<PAGE>
As filed with the Securities and Exchange Commission on June 24, 1999
Registration No. 333-10354
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
VIDATRON ENTERTAINMENT GROUP INC.
(To be changed to Peace Arch Entertainment Group Inc.)
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
British Columbia, Canada 7812E Not Applicable
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or
organization) Classification Code Number) Identification Number)
</TABLE>
Number 302, 1132 Hamilton Street
Vancouver, B.C. V6B 2S2
Canada
(604) 681-9308
(604) 681-3299 (facsimile)
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
National Registered Agents, Inc.
1090 Vermont Avenue, NW, Ste. 910
Washington, D.C. 20005
(202) 371-8090
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
Margaret G. Graf, Esq. Dale E. Short, Esq.
Brand Farrar & Buxbaum LLP Troy & Gould Professional Corporation
515 S. Flower Street, #3500 1801 Century Park East, 16th Floor
Los Angeles, California 90071 Los Angeles, CA 90067
(213) 426-6222 (facsimile) (310) 789-1159 (facsimile)
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to the home jurisdiction's shelf
prospectus offering procedures, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement of the earlier effective registration statement for the
same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ---------------------------------------------------------------------------------------------
<CAPTION>
Title of each class of Proposed maximum aggregate Amount of registration
securities to be registered offering price(1) fee(2)
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<S> <C> <C>
Class B Subordinate Voting Shares......... US$20,700,000 US$5,755(3)
- ---------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 300,000 Class B shares subject to an over-allotment option
granted to the underwriters. See "Underwriting."
(2) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, solely
for purposes of calculating the registration fee.
(3) Previously paid.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell these securities and it is not +
+soliciting an offer to buy these securities in any jurisdiction where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 24, 1999
[Logo of Peace Arch Entertainment Group Inc.]
2,000,000 Class B Shares
Peace Arch Entertainment Group Inc. is offering 2,000,000 Class B shares for
sale in the U.S.
Our common shares are currently listed on The Toronto Stock Exchange under
the symbol "VE." Prior to completion of this offering every five of our common
shares will be reclassified and consolidated as one Class A share and one Class
B share. The Class B shares and Class A shares will be identical in all
material respects, except that the Class A shares will be entitled to ten votes
per share and the Class B shares to one vote per share. On June 23, 1999, the
last reported sale price of our common shares on The Toronto Stock Exchange was
Cdn$10.57, as adjusted to give effect to our share reclassification and
consolidation, or approximately US$7.17.
We have applied to list the Class B shares on the American Stock Exchange
under the symbol "PAE" and on The Toronto Stock Exchange under the symbol
"PAE.B," but there will be no trading market for the Class B shares in the U.S.
or Canada prior to this offering. Before this offering, we will determine the
initial public offering price of the Class B shares through consultation and
negotiation with the representatives of the underwriters.
Before investing in the Class B shares, you should carefully consider the
risks described in the "Risk Factors" section beginning on page 8.
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price..........................
Underwriting discount............
Proceeds, before expenses, to Peace Arch.......
</TABLE>
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We have granted the underwriters the right to purchase up to an additional
300,000 Class B shares at the initial public offering price, less the
underwriting discount, to cover over-allotments.
The Seidler Companies Incorporated Josephthal & Co. Inc.
The date of this prospectus is , 1999.
<PAGE>
DESCRIPTION OF PROSPECTUS INSIDE FRONT COVER
The inside front cover of the prospectus consists of a photo montage
(which covers approximately two-thirds of the page) of images from our
television programming (in some cases, accompanied by the names of the program).
Program materials include photos of talent and scenes from "First Wave", "So
Weird", "Dead Man's Gun", "Electric Playground" and six of our other past
productions.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights important information about our business and this
offering. Because it is a summary, it does not contain all the information you
should consider before investing in the Class B shares. You should read the
entire prospectus carefully. All references in this prospectus to "$" or
"dollars" are to United States dollars unless otherwise indicated. Unless
otherwise indicated, references to outstanding shares and per share amounts
throughout this prospectus reflect our previous share capital consolidations
and a proposed share reclassification and consolidation which will be effected
prior to the completion of this offering.
Peace Arch Entertainment Group Inc.
We develop, produce and distribute high-quality, proprietary television
programming for markets worldwide. We take ideas, storylines and other creative
concepts developed by us or acquired from independent sources and convert those
concepts into television programming. Our proprietary programming consists of a
variety of episodic series, movies and documentaries, including "First Wave," a
popular one-hour science fiction drama series produced in association with
Pearson Television International Ltd., Francis Ford Coppola and Chris Brancato.
Our revenues in fiscal 1996 were Cdn$5.7 million. Beginning in 1996, we began
shifting our focus to production and distribution of proprietary programming.
Our fiscal 1997 revenues were Cdn$23.6 million due to growth of this new
business, and in fiscal 1998 revenues increased to Cdn$32.5 million over fiscal
1997 as a result of a 60% increase in revenues from proprietary programming
over fiscal 1997. The production and distribution of proprietary programming
represented approximately 86% of our revenues during fiscal 1998 and is
anticipated to make the greatest contribution to our future growth. In fiscal
1998 we reported net earnings of Cdn$1.8 million, up from a net loss of Cdn$1.2
million for fiscal 1997. Our 1997 loss was made up of Cdn$1.4 of operating
income and Cdn$2.6 million of one-time charges.
Historically, we have distributed our programming outside North America
through distributors such as Walt Disney Company, directly and through its
Buena Vista Television subsidiary, Hallmark Entertainment Network, Metro-
Goldwyn-Mayer and Pearson Television International Ltd. In North America, we
sell our programming directly to major U.S. and Canadian broadcasters,
including USA Networks, Showtime Networks, CHUM-City, CTV, CanWest Global and
WIC Television.
The proceeds of this offering will be used primarily to accelerate the
expansion of our business through increased funding of the development,
production and distribution of additional proprietary programming. Our aim is
to create a brand image for each program or series we produce. Successful
branding will allow us to generate greater revenues from television
distribution and ancillary markets, such as clothing, toys, novelties, books,
CDs, soundtracks and other audio products, electronic games, Internet
applications and other merchandise. By retaining ownership rights to our
programming, we add to our program library, which we believe has the potential
to generate future revenues.
We are based in Vancouver, British Columbia, the third largest film and
television production center in North America after Los Angeles and New York.
As a British Columbia-based producer, we currently benefit from a number of
competitive advantages over producers outside of Canada, including favorable
Canadian tax and other business incentives. Following this offering, we believe
we will continue to qualify for these tax and business incentives.
We are a vertically integrated company, with the in-house capacity to handle
concept creation, script writing, production, post-production and almost all of
the other aspects of the production and distribution process. We own our
primary production and post-production facilities located in downtown
Vancouver, which helps ensure that necessary facilities are available during
periods of high demand such as Vancouver is currently experiencing.
1
<PAGE>
In addition to these proprietary activities, we provide production services
for third parties on a contract basis. This programming includes television
series, movies and commercials, music videos, training and industrial
presentations. Our production services business acts as a training ground for
our creative staff, fosters our relationships with key industry participants,
provides us with an incubator for new skills and industry practices and keeps
our facilities utilized during the hiatus periods in the production of our
television series programming.
Business Strategies
Our primary objective is to accelerate the expansion of our business by
focusing principally on increased development and production of proprietary
programming. Our strategies for achieving this objective are to:
. Expand our in-house development staff and enter into new development
agreements with independent writers, producers and other key industry
participants to gain increased access to quality productions;
. Increase our sales of television programming to existing North American
broadcast customers and actively market new programming to North American
broadcasters, distributors and co-production partners;
. Increase our profile outside of North America by co-producing programming
with international partners and by entering into distribution agreements
with international broadcasters and distributors;
. Create branded identities for our programming to increase revenues from
television distribution and ancillary markets; and
. Seek strategic acquisitions to add complementary assets, personnel and
distribution channels.
Our business strategies are subject to risks and difficulties as described in
detail in "Risk Factors" beginning on page 8.
Recent Highlights
First Wave. We recently made an advance sale to the USA Networks' SciFi
Channel of 66 episodes of "First Wave," representing three years of regular
programming. This will allow us to substantially increase our library and
reflects a significant business opportunity for us. "First Wave" is broadcast
in Canada on CHUM's Space: The Imagination Station, a Canadian cable network.
In December 1998, CHUM's Space: The Imagination Station announced that "First
Wave" was their highest rated series, ranking ahead of "The X-Files."
Projects in Development. We currently are in an early stage of development of
our proprietary one-hour drama, "Yaletown," and a half-hour situation comedy
entitled "Acme Agency." Also, we recently purchased an option for the rights to
the screenplay "Jetlag," on which Dave Thomas, known for his appearances in
"Grace Under Fire," "SCTV" and "Strange Brew," will be executive producer. The
project, a made-for-television movie, is designed as a pilot for a television
series.
So Weird. In April 1999, we began production services for the Disney Channel
on a further 26-episode season of the half-hour children's series "So Weird."
Henry Winkler ("Happy Days" and "MacGyver") serves as executive producer.
Name Change. Our shareholders have been asked to approve the change of our
name from Vidatron Entertainment Group Inc. to Peace Arch Entertainment Group
Inc. at a meeting of our shareholders currently scheduled to occur on July 14,
1999.
2
<PAGE>
The Offering
<TABLE>
<C> <S>
Shares outstanding .............. 1,512,971 Class A shares
1,512,971 Class B shares
Shares offered................... 2,000,000 Class B shares
Shares to be outstanding after
this offering .................. 1,512,971 Class A shares
3,512,971 Class B shares
---------
5,025,942 total shares
Use of proceeds.................. We intend to use the net proceeds of this
offering primarily for working capital and
other general corporate purposes relating
to the expansion of our business, including
possible future acquisitions. A portion of
the proceeds will be used to repay
approximately Cdn$1.4 million of
indebtedness, including approximately
Cdn$0.2 million owed to our directors and
officers. For further discussion of how we
intend to use the proceeds of this
offering, see "Use of Proceeds."
</TABLE>
3
<PAGE>
Information Concerning Certain Financial Matters
We prepare our financial statements in accordance with Canadian generally
accepted accounting principles ("Canadian GAAP"). These principles conform in
all important respects with accounting principles generally accepted in the
U.S. ("U.S. GAAP"), except as described in Note 19 of the Notes to Consolidated
Financial Statements contained in this prospectus. We believe that our
accounting policies are in accord with U.S. industry practices as set out in
Financial Accounting Standards Board Statement No. 53.
Unless otherwise indicated, all information in this prospectus assumes that
the underwriters will not exercise their option to acquire up to 300,000 Class
B shares to cover over-allotments and that the representatives of underwriters
will not exercise their warrants to acquire 200,000 Class B shares. In
addition, unless otherwise indicated, all information in this prospectus
assumes no exercise of options, outstanding as of April 30, 1999, to purchase
196,850 Class A shares and 196,850 Class B shares at a weighted average
exercise price of Cdn$10.10 per share. We also had outstanding as of May 10,
1999 warrants to purchase 50,000 Class A shares and 50,000 Class B shares at an
exercise price of Cdn$6.25 per share. Finally, all information in this
prospectus assumes no conversion of the Class A shares into Class B shares.
The following table sets forth certain exchange rates based on the noon
buying rate in New York City for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York (the
"Noon Buying Rate"). Such rates are set forth as U.S. dollars per Cdn$1.00. On
May 7, 1999, the inverse of the Noon Buying Rate was Cdn$1.00 per US$0.6856.
<TABLE>
<CAPTION>
Period
-----------------------
From To Average High Low
------- ------- ------- ------ ------
<S> <C> <C> <C> <C>
8/31/93 8/31/94 0.7397 0.7740 0.7165
8/31/94 8/31/95 0.7270 0.7471 0.6993
8/31/95 8/31/96 0.7336 0.7517 0.7219
8/31/96 8/31/97 0.7308 0.7525 0.7139
8/31/97 8/31/98 0.6957 0.7293 0.6330
8/31/98 2/28/99 0.6544 0.6728 0.6382
</TABLE>
4
<PAGE>
Summary Financial and Operating Data
The following table summarizes financial data concerning our business
prepared in accordance with Canadian GAAP. You should read the information
below together with all the consolidated financial statements and other
financial information in this prospectus.
The financial data set forth below is reported in Canadian dollars. However
for the convenience of the reader, the annual 1998 and the six-month 1999
statement of operations data also have been translated into U.S. dollars using
the average exchange rate in effect for such periods, and the balance sheet
data have been translated using the rates in effect as of August 31, 1998 and
February 28, 1999. These translations are not necessarily representative of the
amounts that would have been reported if we had historically reported our
financial statements in U.S. dollars. In addition, the rates utilized are not
necessarily indicative of the rates in effect at any other time.
Summary Consolidated Financial and Operating Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended August 31, February 28,
--------------------------------------------------- -------------------------
Cdn$ Cdn$ Cdn$ Cdn$ Cdn$ US$ Cdn$ Cdn$ US$
1994 1995 1996 1997 1998 1998 1998 1999 1999
------- ------ ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Canadian GAAP
Revenue................. $ 1,519 $4,012 $ 5,723 $23,584 $32,457 $22,580 $16,233 $30,252 $19,797
Expenses
Amortization of
programming........... -- -- -- 14,972 24,124 16,783 12,461 25,406 16,626
Other costs of
production and sales.. 1,003 2,851 3,767 4,261 3,577 2,488 1,866 1,508 987
Selling, general and
administration
expense............... 1,148 1,401 2,404 2,453 2,201 1,531 925 1,330 870
Other.................. 205 376 579 464 500 348 292 354 232
------- ------ ------- ------- ------- ------- ------- ------- -------
Total expenses.......... 2,356 4,628 6,750 22,150 30,402 21,150 15,544 28,598 18,715
------- ------ ------- ------- ------- ------- ------- ------- -------
Net earnings (loss) from
operations............. (837) (616) (1,027) 1,434 2,055 1,430 689 1,654 1,082
Gain (loss) on sale of
capital assets and
other.................. -- -- -- (333) -- -- -- -- --
Provision (against)
limited partnership
revenue interests...... (324) (297) (1,073) (2,313) -- -- -- -- --
Income taxes............ -- -- -- -- (297) (206) -- (645) (422)
------- ------ ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... $(1,161) $ (913) $(2,100) $(1,212) $ 1,758 $ 1,224 $ 689 $ 1,009 $ 660
======= ====== ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
common share:(1)
Basic.................. $ (2.00) $(1.05) $ (1.68) $ (0.65) $ 0.68 $ 0.48 $ 0.28 $ 0.33 $ 0.23
Diluted................ -- -- -- -- $ 0.63 $ 0.43 $ 0.28 $ 0.33 $ 0.23
Weighted average number
of common shares...... 579 892 1,247 1,860 2,603 2,603 2,504 3,026 3,026
Diluted number of
common shares......... -- -- -- -- 3,124 3,124 2,661 3,406 3,406
Other Operating Data:
EBITDA(2)............... (560) (223) (465) 2,074 3,020 2,102 1,015 2,347 1,536
U.S. GAAP
Earnings (loss) per
common share:(1)
Basic.................. $ (2.00) $(1.05) $ (1.68) $ (0.80) $ 0.23 $ 0.16 $ (0.25) $ 0.35 $ 0.24
Diluted................ $ (2.00) $(1.05) $ (1.68) $ (0.80) $ 0.23 $ 0.16 $ (0.25) $ 0.35 $ 0.24
Weighted average number
of common shares...... 579 892 1,247 1,511 2,304 2,304 2,154 2,876 2,876
Diluted number of
common shares......... 579 892 1,247 1,511 2,304 2,304 2,154 2,882 2,882
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
As of February 28, 1999
-----------------------------------------
Actual As Adjusted
-------------------- --------------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........... Cdn$ 445 US$ 296 Cdn$13,211 US$ 9,048
Tax credits receivable.............. 13,213 8,787 13,213 8,787
Production costs in progress........ 3,771 2,508 3,771 2,508
Investments in television
programming, net................... 9,534 6,340 9,534 6,340
Property and equipment, net......... 9,565 6,361 9,565 6,361
Goodwill............................ 2,479 1,649 2,479 1,649
Total assets........................ 43,561 28,968 56,327 37,720
Debt financing(3)................... 17,461 11,612 11,061 7,224
Deferred revenue.................... 2,947 1,960 2,947 1,960
Total liabilities................... 24,217 16,104 17,885 11,763
Shareholders' equity................ 19,344 12,864 38,442 25,957
</TABLE>
- --------
(1) Basic earnings per share are based on the weighted average number of
shares outstanding during the period. Diluted per share information is not
presented if it would disclose a smaller loss per share than the basic earnings
per share.
(2) EBITDA represents earnings before interest, taxes, provision against
limited partnership revenue interests, depreciation and amortization. For
purposes of EBITDA, amortization excludes amortization of programming. We have
included EBITDA because we feel that some investors will find it useful for
evaluating our business and this investment. However, EBITDA should not be
considered as an alternative to net earnings, as determined in accordance with
Canadian GAAP, as an indicator of our operating performance. In addition, it
should not be considered as an alternative to cash flows from operations, as
determined in accordance with Canadian GAAP, or as an indicator of our
liquidity or available cash. To the extent that EBITDA does represent cash
generated by operations, this cash may not be available for management's
discretionary use, due to debt service requirements, requirements to invest in
television programming, and uncertainties. EBITDA as presented, may not be
comparable to similar computations presented by other companies.
(3) Debt financing shown above includes both bank indebtedness and long-term
debt.
Included in operations for fiscal years ended after 1996 are the accounts of
Sugar Entertainment Ltd., which was acquired on September 1, 1996. Years
subsequent to fiscal 1996 may not be comparable with fiscal 1996 and prior
years. Sugar Entertainment made up approximately 73% of revenues in 1997 and
86% in 1998.
The adjusted balance sheet data shown above is adjusted to give effect to the
sale of the Class B shares in this offering and the application of the net
proceeds as if this offering occurred on February 28, 1999.
About Us
We were incorporated on October 22, 1986, under the laws of British Columbia,
Canada, under the name Vidatron Enterprises Ltd. We changed our name to
Vidatron Entertainment Group Inc. on February 5, 1997 and intend to change our
name to Peace Arch Entertainment Group Inc. prior to completion of this
offering. Our head office is located at #302, 1132 Hamilton Street, Vancouver,
B.C. V6B 2S2 Canada. Our telephone number is (604) 681-9308, and our facsimile
number is (604) 681-3299. We maintain a website at www.vidatron.com.
Information available on our website is not part of this prospectus.
We intend to furnish to our shareholders annual reports containing financial
statements audited by an independent public accounting firm and quarterly
reports for the first three fiscal quarters of each fiscal year containing
unaudited interim financial information.
"Vidatron" is our trademark. In addition, we intend to register the "Peace
Arch" mark in the U.S. and Canada. All other trademarks or tradenames referred
to in this prospectus are the property of others. We do not own or have any
rights to these marks.
6
<PAGE>
Special Note Regarding Forward Looking Statements
We intend some statements in this prospectus, including statements set forth
under the captions "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus, regarding, among other things, our
plans to grow, future financial position, business strategies, budgets,
projected costs and plans and objectives of management for future operations,
to be "forward-looking statements." Forward-looking statements generally can be
identified by the use of forward-looking terminology, such as "may," "will,"
"expect," "intend," "estimate," "anticipate," or "believe," or the negative
thereof, or variations thereon or similar terminology. Prospective investors
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Forward-looking statements involve
unknown and uncertain risks, uncertainties and other factors which may cause
our actual results, performance or achievements, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Important factors that
could cause actual results to differ materially from our expectations are
disclosed under "Risk Factors" and elsewhere in this prospectus. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. We undertake no obligation to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after
the date hereof, or to reflect the occurrence of unanticipated events.
7
<PAGE>
RISK FACTORS
An investment in our Class B shares involves a high degree of risk. Please
carefully consider the following risk factors before deciding whether to invest
in the Class B shares. If one or more of these risks actually materialize, our
business and the trading price of our Class B shares would likely suffer and
you could lose all or part of the money you invested in the Class B shares.
Risks Relating To Our Company
Because We Have a Limited Operating History in Television Programming Our
Future Operating Results Are Difficult to Predict.
Our business has been focused on television programming only since September
1996, when we acquired Sugar Entertainment Ltd. This limited operating history
in proprietary television programming makes future operating results more
difficult to predict. For example, our 66-episode order for "First Wave" will
be complete in February 2001. There can be no assurance that this series will
be renewed beyond the current 66-episode order. Our immediate prospects for
future growth depend on our ability to identify, develop and acquire the rights
to ideas, storylines and other creative concepts suitable to be produced and
distributed as television programming. There can be no assurance that we will
be able to grow.
Because We Have Grown Rapidly, We May Not Be Successful in Managing Our Growth.
Since 1996, our revenues have grown from Cdn$5.7 million to Cdn$32.5 million.
This rapid growth has placed increasing demands on our managerial and financial
resources, and will continue to do so as we pursue our expansion strategy. As
we grow, we will need to hire additional creative and managerial personnel. We
cannot assure you that we will be able to attract and hire such personnel, or
that we will continue to manage our growth effectively or that we will be
successful in expanding our business.
If We No Longer Qualify For or Canada Eliminates or Amends Government Incentive
Programming, Our Results of Operations and Financial Condition Will Be
Adversely Affected.
We currently finance a significant portion of our production budgets through
Canadian government agencies and incentive programs, including federal and
provincial tax credits, as well as through similar international arrangements
in the case of our international co-productions. These tax credits combined
represent approximately 19% of our production budgets. We will continue to
qualify for these tax credits if, among other things, Canadians beneficially
own or control a majority of the voting interests of Peace Arch. Upon
completion of the offering, approximately 60% of the voting power of our
outstanding shares will be held of record by Canadians. However, we have no way
of confirming the actual beneficial ownership of our shares. If Canadians fail
to beneficially own or control a majority of our voting interests at any time,
we could lose such tax incentives and the costs of our productions would
increase substantially.
Canadian law requires Canadian conventional, specialty, pay and pay-per-view
television services to devote a certain amount of their programming schedules,
including prime time, to Canadian productions. If we fail to qualify as a
Canadian producer, it would be more difficult to obtain time slots in Canada
for our programming, a "slot" being a broadcast time period for a program. We
believe we will continue to qualify as a Canadian producer for this purpose as
long as, among other things, Canadians beneficially own or control a majority
of our voting interests.
These incentive programs, including federal and provincial tax credit
programs, may be amended or eliminated in the future, which could result in a
material increase in the effective cost of our productions. The loss or
elimination of these tax and business incentives would have a material adverse
effect on our results of operations and financial condition. For a more
detailed description of Canadian federal and provincial incentive programs, see
"Business--Regulatory Considerations."
8
<PAGE>
Because We Depend on a Limited Number of Entities for Much of Our Product
Distribution, the Loss of Any One Customer Could Cause a Material Decrease in
Our Revenues.
In fiscal 1998, we derived 85% of our revenues from five customers, including
four customers, Showtime Networks, Pearson Television International Ltd., Buena
Vista Television and MGM Worldwide Television, who each accounted for 10% or
more of our revenues. We expect that a significant amount of our revenues will
continue to be derived from a relatively small number of customers. The loss of
any of these customers could have a material adverse impact on our results of
operations and financial condition.
9
<PAGE>
If the Exchange Rate of U.S. Dollars For Canadian Dollars Decreases, Our
Results of Operations May Be Adversely Affected.
Our costs are generally paid in Canadian currency while our revenues are
customarily paid in U.S. currency. Therefore, our revenues and operating
results may be affected by fluctuations in the exchange rate of U.S. dollars.
Currency exchange rates are determined by market factors beyond our control and
may vary substantially during the course of a production period. If the
Canadian dollar were to strengthen in relation to the U.S. dollar, our results
of operations may be adversely effected.
Since We Derive a Substantial Amount of Our Revenues from Foreign Sources, We
Are Subject to the Risks of International Trade.
We distribute television programming in Europe and other markets outside
North America primarily through large international distribution companies,
such as Pearson Television International, Buena Vista Television and MGM, who
pay us substantial distribution advances in U.S. dollars. Furthermore, we
derive a material portion of our revenues from foreign sources and these
revenues may increase as a proportion of total revenues in the future. As a
result, our business is subject to risks inherent in international trade, many
of which are beyond our control, such as changes in laws and policies affecting
trade, investment and taxes, including laws and policies relating to the
repatriation of funds and to withholding taxes, differing degrees of protection
for intellectual property and the instability of foreign economies and
governments. Any of these factors could have a material adverse effect on our
revenues from these foreign sources.
Since We Intend To Change Our Name, We May Lose Recognition in Our Industry and
Increase the Difficulty of Protecting Our Intellectual Property.
Our shareholders have been asked to approve the change of our name from
Vidatron Entertainment Group Inc. to Peace Arch Entertainment Group Inc. at a
meeting of our shareholders currently scheduled to occur on July 14, 1999. Our
name change may impair our recognition in the industry and may make it more
difficult to protect our intellectual property rights.
If We Lose Key Personnel We May Not Be Able to Successfully Operate Our
Business.
Our success depends to a significant degree upon the services of certain key
personnel, particularly Timothy Gamble, our President, W.D. Cameron White, our
Chief Executive Officer and Larry Sugar, President of our subsidiary, Sugar
Entertainment Ltd. Because we are a relatively small company, these members of
management are involved in many aspects of the production process and virtually
all significant decisions are made or significantly influenced by these
individuals. The loss of the services of any one or more of our key personnel
could have a material adverse effect on our business. Although we intend to
obtain and maintain "key man" life insurance coverage with respect to these
personnel, there is no assurance that the proceeds would be sufficient to
compensate fully for the loss of the services of any of these individuals if
they were to die.
Since Our Business is Seasonal, Our Quarterly Operating Results Are Likely to
Fluctuate Materially From Period-to-Period.
Our results of operations for any period depend on the number of television
programs we deliver. Consequently, our operating results may fluctuate
materially from period-to-period, and the results of any one period may not
necessarily indicate results for future periods. Cash flows also may fluctuate
and may not correspond closely with revenue recognition. As a result, the
market price of the Class B shares may be adversely affected.
10
<PAGE>
Since Protection of Our Intellectual Property Is Limited, Unauthorized Parties
May Copy Our Productions Which Could Decrease Our Ability to Fully Exploit Our
Productions.
We attempt to retain and protect all proprietary and intellectual property
rights to our productions through international copyright laws and licensing
and distribution agreements with reputable international companies for
specified territories and media channels for limited duration periods. Despite
these precautions, existing copyright laws afford only limited practical
protection in some jurisdictions and, in fact, our programming is sold in some
jurisdictions in which there is no system or assurance of copyright protection.
As a result, unauthorized parties may copy and distribute our productions or
portions or applications of our programming, inhibiting our ability to fully
exploit our programming. In addition, other companies may independently develop
and produce programming which is similar to, or imitates, our programming but
which legally circumvents our intellectual property rights.
If We or Third Parties With Which We Do Business Suffer Equipment Failure At
the Year 2000, Our Business Could Be Disrupted.
Many existing computer programs and other systems in use today were designed
and developed without considering the upcoming change in the century, which
could lead to the failure of computer applications or create erroneous results
by or at the Year 2000. The Year 2000 issue is a broad business issue, the
impact of which extends beyond traditional computer hardware and software, to
possible failure of other systems and instrumentation, including equipment used
by us and by third parties with which we do business. Either we or third
parties with which we do business may suffer a Year 2000 business disruption
that may adversely affect our business.
Risks Relating to Our Industry
Because There Are Many Risks Associated with the Television Industry, Some or
All of Our Television Projects May Not Be Commercially Successful.
The television industry involves inherent risks, since revenues derived from
the production and distribution of a television program depend primarily upon
acceptance by the public, which is difficult to predict. The audience of a
television program responds not only to the artistic components of the program,
but also to the reviews by critics, promotion by the distributor, the
availability of alternative forms of entertainment and leisure time activities,
general economic conditions, public tastes generally and other intangible
factors, all of which can change rapidly. Further, the audience ratings for a
television series is generally a key factor in generating revenues from other
distribution channels, such as syndication and from ancillary opportunities.
Therefore, some or all of our television projects may not be commercially
successful, resulting in costs not being recouped or anticipated profits not
being realized.
Because There Are a Limited Number of Prime Time Slots for Television
Programming, We May Not Be Able to Increase Our Penetration of the Prime Time
Television Market.
As one means of expanding our television production business, we intend to
increase our penetration of the prime time North American television market.
There are a limited number of prime time slots, even though the total number of
outlets for television programming has increased over the last decade. We
compete for time slots with national networks and a variety of independent
companies which produce television programming and cannot assure you that we
will be able to increase our penetration of the prime time television market.
If Budget Overruns and Other Production Risks Occur, We May Not Be Able to
Recoup the Additional Costs.
Actual production costs for our programming may exceed budget, sometimes
significantly. Risks, such as labor disputes, death or disability of a star
performer, technology changes relating to special effects or other aspects of
production, shortages of necessary equipment, damage to film negatives, master
tapes and
11
<PAGE>
recordings, or adverse weather conditions, may cause cost overruns or delay or
prevent completion of a production. If there are substantial budget overruns,
we may have to seek additional financing to complete production of a television
program. Financing, on terms acceptable to us, may not be available. In
addition, if there are substantial budget overruns, we may not recoup the
additional costs, which could have a material adverse impact on our results of
operations and financial condition.
Because the Market in Which We Operate Is Highly Competitive, We May Not Be
Successful in Acquiring Storylines, Attracting Personnel Necessary to Expand
Our Business or Selling Our Programming.
We derive a large portion of our revenues from producing and distributing
television programming and intend to expand this part of our business. The
business of producing and distributing television programming is highly
competitive. We face intense competition with other producers and distributors,
many of whom are substantially larger and have greater financial resources than
we have. We compete with other television and motion picture production
companies for ideas and storylines created by third parties, as well as for
actors, directors and other personnel required for a production.
If Our Accounting Practices Result in a Change in the Rate of Amortization or
Write-Downs, Our Results of Operations Could Be Adversely Affected.
In accordance with generally accepted accounting principles and industry
practice, we amortize filmed entertainment and television programming costs
using the individual film forecast method. Under this method, costs for each
television program are amortized in the ratio that revenues earned in the
current period for such title bears to our estimate of the total revenues to be
realized from all media and markets for such title. We regularly review and,
when necessary, revise our total revenue estimates on a title-by-title and
contract-by-contract basis, which may result in a change in the rate of
amortization or a write-down of the programming asset to net realizable value.
Any changes or write-downs could adversely affect our results of operations.
Risks Relating to this Offering
Because We Have Significant Discretion in the Use of Funds from this Offering,
the Proceeds May Be Used For Projects Not Yet Identified and Which Might Not
Improve Our Results of Operations.
We intend to use the net proceeds of this offering primarily for working
capital and general corporate purposes relating to increased development,
acquisition, licensing and distribution of our television programming and our
exploitation of ancillary rights. In addition, we may use a portion of the net
proceeds to acquire businesses, libraries and other assets we believe are
complementary to our current businesses or that further our strategic goals. As
a result, a significant portion of the net proceeds will be available for
projects that are not yet identified, and our management will have broad
discretion with respect to the application of such proceeds. There can be no
assurance that the projects for which the net proceeds are used will be
successful or will improve our results of operations.
Because There Is a Limited Trading Market in Our Stock, You May Not Be Able to
Sell the Class B Shares or May Only Be Able to Sell Them For Less Than the
Initial Public Offering Price.
Prior to this offering, there will be no trading market for the Class B
shares in the U.S. or Canada. Although we have applied to list the Class B
shares on the American Stock Exchange, there can be no assurance that an active
trading market will develop or be maintained in the U.S. or that the Class B
shares will trade in the public market after this offering at or above the
initial public offering price in this offering. Therefore, you may not be able
to sell the Class B shares or may only be able to sell them for less than the
initial public offering price. There also can be no assurance that an active
trading market will develop or be maintained in Canada on The Toronto Stock
Exchange.
12
<PAGE>
Since We Are a Canadian Corporation, It May Be Difficult to Sue Us or to
Enforce a Judgment Against Us.
We are a Canadian corporation with our principal place of business in
Vancouver, British Columbia. Substantially all of our directors and executive
officers and some of the experts named in this prospectus are not residents of
the U.S. and virtually all of the assets of these persons and substantially all
of our assets are located outside the U.S. As a result, it may not be possible
for you to serve summons and complaints within the U.S. upon these persons or
upon us. Similarly, it may not be possible to enforce in U.S. courts, against
such persons or against us, judgments of U.S. courts based upon civil liability
provisions of the U.S. federal or state securities laws. In addition, it may be
difficult in Canadian courts for you, in original suits or in suits for the
enforcement of judgments of U.S. courts, to enforce civil liabilities based
upon U.S. federal or state securities laws against us or our directors or
executive officers, or our experts. We have appointed National Registered
Agents, Inc. of Washington, D.C., to act as agent for service of process in any
action in any U.S. federal or state court brought against us under the
securities laws of the U.S. arising out of this offering or any purchase or
sale of securities in connection with this offering.
Sales of Shares Following this Offering Could Adversely Affect the Market Price
of the Class B Shares
Upon completion of this offering, we will have outstanding approximately
1,512,971 Class A shares and 3,512,971 Class B shares. The 2,000,000 Class B
shares being offered under this prospectus will be freely tradeable.
The remaining outstanding shares have not been registered under the
Securities Act and therefore will be treated as "restricted securities" and may
be publicly sold into the U.S. only if registered or if the sale is made in
accordance with an exemption from registration, such as Rule 144 or Regulation
S promulgated under U.S. federal securities laws. Under these exemptions,
however, commencing 90 days after the date of this prospectus substantially all
of the other 1,512,971 Class B shares held by persons other than those held by
"affiliates," as well as the 1,512,971 Class B shares issuable to such persons
upon conversion of Class A shares, generally will be eligible for resale in the
U.S. without registration. This may adversely affect the market price of the
Class B shares and could effect the amount of trading of such shares on the
American Stock Exchange, particularly if the trading price on the American
Stock Exchange were to be higher than the trading price on The Toronto Stock
Exchange at any particular time.
Our officers, directors and some of our shareholders are expected to agree
with the underwriters not to sell any of our securities for a period of six
months from the date of this prospectus. The number of shares to be subject to
this restriction is approximately 543,224 Class A shares and 543,224 Class B
shares.
As of April 30, 1999, options to purchase a total of 196,850 Class A shares
and 196,850 Class B shares and warrants to purchase an aggregate of 50,000
Class A shares and 50,000 Class B shares were outstanding.
Sales of a significant number of such shares, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Class B shares and could impair our future ability to raise capital through an
offering of equity securities, which in turn could adversely affect our
business or results of operations. For a more detailed description, see "Shares
Eligible for Future Sale."
13
<PAGE>
Because the Holders of Class A Shares Will Have Disproportionate Voting Control
of Peace Arch, the Market Price of the Class B Shares May Be Adversely Affected
and Investors May Be Discouraged From Attempting to Acquire Us.
The Class B shares have the right to only one vote per share compared to ten
votes per share possessed by the Class A shares, placing disproportionate
voting control of Peace Arch in the hands of the holders of Class A shares. The
effect of the allocation of voting control may be to limit the price that
investors will pay in the future for Class B shares, or to prevent or delay a
merger, takeover or other change in control and thus discourage attempts to
acquire us which might otherwise have caused the market price of our shares to
rise. In addition, if an acquiror domiciled outside of British Columbia or
Canada sought to acquire us, the potential acquiror could be deterred by the
prospect that the Canadian and British Columbia tax credits would be eliminated
if, after the transaction, we were no longer controlled by Canadians.
If We Issue Preference Shares, Your Rights May Be Adversely Affected.
We are authorized to issue up to 25,000,000 preference shares. Our articles
authorize our board to determine the price, rights, preferences and privileges
of those shares without any further vote or action by the shareholders. The
rights of the holders of any preference shares may adversely affect the rights
of holders of the Class B shares. Our ability to issue preference shares gives
us flexibility concerning possible acquisitions and financings, but it could
make it more difficult for a third party to acquire a majority of our
outstanding voting shares.
Our Stock Price May Be Volatile and You May Be Unable to Resell Your Shares at
or Above the Initial Public Offering Price.
In recent years and months, the U.S. stock market has experienced significant
price and volume fluctuations. These fluctuations, which are often unrelated to
the operating performances of specific companies, have had a substantial effect
on the market price of stocks, particularly stocks of companies such as ours in
the "small cap" category. It is also possible that our operating results will
not meet the expectations of our public market analysts, which could have an
adverse effect on the trading price of the Class B shares. Accordingly, the
market price for the Class B shares may fluctuate substantially. There also is
no assurance that the market price for the Class B shares will ever exceed the
initial public offering price.
If We Become Subject to Penny Stock Rules, the Market Liquidity for the Class B
Shares Could Be Adversely Affected.
The Securities and Exchange Commission's regulations define a "penny stock"
to be any equity security that has a market price less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. The penny stock restrictions will not apply to the Class B shares
if they are listed on the American Stock Exchange and we provide certain price
and volume information on a current and continuing basis, or meet required
minimum net tangible assets or average revenue criteria. We cannot assure you
that the Class B shares will qualify for exemption from these restrictions. If
the Class B shares were subject to the penny stock rules, the market liquidity
for the Class B shares could be adversely affected.
14
<PAGE>
USE OF PROCEEDS
The net proceeds of the offering are estimated to be $13,140,000 (based upon
an assumed public offering price of $7.50 per share and after deducting the
estimated underwriting discount, non-accountable expense allowance and other
offering expenses). Based on the Noon Buying Rate on May 7, 1999, of Cdn$1.00
per US$0.6856, the net proceeds are estimated to be Cdn$19,166,000. If the
underwriters' over-allotment is exercised in full, the net proceeds of the
offering are estimated to be $15,335,000 (Cdn$22,367,000).
We have allocated approximately $12,200,000 million (Cdn$17,795,000 million)
of the net proceeds to working capital and other general corporate purposes to
accelerate the expansion of our business primarily by expanding our proprietary
programming. These uses include the following:
. Expanding our proprietary programming by optioning literary properties,
engaging writers, directors, cast and crew, carrying out production and
post-production and exploiting worldwide distribution rights.
. Opening and staffing an office in Los Angeles to source and market our
programming in the U.S.
. Acquiring more production equipment as our production slate grows.
. Seeking acquisitions to add complementary assets, personnel and
distribution channels.
We also plan to use a portion of the net proceeds to repay approximately $1.0
million (Cdn$1.4 million) principal amount of indebtedness, of which $0.4
million (Cdn$0.5 million) relates to debentures convertible into common shares
at $13.03 (Cdn$19.00) per share and bearing interest at 12% per annum. The
original maturity date of the debenture was March 31, 1999, which date has been
extended by agreement with the holders to July 31, 1999. An aggregate of
Cdn$0.2 million (US$137,120) principal amount relates to the debentures due to
our officers. Cdn$0.6 million (US$411,360) relates to a debenture, dated
November 5, 1998 and maturing in November 2000, due to Working Opportunity Fund
(EVCC) Ltd. The balance of Cdn$0.3 million (US$0.2 million) relates to a loan
bearing interest at 12% per annum due March 1, 1999, which has been extended to
July 31, 1999. The proceeds have been used for working capital expenditures as
needed.
Of the net proceeds we intend to use for working capital, we intend to use
approximately $3.4 million (Cdn$5.0 million) to temporarily pay down our bank
credit facility, but we will draw on it in the future as required to fund our
business activities. Our bank credit facility bears interest at a rate equal to
the Canadian Prime rate plus 1.5% per annum. The facility is secured by the
refundable tax credits, distribution rights of the film properties to which the
advances relate and a general security interest on substantially all of our
assets. Our bank indebtedness is expected to fluctuate as we utilize our bank
credit facility.
Prior to the application of net proceeds, we will invest them in short-term,
investment grade securities.
Although we intend to use the proceeds of the offering as described above,
our actual use may differ. We presently have no agreements or commitments for
any acquisitions.
15
<PAGE>
DETERMINATION OF OFFERING PRICE
Although our common shares have been listed on The Toronto Stock Exchange
prior to this offering, trading in the common shares has been limited and
sporadic. The common shares will be reclassified and consolidated into Class A
shares and Class B shares prior to completion of this offering. There will be
no trading market for the Class B shares in the U.S. or Canada prior to this
offering.
We and the representatives of the underwriters believe that the limited
trading that has occurred in our common shares does not represent an active
market and that prices for our common shares on The Toronto Stock Exchange do
not reflect the prices at which the shares would trade if an established and
active trading market existed. Accordingly, we will determine the initial
public offering price of the Class B shares in this offering through
consultation and negotiation with the representatives of the underwriters.
Among the factors to be considered in these negotiations are prevailing market
and economic conditions, our recent historical results of operations, estimates
of our future business prospects and earnings potential, the present state of
our business operations, an assessment of our management, the number of Class B
shares being offered and the total number of Class A shares and Class B shares
to be outstanding upon completion of this offering, the price that purchasers
might be expected to pay for the Class B shares given the nature of Peace Arch
and the general condition of the securities markets at the time of the
offering, the consideration of these factors in relation to the market
valuation of comparable companies in related businesses or whose operations are
similar to ours, and the current condition of the markets in which we operate.
There can be no assurance that an active trading market will develop for the
Class B shares after this offering, or that the Class B shares will trade in
the public market subsequent to this offering at or above the initial public
offering price in this offering.
16
<PAGE>
DILUTION
Our net tangible book value as of February 28, 1999 was $11.2 million, or
$3.71 per share based on the inverse of the Noon Buying Rate of Cdn$1.00 per
US$0.6650 in effect on that date. Net tangible book value per share represents
the amount of our total tangible assets less total liabilities, divided by
3,025,942 shares, which is the number of shares outstanding on February 28,
1999 after giving affect to every five common shares having been reclassified
and consolidated into one Class A share and one Class B share as proposed.
After giving effect to the receipt of the net proceeds from the sale of Class B
shares in this offering, based upon an assumed public offering price of $7.50
per share and after deducting the estimated underwriting discount, non-
accountable expense allowance and other offering expenses, and without taking
into account any change in assets or liabilities since February 28, 1999, our
pro forma net tangible book value as at February 28, 1999, would have been
approximately $24.4 million, or $4.85 per Class B share. This represents an
immediate increase in pro forma net tangible book value of $1.14 per share to
existing shareholders and an immediate dilution of $2.65 per share to new
investors purchasing Class B shares in this offering. The following table
illustrates the dilution for each Class B share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $7.50
Net tangible book value per share as of February 28, 1999...... $3.71
Increase per share attributable to new investors............... $1.14
-----
Pro forma net tangible book value per share after offering....... $4.85
-----
Dilution per share to new investors.............................. $2.65
=====
</TABLE>
17
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated capitalization as of February
28, 1999 on an actual and as adjusted basis. The as adjusted capitalization
gives effect to the sale of the Class B shares in this offering and our
application of the net proceeds (at an assumed initial public offering price of
$7.50 per share and after deducting the estimated underwriting discount, non-
accountable expense allowance and other offering expenses). This table should
be read in conjunction with the consolidated financial statements and notes
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
February 28, 1999
--------------------
Actual As Adjusted
------- -----------
(Canadian dollars
in thousands)
<S> <C> <C>
Bank indebtedness....................................... $ 9,357 $ 4,357
Long-term debt, including current portion............... 8,104 6,704
------- -------
17,461 11,061
Shareholders' Equity:
Class B shares, 100,000,000 authorized, 1,512,971
outstanding, actual; 100,000,000 authorized,
3,512,971 outstanding, as adjusted................... 13,322 32,488
Class A shares, 100,000,000 authorized, 1,512,971
outstanding, actual and as adjusted.................. 13,322 13,322
Preference shares, 25,000,000 authorized, none
outstanding.......................................... -- --
Other paid-in capital................................. 136 136
Deficit............................................... (7,436) (7,504)(1)
------- -------
Total shareholders' equity.......................... 19,344 38,442
------- -------
Total capitalization................................ $36,805 $49,503
======= =======
</TABLE>
- --------
(1) Includes Cdn$68,000 adjustment resulting from the use of proceeds of the
offering to repay debentures.
The table assumes no exercise of options, outstanding as of April 30, 1999,
to purchase 196,850 Class A shares and 196,850 Class B shares at a weighted
average exercise price of Cdn$10.10 per share.
The table also assumes no exercise of warrants, outstanding, as of May 10,
1999, to purchase 50,000 Class A shares and 50,000 Class B shares at an
exercise price of Cdn$6.25 per share.
The table also excludes the possible issuance of 300,000 Class B shares
pursuant to the underwriters' over-allotment option and 200,000 Class B shares
upon exercise of the representatives' warrants.
18
<PAGE>
PRICE RANGE AND TRADING VOLUME OF COMMON SHARES
The following table sets out the market price range and trading volume of our
common shares which traded on the Vancouver Stock Exchange and The Toronto
Stock Exchange (the "TSE") for the periods indicated. Our common shares
currently trade on the TSE under the symbol "VE."
The information contained in this table have been restated to reflect our
previous share capital consolidations and the share consolidation to be
consummated prior to the completion of this offering. The information has not
been adjusted to reflect the proposed reclassification of our common shares
into Class B shares and Class A shares under the assumption that these classes
of shares would trade in substantially the same manner as our common shares.
Our Class A shares and Class B shares have been approved for listing on the TSE
under the symbols "PAE.A" and "PAE.B". The Class B shares have been approved
for listing on the American Stock Exchange under the symbol "PAE." There will
be no trading market for the Class B shares in the U.S. or Canada prior to this
offering. For the convenience of the reader, the share prices in the table
below have been translated into U.S. dollars where indicated, at the inverse of
the noon buying rate in effect on May 7, 1999 of Cdn$1.00 per US$0.6856.
<TABLE>
<CAPTION>
Average
Daily Trading Cdn$ Cdn$ US$ US$
Volume High Low High Low
------------- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Vancouver Stock Exchange:
Fiscal year ended August 31, 1997:
First Quarter................... 2,710 $15.00 $14.00 $10.28 $9.60
Second Quarter.................. 5,026 18.40 16.80 12.62 11.52
Third Quarter................... 2,894 14.05 13.45 9.63 9.22
Fourth Quarter.................. 1,858 12.45 11.85 8.54 8.12
Fiscal year ended August 31, 1998:
First Quarter................... 5,664 8.60 8.13 5.90 5.57
The Toronto Stock Exchange:
Fiscal year ended August 31, 1998:
Second Quarter.................. 3,466 8.05 7.83 5.52 5.37
Third Quarter................... 7,330 10.38 9.95 7.12 6.82
Fourth Quarter.................. 3,982 9.40 8.93 6.44 6.12
Fiscal year ending August 31,
1999:
First Quarter................... 3,695 5.93 5.63 4.07 3.86
Second Quarter.................. 4,780 8.10 7.68 5.55 5.27
Third Quarter (includes up to
May 10, 1999).................. 3,300 8.38 8.05 5.75 5.52
</TABLE>
On June 23, 1999, the last reported sale price of our common shares was
Cdn$10.57, or US$7.17, based on the inverse of the Noon Buying Rate at June 23,
1999 of Cdn$1.00 per US$0.6793.
On May 26, 1999 we had 235 registered shareholders and 3,025,942 shares
outstanding. Of these shareholders, 150 were U.S. residents, owning 999,696
shares representing approximately 33% of the outstanding shares.
DIVIDEND POLICY
Since our incorporation, we have not paid any dividends on our common shares.
We do not currently plan to pay dividends, but intend instead to reinvest any
earnings to the expansion of our business. Under the terms of outstanding
debenture held by Working Opportunity Fund (EVCC) Ltd. ("WOF"), we may not
declare or pay any dividend or purchase, redeem or acquire any shares, options
or warrants, or issue any bonuses to our shareholders without the prior
approval of WOF. This debenture will be repaid from the net proceeds of this
offering.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The consolidated statement of operations and deficit presented below for each
of the years in the three-year period ended August 31, 1998 and the
consolidated balance sheet data as of August 31, 1997 and 1998, are derived
from the audited consolidated financial statements included elsewhere in this
prospectus. The consolidated statement of operations and deficit for each of
the years in the two-year period ended August 31, 1995 and the consolidated
balance sheet data as of August 31, 1996, are derived from our audited
financial statements which are not included or incorporated by reference
herein. The consolidated financial data as of and for the six-month periods
ended February 28, 1998 and 1999 are derived from our unaudited consolidated
financial statements included elsewhere in this prospectus and, in the opinion
of management, reflect all adjustments of, consisting solely of normal,
recurring adjustments, necessary for a fair presentation of such data. The
results for the six-month period ended February 28, 1999 are not necessarily
indicative of the results to be expected for the full 1999 fiscal year. This
information should be read together with the consolidated financial statements,
including the notes thereto, included elsewhere in this prospectus. Each of the
financial statements from which the selected consolidated financial data and
operating data is derived was prepared in accordance with Canadian GAAP .
The selected consolidated financial and operating data set forth below is
reported in Canadian dollars. However, for the convenience of the reader, the
annual 1998 and the six-month 1999 Canadian dollar statement of operations and
deficit have been translated into U.S. dollars using the average exchange rate
in effect for such periods, and the Canadian dollar balance sheet data have
been translated using the rates in effect as of August 31, 1998 and February
28, 1999. These translations are not necessarily representative of the amounts
that would have been reported if we had historically reported our financial
statements in U.S. dollars. In addition, the rates utilized are not necessarily
indicative of the rates in effect at any other time.
20
<PAGE>
Selected Consolidated Financial and Operating Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended August 31, February 28,
--------------------------------------------------- -------------------------
Cdn$ Cdn$ Cdn$ Cdn$ Cdn$ US$ Cdn$ Cdn$ US$
1994 1995 1996 1997 1998 1998 1998 1999 1999
------- ------ ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Canadian GAAP
Revenue................. $ 1,519 $4,012 $ 5,723 $23,584 $32,457 $22,580 $16,233 $30,252 $19,797
Expenses
Amortization of
programming........... -- -- -- 14,972 24,124 16,783 12,461 25,406 16,626
Other costs of
production and sales.. 1,003 2,851 3,767 4,261 3,577 2,488 1,866 1,508 987
Selling, general and
administration
expense............... 1,148 1,401 2,404 2,453 2,201 1,531 925 1,330 870
Other.................. 205 376 579 464 500 348 292 354 232
------- ------ ------- ------- ------- ------- ------- ------- -------
Total expenses.......... 2,356 4,628 6,750 22,150 30,402 21,150 15,544 28,598 18,715
------- ------ ------- ------- ------- ------- ------- ------- -------
Net earnings (loss) from
operations............. (837) (616) (1,027) 1,434 2,055 1,430 689 1,654 1,082
Gain (loss) on sale of
capital assets and
other.................. -- -- -- (333) -- -- -- -- --
Provision (against)
limited partnership
revenue interests...... (324) (297) (1,073) (2,313) -- -- -- -- --
Income taxes............ -- -- -- -- (297) (206) -- (645) (422)
------- ------ ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... $(1,161) $ (913) $(2,100) $(1,212) $ 1,758 $ 1,224 $ 689 $ 1,009 $ 660
======= ====== ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
common share:(1)
Basic.................. $ (2.00) $(1.05) $ (1.68) $ (0.65) $ 0.68 $ 0.48 $ 0.28 $ 0.33 $ 0.23
Diluted................ -- -- -- -- $ 0.63 $ 0.43 $ 0.28 $ 0.33 $ 0.23
Weighted average number
of common shares...... 579 892 1,247 1,860 2,603 2,603 2,504 3,026 3,026
Diluted number of
common shares......... -- -- -- -- 3,124 3,124 2,661 3,406 3,406
Other Operating Data:
EBITDA(2)............... (560) (223) (465) 2,074 3,020 2,102 1,015 2,347 1,536
Cash flows provided by
(used in):
Operating activities... (305) (1,189) (515) 13,442 21,473 14,939 12,137 20,904 13,680
Investing activities... (294) (95) (1,126) (16,939) (28,331) (19,710) (13,694) (29,585) (19,347)
Financing activities... 552 1,309 1,695 5,118 6,990 4,863 190 7,230 4,731
U.S. GAAP(3)
Earnings (loss) per
common share:(1)
Basic.................. $ (2.00) $(1.05) $ (1.68) $ (0.80) $ 0.23 $ 0.16 $ (0.25) $ 0.35 $ 0.24
Diluted................ $ (2.00) $(1.05) $ (1.68) $ (0.80) $ 0.23 $ 0.16 $ (0.25) $ 0.35 $ 0.24
Weighted average number
of common shares...... 579 892 1,247 1,511 2,304 2,304 2,154 2,876 2,876
Diluted number of
common shares......... 579 892 1,247 1,511 2,304 2,304 2,154 2,882 2,882
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
As of
As of August 31, February 28,
-------------------------------------------- ---------------
Cdn$ Cdn$ Cdn$ Cdn$ Cdn$ US$ Cdn$ US$
1994 1995 1996 1997 1998 1998 1999 1999
------ ------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and marketable
securities............. $ 42 $ 70 $ 123 $ 1,744 $ 1,876 $ 1,207 $ 445 $ 296
Tax credits receivable.. -- -- 2,370 7,730 4,975 13,213 8,787
Production costs in
progress............... 144 112 64 3,862 11,906 7,663 3,771 2,508
Investments in
television programming,
net.................... 21 77 462 2,057 5,632 3,625 9,534 6,340
Property and equipment,
net.................... 2,368 2,787 4,847 5,048 9,498 6,113 9,565 6,631
Goodwill................ 63 560 736 597 2,544 1,770 2,479 1,622
Total assets............ 3,083 5,370 7,710 18,510 42,187 27,153 43,561 28,968
Debt financing(4)....... 1,958 2,730 4,706 4,152 10,367 6,672 17,461 11,612
Deferred revenue........ 147 77 83 4,230 10,770 6,932 2,947 1,960
Total liabilities....... 2,640 3,818 5,692 9,390 24,454 15,759 24,217 16,104
Shareholders' equity.... 443 1,552 2,018 9,120 17,733 11,414 19,344 12,864
</TABLE>
- --------
(1) Basic earnings per share shown above are based on the weighted average
number of shares outstanding during the period. Diluted per share information
is not presented if it would disclose a smaller loss per share than the basic
earnings per share.
(2) EBITDA represents earnings before interest, taxes, provision against
limited partnership revenue interests, depreciation and amortization. For
purposes of EBITDA, amortization excludes amortization of programming.We have
included EBITDA because we feel that some investors will find it useful for
evaluating our business and this investment. However, EBITDA should not be
considered as an alternative to net earnings, as determined in accordance with
Canadian GAAP, as an indicator of our operating performance. In addition, it
should not be considered as an alternative to cash flows from operations, as
determined in accordance with Canadian GAAP, or as an indicator of our
liquidity or available cash. To the extent that EBITDA does represent cash
generated by operations, this cash may not be available for management's
discretionary use, due to debt service requirements, requirements to invest in
television programming and uncertainties. EBITDA, as presented, may not be
comparable to similar computations presented by other companies.
(3) Differences to U.S. GAAP shown above reflect the transfer of 160,000
performance shares to three of our officers and directors. Under Canadian GAAP,
the transfer is accounted for as a capital transaction outside of Peace Arch
and was not compensatory to any of the individuals who acquired the shares. For
U.S. GAAP purposes only, a compensation expense of Cdn$1.2 million was recorded
in the year ended August 31, 1998.
(4) Debt financing shown above includes both bank indebtedness and long-term
debt.
Included in operations for fiscal years ended after 1996 are the accounts of
Sugar Entertainment Ltd., which was acquired on September 1, 1996. Years
subsequent to fiscal 1996 may not be comparable with fiscal 1996 and prior
years. Sugar Entertainment made up approximately 73% of revenues in 1997 and
86% in 1998.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this prospectus.
General
In 1996, we began shifting our principal business focus to the production and
distribution of proprietary television programming for worldwide markets. While
we have continued to provide production services for third parties on a
contract basis, the most significant portion of our revenues now comes from
proprietary programming. We have achieved our significant growth in this
business through internal expansion and our acquisition of Sugar Entertainment
Ltd., which was effective in September 1996. Since then we have produced and
distributed two dramatic television series, "First Wave" and "Dead Man's Gun,"
and approximately 20 hours of other proprietary programming. Our immediate
prospects for future growth depend on our ability to identify, develop and
acquire the rights to ideas, storylines and other creative concepts suitable to
be produced and distributed as television programming.
During the year ended August 31, 1997, approximately 73% of our revenues were
derived from the distribution of our proprietary programming. In fiscal 1998,
the production and distribution of proprietary programming represented
approximately 86% of our total revenues, reflecting 60% revenue growth over the
prior year. Our overall revenue growth in fiscal 1998 was 38%.
The following table shows the breakdown of our total revenues during our past
three fiscal years by activity and by geographical market:
<TABLE>
<CAPTION>
Six Months
Year Ended August 31, Ended
---------------------- February 28,
1996 1997 1998 1999
----- ----- ------ ------------
(Canadian dollars in millions)
<S> <C> <C> <C> <C>
Revenues by Activity
Proprietary programming.......................... $ -- $17.5 $28.0 $28.4
Production services.............................. 2.2 3.0 4.2 1.8
Software and video distribution.................. 3.2 3.0 -- --
Other............................................ 0.3 0.1 0.3 0.1
Revenues by Geographic Market
Canada........................................... $ 5.7 $ 6.1 $ 5.9 $ 3.6
U.S.............................................. -- 9.6 10.8 7.8
Europe and other markets......................... -- 7.9 15.8 18.9
</TABLE>
We realize revenues and expenses for television programming when the license
period has commenced and the program or episode has been shipped. Deferred
revenues represent payments received in advance of a program or episode being
shipped.
We operate through separate subsidiaries established for each production or
series. We finance the budgeted production costs of programming through
advances obtained from customers, borrowings under our bank credit facility and
from working capital. Typically, we retain the rights to our proprietary
programming for exploitation in future periods or in additional markets and
media.
We generally capitalize the costs we incur in producing a film or television
program net of tax credits. These costs include direct production costs,
certain exploitation costs, production overhead and interest relating to
financing the project. Until the date a program is completed, we capitalize
these costs into "Production costs in progress" on our consolidated balance
sheet. Costs related to completed proprietary programming are
23
<PAGE>
included, net of amortization, in "Investments in television programming" on
our consolidated balance sheet. Tax credits are recorded when a program or
episode is complete.
Our investments in television programming are amortized against revenues in
the ratio that the current period's gross revenues from all sources for the
program bear to management's estimate of anticipated total gross revenues for
such film or program from all sources. Generally, we amortize substantially all
of our production costs over a three-year period. In the event that management
reduces its estimates of the future gross revenues associated with a particular
program, a write-down, with a corresponding decrease in our earnings in the
period the write-down is taken, could occur. To date, we have taken no material
write-downs due to reevaluations of our future estimates of revenues for film
or television programs.
Our results of operations for any period depend on the number of television
programs we deliver. Consequently, our results may fluctuate materially from
period-to-period, and the results of any one period may not necessarily
indicate results for future periods. Cash flows also may fluctuate and may not
closely correspond with revenue recognition.
Our revenues from U.S. and international sources generally are payable to us
in U.S. dollars while our costs are denominated primarily in Canadian dollars.
Accordingly, our results can be affected by fluctuations in the U.S. dollar
exchange rate. The results of these fluctuations may be material. To date, we
have not entered into any material currency hedging instruments. In addition,
we have not maintained significant amounts of U.S. dollar balances in order to
reduce the risk of exchange rate fluctuations.
Because of the timing of U.S. television seasons and the lead time to produce
and deliver programs, we historically have had lower revenues in our third
fiscal quarter than in our other quarters. Production services have represented
13% of our revenues in the last two completed fiscal years and are not subject
to significant seasonal variation.
As consideration for the acquisition of Sugar Entertainment Ltd. in 1996, we
issued an aggregate of 372,500 Class A shares and Class B shares, including
350,000 performance shares which were issued and held in escrow as required by
Canadian provincial securities policies to which we are subject. The
performance shares are subject to release with the consent of the British
Columbia securities regulatory agencies, as specified financial performance
standards are met. At the time the shares are released from escrow, we record
increases to goodwill and share capital based on the fair value of the shares
at the date the performance can be determined. This additional goodwill is
amortized over 20 years. During fiscal 1998, 200,000 of the performance shares
were released from escrow, resulting in increases in both goodwill and share
capital of Cdn$2.0 million. The remaining 150,000 performance shares are
expected to be released during calendar 1999 and to result in additional
goodwill and share capital increases of approximately Cdn$1.5 million.
In December 1997, an aggregate of 160,000 of the performance shares were
transferred to three of our officers and directors. The transfer was subject to
all of the escrow conditions at the same price per share as was recorded when
the performance shares were issued. Under Canadian GAAP, the transfer is
accounted for as a capital transaction not involving Peace Arch and was not
compensatory to any of the individuals who acquired the shares. However, under
U.S. GAAP, a compensation expense of Cdn$1.2 million was recorded in the year
ended August 31, 1998 in connection with the release from escrow of 91,428 of
the transferred performance shares. See Note 19 to consolidated financial
statements for further discussion of this adjustment. A further compensation
expense is expected to be recorded in calendar 1999 when the remaining 68,572
of those transferred performance shares still held in escrow are released with
the amount to be determined at that date.
24
<PAGE>
Results of Operations
Six Months Ended February 28, 1999 and 1998 Compared
Revenues. During the six months ended February 28, 1999, revenues increased
by 86% over the comparable six-month period from Cdn$16.2 million to Cdn$30.2
million due primarily to a significant increase in our proprietary programming.
We derived 93% of our revenues from the production and distribution of
proprietary television programming compared with 83% during the comparable
period. Revenues from this programming increased from Cdn$13.4 million to
Cdn$28.4 million, representing a 111% growth rate, primarily due to the
addition of "First Wave" as our second television series. The increase in
revenues from proprietary programming was partially offset by a Cdn$0.6 million
decline in our production services revenues.
Amortization of Programming. Amortization of our programming increased to
Cdn$25.4 million for the six months ended February 28, 1999 from Cdn$12.5
million in the comparable six-month period, primarily due to the increase in
the proprietary programming revenues.
Other Production Costs. Other production costs declined by 19% from the prior
period primarily because of the decrease in the production service business as
we accelerated our proprietary programming activities.
Selling, General and Administration Expense. Selling, general and
administration expense increased to Cdn$1.3 million from Cdn$0.9 million in the
comparable period. Increased staff accounted for 63% of the increase and higher
marketing costs accounted for 26% of the increase.
Interest Expense. Interest expense of Cdn$0.5 million increased by 141% over
the prior comparable six-month period. Of the increase, 46% was due to the
increase in our bank credit facility and 44% was due to the addition of a
mortgage to acquire real property.
Foreign Exchange. During the six months ended February 28, 1999, we realized
a foreign exchange gain of Cdn$0.3 million compared with a gain of
Cdn$0.03 million of the prior comparable six months. Foreign exchange gains and
losses arise from fluctuations in the market rates of Canadian dollars relative
to U.S. dollars and as such are most often dependent on economic factors
outside our control. As a result, foreign exchange gains and losses may vary
from period-to-period.
Taxes. Income tax expense of Cdn$0.6 million for the six-month period ended
February 28, 1999 is recorded net of the effect of available loss carry
forwards of Cdn$0.2 million. We have utilized substantially all of our
available loss carryforwards. We expect future income to be fully taxed.
1998 Compared to 1997
Revenues. During 1998, revenues increased by 38% from Cdn$23.6 million in
1997 to Cdn$32.4 million in 1998. We derived 86% of our revenues from the
production and distribution of proprietary programming, compared to 73% in the
prior year. Revenues from proprietary programming grew by approximately
Cdn$10.5 million from Cdn$17.5 million to Cdn$28.0 million over the prior year,
representing a growth rate of 60%. This growth was primarily due to the
delivery of the first episodes of the "First Wave" series. The increase in
proprietary programming revenues was partially offset by the loss of revenues
of Cdn$3 million from our software and educational video distribution business
which we sold effective August 31, 1997.
Amortization of Programming. Amortization of programming for 1998 increased
to Cdn$24.1 million as compared to Cdn$15.0 million for the prior year, due to
the increase in proprietary programming revenues. Amortization represented 86%
of proprietary programming revenues for both 1998 and 1997.
Selling, General and Administration Expense. Our selling, general and
administration expense decreased from Cdn$2.5 million in 1997 to Cdn$2.2
million in 1998, representing a 10% reduction. The overall decrease was the net
effect of an approximately Cdn$0.9 million reduction in expense resulting from
the sale of our educational video and software business and a Cdn$0.6 million
increase in expense resulting 64% from
25
<PAGE>
salaries, 17% from advertising and 19% from other expenses related to the
growth of our proprietary programming activities.
Interest Expense. Interest expense of Cdn$0.6 million for fiscal 1998
increased from Cdn$0.4 million in 1997 representing an increase of 50%. Of this
increase, 50% was due to the addition of a mortgage used to acquire real
property and the balance is due to other increases in debt.
Foreign Exchange. During the year ended August 31, 1998, we realized a
foreign exchange gain of Cdn$0.5 million compared with a gain of Cdn$0.2
million of the prior comparable year. Foreign exchange gains and losses arise
from fluctuations in the market rates of Canadian dollars relative to U.S.
dollars and as such are most often dependent on economic factors outside our
control. As a result foreign exchange gains and losses may vary from period-to-
period. In fiscal 1998 approximately 82% of our revenues were receivable in
U.S. funds compared to 74% in 1997.
Taxes. At August 31, 1998, we had accumulated loss carryforwards for income
tax purposes of approximately Cdn$2.4 million. For 1998, Cdn$1.5 million of
these losses were applied to reduce our income tax expense by approximately
Cdn$0.7 million.
1997 Compared to 1996
Revenues. During 1997, revenues increased to Cdn$23.6 million from Cdn$5.7
million in 1996, representing a 312% increase resulting from our shift in focus
to proprietary programming, which had not been a material part of our business
in earlier periods. In 1997, we delivered two television movies and the first
ten episodes of "Dead Man's Gun."
Amortization of Programming. Amortization for 1997 was Cdn$15.0 million, or
86% of program revenues, reflecting the impact of our shift of focus to
proprietary programming during 1997. There was no amortization expense recorded
during fiscal 1996.
Selling, General and Administration Expense. Despite the significant increase
in revenues, selling, general and administration expense increased only
slightly from Cdn$2.4 million in fiscal 1996 to Cdn$2.5 million in fiscal 1997.
This was principally because we began our shift to proprietary programming in
1997 for which the comparable selling, general and administration expense had
not yet increased.
Interest Expense. Interest expense of Cdn$0.4 million for fiscal 1997
increased from Cdn$0.3 million in 1996 representing an increase of 19%. This
increase was primarily due to an increase in our bank indebtedness.
Foreign Exchange. During 1997, we realized a foreign exchange gain of Cdn$0.2
million compared with a loss of Cdn$0.02 million of the prior comparable year.
Prior to 1997 substantially all of our revenues and expenses were payable in
Canadian dollars. Commencing at the beginning of fiscal 1997, our business
changed with the acquisition of Sugar Entertainment Ltd. In 1997 approximately
74% of our revenues were receivable in U.S. funds.
Taxes. There was no tax expense for 1997, after giving effect to the tax
benefit of available loss carryforwards. In 1996, we reported a loss from
operations and incurred no income tax expense.
Other Expenses. Effective August 31, 1997, we sold the business and assets of
Image Media Ltd., our educational video and software distribution subsidiary,
and recorded a net loss of Cdn$0.3 million. Prior to 1997, we periodically
entered into marketing agreements with limited partnerships to market our
programming and services in exchange for an interest in future revenues that we
capitalized and amortized over ten years. We subsequently acquired the revenue
interests in exchange for common shares and recorded a provision of
Cdn$2.3 million in 1997 and Cdn$1.1 million in 1996.
26
<PAGE>
Liquidity and Capital Resources
We currently finance the capital costs of our proprietary television
programming and other cash requirements principally through advances obtained
from customers, borrowings under our bank credit facility and from working
capital. In prior periods, we have also funded our capital requirements through
the issuance of shares, warrants and convertible debentures. Net cash proceeds
from the issuance of share capital in 1998 and 1997 were Cdn$4.9 million and
Cdn$5.8 million. We have used real estate mortgages to fund the acquisition of
our production facilities. We have no material capital expenditure commitments.
We earn sufficient cash flow from operations to meet interest commitments on
our debt.
During fiscal 1998 cash flow from operating activities provided Cdn$21.5
million compared with Cdn$13.4 million in fiscal 1997. This increase was
primarily due to an increase in programming revenues.
Cash used for investing activities was Cdn$28.3 million compared with
Cdn$16.9 million for fiscal 1997 due to the increase in production activity
over the prior year. The increased capital cost of programming was due to our
focus on larger-budget, episodic programming. We delivered 40 hours of
programming in fiscal 1998 compared with 14 hours in 1997.
Cash flows from financing activities contributed Cdn$7.0 million in 1998
compared with Cdn$5.1 million in 1997. In 1998, we raised Cdn$4.9 million from
the issuance of common shares compared with Cdn$5.8 million in 1997. We
increased bank indebtedness and long-term debt in the amount of Cdn$3.4 million
compared with Cdn$0.5 million in 1997 and repaid bank indebtedness in the
amount of Cdn$1.7 million compared with Cdn$0.9 million in 1997.
We expect this trend of increased cash used for investing activities to
continue in fiscal 1999 and fiscal 2000 as we employ the net proceeds of this
offering. An increase in investments in television programming is required in
order to maintain sales growth. We expect cash provided by financing activities
will also increase in fiscal 1999 due to the net proceeds of this offering.
In fiscal 1996, cash used by operating activities was Cdn$0.5 million and
from investing activities was Cdn$1.1 million. Cash flows subsequent to fiscal
1996 are not comparable with 1996 due to the acquisition of Sugar Entertainment
that took place at the beginning of fiscal 1997. Financing activities provided
cash flows of Cdn$1.7 million of which Cdn$1.2 million was from the issuance of
common shares.
At February 28, 1999, we had total liabilities of Cdn$24.2 million, which
included Cdn$9.4 million in drawings outstanding under our bank credit facility
and Cdn$8.1 million in other debt, including Cdn$5.5 million in real estate
loans, Cdn$1.6 million in debentures, of which Cdn$0.2 million is due to
officers and directors, and approximately Cdn$1.0 million in other obligations.
Since February 28, 1999, Cdn$0.6 million of the principal amount of the
debentures has been repaid. The maturity date on the balance of the debentures
was originally March 31, 1999, but has been extended by agreement with the
holders of the debentures to June 30, 1999.
Our principal debt funding is through our Cdn$14.0 million bank credit
facility. This facility bears interest at a rate equal to the Canadian prime
rate plus 1.5% per annum, with monthly payments of interest only withdrawn from
an interest reserve held by the bank. The facility is secured by the refundable
tax credits, distribution rights of the film properties to which the loan
relates and a general security interest on substantially all of our assets. At
February 28, 1999, Cdn$9.4 million was outstanding on this facility. We intend
to use approximately Cdn$5.0 million, which is approximately US$3.4 million, of
the net proceeds of this offering to temporarily pay down the credit line, but
we will draw on it in the future as required to fund our business activities.
We will also apply a portion of the net proceeds to repay Cdn$1.4 million
principal amount of our remaining outstanding debentures, including Cdn$0.2
million due some of our officers and directors. See "Interest of Management in
Certain Transactions" for the details of these payments.
We have mortgages that come due on February 1, 2000 in the amount of Cdn$1.9
million and on March 1, 2001 in the amount of Cdn$2.7 million. Our mortgages
are held by wholly owned subsidiaries and are secured by their assets. We
intend to renew these mortgages as they come due. On May 1, 1999 a mortgage in
the amount of Cdn$0.9 million came due and was extended for a two-year term at
the rate of 7.2% per annum.
27
<PAGE>
Based on our current business expectations, we believe that the anticipated
net proceeds from this offering, our cash on hand, operating revenues and
available credit under our bank credit facility will be adequate to fund our
current needs and to support our planned acceleration in our proprietary
programming activities for at least twelve months from completion of this
offering. The funds also should provide capital needed to pursue complementary
acquisitions, as the opportunity arises. Borrowings under our credit facility
are due on demand. If these loans were called, we may not have sufficient
liquidity to repay them. Our ability to repay them would be dependent on our
collection of the refundable tax credits. If we are unable to renew our bank
credit facility or expand the facility as our business grows, we may need to
seek additional financing to fund our business. We currently have no other
agreements or commitments for financing.
There are trends and uncertainties that could impact our revenues or income
from operations. The BC Film industry has been experiencing a trend of rapid
growth. This growth could have a positive effect on our revenues and income
from operations. Refundable tax credits are important to our business. If these
tax credits were to be removed our income from operations and revenues may not
continue to increase or may decline causing a decrease in our liquidity.
Year 2000
Many computer programs and other systems currently used in our business
activities were designed and developed without considering the upcoming change
in the century, which could lead to the failure of computer applications or
create erroneous results by or at the Year 2000. The Year 2000 issue is a broad
business issue, the impact of which extends beyond traditional computer
hardware and software to possible failure of other systems and instrumentation.
To address the Year 2000 issue, we have implemented a five-stage remediation
plan, including analysis, planning, implementation, testing and contingency
planning. We are nearing completion of the implementation stage and have
completed approximately 75% of the overall remediation plan. We have expended
approximately Cdn$60,000 to date due to Year 2000 related upgrades and
replacements. Our standard for Year 2000 compliance requires that a system or
piece of equipment be designed to be used prior to, on and after January 1,
2000. Such systems and equipment must operate without error in dates and date-
related data, including calculating, comparing, indexing and sequencing prior
to, on and after January 1, 2000. Our total estimated cost of the system
enhancements is estimated to be less than Cdn$100,000, which cost is being
expensed as incurred.
The impact of the Year 2000 issue on us will also be affected by the Year
2000 readiness of our business partners, customers, suppliers and vendors and
providers of facilities, equipment and services. Failure by these third parties
to be Year 2000 compliant may adversely affect, among other things, our
production, revenues and the timing of cash receipts. We have made inquiries of
such third parties in this regard and based on the responses to these
inquiries, we will decide to what extent, if any, a contingency plan should be
developed. To date, however, we have received only preliminary feedback from
such third parties, and we have not independently confirmed any information
received from such third parties with respect to Year 2000 issues. As such, we
cannot be certain that such third parties will adequately address the Year 2000
issue and complete their Year 2000 conversion and remediation efforts in a
timely fashion or avoid business disruptions that could adversely affect our
business.
In the worst-case scenario, we may miss delivery dates for our programs due
to our inability to procure supplies, such as film, and services, such as
special effects work and sound, and to deliver the final program due to
transportation problems. Postponing delivery could cause payments to be
postponed and may cause us to postpone realizing revenues and related costs. In
addition, once our programs are delivered our customers may be unable to
process payments. Contingency planning is the last stage of our remediation
plan, scheduled for completion by August 31, 1999. We will identify alternate
suppliers and ensure we have provided adequate liquidity to meet a possible
delay in cash receipts.
28
<PAGE>
Inflation
Historically, inflation has not had a material impact on our results of
operations.
Recent Accounting Pronouncements
Note 19 to the Consolidated Financial Statements sets forth differences
between Canadian GAAP and U.S. GAAP. In addition to the U.S. GAAP issues taken
into account in the preparation of Note 19, there have been accounting
standards issued by the Financial Accounting Standards Board (the "FASB") or
other bodies in the U.S. that may become applicable to our reported results but
that we have not yet adopted because such standards are not effective for the
periods presented.
In June 1998, FAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. FAS 133 provides comprehensive standards for the
recognition and measurement of derivative and hedging activities. Generally,
FAS 133 requires that all derivatives be recorded on the balance sheet at their
fair value and establishes new accounting requirements for different types of
hedging activities. FAS 133 is effective for fiscal years beginning after June
15, 1999. We do not believe that the adoption of FAS 133 will materially impact
our reported historical financial position or results of operations as set out
in the consolidated financial statements.
In October 1998, the FASB released an exposure draft of the proposed
statement on recission of FAS 53. If adopted, companies previously subject to
the requirements of FAS 53 would follow the guidance of a proposed Statement of
Position ("SOP"), "Accounting by Producers and Distributors of Films." This
proposed SOP would be effective for fiscal years beginning after December 15,
1999. We have not concluded what, if any, impact these proposals will have on
our reported historical financial position or results of operations due to the
preliminary stages of the proposed SOP.
In March 1999, the FASB released an exposure draft which deals with a variety
of proposed technical amendments to the accounting for stock option plans and
employee stock compensation. One proposal would no longer allow an entity to
account for stock options issued to non-employee directors by the intrinsic
value method currently used in the measurement of net earnings (loss) under
U.S. GAAP. Instead, under the proposal the fair value of such options would be
recognized as a compensation cost. This proposal, together with others included
in the exposure draft, would apply prospectively to events occurring after
December 15, 1998. In February 1999, we granted options to purchase an
aggregate of 40,000 Class A shares and Class B shares to non-employee
directors.
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BUSINESS
We are a vertically integrated company that develops, produces and
distributes high-quality, proprietary television programming for markets
worldwide. We also provide production services for third parties on a contract
basis. We are based in Vancouver, British Columbia, the third largest film and
television production center in North America. As a British Columbia-based
producer, we enjoy a number of competitive advantages over producers outside of
Canada, including tax and other government incentives. We also enjoy a
competitive advantage over producers in other parts of Canada due to our
proximity to Los Angeles, our varied geography and our temperate climate.
Development
The first stage in the process of creating television programming is concept
development. We select programming concepts that we believe will have domestic
and international market appeal. We develop programming for television,
including episodic series, movies and documentaries. We often arrange for the
involvement of industry recognized creative talent, such as writers, producers,
directors and actors, which will make the programming more saleable and may
increase the value of our library. In some cases, one or more of these people
may already be involved when we become involved.
Our development department receives and evaluates written concepts, scripts,
books or other literary properties from agents, writers and prospective
production partners in the U.S., Canada and Europe. Once we have selected and
acquired the necessary rights to a source material, we may involve broadcasters
or third party investors to participate in the further development of the
concept. These activities may include the preparation of a series "bible,"
script writing or the production of a promotional reel that can be used as a
sales tool. For concepts that have sufficient Canadian content, government and
related funding agencies, such as Telefilm Canada and BC Film, may provide
funding for the development process as described below under "Regulatory
Considerations."
In some cases we get involved at a later stage of development, when creative
materials may have already been prepared or when key creative people are
already attached. Involvement at this stage may shorten our development
process, but involve less opportunity for us to influence the financial
structure of the programming.
Early involvement in the acquisition and development of projects generally
increases our control over the exploitation of the finished program. We believe
that greater control enhances our ability to build targeted brand identities
for our programming that should increase revenues from television distribution
and potential long-term revenue from ancillary markets such as clothing, toys,
novelties, books, CDs, soundtracks and other audio products, electronic and
video games, Internet applications and other merchandise. Increased ownership
and control also will allow us to capitalize on new ancillary markets that may
arise in the future.
Projects in Development. We have several new programs at an early stage of
development with various Canadian, U.S. and international producers,
broadcasters and distributors. We are negotiating with broadcasters interested
in financing and airing our proprietary one-hour drama called "Yaletown" and
our half-hour sit-com with the working title "Acme Agency." Also, we recently
purchased an option for the rights to the screenplay "Jetlag" on which Dave
Thomas, known for his appearances in "Grace Under Fire," "SCTV" and "Strange
Brew," will be the executive producer. The project, a made-for-television
movie, is designed as a pilot for a television series and has been presented
for consideration to Pearson Television International Ltd. and WIC Television
in Canada.
Production
Most of our business activity relates to proprietary programming. The
production of proprietary television programming involves the assembly of a
team of production personnel, including script writers, directors, cast and
crew. In the case of larger-budget productions such as "First Wave" and "Dead
Man's Gun," this team
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can include over 150 people who are hired either as employees or independent
contractors. Typically, we form a wholly-owned production company for each
production which retains the necessary employees and contractors.
One of these contractors hired by the production company is the producer that
we have designated to oversee the production process on our behalf. The
producer carries out a myriad of activities including development and approval
of scripts, casting, selecting directors and supervising the daily shooting
schedule. The producer is also responsible for supervising all post-production
activities, including editing, the insertion of music and special effects, and
ensuring that the finished product, usually in the form of a betacam tape,
meets the delivery specifications of the buyers.
The production of a 22-episode season of a one-hour dramatic series such as
"First Wave" can span 10 months. Each episode takes approximately 11 weeks to
complete, including one week of preparation, one week of shooting and up to 9
weeks of post-production. At any given time there may be one episode in
preparation, one episode shooting and three or four episodes in various stages
of post-production.
In addition to our proprietary programming, we produce creative works that
are directed to training, education and the information needs of third parties
and we offer domestic and foreign language production services for network
television including entertainment segments, news segments and electronic press
kits, as well as sports, entertainment, documentary, television commercial and
music videos, all under various contract arrangements. As the demand for
interactive programming has increased, we have increased our involvement in the
production of CD-ROMs, on-line presentations and other digital programming.
While these production services represent only a small portion of our current
revenues, we plan to continue to pursue production service arrangements because
they provide a training ground for our creative staff, foster our relationships
with key industry participants, provide an incubator for new skills and
industry practices, and keep our facilities utilized during hiatus production
periods of our television series programming. These productions have won
numerous awards, including most recently, the Gold Camera Award in 1998 at the
U.S. International Film and Video Festival for our video production entitled
"Millennium." Our music video entitled "Apparitions" and featuring the Matthew
Good Band also received a Best Directed Music Video Award at the 1998 Canadian
Music Video Awards.
Our proprietary programming and production services offer high production
values and generally require extensive studio and on-location filming or
taping, special visual effects, music scoring, editing and post-production
finishing. Most of these activities are undertaken by our crews using
facilities and equipment that we own or rent. Some key activities, such as
computer-generated imaging, sound mixing and post-production finishing are
subcontracted to companies that specialize in these areas.
Since inception, we have produced five feature length films, three
documentaries and various specialty programs for television. We have also
produced 66 one-hour episodes and 39 half-hour episodes of television series
programming. During fiscal 1998, we delivered one documentary, 26 one-hour
episodes and 27 half-hour episodes. Production is currently underway on an
additional 22 one-hour episodes and 39 half-hour episodes.
Our recent proprietary programming and other productions include:
First Wave. In April 1999, we commenced production of a second 22-episode
season of our science fiction thriller television series "First Wave." "First
Wave" is produced in association with Pearson Television International Ltd.,
Francis Ford Coppola and Chris Brancato. Based in the United Kingdom, Pearson
Television International Ltd. is a large international producer and distributor
of television programming. Mr. Coppola is an Academy Award winner and producer
and director of "The Godfather" and co-screenwriter of "Apocalypse Now" and Mr.
Brancato is an accomplished screenwriter ("Species 2" and "Hoodlum"). We
control North American rights to this series, and recently made an advance sale
of 66 episodes (three seasons of production) to USA Networks' Sci-Fi Channel.
Pearson Television International Ltd. has agreed to distribute the initial
66 episodes of "First Wave" outside of North America. To date, CHUM Television
has ordered 44 episodes for broadcast in Canada. "First Wave" recently was
nominated for a Leo Award for best dramatic
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series. The Leos recognize excellence in British Columbia film and television
production. In December 1998, CHUM's Space: The Imagination Station announced
that it has five of the top ten dramatic series on specialty television and
that "First Wave" is their highest rated series, ahead of "The X-Files."
Dead Man's Gun. In 1997, we commenced delivery of a 22-episode, one-hour
western-themed television series titled "Dead Man's Gun," produced in
association with Showtime Networks and Buena Vista Television and with Henry
Winkler as executive producer. This anthology series was nominated for three
Cable Ace Awards in 1997, including best dramatic series, and won the Western
Heritage Award for Best Western Dramatic Script for the last two years. "Dead
Man's Gun" was renewed for a second 22-episode season by Showtime and MGM
Worldwide Television that commenced production in spring 1998 and was completed
in early 1999. It currently airs on Showtime in the United States and has been
syndicated through most of Canada by CHUM Television. "Dead Man's Gun" has not
been renewed for a third season, but we are actively seeking new U.S. and
international partners in order to continue production.
Contemporary Classics. Since 1996, we also produced two installments of our
ongoing "Contemporary Classics" youth movie series made in association with
Showtime and Hallmark Entertainment Network--"The Prisoner of Zenda, Inc." and
"Ronnie and Julie." Prior pictures in the series include "AnnieO," "The
Halfback of Notre Dame" and "Robin of Locksley." We jointly fund the production
of the Contemporary Classics in association with Showtime and Hallmark and own
all Canadian rights to the movies.
The Electric Playground. In 1997, we began production on "The Electric
Playground," a series of 13 half-hour programming which review and promote
video-games and computer technology for the specialty cable market. The series
was renewed for the 1998-99 television season in Canada and is being shown on
CHUM's Space: The Imagination Station. "The Electric Playground" is also being
syndicated throughout Canada and in selected U.S. markets. Discussions are
underway with a national television syndicator and a number of potential
sponsors with a view to completing a third season which would begin airing in
the fall of 1999. A substantial amount of footage has already been shot for the
third season.
Documentaries. In 1998, we produced two one-hour documentaries for CTV and
The Knowledge Network, "Citizen Shame," about child poverty in Canada, and
"Harm's Way," about youth and violence. These programs were financed through
Canadian broadcast sales and government incentive programs. We retain the
rights to exploit these programs worldwide. These documentaries combined the
efforts of independent Canadian documentary filmmakers and our in-house
production facilities and staff. Writers and producers for the programs
included Helen Slinger, a senior Canadian journalist and documentary writer,
and David Massar, a writer, producer and director of many programs for NBC,
Lifetime Television, ESPN, The Learning Channel, History Channel, Discovery
Channel and A&E.
So Weird. In 1998 we provided non-proprietary production services for the
initial 13 episodes of the children's television series "So Weird" for the
Disney Channel. Production has recently commenced on a further 26 episodes.
Henry Winkler is the executive producer of "So Weird."
Commercials. We have produced commercials for an extensive list of clients
over the last ten years, including Disney, McDonald's, Molson Breweries,
Frisch's and the Canadian Banking Association. Commercials produced by us have
won the Canadian Television Commercial Award (the "Bessies") Gold and Silver
Awards category in 1997 and 1998.
In addition to our current activities, we have participated in the production
of numerous feature films and documentaries, which are now included in our
library. These include: "Cadence," a feature film starring Martin Sheen and
Charlie Sheen; "Island of Whales," a feature documentary narrated by Gregory
Peck and commissioned by the PBS Nova Series; and "Outside Chance of
Maximillian Glick," an award-winning Canadian feature film.
Industry Recognition. We have earned recognition for both our entertainment
and commercial productions. "Dead Man's Gun" has won the Western Heritage Award
for Best Western Dramatic Script for
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the last two years, and earned Cable Ace Award nominations for Best Actor and
Best Dramatic Series in 1997. Certain commercials of ours have won the Canadian
Television Commercial (the "Bessie") Gold and Silver Awards in 1998 and 1997.
We have also won numerous awards for our service productions, including the
Gold Camera Award in 1998 at the U.S. International Film and Video Festival for
our production of "Millennium," a promotional video.
Library
We retain varying ownership interests in our proprietary productions and
believe that this strategy will provide us significant future asset value.
During fiscal 1998, we added 26 hours of dramatic programming, one documentary
and 26 half-hour episodes of magazine-style programming to our library. At
August 31, 1998, our library contained approximately 60 hours of proprietary
programming. We expect to produce an additional 30 hours of dramatic television
programming and two one-hour documentaries in fiscal 1999. Although currently
limited, our library will continue to expand as we produce more proprietary
programming.
Our production group also has accumulated an extensive library of stock
footage on film and video that can be incorporated into future programming. We
also may seek to add to our library through strategic acquisitions.
Marketing and Distribution
We market and distribute our proprietary television programming under
arrangements with U.S., Canadian and international broadcasters and
distributors. We seek to market and distribute titles in our library to
existing pay and free television, home video and other markets worldwide, as
well as through developing technologies. Historically, we have directly
distributed our programming in North America, where there are a limited number
of buyers and the costs of marketing to this group are manageable. We currently
contract with other parties, such as Pearson Television International Ltd., to
distribute our programs in markets outside North America. This provides us with
two principal benefits. We secure distribution advances to provide cash flow
for the production, and we avoid the substantial costs and financial risks of
distributing our programs to markets throughout the world.
Our marketing efforts are focused on creating branded identities for our
proprietary programs. We believe that such branded identities will lead to
additional revenues from television and home video distribution and ancillary
markets such as clothing, toys, novelties, books, CDs, soundtracks and other
audio products, electronic and video games, Internet applications and other
merchandise.
Key Relationships
We expect that our relationships with domestic and international
broadcasters, distributors, financing sources and creative talent will be
important to the successful expansion of our proprietary television business.
U.S. and International Broadcasters and Distributors. We have produced our
programming in association with a variety of U.S. and international
broadcasters and distributors including Buena Vista Television, Pearson
Television International Ltd., Hallmark Entertainment Network, MGM and Showtime
Networks. The recent sale of 66 episodes of our television series "First Wave"
to USA Networks' Sci-Fi Channel represents an important new relationship for
us.
Canadian Domestic Broadcasters. We have long-standing relationships with the
Canadian broadcast community, including CHUM-City, CTV, CanWest Global, Western
International Communications, The Knowledge Network and The Family Channel.
During the past two years, we have sold our series "First Wave," "Dead Man's
Gun," and "Electric Playground" to CHUM-City. We have also licensed two
documentaries, "Harm's Way" and "Citizen Shame," to CTV and The Knowledge
Network, and licensed our television movies, "The Prisoner of Zenda, Inc." and
"Ronnie and Julie," to The Family Channel.
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Canadian broadcaster relationships are an integral part of producing in
Canada, not only for the sales revenues they represent, but also because their
involvement makes it possible to take advantage of various government
incentives. See the discussion under "Regulatory Considerations--Canadian
Content Requirements" for further details of these incentives.
Producing and Writing Talent. We are currently working with Francis Ford
Coppola and screenwriter Chris Brancato ("Species 2" and "Hoodlum"), who is the
creator and lead writer on "First Wave." Our first dramatic television series,
"Dead Man's Gun," was created by Howard and Ed Spielman ("Kung Fu" and "Young
Riders") and produced in association with Henry Winkler ("Happy Days" and
"MacGyver"). Henry Winkler is also the executive producer of "So Weird." We
have also hired Canadian talent at all levels in the production of our
programs, including writers, directors, production designers, editors and
actors.
Four customers, Showtime Networks, Pearson Television International Ltd.,
Buena Vista Television and MGM Worldwide Television, each accounted for 10% or
more of our revenues in fiscal 1998.
Business Strategies
Our primary objective is to accelerate the expansion of our business by
focusing principally on increased development and production of proprietary
programming. Our strategies for achieving this objective are:
. Quality Productions. We will use a portion of the proceeds of the
offering to expand our in-house development staff, enter into new
development agreements with independent writers, producers and other key
industry participants in the U.S., Canada and selected international
markets in order to gain broader access to programming concepts.
. North American Operations. We plan to increase our sales of television
programming to existing North American broadcast customers and actively
market new programming concepts to broadcasters, distributors and co-
production partners in North America. As part of these efforts, we intend
to establish an office in Los Angeles to facilitate interaction with
these sources and to accommodate our increasing marketing requirements.
. International Operations. We plan to increase our presence and production
profile outside of Canada and the U.S. by co-producing programming with
international partners and by entering into distribution agreements with
international broadcasters and distributors. We believe that effective
use of concepts in programs that have local and international appeal will
allow us to increase our visibility in markets outside North America and
open up new markets for our programming.
. Branded Identities. We plan to focus on creating a highly recognizable
name (a "brand" or a "branded identity") for each of our programs. By
increasing the name recognition of our programs and the demand for
related products, we believe that successful branding will allow us to
generate greater revenues from television distribution and ancillary
markets, such as clothing, toys, novelties, books, CDs, soundtracks and
other audio products, electronic games, Internet applications and other
merchandise. By retaining ownership rights to our programming, we add to
our program library, which we believe has the potential to generate
future revenues.
. Complementary Acquisitions. We expect to seek acquisitions that will
provide us with complementary assets, personnel and distribution
channels. We may also utilize acquisitions to provide a platform for new
endeavors or allow us to accelerate entry into a new market or region. We
currently have no agreements or commitments with respect to any
acquisitions.
History
Since our incorporation in 1986, we have been involved in producing and
marketing a variety of products ranging from consumer based instructional
videos, to integrated corporate training programs, to individually contracted
corporate videos, feature films, television documentaries and television
commercials. Historically, we derived the bulk of our revenues from production
service arrangements whereby we were retained to
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produce a video program, film or television commercial for a fee. We expanded
our service production capability through the acquisition of The Eyes
Multimedia Productions Inc. in August 1995. We acquired The Eyes Multimedia
Productions Inc. in August 1995 for purchase consideration of common shares
valued at Cdn$60,000 and periodic cash payments totaling Cdn$215,000.
In 1995, we expanded our operations into the areas of video and software
distribution through the acquisitions of Image Media Services Ltd. and Pilot
Software. The principal business of Image Media was the distribution of video
and software and multi-media titles to primary, secondary schools, and the
post-secondary educational institutions throughout British Columbia and most
regions of Canada. We acquired Image Media Ltd. in February 1995 for purchase
consideration of common shares valued at Cdn$250,000 and periodic cash payments
totaling Cdn$710,413. Pilot Software became a wholly-owned subsidiary of Image
Media and carried out the bulk of Image Media's distribution activities in
Ontario and Eastern Canada. We acquired Pilot Software in December 1995 for
purchase consideration of common shares valued at Cdn$81,250 and periodic cash
payments totaling Cdn$105,000.
In 1996, we commenced a shift in our business toward the production of
proprietary television programming. The first steps in this process were the
production of the feature length family films "The Prisoner of Zenda, Inc." and
"Ronnie and Julie," both of which are discussed above. Our shift into the
business of proprietary television production was accelerated through the
acquisition of Sugar Entertainment Ltd. effective September 1, 1996. Our
principal motivation for expanding this business was that it offered us greater
potential for growth than our prior businesses. We also believe that the
production of proprietary programming offers us the ability to create and
expand a library of produced programming which we believe will have a residual
asset value.
Effective September 1, 1996, we acquired Sugar Entertainment Ltd. for
purchase consideration of common shares valued at Cdn$260,000.
On August 31, 1997, we completed the sale of the assets and operations of
Image Media and Pilot Software and thereby exited the video and software
distribution business. Our decision to sell this business was based on the fact
that gross profit margins were declining as a result of competitive pressures.
We sold the assets and operations of Image Media Services Ltd. and Pilot
Software effective August 31, 1997 for cash proceeds of Cdn$575,000 and the
assumption by the buyer of long-term debt of Cdn$30,000. We realized a loss on
this sale of Cdn$333,325.
Industry Overview
The Television Production Industry
The North American television production and distribution industry serves the
largest broadcast market in the world, with a population of nearly 300 million
people. In the last decade the growth of broadcasting and cable television
markets outside North America through the privatization of broadcasting
systems, the proliferation of broadcast licenses and the introduction of new
delivery technologies, such as cable and satellite transmission systems, has
led to a higher proportion of revenues from international markets.
Generally, the right to broadcast a program is licensed by a production
company to a combination of the U.S., Canadian and international broadcasters,
including free television and cable networks or individual television stations
in the first-run syndication market. After the initial network, cable licensing
or first-run syndication period, the program is available for further
commercial exploitation on cable or in syndication.
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North American Markets
In North America, programming is delivered to the end user by way of free
television networks, cable channels and networks, individual television
stations and satellite delivery services. Free television networks include NBC,
CBS, ABC, Fox, UPN, WB and PBS in the U.S. and CBC, CTV and the Global
Television Network in Canada. Each of the major free television networks in the
U.S. and Canada currently schedules approximately 22 hours of programming in
prime time during the hours from 8 p.m. to 11 p.m. Monday through Saturday, and
7 p.m. to 11 p.m. on Sunday of each week. Programming generally consists of a
mix of movies-of-the-week, mini-series, half-hour comedy and hour-length drama
or action/adventure series.
In recent years, alternatives to the free television networks in the U.S. has
expanded with the growth of other networks, cable channels and the development
of a first run syndication market leading to more available slots for
television programming. Cable channels include HBO, Showtime, USA Networks,
Lifetime, The Family Channel, TNT and TBS in the U.S. and TMN, Super Ecran,
SuperChannel, Chanel D and Showcase in Canada.
International Markets
The worldwide television industry is experiencing growth as a result of the
development of new television broadcasting systems outside of North America.
These systems represent significant new sources of revenue for television
producers. Factors contributing to the growth of the worldwide television
industry include the introduction of direct broadcast satellite services and
pay television, as well as increased cable penetration and the growth of home
video. Some foreign broadcasters seek out both indigenous programming in order
to satisfy the local content regulations of their broadcast licenses, and
international programming, largely from North America, to appeal to a wide
audience.
Canada's Role in the Television and Feature Film Industry
The Canadian film and television industry in 1998 generated annual production
expenditures of nearly Cdn$3.0 billion. At the same time as the domestic
industry has matured, Canada has become a leading location for internationally
originated productions due to several factors. Canada's geographic proximity to
the U.S. and shared North American values and interests have led to the
establishment of close professional contacts between Canadian and U.S. studios,
independent producers, distributors and buyers. The current favorable exchange
rate of the Canadian dollar, government tax incentives and the availability of
free location assistance to television producers offered by many Canadian
cities and several provinces have also increased production activity in Canada.
Canada has made an effort to increase its pool of highly-trained and
professional crews, technicians and production personnel. Finally, with its
wide ranging topography, stretching 3,400 miles from coast to coast, Canada is
ideally suited for location shooting. Urban centers such as Toronto, Vancouver
and Montreal have been disguised as London, Paris, New York and Chicago. U.S.
companies with a strong presence in Canada include major U.S. studios such as
Paramount, Disney, Universal Pictures and Columbia Pictures/Tri-Star Pictures;
U.S. television networks such as ABC, NBC, CBS, Fox, UPN, WB and PBS; and film
companies such as The Hearst Corporation, Kushner-Locke Company and New World
Entertainment, Inc., among many others. European and Asian film companies have
also found Canada to be an attractive location and have often been able to
access Canada's numerous international film and television co-production
treaties.
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Of Canada's ten provinces, the provinces of British Columbia and Ontario are
most actively involved in the motion picture production industry, with 1998
production expenditures equaling approximately Cdn$808 million and Cdn$743
million. These figures represent significant increases over the previous year,
when annual production expenditures in British Columbia and Ontario totaled
approximately Cdn$615 million and Cdn$635 million.
Competition
Television production and distribution are highly competitive businesses. We
face competition from companies within the entertainment business, as well as
alternative forms of leisure entertainment such as travel, sporting events,
outdoor recreation and other cultural activities, among many others. We compete
with numerous suppliers of television programming and related programming,
including national television networks and independent television production
companies, many of which are significantly larger and have substantially
greater resources than we have. We consider our main competitors in Canada to
be Alliance Atlantis Communications Corporation, Salter Street Films, Ltd.,
Lions Gate Entertainment Corp., Telescene Film Group Inc. and in the U.S. to be
Spelling Entertainment Group Inc., Kushner-Locke Co. and Carsey-Werner. We
believe that we have a competitive advantage over U.S. competitors through our
eligibility for Canadian tax credits described below under "--Regulatory
Considerations--Industry Incentives." We also enjoy a competitive advantage
over producers in other parts of Canada due to our proximity to Los Angeles,
our varied geography and our temperate climate.
Employees
As of February 28, 1999, we had 25 full-time permanent employees. We also
hire additional personnel on a project-by-project basis in connection with the
production of our television programming. We believe that our employee and
labor relations are good.
Regulatory Considerations
Our status as a producer of "Canadian" programming, established and operating
in British Columbia, makes us currently eligible to receive Canadian tax and
business incentives. See Note 3 of Notes to Consolidated Financial Statements
for further description of these incentives.
We will continue to qualify for these tax and business incentives if, among
other things, Canadians beneficially own or control a majority of the voting
interests of Peace Arch. Upon completion of the offering, approximately 60% of
the voting power of our outstanding shares will be held of record by Canadians.
However, we have no way of confirming actual beneficial ownership of our
shares. If Canadians fail to beneficially own or control a majority of our
shares, we could lose our eligibility for these tax and business incentives.
These tax and business incentive programs also may be amended or eliminated in
the future. The loss or elimination of these tax or business incentives would
have a material adverse effect on our results of operations and financial
condition.
Canadian Content Requirements
Canadian conventional, specialty, pay and pay-per-view television services
are required to devote a certain amount of their programming schedules,
including prime time, to Canadian productions. Compliance with these
requirements is enforced by the Canadian Radio-Television and
Telecommunications Commission ("CRTC") and failure to comply can result in
fines or the loss of a license. These requirements provide support to the
market for Canadian programming, such as those we produce, as long as they
qualify as Canadian programming for CRTC purposes.
In addition to scheduling requirements, Canadian conventional, specialty, pay
and pay-per-view television services are typically required to invest in, or
acquire, Canadian programming based on the nature of the particular service and
financial performance. The requirement for a broadcaster to spend a specific
amount on Canadian programming typically takes the form of policies or
conditions of license. The nature of such
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spending ranges from expenditures on script and concept development to
expenditures on specific categories of Canadian production.
The CRTC determines the criteria for certification of a program as
"Canadian." According to CRTC regulations, a program will qualify if it is
produced by an individual Canadian producer with the involvement of individual
Canadians in key creative functions, and where a substantial portion of the
remuneration paid to individuals is for services provided by Canadians and
processing and final preparation costs are for services provided in Canada. A
program may still qualify as "Canadian" even though some of the producer
functions are performed by non-Canadian individuals, if the production company
is a "Canadian production company" and other requirements are met. A "Canadian
production company" includes a Canadian company which carries on business in
Canada with a Canadian business address, which is owned or controlled by
Canadians and whose principal business is the production of film, videotape or
live programming for distribution on television or in theatrical, industrial or
educational markets. We believe that we will continue to qualify as a "Canadian
production company" for this purpose, so long as Canadian citizens or permanent
residents beneficially own more than 50% of the combined voting power of our
outstanding shares.
The CRTC also requires Canadian conventional broadcasters to adhere to the
Canadian Association of Broadcasters' "Broadcast Code for Advertising to
Children."
International Co-Production
Canada is a party to co-production treaties with more than 50 countries
throughout the world (excluding the U.S.). Canada's co-production treaties
allow for the reduction of the risks of production by permitting the pooling of
creative, technical and financial resources of Canadian producers with non-
Canadian producers under prescribed conditions. Canadian co-production treaty
partners include China, France, United Kingdom, Germany, Italy, Hungary,
Israel, Mexico, New Zealand and Australia. A production that qualifies as a co-
production for treaty purposes is considered to be a national product in each
of the participating countries and, as such, is entitled to many local
advantages in each country. More specifically, the co-production usually
satisfies criteria for national certification in regard to content
broadcasting, regulations, government subsidies and tax benefits. The copyright
in the production is shared by the co-producers, while the domestic
distribution rights are generally owned by the respective producers. Sharing of
foreign revenues is based on the respective contribution of each co-producer,
subject to negotiation between the co-producers and approval by the appropriate
government authorities.
Industry Incentives
Since 1995, a refundable tax credit has been available under the Income Tax
Act (Canada) for eligible film and television productions undertaken by
qualified Canadian corporations. The tax credit is equal to 25% of the lessor
of qualified labor expenditure and 48% of eligible costs of production of a
given project. Eligible cost of production are total production costs less any
other government assistance, including any provincial refundable tax credit.
Since our labor expenditures for a production typically exceed this limitation,
we are generally eligible to receive a federal tax credit equal to 12% of the
eligible cost of production. The credit is calculated on the basis of each
individual production and is available only to taxable Canadian corporations
which have activities that are primarily those of a Canadian film or video
production business carried on through a permanent establishment in Canada and
which are Canadian-controlled as determined under the Investment Canada Act. A
corporation is controlled by Canadians for purposes of the Investment Canada
Act where, among other things, Canadians own and control a majority of the
voting interest. We currently qualify for this tax credit, and the
reclassification of our common shares into Class A shares and Class B shares
and other proposed changes to our articles should assist us in continuing
compliance while allowing for non-Canadian investment. We believe that so long
as, among other things, we continue to be Canadian-controlled as determined for
the purposes of the Investment Canada Act, we will continue to so qualify and
we will use our best efforts to ascertain that all our production projects will
continue to be eligible for the tax credit.
38
<PAGE>
Federal tax credits refundable to us pursuant to the Income Tax Act (Canada)
for television programming delivered in fiscal 1998 amounted to Cdn$5.7
million.
In October 1997, the Canadian Minister of Finance announced the creation of a
new program to support film and video productions in Canada. Effective November
1, 1997, the film and video production services tax credit replaced the
privately promoted tax shelters that were affirmatively terminated on October
31, 1997, with a tax credit for films that do not satisfy all the requirements
of a Canadian-certified film or video production described above. This program
currently provides eligible production corporations engaged in an accredited
production with a tax credit equal to 11% of their qualified Canadian labor
expenditures for a production incurred after October 1997. An eligible
production corporation is a corporation that carries on a film or video
production business through a permanent establishment in Canada, and that owns
the copyright on an accredited production throughout the period in which it is
produced in Canada or that has contracted directly with the owner of the
copyright to provide production services in Canada where the owner of the
copyright is not an eligible production corporation. An accredited production
is a film or video production with a production cost of not less than Cdn$1.0
million incurred during the two-year period that begins with the principal
filming or taping of the production. A production that is part of a series of
two or more episodes, or that is a pilot program for such a series, also
qualifies as an accredited production if the production costs of each episode
incurred during a two-year period that begins with the principal filming or
taping of the production exceeds Cdn$100,000 for an episode with a running time
of less than 30 minutes and Cdn$200,000 in any other case. Accredited
productions do not include, among other things, pornography, advertising and
various productions developed primarily for industrial, corporate or
institutional purposes. British Columbia has adopted a similar program. "So
Weird," which we produce for the Disney Channel, qualifies under this program.
Through Telefilm Canada the Canadian government provides financial assistance
to the Canadian film and television industry in the form of recoupable advances
in script development, equity investment in production, loan guarantees,
recoupable advances of the cost of dubbing into English or French and grants of
up to 75% of advertising and promotion costs. We did not utilize Telefilm
Canada funding in fiscal 1997 or 1998, but we are eligible for Telefilm Canada
funding and may avail ourselves of such funding in the future if management
believes it is prudent to do so.
Under the terms of the current film and television provincial tax credit
system under the Income Tax Act (British Columbia), British Columbia offers
refundable tax credit incentives for British Columbia film productions. The
incentives are available at the following levels:
. Basic incentives equal to 20% of qualified British Columbia labor
expenditures.
. A regional incentive equal to 12.5% of qualified British Columbia labor
expenditures for productions where principal photography occurs outside
of the Vancouver area in British Columbia.
. A training incentive equal to the lesser of 3% of British Columbia labor
expenditures or 30% of qualified labor expenditures attributable to
payments to eligible industry trainees.
Eligible labor expenditures are limited to 48% of the total production costs,
net of government assistance. The credit is calculated on the basis of each
individual production and is available only to a qualified corporation having a
permanent establishment in British Columbia and carrying on an eligible film or
television production business through a permanent establishment in Canada. In
order to access the basic credit, the corporation must also be controlled by
persons domiciled in British Columbia. We will continue to be controlled by
persons domiciled in British Columbia so long as more than 50% of the members
of our board of directors are persons domiciled in British Columbia and more
than 50% of the combined voting power of our outstanding shares are
beneficially owned by persons domiciled in British Columbia. In addition, in
order to access the basic credit, the producer of the eligible production must
be a British Columbia resident for tax purposes. Since the British Columbia tax
credit system was not established until 1998, we received no tax credits in
fiscal 1998. We expect to receive tax credits under the British Columbia
program on account of television programming delivered in fiscal 1999.
39
<PAGE>
In addition to these governmental incentives, the Canadian Television Fund
("CTF") License Fee Program, a partnership composed of public and private
television industry participants, was created in 1996 to form a television
funding initiative equal to approximately Cdn$80.0 million per year to promote
high-quality Canadian television programming. We believe that we are a
production company eligible for funding under the CTF's License Fee Program
that could, for each project eligible under such program, represent
contributions of up to 20% of the total production budget. The maximum
contribution varies with the categories of programs. The maximum contribution
provided under the program is for big-budget drama series and is limited to the
lower of Cdn$4.4 million and 20% of production costs. We have not utilized this
funding, but may do so in the future if management believes it is prudent.
DESCRIPTION OF PROPERTY
Our studio buildings, comprising approximately 78,000 square feet of studio,
production office and storage space, are located at 310 West 4th Avenue and 150
West 1st Avenue, Vancouver, British Columbia, Canada. They accommodate many of
our own productions and are available for rental by visiting producers of
feature films, television series and movies-of-the-week. The studios house our
eight digital post-production suites which handle off-line editing for all of
our productions.
We believe our studios are well-positioned to capitalize on the growing trend
within the entertainment industry to complete production work in Vancouver.
Both are located within walking distance of Vancouver's premier film transfer
and post-production facilities and ten minutes from major downtown hotels and
restaurants. In addition to the direct impact on our operating results, we
believe that the studios will be a key asset which can be used to enhance our
participation in a variety of film and television projects by ensuring access
to facilities, increasing our flexibility and reducing our costs. The West 4th
studio is presently fully booked until January 2000 with the production of our
television series "First Wave."
Approximately half of the West 1st Studio is currently being utilized by us
for our productions. The balance has been leased to third parties at local
market rates.
The following sets forth information concerning facilities that we own.
<TABLE>
<CAPTION>
Address Area Purpose
---------------------------- ------------------ -----------------------------
<S> <C> <C>
1132 Hamilton Street........ 24,000 square feet Corporate offices
Vancouver, B.C.
310 West 4th Avenue......... 23,000 square feet Studio and production offices
Vancouver, B.C.
150 West 1st Avenue......... 55,000 square feet Production offices and
Vancouver, B.C. post-production services
</TABLE>
We have entered into an agreement to sell our property at 1132 Hamilton
Street to an independent third party. The agreement to sell is subject to a
number of customary purchaser contingencies, including financing and due
diligence, and there is no assurance that the sale will be completed. In the
event the sale is consummated, we anticipate relocating our corporate offices
to another location. We believe we would be able to find adequate facilities to
relocate.
We believe that our facilities are adequate for our current needs but that as
we expand our productions, additional space must be leased or otherwise
acquired. We are currently considering renting office space in Los Angeles to
facilitate marketing our programming in the U.S.
40
<PAGE>
LEGAL PROCEEDINGS
We are not currently subject to any legal proceedings which, if determined
adversely to us, would have a material adverse effect on our business or
results of operations. We may from time to time become a party to various legal
proceedings arising in the ordinary course of business. We maintain insurance
coverage for such matters in amounts that we believe to be adequate.
41
<PAGE>
MANAGEMENT
The names, offices and ages as of June 20, 1999 of our corporate directors
and executive officers and other principal officers of our production
subsidiaries are as follows:
<TABLE>
<CAPTION>
Name Age Position
------------------------ --- ------------------------------------------------
<C> <C> <S>
Timothy Gamble.......... 43 President and Director
Chief Executive Officer, Director and Nominating
W.D. Cameron White...... 42 Committee Member
Juliet Jones............ 34 Chief Financial Officer and Secretary
President of Sugar Entertainment Ltd., our
Larry Sugar............. 53 wholly-owned subsidiary
Blair Reekie............ 39 President of The Eyes MultiMedia Productions
Inc., our wholly-owned subsidiary
Stephen Cheikes......... 50 Director and Compensation Committee Member
Director and Member of Compensation and Audit
Darrell Elliott......... 52 Committees
Yad Garcha.............. 40 Director and Member of Audit, Nominating and
Compensation Committees
Director and Member of Nominating and Audit
Vincent Lum............. 39 Committees
</TABLE>
Timothy Gamble is our founder and has served as President and as director
since our inception in 1986. Mr. Gamble takes principal responsibility for
business development, marketing and corporate finance matters. He has been
involved in the production of numerous feature films, such as "Cadence,"
starring Martin Sheen and Charlie Sheen.
W.D. Cameron White is our Chief Executive Officer, having joined us on a
full-time basis in 1994. Prior to joining us, Mr. White was a corporate and
securities lawyer specializing in mergers and acquisitions and public and
private financings for emerging growth companies at White & Associates
Barristers and Solicitors from 1992-1994 and at Worrall Scott & Page Barristers
and Solicitors from 1981-1992. Mr. White is responsible for strategic planning,
acquisitions and corporate finance. Mr. White has been a director since
February 1993.
Juliet Jones has been our Chief Financial Officer since February 1996, and
has been with us since 1991. Ms. Jones is responsible for overseeing all
accounting and audit functions, operations management, financial planning and
cash flow analysis and controls. Ms. Jones is a member of the Certified General
Accountants Association of British Columbia and Canada. Ms. Jones is a director
of Voyager Film Capital Corporation, a publicly traded company listed on the
Alberta Stock Exchange.
Larry Sugar is the President of Sugar Entertainment Ltd., our wholly owned
subsidiary which we acquired from him in 1996, and has served in that capacity
since Sugar Entertainment Ltd. was incorporated in March 1996. Sugar
Entertainment Ltd. produces most of our proprietary television programming. Mr.
Sugar has over 25 years of experience in the feature film and television
industry. Mr. Sugar has held a number of senior industry positions, including
President of International Distribution for Republic Pictures from 1989 to
1991, President of Distribution for CBS Television from 1985 to 1986, President
of International Distribution for Weintraub Entertainment Group from 1987 to
1989 and President of Lorimar International from 1981 to 1985. In addition to
heading up our creative team, Mr. Sugar assists with the development and
financing of television projects, as well as the expansion of our international
distribution presence.
Blair Reekie has been the President of The Eyes MultiMedia Productions Inc.,
our wholly owned subsidiary, and its predecessor company since November 1,
1994. In this capacity, he is responsible for our video and multimedia
production. Prior to joining us, Mr. Reekie was the General Manager/Regional
Manager of Sales and Service in British Columbia and Alberta for Air Canada
Touram.
Stephen Cheikes has been a member of our board of directors since January
1998. He is the co-founder, Chief Executive Officer and a director of Monarch
Entertainment Corporation, a British Columbia film finance
42
<PAGE>
company. Prior to founding Monarch in 1993, Mr. Cheikes was a principal and
senior executive of the Beacon Group of Companies, from 1987 to 1992. He also
practiced entertainment law in Los Angeles from 1977 to 1987.
Darrell Elliott has been a member of our board of directors since August
1998. He has been president of Isuma Strategies Inc., a private strategic
advisory company, since 1998. Mr. Elliott worked for approximately nine years
until August 1998 with Royal Bank Capital Corporation as Regional Vice
President. Mr. Elliott has 27 years of merchant banking, venture capital and
analogous operating experience in Africa, Europe and Canada and has served on
numerous boards of directors. Mr. Elliott is currently a director of Nortran
Pharmaceuticals Inc., a publicly traded company listed on the Vancouver Stock
Exchange and traded on the OTC Bulletin Board. He is also currently a director
of Develcon Electronics Ltd., a publicly traded company on The Toronto Stock
Exchange, and Vianet Technologies Inc., a publicly traded company on the OTC
Bulletin Board.
Yad Garcha has been a member of our board of directors since 1998. He has
been Vice President of Growthworks Capital Ltd., a venture capital company,
since 1998. Prior to joining Growthworks Capital Ltd., Mr. Garcha was Vice-
President of Investment of the Working Opportunity Fund (EVCC) ("WOF"), a
venture capital company, from 1994 to 1998. Mr. Garcha initially worked in
commercial banking with the Bank of Montreal from 1986 to 1988 before becoming
an Investment Manager with the Federal Business Development Bank from 1988 to
1994. Mr. Garcha has an aggregate of more than 12 years experience in banking
and finance and, in addition to serving on our board, currently serves on the
board of several bio-technology companies. Mr. Garcha has been a director since
July 1998. Mr. Garcha was nominated to our board pursuant to the agreement
between WOF and us that so long as WOF continues to hold a specified number of
our shares, WOF will have the right to have a director-nominee nominated to the
board. Mr. Garcha is a director of Angiotech Pharmaceutical Inc., a publicly
traded company on The Toronto Stock Exchange, and is a director of Stressgen
Biotechnologies Corp., a publicly traded company on both The Toronto Stock
Exchange and the Vancouver Stock Exchange.
Vincent Lum has been a member of our board of directors since November 1998.
He has been an Investment Manager of Royal Bank Capital Corporation ("RBCC")
since 1997. From 1993 until 1997, Mr. Lum was involved in early-stage
investments in technology companies for the B.C. Advanced Systems Institute.
Mr. Lum was nominated to our board pursuant to the agreement between RBCC and
us which provides that so long as RBCC or any of its affiliates holds our
shares, RBCC shall have the right to have a director-nominee nominated to the
board.
Our directors are all elected annually at our shareholders meetings for one-
year terms and serve until their successors are elected and qualified or they
sooner resign. RBCC and WOF each have a right to nominate one of the directors.
As a British Columbia corporation, we are required by British Columbia
corporate laws to include on our board of directors at least one person
ordinarily resident in British Columbia and a majority of persons ordinarily
resident in Canada. This requirement may limit the persons eligible to serve on
our board in the future.
At our Annual General Meeting of shareholders held in February 1999, the
shareholders set the number of directors for the current year at six. Our
articles provide that the number of directors can be increased by the board of
directors by up to one-third without shareholder approval. A director may
designate a representative to act on the director's behalf, including in
connection with matters in which the director may have an interest.
Director Compensation
In fiscal 1999, our directors will be paid Cdn$5,000 per year and Cdn$500 per
meeting attended in person and Cdn$300 per telephone meeting or committee
meeting. The chairman of the board and each subcommittee chair will receive
double the compensation described in this paragraph. Pursuant to our share
reclassification and consolidation and the adjustments under our stock option
plan, each director will be granted options to purchase 10,000 Class B shares
when they join the board of directors and 6,000 Class B shares each year
thereafter.
43
<PAGE>
Committees of the Board
Our board of directors has three subcommittees, the Compensation Committee,
the Audit Committee and the Nominating Committee. The Compensation Committee
reviews executive salaries and administers our stock option plan. In addition,
the Compensation Committee consults with management regarding compensation
policies and practices. The Audit Committee reviews the professional services
provided by independent auditors, the independence of such auditors from our
management, our annual financial statements, and our system of internal
accounting controls. The Audit Committee also reviews such other matters with
respect to our accounting, auditing and financial reporting practices and
procedures as it may find appropriate or as may be brought to its attention.
The Nominating Committee recommends individuals to be nominated for director.
44
<PAGE>
CONTROL OF REGISTRANT
The following table sets forth information regarding the beneficial ownership
of our common shares as of April 30, 1999, as adjusted to reflect the sale of
2,000,000 Class B shares in this offering for (a) each person known to us to
own beneficially more than 10% of either class of our common shares and (b) all
executive officers and directors as a group. The information in the table does
not reflect ownership of options or warrants.
<TABLE>
<CAPTION>
Prior to Offering After Offering
------------------------------------- -------------------------------------
Number of Number of Number of Number of
Class A Percent Class B Percent Class A Percent Class B Percent
Name Shares of Class Shares of Class Shares of Class Shares of Class
- ---------------------------- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Working Opportunity Fund
(EVCC) Ltd. ............... 160,000 10.6% 160,000 10.6% 160,000 10.6% 160,000 4.6%
Officers and directors
as a group (9 persons)(1).. 276,557 18.3% 276,557 18.3% 276,557 18.3% 276,557 7.9%
</TABLE>
- --------
(1) Includes 150,000 performance shares held by four persons which are
currently held in escrow. The shares are expected to be released from
escrow in calendar 1999. See "Interest of Management in Certain
Transactions" for a description of the performance shares and escrow.
45
<PAGE>
COMPENSATION OF DIRECTORS AND OFFICERS
Compensation of Officers and Directors
The aggregate cash compensation paid or payable to our officers and directors
as a group for services rendered during the fiscal year ended August 31, 1998
was Cdn$1,778,776.
The following table sets forth all compensation awarded to, earned by or paid
for services rendered in all capacities during fiscal 1998 by our chief
executive officer and each other executive officer who earned at least
Cdn$100,000 in fiscal 1998 ("Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------------------
Awards
---------------------------
Annual Compensation Class A Class B Payouts
------------------------------- Shares Shares Restricted -------
Other Annual Under Under Shares or All Other
Name and Salary Compensation Option Option Restricted LTIP Compensation
Principal Position Year in Cdn$ Bonus in Cdn$ Granted Granted Share Units Payouts in Cdn$
------------------ ---- ------- ----- ------------ ------- ------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Timothy Gamble.......... 1998 $90,000 -- $60,000(1) 7,000 7,000 -- -- --
President 1997 60,000 -- -- 4,000 4,000 -- -- --
1996 60,000 -- -- 12,250 12,250 -- -- --
W.D. Cameron White...... 1998 $90,000 -- $60,000(2) 7,000 7,000 -- -- --
Chief Executive 1997 60,000 -- 14,000(2) 16,025 16,025 -- -- --
Officer 1996 60,000 -- 8,000(2) -- -- -- -- --
Larry Sugar............. 1998 -- -- -- 5,000 5,000 -- -- $1,284,777(3)
President, Sugar 1997 -- -- -- -- -- -- -- 725,391(3)
Entertainment Ltd. 1996 -- -- -- 10,000 10,000 -- -- --
</TABLE>
- --------
(1) The amount shown was paid to a company controlled by Mr. Gamble for
consulting services. See "Interest of Management in Certain Transactions"
for further explanation of these fees.
(2) The amount shown was paid to a company controlled by Mr. White for legal
and other services. See "Interest of Management in Certain Transactions"
for further explanation of these fees.
(3) The amount shown was paid to Mr. Sugar as production fees. See "Interest of
Management in Certain Transactions" for further explanation of these fees.
Mr. Gamble has an employment agreement dated September 1, 1997, which was
amended effective April 1, 1999. Under the amended employment agreement, Mr.
Gamble is entitled to be paid a salary of Cdn$200,000 per annum, plus a
performance bonus of up to 50% of his salary.
Mr. White has an employment agreement dated September 1, 1997, which was
amended effective April 1, 1999. Under the amended employment agreement, Mr.
White is entitled to be paid a salary of Cdn$200,000 per annum, plus a
performance bonus of up to 50% of his salary.
Juliet Jones, our Chief Financial Officer, has an employment agreement dated
September 1, 1997, which was amended effective April 1, 1999. Under the amended
employment agreement, Ms. Jones is entitled to be paid a salary of Cdn$120,000
per annum, plus a performance bonus of up to 50% of her salary.
Under their agreements, Messrs. Gamble and White and Ms. Jones' performance
bonuses are calculated by the same formula based on the trading prices of our
shares. The formula compares the percentage increase or decrease during the
fiscal year of the trading price of our shares against the percentage of a peer
group of companies, determined by the Compensation Committee. If the price
performance of our shares exceeds
46
<PAGE>
specified levels compared to the peer group, the employee is eligible for an
increased percentage of the bonus. All of these employment agreements expire on
August 31, 2002 and provide that if they are terminated by us before
expiration, we will be obligated to pay the annual salaries and bonuses that
would be due for the remaining term of the agreement.
Mr. Sugar entered into an agreement with Sugar Entertainment Ltd., our
subsidiary, dated September 1, 1996 whereby Mr. Sugar is paid Cdn$1.00 per
annum plus producer's fees, writer's fees and director's fees on a case-by-case
basis for projects which he produces, writes or directs. Mr. Sugar's employment
agreement will expire September 1, 1999.
All of the employment agreements described above provide the individuals with
the usual employee benefits provided to our other full-time employees and
executives.
During fiscal 1998, each of our non-employee directors was granted options
under our stock option plan to purchase up to an aggregate 4,000 Class A shares
and 4,000 Class B shares at a price of Cdn$9.50 per share on or before
March 23, 2003. No stock options were exercised by any non-employee directors.
Option Grants During the Most Recently Completed Financial Year
Our officers and directors are eligible to receive grants of stock options
under our stock option plan. During fiscal 1998 we granted our officers and
directors options to purchase a total of 42,000 Class A shares and 42,000 Class
B shares at an exercise price of Cdn$9.50 per share.
The following table sets forth information concerning the option grants
during fiscal 1998 to the Named Executive Officers.
Option Grants During the Most Recently Completed Fiscal Year
<TABLE>
<CAPTION>
% of Total
Class A Shares Class B Shares Options Granted Exercise or
Name of Named Under Options Under Options to Employees Base Price Expiration
Executive Officer Granted(1)(#) Granted(1)(#) in Fiscal Year (Cdn$/Share) Date
- ------------------------ -------------- -------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Timothy Gamble.......... 7,000 7,000 17% $9.50 March 23, 2003
W.D. Cameron White...... 7,000 7,000 17% $9.50 March 23, 2003
Larry Sugar............. 5,000 5,000 12% $9.50 March 23, 2003
</TABLE>
- --------
(1) Granted pursuant to the terms of our stock option plan. The options are
subject to vesting over various periods up to two and one-half years after
the date of the original grant.
Aggregated Option Exercises During the Most Recently Completed Fiscal Year
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Unexercised Options in the Money Options
at Fiscal Year End at Fiscal Year End
Name of Named Securities Acquired Aggregate Value Exercisable/ Exercisable/
Executive Officer on Exercise (#) Realized (Cdn$) Unexercisable(1)(#) Unexercisable (Cdn$)
- ------------------------ ------------------- --------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Timothy Gamble.......... -- -- 37,500/9,000 --/--
W.D. Cameron White...... -- -- 37,050/9,000 --/--
Larry Sugar............. -- -- 25,000/4,800 --/--
</TABLE>
- --------
(1) The number of shares shown above consists of one-half Class A shares and
one-half Class B shares.
47
<PAGE>
Stock Option Plan
Our stock option plan is for eligible directors, senior officers and
employees of Peace Arch and our subsidiaries, and other key persons engaged by
us to assist us in the conduct and growth of our business.
As originally adopted, the plan provides that the aggregate number of shares
issuable upon the exercise of options under the plan will not exceed 250,000
Class A shares and 250,000 Class B shares. The maximum number of shares
reserved for issuance to any one person under the plan and any other of our
share compensation arrangements is 5% of the total number of shares outstanding
immediately prior to such issuance.
Under the plan, the exercise price is determined by the board of directors at
the time the option is granted, but the price may not be less than the higher
of the average of the daily high and low board lot trading prices of the shares
over the 10-day period immediately preceding the date of the grant and the
closing price of the shares on The Toronto Stock Exchange on the last trading
day preceding the date on which the grant of the option is approved by the
board of directors.
The plan provides that:
(1) the number of shares issuable to our insiders pursuant to options
granted under the plan, together with common shares issuable to insiders
under any other share compensation arrangement of Peace Arch, shall not:
(a) exceed 10% of the number of shares outstanding immediately prior
to the grant of any such option; or
(b) result in the issuance to insiders, within a one-year period, of
in excess of 10% of the number of shares outstanding immediately prior
to the grant of any such option;
(2) the number of shares issuable to any insider and the insider's
associates pursuant to options granted under the plan, together with shares
issuable to the insider or the insider's associates under any other share
compensation arrangement of Peace Arch shall not, within a one-year period,
exceed 5% of the number of shares outstanding immediately prior to the
grant of any option.
"Insiders" are defined under the plan as directors, officers and 10%
shareholders. The plan further provides that, if there is any change in the
shares similar to changes which, for example, occurred on the share
reclassification, the number of shares available for option, the shares subject
to option and the option price will be adjusted appropriately by the board of
directors in its sole discretion. The board of directors has determined that,
while any options outstanding at the time of the share reclassification will be
exercisable into Class A shares and Class B shares, any options granted in the
future will be exercisable into Class B shares only. This determination will be
effective upon, and subject to approval by, The Toronto Stock Exchange prior to
the consummation of this offering.
Under the plan, an option must be exercised within a period of ten years from
the date of grant and within 60 days of a holder's termination of his
relationship with us or within six months of such holder's death. Within those
limits, our board of directors has discretion to determine the exercise periods
for individual grants. The plan also includes provision for the option holder
to elect not to exercise all options such holder is entitled to exercise and to
receive instead that number of shares, when multiplied by the fair value per
share of such shares, as is equal to the number of shares originally subject to
option times the difference between the fair value and the exercise price per
share of such shares originally subject to option. Under our current plan we do
not provide financial assistance to holders of stock options to facilitate
their purchasing shares under the plan.
The plan is proposed to be amended by restructuring it to take advantage of
United States incentive stock option tax treatment for U.S. employees,
including employee-directors, of Peace Arch and its subsidiaries and to
increase the aggregate number of shares issuable upon the exercise of options.
In order to take advantage of
48
<PAGE>
such United States incentive stock option tax treatment, the administration of
the plan is to be changed from our board of directors to a committee appointed
by the board. Furthermore, our board of directors has approved an amendment to
the plan to provide that the number of Class B shares issuable upon exercise of
options be increased from 250,000 to 800,000 Class B shares upon completion of
this offering.
In accordance with the terms of the plan, the proposed amendments to the plan
are subject to shareholder approval at the meeting of shareholders scheduled
for July 14, 1999 and the approval of the stock exchanges upon which our shares
are listed or of other regulatory bodies having jurisdiction over our
securities.
We have not instituted any pension plans or retirement benefit plans and none
are proposed at this time.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
As at February 28, 1999, there was no indebtedness of any director, executive
officer, senior officer or associate of them to or guaranteed or supported by
us or any of our subsidiaries either pursuant to an employee purchase program
or otherwise.
Our only material transactions during the past three fiscal years in which
any of our directors or executive officers, or any principal shareholder, or
any associate or affiliate of them, has or had a material interest, direct or
indirect, were as follows.
In March 1996, we issued three-year 12% convertible debentures in the
aggregate principal amount of Cdn$500,000. The debentures are convertible into
13,158 Class A shares and 13,158 Class B shares. The debentures originally
matured on March 31, 1999. The maturity date has been extended to July 31,
1999. Messrs. Gamble and White, two of our directors and officers, each
purchased Cdn$100,000 principal amount of the debentures. We intend to repay
such debentures in full with the proceeds of this offering.
In October 1997, Mr. Cheikes, a director, loaned us Cdn$200,000 toward the
purchase of our property on West 1st in Vancouver. In February 1998, Messrs.
Gamble and White each loaned us Cdn$100,000 toward the purchase. The loans bore
interest at 12% per annum and were unsecured, with no specific terms of
repayment. These loans were repaid in full in February 1999.
In accordance with his employment agreement, Larry Sugar, the President of
Sugar Entertainment Ltd., our wholly-owned subsidiary, receives an annual
salary of Cdn$1.00 per year and we pay him producer's, writer's and director's
fees. We paid aggregate fees to Mr. Sugar of Cdn$725,000 and Cdn$1,285,000 in
1997 and 1998. For the first six months of fiscal 1999, we paid Cdn$1,196,000
to Mr. Sugar. At February 28, 1999, additional fees payable to Mr. Sugar under
the agreement were Cdn$583,000.
In fiscal 1998, we paid consulting fees to Plantation Capital Corp., a
British Columbia corporation owned and controlled by Mr. Gamble, of Cdn$60,000,
and for the six months ended February 28, 1999, we paid Cdn$30,000 to
Plantation Capital Corp. All of these fees were for consulting services
rendered to us. The arrangement was terminated effective March 31, 1999.
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We paid fees to W.D. Cameron White Law Corporation, a British Columbia
corporation owned and controlled by Mr. White, of Cdn$14,000 and Cdn$60,000 in
fiscal 1997 and 1998, and of Cdn$30,000 for the six months ended February 28,
1999 for legal and other services provided to us. The arrangement was
terminated effective March 31, 1999.
In May 1998, WOF, Peace Arch and Messrs. Sugar, White and Gamble entered into
a shareholders agreement which allows WOF to nominate a director, provides WOF
with pre-emptive rights in future securities offerings, registration rights and
includes rights of first refusal and other buy-sell and protective provisions
to each of the parties in the event of proposed transfer by the others. The
agreement, other than WOF's right to designate a director, terminates in
various circumstances, including in the event we complete a financing that
raises more than Cdn$7.0 million from parties other than WOF. In July 1998, we
entered into an agreement with RBCC which grants RBCC substantially the same
rights. As a result, except for the provisions concerning the designation of a
director, these agreements will terminate on the completion of this offering.
By agreement dated September 1, 1996, we acquired all of the issued and
outstanding common shares of Sugar Entertainment Ltd. In consideration for the
acquisition, we issued an aggregate of 22,500 Class A shares and Class B shares
(the "trading shares") at a deemed price of Cdn$10.00 per share and an
aggregate of 350,000 Class A shares and Class B shares (the "performance
shares") at a deemed price of Cdn$0.10 per share. The trading shares and
performance shares were subject to resale restrictions whereby they could not
be traded for a period of one year from the date of issuance. The performance
shares are held in escrow and may only be released at a rate of one performance
share for each Cdn$10.00 of cash flow generated by Sugar Entertainment Ltd.
Additionally, the performance shares may only be released if we meet our
current financial obligations in the ordinary course of business, remain in
good standing under local securities laws and receive the consent of the
British Columbia Securities Commission. All performance shares not released
within five years of the escrow agreement must be returned to us for
cancellation. During the term of the escrow, Mr. Sugar is not entitled to
voting, dividend or any dissolution rights on any of the performance shares not
released. During the year ended August 31, 1998, 200,000 of the 350,000
performance shares were released from escrow. We believe that the remaining
150,000 performance shares will be released during calendar 1999 to be
allocated equally between Class A shares and Class B shares.
In December 1997, 160,000 of the 350,000 performance shares were transferred,
subject to the escrow, to Mr. Gamble (70,000 shares), Mr. White (70,000 shares)
and Ms. Jones (20,000 shares). The transfer was subject to all of the escrow
conditions at the same price per share as was recorded when the performance
shares were issued. These amounts are also allocated equally between Class A
shares and Class B shares.
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DESCRIPTION OF CAPITAL STOCK
General
We were incorporated on October 22, 1986 under the name Vidatron Enterprises
Ltd. Effective February 13, 1992, we changed our name to The Vidatron Group
Inc., consolidated our share capital on a 1-for-5 basis and increased our
authorized capital to 50,000,000 shares without par value, of which 25,000,000
were designated as common shares and 25,000,000 were designated as preference
shares.
Effective February 5, 1997, we further consolidated our common shares on a 1-
for-4 basis, but maintained our total authorized common share capital at
25,000,000 common shares without par value and changed our name to Vidatron
Entertainment Group Inc.
Our authorized share capital currently consists of 50,000,000 shares without
par value divided into 25,000,000 common shares and 25,000,000 preference
shares.
On February 16, 1999, our shareholders approved a change in our capital
structure to reclassify each of our common shares into one-half of a Class A
share and one-half of a Class B share. To facilitate this offering, at a
meeting scheduled for July 14, 1999, we will seek further shareholder approval
of a further share consolidation. The combined effect of these changes in our
capital structure is that every five outstanding common shares will become one
Class A share and one Class B share. The Class B shares and Class A shares will
be identical in all material respects, except that the Class A shares will be
entitled to ten votes per share and the Class B shares to one vote per share.
Upon completion of this offering, the outstanding Class B shares will represent
approximately 19% of the combined voting power of our outstanding shares. The
purpose of the share reclassification and consolidation is to facilitate this
offering while helping to assure that we continue to qualify for favorable
Canadian tax and business incentives available to Canadian companies.
At the meeting scheduled for July 14, 1999, our shareholders will be asked to
approve the change of our name from Vidatron Entertainment Group Inc. to Peace
Arch Entertainment Group Inc.
Class A Shares and Class B Shares
Except for voting and conversion rights and rights with respect to dividends
and issuer bids, the Class A shares and the Class B shares have the same rights
in all respects.
Voting Rights
The holders of Class A shares and Class B shares are entitled to receive
notice of, to attend, and to vote at, all meetings of shareholders as a single
class, except for meetings when only the holders of shares of one class or a
particular series are entitled to vote separately pursuant to the Company Act
(British Columbia) or our articles. The holders of Class A shares are entitled
to ten votes per share held and the holders of Class B shares are entitled to
one vote per share held.
Dividends
Subject to the prior rights of holders of preference shares, if any, the
Class B shares and Class A shares will share ratably in any dividend declared,
paid or set aside for payment on the common shares. However, the board of
directors will have the right to declare dividends on the Class B shares
without declaring dividends on the Class A shares or while declaring a dividend
in a lesser amount. Since inception, we have not paid any dividends. We do not
currently plan to pay dividends, but intend instead to reinvest any earnings.
Subdivision and Consolidation
No subdivision or consolidation of either the Class A shares or Class B
shares can be carried out unless, at the same time, the other of such shares is
subdivided or consolidated in the same manner.
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Liquidation or Dissolution
In the event of liquidation or dissolution, the holders of Class A shares and
Class B shares will be entitled to share ratably in the remaining assets of
Peace Arch, subject to the prior rights of holders of preference shares, if
any.
Conversion Privilege of Class B Shares
In the event that an offer is made to purchase Class A shares and the offer
is one which must, pursuant to applicable securities legislation or the rules
of a stock exchange on which the Class A shares are then listed, be made to all
or substantially all the holders of Class A shares in a province of Canada to
which the requirement applies, each Class B share will become convertible at
the option of the holder, at any time while the offer is in effect, into one
Class A share. The conversion right may only be exercised for the purpose of
depositing the resulting Class A shares on behalf of the shareholder.
If Class A shares resulting from the conversion and deposited pursuant to the
offer are withdrawn by the shareholder or are not taken up by the offeror; or
the offer is abandoned or withdrawn by the offeror, the Class A shares will be
re-converted into Class B shares and a share certificate representing the Class
B shares will be sent to the shareholder by the transfer agent.
In the event that the offeror takes up and pays for the Class A shares
resulting from conversion, our transfer agent shall deliver to the holders
thereof the consideration paid for such shares by the offeror.
There will be no right to convert the Class B shares into Class A shares in
the following cases:
. the offer to purchase Class A shares is not required under applicable
securities legislation or the rules of a stock exchange on which the
Class A shares are then listed to be made to all, or substantially all,
holders of Class A shares who are in a province of Canada to which the
legislation applies, that is, the offer is an "exempt take-over bid"
within the meaning of the applicable securities legislation; or
. an offer to purchase Class B shares is made concurrently with the offer
to purchase Class A shares and the two offers are identical in respect of
price per share, percentage of outstanding shares for which the offer is
made, and in all other material respects. The offer to purchase Class B
shares must be unconditional, subject to the exception that the offer for
the Class B shares may contain a condition to the effect that the offeror
not be required to take up and pay for Class B shares tendered in
response to the offer if no shares are purchased pursuant to the
contemporaneous offer for the Class A shares; or
. holders of Class A shares representing, in the aggregate, more than 50%
of the then outstanding Class A shares, excluding shares owned
immediately prior to the offer by the offeror and any person acting
jointly or in concert with the offeror, as defined in the relevant
securities legislation certify to the transfer agent and to the secretary
of Peace Arch that they will not tender any shares in response to the
offer for the Class A shares.
Conversion of Class A Shares into Class B Shares
Each Class A share is convertible, at any time, at the option of its holder,
into one Class B share.
Normal Course Issuer Bid and Issuer Bid
In each case of a "normal course issuer bid" on the Class A shares, we are
required to extend the normal course issuer bid on an equal percentage of the
Class B shares. However, we may initiate a normal course issuer bid on the
Class B shares without being required to extend the normal course issuer bid to
the Class A shares. Under applicable Canadian securities legislation and
exchange provisions, a normal course issuer bid is
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generally one which allows an issuer to acquire, on a recognized stock
exchange, up to 5% of a class of its securities in any twelve month period
without complying with the detailed rules usually applicable to takeover type
transactions.
Similarly, subject to applicable securities legislation, in each case of an
issuer bid on the Class A shares (which is not a normal course issuer bid), we
are required to extend the issuer bid on an equal percentage of the Class B
shares, at the same price and upon the same terms and conditions. However, we
may initiate an issuer bid on the Class B shares without being required to
extend the issuer bid to the Class A shares.
Canadian Ownership Restrictions
We rely on our status as a Canadian corporation for our eligibility for
business incentives, tax credits and other financial assistance available only
to Canadian corporations. To further attempt to ensure that we will continue to
be eligible for such benefits, we are seeking shareholder approval, at a
meeting of our shareholders currently scheduled for July 14, 1999, of an
amendment to our articles to permit us to prohibit the issuance or transfer of
any of our shares to any person who is not "Canadian" (within the meaning of
any applicable statute, regulation, guideline or policy) if the issuance or
transfer would cause us to cease to be eligible for business incentives, tax
credits or other financial assistance. The proposed amendment to our articles
provides that, before an issue or transfer of shares is recorded in our
register of members, the transferee may be required to submit to us or our
agent a declaration as to its beneficial ownership of our shares, its
citizenship and such other matters as our board of directors may deem relevant
in order to determine whether the registration of the purchaser or transferee
should be prohibited. Such a declaration may also be required at any time when
proxies are being solicited from shareholders, before or at any meeting of
shareholders or at any time when, in the opinion of our directors, the holding
of voting rights attached to shares by any non-Canadian person should be
prohibited. Shareholders may, therefore, be restricted from selling their
shares to non-Canadians to the extent that the resulting holdings would result
in a breach of these restrictions.
Preference Shares
The preference shares are issuable from time to time in one or more series as
may be determined by the board of directors. The directors are authorized to
create and attach special rights and restrictions to each series of preference
shares. No series of preference shares have been created. In the event of
liquidation, dissolution or winding up, the holders of preference shares are
entitled, unless otherwise provided in the special rights and restrictions
attached to such shares, after the payment of declared but unpaid dividends
thereon, to be paid pari passu the amount of capital paid up per share in
priority of the holders of Class A shares and Class B shares. Each series of
preference shares ranks equally within the class as to dividends and return of
capital on winding up, liquidation or otherwise. The holders of preference
shares are not entitled to vote at any general meeting of shareholders unless
voting is expressly provided as a special right, subject to the provisions of
the Company Act (British Columbia). The creation of a series of preference
shares having rights superior to those of the common shares may give rise to
shareholder approval procedures under the policies of Canadian securities
regulatory authorities having jurisdiction at the time.
Exchange Controls and Other Limitations Affecting Security Holders
There is no law or governmental decree or regulation in Canada that restricts
the export or import of capital, or affects the payment of dividends, interest
or other payments to non-resident holders of Class B shares, other than
withholding tax requirements. See "Tax Considerations" for a discussion of
these withholding requirements.
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There is no limitation imposed by Canadian law or by our current articles on
the right of a non-resident to hold or vote Class B shares, other than as
provided by the Investment Canada Act (the "Act") enacted on June 20, 1985, as
amended, as further amended by the North American Free Trade Agreement (NAFTA)
Implementation Act (Canada) and the World Trade Organization (WTO) Agreement
Implementation Act, which requires the prior notification and, in certain
cases, advance review and approval by the Government of Canada of the
acquisition by a "non-Canadian" of "control" of a "Canadian business", all as
defined in the Act. For the purposes of the Act, "control" can be acquired
through the acquisition of all or substantially all of the assets used in the
Canadian business or the direct or indirect acquisition of interests in an
entity that carries on a Canadian business, or which controls the entity which
carries on the Canadian business. Under the Act, control of a corporation is
deemed to be acquired through the acquisition of a majority of the voting
shares of a corporation, and is presumed to be acquired where more than one-
third, but less than a majority, of the voting shares of a corporation are
acquired, unless it can be established that the corporation is not controlled
in fact through the ownership of voting shares. Other rules apply with respect
to the acquisition of non-corporate entities.
Investments requiring review and approval include direct acquisitions of
Canadian businesses with assets with a gross book value of Cdn$5.0 million or
more; indirect acquisitions of Canadian businesses with assets of Cdn$50.0
million or more; and indirect acquisitions of Canadian businesses where the
value of assets of the entity or entities carrying on business in Canada,
control of which is indirectly being acquired, is greater than Cdn$5.0 million
and represents greater than 50% of the total value of the assets of all the
entities, control of which is being acquired. Generally speaking, the value of
the business acquisition threshold (the "Threshold") is increased from those
levels outlined where the acquisition is by a member of NAFTA or a WTO Investor
or by a non-Canadian other than a WTO Investor where the Canadian business that
is the subject of the investment is immediately before the investment
controlled by a WTO Investor. The Threshold is to be determined yearly in
accordance with a formula set forth in the Act.
Different provisions and considerations apply with respect to investment to
acquire control of a Canadian business that, as defined in the Act or
regulations:
.Engages in production of uranium and owns an interest in producing uranium
property in Canada;
.Provides financial services;
.Provides transportation services;
.Is a cultural business.
Peace Arch is considered to be a cultural business pursuant to the Act.
If an investment is reviewable, an application for review in the form
prescribed by regulation is normally required to be filed with the Ministry of
Industry, Director of Investment prior to the investment taking place and the
investment may not be consummated until the review has been completed and
ministerial approval obtained. Applications for review concerning indirect
acquisitions may be filed up to 30 days after the investment is consummated.
Applications concerning reviewable investments in culturally sensitive and
other specified activities referred to in the preceding paragraph are required
upon receipt of a notice for review. There is, moreover, provision for the
Minister (a person designated as such under the Act) to permit an investment to
be consummated prior to completion of review if he is satisfied that delay
would cause undue hardship to the acquirer or jeopardize the operation of the
Canadian business that is being acquired.
See "Business--Regulatory Considerations--Canadian Content Requirements" and
"Description of Capital Stock--Canadian Ownership Restrictions" for a
description of other Canadian and British Columbia ownership requirements.
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Transfer Agent and Registrar
The transfer agent and registrar for our Class B shares in the U.S. is
ChaseMellon Shareholder Services, L.L.C., New Jersey.
In order to comply with applicable requirements of Canadian provincial
securities commissions, we have instructed our transfer agent not to register
any transfer of our shares to any resident of Ontario, Canada, for a period of
not less than 45 days from the date of this prospectus or to any resident of
British Columbia for a period of not less than four months from such date.
TAX CONSIDERATIONS
The discussions summarize the material tax considerations relevant to an
investment in Class B shares by individuals and corporations who, for income
tax purposes, are resident in the U.S. for purposes of the Convention (as
hereinafter defined) and are not resident in Canada, who hold Class B shares as
a capital asset, and who do not use or hold the Class B shares in carrying on a
business through a permanent establishment in Canada or in connection with a
fixed base in Canada (collectively, "Unconnected U.S. Shareholders" or
"Holders"). The tax consequences of an investment in the Class B shares by
investors who are not Unconnected U.S. Shareholders may differ substantially
from the tax consequences discussed herein. The discussion of U.S. tax
considerations is addressed only to Unconnected U.S. Shareholders whose
"functional currency" within the meaning of section 985 of the Internal Revenue
Code of 1986, as amended (the "Code"), is the U.S. dollar, and to U.S. citizens
who are not residents in the U.S. for purposes of the Convention, but who
otherwise meet the definition of Unconnected U.S. Shareholders. Furthermore,
the discussion of U.S. tax considerations does not address the tax treatment of
Unconnected U.S. Shareholders that own (or are deemed for U.S. federal income
tax purposes to own) 10% or more of the total combined voting power of all
classes of voting stock of Peace Arch. The discussion of Canadian tax
considerations does not address the tax treatment of a trust, company,
organization or other arrangement that is a resident of the U.S. and that is
generally exempt from U.S. tax.
This discussion does not address all of the income tax consequences that may
be applicable to any particular Holder subject to special treatment under the
U.S. federal income tax law or to any particular Holder in light of such
Holder's particular facts and circumstances. Some Holders, including tax-exempt
entities, banks, insurance companies and persons who hold the Class B shares as
part of a synthetic security, conversion transaction or "straddle" or hedging
transactions may be subject to special and/or different rules not discussed
below. Statements of legal conclusion of U.S. tax considerations reflect the
opinion of Brand Farrar & Buxbaum LLP as to the material U.S. federal income
tax consequences of the acquisition, ownership and disposition of the Class B
shares by Unconnected U.S. Shareholders and do not purport to be a complete
analysis or listing of all possible tax considerations. The discussion of U.S.
tax considerations is based upon the provisions of the Code, and counsel's
understanding of published administrative practices of the Internal Revenue
Service and judicial decisions, all of which are subject to change possibly
with retroactive effect. Statements of legal conclusions of Canadian tax
considerations reflect the opinion of Thorsteinssons, our Canadian tax lawyers,
as to the material Canadian federal income tax consequences of the acquisition,
ownership and disposition of the Class B shares by Unconnected U.S.
Shareholders and do not purport to be a complete analysis or listing of all
possible tax consequences. The discussion of Canadian tax considerations is
based upon the provisions of the Income Tax Act (Canada) (the "Tax Act"), the
Convention between Canada and the U.S. of America with Respect to Taxes on
Income and on Capital, as amended from time to time (the "Convention"), and
counsel's understanding of published administrative practices of Revenue Canada
and judicial decisions, all of which are subject to change. The discussion does
not take into account the tax laws of the various provinces or territories of
Canada or the tax laws of the various state and local jurisdictions in the U.S.
This discussion is not intended to be nor should it be construed as legal or
tax advice to any particular investor. Therefore, prospective investors should
consult their own tax advisors with respect to the tax consequences of an
investment in the Class B shares.
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U.S. Federal Income Tax Considerations
Unconnected U.S. Shareholders generally will treat the gross amount of
distributions paid by us, including the amount of any Canadian tax withheld, as
foreign source dividend income for U.S. federal income tax purposes to the
extent of our current or accumulated earnings and profits, as computed for U.S.
federal income tax purposes. Distributions in excess of that amount will reduce
an Unconnected U.S. Shareholder's tax basis in the Class B shares, but not
below zero, and the remainder, if any, will be treated as taxable capital gain.
In general, in computing its U.S. federal income tax liability, an Unconnected
U.S. Shareholder may elect for each taxable year whether to claim a deduction
or, subject to the limitations described below, a credit for Canadian taxes
withheld from dividends paid on its Class B shares. If the Unconnected U.S.
Shareholder elects to claim a credit for such Canadian taxes, the election will
be binding for all foreign taxes paid or accrued by the Unconnected U.S.
Shareholder for such taxable year. The Code applies various limitations on the
amount of the foreign tax credit that may be available to a U.S. taxpayer based
upon the segregation of foreign source income into separate categories, or
"baskets", of income. For purposes of applying the foreign tax credit
limitation, dividends are generally included in the passive income basket or
the financial services income basket if received by a financial services
entity. The amount of credit that may be claimed with respect to the basket of
income to which the dividend is allocated, and to which the foreign taxes are
attributable, generally may not exceed the same proportion of the U.S. tax on
worldwide taxable income, before applying the foreign tax credit as the U.S.
holder's foreign source taxable income allocable to such basket bears to such
U.S. holder's entire taxable income. The foreign tax credit is disallowed for
dividends on stock unless a minimum holding period requirement is satisfied and
additional limitations may restrict the ability of some individuals to claim
the foreign tax credit. Accordingly, investors should consult their own tax
advisors with respect to the potential consequences to them of the foreign tax
credit limitations. Dividends paid by us generally will constitute "portfolio
income" for purposes of the limitation on the use of passive activity losses by
investors and "investment income" for purposes of the limitation on investors'
investment interest expense. Dividends paid by us will not be eligible for the
"dividends received deduction" generally allowed with respect to dividends paid
by U.S. corporations under Section 243 of the Code, but may be eligible for the
dividends received deduction which may be claimed by 10% corporate shareholders
under Section 245 of the Code.
For U.S. federal income tax purposes, the amount of any distributions made on
Class B shares to an Unconnected U.S. Shareholder in Canadian dollars will
equal the U.S. dollar value of the Canadian dollars calculated by reference to
the appropriate exchange rate in effect on the date of receipt of the
distribution, regardless of whether the Canadian dollars are actually converted
into U.S. dollars upon receipt. Unconnected U.S. Shareholders should consult
their own tax advisors regarding the treatment of foreign currency gain or
loss, if any, on any Canadian dollars which are converted into U.S. dollars
subsequent to receipt by the Unconnected U.S. Shareholder.
The sale of Class B shares generally will result in the recognition of gain
or loss to the Holder in an amount equal to the difference between the amount
realized and the Holder's adjusted basis in the Class B shares. Provided the
Holder is not considered a "dealer" in the Class B shares sold, gain or loss
upon the sale of Class B shares will generally be capital gain or loss.
Capital losses are deductible to the extent of capital gains. Individual
taxpayers may deduct excess capital losses up to $3,000 a year, $1,500 in the
case of a married individual filing separately, from ordinary income. Non-
corporate taxpayers may carry forward unused capital losses indefinitely.
Unused capital losses of a corporation may be carried back three years and
carried forward five years.
In the case of individuals, net capital gain from the disposition of property
held for investment is excluded from investment income for purposes of
computing the limitation on the deduction for investment interest applicable.
An individual may, however, elect to include such net capital gain in
investment income if such taxpayer reduces the amount of its net capital gain
that is otherwise eligible for preferential capital gains tax treatment by such
amount. In that event, such investment income would be taxable at ordinary
income rates.
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For any taxable year of Peace Arch, if at least 75% of our gross income is
"passive income", as defined in the Code, or if at least 50% of our assets, by
average fair market value, or, prior to fiscal year 1998, possibly by adjusted
tax basis, are assets that produce or are held for the production of passive
income, we will be a passive foreign investment company ("PFIC"). If we are a
PFIC for any taxable year during which an Unconnected U.S. Shareholder owns any
Class B shares, the Unconnected U.S. Shareholder will be subject to special
U.S. federal income tax rules, set forth in Sections 1291 to 1298 of the Code,
with respect to all of such Unconnected U.S. Shareholder's Class B shares. If
we were treated as a PFIC at any time during an Unconnected U.S. Shareholder's
holding period for Class B shares, such Unconnected U.S. Shareholder generally
would be subject to additional tax as well as interest charges with respect to
the deferral of tax for the period during which such Class B shares were held.
Any such additional tax and interest charges would apply upon the disposition
of the Class B shares or the receipt of dividends. Additionally, any gain
realized on the disposition of Class B shares would be treated as ordinary
income or taxable at ordinary income rates rather than as capital gain or
taxable at capital gains rates, and the tax basis of the Class B shares held by
an Unconnected U.S. Shareholder generally would not be stepped up to fair
market value at death. Under some circumstances, shareholders of a PFIC may
elect to be taxed currently on their pro rata shares of PFIC income and capital
gain or, in accordance with recently enacted legislation, report income
currently on a mark to market basis with respect to their shares of stock in
the PFIC.
We do not believe that we are likely to be a PFIC in the current or future
taxable years; however, because the PFIC determination is made annually on the
basis of facts and circumstances that may be beyond our control and because the
principles and methodology for determining the fair market values of our assets
are unclear, there can be no assurance that we will not be a PFIC for such
years. Special rules not described herein will also apply if we become a
"controlled foreign corporation" for U.S. federal income tax purposes. We would
be treated as a controlled foreign corporation if "U.S. Shareholders" were to
own, actually or constructively, more than 50% of the total combined voting
power or total value of the company. For this purpose, the term "U.S.
Shareholder" means a U.S. person who owns, actually or constructively, ten
percent or more of the total combined voting power of Peace Arch. In light of
the ownership requirements necessary for our productions to constitute
"Canadian-content" productions and for us to claim Canadian tax benefits, it is
not anticipated that we will become a controlled foreign corporation for U.S.
federal income tax purposes.
U.S. Information Reporting and Backup Withholding
Under current regulations, the proceeds of a sale of Class B shares through a
U.S. or U.S. related broker will be subject to U.S. information reporting and
may be subject to the 31% U.S. backup withholding requirements. Unconnected
U.S. Shareholders generally can avoid the imposition of U.S. backup withholding
by reporting their taxpayer identification number on an Internal Revenue
Service Form W-9; non-U.S. shareholders generally can avoid the imposition of
U.S. backup withholding tax by providing to their broker or paying agent a duly
completed Internal Revenue Service Form W-8. Any amounts withheld under the
backup withholding rules will be allowed as a refund or a credit against the
shareholder's U.S. federal income tax, provided the required information is
furnished to the Internal Revenue Service.
In general, dividends paid on the Class B shares, if any, by a foreign paying
agent will not be subject to U.S. backup withholding tax based on currently
effective regulations. Under treasury regulations that are generally effective
with respect to payments made after December 31, 2000 (the "New Withholding
Regulations"), dividends paid in the U.S. on the Class B shares to Unconnected
U.S. Shareholders or to non-U.S. shareholders through a U.S. or U.S. related
person may be subject to the 31% U.S. backup withholding tax unless
certification requirements are satisfied.
The New Withholding Regulations consolidate and modify the current
certification requirements and means by which a holder may claim exemption from
U.S. federal income tax withholding and provide presumptions regarding the
status of holders when payments to the holders cannot be reliably associated
with
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appropriate documentation provided to the payor. All holders should consult
their tax advisors regarding the application of the New Withholding
Regulations.
Canadian Tax Considerations
Dividends paid or credited, or that we are deemed to pay or credit, on the
Class B shares to Unconnected U.S. Shareholders will be subject to Canadian
withholding tax. Under the Convention, the maximum rate of withholding tax on
dividends paid or credited on the Class B shares is 15% if the beneficial owner
of such dividends is an Unconnected U.S. Shareholder. However, that rate is
reduced to 5% under the Convention if the beneficial owner of such dividends is
an Unconnected U.S. Shareholder that is a corporation that owns at least 10% of
the voting stock of Peace Arch.
An Unconnected U.S. Shareholder will not be subject to tax in Canada on any
capital gain realized upon a disposition or deemed disposition of the Class B
shares, provided that the Class B shares do not constitute "taxable Canadian
property" of the Unconnected U.S. Shareholder within the meaning of the Tax
Act. The Class B shares will not generally constitute taxable Canadian property
of the Unconnected U.S. Shareholder unless, at any time in the five-year period
that ends at the time of the disposition, the Unconnected U.S. Shareholder,
either alone or together with persons with whom the Unconnected
U.S. Shareholder did not deal at arm's length, owned, had an interest in or the
right to acquire 25% or more of the issued Class B shares or any series or
class of our capital stock. Even if the Class B shares are taxable Canadian
property, under the Convention, gains derived by an Unconnected
U.S. Shareholder would generally not be taxable in Canada unless the value of
the Class B shares is derived principally from real property situated in
Canada. We believe that the value of our Class B shares is not currently
principally derived, directly or indirectly, from real property situated in
Canada and do not expect this to change in the foreseeable future.
Canada does not currently impose any estate taxes or succession duties.
58
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, for whom The Seidler Companies Incorporated and
Josephthal & Co. Inc. are acting as representatives, have agreed to purchase,
and we have agreed to sell to the underwriters, the number of Class B shares
stated opposite each underwriter's name below.
<TABLE>
<CAPTION>
Number of
Class B
Underwriters Shares
------------ ---------
<S> <C>
The Seidler Companies Incorporated.................................
Josephthal & Co. Inc...............................................
---------
Total............................................................ 2,000,000
=========
</TABLE>
The underwriters' obligations are subject to conditions, including the
receipt of opinions and letters from our counsel and independent public
accountants. The underwriters must purchase and pay for all the Class B shares
if any of them are purchased.
We have been advised by the representatives that the underwriters propose to
offer the Class B shares directly to the public at the public offering price
stated on the cover page of this prospectus and to securities dealers at that
price less a concession not in excess of per share. The underwriters may
allow, and the selected dealers may reallow, a discount not in excess of per
share to brokers and dealers. After the public offering of the Class B shares,
the representatives may change the public offering price and other selling
terms, but no change will affect the amount of proceeds to be received by us as
stated on the cover page of this prospectus.
We have granted the underwriters an option, exercisable for a period of 45
days after the date of this prospectus, to purchase up to an additional 300,000
Class B shares at the public offering price, less the underwriting discount and
commissions, set forth on the cover page of this prospectus. The underwriters
may exercise this option solely to cover over-allotments, if any. To the extent
they do so, the underwriters will be committed, subject to conditions, to
purchase such additional Class B shares in approximately the same proportions
as set forth in the above table.
Our directors, officers and some of our shareholders, who own an aggregate of
approximately 543,224 Class A shares and an equal number of Class B shares, are
expected to agree that they will not, without the prior written consent of the
representatives, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, sell short, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend or otherwise transfer or
dispose of, directly or indirectly, any Class A shares or Class B shares or any
securities convertible into or exercisable or exchangeable for Class A shares
or Class B shares, or enter into any swap or similar agreement that transfers,
in whole or in part, any of the economic consequences of ownership of Class A
shares or Class B shares, for a period of six months after the completion of
this offering. The representatives, on behalf of the underwriters, may, in
their sole discretion and at any time without notice, release all or any
portion of the shares subject to these lock-up agreements. In addition, we have
agreed that, for a period of six months after the date of completion of this
offering, we will not, without the consent of the representatives, purchase or
sell any shares of capital stock or issue any options or warrants or other
securities convertible into or exercisable for shares of our capital stock,
except for grants of options under the stock option plan at an exercise price
of not less than the public offering price in this offering.
We have agreed to issue to the representative, for a total of Cdn$200,
warrants to purchase up to 200,000 Class B shares at an exercise price per
share equal to 120% of the public offering price of the Class B shares in this
offering. These warrants will be exercisable for a period of four years
beginning one year after the date of this prospectus and may not be
transferred, assigned or hypothecated for a period of one year, except to
officers of the representatives and any successors to the representatives. The
representatives' warrants include a so-called net exercise provision permitting
the holders to pay the exercise price by cancellation of a number of the
59
<PAGE>
Class B shares covered by the warrants with a fair market value equal to the
exercise price of the representatives' warrants. The holders of the warrants
will have no voting, dividend or other shareholder rights until the warrants
are exercised.
We have agreed to pay The Seidler Companies Incorporated a non-accountable
expense allowance equal to 2% of the total proceeds from the sale of Class B
shares in this offering and have granted it the right of first refusal for a
period of two years from completion of this offering to be retained as our
exclusive financial adviser.
The representatives have advised us that they do not expect any sales of the
Class B shares to be made to discretionary accounts controlled by the
underwriters.
The underwriting agreement provides that we will indemnify the underwriters
and their controlling persons against liabilities under the U.S. Securities Act
or will contribute to payments the underwriters and their controlling persons
may be required to make in respect thereof. We are generally obligated to
indemnify the underwriters and their respective controlling persons in
connection with losses or claims arising out of any untrue statement of a
material fact contained in this prospectus or in related documents filed with
the Securities and Exchange Commission or with any state securities
administrator or arising out of any omission to state in any of such documents
any material fact required to be stated in such documents or necessary to make
the statements made in such documents, in light of the circumstances under
which they were made, not misleading. In addition, we are generally obligated
to indemnify the underwriters an their respective controlling persons in
connection with losses of claims arising out of any breach of any of our
representations, warranty agreements or covenants contained in the underwriting
agreement.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids as permitted under Regulation
M under the U.S. Securities Exchange Act of 1934. Over-allotment involves
syndicate sales in excess of the number of Class B shares to be sold in this
offering, which creates a syndicate short position. Stabilizing transactions
permit bids for and purchases of Class B shares so long as the stabilizing bids
do not exceed a specified maximum. Syndicate covering transactions involve the
purchase of Class B shares in the open market in order to cover a syndicate
short position. Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member when the Class B shares originally sold by
such syndicate member are purchased in a stabilizing transaction or syndicate
covering transaction to cover syndicate short positions. Stabilizing
transactions, syndicate covering transactions, and penalty bids may cause the
price of the Class B shares to be higher than it would otherwise be in the
absence of such transactions. These transactions may be effected on the
American Stock Exchange, or otherwise, and, if commenced, may be discontinued
at any time.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding 5,025,942 shares,
comprised of 1,512,971 Class A shares and 3,512,971 Class B shares, of which
2,000,000 Class B shares are offered under this prospectus. The 2,000,000 Class
B shares to be sold in this offering will be freely tradeable under the U.S.
Securities Act without restriction or limitation, except for any such shares
held by any of our "affiliates," as the term is defined in Rule 144 of the U.S.
Securities Act. Any Class B shares purchased by our affiliates generally may
only be publicly sold subject to the requirements of Rule 144 or pursuant to a
registration statement or an exemption therefrom.
The remaining 3,025,942 outstanding shares have not been registered under the
U.S. Securities Act and therefore will be treated as "restricted securities"
and may be publicly sold into the U.S. only if registered or if the sale is
made in accordance with an exemption from registration, such as Rule 144 or
Regulation S promulgated under the U.S. Securities Act. Under these exemptions,
commencing 90 days after the date of this prospectus substantially all of the
other 1,512,971 Class B shares and 1,512,971 Class B shares issuable to such
persons upon conversion of the Class A shares, other than those held by
"affiliates", generally will be eligible for resale in the U.S. without
registration. This may adversely affect the market price of the Class B shares
and could effect the amount of trading of such shares on the American Stock
Exchange, particularly if the trading price on the American Stock Exchange were
to be higher than the trading price on The Toronto Stock Exchange at any
particular time.
Our officers, directors and some of our shareholders have agreed not to sell,
offer or otherwise dispose of any of our securities for a period of six months
from the date of this prospectus without the prior written consent of
representatives of the underwriters. Upon the expiration of this six-month
lock-up period, or earlier upon the consent of the representative, all of these
shares will become eligible for sale subject to the restrictions of Rule 144.
In general, under Rule 144, as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned shares for at least one
year, including an affiliate of Peace Arch, would be entitled to sell, within
any three-month period, that number of shares that does not exceed the greater
of 1% of the then-outstanding Class B shares, approximately 35,000 shares after
this offering, and the average weekly trading volume in our Class B shares
during the four calendar weeks immediately preceding the date on which the
notice of sale is filed with the U.S. Securities and Exchange Commission,
provided manner of sale and notice requirements and requirements as to the
availability of current public information about the company are satisfied. In
addition, our affiliates must comply with the restrictions and requirements of
Rule 144, other than the one-year holding period requirement, in order to sell
shares of common stock. As defined in Rule 144, an "affiliate" of an issuer is
a person who, directly or indirectly, through the use of one or more
intermediaries controls, or is controlled by, or is under common control with,
such issuer. Under Rule 144(k), a holder of "restricted securities" who is not
deemed an affiliate of the issuer and who has beneficially owned shares for at
least two years would be entitled to sell shares under Rule 144(k) without
regard to the limitations described above.
As of April 30, 1999, options to purchase a total of 196,850 Class A shares
and 196,850 Class B shares were outstanding. In addition, at our shareholders
meeting scheduled for July 14, 1999, the shareholders are being asked to
approve increasing the amount of shares eligible for issuance under the option
plan to 800,000 Class B shares upon the completion of this offering. Class B
shares issued upon the exercise of options granted under our option plan or
Class B shares issued upon conversion of Class A shares issued upon exercise of
options granted under our option plan will be eligible for resale in the public
market from time to time subject to vesting and the expiration of the lock-up
agreements referred to above. These shares may be freely tradable subject to
the requirements of Rule 701 and contractual obligations beginning six months
after the date of this prospectus.
Following the completion of this offering, we intend to file a registration
statement to register for resale the Class B shares reserved for issuance under
our option plan. Such registration statement will become effective immediately
upon filing.
61
<PAGE>
As of April 30, 1999, warrants exercisable for 50,000 Class A shares and
50,000 Class B shares were outstanding. The holders had the right to require us
to use reasonable efforts to include 25,000 of the Class B shares underlying
the warrants in our registration statements to the extent allowed under
applicable securities laws. It is not anticipated that any of such shares will
be included in this offering and therefore, in the event of future offerings,
we may be required to include such shares. In the alternative, the holders
would be entitled to sell, pursuant to Rule 144, their 50,000 Class B shares
issuable upon exercise of the warrants and the 50,000 Class B shares issuable
upon conversion of the 50,000 Class A shares issuable upon exercise of the
warrants.
We cannot predict the effect, if any, that future sales of Class B shares or
the availability of Class B shares for future sale will have on the market
price of the Class B shares. Sales of substantial numbers of Class B shares in
the public market or the perception that such sales will occur could adversely
affect the market price of the Class B shares and could impair our ability to
raise capital through the offering of our equity securities.
LEGAL MATTERS
Legal matters with respect to the validity of the Class B shares being
offered hereby are being passed upon for us by a member of Page Fraser &
Associates, Vancouver, British Columbia, Canada. Legal matters related to the
offering are being passed upon for us by Brand Farrar & Buxbaum LLP, Los
Angeles, California, with respect to U.S. law, and for the underwriters by Troy
& Gould Professional Corporation, Los Angeles, California. Legal matters
related to Canadian legal matters are being passed upon for the underwriters by
Bull, Housser & Tupper, Vancouver, British Columbia, Canada.
EXPERTS
The consolidated financial statements as of August 31, 1998 and for the year
then ended have been included in this prospectus in reliance upon the report of
KPMG LLP, independent chartered accountants, appearing elsewhere herein and in
the registration statement and upon the authority of said firm as experts in
accounting and auditing. The consolidated financial statements as of August 31,
1997 and for each of the years ended August 31, 1997 and August 31, 1996 have
been included in this prospectus in reliance upon the report of Ellis Foster,
independent chartered accountants, appearing elsewhere herein and in the
registration statement and upon the authority of said firm as experts in
accounting and auditing. In February 1999, we changed auditors from Ellis
Foster to KPMG LLP. There were no reportable disagreements with Ellis Foster in
the two years preceding the date of the change in auditors.
62
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the U.S. Securities and Exchange Commission a registration
statement on Form F-1 under the U.S. Securities Act of 1933, as amended,
covering the Class B shares offered under this prospectus. This prospectus does
not contain all of the information set forth in the registration statement and
the exhibits. For further information about us and the Class B shares, please
read the entire registration statement. Statements contained in this prospectus
about any contract, agreement or any other document are not necessarily
complete. You should refer to the copy of the document filed as an exhibit to
the registration statement or otherwise with the Securities and Exchange
Commission. Our statements in the Registration Statement are qualified by the
full text of the exhibits. The registration statement, including all exhibits,
may be inspected without charge at the Securities and Exchange Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as
the Securities and Exchange Commission's regional offices at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite
1300, New York, New York 10048, and copies may be obtained from the offices.
You may obtain information regarding the operation of the public reference
rooms at 1-800-SEC-0330.
We will furnish our shareholders with annual reports containing financial
statements and a reconciliation with U.S. GAAP audited by an independent
chartered accounting firm. We will also furnish quarterly reports for the first
three quarters of each fiscal year containing unaudited financial information.
Our annual reports and quarterly reports are prepared in accordance with
Canadian GAAP and in Canadian dollars. We will be subject to the reporting
requirements of the U.S. Securities Exchange Act of 1934, applicable to foreign
private issuers and we will file reports and other information with the
Securities and Exchange Commission. As a foreign private issuer, we are exempt
from provisions of the U.S. Securities Exchange Act of 1934 prescribing the
furnishing and content of proxy statements and periodic reports and from
provisions of the U.S. Securities Exchange Act of 1934 relating to short-swing
profits reporting and liability.
In addition, all of our continuous disclosure documents are available on-line
on SEDAR, the System for Electronic Document Analysis and Retrieval, used by
companies to electronically file information with the Canadian Securities
Administrators. SEDAR is located on the internet at www.sedar.com and is
operated by The Canadian Depository for Securities.
FINANCIAL STATEMENT PRESENTATION
Our audited consolidated financial statements as of August 31, 1998 and 1997
and for each of the three years ended August 31, 1998 and related notes,
together with the unaudited interim consolidated financial statements as at
February 28, 1999 and for the six months ended February 28, 1999 and 1998, are
referred to herein as the "consolidated financial statements." Although
unaudited, the interim consolidated financial statements for the six months
ended February 28, 1999 and 1998 reflect all adjustments, consisting solely of
normal recurring adjustments which are, in the opinion of management, necessary
to fairly present the financial results for the periods presented.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Auditors' Report (KPMG LLP)............................................. F-2
Auditors' Report (Ellis Foster)......................................... F-3
Consolidated Balance Sheets as at August 31, 1997 and 1998 (audited),
and February 28, 1999 (unaudited)...................................... F-4
Consolidated Statements of Operations and Deficit for the years ended
August 31, 1996, 1997 and 1998 (audited), and for the six months ending
February 28, 1998 and 1999 (unaudited)................................. F-5
Consolidated Statements of Cash Flows for the three years ended August
31, 1996, 1997 and 1998 (audited), and for the six months ended
February 28, 1998 and 1999 (unaudited)................................. F-6
Notes to Consolidated Financial Statements for the years ended August
31, 1996, 1997 and 1998 (audited), and for the six months ended
February 28, 1998 and 1999 (unaudited)................................. F-7
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
When the transaction referred to in note 20(c) of the Notes to Consolidated
Financial Statements has been consummated, we will be in a position to render
the following report.
/s/ KPMG LLP
The Board of Directors
Vidatron Entertainment Group Inc.
We have audited the consolidated balance sheet of Vidatron Entertainment
Group Inc. as at August 31, 1998 and the consolidated statements of operations
and deficit and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at August 31,
1998 and the results of its operations and its cash flows for the year then
ended in accordance with generally accepted accounting principles in Canada.
Significant differences between Canadian and United States accounting
principles are explained and quantified in note 19 to the financial statements.
The consolidated financial statements as at August 31, 1997 and for the years
ended August 31, 1997 and 1996 were audited by other auditors who expressed an
opinion without reservation on these statements in their report dated November
12, 1997.
Chartered Accountants
Vancouver, Canada
February 19, 1999, except
as to note 20(c) which
is as of ., 1999
F-2
<PAGE>
AUDITORS' REPORT
When the transaction referred to in note 20(c) of the Notes to Financial
Statements has been consummated, we will be in a position to render the
following report:
/s/ Ellis Foster
The Board of Directors
Vidatron Entertainment Group Inc.
We have audited the consolidated balance sheet of Vidatron Entertainment
Group Inc. as at August 31, 1997 and the consolidated statements of operations
and deficit and cash flows for the years ended August 31, 1997 and 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at August 31,
1997 and the results of its operations and its cash flows for the years ended
August 31, 1997 and 1996 in accordance with generally accepted accounting
principles in Canada.
Significant differences between Canadian and United States accounting
principles are explained and quantified in note 19 to the financial statements.
Chartered Accountants
Vancouver, Canada
November 12, 1997, except as to note 20(c) which is as of , 1999
F-3
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
August 31,
----------------- February 28,
1997 1998 1999
-------- ------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents....................... $ 1,744 $ 1,876 $ 445
Accounts receivable............................. 2,429 2,505 4,104
Tax credits receivable (note 3)................. 2,370 7,730 13,213
Production costs in progress.................... 3,862 11,906 3,771
Prepaid expenses and deposits................... 181 367 290
Investments in television programming (note 4).. 2,057 5,632 9,534
Property and equipment (note 5)................. 5,048 9,498 9,565
Deferred costs.................................. 222 129 160
Goodwill (note 6)............................... 597 2,544 2,479
-------- ------- -------
$ 18,510 $42,187 $43,561
======== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank indebtedness (note 7)...................... $ 945 $ 2,649 $ 9,357
Accounts payable and accrued liabilities........ 1,008 3,317 3,604
Due to directors and shareholders (note 8)...... 22 400 --
Deferred revenue................................ 4,230 10,770 2,947
Deferred income taxes........................... -- -- 205
Long-term debt, including current portion
(note 9)....................................... 3,185 7,318 8,104
-------- ------- -------
9,390 24,454 24,217
-------- ------- -------
Shareholders' equity:
Share capital (note 10)....................... 19,323 26,178 26,644
Authorized:
100,000,000 Class A Multiple Voting Shares
without par value; issued--1,512,971
(August 31, 1998--1,512,971; August 31,
1997--1,251,654)
100,000,000 Class B Subordinate Voting
Shares without par value; issued--1,512,971
(August 31, 1998--1,512,971; August 31,
1997--1,251,654)...........................
25,000,000 preference shares, issuable in
series, without par value; issued--nil.....
Other paid-in capital......................... -- -- 136
Deficit....................................... (10,203) (8,445) (7,436)
-------- ------- -------
9,120 17,733 19,344
-------- ------- -------
$ 18,510 $42,187 $43,561
======== ======= =======
Uncertainty due to the Year 2000 Issue (note 17)
Subsequent events (note 20)
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Expressed in thousands of Canadian dollars, except per share information)
<TABLE>
<CAPTION>
Six months ended
Years ended August 31, February 28,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- -------- -------- -------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue........................ $ 5,723 $ 23,584 $ 32,457 $ 16,233 $30,252
Expenses:
Amortization of television
programming................. -- 14,972 24,124 12,461 25,406
Other costs of production and
sales....................... 3,767 4,261 3,577 1,866 1,508
Depreciation and
amortization................ 254 273 389 123 204
Selling, general and
administration.............. 2,404 2,453 2,201 925 1,330
Interest (note 11)........... 308 367 576 203 489
Foreign exchange (gain)
loss........................ 17 (176) (465) (34) (339)
------- -------- -------- -------- -------
6,750 22,150 30,402 15,544 28,598
------- -------- -------- -------- -------
Earnings (loss) from operations
before undernoted............. (1,027) 1,434 2,055 689 1,654
Other income (expenses):
Loss on sale of assets (note
12)......................... -- (333) -- -- --
Provision against Limited
Partnership interests
(note 13)................... (1,073) (2,313) -- -- --
------- -------- -------- -------- -------
(1,073) (2,646) -- -- --
------- -------- -------- -------- -------
Earnings (loss) before income
taxes......................... (2,100) (1,212) 2,055 689 1,654
Income taxes (note 14)......... -- -- 297 -- 645
------- -------- -------- -------- -------
Net earnings (loss)............ (2,100) (1,212) 1,758 689 1,009
Deficit, beginning of period... (6,891) (8,991) (10,203) (10,203) (8,445)
------- -------- -------- -------- -------
Deficit, end of period......... $(8,991) $(10,203) $ (8,445) $ (9,514) $(7,436)
======= ======== ======== ======== =======
Basic net earnings (loss) per
common share (note 2(l))...... $ (1.68) $ (0.65) $ 0.68 $ 0.28 $ 0.33
======= ======== ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of Canadian dollars)
<TABLE>
<CAPTION>
Six months
Years ended August 31, ended February 28,
------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in):
Cash flows from operating
activities:
Net earnings (loss)............. $(2,100) $(1,212) $ 1,758 $ 689 $ 1,009
Items not involving cash:
Depreciation and
amortization................. 254 15,245 24,513 12,584 25,610
Deferred income taxes......... -- -- -- -- 289
Loss on sale of assets........ -- 333 -- -- --
Provision against Limited
Partnership interest......... 1,073 2,313 -- -- --
Other......................... 15 20 19 -- --
Changes in non-cash operating
working capital (note 18)...... 243 (3,257) (4,817) (1,136) (6,004)
------- ------- ------- ------- -------
Cash provided by (used for)
operating activities............. (515) 13,442 21,473 12,137 20,904
------- ------- ------- ------- -------
Cash flows from investing
activities:
Investments in television
programming.................... (385) (16,567) (27,698) (13,387) (29,307)
Increase in deferred costs...... (54) (208) -- (35) (97)
Property and equipment
acquired....................... (687) (709) (633) (272) (161)
Proceeds on asset sale of
subsidiaries, net.............. -- 545 -- -- --
------- ------- ------- ------- -------
Cash flows used for investing
activities....................... (1,126) (16,939) (28,331) (13,694) (29,565)
------- ------- ------- ------- -------
Cash flows from financing
activities:
Net cash proceeds on issue of
common shares.................. 1,246 5,755 4,875 2 --
Increase (repayments) in due to
directors and shareholders..... 206 (221) 378 -- (400)
Increase (decrease) in bank
indebtedness................... (69) 454 1,704 395 6,708
Increase in long-term debt...... 2,341 17 1,737 -- 1,200
Repayment of long-term debt..... (2,029) (887) (1,704) (207) (278)
------- ------- ------- ------- -------
Cash flows provided by financing
activities....................... 1,695 5,118 6,990 190 7,230
------- ------- ------- ------- -------
Increase (decrease) in cash and
cash equivalents................. 54 1,621 132 (1,367) (1,431)
Cash in cash and cash equivalents,
beginning of period.............. 69 123 1,744 1,744 1,876
------- ------- ------- ------- -------
Cash in cash and cash equivalents,
end of period.................... $ 123 $ 1,744 $ 1,876 $ 377 $ 445
======= ======= ======= ======= =======
Supplementary information:
Interest paid (net of amounts
capitalized)................... $ 274 $ 338 $ 543 $ 203 $ 489
Income taxes paid............... -- -- -- -- 10
Non-cash transactions:
Property acquired through
increase in long-term debt..... 1,600 -- 4,100 4,100 --
Value assigned to common shares
issued:
On acquisition of product
revenue interests............ 1,073 2,300 -- -- --
For services and assets....... 246 -- -- -- --
For acquisition of Sugar
Entertainment Ltd............ -- 260 1,980 -- --
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in tables expressed in thousands of Canadian dollars, except
per share amounts)
Years ended August 31, 1996, 1997 and 1998 and
Six months ended February 28, 1998 and 1999 (Unaudited)
1. Operations:
Based in Vancouver, British Columbia, Canada, Vidatron Entertainment Group
Inc., together with its subsidiaries, (collectively, the "Company") is a fully
integrated television production company that produces and distributes film,
television, video and interactive programming for world-wide markets. The
Company's business represents a single operating segment, as described above,
for financial reporting purposes.
2. Significant accounting policies:
(a) Basis of presentation:
The consolidated financial statements of the Company are prepared in
accordance with generally accepted accounting principles in Canada and, except
as explained and quantified in note 19, comply, in all material respects, with
generally accepted accounting principles in the United States. In particular,
the Company's accounting policies are in accordance with industry guidance in
the United States as set out in Statement of Financial Accounting Standards No.
53, "Financial Reporting by Producers and Distributors of Motion Picture Films"
("SFAS 53").
These consolidated financial statements include the accounts of the Company
and its subsidiaries all of which are wholly-owned. All material intercompany
balances and transactions have been eliminated. In accordance with the
provisions of SFAS 53, the Company has elected to present an unclassified
balance sheet.
(b) Revenue recognition:
(i) Revenues from television programming distribution licensing
agreements are recognized when the license period has commenced, the
program has been delivered and other conditions as specified in the
agreements have been met.
(ii) Revenues from production services for third parties are recognized
when the production is completed and delivered. All associated production
costs are deferred and charged against earnings when the film is delivered
and the revenue recognized.
(iii) Cash received in advance of meeting the revenue recognition
criteria described above is recorded as deferred revenue.
(c) Cash equivalents:
Cash equivalents includes highly liquid investments with terms to maturity of
90 days or less when acquired.
(d) Production costs in progress:
Production costs in progress, including interest, represent the accumulated
identifiable costs of incomplete programs, which are in the process of being
produced by the Company. Production costs in progress are carried at the lower
of cost and estimated net realizable value.
(e) Investments in television programming:
Investments in television programming represent the unamortized cost of
completed programs (net of related tax credits received or receivable) which
have been produced by the Company or to which the Company
F-7
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
has acquired distribution rights. Completed programs are stated at the lower of
cost, net of amortization, and net realizable value.
The individual film forecast method is used to amortize the net cost of
completed programs whereby the amortization is based on the ratio that current
revenue earned from that program bears to estimated total revenue to be
realized. Management periodically reviews its estimates on a program-by-program
basis, and when unamortized costs exceed net realizable value for a program,
that program's unamortized costs are written down to net realizable value. When
estimates of total revenue indicate that a program will result in an ultimate
loss, the entire loss is recognized.
Based on the Company's current estimates of anticipated future revenues at
August 31, 1998, approximately 94% of the gross investment in television
programming will be amortized by August 31, 2001.
(f) Property and equipment:
Property and equipment are stated at cost and depreciated on the following
annual basis:
<TABLE>
<CAPTION>
Asset Rate
----- ----
<S> <C>
Buildings........................................... 5% declining balance
Computer furniture and equipment.................... 20% declining balance
Production equipment................................ 20% declining balance
Other............................................... 2-5 year straight line
</TABLE>
(g) Deferred costs:
Deferred costs primarily consist of costs related to program development and
the issuance of debt. Deferred costs are recorded net of amortization of
$156,943 at February 28, 1999 (August 31, 1998-- $136,624; August 31, 1997--
$65,422).
Program development costs, including investments in scripts, represent
expenditures incurred on projects prior to production. Upon commencement of
production, the development costs are charged to production costs. Development
costs are written off when it is determined that they will not be recovered.
Amortization of deferred financing costs is provided over the term of the
related debt.
(h) Goodwill:
Goodwill is recorded at cost and is amortized on a straight line basis over
20 years. Management performs annual assessments to determine whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation.
When the future cash flows are less than the carrying value, the excess is
charged against income. The assessment of the recoverability of goodwill will
be impacted if the estimated future operating cash flows are not achieved.
(i) Financial instruments:
The Company carries financial liabilities with stated interest rates that may
differ from the prevailing market interest rates on the cost basis.
(j) Income taxes:
The Company accounts for income taxes on the tax allocation basis by the
deferral method. Deferred income taxes are recognized at current rates for all
differences in the timing of recognition of transactions for
F-8
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
accounting and income tax purposes. No adjustment is made to deferred income
taxes for subsequent changes in income tax rates. Deferred income taxes arise
as a result of timing differences primarily occurring when amortization of
investment in films and television programs differs for income tax purposes.
(k) Foreign currency translations:
The Company's functional currency is the Canadian dollar. Foreign currency
denominated monetary assets and liabilities are translated into Canadian
dollars at exchange rates in effect at the end of the period. Revenues and
expenses are translated at exchange rates in effect at the time of the
transaction. Translation gains and losses are included in income except for
unrealized gains and losses arising from the translation of long-term monetary
assets and liabilities which are deferred and amortized over the life of the
asset or liability. At each of the periods presented, the Company has no long-
term monetary assets or liabilities denominated in a foreign currency.
(l) Net earnings (loss) per common share:
Net earnings (loss) per common share has been calculated by dividing into
earnings (loss) the weighted average number of common shares outstanding,
including issued shares held in escrow, after giving retroactive effect to the
share consolidation in 1997 (note 10(a)) and the change in capital structure
and consolidation prior to the effective date (note 20(c)). The weighted
average number of shares outstanding for each of the periods presented is as
follows:
<TABLE>
<S> <C>
Year ended August 31,
1996......................................................... 1,246,640
1997......................................................... 1,860,616
1998......................................................... 2,602,742
Six months ended February 28,
1998......................................................... 2,503,510
1999......................................................... 3,025,942
</TABLE>
The fully diluted earnings per share amount for the six months ended February
28, 1999 is $0.33 per share (six months ended February 28, 1998--$0.28; year
ended August 31, 1998--$0.63). For all other periods fully diluted per share
amounts have not been presented since the impact of outstanding options,
warrants and convertible securities is anti-dilutive.
(m) Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results may ultimately differ from those estimates. Significant areas
requiring the use of management estimates relate to the recoverability of
assets and future forecasted revenue used in the assessment of the
recoverability of productions in progress and investments in television
programming.
(n) Unaudited interim financial information:
The financial information as at February 28, 1999 and for the six month
periods ended February 28, 1998 and 1999 is unaudited. However, such interim
financial information reflects all adjustments, consisting solely of normal
recurring adjustments, which are, in the opinion of management, necessary to a
fair statement of the results for the interim periods presented.
F-9
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(o) Comparative figures:
Certain comparative figures have been restated to conform to the basis of
presentation adopted for the current period.
3. Tax credits receivable:
Tax credits receivable are federal and provincial refundable tax credits
related to specific film productions in Canada. The credits are recorded as a
reduction to the related investment in television programming in the period in
which the related production is completed and then amortized in accordance with
note 2(e). During the six months ended February 28, 1999, tax credits
aggregating $6,076,000 were recognized (August 31, 1998--$5,723,000; August 31,
1997--$2,370,000).
4. Investments in television programming:
As at August 31, 1997:
<TABLE>
<CAPTION>
Accumulated Net Book
Cost Amortization Value
------- ------------ --------
<S> <C> <C> <C>
Television movies................................. $ 5,924 $ 5,725 $ 199
Television series................................. 11,105 9,247 1,858
------- ------- ------
$17,029 $14,972 $2,057
======= ======= ======
</TABLE>
As at August 31, 1998:
<TABLE>
<CAPTION>
Accumulated Net Book
Cost Amortization Value
------- ------------ --------
<S> <C> <C> <C>
Television movies................................. $ 5,924 $ 5,725 $ 199
Television series................................. 38,804 33,371 5,433
------- ------- ------
$44,728 $39,096 $5,632
======= ======= ======
</TABLE>
As at February 28, 1999 (unaudited):
<TABLE>
<CAPTION>
Accumulated Net Book
Cost Amortization Value
------- ------------ --------
<S> <C> <C> <C>
Television movies................................. $ 5,924 $ 5,725 $ 199
Television series................................. 68,112 58,777 9,335
------- ------- ------
$74,036 $64,502 $9,534
======= ======= ======
</TABLE>
F-10
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Property and equipment:
As at August 31, 1997:
<TABLE>
<CAPTION>
Accumulated Net book
Cost depreciation value
-------- ------------ --------
<S> <C> <C> <C>
Land.......................................... $ 3,198 $ -- $3,198
Buildings..................................... 1,465 196 1,269
Computer furniture and equipment.............. 385 241 144
Production equipment.......................... 716 299 417
Other......................................... 58 38 20
-------- ------ ------
$ 5,822 $ 774 $5,048
======== ====== ======
As at August 31, 1998:
Land.......................................... $ 6,594 $ -- $6,594
Buildings..................................... 2,432 314 2,118
Computer furniture and equipment.............. 372 219 153
Production equipment.......................... 1,034 421 613
Other......................................... 77 57 20
-------- ------ ------
$ 10,509 $1,011 $9,498
======== ====== ======
As at February 28, 1999:
Land.......................................... $ 6,594 $ -- $6,594
Buildings..................................... 2,521 316 2,205
Computer furniture and equipment.............. 342 227 115
Production equipment.......................... 1,070 470 600
Other......................................... 77 26 51
-------- ------ ------
$ 10,604 $1,039 $9,565
======== ====== ======
</TABLE>
F-11
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Goodwill:
Effective September 1, 1996, the Company acquired 100% of the shares of Sugar
Entertainment Ltd. ("Sugar") for consideration comprised of 22,500 common
shares and 350,000 performance common shares which are releasable from escrow
at a rate of one share for every $10 of cash flow (as defined by regulatory
authorities) generated by Sugar. Each common share is represented by one Class
A Multiple Voting Share and one Class B Subordinate Voting Share. The
acquisition was accounted for by the purchase method with the results of
Sugar's operations consolidated from September 1, 1996. The release of shares
from escrow is subject to regulatory approval. Shares not released from
treasury by September 2001 are returnable to treasury. At the date of
acquisition, the fair value assigned to the shares issued was $260,000
representing $10 per share for the 22,500 common shares and $0.10 per share
assigned to the 350,000 performance shares and was allocated to the fair value
of the identifiable assets acquired of $3,320,438 and liabilities assumed of
$3,379,670 with the excess value being assigned to goodwill of $318,232. The
performance shares were accounted for as contingent consideration at the date
of acquisition as they are returnable to treasury if the escrow release
conditions are not met.
During the year ended August 31, 1998, 200,000 of the 350,000 performance
shares were released from escrow, as a result of cash flow generated by Sugar,
resulting in increases in both goodwill and share capital of $1,980,000. This
additional goodwill is being amortized prospectively.
As at February 28, 1999, accumulated amortization of goodwill amounted to
$168,880 (August 31, 1998--$104,258; August 31, 1997--$70,736). As at February
28, 1999, the remaining 150,000 performance shares have not been approved for
release from escrow by the regulatory authority.
7. Bank indebtedness:
Bank indebtedness is drawn under a revolving credit facility of up to $14
million for production financing and is comprised of demand loans bearing
interest at prime plus 1.5% per annum with monthly payments of interest only
withdrawn from interest reserves held by the bank. As at February 28, 1999, the
prime rate was 6.75% (August 31, 1998--7.50%; August 31, 1997--4.75%). The
loans are secured by the refundable tax credits and distribution rights of the
film properties to which the loans relate and a general security agreement.
8. Due to directors and shareholders:
Amounts due to directors and shareholders bear interest at 12% per annum, are
unsecured and have no specific terms of repayment.
F-12
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Long-term debt:
<TABLE>
<CAPTION>
August 31,
------------- February 28,
1997 1998 1999
------ ------ ------------
(unaudited)
<S> <C> <C> <C>
Mortgage due May 1, 1999 bearing interest at 8.5%
per annum with aggregate monthly payments of
principal and interest of $9, secured by a first
mortgage on property.............................. $ 973 $ 950 $ 938
Mortgage due February 1, 2000 bearing interest at
8% per annum with aggregate monthly payments of
principal and interest of $19, secured by a first
mortgage and a general security agreement on all
assets located in or on the property.............. 1,461 1,970 1,935
Mortgage due March 1, 2001 bearing interest at
6.55% per annum with aggregate monthly payments of
principal and interest of $25, secured by a first
mortgage on property.............................. -- 2,755 2,700
Loans to purchase equipment, bearing interest at an
average annual rate of the bank rate plus 2.0%
secured by the equipment acquired................. 222 275 137
Loans due $300 on March 1, 1999 and $500 on April
15, 1999 bearing interest at 12% per annum, with
monthly payments of interest only, secured by a
charge on property................................ -- 800 800
Convertible debentures bearing interest at 12% per
annum, payable quarterly and secured by a charge
on the assets of the Company and due March 25,
1999. The principal amount is convertible into
common shares of the Company at a deemed price of
$19.00 per share on or before March 31, 1999...... 500 500 500
Other.............................................. 29 68 30
------ ------ ------
$3,185 $7,318 $8,104
====== ====== ======
</TABLE>
Debentures having an original face value of $1,200
bearing interest at 10% per annum, payable
quarterly, secured by a charge on the assets of
the Company, and due October 21, 2000. Debentures
in the amount of $600 are convertible at a deemed
price of $7.50 per share after April 21, 1999 (net
of deemed debt discount of $136).................. -- -- 1,064
Included with the issuance of the $1,200,000 debentures, were warrants to
purchase 50,000 Class A and 50,000 Class B shares at an exercise price of $6.25
per share (note 10(d)). A value of $136,000 has been attributed to the warrants
issued and recorded as debt discount and other paid-in capital. This discount
is being amortized against income as interest expense over the term of the
debentures.
As at February 28, 1999, principal due in each of the next three fiscal years
ending August 31 are approximately as follows (unaudited):
<TABLE>
<S> <C>
1999............................................................. $ 2,549
2000............................................................. 2,047
2001............................................................. 3,508
-------
$ 8,104
=======
</TABLE>
F-13
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Share capital:
(a) Issued:
Effective February 5, 1997, the Company consolidated its common shares on a
basis of one new share for four old shares. Prior to the effective date of the
offering, the Company will change its capital structure and consolidate its
common shares on a 2-for-5 basis (note 20(c)). Of the number the shares shown
in the following table 1/2 are Class A shares and 1/2 are Class B shares. The
following shares are issued and fully paid for and have been restated to
reflect these capital changes and share consolidations.
<TABLE>
<CAPTION>
Number
of common
shares Amount
--------- -------
<S> <C> <C>
Balance, August 31, 1995................................... 1,118,814 $ 8,444
Changes during the year:
Issued for cash.......................................... 184,663 1,279
Issued for consideration for loan guarantees............. 1,100 15
Issued for services...................................... 14,500 150
Issued on acquisition of assets.......................... 6,500 81
Issued on acquisition of product revenue interests....... 50,377 1,073
Less share issue costs................................... -- (33)
--------- -------
Balance, August 31, 1996................................... 1,375,954 11,009
Changes during the year:
Issued for cash.......................................... 45,637 420
Issued for cash, pursuant to private placement........... 534,000 6,007
Issued on acquisition of Sugar Entertainment Ltd. (note
6)...................................................... 372,500 260
Issued on acquisition of product revenue interest (note
13)..................................................... 175,217 2,300
Less share issue costs................................... -- (673)
--------- -------
Balance, August 31, 1997................................... 2,503,308 19,323
Changes during the year:
Issued for cash.......................................... 537,634 5,027
Performance shares returned to treasury.................. (15,000) --
Value assigned to performance shares issued on
acquisition of Sugar released from escrow (note 6)...... -- 1,980
Less share issue costs................................... -- (152)
--------- -------
Balance, August 31, 1998................................... 3,025,942 26,178
Change during the period:
Tax recovery, prior year share issue costs............... -- 466
--------- -------
Balance, February 28, 1999 (unaudited)..................... 3,025,942 $26,644
========= =======
</TABLE>
Shares issued for non-cash consideration have been valued at their estimated
fair value at the date of issuance.
During the year ended August 31, 1998, 15,000 performance shares issued and
held in escrow pending certain earn-out provisions were canceled and returned
to treasury.
F-14
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(b) Options:
For each of the periods presented, the following stock options to directors
and officers were outstanding. Of number the shares shown in the following
table 1/2 are Class A shares and 1/2 are Class B shares.
<TABLE>
<CAPTION>
August 31,
------------------------
1996 1997 1998
------ ------- ------- February 28, Exercise price
Number of shares 1999 per share Expiry date
------------------------------------ -------------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
300 300 -- -- $ 15.50 March 30, 1998
1,850 -- -- -- 4.80 August 31, 1999
11,750 4,400 -- -- 5.20 June 12, 2000
800 800 -- -- 6.20 July 10, 2000
12,925 6,275 1,350 750 11.20 January 24, 2001
49,500 47,500 47,000 47,000 14.00 March 29, 2001
6,000 3,500 1,000 1,000 19.40 May 9, 2001
-- 63,500 49,500 48,350 13.50 October 15, 2001
-- 52,400 39,600 37,600 13.00 June 2, 2002
-- 6,000 6,000 6,000 10.25 August 26, 2002
-- -- 158,200 148,000 9.50 March 23, 2003
-- -- -- 24,000 7.50 November 19, 2003
-- -- -- 1,000 11.25 February 1, 2004
-- -- -- 50,000 US 7.50 February 5, 2002
------ ------- ------- -------
83,125 184,675 302,650 363,700
====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
August 31,
------------------------- February 28,
1996 1997 1998 1999
------- ------- ------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Balance, beginning of period......... 81,300 83,125 184,675 302,650
Granted.............................. 78,500 127,900 152,200 75,000
Exercised............................ (76,675) (26,350) (825) --
Expired or cancelled................. -- -- (33,400) (13,950)
------- ------- ------- -------
Balance, end of period............... 83,125 184,675 302,650 363,700
======= ======= ======= =======
</TABLE>
Stock options are granted having exercise prices based on market prices at
the date of grant and vest over a period that does not exceed two and one-half
years.
(c) Underwriter's option:
In connection with a public offering in 1997, the Company granted as
compensation 26,700 two-year underwriter's options exercisable to March 31,
1999 at $11.25 each to purchase one common share and one half of one common
share purchase warrant with each common share purchase warrant exercisable to
purchase one additional common share at $13.75 for one year and $16.25 during
the second year.
F-15
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(d) Share purchase warrants:
For each of the periods presented, the following warrants were outstanding.
Of the number of shares shown in the following table 1/2 are Class A shares and
1/2 are Class B shares:
<TABLE>
<CAPTION>
August 31,
------------------------February 28,
1996 1997 1998 1999
------ ------- ------- ------------ Exercise price
Number of shares per share Expiry date
--------------------------------------------------- ------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
12,500 -- -- -- $10.00 December 19, 1996
27,880 -- -- -- 10.00 September 14, 1996
4,400 -- -- -- 17.20 May 10, 1997
-- 267,000 267,000 267,000 16.25 March 31, 1999
-- -- -- 100,000 6.25 October 21, 2000
------ ------- ------- -------
44,780 267,000 267,000 367,000
====== ======= ======= =======
</TABLE>
During the six months ending February 28, 1999, a total of 100,000 warrants
were issued (August 31, 1998--nil; August 31, 1997--267,000; August 31, 1996--
nil). A total of nil warrants expired (August 31, 1998--nil; August 31, 1997--
14,280; August 31, 1996--nil), and a total of nil warrants were exercised
(August 31, 1998--nil; August 31, 1997--30,500; August 31, 1996--nil).
(e) Dividends:
Covenants attached to the debentures limit the Company's ability to pay
dividends without the approval of the lenders.
11. Interest expense
<TABLE>
<CAPTION>
Six months
ended
Years ended February
August 31, 28,
-------------- -----------
1996 1997 1998 1998 1999
---- ---- ---- ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest expense:
Long-term debt.................................. $269 $337 $447 $ 162 $ 339
Other........................................... 39 30 129 41 150
Interest capitalized.............................. -- -- 32 -- 108
==== ==== ==== ===== =====
</TABLE>
12. Loss on asset sale of subsidiaries:
During the year ended August 31, 1997, the Company sold the material assets
of its educational video and software distribution subsidiary, Image Media Ltd.
and its wholly owned subsidiary 802117 Ontario Ltd. (D.B.A. Pilot Software
Ltd.) for proceeds of $575,000. For the year ended August 31, 1997 to the date
of sale, the subsidiaries reported combined revenue of $3,064,340, gross profit
of $1,165,339 and a loss from operations of $158,617.
F-16
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Limited partnership product revenue interest:
On March 6, 1996, the Company entered into a joint venture marketing
agreement with New Media Marketing II Limited Partnership whereby the
Partnership would provide marketing services in exchange for an entitlement to
future revenue of the Company above a base level, until December 31, 2006. The
Company purchased the Partnership's revenue interest by issuing 175,217 common
shares of the Company at the fair value of $13.13 per common share. In the year
ended August 31, 1997, the amount was written off resulting in a charge to
earnings of $2,312,722.
14. Income taxes:
The provision for income taxes is comprised of:
<TABLE>
<CAPTION>
Six months
Years ended ended
August 31, February 28,
------------------- --------------
1996 1997 1998 1998 1999
----- ----- ----- ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Corporate statutory income tax rate....... 45.6% 45.6% 45.6% 45.6% 45.6%
Add (deduct) the effect of:
Utilization of previously unrecognized
tax losses............................. (48.6) (48.6) (35.1) (49.5) (14.8)
Miscellaneous, including expenses not
deductible for income tax purposes..... 3.0 3.0 3.9 3.9 8.2
----- ----- ----- ------ ------
-- % -- % 14.4% -- % 39.0%
===== ===== ===== ====== ======
</TABLE>
At August 31, 1998, the Company has operating losses for income tax purposes
of approximately $2,400,000, the benefit of which has been recognized as a
reduction of the Company's deferred income tax. The losses expire as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 19
2000.............................................................. 138
2001.............................................................. 741
2002.............................................................. 578
2003.............................................................. 284
2004.............................................................. 88
2005.............................................................. 552
------
$2,400
======
</TABLE>
15. Financial instruments:
(a) Fair values:
As at August 31, 1998 and 1997, the Company's financial instruments included
cash and cash equivalents, accounts receivable, tax credits receivable, bank
indebtedness, accounts payable and accrued liabilities and due to directors and
shareholders. As at these dates, the carrying value of these financial
instruments approximated their fair value due to their ability for prompt
liquidation or short term to maturity with the exception of tax credits
receivable which are receivable over a period of up to two years. As at August
31, 1998, the fair value of tax credits receivable is estimated to be
$7,300,000 (August 31, 1997--$2,225,000).
F-17
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Also included as a financial instrument is long-term debt consisting of
mortgages, demand loans and convertible debentures. The fair value of long-term
debt has been estimated to approximate carrying value based upon discounting
future cash flows at the rate currently offered for debt that is estimated by
management to be of similar maturity and credit quality.
(b) Concentration of credit risk
During the year ended August 31, 1998, the Company derived over 82% (1997--
74%; 1996--nil) of its revenues from export sales denominated in U.S. dollars.
Although all of revenue is generated from Canada, the majority of these
revenues can be attributed to five customers in the USA and Europe and resulted
from the sale of production and distribution of film and video programming. In
the year ended August 31, 1998, one of these customers represented 32%, two
customers represented approximately 20% each and a fourth customer represented
11% of total revenues. In the year ended August 31, 1997, one of these
customers represented 37%, a second customer represented 22% and a third
customer represented 13% of total revenues. No customers represented in excess
of 10% of revenues for the year ended August 31, 1996.
The Company did not use derivative instruments to reduce its exposure to
foreign currency risk.
(c) Interest rate risk
The Company's exposure to interest rate risk is limited to the cash flow risk
associated with variable rate debt as disclosed in notes 7 and 9.
16. Related party transactions:
Related party transactions not disclosed elsewhere in these consolidated
financial statements are as follows:
<TABLE>
<CAPTION>
Six months
Years ended ended
August 31, February 28,
---------------- -------------
1996 1997 1998 1998 1999
---- ---- ------ -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Production fees paid to an officer of the
Company....................................... $ -- $725 $1,285 $ 490 $ 1,196
Consulting fees paid to companies owned by
officers and directors of the Company......... $ -- $ 58 $ 120 $ 60 $ 60
==== ==== ====== ===== =======
</TABLE>
At February 28, 1999 additional fees payable to an officer of the Company
totaling $583,090 were accrued and included in accounts payable and accrued
liabilities at period end.
At February 28, 1999 and August 31, 1998 and 1997 long-term debt includes
$200,000 in convertible debentures due to directors of the Company.
17. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. The effects of the Year 2000 Issue may be
experienced before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failure which could affect a company's ability to conduct
normal business operations. It is not possible to be certain that all aspects
of the Year 2000 Issue affecting the Company, including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
F-18
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
18. Changes in non-cash operating working capital:
<TABLE>
<CAPTION>
Six months
Years ended August 31, ended February 28,
----------------------- -----------------
1996 1997 1998 1998 1999
----- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Accounts receivable................ $ 135 $(1,155) $ (76) $ 1,223 $(1,599)
Production costs in progress....... 47 (667) (8,044) 3,263 8,135
Prepaid expenses and deposits...... 165 (12) (186) 221 97
Tax credits receivable............. -- (2,370) (5,360) (1,855) (5,101)
Accounts payable and accrued
liabilities....................... (109) (120) 2,309 (268) 287
Deferred revenue................... 5 1,067 6,540 (3,720) (7,823)
----- ------- ------- ------- -------
$ 243 $(3,257) $(4,817) $(1,136) $(6,004)
===== ======= ======= ======= =======
</TABLE>
19. United States generally accepted accounting principles:
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada ("Canadian GAAP") which
differ in certain respects with accounting principles generally accepted in the
United States ("US GAAP"). Material differences to these consolidated financial
statements are as follows:
(a) Income taxes:
For US GAAP purposes, income taxes are accounted for in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). SFAS 109 requires the asset and liability method of
accounting for income taxes. Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided on deferred tax assets
to the extent it cannot be considered at the balance sheet date to be more
likely than not that such deferred tax assets will be realized. Under SFAS 109,
the effect on deferred tax assets and liabilities of a change in tax rate is
recognized in income in the period that includes the enactment date.
F-19
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following sets forth the tax effect of temporary differences that give
rise to significant portions of the deferred tax asset and deferred tax
liabilities:
<TABLE>
<CAPTION>
August 31,
---------------- February 28,
1997 1998 1999
------- ------- ------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Loss carry forwards...................... $ 1,078 $ 1,039 $ 1,039
Investment in television programming..... 1,360 681 --
------- ------- -------
Gross deferred tax assets.................. 2,438 1,720 1,039
Valuation allowance........................ (1,159) (184) --
------- ------- -------
Net deferred tax assets.................... 1,279 1,536 1,039
Deferred tax liabilities:
Investment in television programming..... -- -- (809)
Property and equipment................... (91) (82) (74)
Deferred revenue......................... (1,188) (1,454) (361)
------- ------- -------
(1,279) (1,536) (1,244)
------- ------- -------
Net deferred tax asset (liability)......... $ -- $ -- $ (205)
======= ======= =======
</TABLE>
(b) Earnings (loss) per share:
Under US GAAP, shares that are contingently returnable to treasury are
excluded from the weighted average number of common shares outstanding for
purposes of the calculation of basic earnings (loss) per share for all periods
prior to the period in which the contingency is resolved and the shares are
released from escrow. The exclusion of the escrowed shares issued on the
acquisition of Sugar (note 6) would reduce the weighted average number of
shares outstanding to as follows:
<TABLE>
<S> <C>
Year ended August 31,
1996........................................................... 1,246,640
1997........................................................... 1,510,580
1998........................................................... 2,303,988
Six months ended February 28,
1998........................................................... 2,153,511
1999........................................................... 2,875,942
</TABLE>
In addition, under US GAAP the weighted average number of shares used in the
calculation of diluted earnings (loss) per share would be calculated by the
treasury stock method whereby it is assumed that proceeds received by the
Company from the exercise of dilutive securities are used to repurchase
outstanding shares in the market.
(c) Application of US GAAP:
As discussed in note 6, effective September 1, 1996 the Company issued
350,000 performance common shares on the acquisition of Sugar. In the year
ended August 31, 1998, and prior to the release of 200,000 shares from escrow,
the holder of the performance common shares transferred, within escrow,
160,000 performance shares to three officers of the Company. The 160,000 shares
were transferred subject to the terms and conditions of the escrow agreement
for their initial assigned value of $0.10 per share. Subsequently, 91,428 of
these shares were released from escrow. The balance of the performance shares
transferred continue to be held in escrow.
F-20
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On transfer, for US GAAP purposes, the excess of the market value over the
transfer price is charged against income as compensation expense.
The effect of this difference on net earnings (loss) and earnings (loss) per
share (calculated by reference to the weighted average number of common shares
outstanding) under US GAAP would be as follows:
<TABLE>
<CAPTION>
Six months
Years ended August 31, ended February 28,
------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net earnings (loss), Canadian
GAAP........................... $(2,100) $(1,212) $ 1,758 $ 689 $1,009
Compensatory value of
transferred shares............. -- -- (1,224) (1,224) --
------- ------- ------- ------- ------
Net earnings (loss), US GAAP.... $(2,100) $(1,212) $ 534 $ (535) $1,009
======= ======= ======= ======= ======
Net earnings (loss) per share,
US GAAP:
Basic and diluted............. $ (1.68) $ (0.80) $ 0.23 $ (0.25) $ 0.35
======= ======= ======= ======= ======
</TABLE>
There would be no difference from total assets or shareholders' equity
calculated under Canadian GAAP.
(d) Stock-based compensation:
As described in note 10(b), the Company has granted stock options to certain
directors and employees. These options are granted for services provided to the
Company. For US GAAP purposes, Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123), requires that an
enterprise recognize or, at its option, disclose the impact of the fair value
of stock options and other forms of stock-based compensation in the
determination of income. The Company has elected under SFAS 123 to continue to
measure compensation cost on the intrinsic value basis set out in APB Opinion
No. 25. As options are granted at exercise prices based on the market value of
the Company's share at the date of grant, no adjustment for compensation
expense is required.
Under SFAS 123, where a company chooses to continue to apply APB Opinion No.
25 in its basic financial statements supplementary pro forma information as if
the fair value method was applied must be disclosed. This pro forma information
is set out below. The pro forma stock compensation expense has been determined
by reference to an option-pricing model that takes into account the stock price
of the grant date, the exercise price, the expected life of the option, the
estimated volatility of the underlying stock, expected dividends and the risk
free interest rate over the term of the option.
The calculations applied have assumed that the expected life of all options
granted equals the maximum term, no dividends will be paid, and expected
average volatility and risk free interest rates as follows:
<TABLE>
<CAPTION>
Six months
Years ended ended
August 31, February 28,
-------------- -------------
1996 1997 1998 1998 1999
---- ---- ---- ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Volatility %.................................... 50 25 22 -- 38
Risk free interest rate %....................... 7.02 5.46 5.11 -- 4.76
</TABLE>
F-21
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unaudited pro forma information with respect to impact of the fair value of
stock options at the date of grant on reported loss for the periods presented
is as follows:
<TABLE>
<CAPTION>
Six months ended
Years ended August 31, February 28,
----------------------- ----------------
Notes 1996 1997 1998 1998 1999
----- ------- ------- ----- ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Earnings (loss), US GAAP.......... $(2,100) $(1,212) $ 534 $ (535) $1,009
Stock compensation expense........ (85) (331) (490) (207) (310)
------- ------- ----- ------ ------
Pro forma earnings (loss), US
GAAP............................. $(2,185) $(1,543) $ 44 $ (742) $ 699
======= ======= ===== ====== ======
Pro forma basic earnings (loss)
per share, US GAAP............... $ (1.75) $ (1.02) $0.02 $(0.34) $ 0.24
======= ======= ===== ====== ======
</TABLE>
(e) Provision against Limited Partnership interest:
Under US GAAP, the provision against Limited Partnership interest would be
included in the earnings (loss) from operations.
(f) Supplementary information--allowance for doubtful accounts:
Accounts receivable are disclosed net of allowance for doubtful accounts.
Changes in the allowance for each of the periods presented are as follows:
<TABLE>
<CAPTION>
Six months
Years ended ended
August 31, February 28,
--------------- ------------
1996 1997 1998 1998 1999
----- ---- ---- ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period................... $ -- $ 31 $169 $ 169 $ 245
Charges to expenses:
Expensed..................................... 31 138 76 1 82
Recovered/written-off........................ -- -- -- (7) --
----- ---- ---- ----- -----
Balance, end of period......................... $ 31 $169 $245 $ 163 $ 327
===== ==== ==== ===== =====
</TABLE>
20. Subsequent events (unaudited):
(a) Long-term debt:
Subsequent to February 28, 1999:
(i) the Company exercised its right and repaid the $600,000 10%
convertible debenture in full;
(ii) the $500,000 12% convertible debentures due March 31, 1999 were
extended to June 30, 1999 under the same terms and conditions; and
(iii) the $300,000 12% loan due March 1, 1999 and the $938,000 mortgage
due May 1, 1999 were not repaid on the due date as they are currently being
renegotiated by the Company.
(b) Expiry of warrants and options:
On March 31, 1999, 267,000 warrants and 26,700 underwriter's options expired.
In addition, subsequent to February 28, 1999, 6,000 stock options exercisable
at $10.25 per common share and 4,000 stock options exercisable at $9.50 per
common share were cancelled.
F-22
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(c) Prospectus and registration statement:
In May, 1999 the Company filed a prospectus and registration statement with
the Securities and Exchange Commission in the United States for the sale and
issuance of 2,300,000 Class B Shares at a proposed maximum offering price of US
$7.50 per share.
Prior to the effective date of the offering as contemplated in this
prospectus, the Company will change its capital structure as follows:
(a) the authorized share capital will be increased to 225,000,000 shares
without par value divided into 100,000,000 Class A Multiple Voting
Shares, 100,000,000 Class B Subordinate Voting Shares and 25,000,000
preference shares; and
(b) all common shares issued and outstanding will be converted into one-
half of a Class A share and one-half of a limited voting share, subject
to the condition that any fractional shares resulting from such
conversion will be combined and issued as one limited voting share; and
(c) all authorized but unissued common shares will be cancelled.
These changes were approved by the Company's Shareholders on February 16,
1999.
In addition, prior to the effective date of the offering, the Company will
seek shareholder approval of a 2-for-5 share consolidation, of the conversion
ratio, such that every five common shares issued and outstanding will be
converted into one Class A share and one Class B share. Except for voting and
conversion rights and rights with respect to dividends and issuer bids, the
Class A shares and the Class B shares will have the same rights in all
respects. The holders of Class A shares will be entitled to ten votes per share
held and the holders of Class B shares will be entitled to one vote per share
held. Subject to the prior rights of holders of preference shares, if any, the
Class B shares and Class A shares will share ratably in any dividend declared,
paid or set aside for payment on the common shares. However, the board of
directors will have the right to declare dividends on the Class B shares
without declaring dividends on the Class A shares or while declaring a dividend
in a lesser amount. Finally, in the event that an offer is made to purchase
Class A shares and the offer is one which must, pursuant to applicable
securities legislation or the rules of a stock exchange on which the Class A
shares are then listed, be made to all or substantially all the holders of
Class A shares in a province of Canada to which the requirement applies, each
Class B share will become convertible at the option of the holder, at any time
while the offer is in effect, into one Class A share. The Class B Shares will
not otherwise be convertible. The Class A shares will be convertible, at any
time, at the option of the holder into one Class B share.
The accompanying consolidated financial statements give retroactive effect to
these changes in capital structure, including the 2-for-5 share consolidation.
F-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You may rely on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor sale of the Class B
shares means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy these Class B shares in any circumstances under
which the offer or solicitation is unlawful. Until , 1999, all dealers
that buy, sell or trade in our Class B shares, whether or not participating in
this offering, may be required to deliver a prospectus. This delivery
requirement is in addition to the dealers' obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
---------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 15
Determination of Offering Price........................................... 16
Dilution.................................................................. 17
Capitalization............................................................ 18
Price Range and Trading Volume of Common Shares........................... 19
Dividend Policy........................................................... 19
Selected Consolidated Financial and Operating Data........................ 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations .............................................................. 23
Business.................................................................. 30
Description of Property................................................... 40
Legal Proceedings......................................................... 41
Management................................................................ 42
Control of Registrant..................................................... 45
Compensation of Directors and Officers.................................... 46
Interest of Management in Certain Transactions............................ 49
Description of Capital Stock.............................................. 51
Tax Considerations........................................................ 55
Underwriting.............................................................. 59
Shares Eligible for Future Sale........................................... 61
Legal Matters............................................................. 62
Experts................................................................... 62
Where You Can Find More Information....................................... 63
Financial Statement Presentation.......................................... 63
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[Logo of Peace Arch Entertainment Group Inc.]
2,000,000 Class B Shares
---------------
PROSPECTUS
---------------
The Seidler Companies Incorporated
Josephthal & Co. Inc.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the expenses, other than underwriting discounts and
commissions, expected to be incurred in connection with the issuance and
distribution of the securities registered under this Registration Statement.
All expenses are estimated except for the Securities and Exchange Commission's
(the "Commission") registration fee, the National Association of Securities
Dealers filing fee and the American Stock Exchange listing fee.
<TABLE>
<CAPTION>
Description Amount
------------------------------------------------------------------- --------
<S> <C>
SEC Registration Fee............................................... $ 5,755
Blue Sky Fees and Expenses......................................... 1,000
NASD Filing Fee.................................................... 2,750
AMEX Listing Fees.................................................. 17,500
Underwriter Non-Accountable Expense Allowance...................... 300,000
Printing and Engraving Expenses.................................... 125,000
Legal Fees and Expenses............................................ 125,000
Accounting Fees and Expenses....................................... 50,000
Registrar and Transfer Agent's Fee................................. 5,000
Miscellaneous...................................................... 67,995
--------
Total............................................................ $700,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under the British Columbia Company Act and our articles, we may, with the
approval of the British Columbia Supreme Court, indemnify a present or former
director or officer or a person who acts or acted at our request as a director
or officer of another corporation of which we are or were a shareholder, and
his heirs and legal representatives, against all costs, charges and expenses,
including an amount paid to settle an action or satisfy a judgment, reasonably
incurred by him in respect of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of his being or having been a
director or officer of Peace Arch and provided that the director or officer
acted honestly and in good faith with a view to our best interests and, in the
case of a criminal or administrative action or proceeding that is enforced by a
monetary penalty, had reasonable grounds for believing that his conduct was
lawful.
Our articles provide, subject to the provisions of the British Columbia
Company Act, that we will indemnify each director or former director against
all costs, charges and expenses actually and reasonably incurred to settle an
action or satisfy a judgment in a civil, criminal or administrative action or
proceeding to which such director is made a party by reason of his being or
having been a director of Peace Arch. The directors may, subject to the
provisions of the British Columbia Company Act, cause Peace Arch to indemnify
any of our officers, employees or agents against all costs, charges and
expenses incurred by him and resulting from his actions as our officer,
employee or agent.
The Underwriting Agreement contains provisions by which the underwriters
agree to indemnify us, each of our directors, each of our officers who have
signed this Registration Statement and each person who controls us within the
meaning of the Securities Act with respect to information furnished by the
underwriters for use in this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following discussion does not give effect to the share reclassification
and consolidation to be consummated prior to the completion of this offering.
II-1
<PAGE>
In March 1997, we issued 1,335,000 Special Warrants at a price of Cdn$4.50
per Special Warrant to various investors in Canada. Each Special Warrant
entitled the holder to receive, without payment of any additional
consideration, one of our common shares and one-half of one whole share
purchase warrant (each whole share purchase warrant a "Warrant"). Each Warrant
entitled the holder to acquire one of our common shares (a "Warrant Share") at
a price of Cdn$5.50 per Warrant Share at any time on or before March 31, 1998
and thereafter at an exercise price of Cdn$6.50 per Warrant Share at any time
on or before March 31, 1999. The Warrants were not transferable. All of the
Warrants expired unexercised. Yorkton Securities Inc. received a commission of
Cdn$0.315 per share, for an aggregate fee of Cdn$420,525, for its placement
services in connection with the Special Warrant issue. In addition, Yorkton
received a compensation option of 66,750 non-transferable warrants. These
warrants entitled Yorkton to acquire one common share and one half of one
common share purchase warrant, at an exercise price of Cdn$4.50 per Warrant on
or before March 31, 1999. All of these warrants also expired unexercised. To
the extent U.S. law applied, the transactions were undertaken in reliance on
Regulation S, Rule 901 and, in any event, in reliance on the exemption from
registration in Section 4(2) of the Securities Act, as transactions not
involving any public offering. The above common shares are reported prior to
the proposed share reclassification and consolidation.
On July 22, 1998 we issued 106,667 Class A and 106,667 Class B shares at a
price of Cdn$9.38 per share to Royal Bank Capital Corporation. To the extent
U.S. law applied, the transaction was undertaken in reliance on Regulation S,
Rule 901 and, in any event, in reliance on the exemption from registration in
Section 4(2) of the Securities Act, as a transaction not involving any public
offering.
On May 27, 1998 we issued 160,000 Class A and 160,000 Class B shares at a
price of Cdn$9.38 per share to Working Opportunity Fund (EVCC) Ltd., a British
Columbia company. To the extent U.S. law applied, the transaction was
undertaken in reliance on Regulation S, Rule 901 and, in any event, in reliance
on the exemption from registration in Section 4(2) of the Securities Act, as a
transaction not involving any public offering.
In October and November 1998, we issued a Cdn$600,000 convertible debenture
to Royal Bank Capital Corporation and we issued a Cdn$600,000 debenture to
Working Opportunity Fund (EVCC) Ltd. The debentures bear interest at a rate of
10% per annum. The RBCC debenture was convertible into common shares at an
exercise price of Cdn$3.00 per share after April 21, 1999. Subsequent to
February 28, 1999, we repaid in full the Cdn$600,000 convertible debenture held
by Royal Bank Capital Corporation. We intend to repay in full the Cdn$600,000
debenture held by Working Opportunity Fund (EVCC) Ltd. with the proceeds of
this offering. In connection with such financing we also issued Royal Bank
Capital Corporation and Working Opportunity Fund (EVCC) Ltd. warrants to
purchase 50,000 Class A and 50,000 Class B shares at a price of Cdn$6.25
per share on or before October 21, 2000. To the extent U.S. law applied, each
of these transactions, was undertaken in reliance on Regulation S, Rule 901
and, in any event, in reliance on the exemption from registration in
Section 4(2) of the Securities Act, as a transaction not involving any public
offering.
II-2
<PAGE>
The following table sets forth the stock options granted by us in the last
three years, with the class of persons to whom issued, the dates of the option
grants, number of shares, the term and exercise price for each grant. Also
indicated are the dates of exercise, if any, and the balance of outstanding
options remaining unexercised. Of the number of shares indicated, one-half are
Class A shares and one-half are Class B shares. To the extent U.S. law applied,
the grants and issuances upon exercise were made in reliance on Regulation D,
Rule 701 and, in any event, in reliance the exemption from registration in
Section 4(2), Regulation S, Rule 901of the Securities Act as transactions not
involving any public offering.
<TABLE>
<CAPTION>
Date No. of Exercise Date Balance
Optionee Granted Shares Term Price Exercised Outstanding
-------- ------------- ------ ------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Employee................ May 9, 1996 2,500 5 Years $19.40 Sept. 30, 1997 0
Employee................ May 9, 1996 1,000 5 Years $19.40 1,000
Director/Officer........ Oct. 15, 1996 24,050 5 Years $13.50 24,050
Officer................. Oct. 15, 1996 10,000 5 Years $13.50 10,000
Officer................. Oct. 15, 1996 10,000 5 Years $13.50 10,000
Officer................. Oct. 15, 1996 5,000 5 Years $13.50 Apr. 30, 1998 0
Employee................ Oct. 15, 1996 5,000 5 Years $13.50 Sept. 30, 1997 0
Employee................ Oct. 15, 1996 2,500 5 Years $13.50 Sept. 30, 1997 0
Employee................ Oct. 15, 1996 1,500 5 Years $13.50 Sept. 30, 1997 0
Employee................ Oct. 15, 1996 1,500 5 Years $13.50 1,500
Employee................ Oct. 15, 1996 1,000 5 Years $13.50 1,000
Employee................ Oct. 15, 1996 750 5 Years $13.50 Sept. 1, 1998 0
Employee................ Oct. 15, 1996 500 5 Years $13.50 500
Employee................ Oct. 15, 1996 500 5 Years $13.50 500
Employee................ Oct. 15, 1996 400 5 Years $13.50 Nov. 12, 1998 0
Employee................ Oct. 15, 1996 400 5 Years $13.50 400
Employee................ Oct. 15, 1996 400 5 Years $13.50 400
Director/Officer........ June 2, 1997 8,000 5 Years $13.00 8,000
Officer................. June 2, 1997 7,600 5 Years $13.00 7,600
Director/Officer........ June 2, 1997 8,000 5 Years $13.00 8,000
Director................ June 2, 1997 2,000 5 Years $13.00 Sept. 20, 1998 0
Director................ June 2, 1997 2,000 5 Years $13.00 0
Employee................ June 2, 1997 3,000 5 Years $13.00 3,000
Employee................ June 2, 1997 2,000 5 Years $13.00 Sept. 30, 1997 0
Employee................ June 2, 1997 1,800 5 Years $13.00 1,800
Employee................ June 2, 1997 1,500 5 Years $13.00 1,500
Employee................ June 2, 1997 1,500 5 Years $13.00 May 30, 1998 0
Employee................ June 2, 1997 1,500 5 Years $13.00 1,500
Employee................ June 2, 1997 1,250 5 Years $13.00 1,250
Employee................ June 2, 1997 1,250 5 Years $13.00 1,250
Employee................ June 2, 1997 1,000 5 Years $13.00 1,000
Employee................ June 2, 1997 1,000 5 Years $13.00 1,000
Employee................ June 2, 1997 1,000 5 Years $13.00 Oct. 1997 0
Employee................ June 2, 1997 800 5 Years $13.00 Nov. 15,1997 0
Employee................ June 2, 1997 800 5 Years $13.00 Sept. 30, 1997 0
Employee................ June 2, 1997 800 5 Years $13.00 Sept. 30, 1997 0
Employee................ June 2, 1997 800 5 Years $13.00 Sept. 30, 1997 0
Employee................ June 2, 1997 800 5 Years $13.00 Sept. 30, 1997 0
Employee................ June 2, 1997 600 5 Years $13.00 600
Employee................ June 2, 1997 600 5 Years $13.00 600
Employee................ June 2, 1997 600 5 Years $13.00 Sept. 30, 1997 0
Employee................ June 2, 1997 600 5 Years $13.00 Sept. 30, 1997 0
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Date No. of Exercise Date Balance
Optionee Granted Shares Term Price Exercised Outstanding
-------- ------------- ------- ------- -------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Employee................ June 2, 1997 600 5 Years $ 13.00 Sept. 30,1997 0
Employee................ June 2, 1997 500 5 Years $ 13.00 500
Employee................ June 2, 1997 500 5 Years $ 10.25 Sept. 30, 1997 0
Director................ Aug. 26, 1997 6,000 5 Years $ 9.50 Mar. 16, 1999 0
Director/Officer........ Mar. 23, 1998 14,000 5 Years $ 9.50 14,000
Director/Officer........ Mar. 23, 1998 14,000 5 Years $ 9.50 14,000
Officer................. Mar. 23, 1998 10,000 5 Years $ 9.50 10,000
Director................ Mar. 23, 1998 10,000 5 Years $ 9.50 10,000
Director................ Mar. 23, 1998 20,000 5 Years $ 9.50 20,000
Director................ Mar. 23, 1998 4,000 5 Years $ 9.50 Mar. 16, 1999 0
Director................ Mar. 23, 1998 4,000 5 Years $ 9.50 Sept. 20, 1998 0
Officer................. Mar. 23, 1998 8,000 5 Years $ 9.50 8,000
Employee................ Mar. 23, 1998 10,000 5 Years $ 9.50 10,000
Employee................ Mar. 23, 1998 8,000 5 Years $ 9.50 8,000
Employee................ Mar. 23, 1998 6,000 5 Years $ 9.50 6,000
Employee................ Mar. 23, 1998 6,000 5 Years $ 9.50 6,000
Employee................ Mar. 23, 1998 5,000 5 Years $ 9.50 5,000
Employee................ Mar. 23, 1998 4,000 5 Years $ 9.50 4,000
Employee................ Mar. 23, 1998 4,000 5 Years $ 9.50 4,000
Employee................ Mar. 23, 1998 4,000 5 Years $ 9.50 June 30, 1998 0
Aug. 1, 1998
Employee................ Mar. 23, 1998 4,000 5 Years $ 9.50 4,000
Employee................ Mar. 23, 1998 4,000 5 Years $ 9.50 4,000
Employee................ Mar. 23, 1998 3,000 5 Years $ 9.50 3,000
Employee................ Mar. 23, 1998 2,000 5 Years $ 9.50 2,000
Employee................ Mar. 23, 1998 2,000 5 Years $ 9.50 2,000
Employee................ Mar. 23, 1998 1,200 5 Years $ 9.50 Jan. 1, 1999 0
Employee................ Mar. 23, 1998 1,000 5 Years $ 9.50 1,000
Employee................ Mar. 23, 1998 1,000 5 Years $ 9.50 Sept. 1, 1998 0
Employee................ Mar. 23, 1998 1,000 5 Years $ 9.50 1,000
Employee................ Mar. 23, 1998 8,000 5 Years $ 7.50 8,000
Employee................ Nov. 19, 1998 1,000 5 Years $ 7.50 1,000
Employee................ Nov. 19, 1998 1,600 5 Years $ 7.50 1,600
Employee................ Nov. 19, 1998 2,000 5 Years $ 7.50 2,000
Employee................ Nov. 19, 1998 1,000 5 Years $ 7.50 1,000
Employee................ Nov. 19, 1998 1,200 5 Years $ 7.50 1,200
Employee................ Nov. 19, 1998 1,600 5 Years $ 7.50 1,600
Consultant.............. Nov. 19, 1998 10,000 1 Year $ 7.50 10,000
Employee................ Nov. 19, 1998 4,000 5 Years $ 7.50 4,000
Employee................ Nov. 19, 1998 1,600 5 Years $ 7.50 1,600
Employee................ Feb. 1, 1999 1,000 5 Years $ 11.25 1,000
Consultant.............. Feb. 5, 1999 50,000 3 Years $US7.50 50,000
Director................ Feb. 16, 1999 10,000 5 Years $ 9.50 10,000
Director................ Feb. 16, 1999 10,000 5 Years $ 9.50 10,000
Director................ Feb. 16, 1999 10,000 5 Years $ 9.50 10,000
Director................ Feb. 16, 1999 10,000 5 Years $ 9.50 10,000
------- -------
398,600 345,950
======= =======
</TABLE>
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
The following exhibits are filed pursuant to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
1.1 Form of underwriting agreement**
1.2 Form of Representatives' Warrant Agreement and form of
Representatives' Warrant**
3.1 Special Resolution of Vidatron Enterprises Ltd., filed May 1, 1990,
cancelling previous Articles and substituting new Articles of
Vidatron Enterprises Ltd.*
3.2 Certificate of Change of Name and Special Resolution of Vidatron
Enterprises Ltd., filed February 13, 1992*
3.3 Certificate of Change of Name and Special Resolution of The Vidatron
Group Inc., filed February 5, 1997*
3.4 Special Resolution Amending the Memorandum and Articles of the Company
adopted February 16, 1999*
3.5 Form of Special Resolutions Amending the Memorandum and Articles of
Vidatron Entertainment Group Inc. to be adopted July 14, 1999.**
4.1 Form of stock option agreement*
4.2 Single Series "A" Debenture, dated March 31, 1996, issued by The
Vidatron Group Inc. to Darcy Krogh, Timothy Gamble, Nesbitt Burns,
Frank Groff, Ann Nixon and Historic Lofts II in the amount of
$500,000*
4.3 Escrow Agreement--Performance Shares, dated September 1, 1996, by and
among The Vidatron Entertainment Group Inc., 531172 B.C. Ltd. and The
R-M Trust Company*
4.4 Subscription Agreement, dated May 27, 1998, by and between Vidatron
Entertainment Group Inc. and Working Opportunity Fund (EVCC) Ltd.*
4.5 Shareholders Agreement, dated May 27, 1998, by and among Vidatron
Entertainment Group, Inc., Working Opportunity Fund (EVCC) Ltd.,
Larry Sugar, Cameron White and Timothy Gamble*
4.6 Agreement, dated July 22, 1998, by and between Vidatron Entertainment
Group Inc. and Royal Bank Capital Corporation*
4.7 Convertible Debenture, dated as of October 21, 1998, by and between
Royal Bank Capital Corporation and Vidatron Entertainment Group Inc.
in the amount of $600,000*
4.8 Debenture, dated as of November 5, 1998, by and between Working
Opportunity Fund (EVCC) Ltd. and Vidatron Entertainment Group Inc. in
the amount of $600,000*
4.9 Amending Agreement, dated March 31, 1999, by and among Vidatron
Entertainment Group Inc. and Timothy Gamble, Ann Nixon, Darcy Krogh,
Frank Groff, W.D. Cameron White, and Soho Interactive Communications
Inc.**
5.1 Opinion of Page Fraser & Associates**
10.1 Commitment Letter agreement for mortgage loan, dated March 22, 1996,
by and among Aetna Trust Company, Soho Enterprises Ltd., The Vidatron
Group Inc., Timothy Gamble and Cameron White*
10.2 Share Option Plan of Vidatron Entertainment Group Inc., dated July 17,
1997*
10.3 Asset Purchase Agreement, dated August 18, 1997, by and among Magic
Lantern Communications Ltd., Image Media Ltd., 802117 Ontario Inc.
dba Pilot Software and Vidatron Entertainment Group Inc.*
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------
<C> <S>
10.4 Commitment Letter agreement for mortgage loan, dated January 15,
1998, by and among Canadian Western Trust Company, Soho
Enterprises Ltd. and Vidatron Entertainment Group Inc.*
10.5 Commitment Letter agreement for mortgage loan, dated January 22,
1998, by and among Vancouver City Savings Credit Union, 552552
B.C. Ltd., Vidatron Entertainment Group Inc., Timothy Gamble
and Cameron White*
10.6 Letter Agreement, dated January 30, 1998, by and among Vidatron
Entertainment Group Inc., Rick Friesen and Phil Leonard and
Promissory Note dated January 30, 1998 by Vidatron
Entertainment Group Inc. in favor of Rick Friesen and Phil
Leonard*
10.7 Canada Television and Cable Production Fund-Equity Investment
Program Letter Agreement dated April 27, 1998, by and between
the Canadian Film Development Corporation and Citizen
Productions Inc.*
10.8 Canada Television and Cable Production Fund--License Fee
Program--Interim Certificate of Eligibility, dated August 19,
1998, by and between Canada Television and Cable Production
Fund and Harm's Way Productions Inc.*
10.9 Share Purchase Warrant, dated October 21, 1998, issued by
Vidatron Entertainment Group Inc. to Royal Bank Capital
Corporation*
10.10 Share Purchase Warrant, dated November 4, 1998, issued by
Vidatron Entertainment Group Inc. to Working Opportunity Fund
(EVCC) Ltd.*
10.11 Employment Agreement, dated September 1, 1997, by and between
Vidatron Entertainment Group Inc. and W. D. Cameron White, as
amended by the Amending Employment Agreement dated April 1,
1999*
10.12 Employment Agreement, dated September 1, 1997, by and between
Vidatron Entertainment Group Inc. and Timothy Gamble, as
amended by the Amending Employment Agreement dated April 1,
1999*
10.13 Employment Agreement, dated September 1, 1996, by and between
Sugar Entertainment Ltd. and Larry Sugar*
10.14 Employment Agreement, dated September 1, 1997, by and between
Vidatron Entertainment Group Inc. and Juliet Jones, as amended
by the Amending Employment Agreement dated April 1, 1999*
10.15 Letter agreement, dated March 1, 1999, by and between Vidatron
Entertainment Group Inc. and Redwood Investments Ltd.**
10.16 Letter agreement, dated May 26, 1999, by and among Canadian
Western Trust and Soho Enterprises Ltd., the Vidatron Group
Inc., Timothy Roy Gamble and William Douglas Cameron White**
10.17 Lease, dated November 20, 1996, by and between Laidar Holdings
Ltd., and Dr. Gerald Wittenberg, and the Playhouse Theatre of
British Columbia**
10.18 Offer to Purchase, dated April 22, 1999 by and between Soho
Enterprises Ltd. and Wilcox Donnelley Capital Corp., as
modified April 28, 1999**
11.1 Statement re: computation of per share earnings**
21.1 List of Subsidiaries of the Company**
23.1 Consent of KPMG**
23.2 Consent of Ellis Foster**
23.3 Consent of Page Fraser & Associates** (included in their opinion
filed as Exhibit 5.1)
23.4 Consent of Brand Farrar & Buxbaum LLP**
23.5 Consent of Thorsteinssons**
24.4 Power of Attorney*
</TABLE>
- --------
* Previously filed.
** Filed herewith.
II-6
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters,
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the U.S.
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the U.S. Securities Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the U.S. Securities Act and will be governed
by the final adjudication of such issue.
(2) That, for the purposes of determining any liability under the U.S.
Securities Act, the information omitted from a form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the U.S. Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(3) That, for the purpose of determining any liability under the U.S.
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has authorized this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, in the City of Vancouver, Province of British
Columbia, Canada on June 23, 1999.
VIDATRON ENTERTAINMENT GROUP INC.
By: /s/ W.D. Cameron White
_________________________________
W.D. Cameron White
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director, President June 23, 1999
____________________________________
Timothy Gamble
/s/ W.D. Cameron White Director, Chief Executive June 23, 1999
____________________________________ Officer
W.D. Cameron White
/s/ Juliet Jones Chief Financial Officer, June 23, 1999
____________________________________ Secretary
Juliet Jones
* Director June 23, 1999
____________________________________
Stephen Cheikes
* Director June 23, 1999
____________________________________
Darrell Elliott
* Director June 23, 1999
____________________________________
Yad Garcha
* Director June 23, 1999
____________________________________
Vincent Lum
*By: /s/ W.D. Cameron White
-----------------------
W.D. Cameron White
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
EXHIBIT 1.1
PEACE ARCH ENTERTAINMENT GROUP INC.
2,000,000 Class B Subordinate Voting Shares
UNDERWRITING AGREEMENT
__________, 1999
THE SEIDLER COMPANIES INCORPORATED
JOSEPHTHAL & CO. INC.
As Representatives of the
Several Underwriters
named in Schedule I hereto
c/o The Seidler Companies Incorporated
515 South Figueroa Street
Suite 1100
Los Angeles, California 90071-3328
Ladies and Gentlemen:
Peace Arch Entertainment Group Inc. (formerly known as Vidatron
Entertainment Group Inc.), a corporation incorporated under the laws of British
Columbia, Canada (the "Company"), proposes to sell to the several underwriters
named in Schedule I hereto (collectively, the "Underwriters") an aggregate of
2,000,000 Class B Subordinate Voting Shares ("Limited Voting Shares") of the
Company (the "Firm Shares"), and to sell to The Seidler Companies Incorporated
and Josephthal & Co. Inc., individually, and not in their capacity as the
Representatives, five-year warrants (the "Representatives' Warrants") to
purchase up to 200,000 Class B Subordinate Voting Shares (the "Representatives'
Warrant Shares"), pursuant to the terms and conditions of the Representatives'
Warrant Agreement (the "Representatives' Warrant Agreement") filed as an exhibit
to the Registration Statement (as hereinafter defined). The Firm Shares are to
be sold to each Underwriter, acting severally and not jointly, in such amount as
is set forth in Schedule I opposite the name of such Underwriter. In addition,
for the sole purpose of covering over-allotments in connection with the sale of
the Firm Shares, the Company proposes to grant to the Underwriters an option to
purchase up to an additional 300,000 Class B Subordinate Voting Shares (the
"Option Shares"). The Firm Shares and any Option Shares purchased pursuant to
this Agreement are herein referred to as the "Shares."
<PAGE>
You have advised the Company that you are authorized to enter into this
Agreement on behalf of the several Underwriters for whom you are acting as
representatives (the "Representatives"), and that The Seidler Companies
Incorporated has authority to execute this Agreement, bind the Underwriters and
the Representatives and take all actions on behalf of the Representatives
referenced in this Agreement.
1. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to, and agrees with, each Underwriter that:
(a) The Company has prepared and filed with the United States
Securities and Exchange Commission (the "Commission") in accordance with the
provisions of the Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "Act"), a
registration statement on Form F-1 (No. 333-10354), including a preliminary
prospectus, subject to completion, relating to the Shares. The registration
statement, as amended at the time it becomes effective, including financial
statements and exhibits and the information (if any) contained in a prospectus
that is deemed to be a part of the registration statement at the time of its
effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as
the "Registration Statement," and the prospectus in the form first used to
confirm sales of the Shares is hereinafter referred to as the "Prospectus."
(b) No order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of the Prospectus or any
preliminary prospectus has been issued by the Commission and no proceedings for
that purpose are pending, threatened or, to the knowledge of the Company,
contemplated by the Commission; no stop order suspending the sale of the Shares
in any jurisdiction designated by you pursuant to Section 5(d) hereof has been
issued and no proceedings for that purpose are pending, threatened or, to the
knowledge of the Company, contemplated; and any request of the Commission and
each securities authority or agency of each other jurisdiction for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) has been complied with.
(c) Each preliminary prospectus in the form filed as part of the
Registration Statement as originally filed or filed as part of any amendment
thereto, or, if different, in the form used in connection with the offering of
the Shares, complied fully in all material respects when so filed or used with
the Act, and when the Registration Statement becomes effective and at all times
subsequent thereto, the Registration Statement (including, if applicable, the
information deemed to be part of the Registration Statement at the time it was
declared effective pursuant to Rule 430A under the Act) and the Prospectus and
any supplements or amendments thereto, shall comply in all material respects
with the provisions of the Act and the Registration Statement and any such
amendment thereto at the time such Registration Statement or such amendment
becomes effective will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Prospectus and any supplements or
amendments thereto, will not at any such time contain any untrue statement
2.
<PAGE>
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, except that the Company makes no representation, warranty
or agreement as to statements in, or omissions from, any such document, in
reliance upon, and in conformity with, written information furnished to the
Company by you specifically for use in the preparation thereof. The Company
acknowledges for all purposes under this Agreement (including, without
limitation, this paragraph and Sections 6(b) and 7 hereof) that the statements
appearing in any preliminary prospectus, the Prospectus or the Registration
Statement in the first, second, third, eighth and last paragraphs under the
caption "Underwriting" constitute the only written information furnished to the
Company by you for use in the Registration Statement or the Prospectus or any
preliminary prospectus (or any amendment or supplement thereto). There is no
contract or document required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement which
is not described or filed as required.
(d) KPMG LLP and Ellis Foster, whose respective reports appear in
the Prospectus, are, to the best knowledge of the Company, independent public
accountants with respect to the Company as required by the Act. The financial
statements (including the related notes) included in the Prospectus and the
Registration Statement (and any amendments or supplements thereto) comply as to
form with the requirements of the Act, present fairly and accurately the
financial condition, the results of the operations and changes in cash flows and
equity of the entities purported to be shown thereby at the dates and for the
periods indicated and have been prepared in accordance with Canadian generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as stated therein); and the other financial and
statistical information and the supporting schedules included in the Prospectus
and the Registration Statement (and any amendments or supplements thereto),
present fairly and accurately, in all material respects, the information
required to be stated therein. Such financial statement have been reconciled as
required under Item 18 of Form 20-F and Registration S-X under the Act to United
States generally accepted accounting principles consistently applied throughout
the periods involved. No other financial statements are required by Form F-1, or
otherwise, to be included in the Prospectus or the Registration Statement. The
selected financial information and statistical data set forth under the captions
"Summary Selected Financial and Operating Data" and "Selected Financial and
Operating Data" in the Offering Documents have been prepared on a basis
consistent with the consolidated financial statements of the Company.
(e) The Company does not control or have any interest in, directly or
indirectly, any corporation, partnership, association or other entity other than
those corporations listed or described on Exhibit 21.1 to the Registration
Statement (each, a "Subsidiary" and, collectively, the "Subsidiaries"). The
Company and each Subsidiary has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction in which it
is incorporated, with full power and authority to own or lease and occupy its
properties and conduct its business as it is currently being conducted and as
described in the Prospectus, and is duly qualified to do business and is in good
standing in each jurisdiction in which the character of the business conducted
by it or the location of the
3.
<PAGE>
properties owned or leased by it makes such qualification necessary except where
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect (as defined in Section 1(k)); and the Company and each Subsidiary
holds all licenses, certificates, permits and approvals from governmental
authorities necessary for the conduct of its business as it is currently being
conducted and as described in the Prospectus. The expiration of any such
licenses, permits or other governmental authorizations would not have a Material
Adverse Effect. Complete and correct copies of the respective memorandum,
articles of the Company and each of API Aviator Pictures, Inc., The Eyes Multi-
Media Productions, Inc., Soho Enterprises, Inc., Sugar Entertainment Ltd.
and Vidatron Television, Inc. (collectively, the "Significant Subsidiaries"),
and all amendments thereto, have been delivered to you, and no changes therein
will be made subsequent to the date hereof and prior to the date of the
consummation of the sale of the Shares except as disclosed in the Prospectus.
None of the Subsidiaries, other than the Significant Subsidiaries, is a
"significant subsidiary" within the meaning of Rule 1-20(v) of Regulation S-X
under the Act or is otherwise material to the business or operations of the
Company. All of the issued and outstanding shares of capital stock of each
Subsidiary have been duly and validly issued, are fully paid and nonassessable
and are owned, of record and beneficially, by the Company, free and clear of any
mortgage, pledge, lien, encumbrance, claim or equity. There are no options,
warrants, subscriptions, securities or other agreements outstanding or in
existence, absolute or contingent, entitling any person to purchase or otherwise
acquire any capital stock or other equity interest, or any security convertible
into or exercisable or exchangeable for any capital stock or equity interest, in
any Subsidiary.
(f) The capitalization of the Company is as set forth under the
caption "Capitalization" in the Prospectus, and the Limited Voting Shares and
the Class A Multiple Voting Shares of the Company (the "Multiple Voting Shares"
and, together with the Limited Voting Shares, the "Voting Shares") conform to
all statements relating thereto contained in the Registration Statement and the
Prospectus; the outstanding Voting Shares have been, and the Shares, upon
issuance and delivery and payment therefor in the manner herein described, will
be, duly authorized, validly issued, fully paid and nonassessable. Except for
the capital stock of the Subsidiaries, the Company does not own, and at the date
of the consummation of the sale of the Shares will not own, directly or
indirectly, any shares of stock or any other equity or long-term debt securities
of any corporation or have any partnership interest or equity interest in any
firm, partnership, joint venture, association or other entity. Except as
described in the Registration Statement and Prospectus, there are no preemptive
or other rights to subscribe for or to purchase, or any restriction upon the
voting or transfer of, any Voting Shares pursuant to the Company's memorandum,
articles or other governing documents or any agreement or other instrument to
which the Company is a party or by which it may be bound. Neither the filing of
the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any Voting
Shares.
(g) There has not been any material adverse change in, or any
adverse development which would have Material Adverse Effect, the business,
properties, financial condition, results of operations or prospects of the
Company and the Subsidiaries taken as a
4.
<PAGE>
whole from the date as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, and neither
the Company nor any Subsidiary has, directly or indirectly, incurred any
liabilities or obligations, direct or contingent, or entered into any
transactions, not in the ordinary course of business, which are material to the
business of the Company and the Subsidiaries taken as a whole, and there has not
been any change in the capital stock of, or any incurrence of long-term debt or
material increase in short-term debt by, the Company or any Subsidiary, or any
issuance or grant of options, warrants or rights to purchase the capital stock
of the Company, or any declaration or payment of any dividend or other
distribution on the capital stock of the Company from the date as of which
information is given in the Registration Statement and the Prospectus, except as
otherwise stated therein.
(h) Neither the Company nor any Subsidiary is, nor with the giving
of notice or lapse of time or both would be, in violation of or in default under
its memorandum, articles or bylaws, or any material agreement, indenture or
other instrument, to which it is a party or by which it is bound, or to which
its properties are subject. Neither the issuance, sale or delivery by the
Company of the Shares, nor the execution, delivery and performance of this
Agreement nor the consummation by the Company of the transactions contemplated
hereby will result in a violation of, or constitute a default under, the
memorandum, articles or bylaws of the Company or any Subsidiary, or any
agreement, indenture or other instrument to which the Company or any Subsidiary
is a party or by which any of them is bound, or to which any of their respective
properties or assets is subject, nor will the performance by the Company of its
obligations hereunder violate any law, ordinance, rule, administrative
regulation or decree of any court or any governmental agency or body having
jurisdiction over the Company or any Subsidiary or any of their respective
properties or assets, or result in the creation or imposition of any lien,
charge, claim or encumbrance upon any property or asset of the Company or any
Subsidiary. Except for permits and similar authorizations required under the Act
and the securities or "blue sky" laws of certain jurisdictions and for such
permits and authorizations which have been obtained, no consent, approval,
authorization or order of any court, governmental agency or body is required in
connection with the Company's execution and delivery of this Agreement or
consummation of the transactions contemplated hereby.
(i) The Company has the requisite power and authority to authorize
the offering of the Shares and to execute, deliver and perform this Agreement,
the Representatives' Warrant Agreement and the Representatives' Warrants and to
issue, sell and deliver the Shares and the Representatives' Warrants. This
Agreement, the Representatives' Warrant Agreement and the Representatives'
Warrants have been duly and validly authorized, executed and delivered by the
Company and constitute the valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms except
as rights to indemnity and contribution hereunder or thereunder may be limited
by federal, state or provincial securities laws or principles of public policy,
and except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally or by general equitable principles.
5.
<PAGE>
(j) The Company and the Subsidiaries have good and marketable title
to their respective properties and assets, free and clear of all liens,
encumbrances and defects except such as are described or referred to in the
Prospectus or such as do not have a Material Adverse Effect on the value of such
properties and assets and do not interfere with the use made or proposed to be
made of such properties and assets by the Company and the Subsidiaries, and any
real property and buildings held under lease by the Company or any Subsidiary
are held by it under valid, existing and enforceable leases with such exceptions
as are not material and do not interfere with the use made or proposed to be
made of such property and buildings by the Company or such Subsidiaries. The
properties owned by the Company and the Subsidiaries conform to all relevant
zoning regulations, development controls, use restrictions and other applicable
laws and regulations. The properties and assets of the Company and the
Subsidiaries necessary to the conduct of their respective businesses (as
presently conducted and as described in the Prospectus) are in good repair
(reasonable wear and tear excepted), insured in accordance with industry
practice and suitable for their current and intended uses. To the Company's
knowledge, each of the buildings on the properties owned by the Company and the
Subsidiaries fully complies with all applicable laws, is structurally sound, in
good repair and condition and free of defects, except for reasonable wear and
tear, and is not subject to any outstanding municipal work orders, fire up-
grading requirements, health orders or other notices of building deficiencies
from any governmental authority which requires the Company or any Subsidiary to
cure, repair or rectify any breach or non-compliance of the building or any use
thereof.
(k) Neither the Company nor any Subsidiary is in violation of any
federal, state, local, provincial or foreign laws or regulations relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including, without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or
petroleum products, asbestos or asbestos-containing materials, or
polychlorinated biphenyls ("Materials of Environmental Concern"), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern
(collectively, "Environmental Laws"), which violation could have a Material
Adverse Effect on the condition, financial or otherwise, or the earnings, cash
flow, business affairs or business prospects of the Company and the Subsidiaries
taken as a whole (a "Material Adverse Effect"). "Violation" includes, but is not
limited to, noncompliance with any permit or other governmental authorization
required under applicable Environmental Laws and noncompliance with the terms
and conditions of any such permit or authorization.
(l) Neither the Company nor any Subsidiary has received any
communication (written or oral), whether from a governmental authority,
citizens' group, employee or otherwise, alleging that the Company or any
Subsidiary, or any other person or entity for whom the Company or any Subsidiary
is or may be liable is not in full compliance with any Environmental Laws or
permit or authorization required under applicable Environmental Laws, and, to
the Company's knowledge, there are no circumstances that may
6.
<PAGE>
prevent or interfere with such full compliance in the future, except where
failure to so comply would not have a Material Adverse Effect.
(m) There is no claim, action, cause of action, investigation or
notice (written or oral) by any person or entity alleging potential liability
(including, without limitation, potential liability for investigatory costs,
natural resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from (i) the presence in or release into
the environment of any Materials of Environmental Concern at any location owned,
leased or operated, now or in the past, by the Company or any Subsidiary, or any
other person or entity for whom the Company or any Subsidiary, is or may be
liable, or (ii) circumstances forming the basis of any violation or, to the
Company's knowledge, alleged violation of any Environmental Law (collectively,
"Environmental Claims") pending or, to the Company's knowledge, threatened
against the Company or, to the Company's knowledge, pending or threatened
against any other person or entity whose liability for any Environmental Claim
the Company or any Subsidiary has retained or assumed either contractually or by
operation of law.
(n) Except as set forth in the Registration Statement and
Prospectus, to the Company's knowledge, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Materials of Environmental Concern, that could form the basis of any
Environmental Claim against the Company or any Subsidiary with respect to
property owned, leased or operated by or for the Company or any Subsidiary, now
or in the past, or against any person or entity whose liability for any
Environmental Claim the Company or any Subsidiary has retained or assumed either
contractually or by operation of law.
(o) Except as would not, singly or in the aggregate, have a Material
Adverse Effect, neither the Company nor any Subsidiaries has (A) violated any
applicable federal, state, provincial or foreign law relating to employment or
employment practices or the terms and conditions of employment, including,
without limitation, discrimination in the hiring or other human rights matters,
promotion or pay of employees, wages, hours of work, overtime pay, plant
closings and layoffs, collective bargaining, and occupational safety and health,
or any provisions of Employment Standards Act of British Columbia or the rules
and regulations promulgated thereunder or any other applicable law (whether
foreign or domestic) relating to or governing the operation or maintenance of
any employee benefit plan or arrangement, nor (B) engaged in any unfair labor
practice. There is no unfair labor practice charge or complaint pending or, to
the Company's knowledge, threatened against the Company before the British
Columbia Labor Relations Board or any corresponding state, local, provincial or
foreign agency, and no grievance or arbitration proceeding arising out of or
under any collective bargaining agreement is so pending or, to the Company's
knowledge, threatened against the Company which would, singly or in the
aggregate, have a Material Adverse Effect; and no union representation claim
pending with respect to the employees of the Company or any Subsidiary, and to
the Company's knowledge, no union organizing activities taking place. No labor
dispute involving the employees of the Company or any
7.
<PAGE>
Subsidiary is pending or, to the Company's knowledge, threatened or imminent
which could singly or in the aggregate have a Material Adverse Effect; and the
Company is not aware of any existing, threatened or imminent labor disturbance
by the employees of any principal vendors, suppliers or contractors of the
Company which could singly or in the aggregate have a Material Adverse Effect.
(p) There is no legal or governmental proceeding to which the
Company or any Subsidiary is a party or to which any of their respective
properties or assets is subject or which is pending or, to the Company's
knowledge, threatened or contemplated against the Company or any Subsidiary
which could result in any Material Adverse Effect or which is required to be
disclosed in the Registration Statement or the Prospectus.
(q) Neither the Company nor any Subsidiary is in violation of any
law, ordinance, rule, administrative regulation or decree known to the Company
of any court or governmental agency or body having jurisdiction over the Company
or any Subsidiary or any of their respective properties or assets, which
violation could have a Material Adverse Effect.
(r) Neither the Company nor any Subsidiary has taken, or shall take,
directly or indirectly, any action designed to cause or result in, or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of the Limited Voting Shares to facilitate the sale or resale of the
Shares, provided, however, that the Company shall be entitled to make such
disclosures and filings as may be required by applicable law or the rules of The
Toronto Stock Exchange.
(s) The Company and each Subsidiary have timely (giving effect to
permitted extensions) and properly prepared and filed all necessary federal,
state, provincial, local and foreign income, franchise and any other required
tax returns and have paid all taxes shown as due thereon (other than those being
contested in good faith), and neither the Company nor any Subsidiary has any
knowledge of any tax deficiency which has been or might have a Material Adverse
Effect.
(t) (A) Neither the Company nor any Subsidiary has at any time and,
to the Company's knowledge, (B) no employee or agent acting on behalf of the
Company or any Subsidiary has at any time within the last five years, (i) made
any contributions to any candidate for political office in violation of law, or
failed to disclose fully any contributions to any candidate for political office
in accordance with any applicable statute, rule, regulation or ordinance
requiring such disclosure, (ii) made any payment to any local, state,
provincial, federal or foreign governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments required
or allowed by applicable law, or (iii) engaged in any transaction, maintained
any bank account or used any corporate funds except for transactions, bank
accounts and funds which have been and are reflected in the normally maintained
books and records of the Company and the Subsidiaries.
8.
<PAGE>
(u) Except as contemplated by this Agreement, the Company is not
aware of any claims for services in the nature of a finder's fee, brokerage fee
or otherwise with respect to this offering for which the Company or any
Subsidiary or any of the several Underwriters may be responsible.
(v) The Company and the Subsidiaries own or possess adequate rights
to use all trademarks, service marks, trade names and copyrights necessary for
the conduct of their respective businesses as currently conducted and as
described in the Prospectus and have taken reasonable security measures to
protect the secrecy, confidentiality and value of their respective trade secrets
and know-how which are valid and protectible and are not part of the public
knowledge or literature and which are necessary for, used in, or proposed to be
used in the conduct of their respective businesses as described in the
Prospectus. Neither the Company nor any Subsidiary has received any notice of
infringement of or conflict with, and neither the Company nor any Subsidiary, to
the best of the Company's knowledge, is infringing or in conflict with, asserted
rights of others with respect to any trademarks, service marks, trade names,
copyrights, trade secrets or other intellectual property rights which could,
singly or in the aggregate, have a Material Adverse Effect.
(w) There are no outstanding loans or advances or guarantees of
indebtedness by the Company or any Subsidiary to or for the benefit of any
affiliate of the Company or any Subsidiary, any of the officers or directors of
the Company or any Subsidiary, or any of the members of the families of any of
the foregoing, which are required by the Act to be described in the Registration
Statement or the Prospectus except such that are so described.
(x) The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary in order to permit
preparation of financial statements in accordance with Canadian generally
accepted accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(y) The Company has not received any notice from the American Stock
Exchange (the "AMEX") that the AMEX intends to decline to permit the listing of
the Shares.
(z) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, an "investment company" under the United States
Investment Company Act of 1940.
9.
<PAGE>
(aa) The Company or its Subsidiaries, as the case may be, currently
is eligible to receive refundable tax credits under the Income Tax Act (Canada)
and the Income Tax Act (British Columbia) as contemplated by the Prospectus, and
neither the Company nor any Subsidiary has taken, or shall take, directly or
indirectly, any action designed to cause or result in, or which might reasonably
be expected to cause the loss of eligibility for or material reduction in these
tax credits.
(ab) There are no reports or information that in accordance with the
requirements of the securities commission or similar regulatory authority (each,
Canadian Securities Regulators) must be made publicly available in connection
with the offering of the Shares that have not been made publicly available as
required; and there are no documents required to be filed with the Canadian
Securities Regulators in connection with the offering that have not been filed
as required.
(ac) The Representatives' Warrant Shares have been duly authorized
and reserved for issuance upon the exercise of the Representatives' Warrants
and, when issued upon payment of the purchase price therefor provided in the
Representatives' Warrants, will be validly issued, fully paid and nonassessable.
Any certificate signed by any duly authorized officer of the Company and
delivered to you or counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
2. Sale and Delivery of the Shares to the Underwriters.
---------------------------------------------------
(a) Subject to the terms and conditions and upon the basis of the
representations and warranties herein set forth, the Company agrees to sell to
the several Underwriters, and each Underwriter agrees, severally and not
jointly, to purchase from the Company the number of Firm Shares set forth
opposite such Underwriter's name on Schedule I hereto at a price per share of
U.S.$_____________ [92.25% of the public offering price] (the "Purchase Price").
(b) Subject to the terms and conditions and upon the basis of the
representations and warranties herein set forth, the Company hereby grants an
option to the several Underwriters to purchase from the Company at the Purchase
Price any or all of the Option Shares (the "Option"). The Option may be
exercised only to cover over-allotments in connection with the distribution and
sale of the Firm Shares by the Underwriters. The Option may be exercised in
whole or in part at any time on or before the 45th day after the effective date
of the Registration Statement upon written notice by the Representatives to the
Company setting forth the number of Option Shares as to which the several
Underwriters are exercising the Option. Delivery of certificates for the Option
Shares by the Company and payment therefor to the Company shall be made as
provided in Section 3 hereof. The number of Option Shares to be purchased by
each Underwriter shall be the same percentage of the total number of Option
Shares to be purchased by the Underwriters as such Underwriter is purchasing of
the Firm Shares, subject to such readjustments as the
10.
<PAGE>
Representative in their absolute discretion shall make to eliminate fractional
shares. As Representatives of the several Underwriters, you may cancel the
Option at any time by giving written notice of cancellation to the Company. If
the Option is cancelled or expires unexercised in whole or in part, the Company
shall promptly deregister under the Act the Option Shares not sold hereunder.
3. Delivery of and Payment for Shares. Delivery of certificates for the
----------------------------------
Firm Shares to be purchased by the Underwriters from the Company shall be made
against payment therefor by certified or official bank check or checks drawn
upon or by a New York Clearing House bank and payable in next-day funds to the
account of the Company. Such delivery and payment shall be made at 6:30 A.M.,
local time, at the offices of The Seidler Companies Incorporated, 515 South
Figueroa Street, Suite 1100, Los Angeles, California (or such other place as
mutually may be agreed upon by you and the Company), on the third full business
day following the date of the public offering as advised by you to the Company
or at such other date not more than seven full business days thereafter as shall
be determined by you and the Company (unless, in either case, postponed pursuant
to Section 11) (the "First Closing Date").
The Option granted in Section 2 hereof may be exercised during the term
thereof by written notice to the Company from you. Such notice shall set forth
the aggregate number of Option Shares as to which the Option is being exercised
and the time and date, not earlier than either the First Closing Date or the
second business day after the date on which the Option shall have been exercised
nor later than the seventh business day after the date of such exercise, as
determined by you, when the Option Shares are to be delivered (the "Option
Closing Date"). Delivery and payment for such Option Shares is to be at the
offices set forth above for delivery and payment of the Firm Shares. Delivery
of certificates for the Option Shares to be purchased by the Underwriters shall
be made against payment therefor by certified or official bank checks drawn upon
or by a New York Clearing House bank and payable in next-day funds to the
account of the Company. The First Closing Date and the Option Closing Date are
herein individually referred to as the "Closing Date" and collectively referred
to as the "Closing Dates."
Delivery of certificates for the Shares shall be made by or on behalf of
the Company to you, or the respective accounts of the Underwriters, against
payment by you, for the several accounts of the Underwriters, to the Company.
The certificates for the Shares shall be registered in such names and
denominations as you shall have requested at least three full business days
prior to the applicable Closing Date, and shall be made available for checking
and packaging at a location as may be designated by you not later than 10:00
A.M. at least one full business day prior to such Closing Date. Time shall be
of the essence and delivery at the time and place specified in this Agreement is
a further condition to the obligations of each Underwriter.
11.
<PAGE>
4. Offering by Underwriters. On the terms and subject to the conditions
------------------------
hereof, as soon after the Registration Statement becomes effective as in the
judgment of the Representatives is advisable, the several Underwriters propose
to offer the Shares to the public as set forth in the Prospectus. The
Representatives may from time-to-time increase or decrease the public offering
price after distribution of the Shares has been completed to such extent as the
Representatives, in their sole discretion deem advisable. The Underwriters may
enter into one or more agreements as the Underwriters, in each of their sole
discretion, deem advisable with one or more broker-dealers who shall act as
dealers in connection with such public offering.
The Underwriters represent and warrant to, and covenant and agree with, the
Company that during the course of the distribution of the Shares to the public
by or through the Underwriters, the Underwriters will offer the Shares for sale
to the public and will sell the Shares only in those jurisdictions where they
may be lawfully offered for sale or sold (but, in any event, the Underwriters
will not offer the Shares for sale to the public in Canada) and will comply with
all Prospectus-delivery requirements under the Act.
The Company authorizes the Underwriters to use preliminary prospectuses and
to make them available for use by prospective underwriters and dealers and
authorize the Underwriters and all dealers acquiring Shares from an Underwriter
to use the Prospectus (as amended or supplemented, if the Company shall have
furnished any amendments or supplements thereto) in connection with the sale of
the Shares until the earlier of the completion of the public offering or the
90th day following the effectiveness of the Registration Statement.
5. Covenants. The Company covenants and agrees with each Underwriter
---------
that:
(a) The Company shall use its reasonable best efforts to cause the
Registration Statement to become effective at the earliest possible time or, if
the procedure in Rule 430A of the Act is utilized, to comply with the provisions
of, and make all requisite filings with the Commission pursuant to, Rule 430A of
the Act and to notify you promptly (in writing, if requested) of all such
filings. The Company shall notify you promptly and confirm such notification in
writing, (i) when the Registration Statement has become effective (if such
Registration Statement has not otherwise become effective prior to the execution
of this Agreement), if and when any Prospectus is mailed (or otherwise sent for
filing pursuant to Rule 424 under the Act), and when any post-effective
amendment to the Registration Statement becomes effective, (ii) of the happening
of any event during the period referred to in paragraph (c) below that makes any
statement of a material fact made in the Registration Statement untrue or that
requires the making of any additions to or changes in the Registration Statement
(as amended or supplemented from time to time) in order to make the statement
therein not misleading or that makes any statement of a material fact made in
the Prospectus (as amended or supplemented from time to time) untrue or that
requires the making of any additions to or changes in the Prospectus (as amended
or supplemented from time to time) in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, and
(iii) of any request by the Commission for any amendment of or supplement to the
Registration Statement or the Prospectus or for additional
12.
<PAGE>
information relating thereto. The Company shall prepare and file with the
Commission, promptly upon your request, any amendments of or supplements to the
Registration Statement or the Prospectus which, in the opinion of counsel to the
several Underwriters, may be necessary or advisable in connection with the
distribution of the Shares and shall use every reasonable effort to cause the
same to become effective as promptly as possible; and the Company shall not file
any amendment of or supplement to the Registration Statement or the Prospectus,
whether before or after the time when the Registration Statement becomes
effective, which has not previously been submitted to you a reasonable time
before the proposed filing thereof or to which you shall reasonably object in
writing. The Company shall advise you promptly after it shall receive notice
thereof of the issuance by the Commission or any State or other regulatory body
of any stop order or other order suspending the effectiveness of the
Registration Statement, suspending or preventing the use of any preliminary
prospectus or the Prospectus or suspending the qualification of the Shares for
offering or sale in any jurisdiction, or of the institution or threatening of
any proceedings for any such purpose; and the Company shall use every reasonable
effort to prevent the issuance of any stop order or other such order and, should
a stop order or other such order be issued, to obtain as soon as possible the
lifting thereof.
(b) The Company shall furnish to the Underwriters, from time to time
and without charge, a reasonable number of copies of the Registration Statement
of which, upon request, two for you and one for counsel to the Underwriters
shall be signed, and shall include exhibits and all amendments and supplements
to such Registration Statement.
(c) Within the time during which a Prospectus relating to the Shares
is required to be delivered under the Act, the Company shall furnish to each
Underwriter, at the Company's expense, as many copies of the Prospectus (and of
each amendment or supplement thereto) as such Underwriter may reasonably
request, and the Company shall comply with all requirements imposed upon it by
the Act, as now and hereafter amended, so far as is necessary to permit the
continuance of sales of or dealings in the Shares as contemplated by the
provisions hereof and the Prospectus. If during such period any event occurs as
a result of which, in the opinion of counsel for the Underwriters or in the
judgment of the Company, the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances then
existing, not misleading, or if during such period it is necessary to amend the
Registration Statement or supplement the Prospectus to comply with the Act, the
Company shall promptly notify you and, subject to the provisions of Section
5(a), shall amend the Registration Statement or supplement the Prospectus (at
the expense of the Company) so as to correct such statement or omission or
effect such compliance, and will furnish to each Underwriter and to such dealers
as you shall specify such number of copies as such Underwriter or dealers may
reasonably request.
(d) The Company shall use its reasonable best efforts to take or
cause to be taken all necessary action and furnish to whomever you may direct
such information as may be required in qualifying the Shares for sale under the
laws of such state jurisdictions which you shall designate and to continue such
qualifications in effect for as long as may be
13.
<PAGE>
required for the distribution of the Shares; except that in no event shall the
Company be obligated in connection therewith to file any general consent to
service of process or to qualify as a foreign corporation in any jurisdiction in
which it is not otherwise so subject. The Company shall file such statements
and reports as may be required by the laws of each jurisdiction in which the
Shares have been qualified as above provided.
(e) As soon as practicable, but in any event not later than 60 days
after the end of the 12-month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs the Company will make generally available to its
shareholders, in the manner specified in Rule 158(b) of the Rules and
Regulations, and to the Representatives, an earnings statement which will be in
the detail required by, and will otherwise comply with, the provisions of
Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations, covering
a period of at least 12 consecutive months after the effective date of the
Registration Statement.
(f) For a period of six months following the First Closing Date, the
Company will not, without your prior written consent, (i) purchase any Voting
Shares or equity securities of the Company or (ii) offer, issue, sell, contract
to sell, transfer or otherwise dispose of, for value or otherwise, directly or
indirectly, any Voting Shares or other equity securities of the Company or any
securities convertible into or exchangeable for, or warrants to purchase or
acquire, Voting Shares, except (w) pursuant to this Agreement or (x) pursuant to
the exercise of stock options, warrants or performance share escrow agreement
outstanding as of the date of the Prospectus and disclosed therein, (y) pursuant
to the grant of options to employees, officers, consultants or directors of the
Company or its subsidiaries pursuant to the Company's Stock Option Plan to
purchase Voting Shares at an exercise price of not less than the public offering
price of the Shares as set forth in the Prospectus, provided that such options
do not become exercisable prior to six months following the First Closing Date,
or (z) Limited Voting Shares issued pursuant to the conversion of Multiple
Voting Shares outstanding as of the date of the Prospectus.
(g) The Company shall apply the net proceeds of the sale of the
Shares sold by it in the manner specified under the caption "Use of Proceeds" in
the Prospectus.
(h) The Company shall timely complete all required filings and
otherwise fully comply in a timely manner with all provisions of the Act in
connection with the public offering of the Shares.
(i) The Company shall pay or cause to be paid (A) all expenses
(including stock transfer taxes) incurred in connection with the delivery to the
several Underwriters of the Shares, (B) all fees and expenses (including,
without limitation, fees and expenses of the Company's accountants and counsel)
in connection with the preparation, printing, filing, delivery and shipping of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each preliminary prospectus and the
Prospectus, as amended or supplemented, and the printing, delivery and shipping
of this Agreement and other underwriting documents, including Underwriters'
Questionnaires, Underwriters'
14.
<PAGE>
Powers of Attorney, Blue Sky Memoranda, Agreements Among Underwriters and
Selected Dealer Agreements and any letters transmitting the offering material to
Underwriters or selling group members (including costs of mailing and shipment),
(C) all filing fees and reasonable fees and disbursements of counsel to the
Underwriters incurred in connection with the qualification of the Shares under
state securities laws as provided in Section 5(d) hereof up to a maximum of
U.S.$10,000, (D) the filing fee of the National Association of Securities
Dealers, Inc., (E) any applicable listing fees, including the fee for listing
the Company's Limited Voting Shares on the AMEX, (F) the cost of printing
certificates representing the Shares, (G) the cost and charges of any transfer
agent or registrar, (H) the costs and expenses of all pre-closing and post-
closing advertisements relating to the offering of the Shares, (I) the costs and
charges of preparing and distributing to the Representatives four bound volumes
of documents and instruments relating to the transactions contemplated by this
Agreement, (J) the costs and expenses of travel and lodging of the Company's
officers and representatives relating to meetings with and presentations to
prospective purchasers of the Shares, and (K) all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
provided for in this section; provided, however, that the Underwriters shall pay
the fees and expenses of their counsel (other than as provided in clause (c)
above) and their costs and expenses relating to meetings with and presentations
to prospective purchases of the Shares. In addition, at the First Closing and
at each Option Closing, the Company shall also pay to The Seidler Companies
Incorporated, individually, and not in its capacity as one of the
Representatives, a non-accountable expense allowance equal to two percent (2%)
of the initial public offering price of the Shares purchased and sold at such
closing.
(j) The Company, at its expense, shall furnish to its shareholders an
annual report (including financial statements prepared in accordance with
Canadian generally accepted accounting principles audited by independent
certified public accountants), and, as soon as practicable after the end of each
of the first three quarters of each fiscal year, a statement of operations of
the Company for such quarter (which may be in summary form), all in reasonable
detail, and during the seven-year period after the date hereof, at its expense,
will furnish you (i) concurrently with providing such reports to its
shareholders, a balance sheet of the Company and any subsidiaries as and at the
end of such fiscal year, together with statements of income or operations,
shareholders' equity and cash flows of the Company and any consolidated
subsidiaries, and of any non-consolidated significant subsidiaries, for such
fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent certified public accountants; (ii)
as soon as they are available, a copy of all reports (financial or other) mailed
to security holders; (iii) as soon as they are available, a copy of all periodic
reports and financial statements furnished to or filed with the Commission, the
AMEX or the NASD; and (iv) such other information of a public nature concerning
the Company as you may from time to time reasonably request. In addition, during
such seven-year period the Company shall furnish you, concurrently with its
release, every material press release and every material news item or article in
respect of the Company or its affairs that is released or prepared by the
Company.
15.
<PAGE>
(k) So long as the Company has an active subsidiary or subsidiaries,
the financial statements provided for in Section 5(j) shall be on a consolidated
basis to the extent the accounts of the Company and its subsidiary or
subsidiaries are consolidated in reports furnished to its shareholders
generally. Separate financial statements shall be furnished for any subsidiaries
whose accounts are not consolidated but which at the time are significant
subsidiaries as defined in the Act.
(l) The Company shall use its best efforts to cause each of the
Company's officers, and directors to execute and deliver to you on or before the
First Closing Date a written agreement, in form and content satisfactory to you
and counsel for the Underwriters, not to offer, sell, contract to sell, transfer
or otherwise dispose of, directly or indirectly, for value or otherwise, any
Voting Shares or other equity securities of the Company or any securities
convertible into or exchangeable for, or warrants to purchase or acquire, Voting
Shares, now owned or hereafter acquired by such person, for a period of six
months from the First Closing Date, except with your prior written consent.
(m) The Company and its subsidiaries shall continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
Canadian generally accepted accounting principles and to maintain accountability
for assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(n) The Company shall comply with all registration, filing and
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which may from time to time be applicable to the Company.
(o) The Company shall make all filings required, including
registration under the Exchange Act, to obtain and maintain the listing of the
Limited Voting Shares on the AMEX concurrently with the effective date of the
Registration Statement.
(p) The Company shall maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for the Limited Voting Shares.
(q) As soon as practicable, but in no event more than 30 days from
the effective date of the Registration Statement, the Company take all necessary
and appropriate actions to be included in Standard and Poors Corporation
Descriptions and Moodys OTC Manual and to continue such inclusion for a period
of not less than seven years.
16.
<PAGE>
(r) For a period equal to the lesser of seven years from the date
hereof, and the sale to the public of the Representatives' Shares, the Company
will not take any action or actions which may prevent or disqualify the
Company's use of Form F-1 (or other appropriate form) for the registration under
the Act of the Representatives' Shares.
(s) If any time during the 25-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price of the Limited Voting Shares has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company shall, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and if deemed appropriate
by the Company and its counsel in consultation with you and your counsel,
disseminate a press release or other public statement reasonably satisfactory to
you responding to or commenting on such rumor, publication or event.
(t) Commencing not later than the First Closing Date, the Company's
Board of Directors shall include at least two independent directors.
(u) The Company shall supply the Underwriters with copies of all
correspondence to and from and all documents issued to and by the Commission or
the Commission's staff in connection with the registration of the Shares under
the Act.
(v) At or prior to the First Closing Date, the Company shall enter
into with The Seidler Companies Incorporated and Josephthal & Co. Inc.,
individually, and not in their capacity as the Representatives, the
Representatives' Warrant Agreement and sell and issue to The Seidler Companies
Incorporated and Josephthal & Co. Inc. the Representatives' Warrants.
6. Conditions to the Underwriters' Obligations. The obligations of the
-------------------------------------------
several Underwriters hereunder are subject to the accuracy, as of the date
hereof and each Closing Date (as if made at such Closing Date), of the
representations and warranties of the Company contained herein or in
certificates of any officer of the Company delivered pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder and to
the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective not later than 5:30 P.M., eastern time, on
the date following the date of this Agreement or, with your consent, at a later
time and date as you may agree in writing; all filings required by Rule 424 and
Rule 430A of the Act shall have been made; no stop order suspending the
effectiveness of the Registration Statement or any amendment or supplement
thereto shall have been issued; no proceedings for the issuance of such an order
shall have been commenced or shall be pending, or, to the knowledge of the
Company, threatened or contemplated by the Commission, and any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or
17.
<PAGE>
otherwise) shall have been disclosed to you and complied with to your
satisfaction; and no stop order suspending the sale of the Shares in any
jurisdiction shall have been issued, and no proceeding for that purpose shall
have been instituted, or, to the knowledge of the Company, threatened or
contemplated.
(b) On each Closing Date (i) the Registration Statement and the
Prospectus, as they may then be amended or supplemented, shall contain all
statements that are required to be stated therein under the Act and shall
conform in all material respects to the Act, the Company shall have complied in
all material respects with Rule 430A (if it shall have elected to rely thereon)
and neither the Registration Statement nor the Prospectus, as they may then be
amended or supplemented, shall contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein (with respect to the Prospectus, in the light of the
circumstances under which they were made) not misleading; (ii) there shall not
have been since the respective dates as of which information is given in the
Registration Statement, any material adverse change, or any development which
might reasonably be viewed as resulting in a material adverse change in or
affecting the assets, properties, results of operation, financial condition or
business prospects of the Company and the Subsidiaries taken as a whole, whether
or not arising in the ordinary course of business; (iii) the Company shall have
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the applicable Closing Date; and (iv) the
representations and warranties of the Company set forth in Section 1 shall be
accurate as though expressly made at and as of the applicable Closing Date. At
each applicable Closing Date, you shall have received a certificate executed by
the Chief Executive Officer and the Chief Financial Officer of the Company,
dated as of the applicable Closing Date, to such effect and with respect to the
following additional matters: (A) based on the oral advice of the Commission,
the Registration Statement has become effective under the Act and no stop order
suspending the effectiveness of the Registration Statement or preventing or
suspending the use of the Prospectus has been issued, and no proceedings for
that purpose have been instituted or are pending or, to the best of their
knowledge, threatened under the Act; and (B) they have carefully reviewed the
Registration Statement and the Prospectus and when the Registration Statement
became effective and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus and any amendments or
supplements thereto contained all statements and information required to be
included therein or necessary to make the statements therein (with respect to
the Prospectus, in the light of the circumstances under which they were made)
not misleading and neither the Registration Statement nor the Prospectus and any
amendment or supplement thereto included any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or necessary
in order to make the statements therein (with respect to the Prospectus, in
light of the circumstances under which they were made) not misleading, and,
since the effective date of the Registration Statement, there has occurred no
event required to be set forth in an amended or supplemented Prospectus that has
not been so set forth; and (C) all representations, warranties, covenants and
statements made herein by the Company are true and correct in all material
respects at such Closing Date, with the same effect as if made on and as of such
Closing Date, and all agreements herein to be performed by the Company on or
prior to such Closing Date have been duly
18.
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performed; provided, however, that the Chief Executive Officer and the Chief
Financial Officer need not make any certification with respect to any statements
made in reliance upon, and in conformity with, written information furnished to
the Company by you, specifically for use in the preparation of the Registration
Statement and the Prospectus.
(c) You shall have received from KPMG LLP, a letter, dated the date
hereof, in form and substance satisfactory to you, together with signed or
reproduced copies of such letter for each of the other Underwriters, confirming
that they are independent public accountants with respect to the Company within
the meaning of the Act, stating in effect that:
(i) in their opinion, the consolidated financial statements
included in the Registration Statement and covered by their report and the
report of Ellis Foster, Chartered Accountants, thereon comply as to form in all
material respects with the applicable accounting requirements of the Act;
(ii) on the basis of limited procedures (set forth in detail in
such letter and made in accordance with such procedures as may be reasonably
specified by you) not constituting an audit in accordance with generally
accepted auditing standards, consisting of (but not limited to) a reading of the
latest available internal unaudited consolidated financial statements of the
Company, a reading of minute books of the Company, inquiries of officials of the
Company responsible for financial and accounting matters, and such other
inquiries and procedures, as may be specified in such letter, nothing has come
to their attention which caused them to believe that:
(A) the unaudited consolidated financial statements and other
unaudited financial data of the Company included in the Registration Statement
do not comply as to form in all material respects with the applicable accounting
requirements of the Act or are not presented in conformity with Canadian
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Registration Statement;
(B) the financial data for the five fiscal years ended August 31,
1998, included in the Prospectus under the caption "Prospectus Summary - Summary
Selected Financial Data" do not agree with the corresponding amounts in the
audited consolidated financial statements of the Company for such periods;
(C) at a specified date not more than five business days prior to the
date of delivery of such letter, there was any change in the capital stock, bank
indebtedness, due to directors and shareholders, or long-term debt of the
Company other than scheduled repayments, or any decreases in total assets,
shareholders' equity or other items specified by the Underwriters from that set
forth in the consolidated balance sheet at February 28, 1998, included in the
Prospectus, except as described in the Prospectus or such letter; or
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(D) for the period from August 31, 1998, to a specified date not more
than five days prior to the date of delivery of such letter, there were any
decreases in revenue, earnings from operations, earnings before income taxes, or
total or per share amounts of net earnings of the Company, in each case as
compared with the corresponding period of the preceding year, except in each
case for decreases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(iii) in addition to the procedures referred to in clause (ii)
above and the audit referred to in their report included in the Registration
Statement, they have carried out certain specific procedures, not constituting
an audit in accordance with Canadian generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
you which are derived from the general accounting records of the Company, which
appear in the Registration Statement or the exhibits or schedules thereto and
are specified by you, and have compared such amounts, percentages and financial
information with the accounting records of the Company and with material derived
from such records and have found them to be in agreement.
(d) At each Closing Date you shall have received from KPMG LLP a
letter, in form and substance satisfactory to you and dated as of such Closing
Date, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (c) above, except that the specified date
referred to shall be a date not more than five business days prior to such
Closing Date.
(e) In the event that any of the letters to be delivered pursuant to
subsections (c) and (d) above sets forth any such changes, decreases or
increases, it shall be a further condition to your obligations that you shall
have determined, after discussions with officers of the Company responsible for
financial and accounting matters and with KPMG LLP, that such changes, decreases
or increases as are set forth in such letters do not reflect a material adverse
change in the capital stock, bank indebtedness, due to directors and
shareholders, long-term debt, total assets, or shareholders' equity of the
Company as compared with the amounts shown in the latest condensed consolidated
balance sheet of the Company, or a material adverse change in revenues or the
total or per share amounts of net earnings, of the Company, in each case as
compared with the corresponding period of the prior year.
(f) On each Closing Date, you shall have received from Troy & Gould
Professional Corporation, U.S. counsel for the Underwriters, and Bull Housser &
Tupper Canadian counsel for the Underwriters, such opinions with respect to the
Registration Statement, the Prospectus and other related matters as you
reasonably may require and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters.
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(g) On each Closing Date, there shall have been furnished to
you the opinions (addressed to the Underwriters) of Brand Farrar & Buxbaum LLP,
U.S. counsel for the Company (as to matters of U.S. law), Page Fraser &
Associates, Canadian counsel for the Company (as to matters of Canadian law),
and Thorsteinssons, Tax Lawyers, special Canadian tax counsel for the Company
(as to Canadian tax matters discussed under the caption "Tax Considerations" in
the Prospectus) dated such Closing Date and in form and substance reasonably
satisfactory to you and counsel for the Underwriters and stating that it may be
relied upon by counsel for the Underwriters in giving their opinions, to the
collective effect that:
(i) The Company and each Subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction in which it is incorporated or organized, with full corporate power
and authority to own or lease and occupy its properties and conduct its business
as described in the Prospectus, and is duly qualified to do business and is in
good standing in each jurisdiction in which, to such counsel's knowledge, the
character of the business conducted by it or the location of the properties
owned or leased by it makes such qualification necessary, except where the
failure to so qualify would not have a Material Adverse Effect.
(ii) The authorized, issued and outstanding capital stock of the
Company conforms as to legal matters in all material respects to the description
thereof as set forth under the caption "Description of Capital Stock" in the
Prospectus. The Voting Shares and the Representatives' Warrants conform as to
legal matters in all material respects to the description thereof contained in
the Registration Statement and the Prospectus. The outstanding Voting Shares
have been, and the Shares that are being sold by the Company, upon issuance and
delivery and payment therefor in the manner herein described will be, duly
authorized, validly issued, fully paid and nonassessable. Except as described in
the registration statement and Prospectus, there are no preemptive or, to the
knowledge of such counsel, other rights to subscribe for or to purchase, or any
restrictions upon the voting or transfer of, any shares of Voting Shares
pursuant to the Company's memorandum, or articles or any agreement or other
instrument known to such counsel to which the Company is a party or by which it
may be bound; and to such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated by
this Agreement, or the offer and sale of the Representatives' Warrants (or the
Representatives' Warrant Shares) as contemplated by the Representatives' Warrant
Agreement, gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any Voting Shares. To such
counsel's knowledge, the Company has no subsidiaries other than the
Subsidiaries.
(iii) Neither the issuance, sale or delivery by the Company of
the Shares or the Representatives' Warrants, nor the execution, delivery and
performance of this Agreement and the Representatives' Warrant Agreement by the
Company, nor the consummation by the Company of any of the other transactions
contemplated hereby and thereby will result in a violation of, or constitute a
default under, the memorandum or articles of the Company, or result in a
material violation of or constitute a default under any material agreement,
indenture or other instrument known to such counsel, to which the Company or any
Subsidiary is a party or by which any of them is bound, or to which any of their
properties is subject, nor, to such counsel's knowledge, will the performance by
the
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Company of its obligations hereunder violate any law, ordinance, rule,
administrative regulation or decree of any court or any governmental agency or
body having jurisdiction over the Company or any Subsidiary or any of their
respective properties or assets, or result in the creation or imposition of any
lien, charge, claim or encumbrance upon any property or asset of the Company or
any Subsidiary; provided, however, that no opinion need be rendered regarding
any state or provincial securities or "blue sky" laws. Except for permits and
similar authorizations required under the Act, by the NASD or under the
securities or "blue sky" laws of certain jurisdictions and for such permits and
authorizations which have been obtained, no consent, approval, authorization or
order of any court or governmental agency or body is required in connection with
the consummation by the Company of the transactions contemplated by this
Agreement and the Representatives' Warrant Agreement.
(iv) To such counsel's knowledge, no event has occurred that
renders, or with the giving of notice or lapse of time or both would render, the
Company nor any Subsidiary in violation of or in default under its memorandum or
articles or, to such counsel's knowledge, in violation of any material
agreement, indenture or other instrument known to such counsel, to which the
Company or any Subsidiary is a party or by which any of them is bound or to
which any of their respective properties or assets is subject.
(v) Based upon the oral advice of the Commission, the
Registration Statement and all post-effective amendments thereto have become
effective under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending before or
contemplated by the Commission and all filings required by Rule 424 and Rule
430A of the Act have been made in a timely manner; and the Registration
Statement and the Prospectus and any amendment or supplement thereto, as of
their respective effective dates and as of each Closing Date, complied as to
form in all material respects with the requirements of the Act (except that
counsel need express no opinion on or take any responsibility for the financial
statements contained therein or any financial or statistical data derived
therefrom).
(vi) The statements under the captions "Dividend Policy,"
"Business -Regulatory Considerations," "Description of Capital Stock," "Shares
Eligible for Future Sale," "Underwriting," "Management," and "Tax
Considerations" in the Prospectus and in Items 14 and 15 of Part II of the
Registration Statement, insofar as such statements constitute a summary of legal
matters, documents or proceedings referred to therein, provide a fair summary of
such legal matters, documents and proceedings; and such counsel does not know of
any contracts or documents of a character required to be summarized or described
in the Registration Statement or the Prospectus or required to be filed as
exhibits to the Registration Statement which are not so summarized, described or
filed. There are no statutes or regulations applicable to the Company or any
Subsidiary or certificates, permits or other authorizations from governmental
regulatory officials or bodies required to be obtained or maintained by the
Company or any Subsidiary of a character required to be disclosed in
22.
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the Registration Statement or the Prospectus which have not been so disclosed
and described therein.
(vii) Except as described in the Prospectus, such counsel does
not know of any past, pending or threatened action, suit, proceeding, inquiry or
investigation before any court or before or by any public, regulatory or
governmental body or board against or involving the properties or businesses of
the Company or any Subsidiary of a character required to be disclosed in the
Prospectus or, as to threatened litigation, of a character which would be
required to be disclosed if filed, or in either case which, if successful, would
have a Material Adverse Effect.
(viii) Such contracts and documents as are summarized in the
Prospectus are fairly summarized in all material respects; and, to such
counsel's knowledge, each contract or document so described is in full force and
effect in accordance with its terms.
(ix) The Company has the corporate power and authority to enter
into and perform this Agreement and the Representatives' Warrant Agreement, and
to issue, sell and deliver the Shares and the Representatives' Warrants being
issued, sold and delivered by the Company hereunder; this Agreement and the
Representatives' Warrant Agreement have been duly authorized, executed and
delivered by the Company and, assuming due authorization, execution and delivery
by the other parties thereto, constitute the valid and binding agreement of the
Company, enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to the rights of creditors generally
and by general equitable principles, and except as rights to indemnification or
contribution may be limited under federal and state securities laws or may be
contrary to public policy.
(x) All corporate action required in connection with the
authorization and issuance of the Shares and the Representatives' Warrants and
the sale of the Shares and the Representatives' Warrants by the Company in
accordance with the terms of this Agreement and the Representatives' Warrants
have been taken and all authorizations, consents, approvals, licenses or other
orders of any regulatory body, administrative agency or other governmental body
or, to such counsel's knowledge, any other person or entity required for the
valid issuance, sale and delivery of the Shares and the Representatives'
Warrants hereunder and thereunder have been obtained (except that no opinion
need be expressed with respect to such authorizations, consents, approvals,
licenses or other orders as may be required by the state or provincial
securities or "blue sky" laws of any jurisdiction in connection with the sale of
the Shares and the Representatives' Warrants ).
(xi) To such counsel's knowledge, the Company and each
Subsidiary has obtained all material licenses, permits and other governmental
authorizations necessary to the conduct of its business as described in the
Prospectus and such licenses, permits and other governmental authorizations are
in full force and effect and the Company and each Subsidiary is in all material
respects complying therewith.
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(xii) The form of certificate representing the Limited Voting
Shares and filed as an exhibit to the Registration Statement is in due and
proper form under the laws of British Columbia, Canada, and other applicable
laws.
(xiii) The Representatives' Warrant Shares have been duly
authorized and reserved for issuance and, when issued and delivered upon payment
therefor in accordance with the terms of the Representatives' Warrants, will be
duly and validly issued, fully paid and non-assessable.
(xiv) The offer and sale of all securities of the Company made
within the last three years as set forth in Item 15 of the Registration
Statement were exempt from the registration requirements of the Act and from
the registration and prospectus requirements of all relevant state, provincial
and local securities laws.
(xv) The Shares have been approved for listing on the AMEX,
subject to official notice of issuance.
(xvi) The Company is not, and upon consummation of the
transactions contemplated hereby will not be, an "investment company" under the
United States Investment Company Act of 1940.
(xvii) No stamp tax or other issuance, goods and services or
transfer taxes or duties and no capital gains, income, withholding or other
taxes are payable by or on behalf of the Underwriters to any authority in Canada
or in any of its provinces in connection with (A) the issuance, sale and
delivery of the Shares to the Underwriters in the manner contemplated in this
Agreement, (B) the resale and delivery of such Shares by the Underwriters in the
United States in the manner contemplated in the Prospectus, of (C) the payment
by the Company of any commission or fee to or for the account of the
Underwriters in connection with their services with respect to clauses (A) and
(B) above or any other transaction contemplated hereby;
(xviii) This Agreement is in proper legal form under the laws of
the Province of British Columbia for the enforcement thereof against the Company
in the Province of British Columbia without further action on the part of the
Underwriters; and to ensure the legality, validity, enforceability or
admissibility in evidence of this Agreement in the Province of British Columbia
it is not necessary that it be filed or recorded with any court or other
authority in the Province of British Columbia (except at the time of enforcement
so as to enter same as evidence) or that any stamp or similar tax be paid on or
in respect of any such document or the Shares;
24.
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(xix) Assuming the choice of the law of the State of California
provided for in this Agreement is effective under such law, the Company has the
corporate power to submit to the jurisdiction of the courts of the State of
California or the courts of the United States having jurisdiction in the State
of California in respect of any legal actions or proceedings arising out of this
Agreement;
(xx) A court of competent jurisdiction in the Province of
British Columbia (a "British Columbia Court") would uphold the choice of the law
of the State of California as the proper law governing this Agreement, and
subject to paragraph (xxi) below, would apply the internal laws of the State of
California, to the extent specifically pleaded and proven, in any action seeking
to enforce this Agreement;
(xxi) Subject to the qualifications contained herein and to the
qualification that enforcement in the Province of British Columbia of the
indemnity and contribution provisions set forth in Section 7 of this Agreement
may be limited by the laws of the Province of British Columbia and the federal
laws of Canada applicable therein, there are no reasons under the present laws
of the Province of British Columbia and the federal laws of Canada applicable
therein upon the grounds of public order as understood in international
relations for avoiding recognition of a judgment of a California Court enforcing
the performance of this Agreement by a judgment awarding a sum of money as
compensatory damages or for avoiding to enforce the choice of law provisions of
this Agreement; and
(xxii) Except as described in the Prospectus, to such counsel's
knowledge, there are no claims, payments, issuances, arrangements or
understandings of the Company for services in the nature of a finder's or
origination fee with respect to the sale of the Shares hereunder.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company, counsel for
the Underwriters, representatives of the independent public accountants for the
Company, you and your counsel, at which the contents of the Registration
Statement and the Prospectus and related matters were discussed and, although
such counsel is not passing upon, and does not assume responsibility for, the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus (other than as set forth in clause (v)
above), on the basis of the foregoing, no facts have come to such counsel's
attention that lead them to believe either that the Registration Statement at
the time such Registration Statement became effective contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus, or at the applicable Closing Date contained an untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, except that such counsel need express no opinion with
respect to, or take any responsibilities for, the financial statements included
in the Registration Statement or the Prospectus or any financial or statistical
data derived therefrom.
25.
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In rendering the foregoing opinion, such counsel may rely on the following:
(A) as to matters involving the application of laws other than the
laws of the United States, the State of California, Canada and the Province of
British Columbia in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, upon an opinion or opinions
(in form and substance reasonably satisfactory to Underwriters' counsel) of
other counsel familiar with applicable laws; and
(B) as to matters of fact, to the extent they deem proper, on
certificates of officers of the Company and of the Subsidiaries and certificates
or other written statements of officers or departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company and the Subsidiaries and certificates of the Company's transfer
agent, provided that copies of all such opinions, statements or certificates
shall be delivered to Underwriters' counsel, and, if written confirmation of the
Commission is not available at the time such opinion is rendered, upon the
current oral representations of members of the Commission's staff with respect
to the Registration Statement or any amendment or supplement thereto having
become effective and the lack of issuance of a stop order or institution of
proceedings for that purpose.
(h) At or prior to the First Closing Date, the Representatives'
Warrant Agreement shall have been entered into among the Company, The Seidler
Companies Incorporated and Josephthal & Co. Inc. and the Representatives'
Warrants shall have been sold and issued to The Seidler Companies and Josephthal
& Co. Inc. as provided therein.
(i) At or prior to the First Closing Date, you shall have received
the written agreements described in Section 5(l) hereof.
(j) At the Closing Date, the Shares shall have been approved for
listing on the AMEX, subject to official notice of issuance.
(k) The Company shall have furnished to you such additional
documents and certificates as you may reasonably request.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and to counsel for the Underwriters. The Company
shall furnish you with such conformed copies of such opinions, certificates,
letters and other documents as you shall reasonably request for each of the
Underwriters. If any of the conditions specified in this Section 6 shall not
have been fulfilled when and as required by this Agreement, this Agreement and
all obligations of the Underwriters hereunder may be cancelled at, or at any
time prior to, each Closing Date, by you. Any such cancellation shall be
without liability of the Underwriters to the Company. Notice of such
cancellation shall be given to the Company in writing, or by telephone and
confirmed in writing.
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7. Conditions to the Company's Obligations. The obligations of the
---------------------------------------
Company are subject to the condition that, on each Closing Date, the Company
shall have received a certificate executed by the Representatives that the
Underwriters have not, to the best of their knowledge, offered the shares for
sale to the public in Canada.
8. Indemnification.
---------------
(a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject under the Act, the Exchange Act or other
United States or Canadian federal, state or provincial law or regulation,
specifically including but not limited to losses, claims, damages or liabilities
related to negligence on the part of any Underwriter, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any breach of any warranty or covenant of the Company herein
contained or any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto, or in any "blue sky"
application or other document executed by the Company or based upon any
information furnished in writing by the Company, filed in any jurisdiction in
order to qualify any or all of the Shares under the securities laws thereof
("Blue Sky Application"), or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements (with respect to the Prospectus, in the
light of the circumstances under which they were made) therein not misleading;
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such preliminary prospectus or the Prospectus, or such
amendment or supplement, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by you or by any
Underwriter through you expressly for use therein; provided, further, that the
Company will not be liable for any such losses, claims, damages, or liabilities
arising from the sale of the Shares to any person if a copy of the Prospectus
(as first filed pursuant to Rule 424(b)) or the Prospectus as amended or
supplemented by all amendments or supplements thereto which has been furnished
to the Underwriters shall not have been sent, mailed or given to such person, at
or prior to the written confirmation of the sale of such Shares to such person,
but only if and to the extent that such Prospectus, if so sent or delivered,
would have cured the defect giving rise to such losses, claims, damages or
liabilities. In addition to its other obligations under this Section 7(a), the
Company agrees that, as an interim measure during the pendency of any such
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 7(a), it will reimburse the Underwriters on a monthly
basis for all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expense and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. This
indemnity agreement shall be in addition to any liabilities that the Company may
otherwise have including under this Agreement.
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(b) Each Underwriter, severally but not jointly, will indemnify and
hold harmless the Company against any losses, claims, damages or liabilities to
which the Company may become subject, under the Act, the Exchange Act or other
United States or Canadian federal, state or provincial law or regulation,
specifically including but not limited to losses, claims, damages or liabilities
related to negligence on the part of the Company, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any breach of any warranty or covenant by you herein contained or
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any preliminary prospectus, the Prospectus, or
any amendment or supplement thereto, or any Blue Sky Application or arise out of
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, such preliminary prospectus or
the Prospectus, or such amendment or supplement or any Blue Sky Application, in
reliance upon and in conformity with information furnished to the Company by
such Underwriter expressly for use therein; and will reimburse the Company for
any legal or other expenses reasonably incurred by the Company in connection
with investigating or defending any such loss, claim, damage, liability or
action. In addition to their other obligations under this Section 7(b), the
Underwriters agree that, as an interim measure during the pendency of any such
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 8(b), they will reimburse the Company on a monthly
basis for all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding notwithstanding the absence of a judicial determination as to
the propriety and enforceability of their obligation to reimburse the Company
for such expense and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. This indemnity
agreement shall be in addition to any liabilities which the Underwriters may
otherwise have including under this Agreement.
The indemnity agreement in this Section 8(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
director or partner of the Company and each person, if any, who controls the
Company within the meaning of the Act to the same extent as such agreement
applies to the Company.
(c) Within ten days after receipt by an indemnified party under
subsection (a) or (b) above of notice of commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; no indemnification provided in Section 8(a)
or 8(b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
prejudiced by the failure to give such notice, but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
that it may have to any indemnified party otherwise than under this Section 8 or
to the extent that it is not prejudiced as a proximate result of
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such failure. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein, and, to the
extent that it shall elect by written notice delivered to the indemnified party,
jointly with any other indemnifying party, similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses, other than
reasonable costs of investigation, subsequently incurred by such indemnified
party in connection with the defense thereof. The indemnified party shall have
the right to employ its own counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party has been
authorized by the indemnifying party, (ii) the indemnified party shall have been
advised by such counsel that there may be a conflict of interest between the
indemnifying party and the indemnified party in the conduct of the defense of
such action (in which case the indemnifying party shall not have the right to
direct the defense of such action on behalf of the indemnified party) or (iii)
the indemnifying party shall not in fact have employed counsel to assume the
defense of such action, in any of which events such fees and expenses shall be
borne by the indemnifying party. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
(d) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Section 8(a) and 8(b)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the indemnifying parties, shall be settled by arbitration
conducted pursuant to the Code of Arbitration Procedure of the NASD. Any such
arbitration must be commenced by service of a written demand for arbitration or
a written notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Any such arbitration
will be limited to the operation of the interim reimbursement provisions
contained in Sections 8(a) and 8(b) hereof and will not resolve the ultimate
propriety or enforceability of the obligation to indemnify for expenses that is
created by the provisions of Sections 8(a) and 8(b).
(e) In order to provide for just and equitable contribution in
circumstances under which the indemnity provided for in this Section 8 is for
any reason judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company and the
Underwriters shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity incurred by
the Company and one or more of the Underwriters, as incurred, in such
proportions that (i) the
29.
<PAGE>
Underwriters are responsible pro rata for that portion represented by the
underwriting discount appearing on the cover page of the Prospectus bears to the
public offering price (before deducting expenses) appearing thereon, and (ii)
the Company is responsible for the balance; provided, however, that no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation; provided, however, that if the allocation
provided above is not permitted by applicable law, the Company and the
Underwriters shall contribute to the aggregate losses in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company and the Underwriters in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. Relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims, damages
or liabilities referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. For purposes of this Section 8(e), each person,
if any, who controls an Underwriter within the meaning of Section 15 of the Act
shall have the same rights to contribution as such Underwriter, and each
director of the Company, each officer of the Company who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of Section 15 of the Act shall have the same rights to contribution as the
Company.
(f) The parties to this Agreement acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions of this Agreement, including without
limitation, the provisions of this Section 8, and are fully informed regarding
said provisions. They further acknowledge that the provisions of this
Section 8 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Act. The parties are advised that federal or state public policy, as
interpreted by the courts in certain jurisdictions, may be contrary to certain
of the provisions of this Section 8, and the parties hereto hereby expressly
waive and relinquish any right or ability to assert such public policy as a
defense to a claim under this Section 8 and further agree not to attempt to
assert any such defense.
30.
<PAGE>
9. Representations and Agreements to Survive Delivery. The
--------------------------------------------------
representations, warranties, indemnities, agreements and other statements of the
Underwriters, the Company or its officers set forth in or made pursuant to this
Agreement will remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Company, or any Underwriter or
controlling person, with respect to an Underwriter or the Company and will
survive delivery of and payment for the Shares or termination of this Agreement.
10. Effective Date of Agreement and Termination.
-------------------------------------------
(a) This Agreement shall become effective (i) if at the time of
execution of this Agreement the Registration Statement has not become effective,
at 10:00 A.M. eastern time on the first full business day following the
effectiveness of the Registration Statement, or (ii) if at the time of execution
of this Agreement, the Registration Statement has been declared effective, at
10:00 A.M. eastern time on the first full business day following the date of
execution of this Agreement; but this Agreement shall nevertheless become
effective at such earlier time after the Registration Statement becomes
effective as you may determine on and by notice to the Company or by release of
any of the Shares for sale to the public. For the purposes of this Section 10,
the Shares shall be deemed to have been so released upon the release for
publication of any newspaper advertisement relating to the Shares or upon the
release by you of telegrams or facsimile messages (i) advising the Underwriters
that the Shares are released for public offering, or (ii) offering the Shares
for sale to securities dealers, whichever may occur first. By giving notice
before the time this Agreement becomes effective, you, as the Representatives of
the several Underwriters, or the Company, may prevent this Agreement from
becoming effective, without liability of any party to any other party, except
that the Company shall remain obligated to pay costs and expenses to the extent
provided in Sections 5(i) and 10(d) hereof.
(b) You may terminate this Agreement by notice to the Company at any
time at or prior to the Closing Date (i) in accordance with the last paragraph
of Section 6 of this Agreement; or (ii) if there has been, since the respective
dates as of which information is given in the Registration Statement, any
material adverse change, or any development which might reasonably be viewed as
resulting in a material adverse change in or affecting the assets, properties,
results of operation, financial condition or business prospects of the Company
and the Subsidiaries taken as a whole, whether or not arising in the ordinary
course of business; or (iii) if there has occurred or accelerated any outbreak
of hostilities or other national or international calamity or crisis or change
in economic or political conditions the effect of which on the financial markets
of the United States is such as to make it, in your judgment, impracticable to
market the Shares or enforce contracts for the sale of the Shares; or (iv) if
trading in any securities of the Company has been suspended by the Commission or
by the NASD or the AMEX, or if trading generally on the AMEX or in the over-the-
counter market has been suspended, or limitations on prices for trading (other
than limitations on hours or numbers of days of trading) have been fixed, or
maximum ranges for prices for securities have been required, by such exchange or
the NASD or by order of the Commission or any other governmental authority; or
(v) if a banking moratorium has been declared by federal or New York or
California authorities; or (vi) any federal or state statute,
31.
<PAGE>
regulation, rule or order of any court or other governmental authority has been
enacted, published, decreed or otherwise promulgated which in your reasonable
opinion materially adversely affects or will materially adversely affect the
business or operations of the Company and the Subsidiaries taken as a whole, or
(vii) any action has been taken by any federal, state, provincial or local
government or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets in
the United States.
(c) If this Agreement is terminated pursuant to this Section 9, such
termination shall be without liability of any party to any other party, except
to the extent provided in Sections 5(i) and 10(d). Notwithstanding any such
termination, the provisions of Section 8 shall remain in effect.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof, or if the sale of the Shares provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth herein is not satisfied or because of any refusal, inability or failure on
the part of the Company to perform any agreement herein or to comply with any
provision hereof (other than by reason of a default of the Underwriters), the
Company agrees, subject to demand by you, to reimburse the Underwriters for all
reasonable out-of-pocket expenses (including the reasonable fees and expenses of
counsel to the Underwriters), incurred by the Underwriters in connection
herewith.
11. Default by One or More of the Underwriters.
------------------------------------------
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares hereunder, and if the Firm Shares with
respect to which such default relates do not (after giving effect to
arrangements, if any, made pursuant to subsection 11(b) below) exceed in the
aggregate 10% of the number of shares of Firm Shares that all Underwriters have
agreed to purchase hereunder, then such Firm Shares to which the default relates
shall be purchased by the non-defaulting Underwriters in the respective
proportions that the numbers of Firm Shares set forth opposite their respective
names in Schedule I hereto bear to the aggregate number of Firm Shares set forth
opposite the names of the non-defaulting Underwriters.
(b) If such default relates to more than 10% of the Firm Shares, you
may, in your discretion, arrange for another party or parties (including any
non-defaulting Underwriter or Underwriters who so agree) to purchase such Firm
Shares to which such default relates on the terms contained herein. If within 36
hours after such a default you do not arrange for the purchase of the Firm
Shares to which such default relates as provided in this Section 11, this
Agreement shall thereupon terminate, without liability on the part of the
Company with respect thereto (except as provided in Sections 5(i) and 8 hereof)
or the several non-defaulting Underwriters (except as provided in Section 8
hereof), but nothing in this Agreement shall relieve a defaulting Underwriter or
Underwriters of its or their liability,
32.
<PAGE>
if any, to the other several Underwriters and the Company for damages occasioned
by its or their default hereunder.
(c) If the Firm Shares to which the default relates are to be
purchased by the non-defaulting Underwriters, or are to be purchased by another
party or parties as aforesaid, you or the Company shall have the right to
postpone the First Closing for a period not exceeding seven business days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement, the Prospectus or in any other documents and
arrangements, and the Company agrees to file promptly any amendment or
supplement to the Registration Statement or the Prospectus that, in the opinion
of counsel to the Underwriters, may thereby be made necessary or advisable. The
term "Underwriter" as used in this Agreement shall include any party substituted
under this Section 11 with like effect as if it had originally been a party to
this Agreement with respect to such Firm Shares.
12. Default by the Company. If the Company shall fail at the First
----------------------
Closing Date to sell and deliver the respective aggregate number of Firm Shares
that it is obligated to sell, then this Agreement shall terminate without any
liability on the part of any non-defaulting party, except to the extent provided
in Sections 5(i) and 10(d) and except that the provisions of Section 8 shall
remain in effect. No action taken pursuant to this Section shall relieve the
Company from liability, if any, in respect of its default.
13. Notices. Except as otherwise provided in this Agreement, (a) whenever
-------
notice is required by the provisions of this Agreement to be given to the
Company, such notice shall be in writing, addressed to the Company at Number
302, 1132 Hamilton Street, Vancouver VB6-2S2, British Columbia, Canada, or by
telecopier (confirmed in writing) at (604) 681-3299, Attention: President, with
a copy to Brand Farrar & Buxbaum LLP at 515 South Flower Street, Suite 3600, Los
Angeles, California 90071-2201, or by telecopier at (213) 426-6222, Attention:
Margaret G. Graf, Esq., and (b) whenever notice is required by the provisions of
this Agreement to be given to the several Underwriters, such notice shall be in
writing addressed to the Underwriters in care of The Seidler Companies
Incorporated, 515 South Figueroa Street, Suite 1100, Los Angeles, California
90071-3328, or by telecopier at (213) 688-8896, Attention: Jay C. Sherwood, with
a copy to Troy & Gould Professional Corporation at 1801 Century Park East, Suite
1600, Los Angeles, California 90067, or by telecopier at (310) 201-4746,
Attention: Dale E. Short, Esq.
14. Parties. This Agreement is made solely for the benefit of the several
-------
Underwriters, the Company, any officer, director or controlling person referred
to in Section 8 hereof, and their respective successors and assigns, and no
other person shall acquire or have any right by virtue of this Agreement. The
term "successors and assigns," as used in this Agreement, shall not include any
purchaser of any of the Shares from any of the Underwriters merely by reason of
such purchase. In all dealings with the Company under this Agreement, you shall
act on behalf of each of the several Underwriters and the Representatives, and
the Company shall be entitled to act and rely upon any statement, request,
notice or agreement made or given by you jointly or by The Seidler Companies
Incorporated on your behalf.
33.
<PAGE>
15. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, without giving effect to
the choice of law or conflict of laws principles thereof.
16. Consent to Jurisdiction and Service of Process. All judicial
----------------------------------------------
proceedings arising out of or relating to this Agreement and the
Representatives' Warrant Agreement or the transactions contemplated hereby or
thereby may be brought in any state or federal court of competent jurisdiction
in the County of Los Angeles, State of California, and by execution and delivery
of this Agreement, each of the parties hereto accepts for itself and in
connection with its properties, generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts and waives any defense of forum non
----- ---
conveniens and irrevocably agrees to be bound by any judgment rendered thereby
- ----------
in connection with this Agreement. Each of the parties hereby agrees that
service of process sufficient for personal jurisdiction in any action against
such party in the State of California may be made by any means permitted in
California to the party at the address provided in Section 13 hereof, and each
of the parties hereby acknowledges that such service shall be effective and
binding in every respect. Nothing herein shall affect the right to serve
process in any other manner permitted by law or shall limit the right of a party
to bring proceedings against the other party in the courts of any other
jurisdiction.
17. Counterparts. This Agreement may be signed in one or more
------------
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
34.
<PAGE>
Please confirm, by signing and returning to us counterparts of this
Agreement, that you are acting on behalf of yourselves and the several
Underwriters and that the foregoing correctly sets forth the Agreement among the
Company, the Selling Shareholders and the several Underwriters.
Very truly yours,
PEACE ARCH ENTERTAINMENT INC.
By_____________________________________
Name: W. D. Cameron White
Title: Chief Executive Officer
Confirmed and accepted as of
the date first above mentioned
THE SEIDLER COMPANIES INCORPORATED
JOSEPHTHAL & CO. INC.,
By: THE SEIDLER COMPANIES INCORPORATED
On behalf of themselves and the other
Underwriters named in Schedule I hereto
By____________________________________
Name: Jay C. Sherwood
Title: Managing Director
35.
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Firm Shares
Name of Underwriter To be Purchased
- ------------------- ---------------
<S> <C>
The Seidler Companies Incorporated ..........................................
Josephthal & Co. Inc. .......................................................
---------
Total ............................................................. 2,000,000
=========
</TABLE>
36.
<PAGE>
EXHIBIT 1.2
REPRESENTATIVES' WARRANT AGREEMENT
among
PEACE ARCH ENTERTAINMENT GROUP INC.
and
THE SEIDLER COMPANIES INCORPORATED
and
JOSEPHTHAL & CO. INC.
Dated as of _________________, 1999
<PAGE>
REPRESENTATIVES' WARRANT AGREEMENT
THIS REPRESENTATIVES' WARRANT AGREEMENT (the "Agreement"), dated as of
____________________, 1999, is made and entered into by and among PEACE ARCH
ENTERTAINMENT GROUP INC. (formerly Vidatron Entertainment Group Inc.), a
corporation organized under the laws of British Columbia, Canada (the
"Company"), and THE SEIDLER COMPANIES INCORPORATED and JOSEPHTHAL & CO. INC.
(each, a "Warrantholder").
The Company agrees to issue and sell, and each Warrantholder agrees to
purchase, for the price of $.001 per warrant, receipt of which is hereby
acknowledged by the Company, warrants, as hereinafter described (the
"Warrants"), to purchase up to the number of Class B Subordinate Voting Shares
(collectively, the "Shares") of the Company shown opposite the Warrantholder's
name on Schedule 1 to this Agreement in connection with a public offering (the
"Public Offering") by the Company of 2,000,000 Class B Subordinate Voting Shares
of the Company ("Limited Voting Shares") pursuant to an Underwriting Agreement
(the "Underwriting Agreement"), dated as of ______________, 1999, among the
Company and each Warrantholder, as Representatives of the several Underwriters
named in the Underwriting Agreement. The purchase and sale of the Warrants shall
occur on the Closing Date, as defined in the Underwriting Agreement, and be
subject to the conditions to the Underwriters' obligations to purchase Limited
Voting Shares thereunder.
In consideration of the foregoing, and for the purpose of defining the terms
and provisions of the Warrants and the respective rights and obligations
thereunder, the Company and each Warrantholder, for value received, hereby agree
as follows:
Section 1. Transferability and Form of Warrants.
1.1 Registration. The Warrants shall be numbered and shall be
registered on the books of the Company when issued.
1.2 Transfer. The Warrants shall be transferable only on the books of
the Company maintained at its principal office in Vancouver, British Columbia,
Canada, or wherever its principal office may then be located, upon delivery
thereof duly endorsed by a Warrantholder or by its duly authorized attorney or
representative, accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration or transfer, the Company shall
execute and deliver new Warrants to the person entitled thereto. At the
Company's request, a transferee shall furnish the Company such written
assurances as it may reasonably request in order to comply with the foregoing
requirements.
1.3 Limitations on Transfer of the Warrants. Subject to the provisions
of section 11 hereof, the Warrants shall not be sold, transferred, assigned or
hypothecated by a Warrantholder until __________________, 2000, except to (i)
one or more persons, each of whom on the date of transfer is an officer of the
Warrantholder; (ii) a general partnership or general partnerships, the general
partners of which are the Warrantholder and one or more persons, each of whom on
the date of transfer is an officer of the Warrantholder; (iii) a successor to
the Warrantholder in merger or consolidation; (iv) a purchaser of all or
substantially all of the Warrantholder's assets; or (v) any person receiving the
Warrants from one or more of the persons listed in this subsection 1.3 at such
person's or persons' death pursuant to will, trust or the laws of intestate
succession. The Warrants may be divided or combined, upon request to the
Company by a Warrantholder, into a certificate or certificates representing the
right to purchase the same aggregate number of Shares. Unless the context
indicates otherwise, the term "Warrantholder" shall include any transferee or
transferees of the Warrants pursuant to this subsection 1.3, and the term
"Warrants" shall include any and all warrants outstanding pursuant to this
Agreement, including those evidenced by a certificate or certificates issued
upon division, exchange, substitution or transfer pursuant to this Agreement.
1.4 Form of Warrants. The text of the Warrants and of the form of
election to purchase Shares shall be substantially as set forth in Exhibit A
attached hereto. The number of Shares issuable upon
1.
<PAGE>
exercise of the Warrants is subject to adjustment upon the occurrence of certain
events, all as hereinafter provided. The Warrants shall be executed on behalf of
the Company by its President or by a Vice President, attested to by its
Secretary or an Assistant Secretary. A Warrant bearing the signature of an
individual who was at any time the proper officer of the Company shall bind the
Company, notwithstanding that such individual shall have ceased to hold such
office prior to the delivery of such Warrant or did not hold such office on the
date of this Agreement.
The Warrants shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
1.5 Legend on Shares. Each certificate for Shares initially issued
upon exercise of the Warrants shall bear the following legend, unless, at the
time of exercise, such Shares are subject to an effective registration statement
under the Securities Act of 1933, as amended (the "Act"):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE
SOLD, EXCHANGED, HYPOTHE CATED OR TRANSFERRED IN ANY MANNER EXCEPT IN
COMPLIANCE WITH SECTION 11 OF THE AGREEMENT PURSUANT TO WHICH THEY WERE
ISSUED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to an effective registration statement under
the Act of the securities represented thereby) shall also bear the above legend
unless, in the opinion of counsel satisfactory to the Company, the securities
represented thereby need no longer be subject to such restrictions.
Section 2. Exchange of Warrant Certificate. Any Warrant certificate may be
exchanged for another certificate or certificates entitling the Warrantholder to
purchase a like aggregate number of Shares as the certificate or certificates
surrendered then entitled such Warrantholder to purchase. Any Warrantholder
desiring to exchange a Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, with
signatures guaranteed, the certificate evidencing the Warrant to be so
exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant certificate as so requested.
Section 3. Term of Warrants; Exercise of Warrants.
(a) Subject to the terms of this Agreement, a Warrantholder shall have
the right, at any time during the period commencing at 9:00 a.m., Pacific Time,
on _________________, 2000 and ending at 5:00 p.m., Pacific Time, on
________________, 2004 (the "Termination Date"), to purchase from the Company up
to the number of fully paid and nonassessable Shares to which the Warrantholder
may at the time be entitled to purchase pursuant to this Agreement, upon
surrender to the Company, at its principal office, of the certificate evidencing
the Warrants to be exercised, together with the purchase form on the reverse
thereof duly filled in and signed, with signatures guaranteed, and upon payment
to the Company of the Warrant Price (as defined in and determined in accordance
with the provisions of this section 3 and sections 7 and 8 hereof), for the
number of Shares in respect of which such Warrants are then exercised, but in no
event for less than 100 Shares (unless less than an aggregate of 100 Shares are
then purchasable under all outstanding Warrants held by a Warrantholder).
(b) Payment of the aggregate Warrant Price shall be made, at the
election of a Warrantholder, in cash, by wire transfer to an account of the
Company designated for this purpose, by the Warrantholder's check payable to the
Company or by the Warrantholder's notice to the Company authorizing
2.
<PAGE>
it to withhold from issuance such number of Shares otherwise issuable upon the
exercise of the Warrants which, when multiplied by the Current Market Price (as
defined in section 9), equals the aggregate Warrant Price (a "Net Exercise"), or
any combination of the foregoing methods of payment. Upon surrender of the
Warrants as provided in paragraph (a) of this section 3 and payment of such
Warrant Price as aforesaid, the Company shall issue and cause to be delivered
with all reasonable dispatch to or upon the written order of the Warrantholder,
and in such name or names as the Warrantholder may designate, a certificate or
certificates for the number of full Shares so purchased upon the exercise of the
Warrant, together with cash, as provided in section 9 hereof, in respect of any
fractional Share otherwise issuable upon such surrender. Such certificate or
certificates shall be deemed to have been issued and any person so designated to
be named therein shall be deemed to have become a holder of record of such
securities as of the date of surrender of the Warrants and payment of the
Warrant Price, as aforesaid, notwithstanding that the certificate or
certificates representing such securities shall not actually have been delivered
or that the stock transfer books of the Company shall then be closed. The
Warrants shall be exercisable, at the election of a Warrantholder, either in
full or from time to time in part and, in the event that a certificate
evidencing the Warrants is exercised in respect of less than all of the Shares
specified therein at any time prior to the Termination Date, a new certificate
evidencing the remaining portion of the Warrants will be issued by the Company.
Section 4. Payment of Taxes. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants or the
securities comprising the Shares; provided, however, the Company shall not be
required to pay any tax which may be payable in respect of any secondary
transfer of the Warrants or the securities comprising the Shares.
Section 5. Mutilated or Missing Warrants. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of a Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon the Company's receipt of the Warrantholder's affidavit that such
Warrant has been lost, stolen or destroyed and its agreement, in form
satisfactory to the Company, to indemnify the Company from any damages incurred
by it as a result of such lost, stolen or destroyed certificate. Applicants for
such substitute Warrant certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
Section 6. Reservation of Shares. There has been reserved, and the Company
shall at all times keep reserved so long as the Warrants remain outstanding, out
of its authorized Common Stock, such number of shares of Common Stock as shall
be subject to purchase under the Warrants. Every transfer agent for the Common
Stock and other securities of the Company issuable upon the exercise of the
Warrants will be irrevocably authorized and directed at all times to reserve
such number of authorized shares and other securities as shall be required for
such purpose. The Company will keep a copy of this Agreement on file with every
transfer agent for the Common Stock and other securities of the Company issuable
upon the exercise of the Warrants. The Company will supply every such transfer
agent with duly executed stock and other certificates, as appropriate, for such
purpose and will provide or otherwise make available any cash which may be
payable as provided in section 9 hereof.
Section 7. Warrant Price. The price per Share at which Shares shall be
purchasable upon the exercise of the Warrants (the "Warrant Price") shall be
$____________, subject to adjustment pursuant to section 8 hereof.
Section 8. Adjustment of Number of Shares. The number and kind of
securities purchasable upon the exercise of the Warrants and the Warrant Price
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
3.
<PAGE>
8.1 Adjustments. In case the Company shall (i) pay a dividend in
Limited Voting Shares or make a distribution in Limited Voting Shares, (ii)
subdivide its outstanding Limited Voting Shares, (iii) combine its outstanding
Limited Voting Shares into a smaller number of shares of Limited Voting Shares,
(iv) effect any increase or decrease in the number of outstanding shares of
Limited Voting Shares without receipt of consideration by the Company (other
than by reason of conversion into Limited Voting Shares of multiple voting
shares of the Company in accordance with the terms of the multiple voting shares
in effect on the date hereof), or (v) issue by reclassification of its Limited
Voting Shares other securities of the Company, the Warrant Price and the number
of Shares purchasable upon exercise of the Warrants immediately prior thereto
shall be proportionally adjusted so that a Warrantholder shall be entitled to
receive the kind and number of Shares or other securities of the Company which
it would have owned or would have been entitled to receive immediately after the
happening of any of the events described above, had the Warrants been exercised
at the Warrant Price immediately prior to the happening of such event or any
record date with respect thereto. Any adjustment made pursuant to this
subsection 8.1 shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
Except for purposes of this subsection 8.1, the term "Limited
Voting Shares" shall mean (i) the class of stock designated as the Limited
Voting Shares of the Company at the date of this Agreement, or (ii) any other
class of stock resulting from successive changes or reclassification of such
Limited Voting Shares consisting solely of changes in par value or from par
value to no par value or from no par value to par value.
8.2 No Adjustment for Dividends. Except as provided in subsection 8.1,
no adjustment in respect of any dividends or distributions out of earnings shall
be made during the term of the Warrants or upon exercise of the Warrants.
8.3 Certificate of Adjustments. Whenever the number of Shares
purchasable upon the exercise of the Warrants is adjusted as herein provided,
the Company shall cause to be promptly mailed to each Warrantholder by first
class mail, postage prepaid, notice of such adjustment, certified by the chief
financial officer of the Company, setting forth the number of Shares purchasable
upon the exercise of the Warrants after such adjustment, a brief statement of
the facts requiring such adjustment and the computation by which such adjustment
was made.
8.4 Preservation of Purchase Rights upon Reclassification,
Consolidation, etc. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with each
Warrantholder an agreement that the Warrantholder shall have the right
thereafter upon payment of the Warrant Price in effect immediately prior to such
action to purchase, upon exercise of the Warrants, the kind and amount of shares
and other securities and property which it would have owned or have been
entitled to receive after the happening of such consolidation, merger, sale or
conveyance had the Warrants been exercised immediately prior top such action. In
the event of a merger described in Section 368(a)(2)(E) of the Internal Revenue
Code of 1986, as amended, in which the Company is the surviving corporation, the
right to purchase Shares under the Warrants shall terminate on the date of such
merger and thereupon the Warrants shall become null and void, but only if the
controlling corporation shall have agreed in writing in advance of, and as a
condition to, such merger to substitute for the Warrants its warrant which
entitles the holder hereof to purchase upon its exercise the kind and amount of
shares and other securities and property which it would have owned or been
entitled to receive had the Warrants been exercised immediately prior to such
merger. Any such agreements referred to in this subsection 8.4 shall provide for
adjustments, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in section 8 hereof. The provisions of this subsection
8.4 shall similarly apply to successive consolidations, merger, sales or
conveyances.
4.
<PAGE>
8.5 Par Value of Limited Voting Shares. Before taking any action which
would cause an adjustment effectively reducing the portion of the Warrant Price
allocable to each Share issuable upon exercise of the Warrants below the then
par value per Limited Voting Share, or if not so reported, the fair value of a
Share as determined in good faith by the Board of Directors of the Company, the
Company will take any corporate action which may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally issue fully paid
and nonassessable Common Stock upon exercise of the Warrants.
8.6 Independent Public Accountant. The Company may retain a firm of
independent public accountants of recognized national standing (which may be any
such firm regularly employed by the Company) to make any computation required
under this section 8, and a certificate signed by such firm shall be prima facie
evidence of the correctness of any computation made under this section 8.
8.7 Statement on Warrant Certificates. Irrespective of any adjustments
in the number of securities issuable upon exercise of Warrants, Warrant
certificates theretofore or thereafter issued may continue to express the same
number of securities as are stated in the similar Warrant certificates initially
issuable pursuant to this Agreement. However, the Company may, at any time in
its sole discretion, make any change in the form of Warrant certificate that it
may deem appropriate and that does not affect the substance thereof; and any
Warrant certificate thereafter issued, whether upon registration or transfer of,
or in exchange or substitution for, an outstanding Warrant certificate, may be
in the form so changed.
Section 9. Fractional Shares; Current Market Price. The Company shall not
be required to issue fractional Shares on the exercise of the Warrants. If a
fraction of a Share would, except for the provisions of this section 9, be
issuable on the exercise of the Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to then Current Market Price
multiplied by such fraction. For purposes of this Agreement, the term "Current
Market Price" shall mean (i) if the Limited Voting Shares are traded in the
over-the-counter market and not in the Nasdaq National Market nor on the
American Stock Exchange or other national securities exchange, the average of
the per share closing bid prices of the Limited Voting Shares on the 30
consecutive trading days immediately preceding the date in question, as reported
by Nasdaq or an equivalent generally accepted reporting service, or (ii) if the
Limited Voting shares are traded in the Nasdaq National Market or on the
American Stock Exchange or other national securities exchange, the average for
the 30 consecutive trading days immediately preceding the date in question of
the daily per share closing prices of the Limited Voting Shares in the Nasdaq
National Market or on the American Stock Exchange or other principal national
securities exchange on which it is listed, as the case may be. For purposes of
clause (i) above, if trading in the Limited Voting Shares are not reported by
The Nasdaq Small Cap Market, the bid price referred to in said clause shall be
the lowest bid price as reported on The Nasdaq Electronic Bulletin Board or, if
not reported thereon, as reported in the "pink sheets" published by National
Quotation Bureau, Incorporated, or if not so reported, the fair value of a Share
as determined in good faith by the Board of Directors of the Company. The
closing price referred to in clause (ii) above shall be the last reported sale
price or, in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices, in either case in the Nasdaq National
Market or on the principal national securities exchange on which the Limited
Voting Shares are then listed.
Section 10. No Rights as Shareholder; Notices to Warrantholder. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon a Warrantholder or its transferees any rights as a shareholder of the
Company, including the right to vote, receive dividends, consent or receive
notices as a shareholder in respect to any meeting of shareholders for the
election of directors of the Company or any other matter. If, however, at any
time prior to the expiration of the Warrants and prior to their exercise, any
one or more of the following events shall occur:
(a) any action which would require an adjustment pursuant to
subsection 8.1;
5.
<PAGE>
(b) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger or sale of its property, assets
and business as an entirety or substantially as an entirety) shall be proposed;
or
(c) any dividend, distribution, subscription rights or other rights
are to be given to shareholders;
then the Company shall give notice in writing of such event to each
Warrantholder, as provided in section 14 hereof, at least 20 days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to any relevant dividend,
distribution, subscription rights or other rights or for the determination of
shareholders entitled to vote on such proposed dissolution, liquidation or
winding up. In the case of any permitted transfer of a Warrant, notice shall be
sufficient if the Company provides notice in the manner set forth in section 14
to the last known address of such holder on the books and records of the
Company. Such notice shall specify such record date or the date of closing the
transfer books, as the case may be. Failure to mail or receive such notice or
any defect therein shall not affect the validity of any action taken with
respect thereto.
Section 11. Restriction on Transfer; Registration Rights.
(a) Each Warrantholder agrees that prior to making any disposition of
the Warrants or the Shares, other than to persons or entities identified in
clauses (i) through (vi), inclusive, of subsection 1.3 hereof, the Warrantholder
shall give written notice to the Company describing briefly the manner in which
any such proposed disposition is to be made; and no such disposition shall be
made if the Company has notified the Warrantholder that in the opinion of
counsel reasonably satisfactory to the Warrantholder a registration statement or
other notification or post-effective amendment thereto (hereinafter collectively
a "Registration Statement") under the Act is required with respect to such
disposition and no such Registration Statement has been filed by the Company,
and declared effective, if necessary, by, the United States Securities and
Exchange Commission (the "Commission").
(b) The Company shall be obligated to the owners of the Warrants and
the Shares to file a Registration Statement as follows:
(i) Whenever during the period commencing ____________, 2000 and
ending on _______________, 2004, the Company proposes to file with the
Commission a Registration Statement (other than as to securities issued pursuant
to an employee benefit plan or as to a transaction subject to Rule 145
promulgated under the Act or which a Form S-4 Registration Statement could be
used), it shall, at least 30 days prior to each such filing, give written notice
of such proposed filing to each Warrantholder and each holder of Shares at their
respective addresses as they appear on the records of the Company, and shall
offer to include and shall include in such filing any proposed disposition of
the Shares upon receipt by the Company, not less than ten days prior to the
proposed filing date, of a request therefor setting forth the facts with respect
to such proposed disposition and all other information with respect to such
person reasonably necessary to be included in such Registration Statement. In
the event that the managing underwriter for said offering advises the Company in
writing that the inclusion of such securities in the offering would be
materially detrimental to the offering, the Company shall include in the
Registration Statement the number of such securities that, in the opinion of
such managing underwriter, can be sold.
(ii) In addition to any Registration Statement pursuant to
subparagraph (i) above, during the period commencing _________________, 2000 and
ending on _______________, 2004, the Company will, as promptly as practicable
(but in any event within 60 days), after written request (the "Request") by The
Seidler Companies Incorporated and Josephthal & Co. Inc., or by a person or
persons holding (or having the right to acquire by virtue of holding the
Warrants) at least 50% of the Shares which have been (or may be)
6.
<PAGE>
issued upon exercise of the Warrants, prepare and file at its own expense a
Registration Statement with the Commission and appropriate state "blue sky"
authorities sufficient to permit the public offering of the Shares and will use
its best efforts at its own expense through its officers, directors, auditors
and counsel, in all matters necessary or advisable, to cause such Registration
Statement to become effective as promptly as practicable and to maintain such
effectiveness so as to permit resale of the Shares covered by the Request until
the earlier of the time that all such Shares have been sold or the expiration of
120 days from the effective date of the Registration Statement; provided,
however, that the Company shall only be obligated to file one such Registration
Statement under this subparagraph (ii).
(c) All fees, disbursements and out-of-pocket expenses (other than
Warrantholders' brokerage fees and commissions and legal fees of counsel to the
Warrantholders, if any) in connection with the filing of any Registration
Statement under paragraph (b) of this section 11 (or obtaining the opinion of
counsel and any no-action position of the Commission with respect to sales under
Rule 144) and in complying with applicable securities and blue sky, laws shall
be borne by the Company. The Company at its expense will supply each
Warrantholder and any holder of Shares with copies of such Registration
Statement and the prospectus included therein and other related documents and
any opinions and no-action letters in such quantities as may be reasonably
requested by the Warrantholder or holder of Shares.
(d) The Company shall not be required by this section 11 to file such
Registration Statement if, in the opinion of counsel for the Warrantholders and
holders of Shares and the Company (or, should they not agree, in the opinion of
another counsel experienced in securities law matters acceptable to counsel for
such holders and the Company), the proposed offering or other transfer as to
which such Registration Statement is requested is exempt from applicable United
States federal and state securities laws and would result in all purchasers or
transferees obtaining securities which are not "restricted securities," as
defined in Rule 144 under the Act.
(e) The provisions of this section 11 and section 12 hereof shall
apply to the extent as provided herein if the Company chooses to file an
Offering Statement under Regulation A promulgated under the Act.
(f) The Company agrees that until all Shares have been sold under a
Registration Statement or pursuant to Rule 144 under the Act, it will keep
current in filing all materials required to be filed with the Commission in
order to permit the holders of Shares to sell the same under Rule 144.
Section 12. Indemnification.
(a) In the event of the filing of any Registration Statement with
respect to the Shares pursuant to section 11 hereof, the Company agrees to
indemnify and hold harmless each Warrantholder or holder of such Shares and each
person, if any, who controls the Warrantholder or any holder of such Shares
within the meaning of the Act, against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), to which the Warrantholder or any holder of such Shares or
such controlling person may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such Registration Statement, or any
related preliminary prospectus, final prospectus, or amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, preliminary prospectus, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by such Warrantholder or the holder of such Shares specifically
7.
<PAGE>
for use in the preparation thereof. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) Each Warrantholder and holder of the Shares agree that they will
indemnify and hold harmless the Company, each other person referred to in
subparts (1), (2) and (3) of Section 11(a) of the Act in respect of the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Act, against any losses, claims, damages or liabilities
(which shall, for all purposes of this Agreement, include but not be limited to,
all costs of defense and investigation and all attorneys' fees) to which the
Company or any such director, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such Registration Statement, or any related preliminary prospectus, final
prospectus or amendment or supplement thereto, or arise out of or are based upon
the omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such Registration
Statement, preliminary prospectus, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Warrantholder or such holder of Shares specifically for
use in the preparation thereof. This indemnity agreement will be in addition to
any liability which the Warrantholder or such holder of Shares may otherwise
have.
(c) Promptly after receipt by an indemnified party under this section
12 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party under
this section 12, notify the indemnifying party of the commencement thereof; but
the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this section 12. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, reasonably assume the defense thereof, subject to the
provisions herein stated, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
section 12 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that if the indemnified party is a Warrantholder or a holder of Shares
or a person who controls a Warrantholder or a holder of Shares within the
meaning of the Act, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party or (ii) the named
parties to any such action, including any impleaded parties, include both a
Warrantholder or a holder of Shares or such controlling person and the
indemnifying party and a Warrantholder or a holder of Shares or such controlling
person shall have been advised by such counsel that there may be one or more
legal defenses available to a Warrantholder or a holder of Shares or controlling
person which are not available to or in conflict with any legal defenses which
may be available to the indemnifying party (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of a
Warrantholder or a holder of Shares or such controlling person, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the Warrantholders, the holders of the Shares and
controlling persons, which firm shall be designated in writing by a majority in
interest of such holders and controlling persons based upon the value of the
securities
8.
<PAGE>
included in the Registration Statement). No settlement of any action against an
indemnified party shall be made without the consent of the indemnified and the
indemnifying parties, which shall not be unreasonably withheld in light of all
factors of importance to such parties.
Section 13. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) a Warrantholder or any
holder of the Shares or controlling person makes a claim for indemnification
pursuant to section 12 hereof but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of section 12 hereof provide for indemnification in such
case or (ii) contribution under the Act may be required on the part of any
Warrantholder or any of the Shares or controlling person, then the Company and
any Warrantholder or any such holder of the Shares or controlling person shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all attorneys'
fees), in either such case (after contribution from others) on the basis of
relative fault as well as any other relevant equitable considerations. The
relative fault shall be determined by, reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or a Warrantholder or holder of Shares or controlling
person on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and such holders of such securities and such controlling persons
agree that it would not be just and equitable if contribution pursuant to this
section 13 were determined by pro rata allocation or by any other method which
does not take account of the equitable considerations referred to in this
section 13. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this section 13 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Section 14. Notices. Any notice pursuant to this Agreement by the Company
or by a Warrantholder or a holder of Shares shall be in writing and shall be
deemed to have been duly given if delivered or mailed by certified mail, return
receipt requested:
(a) If to The Seidler Companies Incorporated, or any of its direct or
indirect transferees, addressed to the Warrantholder or holder of Shares c/o The
Seidler Companies Incorporated, 515 South Figueroa, Suite 1100, Los Angeles,
California 90071, Attention: Managing Director, with a copy to Josepthal & Co.,
Inc.
(b) If to Josephthal & Co. Inc., or any of its direct or indirect
transferees, addressed to the Warrantholder or holder of Shares c/o Josephthal &
Co. Inc., 200 Park Avenue, New York, New York, with a copy to The Seidler
Companies Incorporated.
(c) If to the Company, addressed to it at Number 302, 1132 Hamilton
Street, Vancouver, B.C. V6B 2S2, Canada, Attention: President.
Each party may from time to time change the address to which notices to it are
to be delivered or mailed hereunder by notice in accordance herewith to the
other party.
Section 15. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company, the Warrantholders, or the holders of
Shares shall bind and inure to the benefit of their respective successors and
assigns hereunder.
9.
<PAGE>
Section 16. Merger or Consolidation of the Company. The Company will not
merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another corporation, unless the provisions
of subsection 8.4 hereof are complied with.
Section 17. Survival of Representations and Warranties. All statements
contained in any schedule, exhibit, certificate or other instrument delivered by
or on behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf
of the parties to this Agreement, all representations, warranties and agreements
made by the parties to this Agreement or pursuant hereto shall survive.
Section 18. Applicable Law. This Agreement shall be deemed to be a
contract made under the laws of the State of California and for all purposes
shall be construed in accordance with the laws of said State.
Section 19. Consent to Jurisdiction and Service of Process. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the County of Los Angeles,
State of California, and by execution and delivery of this Agreement, each of
the parties hereto accepts for itself and in connection with its properties,
generally and unconditionally, the nonexclusive jurisdiction of the aforesaid
courts and waives any defense of forum non conveniens and irrevocably agrees to
----- --- ----------
be bound by any judgment rendered thereby in connection with this Agreement.
The parties hereby agrees that service of process sufficient for personal
jurisdiction in any action against a party in the State of California may be
made by any means permitted in California to the party at the address provided
in section 14 hereof, and the parties hereby acknowledge that such service shall
be effective and binding in every respect. Nothing herein shall affect the
right to serve process in any other manner permitted by law or shall limit the
right of a party to bring proceedings against the other party in the courts of
any other jurisdiction.
10.
<PAGE>
Section 20. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrantholders and the holders of Shares any legal or equitable right, remedy or
claim under this Agreement. This Agreement shall be for the sole and exclusive
benefit of the Company, the Warrantholders and the holders of Shares.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
PEACE ARCH ENTERTAINMENT GROUP INC.
By
------------------------------------------------
W. D. Cameron White, Chief Executive Officer
THE SEIDLER COMPANIES INCORPORATED
By
------------------------------------------------
--------------------------- , -----------------
JOSEPHTHAL & CO. INC.
By:
-----------------------------------------------
--------------------------- , -----------------
11.
<PAGE>
SCHEDULE 1
----------
Name Number of Class B Subordinate Voting Shares
- ---- -------------------------------------------
The Seidler Companies, Incorporated...........
Josephthal & Co. Inc. ........................ ----------
Total...................
12.
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT A
---------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED,
HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH SECTION 11
OF THE AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED.
Warrant Certificate No. ___
REPRESENTATIVES' WARRANTS TO PURCHASE CLASS B SUBORDINATE VOTING SHARES
VOID AFTER 5:00 P.M.,
PACIFIC TIME, ON _________, 2004
PEACE ARCH ENTERTAINMENT GROUP INC.
INCORPORATED UNDER THE LAWS
OF THE PROVINCE OF BRITISH COLUMBIA, CANADA
This certifies that, for value received, __________________________________,
the registered holder hereof or permitted assigns (the "Warrantholder"), is
entitled to purchase from Peace Arch Entertainment Group Inc. (formerly Vidatron
Entertainment Group Inc. and herein the "Company"), at any time during the
period commencing at 9:00 A.M., Pacific Time, on ____________, 2000, and before
5:00 p.m., Pacific Time, on _____________________, 2004, at the purchase price
per Share of $_________ (the "Warrant Price"), the number of Class B Subordinate
Voting Shares of the Company set forth above (the "Shares"). The number of
Shares issuable upon exercise of each Warrant evidenced hereby shall be subject
to adjustment from time to time as set forth in the Representative's Warrant
Agreement referred to below.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form attached hereto
duly executed (with a signature guarantee as provided thereon) and simultaneous
payment of the Warrant Price at the principal office of the Company. Payment of
such price shall be made at, the election of the Warrantholder, in cash, by wire
transfer to an account of the Company designated for this purpose, by the
Warrantholder's check payable to the Company or by means of a "Net Exercise" (as
defined in the Representative's Warrant Agreement referred to below), or any
combination of the foregoing methods of payment.
The Warrants evidenced hereby represent the right to purchase an aggregate
of up to _______________ Shares and are issued under and in accordance with a
Representative's Warrant Agreement, dated as of ______________________, 1999
(the "Representatives' Warrant Agreement"), among the Company, The Seidler
Companies Incorporated, and Josephthal & Co., Inc., and are subject to the terms
and provisions contained in the Representatives' Warrant Agreement, to all of
which the Warrantholder by acceptance hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there shall be
signed and issued to the Warrantholder a new Warrant Certificate in respect of
the Shares of Common Stock as to which the Warrants evidenced hereby shall not
have been exercised. These Warrants may be exchanged at the office of the
Company by surrender of this Warrant Certificate properly endorsed for one or
more new Warrants of the same aggregate number of Shares of Common Stock as here
evidenced by the Warrant or Warrants exchanged. No fractional Share of Common
Stock will be issued upon the exercise of rights to purchase hereunder, but the
Company shall pay the cash value of any fraction upon the exercise of one or
more Warrants. These Warrants are transferable at the office of the Company in
the manner and subject to the limitations set forth in the Representative's
Warrant Agreement.
This Warrant Certificate does not entitle any Warrantholder to any of the
rights of a shareholder of the Company.
PEACE ARCH ENTERTAINMENT GROUP INC.
Dated: , By
------------- ---- ---------------------------------------
Chief Executive Officer
ATTEST: [Seal]
- -----------------------------------------
Secretary
- --------------------------------------------------------------------------------
<PAGE>
[_________________________________]
PURCHASE FORM
Peace Arch Entertainment Group Inc.
Number 302, 1132 Hamilton Street
Vancouver, B.C. V6B 2S2, Canada
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
________________________________ Class B Subordinate Voting Shares of Peace Arch
Entertainment Group Inc. (the "Shares") provided for therein, and requests that
certificates for the Shares be issued in the name of:
---------------------------------------------------------------
(Please Print or Type Name, Address and Social Security Number)
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
and, if said number of shares shall not be all the Shares purchasable hereunder,
that a new Warrant Certificate for the balance of the Shares purchasable under
the within Warrant Certificate be registered in the name of the undersigned
Warrantholder or his Assignee as below indicated and delivered to the address
stated below.
Dated:
--------------------------
Name of Warrantholder or Assignee:
-------------------------------------------
(Please Print)
Address:
------------------------------------------------
------------------------------------------------
Signature:
----------------------------------------------
Note: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without alteration
or enlargement or any change whatever, unless these Warrants have been
assigned.
Signature Guaranteed:
---------------------------------
(Signature must be guaranteed by a financial institution that is a member of the
Stock Transfer Association approved medallion program such as STAMP, SEMP or
MSP.)
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
(Name, Address, and Social Security or Employer Identification Number of
Assignee Must Be Printed or Typewritten)
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
_________________ of the within Warrants, hereby irrevocably constituting and
appointing _____________________ Attorney to transfer said Warrants on the books
of the Company, with full power of substitution in the premises. If such number
of Warrants is less than all the Warrants, a new Warrant shall be issued in the
undersigned's name for the balance of the Warrants.
Dated:
--------------- -------------------------------------------------
Signature of Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change whatever.
Signature Guaranteed:
---------------------------------------
(Signature must be guaranteed by a financial institution that is a member of the
Stock Transfer Association approved medallion program such as STAMP, SEMP or
MSP.)
<PAGE>
EXHIBIT 3.5
PROVINCE OF BRITISH COLUMBIA
FORM 19
(Section 348)
COMPANY ACT
SPECIAL RESOLUTION
Certificate of
Incorporation No. 316345
The following special resolution was passed by the company referred to below on
the date stated:
Name of company: VIDATRON ENTERTAINMENT GROUP INC.
Date resolution passed: July 14, 1999
Resolution:
"...IT WAS RESOLVED, as a special resolution,
(a) that the name of the Company be changed to "Peace Arch
Entertainment Group Inc." ...; and
(b) that the Memorandum of the Company be altered to reflect the
change of name of the Company so that it shall be in the form
presented to the Meeting and attached as Schedule A to these
Minutes."
Certified a true copy the ___ day of July, 1999.
- ----------------------------------------
(Signature)
Solicitor
- -------------------------------------------------
(Relationship to company)
<PAGE>
Schedule A
FORM 1 (Section 5)
COMPANY ACT
ALTERED MEMORANDUM
(as Altered by Special Resolution passed July 14, 1999)
1. The name of the Company is "Peace Arch Entertainment Group Inc."
2. The authorized capital of the Company consists of 225,000,000 shares
without par value divided into:
(a) 100,000,000 Class A Multiple Voting Shares without par value having
the special rights and restrictions set out in the Articles of the
Company;
(b) 100,000,000 Class B Subordinate Voting Shares without par value having
the special rights and restrictions set out in the Articles of the
Company; and
(c) 25,000,000 preference shares without par value having the special
rights and restrictions set out in Part 27 of the Articles of the
Company.
<PAGE>
PROVINCE OF BRITISH COLUMBIA
FORM 19
(Section 348)
COMPANY ACT
SPECIAL RESOLUTION
Certificate of
Incorporation No. 316345
The following special resolution was passed by the company referred to below on
the date stated:
Name of company: VIDATRON ENTERTAINMENT GROUP INC.
Date resolution passed: July 14, 1999
Resolution:
"...IT WAS RESOLVED, as a special resolution,
(a) that the Articles of the Company be altered by adding Article 29 -
Restrictions on the Issue and Transfer of Shares, in the form
presented to the Meeting and attached as Schedule B to these Minutes,
to the existing Articles of the Company; and
(b) that the Board of Directors of the Company in their discretion by
resolution may, without requiring further approval, ratification or
confirmation by the members, decline to implement this special
resolution."
Certified a true copy the ___ day of July, 1999.
- ----------------------------------------
(Signature)
Solicitor
- ----------------------------------------
(Relationship to company)
<PAGE>
SCHEDULE B
Article 29
Restrictions on the Issue and Transfer of Shares
29.1 Interpretation. Where used in this Article 29:
"Associate" means persons, firms, associations, corporations, partnerships
and other entities acting in concert with the person with respect to whom
the term "Associate" is relevant and includes an associate as defined in
the Company Act;
"Benefits" means any and all incentives, loans, grants, tax credits and
other financial assistance available only to Canadians;
"Canadian" means any person included in the definition thereof in any
applicable statute, regulation, guideline or policy in respect of a
Benefit;
"Restricted Class" means the class or description of persons and their
Associates whose significant or controlling interest in the voting rights
attaching to shares or to a certain class of shares of the Company is
likely to preclude the Company, or any corporation in which the Company has
a direct or indirect interest through the holding of shares in that or
other corporations, from being or continuing to be eligible for a
particular Benefit;
"person" includes an individual, firm, corporation, association, trust and
any other entity;
"Shares" means Class A Multiple Voting Shares and Class B Subordinate
Voting Shares and any other shares of the Company and includes a security
currently convertible into such a share and currently exercisable options
and rights to acquire such a share or such a convertible security.
29.2 Shares. In the event that the Company, or any corporation in which the
Company has a direct or indirect interest through the holding of shares in
that or other corporations, is or becomes eligible for a particular
Benefit, the power of the Company to issue any of its Shares and the right
of the holder of any such share to transfer the same shall be restricted as
follows:
(a) General Restrictions. The power of the Company to issue any Shares and
the right of any holder of Shares to transfer such shares is
restricted in the manner hereinafter set out for the purposes of
ensuring that the Company, or any corporation in which the Company has
a direct or indirect interest through the holding of shares in that or
other corporations, is and remains eligible for such Benefit.
(b) Refusal to Register Transfers.
(i) Notwithstanding anything herein otherwise provided, the directors
of the Company shall refuse to register a transfer of any Shares
if the transfer would, in the opinion of the directors,
jeopardize the purposes stated in Article 29.2(a) for which the
transfer and issue of Shares are restricted.
<PAGE>
(ii) Without limiting the generality of Article 29.2(b)(i), so long as
the holding of shares to which are attached more than a specified
percentage of the voting rights attached to all Shares by persons
who are members of a Restricted Class would render the Company
ineligible for a particular Benefit, the directors of the Company
shall refuse to register a transfer of any Shares if:
(A) voting rights attached to Shares held by or on behalf of
persons in the Restricted Class equals or exceeds the
maximum of such specified percentage of voting rights
attached to Shares as may be held in the aggregate by or for
members of the Restricted Class at any relevant time
("Maximum Aggregate Holdings") and the transfer is to one or
more persons in the Restricted Class; or
(B) the total number of voting rights attached to Shares held by
or on behalf of persons in the Restricted Class does not
exceed the Maximum Aggregate Holdings but the transfer would
result in the number of such voting rights attached to
shares held by persons in the Restricted Class exceeding the
Maximum Aggregate Holdings.
(c) Refusal to Allot or Issue.
(i) The directors of the Company shall not allot or issue a Share to
a person in the Restricted Class in circumstances where the
directors would be required under Article 29.2(b) to refuse to
register a transfer of such a share to such person.
(ii) For the purposes of Article 29.2(c)(i), the directors may count
as issued shares the voting rights attached to any Shares that
the Company is offering to its shareholders or prospective
shareholders at the time of any such determination.
(d) Matters Which Directors Can Consider in Exercising Their Powers in
Respect of Shares. In considering whether the transfer or issue of a
Share would, in the opinion of the directors, jeopardize the purposes
stated in Article 29.2(a) for which the transfer and issue of shares
are restricted and in exercising their powers under Articles 29.2(b)
and 29.2(c), the directors may have regard, among other things, to
the likelihood that outstanding rights to purchase any shares of the
Company might be exercised by persons who are members of the
Restricted Class, and to the likelihood that shares of the Company
registered in the names of persons who are not members of the
Restricted Class are in fact beneficially owned by persons who are
members of the Restricted Class.
29.3 Rules.
(a) The directors of the Company may from time to time make, amend or
repeal any rules required to administer the restricted share
provisions set out in this Article 29, including, without limitation,
rules:
(i) to require any person in whose name Shares are registered to
furnish a statutory declaration under the Canada Evidence Act
declaring whether:
<PAGE>
(A) the member is the beneficial owner of the Shares or holds
them for a beneficial owner and if so, identifying the
beneficial owner;
(B) the member or beneficial owner of Shares is an Associate of
any other member or beneficial owner and, if so,
identifying the other member or beneficial owner;
(C) the member or beneficial owner is a Canadian;
(D) the member is subject to any arrangement requiring the
member to act in concert with respect to the member's
interest in the Company with any other member or beneficial
owner of Shares and if so, identifying the other member or
beneficial owner and disclosing particulars of the
arrangement; and
(E) declaring any further or other facts the directors consider
relevant;
(ii) to require any person seeking to have a transfer of a Share
registered in that person's name or to have a Share issued to
that person to furnish a declaration similar to the declaration
a member may be required to furnish under Article 29.3(a)(i);
and
(iii) to determine the circumstances in which declarations are
required, their form, content and the times when they are to be
furnished.
(b) Where a person is required to furnish a declaration pursuant to a
rule made under Article 29.3(a), the directors may refuse to register
a transfer of a Share to that person or to issue a Share to that
person until that person has furnished such a declaration and such
person shall not be entitled to vote at any meeting of members held
thereafter unless that person provides such declaration forty-eight
(48) hours prior to the date and time of any such meeting.
(c) In administering these provisions, the directors, any officer,
employee or agent of the Company may rely upon:
(i) a statement made in a declaration furnished under Article
29.3(a)(i) or (ii); and
(ii) the knowledge of such directors or any officer, employee or
agent,
and the Company, its directors, officers, employees and agents are
not liable for anything done or omitted by them in good faith in
reliance upon such statements or knowledge.
(d) Where the directors are required to determine the total number of
voting rights attaching to Shares held by or on behalf of persons who
are members of the Restricted Class, the directors may calculate the
number of voting rights attached to such shares as the total of:
(i) the voting rights attached to Shares held by every member whose
latest address as shown on the register of members is outside
Canada; and
<PAGE>
(ii) the voting rights attached to Shares held by every member whose
latest address as shown in the register of members is in Canada
but who, to the knowledge of a director, officer, employee or
agent of the Company is not a Canadian.
(e) The directors may rely on the register of members of the Company to
make the calculation under Article 29.3(d) as of a date that is not
earlier than four (4) months before the date on which the calculation
is made.
29.4 Disclosure. The directors shall cause to be noted conspicuously the
general nature of these provisions in every:
(a) certificate representing Shares issued hereafter;
(b) management information or proxy circular;
(c) prospectus, statement of material facts, registration statement or
similar document; and
(d) take-over bid circular where the consideration for the shares of the
offeree corporation is in whole or in part securities of the Company.
<PAGE>
PROVINCE OF BRITISH COLUMBIA
FORM 19
(Section 348)
COMPANY ACT
SPECIAL RESOLUTION
Certificate of
Incorporation No. 316345
The following special resolution was passed by the company referred to below on
the date stated:
Name of company: VIDATRON ENTERTAINMENT GROUP INC.
Date resolution passed: July 14, 1999
Resolution:
"...IT WAS RESOLVED, as a special resolution,
(a) that the Articles of the Company be altered by deleting Article 10.3
in its entirety and replacing it with the following:
"10.3 Save as herein otherwise provided, a quorum shall be two
members or one or more proxyholders representing two members, or
one member and a proxyholder representing another member, holding
not less than 33 1/3% of the issued and outstanding shares of the
Company carrying voting rights at the meeting. The Directors,
the Secretary or, in his absence, an Assistant Secretary, and the
solicitor of the Company shall be entitled to attend at any
general meeting but no such person shall be counted in the quorum
or be entitled to vote at any general meeting unless he shall be
a member or proxyholder entitled to vote thereat."; and
(b) that the Board of Directors of the Company in their discretion by
resolution may, without requiring further approval, ratification or
confirmation by the members, decline to implement this special
resolution."
Certified a true copy the ___ day of July, 1999.
- ------------------------------------------
(Signature)
Solicitor
- ------------------------------------------
(Relationship to company)
<PAGE>
PROVINCE OF BRITISH COLUMBIA
FORM 19
(Section 348)
COMPANY ACT
SPECIAL RESOLUTION
Certificate of
Incorporation No. 316345
The following special resolution was passed by the company referred to below on
the date stated:
Name of company: VIDATRON ENTERTAINMENT GROUP INC.
Date resolution passed: July 14, 1999
Resolution:
"...IT WAS RESOLVED, as a special resolution,
(a) that the conversion ratio as resolved by the Special Resolution passed
February 16, 1999 (the "Initial Resolution") be consolidated so that
each 5 issued and outstanding Common Shares shall be converted into 1
Class A Multiple Voting Share and 1 Class B Subordinate Voting Share,
subject always to the condition that any fractional shares resulting
from such conversion shall be combined and issued as one Class B
Subordinate Voting Share; and
(b) that the Board of Directors of the Company in their discretion by
resolution may, without requiring further approval, ratification or
confirmation by the members, decline to implement this special
resolution."
Certified a true copy the ___ day of July, 1999.
- --------------------------------------
(Signature)
Solicitor
- --------------------------------------
(Relationship to company)
<PAGE>
EXHIBIT 4.9
AMENDING AGREEMENT made as of the 31st day of March, 1999.
BETWEEN:
VIDATRON ENTERTAINMENT GROUP INC. duly incorporated under the laws of
the Province of British Columbia
(hereinafter called the "Company")
OF THE FIRST PART
- and -
TIMOTHY GAMBLE, Jones Gable & Company RRSP Account No. 09-5760-5, of
Vancouver, British Columbia
ANN NIXON, Jones Gable & Company RRSP Account No. 09-6448-6, of
Vancouver, British Columbia
DARCY KROGH, Jones Gable & Company RRSP Account No. 09-6079-9, of
Vancouver, British Columbia
FRANK GROFF, Jones Gable & Company RRSP Account No. 09-5880-1, of
Vancouver, British Columbia
W.D. CAMERON WHITE, Nesbitt Burns Inc. RRSP Account No. 80601827-17, of
Vancouver, British Columbia
SOHO INTERACTIVE COMMUNICATIONS INC., of Vancouver, British Columbia
(Collectively, the "Lenders")
OF THE SECOND PART
WHEREAS the parties hereto are party to Single Series "A" Debentures dated
31st March 1996 (referred to herein as the "Convertible Debentures");
WHEREAS the parties hereto are desirous of amending the Convertible Debentures
on the basis set out herein;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the payments
herein provided for and of the mutual covenants, representations and agreements
herein contained the parties hereto agree each with the other as follows:
1. Article 1.1 on page 1 of the Convertible Debentures is hereby
amended by deleting the date "31st March 1999" on line 3 and inserting in its
place the date "30th June 1999".
2. Except as specifically amended hereby, the Convertible Debentures
are hereby ratified confirmed and approved in their original form, effective as
and from the date thereof.
3. This Agreement may be executed in several counterparts (including by
fax), each of which, when so executed, shall be deemed to be an original and
shall have the same force and effect as an original and such counterparts
together shall constitute one and the same instruments.
4. This Agreement sets out the entire agreement between the parties
hereto relating to the subject matter of this Agreement, and this Agreement may
not be modified except by written agreement
<PAGE>
between the parties. This Agreement supersedes and replaces all previous
agreements relating to the subject matter of this Agreement between the parties
hereto.
In witness whereof, this Agreement is executed as of the day and year first
above written.
THE COMMON SEAL OF VIDATRON )
ENTERTAINMENT GROUP INC. was hereunto )
affixed in the presence of: )
)
/s/ W.D. Cameron White ) C/S
_____________________________________ )
Authorized Signatory )
)
)
_____________________________________ )
Authorized Signatory )
SIGNED, SEALED AND DELIVERED by )
TIMOTHY GAMBLE in the presence of: )
)
) /s/ Timothy Gamble
_____________________________________ ) _____________________________________
Signature ) TIMOTHY GAMBLE
)
_____________________________________ )
Address )
)
_____________________________________ )
Occupation )
SIGNED, SEALED AND DELIVERED by ANN )
NIXON in the presence of: )
)
) /s/ Ann Nixon
_____________________________________ ) _____________________________________
Signature ) ANN NIXON
)
_____________________________________ )
Address )
)
_____________________________________ )
Occupation )
<PAGE>
SIGNED, SEALED AND DELIVERED by )
DARCY KROGH in the presence of: )
)
)
_____________________________________ ) ______________________________________
Signature ) DARCY KROGH
)
_____________________________________ )
Address )
)
_____________________________________ )
Occupation )
SIGNED, SEALED AND DELIVERED by )
FRANK GROFF in the presence of: )
)
)
_____________________________________ ) ______________________________________
Signature ) FRANK GROFF
)
_____________________________________ )
Address )
)
_____________________________________ )
Occupation )
SIGNED, SEALED AND DELIVERED by W.D. )
CAMERON WHITE in the presence of: )
)
)
_____________________________________ ) ______________________________________
Signature ) W.D. CAMERON WHITE
)
_____________________________________ )
Address )
)
_____________________________________ )
Occupation )
THE COMMON SEAL OF SOHO INTERACTIVE )
COMMUNICATIONS INC. was hereunto )
affixed in the presence of: )
)
)
_____________________________________ ) C/S
Authorized Signature )
)
_____________________________________ )
Authorized Signature )
<PAGE>
EXHIBIT 5.1
OPINION OF PAGE FRASER & ASSOCIATES
June 23, 1999
Vidatron Entertainment Group Inc.
Suite 302 - 1132 Hamilton Street
Vancouver, BC
V6B 2S2
Ladies & Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Vidatron Entertainment Group Inc. (the "Company"), a British
Columbia, Canada corporation, of a Registration Statement on Form F-1 (File No.
333-10354) (the "Registration Statement") with the United States Securities and
Exchange Commission, including a prospectus included in the Registration
Statement (the "Prospectus") in respect of up to 2,300,000 Class B Subordinate
Voting Shares of the Company's share capital when created in accordance with
applicable law (the "Shares").
For the purpose of the opinions expressed herein, we have examined original
executed, certified or facsimile copies of the following documents:
1. an Officer's Certificate dated June 23, 1999 by the Chief Executive Officer
of the Company (the "Officer's Certificate");
2. a Certificate of Good Standing for the Company dated June 23, 1999 issued by
the British Columbia Registrar of Companies pursuant to the British Columbia
Company Act;
3. the articles of the Company; and
4. the Registration Statement and the Prospectus.
We have relied exclusively upon these documents. With your permission, we have
not undertaken any other investigation.
In our examination of the foregoing documents, we have assumed:
(a) the genuineness of all signatures on (whether originals or copies of
documents), the authenticity of and completeness of, all documents submitted to
us as originals and the
<PAGE>
conformity to original documents of all documents submitted to us as notarial,
true, certified, conformed, photostatic, telecopied or electronic copies or
similarly reproduced copies of such original documents;
(b) the completeness, truth and accuracy of all facts set forth in official
public records, certificates and documents supplied by public officials or
otherwise conveyed to us by public officials;
(c) the completeness, truth and accuracy of all facts set forth in the
certificates supplied by the officers and directors of the Company, including,
without limitation the Officer's Certificate; and
(d) that each of the parties or signatories to the underwriting agreement filed
as an exhibit to the Registration Statement has the necessary power, capacity
and authority to execute, deliver and perform the underwriting agreement, has
taken all necessary actions to authorize the execution, delivery and performance
by it of the underwriting agreement and has duly executed and delivered the
underwriting agreement and that it constitutes legal, valid and binding
obligations of such parties or signatories enforceable against them in
accordance with its terms.
We are qualified to practice law only in the Province of British Columbia and
the opinions below are expressed only with respect to the laws of the Province
of British Columbia and of Canada applicable therein.
Based and relying upon the foregoing and subject to the limitations and
qualifications set forth below, and assuming that: (i) the Registration
Statement becomes and remains effective during the period when the Shares are
distributed, (ii) no stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereof shall have been issued by the
United States Securities and Exchange Commission or any State securities
commission and no proceedings therefor shall have been initiated or threatened,
(iii) no order having the effect of ceasing or suspending the distribution of
Shares shall have been issued by any Canadian provincial securities commission
or similar regulatory authority and no proceeding for that purpose shall have
been instituted or threatened, (iv) all applicable securities laws are complied
with, (v) the Company and the underwriters enter into and perform their
respective obligations under the underwriting agreement, and (vi) all
appropriate resolutions of directors authorizing the allotment and issuance of
the Shares will be duly passed and appropriate share certificates evidencing the
Shares will be properly executed and delivered, we are of the opinion that the
Shares, when created and in accordance with applicable law on the terms
described in the Registration Statement and sold in accordance with the terms
described in the Registration Statement, will be validly issued, fully paid and
non-assessable.
This opinion is solely for the benefit of the addressee hereof and not for the
benefit of any other persons and is rendered solely in connection with the
transactions to which it relates, and is not to be relied on by any other person
or for any other purpose nor is it to be quoted, filed, circulated, or otherwise
utilized in any way without our express prior written consent.
We consent to the reference to us under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Yours very truly,
Jeffrey T.K. Fraser
Law Corporation
Per: /s/ Jeffrey T.K. Fraser
<PAGE>
EXHIBIT 10.15
1st March 1999
Redwood Investments Ltd.
c/o Rick Friesen
1467 Johnson Road
White Rock, B.C.
Dear Rick:
In connection with our agreement with you of 30th January 1998 (the "Agreement")
regarding the loan to us by you of $300,000 (the "Loan") which was used by us to
complete the purchase of the commercial property located at West 1st Avenue,
Vancouver, this is to confirm the agreement between us to extend the date on
which the loan is due from 1st March 1999 (Item 1 of the Agreement), to 31st
July 1999.
Please confirm your agreement with the foregoing by signing and returning the
enclosed copy of this letter.
Yours very truly,
VIDATRON ENTERTAINMENT GROUP INC.
Per: W.D. Cameron White
WDCW/blg
Enc.
The terms of the foregoing are hereby agreed to as at the 1st day of March,
1999.
REDWOOD INVESTMENTS LTD.
/s/ R. Friesen
- -------------------------
Director
<PAGE>
EXHIBIT 10.16
[LETTERHEAD OF CANADIAN WESTERN TRUST]
May 26, 1999
Soho Enterprises Ltd.
302, 1132 Hamilton Street
Vancouver, B.C.
V6B 2S2
Attention: Ms. Juliet Jones
- ---------------------------
Dear Sirs:
RE: Loan Reference 100 2378
310 West Fourth Avenue, Vancouver, B.C.
----------------------------------------------
Further to your discussions with Mario Furlan, we are pleased to advise that a
renewal of your mortgage loan agreement has been approved. Our credit committee
has approved a renewal for a further term of two (2) years, under the following
terms and conditions:
Principal amount to be renewed: $933,839.15
New interest adjustment date: May 1, 1999
New first payment date: June 1, 1999
New maturity date: May 1, 2001
New interest rate: 7.200% per annum
Amortization period: 17 years
New monthly payment: $7,892.00
(Principal & Interest)
and subject to our receiving:
1. Your cheque in the amount of $1,868.00 in payment of our renewal fee.
All other provisions of your mortgage loan agreement are continued during the
renewal term and remain unchanged. There is no privilege for repayment in full
during the renewal term.
<PAGE>
[Letterhead of Canadian Western Trust]
Page 2
May 26, 1999
The date of the making of this mortgage for all purposes is deemed to be May 1,
1999.
We have adjusted the amount of your pre-authorized account withdrawal and
commencing June 1, 1999 we will be automatically withdrawing the amount of your
new monthly payment from your bank account on the first business day of each
month.
Attached is an amortization schedule which reflects these renewal terms.
We reserve the right to draw an extension and/or modification document for your
acknowledgement and to have it filed in the appropriate Land Title Office at
your expense, should it ever in the future be deemed necessary.
Would you please signify your acceptance of these terms and conditions by
signing and returning the COPY of this letter enclosed for this purpose,
----
together with the above noted items by June 4, 1999, failing which these terms
may be subject to change.
Yours truly,
/s/ C. Spence
C. Spence
Manager, Mortgage Administration
E. & O. E.
We accept the terms and conditions of extension as offered above, dated this
day of , 1999.
/s/ William Douglas Cameron White
_____________________________________________
SOHO ENTERPRISES LTD. (as mortgagor)
/s/ Juliet Jones
_____________________________________________
THE VIDATRON GROUP INC. (as guarantor)
/s/ Timothy Roy Gamble
_____________________________________________
TIMOTHY ROY GAMBLE (as guarantor)
/s/ William Douglas Cameron White
_____________________________________________
WILLIAM DOUGLAS CAMERON WHITE (as guarantor)
<PAGE>
[Letterhead for Canadian Western Trust]
---------------------------------------
CANADIAN WESTERN TRUST - MORTGAGE ACCOUNTS SYSTEM
SAMPLE AMORTIZATION SCHEDULE
Mortgage Loan: 933,839.15
Amort. Period: 17 Years
Interest Rate: 7.200
Payment Freq: Monthly
Term: 2 Years
<TABLE>
<CAPTION>
PAYMENT DUE DATE PAYMENT PRINCIPAL INTEREST BALANCE
- ------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
1 Jun 1/1999 7,892.00 2,371.21 5,520.79 931,467.94
2 Jul 1/1999 7,892.00 2,385.23 5,506.77 929,082.71
3 Aug 1/1999 7,892.00 2,399.33 5,492.67 926,683.38
4 Sep 1/1999 7,892.00 2,413.51 5,478.49 924,269.87
5 Oct 1/1999 7,892.00 2,427.78 5,464.22 921,842.09
6 Nov 1/1999 7,892.00 2,442.13 5,449.87 919,399.96
7 Dec 1/1999 7,892.00 2,456.57 5,435.43 916,943.39
8 Jan 1/2000 7,892.00 2,471.09 5,420.91 914,472.30
9 Feb 1/2000 7,892.00 2,485.70 5,406.30 911,986.60
10 Mar 1/2000 7,892.00 2,500.40 5,391.60 909,486.20
11 Apr 1/2000 7,892.00 2,515.18 5,376.82 906,971.02
12 May 1/2000 7,892.00 2,530.05 5,361.95 904,440.97
13 Jun 1/2000 7,892.00 2,545.01 5,346.99 901,895.96
14 Jul 1/2000 7,892.00 2,560.05 5,331.95 899,335.91
15 Aug 1/2000 7,892.00 2,575.19 5,316.81 896,760.72
16 Sep 1/2000 7,892.00 2,590.41 5,301.59 894,170.31
17 Oct 1/2000 7,892.00 2,605.73 5,286.27 891,564.58
18 Nov 1/2000 7,892.00 2,621.13 5,270.87 888,943.45
19 Dec 1/2000 7,892.00 2,636.63 5,255.37 886,306.82
20 Jan 1/2001 7,892.00 2,652.22 5,239.78 883,654.60
21 Feb 1/2001 7,892.00 2,667.90 5,224.10 880,986.70
22 Mar 1/2001 7,892.00 2,683.67 5,208.33 878,303.03
23 Apr 1/2001 7,892.00 2,699.53 5,192.47 875,603.50
24 May 1/2001 7.892.00 2,715.49 5,176.51 872,888.01
---------- --------- ---------- ----------
TOTAL 189,408.00 60,951.14 128,456.86 872,888.01
========== ========= ========== ==========
</TABLE>
<PAGE>
EXHIBIT 10.17
THIS LEASE made the 20th day of November, 1996
BETWEEN:
LAIDAR HOLDINGS LTD. AND
DR. GERALD WITTENBERG
c/o PCI Realty Corp.
#400 - 576 Seymour Street
Vancouver, B. C.
V6B 3K1
(herein called the "Landlord")
OF THE FIRST PART
AND:
THE PLAYHOUSE THEATRE OF
BRITISH COLUMBIA
160 West First Avenue
Vancouver, British Columbia
V5Y 1A4
(herein called the "Tenant")
OF THE SECOND PART
This lease is made subject to the Landlord, on or before November 30, 1996,
obtaining from The Artek Group Inc. ("Artek") a partial Surrender of its Lease
with Artek for the space presently occupied by the Tenant (being approximately
26,424.25 square feet).
This subject to condition is for the sole benefit of the Landlord and can be
waived unilaterally by the Landlord.
Upon the Landlord removing this subject to condition by November 30, 1996, the
Lease between the Landlord and the Tenant shall be enforceable and binding on
the Landlord and the Tenant on the terms and conditions set out aforesaid.
In the event the Landlord shall fail to remove this subject to condition by
November 30, 1996, there shall be no Lease between the Landlord and the Tenant
and neither the Landlord nor the Tenant shall have any further obligations to
the other as provided herein.
ARTICLE 1-DEFINITIONS
- ---------------------
The Landlord and the Tenant hereby agree that in this Lease the
following words or phrases shall, unless there is something in the context
inconsistent therewith, have the meanings hereinafter set out:
1.1 "Additional Rent" shall mean the Management Fee, the Utility Costs,
the Sales Taxes, the Tenant's Taxes, the Tenant's Proportionate Share of the
Operating Expenses including the Taxes, and all other sums which may be payable
to the Landlord hereunder or reimbursable to the Landlord hereunder, including,
without limitation, all interest and penalties payable hereunder, whether or not
such sums are referred to as Rent or Additional Rent or otherwise, but
Additional Rent shall not include the Annual Basic Rent:
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1.2 "Annual Basic Rent" shall mean the amount specified as such in
the Lease Summary as may be amended by Schedule"C" hereto or amended by written
agreement of the landlord and the Tenant from time to time;
1.3 "Areas of the Premises" shall mean approximately 26,646.25
square feet, which area shall be measured in accordance with the BOMA Standard
of Measurement such measurements to be made by a British Columbia Land Surveyor
chosen by the Landlord;
1.3A "Architect" shall mean the person qualified to practice, and
practicing as such under the laws of British Columbia and named by the Landlord
from time to time:
1.4 "Building" shall mean all buildings and improvements erected to
be erected on the Land:
1.4A "Capital Tax" shall mean the amount of tax imposed under the
Corporation Capital Tax Act:
1.5 "Commencement Date" shall mean the date specified as such in the
Lease Summary:
1.6 "Common Areas and Facilities" shall mean all of the Land and the
Building including, without limitation, the Roof, exterior and interior walls
and structural elements including bearing walls, electrical, plumbing, drainage,
mechanical and other installations or services as well as the structures housing
the same, fire prevention and communication systems, loading areas, parking
areas, driveways, landscaped areas, retaining walls, washrooms (other than
washrooms within the Premises or within other premises leased to tenants), and
all fixtures, general signs, lighting facilities, improvements, equipment and
installations thereupon or therein which the Landlord provides or designates
from time to time for the general use by or for the benefit of the Tenant in
common with other tenants and other persons permitted by the landlord; provided
however, the Common Areas and Facilities shall exclude all of the Rentable Area,
whether or not leased to tenants, and it shall further exclude all areas of the
Land in respect of which the Landlord has granted to the Tenant or any other
tenant an exclusive easement or an easement in common only with the Landlord:
1.7 "Expiry Date" shall mean the date specified as such in the Lease
Summary:
1.8 "Insurance Costs" shall mean all premiums and other amounts
which the Landlord may expend in effecting or maintaining insurance coverage
under the provisions of this Lease:
1.9 "Land" shall mean all and singular that certain parcel or tract
of land in the Province of British Columbia more particularly described in
Schedule "A" hereto having a civic address of: 150-160 West First Avenue,
Vancouver, British Columbia.
1.10 "Landlord" shall mean only the owner or the mortgagee in
possession for the time being of the Premises as represented from time to time
by is agents PCI Realty Corp.:
1.11 "Landlord's Mortgages" shall mean any and all existing or
proposed mortgagees, debenture holders and trustees on behalf of mortgagees
holding any Mortgages:
1.12 "Lease" shall mean this Indenture together with the Lease
Summary and all schedules attached hereto:
1.13 "Lease Summary" shall mean page 2 attached to and forming part
of this Lease and headed "Lease Summary":
1.14 "Lease Year" shall mean a twelve (12) month period commencing on
the first day of January in any calendar year and ending on the last day of
December in that calendar year, provided that the first Lease Year shall
commence on the Commencement Date and end on the last day of December next
following and the last Lease year shall commence on the first day of January of
the calendar year during which the Term expires and end upon the Expiry Date:
6
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1.14A "Management Fee" shall mean fees to be charged at the rate specified
in the Landlord's management agreement for the Lands from time to time plus
G.S.T. of the aggregate of all income from the Lands including:
a) Basic Rent;
b) Operating Expenses;
c) Property Taxes;
d) G.S.T.;
e) all Rental Income, and
f) all other expenses of any nature and kind incurred in connection with
the operation and management of the Lands
and the Tenant shall pay its proportionate share of the Management Fee.
1.15 "Mortgages" shall mean all mortgages, debentures, deeds of trust and
mortgages securing bonds and all instruments and indentures supplemental thereto
which may now or hereafter charge the Premises, and all modifications,
consolidations, replacements and extensions thereof;
1.16 "Operating Expenses" shall mean all expenses in connection with the
operation, maintenance and repair (which repair shall include replacement and
renewal where necessary) of all or any portion of the Land, the Building and the
Premises except as otherwise specifically provided in this Lease and, without
restricting the generality of the foregoing, shall include:
(a) the Taxes;
(b) the Insurance Costs;
(c) all charges for water, gas, electricity and any other utilities and
services used on or in respect of any part of the Land and the Building and all
fittings, machines, apparatus, meters and any other thing leased in respect
thereof, and, for greater certainty, including charges for electricity for any
Signs not separately metered to the Premises and all work and services performed
by any corporation, authority or commission in connection with such utilities,
but excluding Utility Costs;
and in respect of the Land and the Building only;
(d) salaries and wages (including employee benefits and workers'
compensation assessments), and all independent service contracts and supplies
incurred in cleaning, maintenance, garbage collection and disposal, operation,
management, security, landscape repair and maintenance, snow removal and traffic
control;
(e) repairs and maintenance of all or any portion of the Land and the
Building and, for greater certainty, including the Roof and the Common Areas and
Facilities;
(f) costs of supplies and equipment used in connection with the repair,
maintenance, management and operation of the Building and Lands including
without limitation straight line amortization of capitalized equipment;
(g) consultants' fees as required from time to time and the costs and
fees incurred in the preparation of any audit of Operating Expenses, and
incurred by the Landlord for legal proceedings taken in order to protect or
preserve the general well-being of the tenants of the Building or their use and
enjoyment of the Building or to enforce covenants in any leases as they affect
the general well-being of the tenants of the Building;
(h) capital improvements required pursuant to any governmental law or
regulation which were not required at the time of construction of the Building,
capital improvements which in the opinion of the Landlord will reduce projected
Operating Expenses, and all other capital improvements deemed necessary by the
Landlord for periodic repair
7
<PAGE>
or replacement, all amortized over the useful life of the improvements as
determined by the Landlord in accordance with generally accepted accounting
principles, plus the cost of purchasing any extended warranties:
(i) an amount equal to the difference between the proceeds of insurance
payable to the Landlord in respect of the damage or destruction of the Building
and the costs and expenses to repair, rebuild and make fit the Building to the
extent of any deductible contained in any insurance policy effected by the
Landlord pursuant to its covenant to insure herein contained:
(j) depreciation in an amount determined by the Landlord's accountants
in accordance with generally accepted accounting principles on:
(i) the original capital cost of the chattels, equipment,
systems and facilities of the Project, including, without limiting the
generality of the foregoing, the heating, ventilating and air-conditioning and
Utility systems: and
(ii) the capital cost of repairs, replacements and improvements
mentioned in subsections (c) through (e) which the Landlord's accountants have
determined to be capital in nature (other than any which are necessitated by a
change in any law, by-law, regulation, code or order enacted, made or enforced
by any authority having jurisdiction and which the Landlord has, in its sole
discretion, elected to treat as a current expense and which will be charged in
the same manner as under subsections (c) through (e);
but Operating Expenses shall not include interest on the Landlord's debt or
capital retirement of the Landlord's debt:
1.17 "Premises" shall mean the portion of the Building shown outlined in
heavy dark line and identified as "Premises" on the plan attached hereto as
Schedule "B", with any exclusions as indicated on Schedule "B" and excepting
the exterior faces of all adjoining corridor and outside walls and excepting the
Roof;
1.18 "Relative Portion" shall mean, with respect to any amount payable
under this Lease, that fraction which has as its denominator the period of time
expressed in days in respect of which an amount payable hereunder is calculated
and which has as its numerator the number of days within the same calculation
period, but which fall within the Term;
1.19 "Rent" shall mean the Annual Basic Rent and the Additional Rent;
1.20 "Rentable Area" shall mean the total area expressed in square feet
or its metric equivalent of space set aside by the Landlord for leasing to
tenants of the Building, and as may be amended by the Landlord from time to
time;
1.21 "Roof" shall mean the roof membrane, roof insulation and roof deck
of the Building;
1.22 "Sales Taxes" shall mean any and all taxes, fees, levies, charges,
assessments, rates, duties and excises (whether characterized as sales taxes,
purchase taxes, value-added taxes, goods and services taxes or any other form)
which are imposed on the Landlord or which the Landlord is liable to pay, and
which are levied, rated or assessed on the act of entering into this Lease or
otherwise on account of this Lease, on the use or the occupancy of the Premises
or any portion thereof, on the Rent payable under this Lease or any portion
thereof or in connection with the business of renting the Premises or any
portion thereof. Provided that if the Sales Taxes are reduced by reason of any
exemption or deduction to which the Landlord is entitled by virtue of:
(a) the payment of any taxes, fees, levies, charges, assessments,
rates, duties or excises upon the purchase price of any lands or of any interest
therein whether before, concurrently with or after the execution and delivery of
this Lease: or
<PAGE>
(b) the payment of any taxes, fees, levies, charges, assessments, rates,
duties or excises with respect to rents, additional rents and any other amounts
payable by the Landlord as a tenant under any lease whether such lease is now
existing or arises after the date of execution and delivery of this Lease.
then the Sales Taxes shall be deemed to be the amount which would have been
imposed on the Landlord with respect to the Rent payable by the Tenant to the
Landlord under this Lease had no such exemption or deduction been permitted.
The Landlord shall have the right, in its sole discretion, to allocate any
exemption or deduction to which the Landlord is entitled; (i) in such a way as
to reduce the Sales Taxes to the extent and in such proportion as the Landlord
may in its sole discretion determine, or (ii) in such a way as not to reduce the
Sales Taxes at all. Provided however, Sales Taxes shall exclude all of the
following: (i) income tax under Part 1 of the Income Tax Act of Canada as it
--------------
existed January 1, 1990. (ii) the Tenant's Taxes, and (iii) the Taxes:
1.23 "Security Deposit" - intentionally deleted.
1.24 "Sign" shall mean any sign, picture, notice, lettering, direction or
other advertising or informational device of whatever nature.
1.25 "Taxes" shall mean all taxes, fees, levies, charges, assessments,
rates, duties and excises which are now or may hereafter be levied, imposed,
rated or assessed upon or with respect to the Land or the Building or any part
thereof, whether levied, imposed, rated or assessed by the Government of Canada,
the Government of British Columbia, or any political subdivision, political
corporation, district, municipality, city or other political or public entity,
and whether or not now customary or in the contemplation of the parties on the
date of this Lease. Without restricting the generality of the foregoing. Taxes
shall include all:
(a) real property taxes, general and special assessments and Capital
Taxes;
(b) taxes, fees, levies, charges, assessments, rates, duties and excises
for transit, housing, schools, police, fire or other governmental services or
for purported benefits to the Land or the Building;
(c) local improvement taxes, service payments in lieu of taxes, and
taxes, fees, levies, charges, assessments, rates, duties and excises, however
described, that may be levied, rated or assessed as a substitute for, or as an
addition to, in whole or in part, any property taxes or local improvement taxes;
and
(d) costs and expenses, including legal and other professional fees and
interest and penalties on deferred payments, incurred by the Landlord in
assessing and/or contesting or appealing any taxes, assessments, rates, levies,
duties, excises, charges or other amounts as aforesaid;
but Taxes shall exclude all of the following: (i) income tax under Part 1 of
the Income Tax Act of Canada, (ii) the Tenant's Taxes, and (iii) the Sales
--------------
Taxes;
1.26 "Tenant's Proportionate Share" shall mean the percentage which is
equivalent to a fraction having as its numerator the Areas of the Premises
expressed in square feet or the metric equivalent thereof and having as its
denominator the Rentable Area expressed in the same form of measurement as the
numerator, provided that the percentage shall be changed in the event of a
change to the Rentable Area or the Areas of the Premises;
1.27 "Tenant's Taxes" shall mean all taxes, fees, levies, charges,
assessments, rates, duties and excises which are now or may hereafter be levied,
imposed, rated or assessed by any lawful authority relating to or in respect of
the business of the Tenant or relating to or in respect of personal property and
all business and trade fixtures, machinery and equipment, cabinet work,
furniture and movable partitions owned or installed by the Tenant at the expense
of the Tenant or being the property of the Tenant, or relating to or in respect
to of improvements to the Premises built, made or installed by the Tenant, on
behalf of the Tenant or at the Tenant's request whether any such amounts are
payable by law by the Tenant or by the Landlord and whether such amounts are
included by the taxing authority in the Taxes;
9
<PAGE>
1.28 "Term"shall mean the term specified in the Lease Summary:
1.29 "Transfer" shall mean any transfer, assignment, charge,
mortgage, sublease, licence, sharing of possession, parting with possession or
any other disposition of this Lease or any estate or interest herein or the
premises or any part thereof:
1.30 "Transferee" shall mean any person to whom a Transfer is made or
intended to be made: and
1.31 "Utility Costs" shall mean all charges for water, gas,
telephone, electric light and power and all other utilities and services used on
or in respect of the Premises or any part thereof, whether separately metered to
the Premises or as allocated by the Landlord, acting reasonably, to the
Premises, together with all costs and charges for all fittings, machines,
apparatus, meters and any other thing leased or supplied in respect thereof and
all costs and charges for all work and services performed by any corporation,
authority or commission in connection with such utilities and services in
respect of the Premises, whether separately charged to the Premises or allocated
by the Landlord, acting reasonably, to the Premises.
ARTICLE 2-THE DEMISE
- --------------------
2.1 The Demise
WITNESSETH that in consideration of the rents, covenants,
conditions and agreements hereinafter respectively reserved and contained on the
part of the Tenant to be paid, observed and performed the landlord hereby
demises and leases to the Tenant the Premises and the Tenant does hereby take
and rent, upon and subject to the terms, conditions and provisos herein
expressed.
2.2 Acceptance of Premises
The Tenant accepts the Premises on an "as is" basis.
ARTICLE 3-TERM
- --------------
3.1 Term
To have and to hold the Premises unto the Tenant for the Term
from and including the Commencement Date until and including the Expiry Date.
3.2 Delayed Possession
Intentionally deleted.
ARTICLE 4-RENT
- --------------
4.1 Annual basic Rent and Additional Rent
Yielding and paying therefor during the Term the following Rent
payable at the Landlord's address specified in the Lease Summary or at such
other place as the Landllord may from time to time designate in writing, in the
following instalments.
(a) the Annual Basic Rent as set forth in the Lease Summary payable
in advance in equal consecutive monthly instalments on the first day of each and
every month in the Term commencing on the Commencement Date and continuing until
and including the first day of the month in which the Expiry Date falls: and
10
<PAGE>
(b) the Additional Rent payable in accordance with the provisions of
this Lease.
4.2 No Abatement
The Tenant covenants and agrees with the Landlord that all of the
rent payable under this Lease shall be paid by the Tenant to the Landlord
without demand, deduction, set-off or abatement whatsoever, except as
specifically provided in subparagraph 9.4(a).
Post-Dated Cheques or Pre-Authorized Withdrawal
4.3 The Tenant covenants and agrees that if more than twice in any
Lease Year the Tenant is late in paying any monthly instalment of Annual Basic
Rent, then the Tenant shall forthwith upon request by the Landlord deliver to
the Landlord a series of post-dated cheques payable at par each in the amount of
the monthly instalment of the Annual Basic Rent, and the Tenant shall continue
to do so upon each yearly anniversary thereafter during the Term. In the
alternative, at the Tenant's option, the Tenant shall duty execute and deliver
the Landlord's standard Pre-Authorized withdrawal form directed to a Canadian
chartered bank or other financial institution acceptable to the Landlord and
requiring such bank or other financial institution to deduct from the Tenant's
account and to pay to the Landlord each month during the Term an amount equal to
the monthly instalment of the Annual Basic Rent. The Tenant shall forthwith upon
request by the Landlord execute and deliver to the Landlord such authorizations
and documents as may be required by the Landlord from time to time in order to
enable the Landlord to obtain all such payments. If required by the Landlord,
such post-dated cheques or Pre-Authorized withdrawals shall also include a
monthly amount estimated by the landlord from time to time in respect of the
whole or any portion of the Additional Rent that the Landlord may require. The
failure of the Tenant to comply in any way with the provisions of this paragraph
4.3 shall be deemed to be a default under this Lease and shall entitle the
Landlord to exercise any and all remedies available to the Landlord under this
Lease.
4.4 Adjustment
If the Term shall commence or cease on a day other than the
commencement of or the end of any period of time in respect of which any amount
payable hereunder is calculated, then the Tenant shall pay to the Landlord its
Relative Portion of such amount for such period of time.
4.5 Security Deposit
Intentionally deleted.
ARTICLE 5 - TENANTS COVENANTS
- -----------------------------
The Tenant hereby covenants and agrees with the Landlord as follows:
5.1 To Pay
The Tenant shall pay the Annual Basic Rent when due in accordance
with the provisions of this Lease and shall pay the Additional Rent not later
than thirty (30) days after request by the Landlord. The Tenant shall also
promptly pay the Tenant's Taxes and the Utility Costs as they become due and
shall provide to the Landlord, when and if requested by the Landlord, the
receipt for each payment made by the Tenant in respect of the Tenant's Taxes and
the Utility Costs.
11
<PAGE>
5.2 Estimated Expenses
(a) The Tenant covenants and agrees that the Landlord shall have the
right to make reasonable estimates of the amount of any or all of the Operating
Expenses for each calendar year during the Term.
(b) The Tenant covenants and agrees to pay to the Landlord, if the
Landlord so requests, in equal monthly instalments on the first day of each
month during each Lease Year the Additional Rent or any portion thereof as
estimated by the Landlord for the calendar year which falls in whole or in part
within the respective Lease Year. In the event that the Tenant makes any
overpayment to the Landlord on account of any Additional Rent payable under this
paragraph 5.2 during any calendar year the Tenant shall be entitled to a credit
in respect of the payment of such item of Additional Rent for the next
succeeding calendar year. Upon the expiry of the Term and the fulfillment by the
Tenant of all of its obligations under this Lease any remaining credit shall be
refunded to the Tenant.
(c) The Tenant covenants and agrees that a certificate of an officer of
the Landlord as to the actual Additional Rent or any portion thereof for any
calendar year shall be final and binding upon the Tenant and the Landlord.
(d) In the event that the Term does not subsist during the whole of any
calendar year then the Tenant shall pay the Relative Portion of the Tenant's
Proportionate Share of the estimated and actual Operating Expenses for such
calendar year.
5.3 Insurance
(a) The Tenant shall, at its sole cost and expense during the Term and
during such other period of time that the Tenant occupies the Premises, take out
and maintain in full force and effect, the following:
(i) "all risks" insurance upon all merchandise, stock-in-trade,
furniture, fixtures, equipment, leasehold improvements and other property of
every kind and description located at the Premises, owned by the Tenant or for
which the Tenant is responsible or legally liable, in an amount at least equal
to the full insurable value thereof, calculated on a replacement cost basis;
(ii) automobile liability insurance to a limit of liability of not
less than Two Million Dollars ($2,000.000.00) in any one accident, covering all
licensed motor vehicles owned by the Tenant and used in connection with its
business carried on form the Premises;
(iii) comprehensive bodily injury and property damage liability
insurance applying to the operations of the Tenant carried on from the Lands and
the Premises and which shall include, without limitation, personal injury
liability, product liability, contractual liability, non-owned automobile
liability and protective liability with respect to the use and occupancy of the
Premises by the Tenant; and such insurance shall be written for an amount of not
less than Two Million Dollars ($2,000,000.00) per occurrence, or such higher
amount as the Landlord may from time to time reasonably require;
(iv)) tenant's all risks legal liability insurance in an amount not
less than the replacement cost of the Premises; and
(v) any other form or forms of insurance as the Landlord may
reasonably require from time to time in amounts and for perils against which a
prudent tenant acting reasonably would protect itself in similar circumstances.
(b) All policies of insurance referred to in this paragraph 5.3 shall
include the following provisions:
(i) the policies shall not be affected or invalidated by any act,
omission or negligence of any person which is not within the knowledge or
control of the insured thereunder;
12
<PAGE>
(ii) all property damage policies written on behalf of the Tenant
shall contain a waiver of any subrogation rights which the Tenant's insurer(s)
may have against the Landlord and against those for whom the Landlord is, in
law, responsible, whether any insured loss or damage is caused by the act,
omission or negligence of the Landlord or by those for whose acts the Landlord
is, in law, responsible or otherwise:
(iii) all policies of liability insurance shall include the
Landlord and any persons, firms or corporations designated by the Landlord, as
additional named insureds and shall provide that each person, firm or
corporation insured under such policies shall be insured in the same manner and
to the same extent as if separate policies had been issued to each; and
(iv) all policies shall contain an undertaking by the insurers to
give the Landlord not less than thirty (30) days prior written notice of any
cancellation or other termination thereof, or any change which restricts or
reduces the coverage afforded thereby.
(c) The Tenant agrees that certificates of insurance or, if required
by the Landlord or any of the Landlord's Mortgagees, certified copies of each
policy, will be delivered to the Landlord as soon as practicable after the
placing thereof. The Tenant shall, when required by the Landlord, forthwith
provide to the Landlord evidence that all premiums for all insurance policies
have been paid.
(d) For good and valuable consideration, the Tenant does hereby
release and relieve the Landlord and those persons for whom the Landlord is, in
law, responsible, from liability and responsibility for, and waives its entire
claim for recovery of any loss or damage whatsoever arising out of or incident
to the occurrence of any of the perils covered by, or which would be covered by,
the insurance policies which the Tenant is obligated to obtain and maintain in
force under the terms of this Lease, except to the extent that any such loss or
damage is caused by the negligence of the Landlord or those persons for whom the
Landlord is, in law, responsible.
(e) The Tenant shall not do or permit anything to be done upon the
Land, the Building or the Premises whereby and policy of insurance against loss
or damage to the Land, the Building or the Premises or against legal liability
for damage to persons or property caused by the ownership, maintenance, use or
occupancy of the Land, the Building or the Premises, or by reason of the conduct
of any business carried on thereon, may be invalidated, and, for such purpose,
upon receipt of notice in writing from any insurer of the Land, the Building or
the Premises requiring the execution of works or a discontinuance of any
operations in order to correct such situation, the Tenant shall comply
therewith.
(f) The Tenant agrees that if the Tenant fails to take out or keep in
force any insurance coverage referred to in this paragraph 5.3, or if any such
insurance is not approved by the Landlord and the Landlord's Mortgagees, and the
Tenant does not rectify the situation within three (3) business days after
written notice by the Landlord to the Tenant setting forth the Landlord's
objections, then the Landlord shall have the right, without assuming any
obligation in connection therewith, to effect such insurance coverage and shall
have the right to recover all costs and premiums incurred in effecting such
insurance coverage from the Tenant pursuant to paragraph 9.5 hereof.
5.4 Repair
The Tenant shall, at all times during the Term and at its own
expense promptly repair, decorate, clean, renew and maintain the Premises in a
high quality state of repair including, without limiting the foregoing, the
interior walls and the floor of the Premises, and all other fixtures, machinery,
facilities, equipment and appurtenances comprising the Premises or any part
thereof, even though any such work may be that resulting from wear and tear.
The Tenant shall also heat the Premises in a reasonable manner so as to prevent
any damage thereto by reason of frost or moisture and not to limit the
generality of the foregoing, the Tenant shall be responsible for the repair and
replacement of all heating equipment in the Premises. Without limiting the
generality of the foregoing, the Tenant shall repaint all internal work of the
Premises which the Landlord may from time to time require to be repainted, such
repainting to be done by the Tenant during every fifth year of the Term and also
as directed by the Landlord during the: (i) the last year of the Term, or (ii)
the thirty (30) day period immediately following the termination or surrender of
this Lease. All repainting shall be in
13
<PAGE>
accordance with reasonable specifications approved by the Landlord and shall be
completed to the reasonable satisfaction of the Landlord.
5.5 Repair on Notice
The Tenant shall permit the Landlord and its duly authorized agents
or nominees, with or without workers and others, at all reasonable times to
enter upon the Premises for the purpose of examining the state of repair,
condition and use thereof, and to permit such entry after the Landlord shall
have given twenty-four(24) hours' notice in writing to the Tenant of such
intended entry and examination and in every case the Tenant shall afford the
Landlord all aid and facilities in such entry and examination and upon notice in
writing of defect or want of repair being given by the Landlord to the Tenant,
to cause the same to be repaired, as required by paragraph 5.4 and 5.28 hereof,
within thirty (30) days from the date of the giving of such notice by the
Landlord. If the Tenant shall at any time default in the performance or
observance of any of the covenants in this Lease for or relating to the repair,
maintenance, cleaning, renewal or decoration of the Premises or any part thereof
and such default shall continue for thirty (30) days after notice in writing
from the Landlord of default in respect of repair, maintenance, cleaning,
renewal or decoration of the Premises then the Tenant shall permit the Landlord
and its duly authorized agents and nominees, with or without workers and others,
and without prejudice to the Landlord's right of re-entry, to enter into and
upon the Premises and repair, decorate, clean, renew and maintain the same at
the expense of the Tenant and the Tenant shall afford the Landlord all aid and
facilities in doing or causing the same to be done, and shall repay to the
Landlord on demand all costs and expenses in respect of such repairs,
maintenance, cleaning, renewal and decoration as aforesaid.
5.6 Business and Trade Fixtures
The Tenant may install its usual business and trade fixtures in the
usual manner in the Premises, provided such installation does not damage the
Premises or the Building and provided further that, if requested by the
Landlord, the Tenant shall have submitted to the Landlord plans and
specifications for such business and trade fixtures and obtained the prior
written consent of the Landlord thereto, which consent shall not be unreasonably
withheld. All business and trade fixtures owned or installed by the Tenant in or
on the Premises shall remain the property of the Tenant and shall be removed by
the Tenant at the Tenant's sole cost and expense upon the expiration of the Term
or the sooner termination thereof, provided that the Tenant at its expense shall
repair any damage to the Premises, the Building and the Land caused by such
removal. Such removal by the Tenant shall be permitted provided that the Tenant
is not in default under any covenant or agreement contained herein at the time
of such removal, and if in default, the Landlord shall have a lien on the
Tenant's business and trade fixtures as security against loss or damage
resulting from any such default by the Tenant and the Tenant's business and
trade fixtures shall not be removed by the Tenant until such default is cured,
unless otherwise directed by the Landlord. The Landlord may elect to require the
Tenant to remove all or any part of the business and trade fixtures owned or
installed by or on behalf of the Tenant upon the expiration or termination of
the Term, in which event such removal shall be done at the Tenant's expense and
the Tenant shall, at its expense, repair any damage to the Premises, the
Building and the Land cause by such removal. If the Tenant does not remove its
business and trade fixtures forthwith after written demand by the Landlord, such
property shall, if the Landlord elects, be deemed to become the Landlord's
property or the Landlord may remove the same at the expense of the Tenant and
the cost of such removal shall be paid by the Tenant forthwith to the Landlord
on written demand, and the Landlord shall not be responsible for any loss or
damage to such property as a result of such removal.
5.7 Alterations and Additions
The Tenant shall not remove, alter or change the position or style
of, or add to, the Premises or any part thereof without in any and every such
case having first submitted plans and specifications thereof to the Landlord and
having obtained the prior written consent of the Landlord thereto, and unless
otherwise provided by such consent, all such alterations, additions or
erections shall be done either by or under the direction of the Landlord, as the
Landlord may determine, but at the cost of the Tenant. All work shall be done
promptly and in a good and workmanlike manner by contractors or tradespeople
approved in writing by the Landlord. The Tenant shall pay to and reimburse the
Landlord forthwith on demand for all costs and expenses incurred by the Landlord
in the review and approval of any plans and
<PAGE>
specifications by the Landlord's architects and engineers. The Tenant shall
obtain and pay for all required building and occupancy permits in respect of its
work as aforesaid. The Tenant shall, at its own cost and expense, take out or
cause to be taken out any additional insurance coverage reasonably required by
the Landlord to protect the respective interests of the Landlord and the Tenant
during all periods when any such work is being performed and shall comply with
all orders, rules and regulations of the Insurers' Advisory Organization of
Canada or any other body hereafter constituted exercising similar functions.
Any and all installations, alterations, additions, partitions, improvements or
fixtures other than the Tenant's business and trade fixtures in or upon the
Premises, whether placed there by the Tenant or the Landlord or a previous
occupant of the Premises, shall, immediately upon such placement, become and
shall thereafter remain the property of the Landlord without compensation
therefor to the Tenant. Notwithstanding anything herein contained, the Landlord
shall be under no obligation to repair, maintain, replace or insure such
installations, alterations, additions, partitions and fixtures or anything in
the nature of a leasehold improvement made or installed by or on behalf of the
Tenant. The Landlord may elect that any or all installations, alterations,
additions, partitions, improvements or fixtures made or installed by or on
behalf of the Tenant hereunder, or under the provisions of any previous
occupation by the Tenant, be removed at the expiry or earlier termination of the
Term and it shall be the Tenant's obligation to restore the Premises to the
condition in which they were prior to such alterations, installations,
additions, improvements, partitioning and fixtures. Such removal and
restoration shall be at the sole expense of the Tenant.
5.8 Use of Premises
The Tenant shall not use the Premises nor allow the Premises to be
used for any purpose other than that specified in the Lease Summary, nor in any
manner inconsistent with such use and occupation, and the Tenant shall not, at
any time during the Term, commit or suffer to be committed any waste upon the
Premises nor shall the Tenant use, exercise or carry on, or permit or suffer to
be used, exercised or carried on, in or upon the Premises or the Land, or any
part thereof, any noxious, noisome or offensive trade, business, occupation or
calling, or keep, sell, use, handle or dispose of any merchandise, goods or
things which are objectionable, or by which the Premises, the Land or the
Building or any part thereof may be damaged or injuriously affected, and no act,
matter or thing whatsoever shall, at any time during the Term, be done in or
upon the Premises or the Land, or any part thereof, which may result in
annoyance, nuisance, grievance, damage or disturbance to other tenants or
occupiers of the Building or to the occupiers or owners of any other lands or
premises or to the holders of any registered easement, right of way or other
encumbrance charging the whole or part of the Land or the Building. The Tenant
shall use its best endeavors to prevent anything being done on the Premises or
the Land which may result in any building or lands (other than the Premises)
being picketed or otherwise subjected to industrial action or demonstrations,
political or otherwise. In the event of such picketing, industrial action or
demonstrations the Tenant shall forthwith take all action and proceedings
reasonably necessary to cause such picketing, industrial action and
demonstrations to cease without delay. The Tenant shall not place in the
Premises any heavy machinery or equipment without first obtaining the consent in
writing of the Landlord. The Tenant shall immediately advise the Landlord of
the presence of and shall do all things necessary to remove any dangerous
condition from time to time existing on the Premises, the Building or the Land
and arising as a result of the act or omission of the Tenant or any person for
whom the Tenant is, at law, responsible.
5.9 Rubbish
The Tenant shall keep the Premises clean and tidy and in good
order and in particular shall not form or permit to be formed any refuse dump,
rubbish heap or scrap heap upon the Premises or the Common Areas and Facilities
and the Tenant shall remove, not less frequently than once a month, all refuse,
rubbish, scrap and other waste matter which may have accumulated on the Premises
or the Common Areas and Facilities.
5.10 Pollution
The Tenant shall not discharge nor permit the discharge of any oil
or grease or any deleterious, objectionable, dangerous, radioactive, poisonous
or explosive matter or substance into any waters, ditches, water courses,
culverts, drains or sewers nor in or under the Premises, the Building or the
Land, including without limitation any radioactivity or microwaves. The Tenant
shall take all reasonable measures for ensuring that any discharged effluent
shall
<PAGE>
not be corrosive, poisonous or otherwise harmful to or cause obstruction,
deposit or pollution within any waters, ditches, water courses, culverts, drains
or sewers, nor to or within any sewage disposal works nor to the bacteriological
process of sewage purification. The Tenant shall forthwith at the Landlord's
request provide facilities for testing and monitoring the effluent from the
Tenant's operations and shall permit the Landlord and its agents reasonable
access to the Premises for the purposes of carrying out such testing and
monitoring from time to time at the Landlord's expense. The Tenant shall
construct, maintain and operate every furnace and burner used on the Premises so
as to substantially consume or burn the smoke arising therefrom and shall not
use or suffer any such furnace or burner to be used negligently so that the
smoke arising therefrom is not substantially consumed or burned. The Tenant
shall not cause or permit any grit, dust, noxious or offensive effluvia to be
emitted from any engine, furnace, burner or apparatus on the Premises without
using the best practicable means reasonably available for preventing or
counteracting such emissions.
5.11 Abate Nuisance
Upon written notice to the Tenant from the Landlord or from any
lawful authority having jurisdiction requiring the abatement of any nuisance
caused by vibration, noise or offensive smell or by any undue emission of smoke,
vapour or dust caused by the Tenant or arising directly or indirectly out of the
operations carried on upon the Premises the Tenant shall forthwith abate such
nuisance accordingly.
5.12 Obstruction of Roads
The Tenant shall not permit any vehicles owned or operated by or
under the control of the Tenant to cause an obstruction on any parking areas or
roadways on the Lands and the Tenant shall use its best endeavors to ensure that
all persons doing business with the Tenant and their servants and workers shall
not permit any vehicles to cause such obstruction as aforesaid. The Tenant
shall also use its best endeavors to ensure that vehicles owned or operated by
or under the control of the Tenant, its employees or persons doing business with
the Tenant shall observe all regulations and instructions made or given by the
Landlord with regard to the parking of vehicles on areas provided for the
parking of vehicles on the Lands.
5.13 No Auctions
The Tenant shall not permit any sale by auction nor any fire
sale, bankruptcy sale, moving sale, going-out-of-business sale or bulk sale to
be held upon the Premises or the Land or any part thereof.
5.14 Terminate Agreements
Except where required to do so by the terms of this Lease, the
Tenant shall not enter into, amend or terminate any agreement with any public
utility corporation relating to or in any manner whatsoever affecting the
Premises or the Land unless the Landlord grants his consent, which consent shall
not be unreasonably withheld.
5.15 Assignment and Subletting
(a) The Tenant shall not make, grant, execute, enter into, consent
to or permit any Transfer without the prior written consent of the Landlord,
such consent may be reasonably withheld. In the event that the Tenant desires to
make, grant, execute, enter into, consent to or permit any Transfer then the
Tenant shall give prior written notice to the Landlord of such desire,
specifying therein the proposed Transferee and providing to the Landlord such
information on the nature of the business of the proposed Transferee together
with its financial responsibility and standing as the Landlord may reasonably
require, together with the terms and conditions of the proposed Transfer. the
Tenant shall also deliver to the Landlord a copy of the Transfer intended to be
executed by the Tenant and the Transferee, together with the Landlord's
administration fee required hereunder. The Landlord shall, within thirty (30)
days thereafter, notify the Tenant in writing that it consents to such Transfer
or that it does not consent to such Transfer, in which event the Landlord must
advise the Tenant of its reason for not consenting.
16
<PAGE>
(b) Provided always and notwithstanding subparagraph 5.15(a) hereof no
Transfer shall:
(i) in any manner release the Tenant from its obligations for the
payment of the Rent and the observance and performance of the covenants, terms
and conditions herein provided; nor
(ii) be made to any person carrying on any business which the Landlord
is obliged to restrict by reason of any other lease or contract relating to any
other premises in the building.
(c) Upon the initial request for a Transfer by the Tenant together with
receipt from the Tenant of the administration fee and undertaking required in
subparagraph 5.15(d) hereof, and provided that the Landlord does not withhold
its consent to such Transfer, the Landlord shall provide to the Tenant its
standard form written agreement as aforesaid. The Tenant shall require each
Transferee, at the time of any Transfer, to execute and deliver the Landlord's
standard form written agreement between the Tenant, the Landlord and the
Transferee wherein the Transferee agrees to observe and perform all of the
covenants, agreements, provisos, terms and conditions of this Lease and wherein
the Tenant acknowledges and agrees that it shall continue to be liable under
this Lease. If either the Tenant or the Transferee fails to execute and deliver
the said standard form written agreement then the Landlord shall have the right
to refuse to grant its consent to such Transfer, or where such consent is not
required the Transfer shall not be effective until the said standard form
written agreement is executed and delivered by the Tenant and the Transferee.
Without in any way restricting the generality of the Landlord's right to refuse
consent to any Transfer, the Landlord shall have the right to refuse to consent
to any Transfer if the Lease is not in good standing.
(d) The Tenant shall, together with its initial request to the Landlord
for consent to any Transfer, pay to the Landlord an administration fee of Three
Hundred Dollars ($300.00) or such other greater fee as the Landlord may
reasonably charge from time to time, and the Tenant shall also undertake to
reimburse to the Landlord any solicitors' fees and any other costs, charges and
expenses which may be incurred by the Landlord in connection with the Tenant's
request for consent to any Transfer.
(e) If the Tenant is a corporation or a partnership, or if the
Transferee is a corporation or a partnership, and at any time during the Term
any or all of the corporate shares or voting rights of shareholders or partners,
as the case may be, of the Tenant or the Transferee shall be transferred by
sale, assignment, bequest, inheritance, trust, operation of law or other
disposition, or treasury shares be issued, so as to result in a change in the
control of the Tenant or the Transferee by reason of ownership of greater than
fifty (50%) percent of the voting shares of the Tenant or the Transferee having
changed from one person or group of persons to another person or group of
persons, without the prior written consent of the Landlord, which consent shall
not be unreasonably withheld, then and so often as such a change of control
shall occur the Landlord shall have the right to terminate this Lease at any
time after such change of control by giving the Tenant sixty (60) days' prior
written notice of such termination. The Tenant shall, upon request by the
Landlord, make available to the Landlord from time to time for inspection and
copying all books and records of the Tenant which, alone or with other data,
show the applicability or otherwise of this subparagraph 5.15(e). This
subparagraph shall not be applicable to any transfer of shares which are listed
on a security exchange regulated by governmental authority.
5.16 Easements
The Tenant shall not, without the prior written consent of the
Landlord, permit any encroachment, right of way, easement or other encumbrance
to be made or acquired into, against or upon the Premises or the Land or any
part thereof.
5.17 Liens
The Tenant shall permit the Landlord to post, and the Tenant shall
keep posted in at least two (2) conspicuous places on the Premises and the
Lands, any notices which the Landlord may desire to post under the provisions of
the Builders' Lien Act of British Columbia and any statute which may amend or
------------------
replace such statute. The Tenant shall use its best endeavors to ensure that no
claim of lien shall be filed in respect of any work which may be carried out by
it
<PAGE>
or on its behalf in the Building or on the Land and, if a claim of lien shall be
filed in respect of any such work, the Tenant shall take all necessary steps to
have the claim of lien cancelled and discharged from the Land and the Building
within fifteen (15) days of the date the Tenant has knowledge of such filing and
the Tenant shall indemnify and save harmless the Landlord from any and all loss,
cost, expense, damage and liability in respect of such claim of lien. The
Landlord, in addition to any right or remedy, shall have the right, but shall
not be obliged, to discharge any claim of lien from the Land and the Building by
paying the amount claimed to be due or by procuring a discharge of such liens
by deposit in the appropriate court and in any such event the Landlord shall be
entitled, if it so elects, to expedite the prosecution of any action for the
enforcement of such claim of lien by the lien claimant and to pay the amount of
the judgment, if any, in favour of the lien claimant with interest and costs. In
any such event the Tenant shall forthwith pay to and reimburse the Landlord for
all money expended by the Landlord and all costs and expenses incurred by the
Landlord.
5.18 Registered Charges
The Tenant shall pay all money owed by it under any conditional sale
agreement or other charge registered or filed against the Land or the Building,
and immediately upon all of the payments having been made thereunder, the Tenant
shall obtain a memorandum of satisfaction or other appropriate document of
discharge and shall register the same at its own expense in the proper land
title office or other appropriate office of public record as the Landlord may
require to discharge the same from the title to the Land and the Building.
5.19 Entry for Benefit of Adjoining Premises
The Tenant shall permit the Landlord, its agents, workers and other
persons authorized by the Landlord and the tenants of any adjoining or
neighbouring premises and their respective agents and workers, to enter upon the
Premises at all reasonable times so far as may be necessary or useful in order
to construct, examine, repair or rebuild any adjoining or neighbouring premises
or for any other reasonable purpose, provided that the Landlord shall make good
all damage occasioned by the exercise of such rights by the Landlord, its
agents, workers and any other persons authorized by the Landlord. Insofar as any
tenant of any adjoining or neighbouring premises and its respective agents and
workers are concerned, no such rights shall be exercisable until such tenant and
its agents and workers shall have covenanted with the Tenant to make good all
damage occasioned by the exercise of such rights by that tenant and its
respective agents and workers. A representative of the Tenant shall be entitled
to accompany any person entering upon the Premises pursuant to this paragraph
5.19.
5.20 Exhibit Premises
The Landlord shall have the right to exhibit the Premises to:
(a) prospective tenants or subtenants during the six (6) month period
prior to the Expiry Date;
(b) the Landlord's Mortgagees and prospective mortgagees and any
prospective purchaser of the whole or any part of the Landlord's interest in the
Premises;
and for such purposes the Landlord shall have the right to post such "For Rent"
or "For Sale" sign as in its discretion it may decide on the Premises and the
Lands and further shall have the right of entry to the Premises at any
reasonable time and the Tenant at its option may have a servant or agent present
at the time of such entry.
5.21 Registration of Lease
The Landlord shall have no obligation to execute and deliver this
Lease in registrable form. The Tenant shall not apply to register this Lease.
18
<PAGE>
5.22 Compliance with Laws
The Tenant shall do, observe and perform all of its obligations
and all matters and things necessary of expedient to be done, observed or
performed by the Tenant by virtue of any law, statute, by-law, ordinance,
regulation or lawful requirements of any governmental authority or any public
utility lawfully acting under statutory authority and all demands and notices in
pursuance thereof whether given to the Tenant or the Landlord and in any manner
or degree affecting the exercise or fulfillment of any right or obligation
arising under or as a result of this Lease and affecting the Premises and the
use thereof by the Tenant. If any such demand or notice is given lawfully
requiring the execution of works by reason of anything done, omitted or
permitted by the Tenant, then:
(a) if such notice is given to the Tenant, the Tenant shall forthwith
deliver the same or a true copy thereof to the Landlord and the Tenant shall
forthwith, at its own expense, execute to the satisfaction of the Landlord and
the person giving such notice all such works as the Landlord may approve in
writing in order to comply with the requirements of the said notice; or
(b) if such notice is given to the Landlord, the Landlord shall notify
the Tenant and thereupon the Tenant shall, at its own expense, forthwith execute
to the satisfaction of the Landlord and the person giving such notice all such
works as the Landlord and the person giving such notice may require in order to
comply with the requirements of the said notice.
Notwithstanding the foregoing, the Landlord shall have the right to execute
any such works and the Tenant shall afford to the Landlord all necessary access
to the Premises and other facilities for that purpose and the Tenant shall, on
demand by the Landlord, pay to the Landlord all costs and expenses incurred by
the Landlord in executing and performing any and all such works.
5.23 Provide Financial Information
Whenever any of the Landlord's Mortgagees, in connection with any
financing of the Land or the Building or any part thereof, shall require
information relating to the financial position of the Tenant, then the Tenant,
within thirty (30) days after receipt by it of a notice in writing from the
Landlord requesting such information, shall furnish directly to such Landlord's
Mortgagee copies of the unaudited financial statements of the Tenant, including
balance sheet and statements of profit and loss and surplus or deficit, in
respect of each of the three (3) years immediately preceding the year in which
such notice is given. All such information shall be used by such Landlord's
Mortgagees in connection with such financing only and shall be supplied to such
Landlord's Mortgagees on the condition that the information be treated on a
confidential basis.
5.24 Subordination
This Lease is and shall be subject, subordinate and postponed to
all Mortgages to the intent that, without execution of any document other than
this Lease, the Mortgages shall have priority over this Lease notwithstanding
the respective dates of execution, delivery or registration thereof. Without
limiting the generality of the foregoing, the Tenant agrees to promptly execute
any document in confirmation of such subordination, postponement and priority
which the Landlord may request. Provided however, the subordination and
postponement of this Lease to any of the Mortgages shall not be effective with
respect to a specific Mortgage unless and until the Landlord's Mortgagee holding
such Mortgage shall confirm in writing to the Tenant that the Tenant shall have
the right, if not in default under this Lease, to remain in possession of the
Premises in accordance with the terms of this Lease in the event such
Landlord's Mortgagee obtains title to the Premises by way of foreclosure or
otherwise.
5.25 Attornment
Whenever required by any of the Landlord's Mortgagees under any of
the Mortgages, or in the event of an exercise by any of the Landlord's
Mortgagees of the power of sale in any of the Mortgages, the Tenant shall attorn
<PAGE>
to and become, in each case, a tenant of such Landlord's Mortgagee or any
purchaser from such Landlord's Mortgagee for the then unexpired residue of the
Term upon all of the terms and conditions hereof.
5.26 Estoppel Certificate
The Tenant shall at any time and from time to time upon ten (10)
days' prior notice from the Landlord execute and deliver to the Landlord, or the
Landlord's Mortgagees, or a prospective purchaser of the whole or any portion of
the Landlord's interest in the Land or the Building, a statement in writing
confirming the terms of this Lease, certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the modifications and that
the same is in full force and effect as modified), certifying the amount of the
Rent then being paid hereunder, the dates to which the Rent and other charges
hereunder have been paid, that the Landlord has complied with all the terms of
this Lease, that the Premises are acceptable to the Tenant, that the Tenant
shall not amend, modify or surrender this Lease or make any prepayment of the
Rent other than the Rent for the current month without the prior written consent
of the Landlord's Mortgagees or prospective purchaser, that there are not
outstanding set-offs or equities disclosed or undisclosed as between the
Landlord and the Tenant, that no money other than a maximum of one month's Rent
in accordance with the provisions of the Lease has been prepaid by the Tenant to
the Landlord, that the Tenant is aware of the assignment by the Landlord to the
Landlord's Mortgagees of all Rents under this Lease, and any other matters
pertaining to this Lease in respect of which the Landlord may desire
certification.
5.27 Indemnify Landlord
The Tenant shall indemnify and save harmless the Landlord from and
against any and all manner of actions or causes of action, damages, costs, loss
or expenses of whatever kind which the Landlord may sustain, incur or be put to
by reason of or arising out of any act or omission of the Tenant or any persons
for whom the Tenant is, at law, responsible, from the use or occupation of the
Land, the Building and the Premises in whole or in part and, without limiting
the generality of the foregoing, from the non-observance or non-performance by
the Tenant, or any persons for whom the Tenant is, at law, responsible, of any
of the obligations imposed under the provisions of any laws, ordinances,
regulations or requirements of any federal, provincial, municipal or other
authority, or any of the covenants, agreements, terms, conditions and provisos
contained in this Lease to be observed and performed by the Tenant and such
liability to indemnify and save harmless shall survive any termination of this
Lease, anything in this Lease to the contrary notwithstanding.
5.28 Peaceable Surrender
At the end or sooner termination of the Term the Tenant shall yield
up to the Landlord, without notice from the Landlord, the Premises including all
fixtures, repaired, decorated, paved, cleaned, renewed and maintained in the
condition required under paragraph 5.4 and as otherwise provided under this
Lease. At the end or sooner termination of the Term the Tenant shall, without
notice from the Landlord remove from the Premises all buildings, machinery,
erections, materials and things thereon not belonging to the Landlord and
restore the Premises to the satisfaction of the Landlord. If the Tenant shall
not so remove such buildings, machinery, erections, materials and things, the
same shall without prejudice to the Landlord's right to enforce such removal as
hereinbefore provided, become the sole property of the Landlord without any
right of the Tenant to have compensation therefor.
ARTICLE 6 - LANDLORD'S COVENANTS
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The Landlord covenants with the Tenant as follows:
6.1 Quiet Enjoyment
For quiet enjoyment, subject to the charges, exceptions and
reservations and to any rights of entry by the Landlord as provided in this
Lease.
<PAGE>
6.2 Landlord's Repairs
To keep in a good and substantial state of repair as would a prudent
owner of a reasonably similar commercial development, having regard to size, age
and location, at the Landlord's cost and expense, the structure of the Building
including, without limitation, the foundations, exterior wall assemblies,
including weather walls, sub-floor, roof (only insofar as replacement of more
than 75% of the total area of the roof is necessary), bearing walls, and
structural columns and beams of the Building. The Landlord's covenant herein
will not extend to any repairs which may become necessary as a result of any act
or omission on the part of the Tenant and those for whom the Tenant is in law
responsible.
6.3 Landlord's Insurance
(a) The Landlord shall, during the Term and any renewal thereof, take out
and maintain in full force and effect insurance against all risks of physical
loss or damage to the Building, and such fixtures and improvements as the
Landlord shall determine, including the perils of flood and earthquake and
including business interruption or loss of rental income insurance, in amounts
equal to the full insurable value thereof, calculated on a replacement cost
basis, and subject to such deductibles as the Landlord may reasonably determine.
Provided however, the full insurable value shall not include, and the insurance
shall not cover, any property of the Tenant, whether owned by the Tenant or held
by it in any capacity, nor leasehold improvements whether made by or on behalf
of the Tenant. The Landlord shall, upon thirty (30) days' written notice from
the Tenant, advise the Tenant of the amount of the deductible referred to in
this subparagraph 6.3 (a).
(b) The Landlord shall, upon written request by the Tenant, provide the
Tenant with evidence from time to time that such insurance has been effected.
(c) The Landlord may, but shall not be obligated to, take out and carry any
other form or forms of insurance as the Landlord or the Landlord's Mortgagees
may consider advisable or beneficial, including, without limiting the foregoing
comprehensive liability insurance and boiler and machinery insurance.
(d) Notwithstanding any contribution by the Tenant to any Insurance Costs as
provided for herein, no insurable interest shall be conferred upon the Tenant
under policies carried by the Landlord.
(e) The Landlord hereby agrees to release and relieve the Tenant and those
persons for whom the Tenant is in law responsible, from liability and
responsibility for, and waives its claim for recovery of any loss or damage
arising out of or incident to the occurrence of any of the perils covered by the
insurance policies which the Landlord is obligated to obtain and maintain in
force under subparagraph 6.3(a), except to the extent that any such loss or
damage is caused by the negligence of the Tenant or by those persons for whom
the Tenant is, in law, responsible, provided however that this release and
waiver shall be limited to the respective amounts which the Landlord is entitled
to recover under such insurance policies.
6.4 Disposition by Landlord
If at any time during the Term and Renewal Term hereof the Building or
the Landlord's interest therein or in this Lease shall be assigned, mortgaged or
sold to any third party the Landlord shall, within FOURTEEN (14) days following
the execution and delivery by the Landlord of any assignment or documents of
mortgage or sale, deliver to the Tenant a notice in writing of the making of
such assignment, mortgage or sale and the effective date thereof and shall
obtain an agreement from the assignee, mortgagee or purchaser, as the case may
be acknowledging and confirming the Rent, and Term and the other covenants,
obligations and conditions of this Lease.
ARTICLE 7 - ASSIGNMENT BY LANDLORD
- ----------------------------------
If the Landlord sells or otherwise transfers an interest in the Building
and Lands or in this Lease, to the extent that the purchaser or assignee thereof
is responsible for compliance with the covenants and obligations of the
21
<PAGE>
Landlord hereunder, the Landlord without further written agreement will be
relieved of liability under its covenants and obligations.
ARTICLE 8 - COMMON AREAS AND FACILITIES
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(a) The use and occupation of the Premises by the Tenant shall include the
non-exclusive licence to use, in common with others entitled thereto, the Common
Areas and Facilities, subject to the provisions of this Lease and to the
exclusive control, management and direction of the Landlord. The Landlord hereby
grants to the Tenant a nonexclusive licence, during the Term, in common with all
others entitled thereto, to pass and repass with or without vehicles over those
areas of the Land as the Landlord may from time to time designate in writing and
to use, for the parking of motor vehicles, those parking spaces on the Land as
the Landlord may from time to time designate in writing for the use of the
Tenant. Notwithstanding the foregoing grant of licence by the Landlord to the
Tenant, the Landlord shall have the right to alter the location and size of the
areas which are the subject of the said licence, provided that reasonable access
to the Premises is provided to the Tenant.
(b) The Common Areas and Facilities will at all times be subject to the
exclusive control and management of the Landlord and will be provided or
designated by the Landlord from time to time for the general use by or for the
benefit of the Tenant and its employees, invitees and licensees in common with
the other tenants of the Landlord and such others as may be designated by the
Landlord. The Landlord has the right acting reasonably from time to time to
establish, modify and enforce rules and regulations with respect to the Common
Areas and Facilities including those related to their use, maintenance and
operation and the rules and regulations in all respects will be observed and
performed by the Tenant and the employees, invitees and licensees of the Tenant.
The Landlord has the right to change the area, level, location and arrangement
of the Common Areas and Facilities and to enter into, modify and terminate
easements and agreements pertaining to the use and maintenance thereof, and to
police the Common Areas and Facilities and to close all or any portion thereof
to such extent as may in the reasonable opinion of the Landlord be legally
sufficient to prevent a dedication thereof or the accrual or creation of rights
to any person or the public therein, and to do and perform such other acts and
things in and to the Common Areas and Facilities as the Landlord, acting
reasonably, considers advisable.
(c) The Tenant covenants that it will and will cause its employees,
licensees and invitees to observe all regulations made by the Landlord from time
to time with respect to parking on those portions of the Land provided for that
purpose and that the Tenant shall supply automobile licence numbers of its
employees to the Landlord upon request. In particular, the Landlord reserves the
right to remove any automobile infringing regulations made by the Landlord with
respect to parking from time to time, such removal to be at the risk and expense
of the Tenant.
(d) Notwithstanding anything contained herein to the contrary, in the event
that the landlord elects to construct new buildings or builds additional storage
on the Lands then the Landlord shall not unreasonably interfere with the
Tenant's use and enjoyment of the Premises. It is understood and agreed that
notwithstanding anything herein to the contrary, the Landlord shall have the
right at all times and from time to time, throughout the Term to:
(i) change the area, size or arrangement of the Building and the
Land and any part thereof including the Common Areas and Facilities:
(ii) construct other buildings, structures or improvements on the
Land and make alterations thereof, additions thereto, or re-arrangements
thereof, demolish parts thereof, build additional storeys on the Building (and
for such purposes to construct and erect columns and support facilities in the
Building), and construct additional buildings or facilities adjoining or
proximate to the Building.
(iii) relocate or rearrange or make changes or additions to the Common
Areas and Facilities from those existing at the Commencement Date in order to
facilitate expansion or alteration of the Building:
(iv) add additional lands to the Land: and
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(v) temporarily obstruct or close off the Common Areas and Facilities or
any parts therefor for the purposes of maintenance, repair or construction:
provided however that the Landlord shall not unreasonably interfere with the use
and enjoyment of the Premises beyond the extent necessarily incidental to such
changes, additions and installations, and shall make good any physical damage to
the Premises arising in the course of such changes, additions and installations.
The Landlord agrees to use its reasonable efforts to complete all construction,
alterations, maintenance and repairs as expeditiously as possible under the
circumstances. Notwithstanding anything herein contained to the contrary, the
Landlord shall make reasonable efforts not to unduly disrupt the Tenant in its
business operations including providing to the Tenant reasonable notice of the
proposed Landlord work.
(e) The Tenant shall not have any right to object to nor any right to any
claim of damages, compensation or other sums whatsoever, nor any right of set-
off or reduction of the Rent as a result of or on account of any exercise of the
Landlord's rights under Article 8 of this Lease. It is further understood and
agreed that the exercise by the Landlord of its rights set forth in Article 8 of
this Lease shall not be deemed to be constructive or actual eviction of the
tenant, nor a breach of any covenant of quiet enjoyment or other covenant
contained in this Lease.
ARTICLE 9 - MUTUAL COVENANTS, AGREEMENTS AND PROVISOS
- -----------------------------------------------------
AND IT IS HEREBY AGREED BY THE LANDLORD AND THE TENANT AS FOLLOWS:
9.1 No Warranties
The Tenant and the Landlord acknowledge and agree that no representations,
warranties, agreements or conditions have been made other than those expressed
herein, and that no agreement collateral hereto shall he binding upon the
Landlord or the Tenant unless it be made in writing and duly executed on behalf
of the Landlord or the Tenant.
9.2 No Waiver
(a) The failure of the Landlord to exercise any right or option in
connection with any breach or violation of any term, covenant or condition
herein contained shall not be deemed to be a waiver or relinquishment of such
term, covenant, or condition nor of any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent acceptance of
the Rent or any portion hereunder by the Landlord shall not be deemed to be a
waiver of a preceding breach by the Tenant of any term, covenant or condition of
this Lease.
(b) The acceptance of any of the Rent from, or the performance of any
obligation hereunder by, a person other than the Tenant shall not be construed
as an admission by the Landlord of any right, title or interest of such person
as a Transferee or otherwise in the place and stead of the Tenant.
(c) The acceptance by the Landlord of a part payment of any money required
to be paid hereunder shall not constitute a waiver or release of the right of
the Landlord to payment in full of such money.
9.3 Notices
All notices, demands and requests which may or are required to be given
pursuant to this Lease shall be in writing and shall be sufficiently given if
delivered personally to the party or an officer of the party for whom it is
intended, or mailed prepaid and registered to the respective addresses specified
in the Lease Summary, or such other addresses as the parties may from time to
time advise by notice in writing. The Tenant shall require each Transferee to
supply its respective mailing address to the Landlord. The date of receipt of
any such notice, demand or requests shall be deemed to be the date of delivery
of such notice, demand or request if delivered, or if mailed as aforesaid it
shall be deemed to be on the third day next following the date of such mailing
(excluding Saturdays, Sundays and statutory holidays in British Columbia),
unless there is between the date of mailing and actual receipt a mail strike or
other labour
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dispute which adversely affects mail service in British Columbia, in which case
the party giving the notice, demand or request shall deliver such notice, demand
or request by an alternative method, and the time of giving such notice, demand
or request shall be the time of actual receipt of such notice, demand or
request.
9.4 Damage and Destruction
(a) If the Premises are damaged by fire or other casualty which renders all
of the Premises or a substantial area of the Premises unusable by the Tenant and
materially adversely affects the business carried on by the Tenant on the
Premises, then the Annual Basic Rent shall abate in the same proportion as such
unusable area of the Premises bears to the total Areas of the Premises, and such
abatement shall continue until such unusable area of the Premises is capable of
use by the Tenant.
(b) Except as provided in subparagraph 9.4(c) hereof, if the Premises are
damaged by fire or other casualty insured against by the Landlord hereunder then
the damage to the Premises shall be repaired by the Landlord at its expense,
provided that the Tenant shall, at the expense of the Tenant, repair all
installations, alterations, additions, partitions, improvements and fixtures
made by or on behalf of the Tenant or, at the option of the Landlord, such
repairs shall be performed by the Landlord at the expense of the Tenant if the
Landlord considers that this would be more efficient and cost-effective. All
repairs which the Landlord is required to make hereunder shall be made with due
diligence, provided that the Landlord shall not be liable to the Tenant for any
loss or damage suffered by the Tenant as a result of any delay which may arise
by reason of adjustment of insurance on the part of the Landlord or on account
of strikes, lockouts or other industrial disturbances, explosion, breakage or
accident to machinery, inability to obtain labour, materials or equipment,
inability to obtain approvals from any municipality, government authority or
public or private regulated utility, government restriction or judicial action,
act of God, or any other matter beyond the reasonable control of the Landlord.
(c) If, in the Landlord's opinion, acting reasonably, the Building in which
the Premises are located is damaged by fire or other casualty to the extent that
it cannot reasonably be repaired or rebuilt within one hundred fifty (150) days
after the occurrence of such damage and if the Landlord shall consequently
decide not to restore the same then the Landlord shall, within ninety (90) days
after the happening of such fire or other casualty, give to the Tenant a notice
in writing of such decision and thereupon the Term of this Lease shall expire
forthwith and the Tenant shall vacate the Premises and surrender the Premises to
the Landlord and all rights of the Tenant hereunder shall cease and determine.
If the Building in which the Premises are located is damaged as aforesaid and
the Landlord does not give notice as aforesaid, then the Landlord shall
diligently proceed to repair or rebuild the Building in accordance with
paragraph 9.4(b). If such repair or rebuilding is not completed and available
for occupation by the Tenant within two hundred eighty (280) days from the time
of the fire or other casualty causing the damage (subject to such time period
being extended by the length of any reasonable delay which may arise by reason
of adjustment of insurance on the part of the Landlord or on account of strikes,
lockouts or other industrial disturbances, explosion, breakage or accident to
machinery, inability to obtain labour, materials or equipment, inability to
obtain approvals from any municipality, government authority or public or
private regulated utility, government restriction or judicial action, act of
God, or any other matter beyond the reasonable control of the Landlord), the
Tenant may at its option, to be exercised within ten (10) days of the
termination of the said period of two hundred eighty (280) days (or The
termination of such later period as extended hereby) by notice in writing,
terminate this Lease and all of the rights of the Tenant hereunder, and the
Tenant shall then have no further liability for Rent in respect of any period
after the date of termination.
9.5 Payments by Landlord Regarded as Rent
If the Tenant shall fail to observe or perform any of the covenants or
obligations of the Tenant under or in respect of this Lease the Landlord may
from time to time at its discretion perform or cause to be performed any of such
covenants or obligations or any part thereof and for such purpose may do such
things as may be requisite and may, after giving five (5) days notice to the
Tenant, enter upon the Premises to do such things and all costs and expenses
incurred and expenditures made by or on behalf of the Landlord shall be
forthwith paid by the Tenant to the Landlord and if the Tenant fails to pay the
same the Landlord may add the same to the Rent and recover the same by all
remedies
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available to the Landlord for the recovery of Rent in arrears, provided that if
the Landlord commences or completes either the performance or the causing to be
performed of any of such covenants or obligations or any part thereof, the
Landlord shall not he obliged to complete such performance or causing to be
performed or be later obliged to act in like fashion. If the Landlord shall
suffer or incur any damage, loss, cost or expense whatsoever for which the
Tenant is in anyway liable hereunder, by reason of any failure of the Tenant to
observe or comply with any of the covenants or agreements of the Tenant herein
contained, then in every such case the amount of any such damage, loss, cost or
expense shall be due and payable by the Tenant to the Landlord on demand by the
Landlord and the Landlord shall have the right at its option to add the cost or
amount of any such damage, loss, cost or expense to the Rent hereby reserved and
any such amount shall thereupon immediately be due and payable as Rent and
recoverable by the Landlord by all remedies available to the Landlord for the
recovery of Rent in arrears.
9.6 Re-entry on Default
The Tenant further covenants with the Landlord that in the event of the
breach, non-observance or nonperformance of any covenant, agreement,
stipulation, proviso, condition, rule or regulation herein contained on the part
of the Tenant to be kept, performed or observed hereunder and any such breach,
non-observance or non-performance shall continue for five (5) days after written
notice thereof to the Tenant by the Landlord, or notwithstanding the foregoing,
if any payments of the Rent or any part thereof, whether the same are demanded
or not, are not paid when they become due, or in case the Term shall be taken in
execution or attachment for any cause whatsoever, or if the Premises remain
vacant for more than five (5) days, then and in any such case the Landlord, in
addition to any other remedy now or hereafter provided, may re-enter and take
possession immediately of the Premises or any part thereof in the name of the
whole by reasonable force if necessary without any previous notice of intention
to reenter and may remove all persons and property therefrom and may use such
reasonable force and assistance in making such removal as the Landlord may deem
advisable to recover at once full and exclusive possession of the Premises and
such re-entry shall not operate as a waiver or satisfaction in whole or in part
of any right, claim or demand arising out of or connected with any breach,
nonobservance or non-performance of any covenant or agreement on the part of the
Tenant to be kept, observed or performed.
9.7 Seizure
If the Term or any of the goods and chattels of the Tenant shall at any
time during the Term be seized or taken in attachment by any creditor of the
Tenant or if a writ of execution, sequestration or extent shall issue against
the goods and chattels of the Tenant, or if any petition or other application is
granted by any court of competent jurisdiction for the dissolution, liquidation
or winding up of the Tenant or for the appointment of a receiver or receiver and
manager, or if the Tenant shall become bankrupt or insolvent or take the benefit
of any statute now or hereafter in force for bankrupt or insolvent debtors, or
if the Premises shall be used for any purpose other than permitted by paragraph
5.8 hereof without the prior written consent of the Landlord, or if The Tenant
shall make an assignment for the benefit of creditors or shall make any sale or
other disposition of all or substantially all of its goods and chattels (except
incidental to any reorganization of the Tenant, if any, or incidental to its
amalgamation with any other company), then and in every case the Tenant shall be
and be deemed to be in default under this Lease: the then current and the next
ensuing three (3) months' Annual Basic Rent and Additional Rent (to be
determined for the current year at rates estimated by the Landlord acting
reasonably) and any additional money owing hereunder shall immediately become
due and payable; the Landlord may re-enter and take possession of the Premises
or any part thereof in the name of the whole, and have again, repossess and
enjoy the Premises in its former estate, anything herein to the contrary
notwithstanding, as though the Tenant were holding over after the expiration of
the Term: and the Term shall, at the option of the Landlord, forthwith become
forfeited and determined and the then current and the next ensuing three (3)
months' Annual Basic Rent, the Additional Rent (to be determined for the current
year at rates estimated by the Landlord acting reasonably) and any additional
money owing hereunder shall be recoverable by the Landlord as if it were Rent in
arrears, but the Tenant shall remain liable under this Lease.
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9.8 Sale and Reletting
The Tenant further covenants and agrees that upon the Landlord becoming
entitled to re-enter upon the Premises under any of the provisions of this Lease
the Landlord, in addition to all other rights and remedies, shall have the right
to enter the Premises as the agent of the Tenant either by reasonable force or
otherwise, without being liable for any prosecution therefor and to relet the
Premises as the agent of the Tenant, and to receive all rent therefor, and as
agent of the Tenant to take possession of any business and trade fixtures of the
Tenant and any goods and property whatsoever on the Premises and to sell the
same at public or private sale without notice and to apply the proceeds of such
sale and any rent derived from reletting the Premises in payment of the Rent due
under this Lease, after deducting its costs of conducting such sale and its
costs of reletting, and the Tenant shall be liable to the Landlord for any
deficiency.
9.9 Termination
The Tenant further covenants and agrees that upon the Landlord becoming
entitled to re-enter upon the Premises under any of the provisions of this Lease
the Landlord, in addition to all other rights and remedies, shall have the right
to forthwith terminate this Lease and the Term and all of the rights of the
Tenant hereunder by giving notice in writing addressed to the Tenant of its
intention so to do, and any other payments for which the Tenant is liable under
this Lease shall be paid and the Tenant shall forthwith deliver up possession of
the Premises to the Landlord and the Landlord may re-enter and take possession
of the Premises.
9.10 Distress
Whensoever the Landlord shall be entitled to levy distress against the
goods and chattels of the Tenant it may use such reasonable force as it may deem
necessary for the purpose and for gaining admission to the Premises without
being liable for any action in respect thereof or for any loss or damage
occasioned thereby and the Tenant hereby expressly releases the Landlord from
all actions, proceedings, claims or demands whatsoever for or on account of or
in respect of any such forcible entry or any loss or damage sustained by the
Tenant in connection therewith. The Tenant waives and renounces the benefit of
any present or future statute taking away or limiting the Landlord's right of
distress, and covenants and agrees that notwithstanding any such statute none of
the goods and chattels of the Tenant on the Premises at any time during the Term
shall be exempt from levy by distress for Rent in arrears. The Tenant covenants
and agrees to indemnify and save harmless the Landlord from and against any and
all manner of actions or causes of action, damages, costs, loss or expenses of
whatever kind which the Landlord may sustain, incur or be put to be put to by
reason of or arising out of the distress, seizure or the levy of distress
against any goods or chattels on or in the Premises whether owned by the Tenant
or any other person, and such liability to indemnify and save harmless shall
survive any termination of this Lease and the expiry of the Term, anything in
this Lease to the contrary notwithstanding.
9.11 Landlord's Expenses Enforcing Lease
If it shall be necessary for the Landlord to retain the services of any
person for the purpose of assisting the Landlord in enforcing any of its rights
hereunder or otherwise available at law, the Landlord shall be entitled to
collect from the Tenant the reasonable cost of all such services including, but
not limited to, all legal fees and disbursements incurred in enforcing the
Landlord's rights hereunder and in connection with all necessary court
proceedings at trial or on appeal on a solicitor and own client basis, as if the
same were Rent reserved and in arrears hereunder. Notwithstanding anything
contained herein to the contrary, in the event the Tenant obtains an order from
a court of competent jurisdiction determining that the landlord wrongfully
enforced the terms of the Lease, there shall be no obligation on the Tenant to
pay the legal costs incurred by the Landlord to enforce the terms of the lease
in such event.
9.12 Remedies Cumulative
No remedy conferred upon or reserved to the Landlord under this Lease, by
statute or otherwise, shall be considered exclusive of any other remedy, but the
same shall be cumulative and shall be in addition to every other
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remedy available to the Landlord and all such remedies and powers of the
Landlord may be exercised concurrently and from time to time and as often as the
Landlord deems expedient.
9.13 Damage or Injury
The Landlord shall not be liable for any personal injury, death or
property loss or damage sustained by the Tenant, or its employees, agents,
subleases, licensees or those doing business with it in the Premises, in the
Building, or anywhere on the Land, no matter how caused, except to the extent
caused by the negligence of the Landlord or those persons for whom the Landlord
is, in law, responsible, and the Tenant shall indemnify the Landlord against all
actions or liabilities arising out of such personal injury, death or property
damage or loss, except to the extent caused by the negligence of the Landlord or
those persons for whom the Landlord is, in law, responsible. The Tenant hereby
releases the Landlord and its officers, agents and employees from all claims for
damages or other expenses arising out of such personal injury, death or property
loss or damage, except to the extent caused by the negligence of the Landlord or
those persons for whom the Landlord is, in law, responsible. Without limiting
the foregoing, the Landlord shall not be liable for any personal injury, death
or property loss or damage sustained by the Tenant or its employees, agents,
sublessees, licensees or invitees in the Premises, in the Building, on the Land
or anywhere on the Land caused by theft or breakage or by steam, water, rain,
snow, radioactive materials, microwaves, deleterious substances, gases,
pollutants or any other materials or substances which may leak into, issue or
flow from any part of the building or lands, or any adjacent or neighbouring
lands and premises or from the water, steam or drainage pipes or plumbing works
of the same or from any place, or any loss or damage caused by or attributable
to the condition or arrangements of any electric or other wiring or any damage
caused by anything done or omitted to be done by any other tenant or occupant of
the building except to the extent caused by the negligence of the Landlord or by
those persons for whom the Landlord is, in law, responsible, and the Tenant
shall indemnify the Landlord against all actions or liabilities arising out of
such personal Injury, death or property damage or loss, except to the extent
caused by the negligence of the Landlord or those persons for whom the Landlord
is, in law, responsible. The Tenant thereby releases the Landlord and its
officers, agents and employees from all claims for damages or other expenses
arising out of such personal injury, death or property loss or damage, except to
the extent caused by the negligence of the Landlord or those persons for whom
the Landlord is, in law, responsible.
9.14 Holding Over
If the Tenant shall hold over after the expiration of the Term and the
Landlord shall accept the Rent or any portion thereof the new tenancy thereby
created shall be deemed a monthly tenancy and not a yearly tenancy and shall be
subject to the covenants and conditions herein contained insofar as the same are
applicable to a tenancy from month to month, except that if the Tenant remains
in possession with or without the Landlord's written consent, the monthly
instalments of Annual Basic Rent shall be two (2) times the monthly instalments
of Annual Basic Rent payable for the last month of the Term, prorated on a daily
basis for each day that the Tenant remains in possession, and in addition the
Tenant shall be liable for all costs, expenses, losses and damages resulting or
arising form the failure of the Tenant to deliver up possession of the Premises
to the Landlord.
9.15 Inability to Perform
Whenever and to the extent that the Landlord shall be unable to fulfill,
or shall be delayed or restricted in the fulfillment of any obligation hereunder
by reason of being unable to obtain the material, goods, equipment, service,
utility or labour required to enable it to fulfill any such obligation or by
reason of any statute, law or order-in-council or any regulation or order passed
or made pursuant thereto or by reason of the order or direction of any
administrator, controller or board, or any governmental department or officer or
other authority, or by reason of not being able to obtain any permission or
authority required thereby, or by reason of any other cause beyond its control
whether of the foregoing character or not, the Landlord shall be entitled to
extend the time for fulfillment of such obligation by a time equal to the
duration of such delay or restriction, and the Tenant shall not be entitled to
compensation for any inconvenience, nuisance or discomfort or damage thereby
occasioned, and shall not be entitled to cancel or terminate this Lease.
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9.16 Interest
Interest on any money due to the Landlord under this Lease shall be paid
by the Tenant and shall accrue on a daily basis at the rate of eighteen (18%)
percent per annum (one and one-half (1 1/2%) percent per month), such rate of
interest to be calculated and compounded monthly, not in advance, from the
respective date upon which any such money becomes due to the Landlord.
9.17 Expropriation
If the whole of the Premises shall be acquired or condemned by an
authority having the power for such acquisition or condemnation then the Term
shall cease from the date of entry by such authority. Nothing herein contained
shall prevent the Landlord or the Tenant or both from recovering damages from
such authority for the value of their respective interests or for such other
damages and expenses allowed by law.
9.18 Accrual of Annual Basic Rent
The Annual Basic Rent shall accrue from day to day. Where the calculation
of any Additional Rent is not made until the termination or expiry of this
Lease, the obligation of the Tenant to pay such Additional Rent shall survive
the termination or expiry of this Lease and such amounts shall be payable by the
Tenant upon demand by the Landlord.
9.19 Metric Equivalent
Wherever there is any reference in this Lease to a measurement or an area
or the requirement for a measurement or calculation of an area any such
measurement or area may be expressed in either units of imperial measurement or
their metric equivalent as published by Canada Mortgage and Housing Corporation
or any other agency of the Government of Canada designated by the Landlord.
9.20 Net Lease
It is the intention of the parties hereto that this Lease shall be a net
lease and that the Rent provided to be paid to the Landlord hereunder shall be
net to the Landlord and shall yield to the Landlord the entire such rental
during the Term without abatement for any cause whatsoever except as set forth
in subparagraph 9.4(a). Save as specifically set forth in this Lease, all costs,
expenses and obligations of every kind and nature whatsoever relating to the
Premises, whether or not herein referred to and whether or not of a kind now
existing or within the contemplation of the parties hereto, shall be paid by the
Tenant.
9.21 Governing Law
This Lease shall be construed in accordance with, and governed by, the
laws of the Province of British Columbia.
9.22 Number and Gender
Where required the singular number shall be deemed to include the plural
and the neuter gender the masculine or feminine.
9.23 Covenants
The Landlord and the Tenant agree that all of the provisions of this
Lease are to be construed as covenants and agreements as though the words
importing such covenants and agreements were used in each separate provision
thereof. Should any provision or provisions of this Lease be illegal or not
enforceable it or they shall be
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considered separate and severable from this Lease and its remaining provisions
shall remain in force and be binding upon the parties hereto as though the said
provision or provisions had never been included.
9.24 Time of the Essence
Time shall be of the essence of this Lease, save as herein otherwise
specified.
9.25 Headings
Any captions, headings and marginal notes throughout this Lease are for
convenience and reference only and the words and phrases contained therein shall
in no way be held or deemed to define, limit, describe, explain, modify, amplify
or add to the interpretation, construction or meaning of any provision of or the
scope or intent of this Lease nor in any way affect this Lease.
9.26 Inurement
This Lease shall extend to, be binding upon and inure to the benefit of
the Landlord and the Tenant and their respective heirs, executors,
administrators, successors and permitted assigns.
9.27 Joint and Several Liability
All covenants, liabilities and obligations entered into or imposed upon
the Tenant, if more than one person, and the Landlord, if more than one person,
shall be joint and several covenants, liabilities and obligations.
9.28 Continuation of Obligations
This Lease and the obligations of the Tenant hereunder shall continue in
full force and effect notwithstanding any change in the person or persons
comprising the Landlord.
9.29 Consents
(a) Wherever and whenever the approval or consent of the Landlord is required
to be obtained, such approval or consent may be given by such officer, agent,
committee, person or persons as may from time to time be nominated or appointed
in writing by the Landlord for such purpose, and any such power of nomination or
appointment may be deleted by the Landlord. Such nominees, appointees or
delegates shall have the right to withhold approval of or consent to and may
reject any matter or thing submitted for approval or consent, and every such
approval or consent given shall be in writing and may contain such conditions
and stipulations as the Landlord may deem fit.
(b) Whenever the Landlord shall withhold its leave, consent or approval, in
any case where its leave, consent or approval is required under this Lease, the
Landlord shall not be deemed to be withholding such leave, consent or approval
unreasonably if the reason therefor is the due preservation of a standard of
planning and maintenance as high as that required by the Landlord elsewhere in
the building.
9.30 Amendments
This Lease shall constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and shall not be modified,
amended or waived except by an instrument in writing duly executed and delivered
by the parties hereto or by their successors and permitted assigns.
ARTICLE 10 - INDEMNIFIER'S COVENANTS
- ------------------------------------
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Intentionally deleted.
If any term, covenant or condition of this Lease or the application thereof to
any person or circumstance is to any extent held or rendered invalid,
unenforceable or illegal, the remainder of this Lease or the application of such
term, covenant or condition to persons or circumstances other than those with
respect to which it is held invalid, unenforceable or illegal is not affected
thereby and continues to be applicable and enforceable to the fullest extent
permitted by law.
IN WITNESS WHEREOF the landlord and Tenant have duly executed this
indenture.
The Corporate Seal of )
DR. GERALD WITTENBERG, INC. )
and LAIDAR HOLDINGS LTD. )
was hereunto affixed in the )
presence of: )
) C/S
)
/s/ GERALD WITTENBERG )
- ---------------------------- )
Authorized Signatory )
Signed, Sealed and delivered )
by THE PLAYHOUSE THEATRE CENTRE )
OF BRITISH COLUMBIA )
in the presence of: ) /s/ signature illegible
) ---------------------------
) Authorized Signatory
/s/ KAREN PLEEGER )
- ---------------------------- )
Witness )
) General Manager
) ---------------------------
209-22025 48 Ave. Langley ) Title
- ---------------------------- )
Address
Except in the case of corporations signing under seal, all signatures must be
witnessed.
30
<PAGE>
SCHEDULE "A"
LEGAL DESCRIPTION
ALL AND SINGULAR that certain parcel or tract of land and premises situate,
lying and being in the City of Vancouver, Province of British Columbia, and more
particularly known and described as:
Lots 1 to 6. Block 10, District Lot 200A. Plan 197
31
<PAGE>
SCHEDULE "C"
------------
ADDITIONAL PROVISIONS
1. The following provisions are hereby incorporated into this Lease:
11.0 Option to Renew
---------------
The Landlord covenants and agrees with the Tenant as follows:
(a) That if the Tenant duly and punctually pays the Rent and observes and
performs the covenants, provisos and agreements contained in this
Lease on its part to be paid, observed and performed, then the Tenant
shall have the option, to be exercised by giving to the Landlord
written notice (herein called the "Renewal Notice") not more than
nine (9) months and not less than six (6) months prior to the Expiry
Date, to renew this Lease for a further term of five (5) years
(herein called the "Renewal Term") on the terms and conditions of
this Lease, including s. 11.0(b) (herein called the "Renewal Lease")
and with the amount of the Annual Basic Rent for the Premises during
the Renewal Term to be determined by agreement between the Landlord
and the Tenant not later than three (3) months after the date on
which the Landlord received the Renewal Notice from the Tenant, and
with no further option to renew. Failing such agreement within such
three (3) months period, the amount of the Annual Basic Rent for the
Premises during the Renewal Term shall be two (2) times the rent on
that date being six (6) months prior to the expiry date. Provided
however, the amount of the annual Basic Rent for the Premises during
the Renewal Term shall not be less than the amount of the Annual
Basic Rent for the Premises payable during the last month of the
Term. The Landlord and the Tenant covenant and agree that upon
receipt of the Renewal Notice by the Landlord, the Tenant shall be
obligated to lease the Premises from the Landlord and the Landlord
shall be obligated to lease the Premises to the Tenant on the terms
and conditions set forth in this subparagraph 11.0(a). Upon the
written request by the Tenant not more than twelve (12) months prior
to the Expiry Date, the Landlord shall provide the Tenant with a copy
of the form of the Renewal Lease for review by the Tenant prior to
the commencement of the Renewal Term the Landlord shall prepare and
complete the Renewal Lease and the Tenant shall, within fifteen (15)
days after receipt thereof, duly execute and deliver to the Landlord
the Renewal Lease as prepared and completed by the Landlord.
(b) The Renewal Lease shall also contain the following "Demolition
Clause":
"It is further understood and agreed by the parties concerned that if
during the Renewal Term hereby granted, the Landlord decides to
proceed with demolition of the building, the Landlord shall have the
option to give the Lessee one year's notice of termination of Lease
and the Tenant covenants to vacate the Premises and this Lease and
all its terms and provisions shall be terminated at the expiry of the
one year notice period. Without restricting the generality of the
foregoing there shall be no obligation on the Landlord to pay any
compensation to the Tenant in the event the Landlord invokes its
rights under this clause even if the Landlord bona fide elects not to
demolish the building or any part thereof. In the event the Landlord
evokes its rights under this clause it shall be without prejudice to
the rights under this clause it shall be without prejudice to the
rights and remedies available to the Landlord prior to the expiration
of the one year notice period"
32
<PAGE>
11.1 Arbitration
-----------
If under the provisions of the Lease the Landlord and the Tenant have
failed to agree as to the amount of the Annual Basic Rent payable for the
Premises with respect to any renewal term by the date required hereunder,
the determination of the annual Basic rent shall be referred to a single
arbitrator to be agreed upon by the Landlord and the Tenant and failing
agreement as to such arbitrator within ten (10) days after either party
shall have demanded the appointment of such arbitrator, then upon the
application of either the Landlord or the Tenant, the arbitrator shall be
appointed by a Judge of the Supreme Court of British Columbia. The
determination by the arbitrator shall be final and binding upon the
Landlord and the Tenant, and their respective successors and permitted
assigns. In making the determination of the amount of the Annual Basic
Rent for any renewal term the arbitrator shall follow the basis for
determination set forth in paragraph of 11.0 applicable to such renewal
term, provided that the amount of the Annual Basic Rent for the Premises
during the Renewal Term shall not be less than the Annual Basic Rent
payable during the Term. The fees and expenses of the arbitrator shall be
borne by the Tenant, subject to the right of the Arbitrator to apportion
specific costs. The provisions of this paragraph shall be deemed to be a
submission to arbitration within the provisions of the Commercial
----------
Arbitration Act, S.B.C. 1986, Ch. 3, and any statutory modifications
---------------
or reenactment thereof, provided that any limitations on the remuneration
of the arbitrator imposed by such legislation shall not be applicable, the
arbitration shall be held in the City of Vancouver, British Columbia,
unless otherwise agreed in writing by the Landlord and the Tenant. It is
understood and agreed by the Landlord and the Tenant that until the amount
of the Annual Basic Rent for any renewal term is finally determined, the
Tenant shall pay to the Landlord monthly instalments on account of the
Annual Basic Rent equal to the monthly instalment of Annual Basic Rent
payable for the month immediately preceding the commencement of the
renewal term. Once the arbitrator has determined the amount of the Annual
Basic Rent for such renewal term then the Annual Basic Rent paid as
aforesaid shall be adjusted to reflect the Annual Basic Rent as determined
for the respective renewal term and the Tenant shall, forthwith upon
request by the Landlord, pay to the Landlord interest at the rate set
forth in paragraph 9.16 of this lease on the amount by which the monthly
instalments of the Annual Basic Rent for such renewal term as finally
determined exceed the monthly instalments paid by the Tenant on account of
the Annual Basic Rent during such renewal term, such interest to be
computed and accrue from the date of commencement of such renewal term
until the Landlord receives payment in full of the shortfall in the Annual
Basic Rent.
33
<PAGE>
SCHEDULE "D"
GOODS AND SERVICES TAX
----------------------
The Tenant will pay, as and when due, to the governmental or statutory authority
or person to which the same are owing or are by law to be paid, or to the
Landlord pursuant to the terms of the agreement, all taxes and assessments
including, without limitation, any excise, goods and services or value added
taxes, or taxes to like effect, as well as any costs or penalties in lieu
thereof or in addition thereto (collectively the "GST") imposed, levied,
assessed or charged during the Term upon or relating to:
(a) rent paid or payable by the Tenant to the Landlord for the Premises or
for the use and occupancy of all or part thereof:
(b) electricity, light, heat, power, water, telephone and utilities of
whatever nature or kind (including without limitation works and services in
connection therewith) used in or supplied to or for the benefit of the Premises;
(c) goods and services which the Landlord provides or causes to be provided
to or for the benefit of the Tenant or Premises;
(d) fixtures or person property in the Premises which have been installed
or placed therein by or for the benefit of the Tenant; and
(e) operations at, occupancy of, or conduct of business in or from the
Premises, wether by or with the permission of the Tenant;
whether or not such GST is payable at law by the Tenant or by the Landlord and
whether or not same is allocated separately in respect of the Premises. The
Tenant agrees to indemnify and save harmless the Landlord from and against any
liability the Landlord may incur to pay all or any such GST. The Landlord's
rights and remedies with respect to the collection of rent will apply equally to
the Landlord's rights to recover from the Tenant all such GST. Upon request by
the Landlord, the Tenant will deliver promptly to the Landlord evidence
satisfactory to the Landlord of payment of all such GST.
34
<PAGE>
SCHEDULE "B"
[DIAGRAM OF 1ST AVENUE BLDG.
GROUND FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT 10.18
OFFER TO PURCHASE
FROM: WILCOX DONNELLY CAPITAL CORP.
650 - 1188 West Georgia Street
Vancouver, B.C.
V6E 4A2
(herein called the "Purchaser")
TO: SOHO ENTERPRISES LTD.
302 - 1132 Hamilton Street
Vancouver, B.C.
V6B 2S2
(herein called the "Vendor")
1. PURCHASE PRICE
--------------
1.1 The Purchaser hereby offers to purchase from the Vendor:
(a) those certain parcels of land located in the City of Vancouver, Province of
British Columbia and more particularly described on Schedule "B" hereto
(herein collectively called the "Lands");
(b) all buildings, improvements, structures, fixtures, appurtenances and
attachments to the Lands, whether or not attached thereto and forming part
thereof, including all systems on the Lands of a mechanical nature and
without limiting the generality of the foregoing all heating, lighting,
air-conditioning, plumbing, electrical, ventilation, drainage, water,
elevator and other mechanical fixtures and systems (including, without
limitation, all antennae, blinds, awnings, tracks, valences, fixed
carpeting, boilers, incinerators and trade fixtures and fittings) save and
except any such items which are the property of the tenants (herein
collectively called the "Building"); and
(c) all of the equipment, furniture, inventory, appliances, chattels and other
personal property comprising part of or used in the operation and
management of the Lands and the Building in the possession or control of
the Vendor and save and except any such items which are the property of the
tenants (herein collectively called the "Chattels")
(the Lands, the Building and the Chattels are herein collectively called the
"Property"); all free and clear of all liens, charges and encumbrances of any
nature whatsoever other than those set out in Schedule "A" hereto (herein called
the "Permitted Encumbrances") for the price of Three
<PAGE>
Million One Hundred and Twenty Five Thousand Dollars ($3,125,000) of lawful
money of Canada (herein called the "Purchase Price") to be paid as set out in
paragraph 2.
2. PAYMENT OF PURCHASE PRICE
-------------------------
2.1 The Purchase Price shall be paid by the Purchaser as follows:
(a) as to $10,000, by payment of such amount within two business days after the
Acceptance Date (as hereinafter defined), by cheque payable to and held by
the Purchaser's solicitors, Clark, Wilson;
(b) as to $140,000, by payment of such amount on the Waiver Date (as
hereinafter defined) by cheque payable to and held by Clark, Wilson; and
(c) as to the balance, by payment of such amount, as adjusted pursuant to
paragraph 4.3 and with respect to all matters normally adjusted in real
estate transactions of this nature, on or before the Closing Date (as
hereinafter defined).
2.2 The Purchaser shall pay the sum required to be paid pursuant to sub-
paragraphs 2.1(a) and 2.1(b) on the date payment thereof is required, such
amount being applicable to the Purchase Price on the Closing Date unless the
Offer has expired pursuant to paragraph 6.4 or the Purchaser has failed to
complete the Offer as provided for in paragraph 10.
2.3 Should any date for payment hereunder fall on a weekend or statutory
holiday, then the payment shall be paid on the next following business day.
3. ALLOCATION OF PURCHASE PRICE
----------------------------
3.1 The Vendor and Purchaser will endeavour to agree on an allocation of
the Purchase Price between the Lands, Building and Chattels, but failing such
agreement, the allocation of the Purchase Price will be left not agreed on.
4. CLOSING DATE ADJUSTMENTS AND RISK
---------------------------------
4.1 The completion of the transaction of purchase and sale contemplated
by this Offer shall take place on the date (herein called the "Closing Date")
which is sixty (60) days after the Waiver Date.
4.2 The Vendor shall deliver to the Purchaser vacant possession of the
Property, free and clear of all liens, charges and encumbrances other than the
Permitted Encumbrances by 5:00 p.m. on the Closing Date.
4.3 Subject to the provisions of this Agreement, all taxes, mortgage
payments, charges and other outgoings whatsoever rated, charged, assessed or
otherwise imposed on the Lands shall be discharged and paid and all rents and
profits shall belong to the Vendor up to but not after the Closing Date and from
and thereafter all taxes, mortgage payments, charges and other outgoings
whatsoever shall be paid and discharged and the rents and profits shall belong
to the Purchaser. The Vendor does hereby indemnify the Purchaser for any taxes,
service contracts, levies, liens,
-2-
<PAGE>
encumbrances, charges and other outgoings whatsoever which are the
responsibility of the Vendor but paid by the Purchaser.
4.4 The Property shall be at the risk of the Vendor until and including the
Closing Date. If, on or before the Closing Date, the Property is expropriated or
damaged by fire or other perils and such damage cannot reasonably be repaired by
the Vendor at a cost of less than $200,000, then the Purchaser may within 30
days after such event elect in writing:
(a) to not complete the sale and purchase herein; or
(b) to complete the sale and purchase herein, in which case the closing shall
be on the following further terms and conditions:
(i) in the case of expropriation, the expropriation proceeds shall be
assigned and shall be paid to the Purchaser and that part of the
Property not so expropriated shall be sold and shall be the subject of
the representations and warranties herein contained; or
(ii) in the case of damage, the representations and warranties herein
contained shall be limited to exclude the effect of such damage and
all payments made pursuant to any existing insurance policies thereto
in excess of amounts required to be paid to repair such damage shall
be assigned and shall be payable to the Purchaser.
4.5 If the events referred to in paragraph 4.4 shall occur within 10 days prior
to the Closing Date, and if the Purchaser elects after the Closing Date as
permitted herein then the Closing Date shall be on the business day next
following the day which is 10 days after the date of such election.
5. VENDOR COOPERATION
------------------
5.1 Within seven business days after the date (herein called the
"Acceptance Date") upon which the Vendor delivers to the Purchaser (or the
Purchaser's solicitors) a duly accepted copy of this Offer as provided herein
the Vendor shall deliver at its own expense to the Purchaser, the following:
(a) to the extent in the possession or control of the Vendor, a survey
certified by a qualified surveyor under his hand and seal showing the
location of the Building in relation to the lot lines of the Lands and the
streets, all encroachments and easements benefiting or charging the Lands,
and confirming the legal description of the Lands;
(b) copies of all material agreements currently in effect relating to the
Property or any part thereof and binding the Vendor or under which the
Vendor has any rights, including, without limitation, all leases and
tenancy agreements, maintenance, management, parking, agency and service
contracts and all amendments thereto, all certified by an executive officer
of the Vendor as being true copies thereof and as constituting all
documents of the nature described in this sub-paragraph 5.1(b);
-3-
<PAGE>
(c) a list and details of all warranties and guarantees, if any, in the
possession of the Vendor from contractors, sub-contractors and suppliers
with respect to the Building;
-4-
<PAGE>
(d) a list of all the Chattels used in the operation of the Building certified
by an executive officer of the Vendor as comprising all the equipment,
furniture, inventory, appliances, chattels and other personal property
which are material to the operation of the Building;
(e) to the extent available, a complete set of "as built" architectural,
structural and mechanical plans as well as specifications of the Building;
(f) a complete set of architectural, structural and mechanical plans pertaining
to the Vendor's proposed redevelopment of the Building;
(g) copies of all consultants reports which may be in the possession of the
Vendor pertaining to its proposed redevelopment of the Building;
(h) copies of all contractors and sub-contractors estimates which may be in the
possession of the Vendor pertaining to its proposed redevelopment of the
Building;
(i) copies of all correspondence between the Vendor or its consultants and the
City of Vancouver pertaining to the Vendor's proposed redevelopment of the
Building including applications for development or building permits;
(j) authorization consents from the Vendor addressed to all necessary
provincial, federal and municipal taxing authorities and any Crown agencies
entitled to register liens or charges against the Property, with respect to
the status of remissions to the said authorities and agencies;
(k) copies of all appraisals and environmental reports pertaining to the
Property in the possession of the Vendor; and
(l) such further documents and information relating to the Property as may be
in the possession of the Vendor and as the Purchaser or its solicitors may
reasonably require.
6. CONDITIONS PRECEDENT
--------------------
6.1 The Purchaser's obligation to complete the purchase of the Property
is subject to the Purchaser delivering to the Vendor not later than the date
(herein called the "Waiver Date") which is sixty (60) days after the Acceptance
Date, a written notice confirming:
(a) that the Purchaser has received and reviewed the documents and materials
delivered pursuant to paragraph 5 of this Offer and the said documents and
materials are approved by, and satisfactory to, the Purchaser;
(b) that the Purchaser has examined title to the Lands, the Building and the
Chattels and has made any other examinations and inquiries it deems
appropriate to reasonably satisfy itself that this transaction is
acceptable to it, and that said examinations and inquiries are approved by,
and satisfactory to, the Purchaser;
-5-
<PAGE>
(c) that the Purchaser has obtained approval, to its satisfaction, from the
City of Vancouver of the Purchaser application to develop the Property
including changing the use of the ground floor of the Building to
retail/restaurant; and
(d) that the Purchaser has obtained financing on terms satisfactory to the
Purchaser.
6.2 The conditions set forth in paragraph 6.1 above are included for the sole
benefit of the Purchaser and may be unilaterally waived in writing in whole or
in part by the Purchaser at any time.
6.3 If any of the conditions set forth in paragraph 6.1 has not been either
satisfied or waived in writing by the Purchaser within the time herein set
forth, the Offer shall immediately expire and be at an end and all sums paid
pursuant to paragraph 2 hereof together with accrued interest thereon, shall be
returned forthwith to the Purchaser.
7. VENDOR'S REPRESENTATIONS AND WARRANTIES
---------------------------------------
7.1 The Vendor hereby acknowledges that the Purchaser is relying on the
following representations and warranties in connection with the purchase of the
Property by the Purchaser. The Vendor hereby represents and warrants to the
Purchaser, as representations and warranties which are true now and will be true
from this date to and including the Closing Date, that:
(a) the Vendor is and on the Closing Date shall be the sole registered owner of
the Property free and clear of all liens, claims, judgements, charges,
caveats and encumbrances whatsoever save and except the Permitted
Encumbrances, and that the Vendor has the full right and authority to
transfer valid title to the Property to the Purchaser;
(b) the Vendor shall transfer to the Purchaser on the Closing Date title to the
Property free and clear of all liens, claims, judgements, charges, caveats,
and encumbrances whatsoever, save and except the Permitted Encumbrances;
(c) all civic and municipal taxes, rates, levies and assessments whatsoever
then due and owing with respect to the Property shall be paid in full on
the Closing Date or shall be the subject of the adjustment of the Purchase
Price contemplated by section 4.3 above;
(d) paragraph intentionally deleted
(e) the Building has been maintained in working order and is not subject to any
outstanding work order or notice of defect or non-compliance from any
provincial, civic or municipal board or official or Board of Fire
Underwriters or like authority;
(f) paragraph intentionally deleted
(g) the Vendor possesses all necessary licenses, permits, agreements and other
rights to lease and operate the Property as currently operated and in
accordance with
-6-
<PAGE>
environmental laws and that all terms and conditions of any such licences,
permits, agreements and other rights have been duly complied with and are
in good standing;
(h) to its knowledge the Vendor has complied with all governmental laws,
ordinances, by-laws and regulations affecting the Lands and the Property
and is not in default of any of the same and has had no notice from any
governmental authorities to change, modify or alter any licences,
conditions of operating, building structure or otherwise which could affect
the use or operation of the Lands or the Property and paid all monies due
and payable under all agreements relating to the development, management
and operation of the Property;
(i) paragraph intentionally deleted
(j) paragraph intentionally deleted
(k) there is no claim or litigation pending or threatened with respect to the
Property or the occupancy or use thereof which could affect the right of
the Purchaser to own or use the Property;
(l) to the Vendor's knowledge there is no proceeding by or before any
governmental commission, department, board, authority or other
administrative officer pending or threatened which could affect the right
of the Purchaser to own or use the Property;
(m) there is no collective bargaining agreement or certification before any
labour authority or board affecting any employees employed by the Vendor in
connection with the Property;
(n) to the Vendor's knowledge, and except as reflected in any environmental
reports or materials provided to the Purchaser, the Property is free of
any explosives, radioactive materials, asbestos materials, urea
formaldehyde, underground or aboveground tanks, pollutants, contaminants,
deleterious substances, dangerous goods or substances, hazardous, corrosive
or toxic substances, special waste or waste of any kind or any other
substance the storage, manufacture, disposal, handling, treatment,
generation, use, transport, remediation or release into the environment of
which is prohibited, controlled or regulated under any federal, provincial,
municipal or other governmental authority (herein called "Contaminants") .
The Purchaser acknowledges that it will be responsible for the
environmental matters disclosed in the Phase I environmental report which
is being provided to the Purchaser by the Vendor, including without
limitation the direct and indirect costs involved in any required
remediation of such environmental matters. The Purchaser also hereby
waivers any rights it may have to receive a site profile from the Vendor
pursuant to the provisions of the Waste Management Act of British Columbia;
(o) to its knowledge, and except as reflected in any environmental reports or
materials provided to the Purchaser, the Vendor has not used or permitted
the Property to be used, and has no knowledge of the Property being used,
for the storage, manufacture, disposal, treatment, handling, generation or
release into the
-7-
<PAGE>
environment, including by way of discharge, emission, spill, deposit,
leakage or otherwise, of any Contaminants, for waste disposal or landfill
purposes or for any other purpose which may result or has resulted in
Contaminants in, on, under or migrating to or from the Property;
(p) the Vendor has fully disclosed to the Purchaser all environmental reports,
investigations, assessments, audits, studies, permits, licences and records
in the possession or control of the Vendor with respect to the Property and
relating to Contaminants or environmental laws and the Vendor has not
obtained or performed any environmental reports, investigations,
assessments, audits or other studies with respect to the Property except as
disclosed in writing to the Purchaser.
(q) that all wages due and payable to employees of the Vendor employed in
connection with the Property have been paid;
(r) the Vendor hereby authorizes the Purchaser to submit development permit and
building permit applications pertaining to its intended redevelopment of
the Property and will execute specific authorizations in writing in a
timely manner if requested by the Purchaser;
(s) that on the Closing Date the Vendor shall not have any indebtedness to any
person, business, company or government authority which by operation of law
or otherwise then constitutes a lien, charge or encumbrance on the Property
or which could affect the right of the Purchaser to own, occupy and obtain
revenue from the Property save and except for the Permitted Encumbrances;
(t) that the Vendor is a resident of Canada for the purposes of the Income Tax
----------
Act, R.S.C. 1985, Chapter 1 (5th Supp.) as amended (the "Income Tax Act");
--- --------------
and
(u) from the present date until the Closing Date the Vendor shall:
(i) maintain insurance coverage of the scope and in the amount presently
held;
(ii) maintain the Lands, the Buildings and the Chattels in the same manner
and to the same standard as prior to the date of this Agreement and
not sell or dispose of any of them; and
(iii) maintain all licences and permits pertaining to the Property and all
charges on the Lands in good standing, and will not enter into any
new contracts or amend any of the foregoing contracts without the
prior written consent of the Purchaser which is not to be
unreasonably withheld.
7.2 The representations, warranties, covenants and agreements of the Vendor
contained in this Offer shall survive the Closing of the sale and purchase of
the Property for a period of twelve (12) months and the Vendor covenants that
all of the representations, warranties, covenants and agreements contained
herein shall be true and correct as of the Closing Date as if made on that date.
-8-
<PAGE>
8. PURCHASER INQUIRIES
-------------------
8.1 After the acceptance of this Offer by the Vendor, the Purchaser,
through its officers, employees and other authorized agents and representatives,
will have the right:
(a) to examine at the Vendor's offices during normal business hours, the
originals of all documents referred to in paragraph 5.1 hereof in the
possession of or reasonably obtainable by the Vendor or its agents;
(b) to inspect and examine the Building (and the Vendor hereby grants to the
Purchaser, access to the Building at all reasonable times to inspect and
examine the same) for the purpose of verifying the design and condition of
the electrical, mechanical, heating, ventilating, sewage systems and
structural condition of the Building, the state of repair thereof, the
location of the Building, and to present the Building to prospective
tenants, purchasers and lenders on the understanding and condition that the
Purchaser shall indemnify and save harmless the Vendor from and against any
and all losses and damages suffered or incurred as a result of such
inspections and examinations and that the Purchaser shall forthwith repair
any damage caused by such inspections and examinations; and
(c) to erect "For Lease" and "For Sale" signs on the Building.
8.2 The Vendor shall use reasonable commercial efforts to enable the
Purchaser to make reasonable inspections of the Building. The Purchaser, its
employees, agents, engineers, architects, contractors and surveyors and all
other parties acting under the authority of the Purchaser shall not do any act
which would harm or unreasonably disrupt the Vendor or its tenants.
8.3 The Vendor covenants and agrees to cooperate with and assist the
Purchaser in the aforesaid examinations and inquiries.
9. CLOSING DOCUMENTS AND PROCEDURE
-------------------------------
9.1 On or before 9:00 a.m. on the Closing Date, the Vendor shall deliver
the following documents, duly executed (hereinafter collectively called the
"Closing Documents") to the solicitors for the Purchaser:
(a) a deed or transfer of title conveying the Lands and the Building to the
Purchaser;
(b) a bill of sale conveying the Chattels to the Purchaser;
-9-
<PAGE>
(c) a Statement of Adjustments wherein, inter alia, the Vendor shall credit to
the Purchaser any and all prepaid rents, parking fees, security deposits,
prepaid maintenance fees, any interest due to tenants therefrom, if any,
which may be in the possession of the Vendor on the Closing Date, and
wherein taxes, rentals, water rates and utility charges are apportioned and
allowed to the Closing Date;
(d) an assignment or assignments to the Purchaser, and an assumption by the
Purchaser of all of the Vendor's obligations thereunder, of all agreements,
contracts and other rights described in paragraphs 5.1(b) and 5.1(c) as the
Purchaser may request, provided the Purchaser is not obligated to take any
assignment of such items;
(e) a statutory declaration by an executive officer of the Vendor or other
evidence reasonably satisfactory to the Purchaser certifying that the
Vendor is a resident of Canada for the purposes of the Income Tax Act of
--------------
Canada;
(f) an opinion of counsel for the Vendor, satisfactory to the solicitors for
the Purchaser, to the effect that the transactions as contemplated hereby
and all documents required to be delivered by the Vendor hereunder have
been duly authorized, executed and delivered and that the Vendor has the
corporate power to enter into the transactions contemplated hereby;
(g) a certificate of an executive officer of the Vendor dated as of the Closing
Date that the Vendor's representations and warranties set out in this Offer
are then true and accurate in all material respects;
(h) discharges and release of all mortgages, charges, encumbrances, judgements,
liens and caveats affecting the Property save and except the Permitted
Encumbrances; and
(i) such other instruments, documents, agreements, assignments and assurances
as the solicitors for the Purchaser may reasonably require in order to
complete the purchase of the Property and to give effect to this Offer and
agreement.
9.2 On the Closing Date, following the receipt of all of the Closing
Documents by the Purchaser's solicitor and registration of transfers of the
Lands in the Vancouver Land Title Office the Purchaser shall deliver to the
Vendor's solicitors the balance of the Purchase Price then payable, if any, and
any adjustments shown as due the Vendor in the Vendor's Statement of
Adjustments, in trust.
9.3 All the Closing Documents shall be in a form satisfactory to the solicitors
for the Purchaser acting reasonably and, where applicable, in a form suitable
for registration in the appropriate offices of public record.
9.4 Any tender of documents or money under this Offer may be made upon the
solicitor acting for the party upon whom tender is desired and tender may be
made by certified cheque, solicitor's trust cheque or bank draft.
-10-
<PAGE>
9.5 The costs of discharging any existing mortgages and all other charges,
liens, encumbrances, and related caveats other than the Permitted Encumbrances
are to be borne by the Vendor.
9.6 The costs of the registration of all bills of sale, transfers, and such
other documents as are necessary to complete the purchase of the Property shall
be borne by the Purchaser.
9.7 The parties shall each execute and deliver such further documents and
instruments and do all such acts and things as may be reasonably necessary or
requisite to carry out the full intent and meaning of this Offer and agreement
and to effect the transaction contemplated by this Offer and agreement.
9.8 The Purchaser is a GST registrant under Business Number 887357424 and
will provide a certificate confirming same on the Closing Date.
10. REMEDIES
--------
10.1 If the conditions precedent to this Offer are satisfied or waived by
the Purchaser within the time herein set forth, the Vendor is not in default
hereunder and the Purchaser fails to complete the purchase of the Property in
accordance with the terms hereof by the Closing Date, then the Vendor may, as
its sole remedy, cancel this Offer, in which event the sums referred to in sub-
paragraphs 2.1(a) and 2.1(b) of this Offer (herein called the "Deposit")
together with any interest earned thereon shall be paid to and forfeited to the
Vendor as liquidated damages and the Vendor shall have no further claims of any
nature whatsoever against the Purchaser whether arising from this Offer, at law
or in equity. The Deposit and all accrued interest earned thereon shall be
returned to the Purchaser forthwith upon request by the Purchaser if any of the
conditions provided for in paragraph 6.1 hereof shall not be satisfied or waived
within the time therein limited.
11. SURVIVAL OF OBLIGATIONS
-----------------------
11.1 Except as otherwise specifically provided herein the obligations of
the parties arising herefrom shall not merge on the Closing Date but shall
survive for a period of twelve (12) months.
12. BINDING AGREEMENT OF PURCHASE AND SALE
--------------------------------------
12.1 This Offer, if accepted, shall with such acceptance, constitute a
binding agreement of purchase and sale, subject to the provisions hereof.
12.2 If this Agreement contains subject conditions then notwithstanding
anything to the contrary contained herein the Vendor will receive and retain, as
outright and non-refundable consideration, the sum of $100.00 out of the deposit
upon the Vendor signing this Agreement and in consideration therefor the Vendor
covenants and agrees not to withdraw its acceptance of the offer constituted by
this Agreement, prior to the time for removal of any subject conditions
contained herein.
-11-
<PAGE>
13. TIME IS OF THE ESSENCE
----------------------
13.1 It is understood and agreed that time shall be of the essence of
this Offer and the agreement resulting therefrom upon acceptance of this Offer
by the Vendor
14. NOTICE
------
14.1 All notices, acceptances, demands, requests or deliveries to be
given or performed by either party to the other shall be in writing and
delivered by hand or sent by prepaid registered mail to the parties at their
respective addresses unless there is a disruption in mail service in which event
such notices, acceptances, demands, request of deliveries must be delivered by
hand. Unless notice of change of address shall be given by either party to the
other, their respective addresses for these purposes shall be as follows:
(a) PURCHASER: 2500-1177 West Hastings Street, Vancouver, B.C. V6E 2K3
(b) VENDOR: 302-1132 Hamilton Street, Vancouver, B.C. V6B 2S2
and if such notice is sent by prepaid registered mail, it shall be deemed to
have been received on the third business day following the mailing thereof or if
such notice is delivered by hand, it shall be deemed to have been received upon
actual delivery thereof.
15. COMMISSION
----------
15.1 The Purchaser will be responsible for the payment of a real estate
commission to Patrick Real Estate Ltd. as a result of the purchase and sale of
the Property.
16. ENUREMENT
---------
16.1 This Offer and the agreement which will result from acceptance thereof
shall enure to the benefit of and be binding upon the parties hereto, and their
respective heirs, executors, administrators, successors and assigns. The
Purchaser shall have the right to assign all or any part of the Purchaser's
interest in and to this Offer or any agreement resulting therefrom at any time
after acceptance of this Offer by the Vendor provided that the Purchaser shall
remain liable and responsible for the performance of its obligations hereunder.
-12-
<PAGE>
17. DURATION OF OFFER
-----------------
17.1 This Offer shall be open for acceptance by the Vendor until 4:00 p.m. local
Vancouver time, on April 27, 1999 after which time, if not accepted, it shall by
lapse of time alone become null and void and of no effect provided always that
the parties may by agreement in writing extend the time for acceptance of this
Offer. This Offer may only be accepted by delivering a copy hereof accepted as
set out below, to the Purchaser within the time set out above.
IN WITNESS WHEREOF the Purchaser has executed this Offer to Purchase this 22nd
day of April, 1999.
WILCOX DONNELLY CAPITAL CORP.
- -----------------------------
Per: /s/ Michael F. Wilcox
-------------------------------
Michael F. Wilcox
Per: /s/ P. Todd Donnelly
-------------------------------
P. Todd Donnelly
18. VENDOR'S ACCEPTANCE OF OFFER
----------------------------
18.1 The Vendor herein hereby accepts the foregoing Offer to Purchaser of
the Purchaser and hereby agrees with the Purchaser to be bound by all of the
warranties, representations, covenants, terms and conditions hereof.
IN WITNESS WHEREOF the Vendor has executed this Acceptance and this Offer and
Agreement on the 23rd day of April, 1999.
-13-
<PAGE>
SIGNED, SEALED AND DELIVERED by SOHO )
ENTERPRISES LTD. in the presence of: )
)
/s/ John Nicholls )
- -------------------------------------- )
Name )
3425 Pt. Grey Rd. )
- -------------------------------------- ) Per: /s/ W.D. Cameron White
) ___________________________
Address ) Director
Vancouver, BC )
- -------------------------------------- )
Director Business Affairs )
- -------------------------------------- )
Occupation )
-14-
<PAGE>
SCHEDULE "A"
TO
OFFER TO PURCHASE AGREEMENT BETWEEN
WILCOX DONNELLY CAPITAL CORP., AND SOHO ENTERPRISES LTD.
DATED FOR REFERENCE THE 22ND DAY OF APRIL, 1999
PERMITTED ENCUMBRANCES
----------------------
E45612 Easement and indemnity agreement in favour of City of Vancouver
BJ265954 Easement and indemnity agreement in favour of City of Vancouver
<PAGE>
SCHEDULE "B"
TO
OFFER TO PURCHASE AGREEMENT BETWEEN
WILCOX DONNELLY CAPITAL CORP., AND SOHO ENTERPRISES LTD.
DATED FOR REFERENCE THE 22ND DAY OF APRIL, 1999
LEGAL DESCRIPTION
-----------------
Parcel Identifier: 002-710-668
Lot 25 Block 76 District Lot 541 Plan 3469
<PAGE>
SCHEDULE "C"
TO
OFFER TO PURCHASE AGREEMENT BETWEEN
WILCOX DONNELLY CAPITAL CORP., AND SOHO ENTERPRISES LTD.
DATED FOR REFERENCE THE 22ND DAY OF APRIL, 1999
<PAGE>
MODIFICATION AGREEMENT
TO
OFFER TO PURCHASE AGREEMENT BETWEEN
WILCOX DONNELLY CAPITAL CORP. AS PURCHASER,
AND SOHO ENTERPRISES LTD. AS VENDOR
DATED FOR REFERENCE THE 22ND DAY OF APRIL, 1999
The Purchaser and Vendor hereby agree to modify the Offer to Purchase Agreement
as follows:
1. In paragraph 2.2, the reference to "paragraph 6.4" shall be deleted and
replaced by "paragraph 6.3"; and
2. Paragraph 4.2 shall be deleted and replaced by the following:
"The Property shall be free and clear of all liens, charges and
encumbrances other than the Permitted Encumbrances on the Closing Date,
and the Vendor shall deliver vacant possession of the Property by 5:00
p.m. on the date that is the later of the Closing Date and September 1,
1999."
All other terms and conditions of the Offer to Purchase Agreement shall remain
in full force and effect.
This modification agreement has been executed by the parties at Vancouver, B.C.
as of this 23rd day of April, 1999.
WILCOX DONNELLY CAPITAL CORP.
Per: /s/ P. Todd Donnelly
------------------------------
Authorized Signatory
SOHO ENTERPRISES LTD.
Per: /s/ W.D. Cameron White
------------------------------
Authorized Signatory
<PAGE>
EXHIBIT 11.1
VIDATRON ENTERTAINMENT GROUP INC.
CANADIAN GAAP
Earnings per share calculations
<TABLE>
<CAPTION>
Aug 31/96 Aug 31/97 Aug 31/98 Feb 28/98 Feb 28/99
----------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Basic eps
Net income (loss) per
F/S................... $(2,100,000) $(1,212,000) $1,758,000 $ 689,000 $1,009,000
Weighted average number
of shares outstanding
(per schedule)........ 3,116,599 4,651,541 6,506,855 6,258,777 7,564,855
----------- ----------- ---------- --------- ----------
Basic eps =............. $ (0.67) $ (0.26) $ 0.27 $ 0.11 $ 0.13
----------- ----------- ---------- --------- ----------
Basic eps restated to
give effect to 5:2
share consolidation
subsequent to year end
=...................... $ (1.68) $ (0.65) $ 0.68 $ 0.28 $ 0.33
=========== =========== ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Fully diluted eps
imputed Aug 31/96 Aug 31/97 Aug 31/98
interest @ 5.5% Impact of conversion on Impact of conversion on Impact of conversion on
weighted avg Net weighted avg Net weighted avg Net
# shares income # shares income # shares income
------------ ----------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Undiluted
amounts per
above.......... 3,116,599 $(2,100,000) 4,651,541 $(1,212,000) 6,506,855 $1,758,000
Stock options...
Exercisable at
$6.20......... 750 256 [X] 750 256 [X] -- --
Exercisable at
$1.92......... 4,625 488 [X] -- -- -- --
Exercisable at
$2.08......... 29,375 3,361 [X] 11,000 1,258 [X] -- --
Exercisable at
$2.48......... 2,000 273 [X] 2,000 273 [X] -- --
Exercisable at
$4.48......... 19,476 4,799 [X] 15,687 3,865 [X] 3,375 832 X
Exercisable at
$5.60......... 52,551 16,186 [X] 118,750 36,575 [X] 117,500 36,190 X
Exercisable at
$7.76......... 4,685 2,000 [X] 8,750 3,735 [X] 2,500 1,067 X
Exercisable at
$5.40......... -- -- 139,178 41,336 [X] 123,750 36,754 X
Exercisable at
$5.20......... -- -- 32,301 9,238 [X] 99,000 28,314 X
Exercisable at
$4.10......... -- -- -- -- 14,959 3,373 X
Exercisable at
$3.80......... -- -- -- -- 174,453 36,461 X
Exercisable at
$3.00......... -- -- -- -- -- --
Exercisable at
$4.50......... -- -- -- -- -- --
Exercisable at
$US 3.00...... -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------
-- -- -- -- 535,537 142,990
Reduce by tax
effect @ 46%.. -- -- (65,776)
--------- ----------- --------- ----------- --------- ----------
-- -- -- -- 535,537 77,215
--------- ----------- --------- ----------- --------- ----------
Underwriter's
options/warrants
Exercisable at
$4.50......... -- -- 27,980 6,925 [X] 66,750 16,521 X
Exercisable at
$5.50......... -- -- 13,990 4,232 [X] -- --
Exercisable at
$6.50......... -- -- -- -- 33,375 11,932 X
--------- ----------- --------- ----------- --------- ----------
-- -- -- -- 100,125 28,452
Reduce by tax
effect @ 46%.. -- -- (13,088)
--------- ----------- --------- ----------- --------- ----------
-- -- -- -- 100,125 15,364
--------- ----------- --------- ----------- --------- ----------
Share purchase
warrants
Exercisable at
$4.00......... 30,137 6,630 [X] -- -- -- --
Exercisable at
$4.00......... 48,885 10,755 [X] -- -- -- --
Exercisable at
$6.88......... 3,405 1,289 [X] -- -- -- --
Exercisable at
$6.50......... -- -- 279,801 100,029 [X] 667,500 238,631 X
Exercisable at
$2.50......... -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------
-- -- -- -- 667,500 238,631
Reduce by tax
effect @ 46%.. -- -- (109,770)
--------- ----------- --------- ----------- --------- ----------
-- -- -- -- 667,500 128,861
--------- ----------- --------- ----------- --------- ----------
$600K
convertible
debentures
Issued October
21/98
Convertible at
$3.00 after
April 21/99... -- -- -- -- -- --
Interest
saved......... -- -- -- -- -- --
Accretion of
discount
saved......... -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------
-- -- -- -- -- --
Reduce by tax
effect @ 46% -- -- --
--------- ----------- --------- ----------- --------- ----------
-- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------
$500K
convertible
debentures
Assumed issued
March 27/97
Convertible at
$7.60......... -- -- 65,789 -- 65,789 --
Interest
saved......... -- -- -- 25,000 -- 60,000
Accretion of
discount
saved......... -- -- -- n/a [X] -- n/a [X]
--------- ----------- --------- ----------- --------- ----------
-- -- -- -- -- --
Reduce by tax
effect @ 46%.. -- -- --
--------- ----------- --------- ----------- --------- ----------
-- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------
Fully diluted
amounts........ 3,116,599 (2,100,000) 4,651,541 (1,212,000) 7,810,017 1,979,440
----------- ----------- ----------
Fully diluted
eps............ $ (0.67) $ (0.26) $ 0.25
----------- ----------- ----------
Fully diluted
eps restated to
give effect to
the 5:2 share
consolidation
subsequent to
year end....... $ (1.68) $ (0.65) $ 0.63
----------- ----------- ----------
<CAPTION>
Fully diluted eps
imputed Feb 28/98 Feb 28/99
interest @ 5.5% Impact of conversion on Impact of conversion on
weighted avg Net weighted avg Net
# shares income # shares income
-------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Undiluted
amounts per
above.......... 6,258,777 $ 689,000 7,564,855 $1,009,000
Stock options...
Exercisable at
$6.20......... -- -- -- --
Exercisable at
$1.92......... -- -- -- --
Exercisable at
$2.08......... 6,250 715 X -- --
Exercisable at
$2.48......... 1,250 171 X -- --
Exercisable at
$4.48......... 4,625 1,140 X 1,875 462 X
Exercisable at
$5.60......... 117,500 36,190 X 117,500 36,190 X
Exercisable at
$7.76......... 2,500 1,067 X 2,500 1,067 X
Exercisable at
$5.40......... 136,250 40,466 X 120,875 35,900 X
Exercisable at
$5.20......... 109,750 31,389 X 94,000 26,884 X
Exercisable at
$4.10......... 14,917 3,364 X 15,000 3,383 X
Exercisable at
$3.80......... -- -- 370,000 77,330 X
Exercisable at
$3.00......... -- -- 33,481 5,524 X
Exercisable at
$4.50......... -- -- 373 92 X
Exercisable at
$US 3.00...... -- -- 15,884 3,952 X
------------- ----------- ---------- ----------
393,042 114,501 771,488 190,784
Reduce by tax
effect @ 46%.. (52,670) (87,761)
------------- ----------- ---------- ----------
393,042 61,830 771,488 103,023
------------- ----------- ---------- ----------
Underwriter's
options/warrants
Exercisable at
$4.50......... 66,750 16,521 [X] 66,750 16,521 [X]
Exercisable at
$5.50......... 33,375 10,096 [X] -- --
Exercisable at
$6.50......... -- -- 33,375 11,932 [X]
------------- ----------- ---------- ----------
-- -- -- --
Reduce by tax
effect @ 46%.. -- --
------------- ----------- ---------- ----------
-- -- -- --
------------- ----------- ---------- ----------
Share purchase
warrants
Exercisable at
$4.00......... -- -- -- --
Exercisable at
$4.00......... -- -- -- --
Exercisable at
$6.88......... -- -- -- --
Exercisable at
$6.50......... 667,500 238,631 [X] 667,500 238,631 [X]
Exercisable at
$2.50......... -- -- 179,558 24,689 X
------------- ----------- ---------- ----------
-- -- 179,558 24,689
Reduce by tax
effect @ 46%.. -- (11,357)
------------- ----------- ---------- ----------
-- -- 179,558 13,332
------------- ----------- ---------- ----------
$600K
convertible
debentures
Issued October
21/98
Convertible at
$3.00 after
April 21/99... -- -- 137,017 --
Interest
saved......... -- -- -- 20,384
Accretion of
discount
saved......... -- -- -- 23,101 [X]
------------- ----------- ---------- ----------
-- -- -- --
Reduce by tax
effect @ 46% -- --
------------- ----------- ---------- ----------
-- -- -- --
------------- ----------- ---------- ----------
$500K
convertible
debentures
Assumed issued
March 27/97
Convertible at
$7.60......... 65,789 -- 65,789 --
Interest
saved......... -- 30,000 -- 30,000
Accretion of
discount
saved......... -- n/a [X] -- n/a [X]
------------- ----------- ---------- ----------
-- -- -- --
Reduce by tax
effect @ 46%.. -- --
------------- ----------- ---------- ----------
-- -- -- --
------------- ----------- ---------- ----------
Fully diluted
amounts........ 6,651,819 750,830 8,515,901 1,125,355
----------- ----------
Fully diluted
eps............ $ 0.11 $ 0.13
----------- ----------
Fully diluted
eps restated to
give effect to
the 5:2 share
consolidation
subsequent to
year end....... $ 0.28 $ 0.33
----------- ----------
</TABLE>
Note: the dilution test for each individual instrument is computed net of tax
notwithstanding that the income amount displayed is pre-tax.
- -------
[X] = anti-dilutive,=not factored in calculations
X = dilutive; included in calculations
<PAGE>
VIDATRON ENTERTAINMENT GROUP INC.
U.S. GAAP
Earnings per share calculations
<TABLE>
<CAPTION>
Aug 31/96 Aug 31/97 Aug 31/98 Feb 28/98 Feb 28/99
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Basic eps
Net income (loss) per
F/S Note 18(c)........ $(2,100,000) $(1,212,000) $ 534,000 $ (535,000) $1,009,000
Weighted average number
of shares outstanding
(per schedule)........ 3,116,599 3,776,541 5,759,971 5,383,777 7,189,855
----------- ----------- ---------- ---------- ----------
Basic eps =............. $ (0.67) $ (0.32) $ 0.09 $ (0.10) $ 0.14
=========== =========== ========== ========== ==========
Basic eps restated to
give effect to the 5:2
share consolidation
subsequent to year end
=...................... $ (1.68) $ (0.80) $ 0.23 $ (0.25) $ 0.35
=========== =========== ========== ========== ==========
Average share price..... $ 3.57 $ 2.72
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Aug 31/96 Aug 31/97
Impact of conversion Impact of conversion Aug 31/98 Feb 28/98
on on Impact of conversion on Impact of conversion on
# shares proceeds # shares proceeds # shares proceeds # shares proceeds
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Diluted eps
Undiluted amounts
per above....... 3,116,599 n/a 3,776,541 n/a 5,759,971 n/a 5,383,777 n/a
Stock options
Exercisable at
$6.20.......... -- --
Exercisable at
$1.92.......... -- --
Exercisable at
$2.08.......... -- --
Exercisable at
$2.48.......... -- --
Exercisable at
$4.48.......... 3,375 15,120 [X]
Exercisable at
$5.60.......... 117,500 658,000 [X]
Exercisable at
$7.76.......... 2,500 19,400 [X]
Exercisable at
$5.40.......... 123,750 668,250 [X]
Exercisable at
$5.20.......... 99,000 514,800 [X]
Exercisable at
$4.10.......... 14,959 61,500 [X]
Exercisable at
$3.80.......... 174,453 1,502,900 [X]
Exercisable at
$3.00.......... -- --
Exercisable at
$4.50.......... -- --
Exercisable at
$US 3.00....... -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
-- -- -- -- -- -- -- --
Stock purchase
from proceeds.. -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
-- -- -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
Underwriter's
options/warrants
Exercisable at
$4.50.......... 66,750 300,375 [X]
Exercisable at
$5.50.......... -- -- [X]
Exercisable at
$6.50.......... 33,375 216,938 [X]
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
-- -- -- -- -- -- -- --
Stock purchase
from proceeds.. -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
-- -- -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
Share purchase
warrants
Exercisable at
$4.00.......... -- --
Exercisable at
$4.00.......... -- --
Exercisable at
$6.88.......... -- --
Exercisable at
$6.50.......... 667,500 4,338,750 [X]
Exercisable at
$2.50.......... -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
-- -- -- -- -- -- -- --
Stock purchase
from proceeds.. -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
-- -- -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
$600K convertible
debentures
Issued October
21/98..........
Convertible at
$3.00 after
April 21/99.... -- -- -- --
Interest saved.. -- -- -- --
Accretion of
discount
saved.......... -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
-- -- -- -- -- -- -- --
Net of income
tax effect..... -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
-- -- -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
$500K convertible
debentures
Assumed issued
March 27/97....
Convertible at
$7.60.......... 65,789 --
Interest saved
(at 12%)....... -- 60,000
Accretion of
discount
saved.......... -- n/a [X]
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
-- -- -- -- -- -- -- --
Net of income
tax effect..... -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
-- -- -- -- -- -- -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- -----------
Diluted amounts.. 3,116,599 $(2,100,000) 3,776,541 $(1,212,000) 5,759,971 $ 534,000 5,383,777 $ (535,000)
----------- ----------- ----------- -----------
Diluted eps...... $ (0.67) $ (0.32) $ 0.09 $ (0.10)
=========== =========== =========== ===========
Diluted eps
restated to give
effect to the
5:2 share
consolidation
subsequent to
year end =...... $ (1.68) $ (0.80) $ 0.23 $ (0.25)
=========== =========== =========== ===========
<CAPTION>
Feb 28/99
Impact of conversion on
# shares proceeds
------------ ----------------
<S> <C> <C>
Diluted eps
Undiluted amounts
per above....... 7,189,855 n/a
Stock options
Exercisable at
$6.20.......... -- --
Exercisable at
$1.92.......... -- --
Exercisable at
$2.08.......... -- --
Exercisable at
$2.48.......... -- --
Exercisable at
$4.48.......... 1,875 8,400 [X]
Exercisable at
$5.60.......... 117,500 658,000 [X]
Exercisable at
$7.76.......... 2,500 19,400 [X]
Exercisable at
$5.40.......... 120,875 652,725 [X]
Exercisable at
$5.20.......... 94,000 488,800 [X]
Exercisable at
$4.10.......... 15,000 61,500 [X]
Exercisable at
$3.80.......... 370,000 1,406,000 [X]
Exercisable at
$3.00.......... 33,481 180,000 [X]
Exercisable at
$4.50.......... 373 11,250 [X]
Exercisable at
$US 3.00....... 15,884 375,000 [X]
------------ ----------------
-- --
Stock purchase
from proceeds.. -- --
------------ ----------------
-- --
------------ ----------------
Underwriter's
options/warrants
Exercisable at
$4.50.......... 66,750 300,375 [X]
Exercisable at
$5.50.......... -- --
Exercisable at
$6.50.......... 33,375 216,938 [X]
------------ ----------------
-- --
Stock purchase
from proceeds.. -- --
------------ ----------------
-- --
------------ ----------------
Share purchase
warrants
Exercisable at
$4.00.......... -- --
Exercisable at
$4.00.......... -- --
Exercisable at
$6.88.......... -- --
Exercisable at
$6.50.......... 667,500 4,338,750 [X]
Exercisable at
$2.50.......... 179,558 625,000 X
------------ ----------------
179,558 625,000
Stock purchase
from proceeds.. (165,035) (625,000)
------------ ----------------
14,523 --
------------ ----------------
$600K convertible
debentures
Issued October
21/98..........
Convertible at
$3.00 after
April 21/99.... 137,017 --
Interest saved.. -- 20,384
Accretion of
discount
saved.......... -- 23,101 [X]
------------ ----------------
-- --
Net of income
tax effect..... -- --
------------ ----------------
-- --
------------ ----------------
$500K convertible
debentures
Assumed issued
March 27/97....
Convertible at
$7.60.......... 65,789 --
Interest saved
(at 12%)....... -- 30,000
Accretion of
discount
saved.......... -- n/a [X]
------------ ----------------
-- --
Net of income
tax effect..... -- --
------------ ----------------
-- --
------------ ----------------
Diluted amounts.. 7,204,378 $ 1,009,000
----------------
Diluted eps...... $ 0.14
================
Diluted eps
restated to give
effect to the
5:2 share
consolidation
subsequent to
year end =...... $ 0.35
================
</TABLE>
- -------
[X] = anti-dilutive, not factored in calculations
X = dilutive; included in calculations
<PAGE>
EXHIBIT 21.1
(Note: All of the following are corporations of, and doing business solely
within, British Columbia, Canada, unless otherwise noted.)
A. 100% subsidiaries of Vidatron Entertainment Group Inc.
1. 431617 B.C. Ltd.
2. 552552 B.C. Ltd.
3. API Aviator Pictures Inc. (commercials and music videos)
4. The Eyes Multi-Media Productions Inc. (video and multi-media productions)
5. Soho Enterprises Ltd. (production facilities)
6. Sugar Entertainment Ltd. (television production)
7. Vidatron Television Inc. (development and production)
B. 50% subsidiaries of Vidatron Entertainment Group Inc.
1. 552551 B.C. Ltd.
C. 100% subsidiaries of Sugar Entertainment Ltd.
1. Annie O Productions Ltd.
2. D.M.G. Too Productions Inc.
3. Dead Man's Gun Productions Inc.
4. Diva Productions Inc.
5. First Wave Productions Inc.
6. Forty Winks Productions Inc.
7. Jetlag Productions Inc.
8. My Fair Lacey Productions
9. Prisoner of Zenda Productions Inc.
10. Robin Eh? Productions Inc.
11. Ronnie and Julie Productions Inc.
12. S & F Productions Inc.
13. X Marks the Spot Productions Inc.
D. 100% subsidiaries of Vidatron Television Inc.
1. 1730 Holdings Ltd.
2. Baby Pinsky Productions Inc.
3. Citizen Productions Inc.
4. Harm's Way Productions Inc.
5. Island of Whales Productions Inc.
6. Outside Chance Productions Inc.
7. Roof of the World Productions Inc.
8. 802117 Ontario Inc. (d/b/a Pilot Software), a corporation of Ontario,
Canada, which does business within Ontario and British Columbia.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
The Board of Directors
Vidatron Entertainment Group Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
_____________________________________
Chartered Accountants
Vancouver, Canada
June 23, 1999
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors
VIDATRON Entertainment Group Inc.
In connection with the filing of the Registration Statement on Form F-1 with
the U.S. Securities and Exchange Commission by Vidatron Entertainment Group
Inc., we consent to the use of our reports included herein and to the
reference to our firm under the heading "Experts" in the prospectus included
as part of the Registration Statement.
/s/ Ellis Foster
Chartered Accountants
Vancouver, Canada
June 23, 1999
<PAGE>
EXHIBIT 23.4
Consent of Brand Farrar & Buxbaum LLP
We hereby consent to the reference to our firm under the heading "Tax
Considerations" solely as to U.S. tax matters, and under the heading "Legal
Matters," as set forth in the Registration Statement on Form F-1 of Vidatron
Entertainment Group, Inc. for the registration of Class B Subordinate Voting
Shares, as filed with the United States Securities and Exchange Commission. In
giving such permission, we do not admit hereby that we come within the
category of persons whose consent is required under Section 7 of the United
States Securities Act of 1933, as amended, or the rules and regulations of the
United States Securities and Exchange Commission thereunder.
/s/ Brand Farrar & Buxbaum LLP
June 23, 1999
Los Angeles, California
<PAGE>
EXHIBIT 23.5
CONSENT OF THORSTEINSSONS
I confirm that we consent to the use of our firm's name as special Canadian
tax counsel to the company. Under the heading "Tax Considerations" in the
Registration Statement on Form F-1 of Vidatron Entertainment Group Inc. as
filed with the U.S. Securities and Exchange Commission.
Yours very truly,
/s/ Ian J. Gamble
Ian J. Gamble
Thorsteinssons, Tax Lawyers
