EXHIBIT 3.14
UNDERWRITING AGREEMENT
August 4, 1998
Xxx.Xxx International Inc. (formerly Internet Liquidators International Inc.)
0000 Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxxxx
X0X 0X0
- and -
1184041 Ontario Inc.
Xxxxxx Group Company
c/o Xxx.Xxx International Inc.
0000 Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxxxx
X0X 0X0
Dear Sirs:
The undersigned, Yorkton Securities Inc. (the "Underwriter"), understands that
Xxx.Xxx International Inc. (formerly Internet Liquidators International Inc.)
(the "Company") proposes to create, issue and sell (the "Offering") 8,100,000
special warrants (the "Primary Special Warrants") and that 1184041 Ontario Inc.
and Xxxxxx Group Company (collectively, the Selling Shareholders") severally
propose to create, issue and sell an aggregate of 500,000 special warrants
(collectively, the "Secondary Special Warrants") subject to the terms and
conditions set out below. The Primary Special Warrants and the Secondary
Special Warrants are herein collectively referred to as the "Special Warrants".
Unless previously retracted, each Special Warrant shall be exercisable for units
("Units"), each consisting of one common share ("Common Share") and one-half of
one common share purchase warrant ("Warrant") of the Company having the
attributes specified herein. Subject to adjustment in certain events, each
Special Warrant shall entitle the holder thereof to acquire one Unit upon the
exercise of the Special Warrant in accordance with the terms of the Special
Warrant Indenture (as hereinafter defined) without payment of any further
consideration to the Company. Each whole Warrant shall be exercisable to
acquire one Common Share at a price of $1.65 per Common Share for a period
ending on the date which is the earlier of (i) ten (10) Business Days (as
hereinafter defined) following the date upon which the Company delivers a notice
to all holders of Warrants confirming that it has filed a preliminary prospectus
or registration statement in connection with a U.S. public offering of at least
$7,000,000 and (ii) 12 months following the Closing Date (as hereinafter
defined).
Upon and subject to the terms and conditions set forth herein, the Underwriter
hereby agrees to purchase from the Company 8,100,000 Primary Special Warrants
and to purchase from the Selling Shareholders 500,000 Secondary Special Warrants
at a price of $1.40 per Special Warrant (the "Purchase Price") for an aggregate
purchase price of $11,340,000 payable to the Company and $700,000 payable to the
Selling Shareholders and agrees to act as underwriter to arrange for substituted
purchasers for the Special Warrants resident in the Qualifying Provinces (as
hereinafter defined) or in those jurisdictions outside of Canada where the
Special Warrants may be lawfully sold pursuant to the terms and conditions
hereof.
The Company shall prepare and file, in accordance herewith, a preliminary
prospectus and a (final) prospectus in order to qualify the Underlying
Securities (as hereinafter defined) and, to the extent permitted by applicable
securities regulatory authorities, the Compensation Options (as hereinafter
defined) for distribution in each of the Qualifying Provinces.
In consideration of the services to be rendered by the Underwriter in connection
with such purchase, including assisting in the preparation of the Prospectus and
all other matters in connection with the issue and sale of the Special Warrants
and the issue of the Underlying Securities, the Company and the Selling
Shareholders shall pay, on a pro rata basis, to the Underwriter a commission
equal to 8.0% of the gross proceeds realized by the Company and the Selling
Shareholders in respect of the sale of the Special Warrants (the "Commission").
In addition, the Company shall grant to the Underwriter the Brokers' Warrants
(as hereinafter defined) upon and subject to the provisions of Section 16 of
this Agreement. The obligation of the Company and the Selling Shareholders to
pay the Commission shall arise at the Closing Time (as hereinafter defined) and
the Commission shall be fully earned by the Underwriter at that time
(notwithstanding the actual date of payment).
DEFINITIONS
In this Agreement, in addition to the terms defined above, the following terms
shall have the following meanings:
"Agreement" means the agreement resulting from the acceptance by the Company of
the offer made hereby;
"Automatic Retraction Price" shall have the meaning ascribed thereto in
subparagraph 3(c);
"Business Day" means a day which is not a Saturday, Sunday or statutory or civic
holiday in the City of Toronto, Canada;
"Brokers' Warrants" shall have the meaning ascribed thereto in subparagraph
16(a);
"Canadian Securities Laws" means all applicable securities laws in each of the
Qualifying Provinces and the respective regulations made thereunder, together
with applicable published fee schedules, prescribed forms, policy statements,
orders, blanket rulings and other regulatory instruments of the securities
regulatory authorities in such provinces;
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"Cash Penalty Price" shall have the meaning ascribed thereto in subparagraph
3(b);
"Claim" shall have the meaning ascribed thereto in subparagraph 14(b);
"Closing Date" means August 4, 1998 or such earlier or later date as the
Underwriter and the Company shall in writing agree;
"Closing Time" means 2:00 p.m. (Toronto time) on the Closing Date or such other
time on the Closing Date as the Company, the Selling Shareholders and the
Underwriter may agree;
"Company's Auditors" means Deloitte & Touche Inc., Chartered Accountants, or
such other firm of chartered accountants as the Company may from time to time
appoint as auditors of the Company.
"Compensation Options" shall have the meaning ascribed thereto in subparagraph
16(a);
"Disclosure Documents" means, at any time, all documents which have been filed
as of that time by the Company with any securities regulatory authority or stock
exchange having jurisdiction over the securities of the Company;
"Discretionary Retraction Price" shall have the meaning ascribed thereto in
subparagraph 3(d);
"Escrow Agent" shall have the meaning ascribed thereto in subparagraph 3(a);
"Escrow Agreement" means an escrow agreement to be dated as of the Closing Date
between the Company, the Selling Shareholders, the Escrow Agent and the
Underwriter, providing for the escrow and release of the Escrowed Proceeds and
in a form to be agreed upon between the Company, the Selling Shareholders, the
Escrow Agent and the Underwriter, each acting reasonably;
"Escrowed Proceeds" shall have the meaning ascribed thereto in subparagraph
3(a);
"Final Prospectus" shall have the meaning ascribed thereto in subparagraph 2(b);
"Indemnified Party" shall have the meaning ascribed to it in subparagraph 14(b);
"Meeting" shall have the meaning ascribed thereto in subparagraph 3(b);
"misrepresentation", "material fact", "material change", "subsidiary",
"affiliate", "associate", and "distribution" have the respective meanings
ascribed thereto in the Securities Act (Ontario);
"Optioned Securities" means, collectively, (i) the Compensation Options issuable
upon the exercise of the Brokers' Warrants; (ii) the Common Shares and Warrants
comprising the
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Optioned Units; and (iii) the Warrant Shares issuable upon the exercise of the
Warrants comprising the Optioned Units;
"Optioned Units" shall have the meaning ascribed thereto in subparagraph 16(a);
"person" means any individual, corporation, partnership, joint venture,
association, trust or other legal entity;
"Preliminary Prospectus" shall have the meaning ascribed thereto in subparagraph
2(a);
"Private Placement shall have the meaning ascribed thereto in subparagraph 3(a);
"Prospectus" means, collectively, the Preliminary Prospectus and the Final
Prospectus;
"Prospectus Default" shall have the meaning ascribed thereto in subparagraph
3(e);
"Purchasers" means the persons (which may include the Underwriter) who, as
purchasers, acquire Special Warrants by duly completing, executing and
delivering Subscription Agreements and permitted assignees or transferees of
such persons from time to time;
"Qualification Date" means, with respect to any Qualifying Province, the date
upon which a receipt is issued for the Final Prospectus by the Securities
Commission of the Qualifying Province;
"Qualification Deadline" shall have the meaning ascribed thereto in subparagraph
3(e);
"Qualifying Provinces" means the Province of Ontario and such other Provinces of
Canada in which Purchasers who acquire Special Warrants at the Special Warrant
Closing are resident;
"Right of First Refusal" shall have the meaning ascribed thereto in paragraph
17;
"Securities Commissions" means, collectively, the securities commissions or
other securities regulatory authorities in the Qualifying Provinces;
"Shareholder Approval" shall have the meaning ascribed thereto in subparagraph
3(b);
"Shareholders" shall have the meaning ascribed thereto in subparagraph 3(b);
"Special Warrant Closing" means the completion of the issue and sale by the
Company and the Selling Shareholders of the Special Warrants offered hereunder
and the purchase by the Underwriter and the Purchasers of the Special Warrants
pursuant to the Subscription Agreements;
"Special Warrant Indenture" means a special warrant indenture to be dated as of
the Closing Date between the Company, the Selling Shareholders and CIBC Mellon
Trust Company, as
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special warrant agent, providing for the issue of the Special Warrants and in a
form to be agreed upon between the Company and the Underwriter, each acting
reasonably;
"Subscription Agreement" means a subscription agreement in the form agreed upon
by the Underwriter , the Selling Shareholders and the Company pursuant to which
Purchasers agree to subscribe for and purchase the Special Warrants herein
contemplated and shall include, for greater certainty, all schedules thereto;
"Subsidiary" shall have the meaning ascribed thereto in subparagraph 8(a)(ii);
"Supplementary Material" shall have the meaning ascribed thereto in subparagraph
4(b);
"Time of Expiry" means 5:00 p.m. (Toronto time) on the earlier of (i) five (5)
Business Days following the Qualification Date; and (ii) one year from the
Closing Date;
"TSE" means The Toronto Stock Exchange;
"Underlying Securities" means collectively, the (i) the Common Shares and
Warrants comprising the Units; and (ii) the Warrant Shares issuable on exercise
of the Warrants comprising the Units;
"Warrant Agent" means CIBC Mellon Trust Company, in its capacity as special
warrant agent pursuant to the Special Warrant Indenture, and as warrant agent
pursuant to the Warrant Indenture, as the context may require;
"Warrant Indenture" means the warrant indenture to be dated as of the Closing
Date between the Company , the Selling Shareholders and CIBC Mellon Trust
Company, as warrant agent, providing for the creation and issuance of the
Warrants and in a form to be agreed upon by the Company , the Selling
Shareholders and the Underwriter, each acting reasonably; and
"Warrant Shares" means the Common Shares issuable on exercise of the Warrants
including, for greater certainty, the Warrants comprising both the Units and the
Optioned Units.
TERMS AND CONDITIONS
1. (a) Sale on Exempt Basis. The Company and the Selling Shareholders
understand that although the offer to act as underwriter with respect to the
Offering is presented on behalf of the Underwriter as purchaser, the Underwriter
will endeavour to arrange for Purchasers for the Special Warrants in the
Qualifying Provinces and in such other jurisdictions outside of Canada on a
private placement basis in compliance with all applicable Canadian Securities
Laws and all applicable securities laws of such other jurisdictions.
(b) Filings. The Company and the Selling Shareholders undertake to file or
cause to be filed all forms or undertakings required to be filed by the Company
and the Selling Shareholders (as the case may be) in connection with the
purchase and sale of the Special Warrants so that the distribution of the
Special Warrants may lawfully occur without the necessity of filing a
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prospectus or an offering memorandum in Canada (but on terms that will permit
Underlying Securities acquired by the Purchasers in the Qualifying Provinces to
be sold by such Purchasers at any time in the Qualifying Provinces subject to
applicable Canadian Securities Laws), and the Underwriter undertakes to use its
commercially reasonable efforts to cause Purchasers of Special Warrants to
complete any forms required by Canadian Securities Laws, the TSE or under other
applicable securities laws. All fees payable in connection with such filings
shall be at the expense of the Company and the Selling Shareholders on a pro
rata basis.
(c) No Offering Memorandum. None of the Company, the Selling Shareholders nor
the Underwriter shall (i) provide to prospective purchasers any document or
other material that would constitute an offering memorandum within the meaning
of Canadian Securities Laws or applicable securities laws of the United States
or any state or territory thereof; or (ii) cause the sale of the Special
Warrants to be advertised in printed media of general and regular paid
circulation, radio or television.
2. (a) Preliminary Prospectus. The Company shall, as soon as practicable
following the Special Warrant Closing under applicable Canadian Securities Laws
of each of the Qualifying Provinces, prepare, file (and use all reasonable best
efforts to obtain a receipt for) a preliminary prospectus (the "Preliminary
Prospectus") in form and substance satisfactory to the Company and the
Underwriter, each acting reasonably, and other related documents relating to the
proposed distribution of the Underlying Securities. The Company shall use its
reasonable best efforts to (i) cause the Preliminary Prospectus to be filed in
each of the Qualifying Provinces forthwith after the Closing Date; and (ii)
satisfy as expeditiously as practicable any comments made by the Securities
Commissions in respect of the Preliminary Prospectus.
(b) Final Prospectus. The Company shall, as soon as practicable after all
comments of the Securities Commissions have been satisfied with respect to the
Preliminary Prospectus, prepare and file (and use all commercially reasonable
efforts to obtain a receipt for) under applicable Canadian Securities Laws, a
(final) prospectus in form and substance satisfactory to the Company, the
Selling Shareholders and the Underwriter (the "Final Prospectus"), each acting
reasonably, and fulfil and comply with, to the satisfaction of the Underwriter's
counsel, acting reasonably, all applicable Canadian Securities Laws to be
fulfilled or complied with by the Company to enable the Underlying Securities to
be lawfully distributed to the public in the Qualifying Provinces in connection
with the exercise of the Special Warrants through the Underwriter or any other
investment dealer or broker registered as such in the Qualifying Provinces in
compliance with Canadian Securities Laws. The Company shall use all commercially
reasonable efforts to ensure that such requirements (including the issuance of a
receipt by the Securities Commissions) shall be fulfilled as soon as possible
after all regulatory comments and deficiencies have been resolved in connection
with the Preliminary Prospectus and, in any event, no later than the
Qualification Deadline.
3. Proceeds to be Escrowed and Retraction Right.
(a) On the Closing Date, 100% of the gross proceeds derived from the sale
of the Special Warrants less an amount equal to 75% of the Commission and the
costs and expenses of the Underwriter in connection with the Offering as of the
Closing Date (the "Escrowed
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Proceeds") shall be deposited in escrow with counsel to the Underwriter,
Xxxxxxxxx Xxxx Xxxxxxx Apps & Dellelce (the "Escrow Agent"), to be held and
invested in accordance with the Escrow Agreement. 25% of the Escrowed Proceeds
(less a holdback of $200,000 to be applied against any potential payment of the
Cash Penalty Price), shall be released to the Company and the Selling
Shareholders on a pro rata basis upon the signing of a binding agreement
announced in the public domain of a private placement (the "Private Placement")
on or before August 15, 1998 pursuant to which a strategic investor purchases
not less than 1,500,000 Common Shares of the Company at a price of not less than
$1.20 per share.
(b) In the event that the Company is unable to obtain the written consent
to the Offering by holders of not less than 50% of the Common Shares on or prior
to the date that is ten (10) Business Days following the Closing Date, the
Company shall convene a special meeting (the "Meeting") of the shareholders of
the Company (the "Shareholders") as soon as possible following the Closing Date
and in any event within 75 days of the Closing Date in accordance with the by-
laws of the Company and applicable corporate and securities laws in order to
seek approval of the Offering by the Shareholders (the "Shareholder Approval").
In the event a Meeting must be convened but is not convened within 75 days of
the Closing Date, Purchasers shall be entitled to receive from the Escrowed
Proceeds an amount (the "Cash Penalty Price") equal to 7% of the Offering Price
per Special Warrant for each Primary Special Warrant purchased. Provided that
the Shareholder Approval has been obtained, the Private Placement has closed and
a receipt has been issued by each of the Securities Commissions, the Escrow
Agent shall release the balance of the Escrowed Proceeds less, for greater
certainty, the aggregate Automatic Retraction Price and Discretionary Retraction
Price, if any, and the remaining 25% of the Commission (together with all
interest accrued thereon) and the balance of the estimated costs and expenses of
the Underwriter incurred in connection with the Offering to the Company and the
Selling Shareholders on a pro rata basis.
(c) In the event that the Shareholder Approval is not obtained within 90
days of the Closing Date, the Company shall retract and cancel forthwith
following the Meeting, on a pro rata basis, that number of Primary Special
Warrants sold pursuant to the Offering less the number of Primary Special
Warrants that may be issued and sold by the Company without Shareholder Approval
(being a minimum of 1.9 million Special Warrants), at a retraction price per
Special Warrant (the "Automatic Retraction Price") equal to the sum of (i) the
Purchase Price per Special Warrant (together with all interest accrued thereon);
and (ii) 7% of the aggregate Purchase Price of the Primary Special Warrants
divided by the number of Primary Special Warrants to be retracted.
(d) In the event that the Private Placement has not occurred on or before
August 15, 1998 or the Prospectus Default has occurred, the Purchaser shall be
entitled, at its option, to require the Company to retract and cancel, on a pro
rata basis, up to such number of Special Warrants as may be retracted from the
Escrowed Proceeds at a retraction price per Special Warrant (the "Discretionary
Retraction Price") equal to the Purchase Price per Special Warrant (together
with all interest accrued thereon). For greater certainty, any amounts paid to
the Underwriter out of the gross proceeds of the Offering in respect of the
Commission or the costs and expenses of the Underwriter shall be paid by the
Company to the Escrow Agent prior to the payment of the Discretionary Retraction
Price.
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(e) The Company recognizes that it is fundamental to Purchasers of the
Special Warrants that the Private Placement occurs and that the distribution of
the Underlying Securities be qualified under a prospectus in the Qualifying
Provinces so that the Underlying Securities will be freely tradeable in such
Qualifying Provinces without the necessity of the holder thereof filing a
prospectus or effecting the trade in a manner which falls within one of the
various prospectus exemptions under applicable Canadian Securities Laws. The
Company acknowledges that it is for this reason that the Company has agreed that
the Preliminary Prospectus and the Final Prospectus are to be filed with the
Securities Commissions in the Qualifying Provinces and receipts are to be
obtained therefor within the time periods contemplated by this Agreement.
Accordingly, it shall be a term of the Special Warrant Indenture pursuant to
which the Special Warrants are to be issued that in the event that the Private
Placement has not closed on or before August 15, 1998 or in the event that the
Final Prospectus has not been filed and receipts issued therefor by each of the
Securities Commissions on or prior to the date (the "Qualification Deadline")
that is:
(i) 90 days after the Closing Date, in the case where the Meeting is not
required to be convened; and
(ii) 105 days following the Closing Date, in the case where the Meeting is
required to be convened,
each Special Warrant exercised or deemed to be exercised thereafter shall
entitle the holder to receive 1.07 Units (in lieu of one Unit) at no additional
cost. In the event that the Final Prospectus has not been filed and a receipt
issued therefor, by each of the Securities Regulators on or before the
Qualification Deadline (a "Prospectus Default"), the Company will nevertheless
continue to be obligated to use commercially reasonable efforts to file and
clear the Final Prospectus until the Time of Expiry.
For greater certainty, in the event that the Escrowed Proceeds are not
sufficient to satisfy the aggregate Automatic Retraction Price or the Cash
Penalty Price, the Company shall pay to the Escrow Agent, prior to the return of
the Escrowed Proceeds to the Purchasers, an amount equal to the shortfall.
4. (a) Deliveries at Time of Filing. The Company and, in the case of
subparagraph (ii) below, the Selling Shareholders shall deliver to the
Underwriter contemporaneously with or prior to the filing of the Preliminary
Prospectus or the Final Prospectus, as the case may be, with the Ontario
Securities Commission:
(i) an executed copy of the Preliminary Prospectus or the Final
Prospectus, as the case may be, in the English language, and if the
Province of Quebec is one of the Qualifying Provinces, in the French
language;
(ii) executed copies of any other document required to be filed by the
Company at such time under the laws of each of the Qualifying
Provinces in compliance with Canadian Securities Laws applicable
therein;
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(iii) in the case of the Final Prospectus, a letter of the Company's
Auditors dated the date of the Final Prospectus addressed to the
Underwriter and the board of directors of the Company, in form and
substance satisfactory to the Underwriter, with respect to certain
financial and accounting information relating to the Company in the
Final Prospectus and which shall be based on a review by the
Company's Auditors to a date not more than two Business Days prior
to the date of the Final Prospectus and which letter shall be in
addition to the Company's Auditors' report contained in the Final
Prospectus; and
(iv) if the Province of Quebec is one of the Qualifying Provinces, an
opinion of Quebec counsel to the Company that the French language
version of the Preliminary Prospectus or the Final Prospectus, as
the case may be, is an accurate and complete translation of the
English language version of the Preliminary Prospectus or the Final
Prospectus, as the case may be.
(b) Supplementary Material. The Company shall also prepare and deliver promptly
to the Underwriter duly signed copies of all amended or supplementary
prospectuses or supplemental statements and related documents required to be
filed by the Company under the laws of any Qualifying Province or by Canadian
Securities Laws and of any amendment to the Preliminary Prospectus or the Final
Prospectus or other document required to be filed under paragraph 7 of this
Agreement (collectively, the "Supplementary Material"). The Prospectus and the
Supplementary Material shall be in form and substance satisfactory to the
Underwriter, acting reasonably.
(c) Copies. The Company shall cause copies of the Preliminary Prospectus and
the Final Prospectus in the English language, and if the Province of Quebec is
one of the Qualifying Provinces, in the French language, to be delivered to the
Underwriter without charge, in such numbers and in such cities in the Qualifying
Provinces as the Underwriter may reasonably request. Such delivery shall be
effected as soon as practicable and, in any event, on or before a date two
Business Days after the filing thereof with the Ontario Securities Commission.
The Company shall similarly cause to be delivered copies of any Supplementary
Material. The Underwriter shall cause to be delivered to holders of Special
Warrants copies of the Final Prospectus and any required Supplementary
Materials.
5. Representation as to Prospectus and Supplementary Material. Delivery of the
Prospectus and any Supplementary Material shall constitute a representation and
warranty by the Company and the Selling Shareholders (as between the Selling
Shareholders, such representations shall be several, but not joint) to the
Underwriter, the Purchasers and their permitted assigns that all information and
statements (except information and statements relating solely to or provided
solely by the Underwriter) contained in the Prospectus and Supplementary
Material are true and correct in all material respects at the time of delivery
thereof and contain no misrepresentations and constitute full, true and plain
disclosure of all material facts relating to the Company and the Underlying
Securities and that no material fact or information has been omitted therefrom
(except facts or information relating solely to the Underwriter) which is
required to be stated therein or is necessary to make the statements or
information contained
9
therein not misleading in light of the circumstances under which they were made.
Such delivery shall also constitute the Company's and the Selling Shareholders'
consent to the Underwriter's use of the Prospectus, any Supplementary Material
and any other public documents supplied to the Underwriter by the Company for
the distribution of the Underlying Securities in the Qualifying Provinces in
compliance with the provisions of this Agreement and Canadian Securities Laws.
6. Covenants.
(a) Covenants. The Company and, in the case of subparagraphs (ii), (iii), (iv),
(vii), (ix) and (xiv) below, the Selling Shareholders hereby covenant to the
Underwriter and to the Purchasers and their permitted assigns and acknowledge
that each of them is relying on such covenants in purchasing Special Warrants,
that the Company and, in the case of subparagraphs (ii), (iii), (iv), (vii),
(ix) and (xiv) below, the Selling Shareholders shall:
(i) at all times, remain a reporting issuer under Canadian Securities
Laws not in default of any requirement of such Canadian Securities
Laws;
(ii) allow the Underwriter and their representatives to conduct all due
diligence which the Underwriter may reasonably require to be
conducted prior to the date of the Final Prospectus in order to
fulfil their obligations as Underwriter under Canadian Securities
Laws and in order to enable the Underwriter responsibly to execute
any certificate required to be executed by the Underwriter in
connection with a Prospectus, and it shall be a condition precedent
to the Underwriter's execution of any certificate in any Prospectus
that they be satisfied, acting reasonably, as to the form and
content of such Prospectus;
(iii) duly execute and deliver the Escrow Agreement, Special Warrant
Indenture, the Subscription Agreements, the Warrant Indenture, the
Special Warrants and the Brokers' Warrants (as the case may be) at
the Closing Time, and comply with and satisfy all terms, conditions
and covenants therein contained to be complied with or satisfied by
the Company;
(iv) use its best efforts to fulfil or cause to be fulfilled, at or
prior to the Closing Date, each of the conditions set out in
paragraph 10;
(v) ensure that the Special Warrants shall be duly and validly created,
authorized and issued on payment of the purchase price therefor,
and shall have attributes corresponding in all material respects to
the description thereof set forth in this Agreement and the
Subscription Agreements;
(vi) ensure that the Underlying Securities shall, upon issuance, be duly
issued as fully paid and non-assessable securities in the capital
of the Company, and shall have attributes corresponding in all
material respects to the description thereof set forth in this
Agreement and the Subscription Agreements;
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(vii) ensure that at all times prior to the expiry thereof, sufficient
Common Shares are allotted and reserved or deposited for issuance
upon the due exercise of the Special Warrants, the Warrants and the
Compensation Options;
(viii) ensure that as soon as possible following the Closing Date, the
Common Shares issuable on exercise of the Special Warrants and the
Compensation Options and the Warrant Shares issuable on exercise of
the Warrants are listed and posted for trading on TSE upon their
respective dates of issuance;
(ix) maintain the Warrant Agent or a substituted licensed trust company
as the transfer agent and registrar in respect of the Common
Shares, as special warrant agent in respect of the Special
Warrants, as warrant agent in respect of the Warrants (as the case
may be);
(x) ensure that the net proceeds from the issue and sale of the Primary
Special Warrants are used for advertising and marketing, business-
to-business development, research and development and working
capital;
(xi) not issue or announce the issuance of any Common Shares or any
securities convertible into or exchangeable for or exercisable to
acquire Common Shares without the prior consent of Yorkton, which
consent shall not be unreasonably withheld, other than pursuant to:
(A) presently outstanding rights or agreements, including options,
warrants and other convertible securities (including the Special
Warrants, the Warrants, the Brokers' Warrants and the Compensation
Options); (B) presently outstanding options granted to officers,
directors, employees or consultants of the Company or any
subsidiary pursuant to existing stock option plans as detailed in
the Company's management information circular dated as of May 15,
1998; or (C) the issuance of 440,000 Common Shares in full
satisfaction of amounts owing to a bona fide trade creditor at a
deemed issue price of not less than the price paid pursuant to the
Private Placement;
(xii) on or prior to August 18, 1998, the Company shall use its
reasonable best efforts to obtain the written consent to the
offering of holders of not less than 50% of the Common Shares,
failing which the Company covenants and agrees to convene the
Meeting as soon as possible and in any event prior to 75 days in
accordance with the by-laws of the Company and applicable corporate
and securities laws in order to obtain the Shareholder Approval;
(xiii) the Company shall deliver or cause to be delivered to the
Underwriter, on or prior to the Closing Date, irrevocable
undertakings of the principal shareholders of the Company to vote
all of their Common Shares in favour of the Offering if the Meeting
is required; and
(xiv) in the event that a Prospectus Default occurs, to apply to such
Securities Commissions as the Underwriter may reasonably require
for a discretionary ruling to ensure that the Common Shares and
Warrants exercisable on exercise of the
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Secondary Special Warrants are not subject to the prospectus and
registration requirements of applicable Canadian Securities laws.
(b) Underwriter's Obligation. The obligation of the Underwriter to
execute any certificate or deliver any documents pertaining to either the
Preliminary Prospectus or the Final Prospectus shall be conditional upon
compliance by the Company to the date of such execution and delivery with those
of its covenants contained in this Agreement to be complied with prior to the
filing of either the Preliminary Prospectus or the Final Prospectus, as the case
may be.
7. (a) Material Changes During Distribution. During the period from the
date hereof to the completion of distribution of the Underlying Securities, the
Company and, if known to the Selling Shareholders, the Selling Shareholders
shall promptly notify the Underwriter (and, if requested by the Underwriter,
confirm such notification in writing) of:
(i) any material change (actual, anticipated, contemplated or
threatened, financial or otherwise) in the business, affairs,
operations, assets, liabilities (contingent or otherwise) or
capital of the Company and its subsidiaries;
(ii) any material fact which has arisen and would have been required to
have been stated in the Final Prospectus had the fact arisen on, or
prior to, the date of the Final Prospectus; and
(iii) any change in any material fact contained in the Final Prospectus
or the Supplementary Material or any amendments or supplements
thereto which change is, or may be, of such a nature as to render
any material statement in the Final Prospectus or any Supplementary
Material misleading or untrue or which would result in a
misrepresentation in the Final Prospectus or Supplementary Material
or which would result in the Final Prospectus or Supplementary
Material not complying (to the extent that such compliance is
required) with the Canadian Securities Laws or which would
reasonably be expected to have a significant effect on the market
price or value of the Underlying Securities.
During the period from the date hereof to the completion of distribution of the
Underlying Securities, the Company and, if known to the Selling Shareholders,
the Selling Shareholders shall promptly, and in any event, within any applicable
time limitation, comply with all applicable filing and other requirements under
Canadian Securities Laws as a result of such change; provided that the Company
and, if applicable, the Selling Shareholders shall not file any Supplementary
Material or other document without first obtaining approval of the Underwriter,
after consultation with the Underwriter with respect to the form and content
thereof, which approval shall not be unreasonably withheld. The Company shall in
good faith discuss with the Underwriter any fact or change in circumstances
(actual, anticipated, contemplated or threatened, and financial or otherwise)
which is of such a nature that there is reasonable doubt as to whether notice in
writing need be given to the Underwriter pursuant to this paragraph 7.
(b) Change in Canadian Securities Laws. If during the period of distribution to
the public of the Underlying Securities, there shall be any change in Canadian
Securities Laws which in the
12
opinion of counsel to the Company or counsel to the Underwriter requires the
filing of Supplementary Material, the Company shall, to the satisfaction of its
counsel and the Underwriter's counsel, promptly prepare and file such
Supplementary Material with the appropriate securities regulatory authority in
each of the Qualifying Provinces where such filing is required.
8. (a) Representations and Warranties of the Company. The Company
represents and warrants to the Underwriter, the Purchasers and their permitted
assigns, and acknowledges that each of them is relying upon such representations
and warranties in purchasing Special Warrants, that:
(i) the Company has been duly amalgamated and is validly existing under
the laws of Ontario, has all requisite power and authority and is
duly qualified to carry on its business as now conducted and to own
its properties and assets and the Company has all requisite power
and authority to carry out its obligations under this Agreement,
the Special Warrant Indenture, the Warrant Indenture and the
Brokers' Warrants;
(ii) the only material subsidiary of the Company is Internet Liquidators
USA Inc. (the "Subsidiary") which has been duly incorporated and is
validly existing under the laws of the State of Florida, has all
requisite power and authority and is duly qualified to carry on its
business as now conducted and to own its properties and assets;
(iii) all consents, approvals, permits, authorizations or filings as may
be required under Canadian Securities Laws and the rules and
regulations of the TSE necessary for the execution and delivery of
and the performance by the Company of its obligations under this
Agreement, the Special Warrants, the Special Warrant Indenture, the
Warrant Indenture, the Brokers' Warrants and the Compensation
Options have been made or obtained, as applicable;
(iv) each of the execution and delivery of this Agreement, the
Subscription Agreement, the Special Warrant Indenture, the Warrant
Indenture, the Brokers' Warrants and the Compensation Options, the
performance by the Company of its obligations hereunder or
thereunder, the sale of the Special Warrants hereunder and the
consummation of the transactions contemplated in this Agreement,
including the issuance and delivery of the Underlying Securities
and the Optioned Securities, do not and will not conflict with or
result in a breach or violation of any of the terms or provisions
of, or constitute a default under, (whether after notice or lapse
of time or both), (A) any statute, rule or regulation applicable to
the Company including, without limitation, Canadian Securities
Laws; (B) the constating documents, by-laws or resolutions of the
Company which are in effect at the date hereof; (C) any mortgage,
note, indenture, contract, agreement, instrument, lease or other
document to which the Company or any of its subsidiaries is a party
or by which it is bound; or (D) any judgment, decree or
13
order binding the Company or any of its subsidiaries or the
property or assets of the Company or any of its subsidiaries;
(v) the Company is in compliance with its timely disclosure obligations
under Canadian Securities Laws and the rules and regulations of the
TSE and, without limiting the generality of the foregoing, there
has not occurred any material adverse change, financial or
otherwise, in the assets, liabilities (contingent or otherwise),
business, financial condition, capital or prospects of the Company
since December 31, 1997, which has not been publicly disclosed;
(vi) none of the Disclosure Documents contains a misrepresentation at
the date of filing thereof which has not been corrected and,
without limiting the generality of the foregoing, the Disclosure
Documents disclose all material facts relating to the Company and
its subsidiaries, assets, undertaking, ownership and securities;
(vii) the audited financial statements of the Company as at and for the
period ended December 31, 1997, and the unaudited interim financial
statements as at and for the six month period ended June 30, 1998
have been prepared in accordance with generally accepted accounting
principles and present fully, fairly and correctly the financial
position of the Company as at the dates thereof and the results of
its operations and the changes in its financial position for the
periods then ended;
(viii) as at the Closing Date, except as contemplated by this Agreement,
and other than stock options to acquire Common Shares pursuant to
the Company's stock option plan as detailed in the Company's
management information circular dated as of May 15, 1998, no holder
of outstanding shares in the capital of the Company will be
entitled to any pre-emptive or any similar rights to subscribe for
any of the Common Shares or other securities of the Company and no
rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, any shares in the capital of the Company
are outstanding;
(ix) no legal or governmental proceedings are pending to which the
Company or any subsidiary is a party or to which the property of
any of them is subject that would result individually or in the
aggregate in any material adverse change in their operation,
business or condition of the Company and, to the knowledge of the
Company and its subsidiaries, no such proceedings have been
threatened against or are contemplated with respect to the Company
or any subsidiary or with respect to any of their respective
properties;
(x) the Company and each of its subsidiaries have conducted and are
conducting their business in material compliance with all
applicable laws and regulations of each jurisdiction in which they
carry on business (including, without limitation, all applicable
Canadian and United States federal, provincial, state, municipal
and local environmental anti-pollution and licensing laws,
regulations and other lawful requirements of any governmental or
regulatory body) and have not received a notice of non-compliance,
or knows of, or has reasonable grounds to
14
know of, any facts that could give rise to a notice of non-
compliance with any such laws or regulations which would have a
material adverse effect on the Company on a consolidated basis;
(xi) the Company and each of its subsidiaries have all licenses, leases,
permits, authorizations and other approvals (collectively,
"Licenses") and the proprietary rights provided in law and at
equity to all patents, trademarks, copyrights, industrial designs,
software, firmware, trade secrets, know-how, show-how, concepts,
information and other intellectual and industrial property
(collectively, "Intellectual Property") necessary to permit them to
conduct their business as currently conducted, except where the
failure to do so would not have a material adverse effect on the
Company on a consolidated basis;
(xii) the Company is the holder of and in good standing under all of its
Licenses and is the exclusive owner of Intellectual Property free
and clear of any encumbrances which would have a material adverse
effect on the Company, and has no knowledge of any claim of adverse
ownership in respect thereof;
(xiii) this Agreement has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its
terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws relating to
or affecting the rights of creditors generally and except as
limited by the application of equitable principles when equitable
remedies are sought, and by the fact that rights to indemnity,
contribution and waiver, and the ability to sever unenforceable
terms, may be limited by applicable law;
(xiv) at the Closing Time, each of this Agreement, the Subscription
Agreements, the Special Warrant Indenture, the Warrant Indenture,
the Escrow Agreement, the Brokers' Warrants, the Compensation
Options and the Special Warrants shall have been duly authorized
and, other than the Compensation Options, executed and delivered by
the Company and upon such execution and delivery each shall
constitute a valid and binding obligation of the Company and each
shall be enforceable against the Company in accordance with its
terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws relating to
or affecting the rights of creditors generally and except as
limited by the application of equitable principles when equitable
remedies are sought, and by the fact that rights to indemnity,
contribution and waiver, and the ability to sever unenforceable
terms, may be limited by applicable law;
(xv) at the Closing Time, all necessary corporate action will have been
taken by the Company to allot and authorize the issuance of the
Underlying Securities and the Optioned Securities, and upon due
exercise of the Special Warrants, the Warrants, the Brokers'
Warrants and the Compensation Options in accordance with the
provisions thereof, such Underlying Securities and Optioned
Securities (as the
15
case may be) will be validly issued as fully paid and non-
assessable securities in the capital of the Company;
(xvi) the authorized capital of the Company consists of an unlimited
number of Common Shares and an unlimited number of Preference
Shares, issuable in series, of which 21,963,912 Common Shares are
issued and outstanding as fully paid and non-assessable;
(xvii) the Company is the registered and beneficial owner of all the
issued and outstanding shares in the capital of each of its
subsidiaries, free and clear of any claim, lien, security interest
or other encumbrance which would have a material adverse effect on
the Company, and no person has any right, warrant or option to
acquire, or other instrument convertible into or exchangeable for,
any shares in the capital of its subsidiaries;
(xviii) the Company is a reporting issuer not in default of its
obligations under applicable securities laws in the Province of
Ontario;
(xix) the Company and each of its subsidiaries have timely filed all
necessary federal, provincial, state, local and foreign tax returns
and notices and has paid or made provision for all applicable taxes
of whatever nature for all tax years to the date hereof to the
extent such taxes have become due or have been alleged to be due
and the Company is not aware of any material tax deficiencies or
material interest or penalties accrued or accruing, or alleged to
be accrued or accruing thereon which have not otherwise been
provided for by the Company;
(xx) the Company has no material investment or other interest in, and
has not made any loans to or guaranteed the obligations of, any
person other than its subsidiaries;
(xxi) the Warrant Agent, at its principal office in the City of Toronto,
has been duly appointed as registrar and transfer agent in respect
of the Common Shares, as special warrant agent in respect of the
Special Warrants, as warrant agent in respect of the Warrants;
(xxii) other than the Underwriter there is no person acting or purporting
to act at the request or on behalf of the Company, that is entitled
to any brokerage or finder's fee in connection with the
transactions contemplated by this Agreement;
(xxiii) no order ceasing or suspending trading in the securities of the
Company has been issued and no proceedings for this purpose have
been instituted or, to the best of its knowledge and belief, are
pending, contemplated or threatened;
(xxiv) the Common Shares are listed and posted for trading on the TSE and
all necessary notices and filings have been made with and all
necessary consents, approvals and authorizations obtained from the
TSE to ensure that the Common Shares issuable
16
on exercise of the Special Warrants and the Compensation Options,
and the Warrant Shares issuable on the exercise of the Warrants
will be listed and posted for trading on the TSE upon their
issuance; and
(xxv) the business conducted by the Subsidiary is limited to credit card
processing and inventory procurement.
(b) Representations and Warranties of the Selling Shareholders. Each of
the Selling Shareholders, Xxxx Xxxxx and Xxxxxxx Xxxxxxxxx individually
represents and warrants to the Underwriter, the Purchasers and their permitted
assigns, and acknowledges that each of them is relying upon such representations
and warranties in purchasing Special Warrants, that:
(i) the Selling Shareholder is or at the Closing Time will be the
direct registered and beneficial owner of and has or will have at
the Closing Time valid and marketable title to sufficient
Underlying Securities free and clear of any lien, claim, security
interest or other encumbrance, including, without limitation, any
restrictions on transfer, to satisfy its obligation upon exercise
of the Secondary Special Warrants and the Warrant Shares issuable
upon exercise of the Warrants comprising the Secondary Special
Warrants;
(ii) the Selling Shareholder is not in possession of any material
information concerning the business or affairs of the Company which
has not been disclosed to the Underwriter;
(iii) the Selling Shareholder has or will have at the Closing Time full
legal right, power and authorization, and any approval required by
law, to sell, assign, transfer and deliver such Selling
Shareholder's Secondary Special Warrants in the manner provided in
this Agreement and upon delivery of and payment for such Selling
Shareholder's Secondary Special Warrants hereunder the Purchasers
thereof will acquire valid and marketable title to such Selling
Shareholder's Secondary Special Warrants free and clear of any
lien, claim, security interest, or other encumbrance;
(iv) each of this Agreement, the Special Warrant Indenture, the Escrow
Agreement, the Warrant Indenture and the Subscription Agreements
has duly authorized and duly executed and delivered by the Selling
Shareholder and constitutes a valid and binding obligation of the
Selling Shareholder enforceable against such Selling Shareholder in
accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting the rights of creditors
generally and except as limited by the application of equitable
principles when equitable remedies are sought, and by the fact that
rights to indemnity, contribution and waiver, and the ability to
sever unenforceable terms, may be limited by applicable law;
(v) the execution and delivery of this Agreement, the Special Warrant
Indenture, the Warrant Indenture, the Escrow Agreement and the
Subscription Agreements by
17
the Selling Shareholder, the sale of such Selling Shareholder's
Secondary Special Warrants pursuant to this Agreement and the
consummation of the transactions contemplated in this Agreement,
including the delivery of Underlying Securities upon the exercise
of the Selling Shareholder's Secondary Special Warrants, do not and
will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under (whether
after notice or lapse of time or both) any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to
which the Selling Shareholder is a party or by which the Selling
Shareholder is or may be bound or to which any of the Selling
Shareholder's property or assets are subject, nor does or will such
action conflict with or violate any statute, law, rule, regulation,
ruling, judgment, injunction, order or decree applicable to the
Selling Shareholder or to any property or assets of the Selling
Shareholder;
(vi) other than as may be required under Canadian Securities Laws, no
consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body
is required for the sale of the Selling Shareholder's Secondary
Special Warrants to be sold by the Selling Shareholder as
contemplated by this Agreement or the consummation of the
transactions contemplated in this Agreement, including the transfer
and delivery of Underlying Securities upon the exercise of such
Secondary Special Warrants;
(vii) the Selling Shareholder will pay all taxes, if any, on the transfer
by the Selling Shareholder of such Selling Shareholder's Secondary
Special Warrants to Purchasers or in respect of the transfer and
delivery by such Selling Shareholders of Underlying Securities
pursuant to the exercise of such Secondary Special Warrants; and
(viii) the Selling Shareholder will do or perform all things (A) required
to be done or performed by the Selling Shareholder prior to the
Special Warrant Closing Date to satisfy all conditions precedent to
the delivery of the Selling Shareholder's Secondary Special
Warrants pursuant to this Agreement; and (B) that are within its
power and are necessary or desirable to give effect to all
transactions contemplated by this Agreement and the Final
Prospectus, including the transfer and delivery of Underlying
Securities upon the exercise of such Secondary Special Warrants.
(c) Representations, Warranties and Covenants of the Underwriter. The
Underwriter hereby represents, warrants and covenants to the Company and the
Selling Shareholders, and acknowledges that the Company and the Selling
Shareholders are relying upon such representations and warranties, that:
(i) in respect of the offer and sale of the Special Warrants, the
Underwriter will comply with all Canadian Securities Laws and all
applicable laws of the jurisdictions outside Canada in which they
offer Special Warrants;
18
(ii) the Underwriter and its representatives have not engaged in or
authorized, and will not engage in or authorize, any form of
general solicitation or general advertising in connection with or
in respect of the Special Warrants or the Underlying Securities in
any newspaper, magazine, printed media of general and regular paid
circulation or any similar medium, or broadcast over radio or
television or in any seminar or meeting whose attendees have been
invited by any general solicitation or general advertising or
otherwise;
(iii) the Underwriter will not solicit offers to purchase or sell the
Special Warrants so as to require the filing of a prospectus with
respect thereto or the provision of a contractual right of action
(as defined in section 32(1) of the Regulation made under the
Securities Act (Ontario)) under the laws of any jurisdiction,
including without limitation, the United States of America or any
state thereof;
(iv) the Underwriter will, subject to compliance by the Company and the
Selling Shareholders with their obligations hereunder and provided
that it shall otherwise be responsible for the Underwriter to do
so, execute and deliver to the Company and the Selling Shareholders
any certificate required to be executed by it under Canadian
Securities Laws in connection with the Preliminary Prospectus,
Final Prospectus and any Supplementary Material;
(v) the Underwriter shall obtain the prior written approval of the
Company to any allocation of more than 20% of the Special Warrants
to any one Purchaser; and
(vi) the Underwriter shall provide such ongoing research coverage of the
Company as the Underwriter may from time to time deem to be
appropriate.
It is understood and agreed that the Company and, for purposes of the
opinions to be delivered pursuant to Section 10, counsel to the Company and
the Selling Shareholders, will rely on the accuracy and truth of the
representations and warranties set forth in this subsection 8(c).
9. Special Warrant Closing Deliveries. The purchase and sale of the Special
Warrants shall be completed at the Closing Time at the offices of Gowling,
Strathy & Xxxxxxxxx, Toronto, or at such other place as the Underwriter, the
Selling Shareholders and the Company may agree upon. At or prior to the Closing
Time, the Company and the Selling Shareholders shall duly and validly deliver to
the Underwriter certificates in definitive form representing Special Warrants
registered in the names of such Purchasers or as indicated on their respective
Subscription Agreements, against payment at the direction of the Company and the
Selling Shareholders of the subscription price therefor, in lawful money of
Canada by certified cheque or banker's draft payable at par in the City of
Xxxxxxx.
00. Special Warrant Closing Conditions. Each Purchaser's obligation to
purchase the Special Warrants at the Closing Time shall be conditional upon the
fulfilment at or before the Closing Time of the following conditions:
19
(a) the Underwriter shall have received a certificate, dated as of the Closing
Date, signed by the Chief Executive Officer and the Chief Financial Officer
of the Company, or such other officers of the Company as the Underwriter
may agree, certifying for and on behalf of the Company, to the best of the
knowledge, information and belief of the persons so signing, that:
(i) since December 31, 1997 (A) there has been no material change
(actual, anticipated, contemplated or threatened, whether financial
or otherwise) in the business, affairs, operations, assets,
liabilities (contingent or otherwise) or capital of the Company and
its subsidiaries, except as has been publicly disclosed on a non-
confidential basis; and (B) no transaction has been entered into by
the Company or any of its subsidiaries which is or would be
material to the Company and its subsidiaries on a consolidated
basis except as has been publicly disclosed on a non-confidential
basis;
(ii) no order, ruling or determination having the effect of suspending
the sale or ceasing the trading in any securities of the Company
(including the Special Warrants, the Underlying Securities and the
Optioned Securities) has been issued by any regulatory authority
and is continuing in effect and no proceedings for that purpose
have been instituted or are pending or, to the knowledge of such
officers, contemplated or threatened by any regulatory authority;
(iii) the Company has duly complied with all the terms, covenants and
conditions of this Agreement on its part to be complied with up to
the Closing Time;
(iv) the representations and warranties of the Company contained in this
Agreement are true and correct as of the Closing Time with the same
force and effect as if made at and as of the Closing Time after
giving effect to the transactions contemplated by this Agreement;
and
(v) such other matters as the Underwriter may reasonably request;
(b) the Underwriter shall have received at the Closing Time certificates dated
the Closing Date, signed by appropriate officers of the Company addressed
to the Underwriter and its counsel, with respect to the articles and by-
laws of the Company, all resolutions of the Company's board of directors
relating to this Agreement, the Special Warrant Indenture, the Warrant
Indenture, the Escrow Agreement, the Brokers' Warrants, the Compensation
Options and the transactions contemplated hereby and thereby, the
incumbency and specimen signatures of signing officers, the constating
documents of the Company and such other matters as the Underwriter may
reasonably request;
(c) the Special Warrant Indenture, the Subscription Agreements, the Warrant
Indenture, the Escrow Agreement, the Brokers' Warrants and the certificates
representing the Special Warrants shall have been executed and delivered by
the parties thereto in form and substance satisfactory to the Underwriter
and its counsel, acting reasonably;
20
(d) the Underwriter shall have received favourable legal opinions addressed to
the Underwriter and counsel to the Underwriter, in form and substance
satisfactory to the Underwriter's counsel, dated the Closing Date, from
Messrs. Gowling, Strathy & Xxxxxxxxx, counsel for the Company, as to the
laws of Canada and the Qualifying Provinces, which counsel in turn may rely
upon the opinions of local counsel where they deem such reliance proper as
to the laws other than those of Canada and the Province of Ontario and, as
to matters of fact, on certificates of auditors, public officials and
officers of the Company, with respect to the following matters:
(i) as to the incorporation and subsistence of the Company and the
Subsidiary under the laws of their jurisdiction of incorporation
and as to the corporate power of the Company to carry out its
obligations under this Agreement, the Subscription Agreements, the
Special Warrant Indenture, the Warrant Indenture, the Brokers'
Warrants and the Compensation Options and to issue the Special
Warrants, the Underlying Securities and the Optioned Securities;
(ii) as to the authorized capital of the Company and the Subsidiary;
(iii) the Company and the Subsidiary has all requisite corporate power
and authority under the laws of its jurisdiction of incorporation
to carry on its business as presently carried on and to own its
properties and the Company has all requisite corporate power and
authority to carry out the transactions contemplated by this
Agreement, the Subscription Agreements, the Special Warrant
Indenture, the Warrant Indenture, the Escrow Agreement, the
Brokers' Warrants and the Compensation Options;
(iv) none of the execution and delivery of this Agreement, the
Subscription Agreements, the Special Warrant Indenture, the Warrant
Indenture, the Escrow Agreement, the Brokers' Warrants and the
Compensation Options, the performance by the Company of its
obligations hereunder and thereunder, or the sale or issuance of
the Primary Special Warrants, the Underlying Securities and the
Optioned Securities will conflict with or result in any breach of
the constating documents or by-laws of the Company;
(v) each of this Agreement, the Subscription Agreements, the Special
Warrant Indenture, the Warrant Indenture, the Escrow Agreement, the
Brokers' Warrants and the Compensation Options has been duly
authorized and, other than the Compensation Options, executed and
delivered by the Company, and constitute or, in the case of the
Compensation Options, upon execution and delivery shall constitute,
a valid and legally binding agreement of the Company enforceable
against it in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, liquidation,
reorganization, moratorium or similar laws affecting the rights of
creditors generally and except as limited by the application of
equitable principles when equitable remedies are sought, and the
qualification that the enforceability of rights of indemnity and
contribution may be limited by applicable law;
21
(vi) the Underlying Securities and the Optioned Securities have been
authorized and allotted for issuance to the holders of the Special
Warrants and the Underwriter (as the case may be) and, upon the due
exercise of the Special Warrants, the Warrants, the Brokers'
Warrants and the Compensation Options in accordance with the
provisions thereof, such Underlying Securities and Optioned
Securities (as the case may be) will be validly issued as fully
paid and non-assessable securities in the capital of the Company;
(vii) the Primary Special Warrants (A) have been validly created and
issued by the Company; (B) have been duly executed and delivered by
the Company; and (C) are valid, legal and binding obligations of
the Company enforceable in accordance with their terms subject to
qualifications as in subclause (v) above;
(viii) the issuance and sale by the Company of the Primary Special
Warrants to the Purchasers and the Brokers' Warrants to the
Underwriter are exempt from the prospectus and registration
requirements of applicable Canadian Securities Laws and no
documents are required to be filed (other than specified forms
accompanied by requisite filing fees), proceedings taken or
approvals, permits, consents or authorizations obtained under the
applicable Canadian Securities Laws to permit such issuance and
sale; and the issuance of the Underlying Securities and Optioned
Securities upon the exercise of the Primary Special Warrants, the
Warrants, the Brokers' Warrants and the Compensation Options (as
the case may be) is exempt from the prospectus and registration
requirements of applicable Canadian Securities Laws subject to
certain provisos and specified resale restrictions;
(ix) upon the filing of the Final Prospectus and the issuance of
receipts therefor under applicable Canadian Securities Laws, all
legal requirements will have been fulfilled by the Company under
the Canadian Securities Laws to qualify, without resort to the
prospectus exemption provisions of such applicable laws, the
distribution in each of the Qualifying Provinces of the Underlying
Securities issuable upon the exercise of Primary Special Warrants
in accordance with the Special Warrant Indenture, the Warrant
Shares issuable upon the exercise of Warrants in accordance with
the Warrant Indenture, the Compensation Options issuable upon the
exercise of the Brokers' Warrants, and the Optioned Securities
issuable upon the exercise of the Compensation Options and that the
issuance of such Underlying Securities and Optioned Securities by
the Company upon such exercise will be exempt from the registration
requirements of such applicable laws subject to certain provisos
and will not be subject to any statutory hold period and no other
documents will be required to be filed, proceedings taken, or
approvals, permits, consents, or authorizations obtained under the
Canadian Securities Laws to permit the trading in the Qualifying
Provinces of such Underlying Securities and Optioned Securities,
through registrants registered under applicable laws who have
complied with such applicable laws or in
22
circumstances in which there is an exemption from the registration
requirements of such applicable laws, subject to usual exceptions;
(x) the Warrant Agent has been duly appointed by the Company as
registrar and transfer agent in respect of the Common Shares, as
special warrant agent in respect of the Special Warrants, as
warrant agent in respect of the Warrants;
(xi) the Company is a reporting issuer not on the list of defaulting
reporting issuers maintained pursuant to the applicable securities
laws in the Province of Ontario; and
(xii) the TSE has conditionally approved the listing of the Common Shares
of the Company issuable upon exercise or deemed exercise of the
Primary Special Warrants, the Compensation Option and the Warrants
comprising the Units issuable on exercise of the Primary Special
Warrants, subject to compliance with its conditions on or prior to
August 27, 1998.
(e) the Underwriter shall have received certificates of status or similar
certificates with respect to each jurisdiction in which the Company and the
Subsidiary is required to be licensed to carry on a material part of its
business;
(f) the Underwriter shall have received at the Closing Time a certificate
executed by each of the Selling Shareholders, Xxxx Xxxxx and Xxxxxxx
Xxxxxxxxx and dated the Closing Date addressed to the Underwriter, the
Underwriter's counsel and the Purchasers certifying that:
(i) such Selling Shareholder has duly complied with all terms and
conditions of this Agreement on the Selling Shareholder's part to
be complied with up to the Closing Time; and
(ii) the representations and warranties of the Selling Shareholders,
Xxxx Xxxxx and Xxxxxxx Xxxxxxxxx contained in this Agreement are
true and correct as of the Closing Time with the same force and
effect as if made at and as of the Closing Time after giving effect
to the transactions contemplated hereby;
(g) the Underwriter shall have received at the Closing Time certificates dated
the Closing Date, signed by appropriate officers of each Selling
Shareholder addressed to the Underwriter and its counsel, with respect to
the articles and by-laws of such Selling Shareholder, all resolutions of
such Selling Shareholder's board of directors relating to this Agreement,
the Special Warrant Indenture, the Warrant Indenture, the Escrow Agreement
and the transactions contemplated hereby and thereby, the incumbency and
specimen signatures of signing officers, the constating documents of the
Selling Shareholder and such other matters as the Underwriter may
reasonably request;
(h) the Underwriter shall have received a favourable legal opinion dated the
Closing Date and addressed to the Underwriter, its counsel and each of the
Purchasers, from counsel to
23
the Selling Shareholders being Messrs. Gowling, Strathy & Xxxxxxxxx, with
respect to the following matters:
(i) as to the incorporation and subsistence of the Selling Shareholders
under the laws of their jurisdiction of incorporation and as to the
corporate power of the Selling Shareholders to carry out their
obligations under this Agreement, the Subscription Agreement, the
Escrow Agreement, the Special Warrant Indenture and the Warrant
Indenture and to issue the Secondary Special Warrants;
(ii) the Selling Shareholders have all requisite corporate power and
authority under the laws of their jurisdiction of incorporation to
carry on their business as presently carried on and to own their
properties and the Selling Shareholders have all requisite
corporate power to carry out the transactions contemplated by this
Agreement, the Subscription Agreement, the Escrow Agreement, the
Special Warrant Indenture and the Warrant Indenture, the Secondary
Special Warrants and the Underlying Securities;
(iii) none of the execution and delivery of this Agreement, the
Subscription Agreement, the Escrow Agreement, the Special Warrant
Indenture and the Warrant Indenture, the Secondary Special Warrants
and the Underlying Securities, the performance by the Selling
Shareholders of their obligations hereunder and thereunder, or the
sale, issuance or transfer of the Secondary Special Warrants and
the Underlying Securities will conflict with or result in any
breach of the constating documents or by-laws of the Selling
Shareholders;
(iv) each of this Agreement, the Subscription Agreements, the Secondary
Special Warrants, the Special Warrant Indenture and the Warrant
Indenture has been, duly authorized and duly executed and delivered
by each Selling Shareholder, and constitutes a valid and legally
binding agreement of such Selling Shareholder enforceable against
it in accordance with its terms, except as enforcement thereof may
be limited by bankruptcy, insolvency, liquidation, reorganization,
moratorium or similar laws affecting the rights of creditors
generally and except as limited by the application of equitable
principles when equitable remedies are sought, and the
qualification that the enforceability of rights of indemnity and
contribution may be limited by applicable law;
(v) the Secondary Special Warrants (A) have been validly created and
issued by each Selling Shareholder; (B) have been duly executed and
delivered by each Selling Shareholder; and (C) are valid, legal and
binding obligations of each Selling Shareholder enforceable in
accordance with their terms subject to qualifications as in
subclause (iv) above;
(vi) the issuance and sale of the Secondary Special Warrants by the
Selling Shareholders to the Purchasers are exempt from the
prospectus and registration requirements of applicable Canadian
Securities Laws and no documents are required to be filed (other
than specified forms accompanied by requisite filing
24
fees), proceedings taken or approvals, permits, consents or
authorizations obtained under applicable Canadian Securities Laws
to permit such issuance and sale;
(vii) the transfer of the Underlying Securities upon the exercise of the
Secondary Special Warrants is exempt from the prospectus and
registration requirements of Canadian Securities Laws of any of the
Qualifying Provinces, subject to certain provisos and specified
resale restrictions;
(viii) upon the filing of the Final Prospectus and the issuance of
receipts therefor under Canadian Securities Laws, all legal
requirements will have been fulfilled by the Selling Shareholders
under the Canadian Securities Laws to qualify, without resort to
the prospectus exemption provisions of such applicable laws, the
transfer of the Underlying Securities in each of the Qualifying
Provinces upon the exercise of the Secondary Special Warrants in
accordance with the Special Warrant Indenture and the transfer of
the Warrant Shares upon the exercise of the Warrants comprising the
Secondary Special Warrants in accordance with the Warrant
Indenture, and that the transfer of such Underlying Securities and
Warrant Shares by the Selling Shareholders upon such exercise will
be exempt from the registration requirements of such applicable
laws subject to certain provisos, and the transfer of the
Underlying Securities by the Selling Shareholders upon such
exercise of the Secondary Special Warrants will be exempt from the
registration requirements of such applicable laws, subject to
certain provisos and the Underlying Securities will not be subject
to any statutory hold period and no other documents will be
required to be filed, proceedings taken, or approvals, permits,
consents, or authorizations obtained under the Canadian Securities
Laws to permit the trading of such Underlying Securities in the
Qualifying Provinces through registrants registered under
applicable laws who have complied with such applicable laws or in
circumstances in which there is an exemption from the registration
requirements of such applicable laws, subject to usual exceptions;
and
(ix) the Warrant Agent has been duly appointed by the Selling
Shareholders as Warrant Agent in respect of the Warrants and as
Special Warrant Agent in respect of the Secondary Special Warrants;
which opinion shall be in form and substance satisfactory to the
Underwriter and its counsel, acting reasonably;
(i) the Underwriter shall have received favourable legal opinions addressed to
the Underwriter, counsel to the Underwriter and to each of the Purchasers,
in form and substance satisfactory to the Underwriter's counsel, dated the
Closing Date, from Xxxx Marks & Xxxxx LLP, U.S. counsel for the Company, as
to the laws of the United States, which counsel in turn may as to matters
of fact rely upon public officials and officers of the Company;
25
(j) the Underwriter shall have received a certificate of the registrar and
transfer agent of the Company as to the number of issued and outstanding
Common Shares;
(k) the Underwriter shall have received a certificate issued by the Ontario
Securities Commission as to the status of the Company as a reporting issuer
under the Securities Act (Ontario);
(l) holders of not less than 7,500,000 Common Shares shall have executed and
delivered written consents to the Offering as required by the TSE; and
(m) each of the Selling Shareholders, America Online, Inc. and Toronto Star
Newspapers Limited shall have executed and delivered irrevocable
undertakings to vote all of their Common Shares in favour of the Offering
if the Meeting is required and not to sell, transfer, assign or otherwise
dispose of any securities of the Company for a period ending ten (10)
business days after the Qualification Date, without the prior written
consent of the Underwriter.
11. Rights of Termination
(a) Litigation. If any enquiry, action, suit, investigation or other
proceeding whether formal or informal is instituted or threatened or any order
is made by any federal, provincial or other governmental authority in relation
to the Company or any of the officers or directors of the Company or any of its
principal shareholders which, in the reasonable opinion of the Underwriter,
operates to prevent or restrict the distribution or trading of the Special
Warrants or the Underlying Securities which may reasonably be seen to materially
and adversely affect the financial markets or the business, affairs or
profitability of the Company or the future market price or the present or future
value of the securities of the Company, the Underwriter shall be entitled, at
its option and in accordance with subparagraph 11(f) of this Agreement, to
terminate its obligations under this Agreement (and the obligations of the
Purchasers arranged by them to purchase Special Warrants) by notice to that
effect given to the Company any time prior to the Closing Time.
(b) Disaster Out Clause. In the event that prior to the Closing Time there
should develop, occur or come into effect any occurrence of national or
international consequence or any event, action, condition, law, governmental
regulation, inquiry or other occurrence of any nature whatsoever which, in the
reasonable opinion of the Underwriter, seriously adversely affects or involves,
or will seriously adversely affect or involve, the Canadian financial markets or
the business, operations or affairs of the Company and its subsidiaries on a
consolidated basis, the Underwriter shall be entitled at its option, in
accordance with subparagraph 11(f) of this Agreement, to terminate its
obligations under this Agreement (and the obligations of the Purchasers arranged
by them to purchase Special Warrants) by written notice to that effect given to
the Company prior to the Closing Time.
(c) Change in Material Fact. In the event that prior to the Closing Time there
should occur any material change, there should be discovered any previously
undisclosed material fact, or there should occur a change in any material fact
such as is contemplated by subparagraph 7(a),
26
which results or, in the reasonable opinion of the Underwriter, could reasonably
be expected to result, in the Purchasers of a material number of Special
Warrants exercising their contractual right of rescission granted to the
Purchasers in respect of the Special Warrants or the rights of rescission or
damages under section 130 of the Securities Act (Ontario) or the corresponding
provisions of applicable securities legislation in the other Qualifying
Provinces or, in the reasonable opinion of the Underwriter, has or could
reasonably be expected to have a material adverse effect on the market price or
value of the Special Warrants or the Underlying Securities, the Underwriter
shall be entitled, at its option, in accordance with subparagraph 11(f), to
terminate their obligations under this Agreement (and the obligations of the
Purchasers arranged by them to purchase Special Warrants) by written notice to
that effect given to the Company prior to the Closing Time.
(d) Non-Compliance With Conditions. The Company agrees that all terms and
conditions in this Agreement shall be construed as conditions and complied with
so far as the same relate to acts to be performed or caused to be performed by
the Company that it will use its best efforts (or all commercially reasonable
efforts, as applicable) to cause such conditions to be complied with, and any
breach or failure by the Company to comply with any of such conditions shall
entitle the Underwriter, or any of them, at their option in accordance with
subparagraph 11(f), to terminate its obligations under this Agreement (and the
obligations of the Purchasers arranged by them to purchase Special Warrants) by
notice to that effect given to the Company at or prior to the Closing Time. The
Underwriter may waive, in whole or in part, or extend the time for compliance
with, any terms and conditions without prejudice to its rights in respect of any
other of such terms and conditions or any other or subsequent breach or non-
compliance, provided that any such waiver or extension shall be binding upon the
Underwriter only if the same is in writing and signed by it.
(e) Cease Trade Order. In the event that any order to cease trading in
securities of the Company is made or threatened by a securities regulatory
authority, the Underwriter shall be entitled, at its option, in accordance with
subparagraph 11(f) of this Agreement, to terminate its obligations under this
Agreement (and the obligations of the Purchasers arranged by them to purchase
Special Warrants) by written notice to that effect given to the Company prior to
the Special Warrant Closing Time.
(f) Exercise of Termination Rights. The rights of termination contained in
subparagraphs 11(a), (b), (c), (d) and (e) may be exercised by the Underwriter
and are in addition to any other rights or remedies the Underwriter may have in
respect of any default, act or failure to act or non-compliance by the Company
in respect of any of the matters contemplated by this Agreement or otherwise. In
the event of any such termination, there shall be no further liability on the
part of the Underwriter to the Company or on the part of the Company to the
Underwriter except in respect of any liability which may have arisen or may
arise after such termination in respect of acts or omissions prior to such
termination under paragraphs 12, 14 and 15.
12. Expenses. Whether or not the sale of the Special Warrants or the issuance
of the Underlying Securities upon exchange of such Special Warrants shall be
completed, all expenses of or incidental to the issue and delivery of such
Special Warrants and Underlying Securities or incidental to all matters in
connection with the transactions herein set out shall be borne by the
27
Company and the Selling Shareholders, on a pro rata basis, including, without
limitation, expenses in connection with the issuance and sale of the Special
Warrants, all private placement fees required under Canadian Securities Laws,
the qualification of the Underlying Securities for distribution to the public,
the fees and expenses of counsel to the Company and all local counsel selected
by the Company, the reasonable fees and expenses of counsel to the Underwriter
to a maximum of $75,000 (exclusive of disbursements and all applicable GST),
with the balance, if any, being the obligation of the Underwriter, the fees and
expenses of the Warrant Agent and Escrow Agent, all out-of-pocket expenses of
the Underwriter, and all costs incurred in connection with the preparation and
printing of the Preliminary Prospectus, the Final Prospectus and any
Supplementary Material. All fees and expenses incurred by the Underwriter or on
their behalf prior to the Closing Time shall be payable by the Company at the
Closing Time and any such expenses incurred thereafter shall be payable from the
Escrowed Proceeds in accordance with the Escrow Agreement.
13. Survival of Representations and Warranties. All warranties,
representations, covenants and agreements herein contained or contained in any
documents submitted pursuant to this Agreement and in connection with the
transaction herein contemplated shall survive the purchase and sale of the
Special Warrants and the exchange of such Special Warrants for the Underlying
Securities by the Purchasers and continue in full force and effect for the
benefit of the Purchasers for a period of three years from the Closing Date and
shall not be limited or prejudiced by any investigation made by or on behalf of
the Underwriter in connection with the purchase and sale of the Special Warrants
or the preparation of the Preliminary Prospectus, the Final Prospectus or
otherwise.
14. (a) Indemnity. The Company and the Selling Shareholders, severally and
not jointly, in proportion to the gross subscription proceeds payable to the
Company and each Selling Shareholder, shall indemnify and save harmless the
Underwriter and its directors, officers, employees and agents from and against
all liabilities, claims, actions, suits, proceedings, losses (other than loss of
profits), costs, damages and expenses in any way caused by, or arising directly
or indirectly from, or in consequence of:
(i) any misrepresentation or alleged misrepresentation (as such term is
defined in the Securities Act (Ontario)) contained herein or made
by the Company or the Selling Shareholders in connection with the
sale by the Company and the Selling Shareholders of the Special
Warrants or the Underlying Securities, or in any material change
report or public document filed or issued by the Company or on its
behalf prior to the date of the Final Prospectus;
(ii) any information or statement (except any information or statement
relating solely to the Underwriter) contained in the Prospectus or
any Supplementary Material or in any certificate of the Company
delivered under this Agreement or pursuant to this Agreement which
at the time and in the light of the circumstances under which it
was made contains or is alleged to contain a misrepresentation;
(iii) any omission or alleged omission to state in the Prospectus, any
Supplementary Material or any certificate of the Company delivered
under this Agreement or
28
pursuant to this Agreement any fact (except facts relating solely
to the Underwriter), whether material or not, required to be stated
in such document or necessary to make any statement in such
document not misleading in light of the circumstances under which
it was made;
(iv) any order made or enquiry, investigation or proceedings commenced
or threatened by any securities commission or other competent
authority based upon any untrue statement or omission or alleged
untrue statement or alleged omission or any misrepresentation or
alleged misrepresentation (except a statement or omission or
alleged statement or omission relating solely to the Underwriter)
in the Prospectus or any Supplementary Material or based upon any
failure to comply with Canadian Securities Laws (other than any
failure or alleged failure to comply by the Underwriter),
preventing or restricting the trading in or the sale or
distribution of the Special Warrants or the Underlying Securities
in any of the Qualifying Provinces; or
(v) the non-compliance or alleged non-compliance by the Company with
any of the Canadian Securities Laws, including the Company's non-
compliance with any statutory requirement to make any document
available for inspection.
(b) Notification of Claims. If any matter or thing contemplated by this
paragraph (any such matter or thing being referred to as a "Claim") is asserted
against any person or company in respect of which indemnification is or might
reasonably be considered to be provided, such person or company (the
"Indemnified Party") will notify the Company and the Selling Shareholders as
soon as possible of the nature of such Claim and the Company and the Selling
Shareholders shall be entitled (but not required) to assume the defence of any
suit brought to enforce such Claim; provided, however, that the defence shall be
conducted through legal counsel acceptable to the Indemnified Party acting
reasonably and that no settlement of any such Claim may be made by the Company,
the Selling Shareholders or the Indemnified Party without the prior written
consent of the other party.
(c) Right of Indemnity in Favour of Others. With respect to any Indemnified
Party who is not a party to this Agreement, the Underwriter shall obtain and
hold the rights and benefits of this paragraph and paragraph 15 in trust for and
on behalf of such Indemnified Party.
(d) Retaining Counsel. In any such Claim, the Indemnified Party shall have the
right to retain other counsel to act on his or its behalf and to participate in
the defence thereof, provided that the fees and disbursements of such counsel
shall be paid by the Indemnified Party unless: (i) the Company, the Selling
Shareholders and the Indemnified Party shall have mutually agreed to the
retention of the other counsel; (ii) the Company and the Selling Shareholders
fails to assume the defence of such Claim on behalf of the Indemnified Party
within ten days of receiving notice of such Claim; or (iii) the named parties to
any such Claim (including any added third party) include both the Indemnified
Party and the Company and/or the Selling Shareholders and the Indemnified Party
shall have been advised by counsel that representation of the Indemnified Party
by counsel for the Company is inappropriate as a result of potential or actual
differing interests of those represented; in each of which cases the Company
shall not have the right to
29
assume the defence of such Claim on behalf of the Indemnified Party but the
Company and the Selling Shareholders shall be liable to pay the reasonable fees
and disbursements of counsel to the Indemnified Party.
15. (a) Contribution. In order to provide for a just and equitable
contribution in circumstances in which the indemnity provided in paragraph 14
would otherwise be available in accordance with its terms but is, for any
reason, held to be unavailable to or unenforceable by the Underwriter or
enforceable otherwise than in accordance with its terms, the Company, the
Selling Shareholders and the Underwriter shall severally contribute to the
aggregate of all claims, expenses, costs and liabilities and all losses (other
than loss of profits) of a nature contemplated in paragraph 14 in such
proportions so that the Underwriter is responsible for the portion represented
by the percentage that the aggregate fee payable by the Company and the Selling
Shareholders to the Underwriter bears to the aggregate offering price of the
Special Warrants and the Company and the Selling Shareholders are responsible
for the balance, whether or not it has been sued together or sued separately.
The Underwriter shall not in any event be liable to contribute, in the
aggregate, any amounts in excess of such aggregate fee or any portion of such
fee actually received. However, no party who has engaged in any fraud,
fraudulent misrepresentation or gross negligence shall be entitled to claim
contribution from any person who has not engaged in such fraud, fraudulent
misrepresentation or gross negligence.
(b) Right of Contribution in Addition to Other Rights. The rights to
contribution provided in this paragraph 15 shall be in addition to and not in
derogation of any other right to contribution which the Underwriter may have by
statute or otherwise at law.
(c) Calculation of Contribution. In the event that the Company and the Selling
Shareholders may be held to be entitled to contribution from the Underwriter
under the provisions of any statute or at law, the Company or any or all of the
Selling Shareholders shall be limited to contribution in an amount not exceeding
the lesser of:
(i) the portion of the full amount of the loss or liability giving rise to
such contribution for which the Underwriter is responsible, as
determined in subparagraph 15(a) above; and
(ii) the amount of the aggregate fee actually received by the Underwriter
from the Company and the Selling Shareholders under this Agreement.
(d) Notice. If the Underwriter has reason to believe that a claim for
contribution may arise, they shall give the Company and the Selling
Shareholders notice of such claim in writing, as soon as reasonably
possible, but failure to notify the Company shall not relieve the Company
or the Selling Shareholders of any obligation which it may have to the
Underwriter under this paragraph.
16. (a) Brokers' Warrants and Compensation Options. In consideration for the
Underwriter's services in (i) obtaining Purchasers for the Special Warrants and
assisting in the preparation and completion of the offering of Special Warrants
contemplated by this Agreement; (ii) assisting in the preparation of the
Preliminary Prospectus, Final Prospectus and the
30
Supplementary Material; (iii) forming and managing any banking, selling or other
groups established by the Underwriter in its sole discretion in connection with
the distribution of the Special Warrants; (iv) distributing the Special
Warrants, both directly and through other registered dealers and brokers in the
Qualifying Provinces; and (v) all other matters in connection with the issue and
sale of the Special Warrants in the Qualifying Provinces, the Company hereby
irrevocably and unconditionally agrees to issue to the Underwriter on the
Closing Date, irrevocable non-assignable special brokers' warrants (the
"Brokers' Warrants") exercisable, without payment of additional consideration,
into irrevocable non-assignable options (the "Compensation Options") to purchase
up to such number of Units as is equal to 10.0% of the aggregate number of
Special Warrants which are sold pursuant to the Offering and not retracted
pursuant to paragraph 3 (the "Optioned Units") exercisable in whole or in part
during the period commencing as at the Closing Date and expiring on the date
that is fifteen (15) months after the Closing Date, at an exercise price of
$1.40 per Optioned Unit.
(b) Qualification of Compensation Options. Subject to Canadian Securities Laws
and as may be permitted by applicable securities regulatory authorities, the
Prospectus shall qualify for distribution all of the Compensation Options
issuable upon exercise of the Brokers' Warrants. The Compensation Options may be
exercised by the Underwriter, at any time in whole or from time to time in part
from the time granted until their expiry (initially, up to each Agent's pro rata
portion thereof) upon delivering written notice to the Company together with a
certified cheque or bank draft representing the subscription price for the
applicable number of Optioned Units. In exercising the Compensation Options
(whether in whole or in part), the Underwriter may, at its sole discretion, in
lieu of satisfying the exercise price in cash, elect to receive that number of
Warrants as is equal to one-half of the Compensation Options being exercised and
that number of Common Shares of the Corporation equal to the quotient of:
x(FMV - $1.40)
--------------
FMV
where,
x = the number of Compensation Options to be exercised; and
FMV = the closing price of the Commons Shares on the principal stock exchange
or quotation system on which the Common Shares are then listed or quoted for
trading on the trading day immediately prior to such election by the
Underwriter.
(c) Anti-Dilution Provisions. If the Company subdivides, consolidates or
otherwise changes, reorganizes or reclassifies its Common Shares in any way,
declares any stock dividend, or becomes subject to any amalgamation,
arrangement, business combination, reorganization or other similar transaction
prior to the expiry of the Compensation Options (each such event being a
"capital reorganization event"), the Compensation Options shall be similarly
subdivided, consolidated, reorganized, reclassified or changed such that the
Underwriter receive, on any exercise of the Compensation Options subsequent to
the effective date of such capital reorganization event, the same number and
type of securities that they would have otherwise received had they fully
exercised such Compensation Options (including the Warrants
31
comprising the Optioned Units) prior to each such capital reorganization event.
The exercise price shall be adjusted accordingly and notice shall be given to
the Underwriter of such adjustment. If the Underwriter disagrees with such
adjustment the matter shall be determined conclusively by the Company's Auditors
at the expense of the Company. The Company shall at all times while the
Compensation Options are in effect, reserve and keep available out of its
authorized but unissued Common Shares, such number of Common Shares as shall
from time to time be required to be issued on each exercise of the Compensation
Options (including the Warrants comprising the Optioned Units) and such
additional Common Shares as may be issuable as a result of each capital
reorganization event). If any Common Shares required to be reserved for purposes
of issuance upon any exercise of Compensation Options require, in addition to
such compliance with the Canadian Securities Laws as is contemplated by this
Agreement, any additional registration with or approval of any authority under
the Canadian Securities Laws, or listing on any securities exchange on which the
Common Shares or other securities as may be issuable as a result of any capital
reorganization event may then be listed, before they may be issued, the Company
shall cause them to be duly registered, approved and listed forthwith following
the exercise of such Compensation Options.
17. Right of First Refusal. The Underwriter shall be granted the right of first
refusal (the "Right of First Refusal") to act as lead or co-lead manager of any
offering of securities of the Company in Canada and to act as a managing
underwriter (with a minimum of 20% participation) in any offering of securities
of the Company in the Unites States by the Company for a period of two (2) years
from the Closing Date. It is acknowledged and agreed by the parties that the
Right of First Refusal is conditional upon the Underwriter's publication, within
six (6) months of the Closing Date, of a standalone research report on the
Company prepared in accordance with standard investment industry practice,
failing which the Underwriter's right of first refusal shall terminate.
18. Advertisements. The Company and the Selling Shareholders acknowledge that
the Underwriter shall have the right, subject always to clauses 1(a) and (c) of
this Agreement, at its own expense, to place such advertisement or
advertisements relating to the sale of the Special Warrants or the Underlying
Securities contemplated herein as the Underwriter may consider desirable or
appropriate and as may be permitted by applicable law. The Company, the Selling
Shareholders and the Underwriter each agree that they will not make or publish
any advertisement in any media whatsoever relating to, or otherwise publicise,
the transaction provided for herein so as to result in any exemption from the
prospectus and registration requirements of applicable securities legislation in
any of the provinces of Canada or any other jurisdiction in which the Special
Warrants or Underlying Securities shall be offered or sold being unavailable in
respect of the sale of the Special Warrants to prospective purchasers.
19. Contractual Right of Action for Rescission. As part of the Subscription
Agreements, the Company has delivered, and shall be deemed to have delivered, to
the Purchasers (including the Underwriter) contractual rights of action for
rescission at the Special Warrant Closing Time or subsequent thereto.
32
20. Notices. Unless otherwise expressly provided in this Agreement, any notice
or other communication to be given under this Agreement (a "notice") shall be in
writing addressed as follows:
(a) If to the Company, to it at:
0000 Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxxx Xxxxx
Telecopier: (000) 000-0000
with a copy to:
Gowling, Strathy & Xxxxxxxxx
Commerce Court West
Suite 4900
Toronto, Ontario
M5L 1J3
Attention: Xxxx Xxxxxxxxx
Telecopier: (000) 000-0000
(b) If to the Selling Shareholders, to them at:
c/o Xxx.Xxx International Inc.
0000 Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxxxx
X0X 0X0
Telecopier: (000) 000-0000
With a copy to:
Gowling, Strathy & Xxxxxxxxx
Commerce Court West
Suite 4900
Toronto, Ontario
M5L 1J3
Attention: Xxxx Xxxxxxxxx
Telecopier: (000) 000-0000
33
(c) If to the Underwriter, to:
Yorkton Securities Inc.
000 Xxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxxxx Xxxxxxxx
Telecopier: (000) 000-0000
with a copy to:
Xxxxxxxxx Xxxx Thomson Apps & Dellelce
0 Xxxxx Xxxxxxxx Xxxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxxx Pocaluyko
Telecopier: (000) 000-0000
or to such other address as any of the parties may designate by notice given to
the others.
Each notice shall be personally delivered to the addressee or sent by telex or
facsimile transmission to the addressee and (i) a notice which is personally
delivered shall, if delivered on a Business Day, be deemed to be given and
received on that day and, in any other case, be deemed to be given and received
on the first Business Day following the day on which it is delivered; and (ii) a
notice which is sent by telex or facsimile transmission shall be deemed to be
given and received on the first Business Day following the day on which it is
sent.
21. Time of the Essence. Time shall, in all respects, be of the essence hereof.
22. Canadian Dollars. All references herein to dollar amounts are to lawful
money of Canada.
23. Headings. The headings contained herein are for convenience only and shall
not affect the meaning or interpretation hereof.
24. Singular and Plural, etc. Where the context so requires, words importing
the singular number include the plural and vice versa, and words importing
gender shall include the masculine, feminine and neuter genders.
25. Entire Agreement. This Agreement constitutes the only agreement between the
parties with respect to the subject matter hereof and shall supersede any and
all prior negotiations and
34
understandings. This Agreement may be amended or modified in any respect by
written instrument only.
26. Severability. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect or limit the validity or
enforceability of the remaining provisions of this Agreement.
27. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
28. Successors and Assigns. The terms and provisions of this Agreement shall be
binding upon and enure to the benefit of the Company, the Selling Shareholders,
the Underwriter and the Purchasers and their respective executors, heirs,
successors and permitted assigns; provided that, except as provided herein or in
the Subscription Agreements, this Agreement shall not be assignable by any party
without the written consent of the others.
29. Further Assurances. Each of the parties hereto shall do or cause to be done
all such acts and things and shall execute or cause to be executed all such
documents, agreements and other instruments as may reasonably be necessary or
desirable for the purpose of carrying out the provisions and intent of this
Agreement.
30. Effective Date. This Agreement is intended to and shall take effect as of
the date first set forth above, notwithstanding its actual date of execution or
delivery.
31. Language. The parties hereby acknowledge that they have expressly required
this Agreement and all notices, statements of account and other documents
required or permitted to be given or entered into pursuant hereto to be drawn up
in the English language only. Les parties reconnaissent avior expressment
demandees que la presente Convention ainsi que xxxx xxxx, tout etnt de compte et
tout autre document a etre ou pouvant etre donne ou conclu en vertu des
dispositions des presentes, soient rediges en langue anglaise seulement.
32. Counterparts. This Agreement may be executed in any number of counterparts,
which taken together shall form one and the same agreement.
If the Company and the Selling Shareholders are in agreement with the foregoing
terms and conditions, please so indicate by executing a copy of this letter
where indicated below and delivering the same to the Underwriter.
Yours very truly,
YORKTON SECURITIES INC.
Per: "Xxxxx Xxxxxxxx"
-----------------------------
Authorized Signing Officer
35
The foregoing is hereby accepted on the terms and conditions therein set forth.
DATED as of August 4, 1998.
XXX.XXX INTERNATIONAL INC.
Per: "Xxxx Xxxxx"
------------------------------
Authorized Signing Officer
1184041 ONTARIO INC.
Per: "Xxxx Xxxxx"
------------------------------
Authorized Signing Officer
XXXXXX GROUP INC.
Per: "Xxxxxxx Xxxxxxxxx"
------------------------------
Authorized Signing Officer
"Xxxx Xxxxx" "Xxxxxx Xxxxxxxx"
------------------------------ ------------------------------
Xxxx Xxxxx Witness
"Xxxxxxx Xxxxxxxxx" "Xxxxxx Xxxxxxxx"
------------------------------ -----------------------------
Xxxxxxx Xxxxxxxxx Witness
36
