Digifonica
International Corp. (f/k/a Moliris Corp.)
Suite 1424 — 4710 Kingsway,
Burnaby, BC
V5H 2M2
Re: Private
Placement of Units
Loewen Ondaatje
McCutcheon Limited (the “ Agent ”) understands
that:
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(a)
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Digifonica International Corp., a
Florida corporation formerly known as Moliris Corp. (the “
Corporation ”) is authorized to issue, among other
things, 50,000,000 Common Shares and 1,000,000 Class B Shares
(each as hereinafter defined);
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(b)
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as
at August 1, 2006, 22,548,600 Common Shares and no
Class B Shares were outstanding as fully paid and
non-assessable shares and as at August 1, 2006, no Common
Shares or Class B Shares were reserved for issuance pursuant
to outstanding options, warrants, share incentive plans,
convertible, exercisable and exchangeable securities and other
rights to acquire Common Shares (as hereinafter
defined);
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(c)
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the
Corporation is prepared to issue and sell up to 2,500,000 Units (as
hereinafter defined), at a price of US$2.00 per Unit, each Unit
consisting of one Common Share and one half of one warrant (each
whole warrant a “ Warrant ”), and each Warrant
being exercisable to acquire one Common Share at an exercise price
of US$2.50 per Common Share for a period of 12 months after
the Closing Date (as hereinafter defined), or at an exercise price
of US$3.00 per Common Share for a period of 13 to 24 months
after the Closing Date for maximum aggregate gross proceeds of
US$5,000,000 on the terms and subject to the conditions contained
hereinafter. For greater certainty, the Purchase Price of US$2.00
per Unit will be allocated as to US$1.99 to the Common Share and as
to US$.01 to the one half of one Warrant; and
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(d)
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In
addition, if a Going Public Transaction (as hereinafter defined) is
not completed within 9 months following the Closing Date (the
“ Penalty Date ”) the Corporation shall issue
additional Common Shares (“ Penalty Shares ”)
equal to 10% of the dollar value of the Common Shares (with the
Common Shares being valued at US$1.99 per Common Share) each
Purchaser (as hereinafter defined) initially purchased in the
Offering. Such Penalty Shares will be issued as liquidated damages
for the delay to complete such listing or quotation and obtain such
reporting issuer status.
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Based upon the
understanding of the Agent set out above and upon the terms and
subject to the conditions contained hereinafter, upon the
acceptance hereof by the Corporation, the Corporation hereby
appoints
the Agent to
act as the sole and exclusive agent of the Corporation to solicit,
on a best efforts basis, offers to purchase the Offered Securities
(as hereinafter defined), and the Agent hereby agrees to act as
such agent. It is understood and agreed that the Agent is under no
obligation to purchase any of the Offered Securities, although the
Agent may subscribe for and purchase Offered Securities if it so
desires.
The terms and
conditions of this Agreement are as follows:
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1.
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Definitions, Interpretation and
Schedules
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(a)
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Definitions : Whenever used in this
Agreement:
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(i)
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“ 1933 Act ”
means the Securities Act of 1933 (United States), as
amended;
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(ii)
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“ Agent ” means
Loewen Ondaatje McCutcheon Limited;
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(iii)
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“ Agreement ”
means the agreement resulting from the acceptance by the
Corporation of the offer made by the Agent herein, including the
Schedules attached hereto, as amended or supplemented from time to
time;
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(iv)
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“ Ancillary Documents
” means all agreements, certificates (including the Warrant
Certificates and the Broker Warrant Certificate) and documents
executed and delivered, or to be executed and delivered, by the
Corporation in connection with the transactions contemplated by
this Agreement or the Subscription Agreements and includes the
Subscription Agreements;
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(v)
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“ Auditor ” means
HLB Cinnamon Jang Willoughby, LLP, the auditors of the
Corporation;
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(vi)
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“ Broker Shares ”
means the Common Shares which may be issued on the exercise of the
Broker Warrant;
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(vii)
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“ Broker Warrant
” means the non-transferable broker warrant which will
entitle the Agent to acquire Common Shares equal in number to 7% of
the number of Offered Securities sold at any time commencing on the
Closing Date and continuing until the date which is 12 months
after the date on which the Common Shares issuable upon the
exercise of the Broker Warrant may first be publicly resold by the
Agent in Canada or the United States at an exercise price that is
equal to the issuance price of each Unit sold under the
Offering;
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(viii)
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“ Broker Warrant
Certificate ” means the certificate representing the
Broker Warrant;
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(ix)
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“ Business Day ”
means a day which is not a Saturday, Sunday or a statutory or civic
holiday in the City of Toronto, Province of Ontario;
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(x)
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“ Class B Shares
” means the shares of Class B Common Stock, no par
value, that the Corporation is authorized to issue as constituted
on the date hereof;
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(xi)
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“ Closing ” means
the purchase and sale of the Offered Securities subscribed for by
the Purchasers pursuant to the Subscription Agreements;
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(xii)
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“ Closing Date ”
means August 9, 2006 or such other date as the Corporation and
the Agent may mutually agree upon in writing;
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(xiii)
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“ Closing Time ”
means 2:00 p.m. (Toronto time) on the Closing Date or such other
time on the Closing Date as the Corporation and the Agent may
mutually agree upon in writing;
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(xiv)
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“ Common Shares ”
means the shares of Class A Common Stock, par value $0.001 per
share, that the Corporation is authorized to issue as constituted
on the date hereof;
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(xv)
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“ Corporation ”
means Digifonica International Corp., a corporation incorporated
under the laws of the State of Florida, and includes any successor
corporation thereto;
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(xvi)
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“ Directed Selling
Efforts ” means “directed selling efforts” as
defined in Regulation S;
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(xvii)
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“ Exchange Act ”
means the Securities Exchange Act of 1934 (United States),
as amended.
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(xviii)
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“ General Solicitation or
General Advertising ” means “general solicitation
or general advertising” as used in Rule 502(c) of
Regulation D;
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(xix)
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“ Going Public
Transaction ” means a public offering of Common Shares
pursuant to a prospectus filed and receipted under the Ontario Act
or similar document filed under applicable securities laws in one
or more of the provinces in Canada which results in the Corporation
becoming a reporting issuer in a province of Canada and an
effective registration statement filed with the SEC, and which
results in the Common Shares of the Corporation (or the securities
of a successor issuer) being listed and posted for trading on the
Toronto Stock Exchange, Tier 1 or Tier 2 of the TSX Venture
Exchange, NASDAQ or American Stock Exchange;
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(xx)
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“ Material Adverse
Effect ” means any adverse change or effect that,
individually or when taken together with all other such changes or
effects, would be materially adverse to the condition (financial or
otherwise), results of operations, business, properties, prospects,
assets or liabilities (contingent or otherwise) of the Corporation
or any Subsidiary.
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(xxi)
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“ Offered Securities
” means up to 2,500,000 Units to be issued and sold at the
Purchase Price under the Offering;
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(xxii)
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“ Offering ”
means the offering for sale by the Corporation on a private
placement basis of the Offered Securities;
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(xxiii)
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“ Offering
Jurisdictions ” means the Provinces of British Columbia,
Alberta, Ontario, the United States and the states and territories
thereof and such other provinces and territories of Canada and
other jurisdictions as may be mutually agreed upon by the Agent and
the Corporation where the Offered Securities are offered to
prospective purchasers or those provinces, territories or other
jurisdictions where Purchasers reside, as the context permits or
requires;
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(xxiv)
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“ Ontario Act ”
means the Securities Act (Ontario) and the regulations
thereunder, together with the instruments, policies, rules, orders,
codes, notices and interpretation notes of the Ontario Securities
Commission, as amended, supplemented or replaced from time to
time;
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(xxv)
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“ Penalty Date ”
has the meaning ascribed thereto in paragraph (d) of the first
page of this Agreement;
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(xxvi)
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“ Penalty Shares
” has the meaning ascribed thereto in paragraph (d) of
the first page of this Agreement;
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(xxvii)
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“ Person ” means
an individual, a firm, a corporation, a syndicate, a partnership, a
trust, an association, an unincorporated organization, a joint
venture, an investment club, a government or an agency or political
subdivision thereof and every other form of legal or business
entity of any nature or kind whatsoever;
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(xxviii)
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“ Purchase Price
” means the price to be paid by the Purchasers for each
Offered Security under the Offering, being US$2.00 per
Unit;
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(xxix)
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“ Purchasers ”
means the purchasers of the Offered Securities
collectively;
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(xxx)
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"
Regulation D ” means Regulation D
promulgated under the 1933 Act;
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(xxxi)
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"
Regulation S ” means Regulation S
promulgated under the 1933 Act;
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(xxxii)
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"
SEC ” means the United States Securities and Exchange
Commission.
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(xxxiii)
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“ SEC Filings ”
means all filings of the Corporation with the SEC pursuant to
United States Securities Laws, including without limitation any
registration statements, proxy or information statements, annual
reports on Form 10-KSB, quarterly reports on Form 10-QSB and
current reports on Form 8-K.
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(xxxiv)
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“ Securities
Commissions ” means the securities regulatory authorities
of the Offering Jurisdictions collectively, as the case may
be;
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(xxxv)
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“ Securities Laws
” means the securities legislation and regulations of, and
the instruments, policies, rules, orders, codes, notices and
interpretation notes of the securities regulatory authorities of,
the applicable jurisdiction or jurisdictions
collectively;
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(xxxvi)
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“ Subject Shares
” means the Unit Shares, the Warrant Shares, the Broker
Shares and the Penalty Shares collectively;
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(xxxvii)
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“ Subscription
Agreements ” means the subscription agreements to be
entered into between the Corporation and Purchasers with respect to
the purchase of the Units;
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(xxxviii)
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“ Subsidiaries ”
means, collectively, Digifonica (International) Limited, a
corporation organized under the laws of Gibraltar; Digifonica
Intellectual Properties Limited, a corporation organized under the
laws of Gibraltar; Digifonica Canada Limited, a corporation
organized under the laws of Canada; Shenzen Sino-Can
Inter-Communication Technology Limited, a corporation organized
under the laws of the Peoples Republic of China; Moliris Corp., a
Texas corporation; and Moliris Packaging Corp., a Texas
corporation;
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(xxxix)
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“ Unit Shares ”
means the Common Shares comprising part of the Units;
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(xl)
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“ United States ”
means the “United States” as defined in
Regulation S;
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(xli)
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“ Units ” means
the units of the Corporation being offered for sale by the Agent
under the Offering, each Unit being comprised of one Unit Share and
one-half of one Warrant;
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(xlii)
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“ U.S. Accredited
Investor ” means an “accredited investor” as
defined in Rule 501(a) of Regulation D;
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(xliii)
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U.S. Person ” means a “U.S. person” as
defined in Regulation S;
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(xliv)
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Warrant Certificates ” means the certificates
representing the Warrants;
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(xlv)
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“ Warrant Shares
” means the Common Shares which may be issued upon the
exercise of the Warrants; and
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(xlvi)
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“ Warrants ”
means the warrants of the Corporation, one-half of one Warrant
comprising part of each Unit, with each whole Warrant to entitle
the holder thereof to acquire one Warrant Share at any time from
the date of issuance of the Warrants until 5:00 p.m. (Toronto time)
on the date which is 24 months after the Closing Date, at an
exercise price of US$2.50 per Warrant Share for 12 months from
the Closing Date and $3.00 for a period of 13 to 24 months
after the Closing Date.
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(xlvii)
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Other Defined Terms
: Whenever used in this
Agreement, the words and terms “affiliate”,
“associate”, “material fact”,
“material change”, “misrepresentation”,
“senior officer” and “subsidiary” shall
have the meaning given to such word or term in the Ontario Act
unless specifically provided otherwise herein.
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(b)
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Headings : The section headings contained in
this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way
affect the meaning or interpretation of this Agreement.
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(c)
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Usage : The term “or” will not
be interpreted as excluding any of the items described. The term
“include” or any derivative of such term does not mean
that the items following such term are the only types of such
items.
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(d)
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Plural and Gender
: Whenever used in this
Agreement, words importing the singular number only shall include
the plural and vice versa and words importing the masculine
gender shall include the feminine gender and neuter.
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(e)
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Drafting : The language in all parts of this
Agreement shall be interpreted, in all cases, according to its fair
meaning.
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(f)
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Currency : All references to monetary amounts
in this Agreement are to United States dollars.
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(g)
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Schedules : The following Schedules are
attached to this Agreement and are hereby incorporated by reference
into and made a part of this Agreement for all purposes:
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Schedule
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Title
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Officers’
Certificate
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Agent’s
Certificate
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2.
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The Offered
Securities
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(a)
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Offered Securities
: The Offered Securities
are up to 2,500,000 Units, each Unit comprised of one Common Share
and one-half of one Warrant .
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(b)
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The Warrants : The terms and conditions, and the
material attributes and characteristics, of the Warrants shall be
satisfactory to the Corporation and the Agent and consistent with
the provisions of this Agreement. Such terms and conditions, and
material attributes and characteristics, will be contained in the
Warrant Certificates, which will contain, among other things,
anti-dilution provisions and provisions for the appropriate
adjustment in the class and number of Warrant Shares or other
securities to be received on the exercise of Warrants upon the
occurrence of any subdivision, consolidation or reclassification of
the Common Shares or any payment of dividends or the amalgamation
of, or other reorganization involving, the Corporation. Subject to
adjustment in accordance with the provisions of the Warrant
Certificates, each whole Warrant shall entitle the holder thereof
to purchase one Warrant Share at any time commencing on the Closing
Date and prior to 5:00 p.m. (Toronto time) on the date which is
12 months after the Closing Date at an exercise price of
US$2.50 per Warrant Share, or on the date which is 13 to
24 months after the Closing Date, at an exercise price of
US$3.00 per Warrant Share.
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(a)
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Sale on Exempt Basis
: The Agent will use its
best efforts to arrange for Purchasers in the Offering
Jurisdictions. The Agent shall offer for sale on behalf of the
Corporation the Offered Securities in the Offering Jurisdictions in
compliance with the Securities Laws of the Offering Jurisdictions
and only to such Persons and in such manner so that, pursuant to
the provisions of the Securities Laws of the Offering
Jurisdictions, no prospectus, registration statement or offering
memorandum or other similar document need be filed with, or
delivered to, any Securities Commission in any Offering
Jurisdiction in connection therewith. The Agent shall offer the
Units for sale on behalf of the Corporation in the United States
only through the Agent , pursuant to an exemption from the
registration requirements of the 1933 Act, in compliance with
applicable state Securities Laws and in accordance with section 10
hereof.
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(b)
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Agency Group : The Corporation agrees that,
subject to the consent of the Corporation, such consent not to be
unreasonably withheld, the Agent has the right to invite one or
more investment dealers to form an agency group to participate in
the soliciting of offers to purchase the Offered Securities. The
Agent shall have the exclusive right to control all compensation
arrangements between the members of the agency group; provided,
however , that the Agent hereby acknowledges and agrees that
the Corporation shall be obligated only to the Agent with respect
to commissions owed by the Corporation pursuant to this Agreement,
and the Agent hereby covenants and agrees to protect, indemnify and
save harmless the Corporation and each Subsidiary from and against
all claims of any member of the agency group other than the Agent
for any fees, commissions or other compensation pursuant to this
Agreement. The Corporation grants all of the rights and benefits of
this Agreement to any investment dealer who is a member of any
agency group formed by the Agent and appoints the Agent as trustee
of such rights and benefits for all such investment dealers, and
the Agent hereby accepts such trust and agrees to hold such rights
and benefits for and on behalf of all such investment dealers. The
Agent shall ensure that any investment dealer who is a member of
any agency group formed by the Agent pursuant to the provisions of
this subsection 3(b) or with whom the Agent has a contractual
relationship with respect to the Offering, if any, agrees with the
Agent to comply with the covenants and obligations given by the
Agent herein.
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(c)
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Covenants of the Agent
: The Agent covenants
with the Corporation that (i) it will comply with the
Securities Laws of the Offering Jurisdictions in which it solicits
or procures subscriptions for Offered Securities in connection with
the Offering, (ii) it will not solicit or procure
subscriptions for Offered Securities so as to require the
registration thereof or the filing of a prospectus with respect
thereto under the laws of any jurisdiction, and (iii) it will
obtain from each Purchaser an executed subscription agreement in a
form acceptable to the Corporation and the Agent, acting
reasonably. The Agent represents and warrants that it is, and, to
the best of its knowledge, each member of any agency group formed
by the Agent is, qualified so to act in the Offering Jurisdictions
in which such member solicits or procures subscriptions for the
Offered Securities.
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(d)
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Filings : The Corporation undertakes to file
or cause to be filed all forms and undertakings required to be
filed by the Corporation in connection with the Offering
so
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that the distribution of the Offered
Securities may lawfully occur in the Offering Jurisdictions without
the necessity of filing a prospectus or an offering memorandum in
Canada and the Agent undertakes to use commercially reasonable
efforts to cause the Purchasers of the Offered Securities to
complete (and it shall be a condition of closing in favour of the
Corporation that the Purchasers complete and deliver to the
Corporation) any forms and undertakings required by the Securities
Laws of the Offering Jurisdictions. All fees payable in connection
with such filings shall be at the expense of the
Corporation.
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(e)
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No Offering Memorandum
: Neither the
Corporation nor the Agent shall (i) provide to prospective
purchasers of Offered Securities any document or other material
that would constitute an offering memorandum within the meaning of
the Securities Laws of the Offering Jurisdictions or
(ii) engage in any form of General Solicitation or General
Advertising in connection with the offer and sale of the Offered
Securities, including but not limited to, causing the sale of the
Offered Securities to be advertised in any newspaper, magazine,
printed public media, printed media or similar medium of general
and regular paid circulation, broadcast over radio, television or
telecommunications, including electronic display or the Internet,
or otherwise, or conduct any seminar or meeting relating to any
offer and sale of the Offered Securities whose attendees have been
invited by a General Solicitation or General
Advertising.
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4.
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Due Diligence
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The
Corporation shall allow the Agent to conduct all due diligence
investigations, including meeting with senior management of the
Corporation and the Auditor, as the Agent shall consider
appropriate in connection with the Offering.
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5.
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Deliveries By Closing
Time
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(a)
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Deliveries : By the Closing Time:
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(i)
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all
actions required to be taken by or on behalf of the Corporation
including, without limitation, the passing of all required
resolutions of the directors, including committees of the
directors, and shareholders of the Corporation, shall have occurred
in order to complete the transactions contemplated by this
Agreement and the Subscription Agreements, including, without
limitation, to issue the Unit Shares, to create and issue the
Warrants and the Broker Warrant and to reserve for issuance and
conditionally issue the Warrant Shares, the Broker Shares and the
Penalty Shares, and a certified copy of all such resolutions shall
have been delivered by the Corporation to the Agent;
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(ii)
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the
Corporation shall have delivered or caused to be delivered to the
Agent:
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A.
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a
favourable legal opinion of Hughes & Luce, L.L.P., U.S. counsel
to the Corporation, addressed to, among others, the Agent and the
Purchasers with respect to, among other things, the issuance of the
Unit Shares and the Warrants and the exercise of the Warrants and
such other matters as the Agent may reasonably require,
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B.
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a
certificate dated the Closing Date signed by an appropriate officer
of the Corporation and addressed to, among others, the Agent and
the Purchasers with respect to the articles and by-laws of the
Corporation, the resolutions of the directors and shareholders, if
any, of the Corporation and any other corporate action taken
relating to this Agreement and the Ancillary Documents and with
respect to such other matters as the Agent may reasonably request
and including specimen signatures of the signing officers of the
Corporation,
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C.
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a
certificate dated the Closing Date addressed to, among others, the
Agent and the Purchasers signed by the chief executive officer and
the chief financial officer of the Corporation or any two other
senior officers of the Corporation acceptable to the Agent
substantially in the form of the certificate attached hereto as
Schedule A ,
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D.
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a
Subscription Agreement from each Purchaser accepted and executed by
the Corporation,
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E.
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definitive certificates representing
the Offered Securities registered in the names of the Purchasers or
in such other name or names as the Purchasers may
direct,
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F.
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a
definitive certificate representing the Broker Warrant registered
in the name of the Agent or in such other name or names as the
Agent may direct, and
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G.
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such further documents as may be
contemplated by this Agreement or as the Agent may reasonably
require,
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all in form and
substance reasonably satisfactory to the Agent;
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(iii)
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the
Agent shall have delivered or cause to be delivered to the
Corporation
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A.
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payment of the aggregate Purchase
Price for the Units purchased by the Purchasers of Units net of
(i) the commission payable by the Corporation to the Agent as
provided in section 7 of this Agreement and (ii) the expenses
payable by the Corporation to the Agent as provided in section 13
of this Agreement by cheque or bank draft payable to the
Corporation against delivery from the Corporation to the Agent of a
receipt for the aggregate net Purchase Price for such Units,
and
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B.
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such further documents as may be
contemplated by this Agreement or as the Corporation may reasonably
require,
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all in form and
substance satisfactory to the Corporation.
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(a)
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Closing : The Closing shall be completed at
the offices of counsel for the Agent at the Closing Time on the
Closing Date.
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(b)
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Conditions of Closing
: The following are
conditions precedent to the obligation of the Agent to complete the
Closing and of the Purchasers to purchase the Offered Securities,
which conditions the Corporation hereby covenants and agrees to use
its best efforts to fulfill within the time set out herein
therefor, and which conditions may be waived in writing in whole or
in part by the Agent:
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(i)
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the
Corporation shall have received all necessary approvals and
consents, including all necessary regulatory approvals and consents
required for the completion of the transaction contemplated by this
Agreement, all in a form reasonably satisfactory to the
Agent;
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(ii)
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receipt by the Agent of the
documents set forth in section 5 of this Agreement to be delivered
to the Agent;
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(iii)
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the
representations and warranties of the Corporation contained herein
being true and correct as of the Closing Time with the same force
and effect as if made at and as of the Closing Time after giving
effect to the transactions contemplated hereby;
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(iv)
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the
Corporation having complied with all covenants, and satisfied all
terms and conditions, contained herein to be complied with and
satisfied by the Corporation at or prior to the Closing Time;
and
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(v)
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the
Agent not having previously terminated its obligations pursuant to
this Agreement.
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(a)
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Commission : In consideration of the agreement
of the Agent to act as agent of the Corporation in respect of the
Offering, and in consideration of the services performed and to be
performed by the Agent in connection therewith, including, without
limitation:
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(i)
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acting as agent of the Corporation
to solicit, on a best efforts basis, offers to purchase the Offered
Securities;
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(ii)
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participating in the preparation of
the form of the Subscription Agreements and certain of the
Ancillary Documents; and
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(iii)
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advising the Corporation with
respect to the private placement of the Offered
Securities;
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the Corporation
shall pay to the Agent or as the Agent may otherwise direct at the
Closing Time against receipt of payment of the purchase price for
the Offered Securities, a fee of 7% of the aggregate Purchase Price
for the Offered Securities.
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(b)
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Taxes: The Corporation and the Agent
acknowledge and agree that if a separate fee would have been
charged to the Corporation for the services described in clause
7(a)(i) above, such separate fee would represent more than 50% of
the fee payable to the Agent, and the Corporation hereby further
acknowledges and agrees that the Agent will rely on the foregoing
statement in not charging federal goods and services tax on such
fee and that the Corporation will forthwith pay to the Agent any
such tax and any applicable interest and penalties to the extent
determined to be exigible.
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(c)
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Broker Warrant
: In addition to the
commission payable to the Agent pursuant to subsection 7(a) hereof,
as additional consideration for the services performed and to be
performed by the Agent hereunder, the Corporation shall issue to
the Agent or as the Agent may otherwise direct at the Closing Time
the Broker Warrant, in form and substance reasonably satisfactory
to the Agent.
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8.
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Representations and
Warranties
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The
Corporation hereby represents and warrants to the Agent and the
Purchasers, and acknowledges that the Agent and the Purchasers are
relying upon each of such representations and warranties in
completing the Closing, as follows:
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(a)
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Incorporation and
Organization : The Corporation and each
Subsidiary is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, and has all
requisite corporate power and authority to carry on its business as
now conducted or proposed to be conducted and to own or lease and
operate its property and assets.
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(b)
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Authority and
Authorization : The Corporation has all requisite
corporate power and authority to enter into, execute and deliver
this Agreement and the Ancillary Documents and to do all acts and
things and execute and deliver all documents as are required to
carry out its obligations hereunder and thereunder, and the
Corporation has taken all necessary corporate action to authorize
the execution, delivery and performance of this Agreement and the
Ancillary Documents and to observe and perform the provisions
hereof and thereof in accordance with the provisions hereof and
thereof including, without limitation, the issuance of the Offered
Securities to the Purchasers for the consideration and upon the
terms and conditions set forth herein and the issuance of the
Warrant Shares for the consideration and upon the terms and
conditions set forth in the Warrant Certificates.
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(c)
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Validity and
Enforceability : This Agreement and each of the
Subscription Agreements has been duly authorized, executed and
delivered by the Corporation and, assuming the due authorization,
execution and delivery of each other party thereto, constitutes a
valid and legally binding obligation of the Corporation, and upon
being executed and delivered the Warrant Certificates will
constitute valid and legally binding obligations of the
Corporation, each enforceable against the Corporation in accordance
with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance or similar
laws affecting the enforcement of creditors’ rights generally
and subject to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in
equity).
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(d)
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Extra-provincial
Registration : The Corporation and each
Subsidiary is licensed, registered or qualified as an
extra-provincial or foreign corporation in all jurisdictions where
the character of its property or assets owned or leased or the
nature of the activities conducted by it make licensing,
registration or qualification necessary and is carrying on its
business in compliance with all applicable laws, rules and
regulations of each such jurisdiction.
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(e)
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Authorized Capital
: The Corporation is
authorized to issue, among other things, 50,000,000 Common Shares
and 1,000,000 Class B Shares, of which, as of August 1,
2006, 22,548,600 Common Shares and no Class B Shares were
issued and outstanding as fully paid and non-assessable
shares.
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(f)
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Rights to Acquire
Securities :
Except as disclosed in the SEC Filings, no Person has any
agreement, option, right or privilege (whether pre-emptive,
contractual or otherwise) capable of becoming an agreement for the
purchase, acquisition, subscription for or issuance of any of the
unissued shares or other securities of the Corporation. As at
December 31, 2005, an aggregate of 1,315,000 Common Shares
were issuable pursuant to outstanding warrants to acquire Common
Shares.
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(g)
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No Pre-emptive Rights
: The issuance of the
Offered Securities will not be subject to any pre-emptive right or
other contractual right to purchase securities granted by the
Corporation or to which the Corporation is subject.
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(h)
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Offered Securities
: Assuming that the
acknowledgements, representations and covenants of each Purchaser
as described in the Subscription Agreement are true, the execution
of this Agreement and the Subscription Agreement and the issuance
by the Corporation to the Purchasers of the Offered Securities will
be exempt from the registration and prospectus requirements of the
Securities Laws of the Offering Jurisdictions.
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(i)
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Subsidiaries : The Subsidiaries are the only
subsidiaries of the Corporation.
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(j)
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Capital of Subsidiaries
: All of the outstanding
shares of the Subsidiaries are issued and outstanding as fully paid
and non-assessable shares and are legally and beneficially owned by
the Corporation, and, except as disclosed in the SEC Filings, no
Person has any agreement, option, right or privilege (whether
pre-emptive, contractual or otherwise) capable of becoming an
agreement for the purchase, acquisition, subscription for or
issuance of any of the unissued shares or other securities of any
of the Subsidiaries or for the purchase or acquisition of any of
the outstanding shares or other securities of any of the
Subsidiaries.
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(k)
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Issuance of Offered
Securities :
All necessary corporate action has been taken to authorize the
issuance and sale of, and the delivery of certificates
representing, the Offered Securities and, upon payment of the
requisite consideration therefor, the Unit Shares will be validly
issued as fully paid and non-assessable shares and the Warrants
will be validly issued and, upon the issuance thereof, the Warrant
Shares will be validly issued as fully paid and non-assessable
shares.
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(l)
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Issuance of Penalty
Shares: All
necessary corporation action has been taken to authorize the
issuance and sale of, and the delivery of certificates
representing, the Penalty Shares and, upon the issuance thereof, if
applicable, the Penalty Shares will be validly issued as fully paid
and non-assessable shares
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(m)
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Consents, Approvals and
Conflicts :
None of the offering and sale of the Offered Securities, the
execution and delivery of this Agreement or the Ancillary
Documents, the compliance by the Corporation with the provisions of
this Agreement and the Ancillary Documents or the consummation of
the transactions contemplated herein and therein including, without
limitation, the issuance of the Offered Securities to the
Purchasers for the consideration and upon the terms and conditions
as set forth herein and the issuance of the Warrant Shares for the
consideration and upon the terms and conditions set forth in the
Warrant Certificates, do or will (i) require the consent,
approval, or authorization, order or agreement of, or registration
or qualification with, any governmental agency, body or authority,
court, stock exchange, securities regulatory authority or other
Person, except (A) such as have been obtained; (B) such
as may be required under the Securities Laws of the Offering
Jurisdictions and will be obtained by the Closing Date; or
(C) such as the failure to obtain would not reasonably be
expected to result in a Material Adverse Effect, or
(ii) conflict with or result in any breach or violation of any
of the material provisions of, or constitute a material default
under, any indenture, mortgage, deed of trust, lease or other
agreement or instrument to which the Corporation or any Subsidiary
is a party or by which any of them or any of their respective
properties or assets is bound, or the articles or by-laws or any
other constating document of the Corporation or any Subsidiary or
any resolution passed by the directors (or any committee thereof)
or shareholders of the Corporation or any Subsidiary, or any
statute or any judgment, decree, order, rule, policy or regulation
of any court, governmental authority, arbitrator, stock exchange or
securities regulatory authority applicable to the Corporation or
any Subsidiary or any of their respective properties or assets
which would be reasonably expected to result in a Material Adverse
Effect.
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(n)
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Broker Warrant
:
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(i)
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The
Corporation has all requisite corporate power and authority to
issue the Broker Warrant and to enter into, execute and deliver and
to carry out its obligations under the Broker Warrant
Certificate.
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(ii)
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All
necessary corporate action has been taken to authorize the issuance
of the Broker Warrant and, upon the issuance thereof, the Broker
Warrant will be validly issued. All necessary corporate action has
been taken to authorize the creation, execution, delivery and
performance of the Broker Warrant Certificate and to observe and
perform the provisions of the Broker Warrant Certificate in
accordance with the provisions thereof including, without
limitation, the issuance of the Broker Shares for the consideration
and upon the terms and conditions set forth in the Broker Warrant
Certificate.
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(iii)
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Upon being executed and delivered
the Broker Warrant Certificate will constitute a valid and legally
binding obligation of the Corporation enforceable against the
Corporation in accordance with its terms, except as such
enforceability may be
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limited by applicable bankruptcy,
insolvency, fraudulent conveyance or similar laws affecting the
enforcement of creditors’ rights generally and subject to
general principles of equity (regardless of whether enforcement is
sought in a proceeding at law or in equity).
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(iv)
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None of the issuance of the Broker
Warrant, the execution and delivery of the Broker Warrant
Certificate, the compliance by the Corporation with the provisions
of the Broker Warrant Certificate or the consummation of the
transactions contemplated therein including, without limitation,
the issuance of the Broker Shares for the consideration and upon
the terms and conditions set forth in the Broker Warrant
Certificate, do or will (i) require the consent, approval, or
authorization, order or agreement of, or registration or
qualification with, any governmental agency, body or authority,
court, stock exchange, securities regulatory authority or other
Person, except (A) such as have been obtained; (B) such
as may be required under the Securities Laws of the Offering
Jurisdictions and will be obtained by the Closing Date; or (C) such
as the failure to obtain would not reasonably be expected to result
in a Material Adverse Effect, or (ii) conflict with or result
in any breach or violation of any of the material provisions of, or
constitute a material default under, any indenture, mortgage, deed
of trust, lease or other agreement or instrument to which the
Corporation is a party or by which it or any of its properties or
assets is bound, or the articles or by-laws of the Corporation or
any resolution passed by the directors (or any committee thereof)
or shareholders of the Corporation, or any statute or any judgment,
decree, order, rule, policy or regulation of any court,
governmental authority, any arbitrator, stock exchange or
securities regulatory authority applicable to the Corporation or
any of its properties or assets which could reasonably be expected
to have a Material Adverse Effect.
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(v)
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None of the issuance of the Broker
Warrant or the Broker Shares will be subject to any pre-emptive
right or other contractual right to purchase securities granted by
the Corporation or to which the Corporation is subject.
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(o)
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Accounting Controls
: The Corporation
maintains a system of internal accounting controls and procedures
in compliance with United States Securities Laws, as described in
the SEC Filings.
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(p)
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Financial Statements
: The audited financial
statements of the Corporation for the year ended December 31,
2005, together with the auditors’ report thereon and the
notes thereto, and the unaudited interim financial statements of
the Corporation for the period ended March 31, 2006 and the
notes thereto, have been prepared in accordance with United States
generally accepted accounting principles applied on a basis
consistent with prior periods (except as disclosed in such
financial statements or the notes thereto), are substantially
correct in every material respect and present fairly the financial
condition and position of the Corporation as at the dates thereof,
and such financial statements contain no direct or implied
statement of a material fact which is untrue on the date of such
financial statements and do not omit to state any material fact
which is required by United States generally accepted accounting
principles or by applicable law to be stated
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or
reflected therein or which is necessary to make the statements
contained therein not misleading in light of the circumstances
under which they were made.
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(q)
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Changes in Financial
Position :
Since March 31, 2006, except as disclosed in the SEC Filings,
neither the Corporation nor any Subsidiary has (i) paid or
declared any dividend or incurred any material capital expenditure
or made any commitment therefor; (ii) incurred any obligation
or liability, direct or indirect, contingent or otherwise, except
in the ordinary course of business and which is not, and which in
the aggregate are not, material; or (iii) entered into any
material transaction.
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(r)
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Insolvency : Except as disclosed in the SEC
Filings, neither the Corporation nor any of the Subsidiaries has
committed an act of bankruptcy or sought protection from its
creditors before any court or pursuant to any legislation, proposed
a compromise or arrangement to its creditors generally, taken any
proceeding with respect to a compromise or arrangement, taken any
proceeding to be declared bankrupt or wound up, taken any
proceeding to have a receiver appointed of any of its assets, had
any Person holding any encumbrance, lien, charge, hypothecation,
pledge, mortgage, title retention agreement or other security
interest or receiver take possession of any of its property, had an
execution or distress become enforceable or levied upon any portion
of its property or had any petition for a receiving order in
bankruptcy filed against it.
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(s)
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No Contemplated Changes
: Except as disclosed in
the SEC Filings, neither the Corporation nor any Subsidiary has
approved, is contemplating, has entered into any agreement in
respect of, or has any knowledge of:
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(i)
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the
purchase of any material property or assets or any interest therein
or the sale, transfer or other disposition of any property or
assets or any interest therein currently owned, directly or
indirectly, by the Corporation or any Subsidiary whether by asset
sale, transfer of shares or otherwise, except sales of inventory or
obsolete equipment in the ordinary course of business and
consistent with past practice;
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(ii)
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the
change of control (by sale or transfer of shares or sale of all or
substantially all of the property and assets of the Corporation or
any Subsidiary or otherwise) of the Corporation or any Subsidiary;
or
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(iii)
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a
proposed or planned disposition of shares by any shareholder who
owns, directly or indirectly, 10% or more of the outstanding
capital stock of the Corporation or any Subsidiary.
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(t)
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Insurance : The assets, business and
operations of the Corporation and of each Subsidiary are insured
against loss or damage with responsible insurers on a basis
consistent with insurance obtained by reasonably prudent
participants in a comparable business in comparable circumstances,
such
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