AGENCY AGREEMENT
This Agreement entered into at Montreal, this 16th day of March 2000.
ePhone Telecom Inc.
000 Xxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxx, Xxxxxxx Xxxxxxxx
X0X 0X0
Attention: Mr. Xxxxxx Xxxxxx
Chairman and Chief Executive Officer
Dear Sirs:
We understand that ePhone Telecom, Inc. (the "Company") wishes us to act as its
exclusive agent to offer for sale securities of the Company in order to raise a
minimum of US $8,000,000 and a maximum of US $18,000,000. XxxxxxXxxxxxx.xxx Inc.
(the "Agent") hereby agrees to act as your exclusive agent to offer for sale, on
a best efforts basis upon the terms and subject to the conditions hereinafter
set forth, up to 16,363,635 Special Warrants for an aggregate gross
consideration of up to US$18,000,000 pursuant hereto.
Each Special Warrant will entitle the holder to acquire, without payment of
additional consideration and subject to adjustments, one unit (the "Unit") in
the capital of the Company. Each Unit shall be comprised of one common share of
the Company (the "Common Share") and One Common Share Purchase Warrant (the
"Share Purchase Warrant") (together, the "Securities"). Each Share Purchase
Warrant will entitle the holder to acquire an additional Common Share at a price
of US$1.60 for a period of 24 months from the date of closing. The Company has
agreed that 12.5% of the gross proceeds of the Offering will be held in escrow,
which escrowed funds, together with any interest earned thereon, shall be
released to the Company on the date on which the last receipt in respect of the
Prospectus is issued by the regulatory in the jurisdictions where a Prospectus
will have been filed. The funds held in escrow will be held in an account
specifically identified for such purpose under the name "ePHONE deal account in
Trust".
In the event that i) a receipt has not been issued by each of the regulatory
authorities in the Jurisdictions in respect of the (final) prospectus (the
"Prospectus") qualifying the Securities for distribution in the Jurisdiction and
ii) the Securities have not been registered under the Securities Act on or
before the date which is 180 days following the initial date of closing of the
Offering, each Subscriber shall have the option of electing to keep 100% of
their investment, or they may require the return to them, out of the Escrowed
Funds, 12.5% of their original investment, together with any interest earned
thereon, in exchange for 12.5% of the Units that they had previously acquired.
In the event all receipts for the Final Prospectus are not received on or before
150 days after the closing date, any Special Warrant which have not been
exercised will entitle the holder thereof to receive 1.1 Units on the exercise
of each such Special Warrants for no additional consideration.
We understand that the sale of Special Warrants pursuant to the terms hereof is
to be effected in a manner exempt from the prospectus and registration
requirements of the securities legislation of the various jurisdictions in which
the Special Warrants are to be sold. Accordingly, insofar as the laws of the
Province of Quebec are concerned, Subscribers for Special Warrants will purchase
such pursuant to the provisions of section 51 of the Securities Act (Quebec) or
other appropriate exemptions contained in such Act or in the Regulations
thereunder. For potential purchasers resident in other provinces or territories
of Canada, we understand that the sale of Special Warrants, if any, is to be
effected in a manner which will rely on appropriate exemptions provided for
under the applicable securities legislation in those jurisdictions. The sale and
delivery of the Special Warrants shall be conditional upon such sale being
exempt from the prospectus requirements and the requirement to deliver an
offering memorandum under all applicable securities legislation and policies or
upon the issuance of such orders, consents or approvals of securities regulatory
authorities as may be required to permit such sale without the requirement for
filing a prospectus or delivering an offering memorandum. You agree that the
Company will execute and deliver all documentation required by applicable
securities legislation to permit the purchase of the Special Warrants pursuant
to their terms. It shall also be a condition of closing that all documentation
relating to the transaction, shall be in form and substance satisfactory to
counsel for the Agent. You hereby acknowledge that such documentation may
include additional conditions to closing. The Agent agrees that in carrying out
its obligations as the Company's agent pursuant to the terms hereof, it will at
all times act in compliance with all relevant securities laws.
You and we undertake to file or cause to be filed all forms and undertakings
required to be filed by you and the purchasers, respectively, in connection with
this transaction so that the distribution of the Securities may lawfully occur
without the necessity of fling a prospectus.
We acknowledge that we will effect the sale of the Special Warrants only in a
manner which will not impose upon the Company any obligation to make disclosure
of information concerning the business or affairs of the Company to the
Subscribers of Special Warrants.
We agree that each Subscriber shall execute a Subscription Agreement
substantially in the form annexed hereto as Schedule A.
The following are conditions of the obligations of the Subscribers of Special
Warrants to close the transaction contemplated hereby which conditions you
covenant to exercise your reasonable efforts to have fulfilled at or prior to
Closing, which conditions may be waived in writing in whole or in part by us on
behalf of the purchasers:
2
(a) your board of directors shall have authorized and approved this
agreement and the creation and issuance of the Special Warrants, the
underlying Units, the Common Shares and the Shares Purchase Warrants
and furthermore it shall have set aside a sufficient number of Common
Shares to allow for their issuance upon the exercise of the Units and
Share Purchase Warrants;
(b) a minimum of 7,272,727 Special Warrants shall have been subscribed for;
(c) the Special Warrants shall have attached thereto rights, privileges,
restrictions and conditions which substantially conform to the rights,
privileges, restrictions and conditions contemplated by the term sheet
attached as Schedule A hereto;
(d) you will deliver to the Subscribers and the Agent a certificate of the
Company under its corporate seal and signed on behalf of the Company by
the chief executive officer and chief financial officer of the Company
or any two officers of the Company reasonably acceptable to us,
addressed to the Subscribers and dated the Closing Date, in form
satisfactory to our counsel, Xxxxxxx Xxxxx, certifying that to the best
of their knowledge:
i) the audited financial statements of the Company as at June 30,
1999, have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with
industry practices applicable to the Company and present
fairly the financial position of the Company as at the date
thereof and the results of its operations for the periods then
ended and appropriately reflect all material liabilities
(whether accrued, absolute, contingent or otherwise) of the
Company as at such dates; and
ii) no material adverse change in the assets, liabilities
financial position or business of the Company has occurred
since March 15, 2000; and
iii) the Company has, under Florida law, the power and capacity of
effecting a public distribution of its securities by way of
private placement and that, in so doing, it shall not be in
contravention of any of its organizational and incorporation
documents.
(e) the Subscribers of Special Warrants shall have received an appropriate
legal opinion from Canadian counsel to the Company, along with an
appropriate legal opinion from U.S. counsel for the Company in a form
satisfactory to the Agent and its counsel in respect of all such
matters as the Agent or its counsel may reasonably request.
(f) The Company shall use its best efforts in order to obtain a receipt for
a final prospectus from the regulatory authorities in each of the
Jurisdictions in order to qualify the securities for distribution in
said Jurisdictions and it shall use its best efforts in order to cause
the Securities to be listed on the Canadian Venture Exchange (CDNX)
within 150 days from the initial Closing Date.
3
(g) The Company agrees to complete and finalize the necessary corporate and
regulatory steps in order to increase the authorized common stock it
may issue from 50,000,000 common shares to 100,000,000 common shares
within the next 90 days.
The Company covenants and agrees to protect and indemnify the Agent for and on
behalf of itself and for and on behalf of and in trust for its officers,
employees and agents against any and all losses (other than loss of profits),
claims, damages, liabilities, costs or expenses caused or incurred by reason of:
(a) any statement contained in documentation provided by the Company to the
Agent or in any amendment to such documentation which at the time and
in the light of the circumstances under which it was made may contain a
misrepresentation (as defined in the Securities Act (Quebec))(other
than information relating to or provided by the Agent); or
(b) the omission or alleged omission to state in the documentation provided
by the Company to the Agent or in any amendment of such documentation
any material fact required to be stated therein or necessary to make
any statement therein not misleading in the light of the circumstances
under which its was made (other than information relating to or
provided by the Agent).
In the event that prior to the Time of Closing:
(a) There should develop, occur or come into effect any catastrophe of
national or international consequence or any action, governmental law
or regulation, inquiry or other occurrence of any nature whatsoever
which, in the opinion of the Agent, seriously affects or may seriously
affect the financial markets in Canada, the United States or the
business of the Company:
(b) The state of the financial markets becomes such that, in the opinion of
the Agent, the Securities cannot be marketed profitably;
(c) Any order to cease or suspend trading in any securities of the Company
is made by any stock exchange, or is made pursuant to any of the
Canadian Securities Act or any other applicable securities legislation
or is made by any other regulatory authority, and has not been
rescinded, revoked or withdrawn; or
(d) Any inquiry or investigation (whether formal or informal) in relation
to the Company or the Company's directors or officers, is commenced or
threatened by any officer or official of any of the Securities
Commissions or similar agency or by any officers or official of any
other regulatory authority which operates to prevent or restrict
trading in or distribution of the Securities or which has an impact on
the marketability of the Securities;
Then the Agent shall be entitled, at its option, to terminate its obligations
under this agreement by notice in writing given to the Company prior to the time
of Closing.
4
In consideration of the Agent's services hereunder, the Company shall deliver to
the Agent at Closing (as hereinafter defined ) a cheque in an amount equal to
eight (8) per cent of the gross proceeds payable to the Company on the Closing.
In addition, the Agent will also be entitled to receive Special Warrants (the
"Brokers' Warrants") exercisable into compensation warrants (the "Compensation
Warrants") the day on which the increase of the authorized common stock of the
Company shall have become effective, which date shall be no later than 90 days
after the initial Closing Date. The Compensation Warrants shall in the
aggregate, entitle the Agent to purchase, of 8% of the number of Units sold
pursuant to the private placement. The Compensation Warrants shall be
exercisable for a period of 24 months following the date of the Closing. These
Brokers' Warrant and compensation shall be qualified by the Prospectus.
The Agent shall also be entitled to receive on the same day on which it will
receive the Brokers' Warrants a work fee in the form of a Share Purchase option
which shall entitle the Agent, for a period of 24 months, to purchase 250,000
Common Shares of the Company at a price of US$0.60 per Common Share. These Share
Purchase option shall also be qualified by the Prospectus.
The Company shall be entitled in the case of Subscribers for which it is
responsible as opposed to Subscribers for which the Agent shall be responsible,
to a reduction of the commissions payable to the Agent. In such situations, the
cash commission shall be equal to four (4) per cent of the gross proceeds
payable to the Company attributable to those Subscribers for which the Company
is responsible, up to a maximum of US$10,000,000. The Compensation Warrants
shall, in such situations be limited to four (4) per cent of the number of Units
sold to Subscribers for which the Company is responsible, up to a maximum of US
$10,000,000.
The Initial closing of the transaction contemplated hereby will take place at
the offices of Xxxxxxx Xxxxx, 0 Xxxxx Xxxxx-Xxxxx, Xxxxx 0000, Xxxxxxxx, Xxxxxx,
X0X 0X0, on March 24, 2000. An initial Closing shall be scheduled for March 24,
2000 and the Agent shall be entitled to hold additional Closings over the next
35 days to reach the maximum. At the initial Closing and any subsequent Closing,
the Company shall deliver to Subscribers of Special Warrants, certificates
representing the Securities purchased by such Subscribers, an opinion from
counsel to the Company as to the due incorporation and valid existence of the
Company, the due issuance of the Securities, compliance with securities laws in
connection with the private placement and all matters relating thereto and such
other matters as the Agent may reasonably request, and such further and other
documents as may be reasonably required to complete the transaction contemplated
hereby. The purchase price for the Special Warrants and the commission payable
to the Agent hereunder shall be paid on Closing.
The Company shall pay all expenses and legal fees in connection with the
transaction contemplated hereby, including, without limitation, fees of counsel
5
to the Agent and all out-of-pocket expenses incurred by the Agent in connection
with the transaction contemplated hereby. The Company shall be responsible for
such legal fees and out -of-pocket expenses only if the Closing does occur.
Payment to the Agent of the foregoing expenses and fees shall be made on
Closing. The obligation to make such payments shall survive the termination of
the Agent's engagement hereunder.
The Agent's appointment as agent of the Company hereunder shall expire at 5:00
p.m. (Montreal time) on April 28, 2000, unless extended by mutual agreement.
If the foregoing is in accordance with your understanding and is agreed to,
please evidence our agreement by signing and returning to us the enclosed copy
of this letter provided for such purpose. When executed, this agreement
supersedes all previous agreements between the parties with respect to the
subject matter hereof.
Yours very truly,
Groome Xxxxxxx.xxx Inc.
Per: unrecognized signature
--------------------------
Authorized signature
The foregoing accurately reflects our understanding and is agreed to on the
terms set forth above.
Dated this 16th day of March, 2000
ePhone Telecom, Inc.
Per: /s/ Xxxxxx Xxxxxx
-------------------------------------------------------
Xxxxxx Xxxxxx, Chairman and Chief Executive Officer
