Securities Law & Instruments

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications - distribution of securities by an issuerby way of an equity line of credit - an equity line of creditis an agreement with a public company under which a purchasermakes a commitment at signing to purchase a specified dollaramount of securities on terms that enable the company to determinethe timing and dollar amount of securities the purchaser willreceive - the company has the right, but not the obligation,to sell the securities which are the subject of the equity lineto the purchaser, up to a specified maximum dollar amount, ina series of draw downs over a specified period of time (in general,12 to 24 months) - purchaser purchases at a predetermined percentagediscount (the "discount to market") from the volumeweighted average price of the company's securities over a periodof trading days - as a result of the discount to market, purchaserhas strong economic incentive to resell (or sell short, or otherwisehedge) the securities which are the subject of a draw down toconvert the discount to cash and to reduce as much as possibleinvestment risk - purchaser may be considered to be acting asan "underwriter" - a draw down under an equity lineof credit may be considered to be an indirect distribution ofsecurities by the company to subsequent purchasers of securitiesfrom the equity line purchaser - relief granted to issuer andequity line purchaser from certain registration and prospectusrequirements of securities legislation, subject to terms, includinga 10% restriction on the number of securities that may be distributedunder an equity line in any 12 month period, prospectus disclosurerelating to the first purchasers from the equity line purchaser,and certain notification and disclosure requirements.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c.S.5, as am.,ss. 25(1)(a), 59(1), 71(1), 74 and 147.

Applicable Ontario Rules

OSC Rule 45-501 Exempt Distributionss. 1(1) "accredited investor".

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA AND ONTARIO

AND

IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF
THE ROSEWORTH GROUP LTD. AND CELL-LOC INC.

MRRS DECISION DOCUMENT

1. WHEREAS the local securities regulatory authorityor regulator (the "Decision Maker") in each of theprovinces of Alberta and Ontario (collectively, the "Jurisdictions")has received an application from The Roseworth Group Ltd. (the"Filer") and Cell-Loc Inc. ("Cell-Loc")in connection with a proposed "equity line of credit"arrangement (the "Equity Line") for:

1.1. a decision under the securities legislationof each of the Jurisdictions (the "Legislation") thatthe requirements of the Legislation, in particular those requiringthe Filer to be registered as a dealer and its officers, directorsand certain of its employees to be registered as salespersons,officers or directors of a registered dealer in connection withacting as an underwriter on the Equity Line (such requirements,the "Registration Requirements") do not apply to theFiler and its employees, officers and directors; and

1.2 a decision under the Legislation that therequirements of the Legislation, in particular:

1.2.1 those requiring Cell-Loc to include andthe Filer to execute a certificate as part of the Prospectus(as hereinafter defined) do not apply to the Filer or Cell-Loc,as the case may be;

1.2.2 those requiring the Filer to send or deliverto a First Purchaser (as hereinafter defined) the Prospectus,as amended, within two business days of a sale do not applyto the Filer;

1.2.3 those granting First Purchasers the statutoryright to withdraw from a purchase of Cell-Loc Shares (as hereinafterdefined) resold by the Filer within two business days afterreceipt by the First Purchaser of the Prospectus, as amended,do not apply;

1.2.4 those granting First Purchasers the statutoryright to elect to rescind a purchase of Cell-Loc Shares resoldby the Filer if the Prospectus, as amended, contains a misrepresentationdo not apply to the Filer; and

1.2.5 the statutory liability of the Filer topurchasers of Cell-Loc shares from the Filer within 40 daysfrom each respective Settlement Dates (as hereinafter defined)will not apply, (but Cell-Loc will have statutory liabilityto such purchasers, on the modified basis as provided herein),

all in connection with the Equity Line (suchrequirements, the "Prospectus Requirements");

2. AND WHEREAS the relief requested herein fromthe Registration Requirements and the Prospectus Requirementsis a result of the unique nature of an "equity line ofcredit". An "equity line of credit" is an agreementwith a public company under which a purchaser makes a commitmentat signing to purchase a specified dollar amount of securitieson terms that enable the company to determine the timing anddollar amount of securities the purchaser will receive. Specifically,the company has the right, but not the obligation, to sell thesecurities which are the subject of the equity line to the purchaser,up to a specified maximum dollar amount, in a series of drawdowns over a specified period of time. Following receipt ofa notice of a draw down, a purchaser under an equity line mayseek to finance the purchase of the securities which are thesubject of the draw down notice, in whole or in part, directlyor indirectly, through the sale of the same or equivalent securitiesof the company in the secondary market. Consequently, the purchasermay be considered to be acting as an "underwriter"as that term is defined in the Legislation, and a draw downunder an "equity line of credit" may be consideredto be an indirect distribution of securities of the companyby the company to purchasers of the securities from the purchaserwith the purchaser acting as the underwriter of the distribution;

3. AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Alberta Securities Commission is the principal regulatorfor this application;

4. AND WHEREAS the Filer and Cell-Loc have representedto the Decision Makers that:

4.1 the Filer is a corporation incorporatedunder the laws of the British Virgin Islands and is residentin the British Virgin Islands. The head office of the Fileris located c/o Harbour House, 2nd Floor, Waterfront Drive, RoadTown, Tortola, British Virgin Islands;

4.2 the Filer is not a "reporting issuer"(or its equivalent) under the securities legislation of anyprovince or territory of Canada or in any other jurisdiction.The Filer is not registered under the securities legislationof any province or territory of Canada or in any other jurisdictionas a dealer, advisor or underwriter (or their equivalents) andis not a participating organization, approved participant ormember, as the case may be, of any stock exchange, over-the-countermarket or securities regulatory authority. None of the Filer,its associates, affiliates and insiders, either individuallyor collectively (the "Filer's Group") are registeredunder U.S. securities legislation;

4.3 the Filer is an "accredited investor"as defined in Ontario Securities Commission Rule 45-501;

4.4 Cell-Loc is a corporation amalgamated underthe Business Corporations Act (Alberta) having its head officein the City of Calgary in the Province of Alberta. Cell-Locis a "reporting issuer" (or its equivalent) underthe securities legislation of the Provinces of British Columbia,Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, NovaScotia, Prince Edward Island and Newfoundland. Cell-Loc is notcurrently subject to the reporting requirements of the UnitedStates Securities Exchange Act of 1934, as amended. As at March28, 2002, there were 28,497,438 Cell-Loc Shares issued and outstanding.The outstanding Cell-Loc Shares are listed and posted for tradingon The Toronto Stock Exchange (the "TSE") under thesymbol "CLQ";

4.5 the Filer and Cell-Loc propose, upon thefiling of the Prospectus (as hereinafter defined) by Cell-Loc,to enter into a subscription agreement (the "SubscriptionAgreement") pursuant to the terms of which Cell-Loc wouldhave the right, from time to time, to require the Filer to purchasefrom treasury a certain number of common shares in the capitalof Cell-Loc (the "Cell-Loc Shares"), the principalterms of which will be as follows:

4.5.1 subject to paragraph 7 below, the maximumnumber of Cell-Loc Shares that may be issued pursuant to theSubscription Agreement will be (i) 3,000,000 Cell-Loc Sharesduring the first twelve month period of the subscription commitment,and (ii) up to 10% of the issued and outstanding Cell-Loc Shares,as at the last trading day of the first twelve month period,during the second twelve month period of the subscription commitment;provided that no additional Cell-Loc Shares may be issued duringthe Term (as hereinafter defined) if US$40 million aggregategross proceeds have been realized by Cell-Loc in respect ofprior issuances of Cell-Loc Shares pursuant to Draw Downs (asdefined below);

4.5.2 for a period of 24 months (the "Term"),Cell-Loc will be entitled, in its sole discretion, to completedraw downs (each a "Draw Down") by serving a drawdown notice (a "Draw Down Notice") on the Filer pursuantto which the Filer will be required to subscribe for and purchase(subject to a minimum and maximum and certain adjustments andconditions for the benefit of the Filer) that number of Cell-LocShares as is equal to the dollar amount set forth in the subjectDraw Down Notice (the "Draw Down Amount");

4.5.3 the Draw Down Amount for a Draw Down willbe allocated pro rata over a set number of consecutive tradingdays (the "Period") beginning on the date selectedin the Draw Down Notice;

4.5.4 the applicable purchase price (the "PurchasePrice") to be paid by the Filer on each trading day duringthe Period will be based on the volume-weighted average priceof the Cell-Loc Shares on the TSE for that trading day, lessa discount as agreed to by the Filer and Cell-Loc. The numberof Cell-Loc Shares purchased by the Filer on each trading dayduring the Period will be the pro rata Draw Down Amount allocatedto such trading day divided by the Purchase Price for that tradingday;

4.5.5 the purchase and sale with respect toeach Draw Down will be completed in two settlements (the "SettlementDates");

4.5.6 Cell-Loc will be required to set a minimumprice (the "Threshold Price") with respect to eachDraw Down (which shall not be less than 80% of the daily volume-weightedaverage price of the Cell-Loc Shares over the five trading daysimmediately preceding the date of the applicable Draw Down Notice)and for each trading day during the Period in which the dailyvolume-weighted average price per Cell-Loc Share on the TSEis less than the Threshold Price, the Draw Down Amount is appropriatelyreduced and that trading day is withdrawn from the Period;

4.5.7 immediately following the closing of aDraw Down, Cell-Loc will forthwith issue a press release (i)announcing the closing of a Draw Down under the SubscriptionAgreement; (ii) stating that the Prospectus (as hereinafterdefined) relating to the Draw Down is available on the SEDARwebsite; and (iii) stating that the First Purchasers (as hereinafterdefined) of Cell-Loc Shares under the Prospectus prior to theexpiration of the date that is 40 days from the respective SettlementDates of the Filer's purchases of Cell-Loc Shares pursuant tothe applicable Draw Down have certain statutory rights describedin the Prospectus;

4.5.8 a copy of the Draw Down Notice will befiled by Cell-Loc with the Market Surveillance department ofthe TSE, and if requested to do so, with the Decision Makers,prior to or immediately upon delivery of each Draw Down Notice;and

4.5.9 immediately upon entering into the SubscriptionAgreement, Cell-Loc will: (A) pay to the Filer an expense reimbursementfor legal, administrative and due diligence fees and expensesincurred by the Filer in connection with the Equity Line; and(B) issue to the Filer warrants (the "Warrants") havinga term of exercise of three years to subscribe for up to 350,000Cell-Loc Shares at an exercise price of 100% of the weightedaverage trading price of the Cell-Loc Shares on the TSE on thelast trading day prior to issuance of the Warrants;

4.6 the Subscription Agreement will providethat if a Draw Down Notice specifies a Draw Down Amount whichwould require Cell-Loc to sell to the Filer's Group, a numberof Cell-Loc Shares in connection with a particular Draw Downwhich, when added to the aggregate number of Cell-Loc Sharesbeneficially owned by the Filer's Group at such time (and, forthe purposes of such calculation, the Filer's Group shall bedeemed to own the shares issuable upon the exercise of the Warrants),would result in beneficial ownership by the Filer's Group ofmore than 9.9% of the then issued and outstanding Cell-Loc Shares,the Draw Down Amount will be reduced accordingly, so that theFiler's Group will not be required to purchase more than suchnumber of Cell-Loc Shares such that the aggregate number ofCell-Loc Shares beneficially owned by the Filer's Group (includingthe shares issuable upon the exercise of the Warrants) aftercompletion of the purchase would result in beneficial ownershipby the Filer's Group of 9.9% of the then issued and outstandingCell-Loc Shares;

4.7 as required by the Decision Makers, theSubscription Agreement will provide that Cell-Loc will not issueor make subject to issuance any Cell-Loc Shares issued or madeissuable as a result of a Draw Down Notice having been deliveredby it to the Filer, if as a result of such issuance or proposedissuance, the aggregate number of Cell-Loc Shares issued ormade issuable in accordance with all Draw Down Notices deliveredin any twelve month period exceeds 10% of the Cell-Loc Sharesissued and outstanding at the beginning of any such twelve monthperiod. The Subscription Agreement will further provide thatCell-Loc and the Filer will not amend the foregoing covenantwithout the prior written consent of the Decision Makers;

4.8 the Filer will covenant in the SubscriptionAgreement that neither it nor any member of the Filer's Groupwill, during the Term, hold a short position of Cell-Loc Shares.For the purposes of determining the net position of Cell-LocShares held by the Filer and its affiliates, on each tradingday during a Period, the Subscription Agreement will providethat the Filer will be deemed to own the Cell-Loc Shares whichthe Filer is required to purchase for that day pursuant to theapplicable Draw Down Notice, irrespective of whether the Filerhas received delivery of such shares, and the shares issuableupon the exercise of the Warrants;

4.9 the Filer will undertake to the TSE to providethe TSE with the details in respect of the trading and hedgingactivities of the Filer's Group relating to the Cell-Loc Sharesduring the applicable Period, within five Trading Days followingthe end of each Period, including, for each Trading Day in thesubject Period, the number of securities so purchased or soldand the purchase or sale price therefor on such day. The Filerwill also undertake to provide such information to the DecisionMakers, upon the request of staff at either of such commissions;

4.10 the Cell-Loc Shares to be issued duringthe first twelve months pursuant to Draw Downs, and the Warrantsissued to the Filer upon execution of the Subscription Agreement,will be qualified by filing a (final) long-form prospectus (the"First Prospectus") with the Decision Makers. Immediatelyfollowing issuance of all receipts for the First Prospectus,Cell-Loc and the Filer will enter into the Subscription Agreementand the Warrants will be issued to the Filer. After the endof the first twelve month period, if additional Draw Downs maybe made pursuant to the Subscription Agreement, the Cell-LocShares to be issued pursuant to such Draw Downs will be qualifiedby filing a (final) long-form prospectus (the "Second Prospectus")with the Decision Makers (the First Prospectus and the SecondProspectus are collectively referred to as the "Prospectus");

4.11 on or prior to each Settlement Date, Cell-Locwill, if required by the Legislation, file an amended and restatedProspectus such that the Prospectus is current at such date;

4.12 if the Filer, within 40 days of a SettlementDate,

4.12.1 resells any of the Cell-Loc Shares acquiredby it pursuant to a Draw Down through the TSE or otherwise intothe secondary market in Canada, or

4.12.2 directly or indirectly, hedges the investmentrisk associated with the acquisition of any of the Cell-LocShares by means of short sales or similar strategies involvingthe sale of Cell-Loc Shares (or securities convertible into,exchangeable for or economically equivalent to Cell-Loc Shares)through the TSE or otherwise into the secondary market in Canada,

Cell-Loc will recognize such transactions asbeing in the course of or incidental to a distribution, willrecognize the first purchasers thereof (the "First Purchasers")as having purchased pursuant to such distribution and will provideeach First Purchaser with "constructive delivery"of the Prospectus, as amended, pursuant to the terms of thisMRRS Decision Document;

4.13 in the event there is a misrepresentationin the Prospectus, as amended, each First Purchaser will beentitled to certain statutory rights pursuant to the Legislation,which rights shall be described in the Prospectus; and

4.14 Cell-Loc will file the Prospectus and eachamendment thereto if required under the Legislation in accordancewith National Instrument 13-101 - System for Electronic DocumentAnalysis and Retrieval (SEDAR) - and, immediately after receivingall receipts therefor: (a) Cell-Loc will issue a press releaseoutlining the special arrangements regarding the rights of aFirst Purchaser as set forth in 13 above; (b) the Filer willsend a letter to each First Purchaser or its broker (for andon behalf of the First Purchaser) advising it that it is infact a First Purchaser or is acting on behalf of a First Purchaserand as such has certain rights as set forth in 13 above anddirecting the First Purchaser to the SEDAR website at www.sedar.comwhere it may obtain a copy of the Prospectus.

5. AND WHEREAS under the System, this MRRS DecisionDocument evidences the decision of each Decision Maker (collectively,the "Decision");

6. AND WHEREAS each of the Decision Makers issatisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decisionhas been met;

7. IT IS THE DECISION of the Decision Makersthat the Registration Requirements and Prospectus Requirementscontained in the Legislation shall not apply to the Filer, itsemployees, officers and directors or Cell-Loc, as applicable,in connection with the distribution or distributions of Cell-LocShares by Cell-Loc made under a prospectus through the Filer,as underwriter, pursuant to the Equity Line, so long as:

7.1 the number of Cell-Loc Shares distributedby Cell-Loc under one or more equity lines of credit, includingthe equity line facility pursuant to the Subscription Agreement,in any 12-month period does not exceed 10 percent of the numberof Cell-Loc Shares issued and outstanding as at the start ofsuch period;

7.1.1 Cell-Loc provides a copy of each DrawDown Notice to the TSE, and, if requested to do so, the DecisionMakers, prior to or immediately upon its issuance;

7.1.2 immediately following the closing of aDraw Down, Cell-Loc forthwith issues a press release (i) announcingthe closing of a Draw Down under the Subscription Agreement;(ii) stating that the Prospectus relating to the Draw Down isavailable on the SEDAR website; and (iii) stating that the FirstPurchasers of Cell-Loc Shares under the Prospectus prior tothe expiration of the date that is 40 days from the respectiveSettlement Dates of the Filer's purchases of Cell-Loc Sharespursuant to the applicable Draw Down have certain statutoryrights described in the Prospectus;

7.1.3 the Filer does not solicit offers to purchasethe Cell-Loc Shares and effects all sales of Cell-Loc Sharesthrough a dealer unaffiliated with the Filer and Cell-Loc andregistered under the applicable Legislation; and

7.1.4 the Filer agrees to make available tothe Decision Makers, upon request, full particulars of its tradingand hedging activities (and if relevant the trading and hedgingactivities of other member of the Filer's Group) relating tosecurities of Cell-Loc during the Term.

April 26, 2002.

"Glenda A. Campbell"      "Wendy E. Best"