additional Global nominee to the board of directors. Jerry
D. Leitman, FuelCell's Chairman, President and Chief Executive Officer, and
Joseph G. Mahler, FuelCell's Senior Vice President and Chief Financial Officer,
will lead the combined company in those respective roles.
3
4. WHEN AND WHERE ARE THE SHAREHOLDER MEETINGS?
Both meetings will take place on October 31, 2003. The Global Meeting will
be held at 10:00 a.m. (Calgary time) in Rooms 105 and 106, in the North Building
of the TELUS Convention Centre, 136 - 8th Avenue S.E., Calgary, Alberta. The
FuelCell Meeting will be held at 10:00 a.m. (Eastern time) at the Sheraton
Danbury Hotel, located at 18 Old Ridgebury Road, Danbury, Connecticut.
5. WHAT DO I NEED TO DO NOW?
Please indicate on your proxy card how you want to vote, and sign and mail
it in the enclosed return envelope as soon as possible so that your shares may
be represented at your meeting. In addition, if you are a FuelCell stockholder,
you can simplify your voting and save FuelCell expense by either voting via the
Internet (by visiting the website shown on your proxy card and following the
instructions listed there) or calling the toll-free telephone number listed on
your proxy card. If you are a FuelCell stockholder and sign and send in your
proxy and do not indicate how you want to vote, your proxy will be counted as a
vote in favor of the approval of the Combination Agreement and the transactions
contemplated thereby. If you are a Global common shareholder and sign and send
in your proxy and do not indicate how you want to vote, your proxy will be
counted as a vote in favor of the approval of the special resolution to approve
the Combination attached as Annex A to this Joint Proxy Statement at the Global
Meeting. You may also choose to attend your meeting and vote your shares in
person. For more information regarding the FuelCell Meeting and the Global
Meeting, please see "Chapter Five -- Information about the Meetings and Voting."
6. WHAT DO I DO IF I WANT TO REVOKE MY PROXY OR CHANGE MY VOTE?
If you are a FuelCell stockholder, you may revoke your proxy at any time
prior to its use by delivering to the Secretary of FuelCell a later-dated notice
of revocation, by delivering to the Secretary of FuelCell a later-dated signed
proxy (which will automatically supersede any earlier-dated proxy that you
returned), or by attending the FuelCell Meeting and voting in person (attendance
at the FuelCell Meeting does not, by itself, constitute revocation of your
proxy).
If you are a Global common shareholder, to revoke your proxy you may send
in a later-dated signed proxy card to Global's Secretary, or you can attend the
Global Meeting in person and vote. You may also revoke your proxy by sending a
notice of revocation to Computershare Trust Company of Canada, which must be
received by 5:00 p.m. (Calgary time) on the last business day prior to the
Global Meeting, or by giving this notice to the Chairman of the Global Meeting
prior to the commencement of the Global Meeting.
7. IF MY SHARES ARE HELD BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR ME?
Your broker will vote your shares only if you provide instructions on how
to vote. Without instructions, your shares will not be voted. You should
instruct your broker to vote your shares by following the directions provided by
your broker.
8. WHAT VOTES ARE REQUIRED TO COMPLETE THE COMBINATION?
Approval of the Combination Agreement and the Combination requires the
affirmative vote of a majority of the total number of shares of FuelCell common
stock entitled to vote and voting on the proposal in person or by proxy at the
FuelCell Meeting. The Combination also requires the approval of the holders of
at least two-thirds of the Global common shares represented in person or by
proxy at the Global Meeting.
9. WHAT ARE THE OTHER MATERIAL CONDITIONS TO COMPLETION OF THE COMBINATION?
The Combination is subject to the receipt of required governmental and
regulatory approvals, including approval of the Plan of Arrangement giving
effect to the Combination by the Court of Queen's Bench of Alberta (the "Court")
and approvals of both the Nasdaq National Market and the Toronto Stock Exchange
for the listing of the shares of FuelCell common stock and the exchangeable
shares, respectively, to be issued pursuant to the Combination. The Combination
is also subject to other customary conditions.
4
10. WHEN DO YOU EXPECT THE COMBINATION TO BE COMPLETED?
Both companies are working toward completing the Combination as quickly as
possible. We expect that, if approved, the Combination will become effective as
of the close of business on or about November 3, 2003.
11. WHOM DO I CALL IF I HAVE MORE QUESTIONS?
For questions about voting and proxies, FuelCell stockholders may contact:
Steven P. Eschbach, CFA
Director - Investor Relations
FuelCell Energy, Inc.
3 Great Pasture Road
Danbury, Connecticut 06813
Tel: (203) 825-6000
Fax: (203) 825-6100
For questions about voting and proxies, Global shareholders may contact
Computershare Trust Company of Canada at 1-800-564-6253.
For other information, Global shareholders may contact:
Mark Kryzan
Director, Investor Relations
Global Thermoelectric Inc.
4908 - 52nd Street S.E.
Calgary, Alberta T2B 3R2
Tel: (403) 204-6100
Fax: (403) 204-6105
ADDITIONAL QUESTIONS AND ANSWERS FOR FUELCELL STOCKHOLDERS
12. WHAT ARE FUELCELL STOCKHOLDERS BEING ASKED TO VOTE ON?
FuelCell stockholders are being asked to approve the Combination Agreement
and the Combination.
13. WHY IS FUELCELL SEEKING STOCKHOLDER APPROVAL OF THE COMBINATION?
Under the Nasdaq Marketplace Rules, listed companies are required to obtain
stockholder approval prior to issuing securities in connection with the
acquisition of stock of another company if the number of shares to be issued in
the transaction exceeds 20% of the outstanding common stock or voting power
prior to the transaction. Under the terms of the Combination Agreement and the
Plan of Arrangement, each Canadian Global common shareholder (other than a
dissenting shareholder) will receive, at the shareholder's election, either (i)
shares of an indirect wholly-owned Canadian subsidiary of FuelCell exchangeable
for shares of FuelCell common stock or (ii) shares of FuelCell common stock.
Each non-Canadian Global common shareholder (other than a dissenting
shareholder) will receive FuelCell common stock. As a result, Global common
shareholders will own between approximately 17% and 20% of the outstanding
shares of FuelCell common stock, on a fully-diluted basis, immediately following
completion of the Combination. In addition, FuelCell will assume outstanding
Global stock options and the obligation to issue its common stock upon the
conversion of the outstanding Global Series 2 Preferred Shares after completion
of the Combination, which may result in FuelCell issuing additional shares of
its common stock. For a description of the number of shares of FuelCell common
stock that may be issued upon conversion of the Global Series 2 Preferred
Shares, please see "-- Description of the Combination -- Mechanics for
Implementing the Combination and Description of Exchangeable Shares -- Global
Series 2 Preferred Shares." If FuelCell were to complete the Combination without
FuelCell stockholder approval, FuelCell common stock could not remain listed on
the Nasdaq National Market. Approval of the Combination by FuelCell's
stockholders is not required by Delaware law, by the FuelCell charter or by
FuelCell's bylaws.
5
14. WHY IS FUELCELL ENTERING INTO THE COMBINATION?
FuelCell believes that the Combination is a complementary strategic
acquisition that will offer:
- greater financial strength with a stronger balance sheet, better
liquidity and complementary existing revenue streams across established
markets;
- an expanded range of products and technologies with an enhanced ability
to secure government, military and customer funding;
- consolidated operations with opportunities for cost efficiencies by
integrating research and development efforts, combining product
development and commercialization, integrating manufacturing operations
and consolidating general and administrative expenses; and
- an expanded technology and product profile as a provider of distributed
generation solutions.
FuelCell has received the written opinion of Lazard Freres & Co. LLC
("Lazard") that, as of the date of the opinion and based upon and subject to the
matters set forth therein, the exchange ratio was fair to FuelCell from a
financial point of view. Overall, FuelCell believes that the Combination will
provide added value to its stockholders.
15. WHAT WILL HAPPEN IF THE FUELCELL STOCKHOLDERS DO NOT APPROVE THE
COMBINATION OR IF GLOBAL COMMON SHAREHOLDERS OR THE COURT DO NOT APPROVE
THE PLAN OF ARRANGEMENT?
Approval of the Combination Agreement and the transactions contemplated
thereby requires the affirmative vote of a majority of shares of FuelCell common
stock entitled to vote and voting in person or by proxy at the FuelCell Meeting.
The Combination is conditional on FuelCell stockholders approving the
Combination. If FuelCell stockholders do not approve the FuelCell proposal, then
the proposal will not be implemented and the Combination will not proceed. In
that event, FuelCell will be required to pay Global a fee for reimbursement of
expenses. For a description of the fees that may apply, please see
"-- Description of the Combination -- The Combination Agreement -- Termination
and Expense Reimbursement Fees."
In addition, the Combination is conditional on the approval of the Plan of
Arrangement implementing the Combination by Global common shareholders and the
Court. If the Plan of Arrangement is not approved by Global common shareholders
and by the Court, then the Combination will not be implemented.
16. HOW WILL THE COMBINATION AFFECT MY FUELCELL COMMON STOCK?
Your rights as a FuelCell common stockholder will not be affected by the
Combination. FuelCell stockholders will not receive any additional shares by
virtue of their holdings in FuelCell. However, the ownership of FuelCell will be
significantly different upon consummation of the Combination, as Global common
shareholders will own between approximately 17% and 20% of the fully-diluted
shares of outstanding FuelCell common stock. In addition, your current
percentage ownership of FuelCell will be affected by the future issuance of
FuelCell common stock upon the exercise, if any, of the Global stock options
being assumed by FuelCell and the possible conversion of the Global Series 2
Preferred Shares into FuelCell common stock. For more information, please see
"-- Risk Factors -- Future sales of substantial amounts of FuelCell common stock
or exchangeable shares could affect their market price and the dilution
associated with the Combination could affect the market price of FuelCell's
common stock." and "-- The rights of the Global Series 2 Preferred Shares could
negatively impact the combined company." Assuming an exchange ratio of 0.342,
FuelCell may be required to issue approximately 463,550 additional shares of its
common stock upon exercise of vested Global stock options (as of September 24,
2003) and upon an assumed immediate conversion of all outstanding Global Series
2 Preferred Shares. For more information regarding the treatment of Global stock
options and the Global Series 2 Preferred Shares, please see the sections
entitled "Global Stock Options" and "Global Series 2 Preferred Shares" within
"-- Description of the Combination -- Mechanics for Implementing the Combination
and Description of Exchangeable Shares."
6
17. HAS FUELCELL'S BOARD OF DIRECTORS MADE ANY RECOMMENDATION TO FUELCELL
STOCKHOLDERS REGARDING THE COMBINATION?
FuelCell's board of directors has carefully considered and has unanimously
approved the Combination Agreement and the Combination and recommends that the
FuelCell stockholders approve the Combination Agreement and the Combination.
ADDITIONAL QUESTIONS AND ANSWERS FOR GLOBAL COMMON SHAREHOLDERS
18. WHAT ARE THE GLOBAL COMMON SHAREHOLDERS BEING ASKED TO VOTE ON?
Global common shareholders are being asked to approve a share exchange
pursuant to an arrangement under the Business Corporations Act (Alberta). The
Court must also approve the implementation of the Plan of Arrangement.
If the proposed Plan of Arrangement is approved by the Global common
shareholders and the Court, and the other conditions to the Plan of Arrangement
are satisfied or waived, then:
- each Canadian Global common shareholder (other than a dissenting
shareholder) will receive, at the shareholder's election, for each Global
common share held by the shareholder, either exchangeable shares of
ExchangeCo or shares of FuelCell common stock, in an amount to be
determined in accordance with the exchange ratio;
- each non-Canadian Global common shareholder (other than a dissenting
shareholder) will receive, for each Global common share held by the
shareholder, shares of FuelCell common stock, in an amount to be
determined in accordance with the exchange ratio;
- each exchangeable share will have economic and voting rights equivalent
to one share of FuelCell common stock and will be exchangeable, at the
option of the holder, for one share of FuelCell common stock;
- Global common shareholders will own between approximately 17% and 20% of
the outstanding shares of FuelCell common stock, on a fully-diluted
basis, immediately following completion of the Combination;
- outstanding Global stock options will be assumed by FuelCell and will be
exercisable for shares of FuelCell common stock in accordance with their
terms and based on the exchange ratio;
- Global Series 2 Preferred Shares will remain outstanding and will be
convertible into shares of FuelCell common stock in accordance with their
terms and based on the exchange ratio; and
- all of the Global common shares will be owned, directly or indirectly, by
FuelCell.
19. WHY HAS GLOBAL ENTERED INTO THE COMBINATION AGREEMENT?
The Global board of directors determined in the fall of 2000 that it would
be in the best interests of Global to seek a significant alliance partner to
assist with Global's commercialization of solid oxide fuel cell products. North
American equity markets experienced prolonged weakness from 2000 to 2002 and,
over that period of time, Global's common shares traded at a significant
discount to those of its peers. In late 2002, the Global board of directors
determined that its plan to use equity financing as a source of long-term
funding for Global's current development focus and planned expenditures on
larger power applications would not succeed, particularly in light of Global's
inability to attract a significant strategic relationship partner. In November
2002, Global retained Citigroup Global Markets Inc. ("Citigroup," formerly
Salomon Smith Barney Inc.) to review strategic alternatives and to solicit
proposals from interested third parties on behalf of the board of directors of
Global. Global, through a worldwide process, with the assistance of Citigroup,
solicited potential interest in respect of a variety of alliance structures from
a lengthy list of potential partners across a broad spectrum of industries.
Global's board of directors identified a prospective transaction with Quantum
Fuel Systems Technologies Worldwide, Inc. ("Quantum") as the leading potential
strategic alternative resulting
7
from this process. Global entered into a combination agreement with Quantum on
April 8, 2003, which was amended on June 27, 2003 (the "Quantum Combination
Agreement").
On July 11, 2003, Global received an unsolicited bona fide acquisition
proposal from FuelCell, which the Global board of directors subsequently
determined constituted a "superior proposal" under the terms of the Quantum
Combination Agreement. In accordance with the terms of the Quantum Combination
Agreement, following the execution of a confidentiality agreement, Global
furnished information to, and entered into discussions and negotiations with,
FuelCell. Upon completion of confirmatory due diligence and after receiving the
opinion of Citigroup, the Combination Agreement was executed on August 4, 2003.
Also on August 4, 2003 and immediately prior to execution of the Combination
Agreement, Global terminated the Quantum Combination Agreement in accordance
with its terms and paid a $2 million termination fee to Quantum. The Global
board of directors has unanimously approved the terms and conditions of the
Combination Agreement, determined unanimously that the Combination is fair to
its holders of common shares and preferred shares and is in the best interests
of Global.
BASED ON THE FACTORS CONSIDERED BY THE GLOBAL BOARD OF DIRECTORS, THE BOARD
UNANIMOUSLY RECOMMENDS THAT GLOBAL COMMON SHAREHOLDERS VOTE "FOR" THE SPECIAL
RESOLUTION TO APPROVE THE COMBINATION ATTACHED TO THIS JOINT PROXY STATEMENT AS
ANNEX A. In reaching this decision, the Global board of directors considered,
among other things, the unanimous recommendation of the Special Committee of the
Global board of directors (the "Global Special Committee") and the opinion of
Citigroup, subject to the considerations and limitations set forth therein. See
"Description of the Combination -- Background" and "Description of the
Combination -- Reasons for the Combination -- Global."
Global received the written opinion of Citigroup to the effect that, as of
the date of the opinion and based upon and subject to the considerations and
limitations set forth therein, the exchange ratio was fair, from a financial
point of view, to the holders of Global common shares. In addition, the Plan of
Arrangement:
- is subject to the affirmative approval of at least 66 2/3% of the holders
of Global common shares voting in person or by proxy at the Global
Meeting;
- provides a tax deferral opportunity for most Global common shareholders
resident in Canada through the use of exchangeable shares;
- provides for the assumption by FuelCell of all outstanding Global options
and the assumption by FuelCell of the obligation to issue FuelCell common
stock upon conversion of the Global Series 2 Preferred Shares;
- requires the submission of the Plan of Arrangement to the Court for a
determination of fairness; and
- provides for the right of holders of common shares to dissent under the
Business Corporations Act (Alberta), as modified by the interim order of
the Court.
20. WILL THE SHARES OF FUELCELL COMMON STOCK ISSUED PURSUANT TO THE COMBINATION
BE LISTED ON THE NASDAQ NATIONAL MARKET?
Yes. FuelCell's common stock currently trades on the Nasdaq National Market
under the symbol "FCEL". FuelCell has applied to list the shares of FuelCell
common stock to be issued to Global common shareholders pursuant to the
Combination on the Nasdaq National Market. Global common shares will be delisted
from the Toronto Stock Exchange upon completion of the Combination.
8
21. WHAT ARE THE EXCHANGEABLE SHARES?
The exchangeable shares are shares of ExchangeCo, an indirect wholly-owned
Canadian subsidiary of FuelCell. Each exchangeable share has economic and voting
rights equivalent to one share of FuelCell common stock. Holders of exchangeable
shares will be entitled to:
- exchange their shares for FuelCell common stock at any time on a
one-for-one basis;
- vote indirectly through a voting trust arrangement at meetings of
FuelCell stockholders; and
- receive dividends, if any, on the same basis as FuelCell stockholders.
22. WILL THE EXCHANGEABLE SHARES BE LISTED ON A STOCK EXCHANGE?
Yes. On September 18, 2003, the Toronto Stock Exchange conditionally
approved the listing of the exchangeable shares subject to the satisfaction of
its customary requirements, including the distribution of exchangeable shares to
a minimum number of public shareholders.
23. WHY WOULD I CONTINUE TO HOLD EXCHANGEABLE SHARES?
We have implemented the optional exchangeable share structure to provide
tax deferral opportunities for most Canadian resident Global common
shareholders. The tax deferral continues for so long as the exchangeable shares
are held, provided the shareholder executes a joint election with ExchangeCo
pursuant to Section 85 of the Income Tax Act (Canada). As long as the
exchangeable shares remain listed on a prescribed stock exchange, they will be a
qualified investment for trusts governed by RRSPs, RRIFs, DPSPs, and RESPs and,
so long as ExchangeCo maintains a substantial presence in Canada, will also not
be foreign property for such plans or funds and for certain other persons
subject to Part XI of the Income Tax Act (Canada).
24. WHY ARE ONLY GLOBAL SHAREHOLDERS WHO ARE RESIDENTS OF CANADA ENTITLED TO
ELECT TO RECEIVE EXCHANGEABLE SHARES?
U.S. tax counsel for Global and FuelCell are of the opinion that the
exchangeable share structure is not likely to provide tax deferral opportunities
for Global common shareholders who are not Canadian residents. Accordingly,
non-Canadian Global common shareholders may not elect to receive exchangeable
shares and will instead receive only shares of FuelCell common stock.
25. HOW DO I EXCHANGE MY GLOBAL COMMON SHARES FOR EXCHANGEABLE SHARES OR
FUELCELL COMMON STOCK IF THE COMBINATION IS APPROVED?
Accompanying this booklet is a letter of transmittal that will allow Global
common shareholders who are residents of Canada for purposes of the Income Tax
Act (Canada) to elect to receive exchangeable shares or shares of FuelCell
common stock, which election must be received by Computershare Trust Company of
Canada by the close of business on the last business day before the closing of
the Combination. If the closing occurs as expected on November 3, 2003, your
letter of transmittal must be received by the close of business on October 31,
2003. You will be asked to make a declaration of residency in the letter of
transmittal. If you do not make an election, or if you are not a resident of
Canada for purposes of the Income Tax Act (Canada), you will receive shares of
FuelCell common stock. All Global common shareholders, whether or not residents
of Canada, must return their Global common share certificates, together with a
fully-executed letter of transmittal, in order to receive certificates for
exchangeable shares or shares of FuelCell common stock by the time specified
above. If your common shares are registered in the name of a broker, bank or
nominee, your broker will assist you with the exchange.
26. HOW DO I EXCHANGE MY EXCHANGEABLE SHARES FOR FUELCELL COMMON STOCK?
If you choose to receive certificates representing exchangeable shares and
wish to exchange them for FuelCell common stock at a later date, you must
endorse and deposit your exchangeable share certificate at that time with
Computershare Trust Company of Canada, along with other required documents. If
your
9
exchangeable shares are registered in the name of your broker, bank or nominee,
your broker will assist you with the exchange.
27. WILL I BE ABLE TO HOLD MY EXCHANGEABLE SHARES INDEFINITELY?
No. At any time after the earlier of (i) the five-year anniversary of the
completion of the Combination or (ii) if, at any time following the date that is
15 calendar months after the effective date of the Combination, there are fewer
than one million exchangeable shares outstanding, ExchangeCo may redeem each
outstanding exchangeable share in exchange for a share of FuelCell common stock.
See "-- Description of the Combination -- Description of the Exchangeable
Shares -- Retraction, Redemption and Call Rights Applicable to Exchangeable
Shares -- Early Redemption."
28. IF AND WHEN I EXCHANGE MY EXCHANGEABLE SHARES, HOW LONG WILL IT TAKE TO
RECEIVE FUELCELL COMMON STOCK?
It will take approximately ten business days to receive your certificate
representing FuelCell common stock following deposit of your exchangeable share
certificate, duly endorsed, with Computershare Trust Company of Canada.
29. WHAT WILL HAPPEN IF THE GLOBAL COMMON SHAREHOLDERS DO NOT APPROVE THE
COMBINATION?
In order to be effective under applicable law, the special resolution
approving the Combination requires approval by at least 66 2/3% of the votes
cast by Global common shareholders present in person or represented by proxy at
the Global Meeting and entitled to vote.
If the required vote of Global common shareholders is not obtained, the
special resolution will not be approved and the Combination will not proceed. In
that event, Global will be required to pay FuelCell a fee of $900,000 for
reimbursement of FuelCell's expenses. For a description of fees that may apply
upon termination of the Combination Agreement, please see "-- Description of the
Combination -- The Combination Agreement -- Termination and Expense
Reimbursement Fees."
10
SUMMARY
The following is a summary of certain information contained in this Joint
Proxy Statement and may not contain all of the information that is important to
you. The summary is not intended to be complete and is qualified in its entirety
by the more detailed information and financial statements, including the notes
thereto, contained elsewhere in this Joint Proxy Statement and the attached
annexes, all of which are important and should be reviewed carefully. You should
carefully read the entire document and the other documents we refer you to for a
more complete understanding of the Combination. Unless otherwise indicated in
this Joint Proxy Statement, share amounts set forth herein assume no exercise of
outstanding options to purchase Global common shares or FuelCell common stock
and no conversion of the Global Series 2 Preferred Shares. UNLESS OTHERWISE
INDICATED, DOLLAR AMOUNTS ARE EXPRESSED IN U.S. DOLLARS AND ASSUME A CURRENCY
EXCHANGE RATE OF CDN.$1.4048 TO U.S.$1.00, WHICH WAS THE APPROXIMATE EXCHANGE
RATE ON AUGUST 1, 2003, THE LAST TRADING DAY PRIOR TO THE EXECUTION OF THE
COMBINATION AGREEMENT.
OVERVIEW OF THE COMBINATION
On August 4, 2003, Global and FuelCell entered into the Combination
Agreement to combine Global with FuelCell in a share-for-share exchange pursuant
to a Plan of Arrangement to be submitted for approval by the Court of Queen's
Bench of Alberta (the "Court"). If all approvals are received and the
Combination closes, upon receipt of Global share certificates and properly
completed letters of transmittal, (i) each Canadian Global common shareholder
(other than dissenting shareholders) will receive, at the shareholder's
election, either exchangeable shares or shares of FuelCell common stock for each
Global common share held by that shareholder at the effective time of the
Combination determined in accordance with the exchange ratio, and (ii) each
non-Canadian Global common shareholder (other than dissenting shareholders) will
receive shares of FuelCell common stock for each Global common share held by
that shareholder at the effective time of the Combination determined in
accordance with the exchange ratio. Each exchangeable share will be exchangeable
for one share of FuelCell common stock. The exchangeable shares will have
economic and voting rights equivalent to shares of FuelCell common stock and
have been conditionally approved for listing on the Toronto Stock Exchange.
Under the terms of the Plan of Arrangement, Global common shareholders
(other than dissenting shareholders) will receive between 0.279 and 0.342
exchangeable shares or shares of FuelCell common stock for each Global common
share outstanding at the time of the Combination, depending on the exchange
ratio in effect at the time the Combination is completed. The exchange ratio
will be determined by dividing $2.72 (approximately Cdn.$3.82) by the 20-day
volume-weighted average FuelCell stock price ending three days prior to the
Global Meeting; however, the exchange ratio will not be greater than 0.342 nor
less than 0.279. Accordingly, if FuelCell's 20-day volume-weighted average stock
price is:
- greater than $9.74, the exchange ratio will be 0.279;
- less than $7.96 the exchange ratio will be 0.342; and
- between $7.96 and $9.74, Global common shareholders will receive
approximately $2.72 (approximately Cdn.$3.82) of FuelCell common stock
for each Global common share.
Upon completion of the proposed Combination:
- all Global common shareholders will cease to be shareholders of Global;
- each Canadian Global common shareholder (other than dissenting
shareholders) will receive, at the shareholder's election, either
exchangeable shares or shares of FuelCell common stock for each Global
common share held by that shareholder at the effective time of the
Combination determined in accordance with the exchange ratio;
- each non-Canadian Global common shareholder (other than dissenting
shareholders) will receive shares of FuelCell common stock for each
Global common share held by that shareholder at the effective time of the
Combination determined in accordance with the exchange ratio;
11
- each outstanding option to purchase Global common shares will be assumed
by FuelCell and will represent an option to purchase FuelCell common
stock in accordance with the option's terms based on the exchange ratio;
- the Global Series 2 Preferred Shares will remain preferred shares of
Global, as a consolidated subsidiary of FuelCell, and FuelCell will
assume the obligation to issue FuelCell common stock upon conversion
thereof; and
- Global will become a consolidated subsidiary of FuelCell.
THE COMPANIES
FUELCELL
FuelCell is a world leader in the development and manufacture of carbonate
fuel cell power plants for distributed power generation. FuelCell has designed
and is developing standard fuel cell power plants that offer significant
advantages compared to existing power generation technology. These advantages
include higher fuel efficiency than existing distributed generation equipment,
significantly lower emissions, quieter operation, lower vibration, flexible
siting and permitting requirements, scalability and potentially lower operating,
maintenance and generation costs. FuelCell is currently conducting, and has
successfully concluded, field trials of fuel cell power plants ranging from 250
kW to 2 MW. In fiscal year 2002, FuelCell had $41 million in sales revenue from
sales of its Direct FuelCell products and revenue from research and development
contracts.
FuelCell's carbonate fuel cell, known as the Direct FuelCell or DFC, is so
named because of its ability to generate electricity directly from a hydrocarbon
fuel, such as natural gas, by reforming the fuel inside the fuel cell to produce
hydrogen. FuelCell believes that this "one-step" process results in a simpler,
more efficient and cost-effective energy conversion system compared with
external reforming fuel cells. External reforming fuel cells, such as proton
exchange membrane and phosphoric acid, generally use complex, external fuel
processing equipment to convert the fuel into hydrogen. This external equipment
increases capital cost and reduces electrical efficiency.
FuelCell's Direct FuelCell has been demonstrated using a variety of
hydrocarbon fuels, including natural gas, methanol, diesel, biogas, coal gas,
coal mine methane and propane. FuelCell expects that commercial DFC power plant
products will achieve an electrical efficiency of between 45% and 57%. Depending
on location, application and load size, FuelCell expects that a co-generation
configuration will reach an overall energy efficiency of between 70% and 80%.
FuelCell's principal executive offices are located at:
3 Great Pasture Road
Danbury, Connecticut 06813
Tel: (203) 825-6000
Fax: (203) 825-6100
www.fce.com (The contents of FuelCell's web site are not part of this Joint
Proxy Statement.)
GLOBAL
Global focuses on the development, manufacture and distribution of two
stationary power technologies. Specifically, Global is in the process of
commercializing natural gas and propane compatible solid oxide fuel cell
products intended for residential, small commercial and light industrial
markets, and also manufactures and distributes thermoelectric stationary power
generators for use in remote industrial power markets.
Global launched its solid oxide fuel cell development program in 1998.
Since that time, Global has developed and tested a proprietary fuel cell
membrane, the key enabling technological component for Global's solid oxide fuel
cell products. Global has developed a pilot volume production plant and
methodology incorporating conventional manufacturing processes for the
manufacture of these membranes. Cell membrane technology, combined with advanced
stack technology, is now being tested by Global in system applications. Global's
focus is on the development of stationary natural gas-fueled prototype systems.
12
In fiscal year 2002, Global had Cdn.$21.8 million in sales revenue from the
supply of generators and related services. Thermoelectric generator systems have
been manufactured and distributed by Global since 1975 and are widely used in
remote applications by the oil and gas and other industries. To date, these
generator systems have operated in 47 countries worldwide, supplying power for
applications ranging from five to 5,000 watts.
Global's principal executive offices are located at:
4908-52nd Street S.E.
Calgary, Alberta T2B 3R2
Tel: (403) 204-6100
Fax: (403) 204-6105
www.globalte.com (The contents of Global's web site are not part of this
Joint Proxy Statement.)
GLOBAL RECENT DEVELOPMENTS
TERMINATION OF QUANTUM COMBINATION AGREEMENT. Prior to the execution of
the Combination Agreement, on August 4, 2003 Global terminated the Quantum
Combination Agreement in accordance with its terms. Pursuant to the terms of the
Quantum Combination Agreement, Global paid Quantum a $2 million termination fee.
The termination of the Quantum Combination Agreement and payment of the $2
million termination fee were required for Global to pursue the Combination with
FuelCell and enter into the Combination Agreement.
THE COMBINED COMPANY (SEE PAGE 105)
The combined company will retain the name "FuelCell Energy, Inc." and will
be headquartered in Danbury, Connecticut. Global will be operated as a
consolidated subsidiary of FuelCell. Prior to the effective time of the
Combination, the board of directors of FuelCell will be increased to a maximum
of thirteen members, which will include at least one and a maximum of two
designees of Global. Jerry D. Leitman, FuelCell's Chairman, President and Chief
Executive Officer, and Joseph G. Mahler, FuelCell's Senior Vice President and
Chief Financial Officer, will lead the combined company in their respective
roles. The combined company will maintain a concentrated focus on the continued
commercialization of its Direct FuelCell products, while seeking to develop
Global's SOFC technology to a point where it can be commercialized and provide
increased breadth to FuelCell's range of distributed generation products.
FuelCell is continuing to evaluate Global's generator business to determine its
strategic fit within the combined company and has not made a determination
whether to retain or sell that business.
The combined company's fiscal year end will be October 31.
At July 31, 2003, on a pro forma combined basis, the combined company had:
- total assets of $330 million;
- total cash and cash equivalents, and investments of $228 million;
- total stockholders' equity of $293 million;
- long-term debt and capital leases of $2 million;
- preferred shares of subsidiary of $8.4 million, representing the Global
Series 2 Preferred Shares remaining outstanding after the Combination;
and
- approximately 48,846,909 outstanding shares of common stock (assuming an
exchange ratio of 0.325 and excluding FuelCell common stock issuable upon
the exercise of options and warrants and conversion of Global Series 2
Preferred Shares).
13
For the nine months ended July 31, 2003, on a pro forma combined basis, the
combined company had:
- revenue of $38 million;
- net losses of $68 million; and
- basic and diluted loss per share of $(1.39).
Please see "Chapter Two -- Certain Financial and Other Information About the
Companies -- Unaudited Pro Forma Condensed Combined Financial Statements" for a
discussion of the assumptions underlying this pro forma combined financial
information.
REASONS FOR THE COMBINATION (SEE PAGE 51)
FUELCELL
FuelCell believes that the Combination will result in a diversified company
with complementary revenue streams, technologies, customers and alliances that,
on a combined basis, is well-positioned to address opportunities in the fuel
cell power generation markets. FuelCell believes that the Combination is a
complementary strategic combination that will:
- create a company with both leading high temperature carbonate Direct
FuelCell and SOFC technology;
- strengthen FuelCell's position throughout the first phase of the SECA
program to develop SOFC products and increase the chances that FuelCell
will be able to successfully compete for advancement through the next two
phases of the 10-year $139 million SECA program;
- increase FuelCell's and Global's technology base in a market where there
is significant growing interest from governmental and strategic partners;
- create a combined company with a strong balance sheet with an expected
cash balance of over $200 million;
- benefit shareholders of both companies by creating a stronger, more
diversified company and increased stock liquidity;
- consolidate operations with opportunities for cost efficiencies by
integrating research and development efforts, combining product
development and commercialization, integrating manufacturing operations
and consolidating general and administrative expenses; and
- result in an expanded technology and product profile as a provider of
fuel cell distributed generation solutions.
In considering the Combination, the FuelCell board of directors recognized
that there are risks associated with the acquisition of Global, including that
some of the potential benefits described above may not be realized, that there
may be significant costs associated with realizing these benefits, the risks set
forth under "Risk Factors" and the disadvantages that the FuelCell board of
directors identified in "-- Description of the Combination -- Recommendation of
the FuelCell Board of Directors."
GLOBAL
The Global board of directors determined in the fall of 2000 that it would
be in the best interests of Global to seek a significant alliance partner to
assist with Global's commercialization of solid oxide fuel cell products. North
American equity markets experienced prolonged weakness from 2000 to 2002 and,
over that period of time, Global's common shares traded at a significant
discount to those of its peers. In late 2002, the Global board of directors
determined that its plan to use equity financing as a source of long-term
funding for Global's current development focus and planned expenditures on
larger power applications would not succeed, particularly in light of Global's
inability to attract a significant strategic relationship partner. Global,
through a worldwide process initiated in the winter of 2002, with the assistance
of Citigroup, solicited potential interest
14
in respect of a variety of alliance structures from a lengthy list of potential
partners across a broad spectrum of industries. Global's board of directors
identified a prospective transaction with Quantum as the leading potential
strategic alternative resulting from this process. Global entered into the
Quantum Combination Agreement on April 8, 2003. On July 11, 2003, Global
received an unsolicited bona fide acquisition proposal from FuelCell, which the
Global board of directors determined was a "superior proposal" under the Quantum
Combination Agreement. In accordance with the provisions of the Quantum
Combination Agreement, Global furnished information to and entered into
discussions and negotiations with FuelCell which culminated in the execution of
the Combination Agreement on August 4, 2003. The Quantum Combination Agreement
was terminated in accordance with its terms and a $2 million termination fee was
paid to Quantum on August 4, 2003.
The Global board of directors unanimously (i) approved the terms and
conditions of the Combination Agreement, (ii) determined that the Combination is
fair to its holders of common shares and preferred shares and is in the best
interests of Global and (iii) recommends that Global common shareholders vote in
favor of the special resolution to approve the Combination attached to this
Joint Proxy Statement as Annex A. In reaching this decision, the Global board of
directors considered, among other things, the unanimous recommendation of the
Global Special Committee and the fairness opinion of Citigroup. For additional
information, please see "-- Description of the Combination -- Background" and
"-- Description of the Combination -- Opinion of Citigroup." The Global board of
directors also considered the elements of fairness associated with the
Combination, including that it:
- is subject to the affirmative approval of at least 66 2/3% of the holders
of Global common shares voting in person or by proxy at the Global
Meeting;
- provides a tax deferral opportunity for most Global common shareholders
resident in Canada through the use of exchangeable shares;
- provides for the assumption by FuelCell of all outstanding Global options
and the assumption by FuelCell of the obligation to issue FuelCell common
stock upon conversion of the Global Series 2 Preferred Shares;
- requires the submission of the Plan of Arrangement to the Court for a
determination of fairness; and
- provides for the right of holders of Global common shares to dissent
under the Business Corporations Act (Alberta), as modified by the interim
order of the Court.
The Global board of directors also considered potential advantages and
disadvantages of the Combination. For additional information regarding the
foregoing, please see "-- Description of the Combination -- Reasons for the
Combination -- Global" and "-- Risk Factors."
RECOMMENDATION TO FUELCELL STOCKHOLDERS (SEE PAGE 54)
The FuelCell board of directors has unanimously determined that the
Combination and the transactions contemplated thereby are fair to FuelCell's
stockholders and in the best interests of FuelCell and has approved the
Combination Agreement and the Combination. In reaching this conclusion,
FuelCell's board of directors considered, among other things, the opinion dated
August 1, 2003, of Lazard that, as of such date and based on and subject to the
assumptions set forth therein, the exchange ratio set forth in the Combination
Agreement is fair, from a financial point of view, to FuelCell. A copy of
Lazard's opinion, including the assumptions, qualifications, and other matters
contained in it, is included in this Joint Proxy Statement as Annex E. For
additional information regarding Lazard opinion, please see "-- Description of
the Combination -- Opinion of Lazard" on page 57.
ACCORDINGLY, THE FUELCELL BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
FUELCELL'S STOCKHOLDERS VOTE "FOR" APPROVAL OF THE COMBINATION AGREEMENT AND THE
COMBINATION.
15
RECOMMENDATION TO GLOBAL COMMON SHAREHOLDERS (SEE PAGE 62)
Global's board of directors has carefully considered and has unanimously
approved the terms and conditions of the Combination Agreement and the
Combination, has determined that the Combination is fair to holders of Global
common shares and preferred shares and is in the best interests of Global. In
reaching this conclusion, the Global board of directors considered, among other
things, the opinion dated August 4, 2003 of Citigroup to the effect that, as of
such date and based upon and subject to the considerations and limitations set
forth therein, the exchange ratio set forth in the Combination Agreement was
fair, from a financial point of view, to Global common shareholders. A copy of
the Citigroup opinion, including the assumptions, qualifications and other
matters contained therein, is included in this Joint Proxy Statement as Annex F.
For additional information regarding Citigroup's opinion, please see
"-- Description of the Combination -- Opinion of Citigroup" on page 63.
BASED ON THE FACTORS CONSIDERED BY THE GLOBAL BOARD OF DIRECTORS, THE BOARD
UNANIMOUSLY RECOMMENDS THAT GLOBAL'S COMMON SHAREHOLDERS VOTE "FOR" THE SPECIAL
RESOLUTION TO APPROVE THE COMBINATION ATTACHED TO THIS JOINT PROXY STATEMENT AS
ANNEX A.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGES 57 AND 63)
In deciding to approve the Combination, each board of directors considered
the opinion of its financial advisor. These opinions are attached as Annexes E
and F to this Joint Proxy Statement. We encourage you to read these opinions
carefully in their entirety for descriptions of the assumptions made, matters
considered and limitations on the review undertaken by the financial advisors.
FUELCELL
Lazard has delivered its written opinion to FuelCell's board of directors
that, as of August 1, 2003, the exchange ratio pursuant to the Combination
Agreement was fair, from a financial point of view, to FuelCell. FuelCell has
attached the full text of the written opinion of Lazard as Annex E to this Joint
Proxy Statement. THE OPINION OF LAZARD IS ADDRESSED TO THE FUELCELL BOARD OF
DIRECTORS AND RELATES ONLY TO THE FAIRNESS, AS OF THE DATE OF THE OPINION AND
FROM A FINANCIAL POINT OF VIEW, OF THE EXCHANGE RATIO TO FUELCELL. THE OPINION
DOES NOT ADDRESS ANY OTHER ASPECTS OF THE COMBINATION AND DOES NOT CONSTITUTE A
RECOMMENDATION OF THE COMBINATION TO THE FUELCELL BOARD OF DIRECTORS. LAZARD
MAKES NO RECOMMENDATION TO ANY STOCKHOLDER REGARDING HOW THE STOCKHOLDER SHOULD
VOTE WITH RESPECT TO THE PROPOSED COMBINATION. FOR ADDITIONAL INFORMATION
REGARDING LAZARD'S OPINION, PLEASE SEE "DESCRIPTION OF THE
COMBINATION -- OPINION OF LAZARD" ON PAGE 57.
GLOBAL
Citigroup Global Markets Inc. ("Citigroup," formerly Salomon Smith Barney
Inc.) has delivered its written opinion to Global's board of directors to the
effect that, as of August 4, 2003, the exchange ratio set forth in the
Combination Agreement was fair, from a financial point of view, to the holders
of Global common shares. Global has attached the full text of the written
opinion of Citigroup as Annex F to this Joint Proxy Statement. CITIGROUP'S
OPINION WAS LIMITED SOLELY TO THE FAIRNESS OF THE EXCHANGE RATIO, FROM A
FINANCIAL POINT OF VIEW, AS OF THE DATE OF THE OPINION. NEITHER CITIGROUP'S
OPINION NOR ITS RELATED ANALYSIS CONSTITUTED A RECOMMENDATION OF THE PROPOSED
COMBINATION TO THE GLOBAL BOARD OF DIRECTORS. CITIGROUP MAKES NO RECOMMENDATION
TO ANY SHAREHOLDER REGARDING HOW THE SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE
PROPOSED COMBINATION. FOR ADDITIONAL INFORMATION REGARDING CITIGROUP'S OPINION,
PLEASE SEE "DESCRIPTION OF THE COMBINATION -- OPINION OF CITIGROUP" ON PAGE 63.
WHAT GLOBAL COMMON SHAREHOLDERS WILL RECEIVE IN THE TRANSACTION
Pursuant to the Combination Agreement and the Plan of Arrangement: (i)
Canadian Global common shareholders (other than dissenting shareholders) will
receive, at their election, for the Global common shares held by them at the
effective time of the Combination, between 0.279 and 0.342 of an exchangeable
share of ExchangeCo or a share of FuelCell common stock; and (ii) non-Canadian
Global common shareholders
16
(other than dissenting shareholders) will receive for the Global common shares
held by them at the effective time of the Combination, between 0.279 and 0.342
of a share of FuelCell common stock. The election to receive exchangeable shares
must be received by Computershare Trust Company of Canada by the close of
business on the last business day before the effective time of the Combination.
If the closing occurs as expected on November 3, 2003, your letter of
transmittal must be received by the close of business on October 31, 2003. You
may make the election by checking the appropriate box on the letter of
transmittal, completing the declaration of residency contained therein and
returning it, along with your share certificate or certificates, to
Computershare Trust Company of Canada at the address specified in the letter of
transmittal. We structured the exchangeable shares to be the economic equivalent
of FuelCell common stock, and the holders of exchangeable shares will have the
following principal rights:
- the right to exchange the exchangeable shares for shares of FuelCell
common stock on a one-for-one basis at any time;
- the right to receive dividends, if any, on a per share equivalent basis,
in amounts (or property in the case of non-cash dividends) which are the
same, and which are payable at the same time, as dividends declared on
FuelCell common stock;
- the right to vote, indirectly through a trust arrangement, on a per share
equivalent basis, at all stockholder meetings at which holders of shares
of FuelCell common stock are entitled to vote; and
- the right to participate, on a pro rata basis with the holders of
FuelCell common stock, in the distribution of assets of FuelCell through
the mandatory exchange of exchangeable shares for shares of FuelCell
common stock.
The exchangeable shares will, in effect, have no separate economic or
voting rights in respect of ExchangeCo (other than limited class voting rights
under the Business Corporations Act (Alberta)) and the right to vote on any
change in the fundamental terms of the exchangeable shares themselves or the
related terms in the support agreement and the voting and exchange trust
agreement described elsewhere in this Joint Proxy Statement, in which cases the
exchangeable shares may be subject to automatic redemption). Global common
shareholders will generally be able to maintain any deferral of recognition of
gain or loss on their exchangeable shares for Canadian federal income tax
purposes if they file a valid joint tax election with ExchangeCo under Section
85 of the Income Tax Act (Canada) and only for as long as they hold exchangeable
shares. A redemption of the exchangeable shares may occur following the fifth
anniversary of the consummation of the Combination and may, under specified
circumstances, occur earlier. See "-- Description of the
Combination -- Description of the Exchangeable Shares -- Retraction, Redemption
and Call Rights Applicable to Exchangeable Shares" on page 72 and "Chapter
Four -- Information About Tax Considerations -- Canadian Federal Income Tax
Considerations" on page 133.
MARKET PRICE DATA (SEE PAGE 107)
Global common shares are listed on the Toronto Stock Exchange. Shares of
FuelCell common stock are listed on the Nasdaq National Market. On the last
trading day before the public announcement by Global and FuelCell of the
Combination, which last trading day was August 1, 2003 for Global and August 4,
2003 for FuelCell, Global common shares closed at Cdn.$3.45 (approximately
U.S.$2.46 based on the exchange rate on such date) on the Toronto Stock Exchange
and shares of FuelCell common stock closed at $7.47 on the Nasdaq National
Market. The 20-day volume-weighted average trading price ending on August 4,
2003 for shares of FuelCell common stock was approximately $8.3639 on the Nasdaq
National Market. On September 24, 2003, the closing price of the Global common
shares was Cdn.$4.80 (approximately U.S.$3.54, based on the exchange rate at
that date) on the Toronto Stock Exchange and the closing price of the shares of
FuelCell common stock was $13.28 on the Nasdaq National Market.
STOCK EXCHANGE LISTINGS (SEE PAGE 91)
FuelCell has applied to Nasdaq for approval of the listing of the FuelCell
common stock to be issued in connection with the Combination on the Nasdaq
National Market. ExchangeCo has applied to list the exchangeable shares on the
Toronto Stock Exchange. On September 18, 2003, the Toronto Stock Exchange
17
conditionally approved the listing of the exchangeable shares, subject to the
satisfaction of its customary requirements.
WHO CAN VOTE AT THE MEETINGS (SEE PAGES 146 AND 148)
FUELCELL
Only record holders of FuelCell common stock at the close of business on
September 16, 2003 are entitled to notice of and to vote at the FuelCell
Meeting. On September 16, there were 39,374,633 outstanding shares of FuelCell
common stock, and there were approximately 705 holders of record. Each share of
FuelCell common stock entitles the holder thereof to one vote on each matter
presented at the FuelCell Meeting.
GLOBAL
Only registered holders of Global common shares at the close of business on
October 1, 2003 are entitled to notice of and to vote at the Global Meeting.
Transferees of Global common shares after that date who comply with the
procedures described in the Notice of Special Meeting of Common Shareholders
accompanying this Joint Proxy Statement are also entitled to vote. On September
24, 2003, 29,201,450 Global common shares were outstanding and there were
approximately 154 holders of record. Each Global common share entitles the
holder thereof to one vote on each matter presented at the Global Meeting.
SHAREHOLDER VOTES REQUIRED (SEE PAGES 148 AND 149)
FUELCELL
Approval of the Combination Agreement and the Combination requires the
affirmative vote of a majority of the total shares of FuelCell common stock
entitled to vote and voting on the proposal in person or by proxy at the
FuelCell Meeting.
GLOBAL
Approval of the Combination requires at least two-thirds of the votes cast
by holders of Global common shares voting in person or by proxy at the Global
Meeting.
DISSENT RIGHTS (SEE PAGE 88)
Pursuant to the interim order of the Court (the "Interim Order"), a copy of
which is attached as Annex C to this Joint Proxy Statement, the holders of
Global common shares have rights to dissent and be paid the judicially
determined fair value of their common shares in connection with the Combination.
RISK FACTORS (SEE PAGE 27)
There are certain risks that should be considered by FuelCell stockholders
and Global common shareholders in evaluating whether to approve the Combination.
Some of these risks relate directly to the Combination while others relate to
the business of each of FuelCell and Global.
REGULATORY APPROVALS
The Plan of Arrangement requires approval by the Court, approval of Nasdaq
for listing the shares of FuelCell common stock and approval of the Toronto
Stock Exchange for listing the exchangeable shares to be issued in connection
with the Combination.
COVENANTS OF FUELCELL AND GLOBAL (SEE PAGE 83)
FuelCell and Global each have agreed to covenants pursuant to the terms of
the Combination Agreement, including, among others, to operate their respective
businesses only in the usual, regular and ordinary manner, to maintain all of
their respective properties and assets in customary repair, order and condition
and not to incur certain borrowings.
18
CONDITIONS TO THE COMPLETION OF THE COMBINATION (SEE PAGE 82)
The obligations of FuelCell and Global to complete the Combination are
subject to the satisfaction or waiver, where permissible, of conditions set
forth in the Combination Agreement, including, among others, obtaining the
approval of the Global common shareholders of the Combination at the Global
Meeting, obtaining the approval of the FuelCell stockholders of the Combination
Agreement and the Combination at the FuelCell Meeting and obtaining the
necessary court and regulatory approvals, including the approval of Nasdaq and
the Toronto Stock Exchange for the listing of the shares of FuelCell common
stock and the exchangeable shares, respectively, to be issued in connection with
the Combination.
TERMINATION OF THE COMBINATION AGREEMENT (SEE PAGE 85)
The Combination Agreement may be terminated at any time prior to the
effective time of the Combination, whether before or after approval of the
Combination by the securityholders of FuelCell or Global, as summarized below.
MUTUAL TERMINATION RIGHTS
Either Global or FuelCell may terminate the Combination Agreement upon the
occurrence of certain events, including, among others, if both parties agree to
the termination; if all conditions for closing the Combination have not been
satisfied or waived by 5:00 p.m. (Calgary time) on December 31, 2003, other than
as a result of a breach by the party terminating the Combination Agreement; or
if either party has failed to obtain the requisite approval of its
securityholders regarding the Combination.
FUELCELL'S TERMINATION RIGHTS
FuelCell may terminate the Combination Agreement upon the occurrence of
certain events, including among others, if there has been a breach by Global of
any representation, warranty, covenant or agreement in the Combination Agreement
or if the Global board of directors withdraws or modifies in any adverse manner
its approval or recommendation in respect of the Combination.
GLOBAL'S TERMINATION RIGHTS
Global may terminate the Combination Agreement upon the occurrence of
certain events, including among others, if there has been a breach by FuelCell
of any representation, warranty, covenant or agreement in the Combination
Agreement, if the FuelCell board of directors withdraws or modifies in any
adverse manner its approval or recommendation in respect of the Combination, if
the Global board of directors accepts, recommends, approves or implements a
superior proposal, or if FuelCell announces an acquisition with a purchase price
of greater than $10 million. Global may also terminate the Combination Agreement
without payment of an expense reimbursement or termination fee if the daily
volume-weighted average of FuelCell's stock price, calculated in accordance with
the Combination Agreement, is less than $6.65, calculated on a rolling basis for
each trading day during any 15 consecutive trading days after the date of the
Combination Agreement until the effective date of the Combination. For more
information regarding this termination provision, please see "-- Description of
the Combination -- The Combination Agreement -- Termination." As of September
24, 2003, FuelCell's 15-day volume-weighted average stock price was
approximately $11.53.
TERMINATION AND EXPENSE REIMBURSEMENT FEES (SEE PAGE 87)
Upon the termination of the Combination Agreement, depending on the
termination event, FuelCell may be required to pay Global a termination fee of
either $2 million or $900,000 as a reimbursement of Global's out-of-pocket
expenses incurred in connection with the Combination Agreement, or Global may be
required to pay FuelCell a termination fee of either $2 million or $900,000 as a
reimbursement of FuelCell's out-of-pocket expenses incurred in connection with
the Combination Agreement, or there may be no termination fee payable by either
party.
19
INTERESTS OF CERTAIN PERSONS (SEE PAGE 94)
Members of the management and board of directors of Global have certain
interests in connection with the Combination that may present them with actual
or potential conflicts of interest in connection with the Combination.
NO SOLICITATION (SEE PAGE 84)
Global and FuelCell have each agreed that they will not solicit or
encourage any competing acquisition proposals. However, in certain
circumstances, the board of directors of Global or FuelCell, as the case may be,
may enter into discussions and negotiations with, and provide information to,
the party making an acquisition proposal. FuelCell has the right to match any
superior proposal made to Global.
TRANSACTION DOCUMENTS
We have included the Combination Agreement and the Plan of Arrangement as
Annexes B and D to this Joint Proxy Statement. We encourage you to read these
agreements as they are the principal legal documents that govern the
Combination.
TAX CONSEQUENCES OF THE COMBINATION (SEE PAGE 133)
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Bennett Jones LLP, Global's Canadian counsel, the
Combination provides Canadian tax deferral opportunities for most Canadian
resident holders of Global common shares through the exchange of Global common
shares for exchangeable shares, provided that the holder elects to receive
exchangeable shares and executes and files a valid joint tax election with
ExchangeCo under section 85 of the Income Tax Act (Canada) and the corresponding
provision of any applicable provincial tax legislation. This tax deferral will
continue as long as the holder continues to hold the exchangeable shares. It
should be noted that FuelCell can require the exchange of the exchangeable
shares for shares of FuelCell common stock after five years or, under specified
circumstances, sooner, which would end the tax deferral. In addition, so long as
the exchangeable shares are listed on a prescribed stock exchange (which
currently includes the Toronto Stock Exchange), they will be a qualified
investment for trusts governed by RRSPs, RRIFs, RESPs and DPSPs and, provided
ExchangeCo maintains a substantial presence in Canada, will not be foreign
property for such plans or funds and for certain other persons subject to Part
XI of the Income Tax Act (Canada). The shares of FuelCell common stock will
similarly be qualified investments for trusts governed by RRSPs, RRIFs, RESPs
and DPSPs, provided that those shares remain listed on a prescribed stock
exchange (which currently includes the Nasdaq National Market), but the shares
will constitute foreign property for the purposes of Part XI of the Income Tax
Act (Canada). Please carefully review "Chapter Four -- Information About Tax
Considerations -- Canadian Federal Income Tax Considerations to Shareholders"
for additional detail regarding the tax consequences of the Combination and of
owning and disposing of FuelCell common stock following the Combination.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Robinson & Cole LLP, FuelCell's U.S. tax counsel, and
Dorsey & Whitney LLP, Global's U.S. tax counsel, U.S. holders of Global common
shares who exchange their Global common shares for shares of FuelCell common
stock will recognize a gain or loss on the exchange for U.S. federal income tax
purposes, assuming that the holder of the Global Series 2 Preferred Shares will
not exercise its right to convert all or part of such shares into Global common
shares prior to the Combination or into exchangeable shares or shares of
FuelCell common stock in connection with the Combination. Tax matters, and in
particular the treatment of U.S. shareholders in a "passive foreign investment
company," can be very complicated. Please carefully review "Chapter
Four -- Information About Tax Considerations -- United States Federal Tax
Considerations to Shareholders" for additional detail regarding the tax
consequences of the Combination and of owning and disposing of FuelCell common
stock following the Combination.
20
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per common share data for
Global and FuelCell and unaudited pro forma combined per common share data after
giving effect to the Combination at an assumed exchange ratio of 0.325 shares of
FuelCell common stock or exchangeable shares for each Global common share (the
actual exchange ratio will not be determined until shortly before the Global
Meeting).
The data should be read in conjunction with the summary historical
financial data and the unaudited pro forma combined financial statements
included in this Joint Proxy Statement and the historical financial statements
of FuelCell, including the notes thereto, included in Annex H to this Joint
Proxy Statement, and the historical consolidated financial statements of Global,
including the notes thereto, included in Annex I to this Joint Proxy Statement.
The unaudited pro forma combined data reflect adjustments to conform Global's
data to U.S. GAAP on a measurement basis. The unaudited pro forma combined
financial data are not necessarily indicative of the operating results or
financial position that would have occurred had the Combination been completed
at the beginning of the earliest period presented and should not be construed as
indicative of future operations.
FOR THE NINE
FOR THE YEARS ENDED MONTH PERIODS
OCTOBER 31, ENDED JULY 31,
------------------------ ---------------
2000 2001 2002 2002 2003
------ ------ ------ ------ ------
(U.S.$)
HISTORICAL -- FUELCELL
Basic loss per common share(1).................. $(0.16) $(0.45) $(1.25) $(0.72) $(1.32)
Diluted loss per common share(1)................ (0.16) (0.45) (1.25) (0.72) (1.32)
Book value per common share at end of
period(2).................................... 2.65 8.20 6.93 5.59 7.45
FOR THE SIX
FOR THE PERIODS ENDED DECEMBER 31, MONTH PERIODS
-------------------------------------- ENDED JUNE 30,
2000 2001 2002 ----------------
(9 MONTHS) (12 MONTHS) (12 MONTHS) 2002 2003
---------- ----------- ----------- ------ ------
(CDN.$)
HISTORICAL -- GLOBAL
Basic loss per common share(1)......... $(0.10) $(0.45) $(0.88) $(0.47) $(0.51)
Diluted loss per common share(1)....... (0.10) (0.45) (0.88) (0.47) (0.51)
Book value per common share at end of
period(3)........................... 4.40 3.94 3.04 3.45 2.53
YEAR ENDED NINE MONTH PERIOD
OCTOBER 31, ENDED JULY 31,
2002 2003
----------- -----------------
(U.S.$) (U.S.$)
PRO FORMA COMBINED PER COMMON SHARE DATA
Basic loss per common share(4)............................ $(1.37) $(1.39)
Diluted loss per common share(4).......................... (1.37) (1.39)
Book value per common share at end of period(5)........... 6.00
---------------
(1) The historical basic loss per common share is based upon the weighted
average number of common shares of FuelCell and Global outstanding for each
period. The historical diluted loss per common share is based upon the
weighted average number of common shares outstanding for each period.
(2) The historical book value per common share is computed by dividing
stockholders' equity by the number of shares of common stock outstanding at
the end of the period.
(3) The historical book value per common share is computed by dividing
stockholders' equity, less the Global Series 2 Preferred Share capital and
the cumulative but unpaid dividends thereon, by the number of common shares
outstanding at the end of the period.
21
(4) The unaudited pro forma loss per common share is based upon the weighted
average number of common shares outstanding of FuelCell and Global for each
period at an assumed exchange ratio of 0.325 shares of FuelCell common stock
or exchangeable shares for each Global common share (the actual exchange
ratio will not be determined until shortly before the Global Meeting). The
assumed exchange ratio is based on the 20-day volume-weighted average
trading price of the shares of FuelCell common stock ended August 4, 2003.
(5) The unaudited pro forma book value per share is computed by dividing the pro
forma stockholders' equity by the sum of the total shares of common stock
outstanding for FuelCell at July 31, 2003 and the total common shares of
Global at June 30, 2003 at an assumed exchange ratio of 0.325 shares of
FuelCell common stock or exchangeable shares for each Global common share
(the actual exchange ratio will not be determined until shortly before the
Global Meeting).
22
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
THE FOLLOWING TABLE SETS FORTH SUMMARY UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL DATA WHICH ARE PRESENTED TO GIVE EFFECT TO THE ACQUISITION OF
GLOBAL BY FUELCELL IN ACCORDANCE WITH U.S. GAAP. The unaudited pro forma
condensed combined financial statements have been prepared from the historical
financial statements of FuelCell and Global. Due to different fiscal periods,
the unaudited pro forma condensed combined financial information of FuelCell and
Global for the year ended October 31, 2002 combines the historical results of
FuelCell for the year ended October 31, 2002 and the historical results of
Global for the year ended December 31, 2002. The unaudited pro forma condensed
combined financial information of FuelCell and Global for the nine-month period
ended July 31, 2003 combines the nine-month period ended July 31, 2003 of
FuelCell with the nine-month period ended June 30, 2003, of Global.
The unaudited pro forma condensed combined financial data do not reflect
any cost savings or other synergies which may result from the Combination and
are not necessarily indicative of future results of operations or financial
position. THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA ARE
PRESENTED IN ACCORDANCE WITH U.S. GAAP IN U.S. DOLLARS. Accounting policies used
in the preparation of the pro forma combined financial statements are in
accordance with those used in the preparation of the historical financial
statements of FuelCell at October 31, 2002 and for the year then ended. The
unaudited pro forma condensed combined financial statements should be read in
conjunction with the summary historical financial data and the unaudited pro
forma condensed combined financial statements included in this Joint Proxy
Statement and the historical consolidated financial statements of FuelCell and
Global, including the notes thereto, in Annex H and Annex I to this Joint Proxy
Statement, respectively.
FOR THE NINE-MONTH
FOR THE YEAR ENDED PERIOD ENDED
OCTOBER 31, 2002 JULY 31, 2003
------------------------- -------------------------
(THOUSANDS OF U.S.$, (THOUSANDS OF U.S.$,
EXCEPT PER SHARE AMOUNTS) EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA
Net revenue..................................... $ 55,499 $ 37,958
Loss from continuing operations................. (66,685) (67,901)
Net loss applicable to common stock............. (66,597) (67,813)
Basic and diluted loss per common share......... (1.37) (1.39)
AS AT
JULY 31, 2003
-------------
(THOUSANDS OF
U.S.$)
BALANCE SHEET DATA
Total assets.......................................... 33$0,247 ...
Long-term obligations................................. 2,063 ....
Preferred shares of subsidiary........................ 8,400 ....
Stockholders' equity.................................. 292,998 ...
23
SUMMARY HISTORICAL FINANCIAL DATA OF FUELCELL
The following table sets forth summary historical financial data for
FuelCell for each of the three years ended October 31, 2002 and for the
nine-month periods ended July 31, 2002 and 2003. The summary historical
financial data are presented in accordance with U.S. GAAP in U.S. dollars. The
data set forth below should be read in conjunction with the historical financial
statements of FuelCell, including the notes thereto, included elsewhere in this
Joint Proxy Statement.
FOR THE
NINE-MONTH PERIODS
FOR THE YEARS ENDED OCTOBER 31, ENDED JULY 31,
-------------------------------- -------------------
2000 2001 2002 2002 2003
-------- --------- --------- -------- --------
(THOUSANDS OF U.S.$, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA
Revenue................................ $20,715 $ 26,179 $ 41,231 $ 27,528 $ 26,469
Operating loss......................... (6,733) (21,276) (53,819) (32,066) (55,768)
Net loss............................... (4,459) (15,438) (48,840) (28,094) (52,034)
Basic and diluted loss per common
share............................... (0.16) (0.45) (1.25) (0.72) (1.32)
AS AT OCTOBER 31,
--------------------------------------- AS AT
2000 2001 2002 JULY 31, 2003
----------- ----------- ----------- ---------------
(THOUSANDS OF U.S.$, EXCEPT SHARE AMOUNTS)
BALANCE SHEET DATA
Total assets.......................... $ 91,028 $ 334,020 $ 289,803 $ 236,127
Long-term debt........................ -- 1,252 1,696 1,562
Stockholders' equity.................. 83,251 319,716 271,702 219,971
Common shares outstanding............. 31,461,420 38,998,788 39,228,828 39,356,633
ANTICIPATED ACCOUNTING TREATMENT
FuelCell, as the accounting acquirer, will account for the Combination with
Global using the purchase method of accounting under U.S. GAAP.
U.S.-CANADIAN GAAP RECONCILIATION
The financial statements of FuelCell included in this Joint Proxy Statement
have been prepared in accordance with U.S. GAAP, which differs in certain
respects from Canadian GAAP. FuelCell and Global have received an order dated
September 30, 2003 from certain provincial regulatory authorities exempting them
from the requirement to provide a Canadian GAAP reconciliation of FuelCell's
financial statements.
24
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF GLOBAL UNDER CANADIAN GAAP
The following table sets forth summary historical consolidated financial
data for Global for each of the three periods ended December 31, 2000, 2001 and
2002 and the six months ended June 30, 2002 and 2003 and as at December 31,
2000, 2001 and 2002 and June 30, 2003. Global's historical consolidated
financial statements are prepared in accordance with Canadian GAAP, which
differs in certain respects from U.S. GAAP. Note 18 to Global's December 31,
2002 audited consolidated financial statements (in Global's Annual Information
Form for the year ended December 31, 2002 included in Annex I) provides a
reconciliation of the measurement differences between Global's financial
statements and U.S. GAAP.
The data set forth below should be read in conjunction with the historical
consolidated financial statements of Global, including the notes thereto,
included in Global's Annual Information Form for the year ended December 31,
2002 in Annex I to this Joint Proxy Statement and Global's Interim Report for
the quarter ended June 30, 2003 in Annex I to this Joint Proxy Statement.
FOR THE SIX-MONTH
FOR THE PERIODS ENDED DECEMBER 31, PERIODS ENDED JUNE 30,
-------------------------------------- -----------------------
2000 2001 2002 2002 2003
---------- ----------- ----------- ---------- ----------
(9 MONTHS) (12 MONTHS) (12 MONTHS)
(THOUSANDS OF CDN.$, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA
Revenue from continuing
operations...................... $14,649 $ 15,357 $ 21,770 $ 9,906 $ 10,845
Revenue -- fuel cell contract
research........................ -- -- 541 -- 203
Investment income.................. 3,605 5,911 2,899 1,418 1,338
Net loss from continuing
operations...................... (1,967) (12,968) (24,543) (12,923) (14,081)
Discontinued operations, net of
income tax...................... (372) 1,177 137 -- --
Net loss........................... (2,339) (11,791) (24,406) (12,923) (14,081)
Basic and diluted loss per common
share from continuing
operations...................... (0.09) (0.49) (0.89) (0.47) (0.51)
Basic and diluted net (loss)
earnings per common share from
discontinued operations......... (0.01) 0.04 0.01 -- --
Basic and diluted loss per common
share........................... (0.10) (0.45) (0.88) (0.47) (0.51)
AS AT DECEMBER 31,
------------------------------ AS AT
2000 2001 2002 JUNE 30, 2003
-------- -------- -------- --------------
(THOUSANDS OF CDN.$, EXCEPT SHARE AMOUNTS)
BALANCE SHEET DATA
Total assets................................. $160,675 $146,849 $122,403 $108,754
Long-term obligations........................ 630 407 486 751
Shareholders' equity......................... 151,467 139,272 114,465 99,918
Common shares outstanding (in thousands)..... 28,923 29,005 29,172 29,201
25
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement (including the documents attached as annexes to
this Joint Proxy Statement) contains forward-looking statements that are subject
to risks and uncertainties. All statements other than statements of historical
fact contained in this Joint Proxy Statement and the materials accompanying this
Joint Proxy Statement are forward-looking statements, including, without
limitation, statements regarding:
- asset portfolios - cost savings - budgets
- the timing for closing the - future earnings and financial - litigation
Combination position - plans and objectives of
- synergies and efficiencies - capital productivity management for future operations
from the Combination - business strategy - product development
- capital requirements and - the market for fuel cell - expected dates of production
spending technologies for products
- impact of Global's workforce - potential acquisitions - expected product performance
reduction - revenue enhancements
The forward-looking statements are based on the beliefs of management of
each of Global and FuelCell, as well as assumptions made by and information
currently available to management of each of Global and FuelCell. Frequently,
but not always, forward-looking statements are identified by the use of the
future tense and by words such as "believes," "expects," "anticipates,"
"intends," "will," "projects," "continues," "estimates" or similar expressions.
Forward-looking statements are not guarantees of future performance and actual
results could differ materially from those indicated by the forward-looking
statements. Forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause Global's, FuelCell's or their
respective industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements.
The forward-looking statements contained in this Joint Proxy Statement and
the materials accompanying this Joint Proxy Statement are forward-looking
statements within the meaning of Section 27A of the United States Securities Act
of 1933 and Section 21E of the United States Securities Exchange Act of 1934 and
are subject to the safe harbor created by the United States Private Securities
Litigation Reform Act of 1995. These statements include declarations regarding
Global's, FuelCell's or their respective management's plans, intentions, beliefs
or current expectations.
Among the important factors that could cause actual results to differ
materially from those indicated by forward-looking statements are the risks and
uncertainties described under "-- Risk Factors" and elsewhere in this Joint
Proxy Statement, in Global's other filings with Canadian securities
administrators and in FuelCell's other filings with the U.S. Securities and
Exchange Commission.
Neither Global nor FuelCell can provide any assurance that the plans,
intentions or expectations upon which forward-looking statements are based will
occur. Forward-looking statements are subject to risks, uncertainties and
assumptions, including those discussed elsewhere in this Joint Proxy Statement
and the documents that are attached as annexes to this Joint Proxy Statement.
Although Global and FuelCell believe that the expectations represented in
forward-looking statements are reasonable, neither Global nor FuelCell can
assure that these expectations will prove to be correct.
Forward-looking statements are expressly qualified in their entirety by
this cautionary statement. The forward-looking statements included in this Joint
Proxy Statement are made as of the date of this Joint Proxy Statement and
neither Global nor FuelCell undertakes any obligation to publicly update
forward-looking statements to reflect new information, subsequent events or
otherwise.
26
RISK FACTORS
THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION CONTAINED IN
THIS JOINT PROXY STATEMENT, INCLUDING THE ANNEXES ATTACHED HERETO, SHOULD BE
CAREFULLY CONSIDERED BY FUELCELL STOCKHOLDERS AND GLOBAL COMMON SHAREHOLDERS IN
EVALUATING WHETHER TO APPROVE THE COMBINATION. SOME OF THESE RISK FACTORS RELATE
DIRECTLY TO THE COMBINATION WHILE OTHERS RELATE TO THE BUSINESS OF EACH OF
FUELCELL AND GLOBAL INDEPENDENT OF THE COMBINATION, AS WELL AS TO THE
ANTICIPATED BUSINESS OF THE COMBINED COMPANY. BY VOTING IN FAVOR OF THE
COMBINATION, GLOBAL COMMON SHAREHOLDERS WILL BE CHOOSING TO INVEST IN FUELCELL
COMMON STOCK OR IN THE EXCHANGEABLE SHARES, WHICH ARE ULTIMATELY EXCHANGEABLE
FOR FUELCELL COMMON STOCK. BY VOTING IN FAVOR OF THE COMBINATION AGREEMENT AND
THE COMBINATION, FUELCELL STOCKHOLDERS WILL BE CHOOSING TO COMBINE GLOBAL'S
OPERATIONS WITH FUELCELL'S OPERATIONS. AN INVESTMENT IN FUELCELL COMMON STOCK,
WHICH AFTER THE COMBINATION WILL BE THE COMMON STOCK OF THE COMBINED COMPANY, OR
IN EXCHANGEABLE SHARES, INVOLVES A HIGH DEGREE OF RISK. ALL REFERENCES TO "WE",
"OUR", "US" AND THE "COMBINED COMPANY" REFER TO THE COMBINED OPERATIONS OF
FUELCELL AND GLOBAL ASSUMING COMPLETION OF THE COMBINATION, WITH GLOBAL
OPERATING AS A SUBSIDIARY OF FUELCELL.
RISKS RELATED TO THE COMBINATION
THE COMBINATION IS EXPECTED TO RESULT IN BENEFITS TO THE COMBINED COMPANY, BUT
THE COMBINED COMPANY MAY NOT REALIZE THOSE BENEFITS DUE TO CHALLENGES
ASSOCIATED WITH INTEGRATING THE COMPANIES.
The success of the Combination will be dependent in large part on the
success of the management of the combined company in integrating the operations,
technologies and personnel of the two companies following the effective time of
the Combination. The failure of the combined company to meet the challenges
involved in successfully integrating the operations of FuelCell and Global or
otherwise to realize any of the anticipated benefits of the Combination,
including anticipated cost savings described in this Joint Proxy Statement,
could seriously harm the results of operations of the combined company. In
addition, the overall integration of the two companies may result in
unanticipated operations problems, expenses and liabilities and diversion of
management's attention. The challenges involved in this integration include the
following:
- integrating successfully each company's operations, technologies,
products and services;
- coordinating sales and marketing efforts to effectively communicate the
capabilities of the combined company;
- demonstrating to the customers of FuelCell and Global that the
Combination will not result in adverse changes in business focus;
- coordinating and rationalizing research and development activities to
enhance introduction of new products and technologies with reduced cost;
- preserving distribution, marketing or other important relationships of
both FuelCell and Global and resolving potential conflicts that may
arise;
- assimilating the personnel of both companies and persuading employees
that the business cultures of both companies are compatible;
- maintaining employee morale and motivation, particularly given recent
cost reduction initiatives undertaken by both companies, and retaining
key employees; and
- reducing the costs associated with each company's operations.
FuelCell and Global may not be able to successfully integrate their
operations in a timely manner, or at all, and the combined company may not
realize the anticipated benefits or synergies of the Combination to the extent
or in the timeframe anticipated. The anticipated benefits and synergies include
cost savings associated with anticipated restructuring efforts and other
operational efficiencies, greater economies of scale and revenue enhancement
opportunities. In addition, FuelCell anticipates that Global's cash reserves
will provide the combined company with an increased ability to fund development
and operations. However, these anticipated benefits and synergies are based on
assumptions, not actual experience, and assume a successful integration. Also,
upon completion of the Combination, Global's cash reserves may be significantly
less than anticipated,
27
due to, among other things, the exercise of dissent rights by Global common
shareholders. The combined company's ability to realize these benefits and
synergies could be adversely impacted to the extent that FuelCell's or Global's
relationships with existing or potential customers, suppliers or strategic
partners is adversely affected as a consequence of the Combination, or by
practical or legal constraints on its ability to combine operations or implement
workforce reductions.
FUELCELL'S OPERATING RESULTS MAY SUFFER AS A RESULT OF PURCHASE ACCOUNTING
TREATMENT AND THE IMPACT OF AMORTIZATION OF INTANGIBLE ASSETS RELATING TO THE
COMBINATION.
FuelCell will account for the Combination using the purchase method of
accounting under U.S. GAAP. Under purchase accounting, FuelCell will record the
market value of its common stock issued in connection with the Combination, the
fair value of the outstanding options for Global common shares and outstanding
Global Series 2 Preferred Shares and the amount of direct transaction costs as
the cost of acquiring the business of Global. FuelCell will allocate that cost
to the individual assets acquired and liabilities assumed, including various
identifiable finite life intangible assets such as acquired backlog and customer
relationships based on their respective fair values. Intangible assets will be
amortized over the useful life of the asset, as determined by management. As a
result, purchase accounting treatment of the Combination may increase the net
loss for FuelCell in the foreseeable future, which could have an adverse effect
on the market value of FuelCell common stock following completion of the
Combination.
In addition, FuelCell and Global believe the combined company may incur
charges to operations, which are not currently reasonably estimable, in the
quarter in which the Combination is completed or subsequent quarters, to reflect
costs associated with integrating the two companies. It is possible that the
combined company will incur additional material charges in subsequent quarters
to reflect additional costs associated with the Combination.
FUELCELL AND GLOBAL EXPECT TO INCUR SIGNIFICANT COSTS ASSOCIATED WITH THE
COMBINATION.
FuelCell and Global estimate they could collectively incur direct
transaction costs of approximately $7.8 million in connection with the
Combination, including the $2 million termination fee paid to Quantum, but
excluding, on the part of Global, other expenses incurred in connection with the
Quantum Combination. FuelCell's direct transaction costs will be included as a
part of the total purchase cost for accounting purposes. This amount includes
approximately $1.8 million that FuelCell could incur upon the voluntary or
involuntary termination of certain of Global's executives pursuant to change of
control agreements. For more information about these change in control
agreements, please see "-- Description of the Combination -- Interests of
Certain Persons in the Combination" and "Chapter Seven -- Global Executive
Compensation and Related Information." Actual direct transaction costs incurred
in connection with the Combination may vary. In addition, FuelCell will incur
additional costs to the extent that any holders of issued and outstanding Global
common shares exercise their right to dissent and receive fair value for their
shares.
IF THE COMBINATION IS NOT COMPLETED, FUELCELL'S AND GLOBAL'S SHARE PRICES AND
FUTURE BUSINESS AND OPERATIONS COULD BE HARMED.
If the current market prices of FuelCell's common stock and Global's common
shares reflect an assumption that the Combination will be completed, the price
of their respective securities may decline if the Combination is not completed.
In addition, if the Combination is not completed, FuelCell may be required to
pay Global, or Global may be required to pay FuelCell, a termination fee of
either $2 million or an expense reimbursement fee of $900,000 for the party's
out-of-pocket expenses incurred in connection with the Combination Agreement.
Moreover, FuelCell's and Global's costs related to the Combination, including
legal, accounting and some of the fees of their financial advisors, must be paid
even if the Combination is not completed. For more information about these
costs, please see "-- Description of the Combination -- The Combination
Agreement -- Business Combination Costs."
28
In addition, if the Combination is not completed, FuelCell and Global may
be subject to a number of additional material risks, including the following:
- either company may forego other opportunities which would have otherwise
been available had the Combination Agreement not been executed,
including, without limitation, opportunities foregone as a result of
affirmative and negative covenants made by each company in the
Combination Agreement, such as covenants affecting the conduct of each
company's business outside the ordinary course of business; and
- either company may be unable to obtain additional sources of financing or
conclude another sale, merger or combination on as favorable terms, in a
timely manner, or at all.
FUTURE SALES OF SUBSTANTIAL AMOUNTS OF FUELCELL COMMON STOCK OR EXCHANGEABLE
SHARES COULD AFFECT THEIR MARKET PRICE AND THE DILUTION ASSOCIATED WITH THE
COMBINATION COULD AFFECT THE MARKET PRICE OF BOTH FUELCELL'S COMMON STOCK AND
EXCHANGEABLE SHARES.
Future sales of substantial amounts of FuelCell's common stock or
exchangeable shares into the public market, including shares of FuelCell common
stock issued upon exercise of options and warrants, could adversely affect the
prevailing market price of FuelCell common stock and exchangeable shares. Sales
of substantial amounts of FuelCell common stock or exchangeable shares into the
public market upon completion of the Combination, or perceptions that those
sales could occur, could adversely affect the prevailing market price and the
combined company's ability to raise capital in the future.
Pursuant to the terms of the Combination Agreement, FuelCell has agreed to:
- issue up to an aggregate of 9,986,896 shares of FuelCell common stock and
exchangeable shares to holders of Global common shares as of September
24, 2003 (assuming an exchange ratio of 0.342), which shares will be
freely tradable unless they are held by affiliates of Global or FuelCell;
- assume all outstanding options to purchase Global common shares; and
- assume the obligation to issue its shares upon the conversion of the
outstanding Global Series 2 Preferred Shares.
The issuance of all or some of these shares of FuelCell common stock could
have a dilutive effect and hence decrease the market price of the shares of
FuelCell common stock.
In addition, as of September 24, 2003, 7,517,482 shares of FuelCell's
common stock were required to be reserved for issuance under its stock option
and other benefit plans and 2,140,000 shares of FuelCell's common stock were
required to be reserved for issuance pursuant to outstanding warrants. As of
September 24, 2003, 5,317,516 options to purchase shares of FuelCell's common
stock were issued and outstanding under its stock option plans at a weighted
average exercise price of $9.94 per share, of which 3,323,015 options to
purchase shares had vested. The outstanding warrants to purchase 2,140,000
shares of FuelCell's common stock have not yet vested.
As of September 24, 2003, the holders of warrants to purchase 2,900,000
shares of FuelCell's common stock had the right, subject to various conditions,
to require FuelCell to file registration statements covering their shares or to
include their shares in registration statements that FuelCell may file for
itself or for other stockholders. By exercising their registration rights and
selling a large number of shares, these holders could cause the price of
FuelCell's common stock or the exchangeable shares to fall.
FLUCTUATIONS IN THE CANADIAN-U.S. EXCHANGE RATE AND IN THE MARKET PRICE OF
FUELCELL COMMON STOCK WILL AFFECT THE NUMBER AND VALUE OF EXCHANGEABLE SHARES
OR SHARES OF FUELCELL COMMON STOCK THAT THE GLOBAL COMMON SHAREHOLDERS WILL
RECEIVE IN THE COMBINATION.
The number and value of exchangeable shares or shares of FuelCell common
stock that Global common shareholders will receive in the Combination depends on
the market price of FuelCell's common stock and, in the case of Global's
Canadian common shareholders, the Canadian-U.S. exchange rate. Pursuant to the
terms
29
of the Combination, Global common shareholders are to receive a number of
exchangeable shares or shares of FuelCell common stock that is based on an
exchange ratio. The exchange ratio will be determined by dividing $2.72 by the
20-day volume-weighted average FuelCell stock price ending three days prior to
the Global Meeting. The exchange ratio will not be less than 0.279 or more than
0.342 of a share of FuelCell common stock.
Since the market price of FuelCell common stock and the Canadian-U.S.
exchange rate between the determination date for the 20-day volume-weighted
average of FuelCell stock price and the effective time of the Combination will
fluctuate and could possibly decline, the value of FuelCell common stock
actually received by Global common shareholders may be more or less than:
- the value actually used in calculating the exchange ratio;
- the 20-day volume-weighted average FuelCell common stock price; or
- the value of the FuelCell common stock at the effective time of the
Combination resulting from the exchange ratio.
FUELCELL'S FUTURE OPERATING RESULTS MAY FLUCTUATE, WHICH COULD RESULT IN A
LOWER PRICE FOR FUELCELL COMMON STOCK AND EXCHANGEABLE SHARES.
Following the completion of the Combination, the market price of FuelCell
common stock and exchangeable shares may decline below currently prevailing
levels. The market price of FuelCell common stock and exchangeable shares may be
adversely affected by numerous factors, including:
- actual or anticipated fluctuations in our operating results;
- changes in financial estimates by securities analysts; and
- general market conditions and other factors.
FuelCell's future operating results may fluctuate significantly depending
upon a number of factors, including general industry conditions.
THE COMPLETION OF THE COMBINATION IS SUBJECT TO THE SATISFACTION OF
CONDITIONS.
The obligations of FuelCell and Global to complete the Combination are
subject to the satisfaction or waiver, where permissible, of certain conditions
set forth in the Combination Agreement. Some of these conditions cannot be
waived, including obtaining the requisite approval of Global's common
shareholders, FuelCell's stockholders, the Court, relevant Canadian and U.S.
securities regulators, Nasdaq National Market and the Toronto Stock Exchange. If
these conditions are not satisfied, the Combination will not be completed. Also,
even if all of these conditions are satisfied, the Combination may not be
completed, as Global has the right to terminate the Combination Agreement if
FuelCell's 15-day volume-weighted average stock price, calculated on a rolling
basis, is less than $6.65, until the completion of the Combination. For more
information regarding this termination provision, please see "-- Description of
the Combination-Combination Agreement -- Termination."
SOME OF THE CONDITIONS TO THE COMBINATION MAY BE WAIVED BY FUELCELL OR GLOBAL
WITHOUT RESOLICITING SHAREHOLDER APPROVAL FOR THE COMBINATION.
Some of the conditions set forth in the Combination Agreement may be waived
by Global or FuelCell, subject to the agreement of the other party in specific
cases. If those conditions are waived, FuelCell and Global will evaluate whether
an amendment to the Joint Proxy Statement and a resolicitation of proxies is
warranted. In the event that the board of directors of FuelCell or Global
determines that resolicitation of proxies is not warranted, the applicable
company will have the discretion to complete the Combination without seeking
further shareholder approval.
30
MEMBERS OF THE MANAGEMENT AND BOARD OF DIRECTORS OF GLOBAL HAVE INTERESTS IN
THE COMBINATION THAT MAY PRESENT THEM WITH ACTUAL OR POTENTIAL CONFLICTS OF
INTEREST IN CONNECTION WITH THE COMBINATION.
In considering whether to approve the Combination, Global's common
shareholders and FuelCell's stockholders should recognize that some of the
members of management and board of directors of Global have interests in the
Combination that differ from, or are in addition to, their interests as Global
common shareholders or FuelCell stockholders. These interests include:
- indemnification of officers and directors of Global against certain
liabilities;
- rights of Global officers and directors to receive termination payments
on a change of control;
- future FuelCell board of directors membership for one and possibly two
designees of Global; and
- the assumption, and continued vesting, of Global stock options.
In addition, two directors of Global are significant shareholders of
Foundation Equity Corporation, which, as of the date of this Joint Proxy
Statement, holds approximately 8.9% of Global's common shares.
These interests are described in "-- Description of the
Combination -- Interests of Certain Persons in the Combination."
RISKS RELATED TO THE OPERATIONS OF THE COMBINED COMPANY
BOTH FUELCELL AND GLOBAL HAVE RECENTLY INCURRED LOSSES AND ANTICIPATE
CONTINUED LOSSES AND NEGATIVE CASH FLOW.
FuelCell is currently transitioning from a research and development company
that has been primarily dependent on government contracts to a company focusing
on commercial products. As such, FuelCell has not achieved profitability since
its fiscal year ended October 31, 1997 and expects to continue to incur net
losses and generate negative cash flow until it can produce sufficient revenues
to cover its costs. FuelCell incurred net losses of $48,840,000 for the fiscal
year ended October 31, 2002. Even if FuelCell achieves its objective of bringing
its first commercial product to market in calendar 2003, it anticipates that it
will continue to incur losses and generate negative cash flow until it can
cost-effectively produce and sell its Direct FuelCell products, which it does
not expect to occur for several years. FuelCell may never become profitable. In
addition, Global is several years away from commercializing its SOFC products
and is not expected to operate profitably for some time, if ever. Even if the
combined company does achieve profitability, it may be unable to sustain or
increase its profitability in the future. The combined company may never become
profitable. For the reasons discussed in more detail below, there are
substantial uncertainties associated with the combined company's achieving and
sustaining profitability.
OUR COST REDUCTION STRATEGY MAY NOT SUCCEED OR MAY BE SIGNIFICANTLY DELAYED.
Our cost reduction strategy is based on the assumption that a significant
increase in production will result in the realization of economies of scale. In
addition, certain aspects of our cost reduction strategy rely on advancements in
our manufacturing process, engineering design and technology (including
projected power output) that, to a large degree, are currently not
ascertainable. A failure by us to achieve a lower cost structure through
economies of scale, improvements in the manufacturing process and engineering
design and technology maturation would have a material adverse effect on our
commercialization plans and, therefore, our business, prospects, results of
operations and financial condition.
We expect the production costs of our initial commercial products to be
higher than their sales prices. We recognize that successfully implementing our
strategy and obtaining a significant share of the distributed generation market
will require that we offer our Direct FuelCell and SOFC products at competitive
prices, which can only be accomplished when production costs are cut
substantially from current levels. If we are unable to produce Direct FuelCell
or SOFC products at competitive prices relative to alternative technologies and
products, our target market customers will be unlikely to buy our fuel cell
products.
31
OUR PRODUCTS WILL COMPETE WITH PRODUCTS USING OTHER ENERGY SOURCES, AND IF THE
PRICES OF THE ALTERNATIVE SOURCES ARE LOWER THAN ENERGY SOURCES USED BY OUR
PRODUCTS, SALES OF OUR PRODUCTS WILL BE ADVERSELY AFFECTED.
FuelCell's Direct FuelCell has been demonstrated using a variety of
hydrocarbon fuels, including natural gas, methanol, diesel, biogas, coal gas,
coal mine methane and propane. Global's fuel cells have been demonstrated using
natural gas. If these fuels are not readily available or if their prices are
such that electricity produced by our products costs more than electricity
provided through other generation sources, our products would be less
economically attractive to potential energy users. In addition, we have no
control over the prices of several types of competitive energy sources such as
oil, gas or coal. Significant decreases in the price of these inputs could also
have a material adverse effect on our business because other generation sources
could be more economically attractive to consumers than our Direct FuelCell
products.
COMMERCIALIZATION OF OUR PRODUCTS IS DEPENDENT ON CONDUCTING SUCCESSFUL FIELD
TRIALS.
One key aspect of our strategy is to leverage the success of our
demonstration, field trial and field follow projects into long-term
distributor-type relationships that will result in these distributors marketing
our Direct FuelCell and SOFC products directly to energy customers. For example,
MTU is currently field-testing seven 250 kW power plants in Germany that
incorporate the Direct FuelCell as their fuel cell components and FuelCell is
operating seven units in the United States and one unit in Japan. FuelCell
believes that its fuel cell commercialization program is dependent upon
conducting additional commercial field trials and demonstration projects of its
power plants and completing substantial additional research and development.
FuelCell has planned several field trials and demonstration projects for its
sub-megawatt and megawatt class stationary fuel cell power plants. FuelCell has
not yet, however, conducted any field trials of its proposed commercial design
megawatt class products.
Demonstration, field trial and field follow projects may encounter problems
and delays for a number of reasons, including the failure of technology, the
failure of the technology of others (including balance of plant), the failure to
combine these technologies properly (including control system coordination) and
the failure to maintain and service the test prototypes properly. Many of these
potential problems and delays are beyond our control. A failure by us to conduct
field trials and demonstration projects of our megawatt class products or a
failure to site the scheduled sub-megawatt power plants and complete these
commercial field trials and research and development as currently planned could
delay the timetable by which we believe we can begin to commercially sell our
Direct FuelCell and SOFC products. The failure of planned commercial field
trials to perform as well as we anticipate could also have a material adverse
effect on our commercialization plans, including the ability to enter into
long-term distributor-type relationships for our Direct FuelCell and SOFC
products. Any delay, performance failure or perceived problem with our field
trials could hurt our reputation in the distributed generation market and,
therefore, could have a material adverse effect on our business, prospects,
results of operations and financial condition.
FUELCELL AND GLOBAL CURRENTLY FACE AND WILL CONTINUE TO FACE SIGNIFICANT
COMPETITION.
FuelCell's Direct FuelCell currently faces, and will continue to face,
significant competition, as will any SOFC products introduced in the future.
Technological advances in alternative energy products or improvements in the
electric grid or other fuel cell technologies may negatively affect the
development or sale of some or all of our products or make our products
uncompetitive or obsolete prior to commercialization or afterwards. Other
companies, some of which have substantially greater resources than us, are
currently engaged in the development of products and technologies that are
similar to, or may be competitive with, our products and technologies.
As our Direct FuelCell and SOFC products have the potential to replace
existing power sources, competition with our products will come from current
power technologies, from improvements to current power technologies and from new
alternative power technologies, including other types of fuel cells. The
distributed generation market -- our target market -- is currently serviced by
several manufacturers with
32
existing customers and suppliers. These manufacturers use proven and widely
accepted technologies such as internal combustion engines and turbines as well
as coal, oil and nuclear powered generators.
FuelCell believes that it is the only domestic company engaged in
significant manufacturing and commercialization of carbonate fuel cells in the
sub-megawatt and megawatt classes. In Asia, at least three manufacturers have
demonstrated varying levels of interest in developing and marketing carbonate
fuel cells. One of these manufacturers has demonstrated extended operation of a
200 kW carbonate fuel cell. Two of these manufacturers have jointly demonstrated
extended operation of a 100 kW carbonate fuel cell and recently tested a 1 MW
plant. In Italy, a company engaged in carbonate fuel cell development is a
potential competitor. FuelCell's licensee in Germany, MTU, and its partners have
conducted the most significant activity in Europe.
Other types of fuel cell and alternative energy technologies are being
actively pursued by a number of companies. Customers have not yet identified the
technologies of choice for alternative energy sources. Emerging fuel cell
technologies that may compete with our fuel cell products in the target
distributed generation market include proton exchange membrane fuel cells and
phosphoric acid fuel cells. Competitors using or developing these and other fuel
cell technologies include Ballard Power Systems, Inc., UTC Fuel Cells, Plug
Power, Inc. in the case of proton exchange membrane fuel cells; UTC Fuel Cells
in the case of phosphoric acid fuel cells; and SiemensWestinghouse Electric
Company, Sulzer Hexis, McDermott, GE/Honeywell and Delphi in the case of solid
oxide fuel cells. Each of these competitors has the potential to capture market
share in our target market, which could have a material adverse effect on our
position in the industry.
WE MAY NOT MEET OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION MILESTONES.
FuelCell has established product development and commercialization
milestones that it uses to assess its progress toward developing commercially
viable Direct FuelCell products. These milestones relate to technology and
design improvements as well as to dates for achieving development goals. To
gauge our progress, we operate, test and evaluate our Direct FuelCell products
under actual conditions and will do the same with our SOFC products. If
FuelCell's systems exhibit technical defects or are unable to meet cost or
performance goals, including power output, useful life and reliability, our
commercialization schedule could be delayed and potential purchasers of our
initial commercial Direct FuelCell products and future SOFC products may decline
to purchase them or choose to purchase alternative technologies. We cannot be
sure that we will successfully achieve our milestones in the future or that any
failure to achieve these milestones will not result in potential competitors
gaining advantages in our target market. Failure to meet publicly announced
milestones might have a material adverse effect on our operations and our stock
price.
FUELCELL HAS LIMITED EXPERIENCE MANUFACTURING ITS DIRECT FUELCELL PRODUCTS ON
A COMMERCIAL BASIS AND GLOBAL HAS NO SUCH EXPERIENCE WITH SOFC PRODUCTS.
To date, FuelCell and Global have focused primarily on research and
development and conducting demonstrations and field trials. FuelCell has limited
experience manufacturing its Direct FuelCell products on a commercial basis and
Global has no such experience with SOFC products. FuelCell has recently
installed additional equipment that will allow it to produce 50 MW per year.
FuelCell expects that it will then increase its manufacturing capacity based on
market demand. FuelCell can expand its manufacturing capacity to 150 MW at its
current facility. FuelCell cannot be sure that it will be able to achieve its
planned increases in production capacity. Also, as FuelCell scales up its
production capacity, it cannot be sure that unplanned failures or other
technical problems relating to the manufacturing process will not occur.
If our business grows more quickly than we anticipate, our existing and
planned manufacturing facilities may become inadequate and we may need to seek
out new or additional space, at considerable cost to us. If our business does
not grow as quickly as we expect, our existing and planned manufacturing
facilities would in part represent excess capacity for which we may not recover
the cost; in that circumstance, our revenues may be inadequate to support our
committed costs and our planned growth, and our gross margins and business
strategy would suffer.
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Even if we are successful in achieving our planned increases in production
capacity, we cannot be sure that we will do so in time to meet our product
commercialization schedule or to satisfy the requirements of our customers.
Given our dependence on government research and development contracts and the
necessity of providing government entities with substantial amounts of
information, our sales process has historically been long and time-consuming. We
will need to continue to shorten the time from initial contact to final product
delivery if we hope to expand production, reach a wider customer base and
forecast revenues with any degree of certainty. Additionally, we cannot be sure
that we will be able to develop efficient, low-cost manufacturing capabilities
and processes (including automation) that will enable us to meet our cost goals
and profitability projections. Our failure to shorten the sales cycle for our
Direct FuelCell products or to develop these advanced manufacturing capabilities
and processes, or meet our cost goals, could have a material adverse effect on
our business, prospects, results of operations and financial condition.
OUR COMMERCIALIZATION PLANS ARE DEPENDENT ON MARKET ACCEPTANCE OF ITS DIRECT
FUELCELL AND SOFC PRODUCTS.
FuelCell's commercialization plans, which include bringing its sub-megawatt
and megawatt class Direct FuelCell products to market in calendar year 2003, are
dependent upon market acceptance of, as well as enhancements to, those products.
Fuel cell systems represent an emerging market, and we cannot be sure that
potential customers will accept fuel cells as a replacement for traditional
power sources. As is typical in a rapidly-evolving industry, demand and market
acceptance for recently-introduced products and services are subject to a high
level of uncertainty and risk. Since the distributed generation market is new
and evolving, it is difficult to predict with certainty the size of the market
and its growth rate. The development of a market for our Direct FuelCell and
SOFC products may be affected by many factors that are out of our control,
including:
- the cost competitiveness of our fuel cell products;
- the future costs of natural gas and other fuels used by our fuel cell
products;
- consumer reluctance to try a new product;
- consumer perceptions of the safety of our fuel cell products;
- the pace of utility deregulation nationwide, which could affect the
market for distributed generation;
- local permitting and environmental requirements; and
- the emergence of newer, more competitive technologies and products.
If a sufficient market fails to develop or develops more slowly than we
anticipate, we may be unable to recover the losses we will have incurred in the
development of Direct FuelCell and SOFC products and may never achieve
profitability.
As we continue to commercialize our Direct FuelCell products and work
towards the future commercialization of our SOFC products, we will continue to
develop warranties, production guarantees and other terms and conditions
relating to our products that will be acceptable to the marketplace, continue to
develop a service organization that will aid in servicing our products and
obtain self-regulatory certifications, if available, with respect to our
products. Failure to achieve any of these objectives may also slow the
development of a sufficient market for our products and, therefore, have a
material adverse effect on our results of operations.
WE MUST LOWER THE COST OF OUR SOLID OXIDE FUEL CELL SYSTEMS AND DEMONSTRATE
THEIR RELIABILITY.
Global's solid oxide fuel cell systems are currently in the development
stage. While proof of concept prototypes have been developed and tested in
controlled conditions, these systems have not yet undergone extensive testing,
nor have the designs been refined to the level of a commercial product. The
prototypes incorporate specialty components that are produced in one-off or
small batch quantities. The current prototypes cost significantly more and
perform at a lower level than established competing technologies. Although the
combined company intends to remain committed to commercializing SOFC technology,
if we
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are unable to develop and manufacture fuel cell systems that are competitive
with competing technologies in terms of price, reliability and longevity,
consumers will be unlikely to buy products containing solid oxide fuel cells and
fuel cell systems. The price of fuel cell systems is dependent largely on
material and manufacturing costs and the cost of "balance of plant" components.
We cannot guarantee that we will be able to lower these costs to the level where
we will be able to produce a competitive product or that any product produced
using lower cost materials and manufacturing processes will not suffer from a
reduction in performance, reliability and longevity.
FUELCELL'S GOVERNMENT RESEARCH AND DEVELOPMENT CONTRACTS ARE IMPORTANT TO THE
IMPLEMENTATION OF ITS COMMERCIALIZATION PLANS.
FuelCell's fuel cell revenues have been principally derived from a
long-term cooperative agreement and other contracts with the U.S. Department of
Energy ("DOE"), the U.S. Department of Defense ("DOD"), the U.S. Navy and the
U.S. Environmental Protection Agency ("EPA"). These agreements are important to
the continued development and commercialization of FuelCell's technology and its
products.
Generally, FuelCell's U.S. government research and development contracts,
including the DOE cooperative agreement, are subject to the risk of termination
at the convenience of the contracting agency. Furthermore, these contracts,
irrespective of the amounts allocated by the contracting agency, are subject to
annual congressional appropriations and the results of government or agency
sponsored audits of our cost reduction efforts and our cost projections.
FuelCell can only receive funds under these contracts ultimately made available
to it annually by Congress as a result of the appropriations process.
Accordingly, FuelCell cannot be sure whether it will receive the full amount
allocated by the DOE under the DOE cooperative agreement or the full amounts
allocated under its other government research and development contracts. Failure
to receive the full amounts allocated under any of FuelCell's government
research and development contracts could materially adversely affect its
commercialization plans and, therefore, its business, prospects, results of
operations and financial condition.
THE UNITED STATES GOVERNMENT HAS CERTAIN RIGHTS RELATING TO FUELCELL'S
INTELLECTUAL PROPERTY.
Many of FuelCell's United States patents relating to its carbonate fuel
cell technology are the result of government-funded research and development
programs, including the DOE cooperative agreement. Four of FuelCell's patents
that were the result of DOE-funded research prior to January 1988 (the date that
FuelCell qualified as a "small business") are owned by the United States
government and have been licensed to FuelCell. This license is revocable only in
the limited circumstances where it has been demonstrated that FuelCell is not
making an effort to commercialize the invention. FuelCell's patents that were
the result of DOE-funded research after January 1988 automatically belong to it
because of its "small business" status. Under current regulations, patents
resulting from research funded by government agencies other than the DOE are
owned by FuelCell, whether or not it is a "small business."
Fourteen United States patents that FuelCell owns have resulted from
government-funded research and are subject to the risk of exercise of "march-in"
rights by the government. March-in rights refer to the right of the United
States government or government agency to exercise its non-exclusive,
royalty-free, irrevocable worldwide license to any technology developed under
contracts funded by the government if the contractor fails to continue to
develop the technology. These "march-in" rights permit the United States
government to take title to these patents and license the patented technology to
third parties if the contractor fails to utilize the patents. In addition,
FuelCell's DOE-funded research and development agreements also require it to
agree that it will not provide to a foreign entity any fuel cell technology
subject to that agreement unless the fuel cell technology will be substantially
manufactured in the U.S.
WE MAY NO LONGER QUALIFY AS A "SMALL BUSINESS," WHICH COULD ADVERSELY AFFECT
OUR RIGHTS TO PATENTS UNDER DOE-FUNDED CONTRACTS.
We may no longer qualify as a "small business" under applicable government
regulations because we will have more than 500 employees after the Combination.
That would affect our ability to own outright those
35
patents we may develop under contracts, grants or cooperative agreements funded
by DOE in the future. The failure to qualify as a "small business" would not,
however, affect our existing contracts, grants or cooperative agreements with
the DOE, or our ownership of patents we developed with DOE funds under contracts
entered into while we qualified as a "small business". If we are unable to
certify in future proposals to DOE that we qualify as a "small business", we
would not own patents we develop under contracts, grants or cooperative
agreements funded by DOE based on such proposals, unless we obtain a patent
waiver from DOE. If we do not qualify as a small business, we may attempt to
obtain a waiver from the DOE. We believe we would be able to obtain patent
waivers from the DOE for future contracts, however, we can make no assurances or
guarantees that we will be able to obtain such waivers. Without a waiver, we
would retain only a nonexclusive license to those patents. We will continue to
retain ownership of patents developed with governmental agencies other than the
DOE because non-DOE contracts, grants or cooperative agreements are not affected
by a loss of our "small business" status. Failure to continue to qualify as a
"small business" will also eliminate our eligibility to participate in future
U.S. Small Business Innovation Research program contracts.
WE MAY BE RESTRICTED IN PURSUING CERTAIN ACTIVITY OUTSIDE CANADA OR WITH
CERTAIN PARTNERS IN PARTS OF CANADA.
We will be subject to the contractual terms of Global's existing agreements
that restrict its ability to pursue certain commercial activities. Global has
entered into agreements with the National Research Council of Canada which
require that, until at least March 2004, Global obtain prior written consent in
order to conduct manufacturing using any results from the development of
projects under these agreements outside of Canada or sell, assign, transfer or
otherwise dispose of any rights to intellectual property arising out of such
project to any person or organization outside of Canada, or to any government
other than the Canadian government. Additionally, Global has entered into a
development agreement with Natural Resources Canada/ CANMET whereby Global may
not license the intellectual property developed in performance of the project to
any government other than the Canadian government, or to any person,
corporation, partnership or business for the purpose of manufacturing outside
Canada the products or processes resulting from the project without the prior
consent of the applicable Canadian government agency. Global has also appointed
an exclusive distributor for certain products in areas within Canada, thereby
limiting our future ability to use any other distributors for those products in
those areas.
OUR FUTURE SUCCESS AND GROWTH IS DEPENDENT ON OUR DISTRIBUTION STRATEGY.
We do not plan to establish a direct distribution infrastructure for our
Direct FuelCell or SOFC products. A key aspect of our strategy is to use
multiple third-party distribution channels to ultimately service our diverse
customer base. Depending on the needs of the customer, our Direct FuelCell and
SOFC products could be distributed through a value-added distributor who could
provide a package of our products and various other components such as flywheels
and battery storage devices; through an energy services company who could
arrange various ancillary services for the customer; or through power generation
equipment suppliers.
We cannot assure you that we will enter into distributor relationships that
are consistent with, or sufficient to support, our commercialization plans or
our growth strategy or that these relationships will be on terms favorable to
us. Even if we enter into these types of relationships, we cannot assure you
that the distributors with which we form relationships will focus adequate
resources on selling our products or will be successful in selling them. Some of
these distributor arrangements have or will require that we grant exclusive
distribution rights to companies in defined territories. These exclusive
arrangements could result in us being unable to enter into other arrangements at
a time when the distributor with which we form a relationship is not successful
in selling our products or has reduced its commitment to marketing our products.
In addition, two of our current distributor arrangements include, and some
future distributor arrangements may also include, the issuance of equity and
warrants to purchase our equity, which may have an adverse effect on our stock
price. To the extent we enter into distributor relationships, the failure of
these distributors in assisting us with
36
the marketing and distribution of our products may adversely affect our results
of operations and financial condition.
We cannot be sure that MTU will continue to, or original equipment
manufacturers ("OEMs") will, manufacture or package products using our Direct
FuelCell or SOFC components. In this area, our success will largely depend upon
our ability to make our products compatible with the power plant products of
OEMs and the ability of these OEMs to sell their products containing our
products. In addition, some OEMs may need to redesign or modify their existing
power plant products to fully incorporate our products. Accordingly, any
integration, design, manufacturing or marketing problems encountered by MTU or
other OEMs could adversely affect the market for our Direct FuelCell or SOFC
products and, therefore, our business, prospects, results of operations and
financial condition.
WE DEPEND ON THIRD PARTY SUPPLIERS FOR THE DEVELOPMENT AND SUPPLY OF KEY
COMPONENTS FOR DIRECT FUELCELL AND SOFC PRODUCTS.
Both Global and FuelCell purchase several key components of their products
from other companies and rely on third-party suppliers for the balance-of-plant
components in Direct FuelCell products and SOFC products. There are a limited
number of suppliers for some of the key components of Direct FuelCell and SOFC
products. A supplier's failure to develop and supply components in a timely
manner or to supply components that meet our quality, quantity or cost
requirements or technical specifications or our inability to obtain alternative
sources of these components on a timely basis or on terms acceptable to us could
harm our ability to manufacture our Direct FuelCell and SOFC products. In
addition, to the extent the processes that our suppliers use to manufacture
components are proprietary, we may be unable to obtain comparable components
from alternative suppliers.
We do not know when or whether we will secure long-term supply
relationships with any of our suppliers or whether such relationships will be on
terms that will allow us to achieve our objectives. Our business, prospects,
results of operations and financial condition could be harmed if we fail to
secure long-term relationships with entities that will supply the required
components for our Direct FuelCell and SOFC products.
WE DEPEND ON OUR INTELLECTUAL PROPERTY, AND OUR FAILURE TO PROTECT THAT
INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR FUTURE GROWTH AND SUCCESS.
Failure to protect our existing intellectual property rights may result in
the loss of our exclusivity or the right to use our technologies. If we do not
adequately ensure our freedom to use certain technology, we may have to pay
others for rights to use their intellectual property, pay damages for
infringement or misappropriation or be enjoined from using such intellectual
property. FuelCell does not currently conduct freedom to operate analyses. We
rely on patent, trade secret, trademark and copyright law to protect our
intellectual property. The patents that FuelCell has obtained will expire
between 2003 and 2021 and the average remaining life of FuelCell's U.S. patents
is approximately 9.4 years. The patent that Global has obtained will expire in
2019. Some of our intellectual property is not covered by any patent or patent
application and includes trade secrets and other know-how that is not
patentable, particularly as it relates to our manufacturing processes and
engineering design. In addition, some of our intellectual property includes
technologies and processes that may be similar to the patented technologies and
processes of third parties. If we are found to be infringing third-party
patents, we do not know whether we will able to obtain licenses to use such
patents on acceptable terms, if at all. Our patent position is subject to
complex factual and legal issues that may give rise to uncertainty as to the
validity, scope and enforceability of a particular patent. Accordingly, we
cannot assure you that:
- any of the U.S., Canadian or other foreign patents owned by FuelCell or
Global or other patents that third parties license to us will not be
invalidated, circumvented, challenged, rendered unenforceable or licensed
to others; or
- any of our pending or future patent applications will be issued with the
breadth of claim coverage sought by us, if issued at all.
37
In addition, effective patent, trademark, copyright and trade secret protection
may be unavailable, limited or not applied for in certain foreign countries.
We also seek to protect our proprietary intellectual property, including
intellectual property that may not be patented or patentable, in part by
confidentiality agreements and, if applicable, inventors' rights agreements with
our subcontractors, vendors, suppliers, consultants, strategic partners and
employees. We cannot assure you that these agreements will not be breached, that
we will have adequate remedies for any breach or that such persons or
institutions will not assert rights to intellectual property arising out of
these relationships. Certain of our intellectual property has been licensed to
us on a non-exclusive basis from third parties that may also license such
intellectual property to others, including our competitors. If our licensors are
found to be infringing third-party patents, we do not know whether we will be
able to obtain licenses to use the intellectual property licensed to us on
acceptable terms, if at all.
If necessary or desirable, we may seek extensions of existing licenses or
further licenses under the patents or other intellectual property rights of
others. However, we can give no assurances that we will obtain such extensions
or further licenses or that the terms of any offered licenses will be acceptable
to us. The failure to obtain a license from a third party for intellectual
property that we use at present could cause us to incur substantial liabilities,
and to suspend the manufacture or shipment of products or our use of processes
requiring the use of that intellectual property.
While we are not currently engaged in any material intellectual property
litigation, we could become subject to lawsuits in which it is alleged that we
have infringed the intellectual property rights of others or commence lawsuits
against others who we believe are infringing upon our rights. Our involvement in
intellectual property litigation could result in significant expense to us,
adversely affecting the development of sales of the challenged product or
intellectual property and diverting the efforts of our technical and management
personnel, whether or not that litigation is resolved in our favor.
THERE MAY BE LIMITATIONS ON OUR RIGHT TO EXPLOIT TECHNOLOGY JOINTLY DEVELOPED
BETWEEN GLOBAL AND STRATEGIC PARTNERS.
The extent to which we will own or otherwise have the right to commercially
exploit technology developed in connection with certain of Global's strategic
alliances is not clear. Due to ambiguities under some of Global's applicable
joint development agreements, it is unclear whether we will have the right to
exploit technology arising from these alliances (exclusively or otherwise) or
whether we can stop competitors from exploiting the technology. In the event
that a strategic partner of Global challenges our use of certain technology, we
could incur substantial litigation costs, be forced to make expensive products,
pay substantial damages or royalties or even be forced to cease operations.
OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED
MANAGEMENT AND TECHNICAL PERSONNEL.
Our future success is substantially dependent on the continued services and
on the performance of our executive officers and other key management,
engineering, scientific, manufacturing and operating personnel, particularly
Jerry Leitman, our President and Chief Executive Officer, Joseph Mahler, our
Chief Financial Officer, and Dr. Hansraj Maru and Christopher Bentley, Executive
Vice Presidents. The loss of the services of any executive officer, including
Mr. Leitman, Mr. Mahler, Dr. Maru and Mr. Bentley, or other key management,
engineering, scientific, manufacturing and operating personnel could materially
adversely affect our business. Our ability to achieve our development and
commercialization plans will also depend on our ability to attract and retain
additional qualified management and technical personnel. Recruiting personnel
for the fuel cell industry is competitive. We do not know whether we will be
able to attract or retain additional qualified management and technical
personnel. Our inability to attract and retain additional qualified management
and technical personnel, or the departure of key employees, could materially
adversely affect our development and commercialization plans and, therefore, our
business, prospects, results of operations and financial condition.
38
OUR MANAGEMENT MAY BE UNABLE TO MANAGE RAPID GROWTH EFFECTIVELY.
We expect to rapidly expand our manufacturing capabilities, accelerate the
commercialization of our products and enter a period of rapid growth, which will
place a significant strain on our senior management team and our financial and
other resources. The proposed expansion will expose us to increased competition,
greater overhead, marketing and support costs and other risks associated with
the commercialization of a new product. Our ability to manage our rapid growth
effectively will require us to continue to improve our operations, to improve
our financial and management information systems and to train, motivate and
manage our employees. Difficulties in effectively managing the budgeting,
forecasting and other process control issues presented by such a rapid expansion
could harm our business, prospects, results of operations and financial
condition.
WE MAY BE AFFECTED BY ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION.
As we begin to commercialize our Direct FuelCell and SOFC products, we will
be subject to federal, state, provincial or local regulation with respect to,
among other things, emissions and siting. Assuming no co-generation applications
are used in conjunction with our larger plants, they will discharge humid flue
gas at temperatures of approximately 700-800(LOGO) F, water at temperatures of
approximately 10-20(LOGO)F above ambient air temperatures and carbon dioxide.
These emissions will require permits that we expect (but cannot ensure) will be
similar to those applicable to generating units.
In addition, it is possible that industry-specific laws and regulations
will be adopted covering matters such as transmission scheduling, distribution
and the characteristics and quality of our products, including installation and
servicing. This regulation could limit the growth in the use of carbonate and
SOFC products, decrease the acceptance of fuel cells as a commercial product and
increase our costs and, therefore, the price of our Direct FuelCell and SOFC
products. Accordingly, compliance with existing or future laws and regulations
as we begin to commercialize and site our products could have a material adverse
effect on our business, prospects, results of operations and financial
condition.
DOE APPROVAL TO USE GLOBAL IN THE SECA PROGRAM IS UNCERTAIN.
Although the DOE has selected FuelCell for the SECA project, the DOE could
restructure its grant based on the Combination. If the DOE did restructure its
grant, FuelCell could lose the opportunity to be awarded some or all of the
funding for the SECA project. In addition, FuelCell is not guaranteed to receive
any payments from the SECA project.
UTILITY COMPANIES COULD IMPOSE CUSTOMER FEES OR INTERCONNECTION REQUIREMENTS
TO OUR CUSTOMERS THAT COULD MAKE OUR PRODUCTS LESS DESIRABLE.
Utility companies commonly charge fees to larger, industrial customers for
disconnecting from the electric grid or for having the capacity to use power
from the electric grid for back up purposes. These fees could increase the cost
to our customers of using our Direct FuelCell and SOFC products and could make
our products less desirable, thereby harming our business, prospects, results of
operations and financial condition.
Several states (Texas, New York, California and others) have created and
adopted or are in the process of creating their own interconnection regulations
covering both technical and financial requirements for interconnection to
utility grids. Depending on the complexities of the requirements, installation
of our systems may become burdened with additional costs that might have a
negative impact on our ability to sell systems. There is also a burden in having
to track the requirements of individual states and design equipment to comply
with the varying standards. The Institute of Electrical and Electronics
Engineers has been working to create an interconnection standard addressing the
technical requirements for distributed generation to interconnect to utility
grids. Many parties are hopeful that this standard will be adopted nationally
when it is completed to help reduce the barriers to deployment of distributed
generation such as fuel cells, however enaction of this standard may be delayed
or never completed thereby limiting the commercial prospects and profitability
of our fuel cell systems.
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CHANGES IN GOVERNMENT REGULATIONS AND ELECTRIC UTILITY INDUSTRY RESTRUCTURING
MAY AFFECT DEMAND FOR OUR DIRECT FUELCELL AND SOFC PRODUCTS.
Our target market, the distributed generation market, is driven by
deregulation and restructuring of the electric utility industry in the United
States and elsewhere and by the requirements of utilities, independent power
producers and end users. Deregulation of the electric utility industry is
subject to government policies that will determine the pace and extent of
deregulation. Many states have recently delayed the implementation of
deregulation as a result of power disturbances in California several summers
ago. Changes in government and public policy over time could further delay or
otherwise affect deregulation and, therefore, adversely affect our prospects for
commercializing our Direct FuelCell and SOFC products and our financial results.
We cannot predict how the deregulation and restructuring of the electric utility
industry will ultimately affect the market for our Direct FuelCell and SOFC
products.
WE COULD BE LIABLE FOR ENVIRONMENTAL DAMAGES RESULTING FROM OUR RESEARCH,
DEVELOPMENT OR MANUFACTURING OPERATIONS.
Our business exposes us to the risk of harmful substances escaping into the
environment, resulting in personal injury or loss of life, damage to or
destruction of property, and natural resource damage. Depending on the nature of
the claim, our current insurance policies may not adequately reimburse us for
costs incurred in settling environmental damage claims, and in some instances,
we may not be reimbursed at all. Our business is subject to numerous federal,
state and local laws and regulations that govern environmental protection and
human health and safety. These laws and regulations have changed frequently in
the past and it is reasonable to expect additional and more stringent changes in
the future. Our operations may not comply with future laws and regulations and
we may be required to make significant unanticipated capital and operating
expenditures. If we fail to comply with applicable environmental laws and
regulations, governmental authorities may seek to impose fines and penalties on
us or to revoke or deny the issuance or renewal of operating permits and private
parties may seek damages from us. Under those circumstances, we might be
required to curtail or cease operations, conduct site remediation or other
corrective action, or pay substantial damage claims.
WE MAY BE REQUIRED TO CONDUCT ENVIRONMENTAL REMEDIATION ACTIVITIES, WHICH
COULD BE EXPENSIVE.
We are subject to a number of environmental laws and regulations, including
those concerning the handling, treatment, storage and disposal of hazardous
materials. These environmental laws generally impose liability on present and
former owners and operators, transporters and generators for remediation of
contaminated properties. Except as set forth below, we believe that our
businesses are operating in compliance in all material respects with applicable
environmental laws, many of which provide for substantial penalties for
violations. We cannot assure you that future changes in such laws,
interpretations of existing regulations or the discovery of currently unknown
problems or conditions will not require substantial additional expenditures. Any
noncompliance with these laws and regulations could subject us to material
administrative, civil or criminal penalties or other liabilities. In addition,
we may be required to incur substantial costs to comply with current or future
environmental and safety laws and regulations.
In late 2002, a site inspection at Global's manufacturing facility in
Bassano, Alberta, Canada detected soil and groundwater contamination. The
primary contaminants detected at this facility and adjacent property are
components of a common degreasing agent used in the 1980s. Pursuant to the
Environmental Protection and Enhancement Act (Alberta), the party responsible
for contamination has a statutory obligation to take all reasonable measures to
remediate a release of hazardous substances that may cause an adverse effect on
human health, safety or the environment. Alberta Environment, the regulatory
agency with jurisdiction over these matters in Alberta, has confirmed that a
remediation strategy is required. Global has engaged a third party international
environmental consulting firm to further evaluate the extent of the
contamination and assist Global and Alberta Environment in developing a
remediation strategy.
Based on the data available as of July 2003, Global's environmental
consultant proposed a remediation strategy to prevent further offsite
contaminant migration and to capture and remediate existing soil and
40
groundwater contamination. Based on this strategy, Global has proposed a
remediation program to Alberta Environment regarding the Bassano site and
currently estimates that total costs for implementing and operating the
remediation system for a period of ten years to be approximately Cdn.$1.2
million to Cdn.$1.4 million.
Global's consultant acknowledges that there are a number of uncertainties
associated with the contamination at the Bassano facility, and the cost
estimates are based on a number of key assumptions. If Alberta Environment
promulgates remedial standards or guidelines for the suspected environmental
contaminants in the future, Alberta Environment may require Global to remediate
to such standards or guidelines (which could be more difficult and expensive).
The proposed remedial system may not be accepted by Alberta Environment or other
parties, and/or remediation may be required for more than ten years, both of
which could significantly increase the cost of the remediation.
The remediation cost estimate provided above does not include costs that
Global may incur for legal fees or for administrative expenses in connection
with the remediation activities. As noted above, there are numerous
uncertainties associated with environmental liabilities and no assurances can be
given that Global's consultant's estimate of any environmental liability will
not increase or decrease in the future. The uncertainties relate to the
difficulty of estimating the ultimate cost of any remediation that may be
undertaken, including the lateral and vertical extent of the contamination, any
additional operating costs associated with remedial measures, the duration of
any remediation required, the amount of consultants' or legal fees that may be
incurred and any regulatory requirements that may be imposed by Alberta
Environment.
In addition, Global has represented that no environmental condition exists
(including the presence or release of hazardous substances) on or at any
property currently or formerly operated by Global which could reasonably be
expected to result in a loss or liability under applicable environmental laws of
greater than Cdn.$1.5 million. In the event that this representation is not
accurate at or prior to completion of the Combination, FuelCell may terminate
the Combination Agreement. If the Combination is completed, the environmental
liabilities of Global, and the risks and uncertainties associated with such
liabilities as described above, will be assumed by the combined company, and
changes to these liabilities may adversely impact the financial condition of the
combined company.
OUR PRODUCTS USE INHERENTLY DANGEROUS, FLAMMABLE FUELS, OPERATE AT HIGH
TEMPERATURES AND USE CORROSIVE CARBONATE MATERIAL, EACH OF WHICH COULD SUBJECT
OUR BUSINESS TO PRODUCT LIABILITY CLAIMS.
Our business exposes us to potential product liability claims that are
inherent in hydrogen and products that use hydrogen. Hydrogen is a flammable gas
and therefore a potentially dangerous product. Hydrogen is typically generated
from gaseous and liquid fuels that are also flammable and dangerous, such as
propane, natural gas or methane, in a process known as reforming. Natural gas
and propane could leak into a residence or commercial location and combust if
ignited by another source. In addition, our Direct FuelCell and SOFC products
operate at high temperatures and our Direct FuelCell products use corrosive
carbonate material, which could expose us to potential liability claims. Any
accidents involving our products or other hydrogen-based products could
materially impede widespread market acceptance and demand for our Direct
FuelCell and SOFC products. In addition, we might be held responsible for
damages beyond the scope of our insurance coverage. We also cannot predict
whether we will be able to maintain our insurance coverage on acceptable terms.
WE ARE SUBJECT TO RISKS INHERENT IN INTERNATIONAL OPERATIONS.
Since we plan to market our Direct FuelCell and SOFC products both inside
and outside the United States and Canada, our success depends, in part, on our
ability to secure international customers and our ability to manufacture
products that meet foreign regulatory and commercial requirements in target
markets. We have limited experience developing and manufacturing our products to
comply with the commercial and legal requirements of international markets. In
addition, we are subject to tariff regulations and requirements for export
licenses, particularly with respect to the export of some of our technologies.
We face numerous challenges in our international expansion, including unexpected
changes in regulatory requirements, fluctua-
41
tions in currency exchange rates, longer accounts receivable requirements and
collections, difficulties in managing international operations, potentially
adverse tax consequences, restrictions on repatriation of earnings and the
burdens of complying with a wide variety of international laws.
FUELCELL HAS LARGE AND INFLUENTIAL STOCKHOLDERS.
MTU currently owns approximately 7.0% of FuelCell outstanding common stock
(based upon the shares of FuelCell's common stock outstanding as of October 31,
2002). Loeb Investors Co. LXXV and Warren Bagatelle (a managing director of an
affiliate of Loeb Investors Co. LXXV) collectively own approximately 4.0% of our
outstanding common stock (based upon the shares of FuelCell's common stock
outstanding as of October 31, 2002). These ownership levels could make it
difficult for a third party to acquire our common stock or have input into the
decisions made by our board of directors, which include Michael Bode (Chief
Executive Officer of MTU CFC Solutions GmbH), Warren Bagatelle and Thomas L.
Kempner (Chairman and Chief Executive Officer of an affiliate of Loeb Investors
Co. LXXV). MTU is also a licensee of our technology and a purchaser of our
Direct FuelCell products. Therefore, it may be in MTU's interest to possess
substantial influence over matters concerning our overall strategy and
technological and commercial development. In addition, MTU's ownership interest
could raise a conflict of interest if MTU is experimenting with competing
technologies for its own products.
OUR STOCK PRICE HAS BEEN AND COULD REMAIN VOLATILE.
The market price for our common stock has been and may continue to be
volatile and subject to extreme price and volume fluctuations in response to
market and other factors, including the following, some of which are beyond our
control:
- failure to meet our product development and commercialization milestones;
- variations in our quarterly operating results from the expectations of
securities analysts or investors;
- downward revisions in securities analysts' estimates or changes in
general market conditions;
- announcements of technological innovations or new products or services by
us or our competitors;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- investor perception of our industry or our prospects;
- insider selling or buying;
- demand for our common stock; and
- general technological or economic trends.
In the past, following periods of volatility in the market price of their
stock, many companies have been the subjects of securities class action
litigation. If we became involved in securities class action litigation in the
future, it could result in substantial costs and diversion of management's
attention and resources and could harm our stock price, business, prospects,
results of operations and financial condition.
PROVISIONS OF DELAWARE AND CONNECTICUT LAW AND OF FUELCELL'S CHARTER AND
BY-LAWS MAY MAKE A TAKEOVER MORE DIFFICULT.
Provisions in FuelCell's certificate of incorporation and by-laws and in
Delaware and Connecticut corporate law may make it difficult and expensive for a
third party to pursue a tender offer, change in control or takeover attempt that
is opposed by FuelCell's management and board of directors. Public stockholders
who might desire to participate in such a transaction may not have an
opportunity to do so. These anti-takeover provisions could substantially impede
the ability of public stockholders to benefit from a change in control or change
FuelCell's management and board of directors. See "Chapter Three -- Description
of
42
FuelCell's Capital Stock, Global's Preferred Shares and ExchangeCo and CallCo
Share Capital -- Anti-Takeover Effects of Provisions of Delaware and Connecticut
Law, the FuelCell Charter and FuelCell's Bylaws."
THE RIGHTS OF THE GLOBAL SERIES 2 PREFERRED SHARES COULD NEGATIVELY IMPACT THE
COMBINED COMPANY.
Upon completion of the Combination, the Global Series 2 Preferred Shares
will remain outstanding in Global as a consolidated subsidiary of FuelCell. The
terms of the Global Series 2 Preferred Shares provide rights to the holder,
Enbridge Inc., including dividend and conversion rights among others, that could
negatively impact the combined company. For example, the terms of the Global
Series 2 Preferred Shares provide that the holders are entitled to receive
cumulative dividends for each calendar quarter for so long as such shares are
outstanding. Assuming the exchange rate for Canadian dollars is Cdn.$1.4048 to
U.S.$1.00 at the time of the applicable dividend payment date, FuelCell could be
required to pay a preferred dividend of approximately $222,452 per calendar
quarter, subject to reduction in accordance with the terms of the Global Series
2 Preferred Shares. The terms of the Global Series 2 Preferred Shares also
require that the holder be paid any accrued and unpaid dividends on December 31,
2010. To the extent that there is a significant amount of accrued dividends that
are unpaid as of December 31, 2010 and the combined company does not have
sufficient working capital at that time to pay the accrued dividends, the
combined company's financial condition could be adversely affected.
Upon the completion of the Combination, FuelCell has offered to guarantee
Global's dividend obligations, including paying a minimum of Cdn.$500,000 in
cash annually to Enbridge for so long as Enbridge holds the Global Series 2
Preferred Shares.
As a result of the Combination, FuelCell will be required to issue common
stock to the holder of the Global Series 2 Preferred Shares if and when the
holder exercises its conversion rights. The number of shares of common stock
that FuelCell may issue upon conversion could be significant and dilutive to
existing stockholders of the combined company. For example, assuming the holder
of the Global Series 2 Preferred Shares exercises its conversion rights after
July 31, 2020, the exchange rate for Canadian dollars is Cdn.$1.4048 to
U.S.$1.00 at the time of such conversion and FuelCell's common stock price is
$7.50 at the time of such conversion, FuelCell would be required to issue
approximately 2,497,702 shares of its common stock. For more information about
the rights of the Global Series 2 Preferred Shares, please see "-- Description
of the Combination -- Mechanics for Implementing the Combination and Description
of Exchangeable Shares -- Global Series 2 Preferred Shares."
Since the Global Series 2 Preferred Shares will remain outstanding in
Global, Global will not become a wholly-owned subsidiary of FuelCell upon the
completion of the Combination and FuelCell may not be able to take actions that
would be adverse to the holder of the Global Series 2 Preferred Shares without
approval of the holder thereof. In addition, to the extent that the terms of the
Global Series 2 Preferred Shares restrict Global's ability to pay dividends or
make other distributions to other common shareholders of Global, FuelCell's
ability to distribute cash from Global to FuelCell after the completion of the
Combination may be limited. For example, without the consent of the holder of
the Global Series 2 Preferred Shares, Global is restricted from paying dividends
to any other shareholders unless all required dividends have been paid, or set
apart, up to the applicable dividend payment date for the Global Series 2
Preferred Shares.
FUELCELL AND GLOBAL EXPECT TO HAVE SIGNIFICANT NON-RECURRING COSTS ARISING OUT
OF THE COMBINATION.
FuelCell presently expects to incur significant costs following completion
of the Combination to streamline the combined company's business, reduce excess
capacity and eliminate redundant operations. In addition, the combined company
may incur costs to the extent FuelCell chooses to terminate, renegotiate or
amend any of Global's existing obligations as part of the post-closing
integration of the companies. Accordingly, FuelCell believes the combined
company may incur charges to operations, which are not currently reasonably
estimable, in the quarter in which the Combination is completed and/or the
following quarters to reflect costs associated with integrating and streamlining
the businesses and operations of FuelCell and Global. There can be no assurance
that the costs associated with streamlining the business, reducing
43
excess capacity and eliminating redundant operations will not exceed those
projected by FuelCell, and we cannot assure you that the combined company will
not incur additional material charges in subsequent quarters to reflect
additional costs associated with the Combination.
DISTRIBUTIONS FROM GLOBAL TO FUELCELL MAY BE SUBJECT TO CANADIAN WITHHOLDING
TAXES AND FUELCELL MAY BE SUBJECT TO U.S. FEDERAL INCOME TAXATION ON GLOBAL'S
EARNINGS, IF ANY, BEFORE RECEIVING DISTRIBUTIONS FROM GLOBAL ATTRIBUTABLE TO
SUCH EARNINGS.
Under the U.S.-Canada income tax treaty, in general, dividends payable from
a Canadian corporation to a U.S. corporate shareholder owning 10% or more of the
Canadian corporation generally are subject to 5% Canadian withholding tax.
In general, if a U.S. person, directly or indirectly, holds a 10% or
greater equity interest in a non-U.S. entity that is treated as a corporation
for U.S. federal income tax purposes and, together with other U.S. persons who
own 10% or more of the non-U.S. entity, hold more than 50% of the outstanding
equity of the non-U.S. entity, measured by vote or value, the non-U.S. entity
will be treated as a "controlled foreign corporation" with respect to such U.S.
persons. Following the Combination, FuelCell will itself own more than 50% of
the outstanding equity of Global, and, therefore, Global will be a controlled
foreign corporation with respect to FuelCell. As a result, FuelCell could be
required to include in its income for U.S. federal income tax purposes on a
current basis all or a portion of its share of the undistributed "earnings and
profits," as determined for such purposes, of Global, depending on Global's
sources of income and other considerations. In general, FuelCell must include
its share of undistributed earnings and profits of Global where the earnings and
profits are attributable to Global's "subpart F income," which generally is
income from passive and certain other sources, or are invested by Global in
"U.S. property," as determined for U.S. federal income tax purposes.
WE DEPEND ON RELATIONSHIPS WITH STRATEGIC PARTNERS, AND THE TERMS AND
ENFORCEABILITY OF MANY OF THESE RELATIONSHIPS ARE NOT CERTAIN.
Global and FuelCell have each entered into relationships with strategic
partners for design, product development and distribution of their existing
products, and products under development, some of which may not have been
documented by a definitive agreement. Where definitive agreements govern the
relationships between Global and FuelCell and their respective partners, the
terms and conditions of many of these agreements allow for termination by the
partners. Termination of any of these agreements could adversely affect our
ability to design, develop and distribute these products to the marketplace. In
many cases, these strategic relationships are governed by a memorandum of
understanding or a letter of intent. We cannot assure you that Global or
FuelCell will be able to successfully negotiate and execute definitive
agreements with any of these partners, and failure to do so may effectively
terminate the relevant relationship.
ADVERSE MARKET CONDITIONS RELATED TO GLOBAL'S THERMOELECTRIC GENERATORS MAY
IMPACT FUTURE REVENUE AND PROFITS.
Demand for Global's thermoelectric generators depends primarily on the
level of spending by oil and natural gas companies for gas exploration and
development activities and on the level of gas pipeline construction activity.
These activity levels are directly affected by fluctuations in world energy
prices, world supply and demand for oil and natural gas and government
regulations in Canada, the United States and internationally, all of which are
beyond our and our customers' control. Reduced levels of activity in the oil and
natural gas industry can intensify competition and result in lower revenue and
operating profit margin.
44
DESCRIPTION OF THE COMBINATION
OVERVIEW OF THE COMBINATION
On August 4, 2003, Global and FuelCell entered into the Combination
Agreement to combine Global with FuelCell in a share-for-share exchange pursuant
to a plan of arrangement to be submitted for approval by the Court. If all
approvals are received and the Combination closes, upon receipt of Global share
certificates and properly completed letters of transmittal:
- each Canadian Global common shareholder (other than dissenting
shareholders) will receive, at the shareholder's election, for each
Global common share held by the shareholder, either: (i) exchangeable
shares of ExchangeCo; or (ii) shares of FuelCell common stock, in either
case in accordance with the exchange ratio; and
- each non-Canadian Global common shareholder (other than dissenting
shareholders) will receive shares of FuelCell common stock in accordance
with the exchange ratio.
Each exchangeable share will be exchangeable for one share of FuelCell
common stock. The exchangeable shares will have economic and voting rights
equivalent to shares of FuelCell common stock and have been conditionally
approved for listing on the Toronto Stock Exchange.
FuelCell and Global believe that the Combination will create a company with
an increased technology base in a market where there is significant growing
interest from governmental and strategic partners. FuelCell and Global also
expect the combined company to be able to capitalize on leading SOFC technology
and strengthen FuelCell's position throughout the first phase of the Solid State
Energy Conversion Alliance ("SECA") program to develop SOFC products and to
increase the possibility that FuelCell will be able to successfully compete for
advancement through the next two phases of the 10-year $139 million SECA
program. The combined company will have a strong balance sheet, with an expected
aggregate cash balance of over $200 million. FuelCell and Global anticipate that
both sets of shareholders will benefit from a stronger, more diversified company
and increased stock liquidity.
The Combination will allow the companies to combine and integrate their
research and development resources, complementary distribution channels,
products and technologies, strategic alliances and customer bases, which
FuelCell and Global believe will lead to expanded markets, greater technical
resources, diversification and cost efficiencies. FuelCell and Global anticipate
that the combined company's alliance partners and customers will be used to
assist in the commercialization and funding of their company's products,
particularly FuelCell's existing relationships with customers and U.S.
government agencies.
Because of the strong synergies between high temperature carbonate and SOFC
technologies, FuelCell and Global expect to reap immediate technological rewards
from the Combination and anticipate that future technological advances will have
collateral benefits for both the carbonate and SOFC technologies.
FuelCell plans to maintain a concentrated focus on the continued
commercialization of its Direct FuelCell products, while developing Global's
SOFC technology to a point where it can be commercialized and provide increased
breadth to FuelCell's range of distributed generation solutions. FuelCell is
continuing to evaluate Global's generator business to determine its strategic
fit within the combined company and has not made a determination with respect to
whether to retain or sell that business.
Under the terms of the Plan of Arrangement:
- each Canadian Global common shareholder (other than dissenting
shareholders) will receive, at the shareholder's election, for each
Global common share held by the shareholder at the effective time of the
Combination, exchangeable shares of ExchangeCo or shares of FuelCell
common stock; and
- each non-Canadian Global common shareholder (other than dissenting
shareholders) will receive shares of FuelCell common stock.
The number of shares of FuelCell common stock or exchangeable shares received
will be between 0.279 and 0.342, with that number depending on the exchange
ratio in effect at the time the Combination is completed.
45
The exchange ratio will be determined by dividing $2.72 (approximately
Cdn.$3.82) by the 20-day volume-weighted average FuelCell stock price for the
period ending three days prior to the Global Meeting; provided, however, that
the exchange ratio will not be greater than 0.342 nor less than 0.279.
Accordingly, if FuelCell's 20-day volume-weighted average stock price is:
- greater than $9.74, the exchange ratio will be 0.279;
- less than $7.96, the exchange ratio will be 0.342; and
- between $7.96 and $9.74, Global common shareholders will receive
approximately $2.72 of exchangeable shares or FuelCell common stock for
each Global common share held.
Upon completion of the Combination:
- all Global common shareholders will cease to be shareholders of Global;
- each Canadian Global common shareholder (other than dissenting
shareholders) will receive, at the shareholder's election, either
exchangeable shares of ExchangeCo or shares of FuelCell common stock for
each Global common share held by that shareholder at the effective time
of the Combination determined in accordance with the exchange ratio;
- each non-Canadian Global common shareholder (other than dissenting
shareholders) will receive shares of FuelCell common stock for each
Global common share held by that shareholder at the effective time of the
Combination determined in accordance with the exchange ratio;
- each outstanding option to purchase Global common shares will be assumed
by FuelCell and will represent an option to purchase FuelCell common
stock based on the exchange ratio, the terms of the Plan of Arrangement
and the terms of each individual option agreement;
- the Global Series 2 Preferred Shares will remain preferred shares of
Global and FuelCell will assume the obligation to issue FuelCell common
stock upon their conversion; and
- Global will become a consolidated subsidiary of FuelCell.
BACKGROUND
The Global board of directors determined in the fall of 2000 that it would
be in the best interests of Global to seek a significant alliance partner to
assist with Global's commercialization of solid oxide fuel cell products. During
the fall of 2000 through to the end of 2001, management of Global approached
potential strategic partners and entered into various distribution and technical
relationships with a number of partners. While these relationships were
considered helpful to the commercialization and ultimately the distribution and
sale of solid oxide fuel cell products, none of the partners were of the size
and profile that provided the credibility to, and endorsement of, Global's solid
oxide fuel cell technology in the fashion sought by Global.
In 2001, FuelCell and Global entered into discussions regarding the
possibility of joining forces to participate in the DOE's SECA program for the
development of solid oxide planar technology. The parties held discussions
regarding the proposal, with Dr. Hans Maru and Mr. Pinakin Patel of FuelCell
visiting Global on September 27, 2001, and Mr. Eric Potter, Director -- Business
Development and Mr. Paul A. Crilly, Vice President, Finance and Chief Financial
Officer, of Global visiting FuelCell's offices in Danbury, Connecticut on
October 10, 2001. The parties continued discussions during October and early
November of 2001, but discontinued discussions on November 9, 2001, when they
were unable to reach an agreement.
In January 2002, Global engaged Citigroup, an internationally recognized
investment banking and financial advisory services firm, to assist with Global's
existing negotiation of a strategic alliance with a major international
corporation. After extensive discussions and negotiations with a potential
partner which were discontinued in the fall of 2002, no agreement was reached.
North American equity markets experienced prolonged weakness from 2000 to
2002 and over that period of time Global's common share price traded at a
significant discount to that of its peers. In late 2002, the Global board of
directors determined that its plan to use equity financing as a source of
long-term funding for
46
Global's current development focus and planned expenditures on larger power
applications would not succeed, particularly in light of Global's inability to
attract a significant strategic relationship partner. In November 2002, the
Global board of directors determined that it would be in the best interests of
Global to engage in a process of reviewing its strategic alternatives to
maximize shareholder value, including a sale of the solid oxide fuel cell
division, a strategic partnering to strengthen Global's ability to commercialize
its technology and any other initiatives consistent with maximizing shareholder
value, which Global refers to as the "Value Initiatives," which process was
announced in a press release dated November 19, 2002. Global also broadened the
mandate of Citigroup to include advising in respect of the Value Initiatives.
Global, through a worldwide process, with the assistance of Citigroup,
solicited potential interest in respect of a variety of alliance structures from
a lengthy list of potential partners across a broad spectrum of industries.
On November 30, 2002, Mr. Joe Mahler, Chief Financial Officer of FuelCell,
contacted Citigroup to request a copy of the executive summary relating to
Global. On December 2, 2002, Global and FuelCell entered into a customary
confidentiality agreement to permit them to exchange information concerning
their respective businesses, organizations, financial conditions and results of
operations. Citigroup then provided FuelCell with the Global executive summary
package. On January 7, 2003, FuelCell received a timing and procedure letter
from Citigroup regarding the process of submitting proposals regarding Global.
From November 30, 2002 until January 13, 2003, FuelCell's contact was solely
with Citigroup.
In early December of 2002, Quantum commenced discussions with Global and
Citigroup about a potential combination and entered into a confidentiality
agreement with Global to permit the exchange of additional information
concerning their respective businesses, organizations, financial conditions and
results of operations. From December 12, 2002 until January 23, 2003, Quantum's
contact was solely with Citigroup. Quantum submitted a non-binding proposal to
Citigroup on January 23. Numerous discussions and meetings were held between
Quantum and Global between January 23 and February 27, 2003.
On January 13, Global management made a presentation to FuelCell via
teleconference covering materials forwarded by Citigroup. On the call were
Messrs. Peter Garrett, Jim Barker, Brian Borglum and Paul Crilly from Global,
and Dr. Maru and Mr. Mahler from FuelCell. Following the call, FuelCell had
several conversations with Citigroup but did not submit a proposal.
At a Global board of directors meeting on February 27, 2003, the Global
board of directors established the Global Special Committee consisting of
Messrs. Norman Fraser and Glynn Davies and vested the Global Special Committee
with a mandate that included the review and negotiation of a potential
transaction with Quantum. With the assistance of management of Global,
Citigroup, PricewaterhouseCoopers LLP, Bennett Jones LLP and Dorsey & Whitney
LLP, the Global Special Committee initiated a business, financial and legal due
diligence review of Quantum. A new confidentiality agreement was negotiated with
Quantum in early March, 2003. In addition, the parties began due diligence and
negotiated a definitive combination agreement.
On March 19, 2003, at the request of the Toronto Stock Exchange, Global
issued a press release announcing that it was in discussions with another party
regarding a possible business combination. Beginning on March 19, Global and
Quantum and their respective advisors held numerous conference calls to discuss
due diligence issues and to negotiate the Quantum Combination Agreement and
related agreements. On April 1, 2003, Mr. Davies resigned from the Global board
of directors because of the divergence of views amongst the Global board of
directors with respect to the Quantum combination and was replaced on the Global
Special Committee by Mr. Bob Snyder. The parties executed the Quantum
Combination Agreement as of April 8, 2003 and on April 9, 2003, each of Quantum
and Global announced the combination. The parties then began the preparation of
a joint management information circular and proxy statement in respect of such
parties respective shareholder meetings to approve the Quantum combination.
On April 23, 2003, FuelCell announced that it had been selected by the DOE
as a new project participant for its SECA program, subject to negotiation of a
final agreement. The goal of the 10-year, $139 million SECA program is to
develop low-cost solid oxide fuel cells over the next decade in the 3-kW to
10-kW size
47
range that can be fitted together for combined heat and power products for
applications up to 100 kW. Upon receiving the notice of selection, FuelCell
management determined that there was now a potential strategic fit with Global
and began the process of evaluating a potential transaction with Global.
By Notice of Motion dated May 14, 2003, Enbridge, the sole holder of the
Global Series 2 Preferred Shares, commenced an action against Global seeking an
order from the Court declaring: (i) that the Quantum combination unfairly
disregarded the interests of Enbridge and is unfairly prejudicial and oppressive
to Enbridge; (ii) that Global be restrained from proceeding with the Quantum
plan of arrangement; and (iii) that Enbridge had the right under Sections 176,
193 and 234 of the Business Corporations Act (Alberta) to vote its Global Series
2 Preferred Shares as a separate class in connection with the proposed Quantum
combination.
Foundation Equity Corporation ("Foundation"), the holder of approximately
8.9% of Global's outstanding common shares and represented by two members, Mr.
Kerry Brown and Mr. John Howard, on Global's board of directors, filed a
petition on June 5, 2003 in connection with the hearing on the Interim Order
seeking a ruling: (i) that any common shareholder of Global, and specifically
Foundation, be permitted to dissent with respect to its or their Global common
shares in relation to the proposed Quantum combination; (ii) that any common
shareholder of Global, and specifically Foundation, be permitted to vote in
respect of its Global common shares with respect to the shareholder resolution
relating to the proposed Quantum combination regardless of whether or not such
shareholder exercises its dissent right; (iii) that in the event Foundation
undertakes a dissident proxy contest in opposition to the proposed Quantum
combination, then the costs of such dissident proxy contest are to be reimbursed
by Global; and (iv) the appointment of Foundation's counsel to represent, at the
expense of Global, the interests of those shareholders of Global who exercise
their dissent rights in respect of the Quantum combination.
Mr. Brown is the Chairman of the board of directors and Chief Executive
Officer of Foundation and Mr. Howard is a director of Foundation. Messrs. Brown
and Howard have advised the board of directors of Global that a special
committee of the board of directors of Foundation composed of a single director,
Mr. Terry Chalupa, has been vested with the authority to deal with matters
relating to Foundation's position with respect to Global. Messrs. Brown and
Howard have excused themselves from all of Foundation's proceedings relating to
Global and have sought independent counsel with respect to discharging their
duties as directors of Global.
The actions initiated by Enbridge and Foundation delayed the finalization
and mailing of the joint proxy statement prepared in connection with the
proposed Quantum combination and the holding of the shareholders' meetings to
approve the Quantum combination.
On June 13, 2003, Global received an unsolicited letter from FuelCell
proposing a combination. The proposal contemplated FuelCell's purchase of all of
the outstanding common shares of Global in exchange for shares of FuelCell's
common stock. In addition to outlining possible terms of such a transaction, the
proposal outlined perceived strategic, operational and financial synergies
between FuelCell and Global.
The Global Special Committee met on numerous occasions with its financial
and legal advisors to consider the proposal and on June 23, 2003 determined to
recommend to the Global board of directors that the FuelCell proposal be
determined not to constitute a "superior proposal" as defined in the Quantum
Combination Agreement.
On June 24, 2003, the FuelCell board of directors convened its regular
quarterly board meeting and received an informational update on the proposed
transaction with Global and learned that FuelCell had not received a response to
its offer letter of June 13, 2003.
On June 25, 2003, Global's board of directors met and received the written
advice of its financial advisors and the advice of its legal advisors and of the
Global Special Committee. At this meeting, the Global board of directors
determined to discuss the FuelCell proposal further at a subsequent meeting.
Also at this meeting, the Global board of directors reviewed the term sheet
executed by Enbridge and Quantum on June 20, 2003 setting forth the terms of a
proposed settlement of the action initiated by Enbridge. After a full
discussion, the board of directors approved the terms of the proposed settlement
as set forth in the term sheet and authorized
48
management to take all actions necessary or advisable to effect the proposed
settlement. In addition to the FuelCell proposal and Enbridge settlement, the
board of directors reviewed the status of the Quantum combination, and Citigroup
confirmed that nothing had occurred that would cause it to modify or withdraw
the fairness opinion that it had rendered on April 8, 2002, in connection with
the Quantum Combination Agreement.
By virtue of a settlement agreement among Global, Quantum and Enbridge
dated June 27, 2003, Enbridge agreed to discontinue its pending action and
agreed not to oppose the Quantum combination. In connection with the Enbridge
settlement, the Quantum Combination Agreement was amended as of June 27. A
hearing was held on June 27 and in its ruling dated June 27, the Court ordered
Global and Quantum to hold their respective shareholders' meetings. Foundation
requested a stay of the interim order which was denied. Foundation also
requested that the court authorize the funding of a dissident proxy circular, if
a proxy contest was conducted, but such a request was also denied and Foundation
was granted leave to apply for reimbursement of its costs and expenses incurred
in conducting a dissident proxy contest (if undertaken) at the final application
to be held subsequent to the Global meeting and the Quantum meeting to be held
in connection with the Quantum combination.
Having received no response or contact from Citigroup or Global, on July 2,
2003, FuelCell submitted a second letter reiterating and clarifying the terms
outlined in its June 13 letter. In response to that letter, Mr. Jerry Leitman,
President and Chief Executive Officer of FuelCell, received a voicemail and
letter from Mr. Bob Snyder, Chairman of the Global board of directors. Mr.
Snyder noted that the Global board of directors had met on July 2 and had
determined the offer to not be financially superior and were unable to have any
discussions with FuelCell.
On July 10, FuelCell's board of directors met to review the status of the
proposed acquisition of Global and approved an increase in the proposal to
Global's common shareholders from $70 million to $80 million. On July 11, 2003,
FuelCell submitted a revised non-binding proposal to Global increasing its offer
to $80 million. The Global Special Committee met and determined to recommend to
the Global board of directors that the revised proposal constituted a "superior
proposal" under the terms of the Quantum Combination Agreement. The revised
proposal was financially superior to the Quantum combination, the consideration
offered under the FuelCell proposal was demonstrated to be available and the
offer was subject only to confirmatory due diligence, negotiation of definitive
documentation and the full approval of the Global board of directors. On July
13, 2003, Global's board of directors met to consider the revised proposal and
received advice from legal counsel regarding fiduciary duties and written advice
from its financial advisors. After considering applicable law and the advice of
outside counsel, the Global board of directors concluded in good faith that the
FuelCell proposal constituted a superior proposal and was reasonably necessary
for the Global board of directors to act in a manner consistent with its
fiduciary duties under applicable law. Global provided prompt oral and written
notice to Quantum of this determination, which notice included the identity of
FuelCell, all material terms and conditions of the FuelCell proposal and its
intention to furnish information to and enter into negotiations or discussions
with FuelCell.
On July 14, 2003, Global announced that it had received an unsolicited
competing proposal that the board of directors of Global had determined to be a
"superior proposal". The resolution approving the determination that the
competing proposal constituted a "superior proposal" was unanimously approved by
seven of eight directors, with Mr. Stephen Letwin abstaining. Global also
announced that it intended to commence negotiations with the party making the
proposal once a confidentiality agreement was executed. On July 14, Mr. Snyder
called Mr. Leitman to inform FuelCell that Global had determined FuelCell's
proposal to be financially superior to the Quantum combination.
On July 15, 2003, Global and FuelCell executed a confidentiality agreement
which had confidentiality and standstill terms substantially similar to those
contained in Global's confidentiality agreement with Quantum in accordance with
the terms of the Quantum Combination Agreement.
Following the execution of the confidentiality agreement on July 15, Global
and FuelCell commenced confirmatory due diligence.
49
On July 16, 2003, Global received an unsolicited bona fide acquisition
proposal from a third party. The Global Special Committee met to consider the
acquisition proposal and determined, after considering the advice of counsel and
discussions with financial advisors, that the proposal did not constitute a
superior proposal under the Quantum Combination Agreement and so advised the
third party in a letter dated July 21, 2003 without providing any reasons for
this conclusion or encouraging or inviting a further proposal.
FuelCell provided Global with a draft combination agreement on July 16,
2003. Members of FuelCell's management team and their advisors flew to Calgary
on July 18, 2003 and conducted due diligence, met with management and toured
Global's operations. On July 18 the companies' financial and legal advisors met
in Calgary to discuss the combination agreement. From July 21 to July 24,
members of Global's management and its financial and legal advisors conducted
due diligence on FuelCell in Stamford, Danbury and Torrington, Connecticut.
During the period from July 18 to July 28, 2003, the Combination Agreement and
related documents were negotiated. Since that date, no material changes have
been made to such documentation.
Also on July 24, FuelCell's board of directors met to receive an update as
to the status of the transaction and to review the status of the due diligence
efforts performed by management, legal and financial advisors and KPMG.
On July 25, 2003, Global received a revised proposal from the same third
party that had previously delivered an acquisition proposal on July 16. The
Global Special Committee met to consider the revised acquisition proposal and
determined, after considering the advice of counsel and discussions with its
financial advisors, that such proposal did not constitute a superior proposal
under the Quantum Combination Agreement and so advised the third party in a
letter dated July 28, 2003 without providing any reasons for this conclusion or
encouraging or inviting a further proposal.
On July 27, an informational meeting of the Global board of directors was
held to consider: (i) Global management's due diligence report on FuelCell; (ii)
the written advice of Citigroup, which included a comparison of the FuelCell and
Quantum offers; (iii) the due diligence report of Bennett Jones LLP and Dorsey &
Whitney LLP; (iv) the report of PricewaterhouseCoopers LLP on certain historical
and prospective financial information and various financial, operating and other
data about FuelCell; and (v) the preliminary report of the Global Special
Committee.
On July 28, 2003, pursuant to the terms of the Quantum Combination
Agreement, Global provided Quantum with three business days' oral and written
notice prior to the Global board of directors' decision to accept, recommend,
approve or implement the superior proposal from FuelCell, which notice
identified FuelCell and provided full details of all material terms and
conditions of FuelCell's proposal. On July 30, 2003, Quantum advised Global that
it did not wish to meet to discuss and negotiate adjustments to the Quantum
offer which would enable Global and Quantum to proceed with the transactions
contemplated by the Quantum Combination Agreement and that Quantum would advise
Global of their course of action on July 31, 2003. On July 31, Quantum advised
Global that its board of directors had concluded that it was not in the best
interests of Quantum or its stockholders to propose any adjustments to improve
the terms and conditions of the Quantum combination.
On August 1, 2003, the Global board of directors met to discuss, among
other things, the status of the Quantum combination and the FuelCell proposal.
The Global Special Committee delivered their report and the Global board of
directors discussed the key terms of the Combination Agreement with management
and Global's legal advisors. Citigroup confirmed, at the request of the Global
board of directors, that Citigroup would be in a position to deliver a fairness
opinion as of August 1, in respect of the consideration offered to the Global
common shareholders. At the meeting, the Global board of directors unanimously
reconfirmed that the FuelCell proposal constituted a superior proposal under the
terms of the Quantum Combination Agreement. Immediately following this meeting,
Global provided Quantum with oral and written notice of its intention to enter
into a combination agreement with FuelCell and reconfirmed its view that the
FuelCell proposal remained a superior proposal under the terms of the Quantum
Combination Agreement.
Also on August 1, Global received the resignation of Mr. Stephen J.J.
Letwin from the board of directors effective as of 5:00 p.m. on that day. Mr.
Letwin did not specify any reasons for his resignation.
50
Also on August 1, the FuelCell board of directors had a full and candid
discussion about the Combination and had the opportunity to review the
Combination Agreement and documents contemplated thereby. Lazard presented its
oral fairness opinion and confirmed that the exchange ratio was fair, from a
financial point of view, to FuelCell; Lazard subsequently delivered a written
opinion confirming its earlier oral opinion. The board of directors determined
that the Combination was consistent with, and in furtherance of, the long-term
business strategy of FuelCell and was fair to the FuelCell stockholders and in
the best interests of FuelCell.
On August 3, 2003, the Global board of directors met to consider the draft
report of the Global Special Committee and the advice of its legal and financial
advisors. The Global board of directors also reviewed the documentation relating
to the Combination and received advice from legal counsel regarding fiduciary
duties, the terms of the Combination Agreement and the Plan of Arrangement.
After questions and discussions, the meeting was adjourned until 2 p.m. (Calgary
time) on August 4, 2003.
In the morning of August 4, 2003, Global delivered to Quantum a copy of the
Combination Agreement and final documentation executed by FuelCell. The Global
board of directors meeting was reconvened at 2 p.m. and received the final
report of the Global Special Committee unanimously: (i) recommending that the
Global board of directors approve the entering into of the Combination
Agreement; (ii) determining that the Combination is fair to its holders of
common shares and preferred shares and is in the best interests of Global; and
(iii) recommending that Global common shareholders vote in favor of the
Combination and the transactions contemplated thereby. Citigroup delivered its
oral opinion on August 4, and subsequently confirmed the opinion in writing as
of that same date, to the effect that, as of the date of the opinion and subject
to the considerations and limitations set forth therein, the exchange ratio set
forth in the Combination Agreement was fair, from a financial point of view, to
the Global common shareholders. The Global board of directors then resolved
unanimously that the Quantum Combination Agreement be terminated in accordance
with its terms and that notice of termination be delivered to Quantum along with
a cash termination fee of $2 million. Immediately following the termination of
the Quantum Combination Agreement and the payment of the termination fee to
Quantum, the Global board of directors unanimously approved the execution and
delivery of the Combination Agreement after: (i) concluding in good faith, after
considering applicable law and receiving the advice of outside counsel, that
accepting, recommending, approving or implementing the Combination is, in the
good faith judgment of the Global board of directors, reasonably necessary for
it to act in a manner consistent with fiduciary duties under applicable law;
(ii) determining unanimously that the Combination is fair to its holders of
common shares and preferred shares and is in the best interests of Global; (iii)
determining to recommend that its holders of common shares vote in favor of the
Combination and the transactions contemplated thereby; and (iv) advising Global,
and would advise FuelCell, that the Global board of directors will vote the
common shares held by them in favor of the Combination and the transactions
contemplated thereby. Following the execution by Global of the Combination
Agreement, Global and FuelCell issued a joint press release announcing the
Combination.
At the hearing of the Court held on September 30, 2003 in connection with
the granting of the Interim Order included in this Joint Proxy Statement as
Annex C, Enbridge, the sole holder of the Global Series 2 Preferred Shares, did
not oppose the granting of the Interim Order. The Interim Order was granted
without prejudice to Enbridge's right to argue for a separate class vote for its
Global Series 2 Preferred Shares in respect of the Combination. It is
anticipated that these arguments will be heard by the Court on October 17, 2003.
A further announcement will be made by Global at that time.
REASONS FOR THE COMBINATION
FUELCELL
The FuelCell board of directors has unanimously determined that the
Combination and the transactions contemplated thereby are advisable, fair to,
and in the best interests of FuelCell and FuelCell's stockholders and has
approved the Combination Agreement and the Combination.
51
In addition to the factors discussed below under the section titled
"-- Recommendation of the FuelCell Board of Directors," the FuelCell board of
directors considered the following strategic and financial rationale in
unanimously approving the Combination:
- Assists FuelCell in Capitalizing on Recent SECA Award. FuelCell believes
that the Combination will enhance its ability to capitalize on its recent
selection by the DOE for an award for the SOFC development program. The
Combination creates a company with leading SOFC technology, strengthens
FuelCell's position throughout the first phase of the SECA program to
develop SOFC products, and increases the chances that FuelCell will be
able to successfully compete for advancement through the next two phases
of the 10-year $139 million SECA program. SECA's goal is to accelerate
the development of low-cost, high-temperature SOFC fuel cells over the
next decade, in 3-10 kW modules, leading to products generally less than
100 kW. FuelCell believes the combined company will be uniquely
positioned to achieve the goals of the SECA award, to commercialize SOFC
technology, and to take advantage of the resulting opportunities emerging
for SOFC products over the next decade.
- Increases Technology Base. The Combination will increase FuelCell's
technology base in a market where there is significant growing interest
from governmental and strategic partners. Both the distributed generation
and fuel cell markets are growing increasingly competitive, and the
addition of Global's SOFC technology will broaden the range of FuelCell's
distributed generation and fuel cell products, thus allowing it to
compete more effectively. The Combination and Global's significant cash
reserves will allow FuelCell to pursue SOFC technology and exploit the
SECA award without diverting resources or focus in its continued
commercialization of its Direct FuelCell products.
- Exploits Technology Synergies. Both FuelCell's Direct FuelCell carbonate
products and Global's SOFC products are based on high temperature fuel
cell technologies, and as such the combined companies expect to reap
immediate technological rewards from the Combination that should advance
both the carbonate and SOFC technologies. FuelCell also anticipates that
future technological advances will have collateral benefits for both the
carbonate and SOFC technologies.
- Greater Financial Strength. FuelCell believes the combined company will
have a stronger balance sheet and better liquidity that will enable it to
execute its business strategy. In addition, FuelCell believes that adding
Global's cash reserves to its balance sheet will provide FuelCell with
increased cash to help fund development and operations.
- Provides Shareholders with Increased Liquidity. FuelCell anticipates
that shareholders of both companies will benefit from a stronger, more
diversified company and increased stock liquidity.
- Capitalizes on Each Company's Existing Relationships. FuelCell believes
that each company can benefit from the other's existing business
relationships. In particular, FuelCell hopes to use Global's relationship
with Enbridge, which is a large North American distributor of energy
products, to develop a distribution network in Canada.
- Greater Cost Efficiencies. FuelCell believes that the Combination will
enable it to consolidate operations in key areas that will result in cost
reductions. Cost efficiency opportunities include: integrating research
and development efforts, combining product development and
commercialization, integrating manufacturing operations and consolidating
general and administrative expenses.
In considering the Combination, the FuelCell board of directors recognized
that there are risks associated with the acquisition of Global, including that
some of the potential benefits described above may not be realized, that there
may be significant costs associated with realizing these benefits. Please see
the risks set forth under "-- Risk Factors" starting at page 27. Please see also
the potential disadvantages to the Combination set forth under the
"Recommendation of the FuelCell Board of Directors" starting on page 54.
In view of the variety of factors considered in connection with its
evaluation of the Combination, the FuelCell board of directors did not consider
it practicable to and did not quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination.
52
GLOBAL
In determining that the Combination is fair to its holders of common shares
and preferred shares and is in the best interests of Global, the Global board of
directors consulted with Global's management, as well as its financial and legal
advisors. In reaching this decision, the Global board of directors considered
the unanimous recommendation of the Global Special Committee: (i) recommending
that the board of directors approve the entering into of the Combination
Agreement; (ii) determining that the Combination is fair to Global's holders of
common shares and preferred shares and is in the best interests of Global; and
(iii) recommending that Global's common shareholders vote in favour of the
Combination.
In addition to the factors discussed below under the section titled
"Recommendation of the Global Board of Directors," the Global board of directors
considered the advantages set forth below:
- Premium to Global Share Price. The consideration offered by FuelCell
represents a significant premium over the trading price of Global common
shares both immediately prior to the announcement of the Combination and
on November 19, 2002, the date Global initiated its plan to maximize
shareholder value.
- Liquidity. The shares of FuelCell common stock are widely held and
listed on the Nasdaq National Market, and the exchangeable shares, which
are exchangeable for FuelCell common stock, will be listed on the Toronto
Stock Exchange or another recognized Canadian stock exchange.
- Broader Yet Complementary Product Offering. Global expects the combined
company to have a broader range of products in the fuel cell industry.
- Reduction of Engineering and Development Expenditures. FuelCell's system
engineering and integration expertise provides the combined company with
the potential to reduce redundant expertise and expenditures within
Global, and as a result, on a combined basis may reduce overall
engineering and development expenditures. In addition, FuelCell has
demonstrated its ability to secure external funding for product
development programs through industry and governmental partners.
Accessing external funding is a key enabler for the sustainability of
Global's solid oxide fuel cell commercialization program. Cost reduction
of component parts and materials is critical to achieving cost targets
for the mass production and sale of solid oxide fuel cell products.
- Expanded Market Opportunities for Global and FuelCell Products. Global
believes that it is a leader in solid oxide fuel cell development. Global
also believes that it has demonstrated high power densities with its fuel
cell membranes, established a strong intellectual property portfolio and
assembled a talented corps of engineers and scientists from around the
world. FuelCell's customer base and its relationships with governmental
and military agencies may provide additional opportunities for Global to
distribute its current and future products and secure assistance in its
solid oxide fuel cell product development programs. In addition, Global
has sold its thermoelectric generators into 47 countries around the world
and has an extensive marketing and agent network. These distribution
channels may be leveraged by FuelCell in sales of its fuel cell products.
- Larger Company; More Exposure to the United States Markets. Global
expects the combined company to have a larger market capitalization, and
as a result of FuelCell's Nasdaq National Market listing, better access
to U.S. capital and financial markets. In addition, it is expected that
FuelCell's U.S. presence will facilitate greater exposure of Global's
solid oxide fuel cell commercialization achievements for marketing and
funding opportunities.
- Continued Participation in the Alternative Energy Industry. Global
reviewed a number of alternatives in its process of exploring ways to
maximize shareholder value. Global believes the Combination with FuelCell
will give Global's shareholders continued exposure to the alternative
energy industry through their ownership in the combined company. As of
June 30, 2003, Global had invested approximately Cdn.$72.7 million on its
solid oxide fuel cell development, and the Combination may provide an
opportunity for Global to earn a return on this investment. Specifically,
the Combination may enable the combined company to sustain and further
develop its solid oxide fuel cell program.
53
- Tax Deferral. The Combination is structured to provide a Canadian tax
deferral to most Canadian resident holders of Global common shares so
long as they continue to hold exchangeable shares and file a joint
election with ExchangeCo pursuant to Section 85 of the Income Tax Act
(Canada). In addition, provided that the exchangeable shares are listed
on a prescribed stock exchange, they will be a qualified investment for
trusts governed by RRSPs, RRIFs, RESPs and DPSPs and, provided ExchangeCo
maintains a substantial presence in Canada, will not be foreign property
for such plans or funds and for certain other persons subject to Part XI
of the Income Tax Act (Canada).
- Ability to Consider Competing Offers. The Combination Agreement does not
preclude the initiation of competing offers by other potential bidders.
If another offer is received by Global, the Global board of directors may
consider and accept it if the offer meets the criteria specified in the
Combination Agreement, including that it is financially superior to the
Combination and that the offeror has demonstrated that the funds or other
consideration necessary for the offer are available. If a superior offer
is accepted by the Global board of directors, Global is required to pay
FuelCell a cash termination fee of $2 million. As of the date of this
Joint Proxy Statement and except as otherwise disclosed herein, Global
has not received any competing offers.
The Global board of directors also considered the opinion of Citigroup,
delivered orally to the Global board of directors on August 4, 2003 and
subsequently confirmed in writing as of that same date, to the effect that, as
of such date and based upon and subject to the considerations and limitations
set forth therein, the exchange ratio was fair, from a financial point of view,
to the Global common shareholders. The full text of Citigroup's opinion, which
sets forth the assumptions made, general procedures followed, matters considered
and limits on the review undertaken, is included as Annex F to this Joint Proxy
Statement. The summary of Citigroup's opinion set forth below is qualified in
its entirety by reference to the full text of the opinion. Shareholders are
urged to read Citigroup's opinion carefully and in its entirety. For more
information regarding Citigroup's opinion, please see "-- Description of the
Combination -- Opinion of Citigroup" on page 63.
In considering the Combination, the Global board of directors recognized
that there are risks associated with the Combination with FuelCell, including
that some of the potential benefits described above may not be realized, that
there may be significant costs associated with realizing these benefits and that
the fluctuation of FuelCell's share price will affect the consideration to be
received by Global shareholders. Please see the risks set forth under "Risk
Factors" starting on page 27 for a more complete description of the risks
associated with the Combination and the combined companies.
In view of the variety of factors considered in connection with its
evaluation of the Combination, the Global board of directors did not consider it
practicable and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. The Global board of
directors did not believe that the potential disadvantages described above were
sufficient, individually or in the aggregate, to outweigh the potential benefits
of the Combination.
RECOMMENDATION OF THE FUELCELL BOARD OF DIRECTORS
At its meeting on August 1, 2003, the FuelCell board of directors
unanimously determined that the Combination Agreement and the transactions
contemplated thereby are fair to FuelCell's stockholders and in the best
interest of FuelCell and approved the Combination and the Combination Agreement.
Each of the directors of FuelCell has advised FuelCell that he will vote the
FuelCell common stock held by him in favor of the proposal.
ACCORDINGLY, THE FUELCELL BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
FUELCELL'S STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE COMBINATION AGREEMENT AND
THE COMBINATION.
In reaching its decision to approve the Combination and the Combination
Agreement, the FuelCell board of directors consulted with FuelCell's management,
legal counsel regarding the legal terms of the Combination and financial
advisors regarding the financial aspects of the Combination and the fairness of
the exchange
54
ratio, from a financial point of view, to FuelCell. The factors that FuelCell's
board of directors considered in reaching its determination include the
following:
- historical information concerning FuelCell's and Global's respective
businesses, financial performance and condition, operations, technology
and management, including public reports concerning results of operations
during the most recent fiscal year and fiscal quarter for each company;
- FuelCell management's view of the financial condition, results of
operations and businesses of FuelCell and Global before and after giving
effect to the Combination;
- Global's cash reserves and FuelCell's belief that the addition of such
cash to FuelCell's balance sheet will help fund development and
operations;
- current financial market conditions and historical market prices,
volatility and trading information with respect to the FuelCell common
stock and the Global common shares;
- the value of Global, based upon private market, public market, net asset
value and premium paid valuation methodologies;
- the results of the due diligence investigations of Global conducted by
FuelCell's management and legal and financial advisors;
- the opinion of Lazard delivered on August 1, 2003, to the effect that, as
of such date, the exchange ratio was fair, from a financial point of
view, to FuelCell (for more information regarding the Lazard opinion,
please see "-- Description of the Combination -- Opinion of Lazard");
- the potential opportunities and benefits afforded by the Combination to
FuelCell upon combining its operations with those of Global (for more
information regarding these potential opportunities and benefits, please
see "-- Description of the Combination -- Reasons for the Combination --
FuelCell");
- the terms and conditions of the Combination Agreement generally,
including the circumstances in which termination fees are payable by and
to FuelCell, and the fact that the terms of the Combination Agreement do
not prevent a third party from making a competing offer or proposing a
competing transaction; and
- comparable valuation as compared to trading multiples of similar
alternative energy companies and comparable precedent transactions.
In the course of its analysis, FuelCell's board of directors also
considered the strategic benefits of the Combination. The FuelCell board of
directors determined that the Combination will result in a diversified company
with complementary revenue streams, technologies, customers and alliances that,
on a combined basis, is well positioned to address opportunities in fuel cell
power generation markets. The FuelCell board of directors believes that the
Combination is a complementary strategic combination that will:
- create a company with leading high temperature carbonate and solid oxide
fuel cell technology;
- strengthen FuelCell's position throughout the first phase of the SECA
program to develop SOFC products and increase the possibility that
FuelCell will be able to successfully compete for advancement through the
next two phases of the 10-year $139 million SECA program;
- increase FuelCell's and Global's technology base in a market where there
is significant growing interest from governmental and strategic partners;
- create a combined company with a strong balance sheet with an expected
cash balance of over $200 million;
- benefit shareholders of both companies by creating a stronger, more
diversified company and increased stock liquidity;
55
- consolidate operations with opportunities for cost efficiencies by
integrating research and development efforts, combining product
development and commercialization, integrating manufacturing operations
and consolidating general and administrative expenses; and
- result in an expanded technology and product profile as a provider of
fuel cell distributed generation solutions.
The FuelCell board of directors also identified and considered a number of
potential disadvantages in its deliberations concerning the Combination,
including, but not limited to:
- the risk that the potential benefits of the Combination may not be
realized, in part or at all or that there may be significant costs
associated with realizing these benefits;
- the risk that Global's net cash on or arising out of the completion of
the Combination may be significantly less than at the signing of the
Combination Agreement or the date of the FuelCell Meeting;
- the risk that the Combination may not be completed, including the risks
associated with obtaining the necessary approvals required to complete
the Combination;
- the risk of management and employee disruption associated with the
Combination, including the risk that despite the efforts of the combined
company, key technical, marketing and management personnel might not
remain employed by the combined company;
- the potential costs the combined company may incur if it chooses to (i)
terminate, renegotiate or amend Global's existing obligations, (ii)
streamline the combined company's business, (iii) reduce excess capacity,
including terminating employees, and (iv) eliminate redundant operations;
- the dilutive effect of the Combination on FuelCell's existing
stockholders;
- the risk that the Combination could adversely affect FuelCell's and
Global's relationship with some of its existing or potential customers,
suppliers or strategic partners;
- the potential negative effect on FuelCell's stock price as a result of
the public announcement of the Combination;
- the significant costs involved in completing the Combination;
- the risk relating to the termination of the proposed Combination;
- the potential that FuelCell will lose focus on commercializing its
carbonate Direct FuelCell technology; and
- the risk of litigation, infringement of third party intellectual property
rights and other applicable risks described in this Joint Proxy Statement
under the heading "Risk Factors."
In view of the variety of factors considered in connection with its
evaluation of the Combination, the FuelCell board of directors did not consider
it practicable to and did not quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. The FuelCell
board of directors did not believe that the potential disadvantages described
above were sufficient, individually or in the aggregate, to outweigh the
potential benefits of the Combination.
At its meeting on August 1, 2003, the FuelCell board of directors
unanimously determined that the Combination Agreement and the transactions
contemplated thereby are advisable, fair to and in the best interests of
FuelCell and approved the Combination and the Combination Agreement. Each of the
directors of FuelCell has advised FuelCell that he will vote the FuelCell common
stock held by him in favor of the proposal.
56
OPINION OF LAZARD
Lazard Freres & Co. LLC, FuelCell's investment bankers, has rendered an
opinion to the FuelCell board of directors as to the fairness as of the date of
the opinion, from a financial point of view, to FuelCell of the exchange ratio
in the acquisition. The full text of the written opinion of Lazard, dated August
1, 2003, is attached to this Joint Proxy Statement as Annex E. We encourage you
to read the opinion carefully and in its entirety to understand the procedures
followed, assumptions made, matters considered and limitations on the review
undertaken by Lazard in providing its opinion. THE OPINION OF LAZARD IS DIRECTED
TO THE FUELCELL BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY STOCKHOLDER AS TO HOW THAT STOCKHOLDER SHOULD VOTE ON, OR TAKE ANY OTHER
ACTION WITH RESPECT TO, THE ACQUISITION.
At a meeting of FuelCell's board of directors held on August 1, 2003, at
which the FuelCell board of directors considered the acquisition and approved
the Combination Agreement and the acquisition, Lazard rendered its oral opinion
(which was subsequently confirmed in its written opinion) that, as of such date
and based upon and subject to the matters reviewed with FuelCell's board of
directors, the exchange ratio in the Combination was fair to FuelCell from a
financial point of view.
This description of the Lazard opinion is qualified in its entirety by
reference to the full text of the Lazard opinion set forth in Annex E.
FuelCell's stockholders are urged to read the Lazard opinion in its entirety for
a description of the procedures followed, assumptions made, matters considered
and qualifications and limitations on the review undertaken by Lazard in
connection with rendering its opinion. The Lazard opinion is necessarily based
upon the economic, monetary, market and other conditions as they were in effect
on, and the information made available to Lazard as of, the date of the Lazard
opinion. Subsequent developments may affect the conclusion expressed in the
Lazard opinion. Lazard assumes no responsibility for advising any person of any
change in any matter affecting the Lazard opinion or for updating or revising
its opinion based on circumstances or events occurring after the date of the
Lazard opinion. The Lazard opinion addresses only the fairness from a financial
point of view of the exchange ratio to FuelCell as of August 1, 2003. It does
not address the merits of the underlying decision by FuelCell to engage in the
acquisition or the relative merits of the acquisition as compared to other
business strategies that might be available to FuelCell.
In the course of performing its review and analyses for rendering its
opinion, Lazard:
- reviewed the financial terms and conditions of the Combination Agreement;
- analyzed certain historical business and financial information relating
to FuelCell and Global;
- reviewed various financial forecasts and other data provided to Lazard by
FuelCell and Global relating to their respective businesses, including
the financial projections for Global for the years ending December 31,
2003 through 2004 prepared by the management of Global;
- held discussions with members of the senior managements of FuelCell and
of Global with respect to the businesses and prospects of FuelCell and
Global, respectively, and strategic objectives of each;
- reviewed public information with respect to certain other companies in
lines of businesses believed by Lazard to be generally comparable to the
businesses of FuelCell and Global;
- reviewed the financial terms of certain business combinations involving
companies in lines of businesses believed by Lazard to be generally
comparable to those of FuelCell and Global;
- reviewed the financial terms of certain business combinations involving
transaction structures believed by Lazard to be generally comparable to
the transaction structure set forth in the Combination Agreement;
- reviewed the historical stock prices and trading volumes of FuelCell's
common stock and Global's common shares; and
- conducted such other financial studies, analyses and investigations as
Lazard deemed appropriate.
Lazard relied upon the accuracy and completeness of the financial and other
information that it reviewed and used in its analysis, including the financial
and other information provided by FuelCell and Global and
57
reviewed by Lazard for purposes of the Lazard opinion. Lazard did not assume any
responsibility for any independent verification of such information or any
independent valuation or appraisal of any of the assets or liabilities of
FuelCell or Global, or concerning the solvency or fair value of either of
FuelCell or Global. Lazard also relied upon the views of management of FuelCell
generally with respect to the value of the existing technology of Global to be
acquired in the acquisition. With respect to financial forecasts, Lazard assumed
that they were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of FuelCell and of Global
as to the future financial performance of FuelCell and Global, respectively.
Lazard assumed no responsibility for and expressed no view as to such forecasts
or the assumptions on which they were based.
In rendering its opinion, Lazard assumed that the acquisition will be
consummated on the terms described in the Combination Agreement without any
waiver or any modification of any material terms or conditions by FuelCell and
that obtaining the necessary regulatory approvals for the acquisition will not
have an adverse effect on FuelCell, Global or the consummation of the
acquisition.
Further, in rendering its opinion, Lazard did not express any opinion as to
the price at which the common stock of FuelCell or the common shares of Global
may trade subsequent to the announcement of the acquisition or as to the price
at which the common stock of FuelCell may trade subsequent to the consummation
of the acquisition.
Lazard has in the past provided investment banking services to FuelCell for
which Lazard has received customary fees and, as expressed in the opinion, one
of Lazard's managing directors is a member of the immediate family of one of
FuelCell's directors.
SUMMARY OF LAZARD FINANCIAL ANALYSES
The following is a summary of the material financial analyses performed by
Lazard in connection with the rendering of its fairness opinion to the FuelCell
board of directors.
In each of the analyses described below, Lazard based its analyses on the
fully diluted shares outstanding as of April 30, 2003 for Global, as reported in
Quantum's preliminary Joint Management Information Circular and Proxy Statement
on Schedule 14A filed with the Securities and Exchange Commission on May 7, 2003
(the "Quantum Proxy Statement"), and on the fully diluted shares outstanding as
of January 22, 2003 for FuelCell, as reported in FuelCell's Annual Report on
Form 10-K for the fiscal year ended October 31, 2002.
SOME OF THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION
PRESENTED IN TABULAR FORMAT. IN ORDER TO UNDERSTAND FULLY LAZARD'S FINANCIAL
ANALYSES, THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF THE SUMMARY. THE
TABLES ALONE ARE NOT A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES.
CONSIDERING THE TABLES ALONE COULD CREATE A MISLEADING OR INCOMPLETE VIEW OF
LAZARD'S FINANCIAL ANALYSES.
Selected Precedent Transactions Analysis. Lazard performed selected
precedent transactions analyses to assist the FuelCell board of directors in
valuing Global based on transaction values expressed as multiples of various
financial measures in comparable selected transactions. Lazard reviewed and
analyzed certain publicly available financial and market data relating to
selected transactions in the alternative energy industry. Because of the general
lack of public information relating to precedent transactions in the alternative
energy industry from which to derive sufficient comparative financial metrics,
Lazard also analyzed comparable transactions in other industries, and
specifically those in which a substantial portion of the target's equity value
arose from its net cash.
The selected transactions in the alternative energy industry were:
Proton Energy Systems/Northern Power Systems, Inc.
Ballard Power Systems Inc./Ballard Generation (First Energy)
Hydrogenics/Greenlight Power Technologies
Stuart Energy Systems/Vandenborre Technologies
Plug Power, Inc./H Power Corp.
Maxwell Technologies, Inc./Montena Components Ltd
58
Ballard Power Systems Inc./XCELLSIS Fuel Cell Engines
Ballard Power Systems Inc./Ecostar Electric Drive Systems
Astropower Inc./Atersa
Ballard Power Systems Inc./Textron Systems, Carbon Unit
Kyocera Corporation/Golden Genesis Co.
The selected transactions in other industries in which a substantial
portion of the target's equity value arose from its net cash were:
Sybase Inc./AvantGo Inc.
SBI & Company/Lante Corp.
Openwave Systems Inc./SignalSoft Corp.
Valueclick Inc./Be Free Inc.
Exelixis, Inc./Genomica Corp.
EM Holdings Inc./eMachines Inc.
SPSS Inc./net.Genesis Corp.
Divine Inc./Eprise Corp.
Cross Media Marketing Corp./Lifeminders Inc.
Kana Communications, Inc./Broadbase Software, Inc.
AmericanGreetings.com Inc./Egreetings Network Inc.
In conducting its analysis, Lazard made selected qualitative judgments
concerning the differences between the characteristics of the acquisition of
Global and the selected precedent transactions that Lazard believes affect the
transaction values of the acquisition of Global and those of the precedent
transactions. For example, Lazard considered the Plug Power, Inc./H Power Corp.
transaction to be the most relevant transaction for the purposes of its
precedent transactions analysis, given the significant structural and industry
similarities with the acquisition of Global, and accordingly ascribed
significant weight to its transaction multiples.
In conducting its analysis of comparable transactions, Lazard analyzed
equity value expressed as a multiple of net cash and book equity value. Lazard
then derived ranges for the implied multiples of equity value to net cash and to
book value of equity. Lazard also analyzed the premium paid per share of common
stock of the target company one-day and thirty-days prior to the announcement of
the transaction. Using publicly available information and market data, Lazard
calculated the following median and high and low multiples for the above
comparable companies:
LOW HIGH MEDIAN
----- ----- ------
EQUITY VALUE AS A MULTIPLE OF:
Net Cash.................................................. 0.58x 3.75x 0.96x
Book Value of Equity...................................... 0.44x 7.50x 1.03x
EQUITY PREMIUM/(DISCOUNT) BASED ON CLOSING PRICE:
One day prior to the announcement of the transaction...... 16.5% 158.7% 70.0%
Thirty days prior to the announcement of the
transaction............................................ (61.3)% 404.8% 85.7%
Using the median, high and low multiples calculated above, Lazard derived a
range of multiples for equity value to net cash of 1.25x to 1.50x and for equity
value to book equity value of 1.05x to 1.25x. Using this valuation analysis and
estimates of financial and market data for Global provided by the management of
Global, Lazard derived a range of implied equity values for Global of $75
million to $90 million, or approximately $2.55 to $3.06 per fully-diluted Global
common share.
Lazard also noted that the implied premium to be paid to Global common
shareholders of 92.3% and 62.3% based on the closing price of Global common
shares thirty days prior and one day prior, respectively, to March 19, 2003, the
date of Global's public announcement that it was in discussions with another
party regarding a possible business combination, compared favorably with the
range for the precedent transactions
59
based on the closing price of the target company's common shares thirty days
prior and one day prior to the announcement.
Comparable Public Companies Analysis. Lazard performed a comparable public
companies analysis to assist the FuelCell board of directors in valuing Global
based on various financial multiples of selected comparable public companies in
the alternative energy industry. In performing this analysis, Lazard reviewed
certain financial and market data relating to Global and compared such
information to the corresponding financial and market data of other companies in
the alternative energy industry which Lazard deemed to be comparable to Global.
The selected comparable companies were separated into two groups: companies
with significant strategic partners, typically reflective of such companies'
industry-leading positions; and companies without strategic partners.
Notwithstanding their mutual participation in the fuel cell and energy-tech
industries, Lazard noted that the trading dynamics of these two groups were
markedly distinct, with the companies with significant strategic partners
trading at substantial premiums to those without strategic partners. The
selected comparable companies that Lazard considered were:
COMPANIES WITH STRATEGIC PARTNERS: COMPANIES WITHOUT STRATEGIC PARTNERS:
- Ballard Power Systems Inc. - Active Power, Inc.
- Hydrogenics Corporation - Proton Energy Systems, Inc.
- Plug Power, Inc. - Stuart Energy Systems Corporation
- Quantum Fuel Systems Technologies
Worldwide, Inc.
- FuelCell Energy, Inc.
Lazard compared the publicly-available financial information and market
data for the selected comparable companies. For each of the selected comparable
companies, Lazard calculated and compared the companies' market capitalization
as a multiple of net cash and equity value as a multiple of book equity value.
The median multiples of market capitalization to net cash and equity to book
equity value were:
GROUP MEDIAN OF GROUP MEDIAN OF
EQUITY VALUE TO EQUITY VALUE TO
COMPARABLE COMPANIES NET CASH BOOK EQUITY VALUE
-------------------- --------------- -----------------
Companies with strategic partners........................... 4.26x 1.90x
Companies without strategic partners........................ 0.89x 0.76x
Because of the differences between businesses, operations, financial
conditions and prospects of the companies considered as comparable companies and
those of Global, Lazard believed that it was inappropriate to rely solely on the
quantitative results of its analysis. Accordingly, Lazard also made selected
qualitative judgments concerning the differences between the financial and
operating characteristics of Global and the comparable companies included in the
analysis that Lazard believed affect the public trading values of Global and the
comparable companies. For example, in making such qualitative judgments, Lazard
considered that industry leaders, typically with well-known strategic partners
and investors such as General Motors' partnership with Hydrogenics and Ford's
and Daimler Chrysler's partnerships with Ballard, trade at significant premiums
to other companies within the same industry, as measured by the ratios of equity
value to net cash and equity value to book equity value.
Using the median multiples calculated above and applying certain
qualitative measures, Lazard derived a range of multiples for equity value to
net cash of approximately 1.00x to 1.20x and for equity value to book value of
equity of approximately 0.85x to 1.00x and, using estimates for the relevant
financial and market data for Global provided by the management of Global,
calculated a corresponding range of implied equity values for Global of $60
million to $72.5 million, or approximately $2.04 to $2.47 per fully-diluted
Global common share. Lazard noted that this valuation did not reflect any change
of control premium.
Net Tangible Asset Valuation Analysis. Lazard also performed a net
tangible asset valuation analysis by analyzing the residual value to Global's
common shareholders as the net remaining cash after disposal of Global's
thermoelectric generator division and redemption of the Global Series 2
Preferred Shares at their
60
book value as of December 31, 2002, as reported in the Quantum Proxy Statement.
Because long-term projections for Global's fuel cell business were not provided
by Global, Lazard was unable to separately value Global's fuel cell technology
business, which currently does not generate revenue or earnings. Furthermore,
FuelCell management did not provide Lazard with analyses or estimates of the
value of Global's technology business. Consequently, for the purposes of the net
tangible asset valuation analysis, Lazard did not value Global's SOFC technology
business.
Based on estimates for net cash and for the outstanding Global Preferred
Series 2 Shares provided by Global's management, Lazard calculated an implied
range of net tangible asset values for Global, excluding any value attributable
to the SOFC technology business, of $57.2 million to $60.2 million, or $1.96 to
$2.06 per fully-diluted Global common share.
Exchange Ratio Analysis. Lazard examined the historical exchange ratios of
FuelCell common stock to Global common shares to assist the FuelCell board of
directors in valuing Global based on the relative values of FuelCell's closing
share price to Global's closing share price as of July 28, 2003 and for the
one-month, three-month, six-month and twelve-month periods ended July 28, 2003.
Lazard calculated the exchange ratios using both currency-adjusted and
non-currency adjusted values for Global's common shares. Lazard calculated the
"currency-adjusted" exchange ratio by converting Global's share price to its
U.S. dollar equivalent on a daily exchange rate basis for the period in
questions. Lazard calculated the "non-currency adjusted" exchange ratios by
converting Global's share price to its U.S. dollar equivalent on the first day
of the relevant period.
Lazard calculated the currency-adjusted and non-currency adjusted exchange
ratio as of July 28, 2003 and compared it to the exchange ratios at the low, mid
and high points of the collar, on the basis of both the weighted average daily
trading volume of FuelCell common stock and Global common shares and the simple
average. Lazard also calculated the implied currency-adjusted and non-currency
adjusted exchange ratios for the one-month, three-month, six-month and
twelve-month periods ended July 28, 2003 on the basis of both the weighted
average daily trading volume of FuelCell common stock and Global common shares
and the simple average. The results of Lazard's analysis are set forth in the
table below:
NON-CURRENCY
CURRENCY-ADJUSTED ADJUSTED
------------------ ------------------
SIMPLE WEIGHTED SIMPLE WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
------- -------- ------- --------
Collar Low....................................... 0.279x 0.279x 0.279x 0.279x
Collar Mid....................................... 0.307x 0.307x 0.307x 0.307x
Collar High...................................... 0.342x 0.342x 0.342x 0.342x
July 28, 2003.................................... 0.289x 0.289x 0.289x 0.289x
One-month........................................ 0.260x 0.261x 0.265x 0.265x
Three-month...................................... 0.234x 0.242x 0.222x 0.227x
Six-month........................................ 0.259x 0.261x 0.241x 0.239x
Twelve-month..................................... 0.230x 0.230x 0.216x 0.217x
Using the historical currency-adjusted, weighted average exchange ratio for
the low and high points of the collar, Lazard observed that the transaction
exchange ratio range of 0.279x to 0.342x represents a premium/(discount) of (3%)
to 18% to the exchange ratio on July 28, 2003, 7% to 31% to the one-month
average, 15% to 41% to the three-month average, 7% to 31% to the six-month
average and 21% to 49% to the 12-month average. Lazard observed that the
exchange ratio represents a premium to the historical trading prices of Global's
common shares that is consistent with premiums paid in similar transactions
involving changes of control.
MISCELLANEOUS
In connection with rendering its opinion, Lazard performed a variety of
financial analyses. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant
61
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to a partial analysis or summary description. Accordingly,
notwithstanding the separate analyses summarized above, Lazard believes that its
analyses must be considered as a whole and that selecting portions of the
analyses and factors considered by them, without considering all such analyses
and factors, or attempting to ascribe relative weights to some or all such
analyses and factors, could create an incomplete view of the evaluation process
underlying the Lazard opinion.
In performing its analyses, Lazard made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of FuelCell. The analyses
performed by Lazard are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Lazard did not assign any specific weight to any of the
analyses described above and did not draw any specific conclusions from or with
regard to any one method of analysis. With respect to the analysis of comparable
companies and the analysis of selected precedent transactions summarized above,
no public company utilized as a comparison is identical to FuelCell or Global,
and no transaction is identical to the Combination. Accordingly, an analysis of
publicly traded comparable companies and comparable business combinations is not
mathematical; rather, it involves complex considerations and judgments
concerning the differences in financial and operating characteristics of the
companies and other factors that could affect the public trading values or
announced merger transaction values, as the case may be, of FuelCell or Global
and the companies to which they were compared. The analyses do not purport to be
appraisals or to reflect the prices at which any securities may trade at the
present time or at any time in the future. In addition, the Lazard opinion was
one of many factors taken into consideration by FuelCell's board of directors.
Consequently, Lazard's analysis should not be viewed as determinative of the
decision of FuelCell's board of directors or FuelCell's management with respect
to the fairness of the exchange ratio as set forth in the Combination Agreement.
Lazard is an internationally recognized investment banking firm and is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts and valuations for estate, corporate and other purposes.
Lazard was selected to act as investment banker to the FuelCell board of
directors because of its expertise and its reputation in investment banking and
mergers and acquisitions and its familiarity with the alternative energy
industry and FuelCell. FuelCell and Lazard have entered into a letter agreement,
dated as of May 15, 2003, relating to the services to be provided by Lazard in
connection with the Combination and the transactions related to it, under which
FuelCell has agreed to pay Lazard customary compensation, a substantial portion
of which is payable only upon completion of the Combination. FuelCell also
agreed to reimburse Lazard for certain out-of-pocket expenses incurred in
connection with the engagement. In addition, FuelCell agreed to indemnify Lazard
against certain liabilities, including liabilities under the federal securities
law, relating to or arising out of its engagement.
RECOMMENDATION OF THE GLOBAL BOARD OF DIRECTORS
The Global board of directors unanimously approved the Combination
Agreement and determined that the Combination is fair to its common shareholders
and preferred shareholders and is in the best interests of Global.
BASED ON THE FACTORS CONSIDERED BY THE GLOBAL BOARD OF DIRECTORS, THE BOARD
UNANIMOUSLY RECOMMENDS THAT GLOBAL COMMON SHAREHOLDERS VOTE "FOR" THE SPECIAL
RESOLUTION TO APPROVE THE COMBINATION ATTACHED TO THIS JOINT PROXY STATEMENT AS
ANNEX A.
In reaching its decision to unanimously approve the Combination Agreement,
the Global board of directors consulted with Global's management, legal counsel
regarding the legal terms of the Combination Agreement and financial advisors
regarding the fairness of the exchange ratio set forth in the Combination
Agreement, from a financial point of view, to Global common shareholders. A copy
of the Citigroup opinion, including the assumptions, qualifications and other
matters contained therein, is attached to this Joint Proxy Statement as Annex F.
62
In considering the Combination, the Global board of directors recognized
that there are risks associated with the Combination with FuelCell, including
that some of the potential benefits of the Combination described above may not
be realized, that there may be significant costs associated with realizing these
benefits and the other risks set forth under "Risk Factors."
In view of the variety of factors considered in connection with its
evaluation of the Combination, the Global board of directors did not consider it
practicable and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination.
OPINION OF CITIGROUP
Citigroup was retained to act as financial advisor to Global in connection
with the Combination. Pursuant to Citigroup's engagement letter agreement with
Global, dated November 19, 2002, Citigroup rendered to the Global board of
directors on August 4, 2003 an oral opinion, which opinion was subsequently
confirmed by delivery of a written opinion, to the effect that, as of the date
of the opinion and based upon and subject to the considerations and limitations
set forth in the opinion, Citigroup's work described below and other factors it
deemed relevant, the exchange ratio was fair, from a financial point of view, to
the holders of Global common shares.
The full text of Citigroup's opinion, which sets forth the assumptions
made, general procedures followed, matters considered and limits on the review
undertaken, is included as Annex F to this Joint Proxy Statement. The summary of
Citigroup's opinion set forth below is qualified in its entirety by reference to
the full text of the opinion. GLOBAL COMMON SHAREHOLDERS ARE URGED TO READ
CITIGROUP'S OPINION CAREFULLY AND IN ITS ENTIRETY.
CITIGROUP'S OPINION WAS LIMITED SOLELY TO THE FAIRNESS OF THE EXCHANGE
RATIO FROM A FINANCIAL POINT OF VIEW AS OF THE DATE OF THE OPINION. NEITHER
CITIGROUP'S OPINION NOR ITS RELATED ANALYSIS CONSTITUTED A RECOMMENDATION OF THE
PROPOSED COMBINATION TO THE GLOBAL BOARD OF DIRECTORS. CITIGROUP MAKES NO
RECOMMENDATION TO ANY GLOBAL COMMON SHAREHOLDER REGARDING HOW THE SHAREHOLDER
SHOULD VOTE WITH RESPECT TO THE PROPOSED COMBINATION.
In arriving at its opinion, Citigroup reviewed a draft dated August 1, 2003
of the Combination Agreement, and held discussions with senior officers,
directors and other representatives and advisors of Global and senior officers
and other representatives and advisors of FuelCell concerning the business,
operations and prospects of Global and FuelCell. Citigroup examined publicly
available business and financial information relating to Global and FuelCell, as
well as financial forecasts and other information and data relating to Global
and FuelCell which were provided to or otherwise reviewed by or discussed with
Citigroup by the respective managements of Global and FuelCell, including
information relating to the potential strategic implications and operational
benefits anticipated by the managements of Global and FuelCell to result from
the Combination. Citigroup reviewed the financial terms of the Combination as
set forth in the Combination Agreement in relation to, among other things:
- current and historical market prices and trading volumes of Global common
shares and FuelCell common stock;
- the historical and projected earnings and other operating data of Global
and FuelCell; and
- the capitalization and financial condition of Global and FuelCell.
Citigroup considered, to the extent publicly available, the financial terms of
other transactions effected that Citigroup considered relevant in evaluating the
Combination and analyzed financial, stock market and other publicly available
information relating to the businesses of other companies whose operations
Citigroup considered relevant in evaluating those of Global and FuelCell.
Citigroup also evaluated the pro forma financial effects of the Combination on
Global and FuelCell. At appropriate times, in connection with its engagement and
at the direction of Global, Citigroup was requested to approach, and held
discussions with, selected third parties to solicit indications of interest in
the possible acquisition of all or a part of Global. In addition to the
foregoing, Citigroup conducted such other analyses and examinations and
considered such
63
other information and financial, economic and market criteria as Citigroup
deemed appropriate in arriving at its opinion.
In rendering its opinion, Citigroup assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or provided to or otherwise reviewed by
or discussed with it and was informed by the managements of Global and FuelCell
that they were not aware of any facts that would make such information
inaccurate or misleading. With respect to financial forecasts and other
information and data relating to Global and FuelCell provided to or otherwise
reviewed by or discussed with it, Citigroup was advised by the respective
managements of Global and FuelCell that such forecasts and other information and
data were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of Global and FuelCell as to the
future financial performance of Global and FuelCell, the potential strategic
implications and operational benefits (including the amount, timing and
achievability thereof) anticipated to result from the Combination and the other
matters covered thereby. Citigroup was not asked to, and did not, express a view
with respect to such forecasts and other information and data or the assumptions
on which they were based. Citigroup assumed, with the consent of the Global
board of directors, that the Combination will be consummated in accordance with
its terms, without waiver, modification or amendment of any material term,
condition or agreement and that, in the course of obtaining the necessary
regulatory or third party approvals, consents and releases for the Combination,
no delay, limitation, restriction or condition will be imposed that would have a
material adverse effect on Global or FuelCell or the contemplated benefits of
the Combination. Representatives of Global advised Citigroup, and Citigroup
assumed, that the final terms of the Combination Agreement would not vary
materially from those set forth in the draft reviewed by it. Citigroup also
assumed, with the consent of the Global board of directors, that, at the
corporate level, the Combination will be tax-free.
Citigroup noted that its opinion relates only to the relative values of
Global and FuelCell. Citigroup did not express any opinion as to what the value
of the FuelCell common stock or the exchangeable shares actually will be when
issued pursuant to the Combination or the price at which the FuelCell common
stock or the exchangeable shares will trade at any time. Citigroup did not make
and was not provided with an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of Global or FuelCell nor did Citigroup
make any physical inspection of the properties or assets of Global or FuelCell.
CITIGROUP WAS NOT REQUESTED TO CONSIDER, AND ITS OPINION DID NOT ADDRESS
THE RELATIVE MERITS OF THE COMBINATION AS COMPARED TO ANY ALTERNATIVE BUSINESS
STRATEGIES OR TRANSACTIONS THAT MIGHT EXIST FOR GLOBAL OR THE EFFECT OF ANY
OTHER TRANSACTION IN WHICH GLOBAL MIGHT ENGAGE. Citigroup's opinion was
necessarily based upon information available to it, and financial, stock market
and other conditions and circumstances existing, as of the date of its opinion.
In connection with rendering its opinion, Citigroup made a presentation to
the Global board of directors on August 1, 2003 with respect to the material
analyses performed by Citigroup in evaluating the fairness of the exchange ratio
to holders of Global common shares as of the date of Citigroup's opinion. The
following is a summary of that presentation. The summary includes information
presented in tabular format. IN ORDER TO UNDERSTAND FULLY THE FINANCIAL ANALYSES
USED BY CITIGROUP, THESE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH
SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE
FINANCIAL ANALYSES. The following quantitative information, to the extent it is
based on market data, is, except as otherwise indicated, based on market data as
it existed at or prior to July 30, 2003, and is not necessarily indicative of
current or future market conditions. For the purposes of its analyses, unless
otherwise noted, Citigroup assumed an exchange rate of 1.39 Canadian dollars for
each U.S. dollar. Values below are expressed in U.S. dollars.
Implied Historical Exchange Ratio
Citigroup derived implied historical exchange ratios by dividing the
closing U.S. dollar equivalent price per share of Global common shares (based on
the daily exchange rate of Canadian dollars for each U.S. dollar) by the closing
price per share of FuelCell common stock for each trading day in the period from
July 30, 2002 through July 30, 2003. Citigroup calculated that the implied
exchange ratio as of July 30, 2003
64
was 0.297x. Citigroup also calculated the high, low and average implied exchange
ratios for each of the following calendar periods ended July 30, 2003:
HIGH LOW AVERAGE
------ ------ -------
Last Month................................................. 0.290x 0.194x 0.246x
Last Three Months.......................................... 0.341x 0.162x 0.239x
Last Six Months............................................ 0.376x 0.162x 0.266x
Last Nine Months........................................... 0.376x 0.162x 0.249x
Last Twelve Months......................................... 0.376x 0.136x 0.235x
Citigroup compared the high, low and average historical exchange ratios for
each of the calendar periods listed above to the range for the possible exchange
ratio in the Combination of 0.279x - 0.342x. Citigroup noted that the low and
the average implied historical exchange ratios for each of the calendar periods
listed above were below the lower limit of the range for the possible exchange
ratio in the Combination of 0.279x, and that the high implied historical
exchange ratio for each of the last month and the last three months was within
the range for the possible exchange ratio in the Combination.
Comparable Companies Analysis
Citigroup compared financial, operating and stock market data and
forecasted financial information for selected publicly traded fuel cell
companies that Citigroup deemed appropriate to similar information for Global
and FuelCell. The selected comparable companies were separated into two groups:
companies with well-known strategic partners and those without such partners.
The selected comparable companies considered by Citigroup were:
COMPANIES WITH STRATEGIC PARTNERS
- Ballard Power Systems, Inc.
- Hydrogenics Corporation
- Millennium Cell, Inc.
- Plug Power, Inc.
COMPANIES WITHOUT STRATEGIC PARTNERS
- Stuart Energy Systems Corporation
- Proton Energy Systems, Inc.
The forecasted financial information used by Citigroup for Global and
FuelCell in the course of this analysis was based on publicly available
historical information and management projections of Global and FuelCell,
respectively. The financial information used by Citigroup for the selected
comparable companies in the course of this analysis was based on publicly
available historical information. With respect to Global, FuelCell and the
comparable companies, calculations were made based on the closing price per
share of each company's stock as of July 30, 2003.
For each of the selected comparable companies, Citigroup derived and
compared, the ratio of equity value to cash-on-hand:
COMPARABLE COMPANIES RANGE OF RATIO OF EQUITY VALUE TO CASH-ON-HAND
-------------------- ----------------------------------------------
Companies with Strategic Partners 3.6x - 4.4x
Companies without Strategic Partners 0.5x - 1.1x
Because of the differences between the businesses, operations, financial
conditions and prospects of the companies included in the comparable company
groups and those of Global and FuelCell, Citigroup believed it was inappropriate
to rely solely on the quantitative results of this analysis, and accordingly
also made selected qualitative judgments concerning differences between the
financial and operating characteristics of Global, FuelCell and the comparable
companies that Citigroup believes affect the public trading values of Global,
FuelCell and the comparable companies. For example, in making such qualitative
judgments Citigroup considered that fuel cell companies with well-known
strategic partners and investors, such as General Electric's partnership with
Plug Power, Inc., traded at a significant premium to the comparable
65
companies, such as Global and FuelCell, without well-known strategic partners,
as measured by the ratio of equity value to cash-on-hand.
Citigroup noted that a substantial portion of the equity value of Global
and FuelCell arises from each company's cash-on-hand. Based on the information
for the comparable companies, Citigroup derived a range of 0.7x to 1.0x for the
implied equity value as a multiple of cash-on-hand for Global and a range of
1.5x to 2.0x for the implied equity value as a multiple of cash-on-hand for
FuelCell. Using this cash-on-hand valuation analysis, Citigroup further derived
ranges for the implied equity value per share of Global and FuelCell, and from
these ranges derived a reference range for the implied exchange ratio of 0.171x
to 0.322x. Citigroup compared this derived range to the range for the possible
exchange ratio in the Combination of 0.279x-0.342x. Citigroup noted that the
lower limit of this derived range was below the lower limit of the range for the
possible exchange ratio in the Combination of 0.279x, and that the upper limit
of this derived range was below the upper limit of the range for the possible
exchange ratio in the Combination of 0.342x.
Precedent Transaction Analysis
Citigroup reviewed publicly available information for fifteen combination
or acquisition transactions announced since February 5, 2001 that it deemed
appropriate in analyzing the Combination. Because a limited number of
transactions have occurred in the industries in which Global and FuelCell
operate and because a substantial portion of the equity value of Global arises
from Global's cash-on-hand, the precedent transactions reviewed by Citigroup
primarily were transactions in which cash-on-hand consisted of a substantial
portion of the target company's equity value. The precedent transactions
considered by Citigroup were the following:
ANNOUNCEMENT DATE ACQUIROR TARGET COMPANY
----------------- -------- --------------
February 5, 2001 AmericanGreetings.com, Inc. Egreetings Network, Inc.
February 5, 2001 iVillage, Inc. Women.com Networks, Inc.
April 9, 2001 Kana Communications, Inc. Broadbase Software, Inc.
July 19, 2001 Cross Media Marketing Corporation Lifeminders, Inc.
October 25, 2001 SG Merger Corp. Ecometry Corporation
October 29, 2001 SPSS Inc. NetGenesis Corp.
November 9, 2001 EM Holdings, Inc. EMachines, Inc.
November 19, 2001 Exelixis, Inc. Genomica Corporation
December 28, 2001 Paradyne Networks, Inc. Elastic Networks Inc.
January 10, 2002 U.S. RealTel, Inc. Cypress Communications, Inc.
March 11, 2002 Valueclick, Inc. Be Free, Inc.
May 29, 2002 Openwave Systems Inc. SignalSoft Corporation
July 19, 2002 SBI & Company, Inc. Lante Corporation
November 12, 2002 Plug Power, Inc. H Power Corp.
December 20, 2002 Sybase, Inc. AvantGo, Inc.
For each precedent transaction, Citigroup derived and compared, among other
things, the ratio of the equity value of the target company based on the
consideration to be paid in the transaction to the target company's cash-on-hand
at the time the transaction was announced. With respect to the financial
information for the companies involved in the precedent transactions, Citigroup
relied on information available in public documents.
The following table sets forth the results of this analysis:
RANGE MEDIAN MEAN
----------- ------ -----
RATIO OF EQUITY VALUE TO CASH-ON-HAND................... 0.55x-1.20x 0.99x 0.93x
Citigroup noted that the ratio of Global's equity value to Global's
cash-on-hand implied by the terms of the Combination of 1.34x exceeds the upper
limit of the range of equity value to cash-on-hand derived for the precedent
transactions.
66
Based on the information derived with respect to the precedent
transactions, Citigroup derived a reference range of 0.90x to 1.15x for the
equity value of Global as a multiple of the amount of Global's cash-on-hand at
the time the Combination was announced. From this range, Citigroup further
derived a reference range of 0.229x to 0.291x for the implied exchange ratio
using the closing price per share of FuelCell common stock as of July 30, 2003.
Citigroup compared this derived range to the range for the possible exchange
ratio in the Combination of 0.279x - 0.342x. Citigroup noted that the lower
limit of this derived range was below the lower limit of the range for the
possible exchange ratio in the Combination of 0.279x, and that the upper limit
of this derived range was below the upper limit of the range for the possible
exchange ratio in the Combination of 0.342x.
Liquidation Analysis
Citigroup also performed a liquidation analysis in order to estimate the
residual value that might be available to holders of Global common shares
following a hypothetical liquidation of Global. Citigroup estimated the residual
value of Global as the net remaining cash-on-hand after the repayment of its
outstanding preferred stock and costs associated with the hypothetical shutdown
of Global's fuel cell business, plus the residual equity value of Global's
thermoelectric generator business. Figures for cash-on-hand and outstanding
preferred stock were based on estimates of Global's management as of June 30,
2003. Based on this information, Citigroup derived a range for the implied
equity value per share of Global, and using the closing price per share of
FuelCell common stock as of July 30, 2003, further derived a reference range for
the implied exchange ratio of 0.175x to 0.207x. Citigroup compared this derived
range to the range for the possible exchange ratio in the Combination of
0.279x - 0.342x. Citigroup noted that both the upper and lower limits of this
derived range were below the lower limit of the range for the possible exchange
ratio in the Combination of 0.279x.
CITIGROUP'S ADVISORY SERVICES AND OPINION WERE PROVIDED FOR THE INFORMATION
OF THE GLOBAL BOARD OF DIRECTORS IN ITS EVALUATION OF THE PROPOSED COMBINATION
AND DID NOT CONSTITUTE A RECOMMENDATION OF THE PROPOSED COMBINATION TO GLOBAL OR
A RECOMMENDATION TO ANY HOLDER OF GLOBAL COMMON SHARES AS TO HOW THAT
SHAREHOLDER SHOULD VOTE ON ANY MATTERS RELATING TO THE PROPOSED COMBINATION.
The preceding discussion is a summary of the material financial analyses
furnished by Citigroup to the Global board of directors, but it does not purport
to be a complete description of the analyses performed by Citigroup or of its
presentation to the Global board of directors. The preparation of financial
analyses and fairness opinions is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. Citigroup made no attempt to assign specific weights to particular
analyses or factors considered, but rather made qualitative judgments as to the
significance and relevance of all the analyses and factors considered and
determined to give its fairness opinion as described above. Accordingly,
Citigroup believes that its analyses, and the summary set forth above, must be
considered as a whole, and that selecting portions of the analyses and of the
factors considered by Citigroup, without considering all of the analyses and
factors, could create a misleading or incomplete view of the processes
underlying the analyses conducted by Citigroup and its opinion. With regard to
the comparable companies and precedent transaction analyses summarized above,
Citigroup selected comparable public companies and precedent transactions on the
basis of various factors, including size and similarity of the line of business
of the relevant entities; however, no company utilized in these analyses is
identical to Global or FuelCell and no precedent transaction is identical to the
Combination. As a result, these analyses are not purely mathematical, but also
take into account differences in financial and operating characteristics of the
subject companies and other factors that could affect the Combination or public
trading value of the subject companies to which Global and FuelCell are being
compared.
In its analyses, Citigroup made numerous assumptions with respect to
Global, FuelCell, industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Global and FuelCell. Any estimates contained in Citigroup's analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by these analyses. Estimates of values of companies do not purport to be
appraisals or necessarily to reflect the prices at which companies may actually
be sold. Because these
67
estimates are inherently subject to uncertainty, none of Global, FuelCell, the
Global board of directors, the FuelCell board of directors, Citigroup or any
other person assumes responsibility if future results or actual values differ
materially from the estimates.
Citigroup's analyses were prepared solely as part of Citigroup's analysis
of the fairness of the exchange ratio in the Combination and were provided to
the Global board of directors in that connection. The opinion of Citigroup was
only one of the factors taken into consideration by the Global board of
directors in making its determination to approve the Combination Agreement and
the Combination. See "-- Description of the Combination -- Reasons for the
Combination -- Global".
Citigroup is an internationally recognized investment banking firm engaged
in, among other things, the valuation of businesses and their securities in
connection with mergers and acquisitions, restructurings, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. Global selected Citigroup to act as its financial
advisor on the basis of Citigroup's international reputation and Citigroup's
familiarity with Global. In the ordinary course of its business, Citigroup and
its affiliates may actively trade or hold the securities of both Global and
FuelCell for its own account or for the account of customers and, accordingly,
may at any time hold a long or short position in those securities. Citigroup and
its affiliates, including Citigroup Inc. and its affiliates, may maintain
relationships with Global, FuelCell and their respective affiliates.
Pursuant to its engagement letter with Citigroup, Global agreed to pay
Citigroup customary fees for its services rendered in connection with the
Combination, including the delivery of its opinion, a significant portion of
which is contingent upon consummation of the Combination. Global has also agreed
to reimburse Citigroup for its reasonable travel and other out-of-pocket
expenses incurred in connection with its engagement, including the reasonable
fees and expenses of its counsel, and to indemnify Citigroup against specific
liabilities and expenses relating to or arising out of its engagement, including
liabilities under the federal securities laws.
MECHANICS FOR IMPLEMENTING THE COMBINATION AND DESCRIPTION OF EXCHANGEABLE
SHARES
The following is a summary description of the material terms of:
- the arrangement under Section 193 of the Business Corporations Act
(Alberta), which will give effect to the Combination;
- the exchangeable share provisions;
- the form of support agreement; and
- the form of voting and exchange trust agreement.
This summary is qualified in its entirety by the full text of the
Combination Agreement, the Plan of Arrangement and the documents listed above,
which we have included as Annexes B and D which are incorporated herein by
reference.
Pursuant to the Combination, each Canadian Global common shareholder (other
than dissenting shareholders) will receive, at the shareholder's election, as
consideration for each Global common share held by that shareholder and subject
to certain proration adjustments described below, either (i) exchangeable shares
of ExchangeCo which have economic rights (including the right to all dividends)
and voting attributes equivalent to those of FuelCell common stock but with
effectively no economic or voting rights in ExchangeCo, or (ii) shares of
FuelCell common stock, the amounts of which will be determined in accordance
with the exchange ratio; and each non-Canadian Global common shareholder (other
than dissenting shareholders) will receive shares of FuelCell common stock which
have economic rights, including the right to all dividends and voting attributes
as described herein under the heading "Chapter Three -- Description of
FuelCell's Capital Stock, and Global's Preferred Shares and ExchangeCo and
CallCo Share Capital -- FuelCell Capital Stock -- Common Stock", the amounts of
which will be determined in accordance with the exchange ratio. Holders of
exchangeable shares will have the right to receive FuelCell common
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stock at any time in exchange for exchangeable shares on a one-for-one basis.
The election to receive exchangeable shares must be received by Computershare
Trust Company of Canada by the close of business on the last business day prior
to the effective time of the Combination. If the closing occurs as expected on
November 3, 2003, your letter of transmittal must be received by the close of
business on October 31, 2003. You may make the election by checking the
appropriate box on the letter of transmittal, completing the declaration of
residency contained therein and returning it, along with your share certificate
or certificates, to Computershare Trust Company of Canada at the address
specified in the letter of transmittal. Global common shareholders who are
non-residents of Canada for purposes of the Income Tax Act (Canada) may not
elect to receive exchangeable shares and any election made by a Global common
shareholder who is a non-resident of Canada will not be valid and that
shareholder will receive FuelCell common stock.
The following are rights relating to the exchange or redemption of
exchangeable shares into FuelCell common stock:
- Shareholder Rights to Exchange or Cause Redemption. Rights (which are
called exchange put rights and retraction rights) to require an exchange
by FuelCell or redemption by ExchangeCo of exchangeable shares for
FuelCell common stock;
- Automatic Rights. Rights (which are called automatic redemption rights,
optional exchange rights, liquidation rights and automatic exchange
rights) that automatically, upon the occurrence of specified automatic or
triggering events, result in the exchange or redemption of exchangeable
shares for FuelCell common stock; and
- CallCo Call Rights. Call rights (which are called retraction call
rights, liquidation call rights and redemption call rights) that override
the exchangeable shareholder's rights listed above, granted to 1065918
Alberta Ltd., a wholly-owned subsidiary of FuelCell ("CallCo"), permit
CallCo to require an exchange of exchangeable shares for FuelCell common
stock with CallCo if a holder exercises retraction rights or in any
circumstances where ExchangeCo would otherwise be required to redeem the
exchangeable shares.
CallCo anticipates that CallCo will exercise its call rights, when
available, and currently foresees limited, if any, circumstances under which
CallCo would not exercise its call rights. Therefore, we expect that holders of
exchangeable shares will only receive FuelCell common stock through an exchange
with CallCo, as opposed to a redemption by ExchangeCo, of exchangeable shares
for FuelCell common stock. While the consideration received upon an exchange or
a redemption will be the same, the tax consequences would be substantially
different. See "Chapter Four -- Information About Tax Considerations -- Canadian
Federal Income Tax Considerations to Shareholders" on page 133.
THE PLAN OF ARRANGEMENT
The Arrangement. The Combination will be effected by means of a plan of
arrangement under Section 193 of the Business Corporations Act (Alberta). We
have included a copy of the Plan of Arrangement as Annex D.
Court Approval of the Plan of Arrangement and Completion of the
Combination. An arrangement of a corporation under Alberta law requires
approval by both the Court and the shareholders of the subject corporation
entitled to vote. Prior to the mailing of this Joint Proxy Statement, Global
obtained the Interim Order of the Court, which is attached as Annex C, providing
for the calling and holding of the Global shareholder meeting and other
procedural matters.
Subject to the approval of the Plan of Arrangement by the common
shareholders at the Global Meeting, the hearing in respect of the final order is
scheduled to take place on October 31, 2003 at 2:00 p.m. (Calgary time) in the
Court at the Court House, 611 -- 4th Street S.W., Calgary, Alberta, Canada. All
shareholders or other interested persons who wish to participate or be
represented or to present evidence or arguments at that hearing must serve and
file a notice of appearance as set out in the Notice of Petition for the final
order and satisfy any other requirements. At the hearing of the application in
respect of the final order, the Court will consider, among other things, the
fairness and reasonableness of the Plan of Arrangement to the Global
securityholders affected by the Plan of Arrangement. The Court may approve the
Plan of Arrangement as proposed or as amended in any manner the Court may
direct, subject to compliance with such terms and
69
conditions, if any, as the Court deems fit. The Court may also determine not to
approve the Plan of Arrangement even if the Plan of Arrangement receives the
requisite approval from Global's common shareholders.
Assuming the final order is granted and the other conditions to the
Combination Agreement are satisfied or waived, it is anticipated that articles
of arrangement will then be filed with the Registrar under the Business
Corporations Act (Alberta) to give effect to the Plan of Arrangement and various
other documents necessary to give effect to the Combination will be executed and
delivered.
The issuance of shares of FuelCell common stock and the exchangeable shares
to holders of Global common shares and FuelCell's assumption of the obligation
to issue common stock upon conversion of the Global Series 2 Preferred Shares
pursuant to the Plan of Arrangement will not be registered under the United
States Securities Act of 1933. The issuance of shares of FuelCell common stock,
the exchangeable shares and the assumption of such conversion obligations will
be made in reliance upon the exemption available pursuant to Section 3(a)(10) of
the United States Securities Act of 1933. Section 3(a)(10) exempts from
registration securities issued in exchange for one or more outstanding
securities where the terms and conditions of the issuance and exchange of such
securities have been approved by any court of competent jurisdiction, after a
hearing upon the fairness of such terms and conditions at which all persons to
whom the securities are proposed to be issued have the right to appear. The
Court is authorized to conduct a hearing to determine the fairness of the terms
and conditions of the Plan of Arrangement, including the proposed issuance of
securities in exchange for other outstanding securities. The final order will
constitute the basis for (i) the exemption under Section 3(a)(10) of the United
States Securities Act of 1933 of the issuance of the shares of FuelCell common
stock and the exchangeable shares in exchange for Global common shares and (ii)
FuelCell's assumption of the obligation to issue FuelCell common stock upon
conversion of the Global Series 2 Preferred Shares. Prior to the hearing on the
final order, the Court will be informed of this effect of the final order.
Subject to the foregoing, it is presently anticipated that the Combination
will become effective on or about November 3, 2003.
Global Common Shares
Under the terms of the Combination Agreement, a Global common shareholder
who is a resident of Canada for purposes of the Income Tax Act (Canada) (other
than a dissenting shareholder) will receive, at the shareholder's election, for
each Global common share held at the effective time of the Combination by that
shareholder between 0.279 and 0.342 exchangeable shares or shares of FuelCell
common stock, depending on the exchange ratio in effect at the time the
Combination is completed. A Global common shareholder (other than a dissenting
shareholder) who is a non-resident of Canada for purposes of the Income Tax Act
(Canada) who is a holder of Global common shares will not be entitled to elect
to receive exchangeable shares, and any election made by any such holder will
not be valid and that shareholder will receive FuelCell common stock.
No certificates representing fractional exchangeable shares or fractional
shares of FuelCell common stock will be issued in the Combination. In lieu of
fractional shares, each Global common shareholder who would otherwise be
entitled to receive a fraction of a share will be paid an amount of cash
(rounded to the nearest whole cent), without interest, equal to the Canadian
dollar equivalent of the product of such fraction and the weighted average
trading price of the shares of FuelCell common stock for the 20 consecutive
trading days ending on the third trading day before the Global Meeting.
Exchange Ratio
The exchange ratio is a fraction, the numerator of which is $2.72 and the
denominator of which is the daily volume-weighted average trading price of
shares of FuelCell common stock on the Nasdaq National Market (rounded to the
nearest four decimal places), for the 20 consecutive trading days ending on the
third trading day prior to the date of the Global Meeting. For these purposes,
the "daily volume-weighted average trading price" means the daily
volume-weighted average price based on trading on the Nasdaq National
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Market between 9:30 a.m. and 4:00 p.m. (Eastern time) as reported by Bloomberg
Financial L.P. If FuelCell's 20-day volume-weighted average stock price is:
- greater than $9.74, the exchange ratio will be 0.279;
- less than $7.96, the exchange ratio will be 0.342; and
- between $7.96 and $9.74, Global common shareholders will receive
approximately $2.72 (approximately Cdn.$3.82) of exchangeable shares or
FuelCell common stock for each Global common share held.
Global Stock Options
Each option to purchase Global common shares outstanding at the effective
time of the Combination will be assumed by FuelCell, without any action on the
part of any Global optionholder, and will represent an option to purchase shares
of FuelCell's common stock, in accordance with their terms and based on the
exchange ratio. The number of shares of FuelCell common stock underlying each
assumed option will be determined by multiplying the number of Global common
shares subject to the option immediately prior to the effective time by the
exchange ratio (rounded down to the nearest whole number of shares of FuelCell
common stock). The exercise price for each assumed option will be determined by
dividing the exercise price per share for the option immediately prior to the
effective time by the exchange ratio (rounded up to the nearest whole cent) and
expressed in United States dollars. For the purposes of determining the new
exercise price of each assumed option, the exercise price per share of Global
common shares subject to each assumed option will be adjusted using the Canadian
dollar exchange rate based upon the average of the noon buying rate expressed to
the fourth decimal place over the 20 trading day period ending on the third day
prior to the Global Meeting, as reported by the Federal Reserve Bank of New
York. If the foregoing calculation results in an assumed option being
exercisable for a fraction of a share of FuelCell common stock, then the number
of shares of FuelCell common stock subject to the assumed option will be rounded
down to the nearest whole number of shares and the exercise price per whole
share of FuelCell common stock will be determined as noted above. The
obligations of Global under the assumed options will be assumed by FuelCell and
FuelCell will be substituted for Global under, and as sponsor of, Global's
Amended Incentive Stock Option Plan. Except as provided in this paragraph, the
term and all other terms and conditions of the assumed options in effect
immediately prior to giving effect to the Combination will govern the assumed
options.
Global Series 2 Preferred Shares
The rights, preferences, privileges and obligations of the Global Series 2
Preferred Shares, as set forth in Global's certificate and articles of amendment
dated July 30, 2000, will be unaffected by the Combination and will be respected
and given effect, upon the exercise of any conversion privilege attached to the
Global Series 2 Preferred Shares, by the issuance by FuelCell, in full
satisfaction of the conversion privilege, of fully-paid and nonassessable shares
of FuelCell common stock in accordance with the exchange ratio at the following
"current conversion prices": (i) (Cdn.$30.96/the exchange ratio) per share of
FuelCell common stock until July 31, 2005; (ii) (Cdn.$33.54/the exchange ratio)
per share of FuelCell common stock after July 31, 2005 until July 31, 2010;
(iii) (Cdn.$36.12/the exchange ratio) per share of FuelCell common stock after
July 31, 2010 until July 31, 2015; (iv) (Cdn.$38.70/the exchange ratio) per
share of FuelCell common stock after July 31, 2015 until July 31, 2020; or (v)
at any time after July 31, 2020, the price equal to 95% of the then current
market price (converted to Cdn.$ at the time of such calculation) as defined in
the articles creating the Global Series 2 Preferred Shares, of shares of
FuelCell common stock at the time of conversion. The foregoing "current
conversion prices" remain subject to further adjustments as provided in Global's
articles for any subsequent events. As illustrated below, the number of shares
of FuelCell common stock issuable upon conversion of the Global Series 2
Preferred Shares after July 31, 2020 may be significantly greater than the
number of shares issuable prior to that time.
The following examples illustrate the number of shares of common stock that
FuelCell will be required to issue to the holders of the Global Series 2
Preferred Shares if and when the holders exercise their conversion
71
rights pursuant to the terms of the Global Series 2 Preferred Shares. The
following examples assume that (i) the exchange ratio for the Combination is
0.342; (ii) the exchange rate for Canadian dollars is Cdn.$1.4048 to U.S.$1.00
at the time of the conversion; and (iii) all accrued dividends on the Global
Series 2 Preferred Shares have been paid through the time of the conversion:
- if the Global Series 2 Preferred Shares convert prior to July 31, 2005,
FuelCell would be required to issue approximately 276,165 shares of
FuelCell common stock;
- if the Global Series 2 Preferred Shares convert after July 31, 2005, but
prior to July 31, 2010, FuelCell would be required to issue approximately
254,919 shares of FuelCell common stock;
- if the Global Series 2 Preferred Shares convert after July 31, 2010, but
prior to July 31, 2015, FuelCell would be required to issue approximately
236,711 shares of FuelCell common stock;
- if the Global Series 2 Preferred Shares convert after July 31, 2015, but
prior to July 31, 2020, FuelCell would be required to issue approximately
220,930 shares of FuelCell common stock; and
- if the Global Series 2 Preferred Shares convert any time after July 31,
2020, assuming FuelCell's common stock price is U.S.$7.50 at the time of
conversion, FuelCell would be required to issue approximately 2,497,702
shares of FuelCell common stock.
Pursuant to the terms of the Plan of Arrangement, Enbridge Inc. may convert
the Global Series 2 Preferred Shares into exchangeable shares if it converts the
Global Series 2 Preferred Shares into Global common shares and makes an election
prior to the election deadline set forth in the letter of transmittal.
DESCRIPTION OF EXCHANGEABLE SHARES
The exchangeable shares will be issued by ExchangeCo and will be
exchangeable at any time on a one-for-one basis, at the option of the holder,
for FuelCell common stock. An exchangeable share will provide a holder with
economic terms and voting rights which are, as nearly as practicable, equivalent
to those of a share of FuelCell common stock. The exchangeable shares were
conditionally approved for listing on the Toronto Stock Exchange on September
18, 2003. The FuelCell common stock issued as part of the Combination or as a
result of the exchange of the exchangeable shares will be listed on the Nasdaq
National Market. Global common shareholders who are Canadian residents and who
receive exchangeable shares under the Combination may, upon filing the necessary
tax elections, obtain a full or partial deferral of taxable capital gains for
Canadian federal income tax purposes in certain circumstances. See "Chapter
Four -- Information About Tax Considerations -- Canadian Federal Income Tax
Considerations to Shareholders" on page 133.
On the Effective Date, FuelCell, ExchangeCo and a trustee (the "Trustee")
will enter into a voting and exchange trust agreement (the "Voting and Exchange
Trust Agreement"). By furnishing instructions to the Trustee under the Voting
and Exchange Trust Agreement, holders of exchangeable shares will be able to
exercise essentially the same voting rights with respect to FuelCell as they
would have if they were holders of FuelCell common stock. Holders of
exchangeable shares will also be entitled to receive from ExchangeCo dividends
that are equivalent to any cash dividends paid on FuelCell common stock from
time to time. The exchangeable shares are subject to adjustment or modification
in the event of a stock split or other change to the capital structure of
FuelCell so as to maintain the initial one-to-one relationship between the
exchangeable shares and the shares of FuelCell common stock.
Retraction, Redemption and Call Rights Applicable to Exchangeable Shares
Retraction of Exchangeable Shares
Subject to the exercise by CallCo of the retraction call right (as
described below), a holder of exchangeable shares will be entitled at any time
following the completion of the Combination to retract (i.e., to require
ExchangeCo to redeem) any or all of the exchangeable shares owned by the holder
and to receive an amount per share equal to the current market price for a share
of FuelCell common stock plus all declared and unpaid cash dividends on each
exchangeable share plus an amount equal to all dividends declared and payable or
paid on FuelCell common stock which have not been declared or paid on
exchangeable shares plus
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an amount equal to all non-cash dividends, payable and unpaid, or undeclared but
payable on such exchangeable shares up to the last business day prior to the day
of closing of the purchase and sale of the exchangeable shares, which will be
fully paid and satisfied by the delivery for each exchangeable share of one
share of FuelCell common stock on any dividend record date which occurred prior
to the retraction date (such aggregate amount, the "Retraction Price"). A holder
of exchangeable shares may retract the holder's exchangeable shares by
presenting to ExchangeCo or its transfer agent (i) the certificate or
certificates representing the number of exchangeable shares the holder desires
to retract, (ii) such other documents as may be required to effect the
retraction of such exchangeable shares and (iii) a duly executed retraction
request:
(a) specifying the number of exchangeable shares the holder desires to
retract;
(b) stating the retraction date on which the holder desires to have
ExchangeCo redeem the exchangeable shares; and
(c) acknowledging the retraction call right of CallCo.
When a holder of exchangeable shares makes a retraction request, CallCo
will have an overriding retraction call right to purchase all but not less than
all of the exchangeable shares subject to the retraction request. CallCo will be
deemed to have exercised the retraction call right unless it notifies ExchangeCo
of its determination not to do so within two business days of notification given
by ExchangeCo to CallCo of receipt of the retraction request. If CallCo does not
notify ExchangeCo within such two business day period, and provided that the
retraction request is not revoked by the holder in the manner described below,
CallCo will acquire the retracted shares in exchange for the Retraction Price.
In the event that CallCo so notifies ExchangeCo, and provided that the
retraction request is not revoked by the holder in the manner described below,
ExchangeCo will redeem the retracted shares on the retraction date.
A holder may withdraw a retraction request by giving notice in writing to
ExchangeCo at any time prior to the close of business on the business day
immediately preceding the retraction date, in which case the retracted shares
will neither be purchased by CallCo nor be redeemed by ExchangeCo. If the
retraction request is not revoked on or prior to the close of business on the
Business Day immediately preceding the retraction date, the retracted shares
will either be purchased by CallCo or redeemed by ExchangeCo. CallCo or
ExchangeCo, as the case may be, will then deliver or cause ExchangeCo's transfer
agent to deliver the Retraction Price to such holder by mailing:
(a) certificates representing the number of shares of FuelCell common stock
equal to the number of exchangeable shares purchased or redeemed,
registered in the name of the holder or such other name as the holder
may request; and
(b) if applicable, a cheque for the aggregate amount of dividends payable
to the holder,
to the address recorded in the securities register of ExchangeCo or to the
address specified in the holder's retraction request or by holding the same for
the holder to pick up at the registered office of ExchangeCo or the office of
the transfer agent as specified by ExchangeCo, in each case less any amounts
required to be withheld because of applicable taxes.
If, as a result of solvency requirements or applicable law, ExchangeCo is
not permitted to redeem all of the retracted shares tendered by a retracting
holder, and provided CallCo has not exercised its retraction call right with
respect to such retracted shares, ExchangeCo will redeem only those retracted
shares tendered by the holder (rounded down to a whole number of shares) as
would not be contrary to provisions of applicable law. The Trustee, on behalf of
the holder of any retracted shares not so redeemed by ExchangeCo or purchased by
CallCo, will require FuelCell to purchase the retracted shares not redeemed on
the retraction date or as soon as reasonably practicable thereafter, pursuant to
the exchange right.
Redemption of Exchangeable Shares
Subject to applicable law and the redemption call right (as described
below), at any time on or after the fifth anniversary of the completion of the
Combination, ExchangeCo may, and in the event of certain
73
circumstances described below under "Early Redemption" will, redeem all but not
less than all of the then outstanding exchangeable shares for an amount per
share equal to the current market price of a share of FuelCell common stock, all
declared and unpaid cash dividends on each exchangeable share plus an amount
equal to all dividends declared and payable or paid on FuelCell common stock
which have not been declared or paid on the exchangeable shares plus an amount
equal to all non-cash dividends, payable and unpaid, or undeclared but payable
on such exchangeable shares up to the last business day prior to the day of
closing of the purchase and sale of exchangeable shares, which will be fully
paid and satisfied by the delivery for each exchangeable share of one share of
FuelCell common stock on any dividend record date which occurred prior to the
redemption date (such aggregate amount, the "Redemption Price"). ExchangeCo
will, at least 55 days prior to the redemption date, or such number of days as
the board of directors of ExchangeCo may determine to be reasonably practicable
under the circumstances in respect of a redemption date arising in connection
with, among other events: (i) a merger, amalgamation, tender offer, material
sale of shares or rights or interest therein or thereto or similar transaction
involving FuelCell; (ii) any matter in respect of which holders of exchangeable
shares are entitled to vote as shareholders of ExchangeCo; or (iii) any matter
in respect of which holders of exchangeable shares are entitled to vote as
shareholders of ExchangeCo in order to approve or disapprove, as applicable, any
change to, or in the rights of the holders of, the exchangeable shares, where
the approval or disapproval, as applicable, of such change would be required to
maintain the economic and legal equivalence of the exchangeable shares and the
FuelCell common stock, provide the registered holders of the exchangeable shares
with written notice of the proposed redemption of the exchangeable shares by
ExchangeCo or the purchase of the exchangeable shares by CallCo pursuant to the
redemption call right. On or after the redemption date and provided CallCo has
not exercised its redemption call right, upon the holder's presentation and
surrender of the certificates representing the exchangeable shares and other
documents as may be required by ExchangeCo at the office of ExchangeCo's
transfer agent or the registered office of ExchangeCo, ExchangeCo will deliver
the Redemption Price to such holder by mailing:
(a) certificates representing the aggregate number of shares of FuelCell
common stock equal to the number of exchangeable shares purchased or
redeemed, registered in the name of the holder or such other name as
the holder may request; and
(b) if applicable, a cheque for the aggregate amount of dividends payable
to the holder,
to the address recorded in the securities register of ExchangeCo or by holding
the same for the holder to pick up at the registered office of ExchangeCo or the
office of ExchangeCo's transfer agent as specified in the written notice of
redemption, in each case less any amounts required to be withheld because of
applicable taxes.
CallCo will have an overriding redemption call right to purchase on the
redemption date all but not less than all of the exchangeable shares then
outstanding (other than exchangeable shares held by FuelCell and its affiliates)
for a purchase price per share equal to the Redemption Price. Upon the exercise
or deemed exercise of the redemption call right, holders will be obligated to
sell all of their exchangeable shares to CallCo. If CallCo exercises the
redemption call right, ExchangeCo's right and obligation to redeem the
exchangeable shares on the redemption date will terminate. CallCo will be deemed
to have exercised the redemption call right unless CallCo provides notice to
ExchangeCo and the transfer agent of its intention not to exercise such right at
least 35 days before the redemption date.
Early Redemption
In certain circumstances, the exchangeable shares may be redeemed by
ExchangeCo prior to the fifth anniversary of the Effective Date. Early
redemption will occur:
1. if, any time following the date that is 15 calendar months after
the completion of the Combination, there are less than 1,000,000
exchangeable shares outstanding (other than exchangeable shares held by
FuelCell and its affiliates) (as such number of shares may be adjusted to
give effect to any subdivision or consolidation of or stock dividend on the
exchangeable shares, any issue or distribution of rights to acquire
exchangeable shares, any issue or distribution of other securities or
rights or evidences of indebtedness or assets, or any other capital
reorganization or other transaction affecting the exchangeable
74
shares) and the board of directors of ExchangeCo decides to accelerate the
redemption of the exchangeable shares, upon at least 60 days' prior written
notice to the registered holders of exchangeable shares and the Trustee;
2. upon the occurrence of a merger, amalgamation, tender offer,
material sale of shares or rights or interests therein or thereto or
similar transaction involving FuelCell, provided that the board of
directors of ExchangeCo determines in good faith and in its sole discretion
that (A) it is not reasonably practicable to substantially replicate the
terms and conditions of the exchangeable shares in connection with the
merger, amalgamation, tender offer, material sale of shares or rights or
interest therein or thereto or similar transaction involving FuelCell and
(B) the redemption of all but not less than all of the outstanding
exchangeable shares is necessary to enable the completion of the merger,
amalgamation, tender offer, material sale of shares or rights or interest
therein or thereto or similar transaction involving FuelCell in accordance
with its terms upon such number of days prior written notice to the holders
of exchangeable shares and the Trustee as the board of directors of
ExchangeCo may determine to be reasonably practicable in such
circumstances;
3. upon a proposal being made for any matter in respect of which
holders of exchangeable shares are entitled to vote as shareholders of
ExchangeCo, provided that the board of directors of ExchangeCo determines
that it is not reasonably practicable to accomplish the business purpose
intended by the matter in respect of which holders of exchangeable shares
are entitled to vote as shareholders of ExchangeCo (which business purpose
must be bona fide and not for the primary purpose of causing the occurrence
of a redemption date) in any other commercially reasonable manner that does
not result in the matter in respect of which holders of exchangeable shares
are entitled to vote as shareholders of ExchangeCo upon such number of days
prior written notice to the holders of exchangeable shares and the Trustee
as the board of directors of ExchangeCo may determine to be reasonably
practicable in such circumstances; or
4. upon the failure by the holders of the exchangeable shares to
approve or disapprove, as applicable, any matter in respect of which
holders of exchangeable shares are entitled to vote as shareholders of
ExchangeCo in order to approve or disapprove, as applicable, any change to,
or in the rights of the holders of, the exchangeable shares, where the
approval or disapproval, as applicable, of such change would be required to
maintain the economic and legal equivalence of the exchangeable shares and
the FuelCell common stock in which case the redemption date shall be the
business day following the day on which the holders of the exchangeable
shares fail to take such action.
Purchase for Cancellation
Subject to applicable law, ExchangeCo may at any time and from time to time
purchase for cancellation all or any part of exchangeable shares by private
agreement with any holder of exchangeable shares.
In addition, subject to applicable law and the articles of ExchangeCo,
ExchangeCo may at any time and from time to time purchase for cancellation all
or any part of the outstanding exchangeable shares, by tender to all holders of
record of exchangeable shares then outstanding or through the facilities of any
stock exchange on which the exchangeable shares are listed or quoted, at any
price per share together with an amount equal to all declared and unpaid
dividends for which the record date has occurred prior to the date of purchase.
Voting, Dividend and Liquidation Rights of Holders of Exchangeable Shares
On the date the articles of arrangement are filed with the Registrar under
the Business Corporation Act (Alberta) giving effect to the Plan of Arrangement,
FuelCell, ExchangeCo and the Trustee will enter into the Voting and Exchange
Trust Agreement.
Voting Rights with Respect to ExchangeCo
Except as required by law or under the Support Agreement, the terms of the
exchangeable share provisions or the Voting and Exchange Trust Agreement, the
holders of exchangeable shares are not entitled
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to receive notice of, attend or vote at any meeting of shareholders of
ExchangeCo. See "Certain Restrictions" and "Amendment and Approval" below.
Voting Rights with Respect to FuelCell
Under the Voting and Exchange Trust Agreement, FuelCell will issue to the
Trustee a special voting share entitling the holder of record to a number of
votes at meetings of holders of FuelCell common stock equal to the number of
exchangeable shares issued and outstanding (other than exchangeable shares held
by FuelCell and its affiliates), which will be held by the Trustee to enable the
holders of exchangeable shares to have voting rights that are equivalent to
those of FuelCell common stockholders.
Each beneficiary on the record date for any meeting at which FuelCell
common stockholders are entitled to vote will be entitled to instruct the
Trustee to vote one share of FuelCell common stock held by the Trustee for each
exchangeable share held by the beneficiary. The Trustee will exercise (either by
proxy or in person) the voting rights only as directed by the relevant
beneficiary and, in the absence of voting instructions from a beneficiary, will
not exercise such votes. A beneficiary may, upon request to the Trustee, obtain
a proxy from the Trustee entitling the beneficiary to vote directly at the
meeting that number of shares of FuelCell common stock held by the Trustee that
corresponds to the number of exchangeable shares held by the beneficiary.
Either the Trustee or FuelCell will send to each beneficiary the notice of
each meeting at which FuelCell common stockholders are entitled to vote,
together with the related meeting materials and a statement as to the manner in
which the beneficiary may instruct the Trustee to exercise the voting rights to
which the beneficiary is entitled. Such mailing by the Trustee or FuelCell will
commence on the same day as FuelCell sends such notice and materials to FuelCell
common stockholders. Either the Trustee or FuelCell will also send to each
beneficiary copies of all proxy materials, information statements, interim and
annual financial statements, reports and other materials sent by FuelCell to
FuelCell common stockholders at the same time as these materials are sent to
FuelCell common stockholders. To the extent that such materials are provided to
the Trustee by FuelCell, the Trustee will also send to each beneficiary all
materials sent by third parties to FuelCell common stockholders, including
dissident proxy circulars and tender and exchange offer circulars, as soon as
reasonably practicable after such materials are delivered to the Trustee.
FuelCell may undertake to provide the materials to each beneficiary in lieu of
the Trustee distributing the materials.
All rights of a beneficiary with respect to the beneficiary votes
exercisable in respect of exchangeable shares held by such beneficiary,
including the right to instruct the Trustee to exercise voting rights will cease
and be terminated immediately before the exchange (whether by redemption,
retraction, or through the exercise of the call rights or the exchange put
right) of all of such holder's exchangeable shares for FuelCell common stock and
upon the liquidation, dissolution or winding-up of ExchangeCo or FuelCell.
Dividend Rights
Subject to applicable law, holders of exchangeable shares will be entitled
to receive dividends (i) in the case of a cash dividend declared on FuelCell
common stock, in an amount of cash for each exchangeable share corresponding to
the cash dividend declared on each share of FuelCell common stock, (ii) except
as provided below in the case of a stock dividend declared on FuelCell common
stock to be paid in shares of FuelCell common stock, in the number of
exchangeable shares for each exchangeable share as is equal to the number of
shares of FuelCell common stock to be paid on each share of FuelCell common
stock, or (iii) in the case of a dividend declared on the FuelCell common stock
in property other than cash or shares of FuelCell common stock, in the type and
amount of property for each exchangeable share as is the same as, or
economically equivalent to (as determined by the board of directors of
ExchangeCo in good faith and in its sole discretion), the type and amount of
property declared as a dividend on each share of FuelCell common stock. Cash
dividends on the exchangeable shares are payable in U.S. dollars or the Canadian
dollar equivalent thereof, at the option of ExchangeCo. The declaration date,
record date and payment date for dividends on the exchangeable shares will be
the same as the relevant date for the corresponding dividends on FuelCell common
stock. See "Chapter Two -- Certain Financial and Other Information About the
Companies -- Business of FuelCell -- Dividend Policy".
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In the case of a stock dividend declared on FuelCell common stock to be
paid in FuelCell common stock, in lieu of declaring a corresponding stock
dividend on the exchangeable shares, the board of directors of ExchangeCo may,
in good faith and in its discretion and subject to applicable law and to
obtaining all regulatory approvals, subdivide, redivide or change each issued
and unissued exchangeable share on the basis that each exchangeable share before
the subdivision becomes a number of exchangeable shares as is equal to the sum
of (i) one share of FuelCell common stock and (ii) the number of shares of
FuelCell common stock to be paid as a stock dividend on each share of FuelCell
common stock. Such subdivision will become effective on the payment date for the
dividend declared on FuelCell common stock without any further act on the part
of the board of directors of ExchangeCo or of the holders of exchangeable
shares. The record date to determine holders of exchangeable shares entitled to
receive exchangeable shares in connection with any subdivision of exchangeable
shares and the effective date of the subdivision will be the same dates as the
record date and payment date, respectively, for the corresponding stock dividend
declared on FuelCell common stock.
Liquidation Rights with Respect to ExchangeCo
On the liquidation, dissolution or winding-up of ExchangeCo or any other
distribution of the assets of ExchangeCo among its shareholders for the purpose
of winding-up its affairs, holders of the exchangeable shares will be entitled
to, subject to applicable law and to exercise by CallCo of the liquidation call
right, preferential rights to receive from the assets of ExchangeCo an amount
equal to the current market price of a share of FuelCell common stock which will
be fully paid and satisfied by the delivery of one share of FuelCell common
stock, plus an amount equal to all declared and unpaid dividends on each such
exchangeable share held by such holder on any dividend record date which
occurred prior to the liquidation date (such aggregate amount, the "Liquidation
Amount") for each exchangeable share held. When a liquidation, dissolution or
winding-up occurs, CallCo will have an overriding liquidation call right to
purchase all but not less than all of the outstanding exchangeable shares (other
than exchangeable shares held by FuelCell and its affiliates) from the holders
of exchangeable shares on the liquidation date for a purchase price per share
equal to the Liquidation Amount.
When an insolvency event occurs, and while it continues, each holder of
exchangeable shares (other than FuelCell and its affiliates) will be entitled to
instruct the Trustee to exercise the exchange right with respect to the
exchangeable shares held by such holder, thereby requiring FuelCell to purchase
such exchangeable shares from the holder. As soon as practicable after the
occurrence of an insolvency event or any event that with the giving of notice or
the passage of time or both, would be an insolvency event, ExchangeCo and
FuelCell will give written notice of the event to the Trustee. As soon as
practicable following receipt of the notice or the Trustee becomes aware of an
insolvency event, the Trustee will notify each holder of exchangeable shares of
the event or potential event and advise the holder of its exchange right. The
purchase price payable by FuelCell for each exchangeable share purchased under
the exchange right will be an amount equal to the aggregate of the current
market price of FuelCell common stock plus all declared and unpaid cash
dividends on each exchangeable share plus an amount equal to all dividends
declared and payable or paid on FuelCell common stock which have not been
declared or paid on exchangeable shares plus an amount equal to all non-cash
dividends, payable and unpaid, or undeclared but payable on such exchangeable
shares on the last business day prior to the day of closing of the purchase and
sale of the exchangeable share under the exchange right, which will be fully
paid and satisfied by the delivery of the exchangeable share consideration which
consists of an amount per share equal to the current market price of a share of
FuelCell common stock, which will be fully paid and satisfied by the delivery
for each exchangeable share of one share of FuelCell common stock, plus an
amount equal to all declared and unpaid dividends on each such exchangeable
share.
Liquidation Rights with Respect to FuelCell
In order for the holders of the exchangeable shares to participate on a pro
rata basis with the holders of FuelCell common stock in the distribution of
assets of FuelCell, immediately prior to the effective time of a determination
by the FuelCell board of directors to institute voluntary liquidation,
dissolution or winding-up proceedings with respect to FuelCell or to effect any
other distribution of assets of FuelCell among its shareholders for the purpose
of winding up its affairs or receipt by FuelCell of notice of and FuelCell
otherwise
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becoming aware of, any threatened or instituted claim, suit, petition or other
proceedings with respect to the involuntary liquidation, dissolution or
winding-up of FuelCell or to effect any other distribution of assets of FuelCell
among its shareholders for the purpose of winding up its affairs, in each case
where FuelCell has failed to contest in good faith any such proceeding within 30
days of becoming aware of the proceedings, each exchangeable share will,
pursuant to the automatic exchange right, automatically be exchanged for shares
of FuelCell common stock equal to the exchangeable share price under the Voting
and Exchange Trust Agreement. Upon a holder's request and surrender of
exchangeable share certificates, duly endorsed in blank and accompanied by such
instruments of transfer as FuelCell may reasonably require, FuelCell will
deliver or cause to be delivered to the holder certificates representing an
equivalent number of shares of FuelCell common stock. For a description of
FuelCell's obligations relating to the dividend and liquidation rights of the
holders of exchangeable shares, see "Certain Restrictions" and "FuelCell Support
Obligations" below.
Exchange Put Right
In the event that either ExchangeCo or CallCo, as the case may be, fails to
complete any redemption, retraction, distribution or liquidation in respect of,
or purchase exchangeable shares required to be completed by it as contemplated
in the exchangeable share provisions, in ExchangeCo's articles or in the Voting
and Exchange Trust Agreement, a holder of exchangeable shares has the right to
require FuelCell to purchase all or any part of the exchangeable shares of the
holder in consideration of the payment by FuelCell of the exchangeable share
price under the Voting and Exchange Trust Agreement (which shall be the
exchangeable share price applicable on the business day immediately prior to
receipt of notice from the holder of exchangeable shares of its exercise of the
exchange put right).
Withholding Rights
Each of FuelCell, ExchangeCo, CallCo and the Trustee will be entitled to
deduct and withhold from any consideration otherwise payable to any holder of
exchangeable shares or FuelCell common stock such amounts as FuelCell,
ExchangeCo, CallCo or the Trustee, as the case may be, is required to deduct and
withhold with respect to such payment under the Income Tax Act (Canada), the
United States Internal Revenue Code or any provision of federal, provincial,
state, local or foreign tax law. To the extent that amounts are so withheld,
such withheld amounts will be treated for all purposes as having been paid to
the holder in respect of which the deduction and withholding was made, provided
that the withheld amounts are actually remitted to the appropriate taxing
authority. To the extent that the amount so required to be deducted or withheld
from any payment to a holder exceeds the cash portion of the consideration
otherwise payable to the holder, FuelCell, ExchangeCo, CallCo and the Trustee
are authorized to sell or otherwise dispose of the portion of the consideration
as is necessary to provide sufficient funds to FuelCell, ExchangeCo, CallCo or
the Trustee, as the case may be, to enable it to comply with the deduction or
withholding requirement and FuelCell, ExchangeCo, CallCo or the Trustee will
notify the holder and remit to the holder any unapplied balance of the net
proceeds of such sale.
Ranking
The exchangeable shares will have a preference over the common shares of
ExchangeCo and any other shares ranking junior to the exchangeable shares with
respect to the payment of dividends and the distribution of assets in the event
of a liquidation, dissolution or winding-up of ExchangeCo, whether voluntary or
involuntary, or any other distribution of the assets of ExchangeCo among its
shareholders for the purpose of winding-up its affairs. See "Chapter
Three -- Description of FuelCell Capital Stock, Global Preferred Shares, and
ExchangeCo and CallCo Share Capital -- ExchangeCo Share Capital".
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Certain Restrictions
So long as any of the exchangeable shares are outstanding, ExchangeCo will
not, without the approval of the holders of the exchangeable shares as described
below under "Amendment and Approval":
1. pay any dividends on the common shares of ExchangeCo or any other
shares ranking junior to the exchangeable shares with respect to payment of
dividends, other than stock dividends payable in common shares of
ExchangeCo or any other such shares ranking junior to the exchangeable
shares, as the case may be;
2. redeem or purchase or make any capital distribution in respect of
common shares of ExchangeCo or any other shares ranking junior to the
exchangeable shares with respect to the payment of dividends or on any
liquidation, dissolution or winding-up of ExchangeCo or any other
distribution of assets of ExchangeCo;
3. redeem or purchase any other shares of ExchangeCo ranking equally
with the exchangeable shares with respect to the payment of dividends or on
any liquidation, dissolution or winding-up of ExchangeCo or any other
distribution of assets of ExchangeCo;
4. issue any exchangeable shares or any other shares of ExchangeCo
ranking equally with, or superior to, the exchangeable shares other than by
way of stock dividends to the holders of exchangeable shares; or
5. amend its articles or by-laws in any manner that would adversely
effect the rights or privileges of the holders of the exchangeable shares.
The restrictions (in 1, 2, 3 and 4 above) will not apply if all dividends
on the outstanding exchangeable shares corresponding to dividends declared and
paid to date on FuelCell common stock have been declared and paid in full on the
exchangeable shares.
Amendment and Approval
The rights, privileges, restrictions and conditions attaching to the
exchangeable shares may be added to, changed or removed only with the approval
of the holders of the exchangeable shares. Any such approval or any other
approval or consent to be given by the holders of the exchangeable shares will
be deemed to have been sufficiently given if given in accordance with applicable
law subject to a minimum requirement that approval or consent be evidenced by a
resolution passed by not less than 66 2/3% of the votes cast on the resolution
at a meeting of the holders of exchangeable shares duly called and held at which
holders of at least 25% of the outstanding exchangeable shares are present in
person or represented by proxy. In the event that no quorum is present at such
meeting within one-half hour after the time appointed for the meeting, the
meeting will be adjourned to a place and time (not less than five days later)
designated by the chair of the meeting. At the adjourned meeting, the holders of
exchangeable shares present or represented by proxy may transact the business
for which the meeting was originally called and a resolution passed at the
adjourned meeting by the affirmative vote of not less than 66 2/3% of the votes
cast on the resolution will constitute the approval or consent of the holders of
the exchangeable shares.
FuelCell Support Obligations
On the date the articles of arrangement are filed with the Registrar under
the Business Corporation Act (Alberta) giving effect to the Plan of Arrangement,
FuelCell, CallCo and ExchangeCo will enter into the Support Agreement attached
as Exhibit C to the Combination Agreement attached to this Joint Proxy Statement
as Annex B. Pursuant to the Support Agreement, FuelCell will make the following
covenants for so long as any exchangeable shares (other than exchangeable shares
owned by FuelCell or its affiliates) remain outstanding:
1. FuelCell will not declare or pay any dividends on FuelCell common
stock unless ExchangeCo (i) on the same day declares or pays, as the case
may be, an equivalent dividend on the exchangeable shares and has
sufficient money or other assets or authorized but unissued securities
available to enable
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the due declaration and the due and punctual payment, in accordance with
applicable law, of any such equivalent dividend or (ii) subdivides the
exchangeable shares in lieu of a stock dividend thereon (as provided for in
the exchangeable share provisions) and has sufficient authorized but
unissued securities available to enable the subdivision;
2. FuelCell will advise ExchangeCo sufficiently in advance of the
declaration of any dividend on FuelCell common stock and take all other
actions as are necessary to ensure that (i) the declaration date, record
date and payment date for dividends on the exchangeable shares are the same
as those for the corresponding dividend on the FuelCell common stock or
(ii) the record date and effective date for a subdivision of the
exchangeable shares in lieu of a stock dividend (as provided for in the
exchangeable share provisions) are the same as the record date and payment
date for the stock dividend on the FuelCell common stock;
3. FuelCell will ensure that the record date for any dividend
declared on the FuelCell common stock is not less than ten business days
after the declaration date of the dividend;
4. FuelCell will take all actions and do all things necessary or
desirable to enable and permit ExchangeCo, in accordance with applicable
law, to pay and otherwise perform its obligations with respect to the
satisfaction of the Liquidation Amount, the Retraction Price or the
Redemption Price in respect of each issued and outstanding exchangeable
share (other than exchangeable shares owned by FuelCell or its affiliates)
upon the liquidation, dissolution or winding-up of ExchangeCo or any other
distribution of the assets of ExchangeCo among its shareholders for the
purpose of winding-up its affairs, the delivery of a retraction request by
a holder of exchangeable shares or a redemption of exchangeable shares by
ExchangeCo, including all such actions and all such things as are necessary
or desirable to enable and permit ExchangeCo to cause to be delivered
FuelCell common stock to the holders of exchangeable shares in accordance
with the exchangeable share provisions;
5. FuelCell will take all actions and do all things as are necessary
or desirable in accordance with the exchangeable share provisions to enable
and permit CallCo, in accordance with applicable law, to perform its
obligations arising upon the exercise by it of the Call rights, including
delivering FuelCell common stock to holders of exchangeable shares in
accordance with the provisions of the applicable Call right;
6. FuelCell will not exercise its vote as a direct or indirect
shareholder to initiate the voluntary liquidation, dissolution or
winding-up of ExchangeCo nor take or omit to take any action designed to
result in the liquidation, dissolution or winding-up of ExchangeCo; and
7. FuelCell will recognize the right of a holder of exchangeable
shares to exercise its exchange put right.
The Support Agreement and the exchangeable share provisions provide that so
long as any exchangeable shares not owned by FuelCell or its affiliates are
outstanding, FuelCell will not, without the prior approval of ExchangeCo and the
holders of the exchangeable shares given in the manner described above under
"Amendment and Approval", and subject to certain exceptions, issue or
distribute: (i) FuelCell common stock, securities exchangeable for or
convertible into or carrying rights to acquire FuelCell common stock; (ii)
rights, options or warrants to subscribe for or to purchase FuelCell common
stock; or (iii) shares or securities of FuelCell of any class other than
FuelCell common stock or rights, options or warrants described above or
evidences of indebtedness or other assets of FuelCell, to all or substantially
all of the then outstanding holders of FuelCell common stock, nor will FuelCell
(a) subdivide, redivide or change the then outstanding shares of FuelCell common
stock; (b) reduce, combine, consolidate, or change the FuelCell common stock; or
(c) reclassify or (d) otherwise change the FuelCell common stock or effect and
amalgamation, merger, reorganization or other transaction involving or affecting
the shares of FuelCell common stock, unless the same or an economically
equivalent distribution or change is simultaneously made to the exchangeable
shares (or in the rights of the holders thereof). The board of directors of
ExchangeCo is conclusively empowered to determine in good faith and in its sole
discretion whether any corresponding distribution on or change to the
exchangeable shares is the same as, or economically equivalent to, any proposed
distribution on or change to
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FuelCell common stock. In the event of any proposed tender offer, share exchange
offer, issuer bid, take-over bid or similar transaction with respect to FuelCell
common stock which is recommended by the FuelCell board of directors, or is
otherwise effected or to be effected with the consent or approval of the board
of directors of FuelCell, and in connection with which the exchangeable shares
are not redeemed by ExchangeCo or purchased by CallCo under the redemption call
right, FuelCell will in good faith take all actions and do all such things as
are necessary or desirable and in its power to enable and permit holders of
exchangeable shares to participate in such offer to the same extent and on an
economically equivalent basis as the holders of FuelCell common stock, without
discrimination.
To assist FuelCell in complying with its obligations under the Support
Agreement and to permit CallCo to exercise the call rights, ExchangeCo is
required to notify FuelCell and CallCo if certain events occur, such as: (i) the
voluntary liquidation, dissolution or winding-up of ExchangeCo or to effect any
other distribution of its assets; (ii) its notice of or otherwise becoming aware
of any threatened or instituted claim, suit, petition or other proceeding with
respect to the involuntary liquidation, dissolution or winding-up of ExchangeCo
or other action resulting in a distribution of its assets; (iii) its receipt of
a retraction request from a holder of exchangeable shares; (iv) the
determination of a redemption date; and (v) the issuance by ExchangeCo of any
exchangeable shares or rights to acquire exchangeable shares (other than
pursuant to the Plan of Arrangement).
Under the Support Agreement, FuelCell has agreed not to, and to cause its
affiliates not to, exercise any voting rights attached to the exchangeable
shares owned by it or any of its affiliates on any matter considered at meetings
of holders of exchangeable shares, although it will appoint and cause to be
appointed proxyholders with respect to such exchangeable shares for the sole
purpose of attending meetings of the holders of exchangeable shares in order to
be counted as part of the quorum for each such meeting. As long as any
outstanding exchangeable shares are owned by any shareholder (other than
FuelCell or its affiliates), FuelCell will use its best efforts to maintain a
listing for the exchangeable shares on the Toronto Stock Exchange, or in the
event that a listing on the Toronto Stock Exchange is not available, on another
recognized Canadian stock exchange.
With the exception of: (i) adding to the covenants of any or all parties to
the Support Agreement; (ii) making amendments or modifications not inconsistent
with the Support Agreement as may be necessary or desirable with respect to
matters or questions that, in the good faith opinion of the parties' respective
boards, it may be expedient to make; or (iii) making such changes or corrections
that, on the advice of the parties' respective counsel, are required for the
purpose of curing or correcting any ambiguity, defect, inconsistent provision,
clerical omission, mistake or manifest error (in each case provided that the
board of directors of each of FuelCell, ExchangeCo and CallCo are of the opinion
that such amendments are not prejudicial to the rights or interests of the
holders of the exchangeable shares), the Support Agreement may not be amended
without the approval of the holders of the exchangeable shares given in the
manner described above under "Amendment and Approval".
THE COMBINATION AGREEMENT
The following is a summary of the material provisions of the Combination
Agreement entered into between FuelCell and Global on August 4, 2003. The
following description of the Combination Agreement does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
Combination Agreement, which is attached as Annex B to this Joint Proxy
Statement and is incorporated in this Joint Proxy Statement by reference. All
FuelCell stockholders and Global common shareholders are urged to read the
Combination Agreement carefully and in its entirety.
REPRESENTATIONS AND WARRANTIES
The Combination Agreement contains customary representations and warranties
of each of Global and FuelCell relating to, among other things:
- authority to enter into the Combination Agreement and to complete the
Combination;
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- the parties' organization, capital structures and qualification;
- required consents;
- no defaults;
- intellectual property rights;
- periodic securities reports and financial information;
- liabilities and litigation;
- absence of certain changes and events;
- material contracts;
- customers and suppliers;
- insurance;
- environmental matters and hazardous substances;
- title to properties;
- taxes;
- employee matters;
- information supplied and disclosure;
- compliance with applicable laws; and
- net working capital and anticipated expenditures.
The representations and warranties in the Combination Agreement are
complicated and not easily summarized. You are encouraged to carefully read the
sections of the Combination Agreement entitled "Representations and Warranties
of the Company" and "Representations and Warranties of FCE."
CONDITIONS TO CLOSING
FuelCell's and Global's obligations to complete the Combination are subject
to conditions that must be satisfied or waived before the completion of the
Combination, including:
- the approval of the Combination by the Global common shareholders at the
Global Meeting;
- the approval of the Combination by the Court;
- the approval of the Combination and the Combination Agreement at the
FuelCell Meeting by the FuelCell stockholders;
- the receipt of all required consents and regulatory approvals;
- there must not be any law or court order prohibiting the Combination;
- the representations and warranties of the parties in the Combination
Agreement being true and correct in all material respects and, where
applicable, true and correct in all respects;
- the parties having performed, in all material respects, all agreements
and covenants to be performed by them under the Combination Agreement;
- the parties having received all written consents, assignments, waivers,
authorizations or other certificates necessary to provide for the
continuation in full force and effect of all of their material contracts;
- the approval of Nasdaq for the listing of the shares of FuelCell common
stock to be issued pursuant to the Combination, and Nasdaq must not have
objected to the completion of the Combination contemplated by the Plan of
Arrangement and the Combination Agreement;
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- the listing of the exchangeable shares, issued pursuant to the Plan of
Arrangement, on the Toronto Stock Exchange or another recognized Canadian
stock exchange;
- in respect of the obligations of FuelCell, that there shall have been no
material adverse change in respect of Global;
- in respect of the obligations of Global, that there shall have been no
material adverse change in respect of FuelCell;
- the issuance by FuelCell of the FuelCell common stock and exchangeable
shares pursuant to the Combination shall be exempt from the registration
and qualification requirements of the United States Securities Act of
1933 and applicable state securities or "blue sky" laws;
- that Global shall not have received notice on or prior to the effective
time of the Combination from the holders of more than 5% of the issued
and outstanding shares of Global entitled to consent to or vote on the
matters presented at the Global Meeting, in aggregate, of their intention
to exercise their rights of dissent;
- the parties' net working capital and net cash amounts equaling or
exceeding the amounts set forth in the Combination Agreement less an
amount for anticipated expenditures (referred to in the Combination
Agreement as "cash burn") and certain litigation expenses;
- the parties paying or otherwise satisfying all their costs and expenses
incurred in connection with the transactions contemplated by the Plan of
Arrangement and the Combination Agreement; and
- in respect of the obligations of FuelCell, Global shall have paid any and
all fees owed to Quantum pursuant to the Quantum Combination Agreement.
Each party has the right to waive the conditions (except for the requisite
shareholder and regulatory approvals) to its obligations under the Combination
Agreement.
COVENANTS
Under the Combination Agreement Global and FuelCell have agreed to a number
of covenants, including the following:
- Consents and Approvals. The parties have agreed to apply for and use
their reasonable best efforts to obtain all court, regulatory and other
consents and approvals required for the completion of the Combination and
to use their reasonable best efforts to effect the transactions
contemplated by the Combination Agreement as soon as reasonably
practicable.
- Interim Operations of Global and FuelCell. Until the earlier of the
termination of the Combination Agreement or the completion of the
Combination, each party has agreed that it will operate its business only
in the usual, regular and ordinary manner and, to the extent consistent
with such operation, use all commercially reasonable efforts to preserve
intact its present business organization. Each party has agreed to
refrain from taking any action which would be reasonably likely to
prevent or materially delay the completion of the Combination.
- Stock Exchange Listing. FuelCell will use its reasonable best efforts to
cause the shares of FuelCell common stock to be issued pursuant to the
Combination to be approved for listing on the Nasdaq National Market.
Global will cooperate and assist FuelCell to cause the exchangeable
shares to be listed on the Toronto Stock Exchange or another recognized
Canadian stock exchange.
- Environmental Matters. Global will take all steps necessary to commence
and diligently prosecute the recommendations set forth in the "2002 Phase
II Environmental Site Assessment and Remediation Cost Estimate" prepared
by Global's independent environmental consultant, including the
completion of all necessary or appropriate site characterization
activities (including soil and groundwater sampling and analysis) and the
development of a remedial action plan for the Bassano manufacturing
facility that is satisfactory to the applicable governmental entity.
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- Additional FuelCell Board Seats. Global shall have the right to nominate
one individual for election to the FuelCell board of directors in
connection with the completion of the Combination. FuelCell may in its
sole discretion appoint an additional Global nominee to the FuelCell
board of directors.
The agreements related to the conduct of business in the Combination
Agreement are complicated and not easily summarized. You are urged to carefully
read the sections of the Combination Agreement entitled "Additional Agreements
of the Company" and "Additional Agreements of FCE."
NO SOLICITATION AND RIGHT TO MATCH
Global agreed to immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity or other discussion with any
parties conducted prior to the date of the Combination Agreement. Global will
exercise all rights to require the return of information regarding it previously
provided to such parties and will exercise all rights to require the destruction
of all materials including or incorporating any information regarding Global. In
addition, each of Global and FuelCell will not, and will not authorize or permit
any of its officers, directors, employees, financial advisors, representatives
and agents to, directly or indirectly, solicit, initiate or encourage (including
by way of furnishing information) or participate in or take any other action to
facilitate any inquiries or the making of any proposal which constitutes or may
reasonably be expected to lead to an acquisition proposal from any person, or
engage in any discussions, negotiations or inquiries relating thereto or accept
any acquisition proposal. Notwithstanding the foregoing, each of Global and
FuelCell may at any time prior to the time their respective shareholders have
voted to approve the Combination, engage in discussions or negotiations with a
third party who (without any solicitation, initiation or encouragement, directly
or indirectly, by either Global or FuelCell, as the case may be, or their
respective subsidiaries or any of their respective representatives described
above) seeks to initiate such discussions or negotiations and, (i) in the case
of Global, furnish such third party information concerning Global and its
business, properties and assets which has previously been provided to FuelCell,
if and only to the extent that (A) the third party has first made an unsolicited
bona fide written acquisition proposal that is, in the good faith judgment of
the board of directors of Global, a "superior proposal," i.e., a proposal that
is (a) financially superior to the Combination contemplated by the Combination
Agreement, and (b) as to which the third party has demonstrated that the funds
or other consideration necessary are available, as determined in good faith by
the board of directors, after receiving the written advice of its financial
advisors and is subject only to confirmatory due diligence; and Global's board
of directors has concluded in good faith, after considering applicable law and
receiving the advice of outside counsel that such action is necessary for the
board to act in a manner consistent with its fiduciary duties under applicable
law; (B) prior to furnishing information to or entering into discussions or
negotiations with the third party, Global provides prompt notice orally and in
writing to FuelCell specifying the identity of such person or entity and that it
is furnishing information or entering into discussions or negotiations with such
person or entity in respect of a superior proposal and receives from the third
party an executed confidentiality agreement having confidentiality and
standstill terms substantially similar to those contained in the confidentiality
agreement executed by Global and FuelCell (other than the exclusivity provisions
contained in that agreement), and the parties shall provide full details
forthwith, and in any event within 24 hours, of all material terms and
conditions of the superior proposal and any amendments to the proposal and
confirming in writing the determination of its board of directors that such
proposal constitutes a superior proposal; (C) Global provides notice forthwith
to FuelCell, and in any event within 24 hours, at such time as it is terminating
any such discussions or negotiations with such person or entity; and (D) Global
promptly makes available to FuelCell any information provided to any such person
or entity not previously made available to FuelCell; or (ii) in the case of
FuelCell, in the event that FuelCell receives an unsolicited acquisition
proposal in respect of FuelCell, FuelCell shall be free to, and to authorize or
permit any of its representatives to, directly or indirectly, solicit, initiate
or encourage (including by way of furnishing information) or participate in or
take any other action to facilitate any inquiries or the making of any proposal
which constitutes or may reasonably be expected to lead to one or more
acquisition proposals from any person, or engage in any discussion, negotiations
or inquiries relating thereto.
Global may accept, recommend, approve or implement a superior proposal from
a third party, but only if prior to such acceptance, recommendation, approval or
implementation, the board of directors of Global has
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concluded in good faith, after considering provisions of applicable law and
after giving effect to all proposals to adjust the terms and conditions of the
Combination Agreement and the Plan of Arrangement which may be offered by
FuelCell during the three day notice period described under "Right to Match"
below, and after receiving the advice of outside counsel, that such action is,
in the good faith judgment of the board of directors of the recipient,
reasonably necessary for the board of directors of Global to act in a manner
consistent with its fiduciary duties under applicable law and terminates the
Combination Agreement and concurrently therewith pays the applicable termination
fees described below.
Global must give FuelCell at least three days' notice orally and in writing
prior to any decision by its board of directors to accept, recommend, approve or
implement a superior proposal, which notice must identify the party making the
superior proposal and must provide full details of all material terms and
conditions thereof and any amendments thereto. Global must inform FuelCell of
the status (including all terms and conditions thereof) of any discussions and
negotiations with that party. In addition Global must, and must cause its
financial and legal advisors to, negotiate in good faith with FuelCell to make
such adjustments in the terms and conditions of the Combination Agreement and
the Plan of Arrangement as would enable Global and FuelCell to proceed with the
transactions contemplated by the Combination Agreement. Before executing any
agreement to implement a superior proposal, Global must provide FuelCell with
copies of such final documentation executed by the party making the superior
proposal. In the event that FuelCell proposes to amend the Combination Agreement
and the Plan of Arrangement, the board of directors of Global shall consider the
proposed amendments and not enter into any agreement regarding the acquisition
proposal unless it has provided FuelCell with at least 24 hours written notice
in advance of entering into such agreement that the board of directors has
reconfirmed its view that the acquisition proposal remains a superior proposal.
As used in the Combination Agreement, "acquisition proposal" means a
proposal or offer (other than by the other party to the Combination Agreement),
whether or not subject to a due diligence condition, whether or not in writing,
to acquire in any manner, directly or indirectly, beneficial ownership (as
defined under Rule 13(d) of the United States Securities Exchange Act of 1934)
of more than 20% of the assets of Global or FuelCell, as the case may be, or any
subsidiary thereof, or to acquire in any manner, directly or indirectly, more
than 9.9% (and for the purposes of the payment of termination fees, 20%) of the
outstanding voting shares of Global or FuelCell, as the case may be, whether by
an arrangement, amalgamation, a merger, consolidation or other business
combination, by means of a sale of shares of capital stock, sale of assets,
tender offer or exchange offer or similar transaction involving either Global or
FuelCell, as the case may be, or any of its subsidiaries, including any single
or multistep transaction or series of related transactions which is structured
to permit such third party to acquire beneficial ownership of more than 20% of
the assets of either Global or FuelCell, as the case may be, or any subsidiary
thereof, or to acquire in any manner, directly or indirectly, more than 9.9%
(and for the purposes of the payment of termination fees, 20%) of the
outstanding voting shares of Global or FuelCell, as the case may be (other than
the transactions contemplated by the Combination Agreement).
TERMINATION
Global and FuelCell may terminate the Combination Agreement by mutual
agreement. In addition, either Global or FuelCell may terminate the Combination
Agreement prior to the effective time if any of the following occurs:
- if all conditions for closing the Combination have not been satisfied or
waived by 5:00 p.m. (Calgary time) on December 31, 2003 other than as a
result of a breach by the terminating party, provided that neither party
may terminate the Combination Agreement due to litigation initiated by
Quantum in connection with the Quantum Combination Agreement or by the
holder of the Global Series 2 Preferred Shares until the earlier of: (i)
a final, non-appealable order in such litigation; and (ii) January 31,
2004;
- on or before 5:00 p.m. (Calgary time) on December 31, 2003 if: (i) the
Global securityholders entitled to vote at the Global Meeting do not
approve the arrangement (and the other matters to be approved at
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the Global Meeting) or the Court does not issue the final order; or (ii)
the FuelCell stockholders do not approve the Combination and the
Combination Agreement; or
- if a final and non-appealable order shall have been entered in any action
or proceeding before any governmental entity that prevents or makes
illegal the completion of the Combination.
FuelCell may terminate the Combination Agreement if:
- there has been a breach by Global of any representation, warranty,
covenant or agreement in the Combination Agreement, or any representation
or warranty of Global has become untrue, subject to notice and cure
provisions;
- the Global board of directors or any committee thereof: (i) withdraws or
modifies adversely to FuelCell its approval or recommendation in respect
of the Combination; or (ii) fails to reaffirm its approval or
recommendation within ten days upon request by FuelCell or after a
competing acquisition proposal is announced, proposed, offered or made,
whichever occurs first;
- the Court orders or requires persons other than Global common
shareholders the right to consent, approve or vote in connection with the
Combination as a separate class; or
- Global's levels of net working capital and net cash are below specified
levels on the effective date of the Combination, based upon Global's net
working capital and net cash amounts prior to execution of the
Combination Agreement, as reduced by a specified amount representing
anticipated reductions of working capital and cash.
Global may terminate the Combination Agreement if:
- there has been a breach by FuelCell of any representation, warranty,
covenant or agreement in the Combination Agreement, or any representation
or warranty of FuelCell has become untrue, subject to notice and cure
provisions;
- the FuelCell board of directors or any committee thereof: (i) withdraws
or modifies adversely to Global its approval or recommendation of the
Combination and the Combination Agreement to FuelCell's stockholders; or
(ii) fails to reaffirm its approval or recommendation within ten days
upon request by Global or after a competing acquisition proposal is
announced, proposed, offered or made, whichever occurs first;
- prior to the approval by the Global common shareholders of the
Combination, the Global board of directors accepts, recommends, approves
or implements a superior proposal in compliance with the Combination
Agreement;
- if the daily volume-weighted average of FuelCell's stock price,
calculated in accordance with the Combination Agreement, is less than
$6.65, calculated on a rolling basis for each trading day during any 15
consecutive trading days after the date of the Combination Agreement
until the effective date of the Combination (the "Walk-Away Price"). Upon
the occurrence of any Walk-Away Price, Global may terminate the
Combination Agreement within three days of such occurrence, and if Global
fails to exercise such termination right, Global will be deemed to have
waived its right to terminate in respect of such occurrence, but without
prejudice to any future right to terminate upon the occurrence of a
subsequent Walk-Away Price;
- FuelCell's levels of net working capital and net cash are below specified
levels on the effective date of the Combination, based upon FuelCell's
net working capital and net cash amounts prior to execution of the
Combination Agreement, as reduced by a specified amount representing
anticipated reductions of working capital and cash; or
- FuelCell announces its intention to acquire (by merger, consolidation, or
acquisition of stock or assets) any company, corporation, partnership or
other business organization or division thereof for a purchase price in
excess of $10,000,000.
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TERMINATION AND EXPENSE REIMBURSEMENT FEES
Global must pay FuelCell $900,000 for reimbursement of expenses in cash if:
- FuelCell terminates the Combination Agreement because there has been a
breach by Global of any representation, warranty, covenant or agreement
in the Combination Agreement, or any representation or warranty of Global
has become untrue, subject to notice and cure provisions;
- either party terminates the Combination Agreement because the Global
securityholders entitled to vote at the Global Meeting do not approve the
Combination and any other matters to be approved at the Global Meeting on
or prior to 5:00 p.m. (Calgary time) on December 31, 2003;
- FuelCell terminates the Combination Agreement because the Court orders or
requires any person, other than Global common shareholders the right to
consent to, approve or vote in connection with the Combination, as a
separate class; or
- FuelCell terminates the Combination Agreement because Global has not
satisfied its obligations under the Combination Agreement with respect to
net working capital and net cash.
FuelCell must pay Global $900,000 for reimbursement of expenses in cash if:
- Global terminates the Combination Agreement because there has been a
breach by FuelCell of any representation, warranty, covenant or agreement
in the Combination Agreement, or any representation or warranty of
FuelCell has become untrue, subject to notice and cure provisions;
- either party terminates the Combination Agreement because the FuelCell
stockholders do not approve the Combination and the Combination Agreement
on or prior to 5:00 p.m. (Calgary time) on December 31, 2003; or
- Global terminates the Combination Agreement because FuelCell has not
satisfied its obligations under the Combination Agreement with respect to
net working capital and net cash.
Global must pay FuelCell a termination fee of $2,000,000 in cash if:
- an acquisition proposal by a third party in respect of Global is publicly
announced or is proposed, offered or made, and such acquisition has not
expired or been withdrawn at the time of the Global Meeting and the
securityholders of Global do not approve the Combination and, within
twelve months of the termination of the Combination Agreement, Global
enters into, directly or indirectly, an agreement, commitment or
understanding with respect to such acquisition proposal, an amended
version thereof, a competing acquisition proposal or an acquisition
proposal solicited in response to the foregoing, or any such acquisition
proposal is consummated;
- prior to approval of the Global securityholders, Global terminates the
Combination Agreement because Global has accepted, recommended, approved
or implemented a superior proposal; or
- FuelCell terminates the Combination Agreement because the Global board of
directors or any committee thereof: (i) withdraws or modifies adversely
to FuelCell its approval or recommendation in respect of the Combination;
or (ii) fails to reaffirm its approval or recommendation within ten days
upon request by FuelCell or after a competing acquisition proposal is
announced, proposed, offered or made, whichever occurs first.
FuelCell must pay Global a termination fee of $2,000,000 in cash if:
- Global terminates the Combination Agreement because the FuelCell board of
directors or any committee thereof: (i) withdraws or modifies adversely
to Global its approval or recommendation to FuelCell stockholders; or
(ii) fails to reaffirm its approval or recommendation within ten days
upon request by Global or after a competing acquisition proposal is
announced, proposed, offered or made, whichever occurs first.
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AGREEMENTS OF CERTAIN PERSONS
Global will use its reasonable best efforts to enter into agreements with
persons who may be deemed to be affiliates of Global for the purposes of Rules
144 and 145 promulgated under the United States Securities Act of 1933. Pursuant
to those agreements, Global affiliates will agree, among other things, that they
will not sell, transfer or otherwise dispose of the FuelCell common stock or
exchangeable shares that they will receive in connection with the Combination
except in compliance with the resale restrictions of Rule 145(d) or after
satisfying other specified conditions. The agreements will permit FuelCell to
place restrictive legends on and issue stop-transfer instructions with respect
to the shares of FuelCell common stock and exchangeable shares that the Global
affiliates will receive as a result of the Combination.
DISSENTING SHAREHOLDER RIGHTS
FUELCELL
Under Delaware law, holders of FuelCell common stock will not have
appraisal or dissenters' rights relating to the Combination.
GLOBAL
THE FOLLOWING DESCRIPTION OF THE RIGHTS OF DISSENTING HOLDERS OF GLOBAL
COMMON SHARES IS NOT A COMPREHENSIVE STATEMENT OF PROCEDURES TO BE FOLLOWED BY A
DISSENTING SHAREHOLDER WHO SEEKS PAYMENT OF THE FAIR VALUE OF GLOBAL COMMON
SHARES AND IS QUALIFIED IN ITS ENTIRETY BY THE INTERIM ORDER, THE PLAN OF
ARRANGEMENT AND SECTION 191 OF THE BUSINESS CORPORATIONS ACT (ALBERTA) WHICH WE
HAVE INCLUDED AS ANNEXES C, D AND G TO THIS JOINT PROXY STATEMENT. A GLOBAL
COMMON SHAREHOLDER WHO INTENDS TO EXERCISE THE RIGHT OF DISSENT AND APPRAISAL
SHOULD CAREFULLY CONSIDER AND COMPLY WITH THE PROVISIONS OF SECTION 191, AS
MODIFIED BY THE PLAN OF ARRANGEMENT AND THE INTERIM ORDER, WHICH INTERIM ORDER
PROVIDES THAT GLOBAL COMMON SHAREHOLDERS SHALL HAVE THE RIGHT TO DISSENT IN
RESPECT OF THE PLAN OF ARRANGEMENT. FAILURE TO COMPLY WITH THE PROVISIONS OF
SECTION 191, AS MODIFIED BY THE PLAN OF ARRANGEMENT AND INTERIM ORDER, AND TO
ADHERE TO THE PROCEDURES ESTABLISHED THEREIN, MAY RESULT IN THE LOSS OF ALL
RIGHTS THEREUNDER.
The Court hearing the application for the final order has the discretion to
alter the rights of dissent described herein based on the evidence presented at
such hearing.
Under the Interim Order, registered holders of Global common shares are
entitled, in addition to any other right they may have, to dissent and to be
paid by FuelCell the judicially determined fair value of the common shares held
by them, determined as of the close of business on the last business day before
the day on which the resolution from which they dissented was adopted. A Global
shareholder may dissent only with respect of all of the shares held by the
shareholder or on behalf of any one beneficial owner and registered in the
dissenting shareholder's name. The written objection to the resolution must be
executed by or for the holder of record, fully and correctly, as such holder's
name appears on the holder's share certificates. A vote against the Combination
will not satisfy the notice requirements under Section 191 of the Business
Corporations Act (Alberta) with respect to such shareholder's dissent rights. If
the shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, the written objection should be made in that capacity,
and if the shares are owned of record by more than one person, as in a joint
tenancy or a tenancy in common, the written objection should be made by or for
all owners of record. An authorized agent, including one or more joint owners,
may execute the written objection for a holder of record; however, such agent
must expressly identify the record owner or owners, and expressly disclose in
such written objection that the agent is acting as agent for the record owner or
owners.
ONLY REGISTERED COMMON SHAREHOLDERS MAY DISSENT. BENEFICIAL OWNERS OF
GLOBAL COMMON SHARES REGISTERED IN THE NAME OF A BROKER, CUSTODIAN, NOMINEE OR
OTHER INTERMEDIARY WHO WISH TO DISSENT SHOULD BE AWARE THAT THEY MAY ONLY DO SO
THROUGH THE REGISTERED OWNER OF SUCH SHARES. A REGISTERED HOLDER SUCH AS A
BROKER WHO HOLDS COMMON SHARES AS NOMINEE FOR BENEFICIAL OWNERS, SOME OF WHOM
MAY DESIRE TO OBJECT TO THE RESOLUTION, MUST EXERCISE DISSENT RIGHTS ON BEHALF
OF SUCH BENEFICIAL OWNERS WITH RESPECT TO THE SHARES
88
HELD FOR SUCH BENEFICIAL OWNERS. IN SUCH CASE, THE WRITTEN OBJECTION TO THE
RESOLUTION SHOULD SET FORTH THE NUMBER OF COMMON SHARES COVERED BY IT.
A dissenting holder of Global common shares must send to Global a written
objection to the resolution in respect of the arrangement, which written
objection must be received by Global, c/o Bennett Jones LLP, 4500, 855 -- 2nd
Street S.W., Calgary, Alberta T2P 4K7, Attention: Mr. John MacNeil or the
chairman of the Global Meeting, also c/o Bennett Jones LLP at the address above,
no later than 24 hours before the Global Meeting. An application may be made to
the Court to fix the fair value of the dissenting shareholder's common shares
after the effective date of the Plan of Arrangement. If an application to the
Court is made by either Global or a dissenting shareholder, Global must, unless
the Court otherwise orders, send to each dissenting shareholder a written offer
to pay him an amount considered by the Global board of directors to be the fair
value of the Global common shares. The offer, unless the Court otherwise orders,
will be sent to each dissenting shareholder at least ten days before the date on
which the application is returnable, if Global is the applicant, or within ten
days after Global is served with notice of the application, if a shareholder is
the applicant. The offer will be made on the same terms to each dissenting
holder of Global common shares and will be accompanied by a statement showing
how the fair value was determined.
A dissenting holder of Global common shares may make an agreement with
Global for the purchase of the holder's common shares in the amount of Global's
offer (or otherwise) at any time before the Court pronounces an order fixing the
fair value of the common shares. A dissenting shareholder is not required to
give security for costs in respect of an application and, except in special
circumstances, will not be required to pay the costs of the application or
appraisal. On the application, the Court will make an order fixing the fair
value of the common shares of all dissenting shareholders who are parties to the
application, giving judgment in that amount against Global and in favor of each
of those dissenting shareholders and fixing the time within which FuelCell, in
consideration for the transfer of such dissenting shareholders' shares, must pay
that amount payable to the dissenting shareholders.
After the Combination becomes effective, or after an agreement between
Global and the dissenting holder of Global common shares is made, or upon the
pronouncement of a court order fixing the fair value and giving judgment in that
amount, whichever first occurs, the dissenting shareholder will cease to have
any rights as a shareholder other than the right to be paid the fair value of
the common shares in the amount agreed between Global and the dissenting
shareholder or in the amount of the judgment as the case may be. Until one of
these events occurs, the shareholder may withdraw his dissent, or Global may
rescind the resolution in respect of the arrangement and, in either event, the
dissent and appraisal proceedings in respect of that shareholder will be
discontinued. The Court may in its discretion allow a reasonable rate of
interest on the amount payable to each dissenting shareholder calculated from
the date on which the shareholder ceases to have any rights as a shareholder
until the date of payment.
The Combination Agreement provides that it is a condition to the obligation
of both FuelCell and Global to complete the Combination that Global shall not
have received notice from the holders of more than 5% of the issued and
outstanding shares of Global entitled to consent to or vote on the matters
presented at the Global Meeting, in aggregate, of their intention to exercise
their rights of dissent as described above.
ANTICIPATED ACCOUNTING TREATMENT
FuelCell, as the accounting acquirer, will account for the Combination with
Global using the purchase method of accounting under U.S. GAAP. After completion
of the Combination, the results of operations of Global will be included in the
consolidated financial statements of FuelCell.
BUSINESS COMBINATION COSTS
Regardless of whether the Combination is completed, Global and FuelCell
will each bear its respective expenses and legal fees incurred with respect to
the Combination Agreement and the transactions contemplated thereby. Global and
FuelCell will, however, share equally the costs of printing and filing this
Joint Proxy Statement, as well as the costs of any filings or applications with
any governmental entity relating to the Combination.
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The combined estimated fees, costs and expenses of Global and FuelCell in
connection with the Combination, excluding the $2 million Quantum termination
fee and including, without limitation, change of control payments, financial
advisor fees, soliciting dealer fees, filing fees, legal and accounting fees and
printing and mailing costs are anticipated to be approximately $5.8 million, of
which $3.5 million relates to FuelCell's costs and change of control payments
which are referred to in Note (b)(2) and Note (f) to the Unaudited Pro Forma
Condensed Combined Balance Sheet.
In addition, Global or FuelCell may be required to pay the other party a
termination fee in certain circumstances, as discussed more fully beginning on
page 87.
PROCEDURES FOR EXCHANGE BY GLOBAL COMMON SHAREHOLDERS
Enclosed with this Joint Proxy Statement is a letter of transmittal which
each Global common shareholder must complete, execute and return together with a
certificate for Global common shares in order to receive shares of FuelCell
common stock or exchangeable shares if the Combination is completed. The letter
of transmittal allows Global common shareholders who are residents of Canada for
purposes of the Income Tax Act (Canada) to elect to receive either exchangeable
shares or shares of FuelCell common stock once the Combination is completed.
Global common shareholders who are non-residents of Canada for purposes of the
Income Tax Act (Canada) will not have the option to receive exchangeable shares
and will receive shares of FuelCell common stock. Global common shareholders
will be required to complete a declaration of residency in the letter of
transmittal in order to properly elect to receive exchangeable shares. The
number of exchangeable shares or shares of FuelCell common stock to be received
for each Global common share will be based on the exchange ratio. See
"-- Mechanics for Implementing the Combination and Description of Exchangeable
Shares". A Canadian Global common shareholder who wishes to receive exchangeable
shares or shares of FuelCell common stock may do so by checking the relevant box
on the letter of transmittal to elect to receive the exchangeable shares and
make the declaration of residency. A Canadian Global common shareholder who does
not make an election will receive shares of FuelCell common stock. It is
anticipated that certificates representing the exchangeable shares and shares of
FuelCell common stock will be available immediately following the closing which
is expected to occur on November 3, 2003. In order to receive exchangeable
shares, your properly completed letter of transmittal along with your share
certificate or certificates must be received by Computershare Trust Company of
Canada by the close of business on the last business day before closing. If
closing occurs as expected on November 3, 2003, your letter of transmittal must
be received by the close of business on October 31, 2003.
If Global common shares are registered in the name of a broker, bank or
nominee, the registered holder of the shares must submit the letter of
transmittal on behalf of the beneficial owner.
No certificates representing fractional FuelCell common shares or
fractional exchangeable shares will be issued. In lieu of fractional shares,
each shareholder who would otherwise be entitled to receive a fraction of a
share of FuelCell common stock or an exchangeable share shall be paid an amount
of cash (rounded to the nearest whole cent), without interest, equal to the
Canadian dollar equivalent of the product of such fractional interest multiplied
by the daily volume-weighted average trading price of the shares of FuelCell
common stock for the twenty consecutive trading days ending on and including the
third trading day before the Global Meeting.
Any use of the mail to transmit a certificate for Global common shares and
a related letter of transmittal is at the risk of the shareholder. If these
documents are mailed, it is recommended that registered mail, with return
receipt requested, properly insured, be used.
If the Combination is completed, certificates representing the appropriate
number of exchangeable shares or shares of FuelCell common stock issuable to a
former Global common shareholder who has complied with the procedures set out
above, together with a cheque in the amount, if any, payable in lieu of
fractional exchangeable shares will, as soon as practicable after the later of
the effective date of the Combination and the date of receipt of a certificate
for Global common shares and a related letter of transmittal, be forwarded to
the holder at the address specified in the letter of transmittal by first class
mail or made available at the offices of Computershare Trust Company of Canada
for pickup by the holder, if requested by the holder in the letter of
transmittal.
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If the Combination does not close, all certificates representing Global
common shares transmitted with a related letter of transmittal will be returned
by certified mail to Global common shareholders.
If a share certificate has been lost or destroyed, the letter of
transmittal should be completed as fully as possible and forwarded, together
with a letter describing the loss, to the Toronto or Calgary office of
Computershare Trust Company of Canada. Computershare Trust Company of Canada
will respond to you with its share certificate replacement requirements. If a
share certificate has been lost or destroyed, please ensure that you provide
your telephone number to Computershare Trust Company of Canada so that you may
be contacted.
STOCK EXCHANGE LISTINGS
The shares of FuelCell common stock currently trade on the Nasdaq National
Market. FuelCell has applied to list on the Nasdaq National Market the shares of
FuelCell common stock issuable pursuant to the Combination. The Global common
shares are currently listed on the Toronto Stock Exchange and will be delisted
following the effective date of the Combination. On September 18, 2003, the
Toronto Stock Exchange accepted notice of the proposed Combination and
conditionally approved the listing and posting for trading of the exchangeable
shares, subject to compliance with all of the requirements of the Toronto Stock
Exchange, including distribution of the exchangeable shares to a minimum number
of public shareholders.
ELIGIBILITY FOR INVESTMENT IN CANADA
Exchangeable Shares. In the opinion of Bennett Jones LLP, Canadian counsel
to Global, the exchangeable shares, if listed on a prescribed stock exchange in
Canada (which currently includes the Toronto Stock Exchange) will be qualified
investments under the Income Tax Act (Canada) for trusts governed by RRSPs,
RRIFs, DPSPs and RESPs. In addition, if ExchangeCo maintains a substantial
presence in Canada, the exchangeable shares will not be foreign property under
the Income Tax Act (Canada) for such plans or funds and for certain other
persons to whom Part XI of the Income Tax Act (Canada) applies.
FuelCell has indicated that it intends to take all actions necessary to
cause ExchangeCo to maintain the listing of the exchangeable shares on the
Toronto Stock Exchange. ExchangeCo will be considered to have a substantial
presence in Canada if it satisfies certain asset tests or if it maintains an
office in Canada and ExchangeCo or a corporation controlled by it, employs more
than five employees in Canada full time in the active conduct of a business,
other than an investment activity or a business carried on through a partnership
of which the corporation is not a majority interest partner. FuelCell is of the
view that following the Combination, ExchangeCo will satisfy this substantial
presence test and expects that ExchangeCo will continue to satisfy this test.
Voting Rights and Exchange Rights. The rights of the holders of
exchangeable shares to direct the voting of the one share of FuelCell special
voting stock by the Trustee, and the rights granted to the Trustee to exchange
exchangeable shares for FuelCell common stock in certain circumstances, will not
be a qualified investment for trusts governed by RRSPs, RRIFs, DPSPs and RESPs
and will be foreign property under Part XI of the Income Tax Act (Canada).
However, as indicated under "Chapter Four -- Information About Tax
Considerations -- Canadian Federal Income Tax Considerations to
Shareholders -- Shareholders Resident in Canada", each of FuelCell and Global is
of the view that the fair market value of any such rights is nominal. Based on
such view, there should be no material consequences under the Income Tax Act
(Canada) to RRSPs, RRIFs and DPSPs holding such non-qualified investments. RESPs
holding such non-qualified investments may, however, realize adverse
consequences, including potential revocation of the registration of the RESP,
regardless of the fair market value of such non-qualified investments.
FuelCell Common Stock. The FuelCell common stock will be a qualified
investment under the Income Tax Act (Canada) for trusts governed by RRSPs,
RRIFs, DPSPs and RESPs, provided such shares are listed on a prescribed stock
exchange (which currently includes the Nasdaq National Market). The FuelCell
common stock will, however, be foreign property for such plans or funds and for
certain other persons to whom Part XI of the Income Tax Act (Canada) applies.
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OTHER REGULATORY MATTERS
Except as described under "-- Summary -- Regulatory Approvals," neither
FuelCell nor Global is aware of any material license or regulatory permit that
it holds that might be adversely affected by the Combination or of any material
regulatory approval or other action by any federal, provincial, state or foreign
government or any administrative or regulatory agency that would be required to
be obtained prior to the effective date of the Combination, other than
compliance with applicable securities laws of various jurisdictions.
RESALES OF EXCHANGEABLE SHARES AND FUELCELL COMMON STOCK
UNITED STATES
The issuance of shares of FuelCell common stock and exchangeable shares to
holders of Global common shares will not be registered under the United States
Securities Act of 1933, as amended. The shares of FuelCell common stock and the
exchangeable shares will be issued in reliance upon the exemption available
pursuant to Section 3(a)(10) of the Securities Act of 1933. Section 3(a)(10)
exempts securities issued in exchange for one or more outstanding securities
from the general requirement of registration where the terms and conditions of
the issuance and exchange of such securities have been approved by any court of
competent jurisdiction, after a hearing upon the fairness of the terms and
conditions and exchange at which all persons to whom the securities will be
issued have the right to appear. The Court is authorized to conduct a hearing to
determine the fairness of the terms and conditions of the Plan of Arrangement,
including the proposed issuance of securities in exchange for other outstanding
securities. The Court entered the Interim Order on September 30, 2003 and,
subject to the approval of the Plan of Arrangement by Global common
shareholders, a hearing on the fairness of the arrangement will be held on
October 31, 2003 by the Court. See "-- The Plan of Arrangement -- Court Approval
of the Arrangement of Completion of the Combination" on page 69.
The shares of FuelCell common stock, the exchangeable shares and the shares
of FuelCell common stock issuable upon the exchange of exchangeable shares will
be freely transferable under U.S. federal securities laws, except by persons who
are affiliates of Global or FuelCell prior to the Combination or persons who are
affiliates of FuelCell after the Combination. Shares held by Global or FuelCell
affiliates may be resold only in transactions permitted by Rule 901 in
combination with Rule 903 or Rule 904 of Regulation S under the Securities Act
of 1933, the resale provisions of Rule 145(d)(1), (2) or (3) under the
Securities Act of 1933 or as otherwise permitted under the Securities Act of
1933. Rule 145(d)(1) generally provides that affiliates of Global may sell
securities of FuelCell received pursuant to the Combination pursuant to an
effective registration statement or in compliance with the volume, current
public information and manner of sale limitations of Rule 144. These limitations
generally permit sales made by an affiliate in any three-month period that do
not exceed the greater of 1% of the outstanding shares of FuelCell or the
average weekly trading volume over the four calendar weeks preceding the
placement of the sell order provided the sales are made in unsolicited, open
market "broker transactions". Rules 145(d)(2) and (3) generally provide that
these limitations lapse for non-affiliates of FuelCell after a period of one or
two years, depending upon whether information continues to be publicly available
with respect to FuelCell.
Under Rule 904, persons who are not affiliates of FuelCell (or who are
affiliates of FuelCell solely by virtue of holding a position as an officer or
director of FuelCell) may sell shares of FuelCell common stock and exchangeable
shares without registration under the Securities Act of 1933 if no "directed
selling efforts" (as defined in Rule 902 of Regulation S) are made by the seller
or any of its affiliates or any person acting on their behalf, no offer is made
to a person in the United States, and either: (i) at the time the buy order is
originated, the buyer is outside the United Sates, or the seller and any person
acting on behalf of the seller reasonably believes the buyer is outside the
United States; or (ii) the transaction is executed in, on or through the
facilities of the Toronto Stock Exchange and neither the seller nor any person
acting on behalf of the seller knows that the transaction has been pre-arranged
with a buyer in the United States. In the case of sales by a person who is an
officer or director of FuelCell and is an affiliate of FuelCell solely by virtue
of holding that position, no selling concession, fee or other remuneration may
be paid in connection with the offer or sale other than the usual and customary
broker's commission that would be received by a person executing the transaction
as agent. Additional conditions apply to resales by persons who are affiliates
of FuelCell other than by virtue of holding a position as an officer or director
of FuelCell.
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Persons who may be deemed to be affiliates of an issuer generally include
individuals or entities that control, are controlled by, or are under common
control with, the issuer and generally include executive officers and directors
of the issuer as well as principal shareholders of the issuer.
FuelCell has agreed that it will file and maintain effective the necessary
registration statements covering the issuance of FuelCell common stock from time
to time in exchange for the exchangeable shares. The shares of FuelCell common
stock issued from time to time in exchange for the exchangeable shares therefor
will be freely transferable under U.S. federal securities laws, subject to
restrictions on persons who were affiliates of Global or FuelCell prior to the
Combination or who are affiliates of FuelCell after the Combination.
FuelCell has agreed to file a registration statement with the U.S.
Securities and Exchange Commission on Form S-3 to register for resale the
FuelCell common stock issued to persons who are considered affiliates of Global
prior to completion of the Combination. That resale registration statement will
not, however, register shares issued to Global officers and directors, who will
be permitted to resell FuelCell common stock only if they comply with the
requirements of Rule 145. FuelCell has also agreed to file a registration
statement with the U.S. Securities and Exchange Commission on Form S-3 (or
another available registration form) to register the FuelCell common stock
issuable upon conversion of the Global Series 2 Preferred Shares or exchange of
the exchangeable shares. Finally, FuelCell will assume all outstanding options
issued under Global's Amended Incentive Stock Option Plan, and FuelCell has
agreed to file a registration statement with the U.S. Securities and Exchange
Commission on Form S-8 to register the shares of its common stock that may be
issued upon exercise of those options.
CANADA
FuelCell and ExchangeCo expect to receive rulings or orders from certain
provincial securities regulatory authorities in Canada providing exemptions from
the prospectus and registration requirements (and the rights and protections
otherwise afforded thereunder):
- to permit the issuance of the exchangeable shares and FuelCell common
stock to Global common shareholders upon completion of the Combination;
- to permit the issuance of FuelCell common stock to holders of
exchangeable shares upon the exchange thereof;
- to permit FuelCell to assume the obligation to exchange Global options
for FuelCell common stock;
- to permit the issuance of FuelCell common stock to holders of Global
options upon the exercise thereof;
- to permit the issuance of FuelCell common stock upon the conversion of
Global Series 2 Preferred Shares; and
- to permit resale of the exchangeable shares, FuelCell common stock
received in connection with the Combination or FuelCell common stock
issuable pursuant to the exchangeable shares, upon the exercise of
Global options or upon exchange of the conversion of Global Series 2
Preferred Shares, in those Canadian provinces without restriction by a
shareholder other than a "control person", provided that no unusual
effort is made to prepare the market for any such resale or to create a
demand for the securities which are the subject of any such resale and
no extraordinary commission or consideration is paid in respect thereof.
ONGOING CANADIAN REPORTING REQUIREMENTS
Upon completion of the Combination, FuelCell, ExchangeCo and CallCo will be
reporting issuers in certain of the Canadian provinces. An application has been
made on behalf of ExchangeCo for appropriate exemptions from statutory financial
and reporting requirements, including exempting insiders of ExchangeCo from the
requirements of filing insider reports with respect to trades of ExchangeCo
securities in those Canadian provinces on the condition that FuelCell continues
to file with the relevant securities regulatory authorities copies of certain of
its reports filed with the U.S. Securities and Exchange Commission and that
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holders of exchangeable shares receive certain materials that are sent to
holders of FuelCell common stock, including annual and interim financial
statements of FuelCell and FuelCell stockholder meeting materials. The Toronto
Stock Exchange has also advised us that upon receipt from Canadian securities
regulators of an order granting appropriate exemptions from statutory and
financial reporting requirements, ExchangeCo will be exempt from their financial
and reporting requirements.
After the consummation of the arrangement and subject to ExchangeCo
receiving the reporting exemptions discussed in the preceding paragraph, holders
of exchangeable shares will receive annual and interim financial statements of
FuelCell in lieu of financial statements of ExchangeCo.
An application will also be made on behalf of FuelCell and CallCo for a
ruling that FuelCell and CallCo be deemed to cease to be reporting issuers in
the applicable provinces.
INTERESTS OF CERTAIN PERSONS IN THE COMBINATION
You should be aware that members of the management and board of directors
of Global have interests in the Combination, including those referred to below,
that may present them with actual or potential conflicts of interest in
connection with the Combination. These interests include the following:
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Pursuant to the Combination Agreement, FuelCell has agreed to maintain all
rights to indemnification existing at the time of execution of the Combination
Agreement in favor of the directors and officers of Global and its subsidiaries
in accordance with the charter documents and bylaws of each entity and indemnity
agreements between Global and each director and senior officer of Global to the
fullest extent permitted under the Business Corporations Act (Alberta). The
Combination Agreement also provides that for a period of six years from the
effective date of the Combination, FuelCell will continue in effect director and
officer liability insurance for such persons equivalent to the current Global
policies in effect at the time of execution of the Combination Agreement;
provided that in no event will FuelCell be required to expend in any one year an
amount in excess of 150% of the annual premiums currently paid by FuelCell for
similar insurance carried by FuelCell for its own directors and officers.
RIGHTS ON CHANGE OF CONTROL
Global entered into change of control agreements with Paul Crilly and
Bernie LeSage in September 2001 and with Peter Garrett and Brian McGurk in
August 2002. These agreements have not been amended in any way in connection
with the Combination. The agreements entered into with Messrs. Garrett, Crilly
and LeSage provide for them to receive severance benefits if their employment is
terminated (either voluntarily by the employee or involuntarily) within six
months of a change in control of Global. Under these agreements, Messrs.
Garrett, Crilly and LeSage shall be paid, within 30 days of termination, two and
one-half years' pay at their base salary, plus an amount equal to 1.25 times the
sum of the last two annual bonuses paid to them in the two previously completed
fiscal years of Global. In addition, all stock options that have not been
exercised shall become immediately exercisable for a period of 90 days from the
date of termination. The change of control agreement entered into with Mr.
McGurk provides for him to receive the same severance benefits if his employment
is involuntarily terminated within six months of a change in control of Global.
Global entered into an employment agreement with one officer, Mr. Garrett,
on August 4, 2003. This agreement is for an indefinite term and provides for the
payment to Mr. Garrett of a salary of Cdn.$260,000 per annum together with an
incentive bonus of up to 60% of his salary. The agreement can be terminated by
Global for cause, and by Mr. Garrett upon the occurrence of specified events
upon the payment to Mr. Garrett of a termination payment equal to eighteen
months salary and bonus. The agreement can also be terminated by Mr. Garrett
within six months of the occurrence of a "change of control", as defined in the
change of control agreement between Global and Mr. Garrett. Upon the occurrence
of a change of control, the obligations of Global to Mr. Garrett will be
governed solely by the change of control agreement, and in no event shall Mr.
Garrett be entitled to payments under both his employment agreement and his
change of control agreement.
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CERTAIN DIRECTORS OF GLOBAL
Messrs. Kerry Brown and John Howard, currently both members of Global's
board of directors, are significant shareholders of Foundation Equity
Corporation, which holds approximately 8.9% of Global's common shares as of the
date of this Joint Proxy Statement.
APPOINTMENTS TO FUELCELL BOARD OF DIRECTORS
Under the terms of the Combination Agreement, prior to the effective time
of the Combination, FuelCell's board of directors will be expanded to twelve
voting members and will appoint one of the individuals nominated by Global to
serve on FuelCell's board of directors. In addition, FuelCell may in its sole
discretion choose to appoint one additional nominee of Global, in which case
FuelCell would increase the number of directors comprising its board
accordingly.
GLOBAL STOCK OPTIONS
Pursuant to the Combination Agreement, all Global stock options will
continue to vest in accordance with their terms and FuelCell will assume
Global's Amended Incentive Stock Option Plan and the obligations of Global under
each outstanding Global stock option. Each Global stock option outstanding
immediately prior to the effective time of the Combination will be assumed by
FuelCell and will represent an option to purchase shares of FuelCell common
stock in accordance with the exchange ratio.
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CHAPTER TWO -- CERTAIN FINANCIAL AND OTHER INFORMATION
ABOUT THE COMPANIES
BUSINESS OF FUELCELL
FuelCell is a world leader in the development and manufacture of carbonate
fuel cell power plants for distributed power generation. FuelCell has designed
and is developing standard fuel cell power plants that offer significant
advantages compared to existing power generation technology. These advantages
include higher fuel efficiency than existing distributed generation equipment,
significantly lower emissions, quieter operation, lower vibration, flexible
siting and permitting requirements, scalability and potentially lower operating,
maintenance and generation costs. FuelCell is currently conducting, and has
successfully concluded, field trials of fuel cell power plants ranging from 250
kW to 2 MW.
According to a 2001 study by Allied Business Intelligence ("ABI"), the
cumulative worldwide electrical generating capacity is expected to grow from
3,137 gigawatts in 2000 to 4,280 gigawatts in 2011, a 2.8 percent compound
annual growth rate. At an estimate of $750 per kW, that amounts to an
approximate $850 billion market potential for new central station and
distributed power generation. FuelCell estimates that distributed generation
currently captures between 10% and 20% of this market. FuelCell believes that
there is a market opportunity to increase the share for distributed generation
equipment that can respond to the need for higher reliability, lower emissions,
higher efficiency utilizing cogeneration, the ability to distribute power in
more flexible sizes at specific load centers, enhanced security by installing
incremental power plants in dispersed locations, and increased energy
independence by utilizing fuels other than oil. FuelCell's Direct FuelCell
products, which have higher efficiency, cleaner generation and are more easily
sited than existing distributed generation equipment, have the attributes to
penetrate this market and further enable its growth.
FuelCell's carbonate fuel cell, known as the Direct FuelCell, is so named
because of its ability to generate electricity directly from a hydrocarbon fuel,
such as natural gas, by reforming the fuel inside the fuel cell to produce
hydrogen. FuelCell believes that this "one-step" process results in a simpler,
more efficient and cost-effective energy conversion system compared with
external reforming fuel cells. External reforming fuel cells, such as proton
exchange membrane ("PEM") and phosphoric acid, generally use complex, external
fuel processing equipment to convert the fuel into hydrogen. This external
equipment increases capital cost and reduces electrical efficiency.
FuelCell's Direct FuelCell has been demonstrated using a variety of
hydrocarbon fuels, including natural gas, methanol, diesel, biogas, coal gas,
coal mine methane and propane. FuelCell's commercial DFC power plant products
are expected to achieve an electrical efficiency of between 45% and 57%.
Depending on location, application and load size, FuelCell expects that a
co-generation configuration will reach an overall energy efficiency between 70%
and 80%.
FuelCell's designs use the basic single fuel cell stack incorporated in
FuelCell's sub-megawatt class product as the building block for its megawatt
class products. All three of FuelCell's products will offer the capability of
using the exhaust heat by-product for combined cycle applications utilizing an
unfired gas turbine, and for co-generation applications using the high quality
heat by-product for high-pressure steam, district heating and air conditioning.
FuelCell's products are designed to meet the power requirements of a wide
range of customers such as utilities, industrial facilities, data centers,
shopping centers, wastewater treatment plants, office buildings, hospitals,
universities and hotels. FuelCell's current products, the DFC300A, DFC1500 and
DFC3000, are rated at 250 kW, 1 MW and 2 MW in capacity. FuelCell expects its
commercial products to mature to three configurations: 300 kW, 1.5 MW and 3 MW
for distributed applications generally up to 10 MW. FuelCell is also developing
new products, based on FuelCell's existing power plant design, for applications
in the 10 to 50 MW range.
FuelCell expects initial commercial sales will be to "early adopters."
Energy users that, due to environmental or energy efficiency concerns, are
unable to or choose not to site traditional combustion-based generation, or
energy users that need more reliable electricity sources than provided by the
grid, current diesel back-up generators, and batteries, may be willing to pay
higher prices per kW to obtain the power that they
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need. FuelCell expects that these "early adopters" will include energy users
that are able to take advantage of government subsidies that provide funding for
fuel cell installations. FuelCell expects examples of "early adopters" will be
institutions, commercial and industrial customers in pollution non-attainment
zones and customers in grid-constrained regions. "Early adopters" are also
anticipated to include customers with opportunity fuels such as industrial or
municipal wastewater treatment gas, and co-generation and reliability
applications such as hospitals, schools, universities and hotels.
FuelCell's current focus is to further reduce the costs of its products and
develop sustainable markets for DFC power plants. FuelCell believes that the
initial early adopter customers will lead to additional orders that will enable
it to increase volume and implement FuelCell's cost reduction plan. As a result,
FuelCell believes it will eventually be able to provide a lower cost product and
therefore achieve greater market potential with commercial and industrial
customers.
MARKET OPPORTUNITIES FOR DISTRIBUTED GENERATION
A solution with which to meet the growing worldwide demand for electricity
is distributed generation in general and FuelCell's fuel cell technology in
particular. ABI has reported that global fuel cell energy generating capacity
could increase to between 16,000 and 25,000 MW by 2012, a substantial increase
from the 2002-installed fuel cell generating capacity of approximately 45 MW.
The key drivers for fuel cell distributed generation have been defined for
a number of years and recent general economic events as well as specific power
industry developments have strengthened the need for FuelCell's clean, reliable
and highly efficient DFC power plants.
- Operational Efficiency. FuelCell's DFC power plants have the potential
to reach efficiencies of 45 to 57 percent in single cycle applications
and 70 to 80 percent for combined heat and power applications. This is
greater than the fuel efficiency of the average U.S. fossil fuel plant of
30 to 35 percent.
- Reliability. The continued growth of the 24/7 global economy increases
the need for higher electrical reliability than the existing central
power plant generator and the constrained transmission and distribution
system can provide. DFC power plants can be located directly at the
customer's site, thereby increasing reliability.
- Grid Constraints. In many areas, the electrical transmission and
distribution system has not kept pace with economic development,
resulting in a shortage of available power and this trend is expected to
continue. By locating DFC power plants at customers' sites and
configuring them to operate independently of the grid, the transmission
and distribution system can be avoided completely.
- Emissions. Highly industrialized regions of the world, especially urban
areas, suffer from high pollution rates that restrict the ability to add
traditional combustion-based power generation. Fuel cells, which have
ultra-low emissions, can be sited in these areas and allow these regions
to grow their economies by increasing power generation while reducing
pollution.
- Security. FuelCell's DFC products can enhance security by installing
smaller, incremental power plants in dispersed locations, thereby
reducing dependence on large, vulnerable infrastructure.
- Transmission and Distribution Efficiency. Line losses related to
delivering electricity from large central power plants through the
transmission and distribution system to end-use customers has been
estimated to be greater than ten percent. FuelCell's DFC power plants,
which are located at the customer's site, avoid these line losses.
- Capacity Addition Efficiency. Fuel cell distributed generation extends
beyond the operations of each individual power plant to aggregate
capacity additions. FuelCell's DFC power plants range in size from 250 kW
to 2 MW, and multiple units combined together can provide power plant
systems up to 10 MW and larger. Conversely, traditional combustion-based
central and/or regional power plants are larger in size, typically 50 to
100 MW or larger, resulting, in many cases, in excess capacity until
demand grows over time. Consequently, FuelCell's DFC distributed power
generation can be added in
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increments that more closely match expected demand and in a shorter time
frame from order to start up.
- Energy Independence. According to a DOE/Energy Information
Administration (EIA) study, the U.S. currently imports over 50 percent of
the oil it consumes. FuelCell's DFC power plants are designed to
primarily operate on natural gas, coal (which can be converted to
synthetic gas), as well as municipal and industrial wastewater treatment
gas, all abundant U.S. resources. In addition, FuelCell's DFC power
plants utilize these domestic fuel sources significantly more
efficiently, thereby enhancing the use of existing U.S. resources.
Many governments at various levels, both in the U.S. and abroad, are
proactively pursuing programs and subsidies to stimulate the development of
alternative energy generation in general and fuel cells in particular. FuelCell
estimates there are over $100 million of global incentives available for
distributed generation, alternative energy and renewable technologies, including
FuelCell's DFC power plants, with subsidies ranging up to 50 percent of project
costs depending on the application and the site. FuelCell and its partners have
been able to take advantage of specific incentives in California, New Jersey,
Massachusetts, Germany and Japan, and FuelCell has projects that have received
preliminary approval for incentives in New York and Connecticut.
FUELCELL'S DEVELOPMENT PROGRAM
DEMONSTRATION PROJECTS
FuelCell has over 24,000 hours of experience with its demonstration
projects and "alpha" units conducted at FuelCell's facilities. FuelCell has used
these demonstration projects to develop its core fuel cell component technology,
including its full-height vertical stack design. FuelCell will continue to use
demonstration projects as it expands its development of fuel cell/turbine and
liquid-fueled products.
FIELD TRIAL PROGRAM
FuelCell has used these programs to test operational characteristics of
FuelCell's designs; gain "end-user" site experience to better understand
interconnection, installation and operating issues; to identify design
improvement opportunities; and to test redesigned components and solutions.
Based on experience gained from FuelCell's demonstrations projects and field
trial program, FuelCell has developed the next generation product, the DFC300A,
which incorporates design improvements throughout the power plant, including
more efficient thermal management and gas flow within the fuel cell module and
enhancements in the mechanical and electrical balance-of-plant systems that
result in higher performance, lower cost, and smaller footprint. FuelCell is
currently delivering DFC300A power plants to global customer sites.
Since the inception of FuelCell's field trial program in 1999, FuelCell has
accumulated over 125,000 hours of combined operational experience with
FuelCell's DFC300 products in a variety of conditions and settings and on a
range of fuels.
In 2003, FuelCell expects to initiate its field trial program for its 1 MW
DFC1500 and 2 MW DFC3000 power plants.
FIELD FOLLOW PROGRAM FOR FUELCELL'S DFC300A DESIGN
FuelCell's field follow program is expected to be used to monitor fleet
performance, including additional instrumentation, field service and data
gathering, to build operational history (availability, kWh output, etc.) of
FuelCell's DFC300A power plants in order to further enhance FuelCell's product
design to allow for cost reduction, performance improvement, increased
reliability and serviceability. There are currently 15 units operating in
Europe, Japan and the U.S., and these units have generated more than 12 million
kilowatt hours of electricity at customers' sites.
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STRATEGIC DISTRIBUTION ALLIANCES AND CUSTOMERS
FuelCell entered into significant strategic alliance, distribution, and
market development agreements to facilitate the sale of its DFC products.
FuelCell's distribution partners include MTU CFC Solutions GmbH, a subsidiary of
DaimlerChrysler AG, in Germany; Marubeni Corporation in Asia; and Caterpillar,
Inc.; PPL Energy Plus, a subsidiary of PPL Corporation; Chevron Energy Solutions
L.P. and Alliance Power in the U.S.
MTU is operating 250 kW fuel cell power plants at seven locations in Europe
(in Germany unless otherwise noted), including an energy park at RWE, Germany's
largest utility; a telecommunications center for Deutsche Telecom; a tire
manufacturing facility for Michelin; at Rhon-Klinikum Hospital; a hospital for
IPF in Germany; at Grundstat Clinic; and IZAR, a shipbuilder, in Spain.
Marubeni has ordered 4.25 MW of DFC power plants from FuelCell and is
currently operating a DFC300A at the Kirin Brewery near Tokyo, Japan. Shipments
are in progress for DFC300A power plants for Nippon Metal and the City of
Fukuoka, also in Japan, with customer commitments for the balance of their order
not yet identified.
PPL has ordered 1.75 MW of DFC power plants and currently has units
installed at two Starwood Resorts properties (Sheraton Edison and Sheraton
Parsippany in New Jersey); two units at Zoot Enterprises headquarters building
in Bozeman, Montana; and one unit at the U.S. Coast Guard station in Bourne,
Mass. FuelCell recently shipped a DFC300A to Ocean County College in New Jersey,
and expects to ship one more DFC300A power plant for a customer site that has
not been announced.
The Southern Company, Alabama Municipal Electric Authority and
Mercedes-Benz are currently operating a 250 kW DFC power plant at Mercedes'
manufacturing facility in Tuscaloosa, Alabama. These demonstration partners have
the option to negotiate exclusive arrangements for the sale, distribution and
service of FuelCell's DFC power plants in several southern U.S. states that must
be exercised upon completion of the project.
Caterpillar is expected to finalize a DFC300A power plant sale to American
Municipal Power-Ohio and install it at a substation in the City of Westerville,
Ohio. In addition, Caterpillar is offering FuelCell's DFC products to its
customers and is developing its own one-megawatt fuel cell power plant that will
incorporate FuelCell's DFC technology. Caterpillar expects this one megawatt
fuel cell power plant be completed and ready for market introduction in 2004.
Both Chevron Energy Solutions, LP and Alliance Power are market
distribution partners that offer FuelCell's DFC power plants as part of their
portfolio of energy solutions. To date, neither partner has an executed contract
for the sale of our DFC products.
The Los Angeles Department of Water and Power is a direct customer of
FuelCell Energy and has two operating DFC300A power plants -- one at its
headquarters building, and one at the Terminal Island Wastewater Treatment
facility. A third power plant will be installed at a site to be determined.
FuelCell expects to establish additional long-term relationships that will
facilitate the marketing, development and installation of FuelCell's fuel cell
power plants throughout the world.
SOLID STATE ENERGY CONVERSION ALLIANCE ("SECA")
In April 2003, FuelCell was selected by DOE as a new project participant,
subject to final negotiation and execution of a contract, for its SECA program.
The total project award amount for the solid oxide fuel cell development program
is approximately $139 million that will be cost-shared by the DOE. FuelCell was
selected by DOE based on FuelCell's team (Versa Power Systems, Inc. ("Versa"),
Materials and Systems Research, University of Utah, Gas Technology Institute,
Electric Power Research Institute, Dana Corporation and Pacific Northwest
National Laboratories) and its advanced state of development of high temperature
DFC carbonate technology, systems development, manufacturing experience and
progress it has made in its commercialization. FuelCell, as team leader, is
expected to coordinate development activities and contribute its expertise in
fuel cell manufacturing, assembly, stacking, sealing, internal reforming,
advanced cooling to
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enhance electrical efficiency and product packaging. FuelCell invested $2
million in Versa for a 15.8 percent ownership position that also includes board
representation.
The SECA project, when fully developed, is expected to complement
FuelCell's current DFC product offerings by including combined heat and power
products for applications up to 100 kW. Target applications include remote
sites, telecommunications, commercial and residential buildings, back-up, mobile
standby and auxiliary power units. For the worldwide residential/small business
market alone, ABI, in 2001, projected an installed fuel cell generating capacity
of between 3,400 MW (moderate forecast) and 5,300 MW (aggressive forecast) by
2011.
FUELCELL'S STRATEGY
DFC PRODUCTS
In 2003, FuelCell essentially completed the DFC300A near-term product
strategy that included standardizing its products (including certifications for
product safety, interconnection, installation and performance), expanding its
manufacturing facility to 50 MW of annual capacity and developing its
distribution partners and service capability. FuelCell qualified multiple
vendors for balance of plant and fuel cell components, completed its first
article testing mission critical sub-systems and identified and implemented
product cost reductions. FuelCell incorporated product enhancements for its
DFC300A power plants into its one- and two-MW fuel power plants. Specific
product cost-out teams were created to focus on value engineering and further
product cost reductions on all components.
FuelCell is currently monitoring the performance of its operating DFC
products at customer sites worldwide to gain additional performance data.
FuelCell expects to develop sustainable markets for its DFC products in target
markets such as universities, hospitals, wastewater treatment facilities and
hotels, among others, as well as in grid-support applications for utility
customers.
In the near-term, FuelCell expects that DFC product sales will be assisted
by government-sponsored incentive programs. When further product cost reductions
can be identified and implemented, which FuelCell expects will be a function of
its cost-out programs and increased order volume. FuelCell expects that it will
become less dependent on subsidy programs and will be able to price its fuel
cell power plants more competitively. If FuelCell achieves further product cost
reductions, it anticipates broadening the market opportunities for its fuel cell
power plants, thereby resulting in increased sales of its DFC products.
SECA PROGRAM
The ten-year, $139 million SECA program has three phases. The first phase
focuses on the technological development of SOFC stationary modules in the 3 to
10 kilowatt size range and scalable systems for applications up to 100 kW
operating on natural gas with target efficiencies of 45 percent. Phase one is
scheduled to be a three-year, $24 million program to be cost-shared by DOE and
the FuelCell team.
Phases two and three are expected to focus on enhancing system efficiencies
to 50 percent and 55 percent, respectively, as well as operating on additional
fuels such as propane and diesel. The development of hybrid power plants
combining fuel cells with turbines and stirling engines will also be evaluated
in the later phases. Advancement to these phases is dependent upon success
achieved in Phase One, DOE selection and approval and subsequent congressional
appropriations.
MORE INFORMATION
FuelCell commenced operations in 1969 and is a corporation governed by the
laws of the State of Delaware. FuelCell's principal executive offices are
located at 3 Great Pasture Road, Danbury, Connecticut 06813 Tel: (203) 825-6000
Fax: (203) 825-6100.
A more detailed description of the business of FuelCell is contained in
FuelCell's Annual Report on Form 10-K, which is included in Annex H to this
Joint Proxy Statement .
100
SELECTED FINANCIAL DATA
The following selected consolidated financial data presented below as of
the end of each of the years in the five-year period ended October 31, 2002 have
been derived from FuelCell's audited consolidated financial statements together
with the notes thereto (the "Consolidated Financial Statements"). The data set
forth below is qualified by reference to, and should be read in conjunction
with, the Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in
FuelCell's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which
are included in Annex H to this Joint Proxy Statement.
FOR THE NINE MONTH PERIODS
FOR THE YEARS ENDED OCTOBER 31, ENDED JULY 31,
------------------------------------------------------------------- ---------------------------
1998 1999 2000 2001 2002 2002 2003
----------- ----------- ----------- ----------- ----------- ------------ ------------
(U.S. $ IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
REVENUES:
Research and development
contracts............. $ 24,318 $ 18,553 $ 17,986 $ 20,882 $ 33,575 $ 23,407 $ 14,312
Product Sales and
Revenues.............. -- 1,412 2,729 5,297 7,656 4,121 12,157
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues........ 24,318 19,965 20,715 26,179 41,231 27,528 26,469
COST AND EXPENSES:
Cost of research and
development
contracts............. 16,106 12,690 12,508 19,033 45,664 29,452 28,365
Cost of product sales
and revenues.......... -- 1,025 4,968 16,214 32,129 17,333 38,232
Administrative and
selling expenses...... 6,999 6,684 8,055 9,100 10,451 8,175 9,590
Research and development
expenses.............. 2,258 1,813 1,917 3,108 6,806 4,634 6,050
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from operations.... (1,045) (2,247) (6,733) (21,276) (53,819) (32,066) (55,768)
License fee income,
net................... 678 1,527 266 270 270 203 203
Interest expense........ (269) (169) (141) (116) (160) (121) (102)
Interest and other
income, net........... 267 195 2,138 5,684 4,876 3,890 3,633
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss before provisions
for income taxes...... (369) (694) (4,470) (15,438) (48,833) (28,094) (52,034)
Provision for income
taxes................. 13 291 -- -- 7 -- --
Minority interest....... -- -- 11 -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss................ (382) (985) (4,459) (15,438) (48,840) (28,094) (52,034)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Basic and diluted loss
per share............. (0.02) (0.04) (0.16) (0.45) (1.25) (0.72) (1.32)
Basic and diluted shares
outstanding........... 24,486,108 24,906,856 28,297,594 34,359,320 39,135,256 39,104,394 39,328,881
AS AT OCTOBER 31, AS AT
------------------------------------------------------------------- JULY 31,
1998 1999 2000 2001 2002 2003
----------- ----------- ----------- ----------- ----------- ------------
(U.S. $ IN THOUSANDS)
Working capital......... $ 10,234 $ 7,204 $ 71,576 $ 276,173 $ 218,334 $ 163,821
Total assets............ 26,843 19,831 91,028 334,020 289,803 236,127
Long-term debt.......... 1,944 1,625 -- 1,252 1,696 1,562
Total shareholders'
equity................ 15,870 14,815 83,251 319,716 271,702 219,971
101
BUSINESS OF CALLCO
CallCo is a company incorporated under the Business Corporations Act
(Alberta) on September 11, 2003 for the purpose of implementing the Combination.
To date, CallCo has not carried on and, following the effective date of the
Combination will not carry on, any business except in connection with its role
as a party to the Combination. CallCo is a wholly-owned subsidiary of FuelCell
and its registered office address is 4300 Bankers Hall West, 888-3rd Street,
S.W., Calgary, Alberta.
BUSINESS OF EXCHANGECO
ExchangeCo is a company incorporated under the Business Corporations Act
(Alberta) on September 11, 2003 for the purpose of implementing the Combination.
To date, ExchangeCo has not carried on and, following the effective date of the
Combination will not carry on any business except in connection with its role as
a party to the Combination. ExchangeCo is an indirect wholly-owned subsidiary of
FuelCell and its registered office address is 4300 Bankers Hall West, 888-3rd
Street, S.W., Calgary, Alberta.
The directors of ExchangeCo are Jerry Leitman, Joseph Mahler, Christopher
Nixon and Brian Pukier. Messrs. Leitman and Mahler are each executive officers
of FuelCell. Messrs. Nixon and Pukier are each partners of Stikeman Elliott LLP,
counsel to ExchangeCo. The officers of ExchangeCo are Jerry Leitman, President
and Joseph Mahler, Secretary/Treasurer.
102
BUSINESS OF GLOBAL
Global was originally incorporated as Global Thermoelectric Power Systems
Ltd. on March 10, 1975 and was continued under the Business Corporations Act
(Alberta) on December 30, 1983. On April 1, 1985, Global amalgamated with its
wholly-owned subsidiary, Rigtronics Systems Ltd. By Articles of Amendment dated
April 8, 1991, Global changed its name to Global Thermoelectric Inc.
On September 17, 2001, Global incorporated a Delaware corporation, Global
Thermoelectric Corporation, as a wholly-owned subsidiary. Global Thermoelectric
Corporation markets and sells thermoelectric generators in the United States and
has a sales office located in Houston, Texas. The head office and registered
office of Global is located at 4908 -- 52nd Street S.E. Calgary, Alberta T2B
3R2.
Global is focused on the development and commercialization of solid oxide
fuel cell products. It is also engaged in the development, manufacture and sale
of thermoelectric power generators for remote power applications.
Fuel cells combine hydrogen and oxygen electrochemically to produce
electricity, heat and water. Hydrogen is obtained from hydrocarbon fuels such as
natural gas, propane and gasoline. In the case of Global's fuel cells, these
hydrocarbon fuels can be used with minimal external "reforming." Utilizing
electrochemical reactions to produce electricity results in a more efficient use
of fuel while producing less environmentally harmful emissions such as nitrous
oxides. In addition, the scalability of fuel cell designs for distributed or
decentralized power production provides an economic alternative to large,
capital intensive power generation facilities. The ability to capture and
utilize the heat produced by the fuel cell also contributes to higher fuel
efficiencies. These advantages are important with the advent of deregulation
within the power industries of North America. Greater fuel efficiencies and fuel
cells' compatibility with a hydrogen fuel infrastructure also address concerns
related to energy security in the United States. Fuel cells can also be utilized
in transportation applications as replacements of, and supplements to, the
internal combustion engine.
Thermoelectric generators produce electricity directly from heat and are
utilized for remote power applications in the pipeline, oil and gas and
telecommunication industries. Global's common shares are listed for trading on
the Toronto Stock Exchange under the symbol "GLE."
A description of Global's business is contained in its Annual Information
Form for the year ended December 31, 2002, which is included in Annex I to this
Joint Proxy Statement. The Annual Information Form also includes Global's
audited financial statements for the period ended December 31, 2002, as well as
Global's Management's Discussion and Analysis thereon. Annex I also includes
Global's unaudited financial statements for the periods ended March 31 and June
30, 2003, as well as Global's Management's Discussion and Analysis thereon.
RECENT DEVELOPMENTS
Termination of Quantum Combination Agreement. Prior to the execution of
the Combination Agreement, on August 4, 2003 Global terminated the Quantum
Combination Agreement in accordance with its terms. Pursuant to the terms of the
Quantum Combination Agreement, Global paid Quantum a $2 million termination fee.
The termination of the Quantum Combination Agreement and payment of the $2
million termination fee were required for Global to pursue the Combination with
FuelCell and enter into the Combination Agreement.
SELECTED CONSOLIDATED FINANCIAL DATA OF GLOBAL
Set forth below is a summary of consolidated financial information with
respect to Global and its wholly-owned subsidiary, Global Thermoelectric
Corporation, at the dates and for the periods indicated prepared in accordance
with Canadian GAAP. The statement of operations data for the periods ended
December 31, 2000, 2001 and 2002 and the balance sheet data as at December 31,
2001 and 2002 have been derived from Global's audited financial statements
included in Global's Annual Information Form for the year ended December 31,
2002 included in Annex I in this Joint Proxy Statement. The statement of
operations data for the year ended March 31, 2000 and the balance sheet data as
at March 31, 2000 and December 31, 2000 have been derived
103
from audited financial statements not included in this Joint Proxy Statement.
The data for the year ended and as at March 31, 1999 have been derived from
unaudited financial statements not included in this Joint Proxy Statement. The
data for the six months ended June 30, 2002 and 2003 and as at June 30, 2003
have been derived from unaudited financial statements included in Global's
Interim Report for the quarter ended June 30, 2003 included in Annex I in this
Joint Proxy Statement. Historical financial information may not be indicative of
future performance of Global or the combined entity. The following selected
financial data should be read in conjunction with the financial statements and
related notes and "Global's Management's Discussion and Analysis" included in
Global's Annual Information Form for the year ended December 31, 2002 included
in Annex I of this Joint Proxy Statement and Interim Report for the period ended
June 30, 2003.
FOR THE NINE FOR THE FOR THE FOR THE SIX MONTH
FOR THE YEARS ENDED MONTHS ENDED YEARS ENDED YEARS ENDED PERIODS ENDED
MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
------------------- ------------ ------------ ------------ -------------------
1999 2000 2000 2001 2002 2002 2003
-------- -------- ------------ ------------ ------------ -------- --------
(THOUSANDS OF CDN.$, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenue from continuing
operations.................... $10,300 $18,534 $14,649 $ 15,357 $ 21,770 $ 9,906 $ 10,845
Revenue -- fuel cell contract
research...................... -- -- -- -- 541 -- 203
Gross margin -- generators...... 3,433 5,313 3,798 4,883 8,651 4,116 4,143
Investment income............... -- 444 3,605 5,911 2,899 1,418 1,338
Research, engineering and
development -- net............ 2,174 1,980 4,980 15,087 23,321 12,499 8,998
Net (loss) earnings from
continuing operations......... (1,052) 140 (1,967) (12,968) (24,543) (12,923) (14,081)
Per common share -- basic and
diluted..................... (0.08) 0.00 (0.09) (0.49) (0.89) (0.47) (0.51)
Discontinued operations, net of
income tax(1).................
(Loss) earnings from
discontinued operations..... (274) 112 (372) 433 137 -- --
Gain on sale of discontinued
operations.................. -- -- -- 744 -- -- --
Total discontinued operations,
net of income tax............. (274) 112 (372) 1,177 137 -- --
Per common share -- basic and
diluted..................... (0.02) 0.01 (0.01) 0.04 0.01 -- --
Net (loss) earnings............. (1,326) 252 (2,339) (11,791) (24,406) (12,923) (14,081)
Per common share -- basic and
diluted..................... (0.10) 0.01 (0.10) (0.45) (0.88) (0.47) (0.51)
Preferred share dividends....... 197 48 482 500 500 500 500
(1) In August 2001, Global sold the assets of its military heater business
segment to a U.S. purchaser. For reporting purposes, the results of
operations and the financial position of the business have been presented as
discontinued operations.
AS AT MARCH 31, AS AT DECEMBER 31, AS AT
----------------- ------------------------------ JUNE 30,
1999 2000 2000 2001 2002 2003
------- ------- -------- -------- -------- --------
(THOUSANDS OF CDN.$)
BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments.................................. $ -- $24,290 $135,300 $121,064 $ 95,306 $ 82,803
Total assets................................... 10,463 41,439 160,675 146,849 122,403 108,754
Long-term obligations.......................... 1,014 737 630 407 486 751
Shareholders' equity........................... 4,482 35,085 151,467 139,272 114,465 99,918
104
THE COMBINED COMPANY
Upon the completion of the Combination, the combined company will retain
the name "FuelCell Energy, Inc." and will be headquartered in Danbury,
Connecticut. The board of directors of FuelCell will be expanded to 12 voting
members, including a designee from Global. In addition, FuelCell may in its sole
discretion choose to appoint one additional nominee of Global, in which case,
FuelCell would increase the number of directors comprising its board
accordingly. On the effective date of the Combination, FuelCell's board of
directors will appoint an individual nominated by Global to serve on FuelCell's
expanded board of directors. Jerry D. Leitman, FuelCell's Chairman, President
and Chief Executive Officer, and Joseph G. Mahler, FuelCell's Senior
Vice-President and Chief Financial Officer, will lead the combined company in
these respective roles. Global will be operated as a consolidated subsidiary of
FuelCell.
FuelCell anticipates that the companies' respective alliance partners and
customers can be used to assist in the commercialization and funding of each
company's products, particularly FuelCell's existing relationships with
customers and U.S.-based governmental agencies. FuelCell anticipates that the
combined company will result in a more cost efficient, well-capitalized and
diversified company to address fuel cell power generation markets. In addition,
the combined company is expected to have complementary revenue streams across
established markets with an expanded technology profile and product portfolio as
an energy systems solution provider, leading to broader customer awareness,
industry leadership, branding and distribution opportunities.
FuelCell believes that the Combination will allow FuelCell and Global to
combine and integrate their research and development resources, complementary
distribution channels, products and technologies, strategic alliances and
customer bases, which is expected to lead to expanded markets, greater technical
resources, diversification and cost efficiencies. Following completion of the
Combination, the combined company will focus Global's solid oxide fuel cell
development efforts on fuel cell membranes and stacks, its core competencies,
consistent with Global's cost reduction initiatives over the past year. In
addition, the combined company expects to focus on fuel cell systems development
and integration to the extent that it is able to leverage FuelCell's system
engineering capabilities and obtain external funding for its system development
programs. FuelCell is continuing to evaluate Global's generator business to
determine its strategic fit within the combined company and has not made a
determination whether to retain or sell that business. Global may determine to
reduce its labor force, either before or after the effective date of the
Combination. Other than the Combination, FuelCell has no present plans or
proposals which relate to or would result in an extraordinary corporate
transaction such as a merger, reorganization, liquidation, a sale or transfer of
a material amount of assets or any other material changes to its corporate
structure or business.
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
At July 31, 2003, on a pro forma condensed combined basis, the combined
company had:
- total assets of $330 million;
- total cash and cash equivalents, and investments of $228 million;
- total stockholders' equity of $293 million;
- long-term debt and capital leases of $2 million;
- preferred shares of subsidiary of $8.4 million, representing the Global
Series 2 Preferred Shares remaining outstanding after the Combination;
and
- approximately 48,846,909 outstanding shares of common stock (assuming an
exchange ratio of 0.325 and excluding FuelCell common stock issuable upon
the exercise of options and warrants and conversion of Global Series 2
Preferred Shares).
105
For the nine months ended July 31, 2003, on a pro forma combined basis, the
combined company had:
- revenue of $38 million;
- net loss of $68 million; and
- basic and diluted loss per share of $(1.39).
For a discussion of the assumptions underlying this pro forma condensed
combined financial information, please see "-- Unaudited Pro Forma Condensed
Combined Financial Statements" on page 110.
MANAGEMENT OF THE COMBINED COMPANY AFTER THE COMBINATION
For information concerning FuelCell's current board members, see Annex H.
As of September 24, 2003, the current directors and officers of FuelCell
beneficially owned approximately 5,343,123 shares of FuelCell common stock,
constituting approximately 12.78% of the outstanding FuelCell common stock as of
such date and no Global common shares. Based upon their beneficial ownership of
Global common shares as of September 24, 2003, the directors and officers of
Global will own or control, directly or indirectly, after the completion of the
Combination, approximately 91,249 shares of FuelCell common stock (assuming an
exchange ratio of 0.279). Beneficial ownership of Global directors and officers
does not include shares issuable upon the exercise of vested options.
FISCAL YEAR
The fiscal year of the combined company will be November 1 through October
31 of each year.
CAPITALIZATION
The following table sets forth FuelCell's capitalization as of July 31,
2003:
- on an actual basis; and
- on a pro forma basis as adjusted to reflect the issuance by FuelCell of
9,490,276 shares of its common stock to Global common shareholders in
connection with the Combination (based on 29,200,850 Global common shares
outstanding as of August 4, 2003), and the assumption by FuelCell of the
obligations to issue its common stock upon conversion of the Global
Series 2 Preferred Shares; and on a pro forma basis as adjusted to
reflect the purchase price allocation for the Combination.
JULY 31, 2003
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
(THOUSANDS OF U.S.$)
Cash, cash equivalents and investments (U.S. Treasuries).... $ 168,577 $ 228,365
========= =========
Long-term debt and capital leases........................... 1,879 2,063
Preferred shares of subsidiary, 0 shares authorized and
issued (actual), 1,000,000 shares authorized, issued and
outstanding (pro forma as adjusted)....................... -- 8,400
Stockholders' equity:
Preferred stock, par value $0.01 per share, 250,000,
shares authorized; 0 shares issued and outstanding..... -- --
Common stock, $0.0001 par value, 150,000,000 shares
authorized (actual); 39,356,633 shares issued and
outstanding (actual); 48,846,909 shares issued and
outstanding (pro forma as adjusted).................... 4 5
Additional paid-in capital.................................. 340,065 413,091
Accumulated deficit......................................... (120,098) (120,098)
--------- ---------
Total capitalization................................... $ 221,850 $ 303,461
========= =========
106
The pro forma as adjusted capitalization information is based on the
financial statements of FuelCell as of July 31, 2003 and of Global as of June
30, 2003 and assumes an exchange ratio of 0.325. The preceding table does not
include:
- 2,900,000 shares of FuelCell common stock issuable upon exercise of
warrants outstanding on July 31, 2003 at a weighted average exercise
price of $30.06 per share;
- 5,361,766 shares of FuelCell common stock subject to outstanding options
as of July 31, 2003 at a weighted average exercise price of $10.01 per
share;
- 465,844 additional shares of FuelCell common stock reserved for future
issuance under FuelCell's Section 423 Stock Purchase Plan;
- 1,692,872 additional shares of FuelCell common stock available for future
grant under FuelCell's 1998 Equity Incentive Plan;
- 424,783 shares of FuelCell common stock issuable upon exercise of Global
stock options to be assumed by FuelCell in connection with the
Combination at a weighted average exercise price of approximately $6.18
per share (based on options to purchase 1,307,025 Global common shares
outstanding as of August 4, 2003, and assuming a currency exchange rate
of Cdn.$1.4048 to U.S.$1.00); and
- shares of FuelCell common stock issuable upon conversion of the Global
Series 2 Preferred Shares. Please see "Chapter One -- The
Combination -- Description of the Combination -- Mechanics for
Implementing of the Combination and Description of Exchangeable
Shares -- Global Series 2 Preferred Shares" for a description of the
conversion rights of the Global Series 2 Preferred Shares.
COMPARATIVE MARKET PRICE DATA
FuelCell's common stock has been traded on the Nasdaq National Market under
the symbol "FCEL" since June 7, 2000. Global common shares trade on the Toronto
Stock Exchange under the symbol "GLE." The table below sets forth, for the
periods indicated, the high and low daily sales prices for FuelCell common stock
and Global common shares as reported in published financial sources.
FUELCELL
-----------------
HIGH LOW
------- -------
(U.S.$) (U.S.$)
FISCAL YEAR ENDED OCTOBER 31, 2001
Quarter ended January 31.................................... $41.75 $22.63
Quarter ended April 30...................................... 36.25 19.25
Quarter ended July 31....................................... 46.72 15.50
Quarter ended October 31.................................... 20.45 10.48
FISCAL YEAR ENDED OCTOBER 31, 2002
Quarter ended January 31.................................... 22.80 13.23
Quarter ended April 30...................................... 18.65 15.02
Quarter ended July 31....................................... 17.24 6.10
Quarter ended October 31.................................... 8.24 4.54
FISCAL YEAR ENDED OCTOBER 31, 2003
Quarter ended January 31.................................... 9.41 5.25
Quarter ended April 30...................................... 6.45 5.00
Quarter ended July 31....................................... 9.10 7.91
August 1 through September 30............................... 14.34 6.76
107
GLOBAL
-----------------
HIGH LOW
------- -------
(CDN.$) (CDN.$)
FISCAL YEAR ENDED DECEMBER 31, 2001
Quarter ended March 31...................................... $24.80 $13.05
Quarter ended June 30....................................... 20.89 12.46
Quarter ended September 30.................................. 17.50 5.01
Quarter ended December 31................................... 10.40 5.50
FISCAL YEAR ENDED DECEMBER 31, 2002
Quarter ended March 31...................................... 7.94 6.05
Quarter ended June 30....................................... 7.39 3.50
Quarter ended September 30.................................. 3.80 1.45
Quarter ended December 31................................... 2.77 1.48
FISCAL YEAR ENDED DECEMBER 31, 2003
Quarter ended March 31...................................... 2.85 2.10
Quarter ended June 30....................................... 2.83 2.20
July 1 through July 31...................................... 3.44 2.65
August 1 through August 31.................................. 3.99 2.99
September 1 through September 30............................ 4.80 3.61
On the last trading day before the public announcement by Global and
FuelCell of the Combination, which last trading day was August 1, 2003 for
Global and August 4, 2003 for FuelCell, Global common shares closed at Cdn.$3.45
(approximately U.S.$2.46) on the Toronto Stock Exchange and shares of FuelCell
common stock closed at $7.47 on the Nasdaq National Market. The 20-day
volume-weighted average trading price ending on August 4, 2003 for shares of
FuelCell common stock was approximately $8.3639. On September 30, 2003, the
closing price of the Global common shares was Cdn.$4.25 on the Toronto Stock
Exchange and the closing price of the shares of FuelCell common stock was $11.70
on the Nasdaq National Market. The table above shows only historical
comparisons. Because the market prices of FuelCell common stock and Global
common shares will likely fluctuate prior to the Combination, these comparisons
may not provide meaningful information, and the market value of the FuelCell
common stock that FuelCell will issue to holders of Global common shares
pursuant to the Combination may increase or decrease prior to the effective date
of the Combination. You are encouraged to obtain current market quotations for
FuelCell common stock and Global common shares and to review carefully the other
information contained in this Joint Proxy Statement.
On September 24, 2003, there were 39,375,633 outstanding shares of FuelCell
common stock and there were approximately 705 holders of record.
On September 24, 2003, 29,201,450 Global common shares were outstanding and
there were approximately 154 holders of record.
FuelCell has never declared or paid any cash dividends on its common stock
and does not anticipate paying any cash dividends in the foreseeable future.
Global has never declared or paid any cash dividends on its common shares.
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES
The financial information regarding Global, including the Global audited
consolidated financial statements contained in Global's Annual Information Form
for the year ended December 31, 2002 included in Annex I, Global's Interim
Report for the quarter ended June 30, 2003 included in Annex I, and the Global
unaudited financial statements and the summaries thereof contained in this Joint
Proxy Statement are reported, unless otherwise noted, in Canadian dollars and
have been prepared in accordance with Canadian
108
GAAP. Note 18 to the December 31, 2002 audited consolidated financial statements
(in Global's Annual Information Form for the year ended December 31, 2002
included in Annex I) provides a reconciliation of the measurement differences
between Global's financial statements and U.S. GAAP. The financial information
regarding FuelCell, including the FuelCell audited financial statements, the
FuelCell unaudited financial statements and the summaries thereof contained in
this Joint Proxy Statement are reported in U.S. dollars and have been prepared
in accordance with U.S. GAAP. The FuelCell unaudited pro forma combined
condensed financial statements included elsewhere in this Joint Proxy Statement
are reported in U.S. dollars and have been prepared in accordance with U.S.
GAAP.
For each period indicated, the following table provides the high and low
exchange rates for one Canadian dollar expressed in U.S. dollars, the average of
these exchange rates on the last day of each month during the period, and the
exchange rate at the end of the period, based upon the noon buying rate in New
York City for cable transfers in Canadian dollars, as certified for customer
purposes by the Federal Reserve Bank of New York:
TWELVE-MONTH PERIOD ENDED DECEMBER 31,
------------------------------------------
2002 2001 2000 1999 1998
------ ------ ------ ------ ------
High...................................... 0.6691 0.6697 0.6969 0.6925 0.7105
Low....................................... 0.6200 0.6254 0.6410 0.6535 0.6341
Average................................... 0.6368 0.6442 0.6732 0.6738 0.6740
Period End................................ 0.6329 0.6260 0.6664 0.6925 0.6504
On September 24, 2003, the exchange rate for one Canadian dollar expressed
in U.S. dollars based on the noon buying rate of the Federal Reserve Bank of New
York was $0.7384.
For each period indicated, the following table provides the high and low
exchange rates for one U.S. dollar expressed in Canadian dollars, the average of
these exchange rates during such period, and the exchange rate at the end of
such period, based upon the noon buying rate of the Bank of Canada:
TWELVE-MONTH PERIOD ENDED DECEMBER 31,
------------------------------------------
2002 2001 2000 1999 1998
------ ------ ------ ------ ------
High...................................... 1.6132 1.6021 1.5593 1.5298 1.5765
Low....................................... 1.5110 1.4936 1.4341 1.4433 1.4075
Average................................... 1.5703 1.5484 1.4852 1.4858 1.4884
Period End................................ 1.5796 1.5926 1.5002 1.4433 1.5305
On September 24, 2003, the exchange rate for one U.S. dollar expressed in
Canadian dollars based on the noon spot rate was Cdn.$1.3543.
109
COMPILATION REPORT ON PRO FORMA FINANCIAL STATEMENTS
The Board of Directors
FuelCell Energy, Inc.:
We have read the accompanying unaudited pro forma condensed combined
balance sheet of FuelCell Energy, Inc. as of July 31, 2003 and the unaudited pro
forma condensed combined statements of operations for the year ended October 31,
2002 and for the nine months ended July 31, 2003 and performed the following
procedures:
1. Compared the figures in the columns captioned "FuelCell" to the unaudited
financial statements of the Company as at July 31, 2003 and for the nine
months then ended, and the audited financial statements of the Company for
the year ended October 31, 2002, respectively, and found them to be in
agreement.
2. Compared the figures in the columns captioned "Global" to the unaudited
financial statements of Global as at June 30, 2003 and for the nine months
then ended and the unaudited financial statements of Global for the year
ended December 31, 2002, respectively, and found them to be in agreement.
3. Made enquiries of certain officials of the Company who have responsibility
for financial and accounting matters about:
a. the basis for determination of the pro forma adjustments; and
b. whether the pro forma financial statements comply as to form in all
material respects with accounting principles generally accepted in the
United States of America.
The officials:
a. described to us the basis for determination of the pro forma
adjustments, and
b. stated that the pro forma statements comply as to form in all material
respects with accounting principles generally accepted in the United
States of America.
4. Read the notes to the pro forma statements, and found them to be consistent
with the basis described to us for determination of the pro forma
adjustments.
5. Recalculated the application of the pro forma adjustments to the aggregate
of the amounts in the columns captioned "FuelCell" and "Global" as at July
31, 2003 and for the nine months then ended, and for the year ended October
31, 2002, and found the amounts in the column captioned "Pro Forma" to be
arithmetically correct.
A pro forma financial statement is based on management assumptions and
adjustments, which are inherently subjective. The foregoing procedures are
substantially less than either an audit or a review, the objective of which is
the expression of assurance with respect to management's assumptions, the pro
forma adjustments, and the application of the adjustments to the historical
financial information. Accordingly, we express no such assurance. The foregoing
procedures would not necessarily reveal matters of significance to the pro forma
financial statements, and we therefore make no representation about the
sufficiency of the procedures for the purposes of a reader of such statements.
Hartford, CT KPMG LLP
September 30, 2003 Certified Public Accountants
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
OF FUELCELL ENERGY, INC.
The following unaudited pro forma condensed combined balance sheet as of
July 31, 2003 and the unaudited pro forma condensed combined statement of
operations for the year ended October 31, 2002 and nine months ended July 31,
2003 are based on the historical financial statements of FuelCell and Global
after giving effect to the Combination as a purchase of Global by FuelCell using
the purchase method of accounting
110
and the assumptions and adjustments described in the accompanying notes to the
unaudited pro forma condensed combined financial statements.
The pro forma information is based on preliminary estimates and assumptions
set forth in the notes to such information. The pro forma information is
preliminary and is being furnished solely for informational purposes and is not
necessarily indicative of the combined results of operations or financial
position that might have been achieved for the period or date indicated, nor is
it necessarily indicative of future results that may occur. It does not reflect
cost savings expected to be realized from the elimination of certain expenses
and from the synergies to be created or the costs to implement such cost savings
or synergies. No assurance can be given that operating cost savings and
synergies will be realized.
Pro forma adjustments are necessary to reflect the estimated purchase
price, the new capital structure and to adjust amounts related to Global's net
tangible and intangible assets to a preliminary estimate of their fair values.
Pro forma adjustments are also necessary to reflect the amortization expense
related to amortizable intangible assets, changes in depreciation and
amortization expense resulting from fair value adjustments to net tangible
assets, certain transaction costs, stock compensation, dividends on cumulative
redeemable convertible preferred shares of Global and the income tax effect
related to the pro forma adjustments.
The pro forma adjustments and allocation of purchase price are preliminary
and are based in part on estimates of the fair value of the assets acquired and
liabilities assumed. Management in determining purchase price allocations has
considered a number of factors, including preliminary valuations.
The final purchase price allocation will be completed after asset and
liability valuations are finalized by management. A final determination of these
fair values, which cannot be made prior to the completion of the Combination,
will include management's consideration of all pertinent factors. This final
valuation will be based on the actual net tangible and intangible assets of
Global that exist as of the date of the completion of the Combination. Any final
adjustments may change the allocations of purchase price which could affect the
fair value assigned to the assets and liabilities and could result in a change
to the unaudited pro forma condensed combined financial statements. Amounts
preliminarily allocated to intangible assets with indefinite lives may
significantly decrease or be eliminated and amounts allocated to intangible
assets with definite lives may increase significantly, which could result in a
material increase in amortization of intangible assets. In addition, the impact
of ongoing integration activities, the timing of the completion of the
Combination and other changes in Global's net tangible and intangible assets
prior to completion of the Combination could cause material differences in the
information presented.
The unaudited pro forma condensed combined balance sheet as of July 31,
2003 is presented as if the Combination had been completed on July 31, 2003 and,
due to different fiscal period ends, combines the historical balance sheet of
FuelCell at July 31, 2003 and the historical balance sheet of Global at June 30,
2003.
The unaudited pro forma condensed combined statement of operations of
FuelCell and Global for the year ended October 31, 2002 is presented as if the
Combination had been completed on November 1, 2001 and, due to different fiscal
period ends, combines the historical results of FuelCell for the year ended
October 31, 2002 and the historical results of Global for the twelve months
ended December 31, 2002. The unaudited pro forma condensed combined statement of
operations of FuelCell and Global for the nine months ended July 31, 2003 is
presented as if the Combination had been completed on November 1, 2002 and, due
to different fiscal period ends, combines the historical results of FuelCell for
the nine months ended July 31, 2003 and the historical results of Global for the
nine months ended June 30, 2003.
The historical results of Global for the nine month period ended June 30,
2003 were calculated as the historical results of Global for its fiscal year
ended December 31, 2002 less the results for the nine month period ended
September 30, 2002, plus the results for the six month period ended June 30,
2003.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with FuelCell's historical consolidated financial statements
and accompanying notes for its fiscal year ended October 31, 2002 and the nine
month period ended July 31, 2003 included elsewhere in this Joint Proxy
Statement and Global's historical financial statements in Annex I for its fiscal
year ended December 31, 2002
111
and the six months ended June 30, 2003. The unaudited pro forma condensed
combined financial statements are not intended to represent or be indicative of
the consolidated results of operations or financial condition of the combined
company that would have been reported had the Combination been completed as of
the dates presented, and should not be taken as representative of the future
consolidated results of operations or financial condition of the combined
company.
Global's historical consolidated financial statements are prepared in
accordance with Canadian GAAP, which differs in certain respects from U.S. GAAP.
Note 18 to Global's December 31, 2002 audited consolidated financial statements
(in Global's Annual Information Form for the year ended December 31, 2002
included in Annex I) provides a reconciliation of the measurement differences
between Global's financial statements and U.S. GAAP. For the purposes of
presenting the selected unaudited pro forma combined financial information,
financial information relating to Global has been adjusted to conform to U.S.
GAAP.
There were no intercompany balances or transactions between FuelCell and
Global. No material pro forma adjustments were required to conform Global's
accounting policies to FuelCell's accounting policies. Reclassifications have
been made to conform Global's historical amounts to FuelCell's presentation.
FuelCell has not yet identified any pre-Combination contingencies where the
related asset, liability or impairment is probable and the amount of the asset,
liability or impairment can be reasonably estimated. Upon completion of the
Combination and prior to the end of the purchase price allocation period, if
information becomes available which would indicate it is probable that such
events have occurred and the amounts can be reasonably estimated, such items
will be included in the final purchase price allocation.
112
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET OF
FUELCELL ENERGY, INC.
AND GLOBAL THERMOELECTRIC INC.
AS OF JULY 31, 2003
U.S. GAAP -- (U.S.$ IN THOUSANDS)
FUELCELL GLOBAL
JULY 31, JUNE 30, PRO FORMA
2003 2003(A) ADJUSTMENTS PRO FORMA
--------- --------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents................... $ 65,670 $ 57,792 $ (1,700)(b) $ 121,762
Short-term investments...................... 86,671 3,657 90,328
Accounts receivable, net.................... 7,264 2,484 9,748
Inventories................................. 15,699 3,390 83(c) 19,172
Other current assets........................ 3,111 371 3,482
--------- -------- -------- ---------
Total current assets..................... 178,415 67,694 (1,617) 244,492
--------- -------- -------- ---------
Property, plant and equipment, net............ 39,712 12,975 214(d) 52,901
Long-term investments......................... 16,236 39 16,275
Intangible assets............................. -- -- 2,600(e) 2,600
Goodwill...................................... -- -- 12,215(b) 12,215
Other assets, net............................. 1,764 -- 1,764
--------- -------- -------- ---------
Total assets............................. $ 236,127 $ 80,708 $ 13,412 $ 330,247
========= ======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........... $ 317 $ 36 $ $ 353
Accounts payable............................ 3,951 629 4,580
Accrued liabilities......................... 5,677 5,334 6,137(f) 17,148
Deferred license fee income................. 113 -- 113
Customer advances........................... 4,536 -- 4,536
--------- -------- -------- ---------
Total current liabilities................ 14,594 5,999 6,137 26,730
--------- -------- -------- ---------
Long-term debt.............................. 1,562 148 1,710
Site restoration............................ -- 409 409
--------- -------- -------- ---------
Total liabilities........................ 16,156 6,556 6,137 28,849
--------- -------- -------- ---------
Commitments and contingencies
Preferred shares of subsidiary................ -- -- 8,400(b) 8,400
Shareholders' equity:
Preferred stock............................... -- 18,007 (18,007)(g) --
Common stock.................................. 4 99,983 (99,982)(g) 5
Additional paid-in capital.................... 340,065 538 72,488(g) 413,091
Accumulated deficit........................... (120,098) (39,747) 39,747(g) (120,098)
Cumulative translation adjustment............. -- (4,629) 4,629(g) --
--------- -------- -------- ---------
219,971 74,152 (1,125) 292,998
--------- -------- -------- ---------
$ 236,127 $ 80,708 $ 13,412 $ 330,247
========= ======== ======== =========
See accompanying notes.
113
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(a) Certain reclassifications have been made to the historical presentation
of Global in order to conform to the pro forma condensed combined presentation.
The Global assets, liabilities and equity have been translated to U.S. dollars
based upon the U.S. to Canadian conversion rate as of June 30, 2003.
(b) Under the purchase method of accounting, the total estimated
consideration as shown in the table below is allocated to Global's tangible and
intangible assets and liabilities based on their estimated fair values as of the
date of the completion of the Combination. The preliminary estimated
consideration is allocated as follows (U.S.$ in thousands):
CALCULATION OF CONSIDERATION
Purchase of Global common shares(1)....................... $70,892
Estimated direct transaction fees and expenses(2)......... 1,700
Assumption of Global stock options(3)..................... 2,135
Assumption of Global Series 2 Preferred Shares(4)......... 8,400
-------
Total consideration....................................... $83,127
=======
PRELIMINARY ALLOCATION OF CONSIDERATION
Global book value of net assets........................... 74,152
-------
Initial purchase allocation adjustment.................... $ 8,975
Less adjustments to historical net book values:
Inventories (note c)...................................... 83
Net equipment and leasehold improvements (note d)......... 214
Intangible assets (note e)................................ 2,600
Change of control obligations (note f).................... (1,815)
Quantum termination fee (note f).......................... (2,000)
Global transaction costs (note f)......................... (2,322)
-------
Adjustment to goodwill................................. $12,215
=======
---------------
(1) Represents the value of 9,490,276 shares of FuelCell common stock to be
issued to Global common shareholders based on the closing price of
FuelCell common stock on August 4, 2003 of $7.47 per share and the pro
forma exchange ratio. The pro forma exchange ratio has been determined
by dividing $2.72 by $8.3639, the 20-day daily volume-weighted average
FuelCell stock price ended August 4, 2003. The actual exchange ratio
will be determined by dividing $2.72 by the 20-day daily
volume-weighted average FuelCell stock price ending three days prior to
the Global Meeting and will range between 0.279 and 0.342 shares of
FuelCell common stock or exchangeable shares for each Global common
share. The actual amount of FuelCell common stock and exchangeable
shares received by Global common shareholders could materially differ
based on the variable exchange ratio structure.
The actual amount and value of FuelCell common stock and exchangeable
shares issued as consideration to Global shareholders may materially
affect the amount of intangible assets and goodwill recognized.
(2) Represents FuelCell's estimated direct Combination costs, including
financial advisory, legal, accounting and other costs.
(3) Represents the estimated fair value of Global stock options outstanding
as of August 4, 2003 assumed by FuelCell as valued under the
Black-Scholes options pricing model.
(4) Represents the estimated value of the Global Series 2 Preferred Shares
that will remain preferred shares of Global following the Combination.
Such value has been preliminarily determined by FuelCell's management
after consideration of a number of factors, including preliminary
valuations
114
incorporating a discounted cash flow approach. The final determination
of value by management may differ materially from this preliminary
allocation.
(c) Represents the estimated purchase accounting adjustment to capitalized
manufacturing profit in inventory. This amount was estimated as part of the
initial assessment of the fair value of assets acquired and liabilities assumed.
The amount ultimately allocated to inventory may differ materially from this
preliminary allocation. No tax effect considerations have been reflected due to
the uncertainty concerning the realizability of the net deferred tax assets and
the resulting tax assets or liabilities resulting from the Combination.
(d) Represents the estimated adjustments required to record Global's net
equipment and leasehold improvements at its estimated fair value. This
adjustment is preliminary and is based on management's estimates. The actual
adjustment may differ materially and will be based on final valuations. No tax
effect considerations have been reflected due to the uncertainty concerning the
realizability of the net deferred tax assets and the resulting tax assets or
liabilities resulting from the Combination.
(e) Of the total estimated purchase price, a preliminary estimate of
approximately $2.6 million has been allocated to amortizable intangible assets
acquired. Amortizable intangible assets consists of $1.7 million allocated to
customer relationships to be amortized over five years and $0.9 million
allocated to backlog to be amortized over one year. This adjustment is
preliminary and is based on management's estimates and the preliminary work of
independent appraisers. The actual adjustment may differ materially and will be
based on final valuations. No tax effect considerations have been reflected due
to the uncertainty concerning the realizability of the net deferred tax assets
and the resulting tax assets or liabilities resulting from the Combination.
(f) Represents the estimated obligation for change of control payments of
approximately $1.8 million to certain Global senior executives, the Quantum
termination fee of $2 million and estimated direct Combination costs of $2.3
million, including financial advisory, legal, accounting and other costs not
accrued in Global's June 30, 2003 balance sheet. No tax effect considerations
have been reflected due to the uncertainty concerning the realizability of the
net deferred tax assets and the resulting tax assets or liabilities resulting
from the Combination.
(g) Represents adjustments to reflect the elimination of the components of
the historical equity of Global totaling $74.2 million, the issuance of $70.9
million of new FuelCell common stock, and $2.1 million for the estimated value
of Global's stock options to be assumed by FuelCell.
115
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS OF FUELCELL
ENERGY, INC.
AND GLOBAL THERMOELECTRIC INC.
YEAR ENDED OCTOBER 31, 2002
U.S. GAAP -- (U.S.$ IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
FUELCELL GLOBAL
OCTOBER 31, DECEMBER 31, PRO FORMA
2002 2002(A) ADJUSTMENTS PRO FORMA
----------- ------------ ----------- -----------
REVENUES
Research and development contracts..... $ 33,575 $ 346 $ $ 33,921
Product sales and revenues............. 7,656 13,922 21,578
----------- -------- ------- -----------
Total revenues...................... 41,231 14,268 -- 55,499
COSTS AND EXPENSES
Cost of research and development
contracts........................... 45,664 492 46,156
Cost of product sales and revenues..... 32,129 8,683 1,303(b) 42,115
Administrative and selling expenses.... 10,451 6,519 16,970
Research and development costs......... 6,806 15,841 22,647
----------- -------- ------- -----------
Total costs and expenses............ 95,050 31,535 1,303 127,888
----------- -------- ------- -----------
Loss from operations................... (53,819) (17,267) (1,303) (72,389)
License fee income, net................ 270 -- 270
Interest expense....................... (160) (19) (179)
Interest and other income, net......... 4,876 1,854 6,730
Minority interest of preferred shares
of Global........................... -- -- (844)(c) (844)
----------- -------- ------- -----------
Loss from continuing operations before
provision for income taxes.......... (48,833) (15,432) (2,147) (66,412)
Provision for income taxes............. 7 266 273
----------- -------- ------- -----------
Loss from continuing operations........ (48,840) (15,698) (2,147) (66,685)
Discontinued operations, net of income
taxes............................... -- 88 88
----------- -------- ------- -----------
Net loss before dividends on preferred
shares.............................. (48,840) (15,610) (2,147) (66,597)
Dividends on preferred shares.......... -- (844) 844(c) --
----------- -------- ------- -----------
Net loss applicable to common stock.... $ (48,840) $(16,454) $(1,303) $ (66,597)
=========== ======== ======= ===========
LOSS PER SHARE
Basic and diluted loss per share....... $ (1.25) $ (1.37)
=========== ===========
Basic and diluted shares
outstanding(d)...................... 39,135,256 48,625,532
=========== ===========
See accompanying notes.
116
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
(a) Global's historical consolidated financial statements are prepared in
accordance with Canadian GAAP, which differs in certain respects from U.S. GAAP.
Note 18 to Global's December 31, 2002 audited consolidated financial statements
(in Global's Annual Information Form for the year ended December 31, 2002
included in Annex I) provides a reconciliation of the measurement differences
between Global's financial statements and U.S. GAAP. Global's statement of
operations for the year ended December 31, 2002, has been translated to U.S.
dollars based on the average U.S. to Canadian conversion rate for the year.
Reclassifications have been made to the historical presentation of Global
in order to conform to the pro forma combined presentation.
(b) Represents pro forma adjustment to reflect incremental depreciation and
amortization resulting from fair value adjustments to net equipment and
leasehold improvements and amortizable intangible assets as illustrated below.
This adjustment is preliminary and based on management's estimates of the fair
value. The actual adjustment may differ materially and will be based on final
valuations.
ANNUAL GLOBAL HISTORICAL
DEPRECIATION AND DEPRECIATION AND
FAIR VALUE USEFUL LIFE AMORTIZATION AMORTIZATION INCREASE
---------- ----------- ---------------- ----------------- --------
(THOUSANDS IN U.S.$)
Net equipment and leasehold
improvements................... $12,458 Various $1,969 $1,906 $ 63
Amortizable intangibles:
Customer relationships......... 1,700 5 340 -- 340
Backlog........................ 900 1 900 -- 900
------
Net adjustment to depreciation
and amortization............... $1,303
======
(c) Represents Global preferred stock dividends paid and in arrears based
on a 5% dividend rate subject to additional rate adjustments for dividends not
paid during the period.
(d) The pro forma basic and diluted weighted average number of shares are
calculated by adding FuelCell's weighted average basic shares outstanding and
the number of Global common shares outstanding as of the date the Combination
was announced multiplied by an assumed exchange ratio of 0.325 (the exchange
ratio as of August 4, 2003).
117
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
OF FUELCELL ENERGY, INC.
AND GLOBAL THERMOELECTRIC INC.
NINE MONTHS ENDED JULY 31, 2003
U.S. GAAP -- (U.S.$ IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
FUELCELL GLOBAL
JULY 31, JUNE 30, PRO FORMA
2003 2003(A) ADJUSTMENTS PRO FORMA
----------- --------- ----------- -----------
REVENUES
Research and development contracts....... $ 14,312 $ 195 $ $ 14,507
Product sales and revenues............... 12,157 11,294 23,451
----------- -------- ------- -----------
Total revenues........................ 26,469 11,489 -- 37,958
COSTS AND EXPENSES
Cost of research and development
contracts............................. 28,365 253 28,618
Cost of product sales and revenues....... 38,232 7,648 977(b) 46,857
Administrative and selling expenses...... 9,590 4,336 13,926
Research and development costs........... 6,050 10,618 16,668
Other expenses:
Corporate transaction costs........... -- 2,596 2,596
Corporate restructuring costs......... -- 846 846
Site restoration costs................ -- 654 654
----------- -------- ------- -----------
Total costs and expenses............ 82,237 26,951 977 110,165
----------- -------- ------- -----------
Loss from operations..................... (55,768) (15,462) (977) (72,207)
License fee income, net.................. 203 -- 203
Interest expense......................... (102) (8) (110)
Interest and other income, net........... 3,633 1,364 4,997
Minority interest of preferred shares of
Global................................ -- -- (716)(c) (716)
----------- -------- ------- -----------
Loss from continuing operations before
provision for income taxes............ (52,034) (14,106) (1,693) (67,833)
Provision for income taxes............... -- 68 68
----------- -------- ------- -----------
Loss from continuing operations.......... (52,034) (14,174) (1,693) (67,901)
Discontinued operations, net of income
taxes................................. -- 88 88
----------- -------- ------- -----------
Net loss before dividends on preferred
shares................................ (52,034) (14,086) (1,693) (67,813)
Dividends on preferred shares............ -- (716) 716(c) --
----------- -------- ------- -----------
Net loss applicable to common stock...... $ (52,034) $(14,802) $ (977) $ (67,813)
=========== ======== ======= ===========
LOSS PER SHARE
Basic and diluted loss per share......... $ (1.32) $ (1.39)
=========== ===========
Basic and diluted shares
outstanding(d)........................ 39,328,881 48,819,157
=========== ===========
See accompanying notes.
118
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
(a) Global's historical consolidated financial statements are prepared in
accordance with Canadian GAAP, which differs in certain respects from U.S. GAAP.
Note 18 to Global's December 31, 2002 audited consolidated financial statements
(in Global's Annual Information Form for the year ended December 31, 2002
included in Annex I) provides a reconciliation of the measurement differences
between Global's financial statements and U.S. GAAP. The Global statement of
operations for the nine months ended June 30, 2003 has been translated to U.S.
dollars based on the average U.S. to Canadian conversion rate for the nine month
period.
Reclassifications have been made to the historical presentation of Global
in order to conform to the pro forma combined presentation.
(b) Represents pro forma adjustment to reflect incremental depreciation and
amortization resulting from fair value adjustments to net equipment and
leasehold improvements and amortizable intangible assets as illustrated below.
This adjustment is preliminary and based on management's estimates of the fair
value. The actual adjustment may differ materially and will be based on final
valuations.
NINE MONTHS GLOBAL HISTORICAL
DEPRECIATION AND DEPRECIATION AND
FAIR VALUE USEFUL LIFE AMORTIZATION AMORTIZATION INCREASE
---------- ----------- ---------------- ----------------- --------
(U.S.$ IN THOUSANDS)
Net equipment and leasehold
improvements................... $12,458 Various $1,632 $1,585 $ 47
Amortizable intangibles:
Customer relationships......... 1,700 5 225 -- 255
Backlog........................ 900 1 675 -- 675
----
Net adjustment to depreciation
and amortization............... $977
====
(c) Represents Global preferred stock dividends paid and in arrears based
on a 5% dividend rate subject to additional rate adjustments for dividends not
paid during the period.
(d) The pro forma basic and diluted weighted average number of shares are
calculated by adding FuelCell's weighted average basic shares outstanding as of
July 31, 2003 and the number of shares of Global common shares outstanding as of
the date the Combination was announced multiplied by an assumed exchange ratio
of 0.325 (the exchange ratio as of August 4, 2003).
119
CHAPTER THREE -- DESCRIPTION OF FUELCELL'S CAPITAL STOCK,
GLOBAL'S PREFERRED SHARES AND EXCHANGECO
AND CALLCO SHARE CAPITAL
FUELCELL CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Under FuelCell's Certificate of Incorporation, as amended (the "FuelCell
Charter"), FuelCell has authority to issue a total 150,000,000 shares of common
stock and 250,000 shares of preferred stock.
As of August 4, 2003, there were 39,329,251 shares of FuelCell common stock
outstanding held by approximately 691 holders of record. As of August 4, 2003,
there were also warrants outstanding to purchase an aggregate of 2,900,000
shares of FuelCell's common stock.
The following is a summary of the material features of FuelCell's capital
stock. The following summary does not purport to be complete and is subject to,
and qualified in its entirety by, the provisions of the FuelCell Charter and
FuelCell's bylaws, and by the provisions of applicable law.
COMMON STOCK
Holders of FuelCell common stock are entitled to one vote for each share on
all matters voted on by stockholders. Holders of FuelCell common stock do not
have cumulative voting rights in the election of directors.
Holders of FuelCell common stock do not have subscription, redemption or
conversion privileges. Subject to the preferences or other rights of any
preferred stock that may be issued from time to time, holders of FuelCell common
stock are entitled to participate ratably in dividends on FuelCell common stock
as declared by FuelCell's board of directors. Holders of FuelCell common stock
are entitled to share ratably in all assets available for distribution to
stockholders in the event of liquidation or dissolution of FuelCell, subject to
distribution of the preferential amount, if any, to be distributed to holders of
preferred stock. No holder of any of FuelCell capital stock has any preemptive
right to subscribe for or purchase any of FuelCell securities of any class or
kind.
PREFERRED STOCK
The FuelCell Charter authorizes the board of directors, without any vote or
action by the holders of FuelCell common stock, to issue up to 250,000 shares of
preferred stock from time to time in one or more series. FuelCell's board of
directors is authorized to determine the number of shares and designation of any
series of preferred stock and the dividend rights, dividend rate, conversion
rights and terms, voting rights (full or limited, if any), redemption rights and
terms, liquidation preferences and sinking fund terms of any series of preferred
stock. Issuances of preferred stock would be subject to the applicable rules of
the Nasdaq National Market or other organizations on whose systems FuelCell's
stock may then be quoted or listed. Depending upon the terms of preferred stock
established by FuelCell's board of directors, any or all series of preferred
stock could have preference over FuelCell's common stock with respect to
dividends and other distributions and upon liquidation of FuelCell. Issuance of
any such shares with voting powers, or issuance of additional shares of FuelCell
common stock, would dilute the voting power of FuelCell's outstanding common
stock.
FuelCell has no present plans to issue any preferred stock, except for the
issuance of the special voting share to be issued in connection with the
Combination under the Voting and Exchange Trust Agreement. Under that agreement,
FuelCell will issue to the trustee a special voting share entitling the trustee
to a number of votes at meetings of holders of FuelCell common stock equal to
the number of exchangeable shares issued and outstanding (other than
exchangeable shares held by FuelCell and its affiliates). FuelCell will issue
the voting share to the trustee to enable the holders of exchangeable shares to
have voting rights that are equivalent to those of FuelCell common stockholders.
120
WARRANTS
On April 26, 2002, in connection with its strategic relationship with
Caterpillar, Inc., FuelCell issued to Caterpillar warrants to purchase 1,500,000
shares of FuelCell's common stock, in six series of warrants providing for the
purchase of 250,000 shares per series at prices ranging from $16.76 to $23.46.
The warrants were to vest based on Caterpillar's meeting cumulative sales
targets and were to expire from 12 to 30 months after their issuance if
Caterpillar did not meet the relevant sales targets within those time periods.
As of August 4, 2003, warrants to purchase 500,000 shares have expired. The
remaining outstanding warrants for the purchase of 1,000,000 shares bear an
average exercise price of $22.21 and, if unvested, will expire between October
26, 2003, and October 26, 2004.
On June 15, 2001, in connection with its strategic relationship with
Marubeni, Inc., FuelCell issued to Marubeni warrants to purchase 1,900,000
shares of FuelCell's common stock. On August 1, 2003, FuelCell extended the
expiration dates of those warrants. Currently, 760,000 of the warrants vest once
Marubeni has ordered a total of 10 MW of FuelCell's products and expire if
Marubeni has not done so by December 15, 2003. The remaining 1,140,000 warrants
vest once Marubeni has ordered a total of 45 MW of FuelCell's products and
expire if Marubeni has not done so by March 15, 2005. The warrants bear an
average exercise price of $42.90.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE AND CONNECTICUT LAW, THE
FUELCELL CHARTER AND FUELCELL'S BYLAWS
DELAWARE ANTI-TAKEOVER PROVISIONS
Section 203 of the Delaware General Corporation Law limits a publicly-held
Delaware corporation's ability to engage in a "business combination," with an
"interested stockholder" for a period of three years following the date such
person became an "interested stockholder" unless:
- before such person became an interested stockholder, the board of
directors of the corporation approved either the business combination or
the transaction that resulted in the interested stockholder becoming an
interested stockholder;
- upon the consummation of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding shares held
by directors who are also officers of the corporation and shares held by
employee stock plans; or
- at or following the time such person became an interested stockholder,
the business combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of 66 2/3% of the outstanding voting
stock of the corporation which is not owned by the interested
stockholder.
The term "interested stockholder" generally is defined as a person who,
together with affiliates and associates, owns, or, within the three years prior
to the determination of interested stockholder status, owned, 15% or more of a
corporation's outstanding voting stock. The term "business combination" includes
mergers, asset or stock sales and other similar transactions resulting in a
financial benefit to an interested stockholder. Section 203 makes it more
difficult for an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The existence of this
provision would be expected to have an anti-takeover effect with respect to
transactions not approved in advance by the board of directors, including
discouraging attempts that might result in a premium over the market price for
the shares of common stock held by stockholders. A Delaware corporation may "opt
out" of Section 203 with an express provision in its original certificate of
incorporation or any amendment thereto. Our certificate of incorporation does
not contain any such exclusion.
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CONNECTICUT ANTI-TAKEOVER PROVISIONS
The laws of the State of Connecticut, where our principal executive offices
are located, impose restrictions on certain transactions between certain foreign
corporations and significant stockholders. Section 33-840 of the Connecticut
Business Corporation Act prohibits certain publicly-held foreign corporations
that are based in Connecticut from engaging in a "business combination"
(including the issuance of equity securities which have an aggregate market
value of 5% or more of the total market value of the outstanding shares of the
company) with an "interested shareholder" as defined in the Connecticut Business
Corporation Act for a period of five years from the date of the shareholder's
purchase of stock, unless approved in a prescribed manner. The application of
this statute could prevent a change of control. Generally, approval is required
by the board of directors, by a majority of our non-employee directors and by
80% of the outstanding voting shares and two-thirds of the voting power of the
outstanding shares of the voting stock other than shares held by the interested
shareholder. These provisions could prevent us from entering into a business
combination that otherwise would be beneficial to us or to our stockholders.
FUELCELL'S CHARTER AND BY-LAWS
A number of provisions of the FuelCell Charter and FuelCell's by-laws
concern matters of corporate governance and the rights of stockholders. Some of
these provisions, including, but not limited to, the inability of stockholders
to take action by unanimous written consent, supermajority voting provisions
with respect to any amendment of voting rights provisions, the filling of
vacancies on FuelCell's board of directors by the affirmative vote of a majority
of the remaining directors, and the ability of FuelCell's board of directors to
issue shares of preferred stock and to set the voting rights, preferences and
other terms thereof, without further stockholder action, may be deemed to have
an anti-takeover effect and may discourage takeover attempts not first approved
by the FuelCell board of directors, including takeovers which stockholders may
deem to be in their best interests. If takeover attempts are discouraged,
temporary fluctuations in the market price of FuelCell common stock, which may
result from actual or rumored takeover attempts, may be inhibited. These
provisions, together with the ability of the FuelCell board of directors to
issue preferred stock without further stockholder action, could also delay or
frustrate the removal of incumbent directors or the assumption of control by
stockholders, even if the removal or assumption would be beneficial to
FuelCell's stockholders. These provisions could also discourage or inhibit a
merger, tender offer or proxy contest, even if favorable to the interests of
stockholders, and could depress the market price of FuelCell's common stock. The
FuelCell board of directors believes these provisions are appropriate to protect
FuelCell's interests and the interests of FuelCell's stockholders. The FuelCell
board of directors has no present plans to adopt any further measures or devices
which may be deemed to have an "anti-takeover effect".
AMENDMENTS
The FuelCell Charter provides that the affirmative vote of at least 80% of
the votes entitled to be cast by stockholders of FuelCell is required to amend
provisions of the FuelCell Charter relating to stockholder action. The FuelCell
Charter further provides that amendments to provisions of FuelCell's bylaws
which would authorize the classification of directors for staggered terms may be
only effected by a vote of FuelCell's stockholders. Other than with respect to
the classification of directors, which requires the affirmative vote of
stockholders, FuelCell's directors may amend FuelCell's bylaws.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person, including an officer and director, who was
or is, or is threatened to be made, a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such cooperation), by
reason of the fact that such person is or was a director, officer, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. The indemnity may include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or
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proceeding, provided such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of such
corporation, and, with respect to any criminal actions and proceedings, had no
reasonable cause to believe that his conduct was unlawful. A Delaware
corporation may indemnify any person, including an officer or director, who was
or is, or is threatened to be made, a party to any threatened, pending or
contemplated action or suit by or in the right of such corporation, under the
same conditions, except that no indemnification is permitted without judicial
approval if such person is adjudged to be liable to such corporation. Where an
officer or director of a corporation is successful, on the merits or otherwise,
in the defense of any action, suit or proceeding referred to above, or any
claim, issue or matter therein, the corporation must indemnify that person
against the expenses (including attorneys' fees) which such officer or director
actually and reasonably incurred in connection therewith.
FuelCell's certificate of incorporation provides that none of our directors
will be personally liable to us or our stockholders for monetary damages for
breach of fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under the Delaware General
Corporation Law as currently in effect or as the same may hereafter be amended.
Pursuant to Section 102(b) (7) of the Delaware General Corporation Law, the
FuelCell Charter eliminates the liability of our directors to us or our
stockholders, except for liabilities related to breach of duty of loyalty,
actions not in good faith and certain other liabilities.
FuelCell maintains directors' and officers' liability insurance policies.
FuelCell's by-laws provide for indemnification of FuelCell's officers and
directors to the fullest extent permitted by applicable law.
GLOBAL SERIES 2 PREFERRED SHARES
Global has 1,000,000 Global Series 2 Preferred Shares issued and
outstanding. Upon completion of the Combination, the Global Series 2 Preferred
Shares will remain outstanding in Global and will not be affected pursuant to
the terms of the Plan of Arrangement.
As a result of the Combination, FuelCell will assume the obligation to
issue FuelCell common stock upon conversion of the Global Series 2 Preferred
Shares. Currently, the Global Series 2 Preferred Shares are convertible into
Global common shares at a price, each referred to as the "current conversion
price," as follows: Cdn.$30.96 per common share until July 31, 2005; Cdn.$33.54
per common share after July 31, 2005 until July 31, 2010; Cdn.$36.12 per common
share after July 31, 2010 until July 31, 2015; Cdn.$38.70 per common share after
July 31, 2015 until July 31, 2020; or at any time after July 31, 2020 at a price
equal to 95% of the then current market price (which is the volume-weighted
average price at which board lots of Global common shares have traded on an
applicable stock exchange during the 20 consecutive trading days commencing 30
trading days before such price is to be determined) at the time of conversion.
Following the completion of the Combination, the Global Series 2 Preferred
Shares will have the right to convert into a number of shares of FuelCell common
stock, which number is equal at any particular time to the result obtained by
dividing (x) by (y); where (x) equals the sum of Cdn.$25.00 plus all accrued and
unpaid dividends; and (y) equals the current conversion price divided by the
exchange ratio (and assuming that after July 31, 2020, (y) equals the current
conversion price).
The Global Series 2 Preferred Shares carry the right to receive a
preferential cumulative dividend. The rate of this dividend varies inversely
with the price of Global common shares as follows: where the price of such a
share is less than or equal to Cdn.$35.96, the dividend rate will be 5% per
annum; where the price of such a share is between the range of Cdn.$35.97 and
Cdn.$40.96, the dividend rate will be 4% per annum; where the price of such a
share is between the range of Cdn.$40.97 and Cdn.$45.97, the dividend rate will
be 3% per annum; where the price of such a share is between the range of
Cdn.$45.97 and Cdn.$50.96, the dividend rate will be 2% per annum; and where the
price of such share is above Cdn.$50.96, the dividend rate will be 1% per annum.
Dividends accrue and are cumulative from July 31, 2000 and are payable, subject
to reduction in accordance with the terms of the Global Series 2 Preferred
Shares, on the tenth day of January, April, July and October in each year (the
"dividend payment date"). On December 31, 2010, the amount of all accrued and
unpaid dividends must be paid to the holders of Global Series 2 Preferred
Shares. Unless all required dividends up to and including the dividend payment
date for the most recently completed calendar
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quarter have been declared and paid, or set apart for payment, with respect to
the Global Series 2 Preferred Shares, no dividends may be paid on the Global
common shares without the approval of the holder of the Global Series 2
Preferred Shares.
The Global Series 2 Preferred Shares are not redeemable by Global prior to
July 31, 2004. On or after July 31, 2004, and subject to the Business
Corporations Act (Alberta), the Global Series 2 Preferred Shares may be redeemed
by Global, in whole or part, if on the day that the requisite notice of
redemption is first given, the volume-weighted average price at which the Global
common shares are traded on the applicable stock exchange during the 20
consecutive trading days ending on a date not earlier than the fifth preceding
date on which the notice of redemption is given was not less than a 20% premium
to the current conversion price on payment of Cdn.$25.00 per Global Series 2
Preferred Share to be redeemed, together with an amount equal to all accrued and
unpaid dividends to the date fixed for redemption, the whole constituting the
redemption price. On or after July 31, 2010, the Global Series 2 Preferred
Shares are redeemable at any time on payment of Cdn.$25.00 per Global Series 2
Preferred Share to be redeemed together with an amount equal to all accrued and
unpaid dividends to the date fixed for redemption, the whole constituting the
redemption price.
Subject to the Business Corporations Act (Alberta), the holder of the
Global Series 2 Preferred Shares is not entitled to receive notice of or to
attend or vote at any meeting of the Global common shareholders. In the event of
liquidation, dissolution or winding up of Global, whether voluntary or
involuntary, or any other distribution of assets of Global among its
shareholders for the purpose of winding up its affairs, the holder of Global
Series 2 Preferred Shares will be entitled to receive the amount paid up on such
Global Series 2 Preferred Shares together with an amount equal to all accrued
and unpaid dividends thereon, which amounts will be calculated as if such
dividend were accruing for the period from the expiration of the last calendar
quarter for which the dividends thereon have been paid in full up to the date of
such event, the whole before any amount will be paid or any property or assets
of Global will be distributed to the holder of Global common shares or to the
holders of any other shares ranking junior to the Global Series 2 Preferred
Shares in any respect. If such amounts are not paid in full, the Global Series 2
Preferred Shares will participate ratably with all other preferred shares and
all other shares, if any, which rank on parity with the Global Series 2
Preferred Shares with respect to the return of capital or any other distribution
of the assets of Global, in respect of any return of capital in accordance with
the sums which would be payable on the Global Series 2 Preferred Shares and such
other shares on such return of capital, if all sums so payable were paid in full
in accordance with their terms. After payment to the holder of the Global Series
2 Preferred Shares of the amounts so payable to them, the holder of the Global
Series 2 Preferred Shares will not be entitled to share in any other
distribution of the property or assets of Global.
EXCHANGECO SHARE CAPITAL
The following summary of certain provisions of ExchangeCo's share capital
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of the articles and by-laws of ExchangeCo and by the
provisions of applicable law.
AUTHORIZED CAPITAL
The authorized capital of ExchangeCo consists of an unlimited number of
common shares and an unlimited number of exchangeable shares.
COMMON SHARES
There are 100 common shares of ExchangeCo issued and outstanding, all of
which are held indirectly by FuelCell. The holders of common shares of
ExchangeCo are entitled to receive notice of and to attend all meetings of
shareholders and are entitled to one vote for each share held of record on all
matters submitted to a vote of holders of common shares of ExchangeCo. Subject
to the prior rights of the holders of any shares ranking senior to the common
shares of ExchangeCo with respect to priority in the payment of dividends, the
holders of common shares of ExchangeCo are entitled to receive such dividends as
may be declared by the
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board of directors of ExchangeCo out of funds legally available for such
dividends. Holders of common shares of ExchangeCo are entitled upon any
liquidation, dissolution or winding-up of ExchangeCo, subject to the prior
rights of holders of exchangeable shares or any other shares ranking senior to
the ExchangeCo common shares, to receive the remaining property and assets of
ExchangeCo.
EXCHANGEABLE SHARES
See "Chapter One -- The Combination -- Description of the
Combination -- Mechanics for Implementing the Combination and Description of
Exchangeable Shares" for a summary of certain provisions of the exchangeable
shares.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the exchangeable shares will be
Computershare Trust Company of Canada. The trustee under the Voting and Exchange
Trust Agreement will be Computershare Trust Company of Canada.
CALLCO SHARE CAPITAL
The following summary of certain provisions of CallCo's share capital does
not purport to be complete and is subject to, and qualified in its entirety by,
the provisions of the articles and by-laws of CallCo and by the provisions of
applicable law.
AUTHORIZED CAPITAL
The authorized capital of CallCo consists of an unlimited number of common
shares.
COMMON SHARES
There are 100 common shares of CallCo issued and outstanding, all of which
are held by FuelCell. The holders of common shares of CallCo are entitled to
receive notice of and to attend all meetings of shareholders and are entitled to
one vote for each share held of record on all matters submitted to a vote of
holders of common shares of CallCo. The holders of common shares of CallCo are
entitled to receive such dividends as may be declared by the board of directors
of CallCo out of funds legally available for dividends. Holders of common shares
of CallCo are entitled upon any liquidation, dissolution or winding-up of CallCo
to receive the remaining property and assets of CallCo.
COMPARISON OF SHAREHOLDER RIGHTS
If the Combination is consummated, holders of Global common shares will
transfer their common shares to FuelCell in consideration for exchangeable
shares or shares of FuelCell common stock. Such holders will have the right to
exchange their exchangeable shares for an equivalent number of shares of
FuelCell common stock. Global is a corporation governed by Alberta law. FuelCell
is a corporation organized under Delaware law. While the rights and privileges
of shareholders of an Alberta corporation are, in many instances, comparable to
those of stockholders of a Delaware corporation, there are certain differences.
These differences arise from differences between Alberta and Delaware law, and
between the Global articles of amalgamation and bylaws and the FuelCell Charter
and FuelCell's bylaws.
The following is a summary comparison of some important differences between
the rights of Global shareholders and FuelCell stockholders. The summary is not
intended to be complete or to address all differences and is qualified in its
entirety by reference to Alberta law, Delaware law, Global's articles of
amalgamation and bylaws and the FuelCell Charter and bylaws. For a further
description of the rights of the holders of shares of FuelCell common stock,
please see "-- FuelCell Capital Stock."
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GLOBAL SHAREHOLDER RIGHTS FUELCELL STOCKHOLDER RIGHTS
-------------------------------- --------------------------------
VOTE REQUIRED FOR EXTRAORDINARY Under Alberta law, the approval Under Delaware law, the
TRANSACTIONS of at least two-thirds of votes affirmative vote of a majority
cast at a meeting is required of the outstanding stock
for extraordinary corporate entitled to vote is required
actions, including: for:
- amalgamations; - mergers;
- continuances; - consolidations;
- sales, leases or exchanges of - dissolutions; or
all or substantially all of the
property of a corporation; and - sales of substantially all of
the assets of the corporation,
- liquidations and dissolutions.
provided that, unless the
Alberta law may also require the certificate of incorporation
separate approval by the holders requires otherwise, no vote is
of a class or series of shares required where either:
for extraordinary corporate
actions. - the corporation's certificate
of incorporation is not amended,
the shares of stock of the
corporation become equivalent
shares of the surviving
corporation and the stock of
the corporation issued in the
merger does not exceed 20% of
the previously outstanding
stock; or
- the merger is with a wholly
owned subsidiary of the
corporation for the purpose of
forming a holding company and,
among other things, the
certificate of incorporation
and bylaws of the holding
company immediately following
the merger will be identical
to the certificate of
incorporation and bylaws of
the corporation prior to the
merger.
AMENDMENT TO GOVERNING Under Alberta law, the approval Under Delaware law, the
DOCUMENTS of at least two-thirds of the affirmative vote of the holders
votes cast at a meeting is of a majority of the outstanding
required to amend the articles stock entitled to vote is
of the corporation. required to approve a proposed
amendment to the certificate of
If the amendment would affect incorporation, following the
the rights of any holders of a adoption of the amendment by the
class or series of shares board of directors of the
differently than other shares, corporation, provided that the
the amendment also requires the certificate of incorporation may
approval of a majority of the provide for a greater vote.
shares of the class or series.
If the amendment would increase
Under Alberta law, the creation, or decrease the number or the
amendment or repeal of bylaws par
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GLOBAL SHAREHOLDER RIGHTS FUELCELL STOCKHOLDER RIGHTS
-------------------------------- --------------------------------
requires that, after being value of the shares of such
approved by the directors of the class or adversely affect the
corporation, the creation, rights of any holders of a class
amendment or repeal of the bylaw or series of stock, the
must be approved by a majority amendment also requires the
of the votes of the shareholders approval of a majority of the
of the corporation at the next shares of the class or series.
shareholder meeting.
Under Delaware law, shareholders
are given the power to adopt,
alter and repeal bylaws,
provided that the certificate of
incorporation may also provide
such power to the board of
directors.
The FuelCell Charter provides
that the affirmative vote of the
holders of at least 80% of
FuelCell's stockholders, voting
together as a single class, is
required to amend provisions of
the FuelCell Charter relating to
stockholder action.
The FuelCell Charter further
provides that provisions in
FuelCell's bylaws providing for
the classification of directors
for staggered terms may only be
amended by the affirmative vote
of a majority of the
stockholders. The board of
directors of FuelCell may
otherwise adopt, amend or repeal
FuelCell's bylaws.
DISSENTERS' RIGHTS Under Alberta law, each of the Under Delaware law, holders of
matters listed below will shares may dissent from a merger
entitle shareholders to exercise or consolidation in some
rights of dissent and to be paid situations by demanding payment
the fair value of their shares: equal to the fair value of their
shares. These rights of dissent
- any amalgamation with another and appraisal only apply in the
corporation (other than with event of a merger or
certain affiliated consolidation and not in the
corporations); case of a sale or transfer of
assets or a purchase of assets
- an amendment to the for stock.
corporation's articles to add,
change or remove any Under Delaware law, no dissent
provisions restricting or or appraisal rights are
constraining the issue or available if the shares are
transfer of that class of listed on a national securities
shares; exchange or are designated as a
national market system security
- an amendment to the on an interdealer quotation
corporation's articles to add, system by the National
change or remove any Association of Securities
restriction upon the business Dealers,
or
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GLOBAL SHAREHOLDER RIGHTS FUELCELL STOCKHOLDER RIGHTS
-------------------------------- --------------------------------
businesses that the Inc. or are held of record by
corporation may carry on; more than 2,000 stockholders,
unless the merger or
- a continuance under the laws consolidation converts the
of another jurisdiction; shares into something other
than:
- a sale, lease or exchange of
all or substantially all the - stock of the surviving
property of the corporation corporation; or
other than in the ordinary
course of business; - stock of another corporation
that is either listed on a
- a court may permit national securities exchange
shareholders to dissent in or designated as a national
connection with an application market system security on an
to the court for an order interdealer quotation system
approving an arrangement; and by the National Association of
Securities Dealers, Inc. or
- amendments to the articles of held of record by more than
a corporation which require a 2,000 stockholders;
separate class or series vote,
- cash in lieu of fractional
shares; or
- some combination of the above.
provided that a shareholder is
not entitled to dissent if an
amendment to the articles is
effected by a court order
approving a reorganization or by
a court order made in connection
with an action for an oppression
remedy.
Alberta law provides these
dissent rights for both listed
and unlisted shares.
OPPRESSION REMEDY Alberta law provides an Delaware law does not provide
oppression remedy that allows a for a similar remedy.
complainant who is:
- a present or former
shareholder;
- a present or former director
or officer of the corporation or
its affiliates; and
- any other person who in the
discretion of the court is a
proper person to make the
application,
to apply to court for relief
where:
- any act or omission of the
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GLOBAL SHAREHOLDER RIGHTS FUELCELL STOCKHOLDER RIGHTS
-------------------------------- --------------------------------
corporation or an affiliate
effects a result;
- the business or affairs of the
corporation or any of its
affiliates are or have been
carried on or conducted in a
manner; or
- the powers of the directors of
the corporation or any of its
affiliates are or have been
exercised in the manner,
that is oppressive or unfairly
prejudicial to or that unfairly
disregards the interest of a
shareholder, creditor, director
or officer.
DERIVATIVE ACTION Under Alberta law, a complainant Under Delaware law, a
may not bring an action in the stockholder may bring a
name and on behalf of a derivative action on behalf and
corporation, or intervene in an for the benefit of the
existing action on behalf of the corporation, subject to certain
corporation, unless the limitations, including that:
complainant has given reasonable
notice to the directors of the - the stockholder must state in
corporation and the complainant his complaint that he was a
satisfies the court that: stockholder of the corporation
at the time of the transaction
- the directors of the that is the subject of the
corporation will not bring, complaint; and
diligently prosecute or defend
or discontinue the action; - the stockholder must first
make demand on the corporation
- the complainant is acting in that it bring the action and
good faith; and the demand be refused, unless
it is shown that the demand
- it appears to be in the would have been futile.
interest of the corporation that
the action be brought,
prosecuted, defended or
discontinued.
SHAREHOLDER CONSENT IN LIEU OF Under Alberta law, a written Under Delaware law, unless
MEETING resolution signed by all the otherwise provided in the
shareholders of the corporation corporation's certificate of
who would have been entitled to incorporation, a written consent
vote on the resolution at a signed by holders of stock
meeting, is effective to approve having sufficient votes to
the resolution. approve the matter at a meeting
is effective to approve the
matter.
The FuelCell Charter and bylaws
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GLOBAL SHAREHOLDER RIGHTS FUELCELL STOCKHOLDER RIGHTS
-------------------------------- --------------------------------
expressly prohibit stockholder
action by written consent.
DIRECTOR QUALIFICATIONS Under Alberta law, at least half Delaware law does not have
of the directors of a comparable requirements.
corporation governed by the
Business Corporations Act
(Alberta) must be resident
Canadians. Alberta law also
requires that a corporation
whose securities are publicly
traded must have not fewer than
three directors, at least two of
whom are not officers or
employees of the corporation or
any of its affiliates.
FIDUCIARY DUTIES OF DIRECTORS Under Alberta law, directors Under Delaware law, directors
have a duty of care and loyalty have a duty of care and loyalty
to the corporation. The duty of to the corporation and its
care requires that the directors shareholders. The duty of care
exercise the care, diligence and requires that the directors act
skill that a reasonably prudent in an informed and deliberative
person would exercise in manner and inform themselves,
comparable circumstances. The prior to making a business
duty of loyalty requires decision, of all material
directors to act honestly and in information reasonably available
good faith with a view to the to them. The duty of loyalty is
best interests of the the duty to act in good faith in
corporation. a manner which the directors
reasonably believe to be in the
best interest of the
stockholders.
INDEMNIFICATION OF OFFICERS AND Under Alberta law, except in Delaware law provides that a
DIRECTORS respect of an action by or on corporation may indemnify its
behalf of a corporation to present and former directors,
procure a judgment in its favor, officers, employees and agents
which would require court against all reasonable expenses
approval, a corporation may (including attorneys' fees) and,
indemnify present and former except in actions initiated by
directors and officers against or in the right of the
costs, charges and expenses corporation where such person
(including settlements and has been found liable to the
judgments) provided that: corporation, against all
judgments, fines and amounts
- they acted honestly and in paid in settlement of actions
good faith with a view to the brought against them, provided
best interests of the that they:
corporation; and
- acted in good faith and in a
- in the case of a criminal or manner which he or she
administrative action they had reasonably believed to be in,
reasonable grounds for or not opposed to, the best
believing that their conduct interests of the corporation;
was lawful. and
The Global bylaws provide for - in the case of a criminal
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GLOBAL SHAREHOLDER RIGHTS FUELCELL STOCKHOLDER RIGHTS
-------------------------------- --------------------------------
indemnification of directors and proceeding, had no reasonable
officers to the fullest extent cause to believe his or her
authorized by Alberta law. conduct was unlawful.
Delaware law allows for the
advance payment of an
indemnitee's expenses prior to
the final disposition of an
action, provided that the
indemnitee undertakes to repay
any such amount advanced if it
is later determined that the
indemnitee is not entitled to
indemnification with regard to
the action for which the
expenses were advanced.
Global has entered into The FuelCell Charter generally
indemnity agreements with all of requires FuelCell to indemnify
its directors and executive its directors and officers to
officers which provide for the fullest extent permissible
advance payment of any expenses. under Delaware law.
Neither Alberta law nor the
Global bylaws expressly provide
for advance payment of an
indemnitee's expenses.
DIRECTOR LIABILITY Alberta law does not permit the Delaware law provides that the
limitation of a director's charter of a corporation may
liability as Delaware law does. include a provision which limits
or eliminates the liability of
directors to the corporation or
its stockholders for monetary
damages for breach of a
fiduciary duty, provided such
liability does not arise from
prescribed conduct, including
acts or omissions not in good
faith or which involve
intentional misconduct or which
involve a knowing violation of
the law.
The FuelCell Charter limits the
liability of FuelCell's
directors to the fullest extent
permitted by Delaware law.
ANTI-TAKEOVER PROVISIONS AND Alberta law does not contain FuelCell is subject to Section
INTERESTED STOCKHOLDER specific anti-takeover 203 of the Delaware General
TRANSACTIONS provisions with respect to Corporation Law, which generally
business transactions. However, provides that, if a person owns
the policies of Canadian 15% or more of the stock of a
securities regulatory Delaware corporation and
authorities,
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GLOBAL SHAREHOLDER RIGHTS FUELCELL STOCKHOLDER RIGHTS
-------------------------------- --------------------------------
including Rule 61-501 of the is thereby considered an
Ontario Securities Commission "interested stockholder," that
and Policy Q-27 of the Quebec person may not engage in a
Securities Commission contain business combination with the
requirements in connection with corporation for a period of
any transaction by which an three years after acquiring such
issuer, directly or indirectly: status, unless one of the
following three exceptions
- acquires or transfers an applies:
asset;
- prior to the time the
- acquires or issues securities; interested stockholder acquires
his status as such, the board
- assumes or transfers a of directors approves either the
liability; or business combination or the
transaction by which the
- borrows or lends monies, stockholder becomes an
interested stockholder;
from or to, as the case may be,
a director, senior officer, - in the transaction by which
holder of 10% or more of the the interested stockholder
voting securities of the issuer acquired such status, such
or a holder of sufficient stockholder accumulates 85% of
securities to affect materially the outstanding voting power
the control of the issuer. of the corporation not owned
by (i) the corporation, (ii)
Rule 61-501 and Policy Q-27 directors of the corporation
require more detailed disclosure who are also officers and
in the proxy material sent to (iii) certain employee stock
security holders in connection plans; or
with a transaction as described
above, including, subject to - the business combination is
certain exceptions, the approved by the board of
inclusion of a formal valuation directors and by the
of the subject matter of the affirmative vote of two-
transaction and any non-cash thirds of the outstanding
consideration offered therefor. voting stock which is not
Rule 61-501 and Policy Q-27 also owned by the interested
require, subject to certain stockholder.
exceptions, that the minority
shareholders of the issuer
separately approve the
transaction.
SHAREHOLDER RIGHTS PLANS Global does not have a FuelCell does not have a
shareholder rights plan. stockholder rights plan.
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CHAPTER FOUR -- INFORMATION ABOUT TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS TO SHAREHOLDERS
INTRODUCTION
Subject to the qualifications and assumptions contained herein, in the
opinion of Bennett Jones LLP, Canadian counsel to Global, the following is, as
of the date of this Joint Proxy Statement, a fair and adequate summary of the
material Canadian federal income tax considerations generally applicable to
Global common shareholders who, at all relevant times up to and including the
completion of the Combination, for purposes of the Income Tax Act (Canada): (i)
hold their Global common shares and will hold their exchangeable shares and
shares of FuelCell common stock as capital property, and (ii) deal at arm's
length with, and are not affiliated with, Global, FuelCell, CallCo or
ExchangeCo. This discussion does not apply to a holder with respect to whom
FuelCell is a foreign affiliate within the meaning of the Income Tax Act
(Canada) nor to a person who is a financial institution, as defined in the
Income Tax Act (Canada), which is subject to the "mark-to-market" rules in the
Income Tax Act (Canada).
All Global common shareholders should consult their own tax advisors as to
whether, as a matter of fact, they hold their Global common shares and will hold
their exchangeable shares and shares of FuelCell common stock as capital
property for the purposes of the Income Tax Act (Canada). Certain provisions of
the Income Tax Act (Canada) may permit a holder of Global common shares to make
an irrevocable election to deem such shares and every "Canadian Security" (as
defined in the Income Tax Act (Canada)) owned by such holder in the taxation
year of the election and all subsequent taxation years to be capital property,
subject to certain conditions.
This discussion is based upon the current provisions of the Income Tax Act
(Canada), the regulations thereunder (the "Regulations"), all specific proposals
to amend the Income Tax Act (Canada) and the Regulations publicly announced by
the Canadian Minister of Finance prior to the date hereof (the "Proposed
Amendments"), counsel's understanding of the current published administrative
practices of the Canada Customs and Revenue Agency (the "CCRA"), and an
officer's certificate from FuelCell as to certain factual matters. This summary
assumes that all Proposed Amendments will be enacted in their present form,
although there is no certainty that any of the Proposed Amendments will be so
enacted, if at all. This summary does not otherwise take into account or
anticipate any changes in law, whether by way of judicial decision or
legislative action, nor any changes in the administrative or assessing practices
of the CCRA, nor does it take into account tax legislation of countries other
than Canada or any provincial or territorial tax legislation.
THE FOLLOWING DISCUSSION IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO
BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR
GLOBAL COMMON SHAREHOLDER. ACCORDINGLY, GLOBAL COMMON SHAREHOLDERS SHOULD
CONSULT THEIR OWN INDEPENDENT TAX ADVISORS FOR ADVICE WITH RESPECT TO THE INCOME
TAX CONSEQUENCES TO THEM OF THE COMBINATION, HAVING REGARD TO THEIR OWN
PARTICULAR CIRCUMSTANCES.
For purposes of the Income Tax Act (Canada), all amounts relating to the
acquisition, holding or disposition of shares of FuelCell common stock,
including the receipt of dividends and the calculation of any adjusted cost base
amounts and proceeds of disposition, must be converted into Canadian dollars
based on the prevailing United States dollar exchange rate at the time such
amounts arise.
SHAREHOLDERS RESIDENT IN CANADA
The following portion of this discussion is generally applicable to Global
common shareholders who, for the purposes of the Income Tax Act (Canada) and any
applicable income tax treaty or convention, are resident or deemed to be
resident in Canada at all relevant times.
EXCHANGE OF GLOBAL COMMON SHARES FOR EXCHANGEABLE SHARES. A Global common
shareholder who disposes of Global common shares to ExchangeCo in exchange for
exchangeable shares will, unless such Global common shareholder makes a joint
election with ExchangeCo under subsection 85(1) or 85(2) of the Income Tax Act
(Canada) as discussed below, be considered to have disposed of such Global
common shares
133
for proceeds of disposition equal to the sum of: (i) any cash received in
respect of a fractional exchangeable share; (ii) the aggregate fair market value
at the effective time of the Combination of the exchangeable shares received by
the Global common shareholder on the exchange; and (iii) the fair market value
at the effective time of the Combination of the ancillary rights associated with
the exchangeable shares, such as the voting rights available under the voting
and exchange trust agreement and the right of the holder to require FuelCell to
purchase the exchangeable shares in certain circumstances (the "Ancillary
Rights"), received by the Global common shareholder on the exchange. As a
result, the Global common shareholder will, in general, realize a capital gain
(or capital loss) to the extent that the proceeds of disposition, net of any
reasonable costs of disposition, exceed (or are less than) the adjusted cost
base to the Global common shareholder of the Global common shares. See "Taxation
of Capital Gains and Capital Losses" below. The cost to a holder of exchangeable
shares and Ancillary Rights acquired on the exchange will be equal to the fair
market value of such shares and rights at the time of disposition.
A Global common shareholder who disposes of Global common shares to
ExchangeCo and who receives exchangeable shares may obtain a full or partial tax
deferral by making a joint tax election with ExchangeCo under subsection 85(1)
of the Income Tax Act (Canada) (or, in the case of a Global common shareholder
that is a partnership, pursuant to subsection 85(2) of the Income Tax Act
(Canada)) and the corresponding provision of any applicable provincial tax
legislation in respect of such Global common shares and specifying therein an
elected transfer price within the limits described below.
The joint tax election must specify the elected transfer price in respect
of the Global common shares transferred to ExchangeCo. By choosing an elected
transfer price which does not exceed the adjusted cost base of a holder's Global
common shares, the holder will be entitled to defer the amount of any capital
gain that would otherwise be realized on the disposition of such Global common
shares.
The elected transfer price may not:
- be less than the aggregate of: (i) the fair market value at the time of
disposition of the Ancillary Rights acquired on the exchange and (ii) any
cash received in respect of a fractional exchangeable share;
- be less than the lesser of the Global common shareholder's adjusted cost
base of those Global common shares at the time of disposition and the
fair market value of those shares at that time; or
- exceed the fair market value of those Global common shares at the time of
disposition.
Elected transfer prices which do not otherwise comply with the foregoing
limitations will be automatically adjusted under the Income Tax Act (Canada) so
that they are in compliance.
Where a Global common shareholder and ExchangeCo make an election, the tax
treatment to the Global common shareholder generally will be as follows:
- the Global common shareholder's Global common shares will be deemed to
have been disposed of for proceeds of disposition equal to the elected
transfer price;
- if the deemed proceeds of disposition of the Global common shareholder's
shares, net of any reasonable costs of disposition, are equal to the
adjusted cost base to the Global common shareholder of such shares,
determined immediately before the time of disposition, no capital gain or
capital loss will be realized by the Global common shareholder;
- to the extent that the deemed proceeds of disposition of the Global
common shares, net of any reasonable costs of disposition, exceed the
aggregate of the adjusted cost base thereof to the Global common
shareholder, the Global common shareholder will, in general, realize a
capital gain;
- the cost to the Global common shareholder of Ancillary Rights received on
the exchange will be equal to the fair market value thereof at the time
of disposition; and
- the cost to the Global common shareholder of exchangeable shares received
on the exchange will be equal to the amount by which the deemed proceeds
of disposition of the Global common shares exchanged by the Global common
shareholder exceeds the aggregate of: (i) any cash received in
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respect of a fractional exchangeable share; and (ii) the fair market
value at the time of disposition of the Ancillary Rights received on the
exchange.
ExchangeCo will execute a joint tax election under subsection 85(1) or (2)
of the Income Tax Act (Canada) and the corresponding provisions of any
applicable provincial tax legislation forwarded to it by a Global common
shareholder. Global common shareholders wishing to make such elections must
provide two signed copies of the necessary election forms to ExchangeCo at
4908 -- 52nd Street S.E., Calgary, Alberta, T2B 3R2 within 90 days following the
effective date of the Combination, duly completed with the details of the number
of Global common shares transferred and the applicable elected transfer price
for the purposes of such elections. Further information concerning the
completion of the necessary election forms may be posted on FuelCell's or
Global's website. Thereafter, subject to the election forms complying with the
provisions of the Income Tax Act (Canada) (and any applicable provincial
legislation), the forms will be completed by ExchangeCo as to its information,
signed by ExchangeCo, and returned to such Global common shareholders for filing
with the CCRA (and any applicable provincial taxation authority). ExchangeCo
agrees only to execute and to forward such tax elections by mail to Global
common shareholders for filing with the CCRA and any applicable provincial tax
authorities. Compliance with the requirements to ensure the validity of a joint
tax election on a timely basis will be the sole responsibility of the Global
common shareholder making the election and none of FuelCell, Global, or
ExchangeCo assumes any liability for taxes, interest, penalties, damages or
expenses resulting from the failure to execute and file a valid election or the
late filing of any election.
GLOBAL COMMON SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN ADVISORS AS SOON
AS POSSIBLE REGARDING THE DEADLINES AND PROCEDURES FOR MAKING THE ELECTIONS
WHICH ARE APPROPRIATE TO THEIR CIRCUMSTANCES. UNLESS A GLOBAL COMMON SHAREHOLDER
CHOOSES TO ACCEPT EXCHANGEABLE SHARES AND FILES A JOINT TAX ELECTION UNDER
SECTION 85 OF THE INCOME TAX ACT (CANADA), A TAX DEFERRAL WILL NOT BE AVAILABLE
FOR THE GLOBAL COMMON SHAREHOLDER.
For purposes of the joint tax election, a Global common shareholder will be
required to determine the fair market value of the Ancillary Rights received on
the exchange on a reasonable basis for purposes of the Income Tax Act (Canada).
Management of Global, ExchangeCo, and FuelCell are of the view that the
Ancillary Rights have nominal value. The tax election forms will be executed by
ExchangeCo on the basis that the fair market value of the Ancillary Rights is a
nominal amount per exchangeable share issued on the exchange. Such
determinations of value are not binding on the CCRA and counsel expresses no
opinion on such matters of factual determination.
Exchange of Global common shares for shares of FuelCell common stock. The
Combination has been structured so that each Global common shareholder will be
considered to have transferred all of his/her Global common shares, other than
those shares exchanged for exchangeable shares, to FuelCell in consideration for
shares of FuelCell common stock.
Such Global common shareholders will not qualify for a tax-deferred
exchange by making an election under section 85 of the Income Tax Act (Canada).
Consequently, where a Global common shareholder exchanges Global common shares
for shares of FuelCell common stock, the Global common shareholder will be
considered to have disposed of all of the holder's Global common shares so
exchanged for proceeds of disposition equal to the sum of: (i) any cash received
in respect of a fractional share of FuelCell common stock; and (ii) the
aggregate fair market value at the effective time of the Combination of the
shares of FuelCell common stock received on the exchange. Such Global common
shareholder will be considered to have acquired the shares of FuelCell common
stock at a cost equal to such fair market value. This cost will be averaged with
the adjusted cost base of any other shares of FuelCell common stock held at that
time by the Global common shareholder for the purposes of determining the Global
common shareholder's adjusted cost base of such shares of FuelCell common stock.
The Global common shareholder will realize a capital gain (or a capital loss) on
such exchange to the extent that the holder's proceeds of disposition, net of
any reasonable costs of disposition, exceed (or are less than) the adjusted cost
base of that holder's Global common shares immediately before the exchange.
135
The consequences to a Global common shareholder of realizing a capital gain
or capital loss are described below under the heading "Taxation of Capital Gains
and Capital Losses".
Dividends on Exchangeable Shares. In the case of a Global common
shareholder who is an individual, dividends received or deemed to be received on
the exchangeable shares will be included in computing the Global common
shareholder's income, and will be subject to the gross-up and dividend tax
credit rules normally applicable to taxable dividends received from taxable
Canadian corporations.
In the case of a Global common shareholder that is a corporation other than
a "specified financial institution", as defined in the Income Tax Act (Canada),
dividends received or deemed to be received on the exchangeable shares normally
will be included in the corporation's income and will be deductible in computing
its taxable income.
A Global common shareholder that is a "private corporation", as defined in
the Income Tax Act (Canada), or any other corporation resident in Canada and
controlled or deemed to be controlled by or for the benefit of an individual
(other than a trust) or a related group of individuals (other than trusts) may
be liable under Part IV of the Income Tax Act (Canada) to pay a refundable tax
of 33 1/3% of dividends received or deemed to be received on the exchangeable
shares to the extent that such dividends are deductible in computing the Global
common shareholder's taxable income.
The exchangeable shares will be "term preferred shares" as defined in the
Income Tax Act (Canada). Consequently, in the case of a Global common
shareholder that is a specified financial institution, a dividend will be
deductible in computing its taxable income only if:
- the specified financial institution did not acquire the exchangeable
shares in the ordinary course of the business carried on by such
institution; or
- in any case, at the time the dividend is received by the specified
financial institution, the exchangeable shares are listed on a prescribed
stock exchange in Canada (which currently includes the Toronto Stock
Exchange) and the specified financial institution, either alone or
together with persons with whom it does not deal at arm's length, does
not receive (or is not deemed to receive) dividends in respect of more
than 10% of the issued and outstanding exchangeable shares.
A Global common shareholder that is throughout the relevant taxation year a
"Canadian-controlled private corporation", as defined in the Income Tax Act
(Canada), may be liable to pay an additional refundable tax of 6 2/3% on its
"aggregate investment income" for the year which will include dividends or
deemed dividends that are not deductible in computing taxable income.
To the extent that there is United States non-resident withholding tax on
any dividends paid on the exchangeable shares, a Global common shareholder
should generally be eligible for foreign tax credit or deduction treatment,
where applicable, under the Income Tax Act (Canada). See "United States Federal
Tax Considerations to Shareholders -- Non-United States Holders -- Distributions
on the Exchangeable Shares and FuelCell Common Stock" below.
Redemption of Exchangeable Shares. On the redemption (including a
retraction) of an exchangeable share by ExchangeCo, the holder of an
exchangeable share will be deemed to have received a dividend equal to the
amount, if any, by which the redemption proceeds exceed the paid-up capital of
the share at the time the exchangeable share is redeemed. For these purposes,
the redemption proceeds will be the fair market value at the time of the
redemption of any shares of FuelCell common stock received from ExchangeCo plus
the amount, if any, of all then declared but unpaid dividends on the
exchangeable shares. The amount of such deemed dividend generally will be
subject to the same tax treatment accorded to dividends on the exchangeable
shares as described above. On the redemption, the holder of an exchangeable
share will also be considered to have disposed of the exchangeable share for
proceeds of disposition equal to the redemption proceeds less the amount of the
deemed dividend. A holder will, in general, realize a capital gain (or a capital
loss) equal to the amount by which the adjusted cost base to the holder of the
exchangeable shares is less than (or exceeds) such proceeds of disposition, net
of any reasonable costs of disposition. In the case of a Global common
shareholder that is a corporation, in some circumstances, the amount of any such
deemed dividend
136
may be treated as proceeds of disposition and not as a dividend. The taxation of
capital gains and capital losses is described below under the heading "Taxation
of Capital Gains and Capital Losses".
Exchange of Exchangeable Shares. On the exchange of an exchangeable share
with FuelCell or CallCo for shares of FuelCell common stock, the holder will
generally realize a capital gain (or a capital loss) equal to the amount by
which the proceeds of disposition of the exchangeable share, net of any
reasonable costs of disposition, exceed (or are less than) the adjusted cost
base to the holder of the exchangeable share immediately before the exchange.
For these purposes, the proceeds of disposition will be the fair market value at
the time of exchange of the shares of FuelCell common stock plus any other
amount received by the holder from FuelCell or CallCo as part of the exchange
consideration (other than amounts paid by ExchangeCo in satisfaction of declared
but unpaid dividends owed to the holder by ExchangeCo). The taxation of capital
gains and capital losses is described below under the heading "Taxation of
Capital Gains and Capital Losses".
Dividends on shares of FuelCell common stock. Dividends on shares of
FuelCell common stock will be included in the recipient's income for the
purposes of the Income Tax Act (Canada). Such dividends received by an
individual Global common shareholder will not be subject to the gross-up and
dividend tax credit rules in the Income Tax Act (Canada). A Global common
shareholder that is a corporation will include such dividends in computing its
income and generally will not be entitled to deduct the amount of such dividends
in computing its taxable income. A Global common shareholder that is throughout
the relevant taxation year a "Canadian-controlled private corporation", as
defined in the Income Tax Act (Canada), may be liable to pay an additional
refundable tax of 6 2/3% on its "aggregate investment income" for the year which
will include such dividends. United States non-resident withholding tax on such
dividends received by Canadian residents will be generally eligible for foreign
tax credit or deduction treatment, where applicable, under the Income Tax Act
(Canada). See "United States Federal Tax Considerations to
Shareholders -- Non-United States Holders -- Distributions on the Exchangeable
Shares and FuelCell Common Stock" below.
Disposition of shares of FuelCell common stock. The cost of any shares of
FuelCell common stock received on a retraction, redemption or exchange of
exchangeable shares will be equal to the fair market value of such shares at the
time of such event and will be averaged with the adjusted cost base of all other
shares of FuelCell common stock held by such holder as capital property
immediately before the retraction, redemption or exchange, as the case may be,
for the purpose of determining the holder's adjusted cost base of such shares of
FuelCell common stock. A disposition or deemed disposition of shares of FuelCell
common stock by a holder will generally result in a capital gain (or a capital
loss) equal to the amount by which the proceeds of disposition, net of any
reasonable costs of disposition, exceed (or are less than) the adjusted cost
base to the holder of such shares immediately before the disposition. The
taxation of capital gains and capital losses is described below under the
heading "Taxation of Capital Gains and Capital Losses".
Foreign Property Information Reporting. With some exceptions, a taxpayer
resident in Canada is a "specified Canadian entity" (as defined in the Income
Tax Act (Canada)) and is required to file an annual information return
disclosing prescribed information concerning the ownership of "specified foreign
property" (as defined in the Income Tax Act (Canada)) where the cost amount of
such property to the taxpayer exceeds Cdn.$100,000. Specified foreign property
is defined in the Income Tax Act (Canada) to include shares of the capital stock
of a non-resident corporation and property that, under the terms or conditions
thereof or any agreement related thereto, is convertible into, is exchangeable
for or confers a right to acquire, property that is a share of the capital stock
of a non-resident corporation.
The exchangeable shares and the shares of FuelCell common stock will be
specified foreign property. As a result, if the aggregate cost amount of any
specified foreign property held by a holder (including any exchangeable shares
and shares of FuelCell common stock) at any time in a taxation year or fiscal
period exceeds Cdn.$100,000, the holder will be required to file an information
return for the year or period disclosing prescribed information, such as the
cost amount of the specified foreign property and the amount of any dividends,
interest and gains or losses realized in the year in respect of such specified
foreign property. Global common shareholders should consult their own advisors
to determine whether they will be subject to these rules with respect to their
ownership of exchangeable shares and shares of FuelCell common stock.
137
Dissenting Global shareholders. Global common shareholders are permitted
to dissent from the Combination. A dissenting Global common shareholder will be
entitled, in the event the transaction is consummated, to be paid by FuelCell,
the fair value of the Global common shares held by such holder determined as of
the appropriate date. See "Chapter One -- The Combination -- Description of the
Combination -- Dissenting Shareholder Rights". Such dissenting shareholder will
be considered to have realized a capital gain (or a capital loss) to the extent
that the proceeds of disposition, net of reasonable costs associated with the
disposition, exceed (or are less than) the adjusted cost base of the Global
common shares to the holder immediately before the payment. Additional income
tax considerations may be relevant to dissenting shareholders who fail to
perfect or withdraw their claims pursuant to the right of dissent. Dissenting
shareholders should consult their own tax advisors.
Taxation of Capital Gains and Capital Losses. One-half of any capital gain
(a taxable capital gain) realized on a disposition of Global common shares,
exchangeable shares or shares of FuelCell common stock must be included in a
Global common shareholder's income for the year of disposition. One-half of any
capital loss (an allowable capital loss) generally may be deducted by the holder
against taxable capital gains for the year of disposition. Any allowable capital
losses in excess of taxable capital gains for the year of disposition generally
may be carried back up to three taxation years or carried forward indefinitely
and deducted against taxable capital gains in such other years to the extent and
under the circumstances described in the Income Tax Act (Canada).
Capital gains realized by an individual or trust, other than certain
specified trusts, may give rise to alternative minimum tax under the Income Tax
Act (Canada).
A Global common shareholder that is throughout the relevant taxation year a
"Canadian-controlled private corporation", as defined in the Income Tax Act
(Canada), may be liable to pay an additional refundable tax of 6 2/3% on its
"aggregate investment income" for the year which will include an amount in
respect of taxable capital gains.
If the holder of Global common shares or exchangeable shares is a
corporation, the amount of any capital loss arising from a disposition or deemed
disposition of such shares may be reduced by the amount of dividends received or
deemed to have been received by it on such shares to the extent and under
circumstances prescribed by the Income Tax Act (Canada). Similar rules may apply
where a corporation is a member of a partnership or a beneficiary of a trust
that owns Global common shares or exchangeable shares or where a trust or
partnership of which a corporation is a beneficiary or a member, respectively,
owns Global common shares or exchangeable shares. Global common shareholders to
whom these rules may be relevant should consult their own tax advisors.
SHAREHOLDERS NOT RESIDENT IN CANADA
The following portion of this discussion is applicable to Global common
shareholders who, for purposes of the Income Tax Act (Canada) and any applicable
tax treaty or convention, have not been and will not be resident or deemed to be
resident in Canada at any time while they have held Global common shares and
will hold shares of FuelCell common stock and who have not and will not use or
hold the Global common shares or shares of FuelCell common stock in the course
of carrying on a business (including an insurance business) in Canada and,
except as specifically discussed below, to whom such shares are not "taxable
Canadian property", as defined in the Income Tax Act (Canada).
Global common shares will generally not be taxable Canadian property at a
particular time provided that such shares are listed on a prescribed stock
exchange (which currently includes the Toronto Stock Exchange) and the holder,
persons with whom such holder does not deal at arm's length, or the holder and
such persons, has not owned 25% or more of the issued shares of any class or
series of the capital stock of Global at any time within 60 months preceding the
particular time. Shares of FuelCell common stock will generally not constitute
taxable Canadian property.
138
A holder of Global common shares that are not taxable Canadian property to
the holder will not be subject to tax under the Income Tax Act (Canada) on a
capital gain recognized on the exchange of Global common shares for shares of
FuelCell common stock.
In the event that the Global common shares constitute taxable Canadian
property to a particular non-resident holder, the exchange of such shares for
shares of FuelCell common stock will be a taxable transaction as described above
under "Shareholders Resident in Canada-Exchange of Global common shares for
shares of FuelCell common stock" subject to any relief available pursuant to the
provisions of an applicable income tax treaty or convention.
GLOBAL COMMON SHAREHOLDERS WHOSE GLOBAL COMMON SHARES CONSTITUTE TAXABLE
CANADIAN PROPERTY TO THEM ARE URGED TO CONSULT THEIR OWN TAX ADVISORS.
Global common shareholders are permitted to dissent from the Combination. A
dissenting shareholder will be entitled, in the event the transaction is
consummated, to be paid by the FuelCell, the fair value of the Global common
shares held by such holder determined as of the appropriate date. See "Chapter
One -- The Combination -- Description of the Combination -- Dissenting
Shareholder Rights". Such dissenting shareholder will be considered to have
realized a capital gain (or a capital loss) to the extent that the proceeds of
disposition, net of reasonable costs associated with the disposition, exceed (or
are less than) the adjusted cost base of the Global common shares to the holder
immediately before the payment. Any capital gain realized by a dissenting
shareholder will not be taxed under the Income Tax Act (Canada) unless the
Global common shares in respect of which the right of dissent is exercised are
taxable Canadian property, as described above. Additional income tax
considerations may be relevant to dissenting shareholders who fail to perfect or
withdraw their claims pursuant to the right of dissent. Dissenting shareholders
should consult their own tax advisors.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS TO OPTIONHOLDERS
Subject to the qualifications and assumptions contained herein, in the
opinion of Bennett Jones LLP, Canadian counsel to Global, the following is, as
of the date of this Joint Proxy Statement, a fair and adequate summary of the
material Canadian federal income tax considerations generally applicable to the
holders of options to purchase Global common shares who at all relevant times,
for purposes of the Income Tax Act (Canada) and any applicable income tax treaty
or convention, are resident or deemed to be resident in Canada, who are current
or former employees, officers or directors of Global and who received the
options in respect of, in the course of, or by virtue of their positions as
employees, officers or directors of Global.
This discussion is based on the current provisions of the Income Tax Act
(Canada) and the Regulations and counsel's understanding of the current
published administrative practices of the CCRA. This discussion does not take
into account or anticipate any changes in law, whether by legislative,
administrative or judicial decision or action, nor does it take into account
provincial, territorial or foreign income tax legislation or considerations
which may differ from the Canadian federal income tax considerations described
herein.
THE FOLLOWING DISCUSSION IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO
BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR
OPTIONHOLDER. ACCORDINGLY, OPTIONHOLDERS SHOULD CONSULT THEIR OWN INDEPENDENT
TAX ADVISORS FOR ADVICE WITH RESPECT TO THE INCOME TAX CONSEQUENCES TO THEM OF
THE COMBINATION, HAVING REGARD TO THEIR OWN PARTICULAR CIRCUMSTANCES.
On the assumption that, at the time of the exchange of any options to
purchase Global common shares for options to purchase shares of FuelCell common
stock pursuant to the Combination, the difference between the value of the
shares of FuelCell common stock under the options to purchase shares of FuelCell
common stock and the amount payable under such options to purchase the shares of
FuelCell common stock does not exceed the difference between the value of the
Global common shares available under the options and the amount payable under
such options to purchase Global common shares, the holders of the options will
not realize any immediate tax consequences as a result of exchanging their
options to purchase Global common
139
shares for options to purchase shares of FuelCell common stock. Instead, for the
purposes of the Income Tax Act (Canada):
- the optionholders will be deemed not to have disposed of their options to
purchase Global common shares and not to have acquired the options to
purchase shares of FuelCell common stock;
- the options to purchase shares of FuelCell common stock will be deemed to
be the same as, and a continuation of, the options to purchase Global
common shares; and
- FuelCell will be deemed to be the same corporation as Global for the
purposes of the rules in the Income Tax Act (Canada) relating to employee
stock options.
UNITED STATES FEDERAL TAX CONSIDERATIONS TO SHAREHOLDERS
In the opinion of Robinson & Cole LLP, United States counsel to FuelCell,
and Dorsey & Whitney LLP, United States counsel to Global ("Counsel"), the
following is a summary of the principal U.S. federal income tax consequences
generally applicable to a U.S. Holder (as defined below) of Global common shares
who receives shares of FuelCell's common stock pursuant to the Combination. As
used herein, "U.S. Holder" means a holder of Global common shares or shares of
FuelCell common stock, as the case may be, who or that is for U.S. federal
income tax purposes (i) a citizen or resident of the United States, (ii) a
corporation or other entity taxable as a corporation organized under the laws of
the United States or any political subdivision thereof (including the States and
the District of Columbia), (iii) an estate or trust defined in Section
7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code") or
(iv) any other person that is subject to U.S. federal income tax on its
worldwide income (each of the foregoing, a "U.S. Holder"). A "Non-U.S. Holder"
is any holder of Global common shares, exchangeable shares or shares of FuelCell
common stock, as the case may be, other than a U.S. Holder. If an entity that is
treated as a partnership for U.S. federal income tax purposes holds Global
common shares, the tax treatment of a partner in the partnership will generally
depend upon the status of the partner and the activities of the partnership. If
you are a partner of a partnership holding Global common shares, you should
consult your tax advisor regarding the tax consequences of the Combination to
you, including the acquisition, ownership and disposition of exchangeable shares
or FuelCell common stock.
This summary is based upon existing U.S. federal income tax law, including
the Code, administrative pronouncements, judicial decisions and Treasury
Regulations, as in effect as of the date hereof, all of which are subject to
change, possibly with retroactive effect. This summary assumes that each of the
Global common shares has been held as a capital asset as defined in Section 1221
of the Code in the hands of the U.S. Holder at all relevant times and that the
shares of FuelCell common stock to be received by such U.S. Holder as a result
of the Combination will also be held as capital assets. This summary assumes
that Global is not, but may become, a "controlled foreign corporation" and that
Global may be or may become a "passive foreign investment company" for U.S.
federal income tax purposes. This summary does not discuss aspects of U.S.
federal income taxation that may be applicable to holders of options as a result
of the Combination, nor does it address any aspects of foreign, state or local
taxation. Furthermore, this summary does not discuss all the tax consequences
that may be relevant to a U.S. Holder in light of such holder's particular
circumstances or to U.S. Holders subject to special rules including certain
financial institutions, regulated investment companies, insurance companies,
dealers in securities, tax-exempt organizations, persons who hold Global common
shares or shares of FuelCell common stock, as the case may be, as part of a
position in a "straddle" or "appreciated financial position" or as part of a
"hedging" or "conversion" transaction, persons that own or have owned, actually
or constructively, 10% or more of the Global common shares, persons who acquired
their Global common shares through the exercise or cancellation of employee
stock options or otherwise as compensation for services, and U.S. Holders whose
functional currency is not the U.S. dollar.
No advance income tax ruling has been sought or obtained from the Internal
Revenue Service ("IRS") with respect to the tax consequences of the Combination
and, as a result, there can be no assurance that the IRS will agree with, or
that a court will uphold, any of the conclusions set forth herein.
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HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE U.S.
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES, THE FOREIGN TAX CONSEQUENCES AND THE
NON-TAX CONSEQUENCES OF THE COMBINATION, INCLUDING THE RECEIPT, OWNERSHIP AND
DISPOSITION OF SHARES OF FUELCELL COMMON STOCK AND ANCILLARY RIGHTS AND CALL
RIGHTS.
UNITED STATES HOLDERS
The following discussion applies only to U.S. Holders who receive shares of
FuelCell common stock in exchange for their Global common shares. This
discussion does not address U.S. Holders who are residents of Canada for
purposes of the Income Tax Act (Canada) and who elect to receive exchangeable
shares pursuant to the Combination. Such U.S. Holders should consult their tax
advisers concerning the tax consequences of the Combination. This discussion
also assumes that the holder of the Global Series 2 Preferred Shares will not
exercise its right to convert all or part of such shares into Global common
shares prior to the Combination or into exchangeable shares or shares of
FuelCell common stock in connection with the Combination.
EXCHANGE OF GLOBAL COMMON SHARES FOR FUELCELL COMMON STOCK
The exchange of Global common shares for shares of FuelCell common stock
pursuant to the Combination will be a taxable event for United States federal
income tax purposes. Consequently, a U.S. Holder will recognize gain or loss
equal to the difference between (i) the sum of (a) the fair market value on the
date of the exchange of the shares of FuelCell common stock received in the
exchange and (b) any cash received in lieu of the fractional shares and (ii)
such U.S. Holder's tax basis in its Global common shares. Generally, such gain
or loss will be capital gain or loss and will be long-term capital gain or loss
if the U.S. Holder had held its Global common shares for more than one year at
the time of the exchange. Gain or loss, if any, realized by a U.S. Holder in
connection with the Combination generally will be treated as having a U.S.
source. For U.S. federal income tax purposes, a U.S. Holder's basis in the
shares of FuelCell common stock received pursuant to the Combination will be
equal to the fair market value of such shares on the date of exchange and a U.S.
Holder's holding period with respect to such shares will begin on the day after
the date of the exchange. The foregoing discussion is subject to the application
of the "Passive Foreign Investment Company Considerations" below.
DISSENTING SHAREHOLDERS
A U.S. Holder who exercises the right to dissent from the Combination will
recognize gain or loss on the exchange of such holder's Global common shares for
cash in an amount equal to the difference between the amount of cash received
(other than amounts, if any, which are or are deemed to be interest for United
States federal income tax purposes, which amounts will be taxed as ordinary
income) and such holder's adjusted tax basis in its Global common shares. Such
gain or loss generally will be U.S. source income, will be capital gain or loss
if the Global common shares were held as capital assets at the time of the
exchange and will be long-term capital gain or loss if the U.S. Holder's holding
period for the Global common shares is more than one year at such time. The
foregoing discussion is subject to the application of the "Passive Foreign
Investment Company Considerations" below.
NON-UNITED STATES HOLDERS
The following discussion is applicable to a Non-U.S. Holder.
RECEIPT, EXCHANGE OR OTHER DISPOSITION OF EXCHANGEABLE SHARES AND FUELCELL
COMMON STOCK
Subject to the discussion below under "Foreign Investment in Real Property
Tax Act", a Non-U.S. Holder generally will not be subject to U.S. federal income
tax on any gain realized on the receipt of exchangeable shares or FuelCell
common stock in exchange for Global common shares, on the sale or exchange of
the exchangeable shares, or on the sale or exchange of shares of FuelCell common
stock, unless (i) such gain (A) in the absence of an applicable tax treaty, is
effectively connected with a trade or business of the Non-U.S. Holder in the
United States, or (B) if a tax treaty applies, is attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United States or (ii)
unless an applicable tax treaty
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provides otherwise the Non-U.S. Holder is an individual who holds the Global
common shares, the exchangeable shares or the shares of FuelCell common stock,
as the case may be, as a capital asset and is present in the United States for
183 days or more in the taxable year of disposition, and certain other
conditions are satisfied. The foregoing discussion is subject to the application
of the "Passive Foreign Investment Company Considerations" below.
DISTRIBUTIONS ON THE EXCHANGEABLE SHARES AND FUELCELL COMMON STOCK
FuelCell may take the position that the dividends, if any, received by a
Non-U.S. Holder in respect of the exchangeable shares should be treated as
dividends from FuelCell and, in that case, FuelCell anticipates that ExchangeCo
will withhold from such amounts U.S. withholding tax at a rate of 30 percent
unless reduced by applicable treaty. For U.S. federal income tax purposes, in
general, dividends received by a Non-U.S. Holder with respect to shares of
FuelCell common stock that are not effectively connected with the conduct by
such holder of a trade or business in the United States will also be subject to
U.S. withholding tax at a rate of 30 percent. The withholding rate may be
reduced by an applicable income tax treaty in effect between the United States
and the Non-U.S. Holder's country of residence (currently 15%, generally, on
dividends paid to residents of Canada under the current Canada-United States
Income Tax Convention).
FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT
Notwithstanding the discussion above, under the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"), gain or loss recognized by a Non-U.S.
Holder on the sale or exchange of shares of FuelCell common stock, as well as
any gain or loss recognized on the sale or exchange of exchangeable shares (if
such shares are treated by the IRS as representing stock of FuelCell), will be
subject to U.S. federal income tax as if such gain or loss were effectively
connected with a United States trade or business if such shares are treated as
"United States real property interests" ("USRPIs") (as defined below) and the
Non-U.S. Holder is a greater than 5% Shareholder as defined under applicable
regulations.
A USRPI generally includes any interest (other than an interest solely as a
creditor) in a "United States real property holding corporation" (a "USRPHC").
Exchangeable shares (if treated as stock of FuelCell) and shares of FuelCell
common stock will be USRPIs unless it is established under specific procedures
that FuelCell is not (and was not for the prior five-year period) a USRPHC. A
corporation is a USRPHC if the fair market value of its interests in United
States real property equals or exceeds 50% of the sum of the fair market value
of all of its interests in real property and all of its other assets used or
held for use in a trade or business (as defined in applicable regulations),
after applying certain look-through rules. FuelCell cannot give any assurance as
to whether it is, at any time within the past five years, it has been, or will
in the future become a USRPHC.
If it is determined that FuelCell is, has been in the past five years or in
the future becomes, a USRPHC, so long as FuelCell's stock is regularly traded on
an established securities market, an exemption should apply, except with respect
to a Non-U.S. Holder whose beneficial and/or constructive ownership of common
stock in FuelCell exceeds 5% of the total fair market value of the total
outstanding shares of FuelCell common stock (including exchangeable shares to
the extent they are treated as FuelCell common stock). This exception should
apply to both the shares of FuelCell common stock and to the exchangeable shares
(if treated as FuelCell stock). Any investor that may approach or exceed the 5%
ownership threshold discussed above, either alone or in conjunction with related
persons, should consult its own tax advisor concerning the United States tax
consequences that may result. A Non-U.S. Holder who sells or otherwise disposes
of exchangeable shares or shares of FuelCell common stock may be required to
inform its transferee whether such shares constitute a United States real
property interest.
The foregoing discussion of the possible application of the FIRPTA rules to
Non-U.S. Holders is only a summary of certain material aspects of these rules.
Because the United States federal income tax consequences to a Non-U.S. Holder
under FIRPTA may be significant and are complex, Non-U.S. Holders are urged to
discuss those consequences with their tax advisors.
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CONTROLLED FOREIGN CORPORATION CONSIDERATIONS
FuelCell may be subject to U.S. federal income taxation on Global's
earnings before receiving distributions from Global attributable to such
earnings. In general, if a U.S. person, directly or indirectly, holds an equity
interest representing 10% or greater of the total combined voting power in a
non-U.S. entity and, together with other U.S. persons who directly or indirectly
own 10% or more of the non-U.S. entity, hold more than 50% of the outstanding
equity of the non-U.S. entity, measured by vote or value, the non-U.S. entity
will be treated as a "controlled foreign corporation" with respect to such U.S.
persons. Following the Combination, FuelCell should itself own, directly or
indirectly, more than 50% of the outstanding equity of Global, measured by vote
or value, and therefore, Global should be a controlled foreign corporation with
respect to FuelCell. As a result, FuelCell could be required to include in its
income for U.S. federal income tax purposes on a current basis all or a portion
of its share of the undistributed "earnings and profits," as determined for such
purposes, of Global, depending on Global's sources of income and other
considerations. In general, FuelCell must include its share of undistributed
earnings and profits of Global where the earnings and profits are attributable
to Global's "subpart F income," which generally is income from passive and
certain other sources, or are invested by Global in "U.S. property," as
determined for U.S. federal income tax purposes.
PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS
The general rules described above relating to the character and timing for
recognition of any gain realized in the Combination may not apply to a U.S.
Holder if Global is, or has been at any time during the U.S. Holder's holding
period for its Global common shares, a "passive foreign investment company."
Global will be classified as a passive foreign investment company for any
taxable year as to which, after the application of "look through" rules, either
(a) 75% or more of its gross income in such taxable year is passive income, or
(b) the average percentage of its assets in such taxable year that produce or
are held for the production of passive income (which includes cash) is at least
50%.
Although Global has not completed its analysis of whether or not it is or
has been a passive foreign investment company, Global believes it is likely to
be treated as a passive foreign investment company for the current tax period in
view of its cash position and the consideration payable to Global shareholders
in the Combination. Global may have qualified as a passive foreign investment
company in prior tax periods. However, each U.S. Holder, particularly a U.S.
Holder whose tax basis in Global common shares is less than the consideration to
be received in exchange therefore pursuant to the Combination (i.e., FuelCell
common stock and the amount of any cash), should consult its own financial and
tax advisors regarding the potential application of the passive foreign
investment company rules to the exchange of Global common shares pursuant to the
Combination.
Special U.S. federal income tax rules apply to a U.S. Holder if Global is
or has been a passive foreign investment company at any time during such U.S.
Holder's holding period for its Global common shares. Under those rules, subject
to the discussion below as to the mark-to-market and qualified electing fund
elections, if such a U.S. Holder realizes a gain upon the disposition of its
Global common shares pursuant to the Combination:
- the gain would be allocated ratably over the U.S. Holder's holding period
for the Global common shares;
- the amount allocated to the current taxable year and any taxable year
prior to the first taxable year in which Global was a passive foreign
investment company would be treated as ordinary income includible in
income for the current taxable year;
- the amount allocated to each other prior taxable year would be taxed as
ordinary income at the highest tax rate in effect for that year; and
- the interest charge applicable to underpayments of U.S. federal income
tax would be imposed with respect to the resulting tax attributable to
each prior year commencing with the first year in which
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Global was a passive foreign investment company, to recover the deemed
benefit from the deferred payment of the tax attributable to each such
year.
Under certain circumstances, a U.S. Holder of stock in a passive foreign
investment company may elect tax treatment that differs from the foregoing.
First, a U.S. Holder of "marketable" stock in a passive foreign investment
company is allowed to make a mark-to-market election with respect to such stock.
Stock that is listed on a non-U.S. exchange, such as the Global common shares,
will be treated as marketable where the exchange is regulated or supervised by a
governmental authority of the country in which the market is located and has the
following characteristics:
- the exchange has trading volume, listing, financial disclosure,
surveillance, and other requirements designed to prevent fraudulent and
manipulative acts and practices, to remove impediments to and perfect the
mechanism of a free and open, fair and orderly, market, and to protect
investors; and
- the laws of the country in which the exchange is located and the rules of
the exchange ensure that such requirements are actually enforced; and
- the rules of the exchange effectively promote active trading of listed
stocks.
Global has not determined whether the Toronto Stock Exchange, the exchange
upon which the Global common shares are listed, satisfies the foregoing
requirements. If a U.S. Holder has determined that its Global shares are
marketable and has properly made a mark-to-market election with respect to its
Global common shares, the special gain allocation rules described above would
not apply to such U.S. Holder. Instead, the U.S. Holder would be required to
mark its Global common shares to market each taxable year. The U.S. Holder would
recognize ordinary income as a result of any increase in market value for a
taxable year, and would be allowed to recognize an ordinary loss for any
decrease in market value for a taxable year (but only to the extent of the net
amount previously included in income as a result of the mark-to-market
election). The adjusted tax basis in the U.S. Holder's Global common shares
would be adjusted to reflect any such gain or loss amounts. The mark-to-market
election is effective for the taxable year for which the election is made and
all subsequent taxable years, unless the Global common shares cease to be
marketable or the U.S. Internal Revenue Service consents to the revocation of
the election.
The special gain allocation rules and the mark-to-market rules described
above will not apply to a U.S. Holder that has made a "qualified electing fund"
election, that is, a U.S. Holder that has elected to treat Global as a qualified
electing fund and to include such U.S. Holder's share of Global's income on a
current basis. However, even if Global is or has been a passive foreign
investment company, the qualified electing fund election is not available to
Global's U.S. Holders because certain requirements for the election have not
been and will not be satisfied.
If Global has been a passive foreign investment company in any year, a U.S.
Holder would be required to file an annual return on Internal Revenue Service
Form 8621 regarding distributions received with respect to the Global common
shares and any gain realized on the disposition of the Global common shares.
The foregoing is only a summary of certain material aspects of the
potential application of the passive foreign investment company rules to Global
and U.S. Holders of Global common shares. Because the U.S. federal income tax
consequences to a U.S. Holder of Global common shares under the passive foreign
investment company provisions are significant and are complex, U.S. Holders of
Global common shares are urged to discuss those consequences with their tax
advisors.
BACKUP WITHHOLDING AND INFORMATION REPORTING
UNITED STATES HOLDERS
Payments of dividends made on, or the proceeds of the sale or other
disposition of, the shares of FuelCell common stock, as the case may be, may be
subject to information reporting and United States federal backup withholding
tax at the rate of 28% if the recipient of such payment fails to supply an
accurate taxpayer identification number or otherwise fails to comply with
applicable United States information reporting or certification requirements.
Any amount withheld from a payment to a U.S. Holder under the backup
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withholding rules is allowable as a credit against the holder's U.S. federal
income tax, provided that the required information is furnished to the IRS.
NON-UNITED STATES HOLDERS
A Non-U.S. Holder may be required to comply with certification procedures
to establish that such holder is not a U.S. person in order to avoid backup
withholding tax requirements with respect to distributions on, or the proceeds
of the sale or other disposition of, the exchangeable shares and shares of
FuelCell common stock, as the case may be. In addition, FuelCell must report
annually to the IRS and to each Non-U.S. Holder the amount of any dividends paid
to and the tax withheld with respect to, such holder, regardless of whether any
tax was actually withheld. Copies of these information returns may also be made
available under the provisions of a specific treaty or agreement to the tax
authorities of the country in which the Non-U.S. Holder resides.
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CHAPTER FIVE -- INFORMATION ABOUT THE MEETINGS AND VOTING
THE GLOBAL SPECIAL MEETING -- INFORMATION FOR GLOBAL COMMON SHAREHOLDERS
SOLICITATION AND VOTING OF PROXIES
The accompanying Global proxy is solicited on behalf of management of
Global for use at the Global Meeting to be held at 10:00 a.m. on October 31,
2003 in Rooms 105 and 106 in the North Building of the TELUS Convention Centre,
136 - 8th Avenue S.E., Calgary, Alberta, Canada. Global anticipates that it will
solicit proxies from Global common shareholders for use at the Global Meeting to
help ensure that the requisite approval from Global common shareholders is
obtained. The solicitation of proxies will be primarily by mail but proxies may
also be solicited personally or by telephone by regular employees of Global and
FuelCell without special compensation. Global and FuelCell will each bear their
own costs of solicitation of proxies. Global may also pay brokers or nominees
holding Global common shares in their names or in the names of their principals
for their reasonable expenses in sending solicitation material to their
principals. Global may retain a soliciting dealer to aid in the solicitation of
proxies and verify records related to the solicitation. In such event, Global
anticipates that it will pay the investment dealer or broker the fees customary
for such a solicitation, subject to mutually agreed upon minimum and maximum
amounts.
Only registered shareholders at the close of business on October 1, 2003
will be entitled to vote at the Global Meeting, subject to the provisions of the
Business Corporations Act (Alberta) law regarding transfers of common shares
after October 1, 2003. Please see the "Notice of Special Meeting of Common
Shareholders" accompanying this Joint Proxy Statement for more information
regarding voting and other shareholder rights. At the close of business on
September 24, 2003, there were 29,201,450 common shares outstanding.
A quorum for the transaction of business at the Global Meeting requires at
least two persons present in person, each being a shareholder entitled to vote
or a duly appointed proxy or representative for any absent shareholder so
entitled, and representing in the aggregate not less than 20% of the outstanding
shares of Global carrying voting rights at the Global Meeting.
To be effective, proxies must be received by Computershare Trust Company of
Canada not later than 10:00 a.m. (Calgary time) on October 29, 2003, or, if the
Global Meeting is adjourned or postponed, not later than 48 hours (excluding
Saturdays, Sundays and bank holidays) before the time of the adjourned or
postponed Global Meeting or any further adjournment or postponement thereof.
ADVICE TO BENEFICIAL HOLDERS OF GLOBAL COMMON SHARES
The information set forth in this section is important to shareholders who
do not hold their Global common shares in their own name (referred to in this
Joint Proxy Statement as "beneficial shareholders"). Beneficial shareholders
should note that only proxies deposited by shareholders whose names appear on
the records of Global as registered shareholders can be recognized and acted
upon at the Global Meeting. If Global common shares are listed in an account
statement provided to a shareholder by a broker, then in almost all cases those
Global common shares will not be registered in the shareholder's name on the
records of Global. Such Global common shares will more likely be registered
under the name of the shareholder's broker or a nominee of that broker. In
Canada, the vast majority of these shares are registered under the name of CDS &
Co. (the registration name for the Canadian Depository for Securities), which
acts as nominee for many Canadian brokerage firms. In the United States, shares
are often registered under the name of CEDE & Co. (the registration name for The
Depository Trust Company), which acts as nominee for many U.S. brokerage firms.
Global common shares held by brokers or their nominees can only be voted (for or
against resolutions) upon the instructions of the beneficial shareholder.
Applicable regulatory policy requires brokers to seek voting instructions
from beneficial shareholders in advance of shareholders' meetings. Every
intermediary/broker has its own mailing procedures and provides its own return
instructions, which should be carefully followed by beneficial shareholders in
order to ensure that
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their Global common shares are voted at the Global Meeting. Often the form of
proxy supplied to a beneficial shareholder by his/her broker is identical to the
form of proxy provided by Global to the registered shareholders. However, its
purpose is limited to instructing the registered shareholder how to vote on
behalf of the beneficial shareholder. The majority of brokers now delegate
responsibility for obtaining instructions from clients to Independent ADP
Investor Communications in Canada and ADP Proxy Services in the United States
(collectively, "ADP"). ADP typically prepares a machine-readable proxy form,
mails those forms to the beneficial shareholders and asks beneficial
shareholders to return the proxy forms to ADP. ADP then tabulates the results of
all instructions received and provides appropriate instructions respecting the
voting of common shares at the Global Meeting.
A beneficial shareholder receiving a proxy form from ADP cannot use that
proxy to vote Global common shares directly at the Global Meeting. The proxy
must be returned to the respective ADP well in advance of the Global Meeting in
order to have the Global common shares represented by such proxy voted.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Global's board of directors has unanimously determined that the Combination
is fair to holders of Global common shares and preferred shares and is in the
best interests of Global and unanimously recommends that Global common
shareholders vote "FOR" the special resolution to approve the Combination
attached to this Joint Proxy Statement as Annex A.
APPOINTMENT OF PROXY AND DISCRETIONARY AUTHORITY
AS A GLOBAL COMMON SHAREHOLDER YOU HAVE THE RIGHT TO APPOINT A PERSON WHO
NEED NOT BE A SHAREHOLDER OF GLOBAL, OTHER THAN PERSONS DESIGNATED IN THE FORM
OF PROXY ACCOMPANYING THIS JOINT PROXY STATEMENT, AS NOMINEE TO ATTEND AND ACT
FOR AND ON YOUR BEHALF AT THE GLOBAL MEETING AND MAY EXERCISE SUCH RIGHT BY
INSERTING THE NAME OF SUCH PERSON IN THE BLANK SPACE PROVIDED ON THE FORM OF
PROXY.
THE FORM OF PROXY ACCOMPANYING THIS JOINT PROXY STATEMENT CONFERS
DISCRETIONARY AUTHORITY UPON THE PROXY NOMINEES WITH RESPECT TO AMENDMENTS OR
VARIATIONS TO THE MATTERS IDENTIFIED IN THE ACCOMPANYING NOTICE OF THE GLOBAL
MEETING AND OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE GLOBAL MEETING.
YOUR COMMON SHARES REPRESENTED BY PROXIES AT THE GLOBAL MEETING WILL BE
VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS WHERE YOU HAVE SPECIFIED A CHOICE
WITH RESPECT TO ANY MATTER TO BE VOTED UPON. IN THE ABSENCE OF SUCH
SPECIFICATION, YOUR PROXY WILL BE COUNTED AS A VOTE IN FAVOR OF THE SPECIAL
RESOLUTION TO APPROVE THE COMBINATION ATTACHED TO THIS JOINT PROXY STATEMENT AS
ANNEX A AT THE GLOBAL MEETING.
Management of Global knows of no matters to come before the Global Meeting
other than the matters referred to in the accompanying notice of the Global
Meeting. However, if any other matters which are not now known to management
should properly come before the Global Meeting, the common shares represented by
proxies granted to the proxy nominees will be voted on such matters in
accordance with the best judgment of the proxy nominee.
REVOCATION OF PROXIES
PROXIES GIVEN BY GLOBAL COMMON SHAREHOLDERS FOR USE AT THE GLOBAL MEETING
MAY BE REVOKED AT ANY TIME PRIOR TO THEIR USE. A Global common shareholder
giving a proxy may revoke the proxy (i) by instrument in writing executed by the
shareholder or by his or her attorney authorized in writing, or, if the
shareholder is a corporation, under its corporate seal by an officer or attorney
thereof duly authorized indicating the capacity under which such officer or
attorney is signing, and deposited either at the registered office of Global (as
set forth in this Joint Proxy Statement) or with Computershare Trust Company of
Canada at 9th Floor, 100 University Avenue, Toronto, Ontario M5J 2YI at any time
up to and including 5:00 p.m. (Calgary time) on the last business day preceding
the day of the Global Meeting, or any adjournment or postponement thereof, or
with the chairman of the Global Meeting on the day of the Global Meeting or
adjournment or postponement thereof, (ii) by a duly executed proxy bearing a
later date or time than the date or time of the proxy being revoked, (iii) by
voting in person at the Global Meeting (although attendance at the Global
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Meeting will not in and of itself constitute a revocation of a proxy) or (iv) in
any other manner permitted by law.
REQUIRED VOTES
Global common shareholders are entitled to one vote for each common share
held. The special resolution, in the form of Annex A to this Joint Proxy
Statement, in respect of the proposed Plan of Arrangement set forth in full in
Annex D to this Joint Proxy Statement, must be approved by the affirmative
approval of at least 66 2/3% of the aggregate of the votes cast by the Global
common shareholders present (in person or by proxy) and entitled to vote at the
Global Meeting.
PRINCIPAL HOLDERS OF COMMON SHARES
To the knowledge of the directors and senior officers of Global, there are
no persons who beneficially own, directly or indirectly, or exercise control or
direction over Global common shares carrying more than 10% of the voting rights
attached to all outstanding Global common shares, as of September 24, 2003.
THE FUELCELL SPECIAL MEETING -- INFORMATION FOR FUELCELL STOCKHOLDERS
GENERAL
The accompanying FuelCell proxy is solicited on behalf of FuelCell's board
of directors for use at the FuelCell Meeting to be held at 10:00 a.m. on Friday,
October 31, 2003 at the Sheraton Danbury Hotel, 18 Old Ridgebury Road, Danbury,
Connecticut. FuelCell's board of directors has fixed the close of business on
September 16, 2003 as the record date for determining FuelCell stockholders
entitled to notice of and to vote at the FuelCell Meeting. As of September 16,
2003, there were 39,374,633 shares of FuelCell common stock outstanding and
entitled to vote. This Joint Proxy Statement and the accompanying form of proxy
were first mailed to FuelCell stockholders on or about October 2, 2003.
PURPOSE OF THE FUELCELL MEETING
The purpose of the FuelCell Meeting is to:
1. consider and vote upon a proposal to approve the Combination
Agreement and the Combination, as described in this Joint Proxy Statement;
and
2. transact such other business as may properly be presented to the
FuelCell Meeting or any adjournment or postponement thereof.
Copies of the Combination Agreement and the Plan of Arrangement are
attached to this Joint Proxy Statement as Annexes B and D. FuelCell stockholders
should review the Combination Agreement, all related exhibits thereto and this
Joint Proxy Statement carefully and in their entirety before deciding how to
vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
FuelCell's board of directors believes that the Combination is fair to the
FuelCell stockholders and in the best interests of FuelCell and unanimously
recommends that FuelCell stockholders vote "FOR" approval of the Combination
Agreement and the transactions contemplated thereby.
VOTING PROXIES AT THE FUELCELL MEETING AND REVOKING PROXIES
FuelCell requests that you complete, date and sign the accompanying proxy
and promptly return it in the accompanying envelope. Alternatively, you can
simplify your voting and save FuelCell expense by voting via the Internet (by
visiting the website shown on your proxy card and following the instructions
listed there) or calling the toll-free telephone number listed on your proxy
card. Internet and telephone voting information is provided on your proxy card.
A control number, which is located on your proxy card, is designed to verify
your identity as a FuelCell stockholder and allow you to vote your shares and
confirm that your voting instructions
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have been recorded properly. If you vote via the Internet or by telephone,
please do not return a signed proxy card.
Brokers holding voting shares in "street name" may vote the shares only if
you provide them with instructions on how to vote. Brokers will direct you on
how to instruct them to vote your shares. Please note, however, that if the
holder of record of your shares is your broker, bank or other nominee and you
wish to vote at the FuelCell Meeting, you must bring a letter from the broker,
bank or other nominee confirming that you are the beneficial owner of the
shares. All properly-executed proxies that FuelCell receives prior to the vote
at the FuelCell Meeting, and that are not revoked, will be voted in accordance
with the instructions indicated on the proxy card. If no direction is indicated
on a proxy, the proxy will be voted in favor of approval of the proposals
(except for broker non-votes, which are discussed below).
A FuelCell stockholder may revoke its proxy at any time prior to its use:
- by delivering to the Secretary of FuelCell a later-dated notice of
revocation;
- by delivering to the Secretary of FuelCell a later-dated signed proxy
(which will automatically supercede any earlier-dated proxy that such
stockholder returned); or
- by attending the FuelCell Meeting and voting in person (attendance at the
FuelCell Meeting does not, by itself, constitute revocation of a proxy).
If your shares are held in "street name," your broker or nominee may permit
you to vote by telephone or electronically. Please check your proxy card or
contact your broker or nominee to determine whether these methods of voting are
available to you.
QUORUM, VOTING RIGHTS, ABSTENTIONS AND BROKER NON-VOTES
A majority of all issued and outstanding voting shares of FuelCell common
stock as of the record date, represented in person or by proxy, will constitute
a quorum for the transaction of business at the FuelCell Meeting. If a quorum is
not present, the FuelCell Meeting may be postponed or adjourned to allow
additional time for obtaining additional proxies or votes. At any subsequent
reconvening of the FuelCell Meeting, all proxies will be voted in the same
manner as the proxies would have been voted at the original convening of the
FuelCell Meeting, except for any proxies that have been effectively revoked or
withdrawn prior to the subsequent meeting.
Each share of FuelCell common stock entitles its owner to one vote on all
matters presented at the FuelCell Meeting. Approval of the Combination Agreement
and the Combination requires the affirmative vote of a majority of the total
votes cast on the proposal, either by person or by proxy.
If any FuelCell stockholder submits a proxy that indicates an abstention
from voting in all matters, such stockholder's shares will be counted as present
in determining the existence of a quorum at the FuelCell Meeting, but they will
not be voted on any matter at the meeting. Abstentions are included in
determining the number of shares voted on the proposals submitted to
stockholders, however, and will therefore have the same effect as a vote against
such proposals.
Under the rules that govern brokers who have record ownership of shares
that are held in "street name" for their clients (who are the beneficial owners
of the shares), brokers have discretion to vote the shares on routine matters
but not on non-routine matters. The proposal to be presented at the FuelCell
Meeting is a non-routine matter. Accordingly, brokers will not have
discretionary voting authority to vote your shares at the FuelCell Meeting. A
"broker non-vote" occurs when brokers do not have discretionary voting authority
and have not received instructions from the beneficial owners of the shares.
Under Delaware case law, broker non-votes are counted for purposes of
determining whether a quorum is present at the meeting, but are not counted for
purposes of determining whether a proposal has been approved.
Broker non-votes will not count as shares voting "for" or "against" with
respect to approval of the Combination Agreement and the Combination and will
not be considered as shares entitled to vote on the proposal for purposes of
determining whether such proposal has been approved.
149
Failing to return your proxy or attend the FuelCell Meeting will reduce the
number of votes cast at the FuelCell Meeting and may contribute to a lack of a
quorum. Consequently, you are urged to return the enclosed proxy card with your
vote marked.
REASONS FOR SEEKING STOCKHOLDER APPROVAL
FuelCell is submitting the Combination Agreement and the Combination for
approval by FuelCell stockholders in accordance with the Nasdaq Marketplace
Rules. The Nasdaq Marketplace Rules require stockholder approval prior to
issuing securities in connection with the acquisition of stock of another
company if the number of shares to be issued in the transaction exceeds 20% or
more of the outstanding common stock or voting power outstanding prior to the
transaction. Under the terms of the Combination Agreement and the Plan of
Arrangement, FuelCell will issue its common stock or exchangeable shares of
ExchangeCo exchangeable into shares of FuelCell's common stock to Global common
shareholders in exchange for their Global common shares, and Global common
shareholders will own between approximately 17% and 20% of the outstanding
shares of FuelCell common stock, on a fully-diluted basis, immediately following
completion of the Combination. In addition, FuelCell will assume all outstanding
Global stock options and the obligation to issue its common stock or
exchangeable shares of ExchangeCo exchangeable into shares of FuelCell's common
stock upon the conversion of the outstanding Global Series 2 Preferred Shares
after completion of the Combination, which will result in FuelCell issuing
additional shares of its common stock. For a description of the number of shares
of FuelCell common stock that may be issued upon conversion of the Global Series
2 Preferred Shares, please see "Chapter One -- The Combination -- Description of
the Combination -- Mechanics for Implementing the Combination and Description of
the Exchange Shares -- Global Series 2 Preferred Shares."
If FuelCell were to consummate the Combination without FuelCell stockholder
approval, FuelCell common stock could not remain listed on the Nasdaq National
Market. Approval of the Combination is not required by Delaware law, by the
FuelCell Charter or by FuelCell's bylaws.
SOLICITATION OF PROXIES AND EXPENSES
FuelCell will bear its own expenses in connection with the solicitation of
proxies for the FuelCell Meeting, except that Global and FuelCell will share
equally all out-of-pocket expenses (other than fees and expenses of attorneys,
accountants, investment bankers and other advisors) incurred in connection with
the printing and filing of this Joint Proxy Statement and any filings or
applications with any governmental entity relating to the Combination. Please
see "Chapter One -- the Combination -- Description of the
Combination -- Business Combination Costs."
In addition to solicitation by mail, FuelCell's directors, officers and
employees may solicit proxies by telephone, facsimile, e-mail or in person. They
will not receive additional compensation for their services. Record holders such
as brokerage houses, nominees, fiduciaries and other custodians will be
requested to forward soliciting materials to beneficial owners and to request
authority for the exercise of proxies, and, upon request of such record holders,
they will be reimbursed for their reasonable expenses incurred in sending proxy
materials to beneficial owners.
INDEPENDENT AUDITORS
Representatives of KPMG LLP, FuelCell's independent auditors, plan to
attend the FuelCell Meeting and will be available to answer questions. Its
representatives will also have an opportunity to make a statement at the
FuelCell Meeting if they so desire.
STOCKHOLDER PROPOSALS AT THE 2004 ANNUAL MEETING
FuelCell stockholders may submit proposals on matters appropriate for
stockholder action at FuelCell's annual meeting of stockholders consistent with
Rule 14a-8 promulgated under the United States Securities Exchange Act of 1934
and no later than October 29, 2003.
150
DISSENTERS' APPRAISAL RIGHTS
FuelCell common stockholders are not entitled to demand appraisal of, or to
receive payment for, their shares of common stock under the Delaware General
Corporation Law.
THE MATTERS TO BE CONSIDERED AT THE FUELCELL MEETING ARE VERY IMPORTANT TO
FUELCELL AND ITS STOCKHOLDERS. ACCORDINGLY, YOU ARE URGED TO READ AND CAREFULLY
CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY STATEMENT, AND TO
COMPLETE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY.
151
CHAPTER SIX -- FUELCELL EXECUTIVE COMPENSATION AND RELATED INFORMATION
Information concerning FuelCell, including information relating to
executive compensation, is set forth in Annex H to this Joint Proxy Statement.
CHAPTER SEVEN--GLOBAL EXECUTIVE COMPENSATION AND RELATED INFORMATION
EXECUTIVE COMPENSATION
The following table sets out the compensation for the current and former
President and Chief Executive Officer ("CEO") of Global and the four other most
highly compensated officers (the "Global Named Executive Officers") of Global
who received in excess of Cdn.$100,000 in aggregate compensation (bonus and
salary) in the fiscal years ended December 31, 2002, 2001 and 2000. ALL DOLLAR
AMOUNTS SHOWN IN THIS CHAPTER ARE EXPRESSED IN CANADIAN DOLLARS.
LONG-TERM COMPENSATION
---------------------------------
AWARDS PAYOUTS
----------------------- -------
SECURITIES RESTRICTED
ANNUAL COMPENSATION UNDER SHARES OR
------------------------------- OPTIONS/ RESTRICTED
OTHER ANNUAL SARS SHARE LTIP ALL OTHER
SALARY BONUS COMPENSATION GRANTED UNITS PAYOUTS COMPENSATION
NAME AND PRINCIPAL OCCUPATION YEAR(1) ($) ($) ($)(2) (#) ($) ($) ($)
----------------------------- ------------ ------- ------ ------------ ---------- ---------- ------- ------------
Peter Garrett(3)........... Dec 31, 2002 232,917 99,930 -- 35,000 -- -- --
President and CEO Dec 31, 2001 22,615 5,733 -- 165,000 -- -- --
Jim Barker(4).............. Dec 31, 2002 180,000 39,752 -- 82,500 -- -- --
Former Vice President, Dec 31, 2001 150,000 28,125 -- 150,000 -- -- --
Business Development and
Marketing
Brian Borglum(5)........... Dec 31, 2002 149,792 32,023 -- 46,000 -- -- --
Vice President and Chief
Technology Officer
Paul Crilly(6)............. Dec 31, 2002 173,125 60,919 -- 96,250 -- -- --
Vice President, Dec 31, 2001 157,500 30,712 -- 25,000 -- -- --
Finance and CFO Dec 31, 2000 83,654 20,000 -- 150,000 -- -- --
Bernie LeSage.............. Dec 31, 2002 140,167 49,253 -- 24,750 -- -- --
Vice President, Dec 31, 2001 120,000 34,920 -- 25,000 -- -- --
Generator Division Dec 31, 2000 87,500 17,000 -- 20,000 -- -- --
James F. Perry(7).......... Dec 31, 2002 147,584 -- -- -- -- -- 660,000
Former President Dec 31, 2001 220,000 65,215 -- 30,000 -- -- --
and CEO Dec 31, 2000 121,250 37,125 -- 50,000 -- -- --
---------------
(1) Global changed its year end from March 31 to December 31 effective December
31, 2000. The December 31, 2000 figures are for the nine month period then
ended.
(2) Perquisites and other benefits in the aggregate equal less than 10% of the
annual salary and bonus for each named executive officer in the applicable
financial year.
(3) Mr. Garrett commenced employment with Global as Chief Operating Officer on
November 13, 2001 and was appointed President and CEO effective July 16,
2002.
(4) Mr. Barker commenced employment with Global on January 2, 2001.
(5) Dr. Borglum commenced employment with Global as Manager, Materials R&D on
July 3, 2001 and was appointed Vice President and Chief Technology Officer
effective August 13, 2002.
(6) Mr. Crilly commenced employment with Global on June 12, 2000.
(7) Mr. Perry resigned on July 16, 2002 and the amount included under All Other
Compensation consists of a termination payment.
152
STOCK OPTIONS
OPTION GRANTS DURING MOST RECENTLY COMPLETED FINANCIAL YEAR
The following table sets forth the details with respect to all options of
Global granted to the Global Named Executive Officers during the year ended
December 31, 2002.
MARKET VALUE
OF SECURITIES
SECURITIES % OF TOTAL EXERCISE OR UNDERLYING OPTIONS
UNDER OPTIONS GRANTED BASE PRICE ON DATE OF GRANT
NAME OPTIONS IN FISCAL 2002 ($/SECURITY) ($/SECURITY) EXPIRATION DATE
---- ---------- --------------- ------------ ------------------ ---------------
Peter Garrett................ 35,000 4% $3.35 $3.35 July 16, 2007
President and CEO
Jim Barker................... 82,500 10 2.35 2.35 July 26, 2007
Former Vice-President,
Business Development and
Marketing
Brian Borglum................ 4,500 1 2.35 2.35 July 26, 2007
Vice President and Chief 41,500 5 2.35 2.35 August 13, 2007
Technology Officer
Paul Crilly.................. 96,250 12 2.35 2.35 July 26, 2007
Vice President, Finance and
CFO
Bernie LeSage................ 24,750 3 2.35 2.35 July 26, 2007
Vice President, Generators
Division
James F. Perry............... -- -- -- -- --
Former President
and CEO
AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
AND FINANCIAL YEAR END OPTION VALUES
The following table sets forth the details with respect to all options of
Global held by the Global Named Executive Officers that were outstanding as of
December 31, 2002.
VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SECURITIES AGGREGATE DECEMBER 31, 2002 DECEMBER 31, 2002(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- ----------- -------------
Peter Garrett........... -- $ -- 41,250 158,750 $ -- $ --
Jim Barker.............. -- -- -- 82,500 -- 2,475
Brian Borglum........... -- -- 7,500 68,500 -- 1,380
Paul Crilly............. -- -- -- 96,250 -- 2,887
Bernie LeSage........... -- -- 27,000 28,750 18,450 742
James F. Perry.......... 130,000 741,000 -- -- -- --
---------------
(1) The closing price of Global's common shares on the Toronto Stock Exchange on
December 31, 2002 was $2.38.
EMPLOYMENT CONTRACTS
Global entered into change of control agreements with Paul Crilly and
Bernie LeSage in September 2001 and with Peter Garrett and Brian McGurk in
August 2002. The agreements entered into with Messrs. Garrett, Crilly and LeSage
provide for them to receive certain severance benefits if their employment is
terminated (either voluntarily by the employee or involuntarily) within six
months of a change in control of Global. Under these agreements, Messrs.
Garrett, Crilly and LeSage shall be paid, within 30 days of termination, two and
153
one-half years' pay at their base salary, plus an amount equal to 1.25 times the
sum of the last two annual bonuses paid to them in the two previously completed
fiscal years of Global. In addition, all stock options that have not been
exercised shall become immediately exercisable for a period of 90 days from the
date of termination. The change of control agreement entered into with Mr.
McGurk provides for him to receive the same severance benefits if his employment
is involuntarily terminated within six months of a change in control of Global.
Global entered into an employment agreement with one officer, Mr. Garrett,
on August 4, 2003. This agreement is for an indefinite term and provides for the
payment to Mr. Garrett of a salary of Cdn.$260,000 per annum together with an
incentive bonus of up to 60% of his salary. The agreement can be terminated by
Global for cause, and by Mr. Garrett upon the occurrence of specified events
upon the payment to Mr. Garrett of a termination payment equal to eighteen
months salary and bonus. The agreement can also be terminated by Mr. Garrett
within six months of the occurrence of a "change of control", as defined in the
change of control agreement between Global and Mr. Garrett. Upon the occurrence
of a change of control, the obligations of Global to Mr. Garrett will be
governed solely by the change of control agreement, and in no event shall Mr.
Garrett be entitled to payments under both his employment agreement and his
change of control agreement.
COMPENSATION OF DIRECTORS
All directors of Global who are outside directors received a fee of $750
per board meeting and committee meeting attended and a quarterly retainer of
$1,250. In addition, committee chairmen received $375 per meeting. The Chairman
of the Board received an annual stipend of $60,000 and a bonus of $30,000 and
does not receive meeting fees. The total cash compensation received by outside
directors for the year ended December 31, 2002 was $223,625. Directors are also
entitled to participate in Global's Amended Incentive Stock Option Plan.
INDEBTEDNESS TO GLOBAL
No director, or senior officer of Global is, as of the date of this Joint
Proxy Statement, or was, since the commencement of the last completed financial
year, indebted to Global.
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS
The directors, officers and principal shareholders of Global (and the known
associates and affiliates of such persons) have had no direct or indirect
interest in any material transaction involving Global since January 1, 2002,
which has not otherwise been disclosed herein.
154
CHAPTER EIGHT -- CERTAIN LEGAL AND OTHER INFORMATION
AUDITORS, TRANSFER AGENT AND REGISTRAR
The consolidated financial statements of Global Thermoelectric Inc. as of
December 31, 2002 and for the year ended December 31, 2002 included in this
Joint Proxy Statement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent auditors, given on the authority of said
firm as experts in auditing and accounting.
Ernst & Young LLP, independent chartered accountants, has audited Global's
financial statements at December 31, 2001 and 2000, and for the year ended
December 31, 2001, and the nine-month period ended December 31, 2000 as set
forth in its report. Global has included its financial statements and schedule
elsewhere in this Joint Proxy Statement in reliance on Ernst & Young LLP's
report, given on the authority of such firm as experts in accounting and
auditing.
KPMG LLP, independent auditors, has audited the financial statements of
FuelCell Energy, Inc. for each of the three years in the period ended October
31, 2002, as set forth in its reports thereon appearing elsewhere in this Joint
Proxy Statement. FuelCell has included its financial statements and schedules in
reliance on KPMG LLP's report, given on the authority of such firm as experts in
accounting and auditing.
The transfer agent for the common shares of Global is Computershare Trust
Company of Canada at 600, 538 -- 8th Ave. S.W., Calgary, Alberta T2P 3S8. The
transfer agent for the common shares of FuelCell is Continental Stock Transfer &
Trust Company, New York, New York. Concurrently with the closing, Computershare
Trust Company of Canada will be appointed as transfer agent and registrar for
the exchangeable shares and will be appointed trustee under the voting and
exchange trust agreement.
LEGAL MATTERS
Bennett Jones LLP, Calgary, Alberta, and Dorsey & Whitney LLP, Seattle,
Washington, and New York, New York, have acted for Global in connection with the
Combination. The partners and associates, as a group, of each of Bennett Jones
LLP and Dorsey & Whitney LLP beneficially own less than 1% of the outstanding
Global common shares and less than 1% of the outstanding shares of FuelCell
common stock.
Robinson & Cole LLP, Stamford, Connecticut, and Stikeman Elliott LLP have
acted for FuelCell in connection with the Combination. The partners and
associates, as a group, of each of Robinson & Cole LLP and Stikeman Elliott LLP
beneficially own less than 1% of the outstanding Global common shares and less
than 1% of the outstanding shares of FuelCell common stock.
AVAILABLE INFORMATION
Global files reports, information circulars and other information with the
Canadian securities administrators in certain of the provinces of Canada. The
Canadian securities administrators maintain a web site that contains all public
information filed electronically with any Canadian securities administrator. The
address of this web site is www.sedar.com. The address of Global's web site is
www.globalte.com. The contents of Global's web site are not part of this Joint
Proxy Statement.
FuelCell files reports, proxy statements and other information with the
U.S. Securities and Exchange Commission (the "SEC"). Shareholders may read and
copy any reports, statements or other information FuelCell files at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Shareholders may call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Shares of FuelCell common stock are
listed on the Nasdaq National Market and reports, proxy statements and other
information regarding FuelCell can be inspected at the offices of the Nasdaq
National Market, 853 Key West Avenue, Rockville, Maryland 20850. The SEC
maintains a web site that contains all information filed electronically with the
SEC. The address of the SEC's web site is www.sec.gov. The address of FuelCell's
web site is www.fce.com. The contents of FuelCell's web site are not part of
this Joint Proxy Statement.
155
ANNEX A - FORM OF ARRANGEMENT RESOLUTION
RESOLUTION FOR CONSIDERATION AT
THE SPECIAL MEETING OF THE COMMON SHAREHOLDERS
OF
GLOBAL THERMOELECTRIC INC.
BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. the arrangement (the "Arrangement") involving Global Thermoelectric
Inc. ("Global") and its holders of common shares and FuelCell Energy,
Inc. ("FuelCell") under Section 193 of the Business Corporations Act
(Alberta), as more particularly described in the Joint Management
Information Circular and Proxy Statement of Global and FuelCell (the
"Joint Proxy Statement") accompanying the notice of the special meeting
of the common shareholders of Global is hereby authorized, approved and
adopted;
2. the Plan of Arrangement, the full text of which is set out as Annex D
to the Joint Proxy Statement, is hereby approved and adopted;
3. notwithstanding the approval of this special resolution by the Global
common shareholders or the approval of the Court of Queen's Bench of
Alberta (the "Court"), the board of directors of Global, subject to the
provisions of the combination agreement dated as of August 4, 2003
between Global and FuelCell (the "Combination Agreement") and to the
final order of the Court, without further notice to or approval of
common shareholders, may amend the Arrangement or may decide not to
proceed with the Arrangement and the Combination Agreement or may
revoke this resolution at any time prior to the Arrangement becoming
effective pursuant to the Business Corporations Act (Alberta);
4. any one of the officers of Global is hereby authorized and directed for
and on behalf of Global to execute or cause to be executed and to
deliver or cause to be delivered all such documents, agreements and
instruments and to do or cause to be done all such other acts and
things as such officers, subject to the provisions of the Combination
Agreement and to the final order of the Court, of Global shall
determine to be necessary or desirable in order to carry out the intent
of the foregoing paragraphs of this resolution and the matters
authorized thereby, such determination to be conclusively evidenced by
the execution and delivery of such document, agreement or instrument or
the doing of any such act or thing; and
5. all actions heretofore taken by or on behalf of Global in connection
with any matter referred to in any of the foregoing paragraphs of this
resolution or in furtherance of the Arrangement are hereby approved,
ratified and confirmed in all respects.
A-1
ANNEX B - FORM OF COMBINATION AGREEMENT
COMBINATION AGREEMENT
BY AND BETWEEN
FUELCELL ENERGY, INC.
AND
GLOBAL THERMOELECTRIC INC.
DATED AS OF AUGUST 4, 2003
TABLE OF CONTENTS
ARTICLE 1 GENERAL...................................................................... 2
1.1. Plan of Arrangement........................................................ 2
1.2. Exchange Ratio............................................................. 2
1.3. Dissenting Shares.......................................................... 3
1.4. Other Effects of the Arrangement........................................... 3
1.5. Joint Proxy Statement; Registration Statements............................. 3
1.6. Support Agreement, Voting and Exchange Trust Agreement..................... 5
1.7. Material Adverse Effect; Material Adverse Change........................... 5
1.8. Knowledge.................................................................. 6
1.9. Currency................................................................... 6
1.10. ExchangeCo................................................................. 6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................ 7
2.1. Organization and Standing.................................................. 7
2.2. Capitalization............................................................. 8
2.3. Agreement Authorized and its Effect on Other Obligations................... 8
2.4. Governmental and Third Party Consents...................................... 10
2.5. No Defaults................................................................ 11
2.6. Intellectual Property...................................................... 11
2.7. Securities Reports......................................................... 13
2.8. Financial Statements....................................................... 14
2.9. Absence of Certain Changes and Events...................................... 15
2.10. Material Contracts......................................................... 16
2.11. Customers and Suppliers.................................................... 16
2.12. Insurance.................................................................. 16
2.13. Books and Records.......................................................... 17
2.14. Litigation; Investigations................................................. 17
2.15. Environmental Matters...................................................... 18
2.16. Title to Properties........................................................ 19
2.17. Zoning and Other Matters Relating To Real Property......................... 19
2.18. No Hazardous Substances.................................................... 21
2.19. Taxes...................................................................... 21
2.20. Non-Arm's Length Transactions.............................................. 24
2.21. Employees.................................................................. 24
2.22. Employee Benefit Plans..................................................... 24
2.23. Labour Matters............................................................. 25
2.24. Information Supplied....................................................... 26
2.25. Compliance with Laws....................................................... 26
2.26. Restrictions on Business Activities........................................ 26
2.27. Disclosure................................................................. 26
2.28. The Company Assets and Revenues............................................ 27
2.29. Brokers and Finders........................................................ 27
2.30. Termination of Quantum Combination Agreement............................... 27
B-2
2.31. Company Net Working Capital; Cash Burn..................................... 27
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF FCE........................................ 28
3.1. Organization and Standing.................................................. 28
3.2. Capitalization............................................................. 29
3.3. Agreement Authorized and its Effect on Other Obligations................... 29
3.4. Governmental and Third Party Consents...................................... 31
3.5. No Defaults................................................................ 31
3.6. Intellectual Property...................................................... 31
3.7. Securities Reports......................................................... 32
3.8. Financial Statements....................................................... 33
3.9. Absence of Certain Changes and Events...................................... 34
3.10. Material Contracts......................................................... 34
3.11. Customers and Suppliers.................................................... 35
3.12. Insurance.................................................................. 35
3.13. Books and Records.......................................................... 35
3.14. Litigation; Investigations................................................. 36
3.15. Environmental Matters...................................................... 36
3.16. Title to Properties........................................................ 37
3.17. No Hazardous Substances.................................................... 38
3.18. Taxes...................................................................... 38
3.19. Non-Arm's Length Transactions.............................................. 39
3.20. Employees.................................................................. 40
3.21. Employee Benefit Plans..................................................... 40
3.22. Labour Matters............................................................. 42
3.23. Information Supplied....................................................... 42
3.24. Compliance with Laws....................................................... 42
3.25. Restrictions on Business Activities........................................ 42
3.26. FCE Common Stock........................................................... 43
3.27. Disclosure................................................................. 43
3.29. FCE Net Working Capital; Cash Burn......................................... 43
3.30. ExchangeCo and Callco...................................................... 44
ARTICLE 4 OBLIGATIONS PENDING EFFECTIVE DATE........................................... 44
4.1. Agreements of FCE and the Company.......................................... 44
4.2. Additional Agreements of the Company....................................... 45
4.3. Additional Agreements of FCE............................................... 47
4.4. No Company Solicitation.................................................... 49
4.5. No FCE Solicitation........................................................ 51
4.6. Public Announcements....................................................... 51
4.7. Comfort Letters............................................................ 52
4.8. Board of Directors......................................................... 52
4.9. Tax Matters................................................................ 52
ARTICLE 5 CONDITIONS PRECEDENT TO OBLIGATIONS.......................................... 53
5.1. Conditions Precedent to Obligations of Each Party.......................... 53
5.2. Conditions Precedent to Obligations of the Company......................... 55
B-3
5.3. Conditions Precedent to Obligations of FCE................................. 56
ARTICLE 6 TERMINATION.................................................................. 57
6.1. Termination................................................................ 57
6.2. Termination Date Extension................................................. 59
6.3. Notice of Termination...................................................... 59
6.4. Effect of Termination...................................................... 59
6.5. Termination Fee............................................................ 59
ARTICLE 7 ADDITIONAL AGREEMENTS........................................................ 61
7.1. Meetings................................................................... 61
7.2. The Closing................................................................ 62
7.3. Ancillary Documents/Reservation of Shares.................................. 62
7.4. Notice to Holders of Company Options....................................... 62
7.5. Indemnification and Related Matters........................................ 62
7.6. Affiliate Agreements....................................................... 64
7.7. Consents; Approvals........................................................ 64
7.8. Securities Compliance...................................................... 64
ARTICLE 8 MISCELLANEOUS................................................................ 65
8.1. No Survival of Representations and Warranties.............................. 65
8.2. Notices.................................................................... 65
8.3. Interpretation............................................................. 66
8.4. Severability............................................................... 66
8.5. Counterparts............................................................... 66
8.6. Miscellaneous.............................................................. 66
8.7. Governing Law.............................................................. 66
8.8. Amendment and Waivers...................................................... 67
8.9. Expenses................................................................... 67
8.10. Further Assurances......................................................... 67
B-4
COMBINATION AGREEMENT
THIS COMBINATION AGREEMENT (this "Agreement") is entered into as of
August 4, 2003, by and between FUELCELL ENERGY, INC., a Delaware corporation
("FCE") and GLOBAL THERMOELECTRIC INC., an Alberta corporation (the "Company")
(capitalized terms not otherwise defined herein shall have the meaning set forth
in the Appendix hereto).
RECITALS
WHEREAS, the Company was previously party to a certain Combination
Agreement (the "Quantum Combination Agreement") between Quantum Fuel Systems
Technologies Worldwide, Inc., a Delaware corporation ("Quantum"), and the
Company, dated as of April 8, 2003, as amended on June 27, 2003, pursuant to
which the parties thereto proposed to combine their businesses by Quantum
acquiring all of the outstanding Company Common Shares pursuant to a plan of
arrangement (such proposed arrangement, the "Quantum Combination");
WHEREAS, the board of directors of FCE believes that the combination of
the business of the Company with FCE's business is in the best interests of the
Company's shareholders;
WHEREAS, the Company's board of directors has determined that the
proposed Arrangement is a "Superior Proposal" under the Quantum Combination
Agreement and the Company has terminated the Quantum Combination Agreement;
WHEREAS, the board of directors of FCE deems it advisable and in the
best interests of its stockholders to combine its business with the Company's
business by FCE acquiring all of the outstanding Company Common Shares pursuant
to the Plan of Arrangement;
WHEREAS, the board of directors of the Company deems it advisable and
in the best interests of its common and preferred shareholders to combine its
business with FCE by FCE acquiring all of the outstanding Company Common Shares
pursuant to the Plan of Arrangement;
WHEREAS, in furtherance of such combination, the respective boards of
directors of FCE and the Company have approved the transactions contemplated by
this Agreement, the board of directors of the Company has agreed to submit the
Plan of Arrangement and the other transactions contemplated hereby to holders of
the Company Common Shares (the "Company Common Shareholders") and the Court of
Queen's Bench of Alberta (the "Court") for approval, and the board of directors
of FCE has agreed to submit its approval of the transactions contemplated hereby
and by the Plan of Arrangement, including the issuance of the shares of FCE
Common Stock issuable in connection with the transactions contemplated by this
Agreement and the Plan of Arrangement, to its stockholders for approval; and
WHEREAS, the parties intend that the acquisition of all of the
outstanding common shares of the Company hereunder be structured in a manner
that is expected to maximize present and future financial and tax benefits to
FCE and the Company.
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NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE 1
GENERAL
1.1. PLAN OF ARRANGEMENT
(a) As promptly as practicable after the United States Securities
and Exchange Commission (the "SEC") has informed FCE that it has no further
comments with respect to or will not review ("SEC Clearance") the preliminary
Joint Proxy Statement, the Company will apply to the Court pursuant to Section
193 of the Business Corporations Act (Alberta) (the "ABCA") for an interim order
in form and substance reasonably satisfactory to FCE (the "Interim Order")
providing for, among other things, the calling and holding of the Company
Shareholders Meeting for the purpose of considering and, if deemed advisable,
approving the arrangement (the "Arrangement") under Section 193 of the ABCA and
pursuant to this Agreement and the Plan of Arrangement substantially in the form
of Exhibit A (the "Plan of Arrangement"). If the Company Common Shareholders
approve the Arrangement and all necessary approvals of FCE stockholders have
been obtained, the Company and FCE will take the necessary steps to submit the
Arrangement to the Court and apply for a final order of the Court approving the
Arrangement in such fashion as the Court may direct (the "Final Order"). At
12:01 a.m. (the "Effective Time") on the date (the "Effective Date") shown on
the articles of arrangement filed with the Registrar under the ABCA (which
articles of arrangement will not be filed with the Registrar under the ABCA
during any 15 Business Day cure period referred to in Section 6.1 (b) or (c)
hereof) giving effect to the Arrangement and other transactions set out in
Section 2.1 of the Plan of Arrangement, the Arrangement and such other
transactions shall occur and shall be deemed to occur in the order set out
therein without any further act or formality.
1.2. EXCHANGE RATIO
(a) As used herein, the term "Exchange Ratio" means, in respect of
FCE Common Stock and Exchangeable Shares (and the Ancillary Rights), as the case
may be, to be delivered upon the transfer of Company Common Shares (but
excluding the Company Series 2 Preferred Shares) to FCE pursuant to Section 2.1
of the Plan of Arrangement, a ratio of the number of shares of FCE Common Stock
or Exchangeable Shares (and the Ancillary Rights), as the case may be, per
Company Common Share. The Exchange Ratio shall be determined as follows:
$2.72
Exchange Ratio = -------------------
FCE Stock Price
(b) The Exchange Ratio as so determined in each case shall be
rounded to three decimal places (rounding up if the fourth decimal is five or
more and otherwise rounding down). The "FCE Stock Price" shall mean the Daily
Volume Weighted Average Price of the FCE Common Stock over the Measurement
Period; provided, however, that if the Daily Volume Weighted Average Price of
the FCE Common Stock over the Measurement Period is less than
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$7.96, then the FCE Stock Price shall be $7.96, and if Daily Volume Weighted
Average Price of the FCE Common Stock over the Measurement Period is greater
than $9.74, then the FCE Stock Price shall be $9.74. "Daily Volume Weighted
Average Price" shall mean the daily volume weighted average price based on
trading on the Nasdaq National Market between 9:30 a.m. and 4:00 p.m. Eastern
Time as reported by Bloomberg Financial L.P. FCE Stock Price as so determined
shall be rounded to three decimal places (rounding up if the fourth decimal is
five or more and otherwise rounding down).
(c) The Exchange Ratio shall be adjusted to reflect fully the
effect of any stock split, reverse split, stock dividend (including any dividend
or distribution of securities convertible into FCE Common Stock or Company
Common Shares), merger, reorganization, recapitalization or other like change
with respect to FCE Common Stock or Company Common Shares occurring after the
date hereof and prior to the Effective Time.
1.3. DISSENTING SHARES
Holders of Company Common Shares may exercise rights of dissent with
respect to such shares in connection with the Arrangement pursuant to and in the
manner set forth in Section 191 of the ABCA, as modified by Section 3.1 of the
Plan of Arrangement and the Interim Order (such holders referred to as
"Dissenters" or as "Dissenting Shareholders" when referring exclusively to
Company Common Shareholders). The Company shall give FCE (a) prompt notice of
any written demands for a right of dissent, withdrawals of such demands, and any
other instruments served pursuant to the ABCA and received by the Company and
(b) the opportunity to participate in all negotiations and proceedings with
respect to such rights. Without the prior written consent of FCE, except as
required by applicable law, the Company shall not make any payment with respect
to any such rights or offer to settle or settle any such rights.
1.4. OTHER EFFECTS OF THE ARRANGEMENT
At the Effective Time each Company Common Share outstanding immediately
prior to the Effective Time will be exchanged as provided in the Plan of
Arrangement and the Arrangement will, from and after the Effective Time, have
all of the effects provided by applicable law, including the ABCA.
1.5. JOINT PROXY STATEMENT; REGISTRATION STATEMENTS
(a) As promptly as practicable after execution of this Agreement,
FCE and the Company shall prepare and FCE shall file with the SEC a preliminary
joint management information circular and proxy statement, and one or more
supplements for the Company and FCE respectively (the "Joint Proxy Statement"),
together with any other documents required by the United States Securities Act
of 1933, as amended (the "Securities Act"), or the United States Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in connection with the
Arrangement and the other transactions contemplated hereby. The Joint Proxy
Statement shall constitute (i) the management information circular of the
Company with respect to the special meeting of the Company Common Shareholders
to consider and, if deemed advisable, to pass a special resolution approving the
Arrangement and the approval of certain matters in connection therewith (the
"Company Shareholders Meeting") and (ii) the proxy statement of FCE with
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respect to the meeting of stockholders of FCE with respect to the matters set
forth in Section 7.1(b) in connection with the transactions contemplated by this
Agreement and the Plan of Arrangement (the "FCE Stockholders Meeting"). As
promptly as practicable after FCE receives SEC Clearance with respect to the
preliminary Joint Proxy Statement, FCE and the Company shall cause the Joint
Proxy Statement to be mailed to each company's respective securityholders
entitled to vote.
(b) Each party shall promptly furnish to the other party all
information concerning such party and its securityholders as may be reasonably
required in connection with any action contemplated by this Section 1.5,
including any information requested by the SEC to be included in the Joint Proxy
Statement. The Joint Proxy Statement shall comply in all material respects with
all applicable requirements of law. Each of FCE and the Company will notify the
other promptly of the receipt of any comments from the SEC and of any request by
the SEC for amendments or supplements to the Joint Proxy Statement or for
additional information, and will supply the other with copies of all
correspondence with the SEC with respect to the Joint Proxy Statement. Whenever
any event occurs which should be set forth in an amendment or supplement to the
Joint Proxy Statement, FCE or the Company, as the case may be, shall promptly
inform the other of such occurrence and cooperate in filing with the SEC, and/or
mailing to securityholders entitled to vote of FCE and the Company, as the case
may be, such amendment or supplement.
(c) FCE shall: (i) file, as promptly as practicable after the
execution of this Agreement, a registration statement on Form S-3 (or other
applicable form) (the "Primary Registration Statement") in order to register
under the Securities Act the shares of FCE Common Stock issuable from time to
time after the Effective Time upon exchange of the Exchangeable Shares or upon
conversion of the Company Series 2 Preferred Shares and shall use its
commercially reasonable efforts to cause the Primary Registration Statement to
become effective and to maintain the effectiveness of such registration until
the date on which no Exchangeable Shares or Company Series 2 Preferred Shares
remain outstanding (other than those Exchangeable Shares held by FCE or any of
its Affiliates); and (ii) use commercially reasonable efforts to file, as
promptly as practicable after the execution of this Agreement, a registration
statement on Form S-3 (or other applicable form) (the "Resale Registration
Statement") in order to register for resale any shares of FCE Common Stock
issued pursuant to the Arrangement to any holder of Company Common Shares
(excluding officers or directors of the Company in their individual capacity)
who is an Affiliate of the Company immediately prior to the Effective Time (such
determination shall be made (A) by FCE in its reasonable judgment or (B)
pursuant to an opinion of counsel to any such holder reasonably acceptable to
FCE), and FCE shall use commercially reasonable efforts to cause the Resale
Registration Statement to become effective and to maintain the effectiveness of
the Resale Registration Statement for so long as any shares of such holders are
subject to the resale restrictions of Rule 145 under the Securities Act.
(d) FCE's obligations to include shares of FCE Common Stock
issuable upon conversion of the Company Series 2 Preferred Shares in the Primary
Registration Statement and to file the Resale Registration Statement pursuant to
this Section 1.5 shall be subject to the condition that each holder of Company
Series 2 Preferred Shares and each holder of securities to be included in the
Resale Registration Statement shall cooperate with FCE in all respects in
connection with the preparation and filing of such registration statements,
including (i) timely
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supplying all information reasonably requested by FCE (which shall include all
information regarding such holder and the proposed manner of sale of the FCE
Common Stock required to be disclosed in any such registration statement), (ii)
executing and returning all documents reasonably requested by FCE in connection
with the registration and sale of the shares subject to such registration
statement, and (iii) promptly furnishing such additional information as may be
requested by the Commission or as required to be disclosed in order to make the
information furnished to FCE by such holder not materially misleading.
(e) As promptly as practicable after the execution of this
Agreement, FCE shall file a registration statement on Form S-8 (the "S-8
Registration Statement" and, collectively with the Primary Registration
Statement and the Resale Registration Statement, the "Registration Statements")
with the SEC to register the FCE Common Stock to be issued from time to time
after the Effective Time upon exercise of Company Options assumed by FCE
pursuant to the terms of this Agreement. FCE will use its reasonable best
efforts to maintain the effectiveness of the S-8 Registration Statement for so
long as any Company Options remain outstanding or, in each case, until such
earlier time as FCE determines to be sufficient on the written advice of its
outside counsel.
(f) FCE and the Company shall take any action required to be taken
under any applicable provincial or state securities laws (including "blue sky"
laws) in connection with the issuance of the FCE Common Stock and the
Arrangement; provided, however, that with respect to the blue sky and Canadian
provincial qualifications, neither FCE nor the Company shall be required to
register or qualify as a foreign corporation or reporting issuer where any such
entity is not now so registered or qualified except as to matters and
transactions arising solely from the offer and sale of the FCE Common Stock or
the issuance of the Exchangeable Shares.
1.6. SUPPORT AGREEMENT, VOTING AND EXCHANGE TRUST AGREEMENT
On the Effective Date and subject to satisfaction or waiver of the
conditions herein contained in favour of each party, FCE shall, and shall cause
ExchangeCo to, execute and deliver the Support Agreement and the Voting and
Exchange Trust Agreement; and FCE shall create and issue to the Trustee the
Special Voting Share.
1.7. MATERIAL ADVERSE EFFECT; MATERIAL ADVERSE CHANGE
(a) In this Agreement, the term "Material Adverse Effect" used
with respect to any party means any change, effect, violation, inaccuracy,
circumstance, event or occurrence that is, or would reasonably be expected to
be, material and adverse to the business, assets, liabilities, financial
condition, results of operations or prospects of such party and its subsidiaries
taken as a whole.
(b) In this Agreement, the term "Material Adverse Change", when
used in connection with FCE or the Company, means any change, effect, violation,
inaccuracy, circumstance, event or occurrence that is, or would reasonably be
expected to be, material and adverse to the business, assets, liabilities,
financial condition, results of operations or prospects of such party and its
subsidiaries taken as a whole, other than any change, effect, violation,
inaccuracy, circumstance, event or occurrence (i) relating to the Canadian or
United States economy or
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securities markets in general, (ii) relating to any change in the trading price
of the FCE Common Stock or Company Common Shares, respectively, that arises from
the announcement of execution of this Agreement, or (iii) relating to any change
in the trading price of the FCE Common Stock or Company Common Shares,
respectively, unrelated to any change, effect, violation, inaccuracy,
circumstance, event or occurrence that is, or would reasonably be expected to
be, material and adverse to the business, assets, liabilities, financial
condition, results of operations or prospects of FCE or the Company, as the case
may be, and its subsidiaries taken as a whole.
1.8. KNOWLEDGE
In this Agreement, the phrase "to the knowledge of" means the actual
knowledge of any of the executive officers of the Company or FCE, as the case
may be, after reasonable inquiry, except where otherwise indicated, and such
executive officers shall have made such inquiry as is reasonable in the
circumstances.
1.9. CURRENCY
Unless otherwise specified, all references in this Agreement to
"dollars" or "$" shall mean United States dollars.
1.10. EXCHANGECO
(a) On or prior to the Effective Date, FCE shall incorporate a new
corporation under the ABCA ("ExchangeCo") and shall include the following
provisions in its articles of incorporation:
(i) a class of exchangeable shares (the "Exchangeable Shares"),
unlimited in number and having the terms and conditions set forth in Exhibit E;
and
(ii) the other provisions set forth in Exhibit E.
(b) FCE shall cause ExchangeCo to complete the transactions
contemplated herein.
1.11. APPENDIX AND EXHIBITS
The following Appendix and Exhibits attached hereto are incorporated
herein by reference:
(a) Appendix--Defined Terms;
(b) Exhibit A--Plan of Arrangement;
(c) Exhibit B--Company Affiliates Agreement;
(d) Exhibit C--Support Agreement;
(e) Exhibit D - Voting and Exchange Trust Agreement; and
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(f) Exhibits E-1 and E-2 - Share Capital and Other Provisions to
be included in the Articles of Incorporation of ExchangeCo.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise fully and fairly disclosed and set forth in a
corresponding paragraph of the Company Disclosure Letter, the Company hereby
represents and warrants to, and agrees with, FCE that:
2.1. ORGANIZATION AND STANDING
(a) Each of the Company and its subsidiaries has been duly
organized or formed under all applicable Laws, is validly existing and in good
standing under the laws of the jurisdiction in which it is organized and has
full corporate or other legal power, authority and capacity to own, lease and
operate its properties and conduct its businesses as currently conducted. All of
the outstanding shares of capital stock and other ownership interests of the
Company and its subsidiaries are duly authorized, validly issued, fully paid and
non-assessable, and all such shares and other ownership interests of the
Company's subsidiaries are owned directly or indirectly by the Company, free and
clear of all material liens, claims or encumbrances and there are no outstanding
options, rights, entitlements, understandings or commitments (pre-emptive,
contingent or otherwise) regarding the right to acquire any such shares of
capital stock or other ownership interests in any of its subsidiaries. The
Company and each of its subsidiaries is duly qualified or licensed to do
business in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed would not have a Material Adverse Effect. The Company has
disclosed in the Company Disclosure Letter the names and jurisdictions of
incorporation of each of its subsidiaries.
(b) The Company does not have any subsidiaries which are material
in relation to the business and financial condition of the Company on a
consolidated basis; for the purposes hereof, a subsidiary and its subsidiaries
shall be considered material in relation to the Company if: (i) the investments
in and advances to the subsidiary and its subsidiaries by the Company and its
other subsidiaries exceed five percent of the total assets of the Company and
its subsidiaries on a consolidated basis at December 31, 2002; or (ii) the
equity of the Company and its other subsidiaries in the income from continuing
operations before income taxes and extraordinary items of the subsidiary and its
subsidiaries exceeds five percent of such income of the Company and its
subsidiaries on a consolidated basis for the Company's fiscal year ended
December 31, 2002.
(c) The Company does not have any ownership interest in any other
Person, which interest is material in relation to the consolidated financial
position of the Company.
(d) The Company has delivered or made available to FCE a true and
correct copy of its charter documents and similar governing instruments of each
of its subsidiaries, each as amended as of the date hereof, and each such
instrument is in full force and effect. Neither the
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Company nor any of its subsidiaries is in violation of any of the provisions of
its charter documents or equivalent governing instruments.
2.2. CAPITALIZATION
(a) The authorized capital of the Company consists of an unlimited
number of preferred shares issuable in series and an unlimited number of Common
Shares (the "Company Common Shares"). As of August 1, 2003, there were 1,000,000
shares of Cumulative Redeemable Convertible Preferred Shares, Series 2 (the
"Company Series 2 Preferred Shares" and, together with the Company Common
Shares, being collectively referred to herein as the "Company Securities")
issued and outstanding and 29,200,850 Company Common Shares issued and
outstanding. As of August 1, 2003, 2,176,500 Company Common Shares were reserved
for issuance upon the exercise of stock options (the "Company Options") under
the Company's Amended Incentive Stock Option Plan (the "Company Incentive Plan")
and for the future grant of Company Options under the Company Incentive Plan. As
of August 1, 2003, 1,308,225 of the Company Options are outstanding, of which
503,700 have vested and are exercisable in accordance with their terms and
804,525 remain unvested. Except as described in this Section 2.2, there are no
options, warrants, conversion privileges, rights plans or other rights,
agreements, arrangements or commitments (pre-emptive, contingent or otherwise)
obligating the Company or any of its subsidiaries to issue or sell any
securities of the Company or any of its subsidiaries or obligations of any kind
convertible into or exchangeable for any securities of the Company, any of its
subsidiaries or any other Person, nor are there outstanding any stock
appreciation rights, phantom equity or similar rights, agreements, arrangements
or commitments based upon the book value, income or any other attribute of the
Company or any of its subsidiaries. All outstanding Company Securities have been
duly authorized and are validly issued and outstanding as fully paid and
non-assessable shares, free of pre-emptive rights. There are no outstanding
bonds, debentures or other evidences of indebtedness of the Company or any of
its subsidiaries having the right to vote (or that are convertible for or
exercisable into securities having the right to vote) with the holders of
Company Securities on any matter. There are no outstanding contractual
obligations of the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any Company Securities or with respect to the voting or
disposition of any outstanding securities of any of its subsidiaries. No holder
of securities issued by the Company or any of its subsidiaries has any right to
compel the Company to register or otherwise qualify such securities for public
sale in Canada or the United States.
(b) The Company's Series 1 10% Cumulative Redeemable Convertible
Preferred Shares (the "Company Series 1 Preferred Shares") were redeemed or
converted by the Company in July 1999. There are no Company Series 1 Preferred
Shares issued and outstanding.
2.3. AGREEMENT AUTHORIZED AND ITS EFFECT ON OTHER OBLIGATIONS
(a) The Company has the requisite corporate power and authority to
enter into this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement by the Company and the consummation of
the transactions contemplated by this Agreement have been duly authorized by its
board of directors, and no other corporate proceedings on its part are necessary
to authorize this Agreement or the transactions contemplated hereby other than,
with respect to the completion of the Arrangement, the approval
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of at least two-thirds of the votes cast by the holders of the Company Common
Shares present, in person or by proxy, at the Company Shareholders Meeting.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency and
other similar Laws affecting creditors' rights generally, and to general
principles of equity.
(c) The Company's board of directors has: (i) determined in its
good faith judgment that the proposed Arrangement is a "Superior Proposal" under
the Quantum Combination Agreement; (ii) concluded in good faith (after
considering applicable law and receiving the advice of outside counsel) that
proceeding with the proposed Arrangement is reasonably necessary for the board
of directors to act in a manner consistent with fiduciary duties under
applicable law; (iii) determined unanimously that the Arrangement is fair to the
holders of Company Common Shares and is in the best interests of the Company;
(iv) received an opinion from Citigroup Global Markets Inc. (and has been
advised that they will receive a written opinion) that the Exchange Ratio is
fair from a financial point of view to the holders of the Company Common Shares;
(v) determined to recommend that the Company Common Shareholders vote in favour
of the Arrangement and the transactions contemplated hereby; and (vi) has
advised the Company and FCE that the members of the Company's board of directors
will vote the Company Common Shares held by them in favour of the Agreement, the
Arrangement, and the transactions contemplated hereby and the Company will so
represent in the Joint Proxy Statement, subject to Section 7.1(b).
(d) The approval of this Agreement by the Company, the execution
and delivery by the Company of this Agreement, and the performance by it of its
obligations hereunder and the completion by it of the Arrangement and the
transactions contemplated thereby, will not:
(i) result in a violation or breach of, require any
consent to be obtained under or give rise to any material termination
rights or material payment obligation under any provision of:
(A) its, or any of its subsidiaries' certificate
of incorporation, articles, bylaws or other charter documents;
(B) subject to obtaining the Appropriate
Regulatory Approvals relating to the Company, any Laws,
regulation, order, judgment or decree, applicable to the
Company or any of its subsidiaries or by which the Company or
any of its subsidiaries or any of their respective properties
is bound;
(C) any Material Contract or material licence,
franchise or permit to which the Company, or any of its
subsidiaries, is a party or by which it is bound; or
(D) the provisions of any of the Company
Property Permitted Encumbrances;
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(ii) give rise to any right of termination or acceleration
of indebtedness, or cause any third party indebtedness to come due
before its stated maturity or cause any available credit to cease to be
available;
(iii) result in the imposition of any Encumbrance upon any
of the Company's or any of its subsidiaries' assets, or restrict,
hinder, impair or limit the ability of the Company to carry on the
business of the Company as and where it is now being carried on, except
as would not, individually or in the aggregate, have a Material Adverse
Effect; or
(iv) result in any payment (including severance,
unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any director or employee of the Company or any of its
subsidiaries or increase any benefits otherwise payable under the
Company Incentive Plan or any Company Employee Plan or result in the
acceleration of time of payment or vesting of any such benefits.
(e) There are no anti-takeover statutes or regulations of any
Governmental Entity that are applicable to the Company in connection with the
transactions contemplated herein.
2.4. GOVERNMENTAL AND THIRD PARTY CONSENTS
(a) No consent, approval, order or authorization of, or
registration, declaration or filing with or notice to, any Governmental Entity
or other Person is required to be obtained by the Company or any of its
subsidiaries in connection with the execution and delivery of this Agreement or
the Plan of Arrangement by the Company or the consummation by the Company of the
transactions contemplated hereby or thereby, other than: (i) the filing with the
Commissions and the Court and the mailing to the securityholders of the Company
of the Joint Proxy Statement relating to the Company Shareholders Meeting; (ii)
any approvals and notices required by the Interim Order; (iii) the Final Order;
(iv) such filings, authorizations, decisions, orders and approvals as may be
required under state "control share acquisition," "anti-takeover" or other
similar statutes, any other applicable federal, provincial or state securities
laws and the rules of the TSX; (v) such filings and notifications as may be
necessary under the HSR Act; (vi) such notices and filings as may be necessary
under the Investment Canada Act and under the Competition Act (Canada); and
(vii) where the failure to obtain such consents, approvals, etc., would not
prevent or delay the consummation of the Arrangement or otherwise prevent the
Company from performing its obligations under this Agreement and would not
reasonably be expected to have a Material Adverse Effect.
(b) Other than as contemplated by Section 2.4(a), no consents,
assignments, waivers, authorizations or other certificates are necessary in
connection with the transactions contemplated hereby to provide for the
continuation in full force and effect of all of the Company's Material Contracts
or leases or for the Company to consummate the transactions contemplated hereby,
except when the failure to receive such consents or other certificates would not
have a Material Adverse Effect.
(c) The Company and its subsidiaries possesses such consents,
licences, certificates, authorizations, approvals, franchises, permits or other
rights as are currently necessary to
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conduct the business now operated by it, except where the failure to possess
such consents, licences, certificates, authorizations, approvals, franchises, or
permits would not have a Material Adverse Effect.
2.5. NO DEFAULTS
Neither the Company nor any of its subsidiaries is in default under and
there exists no event, condition or occurrence which, after notice or lapse of
time or both, would constitute such a default under any contract, agreement,
licence or franchise to which it is a party which would, if terminated due to
such default, cause a Material Adverse Effect.
2.6. INTELLECTUAL PROPERTY
(a) The Company Disclosure Letter lists all Registered
Intellectual Property Rights that are owned by, filed in the name of, or applied
for by the Company or its subsidiaries, specifying as to each the nature or
title of such right, any jurisdiction that has issued a registration with
respect thereto or in which an application for such registration is pending, and
any applicable registration or application number. All such Registered
Intellectual Property Rights are valid and in full force and were prosecuted in
good faith. All necessary registration, maintenance and renewal fees in
connection with each item of such Registered Intellectual Property Rights have
been paid and all necessary documents and certificates in connection with such
Registered Intellectual Property Rights have been filed with the relevant
patent, copyright, trademark or other authorities in the United States, Canada
or other jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property Rights.
(b) The Company Disclosure Letter sets forth an accurate and
complete list of all licences, sublicences and other agreements to which the
Company or any of its subsidiaries is a party or is otherwise bound and pursuant
to which any Person other than the Company or any of its subsidiaries is
authorized to use any material Company Intellectual Property Rights or Company
Technology and a true and correct copy of each such agreement has been delivered
or made available to FCE.
(c) Section 2.6(c)(i) of the Company Disclosure Letter sets forth
an accurate and complete list of all material licences, sublicences, and other
agreements to which the Company or any of its subsidiaries is a party or is
otherwise bound and pursuant to which the Company and any of its subsidiaries is
authorized to use any Intellectual Property Right or Technology that is held by
any Person other than the Company or any of its subsidiaries and a true and
correct copy of each such agreement has been delivered or made available to FCE,
other than end-user licences granted to the Company or any of its subsidiaries
relating to "off the shelf" personal computer software that is generally
available from Persons that are unaffiliated with the Company or any of its
subsidiaries. Section 2.6(c)(ii) of the Company Disclosure Letter sets forth an
accurate and complete list of all material licences granted to the Company or
any of its subsidiaries relating to "off the shelf" personal computer software
that is generally available from Persons that are unaffiliated with the Company
or any of its subsidiaries and that is incorporated into any product marketed,
sold, or licensed by, or used in the provision of any service provided by the
Company or any subsidiary of the Company.
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(d) The Company and its subsidiaries either exclusively own or
have the valid right to use all Company Intellectual Property Rights and all
Third Party Intellectual Property Rights used by the Company or any subsidiary
of the Company (and no third party, including any past or present employee or
contractor of the Company or any Governmental Entity, owns or has any ownership
interest in any Company Intellectual Property Rights that are not Third Party
Intellectual Property Rights of the Company). Upon Closing, all Company
Intellectual Property Rights and all Third Party Intellectual Property Rights
used by the Company or any subsidiary of the Company will be immediately
available for use on terms and conditions substantially identical to those under
which the Company and any subsidiaries of the Company presently uses or
reasonably contemplates using such rights, without any affirmative act by FCE or
any other Person.
(e) To the knowledge of the Company, there are (and upon Closing,
will be) no royalties, honoraria, fees, or other payments payable by the
Company, any subsidiary of the Company, or FCE to any Person by reason of the
ownership, use, licence, sale or disposition of any Company Intellectual
Property Rights or Company Technology.
(f) To the knowledge of the Company, neither the Company
Intellectual Property Rights nor the conduct of the Company business as
presently conducted or reasonably currently contemplated to be conducted uses or
discloses in an unauthorized manner, infringes, or constitutes a
misappropriation of any Intellectual Property Right of any Person. Neither the
Company nor any of its subsidiaries: (i) has any knowledge that any Company
Intellectual Property Right is the subject of any interference, reexamination,
cancellation, or opposition proceeding, or any currently pending or threatened
suit, action, or proceeding arising out of an alleged right of any Person with
respect to any Intellectual Property Right; (ii) has received any oral, written,
or other communication that the Company or any subsidiary of the Company is
using or disclosing in an unauthorized manner, infringing, or misappropriating
the alleged right of any Person with respect to any Intellectual Property Right;
or (iii) has any knowledge that any of the Company Intellectual Property Rights
is being used or disclosed in an unauthorized manner, infringed or
misappropriated by any Person.
(g) None of the Company Intellectual Property Rights are subject
to any Proceeding that restricts in any manner the use, transfer or licensing
thereof by the Company or that may affect the validity, use or enforceability of
the Company Intellectual Property Rights; provided that nothing herein applies
to the prosecution (except for any interference or opposition proceeding) of any
Company Intellectual Property Rights in the U.S. Patent and Trademark Office or
any other government patent or trademark office.
(h) To the knowledge of the Company, no party to any licence,
sublicence, or agreement listed in the Company Disclosure Letter is (or upon
Closing, will be) in material breach or default and no event has occurred (or,
upon Closing, will occur) which with notice or lapse of time would constitute a
material breach or default or permit termination, modification or acceleration
thereunder.
(i) The Company and its subsidiaries have maintained and continue
to maintain a system to safeguard and maintain the secrecy and confidentiality
of and its proprietary rights in all of the material Company Intellectual
Property Rights not otherwise protected by patents,
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patent applications, or copyright or trademark law. Without limitation on the
generality of the foregoing, to the knowledge of the Company, (i) any
disclosures to third parties of trade secrets that are material to the operation
of the Company business have been pursuant to executed written confidentiality
agreements substantially similar in effect to those included in the forms set
forth in the Company Disclosure Letter, (ii) the Company has obtained
confidentiality and inventions assignment agreements, in one or more forms, that
have protections and conditions substantially similar in effect to those
included in the forms set forth in the Company Disclosure Letter, from all of
the past and present employees and independent contractors of the Company and
subsidiaries of the Company involved in the creation or development of the
Company Intellectual Property Rights and Company Technology that are material to
the operation of the Company business, (iii) there has been no material breach
or violation of any secrecy or confidentiality commitments of any person in
respect of any material confidential information of the Company or its
subsidiaries, and (iv) the measures taken by the Company and its subsidiaries to
protect the proprietary and non-public aspects of the thermo-electric generator
and solid oxide fuel cell technology are reasonably designed to adequately
prevent third parties from using any such aspects of such technology without the
approval of the Company. No Person who has performed services related to the
Company business has (or upon Closing, will have) any right, title or interest
in any Company Intellectual Property Rights that are material to the operation
of the Company business.
(j) The execution, delivery, and performance of this Agreement,
and the consummation of the transactions contemplated hereby, will not (i)
breach, violate, or conflict with any agreement governing any Company
Intellectual Property Rights, (ii) cause the forfeiture or termination or give
rise to a right of forfeiture or termination of any Company Intellectual
Property Rights, or in any way impair the right of FCE to use or bring any
action for the unauthorized use or disclosure, infringement, or misappropriation
of any Company Intellectual Property Right, (iii) result in FCE granting to any
third party any right to, or with respect to, any Intellectual Property Right
owned by, or licensed to, FCE, (iv) result in FCE being bound by, or subject to,
any non-competition or other restriction on the operation or scope of its
businesses, or (v) result in FCE being obligated to pay any royalties or other
fees of any kind to any third party. The Company and its subsidiaries have not
entered into any agreements granting any exclusive right to any material Company
Intellectual Property Right.
(k) For purposes of this Section 2.6, "use" includes, without
limitation, make, have made, reproduce, display or perform, publicly or
otherwise, prepare derivative works based upon, offer for sale, sell,
distribute, import, disclose, licence, sublicence, dispose of and otherwise
exploit.
2.7. SECURITIES REPORTS
(a) The Company has furnished or made available to FCE true and
complete copies of each statement, form, schedule, report, prospectus, proxy
statement, or other documents filed with, or furnished to, the Commissions or
posted on SEDAR since December 31, 1999, and, prior to the Effective Time, the
Company will have furnished FCE with true and complete copies of any additional
documents filed with the Commissions or posted on SEDAR by the Company prior to
the Effective Time (such forms, reports, schedules, prospectuses, statements and
other documents, including any financial statements or other documents,
including any schedules
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included therein, are referred to as the "Company Documents"). The Company has
furnished to FCE true and complete copies of all written correspondence between
the Company and any securities regulatory bodies including the TSX.
(b) The Company has made available to FCE all exhibits to the
Company Documents filed prior to the date hereof, and will promptly make
available to FCE all exhibits to any additional Company Documents filed prior to
the Effective Time. All documents required to be filed as exhibits to the
Company Documents have been so filed, and all Material Contracts so filed as
exhibits are in full force and effect, except those which have expired in
accordance with their terms, and neither the Company nor any of its subsidiaries
is in default thereunder.
(c) The Company Documents include all forms, reports, schedules,
prospectuses, statements or other documents required to be filed by it with the
Commissions since December 31, 1999. The Company has timely filed all Company
Documents required to be filed by it with the Commissions since December 31,
1999. The Company Documents did not, at the time they were filed, or, if amended
or updated, as of the date of such amendment or update, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading, except to
the extent corrected by a subsequently-filed Company Document. None of the
Company's subsidiaries is required to file any forms, reports, schedules,
prospectuses, statements or other documents with the Commissions. The Company
Documents, at the time filed complied in all material respects with the
requirements of applicable securities Laws.
(d) The Company has not filed any confidential material change
report with the Commissions or any other securities authority or regulator or
any stock exchange or other self-regulatory authority which at the date hereof
remains confidential.
(e) The Company has publicly disclosed in the Company Documents
any information regarding any event, circumstance or action taken or failed to
be taken by the Company or its subsidiaries which could individually or in the
aggregate reasonably be expected to have a Material Adverse Effect.
2.8. FINANCIAL STATEMENTS
(a) The Company Financial Statements complied as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of applicable Governmental Entities and the Commissions
with respect thereto as of their respective dates, and have been prepared in
accordance with Canadian generally accepted accounting principles applied on a
basis consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or in the case of unaudited
statements included in quarterly reports to shareholders). The Company Financial
Statements present fairly the consolidated financial position, results of
operations and cash flows of the Company and its subsidiaries at the dates and
during the periods indicated therein (subject, in the case of unaudited
statements, to normal, recurring year-end adjustments and the absence of notes
thereto) and reflect appropriate and adequate reserves in respect of all
liabilities, including contingent liabilities, if any, of the Company and its
subsidiaries on a consolidated basis. There
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has been no change in the Company's accounting policies, except as described in
the notes to the Company Financial Statements, since December 31, 2002.
(b) The Company has heretofore made available to FCE the
consolidated balance sheet of the Company and its consolidated subsidiaries at
December 31, 2002 (the "Company Balance Sheet"), as well as the consolidated
statements of operations of the Company and its consolidated subsidiaries for
the period ended December 31, 2002 (the "Company Statement of Operations") and
the consolidated statements of cash flows of the Company and its consolidated
subsidiaries for the period ended December 31, 2002 (the "Company Statement of
Cash Flows" and, together with the Company Balance Sheet and the Company
Statement of Operations, in each case including the notes thereto, being
collectively referred to herein as the "Company Financial Statements"). Except
as set forth in the Company Financial Statements, neither the Company nor any of
its subsidiaries has any liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise), except for liabilities and obligations,
incurred in the ordinary course of business consistent with past practice since
December 31, 2002 and that would not have a Material Adverse Effect.
2.9. ABSENCE OF CERTAIN CHANGES AND EVENTS
Since December 31, 2002, the Company has conducted its business in the
ordinary and regular course consistent with past practice and there has not
occurred:
(a) Any Material Adverse Change with respect to the Company;
(b) Any acquisition, sale or transfer of any material asset of the
Company or any of its subsidiaries other than in the ordinary course of business
and consistent with past practice;
(c) Any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates, or capitalized
software policies) by the Company or any revaluation by the Company of any of
its or any of its subsidiaries' assets;
(d) Any declaration, setting aside, or payment of a dividend or
other distribution with respect to the Company Securities, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
shares of capital stock;
(e) Any Material Contract entered into by the Company or any of
its subsidiaries, or any material amendment or termination of, or default under,
any Material Contract to which the Company or any of its subsidiaries is a party
or by which it is bound;
(f) Any change in the capital stock or in the number of shares or
classes of the Company's authorized or outstanding capital stock as described in
Section 2.2 (other than as a result of exercises of Company Options);
(g) Any agreement by the Company or any of its subsidiaries to do
any of the things described in the preceding clauses (a) through (f) (other than
negotiations with FCE and its representatives regarding the transactions
contemplated by this Agreement and negotiations with Quantum and its
representatives with respect to the Quantum Combination); or
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(h) Any agreement or arrangement to take any action which, if
taken prior to the date hereof, would have made any representation or warranty
set forth in this Agreement materially untrue or incorrect as of the date when
made.
2.10. MATERIAL CONTRACTS
None of the Company, its subsidiaries, nor, to the knowledge of the
Company, any of the other parties thereto is in default or breach of, in any
material respect, nor has the Company or its subsidiaries received any notice of
material default or termination under, any Material Contract and, to the
knowledge of the Company, there exists no state of facts which after notice or
lapse of time or both would constitute such a material default or breach. None
of the Company or its subsidiaries is a party to any Material Contract except
for those Material Contracts set forth on the Company Disclosure Letter. True
and complete copies of all of the Company's Material Contracts, or where such
Contracts are oral, true and complete written summaries of the terms thereof,
have been furnished to or made available to FCE.
2.11. CUSTOMERS AND SUPPLIERS
Since the period ended in the Company Balance Sheet, there has been no
termination or cancellation of, and no material modification or change in, the
business relationship with any customer or group of customers which singly or in
the aggregate provided more than 10% of the consolidated gross revenues of the
Company and its subsidiaries for the period ended on the Company Balance Sheet.
The Company has no reason to believe that the benefits of any relationship with
any of the customers or suppliers of the Company or its subsidiaries will not
continue on the terms identified in the agreements establishing such
relationships after the Effective Date in substantially the same manner as prior
to the date hereof, assuming the completion on the Effective Date of the
Arrangement. The Company has furnished or made available to FCE the Company's
standard form product warranty provided to customers and, except as set forth in
the Company Disclosure Letter, no such product warranty relating to a Contract
for the sale of goods or services worth more than $500,000 differs from the
standard form in any material respect.
2.12. INSURANCE
The Company and its subsidiaries are insured by insurers, reasonably
believed by the Company to be of recognized financial responsibility and
solvency, against such losses and risks and in such amounts as are customary in
the businesses in which the Company and its subsidiaries are engaged. The
Company has furnished or made available to FCE accurate particulars of the
policies of insurance maintained by the Company and its subsidiaries as of the
date hereof, including the name of the insurer, the risks insured against and
the amount of coverage, and all such policies will continue in effect without
alteration or loss in coverage in connection with the consummation of the
Arrangement. All such policies are in full force and effect. None of the Company
or its subsidiaries or, to the knowledge of the Company, any of the other
parties thereto, is in default or breach of, whether as to the payment of
premiums or otherwise, nor has the Company or its subsidiaries received any
notice of material default or termination under, any such policy and, to the
knowledge of the Company, there exists no state of facts which after notice or
lapse of time or both would constitute such a material default or
B-20
breach. There is no reason to believe that any of the existing insurance
policies of the Company and its subsidiaries will not be renewed by the insurer
upon the scheduled termination date of the policy or will be renewed by the
insurer only on the basis that there will be a material increase in the premiums
payable in respect of the policy. True and complete copies of all the existing
insurance policies of the Company and its subsidiaries have been provided to
FCE.
2.13. BOOKS AND RECORDS
(a) The books, records and accounts of the Company and its
subsidiaries, in all material respects:
(i) have been maintained in accordance with good business
practices on a basis consistent with prior years;
(ii) are stated in reasonable detail and accurately and
fairly reflect the transactions and dispositions of the assets of the
Company and its subsidiaries; and
(iii) accurately and fairly reflect the basis for the
Company Financial Statements.
(b) The Company has devised and maintains a system of internal
accounting controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with
management's general or specific authorization; and
(ii) transactions are recorded as necessary (A) to permit
preparation of financial statements in conformity with Canadian
generally accepted accounting principles or any other criteria
applicable to such statements and (B) to maintain accountability for
assets.
(c) The Company maintains a system of disclosure controls and
procedures that are designed to ensure that information required to be disclosed
by the Company in its reports or other documents filed with or furnished to the
Commissions is recorded, processed, summarized and reported within the time
periods required by the Commissions' rules and forms, including, without
limitation, controls and procedures designed to ensure that such information is
accumulated and communicated to the Company's senior management, including its
principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
2.14. LITIGATION; INVESTIGATIONS
There is no claim, action, proceeding or investigation pending or, to
the knowledge of the Company, threatened against or relating to the Company or
any of its subsidiaries or affecting any of their properties, licences or assets
before any court or Governmental Entity or regulatory authority or body that, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect, or prevent or delay consummation of the transactions contemplated by
this Agreement or the Arrangement, nor is the Company aware of any basis for any
such claim,
B-21
action, proceeding or investigation. Neither the Company nor any of its
subsidiaries, nor their respective assets and properties, is subject to any
outstanding judgment, order, writ, injunction or decree that has had or is
reasonably likely to have a Material Adverse Effect, that involves or may
involve, or restricts or may restrict, or requires or may require, the
expenditure of a material amount of money as a condition to or a necessity for
the right or ability of the Company or any of its material subsidiaries, as the
case may be, to conduct its business in any manner in which it has been carried
on prior to the date hereof, or prevent or delay consummation of the
transactions contemplated by this Agreement or the Arrangement.
2.15. ENVIRONMENTAL MATTERS
(a) There are no environmental conditions or circumstances, such
as the presence or Release of any Hazardous Substance, existing on, at, under,
to or from any property presently or previously owned, operated or leased by the
Company or any of its subsidiaries.
(b) The Company and its subsidiaries have in full force and effect
all material environmental permits, licences, approvals and other authorizations
required to conduct their operations and are operating in material compliance
thereunder, and, to the knowledge of the Company, each of such environmental
permits, licences, approvals and other authorizations shall continue in full
force and effect on and after the Closing.
(c) The Company's and its subsidiaries' operations and the
ownership, operation or use of their assets are currently, and have at all times
been, in compliance with all applicable United States, Canadian federal, state,
provincial or local law (including common law), statute, ordinance, rule,
regulation, code, policy, licence, permit, consent, approval, judgment, notice,
order, administrative order or decision, decree or injunction requirement
pertaining to (i) the condition or protection of air, groundwater, surface
water, soil, or other environmental media, (ii) the environment, including
natural resources or any activity which affects the environment or (iii) the
generation, treatment, manufacturing, use, storage, handling, recycling,
presence, release, disposal, transportation or shipment of any Hazardous
Substance (collectively the "Applicable Environmental Laws").
(d) Neither the Company nor its subsidiaries have arranged for any
other Person to handle or Release any Hazardous Substance at, on, under, from or
to any other location, except in each case (i) in full compliance with
Applicable Environmental Laws, (ii) in a manner that would not reasonably be
expected to give rise to any liability under any Applicable Environmental Law
and (iii) at a location that is (x) fully permitted for such Handling and
Release and (y) is not subject to any investigation or cleanup under any
Applicable Environmental Laws.
(e) No written notice has been served on the Company or any of its
subsidiaries from any Governmental Entity or individual regarding any existing,
pending or threatened investigation or inquiry related to alleged violations
under any Applicable Environmental Laws, or regarding any claims for remedial
obligations or contribution under any Applicable Environmental Laws.
B-22
(f) The Company does not know of any reason that would preclude it
from renewing or obtaining a reissuance of the material permits, licences or
other authorizations required pursuant to any Applicable Environmental Laws to
own, operate or use any of the Company's or any of its subsidiaries' assets for
their current purposes and uses.
(g) The Company has provided FCE with complete and correct copies
of all studies, reports, surveys, assessments (including all environmental site
assessments), audits, correspondence, investigations, analysis, laboratory data,
tests, soil and groundwater sampling results and other documents (whether in
hard copy or electronic form) in the Company's or the Company's counsel's or the
Company's consultant's possession or control (excluding documents which are
subject to solicitor-client privilege, the nature of which documents are
described in the Company Disclosure Letter) or to which the Company has access
relating to the presence or alleged presence of Hazardous Substances at, on or
affecting any real property currently or formerly owned, leased or operated by
the Company or its subsidiaries, or regarding the Company's compliance with any
Applicable Environmental Law.
(h) No environmental circumstance or condition exists, including
the presence or Release of any Hazardous Substance at, on, under, from or to any
property currently or previously owned, operated or leased by the Company or its
subsidiaries which could reasonably be expected to result in loss or liability
under Applicable Environmental Laws (including losses, liabilities or other
claims for or associated with remedial investigations or cleanup obligations)
greater than $1.5 (Cdn.) million.
2.16. TITLE TO PROPERTIES
Except for goods and other property sold, used or otherwise disposed of
since December 31, 2002 in the ordinary course of business for fair value, the
Company has good, defensible, and marketable title to all its properties,
including real property owned or leased, interests in properties and assets,
real and personal (the "Company Property"), reflected in the Company Financial
Statements, free and clear of any Encumbrance, except: (a) Encumbrances
reflected in the Company Balance Sheet, all of which Encumbrances are in good
standing; (b) liens for current taxes not yet due and payable; and (c) such
imperfections of title, easements and Encumbrances as would not have a Material
Adverse Effect (the "Company Property Permitted Encumbrances") and the Company
is the sole legal and beneficial owner of the Company Property. All leases
pursuant to which the Company or any of its subsidiaries leases (whether as
lessee or lessor) any real or personal property are in good standing, valid, and
effective; and there is not, under any such leases, any existing or prospective
default or event of default or event which with notice or lapse of time, or
both, would constitute a default by the tenants under such leases, or by the
Company or any of its subsidiaries which, individually or in the aggregate,
would have a Material Adverse Effect and in respect to which the Company or any
of its subsidiaries has not taken adequate steps to prevent a default from
occurring. The buildings and premises of the Company and each of its
subsidiaries that are used in its business are in good operating condition and
repair, subject only to ordinary wear and tear. All major items of operating
equipment of the Company and its subsidiaries are in good operating condition
and in a state of reasonable maintenance and repair, ordinary wear and tear
excepted, and are free from any known defects except as may be repaired by
routine maintenance and such minor defects as do not substantially interfere
with the continued use thereof in the conduct of normal operations.
B-23
2.17. ZONING AND OTHER MATTERS RELATING TO REAL PROPERTY
(a) The buildings and other structures located on the Company
Property and the operation and maintenance thereof, as now operated and
maintained, comply in all material respects with all applicable Laws, municipal
or otherwise; none of such buildings or other structures encroaches upon any
land not owned or leased by the Company or its subsidiaries; and there are no
restrictive covenants, municipal by-laws or other Laws which in any way restrict
or prohibit the use of the Company Property or such buildings or structures for
the purposes for which they are presently being used.
(b) The Company is not aware of any plans, studies, notices of
intent or pending bylaws which, if implemented, could change the land use
designation of the Company Property.
(c) There are no expropriation or similar proceedings, actual or
threatened, of which the Company or its subsidiaries has received notice against
any of the Company Property or any part thereof.
(d) No buildings or other structures located on the Company
Property contain any friable asbestos or any other substance containing asbestos
and deemed hazardous by any applicable Environmental Laws.
(e) There are no options to purchase, rights of first refusal, or
other preferential purchase rights or purchase agreements in favour of any third
party to purchase the Company Property or any part thereof nor any agreements or
arrangements capable of becoming any such option, right or agreement.
(f) Each and every outstanding development agreement or other
agreement with any Governmental Entity in relation to the Company Property, if
any, has been fully complied with and satisfied and, subject only to the passing
of time, shall be released or discharged without conditions.
(g) Other than financing against the Company Property disclosed in
the Company Balance Sheet, the Company does not have any indebtedness to any
person that might by operation of Law or otherwise constitute an Encumbrance
against the Company Property or any part thereof or which could affect the right
of either party, to own, occupy and obtain the revenue from the Company
Property.
(h) There are no contracts, agreements or employees associated
with the Company Property in respect of which the Company will incur any
liability whatsoever as a result of the transactions contemplated under this
Agreement, other than in connection with the Company Property Permitted
Encumbrances.
(i) There are no work orders, deficiency notices, notices of
violation or other written notices from any Governmental Entity, board of fire
insurance underwriters or anyone else advising of any violation or breach of any
Law or regulation or of any permit, license or approval or stating that any
repair, work or change is necessary, recommended or required to the Company
Property or any improvements thereon, nor stating that the Company is not
entitled to
B-24
carry out any of the activities carried out on the Company Property or any
improvements thereon in the manner that such are currently carried out.
(j) The Company holds no registered or beneficial interest,
directly or indirectly, in any lands adjoining or having a common boundary with
any of the Company Property.
(k) The Company Property or any part thereof is not subject to any
designation or pending designation or otherwise restricted in any manner
whatsoever pursuant to the Historical Resources Act (Alberta) (such restrictions
including, without limitation, designation of the Company Property as a
"Heritage Site" thereunder).
(l) The Company is not a "foreign controlled corporation" nor is
the Company Property or any part thereof controlled land as such phrase is
defined by the Foreign Ownership of Land Regulations and/or regulations from
time to time enacted under the Agricultural and Recreational Land Ownership Act
(Alberta).
(m) The Company is not a "non-resident" of Canada within the
meaning and intent of the Tax Act.
(n) There are no security deposits, damage deposits or prepaid
rents outstanding from or owing to any tenants of the Company Property and none
of the leases contain provisions pursuant to which tenants may be entitled to
occupy the premises demised to them, or any other premises, on a rent-free or
rent-reduced basis.
(o) The leases relating to the Company Property are in full force
and effect have not been surrendered and contain the entire and only agreement
between the Company or its subsidiaries, and the landlords or tenants, as the
case may be, with respect to the premises demised or any other portions of the
Company Property.
2.18. NO HAZARDOUS SUBSTANCES
The property presently or previously owned, operated or leased by the
Company or its subsidiaries has not been and is not now used as a landfill or
waste disposal site, nor are there any active or out-of-service underground
storage tanks or sites from which such tanks have been removed on any property
presently or previously owned, operated or leased by the Company or its
subsidiaries, nor has any Hazardous Substance been deposited in or disposed of
at, on, under, to or from any property presently or previously owned, operated
or leased by the Company or its subsidiaries, nor has there been any Release,
spill, emission or discharge of any Hazardous Substance at, on, under, to or
from any property presently or previously owned, operated or leased by the
Company or its subsidiaries or any other location which could reasonably be
expected to give rise, directly or indirectly, to any action or claim by a third
party or a Governmental Entity alleging any violation of, or liability under,
any Applicable Environmental Laws.
2.19. TAXES
(a) The Company and each of its subsidiaries have timely filed, or
caused to be filed, all Tax Returns required to be filed by them prior to the
date hereof (all of which returns were
B-25
correct and complete in all material respects) and have paid, or caused to be
paid, all Taxes, including any installments or prepayments of Taxes, that are
due and payable prior to the date hereof and the Company has provided adequate
accruals in accordance with generally accepted accounting principles in its most
recently published financial statements for any Taxes for the period covered by
such financial statements that have not been paid, whether or not shown as being
due on any Tax Returns. The Company and each of its subsidiaries have made
adequate provision in their respective books and records for any Taxes accruing
in respect of any period subsequent to the period covered by such financial
statements. Since such publication date, no material Tax liability not reflected
in such statements or otherwise provided for has been assessed, proposed to be
assessed, incurred or accrued other than in the ordinary course of business. The
Company and its subsidiaries have withheld from all payments made by them, or
otherwise collected, all material amounts in respect of Taxes required to be
withheld therefrom or collected by them prior to the date hereof, and have
remitted same to the applicable Governmental Entity within the required time
periods. Neither the Company nor any of its subsidiaries has any liability for
the Taxes of any other Person.
(b) Neither the Company nor any subsidiary has received any
written notification that any material issues have been raised (and are
currently pending) by Canada Customs and Revenue Agency, the United States
Internal Revenue Service (the "IRS") or any other taxing authority, including,
without limitation, any state, provincial, or local tax authority, in connection
with any of the Tax Returns referred to above. No waivers of statutes of
limitations have been given or requested with respect to the Company or any
subsidiary, and the relevant statute of limitations with respect to any
liability for Taxes is closed with respect to the Tax Returns of the Company and
its subsidiaries for all years through 1997. All Tax liability of the Company
and its subsidiaries has been assessed for all fiscal years up to and including
the fiscal year ended December 31, 2001. To the knowledge of the Company, there
are no material proposed (but unassessed) additional Taxes with respect to the
Company or any subsidiary and none has been asserted. No Tax liens have been
filed other than for Taxes not yet due and payable.
(c) Neither the Company nor any subsidiary (i) is or has been a
"controlled foreign corporation," "passive foreign investment company" or
"foreign personal holding company" for U.S. federal income tax purposes; (ii)
currently has or has had an active trade or business or "permanent
establishment" (as defined in an applicable treaty) in the United States for
U.S. federal income tax purposes; (iii) currently has or has had any employees,
officers or directors in the United States.
(d) Neither the Company nor any of its subsidiaries has
participated in any transactions with an affiliated United States person, as
defined in Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended
(the "Code"), other than on terms that are consistent with the principles of
Section 482 of the Code and U.S. Treasury Regulations promulgated thereunder.
(e) The Company and its subsidiaries have filed all reports and
have created and/or retained all records required under Section 6038A of the
Code with respect to ownership by and transactions with related foreign parties.
Each related foreign person required to maintain records under Section 6038A
with respect to transactions between any U.S. subsidiary of the Company and the
related foreign person has maintained such records. All documents that are
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required to be created and/or preserved by the related foreign person with
respect to transactions with any U.S. subsidiary of the Company are either
maintained in the United States, or the U.S. subsidiary of the Company is exempt
from the record maintenance requirements of Section 6038A with respect to such
transactions under U.S. Treasury Regulation Section 1.6038A-1. No U.S.
subsidiary of the Company is a party to any record maintenance agreement with
the IRS with respect to Section 6038A. Each related foreign person that has
engaged in transactions with a U.S. subsidiary of the Company has authorized
such U.S. subsidiary to act as its limited agent solely for purposes of Sections
7602, 7603, and 7604 of the Code with respect to any request by the IRS to
examine records or produce testimony related to any transaction with the U.S.
subsidiary, and each such authorization remains in full force and effect.
(f) There is no Contract to which the Company or any of its
subsidiaries is a party, including but not limited to the provisions of this
Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Section 280G of the Code.
(g) Neither the Company nor any of its subsidiaries is a party to
any tax sharing, tax indemnity or tax allocation agreement or arrangement and
neither the Company nor any of its subsidiaries has any liability or obligation
under any such tax sharing, tax indemnity or tax allocation agreement. No
liability (or reasonable claim of liability) shall arise under any tax sharing,
tax indemnity or tax allocation agreement or arrangement as a result of this
transaction. Neither the Company nor any of its subsidiaries is the subject of
an advance income tax ruling.
(h) For Canadian federal, provincial, territorial or local Tax
purposes, the Company has not claimed a reserve in respect of an amount that
could be included in income for any period ending after the Effective Date.
(i) The Company will not be required to include any item of income
in, or exclude any item of deduction from, its taxable income for any period
ending after the Effective Date as a result of any change in method of
accounting for a taxable period beginning prior to the Effective Date, or
prepaid amounts received on or prior to the Effective Date.
(j) Except pursuant to this Agreement, for purposes of any
applicable Canadian federal, provincial, state or local statute imposing Taxes,
no Person or group of Persons has ever acquired or had the right to acquire
control of the Company after 1997.
(k) None of sections 78, 80, 80.01, 80.02, 80.03 or 80.04 of the
Tax Act, or any equivalent provision of the taxation legislation of any
applicable province of Canada, have applied to the Company or could apply as a
result of transactions that occurred prior to the Effective Date.
(l) For all transactions between the Company and any non-resident
Person with whom the Company does not deal at arm's length (within the reasoning
of the Tax Act) during a taxation year commencing after 1998, the Company has
made or obtained records or documents that meet the requirements of paragraphs
247(4)(a) to (c) of the Tax Act.
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(m) The Company is duly registered under subdivision (d) of
Division V of Part IX of the Excise Tax Act (Canada) with respect to the goods
and services tax and harmonized sales tax, and its registration number is
102120607-RT001.
(n) The Company Disclosure Letter sets out the estimated tax pools
of the Company for Canadian federal, provincial, state or local Tax purposes.
(o) No claim has ever been made by a Governmental Entity in
respect of Taxes in a jurisdiction where the Company does not file Tax Returns
that the Company is or may be subject to Tax by that jurisdiction.
2.20. NON-ARM'S LENGTH TRANSACTIONS
(a) None of the Company or its subsidiaries has made any payment
or loan to, or has borrowed any monies from or is otherwise indebted to, any
officer, director, employee or shareholder of such company or any Person not
dealing with such officer, director, employee or shareholder at arm's length or
any affiliate of any of the foregoing, except as disclosed in the Company
Financial Statements or in the Company Disclosure Letter and except for usual
compensation paid in the ordinary course of business consistent with past
practice.
(b) None of the Company or its subsidiaries has outstanding any
loan or other extension of credit, nor any agreement or commitment to make any
loan or extension of credit, in each case in the form of a personal loan, to any
director or senior officer of the Company or its subsidiaries.
(c) Except as disclosed in the Company Disclosure Letter and
except for Contracts made solely between the Company and its subsidiaries and
except for contracts of employment, options agreements under the Company
Incentive Plan, and agreements relating to employee benefits generally available
to employees of the Company, none of the Company or its subsidiaries is a party
to any Contract with any officer, director, employee or shareholder of such
company or any Person not dealing with such officer, director, employee or
shareholder at arm's length or any affiliate of any of the foregoing.
2.21. EMPLOYEES
The Company Disclosure Letter lists all employees employed by and all
individuals engaged on a contractual basis to provide employment or sales
services to the Company or any of its subsidiaries as of the date hereof (the
"Company Employees"). For each of the Company Employees, the Company Disclosure
Letter lists such employee's name, date of hire, title or classification, rate
of salary, commission or bonus entitlements (if any) and any other benefits
extended to, or circumstances unique to, each such employee. Except as described
in the Company Disclosure Letter, neither the Company nor any of its
subsidiaries is a party to or bound by any Contracts relating to employment,
severance, retention, bonus or confidentiality or any consulting Contracts with
any Company Employee or former employee of the Company or any of its
subsidiaries written or otherwise, as to which unsatisfied obligations of the
Company or any of its subsidiaries of greater than $50,000 remain outstanding.
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2.22. EMPLOYEE BENEFIT PLANS
(a) The Company Disclosure Letter lists all the employee benefit,
health, welfare, supplemental employment benefit, bonus, pension, profit
sharing, deferred compensation, stock compensation, stock option or purchase,
retirement, hospitalization insurance, medical, dental, legal, disability and
similar plans or arrangements or practices applicable to Company Employees or to
former employees of the Company or any of its subsidiaries which are currently
maintained or participated in by the Company or its subsidiaries, each loan to a
non-officer Company Employee in excess of $40,000, and each loan to an officer
or director of the Company (the "Company Employee Plans").
(b) All of the Company Employee Plans are registered where
required by, and are in good standing under, all applicable Laws or other
legislative, administrative or judicial promulgations applicable to Company
Employee Plans, and there are no actions, claims, proceedings or governmental
audits pending (other than routine claims for benefits) relating to the Company.
(c) All of the Company Employee Plans have been administered and
funded in material compliance with their terms and all applicable Laws or other
legislative, administrative or judicial promulgations applicable to the Company
Employee Plans, there are no unfunded liabilities in respect of the Company
Employee Plans, and all required contributions thereunder have been made in
accordance with all applicable Laws or other legislative, administrative or
judicial promulgations applicable to the Company Employee Plans and the terms of
such Company Employee Plan.
(d) No amendments to any Company Employee Plan have been promised
and no amendments to any Company Employee Plan will be made or promised prior to
the Effective Date which affect or pertain to the Company Employees.
(e) True and complete copies of all the Company Employee Plans, as
amended and, if available, current plan summaries and employee booklets in
respect thereof as are applicable to the Company Employees and all related
documents or, where oral, written summaries of the terms thereof, have been made
available to FCE; for the purpose of the foregoing, related documents means all
current plan documentation and amendments relating thereto, summary plan
descriptions and summaries of material modifications, if any, all related trust
agreements, funding agreements and similar agreements, the most recent annual
reports filed with any Governmental Entity, and the three most recent actuarial
reports, if any, related thereto.
(f) There are no agreements or undertakings by the Company or any
of its subsidiaries to provide post-retirement profit sharing, medical, health,
life insurance or other benefits to Company Employees or any former employee of
the Company or any of its subsidiaries.
(g) The assets of each Company Employee Plan which is a registered
pension plan are at least equal to the liabilities, contingent or otherwise of
such plan on a plan termination basis and each such plan is fully funded on a
going concern and solvency basis in accordance with its terms, applicable
actuarial assumptions and applicable laws.
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2.23. LABOUR MATTERS
Neither the Company nor any of its subsidiaries is bound by or a party
to any collective bargaining Contracts with any trade union, counsel of trade
unions, employee bargaining agent or affiliated bargaining agent (collectively,
"labour representatives"), and neither the Company nor any of its subsidiaries
has conducted any negotiations with respect to any such future Contracts; no
labour representatives hold bargaining rights with respect to any Company
Employees; no labour representatives have applied to have the Company or any of
its subsidiaries declared a common employer pursuant to the Alberta Labour
Relations Code; to the knowledge of the Company there are no current or
threatened attempts to organize or establish any trade union or employee
association with respect to the Company or any of its subsidiaries; there is no
strike, dispute, slowdown, lockout, shutdown, work stoppage, unresolved material
labour union grievance, labour arbitration, unfair labour practice, successor
rights or common employer proceeding or other concerted action or formal
grievance existing against the Company or any of its subsidiaries.
2.24. INFORMATION SUPPLIED
None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in the Joint Proxy Statement will, at
the time the Joint Proxy Statement is mailed to the securityholders of the
Company and at the time of the Company Shareholders Meeting, contain any untrue
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact, or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter which has become false or
misleading. The Joint Proxy Statement will comply as to form in all material
respects with the provisions of the ABCA and applicable United States and
Canadian securities laws and the rules and regulations promulgated thereunder.
2.25. COMPLIANCE WITH LAWS
Each of the Company and its subsidiaries have complied with and are not
in violation of any applicable Laws, orders, judgments and decrees, except for
such noncompliance that would not cause a Material Adverse Effect. Without
limiting the generality of the foregoing, all securities of the Company
(including, without limitation, all options, rights or other convertible or
exchangeable securities) have been issued in compliance with all applicable
securities Laws and all securities to be issued upon exercise of any such
options, rights and other convertible or exchangeable securities will be issued
in compliance with all applicable securities Laws.
2.26. RESTRICTIONS ON BUSINESS ACTIVITIES
There is no agreement, judgment, injunction, order or decree binding
upon the Company or any of its subsidiaries that has or could reasonably be
expected to have the effect of prohibiting, restricting or materially impairing
any business practice of the Company or any of its subsidiaries, any acquisition
of property by the Company or any of its subsidiaries or the conduct of business
by the Company or any of its subsidiaries as currently conducted.
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2.27. DISCLOSURE
No representation or warranty made by the Company in this Agreement or
the Company Disclosure Letter, nor any document, written information, statement,
financial statement, certificate or exhibit prepared and furnished or to be
prepared and furnished by the Company or its representatives pursuant hereto or
in connection with the transactions contemplated hereby, when taken together,
contains or contained (as of the date made) any untrue statement of a material
fact when made, or omits or omitted (as of the date made) to state a material
fact necessary to make the statements or facts contained herein or therein not
misleading, in any material way, in light of the circumstances under which they
were made.
2.28. THE COMPANY ASSETS AND REVENUES
The Company is its own Ultimate Parent Entity. The Company, together
with all entities Controlled by the Company, (a) does not for the fiscal year
represented in the Company Balance Sheet have aggregate sales in or into the
United States of $50 million or more, or (b) as of the period ended in the
Company Balance Sheet does not and as of the Effective Time will not hold assets
located in the United States having an aggregate total value of $50 million or
more, in each case determined in accordance with 16 C.F.R. Section 801.11. This
representation and warranty is made solely for the purpose of determining the
applicability of the HSR Act notification requirements to the transactions
contemplated by this Agreement.
2.29. BROKERS AND FINDERS
Other than Citigroup Global Markets Inc. (formerly known as Salomon
Smith Barney Inc.) in accordance with the terms of its engagement letter dated
November 19, 2002, a copy of which has been provided to FCE, none of the Company
or any of its subsidiaries nor any of their respective directors, officers or
employees has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or similar payments in
connection with the transactions contemplated by this Agreement.
2.30. TERMINATION OF QUANTUM COMBINATION AGREEMENT.
The Company has terminated the Quantum Combination Agreement pursuant
to the terms thereof.
2.31. COMPANY NET WORKING CAPITAL; CASH BURN
As of September 30, 2003, the projected Company Net Working Capital
shall equal or exceed Cdn. $72,500,000, and a detailed breakdown by each
component item contributing to such amount is set forth in detail in Schedule
2.31 of the Company Disclosure Letter. Solely for the purpose of calculating
Company Net Working Capital pursuant to this Section 2.31, Company Net Working
Capital shall also include a reasonable estimate of all costs and expenses
incurred or that will be incurred by the Company prior to the Effective Time in
connection with the Quantum Combination and the transactions contemplated by
this Agreement and the Plan of Arrangement. As of September 30, 2003, the
Company Net Cash as set forth in Schedule 2.31 of the Company Disclosure Letter
shall equal or exceed Cdn. $67,500,000. Solely for the purpose of calculating
Company Net Cash pursuant to this Section 2.31, Company Net Cash shall also
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include a reasonable estimate of all costs and expenses incurred or that will be
incurred by the Company prior to the Effective Time in connection with the
Quantum Combination and the transactions contemplated by this Agreement and the
Plan of Arrangement. For greater certainty, such estimate does not include an
estimate of the costs that may become payable pursuant to the Company's change
of control agreements with certain of its executive officers in the event of the
consummation of the transactions contemplated by this Agreement and the Plan of
Arrangement. On a per diem basis, between September 30, 2003, and the Effective
Date, the average amount by which the Company Net Working Capital will be
reduced shall not exceed Cdn. $29,500 and the average amount by which Company
Net Cash will be reduced shall not exceed Cdn. $22,000 (collectively, the
"Company Per Diem Burn Rate").
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF FCE
Except as otherwise fully and fairly disclosed and set forth in a
corresponding paragraph of the FCE Disclosure Letter, FCE hereby represents and
warrants to, and agrees with, the Company that:
3.1. ORGANIZATION AND STANDING
(a) Each of FCE and its subsidiaries has been duly organized or
formed under all applicable Laws, is validly existing and in good standing under
the laws of the jurisdiction in which it is organized and has full corporate or
other legal power, authority and capacity to own, lease and operate its
properties and conduct its businesses as currently conducted. All of the
outstanding shares of capital stock and other ownership interests of FCE and its
subsidiaries are duly authorized, validly issued, fully paid and non-assessable,
and all such shares and other ownership interests of FCE's subsidiaries are
owned directly or indirectly by FCE, free and clear of all material liens,
claims or encumbrances and there are no outstanding options, rights,
entitlements, understandings or commitments (pre-emptive, contingent or
otherwise) regarding the right to acquire any such shares of capital stock or
other ownership interests in any of its subsidiaries. FCE and each of its
subsidiaries is duly qualified or licenced to do business in each jurisdiction
where the character of the properties owned, leased or operated by it or the
nature of its activities makes such qualification or licensing necessary, except
where the failure to be so qualified or licenced would not have a Material
Adverse Effect. FCE has disclosed in the FCE Disclosure Letter the names and
jurisdictions of incorporation of each of its subsidiaries.
(b) FCE does not have any subsidiaries which are material in
relation to the business and financial condition of FCE on a consolidated basis;
for the purposes hereof, a subsidiary and its subsidiaries shall be considered
material in relation to FCE if: (i) the investments in and advances to the
subsidiary and its subsidiaries by FCE and its other subsidiaries exceed five
percent of the total assets of FCE and its subsidiaries on a consolidated basis
at April 30, 2003; or (ii) the equity of FCE and its other subsidiaries in the
income from continuing operations before income taxes and extraordinary items of
the subsidiary and its subsidiaries exceeds five percent of such income of FCE
and its subsidiaries on a consolidated basis for FCE's period ended April 30,
2003.
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(c) FCE does not have any ownership interest in any other Person,
which interest is material in relation to the consolidated financial position of
FCE.
(d) FCE has delivered or made available to the Company a true and
correct copy of its charter documents and similar governing instruments of each
of its subsidiaries, each as amended as of the date hereof, and each such
instrument is in full force and effect. Neither FCE nor any of its subsidiaries
is in violation of any of the provisions of its charter documents or equivalent
governing instruments.
3.2. CAPITALIZATION
The authorized capital of FCE consists of 150,000,000 shares of Common
Stock, $.0001 par value per share (the "FCE Common Stock"). As of July 31, 2003,
there were 39,374,633 shares of FCE Common Stock outstanding. As of July 31,
2003, 7,528,982 shares of FCE Common Stock were reserved for issuance upon the
exercise of stock options ("FCE Options") under FCE's 1988 Stock Option Plan
("1988 Stock Option Plan"), Section 423 Stock Purchase Plan (the "FCE Stock
Purchase Plan") and FCE's 1998 Equity Incentive Plan (the "FCE Incentive Plan")
and for the future grant of FCE Options under the FCE Stock Purchase Plan and
the FCE Incentive Plan. As of July 31, 2003, there were warrants to purchase an
aggregate of 2,140,000 shares of FCE Common Stock outstanding (the "FCE
Warrants"). As of July 31, 2003, 5,368,266 of the FCE Options are outstanding,
of which 3,340,390 are vested and are exercisable in accordance with their terms
and 2,027,876 remain unvested. Except as described in this Section 3.2, there
are no options, warrants, conversion privileges, rights plans or other rights,
agreements, arrangements or commitments (pre-emptive, contingent or otherwise)
obligating FCE or any of its subsidiaries to issue or sell any securities of FCE
or any of its subsidiaries or obligations of any kind convertible into or
exchangeable for any securities of FCE, any of its subsidiaries or any other
Person, nor are there outstanding any stock appreciation rights, phantom equity
or similar rights, agreements, arrangements or commitments based upon the book
value, income or any other attribute of FCE or any of its subsidiaries. All
outstanding shares of FCE Common Stock have been duly authorized and are validly
issued and outstanding as fully-paid and non-assessable shares, free of
pre-emptive rights. There are no outstanding bonds, debentures or other
evidences of indebtedness of FCE or any of its subsidiaries having the right to
vote (or that are convertible for or exercisable into securities having the
right to vote) with the FCE securityholders on any matter. There are no
outstanding contractual obligations of FCE or any of its subsidiaries to
repurchase, redeem or otherwise acquire any of FCE's securities or with respect
to the voting or disposition of any outstanding securities of any of its
subsidiaries. No holder of securities issued by FCE or any of its subsidiaries
has any right to compel FCE to register or otherwise qualify such securities for
public sale in the United States.
3.3. AGREEMENT AUTHORIZED AND ITS EFFECT ON OTHER OBLIGATIONS
(a) FCE has the requisite corporate power and authority to enter
into this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement by FCE and the consummation of the transactions
contemplated by this Agreement have been duly authorized by FCE's board of
directors, and no other corporate proceedings on its part are necessary to
authorize this Agreement or the transactions contemplated hereby, other than the
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requisite approval by the FCE stockholders of this Agreement and the issuance by
FCE of the FCE Common Stock issuable pursuant to the Arrangement.
(b) This Agreement has been duly executed and delivered by FCE and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, subject to bankruptcy, insolvency and other similar
Laws affecting creditors' rights generally, and to general principles of equity.
(c) FCE's board of directors has (i) determined that the
Arrangement is fair to the holders of the FCE Common Stock and is in the best
interests of FCE, (ii) received an opinion from Lazard Freres & Co. (and has
been advised that they will receive a written opinion) that the Exchange Ratio
is fair from a financial point of view to the holders of the FCE Common Stock,
(iii) determined to recommend that the holders of the FCE Common Stock vote in
favour of the Agreement, and the transactions contemplated hereby, and (iv) has
advised FCE and the Company that the members of its board of directors will vote
the FCE Common Stock held by them in favour of the Agreement and the
transactions contemplated hereby and FCE will so represent in the Joint Proxy
Statement, subject to Section 7.1(b).
(d) The approval of this Agreement by FCE, the execution and
delivery by FCE of this Agreement and the performance by it of its obligations
hereunder and the completion by it of the Arrangement and the transactions
contemplated thereby, will not:
(i) result in a violation or breach of, require any
consent to be obtained under or give rise to any material termination
rights or material payment obligation under any provision of:
(A) its or any of its subsidiaries' certificate
of incorporation, articles, bylaws or other charter documents;
(B) subject to obtaining the Appropriate
Regulatory Approvals relating to FCE, any Laws, regulation,
order, judgment or decree applicable to FCE or any of its
subsidiaries or by which FCE or any of its subsidiaries or any
of their respective properties is bound;
(C) any Material Contract or material licence,
franchise or permit to which FCE, or any of its subsidiaries,
is party or by which it is bound; or
(D) the provisions of any of the FCE Property
Permitted Encumbrances;
(ii) give rise to any right of termination or acceleration
of indebtedness, or cause any third party indebtedness to come due
before its stated maturity or cause any available credit to cease to be
available;
(iii) result in the imposition of any Encumbrance upon any
of FCE's or any of its subsidiaries' assets, or restrict, hinder,
impair or limit the ability of FCE or any of its subsidiaries to carry
on the business of FCE as and where it is now being carried on, except
as would not, individually or in the aggregate, have a Material Adverse
Effect; or
B-34
(iv) result in any payment (including severance,
unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any director or employee of FCE or any of its
subsidiaries or increase any benefits otherwise payable under the FCE
Incentive Plan or the FCE Employee Plan or result in the acceleration
of time of payment or vesting of any such benefits, including the time
of exercise of stock options.
(e) There are no "fair price," "moratorium," "control share
acquisition" or other anti-takeover statutes or regulations of any Governmental
Entity that are applicable to FCE in connection with the transactions
contemplated herein.
3.4. GOVERNMENTAL AND THIRD PARTY CONSENTS
(a) No consent, approval, order or authorization of, or
registration, declaration or filing with or notice to, any Governmental Entity
or other Person is required to be obtained by FCE or any of its subsidiaries in
connection with the execution and delivery of this Agreement or the Plan of
Arrangement or the consummation of the transactions contemplated hereby or
thereby, except for: (i) the filing with the Commissions and the mailing to
stockholders of FCE of the Joint Proxy Statement relating to the FCE
Stockholders Meeting, (ii) the furnishing to the SEC of the SEC Filings; (iii)
approval by the Court of the Arrangement and the filings of the articles of
arrangement and other required arrangement or other documents as required by the
ABCA; (iv) such filings, authorizations, decisions, orders and approvals as may
be required under applicable federal, provincial or state securities laws and
the rules of The Nasdaq Stock Market Inc. ("Nasdaq"); (v) such filings and
notifications as may be necessary under the HSR Act; (vi) such notices and
filings as may be necessary under the Investment Canada Act and under the
Competition Act (Canada); and (vii) where the failure to obtain such consents,
approvals, etc., would not prevent or delay the consummation of the Arrangement
or otherwise prevent FCE from performing its obligations under this Agreement
and would not reasonably be expected to have a Material Adverse Effect.
(b) Other than as contemplated by Section 3.4(a), no consents,
assignments, waivers, authorizations or other certificates are necessary in
connection with the transactions contemplated hereby to provide for the
continuation in full force and effect of all of FCE's Material Contracts or
leases or for FCE to consummate the transactions contemplated hereby, except
when the failure to receive such consents or other certificates would not have a
Material Adverse Effect.
(c) FCE and its subsidiaries possesses such consents, licences,
certificates, authorizations, approvals, franchises, permits or other rights as
are currently necessary to conduct the business now operated by it, except where
the failure to posses such consents, licences, certificates, authorizations,
approvals, franchises, permits would not have a Material Adverse Effect.
3.5. NO DEFAULTS
Neither FCE nor any of its subsidiaries is in default under, and there
exists no event, condition or occurrence which, after notice or lapse of time or
both, would constitute such a
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default under any contract, agreement, licence or franchise to which it is a
party which would, if terminated due to such default, cause a Material Adverse
Effect.
3.6. INTELLECTUAL PROPERTY
(a) The FCE Disclosure Letter sets out an accurate and complete
list of all Registered Intellectual Property that is owned by FCE or any of its
subsidiaries.
(b) The FCE Disclosure Letter sets out an accurate and complete
list of all material licences, sublicences, consents or other agreements by
which FCE or any of its subsidiaries either grant any permission to use any
Intellectual Property or Technology that are owned by FCE or any of its
subsidiaries to other Persons or are permission from other Persons to use third
party Intellectual Property or Technology.
(c) Except as provided in the FCE Disclosure Letter, no licence,
sublicence, consent or other agreement FCE or any of its subsidiaries is a party
to or bound by or restricts in any manner the use, transfer or licensing by FCE
of any Intellectual Property or Technology that is owned or used by FCE or any
of its subsidiaries.
(d) To the knowledge of FCE, no party to any licence, sublicence,
consent or other agreement to which FCE or any of its subsidiaries is a party or
by which FCE or any of its subsidiaries is bound is in material breach or
default and no event has occurred (or upon Closing will occur) which with notice
or lapse of time would constitute a material breach or default or permit
termination, modification or acceleration thereunder.
(e) FCE and all of its subsidiaries have and continue to maintain
a system to safeguard the secrecy, confidentiality and unauthorized use of any
proprietary information or Trade Secrets in its possession or control, including
taking adequate measures to legally bind all Persons who may have any access to
any such proprietary information or Trade Secrets to maintain the secrecy,
confidentiality and not use any such proprietary information or Trade Secrets
and there has been no material breach or violation of such safeguards or
measures and all such measures and safeguards are enforceable.
(f) FCE owns or possesses the Intellectual Property and Technology
necessary to carry on the business now operated by it, and as proposed to be
operated by it, and FCE has not received any notice or is otherwise aware of any
infringement of or conflict with asserted rights of others with respect to any
Intellectual Property or Technology or of any facts or circumstances that would
render any Intellectual Property or Technology invalid, unenforceable or
inadequate to protect the interest of FCE therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding) or
invalidity, unenforceability, or inadequacy, singly or in the aggregate, would
result in a Material Adverse Effect.
3.7. SECURITIES REPORTS
(a) FCE has furnished or made available to the Company true and
complete copies of each statement, form, schedule, report, registration
statement (including any prospectus filed pursuant to Rule 424(b) of the 1933
Act), proxy statement and other filing filed with, or furnished to, the SEC by
FCE since October 31, 2002, and, prior to the Effective Time, FCE will
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have furnished the Company with true and complete copies of any additional
documents filed with the SEC by FCE prior to the Effective Time (such
statements, reports, registration statements, prospectuses, proxy statements,
other filings, including schedules included therein, are referred to as the "FCE
Documents"). FCE has furnished to the Company true and complete copies of all
written correspondence between FCE and any securities regulatory bodies
including the SEC and Nasdaq.
(b) FCE has made available to the Company all exhibits to the FCE
Documents filed prior to the date hereof, and will promptly make available to
the Company all exhibits to any additional FCE Documents filed prior to the
Effective Time. All documents required to be filed as exhibits to the FCE
Documents have been so filed, and all Material Contracts so filed as exhibits
are in full force and effect, except those which have expired in accordance with
their terms, and neither FCE nor any of its subsidiaries is in default
thereunder.
(c) The FCE Documents include all statements, reports,
registration statements, and other documents required to be filed by it with the
SEC since October 31, 2002. FCE has timely filed all FCE Documents required to
be filed by it with the SEC since October 31, 2002. The FCE Documents did not,
at the time they were filed, or, if amended or updated, as of the date of such
amendment or update, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading, except to the extent corrected by a subsequently-filed FCE
Document. None of FCE's subsidiaries is required to file any forms, reports,
schedules, prospectuses, statements or other documents with the SEC. The FCE
Documents, at the time they were filed with the SEC, complied in all material
respects with the requirements of the Exchange Act, the Securities Act, as
applicable, and the rules and regulations promulgated thereunder.
(d) FCE has publicly disclosed in the FCE Documents any
information regarding any event, circumstance or action taken or failed to be
taken by FCE or its subsidiaries which could individually or in the aggregate
reasonably be expected to have a Material Adverse Effect.
3.8. FINANCIAL STATEMENTS
(a) The FCE Financial Statements complied as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of applicable Governmental Entities and the SEC with
respect thereto as of their respective dates, and have been prepared in
accordance with United States generally accepted accounting principles applied
on a basis consistent throughout the periods indicated and consistent with each
other (except as may be indicated in the notes thereto or, in the case of
unaudited statements included in quarterly reports to shareholders). The FCE
Financial Statements present fairly the consolidated financial position, results
of operations and cash flows of FCE and its subsidiaries at the dates and during
the periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments and the absence of notes thereto) and
reflect appropriate and adequate reserves in respect of all liabilities,
including contingent liabilities, if any, of FCE and its subsidiaries on a
consolidated basis. There has been no change in FCE's accounting policies,
except as described in the notes to the FCE Financial Statements, since April
30, 2003.
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(b) FCE has heretofore made available to the Company the
consolidated balance sheet of FCE and its consolidated subsidiaries at October
31, 2002 (the "FCE Balance Sheet"), as well as the consolidated statements of
operations of FCE and its consolidated subsidiaries for the period ended October
31, 2002 (the "FCE Statement of Operations") and the consolidated statements of
cash flows of FCE and its consolidated subsidiaries for the period ended October
31, 2002 (the "FCE Statement of Cash Flows" and, together with the FCE Balance
Sheet and the FCE Statement of Operations, in each case including the notes
thereto, being collectively referred to herein as the "FCE Financial
Statements"). Except as set forth in the FCE Financial Statements, neither FCE
nor any of its subsidiaries has any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise), except for liabilities and
obligations, incurred in the ordinary course of business consistent with past
practice since October 31, 2002 and that would not have a Material Adverse
Effect.
3.9. ABSENCE OF CERTAIN CHANGES AND EVENTS
Since October 31, 2002, FCE has conducted its business in the ordinary
and regular course consistent with past practice and there has not occurred:
(a) Any Material Adverse Change with respect to FCE;
(b) Any acquisition, sale or transfer of any material asset of FCE
or any of its subsidiaries other than in the ordinary course of business and
consistent with past practice;
(c) Any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates, or capitalized
software policies) by FCE or any revaluation by FCE of any of its or any of its
subsidiaries' assets;
(d) Any declaration, setting aside, or payment of a dividend or
other distribution with respect to the FCE Common Stock, or any direct or
indirect redemption, purchase or other acquisition by FCE of any of its shares
of capital stock;
(e) Any Material Contract entered into by FCE or any of its
subsidiaries, or any material amendment or termination of, or default under, any
Material Contract to which FCE or any of its subsidiaries is a party or by which
it is bound;
(f) Any change in the capital stock or in the number of shares or
classes of FCE's authorized or outstanding capital stock as described in Section
3.2 (other than as a result of exercises of FCE Options and the FCE Warrants);
(g) Any agreement by FCE or any of its subsidiaries to do any of
the things described in the preceding clauses (a) through (f) (other than
negotiations with the Company, and its representatives regarding the
transactions contemplated by this Agreement); or
(h) Any agreement or arrangement to take any action which, if
taken prior to the date hereof, would have made any representation or warranty
set forth in this Agreement materially untrue or incorrect as of the date when
made.
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3.10. MATERIAL CONTRACTS
None of FCE, its subsidiaries, nor, to the knowledge of FCE, any of the
other parties thereto is in default or breach of, in any material respect, nor
has FCE or its subsidiaries received any notice of material default or
termination under, any Material Contract and, to the knowledge of FCE, there
exists no state of facts which after notice or lapse of time or both would
constitute such a material default or breach. None of FCE or its subsidiaries is
a party to any Material Contract except for those Material Contracts set forth
on the FCE Disclosure Letter. True and complete copies of all of FCE's Material
Contracts, or where such Contracts are oral, true and complete written summaries
of the terms thereof, have been furnished to or made available to the Company.
3.11. CUSTOMERS AND SUPPLIERS
Since October 31, 2002, there has been no termination or cancellation
of, and no material modification or change in, the business relationship with
any customer or group of customers which singly or in the aggregate provided
more than 10% of the consolidated gross revenues of FCE and its subsidiaries for
the year ended October 31, 2002. FCE has no reason to believe that the benefits
of any relationship with any of the customers or suppliers of FCE or its
subsidiaries will not continue on the terms identified in the agreements
establishing such relationships after the Effective Date in substantially the
same manner as prior to the date hereof, assuming the completion on the
Effective Date of the Arrangement. FCE has furnished or made available to the
Company all of FCE's material product warranties provided to customers through
May 31, 2003.
3.12. INSURANCE
FCE and its subsidiaries are insured by insurers reasonably believed by
FCE to be of recognized financial responsibility and solvency against such
losses and risks and in such amounts as are customary in the businesses in which
FCE and its subsidiaries are engaged. FCE has furnished or made available to the
Company accurate particulars of the policies of insurance maintained by FCE and
its subsidiaries as of the date hereof, including the name of the insurer, the
risks insured against and the amount of coverage, and all such policies will
continue in effect without alteration or loss in coverage in connection with the
consummation of the Arrangement. All such policies are in full force and effect.
None of FCE or its subsidiaries or, to the knowledge of FCE, any of the other
parties thereto, is in material default or breach of, whether as to the payment
of premiums or otherwise, nor has FCE or its subsidiaries received any notice of
material default or termination under, any such policy and, to the knowledge of
FCE, there exists no state of facts which after notice or lapse of time or both
would constitute such a default or breach. There is no reason to believe that
any of the existing insurance policies of FCE and its subsidiaries will not be
renewed by the insurer upon the scheduled termination date of the policy or will
be renewed by the insurer only on the basis that there will be a material
increase in the premiums payable in respect of the policy. True and complete
copies of all the existing insurance policies of FCE and its subsidiaries have
been provided to the Company.
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3.13. BOOKS AND RECORDS
(a) The books, records and accounts of FCE and its subsidiaries,
in all material respects:
(i) have been maintained in accordance with good business
practices on a basis consistent with prior years;
(ii) are stated in reasonable detail and accurately and
fairly reflect the transactions and dispositions of the assets of FCE
and its subsidiaries; and
(iii) accurately and fairly reflect the basis for the FCE
Financial Statements.
(b) FCE has devised and maintains a system of internal accounting
controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with
management's general or specific authorization; and
(ii) transactions are recorded as necessary (A) to permit
preparation of financial statements in conformity with United States
generally accepted accounting principles or any other criteria
applicable to such statements and (B) to maintain accountability for
assets.
(c) FCE maintains a system of disclosure controls and procedures
that comply with Rules 13a-14 and 13a-15 of the Exchange Act and that are
designed to ensure that information required to be disclosed by FCE in its
reports or other documents filed with or furnished to the SEC is recorded,
processed, summarized and reported within the time periods required by the SEC's
rules and forms, including, without limitation, controls and procedures designed
to ensure that such information is accumulated and communicated to FCE's senior
management, including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
3.14. LITIGATION; INVESTIGATIONS
There is no claim, action, proceeding or investigation pending or, to
the knowledge of FCE, threatened against or relating to FCE or any of its
subsidiaries or affecting any of their properties, licences or assets before any
court or Governmental Entity or regulatory authority or body that, if adversely
determined, could reasonably be expected to have a Material Adverse Effect, or
prevent or delay consummation of the transactions contemplated by this Agreement
or the Arrangement, nor is FCE aware of any basis for any such claim, action,
proceeding or investigation. Neither FCE nor any of its subsidiaries, nor their
respective assets and properties, is subject to any outstanding judgment, order,
writ, injunction or decree that has had or is reasonably likely to have a
Material Adverse Effect, that involves or may involve, or restricts or may
restrict, or requires or may require, the expenditure of a material amount of
money as a condition to or a necessity for the right or ability of FCE or any of
its material subsidiaries, as the case may be, to conduct its business in any
manner in which it has been carried on prior to the
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date hereof, or prevent or delay consummation of the transactions contemplated
by this Agreement or the Arrangement.
3.15. ENVIRONMENTAL MATTERS
(a) There are no environmental conditions or circumstances, such
as the presence or Release of any Hazardous Substance, existing on, at, under,
to or from any property presently or previously owned, operated or leased by FCE
or any of its subsidiaries.
(b) FCE and its subsidiaries have in full force and effect all
material environmental permits, licences, approvals and other authorizations
required to conduct their operations and are operating in material compliance
thereunder, and, to the knowledge of FCE, each of such environmental permits,
licences, approvals and other authorizations shall continue in full force and
effect on and after the Closing.
(c) FCE's and its subsidiaries' operations and the ownership,
operation or use of their assets are currently, and have at all times been, in
compliance with all Applicable Environmental Laws.
(d) Neither FCE nor its subsidiaries have arranged for any other
Person to handle or Release any Hazardous Substance at, on, under, from or to
any other location, except in each case (i) in full compliance with Applicable
Environmental Laws, (ii) in a manner that would not reasonably be expected to
give rise to a claim for damages under any Applicable Environmental Law and
(iii) at a location that is (x) fully permitted for such Handling and Release
and (y) is not subject to any investigation or cleanup under any Applicable
Environmental Laws.
(e) No written notice has been served on FCE or any of its
subsidiaries from any Governmental Entity or individual regarding any existing,
pending or threatened investigation or inquiry related to alleged violations
under any Applicable Environmental Laws, or regarding any claims for remedial
obligations or contribution under any Applicable Environmental Laws.
(f) FCE does not know of any reason that would preclude it from
renewing or obtaining a reissuance of the material permits, licences or other
authorizations required pursuant to any Applicable Environmental Laws to own,
operate or use any of FCE's or any of its subsidiaries' assets for their current
purposes and uses.
(g) FCE has made available to the Company complete and correct
copies of all studies, reports, surveys, assessments (including all Phase I and
Phase II environmental site assessments), audits, correspondence,
investigations, analysis, laboratory data, tests, soil and groundwater sampling
results and other documents (whether in hard copy or electronic form) in FCE's
or FCE's counsel's or FCE's consultant's possession or control (excluding
documents which are subject to attorney-client privilege, the nature of which
documents are described in the FCE Disclosure Letter) or to which FCE has access
relating to the presence or alleged presence of Hazardous Substances at, on or
affecting any real property currently or formerly owned, leased or operated by
FCE or its subsidiaries, or regarding FCE's compliance with any Applicable
Environmental Law.
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(h) No environmental circumstance or condition exists, including
the presence or Release of any Hazardous Substance at, on, under, from or to any
property currently or previously owned, operated or leased by FCE or its
subsidiaries which could reasonably be expected to result in loss or liability
under Applicable Environmental Laws (including losses, liabilities or other
claims for or associated with remedial investigations or cleanup obligations)
greater than $1 million.
3.16. TITLE TO PROPERTIES
Except for goods and other property sold, used or otherwise disposed of
since April 30, 2003 in the ordinary course of business for fair value, FCE has
good, defensible, and marketable title to all its properties, including real
property owned or leased, interests in properties and assets, real and personal
(the "FCE Property"), reflected in the FCE Financial Statements, free and clear
of any Encumbrance, except: (a) Encumbrances reflected in the FCE Balance Sheet,
all of which Encumbrances are in good standing; (b) liens for current taxes not
yet due and payable; and (c) such imperfections of title, easements and
Encumbrances as would not have a Material Adverse Effect (the "FCE Property
Permitted Encumbrances"), and FCE is the sole legal and beneficial owner of the
FCE Property. All leases pursuant to which FCE or any of its subsidiaries leases
(whether as lessee or lessor) any real or personal property are in good
standing, valid, and effective; and there is not, under any such leases, any
existing or prospective default or event of default or event which with notice
or lapse of time, or both, would constitute a default by the tenants under such
leases, or by FCE or any of its subsidiaries which, individually or in the
aggregate, would have a Material Adverse Effect and in respect to which FCE or
any of its subsidiaries has not taken adequate steps to prevent a default from
occurring.
3.17. NO HAZARDOUS SUBSTANCES
The property presently or previously owned, operated, or leased by FCE
or its subsidiaries has not been and is not now used as a landfill or waste
disposal site, nor are there any active or out-of-service underground storage
tanks or sites from which such tanks have been removed on any property presently
or previously owned, operated, or leased by FCE or its subsidiaries, nor has any
Hazardous Substance been deposited in or disposed of at, on, under, to or from
any property presently or previously owned, operated, or leased by FCE or its
subsidiaries, nor has there been any Release, spill, emission or discharge of
any Hazardous Substance at, on, under, to or from any property presently or
previously owned, operated, or leased by FCE or its subsidiaries or any other
location which could reasonably be expected to give rise, directly or
indirectly, to any action or claim by a third party or a Governmental Entity
alleging any violation of, or liability under, any Applicable Environmental
Laws.
3.18. TAXES
(a) FCE and each of its subsidiaries have timely filed, or caused
to be filed, all Tax Returns required to be filed by them prior to the date
hereof (all of which returns were correct and complete in all material respects)
and have paid, or caused to be paid, all Taxes, including any installments or
prepayments of Taxes, that are due and payable prior to the date hereof and FCE
has provided adequate accruals in accordance with generally accepted accounting
principles in its most recently published financial statements for any Taxes for
the period covered by such
B-42
financial statements that have not been paid, whether or not shown as being due
on any Tax Returns. FCE and each of its subsidiaries have made adequate
provision in their respective books and records for any Taxes accruing in
respect of any period subsequent to the period covered by such financial
statements. Since such publication date, no material Tax liability not reflected
in such statements or otherwise provided for has been assessed, proposed to be
assessed, incurred or accrued other than in the ordinary course of business. FCE
and its subsidiaries have withheld from all payments made by them, or otherwise
collected, all material amounts in respect of Taxes required to be withheld
therefrom or collected by them prior to the date hereof and have remitted same
to the applicable Governmental Entity within the required time periods. Neither
FCE nor any of its subsidiaries has any liability for the Taxes of any other
Person.
(b) Neither FCE nor any subsidiary has received any written
notification that any material issues have been raised (and are currently
pending) by the IRS, Canada Customs and Revenue Agency or any other taxing
authority, including, without limitation, any state, provincial or local tax
authority, in connection with any of the Tax Returns referred to above. No
waivers of statutes of limitations have been given or requested with respect to
FCE or any subsidiary, and the relevant statute of limitations with respect to
any liability for Taxes has not closed with respect to the Tax Returns of FCE
and its subsidiaries for all taxable years through the date hereof. To the
knowledge of FCE, there are no material proposed (but unassessed) additional
Taxes with respect to FCE or any subsidiary and none has been asserted. No Tax
liens have been filed other than for Taxes not yet due and payable.
(c) Neither FCE nor any of its subsidiaries that is a United
States person, as defined in Section 7701(a)(30) of the Code, has participated
in any transactions with an affiliated person, other than on terms that are
consistent with the principles of Section 482 of the Code and U.S. Treasury
Regulations promulgated thereunder.
(d) There is no Contract to which FCE or any of its subsidiaries
is a party, including but not limited to the provisions of this Agreement,
covering any employee or former employee of FCE that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Section 280G of the Code.
(e) Neither FCE nor any of its subsidiaries is a party to any tax
sharing, tax indemnity or tax allocation agreement or arrangement and neither
FCE nor any of its subsidiaries has any liability or obligation under any such
tax sharing, tax indemnity or tax allocation agreement. No liability (or
reasonable claim of liability) shall arise under any tax sharing, tax indemnity
or tax allocation agreement or arrangement as a result of this transaction.
Neither FCE nor any of its subsidiaries is the subject of an advance income tax
ruling.
(f) FCE will not be required to include any item of income in, or
exclude any item of deduction from, its taxable income for any period ending
after the Effective Date as a result of any change in method of accounting for a
taxable period beginning prior to the Effective Date, or prepaid amounts
received on or prior to the Effective Date.
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3.19. NON-ARM'S LENGTH TRANSACTIONS
(a) None of FCE or its subsidiaries has made any payment or loan
to, or has borrowed any monies from or is otherwise indebted to, any officer,
director, employee or shareholder of such company or any Person not dealing with
such officer, director, employee or shareholder at arm's length or any affiliate
of any of the foregoing, except as disclosed in the FCE Financial Statements or
in the FCE Disclosure Letter and except for usual compensation paid in the
ordinary course of business consistent with past practice.
(b) None of FCE or its subsidiaries has outstanding any loan or
other extension of credit, nor any agreement or commitment to make any loan or
extension of credit, in each case in the form of a personal loan, to any
director or executive officer of FCE or its subsidiaries.
(c) Except as disclosed in the FCE Disclosure Letter and except
for Contracts made solely between FCE and its subsidiaries and except for
contracts of employment, options agreements under the FCE Incentive Plan, and
agreements relating to employee benefits generally available to employees of
FCE, none of FCE or its subsidiaries is a party to any Contract with any
officer, director, employee or shareholder of such company or any Person not
dealing with such officer, director, employee or shareholder at arm's length or
any affiliate of any of the foregoing.
3.20. EMPLOYEES
Except as described in the FCE Disclosure Letter, neither FCE nor any
of its subsidiaries is a party to or bound by any Contracts relating to
employment, severance, retention, bonus or confidentiality or any consulting
Contracts with any FCE Employee or former employee of FCE or any of its
subsidiaries written or otherwise, as to which unsatisfied obligations of FCE or
any of its subsidiaries of greater than $50,000 remain outstanding.
3.21. EMPLOYEE BENEFIT PLANS
(a) The FCE Disclosure Letter lists, with respect to FCE, any
subsidiary of FCE and any trade or business (whether or not incorporated) which
is treated as a single employer with FCE (an "ERISA Affiliate") within the
meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all material
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), and (ii) any stock option or
stock purchase plans, programs or arrangements (together, the "FCE Employee
Plans").
(b) FCE has made available or furnished to the Company a copy of
all documents creating or evidencing all of the FCE Employee Plans (including
trust documents, insurance policies or contracts, summary plan descriptions and
to the extent still in its possession, any material employee communications
relating thereto) and has with respect to each FCE Employee Plan that is subject
to the reporting and disclosure requirements of Title I of ERISA, provided or
made available copies of all Forms 5500 required to be filed with any government
entity for the preceding two plan years and that have been filed, if applicable.
Each FCE Employee Plan intended to qualify under Section 401(a) of the Code has
either been determined by the IRS to so qualify with respect to the Code, has
applied or will apply to the IRS for such determination prior to the expiration
of the requisite remedial amendment period under applicable Treasury
B-44
Regulations or official guidance published by the IRS, or is entitled to rely on
a notification or opinion letter issued with respect to an IRS-approved master
and prototype or volume submitter plan document pursuant to IRS Announcement
2001-77. FCE has also furnished to the Company the most recent IRS
determination, notification, or opinion letter issued with respect to each such
FCE Employee Plan subject to the provisions of Section 401(a) of the Code. To
the best knowledge of FCE, nothing has occurred since the date of such letter
that could reasonably be expected to cause the loss of the tax-qualified status
of any FCE Employee Plan subject to Code Section 401(a).
(c) Except as set forth in the FCE Disclosure Letter, (i) none of
the FCE Employee Plans promises or provides retiree medical or other retiree
welfare benefits to any person, except as required by the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA"); (ii) no "prohibited transactions"
(as defined in Section 406 or 407 of ERISA or Section 4975 of the Code) have
occurred for which a statutory or administrative exemption is not available and
which could reasonably be expected to have, in the aggregate, a Material Adverse
Effect; (iii) each FCE Employee Plan has been administered in compliance with
its terms and, to the extent applicable, is in compliance with the requirements
prescribed by any and all statutes, rules and regulations (including ERISA and
the Code) except as would not have, in the aggregate, a Material Adverse Effect,
and FCE and each subsidiary or ERISA Affiliate has performed all obligations
required to be performed by it under, are not in any respect in default under or
violation of, and have no knowledge of any default or violation by any other
party to, any of the FCE Employee Plans, which default or violation could
reasonably be expected to have a Material Adverse Effect, (iv) to the best
knowledge of FCE, neither FCE nor any subsidiary or ERISA Affiliate is subject
to any liability or penalty under Sections 4976 through 4980 of the Code or
Title I of ERISA with respect to any of the FCE Employee Plans which have a
Material Adverse Effect on any such parties; (v) all material contributions
required to be made by FCE or any subsidiary or ERISA Affiliate to any FCE
Employee Plan have been made on or before their due dates and a reasonable
amount has been accrued for contributions to each FCE Employee Plan for the
current plan years; and (vi) no FCE Employee Plan is covered by, and neither FCE
nor any subsidiary of an ERISA Affiliate has incurred or expects to incur any
liability under Title IV of ERISA or Section 412 of the Code. With respect to
each FCE Employee Plan subject to ERISA, FCE has prepared in good faith and
timely filed all requisite governmental reports (which were true and correct as
of the date filed) and has properly and timely filed and distributed or posted
all notices and reports to employees required to be filed, distributed or posted
with respect to each such FCE Employee Plan. Except as set forth in the FCE
Disclosure Letter, no suit, administrative proceeding, action or other
litigation has been brought, or to the best knowledge of FCE is threatened,
against or with respect to any such FCE Employee Plan, including any audit or
inquiry by the IRS or United States Department of Labor. Neither FCE nor any of
its subsidiaries or other ERISA Affiliate is a party to, or has made any
contribution to or otherwise incurred any obligation under, any "multiemployer
plan" as defined in Section 3(37) of ERISA. Except as otherwise required by
applicable Law, each FCE Employee Plan can be amended or terminated or otherwise
discontinued after the Effective Time without liability to FCE or its
subsidiaries.
(d) There has been no amendment to, written interpretation or
announcement (whether or not written) by FCE, any FCE subsidiary or other ERISA
Affiliate relating to, or change in participation or coverage under, any FCE
Employee Plan which would materially
B-45
increase the expense of maintaining such Plan above the level of expense
incurred with respect to that Plan for the most recent fiscal year included in
the FCE Financial Statements.
(e) There has been no determination by any Governmental Entity
that any individual performing services for FCE or any of its ERISA Affiliates
and classified as an independent contractor constitutes a common law employee of
FCE or any ERISA Affiliates. The FCE Disclosure Letter lists each employment
agreement with respect to each current employee of FCE or an ERISA Affiliate who
performs services in the United States whose employment is not "at will" and
cannot be terminated by FCE or one of its ERISA Affiliates at any time, other
than employment agreements that would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect. The FCE Disclosure Letter
lists each outstanding loan to officers, directors or non-officer employees
other than loans that would not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect.
(f) Neither FCE nor any of its ERISA Affiliates has violated
Sections 306 or 402 of the Sarbanes-Oxley Act of 2002, and, to the knowledge of
FCE and assuming the truthfulness of the representation by the Company pursuant
to Section 2.20(b), the execution of this Agreement and the consummation of the
transactions contemplated hereby will not cause such a violation.
3.22. LABOUR MATTERS
Neither FCE nor any of its subsidiaries is bound by or a party to any
collective bargaining Contracts with any trade union, counsel of trade unions,
employee bargaining agent or affiliated bargaining agent (collectively, "labour
representatives"), and neither FCE nor any of its subsidiaries has conducted any
negotiations with respect to any such future Contracts; no labour
representatives hold bargaining rights with respect to any FCE Employees; no
labour representatives have applied to have FCE or any of its subsidiaries
declared a related employer; to the knowledge of FCE, there are no current or
threatened attempts to organize or establish any trade union or employee
association with respect to FCE or any of its subsidiaries; there is no strike,
dispute, slowdown, lockout, shutdown, work stoppage, unresolved material labour
union grievance, labour arbitration, unfair labour practice, successor rights or
common employer proceeding or other concerted action or formal grievance
existing against FCE or any of its subsidiaries.
3.23. INFORMATION SUPPLIED
None of the information supplied or to be supplied by FCE for inclusion
or incorporation by reference in the Joint Proxy Statement will, at the time the
Joint Proxy Statement is mailed to the stockholders of FCE and at the time of
the FCE Stockholders Meeting, contain any untrue statement which, at the time
and in light of the circumstances under which it is made, is false or misleading
with respect to any material fact, or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of a proxy for the same meeting
or subject matter which has become false or misleading. The Joint Proxy
Statement will comply as to form in all material respects with the provisions of
the ABCA and applicable United States and Canadian securities laws and the rules
and regulations promulgated thereunder.
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3.24. COMPLIANCE WITH LAWS
FCE and its subsidiaries have complied with and are not in violation of
any applicable Laws, orders, judgments and decrees, except for such
noncompliance that would not cause a Material Adverse Effect. Without limiting
the generality of the foregoing, all securities of FCE (including, without
limitation, all options, rights or other convertible or exchangeable securities)
have been issued in compliance with all applicable securities Laws and all
securities to be issued upon exercise of any such options, rights and other
convertible or exchangeable securities will be issued in compliance with all
applicable securities Laws.
3.25. RESTRICTIONS ON BUSINESS ACTIVITIES
There is no agreement, judgment, injunction, order or decree binding
upon FCE or any of its subsidiaries that has or could reasonably be expected to
have the effect of prohibiting, restricting or materially impairing any business
practice of FCE or any of its subsidiaries, any acquisition of property by FCE
or any of its subsidiaries or the conduct of business by FCE or any of its
subsidiaries as currently conducted.
3.26. FCE COMMON STOCK
The FCE Common Stock to be issued pursuant to this Agreement and the
Arrangement, will, in all cases, be duly authorized and validly issued by FCE,
fully paid and non-assessable and free of pre-emptive rights, encumbrances,
charges and liens on their respective dates of issue.
3.27. DISCLOSURE
No representation or warranty made by FCE in this Agreement or the FCE
Disclosure Letter, nor any document, written information, statement, financial
statement, certificate or exhibit prepared and furnished or to be prepared and
furnished by FCE or its representatives pursuant hereto or in connection with
the transactions contemplated hereby, when taken together, contains or contained
(as of the date made) any untrue statement of a material fact when made, or
omits or omitted (as of the date made) to state a material fact necessary to
make the statements or facts contained herein or therein not misleading, in any
material way, in light of the circumstances under which they were made.
3.28. BROKERS AND FINDERS
Other than Lazard Freres & Co. in accordance with the terms of its
engagement letter dated February 19, 2003, a copy of which has been provided to
the Company, none of FCE or any of its subsidiaries nor any of their respective
directors, officers or employees has employed any broker or finder or incurred
any liability for any financial advisory fees, brokerage fees, commissions or
similar payments in connection with the transactions contemplated by this
Agreement.
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3.29. FCE NET WORKING CAPITAL; CASH BURN
As of June 27, 2003, FCE Net Working Capital equaled or exceeded
$183,425,000, and a detailed breakdown by each component item contributing to
such amount is set forth in detail in Schedule 3.29 of the FCE Disclosure
Letter. Solely for the purpose of calculating FCE Net Working Capital pursuant
to this Section 3.29, FCE Net Working Capital shall also include a reasonable
estimate of all costs and expenses incurred or that will be incurred by FCE
prior to the Effective Time in connection with the Quantum Combination and the
transactions contemplated by this Agreement and the Plan of Arrangement. As of
June 27, 2003, the FCE Net Cash as set forth in Schedule 3.29 of the FCE
Disclosure Letter equaled or exceeded $168,641,000. Solely for the purpose of
calculating FCE Net Cash pursuant to this Section 3.29, FCE Net Cash shall also
include a reasonable estimate of all costs and expenses incurred or that will be
incurred by FCE prior to the Effective Time in connection with the transactions
contemplated by this Agreement and the Plan of Arrangement. On a per diem basis,
between June 27, 2003, and the Effective Date, the average amount by which each
of the FCE Net Working Capital and the FCE Net Cash will be reduced shall not
exceed $277,000 (the "FCE Per Diem Burn Rate").
3.30. EXCHANGECO AND CALLCO
ExchangeCo and Callco will each be incorporated solely for the purpose
of participating in the transactions contemplated herein and, through the
Effective Time, will carry on no other business (except that each of ExchangeCo
and Callco may own shares in other indirect Canadian subsidiaries of FCE), and,
except as contemplated herein or in any other document related to the
transactions contemplated herein, will not have any liabilities or obligations,
either accrued, absolute, contingent or otherwise as of the Effective Time.
ARTICLE 4
OBLIGATIONS PENDING EFFECTIVE DATE
4.1. AGREEMENTS OF FCE AND THE COMPANY
FCE and the Company agree to take the following actions after the date
hereof:
(a) Each party will promptly execute and file or join in the
execution and filing of any application or other document that may be necessary
in order to obtain the authorization, approval or consent of any Governmental
Entity which may be reasonably required, or which the other party may reasonably
request, in connection with the consummation of the transactions contemplated by
this Agreement. Each party will use its reasonable best efforts to promptly
obtain such authorizations, approvals and consents. Without limiting the
generality of the foregoing, as promptly as practicable after the execution of
this Agreement, each party shall make any required filings under the HSR Act and
shall make such filings as are necessary under the Investment Canada Act and the
Competition Act (Canada);
(b) Each party will allow the other and its agents reasonable
access to the files, books, records, offices and officers of itself and its
subsidiaries, including any and all information relating to such party's tax
matters, contracts, leases, licences and real, personal and intangible
B-48
property and financial condition. Each party will cause its accountants to
cooperate with the other in making available to the other party all financial
information reasonably requested, including the right to examine all working
papers pertaining to tax matters and financial statements prepared or audited by
such accountants. Any information provided pursuant to this Agreement shall be
subject to the provisions of the Confidentiality Agreement. Notwithstanding the
foregoing, except as expressly provided for herein, neither party shall be
obligated to make available to the other any of their respective board of
directors' materials relating to the assessment or evaluation of the
transactions contemplated hereby or any alternative transactions nor any
information supplied by any of their respective officers, directors, employees,
financial advisors, legal advisors, representatives and agents in connection
therewith;
(c) FCE and the Company shall cooperate in the preparation and
prompt filing by FCE of the Joint Proxy Statement and all amendments thereto,
with the SEC;
(d) Each of the Company and FCE will promptly notify the other in
writing: (i) of any event occurring subsequent to the date of this Agreement
which would render any representation and warranty of such party contained in
this Agreement untrue or inaccurate in any material respect; (ii) of any event
occurring subsequent to the date of this Agreement which would render any
representation and warranty of such party contained in Sections 2.9(f) and
2.15(h) (in the case of the Company) or Sections 3.9(f) and 3.15(h) (in the case
of FCE), untrue or inaccurate in any respect; (iii) of any Material Adverse
Change or any event, change or effect having a Material Adverse Effect on such
party; and (iv) of any breach by such party of any material covenant or
agreement contained in this Agreement; and
(e) During the term of this Agreement, each of FCE and the Company
will use its reasonable best efforts to satisfy or cause to be satisfied as soon
as reasonably practicable all the conditions precedent that are set forth in
Article 5 hereof, and each of FCE and the Company will use its reasonable best
efforts to cause the Arrangement and the other transactions contemplated by this
Agreement to be consummated as soon as reasonably practicable.
4.2. ADDITIONAL AGREEMENTS OF THE COMPANY
The Company agrees that, except as expressly contemplated by this
Agreement or as otherwise agreed to in writing by FCE or as set forth in the
Company Disclosure Letter, from the date hereof to the Effective Date it will,
and will cause each of its subsidiaries to:
(a) Other than as expressly set forth in this Agreement, operate
its business only in the usual, regular and ordinary manner and, to the extent
consistent with such operation, use all commercially reasonable efforts to
preserve intact its present business organization, keep available the services
of its present officers and employees, and preserve its relationships with
customers, suppliers, distributors and others having business dealings with it;
(b) Maintain all of its property and assets in customary repair,
order, and condition, reasonable wear and use and damage by fire or unavoidable
casualty excepted;
(c) Maintain its books of account and records in the usual,
regular and ordinary manner, in accordance with generally accepted accounting
principles applied on a consistent basis;
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(d) Duly comply in all material respects with all laws applicable
to it and to the conduct of its business;
(e) Not: (i) enter into any indemnification agreements; (ii) enter
into any contracts of employment which: (A) cannot be terminated on notice of 30
days or less; or (B) provide for any severance payments or benefits covering a
period beyond the termination date of such employment contract, except as may be
required by law; (iii) amend any employee benefit plan or stock option plan or
agreement, except as may be required for compliance with this Agreement or
applicable law; or (iv) accelerate, amend or change the period (or permit any
acceleration, amendment or change) of exercisability of options granted under
any employee benefit plan (including the Company Incentive Plan) or authorize
cash payments in exchange for any options granted under any of such plans;
(f) Except as forth in Section 4.2(f) of the Company Disclosure
Letter or as required by law, not increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages of
employees of the Company or of any subsidiary who are not officers of the
Company in the ordinary course of business and in accordance with past
practices, or grant any bonus, severance or termination pay to, or enter into
any employment or severance agreement with any director, officer (except for
officers who are terminated on an involuntary basis and payments relating
thereto made pursuant to written agreements outstanding on the date hereof as
set forth on the Company Disclosure Letter) or other employee of the Company or
of any subsidiary thereof;
(g) Not incur any borrowings except: (i) the refinancing of
indebtedness now outstanding or additional borrowings under its existing
revolving credit facilities; (ii) the prepayment by customers of amounts due or
to become due for goods sold or services rendered or to be rendered in the
future; or (iii) trade payables incurred in the ordinary course of business;
(h) Not enter into commitments of a capital expenditure nature or
incur any contingent liability which would exceed $1,000,000 individually or on
a project basis and in aggregate in accordance with the fiscal year 2003 capital
budget of the Company, a true copy of which has been provided to FCE (and the
Company shall not amend such budget), except: (i) as may be necessary for the
maintenance of existing facilities, machinery and equipment in good operating
condition and repair in the ordinary course of business; (ii) as may be required
by law; or (iii) for the payment of any fees owing to Quantum pursuant to the
Quantum Combination Agreement;
(i) Not sell, dispose of, or encumber, any property or assets,
except for sales, dispositions or Encumbrances in the ordinary course of
business consistent with prior practice;
(j) Maintain insurance upon all its properties and with respect to
the conduct of its business of such kinds and in such amounts as is customary in
the type of business in which it is engaged, but not less than that presently
carried by it;
(k) Not amend its charter documents or bylaws or other
organizational documents, or acquire (by merger, consolidation, or acquisition
of stock or assets) any company, corporation, partnership or other business
organization or division thereof, or enter into or amend any
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contract, agreement, commitment or arrangement to effect any such acquisition,
or change in any manner the rights of its capital stock or the character of its
business;
(l) Not issue or sell (except upon the exercise of outstanding
options), or issue options (other than options to acquire not more than 2,000
Company Common Shares issued in the ordinary course of business consistent with
prior practice to employees at or below the manager level hired after the date
hereof) or rights to subscribe to, or enter into any contract or commitment to
issue or sell, any shares of its capital stock or combine, subdivide, split or
in any way reclassify any shares of its capital stock, reprice any outstanding
options or other securities convertible into or exchangeable for its capital
stock, or acquire, agree to acquire, or redeem any shares of its capital stock
or other securities convertible into or exchangeable for its capital stock;
(m) Except as permitted under Section 4.4, not engage in any
action or enter into any transaction or permit any action to be taken or
transaction to be entered into that could reasonably be expected to delay the
consummation of, or otherwise adversely affect, any of the transactions
contemplated by the Arrangement or this Agreement;
(n) Not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities reflected or
reserved against in the financial statements of the Company or incurred since
the date of such financial statements;
(o) Not declare or pay any dividend on shares of its capital stock
or make any other distribution of assets to the holders thereof;
(p) Deliver to FCE, within 30 days after the end of each fiscal
quarter of the Company beginning June 30, 2003, and through the Effective Date,
unaudited consolidated balance sheets and related unaudited statements of income
and changes in financial position as of the end of each fiscal quarter of the
Company, and as of the corresponding fiscal quarter of the previous fiscal year.
The Company hereby represents and warrants that such unaudited consolidated
financial statements shall: (i) be complete in all material respects except for
the omission of notes and schedules contained in audited financial statements;
(ii) present fairly in all material respects the financial condition of the
Company at the dates indicated and the results of operations for the respective
periods indicated; (iii) shall have been prepared in accordance with Canadian
generally accepted accounting principles applied on a consistent basis, except
as noted therein; and (iv) shall contain all adjustments which the Company
considers necessary for a fair presentation of its results for each respective
fiscal period;
(q) Take all steps necessary to commence and diligently prosecute
the recommendations set forth in the "2002 Phase II Environmental Site
Assessment and Remediation Cost Estimate" prepared by Komex International Ltd.
and dated February 2003, including the completion of all necessary or
appropriate site characterization activities (including soil and groundwater
sampling and analysis) and the development of a remedial action plan for the
Bassano manufacturing facility that is satisfactory to the applicable
Governmental Entity; and
B-51
(r) Cooperate and assist FCE to cause the Exchangeable Shares to
be listed on the TSX or, in the event that a listing on TSX is not available, on
another recognized Canadian stock exchange.
4.3. ADDITIONAL AGREEMENTS OF FCE
FCE agrees that, except as expressly contemplated by this Agreement or
otherwise agreed to in writing by the Company or as set forth in the FCE
Disclosure Letter, from the date hereof to the Effective Date it will, and will
cause each of its subsidiaries to:
(a) Other than as expressly set forth in this Agreement, operate
its business only in the usual, regular and ordinary manner and, to the extent
consistent with such operation, use all commercially reasonable efforts to
preserve intact its present business organization, keep available the services
of its present officers and employees, and preserve its relationships with
customers, suppliers, distributors and others having business dealings with it;
(b) Maintain all of its property and assets in customary repair,
order, and condition, reasonable wear and use and damage by fire or unavoidable
casualty excepted;
(c) Maintain its books of account and records in the usual,
regular and ordinary manner, in accordance with generally accepted accounting
principles applied on a consistent basis;
(d) Duly comply in all material respects with all laws applicable
to it and to the conduct of its business;
(e) Not make: (i) any capital expenditure which would exceed
$10,000,000 individually or on a project basis or not in accordance with the
fiscal year 2003 capital budget of FCE, a true copy of which has been provided
to the Company (and FCE shall not amend such budget); or (ii) capital
expenditures in the aggregate in excess of $25,000,000 or not in accordance with
the fiscal year 2003 capital budget of FCE; except: (x) as may be necessary for
the maintenance of existing facilities, machinery and equipment in good
operating condition and repair in the ordinary course of business; or (y) as may
be required by law;
(f) Except as forth in Section 4.3(f) of the FCE Disclosure Letter
or as required by law, not increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages of
employees of FCE or of any subsidiary who are not officers of FCE in the
ordinary course of business and in accordance with past practices, or grant any
bonus, severance or termination pay to, or enter into any employment or
severance agreement with any director, officer (except for officers who are
terminated on an involuntary basis and payments relating thereto made pursuant
to written agreements outstanding on the date hereof as set forth on the FCE
Disclosure Letter) or other employee of FCE or of any subsidiary thereof except
in compliance with FCE's employee handbook;
(g) Not incur any borrowings except: (i) the refinancing of
indebtedness now outstanding or additional borrowings under its existing
revolving credit facilities; (ii) the prepayment by customers of amounts due or
to become due for goods sold or services rendered or to be rendered in the
future; (iii) trade payables incurred in the ordinary course of business; or
B-52
(iv) shared cost or similar incentive arrangements in connection with the sale
of FCE products or services;
(h) Not sell, dispose of, or encumber, any property or assets,
except for sales, dispositions or Encumbrances in the ordinary course of
business consistent with prior practice;
(i) Maintain insurance upon all its properties and with respect to
the conduct of its business of such kinds and in such amounts as is customary in
the type of business in which it is engaged, but not less than that presently
carried by it;
(j) Not amend its charter documents or bylaws or other
organizational documents, or acquire (by merger, consolidation, or acquisition
of stock or assets) any company, corporation, partnership or other business
organization or division thereof, or enter into or amend any contract,
agreement, commitment or arrangement to effect any such acquisition, or change
in any manner the rights of its capital stock or the character of its business;
(k) Except for issuances of options to employees of FCE issued in
the ordinary course of business consistent with prior practice and issuances of
warrants in connection with FCE strategic alliances, not issue or sell (except
upon the exercise of outstanding options), or issue options or rights to
subscribe to, or enter into any contract or commitment to issue or sell, any
shares of its capital stock or combine, subdivide, split or in any way
reclassify any shares of its capital stock, reprice any outstanding options or
other securities convertible into or exchangeable for its capital stock, or
acquire, agree to acquire, or redeem any shares of its capital stock or other
securities convertible into or exchangeable for its capital stock;
(l) Except as permitted under Section 4.5, not engage in any
action or enter into any transaction or permit any action to be taken or
transaction to be entered into that could reasonably be expected to delay the
consummation of, or otherwise adversely affect, any of the transactions
contemplated by the Arrangement or this Agreement;
(m) Not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities reflected or
reserved against in the financial statements of FCE or incurred since the date
of such financial statements;
(n) Not declare or pay any dividend on shares of its capital stock
or make any other distribution of assets to the holders thereof;
(o) Use its reasonable best efforts to cause: (i) the shares of
FCE Common Stock to be issued pursuant to the Arrangement to be approved for
listing on the Nasdaq National Market upon the Closing; and (ii) with the
cooperation and assistance of the Company, the Exchangeable Shares to be listed
on the TSX or, in the event that a listing on TSX is not available, on another
recognized Canadian stock exchange;
(p) Deliver to the Company, within 45 days after the end of each
fiscal quarter of FCE beginning July 31, 2003, and through the Effective Date,
unaudited consolidated balance sheets and related unaudited statements of income
and changes in financial position as of the end
B-53
of each fiscal quarter of FCE, and as of the corresponding fiscal quarter of the
previous fiscal year. FCE hereby represents and warrants that such unaudited
consolidated financial statements shall: (i) be complete in all material
respects except for the omission of notes and schedules contained in audited
financial statements; (ii) present fairly in all material respects the financial
condition of FCE at the dates indicated and the results of operations for the
respective periods indicated; (iii) shall have been prepared in accordance with
Canadian generally accepted accounting principles applied on a consistent basis,
except as noted therein; and (iv) shall contain all adjustments which FCE
considers necessary for a fair presentation of its results for each respective
fiscal period; and
(q) incorporate and organize ExchangeCo and Callco.
4.4. NO COMPANY SOLICITATION
The Company shall immediately cease and cause to be terminated any
existing solicitation, initiation, encouragement, activity, discussion or
negotiation with any parties conducted heretofore by the Company, any subsidiary
thereof, or their respective officers, directors, employees, financial advisors,
representatives and agents ("Representatives") with respect to an Acquisition
Proposal in respect of the Company, and the Company shall exercise all rights to
require the return of information regarding the Company previously provided to
such parties and shall exercise all rights to require the destruction of all
materials including or incorporating any information regarding the Company. From
and after the date hereof, the Company and its subsidiaries will not, and will
not authorize or permit any of its Representatives to, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) or
participate in or take any other action to facilitate any inquiries or the
making of any proposal which constitutes or may reasonably be expected to lead
to an Acquisition Proposal in respect of the Company from any person, or engage
in any discussion, negotiations or inquiries relating thereto or accept any such
Acquisition Proposal; provided, however, that notwithstanding any other
provision hereof, the Company may, at any time prior to the time the holders of
Company Common Shares shall have voted to approve the Plan of Arrangement and
the other transactions contemplated thereby, (i) engage in discussions or
negotiations with a third party who (without any solicitation, initiation or
encouragement, directly or indirectly, by the Company or any of its subsidiaries
or Representatives after the date hereof) seeks to initiate such discussions or
negotiations and may furnish such third party information concerning the Company
and its business, properties and assets which has previously been provided to
FCE if, and only to the extent that: (A) the third party has first made an
unsolicited bona fide written Acquisition Proposal that is, in the good faith
judgment of the board of directors of the Company, financially superior to the
transactions contemplated by this Agreement and has demonstrated that the funds
or other consideration necessary for the Acquisition Proposal are available (as
determined in good faith in each case by the Company's board of directors after
receiving the written advice of its financial advisors) and is subject only to
confirmatory due diligence conditions (a "Superior Proposal") and the Company's
board of directors has concluded in good faith (after considering applicable law
and receiving the advice of outside counsel) that such action is reasonably
necessary for the Company's board of directors to act in a manner consistent
with fiduciary duties under applicable law; (B) prior to furnishing such
information to or entering into discussions or negotiations with such person or
entity, the Company provides prompt notice orally and in writing to FCE
specifying the identity of such
B-54
person or entity and that it is furnishing information to or entering into
discussions or negotiations with such person or entity in respect of a Superior
Proposal and receives from such person or entity an executed confidentiality
agreement having confidentiality and standstill terms substantially similar to
those contained in the confidentiality agreement executed by the Company and
FCE, and the Company shall provide full details forthwith, and in any event
within 24 hours, of all material terms and conditions of such Superior Proposal
and any amendments thereto and confirming in writing the determination of the
Company's board that the Acquisition Proposal constitutes a Superior Proposal;
(C) the Company provides notice forthwith and in any event within 24 hours to
FCE at such time as it is terminating any such discussions or negotiations with
such person or entity; and (D) the Company promptly makes available to FCE any
information provided to any such person or entity not previously made available
to FCE, (ii) comply with rules under applicable Canadian securities laws
relating to the provision of directors' circulars and information circulars, and
make appropriate disclosure with respect thereto to the Company's shareholders
and (iii) accept, recommend, approve or implement a Superior Proposal from a
third party, but only (in the case of this clause (iii)) if prior to such
acceptance, recommendation, approval or implementation, the Company's board of
directors shall have concluded in good faith, after considering provisions of
applicable law and after giving effect to all proposals to adjust the terms and
conditions of this Agreement and the Arrangement which may be offered by FCE
during the three Business Day notice period set forth below and after receiving
the advice of outside counsel, that such action is, in the good faith judgment
of the board of directors of the Company, reasonably necessary for the Company
to act in a manner consistent with fiduciary duties under applicable law and the
Company terminates this Agreement in accordance with Section 6.1 (i) and
concurrently therewith has paid the fees payable under Section 6.5. The Company
shall give FCE orally and in writing at least three Business Days' notice prior
to any decision by its board of directors to accept, recommend, approve or
implement a Superior Proposal which notice shall identify the party making the
Superior Proposal and shall provide full details of all material terms and
conditions thereof and any amendments thereto. The Company shall inform FCE of
the status (including all terms and conditions thereof) of any discussions and
negotiations with such party. In addition, the Company shall, and shall cause
its financial and legal advisors to, negotiate in good faith with FCE to make
such adjustments in the terms and conditions of this Agreement and of the Plan
of Arrangement as would enable the Company and FCE to proceed with the
transactions contemplated hereby. Prior to executing any agreement to implement
a Superior Proposal, the Company shall provide FCE with copies of such final
documentation executed by the party making the Superior Proposal. In the event
that FCE proposes to amend this Agreement and the Arrangement, the board of
directors of the Company shall consider such proposed amendments and shall not
enter into any agreement regarding such Acquisition Proposal unless it has
provided FCE with written notice, at least twenty-four (24) hours in advance of
entering into such agreement, which notice shall indicate that the board of
directors has reconfirmed its view that such Acquisition Proposal remains a
Superior Proposal.
4.5. NO FCE SOLICITATION
Except as otherwise set forth herein, from and after the date hereof,
FCE and its subsidiaries will not, and will not authorize or permit any of its
Representatives to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) or participate in or take any other
action to facilitate any inquiries or the making of any proposal
B-55
which constitutes or may reasonably be expected to lead to an Acquisition
Proposal in respect of FCE from any person, or engage in any discussion,
negotiations or inquiries relating thereto; provided, however, that
notwithstanding any other provision hereof, FCE may engage in discussions or
negotiations with a third party who (without any solicitation, initiation or
encouragement, directly or indirectly, by FCE or any of its subsidiaries or
Representatives after the date hereof) seeks to initiate such discussions or
negotiations. Notwithstanding the foregoing, in the event that FCE receives an
unsolicited Acquisition Proposal in respect of FCE, FCE shall be free to, and to
authorize or permit any of its Representatives to, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) or
participate in or take any other action to facilitate any inquiries or the
making of any proposal which constitutes or may reasonably be expected to lead
to one or more Acquisition Proposals from any person, or engage in any
discussion, negotiations or inquiries relating thereto.
4.6. PUBLIC ANNOUNCEMENTS
Neither FCE nor the Company, nor any of their respective affiliates,
shall issue or cause the publication of any press release or other public
announcement with respect to this Agreement, the Arrangement or the other
transactions contemplated hereby without prior notice to and the opportunity for
review and comment by the other party, except with respect to the filing of the
Joint Proxy Statement and any current reports on Form 8-K with the SEC and
except as may be required by law or by any listing agreement with Nasdaq or any
national securities exchange or Canadian stock exchange.
4.7. COMFORT LETTERS
(a) Upon request of FCE, the Company shall use its reasonable best
efforts to cause to be delivered to FCE a letter (the "Company Comfort Letter")
of PricewaterhouseCoopers LLP, Chartered Accountants, addressed to FCE and dated
as of a date within five days before the date the Joint Proxy Statement is first
mailed to each company's respective securityholders, in form and substance
reasonably satisfactory to FCE and customary in scope and substance for
"comfort" letters delivered by independent public accountants in connection with
proxy statements similar to the Joint Proxy Statement.
(b) Upon request of the Company, FCE shall use its reasonable best
efforts to cause to be delivered to the Company a letter (the "FCE Comfort
Letter") of KPMG LLP, Independent Accountants, addressed to the Company and
dated as of a date within five days before the date the Joint Proxy Statement is
first mailed to each company's respective securityholders, in form and substance
reasonably satisfactory to the Company and customary in scope and substance for
"comfort" letters delivered by independent public accountants in connection with
proxy statements similar to the Joint Proxy Statement.
4.8. BOARD OF DIRECTORS
The board of directors of FCE will take action prior to the Effective
Time to cause the number of directors comprising the full board of directors of
FCE to be increased to not more than twelve voting members, which shall include
one (1) individual (the "Company Nominee") approved by the Company from the list
of individuals included in the Company Disclosure
B-56
Letter. The increase in the number of directors and the election of the Company
Nominee shall be subject to the consummation of the Closing. If, prior to the
Effective Time, the Company's designee for director shall decline or be unable
to serve as a director of FCE, the Company's board of directors shall designate
another person to serve in such person's stead, subject to the approval of a
majority of FCE's directors at that time. The director designated by the Company
shall provide FCE with his or her written consent to serve as a director of FCE
and to be named as a director in the Joint Proxy Statement. In addition, FCE may
in its sole discretion choose to appoint one (1) additional nominee of the
Company to FCE's board of directors in accordance with the foregoing terms and
conditions, in which case FCE would increase the number of directors comprising
its full board of directors accordingly.
4.9. TAX MATTERS
It is intended by the parties hereto that the transactions contemplated
under this Agreement and the Plan of Arrangement shall be implemented in a
manner that maximizes the present and future financial and tax benefits to the
FCE and the Company. Accordingly, the Company and FCE agree to consult, confer
and consider all steps reasonably necessary and mutually agreeable through and
including the Effective Date to ensure that the transactions contemplated under
this Agreement and the Plan of Arrangement shall be implemented consistent with
that intention as and to the extent that the same shall not prejudice any party
or its security holders. Except as may be necessary to reflect such change(s) in
the transaction structure, the terms of this Agreement shall continue to govern.
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY
The obligations of each party to consummate and effect the transactions
contemplated hereunder shall be subject to the satisfaction or waiver on or
before the Effective Date of the following conditions:
(a) Securityholder Approval. (i) The Arrangement and the other
transactions contemplated hereby shall have been approved and adopted by the
Company Common Shareholders in accordance with applicable law and the Company's
Articles of Incorporation and bylaws; and (ii) the matters referred to in
Section 7.1 shall have been approved by the holders of shares of the FCE Common
Stock in accordance with the rules of Nasdaq, applicable law and FCE's
Certificate of Incorporation and bylaws;
(b) No Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Arrangement shall have been issued by any Governmental Entity and remain in
effect, nor shall any proceeding seeking any of the foregoing be pending. There
shall be no order, decree or ruling by any governmental agency or threat
thereof, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Arrangement, which would prohibit or render illegal the
transactions contemplated by this Agreement;
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(c) Court Approval. The Court shall have issued its Final Order
approving the Arrangement in form and substance reasonably satisfactory to FCE
and the Company (such approvals not to be unreasonably withheld or delayed by
FCE or the Company) and reflecting the terms hereof;
(d) Commissions, etc. All required orders shall have been obtained
from the Commissions and other relevant United States and Canadian securities
regulatory authorities in connection with the Arrangement. All waiting periods
required by HSR Act, if applicable, and other similar Laws shall have expired
with respect to the transactions contemplated by this Agreement, or early
termination with respect thereto shall have been obtained, without the
imposition of any governmental request or order requiring the sale or
disposition or holding separate (through a trust or otherwise) of a material
portion of the assets or businesses of the Company or FCE. FCE and the Company
shall each have filed all notices and information (if any) required under Part
IX of the Competition Act (Canada) and the applicable waiting periods and any
extensions thereof shall have expired or the parties shall have received an
Advance Ruling Certificate pursuant to Section 102 of the Competition Act
(Canada) setting out that the Director under such Act is satisfied he would not
have sufficient grounds on which to apply for an order in respect of the
Arrangement. The Arrangement shall have received the allowance or approval or
deemed allowance or approval by the responsible Minister under the Investment
Canada Act, to the extent such allowance or approval is required, on terms and
conditions satisfactory to the parties and all notice requirements shall have
been complied with;
(e) SEC Matters. On the Closing Date: (i) the Joint Proxy
Statement shall not be the subject of any stop-order or proceedings seeking a
stop-order, or any similar proceedings, commenced or threatened by the SEC or
the Commissions; and (ii) the Primary Registration Statement shall have been
declared effective with respect to the FCE Common Stock issuable upon the
exchange of the Exchangeable Shares and the S-8 Registration Statement shall
have been declared or become effective under the Securities Act and shall not be
the subject of any stop-order or proceedings seeking a stop-order, or any
similar proceedings, commenced or threatened by the SEC or the Commissions;
(f) Listings and Exchange Approvals
(i) The FCE Common Stock to be issued pursuant to the
Arrangement shall have been approved for listing on the Nasdaq National
Market, subject only to notice of issuance;
(ii) Nasdaq shall not have objected to the consummation of
the transactions contemplated by the Plan of Arrangement and this
Agreement; and
(iii) the Exchangeable Shares to be issued pursuant to the
Arrangement shall have been listed on the TSX or, in the event that a
listing on TSX is not available, on another recognized Canadian stock
exchange.
(g) Consents of Certain Parties in Privity. FCE and the Company
shall have received all written consents, assignments, waivers, authorizations
or other certificates necessary to provide for the continuation in full force
and effect of all their Material Contracts and leases
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and for them to consummate the transactions contemplated hereby, except when the
failure to receive such consents or other certificates would not have a Material
Adverse Effect on FCE or the Company, as the case may be;
(h) Valid Issuance. The issuance by FCE of FCE Common Stock
pursuant to the terms of this Agreement and the Arrangement shall be exempt from
the registration and qualification requirements of the Securities Act and
applicable state securities or "blue sky" laws, and FCE shall be reasonably
satisfied that all necessary approvals under applicable Laws and other
authorizations relating to the issuance by FCE of FCE Common Stock shall have
been obtained; and
(i) Notice of Dissent. The Company shall not have received on or
prior to the Effective Time notice from the holders of more than 5% of the
issued and outstanding Company Common Shares entitled to consent to, or vote on,
the matters presented at the Company Shareholders Meeting, in aggregate, of
their intention to exercise their rights of dissent hereunder.
5.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate and effect the
transactions contemplated hereunder shall be subject to the satisfaction or
waiver on or before the Effective Date of the following conditions:
(a) Representations and Warranties. The representations and
warranties of FCE contained in this Agreement shall be true and correct on the
date hereof and (except to the extent such representations and warranties speak
as of a date earlier than the date hereof, in which case such representations
and warranties shall be true and correct as of such date; and except to give
effect to the issuance of shares of FCE Common Stock on exercise of outstanding
options or warrants) shall also be true and correct on and as of the Effective
Date, with the same force and effect as if made on and as of the Effective Date,
except, other than the representations and warranties contained in Sections
3.9(f) and 3.15(h), where the failure of such representations and warranties to
be true and correct would not have a Material Adverse Effect on FCE;
(b) Covenants. FCE shall have (i) performed and complied in all
respects with the covenants and agreements set forth in Section 1.5(b), and (ii)
performed and complied in all material respects with all other covenants
required by this Agreement to be performed or complied with by FCE on or before
the Effective Date;
(c) Material Adverse Change. Between the date hereof and the
Effective Date, there shall not have occurred, in the reasonable judgment of the
Company, a Material Adverse Change to FCE;
(d) Certificate. FCE shall have delivered to the Company a
certificate, dated the Effective Date and signed by its chief executive officer
and its chief financial officer, to the effect set forth in Sections 5.2 (a),
(b) and (c) and stating the FCE Net Working Capital and FCE Net Cash amounts as
of the Effective Date, as determined in accordance with the principles reflected
in Section 3.29 of the FCE Disclosure Letter;
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(e) FCE Net Working Capital and Net Cash. The FCE Net Working
Capital and FCE Net Cash amounts set forth in the certificate delivered pursuant
to Section 5.2(d) hereof shall equal or exceed the total of the FCE Net Working
Capital and FCE Net Cash amounts, respectively, set forth in Section 3.29 hereof
minus (i) the product of the FCE Per Diem Burn Rate and the number of days
between June 27, 2003, and the Effective Date and (ii) the reasonable costs
incurred by FCE in connection with any litigation commenced by the holder of the
Company Series 2 Preferred Shares or by Quantum in connection with the
termination of the Quantum Combination Agreement; and
(f) Payment of FCE's Transaction Costs. Except for costs and
expenses not exceeding $10,000 in the aggregate, FCE shall have paid or
otherwise satisfied all costs and expenses incurred by FCE in connection with
the transactions contemplated by this Agreement and the Plan of Arrangement.
5.3. CONDITIONS PRECEDENT TO OBLIGATIONS OF FCE
The obligations of FCE to consummate and effect the transactions
contemplated hereunder shall be subject to the satisfaction or waiver on or
before the Effective Date of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
on the date hereof and (except to the extent such representations and warranties
speak as of a date earlier than the date hereof, in which case such
representations and warranties shall be true and correct as of such date; and
except to give effect to the issuance of the Company Common Shares on exercise
of outstanding options) shall also be true and correct on and as of the
Effective Date, with the same force and effect as if made on and as of the
Effective Date, except, other than the representations and warranties contained
in Sections 2.9(f) and 2.15(h), where the failure of such representations and
warranties to be true and correct would not have a Material Adverse Effect on
the Company;
(b) Covenants. The Company shall have (i) performed and complied
in all respects with the covenants and agreements set forth in Section 1.5(b)
and (ii) performed and complied in all material respects with all other
covenants required by this Agreement to be performed or complied with by the
Company on or before the Effective Date;
(c) Material Adverse Change. Between the date hereof and the
Effective Date, there shall not have occurred, in the reasonable judgment of
FCE, a Material Adverse Change to the Company;
(d) Certificate. The Company shall have delivered to FCE a
certificate, dated the Effective Date and signed by its chief executive officer
and its chief financial officer, to the effect set forth in Sections 5.3 (a),
(b) and (c) and stating the Company Net Working Capital and Company Net Cash
amounts as of the Effective Date, as determined in accordance with the
principles reflected in Section 2.31 of the Company Disclosure Letter;
(e) Company Net Working Capital and Net Cash. The Company Net
Working Capital and Company Net Cash amounts set forth in the certificate
delivered pursuant to Section 5.3(d) hereof shall equal or exceed the total of
the Company Net Working Capital and Company
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Net Cash amounts, respectively, set forth in Section 2.31 hereof minus (i) the
product of the Company Per Diem Burn Rate and the number of days between the
date hereof and the Effective Date and (ii) the reasonable costs incurred by the
Company in connection with any litigation commenced by the holder of the Company
Series 2 Preferred Shares or by Quantum in connection with the termination of
the Quantum Combination Agreement;
(f) Payment of Fees to Quantum. The Company shall have paid any
and all fees owed to Quantum pursuant to the Quantum Combination Agreement; and
(g) Payment of the Company's Transaction Costs. Except for costs
and expenses not exceeding $10,000 in the aggregate, the Company shall have paid
or otherwise satisfied all costs and expenses incurred by the Company in
connection with the transactions contemplated by this Agreement and the Plan of
Arrangement
ARTICLE 6
TERMINATION
6.1. TERMINATION
This Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the transactions contemplated hereby
by the stockholders of FCE or the Company entitled to vote, as follows:
(a) by mutual agreement of the Company and FCE;
(b) by the Company, if there has been a breach by FCE of any
representation, warranty, covenant or agreement set forth in this Agreement on
the part of FCE, or if any representation or warranty of FCE shall have become
untrue, in either case if the conditions set forth in Sections 5.2(a) or (b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue and FCE fails to promptly
cure such breach of a covenant or agreement or inaccuracy of any representation
or warranty within 15 Business Days after written notice thereof from the
Company (except that no cure period shall be provided for a breach by FCE which
by its nature cannot be cured and in no event shall such cure period extend
beyond the Termination Date);
(c) by FCE, if there has been a breach by the Company of any
representation, warranty, covenant or agreement set forth in this Agreement on
the part of the Company, or if any representation or warranty of the Company
shall have become untrue, in either case if the conditions set forth in Sections
5.3(a) or (b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue and the Company
fails to promptly cure such breach of a covenant or agreement or inaccuracy of
any representation or warranty within 15 Business Days after written notice
thereof from FCE (except that no cure period shall be provided for a breach by
the Company which by its nature cannot be cured and in no event shall such cure
period extend beyond the Termination Date);
(d) by either party, if all the conditions for Closing the
Arrangement for the benefit of such party shall not have been satisfied or
waived on or before 5:00 p.m., Calgary, Alberta time
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on December 31, 2003 (the "Termination Date"), other than as a result of a
breach of this Agreement by the terminating party;
(e) by either party, on or before 5:00 p.m., Calgary, Alberta time
on December 31, 2003, if: (i) the shareholders of the Company entitled to vote
at the Company Shareholders Meeting do not approve the Arrangement (and the
other matters to be approved at such meeting as provided in Section 7.1(a)
hereof) or the Court does not issue a Final Order; or (ii) the stockholders of
FCE entitled to vote at the FCE Stockholders Meeting do not approve the matters
set forth in Section 7.1(b) hereof;
(f) by either party if a final and non-appealable order shall have
been entered in any action or proceeding before any Governmental Entity that
prevents or makes illegal the consummation of the Arrangement;
(g) by FCE if the Company board of directors or any committee of
the Company board of directors shall (i) withdraw or modify in any adverse
manner its approval or recommendation in respect of the Arrangement and the
other transactions contemplated hereby or (ii) fail to reaffirm its approval or
recommendation upon request, from time to time, by FCE to do so or upon an
Acquisition Proposal in respect of the Company being publicly announced,
proposed, offered or made to the Company Common Shareholders or to the Company
(such reaffirmation to be made within 10 days of such request being made or such
Acquisition Proposal being publicly announced, proposed, offered or made or
immediately prior to the meeting of the Company Common Shareholders, whichever
occurs first);
(h) by the Company if the FCE board of directors or any committee
of the FCE board of directors shall (i) withdraw or modify in any adverse manner
its approval or recommendation in respect of this Agreement, the Arrangement and
the other transactions contemplated hereby or (ii) fail to reaffirm its approval
or recommendation upon request, from time to time, by the Company to do so or
upon an Acquisition Proposal in respect of FCE being publicly announced,
proposed, offered or made to the holders of stock of FCE or to FCE (such
reaffirmation to be made within 10 days of such request being made or such
Acquisition Proposal being publicly announced, proposed, offered or made or
immediately prior to the FCE Stockholders Meeting, whichever occurs first);
(i) by the Company, prior to the approval of this Agreement, the
Arrangement and the other transactions contemplated hereby by the shareholders
of the Company if, as a result of a Superior Proposal by a party other than FCE
or any of its Affiliates, the Company's board of directors determines in
accordance with Section 4.4 to accept, recommend, approve or implement such
Superior Proposal and has otherwise complied with the provisions of Section 4.4
and Section 6.4;
(j) by the Company if the FCE Stock Price (calculated in
accordance with Section 1.2(b) except using any 15 consecutive trading days as
the Measurement Period for such calculation and for this purpose shall be
calculated on a rolling basis for each trading day after the date of this
Agreement until the Effective Date) is less than $6.65 (subject to adjustment in
the manner as is set forth in Section 1.2(c)) (the "Company Walk-Away Price").
Upon the occurrence of any Company Walk-Away Price, then the Company may
terminate the Agreement
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within three days following the end of the relevant Measurement Period, and, if
not so terminated within such three day period, the Company shall have waived
its right to terminate the Agreement pursuant to this Section 6.1(j) for that
occurrence of such Company Walk-Away Price, but without prejudice to any
subsequent Company Walk-Away Price that may occur, if such subsequent Company
Walk-Away Price should occur. For greater certainty, no termination fee shall be
payable by the Company in the event the Company terminates this Agreement
pursuant to this Section 6.1(j);
(k) by FCE if the Court orders or requires any Persons, other than
the Company Common Shareholders, the right to consent to, approve, or vote in
connection with, the Arrangement, as a separate class;
(l) by the Company if the condition set forth in Section 5.2(e) is
not satisfied;
(m) by FCE if the condition set forth in Section 5.3(e) is not
satisfied; or
(n) by the Company, if FCE announces its intention to acquire (by
merger, consolidation, or acquisition of stock or assets) any company,
corporation, partnership or other business organization or division thereof for
a purchase price in excess of $10,000,000. For greater certainty, if the Company
terminates this Agreement pursuant to this Section 6.1(n), such termination
shall not be deemed to be a termination pursuant to Section 6.1(g), and no
termination fee, as contemplated by Section 6.5, shall be payable in such case.
6.2. TERMINATION DATE EXTENSION.
Notwithstanding the provisions of Section 6.1, if, at the Termination
Date, Section 5.1(b) is the sole condition remaining to be fulfilled in
connection with the Arrangement (other than such conditions the fulfillment of
which are dependent on the resolution of or fulfillment of the condition in
Section 5.1(b)) and the litigation which prevents the condition in Section
5.1(b) from being fulfilled is litigation initiated by: (i) Quantum in
connection with the Quantum Combination Agreement; or (ii) the holder of the
Company Series 2 Preferred Shares, then no party may terminate this Agreement
pursuant to Section 6.1(d) until the earlier of (i) a final, non-appealable
order from the appropriate court resolving such claim, suit or proceeding in a
manner which prevents the Arrangement and the transactions contemplated herein
from occurring, or (ii) January 31, 2004.
6.3. NOTICE OF TERMINATION
Any termination of this Agreement under Section 6.1 above will be
effected by the delivery of written notice by the terminating party to the other
party hereto.
6.4. EFFECT OF TERMINATION
Subject to Section 6.5, in the event of termination of this Agreement
by either the Company or FCE pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect, and there shall be no liability or
obligation on the part of FCE or the Company or their respective officers or
directors, except that: (i) the provisions of Section 6.5 shall survive such
termination; (ii) the provisions of the Confidentiality Agreement shall survive
any such
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termination; and (iii) no party shall be released or relieved from any liability
arising from a breach by such party of any of its representations, warranties,
covenants or agreements as set forth in this Agreement resulting from willful
misconduct or bad faith.
6.5. TERMINATION FEE
(a) If this Agreement is terminated:
(i) by the Company pursuant to Section 6.1(b), then FCE
shall pay to the Company a cash termination fee of $900,000 at the time
of such termination, it being agreed between the parties that such
amount is an estimate of the reasonable out of pocket expenses of the
Company, incurred in connection with the transactions contemplated
herein;
(ii) by either party pursuant to Section 6.1(e)(ii), then
FCE shall pay to the Company a cash termination fee of $900,000 at the
time of such termination, it being agreed between the parties that such
amount is an estimate of the reasonable out of pocket expenses of the
Company, incurred in connection with the transactions contemplated
herein; or
(iii) by the Company pursuant to Section 6.1(l), then FCE
shall pay to the Company a cash termination fee of $900,000 at the time
of such termination, it being agreed between the parties that such
amount is an estimate of the reasonable out of pocket expenses of the
Company, incurred in connection with the transactions contemplated
herein; provided, however, that under no circumstances shall FCE be
obligated to pay nor shall the Company be entitled to collect any
termination fee pursuant to Section 6.5(a)(i) if the Company has
received or will receive a termination fee pursuant to this Section
6.5(a)(iii).
(b) If this Agreement is terminated:
(i) by FCE pursuant to Section 6.1(c) then the Company
shall pay to FCE a cash termination fee of $900,000 at the time of such
termination, it being agreed between the parties that such amount is an
estimate of the reasonable out of pocket expenses of FCE, incurred in
connection with the transactions contemplated herein;
(ii) by either party pursuant to Section 6.1(e)(i), then
the Company shall pay to FCE a cash termination fee of $900,000 at the
time of such termination, it being agreed between the parties that such
amount is an estimate of the reasonable out of pocket expenses of FCE,
incurred in connection with the transactions contemplated herein;
(iii) by FCE pursuant to Section 6.1(k), then the Company
shall pay to FCE a cash termination fee of $900,000 at the time of such
termination, it being agreed between the parties that such amount is an
estimate of the reasonable out of pocket expenses of FCE, incurred in
connection with the transactions contemplated herein; or
(iv) by FCE pursuant to Section 6.1(m), then the Company
shall pay to FCE a cash termination fee of $900,000 at the time of such
termination, it being agreed between
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the parties that such amount is an estimate of the reasonable out of
pocket expenses of FCE, incurred in connection with the transactions
contemplated herein; provided, however, that under no circumstances
shall the Company be obligated to pay nor shall FCE be entitled to
collect any termination fee pursuant to Section 6.5(b)(i) if FCE has
received or will receive a termination fee pursuant to this Section
6.5(b)(iv).
(c) If a bona fide Acquisition Proposal is publicly announced or
is proposed, offered or made to the shareholders of the Company or to the
Company and (x) such Acquisition Proposal has not expired or been withdrawn at
the time of the Company Shareholders Meeting, (y) the securityholders of the
Company do not approve the Arrangement (and the other matters to be approved at
such meeting as provided in Section 7.1(a) hereof), and (z) within 12 months
following the termination of this Agreement, the Company enters into, directly
or indirectly, an agreement, commitment or understanding with respect to such
Acquisition Proposal, an amended version thereof, a competing Acquisition
Proposal or an Acquisition Proposal solicited in response to the foregoing, or
any such Acquisition Proposal is consummated, then the Company shall pay to FCE
a cash termination fee of $2 million, payable immediately upon satisfaction of
the requirements contained in paragraphs (x), (y) and (z) of this Section
6.5(c). If the Company pays a cash termination fee to FCE pursuant to this
Section 6.5(c), then the Company may set-off such amounts previously paid to FCE
pursuant to Section 6.5(b).
(d) If this Agreement is terminated by the Company pursuant to
Section 6.1(h), then FCE shall pay to the Company upon such termination a cash
termination fee of $2 million at the time of such termination.
(e) If this Agreement is terminated by FCE pursuant to Section
6.1(g) or by the Company pursuant to Section 6.1(i), then the Company shall pay
to FCE upon such termination a cash termination fee of $2 million at the time of
such termination.
(f) FCE and the Company each agree that the agreements contained
in Sections 6.5(a) through 6.5(e) are an integral part of the transactions
contemplated by this Agreement. If either party fails to promptly pay the other
party any fee due under such Sections 6.5(a) through 6.5(e), it shall pay the
other party's costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other legal
action, taken to collect payment, together with interest on the amount of any
unpaid fee at the publicly announced prime rate of Canadian Imperial Bank of
Commerce from the date such fee was first due.
ARTICLE 7
ADDITIONAL AGREEMENTS
FCE and the Company, as the case may be, agree to take the following
actions after the execution of this Agreement.
7.1. MEETINGS
The Company and FCE shall each duly call a meeting of its
securityholders entitled to vote to be held as soon as practicable after the SEC
has indicated that it has no further comments
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on the Joint Proxy Statement for the purpose of (a) in the case of the Company,
voting upon the Plan of Arrangement and the transactions contemplated hereby and
thereby; and (b) in the case of FCE, voting upon proposals to approve (i) this
Agreement and the transactions contemplated hereby and by the Plan of
Arrangement, and (ii) such other matters relating to this Agreement and the
Arrangement, if any, as shall be legally required in the reasonable judgment of
FCE. Each party shall take all reasonable and lawful action to solicit and
obtain approval of its securityholders and take all other action necessary or
advisable to secure the vote or consent of the securityholders required by
applicable Law or applicable stock exchange requirements. The parties shall also
coordinate and cooperate with respect to the timing of such meetings. Each party
may only change its recommendation in the event that the board of directors of
such party concludes, in good faith, after receiving the advice of outside
counsel that such action is reasonably necessary for the board of directors to
act in a manner consistent with its fiduciary duty and, in the event that
Section 4.4 is applicable, if such party and its board of directors are in
compliance with that Section. The meetings of securityholders of the Company and
FCE will be called for the same day at such times as will result in the
completion of the FCE Stockholders Meeting prior to the commencement of the
Company Shareholders Meeting.
7.2. THE CLOSING
Subject to the termination of this Agreement as provided in Article 6,
the Closing of the transactions contemplated by this Agreement (the "Closing")
will take place at the offices of Stikeman Elliott LLP, 4300 Bankers Hall West,
888--3rd Street, S.W., Calgary, Alberta, T2P 5C5 on a date (the "Closing Date")
and at a time to be mutually agreed upon by the parties, which date shall be no
later than the first Business Day after all conditions to Closing set forth
herein shall have been satisfied or waived, unless another place, time and date
is mutually selected by the Company and FCE. Concurrently with the Closing, the
Plan of Arrangement will be filed with the Registrar under the ABCA.
7.3. ANCILLARY DOCUMENTS/RESERVATION OF SHARES
(a) Provided all other conditions of this Agreement have been
satisfied or waived, the Company shall, on the Closing Date, file Articles of
Arrangement pursuant to Section 193 of the ABCA to give effect to the Plan of
Arrangement.
(b) On the Effective Date:
(i) FCE, ExchangeCo and Callco shall execute and deliver
a Support Agreement containing the terms and conditions set forth in
Exhibit C, together with such other terms and conditions as may be
reasonably agreed to by the parties hereto; and
(ii) FCE, ExchangeCo and a Canadian trust company to be
mutually agreed to by FCE and the Company shall execute and deliver a
Voting and Exchange Trust Agreement containing the terms and conditions
set forth in Exhibit D, together with such other terms and conditions
as may be reasonably agreed to by the parties hereto.
(c) On or before the Effective Date, FCE will reserve for issuance
such number of shares of FCE Common Stock as shall be necessary to give effect
to the transactions contemplated by this Agreement.
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7.4. NOTICE TO HOLDERS OF COMPANY OPTIONS
As soon as practicable after the Effective Time, FCE shall deliver to
each holder of an outstanding Company Option an appropriate notice setting forth
such holder's rights pursuant thereto and that such Company Option shall
continue in effect on the same terms and conditions as set forth therein,
subject to the adjustments and other terms provided for by this Agreement.
7.5. INDEMNIFICATION AND RELATED MATTERS
(a) FCE agrees that all rights to indemnification existing in
favour of the present or former directors and officers of the Company (as such)
or any of the Company's subsidiaries or present or former directors and officers
(as such) of the Company or any of its subsidiaries serving or who served at the
Company's or any of its subsidiaries' request as a director, officer, employee,
agent or representative of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise (each such present or former
director or officer of the Company or any of its subsidiaries, an "Indemnified
Party"), as provided by contract or in the Company's charter or bylaws or
similar documents of any of its subsidiaries in effect as of the date hereof
with respect to matters occurring prior to the Effective Time, shall survive and
shall continue in full force and effect and without modification, to the extent
permitted by applicable Laws, so long as the Company is in existence as a
corporation, for a period of not less than the statutes of limitations
applicable to such matters.
(b) From and after the Effective Time, FCE and the Company,
jointly and severally, shall and FCE shall cause the Company to indemnify and
hold harmless to the fullest extent permitted under the ABCA and applicable
Laws, each Indemnified Party against any costs and expenses (including
reasonable attorney's fees), judgments, fines, losses, claims and damages and
liabilities, and amounts paid in settlement thereof with the consent of the
indemnifying party, such consent not to be unreasonably withheld, in connection
with any actual or threatened claim, action, suit, proceeding or investigation
that is based on, or arises out of, the fact that such person is or was a
director or officer of the Company or any of its subsidiaries (including without
limitation with respect to any of the transactions contemplated hereby or the
Arrangement) or who is serving or who served at the Company's or any of its
subsidiaries' request as a director, officer, employee, agent or representative
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise. In the event of any such claim, action, suit, proceeding or
investigation, FCE shall cause the Company to pay the reasonable fees and
expenses of counsel in advance of the final disposition of any such claim,
action, suit, proceeding or investigation to the fullest extent permitted by law
subject to the limitations imposed by the ABCA and applicable Laws. Without
limiting the foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Parties, (i) the Indemnified
Parties may retain counsel reasonably satisfactory to FCE and, subject to
limitations imposed by the ABCA and applicable Laws, the Company shall (or FCE
shall cause the Company to) pay all reasonable fees and expenses of such counsel
for the Indemnified Parties promptly as statements therefor are received; and
(ii) FCE will use all reasonable efforts to assist in the defense of such
matter; provided, however, that neither the Company nor FCE shall be liable for
any settlement effected without its prior written consent which shall not be
unreasonably withheld. Any Indemnified Party wishing to claim indemnification
under this Section 7.5(b), upon learning of any such claim, action, suit,
proceeding or investigation, shall notify FCE (but the failure to so
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notify shall not relieve a party from any liability which it may have under this
Section 7.5 (b) unless such failure results in actual prejudice to such party
and then only to the extent of such prejudice). The Indemnified Parties as a
group may retain only one law firm in any jurisdiction to represent them with
respect to each such matter unless such counsel determines that there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties, in which
event additional counsel may be required to be retained by the Indemnified
Parties.
(c) Subject to limitations imposed by the ABCA and applicable
Laws, provided the Arrangement becomes effective, the Company shall (or FCE
shall cause the Company to) pay all expenses, including reasonable attorney's
fees, as the same may be incurred by any Indemnified Parties in any action by
any Indemnified Party or parties seeking to enforce the indemnity or other
obligations provided for in this Section 7.5; provided, however, that the
Company will be entitled to reimbursement for any advances made under this
Section 7.5 to any Indemnified Party who ultimately proves unsuccessful in
enforcing the indemnity as finally determined by a non-appealable judgment in a
court of competent jurisdiction, and payment of such expenses in advance of the
final disposition of the action shall be made only upon receipt of any
undertaking by the Indemnified Party to reimburse all amounts advanced if such
action ultimately proves unsuccessful to the extent permitted by applicable
Laws.
(d) Provided the Arrangement becomes effective, for a period of
six years after the Effective Date, FCE shall continue in effect director and
officer liability insurance for the benefit of the Indemnified Parties in such
amounts, and with such deductibles, retained amounts, coverages and exclusions
as the Company provides for its own directors and officers at the date hereof;
provided that in no event shall the FCE be required to expend pursuant to this
Section 7.5 more than an amount per year equal to 150% of the current annual
premium paid by FCE for similar insurance carried by FCE for its own directors
and officers.
(e) This Section 7.5, which shall survive the consummation of this
Agreement and the Arrangement, is intended to benefit each person or entity
indemnified hereunder.
7.6. AFFILIATE AGREEMENTS
The Company will use its reasonable best efforts to have its Affiliates
sign and deliver to FCE the Company Affiliate Agreements in the form of Exhibit
B concurrently with the execution hereof. For purposes of this Agreement, an
"Affiliate" shall have the meaning referred to in Rule 145 under the Securities
Act. In the event that the Company does not succeed in getting its respective
Affiliates to sign and deliver the Company Affiliate Agreements, such party
shall continue to use its reasonable best efforts to have its Affiliates sign
and deliver the Company Affiliate Agreements.
7.7. CONSENTS; APPROVALS
The Company and FCE shall coordinate and cooperate with one another and
shall each use their reasonable best efforts to obtain (and shall each refrain
from taking any willful action that would impede obtaining) all consents,
waivers, approvals, authorizations or orders (including, without limitation, all
rulings, decisions or approvals by any Governmental Entity),
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and the Company and FCE shall make all filings required in connection with the
authorization, execution and delivery of this Agreement and the consummation by
them of the transactions contemplated hereby, excepting only those filings with
foreign jurisdictions for which the failure to file would not have a Material
Adverse Effect on the Company or FCE, as the case may be. The foregoing covenant
shall not include any obligation by the Company or FCE to agree to divest,
abandon, licence or take similar action with respect to any assets (tangible or
intangible) of the Company or FCE, as the case may be.
7.8. SECURITIES COMPLIANCE
The Company and FCE shall use reasonable best efforts to obtain all
orders required from the applicable Canadian Governmental Entities to permit the
issuance and first resale of (i) the Exchangeable Shares, and (ii) the shares of
FCE Common Stock issuable upon exchange of the Exchangeable Shares from time to
time, in each case without qualification with, or approval of, or the filing of
any prospectus or similar document, or the taking of any proceeding with, or the
obtaining of any further order, ruling or consent from, any Canadian
Governmental Entity under any Canadian federal, provincial or territorial
securities or other Laws or pursuant to the rules and regulations of any
Governmental Entity administering such Laws, or the fulfillment of any other
legal requirement in any such jurisdiction (other than, with respect to such
first resales, any restrictions on transfer by reason of, among other things, a
holder being a "control person" for purposes of Canadian federal, provincial or
territorial securities Laws).
ARTICLE 8
MISCELLANEOUS
8.1. NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties of the parties contained in this
Agreement will remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the parties to this Agreement, until the
earlier of the valid termination of this Agreement or the Closing Date,
whereupon such representations and warranties will expire and be of no further
force or effect. All agreements and covenants of the parties shall survive the
Closing Date, except as otherwise set forth in this Agreement.
8.2. NOTICES
All notices and other communications required or permitted hereunder
shall be in writing and be sent to the parties hereto at the address as set
below, or at such other address as such party shall have furnished to the other
party in writing in accordance with this Section:
(a) if to FCE to: FuelCell Energy, Inc., 3 Great Pasture Road,
Danbury, Connecticut 06813, Attention: Chief Executive Officer, Facsimile No.
203-825-6100, with required copies to Robinson & Cole LLP, Financial Centre, 695
East Main Street, Stamford, Connecticut 06901, Attention: Richard Krantz,
Facsimile No. (203) 462-7599 and to Stikeman Elliott LLP, Suite 5300, Commerce
Court West, 199 Bay Street, Toronto, Ontario M5L 189, Attention: Brian Pukier,
Facsimile No. (416) 947-0866.
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(b) if to the Company to: Global Thermoelectric Inc., 4908 52nd
Street S.E., Calgary, Alberta, T2B3R2 Attention: Chief Executive Officer,
Facsimile No. (403) 204-6105, with required copies to Bennett Jones LLP, 4500
Bankers Hall East, 855--2nd Street S.W., Calgary, Alberta, T2K 4K7, Attention:
John MacNeil, Facsimile No. (403) 265-7219.
All notices and other communications shall be deemed effectively given
as to the party to whom it is addressed as of the earliest of the following
times: (i) when received, (ii) when delivered personally, (iii) one (1) Business
Day after being delivered by facsimile (with appropriate confirmation of
receipt), (iv) one (1) Business Day after being timely deposited with an
overnight courier service with instructions (and the capability) to make
delivery on the next day, (v) if sent internationally, five (5) Business Days
after being deposited in international mail, first class with postage prepaid,
or (vi) if sent domestically, three (3) Business Days after being deposited in
U.S. mail, first class with postage prepaid.
8.3. INTERPRETATION
When a reference is made in this Agreement to Sections or Exhibits,
such reference shall be to a Section or Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
therein shall be deemed in each case to be followed by the words "without
limitation." Any references in this Agreement to "the date hereof" refers to the
date of execution of this Agreement. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. The terms and provisions of this Agreement
shall not be construed against the drafter or drafters hereof. All parties
hereto agree that the language of this Agreement shall be construed as a whole
according to its fair meaning and not strictly for or against any of the parties
hereto.
8.4. SEVERABILITY
If any provision of this Agreement or the application thereof to any
person or circumstance is held invalid or unenforceable in any jurisdiction, the
remainder hereof, and the application of such provision to such person or
circumstance in any other jurisdiction or to other persons or circumstances in
any jurisdiction, shall not be affected thereby, and to this end the provisions
of this Agreement shall be severable.
8.5. COUNTERPARTS
This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to each of the other parties, it being understood that all parties
need not sign the same counterpart.
8.6. MISCELLANEOUS
This Agreement, which includes the Company Disclosure Letter, the FCE
Disclosure Letter and the Exhibits hereto and the Confidentiality Agreement, and
any other documents referred to herein or contemplated hereby: (a) constitutes
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter
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hereof; (b) is not intended to confer upon any other person any rights or
remedies hereunder (except that Section 7.5 is for the benefit of the Company's
directors and officers and is intended to confer rights on such persons); and
(c) shall not be assigned by operation of law or otherwise except as otherwise
specifically provided.
8.7. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Alberta (regardless of the laws that might otherwise
govern under applicable principles of conflicts of law) as to all matters,
including without limitation validity, construction, effect, performance and
remedies. The Parties attorn to the exclusive jurisdiction of the Alberta Court
of Queen's Bench.
8.8. AMENDMENT AND WAIVERS
Any term or provision of this Agreement may be amended, and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by a writing
signed by the party to be bound thereby which writing expressly refers to this
Agreement and the operation of the provisions of this Section 8.8. The waiver by
a party of any breach hereof or default in the performance hereof will not be
deemed to constitute a waiver of any other default or any succeeding breach or
default. This Agreement may be amended by the parties hereto at any time before
or after approval of the holders of Company Common Shares, or the FCE
stockholders, but, after such approval, no amendment will be made which by
applicable law requires the further approval of the securityholders of either
the Company or FCE without obtaining such further approval.
8.9. EXPENSES
Except as otherwise provided herein, each party will bear its
respective expenses and legal fees incurred with respect to this Agreement and
the transactions contemplated hereby. Notwithstanding the foregoing, the parties
shall share equally the costs of (i) printing and filing the Joint Proxy
Statement, and (ii) any filings or applications with any Governmental Entity
relating to the transactions contemplated by the Plan of Arrangement and this
Agreement.
8.10. FURTHER ASSURANCES
Each of the parties hereto will from time to time execute and deliver
all such further documents and instruments and do all such acts and things as
the other parties may reasonably require to effectively carry out or better
evidence or perfect the terms and provisions of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY OMITTED]
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IN WITNESS WHEREOF, FCE and the Company have caused this Agreement to
be signed by their respective officers thereunder duly authorized, all as of the
date first written above.
FUELCELL ENERGY, INC.
By: _________________________________
GLOBAL THERMOELECTRIC INC.
Per: ________________________________
Per: ________________________________
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APPENDIX
DEFINED TERMS
For the purpose of this Agreement:
"ABCA" shall have the meaning set forth in Section 1.1;
"Acquisition Proposal" shall mean a proposal or offer (other than by
the other party hereto), whether or not subject to a due diligence condition,
whether or not in writing, to acquire in any manner, directly or indirectly,
beneficial ownership (as defined under Rule 13(d) of the Exchange Act) of more
than 20% of the assets of the Company or FCE or any subsidiary thereof or to
acquire in any manner, directly or indirectly, more than 9.9% (and for the
purposes of Section 6.5(c), 20%) of the outstanding voting shares of the Company
or FCE whether by an arrangement, amalgamation, a merger, consolidation or other
business combination, by means of a sale of shares of capital stock, sale of
assets, tender offer or exchange offer or similar transaction involving the
Company or FCE or any subsidiary thereof including without limitation any single
or multi-step transaction or series of related transactions which is structured
to permit such third party to acquire beneficial ownership of more than 20% of
the assets of the Company or FCE or any subsidiary thereof or to acquire in any
manner, directly or indirectly, more than 9.9% (and for the purposes of Section
6.5(c), 20%) of the outstanding voting shares of the Company or FCE (other than
the transactions contemplated by this Agreement);
"Affiliate" shall have the meaning referred to in Rule 144 under the
Securities Act;
"Ancillary Rights" means the interest of a holder of Company Common
Shares who elects or is deemed to have elected to receive Exchangeable Shares as
a beneficiary of the trust created under the Voting and Exchange Trust
Agreement;
"Applicable Environmental Laws" shall have the meaning set forth in
Sections 2.15(c);
"Appropriate Regulatory Approvals" shall mean those sanctions, rulings,
consents, orders, exemptions, permits and other approvals (including the lapse,
without objection, of a prescribed time under a statute or regulation that
states that a transaction may be implemented if a prescribed time lapses
following the giving of notice without an objection being made) of Governmental
Entities, regulatory agencies or self-regulatory organizations;
"Arrangement" shall have the meaning set forth in Section 1.1;
"Business Day" shall mean any day other than a Saturday, Sunday or a
statutory or civic holiday in the United States or Canada;
"Callco" shall mean a corporation to be organized under the laws of
Alberta, Canada;
"C.F.R." shall mean the United States Code of Federal Regulations;
"Closing" shall have the meaning set forth in Section 7.2;
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"Closing Date" shall have the meaning set forth in Section 7.2;
"COBRA" shall have the meaning set forth in Section 3.21;
"Code" shall have the meaning set forth in Section 2.19(d);
"Commissions" shall mean the applicable Canadian provincial securities
commissions or similar regulatory authorities;
"Company Affiliate Agreement" shall mean the agreement in the form of
Exhibit B attached hereto to be executed and delivered to the Company by the
Affiliates of the Company;
"Company Balance Sheet" shall have the meaning set forth in Section
2.8(b);
"Company Comfort Letter" shall have the meaning set forth in Section
4.7(a);
"Company Common Shares" shall have the meaning set forth in Section
2.2;
"Company Disclosure Letter" shall mean the Company letter dated the
date of this Agreement and delivered by the Company to FCE concurrently
herewith;
"Company Documents" shall have the meaning set forth in Section 2.7(a);
"Company Employee Plan" shall have the meaning set forth in Section
2.22(a);
"Company Employees" shall have the meaning set forth in Section 2.21;
"Company Financial Statements" shall have the meaning set forth in
Section 2.8(b);
"Company Incentive Plan" shall have the meaning set forth in Section
2.2;
"Company Intellectual Property Rights" shall mean all Intellectual
Property Rights used or proposed to be used in, or necessary to, the businesses
of the Company and its subsidiaries as currently conducted or as currently
reasonably contemplated by the Company and its subsidiaries, whether owned or
controlled, licenced, or otherwise held by or for the benefit of the Company or
its subsidiaries, including without limitation the Registered Intellectual
Property Rights;
"Company Net Cash" shall mean, with respect to the Company and any of
its subsidiaries and for any reference date, the aggregate amount of cash, cash
equivalents, and short term investments held by the Company and such
subsidiaries;
"Company Net Working Capital" shall mean, with respect to the Company
and any of its subsidiaries and for any reference date: (i) current assets,
including, without limitation, cash, cash equivalents and short term
investments, less (ii) current liabilities, including, without limitation,
warranty reserves;
"Company Options" shall have the meaning set forth in Section 2.2;
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"Company Per Diem Burn Rate" shall have the meaning set forth in
Section 2.31;
"Company Property" shall have the meaning set forth in Section 2.16;
"Company Property Permitted Encumbrances" shall have the meaning set
forth in Section 2.16;
"Company Securities" shall have the meaning set forth in Section 2.2;
"Company Series 2 Preferred Shares" shall have the meaning set forth in
Section 2.2;
"Company Shareholders Meeting" shall mean the special meeting of
holders of Company Common Shares, including any adjournment thereof, to be
called to consider the Arrangement;
"Company Statement of Cash Flows" shall have the meaning set forth in
Section 2.8(b);
"Company Statement of Operations" shall have the meaning set forth in
Section 2.8(b);
"Company Technology" shall mean all Technology used or proposed to be
used in, or necessary to, the businesses of the Company and its subsidiaries as
currently conducted or as currently contemplated by the Company and its
subsidiaries, whether owned or controlled, licenced or otherwise held by or for
the benefit of the Company or its subsidiaries;
"Confidentiality Agreement" shall mean that certain confidentiality
agreement dated as of July 15, 2003, as amended, and entered into by and between
the Company and FCE;
"Contract" shall mean in the case of the Company or FCE, any pending
and/or executory contract, agreement, arrangement or understanding to which the
Company or FCE, as the case may be, or any of its subsidiaries, is a party or by
which the Company or FCE, as the case may be, or any of its subsidiaries, or any
of their respective assets is bound or affected;
"Controlled" shall have the meaning set forth in 16 C.F.R. Section
801.1(b);
"Copyrights" shall mean all copyrights, and all right, title and
interest in all copyrights, copyright registrations and applications for
copyright registration, certificates of copyright and copyrightable subject
matter throughout the world, all right, title and interest in related
applications and registrations throughout the world, and all Moral Rights;
"Court" shall have the meaning set forth in the recitals hereto;
"Dissenters" shall have the meaning set forth in Section 1.3;
"Dissenting Shareholders" shall have the meaning set forth in Section
1.3;
"Effective Date" shall have the meaning set forth in Section 1.1;
"Effective Time" shall have the meaning set forth in Section 1.1;
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"Encumbrance" shall mean any lien, charge, mortgage, security interest,
option, preferential purchase right, lease, easement, right of way, restriction,
execution, encumbrance or other right or interest of any other Person;
"ERISA" shall have the meaning set forth in Section 3.21;
"ERISA Affiliate" shall have the meaning set forth in Section 3.21;
"Exchange Act" shall have the meaning set forth in Section 1.5(a);
"Exchange Ratio" shall have the meaning set forth in Section 1.2(a);
"Exchangeable Shares" shall have the meaning set forth in Section 1.10;
"ExchangeCo" shall mean a corporation to be incorporated by FCE under
the ABCA as a wholly-owned, direct or indirect, subsidiary of FCE;
"FCE Balance Sheet" shall have the meaning set forth in Section 3.8(b);
"FCE Comfort Letter" shall have the meaning set forth in Section
4.7(b);
"FCE Common Stock" shall have the meaning set forth in Section 3.2;
"FCE Disclosure Letter" shall mean the FCE letter dated the date of
this Agreement and delivered by FCE to the Company concurrently herewith;
"FCE Documents" shall have the meaning set forth in Section 3.7(a);
"FCE Employee Plans" shall have the meaning set forth in Section 3.21;
"FCE Financial Statements" shall have the meaning set forth in Section
3.8(b);
"FCE Incentive Plan" shall have the meaning set forth in Section 3.2;
"FCE Options" shall have the meaning set forth in Section 3.2;
"FCE Net Cash" shall mean, with respect to FCE and any of its
subsidiaries and for any reference date, the aggregate amount of cash, cash
equivalents, and short term investments held by the Company and such
subsidiaries;
"FCE Net Working Capital" shall mean, with respect to FCE and any of
its subsidiaries and for any reference date: (i) current assets, including,
without limitation, cash, cash equivalents and short term investments, less (ii)
current liabilities, including, without limitation, warranty reserves;
"FCE Per Diem Burn Rate" shall have the meaning set forth in Section
3.29;
"FCE Property" shall have the meaning set forth in Section 3.16;
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"FCE Property Permitted Encumbrances" shall have the meaning set forth
in Section 3.16;
"FCE Statement of Cash Flows" shall have the meaning set forth in
Section 3.8(b);
"FCE Statement of Operations" shall have the meaning set forth in
Section 3.8(b);
"FCE Stock Price" shall have the meaning set forth in Section 1.2(b);
"FCE Stockholders Meeting" shall have the meaning set forth in Section
1.5(a);
"FCE Technology" shall mean all Technology used or proposed to be used
in, or necessary to, the businesses of FCE and its subsidiaries as currently
conducted or as currently contemplated by FCE and its subsidiaries, whether
owned or controlled, licenced or otherwise held by or for the benefit of FCE or
its subsidiaries;
"Final Order" shall have the meaning set forth in Section 1.1;
"Governmental Entity" shall mean any (a) multinational, federal,
provincial, state, regional, municipal, local or other government, governmental
or public department, central bank, court, tribunal, arbitral body, commission,
board, bureau or agency, domestic or foreign, (b) any subdivision, agent,
commission, board, or authority of any of the foregoing or (c) any
quasi-governmental or private body exercising any regulatory, expropriation or
taxing authority under or for the account of any of the foregoing;
"Hazardous Substance" means any material, substance, waste, pollutant
or contaminant listed, defined, designated or classified as hazardous, toxic,
flammable, explosive, reactive, corrosive, infectious, carcinogenic, mutagenic
or radioactive or otherwise regulated by any Governmental Entity or under any
Applicable Environmental Law, including petroleum or petroleum products
(including crude oil) and any derivative or by-products thereof, natural gas,
synthetic gas and any mixtures thereof, or any substance that is or contains
polychlorinated biphenyls (PCBs), radon gas, urea formaldehyde,
asbestos-containing materials (ACMs) or lead;
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended;
"Indemnified Party" shall have the meaning set forth in Section 7.5(a);
"Intellectual Property Rights" shall mean, collectively, Patents, Trade
Secrets, Copyrights, Trademarks, mask work rights, rights in integrated circuit
topographies, industrial design rights, and all other intellectual property
rights and proprietary rights, whether arising under the laws of the United
States, Canada or any other country or jurisdiction, including (i) all rights
received under any licence or other arrangement with respect to the foregoing,
(ii) all rights or causes of action for infringement or misappropriation (past,
present or future) of any of the foregoing and (iii) all rights to apply for or
register any of the foregoing rights;
"Interim Order" shall have the meaning set forth in Section 1.1;
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"IRS" shall have the meaning set forth in Section 2.19(b);
"Joint Proxy Statement" shall have the meaning set forth in Section
1.5(a);
"Laws" shall mean all statutes, regulations, statutory rules,
principles of law, orders, published policies and guidelines, and terms and
conditions of any grant of approval, permission, authority or licence of any
court, Governmental Entity, statutory body (including The Toronto Stock Exchange
or the Nasdaq National Market) or self-regulatory authority, and the term
"applicable" with respect to such Laws and in the context that refers to one or
more Persons, means that such Laws apply to such Person or Persons or its or
their business, undertaking, property or securities and emanate from a Person
having jurisdiction over the Person or Persons or its or their business,
undertaking, property or securities;
"Material Adverse Change" shall have the meaning set forth in Section
1.7(b);
"Material Adverse Effect" shall have the meaning set forth in Section
1.7(a);
"Material Contract" shall mean, with respect to FCE or the Company:
(a) any contract not made in the ordinary course of business which
is material to such person or its subsidiaries, including any such contract to
which such person or subsidiary has succeeded by assumption or assignment or in
which such person or subsidiary has a beneficial interest;
(b) any contract to which such person's directors, officers,
promoters, voting trustees, or security holders are parties;
(c) any contract upon which the business of such person is
substantially dependent, as in the case of continuing contracts to sell the
major part of such person's products or services or to purchase the major part
of such person's requirements of goods, services or raw materials or any
franchise or licence or other agreement to use a patent, formula, trade secret,
process or trade name upon which such person's business depends to a material
extent;
(d) any contract calling for the acquisition or sale of any
property, plant or equipment for a consideration exceeding 15 percent of such
fixed assets of the person on a consolidated basis;
(e) any material lease under which a part of the party's property
is held by such person; or
(f) any management contract or any compensatory plan, contract or
arrangement, including but not limited to plans relating to options, warrants or
rights, pension, retirement or deferred compensation or bonus, incentive or
profit sharing in which any director or any of the executive officers of the
person, participates, except for any compensatory plan, contract or arrangement
which pursuant to its terms is available to employees, officers or directors
generally and which in operation provides for the same method of allocation of
benefits between management and non-management participants;
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"Measurement Period" shall mean the twenty consecutive trading days
ending on and including the third trading day next preceding the Company
Shareholders Meeting;
"Moral Rights" shall mean any right to claim authorship of a work, any
right to object to any distortion or other modification of a work, and any
similar right, existing under the Law of any country or under any treaty;
"Nasdaq" shall have the meaning set forth in Section 3.4(a);
"Patents" shall mean all patent rights and all right, title and
interest in and to all letters patent or equivalent rights and applications,
including any reissue, extension, division, continuation, or continuation in
part applications throughout the world and any patents issuing with respect to
any such applications;
"Person" or "Persons" shall mean any individual, firm, partnership,
joint venture, venture capital fund, association, trust, trustee, executor,
administrator, legal personal representative, estate, group, body corporate,
corporation, unincorporated association or organization, Governmental Entity,
syndicate or other entity, whether or not having legal status;
"Plan of Arrangement" shall have the meaning set forth in Section 1.1;
"Quantum Combination" shall have the meaning set forth in the first
Recital hereof;
"Quantum Combination Agreement" shall have the meaning set forth in the
first Recital hereof;
"Registered Intellectual Property Rights" means all (i) Patents; (ii)
registered Trademarks, applications to register Trademarks, including
intent-to-use applications or proposed use applications, or other registrations
or applications related to Trademarks; (iii) Copyright registrations and
applications to register Copyrights; (iv) mask work or integrated circuit
topography registrations and applications to register mask works or integrated
circuit topographies; and (v) any other Intellectual Property Rights that are
the subject of an application certificate, filing, registration or other
document issued by, filed with, or recorded by, any state, government or other
public legal authority at any time;
"Registrar" shall mean the Registrar appointed pursuant to Section 263
of the ABCA;
"Release" shall mean any releasing, spilling, leaking, pumping,
pouring, placing, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, or dumping into the environment, whether intentional or
unintentional, negligent or non-negligent, sudden or non-sudden, accidental or
non-accidental;
"Representatives" shall have the meaning set forth in Section 4.4;
"SEC" shall have the meaning set forth in Section 1.1;
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"SEC Filings" shall mean reports and information furnished or filed
with the SEC under the Exchange Act and the rules and regulations promulgated by
the SEC thereunder, as may be required in connection with this Agreement and the
transactions contemplated hereby;
"Securities Act" shall have the meaning set forth in Section 1.5(a);
"SEDAR" shall mean System for Electronic Document Analysis and
Retrieval;
"Special Voting Share" shall mean the share of special voting stock of
FCE having substantially the rights, privileges, restrictions and conditions
described in the Voting and Exchange Trust Agreement;
"Superior Proposal" shall have the meaning set forth in Section 4.4;
"Support Agreement" shall mean an agreement to be made between FCE,
ExchangeCo and Callco, substantially in the form and content of Exhibit C, with
such changes as the parties hereto may agree;
"Tax" and "Taxes" shall mean, with respect to any entity, (A) all
income taxes (including any tax on or based upon net income, gross income,
income as specially defined, earnings, profits or selected items of income,
earnings or profits) and all capital taxes, gross receipts taxes, environmental
taxes, sales taxes, use taxes, Ad Valorem taxes, value added taxes, transfer
taxes, franchise taxes, licence taxes, withholding taxes, payroll taxes,
employment taxes, Canada or Quebec Pension Plan premiums, excise, severance,
social security premiums, workers' compensation premiums, unemployment insurance
or compensation premiums, stamp taxes, occupation taxes, premium taxes, property
taxes, windfall profits taxes, alternative or add-on minimum taxes, goods and
services tax, customs duties or other taxes, fees, imports, assessments or
charges of any kind whatsoever, together with any interest and any penalties or
additional amounts imposed by any taxing authority (domestic or foreign) on such
entity, and any interest, penalties, additional taxes and additions to tax
imposed with respect to the foregoing, and (B) any liability for the payment of
any amount of the type described in the immediately preceding clause (A) as a
result of being a "transferee" (within the meaning of section 6901 of the Code
or any other applicable Laws) of another entity or a member of an affiliated or
combined group;
"Tax Act" shall mean the Income Tax Act (Canada);
"Tax Returns" shall mean all returns, declarations, reports,
information returns and statements required to be filed with any taxing
authority relating to Taxes (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return and
declaration of estimated Tax;
"Technology" shall mean any algorithms, computer software (in source
code and object code form), documentation, data and data bases, inventions and
discoveries (whether or not patented or patentable), ideas, concepts,
techniques, know-how, processes, methods, applications, know-how, content,
technical information, engineering, production and other designs, drawings,
schematics, specifications, formulas and all other technology or information
existing anywhere in the world;
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"Termination Date" shall have the meaning set forth in Section 6.1(d);
"Third Party Intellectual Property Rights" shall mean, as to any
Person, the Intellectual Property Rights and Technology of other Persons that
are used in or necessary to the business of such Person;
"Trade Secrets" shall mean all right, title and interest in all trade
secrets and trade secret rights arising under any Law, including common law,
state law, federal law or laws of foreign countries;
"Trademarks" shall mean all trademarks, service marks, trade names,
trade designations, trade dress and domain names and associated goodwill and all
right, title and interest in or to the foregoing arising under common law, state
law, federal law or laws of foreign countries, registrations and applications
for registrations thereof, and all right, title and interest in related
applications and registrations throughout the world;
"Trustee" shall mean the trustee to be chosen by FCE, acting
reasonably, to act as trustee under the Voting and Exchange Trust Agreement,
being a corporation organized and existing under the laws of Canada and
authorized to carry on the business of a trust company in all the provinces of
Canada, and any successor trustee appointed under the Voting and Exchange Trust
Agreement.
"TSX" shall mean the Toronto Stock Exchange;
"Ultimate Parent Entity" shall have the meaning set forth in 16
C.F.R. Section 801.1(a)(3); and
"Voting and Exchange Trust Agreement" shall mean an agreement to be
made between FCE, ExchangeCo and the Trustee in connection with the Plan of
Arrangement substantially in the form and content of Exhibit D, with such
changes thereto as the parties hereto may agree.
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EXHIBIT A - PLAN OF ARRANGEMENT
Attached as Annex D to Joint Proxy Statement.
B-82
EXHIBIT B
AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "Agreement") is made and entered into as
of April ___, 2003 by and between FuelCell Energy, Inc., a Delaware corporation
("FCE"), and the undersigned stockholder (the "Affiliate"), who may be deemed an
affiliate of Global Thermoelectric Inc., an Alberta corporation (the "Company"),
under applicable law. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed thereto in the Combination Agreement (as
defined below).
RECITALS:
WHEREAS, pursuant to that certain Combination Agreement dated as of
August ___, 2003 (the "Combination Agreement") by and between FCE and the
Company, FCE will acquire all of the outstanding common shares of the Company;
WHEREAS, the Affiliate has been advised that the Affiliate may be
deemed to be an "affiliate" of the Company, as the term "affiliate" is used for
purposes of Rule 144 and Rule 145 of the rules and regulations of the Securities
and Exchange Commission (the "SEC"); and
WHEREAS, the execution and delivery of this Agreement by the Affiliate
is a material inducement to, and in consideration of, FCE's willingness to enter
into the Combination Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Acknowledgments by Affiliate. The Affiliate understands and
hereby acknowledges that the representations, warranties and covenants by the
Affiliate set forth herein may be relied upon by FCE, the Company and their
respective affiliates and legal counsel. The Affiliate has carefully read this
Agreement and the Combination Agreement and has discussed the requirements of
this Agreement with the Affiliate's professional advisors, who are qualified to
advise the Affiliate with regard to such matters.
2. Compliance with Rule 145 and the Securities Act.
(a) The Affiliate hereby represents and warrants to FCE
that the Affiliate is the sole beneficial owner of the number of common shares
of the Company ("Company Common Shares") set forth under the Affiliate's name on
the signature page hereto (the "Shares").
(b) The Affiliate understands and hereby acknowledges
that the Affiliate has been advised that (A) the issuance of shares of common
stock of FCE and ("FCE Common Stock") in connection with the Arrangement is
expected to be effected pursuant to Section
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3(a)(10) of the Securities Act of 1933, as amended (the "Securities Act"), and
the resale of such shares will be subject to restrictions set forth in Rule 145
under the Securities Act; and (B) the Affiliate may be deemed to be an
"affiliate" of the Company as the term "affiliate" is used for purposes of Rule
144 and Rule 145 of the rules and regulations of the Commission. Accordingly,
the Affiliate hereby agrees not to sell, transfer or otherwise dispose of any
FCE Common Stock issued to the Affiliate in the Arrangement unless (i) such
sale, transfer or other disposition is made in conformity with the requirements
of Rule 145(d) promulgated under the Securities Act; (ii) such sale, transfer or
other disposition is made pursuant to a registration statement declared or
ordered effective under the Securities Act, or an appropriate exemption from the
registration and prospectus delivery requirements of the Securities Act; (iii)
the Affiliate delivers to FCE a written opinion of legal counsel, reasonably
acceptable to FCE in form and substance, that such sale, transfer or other
disposition is otherwise exempt from the registration and prospectus delivery
requirements of the Securities Act; or (iv) an authorized representative of the
Commission shall have rendered written advice to the Affiliate to the effect
that the Commission would take no action, or that the staff of the Commission
would not recommend that the Commission take any action, with respect to the
proposed disposition if consummated.
(c) The Affiliate understands and hereby acknowledges
that FCE will give stop transfer instructions to its transfer agent with respect
to any shares of FCE Common Stock issued to the Affiliate pursuant to the
Arrangement, and there shall be placed on the certificates representing such
shares of FCE Common Stock a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 APPLIES AND MAY ONLY BE TRANSFERRED IN
CONFORMITY WITH RULE 145(d) OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IN
ACCORDANCE WITH A WRITTEN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO
THE ISSUER IN FORM AND SUBSTANCE, THAT SUCH TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED."
The legend described above shall be removed (by delivery of a substitute
certificate without such legend), and FCE shall so instruct its transfer agent,
if the Affiliate delivers to FCE (i) satisfactory written evidence that the
shares of FCE Common Stock have been sold in compliance with Rule 145 (in which
case, the substitute certificate shall be issued in the name of the transferee);
or (ii) an opinion of counsel, in form and substance reasonably satisfactory to
FCE, to the effect that public sale of such shares by the holder thereof is no
longer subject to Rule 145.
(d) The Affiliate understands and hereby acknowledges
that FCE is under no obligation to register the sale, transfer or disposition of
the shares of FCE Common Stock under the Securities Act.
(e) The Affiliate understands and hereby acknowledges
that unless a transfer by the Affiliate is made pursuant to an effective
registration statement under the Securities Act or
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in conformity with the provisons of Rule 145, FCE reserves the right to place a
legend in substantially the form that follows on certificates issued to any
transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND WERE ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT
APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW
TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN
THE MEANING OF THE SECURITIES ACT AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT."
3. Application to Subsequently Acquired Shares. The Affiliate
hereby agrees that all Company Common Shares and all shares of FCE Common Stock
acquired by the Affiliate subsequent to the date hereof (including shares of FCE
Common Stock acquired pursuant to the Arrangement, upon exercise or conversion
of options, warrants or other convertible securities, and/or upon redemption,
retraction, or exchange of the Exchangeable Shares) shall be subject to the
terms and conditions set forth in this Agreement as if held by the Affiliate as
of the date hereof.
4. Miscellaneous.
(a) Waiver. No waiver by any party hereto of any
condition or any breach of any term or provision set forth in this Agreement
shall be effective unless in writing and signed by each party hereto. The waiver
of a condition or any breach of any term or provision of this Agreement shall
not operate as or be construed to be a waiver of any other previous or
subsequent breach of any term or provision of this Agreement.
(b) Severability. If any provision of this Agreement or
the application thereof to any person or circumstance is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstance in any other jurisdiction or to
other persons or circumstances in any jurisdiction, shall not be affected
thereby, and to this end the provisions of this Agreement shall be severable.
(c) Governing Law. This Agreement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the
Province of Alberta without giving effect to any choice or conflict of law
provision, rule or principle (whether of the Province of Alberta or any other
jurisdiction).
(d) Entire Agreement. This Agreement, the Combination
Agreement and the other agreements referred to in the Combination Agreement set
forth the entire agreement and understanding of FCE and the Affiliate with
respect to the subject matter hereof and thereof, and
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supersede all prior discussions, agreements and understandings between FCE and
the Affiliate with respect to the subject matter hereof and thereof.
(e) Notices. All notices and other communications
pursuant to this Agreement shall be in writing and shall be sent to the parties
hereto at the address set forth below, or at such other address as such party
shall have furnished to the other party in accordance with this section:
If to FCE: FuelCell Energy, Inc.
3 Great Pasture Road
Danbury, Connecticut 06813
Attention: Chief Executive Officer
Facsimile No. 203-825-6100
with required copies to:
Robinson & Cole LLP
Financial Centre
695 East Main Street
Stamford, Connecticut 06901
Attention: Richard Krantz
Facsimile No. 203-462-7599
If to the Affiliate: To the address for notice set forth
on the signature page hereof.
(f) Survival. The representations, warranties, covenants
and other terms and provisions set forth in this Agreement shall survive the
consummation of the Arrangement.
(g) Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY OMITTED.]
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed as of the date first written above.
FUELCELL ENERGY, INC. AFFILIATE
By: ______________________________ By (Signature): _________________________
Name: ____________________________ Print Name: _____________________________
Title: ___________________________ Affiliate's Address for Notice:
_____________________________
_____________________________
_____________________________
Shares beneficially owned:
____________ shares of Company Common
Stock currently held
___________ shares of Company Common
Stock issuable upon the exercise of
outstanding options, warrants and
other rights
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EXHIBIT C
SUPPORT AGREEMENT
SUPPORT AGREEMENT ("AGREEMENT") made as of the - day of -, 2003.
BETWEEN:
FUELCELL ENERGY, INC., a corporation existing
under the laws of the State of Delaware
(hereinafter referred to as "FCE")
- and -
- ALBERTA LTD., a company organized under the
laws of Alberta
(hereinafter referred to as "EXCHANGECO"),
- and -
- ALBERTA LTD., a company organized under the
laws of Alberta
(hereinafter referred to as "CALLCO")
WHEREAS, in connection with a combination agreement (the "COMBINATION
AGREEMENT") made as of -, 2003 between FCE and Global Thermoelectric Inc., a
corporation existing under the laws of Alberta ("GLOBAL"), ExchangeCo is to
issue exchangeable shares (the "Exchangeable Shares") to certain holders of
common shares in the capital of Global pursuant to the plan of arrangement (the
"ARRANGEMENT") contemplated by the Combination Agreement; and
WHEREAS, pursuant to the Combination Agreement, FCE has agreed to
execute a support agreement with ExchangeCo and Callco substantially in the form
of this Agreement on the Effective Date (as defined in the Combination
Agreement);
NOW, THEREFORE, in consideration of the respective covenants and
agreements provided in this Agreement and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties hereto covenant and agree as follows:
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ARTICLE 1
INTERPRETATION
SECTION 1.1 DEFINED TERMS.
Each term denoted herein by initial capital letters and not otherwise
defined herein shall have the meaning ascribed thereto in the rights,
privileges, restrictions and conditions (collectively, the "EXCHANGEABLE SHARE
PROVISIONS") attaching to the Exchangeable Shares attached as Exhibit E to the
Combination Agreement unless the context requires otherwise.
SECTION 1.2 INTERPRETATION NOT AFFECTED BY HEADINGS.
The division of this agreement into articles, sections and other
portions and the insertion of headings are for convenience of reference only and
shall not affect the construction or interpretation hereof. Unless otherwise
indicated, all references to an "Article" or "Section" followed by a number
refer to the specified Article or Section of this Agreement. The terms "this
Agreement," "hereof," "herein" and "hereunder" and similar expressions refer to
this agreement and not to any particular Article, Section or other portion
hereof.
SECTION 1.3 RULES OF CONSTRUCTION.
Unless otherwise specifically indicated or the context otherwise
requires, (a) all references to "dollars" or "$" mean United States dollars, (b)
words importing the singular shall include the plural and vice versa and words
importing any gender shall include all genders, and (c) "include," "includes"
and "including" shall be deemed to be followed by the words "without
limitation."
SECTION 1.4 DATE FOR ANY ACTION.
If the event that any date on which any action is required to be taken
hereunder by any of the parties hereto is not a Business Day, such action shall
be required to be taken on the next succeeding day that is a Business Day.
ARTICLE 2
COVENANTS OF FCE AND EXCHANGECO
SECTION 2.1 COVENANTS REGARDING EXCHANGEABLE SHARES.
So long as any Exchangeable Shares not owned by FCE or its Affiliates
are outstanding, FCE will:
(a) not declare or pay any dividend on FCE Common Stock unless (i)
ExchangeCo shall (w) on the same day declare or pay, as the
case may be, an equivalent dividend (as provided for in the
Exchangeable Share Provisions) on the Exchangeable Shares (an
"EQUIVALENT DIVIDEND") and (x) ExchangeCo shall have
sufficient money or other assets or authorized but unissued
securities
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available to enable the due declaration and the due and
punctual payment, in accordance with applicable law, of any
such Equivalent Dividend, or (ii) ExchangeCo shall (y)
subdivide the Exchangeable Shares in lieu of a stock dividend
thereon (as provided for in the Exchangeable Share Provisions)
(an "EQUIVALENT STOCK SUBDIVISION") and (z) have sufficient
authorized but unissued securities available to enable the
Equivalent Stock Subdivision;
(b) advise ExchangeCo sufficiently in advance of the declaration
by FCE of any dividend on FCE Common Stock and take all such
other actions as are necessary, in cooperation with
ExchangeCo, to ensure that (i) the respective declaration
date, record date and payment date for an Equivalent Dividend
on the Exchangeable Shares shall be the same as the
declaration date, record date and payment date for the
corresponding dividend on the FCE Common Stock, or (ii) the
record date and effective date for an Equivalent Stock
Subdivision shall be the same as the record date and payment
date for the stock dividend on the FCE Common Stock;
(c) ensure that the record date for any dividend declared on FCE
Common Stock is not less than 10 Business Days after the
declaration date of such dividend;
(d) take all such actions and do all such things as are necessary
or desirable to enable and permit ExchangeCo, in accordance
with applicable law, to pay and otherwise perform its
obligations with respect to the satisfaction of the
Liquidation Amount, the Retraction Price or the Redemption
Price in respect of each issued and outstanding Exchangeable
Share (other than Exchangeable Shares owned by FCE or its
Affiliates) upon the liquidation, dissolution or winding-up of
ExchangeCo or any other distribution of the assets of
ExchangeCo among its shareholders for the purpose of
winding-up its affairs, the delivery of a Retraction Request
by a holder of Exchangeable Shares or a redemption of
Exchangeable Shares by ExchangeCo, as the case may be,
including all such actions and all such things as are
necessary or desirable to enable and permit ExchangeCo to
cause to be delivered FCE Common Stock to the holders of
Exchangeable Shares in accordance with the provisions of
Article 5, 6 or 7, as the case may be, of the Exchangeable
Share Provisions;
(e) take all such actions and do all such things as are necessary
or desirable to enable and permit Callco, in accordance with
applicable law, to perform its obligations arising upon the
exercise by it of the Liquidation Call Right, the Retraction
Call Right or the Redemption Call Right, including all such
actions and all such things as are necessary or desirable to
enable and permit Callco to cause to be delivered FCE Common
Stock to the holders of Exchangeable Shares in accordance with
the provisions of the Liquidation Call Right, the Retraction
Call Right or the Redemption Call Right, as the case may be;
(f) not exercise its vote as a direct or indirect shareholder to
initiate the voluntary liquidation, dissolution or winding-up
of ExchangeCo nor take any action or omit to take any action
that is designed to result in the liquidation, dissolution or
winding-up of ExchangeCo; and
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(g) recognize the right of a holder of Exchangeable Shares to
exercise its Exchange Put Right in the manner provided for in
Article 9 of the Exchangeable Share Provisions.
SECTION 2.2 SEGREGATION OF FUNDS.
FCE will cause ExchangeCo to deposit a sufficient amount of funds in a
separate account of ExchangeCo and segregate a sufficient amount of such other
assets and property as is necessary to enable ExchangeCo to pay dividends when
due and to pay or otherwise satisfy its respective obligations under Article 5,
6 or 7 of the Exchangeable Share Provisions, as applicable.
SECTION 2.3 RESERVATION OF FCE COMMON STOCK.
FCE hereby represents, warrants and covenants that FCE has either
issued to the Trustee or reserved for issuance and will, at all times while any
Exchangeable Shares (other than Exchangeable Shares held by FCE or its
affiliates) are outstanding, keep available, free from preemptive and other
rights, out of its authorized and unissued capital stock such number of shares
of FCE Common Stock (or other shares or securities into which FCE Common Stock
may be reclassified or changed as contemplated by Section 2.7 hereof) (a) as is
equal to the sum of (i) the number of Exchangeable Shares issued and outstanding
from time to time and (ii) the number of Exchangeable Shares issuable upon the
exercise of all rights to acquire Exchangeable Shares outstanding from time to
time and (b) as are now and may hereafter be required to enable and permit
ExchangeCo to meet its obligations under the Voting and Exchange Trust Agreement
and under any other security or commitment pursuant to the Arrangement with
respect to which FCE may now or hereafter be required to issue FCE Common Stock,
to enable and permit ExchangeCo to meet its obligations hereunder, under the
Voting and Exchange Trust Agreement and under the Exchangeable Share Provisions.
SECTION 2.4 NOTIFICATION OF CERTAIN EVENTS.
In order to assist FCE in compliance with its obligations hereunder and
to permit FCE to exercise the Liquidation Call Right, the Retraction Call Right
and the Redemption Call Right, ExchangeCo will notify FCE and Callco of each of
the following events at the times set forth below:
(a) in the event of any determination by the Board of Directors of
ExchangeCo to institute voluntary liquidation, dissolution or
winding-up proceedings with respect to ExchangeCo or to effect
any other distribution of the assets of ExchangeCo among its
shareholders for the purpose of winding up its affairs, at
least 60 days prior to the proposed effective date of such
liquidation, dissolution, winding-up or other distribution;
(b) promptly, upon the earlier of receipt by ExchangeCo of notice
of and ExchangeCo otherwise becoming aware of any threatened
or instituted claim, suit, petition or other proceeding with
respect to the involuntary liquidation, dissolution or
winding-up of ExchangeCo or to effect any other distribution
of the
B-91
assets of ExchangeCo among its shareholders for the purpose of
winding up its affairs;
(c) promptly, upon receipt by ExchangeCo of a Retraction Request;
(d) promptly following the date on which notice of redemption is
given to holders of Exchangeable Shares, upon the
determination of a Redemption Date in accordance with the
Exchangeable Share Provisions; and
(e) promptly upon the issuance by ExchangeCo of any Exchangeable
Shares or rights to acquire Exchangeable Shares (other than
the issuance of Exchangeable Shares and rights to acquire
Exchangeable Shares in exchange for outstanding common shares
of Global pursuant to the Arrangement).
SECTION 2.5 DELIVERY OF FCE COMMON STOCK TO EXCHANGECO.
In furtherance of its obligations hereunder, upon notice from
ExchangeCo or Callco of any event that requires ExchangeCo or Callco to cause to
be delivered FCE Common Stock to any holder of Exchangeable Shares, FCE shall
forthwith issue and deliver the requisite number of shares of FCE Common Stock
to be received by, and issued to or to the order of, the former holder of the
surrendered Exchangeable Shares, as ExchangeCo or Callco shall direct. All such
shares of FCE Common Stock shall be duly authorized, validly issued and fully
paid and non-assessable and shall be free and clear of any lien, claim or
encumbrance.
SECTION 2.6 QUALIFICATION OF FCE COMMON STOCK.
FCE covenants that if any FCE Common Stock (or other shares or
securities into which FCE Common Stock may be reclassified or changed as
contemplated by Section 2.7 hereof) to be issued and delivered hereunder
(including for greater certainty, pursuant to the Exchangeable Share Provisions,
or pursuant to the Exchange Put Right, the Exchange Right or the Automatic
Exchange Rights (all as defined in the Voting and Exchange Trust Agreement))
require registration or qualification with, or approval of, or the filing of any
document, including any prospectus or similar document, the taking of any
proceeding with, or the obtaining of any order, ruling or consent from, any
governmental or regulatory authority under any Canadian or United States
federal, provincial, territorial or state securities or other law or regulation
or pursuant to the rules and regulations of any securities or other regulatory
authority, or the fulfillment of any other United States or Canadian legal
requirement (collectively, the "APPLICABLE LAWS") before such shares (or other
shares or securities into which FCE Common Stock may be reclassified or changed
as contemplated by Section 2.7 hereof) may be issued and delivered by FCE at the
direction of ExchangeCo or Callco, if applicable, to the holder of surrendered
Exchangeable Shares or in order that such shares (or other shares or securities
into which FCE Common Stock may be reclassified or changed as contemplated by
Section 2.7 hereof) may be freely traded thereafter (other than any restrictions
of general application on transfer by reason of a holder being a "control
person" of FCE for purposes of Canadian provincial securities law or an
"affiliate" of FCE for purposes of United States federal or state securities
law), FCE will in good faith expeditiously take all such actions and do all such
things as are necessary or desirable and within its power to cause such FCE
Common Stock (or other shares or securities into which FCE
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Common Stock may be reclassified or changed as contemplated by Section 2.7
hereof) to be and remain duly registered, qualified or approved under United
States and/or Canadian law, as the case may be. FCE represents and warrants that
it has in good faith taken all actions and done all things as are necessary
under Applicable Laws as they exist on the date hereof to cause the shares of
FCE Common Stock (or other shares or securities into which FCE Common Stock may
be reclassified or changed) to be issued and delivered hereunder (including, for
greater certainty, pursuant to the Exchangeable Share Provisions, or pursuant to
the Exchange Put Right, the Exchange Right and the Automatic Exchange Rights) to
be freely tradeable thereafter (other than restrictions on transfer by reason of
a holder being a "control person" of FCE for the purposes of Canadian federal
and provincial securities law or an "affiliate" of FCE for purposes of United
States federal or state securities law). FCE will in good faith expeditiously
take all such actions and do all such things as are necessary or desirable and
within its power to cause all FCE Common Stock (or other shares or securities
into which FCE Common Stock may be reclassified or changed as contemplated by
Section 2.7 hereof) to be delivered hereunder (including, for greater certainty,
pursuant to the Exchangeable Share Provisions, or pursuant to the Exchange Put
Right, the Exchange Right or the Automatic Exchange Rights) to be listed, quoted
or posted for trading on all stock exchanges and quotation systems on which
outstanding FCE Common Stock (or other shares or securities into which FCE
Common Stock may be reclassified or changed as contemplated by Section 2.7
hereof) are listed and are quoted or posted for trading at such time.
SECTION 2.7 ECONOMIC EQUIVALENCE.
So long as any Exchangeable Shares not owned by FCE or its Affiliates
are outstanding:
(a) FCE will not, without prior approval of ExchangeCo and the
prior approval of the holders of Exchangeable Shares given in
accordance with Section 11.2 of the Exchangeable Share
Provisions:
(i) issue or distribute FCE Common Stock (or securities
exchangeable for or convertible into or carrying
rights to acquire FCE Common Stock) to the holders of
all or substantially all of the then outstanding
shares of FCE Common Stock by way of stock dividend
or other distribution, other than an issue of FCE
Common Stock (or securities exchangeable for or
convertible into or carrying rights to acquire FCE
Common Stock) to holders of FCE Common Stock who (A)
exercise an option to receive dividends in FCE Common
Stock (or securities exchangeable for or convertible
into or carrying rights to acquire FCE Common Stock)
in lieu of receiving cash dividends, or (B) pursuant
to any dividend reinvestment plan or scrip dividend;
or
(ii) issue or distribute rights, options or warrants to
the holders of all or substantially all of the then
outstanding shares of FCE Common Stock entitling them
to subscribe for or to purchase FCE Common Stock (or
securities exchangeable for or convertible into or
carrying rights to acquire FCE Common Stock); or
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(iii) issue or distribute to the holders of all or
substantially all of the then shares of outstanding
FCE Common Stock (A) shares or securities of FCE of
any class other than FCE Common Stock (other than
shares convertible into or exchangeable for or
carrying rights to acquire FCE Common Stock), (B)
rights, options or warrants other than those referred
to in Section 2.7(a)(ii) above, (C) evidences of
indebtedness of FCE or (D) assets of FCE,
unless the economic equivalent on a per share basis of such rights, options,
warrants, securities, shares, evidences of indebtedness or other assets is
issued or distributed simultaneously to holders of the Exchangeable Shares.
(b) FCE will not without the prior approval of ExchangeCo and the
prior approval of the holders of the Exchangeable Shares given
in accordance with Section 11.2 of the Exchangeable Share
Provisions:
(i) subdivide, redivide or change the then outstanding
shares of FCE Common Stock into a greater number of
shares of FCE Common Stock; or
(ii) reduce, combine, consolidate or change the then
outstanding shares of FCE Common Stock into a lesser
number of shares of FCE Common Stock; or
(iii) reclassify or otherwise change FCE Common Stock or
effect an amalgamation, merger, reorganization or
other transaction involving or affecting the shares
of FCE Common Stock,
unless the same or an economically equivalent change is simultaneously made to,
or in the rights of the holders of, the Exchangeable Shares.
(c) FCE will ensure that the record date for any event referred to
in Section 2.7(a) or Section 2.7(b) above, or (if no record
date is applicable for such event) the effective date for any
such event, is not less than five Business Days after the date
on which such event is declared or announced by FCE (with
contemporaneous notification thereof by FCE to ExchangeCo).
(d) The Board of Directors of ExchangeCo shall determine, in good
faith and in its sole discretion, economic equivalence for the
purposes of any event referred to in Section 2.7(a) or Section
2.7(b) above and each such determination shall be conclusive
and binding on FCE. In making each such determination, the
following factors shall, without excluding other factors
determined by the Board of Directors of ExchangeCo to be
relevant, be considered by the Board of Directors of
ExchangeCo:
(i) in the case of any stock dividend or other
distribution payable in FCE Common Stock, the number
of such shares issued in proportion to the number of
shares of FCE Common Stock previously outstanding;
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(ii) in the case of the issuance or distribution of any
rights, options or warrants to subscribe for or
purchase shares of FCE Common Stock (or securities
exchangeable for or convertible into or carrying
rights to acquire FCE Common Stock), the relationship
between the exercise price of each such right, option
or warrant and the Current Market Price;
(iii) in the case of the issuance or distribution of any
other form of property (including any shares or
securities of FCE of any class other than FCE Common
Stock, any rights, options or warrants other than
those referred to in Section 2.7(d)(ii) above, any
evidences of indebtedness of FCE or any assets of
FCE), the relationship between the fair market value
(as determined by the Board of Directors of
ExchangeCo in the manner above contemplated) of such
property to be issued or distributed with respect to
each outstanding share of FCE Common Share and the
Current Market Price;
(iv) in the case of any subdivision, redivision or change
of the then outstanding shares of FCE Common Stock
into a greater number of shares of FCE Common Stock
or the reduction, combination, consolidation or
change of the then outstanding shares of FCE Common
Stock into a lesser number of shares of FCE Common
Stock or any amalgamation, merger, reorganization or
other transaction affecting FCE Common Stock, the
effect thereof upon the then outstanding shares of
FCE Common Stock; and
(v) in all such cases, the general taxation consequences
of the relevant event to holders of Exchangeable
Shares to the extent that such consequences may
differ from the taxation consequences to holders of
shares of FCE Common Stock as a result of differences
between taxation laws of Canada and the United States
(except for any differing consequences arising as a
result of differing marginal taxation rates and
without regard to the individual circumstances of
holders of Exchangeable Shares).
(e) ExchangeCo agrees that, to the extent required, upon due
notice from FCE, ExchangeCo will take or cause to be taken
such steps as may be necessary for the purposes of ensuring
that appropriate dividends are paid or other distributions are
made by ExchangeCo, or subdivisions, redivisions or changes
are made to the Exchangeable Shares, in order to implement the
required economic equivalent with respect to the FCE Common
Stock and Exchangeable Shares as provided for in this Section
2.7.
SECTION 2.8 TENDER OFFERS.
In the event that a tender offer, share exchange offer, issuer bid,
take-over bid or similar transaction with respect to FCE Common Stock (an
"OFFER") is proposed by FCE or is proposed to FCE or its shareholders and is
recommended by the Board of Directors of FCE, or is otherwise effected or to be
effected with the consent or approval of the Board of Directors of FCE, and the
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Exchangeable Shares are not redeemed by ExchangeCo or purchased by Callco
pursuant to the Redemption Call Right, FCE shall in good faith take all such
actions and do all such things as are necessary or desirable and in its power to
enable and permit holders of Exchangeable Shares (other than FCE and its
Affiliates) to participate in such Offer to the same extent and on an
economically equivalent basis as the holders of FCE Common Stock, without
discrimination. Without limiting the generality of the foregoing, FCE will use
its good faith efforts expeditiously to (and in the case of a transaction
proposed by FCE or where it is a participant in the negotiation thereof it will)
ensure that holders of Exchangeable Shares may participate in each such Offer
without being required to retract Exchangeable Shares as against ExchangeCo (or,
if so required, to ensure that any such retraction, shall be effective only
upon, and shall be conditional upon, the closing of such Offer and only to the
extent necessary to tender or deposit to the Offer). Nothing herein shall affect
the rights of ExchangeCo to redeem (or Callco to purchase pursuant to the
Redemption Call Right) Exchangeable Shares, as applicable, in the event of a FCE
Control Transaction.
SECTION 2.9 OWNERSHIP OF OUTSTANDING SHARES.
Without the prior approval of ExchangeCo and the prior approval of the
holders of the Exchangeable Shares given in accordance with Section 10.2 of the
Exchangeable Share Provisions, FCE covenants and agrees in favour of ExchangeCo
that, as long as any outstanding Exchangeable Shares are owned by any Person
other than FCE or any of its Affiliates, FCE will be and remain the direct or
indirect beneficial owner of all issued and outstanding voting shares in the
capital of ExchangeCo and Callco. Notwithstanding the foregoing, FCE shall not
be in violation of this section if any person or group of persons acting jointly
or in concert acquires all or substantially all of the assets of FCE or the FCE
Common Stock pursuant to any merger of FCE pursuant to which FCE was not the
surviving corporation.
SECTION 2.10 FCE AND AFFILIATES NOT TO VOTE EXCHANGEABLE SHARES.
FCE covenants and agrees that it will appoint and cause to be appointed
proxyholders with respect to any Exchangeable Shares held by it and its
Affiliates for the sole purpose of attending each meeting of holders of
Exchangeable Shares in order to be counted as part of the quorum for each such
meeting. FCE further covenants and agrees that it will not, and will cause its
Affiliates not to, exercise any voting rights which may be exercisable by
holders of Exchangeable Shares from time to time pursuant to the Exchangeable
Share Provisions or pursuant to the provisions of the ABCA (or any successor or
other corporate statute by which ExchangeCo may in the future be governed) with
respect to any Exchangeable Shares held by it or by its Affiliates in respect of
any matter considered at any meeting of holders of Exchangeable Shares.
SECTION 2.11 RULE 10b-18 PURCHASES.
For greater certainty, nothing contained in this Agreement, including
the obligations of FCE contained in Section 2.8 hereof, shall limit the ability
of FCE or ExchangeCo to make a "Rule 10b-18 purchase" of FCE Common Stock
pursuant to Rule 10b-18 of the United States Securities Exchange Act of 1934, as
amended, or any successor rule.
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SECTION 2.12 STOCK EXCHANGE LISTING.
FCE covenants and agrees in favour of ExchangeCo that, as long as any
outstanding Exchangeable Shares are owned by any Person other than FCE or any of
its Affiliates, FCE will use its best efforts to maintain a listing for such
Exchangeable Shares on the TSX or, in the event that a listing on TSX is not
available, on another recognized Canadian stock exchange.
ARTICLE 3
FCE SUCCESSORS
SECTION 3.1 CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC.
FCE shall not consummate any transaction (whether by way of
reconstruction, reorganization, consolidation, merger, transfer, sale, lease or
otherwise) whereby all or substantially all of its undertaking, property and
assets would become the property of any other Person or, in the case of a
merger, of the continuing corporation resulting therefrom unless, but may do so
if:
(a) such other Person or continuing corporation (the "FCE
SUCCESSOR") by operation of law, becomes, without more, bound
by the terms and provisions of this Agreement or, if not so
bound, executes, prior to or contemporaneously with the
consummation of such transaction, an agreement supplemental
hereto and such other instruments (if any) as are reasonably
necessary or advisable to evidence the assumption by the FCE
Successor of liability for all moneys payable and property
deliverable hereunder and the covenant of such FCE Successor
to pay and deliver or cause to be delivered the same and its
agreement to observe and perform all the covenants and
obligations of FCE under this Agreement; and
(b) such transaction shall be upon such terms and conditions as
substantially to preserve and not to impair in any material
respect any of the rights, duties, powers and authorities of
the other parties hereunder or the holders of Exchangeable
Shares.
SECTION 3.2 VESTING OF POWERS IN SUCCESSOR.
Whenever the conditions of Section 3.1 have been duly observed and
performed, the parties, if required by Section 3.1, shall execute and deliver
the supplemental agreement provided for in Section 3.1(a) and thereupon the FCE
Successor shall possess and from time to time may exercise each and every right
and power of FCE under this Agreement in the name of FCE or otherwise and any
act or proceeding by any provision of this Agreement required to be done or
performed by the Board of Directors of FCE or any officers of FCE may be done
and performed with like force and effect by the directors or officers of such
FCE Successor.
SECTION 3.3 WHOLLY-OWNED SUBSIDIARIES.
Nothing herein shall be construed as preventing the amalgamation or
merger of any wholly-owned direct or indirect subsidiary of FCE with or into FCE
or the winding-up,
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liquidation or dissolution of any wholly-owned subsidiary of FCE provided that
all of the assets of such subsidiary are transferred to FCE or another
wholly-owned direct or indirect subsidiary of FCE and any such transactions are
expressly permitted by this Article 3.
ARTICLE 4
GENERAL
SECTION 4.1 TERM.
This Agreement shall come into force and be effective as of the date
hereof and shall terminate and be of no further force and effect at such time as
no Exchangeable Shares (or securities or rights convertible into or exchangeable
for or carrying rights to acquire Exchangeable Shares) are held by any Person
other than FCE and any of its Affiliates.
SECTION 4.2 CHANGES IN CAPITAL OF FCE AND EXCHANGECO.
At all times after the occurrence of any event contemplated pursuant to
Section 2.7 and Section 2.8 hereof or otherwise, as a result of which either FCE
Common Stock or the Exchangeable Shares or both are in any way changed, this
Agreement shall forthwith be deemed amended and modified as necessary in order
that it shall apply with full force and effect, mutatis mutandis, to all new
securities into which FCE Common Stock or the Exchangeable Shares or both are so
changed and the parties hereto shall execute and deliver an agreement in writing
giving effect to and evidencing such necessary amendments and modifications.
SECTION 4.3 NOTICES TO PARTIES.
All notices and other communications hereunder shall be in writing and
shall be deemed given when delivered personally, telecopied (which is confirmed)
or dispatched (postage prepaid) to a nationally recognized overnight courier
service with overnight delivery instructions, in each case addressed to the
particular party at:
(a) If to FCE, at:
3 Great Pasture Road
Danbury, Connecticut
06813
Attention: Chief Executive Officer
Facsimile No.: (203) 825-60001
(b) If to ExchangeCo, at:
-
Attention: -
Facsimile No.: -
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or at such other address of which any party may, from time to time, advise the
other parties by notice in writing given in accordance with the foregoing.
SECTION 4.4 ASSIGNMENT.
No party hereto may assign this Agreement or any of its rights,
interests or obligations under this Agreement or the Arrangement (whether by
operation of law or otherwise) except that ExchangeCo may assign in its sole
discretion, any or all of its rights, interests and obligations hereunder to any
wholly-owned subsidiary of FCE, but any such assignment shall not relieve
ExchangeCo of its responsibilities hereunder.
SECTION 4.5 BINDING EFFECT.
Subject to Section 4.4, this Agreement and the Arrangement shall be
binding upon, enure to the benefit of and be enforceable by the parties hereto
and their respective successors and permitted assigns.
SECTION 4.6 AMENDMENTS, MODIFICATIONS.
This Agreement may not be amended or modified except by an agreement in
writing executed by ExchangeCo, Callco and FCE and approved by the holders of
the Exchangeable Shares in accordance with Section 11.2 of the Exchangeable
Share Provisions.
SECTION 4.7 MINISTERIAL AMENDMENTS.
Notwithstanding the provisions of Section 4.6, the parties to this
Agreement may in writing at any time and from time to time, without the approval
of the holders of the Exchangeable Shares, amend or modify this Agreement for
the purposes of:
(a) adding to the covenants of any or all parties provided that
the board of directors of each of ExchangeCo, Callco and FCE
shall be of the good faith opinion that such additions will
not be prejudicial to the rights or interests of the holders
of the Exchangeable Shares;
(b) making such amendments or modifications not inconsistent with
this Agreement as may be necessary or desirable with respect
to matters or questions which, in the good faith opinion of
the board of directors of each of ExchangeCo, Callco and FCE,
it may be expedient to make, provided that each such board of
directors shall be of the good faith opinion that such
amendments or modifications will not be prejudicial to the
rights or interests of the holders of the Exchangeable Shares;
or
(c) making such changes or corrections which, on the advice of
counsel to ExchangeCo, Callco and FCE, are required for the
purpose of curing or correcting any ambiguity or defect or
inconsistent provision or clerical omission or mistake or
manifest error, provided that the board of directors of each
of ExchangeCo, Callco and FCE shall be of the good faith
opinion that such changes or corrections
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will not be prejudicial to the rights or interests of the holders of
the Exchangeable Shares.
SECTION 4.8 MEETING TO CONSIDER AMENDMENTS.
ExchangeCo, at the request of FCE, shall call a meeting or meetings of
the holders of the Exchangeable Shares for the purpose of considering any
proposed amendment or modification requiring approval pursuant to Section 4.6
hereof. Any such meeting or meetings shall be called and held in accordance with
the bylaws of ExchangeCo, the Exchangeable Share Provisions and all applicable
laws.
SECTION 4.9 AMENDMENTS ONLY IN WRITING.
No amendment to or modification or waiver of any of the provisions of
this Agreement otherwise permitted hereunder shall be effective unless made in
writing and signed by all of the parties hereto.
SECTION 4.10 GOVERNING LAWS; CONSENT TO JURISDICTION.
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Alberta and the laws of Canada applicable therein
and shall be treated in all respects as an Alberta contract. Each party hereby
irrevocably attorns to the jurisdiction of the courts of the Province of Alberta
in respect of all matters arising under or in relation to this Agreement.
SECTION 4.11 SEVERABILITY.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 4.12 COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall be
deemed to be an original but all of which together shall constitute one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
FUELCELL ENERGY, INC.
By:__________________________________
Name:
Title:
- ALBERTA LTD.
By:__________________________________
Name:
Title:
- ALBERTA LTD.
By:__________________________________
Name:
Title:
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EXHIBIT D
VOTING AND EXCHANGE TRUST AGREEMENT
VOTING AND EXCHANGE AGREEMENT ("AGREEMENT") made as of the - day of -, 2003.
BETWEEN:
FUELCELL ENERGY, INC., a corporation existing under the laws
of the State of Delaware
(hereinafter referred to as "FCE"),
- and -
- ALBERTA LTD., a corporation organized under the laws of
Alberta
(hereinafter referred to as "EXCHANGECO"),
- and -
- TRUST COMPANY OF CANADA, a trust company incorporated under
the laws of Canada
(hereinafter referred to as the "TRUSTEE"),
WHEREAS, in connection with the Combination Agreement, ExchangeCo is required to
issue Exchangeable Shares to certain holders of common shares in the capital of
Global pursuant to the Plan of Arrangement contemplated in the Combination
Agreement; and
WHEREAS, pursuant to the Combination Agreement, FCE has agreed to execute a
voting and exchange trust agreement with ExchangeCo and the Trustee
substantially in the form of this Agreement;
NOW, THEREFORE, in consideration of the respective covenants and agreements
provided in this Agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties hereto
covenant and agree as follows:
ARTICLE 1
INTERPRETATION
SECTION 1.1 DEFINITIONS.
In this Agreement, unless the context otherwise requires, the following terms
shall have the following meanings respectively:
"ABCA" means the Business Corporations Act (Alberta) as now in effect
and as it may be amended, consolidated or reenacted from time to time;
"AGGREGATE EQUIVALENT VOTE AMOUNT" means, with respect to any matter,
proposition or question on which holders of FCE Common Stock are
entitled to vote, consent or otherwise act, the product of (i) the
number of shares of Exchangeable Shares issued and outstanding and held
by Record Holders multiplied by (ii) the Equivalent Vote Amount;
"AFFILIATE" has the meaning ascribed thereto in the Securities Act,
unless otherwise expressly stated herein;
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"ARRANGEMENT" means the arrangement under Section 193 of the ABCA on
the terms and subject to the conditions set out in the Plan of
Arrangement;
"ARTICLES" means the Articles of Arrangement of ExchangeCo;
"AUTOMATIC EXCHANGE RIGHTS" means the benefit of the obligation of FCE
to effect the automatic exchange of Exchangeable Shares for FCE Common
Stock pursuant to Section 5.12;
"BENEFICIARIES" means the registered holders from time to time of
Exchangeable Shares, other than FCE and its Affiliates;
"BENEFICIARY VOTES" has the meaning ascribed thereto in Section 4.2;
"BUSINESS DAY" means any day other than a Saturday, Sunday or a
statutory or civic holiday in the United States or Canada;
"CALLCO" means -, a corporation organized and existing under the laws
of Alberta;
"COMBINATION AGREEMENT" means the combination agreement made as of -,
2003 between FCE and Global, as amended, supplemented and/or restated
in accordance therewith prior to the date hereof, providing for, among
other things, the Arrangement;
"COURT" has the meaning ascribed thereto in the Plan of Arrangement;
"EQUIVALENT VOTE AMOUNT" means, with respect any matter, proposition or
question on which holders of FCE Common Stock are entitled to vote,
consent or otherwise act, the number of votes to which a holder of one
share of FCE Common Stock is entitled with respect to such matter,
proposition or question;
"EXCHANGE PUT RIGHT" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
"EXCHANGE RIGHT" has the meaning ascribed thereto in Section 5.1;
"EXCHANGEABLE SHARES" means the non-voting exchangeable shares in the
capital of ExchangeCo, having the rights, privileges, restrictions and
conditions set out in Exhibit E to the Combination Agreement;
"EXCHANGEABLE SHARE CONSIDERATION" has the meaning ascribed thereto in
the Exchangeable Share Provisions;
"EXCHANGEABLE SHARE PRICE" has the meaning ascribed thereto in the
Exchangeable Share Provisions;
"EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges,
restrictions and conditions attaching to the Exchangeable Shares;
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"FCE COMMON STOCK" means the shares of common stock, $0.0001 par value
per share, in the capital of FCE and any other securities into which
such shares may be changed or resulting form the application of Section
2.7 of the Support Agreement;
"FCE CONSENT" has the meaning ascribed thereto in Section 4.2;
"FCE MEETING" has the meaning ascribed thereto in Section 4.2;
"FCE SUCCESSOR" has the meaning ascribed thereto in Section 10.1(a).
"FINAL ORDER" means the final order of the Court approving the
Arrangement as such order may be amended by the Court at any time prior
to the date hereof or, if appealed, then, unless such appeal is
withdrawn or denied, as affirmed;
"GLOBAL" means Global Thermoelectric Inc., a corporation existing under
the laws of the Province of Alberta;
"GOVERNMENTAL ENTITY" means any (a) multinational, federal, provincial,
territorial, state, regional, municipal, local or other government,
governmental or public department, central bank, court, tribunal,
arbitral body, commission, board, bureau or agency, domestic or
foreign, (b) subdivision, agent, commission, board, or authority of any
of the foregoing, or (c) quasi-governmental or private body exercising
any regulatory, expropriation or taxing authority under or for the
account of any of the foregoing;
"INDEMNIFIED PARTIES" has the meaning ascribed thereto in Section 8.1;
"INSOLVENCY EVENT" means (i) the institution by ExchangeCo of any
proceeding to be adjudicated a bankrupt or insolvent or to be dissolved
or wound up, or the consent of ExchangeCo to the institution of
bankruptcy, insolvency, dissolution or winding-up proceedings against
it, or (ii) the filing of a petition, answer or consent seeking
dissolution or winding-up under any bankruptcy, insolvency or analogous
laws, including the Companies Creditors' Arrangement Act (Canada) and
the Bankruptcy and Insolvency Act (Canada), and the failure by
ExchangeCo to contest in good faith any such proceedings commenced in
respect of ExchangeCo within 15 days of becoming aware thereof, or the
consent by ExchangeCo to the filing of any such petition or to the
appointment of a receiver, or (iii) the making by ExchangeCo of a
general assignment for the benefit of creditors, or the admission in
writing by ExchangeCo of its inability to pay its debts generally as
they become due, or (iv) ExchangeCo not being permitted, pursuant to
s