EXHIBIT 10.2
PLACEMENT AGENT AGREEMENT
December 8, 2004
Sanders Morris Harris Inc.
600 Travis, Suite 3100
Houston, Texas 77002
Dear Sirs:
1. Introductory. BPI Industries, Inc., a British Columbia corporation
(the "Company"), proposes to offer, issue, and sell to investors ("Purchasers")
up to 5,600,000 units ("Units"), each unit consisting of two shares of Common
Stock, without par value (the "Common Stock"), of the Company and a warrant to
purchase one share of the Company's authorized but unissued Common Stock
("Investor Warrants" and together with the Common Stock, the "Offered
Securities")), at a purchase price of US$2.50 per Unit (the "Offering") all upon
the terms and conditions set forth in the Memorandum (as hereinafter defined);
provided that the Company shall have the option to increase the Offering by an
additional 400,000 Units to a total of 6,000,000 Units. The Investor Warrants
will have an initial exercise price of US$1.50 per share, or such other price as
may agreed upon by the Company and you, and will be exercisable for a period of
two years following the Closing Date (as hereinafter defined), provided, that at
such time as the Company is no longer listed on the TSX Venture Exchange as a
Tier 2 Issuer, and resale in the United States by the Purchasers of the shares
underlying the Investor Warrants is covered by a registration statement in
effect with the Securities and Exchange Commission (the "Commission"), the
expiration date shall be extended to be two years from the date such
registration statement is declared effective.
2. Representations and Warranties of the Company. The Company
represents, warrants, and agrees that:
(a) The Private Placement Memorandum dated December 8, 2004, with
respect to the sale of the Units together with the exhibits thereto, the
documents incorporated by reference therein, and any supplements thereto
(collectively, the "Memorandum"), copies of which have heretofore been
delivered to you, have been carefully prepared by the Company in
conformity with the requirements of Rule 506 of Regulation D ("Regulation
D") of the rules and regulations (the "Rules and Regulations") of the
Commission under the Securities Act of 1933, as amended (the "Act").
(b) At the date of the Memorandum, it did 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 light of
the circumstances under which they were made not misleading and at all
times subsequent thereto up to and including each Closing Date (as
hereinafter defined): (i) neither the Memorandum nor any amendment or
supplement thereto includes or will include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein in light of the circumstances under which they were
made not misleading, and (ii) neither the Memorandum nor any
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supplemental sales material supplied or approved in writing by an officer of the
Company (when read in conjunction with the Memorandum, whether designated only
for broker-dealer use or otherwise) includes any untrue statement of a material
fact or omits to state a material fact necessary to make the statements therein
in the light of the circumstances under which they were made not misleading;
provided, however, that the foregoing representations, warranties, and
agreements shall not apply to information contained in or omitted from the
Memorandum or any such amendment or supplement or supplemental sales material in
reliance upon, and in conformity with, information furnished to the Company by
you, specifically for use in the preparation thereof.
(c) All reports and statements required to be filed by the Company with
the British Columbia Securities Commission (the "BCSC") and the TSX Venture
Exchange (the "TSX-V") under applicable Canadian securities legislation (the
"Canadian Laws"), and the rules and regulations thereunder, due at or prior to
the date of this Agreement have been made. Such filings, together with all
documents incorporated by reference therein, are referred to as "Canadian
Documents." The Canadian Documents are on file with and can be obtained through
www.sedar.com. Each Canadian Document, as amended, conformed in all material
respects to the requirements of the Canadian Laws and the rules and regulations
thereunder, and no Canadian Document, as amended, at the time each such document
was filed, included any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, under the standards required by the Canadian Laws.
(d) At July 31, 2004, the Company would have had, on the pro forma basis
indicated in the Memorandum, a capitalization as set forth therein. The audited
financial statements, together with the related notes, of the Company at July
31, 2004 and 2003, and for the years then ended, included in the Company's
filing with the TSX-V for the year ended July 31, 2004 (collectively, the
"Company Financial Statements"), respectively, fairly present in all material
respects, on the basis stated therein and on the date thereof, the financial
position of the Company at the respective dates therein specified and its
results of operations and cash flows for the periods then ended (subject to, in
the case of the unaudited financial statements, normal audit adjustments). To
the knowledge of the Company, such statements and related notes have been
prepared in accordance with generally accepted accounting principles in Canada
applied on a consistent basis except as expressly noted therein (provided that
the unaudited financial statements lack footnotes and other presentation items).
The selected historical and pro forma information set forth in the Memorandum
under the caption "Summary Financial Data" is accurately presented in all
material respects and prepared on a basis consistent with the audited and
unaudited historical consolidated financial statements of the Company
incorporated by reference in the Memorandum from which it has been derived. The
assumptions used in preparation of the pro forma financial information are, in
the opinion of management of the Company, reasonable.
(e) Except as disclosed on Schedule 2(e) or as set forth in the
Memorandum, subsequent to July 31, 2004, the Company has not incurred any
material liabilities or obligations, direct or contingent, except in the
ordinary course of business and except for
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liabilities or obligations reflected or reserved against on the Company's
balance sheet dated July 31, 2004, and there has not been any material adverse
change, or to the actual knowledge of the Company, any development involving a
prospective material adverse change, in the condition (financial or otherwise),
business, or results of operations of the Company or any change in the capital
or material increase in the long-term debt of the Company, nor has the Company
declared, paid, or made any dividend or distribution of any kind on its capital
stock.
(f) All action required to be taken by the Company necessary for the
authorization of this Agreement and the Related Agreements (as hereinafter
defined), the performance of all obligations of the Company hereunder and
thereunder at the Closing (as hereinafter defined), and as a condition to the
due and proper authorization, issuance, sale, and delivery of the Offered
Securities to Purchasers in accordance with the terms of this Agreement has
been, or prior to the initial Closing Date, will have been taken; and upon the
payment of the consideration for the Offered Securities specified herein, the
Offered Securities will be duly and validly issued, fully paid, and
non-assessable with no personal liability attaching solely by reason of the
ownership thereof and free and clear of all liens imposed by or through the
Company. Upon payment of the consideration for the Warrant Shares specified in
the Investor Warrants, the Warrant Shares
(g) The Company is a corporation duly organized, validly existing, and in
good standing under the laws of British Columbia and has all requisite right,
power, and authority to own or lease its properties, to conduct its business as
described in the Memorandum and the Canadian Documents, and to execute, deliver,
and perform this Agreement, the Subscription Agreements between the Company and
the Purchasers of the Units in the form attached as Exhibit A hereto (the
"Subscription Agreements"), the Registration Rights Agreement in the form
attached as Exhibit B hereto (the "Registration Rights Agreement" and together
with the Subscription Agreements, the "Related Agreements"), to issue and sell
the Units and the Offered Securities, and to carry out the provisions of this
Agreement and the Related Agreements and to carry on its business as presently
conducted. The Company is duly qualified to do business and in good standing as
a foreign corporation in all other jurisdictions in which its ownership or
leasing of properties, or the conduct of its business requires or may require
such qualification except where the failure to be so qualified would not have a
material adverse effect on the Company. To the knowledge of the Company, the
Company has complied in all material respects with all material laws, rules,
regulations, applicable to the Company's business, operations, properties,
assets, products, and services, and the Company is in possession of and
operating in compliance with all material permits, licenses, and other
authorization, required to conduct its business as currently conducted.
(h) The authorized capital stock of the Company consists of 100,000,000
shares of Common Stock, without par value per share, of which 30,161,003 shares
were issued and outstanding as of November 9, 2004. Except as contemplated by
this Agreement or the Related Agreements, or as described in the Canadian
Documents, the Memorandum, or on Schedule 2(h), (i) there is no commitment by
the Company to issue any shares of capital stock, subscriptions, warrants,
options, convertible securities, or other similar rights to purchase or receive
Company securities or to distribute to the
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holders of any of its equity securities any evidence of indebtedness, cash, or
other assets, (ii) the Company is under no obligation (contingent or otherwise)
to purchase, redeem, or otherwise acquire any of its equity or debt securities
or any interest therein, and (iii) to the Company's knowledge there are no
voting trusts or similar agreements, shareholders' agreements, pledge
agreements, buy-sell agreements, rights of first refusal, preemptive rights, or
proxies relating to any securities of the Company. Except as set forth in the
Canadian Documents, the Memorandum, or filings with the BCSC or the TSX-V made
by third parties, and to the knowledge of the Company, no person holds of record
or beneficially, 5% or more of the outstanding shares of the capital stock of
the Company.
(i) Except as disclosed in the Canadian Documents or as described on
Schedule 2(i), there is no material pending or, to the knowledge of the Company,
threatened (i) action, suit, claim, proceeding, or investigation against the
Company, at law or in equity, or before or by any Federal, state, municipal, or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign (each, a "Governmental Body"), (ii)
arbitration proceeding against the Company, (iii) governmental inquiry against
the Company, or (iv) any action or suit by or on behalf of the Company pending
or threatened against others.
(j) The Company is not in violation of its certificate of incorporation or
bylaws, or in default, or with the giving of notice or lapse of time or both,
would be in default, in the performance of any material obligation, agreement,
or condition contained in any lease, license, material contract, indenture, or
loan agreement or in any bond, debenture, note, or any other evidence of
indebtedness, except for such defaults as would not have a material adverse
effect on the Company. The execution, delivery, and performance of this
Agreement, the Related Agreements, and the Escrow Agreement (as hereinafter
defined), the incurrence of the obligations herein, the issuance, sale, and
delivery of the Offered Securities , and the consummation of the transactions
contemplated herein, have been duly authorized by all requisite corporate action
on the part of the Company and (i) do not and will not conflict with the
Company's certificate of incorporation or bylaws, (ii) do not and will not, with
or without the passage of time or the giving of notice, result in the breach of,
or constitute a default, cause the acceleration of performance, or require any
consent under, or result in the creation of any lien, charge or encumbrance upon
any property assets of the Company pursuant to, any material loan agreement,
mortgage, deed of trust, indenture, or other instrument or agreement to which
the Company is a party or by which the Company or its properties are bound,
except such consents as have been obtained as of the date hereof or to the
extent that the same have been, or prior to the initial Closing Date will be,
waived or cured, or (iii) do not and will not result in the violation of any
law, statute, order, rule, administrative regulation, or decree of any court, or
governmental agency or body having jurisdiction over the Company or its
properties.
(k) Except as disclosed in the Canadian Documents, as set forth in the
Related Agreements or as described on Schedule 2(k), there are no pre-emptive
rights or other rights to subscribe for or to purchase, or any restriction upon
the voting or transfer of, shares of Common Stock pursuant to the Company's
certificate of incorporation, bylaws, or any agreement or other instrument to
which the Company is a party. Except as
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disclosed on Schedule 2(k), the issuance of the Shares is not (and the issuance
of Warrant Shares will not be) subject to any preemptive right of any
shareholder of the Company or to any right of first refusal or other right in
favor of any person.
(l) This Agreement has been duly and validly executed and delivered by or
on behalf of the Company and constitutes a legal, valid, and binding obligation
of the Company enforceable in accordance with its terms, except to the extent
that its enforceability is limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws of general application relating to or
affecting the enforcement of creditors' rights generally and (ii) laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies and except as enforceability of the indemnity and
contribution provisions contained in Section 7 hereof may be limited by
applicable law or principles of public policy.
(m) The escrow agreement (the "Escrow Agreement") among the Company, you,
and Sterling Bank (the "Escrow Agent") has been duly and validly executed and
delivered by or on behalf of the Company and constitutes a legal, valid, and
binding obligation of the Company enforceable in accordance with its terms,
except as such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, or other laws of general application
relating to or affecting enforcement of creditors' rights generally and (ii)
laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
(n) No consent, approval, authorization, or order of any court or
governmental authority or agency is required for the consummation by the Company
of the transactions contemplated by this Agreement, except such as may be
required by the National Association of Securities Dealers, Inc. ("NASD"), the
Act, the Rules and Regulations or state securities or Blue Sky laws, the TSX-V,
or the BCSC.
(o) Except as would not have a material adverse effect on the business,
assets, results of operation, or condition of the Company, the Company has
filed, or caused to be filed, on a timely basis, all tax returns (including
payroll, unemployment, and other taxes related to its employees and independent
contractors) required to be filed with any Governmental Body and has paid or
caused to be paid all taxes, levies, assessments, tariffs, duties or other fees
imposed, assessed, or collected by any Governmental Body that may have become
due and payable pursuant to those tax returns or otherwise except taxes being
disputed by the Company in good faith. Except as disclosed on Schedule 2(o), no
deficiency assessment with respect to or proposed adjustment of any of the
Company's Federal, state, provincial, municipal, or local tax returns has
occurred or is threatened. There has been no tax lien imposed by any
Governmental Body outstanding against the Company's assets or properties, except
the lien for current taxes not yet due. The charges, accruals, and reserves on
the books of the Company with respect to taxes for all fiscal periods are
adequate, in the opinion of the Company, and the Company does not know of any
actual or proposed tax assessment for any fiscal period or of any basis therefor
against which adequate reserves have not been set up. Except as disclosed on
Schedule 2(o), the Company has not been advised that any Federal income tax
return of the Company has been, or will be, examined or audited by the Internal
Revenue Service.
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(p) The Common Stock is registered under the BCSC and is quoted with the
symbol "BPR" on the TSX-V.
(q) The Company has not during the past six months offered or sold any
security by or for the Company that is of the same or a similar class as the
Offered Securities , other than offers of securities made solely to accredited
investors or otherwise under an employee benefit plan as defined in Rule 405
under the Act, securities issued in connection with acquisitions, or other
securities that will not invalidate the exemption from registration relied on to
offer and sell the Units under the Memorandum.
(r) Neither the Company nor any of its affiliates is or has been subject
to any order, judgment, or decree of any court of competent jurisdiction
temporarily, preliminarily, or permanently enjoining such person for failure to
comply with Rule 503 under Regulation D.
(s) Other than the execution, delivery, and performance by the Company and
you of this Agreement and the Related Agreements, the offer and sale of the
Units require no consent of, action by or in respect of, or filing with, any
person or Governmental Body other than those consents that have been obtained
and filings that have been made pursuant to applicable state securities laws and
post-sale filings pursuant to applicable state and federal securities laws and
Canadian Laws, which you and the Company undertake to file within the applicable
time period.
(t) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures for
the Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company's quarterly and annual
filings with the TSX-V on Form 51-901F. The Company's certifying officers
concluded that as of the end of the period covered by the Form 51-901F for the
Company's most recently ended fiscal year (such date, the "Evaluation Date"),
the Company's disclosure controls and procedures were effective to provide
reasonable assurance that information that the Company is required to disclose
in reports that it files or submits under Canadian Laws is recorded, processed,
summarized and reported within the time periods specified in the Canadian Laws.
Since the Evaluation Date, there have been no significant changes in the
Company's internal controls or, to the Company's knowledge, in other factors
that could significantly affect the Company's internal controls.
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3. Representations and Warranties of Sanders Morris Harris Inc. You
represent and warrant to, and agree with, the Company that:
(a) You are duly organized and are validly existing and in good
standing as a corporation under the laws of the jurisdiction of your
incorporation, with power and authority (corporate and other) to perform
its obligations under this Agreement, the Subscription Agreements, and the
Escrow Agreement;
(b) You are a broker-dealer registered and in good standing under
the Exchange Act and under the securities or Blue Sky laws of each state
in which the Units are being offered or sold by you, and you are a member
in good standing of the NASD; you are in possession of and operating in
compliance with all authorizations, licenses, permits, consents,
certificates, and orders required for the performance of your duties under
this Agreement and the Escrow Agreement, and your performance of your
duties hereunder and thereunder will be in compliance with all applicable
laws, including state securities and Blue Sky laws.
(c) There are no legal or governmental proceedings pending to which
you are a party or of which any of your properties is the subject or, to
your knowledge, threatened, which, if determined adversely to you, would
individually or in the aggregate materially and adversely affect your
ability to perform your obligations under this Agreement or the Escrow
Agreement.
(d) No consent, approval, authorization or order of any court or
governmental authority or agency is required for the performance by you of
your obligations under this Agreement, except such as may be required by
the NASD or under Regulation D or state securities or Blue Sky laws which
you and the Company undertake to file within the applicable time period.
(e) This Agreement has been duly and validly executed and delivered
by or on behalf of you and constitutes a legal, valid, and binding
obligation of you enforceable in accordance with its terms, except to the
extent that its enforceability is limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally, and (ii) laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies and except as
enforceability of the indemnity and contribution provisions contained in
Section 7 hereof may be limited by applicable law or principles of public
policy.
(f) The Escrow Agreement among the Company, you, and the Escrow
Agent has been duly and validly executed and delivered by or on behalf of
you and constitutes a legal, valid, and binding obligation of you
enforceable in accordance with its terms, except as such enforceability
may be limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium, or other laws of general application relating to or affecting
enforcement of creditors' rights generally and (ii) laws relating to the
availability of specific performance, injunctive relief, or other
equitable remedies.
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4. Offering and Sale of the Units. (a) On the basis of the
representations, warranties, and covenants herein contained, but subject to the
terms and upon the conditions herein set forth, you are hereby appointed the
exclusive placement agent of the Company during the term herein specified (the
"Offering Period") for the purpose of finding Purchasers for the Units on a
best-efforts basis for the account of the Company at the Offering Price through
a private offering to an unlimited number of "accredited investors" (as such
term is defined in Rule 501 of Regulation D)("Accredited Investors") pursuant to
and in accordance with the Act. Subject to the performance by the Company of all
its obligations to be performed hereunder, and to the completeness and accuracy
of all the representations and warranties contained herein, you hereby accept
such agency and agree on the terms and conditions herein set forth to use your
best efforts during the Offering Period to find Purchasers for the Units at the
Offering Price. Your agency hereunder, which is terminable as provided in
Section 11 hereof, shall terminate at 11:59 p.m., Houston, Texas time, on
December 31, 2004; provided that such termination date (the "Termination Date")
may be extended by mutual written agreement of the parties until January 30,
2005.
(b) Each Purchaser desiring to purchase Units will be required to: (i)
complete, execute, and deliver to you an executed copy of (A) a Subscription
Agreement and (B) an Investor Questionnaire, in the form attached as Exhibit C
hereto, and (ii) deliver to you payment for such subscription in the form of a
check payable to the order of "BPI Industries Inc. - Escrow Account" or a wire
transfer of immediately available funds in the amount that the Purchaser desires
to purchase. Any payment you receive that does not conform to this requirement
will be returned to a Purchaser by the end of the next business day following
receipt. Upon receipt, you shall hold all such Subscription Agreements and
Investor Questionnaires for safekeeping and immediately forward all funds
delivered to you to the Escrow Agent. The Escrow Agent, upon receipt of such
funds, will hold the funds in an escrow account pursuant to the Escrow
Agreement. You shall promptly forward each executed Subscription Agreement
received to the Company for acceptance or rejection together with a schedule
setting forth the name and address of each subscriber and the amount received
from each subscriber. The Company shall notify you of such acceptance or
rejection prior to the Closing.
(c) In the event that acceptable subscriptions for 400,000 Units (the
"Minimum Units") shall not have been received and accepted by the Company by the
Termination Date, all funds received from subscribers (if any) shall be returned
in full, and your agency and this Agreement shall terminate without obligation
on your part or on the part of the Company; provided, however, that the Company
and you, with advice of securities counsel, may agree upon procedures to close
the Offering for a number of Units on confirmation thereof by all of the
subscribers for Units to that point in time, in which event your agency and this
Agreement shall not be deemed terminated.
(d) If, by the Termination Date or such earlier time as may be agreed
upon by you and the Company, you have received subscriptions for the Minimum
Units and such subscriptions have been accepted by the Company (in its sole
discretion), you shall promptly notify the Company in writing of the aggregate
amount of Units for which you have received subscriptions (the "Notice Date").
Payment of the purchase price for the Units for which you have found
subscribers, and delivery, with respect to each subscriber for Units, of a copy
of a Subscription Agreement signed by such subscriber (a "Closing"), shall then
be made at such
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place and time as shall be agreed upon between you and the Company, no later
than the fifth full business day after the Notice Date (a "Closing Date").
(e) As compensation for your services, (i) a cash commission will be paid
to you with respect to subscriptions received by you as to which the payments
and deliveries provided for in this Section 4 are made at each Closing Date
equal to 5.0% of the purchase price of the Units purchased at the Closing and
(ii) a financial advisory fee will be paid to you with respect to subscriptions
received by you as to which the payments and deliveries provided for in this
Section 4 are made at each Closing Date equal to 2.0% of the purchase price of
the Units purchased at the Closing. Such commissions and fee shall be paid to
you on the Closing Date by bank wire transfer payable in immediately available
funds. In addition, the Company agrees to reimburse you for your reasonable
out-of-pocket expenses in accordance with Section 6 hereof.
(f) As additional compensation, the Company will issue to you on the
Closing Date a common stock purchase warrant (the "Agent's Warrant") in
substantially the form attached hereto as Exhibit D granting you the right to
purchase from the Company for a period commencing on the Closing Date and ending
two years after the Closing Date a number of shares equal to 10% of the shares
of Common Stock sold in the Offering, at a per share purchase price of $1.25 per
share; provided, however, that at such time as the Company is no longer listed
on the TSX Venture Exchange as a Tier 2 Issuer, and the Common Stock is listed
in the United States the exercise period of the Agent's Warrant shall be
extended to be exercisable for five years after the Closing Date.
(g) Neither you, the Company, nor any Additional Agent (as hereinafter
defined) shall, directly or indirectly, pay or award any finder's fees,
commissions or other compensation to any person engaged by a potential investor
for investment advice as an inducement to such advisor to advise the purchase of
the Units; provided, however, that normal sales commissions payable to a
registered broker-dealer or other properly licensed person for selling the Units
shall not be prohibited hereby.
(h) You will prepare and file such statements and reports as are or may be
required to enable the Units to be qualified for sale under the securities laws
of such jurisdictions as you may designate.
(i) In connection with the Offering you will conduct the Offering in
accordance with the applicable provisions of the Act and Regulation D so as to
preserve for the Company the exemption provided by Rule 506 of Regulation D. You
agree not to offer or sell the Units to any person you do not reasonably believe
to be an Accredited Investor or by means of (i) any means of general
solicitation, including any advertisement, article, notice, or other
communication published in any newspaper, magazine, or similar media or
broadcast over television or radio or (ii) any seminar or meeting, whose
attendees have been invited by any general solicitation or general advertising.
Prior to the sale of any of the Units, you will have reasonable grounds to
believe, and in fact believe, that each subscriber for Units is an Accredited
Investor. You agree not to disclose any material nonpublic information regarding
the Company to any subscriber except as such disclosure may be permitted
pursuant to Canadian Laws and is agreed to in advance by the Company.
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(j) In connection with the performance of your obligations under this
Agreement, you may engage, for the account of the Company, the services of one
or more broker-dealers ("Additional Agents") who are registered and in good
standing under the Exchange Act and members in good standing of the NASD and who
are acceptable to the Company, and, as compensation for their services, shall
pay to such Additional Agents an amount to be negotiated between you and such
Additional Agents. Such amount will be paid to the Additional Agents by you only
out of the commissions received by you in respect of sales of Units as described
in paragraph (e) of this Section 4, and the Company shall have no obligation to
any Additional Agents respecting any such payment. The arrangements, if any,
between the Company, you, and any Additional Agent shall be set forth in an
Additional Agent Agreement ("Additional Agent Agreement"), which shall provide,
among other things, that such Additional Agent shall be deemed to have agreed to
the matters set forth herein as if the Additional Agent were a signatory hereof
Nothing contained in this Agreement or in the Additional Agent Agreement shall
be deemed to constitute the Additional Agents, if any, as your agents, and you
shall not be liable to the Company in respect of the performance by the
Additional Agents, if any, of any representations, warranties or covenants of
such Additional Agents contained herein or in the Additional Agent Agreement.
5. Covenants and Agreements of the Company. The Company covenants and
agrees with you that:
(a) Except as contemplated or described in this Agreement, the
Memorandum or in a public disclosure made prior to the date hereof, it will not,
prior to the initial Closing Date, incur any material liability or obligation,
direct or contingent, or enter into any material transaction, in each case,
other than in the ordinary course of business. Except as described in the
Memorandum, it will not, prior to the initial Closing Date, declare or pay any
dividend on the Common Stock or make any distribution on the Common Stock
payable to shareholders of record on a date prior to the initial Closing Date.
(b) If at any time after the date of the Memorandum and prior to the
Termination Date, any event relating to or affecting the Company occurs as a
result of which the Memorandum would include an untrue statement of a material
fact, or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, it will promptly notify you thereof and will prepare an amended or
supplemented offering memorandum which will correct such statement or omission.
(c) It will cooperate with you to enable the Units to be qualified for
sale under the securities laws of such jurisdictions as you may designate,
subject to approval by the Company, and at your request will make such
applications and furnish such information as may be required of it for that
purpose; provided, however, that you and the Company shall first determine
whether an exemption from registration other than the Uniform Limited Offering
Exemption (the "ULOE") or a similar exemption is available in each such
jurisdiction, and the Company shall not be required to qualify to do business or
to file a general consent to service of process in any such jurisdiction or to
subject itself to taxation. It will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualifications
in effect for so long a period as you may reasonably request for the
distribution of the Units.
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(d) It will make available to you and each purchaser of Units at a
reasonable time prior to each Closing Date the opportunity to ask questions and
receive answers concerning the terms and conditions of the Offering and to
obtain any additional information that the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
of any information in the Canadian Documents or otherwise furnished by the
Company to you or any purchaser of Units; provided, however, that the Company
shall not be required to disclose any material nonpublic information to any
purchaser of Units.
(e) It will file all reports required by Regulation D with regard to sales
of the Shares and use of the proceeds therefrom; provided that you provide all
relevant information to the Company in writing as to purchasers of the Shares
required for such filings.
(f) It will not offer or sell any securities of the Company that are of
the same or a similar class as the Offered Securities for a period of six months
after final Closing Date, other than those offers or sales of securities under
an employee benefit plan as defined in Rule 405 under the Act, in connection
with options, warrants, or convertible securities outstanding as of the Closing
Date, or in connection with an acquisition of assets or another business by the
Company if such offering will be integrated with the Offering of the Units
pursuant to this Agreement for purposes of the exemptions under Regulation D, so
as to invalidate the exemption from registration relied on to offer and sell the
Units.
(g) Subject to subparagraph (h) below, it will maintain the registration
of its Common Stock with the BCSC for at least two years from the final Closing
Date, and thereafter so long as Canadian Law so requires, and will comply in all
respects with its reporting and filing obligations thereunder.
(h) It will use its best efforts to list its Common Stock for quotation on
the OTC Bulletin Board (or the NASDAQ Small Cap Market) within six months from
the Closing Date. The Company shall de-list its Common Stock from the TSX-V
immediately after the NASD approves the initiation of quotations for the Common
Stock on the OTC Bulletin Board (or the NASDAQ Small Cap Market), and shall file
with the Commission (and NASDAQ Stock Market) all reports and notices required
to be so filed, consistent with the Company's obligations under the Registration
Rights Agreement.
(i) For a period of at least two-years following the final Closing Date,
it will use its commercially reasonable best efforts (i) to prepare and make
publicly available in accordance with Rule 144(c) such information as is
required for the purchasers to sell the Shares under Rule 144, and (ii) to take
such further action as may be necessary to enable the purchasers to sell Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144, including causing its attorneys to issue and
deliver any appropriate legal opinion required to permit a purchaser to sell
Shares under Rule 144 upon receipt of appropriate documentation relating to such
sale.
(j) It will use the net proceeds received by it from the sale of the Units
in the manner specified in the Memorandum under the caption "Use of Proceeds."
-11-
(k) For a period of two years from the Closing Date, it will deliver to
you (i) copies of the financial statements furnished by the Company to
shareholders and each other report furnished by the Company to shareholders,
(ii) as soon as they are available, copies of any other reports (financial or
other) which the Company shall publish or otherwise make generally available to
the Company's security holders as such, and (iii) as soon as they are available,
copies of any reports and financial statements furnished to or filed with the
Commission, promptly upon transmission thereof; copies of all financial
statements and reports sent by the Company to its shareholders and of all
regular and periodic reports, if any, filed by it with the Commission or
pursuant to any statute administered by the Commission.
(l) Your rights under the Financial Advisory Agreement shall survive any
Closing under, or the Termination of, this Agreement.
6. Payment of Expenses. If this Agreement becomes effective and the
transactions contemplated by this Agreement are consummated, the Company will
pay (a) all reasonable expenses incident to the performance of the obligations
of the Company under this Agreement, (b) all of your reasonable out-of-pocket
expenses (including reasonable fees and disbursements of your counsel, travel,
and related expenses incurred in connection with this Agreement and the
Offering) incurred in connection with this Agreement, preparing to market, and
marketing the Units, and (c) the fees and expenses of the Escrow Agent.
7. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless you, each Additional Agent, and each person, if any,
who controls you or such Additional Agent within the meaning of the Act, against
any losses, claims, damages, liabilities, or expenses (including, unless the
Company elects to assume the defense as hereinafter provided, the reasonable
cost of investigating and defending against any claims therefor and reasonable
counsel fees incurred in connection therewith), joint or several, which arise
out of the Company's breach of a representation or warranty or covenant or
agreement contained in this Agreement; provided that in no case is the Company
to be liable with respect to any claims made against you, such Additional Agent,
or any such controlling person unless you, such Additional Agent, or such
controlling person shall have notified the Company in writing promptly after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon you or such controlling person, but failure to
notify the Company of any such claim shall not relieve it from any liability
that it may have to you, such Additional Agent, or such controlling person
otherwise than on account of the indemnity agreement contained in this
paragraph. The Company will be entitled to participate at its own expense in the
defense, or if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Company elects to assume the defense,
such defense shall be conducted by counsel chosen by it and reasonably
acceptable to you. In the event the Company elects to assume the defense of any
such suit and retain such counsel, you, such Additional Agent, or such
controlling person or persons, defendant or defendants in the suit, may retain
additional counsel but shall bear the fees and expenses of such counsel unless
(i) the Company shall have specifically authorized the retaining of such counsel
or (ii) the parties to such suit include you, such Additional Agent, or such
controlling person or persons, and the Company and you, such Additional Agent,
or such controlling person or persons have been advised by counsel that one or
more material legal defenses may be available to you, such Additional Agent, or
them that may not be available to the Company in which case the Company shall
not be entitled to assume the defense of such suit
-12-
notwithstanding its obligation to bear the reasonable fees and expenses of such
counsel. In no event shall the Company be liable for the fees and expenses of
more than one counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. The Company shall
not be required to indemnify any person for any settlement of any such claim
effected without the Company's consent, which shall not be unreasonably
withheld. The Company shall not, without your consent, consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof, the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation. This indemnification obligation will be in addition to any primary
liability that the Company might otherwise have.
(b) You and each Additional Agent agree to indemnify and hold harmless the
Company, each of the Company's officers, directors, agents and each other
person, if any, who controls the Company within the meaning of the Act, against
any losses, claims, damages, liabilities, or expenses (including, unless you or
such Additional Agent elect to assume the defense, the reasonable cost of
investigating and defending against any claims therefor and reasonable counsel
fees incurred in connection therewith), joint or several, which (i) arise out of
any untrue statement of a material fact with respect to the Company made by you
or such Additional Agent to any purchaser of Units not contained in the
Memorandum, or other written material provided to you or such Additional Agent
by the Company for specific use in the offering or distribution of the Units,
(ii) arise out of any acts or omissions by you or any Additional Agent that
cause the offering to involve a public offering under the Act or any applicable
state securities or Blue Sky laws or your failure to be properly licensed to
sell the Units, or (iii) arise out of your breach of a representation or
warranty or covenant or agreement contained in this Agreement; provided,
however, that in no case are you or any Additional Agent to be liable with
respect to any claims made against the Company or any such person against whom
the action is brought unless the Company or such person shall have notified you
or such Additional Agent in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim shall
have been served upon the Company or such person, but failure to notify you or
such Additional Agent of such claim shall not relieve you or such Additional
Agent from any liability that you or such Additional Agent may have to the
Company or such person otherwise than on account of the indemnity agreement
contained in this paragraph. You or such Additional Agent shall be entitled to
participate at your or its expense in the defense, or if you or such Additional
Agent so elect, to assume the defense of any suit brought to enforce any such
liability, but, if you or such Additional Agent elect to assume the defense,
counsel chosen by you or such Additional Agent and reasonably acceptable to the
Company shall conduct such defense. In the event that you or such Additional
Agent elect to assume the defense of any such suit and retain such counsel, the
Company, said officers and directors and any person or persons, defendant or
defendants in the suit, may retain additional counsel but shall bear the fees
and expenses of such counsel unless (i) you shall have specifically authorized
the retaining of such counsel or (ii) the parties to such suit include you, such
Additional Agent, or such controlling person or persons, and the Company and
you, such Additional Agent, or such controlling person or persons have been
advised by counsel that one or more material legal defenses may be available to
the Company that may not be available to you or them in which case you shall not
be entitled to assume the defense of such suit notwithstanding your obligation
to bear the reasonable fees and expenses of such counsel.
-13-
You or such Additional Agent shall not be liable to indemnify any person for any
settlement of any such claim effected without your or its consent which consent
shall not be unreasonably withheld. You shall not, without the consent of the
Company, consent to entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof, the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or litigation. This indemnification obligation will be in addition
to any primary liability that you or any Additional Agent might otherwise have.
(c) If the indemnification provided for in this Section 7 is
unavailable, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect not only the relative benefits received by the Company on
one hand and you and the Additional Agents, if any, on the other from the
offering, but also the relative fault of the Company on the one hand and you and
the Additional Agents, if any, on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities, or
expenses (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and you and the Additional Agents, if any, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the Offering
(before deducting expenses) received by the Company, bear to the total selling
commissions received by you. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, you, or an Additional Agent, the
party's relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission, and whether a party breached a
representation or warranty or covenant or agreement contained in this Agreement.
The Company and you agree that it would not be just and equitable if
contribution were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
referred to above shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such claim. Notwithstanding the provisions of this paragraph
(c), you shall not be required to contribute any amount in excess of (i)
$840,000 (7% of the maximum $12,000,000) plus (ii) the value of the warrants
issued to you pursuant to Section 4(f), less (iii) the amount of any damages
that you have otherwise been required to pay by reason of an untrue statement or
omission or alleged omission by the Company. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(d) The indemnification provisions of the Financial Advisory Agreement
between you and the Company shall not apply to the offering of the Units under
this Agreement, but those provisions shall continue to apply with respect to any
other transactions between you and the Company.
8. Survival of Indemnities, Representations, Warranties, etc. The
respective representations and warranties of you and the Company as set forth in
this Agreement or made by them respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless
-14-
of any investigation made by or on behalf of you, the Company, or any of the
officers or directors of the Company or any controlling person, and shall
survive delivery of and payment for the Units for a period ending on the date
two years subsequent to the final Closing Date.
9. Conditions of Your Obligations. Your obligations hereunder, the
Closing, and the release of funds raised in the Offering to the Company, are
subject to the accuracy in all material respects at and (except as otherwise
stated herein) as of the date hereof and at and as of each Closing Date, of the
representations and warranties made herein by the Company, to the compliance in
all material respects at and as of each Closing Date by the Company with its
covenants and agreements herein contained and other provisions hereof to be
satisfied at or prior to each Closing Date and to the following additional
conditions:
(a) You shall not have stated in writing prior to each Closing Date to
the Company that any Canadian Document, or any amendment or supplement thereto
contains an untrue statement of fact which, in your reasonable opinion, is
material, or omits to state a fact which, in your reasonable opinion, is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) You shall have received a certificate, dated the Closing Date, on
behalf of the Company by the Chief Executive Officer or the President and the
chief financial or accounting officer of the Company to the effect that:
(i) To the best of the knowledge of the signers, the representations
and warranties of the Company in this Agreement are true and correct in
all material respects at and as of the Closing Date, and the Company has
complied in all material respects with all the agreements and satisfied in
all material respects all the conditions on its part to be performed or
satisfied at or prior to the Closing Date;
(ii) Between the date of this Agreement and the Closing Date, no
litigation has been instituted or, to the knowledge of the Company,
threatened against the Company of a character required to be disclosed in
a Canadian Document , that has not been so disclosed to you; and
(iii) Between the date of this Agreement and the Closing Date, there
has not been any material adverse change in the financial condition,
business, or results of operations of the Company.
(c) The Company shall have entered into the Registration Rights
Agreement with the Purchasers in the form attached hereto as Exhibit B.
(d) You shall have received (i) from Anfield Sujir Kennedy & Durno,
Barristers and Solicitors, Canadian counsel to the Company, an opinion, dated
the initial Closing Date, with respect to the matters covered in Exhibit C; and
(ii) from Stephen E. Rounds, attorney, an opinion covering such matters as you
may reasonably request.
(e) Each director and executive officer of the Company on the Closing
Date shall have entered into a one-year lock-up agreement covering all Common
Stock beneficially owned by such persons or entities; provided, that such
lock-up shall be lifted when a resale registration
-15-
statement, for the benefit of the Purchasers in this offering, is declared
effective by the Commission.
(f) The Company shall have furnished to you such additional certificates
as you may have reasonably requested as to the accuracy, at and as of the
Closing Date, of the representations and warranties made herein by it, as to
compliance at and as of the Closing Date by it with its covenants and agreements
herein contained and other provisions hereof to be satisfied at or prior to the
Closing Date and as to other conditions to your obligations hereunder.
If any of the conditions provided for in this Section 9 shall not have
been satisfied when and as required by this Agreement, this Agreement may be
terminated by you by notifying the Company of such termination in writing at or
prior to a Closing Date, but you shall be entitled to waive any of such
conditions.
10. Effective Date. This Agreement shall become effective at 11:00 A.M.,
Houston time, on the date hereof (the "Effective Time").
11. Termination. In the event of any termination of this Agreement under
this or any other provision of this Agreement, there shall be no liability of
any party to this Agreement to any other party, other than as provided in
Sections 6, 7, and 8 and this Section 11.
This Agreement may be terminated after the Effective Time by (a) the
Company for any reason by notice to you and (b) you by notice to the Company (i)
if at or prior to the initial Closing Date trading in securities on the New York
Stock Exchange, the American Stock Exchange, or the Nasdaq Stock Market
(collectively, the "Exchanges") shall have been suspended for longer than four
consecutive hours or minimum or maximum prices shall have been established on
either such exchange or stock market, or a banking moratorium shall have been
declared by Texas or United States authorities (unless such suspension is made
pending completion of the sale of the Units, at which time, such suspension will
be lifted); (ii) if at or prior to the initial Closing Date there shall have
been a material escalation of hostilities between the United States and any
foreign country (other than Iraq), or any other material insurrection or armed
conflict involving the United States which, in your reasonable judgment, after
consultation with the Company, makes it impracticable or inadvisable to offer or
sell the Units; or (iii) if there shall be any material litigation or regulatory
action, pending or threatened against or involving the Company, which, in your
reasonable judgment, after consultation with the Company, makes it impracticable
or inadvisable to offer or deliver the Units on the terms contemplated by this
Agreement.
If, and only if, the Company terminates this Agreement after it becomes
effective for any reason (other than your material failure to comply with your
obligations under this Agreement or material breach of your representations and
warranties) or the Offering fails to close because of the Company's breach of
any representations or warranties contained in this Agreement or the Company's
failure to fulfill its covenants and agreements contained in this Agreement, the
Company shall pay you your actual out-of-pocket expenses incurred as provided in
Section 6 hereof.
-16-
12. Agreement Concerning Disclosure of Information. You agree to treat
confidentially any material nonpublic information that is furnished to you (or
to parties acting on your behalf) by or on behalf of the Company, including but
not limited to, nonpublic information contained in the Memorandum (the
"Information"). You agree that the Information will be kept confidential by you
and your partners, members, managers, officers, directors, employees, agents,
and other affiliates (collectively, the "Affiliates"), and your attorneys and
accountants (collectively, the "Professionals"), and that you, such Affiliates,
or Professionals will not disclose the Information to any investor or other
person; provided, however, that the Information may be disclosed to (a)
Affiliates and Professionals who need to know such Information for the purpose
of evaluating or providing services in connection with your clients' investment
in the Company; provided such parties agree to be bound by this undertaking, (b)
to any federal or state regulatory agency and their employees, agents, and
attorneys (collectively, "Regulators") for the purpose of making any filings
with Regulators if disclosure of such Information is required by law (provided
that you advise the Company in writing of the Information to be so disclosed
within a reasonable time prior to such filing), and (c) any other person to
which the Company consents in writing prior to any such disclosure.
In the event that you are requested or required (by oral questions,
documents, subpoena, civil investigation, demand, interrogatories, request for
information, or other similar process) to disclose to any person or entity any
information supplied to you, your Affiliates, or your Professionals in the
course of their dealings with the Company or their respective representatives,
you agree that you will provide the Company with prompt notice of such
request(s) within a reasonable time prior to such disclosure so that the Company
may seek an appropriate protective order and/or waiver of compliance with the
provisions of this Agreement. It is further agreed that, if a protective order
is not obtained, or a waiver is not granted hereunder, and you are nonetheless,
in the written opinion of counsel, compelled to disclose information concerning
the Company to any tribunal or else stand liable for contempt or suffer the
censure or penalty, you may disclose such information to such tribunal without
liability hereunder. Prior to making such disclosure, you shall deliver a
written opinion of your counsel to the Company's counsel that disclosure is
compelled by law. You will exercise your best efforts to obtain a protective
order or other reliable assurance that confidential treatment will be accorded
the Information.
13. Notices. All notices or other communications that are required or
permitted under this Agreement shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by registered or certified mail, postage
pre-paid, by electronic mail, or by courier or overnight carrier, to the persons
at the addresses set forth below (or at such other address as may be provided
hereunder), and shall be deemed to have been delivered as of the date so
delivered:
If to the Company: BPI Industries, Inc.
885 W. Georgia Street, Suite 1500
Vancouver, British Columbia
V6C 1V5 Canada
Attention: James A. Azlein, President
And Keith G. Ebert, Chief Financial Officer
Facsimile: (618) 993-1360
e-mail: jazlein@bpi-industries.com
-17-
with a copy to: The Law Office of Stephen E. Rounds
1544 York Street, Suite 110
Denver, Colorado 80206
Facsimile: (303) 377-0231
e-mail: sercounsel@msn.com
If to you: Sanders Morris Harris Inc.
600 Travis, Suite 3100
Houston, Texas 77002
Attention: President
Facsimile: (713) 224-1101
e-mail: ben.moms@smhhou.com
with a copy to: Thompson & Knight LLP
333 Clay Street, Suite 3300
Houston, Texas 77002-4499
Attention: John T. Unger
Facsimile: (832) 397-8033
e-mail: john.unger@tklaw.com
or at such other address as any party shall have furnished to the other parties
in writing.
14. Successors. This Agreement shall inure to the benefit of and be
binding upon you, and Additional Agents, the Company, and their respective
successors and legal representatives, except that neither the Company nor you
may assign or transfer any of its or your rights or obligations under this
Agreement without the prior written consent of the other. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Company contained in
this Agreement shall also be for the benefit of the person or persons, if any,
who control you or any Additional Agents within the meaning of Section 15 of the
Act, and your and any Additional Agent's indemnities shall also be for the
benefit of each officer and director of the Company and the person or persons,
if any, who control the Company within the meaning of Section 15 of the Act.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas. Any judicial proceeding brought
against either of the parties to this agreement or any dispute arising out of
this Agreement or any matter related hereto may be brought in the courts of the
State of Texas or in the United States District Court for the Southern District
of Texas and, by its execution and delivery of this agreement, each party to
this Agreement accepts the jurisdiction of such courts. The foregoing consent to
jurisdiction shall not be deemed to confer rights on any person other than the
parties to this Agreement. The prevailing party in any such litigation shall be
entitled to receive from the
-18-
losing party or parties all costs and expenses, including reasonable attorney
fees, incurred by the prevailing party. In the event of awards to more than one
party, the party receiving the greatest net award shall be entitled to receive
reimbursement of all of its costs and expenses so incurred, including reasonable
attorney fees.
If the foregoing correctly sets forth our understanding please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
BPI INDUSTRIES, INC.
By _____________________________
James A. Azlein, President
Accepted and delivered in Houston,
Texas as of the date first above written
SANDERS MORRIS HARRIS INC.
By:__________________________
Name: John H. Malanga
Title: Senior Vice President
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