[DUNDEE SECURITIES CORPORATION LETTERHEAD]
April 15, 2005
Loretta Food Group Inc.
2405 Lucknow Drive
Mississauga, ON L5S 1H9
Attention: Mr. Al Burgio,
President and CEO
Dear Sir:
Re: Private Placement of Subscription Receipts of Loretta Food Group Inc.
We understand that Loretta Food Group Inc. (the "Company") wishes to raise a
minimum of $1,500,000 and a maximum of $3,000,000 by way of a best-efforts
private placement offering (the "Offering") of a minimum of 5,555,400 and a
maximum of 11,111,100 subscription receipts of the Company ("Subscription
Receipts") at a price of $0.27 per Subscription Receipt, pursuant to available
prospectus exemptions under applicable securities laws in the relevant
jurisdictions, as more particularly described below in this letter. The Term
Sheet attached to this letter as Schedule "A" sets out the principal terms of
the Offering. For the purposes of this Agreement, the term "Subscription
Receipt" when used in reference to the Company, means a subscription receipt
that, immediately prior to the Going Public Closing Date (as defined below),
will be converted into one-third of one common share (each whole common share, a
"Common Share") (or in the circumstances described below, 0.3667 Common Shares)
in the capital of the Company as set forth in the Term Sheet.
We further understand that the Company has entered into a letter of intent
involving a business combination to constitute the "Qualifying Transaction" of
CPVC Tremblant Inc. ("Tremblant") under Policy 2.4 of the Corporate Finance
Manual of the TSX Venture Exchange Inc. Pursuant to the Business Combination, it
is anticipated that Tremblant and the Company will complete a share exchange by
way of plan of arrangement or a similar transaction, pursuant to which the
holders of the Common Shares will receive three common shares of Tremblant for
each Common Share owned (the "Business Combination"). As a part of the Business
Combination Tremblant will continue into Canada and will be governed by the
Canada Business Corporations Act as a part of such continuance will change its
name as is agreed to by the parties to the Business Combination. For greater
certainty, other securities of the Company (including any Compensation Options
(as defined below) issued in connection with the Offering) will be exchanged
pursuant to the Business Combination for similar securities of Tremblant at the
same ratio applicable for the exchange of the Common Shares of the Company into
common shares of Tremblant.
The Company undertakes to use its best efforts to complete the Business
Combination or other going-public event (an "Alternative Arrangement") whether
by reverse take-over, merger, consolidation, reorganization, sale or exchange of
assets, or similar transaction or transactions, to cause the Common Shares (or
those of a successor company) to be listed on a senior stock exchange such as
the NASDAQ Small Cap stock exchange, the Toronto Stock Exchange or the TSX
Venture Exchange within six months from the initial Closing Date of the
Offering. The Business Combination or an Alternative Arrangement are
collectively referred to herein as a "Public Listing Event".
If a Public Listing Event is not completed within four months from the closing
of the Offering in escrow but is completed within six months of such closing (or
such later date as may be agreed to by the Agent (as defined below) and the
Company) from the closing date of the Offering, purchasers of Subscription
Receipts pursuant to the Offering will be entitled to receive 0.3667 Common
Shares on exchange of the Subscription Receipts in lieu of one-third of one
Common Share. The date of closing of the Public Listing Event shall be defined
herein as the "Going Public Closing Date". All references to common shares,
stock options and warrants of Tremblant and/or the Company herein are made as
such securities are constituted as of the date hereof.
The Company hereby covenants that any Public Listing Event that it completes
will be structured such that the holders of Common Shares (or such other
securities that each holder will receive pursuant to the Public Listing Event)
will not be subject to any hold periods upon resale of such securities (except
hold periods relating to control block holders) and the securities to be held in
place of the Subscription Receipts issued pursuant to this Agreement will be
listed and posted for trading on a senior stock exchange such as the NASDAQ
Small Cap stock exchange, the Toronto Stock Exchange or the TSX Venture
Exchange. In the event that the Public Listing Event involves a listing on the
NASDAQ Small Cap stock exchange, the Company will prepare and file or cause to
be prepared and filed with the U.S. Securities and Exchange Commission a
registration statement pursuant to the Securities Act of 1933, as amended (the
"US Securities Act") to register for sale or other disposition of the Common
Shares. A Public Listing Event shall not be completed if such transaction would
have material adverse tax consequences to the holders of the Subscription
Receipts, as determined by the Agent, relying on the advice of U.S. counsel to
the Corporation, acting reasonably.
In the event the Company fails to complete a Public Listing Event on or before
the date that is six months from the Closing Date of the Offering, any Escrowed
Proceeds (defined below) still in escrow shall be returned to the subscribers in
exchange for the return of the corresponding Subscription Receipts subscribed
for by subscribers under the Offering, on a pro rata basis based on the holdings
of Subscription Receipts. To the extent that the Escrowed Proceeds are not
sufficient to satisfy in full the repayment obligation of the subscription price
for the Subscription Receipts, the Company hereby agrees to contribute such
amounts as are necessary to cover any shortfall the assurance of such payment to
be settled between the Company and the Agent, both acting reasonably (not to
exceed the amount of the Agent's commission and expenses).
The Company will, and the Company will cause Tremblant to, provide the Agent
with copies of any and all documentation, instruments and agreements (including
circulars and any applications or orders made or received to any securities
regulatory authority or stock exchange) relating to the Business Combination or
an Alternative Arrangement, as the case may be, and such documents, instruments
and agreements shall not be executed by the Company unless the Agent is
satisfied that any securities received by the holders of Subscription Receipts
pursuant to the Business Combination or Alternative Arrangement, as the case may
be, will be freely tradable and have no resale restrictions attached to them,
except those resale restrictions applicable to control persons, or pursuant to
escrow requirements of the applicable stock exchange and that such securities
are listed and posted for trading on a senior stock exchange such as the NASDAQ
Small Cap stock exchange, the Toronto Stock Exchange or the TSX Venture
Exchange.
By your acceptance of this letter (this "Agreement") you appoint Dundee
Securities Corporation (the "Agent"), and the Agent agrees to act, on a
best-efforts basis, as the Company's exclusive private placement agent with
respect to the Offering, on the terms and conditions set out below. The Agent
proposes to begin the offering process upon execution by the Company of this
Agreement and upon completion of its due diligence, with a view towards
completion of the Offering on or about May 27, 2005, or such later date as the
Company and the Agent agree (the "Closing Date").
1. Responsibilities
The Agent's responsibilities will include:
(a) identifying and soliciting prospective purchasers ("Prospective Investors")
of the securities offered under the Offering (the "Offered Securities") on a
best-efforts agency basis;
(b) assisting the Company and/or its counsel in negotiations with Prospective
Investors;
(c) drafting and negotiating with the Company of the form of Subscription
Agreements to be entered into between the Company and Prospective Investors;
(d) drafting negotiating with the Company of the Agency Agreement (as defined
herein);
(e) review of other agreements contemplated in the context of the Offering,
closing and other ancillary documents relating to the Offering;
(f) cause Prospective Investors who purchase Subscription Receipts pursuant to
the Offering to provide to the Company any powers of attorney, proxies or
consents as may be required in order to complete the Business Combination; and
(g) other matters related or undertaken in order to complete the Offering.
The Company agrees to provide the Agent with prompt notice of any discussions or
inquiries received from any potential investors, who shall be deemed as
Prospective Investors, and direct all inquiries to the Agent in a timely manner.
The Agent will be entitled, subject to the terms hereof, to appoint in respect
of the Offering, a selling group consisting of other co-agents or sub-agents who
are registered dealers.
2. Additional Services
If the Company requests the Agent to provide any other services in addition to
those described in Paragraph 1 above ("Additional Services"), the terms and
conditions relating to such services will be outlined in a separate letter
agreement. The Company and the Agent will negotiate the fees for such services
separately, in good faith, consistent with fees paid to North American
investment bankers for similar services. Specifically, in the event that the
Agent is required to provide a Sponsorship or similar letter to the TSX Venture
Exchange in connection with the Public Listing Event, the terms and conditions
of such services will be outlined in a separate letter.
3. Offering Jurisdictions
The Offered Securities will be offered by way of private placement exemptions
from the prospectus requirements in such provinces of Canada as the Agent may
designate, including Alberta, British Columbia, Saskatchewan, Manitoba, Ontario
and Quebec (the "Offering Jurisdictions") and pursuant to available exemptions
from the registration and prospectus requirements of the US Securities Act. No
offering memorandum, as defined under the securities legislation of the Offering
Jurisdictions will be delivered to Prospective Investors.
4. Compensation
Subject to the following paragraph, in consideration of the Agent providing
their services to the Company pursuant to this Agreement, the Company will pay
the fee set forth in the Term Sheet attached as Schedule "A" and in accordance
with the terms of the Agency Agreement. At the closing of this Offering in
escrow (the "Closing"), the Agent will deduct its fees and expenses as per the
Term Sheet, from the gross proceeds of the Offering.
As additional compensation for the Agent providing its services under this
Agreement, the Company will issue options ("Compensation Options") to the Agent
at the Closing, such Compensation Options to be granted in accordance with the
provisions of the Term Sheet attached as Schedule "A" and in accordance with the
Agency Agreement. The Compensation Options will entitle the Agent to acquire
such number of Common Shares as is equal to 10% of 1/3 of the number of
Subscription Receipts sold by the Agent under the Offering. The Compensation
Options will:
(a) be exercisable at a price of $0.81 per Common Share; and
(b) expire at 5:00 p.m. on the 18 month anniversary of their date of issue.
For greater certainty, any Compensation Options issued in connection with the
Offering will be exchanged pursuant to the Business Combination at the same
exchange ratio as the Common Shares.
5. Expenses and Taxes
The Company will be responsible for all expenses relating to the Offering,
whether or not it is completed, including, without limitation:
(a) all fees, disbursements and taxes of the legal counsel, auditors, printers
and any other consultants or service providers of the Company that it retains in
connection with the Offering; and
(b) all the Agent's reasonable out-of-pocket expenses in connection with the
Offering, including, but not limited to, the reasonable fees, disbursements and
taxes of the Agent's Canadian legal counsel (who may also act for the
purchasers) to a maximum of $75,000 plus disbursements and applicable taxes, the
reasonable fees and disbursements and taxes of the Agent's United States legal
counsel to a maximum of $10,000 and any reasonable advertising, printing,
courier, telecommunications data search, "roadshow" presentations, travel and
other expenses the Agent.
The Company understands that all or parts of the fees and expenses which the
Company has agreed to pay (or reimburse, as applicable) to the Agent under this
Agreement may be subject to the Goods and Services Tax and/or applicable
provincial sales tax. Where any such tax is applicable, an additional amount
equal to the amount of such tax will be charged to, and paid by, the Company
when paying the related fees and expenses.
The Company agrees to reimburse the Agent for all expenses and taxes (subject to
the foregoing maximum) promptly upon receipt of an invoice from the Agent. In
addition, at the Closing the Agent will be entitled to deduct its estimated
expenses from the gross proceeds.
6. Conditions of Closing
The completion of the Offering will be subject to, and conditional on, among
other things, the receipt of (i) all necessary regulatory, director, shareholder
and other required approvals; and (ii) favourable legal opinions of counsel to
the Company in connection with the corporate and securities matters relating to
the Offering to the satisfaction of the Agent's counsel, acting reasonably.
7. Covenants on Issuance/Securities
Except for the Offering, the Company hereby agrees from and after the date
hereof, not to issue or sell any common shares, securities or financial
instruments convertible or exchangeable into common shares or any other equity
securities of the Company, other than to satisfy existing instruments of the
Company already issued as of the date hereof and disclosed to the Agent, until
the 60th day following the Going Public Closing Date, without the prior consent
of the Agent, such consent not to be unreasonably withheld.
8. Compliance with Laws and Use of Experts
The Company will comply with all applicable laws, regulations and policies,
whether domestic, foreign, national, federal, provincial, state or otherwise,
applicable to the Offering or applicable to the Company in the context of the
Offering. Similarly, in performing its role hereunder, the Agent will comply
with all applicable laws, regulations and policies, whether domestic, foreign,
national, federal, provincial, state or otherwise, applicable to its role in the
Offering.
9. Use of the Agent's Advice
The Company acknowledges and agrees that all written and oral opinions, advice,
analyses, and materials that the Agent provides in connection with this
Agreement or the Offering, other than as expressly to be provided to Prospective
Investors, are solely for the Company's benefit and internal use only in
considering the Offering. The Company covenants and agrees that no such
opinions, advice, analyses, or materials will be used for any other purpose
whatsoever, or reproduced, disseminated, quoted from or referred to, in whole or
part, at any time, in any manner, or for any purpose, without the Agent's prior
written consent in each specific instance.
10. Indemnity
The Company agrees to indemnify and save harmless the Agent, its affiliates and
its respective directors, officers, employees, partners, agents, advisors and
shareholders in accordance with Schedule B hereto, which schedule forms part of
this Agreement, and the consideration for which is the entering into of this
Agreement. Such indemnity ("Indemnity") will be in addition to, and not in
substitution of, any liability that the Company or any other person may
otherwise have to the Agent or other indemnities under the Indemnity. The
Indemnity will apply to all services contemplated herein, including, without
limitation, any Additional Services contemplated by paragraph 2 hereof.
11. Term and Termination
This Agreement will be effective as of the date hereof and will continue for 180
days thereafter, unless all parties otherwise agree in writing. If the Offering
does not close by the end of such term, the obligations of the parties under
this Agreement shall terminate without further action of the parties, or
formality or notice, other than the Company's obligations pursuant to the
following paragraphs:
Paragraph 5 Expenses and Taxes;
Paragraph 8 Compliance with Laws & Use of Experts;
Paragraph 9 Use of the Agent' Advice;
Paragraph 10 Indemnity;
Paragraph 15 Advertisements;
each of which will survive the completion of the Agreement hereunder, any
withdrawal, termination, or decision not to proceed with the Offering, or the
expiry or other termination or purported termination of this Agreement.
The Agent may terminate this letter by notice in writing to the Company at any
time prior to the Closing Date if: (i) the Agent is not satisfied, in their sole
discretion, with their due diligence review and investigations respecting the
Company, its business and operations; (ii) there is in the sole opinion of the
Agent, a material change or a change in any material fact or new material fact
shall arise which would be expected to have an adverse change or effect on the
business, affairs, or profitability of the Company or on the market price or the
value of the securities of the Company; (iii) the state of the Canadian, United
States or international financial markets is such that, in the sole opinion of
the Agent, it would be unprofitable to offer or continue to offer the
Subscription Receipts for sale; (iv) there should develop, occur or come into
effect any event of any nature, including without limitation, terrorism,
accident, or new or change in governmental law or regulation or other condition
or financial occurrence of national or international consequence, which, in the
sole opinion of the Agent, adversely affects or may adversely affect the
financial markets generally or the business, affairs, operations or
profitability of the Company or its subsidiaries or the market price or value of
the securities of the Company; (v) any inquiry, action, suit, proceeding or
investigation (whether formal or informal) (including matters of regulatory
transgression or unlawful conduct), is commenced, announced or threatened in
relation to the Company or any one of the officers or directors of the Company
or any of its principal shareholders which may have a material adverse affect;
(vi) any order to cease trading in securities of the Company is made or
threatened by a securities regulatory authority; or (vii) the Company is in
breach of a term, condition or covenant of this letter or the Agreement or any
representation or warranty given by the Company in the Agreement becomes or is
false.
12. Access to Information and Management
The Company will provide the Agent with all corporate, financial and operating
information and documentation with respect to the Company and its key officers
and scientific personnel and research collaborators, the Subscription Receipts
and the Offering in order to permit such due diligence investigations as the
Agent, in its discretion acting reasonably, determines to be appropriate in
respect of the Offering. It will also provide access to its senior management,
facilities, employees, auditors, legal counsel and consultants which is
reasonably necessary and sufficient to allow the Agent to perform their services
hereunder. The Company agrees to allow the Agent and its representatives to
conduct all due diligence investigations which they may reasonably require in
order to fulfill their obligations in connection with the Offering. The Agent
acknowledges that all information provided them or their advisers by the Company
or Tremblant pursuant to this agreement is confidential, the Agent agrees that
it shall maintain such information in confidence and that such information shall
not be used other than in furtherance of the purposes of this agreement,
provided that this confidentiality obligation shall not apply to (a) information
now in the public domain, (b) information which subsequently becomes public
other than through breach by the Agent of its obligations hereunder, (c)
information disclosed to the Agent by third parties in respect of which such
third parties are not under an obligation of confidentiality or (d) information
which is required by law to be disclosed. The Agent's representatives, including
professional consultants, shall be made aware of and be bound by this provision.
13. Material Changes
The Company will promptly advise the Agent in writing of any actual or
contemplated material change to its affairs or any information it has provided
to the Agent with respect to the Company, the Subscription Receipts or the
Offering. Unless so advised, the Agent will be entitled to assume that there has
been no material change to such information and, accordingly, will be entitled
to rely on it. The Company hereby represents and warrants to the Agent that as
of the date of this Agreement there is no undisclosed material change or
material fact relating to the Company.
The Company will promptly notify the Agent of any notice from any judicial or
regulatory authority requesting any information or meeting or initiating or
threatening any hearing or other regulatory disciplinary process with respect to
the Company, its affairs, the Offering, or of any other event or state of
affairs that could reasonably be considered relevant to the Agent or any of the
Prospective Investors.
If, prior to the completion of the Offering, there is an actual or contemplated
material change or event, or if the Company discovers any fact or information
which, acting reasonably, it believes is material or any other materials used
with respect to the Offering, it will:
(a) notify the Agent in writing of the full particulars thereof;
(b) with the Agent's input, prepare, file and distribute such amendment in the
manner permitted or required pursuant to all applicable securities legislation
or any order from the relevant authorities and/or courts; and
(c) provide the Agent with such number of copies of the amendment as it may
reasonably request.
The Company covenants that if there is any uncertainty whatsoever as to whether
a matter constitutes or may constitute a material change or event, it shall
immediately disclose such change or event to the Agent.
14. Agency Agreement
The parties intend to negotiate a definitive agency agreement (the "Agency
Agreement") in good faith, reflecting the terms of this Agreement, subject to,
among other things, satisfactory completion of the Agent's due diligence
investigations, no adverse material change relating to the Company, and
favorable market conditions.
The Company and the Agent will enter into the Agency Agreement on the Closing
Date in a form customary for similar private placement transactions. The Agency
Agreement will contain, among other things, complete and customary
representations and warranties from the Company and the Agent, an exhaustive
Indemnity and customary market-out, disaster-out, inquiry-out, material-change
and market-out termination provisions.
15. Advertisements
If the Agent so requests (but otherwise not without the Agent's prior approval,
not to be unreasonably withheld), the Company will include a reference to the
Agent and its role with respect to the Offering in any press release or other
public communication it issues in respect of the Offering. If the Offering is
successfully completed, provided the Agent is not in breach of any material
provision hereof, the Company will permit the Agent to publish, at the Agent'
own expense, such advertisements or announcements relating to the services it
provided hereunder in such newspaper or other publications as the Agent
considers appropriate.
16. Escrow of Proceeds
The proceeds from the Offering, less the expenses and fees payable by the
Company to the Agent hereunder, shall be deposited into escrow (the "Escrow
Proceeds") with a third party trust company acting as escrow agent pursuant to
the terms of an escrow agreement (the "Escrow Agreement") to be entered into
among the escrow agent, the Company and the Agent and shall be released on the
Going Public Closing Date, provided the Agent has not called for release of the
Escrowed Proceeds to subscribers beforehand in accordance with the terms of the
Escrow Agreement.
The Company agrees to provide the necessary funds to cover any shortfall between
the Escrow Proceeds and the amount to be returned to subscribers.
17. Right of First Refusal
The Agent shall have a right of first refusal to act as lead agent or
underwriter with respect to any equity or debt-related offering of securities of
the Company where an investment dealer is or proposes to be involved during the
period ending 18 months after the Closing, as follows: (a) in a bought deal
offering, the Agent shall have a right of first refusal in respect of the
offering, to be exercised within the context of the time limits contained in
such proposed bought deal offering; (b) in a non-bought deal offering, the Agent
shall have a period of five days from the date of receipt of written notice from
the Company of any such proposed financing, in which notice the Company shall
set forth in detail the terms of such proposed equity or debt-related offering,
to provide written notice to the Company that the Agent intends to exercise its
right of first refusal. If the Agent does not give written notice within such
five day period, it shall be deemed to have waived its right in respect of such
transaction. Should the Agent fail to give notice within five days of the
receipt of the Company's notice, the Company may then make other arrangements to
engage another source to obtain financing on terms no less favourable to the
Company for a period of 60 days thereafter. The Agent's waiver of its right in
respect of any one or more transactions will not constitute a waiver of its
right of first refusal in respect of any other transaction. If another source is
not engaged in connection with a transaction where the Agent waives or is deemed
to have waived its right of first refusal within 60 days following the date on
which the five day period set forth above expires, the transaction shall be
deemed to be a new transaction requiring the Company to give written notice to
the Agent as set forth above.
18. Notices
Any notice or other communication required or permitted to be given under this
Agreement will be in writing and delivered to:
The Company: Loretta Food Group Inc.
2405 Lucknow Drive
Mississauga, ON L5S 1H9
Attention: Al Burgio,
President and CEO
Fax: (905) 678-0733
On behalf of all Agent: Dundee Securities Corporation
4th Floor
20 Queen Street West
Toronto, ON M5H 3R3
Attention: David G. Anderson
Fax: (416) 350-3281
The parties may change their respective addresses for notices by notice given in
the manner set out above.
Any notice or other communication will be in writing and delivered as follows:
(a) personally to the addressee or to a responsible officer of the addressee, as
applicable, and deemed to be given when so delivered; or
(b) by telecopier and deemed to have been given on the second business day
following the day on which it was sent, with receipt confirmed by the sender's
fax machine.
19. Successors and Assigns
This Agreement will enure to the benefit of, and be binding upon, the parties
hereto and their respective successors and assigns; provided that no party may
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the other.
20. Governing Law
This Agreement is made pursuant to, and will be construed in accordance with,
the laws of the Province of Ontario and the laws of Canada applicable therein,
in each case without reference to conflicts of law rules. The parties hereby
submit to the non-exclusive jurisdiction of the courts of the Province of
Ontario.
21. Acknowledgement of the Agent's Activities
The Company acknowledges the following:
(a) the Agent is a full-service securities firm engaged in foreign exchange,
securities trading and brokerage activities, as well as investment banking and
financial advisory services; and
(b) in the ordinary course of such activities, the Agent and its affiliates may,
for its own account or for its clients' accounts, hold long or short positions
and may trade or otherwise effect transactions in debt or equity securities or
related derivative securities of the Company's competitors or any other company
that may be involved in a private placement.
The Agent would welcome the opportunity to act with respect to the Offering on
behalf of the Company. Should you wish to accept this offer, please sign and
return one copy of this letter to their attention at or before 5:00 p.m.
(Montreal time) on April 15, 2005, whereupon this letter shall become a binding
agreement. This letter may be signed in one or more counterparts (by original or
facsimile signature), each of which when so executed shall be deemed to be an
original, and such counterparts together shall constitute one and the same
instrument.
The parties acknowledge that they have required that this Agreement and all
documents, notices and correspondence relating directly or indirectly to this
Agreement be prepared in English. Les parties reconnaissent avoir exige que la
presente convention et tous les documents, avis et correspondance y afferents
directement ou indirectement soient rediges en anglais.
Yours truly,
DUNDEE SECURITIES CORPORATION
Per: /s/ David Anderson
- -------------------------
David Anderson
The foregoing is in accordance with our understanding, and the Company agrees to
it as of the date first written above.
LORETTA FOOD GROUP INC.
Per: /s/ Al Burgio
- -------------------
Al Burgio
President and CEO
SCHEDULE A
TERM SHEET
LORETTA FOOD GROUP INC.
PRIVATE PLACEMENT OFFERING OF SUBSCRIPTION RECEIPTS
Issuer: Loretta Food Group Inc. (the "Company")
Description of Issuer: The Company manufactures and distributes branded
and private label food and food-related products
and is a not a reporting issuer for the purposes of
Canadian securities laws and is a U.S. SEC
reporting company.
Issue: A best-efforts private placement of subscription
receipts of the Company ("Subscription Receipts")
at a price of $0.27 per Subscription Receipt.
Immediately prior to completion of a transaction
("Going Public Transaction") with CPVC Tremblant
Inc., or another public company listed on TSX
Venture Exchange, each Subscription Receipt will
automatically be converted into one-third of one
common share (a "Common Share") of the Company (or
in the event that the Going Public Transaction has
not been completed prior to the 4 month anniversary
of the closing of the sale of Subscription Receipts
in escrow, 0.3667 Common Shares), which will then
be exchanged for shares of CPVC Tremblant Inc. It
being understood that a Going Public Transaction
will not be completed if such transaction were to
have material adverse tax consequences, as
determined by the Agent, acting reasonably, on the
purchasers for the Subscription Receipts. The
mechanics of the Subscription Receipts shall be as
agreed in the Agency Agreement.
Escrow: The net proceeds of the offering of Subscription
Receipts will be placed in escrow pursuant to an
escrow agreement among the Company, Dundee
Securities Corporation and an escrow agent which
shall provide that such funds shall not be released
to the Company until the closing of a Going Public
Transaction. In the event that a Going Public
Transaction is not completed prior to the 6 month
anniversary closing of the offering of Subscription
Receipts in escrow, holders of Subscription
Receipts shall be entitled to remove their
respective subscription funds from escrow. The
Company agrees to provide the necessary funds to
cover any shortfall between the amount held in
escrow and the amount to be returned to subscribers
(not to exceed the amount of the Agent's commission
and expenses).
Amount: A minimum of 5,555,400 Subscription Receipts for
gross proceeds of $1,500,000 and a maximum of
11,111,100 Subscription Receipts for gross proceeds
of $3,000,000.
Price: CDN$0.27 per Subscription Receipt.
Closing Date: On or about May 27, 2005, or such other date as the
Company and the Agent may agree, provided that it
shall occur as soon as reasonably possible.
Hold Period: The Common Shares issuable upon the closing of the
Going Public Transaction will be freely tradeable
in Canada and no Canadian resale restrictions
attached to them other than those applicable to
sales by control persons.
Offering Jurisdictions: The offering jurisdictions for this offering will
be such provinces as the Agent may designate,
including British Columbia, Alberta, Saskatchewan,
Manitoba, Quebec and Ontario pursuant to Regulation
S of the US Securities Act of 1933, as amended.. At
the discretion of the Agent and upon consent by the
Company, not to be unreasonably withheld. The
Subscription Receipts will not be sold to US
investors.
Qualified Investors: Accredited investors, as defined under the
applicable securities laws, rules or policies in
the respective jurisdictions.
Use of Proceeds: Working capital.
Agent: Dundee Securities Corporation
AGENT'S COMPENSATION:
Commission: A cash commission of 8% of the gross proceeds of
the Offering will be paid to the Agent pursuant to
the Agency Agreement.
Compensation Options: Compensation Options to acquire such number of
Common Shares equal to 10% of 1/3 of the number of
Subscription Receipts sold under this Offering by
the Agent, at a price of $0.81 per Common Share,
exercisable until the 18 month anniversary of the
Closing Date, such options to be granted to the
Agent and to be distributed in accordance with the
Agency Agreement. Any Compensation Options issued
pursuant to the Offering will be exchanged pursuant
to the Business Combination at the same exchange
ratio as the Common Shares.
Expenses: The Company will be responsible for all the Agent's
reasonable out-of-pocket expenses in connection
with the Offering, including, but not limited to,
the reasonable fees, disbursements and taxes of the
Agent's Canadian legal counsel (who may also act
for the purchasers) to a maximum of $75,000 plus
disbursements and applicable taxes, the reasonable
fees and disbursements and taxes of the Agent's
United States legal counsel to a maximum of $10,000
and any reasonable advertising, printing, courier,
telecommunications data search, "roadshow"
presentations, travel and other expenses the Agent.
SCHEDULE B
INDEMNITY
In consideration for the Agent accepting the engagement ("Engagement") pursuant
to the agreement to which this Schedule B is attached, the Company agrees to
indemnify and save harmless the Agent, its affiliates and its respective
directors, officers, employees, partners, agents, advisors and shareholders
(collectively, the "Indemnified Parties" and individually, an "Indemnified
Party") from and against any and all losses, claims, actions, suits,
proceedings, damages, liabilities or expenses of whatsoever nature or kind
(excluding loss of profit), including the aggregate amount paid in reasonable
settlement of any actions, suits, proceedings, investigations or claims and the
reasonable fees, disbursements and taxes of their counsel in connection with any
action, suit, proceeding, investigation or claim that may be made or threatened
against any Indemnified Party or in enforcing this indemnity (collectively,
"Claims") to which an Indemnified Party may become subject or otherwise involved
in any capacity insofar as the Claims relate to this engagement, other than any
Claims based solely on the gross negligence, fraudulent act or bad faith of the
Indemnified Party.
The Company agrees to waive any right the Company might have of first requiring
the Indemnified Party to proceed against or enforce any other right, power,
remedy or security or claim payment from any other person before claiming under
this indemnity. The Company agrees that no Indemnified Party will have any
liability (whether direct or indirect, in contract, tort, or otherwise) to the
Company or any person asserting claims on behalf of or in right of the Company
for or in connection with this Engagement except to the extent any losses,
actions, damages or liabilities incurred by the Company or any such other person
are determined by a court of competent jurisdiction in a final judgment which
has become non-appealable to have resulted primarily from the gross negligence,
fraudulent act or bad faith of such Indemnified Party.
In case any action, suit, proceeding or claim is brought or threatened in
writing against an Indemnified Party or an Indemnified Party has received notice
of the commencement of any investigation in respect of which indemnity may be
sought against the Company, the Indemnified Party will give the Company prompt
written notice of any such action, suit, proceeding, claim or investigation (or
threat of same, in writing) of which the Indemnified Party has knowledge and the
Company will undertake the investigation and defence thereof on behalf of the
Indemnified Party, including the prompt employment of counsel acceptable to the
Indemnified Party (acting reasonably) affected and the payment of all expenses.
Delay or failure by the Indemnified Party to so notify will not relieve the
Company of its obligation of indemnification hereunder unless (and only to the
extent that) such failure results in prejudice to the Company in the defence of
such action, suit, proceeding, investigation or claim or results in any material
increase in the liability which the Company has under this indemnity.
No admission of liability and no settlement, compromise or termination of any
action, suit, proceeding, claim, or investigation will be made without the
Company's consent and the consent of the Indemnified Parties affected; such
consents not to be unreasonably withheld or delayed. Notwithstanding that the
Company will undertake the investigation and defence of any Claim, an
Indemnified Party will have the right to employ separate counsel with respect to
any Claim and participate in the defence thereof, but the fees and expenses of
such counsel will be at the expense of the Indemnified Party unless:
(a) employment of such counsel has been authorized in writing by the Company;
(b) the Company has not assumed the defence of the Claim within a reasonable
period of time after receiving notice of the Claim or threatened Claim;
(c) the named parties to any such claim include both the Company and the
Indemnified Party and the Indemnified Party has been advised by counsel to the
Indemnified Party that there may be a conflict of interest between the Company
and the Indemnified Party; or
(d) there are one or more defences available to the Indemnified Party which are
different from or in addition to those available to the Company,
in which case such fees and expenses of such counsel to the Indemnified Party
will be for the Company's account.
If for any reason the foregoing indemnification is unavailable (other than in
accordance with the terms hereof) to the Indemnified Parties (or any of them) or
is insufficient to hold them harmless, the Company will contribute to the amount
paid or payable by the Indemnified Parties as a result of such Claims in such
proportion as is appropriate to reflect not only the relative benefits received
by the Company or the Company's shareholders on the one hand and the Indemnified
Parties on the other, but also the relative fault of the parties and other
equitable considerations which may be relevant. Notwithstanding the foregoing,
the Company will in any event contribute to the amount paid or payable by the
Indemnified Parties as a result of such Claim any amount in excess of the fees
actually received by the Indemnified Parties under the agreement to which this
schedule is attached.
The Company hereby constitutes the Agent as trustee for any other person who is
an Indemnified Party under this indemnity in respect of the Company's covenants
under this indemnity with respect to such persons, and the Agent agrees to
accept such trust and to hold and enforce such covenants on behalf of such
persons.
In respect of a Claim for which indemnity is to be provided hereunder, the
Company agrees to reimburse the Agent monthly for the time spent by the Agent's
personnel in connection with any Claim at their normal per diem rates. The
Company also agrees that if any action, suit, proceeding or claim will be
brought against, or an investigation commenced in respect of the Company or the
Company and the Agent and personnel of the Agent will be required to testify,
participate or respond in respect of or in connection with the Engagement, the
Agent will have the right to employ its own counsel in connection herewith and
the Company will reimburse the Agent monthly for such disbursements and
reasonable out-of-pocket expenses as may be incurred, including fees and
disbursements of the Agent's counsel; provided that, such expense will be
reimbursed only if the Agent's and/or its personnel's request to have such
reimbursement is on prior notice to and acceptance by the Company, whose
determination of necessity will prevail.
The rights accorded to the Indemnified Parties hereunder are in addition to any
rights an Indemnified Party may have at common law or otherwise