COMBINATION AGREEMENT BETWEEN PHELPS DODGE CORPORATION AND INCO LIMITED Dated as of June 25, 2006

 

Exhibit 2.1
 
COMBINATION AGREEMENT
BETWEEN
PHELPS DODGE CORPORATION
AND
INCO LIMITED
Dated as of June 25, 2006
 

 


 

Table of Contents
             
        Page
ARTICLE I
  DEFINITIONS     1  
 
           
1.1.
  Certain Definitions     1  
1.2.
  Terms Defined in Other Sections     9  
1.3.
  Interpretation     11  
 
           
ARTICLE II
  THE ARRANGEMENT     11  
 
           
2.1.
  The Arrangement     11  
2.2.
  Implementation Steps by Italy     13  
2.3.
  Implementation Steps by Portugal     14  
2.4.
  Interim Order     14  
2.5.
  Closing     14  
 
           
ARTICLE III
  REPRESENTATIONS AND WARRANTIES OF ITALY     15  
 
           
3.1.
  Organization and Qualification; Subsidiaries     15  
3.2.
  Articles of Incorporation and Bylaws     16  
3.3.
  Capitalization     17  
3.4.
  Authority Relative to this Agreement     18  
3.5.
  No Conflict; Required Filings and Consents     18  
3.6.
  Compliance; Permits     19  
3.7.
  Reports; Financial Statements     20  
3.8.
  No Undisclosed Liabilities     22  
3.9.
  Absence of Certain Changes or Events     23  
3.10.
  Absence of Litigation     23  
3.11.
  Employee Plans     23  
3.12.
  Labor Matters     24  
3.13.
  Property and Title     25  
3.14.
  Mineral Reserves and Resources     26  
3.15.
  Operational Matters     26  
3.16.
  Insurance     27  
3.17.
  Taxes     27  
3.18.
  Environmental Matters     29  
3.19.
  Intellectual Property     30  
3.20.
  Agreements, Contracts and Commitments     30  
3.21.
  Brokers     31  
3.22.
  Opinions of Financial Advisors     31  
3.23.
  Vote Required     31  
3.24.
  No Other Representations and Warranties     31  
 
           
ARTICLE IV
  REPRESENTATIONS AND WARRANTIES OF PORTUGAL     31  

i


 

Table of Contents
(continued)
             
        Page
4.1.
  Organization and Qualification; Subsidiaries     32  
4.2.
  Certificate of Incorporation and Bylaws     33  
4.3.
  Capitalization     33  
4.4.
  Authority Relative to this Agreement     34  
4.5.
  No Conflict; Required Filings and Consents     35  
4.6.
  Compliance; Permits     36  
4.7.
  SEC Filings; Financial Statements     37  
4.8.
  No Undisclosed Liabilities     39  
4.9.
  Absence of Certain Changes or Events     39  
4.10.
  Absence of Litigation     39  
4.11.
  Employee Plans     40  
4.12.
  Labor Matters     41  
4.13.
  Property and Title     41  
4.14.
  Mineral Reserves and Resources     42  
4.15.
  Operational Matters     42  
4.16.
  Insurance     43  
4.17.
  Taxes     43  
4.18.
  Environmental Matters     44  
4.19.
  Intellectual Property     46  
4.20.
  Agreements, Contracts and Commitments     46  
4.21.
  Brokers     46  
4.22.
  Vote Required     47  
4.23.
  Portugal Common Shares     47  
4.24.
  No Other Representations and Warranties     47  
 
           
ARTICLE V
  COVENANTS OF ITALY     47  
 
           
5.1.
  Conduct of Business     47  
5.2.
  Shareholders Meeting     50  
5.3.
  No Solicitation; Opportunity to Match     51  
5.4.
  Dissent Rights     55  
5.5.
  Italy Affiliates     55  
5.6.
  Preference Shares and Convertible Debentures     56  
 
           
ARTICLE VI
  COVENANTS OF PORTUGAL     56  
 
           
6.1.
  Conduct of Business     56  
6.2.
  Shareholders Meeting     59  
6.3.
  Section 3(a)(10) Exemption     59  
6.4.
  Stock Exchange Listings     59  
6.5.
  Amendment to Governing Documents of Portugal     60  
6.6.
  Board Composition     60  
6.7.
  Certain Officers     60  

ii


 

Table of Contents
(continued)
             
        Page
ARTICLE VII
  ADDITIONAL AGREEMENTS     60  
 
           
7.1.
  Confidentiality; Access to Information     60  
7.2.
  Cooperation in Filings     61  
7.3.
  Public Announcements     62  
7.4.
  Reasonable Best Efforts     62  
7.5.
  Regulatory Filings     64  
7.6.
  Indemnification     64  
7.7.
  Takeover Statutes     65  
7.8.
  Section 16(b)     66  
7.9.
  U.S. Tax Treatment     66  
 
           
ARTICLE VIII
  CONDITIONS     66  
 
           
8.1.
  Conditions to Obligations of Each Party to Effect the Arrangement     66  
8.2.
  Additional Conditions to Obligations of Italy     67  
8.3.
  Additional Conditions to the Obligations of Portugal     68  
 
           
ARTICLE IX
  TERMINATION, AMENDMENT AND WAIVER     69  
 
           
9.1.
  Termination     69  
9.2.
  Notice of Termination; Effect of Termination     70  
9.3.
  Fees and Expenses     70  
9.4.
  Amendment     74  
9.5.
  Extension; Waiver     75  
 
           
ARTICLE X
  GENERAL PROVISIONS     75  
 
           
10.1.
  Non-Survival of Representations and Warranties     75  
10.2.
  Notices     75  
10.3.
  Counterparts     77  
10.4.
  Entire Agreement; Third Party Beneficiaries     77  
10.5.
  Severability     77  
10.6.
  Other Remedies; Specific Performance     77  
10.7.
  Governing Law     78  
10.8.
  No Personal Liability     78  
10.9.
  Assignment     78  
10.10.
  WAIVER OF JURY TRIAL     79  
10.11.
  Currency     79  

iii


 

Table of Contents
(continued)
     
        Page
Exhibit A
  Form of Italy Resolution
 
   
Exhibit B
  Form of Plan of Arrangement
 
   
Exhibit C
  Form of Restated Certificate of Incorporation
 
   
Exhibit D
  Form of Support Agreement Amendment
 
   
Exhibit E
  Form of Portugal – France Agreement
 
   
Exhibit F
  Form of Convertible Note Purchase Agreement

iv


 

COMBINATION AGREEMENT
     This COMBINATION AGREEMENT is made and entered into as of June 25, 2006, between Phelps DodgeCorporation, a New York corporation (“Portugal”), and Inco Limited, a corporation organizedand existing under the laws of Canada (“Italy”).
RECITALS
     A. The board of directors of Italy has (i) determined that it is in the best interestsof Italy and its shareholders to effect the business combination and other transactions providedfor herein, including the Arrangement pursuant to which an indirect wholly-owned subsidiary ofPortugal will acquire all of the outstanding common shares of Italy and the shareholders of Italyimmediately prior to the effectiveness of the Arrangement will receive the consideration describedherein and in the Plan of Arrangement, and (ii) resolved to recommend that the shareholdersof Italy vote in favour of the Arrangement.
     B. The board of directors of Portugal has (i) deemed it advisable and in the bestinterests of Portugal and its shareholders to effect the business combination and othertransactions provided for herein, including the Portugal Share Issuance and the Portugal CharterAmendment, and (ii) resolved to recommend that the shareholders of Portugal vote in favorof the Portugal Share Issuance and the Portugal Charter Amendment.
     C. Contemporaneously with the execution and delivery of this Agreement, (i) Italy andFalconbridge Limited, a corporation organized and existing under the laws of Ontario(“France”), have entered into an amendment to the Support Agreement between them in theform set forth as Exhibit D hereto, (ii) Portugal and France have entered into an Agreementin the form set forth as Exhibit E, and (iii) Italy and Portugal have entered into theConvertible Note Purchase Agreement in the form set forth in Exhibit F hereto.
     NOW, THEREFORE, in consideration of the covenants, promises and representations set forthherein, and for other good and valuable consideration, the receipt and sufficiency of which arehereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
     1.1. Certain Definitions. The following terms shall have the following meanings:
     “1933 Act” means the United States Securities Act of 1933, as amended, and the rulesand regulations promulgated from time to time thereunder.

 


 

     “1934 Act” means the United States Securities Exchange Act of 1934, as amended, andthe rules and regulations promulgated from time to time thereunder.
     “Action” means any action, claim, suit, litigation, demand, cause of action, charge,complaint, arbitration or other proceeding.
     “Affiliate” means, with respect to any Person, any other Person that directly, orthrough one or more intermediaries, controls or is controlled by or is under common control withsuch Person. For purposes of the foregoing, “control” means the possession, direct or indirect, ofthe power to direct or cause the direction of the management and policies of a person, whetherthrough the ownership of voting securities, by contract, or otherwise. For the avoidance of doubt,a Subsidiary of any Person shall be deemed to be an Affiliate of such Person, and such Person shallbe deemed to be an Affiliate of such Subsidiary.
     “Agreement” means this Combination Agreement, including the Exhibits and scheduleshereto, as the same may be amended, supplemented or otherwise modified from time to time inaccordance with the terms hereof.
     “ARC” means an advance ruling certificate issued by the Commissioner pursuant toSection 102 of the Competition Act.
     “Arrangement” means an arrangement under section 192 of the CBCA on the terms andsubject to the conditions set out in the Plan of Arrangement, subject to any amendments orvariations thereto made in accordance with Section 9.4 hereof or Article VII of the Plan ofArrangement or made at the direction of the Court in the Final Order.
     “Articles of Arrangement” means the articles of arrangement of Italy in respect of theArrangement, required by the CBCA to be sent to the Director after the Final Order is made.
     “CBCA” means the Canada Business Corporations Act, as now in effect and as it may beamended from time to time prior to the Effective Time.
     “Canadian Securities Regulatory Authorities” means the OSC and each other securitiescommission or similar regulatory authority in each of the provinces and territories of Canada.
     “Code” means the United States Internal Revenue Code of 1986, as amended.
     “Commissioner” means the Commissioner of Competition under the Competition Act.
     “Competition Act” means the Competition Act (Canada), as amended.

2


 

     “Competition Act Approval” means receipt of an ARC or, in the alternative to an ARC,the waiver, expiration or earlier termination of the waiting period under Part IX of theCompetition Act and receipt of a letter from the Commissioner or a person authorized by theCommissioner that the Commissioner has determined not to make an application for an order undersection 92 of the Competition Act in respect of the transactions contemplated by this Agreement.
     “Contract” means any written agreement, commitment, contract, note, bond, mortgage,indenture, lease, instrument or other binding arrangement.
     “Court” means the Superior Court of Justice (Ontario).
     “Director” means the Director appointed pursuant to section 260 of the CBCA.
     “Disclosed Publicly by Italy” means disclosed in a public filing by Italy with the OSCon or after January 1, 2004 and prior to the date hereof.
     “Disclosed Publicly by Portugal” means disclosed in a public filing by Portugal withthe SEC on or after January 1, 2004 and prior to the date hereof.
     “Disclosed to Italy” means disclosed by Portugal in the Portugal Dataroom or madeavailable in writing by Portugal to Italy.
     “Disclosed to Portugal” means disclosed by Italy in the Italy Dataroom or madeavailable in writing by Italy to Portugal.
     “Dissent Rights” means the rights of dissent in respect of the Arrangement describedin Article IV of the Plan of Arrangement.
     “Effective Time” has the meaning ascribed thereto in the Plan of Arrangement.
     “Employee Plan” means, with respect to any Person, any “employee benefit plan,” asdefined in Section 3(3) of ERISA, and any stock purchase, stock option, stock appreciation, stockincentive, phantom stock, severance, termination, employment, change-in-control, retention,insurance (including self-insurance), split-dollar, health, medical, disability, sick pay, workerscompensation, supplemental unemployment, post-employment, pension, savings, retirement, profitsharing, vacation, fringe benefit, multiemployer, collective bargaining, bonus, incentive, deferredcompensation, loan and any other employee benefit plan, agreement, program, policy or otherarrangement (including any funding mechanism therefor now in effect or required in the future as aresult of the transactions contemplated by this Agreement or otherwise), whether or not subject toERISA, whether formal or informal.
     “Environmental Laws” means all Laws and Orders of any international, provincial,federal, state, local and any other Governmental Entity that relate to the

3


 

protection of the environment, protection of wildlife and/or wildlife habitat, protection ofcultural or historic resources, including those relating to reclamation, remediation or restorationof mineral or other properties, the natural environment or to the presence, use, production,generation, handling, transportation, treatment, storage, disposal, distribution, labeling,testing, processing, discharge, release, threatened release, control, or cleanup of any HazardousSubstances, or to the impact of Hazardous Substances on the environment, health or property.
     “Environmental Lien” means any Lien in favor of any Governmental Entity arising underEnvironmental Laws.
     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
     “ERISA Affiliate” means, with respect to any Person, any trade or business (whether ornot incorporated) which is a member of a controlled group or which is under common control withsuch Person within the meaning of Section 414 of the Code.
     “France Subsequent Acquisition Transaction” means the acquisition by Italy of thecommon shares of France held by Persons who have not accepted the Italy Bid in the mannercontemplated under the heading “Acquisition of France Shares Not Deposited” in the Italy BidCircular.
     “Final Order” means the final order of the Court approving the Arrangement, as suchorder may be amended or varied at any time prior to the Effective Time or, if appealed, then unlesssuch appeal is withdrawn or denied, as affirmed or as amended on appeal.
     “Governmental Entity” means any (a) multinational, federal, provincial, state,regional, municipal or other government, or governmental department, central bank, court, tribunal,arbitrator, commission, board, bureau or agency, whether U.S., Canadian, foreign or multinational,(b) subdivision, agent, commission, board or authority of any of the foregoing or(c) stock exchange, including the NYSE or TSX.
     “Hazardous Substance” means any chemical, material or substance in any form, whethersolid, liquid, gaseous, semisolid or any combination thereof, whether waste material, raw material,finished product, intermediate product, byproduct or any other material or article, that is listedor regulated under any applicable Environmental Laws as a hazardous substance, toxic substance,waste or contaminant or is otherwise listed or regulated under any applicable Environmental Lawsbecause it poses a hazard to human health or the environment, including petroleum products,asbestos, PCBs, urea formaldehyde foam insulation and lead-containing paints or coatings.

4


 

     “ICA” means the Investment Canada Act (Canada), as amended, and the regulationsthereunder.
     “ICA Approval” means the determination or deemed approval by the Minister responsiblefor the administration of the ICA that the transactions contemplated hereby are of “net benefit toCanada” pursuant to Part IV of the ICA.
     “In the Money Amount” in respect of a stock option at any time means the amount, ifany, by which the aggregate fair market value at that time of the securities subject to the optionexceeds the aggregate exercise price under the stock option.
     “Intellectual Property” means all federal, state, provincial, foreign andmultinational intellectual and industrial property rights, including without limitation, all(i) patents; (ii) copyrights; (iii) trademarks and service marks, thegoodwill of any business symbolized thereby, and all common-law rights relating thereto;(iv) trade secrets; and (v) all registrations, applications, and recordings relatedto the foregoing.
     “Interim Order” means the interim order of the Court, as the same may be amended inrespect of the Arrangement, as contemplated by Section 2.4.
     “ITA” means the Income Tax Act (Canada), as amended, and the regulations thereunder,as amended, in each case, except as otherwise provided herein, as of the date hereof.
     “Italy Bid” means the offer, as the same may be amended from time to time, by Italy toacquire all of the outstanding common shares of France as described in the Italy Bid Circular.
     “Italy Bid Circular” means the take-over bid circular of Italy dated October 24, 2005,as the same has been amended or varied and as the same may be amended or varied from time to time,relating to the Italy Bid.
     “Italy Dataroom” means the electronic dataroom relating to Italy to which Portugal hashad access prior to the date hereof.
     “Italy Employee Plan” means any Employee Plan under which (i) any current orformer director, officer, consultant or employee of Italy or any of its Subsidiaries (or any oftheir beneficiaries or dependants) has any present or future right to benefits and which iscontributed to, entered into, sponsored by or maintained by Italy, any of its Subsidiaries or anyof their ERISA Affiliates or (ii) Italy or any of its Subsidiaries has or reasonably would beexpected to have any present or future liability.
     “Italy Meeting” means the special meeting of holders of Italy Common Shares, includingany adjournment or postponement thereof, to be called and held in accordance

5


 

with the Interim Order to consider the Arrangement and other matters related to this Agreementand the Arrangement.
     “Italy Option Plans” means the stock option or incentive plans for directors, officersand employees of Italy and its Subsidiaries and other eligible persons (as applicable).
     “Italy Resolution” means the special resolution of the holders of the Italy CommonShares, to be substantially in the form of Exhibit A hereto.
     “Italy SAR” means a stock appreciation right included in an Italy Option andexercisable in lieu of (but not in addition to) such Italy Option.
     “knowledge” of Italy, means the actual knowledge of the Persons set forth in Section1.2 of the Italy Disclosure Schedule, and of Portugal, means the actual knowledge of the Personsset forth in Section 1.2 of the Portugal Disclosure Schedule.
     “Laws” means laws (including common law), statutes, rules, regulations, orders,ordinances, codes, treaties, and judicial, arbitral, administrative, ministerial or departmentaljudgments, awards or other requirements of any Governmental Entity.
     “Lien” means, with respect to any property, right or asset, any mortgage, lien,pledge, charge, security interest, purchase option, right of first offer or refusal, encumbrance orother adverse claim of any kind in respect of such property or asset.
     “Material Adverse Effect” means, with respect to each party, any fact, change, event,occurrence or effect (a) that is or would reasonably be expected to be materially adverse to thecondition (financial or otherwise), properties, assets, liabilities, obligations (whether absolute,accrued, conditional or otherwise), businesses, operations or results of operations of such party,its Subsidiaries and its material joint ventures, taken as a whole, other than any such fact,change, event, occurrence or effect relating to (i) the announcement of the execution of thisAgreement or the transactions contemplated hereby, including the consummation of the acquisition ofcommon shares of France as contemplated by the Support Agreement and this Agreement, the exerciseof dissent rights in connection with any subsequent acquisition transaction, and any divestituresor other actions required to obtain all necessary regulatory approvals relating thereto, (ii)changes, circumstances or conditions generally affecting the mining industry and not having amaterially disproportionate effect on such party, (iii) changes in general economic conditions inthe United States or Canada, (iv) changes in any of the principal markets served by such party’sbusiness generally or shortages or price changes with respect to raw materials, metals or otherproducts (including, but not limited to, nickel, copper, cobalt, molybdenum, any platinum-groupmetals, sulfur, sulphuric acid, electricity, zinc or aluminum) used or sold by that party, (v)changes in generally applicable Laws or regulations (other than orders, judgments or decreesagainst such

6


 

party, any of its Subsidiaries or any of its material joint ventures), or (vi) changes in USGAAP or Canadian GAAP or (b) that as of the date hereof is, or would reasonably be expectedto be, materially adverse to the ability of such party to consummate the transactions contemplatedby this Agreement; provided, however, that in no event shall (A) a change in the trading prices ofa party’s equity securities, or (B) any failure by a party, including France, to meet any internalor published projections, forecasts or revenue or synergy or earnings predictions (collectively“Estimates”) by itself, be deemed to constitute a Material Adverse Effect (it being understood thatthe foregoing shall not prevent a party from asserting that any fact, change, event, occurrence oreffect that may have contributed to such change in trading prices or Estimates independentlyconstitutes a Material Adverse Effect); it being understood and agreed that, after the consummationof the acquisition of common shares of France as contemplated by the Support Agreement and thisAgreement, for purposes of determining whether a Material Adverse Effect with respect to Italyshall have occurred, the financial condition, business and results of operations of Italy shall bedeemed to include the financial condition, business and results of operations of Italy, France andtheir collective Subsidiaries and material joint ventures, taken as a whole.
     “NYSE” means The New York Stock Exchange, Inc.
     “OBCA” means the Business Corporations Act (Ontario), as now in effect and as it maybe amended from time to time prior to the Effective Time.
     “Order” means any legally enforceable judgment, order, decision, writ, injunction,stipulation, ruling or decree of, or any settlement under jurisdiction of, any Governmental Entity.
     “OSC” means the Ontario Securities Commission.
     “Person” shall mean any individual, corporation (including any non-profitcorporation), general partnership, limited partnership, limited liability partnership, jointventure, estate, trust, company (including any limited liability company, unlimited liabilitycompany or joint stock company), firm or other enterprise, association, organization, entity orGovernmental Entity.
     “Plan of Arrangement” means, subject to Section 2.2(a), the plan of arrangement,substantially in the form of Exhibit B hereto as amended by any amendments or variations theretomade in accordance with Section 9.4 hereof or Article VII of the Plan of Arrangement or made at thedirection of the Court in the Final Order.
     “Portugal Charter Amendment” means the amendment and restatement of the certificate ofincorporation of Portugal so that, after giving effect thereto, the certificate of incorporation ofPortugal shall be substantially in the form set forth as Exhibit C.

7


 

     “Portugal Dataroom” means the electronic dataroom relating to Portugal to which Italyhas had access prior to the date hereof.
     “Portugal Employee Plan” means any Employee Plan under which (i) any currentor former director, officer, consultant or employee of Portugal or any of its Subsidiaries (or anyof their beneficiaries or dependants) has any present or future right to benefits and which iscontributed to, entered into, sponsored by or maintained by Portugal, any of its Subsidiaries orany of their ERISA Affiliates or (ii) Portugal or any of its Subsidiaries has or reasonablywould be expected to have any present or future liability.
     “Portugal Meeting” means the special meeting of holders of Portugal Common Shares,including any adjournment or postponement thereof, to be called to consider the Portugal CharterAmendment and the Portugal Share Issuance.
     “Portugal Share Issuance” means the issuance of Portugal Common Shares pursuant to theArrangement.
     “Proprietary Subject Matter” means: (i) all information (whether or notprotectable by patent, copyright, mask work or trade secret rights) not generally known to thepublic, including know-how and show-how, discoveries, processes, formulae, designs, methods,techniques, procedures, concepts, specifications, technical manuals and data, libraries,blueprints, drawings, product information, development work-in-process, inventions and tradesecrets; (ii) patentable subject matter, patented inventions and inventions subject topatent applications; (iii) industrial models and industrial designs; (iv) works ofauthorship, software and copyrightable subject matter; (v) mask works; and (vi)trademarks, trade names, service marks, brand names, corporate names, emblems, logos, trade dress,domain names, insignia and related marks.
     “Regulatory Approvals” means, with respect to a party, those Orders, sanctions,consents, exemptions, waivers, permits, agreements, certificates, authorizations and otherApprovals (including the lapse, without objection, of a prescribed time under a statute orregulation that states that a transaction may be implemented if a prescribed time lapses followingthe giving of notice without an objection being made) of Governmental Entities that are necessaryor advisable in connection with the transactions contemplated hereby, including, in the case ofItaly, those referred to in Section 3.5(b) hereof and, in the case of Portugal, those referred toin Section 4.5(b) hereof.
     “Securities Act (Ontario)” means the Securities Act (Ontario) and all rules andregulations enacted thereunder, as now in effect and as it may be amended from time to time priorto the Effective Time.
     “SEC” means the United States Securities and Exchange Commission.

8


 

     “Securities Laws” means the Securities Act (Ontario) and the equivalent legislation inthe other provinces and territories of Canada, the 1933 Act, and the 1934 Act, all as now enactedor as the same may from time to time be amended, and the applicable rules and regulationspromulgated thereunder.
     “Stock Award Exchange Ratio” means the sum of (i) the Share Exchange Ratio plus (ii)the fraction resulting from dividing the Per Share Cash Amount by the closing price of the PortugalCommon Shares on the NYSE on the last trading day immediately preceding the Closing Date expressedin Canadian dollars based upon the noon buying rate of the Bank of Canada on such date.
     “Subsidiary” shall mean, when used with reference to any party, any Person of whichsuch party (either alone or through or together with any other Subsidiary) either owns, directly orindirectly, fifty percent (50%) or more of the outstanding capital stock or other equity intereststhe holders of which are generally entitled to vote for the election of directors or members of anyother governing body of such Person or, in the case of a Person that is a partnership, is a generalpartner of such partnership, or any Person the accounts of which such party is required toconsolidate in its own financial statements under the generally accepted accounting principlesapplicable to such party.
     “Support Agreement” means the Support Agreement, dated October 10, 2005, between Italyand France, as amended from time to time (including pursuant to amendments dated January 12, 2006,February 20, 2006, March 21, 2006, May 13, 2006 and the date hereof).
     “TSX” means The Toronto Stock Exchange.
     1.2. Terms Defined in Other Sections. The following terms are defined elsewhere inthis Agreement in the following Sections:
     
Acquisition Proposal
  Section 5.3(j)
Approvals
  Section 3.1(a)
Canadian GAAP
  Section 3.7(b)
Change in Italy Recommendation
  Section 5.2(c)
Change in Portugal Recommendation
  Section 6.2(c)
Change in Recommendation
  Section 6.2(c)
Closing Date
  Section 2.5(a)
Collective Agreements
  Section 3.12(a)
Confidentiality Agreements
  Section 7.1(a)
Converted Portugal Option
  Section 2.1(c)
Converted Portugal Option Exercise Price
  Section 2.1(c)
DOJ
  Section 7.5
European Commission
  Section 7.5
Expenses
  Section 9.3(d)

9


 

     
France
  Recitals
France Condition
  Section 8.1(g)
FTC
  Section 7.5
HSR Act
  Section 3.5(b)
Indemnified Parties
  Section 7.6
Infringe
  Section 3.19
IRD
  Section 7.5
Italy
  Preamble
Italy Charter Documents
  Section 3.2
Italy Circular
  Section 5.2(b)
Italy Common Shares
  Section 3.3(a)
Italy Competing Proposal
  Section 9.3(d)
Italy Disclosure Schedule
  Article III
Italy Documents
  Section 3.7(a)
Italy Environmental Permits
  Section 3.18(c)
Italy Financial Statements
  Section 3.7(b)
Italy Insurance Policies
  Section 3.16
Italy Intellectual Property
  Section 3.19
Italy Options
  Section 3.3(a)
Italy Preferred Shares
  Section 3.3(a)
Italy Property
  Section 3.18(a)
Italy Restricted Shares
  Section 3.3(a)
Italy Returns
  Section 3.17(b)(i)
Italy Shareholder Approval
  Section 2.4(b)
Italy Termination Fee
  Section 9.3(d)
Italy-Used Proprietary Subject Matter
  Section 3.19
KEIP Plans
  Section 3.3(a)
LYON Notes
  Section 3.3(a)
Material Italy Contract
  Section 3.20
Material Portugal Contract
  Section 4.20
Permit
  Section 3.5(a)
Per Share Cash Amount
  Section 2.1(a)(ii)
Portugal
  Preamble
Portugal Canada
  Section 2.1(a)
Portugal Charter Documents
  Section 4.2
Portugal Competing Proposal
  Section 9.3(d)
Portugal Common Shares
  Section 4.3(a)
Portugal Disclosure Schedule
  Article IV
Portugal Environmental Permits
  Section 4.18(c)
Portugal Financial Statements
  Section 4.7(b)
Portugal Insurance Policies
  Section 4.16
Portugal Intellectual Property
  Section 4.19
Portugal Preferred Shares
  Section 4.3(a)

10


 

     
Portugal Property
  Section 4.18(a)
Portugal Proxy Statement
  Section 6.2(b)
Portugal Returns
  Section 4.17(a)(i)
Portugal SEC Reports
  Section 4.7(a)
Portugal Stockholder Approval
  Section 4.22
Portugal Termination Fee
  Section 9.3(d)
Portugal-Used Proprietary Subject Matter
  Section 4.19
Sarbanes-Oxley Act
  Section 3.7(c)
Share Exchange Ratio
  Section 2.1(a)(ii)
Shareholder Solicitations
  Section 7.2(a)
Superior Proposal
  Section 5.3(j)
Support Agreement Contracts
  Section 3.20(b)
Takeover Statute
  Section 7.7
Tax
  Section 3.17(a)
Tax Pools
  Section 3.17(b)(iv)
Termination Date
  Section 9.1(b)
US GAAP
  Section 4.7(b)
     1.3. Interpretation. When a reference is made in this Agreement to Exhibits, suchreference shall be to an Exhibit to this Agreement unless otherwise indicated. When a reference ismade in this Agreement to Sections, such reference shall be to a Section of this Agreement unlessotherwise indicated. Unless otherwise indicated, the words “include,” “includes” and “including”when used herein shall be deemed in each case to be followed by the words “without limitation.” Thetable of contents and headings contained in this Agreement are for reference purposes only andshall not affect in any way the meaning or interpretation of this Agreement. When reference ismade herein to “the business of” a Person, such reference shall be deemed to include the businessof such Person and all direct and indirect Subsidiaries of such Person taken as a whole. Referenceto the Subsidiaries of a Person shall be deemed to include all direct and indirect Subsidiaries ofsuch Person.
ARTICLE II
THE ARRANGEMENT
     2.1. The Arrangement. Subject to the terms hereof, at the Effective Time and as morefully set forth in the Plan of Arrangement:
     (a) A newly-formed, Canadian wholly-owned Subsidiary of Portugal (“PortugalCanada”) will acquire all outstanding Italy Common Shares; Italy and PortugalCanada will amalgamate; and each outstanding Italy Common Share (other than (x)Italy Common Shares held by a holder who has validly exercised its Dissent Rights or byPortugal or any Subsidiary of Portugal and (y) the Italy Restricted Shares) will beexchanged by the holder thereof for:

11


 

     (i) 0.672 Portugal Common Shares (the “Share Exchange Ratio”), plus
     (ii) Cdn.$17.50 in cash (the “Per Share Cash Amount”).
     (b) Each Italy Restricted Share granted under the KEIP Plans and outstandingimmediately prior to the Effective Time will be exchanged for the number of restrictedPortugal Common Shares (on the same terms and conditions as were applicable prior to theEffective Time to such award of Italy Restricted Shares pursuant to the relevant KEIP Planunder which such Italy Restricted Share was issued and the agreement evidencing the grantthereof) equal to the Stock Award Exchange Ratio.
     (c) Each Italy Option outstanding immediately prior to the Effective Time, whether ornot vested, shall be exchanged for a fully vested option granted by Portugal (a“Converted Portugal Option”) to acquire (on the same terms and conditions, otherthan vesting, as were applicable to such Italy Option pursuant to the relevant Italy OptionPlan under which it was issued and the agreement evidencing the grant thereof prior to theEffective Time) the number (rounded down to the nearest whole number) of Portugal CommonShares determined by multiplying (A) the number of Italy Common Shares subject to suchItaly Option immediately prior to the Effective Time by (B) the Stock Award Exchange Ratio.The exercise price per Portugal Common Share subject to any such Converted Portugal Option(the “Converted Portugal Option Exercise Price”) will be an amount (rounded up tothe nearest one hundredth of a cent) equal to the quotient of (A) the exercise price perItaly Common Share subject to such Italy Option immediately prior to the Effective Time and(B) the Stock Award Exchange Ratio, expressed in U.S. dollars based on the noon buying rateof the Bank of Canada on the last trading day immediately preceding the Closing Date;provided that the exercise price otherwise determined shall be increased to the extent, ifany, required to ensure that the In The Money Amount of the Converted Portugal Optionimmediately after the exchange is equal to the in the Money Amount of the correspondingItaly Option immediately before the exchange. The conversion mechanism set forth in thisSection 2.1(c) shall be adjusted to the extent required to comply with Section 409A of theCode and the rules, regulations and guidance promulgated thereunder, where applicable.
     (d) For greater certainty, if a particular Italy Option includes an Italy SAR, thecorresponding Converted Portugal Option will include a stock appreciation right subject tothe same terms and conditions (other than vesting) as were applicable to the Italy SARexcept that the stock appreciation right, which may be exercised in lieu of, but not inaddition to the Converted Portugal Option shall represent the right to receive, uponexercise (and consequent surrender of the Converted Portugal Option), (i) the number ofPortugal Common Shares (rounded

12


 

down to the nearest whole share) having an aggregate fair market value on the date ofexercise equal to the positive difference between (A) the aggregate fair market value ofthe Portugal Common Shares subject to the corresponding Converted Portugal Option and (B)the aggregate Converted Portugal Option exercise price, (ii) the equivalent amount of cash,or (iii) an equivalent combination thereof, as Portugal may determine in its solediscretion. The conversion mechanism in relation to the Italy SAR shall be adjusted asnecessary to the extent required to comply with section 409A of the Code and the rules,regulations and guidance promulgated thereunder, where applicable.
     2.2. Implementation Steps by Italy. Italy covenants in favor of Portugal that Italyshall:
     (a) subject to the terms of this Agreement and the preparation of a substantiallycomplete Italy Circular in accordance with Section 5.2 of this Agreement, as soon asreasonably practicable, apply in a manner reasonably acceptable to Portugal under Section192 of the CBCA for an order approving the Arrangement and for the Interim Order, andthereafter proceed with and diligently seek the Interim Order. Notwithstanding that thisAgreement contemplates that the Arrangement will be implemented under the CBCA, the partiesagree that the Arrangement may, if the parties consider it to be appropriate in thecircumstances, be effected under the OBCA with necessary modifications to the Plan ofArrangement and without any requirement to amend or otherwise modify this Agreement. Insuch event, at the option of Portugal, the Plan of Arrangement may be modified at any timeprior to the Italy Meeting to provide that the France Subsequent Acquisition Transactionshall be completed as part of the Arrangement;
     (b) subject to the terms of this Agreement and in accordance with the Interim Order,as soon as reasonably practicable, convene and hold the Italy Meeting for the purpose ofconsidering the Italy Resolution;
     (c) provided that Italy has taken up and paid for not less than 66?% of theoutstanding common shares of France pursuant to the Italy Bid, to use its reasonable bestefforts, in consultation and with the prior approval of Portugal, to complete a FranceSubsequent Acquisition Transaction as soon as practicable and in any event prior to theEffective Time;
     (d) subject to obtaining such approvals as are required by the Interim Order, proceedwith and diligently pursue the application to the Court for the Final Order; and
     (e) subject to obtaining the Final Order and the satisfaction or waiver of the otherconditions herein contained in favor of each party, send to the

13


 

Director, for endorsement and filing by the Director, the Articles of Arrangement andsuch other documents as may be required in connection therewith under the CBCA to giveeffect to the Arrangement.
     2.3. Implementation Steps by Portugal. Portugal covenants in favor of Italy that:
     (a) subject to the terms of this Agreement, Portugal shall, as soon as reasonablypracticable, convene and hold the Portugal Meeting for the purpose of considering thePortugal Share Issuance and the Portugal Charter Amendment;
     (b) subject to obtaining the Final Order and the satisfaction or waiver of the otherconditions herein contained in favor of each party, on the Closing Date and prior to theEffective Time, Portugal shall file the restated certificate of incorporation of Portugal,in the form set forth in Exhibit C hereto, with the Secretary of State of the State of NewYork.
     2.4. Interim Order. The notice of motion for the application referred to in Section2.2(a) shall request that the Interim Order provide:
     (a) for the class of Persons to whom notice is to be provided in respect of theArrangement and the Italy Meeting and for the manner in which such notice is to beprovided;
     (b) that, subject to the approval of the Court, the requisite approval for the ItalyResolution shall be 66 2/3% of the votes cast on the Italy Resolution by holders of ItalyCommon Shares present in person or by proxy at the Italy Meeting (the “ItalyShareholder Approval”);
     (c) that, in all other respects, the terms, restrictions and conditions of the ItalyCharter Documents, including quorum requirements and all other matters, shall apply inrespect of the Italy Meeting;
     (d) for the grant of the Dissent Rights; and
     (e) for the notice requirements with respect to the presentation of the application tothe Court for a Final Order.
     2.5. Closing.
     (a) The closing of the transactions contemplated hereby will take place at 8:00 am, EasternTime, at the offices of Debevoise & Plimpton LLP, 919 Third Avenue, New York, NY 10022, on thesecond business day after the satisfaction or waiver (subject to applicable Laws) of the conditionsset forth in Article VIII (excluding conditions that, by their terms, cannot be satisfied until theClosing Date, but subject to the satisfaction or, where permitted, waiver of those conditions as ofthe Closing Date), or such other date,

14


 

time and place as is agreed to in writing by the parties hereto (such date, the “ClosingDate”).
     (b) On the Closing Date, the Articles of Arrangement shall be filed with the Director. TheArticles of Arrangement shall implement the Plan of Arrangement.
     (c) At the Effective Time, each Italy Common Share outstanding immediately prior to theEffective Time will be exchanged or converted, as provided in the Plan of Arrangement, and theArrangement will, from and after the Effective Time, have all of the effects provided by applicableLaws, including the CBCA.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ITALY
     Italy represents and warrants to Portugal, subject to such exceptions as are specificallydisclosed in writing in the disclosure schedule (arranged in sections and subsections correspondingto the numbered and lettered sections and subsections contained in this Article III with thedisclosures in any section or subsection of such schedule qualifying the corresponding section orsubsection in this Article III, as well as any other section or subsection of this Article III ifthe relevance of the disclosed item to such other section or subsection is reasonably apparent onits face) supplied by Italy to Portugal dated as of the date hereof (the “Italy DisclosureSchedule”), as follows:
     3.1. Organization and Qualification; Subsidiaries.
     (a) Each of Italy and its Subsidiaries that is a corporation or other legal entity is dulyorganized, validly existing and in good standing under the Laws of the jurisdiction of itsincorporation and has the requisite corporate, partnership or similar power and authority to own,lease and operate its assets and properties and to carry on its business as now conducted, exceptwhere the failure to do so has not had and would not reasonably be expected to have, individuallyor in the aggregate, a Material Adverse Effect with respect to Italy. Each of Italy and itsSubsidiaries is in possession of all franchises, grants, qualifications, authorizations, licenses,permits, easements, consents, certificates, approvals and orders (“Approvals”) from allGovernmental Entities necessary to own, lease and operate the properties it purports to own,operate or lease and to lawfully carry on its business as now conducted, except where the failureto have such Approvals has not had and would not reasonably be expected to have, individually or inthe aggregate, a Material Adverse Effect with respect to Italy.
     (b) Italy has no material Subsidiaries except as Disclosed to Portugal prior to the datehereof.

15


 

     (c) Except as Disclosed Publicly by Italy or as Disclosed to Portugal, all of the outstandingcapital stock of, or other equity securities or ownership interests in, each Subsidiary of Italy,is owned by Italy, directly or indirectly, free and clear of any Lien and free of any otherlimitation or restriction (including any restriction on the right to vote, sell or otherwisedispose of such capital stock or other equity securities or ownership interests). Except asDisclosed Publicly by Italy or as Disclosed to Portugal, there are no outstanding (i)securities of Italy or its Subsidiaries convertible into or exchangeable for capital or equitysecurities or ownership interests in any Subsidiary of Italy or (ii) except for employee ordirector stock options issued pursuant to Italy’s stock option plans, options or other rights toacquire from Italy or any of its Subsidiaries, or other obligation of Italy or any of itsSubsidiaries to issue, any capital stock or other equity securities or ownership interests in, orany securities convertible into or exchangeable for any capital stock or other equity securities orownership interests in, any Subsidiary of Italy. Except as Disclosed Publicly by Italy or asDisclosed to Portugal, there are no outstanding obligations of Italy or any of its Subsidiaries torepurchase, redeem or otherwise acquire any of the items referred to in clauses (i) and (ii) above.
     (d) Except as Disclosed Publicly by Italy or as Disclosed to Portugal, neither Italy nor anyof its Subsidiaries has agreed nor is it obligated to make nor is it bound by any Contract underwhich it may become obligated to acquire any material equity interest or investment in, or make anymaterial capital contribution to, any Person (other than a wholly-owned Subsidiary of Italy).Except as Disclosed Publicly by Italy or as Disclosed to Portugal, neither Italy nor any of itsSubsidiaries directly or indirectly owns any material interest or investment (whether equity ordebt) nor has any rights to acquire any material interest or investment in any Person (other than aSubsidiary of Italy).
     (e) Italy and each of its Subsidiaries that is a corporation or other legal entity is dulyqualified to do business as a foreign corporation or other foreign legal entity, and is in goodstanding, under the Laws of all jurisdictions where the nature of its business requires suchqualification, except for those jurisdictions where the failure to be so qualified, individually orin the aggregate, has not had and would not be reasonably expected to have, individually or in theaggregate, a Material Adverse Effect with respect to Italy.
     3.2. Articles of Incorporation and Bylaws. Italy has Disclosed to Portugal completeand correct copies of its Articles of Incorporation and Bylaws or other similar organizationaldocuments (together, the “Italy Charter Documents”), as amended to date. Such ItalyCharter Documents, as so amended, and the equivalent organizational documents of each of itsSubsidiaries, are in full force and effect. Italy is not in violation of any of the provisions ofthe Italy Charter Documents, and no material Subsidiary of Italy is in violation of any of itsorganizational documents.

16


 

     3.3. Capitalization.
     (a) The authorized capital of Italy consists of (i) an unlimited number of commonshares, without par value (the “Italy Common Shares”), and (ii) 45,000,000preferred shares issuable in series (the “Italy Preferred Shares”). As of June 16, 2006,198,755,104 Italy Common Shares, including 155,931 restricted Italy Common Shares in respect ofwhich the restriction period has not expired (the “Italy Restricted Shares”) awardedpursuant to Italy’s 2001 Key Executive Incentive Plan and 2005 Key Executive Incentive Plan (the“KEIP Plans”), are outstanding and no Italy Preferred Shares are outstanding. As of June16, 2006, options to acquire an aggregate of 1,780,539 Italy Common Shares (the “ItalyOptions”) and 715,300 Italy SARs are outstanding under the Italy Option Plans. In addition,Italy has issued and there are outstanding as of June 16, 2006: (i) liquid yield option notesrepresenting an aggregate amount payable at maturity of U.S. $178,908,000, which are due andpayable on March 29, 2021 (the “LYON Notes”), which are convertible into an aggregate of4,750,544 Italy Common Shares; (ii) subordinated convertible debentures due on March 14, 2052,which are convertible into an aggregate of 8,670,469 Italy Common Shares with U.S. $225,545,000amount payable at maturity; and (iii) U.S. $176,579,000 aggregate principal amount of convertibledebentures due on March 14, 2023, which are convertible into an aggregate of 5,639,121 Italy CommonShares. Italy has also issued warrants for the purchase of Italy Common Shares at an exerciseprice of Cdn. $30, expiring on August 21, 2006, of which 10,770,964 warrants remain outstanding asof June 16, 2006. As of the date hereof, no shares of capital stock of Italy are held by anySubsidiary of Italy or in treasury by Italy. All issued and outstanding shares of capital stock ofItaly have been duly authorized and validly issued and are fully paid and nonassessable.
     (b) Except as Publicly Disclosed by Italy or as Disclosed to Portugal or as set forth inSection 3.3(a), there are no subscriptions, options, warrants, phantom shares, stock units, stockappreciation rights, other equity-based awards, equity securities, partnership interests,conversion privileges or similar ownership interests, calls, rights (including preemptive rights)or Contracts of any character to which Italy or any of its Subsidiaries is a party or by which itis bound obligating Italy or any of its Subsidiaries to issue, deliver or sell, or cause to beissued, delivered or sold, or to repurchase, redeem or otherwise acquire, or cause the repurchase,redemption or acquisition of, any equity securities, partnership interests or similar ownershipinterests of Italy or any of its Subsidiaries, or obligating Italy or any of its Subsidiaries togrant, extend, accelerate the vesting of or enter into any such subscription, option, warrant,phantom share, stock unit, stock appreciation right, other equity-based award, equity security,call, right, commitment or agreement. Except as Disclosed to Portugal or as set forth in Section3.3(a), there are no outstanding bonds, debentures, or other evidences of indebtedness of Italy orany Subsidiary thereof having the right to vote (or that are convertible for or exercisable intosecurities having the right to vote) with the holders of Italy Common Shares on any matter. Exceptas Disclosed to Portugal or as contemplated by this

17


 

Agreement, there is no voting trust, proxy, registration rights agreement, rights plan,anti-takeover plan or other Contract or understanding to which Italy or any of its Subsidiaries isa party or by which it is bound with respect to any equity security of any class of Italy or withrespect to any equity security, partnership interest or similar ownership interest of any class ofany of its Subsidiaries.
     3.4. Authority Relative to this Agreement.
     (a) Italy has all necessary corporate power and authority to execute and deliver thisAgreement and to perform its obligations hereunder and, subject to the receipt of the ItalyShareholder Approval, the Interim Order and the Final Order, to consummate the transactionscontemplated hereby and thereby. The execution, delivery and performance by Italy of thisAgreement and the consummation by Italy of the transactions contemplated hereby have been duly andvalidly authorized by all necessary corporate action on the part of Italy, and no other corporateproceedings on the part of Italy are necessary to authorize this Agreement, or to consummate thetransactions so contemplated, other than the Italy Shareholder Approval, the Interim Order and theFinal Order. This Agreement has been duly and validly executed and delivered by Italy and,assuming the due authorization, execution and delivery by Portugal, constitutes a valid, legal andbinding obligation of Italy, enforceable against Italy in accordance with its terms, except that(i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization,moratorium or other similar Laws, now or hereafter in effect, affecting creditors’ rightsgenerally, (ii) the remedy of specific performance and injunctive and other forms ofequitable relief may be subject to equitable defenses and to the discretion of the court beforewhich any proceeding may be brought and (iii) the Currency Act (Canada) precludes a courtin Canada from rendering judgment in any currency other than Canadian currency.
     (b) At a meeting duly called and held, Italy’s board of directors has unanimously: (i)determined that this Agreement and the transactions contemplated hereby (including the Arrangement)are fair to the holders of the Italy Common Shares and in the best interests of Italy; (ii)authorized and approved this Agreement and the transactions contemplated hereby (including theArrangement); and (iii) resolved to recommend approval and adoption of the Arrangement byits shareholders at the Italy Meeting.
     3.5. No Conflict; Required Filings and Consents.
     (a) The execution, delivery and performance by Italy of this Agreement and the consummation byItaly of the transactions contemplated hereby do not and will not, subject to obtaining the ItalyShareholder Approval and receipt of the Approvals referred to in Section 3.5(b) below, (i)contravene, conflict with or result in a violation or breach of any provision of the Italy CharterDocuments or the equivalent organizational documents of any of Italy’s material Subsidiaries,(ii) contravene, conflict with or result

18


 

in a violation or breach of any provisions of any Law applicable to Italy or any of itsSubsidiaries or by which its or any of their respective properties is bound or affected,(iii) require any consent or other action by any Person under, constitute a default (or anevent that, with or without notice or lapse of time or both, would constitute a default) under, orcause or permit the termination, amendment, acceleration, triggering or cancellation or otherchange of any right or obligation or the loss of any benefit to which Italy or any of itsSubsidiaries is entitled under (A) any provision of any Contract or other instrumentbinding upon Italy or any of its Subsidiaries or (B) any license, permit, franchise,certificate, approval or other similar authorization (a “Permit”) held by, or affecting, orrelating in any way to, the assets or business of, Italy or any of its Subsidiaries, or(iv) result in the creation or imposition of any Lien on any asset of Italy or any of itsSubsidiaries, other than such exceptions in the case of clause (ii), (iii) or (iv) as would not,individually or in the aggregate, reasonably be expected to have a Material Adverse Effect withrespect to Italy.
     (b) The execution, delivery and performance by Italy of this Agreement and the consummation byItaly of the transactions contemplated hereby do not, and shall not, require any Approval, actionby or in respect of, filing with or notification to, any Governmental Entity, to be made orobtained by Italy or its Subsidiaries, except for (A) the Competition Act Approval, (B) thecompliance with any applicable requirements of the United States Hart-Scott-Rodino AntitrustImprovements Act of 1976, as amended, and the rules and regulations thereunder (the “HSRAct”), including pre-merger notification requirements, (C) compliance with anyapplicable requirements of Council Regulation (EC) 139/2004 of 20 January 2004 on the control ofconcentrations between undertakings; (D) any other applicable competition, merger control,antitrust or similar Law of foreign Governmental Entities, (E) the filing with the CanadianSecurities Regulatory Authorities and the mailing to the shareholders of Italy of the ItalyCircular, (F) such other filings, authorizations, decisions or orders as may be required bythe rules and regulations of the TSX or NYSE, (G) the Interim Order, the Final Order andany approvals required by the Interim Order, the Final Order or filings with the Director under theCBCA and (H) any other Approvals or Permits, which, if not obtained, would not,individually or in the aggregate, reasonably be expected to have a Material Adverse Effect withrespect to Italy.
     3.6. Compliance; Permits.
     (a) Each of Italy and its Subsidiaries is, and at all times since January 1, 2004 has been, incompliance with all Laws and Orders applicable to it or by which its properties are bound oraffected, other than non-compliance matters that have not had and would not, individually or in theaggregate, reasonably be expected to have a Material Adverse Effect with respect to Italy.
     (b) Neither Italy nor any of its Subsidiaries is in default or violation of (i) anyLaw or Order applicable to Italy or any of its Subsidiaries or by which its or any of their

19


 

respective properties is bound or affected, or (ii) any material Contract, Permit orother instrument or obligation to which Italy or any of its Subsidiaries is a party or by whichItaly or any of its Subsidiaries or its or any of their respective properties is bound or affected;except, in each case, for any conflicts, defaults or violations that have not had and would not,individually or in the aggregate, reasonably be expected to have a Material Adverse Effect withrespect to Italy. To the knowledge of Italy, no investigation or review by any Governmental Entityis pending or threatened against Italy or its Subsidiaries, other than, in each such case, thosethe outcome of which have not had and would not, individually or in the aggregate, reasonably beexpected to have a Material Adverse Effect with respect to Italy.
     (c) Since January 1, 2004 Italy has complied in all material respects with the applicablelisting and corporate governance rules and regulations of the TSX and NYSE.
     (d) Each of Italy and its Subsidiaries owns, possesses or has obtained, and is in compliancewith, all Permits of or from any Governmental Entity necessary to conduct its business as nowconducted, except for such failures which have not had and would not, individually or in theaggregate, reasonably be expected to have a Material Adverse Effect with respect to Italy.
     3.7. Reports; Financial Statements.
     (a) Since January 1, 2004, Italy has filed with the Canadian Securities RegulatoryAuthorities, the SEC, the TSX and the NYSE the forms, reports and documents, including financialstatements, annual information forms, material change reports and management proxy circularsrequired to be filed by Italy under applicable Securities Laws, including but not limited to alldocuments relating to the transactions contemplated by the Support Agreement (collectively, the“Italy Documents”). The Italy Documents, at the time filed (or if amended or superseded bya filing prior to the date of this Agreement, then on the date of such filing), complied in allmaterial respects with the requirements of applicable Securities Laws and did not contain anymisrepresentation (as defined in the Securities Act (Ontario)) or any untrue statement of amaterial fact or omit to state a material fact required to be stated therein or necessary in orderto make the statements therein, in light of the circumstances under which they were made, notmisleading. Italy has not filed any confidential material change report with the CanadianSecurities Regulatory Authorities or any other securities authority or regulator or any stockexchange or other self-regulatory authority which as of the date hereof remains confidential. Noneof Italy’s Subsidiaries is required to file any reports or other documents with any of the CanadianSecurities Regulatory Authorities, the SEC, the TSX or the NYSE.
     (b) The annual audited consolidated financial statements and the quarterly unauditedconsolidated financial statements (including in each case, any related notes thereto) contained inthe Italy Documents (the “Italy Financial Statements”) complied as

20


 

to form in all material respects with the published rules and regulations of applicableGovernmental Entities, the Canadian Securities Regulatory Authorities, the SEC, the TSX and theNYSE with respect thereto as of their respective dates, and have been prepared in accordance withCanadian generally accepted accounting principles (“Canadian GAAP”) applied on a basisconsistent throughout the periods indicated and consistent with each other (except as may beindicated in the notes thereto). The Italy Financial Statements present fairly, in all materialrespects, the consolidated financial position, results of operations and cash flows of Italy andits Subsidiaries as of the dates and for the periods indicated therein (subject, in the case ofunaudited statements, to normal, recurring year-end adjustments that are not expected to bematerial in amount and the absence of notes thereto) on a consolidated basis.
     (c) Since the enactment of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”),Italy has been and is in compliance in all material respects with the applicable provisions of theSarbanes-Oxley Act (including, without limitation, Section 402 thereof) and the rules andregulations promulgated thereunder.
     (d) The books and records of Italy and its Subsidiaries, in all material respects, (i)have been maintained in accordance with good business practices on a basis consistent with prioryears, (ii) state in reasonable detail the material transactions and dispositions of theassets of Italy and its Subsidiaries and (iii) accurately and fairly reflect the basis forthe Italy Financial Statements. Italy has (i) designed and maintains disclosure controlsand procedures to ensure that material information relating to Italy and its Subsidiaries is madeknown to management of Italy by others within those entities to allow timely decisions regardingrequired disclosure, and (ii) designed and maintains a system of internal controls overfinancial reporting sufficient to provide reasonable assurances regarding the reliability offinancial reporting and the preparation of financial statements, including that (A)transactions are executed in accordance with management’s general or specific authorization;(B) transactions are recorded as necessary (x) to permit preparation ofconsolidated financial statements in conformity with Canadian GAAP and (y) to maintainaccountability of the assets of Italy and its Subsidiaries; (C) access to assets ispermitted only in accordance with management’s general or specific authorization; and (D)the recorded accountability of assets is compared with the existing assets at reasonable intervalsand appropriate action is taken with respect to any differences. The management of Italy hasdisclosed, based on its most recent evaluation, to Italy’s auditors and the audit committee ofItaly’s board of directors (i) all significant deficiencies in the design or operation ofinternal controls which could adversely affect Italy’s ability to record, process, summarize andreport financial data and have identified for Italy’s auditors any material weaknesses in internalcontrols and (ii) any fraud, whether or not material, that involves management or otheremployees who have a significant role in Italy’s internal controls.

21


 

     (e) To the knowledge of Italy, as of the date hereof, Italy has not identified any materialweaknesses in the design or operation of its internal controls over financial reporting. To theknowledge of Italy, there is no reason to believe that its auditors and its chief executive officerand chief financial officer will not be able to give the certifications and attestations requiredpursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act,when first due.
     (f) PricewaterhouseCoopers LLP are and were at all times during the audit engagement periodwith Italy (i) independent registered public accountants with respect to Italy and its Subsidiariesin accordance with the applicable rules and regulations thereunder adopted by the SEC and thePublic Company Accounting Oversight Board and (ii) a “participating audit firm” within the meaningof National Instrument 52-108 – Auditor Oversight of the Canadian Securities Administrators and incompliance with any restrictions or sanctions imposed by the “Canadian Public AccountabilityBoard”.
     (g) No attorney representing Italy or any of its Subsidiaries, whether or not employed byItaly or any of its Subsidiaries, has reported evidence of a violation of any Securities Laws,breach of fiduciary duty or similar violation by Italy or any of its Subsidiaries or theirrespective officers, directors, employees or agents to Italy’s chief legal officer, audit committee(or other committee designated for the purpose) of the board of directors or the board ofdirectors.
     (h) None of the information to be supplied by Italy or its Affiliates in writing specificallyfor use in the Portugal Proxy Statement will, at the time of the mailing of the Portugal ProxyStatement and any amendments or supplements thereto, and at the time of the Portugal Meeting,contain any untrue statement of a material fact or omit to state any material fact required to bestated therein or necessary in order to make the statements therein, in the light of thecircumstances under which they are made, not misleading.
     (i) None of the information to be included in or incorporated by reference into the ItalyCircular (other than information supplied in writing by Portugal specifically for use therein)will, at the time of the mailing of the Italy Circular and any amendments or supplements thereto,and at the time of the Italy Meeting, contain any untrue statement of a material fact or omit tostate any material fact required to be stated therein or necessary in order to make the statementstherein, in the light of the circumstances under which they are made, not misleading.
     3.8. No Undisclosed Liabilities. Except as Disclosed to Portugal, neither Italy norany of its Subsidiaries has any liabilities (absolute, accrued, contingent, determined,determinable or otherwise) or obligations, in each case, of the type that would be required to bedisclosed on a consolidated balance sheet of Italy (or the notes thereto) and there is no existingcondition, situation or set of circumstances that could be reasonably expected to result in such aliability or obligation, except (i) liabilities or obligations fully reflected or reservedagainst in Italy’s balance sheet as of December 31, 2005 (or the notes

22


 

thereto), included in the Italy Financial Statements, (ii) liabilities or obligationsdisclosed in any Italy Document filed after December 31, 2005 and prior to the date of thisAgreement, (iii) liabilities incurred since December 31, 2005 in the ordinary course ofbusiness consistent with past practice, (iv) obligations arising pursuant to the terms ofthe Contracts disclosed in Section 3.20 (or not required to be so disclosed) or (v)liabilities or obligations that have not had and would not, individually or in the aggregate,reasonably be expected to have a Material Adverse Effect with respect to Italy.
     3.9. Absence of Certain Changes or Events. Since December 31, 2005, the business ofItaly and its Subsidiaries has been conducted in the ordinary course consistent with past practicesand except as Disclosed Publicly by Italy there has not been (i) any event, occurrence ordevelopment of a state of circumstances or facts which has had or would, individually or in theaggregate, reasonably be expected to have any Material Adverse Effect with respect to Italy,(ii) any material revaluation by Italy of any of its assets, including, without limitation,writing down the value of capitalized inventory or writing off notes or accounts receivable or anymaterial sale of assets of Italy other than in the ordinary course of business, (iii) anymaterial damage, destruction or loss (whether or not covered by insurance) with respect to anymaterial assets of Italy or its Subsidiaries, (iv) any Material Italy Contract cancelled,terminated, or materially adversely modified that would reasonably be expected to have a MaterialAdverse Effect with respect to Italy or (v) any event or action that if taken after thedate hereof would be prohibited by Section 5.1 hereof.
     3.10. Absence of Litigation. Except as Disclosed Publicly by Italy or as Disclosedto Portugal, (a) there is no Action that has been commenced or, to the knowledge of Italy,threatened against or affecting Italy or any Subsidiary thereof or any of their respectiveproperties, rights or assets before any Governmental Entity which, if determined adversely withrespect to Italy, would, individually or in the aggregate, reasonably be expected to have aMaterial Adverse Effect on Italy; and (b) neither Italy nor any Subsidiary thereof, nor anyof their respective properties, rights or assets, is subject to any outstanding Order that has hador would, individually or in the aggregate, reasonably be expected to have a Material AdverseEffect with respect to Italy.
     3.11. Employee Plans.
     (a) Italy and each Subsidiary thereof has complied, in all material respects, with all theterms of, and all applicable Laws in respect of, each Italy Employee Plan, and has made all fundingcontributions required under applicable Law to be made to such Italy Employee Plans. All ItalyEmployee Plans are in good standing in all material respects under applicable Law. Italy hasDisclosed to Portugal copies of all material Italy Employee Plans (and in the case of any materialItaly Employee Plan that is not written, a written description of such plan or board of directorsor compensation committee resolution providing for such plan).

23


 

     (b) Each Italy Employee Plan intended to be tax qualified under the Code has been the subjectof determination letters from the U.S. Internal Revenue Service to the effect that such plans arequalified and exempt from Federal income taxes under Sections 401(a) and 501(a), respectively, ofthe Code. Each Italy Employee Plan intended to be tax qualified under the ITA has been established,registered and operated in accordance with the applicable requirements of the ITA and otherapplicable Law. No step has been taken, no event has occurred and no condition or circumstanceexists that has resulted or could reasonably be expected to result in any Italy Employee Plan beingordered or required to be terminated or wound up in whole or in part or having its taxqualification or registration under applicable Law refused or revoked, or being placed under theadministration of any trustee or receiver or regulatory authority or being required to pay anymaterial Taxes, fees, penalties or levies under applicable Laws. There are no actions, suits,claims (other than routine claims for payment of benefits in the ordinary course), trials, demands,investigations, arbitrations, or other proceedings which are pending or threatened in respect ofany of the Italy Employee Plans or their assets which individually or in the aggregate would have aMaterial Adverse Effect with respect to Italy.
     (c) No event has occurred or condition exists with respect to any of the Italy Employee Plansor relating to any current or former employee of Italy or any Subsidiary thereof (or any of theirbeneficiaries or dependants) which, individually or in the aggregate, is reasonably likely toresult in a Material Adverse Effect with respect to Italy.
     (d) Except as Disclosed Publicly by Italy or as Disclosed to Portugal, the consummation of thetransactions contemplated by this Agreement will not by itself entitle any employee or anyindependent contractor of Italy or any Subsidiary thereof to severance or similar pay or acceleratethe time of payment or vesting or trigger any payment of funding (through a grantor trust orotherwise) or compensation or benefits under, increase the amount payable or trigger any othermaterial obligation pursuant to, any Italy Employee Plan.
     (e) The consummation of the transactions contemplated by this Agreement will not (either aloneor upon the occurrence of additional acts or events) result in any payment under any Italy EmployeePlan that would constitute an “excess parachute payment” for purposes of Section 280G or 4999 ofthe Code.
     3.12. Labor Matters.
     (a) Italy has Disclosed to Portugal copies of all collective agreements (“CollectiveAgreements”) to which Italy or any Subsidiary thereof is a party. To the knowledge of Italy,there are no threatened or apparent union organizing activities involving employees of Italy or anySubsidiary thereof that are not already covered by a Collective Agreement that would have aMaterial Adverse Effect with respect to Italy. Neither Italy nor any Subsidiary thereof is inmaterial violation of any provision under

24


 

any Collective Agreement. There is no strike or lock out occurring or, to the knowledge ofItaly, threatened affecting Italy or any Subsidiary thereof that would have a Material AdverseEffect with respect to Italy.
     (b) Neither Italy nor any Subsidiary thereof is subject to any claim for wrongful dismissal,constructive dismissal or any other tort claim, actual or threatened, or any litigation, actual orthreatened, relating to its employees or independent contractors (including any termination of suchpersons) other than those claims or such litigation as would not individually or in the aggregatehave a Material Adverse Effect with respect to Italy. Italy and each Subsidiary thereof hasoperated in material compliance with all applicable Laws with respect to employment and labor,including, but not limited to, employment and labor standards, occupational health and/or safety,employment equity, pay equity, workers’ compensation, human rights and labor relations and thereare no current, pending or threatened proceedings before any board or tribunal with respect to anyof the areas listed herein other than where the failure to so operate, or for such proceedingswhich individually or in the aggregate, would not have a Material Adverse Effect with respect toItaly. Italy and each Subsidiary thereof has operated in material compliance with the NationalLabor Relations Act (U.S.) as amended, and the rules and regulations promulgated thereunder, theLabour Relations Act, 1995 (Ontario), and the rules and regulations promulgated thereunder and anyand all similar Laws.
     (c) Each of Italy and its Subsidiaries is in compliance with all applicable Laws coveringoccupational health and/or safety, including the Occupational Health and Safety Act (Ontario), asamended, and the regulations promulgated thereunder, and the Workplace Safety and Insurance Act,1977 (Ontario) as amended and any regulations promulgated thereunder, except for any non-compliancethat would not reasonably be expected to have a Material Adverse Effect with respect to Italy.
     3.13. Property and Title. Applying customary standards in the Canadian miningindustry, each of Italy, its Subsidiaries and its material joint ventures has, to the extentnecessary to permit the operation of their respective businesses as presently conducted: (a)sufficient title, clear of any title defect or Lien (other than as Disclosed to Portugal orDisclosed Publicly by Italy) to its operating properties and properties with estimated proven andprobable mineral reserves and/or estimated mineral resources (other than property to which it islessee, in which case it has a valid leasehold interest) and (b) good and sufficient title to thereal property interests including, without limitation, fee simple estate of and in real property,leases, easements, rights of way, permits, mining claims, concessions or licenses from landownersor authorities permitting the use of land by Italy, its Subsidiaries and its material jointventures (other than as Disclosed Publicly by Italy). Italy, its Subsidiaries and its materialjoint ventures hold all mineral rights required to continue their respective businesses andoperations as currently conducted and as proposed to be conducted as Disclosed Publicly by Italy,except to the extent that a failure to do so would not constitute a Material Adverse Effect withrespect to Italy.

25


 

Except for such failures of title or liens and royalty burdens that would, individually or inthe aggregate, not have a Material Adverse Effect with respect to Italy, (x) all mineral rightsheld by Italy, its Subsidiaries and its material joint ventures are free and clear of all Liens androyalty burdens (other than as Disclosed Publicly by Italy), and (y) none of such mineral rightsare subject to reduction by reference to mine payout or otherwise except for those created in theordinary course of business and which would not have a Material Adverse Effect with respect toItaly.
     3.14. Mineral Reserves and Resources. The estimated proven and probable mineralreserves and estimated, indicated, measured and inferred mineral resources disclosed in the ItalyDocuments as of December 31, 2005 have been prepared and disclosed in all material respects inaccordance with all applicable Laws. There has been no material reduction (other than as a resultof operations in the ordinary course of business) in the aggregate amount of estimated mineralreserves and estimated mineral resources of Italy, its Subsidiaries and its material jointventures, taken as a whole, from the amounts Disclosed Publicly by Italy.
     3.15. Operational Matters. Except as would not, individually or in the aggregate,reasonably be expected to have a Material Adverse Effect with respect to Italy:
     (a) all rentals, royalties, overriding royalty interests, production payments, netprofits, interest burdens and other payments due or payable on or prior to the date hereofunder or with respect to the direct or indirect assets of Italy, its Subsidiaries and itsmaterial joint ventures have been properly and timely paid;
     (b) all rentals, payments, and obligations due and payable or performable on or priorto the date hereof under or on account of any of the direct or indirect assets of Italy,its Subsidiaries and its material joint ventures have been duly paid, performed, orprovided for prior to the date hereof;
     (c) all (i) mines where Italy or a Subsidiary of Italy is operator at therelevant time have been developed and operated in accordance with good mining practices andin compliance with all then-applicable Laws, and (ii) mines located in or on thelands of Italy, any Subsidiary or material joint venture of Italy, or lands pooled orunitized therewith, which have been abandoned by Italy or any Subsidiary or material jointventure of Italy, have been developed, managed, and abandoned in accordance with goodmining practices and in compliance with all applicable Laws, and (iii) all futureabandonment, remediation and reclamation obligations have been accurately DisclosedPublicly by Italy without omission of information necessary to make the disclosure notmisleading, and (iv) all costs, expenses, and liabilities payable on or prior tothe date hereof under the terms of any Material Italy Contract have been properly andtimely paid, except for such

26


 

expenses that are being currently paid prior to delinquency in the ordinary course ofbusiness.
     3.16. Insurance. Italy maintains insurance policies covering the assets, business,equipment, properties, operations, employees, officers and directors of Italy and its Subsidiaries(collectively, the “Italy Insurance Policies”) which are of the type and in amounts whichit believes are reasonably appropriate to conduct its business. To Italy’s knowledge, there is nomaterial claim by Italy or any of its Subsidiaries pending under any of the material ItalyInsurance Policies as to which coverage has been questioned, denied or disputed by the underwritersof such policies or bonds that would have a Material Adverse Effect with respect to Italy.
     3.17. Taxes.
     (a) Definition of Taxes. For the purposes of this Agreement, “Tax” and“Taxes” means any and all taxes, charges, fees, levies or other assessments imposed byLaws, including all income taxes (including any tax on or based upon net income, gross income,income as specially defined, earnings, profits or selected items of income) and all capital taxes,mining taxes, gross receipts taxes, environmental taxes, profits taxes, disability taxes,registration taxes, sales taxes, use taxes, ad valorem taxes, value added taxes, transfer taxes,franchise taxes, license taxes, development taxes, education taxes, business taxes, social servicestaxes, surtaxes, land transfer taxes, harmonized sales taxes, withholding taxes or otherwithholding obligations, net worth taxes, recording taxes, capital stock taxes, payroll taxes,employment taxes, excise taxes, stamp taxes, occupation taxes, premium taxes, property taxes,windfall profits taxes, alternative or add-on minimum taxes, goods and services taxes, service usetaxes, customs duties or other governmental charges, estimated or other taxes, assessments,charges, duties or imposts of any kind whatsoever, including Canada Pension Plan and provincialpension plan contributions, unemployment insurance payments and workers’ compensation premiums,together with any installments with respect thereto, and any interest, penalties, additional taxes,additions to tax or other amounts imposed by any taxing authority with respect to the foregoing andany liability for any such Taxes imposed by Law with respect to any other person, including underany tax sharing, indemnification or other agreements or arrangements or any liability for taxes ofa predecessor or transferor entity.
     (b) Taxes. Except as Disclosed Publicly by Italy or as Disclosed to Portugal or aswould not, individually or in the aggregate, reasonably be expected to have a Material AdverseEffect with respect to Italy:
     (i) All Tax returns, statements, reports, forms, declarations, remittances, andsimilar statements (including estimated Tax returns, claims for refunds, amended returnsand reports and information returns and reports) required to be filed with any taxingauthority by or on behalf of Italy or any of its Subsidiaries (collectively, the “ItalyReturns”) were filed when due with all

27


 

appropriate taxing authorities (including any applicable extension periods) inaccordance with all applicable Laws and were correct and complete in all material respects.
     (ii) Italy and each of its Subsidiaries have timely paid, or withheld and remitted tothe appropriate taxing authority, all Taxes due and payable by any of them under anyapplicable Law, including all Taxes required to be withheld, collected and paid inconnection with (i) amounts paid or owing to any present or former employee, independentcontractor, creditor or shareholder or to any other Person, (ii) goods and servicesreceived from or provided to any Person and (iii) amounts paid or credited to any Personnot resident in the jurisdiction of the relevant payor.
     (iii) The charges, accruals and reserves for Taxes with respect to Italy and itsSubsidiaries reflected on the Italy Financial Statements (whether or not due and whether ornot shown on any Italy Return but excluding any provision for deferred income Taxes) areadequate under Canadian GAAP to cover Taxes accruing through the date thereof.
     (iv) The tax basis of the assets of Italy and its Subsidiaries by category includingthe classification of such assets as being depreciable, amortizable or resource propertiesgiving rise to resource pools (collectively, the “Tax Pools”) as reflected in theItaly Returns is true and correct in all material respects.
     (v) There is no Action or audit now pending or threatened in writing in respect of anyTax or “tax asset” of Italy or any of its Subsidiaries. For purposes of this Section 3.17and Section 4.17 below, the term “tax asset” shall include but is not limited to any netoperating loss, non-capital losses, net capital losses, Tax Pools, investment tax credit,foreign tax credit, charitable deduction or any other credit or Tax attribute which couldreduce Taxes. There are no reassessments of Italy’s or any of its Subsidiaries’ Taxes thathave been issued and which remain outstanding.
     (vi) Neither Italy nor any of its Subsidiaries is party to any tax sharing agreement,tax indemnification agreement or other agreement or arrangement relating to Taxes with anyPerson (other than Italy or any of its Subsidiaries). Neither Italy nor any of itsSubsidiaries has been a member of an affiliated, combined or unitary group filing acombined, unitary, or other return for Canadian provincial, local or non-Canadian taxpurposes reflecting the income, assets, or activities of affiliated companies, or has anyliability for the Taxes of any other Person (other than Italy or any of its Subsidiaries)under any provision of Canadian federal, provincial, local, or non-Canadian Law, or as atransferee or successor, or by contract, or otherwise.

28


 

     3.18. Environmental Matters. Except as Disclosed Publicly by Italy or except foritems with respect to which adequate provision in accordance with Canadian GAAP has been made inthe Italy Financial Statements or except as has not had and would not reasonably be expected toresult, individually or in the aggregate, in a Material Adverse Effect with respect to Italy:
     (a) (i) No Hazardous Substance has been discharged, disposed of, dumped,pumped, deposited, spilled, leaked, emitted or released by Italy or any of its Subsidiaries(or, to the knowledge of Italy, is otherwise present) at, on, under or from any propertynow or previously owned, leased or operated by Italy or any of its Subsidiaries (“ItalyProperty”) in such manner or quantity that exceeds remediation criteria or standardsunder any applicable Environmental Laws or as would require investigation or remediation(either by Italy or its Subsidiaries, or for which Italy or its Subsidiaries wouldotherwise be liable) under any applicable Environmental Laws or as would adversely affectthe business or operations of Italy or any of its Subsidiaries and (ii) to theknowledge of Italy, there are no liabilities of Italy or any of its Subsidiaries arisingout of any Environmental Laws or any agreement with a third party and relating to anyHazardous Substances at, on, under or about any property other than a Italy Property.
     (b) The operations of Italy and each of its Subsidiaries are and have been incompliance with all, and have not violated any, applicable Environmental Laws.
     (c) (i) Italy and its Subsidiaries hold all approvals, certificates,authorizations, agreements, permits, licenses, certificates, clearances and consents underor pursuant to applicable Environmental Laws (the “Italy Environmental Permits”)necessary for the conduct of Italy’s and its Subsidiaries’ businesses as conductedcurrently and through the most recent fiscal year, (ii) all such ItalyEnvironmental Permits are valid and in full force and effect, (iii) Italy and itsSubsidiaries have not violated any such Italy Environmental Permits, and (iv)neither Italy nor any of its Subsidiaries has received any notice that any ItalyEnvironmental Permits will be revoked, adversely modified or not renewed, and to theknowledge of Italy there is no reasonable basis for revoking, adversely modifying orrefusing to renew any such Italy Environmental Permits.
     (d) No Order or Action is pending, and to Italy’s knowledge, no Order or Action hasbeen threatened, by any Governmental Entity or third party against or, to Italy’sknowledge, affecting Italy or any of its Subsidiaries concerning any alleged violation ofor liability under any Environmental Law or concerning any Hazardous Substance.

29


 

     (e) No Environmental Lien is pending, and to Italy’s knowledge, no Environmental Lienhas been threatened against or affecting Italy, any of its Subsidiaries, or any real orpersonal property of Italy or any of its Subsidiaries.
     3.19. Intellectual Property. Except as would not, individually or in the aggregate,reasonably be expected to have a Material Adverse Effect with respect to Italy, (i) Italyor one or more of its Subsidiaries is the owner or has the right to use all Intellectual Propertyand Proprietary Subject Matter used in the conduct of its business as it is currently conducted(such Intellectual Property which is owned or used by Italy or one of its Subsidiaries, the“Italy Intellectual Property” and such Proprietary Subject Matter, the “Italy-UsedProprietary Subject Matter”), free and clear of all Liens; (ii) there are no Orders orActions pending, or to Italy’s knowledge, threatened, respecting the ownership, validity,enforceability or use of any Italy Intellectual Property or Italy-Used Proprietary Subject Matter,and to the knowledge of Italy, no facts or circumstances exist as a valid basis for same;(iii) the Italy Intellectual Property has not been, and Italy has no reason to expect it tobecome, abandoned, cancelled or invalidated; (iv) Italy and its Subsidiaries have taken allreasonable actions to protect the Italy Intellectual Property, including Italy IntellectualProperty that is confidential in nature; and (v) to the knowledge of Italy the conduct ofthe business of Italy and its Subsidiaries as currently conducted does not infringe,misappropriate, dilute or otherwise violate or make unauthorized use of (“Infringe”) anyIntellectual Property of any Person, and no Person is currently Infringing Italy IntellectualProperty.
     3.20. Agreements, Contracts and Commitments.
     (a) Except as Publicly Disclosed by Italy or as limited by confidentiality obligations andapplicable regulatory requirements, Italy has Disclosed to Portugal (prior to the date hereof withrespect to contracts existing on the date hereof) each material Contract to which Italy and each ofits Subsidiaries is a party (each, a “Material Italy Contract”). Except for breaches,violations or defaults which have not had and would not, individually or in the aggregate, have aMaterial Adverse Effect with respect to Italy, (i) each of the Material Italy Contracts isvalid and in full force and effect, unamended, and (ii) neither Italy nor any of itsSubsidiaries, nor to Italy’s knowledge any other party to a Material Italy Contract, has violatedany material provision of, or committed or failed to perform any act which, with or without notice,lapse of time, or both, would constitute a material default under the provisions of any suchMaterial Italy Contract, and neither Italy nor any of its Subsidiaries has received written noticethat it has breached, violated or defaulted under, any of the material terms or conditions of anyof the Material Italy Contracts. Neither Italy nor any Subsidiary of Italy is a party to, orotherwise a guarantor of or liable with respect to, any interest rate, currency or other swap orderivative transaction, other than any such transactions in the ordinary course of business.
     (b) All Contracts to which Italy or any of its Subsidiaries is a party relating to thetransactions contemplated by the Support Agreement (including but not limited to

30


 

contracts with France or any of its Subsidiaries) are set forth on Schedule 3.20 (suchcontracts, together with the Support Agreement, the “Support Agreement Contracts”). AllSupport Agreement Contracts are valid and in full force and effect and neither Italy nor any of itsSubsidiaries has violated any material provision of, or committed or failed to perform any actwhich, with or without notice, lapse of time, or both, would constitute a material default underthe provisions of any Support Agreement Contract.
     3.21. Brokers. Italy and its Subsidiaries have not incurred, nor will they incur,directly or indirectly, any liability for brokerage or finders fees or agent’s commissions or anysimilar charges in connection with this Agreement or any transaction contemplated hereby, otherthan fees and expenses payable to Morgan Stanley & Co. Incorporated, Goldman Sachs Canada CreditPartners Co. and RBC Dominion Securities Corporation.
     3.22. Opinions of Financial Advisors. On the date of this Agreement the board ofdirectors of Italy received from its financial advisors, Morgan Stanley & Co. Incorporated,Goldman, Sachs & Co. and RBC Dominion Securities Corporation, separate opinions, each dated thedate of this Agreement, to the effect that, as of such date, the consideration to be received bythe holders of Italy Common Shares pursuant to the Combination Agreement is fair, from a financialpoint of view, to the holders of the Italy Common Shares.
     3.23. Vote Required. The only votes of the holders of any class or series of theItaly Common Shares, Italy Options or other securities of Italy necessary to approve this Agreementand the Arrangement and the transactions contemplated hereby and thereby is, subject to anyrequirement of the Interim Order and subject to obtaining any required exemptions from applicableCanadian Securities Regulatory Authorities, the Italy Shareholder Approval.
     3.24. No Other Representations and Warranties. Except for the representations andwarranties contained in this Agreement, neither Italy nor its Subsidiaries nor any other Person orits Subsidiaries makes any representation or warranty, express or implied, on behalf of Italy andits Subsidiaries with respect to the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PORTUGAL
     Portugal represents and warrants to Italy, subject to such exceptions as are specificallydisclosed in writing in the disclosure schedule (arranged in sections and subsections correspondingto the numbered and lettered sections and subsections contained in this Article IV with thedisclosures in any section or subsection of such schedule qualifying the corresponding section orsubsection in this Article IV, as well as any other section or subsection of this Article IV if therelevance of the disclosed item to

31


 

such other section or subsection is reasonably apparent on its face) supplied by Portugal toItaly dated as of the date hereof (the “Portugal Disclosure Schedule”) as follows:
     4.1. Organization and Qualification; Subsidiaries.
     (a) Each of Portugal and its Subsidiaries that is a corporation or other legal entity dulyorganized, validly existing and in good standing under the Laws of the jurisdiction of itsincorporation and has the requisite corporate, partnership or similar power and authority to own,lease and operate its assets and properties and to carry on its business as now conducted, exceptwhere the failure to do so has not had and would not reasonably be expected to have, individuallyor in the aggregate, a Material Adverse Effect with respect to Portugal. Each of Portugal and itsSubsidiaries is in possession of all Approvals from all Governmental Entities necessary to own,lease and operate the properties it purports to own, operate or lease and to lawfully carry on itsbusiness as now conducted, except where the failure to have such Approvals has not had and wouldnot reasonably be expected to have, individually or in the aggregate, a Material Adverse Effectwith respect to Portugal.
     (b) Portugal has no material Subsidiaries except those as Disclosed to Italy prior to the datehereof.
     (c) Except as Disclosed Publicly by Portugal or as Disclosed to Italy, all of the outstandingcapital stock of, or other equity securities or ownership interests in, each Subsidiary ofPortugal, is owned by Portugal, directly or indirectly, free and clear of any Lien and free of anyother limitation or restriction (including any restriction on the right to vote, sell or otherwisedispose of such capital stock or other equity securities or ownership interests). Except asDisclosed Publicly by Portugal or as Disclosed to Italy, there are no outstanding (i)securities of Portugal or its Subsidiaries convertible into or exchangeable for capital stock orother equity securities or ownership interests in any Subsidiary of Portugal or (ii) exceptfor employee or director stock options issued pursuant to Portugal’s employee stock option plans,options or other rights to acquire from Portugal or any of its Subsidiaries, or other obligation ofPortugal or any of its Subsidiaries to issue, any capital stock or other equity securities orownership interests in, or any securities convertible into or exchangeable for any capital stock orother equity securities or ownership interests in, any Subsidiary of Portugal. Except as DisclosedPublicly by Portugal or as Disclosed to Italy, there are no outstanding obligations of Portugal orany of its Subsidiaries to repurchase, redeem or otherwise acquire any of the items referred to inclauses (i) and (ii) above.
     (d) Except as Disclosed Publicly by Portugal or as Disclosed to Italy, neither Portugal norany of its Subsidiaries has agreed nor is it obligated to make nor is it bound by any Contractunder which it may become obligated to acquire any material equity interest or investment in, ormake any material capital contribution to, any Person (other than a wholly-owned Subsidiary ofPortugal). Except as Disclosed Publicly by Portugal

32


 

or as Disclosed to Italy, neither Portugal nor any of its Subsidiaries directly or indirectlyowns any material interest or investment (whether equity or debt) nor has any rights to acquire anymaterial interest or investment in any Person (other than a Subsidiary of Portugal).
     (e) Portugal and each of its Subsidiaries that is a corporation or other legal entity is dulyqualified to do business as a foreign corporation or other foreign legal entity, and is in goodstanding, under the Laws of all jurisdictions where the nature of its business requires suchqualification, except for those jurisdictions where the failure to be so qualified, individually orin the aggregate, has not had and would not be reasonably expected to have, individually or in theaggregate, a Material Adverse Effect on Portugal.
     4.2. Certificate of Incorporation and Bylaws. Portugal has Disclosed to Italycomplete and correct copies of its Certificate of Incorporation and Bylaws (together, the“Portugal Charter Documents”), as amended to date. Such Portugal Charter Documents, as soamended, and the equivalent organizational documents of each of its Subsidiaries, are in full forceand effect. Portugal is not in violation of any of the provisions of the Portugal CharterDocuments, and no material Subsidiary of Portugal is in violation of any of its organizationaldocuments.
     4.3. Capitalization.
     (a) The authorized capital stock of Portugal consists of (i) 300,000,000 shares ofcommon stock, par value $6.25 per share (“Portugal Common Shares”) (including 1,642,433restricted shares in respect of which the restriction period has not expired awarded pursuant toPortugal’s equity-based incentive plans), and (ii) 6,000,000 shares of preferred stock(“Portugal Preferred Shares”). As of June 20, 2006, (1) 219,991,676 PortugalCommon Shares and (2) no Portugal Preferred Shares are outstanding. As of the date hereof,options to acquire an aggregate of 582,473 Portugal Common Shares and 129,947 deferred share unitspayable in cash or Portugal Common Shares are outstanding under Portugal’s stock equity-basedincentive plans. In addition, as of the date hereof, no shares of capital stock of Portugal areheld by any Subsidiary of Portugal and 15,998,219 shares of capital stock of Portugal are held byPortugal in treasury. All issued and outstanding shares of capital stock of Portugal have beenduly authorized and validly issued and are fully paid and nonassessable.
     (b) Except as Publicly Disclosed by Portugal or as Disclosed to Italy or as set forth inSection 4.3(a), there are no subscriptions, options, warrants, phantom shares, stock units, stockappreciation rights, other equity-based awards, equity securities, partnership interests,conversion privileges or similar ownership interests, calls, rights (including preemptive rights)or Contracts of any character to which Portugal or any of its Subsidiaries is a party or by whichit is bound obligating Portugal or any of its Subsidiaries to issue, deliver or sell, or cause tobe issued, delivered or sold, or to repurchase, redeem or otherwise acquire, or cause therepurchase, redemption or

33


 

acquisition of, any equity securities, partnership interests or similar ownership interests ofPortugal or any of its Subsidiaries, or obligating Portugal or any of its Subsidiaries to grant,extend, accelerate the vesting of or enter into any such subscription, option, warrant, phantomshare, stock unit, stock appreciation right, other equity-based awards, equity security, call,right, commitment or agreement. Except as Disclosed to Italy or as set forth in Section 4.3(a),there are no outstanding bonds, debentures, or other evidences of indebtedness of Portugal or anySubsidiary thereof having the right to vote (or that are convertible for or exercisable intosecurities having the right to vote) with the holders of Portugal Common Shares on any matter.Except as Disclosed to Italy or as contemplated by this Agreement, there is no voting trust, proxy,registration rights agreement, rights plan, anti-takeover plan or other Contract or understandingto which Portugal or any of its Subsidiaries is a party or by which it is bound with respect to anyequity security of any class of Portugal or with respect to any equity security, partnershipinterest or similar ownership interest of any class of any of its Subsidiaries.
     (c) The Portugal Common Shares to be issued at the Effective Time as part of the Arrangementhave, subject to the receipt of the Portugal Stockholder Approval, been duly authorized and, whenissued and delivered in accordance with the terms of this Agreement will have been validly issuedand will be fully paid and nonassessable and the issuance thereof will not be subject to anypreemptive or other similar right.
     (d) The Portugal Common Shares are prescribed shares for the purpose of paragraph 110(1)(d) ofthe ITA.
     4.4. Authority Relative to this Agreement.
     (a) Portugal has all necessary corporate power and authority to execute and deliver thisAgreement and to perform its obligations hereunder and, subject to the receipt of the PortugalStockholder Approval, to consummate the transactions contemplated hereby. The execution, deliveryand performance by Portugal of this Agreement and the consummation by Portugal of the transactionscontemplated hereby have been duly and validly authorized by all necessary corporate action on thepart of Portugal, and no other corporate proceedings on the part of Portugal are necessary toauthorize this Agreement or to consummate the transactions so contemplated, other than the PortugalStockholder Approval, the Interim Order and the Final Order. This Agreement has been duly andvalidly executed and delivered by Portugal and, assuming the due authorization, execution anddelivery by Italy, constitutes a valid, legal and binding obligation of Portugal, enforceableagainst Portugal in accordance with its terms, except that (i) such enforcement may besubject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws, nowor hereafter in effect, affecting creditors’ rights generally, (ii) the remedy of specificperformance and injunctive and other forms of equitable relief may be subject to equitable defensesand to the discretion of the court before which any proceeding may be brought and (iii) theCurrency Act (Canada)

34


 

precludes a court in Canada from rendering judgment in any currency other than Canadiancurrency.
     (b) At a meeting duly called and held, Portugal’s board of directors has unanimously:(i) determined that this Agreement and the transactions contemplated hereby (including thePortugal Share Issuance, the Portugal Charter Amendment and the Arrangement) are advisable and fairto and in the best interests of the Portugal and the holders of the Portugal Common Shares;(ii) authorized and approved this Agreement and the transactions contemplated hereby(including the Portugal Share Issuance, the Portugal Charter Amendment and the Arrangement); and(iii) resolved to recommend approval and adoption of the Portugal Charter Amendment andapproval of the Portugal Share Issuance by its shareholders at the Portugal Meeting.
     4.5. No Conflict; Required Filings and Consents.
     (a) The execution, delivery and performance by Portugal of this Agreement and the consummationby Portugal of the transactions contemplated hereby, do not and will not, subject to obtaining thePortugal Stockholder Approval and receipt of the Approvals referred to in Section 4.5(b) below,(i) contravene, conflict with or result in a violation or breach of any provision of thePortugal Charter Documents or the equivalent organizational documents of any of Portugal’s materialSubsidiaries, (ii) contravene, conflict with or result in a violation or breach of anyprovisions of any Law applicable to Portugal or any of its Subsidiaries or by which its or any oftheir respective properties is bound or affected, (iii) require any consent or other actionby any Person under, constitute a default (or an event that, with or without notice or lapse oftime or both, would constitute a default) under, or cause or permit the termination, amendment,acceleration, triggering or cancellation or other change of any right or obligation or the loss ofany benefit to which Portugal or any of its Subsidiaries is entitled under (A) anyprovision of any Contract or other instrument binding upon Portugal or any of its Subsidiaries or(B) any Permit held by, or affecting, or relating in any way to, the assets or business of,Portugal or any of its Subsidiaries, or (iv) result in the creation or imposition of anyLien on any asset of Portugal or any of its Subsidiaries, other than such exceptions in the case ofclause (ii), (iii) or (iv) as would not, individually or in the aggregate, reasonably be expectedto have a Material Adverse Effect with respect to Portugal.
     (b) The execution, delivery and performance by Portugal of this Agreement and the consummationby Portugal of the transactions contemplated hereby do not, and shall not, require any Approval,action by or in respect of, filing with or notification to, any Governmental Entity, to be made orobtained by Portugal or its Subsidiaries, except for (A) the Competition Act Approval,(B) the ICA Approval, (C) the compliance with any applicable requirements of theHSR Act, including pre-merger notification requirements, (D) compliance with any applicablerequirements of Council Regulation (EC) 139/2004 of 20 January 2004 on the control ofconcentrations between

35


 

undertakings; (E) any other applicable competition, merger control, antitrust orsimilar Law of foreign Governmental Entities, (F) the filing with the SEC and the mailingto the Portugal shareholders of the Portugal Proxy Statement, and the filing with the SEC of anyreports that might be required pursuant to the 1934 Act in connection with this Agreement and thetransactions contemplated hereby, (G) the filing with the Secretary of State of the Stateof New York of the restated certificate of incorporation of Portugal, in the form attached heretoas Exhibit C, (H) such other filings, authorizations, decisions or orders as may berequired by the rules and regulations of the NYSE or any state securities or blue sky laws, or bythe rules and policies of the TSX, (I) the Interim Order, the Final Order and any approvalsrequired by the Interim Order, the Final Order or filings with the Director under the CBCA and(J) any other Approvals or Permits, which, if not obtained, would not, individually or inthe aggregate, reasonably be expected to have a Material Adverse Effect with respect to Portugal.
     4.6. Compliance; Permits.
     (a) Each of Portugal and its Subsidiaries is, and at all times since January 1, 2004 has been,in compliance with all Laws and Orders applicable to it or by which its properties are bound oraffected, other than non-compliance matters that have not had and would not, individually or in theaggregate, reasonably be expected to have a Material Adverse Effect with respect to Portugal.
     (b) Neither Portugal nor any of its Subsidiaries is in default or violation of (i) anyLaw or Order applicable to Portugal or any of its Subsidiaries or by which its or any of theirrespective properties is bound or affected, or (ii) any material Contract, Permit or otherinstrument or obligation to which Portugal or any of its Subsidiaries is a party or by whichPortugal or any of its Subsidiaries or its or any of their respective properties is bound oraffected; except, in each case, for any conflicts, defaults or violations that have not had andwould not, individually or in the aggregate, reasonably be expected to have a Material AdverseEffect with respect to Portugal. To the knowledge of Portugal, no investigation or review by anyGovernmental Entity is pending or threatened against Portugal or its Subsidiaries, other than, ineach such case, those the outcome of which have not had and would not, individually or in theaggregate, reasonably be expected to have a Material Adverse Effect with respect to Portugal.
     (c) Since January 1, 2004 Portugal has complied in all material respects with the applicablelisting and corporate governance rules and regulations of the NYSE.
     (d) Each of Portugal and its Subsidiaries owns, possesses or has obtained, and is incompliance with, all Permits of or from any Governmental Entity necessary to conduct its businessas now conducted, except for such failures which have not had and would not, individually or in theaggregate, reasonably be expected to have a Material Adverse Effect with respect to Portugal.

36


 

     4.7. SEC Filings; Financial Statements.
     (a) Since January 1, 2004, Portugal has filed with the SEC and NYSE all forms, reports,schedules, prospectuses, registration statements, proxy or information statements and otherdocuments required to be filed by Portugal under applicable Securities Laws (collectively, the“Portugal SEC Reports”). The Portugal SEC Reports, at the time filed (or if amended orsuperseded by a filing prior to the date of this Agreement, then on the date of such filing),(i) complied in all material respects with the requirements of the applicable SecuritiesLaws and (ii) did not contain any untrue statement of a material fact or omit to state amaterial fact required to be stated therein or necessary in order to make the statements therein,in light of the circumstances under which they were made, not misleading. None of Portugal’sSubsidiaries is required to file any reports or other documents with the SEC.
     (b) The annual audited consolidated financial statements and the unaudited consolidatedinterim financial statements (including, in each case, any related notes thereto) contained in thePortugal SEC Reports (the “Portugal Financial Statements”) complied as to form in allmaterial respects with the published rules and regulations of the SEC with respect thereto as oftheir respective dates, and have been prepared in accordance with United States generally acceptedaccounting principles (“US GAAP”) applied on a basis consistent throughout the periodsindicated and consistent with each other (except as may be indicated in the notes thereto or, inthe case of unaudited statements, do not contain footnotes as permitted by Form 10-Q under the 1934Act) present fairly, in all material respects, the consolidated financial position, results ofoperations and cash flows of Portugal and its Subsidiaries as of the dates and for the periodsindicated therein (subject, in the case of unaudited statements, to normal, recurring year-endadjustments that are not expected to be material in amount and the absence of notes thereto) on aconsolidated basis.
     (c) Since the enactment of the Sarbanes-Oxley Act, Portugal has been and is in compliance inall material respects with the applicable provisions of the Sarbanes-Oxley Act (including, withoutlimitation, Section 402 thereof) and the rules and regulations promulgated thereunder.
     (d) The books and records of Portugal and its Subsidiaries, in all material respects,(i) have been maintained in accordance with good business practices on a basis consistentwith prior years, (ii) state in reasonable detail the material transactions anddispositions of the assets of Portugal and its Subsidiaries and (iii) accurately and fairlyreflect the basis for the Portugal Financial Statements. Portugal has (i) designed andmaintains disclosure controls and procedures to ensure that material information relating toPortugal and its Subsidiaries is made known to management of Portugal by others within thoseentities to allow timely decisions regarding required disclosure, and (ii) designed andmaintains a system of internal controls over financial reporting sufficient to provide reasonableassurances regarding the reliability of financial reporting

37


 

and the preparation of financial statements, including that (A) transactions areexecuted in accordance with management’s general or specific authorization; (B)transactions are recorded in reasonable detail accurately and fairly as necessary (x) topermit preparation of consolidated financial statements in conformity with US GAAP, and thatreceipts and expenditures of the issuer are being made only in accordance with authorizations ofmanagement and directors of Portugal and its Subsidiaries, as applicable, (y) to maintainaccountability of the assets of Portugal and its Subsidiaries and (z) to provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use or dispositionof the issuer’s assets that could have a material effect on the financial statements; (C)access to assets is permitted only in accordance with management’s general or specificauthorization; and (D) the recorded accountability of assets is compared with the existingassets at reasonable intervals and appropriate action is taken with respect to any differences.The management of Portugal has disclosed, based on its most recent evaluation, to Portugal’sauditors and the audit committee of Portugal’s board of directors (i) all significantdeficiencies in the design or operation of internal controls which could adversely affectPortugal’s ability to record, process, summarize and report financial data and have identified forPortugal’s auditors any material weaknesses in internal controls and (ii) any fraud,whether or not material, that involves management or other employees who have a significant role inPortugal’s internal controls.
     (e) To the knowledge of Portugal, as of the date hereof, Portugal has not identified anymaterial weaknesses in the design or operation of its internal controls over financial reporting.
     (f) Pricewaterhouse Coopers LLC are and were at all times during the audit engagement periodwith Portugal independent registered public accountants with respect to Italy and its Subsidiariesin accordance with the applicable rules and regulations thereunder adopted by the SEC and thePublic Company Accounting Oversight Board.
     (g) No attorney representing Portugal or any of its Subsidiaries, whether or not employed byPortugal or any of its Subsidiaries, has reported evidence of a violation of any Securities Laws,breach of fiduciary duty or similar violation by Portugal or any of its Subsidiaries or theirrespective officers, directors, employees or agents to Portugal’s chief legal officer, auditcommittee (or other committee designated for the purpose) of the board of directors or the board ofdirectors.
     (h) None of the information to be supplied by Portugal or its Affiliates in writingspecifically for use in the Italy Circular or the Italy Bid Circular will, at the time of themailing of the Italy Circular or any notice of variation in respect of the Italy Bid and anyamendments or supplements thereto, and in the case of the Italy Circular at the time of the ItalyMeeting, contain any untrue statement of a material fact or omit to state any material factrequired to be stated therein or necessary in order to make the

38


 

statements therein, in the light of the circumstances under which they are made, notmisleading.
     (i) None of the information to be included in or incorporated by reference into the PortugalProxy Statement (other than information supplied in writing by Italy specifically for use therein)will, at the time of the mailing of the Portugal Proxy Statement and any amendments or supplementsthereto, and at the time of the Portugal Meeting, contain any untrue statement of a material factor omit to state any material fact required to be stated therein or necessary in order to make thestatements therein, in the light of the circumstances under which they are made, not misleading.
     4.8. No Undisclosed Liabilities. Except as Disclosed to Italy, neither Portugal norany of its Subsidiaries has any liabilities (absolute, accrued, contingent, determined,determinable or otherwise) or obligations, in each case, of the type that would be required to bedisclosed on a consolidated balance sheet of Portugal (or the notes thereto) and there is noexisting condition, situation or set of circumstances that could be reasonably expected to resultin such a liability or obligation, except (i) liabilities or obligations fully reflected orreserved against in Portugal’s balance sheet as of December 31, 2005 (or the notes thereto),included in the Portugal Financial Statements, (ii) liabilities or obligations disclosed inany Portugal SEC Report filed after December 31, 2005, and prior to the date of this Agreement,(iii) liabilities incurred since December 31, 2005 in the ordinary course of businessconsistent with past practice, (iv) obligations arising pursuant to the terms of theContracts disclosed in Section 4.20 (or not required to be so disclosed) or (v) liabilitiesor obligations that have not had and would not, individually or in the aggregate, reasonably beexpected to have a Material Adverse Effect with respect to Portugal.
     4.9. Absence of Certain Changes or Events. Since December 31, 2005, the business ofPortugal and its Subsidiaries has been conducted in the ordinary course consistent with pastpractices and except as Disclosed Publicly by Portugal there has not been (i) any event,occurrence or development of a state of circumstances or facts which has had or would, individuallyor in the aggregate, reasonably be expected to have any Material Adverse Effect with respect toPortugal, (ii) any material revaluation by Portugal of any of its assets, including,without limitation, writing down the value of capitalized inventory or writing off notes oraccounts receivable or any material sale of assets of Portugal other than in the ordinary course ofbusiness, (iii) any material damage, destruction or loss (whether or not covered byinsurance) with respect to any material assets of Portugal or its Subsidiaries, (iv) anyMaterial Portugal Contract cancelled, terminated, or materially adversely modified that wouldreasonably be expected to have a Material Adverse Effect with respect to Portugal or (v)any event or action that if taken after the date hereof would be prohibited by Section 6.1 hereof.
     4.10. Absence of Litigation. Except as Disclosed Publicly by Portugal or asDisclosed to Italy, (a) there is no Action that has been commenced or, to the knowledge

39


 

of Portugal, threatened against or affecting Portugal or any Subsidiary thereof or any oftheir respective properties, rights or assets before any Governmental Entity which, if determinedadversely to Portugal, would, individually or in the aggregate, reasonably be expected to have aMaterial Adverse Effect with respect to Portugal; and (b) neither Portugal nor anySubsidiary thereof, nor any of their respective properties, rights or assets is subject to anyoutstanding Order that has had or would, individually or in the aggregate, reasonably be expectedto have a Material Adverse Effect with respect to Portugal.
     4.11. Employee Plans.
     (a) Portugal and each Subsidiary thereof has complied, in all material respects, with all theterms of, and all applicable Laws in respect of, each Portugal Employee Plan, and all PortugalEmployee Plans required under applicable Law to be funded are fully funded and in good standing inall material respects under applicable Law. Portugal has Disclosed to Italy copies of all materialPortugal Employee Plans (and in the case of any material Portugal Employee Plan that is notwritten, a written description of such plan).
     (b) Each Portugal Employee Plan intended to be tax qualified under the Code has been thesubject of determination letters from the U.S. Internal Revenue Service to the effect that suchplans are qualified and exempt from Federal income taxes under Sections 401(a) and 501(a),respectively, of the Code. No step has been taken, no event has occurred and no condition orcircumstance exists that has resulted or could reasonably be expected to result in any PortugalEmployee Plan being ordered or required to be terminated in whole or in part or having its taxqualification refused or revoked, or being placed under the administration of any trustee orreceiver or regulatory authority or being required to pay any material Taxes, fees, penalties orlevies under applicable Laws. There are no actions, suits, claims (other than routine claims forpayment of benefits in the ordinary course), trials, demands, investigations, arbitrations, orother proceedings which are pending or threatened in respect of any of the Portugal Employee Plansor their assets which individually or in the aggregate would have a Material Adverse Effect withrespect to Portugal.
     (c) No event has occurred or condition exists with respect to any of the Portugal EmployeePlans or relating to any current or former employee of Portugal or any Subsidiary thereof (or anyof their beneficiaries or dependants) which, individually or in the aggregate, is reasonably likelyto result in a Material Adverse Effect with respect to Portugal.
     (d) Except as Disclosed Publicly by Portugal or as Disclosed to Italy, the consummation of thetransactions contemplated by this Agreement will not by itself entitle any employee or anyindependent contractor of Portugal or any Subsidiary thereof to severance or similar pay oraccelerate the time of payment or vesting or trigger any

40


 

payment of funding (through a grantor trust or otherwise) or compensation or benefits under,increase the amount payable or trigger any other material obligation pursuant to, any PortugalEmployee Plan.
     (e) The consummation of the transactions contemplated by this Agreement will not (either aloneor upon the occurrence of additional acts or events) result in any payment under any PortugalEmployee Plan that would constitute an “excess parachute payment” for purposes of Section 280G or4999 of the Code.
     4.12. Labor Matters.
     (a) Portugal has Disclosed to Italy copies of all Collective Agreements to which Portugal orany Subsidiary thereof is a party. To the knowledge of Portugal, there are no threatened orapparent union organizing activities involving employees of Portugal or any Subsidiary thereof thatare not already covered by a Collective Agreement that would have a Material Adverse Effect withrespect to Portugal. Neither Portugal nor any Subsidiary thereof is in material violation of anyprovision under any Collective Agreement. There is no strike or lock out occurring or, to theknowledge of Portugal, threatened affecting Portugal or any Subsidiary thereof that would have aMaterial Adverse Effect with respect to Portugal
     (b) Neither Portugal nor any Subsidiary thereof is subject to any claim for wrongfuldismissal, constructive dismissal or any other tort claim, actual or threatened, or any litigation,actual or threatened, relating to its employees or independent contractors (including anytermination of such persons) other than those claims or such litigation as would not individuallyor in the aggregate have a Material Adverse Effect with respect to Portugal. Portugal and eachSubsidiary thereof has operated in material compliance with all applicable Laws with respect toemployment and labor, including, but not limited to, employment and labor standards, occupationalhealth and/or safety, employment equity, pay equity, workers’ compensation, human rights and laborrelations and there are no current, pending or threatened proceedings before any board or tribunalwith respect to any of the areas listed herein other than where the failure to so operate, or forsuch proceedings which individually or in the aggregate, would not have a Material Adverse Effectwith respect to Portugal. Portugal and each Subsidiary thereof has operated in material compliancewith the National Labor Relations Act (U.S.) as amended, and the rules and regulations promulgatedthereunder and any and all similar Laws.
     (c) Each of Portugal and its Subsidiaries is in compliance with all applicable Laws coveringoccupational health and/or safety, including the Occupational Health and Safety Act (U.S.), asamended, except for any non-compliance that would not reasonably be expected to have a MaterialAdverse Effect with respect to Portugal.
     4.13. Property and Title. Applying customary standards in the United States miningindustry, each of Portugal, its Subsidiaries and its material joint ventures has, to

41


 

the extent necessary to permit the operation of their respective businesses as presentlyconducted: (a) sufficient title, clear of any title defect or Lien (other than as Disclosed toItaly or Disclosed Publicly by Portugal) to its operating properties and properties with estimatedproven and probable mineral reserves and/or estimated mineral resources (other than property towhich it is lessee, in which case it has a valid leasehold interest) and (b) good and sufficienttitle to the real property interests including, without limitation, fee simple estate of and inreal property, leases, easements, rights of way, permits, mining claims, concessions or licensesfrom landowners or authorities permitting the use of land by Portugal, its Subsidiaries and itsmaterial joint ventures (other than as Disclosed Publicly by Portugal). Portugal, its Subsidiariesand its material joint ventures hold all mineral rights required to continue their respectivebusinesses and operations as currently conducted and as proposed to be conducted as DisclosedPublicly by Portugal, except to the extent that a failure to do so would not constitute a MaterialAdverse Effect with respect to Portugal. Except for such failures of title or liens and royaltyburdens that would, individually or in the aggregate, not have a Material Adverse Effect withrespect to Portugal, (x) all mineral rights held by Portugal, its Subsidiaries and its materialjoint ventures are free and clear of all Liens and royalty burdens (other than as PubliclyDisclosed by Portugal), and (y) none of such mineral rights are subject to reduction by referenceto mine payout or otherwise except for those created in the ordinary course of business and whichwould not have a Material Adverse Effect with respect to Portugal.
     4.14. Mineral Reserves and Resources. The estimated proven and probable mineralreserves and estimated, indicated, measured and inferred mineral resources disclosed in thePortugal SEC Documents as of December 31, 2005 have been prepared and disclosed in all materialrespects in accordance with all applicable Laws. There has been no material reduction (other thanas a result of operations in the ordinary course of business) in the aggregate amount of estimatedmineral reserves and estimated mineral resources of Portugal, its Subsidiaries and its materialjoint ventures, taken as a whole, from the amounts Disclosed Publicly by Portugal.
     4.15. Operational Matters. Except as would not, individually or in the aggregate,reasonably be expected to have a Material Adverse Effect with respect to Portugal:
     (a) all rentals, royalties, overriding royalty interests, production payments, netprofits, interest burdens and other payments due or payable on or prior to the date hereofunder or with respect to the direct or indirect assets of Portugal, its Subsidiaries andits material joint ventures have been properly and timely paid;
     (b) all rentals, payments, and obligations due and payable or performable on or priorto the date hereof under or on account of any of the direct or indirect assets of Portugal,its Subsidiaries and its material joint ventures have been duly paid, performed, orprovided for prior to the date hereof;

42


 

     (c) all (i) mines where Portugal or a Subsidiary of Portugal is operator at therelevant time have been developed and operated in accordance with good mining practices andin compliance with all then-applicable Laws, and (ii) mines located in or on thelands of Portugal, any Subsidiary or material joint venture of Portugal, or lands pooled orunitized therewith, which have been abandoned by Portugal or any Subsidiary or materialjoint venture of Portugal, have been developed, managed and abandoned in accordance withgood mining practices and in compliance with all applicable Laws, and (iii) allfuture abandonment, remediation and reclamation obligations have been accurately DisclosedPublicly by Portugal without omission of information necessary to make the disclosure notmisleading, and (iv) all costs, expenses, and liabilities payable on or prior tothe date hereof under the terms of any Material Portugal Contract have been properly andtimely paid, except for such expenses that are being currently paid prior to delinquency inthe ordinary course of business.
     4.16. Insurance. Portugal maintains insurance policies covering the assets,business, equipment, properties, operations, employees, officers and directors of Portugal and itsSubsidiaries (collectively, the “Portugal Insurance Policies”) which are of the type and inamounts which it believes are reasonably appropriate to conduct its business. To Portugal’sknowledge, there is no material claim by Portugal or any of its Subsidiaries pending under any ofthe material Portugal Insurance Policies as to which coverage has been questioned, denied ordisputed by the underwriters of such policies or bonds that would not have a Material AdverseEffect with respect to Portugal.
     4.17. Taxes.
     (a) Except as Disclosed Publicly by Portugal or as Disclosed to Italy or as would not,individually or in the aggregate, reasonably be expected to have a Material Adverse Effect withrespect to Portugal:
     (i) All Tax returns, statements, reports, forms, declarations, remittances, andsimilar statements (including estimated Tax returns, claims for refunds, amended returnsand reports and information returns and reports) required to be filed with any taxingauthority by or on behalf of Portugal or any of its Subsidiaries (collectively, the“Portugal Returns”) were filed when due with all appropriate taxing authorities(including any applicable extension periods) in accordance with all applicable Laws andwere correct and complete in all material respects.
     (ii) Portugal and each of its Subsidiaries have timely paid, or withheld and remittedto the appropriate taxing authority, all Taxes due and payable by any of them under anyapplicable Law, including all Taxes required to be withheld, collected and paid inconnection with (i) amounts paid or owing to any present or former employee, independentcontractor, creditor or shareholder or to any other

43


 

Person, (ii) goods and services received from or provided to any Person and (iii)amounts paid or credited to any Person not resident in the jurisdiction of the relevantpayor.
     (iii) The charges, accruals and reserves for Taxes with respect to Portugal and itsSubsidiaries reflected on the Portugal Financial Statements (whether or not due and whetheror not shown on any Portugal Return but excluding any provision for deferred income Taxes)are adequate under US GAAP to cover Taxes accruing through the date thereof.
     (iv) The tax basis of the assets of Portugal and its Subsidiaries by categoryincluding the classification of such assets as being depreciable or amortizable asreflected in the Portugal Returns is true and correct in all material respects.
     (v) There is no Action or audit now pending or threatened in writing in respect of anyTax or “tax asset” of Portugal or any of its Subsidiaries. There are no reassessments ofPortugal’s or any of its Subsidiaries’ Taxes that have been issued and which remainoutstanding.
     (vi) Neither Portugal nor any of its Subsidiaries is party to any tax sharingagreement, tax indemnification agreement or other agreement or arrangement relating toTaxes with any Person (other than Portugal or any of its Subsidiaries). Neither Portugalnor any of its Subsidiaries has been a member of an affiliated, combined or unitary groupfiling a consolidated, combined, unitary or other return for U.S. federal, state, local ornon-U.S. tax purposes reflecting the income, assets or activities of affiliated companies(other than a group the common parent of which is Portugal), or has any liability for theTaxes of any other Person (other than Portugal or any of its Subsidiaries) under anyprovision of U.S. federal, state, local or non-U.S. law, or as a transferee or successor,or by contract, or otherwise.
     (b) Tax Status. Portugal is not, and immediately prior to the Effective Time Portugalwill not be, a “foreign investment entity” within the meaning of the ITA assuming the enactmentinto law and the proclamation into force of proposed sections 94.1 to 94.4 and related provisionsas contained in the draft legislation released on behalf of the Minister of Finance dated July 18,2005 or in a form substantially similar to such proposed sections.
     4.18. Environmental Matters. Except as Disclosed Publicly by Portugal or except foritems with respect to which adequate provision in accordance with US GAAP has been made in thePortugal Financial Statements or except as has not had and would not reasonably be expected toresult, individually or in the aggregate, in a Material Adverse Effect with respect to Portugal:

44


 

     (a) (i) No Hazardous Substance has been discharged, disposed of, dumped,pumped, deposited, spilled, leaked, emitted or released by Portugal or any of itsSubsidiaries (or, to the knowledge of Portugal, is otherwise present) at, on, under or fromany property now or previously owned, leased or operated by Portugal or any of itsSubsidiaries (“Portugal Property”) in such manner or quantity that exceedsremediation criteria or standards under any applicable Environmental Laws or as wouldrequire investigation or remediation (either by Portugal or its Subsidiaries, or for whichPortugal or its Subsidiaries would otherwise be liable) under any applicable EnvironmentalLaws or as would adversely affect the business or operations of Portugal or any of itsSubsidiaries and (ii) to the knowledge of Portugal, there are no liabilities ofPortugal or any of its Subsidiaries arising out of any Environmental Laws or any agreementwith a third party and relating to any Hazardous Substances at, on, under or about anyproperty other than a Portugal Property.
     (b) The operations of Portugal and each of its Subsidiaries are and have been incompliance with all, and have not violated any, applicable Environmental Laws.
     (c) (i) Portugal and its Subsidiaries hold all approvals, certificates,authorizations, agreements, permits, licenses, certificates, clearances and consents underor pursuant to applicable Environmental Laws (the “Portugal Environmental Permits”)necessary for the conduct of Portugal’s and its Subsidiaries’ businesses as conductedcurrently and through the most recent fiscal year, (ii) all such PortugalEnvironmental Permits are valid and in full force and effect, (iii) Portugal andits Subsidiaries have not violated any such Portugal Environmental Permits, and(iv) neither Portugal nor any of its Subsidiaries has received any notice that anyPortugal Environmental Permits will be revoked, adversely modified or not renewed, and tothe knowledge of Portugal there is no reasonable basis for revoking, adversely modifying orrefusing to renew any such Portugal Environmental Permits.
     (d) No Order or Action is pending, and to Portugal’s knowledge, no Order or Action hasbeen threatened, by any Governmental Entity or third party against or, to Portugal’sknowledge, affecting Portugal or any of its Subsidiaries concerning any alleged violationof or liability under any Environmental Law or concerning any Hazardous Substance.
     (e) No Environmental Lien is pending, and to Portugal’s knowledge, no EnvironmentalLien has been threatened against or affecting Portugal, any of its Subsidiaries, or anyreal or personal property of Portugal or any of its Subsidiaries.

45


 

     4.19. Intellectual Property. Except as would not, individually or in the aggregate,reasonably be expected to have a Material Adverse Effect with respect to Portugal, (i)Portugal or one or more of its Subsidiaries is the owner or has the right to use all IntellectualProperty and Proprietary Subject Matter used in the conduct of its business as it is currentlyconducted (such Intellectual Property which is owned or used by Portugal or one of itsSubsidiaries, the “Portugal Intellectual Property” and such Proprietary Subject Matter, the“Portugal-Used Proprietary Subject Matter”), free and clear of all Liens; (ii)there are no Orders or Actions pending, or to Portugal’s knowledge, threatened, respecting theownership, validity, enforceability or use of any Portugal Intellectual Property or Portugal-UsedProprietary Subject Matter, and to the knowledge of Portugal, no facts or circumstances exist as avalid basis for same; (iii) the Portugal Intellectual Property has not been, and Portugalhas no reason to expect it to become, abandoned, cancelled or invalidated; (iv) Portugaland its Subsidiaries have taken all reasonable actions to protect the Portugal IntellectualProperty, including Portugal Intellectual Property that is confidential in nature; and (v)to the knowledge of Portugal the conduct of the business of Portugal and its Subsidiaries ascurrently conducted does not Infringe any Intellectual Property of any Person and no Person iscurrently Infringing Portugal Intellectual Property.
     4.20. Agreements, Contracts and Commitments. Except as Publicly Disclosed byPortugal or as limited by confidentiality obligations and applicable regulatory requirements,Portugal has Disclosed to Italy (prior to the date hereof with respect to contracts existing on thedate hereof) each material Contract to which Portugal and each of its Subsidiaries is a party(each, a “Material Portugal Contract”). Except for breaches, violations or defaults whichhave not had and would not, individually or in the aggregate, have a Material Adverse Effect withrespect to Portugal, (i) each of the Material Portugal Contracts is valid and in full forceand effect, unamended, and (ii) neither Portugal nor any of its Subsidiaries, nor toPortugal’s knowledge any other party to a Material Portugal Contracts, has violated any materialprovision of, or committed or failed to perform any act which, with or without notice, lapse oftime, or both, would constitute a material default under the provisions of any such MaterialPortugal Contracts, and neither Portugal nor any of its Subsidiaries has received written noticethat it has breached, violated or defaulted under, any of the material terms or conditions of anyof the Material Portugal Contracts. Neither Portugal nor any Subsidiary of Portugal is a party to,or otherwise a guarantor of or liable with respect to, any interest rate, currency or other swap orderivative transaction, other than any such transactions in the ordinary course of business.
     4.21. Brokers. Portugal and its Subsidiaries have not incurred, nor will they incur,directly or indirectly, any liability for brokerage or finders fees or agent’s commissions or anysimilar charges in connection with this Agreement or any transaction contemplated hereby, exceptfor the fees of Citigroup Global Markets Inc. and HSBC Securities (USA) Inc.

46


 

     4.22. Vote Required. The only votes of the holders of any class or series ofPortugal’s capital stock or other securities of Portugal necessary to approve the transactionscontemplated by this Agreement are: (i) the affirmative vote in favor of the PortugalCharter Amendment of the holders of a majority of the outstanding Portugal Common Shares and(ii) the affirmative vote in favor of the Portugal Share Issuance of a majority of thevotes cast thereon by the holders of the outstanding Portugal Common Shares (provided that thetotal votes cast on the Portugal Share Issuance represent at least a majority of the PortugalCommon Shares issued and outstanding and entitled to vote at the Portugal Meeting) (such approvals,collectively, the “Portugal Stockholder Approval”).
     4.23. Portugal Common Shares. The Portugal Common Shares to be issued pursuant tothe Arrangement will be duly and validly issued by Portugal, fully paid and non-assessable and freeof preemptive rights, encumbrances, charges and liens on their respective dates of issue.
     4.24. No Other Representations and Warranties. Except for the representations andwarranties contained in this Agreement, neither Portugal nor its Subsidiaries nor any other Personor its Subsidiaries makes any representation or warranty, express or implied, on behalf of Portugaland its Subsidiaries with respect to the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS OF ITALY
     5.1. Conduct of Business. During the period from the date of this Agreement to theEffective Time, except as provided in Section 5.1 of the Disclosure Schedule or as otherwiseexpressly contemplated or permitted in this Agreement and except to the extent Portugal shallotherwise give its prior written consent, not to be unreasonably withheld or delayed, each of Italyand its Subsidiaries shall: (i) conduct its business in the ordinary course and consistentwith past practice and in compliance in all material respects with applicable Laws; (ii)pay or perform its material obligations when due; and (iii) use its commercially reasonableefforts consistent with past practices to: (A) preserve intact its present businessorganization, (B) keep available the services of its present officers and employees,(C) preserve in all material respects its relationships with customers, suppliers,distributors, joint venture partners, and others with which it has significant business dealings,and (D) preserve in all material respects the Italy Intellectual Property. Withoutlimiting the generality of the foregoing, except as provided in Section 5.1 of the Italy DisclosureSchedule or as expressly contemplated by this Agreement or the Plan of Arrangement, without theprior written consent of Portugal (not to be unreasonably withheld or delayed, except with respectto paragraph (l) below), during the period from the date of this Agreement to the Effective Time,Italy shall not, and shall not permit any of its Subsidiaries to, do any of the following:

47


 

     (a) amend its articles of incorporation or by-laws or other applicable governinginstruments;
     (b) split, combine, subdivide or reclassify any shares of its capital stock or otherequity interests or declare, set aside or pay any dividend or other distribution (whetherin cash, stock or property or any combination thereof) in respect of its capital stock, orredeem, repurchase or otherwise acquire or offer to redeem, repurchase, or otherwiseacquire any of its securities, except for (i) cash dividends with respect to theItaly Common Shares in the ordinary course, in each case with usual declaration, record andpayment dates and in accordance with Italy’s current dividend policy and (ii)dividends paid to Italy or any of its Subsidiaries by any Subsidiary that is, directly orindirectly, wholly-owned by Italy; and (iii) dividends paid by non-wholly ownedSubsidiaries in the ordinary course consistent with current dividend policy;
     (c) adopt a plan or agreement of complete or partial liquidation, dissolution, windingup, merger, consolidation, amalgamation, restructuring, recapitalization or other materialreorganization (other than in connection with the transactions contemplated by the SupportAgreement or a merger, amalgamation or consolidation between wholly owned Subsidiaries ofItaly);
     (d) issue, deliver or sell, or authorize the issuance, delivery or sale of, any sharesof its capital stock of any class or other equity interests or any securities convertibleinto or exercisable for, or any rights, warrants or options to acquire, any such capitalstock or other equity interests, other than (i) the issuances of Italy CommonShares upon the exercise of Italy Options outstanding on the date hereof or issued afterthe date hereof in compliance with the terms of this Agreement in accordance with theirpresent terms, (ii) grants of options to its employees and directors in theordinary course of business consistent with past practice, using Italy’s standard form ofstock option award agreement as of the date hereof, up to a maximum of 1,114,000 optionedItaly Common Shares in the aggregate in calendar year 2006 and 1,114,000 optioned ItalyCommon Shares in the aggregate in calendar year 2007 (and up to a further 750,000 optionedItaly Common Shares following the satisfaction of the France Condition), providedthat none of the Italy Options referred to in this clause shall accelerate or become vestedas a result of the consummation of the transactions contemplated by this Agreement,(iii) issuances of Italy Common Shares required pursuant to the conversion ofconvertible securities outstanding on the date hereof, and (iv) issuances of ItalyCommon Shares and Italy Options in connection with the acquisition of France pursuant toand on the terms set forth in the Support Agreement;
     (e) except as required to ensure that any Italy Employee Plan in effect on the date ofthis Agreement is not then out of compliance with applicable Law

48


 

or as specifically required or permitted pursuant to this Agreement or as provided inthe Italy Disclosure Schedule or as required in connection with the termination of Italy’sNon-Employee Director Share Ownership Plan or the payment of any amount to the holders ofdeferred share units issued under such plan in consideration for the cancellation of suchdeferred share units, (A) adopt, enter into, terminate or amend any Italy Employee Plan,other than in the ordinary course of business consistent with past practice, (B) increasein any manner the compensation or benefits of, or pay any bonus to, any employee of Italyor its Subsidiaries, except for increases in base salary or payments of bonuses in theordinary course of business consistent with past practice, as required to comply with anyItaly Employee Plan in effect on the date of this Agreement, or in 2007 in connection withannual performance assessments consistent with past practice, (C) pay or provide to anyemployee of Italy or its Subsidiaries any benefit not provided for under an Italy EmployeePlan as in effect on the date of this Agreement, other than the payment of basecompensation in the ordinary course of business consistent with prior practice or aspermitted by clause (B) above, (D) except to the extent expressly permitted under Section5.1(d), grant any awards under any Italy Employee Plan (including the grant of stock orother equity options, stock or other equity appreciation rights, performance units,restricted stock or other equity, stock or other equity purchase rights or other stock orother equity-based or stock-related awards) or remove existing restrictions in any ItalyEmployee Plan or awards made thereunder, (E) take any action to fund or in any other waysecure the payment of compensation or benefits under any Italy Employee Plan, except asrequired to comply with any Italy Employee Plan as in effect on the date of this Agreementor (F) take any action to accelerate the vesting or payment of any compensation or benefitsunder any Italy Employee Plan;
     (f) acquire (by merger, consolidation, acquisition of stock or assets or otherwise),directly or indirectly, any material business, other than the acquisition of Francepursuant to and on the terms set forth in the Support Agreement;
     (g) other than pursuant to Contracts in effect as of the date hereof and other thansales of inventory in the ordinary course of business consistent with past practice, sell,lease, license (as licensor or licensee), assign, encumber or otherwise transfer in onetransaction or any series of related transactions, any material assets or material rights;
     (h) incur, assume or guarantee any indebtedness for borrowed money or issue or sellany debt securities or warrants or other rights to acquire debt securities or enter intoany keep-well or other arrangements to maintain the financial condition of any otherPerson, other than short-term borrowings in the ordinary course of business and in amountsand on terms consistent with past

49


 

practices and indebtedness incurred in connection with the payment to the shareholdersof France of the cash consideration provided for in the Support Agreement (for greatercertainty, including payments to dissenting shareholders with respect to the FranceSubsequent Acquisition Transaction);
     (i) make any loan, advance or capital contribution to or investment in any Person,other than (i) loans, advances or capital contributions to or investments in itsSubsidiaries or pursuant to Contracts in effect at the date hereof, (ii) inconnection with acquisitions permitted by Section 5.1(e), or (iii) in the ordinarycourse of business consistent with past practice, to the extent not individually or in theaggregate material to Italy; provided that none of such transactions permitted by thisclause (iii) shall present a material risk of delaying or impairing the parties’ ability toconsummate the transactions contemplated by this Agreement;
     (j) change (i) its methods of accounting or accounting practices in anymaterial respect, except as required by concurrent changes in Canadian GAAP or by Law andconcurred in by Italy’s external auditors or (ii) its fiscal year;
     (k) take any action that would, or would reasonably be expected to, prevent ormaterially impair or delay the ability of Italy to consummate the transactions contemplatedby this Agreement, including the Arrangement and the transactions contemplated by theArrangement;
     (l) enter into, cancel, terminate, or grant any waiver in respect of any SupportAgreement Contract or any Contract that would be a Support Agreement Contract if in effecton the date hereof; it being understood and agreed between the parties that,notwithstanding anything to the contrary set forth herein, after consultation withPortugal, Italy may, at its sole discretion, terminate any Support Agreement Contract inaccordance with its terms;
     (m) file any registration statement under the 1933 Act or an amendment to any 1933 Actregistration statement (other than an amendment to its registration statement on Form F-8relating to the Italy Bid); or
     (n) agree or commit to do any of the foregoing.
     5.2. Shareholders Meeting.
     (a) Subject to the terms of this Agreement, Italy shall use its reasonable best efforts tocause the Italy Meeting to be held as soon as reasonably practicable after the date hereof,provided that (x) the Italy Meeting shall not be held until counsel to Italy has hadreasonable opportunity to review all comments from the staff of the SEC relating to the PortugalProxy Statement or been advised in writing that the staff of the SEC will not

50


 

have any comments thereon and (y) this covenant shall not restrict the ability of Italy topostpone or adjourn such meeting to the extent that Italy’s outside counsel advises Italy that itwould be appropriate to do so for the purpose of allowing the holders of Italy Common Shares toreview any additional disclosure that Italy, with the advice of its outside counsel, determines ingood faith is advisable and should be made available to such holders by means of a supplementalmanagement information circular or otherwise.
     (b) Subject to the terms hereof, Italy shall, promptly after the execution and delivery ofthis Agreement (i) finalize the notice of the Italy Meeting to be sent to holders of Italy CommonShares, the accompanying management information circular, and any other documents required byapplicable Laws to be sent to holders of Italy Common Shares in connection with the Italy Meeting(such documents, as amended, supplemented or otherwise modified, the “Italy Circular”), and(ii) cause the Italy Circular and any other such documents to be sent to each holder of ItalyCommon Shares and filed as required by the Interim Order and applicable Laws.
     (c) Subject to the terms of this Agreement, Italy shall (i) take all lawful action tosolicit in favor of the Italy Resolution and the Italy Shareholder Approval, (ii) recommendto all holders of Italy Common Shares that they vote in favor of this Agreement and the Arrangementand the other transactions contemplated hereby and thereby and (iii) not withdraw, modifyor qualify (or publicly propose to or publicly state that it intends to withdraw, modify orqualify) in any manner adverse to Portugal such recommendation (any such action, a “Change inItaly Recommendation”) except as explicitly permitted by Section 5.3(b) provided, however, thatItaly may (A) make such Change in Italy Recommendation if Italy’s board of directors, afterconsultation with outside legal counsel, has determined that failure to take such action would beinconsistent with its fiduciary duties under applicable Law and (B) upon such Change inItaly Recommendation, may solicit votes of the Italy shareholders consistent with such Change inItaly Recommendation.
     5.3. No Solicitation; Opportunity to Match.
     (a) Italy shall not, directly or indirectly, through any officer, director, employee,representative (including for greater certainty any financial or other advisors) or agent of Italyor any Subsidiary of Italy: (i) solicit, assist, initiate, encourage or otherwise facilitate(including by way of furnishing non-public information or permitting any visit to any facilities orproperties of Italy or any Subsidiary of Italy, including any material joint ventures or materialmineral properties) any inquiries, proposals or offers regarding any Acquisition Proposal; (ii)engage in any discussions or negotiations regarding, or provide any confidential information withrespect to, any Acquisition Proposal, provided that for greater certainty, Italy may advise anyPerson making an unsolicited Acquisition Proposal that such Acquisition Proposal does notconstitute a Superior Proposal when the Italy board of directors has so determined; (iii) withdraw,modify or qualify, or propose publicly to withdraw, modify or qualify, in any manner

51


 

adverse to Portugal, the approval or recommendation of the Italy board of directors or anycommittee thereof of this Agreement; (iv) approve or recommend, or remain neutral with respect to,or propose publicly to approve or recommend, or remain neutral with respect to, any AcquisitionProposal (it being understood that publicly taking no position or a neutral position with respectto an Acquisition Proposal until 15 calendar days following the formal commencement of suchAcquisition Proposal shall not be considered to be in violation of this Section 5.3(a)); or (v)accept or enter into, or publicly propose to accept or enter into, any letter of intent, agreementin principle, agreement, arrangement or undertaking related to any Acquisition Proposal.
     (b) Notwithstanding Section 5.3(a) and any other provision of this Agreement, the Italy boardof directors shall be permitted to: (i) make a Change in Italy Recommendation, provided that Italyshall have complied in all material respects with all requirements of Section 5.3(f) below; and/or(ii) engage in discussions or negotiations with, or provide information pursuant to Section 5.3(b)to, any Person in response to an Acquisition Proposal by any such Person, provided that (A) it hasreceived an unsolicited bona fide written Acquisition Proposal from such Person and the Italy boardof directors has determined in good faith based on information then available and afterconsultation with its financial advisors that such Acquisition Proposal constitutes a SuperiorProposal or could reasonably be expected to result in a Superior Proposal; and (B) prior toproviding any confidential information or data to such Person in connection with such AcquisitionProposal, (x) the Italy board of directors receives from such Person an executed confidentialityagreement which includes a standstill provision that restricts such Person from acquiring, orpublicly announcing an intention to acquire, any securities or assets of Italy (other than pursuantto a Superior Proposal) for a period of not less than one year from the date of suchconfidentiality agreement and Italy sends a copy of any such confidentiality agreement to Portugalpromptly upon its execution and promptly provides Portugal a list of, or in the case of informationthat was not previously made available to Portugal, copies of, any information provided to suchPerson, and (y) Italy has complied in all material respects with Section 5.3(d).
     (c) Italy will cease and cause to be terminated any existing solicitation, encouragement,activity, discussion or negotiation with any Person by Italy or any Subsidiary thereof or any ofits or their representatives or agents with respect to any Acquisition Proposal, whether or notinitiated by Italy, and, in connection therewith, Italy will discontinue access to any data rooms(virtual or otherwise) and will request (and reasonably exercise all rights it has to require) thereturn or destruction of all information regarding Italy and its Subsidiaries previously providedto any such Person or any other Person and will request (and reasonably exercise all rights it hasto require) the destruction of all material including or incorporating or otherwise reflecting anyinformation regarding Italy and its Subsidiaries. Italy shall not terminate, amend, modify orwaive any provision of any confidentiality or standstill or similar agreement to which

52


 

Italy or any of its Subsidiaries is a party with any other Person, other than to allow suchPerson to make and consummate a Superior Proposal.
     (d) From and after the date of this Agreement, Italy shall promptly (and in any event within24 hours) notify Portugal, at first orally and then in writing, of any proposal, inquiry, offer (orany amendment thereto) or any request for discussions or negotiations in each case or requestrelating to or constituting an Acquisition Proposal, any request for representation on the Italyboard of directors, or any request for non-public information relating to Italy or any Subsidiaryof Italy or any material joint venture or material mineral property relating to or constituting anAcquisition Proposal of which Italy’s directors, officers, representatives or agents are or becameaware. Such notice shall include a description of the terms and conditions of, and the identity ofthe Person making, any proposal, inquiry, offer (including any amendment thereto) or request, andshall include copies of any such proposal or offer or any amendment to such proposal or offer.Italy shall also provide such other details of the proposal or offer, or any amendment thereto, asPortugal may reasonably request. Italy shall keep Portugal promptly and fully informed of thestatus, including any change to the material terms, of any such proposal or offer, or any amendmentthereto, and will respond promptly to all inquiries by Portugal with respect thereto.
     (e) Italy shall ensure that its officers, directors, representatives, agents and legal andfinancial advisors, and its Subsidiaries and their officers, directors, representatives, agents andlegal and financial advisors, are aware of the provisions of Sections 5.3(a) to 5.3(d) hereof andagree to be bound thereby, and it shall be responsible for any breach of such provisions by any ofthem or by any employee of Italy or any Subsidiary.
     (f) Italy shall not make any Change in Italy Recommendation in respect of, or enter into anyagreement relating to, an Acquisition Proposal (other than a confidentiality agreement contemplatedby Section 5.3(b)(ii)(B) above) unless:
     (i) the Acquisition Proposal constitutes a Superior Proposal;
     (ii) Italy has provided Portugal with notice in writing that there is a SuperiorProposal together with all documentation detailing the Superior Proposal (including a copyof the confidentiality agreement between Italy and the Person making the Superior Proposalif not previously delivered);
     (iii) at least 10 business days shall have elapsed from the date that Portugal hasreceived a copy of the written proposal in respect of the purported Superior Proposal (orany amendment or revision thereof);
     (iv) if Portugal has proposed to amend the terms of the Arrangement and this Agreementin accordance with Section 5.3(g), the Italy board of directors

53


 

(after receiving advice from its financial advisors and outside legal counsel) shallhave determined in good faith that the Acquisition Proposal continues to constitute aSuperior Proposal after taking into account such amendments;
     (v) Italy’s board of directors, after consultation with outside legal counsel,determines in good faith that the failure to take such action would be inconsistent withits fiduciary duties under all applicable Laws; and
     (vi) prior to entering into an agreement relating to such Superior Proposal (otherthan the aforesaid confidentiality agreement) Italy shall have terminated this Agreementpursuant to Section 9.1(j) and paid to Portugal the Italy Termination Fee.
     (g) Italy acknowledges and agrees that, during the 10 business day period referred to inSection 5.3(f)(iii), Portugal shall have the opportunity, but not the obligation, to propose toamend the terms of the Arrangement and this Agreement. The Italy board of directors will reviewany proposal by Portugal to amend the terms of the Arrangement and this Agreement in order todetermine, in good faith in the exercise of its fiduciary duties, whether such proposal wouldresult in the Acquisition Proposal not being a Superior Proposal compared to the proposedamendments to the terms of the Arrangement and this Agreement.
     (h) Nothing in this Agreement shall prevent the Italy board of directors from respondingthrough a directors’ circular or otherwise as required by applicable Securities Laws to anyAcquisition Proposal or from calling and holding a meeting of the holders of the Italy CommonShares requisitioned by such shareholders pursuant to Section 143 of the CBCA or ordered to be heldby a court pursuant to section 144 of the CBCA.
     (i) Italy acknowledges and agrees that each successive modification of the material terms ofany Acquisition Proposal shall constitute a new Acquisition Proposal for purposes of this Section5.3.
     (j) When used in this Agreement, the following terms shall have the following meanings:
     “Acquisition Proposal” means: (i) any merger, take-over bid, amalgamation,plan of arrangement, business combination, consolidation, recapitalization, liquidation orwinding-up in respect of Italy; (ii) any sale or acquisition of 20% or more of the fairmarket value of the assets of Italy on a consolidated basis; (iii) any sale or acquisitionof 20% or more of Italy’s shares of any class or rights or interests therein or thereto;(iv) any sale of any material interest in any material joint ventures or material mineralproperties; (v) any similar business combination or transaction, of or involving Italy, anymaterial Subsidiary of Italy or material joint venture of Italy, other than with Portugal;or

54


 

(vi) any proposal or offer to, or public announcement of an intention to do, any ofthe foregoing from any Person other than Portugal, provided, however, thatthe term “Acquisition Proposal” shall not include the transactions contemplated by thisAgreement or the Support Agreement.
     “Superior Proposal” means an unsolicited bona fide Acquisition Proposal madeby a third party to Italy in writing after the date hereof: (i) to purchase or otherwiseacquire, directly or indirectly, by means of a merger, take-over bid, amalgamation, plan ofarrangement, business combination, consolidation, recapitalization, liquidation, winding-upor similar transaction, all of the Italy Common Shares; (ii) that is reasonably capable ofbeing completed, taking into account all legal, financial, regulatory (including U.S. andEuropean Competition Authority and any Investment Canada approval) and other aspects ofsuch proposal and the party making such proposal; (iii) in respect of which any requiredfinancing to complete such Acquisition Proposal has been demonstrated to the satisfactionof the Italy board of directors, acting in good faith (after receipt of advice from itsfinancial advisors and outside legal counsel), is reasonably likely to be obtained, (iv)that is not subject to any due diligence condition; (v) that is offered or made availableto all shareholders of Italy in Canada and the United States on the same terms; and (vi) inrespect of which the Italy board of directors determines in good faith (after receipt ofadvice from its financial advisors with respect to (y) below and outside legal counsel withrespect to (x) below) that (x) failure to recommend such Acquisition Proposal to Italy’sshareholders would be inconsistent with its fiduciary duties and (y) such AcquisitionProposal taking into account all of the terms and conditions thereof, if consummated inaccordance with its terms (but not assuming away any risk of non-completion), would resultin a transaction more favorable to shareholders from a financial point of view than theArrangement (including any adjustment to the terms and conditions of the Arrangement andthis Agreement proposed by Portugal pursuant to Section 5.3(g), and taking into account thelong-term value and anticipated synergies anticipated to be realized as a result of thecombination of Portugal and Italy).
     5.4. Dissent Rights. Italy shall provide Portugal with a copy of any purportedexercise of the Dissent Rights and written communications with such Italy shareholder purportedlyexercising the Dissent Rights; and not settle or compromise any Action brought by any present,former or purported holder of any of its securities in connection with the transactionscontemplated by this Agreement, including the Arrangement, without the prior written consent ofPortugal, not to be unreasonably withheld or delayed.
     5.5. Italy Affiliates. At least 10 days prior to the Italy Meeting, Italy shallprovide to Portugal a list of those persons who may be deemed to be, in Italy’s reasonable

55


 

judgment, affiliates of Italy within the meaning of Rule 145 promulgated under the 1933 Act.
     5.6. Preference Shares and Convertible Debentures. At the request of Portugal, inthe event that Italy acquires control of France, Italy shall cause France to use its reasonablebest efforts to redeem or repurchase all outstanding France preference shares and convertibledebentures (including, without limitation, making offers to purchase any class of preference sharesthat are not redeemable at France’s option on such terms and conditions as are reasonablyacceptable to Portugal and Italy). Without the prior written approval of Portugal, Italy will notcause France to amalgamate with Italy prior to the time that all convertible debentures andpreference shares of France (whether or not redeemable at France’s option) have been redeemed orrepurchased in full.
ARTICLE VI
COVENANTS OF PORTUGAL
     6.1. Conduct of Business. During the period from the date of this Agreement to theEffective Time, except as otherwise expressly contemplated or permitted in this Agreement andexcept to the extent Italy shall otherwise give its prior written consent, not to be unreasonablywithheld or delayed, each of Portugal and its Subsidiaries shall: (i) conduct its businessin the ordinary course and consistent with past practice and in compliance in all material respectswith applicable Laws; (ii) pay or perform its material obligations when due; and(iii) use its commercially reasonable efforts consistent with past practices to:(A) preserve intact its present business organization, (B) keep available theservices of its present officers and employees, (C) preserve in all material respects itsrelationships with customers, suppliers, distributors, joint venture partners and others with whichit has significant business dealings, and (D) preserve in all material respects thePortugal Intellectual Property. Without limiting the generality of the foregoing, except asprovided in Section 6.1 of the Portugal Disclosure Schedule or as expressly contemplated by thisAgreement or the Plan of Arrangement, without the prior written consent of Italy, not to beunreasonably withheld or delayed, during the period from the date of this Agreement to theEffective Time, Portugal shall not, and shall not permit any of its Subsidiaries to, do any of thefollowing:
     (a) amend its certificate of incorporation or by-laws or other applicable governinginstruments;
     (b) split, combine, subdivide or reclassify any shares of its capital stock or otherequity interests or declare, set aside or pay any dividend or other distribution (whetherin cash, stock or property or any combination thereof) in respect of its capital stock, orredeem, repurchase or otherwise acquire or offer to redeem, repurchase, or otherwiseacquire any of its securities, except for (i) cash dividends with respect to thePortugal Common Shares, consistent with past

56


 

practice and in the ordinary course, in each case with usual declaration, record andpayment dates and in accordance with Portugal’s current dividend policy and (ii)dividends paid to Portugal or any of its Subsidiaries by any Subsidiary of Portugal;
     (c) adopt a plan or agreement of complete or partial liquidation, dissolution, merger,consolidation, amalgamation, restructuring, recapitalization or other materialreorganization (other than a merger, amalgamation or consolidation between wholly ownedSubsidiaries of Portugal);
     (d) issue, deliver or sell, or authorize the issuance, delivery or sale of, any sharesof its capital stock of any class or other equity interests or any securities convertibleinto or exercisable for, or any rights, warrants or options to acquire, any such capitalstock or other equity interests, other than (i) the issuances of Portugal CommonShares upon the exercise of stock options outstanding on the date hereof or issued afterthe date hereof in compliance with the terms of this Agreement in accordance with theirpresent terms, (ii) grants of options, restricted shares, and/or deferred stockunits to its employees and directors in the ordinary course of business consistent withpast practice, using Portugal’s standard form of award agreement as of the date hereof, inrespect of a maximum of 500,000 Portugal Common Shares in the aggregate; or (iii)issuances of Portugal Common Shares required pursuant to the conversion of convertiblesecurities outstanding on the date hereof;
     (e) except as required to ensure that any Portugal Employee Plan in effect on the dateof this Agreement is not then out of compliance with applicable Law or as specificallyrequired or permitted pursuant to this Agreement or as provided in the Portugal DisclosureSchedule, (A) adopt, enter into, terminate or amend any Portugal Employee Plan, other thanin the ordinary course of business consistent with past practice, (B) increase in anymanner the compensation or benefits of, or pay any bonus to, any employee of Portugal orits Subsidiaries, except for increases in base salary or payments of bonuses in theordinary course of business consistent with past practice or as required to comply with anyPortugal Employee Plan in effect on the date of this Agreement, or in 2007 in connectionwith annual performance assessments consistent with past practices, (C) pay or provide toany employee of Portugal or its Subsidiaries any benefit not provided for under anyPortugal Employee Plan as in effect on the date of this Agreement, other than the paymentof base compensation in the ordinary course of business consistent with prior practice oras permitted by clause (B) above, (D) except to the extent expressly permitted underSection 6.1(d), grant any awards under any Portugal Employee Plan (including the grant ofstock or other equity options, stock or other equity appreciation rights, performanceunits, restricted stock or other equity, stock or other equity purchase rights or otherstock or other

57


 

equity-based or stock-related awards) or remove existing restrictions in any PortugalEmployee Plan or awards made thereunder, (E) take any action to fund or in any other waysecure the payment of compensation or benefits under any Portugal Employee Plan, except asrequired to comply with any Portugal Employee Plan as in effect on the date of thisAgreement or (F) take any action to accelerate the vesting or payment of any compensationor benefits under any Portugal Employee Plan;
     (f) acquire (by merger, consolidation, acquisition of stock or assets or otherwise),directly or indirectly, any material business;
     (g) other than pursuant to Contracts in effect as of the date hereof and other thansales of inventory in the ordinary course of business consistent with past practice, sell,lease, license (as licensor or licensee), assign, encumber or otherwise transfer in onetransaction or any series of related transactions, any material assets or material rights;
     (h) incur, assume or guarantee any indebtedness for borrowed money or issue or sellany debt securities or warrants or other rights to acquire debt securities, or enter intoany keep-well or other arrangements to maintain the financial condition of any otherPerson, other than short-term borrowings in the ordinary course of business and in amountsand on terms consistent with past practices;
     (i) make any loan, advance or capital contribution to or investment in any Person,other than (i) loans, advances or capital contributions to or investments in itsSubsidiaries or pursuant to Contracts in effect at the date hereof, (ii) inconnection with acquisitions permitted by Section 6.1(e), or (iii) in the ordinarycourse of business consistent with past practice, to the extent not individually or in theaggregate material to Portugal; provided that none of such transactions permitted by thisclause (iii) shall present a material risk of delaying or impairing the parties’ ability toconsummate the transactions contemplated by this Agreement;
     (j) change (i) its methods of accounting or accounting practices in anymaterial respect, except as required by concurrent changes in US GAAP (or the permittedearly adoption of such changes) or by Law and concurred in by Portugal’s external auditorsor (ii) its fiscal year;
     (k) take any action that would, or would reasonably be expected to, prevent ormaterially impair or delay the ability of Portugal to consummate the transactionscontemplated by this Agreement, including the Arrangement and the transactions contemplatedby the Arrangement; or

58


 

     (l) agree or commit to do any of the foregoing.
     6.2. Shareholders Meeting.
     (a) Subject to the terms of this Agreement, Portugal shall use its reasonable best efforts tocause the Portugal Meeting to be held as soon as practicable after the date hereof.
     (b) Subject to the terms hereof, Portugal shall (i) promptly after the execution and deliveryof this Agreement, finalize the notice of the Portugal Meeting, the accompanying proxy statement,and all other documents required by the Securities Laws or other applicable Laws to be sent toholders of Portugal Common Shares in connection with the Portugal Meeting (such documents, asamended, supplemented or otherwise modified, the “Portugal Proxy Statement”), (ii) use itsreasonable best efforts to have the Portugal Proxy Statement cleared by the SEC, and (iii) aspromptly as practicable after such clearance, cause the Portugal Proxy Statement to be sent to eachPortugal shareholder.
     (c) Subject to the terms of this Agreement, Portugal shall (i) take all lawful actionto solicit in favor of the transactions contemplated by this Agreement the Portugal StockholderApproval, (ii) recommend to holders of Portugal Common Shares that they vote in favor of(A) the Portugal Share Issuance and (B) the Portugal Charter Amendment and(iii) not withdraw, modify or qualify (or publicly propose to or publicly state that itintends to withdraw, modify or qualify) in any manner adverse to Italy such recommendation (anysuch action, a “Change in Portugal Recommendation” and, together with a Change in ItalyRecommendation, a “Change in Recommendation”), provided, however, that Portugal may(A) make such Change in Portugal Recommendation if Portugal’s board of directors, afterconsultation with outside legal counsel, has determined that failure to take such action would beinconsistent with its fiduciary duties under applicable Law and (B) upon such a Change inPortugal Recommendation, may solicit votes of the Portugal stockholders consistent with such Changein Portugal Recommendation.
     6.3. Section 3(a)(10) Exemption. In the event that the exemption from registrationunder Section 3(a)(10) of the 1933 Act is not available for any reason to exempt the issuance ofthe Portugal Common Shares in accordance with the Plan of Arrangement from the registrationrequirements of the 1933 Act, then Portugal shall take all necessary action to file a registrationstatement on Form S-4 (or on such other form that may be available to Portugal) in order toregister such Portugal Common Shares and shall use its reasonable best efforts to cause suchregistration statement to become effective at or prior to the Effective Time.
     6.4. Stock Exchange Listings. Portugal shall use its reasonable best efforts toobtain the approval of the NYSE for the listing of the Portugal Common Shares to be

59


 

issued in connection with the transactions contemplated by this Agreement, and for the listingof the Portugal Common Shares on the TSX, such listings to be effective prior to or as of the timeof issuance of such shares pursuant to the Arrangement.
     6.5. Amendment to Governing Documents of Portugal. Subject to the receipt of thePortugal Stockholder Approval, Portugal shall take all actions necessary to cause the certificateof incorporation of Portugal at the Effective Time to be in the form of Exhibit C hereto.
     6.6. Board Composition. Portugal shall use its reasonable best efforts to cause thefull board of directors of Portugal, effective immediately following the filing of the Articles ofArrangement, to consist of (i) 11 individuals who are currently members of the board of directorsof Portugal and (ii) 4 individuals who are currently members of the board of directors of Italy or,provided that the France Condition has been satisfied, and France, the identity of such individualsto be determined by the Committee on Directors and Corporate Governance of the Portugal Board ofDirectors.
     6.7. Certain Officers. The parties hereby agree that (i) the current ChiefExecutive Officer of Portugal shall continue to serve as the Chairman and Chief Executive Officerof Portugal immediately following the filing of the Articles of Arrangement, (ii) Portugalshall take all actions necessary to cause the current Chief Executive Officer of Italy to becomethe Vice-Chairman of Portugal effective immediately following the filing of the Articles ofArrangement, and (iii) provided that the France Condition shall have been satisfied,Portugal shall take all action necessary to cause the current Chief Executive Officer of France tobecome the President-Operations of Portugal effective immediately following the filing of theArticles of Arrangement. The foregoing persons shall continue to serve in the foregoing positionsuntil otherwise provided in accordance with the Portugal Charter Documents and applicable Laws.
ARTICLE VII
ADDITIONAL AGREEMENTS
     7.1. Confidentiality; Access to Information.
     (a) Confidentiality. The parties acknowledge that Italy and Portugal have previouslyexecuted reciprocal confidentiality agreements, each dated as of June 4, 2006 (the“Confidentiality Agreements”), which Confidentiality Agreements will continue in full forceand effect in accordance with their respective terms.
     (b) Access to Information. Each of Portugal and Italy will (and will use reasonablebest efforts to cause each of its Subsidiaries to) afford the other party and its accountants,counsel and other representatives reasonable access during normal business hours, upon reasonablenotice, to its properties, books, records, Contracts and personnel

60


 

during the period prior to the Effective Time to obtain all information concerning itsbusiness, properties, results of operations and personnel, as may be reasonably requested. Noinformation or knowledge obtained by any party in any investigation pursuant to this Section 7.1(b)will affect or be deemed to modify any representation or warranty contained herein or theconditions to the obligations of the parties to consummate the Arrangement. Notwithstanding theforegoing, either party may restrict the foregoing access to the extent that any Law (includingLaws relating to the exchange of information and all applicable antitrust, competition and similarLaws, and attorney-client and other privileges) applicable to such party requires such party or itsSubsidiaries to restrict or prohibit such access. The parties will hold any information obtainedpursuant to this Section 7.1(b) in confidence in accordance with, and otherwise subject to, theprovisions of the applicable Confidentiality Agreement.
     7.2. Cooperation in Filings.
     (a) Portugal and Italy shall cooperate in the preparation, filing and mailing of the ItalyCircular and the Portugal Proxy Statement (collectively, the “Shareholder Solicitations”).Each of Portugal and Italy shall, as promptly as practicable after receipt thereof, provide theother party copies of any written comments and advise the other party of any oral comments withrespect to its respective Shareholder Solicitation received from the SEC, the Canadian SecuritiesRegulatory Authorities or any other Governmental Entity. The parties shall cooperate and eachparty shall provide the other with a reasonable opportunity to review and comment on its respectiveShareholder Solicitation and any amendments or supplements thereto prior to filing such with theSEC, the Canadian Securities Regulatory Authorities and/or each other applicable Government Entity,and will provide each other with a copy of all such filings made. Each party will advise the otherparty, promptly after it receives notice thereof, of the time when its respective ShareholderSolicitation has been cleared by the SEC, the Canadian Securities Regulatory Authorities or anyother Governmental Entity, or any request by the SEC, the Canadian Securities RegulatoryAuthorities or any other Governmental Entity for amendment of its respective ShareholderSolicitation.
     (b) Each of Portugal and Italy shall furnish to the other all such information concerning itand its shareholders as may be required (and, in the case of its shareholders, available to it) forthe effectuation of the actions described in Sections 5.2 and 6.2 and the foregoing provisions ofthis Section 7.2, and each covenants that the information furnished by it (or, to its knowledge,with respect to information concerning its shareholders) in connection with such actions orotherwise in connection with the consummation of the transactions contemplated by this Agreement inthe aggregate will not contain any untrue statement of a material fact or omit to state a materialfact required to be stated in any such document or necessary in order to make any information sofurnished for use in any such document not misleading in the light of the circumstances in which itis furnished.

61


 

     (c) Each of Portugal and Italy shall use its reasonable best efforts to ensure that itsrespective Shareholder Solicitation complies with all applicable Laws in all material respects and,without limiting the generality of the foregoing, that the information furnished by it (or, to itsknowledge, with respect to information concerning its shareholders) for inclusion in the otherparty’s respective Shareholder Solicitation will not, in the aggregate, contain any untruestatement of a material fact or omit to state a material fact required to be stated therein ornecessary to make the statements contained therein not misleading in light of the circumstances inwhich they are made (other than with respect to any information relating to and provided by theother party or any third party that is not one of its Affiliates).
     (d) Each of Portugal and Italy shall promptly notify the other if, at any time before theEffective Time, it becomes aware that either Shareholder Solicitation or any application for anInterim Order or Final Order contains any untrue statement of a material fact or omits to state amaterial fact required to be stated therein or necessary to make the statements contained thereinnot misleading in light of the circumstances in which they are made, or that otherwise requires anamendment or supplement to such Shareholder Solicitation or such other document or application. Inany such event, each of Portugal and Italy shall cooperate in the preparation of a supplement oramendment to such Shareholder Solicitation or such other document or application, as required andas the case may be, and, if required, shall cause the same to be distributed to shareholders ofPortugal or Italy, respectively, and/or filed with the relevant Governmental Entities.
     7.3. Public Announcements. Portugal and Italy shall use reasonable best efforts(i) to develop a joint communications plan, (ii) to ensure that all press releasesand other public statements with respect to this Agreement and the transactions contemplated herebyshall be consistent with such joint communications plan, and (iii) except where thecircumstances make it impractical or prompt disclosure is required by applicable law, to consultwith each other before issuing any press release or, to the extent practical, otherwise making anypublic statement with respect to this Agreement or the transactions contemplated hereby. Except inrespect of any announcement required by applicable Law, no party shall issue any press release orotherwise make any public statement or disclosure concerning the other party or the other party’sbusiness, financial condition or results of operations without the consent of such other party,which consent shall not be unreasonably withheld or delayed.
     7.4. Reasonable Best Efforts.
     (a) Upon the terms and subject to the conditions set forth in this Agreement, each of Portugaland Italy agrees to use its reasonable best efforts to take, or cause to be taken, all actions, andto do, or cause to be done, and to assist and cooperate with the other party in doing, all thingsnecessary, proper or advisable under applicable Laws to consummate and make effective, in the mostexpeditious manner practicable, the Arrangement and the other transactions contemplated by thisAgreement. The parties

62


 

shall cooperate in all reasonable respects and will use reasonable best efforts to contest anyaction or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment,injunction or other order, whether temporary, preliminary or permanent, that prohibits, prevents orrestricts the consummation of the transactions contemplated by this Agreement.
     (b) Upon the terms and subject to the conditions set forth in this Agreement, each of Portugaland Italy shall and shall use reasonable best efforts to cause its respective Subsidiaries toperform all obligations required or desirable to be performed by it or any of such Subsidiariesunder this Agreement, cooperate with the other party in connection therewith, and do all such otheracts and things as may be necessary or desirable in order to consummate and make effective, as soonas reasonably practicable, the transactions contemplated in this Agreement and, without limitingthe generality of the foregoing, each party shall and where appropriate shall cause itsSubsidiaries to:
     (i) use its reasonable best efforts to obtain the requisite approvals of thisAgreement from its shareholders, except to the extent that the board of directors of suchparty has effected a Change in Recommendation in compliance with the terms hereof(including Sections 5.2 and 6.2);
     (ii) apply for and use its reasonable best efforts to promptly obtain all RegulatoryApprovals to be obtained by it and its Subsidiaries and, in doing so, keep the other partyreasonably informed, subject to ensuring that confidential competitively sensitiveinformation is exchanged among outside counsel only, as to the status of the proceedingsrelated to obtaining the Regulatory Approvals, including, but not limited to, (A)providing such other party with copies of all material related applications andnotifications prepared for submission to any other Person or Governmental Entity, in draftform, in order for such other party to provide its reasonable comments and providing suchother party with copies of all related material communications regarding this Agreementreceived by such party from, or given by such party to, any Governmental Entity and anymaterial communication received or given in connection with any proceeding by a privateparty relating to such Regulatory Approvals, (B) consulting with the other party tothe extent practicable in advance of any meeting or conference with Governmental Entitiesor, in connection with any proceeding by a private party, with any other Person and, to theextent permitted by such Governmental Entities, to permit the other party to attend suchmeetings and conferences, in each case to the extent relating to the transactionscontemplated by this Agreement and (C) receiving the prior written consent of theother party before agreeing to extend any waiting period any antitrust merger control Lawsor entering into any agreement with any Governmental Entity regarding antitrust,competition or similar Laws;

63


 

     (iii) use its reasonable best efforts to obtain all necessary Approvals required to beobtained by it or its Subsidiaries from third parties in connection with the transactionscontemplated by this Agreement, including the Arrangement;
     (iv) carry out the terms of the Interim Order and the Final Order applicable to it anduse its reasonable best efforts to comply promptly with all requirements which applicableLaws may impose on it or its Subsidiaries with respect to the transactions contemplated bythis Agreement; and
     (v) promptly advise the other party orally and, if then requested, in writing of anyevent occurring subsequent to the date of this Agreement that, if uncured at the EffectiveTime, would render it incapable of satisfying any condition to be satisfied by it pursuantto Article VII.
     7.5. Regulatory Filings. Without limiting the generality of Section 7.4, as soon asmay be reasonably practicable, Italy and Portugal each shall (i) file with the UnitedStates Federal Trade Commission (the “FTC”) and the Antitrust Division of the United StatesDepartment of Justice (“DOJ”) Notification and Report Forms relating to the transactionscontemplated herein as required by the HSR Act, (ii) notify the Commissioner as required byPart IX of the Competition Act and/or request an ARC, (iii) make all appropriate filingswith the European Commission (“European Commission”) pursuant to Council Regulation (EC)139/2004 of 20 January 2004 or otherwise, and (iv) file comparable merger notification formsrequired by the merger notification or control Laws of any other applicable jurisdiction asrequired by Laws or that Portugal and Italy reasonably determine to be necessary. Italy andPortugal each shall promptly (a) supply the other with any information which may berequired in order to effectuate such filings and (b) supply any additional informationwhich reasonably may be required by the FTC, the DOJ, the Commissioner, the European Commission, orthe competition or merger control authorities of any other jurisdiction. As soon as reasonablypracticable, Portugal shall file with the Investment Review Division of Industry Canada(“IRD”), an application for review and any supplemental information (other than privilegedinformation) which may be required in connection therewith pursuant to the ICA, which filings willcomply in all material respects with the requirements of the ICA. Italy will provide Portugal withsuch information and documents as Portugal reasonably requests for purposes of preparing suchfilings.
     7.6. Indemnification.
     (a) From and after the Effective Time, Portugal will fulfill, and will cause Italy and/or itssuccessors to fulfill and honor in all respects its obligations pursuant to any indemnificationagreements between Italy and the present and former directors or officers of Italy or anySubsidiary thereof (the “Indemnified Parties”) in effect immediately prior to the EffectiveTime and any indemnification provisions under the

64


 

Italy Charter Documents or applicable Laws, in each case, as in effect on the date hereof (andshall also pay expenses in advance of the final disposition of any such action, suit or proceedingto each Indemnified Party to the fullest extent permitted under applicable Law, upon receipt fromthe Indemnified Party to whom expenses are advanced of the undertaking to repay such advances ifindemnification is subsequently found by a court of competent jurisdiction, which finding is nolonger subject to appeal or further proceedings, that such person is not entitled toindemnification). Portugal shall cause Italy and/or its successors to not amend, repeal orotherwise modify the provisions with respect to exculpation and indemnification contained in theItaly Charter Documents as in effect on the date hereof for a period of six (6) years from theEffective Time in any manner that would adversely affect the rights thereunder of individuals who,prior to the Effective Time, were directors or officers of Italy, unless such modification isrequired by Law.
     (b) Prior to the Effective Time, Italy shall (or if Italy is unable to, Portugal shall) obtainand pay for “tail” insurance policies with a claims period of at least six years from and after theEffective Time from an insurance carrier with the same or better credit rating as Italy’s currentinsurance carrier with respect to directors’ and officers’ liability insurance and fiduciaryliability insurance (collectively, “D&O Insurance”) with benefits and levels of coverage at leastas favorable as Italy’s existing policies with respect to matters existing or occurring at or priorto the Effective Time (including in connection with this Agreement or the transactions or actionscontemplated hereby). If Italy or Portugal for any reason fail to obtain such “tail” insurancepolicies as of the Effective Time, for a period of six (6) years after the Effective Time, Portugalwill, or will cause Italy and/or its successors to, maintain in effect directors’ and officers’liability insurance covering those persons who are currently covered by Italy’s directors’ andofficers’ liability insurance policy with respect to claims arising from facts or events thatoccurred on or before the Effective Time on terms comparable to those applicable to the currentdirectors and officers of Italy.
     (c) This Section 7.6 is intended to be for the benefit of, and shall be enforceable by, theIndemnified Parties referred to herein, their heirs and personal representatives.
     7.7. Takeover Statutes. If any “fair price,” “moratorium,” “control shareacquisition” or other similar anti-takeover statute or regulation (each a “TakeoverStatute”) is or may become applicable to the transactions contemplated by this Agreement or theArrangement, each of Portugal, Italy and their respective boards of directors shall grant suchapprovals and take such actions as are necessary so that such transactions may be consummated aspromptly as practicable on the terms contemplated by this Agreement and the Arrangement andotherwise act to eliminate or minimize the effects of such statute or regulation on suchtransactions.

65


 

     7.8. Section 16(b). The board of directors of Italy and Portugal shall, prior to theEffective Time, take all such actions as may be necessary or appropriate pursuant to Rule 16b-3(d)and Rule 16b-3(e) under the 1934 Act to exempt the exchange of Italy Common Shares for PortugalCommon Shares pursuant to the terms of this Agreement by officers or directors of Italy who maybecome an officer or director of Portugal subject to the reporting requirements of Section 16(a) ofthe 1934 Act.
     7.9. U.S. Tax Treatment. Italy and Portugal intend for the acquisition by PortugalCanada of Italy Common Shares pursuant to this Agreement to be treated as a “qualified stockpurchase” for U.S. federal income tax purposes in respect of which an election under Section 338(g)of the Code may be made. Italy and Portugal shall take all reasonable steps to ensure suchtreatment, including, if necessary, amending the Plan of Arrangement.
ARTICLE VIII
CONDITIONS
     8.1. Conditions to Obligations of Each Party to Effect the Arrangement. Therespective obligations of each party to this Agreement to effect the Arrangement and the othertransactions contemplated herein shall be subject to the satisfaction at or prior to the EffectiveTime of the following conditions:
     (a) Portugal Stockholder Approval. The Portugal Stockholder Approval shallhave been obtained.
     (b) Italy Shareholder Approval. The Italy Shareholder Approval shall havebeen obtained, in accordance with any conditions which may be imposed by the Interim Order.
     (c) Interim Order; Final Order. The Interim Order and the Final Order shalleach have been obtained in form and terms reasonably satisfactory to each of Portugal andItaly, and shall not have been set aside or modified in a manner unacceptable to suchparties, acting reasonably, on appeal or otherwise.
     (d) No Orders. No Order or Law entered, enacted, promulgated, enforced orissued by any court or other Governmental Entity of competent jurisdiction shall be ineffect which restrains or enjoins the consummation of the Arrangement or makes theArrangement or the other transactions contemplated by this Agreement illegal.
     (e) Regulatory Approvals.

66


 

     (i) Portugal shall have obtained the Competition Act Approval and the ICAApproval;
     (ii) all applicable waiting periods (and any extensions thereof) under the HSRAct shall have expired or been terminated; and
     (iii) the applicable waiting periods under Council Regulation (EC) 139/2004 of20 January 2004 shall have expired or been terminated.
     (f) Listing of Shares. The Portugal Common Shares issuable pursuant to theArrangement shall have been approved for listing on the NYSE and TSX, subject to notice ofissuance.
     (g) France. Either (i) Italy shall have acquired at least two-thirdsof the outstanding common shares of France on the terms set forth in the Support Agreementand the Italy Bid Circular, without the waiver or change of any material term or conditionthereof except as approved by Portugal in writing, and shall have completed a FranceSubsequent Acquisition Transaction (the “France Condition”), or (ii) theSupport Agreement has been terminated in accordance with its terms. Italy will givePortugal at least 5 days written notice of any determination to waive any material term orcondition of the Support Agreement and the Italy Bid Circular and Portugal will informItaly within such period whether or not Portugal consents to such waiver.
     (h) Portugal Charter Amendment. Portugal’s certificate of incorporation shallhave been amended and restated in the form attached as Exhibit C, provided that(i) such amendment and restatement shall be effectuated only upon satisfaction orwaiver of all other conditions set forth in this Article VIII and (ii) Portugalshall not be entitled to rely on this condition precedent to the extent that it is inbreach of its obligations hereunder in respect of the implementation of such amendment.
     8.2. Additional Conditions to Obligations of Italy. The obligation of Italy toconsummate and effect the Arrangement shall be subject to the satisfaction at or prior to theEffective Time of each of the following conditions, any of which may be waived, in writing,exclusively by Italy:
     (a) Representations and Warranties. The representations and warranties ofPortugal contained in this Agreement (without giving effect to any materiality (includingthe word “material”) or “Material Adverse Effect” qualification) shall be true and correctas of the Closing Date with the same effect as if made at and as of the Closing Date (otherthan such representations that are made as of a specified date, which shall be true andcorrect as of such date), except as would not reasonably be expected to have, individuallyor in the

67


 

aggregate, a Material Adverse Effect on Portugal. Italy shall have received acertificate with respect to the foregoing signed on behalf of Portugal by an authorizedofficer of Portugal.
     (b) Agreements and Covenants. Portugal shall have performed or complied inall material respects with all material agreements and covenants required by this Agreementto be performed or complied with by it on or prior to the Closing Date, and Italy shallhave received a certificate to such effect signed on behalf of Portugal by an authorizedofficer of Portugal.
     (c) No Material Adverse Effect. Since the date hereof, there shall not haveoccurred any fact, event, change, development, circumstance or effect which, individuallyor in the aggregate, has had or would reasonably be expected to have a Material AdverseEffect on Portugal.
     (d) Portugal Board of Directors. Portugal shall have taken all such actionsas are necessary to cause the board of directors of Portugal as of the Effective Time to beconstituted in accordance with Section 6.6.
     8.3. Additional Conditions to the Obligations of Portugal. The obligations ofPortugal to complete the Arrangement shall be subject to the satisfaction at or prior to theEffective Time of each of the following conditions, any of which may be waived, in writing,exclusively by Portugal:
     (a) Representations and Warranties. The representations and warranties ofItaly contained in this Agreement (without giving effect to any materiality (including theword “material”) or “Material Adverse Effect” qualification) shall be true and correct asof the Closing Date with the same effect as if made at and as of the Closing Date (otherthan such representations that are made as of a specified date, which shall be true andcorrect as of such date), except as would not reasonably be expected to have, individuallyor in the aggregate, a Material Adverse Effect on Italy; it being understood and agreedthat for purposes of measuring the truth and correctness of the representations andwarranties of Italy as of the Closing Date, if the France Acquisition has occurred, France,its Subsidiaries and material joint ventures shall not be considered to be Subsidiaries ormaterial joint ventures of Italy. Portugal shall have received a certificate with respectto the foregoing signed on behalf of Italy by an authorized officer of Italy.
     (b) Agreements and Covenants. Italy shall have performed or complied in allmaterial respects with all material agreements and covenants required by this Agreement tobe performed or complied with by it at or prior to the Closing Date, and Portugal shallhave received a certificate to such effect signed on behalf of Italy by an authorizedofficer of Italy.

68


 

     (c) No Material Adverse Effect. Since the date hereof, there shall not haveoccurred any fact, event, change, development, circumstance or effect which, individuallyor in the aggregate, has had or would reasonably be expected to have a Material AdverseEffect on Italy.
     (d) Dissent Rights. The holders of no more than 10% of all of the issued andoutstanding Italy Common Shares shall have exercised their Dissent Rights (and shall nothave lost or withdrawn such rights) in respect of the Arrangement, provided that in theevent that any Person who holds, directly or indirectly, on the date hereof more than 10%of the common shares of France exercises Dissent Rights in respect of the Arrangement inrespect of more than 5% of the Italy Common Shares, the first reference to 10% in thisSection 8.3(d) shall be increased to 15%.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
     9.1. Termination. This Agreement may be terminated at any time prior to theEffective Time, whether before or after the requisite approval of the shareholders of Italy orPortugal:
     (a) by mutual written consent duly authorized by the boards of directors of each ofPortugal and Italy;
     (b) by either Italy or Portugal, if the Arrangement shall not have been consummated byMarch 31, 2007 for any reason (the “Termination Date”); provided, however, that theright to terminate this Agreement under this Section 9.1(b) shall not be available to anyparty whose action or failure to act has been a principal cause of or resulted in thefailure of the Arrangement to occur on or before such date and such action or failure toact constitutes a breach of this Agreement;
     (c) by either Italy or Portugal, if there shall be passed any Law that makes theconsummation of the Arrangement illegal or otherwise prohibited, or if a GovernmentalEntity in the United States or Canada shall have issued an Order or taken any other action,in any case having the effect of permanently restraining, enjoining or otherwiseprohibiting the Arrangement, which Order or other action is final and nonappealable;
     (d) by either Italy or Portugal, if the Italy Shareholder Approval shall not have beenobtained by reason of the failure to obtain the Italy Shareholder Approval upon a votetaken thereon at the duly convened Italy Meeting or at any adjournment or postponementthereof;

69


 

     (e) by either Italy or Portugal, if the Portugal Stockholder Approval shall not havebeen obtained by reason of the failure to obtain the Portugal Stockholder Approval upon avote taken thereon at the duly convened Portugal Meeting or any adjournment or postponementthereof;
     (f) by Italy, upon a breach of any representation, warranty, covenant or agreement onthe part of Portugal set forth in this Agreement such that the conditions set forth inSection 8.2(a) or Section 8.2(b) are incapable of being satisfied on or before theTermination Date;
     (g) by Portugal, upon a breach of any representation, warranty, covenant or agreementon the part of Italy set forth in this Agreement such that the conditions set forth inSection 8.3(a) or Section 8.3(b) are incapable of being satisfied on or before theTermination Date;
     (h) by Italy or Portugal if the board of directors of Portugal shall have effected aChange in Portugal Recommendation;
     (i) by Portugal or Italy if the board of directors of Italy shall have effected aChange in Italy Recommendation; or
     (j) by Italy, if Italy proposes to enter into a definitive agreement with respect to aSuperior Proposal in compliance with the provisions of Section 5.3(f), provided that Italyhas previously or concurrently will have paid to Portugal the Italy Termination Payment.
     9.2. Notice of Termination; Effect of Termination. Subject to Sections 9.1(j), anytermination of this Agreement under Section 9.1 above will be effective immediately upon thedelivery of written notice of the terminating party to the other party hereto. In the event of thetermination of this Agreement as provided in Section 9.1, this Agreement shall be of no furtherforce or effect, except that (i) Section 9.2, Section 9.3 and Article X (GeneralProvisions) shall survive the termination of this Agreement, and (ii) nothing herein shallrelieve any party from liability for any intentional or willful breach of this Agreement. Notermination of this Agreement shall affect the obligations of the parties contained in theConfidentiality Agreements, all of which obligations shall survive termination of this Agreement inaccordance with their terms.
     9.3. Fees and Expenses.
     (a) General. Except as set forth in this Section 9.3, all fees and expenses incurredin connection with this Agreement and the transactions contemplated hereby shall be paid by theparty incurring such expenses whether or not the Arrangement is consummated.

70


 

     (b) Italy Payments.
     (i) Italy shall pay to Portugal in immediately available funds, within one (1)business day after demand by Portugal, the Italy Termination Fee if this Agreement isterminated by Portugal or Italy pursuant to Section 9.1(i), unless: (A) the terminationarises as a result of a Material Adverse Effect in respect of Portugal that has occurredsince the date hereof, and (B) the Italy board of directors has determined in good faith(after receipt of advice from its legal and financial advisors) the failure to change theBoard’s recommendation, or refusal to reaffirm such recommendation, would be inconsistentwith its fiduciary duties.
     (ii) Italy shall pay Portugal in immediately available funds, within one (1) businessday after demand by Portugal, the Expenses of Portugal if this Agreement is terminated byPortugal pursuant to Section 9.1(g).
     (iii) Italy shall pay Portugal in immediately available funds, within one (1) businessday after demand by Portugal, the amount of US$125 million, if:
     (A) this Agreement is terminated by Portugal or Italy pursuant to Section9.1(b) and following the date hereof and prior to the termination of thisAgreement, an Italy Competing Proposal shall have been publicly announced orotherwise communicated to the shareholders of Italy, or
     (B) this Agreement is terminated by Italy or Portugal pursuant to Section9.1(d).
     (iv) If any payment becomes due and payable either (x) pursuant to clause (ii)above in circumstances where an Italy Competing Proposal was publicly announced orotherwise communicated to the shareholders of Italy prior to the termination of thisAgreement or (y) pursuant to clause (iii) above, and within twelve (12) monthsfollowing the termination of this Agreement, an Italy Competing Proposal is consummated,then Italy shall pay to Portugal, within one (1) business day after demand by Portugal, anamount equal to the amount by which (A) the Italy Termination Fee exceeds(B) the amount Italy paid to Portugal pursuant to clause (ii) or (iii) above.
     (v) Italy shall pay to Portugal in immediately available funds the Italy TerminationFee immediately prior to the termination of this Agreement by Italy pursuant to Section9.1(j).
     (vi) In the event that Italy acquires at least two-thirds of the outstanding commonshares of France after the date that it has become obligated to pay pursuant to the termshereof the Italy Termination Fee to Portugal, Italy shall, within one day of suchacquisition, pay to Portugal an additional $450

71


 

million, so that the total amount paid by Italy in respect of the Italy TerminationFee shall equal $925 million.
     (vii) Italy acknowledges that the agreements contained in this Section 9.3(b) are anintegral part of the transactions contemplated by this Agreement, and that if Italy failsto pay in a timely manner the amounts due pursuant to this Section 9.3(b) and, in order toobtain such payment, Portugal makes a claim that results in a judgment against Italy forthe amounts set forth in this Section 9.3(b), Italy shall pay to Portugal its reasonablecosts and expenses (including reasonable attorneys’ fees and expenses) in connection withsuch suit, together with interest on the amounts set forth in this Section 9.3(b) at theprime rate of Citibank N.A. in effect on the date such payment was required to be made.Payment of the fees described in this Section 9.3(b) shall not be in lieu of damagesincurred in the event of intentional or willful breach of this Agreement.
     (c) Portugal Payments.
     (i) Portugal shall pay to Italy in immediately available funds, within one (1)business day after demand by Italy, the Portugal Termination Fee if this Agreement isterminated by Italy or Portugal pursuant to Section 9.1(h) unless: (A) the terminationarises as a result of a Material Adverse Effect in respect of Italy that has occurred sincethe date hereof, and (B) the Portugal board of directors has determined in good faith(after receipt of advice from its legal and financial advisors) that the failure to changethe Board’s recommendation, or refusal to reaffirm such recommendation, would beinconsistent with its fiduciary duties.
     (ii) Portugal shall pay Italy in immediately available funds, within one (1) businessday after demand by Italy, the Expenses of Italy if this Agreement is terminated by Italypursuant to Section 9.1(f).
     (iii) Portugal shall pay Italy in immediately available funds, within one (1) businessday after demand by Italy, the amount of US$125 million, if:
     (A) this Agreement is terminated by Portugal or Italy pursuant to Section9.1(b), and following the date hereof and prior to the termination of thisAgreement, a Portugal Competing Proposal shall have been publicly announced orotherwise communicated to the shareholders of Portugal, or
     (B) this Agreement is terminated by Italy or Portugal pursuant to Section9.1(e).

72


 

     (iv) If any payment becomes due and payable either (x) pursuant to clause (ii)above in circumstances where a Portugal Competing Proposal was publicly announced orotherwise communicated to the shareholders of Portugal prior to the termination of thisAgreement or (y) pursuant to clause (iii) above, and within twelve (12) monthsfollowing the termination of this Agreement, an Portugal Competing Proposal is consummated,then Portugal shall pay to Italy, within one (1) business day after demand by Italy, anamount equal to the amount by which (A) the Portugal Termination Fee exceeds(B) the amount Portugal paid to Italy pursuant to clause (ii) or (iii) above.
     (v) Portugal acknowledges that the agreements contained in this Section 9.3(c) are anintegral part of the transactions contemplated by this Agreement and that if Portugal failsto pay in a timely manner the amounts due pursuant to this Section 9.3(c) and, in order toobtain such payment, Italy makes a claim that results in a judgment against Portugal forthe amounts set forth in this Section 9.3(c), Portugal shall pay to Italy its reasonablecosts and expenses (including reasonable attorneys’ fees and expenses) in connection withsuch suit, together with interest on the amounts set forth in this Section 9.3(c) at theprime rate of Citibank N.A. in effect on the date such payment was required to be made.Payment of the fees described in this Section 9.3(c) shall not be in lieu of damagesincurred in the event of intentional or willful breach of this Agreement.
     (d) Defined Terms. For purposes of Sections 9.3(b) and (c), the following terms shallhave the following meanings:
     “Expenses” means all out-of-pocket fees and expenses (including all fees andexpenses of counsel, accountants, financial advisors and investment bankers to a partyhereto and its Affiliates), up to $40 million in the aggregate, incurred by a party or onits behalf in connection with or related to the authorization, preparation, negotiation,execution and performance of this Agreement, the preparation, printing, filing and mailingof its Shareholder Solicitation, the filing of any required notices under applicableantitrust Laws or in connection with other Regulatory Approvals, and all other mattersrelated to the Arrangement (including the Interim Order and Final Order) and the othertransactions contemplated hereby.
     “Italy Competing Proposal” means: (i) any merger, take-over bid, amalgamation,plan of arrangement, business combination, consolidation, or similar transaction in respectof Italy; (ii) any purchase or other acquisition by a Person (other than Portugal) of suchnumber of Italy’s Common Shares or any rights or interests therein or thereto whichtogether with such Person’s other direct or indirect holdings of Common Shares and theholdings of any other Person or Persons with whom such first Person may be acting jointlyor in concert constitutes at least a majority of Italy’s outstanding Common Shares; (iii)any

73


 

similar business combination or transaction, of or involving Italy; or (iv) anyproposal or offer to, or public announcement of an intention to do, any of the foregoingfrom any Person other than Portugal; provided that notwithstanding the foregoingneither (a) the acquisition by Italy of a third party, whether structured by means of amerger, amalgamation, consolidation or otherwise, in which Italy remains as the parentcompany and the shareholders of Italy immediately prior to the consummation of suchtransaction hold a majority of the outstanding shares of Italy calculated on a fullydiluted basis immediately following such consummation nor (b) the acquisition by Italy ofFrance as contemplated by the Support Agreement shall constitute an Italy CompetingProposal, and provided, further, that the offer by Teck Cominco in respectof the Italy Common Shares that was announced on May 8, 2006 shall not be considered anItaly Competing Proposal unless Teck Cominco amends such offer to increase or materiallyimprove the consideration proposed to be paid by Teck Cominco thereunder.
     “Italy Termination Fee” means an amount equal to US$475 million,provided that such amount shall be US$925 million from and after the date thatItaly has acquired at least two-thirds of the outstanding common shares of France.
     “Portugal Competing Proposal” means: (i) any merger, take-over bid,amalgamation, plan of arrangement, business combination, consolidation, or similartransaction in respect of Portugal; (ii) any purchase or other acquisition by a Person(other than Italy) of such number of Portugal Common Shares or any rights or intereststherein or thereto which together with such Person’s other direct or indirect holdings ofPortugal Common Shares and the holdings of any other Person or Persons with whom such firstPerson may be acting jointly or in concert constitutes at least a majority of PortugalCommon Shares outstanding; (iii) any similar business combination or transaction, of orinvolving Portugal; or (iv) any proposal or offer to, or public announcement of anintention to do, any of the foregoing from any Person other than Italy; providedthat notwithstanding the foregoing the acquisition by Portugal of a third party, whetherstructured by means of a merger, amalgamation, consolidation or otherwise, in whichPortugal remains as the parent company and the shareholders of Portugal immediately priorto the consummation of such transaction hold a majority of the outstanding shares ofPortugal immediately following such consummation shall not constitute a Portugal CompetingProposal.
     “Portugal Termination Fee” means an amount equal to US$500 million.
     9.4. Amendment. Subject to applicable Law and the Interim Order, this Agreement maybe amended, not later than the Effective Time, whether before or after the Italy ShareholderApproval and the Portugal Stockholder Approval have been obtained, by action taken or authorized bythe respective boards of directors of the parties (or, to the extent permitted by Laws, any dulyempowered committee thereof) at any time

74


 

by execution of an instrument in writing signed on behalf of each of Portugal and Italy;provided that after the Portugal Stockholder Approval or Italy Shareholder Approval isobtained, no such amendment which requires further approval by the shareholders of Portugal orItaly, as the case may be, shall be effected without such further approval.
     9.5. Extension; Waiver. At any time prior to the Effective Time, any party heretomay, to the extent legally allowed, (i) extend the time for the performance of any of theobligations or other acts of the other parties hereto, (ii) waive any inaccuracies in therepresentations and warranties made to such party contained herein or in any document deliveredpursuant hereto and (iii) waive compliance with any of the agreements or conditions for thebenefit of such party contained herein. Any agreement on the part of a party hereto to any suchextension or waiver shall be valid only if set forth in an instrument in writing signed on behalfof such party, shall be limited to its terms and shall not be deemed to extend or waive any otherprovision of this Agreement. Delay in exercising any right under this Agreement shall notconstitute a waiver of such right.
ARTICLE X
GENERAL PROVISIONS
     10.1. Non-Survival of Representations and Warranties. The representations andwarranties of Italy and Portugal contained in this Agreement shall terminate at the Effective Time,and only the covenants and agreements that by their terms specifically survive the Effective Timeshall survive the Effective Time.
     10.2. Notices. All notices and other communications hereunder shall be in writingand shall be deemed given if delivered personally or by commercial delivery service, or sent viatelecopy (receipt confirmed) to the parties at the following addresses or telecopy numbers (or atsuch other address or telecopy numbers for a party as shall be specified by like notice):
             
    (i)   if to Portugal, to:
 
           
        Phelps Dodge Corporation
One North Central Ave.
Phoenix, AZ 85004
Attention: David Colton
Telecopy No.: (602) 366-7321



75


 

             
 
      with copies to:
 
           
        Debevoise & Plimpton LLP
919 Third Avenue
New York, N.Y. 10022

 
      Attention: Michael W. Blair
 
        Gregory V. Gooding
        Telecopy No.: (212) 909-6870
 
           
        and
 
           
        Heenan Blaikie LLP
P.O. Box 185, Suite 2600
200 Bay Street
South Tower, Royal Bank Plaza
Toronto, Ontario M5J 2J4




 
      Attention: Jeff Barnes
        Telecopy No.: (416) 360-8425
 
           
    (ii)   if to Italy, to:
 
           
        Inco Limited
145 King Street West
Suite 1500
Toronto, Ontario M5H 4B7,
Canada
Attention: Simon Fish
Telecopy No.: (416) 361-7781





 
           
        with copies to:
 
        Sullivan & Cromwell LLP
125 Broad Street
New York, New York 10004

 
      Attention: James C. Morphy
 
        George J. Sampas
        Telecopy No.: 212-558-3588
 
           
        and
 
           
        Osler, Hoskin & Harcourt LLP
P.O. Box 50
1 First Canadian Place, Suite 6600
Toronto, Ontario


76


 

             
        Canada M5X 1B8
 
      Attention: Dale R. Ponder
 
        Douglas R. Marshall
        Telecopy No.: 416-862-6666
     10.3. Counterparts. This Agreement may be executed in one or more counterparts,which may be delivered by facsimile transmission, all of which shall be considered one and the sameagreement and shall become effective when one or more counterparts have been signed by each of theparties and delivered to the other party, it being understood that all parties need not sign thesame counterpart.
     10.4. Entire Agreement; Third Party Beneficiaries. This Agreement and the documentsand instruments and other agreements among the parties hereto as contemplated by or referred toherein, including the Italy Disclosure Schedule and the Portugal Disclosure Schedule, (a)constitute the entire agreement among the parties with respect to the subject matter hereof andsupersede all prior representations, agreements and understandings, both written and oral, amongthe parties with respect to the subject matter hereof, and neither party is relying on any priororal or written representations, agreements, understandings or undertakings with respect to thesubject matter hereof, it being understood that the Confidentiality Agreements shall continue infull force and effect and shall survive any termination of this Agreement; and (b) are notintended to confer upon any other person any rights or remedies hereunder, except (i) asspecifically provided in Section 7.6 and (ii) the right of Italy’s shareholders to receivePortugal Common Shares and cash at the Effective Time and to recover, solely through an actionbrought by Italy, damages from Portugal in the event of a wrongful termination of this Agreement byPortugal.
     10.5. Severability. In the event that any provision of this Agreement, or theapplication thereof, becomes or is declared by a court of competent jurisdiction to be illegal,void or unenforceable, the remainder of this Agreement will continue in full force and effect andthe application of such provision to other persons or circumstances will be interpreted so asreasonably to effect the intent of the parties hereto. The parties further agree to replace suchvoid or unenforceable provision of this Agreement with a valid and enforceable provision that willachieve, to the extent possible, the economic, business and other purposes of such void orunenforceable provision.
     10.6. Other Remedies; Specific Performance. Except as otherwise provided herein, anyand all remedies herein expressly conferred upon a party will be deemed cumulative with and notexclusive of any other remedy conferred hereby, or by Law or equity upon such party, and theexercise by a party of any one remedy will not preclude the exercise of any other remedy. Theparties hereto agree that irreparable damage would occur in the event that any of the provisions ofthis Agreement were not performed in accordance with their specific terms or were otherwisebreached. It is accordingly agreed

77


 

that the parties shall be entitled to seek an injunction or injunctions to prevent breaches ofthis Agreement and to enforce specifically the terms and provisions hereof in any court of theUnited States or any state having jurisdiction, this being in addition to any other remedy to whichthey are entitled at law or in equity. The parties agree that, notwithstanding anything to thecontrary herein, in the event of a willful or intentional breach of this Agreement by Portugal orany of its Subsidiaries, the damages recoverable by Italy for itself and on behalf of itsshareholders shall be determined by reference to the total amount that would have been recoverableby the holders of the Italy Common Shares if all such holders brought an action against Portugaland were recognized as intended third party beneficiaries hereunder.
     10.7. Governing Law. This Agreement shall be deemed to be made in and in allrespects shall be interpreted, construed and governed by and in accordance with, and any disputesarising out of or related to this Agreement shall be interpreted, construed and governed by and inaccordance with, the laws of the State of New York, except to the extent mandatorily governed bythe laws of Canada. Except with respect to the Interim Order or Final Order or any other matterrelating thereto over which the Court has jurisdiction, the parties hereby irrevocably submit tothe jurisdiction of the courts of the State of New York solely in respect of the interpretation andenforcement of the provisions of this Agreement and of the documents referred to in this Agreement,and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert,as a defense in any Action for the interpretation or enforcement hereof or of any such document,that it is not subject thereto or that such Action may not be brought or is not maintainable insaid courts or that the venue thereof may not be appropriate or that this Agreement or any suchdocument may not be enforced in or by such courts, and the parties hereto irrevocably agree thatall claims with respect to such Actions shall be heard and determined in such New York court. Theparties hereby consent to and grant any such court jurisdiction over the person of such parties andover the subject matter of such dispute and agree that mailing of process or other papers inconnection with any such Action in the manner provided in Section 10.2 or in such other manner asmay be permitted by Law shall be valid and sufficient service thereof.
     10.8. No Personal Liability.
     (a) No director or officer of Portugal shall have any personal liability whatsoever to Italyunder this Agreement, or any other document delivered in connection with the Arrangement on behalfof Portugal.
     (b) No director or officer of Italy shall have any personal liability whatsoever to Portugalunder this Agreement, or any other document delivered in connection with the Arrangement on behalfof Italy.
     10.9. Assignment. No party may assign either this Agreement or any of its rights,interests, or obligations hereunder without the prior written approval of the other

78


 

parties. Any attempted assignment in violation hereof shall be null and void. Subject to theforegoing, this Agreement shall be binding upon and shall inure to the benefit of the partieshereto and their respective successors and permitted assigns.
     10.10. WAIVER OF JURY TRIAL. EACH OF PORTUGAL AND ITALY HEREBY IRREVOCABLY WAIVESALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OROTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PORTUGAL OR ITALY IN THENEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
     10.11. Currency. Unless otherwise specifically indicated, all sums of money referredto in this Agreement are expressed in U.S. Dollars.
* * * * *
     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their dulyauthorized respective officers as of the date first written above.
         
  PHELPS DODGE CORPORATION
 
 
  By:   /s/ J. Steven Whisler   
    Name:   J. Steven Whisler   
    Title:   Chairman and Chief Executive Officer   
 
         
  INCO LIMITED
 
 
  By:   /s/ Scott M. Hand   
    Name:   Scott M. Hand   
    Title:   Chairman and Chief Executive Officer   
 

79


 

Exhibit B
Form of Plan of Arrangement
 

 


 

 
PLAN OF ARRANGEMENT
 
 

 


 

PLAN OF ARRANGEMENT
ARTICLE I
INTERPRETATION
     1.1 Definitions. In this Plan of Arrangement, unless there is something in thesubject matter or context inconsistent therewith, the following terms shall have the respectivemeanings set out below and grammatical variations of such terms shall have corresponding meanings:
     “Amalgamating Corporations” means Inco and Phelps Dodge Subco and “AmalgamatingCorporation” means either one of them;
     “Amalco” has the meaning ascribed thereto in section 3.2(e);
     “Amalco Common Shares” means the common shares which Amalco is authorized to issue andhaving the rights, privileges, restrictions and conditions set forth in Exhibit 1;
     “Amalgamation” has the meaning ascribed thereto in section 3.2(e);
     “Arrangement” means an arrangement under section 192 of the CBCA on the terms andsubject to the conditions set out in this Plan of Arrangement, subject to any amendments orvariations thereto made in accordance with section 9.4 of the Combination Agreement or Article VIIhereof or made at the direction of the Court in the Final Order;
     “Articles of Arrangement” means the articles of arrangement of Inco in respect of theArrangement that are required by the CBCA to be sent to the Director after the Final Order is made;
     “Business Day” means any day on which commercial banks are generally open for businessin Toronto, Ontario or New York, New York other than a Saturday, a Sunday or a day observed as aholiday in New York, New York under the laws of the State of New York or the federal laws of theUnited States of America or in Toronto, Ontario under the laws of the Province of Ontario or thefederal laws of Canada;
     “Cash Consideration” means $ l per Inco Common Share;
     “CBCA” means the Canada Business Corporations Act, as amended;
     “Certificate” means the certificate of arrangement giving effect to the Arrangement,issued pursuant to subsection 192(7) of the CBCA after the Articles of Arrangement have been filed;
     “Code” means the United States Internal Revenue Code of 1986, as amended;
     “Combination Agreement” means the combination agreement made as of June 25, 2006between Phelps Dodge and Inco, as amended, supplemented and/or restated in accordance therewithprior to the Effective Time, providing for, among other things, the Arrangement;
     “Converted Phelps Dodge Option” has the meaning ascribed thereto in section 3.2(c);

 


 

     “Converted Phelps Dodge Option Exercise Price” has the meaning ascribed thereto insection 3.2(c);
     “Court” means the Superior Court of Justice (Ontario);
     “Depositary” means l, at its offices set out in the Letter of Transmittal, being thedepositary appointed by Phelps Dodge for the purpose of, among other things, exchanging thecertificates representing Inco Common Shares for Phelps Dodge Common Shares and cash in connectionwith the Arrangement;
     “Director” means the Director appointed pursuant to section 260 of the CBCA;
     “Dissenting Shareholder” means an Inco Shareholder who dissents in respect of theArrangement in compliance with the Dissent Rights and who has not withdrawn such exercise ofDissent Rights and is ultimately determined to be entitled to be paid fair value in respect of theInco Common Shares so held;
     “Dissent Rights” has the meaning ascribed thereto in section 4.1;
     “Effective Date” means the date shown on the Certificate;
     “Effective Time” means 12:01 a.m. (Toronto time) on the Effective Date;
     “Exchange Ratio” means l of a Phelps Dodge Common Share for each l Inco Common Shareheld;
     “Falconbridge” means Falconbridge Limited;
     “Falconbridge Subsequent Acquisition Transaction” has the meaning ascribed thereto inthe Combination Agreement;
     “Final Order” means the final order of the Court approving the Arrangement as suchorder may be amended by the Court at any time prior to the Effective Date or, if appealed, then,unless such appeal is withdrawn or denied, as affirmed;
     “Final Proscription Date” has the meaning ascribed thereto in section 6.4;
     “Former Inco Shareholders” means the Inco Shareholders, other than Phelps Dodge andits Subsidiaries, immediately prior to the Effective Time;
     “Government Entity” means any (i) multinational, federal, provincial, state, regional,municipal, local or other government, governmental or public department, central bank, court,tribunal, arbitral body, commission, board, bureau or agency, domestic or foreign, (ii) anysubdivision, agent, commission, board, or authority of any of the foregoing, (iii) anyquasi-governmental or private body exercising any regulatory, expropriation or taxing authorityunder or for the account of any of the foregoing, or (iv) stock exchange, including the NYSE andthe TSX;
     “Inco” means Inco Limited;

2


 

     “Inco Bid” has the meaning ascribed thereto in the Combination Agreement;
     “Inco Circular” means the management information circular prepared by Inco inconnection with the Inco Meeting;
     “Inco Common Shares” means all of the common shares of Inco that are issued andoutstanding immediately prior to the Effective Time including any Rights as such term is defined inthe Shareholder Rights Plan Agreement dated as of September 14, 1998, as amended as of April 28,1999 and amended and restated as of April 17, 2002, between Inco and CIBC Mellon Trust Company, asrights agent, as the same may be amended or replaced from time to time;
     “Inco Meeting” means the special meeting of Inco Shareholders, including anyadjournment thereof, to be called and held in accordance with the Interim Order at which aresolution with respect to the Arrangement is to be voted on;
     “Inco Option Plans” means the stock option or incentive plans for directors, officersand employees of Inco or its Subsidiaries (as applicable) and other eligible persons;
     “Inco Options” means options to acquire Inco Common Shares granted pursuant to theInco Option Plans, including in the case of any particular Inco Option, any stock appreciationright included therewith and exercisable in lieu of (but not in addition to) such Inco Option;
     “Inco Restricted Shares” has the meaning ascribed thereto in the CombinationAgreement;
     “Inco SAR” means the stock appreciation rights included in certain Inco Options andexercisable in lieu of (but not in addition to) such Inco Options;
     “Inco Shareholders” means, collectively, the holders of Inco Common Shares;
     “Interim Order” means the interim order of the Court, as the same may be amended, inrespect of the Arrangement, as contemplated by section 2.2 of the Combination Agreement;
     “In the Money Amount” in respect of a stock option at any time means the amount, ifany, by which the aggregate fair market value at that time of the securities subject to the optionexceeds the aggregate exercise price under the stock option;
     “KEIP Plans” has the meaning ascribed thereto in the Combination Agreement;
     “Letter of Transmittal” means the letter of transmittal for use by an Inco Shareholderin the form accompanying the Inco Circular;
     “NYSE” means the New York Stock Exchange;
     “Person” includes any individual, firm, partnership, joint venture, venture capitalfund, limited liability company, unlimited liability company, association, trust, trustee,executor, administrator, legal personal representative, estate, group, body corporate, corporation,unincorporated association or organization, Government Entity, syndicate or other entity, whetheror not having legal status;

3


 

     “Phelps Dodge” means Phelps Dodge Corporation;
     “Phelps Dodge Common Shares” means the common shares of Phelps Dodge;
     “Phelps Dodge Subco” means l, a company incorporated under the CBCA which, at the timeof the consummation of the Arrangement, will be an indirect wholly-owned subsidiary of PhelpsDodge;
     “Preferred Shares” has the meaning ascribed thereto in section 5.3;
     “Stock Award Exchange Ratio” means the sum of (i) the Exchange Ratio plus (ii) thefraction resulting from dividing the Cash Consideration by the closing price of the Phelps DodgeCommon Shares on the NYSE on the last trading day immediately preceding the Effective Dateexpressed in Canadian dollars based upon the noon buying rate of the Bank of Canada on such date;
     “Subject Shares” means the Inco Common Shares held, directly or indirectly, by or forthe benefit of Phelps Dodge or its Subsidiaries immediately prior to the Effective Time, togetherwith the Inco Common Shares deemed to be transferred to Phelps Dodge Subco pursuant to section 4.1;
     “Subsidiary” means, when used with reference to any party, any Person of which suchparty (either alone or through or together with any other Subsidiary) either owns, directly orindirectly, fifty percent (50%) or more of the outstanding capital stock or other equity intereststhe holders of which are generally entitled to vote for the election of directors or members of anyother governing body of such Person or, in the case of a Person that is a partnership, is a generalpartner of such partnership, or any Person the accounts of which such party is required toconsolidate in its own financial statements under the generally accepted accounting principlesapplicable to such party; and
     “TSX” means the Toronto Stock Exchange.
     1.2 CBCA. In addition to the terms defined above, words and phrases used herein anddefined in the CBCA shall have the same meaning herein as in the CBCA unless the context requiresotherwise.
     1.3 Sections and Headings. The division of this Plan of Arrangement into sections andthe insertion of headings are for reference purposes only and shall not affect the interpretationof this Plan of Arrangement. Unless otherwise indicated, any reference in this Plan of Arrangementto a section or an exhibit refers to the specified section of or exhibit to this Plan ofArrangement.
     1.4 Number, Gender and Persons. In this Plan of Arrangement, unless the contextotherwise requires, words importing the singular number include the plural and vice versa and wordsimporting any gender include all genders.

4


 

ARTICLE II
ARRANGEMENT
     2.1 Combination Agreement. This Plan of Arrangement is made pursuant to, and issubject to the provisions of, the Combination Agreement.
ARTICLE III
ARRANGEMENT
     3.1 Binding Effect. This Plan of Arrangement, within the meaning of section 192 ofthe CBCA, will become effective at, and be binding at and after, the Effective Time on (i) Inco,(ii) Phelps Dodge, (iii) Phelps Dodge Subco, (iv) Amalco, (v) all Inco Shareholders, and (vi) allholders and beneficial owners of Inco Options and Converted Phelps Dodge Options.
     3.2 Arrangement. Commencing at the Effective Time, the following shall occur andshall be deemed to occur in the following order without any further act or formality:
     (a) each Inco Common Share (other than an Inco Restricted Share or a Subject Share) will betransferred by the holder thereof to Phelps Dodge Subco in exchange for (i) the number of PhelpsDodge Common Shares equal to the Exchange Ratio, and (ii) cash in the amount of the CashConsideration, and the name of such holder will be removed from the register of holders of IncoCommon Shares, and Phelps Dodge Subco will be recorded as the registered holder of such Inco CommonShare and will be deemed to be the legal and beneficial owner of such share free of any claims orencumbrances;
     (b) each Inco Restricted Share outstanding immediately prior to the Effective Time will betransferred by the holder thereof to Phelps Dodge Subco in exchange for a number of Phelps DodgeCommon Shares equal to the Stock Award Exchange Ratio, and the name of such holder will be removedfrom the register of holders of Inco Common Shares, and Phelps Dodge Subco will be recorded as theregistered holder of such Inco Restricted Share and will be deemed to be the legal and beneficialowner of such share free of any claims or encumbrances, and the former holder of each IncoRestricted Share shall hold the Phelps Dodge Common Shares receivable in exchange on the same termsand conditions as were applicable to such Inco Restricted Share pursuant to the KEIP Plan underwhich it was issued and the agreement evidencing the grant thereto prior to the Effective Time;
     (c) each Inco Option outstanding immediately prior to the Effective Time, whether or notvested, shall be cancelled and in exchange therefor the holder shall receive a fully vested optiongranted by Phelps Dodge (a “Converted Phelps Dodge Option”) to acquire (on the same termsand conditions other than vesting as were applicable to such Inco Option pursuant to the relevantInco Option Plan under which it was issued and the agreement evidencing the grant thereof prior tothe Effective Time) the number (rounded down to the nearest whole number) of Phelps Dodge CommonShares determined by multiplying (A) the number of Inco Common Shares subject to such Inco Optionimmediately prior to the Effective Time by (B) the Stock Award Exchange Ratio. The exercise priceper Phelps Dodge Common Share subject to any such Converted Phelps Dodge Option (the “ConvertedPhelps Dodge Option Exercise Price”) will be an amount (rounded up to the nearest one hundredthof a cent) equal to the quotient of (A) the exercise price per Inco Common Share subject to suchInco Option immediately prior to the Effective Time and (B) the Stock Award Exchange Ratio,expressed in U.S. dollars based on

5


 

the noon buying rate of the Bank of Canada on the last trading day immediately preceding theEffective Date; provided that the exercise price otherwise determined shall be increased to theextent required to ensure that the In The Money Amount of the Converted Phelps Dodge Option isequal to the In The Money Amount of the corresponding Inco Option. For greater certainty, if aparticular Inco Option includes an Inco SAR, the corresponding Converted Phelps Dodge Option willinclude a stock appreciation right subject to the same terms and conditions (other than vesting) aswere applicable to the Inco SAR (including for greater certainty the right to exercise it inrespect of part of the Converted Phelps Dodge Option to which it relates) except that the stockappreciation right, which may be exercised in lieu of, but not in addition to, the Converted PhelpsDodge Option, shall represent the right to receive, upon exercise (and consequent surrender of theConverted Phelps Dodge Option), (i) the number of Phelps Dodge Common Shares (rounded down to thenearest whole share) having an aggregate fair market value on the date of exercise equal to thepositive difference between (A) the aggregate fair market value of the Phelps Dodge Common Sharessubject to the corresponding Converted Phelps Dodge Option and (B) the aggregate Converted PhelpsDodge Option exercise price, (ii) the equivalent amount of cash, or (iii) an equivalent combinationthereof, as Phelps Dodge may determine in its sole discretion. The conversion mechanism set forthin this section 3.2(c) shall be adjusted to the extent required to comply with Section 409A of theCode and the rules, regulations and guidance promulgated thereunder, where applicable;
     (d) Phelps Dodge Subco shall add to the stated capital account maintained for its commonshares the fair market value of the Phelps Dodge Common Shares delivered by Phelps Dodge on behalfof Phelps Dodge Subco pursuant to section 6.1(a)(i); and
     (e) the Amalgamating Corporations shall be amalgamated and continue as one corporation(“Amalco”) on the terms prescribed in this Plan of Arrangement (the “Amalgamation”)and:
     (i) Amalco shall possess all of the property, rights, privileges and franchises andshall be subject to all of the liabilities, including civil, criminal and quasi-criminal,and all contracts, disabilities and debts of each of the Amalgamating Corporations (in eachcase excluding any security issued by one Amalgamating Corporation and held by the otherAmalgamating Corporation and any liability or obligation of one Amalgamating Corporation tothe other Amalgamating Corporation);
     (ii) a conviction against, or ruling, order or judgment in favour of or against anAmalgamating Corporation may be enforced by or against Amalco;
     (iii) the Articles of Arrangement shall be deemed to be the articles of amalgamation ofAmalco and, except for the purposes of subsection 104(1) of the CBCA, the Certificate shallbe deemed to be the certificate of amalgamation of Amalco;
     (iv) Amalco shall be deemed to be the party plaintiff or the party defendant, as thecase may be, in any civil action commenced by or against an Amalgamating Corporation beforethe Effective Time;
     (v) all issued and outstanding Inco Common Shares, including for certainty all issuedand outstanding Inco Restricted Shares and Subject Shares, shall be cancelled without anyrepayment of capital in respect thereof; and

6


 

     (vi) each common share of Phelps Dodge Subco shall become one Amalco Common Share.
     3.3 No Fractional Phelps Dodge Common Shares. No fractional Phelps Dodge CommonShares shall be issued to Former Inco Shareholders. Any fractional number of Phelps Dodge CommonShares that would otherwise be received by a Former Inco Shareholder shall be rounded down to thenearest whole number. Where the number of Phelps Dodge Common Shares receivable by a Person underthe Arrangement is reduced as a result of such rounding down, such Person shall receive in lieu ofany such fractional share a cash payment equal to the fraction of a Phelps Dodge Common Share sorounded down multiplied by the volume weighted average closing price of the Phelps Dodge CommonShares on the NYSE on the last five trading days immediately before the Effective Date.
     3.4 Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted, as required,to reflect fully the effect of any stock split, reverse split, stock dividend (including anydividend or distribution of securities convertible into Phelps Dodge Common Shares or Inco CommonShares other than stock dividends paid in lieu of ordinary course dividends), consolidation,reorganization, recapitalization or other like change with respect to Phelps Dodge Common Shares orInco Common Shares occurring after the date of the Combination Agreement and prior to the EffectiveTime (but, for greater certainty, not including consummation of the Inco Bid or any FalconbridgeSubsequent Acquisition Transaction), so that the Former Inco Shareholders shall be entitled toreceive consideration of the same value that they were entitled to receive before such event.
     3.5 Withholding Rights. Phelps Dodge, Phelps Dodge Subco, Inco, Amalco and theDepositary shall be entitled to deduct and withhold from all amounts payable under the Plan ofArrangement (including, without limitation, any amounts payable pursuant to section 4.1) to anyFormer Inco Shareholder, or holder of Inco Options or other Inco securities or to withhold from alldividends or other distributions payable in respect of Phelps Dodge Shares to be issued under thePlan of Arrangement, such amounts as Phelps Dodge, Phelps Dodge Subco, Inco, Amalco or theDepositary is required or permitted to deduct and withhold with respect to such payment under theIncome Tax Act (Canada), the Code or any provision of any applicable federal, provincial, state,local or foreign tax law, in each case, as amended. To the extent that amounts are so withheld,such withheld amounts shall be treated for all purposes hereof as having been paid to the FormerInco Shareholder, holder of Inco Options or other Inco securities, in respect of which suchdeduction and withholding was made, provided that such withheld amounts are actually remitted tothe appropriate taxing authority. To the extent that the amounts so required or permitted to bededucted or withheld from any payment to a Person exceed the cash portion of the considerationotherwise payable to that Person, Phelps Dodge, Phelps Dodge Subco, Inco, Amalco and the Depositaryare hereby authorized to sell or otherwise dispose of such portion of the consideration as isnecessary to provide sufficient funds to Phelps Dodge, Phelps Dodge Subco, Inco, Amalco or theDepositary, as the case may be, to enable it to comply with such deduction or withholdingrequirement or entitlement, and Phelps Dodge, Phelps Dodge Subco, Inco, Amalco or the Depositaryshall notify the Person thereof and remit to the Person any unapplied balance of the net proceedsof such sale.

7


 

ARTICLE IV
RIGHTS OF DISSENT
     4.1 Rights of Dissent. Each Inco Shareholder may, with respect to the Inco CommonShares held by such Inco Shareholder, including for greater certainty Inco Restricted Shares,exercise rights of dissent pursuant to and in the manner set forth in section 190 of the CBCA, theInterim Order and this section 4.1 (the “Dissent Rights”) in connection with theArrangement; provided that, notwithstanding subsection 190(5) of the CBCA, the written objection tothe Inco resolution referred to in subsection 190(5) of the CBCA must be received by Inco not laterthan 5:00 p.m. (Toronto time) on the Business Day preceding the Inco Meeting. Each IncoShareholder who:
     (a) is a Dissenting Shareholder shall be deemed to have transferred the Inco Common Sharesheld by such Dissenting Shareholder to Phelps Dodge Subco immediately prior to the transfersdescribed in section 3.2(a) without any further act or formality and free and clear of all liens,claims and encumbrances, with Phelps Dodge Subco being obligated to pay such Dissenting Shareholderin consideration therefor the fair value of such Inco Common Shares, which fair value,notwithstanding anything to the contrary in the CBCA, if permitted by the Court, shall bedetermined as of the Effective Time, and the name of such Dissenting Shareholder will be removedfrom the register of holders of Inco Common Shares and Phelps Dodge Subco will be recorded as theregistered holder of the Inco Common Shares so transferred and will be deemed to be the legal andbeneficial owner of such Inco Common Shares; or
     (b) withdraws such exercise of Dissent Rights or is ultimately determined not to be entitled,for any reason, to be paid fair value for such Person’s Inco Common Shares shall be deemed to haveparticipated in the Arrangement and will be deemed to have transferred each of such Person’s IncoCommon Shares to Phelps Dodge Subco in exchange for Phelps Dodge Common Shares and cash at the timeand on the terms set out in section 3.2(a), and in no case shall Phelps Dodge, Phelps Dodge Subco,Inco, Amalco or any other Person be required to recognize such Inco Shareholder as an IncoShareholder after the Effective Time, and the name of such Inco Shareholder shall be removed fromthe register of holders of Inco Common Shares at the Effective Time.
ARTICLE V
AMALCO
     5.1 Name. The name of Amalco shall be l or such other name as may be assigned toAmalco by the Director.
     5.2 Registered Office. The registered office of Amalco shall be located in the Cityof Toronto in the Province of Ontario and the address of the registered office of Amalco shall bel.
     5.3 Authorized Capital. Amalco shall be authorized to issue an unlimited number ofAmalco Common Shares to which are attached the rights, privileges, restrictions and conditions setforth in Exhibit 1 and an unlimited number of preferred shares issuable in series (the“Preferred Shares”).
     5.4 Stated Capital. On the Amalgamation, Amalco shall add to the stated capitalaccount maintained by Amalco for the Amalco Shares an amount equal to the aggregate of (i) the

8


 

amount of the stated capital account maintained by Phelps Dodge Subco in respect of the commonshares of Phelps Dodge Subco immediately prior to the Effective Time and (ii) the amount describedin section 3.2(d) hereto.
     5.5 Directors.
     (a) Minimum and Maximum. The directors of Amalco shall, until otherwise changed inaccordance with the CBCA, consist of a minimum number of one and a maximum number of ten directors.
     (b) Initial Directors. The number of directors on the board of directors shallinitially be set at two. The initial directors of Amalco immediately following the Amalgamationshall be the persons whose names and residential addresses appear below:
     
Name   Residential Address
l
  l
 
   
l
  l
The initial directors shall hold office until the next annual meeting of the shareholders of Amalcoor until their successors are elected or appointed. The actual number of directors within theminimum and maximum number set out in section 5.5(a) may be determined from time to time byresolution of the directors. Any vacancy on the board of directors resulting from an increase inthe number of directors as so determined may be filled by resolution of the directors.
     5.6 Business and Powers. There shall be no restriction on the business which Amalcois authorized to carry on or on the powers which Amalco may exercise.
     5.7 By-Laws. The by-laws of Amalco, until repealed, amended or altered, shall be theby-laws of Phelps Dodge Subco.
     5.8 Charging Power. Without restricting any of the powers and capacities of Amalco,whether under the CBCA or otherwise, Amalco may mortgage, hypothecate, pledge or otherwise create asecurity interest in all or any present or future, real or personal, movable or immovable, legal orequitable property of Amalco (including without limitation its book debts, rights, powers,franchises and undertaking) for any purpose whatsoever.
ARTICLE VI
DELIVERY OF CASH AND PHELPS DODGE COMMON SHARES
     6.1 Delivery of Cash and Phelps Dodge Common Shares.
     (a) On or before the Effective Time, Phelps Dodge and Phelps Dodge Subco shall ensure thedeposit with the Depositary, for the benefit of the Former Inco Shareholders, of:
     (i) certificates representing that number of Phelps Dodge Common Shares which are to bedelivered to the Depositary by Phelps Dodge on behalf of Phelps Dodge Subco pursuant toArticle III upon the exchange of Inco Common Shares; and

9


 

     (ii) sufficient funds for the purpose of paying for the acquisition of Inco CommonShares pursuant to Article III.
     (b) Upon surrender to the Depositary for cancellation of a certificate which immediately priorto the Effective Time represented one or more outstanding Inco Common Shares, which were exchangedin whole or in part for Phelps Dodge Common Shares in accordance with section 3.2, together withthe Letter of Transmittal and such other documents and instruments as would have been required toeffect the transfer of the Inco Common Shares formerly represented by such certificate under theCBCA and the by-laws of Inco and such additional documents and instruments as the Depositary mayreasonably require, the holder of such surrendered certificate shall be entitled to receive inexchange therefor, and the Depositary shall deliver to such holder, or in the case of IncoRestricted Shares, to Amalco pursuant to the relevant plan under which the Inco Restricted Shareswere issued and the agreement evidencing the grant thereof prior to the Effective Time, followingthe Effective Time, a certificate representing the Phelps Dodge Common Shares which such holder isentitled to receive in accordance with section 3.2.
     (c) In the case of Inco Common Shares, other than Inco Restricted Shares and Subject Shares,upon surrender to the Depositary for cancellation of a certificate which immediately prior to theEffective Time represented one or more outstanding Inco Common Shares which were exchanged in partfor cash in accordance with section 3.2, together with the Letter of Transmittal and such otherdocuments and instruments as would have been required to effect the transfer of the Inco CommonShares formerly represented by such certificate under the CBCA and the by-laws of Inco and suchadditional documents and instruments as the Depositary may reasonably require, the holder of suchsurrendered certificate shall be entitled to receive in exchange therefor, and the Depositary shalldeliver to such holder following the Effective Time, a cheque in Canadian currency representing thecash to be paid in connection with the acquisition of such Inco Common Shares.
     (d) After the Effective Time and until surrendered for cancellation as contemplated by section6.1(a), each certificate which immediately prior to the Effective Time represented one or more IncoCommon Shares (other than Subject Shares) shall be deemed at all times to represent only the rightto receive the entitlements described in this Article VI.

10


 

     6.2 Lost Certificates. In the event that any certificate which immediately prior tothe Effective Time represented one or more outstanding Inco Common Shares which were exchanged (inwhole or in part) for Phelps Dodge Common Shares in accordance with section 3.2(a) shall have beenlost, stolen or destroyed, upon the making of an affidavit of that fact by the holder claiming suchcertificate to be lost, stolen or destroyed, the Depositary shall deliver in exchange for suchlost, stolen or destroyed certificate, the cash and a certificate representing the Phelps DodgeCommon Shares which such holder is entitled to receive in accordance with section 3.2(a). Whenauthorizing such delivery of cash and a certificate representing the Phelps Dodge Common Shareswhich such holder is entitled to receive in exchange for such lost, stolen or destroyedcertificate, the holder to whom a certificate representing such Phelps Dodge Common Shares is to bedelivered shall, as a condition precedent to the delivery of such cash and Phelps Dodge CommonShares, give a bond satisfactory to Phelps Dodge and the Depositary in such amount as Phelps Dodgeand the Depositary may direct, or otherwise indemnify Phelps Dodge, Phelps Dodge Subco and theDepositary in a manner satisfactory to Phelps Dodge and the Depositary, against any claim that maybe made against Phelps Dodge, Phelps Dodge Subco or the Depositary with respect to the certificatealleged to have been lost, stolen or destroyed and shall otherwise take such actions as may berequired by the by-laws of Amalco.
     6.3 Distributions with Respect to Unsurrendered Certificates. No dividend or otherdistribution declared or made after the Effective Time with respect to Phelps Dodge Common Shareswith a record date after the Effective Time shall be delivered to the holder of any unsurrenderedcertificate which, immediately prior to the Effective Time, represented outstanding Inco CommonShares unless and until the holder of such certificate shall have complied with the provisions ofsection 6.1 or section 6.2. Subject to applicable law and to section 3.5, at the time of suchcompliance, there shall, in addition to the delivery of a certificate representing the Phelps DodgeCommon Shares to which such holder is thereby entitled, be delivered to such holder, withoutinterest, the amount of the dividend or other distribution with a record date after the EffectiveTime theretofore paid with respect such Phelps Dodge Common Shares. No interest shall be payablewith respect to the cash to be paid in connection with the acquisition of Inco Common Shares.
     6.4 Limitation and Proscription. To the extent that a Former Inco Shareholder shallnot have complied with the provisions of section 6.1 or section 6.2 on or before the date which issix years after the Effective Date (the “Final Proscription Date”), then the Phelps DodgeCommon Shares which such Former Inco Shareholder was entitled to receive shall be automaticallycancelled without any repayment of capital in respect thereof and the certificates representingsuch Phelps Dodge Common Shares and the cash shall be delivered to Phelps Dodge by the Depositaryand such Phelps Dodge Common Shares shall be cancelled by Phelps Dodge, and the interest of theFormer Inco Shareholder in such Phelps Dodge Common Shares and the cash shall be terminated as ofsuch final proscription date.
ARTICLE VII
AMENDMENTS
     7.1 Amendments to Plan of Arrangement.
     (a) Inco reserves the right to amend, modify and/or supplement this Plan of Arrangement at anytime and from time to time prior to the Effective Time, provided that each such amendment,modification and/or supplement must be (i) set out in writing, (ii) approved by

11


 

Phelps Dodge, (iii) filed with the Court and, if made following the Inco Meeting, approved bythe Court and (iv) communicated to Inco Shareholders if and as required by the Court.
     (b) Phelps Dodge reserves the right to amend, modify and/or supplement this Plan ofArrangement at any time and from time to time prior to the Effective Date as provided for in theCombination Agreement.
     (c) Any amendment, modification or supplement to this Plan of Arrangement may be (i) proposedby Inco at any time prior to the Inco Meeting (provided that Phelps Dodge shall have consentedthereto); or (ii) proposed by Phelps Dodge at anytime prior to the Inco Meeting (provided thatInco, except as provided in section 7.1(b), shall have consented thereto) and in each case with orwithout any other prior notice or communication, and if so proposed and accepted by the Personsvoting at the Inco Meeting (other than as may be required under the Interim Order), shall becomepart of this Plan of Arrangement for all purposes.
     (d) Any amendment, modification or supplement to this Plan of Arrangement that is approved bythe Court following the Inco Meeting shall be effective only if (i) it is consented to by each ofInco and Phelps Dodge and (ii) if required by the Court, it is consented to by holders of the IncoCommon Shares voting in the manner directed by the Court.
     (e) Any amendment, modification or supplement to this Plan of Arrangement may be madefollowing the Effective Time unilaterally by Phelps Dodge, provided that it concerns a matterwhich, in the reasonable opinion of Phelps Dodge, is of an administrative nature required to bettergive effect to the implementation of this Plan of Arrangement and is not adverse to the financialor economic interests of any holder of Inco Common Shares or Inco Options at the Effective Time.
ARTICLE VIII
FURTHER ASSURANCES
     8.1 Further Assurances. Notwithstanding that the transactions and events set outherein shall occur and be deemed to occur in the order set out in this Plan of Arrangement withoutany further act or formality, each of the parties to the Combination Agreement shall make, do andexecute, or cause to be made, done and executed, all such further acts, deeds, agreements,transfers, assurances, instruments or documents as may reasonably be required by any of them inorder further to document or evidence any of the transactions or events set out herein.
* * * *
[the remainder of this page intentionally left blank]

12


 

     IN WITNESS WHEREOF, the parties hereto have caused this Plan of Arrangement to be executed bytheir duly authorized respective officers as of •, 2006.
         
  PHELPS DODGE
 
 
  By:      
    Name:   l   
    Title:   l   
 
         
  PHELPS DODGE SUBCO
 
 
  By:      
    Name:   l   
    Title:   l   
 
         
  INCO
 
 
  By:      
    Name:   l   
    Title:   l   
 

13


 

EXHIBIT 1
Share Provisions of
Amalco
The rights, privileges, restrictions and conditions attaching to the common shares (each a “CommonShare”) and the Preferred Shares of Amalco are as follows:
1.   Common Shares
     (a) Voting Rights
          Except for meetings at which the holders of shares of another class or series of the Amalco’scapital stock from time to time authorized are entitled to vote separately as a class or series,the holders of Common Shares shall be entitled to receive notice of, to attend (in person or byproxy) and be heard, and to vote on the basis of one vote in respect of each such share held, atall meetings of the shareholders of the Amalco.
     (b) Dividends
     (i) Subject to any preference as to dividends attached to any other class or series ofshares in the Amalco’s capital stock authorized from time to time and ranking in priority tothe Common Shares as to dividends, the holders of the Common Shares shall be entitled toreceive, and the Amalco shall pay, out of the moneys or property of the Amalco properlyapplicable to the payment of dividends, such dividends (if any and in such form) as thedirectors of the Amalco (the “Directors”) may in their discretion declare.
     (ii) The Directors may (but need not) determine at any time or from time to time, withrespect to any cash dividend declared payable on the Common Shares, that the holders of theshares of such class, or the holders of shares of such class whose addresses, on the booksof the Amalco, are in Canada and/or in specified jurisdictions outside Canada, shall havethe right to elect to receive such dividend in the form of a stock dividend payable inCommon Shares having a value, as determined by the Directors, that is substantiallyequivalent, as of a date or a period of days determined by the Directors, to the cash amountof such dividend, provided that the Directors may (but need not) value the shares to beissued by way of stock dividend at a discount from the relevant market value thereof of upto five per cent (5%), and provided further that shareholders shall receive cash in lieu ofany fractional interests in shares to which they would otherwise be entitled unless theDirectors shall otherwise determine. If the Directors shall determine that shareholders areentitled to fractional interests in shares issued by way of stock dividend, shareholdersshall be entitled to receive dividends in respect of such fractional share interests.
     (c) Liquidation, Dissolution or Winding-up
          Subject to the prior rights of any other class or series of shares in the Amalco’s capitalstock authorized from time to time and ranking in priority to the Common Shares, the holders of theCommon Shares shall, in the event of a distribution of assets of the Amalco among

 


 

– 2 –
its shareholders on a liquidation, dissolution or winding-up of the Amalco, whether voluntaryor involuntary, or any other distribution of assets of the Amalco among its shareholders for thepurpose of winding up its affairs, be entitled to receive the remaining property of the Amalco.
     (d) Other Distributions
          The Amalco may issue or distribute securities of the Amalco or of any other body corporate(including rights, options or warrants to acquire such securities and any securities convertibleinto or exchangeable for such securities) or any other property or assets of any kind (includingevidences of indebtedness and any rights, options or warrants to acquire such property or assets),exclusively to holders of the Common Shares by way of a special distribution or otherwise, as theDirectors in their discretion may declare.
2.   Preferred Shares
     (a) The Directors may, at any time and from time to time, issue the Preferred Shares in one ormore series, each series to consist of such number of shares as the Directors determine beforeissuance of any shares of such series.
     (b) Subject to the following provisions, and subject to the filing of articles of amendment inprescribed form and the endorsement thereon of a certificate of amendment, in accordance with theCanada Business Corporations Act, the Directors may fix from time to time before the issue ofshares of any series, the number of shares that is to comprise such series and the designation,rights, privileges, restrictions and conditions attaching to such series of Preferred Sharesincluding, without limitation, the rate or amount of any dividends or the method of calculating anydividends, the dates of payment of dividends, and any redemption, purchase, conversion or exchangeprices and terms. In addition, the Directors may change the rights, privileges, restrictions andconditions attaching to any series of Preferred Shares of which no shares have been issued.
     (c) The Preferred Shares of any series may be made convertible into or exchangeable for CommonShares of the Company or another corporation.
     (d) The Preferred Shares of each series, with respect to the payment of any dividends and anydistribution of assets or return of capital in the event of liquidation, dissolution or winding upof the Company, rank on a parity with the Preferred Shares of every other series with respect topriority in the payment of dividends and return of capital in the event of the liquidation,dissolution or winding-up of the Company.
     (e) Subject to the provisions respecting any particular series and subject to subparagraphs(f) and (g), the holders of Preferred Shares are not entitled to receive notice of, nor to attendor vote at meetings of the shareholders of the Company.
     (f) The provisions attaching to the Preferred Shares as a class may be amended or repealed atany time with such approval as is then required by law to be given by the holders of the PreferredShares as a class.
     (g) Subject to the terms of any series of Preferred Shares, the holders of the PreferredShares as a class and the holders of shares of any particular series of Preferred Shares are not

2


 

– 3 –
entitled to vote separately as a class or series, as the case may be, upon, and are notentitled to dissent in respect of, any proposal to amend the articles of the Company to:
     (i) increase or decrease any maximum number of authorized shares of such class orseries, or increase any maximum number of authorized shares of a class or series havingrights or privileges equal or superior to the shares of such class or series;
     (ii) effect an exchange, reclassification or cancellation of all or part of the sharesof such class or series; and
     (iii) create a new class or series of shares equal or superior to the shares of suchclass or series.

3