Document:

exv10w9

 

Exhibit 10.9

Execution Copy

SUBORDINATION AGREEMENT

     This SUBORDINATION AGREEMENT is entered into as of September 15, 2006 (the “Subordination
Agreement”), by and among Robert W. Lackey (“Lackey”), as collateral agent (in such
capacity, the “Agent”) for Lackey, Robert W. Lackey, Jr., Imagine One Resources, LLC, a
North Carolina limited liability company, RWL Corporation, a North Carolina corporation and R.L.
Products Corporation, a Georgia corporation (together with Lackey, Robert W. Lackey, Jr., Image One
Resources, LLC and RWL Corporation, the “Junior Lender”), whose address is 420 Third Avenue
NW, Hickory, NC 28603, THE FROST NATIONAL BANK, a national banking association (the “Senior
Lender”), whose address is 100 W. Houston Street, San Antonio, Texas 78205, Trade Source
International, Inc., a Delaware corporation (“TSI”), MARKETING IMPRESSIONS, INC., a Georgia
Corporation (“MI”), Prime/Home Impressions, LLC, a North Carolina limited liability company
(“PHI”), and Craftmade International, Inc., a Delaware corporation (“Craftmade”),
whose address is 650 South Royal Lane, Suite 100, Coppell, Texas 75019.

RECITALS:

     A. Craftmade, TSI and Lackey are parties to a Stock Purchase Agreement, dated as of even date
herewith (as amended, modified or supplemented from time to time, the “Stock Purchase
Agreement”), pursuant to which TSI is (i) purchasing all of Lackey’s interest in MI, (ii)
purchasing certain intellectual property from Lackey, RWL Corporation and R.L. Products
Corporation, (iii) entering into a non-competition agreement with, and purchasing the goodwill of,
each of Lackey and Robert W. Lackey, Jr. and (iv) entering into a consulting agreement with Image
One Resources, LLC, all upon the terms and conditions set forth therein. The Stock Purchase
Agreement provides that the purchase price for all the assets listed in clauses (i) through (iv)
above will be paid partially at the closing, with the remainder to be paid through an earn-out over
time as provided for therein.

     B. TSI and MI each owns a 50% membership interest in PHI and, subsequent to the acquisition of
MI, TSI will directly or indirectly own all of the membership interests of PHI.

     C. TSI, MI, PHI and Agent have entered into a Partially Subordinate Security Agreement of even
date herewith wherein each of TSI, MI and PHI (collectively, the “Pledgors”) granted a
security interest in the collateral described in such Partially Subordinated Security Agreement
(such collateral hereinafter referred to as the “Junior Lender Collateral”) in favor of the
Agent, for the benefit of the Junior Lender, to secure the obligations of TSI and Craftmade under
the Stock Purchase Agreement (such obligations hereinafter referred to as the “Stock Purchase
Debt”).

     D. The Senior Lender has a security interest in TSI’s accounts and inventory and all products
and proceeds of such collateral (including, without limitation, insurance payable by reason of loss
or damage to the foregoing collateral) (collectively, the “TSI Collateral”), and TSI has
agreed not to grant any further security interests in the TSI Collateral (as used herein,
“accounts” and “inventory” have the meanings given to such terms in the Texas
Business and
Commerce Code as in effect in the State of Texas on the date of this Subordination or as it
may hereafter be amended from time to time).

 

 

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     E. The Junior Lender and TSI desire that the Senior Lender consent to the grant of a security
interest in the TSI Collateral in favor of the Junior Lender, and the Senior Lender is willing to
grant such consent on the terms hereinafter set forth.

     F. PHI intends to grant to the Junior Lender a security interest is PHI’s accounts and
inventory and all products and proceeds of such collateral (including, without limitation,
insurance payable by reason of loss or damage to the foregoing collateral) (collectively, the
“PHI Collateral”).

     NOW, THEREFORE, in consideration of the granting of such consent, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Agent, on
behalf of the Junior Lender, the Pledgors and Craftmade hereby agree with the Senior Lender as
follows:

AGREEMENTS:

     1. Subordination; Consent; Estimated Acceleration Amount Payment Extension.

          1.1 The Junior Lender hereby subordinates (i) the priority of Junior Lender’s security
interest in the TSI Collateral to the priority of the security interest of Senior Lender in the TSI
Collateral and (ii) the priority of Junior Lender’s security interest in the PHI Collateral to the
priority of any security interest, whenever created, of the Senior Lender in the PHI Collateral.
The Junior Lender’s subordination as set forth in the foregoing sentence in favor of Senior Lender
shall be irrespective of the time, order or method of attachment or perfection of the security
interests granted in favor of such parties or the time or order of filing or recording of financing
statements. The Senior Lender hereby consents to (i) TSI granting a security interest in the TSI
Collateral in favor of the Junior Lender and (ii) PHI granting a security interest in the PHI
Collateral in favor of the Junior Lender.

          1.2 Notwithstanding anything in Section 2.06(b) of the Stock Purchase Agreement to the
contrary, if (i) Lackey has elected to accelerate the amounts due under the Stock Purchase
Agreement based on the occurrence of the triggering event described in Section 2.06(a)(ii) of the
Stock Purchase Agreement and (ii) at the time Lackey elects to cause such acceleration, Craftmade
has failed to pay when due any part of the principle or interest due to Senior Lender under the
Amended and Restated Loan Agreement dated October 31, 2005 between Craftmade and Senior Lender (as
amended, modified, restated or supplemented from time to time, the “Loan Agreement”) and
such failure is then continuing, the Junior Lender hereby agrees that (y) TSI and Craftmade shall
have 90 days, rather than 30 days, from the date of the notice described in Section 2.06(a) of the
Stock Purchase Agreement to pay the Estimated Acceleration Amount and (z) the automatic release of
the obligations of Lackey and Robert W. Lackey, Jr. under the Shareholder Non-Competition Agreement
(as defined in the Stock Purchase Agreement) and the RLJ Non-Competition Agreement (as defined in
the Stock Purchase Agreement), respectively, and the automatic release of the obligations of
Imagine One Resources, LLC under the Consulting Agreement (as defined in the Stock Purchase
Agreement) shall occur if TSI and Craftmade have not paid such Estimated Acceleration Amount within
105
days, rather than 45 days, of the date of the notice described in Section 2.06(a) of the Stock
Purchase Agreement. TSI shall provide the Junior Lender and Senior Lender with notice of any
payment default under the Loan Agreement or the Stock Purchase Agreement. The Senior

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Lender shall
provide the Junior Lender with notice of any payment default under the Loan Agreement and, if the
Senior Lender has provided such notice to the Junior Lender, the Junior Lender shall thereafter
provide the Senior Lender with notice of any payment default and of any acceleration of amounts due
under the Stock Purchase Agreement.

          1.3 TSI will promptly deliver to the Senior Lender a certified copy of the Stock Purchase
Agreement, as well as certified copies of all other agreements, instruments and documents executed
in connection therewith. The Senior Lender hereby agrees to keep all such documents confidential
and not to disclose such documents to any third party except for disclosures made in the ordinary
course of the Senior Lender’s business or as required by law.

          1.4 The parties acknowledge that the description of the collateral contained in Section 1(c)
of the Security Agreement dated November 6, 2001 between TSI and the Senior Lender contains the
phrase “and any property, securities, guaranties or monies of [TSI] which may at any time come into
the possession of the [Senior Lender]” and that any security agreement between PHI and the Senior
Lender may contain the same phrase. The Senior Lender hereby subordinates (i) the priority of the
security interest, if any, in the equipment and general intangibles of TSI, whether created by such
phrase or otherwise, in favor of the Senior Lender to the priority of the Junior Lender’s security
interest in the Junior Lender Collateral and (ii) the priority of the security interest, if any,
whenever created, in the equipment and general intangibles of PHI, whether created by such phrase
or otherwise, in favor of the Senior Lender to the priority of the Junior Lender’s security
interest in the Junior Lender Collateral. The Junior Lender hereby subordinates (i) the priority
of the Junior Lender’s security interest in the Junior Lender Collateral to the security interest,
if any, in any property, securities, guaranties or monies of TSI except equipment and general
intangibles created by such phrase in favor of the Senior Lender and (ii) the priority of the
Junior Lender’s security interest in the Junior Lender Collateral to the security interest, if any,
in any property, securities, guaranties or monies of PHI except equipment and general intangibles
created by such phrase in favor of the Senior Lender in any security agreement between PHI and the
Senior Lender.

          1.5 The Junior Lender hereby agrees to include the following notice in any financing statement
its files covering the Junior Lender Collateral:

“The security interest described herein is subject to the terms and conditions of
the Subordination Agreement dated September 15, 2006 between the debtor, the secured
party and The Frost National Bank, San Antonio, Texas.”

     2. Further Agreement. The Junior Lender agrees that the Senior Lender, at any time
and from time to time hereafter, may enter into such agreements with Craftmade, any Pledgor or any
guarantor of any of the indebtedness now or at any time hereafter owing by Craftmade or any of the
Pledgors to the Senior Lender, whether absolute or contingent, direct or indirect and howsoever
evidenced, including, but not limited to, all pre-petition and post-petition interest thereon,
fees, expenses and all other demands, claims, liabilities or causes of action for which Craftmade
or any of the Pledgors may now or at any time or times hereafter in any way be liable to the Senior
Lender, whether under any agreement, instrument or document executed and
delivered or made by Craftmade or any of the Pledgors to the Senior Lender or otherwise, including
any refinancings thereof (collectively, the “Senior Debt”) as the Senior Lender may deem
proper extending the time of payment of or renewing or otherwise altering the terms of all

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or any
of the Senior Debt, and may release any balance of funds of Craftmade, any Pledgor or any guarantor
of the Senior Debt with the Senior Lender, without notice to the Junior Lender and without in any
way impairing or affecting this Subordination Agreement.

     3. Continuing Agreement. This Subordination Agreement shall be irrevocable and shall
constitute a continuing agreement of subordination and shall be binding on the Junior Lender and
its heirs, personal representatives, successors and assigns, and shall inure to the benefit of the
Senior Lender, its successors and assigns until all of the Senior Debt has been paid in full and
all obligations arising in connection therewith have been discharged. The Senior Lender may
continue, without notice to the Junior Lender, to lend monies, extend credit and make other
accommodations to or for the account of Craftmade on the faith hereof.

     4. No Reliance. The Junior Lender hereby assumes responsibility for keeping itself
informed of the financial condition of Craftmade and the Pledgors, any and all endorsers and any
and all guarantors of the Senior Debt, and of all other circumstances bearing upon the risk of
nonpayment of the Senior Debt that diligent inquiry would reveal, and the Junior Lender hereby
agrees that the Senior Lender shall have no duty to advise the Junior Lender of information known
to the Senior Lender regarding such condition or any such circumstances or to undertake any
investigation. If the Senior Lender, in its sole discretion, undertakes, at any time or from time
to time, to provide any information of the type described herein to the Junior Lender, the Senior
Lender shall be under no obligation to subsequently update any such information or to provide any
such information to the Junior Lender on any subsequent occasion.

     5. Senior Lender’s Duty Limited. The rights granted to the Senior Lender in this
Subordination Agreement are solely for its protection and nothing herein contained imposes on the
Senior Lender any duties with respect to any property of either Craftmade or the Pledgors beyond
the duty to exercise reasonable care in the custody and preservation of such property while in the
Senior Lender’s possession. The Senior Lender shall have no duty to preserve rights against prior
parties on any instrument or chattel paper received from Craftmade or any Pledgor as collateral
security for the Senior Debt or any portion thereof.

     6. No Marshalling. The Junior Lender, on its own behalf and on behalf of its
successors and assigns hereby expressly waives all rights, if any, to require a marshalling of
Craftmade’s or any Pledgor’s assets by the Senior Lender or to require that the Senior Lender first
resort to some or any portion of any collateral for the Senior Debt before foreclosing upon,
selling or otherwise realizing on any other portion thereof.

     7. Waiver In Writing. No waiver shall be deemed to be made by any party hereto of any
of its rights hereunder unless the same shall be in writing signed on behalf of such party and each
such waiver, if any, shall be a waiver only with respect to the specific matter or matters to which
the waiver relates and shall in no way impair the rights of such party.

     8. Choice Of Law. This Subordination Agreement shall be governed and controlled by
the internal laws of the State of Texas.

     9. WAIVER OF JURY TRIAL. THE JUNIOR LENDER AND THE SENIOR LENDER, AFTER CONSULTING OR
HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY

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WAIVE IRREVOCABLY, THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY ACTION OR PROCEEDING WHICH
PERTAINS DIRECTLY OR INDIRECTLY TO THIS SUBORDINATION AGREEMENT. THIS PROVISION IS A MATERIAL
INDUCEMENT TO THE ENTERING INTO OF THIS SUBORDINATION AGREEMENT.

     10. Counterparts. This Subordination Agreement may be executed in one or more
counterparts (including by means of facsimile or electronic mail), each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.

     11. Notices. All notices, requests, demands and other communications required or
permitted hereunder shall be in writing, and shall be deemed to be given or delivered when actually
received by the party to whom directed, or, if earlier and regardless of whether actually received,
upon deposit in a regularly maintained receptacle for the United States mail, registered or
certified, postage fully prepaid, addressed to the party to whom directed at its address set forth
below or at such other address as such party may have specified previously by notice actually
received by the other party:

	 	 	 
	If to Junior Lender:

	 	Robert W. Lackey, as Agent
	 

	 	420 Third Avenue NW
	 

	 	Hickory, North Carolina 28603
	 
	 	 
	If to Senior Lender:

	 	The Frost National Bank
	 

	 	P.O. Box 1600
	 

	 	San Antonio, Texas 78296
	 

	 	Attn: Mike Randall, Executive Vice President

     12. Additional Agreements of Craftmade and Pledgors.

          12.1 Craftmade and Pledgors hereby acknowledge, consent and agree to the terms and provisions
of this Subordination Agreement and agree not to take any action in contravention of the terms
hereof. Craftmade and Pledgors will give the Senior Lender notice of any suit or action brought in
violation of this Subordination Agreement.

          12.2 Craftmade and Pledgors represent and warrant to the Senior Lender that no Stock Purchase
Debt default exists and agree to promptly provide the Senior Lender with written notice of any
Stock Purchase Debt default.

          12.3 A default or violation of any of the provisions of this Subordination Agreement by
Craftmade or the Pledgors shall constitute a default or event of default under the Loan Agreement.

     13. FORUM. TO INDUCE THE SENIOR LENDER TO ACCEPT THIS SUBORDINATION AGREEMENT, THE
JUNIOR LENDER IRREVOCABLY AGREES THAT, SUBJECT TO THE SENIOR LENDER’S SOLE AND ABSOLUTE ELECTION,
ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO
THIS SUBORDINATION AGREEMENT SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF SAN
ANTONIO, STATE

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OF TEXAS. THE JUNIOR LENDER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY
LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE. THE JUNIOR LENDER HEREBY WAIVES
ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST THE JUNIOR
LENDER BY THE SENIOR LENDER IN ACCORDANCE WITH THIS PARAGRAPH.

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     IN WITNESS WHEREOF, the Agent, on behalf of the Junior Lender, the Senior Lender, Pledgors and
Craftmade have executed this Subordination Agreement as of the date set forth above.

	 	 	 	 	 
	 	JUNIOR LENDER:	 	 
	 	 	 
	 	By:  	/s/ Robert W. Lackey
 	 
	 	 	Robert W. Lackey, as Agent 	 
	 	 	 	 
	 

[signatures continue on the following page]

Subordination Agreement Signature Page

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	 	SENIOR LENDER:	 
	 	 	 
	 	 	 
	 	THE FROST NATIONAL BANK,

a national banking association

 	 
	 	By:  	/s/ Mike Randall
 	 
	 	 	Mike Randall, Senior Vice President 	 
	 	 	 	 
	 

[signatures continue on the following page]

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Execution Copy

	 	 	 	 	 	 	 
	 	 	CRAFTMADE:
 

	 	 
	 
	 	 	 	 	 	 
	 	 	CRAFTMADE INTERNATIONAL, INC.,	 	 
	 	 	a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Brad Heimann
 

Brad Heimann, President
	 	 
	 
	 	 	 	 	 	 
	 	 	PLEDGORS:	 	 
	 
	 	 	 	 	 	 
	 	 	TRADE SOURCE INTERNATIONAL, INC.,	 	 
	 	 	a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Brad Heimann	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Brad Heimann, President	 	 
	 
	 	 	 	 	 	 
	 	 	MARKETING IMPRESSIONS, INC.,	 	 
	 	 	a Georgia corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Brad Heimann	 	 
	 

	 	 	 	 	 	 
	 

	 	Name: 
	Brad Heimann	 	 
	 

	 	Title:
	President	 	 
	 
	 	 	 	 	 	 
	 	 	PRIME/HOME IMPRESSIONS, LLC,	 	 
	 	 	a North Carolina limited liability company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Trade Source International, a	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Delaware Corporation, its Manager	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Brad Heimann	 	 
	 

	 	 	 	 	 	 
	 

	 	Name: 
	Brad Heimann	 	 
	 

	 	Title:
	President	 	 

Subordination Agreement Signature Pageexv4w1

 

AGENCY AGREEMENT

____________, 2006

Digifonica International Corp. (f/k/a Moliris Corp.)

Suite 1424 — 4710 Kingsway,

Burnaby, BC

V5H 2M2

Attention:     President

Dear Sirs:

Re:     Private Placement of Units

Loewen Ondaatje McCutcheon Limited (the “Agent”) understands that:

	 	(a)	 	Digifonica International Corp., a Florida corporation formerly known as Moliris
Corp. (the “Corporation”) is authorized to issue, among other things,
50,000,000 Common Shares and 1,000,000 Class B Shares (each as hereinafter defined);
	 
	 	(b)	 	as at August 1, 2006, 22,548,600 Common Shares and no Class B Shares were
outstanding as fully paid and non-assessable shares and as at August 1, 2006, no Common
Shares or Class B Shares were reserved for issuance pursuant to outstanding options,
warrants, share incentive plans, convertible, exercisable and exchangeable securities
and other rights to acquire Common Shares (as hereinafter defined);
	 
	 	(c)	 	the Corporation is prepared to issue and sell up to 2,500,000 Units (as
hereinafter defined), at a price of US$2.00 per Unit, each Unit consisting of one
Common Share and one half of one warrant (each whole warrant a “Warrant”), and
each Warrant being exercisable to acquire one Common Share at an exercise price of
US$2.50 per Common Share for a period of 12 months after the Closing Date (as
hereinafter defined), or at an exercise price of US$3.00 per Common Share for a period
of 13 to 24 months after the Closing Date for maximum aggregate gross proceeds of
US$5,000,000 on the terms and subject to the conditions contained hereinafter. For
greater certainty, the Purchase Price of US$2.00 per Unit will be allocated as to
US$1.99 to the Common Share and as to US$.01 to the one half of one Warrant; and
	 
	 	(d)	 	In addition, if a Going Public Transaction (as hereinafter defined) is not
completed within 9 months following the Closing Date (the “Penalty Date”) the
Corporation shall issue additional Common Shares (“Penalty Shares”) equal to
10% of the dollar value of the Common Shares (with the Common Shares being valued at
US$1.99 per Common Share) each Purchaser (as hereinafter defined) initially purchased
in the Offering. Such Penalty Shares will be issued as liquidated damages for the delay
to complete such listing or quotation and obtain such reporting issuer status.

Based upon the understanding of the Agent set out above and upon the terms and subject to the
conditions contained hereinafter, upon the acceptance hereof by the Corporation, the Corporation
hereby appoints

 

 

2.

the Agent to act as the sole and exclusive agent of the Corporation to solicit, on a best efforts
basis, offers to purchase the Offered Securities (as hereinafter defined), and the Agent hereby
agrees to act as such agent. It is understood and agreed that the Agent is under no obligation to
purchase any of the Offered Securities, although the Agent may subscribe for and purchase Offered
Securities if it so desires.

The terms and conditions of this Agreement are as follows:

	1.	 	Definitions, Interpretation and Schedules

	 	(a)	 	Definitions: Whenever used in this Agreement:

	 	(i)	 	“1933 Act” means the Securities Act of
1933 (United States), as amended;
	 
	 	(ii)	 	“Agent” means Loewen Ondaatje
McCutcheon Limited;
	 
	 	(iii)	 	“Agreement” means the agreement
resulting from the acceptance by the Corporation of the offer made by
the Agent herein, including the Schedules attached hereto, as amended
or supplemented from time to time;
	 
	 	(iv)	 	“Ancillary Documents” means all
agreements, certificates (including the Warrant Certificates and the
Broker Warrant Certificate) and documents executed and delivered, or to
be executed and delivered, by the Corporation in connection with the
transactions contemplated by this Agreement or the Subscription
Agreements and includes the Subscription Agreements;
	 
	 	(v)	 	“Auditor” means HLB Cinnamon Jang
Willoughby, LLP, the auditors of the Corporation;
	 
	 	(vi)	 	“Broker Shares” means the Common Shares
which may be issued on the exercise of the Broker Warrant;
	 
	 	(vii)	 	“Broker Warrant” means the
non-transferable broker warrant which will entitle the Agent to acquire
Common Shares equal in number to 7% of the number of Offered Securities
sold at any time commencing on the Closing Date and continuing until
the date which is 12 months after the date on which the Common Shares
issuable upon the exercise of the Broker Warrant may first be publicly
resold by the Agent in Canada or the United States at an exercise price
that is equal to the issuance price of each Unit sold under the
Offering;
	 
	 	(viii)	 	“Broker Warrant Certificate” means the certificate
representing the Broker Warrant;
	 
	 	(ix)	 	“Business Day” means a day which is not
a Saturday, Sunday or a statutory or civic holiday in the City of
Toronto, Province of Ontario;
	 
	 	(x)	 	“Class B Shares” means the shares of
Class B Common Stock, no par value, that the Corporation is authorized
to issue as constituted on the date hereof;

 

 

3.

	 	(xi)	 	“Closing” means the purchase and sale
of the Offered Securities subscribed for by the Purchasers pursuant to
the Subscription Agreements;
	 
	 	(xii)	 	“Closing Date” means August 9, 2006 or
such other date as the Corporation and the Agent may mutually agree
upon in writing;
	 
	 	(xiii)	 	“Closing Time” means 2:00 p.m. (Toronto time) on the Closing
Date or such other time on the Closing Date as the Corporation and the
Agent may mutually agree upon in writing;
	 
	 	(xiv)	 	“Common Shares” means the shares of
Class A Common Stock, par value $0.001 per share, that the Corporation
is authorized to issue as constituted on the date hereof;
	 
	 	(xv)	 	“Corporation” means Digifonica
International Corp., a corporation incorporated under the laws of the
State of Florida, and includes any successor corporation thereto;
	 
	 	(xvi)	 	“Directed Selling Efforts” means
“directed selling efforts” as defined in Regulation S;
	 
	 	(xvii)	 	“Exchange Act” means the Securities Exchange Act of 1934
(United States), as amended.
	 
	 	(xviii)	 	“General Solicitation or General Advertising” means “general
solicitation or general advertising” as used in Rule 502(c) of
Regulation D;
	 
	 	(xix)	 	“Going Public Transaction” means a
public offering of Common Shares pursuant to a prospectus filed and
receipted under the Ontario Act or similar document filed under
applicable securities laws in one or more of the provinces in Canada
which results in the Corporation becoming a reporting issuer in a
province of Canada and an effective registration statement filed with
the SEC, and which results in the Common Shares of the Corporation (or
the securities of a successor issuer) being listed and posted for
trading on the Toronto Stock Exchange, Tier 1 or Tier 2 of the TSX
Venture Exchange, NASDAQ or American Stock Exchange;
	 
	 	(xx)	 	“Material Adverse Effect” means any
adverse change or effect that, individually or when taken together with
all other such changes or effects, would be materially adverse to the
condition (financial or otherwise), results of operations, business,
properties, prospects, assets or liabilities (contingent or otherwise)
of the Corporation or any Subsidiary.
	 
	 	(xxi)	 	“Offered Securities” means up to
2,500,000 Units to be issued and sold at the Purchase Price under the
Offering;
	 
	 	(xxii)	 	“Offering” means the offering for sale by the Corporation on
a private placement basis of the Offered Securities;

 

 

4.

	 	(xxiii)	 	“Offering Jurisdictions” means the Provinces of British
Columbia, Alberta, Ontario, the United States and the states and
territories thereof and such other provinces and territories of Canada
and other jurisdictions as may be mutually agreed upon by the Agent and
the Corporation where the Offered Securities are offered to prospective
purchasers or those provinces, territories or other jurisdictions where
Purchasers reside, as the context permits or requires;
	 
	 	(xxiv)	 	“Ontario Act” means the Securities Act (Ontario) and the
regulations thereunder, together with the instruments, policies, rules,
orders, codes, notices and interpretation notes of the Ontario
Securities Commission, as amended, supplemented or replaced from time
to time;
	 
	 	(xxv)	 	“Penalty Date” has the meaning
ascribed thereto in paragraph (d) of the first page of this Agreement;
	 
	 	(xxvi)	 	“Penalty Shares” has the meaning ascribed thereto in
paragraph (d) of the first page of this Agreement;
	 
	 	(xxvii)	 	“Person” means an individual, a firm, a corporation, a
syndicate, a partnership, a trust, an association, an unincorporated
organization, a joint venture, an investment club, a government or an
agency or political subdivision thereof and every other form of legal
or business entity of any nature or kind whatsoever;
	 
	 	(xxviii)	 	“Purchase Price” means the price to be paid by the
Purchasers for each Offered Security under the Offering, being US$2.00
per Unit;
	 
	 	(xxix)	 	“Purchasers” means the purchasers of the Offered Securities
collectively;
	 
	 	(xxx)	 	"Regulation D” means Regulation D promulgated under the 1933 Act;
	 
	 	(xxxi)	 	"Regulation S” means Regulation S promulgated under the 1933 Act;
	 
	 	(xxxii)	 	"SEC” means the United States Securities and Exchange Commission.
	 
	 	(xxxiii)	 	“SEC Filings” means all filings of the Corporation with the
SEC pursuant to United States Securities Laws, including without
limitation any registration statements, proxy or information
statements, annual reports on Form 10-KSB, quarterly reports on Form
10-QSB and current reports on Form 8-K.
	 
	 	(xxxiv)	 	“Securities Commissions” means the securities regulatory
authorities of the Offering Jurisdictions collectively, as the case may
be;
	 
	 	(xxxv)	 	“Securities Laws” means the securities legislation and
regulations of, and the instruments, policies, rules, orders, codes,
notices and interpretation notes of the securities regulatory
authorities of, the applicable jurisdiction or jurisdictions
collectively;

 

 

5.

	 	(xxxvi)	 	“Subject Shares” means the Unit Shares, the Warrant Shares,
the Broker Shares and the Penalty Shares collectively;
	 
	 	(xxxvii)	 	“Subscription Agreements” means the subscription agreements
to be entered into between the Corporation and Purchasers with respect
to the purchase of the Units;
	 
	 	(xxxviii)	 	“Subsidiaries” means, collectively, Digifonica
(International) Limited, a corporation organized under the laws of
Gibraltar; Digifonica Intellectual Properties Limited, a corporation
organized under the laws of Gibraltar; Digifonica Canada Limited, a
corporation organized under the laws of Canada; Shenzen Sino-Can
Inter-Communication Technology Limited, a corporation organized under
the laws of the Peoples Republic of China; Moliris Corp., a Texas
corporation; and Moliris Packaging Corp., a Texas corporation;
	 
	 	(xxxix)	 	“Unit Shares” means the Common Shares comprising part of the
Units;
	 
	 	(xl)	 	“United States” means the “United
States” as defined in Regulation S;
	 
	 	(xli)	 	“Units” means the units of the
Corporation being offered for sale by the Agent under the Offering,
each Unit being comprised of one Unit Share and one-half of one
Warrant;
	 
	 	(xlii)	 	“U.S. Accredited Investor” means an “accredited investor” as
defined in Rule 501(a) of Regulation D;
	 
	 	(xliii)	 	"U.S. Person” means a “U.S. person” as defined in Regulation S;
	 
	 	(xliv)	 	"Warrant Certificates” means the certificates representing the Warrants;
	 
	 	(xlv)	 	“Warrant Shares” means the Common
Shares which may be issued upon the exercise of the Warrants; and
	 
	 	(xlvi)	 	“Warrants” means the warrants of the Corporation, one-half of
one Warrant comprising part of each Unit, with each whole Warrant to
entitle the holder thereof to acquire one Warrant Share at any time
from the date of issuance of the Warrants until 5:00 p.m. (Toronto
time) on the date which is 24 months after the Closing Date, at an
exercise price of US$2.50 per Warrant Share for 12 months from the
Closing Date and $3.00 for a period of 13 to 24 months after the
Closing Date.
	 
	 	(xlvii)	 	Other Defined Terms: Whenever used in this Agreement, the
words and terms “affiliate”, “associate”, “material fact”, “material
change”, “misrepresentation”, “senior officer” and “subsidiary” shall
have the meaning given to such word or term in the Ontario Act unless
specifically provided otherwise herein.

 

 

6.

	 	(b)	 	Headings: The section headings contained in this Agreement are solely
for the purpose of reference, are not part of the agreement of the parties and shall
not in any way affect the meaning or interpretation of this Agreement.
	 
	 	(c)	 	Usage: The term “or” will not be interpreted as excluding any of the
items described. The term “include” or any derivative of such term does not mean that
the items following such term are the only types of such items.
	 
	 	(d)	 	Plural and Gender: Whenever used in this Agreement, words importing
the singular number only shall include the plural and vice versa and words importing
the masculine gender shall include the feminine gender and neuter.
	 
	 	(e)	 	Drafting: The language in all parts of this Agreement shall be
interpreted, in all cases, according to its fair meaning.
	 
	 	(f)	 	Currency: All references to monetary amounts in this Agreement are to
United States dollars.
	 
	 	(g)	 	Schedules: The following Schedules are attached to this Agreement and
are hereby incorporated by reference into and made a part of this Agreement for all
purposes:

	 	 	 
	Schedule	 	Title
	A

	 	Officers’ Certificate
	B

	 	Agent’s Certificate

	2.	 	The Offered Securities

	 	(a)	 	Offered Securities: The Offered Securities are up to 2,500,000 Units,
each Unit comprised of one Common Share and one-half of one Warrant.
	 
	 	(b)	 	The Warrants: The terms and conditions, and the material attributes
and characteristics, of the Warrants shall be satisfactory to the Corporation and the
Agent and consistent with the provisions of this Agreement. Such terms and conditions,
and material attributes and characteristics, will be contained in the Warrant
Certificates, which will contain, among other things, anti-dilution provisions and
provisions for the appropriate adjustment in the class and number of Warrant Shares or
other securities to be received on the exercise of Warrants upon the occurrence of any
subdivision, consolidation or reclassification of the Common Shares or any payment of
dividends or the amalgamation of, or other reorganization involving, the Corporation.
Subject to adjustment in accordance with the provisions of the Warrant Certificates,
each whole Warrant shall entitle the holder thereof to purchase one Warrant Share at
any time commencing on the Closing Date and prior to 5:00 p.m. (Toronto time) on the
date which is 12 months after the Closing Date at an exercise price of US$2.50 per
Warrant Share, or on the date which is 13 to 24 months after the Closing Date, at an
exercise price of US$3.00 per Warrant Share.

 

 

7.

	3.	 	The Offering

	 	(a)	 	Sale on Exempt Basis: The Agent will use its best efforts to arrange
for Purchasers in the Offering Jurisdictions. The Agent shall offer for sale on behalf
of the Corporation the Offered Securities in the Offering Jurisdictions in compliance
with the Securities Laws of the Offering Jurisdictions and only to such Persons and in
such manner so that, pursuant to the provisions of the Securities Laws of the Offering
Jurisdictions, no prospectus, registration statement or offering memorandum or other
similar document need be filed with, or delivered to, any Securities Commission in any
Offering Jurisdiction in connection therewith. The Agent shall offer the Units for
sale on behalf of the Corporation in the United States only through the Agent, pursuant
to an exemption from the registration requirements of the 1933 Act, in compliance with
applicable state Securities Laws and in accordance with section 10 hereof.
	 
	 	(b)	 	Agency Group: The Corporation agrees that, subject to the consent of
the Corporation, such consent not to be unreasonably withheld, the Agent has the right
to invite one or more investment dealers to form an agency group to participate in the
soliciting of offers to purchase the Offered Securities. The Agent shall have the
exclusive right to control all compensation arrangements between the members of the
agency group; provided, however, that the Agent hereby acknowledges and agrees
that the Corporation shall be obligated only to the Agent with respect to commissions
owed by the Corporation pursuant to this Agreement, and the Agent hereby covenants and
agrees to protect, indemnify and save harmless the Corporation and each Subsidiary from
and against all claims of any member of the agency group other than the Agent for any
fees, commissions or other compensation pursuant to this Agreement. The Corporation
grants all of the rights and benefits of this Agreement to any investment dealer who is
a member of any agency group formed by the Agent and appoints the Agent as trustee of
such rights and benefits for all such investment dealers, and the Agent hereby accepts
such trust and agrees to hold such rights and benefits for and on behalf of all such
investment dealers. The Agent shall ensure that any investment dealer who is a member
of any agency group formed by the Agent pursuant to the provisions of this subsection
3(b) or with whom the Agent has a contractual relationship with respect to the
Offering, if any, agrees with the Agent to comply with the covenants and obligations
given by the Agent herein.
	 
	 	(c)	 	Covenants of the Agent: The Agent covenants with the Corporation that
(i) it will comply with the Securities Laws of the Offering Jurisdictions in which it
solicits or procures subscriptions for Offered Securities in connection with the
Offering, (ii) it will not solicit or procure subscriptions for Offered Securities so
as to require the registration thereof or the filing of a prospectus with respect
thereto under the laws of any jurisdiction, and (iii) it will obtain from each
Purchaser an executed subscription agreement in a form acceptable to the Corporation
and the Agent, acting reasonably. The Agent represents and warrants that it is, and,
to the best of its knowledge, each member of any agency group formed by the Agent is,
qualified so to act in the Offering Jurisdictions in which such member solicits or
procures subscriptions for the Offered Securities.
	 
	 	(d)	 	Filings: The Corporation undertakes to file or cause to be filed all
forms and undertakings required to be filed by the Corporation in connection with the
Offering so

 

 

8.

	 	 	 	that the distribution of the Offered Securities may lawfully occur in the Offering
Jurisdictions without the necessity of filing a prospectus or an offering memorandum
in Canada and the Agent undertakes to use commercially reasonable efforts to cause
the Purchasers of the Offered Securities to complete (and it shall be a condition of
closing in favour of the Corporation that the Purchasers complete and deliver to the
Corporation) any forms and undertakings required by the Securities Laws of the
Offering Jurisdictions. All fees payable in connection with such filings shall be
at the expense of the Corporation.
	 
	 	(e)	 	No Offering Memorandum: Neither the Corporation nor the Agent shall
(i) provide to prospective purchasers of Offered Securities any document or other
material that would constitute an offering memorandum within the meaning of the
Securities Laws of the Offering Jurisdictions or (ii) engage in any form of General
Solicitation or General Advertising in connection with the offer and sale of the
Offered Securities, including but not limited to, causing the sale of the Offered
Securities to be advertised in any newspaper, magazine, printed public media, printed
media or similar medium of general and regular paid circulation, broadcast over radio,
television or telecommunications, including electronic display or the Internet, or
otherwise, or conduct any seminar or meeting relating to any offer and sale of the
Offered Securities whose attendees have been invited by a General Solicitation or
General Advertising.

	4.	 	Due Diligence
	 
	 	 	The Corporation shall allow the Agent to conduct all due diligence investigations, including
meeting with senior management of the Corporation and the Auditor, as the Agent shall
consider appropriate in connection with the Offering.
	 
	5.	 	Deliveries By Closing Time

	 	(a)	 	Deliveries: By the Closing Time:

	 	(i)	 	all actions required to be taken by or on behalf of the
Corporation including, without limitation, the passing of all required
resolutions of the directors, including committees of the directors, and
shareholders of the Corporation, shall have occurred in order to complete the
transactions contemplated by this Agreement and the Subscription Agreements,
including, without limitation, to issue the Unit Shares, to create and issue
the Warrants and the Broker Warrant and to reserve for issuance and
conditionally issue the Warrant Shares, the Broker Shares and the Penalty
Shares, and a certified copy of all such resolutions shall have been delivered
by the Corporation to the Agent;
	 
	 	(ii)	 	the Corporation shall have delivered or caused to be delivered
to the Agent:

	 	A.	 	a favourable legal opinion of Hughes & Luce,
L.L.P., U.S. counsel to the Corporation, addressed to, among others,
the Agent and the Purchasers with respect to, among other things, the
issuance of the Unit Shares and the Warrants and the exercise of the
Warrants and such other matters as the Agent may reasonably require,

 

 

9.

	 	B.	 	a certificate dated the Closing Date signed by
an appropriate officer of the Corporation and addressed to, among
others, the Agent and the Purchasers with respect to the articles and
by-laws of the Corporation, the resolutions of the directors and
shareholders, if any, of the Corporation and any other corporate action
taken relating to this Agreement and the Ancillary Documents and with
respect to such other matters as the Agent may reasonably request and
including specimen signatures of the signing officers of the
Corporation,
	 
	 	C.	 	a certificate dated the Closing Date addressed
to, among others, the Agent and the Purchasers signed by the chief
executive officer and the chief financial officer of the Corporation or
any two other senior officers of the Corporation acceptable to the
Agent substantially in the form of the certificate attached hereto as
Schedule A,
	 
	 	D.	 	a Subscription Agreement from each Purchaser
accepted and executed by the Corporation,
	 
	 	E.	 	definitive certificates representing the
Offered Securities registered in the names of the Purchasers or in such
other name or names as the Purchasers may direct,
	 
	 	F.	 	a definitive certificate representing the
Broker Warrant registered in the name of the Agent or in such other
name or names as the Agent may direct, and
	 
	 	G.	 	such further documents as may be contemplated
by this Agreement or as the Agent may reasonably require,

all in form and substance reasonably satisfactory to the Agent;

	 	(iii)	 	the Agent shall have delivered or cause to be delivered to the Corporation

	 	A.	 	payment of the aggregate Purchase Price for the
Units purchased by the Purchasers of Units net of (i) the commission
payable by the Corporation to the Agent as provided in section 7 of
this Agreement and (ii) the expenses payable by the Corporation to the
Agent as provided in section 13 of this Agreement by cheque or bank
draft payable to the Corporation against delivery from the Corporation
to the Agent of a receipt for the aggregate net Purchase Price for such
Units, and
	 
	 	B.	 	such further documents as may be contemplated
by this Agreement or as the Corporation may reasonably require,

all in form and substance satisfactory to the Corporation.

 

 

10.

	6.	 	Closing

	 	(a)	 	Closing: The Closing shall be completed at the offices of counsel for
the Agent at the Closing Time on the Closing Date.
	 
	 	(b)	 	Conditions of Closing: The following are conditions precedent to the
obligation of the Agent to complete the Closing and of the Purchasers to purchase the
Offered Securities, which conditions the Corporation hereby covenants and agrees to use
its best efforts to fulfill within the time set out herein therefor, and which
conditions may be waived in writing in whole or in part by the Agent:

	 	(i)	 	the Corporation shall have received all necessary approvals and
consents, including all necessary regulatory approvals and consents required
for the completion of the transaction contemplated by this Agreement, all in a
form reasonably satisfactory to the Agent;
	 
	 	(ii)	 	receipt by the Agent of the documents set forth in section 5 of
this Agreement to be delivered to the Agent;
	 
	 	(iii)	 	the representations and warranties of the Corporation
contained herein being true and correct as of the Closing Time with the same
force and effect as if made at and as of the Closing Time after giving effect
to the transactions contemplated hereby;
	 
	 	(iv)	 	the Corporation having complied with all covenants, and
satisfied all terms and conditions, contained herein to be complied with and
satisfied by the Corporation at or prior to the Closing Time; and
	 
	 	(v)	 	the Agent not having previously terminated its obligations
pursuant to this Agreement.

	7.	 	Fees

	 	(a)	 	Commission: In consideration of the agreement of the Agent to act as
agent of the Corporation in respect of the Offering, and in consideration of the
services performed and to be performed by the Agent in connection therewith, including,
without limitation:

	 	(i)	 	acting as agent of the Corporation to solicit, on a best
efforts basis, offers to purchase the Offered Securities;
	 
	 	(ii)	 	participating in the preparation of the form of the
Subscription Agreements and certain of the Ancillary Documents; and
	 
	 	(iii)	 	advising the Corporation with respect to the private placement
of the Offered Securities;

the Corporation shall pay to the Agent or as the Agent may otherwise direct at the
Closing Time against receipt of payment of the purchase price for the Offered
Securities, a fee of 7% of the aggregate Purchase Price for the Offered Securities.

 

 

11.

	 	(b)	 	Taxes: The Corporation and the Agent acknowledge and agree that if a
separate fee would have been charged to the Corporation for the services described in
clause 7(a)(i) above, such separate fee would represent more than 50% of the fee
payable to the Agent, and the Corporation hereby further acknowledges and agrees that
the Agent will rely on the foregoing statement in not charging federal goods and
services tax on such fee and that the Corporation will forthwith pay to the Agent any
such tax and any applicable interest and penalties to the extent determined to be
exigible.
	 
	 	(c)	 	Broker Warrant: In addition to the commission payable to the Agent
pursuant to subsection 7(a) hereof, as additional consideration for the services
performed and to be performed by the Agent hereunder, the Corporation shall issue to
the Agent or as the Agent may otherwise direct at the Closing Time the Broker Warrant,
in form and substance reasonably satisfactory to the Agent.

	8.	 	Representations and Warranties
	 
	 	 	The Corporation hereby represents and warrants to the Agent and the Purchasers, and
acknowledges that the Agent and the Purchasers are relying upon each of such representations
and warranties in completing the Closing, as follows:

	 	(a)	 	Incorporation and Organization: The Corporation and each Subsidiary is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has all requisite corporate power and authority to
carry on its business as now conducted or proposed to be conducted and to own or lease
and operate its property and assets.
	 
	 	(b)	 	Authority and Authorization: The Corporation has all requisite
corporate power and authority to enter into, execute and deliver this Agreement and the
Ancillary Documents and to do all acts and things and execute and deliver all documents
as are required to carry out its obligations hereunder and thereunder, and the
Corporation has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement and the Ancillary Documents and to observe
and perform the provisions hereof and thereof in accordance with the provisions hereof
and thereof including, without limitation, the issuance of the Offered Securities to
the Purchasers for the consideration and upon the terms and conditions set forth herein
and the issuance of the Warrant Shares for the consideration and upon the terms and
conditions set forth in the Warrant Certificates.
	 
	 	(c)	 	Validity and Enforceability: This Agreement and each of the
Subscription Agreements has been duly authorized, executed and delivered by the
Corporation and, assuming the due authorization, execution and delivery of each other
party thereto, constitutes a valid and legally binding obligation of the Corporation,
and upon being executed and delivered the Warrant Certificates will constitute valid
and legally binding obligations of the Corporation, each enforceable against the
Corporation in accordance with its terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, fraudulent conveyance or similar laws affecting
the enforcement of creditors’ rights generally and subject to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity).

 

 

12.

	 	(d)	 	Extra-provincial Registration: The Corporation and each Subsidiary is
licensed, registered or qualified as an extra-provincial or foreign corporation in all
jurisdictions where the character of its property or assets owned or leased or the
nature of the activities conducted by it make licensing, registration or qualification
necessary and is carrying on its business in compliance with all applicable laws, rules
and regulations of each such jurisdiction.
	 
	 	(e)	 	Authorized Capital: The Corporation is authorized to issue, among
other things, 50,000,000 Common Shares and 1,000,000 Class B Shares, of which, as of
August 1, 2006, 22,548,600 Common Shares and no Class B Shares were issued and
outstanding as fully paid and non-assessable shares.
	 
	 	(f)	 	Rights to Acquire Securities: Except as disclosed in the SEC Filings,
no Person has any agreement, option, right or privilege (whether pre-emptive,
contractual or otherwise) capable of becoming an agreement for the purchase,
acquisition, subscription for or issuance of any of the unissued shares or other
securities of the Corporation. As at December 31, 2005, an aggregate of 1,315,000
Common Shares were issuable pursuant to outstanding warrants to acquire Common Shares.
	 
	 	(g)	 	No Pre-emptive Rights: The issuance of the Offered Securities will not
be subject to any pre-emptive right or other contractual right to purchase securities
granted by the Corporation or to which the Corporation is subject.
	 
	 	(h)	 	Offered Securities: Assuming that the acknowledgements,
representations and covenants of each Purchaser as described in the Subscription
Agreement are true, the execution of this Agreement and the Subscription Agreement and
the issuance by the Corporation to the Purchasers of the Offered Securities will be
exempt from the registration and prospectus requirements of the Securities Laws of the
Offering Jurisdictions.
	 
	 	(i)	 	Subsidiaries: The Subsidiaries are the only subsidiaries of the
Corporation.
	 
	 	(j)	 	Capital of Subsidiaries: All of the outstanding shares of the
Subsidiaries are issued and outstanding as fully paid and non-assessable shares and are
legally and beneficially owned by the Corporation, and, except as disclosed in the SEC
Filings, no Person has any agreement, option, right or privilege (whether pre-emptive,
contractual or otherwise) capable of becoming an agreement for the purchase,
acquisition, subscription for or issuance of any of the unissued shares or other
securities of any of the Subsidiaries or for the purchase or acquisition of any of the
outstanding shares or other securities of any of the Subsidiaries.
	 
	 	(k)	 	Issuance of Offered Securities: All necessary corporate action has
been taken to authorize the issuance and sale of, and the delivery of certificates
representing, the Offered Securities and, upon payment of the requisite consideration
therefor, the Unit Shares will be validly issued as fully paid and non-assessable shares and the Warrants will be validly issued and, upon the issuance thereof, the
Warrant Shares will be validly issued as fully paid and non-assessable shares.

 

 

13.

	 	(l)	 	Issuance of Penalty Shares: All necessary corporation action has been
taken to authorize the issuance and sale of, and the delivery of certificates
representing, the Penalty Shares and, upon the issuance thereof, if applicable, the
Penalty Shares will be validly issued as fully paid and non-assessable shares
	 
	 	(m)	 	Consents, Approvals and Conflicts: None of the offering and sale of
the Offered Securities, the execution and delivery of this Agreement or the Ancillary
Documents, the compliance by the Corporation with the provisions of this Agreement and
the Ancillary Documents or the consummation of the transactions contemplated herein and
therein including, without limitation, the issuance of the Offered Securities to the
Purchasers for the consideration and upon the terms and conditions as set forth herein
and the issuance of the Warrant Shares for the consideration and upon the terms and
conditions set forth in the Warrant Certificates, do or will (i) require the consent,
approval, or authorization, order or agreement of, or registration or qualification
with, any governmental agency, body or authority, court, stock exchange, securities
regulatory authority or other Person, except (A) such as have been obtained; (B) such
as may be required under the Securities Laws of the Offering Jurisdictions and will be
obtained by the Closing Date; or (C) such as the failure to obtain would not reasonably
be expected to result in a Material Adverse Effect, or (ii) conflict with or result in
any breach or violation of any of the material provisions of, or constitute a material
default under, any indenture, mortgage, deed of trust, lease or other agreement or
instrument to which the Corporation or any Subsidiary is a party or by which any of
them or any of their respective properties or assets is bound, or the articles or
by-laws or any other constating document of the Corporation or any Subsidiary or any
resolution passed by the directors (or any committee thereof) or shareholders of the
Corporation or any Subsidiary, or any statute or any judgment, decree, order, rule,
policy or regulation of any court, governmental authority, arbitrator, stock exchange
or securities regulatory authority applicable to the Corporation or any Subsidiary or
any of their respective properties or assets which would be reasonably expected to
result in a Material Adverse Effect.
	 
	 	(n)	 	Broker Warrant:

	 	(i)	 	The Corporation has all requisite corporate power and authority
to issue the Broker Warrant and to enter into, execute and deliver and to carry
out its obligations under the Broker Warrant Certificate.
	 
	 	(ii)	 	All necessary corporate action has been taken to authorize the
issuance of the Broker Warrant and, upon the issuance thereof, the Broker
Warrant will be validly issued. All necessary corporate action has been taken
to authorize the creation, execution, delivery and performance of the Broker
Warrant Certificate and to observe and perform the provisions of the Broker
Warrant Certificate in accordance with the provisions thereof including,
without limitation, the issuance of the Broker Shares for the consideration and
upon the terms and conditions set forth in the Broker Warrant Certificate.
	 
	 	(iii)	 	Upon being executed and delivered the Broker Warrant
Certificate will constitute a valid and legally binding obligation of the
Corporation enforceable against the Corporation in accordance with its terms,
except as such enforceability may be

 

 

14.

	 	 	 	limited by applicable bankruptcy, insolvency, fraudulent conveyance or
similar laws affecting the enforcement of creditors’ rights generally and
subject to general principles of equity (regardless of whether enforcement
is sought in a proceeding at law or in equity).
	 
	 	(iv)	 	None of the issuance of the Broker Warrant, the execution and
delivery of the Broker Warrant Certificate, the compliance by the Corporation
with the provisions of the Broker Warrant Certificate or the consummation of
the transactions contemplated therein including, without limitation, the
issuance of the Broker Shares for the consideration and upon the terms and
conditions set forth in the Broker Warrant Certificate, do or will (i) require
the consent, approval, or authorization, order or agreement of, or registration
or qualification with, any governmental agency, body or authority, court, stock
exchange, securities regulatory authority or other Person, except (A) such as
have been obtained; (B) such as may be required under the Securities Laws of
the Offering Jurisdictions and will be obtained by the Closing Date; or (C)
such as the failure to obtain would not reasonably be expected to result in a
Material Adverse Effect, or (ii) conflict with or result in any breach or
violation of any of the material provisions of, or constitute a material
default under, any indenture, mortgage, deed of trust, lease or other agreement
or instrument to which the Corporation is a party or by which it or any of its
properties or assets is bound, or the articles or by-laws of the Corporation or
any resolution passed by the directors (or any committee thereof) or
shareholders of the Corporation, or any statute or any judgment, decree, order,
rule, policy or regulation of any court, governmental authority, any
arbitrator, stock exchange or securities regulatory authority applicable to the
Corporation or any of its properties or assets which could reasonably be
expected to have a Material Adverse Effect.
	 
	 	(v)	 	None of the issuance of the Broker Warrant or the Broker Shares
will be subject to any pre-emptive right or other contractual right to purchase
securities granted by the Corporation or to which the Corporation is subject.

	 	(o)	 	Accounting Controls: The Corporation maintains a system of internal
accounting controls and procedures in compliance with United States Securities Laws, as
described in the SEC Filings.
	 
	 	(p)	 	Financial Statements: The audited financial statements of the
Corporation for the year ended December 31, 2005, together with the auditors’ report
thereon and the notes thereto, and the unaudited interim financial statements of the
Corporation for the period ended March 31, 2006 and the notes thereto, have been
prepared in accordance with United States generally accepted accounting principles
applied on a basis consistent with prior periods (except as disclosed in such financial
statements or the notes thereto), are substantially correct in every material respect
and present fairly the financial condition and position of the Corporation as at the
dates thereof, and such financial statements contain no direct or implied statement of
a material fact which is untrue on the date of such financial statements and do not
omit to state any material fact which is required by United States generally accepted
accounting principles or by applicable law to be stated

 

 

15.

	 	 	 	or reflected therein or which is necessary to make the statements contained therein
not misleading in light of the circumstances under which they were made.
	 
	 	(q)	 	Changes in Financial Position: Since March 31, 2006, except as
disclosed in the SEC Filings, neither the Corporation nor any Subsidiary has (i) paid
or declared any dividend or incurred any material capital expenditure or made any
commitment therefor; (ii) incurred any obligation or liability, direct or indirect,
contingent or otherwise, except in the ordinary course of business and which is not,
and which in the aggregate are not, material; or (iii) entered into any material
transaction.
	 
	 	(r)	 	Insolvency: Except as disclosed in the SEC Filings, neither the
Corporation nor any of the Subsidiaries has committed an act of bankruptcy or sought
protection from its creditors before any court or pursuant to any legislation, proposed
a compromise or arrangement to its creditors generally, taken any proceeding with
respect to a compromise or arrangement, taken any proceeding to be declared bankrupt or
wound up, taken any proceeding to have a receiver appointed of any of its assets, had
any Person holding any encumbrance, lien, charge, hypothecation, pledge, mortgage,
title retention agreement or other security interest or receiver take possession of any
of its property, had an execution or distress become enforceable or levied upon any
portion of its property or had any petition for a receiving order in bankruptcy filed
against it.
	 
	 	(s)	 	No Contemplated Changes: Except as disclosed in the SEC
Filings, neither the Corporation nor any Subsidiary has approved, is
contemplating, has entered into any agreement in respect of, or has any knowledge of:

	 	(i)	 	the purchase of any material property or assets or any interest therein or
the sale, transfer or other disposition of any property or assets or any
interest therein currently owned, directly or indirectly, by the Corporation or
any Subsidiary whether by asset sale, transfer of shares or otherwise, except
sales of inventory or obsolete equipment in the ordinary course of business and
consistent with past practice;
	 
	 	(ii)	 	the change of control (by sale or transfer of shares or sale of
all or substantially all of the property and assets of the Corporation or any
Subsidiary or otherwise) of the Corporation or any Subsidiary; or
	 
	 	(iii)	 	a proposed or planned disposition of shares by any shareholder
who owns, directly or indirectly, 10% or more of the outstanding capital stock
of the Corporation or any Subsidiary.

	 	(t)	 	Insurance: The assets, business and operations of the Corporation and
of each Subsidiary are insured against loss or damage with responsible insurers on a
basis consistent with insurance obtained by reasonably prudent participants in a
comparable business in comparable circumstances, such coverage is in full force and
effect and neither the Corporation nor any Subsidiary has failed to give any notice or
present any material claim thereunder.
	 
	 	(u)	 	Taxes and Tax Returns: Except as disclosed in the SEC Filings, the
Corporation and each Subsidiary has filed in a timely manner all necessary tax returns
and notices and has

 

 

16.

	 	 	 	paid all applicable taxes of whatsoever nature for all tax years prior to the date
hereof to the extent that such taxes have become due or have been alleged to be due
and none of the Corporation or any Subsidiary is aware of any tax deficiencies or
interest or penalties accrued or accruing, or alleged to be accrued or accruing,
thereon where, in any of the above cases, it might reasonably be expected to result
in a Material Adverse Effect, and there are no agreements, waivers or other
arrangements providing for an extension of time with respect to the filing of any
tax return by any of them or the payment of any material tax, governmental charge,
penalty, interest or fine against any of them. There are no material actions,
suits, proceedings, investigations or claims now threatened or pending against the
Corporation or any Subsidiary which could result in a material liability in respect
of taxes, charges or levies of any governmental authority, penalties, interest,
fines, assessments or reassessments or any matters under discussion with any
governmental authority relating to taxes, governmental charges, penalties, interest,
fines, assessments or reassessments asserted by any such authority and the
Corporation and each Subsidiary has withheld (where applicable) from each payment to
each of the present and former officers, directors, employees and consultants
thereof the amount of all taxes and other amounts, including, but not limited to,
income tax and other deductions, required to be withheld therefrom, and has paid the
same or will pay the same when due to the proper tax or other receiving authority
within the time required under applicable tax legislation.
	 
	 	(v)	 	Compliance with Laws, Licenses and Permits: Except as disclosed in the
SEC Filings, the Corporation and each Subsidiary has conducted and is conducting its
business in compliance in all material respects with all applicable laws, rules,
regulations, tariffs, orders and directives of each jurisdiction in which it carries on
business and possesses all material approvals, consents, certificates, registrations,
authorizations, permits and licenses issued by the appropriate provincial, state,
municipal, federal or other regulatory agency or body necessary to carry on the
business currently carried on, or contemplated to be carried on, by it, is in
compliance in all material respects with the terms and conditions of all such
approvals, consents, certificates, authorizations, permits and licenses and with all
laws, regulations, tariffs, rules, orders and directives material to its operations,
and none of the Corporation or any Subsidiary has received any notice of the
modification, revocation or cancellation of, or any intention to modify, revoke or
cancel or any proceeding relating to the modification, revocation or cancellation of
any such approval, consent, certificate, authorization, permit or license which, singly
or in the aggregate, if the subject of an unfavourable decision, order, ruling or
finding, would materially adversely affect the conduct of the business or operations
of, or the assets, liabilities (contingent or otherwise), condition (financial or
otherwise) or prospects of, the Corporation or any Subsidiary.
	 
	 	(w)	 	Agreements and Actions: Except as disclosed in the SEC Filings,
neither the Corporation nor any Subsidiary is in violation of any term of their
respective articles or by-laws or any other constating document. To the knowledge of
the Corporation, neither the Corporation nor any Subsidiary is in violation of any term
or provision of any agreement, indenture or other instrument applicable to it which
could be reasonably expected to result in a Material Adverse Effect, neither the
Corporation nor any Subsidiary is in default in the payment of any obligation owed
which is now due and there is no action, suit, proceeding or investigation commenced,
pending or, to the knowledge of the

 

 

17.

	 	 	 	Corporation, threatened which could result in a Material Adverse Effect or in any
material liability on the part of the Corporation or any Subsidiary or which places,
or be reasonably expected to place, in question the validity or enforceability of
this Agreement, the Ancillary Documents or any document or instrument delivered, or
to be delivered, by the Corporation pursuant hereto or thereto.
	 
	 	(x)	 	Owner of Property: Except as disclosed in the SEC Filings, the
Corporation and the Subsidiaries are the absolute legal and beneficial owner of, and
have good and marketable title to, all of their material property or assets, free of
all mortgages, liens, charges, pledges, security interests, encumbrances, claims or
demands whatsoever, and no other property rights are necessary for the conduct of the
business of the Corporation or any Subsidiary as currently conducted or contemplated to
be conducted. Neither the Corporation nor any Subsidiary knows of any claim or the
basis for any claim that might or could adversely affect its right to use, transfer or
otherwise exploit such property rights, and neither the Corporation nor any Subsidiary
has any responsibility or obligation to pay any commission, royalty, licence fee or
similar payment to any Person with respect to its property rights.
	 
	 	(y)	 	Property Agreements: Each of the material agreements and other
documents and instruments pursuant to which the Corporation or any Subsidiary holds any
of its property or assets (including any interest in, or right to earn an interest in,
any property) is a valid and subsisting agreement, document or instrument in full force
and effect, enforceable in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, fraudulent conveyance or similar laws
affecting the enforcement of creditors’ rights generally and subject to general
principles of equity (regardless of whether enforcement is sought in a proceeding at
law or in equity). Neither the Corporation nor any Subsidiary is in default of any of
the material provisions of any such agreements, documents or instruments nor has any
such default been alleged, and such properties and assets are in good standing under
the applicable statutes and regulations of the jurisdictions in which they are
situated. All leases, licences and claims pursuant to which the Corporation or any
Subsidiary derives its interests in such property and assets are in good standing and
there has been no material default under any such lease, licence or claim. All taxes
required to be paid with respect to such properties and assets to the date hereof have
been paid. None of the material properties (or any interest in, or right to earn an
interest in, any material property) of the Corporation or any Subsidiary is subject to
any right of first refusal or purchase or acquisition right.
	 
	 	(z)	 	No Defaults: Except as disclosed in the SEC Filings, neither the
Corporation nor any Subsidiary is in default of any material term, covenant or
condition under or in respect of any material judgement, order, agreement or instrument
to which it is a party or to which it or any of its property or assets are or may be
subject, and no event has occurred and is continuing, and no circumstance exists which
has not been waived, which constitutes a material default in respect of any material
commitment, agreement, document or other instrument to which the Corporation or any
Subsidiary is a party or by which it is otherwise bound entitling any other party
thereto to accelerate the maturity of any amount owing thereunder or which could be
reasonably expected to have a Material Adverse Effect.

 

 

18.

	 	(aa)	 	Compliance with Employment Laws: Except as disclosed in the SEC
Filings, to the knowledge of the Corporation, the Corporation and each Subsidiary is in
material compliance with all laws and regulations respecting employment and employment
practices, terms and conditions of employment, pay equity and wages, except where
non-compliance would not be reasonably expected to result in a Material Adverse Effect,
and has not and is not engaged in any unfair labour practice. There is no labour
strike, dispute, slowdown, stoppage, complaint or grievance pending or, to the
knowledge of the Corporation, threatened against the Corporation or any Subsidiary, no
union representation question exists respecting the employees of the Corporation or any
Subsidiary and no collective bargaining agreement is in place or currently being
negotiated by the Corporation or any Subsidiary. Neither the Corporation nor any
Subsidiary has received any notice of any unresolved matter and there are no
outstanding orders under any employment or human rights legislation in any jurisdiction
in which the Corporation or any Subsidiary carries on business or has employees.
Except as disclosed in the SEC Filings, no employee of the Corporation or any
Subsidiary has any agreement as to the length of notice required to terminate his or
her employment in excess of twelve months or equivalent compensation. All material
benefit and pension plans of the Corporation or any Subsidiary are funded in accordance
with applicable laws and no past service funding liability exist thereunder.
	 
	 	(bb)	 	Employee Plans: Each material plan for retirement, bonus, stock
purchase, profit sharing, stock option, deferred compensation, severance or termination
pay, insurance, medical, hospital, dental, vision care, drug, sick leave, disability,
salary continuation, legal benefits, unemployment benefits, vacation, pension,
incentive or otherwise contributed to, or required to be contributed to, by the
Corporation or any Subsidiary for the benefit of any current or former officer,
director, employee or consultant of the Corporation has been maintained in material
compliance with the terms thereof and with the requirements prescribed by any and all
statutes, orders, rules, policies and regulations that are applicable to any such plan.
	 
	 	(cc)	 	Accruals: All material accruals for unpaid vacation pay, premiums for
unemployment insurance, health premiums, federal or provincial pension plan premiums,
accrued wages, salaries and commissions and payments for any plan for any officer,
director, employee or consultant of the Corporation or any Subsidiary have been
accurately reflected in the books and records of the Corporation.
	 
	 	(dd)	 	Environmental Compliance:

	 	(i)	 	To the knowledge of the Corporation, the Corporation, each
Subsidiary and their respective property, assets and operations comply in all
material respects with all applicable Environmental Laws (which term means and
includes, without limitation, any and all applicable international, federal,
provincial, state, municipal or local laws, statutes, regulations, treaties,
orders, judgments, decrees, ordinances, official directives and all
authorizations relating to the environment, occupational health and safety, or
any Environmental Activity (which term means and includes, without limitation,
any past, present or future activity, event or circumstance in respect of a
Contaminant (which term means and includes, without limitation, any pollutants,
dangerous substances, liquid wastes,

 

19.

	 	 	 	hazardous wastes, hazardous materials, hazardous substances or contaminants
or any other matter including any of the foregoing, as defined or described
as such pursuant to any Environmental Law), including, without limitation,
the storage, use, holding, collection, purchase, accumulation, assessment,
generation, manufacture, construction, processing, treatment, stabilization,
disposition, handling or transportation thereof, or the release, escape,
leaching, dispersal or migration thereof into the natural environment,
including the movement through or in the air, soil, surface water or
groundwater)).
	 
	 	(ii)	 	Neither the Corporation nor any Subsidiary has any knowledge
of, and neither the Corporation nor any Subsidiary has received any notice of,
any material claim, judicial or administrative proceeding, pending or
threatened against, or which may affect, the Corporation, any Subsidiary or any
of their respective property, assets or operations, relating to, or alleging
any violation of, any Environmental Laws. Neither the Corporation nor any
Subsidiary is aware of any facts which could give rise to any such claim or
judicial or administrative proceeding. Neither the Corporation nor any
Subsidiary is aware that the Corporation, any Subsidiary or any of their
respective property, assets or operations is the subject of any investigation,
evaluation, audit or review by any Governmental Authority (which term means and
includes, without limitation, any national, federal government, province,
state, municipality or other political subdivision of any of the foregoing, any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government and any corporation or
other entity owned or controlled (through stock or capital ownership or
otherwise) by any of the foregoing) to determine whether any violation of any
Environmental Laws has occurred or is occurring or whether any remedial action
is needed in connection with a release of any Contaminant into the environment,
except for compliance investigations conducted in the normal course by any
Governmental Authority;
	 
	 	(iii)	 	Neither the Corporation nor any Subsidiary has given or filed
any notice under any federal, state, provincial or local law with respect to
any Environmental Activity. To the knowledge of the Corporation, neither the
Corporation nor any Subsidiary has any liability (whether direct or indirect,
contingent or otherwise) in connection with any Environmental Activity. The
Corporation is not aware of any notice being given under any federal, state,
provincial or local law or of any liability (whether direct or indirect,
contingent or otherwise) with respect to any Environmental Activity relating to
or affecting the Corporation or any Subsidiary or their respective property,
assets, business or operations;
	 
	 	(iv)	 	Neither the Corporation nor any Subsidiary stores or has stored
any hazardous or toxic waste or substance on its property. Neither the
Corporation nor any Subsidiary has disposed of any hazardous or toxic waste, in
each case in a manner contrary to any Environmental Laws. To the knowledge of
the Corporation, there are no Contaminants on any of the premises at which the
Corporation or any Subsidiary carries on business, in each case other than in
compliance with Environmental Laws; and

 

20.

	 	(v)	 	Neither the Corporation nor any Subsidiary is subject to any
contingent or other liability relating to the restoration or rehabilitation of
land, water or any other part of the environment or non-compliance with any
Environmental Laws.

	 	(ee)	 	No Litigation: Except as disclosed in the SEC Filings, there are no
actions, suits, proceedings, inquiries or investigations existing, pending or, to the
knowledge of the Corporation, threatened against the Corporation or any Subsidiary or
which could reasonably be expected to result in a Material Adverse Effect or to which
any of their respective property or assets is subject, at law or equity, or before or
by any court, federal, provincial, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, and neither
the Corporation nor any Subsidiary is subject to any judgement, order, writ,
injunction, decree, award, rule, policy or regulation of any Governmental Authority,
which could be reasonably expected to result in a Material Adverse Effect or to affect
the ability of the Corporation or any Subsidiary to perform its obligations under this
Agreement or the Ancillary Documents.
	 
	 	(ff)	 	Intellectual Property: The Corporation or a Subsidiary owns or
possesses adequate enforceable rights to use all material trademarks, copyrights and
trade secrets used or proposed to be used in the conduct of its business and, to the
knowledge of the Corporation, neither the Corporation nor any Subsidiary is infringing
upon the rights of any other Person with respect to any such material trademarks,
copyrights or trade secrets and no other Person has infringed any such material
trademarks, copyrights or trade secrets.
	 
	 	(gg)	 	Non-Arm’s Length Transactions: Except as disclosed in the SEC Filings,
neither the Corporation nor any Subsidiary owes any amount to, nor has the Corporation
or any Subsidiary advanced any loans to, or borrowed any amount from, or otherwise
become indebted to, any officer, director, employee or securityholder of any of them,
or any Person not dealing at “arm’s length” (as such term is defined in the Income Tax
Act (Canada)) with any of them except for usual employee reimbursements and
compensation paid in the ordinary course of the business of the Corporation or
Subsidiary. Except usual employee or consulting arrangements made in the ordinary
course of business, neither the Corporation nor any Subsidiary is a party to any
contract, agreement or understanding with any officer, director, employee or
securityholder of any of them, or any other Person not dealing at arm’s length with any
of them. To the knowledge of the Corporation, no officer, director or employee of the
Corporation or any Subsidiary and no Person which is an affiliate or associate of any
of the foregoing Persons, owns, directly or indirectly, any interest (except for shares
representing less than 5% of the outstanding shares of any class or series of any
publicly traded company) in, or is an officer, director, employee or consultant of, any
Person which is, or is engaged in, a business competitive with the business of the
Corporation or any Subsidiary which could materially adversely affect the ability to
properly perform the services to be performed by such Person for the Corporation or any
Subsidiary. To the knowledge of the Corporation, no officer, director, employee or
securityholder of the Corporation or any Subsidiary has any cause of action or other
claim whatsoever against, or owes any amount to, the Corporation or any Subsidiary
except for claims in the ordinary course of the business of the Corporation

 

21.

	 	 	 	or any Subsidiary, such as for accrued vacation pay or other amounts or matters
which could not reasonably be expected to result in a Material Adverse Effect.
	 
	 	(hh)	 	Material Contracts: The only material contracts to which the
Corporation or any Subsidiary is a party or by which any of them are bound have been
filed as exhibits to the SEC Filings. All such material contracts are valid and
subsisting agreements in full force and effect unamended and, to the knowledge of the
Corporation, there exists no material default or event, occurrence, condition or act
which, with the giving of notice, the lapse of time or the happening of any event or
condition, would become a material default thereunder by any party thereto.
	 
	 	(ii)	 	Website: The website of the Corporation, if any, does not contain
material information with respect to the Corporation which is incomplete, incorrect or
omits to state a fact so as to render such information misleading, or any news release
which has not been disseminated on a news wire service, and all information contained
on any of such websites in respect of the Offering complies with the Securities Laws of
the Offering Jurisdictions including, without limitation, restrictions on promotional
material disseminated before and during the Offering.
	 
	 	(jj)	 	No Withholding of Information: The Corporation has not withheld from
the Agent any fact or information relating to the Corporation or any Subsidiary or to
the Offering that would be material to the Agent or to a prospective purchaser of
Offered Securities.
	 
	 	(kk)	 	Directed Selling Efforts and General Advertising: The Corporation has
not engaged in any Directed Selling Efforts or any General Solicitation or General
Advertising.

	9.	 	Covenants of the Corporation

	 	(a)	 	Consents and Approvals: Immediately following the acceptance by the
Corporation hereof, the Corporation covenants and agrees with the Agent and the
Purchasers that the Corporation will:

	 	(i)	 	to the extent necessary, obtain any required consents or
approvals from the Securities Commissions of the Offering Jurisdictions for the
Offering on such terms as are mutually acceptable to the Agent and the
Corporation, acting reasonably; and
	 
	 	(ii)	 	make all necessary filings to obtain all other necessary
regulatory and other consents and approvals required in connection with the
transactions contemplated by this Agreement.

	 	(b)	 	General: The Corporation hereby covenants and agrees with the Agent
and the Purchasers that the Corporation will:

	 	(i)	 	fulfill all legal requirements to permit the issuance, offering
and sale of the Offered Securities, the creation and issuance of the Broker
Warrant and the issuance of the Warrant Shares, the Broker Shares and, if
applicable, the Penalty Shares, as contemplated in this Agreement including,
without limitation, compliance with the Securities Laws of the Offering
Jurisdictions to enable the

 

22.

	 	 	 	Offered Securities to be offered for sale and sold to the Purchasers and the
Broker Warrant to be issued to the Agent without the necessity of filing a
prospectus or an offering memorandum in the Offering Jurisdictions;
	 
	 	(ii)	 	the Corporation shall deliver to the Agent a copy of all press
releases made and other documents filed with any regulatory authority
forthwith upon such press release being made or other document being filed
until 30 days after the Closing Date; and

forthwith after the Closing Date file such documents as may be required under the
Securities Laws of the Offering Jurisdictions relating to the offering of the
Offered Securities which, without limiting the generality of the foregoing, shall
include a Form 45-106F1 as prescribed under National Instrument 45-106, Prospectus
and Registration Exemptions of the Canadian Securities Administrators.

	 	(c)	 	Future Financings: Upon successful completion of the Offering, the
Corporation hereby grants the Agent the right to act as (i) lead or co-lead agent or
underwriter for the Corporation in respect of any private or initial public offering of
equity or equity based securities of the Corporation in Canada, and (ii) as a syndicate
member for an international offering of equity or equity linked securities of the
Corporation with respect to the portion of which is conducted in Canada. The Agent
shall indicate its willingness to act as agent or underwriter in respect of such
public, private or international offering within five Business Days after receipt by
the Agent of a notice of the proposed offering by the Corporation, failing which the
Corporation shall be entitled to proceed with such financing without the participation
of the Agent.
	 
	 	(d)	 	Going Public Transaction: The Corporation will use its commercially
reasonable efforts to complete the Going Public Transaction within 9 months after the
Closing Date and will continue to attempt to complete the Going Public Transaction
notwithstanding the issuance of the Penalty Shares, if any.
	 
	 	(e)	 	Use of Proceeds: The Corporation will use the proceeds of the Offered
Securities sold under the Offering to finance the expansion of its business in Europe
and China and for working capital and general corporate purposes.

	10.	 	U.S. Provisions

	 	(a)	 	Representations and Warranties of the Agent: The Agent hereby
represents and warrants to the Corporation, and hereby represents and warrants to the
Corporation on behalf of Loewen Ondaatje McCutcheon Limited (in this section 10 the
“Placement Agent”) that, in connection with offers and sales of Offered
Securities in the United States or to, or for the account or benefit of, a U.S. Person:

	 	(i)	 	such Agent has offered and sold Offered Securities in the
United States or to, or for the account or benefit of, a U.S. Person only as
provided in subsections 10(a) and 10(b) hereof and, other than any banking and
selling group agreement, such Agent has not entered into any contractual
arrangement with respect to the offer and sale of the Offered Securities in the
United States or to, or for the account or

 

23.

	 	 	 	benefit of, a U.S. Person, except with an affiliate of the Agent or with the
prior written consent of the Corporation; and
	 
	 	(ii)	 	such Agent has reasonable grounds to believe and does believe
that each U.S. Person in the United States to whom, or for the account or
benefit of whom, an offer to purchase Offered Securities was made is a U.S.
Accredited Investor.

	 	(b)	 	Covenants and Acknowledgements of the Agent: The Agent hereby:

	 	(i)	 	covenants with the Corporation that:

	 	A.	 	such Agent will offer and sell Offered
Securities in the United States or to, or for the account or benefit
of, a U.S. Person only as provided in subsections 10(a) and 10(b)
hereof and, other than any banking and selling group agreement, such
Agent will not enter into any contractual arrangement with respect to
the offer and sale of the Offered Securities in the United States or
to, or for the account or benefit of, a U.S. Person, except with an
affiliate of the Agent or with the prior written consent of the
Corporation,
	 
	 	B.	 	all offers and sales of Offered Securities in
the United States or to, or for the account or benefit of, a U.S.
Person will be effected by the Placement Agent, Loewen Ondaatje
McCutcheon Limited hereby covenants that all such offers and sales will
be made by the Placement Agent in accordance with all applicable U.S.
broker-dealer requirements under the Exchange Act, and the Securities
Laws of the applicable states of the United States,
	 
	 	C.	 	no written material will be used by such Agent
in connection with the offer or sale of Offered Securities in the
United States or to, or for the account or benefit of, a U.S. Person,
other than a subscription agreement in a form agreed to between the
Corporation and the Agent,
	 
	 	D.	 	no form of General Solicitation or General
Advertising, including advertisements, articles, notices or other
communications published in any newspaper, magazine or similar media or
broadcast over radio or television, or any seminar or meeting whose
attendees have been invited by General Solicitation or General
Advertising will be used by such Agent, and Loewen Ondaatje McCutcheon
Limited hereby covenants that the Placement Agent will not act in any
manner involving a public offering (within the meaning of subsection
4(2) of the 1933 Act), in either case, in connection with the offer or
sale of Offered Securities in the United States or to, or for the
account or benefit of, a U.S. Person,
	 
	 	E.	 	prior to any sale of Offered Securities in the
United States or to, or for the account or benefit of, a U.S. Person,
such Agent shall cause each purchaser thereof (a “U.S.
Purchaser”) to execute and deliver to the Corporation a
subscription agreement in a form agreed to between the Corporation and
the Agent, and

 

24.

	 	F.	 	at the Closing, Loewen Ondaatje McCutcheon
Limited will provide a certificate, substantially in the form of the
certificate attached hereto as Schedule B, relating to the
manner of the offer and sale of Offered Securities in the United States
or to, or for the account or benefit of, a U.S. Person, and

	 	(ii)	 	acknowledges that the Offered Securities have not been, and
will not be, registered under the 1933 Act and may not be offered or sold
within the United States or to, or for the account or benefit of, a U.S.
Person, except pursuant to an exemption from the registration requirements of
the 1933 Act and the Securities Laws of the applicable states of the United
States.

	 	(c)	 	Representations and Warranties of the Corporation: The Corporation
hereby represents and warrants to the Agent that:

	 	(i)	 	neither the Corporation nor any of its affiliates nor any
Person acting on behalf of any of them has engaged in any form of General
Solicitation or General Advertising with respect to the Offered Securities;
	 
	 	(ii)	 	except with respect to Offered Securities offered and sold in
the United States or to, or for the account or benefit of, a U.S. Person in
reliance upon an exemption from registration under Rule 506 of Regulation D,
neither the Corporation nor any of its affiliates, nor any Person acting on
behalf of any of them, has made any offer to sell, or has solicited any offer
to buy, any Offered Securities in the United States or to, or for the account
or benefit of, a U.S. Person;
	 
	 	(iii)	 	during the period in which the Offered Securities are offered
for sale, neither the Corporation nor any of its affiliates, nor any Person
acting on behalf of any of them, has taken any action that would cause the
exemptions afforded by Regulation D to be unavailable for offers and sales of
Offered Securities;
	 
	 	(iv)	 	neither the Corporation nor any of its predecessors or
affiliates has been subject to any order, judgment or decree of any court of
competent jurisdiction temporarily, preliminarily or permanently enjoining such
Person for failure to comply with Rule 503 of Regulation D concerning the
filing of a notice of sales on Form D;
	 
	 	(v)	 	the Corporation is not an “investment company” within the
meaning of the Investment Company Act of 1940 (United States); and
	 
	 	(vi)	 	except with respect to the offer and sale of the Offered
Securities, the Corporation has not, during the six month period prior to the
date hereof, sold, offered for sale or solicited any offer to buy any of its
securities in the United States or to, or for the account or benefit of, a U.S.
Person.

	 	(d)	 	Covenants of the Corporation: The Corporation hereby covenants with
the Agent that:

 

25.

	 	(i)	 	neither the Corporation nor any of its affiliates, nor any
Person acting on behalf of any of them, will engage in any form of General
Solicitation or General Advertising with respect to the Offered Securities;
	 
	 	(ii)	 	except with respect to Offered Securities offered and sold in
the United States or to, or for the account or benefit of, a U.S. Person in
reliance upon an exemption from registration under Rule 506 of Regulation D,
neither the Corporation nor any of its affiliates, nor any Person acting on
behalf of any of them, will make any offer to sell, or solicit any offer to
buy, any Offered Securities in the United States or to, or for the account or
benefit of, a U.S. Person;
	 
	 	(iii)	 	during the period in which the Offered Securities are offered
for sale, neither the Corporation nor any of its affiliates, nor any Person
acting on behalf of any of them, will take any action that would cause the
exemptions afforded by Regulation D to be unavailable for offers and sales of
Offered Securities; and
	 
	 	(iv)	 	within 15 days after the first sale of Offered Securities in
the United States or to, or for the account or benefit of, a U.S. Person
pursuant to Rule 506 of Regulation D, the Corporation will prepare and file
with the SEC a notice on Form D and all other notices required to be filed with
any regulatory authority in the United States with respect to Offered
Securities offered in the United States or to, or for the account or benefit
of, a U.S. Person.

	11.	 	Termination

	 	(a)	 	Right of Termination: The Agent shall be entitled, at the sole option
thereof, to terminate and cancel, without any liability on the part of the Agent, all
of the obligations thereof under this Agreement and the obligations of any Person who
has executed a Subscription Agreement, by notice in writing to that effect delivered to
the Corporation prior to or at the Closing Time if:

	 	(i)	 	the Agent is not satisfied in the sole discretion thereof with
the results of the due diligence review and investigation of the Corporation
conducted by the Agent;
	 
	 	(ii)	 	there is in the sole opinion of the Agent a material change or
change in a material fact or new material fact or an undisclosed material fact
or material change which might be expected to have an adverse effect on the
condition (financial or otherwise), capital, property, assets, operations,
business, affairs, profitability or prospects of the Corporation or on the
market price or value of the Common Shares or any other securities of the
Corporation or on the marketability of the Offered Securities;
	 
	 	(iii)	 	there should develop, occur or come into effect any occurrence
of national or international consequence, or any action, law or regulation,
inquiry or other event, action or occurrence of any nature whatsoever which, in
the sole opinion of the Agent, seriously affects, or could seriously affect,
the financial markets, the condition (financial or otherwise), capital,
property, assets, operations, business, affairs, profitability or prospects of
the Corporation or the market price

 

26.

	 	 	 	or value of the Common Shares or any other securities of the Corporation or
the marketability of the Offered Securities;
	 
	 	(iv)	 	the state of the financial markets is such that in the sole
opinion of the Agent it would be unprofitable to offer or continue to offer for
sale the Offered Securities;
	 
	 	(v)	 	any order or ruling is issued, or any inquiry, action, suit,
proceeding or investigation (whether formal or informal) is instituted or
announced or threatened in relation to the Corporation or any of the directors,
officers or principal shareholders of the Corporation (other than one based
solely upon the activities or alleged activities of the Agent) or any law or
regulation is promulgated or changed which prevents or restricts the
distribution of the Offered Securities, the Common Shares or any other
securities of the Corporation (other than one based solely upon the activities
or alleged activities of the Agent) or any law or regulation is promulgated or
changed which prevents or restricts the distribution of the Offered Securities,
the Common Shares or any other securities of the Corporation (other than one
based solely upon the activities or alleged activities of the Agent) or any law
or regulation is promulgated or changed which prevents or restricts the
distribution of the Offered Securities, the Common Shares or any other
securities of the Corporation; or
	 
	 	(vi)	 	the Corporation is in breach of any term, condition, covenant
or agreement contained in this Agreement or in any Subscription Agreement or
any representation or warranty given by the Corporation in this Agreement or in
any Subscription Agreement is or becomes untrue, false or misleading.

	 	(b)	 	Rights on Termination: Any termination by the Agent pursuant to
subsection 11(a) hereof shall be effected by notice in writing delivered by the Agent
to the Corporation at the address thereof as set out in section 15 hereof. The right
of the Agent so to terminate its obligations under this Agreement is in addition to
such other remedies as the Agent may have in respect of any default, act or failure to
act of the Corporation in respect of any of the matters contemplated by this Agreement.
In the event of a termination by the Agent pursuant to subsection 11(a) hereof there
shall be no further liability on the part of the Agent to the Corporation or of the
Corporation to the Agent except any liability which may have arisen or may thereafter
arise under either section 12 or 13 hereof.

	12.	 	Indemnity and Contribution

	 	(a)	 	Indemnity: The Corporation hereby covenants and agrees to protect,
indemnify and save harmless the Agent and each investment dealer which is a member of
any agency group formed by the Agent in connection with the Offering, each of the
associates and affiliates of and the directors, officers, employees, shareholders,
partners, advisors and agents of the Agent and each investment dealer which is a member
of any agency group formed by the Agent in connection with the Offering and of each of
the associates and affiliates of (in this section 12 each an “Indemnified Person” and
collectively the “Indemnified Persons”) from and against all losses (other than a loss
of profits), claims, damages, payments, liabilities, costs, fines, penalties and
expenses (including the amount paid in settlement of any claim, action, suit or
proceeding and the fees and expenses of counsel

 

27.

	 	 	 	on a solicitor and his own client basis incurred obtaining advice in respect of, or
in defending or settling, any such claim, action, suit or proceeding), joint or
several, of whatsoever nature or kind to which an Indemnified Person may become
subject or otherwise involved in any capacity under statute or common law or
otherwise caused or incurred by reason of or in any way arising, directly or
indirectly, from, by virtue of, or related to, enforcing the provisions of this
Agreement or any Subscription Agreement, or:

	 	(i)	 	the Agent having acted as the agent of the Corporation in
respect of the Offering (other than by reason of the negligence, willful
misconduct or bad faith of the Agent);
	 
	 	(ii)	 	any order made or inquiry, investigation or proceeding
commenced or threatened by any securities commission or authority or any other
competent authority, not based upon the activities or the alleged activities of
the Agent in connection with the Offering;
	 
	 	(iii)	 	the non-compliance or alleged non-compliance by the
Corporation with any of the Securities Laws of the Offering Jurisdictions or
any other applicable law in connection with the transactions contemplated
herein;
	 
	 	(iv)	 	any negligence or willful misconduct by the Corporation
relating to or connected with the sale by the Corporation of the Offered
Securities;
	 
	 	(v)	 	any misrepresentation or alleged misrepresentation (except any
made by the Agent and for which the Agent did not rely on any information
provided by the Corporation or anyone acting on its behalf) relating to the
Offering or the Offered Securities, whether oral or written and made during and
in connection with the Offering, where such misrepresentation or alleged
misrepresentation may give or gives rise to any other liability under any
statute in any jurisdiction which is in force on the date of this Agreement or
which comes into force after that date;
	 
	 	(vi)	 	any failure or alleged failure to make timely disclosure of
material change by the Corporation, whether such failure or alleged failure
occurs during the Offering or after the completion of the Offering, where such
failure relates to the Offering or the Offered Securities and may give or gives
rise to any liability under any statute in any jurisdiction which is in force
on the date of this Agreement or which comes into force after that date; or
	 
	 	(vii)	 	the breach of, or default under, any term, condition, covenant
or agreement of the Corporation made or contained herein or in any other
document of the Corporation delivered pursuant hereto or made by the
Corporation in connection with the sale of the Offered Securities or any
representation or warranty of the Corporation made or contained herein or in
any other document of the Corporation delivered pursuant hereto or in
connection with the sale of the Offered Securities being or being alleged to be
untrue, false or misleading.

	 	 	 	If any matter or thing contemplated by this section 12 shall be asserted against any
Indemnified Person in respect of which indemnification is or might reasonably be

 

28.

	 	 	 	considered to be provided hereunder, such Indemnified Person shall notify the
Corporation as soon as possible of the nature of such claim and the Corporation
shall be entitled, but not required, to assume the defence of any action, suit or
proceeding brought to enforce such claim; provided, however, that the defence shall
be through legal counsel reasonably acceptable to the Indemnified Person and that no
settlement may be made by the Corporation or the Indemnified Person without the
prior written consent of the other of them and the Corporation shall not be liable
for any settlement of any such claim unless it has consented in writing to such
settlement.

	 	(b)	 	Counsel: In any claim referred to in section 12 hereof, the
Indemnified Person shall have the right to retain separate legal counsel to act on
behalf of such Indemnified Person provided that the fees and disbursements of such
separate legal counsel shall be paid by the Indemnified Person unless:

	 	(i)	 	the Corporation fails to assume the defence of such claim on
behalf of the Indemnified Person within ten days of receiving notice of such
claim;
	 
	 	(ii)	 	the Corporation and the Indemnified Person shall have mutually
agreed to the retention of such separate legal counsel; or
	 
	 	(iii)	 	the named parties to such claim (including any added, third or
impleaded parties) include both the Corporation and the Indemnified Person and
the Indemnified Person has been advised by legal counsel that representation of
both the Corporation and the Indemnified Person by the same legal counsel would
be inappropriate due to actual or potential differing interests between them;

	 	 	 	in which event or events the fees and disbursements of such separate legal counsel
shall be paid by the Corporation, subject as hereinafter provided. Where more than
one Indemnified Person is entitled to retain separate counsel in the circumstances
described in this subsection 12(b), all Indemnified Persons shall be represented by
one separate legal counsel and the fees and disbursements of only one separate legal
counsel for all Indemnified Persons shall be paid by the Corporation, unless:

	 	(i)	 	the Corporation and the Indemnified Persons have mutually
agreed to the retention of more than one legal counsel for the Indemnified
Persons; or
	 
	 	(ii)	 	the Indemnified Persons have or any of them has been advised in
writing by legal counsel that representation of all of the Indemnified Persons
by the same legal counsel would be inappropriate due to actual or potential
differing interests between them.

	 	(c)	 	Waiver of Right: The Corporation hereby waives its right to recover
contribution from the Agent and the other Indemnified Persons with respect to any
liability of the Corporation by reason of or arising out of the indemnity provided by
the Corporation in this section 12; provided, however, that such waiver shall not apply
in respect of the Agent for any liability directly caused or incurred by reason or
arising out of any information or statements relating solely to, and provided by, the
Agent or any failure by the Agent in connection with the Offering to provide to
Purchasers any document which

 

29.

	 	 	 	the Corporation is required to provide to the Purchasers and which the Corporation
has provided or made available to the Agent to forward to the Purchasers.
	 
	 	(d)	 	Contribution:

	 	(i)	 	In order to provide for just and equitable contribution in
circumstances in which the indemnity contained in this section 12 is, for any
reason of policy or otherwise, held to be unavailable to or unenforceable by,
in whole or in part, an Indemnified Person other than in accordance with the
provisions of this section 12, the Corporation shall contribute to the
aggregate losses (other than a loss of profit), claims, damages, payments,
liabilities, costs, fines, penalties and expenses (including the amount paid in
settlement of any claim, action, suit or proceeding and the fees and expenses
of counsel on a solicitor and his own client basis incurred obtaining advice in
respect of, or in defending or settling, any such claim, action, suit or
proceeding) of the nature contemplated by such indemnity incurred or paid by
the Indemnified Person in such proportion as is appropriate to reflect not only
the relative benefits received by the Corporation on the one hand and the
Indemnified Person on the other hand in connection with the Offering but also
the relative fault of the Corporation on the one hand and the Indemnified
Person on the other hand in connection with the matters, things and actions
which resulted in such losses, claims, damages, payments, liabilities, costs,
fines, penalties or expenses as well as any other relevant equitable
considerations or, if such allocation is not permitted by applicable law, in
such proportion so that the Indemnified Person shall be responsible for the
proportion represented by the percentage that the Agent’s fee per Offered
Security bears to the Purchase Price and the Corporation shall be responsible
for the balance, whether or not they are a party to the same or separate
claims; provided, however, that no Person who has engaged in any dishonesty,
fraud, fraudulent misrepresentation, negligence or wilful default shall be
entitled to contribution from any Person who has not engaged in any dishonesty,
fraud, fraudulent misrepresentation, negligence or wilful default and further
provided that in no event shall the Agent be responsible for any amount in
excess of the cash fee actually received from the Corporation under this
Agreement and retained by the Agent. For purposes of this subsection 12(d),
relative fault shall be determined by reference to, among other things, whether
any untrue or alleged untrue statement of a material fact or any omission or
alleged omission to state a material fact relates to information supplied by
the Corporation on the one hand or the Agent on the other hand and the relevant
intent, knowledge, access to information and opportunity to correct or prevent
any such untrue statement or omission of the Corporation and the Indemnified
Person.
	 
	 	(ii)	 	In the event that the Corporation is held to be entitled to
contribution from the Agent under the provisions of any statute or law, the
Corporation shall be limited to such contribution in an amount not exceeding
the lesser of:

	 	A.	 	the portion of the amount of the loss or
liability giving rise to such contribution for which the Agent is
responsible as determined in accordance with subsection 12(d) above;
and

 

30.

	 	B.	 	the amount of the cash fee actually received
from the Corporation under this Agreement and retained by the Agent.

	 	(iii)	 	For purposes of this subsection 12(d), each party hereto shall
give prompt notice to the other party hereto of any claim, action, suit or
proceeding threatened or commenced in respect of which a claim for contribution
may be made under this subsection 12(d).

	 	(e)	 	Held in Trust: To the extent that the indemnity contained in
subsection 12(a) hereof is given in favour of a Person who is not a party to this
Agreement, the Corporation hereby constitutes the Agent as trustee for such Person for
such indemnity and the covenants given by Corporation to such Person in this Agreement.
The Agent hereby accepts such trust and agrees to hold such indemnity and covenants
for the benefit of such Persons. The benefit of such indemnity and covenants shall be
held by the Agent in trust for the Persons in favour of whom such indemnities and
covenants are given and may be enforced directly by such Persons.

	13.	 	Expenses
	 
	 	 	Whether or not the purchase and sale of the Offered Securities shall be completed as
contemplated by this Agreement, all expenses of or incidental to the issuance, sale and
delivery of the Offered Securities and of or incidental to all matters in connection with
the transaction herein set out shall be borne by the Corporation including, without
limitation, the reasonable fees and disbursements (including applicable taxes) of legal
counsel for the Agent and the reasonable out-of-pocket expenses (including applicable taxes)
of the Agent. The obligation of the Corporation to pay the Agent’s legal expenses shall be
subject to a maximum of $40,000 (or such greater amount as may be agreed by the Corporation)
which includes the fees of the Agent’s legal counsel but excludes GST and disbursements of
such legal counsel.
	 
	14.	 	Conditions
	 
	 	 	All of the terms and conditions contained in this Agreement to be satisfied by the
Corporation prior to the Closing Time shall be construed as conditions and any breach or
failure by the Corporation to comply with any of such terms and conditions shall entitle the
Agent to terminate the obligations thereof to complete the Closing by written notice to that
effect given by the Agent to the Corporation prior to the Closing Time. It is understood
and agreed that the Agent may waive in whole or in part, or extend the time for compliance
with, any of such terms and conditions without prejudice to the rights thereof in respect of
any other such term and condition or any other or subsequent breach or non-compliance;
provided that to be binding on the Agent any such waiver or extension must be in writing and
signed by the Agent. If the Agent shall elect to terminate the obligations thereof to
complete the Closing as aforesaid, whether the reason for such termination is within or
beyond the control of the Corporation, the liability of the Corporation hereunder shall be
limited to the indemnity referred to in section 12 hereof, the right to contribution
referred to in section 12 hereof and the payment of expenses referred to in section 13
hereof.

 

31.

	15.	 	Notices 
	 
	 	 	Any notice or other communication required or permitted to be given hereunder shall be in
writing and shall be personally delivered or sent by telecopier on a Business Day to the
following addresses:

	 	(a)	 	in the case of the Corporation:

Digifonica International Corp.

Suite 1424 — 4710 Kingsway,

Burnaby, British Columbia, Canada

V5H 2M2

Attention:          Emil Malak, Chairman

Telecopier:          (604) 408-1298

with a copy to:

Hughes & Luce, LLP

Attorneys & Counselors

1717 Main Street, Suite 2800

Dallas, Texas, USA 75201

Attention:          I. Bobby Majumder, Esq., Partner

Telecopier:          (214) 939-5849

	 	(b)	 	in the case of the Agent:

Loewen Ondaatje McCutcheon Limited

55 Avenue Road, Suite 2250

East Tower

Toronto, Ontario, Canada

M5R 3L2

Attention:          Peter Legault

Telecopier:          (416) 964-4493

with a copy to:

Fraser Milner Casgrain LLP

Barristers & Solicitors

Suite 3900

100 King Street West

1 First Canadian Place

Toronto, Ontario, Canada

M5X 1B2

Attention:          Frank Davis

Telecopier:          (416) 863-4592

Either the Corporation or the Agent may change its address for notice by notice given in the
manner aforesaid. Any such notice or other communication shall be in writing, and unless

 

32.

delivered to a responsible officer of the addressee, shall be given by telecopier, and shall
be deemed to have been given on the day on which it was delivered or sent by telecopier.

16. Miscellaneous

	 	(a)	 	Governing Law: This Agreement shall be governed by and be interpreted
in accordance with the laws of the Province of British Columbia and the federal laws of
Canada applicable therein and the parties hereto irrevocably attorn to the jurisdiction
of the courts of such province.
	 
	 	(b)	 	Time of Essence: Time shall be of the essence of this Agreement.
	 
	 	(c)	 	Survival: All representations, warranties, covenants and agreements of
the Corporation herein contained or contained in any documents contemplated by, or
delivered pursuant to, this Agreement or in connection with the purchase and sale of
the Offered Securities shall survive the purchase and sale of the Offered Securities
and the termination of this Agreement and shall continue in full force and effect for
the benefit of the Agent and the Purchasers, regardless of any subsequent disposition
of Offered Securities, the Warrant Shares, the Broker Shares or the Penalty Shares or
any investigation by or on behalf of the Agent with respect thereto.
	 
	 	(d)	 	Counterparts: This Agreement may be executed in one or more
counterparts (including by facsimile or portable document format (.pdf)) for the
convenience of the parties hereto, each of which when so executed shall be deemed to be
an original, but all of which when taken together shall constitute one and the same
instrument. No signature page to this Agreement evidencing a party’s execution hereof
shall be deemed to be delivered by such party to any other party hereto until such
delivering party has received signature pages from all parties signatory to this
Agreement.
	 
	 	(e)	 	Entire Agreement; Amendment: This Agreement and the related documents
contained as Schedules hereto or expressly contemplated hereby contain the entire
understanding of the Corporation and the Agent in connection with the issuance and sale
of the Offered Securities by the Corporation and supersede all prior written or oral
and all contemporaneous oral agreements, understandings, negotiations and discussions
relating to the subject matter hereof, including without limitation any engagement
agreement or term sheet relating to the Offering between the Corporation and the Agent.
This Agreement may be amended, supplemented or modified, and any provision hereof may
be waived, only by written instrument making specific reference to this Agreement
signed by the party against whom enforcement is sought.
	 
	 	(f)	 	Severability: If any provision of this Agreement is determined to be
invalid, illegal, void or unenforceable in whole or in part, such invalid, illegal,
void or unenforceable provision shall be severed from this Agreement, but shall not
affect or impair the validity of any other provision of this Agreement, each of which
will remain in full force and effect, so long as the economic or legal substance of the
transactions contemplated by this Agreement is not affected in a manner materially
adverse to any party.

 

33.

	 	(g)	 	Language: The parties hereto acknowledge and confirm that they have
requested that this Agreement as well as all notices and other documents contemplated
hereby be drawn up in the English language. Les parties aux présentes reconnaissent et
confirment qu’elles ont convenu que la présente convention ainsi que tous les avis et
documents qui s’y rattachent soient rédigés dans la langue anglaise.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

Would you kindly confirm the agreement of the Corporation to the foregoing by executing two
duplicate copies of this Agreement and thereafter returning two such executed copies to Loewen
Ondaatje McCutcheon Limited.

Yours truly,

	 	 	 	 	 	 	 
	LOEWEN ONDAATJE MCCUTCHEON	 	 
	LIMITED
	 	 	 	 	 	 
	By:

	 	 	 	By:	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 	 	 

     The undersigned hereby accepts and agrees to the foregoing as of the ___ day of
__________, 2006.

	 	 	 	 	 
	 	 	DIGIFONICA INTERNATIONAL CORP.
	 

	 	By:	 	 
	 

	 	 	 	 

 

 

Schedule A

Officers’ Certificate

	 	 	 
	TO:

	 	LOEWEN ONDAATJE McCUTCHEON LIMITED
	AND TO:

	 	FRASER MILNER CASGRAIN LLP
	AND TO:

	 	THE PURCHASERS OF UNITS OF DIGIFONICA INTERNATIONAL CORP.

CERTIFICATE

The undersigned, Emil Malak, Chairman of Digifonica International Corp. (the
“Corporation”), and Michael Bowerman, President of the Corporation, hereby certify, for and
on behalf of the Corporation in their capacity as officers of the Corporation and not in their
personal capacity, after having made due inquiry, that the following facts, matters and information
are true and accurate and not misleading in any material respect:

	1.	 	The facts, matters and information certified to herein are based on one or more of knowledge
and information available or provided to us and our honest belief and all statements made in
this certificate represent our reasonably held honest belief as to the facts, matters,
information and belief possessed by us. We have used our best efforts to become informed of
and about the facts, matters and information certified to herein and have sought the advice of
counsel for the Corporation on those matters certified to herein which involve matters of laws
and have relied upon such advice to the extent that those matters involve matters of law.

	2.	 	The Corporation has complied with all covenants and agreements contained in, and has
satisfied all of the terms and conditions of, the Agency Agreement to be complied with and
satisfied by the Corporation at or prior to the Closing Time.

	3.	 	The representations and warranties of the Corporation contained in the Agency Agreement are
true and correct as of the Closing Time with the same force and effect as if made at and as of
the Closing Time after giving effect to the transactions contemplated thereby.

	4.	 	Since March 31, 2006, except as disclosed in the Corporation’s filings with the SEC,
including without limitation any registration statements, proxy or information statements,
annual reports on Form 10-KSB, quarterly reports on Form 10-QSB and current reports on Form
8-K (collectively, the “SEC Filings”), there has been no material adverse change
(whether actual, anticipated, proposed, prospective or threatened) in the financial condition,
assets, liabilities (contingent or otherwise), business, affairs, operations or prospects of
the Corporation or any of the Subsidiaries or in the capital of the Corporation.

	5.	 	Except as disclosed in the SEC Filings, there are no contingent liabilities affecting the
Corporation or any of the Subsidiaries which are material to the Corporation or any of the
Subsidiaries.

	6.	 	No order, ruling or determination having the effect of ceasing or suspending the sale of the
Offered Securities has been issued or made by any securities commission or other regulatory
authority and is continuing in effect and no proceedings, investigations or enquiries for such

 

 

-2-

	 	 	purpose have been instituted or are pending, or are contemplated or threatened under any of
the Securities Laws of the Offering Jurisdictions, securities commission or other regulatory
authority.

	7.	 	Except as disclosed in the SEC Filings, there are no actions, suits, proceedings or enquiries
pending or, to the best of their knowledge, threatened against or affecting the Corporation or
any of the Subsidiaries or to which any property or assets of the Corporation or any of the
Subsidiaries is subject, at law or in equity, or before or by any federal, provincial, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which may, in any way, materially and adversely affect
the Corporation or any of the Subsidiaries.

	8.	 	No failure or default on the part of the Corporation or any of the Subsidiaries exists under
any law or regulation applicable to the Corporation or any of the Subsidiaries or under any
licence, permit, contract, agreement or other instrument to which the Corporation or any of
the Subsidiaries is a party or by which the Corporation or any of the Subsidiaries is bound,
which may in any way materially and adversely affect the Corporation or any of the
Subsidiaries and the execution, delivery and performance of the Agency Agreement and the
performance by the Corporation of its obligations thereunder will not result in any such
default.

	9.	 	This certificate is being made and delivered pursuant to subparagraph 5(a)(ii)C of the Agency
Agreement dated August 9, 2006 (the “Agency Agreement”) between the Corporation and
the Agent and we acknowledge that the addressees hereof will be relying on this certificate.

Unless otherwise defined herein, all words and terms with the initial letter or letters thereof
capitalized in this certificate and not defined herein but defined in the Agency Agreement shall
have the meanings given to such capitalized words and terms in the Agency Agreement. The
undersigned acknowledge that they are familiar with the definitions given to the capitalized words
and terms in the Agency Agreement and such definitions are hereby incorporated by reference.

IN WITNESS WHEREOF the undersigned have executed this certificate as of the          day of
                    , 2006.

	 	 	 
	 

	 	 
	 

	 	Emil Malak, the Chairman of
	 

	 	Digifonica International Corp.
	 
	 	 
	 

	 	 
	 

	 	Michael Bowerman, the President of
	 

	 	Digifonica International Corp.

 

 

 

Schedule B

Agent’s Certificate

TO:          DIGIFONICA INTERNATIONAL CORP.

CERTIFICATE

In connection with the private placement of units (the “U.S. Offered Securities”) of
Digifonica International Corp. (the “Corporation”) with U.S. “accredited investors” (the
“U.S. Private Placees”) pursuant to Subscription Agreements accepted as of ____________, 2006,
by the Corporation, Loewen Ondaatje McCutcheon Limited, the Agent referred to in the Agency
Agreement dated as ____________, 2006 (the “Agency Agreement”) between Loewen Ondaatje
McCutcheon Limited (the “Agent”) and the Corporation, and ___, as placement
agent in the United States for the Agent (the “Placement Agent”), do hereby certify that:

	1.	 	the Placement Agent is a registered broker or dealer with the National Association of
Securities Dealers, Inc. (the “NASD”) and the United States Securities and Exchange
Commission (the “SEC”) and is in good standing with the NASD and the SEC on the date
hereof;
	 
	2.	 	based on the assumption that the representations and warranties of the U.S. Private Placees
contained in the subscription agreements from the U.S. Private Placees are true and accurate,
all offers and sales of U.S. Offered Securities in the United States or to, or for the account
or benefit of, a U.S. Person were made to “accredited investors” (as defined below);
	 
	3.	 	all offers and sales of U.S. Offered Securities in the United States or to, or for the
account or benefit of, a U.S. Person have been effected in accordance with all applicable U.S.
broker-dealer requirements under the Securities Exchange Act of 1934 (United States), as
amended, and applicable state securities laws;
	 
	4.	 	no written material was used in connection with the offer or sale of U.S. Offered Securities
in the United States or to, or for the account or benefit of, a U.S. Person, other than a
subscription agreement in the form agreed to by the Corporation and the Agent;
	 
	5.	 	we have reasonable grounds to believe and do believe that each offeree of U.S. Offered
Securities was an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated
under the Securities Act of 1933 (United States), as amended (the “1933 Act”), and, on
the date hereof, based on the assumption that the representations and warranties of the U.S.
Private Placees contained in the subscription agreements obtained from the U.S. Private
Placees are true and accurate, we continue to believe that each U.S. Private Placee is an
accredited investor within the meaning of Regulation D under the 1933 Act (“Regulation
D”);
	 
	6.	 	no form of “general solicitation” or “general advertising” (as those terms are used in
Regulation D) was used by us, including advertisements, articles, notices or other
communications published in any newspaper, magazine or similar media or broadcast over radio
or television, or any seminar or meeting whose attendees had been invited by general
solicitation or general advertising, and the Placement Agent did not act in any manner
involving a public offering

 

 

-2-

	 	 	(within the meaning of subsection 4(2) of the 1933 Act), in either case, in connection with
the offer or sale of U.S. Offered Securities in the United States or to, or for the account
or benefit of, a U.S. Person; and

	7.	 	prior to any sale of U.S. Offered Securities in the United States or to, or for the account
or benefit of, a U.S. Person, we caused each U.S. Private Placee to deliver a subscription
agreement in a form acceptable to the Corporation.

Words and terms with the initial letter or letters thereof capitalized in this certificate and
defined in the Agency Agreement shall have the meanings given to such capitalized words and terms
in the Agency Agreement unless otherwise defined herein.

Dated this ___ day of __________, 2006.

	 	 	 	 	 	 	 
	LOEWEN ONDAATJE MCCUTCHEON	 	 
	LIMITED
	 	 	 	 	 	 
	By:

	 	 	 	By:

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