AGENCY AGREEMENT
Exhibit
10.5
September 28,
2007
Xxxxx
000, 000 – 0xx Xxxxxx
XX
Xxxxxxx
XX X0X 0X0
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Attention:
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Xx. Xxxx
Xxxxx
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Chairman
and Chief Executive Officer
Dear
Sir:
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Re:
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Private
Placement of Common Shares and “Flow-Through” Common
Shares
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Research
Capital Corporation (the “Agent”) understands that Kodiak
Energy, Inc. (the “Corporation”) proposes to issue and sell up
to 2,700,000 common shares of the Corporation (the “Offered Common
Shares”) and up to 2,250,000 common shares of the Corporation issued on
a “flow-through” basis pursuant to the Tax Act (as defined below) (the
“Flow-Through Shares”).
Subject
to the terms and conditions hereof, the Agent agrees to act as, and the
Corporation appoints the Agent as, the sole and exclusive agent of the
Corporation to offer the Offered Securities (as defined below) for sale on
the
Closing Date in the Selling Jurisdictions (as defined below) on a private
placement basis at a price of US$2.50 per Offered Common Share and US$3.00
per
Flow-Through Share and to use its best efforts to secure subscriptions
therefor. The Corporation acknowledges and agrees that the Agent may,
but is not obligated to, purchase any of the Offered Securities as
principal.
The
Agent
shall be entitled in connection with the offering and sale of the Offered
Securities to retain as sub agents other registered securities dealers and
may
receive (for delivery to the Corporation at the Closing Time (as defined below))
subscriptions for Offered Securities from Subscribers (as defined below) from
other registered dealers. The fee payable to such sub agents shall be
for the account of the Agent.
In
consideration for its services hereunder, including the ancillary service of
acting as financial advisor to the Corporation in respect of the issue of the
Offered Securities and advising on the terms and conditions of the subject
private placement, the Agent shall be entitled to the commissions provided
for
in paragraph 9, which commissions shall be payable from the general
corporate funds of the Corporation at the time specified in
paragraph 9. For greater certainty, the services provided by the
Agent in connection herewith will not be subject to the Goods and Services
Tax
provided for in the Excise Tax Act (Canada) and taxable supplies
provided will be incidental to the exempt financial services provided. The
Agent
is also entitled to the Agent’s Warrants (as defined below) provided for in
paragraph 9.
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The
Corporation hereby grants to the Agent an option (the “Over-Allotment
Option”), at the Agent’s election exercisable at any time and from time
to time up to the Closing Time, to arrange for the issuance and sale of up
to an
additional 1,400,000 Offered Common Shares (the “Over-Allotment
Shares”) for the purpose of covering over-allotments, if any, at the
purchase price of US$2.50 per Over-Allotment Share.
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1.
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Definitions
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In
this
Agreement:
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(a)
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“Act”
means the Income Tax Act (Canada), together with any and all
regulations promulgated thereunder, as amended from time to
time;
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(b)
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“Agent’s
counsel” means Stikeman Elliott LLP or such other legal counsel
as the Agent, with the consent of the Corporation, may
appoint;
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(c)
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“Agent’s
Warrants” shall have the meaning ascribed thereto in
paragraph 9 of this Agreement;
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(d)
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“Alternative
Transaction” means any equity or debt financing, merger,
amalgamation, arrangement, business combination, take-over bid, insider
bid, issuer bid, reorganization, joint venture, sale or exchange
of all or
substantially all of the assets or Common Shares of the Corporation
or any
similar transaction involving the Corporation with any arm’s length party
that is introduced to the Corporation by the Agent in the course
of the
offering of Offered Securities;
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(e)
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“Applicable
Securities Laws” means all applicable securities, corporate and
other laws, rules, regulations, notices and policies applicable in
the
Selling Jurisdictions and in the United States, and all notices,
blanket
orders, blanket rulings, rules and policies of the Exchange, the
Securities Commissions and the United States Securities and Exchange
Commission;
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(f)
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“Business
Day” means a day which is not Saturday or Sunday or a legal
holiday in the City of Calgary,
Alberta;
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(g)
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“Canadian
Development Expense” or “CDE” means Canadian
development expense described in paragraphs (a) or (b) of the definition
of “Canadian development expense” in subsection 66.2(5) of the Act or that
would be described in paragraph (f) of such definition if the words
“paragraphs (a) to (e)” in that paragraph were read as “paragraphs (a) and
(b)”, excluding amounts which are prescribed to constitute “Canadian
exploration and development overhead expense” under the Act and the amount
of any assistance described in paragraph 66(12.62)(a)
or 66( 12.601)(c) of the
Act;
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(h)
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“Canadian
Exploration Expense” or “CEE” means expenses
described in paragraph (a) or (d) of the definition of “Canadian
exploration expense” in subsection 66.1(6) of the Act or that would
be described in paragraph (h) of such definition if the words
“paragraphs (a) to (d) and (f) to (g.1)” were read as
“paragraphs (a) and (d)”, excluding amounts which are prescribed to
constitute “Canadian exploration and development overhead expense” under
the Act, the amount of any assistance described in
paragraph 66(12.6)(a) of the Act, and any other expense described in
paragraph 66(12.6)(b.1) of the
Act;
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(i)
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“Cash
Penalty” shall have the meaning ascribed thereto in
subparagraph 2(h) of this
Agreement;
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(j)
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“CRA”
means the Canada Revenue Agency;
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(k)
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“Closing
Date” means September 27, 2007 or such other date as the
Agent and the Corporation may agree and, as the context requires,
such
subsequent dates as the Agent and the Corporation agree for the purpose
of
completing subsequent closings;
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(l)
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“Closing
Time” means 7:00 a.m. (Calgary time) or such other time on a
Closing Date as the Agent and the Corporation may
agree;
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(m)
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“Commitment
Amount” means the amount equal to US$3.00 multiplied by the
number of Flow-Through Shares subscribed and paid for pursuant to
the
applicable Flow-Through Subscription
Agreement;
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(n)
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“Common
Shares” means the common shares in the capital of the
Corporation;
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(o)
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“Corporation”
means Kodiak Energy, Inc.;
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(p)
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“Corporation’s
counsel” means Xxxxxx Xxxxxx Xxxxxxx LLP in Canada Golenbock
Xxxxxxx Assor Xxxx and Xxxxxx in the United States or such other
legal
counsel as the Corporation, with the consent of the Agent, may
appoint;
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(q)
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“Corporation’s
Subsidiaries” has the meaning ascribed thereto in
subparagraph 6(c) of this
Agreement;
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(r)
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“Directed
Selling Efforts” means “directed selling efforts” as that term is
defined in Rule 902 of Regulation S. Without limiting
the foregoing, but for greater clarity, such term means, subject
to the
exclusions from the definition of “directed selling efforts” contained in
Regulation S, any activity undertaken for the purpose of, or that
could
reasonably be expected to have the effect of, conditioning the market
in
the United States for any of the Offered Securities and includes,
without
limitation, the placement of any advertisement in a publication with
a
general circulation in the United States that refers to the offering
of
any of the Offered Securities;
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(s)
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“Documents”
means, collectively:
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(i)
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the
proxy statement of the Corporation dated July 11, 2007 relating to
the annual meeting of shareholders of the Corporation held on
August 7, 2007 (including without limitation those Annexes attached
to the proxy statement);
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(ii)
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Form 10-QSB
– Quarterly Report under Section 13 or 15(d) of the U.S. Securities
Act for the quarterly periods ended March 31, 2007 and June 30,
2007;
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(iii)
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Form 10-KSB
- Annual Report under Section 13 or 15(d) of the U.S. Securities Act
for the fiscal year ended December 31,
2006;
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(iv)
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Form 51-101F3
– Report of Management and Directors on Reserves Data and Other
Information dated July 18, 2007 for the year ended December 31,
2006;
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(v)
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Form 51-101F2
– Report on Reserves Data by an Independent Qualified Reserves Evaluator
dated July 18, 2007 as prepared by Xxxxxxx Engineering Associates
Ltd.;
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(vi)
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Form 51-101F1
– Statement of Reserves Data and Other Oil and Gas Information dated
May 22, 2007 for the year ended December 31,
2006;
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(vii)
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all
press releases released by the Corporation since January 1, 2006;
and
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(viii)
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all
material change reports or Form 8-K Current Reports pursuant to
Section 13 or 15(d) of the U.S. Securities Act filed by the
Corporation since January 1,
2007;
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(t)
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“Environmental
Laws” shall have the meaning ascribed thereto in
subparagraph 6(ee) of this
Agreement;
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(u)
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“Environmental
Permits” shall have the meaning ascribed thereto in
subparagraph 6(ff) of this
Agreement;
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(v)
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“Exchange”
means the TSX Venture Exchange
Inc.;
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(w)
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“Expenditure
Period” means the period commencing on the Closing Date and
ending on the earlier of:
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(i)
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the
date on which the Commitment Amount has been fully expended in accordance
with the terms of the Flow-Through Subscription Agreements;
and
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(ii)
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December 31,
2008;
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(x)
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“Financial
Statements” means, the consolidated financial statements of the
Corporation for the six month period ended June 30, 2007 and the
audited consolidated financial statements of the Corporation as at
December 31, 2006;
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(y)
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“Forward-looking
Statement” shall have the meaning ascribed thereto in
subparagraph 6(uu);
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(z)
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“Flow-Through
Subscription Agreement” means the agreement entered into by a
Subscriber for Flow-Through Shares relating to a subscription for
Flow-Through Shares which is accepted by the
Corporation;
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(aa)
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“Indemnified
Parties” shall have the meaning ascribed thereto in
paragraph 16 of this
Agreement;
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(bb)
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“Indemnitor”
shall have the meaning ascribed thereto in paragraph 16 of this
Agreement;
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(cc)
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“Interests”
shall have the meaning ascribed thereto in subparagraph 6(oo) of this
Agreement;
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(dd)
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“Liabilities”
shall have the meaning ascribed thereto in paragraph 16 of this
Agreement;
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(ee)
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“OFAC”
shall have the meaning ascribed thereto in subparagraph 6(ddd) of
this Agreement;
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(ff)
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“Offered
Common ShareSubscription Agreement” means the
agreement entered into by a Subscriber for Offered Common Shares
relating
to a subscription for Offered Common Shares which is accepted by
the
Corporation;
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(gg)
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“Offered
Securities” means, collectively, the Offered Common Shares and
the Flow-Through Shares and, to the extent the Over-Allotment Option
has
been or may still be validly exercised, also includes the Over-Allotment
Shares;
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(hh)
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“OTCBB”
means the NASDAQ Over-The-Counter Bulletin
Board;
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(ii)
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“principal
business corporation” means a principal business corporation as
defined in subsection 66(15) of the
Act;
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(jj)
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“Proceedings”
shall have the meaning ascribed thereto in paragraph 16 of this
Agreement;
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(kk)
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“Public
Record” means all information filed by or on behalf of the
Corporation with the securities commissions of the province of Alberta,
and the Securities and Exchange Commission in the United States,
including
without limitation, the Documents and any other information filed
with any
securities commission in compliance, or intended compliance, with
any
Applicable Securities Laws;
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(ll)
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“Qualifying
CDE” means an amount of CDE incurred by the Corporation which
is
eligible for renunciation as CEE under Subsection 66(12.601) of the
Act;
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(mm)
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“Qualifying
Expenditures” means expenses that are CEE or Qualifying CDE to be
incurred by the Corporation during the Expenditure
Period;
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(nn)
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“Regulation S”
means Regulation S under the U.S. Securities
Act;
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(oo)
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“Responses” means
the responses delivered on behalf of the Corporation by certain officers
of the Corporation at the Due Diligence
Session;
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(pp)
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“Resale
Rules” means Multilateral Instrument 45-102 and Companion
Policy 45-102CP (Resale of
Securities);
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(qq)
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“Securities
Commissions” means the securities commissions or similar
regulatory authorities in the Selling Jurisdictions and the United
States
Securities and Exchange Commission;
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(rr)
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“Selling
Jurisdictions” means the Provinces of Alberta, British Columbia,
Ontario and Québec, to the extent permitted herein, and other foreign
jurisdictions as the Agent and the Corporation may mutually agree
to prior
to the Closing Date;
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(ss)
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“Subscriber”
means a person who executes a Subscription Agreement, as applicable,
relating to the subscription for Offered Securities which is accepted
by
the Corporation;
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(tt)
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“Subscription
Agreement” means the Flow-Through Subscription Agreements and the
Offered Common Share Subscription Agreements, as applicable, entered
into
by each Subscriber for Offered Securities and the Corporation in
respect
of the Subscriber’s subscription for Offered
Securities;
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(uu)
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“subsidiaries”
has the meaning ascribed thereto in the Business Corporations Act
(Alberta);
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(vv)
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“Subscriber”
means a person who executes a Subscription Agreement relating to
a
subscription for Offered Securities which is accepted by the
Corporation;
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(ww)
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“Swaps”
means any transaction which is a rate swap transaction, basis swap,
forward rate transaction, commodity swap, commodity option, equity
or
equity index swap, equity or equity index option, bond option, interest
rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross
currency
rate swap transaction, currency option, forward sale, exchange traded
futures contract or any other similar transaction (including any
option
with respect to any of these transactions or any combination of these
transactions);
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(xx)
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“Thunder
Acquisition” means the acquisition by the Corporation on
September 28, 2007 of certain petroleum and natural gas rights from
Thunder River Energy Inc. pursuant to the Thunder
Agreement;
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(yy)
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“Thunder
Agreement” means the Agreement of Purchase and Sale dated
September 28, 2007 between the Corporation and Thunder River Energy
Inc. in respect of the Thunder
Acquisition;
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(zz)
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“U.S.
Securities Act” means the United States Securities Act of
1933, as amended; and
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“misrepresentation”,
“material change” and “material fact” shall
have the meanings ascribed thereto under the Applicable Securities Laws of
the
Selling Jurisdictions, “distribution” means “distribution” or
“distribution to the public”, as the case may be, as defined under the
Applicable Securities Laws of the Selling Jurisdictions and
“distribute” has a corresponding meaning.
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The
division of this Agreement into sections, subsections, paragraphs and other
subdivisions and the insertion of headings are for convenience of reference
only
and shall not affect the construction or interpretation of this
Agreement. Unless something in the subject matter or context is
inconsistent therewith, references herein to sections, subsections, paragraphs
and other subdivisions are to sections, subsections, paragraphs and other
subdivisions of this Agreement.
Unless
otherwise expressly provided, all amounts expressed herein in terms of money
refer to lawful currency of Canada and all payments to be made hereunder shall
be made in such currency.
If
any
provision of this Agreement shall be adjusted by a competent authority to be
invalid or for any reason unenforceable, such invalidity or unenforceability
shall not affect the validity, enforceability or operation of any other
provision herein.
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Form
of Agent’s Warrants
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2.
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Corporation’s
Covenants as to Issuance
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The
Corporation agrees:
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(a)
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that
at each Closing Time, the Offered Securities will be duly and validly
created, allotted, reserved and authorized, and upon receiving full
payment therefor will be issued as fully paid and non-assessable
shares of
the Corporation;
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(b)
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to
grant the Over-Allotment Option to the
Agent;
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(c)
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to
enter into the Agent’s Warrants substantially in the form provided in
Schedule “A“ hereto and grant the Agent’s Warrants in accordance with
paragraph 9;
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(d)
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at
each Closing Time, the form and terms of the definitive certificates
representing the Offered Securities will have been approved and adopted
by
the Corporation and comply with all corporate, legal and, in
respect of the form of Common Shares and OTCBB requirements relating
thereto;
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(e)
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to
duly punctually and faithfully perform and comply with all the obligations
to be performed by it, and all of its covenants and agreements, under
and
pursuant to this Agreement, the Subscription Agreements and the Agent’s
Warrants, including, without limitation, all covenants and agreements
of
the Corporation relating to or in respect of the incurring and renouncing
of Qualifying Expenditures to Subscribers for Flow-Through Shares
and all
reporting obligations relating
thereto;
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(f)
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to
file all necessary forms and reports in connection with the issuance
of
the Offered Securities hereunder with the appropriate Securities
Commissions and other regulatory authorities, including those regulatory
authorities in the United States as applicable, such that the resale
of
the Offered Securities and the Common Shares issuable upon exercise
of the
Agent’s Warrants shall be subject to no greater than a four month and a
day hold period under the Resale Rules in Canada (including the filing
thereof on SEDAR);
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(g)
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to
use its best commercial efforts to ensure that by December 29,
2007 it will have
obtained listing of the Common Shares on the Exchange, including
filing of
all necessary documentation in accordance with the requirements of
the
Exchange in connection with the listing and posting for trade of
the
Offered Securities and the Common Shares issuable upon exercise of
the
Agent’s Warrants on the Exchange;
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(h)
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that
should it fail to have its Common Shares (including the Offered Securities
and the Common Shares issuable upon exercise of the Agent’s Warrants)
listed and posted for trading on the Exchange by December 29, 2007,
the Corporation shall pay to the Subscribers, a cash penalty on a
pro-rata
basis equal to 2% of the aggregate proceeds raised pursuant to the
offering of Offered Securities (the “Cash
Penalty”). At the end of each 30-day period subsequent
to December 29, 2007, if the Common Shares (including the Offered
Securities and the Common Shares issuable upon exercise of the Agent’s
Warrants) are not listed and posted for trading on the Exchange,
then the
Corporation agrees to again pay the Cash Penalty by paying to the
Subscribers, cash on a pro-rata basis equal to 2% of the aggregate
number
of Offered Securities issued pursuant to the offering of Offered
Securities;
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(i)
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to
allow the Agent, prior to each Closing Time and during the period
from the
date hereof until completion of the distribution of the Offered
Securities, to conduct all due diligence which the Agent may reasonably
require in order to: (i) confirm the Public Record is
accurate, complete and current in all material respects; and
(ii) fulfill the Agent’s obligations as
registrants. Without limiting the generality of the foregoing,
the Corporation shall, on reasonable notice, make available its directors
and senior management and request that its auditors, legal counsel
and
independent engineers (if applicable) be available to answer any
questions
which the Agent may have and to participate in one or more due diligence
sessions to be held prior to Closing Time (collectively, the “Due
Diligence Session”). The Agent shall distribute a list
of written questions to be answered in advance of such Due Diligence
Session and the Corporation shall use its reasonable efforts to provide
and to have its auditors, legal counsel and independent engineers
(if
applicable) provide written responses to such questions in advance
of the
Due Diligence Session.
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3.
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Corporation’s
Covenants as to Changes
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The
Corporation agrees that:
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(a)
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during
the period of distribution of the Offered Securities, the Corporation
will
promptly inform the Agent of the full particulars
of:
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(i)
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any
material change (actual, anticipated or threatened) in the assets,
liabilities (absolute, accrued, contingent or otherwise), business,
operations, capital or condition (financial or otherwise) of the
Corporation;
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(ii)
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any
change in any material fact contained or referred to in any of the
Public
Record;
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(iii)
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the
occurrence of a material fact or event which, in any such case, is,
or may
be, of such a nature as to: i) render any part of the Public Record
untrue, false or misleading in a material respect; ii) result in
a
misrepresentation in any part of the Public Record; or iii)result
in any
part of the Public Record not complying with Applicable Securities
Laws;
or
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(iv)
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the
discovery by the Corporation of any misrepresentation in any part
of the
Public Record or any information provided to the Agent by the
Corporation,
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provided
that if there may be any reasonable doubt as to whether a material change,
change, occurrence or event of the nature referred to in this subsection has
occurred, the Corporation shall promptly inform the Agent of the full
particulars of the occurrence giving rise to the uncertainty and shall consult
with the Agent as to whether the occurrence is of such nature;
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(b)
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during
the period of distribution of the Offered Securities, the Corporation
will
promptly inform the Agent of the full particulars
of:
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(i)
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any
request of any Securities Commission or similar regulatory authority
for
any amendment to any part of the Public Record or for any additional
information;
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(ii)
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the
issuance by any Securities Commission or similar regulatory authority
or
by any other competent authority of any order to cease or suspend
trading
of any securities of the Corporation or of the institution or threat
of
institution of any proceedings for that purpose;
or
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(iii)
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the
receipt by the Corporation of any communication from any Securities
Commission or similar regulatory authority or any other competent
authority relating to any part of the Public Record or the distribution
of
the Offered Securities; and
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(c)
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during
the period of distribution of the Offered Securities, the Corporation
will
promptly comply, to the reasonable satisfaction of the Agent and
the
Agent’s counsel, with Applicable Securities Laws with respect to any
material change, change, occurrence or event of the nature referred
to in
subparagraph 3(a) and subparagraph 3(b) and the Corporation will
prepare and file promptly at the Agent’s request, acting reasonably, any
amendment to any part of the Public Record which in the Agent’s opinion
may be reasonably necessary to comply with Applicable Securities
Laws and
the Corporation shall consult with the Agent with respect to the
form and
content of any amendment to any part of the Public Record proposed
to be
filed by the Corporation and shall not file any such amendment without
the
prior review and approval thereof by the Agent, acting
reasonably.
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4.
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Corporation’s
Other Covenants
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The
Corporation agrees:
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(a)
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during
the period of distribution of the Offered Securities, the Corporation
will
promptly provide to the Agent for review by the Agent and the Agent’s
counsel, prior to filing or issuance of the same, any proposed public
disclosure document, including without limitation, any financial
statements of the Corporation, report to shareholders, information
circular or any press release or material change
report;
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(b)
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that
the subscription funds for the Flow-Through Shares will be expended
in
accordance with the terms of the Flow-Through Subscription Agreements
and
the provisions hereof;
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(c)
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it
will use the proceeds from the issuance and sale of the Flow-Through
Shares to fund the Corporation’s ongoing crude oil and natural gas
exploration and development activities, such that an amount equal
to the
Commitment Amount shall be expended on Qualifying Expenditures in
accordance with the Flow-Through Subscription Agreements, and will
use the
proceeds from the issuance and sale of the Offered Common Shares
for other
oil and gas exploration and development activities other than those
incurred by expending the proceeds from the offering of Flow-Through
Shares;
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(d)
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neither
the Corporation, nor its affiliates nor any person acting on its
or their
behalf have engaged in or will engage in any Directed Selling Efforts
in
the United States with respect to the Offered
Securities;
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(e)
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neither
the Corporation, nor its affiliates nor any person acting on its
or their
behalf has offered or sold, nor will any of them offer or sell, any
Offered Securities except in an offshore transaction in accordance
with
Rule 903 of Regulation S;
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(f)
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all
certificates representing the Offered Securities shall contain a
legend to
the effect that transfer is prohibited except in accordance with
the
provisions of Regulation S, pursuant to a registration statement
under the U.S. Securities Act, or pursuant to an available exemption
therefrom; and that hedging transactions may not be conducted except
in
compliance with the U.S. Securities
Act;
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(g)
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it
shall refuse to register any transfer of the Offered Securities not
made
in accordance with the provisions of Regulation S, pursuant to
registration under the U.S. Securities Act, or pursuant to an available
exemption therefrom;
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|
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(h)
|
it
shall use its best efforts to maintain its status as a reporting
issuer
not in default of any Applicable Securities Laws in the province
of
Alberta until January 1, 2009;
and
|
|
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(i)
|
to
keep proper books, records and accounts of all Qualifying Expenditures
and
all transactions affecting the Commitment Amounts and the Qualifying
Expenditures and to provide such assistance to the Subscribers as
may be
reasonably required should a dispute arise with respect to the Qualifying
Expenditures;
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(j)
|
to
incur, during the Expenditure Period, Qualifying Expenditures in
such
amount as enables the Corporation to renounce to each Subscriber
for
Flow-Through Shares, as CEE, in accordance with the Act and the applicable
Flow-Through Subscription Agreement, Qualifying Expenditures in the
amount
equal to the Commitment Amount;
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(k)
|
to
renounce (in accordance with the Act and the applicable Flow-Through
Subscription Agreement) to each Subscriber for Flow-Through Shares,
effective on or before December 31, 2007, Qualifying Expenditures to
be incurred during the Expenditure Period equal to the Commitment
Amount;
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13
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(l)
|
if
it does not incur during the Expenditure Period and renounce to each
Subscriber for Flow-Through Shares, effective on or before
December 31, 2007, Qualifying Expenditures equal to the Commitment
Amount, the Corporation shall indemnify each such Subscriber as to,
and
pay to each such Subscriber, an amount equal to the amount of any
tax
payable under the Act (and under any corresponding provincial legislation)
by the Subscriber for Flow-Through Shares as a consequence of such
failure
such payment to be made on a timely basis once the amount is definitively
determined; provided that nothing in this paragraph shall derogate
from
any rights or remedies the Subscriber may have at common law with
respect
to liabilities other than those payable under the Act and any
corresponding provincial legislation and for certainty, the foregoing
indemnity shall have no force or effect and the Subscriber shall
not have
any recourse or rights of action to the extent that such indemnity,
recourse or rights of action would otherwise cause the Flow-Through
Shares
to be “prescribed shares” within the meaning of Section 6202.1 of the
regulations to the Act;
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(m)
|
to
deliver to each Subscriber at the Subscriber’s address set forth in the
applicable Flow-Through Subscription Agreement, not later than
March 1, 2008, Form T101 Supplementary setting forth the
aggregate amounts of Qualifying Expenditures renounced to the Subscriber
pursuant to the Flow-Through Subscription Agreement for filing with
the
Subscriber’s tax return;
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(n)
|
that
it will not reduce the amount renounced to each Subscriber for
Flow-Through Shares pursuant to subsections 66(12.6) and 66(12.601)
of the Act and, in the event that the amount renounced to each such
Subscriber pursuant to subsection 66(12.73) of the Act is reduced,
the Corporation will indemnify each Subscriber for Flow-Through Shares
as
to, and pay to each such Subscriber, an amount equal to the amount
of any
tax payable under the Act (and under any corresponding provincial
legislation) by each such Subscriber as a consequence of such reduction,
such payment to be made on a timely basis once the amount is definitively
determined, provided that nothing in this paragraph shall derogate
from
any rights or remedies the Subscriber may have at common law with
respect
to liabilities other than those payable under the Act and any
corresponding provincial legislation and for certainty, the foregoing
indemnity shall have no force or effect and the Subscriber shall
not have
any recourse or rights of action to the extent that such indemnity,
recourse or rights of action would otherwise cause the Flow-Through
Shares
to be “prescribed shares” within the meaning of section 6202.1 of the
regulations to the Act ;
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14
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(o)
|
to
maintain its status as a “principal business corporation” until
December 31, 2008;
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(p)
|
that
it has not and will not enter into transactions or take deductions
which
would otherwise reduce its cumulative CEE or cumulative CDE to an
extent
which would preclude a renunciation of Qualifying Expenditures hereunder
and in an amount equal to Commitment Amounts effective on or before
December 31, 2007; and
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(q)
|
to
file all forms required under the Act necessary to effectively renounce
Qualifying Expenditures equal to the Commitment Amount of each Subscriber
effective on or before December 31, 2007, and to provide the
Subscriber with a copy of all such forms on a timely basis and, in
particular, to file with the CRA the form prescribed by
subsection 66(12.68) of the Act together with a copy of the
Flow-Through Subscription Agreement and any “selling instruments”
contemplated by such subsection within the time prescribed by the
Act.
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|
5.
|
Agent’s
Covenants
|
The
Agent
covenants and agrees with the Corporation that it will:
|
|
(a)
|
use
its best efforts to identify Subscribers for the Offered
Securities;
|
|
|
(b)
|
conduct
its activities in connection with the proposed offer and sale of
the
Offered Securities in compliance with all Applicable Securities Laws
of
the Selling Jurisdictions and cause a similar covenant to be contained
in
any agreement entered into with any selling dealer group in connection
with the distribution of the Offered
Securities;
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|
|
(c)
|
not
solicit subscriptions for Offered Securities, trade in Common Shares
or
otherwise do any act in furtherance of a trade of Common Shares outside
of
the Selling Jurisdictions;
|
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|
(d)
|
not
advertise the proposed offering or sale of the Offered Securities
in
printed media of general or regular paid circulation, radio or
television;
|
|
|
(e)
|
obtain
from each Subscriber an executed Subscription Agreement, including
all
applicable exhibits thereto and deliver all such Subscription Agreements
to the Corporation at least 24 hours prior to the applicable Closing
Time;
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15
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|
(f)
|
obtain
from each Subscriber such applicable forms as may be required by
the
Exchange, the OTCBB or the relevant Securities Commissions and supplied
to
the Agent for completion in connection with the distribution of the
Offered Securities;
|
|
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(g)
|
provide
to the Corporation as soon as practicable following the applicable
Closing
Date all information necessary to allow the Corporation to file with
each
of the Securities Commissions, if required, a report of trade in
accordance with securities laws, rules, regulations and policies
of the
Selling Jurisdictions within 10 days of the applicable Closing
Date;
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|
|
(h)
|
not
offer or sell any Offered Securities, except in accordance with
Rule 903 of Regulation S and accordingly, neither the Agent, its
affiliates nor any persons acting on its or their behalf will engage
in
any Directed Selling Efforts in the United States with respect to
the
Offered Securities; and
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(i)
|
not
engage in hedging transactions with regard to the Offered Securities
prior
to the expiration of the one-year period commencing on the later
of the
commencement of the offering of Offered Securities and the Closing
Date,
in each case unless such securities are registered under the U.S.
Securities Act and the securities laws of all applicable states of
the
United States or unless such hedging transactions are pursuant to
an
exemption therefrom, and they will comply with the “offering restrictions”
requirement in Rule 902(g) of
Regulation S.
|
|
6.
|
Representations
and Warranties of the
Corporation
|
The
Corporation represents and warrants to the Agent, and acknowledges that the
Agent is relying upon such representations and warranties, that:
|
|
(a)
|
the
Corporation has been duly incorporated in the State of Delaware and
is
organized and is validly subsisting under the laws of the State of
Delaware and has all requisite corporate authority and power to carry
on
its business, as now conducted and as presently proposed to be conducted
by it, and to own, lease and operate its properties and
assets;
|
|
|
(b)
|
the
Corporation is qualified to carry on business under the laws of each
jurisdiction in which it carries on a material portion of its
business;
|
|
|
(c)
|
other
than Kodiak Petroleum ULC, Kodiak Petroleum (Montana), Inc. and Kodiak
Petroleum (Utah), Inc. (collectively, the “Corporation’s
Subsidiaries”) and, the Corporation has no subsidiaries and the
Corporation is not affiliated with, nor is it a holding corporation
of any
other body corporate;
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16
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(d)
|
the
Corporation’s Subsidiaries have been duly incorporated and are valid and
subsisting in good standing under the laws of their jurisdiction
of
incorporation and have all requisite corporate power and capacity
to carry
on their business as now conducted and as presently proposed to be
conducted by them and to own, lease and operate their properties
and
assets;
|
|
|
(e)
|
all
of the issued and outstanding shares in the capital of the Corporation’s
Subsidiaries are fully paid and non-assessable and legally and
beneficially owned by the Corporation free and clear of all mortgages,
liens, charges, pledges, security interests, encumbrances, claims
or
demands whatsoever (other than as provided in the credit facilities
of the
Corporation) and no person holds any securities convertible into
or
exchangeable for issued or unissued shares of the Corporation’s
Subsidiaries or has any agreement, warrant, option, right or privilege
(whether pre emptive or contractual) being or capable of becoming
an
agreement, warrant, option or right for the acquisition of any unissued
or
issued securities of the Corporation’s
Subsidiaries;
|
|
|
(f)
|
at
each Closing Time, the Offered Securities subscribed for will, upon
receipt by the Corporation of the consideration therefor, be duly
and
validly created, authorized and issued as fully paid and
non-assessable;
|
|
|
(g)
|
at
each Closing Time, the Common Shares issuable pursuant to the exercise
of
the Agent’s Warrants granted pursuant to this Agreement will be duly and
validly authorized, allotted and reserved for issuance and, upon
exercise
of such Agent’s Warrants, upon receipt by the Corporation of the
consideration therefor, the Common Shares issued pursuant to the
Agent’s
Warrants will be issued as fully paid and
non-assessable;
|
|
|
(h)
|
the
form and terms of the definitive certificates representing the Offered
Securities have been approved and adopted by the Corporation and
will
comply with all corporate and legal requirements relating thereto,
including, without limitation, the requirements of the Exchange and
the
OTCBB and Rule 903 of Regulation
S;
|
|
|
(i)
|
the
Corporation is not in default or breach of, and the execution and
delivery
of, and the performance of and compliance with the terms of, this
Agreement, the Agent’s Warrants and the Subscription Agreements and the
performance of any of the transactions contemplated hereby (including,
without limitation, the grant of the Over-Allotment Option) and thereby
by
the Corporation, do not and will not result in any breach of, or
constitute a default under, and do not and will not create a state
of
facts which, after notice or lapse of time or both, will result in
a
breach of or constitute a default under any applicable laws which
are
material to the Corporation or any term or provision of the articles,
by
laws or resolutions of the directors or shareholders of the Corporation,
or any mortgage, note, indenture, contract, agreement (written or
oral),
instrument, lease or other document to which the Corporation is a
party or
by which it is bound, or any judgment, decree, order, statute, rule
or
regulation applicable to the Corporation, which default or breach
might
reasonably be expected to materially adversely affect the business,
operations, capital or condition (financial or otherwise) of the
Corporation (taken as a whole) or its properties or
assets;
|
-
17
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|
|
(j)
|
the
Corporation has full corporate power and authority to grant the
Over-Allotment Option and to enter into this Agreement, the Agent’s
Warrants and the Subscription Agreements and to perform its obligations
set out herein and therein including, without limitation, to issue
the
Offered Securities, the Agent’s Warrants and the Common Shares to be
issued to the Agent upon exercise of the Agent’s Warrants and this
Agreement has been, and the Subscription Agreements and Agent’s Warrants
will be duly authorized, executed and delivered by the Corporation,
and
this Agreement is, and the Subscription Agreements, and the Agent’s
Warrants will be legal, valid and binding obligations of the Corporation
enforceable against the Corporation in accordance with their respective
terms subject to the general qualifications
that:
|
|
|
(i)
|
the
enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws of general application affecting
creditors’ rights;
|
|
|
(ii)
|
equitable
remedies, including the remedies of specific performance and injunctive
relief, are available only in the discretion of the applicable
court;
|
|
|
(iii)
|
the
enforceability of any provision exculpating a party from liability
or duty
otherwise owed by it may be limited under applicable
law;
|
|
|
(iv)
|
the
enforceability of provisions which purport to sever any provision
which is
prohibited or unenforceable under applicable law without affecting
the
enforceability or validity of the remainder of such document would
be
determined only in the discretion of the
court;
|
-
18
-
|
|
(v)
|
the
equitable or statutory powers of the courts in Canada having jurisdiction
to stay proceedings before them and the execution of
judgments;
|
|
|
(vi)
|
rights
to indemnity and contribution hereunder may be limited under applicable
law and may not be ordered by a court on grounds of public policy
and may
therefore not be available in particular
instances;
|
|
|
(vii)
|
the
enforceability may be limited by applicable laws regarding limitation
of
actions; and
|
|
|
(viii)
|
the
costs of and incidental to proceedings authorized to be taken in
court or
before a judge are within the discretion of the court or judge before
which such proceedings are brought and a court or judge has full
power to
determine by whom and to what extent the costs of such proceedings
will be
paid;
|
|
|
(k)
|
other
than as disclosed in the Documents, there has not been any materially
adverse change in the assets, liabilities or obligations (absolute,
contingent or otherwise) of the Corporation from the position set
forth in
the Financial Statements and there has not been any material adverse
change in the business, operations, capital or condition (financial
or
otherwise) or results of the operations of the Corporation since
January
30, 2006; and since January 30, 2006 there have been no material
facts,
transactions, events or occurrences which could materially adversely
affect the capital, assets, liabilities (absolute, accrued, contingent
or
otherwise), business, operations or condition (financial or otherwise)
or
results of the operations of the Corporation which have not been
publicly
disclosed;
|
|
|
(l)
|
the
Financial Statements fairly present in all material respects, in
accordance with generally accepted accounting principles in the United
States, consistently applied, the financial position and condition
of the
Corporation at the dates thereof and the results of the operations
of the
Corporation for the periods then ended and reflect all assets, liabilities
or obligations (absolute, accrued, contingent or otherwise) of the
Corporation as at the dates thereof that are required to be disclosed
therein in accordance with generally accepted accounting principles
in the
United States;
|
-
19
-
|
|
(m)
|
there
are no actions, suits, proceedings or inquiries, including, to the
best of
the Corporation’s knowledge, information and belief, after due inquiry,
pending or threatened against or affecting the Corporation or the
Corporation’s Subsidiaries at law or in equity or before or by any
federal, provincial, municipal or other governmental department,
commission, board, bureau, agency or instrumentality which in any
way
materially adversely affects, or may in any way materially adversely
affect, the assets, business, operations or condition (financial
or
otherwise) of the Corporation or the Corporation’s Subsidiaries (taken as
a whole) or which affects or may affect the distribution of the Offered
Securities;
|
|
|
(n)
|
the
Corporation or the Corporation’s Subsidiaries are not a party to or bound
by any agreement of guarantee, indemnification (other than an
indemnification of directors and officers in accordance with the
bylaws of
the Corporation or the Corporation’s Subsidiaries and applicable laws and
indemnities in favour of Subscribers pursuant to the Flow-Through
Subscription Agreements or in favour of subscribers for “flow-through”
Common Shares issued by the Corporation and other indemnities in
favour of
agents or underwriters in connection with an issuance of securities
on
like transactions and other than standard indemnities in favour of
purchasers of assets in purchase and sale agreements and indemnities
and
guarantees in favour of the Corporation’s bankers) or any other like
commitment of the obligations, liabilities (contingent or otherwise)
of
indebtedness of any other person;
|
|
|
(o)
|
other
than as disclosed in the Documents, the Corporation and the Corporation’s
Subsidiaries do not have any loans or other indebtedness outstanding
which
have been made to or from any of its shareholders, officers, directors
or
employees or any other person not dealing at arm’s length with the
Corporation or the Corporation’s Subsidiaries that are currently
outstanding;
|
|
|
(p)
|
other
than as disclosed in the Documents, no officer, director, employee
or any
other person not dealing at arm’s length with the Corporation or the
Corporation’s Subsidiaries or, to the knowledge of the Corporation, any
associate or affiliate of any such person, owns, has or is entitled
to any
royalty, net profits interest, carried interest or any other encumbrances
or claims of any nature whatsoever which are based on production
from the
Corporation’s or the Corporation’s Subsidiaries properties or assets or
any revenue or rights attributed
thereto;
|
|
|
(q)
|
other
than as disclosed in the Documents, none of the directors or senior
officers of the Corporation, or to the knowledge of the Corporation,
any
“associate” or “affiliate” of any of the foregoing persons or companies
(as such terms are defined in the Securities Act (Alberta)), has
or has had any material interest, direct or indirect, in any continuing
or
existing material transaction or has any material interest, direct
or
indirect, in any proposed material transaction which is material
to or
will materially affect the
Corporation;
|
-
20
-
|
|
(r)
|
the
information and statements set forth in the Public Record, as it
relates
to the Corporation and the Corporation’s Subsidiaries, were in all
material respects, true, correct, and complete and did not contain
any
misrepresentation, as of the respective dates of such information
or
statements, and no material change has occurred in relation to the
Corporation or the Corporation’s Subsidiaries which is not disclosed in
the Public Record, and the Corporation has not filed any confidential
material change reports which continue to be
confidential;
|
|
|
(s)
|
other
than as disclosed in the Documents, no event of material default
under any
agreement or instrument pursuant to which indebtedness of the Corporation
has been issued, has occurred, and no event which with the giving
of
notice or the passage of time or both would constitute an event of
material default under any such agreement or instrument has occurred
and
is continuing;
|
|
|
(t)
|
the
authorized capital of the Corporation consists of 300,000,000 with
par
value of US$0.001 per share, of which prior to the issuance of the
Offered
Securities, 93,284,828 Common Shares are outstanding, which shares
are validly issued and fully paid and non-assessable
shares;
|
|
|
(u)
|
no
person, firm, corporation or other entity holds any securities convertible
or exchangeable into securities of the Corporation or now has any
agreement, warrant, option, right or privilege (whether pre emptive
or
contractual) being or capable of becoming an agreement for the purchase,
subscription or issuance of any unissued shares or other securities
(including convertible securities) of the Corporation other
than:
|
|
|
(i)
|
stock
options to acquire up to 2,035,000 Common Shares at prices ranging
from US$1.28 to US$2.74 per share until August 1, 2010, currently
issued to directors, officers, employees and consultants of the
Corporation; and
|
|
|
(ii)
|
share
purchase warrants to acquire up to 4,437,000 Common Shares at an
exercise prices ranging from US$1.50 to US$2.70 per share issued
pursuant
to private placements expiring on or before May 10,
2004;
|
|
|
(v)
|
the
issued and outstanding Common Shares currently are trading on the
OTCBB;
|
-
21
-
|
|
(w)
|
the
Corporation has made application to list and post for trading its
Common
Shares (including the Offered Securities and the Common Shares issuable
upon exercise of the Agent’s Warrants) on the
Exchange;
|
|
|
(x)
|
other
than as disclosed to the Agent that the Corporation
and the Corporation's Subsidiaries have not
filed Federal U.S. Income Tax returns in 2005 and 2006 as required,
provided that the Corporation represents and warrants that no taxes,
charges, penalties, interest or other fines are or will be payable
in
respect of any periods for which returns have not been filed and
with such
exceptions as are not material to the Corporation, the Corporation
and
the Corporation's Subsidiaries have duly and on a timely basis filed
all tax returns required to be filed by them, has paid all taxes
due and
payable by them and has paid all assessments and
re-assessments and all other taxes, governmental charges,
penalties, interest and other fines due and payable by them and which
are
claimed by any governmental authority to be due and owing and adequate
provision has been made for taxes payable for any completed fiscal
period
for which tax returns are not yet required and there are no agreements,
waivers, or other arrangements providing for an extension of time
with
respect to the filing of any tax return or payment of any tax,
governmental charge or deficiency by the Corporation or the Corporation's
Subsidiaries and to the knowledge of the Corporation there are no
actions,
suits, proceedings, investigations or claims threatened or pending
against
the Corporation or the Corporation's Subsidiaries in respect of taxes,
governmental charges or assessments or any matters under discussion
with
any governmental authority relating to taxes, governmental charges
or
assessments asserted by any such
authority;
|
|
|
(y)
|
the
minute books of the Corporation and the Corporation’s Subsidiaries as
provided to the Agent’s counsel are materially true and correct and
contain the minutes of all meetings and all the resolutions of directors
and shareholders thereof;
|
|
|
(z)
|
the
books of account and other records of the Corporation and the
Corporation’s Subsidiaries, whether of a financial or accounting nature or
otherwise, have been maintained in accordance with prudent business
practices;
|
|
|
(aa)
|
the
Corporation is a “reporting issuer” in the province of Alberta within the
meaning of the Applicable Securities Laws in such province, has held
that
status without interruption or suspension in that jurisdiction since
August 27, 2007 and is not in default of any requirements of
Applicable Securities Laws thereof;
|
-
22
-
|
(bb)
|
Olde
Monmouth Stock Transfer Co. Inc. at its office in Atlantic Highlands,
New
Jersey is the duly appointed registrar and transfer agent of the
Corporation with respect to the Common
Shares;
|
|
|
(cc)
|
the
Corporation and the Corporation’s Subsidiaries have conducted and are
conducting their business in compliance in all
material respects with all applicable laws, rules and regulations
and, in
particular, all applicable licensing and environmental legislation,
regulations or by laws or other lawful requirement of any governmental
or
regulatory bodies applicable to the Corporation and the Corporation’s
Subsidiaries in each jurisdiction in which they carry on business
and hold
all licences, registrations and qualifications in all jurisdictions
in
which they carry on business which are necessary or desirable to
carry on
the business of the Corporation and the Corporation’s Subsidiaries, as now
conducted and as presently proposed to be conducted, and all such
licenses, registrations or qualifications are valid and existing
and in
good standing and none of such licenses, registrations or qualifications
contains any burdensome term, provision, condition or limitation
which has
or is likely to have any material adverse effect on the business
of the
Corporation and the Corporation’s Subsidiaries as now conducted or as
proposed to be conducted;
|
|
(dd)
|
any
and all operations of the Corporation and the Corporation’s Subsidiaries
and, to the best of the Corporation’s knowledge, any and all operations by
third parties, on or in respect of the assets and properties of the
Corporation and the Corporation’s Subsidiaries, have been conducted in all
material respects in accordance with good oilfield
practices;
|
|
|
(ee)
|
to
the Corporation's knowledge, the Corporation and the Corporation’s
Subsidiaries have been and are in material compliance with all applicable
federal, provincial, state, municipal and local laws, statutes,
ordinances, by laws and regulations and orders, directives and decisions
rendered by any ministry, department or administrative or regulatory
agency, domestic or foreign, (“Environmental Laws”)
relating to the protection of the environment, occupational health
and
safety or the processing, use, treatment, storage, disposal, discharge,
transport or handling of any pollutants, contaminants, chemicals
or
industrial, toxic or hazardous wastes or
substance;
|
|
|
(ff)
|
in
respect of their properties and assets in which the Corporation or
the
Corporation’s Subsidiaries are an operator, the Corporation and the
Corporation’s Subsidiaries have obtained all material licences, permits,
approvals, consents, certificates, registrations and other authorizations
under Environmental Laws (the “Environmental Permits”)
necessary for the operation of their projects as currently operated
and
each Environmental Permit is valid, subsisting and in good standing
and
the holders of the Environmental Permits are not in default or breach
thereof and no proceeding is pending or threatened to revoke or limit
any
Environmental Permit, except in each case where the result would
not have
a material adverse effect on the Corporation and the Corporation’s
Subsidiaries on a consolidated
basis;
|
-
23
-
|
(gg)
|
to
the Corporation’s knowledge, in respect of their property and assets in
which the Corporation or the Corporation’s Subsidiaries are not an
operator, the Corporation and the Corporation’s Subsidiaries have obtained
all Environmental Permits necessary for the operation of their projects
as
currently operated and each Environmental Permit is valid, subsisting
and
in good standing and the holders of the Environmental Permits are
not in
default or breach thereof and no proceeding is pending or threatened
to
revoke or limit any Environmental Permit, except in each case where
the
result would not have a material adverse effect on the Corporation
and the
Corporation’s Subsidiaries on a consolidated
basis;
|
|
|
(hh)
|
none
of the Corporation and the Corporation’s Subsidiaries (including, if
applicable, any predecessor companies thereof) have received any
notice
of, or been prosecuted for an offence alleging, material non-compliance
with any Environmental Laws, and none of the Corporation and the
Corporation’s Subsidiaries (including, if applicable, any predecessor
companies) have settled any allegation of material non-compliance
short of
prosecution. There are no orders or directions relating to
environmental matters requiring any material work, repairs, construction
or capital expenditures to be made with respect to any of the assets
of
the Corporation and the Corporation’s Subsidiaries nor have the
Corporation or the Corporation’s Subsidiaries received notice of any of
the same and which orders directions or notices remain outstanding
as
unresolved;
|
|
|
(ii)
|
no
Securities Commission or any other securities commission or similar
regulatory authority or the OTCBB has issued any order preventing
or
suspending trading of any securities of the Corporation, the Corporation
is not in default of any requirement of Applicable Securities Laws
that
would have a material effect on this offering or the Corporation
and the
Corporation is entitled to avail itself of the applicable prospectus
exemptions available under such Applicable Securities Laws in Canada
in
respect of the trades in the Offered Securities to Subscribers as
contemplated by this Agreement;
|
-
24
-
|
|
(jj)
|
to
the knowledge of the Corporation after due inquiry, as at the date
of this
Agreement, no insider of the Corporation has a present intention
to sell
any securities of the Corporation held by
it;
|
|
|
(kk)
|
the
Corporation has filed a Form 51-101F1 – Statement of Reserves Data
and Other Oil and Gas Information for the year ended December 31,
2006 and a Form 51-101F3 – Report of Management and Directors on
Reserves Data and Other Information for the year ended December 31,
2006 and such reports were correct as of the respective effective
date
thereof;
|
|
|
(ll)
|
the
Corporation made available to Xxxxxxx Engineering Associates Ltd.,
in
connection with the issuance of Form 51-101F2 - Report on Reserves
Data by an Independent Qualified Reserves Evaluator dated July 18,
2007 with respect to the Corporation’s petroleum and natural gas
properties, for the purpose of preparing such document, all information
requested by Xxxxxxx Engineering Associates Ltd., which information
did
not contain any material misrepresentation at the date such information
was provided. The Corporation has no knowledge of any material
adverse change in any information provided to Xxxxxxx Engineering
Associates Ltd. since the date that such information was
provided;
|
|
(mm)
|
the
document as prepared by Xxxxxxx Engineering Associates Ltd. as described
in subparagraph 6(ll) above considers and reports on all material
petroleum and natural gas properties of the Corporation as at the
effective date of that document;
|
|
|
(nn)
|
the
Corporation made available to Xxxxxxx Petroleum Engineering Ltd.,
in
connection with the issuance of the engineering report of Xxxxxxx
Petroleum Engineering Ltd. dated August 1, 2007 with respect to the
Corporation’s petroleum and natural gas properties in the Northwest
Territories, for the purpose of preparing such document, all information
requested by Xxxxxxx Petroleum Engineering Ltd., which information
did not
contain any material misrepresentation at the date such information
was
provided. The Corporation has no knowledge of any material
adverse change in any information provided to Xxxxxxx Petroleum
Engineering Ltd. since the date that such information was
provided;
|
|
|
(oo)
|
although
it does not warrant title:
|
-
25
-
|
|
(i)
|
the
Corporation does not have reason to believe that it and the Corporation’s
Subsidiaries do not have title to or the irrevocable right to produce
and
sell their petroleum, natural gas and related hydrocarbons (for the
purposes of this clause, the foregoing are referred to as the
“Interests”) and does represent and warrant that the
Interests are free and clear of adverse claims created by, through
or
under the Corporation and the Corporation’s Subsidiaries, except as
disclosed in the Public Record or those arising in the ordinary course
of
business (including, without limitation, security interests and charges
by
way of security granted to the Corporation’s and the Corporation’s
Subsidiaries senior lender(s)), which are not material in the aggregate,
and, to the knowledge of the Corporation and the Corporation’s
Subsidiaries, the Corporation holds their Interests under valid and
subsisting leases, licenses, permits, concessions, concession agreements,
contracts, subleases, reservations or other agreements;
and
|
|
|
(ii)
|
to
the Corporation’s knowledge, there are no material defects, failures or
impairments in the title of the Corporation and the Corporation’s
Subsidiaries to their oil and gas properties, whether or not an action,
suit, proceeding or inquiry is pending or threatened and whether
or not
discovered by any third party, which in aggregate could have a material
adverse affect on: (A) the quantity and pre tax present worth values
of the oil and gas reserves of the Corporation shown in the technical
reports for the Corporation’s petroleum and natural gas properties;
(B) any current production of the Corporation; or (C) the
current cash flow of the
Corporation;
|
|
(pp)
|
the
Corporation is a principal business corporation as defined in
subparagraph 1(ee) of this
Agreement;
|
|
|
(qq)
|
the
Corporation is carrying on business in Canada for the purposes of
the
Act;
|
|
|
(rr)
|
the
Offered Securities do not constitute “United States real property
interests” within the meaning of the Internal Revenue Code of the United
States;
|
|
|
(ss)
|
except
as a result of any agreement or arrangement to which the Corporation
is
not a party or of which it has no knowledge, upon issuance pursuant
to the
provisions of the Flow-Through Subscription Agreements, the Flow-Through
Shares will be “flow-through shares’’ as defined in subsection 66(15)
of the Act and such Flow-Through Shares will not constitute “prescribed
shares” for the purpose of Regulation 6202.1 included in the Regulations
to the Act;
|
|
|
(tt)
|
the
Corporation currently has no Swaps
outstanding;
|
-
26
-
|
(uu)
|
the
Responses are true and correct where they relate to matters of fact,
and
the Corporation and its directors and officers have responded in
a
thorough and complete fashion. Where the Responses reflect the
opinion or view of the Corporation or its directors or officers (including
Responses or portions of such Responses which are forward-looking
or
otherwise relate to projections, forecasts or estimates of future
performance or results (operating, financial or otherwise)
(“Forward-looking Statements”)), such opinions or views
are subject to the qualifications set forth in the Responses and
were
honestly held and believed to be reasonable at the time they were
given;
provided, however, it shall not constitute a breach of this subparagraph,
solely if the actual results vary or differ from those contained
in
Forward-looking Statements;
|
|
|
(vv)
|
the
Corporation has not incurred any obligation or liability, contingent
or
otherwise, for brokerage fees, finder’s fees, agent’s commission or other
forms of compensation with respect to the transactions contemplated
herein
for which the Corporation will have any liability or obligation except
as
provided herein;
|
|
(ww)
|
the
Corporation does not have in place a shareholder rights protection
plan;
|
|
|
(xx)
|
the
Corporation is not a party to any unanimous shareholders agreement
and to
its actual knowledge, neither the Corporation nor any of its shareholders
is a party to any unanimous shareholders agreement, pooling agreement,
voting trust or other similar type of arrangements in respect of
outstanding securities of the
Corporation;
|
|
|
(yy)
|
the
Corporation has not entered into any agreements or made any covenants
with
any parties with respect to the renunciation of CEE or CDE, which
amounts
have not been fully expended and renounced as required
thereunder;
|
|
|
(zz)
|
the
representations and warranties of the Corporation in the Subscription
Agreements are, or will be at the Closing Date, true and
correct;
|
|
(aaa)
|
the
Corporation has not entered into any agreements or made any covenants
with
any parties that would restrict the Corporation from entering into
the
Flow-Through Subscription Agreements and agreeing to incur and renounce
Qualifying Expenditures in accordance with the Flow-Through Subscription
Agreements, nor that would require the prior renunciation to any
other
person of Qualifying Expenditures prior to the renunciation of the
aggregate Commitment Amount in favour of the Subscribers and the
Corporation has no outstanding obligations to incur and renounce
Qualifying Expenditures to any
persons;
|
-
27
-
|
(bbb)
|
no
approval, authorization, consent or other order of any governmental
authority is required in connection with the execution and delivery
or the
performance by the Corporation of this Agreement (including, without
limitation, the grant of the Over-Allotment Option), the Agent’s Warrants,
and the Subscription Agreements;
|
|
(ccc)
|
neither
the Corporation nor the Corporation’s Subsidiaries have, directly or
indirectly: (i) made or authorized any contribution, payment or gift
of funds or property to any official, employee or agent of any
governmental agency, authority or instrumentality of any jurisdiction;
or
(ii) made any contribution to any candidate for public office, in
either case, where either the payment or the purpose of such contribution,
payment or gift was, is, or would be prohibited under the Canada
Corruption of Foreign Public Officials Act (Canada) or the
Proceeds of Crime (Money Laundering) and Terrorist Financing
Act
(Canada) or the rules and regulations promulgated thereunder or under
any
other legislation of any relevant jurisdiction covering a similar
subject
matter applicable to the Corporation or the Corporation’s Subsidiaries and
their respective operations and have instituted and maintained policies
and procedures designed to ensure, and which are reasonably expected
to
continue to ensure, continued compliance with such
legislation;
|
|
(ddd)
|
none
of the Corporation, the Corporation’s Subsidiaries or, to the knowledge of
the Corporation, any director, officer, agent, employee, affiliate
or
person acting on behalf of the Corporation and/or the Corporation’s
Subsidiaries (or all of them) have been or is currently subject to
any
United States sanctions administered by the Office of Foreign Assets
Control of the United States Treasury Department
(“OFAC”); and the Corporation will not directly or
indirectly use any proceeds of the distribution of the Offered Securities,
or lend, contribute or otherwise make available such proceeds to
the
Corporation and the Corporation’s Subsidiaries or to any affiliated
entity, joint venture partner or other person or entity, to finance
any
investments in, or make any payments to, any country or person targeted
by
any of the sanctions of the United States administered by OFAC;
|
|
(eee)
|
the
Corporation has not completed any private placements that would preclude
the Corporation from relying upon any exemptions contemplated by
the
Subscription Agreements; and
|
-
28
-
|
(fff)
|
all
necessary steps, procedures and conditions (including all conditions
to
closing pursuant to the Thunder Agreement) have been fulfilled or
waived
to close the Thunder Acquisition, subject to US$900,000 being paid
by the
Corporation to Thunder River Energy
Inc.
|
|
7.
|
Conditions
|
The
obligations of the Agent hereunder shall be conditional upon the Agent
receiving, and the Agent shall have the right on the Closing Date on behalf
of
Subscribers for Offered Securities to withdraw all Subscription Agreements
delivered and not previously withdrawn by Subscribers unless the Agent receives,
on or before each Closing Date:
|
|
(a)
|
favourable
legal opinions of the Corporation’s counsel addressed to the Agent and the
Subscribers, in form and substance reasonably satisfactory to the
Agent,
with respect to such matters as the Agent may reasonably request
relating
to the offering of the Offered Securities, as applicable, including,
without limitation, that:
|
|
|
(i)
|
the
Corporation has been duly incorporated in Delaware, is validly subsisting
and has all requisite corporate power and authority to carry on its
business as now conducted by it and to own its properties and assets
and
is qualified to carry on business in
Delaware;
|
|
|
(ii)
|
the
Corporation has full corporate power and authority to enter into
this
Agreement, the Agent’s Warrants and the Subscription Agreements and this
Agreement, the Subscription Agreements and the Agent’s Warrants have been
duly authorized by the Corporation and constitute legal, valid and
binding
obligations of the Corporation enforceable against the Corporation
in
accordance with their respective terms subject to normal qualifications
including those relating to creditors’ rights generally and except that
rights to indemnity may be limited by applicable
law;
|
|
|
(iii)
|
the
execution and delivery of this Agreement, the Agent’s Warrants, and the
Subscription Agreements, and the fulfilment of the terms hereof and
thereof by the Corporation, and the performance of and compliance
with the
terms of this Agreement (including, without limitation, the grant
of the
Over-Allotment Option), the Agent’s Warrants and the Subscription
Agreements by the Corporation do not and will not result in a breach
of,
or constitute a default under, and do not and will not create a state
of
facts which, after notice or lapse of time or both, will result in
a
breach of or constitute a default under, (i) any laws in the Province
of Alberta; (ii) any term or provision of the articles or by laws of
the Corporation, or (iii) so far as counsel is aware, any mortgage,
note, indenture, contract, agreement (written or oral), instrument,
lease
or other document to which the Corporation is a party or by which
the
Corporation is bound on the Closing Date, which might reasonably
be
expected to materially adversely affect the business, operations,
capital
or condition (financial or otherwise) of the Corporation or the
Corporation’s Subsidiaries (taken as a whole) or its properties or
assets;
|
-
29
-
|
|
(iv)
|
all
Applicable Securities Laws in connection with the creation, offering,
issuance and sale of the Offered Securities and the creation, issuance
and
delivery of the Agent’s Warrants have been complied
with;
|
|
|
(v)
|
in
reliance upon a certificate of an officer of the Corporation, except
as a
result of any agreement to which the Corporation is not a party and
of
which the Corporation has no knowledge, the Flow-Through Shares,
at the
time of issuance, will be Flow-Through shares as defined in
subsection 66(15) of the Act and will not constitute “prescribed
shares” for purposes of Regulation 6202.1 of the Regulations of the
Act;
|
and
additionally, relating to:
|
|
(vi)
|
the
first trade in the Offered Securities (including any Over-Allotment
Shares
issuable upon exercise of the Over-Allotment Option) and the Common
Shares
received upon exercise of the Agent’s
Warrants;
|
and
as to
all other legal matters as the Agent or Agent’s counsel may reasonably request,
including, compliance with Applicable Securities Laws in any way connected
with
the creation, issuance, sale and delivery of the Offered Securities, the first
trade of the Offered Securities and the Common Shares issuable upon exercise
of
the Agent’s Warrants, being subject to a hold period, including a four month and
a day hold period under Applicable Securities Laws in the Selling Jurisdictions
(subject to the conditions provided for under the Resale Rules). It
is understood that the respective counsel may rely on the opinions of local
counsel acceptable to them as to matters governed by the laws of jurisdictions
other than Alberta, British Columbia, Ontario or Québec and on certificates of
officers of the Corporation and the auditors of the Corporation and the
registrar and transfer agent of the Common Shares as to relevant matters of
fact;
-
30
-
|
|
(b)
|
a
certificate of the Corporation dated the Closing Date, addressed
to the
Agent and the Agent’s counsel and signed on the Corporation’s behalf by
its Chief Executive Officer and Chief Financial Officer (or other
senior
officer of the Corporation acceptable to the Agent), certifying
that:
|
|
|
(i)
|
the
Corporation has complied with and satisfied all terms and conditions
of
this Agreement on its part to be complied with or satisfied at or
prior to
the Closing Time;
|
|
|
(ii)
|
the
representations and warranties of the Corporation set forth in this
Agreement are true and correct at the Closing Time, as if made at
such
time except for any increase in the number of issued Common Shares
resulting from the exercise of stock options or share purchase warrants
referred to in subparagraph 6(u) of this
Agreement;
|
|
|
(iii)
|
no
event of a nature referred to in subparagraphs 12(a), (b), (c) or (d)
has occurred or to the knowledge of such officers is pending, contemplated
or threatened, excluding with respect to subparagraphs 12(b), (c) and
(d) of this Agreement any obligation to make a determination as to
the
Agent’s opinion; and
|
|
|
(iv)
|
the
Corporation has made or obtained on or prior to the Closing Time,
all
necessary filings, approvals, consents and acceptances of applicable
regulatory authorities and under any applicable agreement or document
to
which the Corporation is a party or by which it is bound, required
for the
execution and delivery of this Agreement, the offering and sale of
the
Offered Securities and the consummation of the other transactions
contemplated hereby (subject to completion of filings with certain
regulatory authorities following the applicable Closing
Date,
|
and
the
Agent shall have no knowledge to the contrary;
|
|
(c)
|
definitive
certificates representing, in the aggregate, all of the Offered
Securities, issued on the applicable Closing Date and registered
in such
name or names as the Agent shall notify the Corporation in writing
not
less than twenty-four (24) hours prior to each Closing
Time;
|
|
|
(d)
|
evidence
satisfactory to the Agent that the Corporation has made application
to
list and post for trading its Common Shares (including the Offered
Securities and the Common Shares issuable upon exercise of the Agent’s
Warrants) on the Exchange;
|
-
31
-
|
|
(e)
|
evidence
satisfactory to the Agent that all necessary steps, procedures and
conditions (including all conditions to closing pursuant to the Thunder
Agreement) have been fulfilled or waived to close the Thunder Acquisition,
subject to US$900,000 being paid by the Corporation to Thunder River
Energy Inc.; and
|
|
|
(f)
|
copies
of the Subscription Agreements delivered by the Agent and duly executed
by
the Corporation, each in form and substance reasonably satisfactory
to the
Agent and the Agent’s counsel.
|
|
8.
|
Closing
|
|
|
(a)
|
The
sale of the Offered Securities shall be completed at the Closing
Time at
the offices of Corporation’s counsel in Calgary, Alberta or at such other
place as the Corporation and the Agent may agree. Subject to
the conditions set forth in paragraph 7, the Agent, on the applicable
Closing Date, shall deliver to the
Corporation:
|
|
|
(i)
|
all
duly executed and properly completed Subscription Agreements;
and
|
|
|
(ii)
|
a
certified cheque(s) or bank draft(s) payable to the Corporation at
par in
Calgary in an amount equal to US$3.00 for each Flow-Through Share
and
US$2.50 for each Offered Common Share issued hereunder or effect
payment
in such other manner as the Corporation and the Agent may
agree;
|
against
delivery by the Corporation:
|
|
(i)
|
the
opinions, certificates and documents referred to in paragraph 7,
including but not limited to the definitive certificates referred
to in
subparagraph 7(c) for the Offered Securities subscribed
for;
|
|
|
(ii)
|
to
the Agent of a certified cheque or bank draft payable to “Research Capital
Corporation” at par in Calgary in an amount equal to the aggregate
commissions as calculated pursuant to subparagraphs 9(a)(i) and
9(a)(ii);
|
|
|
(iii)
|
to
the Agent, the Agent’s Warrants as granted pursuant to
subparagraph 9(a)(iii); and
|
-
32
-
|
|
(iv)
|
of
such further documentation as may be contemplated by this Agreement
or
that may reasonably be requested by Agent’s
counsel.
|
|
9.
|
Commissions
and Agent’s Warrants
|
In
consideration for services of the Agent hereunder the Corporation
agrees:
|
|
(a)
|
at
each Closing Time:
|
|
|
(i)
|
to
pay to the Agent, in the aggregate, a corporate finance fee equal
to 2.0%
of the gross subscription proceeds from the issue and sale of the
Offered
Securities subscribed for (including any Over-Allotment Shares subscribed
for and any Offered Securities purchased by the Agent as principal,
if
any) and for which subscription is accepted by the
Corporation;
|
|
|
(ii)
|
to
pay to the Agent, in the aggregate, a cash commission equal to 6.0%
of the
gross proceeds from the issuance and sale of the Offered Securities
subscribed for (including any Over-Allotment Shares subscribed for
and any
Offered Securities purchased by the Agent as principal, if any) and
for
which subscription is accepted by the Corporation;
and
|
|
|
(iii)
|
to
grant to the Agent, in the aggregate, warrants (the “Agent’s
Warrants”) entitling the Agent to acquire, upon exercise by the
Agent in accordance with the terms of such Agent’s Warrants, that number
of Common Shares equal to:
|
|
|
(A)
|
8.0%
of the number of Offered Common Shares subscribed for (including
any
Over-Allotment Shares subscribed for and any Offered Securities purchased
by the Agent as principal, if any) and for which subscription is
accepted
by the Corporation, at a price of US$2.50 per Common Share expiring
18
months from the applicable Closing Date;
and
|
|
|
(B)
|
8.0%
of the number of Flow-Through Shares subscribed for (including any
Flow-Through Shares purchased by the Agent as principal, if any)
and for
which subscription is accepted by the Corporation, at a price of
US$3.00
per Common Share expiring 18 months from the applicable Closing
Date.
|
The
form of the Agent’s Warrants will be substantially in the form
as attached as Schedule “A”.
-
33
-
The
Agent
agrees it will prepare a sponsorship report and/or a prospectus, if required,
to
assist the Corporation in becoming publicly listed in Canada on the Exchange
and
that the Corporation will provide any such sponsorship report and/or prospectus
to the Corporation at a cost of $25,000, payable upon the listing of the
Corporation to the Exchange and deductible from the corporate finance fee and
cash commission payable by the Corporation pursuant to subparagraphs 9(a)(i)
and
9(a)(ii) of this Agreement, respectively, on a pro-rata basis.
|
10.
|
Expenses
|
Whether
or not the transactions contemplated herein shall be completed, all costs and
expenses of or incidental to the creation and distribution of the Offered
Securities shall be borne by the Corporation, including, without
limitation:
|
|
(a)
|
the
fees and expenses of the Corporation’s counsel and of agent counsel
retained by the Corporation or the Corporation’s
counsel;
|
|
|
(b)
|
the
fees and expenses of the Corporation’s auditor and independent
engineers;
|
|
|
(c)
|
fees
of any stock exchange or Securities
Commission;
|
|
|
(d)
|
any
other filing fees;
|
|
|
(e)
|
all
out-of-pocket expenses of the Agent plus any applicable provincial
sales
tax and Goods and Services Tax; and
|
|
|
(f)
|
the
fees of the Agent’s counsel plus disbursements and Goods and Services
Tax.
|
|
11.
|
Waiver
|
Either
party to this Agreement may waive in whole or in part any breach of, default
under or non-compliance with any representation, warranty, term or condition
hereof on the part of the other party, or extend the time for compliance
therewith, without prejudice to any of its rights in respect of any other
representation, warranty, term or condition hereof or any other breach of,
default under or non-compliance with any other representation, warranty, term
or
condition hereof, provided that any such waiver or extension shall be binding
on
the waiving party only if the same is in writing.
|
12.
|
Termination
Events
|
The
Agent
may terminate their obligations hereunder, by written notice to the Corporation,
in the event that after the date hereof and at or prior to the applicable
Closing Time:
-
34
-
|
|
(a)
|
any
order to cease or suspend trading in any securities of the Corporation,
or
prohibiting or restricting the distribution of the Offered Securities
is
made, or proceedings are announced or commenced for the making of
any such
order, by any Securities Commission or similar regulatory authority,
OTCBB, stock exchange or by any other competent authority, and has
not
been rescinded, revoked or
withdrawn;
|
|
|
(b)
|
a
change of law or the interpretation or administration thereof in
the
Applicable Securities Laws has occurred or an inquiry, action, suit,
investigation or other proceeding (whether formal or informal) is
announced, commenced or threatened (and has not been rescinded, revoked
or
withdrawn) by any federal, provincial, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality (including the OTCBB or any
securities regulatory authority), or Securities Commission, stock
exchange
or similar regulatory authority, or any order is issued in relation
to the
Corporation, any of its affiliates, or any of its directors or officers
or
any of the Corporation’s securities (other than any such inquiry, action,
suit, investigation or proceeding relating solely to the Agent) which
in
the opinion of the Agent, acting reasonably, seriously adversely
affects,
or involves, or will materially adversely affect or involve, the
financial
markets or the business, operations or affairs of the Corporation
or the
marketability of the Offered
Securities;
|
|
|
(c)
|
there
should develop, occur or come into effect or existence any event,
action,
state, condition or major financial occurrence of national or
international consequence or any law or regulation, or any occurrence
of
any nature whatsoever, which, in the sole opinion of the Agent, acting
reasonably, materially adversely affects, or involves, or will materially
adversely affect or involve, the financial markets or the business,
operations or affairs of the Corporation or the state of the financial
markets is such that the Offered Securities cannot, in the opinion
of the
Agent be successfully or profitably
marketed;
|
|
|
(d)
|
there
should occur any material change, change of a material fact, occurrence
or
event of the nature referred to in subparagraph 3(a) or any
development that could result in a material change or change of a
material
fact in which, in the opinion of the Agent as determined by the Agent
in
their sole discretion, acting reasonably, could reasonably be expected
to
have a material adverse effect on the business, operations or affairs
of
the Corporation or value or the marketability of the Offered
Securities;
|
|
|
(e)
|
the
Agent, acting reasonably, determines that the Corporation shall be
in
breach of, default under or non-compliance in any material respect
with
any material representation, warranty, term or condition of this
Agreement
or the Subscription Agreements;
|
-
35
-
|
|
(f)
|
the
state of the financial markets is such that, in the opinion of the
Agent,
acting reasonably, it would be unprofitable to offer or continue
to offer
the Offered Securities for sale; or
|
|
|
(g)
|
the
Agent shall become aware, as a result of their due diligence review
or
otherwise, of any adverse material change with respect to the Corporation
(in the sole opinion of the Agent, acting reasonably) which had not
been
disclosed to the Agent prior to the date
hereof.
|
|
13.
|
Continuation
of Termination Right
|
The
Agent
may exercise any or all of the rights provided for in paragraphs 7, 11 or 12
notwithstanding any material change, change, event or state of facts and
notwithstanding any act or thing taken or done by the Agent or any inaction
by
the Agent, whether before or after the occurrence of any material change,
change, event or state of facts including, without limitation, any act of the
Agent related to the offering or continued offering of the Offered Securities
for sale and any act taken by the Agent shall only be considered to have waived
or be estoppel from exercising or relying upon any of their rights under or
pursuant to paragraphs 7, 11 or 12 if such waiver or estoppel is in writing
and specifically waives or estops such exercise or reliance.
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14.
|
Exercise
of Termination Right
|
Any
termination pursuant to the terms of this Agreement shall be effected by notice
in writing delivered to the Corporation prior to the Closing Time, provided
that
no termination shall discharge or otherwise affect any obligation of the
Corporation under paragraphs 10, 15, 16, 17 or 18. The rights of
the Agent to terminate its obligations hereunder are in addition to, and without
prejudice to, any other remedies it may have.
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15.
|
Survival
|
It
is
understood that all representations and warranties herein or contained in
certificates or documents submitted pursuant to or in connection with the
transactions contemplated herein shall survive the payment for the Offered
Securities and the termination of this Agreement and shall continue in full
force and effect for the benefit of the Agent, the Subscribers and the
Corporation for a period for two years from the date hereof.
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36
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16.
|
Indemnity
|
The
Corporation (the “Indemnitor”) shall indemnify and save
harmless the Agent and the Agent’s affiliates, shareholders, directors,
officers, employees and agent (collectively the “Indemnified
Parties”) from and against all actual or threatened claims, actions,
suits, investigations and proceedings (collectively
“Proceedings”) and all losses (other than loss of profits),
expenses, fees, damages, obligations, payments and liabilities (collectively
“Liabilities”) (including without limitation all statutory
duties and obligations, all amounts paid to settle any action or to satisfy
any
judgment or award and all legal fees and disbursements actually incurred) to
which one or more Indemnified Persons are subject or which one or more
Indemnified Persons suffer or incur, now or any time hereafter, by reason of
any
event, act or omission in any way connected, directly or indirectly,
with:
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|
(a)
|
any
information or statement contained in the Subscription Agreements,
the
Documents or the Public Record (other than any information or statement
relating solely to the Agent and furnished to the Corporation by
the Agent
expressly for inclusion in the Subscription Agreements, the Documents
or
the Public Record), which is or is alleged to be untrue or any omission
or
alleged omission to provide any information or state any fact the
omission
of which makes or is alleged to make any such information or statement
untrue or misleading in light of the circumstances in which it was
made;
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|
|
(b)
|
any
misrepresentation or alleged misrepresentation (except a misrepresentation
or alleged misrepresentation which is based upon information relating
to
the Agent and furnished to the Corporation by the Agent expressly
for
inclusion in the Subscription Agreements, the Documents or the Public
Record) contained in the Subscription Agreements, the Documents or
the
Public Record;
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|
|
(c)
|
any
misrepresentation or alleged misrepresentation contained in any of
the
responses (excluding responses which comprise “forward looking”
information) provided to the Agent or the Agent’s counsel by the
Corporation or its directors, officers or employees pursuant to a
written
request for information made by the Agent or by the Agent’s counsel to the
Corporation or otherwise provided in response to a request by the
Agent in
a context where the Corporation understood the Agent to be relying
on such
information in assessing the suitability of the offering of the Offered
Securities;
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|
|
(d)
|
any
prohibition or restriction of trading in the securities of the Corporation
or any prohibition or restriction affecting the distribution of the
Offered Securities imposed by any competent authority if such prohibition
or restriction is based on any misrepresentation or alleged
misrepresentation of a kind referred to in
subparagraph 16(b);
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37
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|
|
(e)
|
any
order made or any inquiry, investigation (whether formal or informal)
or
other proceeding commenced or threatened by any one or more competent
authorities (not based upon the activities or the alleged activities
of
the Agent or their banking or selling group members, if any) relating
to
or materially affecting the trading of the Common Shares (including
the
Common Shares issuable upon exercise of the Agent’s Warrants), or
distribution of the Offered
Securities;
|
|
|
(f)
|
any
breach of, default under or non-compliance by the Corporation with
any
representation, warranty, term or condition of this Agreement, the
Subscription Agreements or any requirement of Applicable Securities
Laws;
or
|
|
|
(g)
|
the
exercise by any Subscriber of the Offered Securities of any contractual
right or statutory right of rescission in connection with the purchase
of
the Offered Securities;
|
provided
that in the event and to the extent that a court of competent jurisdiction
in a
final judgment from which no appeal can be made or a regulatory authority in
a
final ruling from which no appeal can be made shall determine that such
Proceedings or Liabilities resulted solely from the negligence, fraud or wilful
misconduct of, or the violation of applicable laws by, the Indemnified Party
claiming indemnity, this indemnity shall not apply.
The
Corporation hereby waives its right to recover contribution from the Agent
with
respect to any liability of the Corporation by reason of or arising out of
any
misrepresentation in the Documents or the Public Record provided, however,
that
such waiver shall not apply in respect of liability caused or incurred by reason
of or arising out of (i) any misrepresentation which is based upon information
relating solely to the Agent contained in such document and furnished to the
Corporation by the Agent expressly for inclusion in such document; or (ii)
any
failure by the Agent to provide to prospective purchasers of Offered Securities
any document which the Corporation is required to provide to such prospective
purchasers and which the Corporation has provided to the Agent to forward to
such prospective purchasers.
The
Corporation agrees that in case any legal proceeding or investigation shall
be
brought against or initiated against the Corporation by any governmental
commission, regulatory authority, exchange, court or other authority and an
Indemnified Party or other representative of the Agent shall be required to
testify or respond to procedures designed to discover information regarding,
in
connection with or relating to the performance of professional services rendered
to the Corporation by the Agent hereunder, the Corporation shall pay the Agent
the reasonable costs (including an amount to reimburse the Agent for the time
spent by their personnel in connection therewith on a normal per diem basis
and
out of pocket expenses) in connection therewith unless such proceedings or
investigations shall be brought or initiated as a result of any negligence,
fraud or any actions or inactions of the Agent, or any of their
affiliates.
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38
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|
17.
|
Notice
of Indemnity Claim
|
If
any
Proceeding is brought, instituted or threatened in respect of any Indemnified
Party which may result in a claim for indemnification under this agreement,
such
Indemnified Party shall promptly after receiving notice thereof notify the
Corporation of the nature of such claim, in writing, and the Corporation shall
be entitled (but not required) to assume conduct of the defence thereof and
retain counsel on behalf of the Indemnified Party who is reasonably satisfactory
to the Indemnified Party, to represent the Indemnified Party in such Proceeding
and the Corporation shall pay the fees and disbursements of such counsel and
all
other reasonable expenses of the Indemnified Party relating to such Proceeding
as incurred. Failure to so notify the Corporation shall not relieve
the Corporation from liability except and only to the extent that the failure
materially prejudices the Corporation. If the Corporation assumes
conduct of the defence for an Indemnified Party, the Indemnified Party shall
fully cooperate in the defence including without limitation the provision of
documents, appropriate officers and employees to give witness statements, attend
examinations for discovery, make affidavits, meet with counsel, testify and
divulge all information reasonably required to defend or prosecute the
Proceedings.
In
any
such Proceeding the Indemnified Party shall have the right to employ separate
counsel and to participate in the defence thereof if:
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|
(a)
|
the
Indemnified Party has been advised in writing by counsel that there
may be
a reasonable legal defence available to the Indemnified Party that
is
different from or in addition to those available to the Corporation
or
that a conflict of interest exists which makes representation by
counsel
chosen by the Corporation not
advisable;
|
|
|
(b)
|
the
Indemnitor has not assumed the defence of the Proceeding and employed
counsel therefor reasonably satisfactory to the Indemnified Party
within
ten (10) days after receiving notice thereof;
or
|
|
|
(c)
|
employment
of such other counsel has been authorized by the
Corporation;
|
in
which
event the reasonable fees and disbursements of such counsel (on a solicitor
and
his client basis) shall be paid by the Corporation. It being
understood, however, that the Corporation shall not, in connection with any
one
such action or separate but substantially similar or related actions in the
same
jurisdiction arising out of the same general allegations or circumstances,
be
liable for the reasonable fees and expenses of more than one separate law firm
(in addition to any local counsel) for all such Indemnified
Parties.
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39
-
No
admission of liability and no settlement of any Proceeding shall be made by
the
Indemnitor without the consent of the Indemnified Parties affected, such consent
not to be unreasonably withheld. No admission of liability shall be
made by an Indemnified Party without the consent of the Indemnitor, such consent
not to be unreasonably withheld, and the Indemnitor shall not be liable for
any
settlement of any Proceeding made without its consent, such consent not to
be
unreasonably withheld.
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18.
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Right
of Contribution
|
In
order
to provide for just and equitable contribution in circumstances in which the
indemnification provided for in this Agreement is due in accordance with its
terms but is (in whole or in part), for any reason, held by a court to be
unavailable from the Corporation on ground of policy or otherwise, each of
the
Corporation and the party or parties seeking indemnification shall contribute
to
the aggregate Liabilities (or Proceedings in respect thereof) to which they
may
be subject or which they may suffer or incur:
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|
(a)
|
in
such proportion as is appropriate to reflect the relative benefit
received
by the Corporation on the one hand and by the Agent on the other
hand from
the offering of the Offered Securities;
or
|
|
|
(b)
|
if
the allocation provided by subparagraph (a) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not
only
the relative benefits referred to in subparagraph (a) above but also
to reflect the relative fault of the party or parties seeking indemnity,
on the one hand, and the parties from whom indemnity is sought, on
the
other hand, in connection with the statement, omission, misrepresentation
or alleged misrepresentation, order, inquiry, investigation or other
matter or thing which resulted in such liabilities, claims, demands,
losses, costs, damages or expenses, as well as any other relevant
equitable considerations.
|
The
relative benefits received by the Corporation, on the one hand, and the Agent,
on the other hand, shall be deemed to be in the same proportion that the total
proceeds of the offering received by the Corporation (net of fees but before
deducting expenses) bear to the fees received by the Agent. The
relative fault of the Corporation, on the one hand, and of the Agent, on the
other hand, shall be determined by reference, among other things, to whether
the
misrepresentation or alleged misrepresentation, order, inquiry, investigation
or
other matter referred to in paragraph 16 hereof relates to information
supplied or which ought to have been supplied by the Corporation or the Agent
or
steps taken or done or which ought to have been done by the Corporation or
the
Agent and the parties’ relevant intent, knowledge, access to information and
opportunity to correct or prevent such misrepresentation or alleged
misrepresentation, order, inquiry, investigation or other matter referred to
in
paragraph 16 hereof.
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40
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The
amount paid or payable by the Indemnitor as a result of any Proceedings or
Liabilities without limitation, include any legal or other expenses reasonably
incurred by the Indemnified Person in connection with investigating or defending
such liabilities, claims, demands, losses, costs, damages and expenses (or
claims, actions, suits or proceedings in respect thereof), whether or not
resulting in any action, suit, proceeding or claim.
The
Corporation agrees that it would not be just and equitable if contributions
pursuant to this Agreement were determined by pro rata allocation or by any
other method of allocation which does not take into account the equitable
considerations referred to in the immediately preceding paragraphs.
Any
liability of the Agent under this paragraph 18 shall be limited to the
amount of the cash fees paid to the Agent pursuant to paragraph 9
hereof.
The
rights to indemnify and right of contribution provided in the foregoing
paragraphs shall be in addition to and not in derogation of any other right
to
contribution which the Indemnified Parties may have by statute or otherwise
at
law or in equity. Subject to the proviso following
subparagraph 16(g), the Indemnitor waives all rights of contribution that
it may have against any Indemnified Party relating to any Liability in respect
of which the Indemnitor has agreed to indemnify the Indemnified Parties
hereunder.
It
is the
intention of the Corporation to constitute the Agent as trustee for the
Indemnified Parties for the purposes of paragraphs 16 to 18 inclusive and
the Agent, shall be entitled, as trustee, to enforce such covenants on behalf
of
any other Indemnified Persons.
If
any
Proceeding is brought in connection with the transactions contemplated by this
Agreement and the Agent is required to testify in connection therewith or is
required to respond to procedures designed to discover information relating
thereto, the Corporation shall pay to the Agent reasonable fees at the normal
per diem rate for its directors, officers, employees and agent involved in
preparation for and attendance at such Proceeding or in so responding, and
any
other reasonable costs and out-of-pocket expenses incurred by it in connection
therewith will be paid by the Corporation as they are incurred, except in each
case to the extent that such Proceeding is caused solely by or is the result
of
the negligence, fraud or wilful misconduct of, or violation of applicable laws
by, an Indemnified Party.
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41
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The
obligations under the indemnity and right of contribution provided herein shall
apply whether or not the transactions contemplated by this Agreement are
completed and shall survive the completion of the transactions contemplated
under this Agreement and the termination of this Agreement.
|
19.
|
Notices
|
Any
notice or other communication to be given hereunder shall, in the case of notice
to be given to the Corporation, be addressed to:
Xxxxx 000,
000 – 0xx
Xxxxxx XX
Xxxxxxx,
Xxxxxxx
X0X
0X0
|
|
Attention:
|
Xxxx
Xxxxx
|
Chairman
and Chief Executive Officer
|
|
Telecopy
No :
|
(000)
000-0000
|
and
a
copy to:
Xxxxxx
Xxxxxx Gervais
1000
Canterra Tower, 000 – 0xx Xxxxxx
X.X.
Xxxxxxx,
Xxxxxxx
X0X
0X0
|
|
Attention:
|
Xxxxx
Xxxxxxxx
|
|
|
Telecopy
No:
|
(000)
000-0000
|
and,
in
the case of notice to be given to the Agent, be addressed to:
Research
Capital Corporation
000
Xxx
Xxxxxx, Xxxxx 0000
Commerce
Court West, Box 368
Toronto,
Ontario
M5L
1G2
|
|
Attention:
|
Xxxx
Xxxx
|
|
|
Telecopy
No.:
|
(000)
000-0000
|
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42
-
and
a
copy to:
Stikeman
Elliott LLP
4300
Bankers Hall West
000
–
0xx Xxxxxx
X.X.
Xxxxxxx,
Xxxxxxx
X0X
0X0
|
|
Attention:
|
Xxxxxx
X. Xxxxx
|
|
|
Telecopy
No:
|
(000)
000-0000
|
or
to
such other address as the party may designate by notice given to the others.
Each communication shall be personally delivered to the addressee or sent by
facsimile transmission to the addressee, and:
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|
(a)
|
a
communication which is personally delivered shall, if delivered before
4:30 p.m. (Calgary time) on a Business Day, be deemed to be given
and
received on that day and, in any other case be deemed to be given
and
received on the first Business Day following the day on which it
is
delivered; and
|
|
|
(b)
|
a
communication which is sent by facsimile transmission shall, if sent
on a
Business Day before 4:30 p.m. (Calgary time), be deemed to be given
and
received on that day and, in any other case, be deemed to be given
and
received on the first business day following the day on which it
is
sent.
|
|
20.
|
Restrictions
of Offerings
|
The
Corporation agrees that, prior to 120 days after the final Closing Date, it
shall not, directly or indirectly, sell or offer to sell any Common Shares
or
other equity securities of the Corporation, or otherwise issue, lend, transfer
or dispose of any securities exchangeable, convertible or exercisable into
Common Shares, or announce any intention to do any of the foregoing without
the
prior written consent of the Agent, which consent shall not be unreasonably
withheld provided that the foregoing shall not apply to: iv) Common Shares
issued upon exercise of outstanding stock options or warrants; and v) grants
of
options to acquire Common Shares.
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43
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21.
|
Alternative
Transaction
|
The
Corporation agrees that in the event that the offering of Offered Securities
as
contemplated hereby is not completed due to the Corporation deciding in its
sole
and absolute discretion not to proceed with such offering, and following the
termination of this Agreement, the Corporation enters into a binding agreement
in respect of, or makes a public announcement in respect of, an Alternative
Transaction, then the Corporation shall, forthwith, to the extent not already
paid, pay such expenses of the Agent pursuant to paragraph 10 hereof and
the corporate finance fee and cash commission to the Agent pursuant to
subparagraphs 9(a)(i) and 9(a)(ii) hereunder, that would be payable
hereunder in respect of the completion of the offering of Offered Securities
in
its entirety, as contemplated hereby. The corporate finance fee,
commission and any unpaid expenses payable pursuant to
subparagraphs 9(a)(i), 9(a)(ii) and paragraph 10 hereof, respectively,
shall be payable immediately following completion of the Alternative
Transaction. For greater certainty, in the event that this Agreement is
terminated by the Agent and the Corporation subsequently enters into a binding
agreement in respect of, or makes a public announcement in respect of, an
Alternative Transaction, the Corporation shall have no obligation to pay the
corporate finance fee and commission payable pursuant to
subparagraphs 9(a)(i) and 9(a)(ii) hereunder, respectively, or to grant the
Agent’s Warrants.
|
22.
|
Rights
of First Refusal
|
In
the
event that within 18 months after the completion of the sale of the Offered
Securities the Corporation proposes to undertake a merger, acquisition or
similar transaction involving the sale of all or substantially all of the assets
or common shares of the Corporation, the Corporation will retain the Agent
as
its sole financial advisor and exclusive agent to advise in the completion
of
such transaction, subject to agreeing on mutually acceptable fee
arrangements. The terms and conditions relating to any such services
will be outlined in a separate agreement and the fees for such services will
be
in addition to the corporate finance fee and cash commission payable pursuant
to
subparagraphs 9(a)(i) and 9(a)(ii) hereunder, will be negotiated separately
and in good faith and will be consistent with fees paid to investment bankers
in
North America for similar services in connection with similar
transactions. The Corporation agrees not to engage any other party
for the services described in this paragraph without first complying with the
provisions of this paragraph 22 or obtaining the prior written consent of
the Agent.
The
Corporation agrees that for a period of 18 months following the final
Closing Date, the Corporation will offer to the Agent (for a period of
10 Business Days) a right of first refusal to provide lead agent or primary
investment banking services, as the case may be, to the Corporation or any
of
its subsidiaries, and any successor entity to the Corporation’s business or
assets by reorganization (such as, but not limited to, an income trust) relating
to any equity or debt, or equity or debt related, financing involving a
distribution to the public in Canada. The terms and conditions
relating to any such services will be outlined in a separate engagement letter,
underwriting or agency agreement and the fees for such services will be in
addition to the corporate finance fee and cash commission payable pursuant
to
subparagraphs 9(a)(i) and 9(a)(ii) hereunder, will be negotiated separately
and in good faith and will be consistent with fees paid to investment bankers
in
North America for similar services in connection with similar
transactions. The Corporation agrees not to engage any other party
for the services described in this paragraph without first complying with the
provisions of this paragraph 20 or obtaining the prior written consent of
the Agent.
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44
-
The
Corporation agrees to cooperate with Morgarten Financial Services Inc. of
Zurich, Switzerland in seeking investors to any equity or debt, or equity or
debt related financing of the Corporation involving a distribution to the public
in Canada as per the preceding paragraph, on terms and conditions negotiated
between the Agent and Mortgarten Financial Services Inc. at such
time. On the condition that Morgarten Financial Services Inc. makes
reciprocal invitations to the Agent, the Agent will invite Morgarten Financial
Services Inc. to participate in any equity or debt, or equity or debt related
financing of the Corporation involving a distribution to the public in Europe,
on terms and conditions negotiated between the Agent and Morgarten Financial
Services Inc. at such time.
|
23.
|
Relationship
between the Corporation and the
Agent
|
The
Corporation: b) acknowledges and agrees that the Agent have certain statutory
obligations as a registrant under the Applicable Securities Laws and have
fiduciary relationships with their clients; and c) consents to the Agent acting
hereunder while continuing to act for its clients. To the extent that
the Agent’s statutory obligations as a registrant under Applicable Securities
Laws or fiduciary relationships with its clients conflicts with its obligations
hereunder, the Agent shall be entitled to fulfil its statutory obligations
as a
registrant under Applicable Securities Laws and its duties to its clients.
Nothing in this Agreement shall be interpreted to prevent the Agent from
fulfilling its statutory obligations as a registrant under Applicable Securities
Laws or to act as a fiduciary of its clients.
|
24.
|
Severance
|
If
one or
more of the provisions contained herein shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or
unenforceability shall not affect any other provision of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision or provisions had never been contained herein.
|
25.
|
Trust
|
The
Corporation acknowledges and agrees that it is the intention of the parties
hereto and the Corporation that each of the Subscribers be entitled to rely
on
the representations, warranties, terms, conditions and covenants of the
Corporation contained herein (save and except as waived in whole or in part
by
the Agent pursuant to this Agreement).
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45
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|
26.
|
Governing
Law
|
This
Agreement shall be governed by and construed in accordance with the laws of
the
Province of Alberta and the laws of Canada applicable therein. The
parties hereto irrevocably attorn to the jurisdiction of the courts of the
Province of Alberta with respect to any matters arising out of this Agreement
and agree to be bound by any suit, action or proceeding commenced in such courts
and by any order or judgment resulting from such suit, action or
proceeding. Each of the parties hereto irrevocably waives, to the
fullest extent it may effectively do so, the defense of an inconvenient forum
to
the maintenance of such action or proceeding.
|
27.
|
Time
of the Essence
|
Time
is
of the essence of this Agreement.
|
28.
|
Counterpart
Execution
|
This
Agreement may be executed in one or more counterparts each of which so executed
shall constitute an original and all of which together shall constitute one
and
the same Agreement.
|
29.
|
Entire
Agreement
|
It
is
understood that the terms and conditions of this Agreement supersede any
previous verbal or written agreement between the Agent and the Corporation
in
respect of the offer for sale by the Corporation of Offered Securities,
including the letter agreement dated August 17, 2007 between the
Corporation and the Agent.
-
46
-
If
the
foregoing is in accordance with your understanding and is agreed to by you,
please confirm your acceptance by signing the enclosed copies of this letter
at
the place indicated and returning same to the Agent.
|
RESEARCH
CAPITAL CORPORATION
|
||
|
Per:
|
||
|
ACCEPTED
AND AGREED to as of the 28th
day of
September, 2007.
|
|
|
|
|
|
By:
|
|
|
Xxxx
Xxxxx,
Chairman
and Chief Executive Officer
|
|
SCHEDULE
“A“
FORM
OF AGENT’S WARRANTS
