A subscriber is a private investor in a company. So, the subscription agreement is used as a promise to sell a given number of shares to the investor by the company. On the other hand, the agreement is the investor’s guarantees to pay a certain price for the shares.
If any company wishes to sell certain company’s stock to the investor, it is imperative to nail down the deal in the subscription agreement.
What Is a Subscription Agreement?
A legal agreement between two parties, the service provider and the subscriber, that provides complete details of the subscription, such as cost, length, and the cancellation procedure is a subscription agreement.
This agreement is normally used to receive payment from investors in return for equity shares. It is created before a private offering memorandum to provide information on the quantity of equity and its price tag, business information, and involved lists and disclaimers.
Why Are Subscription Agreements Important?
The subscription agreement is needed to make the company and the investor agree on the buying price of the shares of the business. It describes the warranties and the representations that shall be mutually agreed upon by both parties.
It is imperative to enter into the agreement so that any future misunderstanding and chaos shall be avoided to a great extent. It also saves time and money and fasts forward to the closing of the deal as all the queries of the investors can be resolved from this agreement.
Moreover, the investor can make an informed decision by going through the details of the agreement as they know what they are signing for.
When to Use a Subscription Agreement?
The subscription agreements are useful for the following:
- A private company needs to raise capital from private investors through their shares or ownership of the company without the need to register with the SEC.
- A company having a private placement memorandum in place wants to add a subscription agreement for potential investors.
So, whether an individual private investor or a company that is willing to invest in another, a subscription agreement helps to state the details of the transaction like the share price and the quantity of the shares.
Moreover, investors can protect themselves in case the company changes the terms of the deal without confrontation. On the other hand, the company can protect themselves in case the investors change their mind at the last minute.
What Are the Components of a Subscription Agreement?
Here are a few components the parties shall include in their agreement:
- Parties: Both the parties, the company, and the investors shall provide all their details like name, addresses, contact number, and more.
- Complete shares details: The agreement shall include everything about the type, amount, and price of shares to be sold to the investors.
- Consideration: Here, the purchase prices of the shares need to be mentioned. Details of the purchase price, how and when the investors will pay.
- Covenants and representations: This term binds the parties to refrain from doing certain things. Subscribers need to ensure that they will follow certain restrictions on the transferability of the subscriber’s membership.
- Completion: The final grant of title and ownership of the shares to the investor is completion. Here, the date and place of completion and the requirement of the parties after completion shall be mentioned.
- Termination: In case any of the parties decide not to continue with the agreement, termination occurs. However, it is crucial to put the terms of termination so that in case of breach of any of the terms. Some fair penalty could be imposed.
- Acceptance: Both parties need to duly sign the agreement to acknowledge that they have read and agree to all the above-mentioned terms.
A subscription agreement is a win-win condition for both the parties, the company, and the investor. Start every new subscriber relationship with this agreement.
Make sure the agreement is customized as per your company. You could also check out CocoSign for the accurate and authentic subscription agreement templates for free.
THIS AGREEMENT MADE EFFECTIVE AS OF THE _____ DAY OF __________, 20_____ (the "Effective Date").
The Purchaser wishes to subscribe for shares of a class and series of common shares of the Company as described below (the "Securities");
The Purchaser has received from the Company an offering memorandum (the “Offering Memorandum”) in compliance with the applicable Securities Rules (as defined below);
It is the intention of the parties to this agreement (the "Agreement") that this subscription will be made pursuant to appropriate exemptions (the "Exemptions") from the registration and prospectus or equivalent requirements of all rules, policies, notices, orders and legislation of any kind whatsoever (collectively the "Securities Rules") of all jurisdictions applicable to this subscription;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants and agreements herein contained, the receipt of which is hereby acknowledged, the parties covenant and agree with each other as follows:
1.Representations and Warranties of the Purchaser
1.1The Purchaser represents and warrants to the Company, and acknowledges that the Company is relying on these representations and warranties to, among other things, ensure that it is complying with all of the applicable Securities Rules, that:
(a) the Purchaser is purchasing the Securities as principal for its own account and not for the benefit of any other person;
(b) the Purchaser is:
(i)purchasing the Securities pursuant to the Offering Memorandum of the Company dated June 10, 2005, that was delivered to and received by the Purchaser prior to entering into this Agreement; OR
(ii)a director, officer, employee or "control person" (as that term is defined in the Securities Act (British Columbia) and set out in Schedule "B" to this Agreement) of the Company; OR
(iii)a spouse, parent, grandparent, brother, sister or child of a director, "senior officer" (as that term is defined in the Securities Act (British Columbia) and set out in Schedule "B" to this Agreement) or control person of the Company; OR
(iv)a close personal friend of a director, senior officer or control person of the Company; OR
(v)a close business associate of a director, senior officer or control person of the Company; OR
(vi)a person or company that is wholly-owned by any combination of persons or companies described in subparagraphs
(ii) to (v) above; OR
(vii)an "accredited investor" (as that term is defined in MI 45-103 and set out in Schedule "B" to this Agreement);
(c) the Purchaser is, if an individual, a resident in British Columbia, as defined in the Income Tax Act (Canada) at the date of this Agreement;
(d) the Purchaser acknowledges that because this subscription is being made pursuant to the Exemptions:
(i)the Purchaser is restricted from using certain of the civil remedies available under the applicable Securities Rules,
(ii)the Purchaser may not receive information that might otherwise be required to be provided to the Purchaser under the applicable Securities Rules if the Exemptions were not being used, and
(iii)the Company is relieved from certain obligations that would otherwise apply under the applicable Securities Rules if the Exemptions were not being used; and
(e) if the Purchaser is a Company, the Purchaser is a valid and subsisting Company incorporated under the laws of British Columbia, has the necessary corporate capacity and authority to execute and deliver this Agreement and to observe and perform its covenants and obligations hereunder and has taken all necessary corporate action in respect thereof, or, if the Purchaser is a partnership, syndicate, trust or other form of unincorporated organization, the Purchaser is resident in British Columbia and has the necessary legal capacity and authority to execute and deliver this Agreement and to observe and perform its covenants and obligations hereunder and has obtained all necessary approvals in respect thereof, and, in either case, upon the Company executing and delivering this Agreement, this Agreement will constitute a legal, valid and binding contract of the Purchaser enforceable against the Purchaser in accordance with its terms and neither the agreement resulting from such acceptance nor the completion of the transactions contemplated hereby conflicts with, or will conflict with, or results, or will result, in a breach or violation of any law applicable to the Purchaser, any constating documents of the Purchaser or any agreement to which the Purchaser is a party or by which the Purchaser is bound.
(f) other than the Offering Memorandum, the Purchaser has not requested access to and does not need to receive any other information concerning the Company;
(g) the Purchaser received a copy of the Offering Memorandum and confirms that the Purchaser has thoroughly read the Offering Memorandum and understands the nature of and risks involved in the proposed investment;
(h) the Securities are not being subscribed for by the Purchaser as a result of any material information about the Company's affairs, that has not been publicly disclosed;
(i) in the Purchaser's decision to execute this Agreement and purchase the Securities agreed to be purchased hereunder, it has relied solely upon the Offering Memorandum and this Agreement, and the Purchaser's decision has not been based upon any oral or written representation as to fact or otherwise made by or on behalf of the Company or any employee, agent or affiliate of, or any other person associate with the Company; and
(j) the offer and sale of these Securities was not accomplished by an advertisement and the Purchaser was not induced to purchase these Securities as a result of any advertisement made by the Company.1.2The Company represents and warrants to the Purchaser, and acknowledges that the Purchaser is relying on these representations and warranties in entering into this Agreement, that:
(a)the Company is a valid and subsisting Company duly incorporated and in good standing under the laws of British Columbia;
(b)the Company holds all licences and permits that are required for carrying on its business in the manner in which such business has been carried on and the Company has the corporate power and capacity to carry on the business carried on by it and is duly qualified to carry on business in British Columbia;
(c)the Company has good and sufficient right and authority to enter into this Agreement and complete its transactions contemplated under this Agreement on the terms and conditions set forth herein; and
(d)to the best of its knowledge, the execution and delivery of this Agreement, the performance of its obligations under this Agreement and the completion of its transactions contemplated under this Agreement will not conflict with, or result in the breach of or the acceleration of any indebtedness under, or constitute default under, the constating documents of the Company or any indenture, mortgage, agreement, lease, license or other instrument or any kind whatsoever to which the Company is a party or by which it is bound, or any judgment or order of any kind whatsoever or any Court or administrative body of any kind whatsoever by which it is bound.
2.1The Purchaser hereby subscribes the subscription funds (the "Subscription Funds") for that number of Securities, at a price of Cdn. $10.00 per Security, as is set forth under "Subscription Amount" below.
2.2The Purchaser will deliver the Subscription Funds for the Securities subscribed for to the Company in the form of cash, solicitor's trust cheque, certified cheque, bank draft, money order or wire transfer payable to "Fundamental Technologies II Corp." The Company will hold the Subscription Funds in trust pending the closing of the subscription, and the expiry of the Purchaser's two day statutory rights to cancel this Agreement as set out in the Offering Memorandum, which rights are incorporated by reference herein.
2.3In the event and to the extent that the Purchaser is entitled to repayment of the Subscription Funds of the Securities (pursuant to the Purchaser's Statutory Rights as set out in the Offering Memorandum or otherwise), the Company will repay or arrange for the repayment of the balance of the Purchaser's Subscription Funds to fulfill such repayment obligation.
3.Covenants, Agreements and Acknowledgments
3.1Concurrent with the execution of this Agreement, the Purchaser will:
(a)fully complete Schedule "A" to this Agreement and acknowledges that the Company is relying on the Exemptions in order to complete the trade and distribution of the securities and the Purchaser is aware of the criteria of the Exemptions to be met by the Purchaser including the representations contained in Schedule "A";
(b)fully complete Schedule “C” to this Agreement, the 45-103F3 Risk Acknowledgement; and
3.2The Purchaser agrees that the executed Form 45-103F3 Risk Acknowledgement, attached hereto as Schedule “C”, forms a part of this Agreement as if contained herein and that the acknowledgements contained therein are true and correct as of the date of the execution of this Agreement and will be correct as of the Closing Date (as defined below) and that the Company may rely on the acknowledgements, representations and statements contained therein without the need for verification.
3.3The Purchaser acknowledges and agrees that the Securities will be subject to such trade restrictions as may be imposed by operation of applicable Securities Rules and that the Company may be required to legend the certificates representing such Securities with those restrictions. This will prevent the Purchaser from reselling the Securities except in very limited circumstances. In this regard, the Purchaser acknowledges that such trade restrictions provide that the Purchaser must hold and not sell, transfer or in any manner dispose (collectively, the "Disposition") of the Securities before the earlier of the date that is 12 months and a day after the Company:
(a)becomes a reporting issuer in the Canadian province in which the Purchaser is resident; or
(b)first becomes a reporting issuer in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec or Saskatchewan and a SEDAR filer,
unless the Disposition is made in accordance with all applicable Securities Rules. The Purchaser further acknowledges that the Company may never become a reporting issuer and has not warranted that it will become a reporting issuer. The Purchaser further acknowledges and agrees that it is the Purchaser's obligation to comply with the trade restrictions in all of the applicable jurisdictions and the Company offers no advice as to those trade restrictions except as provided for herein. The Purchaser further acknowledges
that it may never be able to resell these Securities.
3.4The Purchaser acknowledges that no securities commission has evaluated or endorsed the merits of these Securities and that the person selling these Securities has no duty to tell the Purchaser whether these Securities are a suitable investment. The Purchaser further acknowledges that it is investing in the Company entirely at its own risk and it may lose all of the Subscription Funds. The Purchaser acknowledges and agrees that he, she or it has been advised to seek his, her or its own investment, tax, accounting and legal advice, and that the Company is not providing any such advice to the Purchaser and that the Company's advisors are providing advice to the Company and the Company only, and are not providing such advice to the Purchaser.
4.1Upon the completion of the subscription contemplated under this Agreement, and after the expiration of the two day statutory time period, the Company will e-mail to the Purchaser (as per the "Delivery Instructions" below), a certificate or certificates representing the Securities. Upon doing so, the Company shall be entitled to retain the Subscription Funds as full payment for the Securities to be issued pursuant to this Agreement without any further instructions from, or notice to, the Purchaser of any kind whatsoever.
5.Power of Attorney
5.1The Purchaser hereby irrevocably nominates, constitutes and appoints Basil Peters, the Chief Executive Officer of the Company, as his, her or its agent and true and lawful attorney to act on his, her or its behalf, whether in the best interest of the Purchaser or otherwise, with full power and authority in his, her or its name, place and stead to execute, under seal or otherwise, swear to, acknowledge, deliver and file or record when, as and where required:
(a) any waiver required under applicable legislation or the constating documents of the Company, waiving the Investor's right to subscribe for a pro-rata portion of any securities allotted while the Company is not a reporting company; and
(b) any other matters that may be necessary in respect to the management of the Company which Basil Peters feels are appropriate matters to be addressed by this power of attorney;
The power of attorney granted herein is an irrevocable power coupled with an interest and it shall survive the death, disability, mental infirmity, or bankruptcy of the Purchaser or the assignment by the Purchaser of the whole or any part of the interest of the Purchaser in the Securities.
The Purchaser agrees to be bound by any representations made and actions taken by the Company pursuant to this power of attorney in accordance with the terms hereof and hereby waives any and all defences which may be available to the Purchaser to contest, negate or disaffirm the action of the Company taken under this power of attorney.
The Company, its directors, officers, employees, advisors and agents shall not be liable for any act done or omitted hereunder as attorney for the Purchaser. The Purchaser indemnifies the Company, its directors, officers, employees, advisors and agents and holds them harmless against any loss, liability or expense arising out of, or in connection with, any actions taken pursuant to this power of attorney.
6.1For the purposes of this Agreement, time is of the essence.
6.2The parties hereto shall execute and deliver all such further documents and instruments and do all such acts and things as may, either before or after the execution of this Agreement, be reasonably required to carry out the full intent and meaning of this Agreement.
6.3The Purchaser hereby authorizes the Company to correct any minor errors in, or complete any minor information missing from, any document which has been executed by the Purchaser and delivered to the Company with respect to this subscription.
TO BE COMPLETED BY THE PURCHASER:
A. Subscription Amount
Subscription Funds: Cdn.$_________________ for Series 1, Class A shares at $10.00 per share.
B. Name and Address (Note: Cannot be a U.S. Address) The name and address (to establish the Purchaser's jurisdiction of residence for the purpose of determining the applicable Securities Rules) of the Purchaser is as follows:
City, Province, Country, Postal Code
NOTE: An e-mail address is required as part of this subscription.
All types of shareholder communications will only be available by e-mail.
It is the investors’ responsibility to update this e-mail address if it changes by e-mailing email@example.com
C. Registration Instructions (Note: Cannot be a U.S. Address) The name and address of the person in whose name the Purchaser's securities are to be registered is as follows (if the name and address is the same as was inserted in paragraph C above, then insert "see C above"):
City, Province, Country, Postal Code
NOTE: An e-mail address is required as part of this subscription.
All types of shareholder communications will only be available by e-mail.