8 % Convertible Senior Subordinated Notes due October 15, 2010
MERCER INTERNATIONAL INC.
PURCHASE AGREEMENT
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October 6, 2003
RBC DAIN RAUSCHER INC.
c/o RBC Capital Markets
200 Bay Street
Royal Bank Plaza
Toronto, Ontario M5J 2W7
Ladies and Gentlemen:
Mercer International Inc., a business trust organized and existing under
the laws of Washington (the "COMPANY"), proposes, subject to the terms and
conditions stated herein, to issue and sell to RBC Dain Rauscher Inc. (the
"INITIAL PURCHASER") $82,500,000 in aggregate principal amount of the Company's
8 % Convertible Senior Subordinated Notes due October 15, 2010 (the "NOTES").
The Notes are to be issued pursuant to an indenture (the "INDENTURE") to be
entered into as of the Closing Date (hereinafter defined), between the Company
and Wells Fargo Bank Minnesota, N.A., as trustee (the "TRUSTEE"), on the terms
set forth therein. The Notes will be convertible into the Company's shares of
beneficial interest (the "CONVERSION SHARES") par value $1.00 per share (the
"SHARES OF BENEFICIAL INTEREST").
The holders of the Notes will be entitled to the benefits of a registration
rights agreement to be dated as of the Closing Date (the "REGISTRATION RIGHTS
AGREEMENT") between the Company and the Initial Purchaser pursuant to which the
Company agrees to file with the Securities and Exchange Commission (the
"COMMISSION") a shelf registration statement pursuant to Rule 415 of the
Securities Act (as defined below) relating to the resale of such Notes and the
Shares of Beneficial Interest issuable upon conversion of the Notes by holders
thereof. This Agreement, the Notes, the Indenture and the Registration Rights
Agreement are hereinafter sometimes referred to collectively as the "OPERATIVE
DOCUMENTS."
The Company has prepared a preliminary offering memorandum (the
"PRELIMINARY OFFERING MEMORANDUM") and a final offering memorandum (the
"OFFERING MEMORANDUM") (each as amended and supplemented from time to time and
including all Incorporated Documents (as defined below)), with respect to the
offering and sale of the Notes (the "OFFERING") in the United States and in the
provinces of British Columbia, Alberta, Ontario and Quebec (the "PRIVATE
PLACEMENT PROVINCES") and in other countries selected by the Initial Purchaser.
The Offering Memorandum used in connection with the offering and sale of the
Notes in the Private Placement Provinces will include certain additional
Information relating to the Offering in Canada and legends and other prescribed
Disclosure (the "WRAP INFORMATION") in
accordance with applicable Canadian securities legislation in the Private
Placement Provinces and the rules, regulations, instruments and orders under
such legislation (the "CANADIAN SECURITIES LAWS") and, for purposes of this
Agreement, references to the "Offering Memorandum" shall be deemed to include,
in the case of the Offering in Canada, the Wrap Information.
The Notes and the Shares of Beneficial Interest issuable upon conversion of
the Notes have not been registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and the Notes are being sold to the Initial Purchaser
in reliance on exemptions from or in transactions not subject to the
registration requirements of the Securities Act. The Initial Purchaser has
advised the Company that it will make offers (the "EXEMPT RESALES") of the Notes
on the terms and conditions set forth herein and in the Offering Memorandum
solely to (i) persons the Initial Purchaser reasonably believes to be "qualified
institutional buyers," ("QIBS") as defined in Rule 144A under the Securities Act
("RULE 144A") and (ii) certain non-U.S. persons outside the United States in
reliance upon Regulation S under the Securities Act ("REGULATION S") and, in the
case of Regulation S offers and sales in a Private Placement Province, through a
dealer registered in such Private Placement Province or under an exemption from
the registered dealer requirement under the Canadian Securities Laws and in
accordance with exemptions from the prospectus requirements under the Canadian
Securities Laws as set out in the Wrap Information (each, an "OFFSHORE
INVESTOR"). The QIBs and the Offshore Investors are collectively referred to
herein as the "ELIGIBLE PURCHASERS."
As used herein, the term "INCORPORATED DOCUMENTS" includes (i) the
Company's annual report on Form 10-K for the year ended December 31, 2002,
(ii) its definitive proxy statements on Schedule 14A filed with the Commission
on August 11, 2003 and September 23, 2003, (iii) its quarterly reports on Form
10-Q for the periods ended March 31, 2003 and June 30, 2003, (iv) its current
reports on Form 8-K filed with the Commission on May 5, 2003, May 9, 2003,
May 13, 2003, May 13, 2003, June 18, 2003, July 17, 2003, August 7, 2003,
August 11, 2003, August 14, 2003, September 12, 2003 and September 16, 2003,
(v) its current report on Form 8-K/A filed with the Commission on August 7,
2003, (vi) any future filings (but excluding information furnished to the
Commission pursuant to Item 9 or Item 12 of Form 8-K) the Company makes with
the Commission under Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), during the period from
the date of the Preliminary Offering Memorandum until all the Notes are sold by
the Initial Purchaser, and (vii) any amendments or supplements to any of the
foregoing.
1. Representations and Warranties of the Company. The Company
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represents and warrants to, and agrees with, the Initial Purchaser that:
(a) The Preliminary Offering Memorandum, as of its date, and the Offering
Memorandum as of its date and as of the Closing Date, will not, and any
supplement or amendment will not, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The representations and warranties in the
preceding sentence do not apply to statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company by the
Initial
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Purchaser and its affiliates specifically for use therein, it being understood
and agreed that the only such information is that described as such in Section
7(b) hereof.
(b) The Incorporated Documents, at the time they were or are filed with the
Commission, conformed and will conform in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder, including the filing of all exhibits required to be filed therewith.
(c) The Company has been duly organized and is validly existing as a
Massachusetts business trust in good standing under the laws of the State of
Washington with power and authority (corporate and other) to own its properties
and conduct its business as described in the Offering Memorandum; and the
Company is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its business
makes such qualification necessary, except for those failures to be so qualified
or in good standing which will not in the aggregate have a material adverse
effect on the condition (financial or otherwise), results of operations,
business, properties or the construction, development or planned operation of
the Stendal Mill or of the Company and its subsidiaries taken as a whole (a
"MATERIAL ADVERSE EFFECT"); all of the issued and outstanding Shares of
Beneficial Interest of the Company have been duly authorized and validly issued
and are fully paid and nonassessable.
(d) Each subsidiary of the Company has been duly incorporated or organized
and is an existing corporation, partnership or limited partnership in good
standing under the laws of the jurisdiction of its incorporation or
organization, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Offering Memorandum; and
each subsidiary of the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its ownership
or lease of property or the conduct of its business requires such qualification,
except to the extent that the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect; all of the issued and
outstanding capital stock of each subsidiary of the Company has been duly
authorized and validly issued and is fully paid and nonassessable; and the
capital stock of each subsidiary owned by the Company, directly or through
subsidiaries, is owned free from liens, encumbrances and defects, other than
liens and encumbrances granted pursuant to the terms of the "Bridge Loans", the
"Stendal Loan Facility" and/or the "Rosenthal Loan Facility" (as such terms are
defined in the Offering Memorandum).
(e) Except as described in the Offering Memorandum, since the date on which
information is given in the Offering Memorandum, (i) there has been no material
adverse change or any development involving a prospective material adverse
change in the business, properties, operations, condition (financial or
otherwise) or results of operations, assets, liabilities, properties or the
construction, development or planned operation of the Stendal Mill of the
Company and its subsidiaries taken as a whole, whether or not arising from
transactions in the ordinary course of business, and since the respective dates
as of which information is given in the Offering Memorandum ("Material Adverse
Change"), (ii) neither the Company nor any of its subsidiaries has incurred or
undertaken any material liabilities or obligations, direct or contingent, other
than as incurred under the "Stendal Loan Facility", or entered into any material
transactions, or (iii) declared or paid any dividends or made any distribution
of any kind with
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respect to its capital stock and, except as described in the Offering Memorandum
there has not been any change in the capital stock, or any material change in
the short-term or long-term debt, or any issuance of options, warrants,
convertible securities or other rights to purchase the capital stock, of the
Company or any of its subsidiaries,.
(f) This Agreement and the transactions contemplated herein have been duly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company.
(g) The Indenture has been duly authorized by the Company, and, when duly
executed and delivered by the Company and duly authorized, executed and
delivered by the Trustee, will constitute a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance, moratorium,
reorganization or similar laws relating to or affecting the rights of creditors
generally and subject to general principles of equity.
(h) The authorized issued and outstanding Shares of Beneficial Interest of
the Company are as set forth in the Offering Memorandum in the column entitled
"June 30, 2003 - Actual" under the caption "Capitalization" (except for
subsequent issuances pursuant to this Agreement or pursuant to reservations,
agreements or option plans described in the Offering Memorandum or the
Incorporated Documents) and have been duly and validly authorized and issued,
are fully paid and non-assessable and were not issued in violation of or subject
to any preemptive or similar rights that entitle or will entitle any person to
acquire any Shares of Beneficial Interest from the Company upon issuance by the
Company of the Conversion Shares upon conversion of the Notes; the Conversion
Shares to be issued upon conversion of the Notes have been duly authorized and
reserved for issuance upon such conversion and when issued upon such conversion
by the Company in accordance with the terms of the Notes and the Indenture, will
be validly issued, fully paid and non-assessable, and will not be issued in
violation of or subject to any preemptive or similar rights that entitle or will
entitle any person to acquire any Shares of Beneficial Interest from the Company
upon such issuance of the Conversion Shares by the Company.
(i) The Notes have been duly authorized by the Company for issuance and
sale to the Initial Purchaser pursuant to this Agreement, and when issued and
authenticated in accordance with the terms of the Indenture and delivered
against payment therefor in accordance with the terms thereof and hereof,
assuming the due authorization, execution and delivery of the Indenture by the
Trustee, will be a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with their terms and entitled to
the benefits of the Indenture, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, moratorium, reorganization or similar laws relating to or
affecting the rights of creditors generally and subject to general principles of
equity. The Notes and the Indenture will conform in all material respects to the
descriptions thereof contained in the Offering Memorandum.
(j) The Registration Rights Agreement has been duly authorized by the
Company, and, assuming due execution and delivery by the Initial Purchaser, when
executed and delivered by the Company, will be a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to applicable bankruptcy,
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insolvency, fraudulent conveyance, moratorium, reorganization or similar laws
affecting the rights of creditors generally and subject to general principles of
equity. The Registration Rights Agreement will conform in all material
respects to the description thereof contained in the Offering Memorandum.
(k) The execution, delivery, and performance of the Operative Documents and
the consummation of the transactions contemplated therein, including, without
limitation, the issuance and delivery of the Conversion Shares upon due
conversion of the Notes in accordance with the terms of the Notes and the
Indenture, do not and will not (i) as at the Closing Date and assuming the
application of funds as set forth in the "Use of Proceeds" section of the
Offering Memorandum conflict with or result in a breach of any of the terms and
provisions of, or constitute a default (or an event which with notice or lapse
of time, or both, would constitute a default) under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any of its subsidiaries pursuant to, any indenture, mortgage,
deed of trust, loan agreement or other agreement, instrument, franchise, license
or permit to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries or their respective properties or assets
may be bound or (ii) violate or conflict with any provision of the Declaration
of Trust or by-laws of the Company or any of the governing instruments of its
subsidiaries or (iii) violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties or assets.
(l) No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their respective properties or assets is
required for the execution, delivery and performance of the Operative Documents
or the consummation of the transactions contemplated therein, including, without
limitation, the issuance, sale and delivery of the Notes to be issued, sold and
delivered by the Company hereunder and the issuance and delivery of the
Conversion Shares upon due conversion of the Notes in accordance with the terms
of the Notes, except the filing of (i) the Offering Memorandum and Wrap
Information with the Ontario Securities Commission, (ii) reports of trades made
in the relevant jurisdiction and any required fees, with the securities
commission or similar regulatory authority in the applicable Private Placement
Provinces (the "CANADIAN COMMISSIONS"), (iii) a certificate prepared in
accordance with Policy Statement 41-601Q of the Commission des valeurs
mobilieres du Quebec, and (iv) if required, a private placement questionnaire
and undertaking by each Canadian purchaser of the Notes in the prescribed form
with the Toronto Stock Exchange (the "TSX"), and (v) such consents, approvals,
authorizations, orders, registrations, filings, qualifications, licenses and
permits as may be required (A) under state securities or blue sky laws or the
laws of countries outside the U.S. and Canada in connection with the purchase
and distribution of the Notes by the Initial Purchaser in the manner
contemplated herein and in the Offering Memorandum or (B) in connection with the
Company's obligations under the Registration Rights Agreement, including the
qualification of the Indenture under the Trust Indenture Act.
(m) Except as disclosed in the Offering Memorandum or the Incorporated
Documents, or as would not have a Material Adverse Effect, each of the Company
and its
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significant subsidiaries (i) possesses the permits, licenses, consents and other
authorizations all grants, subsidies, guarantees, consents, approvals and
other authorizations from appropriate German government agencies ("STATE AID
GRANTS") (collectively, the "GOVERNMENT LICENSES") issued by, and has made all
filings with, the appropriate regulatory entities necessary to own, lease and
operate its properties and to conduct businesses now operated or, in the case of
the plant under construction in Stendal, Germany, proposed to be operated by it,
and (ii) all such Government Licenses are valid and in full force and effect.
Except as will be described in the Offering Memorandum, or as would not have a
Material Adverse Effect: (i) each of the Company and its significant
subsidiaries is in compliance with the terms and conditions of all such
Government Licenses; (ii) neither the Company nor any subsidiary has received
any notice from any regulatory entity that allows, or after notice or lapse of
time or both, would allow revocation, modification, suspension or termination of
any Government License including any claim against the Company or any of the
subsidiaries for repayment of any benefit received under State Aid Grants or
would result in any other material impairment of the rights of the holder of any
such Government License; and (iii) to the knowledge of the Company and its
subsidiaries, no regulatory entity is considering limiting, suspending or
revoking any Government License or is investigating any of them, other than
ordinary course administrative and covenant compliance reviews.
(n) Except as disclosed in the Offering Memorandum or the Incorporated
Documents, there is no legal or governmental proceeding to which the Company or
any of its subsidiaries is a party, or of which any property of the Company or
any of its subsidiaries is the subject which, singularly or in the aggregate, if
determined adversely to the Company or any of its subsidiaries, would reasonably
be expected to have a Material Adverse Effect, and to the knowledge of the
Company, no such proceeding is threatened or contemplated by governmental
authorities or threatened or contemplated by others.
(o) Neither the Company nor any of its affiliates has taken prior to the
date of this Agreement, directly or indirectly, any action designed to cause or
result in, or which constitutes or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security of
the Company or any of its subsidiaries to facilitate the sale or resale of the
Notes.
(p) Peterson Sullivan P.L.L.C., who have audited the financial statements
and supporting schedules as set forth or incorporated by reference in the
Offering Memorandum, are, to the Company's knowledge, independent public
accountants as required by the Securities Act and the rules and regulations of
the Commission promulgated thereunder (the "RULES AND REGULATIONS"), and are not
and have not engaged in any non-audit activities that are prohibited by Section
201(a) of the Sarbanes-Oxley Act of 2002.
(q) Deloitte & Touche LLP, who have performed the procedures specified by
the American Institute of Certified Public Accountants as described in Statement
of Accounting Standard No. 100 with respect to the six month period ended June
30, 2003 as set forth or incorporated by reference in the Offering Memorandum,
are, to the Company's knowledge, independent public accountants as required by
the Securities Act and the Rules and Regulations, and are not and have not
engaged in any non-audit activities that are prohibited by Section 201(a) of the
Sarbanes-Oxley Act of 2002.
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(r) The financial statements, including the notes thereto, and supporting
schedules as set forth or incorporated by reference in the Offering Memorandum
present fairly in all material respects the financial position and results of
operations of the Company and its consolidated subsidiaries and as of the dates
indicated and for the periods specified; except as otherwise stated in the
Offering Memorandum, such financial statements have been prepared in conformity
with United States generally accepted accounting principles applied on a
consistent basis throughout the periods involved.
(s) Except as disclosed in the Offering Memorandum, no holder of securities
of the Company has any rights to the registration of securities of the Company
as a result of the execution of the Operative Documents or the consummation of
the transactions contemplated therein (other than pursuant to the Registration
Rights Agreement), and any such rights so disclosed have either been fully
complied with by the Company or effectively waived by the holders thereof.
(t) Except as disclosed in the Offering Memorandum, no relationship, direct
or indirect, exists between or among the Company or any of its subsidiaries on
the one hand, and the trustees, directors, officers, stockholders, customers or
suppliers of the Company or any of its subsidiaries on the other hand, that
would be required by the Securities Act to be described in the Offering
Memorandum if the Offering Memorandum were a prospectus included in a
registration statement on Form S-1 filed with the Commission.
(u) The Company is not, and after giving effect to the offering and sale of
the Notes will not be, an "investment company" under the Investment Company Act
of 1940, as amended.
(v) The Company and its significant subsidiaries have good and marketable
title in fee simple to all real property owned by the Company and its
significant subsidiaries and have good and marketable title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects, except such as: (i) are described in the Offering Memorandum or the
Incorporated Documents; or (ii) would not singularly or in the aggregate result
in a Material Adverse Effect; and any real property and buildings held under
lease by the Company or any of its significant subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material to the Company and its subsidiaries taken as a whole, and do not
materially interfere with the ongoing use made of such property and buildings by
the Company and its significant subsidiaries.
(w) Except as would not have a Material Adverse Effect, the Company and
each of its significant subsidiaries have accurately prepared and timely filed
all federal, state, provincial and other tax returns that are required to be
filed by it and has paid or made provision for the payment of all taxes,
assessments, governmental or other similar charges, including without
limitation, all sales and use taxes and all taxes that the Company and each of
its subsidiaries is obligated to withhold from amounts owing to employees,
creditors and third parties, with respect to the periods covered by such tax
returns (whether or not such amounts are shown as due on any tax return). Except
as would not have a Material Adverse Effect, no deficiency assessment with
respect to a proposed adjustment of the Company's or any of its subsidiaries'
federal, state, provincial or other taxes is pending or, to the knowledge of the
7
Company, threatened. There is no tax lien, whether imposed by any federal,
state, provincial or other taxing authority, outstanding against the assets,
properties or business of the Company or any of its significant subsidiaries.
(x) Each of the Company and its subsidiaries (i) makes and keeps accurate
books and records and (ii) maintains internal accounting controls that provide
reasonable assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to permit
preparation of its financial statements and to maintain accountability for its
assets, (C) access to its assets is permitted only in accordance with
management's authorization, direction or policies and (D) the reported
accountability for its assets is compared with existing assets at reasonable
intervals. Since December 31, 2002, neither the Company nor any of its
subsidiaries has made any change in its internal controls that would be
reportable in any filing under the Exchange Act pursuant to Item 307 of
Regulation S-K. The Company maintains disclosure controls and procedures (as
defined in Rule 13a-14 under the Exchange Act) sufficient to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act, is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and forms.
(y) The Company has adopted a written code of ethics that applies to its
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions. Since the
adoption of its code of ethics, the Company has not made any amendment to or
granted any waiver thereunder.
(z) The Shares of Beneficial Interest are registered pursuant to Section
12(g) of the Exchange Act and are quoted on the Nasdaq National Market (the
"NASDAQ NATIONAL MARKET") and posted and listed for trading on the TSX. On or
before the Closing Time, the Conversion Shares will be authorized for quotation
on the Nasdaq National Market and conditionally approved for listing on the TSX
subject only to the filing of certain documents, and the Company has taken no
action designed to, or likely to have the effect of, terminating the
registration of the Shares of Beneficial Interest under the Exchange Act or
de-listing the Shares of Beneficial Interest from the Nasdaq National Market or
the TSX, nor has the Company received any notification that the Commission, the
Nasdaq National Market or the TSX is contemplating terminating such registration
or listing.
(aa) The Company is a reporting issuer, or its equivalent, under the
securities laws of British Columbia, Alberta, Ontario and Quebec, is not in
default of any applicable Canadian Securities Laws, is not included in the list
of defaulting reporting issuers maintained by any of the relevant Canadian
Commissions, and is, and will at the Closing Date be, a "qualifying issuer" for
the purposes of Multilateral Instrument 45-102 of the Canadian Securities
Administrators and corresponding provisions of Canadian Securities Laws
applicable in the Province of Quebec.
(bb) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default (and no event has
occurred which, with notice or lapse of time or both, would constitute such a
default) under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement
or other
8
agreement or instrument to which it is a party or by which it is bound or to
which any of its property or assets is subject, or (iii) except as disclosed in
the Offering Memorandum or Incorporated Documents, is in violation in any
respect of any statute or any judgment, decree, order, rule or regulation of any
court or governmental or regulatory agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or assets, except
in the case of (i), (ii) and (iii) above any violation or default that would not
have a Material Adverse Effect. Without limitation of the foregoing, the
Company's subsidiaries are in material compliance with all covenants applicable
to them in the Stendal Project Facility and the Rosenthal Facility (as defined
in the Offering Memorandum).
(cc) Except as described in the Offering Memorandum, no labor disturbance
with the employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent that would reasonably be expected to have
a Material Adverse Effect.
(dd) The Company and each of its significant subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as in the
Company's reasonable determination is adequate for the conduct of their
respective businesses and the value of their respective properties.
(ee) The Company does not maintain, contribute to, or have any obligation
to contribute to, and has never maintained, contributed to or had any obligation
to contribute to, any "employee pension benefit plan" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations thereunder ("ERISA")),
which is subject to Title IV of ERISA or Section 412 of the Internal Revenue
Code of 1986.
(ff) Except as disclosed in the Offering Memorandum or the Incorporated
Documents and except as would not, singularly or in the aggregate, result in a
Material Adverse Effect, (i) there has been no storage, generation,
transportation, handling, treatment, disposal, discharge, emission, or other
release of any kind of toxic or other wastes or other hazardous substances by,
due to, or caused by the Company (or, to the Company's knowledge, any other
entity for whose acts or omissions the Company is or may be liable) upon any
other property now or previously owned or leased by the Company or any of its
subsidiaries, or upon any other property, in violation of any statute or any
ordinance, rule, regulation, order, judgment, decree or permit or which would,
under any statute or any ordinance, rule (including rule of common law),
regulation, order, judgment, decree or permit, give rise to any liability, and
(ii) there has been no disposal, discharge, emission or other release of any
kind onto such property or into the environment surrounding such property of any
toxic or other wastes or other hazardous substances with respect to which the
Company or any of its subsidiaries has knowledge.
(gg) The Company, its subsidiaries or any other person associated with
or acting on behalf of the Company or its subsidiaries including, without
limitation, any trustee, director, officer, agent or employee of the Company or
its subsidiaries, has not, directly or indirectly, while acting on behalf of the
Company or its subsidiaries (i) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; (iii)
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violated or is in violation of any provision of the Foreign Corrupt Practices
Act of 1977, as amended; or (iv) made any other unlawful payment.
(hh) The statistical and market-related data included or incorporated by
reference in the Offering Memorandum are based on or derived from sources that
the Company reasonably believes to be reliable and accurate.
(ii) None of the Company or any of its affiliates (as defined in Rule
501(b) under the Securities Act) or any person acting on such person's behalf
(other than the Initial Purchaser and its affiliates, as to whom no
representation is made) has sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of any security (as such term is defined in the
Securities Act) that is or would be integrated with the sale of the Notes in a
manner that would require registration under the Securities Act.
(jj) When the Notes are issued and delivered pursuant to this Agreement,
the Notes will not be of the same class (within the meaning of Rule 144A) as any
securities of the Company which are listed on a national securities exchange
registered under Section 6 of the Exchange Act or quoted in a United States
automated inter-dealer quotation system.
(kk) The Company is subject to Section 13 or Section 15(d) of the Exchange
Act and is in compliance with the provisions of such Section.
(ll) Assuming compliance by the Initial Purchaser with its representations,
warranties and covenants set forth herein, the compliance by the Initial
Purchaser with the offering and transfer procedures and restrictions described
in the Offering Memorandum, the accuracy of the representations and warranties
made by the purchasers to whom the Initial Purchaser resells Notes in accordance
with the Offering Memorandum and the condition that any subsequent purchasers
receive a copy of the Offering Memorandum prior to such sale, no registration
under the Securities Act of the Notes and no filing of a prospectus in
accordance with the Canadian Securities Laws to qualify the distribution of the
Notes is required for the sale of the Notes to the Initial Purchaser as
contemplated hereby and in the Offering Memorandum or for the Exempt Resales or
to qualify the Indenture under the Trust Indenture Act of 1939, as amended. No
form of general solicitation or general advertising (as those terms are defined
in Regulation D under the Securities Act) has been used by the Company or any of
its affiliates or any person acting on such person's behalf (other than the
Initial Purchaser and its affiliates, as to whom no representation is made) in
connection with the offer and sale of any of the Notes.
(mm) The Offering Memorandum and Wrap Information, as of its date, and each
amendment or supplement thereto, as of its date, will contain the information
specified in, and will meet the requirements of the applicable Canadian
Securities Laws.
(nn) None of the Company or any of its affiliates or any person acting on
such person's behalf (other than the Initial Purchaser and its affiliates, as to
whom no representation is made) has engaged or will engage in any directed
selling efforts within the meaning of Regulation S with respect to the Notes.
(oo) The Company and its affiliates and all persons acting on such person's
behalf (other than the Initial Purchaser and its affiliates, as to whom no
representation is made)
10
have complied with and will comply with the offering restrictions requirements
of Regulation S in connection with the offering of the Notes outside the United
States.
(pp) Each of the Notes and the Conversion Shares will bear the legends (and
such other legends as may be required under the Indenture) provided for under
"Notice to Investors" in the Offering Memorandum, and each of the Notes and the
Conversion Shares offered and sold in the Private Placement Provinces will bear
the legend set forth under "Resale Restrictions" in the Wrap Information, in
each case, for the time period and upon the other terms stated therein.
(qq) None of the execution, delivery and performance of this Agreement, the
issuance and sale of the Notes, the application of the proceeds from the
issuance and sale of the Notes and the consummation of the transactions
contemplated hereby and thereby as set forth in the Offering Memorandum, will
violate Regulations T, U or X promulgated by the Board of Governors of the
Federal Reserve System or analogous foreign laws and regulations.
(rr) Except as disclosed in the Offering Memorandum, there are no
contracts, agreements or understandings between the Company and any person that
would give rise to a valid claim against the Company or the Initial Purchaser
for a brokerage commission, finder's fee or other like payment in connection
with the sale of the Notes.
(ss) The Company held a special meeting of shareholders on October 3, 2003,
such meeting was duly noticed and at such meeting the Company obtained requisite
shareholder approval of the issuance of the Notes and the Conversion Shares as
set forth in the Company's Definitive Proxy Statement dated September 23, 2003.
(tt) As of the Closing Date, the purchase by any shareholder of the Company
who owns less than 15% of the outstanding Shares of Beneficial Interest of a pro
rata share of the Notes being sold in the Offering will not constitute a
"Triggering Event" under the Company's Rights Plan as amended.
(uu) The Company and its affiliates and all persons acting on such person's
behalf (other than the Initial Purchaser and its affiliates, as to whom no
representation is made), have complied with and will comply to the best of their
knowledge with the provisions of the paragraph "Plan of Distribution - Sale
Restrictions" in the Offering Memorandum
2. Purchase, Sale and Delivery of the Notes.
----------------------------------------------
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Initial Purchaser and the Initial
Purchaser agrees to purchase from the Company all of the Notes at a purchase
price of 95.912% of the principal amount thereof, plus accrued interest, if any.
(b) Payment of the purchase price for, and delivery of the Notes shall be
made at the office of Sangra Moller, 1000 Cathedral Place, 925 West Georgia
Street, Vancouver BC V62 3L2, or at such other place as may be agreed upon by
you and the Company, at 7:00 A.M., Vancouver time, on October 10, 2003 (unless
postponed in accordance with the provisions of
11
Section 9 hereof) or at such other time and date as shall be agreed upon by you
and the Company (such time and date of payment and delivery being herein called
the "CLOSING DATE").
The Notes to be delivered to you shall be registered in the form of one or
more permanent global notes in definitive form (the "GLOBAL NOTES") deposited
with the Trustee as custodian for The Depository Trust Company ("DTC") and
registered in the name of Cede & Co., as nominee for DTC. Interests in any
permanent global Notes will be held only in book-entry form through DTC, except
in the limited circumstances described in the Offering Memorandum. The Company
will permit you to examine the Global Notes at least one full business day prior
to the Closing Date.
(c) Payment of the purchase price for the Notes shall be made to the
Company by wire transfer of immediately available (same day) funds to the bank
account designated by the Company on the Closing Date against delivery of the
Global Notes to the Initial Purchaser through the facilities of DTC.
3. Representations, Warranties and Covenants of the Initial Purchaser.
-------------------------------------------------------------------
The Initial Purchaser represents and warrants to, and agrees with, the Company
that:
(a) The Initial Purchaser is a QIB.
(b) The Initial Purchaser (A) is not acquiring the Notes with a view to any
distribution thereof that would violate the Securities Act or the securities
laws of any state of the United States, the Private Placement Provinces or any
other applicable jurisdiction and (B) will be reoffering and reselling the Notes
only to those it reasonably believes to be QIBs in reliance on Rule 144A and in
certain offshore transactions in reliance upon Regulation S, including, in the
case of offers and sales in the Private Placement Provinces, in accordance with
exemptions from the prospectus requirements under the Canadian Securities Laws
as set out in the Wrap Information.
(c) No form of general solicitation or general advertising (as those terms
are defined in Regulation D under the Securities Act) has been or will be used
by the Initial Purchaser or any of its representatives in connection with the
offer and sale of any of the Notes, including, but not limited to, articles,
notices or other communications published in any newspaper, magazine or similar
medium or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
(d) The Initial Purchaser agrees that, in connection with the Exempt
Resales, it will solicit offers to buy the Notes only from, and will offer to
sell the Notes only to, Eligible Purchasers. The Initial Purchaser further
acknowledges and agrees that such Eligible Purchasers shall acknowledge and
agree (or be deemed to acknowledge and agree) that (A) such Notes will not have
been registered under the Securities Act, will not have been qualified by a
prospectus filed under applicable Canadian Securities Laws and may be offered,
resold, pledged or otherwise transferred only (I) to a person whom the seller
reasonably believes is a QIB purchasing for its own account or for the account
of a QIB in a transaction meeting the requirements of Rule 144A, (II) in an
offshore transaction complying with Rule 903 or 904 of Regulation S of the
Securities Act, subject to clause (y) below, (III) pursuant to an exemption
12
from registration under the Securities Act provided by Rule 144 (if available),
or (IV) pursuant to an effective registration statement under the Securities
Act, (x) in each of cases (I) through (IV) in accordance with any applicable
securities laws of any state of the United States or any jurisdiction outside of
the U.S. and Canada, and (y) in the case of such a transaction in the Private
Placement Provinces or to or for the account or benefit of a Canadian resident
through the services of a dealer registered in the purchaser's province or under
an exemption from the registered dealer requirement under the Canadian
Securities Laws and pursuant to an exemption from the prospectus requirements of
applicable Canadian Securities Laws, (B) such person shall not engage in hedging
transactions with regard to the Notes and the Shares of Beneficial Interest
issuable upon conversion of the Notes unless in Compliance with the Securities
Act; and (C) the purchaser will, and each subsequent holder is required to,
notify any purchaser of the Notes of the resale restrictions referred to in (A)
and (B) above.
(e) The Initial Purchaser and its affiliates or any person acting on such
person's behalf have not engaged and will not engage in any directed selling
efforts within the meaning of Regulation S with respect to the Notes.
(f) The Initial Purchaser agrees that it has not offered or sold and will
not offer or sell the Notes in the United States or to, or for the benefit or
account of, a U.S. Person (other than a distributor), in each case, as defined
in Rule 902 under the Securities Act (i) as part of its distribution at any time
and (ii) otherwise until one year after the later of the commencement of the
offering of the Notes pursuant hereto and the Closing Date, other than in
accordance with Regulation S or another exemption from the registration
requirements of the Securities Act. The Initial Purchaser agrees that, during
such one-year distribution compliance period, it will not cause any
advertisement with respect to the Notes (including any "tombstone"
advertisement) to be published in any newspaper or periodical or posted in any
public place and will not issue any circular relating to the Notes, except such
advertisements as are permitted by and include the statements required by
Regulation S.
(g) The Initial Purchaser will deliver at or prior to the sale to each
purchaser of the Notes from such Initial Purchaser in connection with its
initial distribution of the Notes, whether by mail, delivery, electronic or
other means, a copy of the Offering Memorandum, as amended and supplemented at
the date of such delivery.
(h) The Initial Purchaser agrees that, at or prior to confirmation of a
sale of the Notes by it to any distributor, dealer or person receiving a selling
concession, fee or other remuneration during the one-year distribution
compliance period referred to in Rule 903(b)(3) under the Securities Act, it
will send to such distributor, dealer or person receiving a selling concession,
fee or other remuneration a confirmation or notice to substantially the
following effect:
"The Notes covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the "SECURITIES ACT"), and may not be
offered and sold within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of your distribution at any time or
(ii) otherwise until one year after the later of the commencement of the
Offering and the Closing Date, except in either case in accordance with
Regulation S under the Securities Act (or Rule 144A or to an
13
institutional accredited investor in transactions that are exempt from the
registration requirements of the Securities Act), and during such one year
period you may not engage in hedging transactions with regard to the Notes
and the Shares of Beneficial Interest issueable upon conversion of the
Notes unless in compliance with the Securities Act, and in connection with
any subsequent sale by you of the Notes covered hereby in reliance on
Regulation S during the period referred to above to any distributor, dealer
or person receiving a selling concession, fee or other remuneration, you
must deliver a notice to substantially the foregoing effect. Terms used
above have the meanings assigned to them in Regulation S."
(i) Offers and sales of the Notes in the Private Placement Provinces will
be made only by the Initial Purchaser or an affiliate, in either case, provided
that it is registered in an appropriate category or exempt from registration
under the Canadian Securities Laws in respect of such offers and sales.
(j) The Initial Purchaser agrees to assist the Company in all reasonable
respects to secure compliance with applicable Canadian Securities Laws in
connection with the Offering in Canada, and shall timely provide the Company or
its agent with the information required to enable the Company to comply with its
obligations under subsection 4(i), including details of any Eligible Purchaser
resident in a Private Placement Province and related information necessary to
complete any form or certificate prescribed by a Canadian Commission in
connection with the Offering in Canada, including, but not limited to, Ontario
Securities Commission Form 45-501F1.
(k) The Initial Purchaser has taken no action, and will take no action, in
any jurisdiction (either on its own or as an agent of the Company) in connection
with the Offering that as a direct result of which any action, filing or
registration would be required in any such jurisdiction (other than (x) the
filing of (i) the Offering Memorandum and Wrap Information with the Ontario
Securities Commission, (ii) reports of the trades in the prescribed form
prepared and executed in accordance with applicable Canadian Securities Laws,
(iii) a certificate prepared in accordance with Policy Statement 41-601Q of the
Commission des valeurs mobilieres du Quebec, and (iv) if required, a private
placement questionnaire and undertaking by each Canadian purchaser of the Notes
in the prescribed form with the TSX, and (y) such consents, approvals,
authorizations, orders, registrations, filings, qualifications, licenses and
permits as may be required (i) under state securities or Blue Sky laws in
connection with the purchase and distribution of the Notes by the Initial
Purchaser or (ii) in connection with the Company's obligations under the
Registration Rights Agreement), or that would independently result in the breach
of the applicable securities laws, statutes, rules or regulations (whether by
the Initial Purchaser or the Company) in any such jurisdiction. The Initial
Purchaser will comply with all applicable securities laws, statutes, rules and
regulations in connection with the Offering in each jurisdiction in which it
purchases, offers, sells or delivers Notes or distributes or causes to be
distributed the Offering Memorandum in connection with the Exempt Resales.
(l) The Initial Purchaser will promptly notify the Company in writing of
the completion of the sale of the Notes by it.
14
(m) The Initial Purchaser and its affiliates and all persons acting on such
person's behalf, have complied with and will comply to the best of their
knowledge with the provisions of the paragraph "Plan of Distribution - Sale
Restrictions" in the Offering Memorandum.
4. Covenants of the Company. The Company covenants and agrees with the
------------------------
Initial Purchaser that:
(a) The Company shall, as soon as practicable and in any event not later
than 24 hours after the execution of this Agreement (or such other period as
agreed to by the Initial Purchaser, acting reasonably), finalize the Offering
Memorandum and deliver it pursuant to Section 4(e) below.
(b) The Company shall notify you (and, if requested by you, shall confirm
such notice in writing) (i) of the filing of any information relating to the
offering of the Notes with any securities exchange or any other regulatory body
in the United States or Canada, and (ii) of the issuance by the Commission or
any U.S. state securities commission or by any Canadian or foreign regulatory
authority of any stop order, or the receipt by the Company of any other
notification, suspending the qualification or exemption from qualification of
the Notes for offering and sale in any jurisdiction, or the initiation or
threatening of any proceeding for that purpose. If the Commission or any U.S.
state securities commission or any Canadian or foreign regulatory authority
proposes or enters a stop order or order of similar effect at any time with
respect to the transactions contemplated by this Agreement, the Company shall
make every reasonable effort to prevent the issuance of any such stop order and,
if issued, to obtain the lifting of such order as soon as possible.
(c) The Company shall not at any time make any amendment of or supplement
to the Offering Memorandum (including the Incorporated Documents) without the
Initial Purchaser's consent, which shall not be unreasonably withheld or
delayed.
(d) If, at any time prior to the completion of the sale of the Notes, any
event occurs or condition exists as a result of which it is necessary, in the
opinion of counsel for the Initial Purchaser or for the Company, acting
reasonably, to amend or supplement the Offering Memorandum in order that the
Offering Memorandum will not include 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, in the light of the circumstances under which they were
made, not misleading, or if it is necessary, in the opinion of such counsel,
acting reasonably, at any such time to amend or supplement the Offering
Memorandum in order to comply with the requirements of the Securities Act or the
Rules and Regulations or the Canadian Securities Laws, the Company shall
promptly notify you (unless counsel for the Initial Purchaser already has
expressed such an opinion) and prepare, subject to subsection 4(c), such
amendment or supplement (in form and substance satisfactory to you) as may be
necessary to correct such statement or omission or to effect such compliance.
(e) The Company shall promptly deliver to the Initial Purchaser such number
of copies of the Preliminary Offering Memorandum and Offering Memorandum and all
amendments of and supplements thereto, if any, and all Incorporated Documents or
any
15
amendment thereof or supplement thereto, as you may reasonably request. The
Company hereby consents to the use of such copies by the Initial Purchaser in
connection with the sale of the Notes. Prior to 2:00 P.M., Vancouver time on the
second business day next succeeding the date of this Agreement, the Company
shall, without charge, furnish the Initial Purchaser with copies of the Offering
Memorandum in New York City and Toronto, respectively, in such quantities as you
may reasonably request, and the Company shall deliver to the Initial Purchaser,
without charge, during the period prior to the completion of the sale of the
Notes, such number of copies of the Offering Memorandum (as supplemented or
amended) as the Initial Purchaser may reasonably request.
(f) The Company shall not file any document under the Exchange Act before
the completion of the sale of the Notes by the Initial Purchaser if the document
would be deemed to be incorporated by reference into the Offering Memorandum, of
which the Initial Purchaser shall not previously have been advised and furnished
a copy or to which the Initial Purchaser shall have reasonably objected in
writing or that is not in compliance with the Exchange Act or the rules and
regulations of the Commission promulgated thereunder.
(g) The Company shall use its reasonable efforts, in cooperation with you,
to qualify the Notes under the securities or blue sky laws of such jurisdictions
within the United States as you may designate and to maintain such qualification
in effect for so long as required for the sale of the Notes; provided, however,
that in no event shall the Company be obligated in connection therewith to
qualify as a foreign corporation or to execute a general consent to service of
process or to subject itself to taxation in respect of doing business in any
jurisdictions in which it is not otherwise so subject.
(h) The Company shall use all reasonable efforts to secure compliance with
the Canadian Securities Laws on a timely basis in connection with the
distribution of the Notes to Eligible Purchasers in the Private Placement
Provinces on a prospectus-exempt basis, including without limitation, by filing
as soon as practicable after the Closing Date and in any event within the
periods stipulated under the Canadian Securities Laws and at the Company's
expense all private placement forms, trade reports or other documents required
to be filed in connection with the Exempt Resales in the Private Placement
Provinces and paying all fees required in connection therewith.
(i) The Company shall use its reasonable efforts to maintain its status as
a reporting issuer, or its equivalent, under the securities laws of British
Columbia, Alberta, Ontario and Quebec, and to timely comply with its continuous
disclosure and other obligations under the Canadian Securities Laws.
(j) During the period of 180 days from the date of the Offering Memorandum,
the Company shall not, directly or indirectly, without the prior written consent
of RBC Dain Rauscher Inc., issue, sell, offer or agree to sell, grant any option
for the sale of, pledge, make any short sale or maintain any short position,
establish or maintain a "put equivalent position" (within the meaning of Rule
16a-1(h) under the Exchange Act), enter into any swap, derivative transaction or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Shares of Beneficial Interest (whether
any such transaction is to be settled by delivery of Shares of Beneficial
Interest, other securities, cash or other consideration) or otherwise dispose
of, any Shares of Beneficial Interest (or any securities convertible into,
exercisable for or exchangeable for Shares of Beneficial Interest, including the
Notes, (the "EXCHANGEABLE SHARES")) or interest therein of the Company, or
Shares of Beneficial Interest or any securities convertible into, exercisable
for or exchangeable for Shares of Beneficial Interest of any of its
subsidiaries, and the Company shall obtain the undertaking of each of its
officers and trustees as have been heretofore designated by you and listed on
Schedule I attached hereto not to engage in any of the aforementioned
transactions on their own behalf, other than the Company's sale of the Notes
hereunder and (A) the Company's issuance of Shares of Beneficial Interest upon
(i) the conversion or exchange of outstanding convertible or exchangeable
securities (including the Notes and the Conversion Shares), or (ii) the exercise
of currently outstanding options; (B) the grant of options under, or the
issuance of Shares of Beneficial Interest upon the exercise thereof pursuant to,
employee stock option plans in effect on the date hereof; or (C) the Company's
issuance of any Shares of Beneficial Interest or other securities for the
purpose of acquiring a business, any assets or any securities, so long as the
recipient of such shares or other securities agrees to be subject to similar
restrictions for the remaining balance of such 180-day period.
(k) During the period of two years from the Closing Date the Company shall
furnish to you copies of any reports to holders of the Notes, and deliver to you
as soon as they are available, copies of any periodic reports and financial
statements furnished to or filed with the Commission or any national or foreign
securities exchange on which any class of securities of the Company is listed to
the extent such documents are not available on the SEC's website.
(l) For so long as any of the Notes or the Conversion Shares are
"restricted securities" within the meaning of the Securities Act and during any
period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act, the Company shall furnish to any holder or beneficial owner of the
Notes or the Conversion Shares in connection with any sale thereof and any
prospective purchaser of such Notes or Conversion Shares from such holder or
beneficial owner (upon the request of such holders, beneficial owners or
prospective purchasers) the information required by Rule 144A(d)(4) under the
Securities Act.
(m) The Company shall not sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Securities
Act) that would be integrated with the sale of the Notes in a manner that would
require the registration under the Securities Act of the sale to the Initial
Purchaser or the Eligible Purchasers of the Notes or to take any other action
that would result in the sale of the Notes not being exempt from registration
under the Securities Act.
(n) The Company shall not take, directly or indirectly, any action designed
to, or that could reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company. Except as permitted by
the Securities Act and approved by the Initial Purchaser (which approval will
not be unreasonably withheld or delayed), the Company shall not distribute any
offering material in connection with the offering and sale of the Notes other
than the Offering Memorandum.
(o) The Company shall apply the net proceeds it receives from the sale of
the Notes as set forth under "Use of Proceeds" in the Offering Memorandum.
17
(p) The Company shall use its reasonable efforts to effect the inclusion of
the Notes for trading in the PORTAL market and to obtain approval of the Notes
by DTC for "book-entry" transfer.
(q) Until the earlier of (i) the second anniversary of the Closing Date and
(ii) the first date of effectiveness of the registration statement to be filed
pursuant to the Registration Rights Agreement, the Company will not, and will
not permit any of its "controlled" "affiliates" (as defined in Rule 405 under
the Securities Act) to, resell any of the Notes or Conversion Shares that
constitute "restricted securities" under Rule 144 that have been reacquired by
any of them.
(r) None of the Company or any of its affiliates or any person acting on
such person's behalf (other than the Initial Purchaser and its affiliates, as to
whom no representation is made) will solicit any offer to buy or offer or sell
the Notes (i) by means of any form of general solicitation or general
advertising (as those terms are defined in Regulation D under the Securities
Act), including, but not limited to, articles, notices or other communications
published in any newspaper, magazine, or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees have been invited
by any general solicitation or general advertising, or (ii) in any manner
involving a public offering within the meaning of Section 4(2) of the Securities
Act.
(s) The Company shall at all times reserve and keep available, free of
preemptive or similar rights, Shares of Beneficial Interest for the purpose of
enabling the Company to satisfy any obligations to issue the Conversion Shares
upon conversion of the Notes.
(t) The Company shall refuse to register any transfer of the Notes or the
Conversion Shares not made (i) in accordance with the provisions of Regulation S
(Rule 901 through 905, and Preliminary Notes), (ii) pursuant to registration
under the Securities Act or (iii) pursuant to an available exemption from
registration.
5. Payment of Expenses. Whether or not the transactions contemplated
---------------------
in this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, and under the Indenture and the
Registration Rights Agreement, including the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the qualification of the Notes and the Conversion Shares for
distribution in the United States and, on a prospectus-exempt basis, in Canada
and all other expenses in connection with the preparation and printing of the
Preliminary Offering Memorandum and the Offering Memorandum and amendments and
supplements thereto and the mailing and delivering of copies thereof in
connection with sale of the Notes; (ii) the cost of producing this Agreement,
the Blue Sky memoranda, any notice or similar filing reasonably requested by the
Initial Purchaser in any jurisdiction outside the U.S. and Canada, closing
documents (including any compilations thereof) and any other documents in
connection with the offering, purchase, sale and delivery of the Notes; (iii)
all expenses in connection with the qualification or registration of the Notes
for offering and sale under state securities laws as provided in Section 4(g)
hereof, including the reasonable fees and disbursements of counsel for the
Initial Purchaser in connection with such qualification and in connection with
the Blue Sky survey; (iv) all fees and expenses in connection with listing and
qualifying the Notes for trading in the PORTAL market; and (v) all
18
travel expenses of the Company's officers and employees and any other expense of
the Company incurred in connection with attending or hosting meetings, if any,
with prospective purchasers of the Notes. The Company also will pay or cause to
be paid: (i) the reasonable costs and expenses of the Initial Purchaser,
including the fees and disbursements of their counsel, travel expenses and other
out-of-pocket expenses; (ii) the cost of preparing the Global Notes; (iii) the
cost and charges of the Trustee, including the reasonable fees and disbursements
of counsel to the Trustee; and (iv) all other reasonable costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section 5.
6. Conditions of Initial Purchaser's Obligations. The obligations of
-----------------------------------------------
the Initial Purchaser to purchase and pay for the Notes as provided herein shall
be subject to the accuracy of the representations and warranties of the Company
herein contained, as of the date hereof and as of the Closing Date or such other
date as may be specified therein (for purposes of this Section 6 "Closing Date"
shall refer to the Closing Date for the Notes) to the absence from any
certificates, opinions, written statements or letters furnished to you or to
Initial Purchaser's Counsel (as defined below) pursuant to this Section 6 of any
misstatement or omission, to the performance by the Company of its obligations
hereunder, and to each of the following additional conditions:
(a) At the Closing Date, you shall have received the opinion of Heller
Ehrman White & McAuliffe LLP, special U.S. counsel for the Company, dated the
Closing Date, addressed to the Initial Purchaser and substantially in the form
attached hereto as Annex I. In giving such opinion, counsel may state that,
insofar as such opinion involves factual matters, they have relied upon
certificates of officers of the Company and certificates of public officials.
(b) At the Closing Date, you shall have received the opinion of Sangra,
Moller, Canadian counsel for the Company, dated the Closing Date, addressed to
the Initial Purchaser and in substantially the form attached hereto as Annex II.
In giving such opinion, counsel may state that, insofar as such opinion involves
factual matters, they have relied upon certificates of officers of the Company
and certificates of public officials.
(c) At the Closing Date, you shall have received the opinion of Latham &
Watkins, special U.S. counsel for the Initial Purchaser, dated the Closing Date,
addressed to the Initial Purchaser and in form and substance reasonably
satisfactory to the Initial Purchaser, covering such matters as are customarily
covered in such opinions.
(d) All proceedings taken in connection with the sale of the Notes as
herein contemplated shall be in form and substance reasonably satisfactory to
you and to the Initial Purchaser's Counsel, and the Company shall have furnished
to Initial Purchaser's Counsel such documents as they reasonably request for the
purpose of enabling them to pass upon certain matters pursuant to subsections
(c) above.
(e) At the Closing Date, you shall have received a certificate of the Chief
Executive Officer and President and the Chief Financial Officer of the Company
in their capacities as officers of the Company, dated as of the Closing Date, to
the effect that (i) the representations and warranties of the Company set forth
in Section 1 hereof are accurate as of the date hereof and as of the Closing
Date (or such other date as may be specified) with the same
19
force and effect as though expressly made on such date, (ii) as of the Closing
Date, the obligations of the Company to be performed or complied with hereunder
on or prior thereto have been duly performed or complied with, and (iii)
subsequent to the respective date of the most recent financial statements in the
Offering Document, the Company and its subsidiaries have not sustained any
material loss or interference with their respective businesses or properties
from fire, flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or any legal or governmental proceeding,
and there has not been any change, or any development involving a change, in the
business, properties, operations, condition (financial or otherwise), or results
of operations of the Company and its subsidiaries taken as a whole, except in
each case as described in or contemplated by the Offering Memorandum or as would
not have a Material Adverse Effect.
(f) On the date hereof and at the Closing Date, you shall have received a
comfort letter in respect of the Offering Memorandum from Peterson Sullivan
P.L.L.C., former independent public accountants for the Company, dated as of the
date hereof or the Closing Date, as the case may be, addressed to the Initial
Purchaser and in form and substance reasonably satisfactory to the Initial
Purchaser containing statements and information of the type ordinarily included
in accountants' "comfort letters" to initial purchasers with respect to the
financial statements and certain financial information contained in the Offering
Memorandum and Incorporated Documents.
(g) On the date hereof and at the Closing Date, you shall have received a
comfort letter in respect of the Offering Memorandum from Deloitte & Touche LLP,
independent public accountants for the Company, dated as of the date hereof and
as of the Closing Date, as the case may be, addressed to the Initial Purchaser
and in form and substance reasonably satisfactory to the Initial Purchaser
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to initial purchasers with respect to interim
unaudited financial statements and certain financial information contained in
the Offering Memorandum and Incorporated Documents.
(h) Subsequent to the execution and delivery of this Agreement, there shall
not have been any Material Adverse Change which, in the judgment of the Initial
Purchaser, acting reasonably, makes it impracticable or inadvisable to proceed
with the offering or the delivery of the Notes on the terms and in the manner
contemplated by this Agreement and the Offering Memorandum, including, without
limitation the Exempt Resales (exclusive of any amendment or supplement
thereto).
(i) You shall have received a lock-up agreement from each trustee and
officer of the Company as shall have been heretofore designated by you and
listed on Schedule II hereto substantially in the form attached hereto as Annex
III.
(j) The Company and the Trustee shall have entered into the Indenture, and
the Initial Purchaser shall have received an executed copy thereof.
(k) The Company and the Initial Purchaser shall have entered into the
Registration Rights Agreement, and the Initial Purchaser shall have received an
executed copy thereof.
20
(l) At the Closing Date, the Notes shall have been designated for trading
in the PORTAL market.
(m) The Company shall have furnished the Initial Purchaser and Initial
Purchaser's Counsel with such other certificates, opinions or other documents as
they may have reasonably requested.
The Initial Purchaser may in its sole discretion waive compliance with any
conditions to its obligations hereunder.
7. Indemnification.
---------------
(a) The Company shall indemnify and hold harmless the Initial Purchaser,
its directors, officers and employees and each person, if any, who controls the
Initial Purchaser within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act (including each affiliate of the Initial
Purchaser who is deemed a third party beneficiary pursuant to Section 12 hereof
(an "AFFILIATED DEALER"), its directors, officers and employees and any
controlling person of such affiliate) against any and all losses, liabilities,
claims, damages and expenses whatsoever as incurred (including but not limited
to reasonable attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Securities Act, the Exchange Act, the Canadian
Securities Laws or otherwise, insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Offering Memorandum (including the Incorporated Documents) or
in any supplement thereto or amendment thereof, 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 but only to the extent that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information transmitted to the Company by the
Initial Purchaser and its affiliates expressly for use therein. This indemnity
agreement will be in addition to any liability that the Company may otherwise
have including under this Agreement.
(b) The Initial Purchaser shall indemnify and hold harmless the Company,
each of the trustees of the Company, each of the officers of the Company and
each other person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act, against
any losses, liabilities, claims, damages and reasonable expenses whatsoever as
incurred (including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Securities Act, the
Exchange Act, the Canadian Securities Laws or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact
21
contained in the Offering Memorandum (including the Incorporated Documents) or
in any amendment thereof 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,
in each case to the extent, but only to the extent, that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished by the Initial Purchaser expressly for use therein; it being agreed
and understood that for all purposes of this Agreement, the only information
furnished by the Initial Purchaser consists of the following information in the
Offering Memorandum: the sections titled "Discounts and Expenses" (except for
the last sentence thereof) and "Price Stabilization and Short Positions"
(including in the second paragraph thereof, with respect to the absence of
representations by the Initial Purchaser) under the caption "Plan of
Distribution" in the Offering Memorandum. This indemnity will be in addition to
any liability that any Initial Purchaser may otherwise have including under this
Agreement.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of any claims or the 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 each party against whom
indemnification is to be sought in writing of the claim or the commencement
thereof (but the failure so to notify an indemnifying party shall not relieve it
from any liability which it may have under this Section 7). In case any such
claim or action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by one of the indemnifying
parties in connection with the defense of such action, (ii) the indemnifying
parties shall not have employed counsel to have charge of the defense of such
action within a reasonable time after notice of commencement of the action or
(iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them that are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events the fees and expenses of one counsel selected by all the
indemnified parties to represent them all shall be borne by the indemnifying
parties. No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any pending or threatened action in respect
of which the indemnified party is or reasonably could have been a party and
indemnity or contribution may be or could have been sought hereunder by the
indemnified party (an "ACTION"), unless such settlement, compromise or judgment
(x) includes an unconditional release of the indemnified party from all
liability on claims that are the subject matter of such action and (y) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party. No indemnified party shall,
without the prior written consent of the indemnifying party, effect any
settlement or
22
compromise of, or consent to the entry of judgment with respect to, any Action,
unless such settlement, compromise or consent includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such Action.
8. Contribution. In order to provide for contribution in circumstances
------------
in which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, the Company and the Initial Purchaser
shall contribute to the aggregate losses, claims, damages, liabilities and
expenses of the nature contemplated by such indemnification provision (including
any investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company any contribution received by
the Company from persons, other than the Initial Purchaser, who may also be
liable for contribution, including persons who control the Company within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, and officers and directors of the Company) as incurred to which the Company
and one or both of the Initial Purchaser may be subject, in such proportions as
is appropriate to reflect the relative benefits received by the Company and the
Initial Purchaser from the offering of the Notes or, if such allocation is not
permitted by applicable law, 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 Initial Purchaser in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Initial Purchaser shall be deemed to be in the same
proportion as (x) the total proceeds from the Offering (net of discounts and
commissions but before deducting expenses) received by the Company and (y) the
discounts and commissions received by the Initial Purchaser. The relative fault
of the Company and of the Initial Purchaser 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 the Initial Purchaser and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Initial Purchaser agree
that it would not be just and equitable if contribution pursuant to this Section
8 were determined by pro rata allocation (even if the Initial Purchaser were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 8, the Initial Purchaser shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Notes purchased by it and sold to Eligible Purchasers
were offered to hereby exceeds the amount of any damages that the Initial
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person, if any, who controls the Initial Purchaser within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act shall have
the same rights to contribution as the Initial Purchaser, and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act and each officer and director of the
Company shall have the same rights to contribution as the Company. Any party
entitled to contribution will, promptly after receipt of
23
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim for contribution may be made against another party or
parties, notify each party or parties from whom contribution may be sought, but
the omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 8 or otherwise.
9. Survival of Representations and Agreements. All representations and
------------------------------------------- warranties, covenants,
agreements and other statements of the Company or its officers and the Initial
Purchaser set forth in or made pursuant to this Agreement, including the
agreements contained in Section 5, the indemnity agreements contained in Section
7 and the contribution agreements contained in Section 8, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Initial Purchaser or any controlling person thereof or by or on
behalf of the Company, any of its officers and trustees or any controlling
person thereof, and shall survive delivery of and payment for the Notes to and
by the Initial Purchaser. The representations contained in Section 1 and the
agreements contained in Sections 5, 7, 8 and 10(b) hereof shall survive the
termination of this Agreement, including termination pursuant to Section 10
hereof.
10. Termination.
-----------
(a) The Initial Purchaser shall be entitled, at its option, to terminate,
without liability on its part, its obligations under this Agreement by giving
written notice to that effect to the Company at or prior to the Closing Date if:
(i) trading in the Company's securities on the Nasdaq National Market has been
suspended or made subject to material limitations; (ii) trading on the New York
Stock Exchange or on the Nasdaq National Market shall have been suspended or
been made subject to material limitations, or minimum or maximum prices for
trading shall have been fixed, or maximum ranges for prices for securities shall
have been required, on the New York Stock Exchange or on the Nasdaq National
Market or by order of the Commission or any other governmental authority having
jurisdiction; (iii) a banking moratorium has been declared by a state,
provincial or federal authority in the United States or if any new restriction
materially adversely affecting the distribution of the Notes shall have become
effective; (iv) there has occurred any outbreak or escalation of hostilities or
acts of terrorism involving the United States or Canada, or there is a
declaration of a national emergency or war by the United States or Canada such
that the effect of any such event in your reasonable judgment makes it
impracticable or inadvisable to proceed with the offering, sale and delivery of
the Notes on the terms contemplated by the Offering Memorandum; (v) in relation
to the Company, the Notes or the Shares of Beneficial Interest, any inquiry,
investigation or other proceeding is commenced, threatened or announced or any
order or ruling is issued by any officer of such exchange or market, or by the
Commission, any of the Canadian Commissions or any other regulatory authority in
Canada or the United States, or if any law or regulation under or pursuant to
any statute of Canada or of any province thereof or of the United States or any
state or territory thereof is promulgated or changed which, in the reasonable
opinion of the Initial Purchaser, operates to prevent or materially restrict
trading in or the distribution of the Notes or shares of the Shares of
Beneficial Interest in the United States; or (vi) there should develop, occur,
or come into effect any occurrence of national or international consequence or
any action, law or regulation, inquiry, or other occurrence of any nature
whatsoever, including, without limiting the generality of the foregoing, any
military conflict, civil insurrection, or any terrorist action, which,
24
in the reasonable opinion of the Initial Purchaser, seriously affects or may
seriously affect the financial markets or the business of the Company and its
subsidiaries taken as a whole, and/or prevents or materially restricts the
trading in or the distribution of the Notes in the United States or Canada.
(b) If this Agreement is terminated pursuant to any of the provisions
hereof, or if the sale of the Notes provided for herein is not consummated
because any condition to the obligations of the Initial Purchaser 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 comply with any provision
hereof, the Company shall, subject to demand by you, reimburse the Initial
Purchaser for all out-of-pocket expenses (including the reasonable fees and
expenses of their counsel), incurred by the Initial Purchaser in connection
herewith.
11. Notices. All communications hereunder, except as may be otherwise
-------
specifically provided herein, shall be in writing, and:
(a) if sent to the Initial Purchaser, shall be mailed, delivered or faxed
and confirmed in writing, to:
RBC Capital Markets
Royal Bank Plaza, 4th Floor, South Tower
200 Bay Street
Toronto, Ontario M5J 2W7
Ph: (416) 842-7593
Fax: (416) 842-7650
Attention: Derek Neldner, Managing Director
with copies to:
Lawson Lundell
1600 Cathedral Place
925 West Georgia Street
Vancouver, BC V6C 3L2
Attention: Gordon R. Chambers
Latham & Watkins LLP
633 West Fifth Street
Los Angeles, CA 90071
Attention: Mark Stegemoeller
25
(b) if sent to the Company, shall be mailed, delivered or faxed and
confirmed in writing, to:
Mercer International Inc.
14900 Interurban Ave. South
Suite 271
Seattle, WA 98168
Ph: (206) 674-4639
Fax: (206) 674-4629
Attention: David Gandossi
with copies to:
Sangra, Moller
1000 Cathedral Place
925 West Georgia Street
Vancouver, BC V62 3L2
Attention: Harjit Sangra
provided, however, that any notice to the Initial Purchaser pursuant to Section
7 shall be delivered or sent by mail or facsimile transmission to the Initial
Purchaser at its address set forth in its acceptance facsimile to you, which
address will be supplied to any other party hereto by you upon request. Any such
statements, requests, notices or agreements shall take effect at the time of
receipt thereof.
12. Successors and Assigns. This Agreement shall inure solely to the
------------------------
benefit of, and shall be binding upon, the Initial Purchaser and the Company and
the controlling persons, directors, trustees, officers, employees and agents
referred to in Sections 7 and 8, and their respective successors and assigns,
and no other person shall have or be construed to have any legal or equitable
right, remedy or claim under or in respect of or by virtue of this Agreement or
any provision herein contained. The term "successors and assigns" shall not
include a purchaser, in its capacity as such, of Notes from the Initial
Purchaser. Any Affiliated Dealer that is duly qualified and authorized to sell
the Notes in the United States or Canada pursuant to the Offering Memorandum,
and so offers and sells the Notes shall be deemed a third party beneficiary of
the representations and warranties of the Company contained in Section 1, the
covenants of the Company contained in Section 4, the indemnification and
contribution obligations of the Company contained in Sections 7 and 8 and the
officers' certificates, legal opinions and other documents required to be
delivered to the Initial Purchaser pursuant to this Agreement, and each such
affiliate shall have the right to enforce such provisions of this Agreement to
the same extent as if it were an Initial Purchaser.
13. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, but without regard to any
applicable principles of conflicts of law.
26
14. Counterparts. This Agreement may be executed in any number of
-------------
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
15. Headings. The headings in this Agreement are inserted for
--------
convenience of reference only, are not to be considered part of this Agreement
and shall in no way modify or restrict any of the terms or provisions hereof.
16. Time is of the Essence. Time shall be of the essence of this
--------------------------
Agreement. As used herein, the term "business day" shall mean any day when the
Commission's office in Washington, D.C. is open for business.
18. Entire Agreement. This Agreement is intended by the parties as a
-----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Notes and the Conversion Shares.
19. Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceability, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(signature page follows)
27
If the foregoing correctly sets forth the understanding between you and the
Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
MERCER INTERNATIONAL INC.
/s/ Jummy Lee
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
(additional signature page follows)
Accepted as of the date first above written.
RBC DAIN RAUSCHER INC.
/s/ Peter de Vos
By:
--------------------------------------
Name: Peter de Vos
Title: Head of Corporate Finance
signature page to purchase agreement
SCHEDULE I
Jimmy S.H. Lee
C.S. Moon
William McCartney
Graeme Witts
Wolfram Ridder
Guy W. Adams
David M. Gandossi
R. Ian Rigg
Kenneth A. Shields
ANNEX I
Form of Opinion of Heller Ehrman White & McAuliffe LLP
------------------------------------------------------
1. The Company has been duly formed and is validly existing as a
Massachusetts trust under the laws of the State of Washington.
2. The Company has all necessary Massachusetts trust power and
Massachusetts trust authority to conduct its business as described in the
Offering Memorandum, to offer, issue and sell the Notes and the Conversion
Shares and to perform its obligations under the Operative Documents.
3. The Company has an authorized capitalization as set forth under the
caption "Capitalization" in the Offering Memorandum; and the issued Shares of
Beneficial Interest and the Conversion Shares conform in all material respects
to the descriptions thereof contained in the Offering Memorandum.
4. The Conversion Shares have been duly authorized by all necessary action
on the part of the Company and, when issued by the Company to satisfy the
conversion rights of the Notes in accordance with the terms of the Notes and the
Indenture, will be duly issued, fully paid and non-assessable.
5. The Company has reserved for issuance the Conversion Shares in a number
of authorized but unissued Shares of Beneficial Interest sufficient to satisfy
the conversion rights of the Notes, and no further approval or authority of the
shareholders or the Board of Trustees of the Company is required for the
issuance of such Conversion Shares.
6. This Purchase Agreement has been duly authorized by all necessary action
on the part of the Company, and has been duly executed and delivered on behalf
of the Company.
7. The Indenture has been duly authorized by all necessary action on the
part of the Company, and has been duly executed and delivered on behalf of the
Company and, assuming the due authorization, execution and delivery of the
Indenture by the Trustee, is the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to (i)
bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization and
other laws of general applicability relating to or affecting creditors' rights
and (ii) general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
8. The Notes have been duly authorized by all necessary action on the part
of the Company and have been executed and delivered on behalf of the Company for
issuance and sale to the Initial Purchaser pursuant to the Purchase Agreement
and, when issued and authenticated in accordance with the terms of the Indenture
and delivered against payment therefor in accordance with the terms thereof and
of the Purchase Agreement, assuming the due authorization, execution and
delivery of the Indenture by the Trustee, will constitute the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms and entitled to the benefits of the Indenture, subject to (i)
bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization and
other similar laws of general
ANNEX I-1
applicability relating to or affecting creditors' rights and (ii) general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).
9. The Registration Rights Agreement has been duly authorized by all
necessary action on the part of the Company, and has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery of the Registration Rights Agreement by the Initial Purchaser, when
executed and delivered by the Company, will constitute the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to (i) bankruptcy, insolvency, fraudulent conveyance,
moratorium, reorganization and other laws of general applicability related to or
affecting creditors' rights and (ii) general principles of equity (regardless of
whether considered in a proceeding in equity or at law).
10. The execution, delivery, and performance of the Operative Documents and
the consummation of the transactions contemplated thereby by the Company do not
and will not violate any provision of the Declaration of Trust or Trustee's
Regulations of the Company or, to the best knowledge of such counsel, any
federal or New York statute, rule or regulation known by such counsel to be
generally applicable to similar transactions.
11. The issuance of the Notes, and issuance of the Conversion Shares by the
Company to satisfy the conversion rights of the Notes, will not require approval
of the shareholders of the Company under Washington law.
12. No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental, or regulatory agency or body having jurisdiction over the Company
or any of its properties or assets is required under any law or regulation of
the United States or of the State of New York, under the Massachusetts Trust Act
of 1959 or the Washington Business Corporation Act for the execution, delivery
and performance of the Operative Documents or the consummation of the
transactions contemplated thereby, except for (1) such as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Notes by the Initial Purchaser (as to which such counsel
expresses no opinion), (2) such as may be required under the Securities Act or
the Exchange Act and the Trust Indenture Act of 1939, as amended and (3) such as
are required under the Registration Rights Agreement in connection with the
Company's obligations thereunder.
13. No registration under the Securities Act of the Notes or the Conversion
Shares, and no qualification of the Indenture under the Trust Indenture Act of
1939, as amended is required for the offer and sale of the Notes by the Company
to the Initial Purchaser or the reoffer and resale of the Notes by the Initial
Purchaser to the initial purchasers therefrom solely in the manner contemplated
by the Offering Memorandum, the Purchase Agreement and the Indenture, assuming
the representations, warranties and covenants of the Company and the Initial
Purchaser in Sections 1, 3 and 4 of the Purchase Agreement have been and will be
complied with.
14. When the Notes are issued and delivered pursuant to this Agreement, no
Note will be of the same class (within the meaning of Rule 144A) as any
securities of the Company that
ANNEX I-2
are listed on a national securities exchange registered under Section 6 of the
Exchange Act or that are quoted in a United States automated inter-dealer
quotation system.
15. The statements under the caption "Material United States Federal Income
Tax Considerations" in the Offering Memorandum, while not purporting to address
all possible federal tax consequences of investing in a Note, insofar as they
constitute statements of United States federal income tax law or legal
conclusions, accurately summarize the material United States income tax
consequences to holders of the Notes.
16. The Company is not an "investment company," as such term is defined in
the Investment Company Act.
17. The purchase by an existing shareholder who owns less than 15% of the
outstanding shares of beneficial interest of the Company of a pro rata portion
of the Notes being sold in the offering does not constitute a "Triggering Event"
under the Company's Rights Plan as amended. The purchase by an Eligible Purchase
of Notes in this Offering will not constitute a Triggering Event under the
Company's Rights Plan as amended, so long as, upon consummation of the Offering,
no purchaser is the beneficial owner of 15% or more in the aggregate of the
Company's outstanding shares of beneficial interest and the shares of beneficial
interest into which the Notes are convertible.
ANNEX I-3
ANNEX II
Form of Opinion of Sangra, Moller
---------------------------------
1. To such counsel's knowledge and other than as set forth in the Offering
Memorandum, there are no legal or governmental proceedings pending to which the
Company or any of its significant subsidiaries is a party or of which any
property of the Company or any of its significant subsidiaries is the subject
that is likely to, individually or in the aggregate, have a Material Adverse
Effect; and, to such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
2. To such counsel's knowledge, the execution, delivery and performance of
the Operative Documents and the consummation of the transactions contemplated
thereby by the Company do not and will not (A) conflict with or result in a
breach of any of the terms and provisions of, or constitute a default (or an
event which with notice or lapse of time, or both, would constitute a default)
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement
or any other agreement, instrument, franchise, license or permit identified to
such counsel as material and listed as exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 2002 and the Company's Quarterly
reports on Form 10-Q for the periods ended March 31, 2003 and June 30, 2003, or
(B) violate or conflict with any applicable laws of the Province of British
Columbia or the federal laws of Canada applicable therein, or, to the knowledge
of such counsel, any judgment, decree, order, rule or regulation of any court or
any public, governmental or regulatory agency or body having jurisdiction over
the Company or any of its significant subsidiaries or any of their respective
properties or assets. For purposes of this opinion, counsel may assume that all
courts of competent jurisdiction would enforce agreements and orders not
expressly governed by Canadian law as written but would apply the laws of the
Province of British Columbia.
3. The offering, issue, sale and delivery of the Notes by the Company to
the Initial Purchaser and by the Initial Purchaser to its affiliates who are
permitted under applicable securities laws to offer and sell the Notes in the
Private Placement Provinces (the "Affiliates") in compliance with the terms of
this Agreement, the Offering Memorandum and the Wrap Information is exempt,
either by statute, rule, regulation, interpretation note or order, from the
prospectus requirements of the applicable Canadian Securities Laws, and no
prospectus is required nor are other documents required to be filed, proceedings
taken or approvals, permits, consents, orders or authorizations of regulatory
authorities obtained under the applicable Canadian Securities Laws to permit the
offering, issue, sale and delivery of the Notes by the Company in accordance
with this Purchase Agreement.
4. The offering, issue, sale and delivery of the Notes by the Initial
Purchaser or its Affiliates to the Eligible Purchasers, in each case, in
accordance with the terms and conditions set forth in this Agreement, the
Offering Memorandum and the Wrap Information and assuming the accuracy of the
representations and warranties of such parties therein, are exempt from the
prospectus requirements of the Canadian Securities Laws, and no documents are
required to be filed, proceedings taken or approvals, permits, consents or
authorizations of regulatory
ANNEX II-1
authorities obtained under the applicable Canadian Securities Laws in connection
therewith, other than those which have been obtained and, with respect to the
distribution of the Notes, except for the filing with the relevant Canadian
Commissions in each Private Placement Province in which an Eligible Purchaser is
resident, by or on behalf of the Company, within the prescribed time periods, of
(i) a copy of the Offering Memorandum and Wrap Information with the Ontario
Securities Commission, (ii) a report of the trade in the prescribed form,
prepared and executed in accordance with applicable Canadian Securities Laws,
and (iii) a certificate prepared in accordance with Policy Statement 41-601Q of
the Commission des valuers mobilieres du Quebec, together with any prescribed
fees.
5. The first trade of the Notes sold by the Initial Purchaser or its
Affiliates to purchasers resident in a Private Placement Province, except
Quebec, other than a trade which is otherwise exempt under the Canadian
Securities Laws, will be a distribution subject to the prospectus and
registration requirements of the Canadian Securities Laws to the extent that
they apply, unless:
(a) the Company is and has been a reporting issuer in a Private Placement
Province specified in Multilateral Instrument 45-102 for the four months
immediately preceding the trade;
(b) at least four months have elapsed from the date of issue of the Notes;
(c) the legend requirements of Multilateral Instrument 45-102 have been
satisfied;
(d) the trade is not a "control distribution", as such term is defined in
Multilateral Instrument 45-102;
(e) no unusual effort is made to prepare the market or to create a demand
for the Notes that are the subject of the trade;
(f) no extraordinary commission or consideration is paid to a person or
company in respect of the trade; and
(g) if the seller is an insider or officer of the Company, the seller has
no reasonable grounds to believe that the Company is in default of securities
legislation.
6. The first trade of the Notes sold by the Initial Purchaser or its
Affiliates to purchasers resident in the Province of Quebec, other than a trade
which is otherwise exempt under the Securities Act (Quebec), will be a
distribution subject to the prospectus and registration requirements of the
Securities Act (Quebec) to the extent that it applies, unless:
(a) the Company was a reporting issuer in Quebec for a period of four
months immediately preceding the alienation;
(b) the purchaser and subsequent purchasers have in aggregate kept the
securities for at least four months;
(c) no extraordinary commission or consideration is paid concerning the
alienation;
(d) no effort is made to prepare the market or create a demand for the
Notes that are the subject of the alienation; and
ANNEX II-2
(e) where the seller is an insider of the Company, the seller has no reason
to believe that the Company is in default of any securities legislation.
7. The Conversion Shares have been authorized for quotation on the Nasdaq
National Market.
8. The issuance of Conversion Shares by the Company to Eligible Purchasers
resident in a Private Placement Province will be exempt from the prospectus and
registration requirements of the Canadian Securities Laws, and no documents are
required to be filed, proceedings taken or approvals, permits, consents or
authorizations of regulatory authorities obtained under the Canadian Securities
Laws in connection therewith, provided that:
(a) no commission or other remuneration is paid or given to others in
respect of the trade, except for administrative or professional services or for
services performed by a registered dealer; and
(b) the Company files with the Canadian Commission in the Private Placement
Province in which such Eligible Purchaser is resident the required notice and
pays the applicable fee in accordance with applicable Canadian Securities Laws.
9. The first trade in Conversion Shares by purchasers resident in a Private
Placement Province, except Quebec, other than a trade which is otherwise exempt
under Canadian Securities Laws, will be a distribution subject to the prospectus
and registration requirements of the Canadian Securities Laws, unless:
(a) the Company is and has been a reporting issuer in a Private
Placement Province specified in Multilateral Instrument 45-102 for the four
months immediately preceding the trade;
(b) at least four months have elapsed from the date of issue of the Notes;
(c) the legend requirements of Multilateral Instrument 45-102 have been
satisfied;
(d) the trade is not a "control distribution", as such term is defined in
Multilateral Instrument 45-102;
(e) no unusual effort is made to prepare the market or to create a demand
for the Conversion Shares that are the subject of the trade;
(f) no extraordinary commission or consideration is paid to a person or
company in respect of the trade; and
(g) if the seller is an insider or officer of the Company, the seller has
no reasonable grounds to believe that the Company is in default of securities
legislation.
10. The first trade in Conversion Shares by purchasers in the Province of
Quebec, other than a trade which is otherwise exempt under Securities Act
(Quebec), will be a distribution subject to the prospectus and registration
requirements of the Securities Act (Quebec), unless:
(a) the issuer was a reporting issuer in Quebec for a period of four months
immediately preceding the alienation;
ANNEX II-3
(b) the purchaser and subsequent purchasers have in aggregate kept the
securities for at least four months;
(c) no extraordinary commission or consideration is paid concerning the
alienation;
(d) no effort is made to prepare the market or create a demand for the
Conversion Shares that are the subject of the alienation; and
(e) where the seller is an insider of the Company, the seller has no reason
to believe that the Company is in default of any securities legislation.
11. The statements in the Wrap Information under the caption "Rights of
Action", insofar as such statements purport to describe or summarize the legal
matters, documents, statutes, regulations or proceedings referred to therein,
are accurate descriptions or summaries in all material respects.
12. No registration, filing or recording of the Indenture under the federal
laws of Canada or the laws of the Province of British Columbia is necessary in
order to preserve or protect the validity or enforceability of the Indenture or
the Notes issued thereunder.
13. Subject to the limitations and qualifications set out therein and based
on a certificate of an officer of the Company as to certain factual matters, the
statements in the Wrap Information under the heading "Certain Canadian Federal
Income Tax Considerations for Canadian Residents" fairly describe in all
material respects the principal Canadian federal income tax consequences under
the Income Tax Act (Canada) insofar as they purport to describe the provisions
of law referred to therein generally applicable to the holders of Notes and
Conversion Shares referred to therein.
14. The Shares of Beneficial Interest to be issued upon conversion of the
Notes have been conditionally approved for listing on the TSX, subject only to
the filing of certain documents.
15. The statements set forth in the Offering Memorandum under the captions
"Description of Notes" and "Description of Capital Stock," insofar as it
purports to constitute a summary of the Notes and the Conversion Shares and
under the captions "Business - Rosenthal Conversion Project and Financing,"
"Business - Stendal Pulp Mill Project and Financing - Project Financing,"
"Description of Certain Indebtedness," and "Plan of Distribution," insofar as
they purport to describe the provision of the laws and documents referenced
therein, are accurate summaries in all material respects.
In addition, such opinion shall also contain a statement that such counsel
has participated in conferences with officers and representatives of the
Company, representatives of the independent public accountants for the Company
and the Initial Purchaser at which the contents of the Offering Memorandum and
related matters were discussed and, as a result of such participation, no facts
have come to the attention of such counsel that cause such counsel to believe
that the Offering Memorandum (including the Incorporated Documents), as of its
date (or any amendment thereof or supplement thereto made prior to the Closing
Date as of the date of such amendment or supplement) and as of the Closing Date,
contained or contains an untrue statement of a material fact or omitted or omits
to state any material fact required to be stated
ANNEX II-4
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no belief or opinion with respect to the
financial statements and schedules and other financial data included therein or
omitted therefrom).
ANNEX II-5
ANNEX III
Form of Lock-Up Agreement
-------------------------
RBC DAIN RAUSCHER INC.
Royal Bank Plaza
4th Floor, South Tower
200 Bay Street
Toronto, Ontario M5J 2W7
Re: Mercer International Inc.
---------------------------
Ladies and Gentlemen:
In consideration of the agreement of RBC Dain Rauscher Inc. to act as
Initial Purchaser for the proposed offering (the "OFFERING") of Convertible
Senior Subordinated Notes (the "NOTES") of Mercer International Inc., a business
trust organized under the laws of the State of Washington (the "COMPANY"), as
contemplated by an offering memorandum, the undersigned hereby (i) agrees that
the undersigned will not, directly or indirectly, during a period of one hundred
eighty (180) days from the date of the purchase agreement entered into in
connection with the Offering (the "LOCK-UP PERIOD"), without the prior written
consent of RBC Dain Rauscher Inc. (such consent not to be unreasonably withheld
or delayed), issue, sell, offer or agree to sell, grant any option for the sale
of, pledge, make any short sale or maintain any short position, establish or
maintain a "put equivalent position" (within the meaning of Rule 16-a-1(h) under
the Securities Exchange Act of 1934, as amended), enter into any swap,
derivative transaction or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of (whether any such
transaction is to be settled by delivery of Shares of Beneficial Interest of the
Company (the "SHARES OF BENEFICIAL INTEREST"), other securities, cash or other
consideration), or otherwise dispose of, any Shares of Beneficial Interest (or
any securities convertible into, exercisable for or exchangeable for Shares of
Beneficial Interest, including the Notes, (the "EXCHANGEABLE SHARES")) or
interest therein of the Company, or any Shares of Beneficial Interest or any
securities convertible into, exercisable for or exchangeable for Shares of
Beneficial Interest or interest therein of any of its subsidiaries, unless it is
a condition to any such transfer that the transferee certifies in writing to RBC
Dain Rauscher Inc. that (x) such transferee is receiving and holding the Shares
of Beneficial Interest or other securities subject to the provisions of this
Agreement and that there shall be no further transfer of such Shares of
Beneficial Interest or other securities except in accordance with this
Agreement, and (y) such transferee will comply with the terms of this Agreement
as if such transferee were bound by this Agreement, and (ii) authorizes the
Company during the Lock-Up Period to cause the transfer agent to decline to
transfer and/or to note stop transfer restrictions on the transfer books and
records of the Company with respect to any Shares of Beneficial Interest and any
securities convertible into, exercisable for or exchangeable for Shares of
Beneficial Interest (including the Notes and the Exchangeable Shares) for which
the undersigned is the record or beneficial holder.
The undersigned agrees that any Shares of Beneficial Interest received upon
exercise of options granted to the undersigned will also be subject to this
Agreement. The
ANNEX III-1
undersigned further agrees, from the date hereof until the end of the Lock-up
Period, that the undersigned will not exercise and will waive his, her or its
rights, if any, to require the Company to register its Shares of Beneficial
Interest and to receive notice thereof.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into the agreements set forth herein, and
that, upon request, the undersigned will execute any additional documents
necessary in connection with implementing the agreements, authorizations and
other terms hereof. Any obligations of the undersigned shall be binding upon the
successors and assigns of the undersigned.
Very truly yours,
Dated: , 2003
-----------------
ANNEX III-2