EXHIBIT 3.10
UNDERWRITING AGREEMENT
October 3, 1997
Internet Liquidators International Inc.
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ATTENTION: ▇▇▇▇ ▇▇▇▇▇, PRESIDENT AND CHIEF EXECUTIVE OFFICER
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Dear Sirs:
The undersigned, Yorkton Securities Inc. ("Yorkton") and First Marathon
Securities Limited ("First Marathon") (collectively, the "Underwriters"),
understand that Internet Liquidators International Inc. (the "Company") proposes
to create, issue and sell (the "Offering") 6,335,000 special warrants (the
"Special Warrants") which will 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 at any time on or before January 3, 1999.
Upon and subject to the terms and conditions set forth herein, the Underwriters
hereby agree to purchase from the Company 6,335,000 Special Warrants at a price
of $1.50 per Special Warrant (the "Offering Price") for an aggregate purchase
price of up to $9,502,500 and agree to act as underwriters to arrange for
substituted purchasers for the Special Warrants resident in the Qualifying
Provinces (as hereinafter defined) or in those jurisdictions outside of Canada
and the United States 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 Underwriters 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
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Securities, the Company shall (i) pay to the Underwriters a commission equal to
8.0% of the gross proceeds realized by the Company in respect of the sale of the
Special Warrants (the "Commission"); and (ii) grant to the Underwriters the
Brokers' Warrants (as hereinafter defined) upon and subject to the provisions of
Section 16 of this Agreement. The obligation of the Company to pay the
Commission shall arise at the Closing Time (as hereinafter defined) and the
Commission shall be fully earned by the Underwriters 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;
"BUSINESS DAY" means a day which is not a Saturday, Sunday or statutory or civic
holiday in the City of Toronto, Canada;
"BROKERS' WARRANTS" has the meaning ascribed thereto in subparagraph 16(a);
"CDN" means The Canadian Dealing Network Inc.;
"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;
"CLAIM" has the meaning ascribed thereto in subparagraph 14(b);
"CLOSING DATE" means October 3, 1997 or such earlier or later date as the
Underwriters and the Company shall in writing agree;
"CLOSING TIME" means 12:00 noon (Toronto time) on the Closing Date or such other
time on the Closing Date as the Company and the Underwriters 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" has 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;
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"ESCROWED FUNDS" has the meaning ascribed thereto in subparagraph 3(a);
"FINAL PROSPECTUS" has the meaning ascribed thereto in subparagraph 2(b);
"INDEMNIFIED PARTY" has the meaning ascribed to it in subparagraph 14(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 Optioned Units; and (iii) the Warrant Shares issuable upon the
exercise of the Warrants comprising the Optioned Units;
"OPTIONED UNITS" has the meaning ascribed thereto in subparagraph 16(a);
"PERSON" means any individual, corporation, partnership, joint venture,
association, trust or other legal entity;
"PRELIMINARY PROSPECTUS" has the meaning ascribed thereto in subparagraph 2(a);
"PROSPECTUS" means, collectively, the Preliminary Prospectus and the Final
Prospectus;
"PROSPECTUS DEFAULT" has the meaning ascribed thereto in subparagraph 3(c);
"PURCHASERS" means the persons (which may include the Underwriters) 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
Commissions of the Qualifying Province;
"QUALIFICATION DEADLINE" means 5:00 p.m. (Toronto time) on the day which is the
120th day after the Closing Date;
"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;
"RETRACTION DEADLINE" has the meaning ascribed thereto in subparagraph 3(b);
"SECURITIES COMMISSIONS" means, collectively, the securities commissions or
other securities regulatory authorities in the Qualifying Provinces;
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"SPECIAL WARRANT CLOSING" means the completion of the issue and sale by the
Company of the Special Warrants offered hereunder and the purchase by the
Underwriters 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 and CIBC Mellon Trust Company, as special
warrant agent, providing for the issue of the Special Warrants and in a form to
be agreed upon between the Company and the Underwriters, each acting reasonably;
"SUBSCRIPTION AGREEMENT" means a subscription agreement in the form agreed upon
by the Underwriters 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" has the meaning ascribed thereto in subparagraph 8(a)(ii);
"SUPPLEMENTARY MATERIAL" has 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;
"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 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 and the Underwriters, 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 understands that although the offer
to act as underwriters with respect to the Offering is presented on behalf of
the Underwriters as purchaser, the Underwriters will endeavour to arrange for
Purchasers for the Special Warrants in the Qualifying Provinces and in such
other jurisdictions outside of Canada and the United States on a private
placement basis in compliance with all applicable Canadian Securities Laws and
all applicable securities laws of such other jurisdictions.
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(b) FILINGS. The Company undertakes to file or cause to be filed all forms or
undertakings required to be filed by the Company 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 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 Underwriters undertake to use their
commercially reasonable efforts to cause Purchasers of Special Warrants to
complete any forms required by Canadian Securities Laws or CDN. All fees payable
in connection with such filings shall be at the expense of the Company.
(c) NO OFFERING MEMORANDUM. Neither the Company nor the Underwriters 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 (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
Underwriters, 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, in any
event, within sixty (60) days of the Closing Date; and (ii) satisfy as
expeditiously as practicable any comments made by the Securities Commission 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 and the
Underwriters (the "Final Prospectus"), each acting reasonably, and fulfil and
comply with, to the satisfaction of the Underwriters' 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 Underwriters 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.
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3. PROCEEDS TO BE ESCROWED AND RETRACTION RIGHT.
(a) On the Closing Date:
(i) 75% 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 Underwriters in connection with the
Offering as of the Closing Date shall be released to the Company;
and
(ii) an amount equal to 75% of the Commission and the costs and
expenses of the Underwriters as of the Closing Date shall be paid
to the Underwriters.
The balance of the proceeds derived from the sale of the Special Warrants
(collectively, the "Escrowed Funds") shall be deposited in escrow with counsel
to the Underwriters, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ Apps & Dellelce, to be held and
invested in Government of Canada Treasury Bills and released in accordance with
the provisions of this paragraph 3 or any joint direction of the Company and
Yorkton given to ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ Thomson Apps & Dellelce in writing.
(b) The Escrowed Funds shall be held in escrow by ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
Apps & Dellelce in order to repurchase, if necessary, 25% of the Special
Warrants on any exercise of the retraction right described in subparagraph 3(c)
below. Subject to the provisions of paragraph 3(c), the Escrowed Funds less an
amount equal to 25% of the Commission and the costs and expenses of the
Underwriters subsequent to the Closing Date, together with a pro rata share of
all interest accrued thereon, shall be released to the Company and the balance
of the Escrowed Funds, which shall include a pro rata share of all interest
accrued thereon, shall be released to the Underwriters, on the earlier of:
(i) the date of the exercise of the Special Warrants; and
(ii) the fifth business day after a receipt has been issued by the
Securities Commission in each of the Qualifying Provinces for
the Prospectus qualifying the distribution of the Underlying
Securities.
(c) The Company recognizes that it is fundamental to Purchasers of the
Special Warrants 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 if a
receipt for the Prospectus has not been issued by the Securities Commission of
each of the
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Qualifying Provinces on or before the Qualification Deadline (a "Prospectus
Default"), each holder of Special Warrants resident in such Qualifying Province
shall thereafter:
(i) be entitled to receive 1.1 Units upon the due exercise of each Special
Warrant (in lieu of one Unit), without the payment of additional
consideration; or
(ii) have the right at any time until 5:00 p.m. on the fifth business day
after the Qualification Deadline (the "Retraction Deadline") to
require the Company to repurchase up to 25% of its Special Warrants
for $1.50 per Special Warrant plus accrued interest thereon by
executing and delivering to the Warrant Agent (with a copy to
▇▇▇▇▇▇▇▇▇ ▇▇▇▇ Thomson Apps & Dellelce) a Notice of Retraction in the
form appended to the Special Warrant certificate, together with its
original Special Warrant certificate, and to receive 1.1 Units upon
the due exercise of the balance of its Special Warrants (in lieu of
one Unit), without payment of any additional consideration.
If a holder of Special Warrants does not exercise its retraction right by the
Retraction Deadline, such holder will thereafter only have the right to receive
1.1 Units upon the due exercise of each Special Warrant (in lieu of one Unit),
without the payment of additional consideration. Upon receipt of a Notice of
Retraction, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ Apps & Dellelce shall release from the
Escrowed Funds to such Purchaser an amount equal to 25% of the aggregate
Offering Price for such Purchaser's Special Warrants, together with all interest
accrued thereon, and the Warrant Agent shall cancel the Special Warrant
certificate and issue to the Purchaser a new Special Warrant certificate
representing 75% of the number of Special Warrants represented by the original
Special Warrant certificate. In the event that the Escrowed Funds are not
sufficient to satisfy the Company's obligation to repurchase Special Warrants,
the Company shall be obligated to forthwith deliver to ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ Thomson
Apps & Dellelce sufficient funds to satisfy such obligations. In the event that
a Prospectus Default occurs, the Company will continue to be obligated to use
commercially reasonable efforts to file and clear the Final Prospectus until the
Time of Expiry.
4. (a) DELIVERIES AT TIME OF FILING. The Company shall deliver to the
Underwriters contemporaneously with or prior to the filing with the Ontario
Securities Commission of the Preliminary Prospectus or the Final Prospectus, as
the case may be:
(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;
(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
Underwriters and the board of directors of the Company, in form and
substance satisfactory to the Underwriters,
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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 and 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 Underwriters 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
Underwriters, 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
Underwriters without charge, in such numbers and in such cities in the
Qualifying Provinces as the Underwriters 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 Underwriters 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 to the Underwriters, the Purchasers and their permitted
assigns that all information and statements (except information and statements
relating solely to or provided solely by the Underwriters) 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
Underwriters) which is required to be stated therein or is necessary to make the
statements or information contained therein not misleading in light of the
circumstances under which they were made. Such delivery shall also constitute
the Company's consent to the Underwriters' use of the Prospectus, any
Supplementary Material and any other public documents supplied to the
Underwriters 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.
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6. COVENANTS.
(a) COMPANY'S COVENANTS. The Company hereby covenants to the Underwriters, the
Purchasers and their permitted assigns and acknowledges that each of them is
relying on such covenants in purchasing Special Warrants, that it 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 Underwriters and their representatives to conduct all due
diligence which the Underwriters may reasonably require to be
conducted prior to the date of the Final Prospectus in order to
fulfil their obligations as Underwriters under Canadian Securities
Laws and in order to enable the Underwriters responsibly to execute
any certificate required to be executed by the Underwriters in
connection with a Prospectus, and it shall be a condition precedent
to the Underwriters' 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 Special Warrant Indenture, the
Subscription Agreements, the Warrant Indenture, the Special
Warrants and the Brokers' Warrants 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, 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;
(vii) ensure that at all times prior to the expiry thereof, sufficient
Common Shares are allotted and reserved 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 quoted for trading on CDN upon their respective
dates of issuance;
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(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, and as warrant agent in respect of the Warrants;
(x) the Company will apply the net proceeds from the issue and sale of
the Special Warrants to fund the roll-out of the Company's
marketing program and advertising campaign and general corporate
purposes;
(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, during the period
commencing on the date hereof and ending ten (10) Business Days
after the Qualification Date, 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); or
(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 June 18, 1997;
(xii) grant to Yorkton, during the period of two years following the
Closing Date, the first right to act as lead or co-lead manager or
underwriter in connection any offering of securities in Canada and
to act as a managing underwriter (with a minimum 20% participation)
in connection with any offering of securities in the United States.
The Company shall provide to Yorkton prior notice in writing of the
terms of any offering that the Company proposes to make and shall
provide Yorkton the right to act as lead or co-lead manager or
underwriter or as managing underwriter (as the case may be) of that
offering and to select the members of the underwriting group for
that offering. This right of first refusal must be exercised by
Yorkton within ten (10) days following receipt of such notice by
notifying the Company that Yorkton will agree to act as lead or co-
lead manager or underwriter or as managing underwriter (as the case
may be) of such offering on the terms set out in the notice,
failing which the Company will be free to make other arrangements
to proceed with such offering on the same terms or on terms no less
favourable to the Company. Failure to elect to act as lead or co-
lead manager or underwriter or as managing underwriter (as the case
may be) in respect of a proposed offering referred to in a notice
shall not, however, disentitle Yorkton with respect to its rights
hereunder in respect of any subsequent notice. This right of first
refusal is conditional upon Yorkton's publication within six (6)
months of the Closing Date of a stand-alone research report on the
Company prepared in accordance with standard investment industry
practice, failing which Yorkton's right of first refusal will
terminate;
(xiii) apply for a listing or quotation of the Common Shares on The
Toronto Stock Exchange (the "TSE") or the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") as soon as
reasonably practicable following the Special Warrant Closing and to
use its reasonable commercial efforts to pursue such
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listing or quotation and satisfy as expeditiously as possible all
such conditions of listing or quotation as the TSE or NASDAQ may
reasonably require;
(xiv) in the event the Company offers any of its securities for sale in
the United States or files a registration statement with the United
States Securities Exchange Commission in respect of any of its
securities, whether in connection with a public offering of such
securities, an application for listing or quotation of its
securities on any stock market or quotation system in the United
States or otherwise, the Company shall ensure that the Underlying
Securities and the Optioned Securities are also registered for
resale in the United States or on such stock exchange and take all
such other steps and actions as may be necessary to ensure that the
Underlying Securities are not subject to any statutory hold period;
and
(xv) as soon as reasonably practicable following the Closing Date,
appoint or cause the appointment of a nominee of the Purchasers to
the Board of Directors of the Company, such nominee to be mutually
acceptable to the Company and the Underwriters, each acting
reasonably.
(b) UNDERWRITERS' OBLIGATION. The obligation of the Underwriters 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 shall promptly notify the Underwriters (and, if requested by the
Underwriters, 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.
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During the period from the date hereof to the completion of distribution of the
Underlying Securities, the Company 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 shall not file any Supplementary Material or other document
without first obtaining approval of the Underwriters, after consultation with
the Underwriters with respect to the form and content thereof, which approval
shall not be unreasonably withheld. The Company shall in good faith discuss with
the Underwriters 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 Underwriters 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 opinion of counsel to the Company or counsel to the
Underwriters requires the filing of Supplementary Material, the Company shall,
to the satisfaction of its counsel and the Underwriters' 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 Underwriters, 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 incorporated 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 CDN 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;
-13-
(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 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 CDN
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,
1996, 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, 1996, and the unaudited interim financial
statements as at and for the six month period ended June 30, 1997
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 an aggregate of not more
than 1,279,520 Common Shares which have been granted in the ordinary
course in accordance with the Company's stock option plan, 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, except as set out in Schedule "A" to this Agreement;
-14-
(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 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 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
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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 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 14,138,980 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
-16-
special warrant agent in respect of the Special Warrants and as
warrant agent in respect of the Warrants;
(xxii) other than the Underwriters, Royal Bank Capital Corporation and
HDL Capital Limited, 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 quoted for trading on CDN and all necessary
notices and filings have been made with and all necessary
consents, approvals and authorizations obtained from CDN to
ensure that the Common Shares issuable on exercise of the Special
Warrants and the Compensation Options, and the Warrant Shares
issuable on the exercise of the Warrants will be quoted for
trading on CDN upon their issuance; and
(xxv) the business conducted by the Subsidiary is limited to credit
card processing and inventory procurement.
(b) REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE UNDERWRITERS.
The Underwriters hereby represent, warrant and covenant to the Company, and
acknowledge that the Company is relying upon such representations and
warranties, that:
(i) in respect of the offer and sale of the Special Warrants, they
will comply with all Canadian Securities Laws and all applicable
laws of the jurisdictions outside Canada in which they offer
Special Warrants;
(ii) they have not made or authorized any advertising, and shall not
make or authorize any advertising, in connection with or in
respect of the Special Warrants or the Underlying Securities in
any printed media or general and regular paid circulation, or
radio, television or otherwise;
(iii) they 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; and
(iv) they will, subject to compliance by the Company with its
obligations hereunder and provided that it shall otherwise be
responsible for the Underwriters to do so, execute and deliver to
the Company any certificate required to be executed by it under
Canadian Securities Laws in connection with the Preliminary
Prospectus, Final Prospectus and any Supplementary Material.
-17-
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 & ▇▇▇▇▇▇▇▇▇, Toronto, or at such other place as the Underwriters and the
Company may agree upon. At or prior to the Closing Time, the Company shall duly
and validly deliver to the Underwriters 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 of 75% the subscription price therefor to or to the
order of the Company less a pro rata portion of the Commission and the costs and
expenses of the Underwriters as at the Closing Date and the balance to ▇▇▇▇▇▇▇▇▇
▇▇▇▇ Thomson Apps & Dellelce, in lawful money of Canada by certified cheque or
banker's draft payable at par in the City of ▇▇▇▇▇▇▇.
▇▇. 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:
(a) the Underwriters 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 Underwriters
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, 1996 (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
-18-
(v) such other matters as the Underwriters may reasonably request;
(b) the Underwriters shall have received at the Closing Time certificates dated
the Closing Date, signed by appropriate officers of the Company addressed
to the Underwriters and their 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 Brokers' Warrants, the Compensation Options and the
transactions contemplated hereby and thereby, the incumbency and specimen
signatures of signing officers and such other matters as the Underwriters
may reasonably request;
(c) the Special Warrant Indenture, the Subscription Agreements, the Warrant
Indenture, 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 Underwriters and their
counsel, acting reasonably;
(d) the Underwriters shall have received favourable legal opinions addressed to
the Underwriters and counsel to the Underwriters, in form and substance
satisfactory to the Underwriters' counsel, dated the Closing Date, from
Messrs. Gowling, Strathy & ▇▇▇▇▇▇▇▇▇, 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 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 Brokers' Warrants and the Compensation Options, the
performance by the Company of its obligations hereunder and
thereunder, or the sale or issuance of the Special
-19-
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 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;
(vi) the Underlying Securities and the Optioned Securities have been
authorized and allotted for issuance to the holders of the Special
Warrants and the Underwriters (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 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 Special Warrants to the
Purchasers and the Brokers' Warrants to the Underwriters are exempt
from the prospectus 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 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
-20-
issuable upon the exercise of 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 the 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; the Underlying Securities and
Optioned 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 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 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 and 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) all necessary notices and filings have been made and consents,
approvals and authorizations obtained to ensure that the Common
Shares issuable on the exercise of the Special Warrants and the
Compensation Options, and the Warrant Shares issuable on the
exercise of the Warrants, will be quoted for trading on CDN on their
issue.
(e) the Underwriters shall have received written undertakings of ▇▇▇▇ ▇▇▇▇▇,
1184041 Ontario Inc., ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ Group Inc., America Online,
Inc. and Toronto Star Newspapers Limited in favour of the Underwriters:
(i) not to sell, transfer, assign or otherwise dispose of any securities
of the Company owned, directly or indirectly, by such persons for a
period ending on the date that is ten (10) Business Days following
the Qualification Deadline, without the prior written consent of the
Underwriters; and
(ii) to vote their Common Shares of the Company and take all such other
actions as are within its power and control to ensure that a nominee
of the Purchasers is appointed to of the Board of Directors of the
Company;
(f) the Underwriters shall have received a certificate of the registrar and
transfer agent of the Company as to the number of issued and outstanding
Common Shares;
-21-
(g) the Underwriters 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; and
(h) the Underwriters shall have received copies of written waivers of each of
▇▇▇▇ ▇▇▇▇▇, 1184041 Ontario Inc., ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ Group Inc. and
Toronto Star Newspapers Limited in respect of their pre-emptive rights
pursuant to certain shareholders' agreements among them and the Company.
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 Underwriters or
either of them, 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 Underwriters shall
be entitled, at their option and in accordance with subparagraph 11(f) of this
Agreement, to terminate their 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 Underwriters, 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, any of the Underwriters shall be entitled at their option,
in accordance with subparagraph 11(f) of this Agreement, 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.
(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), which results or, in the
reasonable opinion of the Underwriters, 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 Underwriters, 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 Underwriters shall be entitled, at their option,
in accordance with subparagraph 11(f), to
-22-
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 Underwriters, or any of them, at their 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
notice to that effect given to the Company at or prior to the Closing Time. The
Underwriters may waive, in whole or in part, or extend the time for compliance
with, any terms and conditions without prejudice to their 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
Underwriters only if the same is in writing and signed by all of the
Underwriters.
(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 Underwriters shall be entitled, at their option, in accordance
with subparagraph 11(f) of this Agreement, 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 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 either of the
Underwriters and are in addition to any other rights or remedies the
Underwriters or any of them 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 Underwriters
to the Company or on the part of the Company to the Underwriters 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. A notice of termination given by an Underwriter under
subparagraphs 11(a), (b), (c), (d) and (e) shall not be binding upon any other
Underwriter.
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 Company
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 Underwriters to a maximum of $75,000 (exclusive of disbursements and all
applicable GST), with the balance, if any, being the obligation of the
Underwriters, the
-23-
fees and expenses of the Warrant Agent, all out-of-pocket expenses of the
Underwriters, 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 Underwriters 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 upon release of the Escrowed Proceeds.
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 Underwriters 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 shall indemnify and save harmless each of the
Underwriters and each of their directors, officers, employees and Underwriters
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 in connection with the sale by the Company 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 Underwriters) 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 pursuant to this Agreement any fact (except
facts relating solely to the Underwriters), 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
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omission or alleged statement or omission relating solely to the
Underwriters) 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 Underwriters),
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 as soon as possible of the nature
of such Claim and the Company 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, 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 Underwriters 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 and the
Indemnified Party shall have mutually agreed to the retention of the other
counsel; (ii) the Company 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 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 assume the defence of such Claim on behalf of the
Indemnified Party but the Company 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 Underwriters or
enforceable otherwise than in accordance with its terms, the Company and the
Underwriters 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 Underwriters
are responsible for the portion represented by the percentage that the aggregate
fee payable by the Company to the Underwriters bears to the
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aggregate offering price of the Special Warrants and the Company is responsible
for the balance, whether or not it has been sued together or sued separately.
The Underwriters 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 Underwriters may have by
statute or otherwise at law.
(c) CALCULATION OF CONTRIBUTION. In the event that the Company may be held to
be entitled to contribution from the Underwriters under the provisions of any
statute or at law, the Company 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 Underwriters are responsible, as
determined in subparagraph 15(a) above; and
(ii) the amount of the aggregate fee actually received by the Underwriters
from the Company under this Agreement.
(d) NOTICE. If the Underwriters have reason to believe that a claim for
contribution may arise, they shall give the Company notice of such claim in
writing, as soon as reasonably possible, but failure to notify the Company shall
not relieve the Company of any obligation which it may have to the Underwriters
under this paragraph.
16. (a) BROKERS' WARRANTS AND COMPENSATION OPTIONS. In consideration for the
Underwriters' 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 Supplementary Material; (iii)
forming and managing any banking, selling or other groups established by the
Underwriters or either of them in their 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 Underwriters 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 Units sold pursuant to the
Offering (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 $1.50 per
Optioned Unit.
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(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 Underwriters, individually or collectively, 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 the event that either Agent does not elect to exercise its entire pro rata
portion of either of the Compensation Options, it shall give written notice to
the other Agent not less than ten (10) business days prior to the expiry of the
Compensation Options and the other Agent shall be entitled to exercise all or
any portion of such unexercised Compensation Options in accordance with the
provisions hereof.
(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
Underwriters 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 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
Underwriters of such adjustment. If the Underwriters disagree 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. UNDERWRITERS' OBLIGATIONS. The Underwriters' obligations under this
Agreement shall be several and not joint, and the Underwriters' respective
obligations and rights and benefits hereunder shall be as to the following
percentages:
Yorkton Securities Inc. - 80%
First Marathon Securities Limited - 20%
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In the event that either of the Underwriters shall fail to purchase or arrange
for the purchase of the number of Special Warrants allocated to such Agent
hereunder, the other Agent shall have the right but shall not be obligated to
purchase or arrange for the purchase of all of such Special Warrants which would
otherwise have been allocated to the Agent in default. In the event that one
but not both of the Underwriters shall exercise its rights of termination under
paragraph 11, the other shall have the right, but shall not be obligated, to
purchase or arrange for the purchase of all of the percentage of the Special
Warrants which would otherwise have been allocated to the Agent which has so
exercised its rights of termination.
18. UNDERWRITERS' AUTHORITY. The Company shall be entitled to and shall act on
any notice, request, direction, consent, waiver, extension and other
communication given or agreement entered into by or on behalf of the
Underwriters by Yorkton who shall represent the Underwriters and have authority
to bind the Underwriters hereunder except in respect of a notice of termination
pursuant to paragraph 11, indemnity provisions in paragraph 14, contribution
provisions in paragraph 15, and exercise of the Brokers' Warrants and
Compensation Options pursuant to paragraph 16. In all cases, Yorkton shall use
its best efforts to consult with First Marathon prior to taking any action
contemplated herein.
19. PREVIOUS ENGAGEMENTS. In consideration of the payment of its pro rata
allocation of the Commission, First Marathon hereby waives and releases the
Company from its obligations pursuant to any and all engagement arrangements
entered into, whether in writing or otherwise, between the Company and First
Marathon prior to the date hereof (other than the engagement letter dated
September 25, 1997 between the Company and Yorkton on its own behalf and on
behalf of First Marathon) and acknowledges and confirms that it shall have no
further rights or benefits under such engagement arrangements.
20. ADVERTISEMENTS. The Company acknowledges that the Underwriters shall have
the right, subject always to clauses 1(a) and (c) of this Agreement, at their
own expense, to place such advertisement or advertisements relating to the sale
of the Special Warrants or the Underlying Securities contemplated herein as the
Underwriters may consider desirable or appropriate and as may be permitted by
applicable law. The Company, and the Underwriters 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 being unavailable in
respect of the sale of the Special Warrants to prospective purchasers.
21. 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 Underwriters) contractual rights of action for
rescission at the Special Warrant Closing Time or subsequent thereto.
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:
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(a) If to the Company, to it at:
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Gowling, Strathy & ▇▇▇▇▇▇▇▇▇
Commerce Court West
Suite 4900
Toronto, Ontario
M5L 1J3
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to the Underwriters, to:
Yorkton Securities Inc.
▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
- and -
First Marathon Securities Limited
The Exchange Tower
2 First Canadian Place
Suite 3200 ▇.▇. ▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy, in either of such cases, to:
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▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ Apps & Dellelce
▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: ▇▇▇▇ Pocaluyko
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
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.
24. TIME OF THE ESSENCE. Time shall, in all respects, be of the essence hereof.
25. CANADIAN DOLLARS. All references herein to dollar amounts are to lawful
money of Canada.
26. HEADINGS. The headings contained herein are for convenience only and shall
not affect the meaning or interpretation hereof.
27. 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.
28. 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 understandings. This Agreement may be amended or
modified in any respect by written instrument only.
29. 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.
30. 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.
31. SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement shall be
binding upon and enure to the benefit of the Company, the Underwriters and the
Purchasers and their respective successors and permitted assigns; provided that,
except as provided herein or in the
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Subscription Agreements, this Agreement shall not be assignable by any party
without the written consent of the others.
32. 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.
33. 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.
34. COUNTERPARTS. This Agreement may be executed in any number of counterparts,
which taken together shall form one and the same agreement.
If the Company is 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 Yorkton on behalf of the Underwriters.
Yours very truly,
YORKTON SECURITIES INC.
Per: (signed): ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------
Authorized Signing Officer
FIRST MARATHON SECURITIES LIMITED
Per: (signed): ▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------
Authorized Signing Officer
The foregoing is hereby accepted on the terms and conditions therein set forth.
DATED as of October _____ , 1997.
INTERNET LIQUIDATORS INTERNATIONAL INC.
Per: (signed): ▇▇▇▇ ▇▇▇▇▇
------------------------------
Authorized Signing Officer
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SCHEDULE "A"
OUTSTANDING WARRANTS, CONVERTIBLE SECURITIES,
PRE-EMPTIVE OR SIMILAR RIGHTS TO
SUBSCRIBE FOR COMMON SHARES
1. Pre-emptive rights in favour of America Online, Inc. as contained in
Article 4 of an Agreement dated February 21, 1997 among the Corporation,
certain shareholders of the Corporation and America Online Inc.;
2. Warrants in favour of America Online, Inc. to subscribe for additional
common shares at:
(i) U.S. $1.50 on or before October 15, 1997, or at U.S. $2.00 on or
before February 15, 1998 to permit America Online, Inc. to hold 13%
of the then issued shares of the Corporation on a fully diluted
basis;
(ii) provided that option (i) above has been fully exercised, at U.S.
$3.00 on or before July 1, 1998 to hold up to 23% of the then issued
shares of the Corporation on a fully diluted basis;
(iii) provided that option (ii) above has been fully exercised, at U.S.
$3.00 on or before February 15, 1999 to hold up to 33% of the then
issued shares of the Corporation on a fully diluted basis; and
(iv) provided that option (iii) above has been fully exercised, at the
greater of 75% of Fair Market Value or U.S. $3.00 on or before
February 15, 2000 to hold up to 51% of the then issued shares of the
Corporation on a fully diluted basis;
3. Pre-emptive rights in favour of Toronto Star Newspapers Limited as
contained in Article 4 of an agreement dated February 12, 1997 among the
Corporation, certain shareholders of the Corporation and Toronto Star
Newspapers Limited; and
4. Warrants in favour of Toronto Star Newspapers Limited to acquire up to
500,000 common shares at Cdn $1.25 on or before January 30, 1998.
