EXHIBIT 1.1
PEACE ARCH ENTERTAINMENT GROUP INC.
1,000,000 Class B Subordinate Voting Shares
UNDERWRITING AGREEMENT
July __, 1999
THE XXXXXXX COMPANIES INCORPORATED
JOSEPHTHAL & CO. INC.
As Representatives of the
Several Underwriters
named in Schedule I hereto
c/o The Xxxxxxx Companies Incorporated
000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Ladies and Gentlemen:
Peace Arch Entertainment Group Inc. (formerly known as Vidatron
Entertainment Group Inc.), a corporation incorporated under the laws of British
Columbia, Canada (the "Company"), proposes to sell to the several underwriters
named in Schedule I hereto (collectively, the "Underwriters") an aggregate of
1,000,000 Class B Subordinate Voting Shares of the Company (the "Firm Shares"),
and to sell to The Xxxxxxx Companies Incorporated and Josephthal & Co. Inc.,
individually, and not in their capacity as the Representatives, five-year
warrants (the "Representatives' Warrants") to purchase an aggregate of up to
100,000 Class B Subordinate Voting Shares (the "Representatives' Warrant
Shares"), pursuant to the terms and conditions of the Representatives' Warrant
Agreement (the "Representatives' Warrant Agreement") filed as an exhibit to the
Registration Statement (as hereinafter defined). The Firm Shares are to be sold
to each Underwriter, acting severally and not jointly, in such amount as is set
forth in Schedule I opposite the name of such Underwriter. In addition, for the
sole purpose of covering over-allotments in connection with the sale of the Firm
Shares, the Company proposes to grant to the Underwriters an option to purchase
up to an additional 150,000 Class B Subordinate Voting Shares (the "Option
Shares"). The Firm Shares and any Option Shares purchased pursuant to this
Agreement are herein referred to as the "Shares." The Class B Subordinate
Voting Shares of the Company are sometimes referred to herein as the "Limited
Voting Shares."
You have advised the Company that you are authorized to enter into this
Agreement on behalf of the several Underwriters for whom you are acting as
representatives (the "Representatives"), and that The Xxxxxxx Companies
Incorporated has authority to execute this Agreement, bind the Underwriters and
the Representatives and take all actions on behalf of the Representatives
referenced in this Agreement.
1. Representations and Warranties of the Company. The Company represents
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and warrants to, and agrees with, each Underwriter that:
(a) The Company has prepared and filed with the United States
Securities and Exchange Commission (the "Commission") in accordance with the
provisions of the Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "Act"), a
registration statement on Form F-1 (No. 333-10354), including a preliminary
prospectus, subject to completion, relating to the Shares. The registration
statement, as amended at the time it becomes effective, including financial
statements and exhibits and the information (if any) contained in a prospectus
that is deemed to be a part of the registration statement at the time of its
effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as
the "Registration Statement," and the prospectus in the form first used to
confirm sales of the Shares is hereinafter referred to as the "Prospectus."
(b) No order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of the Prospectus or any
preliminary prospectus has been issued by the Commission and no proceedings for
that purpose are pending, threatened or, to the knowledge of the Company,
contemplated by the Commission; no stop order suspending the sale of the Shares
in any jurisdiction designated by you pursuant to Section 5(d) hereof has been
issued and no proceedings for that purpose are pending, threatened or, to the
knowledge of the Company, contemplated; and any request of the Commission and
each securities authority or agency of each other jurisdiction for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) has been complied with.
(c) Each preliminary prospectus in the form filed as part of the
Registration Statement as originally filed or filed as part of any amendment
thereto, or, if different, in the form used in connection with the offering of
the Shares, complied fully in all material respects when so filed or used with
the Act, and when the Registration Statement becomes effective and at all times
subsequent thereto, the Registration Statement (including, if applicable, the
information deemed to be part of the Registration Statement at the time it was
declared effective pursuant to Rule 430A under the Act) and the Prospectus and
any supplements or amendments thereto, shall comply in all material respects
with the provisions of the Act and the Registration Statement and any such
amendment thereto at the time such Registration Statement or such amendment
becomes effective will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Prospectus and any supplements or
amendments thereto, will not at any such time contain any untrue statement
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of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, except that the Company makes no representation, warranty
or agreement as to statements in, or omissions from, any such document, in
reliance upon, and in conformity with, written information furnished to the
Company by you specifically for use in the preparation thereof. The Company
acknowledges for all purposes under this Agreement (including, without
limitation, this paragraph and Sections 6(b) and 7 hereof) that the statements
appearing in any preliminary prospectus, the Prospectus or the Registration
Statement in the first, second, third, eighth and last paragraphs under the
caption "Underwriting" constitute the only written information furnished to the
Company by you for use in the Registration Statement or the Prospectus or any
preliminary prospectus (or any amendment or supplement thereto). There is no
contract or document required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement which
is not described or filed as required.
(d) KPMG LLP and Xxxxx Xxxxxx, Chartered Accountants, whose respective
reports appear in the Prospectus, are, to the best knowledge of the Company,
independent public accountants with respect to the Company as required by the
Act. The financial statements (including the related notes) included in the
Prospectus and the Registration Statement (and any amendments or supplements
thereto) comply as to form with the requirements of the Act, present fairly and
accurately the financial condition, the results of the operations and changes in
cash flows and equity of the entities purported to be shown thereby at the dates
and for the periods indicated and have been prepared in accordance with Canadian
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as stated therein); and the other
financial and statistical information and the supporting schedules included in
the Prospectus and the Registration Statement (and any amendments or supplements
thereto), present fairly and accurately, in all material respects, the
information required to be stated therein. Such financial statements have been
reconciled as required under Item 18 of Form 20-F and Registration S-X under the
Act to United States generally accepted accounting principles consistently
applied throughout the periods involved. No other financial statements are
required by Form F-1, or otherwise, to be included in the Prospectus or the
Registration Statement. The selected financial information and statistical data
set forth under the captions "Summary Financial and Operating Data" and
"Selected Consolidated Financial and Operating Data" in the Prospectus have been
prepared on a basis consistent with the consolidated financial statements of the
Company.
(e) The Company does not control or have any interest in, directly or
indirectly, any corporation, partnership, association or other entity other than
those corporations listed or described on Exhibit 21.1 to the Registration
Statement (each, a "Subsidiary" and, collectively, the "Subsidiaries"). The
Company and each Subsidiary has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction in which it
is incorporated, with full power and authority to own or lease and occupy its
properties and conduct its business as it is currently being conducted and as
described in the Prospectus, and is duly qualified to do business and is in good
standing in
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each jurisdiction in which the character of the business conducted by it or the
location of the properties owned or leased by it makes such qualification
necessary except where the failure to be so qualified or be in good standing
would not have a Material Adverse Effect (as defined in Section 1(k)); and the
Company and each Subsidiary holds all licenses, certificates, permits and
approvals from governmental authorities necessary for the conduct of its
business as it is currently being conducted and as described in the Prospectus.
The expiration of any such licenses, permits or other governmental
authorizations would not have a Material Adverse Effect. Complete and correct
copies of the respective memorandum, articles of the Company and each of API
Aviatar Pictures, Inc., The Eyes Multi-Media Productions, Inc., Soho
Enterprises, Inc., Sugar Entertainment Ltd. and Vidatron Television, Inc.
(collectively, the "Significant Subsidiaries"), and all amendments thereto, have
been delivered to you, and no changes therein will be made subsequent to the
date hereof and prior to the date of the consummation of the sale of the Shares
except as disclosed in the Prospectus. None of the Subsidiaries, other than the
Significant Subsidiaries, is a "significant subsidiary" within the meaning of
Rule 1-20(v) of Regulation S-X under the Act or is otherwise material to the
business or operations of the Company. All of the issued and outstanding shares
of capital stock of each Subsidiary have been duly and validly issued, are fully
paid and nonassessable and, with the exception of 552551 B.C. Ltd. (in which the
Company owns a 50% interest only), are owned, of record and beneficially, by the
Company, free and clear of any mortgage, pledge, lien, encumbrance, claim or
equity. There are no options, warrants, subscriptions, securities or other
agreements outstanding or in existence, absolute or contingent, entitling any
person to purchase or otherwise acquire any capital stock or other equity
interest, or any security convertible into or exercisable or exchangeable for
any capital stock or equity interest, in any Subsidiary.
(f) The capitalization of the Company is as set forth under the
caption "Capitalization" in the Prospectus, and the Limited Voting Shares and
the Class A Multiple Voting Shares of the Company (the "Multiple Voting Shares"
and, together with the Limited Voting Shares, the "Voting Shares") conform to
all statements relating thereto contained in the Registration Statement and the
Prospectus; the outstanding Voting Shares have been, and the Shares, upon
issuance and delivery and payment therefor in the manner herein described, will
be, duly authorized, validly issued, fully paid and nonassessable. Except for
the capital stock of the Subsidiaries and approximately 300,000 shares of
capital stock of Voyageur Film Capital Corp., the Company does not own, and at
the date of the consummation of the sale of the Shares will not own, directly or
indirectly, any shares of stock or any other equity or long-term debt securities
of any corporation or have any partnership interest or equity interest in any
firm, partnership, joint venture, association or other entity. Except as
described in the Registration Statement and Prospectus, there are no preemptive
or other rights to subscribe for or to purchase, or any restriction upon the
voting or transfer of, any Voting Shares pursuant to the Company's memorandum,
articles or other governing documents or any agreement or other instrument to
which the Company is a party or by which it may be bound. Neither the filing of
the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any Voting
Shares.
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(g) There has not been any material adverse change in, or any adverse
development which would have a material adverse effect on, the business,
properties, financial condition, results of operations or prospects of the
Company and the Subsidiaries taken as a whole from the date as of which
information is given in the Registration Statement and the Prospectus, except as
otherwise stated therein, and neither the Company nor any Subsidiary has,
directly or indirectly, incurred any liabilities or obligations, direct or
contingent, or entered into any transactions, not in the ordinary course of
business, which are material to the business of the Company and the Subsidiaries
taken as a whole, and there has not been any change in the capital stock of, or
any incurrence of long-term debt or material increase in short-term debt by, the
Company or any Subsidiary, or any issuance or grant of options, warrants or
rights to purchase the capital stock of the Company, or any declaration or
payment of any dividend or other distribution on the capital stock of the
Company from the date as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein.
(h) Neither the Company nor any Subsidiary is, nor with the giving of
notice or lapse of time or both would be, in violation of or in default under
its memorandum, articles or bylaws, or any material agreement, indenture or
other instrument, to which it is a party or by which it is bound, or to which
its properties are subject. Neither the issuance, sale or delivery by the
Company of the Shares, nor the execution, delivery and performance of this
Agreement nor the consummation by the Company of the transactions contemplated
hereby will result in a violation of, or constitute a default under, the
memorandum, articles or bylaws of the Company or any Subsidiary, or any
agreement, indenture or other instrument to which the Company or any Subsidiary
is a party or by which any of them is bound, or to which any of their respective
properties or assets is subject, nor will the performance by the Company of its
obligations hereunder violate any law, ordinance, rule, administrative
regulation or decree of any court or any governmental agency or body having
jurisdiction over the Company or any Subsidiary or any of their respective
properties or assets, or result in the creation or imposition of any lien,
charge, claim or encumbrance upon any property or asset of the Company or any
Subsidiary. Except for permits and similar authorizations required under the
Act and the securities or "blue sky" laws of certain jurisdictions and for such
permits and authorizations which have been obtained, no consent, approval,
authorization or order of any court, governmental agency or body is required in
connection with the Company's execution and delivery of this Agreement or
consummation of the transactions contemplated hereby.
(i) The Company has the requisite power and authority to authorize the
offering of the Shares and to execute, deliver and perform this Agreement, the
Representatives' Warrant Agreement and the Representatives' Warrants and to
issue, sell and deliver the Shares and the Representatives' Warrants. This
Agreement, the Representatives' Warrant Agreement and the Representatives'
Warrants have been duly and validly authorized, executed and delivered by the
Company and constitute the valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms except
as rights to indemnity and contribution hereunder or thereunder may be limited
by federal, state or provincial securities laws or principles of public policy,
and
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except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally or by general equitable principles.
(j) The Company and the Subsidiaries have good and marketable title to
their respective properties and assets, free and clear of all liens,
encumbrances and defects except such as are described or referred to in the
Prospectus or such as do not have a material adverse effect on the value of such
properties and assets and do not interfere with the use made or proposed to be
made of such properties and assets by the Company and the Subsidiaries, and any
real property and buildings held under lease by the Company or any Subsidiary
are held by it under valid, existing and enforceable leases with such exceptions
as are not material and do not interfere with the use made or proposed to be
made of such property and buildings by the Company or such Subsidiaries. The
properties owned by the Company and the Subsidiaries conform to all relevant
zoning regulations, development controls, use restrictions and other applicable
laws and regulations. The properties and assets of the Company and the
Subsidiaries necessary to the conduct of their respective businesses (as
presently conducted and as described in the Prospectus) are in good repair
(reasonable wear and tear excepted), insured in accordance with industry
practice and suitable for their current and intended uses. To the Company's
knowledge, each of the buildings on the properties owned by the Company and the
Subsidiaries fully complies with all applicable laws, is structurally sound, in
good repair and condition and free of defects, except for reasonable wear and
tear, and is not subject to any outstanding municipal work orders, fire up-
grading requirements, health orders or other notices of building deficiencies
from any governmental authority which requires the Company or any Subsidiary to
cure, repair or rectify any breach or non-compliance of the building or any use
thereof.
(k) Neither the Company nor any Subsidiary is in violation of any
federal, state, local, provincial or foreign laws or regulations relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including, without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or
petroleum products, asbestos or asbestos-containing materials, or
polychlorinated biphenyls ("Materials of Environmental Concern"), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern
(collectively, "Environmental Laws"), which violation could have a material
adverse effect on the condition, financial or otherwise, or the earnings, cash
flow, business affairs or business prospects of the Company and the Subsidiaries
taken as a whole (a "Material Adverse Effect"). "Violation" includes, but is
not limited to, noncompliance with any permit or other governmental
authorization required under applicable Environmental Laws and noncompliance
with the terms and conditions of any such permit or authorization.
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(l) Neither the Company nor any Subsidiary has received any
communication (written or oral), whether from a governmental authority,
citizens' group, employee or otherwise, alleging that the Company or any
Subsidiary, or any other person or entity for whom the Company or any Subsidiary
is or may be liable is not in full compliance with any Environmental Laws or
permit or authorization required under applicable Environmental Laws, and, to
the Company's knowledge, there are no circumstances that may prevent or
interfere with such full compliance in the future, except where failure to so
comply would not have a Material Adverse Effect.
(m) There is no claim, action, cause of action, investigation or
notice (written or oral) by any person or entity alleging potential liability
(including, without limitation, potential liability for investigatory costs,
natural resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (i) the presence in or release into
the environment of any Materials of Environmental Concern at any location owned,
leased or operated, now or in the past, by the Company or any Subsidiary, or any
other person or entity for whom the Company or any Subsidiary, is or may be
liable, or (ii) circumstances forming the basis of any violation or, to the
Company's knowledge, alleged violation of any Environmental Law (collectively,
"Environmental Claims") pending or, to the Company's knowledge, threatened
against the Company or, to the Company's knowledge, pending or threatened
against any other person or entity whose liability for any Environmental Claim
the Company or any Subsidiary has retained or assumed either contractually or by
operation of law.
(n) Except as set forth in the Registration Statement and Prospectus,
to the Company's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge, presence or disposal of any Materials of
Environmental Concern, that could form the basis of any Environmental Claim
against the Company or any Subsidiary with respect to property owned, leased or
operated by or for the Company or any Subsidiary, now or in the past, or against
any person or entity whose liability for any Environmental Claim the Company or
any Subsidiary has retained or assumed either contractually or by operation of
law.
(o) Except as would not, singly or in the aggregate, have a Material
Adverse Effect, neither the Company nor any Subsidiaries has (A) violated any
applicable federal, state, provincial or foreign law relating to employment or
employment practices or the terms and conditions of employment, including,
without limitation, discrimination in the hiring or other human rights matters,
promotion or pay of employees, wages, hours of work, overtime pay, plant
closings and layoffs, collective bargaining, and occupational safety and health,
or any provisions of Employment Standards Act of British Columbia or the rules
and regulations promulgated thereunder or any other applicable law (whether
foreign or domestic) relating to or governing the operation or maintenance of
any employee benefit plan or arrangement, nor (B) engaged in any unfair labor
practice. There is no unfair labor practice charge or complaint pending or, to
the Company's knowledge, threatened against the Company before the British
Columbia Labor Relations Board or any corresponding state,
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local, provincial or foreign agency, and no grievance or arbitration proceeding
arising out of or under any collective bargaining agreement is so pending or, to
the Company's knowledge, threatened against the Company which would, singly or
in the aggregate, have a Material Adverse Effect; and no union representation
claim pending with respect to the employees of the Company or any Subsidiary,
and to the Company's knowledge, no union organizing activities taking place. No
labor dispute involving the employees of the Company or any Subsidiary is
pending or, to the Company's knowledge, threatened or imminent which could
singly or in the aggregate have a Material Adverse Effect; and the Company is
not aware of any existing, threatened or imminent labor disturbance by the
employees of any principal vendors, suppliers or contractors of the Company
which could singly or in the aggregate have a Material Adverse Effect.
(p) There is no legal or governmental proceeding to which the Company
or any Subsidiary is a party or to which any of their respective properties or
assets is subject or which is pending or, to the Company's knowledge, threatened
or contemplated against the Company or any Subsidiary which could result in any
Material Adverse Effect or which is required to be disclosed in the Registration
Statement or the Prospectus.
(q) Neither the Company nor any Subsidiary is in violation of any law,
ordinance, rule, administrative regulation or decree known to the Company of any
court or governmental agency or body having jurisdiction over the Company or any
Subsidiary or any of their respective properties or assets, which violation
could have a Material Adverse Effect.
(r) Neither the Company nor any Subsidiary has taken, or shall take,
directly or indirectly, any action designed to cause or result in, or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of the Limited Voting Shares to facilitate the sale or resale of the
Shares, provided, however, that the Company shall be entitled to make such
disclosures and filings as may be required by applicable law or the rules of The
Toronto Stock Exchange.
(s) The Company and each Subsidiary have timely (giving effect to
permitted extensions) and properly prepared and filed all necessary federal,
state, provincial, local and foreign income, franchise and any other required
tax returns and have paid all taxes shown as due thereon (other than those being
contested in good faith), and neither the Company nor any Subsidiary has any
knowledge of any tax deficiency which has been or might have a Material Adverse
Effect.
(t) (A) Neither the Company nor any Subsidiary has at any time and, to
the Company's knowledge, (B) no employee or agent acting on behalf of the
Company or any Subsidiary has at any time within the last five years, (i) made
any contributions to any candidate for political office in violation of law, or
failed to disclose fully any contributions to any candidate for political office
in accordance with any applicable statute, rule, regulation or ordinance
requiring such disclosure, (ii) made any payment to any local, state,
provincial, federal or foreign governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments required
or allowed by applicable law, or
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(iii) engaged in any transaction, maintained any bank account or used any
corporate funds except for transactions, bank accounts and funds which have been
and are reflected in the normally maintained books and records of the Company
and the Subsidiaries.
(u) Except as contemplated by this Agreement, the Company is not aware
of any claims for services in the nature of a finder's fee, brokerage fee or
otherwise with respect to this offering for which the Company or any Subsidiary
or any of the several Underwriters may be responsible.
(v) The Company and the Subsidiaries own or possess adequate rights to
use all trademarks, service marks, trade names and copyrights necessary for the
conduct of their respective businesses as currently conducted and as described
in the Prospectus and have taken reasonable security measures to protect the
secrecy, confidentiality and value of their respective trade secrets and know-
how which are valid and protectible and are not part of the public knowledge or
literature and which are necessary for, used in, or proposed to be used in the
conduct of their respective businesses as described in the Prospectus. Neither
the Company nor any Subsidiary has received any notice of infringement of or
conflict with, and neither the Company nor any Subsidiary, to the best of the
Company's knowledge, is infringing or in conflict with, asserted rights of
others with respect to any trademarks, service marks, trade names, copyrights,
trade secrets or other intellectual property rights which could, singly or in
the aggregate, have a Material Adverse Effect.
(w) There are no outstanding loans or advances or guarantees of
indebtedness by the Company or any Subsidiary to or for the benefit of any
affiliate of the Company or any Subsidiary, any of the officers or directors of
the Company or any Subsidiary, or any of the members of the families of any of
the foregoing, which are required by the Act to be described in the Registration
Statement or the Prospectus except such that are so described.
(x) The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary in order to permit
preparation of financial statements in accordance with Canadian generally
accepted accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(y) The Company has not received any notice from the American Stock
Exchange (the "AMEX") that the AMEX intends to decline to permit the listing of
the Shares.
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(z) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, an "investment company" under the United States
Investment Company Act of 1940.
(aa) The Company or its Subsidiaries, as the case may be, currently is
eligible to receive refundable tax credits under the Income Tax Act (Canada) and
the Income Tax Act (British Columbia) as contemplated by the Prospectus, and
neither the Company nor any Subsidiary has taken, or shall take, directly or
indirectly, any action designed to cause or result in, or which might reasonably
be expected to cause the loss of eligibility for or material reduction in these
tax credits.
(ab) There are no reports or information that in accordance with the
requirements of the securities commission or similar regulatory authority (each,
Canadian Securities Regulators) must be made publicly available in connection
with the offering of the Shares that have not been made publicly available as
required; and there are no documents required to be filed with the Canadian
Securities Regulators in connection with the offering that have not been filed
as required.
(ac) The Representatives' Warrant Shares have been duly authorized and
reserved for issuance upon the exercise of the Representatives' Warrants and,
when issued upon payment of the purchase price therefor provided in the
Representatives' Warrants, will be validly issued, fully paid and nonassessable.
Any certificate signed by any duly authorized officer of the Company and
delivered to you or counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
2. Sale and Delivery of the Shares to the Underwriters.
---------------------------------------------------
(a) Subject to the terms and conditions and upon the basis of the
representations and warranties herein set forth, the Company agrees to sell to
the several Underwriters, and each Underwriter agrees, severally and not
jointly, to purchase from the Company the number of Firm Shares set forth
opposite such Underwriter's name on Schedule I hereto at a price per share of
U.S.$_____________ (the "Purchase Price").
(b) Subject to the terms and conditions and upon the basis of the
representations and warranties herein set forth, the Company hereby grants an
option to the several Underwriters to purchase from the Company at the Purchase
Price any or all of the Option Shares (the "Option"). The Option may be
exercised only to cover over-allotments in connection with the distribution and
sale of the Firm Shares by the Underwriters. The Option may be exercised in
whole or in part at any time on or before the 45th day after the effective date
of the Registration Statement upon written notice by the Representatives to the
Company setting forth the number of Option Shares as to which the several
Underwriters are exercising the Option. Delivery of certificates for the Option
Shares by the Company and payment therefor to the Company shall be made as
provided in Section 3 hereof. The
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number of Option Shares to be purchased by each Underwriter shall be the
same percentage of the total number of Option Shares to be purchased by the
Underwriters as such Underwriter is purchasing of the Firm Shares, subject to
such readjustments as the Representative in their absolute discretion shall make
to eliminate fractional shares. As Representatives of the several Underwriters,
you may cancel the Option at any time by giving written notice of cancellation
to the Company. If the Option is cancelled or expires unexercised in whole or in
part, the Company shall promptly deregister under the Act the Option Shares not
sold hereunder.
3. Delivery of and Payment for Shares. Delivery of certificates for the
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Firm Shares to be purchased by the Underwriters from the Company shall be made
against payment therefor by certified or official bank check or checks drawn
upon or by a New York Clearing House bank and payable in next-day funds to the
account of the Company. Such delivery and payment shall be made at 6:30 A.M.,
local time, at the offices of The Xxxxxxx Companies Incorporated, 000 Xxxxx
Xxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx (or such other place as
mutually may be agreed upon by you and the Company), on the third full business
day following the date of the public offering as advised by you to the Company
or at such other date not more than seven full business days thereafter as shall
be determined by you and the Company (unless, in either case, postponed pursuant
to Section 11) (the "First Closing Date").
The Option granted in Section 2 hereof may be exercised during the term
thereof by written notice to the Company from you. Such notice shall set forth
the aggregate number of Option Shares as to which the Option is being exercised
and the time and date, not earlier than either the First Closing Date or the
second business day after the date on which the Option shall have been exercised
nor later than the seventh business day after the date of such exercise, as
determined by you, when the Option Shares are to be delivered (the "Option
Closing Date"). Delivery and payment for such Option Shares is to be at the
offices set forth above for delivery and payment of the Firm Shares. Delivery
of certificates for the Option Shares to be purchased by the Underwriters shall
be made against payment therefor by certified or official bank checks drawn upon
or by a New York Clearing House bank and payable in next-day funds to the
account of the Company. The First Closing Date and the Option Closing Date are
herein individually referred to as the "Closing Date" and collectively referred
to as the "Closing Dates."
Delivery of certificates for the Shares shall be made by or on behalf of
the Company to you, or the respective accounts of the Underwriters, against
payment by you, for the several accounts of the Underwriters, to the Company.
The certificates for the Shares shall be registered in such names and
denominations as you shall have requested at least three full business days
prior to the applicable Closing Date, and shall be made available for checking
and packaging at a location as may be designated by you not later than 10:00
A.M. at least one full business day prior to such Closing Date. Time shall be
of the essence and delivery at the time and place specified in this Agreement is
a further condition to the obligations of each Underwriter.
11
4. Offering by Underwriters. On the terms and subject to the conditions
------------------------
hereof, as soon after the Registration Statement becomes effective as in the
judgment of the Representatives is advisable, the several Underwriters propose
to offer the Shares to the public as set forth in the Prospectus. The
Representatives may from time-to-time increase or decrease the public offering
price after distribution of the Shares has been completed to such extent as the
Representatives, in their sole discretion deem advisable. The Underwriters may
enter into one or more agreements as the Underwriters, in each of their sole
discretion, deem advisable with one or more broker-dealers who shall act as
dealers in connection with such public offering.
The Underwriters represent and warrant to, and covenant and agree with, the
Company that during the course of the distribution of the Shares to the public
by or through the Underwriters:
(a) the Underwriters will offer the Shares for sale to the public and
will sell the Shares only in those jurisdictions where they may be lawfully
offered for sale or sold, and, in any event, the Underwriters will not offer the
Shares for sale to the public in Canada and will not knowingly sell the Shares
to any residents of Canada;
(b) the Underwriters will ensure that any agreement entered into by
the Underwriters with any one or more broker-dealers, who act as dealers in
connection with the public offering of the Shares, will contain a covenant
whereby the broker-dealers agree not to offer the Shares for sale to the public
in Canada and not to knowingly sell the Shares to any residents of Canada;
(c) the Underwriters acknowledge that the Company will insert a
provision in the transfer agency agreement between the U. S. transfer agent and
the Company requiring the transfer agent not to register the Shares in the name
of any resident of the Province of Ontario for a period of 90 days from the
First Closing Date; and
(d) the Underwriters will comply with all Prospectus delivery
requirements under the Act.
The Company authorizes the Underwriters to use preliminary prospectuses and
to make them available for use by prospective underwriters and dealers and
authorize the Underwriters and all dealers acquiring Shares from an Underwriter
to use the Prospectus (as amended or supplemented, if the Company shall have
furnished any amendments or supplements thereto) in connection with the sale of
the Shares until the earlier of the completion of the public offering or the
90th day following the effectiveness of the Registration Statement.
12
5. Covenants. The Company covenants and agrees with each Underwriter
---------
that:
(a) The Company shall use its reasonable best efforts to cause the
Registration Statement to become effective at the earliest possible time or, if
the procedure in Rule 430A of the Act is utilized, to comply with the provisions
of, and make all requisite filings with the Commission pursuant to, Rule 430A of
the Act and to notify you promptly (in writing, if requested) of all such
filings. The Company shall notify you promptly and confirm such notification in
writing, (i) when the Registration Statement has become effective (if such
Registration Statement has not otherwise become effective prior to the execution
of this Agreement), if and when any Prospectus is mailed (or otherwise sent for
filing pursuant to Rule 424 under the Act), and when any post-effective
amendment to the Registration Statement becomes effective, (ii) of the happening
of any event during the period referred to in paragraph (c) below that makes any
statement of a material fact made in the Registration Statement untrue or that
requires the making of any additions to or changes in the Registration Statement
(as amended or supplemented from time to time) in order to make the statement
therein not misleading or that makes any statement of a material fact made in
the Prospectus (as amended or supplemented from time to time) untrue or that
requires the making of any additions to or changes in the Prospectus (as amended
or supplemented from time to time) in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, and
(iii) of any request by the Commission for any amendment of or supplement to the
Registration Statement or the Prospectus or for additional information relating
thereto. The Company shall prepare and file with the Commission, promptly upon
your request, any amendments of or supplements to the Registration Statement or
the Prospectus which, in the opinion of counsel to the several Underwriters, may
be necessary or advisable in connection with the distribution of the Shares and
shall use every reasonable effort to cause the same to become effective as
promptly as possible; and the Company shall not file any amendment of or
supplement to the Registration Statement or the Prospectus, whether before or
after the time when the Registration Statement becomes effective, which has not
previously been submitted to you a reasonable time before the proposed filing
thereof or to which you shall reasonably object in writing. The Company shall
advise you promptly after it shall receive notice thereof of the issuance by the
Commission or any State or other regulatory body of any stop order or other
order suspending the effectiveness of the Registration Statement, suspending or
preventing the use of any preliminary prospectus or the Prospectus or suspending
the qualification of the Shares for offering or sale in any jurisdiction, or of
the institution or threatening of any proceedings for any such purpose; and the
Company shall use every reasonable effort to prevent the issuance of any stop
order or other such order and, should a stop order or other such order be
issued, to obtain as soon as possible the lifting thereof.
(b) The Company shall furnish to the Underwriters, from time to time
and without charge, a reasonable number of copies of the Registration Statement
of which, upon request, two for you and one for counsel to the Underwriters
shall be signed, and shall include exhibits and all amendments and supplements
to such Registration Statement.
13
(c) Within the time during which a Prospectus relating to the Shares
is required to be delivered under the Act, the Company shall furnish to each
Underwriter, at the Company's expense, as many copies of the Prospectus (and of
each amendment or supplement thereto) as such Underwriter may reasonably
request, and the Company shall comply with all requirements imposed upon it by
the Act, as now and hereafter amended, so far as is necessary to permit the
continuance of sales of or dealings in the Shares as contemplated by the
provisions hereof and the Prospectus. If during such period any event occurs as
a result of which, in the opinion of counsel for the Underwriters or in the
judgment of the Company, the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances then
existing, not misleading, or if during such period it is necessary to amend the
Registration Statement or supplement the Prospectus to comply with the Act, the
Company shall promptly notify you and, subject to the provisions of Section
5(a), shall amend the Registration Statement or supplement the Prospectus (at
the expense of the Company) so as to correct such statement or omission or
effect such compliance, and will furnish to each Underwriter and to such dealers
as you shall specify such number of copies as such Underwriter or dealers may
reasonably request.
(d) The Company shall use its reasonable best efforts to take or cause
to be taken all necessary action and furnish to whomever you may direct such
information as may be required in qualifying the Shares for sale under the laws
of such state jurisdictions which you shall designate and to continue such
qualifications in effect for as long as may be required for the distribution of
the Shares; except that in no event shall the Company be obligated in connection
therewith to file any general consent to service of process or to qualify as a
foreign corporation in any jurisdiction in which it is not otherwise so subject.
The Company shall file such statements and reports as may be required by the
laws of each jurisdiction in which the Shares have been qualified as above
provided.
(e) As soon as practicable, but in any event not later than 60 days
after the end of the 12-month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs the Company will make generally available to its
shareholders, in the manner specified in Rule 158(b) of the Rules and
Regulations, and to the Representatives, an earnings statement which will be in
the detail required by, and will otherwise comply with, the provisions of
Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations, covering
a period of at least 12 consecutive months after the effective date of the
Registration Statement.
(f) For a period of six months following the First Closing Date, the
Company will not, without your prior written consent, (i) purchase any Voting
Shares or equity securities of the Company or (ii) offer, issue, sell, contract
to sell, transfer or otherwise dispose of, for value or otherwise, directly or
indirectly, any Voting Shares or other equity securities of the Company or any
securities convertible into or exchangeable for, or warrants to purchase or
acquire, Voting Shares, except (w) pursuant to this Agreement or (x) pursuant to
the exercise of stock options, warrants or performance share escrow agreement
outstanding as of the date of the Prospectus and disclosed therein, (y) pursuant
to
14
the grant of options to employees, officers, consultants or directors of the
Company or its Subsidiaries pursuant to the Company's Stock Option Plan to
purchase Voting Shares at an exercise price of not less than the public offering
price of the Shares as set forth in the Prospectus, provided that such options
do not become exercisable prior to six months following the First Closing Date,
or (z) Limited Voting Shares issued pursuant to the conversion of Multiple
Voting Shares outstanding as of the date of the Prospectus.
(g) The Company shall apply the net proceeds of the sale of the Shares
sold by it in the manner specified under the caption "Use of Proceeds" in the
Prospectus.
(h) The Company shall timely complete all required filings and
otherwise fully comply in a timely manner with all provisions of the Act in
connection with the public offering of the Shares.
(i) The Company shall pay or cause to be paid (A) all expenses
(including stock transfer taxes) incurred in connection with the delivery to the
several Underwriters of the Shares, (B) all fees and expenses (including,
without limitation, fees and expenses of the Company's accountants and counsel)
in connection with the preparation, printing, filing, delivery and shipping of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each preliminary prospectus and the
Prospectus, as amended or supplemented, and the printing, delivery and shipping
of this Agreement and other underwriting documents, including Underwriters'
Questionnaires, Underwriters' Powers of Attorney, Blue Sky Memoranda, Agreements
Among Underwriters and Selected Dealer Agreements and any letters transmitting
the offering material to Underwriters or selling group members (including costs
of mailing and shipment), (C) all filing fees and reasonable fees and
disbursements of counsel to the Underwriters incurred in connection with the
qualification of the Shares under state securities laws as provided in Section
5(d) hereof up to a maximum of U.S.$10,000, (D) the filing fee of the National
Association of Securities Dealers, Inc., (E) any applicable listing fees,
including the fee for listing the Company's Limited Voting Shares on the AMEX,
(F) the cost of printing certificates representing the Shares, (G) the cost and
charges of any transfer agent or registrar, (H) the costs and expenses of all
pre-closing and post-closing advertisements relating to the offering of the
Shares, (I) the costs and charges of preparing and distributing to the
Representatives four bound volumes of documents and instruments relating to the
transactions contemplated by this Agreement, (J) the costs and expenses of
travel and lodging of the Company's officers and representatives relating to
meetings with and presentations to prospective purchasers of the Shares, and (K)
all other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise provided for in this section; provided,
however, that the Underwriters shall pay the fees and expenses of their counsel
(other than as provided in clause (c) above) and their costs and expenses
relating to meetings with and presentations to prospective purchases of the
Shares. In addition, at the First Closing and at each Option Closing, the
Company shall also pay to The Xxxxxxx Companies Incorporated, individually, and
not in its capacity as one of the Representatives, a non-accountable expense
allowance equal to two percent (2%) of the initial public offering price of the
Shares purchased and sold at such closing.
15
(j) The Company, at its expense, shall furnish to its shareholders an
annual report (including financial statements prepared in accordance with
Canadian generally accepted accounting principles audited by independent
certified public accountants), and, as soon as practicable after the end of each
of the first three quarters of each fiscal year, a statement of operations of
the Company for such quarter (which may be in summary form), all in reasonable
detail, and during the five-year period after the date hereof, at its expense,
will furnish you (i) concurrently with providing such reports to its
shareholders, a balance sheet of the Company and any subsidiaries as and at the
end of such fiscal year, together with statements of income or operations,
shareholders' equity and cash flows of the Company and any consolidated
subsidiaries for such fiscal year, all in reasonable detail and accompanied by a
copy of the certificate or report thereon of independent certified public
accountants; (ii) as soon as they are available, a copy of all reports
(financial or other) mailed to security holders; (iii) as soon as they are
available, a copy of all periodic reports and financial statements furnished to
or filed with the Commission, the AMEX or the NASD; and (iv) such other
information of a public nature concerning the Company as you may from time to
time reasonably request. In addition, during such five-year period the Company
shall furnish you, concurrently with its release, every material press release
and every material news item or article in respect of the Company or its affairs
that is released or prepared by the Company.
(k) So long as the Company has an active subsidiary or subsidiaries,
the financial statements provided for in Section 5(j) shall be on a consolidated
basis to the extent the accounts of the Company and its subsidiary or
subsidiaries are consolidated in reports furnished to its shareholders
generally. Separate financial statements shall be furnished for any
subsidiaries whose accounts are not consolidated but which at the time are
significant subsidiaries as defined in the Act.
(l) The Company shall use its best efforts to cause each of the
Company's officers, and directors to execute and deliver to you on or before the
First Closing Date a written agreement, in form and content satisfactory to you
and counsel for the Underwriters, not to offer, sell, contract to sell, transfer
or otherwise dispose of, directly or indirectly, for value or otherwise, any
Voting Shares or other equity securities of the Company or any securities
convertible into or exchangeable for, or warrants to purchase or acquire, Voting
Shares, now owned or hereafter acquired by such person, for a period of six
months from the First Closing Date, except with your prior written consent.
(m) The Company and its subsidiaries shall continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
Canadian generally accepted accounting principles and to maintain accountability
for assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
16
(n) The Company shall comply with all registration, filing and
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which may from time to time be applicable to the Company.
(o) The Company shall make all filings required, including
registration under the Exchange Act, to obtain and maintain the listing of the
Limited Voting Shares on the AMEX concurrently with the effective date of the
Registration Statement.
(p) The Company shall maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for the Limited Voting Shares.
(q) As soon as practicable, but in no event more than 30 days from the
effective date of the Registration Statement, the Company take all necessary and
appropriate actions to be included in Standard and Poors Corporation
Descriptions and Moodys OTC Manual and to continue such inclusion for a period
of not less than five years.
(r) For a period equal to the lesser of five years from the date
hereof, and the sale to the public of the Representatives' Shares, the Company
will not take any action or actions which may prevent or disqualify the
Company's use of Form F-1 (or other appropriate form) for the registration under
the Act of the Representatives' Shares.
(s) If any time during the 25-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price of the Limited Voting Shares has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company shall, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and if deemed appropriate
by the Company and its counsel in consultation with you and your counsel,
disseminate a press release or other public statement reasonably satisfactory to
you responding to or commenting on such rumor, publication or event.
(t) Commencing not later than the First Closing Date, the Company's
Board of Directors shall include at least two independent directors.
(u) The Company shall supply the Underwriters with copies of all
correspondence to and from and all documents issued to and by the Commission or
the Commission's staff in connection with the registration of the Shares under
the Act.
17
(v) At or prior to the First Closing Date, the Company shall enter
into with The Xxxxxxx Companies Incorporated and Josephthal & Co. Inc.,
individually, and not in their capacity as the Representatives, the
Representatives' Warrant Agreement and sell and issue to The Xxxxxxx Companies
Incorporated and Josephthal & Co. Inc. the Representatives' Warrants.
6. Conditions to the Underwriters' Obligations. The obligations of the
-------------------------------------------
several Underwriters hereunder are subject to the accuracy, as of the date
hereof and each Closing Date (as if made at such Closing Date), of the
representations and warranties of the Company contained herein or in
certificates of any officer of the Company delivered pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder and to
the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective not later than 5:30 P.M., eastern time, on
the date following the date of this Agreement or, with your consent, at a later
time and date as you may agree in writing; all filings required by Rule 424 and
Rule 430A of the Act shall have been made; no stop order suspending the
effectiveness of the Registration Statement or any amendment or supplement
thereto shall have been issued; no proceedings for the issuance of such an order
shall have been commenced or shall be pending, or, to the knowledge of the
Company, threatened or contemplated by the Commission, and any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been disclosed to you and
complied with to your satisfaction; and no stop order suspending the sale of the
Shares in any jurisdiction shall have been issued, and no proceeding for that
purpose shall have been instituted, or, to the knowledge of the Company,
threatened or contemplated.
(b) On each Closing Date (i) the Registration Statement and the
Prospectus, as they may then be amended or supplemented, shall contain all
statements that are required to be stated therein under the Act and shall
conform in all material respects to the Act, the Company shall have complied in
all material respects with Rule 430A (if it shall have elected to rely thereon)
and neither the Registration Statement nor the Prospectus, as they may then be
amended or supplemented, shall contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein (with respect to the Prospectus, in the light of the
circumstances under which they were made) not misleading; (ii) there shall not
have been since the respective dates as of which information is given in the
Registration Statement, any material adverse change, or any development which
might reasonably be viewed as resulting in a material adverse change in or
affecting the assets, properties, results of operation, financial condition or
business prospects of the Company and the Subsidiaries taken as a whole, whether
or not arising in the ordinary course of business; (iii) the Company shall have
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the applicable Closing Date; and (iv) the
representations and warranties of the Company set forth in Section 1 shall be
accurate as though expressly made at and as of the applicable Closing Date. At
each applicable Closing Date, you shall have received a certificate executed by
the
18
Chief Executive Officer and the Chief Financial Officer of the Company, dated as
of the applicable Closing Date, to such effect and with respect to the following
additional matters: (A) based on the oral advice of the Commission, the
Registration Statement has become effective under the Act and no stop order
suspending the effectiveness of the Registration Statement or preventing or
suspending the use of the Prospectus has been issued, and no proceedings for
that purpose have been instituted or are pending or, to the best of their
knowledge, threatened under the Act; and (B) they have carefully reviewed the
Registration Statement and the Prospectus and when the Registration Statement
became effective and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus and any amendments or
supplements thereto contained all statements and information required to be
included therein or necessary to make the statements therein (with respect to
the Prospectus, in the light of the circumstances under which they were made)
not misleading and neither the Registration Statement nor the Prospectus and any
amendment or supplement thereto included any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or necessary
in order to make the statements therein (with respect to the Prospectus, in
light of the circumstances under which they were made) not misleading, and,
since the effective date of the Registration Statement, there has occurred no
event required to be set forth in an amended or supplemented Prospectus that has
not been so set forth; and (C) all representations, warranties, covenants and
statements made herein by the Company are true and correct in all material
respects at such Closing Date, with the same effect as if made on and as of such
Closing Date, and all agreements herein to be performed by the Company on or
prior to such Closing Date have been duly performed; provided, however, that the
Chief Executive Officer and the Chief Financial Officer need not make any
certification with respect to any statements made in reliance upon, and in
conformity with, written information furnished to the Company by you,
specifically for use in the preparation of the Registration Statement and the
Prospectus.
(c) You shall have received from Xxxxx Xxxxxx, Chartered Accountants,
a letter, dated the date hereof, in form and substance satisfactory to you,
together with signed or reproduced copies of such letter for each of the other
Underwriters, confirming that they are independent public accountants with
respect to the Company within the meaning of the Act, stating in effect that:
(i) in their opinion, the consolidated financial statements
included in the Registration Statement and covered by their report thereon
comply as to form in all material respects with the applicable accounting
requirements of the Act; and
(ii) in addition to the procedures referred to in clause (i)
above and the audit referred to in their report included in the Registration
Statement, they have carried out certain specific procedures, not constituting
an audit in accordance with Canadian generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
you which are derived from the general accounting records of the Company, which
appear in the Registration Statement or the exhibits or schedules thereto and
are specified by you, and have compared such amounts, percentages and financial
19
information with the accounting records of the Company and with material derived
from such records and have found them to be in agreement.
(d) You shall have received from KPMG LLP, a letter, dated the date
hereof, in form and substance satisfactory to you, together with signed or
reproduced copies of such letter for each of the other Underwriters, confirming
that they are independent public accountants with respect to the Company within
the meaning of the Act, stating in effect that:
(i) in their opinion, the consolidated financial statements
included in the Registration Statement and covered by their report thereon
comply as to form in all material respects with the applicable accounting
requirements of the Act;
(ii) on the basis of limited procedures (set forth in detail in
such letter and made in accordance with such procedures as may be reasonably
specified by you) not constituting an audit in accordance with generally
accepted auditing standards, consisting of (but not limited to) a reading of the
latest available internal unaudited consolidated financial statements of the
Company, a reading of minute books of the Company, inquiries of officials of the
Company responsible for financial and accounting matters, and such other
inquiries and procedures, as may be specified in such letter:
(A) nothing has come to their attention which caused them
to believe that the unaudited consolidated financial statements of the Company
included in the Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the Act or are not
presented in conformity with Canadian generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements included in the Registration Statement;
(B) the financial data for the five fiscal years ended
August 31, 1998 and for the six-month periods ended February 28, 1998 and 1999,
included in the Prospectus under the caption "Prospectus Summary -Summary
Selected Financial Data" agree with the corresponding amounts in the audited
consolidated financial statements or unaudited consolidated financial
statements, as appropriate, of the Company for such periods;
(C) at a specified date not more than five business days
prior to the date of delivery of such letter, there was no change in the capital
stock, bank indebtedness, due to directors and shareholders, or long-term debt
of the Company other than scheduled repayments, or any decreases in total
assets, shareholders' equity or other items specified by the Underwriters from
that set forth in the consolidated balance sheet at February 28, 1999, included
in the Prospectus, except as described in the Prospectus or such letter; or
(D) for the period from February 28, 1999, to a specified
date not more than five days prior to the date of delivery of such letter, there
were no
20
decreases in revenue, earnings from operations, earnings before income taxes, or
total or per share amounts of net earnings of the Company, in each case as
compared with the corresponding period of the preceding year, except in each
case for decreases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(iii) in addition to the procedures referred to in clause (ii)
above and the audit referred to in their report included in the Registration
Statement, they have carried out certain specific procedures, not constituting
an audit in accordance with Canadian generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
you which are derived from the general accounting records of the Company, which
appear in the Registration Statement or the exhibits or schedules thereto and
are specified by you, and have compared such amounts, percentages and financial
information with the accounting records of the Company and with material derived
from such records and have found them to be in agreement.
(e) At each Closing Date you shall have received from KPMG LLP a
letter, in form and substance satisfactory to you and dated as of such Closing
Date, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (c) above, except that the specified date
referred to shall be a date not more than five business days prior to such
Closing Date.
(f) In the event that any of the letters to be delivered pursuant to
subsections (d) and (e) above sets forth any such changes, decreases or
increases, it shall be a further condition to your obligations that you shall
have determined, after discussions with officers of the Company responsible for
financial and accounting matters and with KPMG LLP, that such changes, decreases
or increases as are set forth in such letters do not reflect a material adverse
change in the capital stock, bank indebtedness, due to directors and
shareholders, long-term debt, total assets, or shareholders' equity of the
Company as compared with the amounts shown in the latest consolidated balance
sheet of the Company, or a material adverse change in revenues or the total or
per share amounts of net earnings, of the Company, in each case as compared with
the corresponding period of the prior year.
(g) On each Closing Date, you shall have received from Xxxx & Xxxxx
Professional Corporation, U.S. counsel for the Underwriters, and Bull Housser &
Xxxxxx Canadian counsel for the Underwriters, such opinions with respect to the
Registration Statement, the Prospectus and other related matters as you
reasonably may require and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters.
21
(h) On each Closing Date, there shall have been furnished to you the
opinions (addressed to the Underwriters) of Brand Xxxxxx & Xxxxxxx LLP, U.S.
counsel for the Company (as to matters of U.S. law), Page Fraser & Associates,
Canadian counsel for the Company (as to matters of Canadian law), and
Thorsteinssons, Tax Lawyers, special Canadian tax counsel for the Company (as to
Canadian tax matters discussed under the caption "Tax Considerations" in the
Prospectus), dated such Closing Date and in form and substance reasonably
satisfactory to you and counsel for the Underwriters and stating that it may be
relied upon by counsel for the Underwriters in giving their opinions, to the
collective effect that:
(i) The Company and each Subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction in which it is incorporated, with full corporate power and
authority to own or lease and occupy its properties and conduct its business as
described in the Prospectus, and is duly qualified to do business and is in good
standing in each jurisdiction in which, to such counsel's knowledge, the
character of the business conducted by it or the location of the properties
owned or leased by it makes such qualification necessary, except where the
failure to so qualify would not have a Material Adverse Effect.
(ii) The authorized, issued and outstanding capital stock of the
Company conforms as to legal matters in all material respects to the description
thereof as set forth under the caption "Description of Capital Stock" in the
Prospectus. The Voting Shares and the Representatives' Warrants conform as to
legal matters in all material respects to the description thereof contained in
the Registration Statement and the Prospectus. The outstanding Voting Shares
have been, and the Shares that are being sold by the Company, upon issuance and
delivery and payment therefor in the manner herein described will be, duly
authorized, validly issued, fully paid and nonassessable. Except as described in
the Registration Statement and Prospectus, there are no preemptive or, to the
knowledge of such counsel, other rights to subscribe for or to purchase, or any
restrictions upon the voting or transfer of, any shares of Voting Shares
pursuant to the Company's memorandum or articles or any agreement or other
instrument known to such counsel to which the Company is a party or by which it
may be bound; and to such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated by
this Agreement, or the offer and sale of the Representatives' Warrants (or the
Representatives' Warrant Shares) as contemplated by the Representatives' Warrant
Agreement, gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any Voting Shares. To such
counsel's knowledge, the Company has no subsidiaries other than the
Subsidiaries.
(iii) Neither the issuance, sale or delivery by the Company of
the Shares or the Representatives' Warrants, nor the execution, delivery and
performance of this Agreement and the Representatives' Warrant Agreement by the
Company, nor the consummation by the Company of any of the other transactions
contemplated hereby and thereby will result in a violation of, or constitute a
default under, the memorandum or articles of the Company, or result in a
material violation of or constitute a default under any
22
material agreement, indenture or other instrument known to such counsel, to
which the Company or any Subsidiary is a party or by which any of them is bound,
or to which any of their properties is subject, nor, to such counsel's
knowledge, will the performance by the Company of its obligations hereunder
violate any law, ordinance, rule, administrative regulation or decree of any
court or any governmental agency or body having jurisdiction over the Company or
any Subsidiary or any of their respective properties or assets, or result in the
creation or imposition of any lien, charge, claim or encumbrance upon any
property or asset of the Company or any Subsidiary; provided, however, that no
opinion need be rendered regarding any state or provincial securities or "blue
sky" laws. Except for permits and similar authorizations required under the Act,
by the NASD or under the securities or "blue sky" laws of certain jurisdictions
and for such permits and authorizations which have been obtained, no consent,
approval, authorization or order of any court or governmental agency or body is
required in connection with the consummation by the Company of the transactions
contemplated by this Agreement and the Representatives' Warrant Agreement.
(iv) To such counsel's knowledge, no event has occurred that
renders, or with the giving of notice or lapse of time or both would render, the
Company or any Subsidiary in violation of or in default under its memorandum or
articles or, to such counsel's knowledge, in violation of any material
agreement, indenture or other instrument known to such counsel, to which the
Company or any Subsidiary is a party or by which any of them is bound or to
which any of their respective properties or assets is subject.
(v) Based upon the oral advice of the Commission, the
Registration Statement and all post-effective amendments thereto have become
effective under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending before or
contemplated by the Commission and all filings required by Rule 424 and Rule
430A of the Act have been made in a timely manner; and the Registration
Statement and the Prospectus and any amendment or supplement thereto, as of
their respective effective dates and as of each Closing Date, complied as to
form in all material respects with the requirements of the Act (except that
counsel need express no opinion on or take any responsibility for the financial
statements contained therein or any financial or statistical data derived
therefrom).
(vi) The statements under the captions "Dividend Policy,"
"Business -Regulatory Considerations," "Description of Capital Stock," "Shares
Eligible for Future Sale," "Underwriting," "Management," and "Tax
Considerations" in the Prospectus and in Items 14 and 15 of Part II of the
Registration Statement, insofar as such statements constitute a summary of legal
matters, documents or proceedings referred to therein, provide a fair summary of
such legal matters, documents and proceedings; and such counsel does not know of
any contracts or documents of a character required to be summarized or described
in the Registration Statement or the Prospectus or required to be filed as
exhibits to the Registration Statement which are not so summarized, described or
filed. There are no statutes or regulations applicable to the Company or any
Subsidiary or certificates, permits or other authorizations from governmental
regulatory officials or bodies required to be obtained
23
or maintained by the Company or any Subsidiary of a character required to be
disclosed in the Registration Statement or the Prospectus which have not been so
disclosed and described therein.
(vii) Except as described in the Prospectus, such counsel does
not know of any past, pending or threatened action, suit, proceeding, inquiry or
investigation before any court or before or by any public, regulatory or
governmental body or board against or involving the properties or businesses of
the Company or any Subsidiary of a character required to be disclosed in the
Prospectus or, as to threatened litigation, of a character which would be
required to be disclosed if filed, or in either case which, if successful, would
have a Material Adverse Effect.
(viii) Such contracts and documents as are summarized in the
Prospectus are fairly summarized in all material respects; and, to such
counsel's knowledge, each contract or document so described is in full force and
effect in accordance with its terms.
(ix) The Company has the corporate power and authority to enter
into and perform this Agreement and the Representatives' Warrant Agreement, and
to issue, sell and deliver the Shares and the Representatives' Warrants being
issued, sold and delivered by the Company hereunder; this Agreement and the
Representatives' Warrant Agreement have been duly authorized, executed and
delivered by the Company and, assuming due authorization, execution and delivery
by the other parties thereto, constitute the valid and binding agreement of the
Company, enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to the rights of creditors generally
and by general equitable principles, and except as rights to indemnification or
contribution may be limited under federal and state securities laws or may be
contrary to public policy.
(x) All corporate action required in connection with the
authorization and issuance of the Shares and the Representatives' Warrants and
the sale of the Shares and the Representatives' Warrants by the Company in
accordance with the terms of this Agreement and the Representatives' Warrants
have been taken and all authorizations, consents, approvals, licenses or other
orders of any regulatory body, administrative agency or other governmental body
or, to such counsel's knowledge, any other person or entity required for the
valid issuance, sale and delivery of the Shares and the Representatives'
Warrants hereunder and thereunder have been obtained (except that no opinion
need be expressed with respect to such authorizations, consents, approvals,
licenses or other orders as may be required by the state or provincial
securities or "blue sky" laws of any jurisdiction in connection with the sale of
the Shares and the Representatives' Warrants ).
(xi) To such counsel's knowledge, the Company and each
Subsidiary has obtained all material licenses, permits and other governmental
authorizations necessary to the conduct of its business as described in the
Prospectus and such licenses,
24
permits and other governmental authorizations are in full force and effect and
the Company and each Subsidiary is in all material respects complying therewith.
(xii) The form of certificate representing the Limited Voting
Shares and filed as an exhibit to the Registration Statement is in due and
proper form under the laws of British Columbia, Canada, and other applicable
laws.
(xiii) The Representatives' Warrant Shares have been duly
authorized and reserved for issuance and, when issued and delivered upon payment
therefor in accordance with the terms of the Representatives' Warrants, will be
duly and validly issued, fully paid and non-assessable.
(xiv) The offer and sale of all securities of the Company made
within the last three years as set forth in Item 15 of the Registration
Statement were exempt from the registration requirements of the Act and from the
registration and prospectus requirements of all relevant state, provincial and
local securities laws.
(xv) The Shares have been approved for listing on the AMEX,
subject to official notice of issuance.
(xvi) The Company is not, and upon consummation of the
transactions contemplated hereby will not be, an "investment company" under the
United States Investment Company Act of 1940.
(xvii) No stamp tax or other issuance, goods and services or
transfer taxes or duties and no capital gains, income, withholding or other
taxes are payable by or on behalf of the Underwriters to any authority in Canada
or in any of its provinces in connection with (A) the issuance, sale and
delivery of the Shares to the Underwriters in the manner contemplated in this
Agreement, (B) the resale and delivery of such Shares by the Underwriters in the
United States in the manner contemplated in the Prospectus, or (C) the payment
by the Company of any commission or fee to or for the account of the
Underwriters in connection with their services with respect to clauses (A) and
(B) above or any other transaction contemplated hereby;
(xviii) This Agreement is in proper legal form under the laws of
the Province of British Columbia for the enforcement thereof against the Company
in the Province of British Columbia without further action on the part of the
Underwriters; and to ensure the legality, validity, enforceability or
admissibility in evidence of this Agreement in the Province of British Columbia
it is not necessary that it be filed or recorded with any court or other
authority in the Province of British Columbia (except at the time of enforcement
so as to enter same as evidence) or that any stamp or similar tax be paid on or
in respect of any such document or the Shares;
25
(xix) Assuming the choice of the law of the State of California
provided for in this Agreement is effective under such law, the Company has the
corporate power to submit to the jurisdiction of the courts of the State of
California or the courts of the United States having jurisdiction in the State
of California in respect of any legal actions or proceedings arising out of this
Agreement;
(xx) A court of competent jurisdiction in the Province of
British Columbia (a "British Columbia Court") would uphold the choice of the law
of the State of California as the proper law governing this Agreement, and
subject to paragraph (xxi) below, would apply the internal laws of the State of
California, to the extent specifically pleaded and proven, in any action seeking
to enforce this Agreement;
(xxi) Subject to the qualifications contained herein and to the
qualification that enforcement in the Province of British Columbia of the
indemnity and contribution provisions set forth in Section 8 of this Agreement
may be limited by the laws of the Province of British Columbia and the federal
laws of Canada applicable therein, there are no reasons under the present laws
of the Province of British Columbia and the federal laws of Canada applicable
therein upon the grounds of public order as understood in international
relations for avoiding recognition of a judgment of a California Court enforcing
the performance of this Agreement by a judgment awarding a sum of money as
compensatory damages or for avoiding to enforce the choice of law provisions of
this Agreement; and
(xxii) Except as described in the Prospectus, to such counsel's
knowledge, there are no claims, payments, issuances, arrangements or
understandings of the Company for services in the nature of a finder's or
origination fee with respect to the sale of the Shares hereunder.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company, counsel for
the Underwriters, representatives of the independent public accountants for the
Company, you and your counsel, at which the contents of the Registration
Statement and the Prospectus and related matters were discussed and, although
such counsel is not passing upon, and does not assume responsibility for, the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus (other than as set forth in clause (v)
above), on the basis of the foregoing, no facts have come to such counsel's
attention that lead them to believe either that the Registration Statement at
the time such Registration Statement became effective contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus, at the applicable Closing Date contained an untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, except that such counsel need express no opinion with
respect to, or take any responsibilities for, the financial statements included
in the Registration Statement or the Prospectus or any financial or statistical
data derived therefrom.
26
In rendering the foregoing opinion, such counsel may rely on the following:
(A) as to matters involving the application of laws other
than the laws of the United States, the State of California, Canada and the
Province of British Columbia in which they are admitted, to the extent such
counsel deems proper and to the extent specified in such opinion, upon an
opinion or opinions (in form and substance reasonably satisfactory to
Underwriters' counsel) of other counsel familiar with applicable laws; and
(B) as to matters of fact, to the extent they deem proper,
on certificates of officers of the Company and of the Subsidiaries and
certificates or other written statements of officers or departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company and the Subsidiaries and certificates of the
Company's transfer agent, provided that copies of all such opinions, statements
or certificates shall be delivered to Underwriters' counsel, and, if written
confirmation of the Commission is not available at the time such opinion is
rendered, upon the current oral representations of members of the Commission's
staff with respect to the Registration Statement or any amendment or supplement
thereto having become effective and the lack of issuance of a stop order or
institution of proceedings for that purpose.
(i) At or prior to the First Closing Date, the Representatives'
Warrant Agreement shall have been entered into among the Company, The Xxxxxxx
Companies Incorporated and Josephthal & Co. Inc. and the Representatives'
Warrants shall have been sold and issued to The Xxxxxxx Companies and Josephthal
& Co. Inc. as provided therein.
(j) At or prior to the First Closing Date, you shall have received the
written agreements described in Section 5(l) hereof.
(k) At the Closing Date, the Shares shall have been approved for
listing on the AMEX, subject to official notice of issuance.
(l) The Company shall have furnished to you such additional documents
and certificates as you may reasonably request.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and to counsel for the Underwriters. The Company
shall furnish you with such conformed copies of such opinions, certificates,
letters and other documents as you shall reasonably request for each of the
Underwriters. If any of the conditions specified in this Section 6 shall not
have been fulfilled when and as required by this Agreement, this Agreement and
all obligations of the Underwriters hereunder may be cancelled at, or at any
time prior to, each Closing Date, by you. Any such cancellation shall be
without liability of the Underwriters to the Company. Notice of such
cancellation shall be given to the Company in writing, or by telephone and
confirmed in writing.
27
7. Conditions to the Company's Obligations. The obligations of the
---------------------------------------
Company are subject to the condition that, on each Closing Date, the Company
shall have received a certificate executed by the Representatives that the
Underwriters have not offered the Shares for sale to the public in Canada or
knowingly sold any of the Shares to residents of Canada.
8. Indemnification.
---------------
(a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject under the Act, the Exchange Act or other
United States or Canadian federal, state or provincial law or regulation,
specifically including but not limited to losses, claims, damages or liabilities
related to negligence on the part of any Underwriter, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any breach of any warranty or covenant of the Company herein
contained or any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto, or in any "blue sky"
application or other document executed by the Company or based upon any
information furnished in writing by the Company, filed in any jurisdiction in
order to qualify any or all of the Shares under the securities laws thereof
("Blue Sky Application"), or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements (with respect to the Prospectus, in the
light of the circumstances under which they were made) therein not misleading;
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such preliminary prospectus or the Prospectus, or such
amendment or supplement, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by you or by any
Underwriter through you expressly for use therein; provided, further, that the
Company will not be liable for any such losses, claims, damages, or liabilities
arising from the sale of the Shares to any person if a copy of the Prospectus
(as first filed pursuant to Rule 424(b)) or the Prospectus as amended or
supplemented by all amendments or supplements thereto which has been furnished
to the Underwriters shall not have been sent, mailed or given to such person, at
or prior to the written confirmation of the sale of such Shares to such person,
but only if and to the extent that such Prospectus, if so sent or delivered,
would have cured the defect giving rise to such losses, claims, damages or
liabilities. In addition to its other obligations under this Section 8(a), the
Company agrees that, as an interim measure during the pendency of any such
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 8(a), it will reimburse the Underwriters on a monthly
basis for all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to
28
reimburse the Underwriters for such expense and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. This indemnity agreement shall be in addition to any liabilities
that the Company may otherwise have including under this Agreement.
(b) Each Underwriter, severally but not jointly, will indemnify and
hold harmless the Company against any losses, claims, damages or liabilities to
which the Company may become subject, under the Act, the Exchange Act or other
United States or Canadian federal, state or provincial law or regulation,
specifically including but not limited to losses, claims, damages or liabilities
related to negligence on the part of the Company, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any breach of any warranty or covenant by you herein contained or
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any preliminary prospectus, the Prospectus, or
any amendment or supplement thereto, or any Blue Sky Application or arise out of
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, such preliminary prospectus or
the Prospectus, or such amendment or supplement or any Blue Sky Application, in
reliance upon and in conformity with information furnished to the Company by
such Underwriter expressly for use therein; and will reimburse the Company for
any legal or other expenses reasonably incurred by the Company in connection
with investigating or defending any such loss, claim, damage, liability or
action. In addition to their other obligations under this Section 8(b), the
Underwriters agree that, as an interim measure during the pendency of any such
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 8(b), they will reimburse the Company on a monthly
basis for all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding notwithstanding the absence of a judicial determination as to
the propriety and enforceability of their obligation to reimburse the Company
for such expense and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. This indemnity
agreement shall be in addition to any liabilities which the Underwriters may
otherwise have including under this Agreement.
The indemnity agreement in this Section 8(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
director or partner of the Company and each person, if any, who controls the
Company within the meaning of the Act to the same extent as such agreement
applies to the Company.
29
(c) Within ten days after receipt by an indemnified party under
subsection (a) or (b) above of notice of commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; no indemnification provided in Section 8(a)
or 8(b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
prejudiced by the failure to give such notice, but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
that it may have to any indemnified party otherwise than under this Section 8 or
to the extent that it is not prejudiced as a proximate result of such failure.
In case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein, and, to the extent
that it shall elect by written notice delivered to the indemnified party,
jointly with any other indemnifying party, similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses, other than
reasonable costs of investigation, subsequently incurred by such indemnified
party in connection with the defense thereof. The indemnified party shall have
the right to employ its own counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party has been
authorized by the indemnifying party, (ii) the indemnified party shall have been
advised by such counsel that there may be a conflict of interest between the
indemnifying party and the indemnified party in the conduct of the defense of
such action (in which case the indemnifying party shall not have the right to
direct the defense of such action on behalf of the indemnified party) or (iii)
the indemnifying party shall not in fact have employed counsel to assume the
defense of such action, in any of which events such fees and expenses shall be
borne by the indemnifying party. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
(d) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Section 8(a) and 8(b)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the indemnifying parties, shall be settled by arbitration
conducted pursuant to the Code of Arbitration Procedure of the NASD. Any such
arbitration must be commenced by service of a written demand for arbitration or
a written notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 8(a) and 8(b) hereof and will not
30
resolve the ultimate propriety or enforceability of the obligation to indemnify
for expenses that is created by the provisions of Sections 8(a) and 8(b).
(e) In order to provide for just and equitable contribution in
circumstances under which the indemnity provided for in this Section 8 is for
any reason judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company and the
Underwriters shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity incurred by
the Company and one or more of the Underwriters, as incurred, in such
proportions that (i) the Underwriters are responsible pro rata for that portion
represented by the underwriting discount appearing on the cover page of the
Prospectus bears to the public offering price (before deducting expenses)
appearing thereon, and (ii) the Company is responsible for the balance;
provided, however, that no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation; provided,
however, that if the allocation provided above is not permitted by applicable
law, the Company and the Underwriters shall contribute to the aggregate losses
in such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of the Company and the
Underwriters in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages or liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this subsection (e), no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. For purposes of this
Section 8(e), each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act shall have the same rights to contribution as
such Underwriter, and each director of the Company, each officer of the Company
who signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act shall have the same rights
to contribution as the Company.
(f) The parties to this Agreement acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions of this Agreement, including without
limitation, the provisions of this Section 8, and are fully informed regarding
said provisions. They further acknowledge that the
31
provisions of this Section 8 fairly allocate the risks in light of the ability
of the parties to investigate the Company and its business in order to assure
that adequate disclosure is made in the Registration Statement and Prospectus as
required by the Act. The parties are advised that federal or state public
policy, as interpreted by the courts in certain jurisdictions, may be contrary
to certain of the provisions of this Section 8, and the parties hereto hereby
expressly waive and relinquish any right or ability to assert such public policy
as a defense to a claim under this Section 8 and further agree not to attempt to
assert any such defense.
9. Representations and Agreements to Survive Delivery. The
--------------------------------------------------
representations, warranties, indemnities, agreements and other statements of the
Underwriters, the Company or its officers set forth in or made pursuant to this
Agreement will remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Company, or any Underwriter or
controlling person, with respect to an Underwriter or the Company and will
survive delivery of and payment for the Shares or termination of this Agreement.
10. Effective Date of Agreement and Termination.
-------------------------------------------
(a) This Agreement shall become effective (i) if at the time of
execution of this Agreement the Registration Statement has not become effective,
at 10:00 A.M. eastern time on the first full business day following the
effectiveness of the Registration Statement, or (ii) if at the time of execution
of this Agreement, the Registration Statement has been declared effective, at
10:00 A.M. eastern time on the first full business day following the date of
execution of this Agreement; but this Agreement shall nevertheless become
effective at such earlier time after the Registration Statement becomes
effective as you may determine on and by notice to the Company or by release of
any of the Shares for sale to the public. For the purposes of this Section 10,
the Shares shall be deemed to have been so released upon the release for
publication of any newspaper advertisement relating to the Shares or upon the
release by you of telegrams or facsimile messages (i) advising the Underwriters
that the Shares are released for public offering, or (ii) offering the Shares
for sale to securities dealers, whichever may occur first. By giving notice
before the time this Agreement becomes effective, you, as the Representatives of
the several Underwriters, or the Company, may prevent this Agreement from
becoming effective, without liability of any party to any other party, except
that the Company shall remain obligated to pay costs and expenses to the extent
provided in Sections 5(i) and 10(d) hereof.
(b) You may terminate this Agreement by notice to the Company at any
time at or prior to the Closing Date (i) in accordance with the last paragraph
of Section 6 of this Agreement; or (ii) if there has been, since the respective
dates as of which information is given in the Registration Statement, any
material adverse change, or any development which might reasonably be viewed as
resulting in a material adverse change in or affecting the assets, properties,
results of operation, financial condition or business prospects of the Company
and the Subsidiaries taken as a whole, whether or not arising in the ordinary
course of business; or (iii) if there has occurred or accelerated any outbreak
of hostilities or other national or international calamity or crisis or change
in economic or political conditions the effect of which on the financial markets
of the United States is such as to make it, in
32
your judgment, impracticable to market the Shares or enforce contracts for the
sale of the Shares; or (iv) if trading in any securities of the Company has been
suspended by the Commission or by the NASD or the AMEX, or if trading generally
on the AMEX or in the over-the-counter market has been suspended, or limitations
on prices for trading (other than limitations on hours or numbers of days of
trading) have been fixed, or maximum ranges for prices for securities have been
required, by such exchange or the NASD or by order of the Commission or any
other governmental authority; or (v) if a banking moratorium has been declared
by federal or New York or California authorities; or (vi) any federal or state
statute, regulation, rule or order of any court or other governmental authority
has been enacted, published, decreed or otherwise promulgated which in your
reasonable opinion materially adversely affects or will materially adversely
affect the business or operations of the Company and the Subsidiaries taken as a
whole, or (vii) any action has been taken by any federal, state, provincial or
local government or agency in respect of its monetary or fiscal affairs which in
your reasonable opinion has a material adverse effect on the securities markets
in the United States.
(c) If this Agreement is terminated pursuant to this Section 10, such
termination shall be without liability of any party to any other party, except
to the extent provided in Sections 5(i) and 10(d). Notwithstanding any such
termination, the provisions of Section 8 shall remain in effect.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof, or if the sale of the Shares provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth herein is not satisfied or because of any refusal, inability or failure on
the part of the Company to perform any agreement herein or to comply with any
provision hereof (other than by reason of a default of the Underwriters), the
Company agrees, subject to demand by you, to reimburse the Underwriters for all
reasonable out-of-pocket expenses (including the reasonable fees and expenses of
counsel to the Underwriters), incurred by the Underwriters in connection
herewith.
11. Default by One or More of the Underwriters.
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(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares hereunder, and if the Firm Shares with
respect to which such default relates do not (after giving effect to
arrangements, if any, made pursuant to subsection 11(b) below) exceed in the
aggregate 10% of the number of shares of Firm Shares that all Underwriters have
agreed to purchase hereunder, then such Firm Shares to which the default relates
shall be purchased by the non-defaulting Underwriters in the respective
proportions that the numbers of Firm Shares set forth opposite their respective
names in Schedule I hereto bear to the aggregate number of Firm Shares set forth
opposite the names of the non-defaulting Underwriters.
33
(b) If such default relates to more than 10% of the Firm Shares, you
may, in your discretion, arrange for another party or parties (including any
non-defaulting Underwriter or Underwriters who so agree) to purchase such Firm
Shares to which such default relates on the terms contained herein. If within
36 hours after such a default you do not arrange for the purchase of the Firm
Shares to which such default relates as provided in this Section 11, this
Agreement shall thereupon terminate, without liability on the part of the
Company with respect thereto (except as provided in Sections 5(i) and 8 hereof)
or the several non-defaulting Underwriters (except as provided in Section 8
hereof), but nothing in this Agreement shall relieve a defaulting Underwriter or
Underwriters of its or their liability, if any, to the other several
Underwriters and the Company for damages occasioned by its or their default
hereunder.
(c) If the Firm Shares to which the default relates are to be
purchased by the non-defaulting Underwriters, or are to be purchased by another
party or parties as aforesaid, you or the Company shall have the right to
postpone the First Closing for a period not exceeding seven business days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement, the Prospectus or in any other documents and
arrangements, and the Company agrees to file promptly any amendment or
supplement to the Registration Statement or the Prospectus that, in the opinion
of counsel to the Underwriters, may thereby be made necessary or advisable. The
term "Underwriter" as used in this Agreement shall include any party substituted
under this Section 11 with like effect as if it had originally been a party to
this Agreement with respect to such Firm Shares.
12. Default by the Company. If the Company shall fail at the First
----------------------
Closing Date to sell and deliver the respective aggregate number of Firm Shares
that it is obligated to sell, then this Agreement shall terminate without any
liability on the part of any non-defaulting party, except to the extent provided
in Sections 5(i) and 10(d) and except that the provisions of Section 8 shall
remain in effect. No action taken pursuant to this Section shall relieve the
Company from liability, if any, in respect of its default.
13. Notices. Except as otherwise provided in this Agreement, (a) whenever
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notice is required by the provisions of this Agreement to be given to the
Company, such notice shall be in writing, addressed to the Company at Number
302, 1132 Xxxxxxxx Street, Vancouver XX0-0X0, Xxxxxxx Xxxxxxxx, Xxxxxx, or by
telecopier (confirmed in writing) at (000) 000-0000, Attention: President, with
a copy to Brand Xxxxxx & Xxxxxxx LLP at 000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxx
Xxxxxxx, Xxxxxxxxxx 00000-0000, or by telecopier at (000) 000-0000, Attention:
Xxxxxxxx X. Xxxx, Esq., and (b) whenever notice is required by the provisions of
this Agreement to be given to the several Underwriters, such notice shall be in
writing addressed to the Underwriters in care of The Xxxxxxx Companies
Incorporated, 000 Xxxxx Xxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx
00000-0000, or by telecopier at (000) 000-0000, Attention: Xxxxxx X. Xxxxxxxx,
III, with a copy to Xxxx & Xxxxx Professional Corporation at 0000 Xxxxxxx Xxxx
Xxxx, Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000, or by telecopier at (310) 201-
4746, Attention: Xxxx X. Short, Esq.
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14. Parties. This Agreement is made solely for the benefit of the several
-------
Underwriters, the Company, any officer, director or controlling person referred
to in Section 8 hereof, and their respective successors and assigns, and no
other person shall acquire or have any right by virtue of this Agreement. The
term "successors and assigns," as used in this Agreement, shall not include any
purchaser of any of the Shares from any of the Underwriters merely by reason of
such purchase. In all dealings with the Company under this Agreement, you shall
act on behalf of each of the several Underwriters and the Representatives, and
the Company shall be entitled to act and rely upon any statement, request,
notice or agreement made or given by you jointly or by The Xxxxxxx Companies
Incorporated on your behalf.
15. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, without giving effect to
the choice of law or conflict of laws principles thereof.
16. Consent to Jurisdiction and Service of Process. All judicial
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proceedings arising out of or relating to this Agreement and the
Representatives' Warrant Agreement or the transactions contemplated hereby or
thereby may be brought in any state or federal court of competent jurisdiction
in the County of Los Angeles, State of California, and by execution and delivery
of this Agreement, each of the parties hereto accepts for itself and in
connection with its properties, generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts and waives any defense of forum non
----- ---
conveniens and irrevocably agrees to be bound by any judgment rendered thereby
----------
in connection with this Agreement. Each of the parties hereby agrees that
service of process sufficient for personal jurisdiction in any action against
such party in the State of California may be made by any means permitted in
California to the party at the address provided in Section 13 hereof, and each
of the parties hereby acknowledges that such service shall be effective and
binding in every respect. Nothing herein shall affect the right to serve
process in any other manner permitted by law or shall limit the right of a party
to bring proceedings against the other party in the courts of any other
jurisdiction.
17. Counterparts; Facsimile Transmissions. This Agreement may be signed
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in one or more counterparts, each of which shall constitute an original and all
of which together shall constitute one and the same agreement. Delivery of an
executed counterpart of this Agreement by facsimile shall be equally as
effective as delivery of a manually executed counterpart of this Agreement.
Upon the request of any party, any party who shall have delivered an executed
counterpart of this Agreement by facsimile shall deliver a manually executed
counterpart as well, but the failure to so deliver a manually executed
counterpart shall not affect the validity, enforceability or binding effect of
this Agreement.
35
Please confirm, by signing and returning to us counterparts of this
Agreement, that you are acting on behalf of yourselves and the several
Underwriters and that the foregoing correctly sets forth the Agreement among the
Company and the several Underwriters.
Very truly yours,
PEACE ARCH ENTERTAINMENT INC.
By
-----------------------------------------
Name: W. D. Xxxxxxx Xxxxx
Title: Chief Executive Officer
Confirmed and accepted as of
the date first above mentioned
THE XXXXXXX COMPANIES INCORPORATED
JOSEPHTHAL & CO. INC.,
By: THE XXXXXXX COMPANIES INCORPORATED
On behalf of themselves and the other
Underwriters named in Schedule I hereto
By
-------------------------------------
Name: Xxxxxx X. Xxxxxxxx, III
Title: Managing Director
36
