Securities Purchase Agreement
 

PerfectEnergy International Limited
7401 Springbank Blvd., Suite 3
Calgary, Alberta T3H 5R2

 
The undersigned (the “Investor”) hereby confirms its agreement with you as
follows:
 
1.  This Securities Purchase Agreement is made as of the date set forth below
between PerfectEnergy International Limited, a Nevada corporation (the
“Company”), and the Investor.
 
2.  The Company has authorized the sale and issuance of up to [______________]
shares (the “Shares”) of the Common Stock of the Company, par value $0.001 per
share (the “Common Stock”), to certain investors in a private placement, along
with warrants (the “Warrants”) to purchase up to _________ shares (the “Warrant
Shares”) of Common Stock at an exercise price of $________ (the “Offering”).
 
3.  The Company and the Investor agree that the Investor will purchase from the
Company and the Company will issue and sell to the Investor ___________ Shares
at a purchase price of $[_______] per Share, along with Warrants to purchase
_____ Shares for an aggregate purchase price of $____________________ (the
“Purchase Price”), subject to the Terms and Conditions for Purchase of Shares
attached hereto as Annex I and incorporated herein by reference as if fully set
forth herein. Unless otherwise requested by the Investor in Exhibit A,
certificates representing the Shares purchased by the Investor and Warrants will
be registered in the Investor’s name and address as set forth below. The Company
and the Investor agree to enter into a registration rights agreement (the
“Registration Rights Agreement”) in the form of Exhibit B concurrently with the
execution of this Securities Purchase Agreement.
 
4.  The Investor represents that, except as set forth below, (a) it has had no
position, office or other material relationship within the past three years with
the Company or its affiliates, (b) neither it, nor any group of which it is a
member or to which it is related, beneficially owns (including the right to
acquire or vote) any securities of the Company, and (c) it has no direct or
indirect affiliation or association with any NASD, Inc. (“NASD”) member.
Exceptions:
 
(If no exceptions, write “none.” If left blank, response will be deemed to be
“none.”)

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Please confirm that the foregoing correctly sets forth the agreement between us
by signing in the space provided below for that purpose.
 

       
Dated as of: _________________, 2007
           
[Investor Name]
       
By:
   
 
Name:
 
 
Title:
             
Address:
         

 
 
AGREED AND ACCEPTED:

PERFECTENERGY INTERNATIONAL LIMITED

By:        Name:      Title:  

 
 
[SECURITIES PURCHASE AGREEMENT SIGNATURE PAGE]

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Annex I
 
Terms and Conditions for Purchase of Shares
 
1.  Agreement to Sell and Purchase the Shares; Subscription Date.
 
1.1  Purchase and Sale. At the Closing (as defined in Section 2), the Company
will sell to the Investor, and the Investor will purchase from the Company, upon
the terms and subject to the conditions set forth herein, and at the Purchase
Price, the number of Shares and Warrants described in paragraph 3 of the
Securities Purchase Agreement attached hereto (collectively with this Annex I
and the other exhibits attached hereto, this “Agreement”).
 
1.2  Other Investors. As part of the Offering, the Company proposes to enter
into Securities Purchase Agreements in the same form as this Agreement with
certain other investors (the “Other Investors”), and the Company expects to
complete sales of Shares to them. The Investor and the Other Investors are
sometimes collectively referred to herein as the “Investors,” and this
Agreement, the Registration Rights Agreement and the Securities Purchase
Agreements executed by the Other Investors are sometimes collectively referred
to herein as the “Agreements.” The Company may accept executed Agreements from
Investors for the purchase of Shares and Warrants commencing upon the date on
which the Company provides the Investors with the proposed purchase price per
Share and concluding upon the date (the “Subscription Date”) on which the
Company has notified Canaccord Adams or Knight Capital Markets LLC (each , in
its capacity as placement agent for the Shares, the “Placement Agent”) in
writing that it will no longer accept Agreements for the purchase of Shares in
the Offering, but in no event shall the Subscription Date be later than July
[___], 2007. Each Investor must execute and deliver a Securities Purchase
Agreement and a Registration Rights Agreement and must complete a Stock
Certificate Questionnaire (in the form attached as Exhibit A hereto) and an
Investor Questionnaire (in the form attached as Exhibit C hereto) in order to
purchase Shares and Warrants in the Offering.
 
1.3  Placement Agent Fee. The Investor acknowledges that the Company intends to
pay to the Placement Agents a fee, plus certain expenses, in respect of the sale
of Shares and Warrants to the Investor.
 
2.  Delivery of the Shares at Closing. The completion of the purchase and sale
of the Shares and Warrants (the “Closing”) shall occur on a date specified by
the Company and the Placement Agent (the “Closing Date”), which date shall not
be later than July [__], 2007 (the “Outside Date”), and of which the Investors
will be notified in advance by a Placement Agent. At the Closing, the Company
shall deliver to the Investor one or more stock certificates representing the
number of Shares set forth in paragraph 3 of the Securities Purchase Agreement,
each such certificate to be registered in the name of the Investor or, if so
indicated on the Stock Certificate Questionnaire attached hereto as Exhibit A,
in the name of a nominee designated by the Investor, along with a Warrant
registered in the same name. In exchange for the delivery of the stock
certificates representing such Shares and the Warrant , the Investor shall
deliver the Purchase Price to the Company by wire transfer of immediately
available funds pursuant to the Company’s written instructions. On the Closing
Date, the Company shall cause counsel to the Company to deliver to the Investors
and the Placement Agents a legal opinion, dated the Closing Date, substantially
in the form attached hereto as Exhibit D (the “Legal Opinion”).
 

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The Company’s obligation to issue and sell the Shares and Warrants to the
Investor shall be subject to the following conditions, any one or more of which
may be waived by the Company: (a) prior receipt by the Company of a copy of this
Agreement executed by the Investor; (b) completion of purchases and sales of
Shares and Warrants under the Agreements with the Other Investors; (c) the
accuracy of the representations and warranties made by the Investor in this
Agreement and the fulfillment of the obligations of the Investor to be fulfilled
by it under this Agreement on or prior to the Closing; and (d) the absence of
any order, writ, injunction, judgment or decree that questions the validity of
the Agreements or the right of the Company or the Investor to enter into such
Agreements or to consummate the transactions contemplated hereby and thereby.
 
The Investor’s obligation to purchase the Shares and Warrants shall be subject
to the following conditions, any one or more of which may be waived by the
Investor: (a) the completion of purchases and sales under the Agreements with
the Other Investors for an aggregate purchase price of not less than
[__________________ dollars ($_____________)]; (b) the delivery of the Legal
Opinion to the Investor by counsel to the Company; (c) the accuracy of the
representations and warranties made by the Company in this Agreement on the date
hereof and, if different, on the Closing Date; (c) the execution and delivery by
the Company of the Registration Rights Agreement, (d) the fulfillment of the
obligations of the Company to be fulfilled by it under this Agreement on or
prior to the Closing; (e) the absence of any order, writ, injunction, judgment
or decree that questions the validity of the Agreements or the right of the
Company or the Investor to enter into such Agreements or to consummate the
transactions contemplated hereby and thereby; and (f) the delivery to the
Investor by the Secretary or Assistant Secretary of the Company of a certificate
stating that the conditions specified in this paragraph have been fulfilled. In
the event that the Closing does not occur on or before the Outside Date as a
result of the Company’s failure to satisfy any of the conditions set forth above
(and such condition has not been waived by the Investor), the Company shall
return any and all funds paid hereunder to the Investor no later than one
Business Day following the Outside Date and the Investors shall have no further
obligations hereunder. For purposes of this Agreement, “Business Day” shall mean
any day other than a Saturday, Sunday or other day on which the New York Stock
Exchange or commercial banks located in New York, New York are permitted or
required by law to close.
 
3.  Representations, Warranties and Covenants of the Company. Except as
otherwise described in the Company’s Annual Report on Form 10-KSB for the year
ended October 31, 2006 filed on February 13, 2007 (and any amendments thereto
filed at least two (2) Business Days prior to the date hereof), the Company’s
Quarterly Reports on Form 10-QSB filed on March 26, 2007 and June 19, 2007 for
the quarterly periods ended January 31, 2007 and April 30, 2007, respectively,
or any of the Company’s Current Reports on Form 8-K filed since June 19, 2007
and at least two (2) Business Days prior to the date hereof (collectively, the
“SEC Reports”), the Company hereby represents and warrants to, and covenants
with, the Investor as of the date hereof and the Closing Date, as follows:
 
3.1  Organization. The Company is duly incorporated and validly existing in good
standing under the laws of the State of Nevada. The Company has full power and
authority to own, operate and occupy its properties and to conduct its business
as presently conducted and is registered or qualified to do business and in good
standing in each jurisdiction in which it owns or leases property or transacts
business and where the failure to be so qualified would have a material adverse
effect upon the Company and its subsidiaries as a whole or the business,
financial condition, properties, operations or assets of the Company and its
subsidiaries as a whole or the Company’s ability to perform its obligations
under the Agreements in all material respects (“Material Adverse Effect”), and
no proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification. The Company has no “subsidiaries” (as defined in Rule 405 under
the Securities Act of 1933, as amended (the “Securities Act”)), other than as
set forth in its most recent From 10_KSB.
 

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3.2  Due Authorization. The Company has all requisite power and authority to
execute, deliver and perform its obligations under the Agreements. The execution
and delivery of the Agreements, and the consummation by the Company of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action and no further action on the part of the Company or its Board
of Directors or stockholders is required. The Agreements have been validly
executed and delivered by the Company and constitute legal, valid and binding
agreements of the Company enforceable against the Company in accordance with
their terms, except to the extent (i) rights to indemnity and contribution may
be limited by state or federal securities laws or the public policy underlying
such laws, (ii) such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors’ and
contracting parties’ rights generally and (iii) such enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
 
3.3  Non-Contravention. The execution and delivery of the Agreements, the
issuance and sale of the Shares and Warrants to be sold by the Company under the
Agreements, the fulfillment of the terms of the Agreements and the consummation
of the transactions contemplated thereby, including the issuance of the Warrant
Shares in accordance with the terms of the Warrants, will not (A) result in a
conflict with or constitute a violation of, or default (with the passage of time
or otherwise) under, (i) any bond, debenture, note or other evidence of
indebtedness, or any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company or any subsidiary (each, a “Subsidiary” and collectively, the
“Subsidiaries”) is a party or by which the Company or the Subsidiaries or their
respective properties are bound, (ii) the Certificate of Incorporation, Bylaws,
or other organizational documents of the Company, as amended, or (iii) any law,
administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority binding upon the Company or any
Subsidiary or their respective properties, which conflict, violation or default,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect, or (B) result in the creation or imposition of any lien,
encumbrance, claim, security interest or restriction whatsoever upon any of the
material properties or assets of the Company or the Subsidiaries or an
acceleration of indebtedness pursuant to any obligation, agreement or condition
contained in any material bond, debenture, note or any other evidence of
indebtedness or any material indenture, mortgage, deed of trust or any other
agreement or instrument to which the Company or any Subsidiary is a party or by
which it is bound or to which any of the property or assets of the Company is
subject. No consent, approval, authorization or other order of, or registration,
qualification or filing with, any regulatory body, administrative agency, or
other governmental body is required for the execution and delivery of the
Agreements by the Company and the valid issuance or sale of the Shares by the
Company pursuant to the Agreements, other than such as have been made or
obtained, and except for any filings required to be made under federal or state
securities laws.
 
3.4  Capitalization. The authorized capital stock of the Company as of July
[__], 2007 consists of 377,000,000 shares of Common Stock, of which [69,707,300]
shares are outstanding and 10,000,000 shares of Preferred Stock, of which 0
shares are outstanding. The Company has not issued any capital stock since
October 25, 2007, other than pursuant to the purchase of shares under the
Company’s long term incentive plans and the exercise of outstanding warrants or
stock options, in each case as disclosed in the SEC Reports. The Shares,
Warrants and Warrant Shares to be sold pursuant to the Agreements have been duly
authorized, and when issued and paid for in accordance with the terms of the
Agreements and the Warrants, will be duly and validly issued, fully paid and
nonassessable, subject to no lien, claim or encumbrance (except for any such
lien, claim or encumbrance created, directly or indirectly, by the Investor).
The outstanding shares of capital stock of the Company have been duly and
validly issued and are fully paid and nonassessable, have been issued in
compliance with the registration requirements of federal and state securities
laws, and were not issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. The Company owns all of the
outstanding capital stock of each Subsidiary, free and clear of all liens,
claims and encumbrances. There are no outstanding rights (including, without
limitation, preemptive rights), warrants or options to acquire, or instruments
convertible into or exchangeable for, any unissued shares of capital stock or
other equity interest in the Company or any Subsidiary, or any contract,
commitment, agreement, understanding or arrangement of any kind to which the
Company or any Subsidiary is a party and providing for the issuance or sale of
any capital stock of the Company or of any Subsidiary, any such convertible or
exchangeable securities or any such rights, warrants or options. Without
limiting the foregoing, no preemptive right, co-sale right, registration right,
right of first refusal or other similar right exists with respect to the
issuance and sale of the Shares, except as provided in the Agreements. There are
no shareholders agreements, voting agreements or other similar agreements with
respect to the Common Stock to which the Company is a party.
 

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3.5  Legal Proceedings. There is no material legal or governmental proceeding
pending, or to the knowledge of the Company, threatened, to which the Company or
any Subsidiary is a party or of which the business or property of the Company or
any Subsidiary is subject that is required to be disclosed and that is not so
disclosed in the SEC Reports. Neither the Company nor any Subsidiary is subject
to any injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other government body.
 
3.6  No Violations. Neither the Company nor any Subsidiary is in violation of
its Certificate of Incorporation, Bylaws or other organizational documents, as
amended, or in violation of any law, administrative regulation, ordinance or
order of any court or governmental agency, arbitration panel or authority
applicable to the Company, which violation, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect, and neither the Company nor
any Subsidiary is in default (and there exists no condition which, with the
passage of time or otherwise, would constitute a default) in the performance of
any bond, debenture, note or any other evidence of indebtedness or any
indenture, mortgage, deed of trust or any other material agreement or instrument
to which the Company or any Subsidiary is a party or by which the Company or
such Subsidiary or their respective properties are bound, which default is
reasonably likely to have a Material Adverse Effect.
 
3.7  Governmental Permits, Etc. Each of the Company and the Subsidiaries has all
necessary franchises, licenses, certificates and other authorizations from any
foreign, federal, state or local government or governmental agency, department
or body that are currently necessary for the operation of the business of the
Company and the Subsidiaries as currently conducted, except where the failure to
currently possess such franchises, licenses, certificates and other
authorizations is not reasonably likely to have a Material Adverse Effect.
 
3.8  Intellectual Property.
 
(a)  Except for matters which are not reasonably likely to have a Material
Adverse Effect, (i) each of the Company and the Subsidiaries has ownership of,
or a license or other legal right to use, all patents, copyrights, trade
secrets, trademarks, customer lists, designs, manufacturing or other processes,
computer software, systems, data compilation, research results or other
proprietary rights used in the business of the Company (collectively,
“Intellectual Property”) and (ii) all of the Intellectual Property owned by the
Company or by the Subsidiaries consisting of patents, registered trademarks and
registered copyrights have been duly registered in, filed in or issued by the
United States Patent and Trademark Office, the United States Register of
Copyrights or the corresponding offices of other jurisdictions and have been
maintained and renewed in accordance with all applicable provisions of law and
administrative regulations in the United States and/or such other jurisdictions.
 

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(b)  Except for matters which are not reasonably likely to have a Material
Adverse Effect, all material licenses or other material agreements under which
(i) the Company or any Subsidiary employs rights in Intellectual Property, or
(ii) the Company or any Subsidiary has granted rights to others in Intellectual
Property owned or licensed by the Company or any Subsidiary are in full force
and effect, and there is no default by the Company with respect thereto.
 
(c)  The Company believes that it has taken all steps reasonably required in
accordance with sound business practice and business judgment to establish and
preserve the ownership of all material Intellectual Property owned by the
Company or any Subsidiary.
 
(d)  Except for matters which are not reasonably likely to have a Material
Adverse Effect, to the knowledge of the Company, (i) the present business,
activities and products of the Company or any Subsidiary do not infringe any
intellectual property of any other person; (ii) neither the Company nor any
Subsidiary is making unauthorized use of any confidential information or trade
secrets of any person; and (iii) the activities of any of the employees of the
Company or any Subsidiary, acting on behalf of the Company or such Subsidiary,
do not violate any agreements or arrangements related to confidential
information or trade secrets of third parties.
 
(e)  No proceedings are pending, or to the knowledge of the Company, threatened,
which challenge the rights of the Company or any Subsidiary to the use of
Intellectual Property, except for matters which are not reasonably likely to
have a Material Adverse Effect.
 
3.9  Financial Statements. The financial statements of the Company and the
related notes contained in the SEC Reports present fairly and accurately in all
material respects the financial position of the Company as of the dates therein
indicated, and the results of its operations, cash flows and the changes in
shareholders’ equity for the periods therein specified, subject, in the case of
unaudited financial statements for interim periods, to normal year-end audit
adjustments. Such financial statements (including the related notes) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis at the times and throughout the periods therein specified,
except that unaudited financial statements may not contain all footnotes
required by generally accepted accounting principles.
 
3.10  No Material Adverse Change. Except as disclosed in the SEC Reports or in
any press releases issued by the Company at least two (2) Business Days prior to
the date of this Agreement, since April 30, 2007, there has not been (i) an
event, circumstance or change that has had or is reasonably likely to have a
Material Adverse Effect, (ii) any obligation incurred by the Company or any
Subsidiary, direct or contingent, that is material to the Company, (iii) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company, or (iv) any loss or damage (whether or not insured) to the
physical property of the Company or any Subsidiary which has had a Material
Adverse Effect.
 
3.11  Reporting Status. The Company has timely made all filings required under
the Exchange Act during the twelve (12) months preceding the date of this
Agreement, and all of those documents complied in all material respects with the
SEC’s requirements as of their respective filing dates, and the information
contained therein as of the respective dates thereof did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made not misleading.
 
3.12  No Manipulation; Disclosure of Information. The Company has not taken and
will not take any action designed to or that might reasonably be expected to
cause or result in an unlawful manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares. The Company has not disclosed any
material non-public information to the Investors.
 

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3.13  Accountants.  Jewett, Schwartz, Wolf & Associates, who expressed their
opinion with respect to the consolidated financial statements in the Company’s
Annual Report on Form 10-KSB for the year ended October 31, 2006, have advised
the Company that they are, and to the knowledge of the Company they are,
independent accountants as required by the Securities Act and the rules and
regulations promulgated thereunder.
 
3.14  Contracts. Except for matters which are not reasonably likely to have a
Material Adverse Effect and those contracts that are substantially or fully
performed or expired by their terms, the contracts listed as exhibits to or
described in the SEC Reports that are material to the Company and all amendments
thereto, are in full force and effect on the date hereof, and neither the
Company nor, to the Company’s knowledge, any other party to such contracts is in
breach of or default under any of such contracts.
 
3.15  Taxes. Except for matters which are not reasonably likely to have a
Material Adverse Effect, each of the Company and the Subsidiaries has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid or accrued all taxes shown as due thereon, and the Company has no knowledge
of a tax deficiency which has been asserted or threatened against the Company or
any Subsidiary.
 
3.16  Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income taxes) which are required to be paid in connection with the
sale and transfer of the Shares hereunder will be, or will have been, fully paid
or provided for by the Company and the Company will have complied with all laws
imposing such taxes.
 
3.17  Investment Company. The Company is not an “investment company” or an
“affiliated person” of, or “promoter” or “principal underwriter” for an
investment company, within the meaning of the Investment Company Act of 1940, as
amended, and will not be deemed an “investment company” as a result of the
transactions contemplated by this Agreement.
 
3.18  Reserved.
 
3.19  Offering Prohibitions. Neither the Company nor any person acting on its
behalf or at its direction has in the past or will in the future take any action
to sell, offer for sale or solicit offers to buy any securities of the Company
which would bring the offer or sale of the Shares or Warrants as contemplated by
this Agreement within the provisions of Section 5 of the Securities Act.
 
3.20  Related Party Transactions. To the knowledge of the Company,
no transaction has occurred between or among the Company or any of its
affiliates, officers or directors or any affiliate or affiliates of any such
officer or director that with the passage of time will be required to be
disclosed pursuant to Section 13, 14 or 15(d) of the Exchange Act.
 
3.21  Books and Records. The books, records and accounts of the Company
accurately and fairly reflect, in reasonable detail, the transactions in, and
dispositions of, the assets of, and the operations of, the Company. The Company
maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management’s general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
 

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4.  Representations, Warranties and Covenants of the Investor.
 
4.1  Investor Knowledge and Status. The Investor represents and warrants to, and
covenants with, the Company that: (i) the Investor is an “accredited investor”
as defined in Regulation D under the Securities Act, is knowledgeable,
sophisticated and experienced in making, and is qualified to make decisions with
respect to, investments in securities presenting an investment decision similar
to that involved in the purchase of the Shares and Warrants, and has requested,
received, reviewed and considered all information it deemed relevant in making
an informed decision to purchase the Shares and Warrants; (ii) the Investor
understands that the Shares and Warrants are each “restricted securities” and
have not been registered under the Securities Act and is acquiring the number of
Shares set forth in paragraph 3 of the Securities Purchase Agreement and the
Warrant in the ordinary course of its business and for its own account for
investment only, has no present intention of distributing any of such Shares or
Warrants and has no arrangement or understanding with any other persons
regarding the distribution of such Shares or Warrants (this representation and
warranty not limiting the Investor’s right to sell Shares pursuant to a
Registration Statement filed under the Registration Rights Agreement or
otherwise, or other than with respect to any claim arising out of a breach of
this representation and warranty, the Investor’s right to indemnification under
Section 3 of the Registration Rights Agreement); (iii) the Investor will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the Shares or Warrants except in compliance with the Securities Act,
applicable state securities laws and the respective rules and regulations
promulgated thereunder; (iv) the Investor has answered all questions in
paragraph 4 of the Securities Purchase Agreement and the Investor Questionnaire
attached hereto as Exhibit C for use in preparation of the Registration
Statement and for determining the availability of state “Blue Sky” exemptions
and the answers thereto are true and correct as of the date hereof and will be
true and correct as of the Closing Date; (v) the Investor will notify the
Company promptly of any change in any of such information until such time as the
Investor has sold all of its Shares or until the Company is no longer required
to keep the Registration Statement effective; and (vi) the Investor has, in
connection with its decision to purchase the number of Shares set forth in
paragraph 3 of the Securities Purchase Agreement, relied upon the
representations and warranties of the Company contained herein and the
information contained in the SEC Reports. The Investor understands that the
issuance of the Shares and Warrants to the Investor has not been registered
under the Securities Act, or registered or qualified under any state securities
law, in reliance on specific exemptions therefrom, which exemptions may depend
upon, among other things, the representations made by the Investor in this
Agreement. No person (including without limitation either Placement Agent) is
authorized by the Company to provide any representation that is inconsistent
with or in addition to those contained herein or in the SEC Reports, and the
Investor acknowledges that it has not received or relied on any such
representations.
 
4.2  Transfer of Shares. The Investor agrees that it will not make any sale,
transfer or other disposition of the Shares, the Warrants or the shares issuable
upon exercise of the Warrants (a “Disposition”) other than Dispositions that are
made pursuant to the Registration Statement in compliance with any applicable
prospectus delivery requirements or that are exempt from registration under the
Securities Act.
 
4.3  Power and Authority. The Investor represents and warrants to the Company
that (i) the Investor has full right, power, authority and capacity to enter
into this Agreement and to consummate the transactions contemplated hereby and
has taken all necessary action to authorize the execution, delivery and
performance of this Agreement, and (ii) this Agreement constitutes a valid and
binding obligation of the Investor enforceable against the Investor in
accordance with its terms, except to the extent (i) rights to indemnity and
contribution may be limited by state or federal securities laws or the public
policy underlying such laws, (ii) such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors’ and contracting parties’ rights generally and (iii) such
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
 

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4.4  Short Position. From the earlier of (i) thirty (30) days prior to the date
hereof and (ii) the date the Investor learned of the Offering, neither the
Investor nor any affiliate has directly or indirectly established or agreed to
establish any hedge, “put equivalent position” (as defined in Rule 16a-1 under
the Exchange Act) or other position in the Common Stock that is outstanding on
the Closing Date and that is designed to or could reasonably be expected to lead
to or result in a Disposition by the Investor or any other person or entity. For
purposes hereof, a “hedge or other position” includes, without limitation,
effecting any short sale or having in effect any short position (whether or not
such sale or position is against the box and regardless of when such position
was entered into) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to the Common Stock or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from the
Common Stock. Each Investor acknowledges that this representation is made for
the benefit of the Company and the other Investors, any of which may assert
claims arising out of the breach of this Section 4.4.
 
4.5  No Investment, Tax or Legal Advice. The Investor understands that nothing
in the SEC Reports, this Agreement, or any other materials presented to the
Investor in connection with the purchase and sale of the Shares or Warrants
constitutes legal, tax or investment advice. The Investor has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of Shares and Warrants.
 
4.6  Confidential Information. The Investor covenants that from the date hereof
it will maintain in confidence all material non-public information regarding the
Company received by the Investor from the Company, including the receipt and
content of any Suspension Notice (as defined in the Registration Rights
Agreement) until such information (a) becomes generally publicly available other
than through a violation of this provision by the Investor or its agents or
(b) is required to be disclosed in legal proceedings (such as by deposition,
interrogatory, request for documents, subpoena, civil investigation demand,
filing with any governmental authority or similar process); provided, however,
that before making any disclosure in reliance on this Section 4.6, the Investor
will give the Company at least fifteen (15) days prior written notice (or such
shorter period as required by law) specifying the circumstances giving rise
thereto and will furnish only that portion of the non-public information which
is legally required and will exercise its commercially reasonable efforts to
ensure that confidential treatment will be accorded any non-public information
so furnished. The parties acknowledge and agree that as of the date hereof and
as of the Closing Date, the Company has not disclosed any material non-public
information to the Investor.
 
4.7  Acknowledgments Regarding Placement Agents. The Investor acknowledges that
the Placement Agents have acted solely as placement agents for the Company in
connection with the Offering of the Shares and Warrants by the Company, and that
the Placement Agents have made no representation or warranty whatsoever with
respect to the accuracy or completeness of information, data or other related
disclosure material that has been provided to the Investor. The Investor further
acknowledges that in making its decision to enter into this Agreement and
purchase the Shares and Warrants, it has relied on its own examination of the
Company and the terms of, and consequences of holding, the Shares and the
Warrants. The Investor further acknowledges that the provisions of this
Section 4.7 are for the benefit of, and may be enforced by, each of the
Placement Agents.
 

8

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4.8  Additional Acknowledgement. The Investor acknowledges that it has
independently evaluated the merits of the transactions contemplated by this
Agreement, that it has independently determined to enter into the transactions
contemplated hereby, that it is not relying on any advice from or evaluation by
any Other Investor, and that it is not acting in concert with any Other Investor
in making its purchase of the Shares and Warrants hereunder. The Investor and,
to its knowledge, the Company acknowledge that the Investors have not taken any
actions that would deem the Investors to be members of a “group” for purposes of
Section 13(d) of the Exchange Act.
 
5.  Transfer Restrictions.
 
5.1  Legends. Certificates evidencing the Shares and the Warrant shall each bear
any legend as required by the “blue sky” laws of any state and a restrictive
legend in substantially the following form, until such time as they are not
required:
 
[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT BEEN REGISTERED]
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR (B) AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY AND ITS TRANSFER AGENT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

9

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The Company acknowledges and agrees that an Investor may from time to time
pledge, and/or grant a security interest in, some or all of the legended Shares
in connection with applicable securities laws, pursuant to a bona fide margin
agreement in compliance with a bona fide margin loan. Such a pledge would not be
subject to approval or consent of the Company and no legal opinion of legal
counsel to the pledgee, secured party or pledgor shall be required in connection
with the pledge, but such legal opinion shall be required in connection with a
subsequent transfer or foreclosure following default by the Investor transferee
of the pledge. No notice shall be required of such pledge, but the Investor’s
transferee shall promptly notify the Company of any such subsequent transfer or
foreclosure. Each Investor acknowledges that the Company shall not be
responsible for any pledges relating to, or the grant of any security interest
in, any of the Shares or for any agreement, understanding or arrangement between
any Investor and its pledgee or secured party. At the appropriate Investor’s
expense, the Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Shares may reasonably request in connection with a
pledge or transfer of the Shares, including the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) of the Securities Act or
other applicable provision of the Securities Act to appropriately amend the list
of selling stockholders thereunder.
 
5.2  Delivery of Certificates. Following effectiveness of a registration
statement registering the Shares, if the Company shall fail for any reason or
for no reason to issue to an Investor unlegended certificates within five (5)
Business Days of receipt of all documents necessary for the removal of the
legend set forth above (the “Deadline Date”), then, in addition to all other
remedies available to such Investor, if on or after the Business Day immediately
following such five (5) Business Day period, such Investor purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the holder of shares of Common Stock that such
Investor anticipated receiving from the Company without any restrictive legend
(a “Buy-In”), then the Company shall, within three (3) Business Days after such
Investor’s request and in such Investor’s sole discretion, either (i) pay cash
to the Investor in an amount equal to such Investor’s total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased (the “Buy-In Price”), at which point the Company’s obligation to
deliver such certificate (and to issue such shares of Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to such Investor a
certificate or certificates representing such shares of Common Stock and pay
cash to the Investor in an amount equal to the excess (if any) of the Buy-In
Price over the product of (a) such number of shares of Common Stock, times (b)
the Closing Bid Price on the Deadline Date. 
 
6.  Survival of Representations, Warranties and Agreements. Notwithstanding any
investigation made by any party to this Agreement or by the Placement Agent, all
covenants, agreements, representations and warranties made by the Company and
the Investor herein shall survive the execution of this Agreement, the delivery
to the Investor of the Shares being purchased and the payment therefor, and a
party’s reliance on such representations and warranties shall not be affected by
any investigation made by such party or any information developed thereby.
 
7.  Registration of Shares; Public Statements.
 
7.1  In connection with the purchase and sale of the Shares by the Investors
contemplated hereby, the Company has entered into a Registration Rights
Agreement with each Investor providing for the filing by the Company of a
Registration Statement on Form S-B-2 (or, if the Company is ineligible to use
From SB-2, another appropriate form) to enable the resale of the Shares by the
Investors from time to time.
 

10

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7.2  The Company agrees to disclose on a Current Report on Form 8-K the
existence of the Offering and the material terms, thereof, including pricing,
within two (2) Business Days after the Closing. The Company will not issue any
public statement, press release or any other public disclosure listing the
Investor as one of the purchasers of the Shares without the Investor’s prior
written consent, except as may be required by applicable law or rules of any
exchange on which the Company’s securities are listed.
 
8.  Notices. All notices, requests, consents and other communications hereunder
shall be in writing, shall be delivered (A) if within the United States, by
first-class registered or certified airmail, or nationally recognized overnight
express courier, postage prepaid, or by facsimile, or (B) if from outside the
United States, by International Federal Express (or comparable service) or
facsimile, and shall be deemed given (i) if delivered by first-class registered
or certified mail domestic, upon the Business Day received, (ii) if delivered by
nationally recognized overnight carrier, one (1) Business Day after timely
delivery to such carrier, (iii) if delivered by International Federal Express
(or comparable service), two (2) Business Days after timely delivery to such
carrier, (iv) if delivered by facsimile, upon electric confirmation of receipt
and shall be addressed as follows, or to such other address or addresses as may
have been furnished in writing by a party to another party pursuant to this
paragraph:
 
(a)  if to the Company, to:
 
PerfectEnergy International Limited
7401 Springbank Blvd., Suite 3
Calgary, Alberta T3H 5R2
Attention: [___________]
Telephone: [___________]

with a copy to:

[______________________]
[______________________]
[______________________]
Attention: [_____________]
Telephone: [____________]

(b)  if to the Investor, at its address on the signature page to the Securities
Purchase Agreement.
 
9.  Amendments; Waiver. This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and the Investor. Any
waiver of a provision of this Agreement must be in writing and executed by the
party against whom enforcement of such waiver is sought.
 
10.  Headings. The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.
 
11.  Entire Agreement; Severability. This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter hereof
and supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. If any provision contained in this Agreement is
determined to be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
 

11

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12.  Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of [New York], without giving
effect to the principles of conflicts of law.
 
13.  Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument, and shall become effective when
one or more counterparts have been signed by each party hereto and delivered to
the other parties.
 

12

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Exhibit A
 
PERFECTENERGY INTERNATIONAL LIMITED

STOCK CERTIFICATE QUESTIONNAIRE
 
Pursuant to Section 4 of the Agreement, please provide us with the following
information:
 

1. The exact name in which your Shares and Warrants are to be registered (this
is the name that will appear on your stock certificate(s) and Warrants). You may
use a nominee name if appropriate:
 
2. If a nominee name is listed in response to item 1 above, the relationship
between the Investor and such nominee:
 
3. The mailing address of the registered holder listed in response to item 1
above:
 
4. The Social Security Number or Tax Identification Number of the registered
holder listed in the response to item 1 above:
 

A-1

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Exhibit b
 
PERFECTENERGY INTERNATIONAL LIMITED

FORM OF REGISTRATION RIGHTS AGREEMENT
 

 

 

B-1

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Exhibit C
 
PERFECTENERGY INTERNATIONAL LIMITED

 
INVESTOR QUESTIONNAIRE
 
(All information will be treated confidentially)
 
To: PerfectEnergy International Limited,
 
The undersigned hereby acknowledges the following:
 
This Investor Questionnaire (“Questionnaire”) must be completed by each
potential investor in connection with the offer and sale of the shares of the
Common Stock, par value $0.001 per share (the “Shares”) and Warrants, of
Perfectenergy International Limited (the “Company”). The Shares are being
offered and sold by the Company without registration under the Securities Act of
1933, as amended (the “Securities Act”), and the securities laws of certain
states, in reliance on the exemptions contained in Section 4 of the Securities
Act and on Regulation D promulgated thereunder and in reliance on similar
exemptions under applicable state laws. The Company must determine that a
potential investor meets certain suitability requirements before offering or
selling Shares and Warrants to such investor. The purpose of this Questionnaire
is to assure the Company that each investor will meet the applicable suitability
requirements. The information supplied by the undersigned will be used in
determining whether the undersigned meets such criteria, and reliance upon the
private offering exemption from registration is based in part on the information
herein supplied.
 
This Questionnaire does not constitute an offer to sell or a solicitation of an
offer to buy any security. The undersigned’s answers will be kept strictly
confidential. However, by signing this Questionnaire the undersigned will be
authorizing the Company to provide a completed copy of this Questionnaire to
such parties as the Company deems appropriate in order to ensure that the offer
and sale of the Shares and Warrants will not result in a violation of the
Securities Act or the securities laws of any state and that the undersigned
otherwise satisfies the suitability standards applicable to purchasers of the
Shares. All potential investors must answer all applicable questions and
complete, date and sign this Questionnaire. The undersigned shall print or type
its responses and attach additional sheets of paper if necessary to complete its
answers to any item.
 
A. Background Information
 
Name:__________________________________________________________________________________
 
Business
Address:________________________________________________________________________
                (Number and Street)
____________________________________________________________________________
(City)                     (State)                                              &
#160;                             (Zip Code)
 
Telephone Number: (      )________________________
 
Residence
Address:________________________________________________________________________
                (Number and Street)
_______________________________________________________________________________________
(City)                     (State)                                              
;                                                            (Zip Code)
 
Telephone Number: (      )________________________
 
If an individual:
 
Age:______            Citizenship:__________               Where registered to
vote:____________________________
 
If a corporation, partnership, limited liability company, trust or other entity:
 
Type of
entity:____________________________________________________________________________
 

C-1

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State of formation:______________     Date of formation:_____________________
 
Social Security or Taxpayer Identification No.__________________________________
 
Send all correspondence to (check one):       ____ Residence Address     ____
Business Address
 
B. Status as Accredited Investor
 
The undersigned is an “accredited investor” as such term is defined in
Regulation D under the Securities Act, because at the time of the sale of the
Shares the undersigned falls within one or more of the following categories
(Please initial one or more, as applicable):
 
_____ (1) a bank as defined in Section 3(a)(2) of the Securities Act, or a
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity; a broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934; an insurance company as defined in Section 2(13) of the
Securities Act; an investment company registered under the Investment Company
Act of 1940 or a business development company as defined in Section 2(a)(48) of
that act; a Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; a plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state or its
political subdivisions for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; an employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974 if the investment decision
is made by a plan fiduciary, as defined in Section 3(21) of such act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with the investment decisions made
solely by persons that are accredited investors;1
 
_____ (2) a private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
 
_____ (3) an organization described in Section 501(c)(3) of the Internal Revenue
Code of 1986, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the Shares
offered, with total assets in excess of $5,000,000;
 
_____ (4) a natural person whose individual net worth, or joint net worth with
that person’s spouse, at the time of such person’s purchase of the Shares
exceeds $1,000,000;
 
_____ (5) a natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person’s spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;
 
_____ (6) a trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Shares offered, whose purchase is directed by
a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D; and
 
_____ (7) an entity in which all of the equity owners are accredited investors
(as defined above).
 
 
_______________
1  As used in this Questionnaire, the term “net worth” means the excess of total
assets over total liabilities. In computing net worth for the purpose of
subsection (4), the principal residence of the investor must be valued at cost,
including cost of improvements, or at recently appraised value by a professional
appraiser. In determining income, the investor should add to the investor’s
adjusted gross income any amounts attributable to tax exempt income received,
losses claimed as a limited partner in any limited partnership, deductions
claimed for depreciation, contributions to an IRA or KEOGH retirement plan,
alimony payments, and any amount by which income from long-term capital gains
has been reduced in arriving at adjusted gross income.

C-2

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C. Representations
 
The undersigned hereby represents and warrants to the Company as follows:
 
1. Any purchase of the Shares and Warrants would be solely for the account of
the undersigned and not for the account of any other person or with a view to
any resale, fractionalization, division, or distribution thereof.
 
2. The information contained herein is complete and accurate and may be relied
upon by the Company, and the undersigned will notify the Company immediately of
any material change in any of such information occurring prior to the closing,
if any, with respect to the purchase of Shares by the undersigned or any
co-purchaser.
 
3. There are no suits, pending litigation, or claims against the undersigned
that could materially affect the net worth of the undersigned as reported in
this Questionnaire.
 
4. The undersigned acknowledges that there may occasionally be times when the
Company, based on the advice of its counsel, determines that it must suspend the
use of the Prospectus forming a part of the Registration Statement (as such
terms are defined in the Securities Purchase Agreement to which this
Questionnaire is attached) until such time as an amendment to the Registration
Statement has been filed by the Company and declared effective by the Securities
and Exchange Commission or until the Company has amended or supplemented such
Prospectus. The undersigned is aware that, in such event, the Shares will not be
subject to ready liquidation, and that any Shares purchased by the undersigned
would have to be held during such suspension. The overall commitment of the
undersigned to investments which are not readily marketable is not excessive in
view of the undersigned’s net worth and financial circumstances, and any
purchase of the Shares will not cause such commitment to become excessive. The
undersigned is able to bear the economic risk of an investment in the Shares.
 
5. The undersigned has carefully considered the potential risks relating to the
Company and a purchase of the Shares and Warrants and fully understands that the
Shares and Warrants are speculative investments which involve a high degree of
risk of loss of the undersigned’s entire investment. Among others, the
undersigned has carefully considered each of the risks described in the
Company’s Annual Report on Form 10-KSB for the year ended October 31, 2006 and
in the Company’s Confidential Private Placement Memorandum dated [_______],
2007.
 
6. The following is a list of all states and other jurisdictions in which blue
sky or similar clearance will be required in connection with the undersigned’s
purchase of the Shares and Warrants:
 
___________________________________________
 
___________________________________________
 
___________________________________________
 
The undersigned agrees to notify the Company in writing of any additional states
or other jurisdictions in which blue sky or similar clearance will be required
in connection with the undersigned’s purchase of the Shares.
 

C-3

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IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this _____
day of __________, 2007, and declares under oath that it is truthful and
correct.
 
 

   Print Name  
 
     By:      Signature          Title:      
(required for any purchaser that is a corporation,
partnership, trust or other entity)
 
 

 
C-4

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Exhibit D
 
FORM OF LEGAL OPINION
 
_________, 2007
 

To: The Investors in Common Stock and Warrants of PerfectEnergy International
Limited and the Placement Agents

Ladies and Gentlemen:
 
We have acted as counsel for Perfectenergy International Limited, a Nevada
corporation (the “Company”), in connection with the issuance of   shares (the
“Shares”) of the Company’s common stock, par value $0.001 per share, and
warrants to purchase _______ shares (the “Warrant Shares”) of the Company’s
common stock pursuant to those certain Securities Purchase Agreements, dated as
of July [_], 2007, including the annex and exhibits thereto (collectively, the
“Agreement”), between the Company and the Investors named therein. This opinion
is being delivered to you pursuant to Section 2 of Annex I of the Agreement.
Capitalized terms used herein are as defined in the Agreement unless otherwise
specifically provided herein.
 
We have examined such documents and have reviewed such questions of law as we
have considered necessary or appropriate for the purpose of this opinion.
 
In rendering our opinion below, we have assumed the authenticity of all
documents submitted to us as originals, the genuineness of all signatures, and
the conformity to authentic originals of all documents submitted to us as
copies. We have also assumed the legal capacity for all purposes relevant hereto
of all natural persons and, with respect to all parties to agreements and
instruments relevant hereto other than the Company, that such parties had the
requisite power and authority (corporate or otherwise) to execute, deliver and
perform such agreement or instruments, that such agreements or instruments have
been duly authorized by all requisite action (corporate or otherwise), executed
and delivered by such parties and that such agreements or instruments are the
valid, binding and enforceable obligations of such parties and that the issuance
of the Warrant Shares will be in releinace upon an applicable exemption from the
registration requirements of the Securities Act. As to questions of fact
material to our opinion, we have relied, without independent verification, on
the representations and warranties contained in the Agreement and on
certificates of officers of the Company and public officials.
 
In rendering such opinions, we have not conducted any independent investigation
or consulted with other attorneys in our firm with respect to the matters
covered by the Agreement. No inference as to our knowledge with respect to such
matters should be drawn from the fact of our representation of the Company.
 
Based on the foregoing, we are of the opinion that:
 
1. The Company is a corporation incorporated, validly existing and in good
standing under the laws of the State of Nevada, with the corporate power to
conduct any lawful business activity. The Company has the corporate power to
execute, deliver and perform the Agreement and the Warrants including, without
limitation, the issuance and sale of the Shares and Warrants under the Agreement
and to issue the Warrant Shares upon exercise of the Warrants.
 

D-1

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2. Each of the Agreement, the Warrants and the Registration Rights Agreement has
been duly authorized by all requisite corporate action, executed and delivered
by the Company. Each of the Agreement, the Warrants and the Registration Rights
Agreement constitutes the valid and binding agreement of the Company enforceable
in accordance with its terms.
 
3. The Shares and Warrants have been duly authorized and, upon issuance,
delivery and payment therefor as described in the Agreement and the Warrants,
will be validly issued, fully paid and nonassessable. The shares issuable upon
exercise of the Warrants have been duly and validly reserved for issuance by all
proper corporate action.
 
4. The execution, delivery and performance of the Agreement, the Warrants and
the Registration Rights Agreement and the issuance and sale of the Shares and
Warrants in accordance with the Agreement, and the issuance and sale of the
Warrant Shares upon exercise of the Warrants in accordance with the terms of the
Warrants, does not: (a) violate or conflict with, or result in a breach of or
default under, the Certificate of Incorporation or Bylaws of the Company, as
amended, or (b) violate or conflict with, or constitute a default under any
material agreement or instrument (limited, with your consent, to agreements
filed with the Securities and Exchange Commission under the Exchange Act and
applicable rules and regulations) to which the Company is a party.
 
5. To our knowledge, no consent, approval, authorization or order of, and no
notice to or filing with, any governmental agency or body or any court is
required to be obtained or made by the Company for the issue and sale of the
Shares and Warrants pursuant to the Agreement and the issuance of the Warrant
Shares upon exercise of the Warrants in accordance with the terms of the
Warrants, except such as have been obtained or made and such as may be required
under the federal securities laws or the Blue Sky laws of the various states.
 
6. Assuming the representations made by the Investors and the Company set forth
in the Agreement and the exhibits thereto are true and correct and subject to
the Placement Agents’ compliance with applicable securities laws and regulations
(including, without limitation, the requirements of Regulation D under the
Securities Act), the offer, sale, issuance and delivery of the Shares and the
Warrants to the Investors, in the manner contemplated by the Agreement, is
exempt from the registration requirements of the Securities Act, it being
understood that no opinion is expressed as to any subsequent resale of such
shares.
 
The opinions set forth above are subject to the following qualifications and
exceptions:
 
(a) Our opinion in paragraph 1 above, with respect to the good standing of the
Company, is based solely ona Certificate of Existence with Status in Good
Standing dated _________, 2007 electronically received for the Secretary of
State of Nevada.
 
(b) Our opinion in paragraph 2 above is subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general application affecting creditors’ rights.
 
(c) Our opinion in paragraph 2 above is subject to the effect of general
principles of equity, including (without limitation) concepts of materiality,
reasonableness, good faith and fair dealing, and other similar doctrines
affecting the enforceability of agreements generally (regardless of whether
considered in a proceeding in equity or at law).
 

D-2

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(d) Our opinion in paragraph 2 above, insofar as it relates to indemnification
provisions, is subject to the effect of federal and state securities laws and
public policy relating thereto.
 
(e) We express no opinion as to the compliance or the effect of noncompliance by
the Investors with any state or federal laws or regulations applicable to the
Investors in connection with the transactions described in the Agreement or the
payment obligations of the Company under Sections 1(b) and 2(d) of the
Registration Rights Agreement if the payment obligations are construed as
unreasonable in relation to actual damages or disproportionate to actual damages
suffered by the Investor.
 
Our opinions expressed above are limited to the laws of the State of Nevada and
the federal laws of the United States of America.
 
The foregoing opinions are being furnished to you solely for your benefit and
may not be relied upon by any other person without our prior written consent.
Notwithstanding the foregoing, Canaccord Adams and Knight Capital Markets LLC
may rely on the opinions herein expressed as if this letter were addressed to
it.
 
 

  Very truly yours,

 

D-3

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