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AGENCY AGREEMENT

Agency Agreement

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DIGIFONICA INTERNATIONAL CORP

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Title: AGENCY AGREEMENT
Governing Law: Florida     Date: 9/18/2006

AGENCY AGREEMENT, Parties: digifonica international corp
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AGENCY AGREEMENT

____________, 2006

Digifonica International Corp. (f/k/a Moliris Corp.)
Suite 1424 — 4710 Kingsway,
Burnaby, BC
V5H 2M2

Attention:       President

Dear Sirs:

Re:       Private Placement of Units

Loewen Ondaatje McCutcheon Limited (the “ Agent ”) understands that:

 

(a)

 

Digifonica International Corp., a Florida corporation formerly known as Moliris Corp. (the “ Corporation ”) is authorized to issue, among other things, 50,000,000 Common Shares and 1,000,000 Class B Shares (each as hereinafter defined);

 

 

 

 

 

(b)

 

as at August 1, 2006, 22,548,600 Common Shares and no Class B Shares were outstanding as fully paid and non-assessable shares and as at August 1, 2006, no Common Shares or Class B Shares were reserved for issuance pursuant to outstanding options, warrants, share incentive plans, convertible, exercisable and exchangeable securities and other rights to acquire Common Shares (as hereinafter defined);

 

 

 

 

 

(c)

 

the Corporation is prepared to issue and sell up to 2,500,000 Units (as hereinafter defined), at a price of US$2.00 per Unit, each Unit consisting of one Common Share and one half of one warrant (each whole warrant a “ Warrant ”), and each Warrant being exercisable to acquire one Common Share at an exercise price of US$2.50 per Common Share for a period of 12 months after the Closing Date (as hereinafter defined), or at an exercise price of US$3.00 per Common Share for a period of 13 to 24 months after the Closing Date for maximum aggregate gross proceeds of US$5,000,000 on the terms and subject to the conditions contained hereinafter. For greater certainty, the Purchase Price of US$2.00 per Unit will be allocated as to US$1.99 to the Common Share and as to US$.01 to the one half of one Warrant; and

 

 

 

 

 

(d)

 

In addition, if a Going Public Transaction (as hereinafter defined) is not completed within 9 months following the Closing Date (the “ Penalty Date ”) the Corporation shall issue additional Common Shares (“ Penalty Shares ”) equal to 10% of the dollar value of the Common Shares (with the Common Shares being valued at US$1.99 per Common Share) each Purchaser (as hereinafter defined) initially purchased in the Offering. Such Penalty Shares will be issued as liquidated damages for the delay to complete such listing or quotation and obtain such reporting issuer status.

Based upon the understanding of the Agent set out above and upon the terms and subject to the conditions contained hereinafter, upon the acceptance hereof by the Corporation, the Corporation hereby appoints

 


 

2.

the Agent to act as the sole and exclusive agent of the Corporation to solicit, on a best efforts basis, offers to purchase the Offered Securities (as hereinafter defined), and the Agent hereby agrees to act as such agent. It is understood and agreed that the Agent is under no obligation to purchase any of the Offered Securities, although the Agent may subscribe for and purchase Offered Securities if it so desires.

The terms and conditions of this Agreement are as follows:

1.

 

Definitions, Interpretation and Schedules

 

(a)

 

Definitions : Whenever used in this Agreement:

 

 

(i)

 

1933 Act ” means the Securities Act of 1933 (United States), as amended;

 

 

 

 

 

(ii)

 

Agent ” means Loewen Ondaatje McCutcheon Limited;

 

 

 

 

 

(iii)

 

Agreement ” means the agreement resulting from the acceptance by the Corporation of the offer made by the Agent herein, including the Schedules attached hereto, as amended or supplemented from time to time;

 

 

 

 

 

(iv)

 

Ancillary Documents ” means all agreements, certificates (including the Warrant Certificates and the Broker Warrant Certificate) and documents executed and delivered, or to be executed and delivered, by the Corporation in connection with the transactions contemplated by this Agreement or the Subscription Agreements and includes the Subscription Agreements;

 

 

 

 

 

(v)

 

Auditor ” means HLB Cinnamon Jang Willoughby, LLP, the auditors of the Corporation;

 

 

 

 

 

(vi)

 

Broker Shares ” means the Common Shares which may be issued on the exercise of the Broker Warrant;

 

 

 

 

 

(vii)

 

Broker Warrant ” means the non-transferable broker warrant which will entitle the Agent to acquire Common Shares equal in number to 7% of the number of Offered Securities sold at any time commencing on the Closing Date and continuing until the date which is 12 months after the date on which the Common Shares issuable upon the exercise of the Broker Warrant may first be publicly resold by the Agent in Canada or the United States at an exercise price that is equal to the issuance price of each Unit sold under the Offering;

 

 

 

 

 

(viii)

 

Broker Warrant Certificate ” means the certificate representing the Broker Warrant;

 

 

 

 

 

(ix)

 

Business Day ” means a day which is not a Saturday, Sunday or a statutory or civic holiday in the City of Toronto, Province of Ontario;

 

 

 

 

 

(x)

 

Class B Shares ” means the shares of Class B Common Stock, no par value, that the Corporation is authorized to issue as constituted on the date hereof;

 


 

3.

 

(xi)

 

Closing ” means the purchase and sale of the Offered Securities subscribed for by the Purchasers pursuant to the Subscription Agreements;

 

 

 

 

 

(xii)

 

Closing Date ” means August 9, 2006 or such other date as the Corporation and the Agent may mutually agree upon in writing;

 

 

 

 

 

(xiii)

 

Closing Time ” means 2:00 p.m. (Toronto time) on the Closing Date or such other time on the Closing Date as the Corporation and the Agent may mutually agree upon in writing;

 

 

 

 

 

(xiv)

 

Common Shares ” means the shares of Class A Common Stock, par value $0.001 per share, that the Corporation is authorized to issue as constituted on the date hereof;

 

 

 

 

 

(xv)

 

Corporation ” means Digifonica International Corp., a corporation incorporated under the laws of the State of Florida, and includes any successor corporation thereto;

 

 

 

 

 

(xvi)

 

Directed Selling Efforts ” means “directed selling efforts” as defined in Regulation S;

 

 

 

 

 

(xvii)

 

Exchange Act ” means the Securities Exchange Act of 1934 (United States), as amended.

 

 

 

 

 

(xviii)

 

General Solicitation or General Advertising ” means “general solicitation or general advertising” as used in Rule 502(c) of Regulation D;

 

 

 

 

 

(xix)

 

Going Public Transaction ” means a public offering of Common Shares pursuant to a prospectus filed and receipted under the Ontario Act or similar document filed under applicable securities laws in one or more of the provinces in Canada which results in the Corporation becoming a reporting issuer in a province of Canada and an effective registration statement filed with the SEC, and which results in the Common Shares of the Corporation (or the securities of a successor issuer) being listed and posted for trading on the Toronto Stock Exchange, Tier 1 or Tier 2 of the TSX Venture Exchange, NASDAQ or American Stock Exchange;

 

 

 

 

 

(xx)

 

Material Adverse Effect ” means any adverse change or effect that, individually or when taken together with all other such changes or effects, would be materially adverse to the condition (financial or otherwise), results of operations, business, properties, prospects, assets or liabilities (contingent or otherwise) of the Corporation or any Subsidiary.

 

 

 

 

 

(xxi)

 

Offered Securities ” means up to 2,500,000 Units to be issued and sold at the Purchase Price under the Offering;

 

 

 

 

 

(xxii)

 

Offering ” means the offering for sale by the Corporation on a private placement basis of the Offered Securities;

 


 

4.

 

(xxiii)

 

Offering Jurisdictions ” means the Provinces of British Columbia, Alberta, Ontario, the United States and the states and territories thereof and such other provinces and territories of Canada and other jurisdictions as may be mutually agreed upon by the Agent and the Corporation where the Offered Securities are offered to prospective purchasers or those provinces, territories or other jurisdictions where Purchasers reside, as the context permits or requires;

 

 

 

 

 

(xxiv)

 

Ontario Act ” means the Securities Act (Ontario) and the regulations thereunder, together with the instruments, policies, rules, orders, codes, notices and interpretation notes of the Ontario Securities Commission, as amended, supplemented or replaced from time to time;

 

 

 

 

 

(xxv)

 

Penalty Date ” has the meaning ascribed thereto in paragraph (d) of the first page of this Agreement;

 

 

 

 

 

(xxvi)

 

Penalty Shares ” has the meaning ascribed thereto in paragraph (d) of the first page of this Agreement;

 

 

 

 

 

(xxvii)

 

Person ” means an individual, a firm, a corporation, a syndicate, a partnership, a trust, an association, an unincorporated organization, a joint venture, an investment club, a government or an agency or political subdivision thereof and every other form of legal or business entity of any nature or kind whatsoever;

 

 

 

 

 

(xxviii)

 

Purchase Price ” means the price to be paid by the Purchasers for each Offered Security under the Offering, being US$2.00 per Unit;

 

 

 

 

 

(xxix)

 

Purchasers ” means the purchasers of the Offered Securities collectively;

 

 

 

 

 

(xxx)

 

" Regulation D ” means Regulation D promulgated under the 1933 Act;

 

 

 

 

 

(xxxi)

 

" Regulation S ” means Regulation S promulgated under the 1933 Act;

 

 

 

 

 

(xxxii)

 

" SEC ” means the United States Securities and Exchange Commission.

 

 

 

 

 

(xxxiii)

 

SEC Filings ” means all filings of the Corporation with the SEC pursuant to United States Securities Laws, including without limitation any registration statements, proxy or information statements, annual reports on Form 10-KSB, quarterly reports on Form 10-QSB and current reports on Form 8-K.

 

 

 

 

 

(xxxiv)

 

Securities Commissions ” means the securities regulatory authorities of the Offering Jurisdictions collectively, as the case may be;

 

 

 

 

 

(xxxv)

 

Securities Laws ” means the securities legislation and regulations of, and the instruments, policies, rules, orders, codes, notices and interpretation notes of the securities regulatory authorities of, the applicable jurisdiction or jurisdictions collectively;

 


 

5.

 

(xxxvi)

 

Subject Shares ” means the Unit Shares, the Warrant Shares, the Broker Shares and the Penalty Shares collectively;

 

 

 

 

 

(xxxvii)

 

Subscription Agreements ” means the subscription agreements to be entered into between the Corporation and Purchasers with respect to the purchase of the Units;

 

 

 

 

 

(xxxviii)

 

Subsidiaries ” means, collectively, Digifonica (International) Limited, a corporation organized under the laws of Gibraltar; Digifonica Intellectual Properties Limited, a corporation organized under the laws of Gibraltar; Digifonica Canada Limited, a corporation organized under the laws of Canada; Shenzen Sino-Can Inter-Communication Technology Limited, a corporation organized under the laws of the Peoples Republic of China; Moliris Corp., a Texas corporation; and Moliris Packaging Corp., a Texas corporation;

 

 

 

 

 

(xxxix)

 

Unit Shares ” means the Common Shares comprising part of the Units;

 

 

 

 

 

(xl)

 

United States ” means the “United States” as defined in Regulation S;

 

 

 

 

 

(xli)

 

Units ” means the units of the Corporation being offered for sale by the Agent under the Offering, each Unit being comprised of one Unit Share and one-half of one Warrant;

 

 

 

 

 

(xlii)

 

U.S. Accredited Investor ” means an “accredited investor” as defined in Rule 501(a) of Regulation D;

 

 

 

 

 

(xliii)

 

" U.S. Person ” means a “U.S. person” as defined in Regulation S;

 

 

 

 

 

(xliv)

 

" Warrant Certificates ” means the certificates representing the Warrants;

 

 

 

 

 

(xlv)

 

Warrant Shares ” means the Common Shares which may be issued upon the exercise of the Warrants; and

 

 

 

 

 

(xlvi)

 

Warrants ” means the warrants of the Corporation, one-half of one Warrant comprising part of each Unit, with each whole Warrant to entitle the holder thereof to acquire one Warrant Share at any time from the date of issuance of the Warrants until 5:00 p.m. (Toronto time) on the date which is 24 months after the Closing Date, at an exercise price of US$2.50 per Warrant Share for 12 months from the Closing Date and $3.00 for a period of 13 to 24 months after the Closing Date.

 

 

 

 

 

(xlvii)

 

Other Defined Terms : Whenever used in this Agreement, the words and terms “affiliate”, “associate”, “material fact”, “material change”, “misrepresentation”, “senior officer” and “subsidiary” shall have the meaning given to such word or term in the Ontario Act unless specifically provided otherwise herein.

 


 

6.

 

(b)

 

Headings : The section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement.

 

 

 

 

 

(c)

 

Usage : The term “or” will not be interpreted as excluding any of the items described. The term “include” or any derivative of such term does not mean that the items following such term are the only types of such items.

 

 

 

 

 

(d)

 

Plural and Gender : Whenever used in this Agreement, words importing the singular number only shall include the plural and vice versa and words importing the masculine gender shall include the feminine gender and neuter.

 

 

 

 

 

(e)

 

Drafting : The language in all parts of this Agreement shall be interpreted, in all cases, according to its fair meaning.

 

 

 

 

 

(f)

 

Currency : All references to monetary amounts in this Agreement are to United States dollars.

 

 

 

 

 

(g)

 

Schedules : The following Schedules are attached to this Agreement and are hereby incorporated by reference into and made a part of this Agreement for all purposes:

 

 

 

Schedule

 

Title

A

 

Officers’ Certificate

B

 

Agent’s Certificate

 

2.

 

The Offered Securities

 

(a)

 

Offered Securities : The Offered Securities are up to 2,500,000 Units, each Unit comprised of one Common Share and one-half of one Warrant .

 

 

 

 

 

(b)

 

The Warrants : The terms and conditions, and the material attributes and characteristics, of the Warrants shall be satisfactory to the Corporation and the Agent and consistent with the provisions of this Agreement. Such terms and conditions, and material attributes and characteristics, will be contained in the Warrant Certificates, which will contain, among other things, anti-dilution provisions and provisions for the appropriate adjustment in the class and number of Warrant Shares or other securities to be received on the exercise of Warrants upon the occurrence of any subdivision, consolidation or reclassification of the Common Shares or any payment of dividends or the amalgamation of, or other reorganization involving, the Corporation. Subject to adjustment in accordance with the provisions of the Warrant Certificates, each whole Warrant shall entitle the holder thereof to purchase one Warrant Share at any time commencing on the Closing Date and prior to 5:00 p.m. (Toronto time) on the date which is 12 months after the Closing Date at an exercise price of US$2.50 per Warrant Share, or on the date which is 13 to 24 months after the Closing Date, at an exercise price of US$3.00 per Warrant Share.

 


 

7.

3.

 

The Offering

 

(a)

 

Sale on Exempt Basis : The Agent will use its best efforts to arrange for Purchasers in the Offering Jurisdictions. The Agent shall offer for sale on behalf of the Corporation the Offered Securities in the Offering Jurisdictions in compliance with the Securities Laws of the Offering Jurisdictions and only to such Persons and in such manner so that, pursuant to the provisions of the Securities Laws of the Offering Jurisdictions, no prospectus, registration statement or offering memorandum or other similar document need be filed with, or delivered to, any Securities Commission in any Offering Jurisdiction in connection therewith. The Agent shall offer the Units for sale on behalf of the Corporation in the United States only through the Agent , pursuant to an exemption from the registration requirements of the 1933 Act, in compliance with applicable state Securities Laws and in accordance with section 10 hereof.

 

 

 

 

 

(b)

 

Agency Group : The Corporation agrees that, subject to the consent of the Corporation, such consent not to be unreasonably withheld, the Agent has the right to invite one or more investment dealers to form an agency group to participate in the soliciting of offers to purchase the Offered Securities. The Agent shall have the exclusive right to control all compensation arrangements between the members of the agency group; provided, however , that the Agent hereby acknowledges and agrees that the Corporation shall be obligated only to the Agent with respect to commissions owed by the Corporation pursuant to this Agreement, and the Agent hereby covenants and agrees to protect, indemnify and save harmless the Corporation and each Subsidiary from and against all claims of any member of the agency group other than the Agent for any fees, commissions or other compensation pursuant to this Agreement. The Corporation grants all of the rights and benefits of this Agreement to any investment dealer who is a member of any agency group formed by the Agent and appoints the Agent as trustee of such rights and benefits for all such investment dealers, and the Agent hereby accepts such trust and agrees to hold such rights and benefits for and on behalf of all such investment dealers. The Agent shall ensure that any investment dealer who is a member of any agency group formed by the Agent pursuant to the provisions of this subsection 3(b) or with whom the Agent has a contractual relationship with respect to the Offering, if any, agrees with the Agent to comply with the covenants and obligations given by the Agent herein.

 

 

 

 

 

(c)

 

Covenants of the Agent : The Agent covenants with the Corporation that (i) it will comply with the Securities Laws of the Offering Jurisdictions in which it solicits or procures subscriptions for Offered Securities in connection with the Offering, (ii) it will not solicit or procure subscriptions for Offered Securities so as to require the registration thereof or the filing of a prospectus with respect thereto under the laws of any jurisdiction, and (iii) it will obtain from each Purchaser an executed subscription agreement in a form acceptable to the Corporation and the Agent, acting reasonably. The Agent represents and warrants that it is, and, to the best of its knowledge, each member of any agency group formed by the Agent is, qualified so to act in the Offering Jurisdictions in which such member solicits or procures subscriptions for the Offered Securities.

 

 

 

 

 

(d)

 

Filings : The Corporation undertakes to file or cause to be filed all forms and undertakings required to be filed by the Corporation in connection with the Offering so

 


 

8.

 

 

 

that the distribution of the Offered Securities may lawfully occur in the Offering Jurisdictions without the necessity of filing a prospectus or an offering memorandum in Canada and the Agent undertakes to use commercially reasonable efforts to cause the Purchasers of the Offered Securities to complete (and it shall be a condition of closing in favour of the Corporation that the Purchasers complete and deliver to the Corporation) any forms and undertakings required by the Securities Laws of the Offering Jurisdictions. All fees payable in connection with such filings shall be at the expense of the Corporation.

 

 

 

 

 

(e)

 

No Offering Memorandum : Neither the Corporation nor the Agent shall (i) provide to prospective purchasers of Offered Securities any document or other material that would constitute an offering memorandum within the meaning of the Securities Laws of the Offering Jurisdictions or (ii) engage in any form of General Solicitation or General Advertising in connection with the offer and sale of the Offered Securities, including but not limited to, causing the sale of the Offered Securities to be advertised in any newspaper, magazine, printed public media, printed media or similar medium of general and regular paid circulation, broadcast over radio, television or telecommunications, including electronic display or the Internet, or otherwise, or conduct any seminar or meeting relating to any offer and sale of the Offered Securities whose attendees have been invited by a General Solicitation or General Advertising.

4.

 

Due Diligence

 

 

 

 

 

The Corporation shall allow the Agent to conduct all due diligence investigations, including meeting with senior management of the Corporation and the Auditor, as the Agent shall consider appropriate in connection with the Offering.

 

 

 

5.

 

Deliveries By Closing Time

 

 

(a)

 

Deliveries : By the Closing Time:

 

(i)

 

all actions required to be taken by or on behalf of the Corporation including, without limitation, the passing of all required resolutions of the directors, including committees of the directors, and shareholders of the Corporation, shall have occurred in order to complete the transactions contemplated by this Agreement and the Subscription Agreements, including, without limitation, to issue the Unit Shares, to create and issue the Warrants and the Broker Warrant and to reserve for issuance and conditionally issue the Warrant Shares, the Broker Shares and the Penalty Shares, and a certified copy of all such resolutions shall have been delivered by the Corporation to the Agent;

 

 

 

 

 

(ii)

 

the Corporation shall have delivered or caused to be delivered to the Agent:

 

 

A.

 

a favourable legal opinion of Hughes & Luce, L.L.P., U.S. counsel to the Corporation, addressed to, among others, the Agent and the Purchasers with respect to, among other things, the issuance of the Unit Shares and the Warrants and the exercise of the Warrants and such other matters as the Agent may reasonably require,

 


 

9.

 

B.

 

a certificate dated the Closing Date signed by an appropriate officer of the Corporation and addressed to, among others, the Agent and the Purchasers with respect to the articles and by-laws of the Corporation, the resolutions of the directors and shareholders, if any, of the Corporation and any other corporate action taken relating to this Agreement and the Ancillary Documents and with respect to such other matters as the Agent may reasonably request and including specimen signatures of the signing officers of the Corporation,

 

 

 

 

 

C.

 

a certificate dated the Closing Date addressed to, among others, the Agent and the Purchasers signed by the chief executive officer and the chief financial officer of the Corporation or any two other senior officers of the Corporation acceptable to the Agent substantially in the form of the certificate attached hereto as Schedule A ,

 

 

 

 

 

D.

 

a Subscription Agreement from each Purchaser accepted and executed by the Corporation,

 

 

 

 

 

E.

 

definitive certificates representing the Offered Securities registered in the names of the Purchasers or in such other name or names as the Purchasers may direct,

 

 

 

 

 

F.

 

a definitive certificate representing the Broker Warrant registered in the name of the Agent or in such other name or names as the Agent may direct, and

 

 

 

 

 

G.

 

such further documents as may be contemplated by this Agreement or as the Agent may reasonably require,

all in form and substance reasonably satisfactory to the Agent;

 

(iii)

 

the Agent shall have delivered or cause to be delivered to the Corporation

 

A.

 

payment of the aggregate Purchase Price for the Units purchased by the Purchasers of Units net of (i) the commission payable by the Corporation to the Agent as provided in section 7 of this Agreement and (ii) the expenses payable by the Corporation to the Agent as provided in section 13 of this Agreement by cheque or bank draft payable to the Corporation against delivery from the Corporation to the Agent of a receipt for the aggregate net Purchase Price for such Units, and

 

 

 

 

 

B.

 

such further documents as may be contemplated by this Agreement or as the Corporation may reasonably require,

all in form and substance satisfactory to the Corporation.

 


 

10.

6.

 

Closing

 

(a)

 

Closing : The Closing shall be completed at the offices of counsel for the Agent at the Closing Time on the Closing Date.

 

 

 

 

 

(b)

 

Conditions of Closing : The following are conditions precedent to the obligation of the Agent to complete the Closing and of the Purchasers to purchase the Offered Securities, which conditions the Corporation hereby covenants and agrees to use its best efforts to fulfill within the time set out herein therefor, and which conditions may be waived in writing in whole or in part by the Agent:

 

 

(i)

 

the Corporation shall have received all necessary approvals and consents, including all necessary regulatory approvals and consents required for the completion of the transaction contemplated by this Agreement, all in a form reasonably satisfactory to the Agent;

 

 

 

 

 

(ii)

 

receipt by the Agent of the documents set forth in section 5 of this Agreement to be delivered to the Agent;

 

 

 

 

 

(iii)

 

the representations and warranties of the Corporation contained herein being true and correct as of the Closing Time with the same force and effect as if made at and as of the Closing Time after giving effect to the transactions contemplated hereby;

 

 

 

 

 

(iv)

 

the Corporation having complied with all covenants, and satisfied all terms and conditions, contained herein to be complied with and satisfied by the Corporation at or prior to the Closing Time; and

 

 

 

 

 

(v)

 

the Agent not having previously terminated its obligations pursuant to this Agreement.

7.

 

Fees

 

 

(a)

 

Commission : In consideration of the agreement of the Agent to act as agent of the Corporation in respect of the Offering, and in consideration of the services performed and to be performed by the Agent in connection therewith, including, without limitation:

 

(i)

 

acting as agent of the Corporation to solicit, on a best efforts basis, offers to purchase the Offered Securities;

 

 

 

 

 

(ii)

 

participating in the preparation of the form of the Subscription Agreements and certain of the Ancillary Documents; and

 

 

 

 

 

(iii)

 

advising the Corporation with respect to the private placement of the Offered Securities;

the Corporation shall pay to the Agent or as the Agent may otherwise direct at the Closing Time against receipt of payment of the purchase price for the Offered Securities, a fee of 7% of the aggregate Purchase Price for the Offered Securities.

 


 

11.

 

(b)

 

Taxes: The Corporation and the Agent acknowledge and agree that if a separate fee would have been charged to the Corporation for the services described in clause 7(a)(i) above, such separate fee would represent more than 50% of the fee payable to the Agent, and the Corporation hereby further acknowledges and agrees that the Agent will rely on the foregoing statement in not charging federal goods and services tax on such fee and that the Corporation will forthwith pay to the Agent any such tax and any applicable interest and penalties to the extent determined to be exigible.

 

 

 

 

 

(c)

 

Broker Warrant : In addition to the commission payable to the Agent pursuant to subsection 7(a) hereof, as additional consideration for the services performed and to be performed by the Agent hereunder, the Corporation shall issue to the Agent or as the Agent may otherwise direct at the Closing Time the Broker Warrant, in form and substance reasonably satisfactory to the Agent.

8.

 

Representations and Warranties

 

 

 

 

 

The Corporation hereby represents and warrants to the Agent and the Purchasers, and acknowledges that the Agent and the Purchasers are relying upon each of such representations and warranties in completing the Closing, as follows:

 

 

(a)

 

Incorporation and Organization : The Corporation and each Subsidiary is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and has all requisite corporate power and authority to carry on its business as now conducted or proposed to be conducted and to own or lease and operate its property and assets.

 

 

 

 

 

(b)

 

Authority and Authorization : The Corporation has all requisite corporate power and authority to enter into, execute and deliver this Agreement and the Ancillary Documents and to do all acts and things and execute and deliver all documents as are required to carry out its obligations hereunder and thereunder, and the Corporation has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the Ancillary Documents and to observe and perform the provisions hereof and thereof in accordance with the provisions hereof and thereof including, without limitation, the issuance of the Offered Securities to the Purchasers for the consideration and upon the terms and conditions set forth herein and the issuance of the Warrant Shares for the consideration and upon the terms and conditions set forth in the Warrant Certificates.

 

 

 

 

 

(c)

 

Validity and Enforceability : This Agreement and each of the Subscription Agreements has been duly authorized, executed and delivered by the Corporation and, assuming the due authorization, execution and delivery of each other party thereto, constitutes a valid and legally binding obligation of the Corporation, and upon being executed and delivered the Warrant Certificates will constitute valid and legally binding obligations of the Corporation, each enforceable against the Corporation in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance or similar laws affecting the enforcement of creditors’ rights generally and subject to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).

 


 

12.

 

(d)

 

Extra-provincial Registration : The Corporation and each Subsidiary is licensed, registered or qualified as an extra-provincial or foreign corporation in all jurisdictions where the character of its property or assets owned or leased or the nature of the activities conducted by it make licensing, registration or qualification necessary and is carrying on its business in compliance with all applicable laws, rules and regulations of each such jurisdiction.

 

 

 

 

 

(e)

 

Authorized Capital : The Corporation is authorized to issue, among other things, 50,000,000 Common Shares and 1,000,000 Class B Shares, of which, as of August 1, 2006, 22,548,600 Common Shares and no Class B Shares were issued and outstanding as fully paid and non-assessable shares.

 

 

 

 

 

(f)

 

Rights to Acquire Securities : Except as disclosed in the SEC Filings, no Person has any agreement, option, right or privilege (whether pre-emptive, contractual or otherwise) capable of becoming an agreement for the purchase, acquisition, subscription for or issuance of any of the unissued shares or other securities of the Corporation. As at December 31, 2005, an aggregate of 1,315,000 Common Shares were issuable pursuant to outstanding warrants to acquire Common Shares.

 

 

 

 

 

(g)

 

No Pre-emptive Rights : The issuance of the Offered Securities will not be subject to any pre-emptive right or other contractual right to purchase securities granted by the Corporation or to which the Corporation is subject.

 

 

 

 

 

(h)

 

Offered Securities : Assuming that the acknowledgements, representations and covenants of each Purchaser as described in the Subscription Agreement are true, the execution of this Agreement and the Subscription Agreement and the issuance by the Corporation to the Purchasers of the Offered Securities will be exempt from the registration and prospectus requirements of the Securities Laws of the Offering Jurisdictions.

 

 

 

 

 

(i)

 

Subsidiaries : The Subsidiaries are the only subsidiaries of the Corporation.

 

 

 

 

 

(j)

 

Capital of Subsidiaries : All of the outstanding shares of the Subsidiaries are issued and outstanding as fully paid and non-assessable shares and are legally and beneficially owned by the Corporation, and, except as disclosed in the SEC Filings, no Person has any agreement, option, right or privilege (whether pre-emptive, contractual or otherwise) capable of becoming an agreement for the purchase, acquisition, subscription for or issuance of any of the unissued shares or other securities of any of the Subsidiaries or for the purchase or acquisition of any of the outstanding shares or other securities of any of the Subsidiaries.

 

 

 

 

 

(k)

 

Issuance of Offered Securities : All necessary corporate action has been taken to authorize the issuance and sale of, and the delivery of certificates representing, the Offered Securities and, upon payment of the requisite consideration therefor, the Unit Shares will be validly issued as fully paid and non-assessable shares and the Warrants will be validly issued and, upon the issuance thereof, the Warrant Shares will be validly issued as fully paid and non-assessable shares.

 


 

13.

 

(l)

 

Issuance of Penalty Shares: All necessary corporation action has been taken to authorize the issuance and sale of, and the delivery of certificates representing, the Penalty Shares and, upon the issuance thereof, if applicable, the Penalty Shares will be validly issued as fully paid and non-assessable shares

 

 

 

 

 

(m)

 

Consents, Approvals and Conflicts : None of the offering and sale of the Offered Securities, the execution and delivery of this Agreement or the Ancillary Documents, the compliance by the Corporation with the provisions of this Agreement and the Ancillary Documents or the consummation of the transactions contemplated herein and therein including, without limitation, the issuance of the Offered Securities to the Purchasers for the consideration and upon the terms and conditions as set forth herein and the issuance of the Warrant Shares for the consideration and upon the terms and conditions set forth in the Warrant Certificates, do or will (i) require the consent, approval, or authorization, order or agreement of, or registration or qualification with, any governmental agency, body or authority, court, stock exchange, securities regulatory authority or other Person, except (A) such as have been obtained; (B) such as may be required under the Securities Laws of the Offering Jurisdictions and will be obtained by the Closing Date; or (C) such as the failure to obtain would not reasonably be expected to result in a Material Adverse Effect, or (ii) conflict with or result in any breach or violation of any of the material provisions of, or constitute a material default under, any indenture, mortgage, deed of trust, lease or other agreement or instrument to which the Corporation or any Subsidiary is a party or by which any of them or any of their respective properties or assets is bound, or the articles or by-laws or any other constating document of the Corporation or any Subsidiary or any resolution passed by the directors (or any committee thereof) or shareholders of the Corporation or any Subsidiary, or any statute or any judgment, decree, order, rule, policy or regulation of any court, governmental authority, arbitrator, stock exchange or securities regulatory authority applicable to the Corporation or any Subsidiary or any of their respective properties or assets which would be reasonably expected to result in a Material Adverse Effect.

 

 

 

 

 

(n)

 

Broker Warrant :

 

(i)

 

The Corporation has all requisite corporate power and authority to issue the Broker Warrant and to enter into, execute and deliver and to carry out its obligations under the Broker Warrant Certificate.

 

 

 

 

 

(ii)

 

All necessary corporate action has been taken to authorize the issuance of the Broker Warrant and, upon the issuance thereof, the Broker Warrant will be validly issued. All necessary corporate action has been taken to authorize the creation, execution, delivery and performance of the Broker Warrant Certificate and to observe and perform the provisions of the Broker Warrant Certificate in accordance with the provisions thereof including, without limitation, the issuance of the Broker Shares for the consideration and upon the terms and conditions set forth in the Broker Warrant Certificate.

 

 

 

 

 

(iii)

 

Upon being executed and delivered the Broker Warrant Certificate will constitute a valid and legally binding obligation of the Corporation enforceable against the Corporation in accordance with its terms, except as such enforceability may be

 


 

14.

 

 

 

limited by applicable bankruptcy, insolvency, fraudulent conveyance or similar laws affecting the enforcement of creditors’ rights generally and subject to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).

 

 

 

 

 

(iv)

 

None of the issuance of the Broker Warrant, the execution and delivery of the Broker Warrant Certificate, the compliance by the Corporation with the provisions of the Broker Warrant Certificate or the consummation of the transactions contemplated therein including, without limitation, the issuance of the Broker Shares for the consideration and upon the terms and conditions set forth in the Broker Warrant Certificate, do or will (i) require the consent, approval, or authorization, order or agreement of, or registration or qualification with, any governmental agency, body or authority, court, stock exchange, securities regulatory authority or other Person, except (A) such as have been obtained; (B) such as may be required under the Securities Laws of the Offering Jurisdictions and will be obtained by the Closing Date; or (C) such as the failure to obtain would not reasonably be expected to result in a Material Adverse Effect, or (ii) conflict with or result in any breach or violation of any of the material provisions of, or constitute a material default under, any indenture, mortgage, deed of trust, lease or other agreement or instrument to which the Corporation is a party or by which it or any of its properties or assets is bound, or the articles or by-laws of the Corporation or any resolution passed by the directors (or any committee thereof) or shareholders of the Corporation, or any statute or any judgment, decree, order, rule, policy or regulation of any court, governmental authority, any arbitrator, stock exchange or securities regulatory authority applicable to the Corporation or any of its properties or assets which could reasonably be expected to have a Material Adverse Effect.

 

 

 

 

 

(v)

 

None of the issuance of the Broker Warrant or the Broker Shares will be subject to any pre-emptive right or other contractual right to purchase securities granted by the Corporation or to which the Corporation is subject.

 

(o)

 

Accounting Controls : The Corporation maintains a system of internal accounting controls and procedures in compliance with United States Securities Laws, as described in the SEC Filings.

 

 

 

 

 

(p)

 

Financial Statements : The audited financial statements of the Corporation for the year ended December 31, 2005, together with the auditors’ report thereon and the notes thereto, and the unaudited interim financial statements of the Corporation for the period ended March 31, 2006 and the notes thereto, have been prepared in accordance with United States generally accepted accounting principles applied on a basis consistent with prior periods (except as disclosed in such financial statements or the notes thereto), are substantially correct in every material respect and present fairly the financial condition and position of the Corporation as at the dates thereof, and such financial statements contain no direct or implied statement of a material fact which is untrue on the date of such financial statements and do not omit to state any material fact which is required by United States generally accepted accounting principles or by applicable law to be stated

 


 

15.

 

 

 

or reflected therein or which is necessary to make the statements contained therein not misleading in light of the circumstances under which they were made.

 

 

 

 

 

(q)

 

Changes in Financial Position : Since March 31, 2006, except as disclosed in the SEC Filings, neither the Corporation nor any Subsidiary has (i) paid or declared any dividend or incurred any material capital expenditure or made any commitment therefor; (ii) incurred any obligation or liability, direct or indirect, contingent or otherwise, except in the ordinary course of business and which is not, and which in the aggregate are not, material; or (iii) entered into any material transaction.

 

 

 

 

 

(r)

 

Insolvency : Except as disclosed in the SEC Filings, neither the Corporation nor any of the Subsidiaries has committed an act of bankruptcy or sought protection from its creditors before any court or pursuant to any legislation, proposed a compromise or arrangement to its creditors generally, taken any proceeding with respect to a compromise or arrangement, taken any proceeding to be declared bankrupt or wound up, taken any proceeding to have a receiver appointed of any of its assets, had any Person holding any encumbrance, lien, charge, hypothecation, pledge, mortgage, title retention agreement or other security interest or receiver take possession of any of its property, had an execution or distress become enforceable or levied upon any portion of its property or had any petition for a receiving order in bankruptcy filed against it.

 

 

 

 

 

(s)

 

No Contemplated Changes : Except as disclosed in the SEC Filings, neither the Corporation nor any Subsidiary has approved, is contemplating, has entered into any agreement in respect of, or has any knowledge of:

 

(i)

 

the purchase of any material property or assets or any interest therein or the sale, transfer or other disposition of any property or assets or any interest therein currently owned, directly or indirectly, by the Corporation or any Subsidiary whether by asset sale, transfer of shares or otherwise, except sales of inventory or obsolete equipment in the ordinary course of business and consistent with past practice;

 

 

 

 

 

(ii)

 

the change of control (by sale or transfer of shares or sale of all or substantially all of the property and assets of the Corporation or any Subsidiary or otherwise) of the Corporation or any Subsidiary; or

 

 

 

 

 

(iii)

 

a proposed or planned disposition of shares by any shareholder who owns, directly or indirectly, 10% or more of the outstanding capital stock of the Corporation or any Subsidiary.

 

 

(t)

 

Insurance : The assets, business and operations of the Corporation and of each Subsidiary are insured against loss or damage with responsible insurers on a basis consistent with insurance obtained by reasonably prudent participants in a comparable business in comparable circumstances, such


 
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