Document:

SECURITIES
PURCHASE AGREEMENT

    

     

    This
Securities Purchase Agreement (this “Agreement”) is dated
as of January 28, 2011, between Dejour Enterprises Ltd., a corporation
incorporated under the laws of British Columbia (the “Company”), and each
purchaser identified on the signature pages hereto (each such purchaser,
including its successors and assigns, a “Purchaser” and,
collectively, the “Purchasers”).

     

    WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
an effective registration statement under the Securities Act of 1933, as amended
(the “Securities
Act”), and pursuant to an exemption from registration and prospectus
requirements under Canadian Securities Laws (as hereinafter defined) the Company
desires to issue and sell to each Purchaser, and each Purchaser, severally and
not jointly, desires to purchase from the Company, securities of the Company as
more fully described in this Agreement.

     

    NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and each Purchaser agree as
follows:

     

    ARTICLE
I.

    DEFINITIONS

     

    1.1            Definitions.  In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms have the meanings set forth in this Section
1.1:

     

    “Acquiring Person”
shall have the meaning ascribed to such term in Section 4.4.

     

    “Action” shall have
the meaning ascribed to such term in Section 3.1(l).

     

    “Affiliate” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person as such terms are
used in and construed under Rule 405 under the Securities Act.

     

    “Board of Directors”
means the board of directors of the Company.

     

    “Business Day” means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York or the Province of British Columbia are authorized or required
by law or other governmental action to close.

     

    “Canadian Securities
Laws” means all acts, rules, regulations and published policies
promulgated or otherwise adopted from time to time by any Canadian Securities
Commission or other authority having jurisdiction, and the rules and policies of
the TSX.

     

    “Canadian Securities
Regulators” means the securities regulatory authorities in each of the
Reporting Provinces.

     

    “Closing” shall have
the meaning ascribed to such term in Section 2.2.

     

    
      
        
        

      

      
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    “Closing Date” means
the Trading Day on which all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to (i)
each Purchaser’s obligation to pay its respective Subscription Amount and (ii)
the Company’s obligations to deliver the Common Shares and Warrants included in
the Units have, in each case, been satisfied or waived, but in no event later
than the third Trading Day following the date hereof.

     

    “Commission” means the
United States Securities and Exchange Commission.

     

    “Common Shares” means
common shares without par value in the capital of the Company and any other
class of securities into which such shares may hereafter be reclassified or
changed.

     

    “Common Share
Equivalents” means any securities of the Company or any Subsidiary which
would entitle the holder thereof to acquire at any time Common Shares,
including, without limitation, any debt, preferred shares, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Shares.

     

    “Concurrent Canadian
Offering” means the offering of up to 1,500,000 Units at a price of $0.30
to Persons resident in Canada.

     

    “Continuous Disclosure
Reports” shall have the meaning ascribed to such term in Section
3.1(i).

     

    “Disclosure Schedule”
means the disclosure schedule of the Company delivered concurrently
herewith.

     

    “Environmental Laws”
shall have the meaning ascribed to such term in Section 3.1(o).

     

    “Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

    

    “Exempt Issuance”
means the issuance of (a) Common Shares or options to purchase Common Shares to
employees, officers or directors of the Company pursuant to any stock or option
plan duly adopted for such purpose by a majority of the Board of Directors, (b)
securities upon the exercise or exchange of or conversion of any Securities
issued hereunder and/or other securities exercisable or exchangeable for or
convertible into Common Shares issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date of
this Agreement to increase the number of such securities or to decrease the
exercise price, exchange price or conversion price of such securities, and (c)
securities issued pursuant to acquisitions or strategic transactions approved by
a majority of the disinterested directors of the Company, provided that any such
issuance shall only be to a Person (or to the equityholders of a Person) which
is, itself or through its subsidiaries, an operating company or an owner of an
asset in a business synergistic with the business of the Company and shall
provide to the Company additional benefits in addition to the investment of
funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities.

     

    
      
        
        

      

      
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    “GAAP” shall have the
meaning ascribed to such term in Section 3.1(j).

     

    “Hazardous Materials”
shall have the meaning ascribed to such term in Section 3.1(o).

     

    “Indebtedness” shall
have the meaning ascribed to such term in Section 3.1(dd).

     

    “Intellectual Property
Rights” shall have the meaning ascribed to such term in Section
3.1(s).

     

     “Liens” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.

     

    “Material Adverse
Effect” shall have the meaning ascribed to such term in Section
(a)(b).

     

    “Material Permits”
shall have the meaning ascribed to such term in Section 3.1(p).

     

    “Per Unit Purchase
Price” means $0.30, subject to adjustment
for any reverse or forward stock split, stock dividends, share consolidation or
other similar transaction of the Common Shares that occurs after the date of
this Agreement and prior to the Closing.

     

    “Person” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.

     

    “Placement Agent”
means Sutter Securities Incorporated in its capacity as placement agent under
the Placement Agent Agreement.

     

    “Placement Agent
Agreement” means the placement agent agreement dated December 15, 2010
between the Company and the Placement Agent.

     

    “Proceeding” means an
action, claim, suit, investigation or proceeding (including, without limitation,
an informal investigation or partial proceeding, such as a deposition), whether
commenced or threatened.

     

    “Prospectus” means the
final base prospectus filed for the Registration Statement pursuant to Rule
424(b).

     

    “Prospectus
Supplement” means the supplement to the Prospectus complying with Rule
424(b) of the Securities Act to be filed with the Commission and delivered by
the Company to each Purchaser prior to the Closing.

     

    “Purchaser Party”
shall have the meaning ascribed to such term in Section 4.7.

     

    
      
        
        

      

      
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    “Registration
Statement” means the effective registration statement with Commission
file No. 333-162677 which registers the sale of the Securities to the
Purchasers.

     

    “Reporting Provinces”
means each of the Provinces of British Columbia, Alberta, Ontario and Quebec,
Canada.

     

    “Required Approvals”
shall have the meaning ascribed to such term in Section 3.1(e).

     

    “Rule 144” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.

     

    “Rule 424” means Rule
424 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.

     

    “Securities” means,
collectively, the Common Shares and Warrants comprising the Units and the
Warrant Shares.

     

    “Securities
Regulators” means, collectively, the Commission and the Canadian
Securities Regulators, and Securities Regulator means any one of
them.

     

    “Short Sales” means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable Common Shares). 

     

    “Subscription Amount”
means, as to each Purchaser, the aggregate amount determined by multiplying the
Per Unit Purchase Price by the number of Units to be issued to such Purchaser
pursuant to this Agreement.

     

    “Subsidiary” shall
have the meaning ascribed thereto in Rule 405 under the Securities
Act.

     

    “Trading Day” means a
day on which the Company’s principal Trading Market in the United States is open
for trading.

     

    “Trading Market” means
any of the following markets or exchanges on which the Common Shares are listed
or quoted for trading on the date in question: the NYSE Amex Equities, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange, the OTC Bulletin Board, the Toronto Stock Exchange or
the TSX Venture Stock Exchange (or any successors to any of the
foregoing).

     

    
      
        
        

      

      
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    “Transaction
Documents” means this Agreement, the Placement Agent Agreement, the
certificates representing the Warrants and any other documents or agreements
executed in connection with the transactions contemplated
hereunder.

     

    “Transfer Agent” means
Computershare Investor Services Inc., the current transfer agent of the Company,
and any successor transfer agent of the Company.

     

    “Units” shall have the
meaning ascribed to such term in Section 2.1 of this Agreement.

     

    “Variable Rate
Transaction” shall have the meaning ascribed to such term in Section
4.12(b).

     

    “Warrants” shall have
the meaning ascribed to such term in Section 2.1 of this Agreement.

     

    “Warrant Shares” means
the Common Shares issuable upon exercise of the Warrants included in the
Units.

     

    “WS” means Weinstein
Smith LLP with offices located at 420 Lexington Avenue, Suite 2620, New York,
New York 10170-0002.

     

    ARTICLE
II.

    PURCHASE
AND SALE

     

    2.1           Subscription. On the
Closing Date, subject to the terms and conditions of this Agreement, each
Purchaser agrees to subscribe for, and the Company agrees to sell to each
Purchaser, that number of units of the Corporation (“Unit”) set forth
opposite such Purchaser’s name on the signature pages hereto at a per Unit
subscription price equal to the Per Unit Purchase Price.  Each Unit
will comprise one Common
Share and 0.5 Common Share purchase warrants (each whole warrant, a “Warrant”).  Each
Warrant will entitle the holder thereof to purchase one Warrant Share for a
period of one year following the Closing Date at a purchase price of
$0.35 per share and will be
represented by a certificate in the form of Exhibit A attached
hereto. 

     

    2.2           Closing.  The
completion of the purchase and sale of Units pursuant to this Agreement (the
“Closing”)
shall take place at the offices of WS (or such other place specified by the
Company and the Placement Agent) at a time on the Closing Date to be specified
by the Company and the Placement Agent. On or prior to the Closing Date, (i)
each Purchaser shall pay the applicable Subscription Amount by wire transfer of
immediately available funds to an account specified by the Company and (ii) the
Company shall cause the Common Shares and Warrants comprising the Units to be
delivered to the Purchaser, with delivery of the Common Shares to be made
through the facilities of the Depository Trust Company’s Deposit Withdrawal
Agent Commission (“DWAC”)
system.

     

    
      
        
        

      

      
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    2.3          Closing
Conditions.

     

    (a)           Conditions to the
Obligations of the Company. The obligations of the Company hereunder in
respect of each Purchaser shall be subject to satisfaction or waiver of the
following conditions:

     

    (i)           this
Agreement duly executed by such Purchaser shall have been delivered to the
Company;

     

    (ii)          the
accuracy in all material respects on the Closing Date of the representations and
warranties of such Purchaser contained herein (unless such representations and
warranties were made as of a specific date); and

     

    (iii)         all
obligations, covenants and agreements of such Purchaser required to be performed
at or prior to the Closing Date shall have been performed.

     

    (b)           Conditions to the
Obligations of the Purchasers. The respective obligations of each
Purchaser hereunder in connection with the Closing shall be subject to
satisfaction or waiver of the following conditions:

     

    (i)           this
Agreement duly executed by the Company shall have been delivered to such
Purchaser;

     

    (ii)          legal
opinions of the Company’s U.S. counsel and Canadian counsel, in each case dated
the Closing Date and in substantially the form that is customary for a
transaction of this nature and reasonably acceptable to the Placement Agent,
shall have been delivered to the Placement Agent and the
Purchasers;

     

    (iii)         a
copy of the Company’s irrevocable instructions to the Transfer Agent instructing
the Transfer Agent to deliver that number of Common Shares to be issued to such
Purchaser via the DWAC system registered in the name of such Purchaser or as
such Purchaser shall direct shall have been delivered to such
Purchaser;

     

    (iv)         a
copy of the warrant certificate representing that number of Warrants to be
issued to such Purchaser registered in the name of such Purchaser or as such
Purchaser shall instruct shall have been delivered to such Purchaser (with the
original warrant certificate representing such Warrants to be delivered to such
Purchaser within three Trading Days of the Closing Date);

     

    (v)          the
Prospectus and Prospectus Supplement shall have been delivered to such Purchaser
(which Prospectus and Prospectus Supplement may be delivered to such Purchaser
in accordance with Rule 172 under the Securities Act);

     

    
      
        
        

      

      
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    (vi)           the
accuracy in all material respects on the Closing Date of the representations and
warranties of the Company contained herein (unless such representations and
warranties were delivered as of a specific date);

     

    (vii)          all
obligations, covenants and agreements of the Company required to be performed at
or prior to the Closing Date shall have been performed by the
Company;

     

    (viii)         there
shall have been no Material Adverse Effect with respect to the Company since the
date hereof;

     

    (ix)           from
the date of the Placement Agent Agreement until Closing, trading in the Common
Shares shall not have been ceased or suspended by any Securities Regulator or
the Company’s principal Trading Market in either the United States or Canada
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing), and, at any
time prior to the Closing Date, trading in securities generally as reported by
Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking moratorium have been
declared by the United States, New York State authorities or Canadian
authorities; and

     

    (x)           
each of the conditions to the obligations of the Placement Agent and the
Purchasers set forth in Placement Agent Agreement shall have been satisfied or
waived by the Placement Agent.

     

    ARTICLE
III.

    REPRESENTATIONS
AND WARRANTIES

     

    3.1           Representations and
Warranties of the Company.  Except as set forth in the
Continuous Disclosure Reports or in the Disclosure Schedule, which Disclosure
Schedule shall be deemed a part hereof and shall qualify any representation or
otherwise made herein to the extent of the disclosure contained in the
corresponding section of the Disclosure Schedule, the Company hereby makes the
following representations and warranties to each Purchaser:

     

     (a)           Subsidiaries. All of
the Subsidiaries of the Company are set forth on Section 3.1(a) of the
Disclosure Schedule. The Company owns, directly or indirectly, all of the common
shares, capital stock or other equity interests of each Subsidiary free and
clear of any Liens, and all of the issued and outstanding common shares or
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for
or purchase securities.

     

    
      
        
        

      

      
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    (b)           Organization and
Qualification. The Company and each of the Subsidiaries is an entity duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization, with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted, as described in the Continuous
Disclosure Reports, except to the extent that the failure to be so qualified or
be in good standing would not reasonably be expected to have a Material Adverse
Effect.  The Company and each of its Subsidiaries is duly qualified as
a foreign entity to do business and is in good standing in every jurisdiction in
which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any Subsidiary is in violation
or default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter
documents.  As used in this Agreement, "Material Adverse Effect" means
any material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, individually or taken as a whole, or on the
transactions contemplated hereby or on the other Transaction Documents or by the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents.

     

    (c)           Authorization; Enforcement;
Validity.  The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by
the Company, the Board of Directors or the Company’s shareholders in connection
therewith other than in connection with the Required Approvals or the issuance
and sale of the Securities.  Each Transaction Document to which it is
a party has been (or upon delivery will have been) duly executed by the Company
and, when delivered in accordance with the terms hereof and thereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (i) as limited by general
equitable principles (regardless of whether enforceability is considered in a
proceeding in equity or at law) and applicable bankruptcy, insolvency,
reorganization, liquidation, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.

     

    (d)           No
Conflicts.  The execution, delivery and performance by the
Company of the Transaction Documents, the issuance and sale of the Securities
and the consummation by it of the transactions contemplated hereby and thereby
to which it is a party do not and will not (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, articles, bylaws or other organizational or charter documents, or
(ii) breach or result in a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary, or give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary debt or
otherwise) or other understanding to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any Subsidiary is
bound or subject, or (iii) subject to the Required Approvals, result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any Trading Market, court or governmental authority to
which the Company or a Subsidiary is subject (including applicable United States
federal and state securities laws and regulations, Canadian Securities Laws and
the regulations of any Trading Market), or to which any property or asset of the
Company or a Subsidiary is bound or subject; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected to
result in a Material Adverse Effect.

     

    
      
        
        

      

      
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    (e)           Filings, Consents and
Approvals.  Except as have already been obtained, taken or
made, the Company is not required to obtain any consent, waiver, authorization
or order of, give any notice to, or make any filing or registration with, any
court or other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by the Company
of the Transaction Documents, other than: (i) the filings required pursuant to
Section 4.2 of this Agreement, (ii) the filing with the Commission of the
Prospectus Supplement, (iii) such applications as are required to be made to,
and such approvals as are required to be obtained from, the NYSE Amex Equities
and the Toronto Stock Exchange in order for the Common Shares included in the
Units and the Warrant Shares issuable upon exercise of the Warrants to be listed
thereon and (iv) such filings as are required to be made under applicable state
securities laws and Canadian Securities Laws (collectively, the “Required
Approvals”) .

     

    (f)           Issuance of the
Securities. The Common Shares and Warrants comprising the Units have been
duly authorized and, in the case of the Common Shares, when issued and paid for
in accordance with the terms of this Agreement, will be duly and validly issued,
fully paid and non-assessable shares in the capital of the Company, free and
clear of all Liens imposed by the Company.  The Warrants will be duly
and validly issued, free and clear of all Liens imposed by the
Company.  The Warrant Shares, when issued in accordance with the terms
of the Warrants, will be validly issued, fully paid and non-assessable shares in
the capital of the Company, free and clear of all Liens imposed by the
Company.  The Company has reserved from its duly authorized shares the
maximum number of Common Shares issuable pursuant to this Agreement (including
the Warrant Shares). The form of certificate representing the Common Shares
included in the Units and the Warrant Shares has been duly approved by the Board
of Directors and complies with the provisions of the Business Corporations Act
(British Columbia) and
the requirements of NYSE Amex Equities and the Toronto Stock
Exchange.

     

    
      
        
        

      

      
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    (g)           Registration. The
Company has prepared and filed the Registration Statement in conformity with the
requirements of the Securities Act, and such Registration Statement became
effective on November 3, 2009 (the “Effective
Date”).  No stop order preventing or suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus has been issued by the Commission and no proceedings for that
purpose have been instituted or, to the knowledge of the Company, are threatened
by the Commission.  The Company filed the Prospectus with the
Commission pursuant to Rule 424(b) on November 12, 2009.  At the time
the Registration Statement and any amendments thereto became effective, at the
date of this Agreement and at the Closing Date, the Registration Statement and
any amendments thereto conformed and will conform in all material respects to
the requirements of the Securities Act and did not and will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
At the time the Prospectus or any amendment or supplement thereto was or is
issued and at the Closing Date, the Prospectus and any amendments or supplements
thereto including the Prospectus Supplement conformed and will conform in all
material respects to the requirements of the Securities Act and did not and will
not contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading provided, that the Company
makes no representations or warranty in this paragraph with respect to the
Placement Agent’s name and the statements set forth under the heading “Plan of
Distribution” in the Prospectus only insofar as such statements relate to the
amount of selling concession and re-allowance or to over-allotment and related
activities that may be undertaken by the Placement Agent. Assuming the accuracy
of the Purchaser’s representations and warranties set forth in Section 3.2, the
Company has filed or caused to be filed all documents, applications, forms or
undertakings required to be filed by the Company so that the transactions of
purchase and sale contemplated by this Agreement may lawfully occur without the
necessity of filing a prospectus or any similar document in the Reporting
Provinces.

     

    (h)           Capitalization.  The
share capital of the Company is as set forth in Section 3.1(h) of the Disclosure
Schedule.  All of the outstanding Common Shares of the Company are
validly issued, fully paid and non-assessable.  Except as disclosed in
Section 3.1(h), the Company has not issued any Common Shares or equity
securities not disclosed in the Continuous Disclosure Reports, other than
pursuant to the exercise of employee stock options under the Company’s stock
option plan, the issuance of Common Shares to employees pursuant to the
Company’s employee stock purchase plan and pursuant to the conversion and/or
exercise of Common Share Equivalents outstanding as of the date of the most
recently filed periodic report in the Continuous Disclosure Reports. No Person
has any right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by the Transaction
Documents.  Except as disclosed in the Continuous Disclosure Reports,
there are no outstanding options, warrants, scrip rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any Common Shares, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional Common Shares or Common
Share Equivalents, other than the Common Shares and Warrants to be issued
hereunder. Except for the issuance of Warrant Shares upon the exercise of the
Warrants, the issuance and sale of the Units will not obligate the Company to
issue any Common Shares or other securities to any Person and will not result in
a right of any holder of any securities of the Company to adjust the exercise,
conversion, exchange or reset price of or under any of such securities. There
are no shareholders agreements, voting agreements or other similar agreements
with respect to the Common Shares to which the Company is a party or, to the
knowledge of the Company, between or among any of the Company’s
shareholders.

     

    
      
        
        

      

      
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    (i)           Continuous
Disclosure.  Except as set forth in Section 3.1(i) of the
Disclosure Schedule, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed or furnished by the Company
under the U.S. Securities Act and the U.S. Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, and under Canadian Securities Laws for the two
years preceding the date hereof (or such shorter period as the Company was
required by law or regulation to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by reference therein,
being collectively referred to herein as the “Continuous Disclosure
Reports”) on a timely basis or has received a valid extension of such
time of filing and has filed any such Continuous Disclosure Reports prior to the
expiration of any such extension. As of their respective dates, the Continuous
Disclosure Reports complied in all material respects with the requirements of
the U.S. Securities Act, the U.S. Exchange Act and Canadian Securities Laws, as
applicable, and none of the Continuous Disclosure Reports, when filed, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

     

    (j)           Financial
Statements. The financial statements of the Company included in the
Continuous Disclosure Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission and the
Canadian Securities Regulators with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with Canadian
generally accepted accounting principles applied on a consistent basis during
the periods involved (“GAAP”), except as may
be otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.

     

    (k)           Material Changes;
Undisclosed Events, Liabilities or Developments.  Except as set
forth in Section 3.1(k) of the Disclosure Schedule, since the date of the latest
audited financial statements included within the Continuous Disclosure Reports,
except as specifically disclosed in a subsequent Continuous Disclosure Report
filed prior to the date hereof, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company’s financial
statements pursuant to GAAP or disclosed in filings made with the Commission or
the Canadian Securities Regulators, (iii) the Company has not altered its method
of accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its shareholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the Commission or any Canadian
Securities Regulator any request for confidential treatment of information.
Except for the issuance of the Securities contemplated by this Agreement or as
set forth on Section 3.1(k) of the Disclosure Schedule, no event, liability,
fact, circumstance, occurrence or development has occurred or exists or is
reasonably expected to occur or exist with respect to the Company or its
Subsidiaries or their respective business, prospects, properties, operations,
assets or financial condition that would be required to be disclosed by the
Company under the U.S. Securities Act, the U.S. Exchange Act or the Canadian
Securities Laws at the time this representation is made or deemed made that has
not been publicly disclosed at least one Trading Day prior to the date that this
representation is made.

     

    
      
        
        

      

      
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    (l)           Litigation.  Except
as disclosed in Section 3.1(l) of the Disclosure Schedule, there is no action,
suit, inquiry, notice of violation, proceeding or investigation pending or, to
the knowledge of the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”), whether
in the United States, Canada or elsewhere, which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) would, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any director or officer thereof, is
or has been the subject of any Action involving a claim of violation of or
liability under U.S. or Canadian federal, state or provincial securities laws or
a claim of breach of fiduciary duty.  There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by any Securities Regulator involving the Company or any current
or former director or officer of the Company.  The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the U.S.
Exchange Act or the U.S. Securities Act.

     

    (m)           Labor
Relations.  Except as disclosed in the Continuous Disclosure
Reports, no material labor dispute exists or, to the knowledge of the Company,
is imminent with respect to any of the employees of the Company, which would
reasonably be expected to result in a Material Adverse Effect.  None
of the Company’s or its Subsidiaries’ employees is a member of a union that
relates to such employee’s relationship with the Company or such Subsidiary, and
neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good.  To the knowledge of the
Company, no executive officer of the Company is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement, or
any other contract or agreement or any restrictive covenant in favor of any
third party, and the continued employment of each such executive officer does
not subject the Company or any of its Subsidiaries to any liability with respect
to any of the foregoing matters.  The Company and its Subsidiaries are
in compliance with all applicable U.S. and Canadian federal, state, provincial,
local and foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours, except where
the failure to be in compliance would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

     

    
      
        
        

      

      
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    (n)           Compliance.  Except
as disclosed in the Continuous Disclosure Reports, neither the Company nor any
Subsidiary: (i) is in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any of
its properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any judgment, decree or order of any court,
arbitrator or governmental body or (iii) is or has been in violation of any
statute, rule, ordinance or regulation of any governmental authority, including
without limitation all foreign, federal, state and local laws applicable to
their businesses or otherwise relating to taxes, environmental protection,
occupational health and safety, product quality and safety and employment and
labor matters, except in each case as could not have or reasonably be expected
to result in a Material Adverse Effect.

     

    (o)           Environmental Laws.
Except to the extent that any violation or other matter referred to in this
Section 3.1(o) could not have or reasonably be expected to result in a Material
Adverse Effect:

     

     (i)           the
Company and each of its Subsidiaries is not in violation of any Environmental
Laws;

     

     (ii)          the
Company and each of its Subsidiaries has operated its business at all times and
has received, handled, used, stored, treated, shipped and disposed of all
contaminants without violation of Environmental Laws;

     

     (iii)         there
have been no spills, releases, deposits or discharges of hazardous or toxic
substances, contaminants or wastes into the earth, air or into any body of water
or any municipal or other sewer or drain water systems by the Company or any of
its Subsidiaries that have not been remedied;

     

     (iv)         no
orders, directions or notices have been issued and remain outstanding pursuant
to any Environmental Laws relating to the business or assets of the Company or
any of its Subsidiaries; and

     

     (v)       
  neither the Company nor any of its Subsidiaries has failed to report
to the proper federal, state, provincial, municipal or other political
subdivision, government, department, commission, bureau, board, agency or
instrumentality, whether domestic or foreign, the occurrence of any event which
is required to be so reported by any Environmental Law.

     

    
      
        
        

      

      
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    The term
"Environmental
Laws" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants, or toxic
or hazardous substances or wastes (collectively, "Hazardous Materials")
into the environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved
thereunder.

     

    (p)           Regulatory
Permits.  The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the Continuous Disclosure Reports, except
where the failure to possess such permits would not reasonably be expected to
result in a Material Adverse Effect (“Material Permits”), and neither the
Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any Material Permit.

     

    (q)           Operational Matters.
Any and all operations of the Company and each of its Subsidiaries and, to the
knowledge of the Company, any and all operations by third parties on or in
respect of their respective assets and properties, have been conducted
substantially in accordance with good oil and gas industry practices and
material compliance with applicable, laws, rules, regulations, orders and
directions of governmental and other competent authorities with respect to oil
and gas exploration.

     

    (r)           Title to
Assets.  The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good and
marketable title in all personal property owned by them, in each case that is
material to the business of the Company and the Subsidiaries, in each case free
and clear of all Liens, except for Liens (i) as do not materially affect the
value of such property, (ii) do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries, (iii)
Liens for the payment of federal, state or other taxes, the payment of which is
neither delinquent nor subject to penalties, and (iv) Liens and defects in title
that would not have, or reasonably be expected to have Material Adverse Effect.
Any real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable leases
with which the Company and the Subsidiaries are in compliance, except where such
non-compliance would not have a Material Adverse Effect.

     

    
      
        
        

      

      
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    (s)           Intellectual Property
Rights. The Company and the Subsidiaries have, or have rights to use, all
patents, patent applications, trademarks, trademark applications, service marks,
trade names, trade secrets, inventions, copyrights, licenses and other
intellectual property rights and similar rights necessary or material for use in
connection with their respective businesses as described in the Continuous
Disclosure Reports and which the failure to so have could reasonably be expected
to have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). None of, and neither the Company nor any Subsidiary has
received a notice (written or otherwise) that any of, the Intellectual Property
Rights has expired, terminated or been abandoned, or is expected to expire or
terminate or be abandoned, within two years from the date of this Agreement.
Except as disclosed in the Continuous Disclosure Reports, neither the Company
nor any Subsidiary has received a written notice of a claim or otherwise has any
knowledge that the Intellectual Property Rights violate or infringe upon the
rights of any Person, except as could not reasonably be expected to have a
Material Adverse Effect. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where
failure to do so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

     

    (t)           Insurance.  The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged.  Neither the Company nor any Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.

     

    (u)           Transactions With Affiliates
and Employees.  Except as set forth in the Continuous
Disclosure Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $120,000 other than for (i) payment of salary
or consulting fees for services rendered, (ii) reimbursement for reasonable
expenses incurred on behalf of the Company and (iii) other employee benefits,
including stock option agreements under any stock option plan of the
Company.

     

    
      
        
        

      

      
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    (v)           Sarbanes-Oxley; Internal
Accounting Controls.  The Company is in compliance with all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and all applicable rules and regulations promulgated by the
Commission thereunder that are effective as of the date hereof and as of the
Closing Date.  The Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in U.S.
Exchange Act Rules 13a-15(e) and 15d-15(e) and under Canadian Securities Law)
for the Company and designed such disclosure controls and procedures to ensure
that information required to be disclosed by the Company in the reports it files
or submits under the U.S. Exchange Act or Canadian Securities Laws is recorded,
processed, summarized and reported, within the time periods specified in the
Commission’s rules and forms or under Canadian Securities Laws, including,
without limitation, controls and procedures designed in to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the U.S. Exchange Act is accumulated and communicated to the
Company's management, including its principal executive officer or officers and
its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure.  During the twelve months
prior to the date hereof, neither the Company nor any of its Subsidiaries has
received any notice or correspondence from any accountant relating to any
material weakness in any part of the system of internal accounting controls of
the Company or any of its Subsidiaries.

     

    (w)           Certain
Fees.  Except as set forth in the Placement Agent Agreement, no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents.  The Purchasers shall have
no obligation with respect to any fees or with respect to any claims made by or
on behalf of the Placement Agent or other Persons for fees of a type
contemplated in this Section 3.1(w) that may be due in connection with the
transactions contemplated by the Transaction Documents.

     

    (x)           Investment Company.
The Company is not, and immediately after receipt of payment for the Securities,
will not be registered or required to be registered as an “investment company”
pursuant to the Investment Company Act of 1940, as amended.

     

    (y)           Registration
Rights.  No Person has any right to cause the Company to effect
the registration under the U.S. Securities Act or Canadian Securities Laws of
any securities of the Company.

     

    (z)           Listing and Maintenance
Requirements.  The Common Shares are registered pursuant to
Section 12(b) or 12(g) of the U.S. Exchange Act, and the Company has taken no
action designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Shares under the U.S. Exchange Act
nor has the Company received any notification that the Commission is
contemplating terminating such registration. The Company has not, in the 12
months preceding the date hereof, received notice from any Trading Market on
which the Common Shares are or have been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of any
such Trading Market. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements. The Company is a “reporting issuer” in
each of the Reporting Provinces and is not included on any list of reporting
issuers in default that may be maintained by Canadian Securities
Regulators.

     

    
      
        
        

      

      
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    (aa)           Application of Takeover
Protections.  The Company and the Board of Directors have taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement or shareholder rights plan) or other similar anti-takeover
provision under the Company’s certificate of incorporation (or similar charter
documents) or the laws of its jurisdiction of incorporation that is or could
become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s
issuance of the Securities and the Purchasers’ ownership of the
Securities.

     

    (bb)           Disclosure.  Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, the Company confirms that neither it
nor any other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that it believes constitutes or
might constitute material, non-public information which is not otherwise
disclosed in the Prospectus.  The Company understands and confirms
that the Purchasers will rely on the foregoing representation in effecting
transactions in securities of the Company.  All of the disclosure
furnished by or on behalf of the Company to the Purchasers regarding the
Company, its business and the transactions contemplated hereby, including the
Disclosure Schedule, is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.

     

    (cc)           No Integrated
Offering. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2, neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
any applicable shareholder approval provisions of any Trading Market on which
any of the securities of the Company are listed or designated.

     

    (dd)           Solvency.  Based
on the consolidated financial condition of the Company as of the Closing Date,
after giving effect to the receipt by the Company of the proceeds from the sale
of the Units hereunder, (i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature, (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business as now conducted and as
proposed to be conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the Company, and
projected capital requirements and capital availability thereof, and (iii) the
current cash flow of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be
paid.  The Company does not intend to incur debts beyond its ability
to pay such debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt).  Except as disclosed
in the Continuous Disclosure Reports, the Company has no knowledge of any facts
or . circumstances which lead it to believe that it will file for reorganization
or liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date and after giving effect to the receipt by
the Company of the proceeds of the sale of the Units. Section 3.1(dd) of the
Disclosure Schedule sets forth as of the date hereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purpose of this Agreement,
“Indebtedness” means (x) any liabilities for borrowed money or amounts owed in
excess of $50,000 (other than trade accounts payable incurred in the ordinary
course of business), (y) all guaranties, endorsements and other contingent
obligations in respect of indebtedness of others, whether or not the same are or
should be reflected in the Company’s balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and (z)
the present value of any lease payments in excess of $50,000 due under leases
required to be capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.

     

    
      
        
        

      

      
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    (ee)           Tax
Status.  Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary (i) has made or filed all U.S. and
Canadian federal, state and provincial income and all foreign income and
franchise tax returns, reports and declarations required by any jurisdiction to
which it is subject, (ii) has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations and (iii) has set aside on its books provision
reasonably adequate for the payment of all material taxes for periods subsequent
to the periods to which such returns, reports or declarations
apply.  There are no unpaid taxes in any material amount claimed to be
due by the taxing authority of any jurisdiction, and the officers of the Company
or of any Subsidiary know of no basis for any such claim.

     

    (ff)           Foreign Corrupt
Practices.  Neither the Company nor any of its Subsidiaries,
nor to the knowledge of the Company, any agent or other person acting on behalf
of the Company or any of its Subsidiaries, has (i) directly or indirectly, used
any Company funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to foreign or domestic political activity, (ii) made
any unlawful payment to foreign or domestic government officials or employees or
to any foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company (or made by
any person acting on its behalf of which the Company is aware) which is in
violation of law, or (iv) violated in any material respect any provision of the
Foreign Corrupt Practices Act of 1977, as amended.

     

    
      
        
        

      

      
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    (gg)           Accountants.  The
Company’s accounting firm is set forth in its Continuous Disclosure Reports. To
the knowledge and belief of the Company, such accounting firm is a registered
public accounting firm as required by the Exchange Act and Canadian Securities
Laws. There are no material disagreements of any kind presently existing, or
reasonably anticipated by the Company to arise, between the Company and the
accountants and lawyers formerly or presently employed by the Company and the
Company is current with respect to any fees owed to its accountants and lawyers
which could affect the Company’s ability to perform any of its obligations under
any of the Transaction Documents.

     

    (hh)           Acknowledgment Regarding
Purchasers’ Purchase of Units.  The Company acknowledges and
agrees that each Purchaser is acting solely in the capacity of an arm’s length
purchaser with respect to the Transaction Documents and the transactions
contemplated thereby.  The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser or any
of its respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to such
Purchaser’s purchase of the Units.  The Company further represents to
each Purchaser that the Company’s decision to enter into this Agreement and the
other Transaction Documents has been based solely on the independent evaluation
of the transactions contemplated hereby by the Company and its
representatives.

     

    (ii)           Acknowledgement Regarding
Purchaser’s Trading Activity.  Anything in this Agreement or
elsewhere herein to the contrary notwithstanding (except for Sections
3.2(f)3.2(d) and 4.13 hereof), it is understood and acknowledged by the Company
that: (i) none of the Purchasers has been asked by the Company to agree, nor has
any Purchaser agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or “derivative” securities based on securities issued
by the Company or to hold any of the Securities for any specified term; (ii)
past or future open market or other transactions by any Purchaser, specifically
including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may
negatively impact the market price of the Company’s publicly-traded securities;
(iii) any Purchaser, and counter-parties in “derivative” transactions to which
any such Purchaser is a party, directly or indirectly, presently may have a
“short” position in the Common Shares, and (iv) each Purchaser shall not be
deemed to have any affiliation with or control over any arm’s length
counter-party in any “derivative” transaction.  The Company further
understands and acknowledges that (y) one or more Purchasers may engage in
hedging activities at various times during the period that any of the Securities
are outstanding, including, without limitation, during the periods that the
value of the Warrant Shares issuable upon exercise of the Warrants are being
determined, and (z) such hedging activities (if any) could reduce the value of
the existing shareholders' equity interests in the Company at and after the time
that the hedging activities are being conducted.  The Company acknowledges
that such aforementioned hedging activities do not constitute a breach of any of
the Transaction Documents.

     

    
      
        
        

      

      
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    (jj)           Regulation M
Compliance.  The Company has not and no one acting on its behalf
has, (i) taken, directly or indirectly, any action designed to cause or to
result in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii) sold,
bid for, purchased, or, paid any compensation for soliciting purchases of, any
of the Securities, or (iii) paid or agreed to pay to any Person any compensation
for soliciting another to purchase any other securities of the Company, other
than, in the case of clauses (ii) and (iii), compensation paid to the Placement
Agent in connection with the placement of the Securities.

     

    (kk)         U.S. Real Property Holding
Corporation.  The Company is not and has never been a U.S. real
property holding corporation within the meaning of Section 897 of the Internal
Revenue Code of 1986, as amended, and the Company shall so certify upon any
Purchaser’s request.

     

    (ll)           Bank Holding Company
Act.  Neither the Company nor any of its Subsidiaries or
Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the
“BHCA”) and to
regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).
Neither the Company nor any of its Subsidiaries or Affiliates owns or controls,
directly or indirectly, five percent (5%) or more of the outstanding shares of
any class of voting securities or twenty-five percent (25%) or more of the total
equity of a bank or any entity that is subject to the BHCA and to regulation by
the Federal Reserve.  Neither the Company nor any of its Subsidiaries
or Affiliates exercises a controlling influence over the management or policies
of a bank or any entity that is subject to the BHCA and to regulation by the
Federal Reserve.

     

    (mm)       Money
Laundering.  The operations of the Company are and have been
conducted at all times in compliance with applicable financial record-keeping
and reporting requirements of the Currency and Foreign Transactions Reporting
Act of 1970, as amended, applicable money laundering statutes and applicable
rules and regulations thereunder (collectively, the “Money Laundering Laws”),
and no action, suit or proceeding by or before any court or governmental agency,
authority or body or any arbitrator involving the Company with respect to the
Money Laundering Laws is pending or, to the knowledge of the Company,
threatened.

     

    (nn)        Off Balance Sheet
Arrangements. There is no transaction, arrangement, or other relationship
between the Company and an unconsolidated or other off balance sheet entity that
is required to be disclosed by the Company in its Continuous Disclosure Reports
and is not so disclosed or that otherwise would be reasonably likely to have a
Material Adverse Effect.

     

    3.2           Representations, Warranties
and Acknowledgements of the Purchasers.  Each Purchaser, for
itself and for no other Purchaser, hereby represents, warrants and acknowledges
as of the date hereof and as of the Closing Date to the Company as
follows:

     

    (a)   Organization;
Authority.  Such Purchaser is either an individual or an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership power
and authority to enter into and to consummate the transactions contemplated by
this Agreement and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement and performance by such
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate, partnership, limited liability company or
similar action, as applicable, on the part of such Purchaser.  Each
Transaction Document to which it is a party has been duly executed by such
Purchaser and, when delivered by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except: (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

     

    
      
        
        

      

      
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    (b)   Understandings or
Arrangements.  Such Purchaser is acquiring the Units as
principal for its own account and has no intention, or direct or indirect
arrangement or understandings with any other persons to distribute or regarding
the distribution of the Common Shares and Warrants, included in the Units or the
Warrant Shares issuable upon exercise of the Warrants (it being understood that
this representation and warranty shall not limit such Purchaser’s right to sell
any of the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws).  Such
Purchaser is acquiring the Units hereunder in the ordinary course of its
business.

     

    (c)   Purchaser
Status.  Such Purchaser is, and on each date on which it
exercises any Warrants will be, either: (i) an “accredited investor” as defined
in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or
(ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the
Securities Act.  Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act. Such Purchaser is not a
resident of Canada.

     

    (d)   Experience of Such
Purchaser.  Such Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment.  Such Purchaser is able to bear the
economic risk of an investment in the Securities and, at the present time, is
able to afford a complete loss of such investment.

     

    (e)   Canadian Securities
Laws. Each Purchaser acknowledges and understand that (i) no securities
commission or similar regulatory authority has reviewed or passed on the merits
of the Securities, (ii) there is no government or other insurance covering the
Securities, (iii) there are risks associated with the purchase of the Securities
and (iv) the Company is relying on an exemption from registration and prospectus
requirements under Canadian Securities Laws and, as a consequence of acquiring
the Securities pursuant to such exemption, certain protections, rights, remedies
provided under Canadian Securities Laws, including statutory rights of
rescission and damages, will not be available to such Purchaser.

     

    
      
        
        

      

      
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    (f)   Resale Restrictions.
Each Purchaser acknowledges and understands that there are restrictions under
Canadian Securities Laws on such Purchaser’s ability to resell the Securities
over the facilities of the Toronto Stock Exchange, or otherwise resell the
Securities in Canada or to or for the benefit of a resident of Canada, and that
is the responsibility of such Purchaser to find out what those restrictions are
and to comply with them before selling the Securities.  Without
limiting the generality of the foregoing, each Purchaser hereby covenants that,
unless permitted under the Canadian Securities Laws, the Common Shares and
Warrants included in the Units, and the Warrant Shares issuable upon the
exercise of the Warrants, may not be traded on the Toronto Stock Exchange or in
Canada, or to or for the benefit of a resident of Canada, before the date that
is four (4) months and a day after the Closing Date.  Each Purchaser
further acknowledges and understands that any physical certificate representing
the Common Shares and Warrants included in the Units and, if they are issued
before the date which four months and a day after Closing, the Warrant Shares
issuable upon the exercise of the Warrants, will bear the following
legend:

     

    “UNLESS
PERMITTED UNDER CANADIAN SECURITIES LEGISLATION, THE HOLDER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MUST NOT TRADE SUCH SECURITIES BEFORE [INSERT DATE THAT IS 4 MONTHS AND A
DAY AFTER THE CLOSING DATE] ON THE TORONTO STOCK EXCHANGE OR IN CANADA OR
TO OR FOR THE BENEFIT OF A RESIDENT OF CANADA.

    

    WITHOUT
PRIOR WRITTEN APPROVAL OF THE TORONTO STOCK EXCHANGE AND COMPLIANCE WITH ALL
APPLICABLE CANADIAN SECURITIES LAWS, THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR
THROUGH THE FACILITIES OF THE TORONTO STOCK EXCHANGE OR IN CANADA OR TO OR FOR
THE BENEFIT OF A CANADIAN RESIDENT UNTIL [INSERT DATE WHICH IS FOUR MONTHS
AFTER CLOSING]. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE GOOD
DELIVERY IN SETTLEMENT OF TRANSACTIONS ON CANADIAN STOCK
EXCHANGES.”

    

    (g)   Certain Transactions and
Confidentiality.  Other than consummating the transactions
contemplated hereunder, such Purchaser has not, nor has any Person acting on
behalf of or pursuant to any understanding with such Purchaser, directly or
indirectly executed any purchases or sales, including Short Sales, of the
securities of the Company during the period commencing as of the time that such
Purchaser first received a term sheet (written or oral) as of the Company or any
other Person representing the Company setting forth the material terms of the
transactions contemplated hereunder and ending immediately prior to the
execution hereof.  Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement.  Other than to
other Persons party to this Agreement, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein
shall constitute a representation or warranty, or preclude any actions, with
respect to the identification of the availability of, or securing of, available
shares to borrow in order to effect Short Sales or similar transactions in the
future.

     

    
      
        
        

      

      
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    (h)  Receipt of Certain
Information.  Such Purchaser acknowledges receipt of the
Prospectus and has reviewed the disclosure related to the Company contained
therein and in the documents incorporated by reference therein, has reviewed the
tax consequences discussion attached hereto as Annex A, and has been made aware
of the Concurrent Canadian Offering.

     

    The
Company acknowledges and agrees that the representations contained in Section
3.2 shall not modify, amend or affect such Purchaser’s right to rely on the
Company’s representations and warranties contained in this Agreement or any
representations and warranties contained in any other Transaction Document or
any other document or instrument executed and/or delivered in connection with
this Agreement or the consummation of the transaction contemplated
hereby.

     

    ARTICLE
IV.

    OTHER
AGREEMENTS OF THE PARTIES

     

    4.1           Warrant
Shares.  If all
or any portion of a Warrant issued to a Purchaser is exercised at a time when
there is an effective registration statement under the Securities Act to cover
the issuance of the Warrant Shares, or if, at a time when no registration
statement covering the exercise of the Warrants is effective under the
Securities Act, the Warrant is exercised via cashless exercise, the Warrant
Shares issued pursuant to any such exercise shall be issued free of all
legends.  If at any time following the date hereof the Registration
Statement (or any subsequent registration statement registering the sale of the
Warrant Shares) is not effective or is not otherwise available for the sale of
the Warrant Shares, the Company shall immediately notify the holders of the
Warrants issued to the Purchasers in writing that such registration
statement is not then effective and thereafter shall promptly notify such
holders when such registration statement is effective again and available for
the sale or resale of the Warrant Shares (it being understood and agreed that
the foregoing shall not limit the ability of the Company to issue, or any
Purchaser to sell, any of the Warrant Shares in compliance with applicable
United States federal and state securities laws and Canadian Securities
Laws).  The Company shall use commercially reasonable efforts to keep
a registration statement (including the Registration Statement) registering the
issuance of the Warrant Shares issued to the Purchasers effective during the term of the
Warrants.

     

    4.2           Integration.  The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities for
purposes of the rules and regulations of any Trading Market such that it would
require shareholder approval prior to the closing of such other transaction
unless shareholder approval is obtained before the closing of such subsequent
transaction.

     

    
      
        
        

      

      
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    4.3           Securities Laws Disclosure;
Publicity.  The Company shall, by 8:30 a.m. (New York City
time) on the Trading Day immediately following the date hereof, issue a press
release disclosing the material terms of the transactions contemplated hereby,
and furnish a Report on Form 6-K disclosing the material terms of the
transactions contemplated hereby, and including the Transaction Documents as
exhibits thereto within the time required by the Exchange Act.  From
and after the issuance of such press release, the Company shall have publicly
disclosed all material, non-public information delivered to any of the
Purchasers by the Company or any of its Subsidiaries, or any of their respective
officers, directors, employees or agents in connection with the transactions
contemplated by the Transaction Documents.  The Company and the
Placement Agent shall consult with each other in issuing any other press
releases with respect to the transactions contemplated hereby, and neither the
Company nor any Purchaser shall issue any such press release nor otherwise make
any such public statement without the prior consent of the Company, with respect
to any press release of any Purchaser, or without the prior consent of the
Placement Agent, with respect to any press release of the Company, which consent
shall not unreasonably be withheld or delayed, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or
communication.  Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading
Market, without the prior written consent of such Purchaser, except (a) as
required by federal securities law in connection with the filing of final
Transaction Documents (including signature pages thereto) with the Commission
(b) to Canadian Securities Regulators in accordance with Canadian Securities
Laws, (c) the Canadian Revenue Agency, (d) to the extent such disclosure is
otherwise required by law or Trading Market regulations and (e) to the Transfer
Agent.  In the event that disclosure of a Purchaser’s name is required
hereunder, the Company shall provide the Purchasers and Placement Agent with
prior notice of such disclosure.

     

    4.4           Shareholder Rights
Plan.  No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is an
“Acquiring
Person” under any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement or shareholder rights
plan) or similar anti-takeover plan or arrangement in effect or hereafter
adopted by the Company, or that any Purchaser could be deemed to trigger the
provisions of any such plan or arrangement, by virtue of receiving Securities
under the Transaction Documents or under any other agreement between the Company
and the Purchasers.

     

    4.5           Non-Public
Information.  Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it, nor any other Person acting on its
behalf, will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public
information.  The Company understands and confirms that each Purchaser
shall be relying on the foregoing covenant in effecting transactions in
securities of the Company.

     

    
      
        
        

      

      
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    4.6           Use of
Proceeds.  Except as set forth on Schedule 4.6 of the
Disclosure Schedule, the Company shall use the net proceeds from the sale of the
Units hereunder for working capital purposes and shall not use such proceeds
for: (a) the satisfaction of any portion of the Company’s debt (other than
payment of trade payables in the ordinary course of the Company’s business and
prior practices), (b) the redemption of any Common Shares or Common Share
Equivalents, (c) the settlement of any outstanding litigation or (d) in
violation of the Foreign corrupt Practices Act of 1977, as amended or Office of
Foreign Asset Control of the U.S. Treasury Department regulations.

     

    4.7           Indemnification of
Purchasers.   Subject to the provisions of this Section
4.7, the Company will indemnify and hold each Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser
Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur (but
excluding loss of profits) as a result of or relating to (a) any breach of any
of the representations, warranties, covenants or agreements made by the Company
in this Agreement or in the other Transaction Documents or (b) any action
instituted against a Purchaser in any capacity, or any of them or their
respective Affiliates, by any shareholder of the Company who is not an Affiliate
of such Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with any
such shareholder or any violations by such Purchaser of state or federal
securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance).  If any action shall
be brought against any Purchaser Party in respect of which indemnity may be
sought pursuant to this Agreement, such Purchaser Party shall promptly notify
the Company in writing, and the Company shall have the right to assume the
defense thereof with counsel of its own choosing reasonably acceptable to the
Purchaser Party.  Any Purchaser Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Purchaser
Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of counsel, a material
conflict on any material issue between the position of the Company and the
position of such Purchaser Party, in which case the Company shall be responsible
for the reasonable fees and expenses of no more than one such separate
counsel.  The Company will not be liable to any Purchaser Party under
this Agreement (y) for any settlement by a Purchaser Party effected without the
Company’s prior written consent, which shall not be unreasonably withheld or
delayed; or (z) to the extent, but only to the extent that a loss, claim, damage
or liability is attributable to any Purchaser Party’s breach of any of the
representations, warranties, covenants or agreements made by such Purchaser
Party in this Agreement or in the other Transaction Documents. The
indemnification required by this Section 4.7 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as and
when bills are received or are incurred. The indemnity agreements contained
herein shall be in addition to any cause of action or similar right of any
Purchaser Party against the Company or others, and (y) any liabilities the
Company may be subject to pursuant to law.

     

    
      
        
        

      

      
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    4.8           Reservation of Common
Shares. As of the date hereof, the Company has reserved and the Company
shall continue to reserve and keep available at all times, free of preemptive
rights, a sufficient number of Common Shares for the purpose of enabling the
Company to issue the Common Shares included in the Units issued pursuant to this
Agreement and the Warrant Shares issuable upon any exercise of the
Warrants.

     

    4.9           Listing of Common
Shares. The Company hereby agrees to use best efforts to maintain the
listing or quotation of the Common Shares on each of the Trading Markets on
which they are currently listed, and prior to or concurrently with the Closing,
the Company shall apply to list or quote all of the Common Shares included in
the Units and Warrant Shares issuable upon exercise of the Warrants on each such
Trading Market and promptly secure the listing of all of the Common Shares
included in the Units and Warrant Shares issuable upon exercise of the Warrants
on such Trading Markets. The Company further agrees that, if the Company applies
to have the Common Shares listed or quoted on any other Trading Market, it will
include in such application all of the Common Shares included in the Units and
Warrant Shares issuable upon exercise of the Warrants, and will take such other
action as is necessary to cause all of the Common Shares included in the Units
and Warrant Shares issuable upon exercise of the Warrants to be listed or quoted
on such other Trading Market as promptly as possible. If the Common Shares are
accepted for trading on such other Trading Market, the Company will then take
all action reasonably necessary to continue the listing and trading of its
Common Shares on such Trading Market and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
such Trading Market.

     

    4.10         Participation in Future
Financing.

     

    (a)           From
the date hereof until the date that is the 12 month anniversary of the Closing
Date, upon any issuance by the Company or any of its Subsidiaries of Common
Stock or Common Stock Equivalents for cash consideration, Indebtedness or a
combination of units hereof (a “Subsequent
Financing”), each Purchaser shall have the right to participate in up to
an amount of the Subsequent Financing equal to the lesser of the number of
shares of Common Stock then held (or, if the Subsequent Financing is for Common
Stock Equivalents, such Common Stock Equivalents) or the number of Units
originally purchased (the “Participation
Maximum”) on the same terms, conditions and price provided for in the
Subsequent Financing. 

     

    (b)           At
least three (3) Trading Days prior to the closing of the Subsequent Financing,
the Company shall deliver to each Purchaser a written notice of its intention to
effect a Subsequent Financing (“Pre-Notice”), which
Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a “Subsequent Financing
Notice”).  Upon the request of a Purchaser, and only upon a request
by such Purchaser, for a Subsequent Financing Notice, the Company shall
promptly, but no later than one (1) Trading Day after such request, deliver a
Subsequent Financing Notice to such Purchaser.  The Subsequent Financing
Notice shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder and the
Person or Persons through or with whom such Subsequent Financing is proposed to
be effected and shall include a term sheet or similar document relating thereto
as an attachment.   

     

    
      
        
        

      

      
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    (c)           Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the third (3rd) Trading Day after all of the Purchasers have received the
Pre-Notice that such Purchaser is willing to participate in the Subsequent
Financing, the amount of such Purchaser’s participation, and representing and
warranting that such Purchaser has such funds ready, willing, and available for
investment on the terms set forth in the Subsequent Financing
Notice.  If the Company receives no such notice from a Purchaser as of
such third (3rd) Trading Day, such Purchaser shall be deemed to have notified
the Company that it does not elect to participate. 

     

    (d)           If
by 5:30 p.m. (New York City time) on the third (3rd) Trading Day after all of
the Purchasers have received the Pre-Notice, notifications by the Purchasers of
their willingness to participate in the Subsequent Financing (or to cause their
designees to participate) is, in the aggregate, less than the total amount of
the Subsequent Financing, then the Company may effect the remaining portion of
such Subsequent Financing on the terms and with the Persons set forth in the
Subsequent Financing Notice. 

     

    (e)           If
by 5:30 p.m. (New York City time) on the third (3rd) Trading Day after all of
the Purchasers have received the Pre-Notice, the Company receives responses to a
Subsequent Financing Notice from Purchasers seeking to purchase more than the
aggregate amount of the Participation Maximum, each such Purchaser shall have
the right to purchase its Pro Rata Portion (as defined below) of the
Participation Maximum.  “Pro Rata Portion”
means the ratio of (x) the Subscription Amount of Securities purchased on the
Closing Date by a Purchaser participating under this Section 4.11 and (y) the
sum of the aggregate Subscription Amounts of Securities purchased on the Closing
Date by all Purchasers participating under this Section 4.11.

     

    (f)           The
Company must provide the Purchasers with a second Subsequent Financing Notice,
and the Purchasers will again have the right of participation set forth above in
this Section 4.11, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 45 Trading Days after the date of the
initial Subsequent Financing Notice.

     

    (g)           The
Company and each Purchaser agree that if any Purchaser elects to participate in
the Subsequent Financing, the transaction documents related to the Subsequent
Financing shall not include any term or provision whereby such Purchaser shall
be required to agree to any restrictions on trading as to any of the Securities
purchased hereunder or be required to consent to any amendment to or termination
of, or grant any waiver, release or the like under or in connection with, this
Agreement, without the prior written consent of such Purchaser.

     

    
      
        
        

      

      
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    (h)           Notwithstanding
anything to the contrary in this Section 4.11 and unless otherwise agreed to by
such Purchaser, the Company shall either confirm in writing to such Purchaser
that the transaction with respect to the Subsequent Financing has been abandoned
or shall publicly disclose its intention to issue the securities in the
Subsequent Financing, in either case in such a manner such that such Purchaser
will not be in possession of any material, non-public information, by the tenth
(10th)
Business Day following delivery of the Subsequent Financing
Notice.  If by such tenth (10th)
Business Day, no public disclosure regarding a transaction with respect to the
Subsequent Financing has been made, and no notice regarding the abandonment of
such transaction has been received by such Purchaser, such transaction shall be
deemed to have been abandoned and such Purchaser shall not be deemed to be in
possession of any material, non-public information with respect to the Company
or any of its Subsidiaries.

     

    (i)           Notwithstanding
the foregoing, this Section 4.10 shall not apply in respect of (i)
an Exempt Issuance or (ii)
an underwritten public offering of Common Stock or (iii)
the Concurrent Canadian Offering.

     

    (j)           The
rights granted under this Section 4.10 shall apply to the original Purchaser
only, and are not transferable to any subsequent holder of Units, Shares or
Warrants, and are subject to compliance with applicable U.S and Canadian
securities laws and regulations.

     

    4.11        Subsequent
Equity Sales.

     

    (a)   Subject
to Section 4.11(c), from the date hereof until 90 days after the Closing
Date, neither the Company nor any Subsidiary shall issue, enter into any
agreement to issue or announce the issuance or proposed issuance of any Common
Shares or Common Share Equivalents in which the consideration per Common Share
is, or is deemed to be (as contemplated below), less than Cdn.$0.30 (as adjusted
for stock splits, stock dividends, recapitalization or similar events);
provided, that the consideration per Common Shares in connection with any Common
Share Equivalents will be deemed to be the lowest price per share for which one
Common Share is issuable upon the exercise, conversion, or exchange of such
Common Share Equivalent.

     

    (b)   Subject
to Section 4.11(c), from the date hereof until the earlier of (i) the first
anniversary of the date hereof and (ii) the date that the Warrants are no longer
outstanding, the Company shall be prohibited from effecting or entering into an
agreement to effect any issuance by the Company or any of its Subsidiaries of
Common Shares or Common Share Equivalents for cash consideration (or a
combination of units hereof) involving a Variable Rate Transaction in which the
conversion price, exercise price or exchange rate or offer price to receive
Common Shares or Common Share Equivalents is or could be less than the exercise
price of the Warrants. “Variable Rate
Transaction” means a transaction in which the Company (i) issues or sells
any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional Common Shares either
(A) at a conversion price, exercise price or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
Common Shares at any time after the initial issuance of such debt or equity
securities, or (B) with a conversion, exercise or exchange price that is subject
to being reset at some future date after the initial issuance of such debt or
equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Shares (but not including any routine anti-dilution protections in
any warrant or convertible security) or (ii) enters into any agreement,
including, but not limited to, an equity line of credit, whereby the Company may
sell securities at a future determined price.  Any Purchaser shall be
entitled to obtain injunctive relief against the Company to preclude any such
issuance, which remedy shall be in addition to any right to collect
damages.

    
      
         

      

      
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    (c)   Notwithstanding
the foregoing, this Section 4.11 shall not apply in respect of an Exempt
Issuance or the Concurrent Canadian Offering, except that no Variable Rate
Transaction shall be an Exempt Issuance.

     

    4.12           Equal
Treatment of Purchasers.  No consideration (including
any modification of any Transaction Document) shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration is also offered to
all of the parties to the applicable Transaction Documents.  For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended for the Company to treat the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or
otherwise.

     

    4.13           Certain
Transactions and Confidentiality. Each Purchaser, severally and not
jointly with the other Purchasers, covenants that neither it nor any Affiliate
acting on its behalf or pursuant to any understanding with it will execute any
purchases or sales, including Short Sales of any of the Company’s securities
during the period commencing with the execution of this Agreement and ending at
such time that the transactions contemplated by this Agreement are first
publicly announced pursuant to the initial press release as described in Section
4.3.  Each Purchaser,
severally and not jointly with the other Purchasers, covenants that until such
time as the transactions contemplated by this Agreement are publicly disclosed
by the Company pursuant to the initial press release as described in Section
4.3, such Purchaser will maintain the confidentiality of the existence and terms
of this transaction and the information included in the Disclosure
Schedule.  Notwithstanding the foregoing and notwithstanding
anything contained in this Agreement to the contrary, the Company expressly
acknowledges and agrees that (i) no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in effecting transactions in any
securities of the Company after the time that the transactions contemplated by
this Agreement are first publicly announced pursuant to the initial press
release as described in Section 4.3, (ii) no Purchaser shall be
restricted or prohibited from effecting any transactions in any securities of
the Company in accordance with applicable securities laws from and after the
time that the transactions contemplated by this Agreement are first publicly
announced pursuant to the initial press release as described in Section 4.3 and (iii) no Purchaser shall
have any duty of confidentiality to the Company or its Subsidiaries after the
issuance of the initial press release as described in Section 4.3.  Notwithstanding the foregoing, in the
case of a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser’s assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

     

    4.14           Capital
Changes.  Until
the 6 month anniversary of the Closing Date, the Company shall not undertake a
reverse or forward stock split or reclassification of the Common Shares without
the prior written consent of the Purchasers holding a majority of the Common
Shares included in the Units issued pursuant to this Agreement held, in the
aggregate, by the Purchasers at such time.

     

    ARTICLE
V.

    MISCELLANEOUS

     

    5.1           Currency. All references to currency or dollars
in this Agreement or any other Transaction Documents are references to the
lawful currency of the United States.

     

    5.2           Termination.  This Agreement may be terminated
by any Purchaser, as to such Purchaser’s obligations hereunder only and without
any effect whatsoever on the obligations between the Company and the other
Purchasers, by written notice to the Company and the Placement Agent, if the
Closing has not been consummated on or before February 4, 2011 provided, however, that no such termination will affect
the right of any party to sue for any breach by the other party (or
parties).

     

    5.3           Fees and
Expenses.  Except
as expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this
Agreement.  The Company shall pay all Transfer Agent fees, stamp taxes
and other taxes and duties levied in connection with the delivery of any
Securities to the Purchasers.

     

    5.4           Entire
Agreement.  The
Transaction Documents, together with the exhibits and schedules thereto, the
Prospectus and the Prospectus Supplement, contain the entire understanding of
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and
schedules.

     

    5.5           Notices.  Any and all notices or
other communications or deliveries required or permitted to be provided
hereunder shall be in writing and shall be deemed given and effective on the
earliest of: (a) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number set forth on the signature pages
attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b)
the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto on a day that is not a Trading Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
(2nd) Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service or (d)
upon actual receipt by the party to whom such notice is required to be
given.  The address for such notices and communications shall be as
set forth on the signature pages attached hereto.

    
      
         

      

      
        30

        
          

        

      

      
         

      

    

     

    5.6           Amendments;
Waivers.  No
provision of this Agreement may be waived, modified, supplemented or amended
except in a written instrument signed, in the case of an amendment, by the
Company and the Purchasers holding at least 67% of the aggregate number of (i)
Common Shares comprising part of the Units and (ii) Warrant Shares (calculated
on an as-converted basis), in each case outstanding at the time such written
instrument is executed, or, in the case of a waiver, by the party against whom
enforcement of any such waived provision is sought.  No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such
right.

     

    5.7           Headings.  The headings herein are for
convenience only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof.

     

    5.8           Successors
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns.  The Company may not assign this Agreement or any
rights or obligations hereunder without the prior written consent of each
Purchaser (other than by merger).  Any Purchaser may, subject to the
terms of this Agreement, assign any or all of its rights under this Agreement to
any Person to whom such Purchaser assigns or transfers any Securities, provided
that such transferee agrees in writing to be bound, with respect to the
transferred Securities, by the provisions of the Transaction Documents that
apply to the “Purchasers.”

     

    5.9           No
Third-Party Beneficiaries.  This Agreement is intended
for the benefit of the parties hereto and their respective successors and
permitted assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person, except as otherwise set forth in Section
4.7.

     

    5.10         Governing
Law.  All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof.  Each party agrees that
all legal proceedings concerning the interpretations, enforcement and defense of
the transactions contemplated by this Agreement and any other Transaction
Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New York.
Each party hereby irrevocably submits to the exclusive jurisdiction of the state
and federal courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for such
proceeding.  Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by law.  If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then, in addition to the obligations of the Company
under Section 4.7, the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.

    
      
         

      

      
        31

        
          

        

      

      
         

      

    

     

    5.11           Survival.  The representations and
warranties contained herein shall survive the Closing and the delivery of the
Securities.

     

    5.12           Execution.  This Agreement may be
executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same
counterpart.  In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original
thereof.

     

    5.13           Severability.  If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their commercially reasonable efforts to find
and employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or restriction. It
is hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.

     

    5.14           Replacement
of Securities.  If any certificate or
instrument evidencing any Securities is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof (in the case of mutilation), or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction.  The applicant for a new certificate or instrument under
such circumstances shall also pay any reasonable third-party costs (including
customary indemnity) associated with the issuance of such replacement
Securities.

     

    5.15           Remedies.  In addition to being
entitled to exercise all rights provided herein or granted by law, including
recovery of damages, each of the Purchasers and the Company will be entitled to
specific performance under the Transaction Documents.  The parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations contained in the Transaction
Documents and hereby agree to waive and not to assert in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate.

    
      
         

      

      
        32

        
          

        

      

      
         

      

    

     

    5.16           Payment Set
Aside.  To the
extent that the Company makes a payment or payments to any Purchaser pursuant to
any Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.

     

    5.17           Independent
Nature of Purchasers’ Obligations and Rights.  The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document.  Nothing contained herein or
in any other Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents.  Each Purchaser shall be entitled to
independently protect and enforce its rights including, without limitation, the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose.  Each Purchaser
has been represented by its own separate legal counsel in their review and
negotiation of the Transaction Documents.  For reasons of
administrative convenience only, each Purchaser and its respective counsel have
chosen to communicate with the Company through WS.  WS does not
represent any of the Purchasers and only represents Sutter Securities
Incorporated.  The Company has elected to provide all Purchasers with
the same terms and Transaction Documents for the convenience of the Company and
not because it was required or requested to do so by any of the
Purchasers.

     

    5.18           Liquidated
Damages.  The
Company’s obligations to pay any partial liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation of the Company
and shall not terminate until all unpaid partial liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument or security
pursuant to which such partial liquidated damages or other amounts are due and
payable shall have been canceled.

     

    5.19           Saturdays,
Sundays, Holidays, etc.  If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Business Day, then such action may be taken or such right may be
exercised on the next succeeding Business Day.

    
      
         

      

      
        33

        
          

        

      

      
         

      

    

     

    5.20           Construction. The parties agree that each of them
and/or their respective counsel has reviewed and had an opportunity to revise
the Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of the Transaction Documents or any
amendments hereto. In addition, each and every reference to share prices and
Common Shares in any Transaction Document shall be subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Shares that occur after the date of this
Agreement.

     

    5.21           WAIVER
OF JURY TRIAL.  IN
ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST
ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST
EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY,
IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

     

    (Signature
Pages Follow)

    
      
         

      

      
        34

        
          

        

      

      
         

      

    

    IN WITNESS WHEREOF, the parties hereto
have caused this Securities Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated
above.

    

    
      
        
          	
                  DEJOUR
      ENTERPRISES LTD.

                	 
      	
                  Address for
      Notice:

                
	 
      	 
      	 
      	 
      
	
                  By:

                	
                   

                	 
      	
                  Fax:

                
	 
      	
                  Name:

                	 
      	 
      
	 
      	
                  Title:

                	 
      	 
      
	 
      	 
      	 
      	 
      
	
                  With
      a copy to (which shall not constitute notice):

                	 
      	 
      

        

      

    

    

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
PAGE FOR PURCHASER FOLLOWS]

    
      
         

      

      
        35

        
          

        

      

      
         

      

    

    [PURCHASER
SIGNATURE PAGES TO DEJ SECURITIES PURCHASE AGREEMENT]

    

    IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.

     

    Name of
Purchaser: ________________________________________________________

     

    Signature of Authorized Signatory of
Purchaser: _________________________________

     

    Name of
Authorized Signatory:
_______________________________________________

     

    Title of
Authorized Signatory:
________________________________________________

     

    Email
Address of Authorized
Signatory:_________________________________________

     

    Facsimile
Number of Authorized Signatory:
__________________________________________

     

    Address
for Notice of Purchaser:

    

    Address
for Delivery of Securities for Purchaser (if not same as address for
notice):

    

    Subscription
Amount: $_________________

    

    Units
(each Unit consisting of one Common Share and 0.5 Warrant):
_________________

    

    Warrant
Shares: __________________

    

    EIN
Number: ________________________________________

    

    [SIGNATURE
PAGES CONTINUE]

    
      
         

      

      
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    ANNEX
A

     

    CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS

     

    The
following is a general summary of certain U.S. federal income tax considerations
applicable to a U.S. Holder (as defined below) arising from and relating to the
acquisition, ownership and disposition of Units acquired pursuant to this
document, the acquisition, ownership, and disposition of Common Shares acquired
as part of the Units, the exercise, disposition, and lapse of Warrants acquired
as part of the Units, and the acquisition, ownership, and disposition of Warrant
Shares received on exercise of the Warrants.

     

    If an
entity that is classified as a partnership for U.S. federal income tax purposes
holds Units, Common Shares, Warrants or Warrant Shares, the U.S. federal income
tax consequences to such partnership and the partners of such partnership
generally will depend on the activities of the partnership and the status of
such partners. Partners of entities that are classified as partnerships for U.S.
federal income tax purposes should consult their own tax advisor regarding the
U.S. federal income tax consequences arising from and relating to the
acquisition, ownership, and disposition of Units, Common Shares, Warrants and
Warrant Shares.

     

    This
summary is for general information purposes only and does not purport to be a
complete analysis or listing of all potential U.S. federal income tax
considerations that may apply to a U.S. Holder as a result of the acquisition of
Units pursuant to this document.  In addition, this summary does not
take into account the individual facts and circumstances of any particular U.S.
Holder that may affect the U.S. federal income tax consequences to such U.S.
Holder, including specific tax consequences to a U.S. Holder under an applicable
tax treaty.  Accordingly, this summary is not intended to be, and
should not be construed as, legal or U.S. federal income tax advice with respect
to any U.S. Holder.  This summary does not address the U.S. federal
alternative minimum, U.S. federal estate and gift, U.S. state and local, or
foreign tax consequences to U.S. Holders of the acquisition, ownership, and
disposition of Units, Common Shares, Warrants and Warrant
Shares.  Each U.S. Holder should consult its own tax advisor regarding
the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and
gift, U.S. state and local, and foreign tax consequences relating to the
acquisition, ownership and disposition of Units, Common Shares, Warrants and
Warrant Shares.

     

    No legal
opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the
“IRS”) has been requested, or will be obtained, regarding the US. federal income
tax considerations applicable to U.S. Holders as discussed in this
summary.  This summary is not binding on the IRS, and the IRS is not
precluded from taking a position that is different from, and contrary to, the
positions taken in this summary.  In addition, because the authorities
on which this summary is based are subject to various interpretations, the IRS
and the U.S. courts could disagree with one or more of the positions taken in
this summary.

    
      
         

      

      
        37

        
          

        

      

      
         

      

    

    NOTICE
PURSUANT TO IRS CIRCULAR 230: NOTHING CONTAINED IN THIS SUMMARY CONCERNING ANY
U.S. FEDERAL TAX ISSUE IS INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED,
BY A U.S. HOLDER (AS DEFINED BELOW), FOR THE PURPOSE OF AVOIDING U.S. FEDERAL
TAX PENALTIES UNDER THE U.S. CODE (AS DEFINED BELOW). THIS SUMMARY WAS WRITTEN
TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED
BY THIS DOCUMENT. EACH U.S. HOLDER SHOULD SEEK U.S. FEDERAL TAX ADVICE, BASED ON
SUCH U.S. HOLDER’S PARTICULAR CIRCUMSTANCES, FROM AN INDEPENDENT TAX
ADVISOR.

     

    Scope
of this Summary

     

    Authorities

     

    This
summary is based on the Internal Revenue Code of 1986, as amended (the “Code”),
Treasury Regulations (whether final, temporary, or
proposed),  published rulings of the IRS, published administrative
positions of the IRS, U.S. court decisions and the Convention Between Canada and
the United States of America with Respect to Taxes on Income and on Capital,
signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), that
are applicable and, in each case, as in effect and available, as of the date of
this document.  Any of the authorities on which this summary is based
could be changed in a material and adverse manner at any time, and any such
change could be applied on a retroactive basis or prospective basis which could
affect the U.S. federal income tax considerations described in this summary.
This summary does not discuss the potential effects, whether adverse or
beneficial, of any proposed legislation that, if enacted, could be applied on a
retroactive or prospective basis.

    

    U.S.
Holders

    For
purposes of this summary, the term "U.S. Holder" means a beneficial owner of
Units, Common Shares, Warrants or Warrant Shares acquired pursuant to this
document that is for U.S. federal income tax purposes:

     

    
      	
               
      

            	
              •

            	
              an
      individual who is a citizen or resident of the
  U.S.;

            

    

     

    
      	
               
      

            	
              •

            	
              a
      corporation (or other entity taxable as a corporation for U.S. federal
      income tax purposes) organized under the laws of the U.S., any state
      thereof or the District of
Columbia;

            

    

     

    
      	
               
      

            	
              •

            	
              an
      estate whose income is subject to U.S. federal income taxation regardless
      of its source; or

            

    

     

    
      	
               
      

            	
              •

            	
              a
      trust that (1) is subject to the primary supervision of a court within the
      U.S. and the control of one or more U.S. persons for all substantial
      decisions or (2) has a valid election in effect under applicable Treasury
      regulations to be treated as a U.S.
person.

            

    

    

    Non-U.S.
Holders

     

    For
purposes of this summary, a “non-U.S. Holder” is a beneficial owner of Units,
Common Shares, Warrants or Warrant Shares that is not a U.S.
Holder.  This summary does not address the U.S. federal income tax
consequences to non-U.S. Holders arising from and relating to the acquisition,
ownership, and disposition of Units, Common Shares, Warrants and Warrant Shares.
Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the
U.S. federal,

    
      
         

      

      
        38

        
          

        

      

      
         

      

    

    •           
federal alternative minimum, U.S. federal estate and gift, U.S. state and local,
and foreign tax consequences (including the potential application of and
operation of any income tax treaties) relating to the acquisition, ownership,
and disposition of Units, Common Shares, Warrants and Warrant
Shares.

     

    •            Holders Subject to Special
U.S. Federal Income Tax Rules Not Addressed

    

    This
summary does not address the U.S. federal income tax considerations applicable
to U.S. Holders that are subject to special provisions under the Code, including
the following:  (a) U.S. Holders that are tax-exempt organizations,
qualified retirement plans, individual retirement accounts, or other
tax-deferred accounts; (b) U.S. Holders that are financial institutions,
underwriters, insurance companies, real estate investment trusts, or regulated
investment companies; (c) U.S. Holders that are dealers in securities or
currencies or U.S. Holders that are traders in securities that elect to apply a
mark-to-market accounting method; (d) U.S. Holders that have a “functional
currency” other than the U.S. dollar; (e) U.S. Holders that own Units, Common
Shares, Warrants or Warrant Shares as part of a straddle, hedging transaction,
conversion transaction, constructive sale, or other arrangement involving more
than one position; (f) U.S. Holders that acquired Units, Common Shares, Warrants
or Warrant Shares in connection with the exercise of employee stock options or
otherwise as compensation for services; (g) U.S. Holders that hold Units, Common
Shares, Warrants or Warrant Shares other than as a capital asset within the
meaning of Section 1221 of the Code (generally, property held for investment
purposes); (h) partnerships and other pass-through entities (and investors in
such partnerships and entities); or (i) U.S. Holders that own or have
owned  (directly, indirectly, or by attribution) 10% or more of the
total combined voting power of the outstanding shares of the
Company.  This summary also does not address the U.S. federal income
tax considerations applicable to U.S. Holders who are (a) U.S. expatriates or
former long-term residents of the U.S., (b) persons that have been, are, or will
be a resident or deemed to be a resident in Canada for purposes of the Tax Act;
(c) persons that use or hold, will use or hold, or that are or will be deemed to
use or hold Units, Common Shares, Warrants or Warrant Shares in connection with
carrying on a business in Canada; (d) persons whose Units, Common Shares,
Warrants or Warrant Shares constitute “taxable Canadian property” under the Tax
Act; or (e) persons that have a permanent establishment in Canada for the
purposes of the Canada-U.S. Tax Convention.  U.S. Holders that are
subject to special provisions under the Code, including U.S. Holders described
immediately above, should consult their own tax advisor regarding the U.S.
federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S.
state and local, and foreign tax consequences relating to the acquisition,
ownership and disposition of Units, Common Shares, Warrants or Warrant
Shares.

    
      
         

      

      
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    U.S.
Federal Income Tax Consequences of the Acquisition of Units

     

    For U.S.
federal income tax purposes, the acquisition by a U.S. Holder of a Unit will be
treated as the acquisition of an “investment unit” consisting of two
components:  a component consisting of one Common Share and a
component consisting of one half of one Common Share purchase
warrant.  The purchase price for each Unit will be allocated between
these two components in proportion to their relative fair market values at the
time the Unit is purchased by the U.S. Holder.  This allocation of the
purchase price for each Unit will establish a U.S. Holder’s initial tax basis
for U.S. federal income tax purposes in the one Common Share and one half of one
Common Share purchase warrant that comprise each Unit. For this purpose, the
Company will allocate U.S. $0.30 of the purchase price for the Unit to the
Common Share and U.S. $0.00 of the purchase price for each Unit to the one half
of one Common Share purchase warrant.  However, the IRS will not be
bound by the Company’s allocation of the purchase price for the Units, and
therefore, the IRS or a U.S. court may not respect the allocation set forth
above.  Each U.S. Holder should consult its own tax advisor regarding
the allocation of the purchase price for the Units.

    

    U.S.
Federal Income Tax Consequences of the Exercise and Disposition of
Warrants

     

    Exercise of
Warrants

     

    A U.S.
Holder should not recognize gain or loss on the exercise of a Warrant and
related receipt of a Warrant Share (unless cash is received in lieu of the
issuance of a fractional Warrant Share). A U.S. Holder’s initial tax basis in
the Warrant Share received on the exercise of a Warrant should be equal to the
sum of (a) such U.S. Holder’s tax basis in such Warrant plus (b) the exercise
price paid by such U.S. Holder on the exercise of such
Warrant.  Subject to the “passive foreign investment company” (or
“PFIC”, as defined below) rules discussed below, a U.S. Holder’s holding period
for the Warrant Share received on the exercise of a Warrant should begin on the
date that such Warrant is exercised by such U.S. Holder.

    

    Disposition of
Warrants

     

    A U.S.
Holder will recognize gain or loss on the sale or other taxable disposition of a
Warrant in an amount equal to the difference, if any, between (a) the amount of
cash plus the fair market value of any property received and (b) such U.S.
Holder’s tax basis in the Warrant sold or otherwise disposed of. Subject to the
PFIC rules discussed below, any such gain or loss generally will be a capital
gain or loss (provided that the Warrant Share to be issued on the exercise of
such Warrant would have been a capital asset within the meaning of Section 1221
of the Code if acquired by the U.S. Holder), which will be long-term capital
gain or loss if the Warrant is held for more than one year.

     

    Expiration of Warrants
Without Exercise

     

    Subject
to the PFIC rules discussed below, upon the lapse or expiration of a Warrant, a
U.S. Holder will recognize a loss in an amount equal to such U.S. Holder’s tax
basis in the Warrant. Any such loss generally will be a capital loss and will be
long-term capital loss if the Warrants are held for more than one
year.  Deductions for capital losses are subject to complex
limitations under the Code.

    
      
         

      

      
        40

        
          

        

      

      
         

      

    

     

    Certain Adjustments to the
Warrants

     

    Under
Section 305 of the Code, an adjustment to the number of Warrant Shares that will
be issued on the exercise of the Warrants, or an adjustment to the exercise
price of the Warrants, may be treated as a constructive distribution to a U.S.
Holder of the Warrants if, and to the extent that, such adjustment has the
effect of increasing such U.S. Holder’s proportionate interest in the “earnings
and profits” or assets of the Company, depending on the circumstances of such
adjustment (for example, if such adjustment is to compensate for a distribution
of cash or other property to shareholders of the Company).  (See more
detailed discussion of the rules applicable to distributions made by the Company
at “U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and
Disposition of Common Shares and Warrant Shares – Distributions on Common Shares
and Warrant Shares” below).

    

    U.S.
Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition
of Common Shares and Warrant Shares

     

    The
following discussion is subject to the rules described below under the heading
“Passive Foreign Investment Company Rules.”

     

    Distributions on Common
Shares and Warrant Shares

     

    Subject
to the PFIC rules discussed below, a U.S. Holder that receives a distribution,
including a constructive distribution, with respect to a Common Share or Warrant
Share will be required to include the amount of such distribution in gross
income as a dividend (without reduction for any Canadian income tax withheld
from such distribution) to the extent of the current or accumulated “earnings
and profits” of the Company, as computed for U.S. federal income tax purposes. A
dividend generally will be taxed to a U.S. Holder at ordinary income tax
rates.  To the extent that a distribution exceeds the current and
accumulated “earnings and profits” of the Company, such distribution will be
treated first as a tax-free return of capital to the extent of a U.S. Holder's
tax basis in the Common Shares or Warrant Shares and thereafter as gain from the
sale or exchange of such Common Shares or Warrant Shares.  (See “ Sale
or Other Taxable Disposition of Common Shares and/or Warrant Shares”
below).  However, the Company does not intend to maintain the
calculations of earnings and profits in accordance with U.S. federal income tax
principles, and each U.S. Holder should therefore assume that any distribution
by the Company with respect to the Common Shares or Warrant Share will
constitute ordinary dividend income. Dividends received on Common Shares or
Warrant Shares generally will not be eligible for the “dividends received
deduction”. For tax years beginning before January 1, 2011, a dividend paid to a
U.S. Holder who is an individual, estate or trust by the Company generally will
be taxed at the preferential tax rates applicable to long-term capital gains if
the Company is a “qualified foreign corporation” as defined under Section
1(h)(11) of the Code (a “QFC”) and certain holding period requirements for the
Common Shares or Warrant Shares are met.  The Company generally will
be a QFC if the Company is eligible for the benefits of the Canada-U.S. Tax
Convention or the Common Shares or Warrant Shares are readily tradable on an
established securities market in the U.S.  However, even if the
Company satisfies one or more of these requirements, the Company will not be
treated as a QFC if the Company is a PFIC for the tax year during which it pays
a dividend or for the preceding tax year. (See the section below under the
heading “Passive Foreign Investment Company Rules”).

    
      
         

      

      
        41

        
          

        

      

      
         

      

    

     

    If a U.S.
Holder fails to qualify for the preferential tax rates discussed above, a
dividend paid by the Company to a U.S. Holder generally will be taxed at
ordinary income tax rates (and not at the preferential tax rates applicable to
long-term capital gains).  The dividend rules are complex, and each
U.S. Holder should consult its own tax advisor regarding the application of such
rules.

     

    Sale or Other Taxable
Disposition of Common Shares and/or Warrant Shares

     

    Subject
to the PFIC rules discussed below, upon the sale or other taxable disposition of
Common Shares or Warrant Shares, a U.S. Holder generally will recognize capital
gain or loss in an amount equal to the difference between (i) the amount of cash
plus the fair market value of any property received and (ii) such U.S. Holder’s
tax basis in such Common Shares or Warrant Shares sold or otherwise disposed
of.  Subject to the PFIC rules discussed below, gain or loss
recognized on such sale or other disposition generally will be long-term capital
gain or loss if, at the time of the sale or other disposition, the Common Shares
or Warrant Shares have been held for more than one year.

     

    Preferential
tax rates apply to long-term capital gain of a U.S. Holder that is an
individual, estate, or trust.  There are currently no preferential tax
rates for long-term capital gain of a U.S. Holder that is a corporation.
Deductions for capital losses are subject to significant limitations under the
Code.

    

    Passive
Foreign Investment Company Rules

    

    If the
Company were to constitute a PFIC (as defined below) for any year during a U.S.
Holder’s holding period, then certain different and potentially adverse tax
consequences would apply to such U.S. Holder’s acquisition, ownership and
disposition of Units, Common Shares, Warrants, and Warrant Shares.

     

    The
Company generally will be a PFIC under Section 1297 of the Code if, for a
taxable year, (a) 75% or more of the gross income of the Company for such
taxable year is passive income or (b) 50% or more of the assets held by the
Company either produce passive income or are held for the production of passive
income, based on the quarterly average of the fair market value of such assets.
“Gross income” generally means all revenues less the cost of goods sold, and
“passive income” includes, for example, dividends, interest, certain rents and
royalties, certain gains from the sale of stock and securities, and certain
gains from commodities transactions.  Active business gains arising
from the sale of commodities generally are excluded from passive income if
substantially all of a foreign corporation’s commodities are (a) stock in trade
of such foreign corporation or other property of a kind which would properly be
included in inventory of such foreign corporation, or property held by such
foreign corporation primarily for sale to customers in the ordinary course of
business, (b) property used in the trade or business of such foreign corporation
that would be subject to the allowance for depreciation under Section 167 of the
Code, or (c) supplies of a type regularly used or consumed by such foreign
corporation in the ordinary course of its trade or business.

     

    In
addition, for purposes of the PFIC income test and asset test described above,
if the Company owns, directly or indirectly, 25% or more of the total value of
the outstanding shares of another corporation, the Company will be treated as if
it (a) held a proportionate share of the assets of such other corporation and
(b) received directly a proportionate share of the income of such other
corporation.  In addition, for purposes of the PFIC income test and
asset test described above, “passive income” does not include any interest,
dividends, rents, or royalties that are received or accrued by the Company from
a “related person” (as defined in Section 954(d)(3) of the Code), to the extent
such items are properly allocable to the income of such related person that is
not passive income.

    
      
         

      

      
        42

        
          

        

      

      
         

      

    

     

    Under
certain attribution rules, if the Company is a PFIC, U.S. Holders will be deemed
to own their proportionate share of any subsidiary of the Company which is also
a PFIC (a ‘‘Subsidiary PFIC’’), and will be subject to U.S. federal income tax
on (i) a distribution on the shares of a Subsidiary PFIC or (ii) a disposition
of shares of a Subsidiary PFIC, both as if the holder directly held the shares
of such Subsidiary PFIC.

     

    The
Company does not believe that it was a PFIC for the tax year ended December 31,
2009, and based on current business plans and financial expectations, the
Company does not expect to be a PFIC for the current tax year.  The
determination of whether the Company will be a PFIC for a taxable year depends,
in part, on the application of complex U.S. federal income tax rules, which are
subject to differing interpretations.  In addition, whether the
Company will be a PFIC for its current taxable year depends on the assets and
income of the Company over the course of each such taxable year and, as a
result, cannot be predicted with certainty as of the date of this communication.
Consequently, there can be no assurance regarding the Company’s PFIC status for
any taxable year, and there can be no assurance that the IRS will not challenge
the determination made by the Company concerning its PFIC status. Under the
default PFIC rules, a U.S. Holder would be required to treat any gain recognized
upon a sale or disposition of our Units, Common Shares, Warrants, or Warrant
Shares as ordinary (rather than capital), and any resulting U.S. federal income
tax may be increased by an interest charge which is not deductible by
non-corporate U.S. Holders.  Rules similar to those applicable to
dispositions will generally apply to distributions in respect of our Common
Shares or Warrant Shares which exceed a certain threshold level.

     

    While
there are U.S. federal income tax elections that sometimes can be made to
mitigate these adverse tax consequences (including, without limitation, the “QEF
Election” and the “Mark-to-Market Election”), such elections are available in
limited circumstances and must be made in a timely manner.  Under
proposed Treasury Regulations, if a U.S. holder has an option, warrant, or other
right to acquire stock of a PFIC (such as the Units or the Warrants), such
option, warrant or right is considered to be PFIC stock subject to the default
rules of Section 1291 of the Code. However, the holding period for the Warrant
Shares will begin on the date a U.S. Holder acquires the Units.  This
will impact the availability of the QEF Election and Mark-to-Market Election
with respect to the Warrant Shares.  Thus, a U.S. Holder will have to
account for Warrant Shares and Common Shares under the PFIC rules and the
applicable elections differently. U.S. Holders are urged to consult their own
tax advisers regarding the potential application of the PFIC rules to the
ownership and disposition of Units, Common Shares, Warrants, and Warrant Shares,
and the availability of certain U.S. tax elections under the PFIC
rules.

     

    U.S.
Holders should be aware that, for each taxable year, if any, that the Company or
any Subsidiary PFIC is a PFIC, the Company can provide no assurances that it
will satisfy the record keeping requirements of a PFIC, or that it will make
available to U.S. Holders the information such U.S. Holders require to make a
QEF Election under Section 1295 of the Code with respect of the Company or any
Subsidiary PFIC. Each U.S. Holder should consult its own tax advisor regarding
the availability of, and procedure for making, a QEF Election with respect to
the Company and any Subsidiary PFIC.

    
      
         

      

      
        43

        
          

        

      

      
         

      

    

     

    Subject
to certain specific rules, foreign income and withholding taxes paid with
respect to any distribution in respect of stock in a PFIC should qualify for the
foreign tax credit.  The rules relating to distributions by a PFIC are
complex, and a U.S. Holder should consult with its own tax advisor with respect
to any distribution received from a PFIC.

     

    Additional
Considerations

     

    Receipt of Foreign
Currency

     

    The
amount of any distribution paid to a U.S. Holder in foreign currency or on the
sale, exchange or other taxable disposition of Common Shares, Warrants or
Warrant Shares generally will be equal to the U.S. dollar value of such foreign
currency based on the exchange rate applicable on the date of receipt
(regardless of whether such foreign currency is converted into U.S. dollars at
that time).  If the foreign currency received is not converted into
U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the
foreign currency equal to its U.S. dollar value on the date of
receipt.  Any U.S. Holder who receives payment in foreign currency and
engages in a subsequent conversion or other disposition of the foreign currency
may have a foreign currency exchange gain or loss that would be treated as
ordinary income or loss, and generally will be U.S. source income or loss for
foreign tax credit purposes.  Each U.S. Holder should consult its own
U.S. tax advisor regarding the U.S. federal income tax consequences of
receiving, owning, and disposing of foreign currency.

    

    Foreign Tax
Credit

     

    Subject
to the PFIC rules discussed above, a U.S. Holder who pays (whether directly or
through withholding) Canadian income tax with respect to dividends paid on the
Common Shares and Warrant Shares generally will be entitled, at the election of
such U.S. Holder, to receive either a deduction or a credit for such Canadian
income tax paid.  Generally, a credit will reduce a U.S. Holder’s U.S.
federal income tax liability on a dollar-for-dollar basis, whereas a deduction
will reduce a U.S. Holder’s income subject to U.S. federal income tax. This
election is made on a year-by-year basis and applies to all foreign taxes paid
(whether directly or through withholding) by a U.S. Holder during a
year.

     

    Complex
limitations apply to the foreign tax credit, including the general limitation
that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S.
federal income tax liability that such U.S. Holder’s “foreign source” taxable
income bears to such U.S. Holder’s worldwide taxable income.  In
applying this limitation, a U.S. Holder’s various items of income and deduction
must be classified, under complex rules, as either “foreign source” or “U.S.
source.” Generally, dividends paid by a foreign corporation should be treated as
foreign source for this purpose, and gains recognized on the sale of stock of a
foreign corporation by a U.S. Holder should be treated as U.S. source for this
purpose, except as otherwise provided in an applicable income tax treaty, and if
an election is properly made under the Code.  However, the amount of a
distribution with respect to the Common Shares or Warrant Shares that is treated
as a “dividend” may be lower for U.S. federal income tax purposes than it is for
Canadian federal income tax purposes, resulting in a reduced foreign tax credit
allowance to a U.S. Holder.  In addition, this limitation is
calculated separately with respect to specific categories of
income.  The foreign tax credit rules are complex, and each U.S.
Holder should consult its own U.S. tax advisor regarding the foreign tax credit
rules.

    
      
         

      

      
        44

        
          

        

      

      
         

      

    

     

    Information Reporting;
Backup Withholding Tax

     

    Under
U.S. federal income tax law and Treasury regulations, certain categories of U.S.
Holders must file information returns with respect to their investment in, or
involvement in, a foreign corporation.  For example, recently enacted
legislation generally imposes new U.S. return disclosure obligations (and
related penalties) on U.S. Holders that hold certain specified foreign financial
assets in excess of $50,000. The definition of specified foreign financial
assets includes not only financial accounts maintained in foreign financial
institutions, but also, unless held in accounts maintained by a financial
institution, any stock or security issued by a non-U.S. person, any financial
instrument or contract held for investment that has an issuer or counterparty
other than a U.S. person and any interest in a foreign entity.  U. S.
Holders may be subject to these reporting requirements unless their Units,
Common Shares, Warrants, and Warrant Shares are held in an account at a domestic
financial institution.  Penalties for failure to file certain of these
information returns are substantial.  U.S. Holders should consult with
their own tax advisors regarding the requirements of filing information returns,
and, if applicable, filing obligations relating to a Mark-to-Market or QEF
Election. Payments made within the U.S., or by a U.S. payor or U.S. middleman,
of dividends on, and proceeds arising from the sale or other taxable disposition
of the Units, Common Shares, Warrants, and Warrant Shares generally may be
subject to information reporting and backup withholding tax, at the rate of 28%
(and increasing to 31% for payments made after December 31, 2010), if a U.S.
Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer
identification number (generally on Form W-9), (b) furnishes an incorrect U.S.
taxpayer identification number, (c) is notified by the IRS that such U.S. Holder
has previously failed to properly report items subject to backup withholding
tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder
has furnished its correct U.S. taxpayer identification number and that the IRS
has not notified such U.S. Holder that it is subject to backup withholding tax.
However, certain exempt persons generally are excluded from these information
reporting and backup withholding tax rules. Any amounts withheld under the U.S.
backup withholding tax rules will be allowed as a credit against a U.S. Holder’s
U.S. federal income tax liability, if any, or will be refunded, if such U.S.
Holder furnishes required information to the IRS in a timely
manner.  Each U.S. Holder should consult its own tax advisor regarding
the information reporting and backup withholding tax rules.

    
      
         

      

      
        45exhibit_10-1.htm

Exhibit 10.1

 

CONTACTS

Chief Financial Officer

Meir Moshe

+972-3766-8610

Corporate Relations

Joyce Anne Shulman

+1 201 785 3209

joyceannes@radware.com

 

For Immediate Release

Radware Ltd Announces 4Q10 Results

* Record quarterly revenues of $39.1 million

* Record Non-GAAP operating income $5.8M

* Record Non-GAAP EPS of $0.29

* Record annual revenues of $144.1 million

TEL AVIV, ISRAEL.; February 3, 2011 — Radware (NASDAQ: RDWR), a leading provider of integrated application delivery solutions for business-smart networking, today reported record quarterly revenues of $39.1 million for the fourth quarter of 2010. This represents an increase of 6% compared with revenues of $36.8 million for the third quarter of 2010, and an increase of 22% compared with revenues of $32.1 million in the fourth quarter of 2009.

Total revenues for 2010 were $144.1 million, an increase of 32% compared with revenues of $108.9 million in 2009.

Net income on a GAAP basis for the fourth quarter of 2010 was $3.9 million or $0.17 per diluted share, compared with a net income of $3.7 million or $0.17 per diluted share for the third quarter of 2010 and to $1.7 million or $0.09 million per diluted share in the fourth quarter of 2009.

Net income on a Non-GAAP basis for the fourth quarter of 2010 was $6.6 million or $0.29 per diluted share, compared with a net income of $5.6 million or $0.26 per diluted share for the third quarter of 2010 and to $4.0 million or $0.21 per diluted share in the fourth quarter of 2009.

Net income on a GAAP basis for 2010 was $9.6 million or $0.44 per diluted share compared with a net loss of $5.9 million or $0.31 per diluted share in 2009.

Net income on a Non-GAAP basis for 2010 was $20.1 million or $0.92 per diluted share compared with a net gain of $4.6 million or $0.24 per diluted share in 2009.

 

At the end of the fourth quarter of 2010, the company’s overall cash position including cash, short-term and long-term bank deposits and marketable securities amounted to $178.8 million, representing an increase in the company's cash position of approximately $6.5 million in the fourth quarter or $52.7 million in the last 12 months.

 

  

  

  

“We see our industry lead in virtualization of the application delivery layer as a strong market share and revenue growth catalyst and we were very pleased to already see in Q4 significant contribution from our newly announced VADI architecture,” stated Roy Zisapel, President & CEO Radware. “In addition, strong customer account success with our attack mitigation products, and continued penetration of the service provider market in Q4, has contributed to our increased profits and market share. It is our belief these trends will continue to attain even more positive results for 2011.”

During the quarter ended December 31, 2010, Radware released the following significant announcements:

 

	
  

	
·

	
Radware Accelerates Applications with New Alteon Version

	
  

	
·

	
LifeWay Christian Resources Relies on Radware’s Application Delivery Services to Support its Rapidly Growing e-Commerce and Corporate Networks

	
  

	
·

	
Radware’s DefensePro Earns “Recommend” Rating from NSS Labs for Attack Mitigation

	
  

	
·

	
Radware Offers Multichannel Retailers Best Practices for Cyber Monday

	
  

	
·

	
Radware takes APSolute Attack Prevention to the Next Level to Empower the Fight Against Online Fraud

	
  

	
·

	
Radware Collects 2010 INTERNET TELEPHONY Excellence Award

	
  

	
·

	
Radware Positioned in the Leaders Quadrant of the Magic Quadrant for Application Delivery Controllers

	
  

	
·

	
Radware Launches its Smart Choice Partner Program

	
  

	
·

	
Radware Helps SK Group Support Next-Generation Unified Communications Platform

Company management will host a quarterly investor conference call at 8:45 AM ET on Thursday, February 3rd, 2011. The call will focus on financial results for the quarter ending December 31, 2010, and certain other matters related to the company’s business.

Please use the following dial-in numbers to participate in the fourth quarter 2010 call:

Participants in the US call: Toll Free 1 877 392 9880

International participants call: +1 760 666 3769 

The conference call will be webcast on Thursday February 3rd at 8:45am ET in the “listen only” mode via the Internet at: http://www.radware.com/Company/InvestorRelations/default.aspx and will be available for replay during the next 30 days.

 

About Radware

Radware (NASDAQ:RDWR), a global leader in integrated application delivery solutions, assures the full availability, maximum performance, and complete security of business-critical applications for nearly 10,000 enterprises and carriers worldwide. With APSolute®, Radware’s comprehensive and award-winning suite of application delivery and network security products, companies in every industry can drive business productivity, improve profitability, and reduce IT operating and infrastructure costs by making their networks “business smart”. For more information, please visit www.radware.com.

  

  

  

 

Use of Non-GAAP Financial Information

In addition to reporting financial results in accordance with generally accepted accounting principles (GAAP), Radware uses non-GAAP measures of net operating income, net income and earnings per share, which are adjustments from results based on GAAP to exclude stock-based compensation expenses, in accordance with ASC No. 718, amortization of intangible assets , acquisition-related expenses, unrealized gains up to the amount of losses recorded in previous quarters, in severance pay funds and exchange rate differences, net on balance sheet items included in finance income . Such exchange rate differences may vary from period to period due to changes in exchange rates driven by general market conditions or other circumstances outside of the normal course of Radware's operations. Management believes that exclusion of these charges allows comparisons of operating results that are consistent across past, present and future periods. Radware’s management believes the non-GAAP financial information provided in this release is useful to investors for the purpose of understanding and assessing Radware’s ongoing operations. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of the non-GAAP financial measures discussed in this press release, to the most directly comparable GAAP financial measures, is included with the financial information contained in this press release. Management uses both GAAP and non-GAAP information in evaluating and operating business internally and, as such, has determined that it is important to provide this information to investors.

 

###

 

This press release may contain forward-looking statements that are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, general business conditions in the Application Switching and Network Security industry, changes in demand for Application Switching and Network Security products, the timing and amount or cancellation of orders and other risks detailed from time to time in Radware's filings with the Securities and Exchange Commission, including Radware's Form 20-F.

  

  

  

	
Consolidated Balance Sheets

	
(U.S. Dollars in thousands)

 

	  	 	
December 31,

 2009

	 	 	
December 31,

 2010

	 
	  	 	
(Audited)

	 	 	
(Unaudited)

	 
	
Current assets

	 	 	 	 	 	 
	
Cash and cash equivalents

	 	 	19,843	 	 	 	14,814	 
	
Available-for-sale marketable securities

	 	 	29,117	 	 	 	24,200	 
	
Short term bank deposits

	 	 	10,130	 	 	 	51,911	 
	
Trade receivables, net

	 	 	16,603	 	 	 	16,543	 
	
Other receivables and prepaid expenses

	 	 	2,934	 	 	 	3,402	 
	
Inventories

	 	 	9,792	 	 	 	9,722	 
	  	 	 	88,419	 	 	 	120,592	 
	
Long-term investments

	 	 	 	 	 	 	 	 
	
Available-for-sale marketable securities

	 	 	42,021	 	 	 	82,864	 
	
Long-term bank deposits

	 	 	25,000	 	 	 	5,000	 
	
Severance pay funds

	 	 	2,514	 	 	 	3,342	 
	  	 	 	69,535	 	 	 	91,206	 
	  	 	 	 	 	 	 	 	 
	
Property and equipment, net

	 	 	11,220	 	 	 	11,801	 
	  	 	 	 	 	 	 	 	 
	
Other assets

	 	 	 	 	 	 	 	 
	
Intangible assets, net

	 	 	14,794	 	 	 	12,011	 
	
Other long-term assets

	 	 	467	 	 	 	560	 
	
Goodwill

	 	 	24,465	 	 	 	24,465	 
	  	 	 	 	 	 	 	 	 
	
Total assets

	 	 	208,900	 	 	 	260,635	 
	  	 	 	 	 	 	 	 	 
	
Current liabilities

	 	 	 	 	 	 	 	 
	
Trade payables

	 	 	5,699	 	 	 	5,913	 
	
Deferred revenues

	 	 	20,734	 	 	 	28,685	 
	
Other payables and accrued expenses

	 	 	12,413	 	 	 	18,538	 
	  	 	 	38,846	 	 	 	53,136	 
	  	 	 	 	 	 	 	 	 
	
Long-term liabilities

	 	 	 	 	 	 	 	 
	
Deferred revenues

	 	 	16,919	 	 	 	18,610	 
	
Accrued severance pay

	 	 	3,662	 	 	 	3,899	 
	  	 	 	20,581	 	 	 	22,509	 
	  	 	 	 	 	 	 	 	 
	
Shareholders’ equity

	 	 	 	 	 	 	 	 
	
Share capital

	 	 	465	 	 	 	506	 
	
Additional paid-in capital

	 	 	191,941	 	 	 	218,593	 
	
Accumulated other comprehensive income

	 	 	935	 	 	 	125	 
	
Treasury stock, at cost

	 	 	(18,036	)	 	 	(18,036	)
	
Accumulated deficit

	 	 	(25,832	)	 	 	(16,198	)
	
Total shareholders’ equity

	 	 	149,473	 	 	 	184,990	 
	  	 	 	 	 	 	 	 	 
	
Total liabilities and shareholders' equity

	 	 	208,900	 	 	 	260,635	 

 

  

  

  

 

	
Condensed Consolidated Statements of Operations

	 
	
(U.S. Dollars in thousands, except share and per share data)

	 
	  	 	
 

For the three months ended 

December 31,

	 	 	
 

For the Year ended

 December 31,

	 
	  	 	
2009

	 	 	
2010

	 	 	
2009

	 	 	
2010

	 
	  	 	
(Unaudited)

	 	 	
(Unaudited)

	 	 	
(Audited)

	 	 	
(Unaudited)

	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	
Revenues

	 	 	32,118	 	 	 	39,054	 	 	 	108,904	 	 	 	144,119	 
	
Cost of revenues

	 	 	6,564	 	 	 	7,968	 	 	 	23,275	 	 	 	29,204	 
	
Gross profit

	 	 	25,554	 	 	 	31,086	 	 	 	85,629	 	 	 	114,915	 
	
Operating expenses:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Research and development

	 	 	6,723	 	 	 	8,280	 	 	 	25,674	 	 	 	31,660	 
	
Selling and marketing

	 	 	14,873	 	 	 	16,947	 	 	 	55,130	 	 	 	64,609	 
	
General and administrative

	 	 	2,552	 	 	 	2,534	 	 	 	11,930	 	 	 	10,190	 
	
Total operating expenses

	 	 	24,148	 	 	 	27,761	 	 	 	92,734	 	 	 	106,459	 
	
Operating income (loss)

	 	 	1,406	 	 	 	3,325	 	 	 	(7,105	)	 	 	8,456	 
	
Financial income, net

	 	 	506	 	 	 	855	 	 	 	1,987	 	 	 	2,057	 
	
Income (loss) before income taxes

	 	 	1,912	 	 	 	4,180	 	 	 	(5,118	)	 	 	10,513	 
	
Income taxes

	 	 	(225	)	 	 	(256	)	 	 	(818	)	 	 	(879	)
	
Net income (loss)

	 	 	1,687	 	 	 	3,924	 	 	 	(5,936	)	 	 	9,634	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Basic net income (loss) per share

	 	$	0.09	 	 	$	0.19	 	 	$	(0.31	)	 	$	0.49	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Weighted average number of shares used to compute basic net income (loss) per share

	 	 	  18,881,697	 	 	 	  20,360,557	 	 	 	  18,879,230	 	 	 	  19,557,545	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Diluted net income (loss) per share

	 	$	0.09	 	 	$	0.17	 	 	$	(0.31	)	 	$	0.44	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Weighted average number of shares used to compute diluted net income (loss) per share

	 	 	  19,347,159	 	 	 	  22,796,721	 	 	 	  18,879,230	 	 	 	  21,733,638	 

  

  

  

 

	
Reconciliation of Supplemental Financial Information

	
(U.S. Dollars in thousands, except share and per share data)

 

	  	 	
For the Three months ended 

December 31,

	 	 	
For the Year

ended December 31,

	 
	 	 	2009	 	 	2010	 	 	2009	 	 	2010	 
	  	 	
(Unaudited)

	 	 	
(Unaudited)

	 	 	
(Unaudited)

	 	 	
(Unaudited)

	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
GAAP net income (loss)

	 	 	 1,687	 	 	 	 3,924	 	 	 	(5,936	)	 	 	9,634	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Stock-based compensation expenses, included in:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Cost of revenues

	 	 	16	 	 	 	16	 	 	 	71	 	 	 	63	 
	
Research and development

	 	 	217	 	 	 	304	 	 	 	630	 	 	 	1,247	 
	
Selling and marketing

	 	 	407	 	 	 	627	 	 	 	1,164	 	 	 	2,393	 
	
General and administrative

	 	 	585	 	 	 	409	 	 	 	2,176	 	 	
 1,789

	 
	  	 	 	1,225	 	 	 	1,356	 	 	 	4,041	 	 	
5,492

	 
	
Amortization of intangible assets and other acquisition related adjustments included in:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Cost of revenues

	 	 	427	 	 	 	540	 	 	 	2,319	 	 	 	1,757	 
	
Selling and marketing

	 	
629

	 	 	
531

	 	 	
1,928

	 	 	
2,284

	 
	  	 	 	1,056	 	 	
1,071

	 	 	 	4,247	 	 	 	4,041	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Acquisition related expenses

	 	 	-	 	 	 	-	 	 	 	2,485	 	 	 	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

Unrealized gain in severance pay funds, included in:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Research and development

	 	 	-	 	 	 	-	 	 	 	(303	)	 	 	-	 
	
Selling and marketing

	 	 	-	 	 	 	-	 	 	 	(63	)	 	 	-	 
	
General and administrative

	 	 	-	 	 	 	-	 	 	
(55

	) 	 	 	-	 
	  	 	 	-	 	 	 	-	 	 	
(421

	) 	 	 	-	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Exchange rate differences, net on balance sheet items included in financial income, net

	 	 	      42	 	 	 	       212	 	 	 	       158	 	 	 	       921	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Non-GAAP net income

	 	 	 4,010	 	 	 	 6,563	 	 	 	4,574	 	 	 	20,088	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Non-GAAP diluted net income per share

	 	$	0.21	 	 	$	0.29	 	 	$	0.24	 	 	$	0.92	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Weighted average number of shares used to compute Non-GAAP diluted net income per share

	 	 	    19,347,159	 	 	 	    22,796,721	 	 	 	    18,945,289	 	 	 	    21,733,638

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