Document:

EX101

__________

Exhibit 10.1

 

 

 

 

 

 

SHARE EXCHANGE AGREEMENT

 

 

 

 

 

 

Among each of:

THE SOLE SHAREHOLDER OF POWER AIR TECH, INC.

 

 

And:

POWER AIR TECH, INC.

 

 

And:

HDH GROUP, LLC

 

 

And:

H. DEAN HALEY

 

 

And:

FORTUNE PARTNERS, INC.

 

 

 

 

Fortune Partners, Inc.

Suite 1100, 1050 West Pender Street, Vancouver, British Columbia, Canada, V6E 3S7

__________

SHARE EXCHANGE AGREEMENT

 

 

          THIS SHARE EXCHANGE AGREEMENT is made and dated for reference effective as at August 22, 2005 (the "Effective Date") as fully executed on this _____ day of September, 2005.

 

AMONG EACH OF:

THE SOLE SHAREHOLDER OF POWER AIR TECH, INC., having an address for notice and delivery located at Level 2, 33 York Street, Sydney, Australia, 2000

(the "Vendor");

OF THE FIRST PART

AND:

POWER AIR TECH, INC., a company incorporated under the laws of the State of Delaware, U.S.A., and having an address for notice and delivery located at Level 2, 33 York Street, Sydney, Australia, 2000

(the "Company");

OF THE SECOND PART

AND:

HDH GROUP, LLC, a company incorporated under the laws of the State of Tennessee, U.S.A., and having an address for notice and delivery located at 3801 Albert Matthews Road, Columbia, Tennessee, U.S.A., 38401

(the "HDH Group");

OF THE THIRD PART

AND:

H. DEAN HALEY, having an address for notice and delivery located at 3801 Albert Matthews Road, Columbia, Tennessee, U.S.A., 38401

(Mr. "Haley");

OF THE FOURTH PART

(the Vendor, the HDH Group and Mr. Haley being hereinafter collectively referred to as the "Vendor Group" as the context so requires);

 

AND:

FORTUNE PARTNERS, INC., a company incorporated under the laws of the State of Nevada, U.S.A., and having an address for notice and delivery located at Suite 1100, 1050 West Pender Street, Vancouver, British Columbia, Canada, V6E 3S7

(the "Purchaser");

OF THE FIFTH PART

(the Vendor Group, the Company and the Purchaser being hereinafter singularly also referred to as a "Party" and collectively referred to as the "Parties" as the context so requires).

 

          WHEREAS:

A.          The Company is a body corporate subsisting under and registered pursuant to the laws of the State of Delaware, U.S.A., and the Company is presently engaged in the business of developing, manufacturing and marketing a zinc-air fuel technology that has been developed at the Lawrence Livermore National Laboratory ("LLNL"), in Livermore, California, U.S.A., through its exclusive world-wide license with LLNL, and that the Company now requires additional external capital in order to fully develop and realize the potential of its existing business (collectively, the "Company's Business");

B.          The Vendor is the legal and beneficial owners of all of the 1,000 presently issued and outstanding common shares in the capital of the Company (each a "Purchased Share"); the particulars of the registered and beneficial ownership of such Purchased Shares being set forth in Schedule "A" which is attached hereto and which forms a material part hereof;

C.          In accordance with the terms and conditions of that certain "Agreement In Principle" dated for reference August 22, 2005 (the "Agreement In Principle"), as entered into among the Vendor Group, the Company and the Purchaser, the parties thereto agreed to use their best efforts to initiate, complete and enter into a formal agreement whereby the Vendor would sell all of the Purchased Shares to the Purchaser upon the general terms and conditions as set forth therein; a copy of which Agreement In Principle being attached hereto as Schedule "B" and which forms a material part hereof, and the terms and conditions of the Agreement In Principle setting forth the Parties general intentions herein; and

D.          The Parties hereto have agreed to enter into this agreement (the "Agreement") which formalizes and replaces, in its entirety, the Agreement In Principle, as contemplated and required by the terms of the Agreement In Principle, and which clarifies their respective duties and obligations in connection with the purchase by the Purchaser from the Vendor of all of the Purchased Shares together with the further development of the Company's Business as a consequence thereof;

 

          NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual promises, covenants and agreements herein contained, THE PARTIES HERETO COVENANT AND AGREE WITH EACH OTHER as follows:

 

 

Article 1

DEFINITIONS

1.1          Definitions.   For the purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following words and phrases shall have the following meanings:

(a)     "Acquisition Shares" has the meaning ascribed to it in section "2.2" hereinbelow;

(b)     "affiliate" and "associate" have the meanings ascribed to them under the Company Act of the Province of British Columbia, R.S.B.C. 1996, as amended from time to time;

(c)     "Agreement" means this "Share Exchange Agreement" as entered into among the Vendor Group, the Company and the Purchaser herein, together with any amendments thereto and any Schedules as attached thereto;

(d)     "Agreement In Principle" has the meaning ascribed to it in recital "C." hereinabove; a copy of which Agreement In Principle being attached hereto as Schedule "B" and forming a material part hereof;

(e)     "Arbitration Act" means the Commercial Arbitration Act of the Province of British Columbia, R.S.B.C. 1996, as amended from time to time, as set forth in Article "13" hereinbelow;

(f)     "Board of Directors" means, as applicable, the respective Board of Directors of each of the Parties hereto as duly constituted from time to time;

(g)     "business day" means any day during which Canadian Chartered Banks are open for business in the City of Vancouver, Province of British Columbia;

(h)     "Business Documentation" means any and all records and other factual data and information relating to the Company's Business interests and assets and including, without limitation, all plans, agreements and records which are in the possession or control of any of the Vendor Group or the Company in that respect;

(i)     "Cancellation of Shares" has the meaning ascribed to it in section "4.1" hereinbelow;

(j)     "Change in Board and officers" has the meaning ascribed to it in section "4.1" hereinbelow;

(k)     "Change in Name" has the meaning ascribed to it in section "4.1" hereinbelow;

(l)     "Closing" has the meaning ascribed to it in section "6.1" hereinbelow;

(m)     "Closing Date" has the meaning ascribed to it in section "6.1" hereinbelow;

(n)     "Commission" means the United States Securities and Exchange Commission;

(o)     "Company" means Power Air Tech, Inc., a company incorporated under the laws of the State of Delaware, U.S.A., or any successor company, however formed, whether as a result of merger, amalgamation or other action;

(p)     "Company Disclosure Schedule" has the meaning ascribed to it in section "2.2" hereinbelow;

(q)     "Company's Assets" means all assets, contracts, equipment, goodwill, inventory and Intellectual Property of the Company and including, without limitation, all of the property interests, assets, contracts, equipment, goodwill and inventory which are listed and described in Schedules "E" through "I" which are attached hereto and which form a material part hereof;

(r)     "Company's Business" has the meaning ascribed to it in recital "A." hereinabove;

(s)     "Company's Financial Statements" has the meaning ascribed to it in section "3.2" hereinbelow; a copy of which Company's Financial Statements being set forth in Schedule "C" which is attached hereto and which forms a material part hereof;

(t)     "Company's Options" has the meaning ascribed to it in section "3.3" hereinbelow;

(u)     "Compensation Shares" has the meaning ascribed to it in section "2.2" hereinbelow;

(v)     "Confidential Information" has the meaning ascribed to it in section "10.1" hereinbelow;

(w)     "Creditor" and "Creditors" has the meaning ascribed to them in section "2.2" hereinbelow; a complete listing of such Creditors of the Company being set forth in Schedule "C" which is attached hereto and which forms a material part hereof;

(x)     "Creditor Shares" has the meaning ascribed to it in section "2.2" hereinbelow; a complete listing of such Creditor Shares per Creditor of the Purchaser being set forth in Schedule "C" which is attached hereto;

(y)     "Debt Amount" has the meaning ascribed to it in section "2.2" hereinbelow;

(z)     "Defaulting Party" and "Non-Defaulting Party" have the meanings ascribed to them in section "14.1" hereinbelow;

(aa)     "Disputed Contracts" has the meaning ascribed to it in section "2.2" hereinbelow;

(ab)     "Effective Date" has the meaning ascribed to it on the front page of this Agreement;

(ac)     "Employment Agreements" has the meaning ascribed to it in section "4.1" hereinbelow; the proposed forms of which being attached hereto as Schedule "M" and forming a material part hereof;

(ad)     "Escrow Agent" has the meaning ascribed to it in section "7.1" hereinbelow;

(ae)     "Execution Date" means the actual date of the complete execution of this Agreement and any amendment thereto by all Parties hereto as set forth on the front page hereof;

(af)     "HDH Group" means HDH Group, LLC, a company incorporated under the laws of the State of Tennessee, U.S.A., or any successor company, however formed, whether as a result of merger, amalgamation or other action;

(ag)     "HDH Group and Mr. Haley Release of all Claims as against the Company and the Vendor" has the meaning ascribed to it in section "2.2" hereinbelow;

(ah)     Mr. "Haley" means H. Dean Haley;

(ai)     "Indemnified Party" and "Indemnified Parties" have the meanings ascribed to them in section "15.1" hereinbelow;

(aj)     "Initial Due Diligence" has the meaning ascribed to it in section "5.1" hereinbelow;

(ak)     "Intellectual Property" means, with respect to the Company, all right and interest to all patents, patents pending, inventions, know-how, any operating or identifying name or registered or unregistered trademarks and tradenames, all computer programs, licensed end-user software, source codes, products and applications (and related documentation and materials) and other works of authorship (including notes, reports, other documents and materials, magnetic, electronic, sound or video recordings and any other work in which copyright or similar right may subsist) and all copyrights (registered or unregistered) therein, industrial designs (registered or unregistered), franchises, licenses, authorities, restrictive covenants or other industrial or intellectual property used in or pertaining to the Company and including, without limitation, the items described in Schedule "F" which is attached hereto and which forms a material part hereof, and all lists of customers, documents, records, correspondence and other information pertaining to the Company;

(al)     "Interview Committee" has the meaning ascribed to it in section "4.1" hereinbelow;

(am)     "Options" has the meaning ascribed to it in section "4.1" hereinbelow;

(an)     "OTCBB" means the NASD Over-the-Counter Bulletin Board, together with its respective successors and permitted assigns as the context so requires;

(ao)     "Parties" or "Party" means, respectively, the Vendor Group, the Company and the Purchaser hereto, as the case may be, together with their respective successors and permitted assigns as the context so requires;

(ap)     "person" or "persons" means an individual, corporation, partnership, party, trust, fund, association and any other organized group of persons and the personal or other legal representative of a person to whom the context can apply according to law;

(aq)     "President" has the meaning ascribed to it in section "4.1" hereinbelow;

(ar)     "Private Placement" has the meaning ascribed to it in section "4.1" hereinbelow;

(as)     "Purchased Share" has the meaning ascribed to it in recital "B." hereinabove; the particulars of the registered and beneficial ownership of such Purchased Shares being set forth in Schedule "A" which is attached hereto;

(at)     "Purchase Price" has the meaning ascribed to it in section "2.2" hereinbelow;

(au)     "Purchaser" means Fortune Partners, Inc., a company incorporated pursuant to the laws of the State of Nevada, U.S.A., or any successor company, however formed, whether as a result of merger, amalgamation or other action;

(av)     "Purchaser Disclosure Schedule" has the meaning ascribed to it in section "4.1" hereinbelow;

(aw)     "Purchaser's Financial Statements" has the meaning ascribed to it in section "4.1" hereinbelow; a copy of which Purchaser's Financial Statements being set forth in Schedule "J" which is attached hereto and which forms a material part hereof;

(ax)     "Purchaser's Options" has the meaning ascribed to it in section "3.3" hereinbelow;

(ay)     "Ratification" has the meaning ascribed to it in section "6.1" hereinbelow;

(az)     "Registration Statement", "Regulation D", "Regulation S", "Rule 144", "Rule 501", "Rule 506", "U.S. Person" and "Form S-8" have the meanings ascribed to them in the Securities Act;

(ba)     "Regulation S Certificate" and "Accredited Investor Certificate" have the meanings ascribed to them in section "4.1" hereinbelow; the proposed forms of which being attached hereto as Schedule "N" and forming a material part hereof;

(bb)     "Regulatory Approval" means the acceptance for filing, if required, of the transactions contemplated by this Agreement by the Regulatory Authorities;

(bc)     "Regulatory Authority" and "Regulatory Authorities" means, either singularly or collectively as the context so requires, the OTCBB, and/or such other regulatory agencies who have or who may have jurisdiction over the affairs of the Company, the Purchaser and/or the Vendor herein and including, without limitation, and where applicable, all applicable securities commissions and again including, without limitation, the Commission, and all other regulatory authorities from whom any such authorization, approval or other action is required to be obtained or to be made in connection with the transactions contemplated by this Agreement;

(bd)     "Release" has the meaning ascribed to it in section "3.2" hereinbelow;

(be)     "Resulting Shareholder Group" means each of the Vendor, the HDH Group and the Creditors of the Company;

(bf)     "Reverse Takeover" means that transaction or series of transactions pursuant to which the Purchaser will acquire all of the Purchased Shares of the Company from the Vendor in exchange for the issuance from treasury by the Purchaser of the Shares and all matters necessarily ancillary thereto;

(bg)     "Securities" has the meaning ascribed to it in section "3.3" hereinbelow; the particulars of which outstanding Securities being set forth in Schedule "A" which is attached hereto;

(bh)     "Securities Act" means the United States Securities Act of 1933, as amended, and all the Rules and Regulations promulgated under the United States Securities Act of 1933; and "1934 Act" means the United States Securities Exchange Act of 1934, as amended, and all the Rules and Regulations promulgated under the United States Securities Exchange Act of 1934;

(bi)     "Share" has the meaning ascribed to it in section "2.2" hereinbelow, and "Shares" means, collectively, each of the Acquisition Shares, Compensation Shares and Creditor Shares referenced herein;

(bj)     "Shares for Debt Private Placement Subscription Agreement" has the meaning ascribed to it in section "3.2" hereinbelow; the proposed form of which being attached hereto as Schedule "N" and forming a material part hereof;

(bk)     "Subject Removal Date" has the meaning ascribed to it in section "5.1" hereinbelow;

(bl)     "subsidiary" means any company or companies of which more than 50% of the outstanding shares carrying votes at all times (provided that the ownership of such shares confers the right at all times to elect at least a majority of the board of directors of such company or companies) are for the time being owned by or held for a company and/or any other company in like relation to the company, and includes any company in like relation to the subsidiary;

(bm)     "Transfer Agent" means the Purchaser's existing registrar and transfer agent for its common shares, or any successor company, however formed, whether as a result of merger, amalgamation or other action;

(bn)     "Transfer Documents" has the meaning ascribed to it in section "7.2" hereinbelow;

(bo)     "Unit" has the meaning ascribed to it in section "4.1" hereinbelow;

(bp)     "U.S. Person" has the meaning ascribed to it in Regulation S under the Securities Act;

(bq)     "Vendor" means Power Air Dynamics Limited, a company incorporated pursuant to the laws of Australia, U.S.A., or any successor company, however formed, whether as a result of merger, amalgamation or other action;

(br)     "Vendor Group" means each of the Vendor, the HDH Group and Mr. Haley; and

(bs)     "Warrant" has the meaning ascribed to it in section "4.1" hereinbelow.

1.2          Schedules.   For the purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following shall represent the Schedules which are attached to this Agreement and which form a material part hereof:

	
Schedule

	
Description of Schedule

	
Schedule "A":
	
Purchased Shares, Vendor and Securities;

	
Schedule "B"
	
Agreement In Principle;

	
Schedule "C":
	
Company Creditors and Creditor Shares;

	
Schedule "D":
	
Company's Financial Statements;

	
Schedule "E":
	
Company's Intellectual Property;

	
Schedule "F":
	
Company's Lease;

	
Schedule "G":
	
Company's Contracts of Employment;

	
Schedule "H":
	
Company's Material Contracts;

	
Schedule "I":
	
Company's List of Bank Accounts etc.;

	
Schedule "J":
	
Purchaser's Financial Statements;

	
Schedule "K":
	
Purchaser's Material Contracts;

	
Schedule "L":
	
Purchaser's List of Bank Accounts etc.;

	
Schedule "M":
	
Employment Agreements; and

	
Schedule "N":
	
Vendor and Creditor Certificates.

1.3          Interpretation.   For the purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires,:

(a)     the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, section or other subdivision of this Agreement;

(b)     any reference to an entity shall include and shall be deemed to be a reference to any entity that is a permitted successor to such entity; and

(c)     words in the singular include the plural and words in the masculine gender include the feminine and neuter genders, and vice versa.

 

Article 2

PURCHASE AND SALE OF THE PURCHASED SHARES

2.1          Purchase and sale.   Subject to the terms and conditions hereof and based upon the representations, warranties and covenants contained in Articles "3" and "4" hereinbelow and the prior satisfaction of the conditions precedent which are set forth in Article "6" hereinbelow, the Vendor hereby agree to assign, sell and transfer at the Closing Date (as hereinafter determined) all of its respective right, entitlement and interest in and to all of the Purchased Shares to the Purchaser and the Purchaser hereby agrees to purchase all of the Purchased Shares from the Vendor on the terms and subject to the conditions contained in this Agreement.

2.2          Purchase Price.   The total purchase price (collectively, the "Purchase Price") for all of the Purchased Shares will be satisfied by way of the issuance and delivery by the Purchaser of an aggregate of 22,617,275 restricted common shares in the capital of the Purchaser (each a "Share") at the Closing on the Closing Date (each as hereinafter determined) of this Agreement in the following manner:

(a)     Acquisition Shares:  the issuance of an aggregate of 14,693,423 of the Shares (each herein an "Acquisition Share" herein) to the order and direction of the Vendor, at a deemed issuance price of U.S. $0.65 per Acquisition Share;

(b)     Compensation Shares:  the issuance of an aggregate of 7,381,577 of the Shares (each herein a "Compensation Share") to the order and direction of the HDH Group; with such Compensation Shares being issuable in consideration of each of the HDH Group and Mr. Haley hereby agreeing to accept the same: (A) in complete satisfaction of all claims and disputed claims previously advanced by the HDH Group and Mr. Haley as against the Vendor, the Company and all of the Vendor's subsidiaries (the "HDH Group and Mr. Haley Release of all Claims as against the Company and the Vendor") and being sought in connection with each of a certain disputed employment contract and a disputed consultancy contract together with expenses incurred in connection with the same (collectively, the "Disputed Contracts"); such HDH Group and Mr. Haley Release of all Claims as against the Company and the Vendor to be evidenced by the form of Release (as hereinafter defined and determined) to be entered into among each of the Company, the Vendor, the HDH Group and Mr. Haley prior to Closing; and (B) in consideration of HDH Group's efforts in continuing to commercialize the Company's Business both prior to and after the execution of this Agreement.  In this regard, and for greater certainty, it is hereby acknowledged and agreed by the Parties hereto that the Compensation Shares which are to issued to the order and direction of the HDH Group at Closing are more particularly issuable in consideration of the HDH Group and Mr. Haley Release of all Claims as against the Company and the Vendor under the Release together with:

(i)     1,989,150 of such Compensation Shares being issuable in relation the settlement of all amounts under the Disputed Contracts; that being the previously disputed amount of U.S. $1,100,000 taken at a 15% discount and issuable at a deemed issuance price of U.S. $0.553 per Compensation Share;

(ii)     846,971 of such Compensation Shares being issuable in relation the settlement of all HDH Group expense claims under the Disputed Contracts; that being the previously disputed amount of U.S. $467,961 taken at a 15% discount and issuable at a deemed issuance price of U.S. $0.553 per Compensation Share; and

(iii)     the balance of 4,545,456 of such Compensation Shares being issuable, at a deemed issuance price of $0.65 per Compensation Share, in connection with and in consideration of Mr. Haley's ongoing commitment to each of the Vendor, the Company and the Purchaser to build out a successful public company and to serve as the Executive Chairman of the resulting Purchaser company after the Closing thereof; and

(c)     Creditor Shares:  the issuance of an aggregate of the balance of 542,275 of the Shares (each herein a "Creditor Share") to the order and direction of a substantial majority of the current creditors of the Company (each a "Creditor"); a complete listing of the Creditors and the number of Creditor Shares issuable to each at Closing being set forth in Schedule "C" which is attached hereto; in consideration of such Creditors agreeing to accept the same in complete satisfaction of all previous debts and/or services provided by such Creditors to the Company; that being a collective and auditable amount (collectively, the "Debt Amount") taken at a 15% discount and issuable at a deemed issuance price of U.S. $0.5525 per Creditor Share.  In this regard it is hereby acknowledged and agreed by the Parties hereto that the Purchaser's obligation to issue the Creditor Shares to the order and direction of the Creditors is subject to the Debt Amount being confirmed by the auditors for the Company prior to Closing; the reduction in any portion of the settled Debt Amount as a consequence thereof meaning a reduction in the actual number of Creditor Shares to be issued at Closing hereunder.  In addition, and in consideration of the Purchaser's within agreement to issue the final number of Creditor Shares at Closing, it is hereby acknowledged and agreed by the Parties hereto that each of the HDH Group and Mr. Haley has heretofore represented to the Purchaser that they have compiled a complete listing of all bona fide creditors (inclusive of the Creditors) of the Company in an updated "Company Disclosure Schedule" prepared for, in part, that purpose; and which will accompany the Vendor Group's execution and delivery of this Agreement; that such creditor debts (inclusive of the Debt Amount) are validly due and owing by the Company to such creditors and that the Creditors will accept the actual number of Creditor Shares to be issued at Closing in complete settlement of their audited Debt Amount; a copy of such Company Disclosure Schedule accompanying the Company's acceptance of the terms and conditions of this Agreement;

(each of the Acquisition Shares, the Compensation Shares and the Creditor Shares also being referred to as a "Share" herein; the Vendor, the HDH Group and Mr. Haley being hereinafter collectively referred to as the "Vendor Group" herein; and the Vendor, the HDH Group and the Creditors being hereinafter collectively referred to as the "Resulting Shareholder Group" herein).

2.3          Resale restrictions and legending of Share certificates.   The Vendor Group hereby acknowledges and agrees that the Purchaser makes no representations as to any resale or other restriction affecting the Shares and that it is presently contemplated that the Shares will be issued by the Purchaser to the Resulting Shareholder Group in reliance upon the registration and prospectus exemptions contained in certain sections of the United States Securities Act of 1933 (the "Securities Act") or "Regulation S" promulgated under the Securities Act which will impose a trading restriction in the United States on the Shares for a period of at least 12 months from the Closing Date (as hereinafter determined).  In addition, the Vendor Group hereby also acknowledges and agrees that the within obligation of the Purchaser to issue the Shares pursuant to section "2.2" hereinabove will be subject to the Purchaser being satisfied that an exemption from applicable registration and prospectus requirements is available under the Securities Act and all applicable securities laws, in respect of each of the Resulting Shareholder Group, the Purchased Shares and the Shares, and the Purchaser shall be relieved of any obligation whatsoever to purchase any Purchased Shares of the Vendor and to issue Shares in respect of the Resulting Shareholder Group where the Purchaser reasonably determines that a suitable exemption is not available to it.

The Vendor Group hereby also acknowledges and understands that neither the sale of the Shares which the Resulting Shareholder Group is acquiring nor any of the Shares themselves have been registered under the Securities Act or any state securities laws, and, furthermore, that the Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available.  The Vendor Group also acknowledges and understands that the certificates representing the Shares will be stamped with the following legend (or substantially equivalent language) restricting transfer in the following manner if such restriction is required by the Regulatory Authorities:

"The transfer of the securities represented by this certificate is prohibited except in accordance with the provisions of Regulation S promulgated under the United States Securities Act of 1933, as amended (the "Act"), pursuant to registration under the Act or pursuant to an available exemption from registration.  In addition, hedging transactions involving such securities may not be conducted unless in compliance with the Act.".

or
"The securities represented by this certificate have not been registered under the United States Securities Act of 1933, as amended, or the laws of any state, and have been issued pursuant to an exemption from registration pertaining to such securities and pursuant to a representation by the security holder named hereon that said securities have been acquired for purposes of investment and not for purposes of distribution.  These securities may not be offered, sold, transferred, pledged or hypothecated in the absence of registration, or the availability of an exemption from such registration.  Furthermore, no offer, sale, transfer, pledge or hypothecation is to take place without the prior written approval of counsel to the company being affixed to this certificate.  The stock transfer agent has been ordered to effectuate transfers only in accordance with the above instructions.";

and the Vendor Group hereby consents to the Purchaser making a notation on its records or giving instructions to any transfer agent of the Purchaser (the "Transfer Agent") in order to implement the restrictions on transfer set forth and described hereinabove.

The Vendor Group also acknowledges and understands that:

(a)     the Shares are restricted securities within the meaning of "Rule 144" promulgated under the Securities Act;

(b)     the exemption from registration under Rule 144 will not be available in any event for at least one year from the date of issuance of the Shares to the Resulting Shareholder Group, and even then will not be available unless (i) a public trading market then exists for the common stock of the Purchaser, (ii) adequate information concerning the Purchaser is then available to the public and (iii) other terms and conditions of Rule 144 are complied with; and

(c)     any sale of the Shares may be made by the Resulting Shareholder Group only in limited amounts in accordance with such terms and conditions.

2.4          Costs.   The Parties hereto shall bear their own costs in relation to the negotiation and formalization of this Agreement and the matters contemplated thereby, including any legal fees, accounting, regulatory and filing fees and expenses.  However, and to the extent that the same is not simply an inter-company loan at Closing (as hereinafter determined), the cost of the accounting and audit fees incurred as a result of the requirements of this Agreement will be reimbursed at the Closing of this Agreement.  In addition, Mr. Haley and other officers of the Company will be reimbursed for certain costs incurred by the same in completing the Closing of this Agreement, provided, however, that such costs must be approved by the Board of the resulting Purchaser company and may not be more than U.S. $75,000 in the aggregate.

2.5          Other securities.   If and to the extent that the Vendor Group or any other party related, associated or affiliated with the Vendor Group has any absolute, contingent, optional, pre-emptive or other right to acquire any securities in the capital of the Company, it is hereby acknowledged and agreed by the Vendor Group that such party shall be conclusively deemed, as and from the Closing (as hereinafter determined), to have transferred the same to the Purchaser to the fullest extent permitted by law, and to otherwise hold the same in trust for and at the discretion of the Purchaser.

2.6          Standstill provisions.   In consideration of the Parties' within agreement to purchase and sell the Purchased Shares and to enter into the terms and conditions of this Agreement, each of the Parties hereby undertake for themselves, and for each of their respective agents and advisors, that they will not until the earlier of the Closing Date (as hereinafter determined) or the termination of this Agreement approach or consider any other potential purchasers, or make, invite, entertain or accept any offer or proposal for the proposed sale of any interest in and to any of the Purchased Shares or the assets or the respective business interests of the Company or the Purchaser, as the case may be, or, for that matter, disclose any of the terms of this Agreement, without the Parties' prior written consent.  In this regard each of the Parties hereby acknowledges that the foregoing restrictions are important to the respective businesses of the Parties and that a breach by any of the Parties of any of the covenants herein contained would result in irreparable harm and significant damage to each affected Party that would not be adequately compensated for by monetary award.  Accordingly, the Parties hereby agree that, in the event of any such breach, in addition to being entitled as a matter of right to apply to a Court of competent equitable jurisdiction for relief by way of restraining order, injunction, decree or otherwise as may be appropriate to ensure compliance with the provisions hereof, any such Party will also be liable to the other Parties, as liquidated damages, for an amount equal to the amount received and earned by such Party as a result of and with respect to any such breach.  The Parties hereby also acknowledge and agree that if any of the aforesaid restrictions, activities, obligations or periods are considered by a Court of competent jurisdiction as being unreasonable, they agree that said Court shall have authority to limit such restrictions, activities or periods as the Court deems proper in the circumstances.

 

Article 3

REPRESENTATIONS, WARRANTIES AND COVENANTS

BY EACH OF THE VENDOR GROUP AND THE COMPANY

3.1          General representations, warranties and covenants by each of the Vendor Group and the Company.   In order to induce the Purchaser to enter into and consummate this Agreement, each of the Vendor Group and the Company hereby represents to, warrants to and covenants with the Purchaser, with the intent that the Purchaser will rely thereon in entering into this Agreement and in concluding the transactions contemplated herein, that, to the best of the knowledge, information and belief of each of the Vendor Group and the Company, after having made due inquiry (and for the purposes of the following warranties, representations and covenants, "Vendor" and "Company" shall mean the Vendor, the Company and any subsidiary of the Vendor and the Company, if any, as the context so requires):

(a)     the Company and the Vendor are duly incorporated under the laws of their respective jurisdictions of incorporation, are validly existing and are in good standing with respect to all statutory filings required by the applicable corporate laws, and the Company and the Vendor have the requisite power, authority and capacity to own and use all of their respective business assets and to carry on the Company's Business as presently conducted by them;

(b)     as represented by the HDH Group and Mr. Haley only, the HDH Group is duly incorporated under the laws of its jurisdiction of incorporation, is validly existing and is in good standing with respect to all statutory filings required by the applicable corporate laws, and the HDH Group has the requisite power, authority and capacity to own and use all of its business assets and to carry on its business as presently conducted by it ;

(c)     the execution and delivery of this Agreement and the agreements contemplated hereby have been duly authorized by all necessary action, corporate or otherwise, on its respective part;

(d)     there are no other consents, approvals or conditions precedent to the performance of this Agreement which have not been obtained;

(e)     this Agreement constitutes a legal, valid and binding obligation of it enforceable against it in accordance with its terms, except as enforcement may be limited by laws of general application affecting the rights of creditors;

(f)     no proceedings are pending for, and it is unaware of, any basis for the institution of any proceedings leading to its respective dissolution or winding up, or the placing of it in bankruptcy or subject to any other laws governing the affairs of insolvent companies or persons;

     (g)     to the actual knowledge, information and belief of each of the Vendor Group and the Company only in each of the following instances, the making of this Agreement and the completion of the transactions contemplated hereby and the performance of and compliance with the terms hereof does not and will not:

          (i)     if a corporation, conflict with or result in a breach of or violate any of the terms, conditions or provisions of its respective constating documents;

          (ii)     conflict with or result in a breach of or violate any of the terms, conditions or provisions of any law, judgment, order, injunction, decree, regulation or ruling of any Court or governmental authority, domestic or foreign, to which it is subject, or constitute or result in a default under any agreement, contract or commitment to which it is a party;

          (iii)     give to any party the right of termination, cancellation or acceleration in or with respect to any agreement, contract or commitment to which it is a party;

          (iv)     give to any government or governmental authority, or any municipality or any subdivision thereof, including any governmental department, commission, bureau, board or administration agency, any right of termination, cancellation or suspension of, or constitute a breach of or result in a default under, any permit, license, control or authority issued to it which is necessary or desirable in connection with the conduct and operations of its respective business and the ownership or leasing of its respective business assets; or

          (v)     constitute a default by it, or any event which, with the giving of notice or lapse of time or both, might constitute an event of default, under any agreement, contract, indenture or other instrument relating to any indebtedness of it which would give any party to that agreement, contract, indenture or other instrument the right to accelerate the maturity for the payment of any amount payable under that agreement, contract, indenture or other instrument; and

(i)     neither this Agreement nor any other document, certificate or statement furnished to the Purchaser by or on behalf of any of the Vendor Group or the Company in connection with the transactions contemplated hereby knowingly or negligently contains any untrue or incomplete statement of material fact or omits to state a material fact necessary in order to make the statements therein not misleading which would likely affect the decision of the Purchaser to enter into this Agreement; and

(j)     the Vendor Group and the Company are not aware of any fact or circumstance which has not been disclosed to the Purchaser which should be disclosed in order to prevent the representations and warranties contained in this section from being misleading or which would likely affect the decision of the Purchaser to enter into this Agreement.

3.2          Representations, warranties and covenants by each of the Vendor Group and the Company respecting the Purchased Shares and the Shares.   In order to induce the Purchaser to enter into and consummate this Agreement, each of the Vendor Group and the Company hereby also represents to, warrants to and covenants with the Purchaser, with the intent that the Purchaser will also rely thereon in entering into this Agreement and in concluding the transactions contemplated herein, that, to the best of the knowledge, information and belief of each of the Vendor Group and the Company, after having made due inquiry:

(a)     save and except as set forth in Schedule "A" which is attached hereto and as set forth in the Company Disclosure Schedule, the Vendor has good and marketable title to and are the legal and beneficial owner of all of the Purchased Shares, and the Purchased Shares are fully paid and non-assessable and are free and clear of liens, charges, encumbrances, pledges, mortgages, hypothecations and adverse claims of any and all nature whatsoever and including, without limitation, options, pre-emptive rights and other rights of acquisition in favour of any person, whether conditional or absolute;

(b)     the Vendor has the power and capacity to own and dispose of the Purchased Shares, and the Purchased Shares are not subject to any voting or similar arrangement;

(c)     there are no actions, suits, proceedings or investigations (whether or not purportedly against or on behalf of any of the Vendor Group or the Company), pending or threatened, which may affect, without limitation, the rights of the Vendor to transfer any of the Purchased Shares to the Purchaser at law or in equity, or before or by any federal, state, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and, without limiting the generality of the foregoing, there are no claims or potential claims under any relevant family relations legislation or other equivalent legislation affecting the Purchased Shares.  In addition, the Vendor Group and the Company are not now aware of any existing ground on which any such action, suit or proceeding might be commenced with any reasonable likelihood of success;

(d)     save and except as set forth in Schedule "A" which is attached hereto and as set forth in the Company Disclosure Schedule, no other person, firm or corporation has any agreement, option or right capable of becoming an agreement for the purchase of any of the Purchased Shares;

(e)     the Vendor Group acknowledges that the Shares will be issued, and reserved for issuance where applicable, under certain exemptions from the registration and prospectus filing requirements otherwise applicable under the Securities Act and all applicable securities laws, and that, as a result, the Resulting Shareholder Group may be restricted from using most of the remedies that would otherwise be available to the Resulting Shareholder Group, the Resulting Shareholder Group will not receive information that would otherwise be required to be provided to the Resulting Shareholder Group and the Purchaser is relieved from certain obligations that would otherwise apply to the Purchaser, in either case, under applicable securities legislation;

(f)     the Vendor Group realizes that the sale of the Purchased Shares in exchange for the Shares will be a highly speculative investment and that the each member of the Resulting Shareholder Group should be able, without impairing that Resulting Shareholder Group member's financial condition, to hold the Shares for an indefinite period of time and to suffer a complete loss on such investment.  In addition, each member of the Resulting Shareholder Group should have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of the prospective investment;

(g)     the Vendor Group has not received, nor have any of the Vendor Group requested or do any of the Vendor Group require to receive, any offering memorandum or a similar document describing the business and affairs of the Purchaser in order to assist the Vendor Group in entering into this Agreement and in consummating the transactions contemplated herein;

(h)     if the Vendor or any Creditor is a "U.S. Person", as that term is defined in Regulation S, then the Vendor and each such Creditor hereby and thereby certifies that:

(i)     it qualifies as an "accredited investor" as that term is defined under Rule 501 of Regulation D promulgated under the Securities Act, as amended;

(ii)     it is receiving the Shares solely for its own account for investment and not with a view to or for sale or distribution of the Shares or any portion thereof and not with any present intention of selling, offering to sell or otherwise disposing of or distributing the Shares or any portion thereof in any transaction other than a transaction exempt from registration under the Securities Act; 

(iii)     the entire legal and beneficial interest in the Shares it is receiving is being acquired for, and will be held for the account of, itself only and neither in whole nor in part for any other person; 

(iv)     it understands that: (A) neither the sale of the Shares which it is receiving nor the Shares themselves have been registered under the Securities Act or any state securities laws, and the Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available; and (B) the share certificate representing the Shares will be stamped with the following legend (or substantially equivalent language) restricting transfer:

"The securities represented by this certificate have not been registered under the United States Securities Act of 1933, as amended, or the laws of any state, and have been issued pursuant to an exemption from registration pertaining to such securities and pursuant to a representation by the security holder named hereon that said securities have been acquired for purposes of investment and not for purposes of distribution.  These securities may not be offered, sold, transferred, pledged or hypothecated in the absence of registration, or the availability of an exemption from such registration.  Furthermore, no offer, sale, transfer, pledge or hypothecation is to take place without the prior written approval of counsel to the company being affixed to this certificate.  The stock transfer agent has been ordered to effectuate transfers only in accordance with the above instructions."; and

each such U.S. Person Vendor and Creditor will complete and provide the Purchaser and the Company with an executed copy of the attached form of "Accredited Investor Certificate"; which is attached hereto with Schedule "N" and which forms a material hereof; contemporaneously with the Vendor's execution of this Agreement and the Creditor's execution of a Shares for Debt Private Placement Subscription Agreement (as hereinafter determined) at or before Closing (as hereinafter determined);

(i)     if the Vendor or any Creditor is not a U.S. Person, as defined in Regulation S, , then the Vendor and each such Creditor hereby and thereby certifies that:

(i)     it is not a U.S. Person (as defined in Rule 902 of Regulation S under the Securities Act, which definition includes, but is not limited to, any natural person resident in the United States, any corporation or partnership incorporated or organized under the laws of the United States or any estate or trust of which any executor, administrator or trustee is a U.S. Person);

(ii)     it is not acquiring any of the Shares for the account or benefit of any U.S. Person or for offering, resale or delivery for the account or benefit of any U.S. Person or for the account of any person in any jurisdiction other than the jurisdiction as set out for its name and address as stated in Schedules "A" and "C" which are attached hereto;

(iii)     it was not offered any Shares in the United States and was outside the United States at the time of execution and delivery of this Agreement or the Shares for Debt Private Placement Subscription Agreement (as hereinafter determined), as the case may be;

(iv)     it understands that the Shares have not been registered under the Securities Act and any applicable securities laws;

(v)     it agrees to resell the Shares only in accordance with the provisions of Regulation S, pursuant to a registration under the Securities Act, or pursuant to an available exemption from such registration, and that hedging transactions involving the Shares may not be conducted unless in compliance with the Securities Act; and

(vi)     it understands that any certificate representing the Shares will bear a legend setting forth the foregoing restrictions; and

each such non-U.S. Person Vendor and Creditor will complete and provide the Purchaser and the Company with an executed copy of the attached form of "Regulation S Certificate"; which is attached hereto with Schedule "N" and which forms a material hereof; contemporaneously with the Vendor's execution of this Agreement and the Creditor's execution of a Shares for Debt Private Placement Subscription Agreement (as hereinafter determined) at or before Closing (as hereinafter determined); and

(j)     the Vendor Group and the Company are not aware of any fact or circumstance which has not been disclosed to the Purchaser which should be disclosed in order to prevent the representations and warranties contained in this section from being misleading or which would likely affect the decision of the Purchaser to enter into this Agreement.

3.3          Representations, warranties and covenants by each of the Vendor Group and the Company respecting the Company.   In order to induce the Purchaser to enter into and consummate this Agreement, each of the Vendor Group and the Company hereby also represents to, warrants to and covenants with the Purchaser, with the intent that the Purchaser will also rely thereon in entering into this Agreement and in concluding the transactions contemplated herein, that, to the best of the knowledge, information and belief of each of the Vendor Group and the Company, after having made due inquiry (and for the purposes of the following warranties, representations and covenants, "Vendor" and "Company" shall mean the Vendor, the Company and any subsidiary of the Vendor and the Company, if any, as the context so requires):

     (a)     the Company owns and possesses and has good and marketable title to and possession of all of the Company's Business interests and the Company's Assets free and clear of all actual or threatened liens, charges, options, encumbrances, voting agreements, voting trusts, demands, limitations and restrictions of any nature whatsoever; save and except for those actual or threatened liens, charges, encumbrances, demands, limitations and restrictions which are listed in Schedule "C" which is attached hereto and which forms a material part hereof and as set forth in the Company Disclosure Schedule;

     (b)     save and except as set forth in Schedule "C" which is attached hereto and as set forth in the Company Disclosure Schedule, the Company holds all licenses and permits required for the conduct in the ordinary course of the operations of the Company's Business and for the uses to which the Company's Assets have been put and are in good standing, and such conduct and uses are in compliance with all laws, zoning and other by-laws, building and other restrictions, rules, regulations and ordinances applicable to the Company and to the Company's Business and the Company's Assets, and neither the execution and delivery of this Agreement nor the completion of the transactions contemplated hereby will give any person the right to terminate or cancel any said license or permit or affect such compliance;

(h)     the presently authorized and issued share capital of the Company is as described in Schedule "A" which is attached hereto and which forms a material part hereof, and there are, other than the present incentive stock options, convertible equity instruments and share purchase warrants to acquire certain common shares in and to the Company (collectively, the "Securities") which are listed in Schedule "A" and in the Company Disclosure Schedule, if any, at present no other shares in the capital of the Company issued or allotted or agreed to be issued or allotted to any person.  In addition, at Closing the issued share capital of the Company, together with the names and the number, class and kind of shares of the Company held by the Vendor, will be as set out in Schedule "A";

(i)     the Purchased Shares are validly issued and outstanding and fully paid and non-assessable in the capital of the Company and, save and except as set forth in Schedule "A" which is attached hereto and as set forth in the Company Disclosure Schedule, the Purchased Shares are free and clear of all actual or threatened liens, charges, options, encumbrances, voting agreements, voting trusts, demands, limitations and restrictions of any nature whatsoever;

(j)     save and except as set forth in Schedule "A" which is attached hereto and as set forth in the Company Disclosure Schedule, no other person, firm or corporation has any agreement, option or right capable of becoming an agreement for the purchase of any of the Purchased Shares or any unissued shares in the capital of the Company, and at Closing (as hereinafter determined) it is presently contemplated that each of the presently issued and outstanding incentive stock option Securities (collectively, the "Company's Options") outstanding in and to the Company, if any, will be exchanged, on the same exercise terms and conditions, for an equal number of incentive stock options (collectively, the "Purchaser's Options") in and to the resulting Purchaser company in consideration, in part, of the ongoing involvement of the existing Company's Optionholders in and to the resulting Purchaser company and in exchange for the agreed upon cancellation by said Company's Optionholders of all of the then issued and outstanding Company's Options as a consequence thereof;

(k)     save and except as set forth in Schedule "A" which is attached hereto and as set forth in the Company Disclosure Schedule, there are no actions, suits, proceedings or investigations (whether or not purportedly against or on behalf of any of the Vendor Group or the Company), pending or threatened, which may affect, without limitation, the right of the Vendor to transfer the Purchased Shares to the Purchaser at law or in equity, or before or by any federal, state, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and, without limiting the generality of the foregoing, there are no claims or potential claims under any relevant family relations legislation or other equivalent legislation affecting any of the Purchased Shares.  In addition, the Vendor Group and the Company are not now aware of any existing ground on which any such action, suit or proceeding might be commenced with any reasonable likelihood of success;

(l)     from August 22, 2005 (that being the reference date of the Agreement In Principle) to and up to and including the Closing Date (as hereinafter determined) the Company has not committed to making and until the Closing Date will not make or commit itself, without the written consent of the Purchaser, to:

          (i)     redeem or acquire any shares in its share capital;

(ii)     declare or pay any dividend;

(iii)     make any reduction in or otherwise make any payment on account of its paid-up capital; or

(iv)     effect any subdivision, consolidation or reclassification of its share capital;

(m)     other than as set forth in the Company Disclosure Schedule, from August 22, 2005 to and up to and including the Closing Date (as hereinafter determined) the Company has not committed to making and until the Closing Date will not make or commit itself, without the written consent of the Purchaser, to:

(i)     acquire or have the use of any property from a person, corporation or entity with whom it was not dealing with at arm's length; or

(ii)     dispose of anything to a person, corporation or entity with whom it was not dealing with at arm's length for proceeds less than the fair market value thereof;

(n)     other than as set forth in Schedule "B" which is attached hereto and as set forth in the Company Disclosure Schedule, from August 22, 2005 to and up to and including the Closing Date (as hereinafter determined) the Company has not committed to making and until the Closing Date will not make or commit itself, without the written consent of the Purchaser, to provide any person, firm or corporation with any agreement, option or right, consensual or arising by law, present or future, contingent or absolute, or capable of becoming an agreement, option or right:

(i)     to require it to issue any further or other shares in its share capital, or any other security convertible or exchangeable into shares in its share capital, or to convert or exchange any securities into or for shares in its share capital;

(ii)     for the issue and allotment of any of the authorized but unissued shares in its share capital;

(iii)     to require it to purchase, redeem or otherwise acquire any of the issued and outstanding shares in its share capital; or

(iv)     to purchase or otherwise acquire any shares in its share capital;

(o)     save and except for those matters which are listed in Schedule "D" which is attached hereto and in particular, however, without limitation, except for liabilities which are disclosed, reflected or adequately provided for in the Company's financial statements (collectively, the "Company's Financial Statements") under generally accepted accounting principles; a copy of which Company's Financial Statements being attached hereto as Schedule "D" and forming a material part hereof; there are no other material liabilities, contingent or otherwise, existing on the Execution Date hereof in respect of which the Company may be liable on or after the completion of the transactions contemplated by this Agreement other than:

(i)     liabilities disclosed or referred to in this Agreement; and

(ii)     liabilities incurred in the ordinary course of business, none of which are materially adverse to the Company's Business, operations, affairs or financial conditions of the Company;

(p)     no dividend or other distribution by the Company has been made, declared or authorized since its incorporation, and from August 22, 2005 to and up to and including the Closing Date (as hereinafter determined) the Company has not committed to making and until the Closing Date will not make or commit itself, without the written consent of the Purchaser, to confer upon, or pay to or to the benefit of, any entity, any benefit having monetary value, any bonus or any salary increases except in the normal course of its business;

(q)     save and except as set forth in Schedule "D" which is attached hereto and as set forth in the Company Disclosure Schedule, there is no basis for and there are no actions, suits, judgments, investigations or proceedings outstanding or pending or, to the best of the knowledge, information and belief of each of the Vendor Group and the Company, after having made due inquiry, threatened against or affecting the Company at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau or agency;

(r)     save and except as set forth in Schedule "D" which is attached hereto and as set forth in the Company Disclosure Schedule, the Company is not in breach of any laws, ordinances, statutes, regulations, by-laws, orders or decrees to which it is subject or which apply to it;

(s)     the Company is not a party to any collective agreement with any labour union or other association of employees, and there is no pending application for certification of any of the Company's employees as a collective bargaining unit.  In addition, and to the best of the knowledge, information and belief of the Company, after having made due inquiry, the Company is not presently a party to any complaint, grievance, arbitration or other labour matter referred to any board or labour authority;

     (t)     there are no pension, profit sharing, group insurance or similar plans or other deferred compensation plans affecting the Company or any of its directors, officers or employees;

     (u)     the Company has not experienced, nor are any of the Vendor Group or the Company aware of, any occurrence or event which has had, or might reasonably be expected to have, a materially adverse affect on the Company's Business, the Company's Assets or on the results of the Company's operations;

(v)     save and except as set forth in the Company Disclosure Schedule, the Company holds or have applied for all permits, licenses, consents and authorities issuable by any federal, state, regional or municipal government or agency thereof which are necessary or desirable in connection with its operations;

(w)     save and except as set forth in the Company Disclosure Schedule, from August 22, 2005 to and up to and including the Closing Date (as hereinafter determined) there has been prepared and will be prepared and filed on a timely basis all federal and state income tax returns, elections and designations, and all other governmental returns, notices and reports of which the Company has, or ought reasonably to have had, knowledge required to be or reasonably capable of being filed up to and including the Closing Date, with respect to the operations of the Company, and no such returns, elections, designations, notices or reports contain or will contain any material misstatement or omit any material statement that should have been included, and each such return, election, designation, notice or report, including accompanying schedules and statements, is and will be true, correct and complete in all material respects;

(x)     save and except as set forth in the Company Disclosure Schedule, the Company has been assessed for all federal, state and municipal income tax for all years to and including its most recent taxation year, and from August 22, 2005 to and up to and including the Closing Date (as hereinafter determined) the Company will have paid in full or accrued in accounts all amounts (including, but not limited to, sales, use and consumption taxes and taxes measured on income and all installments of taxes) due and payable to all federal, state and municipal taxation authorities up to and including the Closing Date;

(y)     save and except as set forth in Schedule "D" which is attached hereto and as set forth in the Company Disclosure Schedule, there is not now, and there will not be by the Closing Date (as hereinafter determined), any proceeding, claim or, to the best of the knowledge, information and belief of each of the Vendor Group and the Company, after having made due inquiry, any investigation by any federal, state or municipal taxation authority, or any matters under discussion or dispute with such taxation authorities, in respect of taxes, governmental charges, assessments or reassessments in connection with the Company, and the Vendor Group and the Company are not aware of any contingent tax liabilities or any grounds that could result in an assessment, reassessment, charge or potentially adverse determination by any federal, state or municipal taxation authority as against the Company;

(z)     the Company is not, nor until or at the Closing Date (as hereinafter determined) will it be, in breach of any provision or condition of, nor has it done or omitted to do anything that, with or without the giving of notice or lapse or both, would constitute a breach of any provision or condition of, or give rise to any right to terminate or cancel or accelerate the maturity of any payment under, any deed of trust, contract, certificate, consent, permit, license or other instrument to which it is a party, by which it is bound or from which it derives benefit, any judgment, decree, order, rule or regulation of any Court or governmental authority to which it is subject, or any statute or regulation applicable to it, to an extent that, in the aggregate, has a material adverse affect on it;

(aa)     adequate provision has been made and will be made for taxes payable by the Company for the current period for which a tax return is not yet required to be filed and, to the best of the knowledge, information and belief of the Vendor Group and the Company, after having made due inquiry, there are no contingent tax liabilities of the Company or any grounds which would prompt a re-assessment of the Company and including, without limitation, the aggressive treatment of income and expenses in the filing of earlier tax returns by the Company;

     (ab)     all amounts required to be withheld for taxes by the Company from payments made to any present or former shareholder, officer, director, non-resident creditor, employee, associate or consultant has been withheld and paid on a timely basis to the property governmental body pursuant to applicable legislation;

     (ae)     Schedule "E" which is attached hereto and which forms a material part hereof contains an accurate and complete description of all of the Company's Intellectual Property, and the Intellectual Property does not infringe the rights of any other person; 

     (af)     the Company does not have and does not use any service mark, tradename or trademark except as disclosed as part of the Company's Intellectual Property;

     (ag)     save and except as set forth in the Company Disclosure Schedule, the Company has good and marketable title to all of its Company's Intellectual Property, Company's Business, Company's Assets, properties and interests in properties, real and personal, including those reflected in the Company's Financial Statements or which have been acquired since the date of the latest Company's Financial Statements (except for those which have been transferred, sold or otherwise disposed of in the ordinary or normal course of business), free and clear of all encumbrances, and none of the Company's properties or the Company's Assets is in the possession of or under the control of any other person;

     (ah)     save and except as set forth in the Company Disclosure Schedule, the Company has no equipment, other than the personal property or fixtures in the possession or custody of the Company which, as of the date hereof, is leased or is held under license or similar arrangement;

     (ai)     except for the real property leases and the contracts of employment which are set forth in Schedules "F" and "G", respectively, which are attached hereto and which form a material part hereof, the Company is not party to or bound by any other material contract, whether oral or written, other than the contracts and agreements as set forth in Schedule "H" which is attached hereto and which forms a material part hereof;

     (aj)     as to the contracts listed in Schedule "H" which is attached hereto:

(i)     each such contract is in full force and effect and unamended;

(ii)     no material default exists in respect thereof on the part of either the Company or any other party thereto;

(iii)     each such contract does not involve the Vendor or any non-arm's length party except where described; and

(iv)     neither the Vendor Group nor the Company is aware of any intention on the part of any other party thereto to terminate or materially alter any such contract;

     (ak)     the Company has no consulting or employment agreements, whether written or otherwise, except for those which are set forth in Schedule "H" which is attached hereto;

     (al)     Schedule "I" which is attached hereto and which forms a material part hereof is a true and complete list showing the name of each bank, trust company or similar institution in which the Company has accounts or safety deposit boxes, the identification numbers of each such account or safe deposit box, the names of all persons authorized to draw therefrom or to have access thereto and the number of signatories required on each account.  In addition, Schedule "I" also includes a list of all non-bank account numbers, codes and business numbers used by the Company for the purposes of remitting tax, dues, assessments and other fees;

     (am)     the Company maintains, and has maintained, insurance in force against loss on the Company's Assets, against such risks, in such amounts and to such limits, as is in accordance with prudent business practices prevailing in its line of business and having regard to the location, age and character of its properties and the Company's Assets, and has complied fully with all requirements of such insurance, including the prompt giving of any notice of any claim or possible claim thereunder, and all such insurance has been and is with insurers which the Company believes to be responsible;

     (an)     the Company utilizes no product warranties, guarantees or product return policies;

     (ao)     the most recently completed and consolidated audited Company's Financial Statements as at June 30, 2005 are true and correct in every respect and present fairly the financial position of the Company as at its most recently completed financial period and the results of its operations for the period then ended in accordance with generally accepted accounting principles on a basis consistently applied; a copy of said Company's Financial Statements being attached hereto as Schedule "D";

(ap)     the Company's Financial Statements and the books and records of the Company are true and correct in every material respect, were prepared in accordance with generally accepted accounting principles and fairly reflect the Company's Business, property, the Company's Assets and the financial position of the Company as at the date of the Company's Financial Statements and any such books and records and the results of the operations for the period then ended, and there have been no adverse changes in the Company's Business or affairs of the Company since the date of the Company's Financial Statements and any such books and records;

     (aq)     since June 30, 2005:

(i)     there has not been any material adverse change in the financial position or condition of the Company or any damage, loss or other change in circumstances materially affecting the Company's Business or properties or the Company's right or capacity to carry on business;

(ii)     the Company has not waived or surrendered any right of material value;

(iii)     the Company has not discharged or satisfied or paid any lien or encumbrance or obligation or liability other than current liabilities in the ordinary course of business; and

(iv)     the Company's Business has been carried on in the ordinary course;

     (ar)     save and except for those matters which are listed in Schedule "D" which is attached hereto, there are no liabilities, contingent or otherwise, of the Company not disclosed or reflected in the Company's Financial Statements, except those incurred in the ordinary course of business of the Company since June 30, 2005;

     (as)     save and except for any outstanding advances, salaries, wages and/or employment-related expenses which are set forth in the Company's Financial Statements, the Company is not indebted to the Vendor or to any affiliate or associate of the Company or of the Vendor;

     (at)     save and except as set forth in the Company's Financial Statements, no payments of any kind have been made or authorized by or on behalf of the Company to or on behalf of the Vendor or to or on behalf of any directors, officers, shareholders or employees of the Company or under any management agreements with the Company other than in the ordinary course of business;

     (au)     except as otherwise provided for herein, the Vendor Group and the Company have not retained, employed or introduced any broker, finder or other person who would be entitled to a brokerage commission or finder's fee arising out of the transactions contemplated hereby;

     (av)     save and except for those matters which are listed in Schedule "G" which is attached hereto, the Company does not have any contracts, agreements, undertakings or arrangements, whether oral, written or implied, with employees, lessees, licensees, managers, accountants, suppliers, agents, distributors, directors, officers, lawyers or others which cannot be terminated, without penalty, on no more than 12 month's notice;

     (aw)     save and except as set forth in the Company's Financial Statements, neither the Vendor, nor any directors, officers or employees of the Company, are now indebted or under obligation to the Company on any account whatsoever other than in the ordinary course of business;

(ax)     all material transactions of the Company and including, without limitation, all directors' and shareholders' resolutions, have been promptly and properly recorded or filed in or with its books and records;

(ay)     the Vendor Group and the Company have the full authority and capacity required to enter into this Agreement and to perform their respective obligations hereunder;

(az)     the present directors and officers of the Company are as follows:

	
Name
	
Position with the Company

	
H. Dean Haley
	
President, Chief Executive Officer and a director;

(ba)     prior to the Subject Removal Date (as hereinafter determined) the Company will have obtained all authorizations and approvals or waivers that may be necessary or desirable in connection with the transactions contemplated in this Agreement, and other actions by, and have made all filings with, any and all Regulatory Authorities, if applicable, from whom any such authorization, approval or other action is required to be obtained or to be made in connection with the transactions contemplated herein, and all such authorizations, approvals and other actions will be in full force and effect, and all such filings will have been accepted by the Company which will be in compliance with, and have not committed any breach of, any securities laws, regulations or policies of any Regulatory Authority to which the Company may be subject;

(bb)     the Company has not committed to making and until the Closing Date (as hereinafter determined) will not make or commit itself, without the written consent of the Purchaser, to:

(i)     guarantee, or agree to guarantee, any indebtedness or other obligation of any person or corporation;

(ii)     other than the payment of ordinary course obligations, make any single operating or capital expenditures in excess of U.S. $5,000.00; or

(iii)     waive or surrender any right of material value;

(bc)     until the Closing Date (as hereinafter determined) the Company will:

(i)     maintain its Company's Business and assets in a manner consistent with and in compliance with applicable law; and

(ii)     not enter into any material transaction or assume or incur any material liability outside the normal course of its business;

(bd)     the Company has not committed to making and until the Closing Date (as hereinafter determined) will not make or commit itself, without the written consent of the Purchaser, to:

(i)     declare or pay any dividend, or make any distribution of its properties or assets to its shareholders, or purchase or retire any of its shares;

(ii)     sell all or any part of its Company's Business or assets or agree to do or perform any act or enter into any transaction or negotiation which could reasonably be expected to interfere with this Agreement or which would render inaccurate any of the representations, warranties and covenants set forth in this Agreement; or

(iii)     merge, amalgamate or consolidate into or with any entity, or enter into any other corporate reorganization;

provided, however, that the provisions hereof shall not preclude the Company, pending the Closing (as hereinafter determined) or the termination of this Agreement, whichever shall first occur, from carrying on its business in the normal course thereof;

(be)     at Closing (as hereinafter determined) each of the Vendor Group and the Company will have executed and provided each other with an acceptable form of final release and indemnification respecting any and all claims which either of such Parties had, or may have had, against any such other Party prior to Closing (the "Release") and including, without limiting the generality of the foregoing, the HDH Group and Mr. Haley Release of all Claims as against the Company and the Vendor in respect of, among all matters, the Disputed Contracts and all amounts and expenses previously claimed thereunder;

     (bf)     the Company will, for a period of at least five business days prior to the Closing Date (as hereinafter determined), during normal business hours:

          (i)     make available for inspection by the counsel, auditors and representatives of the Purchaser, at such location as is appropriate, all of the Company's books, records, contracts, documents, correspondence and other written materials, and afford such persons every reasonable opportunity to make copies thereof and take extracts therefrom at the sole cost of the Purchaser; provided such persons do not unduly interfere in the operations of the Company;

          (ii)     authorize and permit such persons at the risk and the sole cost of the Purchaser, and only if such persons do not unduly interfere in the operations of the Company, to attend at all of its respective places of business and operations to observe the conduct of its business and operations, inspect its properties and assets and make physical counts of its inventories, shipments and deliveries; and

          (iii)     require the Company's management personnel to respond to all reasonable inquiries concerning the Company's Business and assets or the conduct of its business relating to its liabilities and obligations;

(bg)     the Vendor Group and the Company will give to the Purchaser, within at least five business days prior to the Closing Date (as hereinafter determined), by written notice, particulars of:

(i)     each occurrence within the Vendor Group's and the Company's knowledge after the Execution Date of this Agreement that, if it had occurred before the Execution Date, would have been contrary to any of the Vendor Group's or the Company's respective representations or warranties contained herein; and

(ii)     each occurrence or omission within the Vendor Group's and the Company's knowledge after the Execution Date that constitutes a breach of any of the Vendor Group's or the Company's respective covenants contained in this Agreement;

(bh)     each of the attached Schedules contains all material information for each particular Schedule listed therein and there are no omissions of material information by the Company; and

(bi)     the Vendor Group and the Company are not aware of any fact or circumstance which has not been disclosed to the Purchaser which should be disclosed in order to prevent the representations and warranties contained in this section from being misleading or which would likely affect the decision of the Purchaser to enter into this Agreement.

3.4          Continuity of the representations, warranties and covenants by each of the Vendor Group and the Company.   The representations, warranties and covenants by each of the Vendor Group and the Company contained in this Article, or in any certificates or documents delivered pursuant to the provisions of this Agreement or in connection with the transactions contemplated hereby, will be true at and as of the Closing Date (as hereinafter determined) as though such representations, warranties and covenants were made at and as of such time.  Notwithstanding any investigations or inquiries made by the Purchaser or by the Purchaser's professional advisors prior to the Closing Date, or the waiver of any condition by the Purchaser, the representations, warranties and covenants of each of the Vendor Group and the Company contained in this Article shall survive the Closing Date and shall continue in full force and effect for a period of one calendar year from the Closing Date; provided, however, that the Vendor Group and the Company shall not be responsible for the breach of any representation, warranty or covenant of either of the Vendor Group or the Company contained herein caused by any act or omission of the Purchaser prior to the Execution Date hereof of which any of the Vendor Group and the Company were unaware or as a result of any action taken by the Purchaser after the Execution Date.  In the event that any of the said representations, warranties or covenants are found by a Court of competent jurisdiction to be incorrect and such incorrectness results in any loss or damage sustained directly or indirectly by the Purchaser, then the Vendor Group and/or the Company, as the case may be, will, in accordance with the provisions of Article "16" hereinbelow, pay the amount of such loss or damage to the Purchaser within 30 calendar days of receiving notice of judgment therefore; provided that the Purchaser will not be entitled to make any claim unless the loss or damage suffered may exceed the amount of U.S. $1,000.00.

 

Article 4

WARRANTIES, REPRESENTATIONS AND COVENANTS BY THE PURCHASER

4.1          Warranties, representations and covenants by the Purchaser.   In order to induce each of the Vendor Group and the Company to enter into and consummate this Agreement, the Purchaser hereby warrants to, represents to and covenants with each of the Vendor Group and the Company, with the intent that each of the Vendor Group and the Company will rely thereon in entering into this Agreement and in concluding the transactions contemplated herein, that, to the best of the knowledge, information and belief of the Purchaser, after having made due inquiry (and for the purposes of the following warranties, representations and covenants, "Purchaser" shall mean the Purchaser and any subsidiary of the Purchaser, if any, as the context so requires)::

(a)     the Purchaser is a corporation duly incorporated under the laws of its jurisdiction of incorporation, is validly existing and is in good standing with respect to all statutory filings required by the applicable corporate laws;

(b)     the Purchaser has the requisite power, authority and capacity to own and use all of their respective business assets and to carry on their respective businesses as presently conducted by them;

(c)     save and except as set forth in the updated "Purchaser Disclosure Schedule" which will accompany the Purchaser's execution and delivery of this Agreement, the Purchaser is qualified to do business in those jurisdictions where it is necessary to fulfill its obligations under this Agreement, and it has the full power and authority to enter into this Agreement and any agreement or instrument referred to or contemplated by this Agreement;

(d)     the execution and delivery of this Agreement and the agreements contemplated hereby has been duly authorized by all necessary corporate action on its part;

(e)     there are no other consents, approvals or conditions precedent to the performance of this Agreement which have not been obtained;

(f)     this Agreement constitutes a legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms, except as enforcement may be limited by laws of general application affecting the rights of creditors;

(g)     no proceedings are pending for, and the Purchaser is unaware of, any basis for the institution of any proceedings leading to the dissolution or winding up of the Purchaser, or of any of the Purchaser's subsidiaries, if any, or the placing of the Purchaser or any of the Purchaser's subsidiaries, if any, in bankruptcy or subject to any other laws governing the affairs of insolvent companies;

     (h)     the Purchaser owns and possesses and has good and marketable title to and possession of all of its business assets free and clear of all actual or threatened liens, charges, options, encumbrances, voting agreements, voting trusts, demands, limitations and restrictions of any nature whatsoever, save and except for those actual or threatened liens, charges, encumbrances, demands, limitations and restrictions which are listed in Schedule "J" which is attached hereto and which forms a material part hereof and as forth in the Purchaser Disclosure Schedule;

     (i)     save and except as set forth in the Purchaser Disclosure Schedule, the Purchaser holds all licenses and permits required for the conduct in the ordinary course of the operations of its business and for the uses to which its business assets have been put and are in good standing, and such conduct and uses are in compliance with all laws, zoning and other by-laws, building and other restrictions, rules, regulations and ordinances applicable to the Purchaser and its business and assets, and neither the execution and delivery of this Agreement nor the completion of the transactions contemplated hereby will give any person the right to terminate or cancel any said license or permit or affect such compliance;

(j)     the authorized capital of the Purchaser consists of 100,000,000 common shares, with a par value of U.S. $0.001 per common share which, according to the records of the Purchaser, an aggregate of 18,750,000 common shares of the Purchaser are and will be, subject to the Cancellation of Shares (as hereinafter determined), issued and outstanding as fully paid and non-assessable just prior to the Closing Date (as hereinafter determined), and there are at present no other shares in the capital of the Purchaser issued or allotted or agreed to be issued or allotted to any person;

(k)     all of the issued and outstanding shares of the Purchaser are listed and posted for trading on each of the NASD Over-the-Counter Bulletin Board (the "OTCBB"), and the Purchaser is not in material default of any of its listing requirements of the OTCBB or any rules or policies of the United States Securities and Exchange Commission (the "Commission");

(l)     save and except as set forth in the Purchaser Disclosure Schedule, all registration statements, reports and proxy statements filed by the Purchaser with the Commission, and all registration statements, reports and proxy statements required to be filed by the Purchaser with the Commission, have been filed by the Purchaser under the United States Securities Act of 1934 (the "1934 Act"), were filed in all material respects in accordance with the requirements of the 1934 Act and the rules and regulations thereunder and no such registration statements, reports or proxy statements contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading;

(m)     the Purchaser will allot and issue the Shares on the Closing Date in accordance with section "2.2" hereinbelow as fully paid and non-assessable in the capital of the Purchaser, free and clear of all actual or threatened liens, charges, options, encumbrances, voting agreements, voting trusts, demands, limitations and restrictions of any nature whatsoever, other than hold periods or other restrictions imposed under applicable securities legislation;

(n)     from August 22, 2005 (that being the reference date of the Agreement In Principle) to and up to and including the Closing Date (as hereinafter determined) the Purchaser has not committed to making and until the Closing Date will not make or commit itself, without the written consent of the Company, to:

          (i)     redeem or acquire any shares in its share capital;

(ii)     declare or pay any dividend;

(iii)     make any reduction in or otherwise make any payment on account of its paid-up capital; or

(iv)     effect any subdivision, consolidation or reclassification of its share capital;

(o)     from August 22, 2005 to and up to and including the Closing Date (as hereinafter determined) the Purchaser has not committed to making and until the Closing Date will not make or commit itself, without the written consent of the Company, to:

(i)     acquire or have the use of any property from a person, corporation or entity with whom it was not dealing with at arm's length; or

(ii)     dispose of anything to a person, corporation or entity with whom it was not dealing with at arm's length for proceeds less than the fair market value thereof;

(p)     save and except as set forth in Schedule "J" which is attached hereto and as set forth in the Purchaser Disclosure Schedule, from August 22, 2005 to and up to and including the Closing Date (as hereinafter determined) the Purchaser has not committed to making and until the Closing Date will not make or commit itself, without the written consent of the Company, to provide any person, firm or corporation with any agreement, option or right, consensual or arising by law, present or future, contingent or absolute, or capable of becoming an agreement, option or right:

(i)     to require it to issue any further or other shares in its share capital, or any other security convertible or exchangeable into shares in its share capital, or to convert or exchange any securities into or for shares in its share capital;

(ii)     for the issue and allotment of any of the authorized but unissued shares in its share capital;

(iii)     to require it to purchase, redeem or otherwise acquire any of the issued and outstanding shares in its share capital; or

(iv)     to purchase or otherwise acquire any shares in its share capital;

(q)     the Purchaser is not aware of any court order which restricts or prevents the issuance by the Purchaser of any shares from treasury;

(r)     save and except for those matters which are listed in Schedule "K" which is attached hereto and as set forth in the Company Disclosure Schedule, there are no material liabilities, contingent or otherwise, existing on the Execution Date hereof in respect of which the Purchaser may be liable on or after the completion of the transactions contemplated by this Agreement other than:

(i)     liabilities disclosed or referred to in this Agreement; and

(ii)     liabilities incurred in the ordinary course of business, none of which are materially adverse to the business, operations, affairs or financial conditions of the Purchaser;

(s)     save and except as set forth in Schedule "J" which is attached hereto and as set forth in the Purchaser Disclosure Schedule, no other dividend or other distribution by the Purchaser has been made, declared or authorized since its incorporation, and from August 22, 2005 to and up to and including the Closing Date (as hereinafter determined) the Purchaser has not committed to making and until the Closing Date will not make or commit itself, without the written consent of the Company, to confer upon, or pay to or to the benefit of, any entity, any benefit having monetary value, any bonus or any salary increases except in the normal course of its business;

(t)     save and except as set forth in Schedule "J" which is attached hereto and as set forth in the Purchaser Disclosure Schedule, there is no basis for and there are no actions, suits, judgments, investigations or proceedings outstanding or pending or, to the best of the knowledge, information and belief of the Purchaser, after making due inquiry, threatened against or affecting the Purchaser at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau or agency;

(u)     save and except as set forth in the Purchaser Disclosure Schedule, the Purchaser is not in breach of any laws, ordinances, statutes, regulations, by-laws, orders or decrees to which it is subject or which apply to it;

(v)     the Purchaser is not a party to any collective agreement with any labour union or other association of employees, and there is no pending application for certification of any of the Purchaser's employees as a collective bargaining unit.  In addition, and to the best of the knowledge, information and belief of the Purchaser, after having made due inquiry, the Purchaser is not presently a party to any complaint, grievance, arbitration or other labour matter referred to any board or labour authority;

     (w)     there are no pension, profit sharing, group insurance or similar plans or other deferred compensation plans affecting the Purchaser or any of its directors, officers or employees;

     (x)     save and except as set forth in the Purchaser Disclosure Schedule, the Purchaser has not experienced, nor is the Purchaser aware of, any occurrence or event which has had, or might reasonably be expected to have, a materially adverse affect on its business or on the results of its operations;

(y)     save and except as set forth in the Purchaser Disclosure Schedule, the Purchaser holds or has applied for all permits, licenses, consents and authorities issuable by any federal, state, regional or municipal government or agency thereof which are necessary or desirable in connection with its operations;

(z)     save and except as set forth in the Purchaser Disclosure Schedule, from August 22, 2005 to and up to and including the Closing Date (as hereinafter determined) there has been and there will be prepared and filed on a timely basis all federal and state income tax returns, elections and designations, and all other governmental returns, notices and reports of which the Purchaser had, or ought reasonably to have had, knowledge required to be or reasonably capable of being filed up to the Closing Date, with respect to the operations of the Purchaser, and no such returns, elections, designations, notices or reports contain or will contain any material misstatement or omit any material statement that should have been included, and each such return, election, designation, notice or report, including accompanying schedules and statements, is and will be true, correct and complete in all material respects;

(aa)     save and except as set forth in the Purchaser Disclosure Schedule, the Purchaser has been assessed for all federal, state and municipal income tax for all years to and including its most recent taxation year, and at the Closing Date (as hereinafter determined) the Purchaser will have paid in full or accrued in accounts all amounts (including but not limited to sales, use and consumption taxes and taxes measured on income and all installments of taxes) due and payable to all federal, state and municipal taxation authorities up to the Closing Date;

(ab)     save and except as set forth in the Purchaser Disclosure Schedule, there is not now, and there will not be by the Closing Date (as hereinafter determined), any proceeding, claim or, to the best of the knowledge, information and belief of the Purchaser, after making due inquiry, any investigation by any federal, state or municipal taxation authority, or any matters under discussion or dispute with such taxation authorities, in respect of taxes, governmental charges, assessments or reassessments in connection with the Purchaser, and the Purchaser is not aware of any contingent tax liabilities or any grounds that could result in an assessment, reassessment, charge or potentially adverse determination by any federal, state or municipal taxation authority as against the Purchaser;

(ac)     save and except as set forth in the Purchaser Disclosure Schedule, the Purchaser is not in breach of any provision or condition of, nor have they done or omitted anything that, with or without the giving of notice or lapse or both, would constitute a breach of any provision or condition of, or give rise to any right to terminate or cancel or accelerate the maturity of any payment under, any deed of trust, contract, certificate, consent, permit, license or other instrument to which it is a party, by which it is bound or from which it derives benefit, any judgment, decree, order, rule or regulation of any court or governmental authority to which it is subject, or any statute or regulation applicable to it, to an extent that, in the aggregate, has a material adverse affect on it;

(ad)     save and except as set forth in the Purchaser Disclosure Schedule, adequate provision has been made and will be made for taxes payable by the Purchaser for the current period for which a tax return is not yet required to be filed and, to the best of the knowledge, information and belief of the Purchaser, after having made due inquiry, there are no contingent tax liabilities of the Purchaser or any grounds which would prompt a re-assessment of the Purchaser and including, without limiting the generality of the foregoing, the aggressive treatment of income and expenses in the filing of earlier tax returns by the Purchaser;

     (ae)     the most recently completed audited and unaudited consolidated financial statements of the Purchaser as at September 30, 2004 and June 30, 2005, respectively (collectively, the "Purchaser's Financial Statements"), are true and correct in every respect and presently fairly the financial position of the Purchaser as at its most recently completed financial period and the results of its operations for the period then ended in accordance with generally accepted accounting principles on a basis consistently applied; a copy of said Purchaser's Financial Statements being attached hereto as Schedule "J" and forming a material part hereof;

(af)     save and except as set forth in the Purchaser Disclosure Schedule, the Purchaser's Financial Statements and the books and records of the Purchaser are true and correct in every material respect, were prepared in accordance with generally accepted accounting principles and fairly reflect the business, property, assets and financial positions of the Purchaser as at the date of the Purchaser's Financial Statements and any such books and records and the results of its operations for the periods then ended, and there have been no adverse changes in the business or affairs of the Purchaser since the date of the Purchaser's Financial Statements and any such books and records;

     (ag)     save and except as set forth in the Purchaser Disclosure Schedule, the Purchaser has good and marketable title to all of its assets, properties and interests in properties, real and personal, including those reflected in the Purchaser's Financial Statements or which have been acquired since the date of the latest Purchaser's Financial Statements (except for those which have been transferred, sold or otherwise disposed of in the ordinary or normal course of business), free and clear of all encumbrances, and none of the Purchaser's assets or properties is in the possession of or under the control of any other person;

     (ah)     save and except as set forth in the Purchaser Disclosure Schedule, the Purchaser has no equipment, other than the personal property or fixtures in the possession or custody of the Purchaser which, as of the date hereof, is leased or is held under license or similar arrangement;

     (ai)     except for the real property leases and the contracts of employment which are set forth in Schedule "K" which is attached hereto and which forms a material part hereof, the Purchaser is not party to or bound by any other material contract, whether oral or written, other than the contracts and agreements as set forth in Schedule "K";

     (aj)     save and except as set forth in the Purchaser Disclosure Schedule, as to the contracts listed in Schedule "K" which is attached hereto:

(i)     each such contract is in full force and effect and unamended;

(ii)     no material default exists in respect thereof on the part of either the Purchaser or any other party thereto;

(iii)     each such contract does not involve any non-arm's length party except where described; and

(iv)     the Purchaser is not aware of any intention on the part of any other party thereto to terminate or materially alter any such contract;

     (ak)     the Purchaser has no consulting or employment agreements, whether written or otherwise, except for those which are set forth in Schedule "K" which is attached hereto;

     (al)     Schedule "L" which is attached hereto and which forms a material part hereof is a true and complete list showing the name of each bank, trust company or similar institution in which the Purchaser has accounts or safety deposit boxes, the identification numbers of each such account or safe deposit box, the names of all persons authorized to draw therefrom or to have access thereto and the number of signatories required on each account.  In addition, Schedule "L" also includes a list of all non-bank account numbers, codes and business numbers used by the Purchaser for the purposes of remitting tax, dues, assessments and other fees;

     (am)     save and except as set forth in the Purchaser Disclosure Schedule, the Purchaser maintains, and has maintained, insurance in force against loss on the Purchaser's assets and properties, against such risks, in such amounts and to such limits, as is in accordance with prudent business practices prevailing in its line of business and having regard to the location, age and character of its assets and properties, and has complied fully with all requirements of such insurance, including the prompt giving of any notice of any claim or possible claim thereunder, and all such insurance has been and is with insurers which the Purchaser believes to be responsible;

     (an)     the Purchaser utilizes no product warranties, guarantees or product return policies;

     (ao)     save and except as set forth in the Purchaser Disclosure Schedule, since June 30, 2005:

(i)     there has not been any material adverse change in the financial position or condition of the Purchaser or any damage, loss or other change in circumstances materially affecting the business or properties of the Purchaser or its right or capacity to carry on business;

(ii)     the Purchaser has not waived or surrendered any right of material value;

(iii)     the Purchaser has not discharged or satisfied or paid any lien or encumbrance or obligation or liability other than current liabilities in the ordinary course of business; and

(iv)     the business of the Purchaser has been carried on in the ordinary course;

     (ap)     save and except for those matters which are listed in Schedule "J" which is attached hereto and as set forth in the Purchaser Disclosure Schedule, there are no liabilities, contingent or otherwise, of the Purchaser not disclosed or reflected in the Purchaser's Financial Statements, except those incurred in the ordinary course of business of the Purchaser since June 30, 2005;

     (aq)     save and except as set forth in the Purchaser Disclosure Schedule, no payments of any kind have been made or authorized by or on behalf of the Purchaser to or on behalf of directors, officers, shareholders or employees of the Purchaser or under any management agreements with the Purchaser other than in the ordinary course of business;

     (ar)     save and except for the proposed issuance of common shares of the Company as a finder's fee in conjunction with the successful completion of the within Reverse Takeover, and except for any finder's fees or commissions which may be payable or issuable by the Purchaser in conjunction with the completion of its proposed Private Placement (as hereinafter determined) as set forth hereinbelow, the Purchaser has not retained, employed or introduced any other broker, finder or other person who would be entitled to a brokerage commission or finder's fee arising out of the transactions contemplated hereby;

     (as)     save and except as set forth in the Purchaser Disclosure Schedule, the Purchaser does not have any contracts, agreements, undertakings or arrangements, whether oral, written or implied, with employees, lessees, licensees, managers, accountants, suppliers, agents, distributors, directors, officers, lawyers or others which cannot be terminated, without penalty, on no more than three month's notice;

     (at)     save and except as set forth in the Purchaser Disclosure Schedule, none of directors, officers or employees of the Purchaser are now indebted or under obligation to the Purchaser on any account whatsoever, other than in the ordinary course of business;

(au)     save and except as set forth in the Purchaser Disclosure Schedule, all material transactions of the Purchaser and including, without limitation, all directors' and shareholders' resolutions, have been promptly and properly recorded or filed in or with its books and records;

(av)     the present directors and officers of the Purchaser are as follows:

	
Name

	
Position with the Purchaser

	
Paul D. Brock
	
President, Chief Executive Officer and a director;

	
Donald M. Prest
	
Secretary, Treasurer, Principal Financial Officer, Principal Accounting Officer and a director;

	
Francis Chiew
	
a director; and

	
Alan Whittingham
	
a director;

(aw)     save and except as set forth in the Purchaser Disclosure Schedule, the Purchaser  has good and marketable title to all of its properties, if any, and assets, and such properties, if any, and assets are not subject to any mortgage, pledge, deed of trust, lien, conditional sale agreement, encumbrance or charge;

(ax)     prior to the Subject Removal Date (as hereinafter determined) the Purchaser will have obtained all authorizations, approvals, or waivers that may be necessary or desirable in connection with the transactions contemplated in this Agreement, and other actions by, and have made all filings with, any and all Regulatory Authorities required to be made in connection with the transactions contemplated herein, and all such authorizations, approvals and other actions will be in full force and effect, and all such filings will have been accepted by the Purchaser, which will be in compliance with, and have not committed any breach of, any securities laws, regulations or policies of any Regulatory Authority to which the Purchaser may be subject;

(ay)     save and except as set forth in the Purchaser Disclosure Schedule, the Purchaser has not committed to making and until the Closing Date (as hereinafter determined) will not make or commit itself, without the written consent of the Company, to:

(i)     guarantee, or agree to guarantee, any indebtedness or other obligation of any person or corporation;

(ii)     other than the payment of ordinary course obligations, make any operating or capital expenditures in excess of U.S. $5,000.00; or

(iii)     waive or surrender any right of material value;

(az)     until the Closing Date (as hereinafter determined) the Purchaser will:

(i)     maintain its assets in a manner consistent with and in compliance with applicable law; and

(ii)     not enter into any material transaction or assume or incur any material liability outside the normal course of its business;

(ba)     save and except as set forth in the Purchaser Disclosure Schedule, the Purchaser has not committed to making and until the Closing Date (as hereinafter determined) will not make or commit itself, without the written consent of the Company, to:

(i)     declare or pay any dividend, or make any distribution of its properties or assets to its shareholders, or purchase or retire any of its shares;

(ii)     sell all or any part of its assets or agree to do or perform any act or enter into any transaction or negotiation which could reasonably be expected to interfere with this Agreement or which would render inaccurate any of the representations, warranties and covenants set forth in this Agreement; or

(iii)     merge, amalgamate or consolidate into or with any entity, or enter into any other corporate reorganization;

provided, however, that the provisions hereof shall not preclude the Purchaser pending the Closing (as hereinafter determined) or the termination of this Agreement, whichever shall first occur, from carrying on its business in the normal course thereof;

     (bb)     the Purchaser will, for a period of at least five business days prior to the Closing Date (as hereinafter determined), during normal business hours:

          (i)     make available for inspection by the counsel, auditors and representatives of the Company, at such location as is appropriate, all of the Purchaser's books, records, contracts, documents, correspondence and other written materials, and afford such persons every reasonable opportunity to make copies thereof and take extracts therefrom at the sole cost of the Company; provided such persons do not unduly interfere in the operations of the Purchaser;

          (ii)     authorize and permit such persons at the risk and the sole cost of the Company, and only if such persons do not unduly interfere in the operations of the Purchaser, to attend at all of its respective places of business and operations to observe the conduct of its business and operations, inspect its properties and assets and make physical counts of its inventories, shipments and deliveries; and

          (iii)     require the Purchaser's management personnel to respond to all reasonable inquiries concerning the Purchaser's business assets or the conduct of its business relating to its liabilities and obligations;

(bc)     the Purchaser will give to the Company, within at least five business days prior to the Closing Date (as hereinafter determined), by written notice, particulars of:

(i)     each occurrence within the Purchaser's knowledge after the Execution Date of this Agreement that, if it had occurred before the Execution Date, would have been contrary to any of the Purchaser's representations or warranties contained herein; and

(ii)     each occurrence or omission within the Purchaser's knowledge after the Execution Date that constitutes a breach of any of the Purchaser's covenants contained in this Agreement;

(bd)     save and except as set forth in the Purchaser Disclosure Schedule, the shares in the capital of the Purchaser are not subject to or affected by any actual or, to the knowledge of the Purchaser, pending or threatened cease trading, compliance or denial of use of exemptions orders of, or action, investigation or proceeding by or before, any securities regulatory authority, Court, administrative agency or other tribunal;

     (be)     the making of this Agreement and the completion of the transactions contemplated hereby and the performance of and compliance with the terms hereof does not and will not:

          (i)     conflict with or result in a breach of or violate any of the terms, conditions or provisions of the constating documents of the Purchaser;

          (ii)     conflict with or result in a breach of or violate any of the terms, conditions or provisions of any law, judgment, order, injunction, decree, regulation or ruling of any Court or governmental authority, domestic or foreign, to which the Purchaser is subject, or constitute or result in a default under any agreement, contract or commitment to which the Purchaser is a party;

          (iii)     give to any party the right of termination, cancellation or acceleration in or with respect to any agreement, contract or commitment to which the Purchaser is a party;

          (iv)     give to any government or governmental authority, or any municipality or any subdivision thereof, including any governmental department, commission, bureau, board or administration agency, any right of termination, cancellation or suspension of, or constitute a breach of or result in a default under, any permit, license, control or authority issued to the Purchaser which is necessary or desirable in connection with the conduct and operations of its businesses and the ownership or leasing of its business assets; or

          (v)     constitute a default by the Purchaser or any event which, with the giving of notice or lapse of time or both, might constitute an event of default, under any agreement, contract, indenture or other instrument relating to any indebtedness of the Purchaser which would give any party to that agreement, contract, indenture or other instrument the right to accelerate the maturity for the payment of any amount payable under that agreement, contract, indenture or other instrument;

(bf)     at or prior to Closing (as hereinafter determined) the Purchaser will cause up to 3,000,000 but not less than 1,550,000 founder's common shares of the Purchaser which are currently issued and outstanding in the share capital of the Purchaser to be cancelled voluntarily (collectively, the "Cancellation of Shares"):

(bg)     at and subsequent to Closing (as hereinafter determined) the following changes will be effected to the Board of Directors and officers of the resulting Purchaser company (collectively, the "Change in Board and officers"):

(i)     at Closing, and save and except for Paul D. Brock, the current President and Chief Executive Officer of the Purchaser, who will remain a director of the resulting Purchaser company at Closing, and Donald M. Prest, the current Secretary, Treasurer, Principal Financial Officer and Principal Accounting Officer of the Purchaser, who will resign as a director, however, remain in his positions as an officer of the resulting Purchaser company at Closing, all remaining directors of the Purchaser will resign and the Purchaser will appoint Messrs. Haley and Stephen Harrison as directors of the resulting Purchaser company; it being acknowledged and agreed by the Parties hereto that two additional independent directors (for five in total) will be appointed as directors of the Purchaser by the resulting Board of Directors of the Purchaser within 60 calendar days of Closing;

(ii)     at Closing Mr. Haley will be appointed the Executive Chairman of the Purchaser; and

(iii)     commensurate with or as soon as reasonably practicable subsequent to Closing it is being acknowledged and agreed that the resulting Board of Directors of the Purchaser will appoint a President (the "President") for the Purchaser; the final decision respecting the President to be based ultimately on the recommendation of an "Interview Committee" to be comprised of Messrs. Haley, Brock, Harrison and Richard W. Evans;

     (bh)     the Purchaser will raise prior to and/or commensurate with Closing (as hereinafter determined) a common share or unit private placement funding for the Purchaser, under "Rule 506" or "Regulation S" under the Securities Act, of a minimum of U.S. $2,250,000 and a maximum of up to U.S. $3,000,000, and at a subscription price of not less than U.S. $0.65 per restricted common share or unit (each a "Unit") forming part thereof (collectively, the "Private Placement"); with an understanding that any Unit Private Placement financing shall be conducted at a subscription price of not less U.S. $0.65 per Unit, with each such Unit being comprised of not greater than one common share and one non-transferable share purchase warrant of the Purchaser (each a "Warrant"), and with each such Warrant being exercisable for not greater than one additional common share of the Company for a period of up to two years from the date of issuance thereof at an exercise price of not less than U.S. $1.00 per Warrant common share in each such instance; and with the further understanding that not less than U.S. $2,000,000 from the Private Placement shall be advanced by the Purchaser to the Company at Closing with the balance, if any, being available for unallocated working capital for the resulting Purchaser company together with the payment of any finder's fees in connection with the closing of the Private Placement;

(bi)     commensurate with or as soon as reasonably practicable subsequent to Closing (as hereinafter determined) the Purchaser will file, with the within acknowledgement of the Company, a "Form S-8" registration statement for a stock option plan in the estimated amount of not less than 2,000,000 common shares of the Purchaser, at an exercise price of U.S. $0.65 per common share (collectively, the "Purchaser Options"); and in such amounts and with such optionees as may be determined by management for the Purchaser and the Vendor, acting reasonably, prior to the Closing Date, and as may be acceptable with the appropriate Regulatory Authorities; it being acknowledged and agreed that all such Options may be exchanged as Purchaser's Options for any Company's Options then outstanding or allotted to be outstanding to directors, officers, employees or consultants of the Company and the Vendor at Closing or from time to time after Closing, in consideration of the ongoing involvement of such directors, officers, employees or consultants of the Company and the Vendor in and to the resulting Purchaser company and in exchange for the agreed upon cancellation by said Company's Optionholders, if any, of all of the then issued and outstanding or allotted Company's Options as a consequence thereof;

(bj)     commensurate with or as soon as reasonably practicable subsequent to Closing (as hereinafter determined) the resulting Purchaser company will seek the approval of its shareholders, if required, to change the name of the resulting Purchaser company to "Power Air Corporation", or to such other name as the Purchaser's resulting Board of Directors may determine at Closing (the "Change in Name"); and subsequent to Closing the resulting Purchaser company shall be in the process of preparing or filing the necessary documentation with all Regulatory Authorities to effect the Change in Name and which shall include, without limitation, obtaining a new trading symbol and CUSIP number for the resulting Purchaser company;

     (bk)     the Purchaser will use its commercially reasonable efforts prior to and/or commensurate with the Closing (as hereinafter determined) hereunder to enter into proposed "Employment Agreements" with each of Mr. Haley, as the proposed Executive Chairman of the resulting Purchaser company and, unless otherwise determined by the Interview Committee, with Steve Williams, as the proposed President of the resulting Purchaser company; a copy of form of which proposed Employment Agreements being attached hereto as Schedule "M" and forming a material part hereof;

(bl)     neither this Agreement nor any other document, certificate or statement furnished to any of the Vendor Group or the Company by or on behalf of the Purchaser in connection with the transactions contemplated hereby knowingly or negligently contains any untrue or incomplete statement of material fact or omits to state a material fact necessary in order to make the statements therein not misleading; and

(bm)     it is not aware of any fact or circumstance which has not been disclosed to the Vendor Group and the Company which should be disclosed in order to prevent the representations, warranties and covenants contained in this section from being misleading or which would likely affect the decision of the Vendor Group and the Company to enter into this Agreement.

4.2          Continuity of the representations, warranties and covenants by the Purchaser.   The representations, warranties and covenants of the Purchaser contained in this Article, or in any certificates or documents delivered pursuant to the provisions of this Agreement or in connection with the transactions contemplated hereby, will be true at and as of the Closing Date (as hereinafter determined) as though such representations, warranties and covenants were made at and as of such time.  Notwithstanding any investigations or inquiries made by either of the Vendor Group or the Company, or by the Vendor Group's or the Company's respective professional advisors prior to the Closing Date, or the waiver of any condition by either of the Vendor Group or the Company, the representations, warranties and covenants of the Purchaser contained in this Article shall survive the Closing Date and shall continue in full force and effect for a period of one calendar year from the Closing Date; provided, however, that the Purchaser shall not be responsible for the breach of any representation, warranty or covenant of the Purchaser contained herein caused by any act or omission of either of the Vendor Group or the Company prior to the Execution Date hereof of which the Purchaser was unaware or as a result of any action taken by either of the Vendor Group or the Company after the Execution Date.  In the event that any of the said representations, warranties or covenants are found by a Court of competent jurisdiction to be incorrect and such incorrectness results in any loss or damage sustained directly or indirectly by either of the Vendor Group and/or the Company, then the Purchaser will, in accordance with the provisions of Article "15" hereinbelow, pay the amount of such loss or damage to either of the Vendor Group and/or the Company, as the case may be, within 30 calendar days of receiving notice of judgment therefore; provided that the Vendor and the Company will not be entitled to make any claim unless the loss or damage suffered may exceed the amount of U.S. $1,000.00.

 

Article 5

CONDITIONS PRECEDENT TO CLOSING

5.1          Parties' conditions precedent prior to the Closing Date.  All of the rights, duties and obligations of each of the Parties hereto under this Agreement are subject to the following conditions precedent for the exclusive benefit of each of the Parties to be fulfilled in all material aspects in the reasonable opinion of each of the Parties or to be waived by each or any of the Parties, as the case may be, as soon as possible after the Execution Date; however, unless specifically indicated as otherwise, not later than five calendar days prior to the Closing Date (as hereinafter determined; such date being the "Subject Removal Date"):

     (a)     the specific ratification of the terms and conditions of this Agreement by the Board of Directors of each of the Purchaser and the Company within one business day of the due and completion execution of this Agreement by each of the Parties hereto (collectively, the "Ratification");

     (b)     the completion by each of the Purchaser and the Company of an initial due diligence and operations review of the other Party's respective businesses and operations within five calendar days of the prior satisfaction of the Ratification (collectively, the "Initial Due Diligence");

     (c)     if required under applicable corporate and securities laws, the receipt of all necessary approvals from any Regulatory Authority having jurisdiction over the transactions contemplated by this Agreement on or before September 15, 2005;

(d)     if required under applicable corporate and securities laws, shareholders of the Purchaser and/or the Company passing an ordinary resolution or, where required, a special resolution, approving the terms and conditions of this Agreement and all of the transactions contemplated hereby, and the Purchaser and/or the Company sending all required notice to the Purchaser's and/or the Company's shareholders in connection therewith, or, in the alternative and if allowable in accordance with applicable corporate and securities laws, shareholders of the Purchaser and/or the company holding over 50% of the issued shares of the Purchaser and the Company providing written consent resolutions evidencing their approval to the terms and conditions of this Agreement and all of the transactions contemplated hereby together with certification of any required notice to all shareholders of the Purchaser and/or Company of such written consent resolutions; and

(e)     the Board of Directors of the Purchaser and/or the shareholders of the Purchaser, if required, approving of the within issuance by the Purchaser to the order and direction of the Resulting Shareholder Group of all of the referenced Shares in accordance with section "2.2" hereinabove and, in addition, the Board of Directors and/or shareholders of the Purchaser, if required, having also approved and received any required notice of:

(i)     the proposed Cancellation of Shares by certain founders of the Purchaser;

(ii)     the proposed Change in Board and officers of the Purchaser together with the appointment of the proposed President through the Interview Committee established therefore;

(iii)     a proposed common share or unit Private Placement funding for the Purchaser of a minimum of U.S. $2,250,000 and a maximum of up to U.S. $3,000,000, and at a subscription price of not less than U.S. $0.65 per restricted common share or Unit forming part thereof; with an understanding that any Unit Private Placement financing shall be conducted at a subscription price of not less U.S. $0.65 per Unit, with each such Unit being comprised of not greater than one common share and one non-transferable share purchase Warrant of the Purchaser, and with each such Warrant being exercisable for not greater than one additional common share of the Company for a period of up to two years from the date of issuance thereof at an exercise price of not less than U.S. $1.00 per Warrant common share in each such instance; and with the further understanding that not less than U.S. $2,000,000 from the Private Placement shall be advanced by the Purchaser to the Company at Closing with the balance, if any, being available for unallocated working capital for the resulting Purchaser together with the payment of any finder's fees in connection with the closing of the Private Placement;

(iv)     the proposed filing by the Purchaser, with the within acknowledgement of the Company, of a Form S-8 registration statement for a stock option plan in the estimated amount of not less than 2,000,000 common shares of the Purchaser, at an exercise price of U.S. $0.65 per common share; and in such amounts and with such optionees as may be determined by management for the Purchaser and the Vendor, acting reasonably, prior to the Closing Date, and as may be acceptable with the appropriate Regulatory Authorities; it being acknowledged and agreed that all such Options may be exchanged as Purchaser's Options for any Company's Options then outstanding or allotted to be outstanding to directors, officers, employees or consultants of the Company and the Vendor at Closing or from time to time after Closing, in consideration of the ongoing involvement of such directors, officers, employees or consultants of the Company and the Vendor in and to the resulting Purchaser company and in exchange for the agreed upon cancellation by said Company Optionholders, if any, of all of the then issued and outstanding or allotted Company options as a consequence thereof;

(v)     if required and possible, the proposed Change in Name of the Purchaser;

(vi)     the proposed entering into by the Purchaser prior to and/or commensurate with the Closing (as hereinafter determined) hereunder of the proposed Employment Agreements with each of Messrs. Haley and Williams; and

(vii)     such other matters as may be agreed to as between the Parties hereto prior the completion of the transactions contemplated by this Agreement.

5.2          Parties' waiver of conditions precedent.   The conditions precedent set forth in section "5.1" hereinabove are for the exclusive benefit of each of the Parties hereto and may be waived by each or any of the Parties in writing and in whole or in part at any time; however, not later than five calendar days prior to the Subject Removal Date.

5.3          The Vendor Group's and the Company's conditions precedent.   The rights, duties and obligations of each of the Vendor Group and the Company under this Agreement are also subject to the following conditions precedent for the exclusive benefit of each of the Vendor Group and the Company to be fulfilled in all material aspects in the reasonable opinion of the Vendor Group and the Company or to be waived by each or any of the Vendor Group and the Company as soon as possible after the Execution Date, however; unless specifically indicated as otherwise, not later than five calendar days prior to the Subject Removal Date:

     (a)     the Purchaser shall have complied with all warranties, representations, covenants and agreements herein agreed to be performed or caused to be performed by the Purchaser on or before the Closing Date (as hereinafter determined);

     (b)     the Purchaser shall have complied with all applicable securities laws in connection with the issuance of the Shares to the Resulting Shareholder Group on or before the Closing Date (as hereinafter determined);

(c)     the Purchaser will have obtained all authorizations, approvals, or waivers that may be necessary or desirable in connection with the transactions contemplated in this Agreement, and other actions by, and have made all filings with, any and all Regulatory Authorities required to be made in connection with the transactions contemplated herein, and all such authorizations, approvals and other actions will be in full force and effect, and all such filings will have been accepted by the Purchaser who will be in compliance with, and have not committed any breach of, any securities laws, regulations or policies of any Regulatory Authority to which the Purchaser may be subject;

     (d)     all matters which, in the opinion of counsel for the Vendor Group and the Company, are material in connection with the transactions contemplated by this Agreement shall be subject to the favourable opinion of such counsel, and all relevant records and information shall be supplied to such counsel for that purpose;

     (e)     no material loss or destruction of or damage to the Purchaser shall have occurred since the Execution Date;

(f)     written confirmation that the Purchaser has raised into trust or otherwise sufficient funding in order to close the minimum required Private Placement at Closing (as hereinafter determined) on the terms as set forth in paragraph "4.1(bh)" hereinabove;

     (g)     no action or proceeding at law or in equity shall be pending or threatened by any person, company, firm, governmental authority, regulatory body or agency to enjoin or prohibit:

          (i)     the purchase or transfer of any of the Purchased Shares contemplated by this Agreement or the right of the Vendor to dispose of any of the Purchased Shares; or

          (ii)     the right of the Purchaser to conduct its operations and carry on, in the normal course, its business and operations as it has carried on in the past;

     (h)     the delivery to the Vendor Group and the Company by the Purchaser, on a confidential basis, of the following documentation and information:

(i)     a copy of all material contracts, agreements, reports and title information of any nature respecting the Purchaser; and

(ii)     details of any lawsuits, claims or potential claims relating to the Purchaser of which the Purchaser is aware and the Vendor Group and the Company are unaware;

     (i)     the Purchaser will, for a period of at least five business days prior to the Closing Date (as hereinafter determined), during normal business hours:

          (i)     make available for inspection by the counsel, auditors and representatives of the Vendor Group and the Company, at such location as is appropriate, all of the Purchaser's books, records, contracts, documents, correspondence and other written materials, and afford such persons every reasonable opportunity to make copies thereof and take extracts therefrom at the sole cost of the Vendor Group and the Company; provided such persons do not unduly interfere in the operations of the Purchaser;

          (ii)     authorize and permit such persons at the risk and the sole cost of the Vendor Group and the Company, and only if such persons do not unduly interfere in the operations of the Purchaser, to attend at all of its places of business and operations to observe the conduct of its business and operations, inspect its properties and assets and make physical counts of its inventories, shipments and deliveries; and

          (iii)     require the Purchaser's management personnel to respond to all reasonable inquiries concerning the Purchaser's business assets or the conduct of its business relating to its liabilities and obligations;

     (j)     the completion by the Vendor Group and the Company, and by the Vendor Group's and the Company's professional advisors, of a thorough due diligence and operations review of the business and operations of the Purchaser to the sole and absolute satisfaction of each of the Vendor Group and the Company; and

     (k)     the completion by the Vendor Group and the Company, and by the Vendor Group's and the Company's professional advisors, of a thorough due diligence and operations review of the business and operations of the Purchaser to the sole and absolute satisfaction of each of the Vendor Group and the Company.

4.4          The Vendor Group's and the Company's waiver of conditions precedent.   The conditions precedent set forth in section "5.3" hereinabove are for the exclusive benefit of each of the Vendor Group and the Company and may be waived by each or any of the Vendor Group and the Company in writing and in whole or in part at any time after the Execution Date; however, unless specifically indicated as otherwise, not later than five calendar days prior to the Subject Removal Date.

5.5          Purchaser's conditions precedent prior to the Closing Date.   The rights, duties and obligations of the Purchaser under this Agreement are also subject to the following conditions precedent for the exclusive benefit of the Purchaser to be fulfilled in all material aspects in the reasonable opinion of the Purchaser or to be waived by the Purchaser as soon as possible after the Execution Date; however, unless specifically indicated as otherwise, not later than five calendar days prior to the Subject Removal Date:

     (a)     the Vendor Group and the Company shall have complied with all warranties, representations, covenants and agreements herein agreed to be performed or caused to be performed by the Vendor Group and the Company on or before the Closing Date (as hereinafter determined);

(b)     the Vendor Group and the Company will have obtained all authorizations, approvals or waivers that may be necessary or desirable in connection with the transactions contemplated in this Agreement, and other actions by, and have made all filings with, any and all Regulatory Authorities from whom any such authorization, approval or other action is required to be obtained or to be made in connection with the transactions contemplated herein, and all such authorizations, approvals and other actions will be in full force and effect, and all such filings will have been accepted by the Vendor Group and the Company who will be in compliance with, and have not committed any breach of, any securities laws, regulations or policies of any Regulatory Authority to which the Vendor Group or the Company may be subject;

     (c)     all matters which, in the opinion of counsel for the Purchaser, are material in connection with the transactions contemplated by this Agreement shall be subject to the favourable opinion of such counsel, and all relevant records and information shall be supplied to such counsel for that purpose;

     (d)     no material loss or destruction of or damage to the Company, any of the Company's Assets, any of the Company's Business or the Purchased Shares shall have occurred;

     (e)     no action or proceeding at law or in equity shall be pending or threatened by any person, company, firm, governmental authority, regulatory body or agency to enjoin or prohibit:

          (i)     the purchase or transfer of any of the Purchased Shares contemplated by this Agreement or the right of the Vendor to dispose of any of the Purchased Shares; or

          (ii)     the right of the Company to conduct its operations and carry on, in the normal course, its Company's Business and operations as it has carried on in the past;

     (f)     the delivery to the Purchaser by the Vendor Group and the Company, on a confidential basis, of all Business Documentation and including, without limitation, the following documentation and information:

(i)     a copy of all material contracts, agreements, reports and information of any nature respecting the Company, its assets and the Company's Business; and

(ii)     details of any lawsuits, claims or potential claims relating to either the Company, its assets, the Company's Business or the Purchased Shares of which either of the Vendor Group or the Company is aware and the Purchaser is unaware;

     (g)     the Vendor Group and the Company will, for a period of at least five business days prior to the Closing Date (as hereinafter determined), during normal business hours:

          (i)     make available for inspection by the counsels, auditors and representatives of the Purchaser, at such location as is appropriate, all of the Company's books, records, contracts, documents, correspondence and other written materials, and afford such persons every reasonable opportunity to make copies thereof and take extracts therefrom at the sole cost of the Purchaser; provided such persons do not unduly interfere in the operations of the Company;

          (ii)     authorize and permit such persons at the risk and the sole cost of the Purchaser, and only if such persons do not unduly interfere in the operations of the Company, to attend at all of its places of business and operations to observe the conduct of its business and operations, inspect its properties and assets and make physical counts of its inventories, shipments and deliveries; and

          (iii)     require the Company's management personnel to respond to all reasonable inquiries concerning the Company's Business and assets or the conduct of its business relating to its liabilities and obligations;

(h)     the delivery to the Purchaser by the Company and Vendor Group of an acceptable form of final Release respecting any and all claims which either of such Parties had, or may have had, against any such other Party prior to Closing and including, without limiting the generality of the foregoing, the HDH Group and Mr. Haley Release of all Claims as against the Company and the Vendor in respect of, among all matters, the Disputed Contracts and all amounts and expenses previously claimed thereunder;

(i)     the delivery to the Purchaser by the Company and the Vendor Group of an opinion of the counsel for the Company, in a form satisfactory to the Purchaser's counsel, dated as at the date of delivery, to the effect that:

(i)     the Company is a corporation duly incorporated under the laws of its jurisdiction of incorporation, is validly existing and is in good standing with respect to all statutory filings required by the applicable corporate laws;

(ii)     the Company has the power, authority and capacity to own and use all of its assets and to carry on its Company's Business as presently conducted by it;

(iii)     the Company, as the legal and beneficial owner of all of its assets, holds all of the assets free and clear of all liens, charges and claims of others;

(iv)     the number of authorized and issued shares in the share capital of the Company are as warranted by the Vendor Group and the Company, and all of such issued shares are duly authorized, validly issued and outstanding as fully paid and non-assessable;

(v)     all necessary steps and corporate proceedings have been taken by the Vendor and the Company to permit the Purchased Shares to be duly and validly transferred to and registered in the name of the Purchaser as at the Closing Date and to cancel any and all outstanding Company's Options in and to the Company, if any, in consideration of and exchange for the granting of an equal number of Options as contemplated herein;

(vi)     based on actual knowledge and belief, such counsel knows of no claims, judgments, actions, suits, litigation, proceedings or investigations, actual, pending or threatened, against either the Vendor Group or the Company which might materially affect either the Company, its assets or the Company's Business or which could result in any material liability to either of the Company, its assets or the Company's Business; and

(vii)     as to all other legal matters of a like nature pertaining to the Vendor Group, the Company, its assets, the Company's Business and to the transactions contemplated hereby as the Purchaser or the Purchaser's counsel may reasonably require; and

     (j)     the completion by the Purchaser and by the Purchaser's professional advisors of a thorough due diligence and operations review of both the Company's Business and the operations of the Company together with the transferability of the Purchased Shares as contemplated by this Agreement, to the sole and absolute satisfaction of the Purchaser.

5.6          Purchaser's waiver of conditions precedent.   The conditions precedent set forth in section "5.5" hereinabove are for the exclusive benefit of the Purchaser and may be waived by the Purchaser in writing and in whole or in part at any after the Execution Date; however, unless specifically indicated as otherwise, not later than five calendar days prior to the Subject Removal Date.

 

Article 6

CLOSING AND EVENTS OF CLOSING

6.1          Closing and Closing Date.   The closing (the "Closing") of the within purchase and delivery of the Purchased Shares, as contemplated in the manner as set forth in Article "2" hereinabove, together with all of the transactions contemplated by this Agreement, shall occur on such day which is five calendar days following the due and complete satisfaction of all of the conditions precedent which are set out in Article "5" hereinabove (the "Closing Date"), or on such earlier or later Closing Date as may be agreed to in advance and in writing by each of the Parties hereto, and will be closed, in each such instance, at the offices of Lang Michener LLP, Lawyers - Patent & Trade Mark Agents, located at 1500 Royal Centre, 1055 West Georgia Street, Vancouver, British Columbia, V6E 4N7, at 2:00 p.m. (Vancouver time) on the Closing Date.

6.2          Latest Closing Date.   If the Closing Date has not occurred by October 3, 2005 this Agreement will be terminated and unenforceable unless the Parties hereto agree in writing to grant an extension of the Closing Date.

6.3          Documents to be delivered by the Vendor Group and the Company prior to the Closing Date.   Not later than two calendar days prior to the Closing Date, and in addition to the documentation which is required by the agreements and conditions precedent which are set forth hereinabove, the Vendor Group and the Company shall also execute and deliver, or cause to be delivered, to the Purchaser, the Transfer Agent and/or the Escrow Agent, as applicable, all such other documents, resolutions and instruments as may be necessary, in the opinion of counsel for the Purchaser, acting reasonably, to complete all of the transactions contemplated by this Agreement and including, without limitation, the necessary transfer all of the Purchased Shares to the Purchaser free and clear of all liens, charges and encumbrances, and in particular including, but not being limited to, the following materials:

(a)     a certified copy of an ordinary resolution of the shareholders of the Vendor Group and/or the Company approving the terms and conditions of this Agreement and the transactions contemplated hereby and thereby or, in the alternative, shareholders of the Vendor Group and/or the Company holding over 50% of the issued shares of the Vendor Group and/or the Company providing written consent resolutions evidencing their approval to the terms and conditions of this Agreement and all of the transactions contemplated thereunder together with certification of any required notice to all shareholders of the Vendor Group and/or the Company of such written consent resolutions;

     (b)     all documentation as may be necessary and as may be required by counsel for the Purchaser, acting reasonably, to ensure that all of the Purchased Shares have been transferred, assigned and are registerable in the name of and for the benefit of the Purchaser, and to ensure that all outstanding Company Options in and to the Company, if any, have been cancelled, under all applicable corporate and securities laws;

     (c)     certificate(s) representing the Purchased Shares registered in the name of the Vendor, duly endorsed for transfer to the Purchaser or irrevocable stock powers transferring the Purchased Shares to the Purchaser;

     (d)     a certificate representing the Purchased Shares registered in the name of the Purchaser;

     (e)     written evidence of the cancellation of all outstanding Company Options in and to the Company;

     (f)     written evidence of the Release having been obtained;

     (g)     a certified copy of the resolutions of the Board of Directors of the Company  (and of the Vendor if necessary) authorizing the transfer by the Vendor to the Purchaser of the Purchased Shares and canceling all outstanding Company Options in and to the Company;

(h)     consents to act and similar documentation required in order to effect the proposed Change in Board and officers of the Purchaser together with the appointment of the proposed President through the Interview Committee established therefore;

     (i)     a copy of all corporate records and books of account of the Company and its subsidiaries, if any, and including, without limiting the generality of the foregoing, a copy of all minute books, share register books, share certificate books and annual reports of the Company and its subsidiaries, if any;

     (j)     all necessary consents and approvals in writing to the completion of the transactions contemplated herein;

     (k)     a certificate of an officer of the Company, dated as of the Closing Date, acceptable in form to counsel for the Purchaser, acting reasonably, certifying that the warranties, representations, covenants and agreements of the Vendor Group and the Company contained in this Agreement are true and correct in all respects and will be true and correct as of the Closing Date as if made by the Vendor Group and the Company on the Closing Date;

(l)     an opinion of counsel to the Vendor Group and the Company, dated as at the Closing Date, and addressed to the Purchaser and its counsel, in form and substance satisfactory to the Purchaser's counsel, acting reasonably, and including the following:

(i)     the due incorporation, existence and standing of each of the Company and its qualification to carry on business;

(ii)     the authorized and issued capital of the Company;

(iii)     that all Purchased Shares have been duly authorized and issued and are fully paid and non-assessable;

(iv)     all necessary steps and proceedings have been taken in connection with the execution, delivery and performance of this Agreement and the transactions contemplated herein;

(v)     that the Purchased Shares have been duly issued to and registered in the name of the Purchaser and that all outstanding Company Options in and to the Company, if any, have been cancelled in compliance with all applicable corporate and securities laws; and

     (m)     all remaining Business Documentation; and

     (n)     all such other documents and instruments as the Purchaser's counsel may reasonably require.

6.4          Documents to be delivered by the Purchaser prior to the Closing Date.   Not later than two calendar days prior to the Closing Date, and in addition to the documentation which is required by the agreements and conditions precedent which are set forth hereinabove, the Purchaser shall also execute and deliver, or cause to be delivered, to the Company, the Transfer Agent and/or the Escrow Agent, as applicable, all such other documents, resolutions and instruments as are necessary, in the opinion of counsel for the Vendor Group and the Company, acting reasonably, to issue to the Resulting Shareholder Group the entire Purchase Price Shares free and clear of all liens, charges and encumbrances, however, subject to the normal U.S. resale provisions applicable thereto, and in particular including, but not being limited to, the following materials:

     (a)     a Closing agenda;

(b)     a certified copy of an ordinary resolution of the shareholders of the Purchaser approving the terms and conditions of this Agreement and the transactions contemplated hereby and thereby or, in the alternative, shareholders of the Purchaser holding over 50% of the issued shares of the Purchaser providing written consent resolutions evidencing their approval to the terms and conditions of this Agreement and all of the transactions contemplated thereunder together with certification of any required notice to all shareholders of the Purchaser of such written consent resolutions;

     (c)     a certified copy of the resolutions of the directors of the Purchaser providing for the approval of all of the transactions contemplated hereby and including, without limitation, each of the matters provided for in paragraph "5.1(e)" hereinabove;

     (d)     share certificates, subject to the normal U.S. resale provisions applicable thereto, representing all of the Purchase Price Shares issued and registered in the names of the Resulting Shareholder Group as notified by the Vendor to the Purchaser prior to Closing in accordance with section "2.2" hereinabove;

     (e)     all necessary consents and approvals in writing to the completion of the transactions contemplated herein;

     (f)     a certificate of an officer of the Purchaser, dated as of the Closing Date, acceptable in form to counsel for the Vendor Group and the Company, acting reasonably, certifying that the warranties, representations, covenants and agreements of the Purchaser contained in this Agreement are true and correct and will be true and correct as of the Closing Date as if made by the Purchaser on the Closing Date and, in addition, certifying that the issued and outstanding common shares of the Company immediately subsequent to Closing is not more than 43,500,000 common shares on a non-fully diluted basis;

(g)     resignations and similar documentation required in order to effect the proposed Change in Board and officers of the Purchaser together with the appointment of the proposed President through the Interview Committee established therefore;

     (h)     a certified copy of the resolutions of the Board of Directors of the Purchaser accepting the proposed Change in Board and officers of the Purchaser together with the appointment of the proposed President through the Interview Committee established therefore;

(i)     confirmation that the Purchaser has raised into trust or otherwise sufficient funding in order to close the minimum required Private Placement at Closing on the terms as set forth in paragraph "4.1(bh)" hereinabove; such that the sum of not less than U.S. $2,000,000 in liquid funds is available to the Company at Closing from the Private Placement proceeds;

(j)     an opinion of counsel to the Purchaser, dated as at the Closing Date, and addressed to the Vendor Group, the Company and their counsel, in form and substance satisfactory to the Vendor Group's and the Company's counsel, acting reasonably, and including the following:

(i)     the due incorporation, existence and standing of the Purchaser and its qualification to carry on business;

(ii)     the authorized and issued capital of the Purchaser (relying on a certificate of the registrar and transfer agent of the Purchaser as to the number and class of securities issued);

(iii)     all necessary steps and proceedings have been taken in connection with the execution, delivery and performance of this Agreement, any Formal Agreement and the transactions contemplated herein and therein, respectively;

(iv)     the due Cancellation of Shares by certain founders of the Purchaser;

(v)     if applicable, the filing by the Purchaser of a Form S-8 registration statement for a stock option plan in the estimated amount of not less than 2,000,000 common shares of the Purchaser; and

(vi)     the due issuance of the Shares as fully paid and non-assessable and having been issued in accordance with an applicable registration and prospectus exemption available under the Securities Act; and

(k)     all such other documents and instruments as the Vendor Group's and the Company's counsel may reasonably require.

 

 

Article 7

APPOINTMENT OF ESCROW AGENT AND TRANSFER DOCUMENTS

7.1          Appointment of Escrow Agent.   The Parties hereto hereby acknowledge and initially appoint Lang Michener LLP, Lawyers - Patent & Trade Mark Agents, located at 1500 Royal Centre, 1055 West Georgia Street, Vancouver, British Columbia, V6E 4N7, counsel for the Purchaser herein, as escrow agent (the "Escrow Agent") herein, or such other Escrow Agent as may be mutually determined by the Parties hereto prior to the Subject Removal Date.

7.2          Escrow of Transfer Documents.   Subject to and in accordance with the terms and conditions hereof and the requirements of Articles "2", "5" and "6" hereinabove, and without in any manner limiting the obligations of each of the Parties hereto as contained therein and hereinabove, it is hereby acknowledged and confirmed by the Parties hereto that each of the Parties will execute, deliver, or cause to be delivered, all such documentation as may be required by the requirements of Articles "2", "5" and "6" hereinabove (herein, collectively, the "Transfer Documents") and deposit the same with the Escrow Agent, or with such other mutually agreeable escrow agent, together with a copy of this Agreement, there to be held in escrow for release by the Escrow Agent to the Parties in accordance with the strict terms and provisions of Articles "2", "5" and "6" hereinabove.

7.3          Resignation of Escrow Agent.   The Escrow Agent may resign from its duties and responsibilities if it gives each of the Parties hereto three calendar days' written notice in advance.   Upon receipt of notice of the Escrow Agent's intention to resign, the Parties shall, within three calendar days, select a replacement escrow agent and jointly advise the Escrow Agent in writing to deliver the Transfer Documents to the replacement escrow agent.   If the Parties fail to agree on a replacement escrow agent within three calendar days of such notice, the replacement escrow agent shall be selected by a Judge of the Supreme Court of the Province of British Columbia upon application by any Party hereto.   The Escrow Agent shall continue to be bound by this Agreement until the replacement escrow agent has been selected and the Escrow Agent receives and complies with the joint instructions of the Parties to deliver the Transfer Documents to the replacement escrow agent.   The Parties agree to enter into an escrow agreement substantially in the same form of this Agreement with the replacement escrow agent.

7.4          Instructions to Escrow Agent.   Instructions given to the Escrow Agent pursuant to this Agreement shall be given by duly authorized signatories of the respective Parties hereto.

7.5          No other duties or obligations.   The Escrow Agent shall have no duties or obligations other than those specifically set forth in this Article.

7.6          No obligation to take legal action.   The Escrow Agent shall not be obligated to take any legal action hereunder which might, in its judgment, involve any expense or liability unless it shall have been furnished with a reasonable indemnity by all of the Parties hereto together with such other third parties as the Escrow Agent may require in its sole and absolute discretion.

7.7          Not bound to any other agreements.   The Escrow Agent is not bound in any way by any other contract or agreement between the Parties hereto whether or not it has knowledge thereof or of its terms and conditions and its only duty, liability and responsibility shall be to hold and deal with the Transfer Documents as herein directed.

7.8          Notice.   The Escrow Agent shall be entitled to assume that any notice and evidence received by it pursuant to these instructions from anyone has been duly executed by the Party by whom it purports to have been signed and that the text of any notice and evidence is accurate and the truth.  The Escrow Agent shall not be obliged to inquire into the sufficiency or authority of the text or any signatures appearing on such notice or evidence.

7.9          Indemnity.   The Parties hereto, jointly and severally, covenant and agree to indemnify the Escrow Agent and to hold it harmless against any loss, liability or expense incurred, without negligence or bad faith on its part, arising out of or in connection with the administration of its duties hereunder including, without limitation, the costs and expenses of defending itself against any claim or liability arising therefrom.

7.10          Not required to take any action.   In the event of any disagreement between any of the Parties hereto to these instructions or between them or either or any of them and any other person, resulting in adverse claims or demands being made in connection with the Transfer Documents, or in the event that the Escrow Agent should take action hereunder, it may, at its option, refuse to comply with any claims or demands on it, or refuse to take any other action hereunder, so long as such disagreement continues or such doubt exists, and in any such event, it shall not be or become liable in any way or to any person for its failure or refusal to act, and it shall be entitled to continue so to refrain from acting until:

     (a)     the rights of all Parties shall have been fully and finally adjudicated by a court of competent jurisdiction; or

     (b)     all differences shall have been adjusted and all doubt resolved by agreement among all of the interested persons, and it shall have been notified thereof in writing signed by all such persons.

 

Article 8

DUE DILIGENCE INVESTIGATION

8.1          Due diligence.   Each of the Parties hereto shall forthwith conduct such further due diligence examination of the other Parties hereto as it deems appropriate.

8.2          Confidentiality.   Each Party may in a reasonable manner carry out such investigations and due diligence as to the other Parties hereto, at all times subject to the confidentiality provisions of Articles "9" and "10" hereinbelow, as each Party deems necessary.  In that regard the Parties agree that each shall have full and complete access to the other Parties' books, records, financial statements and other documents, articles of incorporation, by-laws, minutes of Board of Directors' meetings and its committees, investment agreements, material contracts and as well such other documents and materials as the Parties hereto, or their respective solicitors, may deem reasonable and necessary to conduct an adequate due diligence investigation of each Party, its respective operations and financial condition prior to the Closing.

 

Article 9

NON-DISCLOSURE

9.1          Non-disclosure.   Subject to the provisions of section "9.3" hereinbelow, the Parties hereto, for themselves, their officers, directors, shareholders, consultants, employees and agents, agree that they each will not disseminate or disclose, or knowingly allow, permit or cause others to disseminate or disclose to third parties who are not subject to express or implied covenants of confidentiality, without the other Parties' express written consent, either: (i) the fact or existence of this Agreement or discussions and/or negotiations between them involving, inter alia, possible business transactions; (ii) the possible substance or content of those discussions; (iii) the possible terms and conditions of any proposed transaction; (iv) any statements or representations (whether verbal or written) made by either Party in the course of or in connection with those discussions; or (v) any written material generated by or on behalf of any Party and such contacts, other than such disclosure as may be required under applicable securities legislation or regulations, pursuant to any order of a Court or on a "need to know" basis to each of the Parties' respective professional advisors.

9.2          Documentation.   Any document or written material generated by either Party hereto in the course of, or in connection with, the due diligence investigations conducted pursuant to this Agreement shall be marked or deemed "Confidential" and shall be treated by each Party as a trade secret of the other Parties.  Upon termination of this Agreement prior to Closing all copies of any and all documents obtained by any Party from any other Party herein, whether or not marked "Confidential", shall be returned to the other Parties forthwith.

9.3          Public announcements.   Notwithstanding the provisions of this Article, the Parties hereto agree to make such public announcements of this Agreement promptly upon its execution in accordance with the requirements of applicable securities legislation and regulations.

 

Article 10

PROPRIETARY INFORMATION AND

ADDITIONAL OBLIGATIONS OF THE PARTIES HERETO

10.1          Confidential Information.   Each Party hereto acknowledges that any and all information which a Party may obtain from, or have disclosed to it, about the other Parties constitutes valuable trade secrets and proprietary confidential information of the other Parties (collectively, the "Confidential Information").  No such Confidential Information shall be published by any Party without the prior written consent of the other Parties hereto, however, such consent in respect of the reporting of factual data shall not be unreasonably withheld, and shall not be withheld in respect of information required to be publicly disclosed pursuant to applicable securities or corporation laws.   Furthermore, each Party hereto undertakes not to disclose the Confidential Information to any third party without the prior written approval of the other Parties and to ensure that any third party to which the Confidential Information is disclosed shall execute an agreement and undertaking on the same terms as contained herein.

10.2          Impact of breach of confidentiality.   The Parties hereto acknowledge that the Confidential Information is important to the respective businesses of each of the Parties and that, in the event of disclosure of the Confidential Information, except as authorized hereunder, the damage to each of the Parties hereto, or to either of them, may be irreparable.  For the purposes of the foregoing sections the Parties recognize and hereby agree that a breach by any of the Parties of any of the covenants therein contained would result in irreparable harm and significant damage to each of the other Parties that would not be adequately compensated for by monetary award.  Accordingly, the Parties agree that in the event of any such breach, in addition to being entitled as a matter of right to apply to a Court of competent equitable jurisdiction for relief by way of restraining order, injunction, decree or otherwise as may be appropriate to ensure compliance with the provisions hereof, any such Party will also be liable to the other Parties, as liquidated damages, for an amount equal to the amount received and earned by such Party as a result of and with respect to any such breach.  The Parties also acknowledge and agree that if any of the aforesaid restrictions, activities, obligations or periods are considered by a Court of competent jurisdiction as being unreasonable, the Parties agree that said Court shall have authority to limit such restrictions, activities or periods as the Court deems proper in the circumstances.   In addition, the Parties further acknowledge and agree that all restrictions or obligations in this Agreement are necessary and fundamental to the protection of the respective businesses of each of the Parties and are reasonable and valid, and all defenses to the strict enforcement thereof by either of the Parties are hereby waived by the other Parties.

10.3          Compliance with applicable laws.   The Parties will comply with all Canadian, U.S. and foreign laws, whether federal, provincial or state, applicable to their respective duties hereunder and, in addition, hereby represent and warrant that any information which they may provide to any person or company hereunder will, to the best of their respective knowledge, information and belief, be accurate and complete in all material respects and not misleading, and will not omit to state any fact or information which would be material to such person or company.

10.4          Opinions, reports and advice of the Vendor Group.   The Vendor Group acknowledges and agrees that all written and oral opinions, reports, advice and materials provided by the Vendor Group to the Purchaser or the Company in connection with purchase and sale contemplated herein are intended solely for the Purchaser's benefit and for the Purchaser's use only, and that any such written and oral opinions, reports, advice and information are the exclusive property of the Purchaser.  In this regard the Vendor Group covenants and agrees that the Purchaser may utilize any such opinion, report, advice and materials for any other purpose whatsoever and, furthermore, may reproduce, disseminate, quote from and refer to, in whole or in part, at any time and in any manner, any such opinion, report, advice and materials in the Purchaser's sole and absolute discretion.  The Vendor Group further covenants and agrees that no public references to the Purchaser, the Company or the Vendor Group, or disclosure of the Vendor Group's role in respect of the Purchaser or the Company, be made by the Vendor Group without the prior written consent of the Purchaser in each specific instance and, furthermore, that any such written opinions, reports, advice or materials shall, unless otherwise required by the Purchaser, be provided by the Vendor Group to the Purchaser in a form and with such substance as would be acceptable for filing with and approval by any Regulatory Authority having jurisdiction over the affairs of the Purchaser and the Company from time to time.

 

Article 11

ASSIGNMENT AND VARIATIONS

11.1          Assignment.   Save and except as provided herein, no Party hereto may sell, assign, pledge or mortgage or otherwise encumber all or any part of its respective interest herein without the prior written consent all of the other Parties hereto.

11.2          Amendment.   This Agreement and any provision thereof may only be amended in writing and only by duly authorized signatories of each of the respective Parties hereto.

11.3          Variation in the terms of this Agreement upon review.   It is hereby acknowledged and agreed by each of the Parties hereto that where any variation in the terms and/or conditions of this Agreement is reasonably required by any of the Regulatory Authorities as a condition of their respective Regulatory Approval to any of the terms and conditions of this Agreement, any such reasonable variation, having first been notified to all Parties, will be deemed to be accepted by each of the Parties hereto and form part of the terms and conditions of this Agreement.  If any such Party, acting reasonably, deems any such notified variation unreasonable, that Party may, in its sole and absolute discretion, and within a period of not greater than 10 calendar days from its original notification and at its cost, make such further applications or submissions to the relevant Regulatory Authority as it considers necessary in order to seek an amendment to any such variation; provided, however, that the final determination by any such Regulatory Authority to any such application or submission by such objecting Party will be deemed binding upon such Party who must then provide notification to all other Parties as provided for hereinabove.

 

Article 12

FORCE MAJEURE

12.1          Events.   If any Party hereto is at any time prevented or delayed in complying with any provisions of this Agreement by reason of strikes, walk-outs, labour shortages, power shortages, fires, wars, acts of God, earthquakes, storms, floods, explosions, accidents, protests or demonstrations by environmental lobbyists or native rights groups, delays in transportation, breakdown of machinery, inability to obtain necessary materials in the open market, unavailability of equipment, governmental regulations restricting normal operations, shipping delays or any other reason or reasons beyond the control of that Party, then the time limited for the performance by that Party of its respective obligations hereunder shall be extended by a period of time equal in length to the period of each such prevention or delay.

12.2          Notice.   A Party shall, within seven calendar days, give notice to the other Parties of each event of force majeure under section "12.1" hereinabove, and upon cessation of such event shall furnish the other Parties with notice of that event together with particulars of the number of days by which the obligations of that Party hereunder have been extended by virtue of such event of force majeure and all preceding events of force majeure.

 

Article 13

ARBITRATION

13.1          Matters for Arbitration.   The Parties hereto agree that all questions or matters in dispute with respect to this Agreement shall be submitted to arbitration pursuant to the terms hereof.

13.2          Notice.   It shall be a condition precedent to the right of any Party to submit any matter to arbitration pursuant to the provisions hereof that any Party intending to refer any matter to arbitration shall have given not less than 10 calendar days' prior written notice of its intention to do so to the other Parties together with particulars of the matter in dispute.  On the expiration of such 10 calendar days the Party who gave such notice may proceed to refer the dispute to arbitration as provided in section "14.3" hereinbelow.

13.3          Appointments.   The Party desiring arbitration shall appoint one arbitrator, and shall notify the other Parties of such appointment, and the other Parties shall, within 10 calendar days after receiving such notice, appoint an arbitrator, and the two arbitrators so named, before proceeding to act, shall, within 10 calendar days of the appointment of the last appointed arbitrator, unanimously agree on the appointment of a third arbitrator, to act with them and be chairman of the arbitration herein provided for.  If the other Parties shall fail to appoint an arbitrator within 10 calendar days after receiving notice of the appointment of the first arbitrator, or if the two arbitrators appointed by the Parties shall be unable to agree on the appointment of the chairman, the chairman shall be appointed under the provisions of the Arbitration Act.  Except as specifically otherwise provided in this section, the arbitration herein provided for shall be conducted in accordance with such Arbitration Act.  The chairman, or in the case where only one arbitrator is appointed, the single arbitrator, shall fix a time and place in Vancouver, British Columbia, for the purpose of hearing the evidence and representations of the Parties, and he shall preside over the arbitration and determine all questions of procedure not provided for under such Arbitration Act or this section.  After hearing any evidence and representations that the Parties may submit, the single arbitrator, or the arbitrators, as the case may be, shall make an award and reduce the same to writing, and deliver one copy thereof to each of the Parties.  The expense of the arbitration shall be paid as specified in the award.

13.4          Award.   The Parties hereto agree that the award of a majority of the arbitrators, or in the case of a single arbitrator, of such arbitrator, shall be final and binding upon each of them.

 

Article 14

DEFAULT AND TERMINATION

14.1          Default.   The Parties hereto agree that if any Party hereto is in default with respect to any of the provisions of this Agreement (herein called the "Defaulting Party"), the non-defaulting Parties (herein called, collectively, the "Non-Defaulting Party") shall give notice to the Defaulting Party designating such default, and within 10 calendar days after its receipt of such notice, the Defaulting Party shall either:

(a)     cure such default, or commence proceedings to cure such default and prosecute the same to completion without undue delay; or

(b)     give the Non-Defaulting Party notice that it denies that such default has occurred and that it is submitting the question to arbitration as herein provided.

14.2          Arbitration.   If arbitration is sought, a Party shall not be deemed in default until the matter shall have been determined finally by appropriate arbitration under the provisions of Article "13" hereinabove.

14.3          Curing the Default.   If:

(a)     the default is not so cured or the Defaulting Party does not commence or diligently proceed to cure the default; or

(b)     arbitration is not so sought; or

(c)     the Defaulting Party is found in arbitration proceedings to be in default, and fails to cure it within five calendar days after the rendering of the arbitration award,

the Non-Defaulting Party may, by written notice given to the Defaulting Party at any time while the default continues, terminate the interest of the Defaulting Party in and to this Agreement.

14.4          Termination.   In addition to the foregoing it is hereby acknowledged and agreed by the Parties hereto that this Agreement will be immediately terminated, unless otherwise extended in accordance with section "6.2" hereinabove, in the event that:

     (a)     the entire Ratification is not received within one business day of the Execution Date;

(b)     either of the Parties hereto has not either satisfied or waived each of their respective conditions precedent prior to the Subject Removal Date in accordance with the provisions of Article "5" hereinabove;

(c)     either of the Parties hereto has failed to deliver or caused to be delivered any of their respective documents required to be delivered by Articles "5", "6" and "7" hereinabove prior to each of the Subject Removal Date and the Closing Date in accordance with the provisions of Articles "5", "6" and "7";

(d)     the final Closing has not occurred on or before October 3, 2005 in accordance with section "6.2" hereinabove; or

(e)     by agreement in writing by each of the Parties hereto;

and in such event this Agreement will be terminated and be of no further force and effect other than the obligations under Articles "9" and "10" hereinabove.

 

Article 15

INDEMNIFICATION AND LEGAL PROCEEDINGS

15.1          Indemnification.   The Parties hereto agree to indemnify and save harmless the other Parties hereto and including, where applicable, their respective affiliates, directors, officers, employees and agents (each such party being an "Indemnified Party") harmless from and against any and all losses, claims, actions, suits, proceedings, damages, liabilities or expenses of whatever nature or kind, including any investigation expenses incurred by any Indemnified Party, to which an Indemnified Party may become subject by reason of the terms and conditions of this Agreement.

15.2          No indemnification.   This indemnity will not apply in respect of an Indemnified Party in the event and to the extent that a court of competent jurisdiction in a final judgment shall determine that the Indemnified Party was grossly negligent or guilty of willful misconduct.

15.3          Claim of indemnification.   The Parties hereto agree to waive any right they might have of first requiring the Indemnified Party to proceed against or enforce any other right, power, remedy, security or claim payment from any other person before claiming this indemnity.

15.4          Notice of claim.   In case any action is brought against an Indemnified Party in respect of which indemnity may be sought against any of the Parties hereto, the Indemnified Party will give the relevant Party hereto prompt written notice of any such action of which the Indemnified Party has knowledge and such Party will undertake the investigation and defense thereof on behalf of the Indemnified Party, including the prompt Consulting of counsel acceptable to the Indemnified Party affected and the payment of all expenses.  Failure by the Indemnified Party to so notify shall not relieve any Party hereto of such Party's obligation of indemnification hereunder unless (and only to the extent that) such failure results in a forfeiture by any Party hereto of substantive rights or defenses.

15.5          Settlement.   No admission of liability and no settlement of any action shall be made without the consent of each of the Parties hereto and the consent of the Indemnified Party affected, such consent not to be unreasonable withheld.

15.6          Legal proceedings.   Notwithstanding that the relevant Party hereto will undertake the investigation and defense of any action, an Indemnified Party will have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel will be at the expense of the Indemnified Party unless:

(a)     such counsel has been authorized by the relevant Party hereto;

(b)     the relevant Party hereto has not assumed the defense of the action within a reasonable period of time after receiving notice of the action;

(c)     the named parties to any such action include any Party hereto and the Indemnified Party shall have been advised by counsel that there may be a conflict of interest between any Party hereto and the Indemnified Party; or

(d)     there are one or more legal defenses available to the Indemnified Party which are different from or in addition to those available to any Party hereto.

15.7          Contribution.   If for any reason other than the gross negligence or bad faith of the Indemnified Party being the primary cause of the loss claim, damage, liability, cost or expense, the foregoing indemnification is unavailable to the Indemnified Party or insufficient to hold them harmless, the relevant Party hereto shall contribute to the amount paid or payable by the Indemnified Party as a result of any and all such losses, claim, damages or liabilities in such proportion as is appropriate to reflect not only the relative benefits received by any Party hereto on the one hand and the Indemnified Party on the other, but also the relative fault of the Parties and other equitable considerations which may be relevant.  Notwithstanding the foregoing, the relevant Party hereto shall in any event contribute to the amount paid or payable by the Indemnified Party, as a result of the loss, claim, damage, liability, cost or expense (other than a loss, claim, damage, liability, cost or expenses, the primary cause of which is the gross negligence or bad faith of the Indemnified Party), any excess of such amount over the amount of the fees actually received by the Indemnified Party hereunder.

 

Article 16

NOTICE

16.1          Notice.   Each notice, demand or other communication required or permitted to be given under this Agreement shall be in writing and shall be sent by prepaid registered mail deposited in a post office addressed to the Party entitled to receive the same, or delivered to such Party, at the address for such Party specified above.  The date of receipt of such notice, demand or other communication shall be the date of delivery thereof if delivered, or, if given by registered mail as aforesaid, shall be deemed conclusively to be the third calendar day after the same shall have been so mailed, or 15 calendar days in the case of an addressee with an address for service in a country other than a country in which the Party giving the notice, demand or other communication resides, except in the case of interruption of postal services for any reason whatsoever, in which case the date of receipt shall be the date on which the notice, demand or other communication is actually received by the addressee.

16.2          Change of address.   Either Party may at any time and from time to time notify the other Parties in writing of a change of address and the new address to which notice shall be given to it thereafter until further change.

 

Article 17

GENERAL PROVISIONS

17.1          Entire agreement.   This Agreement constitutes the entire agreement to date between the Parties hereto and supersedes every previous agreement, communication, expectation, negotiation, representation or understanding, whether oral or written, express or implied, statutory or otherwise, between the Parties hereto with respect to the subject matter of this Agreement and including, without limitation, the Agreement In Principle as between the Purchaser and the Company.

17.2          Enurement.   This Agreement will enure to the benefit of and will be binding upon the Parties hereto, their respective heirs, executors, administrators and assigns.

17.3          Schedules.   The Schedules to this Agreement are hereby incorporated by reference into this Agreement in its entirety.

17.4          Time of the essence.   Time will be of the essence of this Agreement.

17.5          Representation and costs.   It is hereby acknowledged by each of the Parties hereto that Lang Michener LLP, Lawyers - Patent & Trade Mark Agents, act solely for the Purchaser, and, correspondingly, that each of the Vendor Group and the Company have been required by each of Lang Michener LLP and the Purchaser to obtain independent legal advice with respect to their respective reviews and execution of this Agreement.   In addition, it is hereby further acknowledged and agreed by the Parties hereto that Lang Michener LLP, and certain or all of its principal owners or associates, from time to time, may have both an economic or shareholding interest in and to the Purchaser and/or a fiduciary duty to the same arising from either a directorship, officership or similar relationship arising out of the request of the Purchaser for certain of such persons to act in a similar capacity while acting for the Purchaser as counsel.  Correspondingly, and even where, as a result of this Agreement, the consent of each Party hereto to the role and capacity of Lang Michener LLP, and its principal owners and associates, as the case may be, is deemed to have been received, where any conflict or perceived conflict may arise, or be seen to arise, as a result of any such capacity or representation, each Party hereto acknowledges and agrees to, once more, obtain independent legal advice in respect of any such conflict or perceived conflict and, consequent thereon, Lang Michener LLP, together with any such principal owners or associates, as the case may be, shall be at liberty at any time to resign any such position if it or any Party hereto is in any way affected or uncomfortable with any such capacity or representation.  Each Party to this Agreement will also bear and pay its own costs, legal and otherwise, in connection with its respective preparation, review and execution of this Agreement and, in particular, that the costs involved in the preparation of this Agreement, and all documentation necessarily incidental thereto, by Lang Michener LLP, shall be at the cost of the Company.

17.6          Applicable law.   The situs of this Agreement is Vancouver, British Columbia, and for all purposes this Agreement will be governed exclusively by and construed and enforced in accordance with the laws and Courts prevailing in the Province of British Columbia.

17.7          Further assurances.   The Parties hereto hereby, jointly and severally, covenant and agree to forthwith, upon request, execute and deliver, or cause to be executed and delivered, such further and other deeds, documents, assurances and instructions as may be required by the Parties hereto or their respective counsel in order to carry out the true nature and intent of this Agreement.

17.8          Invalid provisions.   If any provision of this Agreement is at any time unenforceable or invalid for any reason it will be severable from the remainder of this Agreement and, in its application at that time, this Agreement will be construed as though such provision was not contained herein and the remainder will continue in full force and effect and be construed as if this Agreement had been executed without the invalid or unenforceable provision.

17.9          Currency.   Unless otherwise stipulated, all payments required to be made pursuant to the provisions of this Agreement and all money amount references contained herein are in lawful currency of the United States.

17.10          Severability and construction.   Each Article, section, paragraph, term and provision of this Agreement, and any portion thereof, shall be considered severable, and if, for any reason, any portion of this Agreement is determined to be invalid, contrary to or in conflict with any applicable present or future law, rule or regulation in a final unappealable ruling issued by any court, agency or tribunal with valid jurisdiction in a proceeding to any of the Parties hereto is a party, that ruling shall not impair the operation of, or have any other effect upon, such other portions of this Agreement as may remain otherwise intelligible (all of which shall remain binding on the Parties and continue to be given full force and agreement as of the date upon which the ruling becomes final).

17.11          Captions.   The captions, section numbers, Article numbers and Schedule numbers appearing in this Agreement are inserted for convenience of reference only and shall in no way define, limit, construe or describe the scope or intent of this Agreement nor in any way affect this Agreement.

17.12          Counterparts.   This Agreement may be signed by the Parties hereto in as many counterparts as may be necessary and, if required, by facsimile, each of which so signed being deemed to be an original, and such counterparts together shall constitute one and the same instrument and, notwithstanding the date of execution, will be deemed to bear the Execution Date as set forth on the front page of this Agreement.

17.13          No partnership or agency.   The Parties hereto have not created a partnership and nothing contained in this Agreement shall in any manner whatsoever constitute any Party the partner, agent or legal representative of any other Party, nor create any fiduciary relationship between them for any purpose whatsoever.  No Party shall have any authority to act for, or to assume any obligations or responsibility on behalf of, any other party except as may be, from time to time, agreed upon in writing between the Parties or as otherwise expressly provided.

17.14          Consents and waivers.   No consent or waiver expressed or implied by either Party hereto in respect of any breach or default by any other Party in the performance by such other of its obligations hereunder shall:

     (a)     be valid unless it is in writing and stated to be a consent or waiver pursuant to this section;

     (b)     be relied upon as a consent to or waiver of any other breach or default of the same or any other obligation;

     (c)     constitute a general waiver under this Agreement; or

     (d)     eliminate or modify the need for a specific consent or waiver pursuant to this section in any other or subsequent instance.

 

IN WITNESS WHEREOF each of the Parties hereto has hereunto set its seal by the hand of its duly authorized signatory as of the Execution Date as set forth on the front page of this Agreement.

	
The COMMON SEAL of

POWER AIR DYNAMICS LIMITED,

the sole Vendor herein, was hereunto

in the presence of:

                    s/s Stephen Williams

________________________________

Authorized Signatory
	
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Number of Purchased Shares:  1,000

(C/S)

	
The COMMON SEAL of

POWER AIR TECH, INC.,

the Company herein, was hereunto affixed

in the presence of:

                    s/s H. Dean Haley

________________________________

Authorized Signatory
	
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(C/S)

	
The COMMON SEAL of

HDH GROUP, LLC,

HDH Group herein, was hereunto affixed

in the presence of:

                    s/s H. Dean Haley

________________________________

Authorized Signatory
	
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(C/S)

	
SIGNED, SEALED and DELIVERED by

H. DEAN HALEY,

Mr. Haley herein, in the presence of:

________________________________

Witness Signature

________________________________

Witness Address

________________________________

Witness Name and Occupation

 
	
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         s/s H. Dean Haley           

H. DEAN HALEY

	
The COMMON SEAL of

FORTUNE PARTNERS, INC.,

the Purchaser herein, was hereunto affixed

in the presence of:

                    s/s Paul D. Brock

________________________________

Authorized Signatory
	
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(C/S)

 

__________EX102

Exhibit 10.2

STEVE WILLIAMS SERVICES CONTRACT

 

This SERVICES CONTRACT ("Agreement") is made and entered into this 1st day of October, 2005 (the "Effective Date") between Fortune Partners, Inc. (intending to change its name to Power Air Corporation or otherwise; (the "Company")), with an address for notice and delivery located at 1500 Royal Centre, 1500 West Georgia Street, Vancouver, British Columbia, Canada, V6E 4N7, and Steve Williams, having an address for notice and delivery located at 40 Lane 163 Crooked Lake, Angola, Indiana, U.S.A., 46703 (the "Executive") (each of the Company and the Executive also being a "Party" hereunder).

WHEREAS, the Board of Directors of the Company (the "Board") wishes to assure the Company of the services of the Executive for the period provided in this Agreement; and

WHEREAS, the Parties wish this Agreement to supersede all prior understandings between the Parties, whether oral or written;

NOW THEREFORE, in consideration of the performance of the responsibilities of the Executive and upon other terms and conditions hereinafter provided, the Parties hereto agree as follows:

	Services Contract

	The Executive shall be retained as the President of the Company. As President the Executive shall render administrative and management services to the Company such as are customarily performed by persons situated in a similar executive position.  The Executive shall perform such other duties as the Board of the Company may from time to time reasonably direct.  Failure to re-elect or appoint the Executive as President without the consent of the Executive shall be deemed to be a termination of the Executive without "Cause" (as hereinafter defined) under this Agreement.

	The Executive shall be furnished with a private office with such facilities, amenities and services as are appropriate for the Executive's position as President of the Company and adequate for the performance of his duties hereunder.

	Term

This Agreement shall be for a period of one (1) year (the "Initial Term") commencing on the Effective Date (the end of such period between the Effective Date and the Initial Term being hereafter referred to as the "Anniversary Date"), subject, however, to termination during such Initial Term as provided herein.  The Initial Term shall be deemed to be extended for additional periods of one year each (such extension of a year being an "Extended Term" herein) unless at least sixty (60) calendar days prior to the expiration of the Initial Term or an Extended Term, as the case may be, written notice is delivered by either Party to the other Party therein confirming its desire to terminate this Agreement and stating that the Agreement will terminate and not be extended beyond the Initial Term or such Extended Term.

	Standards of Performance

Excluding periods of vacation to which the Executive is entitled, the Executive agrees to devote his best efforts and his entire business time during regular business hours to the business and affairs of the Company and to discharge the responsibilities assigned to the Executive hereunder.  The Executive, following consultation with the Board, may serve on corporate, civic or charitable boards or committees and, without such consultation, manage personal investments, so long as such activities do not interfere in any material respect with the performance of the Executive's responsibilities hereunder.

	Base Fee

	The Company agrees to pay the Executive during the continuance of this Agreement a gross salary of U.S. One Hundred Fifty Thousand Dollars ($150,000) per annum (hereafter referred to as the "Base Fee"). The first months fee will contain a signing bonus of US$15,000 and together with the first months salary will be paid on or before October 10, 2005. The Base Fee provided for hereinafter shall be payable on the 15th day of each month.  In addition, it is hereby acknowledged and agreed that the Executive will be classified as an independent contractor and receive an annual 1099, such that all compensation which is provided by the Company to the Executive under this Agreement, or otherwise, will be calculated on the previous gross basis.

	Commencing during the Initial Term the Board shall evaluate the Company's progress, past, present and future, as attained with the services of the Executive.  At the end of each anniversary date the Board shall, through its Compensation Committee (or, if the Board does not have a Compensation Committee, through the balance of its then disinterested Board members), consider increasing the Base Fee to be paid to the Executive for the next ensuing year.  In respect of those years in which the Executive receives an increase in Base Fee by virtue of this Paragraph 4(b), such increase in Base Salary shall be considered part of the Executive's Base Salary for all purposes of this Agreement moving forward.

 

	Stock Options

As an inducement to the Executive to enter into this Agreement the Executive will initially be granted, subject to the rules and policies of the regulatory authorities and applicable securities legislation, the terms and conditions of the Company's existing stock option plan and the final determination of the Board, acting reasonably, an aggregate of 500,000 incentive stock options (each being a "Stock Option") to acquire up to an equivalent number of common shares of the Company (each being an "Option Share" when acquired) at an exercise price of U.S. $0.65 per Option Share and exercisable for a period of up to five years from the date of grant.  In this regard the Company intends to use its reasonable commercial efforts to ensure that a Form S-8 Registration Statement is filed and remains effective as long as such Stock Options are outstanding, and the Executive fully understands and acknowledges that any such Option Shares will be issued in reliance upon the exemption afforded under the Form S-8 Registration Statement which is available only if the Executive acquires such Option Shares for investment and not with a view to distribution.  The Executive is familiar with the phrase "acquired for investment and not with a view to distribution" as it relates to the United States Securities Act of 1933, as amended, and the special meaning given to such term in various releases of the United States Securities and Exchange Commission.

	Discretionary Incentive Bonus to the Executive

	The Company will pay the Executive an incentive bonus to be determined as hereinafter set forth (the "Discretionary Incentive Bonus").  The Board shall authorize, subject to payment terms to be determined by the Board and pursuant to the Company's bonus plan, if any, as amended from time to time by the Board, payment to the Executive of an annual incentive Discretionary Incentive Bonus for that calendar year, or any portion thereof on a pro rata basis, in the event the Executive did not serve the complete calendar year; provided, the Company's financial performance for that calendar year permits such a Discretionary Incentive Bonus to be paid in the best interests of the Company.  The Company financial performance will be measured, among other things, by reference to the Company's return on equity, in order to determine if and to what extent a Discretionary Incentive Bonus is payable during each calendar year of the continuance of this Agreement.

	Unless otherwise determined by the Board in light of the Company's financial performance measured, among other things, by reference to the Company's return on equity during a particular calendar year, the Discretionary Incentive Bonus shall ordinarily be not less than two percent (2%) of the Company's after-tax profits as determined by the Company's independent certified public accountants in accordance with generally accepted accounting principles, applied consistently from year to year, and may be payable in cash or awards of options and/or units or a combination of cash and awards.  At the election of the Executive, and without the requirement for prior Board approval in such instance, any Discretionary Incentive Bonus shall be paid either in cash, stock options or pursuant to a deferred cash compensation arrangement.  In no event shall the Discretionary Incentive Bonus in any one year to be paid pursuant to this Paragraph 6 be in excess of two hundred percent (200%) of the Base Fee of the Executive provided for in Paragraph 4.

	Participation in Retirement and Executive Benefit Plans

	The Executive shall be entitled to participate in any plan of the Company relating to pension, thrift, deferred compensation, profit-sharing, group life insurance, medical insurance, educational reimbursement or other retirement or employee benefits that the Company may then have in force.

	In addition to the compensation provided to the Executive pursuant to Paragraphs 4, 5, 6, and 7 hereof, the Company agrees to reimburse the Executive for reasonable entertainment, travel, lodging and other miscellaneous expenses, whether local or out-of-city, incurred on its behalf and directly related to the performance of his duties as President of the Company.  This reimbursement shall include the payment of reasonable expenses for attending meetings of trade and/or professional associations.  The Executive shall submit an itemized statement and satisfactory documentation of the expenses incurred.  The Company further agrees to provide the Executive, for both business and personal use so long as he is actually working for the Company every two (2) years during this Agreement, a new automobile, and the Company shall be responsible for all expenses (including adequate insurance), repairs and maintenance thereof; provided, however, that the Executive shall be responsible for his gas and oil expenses for automobile travel.  The Company shall also include the Executive as an insured under its liability insurance policies with coverage at least equal to the coverage under its current liability insurance policies.

	Life Insurance

As soon as practicable following Effective Date of this Agreement, but in no event later than 60 calendar days thereafter, and in addition to any group life insurance plan the Company may offer its employees from time to time, the Company agrees to provide the Executive during the continuance of his employment under this Agreement with life insurance as follows:

	The Company, after the 1st Anniversary Date of this Agreement, will provide the Executive with a U.S. Five Hundred Thousand Dollar ($500,000) life insurance policy (the "Life Insurance Policy").  The Executive will be the owner and may name the beneficiary of the Life Insurance Policy.

	If the Executive terminates his employment with the Company or the Company terminates the Executive's position for other than Cause, the Executive can, at his option, pay the Company U.S. One Dollar ($1.00) for the privilege of having the Life Insurance Policy, any intangible value associated with said policy, and the accrued cash values of said policy, reassigned to him.

	Vacations

(a)The Executive shall be entitled, without loss of pay, to the number of vacation days in each calendar year determined by the Board from time to time, provided that the Executive shall be entitled to an annual vacation of not less than four (4) weeks per year in accordance with the Company's personnel policies as may be amended by the Board from time to time.

(b)The timing of vacations shall be scheduled in a reasonable manner by the Executive.  The Executive shall not be entitled to receive any additional compensation from the Company for his unused vacation time.  The Executive shall be entitled to accumulate one week unused vacation time from one calendar year to the next calendar year only.

	Termination

	The Executive's services under this Agreement may be terminated at any time by the Board.  Except as otherwise provided in this Agreement, any termination by the Board other than for Cause shall not prejudice the Executive's right to receive:

	compensation in accordance with Paragraphs 4, 5, 6, and 7 of this Agreement for the remainder of the Initial Term or any Extended term hereof;

	the other benefits provided by this Agreement for the remainder of the Initial Term or any Extended term hereof; and

	a lump sum cash severance payment equal to twice the Executive's Base Fee as determined in Paragraph 4.

	The Executive shall have no right to receive compensation or other benefits under this Agreement for any period after the date of termination for Cause.  For purposes of this Agreement, termination for "Cause" shall mean only the following events:

	personal dishonesty;

	material breach of any provision of this Agreement;

	breach of a fiduciary duty involving personal gain or profit;

	intentional failure to perform stated duties;

	a material breach of the reasonable policies and procedures for the operation of the Company provided to the Executive by formal action of the Company's Board;

	willful violation of any law, rule, regulation (other than a law, rule or regulation relating to a traffic violation or similar offense) or final cease-and-desist order; or

	willful misconduct.

For purposes of Paragraph 10(b)(6) and 10(b)(7), no act, or failure to act, on the Executive's part shall be considered 'willful' unless he has acted, or failed to act, with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interests of the Company; and, for the purposes of  Paragraph 10(b)(6), a cease-and-desist order shall not become final until exhaustion or lapse of all (administrative and judicial) appeal rights in relation thereto.

	The Executive shall not be deemed to have been terminated for Cause unless there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire Board of the Company at a meeting of the Board duly called and held for the purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth above in the second sentence of this Paragraph 10(b) and specifying the particulars thereof in detail.  In no event will the Executive be subject to termination for cause pursuant to Paragraph 10(b)(2) above unless the Executive shall have failed to cure, correct or prevent the alleged breach within 30 calendar days after such Board resolution has been delivered to the Executive.

	This Agreement may be terminated by the Executive at any time upon 90 calendar days' prior written notice to the Company or upon such shorter period as may be agreed upon between the Executive and the Board.  In the event of such termination the Company shall be obligated only to continue to pay the Executive his salary up to the date of termination and those retirement and/or employee benefits which have been earned or become payable up to the date of termination.

	(1)If the Executive's services terminates by reason of the Executive's "Disability" (as hereinafter defined), the Company shall pay the Executive his BaseFee as follows:  For the first ninety (90) calendar days of the Executive's Disability, the Executive shall be entitled to one hundred percent (100%) of the Executive's Base Fee.  In the event that the Executive's Disability continues beyond ninety (90) calendar days, the Executive shall receive sixty percent (60%) of the Executive's BaseFee up and until the Executive attains the age of sixty-seven (67).  The Company shall obtain a policy of insurance insuring the Executive in the event of the Executive's Disability during the continuance of this Agreement.  The policy shall be non-cancelable to age sixty-seven (67) at a guaranteed premium rate to the Company and shall include a "Cost of Living Adjustment Factor and Automatic Benefit Indexing".  The policy of insurance shall be adequate to provide the necessary funds in the event of the Disability of the Executive.  All premiums on the Disability insurance coverage shall be paid by the Company.  If the Executive's services terminates by reason of the Executive's Disability, the Company shall also pay the Executive any benefits or awards which, pursuant to the terms of any compensation or benefit plan, have been earned or have become payable, but which have not yet been paid to the Executive, and a pro rata portion of any Discretionary Incentive Bonus that the Executive would have been entitled to receive in respect of the year in which the Executive's date of termination occurs had he continued in employment until the end of such calendar year.

(2)In the event the Executive's employment terminates by reason of Disability, the insurer referred to in the previous Paragraph shall pay to the Executive his benefits during the term of said Disability or until such time as said Executive reaches the age of sixty-seven (67).

(3)In the event the Executive's employment terminates by reason of death, the Company will cause to be continued medical, hospitalization, dental and group life insurance coverage, as well as any other similar type benefits offered from time to time by the Company to its employees for the Executive's family (including dependents up to age 21) substantially identical to that maintained by the Company for the Executive prior to his death.  The Company's obligation to provide health coverage for the Executive's family will cease twelve (12) months after the Executive's death.  Notwithstanding the foregoing, the Company is not obligated to continue any coverage if to do so would be contrary to law, or if the Company receives written notice from an insurer stating that the insurer cannot continue the coverage for the Executive's family.

	Disability

	The Company may terminate the Executive's employment after having established the Executive's Disability.  For purposes of this Agreement, "Disability" means a physical or mental infirmity which impairs the Executive's ability substantially to perform his duties under this Agreement and which results in the Executive becoming eligible for long-term disability benefits, as set forth in Paragraph 10(e)(1) of this Agreement.  In the event the Executive's employment is terminated by reason of the Executive's Disability, the Executive shall be entitled to all of the benefits, including monthly benefits provided under the policy of insurance, until said Executive reaches age sixty-seven (67).  The Executive shall be entitled to the compensation and benefits under this Agreement for any period prior to the establishment of the Executive's Disability during which the Executive is unable to work due to a physical or mental infirmity.

	If any dispute arises as to whether the Executive is or was physically or mentally unable to perform his duties pursuant to this Agreement, or whether his Disability has ceased and he is now able to resume his duties, the Parties shall submit such question to a licensed physician agreed upon by the Parties, or, if the Parties are unable to agree, to a licensed physician appointed by a neutral party practicing in the State of Indiana at the request of either Party.  The Executive shall submit to such examinations and provide information as such physician may request and the determination of such physician as to the Executive's physical or mental condition shall be binding and conclusive on the Parties.  The Company agrees to pay the cost of any such physician and examinations.

	Change of Control

	If, during the continuance of this Agreement, there is a "Change in Control" (as hereinafter defined) of the Company, the Executive shall be entitled to a termination or severance payment in the event the Executive's employment is involuntarily terminated, in connection with or within two (2) years after the Change in Control, other than for Cause or pursuant to Paragraphs 10(e) or 11.  This payment shall also be made in the case of the Executive's voluntary termination of services for "Good Reason" (as hereinafter defined) in connection with or within two (2) years after a Change in Control of the Company.  Such voluntary termination of services for Good Reason in connection with or within two (2) years after a Change in Control of the Company shall not constitute a termination under Paragraph 10(b) hereof.  The amount of severance payment shall be compensation and other benefits for the remaining term of this Agreement provided to the Executive pursuant to Paragraphs 4, 5, and 7 of this Agreement.  The severance payment provided for in this paragraph is in addition to the lump sum cash payment payable pursuant to Paragraph 10 of this Agreement.

	For purposes of this Agreement, a "Change of Control" of the Company shall mean:

	the acquisition by a person or persons acting in concert of the power to vote more than twenty percent (20%) of a class of the Company's voting securities or the acquisition by a person or entity of the power to direct the Company's management or policies if the Board has made a determination that such acquisition constitutes or will constitute an acquisition of control of the Company; or

	during any period of two (2) consecutive years during the continuance of this Agreement, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof.

	Upon the Executive's termination of services within two (2) years after the occurrence of a Change of Control of the Company, the Company will cause to be continued life, medical, hospitalization, dental and disability insurance coverage substantially identical to the coverage maintained by the Company for the Executive prior to his severance.  Such coverage shall cease upon the earlier of the Executive's services by another employer or two (2) years from such termination.  Notwithstanding the foregoing, the Company shall not continue any coverage if to do so would be contrary to law.

	Good Reason

For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change in Control of any of the events or conditions described in Subparagraphs (1) through (g) hereof without the Executive's express written consent; provided the Executive's right to terminate his services pursuant to this Paragraph 13 shall not be affected by his capacity due to physical or mental illness:

	a change in the Executive's status, title, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment, is not at least equal to his status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with such status, title, position or responsibilities; or any removal of the Executive from or failure to reappoint him to any of such positions, except in connection with the termination of his services for (1) Disability, (2) Cause, (3) as a result of his death or (4) by the Executive other than for Good Reason;

	a reduction by the Company in the Executive's Base Salary as in effect on the date of a Change in Control of the Company or as the same may be increased from time to time;

	the relocation of the Company's principal executive offices to a location outside a 500 mile radius of Livermore, California, U.S.A., or the Company's requiring the Executive to be based at any place other than Livermore, California, U.S.A., except for reasonably required travel on the Company's business which is not materially greater than such travel requirements prior to the Change in Control;

	the adverse and substantial alteration in the nature and quality of the office space within which the Executive performs his duties, including the size and location thereof, as well as the secretarial and administrative support provided to the Executive;

	the failure by the Company to continue to provide the Executive with compensation and benefits provided for under this Agreement or benefits substantially similar to those provided to him under any of the employee benefit plans which the Executive becomes a participant, or the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by him at the time of the Change of Control;

	any material breach by the Company of any provision of this Agreement; or

	the failure of the Company to obtain a satisfactory agreement from any successor or assign of the Company to assume and agree to perform this Agreement, as contemplated in Paragraph 18 hereof.

	Election to Avoid Excess Parachute Payments

	If the "Present Value" (as hereinafter defined) of any benefits payable under Sections 4, 5, 6, and 7, together with any other payments otherwise payable to the Executive by the Company (collectively referred to as "Severance Benefits"), which are deemed under Section 280G of the Internal Revenue Code (the "Code") to constitute "Parachute Payments" (as defined in Section G of the Code), are greater than three times the Executive's "Base Amount" (as hereinafter defined herein), the Executive may elect to apply the provision set forth below.

	In the event that any Severance Benefits to be made to the Executive by the Company, whether pursuant to this Agreement or otherwise, upon termination of the Executive's services pursuant to Paragraphs 10, 12, and 13 hereof are deemed, in the opinion of the Company's Independent Public Accountants (the "Accountants") to constitute Parachute Payments, the Executive may, upon written notification by the Company of the determination of the Accountants, elect to receive any combination of Severance Benefits from the Company due the Executive as a result of termination which equal the maximum aggregate amount which can be paid to the Executive without constituting "Excess Parachute Payments" for purposes of the Code.  The written notification by the Company of any determination of the Accountants pursuant to this Paragraph 14 shall be provided to the Executive within five (5) business days of the Executive's date of termination, and shall (1) list all Severance Benefits which are deemed to constitute Parachute Payments in the opinion of the Accountants and (ii) contain the Company's opinion as to the Present Value of each of such Severance Benefits, which opinion shall be determined in consultation with the Accountants.  Any election by the Executive pursuant to this paragraph shall be made by the Executive and submitted to the Company by the thirtieth (30th) calendar day following the date of termination, and the Company shall pay to the Executive the Severance Benefits specified in such election within five (5) business days of receipt of such election.

	In the event that the Executive does not file a written election with the Company pursuant to Subparagraph (b) upon receipt of a written notification by the Company of the Accountant's determination that Severance Benefits to which the Executive is entitled upon termination constitute Excess Parachute Payments, then the Company shall pay the Executive all Severance Benefits due him pursuant to this Agreement or otherwise.

	For purposes of this Paragraph 14, Present Value means the value determined in accordance with the principles of Section 1274(b) (2) of the Code as maintained under Section G of the Code, and Base Amount means the average annual compensation payable to the Executive by the Company and includible in the Executive's gross income for federal income tax purposes during the shorter of the period consisting of the most recent five (5) taxable years ending before the date of any Change in Control of the Company or the portion of such period during which the Executive was an Executive.

	References to Code Section G herein are specified references to Section G as added to the Code by the Tax Reform Act of 1984, Pub.L. No. 98-369, 98th Cong., 2nd Sess., and as it may be amended.

	Proprietary Information, Non-competition and non-circumvention

(a)The Executive agrees that the knowledge of the business activities and plans for business activities of the Company and affiliates thereof is a confidential, valuable, special and unique asset of the business of the Company.  The Executive's knowledge of information concerning the Company of which a third party has both knowledge and an unrestricted right to that knowledge in not subject to this paragraph.  During the term of his employment and for the period ending two (2) years following the termination of his employment for any reason, the Executive will not disclose any knowledge of the past, present, planned or considered business activities of the Company or affiliates thereof to any person, firm, corporation or other entity for any reason or purpose whatsoever.  In the event of a breach or threatened breach by the Executive of the provision of this Paragraph 15, the Company will be entitled to an injunction restraining the Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of the Company or affiliates thereof, or from rendering any services to any person, firm, corporation or other entity to whom such knowledge, in whole or in part, has been disclosed is threatened to be disclosed.  Nothing herein will be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including the recovery of damages from the Executive.

(b)During the continuance of this Agreement the Executive shall not engage in any business or activity which reasonably may detract from or conflict with the Executive's respective duties and obligations to the Company as set forth in this Agreement without the prior written consent of the Board.  In addition, during the continuance of this Agreement and for a period of at least one (1) year following the termination of this Agreement for any reason whatsoever the Executive shall not engage in any business or activity whatsoever which reasonably may be determined by the Board, in its sole and absolute discretion, to compete with any portion of the business interests of the Company as contemplated hereby without the prior written consent of the Board.  Furthermore, the Executive hereby acknowledges and agrees, for a period of at least one (1) year following the termination of this Agreement for any reason whatsoever, not to initiate any contact or communication directly with either of the Company or any of its subsidiaries, as the case may be, together with each of their respective directors, officers, representatives, agents or employees, without the prior written consent of the Board and, notwithstanding the generality of the foregoing, further acknowledges and agrees, even with the prior written consent of the Board to such contact or communication, to limit such contact or communication to discussions outside the scope of any confidential information.  For the purposes of the foregoing the Executive hereby recognizes and agrees that a breach by the Executive of any of the covenants herein contained would result in irreparable harm and significant damage to the Company that would not be adequately compensated for by monetary award.  Accordingly, the Executive agrees that, in the event of any such breach, in addition to being entitled as a matter of right to apply to a Court of competent equitable jurisdiction for relief by way of restraining order, injunction, decree or otherwise as may be appropriate to ensure compliance with the provisions hereof, the Executive will also be liable to the Company, as liquidated damages, for an amount equal to the amount received and earned by the Executive as a result of and with respect to any such breach.  The Parties hereby acknowledge and agree that if any of the aforesaid restrictions, activities, obligations or periods are considered by a Court of competent jurisdiction as being unreasonable, the Parties agree that said Court shall have authority to limit such restrictions, activities or periods as the Court deems proper in the circumstances.   In addition, the Parties further acknowledge and agree that all restrictions or obligations in this Agreement are necessary and fundamental to the protection of the business interests of the Company and are reasonable and valid, and all defenses to the strict enforcement thereof by the Executive are hereby waived.

	Indemnification

	The Company, using reasonable business judgment, shall provide the Executive (including his heirs, executors and administrators) with coverage under a standard form Directors' and Officers' Liability Insurance Policy (the "D&O Policy") to be obtained by the Company as soon as reasonably practicable after the Effective Date hereof, at the Company's expense, and shall indemnify, hold harmless and defend the Executive (and his heirs, executors and administrators) to the fullest extent permitted under Indiana law for any deductible expenses under the D&O Policy reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Company (whether or not he continues to be a director or officer at the time of incurring such expense); such expenses and liabilities to include, but not limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements; and such settlements to be approved by the Board if such action is brought against the Executive in his capacity as an officer or director of the Company.  Indemnification for deductible expenses shall not extend to matters for which the Executive has been terminated for Cause as defined in Paragraph 10(b).

	If the Company does not provide the Executive with coverage under a D&O policy the Company shall indemnify, hold harmless and defend the Executive (and his heirs, executors and administrators) to the fullest extent permitted under Indiana law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been an Executive of the Company (whether or not he continues to be an Executive at the time of incurring such expenses or liabilities); such expenses and liabilities to include, but not be limited to, judgments, court costs and attorney's fees and the cost of reasonable settlements; and such settlements to be approved by the Board if such action is brought against the Executive in his capacity as an Executive of the Company.  Indemnification for expenses shall not extend to matters for which the Executive has been terminated for Cause as defined in Paragraph 10(b).

	Payment of Legal Fees

All reasonable legal fees paid or incurred by the Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Company if the Executive is successful or as may be determined to be appropriate by any arbitrator's award based on the relative merits of the two Parties.

	Successors; Binding Agreement

	The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by an assumption agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  Failure of the Company to obtain such assumption agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms that he would be entitled to hereunder if he terminated his employment voluntarily in connection with, or within two (2) years after, a Change in Control of the Company.

	This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, successor, heirs, distributes, devisees, legatees and permitted assigns.

	No Assignments

This Agreement is personal to each of the Parties hereto and, except as provided in Paragraph 18, neither Party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other Party.

	Notices

All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to the following addresses or to such other address as either Party may designate by like notice:

A.If to the Company:

1500 Royal Centre, 1500 West Georgia Street, Vancouver, British Columbia, Canada, V6E 4N7

B.If to the Executive:

40 Lane 163 Crooked Lake, Angola, Indiana, U.S.A. 46703

	Other Contracts

Consistent with Paragraph 3 herein, the Executive shall not, during the continuance of this Agreement, have any other services except with the prior approval of the Board.

	Amendments

No amendments or additions to this Agreement shall be binding unless in writing and signed by both Parties, except as herein otherwise provided.

	Paragraph Headings

The paragraph headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

	Severability

The provision of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

	Governing Law

This Agreement shall, except to the extent that federal law shall be deemed to apply, be governed by and construed and enforced in accordance with the laws of Indiana.

	Arbitration

Except for the determination of Disability provided for under Paragraph 11, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect.  Judgment may be entered on the arbitrator's award in any court having jurisdiction.

IN WITNESS WHEREOF, the Parties have executed this Agreement on the Effective Date hereinabove written.

WITNESSED:FORTUNE PARTNERS, INC.

____________________By:  s/s Director

EXECUTIVE:

____________________By:  s/s Steve Williams

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