EXHIBIT 4.2
PREFERRED SHARE PURCHASE AGREEMENT
This Preferred Share Purchase Agreement (this "Agreement") is dated for
reference March 28, 2005 by and between Clearly Canadian Beverage Corporation, a
British Columbia company (the "Corporation") and BG Capital Group Ltd., a
Bahamas corporation ("Holder"). The Corporation and Holder are collectively
referred to herein as the "parties" and each a "party."
NOW, THEREFORE, in consideration of the above and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS
In this Agreement:
(a) "2005 Budgeted Targets" means the budgeted targets of the
Corporation's performance as set out in Schedule A attached hereto, which
budgeted targets are based in part on the 2005 Pro Forma Budget of the
Corporation set out in Schedule B attached hereto;
(b) "Affiliate" has the meaning set forth in Rule 12b-2 under the
Exchange Act of 1934, as amended (the "Exchange Act");
(c) "BG Facility" means the One Million Dollar ($1,000,000.00) loan
from Holder to the Corporation pursuant to the terms of a loan agreement between
Holder and the Corporation dated February 9, 2005 (the "BG Loan Agreement");
(d) "Blue Mountain" means Blue Mountain Springs Ltd., an Ontario
corporation, wholly-owned by the Corporation;
(e) "Business Day" means a day which is not a Saturday, Sunday or any
statutory holiday in the Province of British Columbia;
(f) "CAPCO Facility" means the One Million Dollar ($1,000,000.00)
operating line of credit established by CAPCO Financial Company, a division of
Greater Bay Bank N.A ("CAPCO") in favour of CCB (US), as amended from time to
time, together with all security granted thereunder;
(g) "CCB(US)" means CC Beverage (U.S.) Corporation, a Washington
corporation wholly-owned by the Corporation;
(h) "Collingwood Property" means the land located in the Township of
Osprey, in the County of Grey, owned by Blue Mountain, as more particularly
described in Schedule C hereto;
(i) "Collingwood Property Mortgages" means the first charge security
mortgage in the principal amount of Eight Hundred Thousand Canadian Dollars
($800,000.00 CDN) registered against the Collingwood Property in the names of
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇-▇▇▇▇ Dudart-▇▇▇▇▇▇▇ and the second charge security
mortgage in the principal amount of One Million Canadian Dollars ($1,000,000.00
CDN) registered against the Collingwood Property in the name of Global as
security for the Global Facility;
(j) "Common Shares" means the Corporation's common shares after such
shares have been consolidated on a ten (10) for one (1) share basis pursuant to
the Shareholder Approval;
(k) "Convertible Debentures" means the Six Hundred and Seventy
Thousand Canadian Dollars ($670,000.00 CDN) principal amount of secured
convertible debentures issued by the Corporation pursuant to the Convertible
Debenture Trust Indenture;
(l) "Convertible Debenture Trust Indenture" means the trust indenture
dated December 2, 2002 as amended by a supplemental trust indenture dated
December 1, 2003 between the Corporation and Pacific Corporate Trust Company,
under which the Corporation has issued the Convertible Debentures and granted a
security interest in all of its present and after-acquired personal property;
(m) "Criterion Contract" means the consulting contract between
Criterion Capital Corporation ("Criterion"), a British Columbia corporation
wholly-owned by ▇▇▇▇▇▇▇ ▇▇▇▇▇ and the Corporation dated March 1, 2002, as
amended by letter agreement dated February 28, 2003;
(n) "Environmental Law" means any and all applicable international,
federal, provincial, state, municipal or local laws, statutes, regulations,
treaties, orders, judgements, decrees and/or ordinances whether or not having
the force of law and all applicable official directives and authorizations of
any Governmental Authority relating to any contaminant, the environment, public
health, occupational health and safety, product liability or any environmental
activity;
(o) "Financial Statements" means the audited consolidated financial
statements of the Corporation for the period ending December 31, 2004 consisting
of the audited balance sheets; the consolidated statements of change in
shareholders' equity, the consolidated statements of operations and the
consolidated statements of cash flows;
(p) "Formosa Property" means the land located in the Village of
Formosa, Ontario, owned by the Corporation, as more particularly described in
Schedule C hereto;
(q) "Formosa Property Mortgages" means the first charge security
mortgage in the principal amount of One Million Canadian Dollars ($1,000,000.00
CDN) registered against the Formosa Property in the name of Global as security
for the Global Facility;
(r) "Global Facility" means the One Million Canadian Dollars
($1,000,000.00 CDN) principal amount of loan from Global (GMP) Holdings Inc.
("Global") to the Corporation pursuant to the terms of a loan Agreement between
Global and the Corporation dated November 23, 2004, as amended;
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(s) "Governmental Authority" means any nation, federal government,
province, state, municipality or other political subdivision of any of the
foregoing, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions;
(t) "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are or become regulated under any Laws (including, without limitation, any
that are or become classified as hazardous or toxic under any Laws);
(u) "Information Circular" means the information circular of the
Corporation dated March 28, 2005;
(v) "Koltai Contract" means the employment agreement between ▇▇▇
▇▇▇▇▇▇ and the Corporation dated January 1, 1997, as amended;
(w) "Laws" shall mean all statutes, codes, ordinances, decrees, rules,
regulations, customs, treaties, municipal by-laws, judicial or arbitral or
administrative or ministerial or departmental or regulatory judgments, orders,
decisions, rulings or awards, directives, customs, policies or guidelines
whether or not having the force of law, or any provisions of the foregoing;
(x) "Lien" means any mortgage, charge, pledge, right of set-off, title
retention, hypothec, security interest, lien, assignment, claim or other
encumbrance of any nature or kind whatsoever, whether fixed or floating,
statutory or consensual, and howsoever created;
(y) "Loan Documents" has the meaning ascribed thereto in the BG Loan
Agreement;
(z) "Management Credit Facility" means the amended credit facility in
the aggregate amount of Three Hundred and Ninety-Four Thousand and Thirty
Canadian Dollars ($394,030.00 CDN) among the Corporation, as borrower, and
Criterion and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, as lenders;
(aa) "Material Subsidiaries" means, collectively, Blue Mountain and
CCB (US);
(bb) "▇▇▇▇▇▇ Contract" means the consulting contract between ▇▇▇▇▇ ▇.
▇▇▇▇▇▇ Law Corporation ("Law Corp"), a British Columbia corporation wholly-owned
by ▇▇▇▇▇ ▇▇▇▇▇▇ and the Corporation dated March 1, 2002, as amended by letter
agreement dated February 28, 2003;
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(cc) "Permitted Encumbrance" means in respect of any person, any one
or more of the following:
(i) inchoate or statutory priorities, liens or trust claims for
taxes, assessments and other governmental charges or levies which are not
delinquent or the validity of which are currently being contested in good faith
by appropriate proceedings provided that there shall have been set aside a
reserve to the extent required by GAAP in an amount which is reasonably adequate
with respect thereto;
(ii) the right reserved to, or vested in, any municipality or
governmental authority by the terms of any lease, license, franchise, grant, or
permit, or by any statutory provision, to terminate any such lease, license,
franchise, grant or permit, or to require annual or periodic payment as a
condition of the continuance thereof;
(iii) inchoate or statutory liens of contractors, subcontractors,
mechanics, suppliers, material men and others in respect of construction,
maintenance, repair or operation of assets or properties of the person, or other
like possessory liens and public utility liens provided the same are not
registered as encumbrances against the title to any real or personal property of
the person;
(iv) security given to a public utility or other governmental
authority or other public authority when required by such utility or
governmental authority in connection with the operations of the person in the
ordinary course of business;
(v) title defects which are of a minor nature and in the
aggregate will not materially impair the value or use of this property for the
purposes for which it is held or applicable municipal and other governmental
restrictions, including municipal by-laws and regulations affecting the use of
land or the nature of any structures which may be erected thereon, provided such
restrictions have been complied with;
(vi) reservations, limitations, provisos and conditions, if any,
expressed in any original grants from the Crown of any real property or any
interest therein and the easements, rights-of-way, servitudes and similar rights
in real property comprised in the assets of the person or interests therein
granted or reserved to other persons;
(vii) personal property security interests securing purchase
money security obligations, provided that such security interests charge only
the assets which are subject of the purchase money security obligations (and the
proceeds thereof to the extent permitted by applicable law) and no other assets,
and security interests arising under capitalized lease obligations, including
security interests registered in favour of Telecom Leasing Canada (TLC) Limited;
(viii) liens and charges on accounts receivable and inventories
of CCB(US) in favour of CAPCO, as security for the CAPCO Facility;
(ix) the Collingwood Property Mortgages;
(x) the Formosa Property Mortgage;
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(xi) the security on all present and after-acquired personal
property of the Corporation, CCB(US) and Blue Mountain granted in favour of
Global, as security for the Global Facility;
(xii) the security interest granted pursuant to the Convertible
Debenture Trust Indenture, securing the Convertible Debentures;
(xiii) the security interest granted by CCB (US) in favour of
Advanced H2O Inc. pursuant to a bottling agreement dated February 26, 2002, as
amended February 6, 2004;
(xiv) Instrument No. 358815 being a charge in favour of the
Laurentian Bank of Canada against the Collingwood Property described in
paragraph 2(b) of Schedule C;
(xv) Instrument No. 365181 being a lease in favour of ▇▇▇▇▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇ against the Collingwood Property described in paragraph 2(b) of
Schedule C;
(xvi) Instrument No. 365710 being a charge in favour of Realcare
Services Ltd. against the Collingwood Property described in paragraph 2(b) of
Schedule C;
(xvii) Instrument No. 365711 being a charge in favour of National
Trust Co., in trust for R.R.S.P. #097565 against the Collingwood Property
described in paragraph 2(b) of Schedule C; and
(xviii) Instrument No. 380910 being a certificate registered by
▇▇▇▇▇ ▇▇▇▇▇, as Plaintiff against the Collingwood Property described in
paragraph 2(b) of Schedule C;
(dd) "Person" means an individual, partnership, corporation, trustee,
trust, unincorporated organisation, non-share capital corporation, or any
federal, provincial or municipal governmental body, corporation, commission,
board, agency, foundation, association, counsel or other governmental authority
of any kind whatsoever, or any other entity whatsoever;
(ee) "SEC" means the United States Securities and Exchange Commission;
(ff) "Stock Options" means the stock options as set forth in Schedule
D to be issued under the Corporation's stock option plan to be presented to the
shareholders of the Corporation for approval;
(gg) "Shareholder Approval" means the approval, in accordance with the
Articles of the Corporation, by the shareholders of the Corporation of the
particular matters to be acted upon as set forth in the Information Circular;
and
(hh) "Transaction Documents" shall mean this Agreement and any and all
other agreements, instruments and documents contemplated to be executed and
delivered pursuant to this Agreement.
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2. AGREEMENT TO SELL AND PURCHASE
2.1 Sale and Purchase. Subject to the terms and conditions hereof, at the
Closing (as defined in section 6.1), the Corporation hereby agrees to issue and
sell to Holder, and Holder agrees to purchase from the Corporation an aggregate
of Two Million (2,000,000) of the Corporation's Class A Preferred shares (the
"Class A Shares").
2.2 Purchase Price. The purchase price for the Class A Shares shall be Two
Million Dollars ($2,000,000.00) or One Dollar ($1.00) for each of the Class A
Shares (the "Purchase Price").
2.3 Rights of Class A Shares. The Corporation's Class A Shares shall have
the respective rights, preferences and privileges as set forth in the Schedule
of the Special Rights and Restrictions of the Class A Shares attached hereto as
Schedule E (the "Class A Special Rights and Restrictions"). It is agreed and
acknowledged by the parties hereto that the terms set forth in the Class A
Special Rights and Restrictions form binding obligations of the Corporation and
Holder and for greater certainty, shall, by reference, be incorporated into, and
form a part of, this Agreement.
3. EXCHANGE OF CLASS A SHARES
3.1 Exchange. Upon the Corporation's receipt of gross proceeds of no less
than Three Million Dollars ($3,000,000.00) (the "Private Placement Proceeds")
from a bought deal private placement of Common Shares (the "Standard Private
Placement") pursuant to an engagement letter between Standard Securities Capital
Corporation ("Standard") and the Corporation dated for reference March 28, 2005,
the Holder will exchange all of its Class A Shares into Two Million (2,000,000)
of the Corporation's Class B Preferred shares (the "Class B Shares").
3.2 Rights of Class B Shares. The Corporation's Class B Shares shall have
the respective rights, preferences and privileges as set forth in the Schedule
of the Special Rights and Restrictions of the Class B Shares attached hereto as
Schedule F (the "Class B Special Rights and Restrictions"). It is agreed and
acknowledged by the parties hereto that the terms set forth in the Class B
Special Rights and Restrictions form binding obligations of the Corporation and
Holder and for greater certainty, shall, by reference, be incorporated into, and
form a part of, this Agreement.
3.3 Exchange Effective. The Exchange of the Class A Shares under this
Article 3 shall be deemed to have been effected on the date the Private
Placement Proceeds are received by the Corporation.
3.4 Certificates. On the fifth Business Day after the effective date of the
exchange of the Class A Shares into Class B Shares, the Corporation shall
deliver to the Holder's solicitor, ▇▇▇▇▇ ▇▇▇▇▇▇ Law Corporation, a share
certificate or share certificates of the Corporation representing the Class B
Shares (the "Class B Share Certificate") in exchange for the return to the
Corporation of the Class A Share Certificate (as defined in subsection 6.2(e)).
Any Class A Share Certificate not returned to the Corporation will be deemed to
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be cancelled as of the effective date of the exchange of the Class A Shares into
Class B Shares without any further act by the Holder or the Corporation.
3.5 Taxes. The Corporation shall pay all documentary, stamp or other
transactional taxes and charges attributable to the issuance or delivery of the
Class B Share Certificate.
4. PRIVATE PLACEMENT FINDER'S FEE
4.1 Finder's Fee. In consideration of Holder introducing the Corporation to
Standard, the Corporation, shall, upon issuance of the Class B Share Certificate
pursuant to Section 3.4, issue to Holder Four Hundred and Fifty Thousand
(450,000) Common Shares (the "Finder's Fee Shares").
4.2 Certificate. Along with the delivery of the Class B Share Certificate,
the Corporation shall issue and deliver by hand against a signed receipt
therefor or by registered mail, return receipt requested, to the address set
forth in section 15.9, a share certificate or share certificates of the
Corporation representing the Finder's Fee Shares (the "Finder's Fee Share
Certificate").
4.3 Taxes. The Corporation shall pay all documentary, stamp or other
transactional taxes and charges attributable to the issuance or delivery of the
Finder's Fee Share Certificate.
5. PAYMENT OF PURCHASE PRICE
The Purchase Price will be payable by Holder to the Corporation as follows:
(a) the sum of One Million Dollars ($1,000,000.00) by way of a deposit
(the "Deposit") to be paid within five (5) Business Days of the execution of
this Agreement by both parties, into an interest bearing trust account with
Holder's solicitor, ▇▇▇▇▇ ▇▇▇▇▇▇ Law Corporation, and to be released to the
Corporation, along with all interest accrued, upon the Closing, or paid to
Holder, along with all interest accrued thereon, in the event the Closing does
not occur on the Closing Date; and
(b) the sum of One Million Dollars ($1,000,000.00) by way of
conversion, upon the Closing, of the BG Facility into One Million (1,000,000)
Class A Shares, which conversion shall be deemed to be repayment of the BG
Facility and extinguish and satisfy, in full, any and all obligations of the
Corporation under the BG Facility.
6. CLOSING; CONDITIONS TO CLOSING
6.1 The closing of the transactions contemplated under this Agreement (the
"Closing") shall take place at such place as the Corporation and Holder may
mutually agree on the first Business Day following the Shareholder Approval or
on such other date as the Corporation and Holder may mutually agree (the
"Closing Date").
6.2 The Closing is subject to the satisfaction or waiver, in whole or in
part, of each of the following conditions at, or prior to the Closing:
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(a) the Corporation shall have obtained the Shareholder Approval;
(b) the Corporation shall have furnished to Holder, in form
satisfactory to Holder, executed authorizations by the Board of Directors of the
Corporation (the "Board") approving and authorizing the transactions
contemplated by this Agreement and appointing ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ and a
third nominee of the Holder's choosing to the Board for a term of no less than
one year;
(c) the Corporation shall have furnished to Holder a certified copy of
a resolution of the shareholders of the Corporation creating the Corporation's
Class A Shares and the Corporation's Class B Shares, along with copies of all
corporate registry filings required by the Province of British Columbia in
connection therewith;
(d) the Corporation shall have furnished to Holder, in form
satisfactory to Holder, executed officer's certificates of the Corporation and
the Material Subsidiaries in connection with the transactions contemplated by
this Agreement;
(e) the Corporation shall have furnished to Holder a share certificate
or share certificates of the Corporation representing the Class A Shares (the
"Class A Share Certificate");
(f) the Corporation shall have furnished to Holder a consent from
Global confirming as of the Closing Date, the outstanding balance and good
standing of the Global Facility and agreeing to the issuance of the Class A
Shares and the Class B Shares;
(g) the Corporation shall have furnished to Holder a consent from
CAPCO Financial Company confirming as of the Closing Date, the outstanding
balance and good standing of the CAPCO Facility;
(h) the Corporation shall have furnished to Holder an agreement from
each beneficial owner of units of the Convertible Debenture Trust Indenture
other than Technology Flavors & Fragrances, Inc. (such owners the "Remaining
Debentureholders") providing that upon the closing of the Standard Private
Placement, the Six Hundred and Seventy Thousand Canadian Dollars ($670,000.00
CDN) outstanding amount of the Convertible Debentures shall be repaid, and the
Remaining Debentureholders shall subscribe Five Hundred and Twenty Thousand
Canadian Dollars ($520,000.00 CDN) of Common Shares at a price of One Dollar
($1.00) per share;
(i) the Corporation shall have furnished to Holder an agreement from
Criterion, one of the lenders of the Management Credit Facility providing that
upon the closing of the Standard Private Placement the entire amount of the
Management Credit Facility shall be repaid, and Criterion shall subscribe for an
aggregate $262,230CDN of Common Shares at a price of One Dollar ($1.00) per
share;
(j) the Corporation shall have furnished to Holder a written amendment
to the Criterion Contract providing as follows:
(i) Criterion shall receive 25% of its Consulting Fees, as
defined in the Criterion Contract, for the balance of 2005 (the "2005 Criterion
Reduced Fee Amount");
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(ii) the Criterion Contract shall not be terminated without cause
until after December 31, 2005 and, subject to paragraph 6.2(j)(iii), thereafter
if for any reason the Criterion Contract is terminated by the Corporation,
Criterion shall receive severance of Two Hundred Thousand Dollars ($200,000.00)
and Stock Options to purchase One Hundred and Fifty Thousand (150,000) Common
Shares (collectively, the "Criterion Termination Compensation");
(iii) in the event the 2005 Budgeted Targets are achieved by the
Corporation, the Criterion Contract shall continue for 2006 in accordance with
the terms of the Criterion Contract, and Criterion shall be paid by March 31,
2006 a bonus equal to 20% of its annual pre-amended Consulting Fees, plus an
amount equal to the balance of Criterion's 2005 Consulting Fees not included in
the 2005 Criterion Reduced Fee Amount, and if, for any reason whatsoever, the
Corporation terminates the Criterion Contract prior to December 31, 2006, the
Corporation shall immediately pay Criterion an amount equal to the Criterion
Termination Compensation, plus the balance of any Consulting Fees due for any
remaining portion of 2006;
(k) the Corporation shall have furnished to Holder a written amendment
to the ▇▇▇▇▇▇ Contract providing as follows:
(i) Law Corp shall receive 80% of its Retainer Fees, as defined
in the ▇▇▇▇▇▇ Contract, for the balance of 2005 (the "2005 Law Corp Reduced Fee
Amount");
(ii) the ▇▇▇▇▇▇ Contract shall not be terminated without cause
until after December 31, 2005 and, subject to paragraph 6.2(k)(iii), thereafter
if for any reason the ▇▇▇▇▇▇ Contract is terminated by the Corporation, Law Corp
shall receive severance of One Hundred and Fifty Thousand Dollars ($150,000.00)
and Stock Options to purchase One Hundred Thousand (100,000) Common Shares
(collectively, the "Law Corp Termination Compensation");
(iii) in the event the 2005 Budgeted Targets are achieved by the
Corporation, the ▇▇▇▇▇▇ Contract shall continue for 2006 in accordance with the
terms of the ▇▇▇▇▇▇ Contract, and Law Corp shall be paid by March 31, 2006 a
bonus equal to 20% of its annual pre-amended Retainer Fees, plus an amount equal
to the balance of Law Corp's 2005 Retainer Fees not included in the 2005 Law
Corp Reduced Fee Amount and if, for any reason whatsoever, the Corporation
terminates the ▇▇▇▇▇▇ Contract prior to December 31, 2006, the Corporation shall
immediately pay Law Corp an amount equal to the Law Corp Termination
Compensation, plus the balance of any Retainer Fees due for any remaining
portion of 2006;
(l) the Corporation shall have furnished to Holder a written amendment
to the Koltai Contract providing as follows:
(i) Koltai shall receive 80% of his Base Salary, as defined in
the Koltai Contract, for the balance of 2005 (the "2005 Koltai Reduced Fee
Amount");
(ii) the Koltai Contract shall not be terminated without cause
until after December 31, 2005 and, subject to paragraph 6.2(l)(iii), thereafter
if for any reason the Koltai Contract is terminated by the Corporation, Koltai
shall receive severance of One Hundred and Fifty Thousand Dollars ($150,000.00)
and Stock Options to purchase One Hundred Thousand (100,000) Common Shares
("collectively, the Koltai Termination Compensation");
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(iii) in the event the 2005 Budgeted Targets are achieved by the
Corporation, the Koltai Contract shall continue for 2006 in accordance with the
terms of the Koltai Contract, and Koltai shall be paid by March 31, 2006 a bonus
equal to 20% of his annual pre-amended Base Salary, plus an amount equal to the
balance of Koltai's 2005 Base Salary not included in the 2005 Koltai Reduced Fee
Amount and if, for any reason whatsoever, the Corporation terminates the Koltai
Contract prior to December 31, 2006, the Corporation shall immediately pay
Koltai an amount equal to the Koltai Termination Compensation, plus the balance
of any Base Salary due for any remaining portion of 2006;
(m) the Corporation shall have furnished to Holder a written amendment
to the employment agreement (the "Hamzagic Contract") between ▇▇▇▇ ▇▇▇▇▇▇▇▇
("▇▇▇▇▇▇▇▇") and the Corporation dated October 1, 2003 providing that the
Hamzagic Contract shall not be terminated until after December 31, 2005 and
thereafter if for any reason the Hamzagic Contract is terminated by the
Corporation, Hamzagic shall receive a payment of Sixty Thousand Dollars
($60,000.00);
(n) the Corporation shall have furnished to Holder an executed
consulting agreement, with ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ (the "Consultant"), effective April
1, 2005, providing as follows:
(i) the Consultant shall assist the Corporation with accounting,
financing and cash-flow management;
(ii) the Consultant shall have signing authority on all of the
Corporation's or the Material Subsidiary's bank accounts;
(iii) the Consultant shall be retained by the Corporation for no
less than one (1) year and shall be paid Five Thousand Dollars ($5,000.00) per
month and thereafter, subject to renewal with the mutual agreement of the
Corporation and the Consultant;
(o) the Corporation shall have complied with all of its covenants and
agreements contained in this Agreement and all representations and warranties of
the Corporation contained in this Agreement shall be true;
(p) the Corporation shall have furnished to Holder an opinion of
counsel for the Corporation and each Material Subsidiary, in form reasonably
satisfactory to Holder, in connection with the transactions contemplated by this
Agreement;
(q) the Corporation and Holder shall have executed and issued to ▇▇▇▇▇
▇▇▇▇▇▇ Law Corporation a joint direction to pay the Deposit, along with all
interest accrued thereon and less the Corporation's reimbursement of Holder's
legal fees in accordance with the provisions of Article 14, to the Corporation;
(r) the Corporation shall have taken all action required to make a
representative designated by Holder a signatory on all bank accounts owned and
operated by the Corporation and the Material Subsidiaries; and
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(s) Holder shall have furnished to the Corporation all such documents
or undertakings as are required to effect the discharge of the Security (as
defined in the BG Loan Agreement).
7. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
The Corporation hereby represents and warrants to Holder, as of the Closing
Date, as follows:
7.1 Organization, Good Standing, Qualification and Power and Authority. The
Corporation is a company incorporated and amalgamated under the Company Act
(British Columbia) and is now governed by the Business Corporations Act (British
Columbia) and has not discontinued or been dissolved under such act and is in
good standing with respect to the filing of annual reports with the Registrar of
Companies office; CCB(US) is a company incorporated under the laws of the State
of Washington and has not discontinued or been dissolved and is in good standing
with respect to the filing of annual reports therein. Blue Mountain is a company
incorporated under the Business Corporations Act (Ontario) is in good standing
and has not been discontinued or dissolved. The Corporation has all requisite
corporate power and authority to (a) execute and deliver the Transaction
Documents; (b) issue the Class A Shares, the Class B Shares, the Class A
Dividend Shares (as defined in the Class A Special Rights and Restrictions), the
Class B Dividend Shares (as defined in the Class B Special Rights and
Restrictions), the Class A Conversion Shares (as defined in the Class A Special
Rights and Restrictions), the Class B Conversion Shares (as defined in the Class
B Special Rights and Restrictions) and the Finder's Fees Shares (collectively,
the "Securities") as contemplated in the Transaction Documents; and (d) to carry
out the other provisions of the Transaction Documents.
7.2 Material Subsidiaries. The Material Subsidiaries are the only material
subsidiaries of the Corporation.
7.3 Authorization; Binding Obligations. All corporate action on the part of
the Corporation, its officers, directors and shareholders necessary for the
authorization of the Transaction Documents and the performance of all of its
obligations thereunder and for the authorization, sale, issuance and delivery of
the Transaction Documents and the Securities have been taken or will be taken
prior to the Closing. The Corporation has taken or will take all such action as
may be necessary to assure that an adequate number of the Corporation's Class A
Shares, the Corporation's Class B Shares and Common Shares, as the case may be,
are authorized and reserved for issuance as provided under this Agreement. The
Transaction Documents will, once executed, constitute, valid, legal and binding
obligations of the Corporation enforceable in accordance with their terms,
except to such limitations as may result from any applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the enforcement of creditors' rights generally.
7.4 Capitalization. The authorized, issued and outstanding capital shares
of the Corporation and the Material Subsidiaries is set forth on Schedule G.
Other than as set out in this Agreement, no Class A Shares or Class B Shares
have been created or issued as of the date hereof. No Common Shares are entitled
to preemptive or similar rights, nor is any holder of Common Shares entitled to
preemptive or similar rights arising out of any agreement or understanding with
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the Corporation by virtue of this Agreement. Except as disclosed in Schedule G,
there are no authorized or outstanding options, warrants, script, rights to
subscribe to, registration rights, calls or commitments of any character
whatsoever relating to, or, except as a result of the purchase and sale of the
Securities hereunder, securities, rights or obligations convertible into or
exchangeable for, or giving any person any right to subscribe for or acquire,
any capital shares of the Corporation or the Material Subsidiaries, or
contracts, commitments, understandings, or arrangements by which the Corporation
or any Material Subsidiary is or may become bound to issue additional capital
shares, or securities or rights convertible or exchangeable into capital shares.
The fully diluted Common Shares of the Corporation upon completion of the
transactions contemplated by the Agreement is expected to be substantially as
set out in Schedule I.
7.5 Consents and Approvals. The execution and delivery of the Transaction
Documents by the Corporation and the performance by it or any Material
Subsidiary of their respective obligations hereunder or thereunder do not
require any consent, approval, order, authorization, licence, exemption or
designation of or by any Governmental Authority except for corporate registry
filings in respect of the creation of the Corporation's Class A Shares and the
Corporation's Class B Shares, and exemptions for the issuance of the Securities
pursuant to applicable securities laws and filing reports in connection
therewith.
7.6 No Violations. The execution and delivery by the Corporation of the
Transaction Documents and the performance by it or any Material Subsidiary of
their respective obligations hereunder or thereunder in compliance with such
provisions do not and will not: (i) conflict with or result in a breach of any
of the terms, conditions or provisions of: (A) its constating or organizational
documents; (B) any Law applicable to it or its property and assets; (C) any
contractual provision, including, without limitation any material contract,
binding on or affecting them or any of their respective property and assets, the
breach of which could reasonably be expected to have a material adverse effect
upon the business, assets, condition, financial or otherwise of them,
respectively; or (D) any writ, judgment, injunction, termination or award which
is binding on any of them or any of their respective property and assets; or
(ii) result in or permit: (A) the imposition of any Lien on any of their
respective property and assets; or (B) the acceleration of the maturity of any
indebtedness of the Corporation or any Material Subsidiary, except for the
Global Facility;
7.7 Compliance with Laws. The business of the Corporation and the Material
Subsidiaries has been conducted in compliance with all Laws, except for such
violations that have been cured or that, individually or in the aggregate, may
not reasonably be expected to have a material adverse effect on the business,
operations, financial condition or prospects of the Corporation or the Material
Subsidiaries. Neither the real or personal properties owned, leased, operated or
occupied by the Corporation or the Material Subsidiaries, nor the use, operation
or maintenance thereof (i) violates any Laws, or (ii) violates any restrictive
or similar covenant, agreement, commitment, understanding or arrangement, except
where such violation may not reasonably be expected to have a material adverse
effect on the business, operations, financial condition or prospects of the
Corporation or the Material Subsidiaries.
7.8 Licenses; Permits; Related Approvals. The Corporation and the Material
Subsidiaries possess all licenses, permits, consents, approvals, authorizations,
qualifications, and orders (hereinafter collectively referred to as "Permits")
12
of all Government Authorities legally required to enable the Corporation and the
Material Subsidiaries to conduct their business in all jurisdictions in which
such business is conducted. All of the Permits are in full force and effect, and
no suspension, modification or cancellation of any of the Permits is pending or
threatened, which may reasonably be expected to have a material adverse effect
on the business, operations, financial condition or prospects of the Corporation
and the Material Subsidiaries. The execution and delivery of the Transaction
Documents by the Corporation and the performance by it or any Material
Subsidiary of their obligations hereunder and thereunder do not and will not
conflict with or violate any of the Permits.
7.9 Real Property. The Formosa Property, the Collingwood Property and a
property in Piney, Manitoba (the "Lands") are the only interests in real
property owned or held by the Corporation and the Material Subsidiaries. All
agreements with respect to such interests in the Lands are in force and effect,
without amendment thereto, and such interests in the Lands are free and clear of
all Liens other than the Permitted Encumbrances.
7.10 Rents and Taxes: All rents, royalties, operating costs, property
taxes, business taxes, development cost charges, or other Governmental Authority
charges, taxes, costs and levies which are chargeable against the Lands have
been paid in full unless the same are not due and payable.
7.11 Intellectual Property. Schedule H is a complete and accurate list of
all copyrights, patents, trademarks and any and all other intellectual property
of any kind whatsoever owned, licensed or held by the Corporation and the
Material Subsidiaries (the "Intellectual Property"). Such interests in the
Intellectual Property is without any conflict known to the Corporation with the
rights of others, and is free and clear of all Liens other than the Permitted
Encumbrances.
7.12 Title to Assets. Other than the Permitted Encumbrances, the
Corporation and the Material Subsidiaries will, upon the Closing, have good and
marketable title to their property and assets (the "Assets") free and clear of
all Liens other than the Permitted Encumbrances. With respect to the Assets they
lease, the Corporation and the Material Subsidiaries are in material compliance
with such leases and, to the Corporation's knowledge, hold a valid leasehold
interest free and clear of all Liens.
7.13 Material Contracts. All material contracts, agreements, leases,
commitments, instruments or other dealings to which the Corporation or any
Material Subsidiary is a party, including but not limited to all oral or written
consulting contracts, management contracts, labor services contracts or similar
agreements for the services of a particular individual of the Corporation and
the Material Subsidiaries (the "Material Contracts") have been disclosed in the
Corporation's annual report on Form 20-F (the "Disclosure Document") for the
year ending December 31, 2003 prepared in compliance with the United States
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
subsequently publicly disclosed by the Corporation. For the purposes of this
Agreement a contract shall be included as a Material Contract if (i) the
performance of any right or obligation by any party to such contract involves a
payment by either party of One Hundred Thousand Dollars ($100,000.00) or more
and having a term of more than one year; (ii) an expenditure, receipt or
transfer or other disposition of property with a value of greater than One
Hundred Thousand Dollars $100,000.00 may arise under such contract (other than a
13
contract with a customer or supplier in the ordinary course of business); (iii)
such contract has been entered into out of the ordinary course of business.
7.14 Defaults. Neither the Corporation nor any Material Subsidiary is in
default in the performance, observance or fulfillment of any obligation,
agreement, covenant, or condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which it is a party
or by which it or any of its properties may be bound (not including the Material
Contracts) other than such violations or defaults that would not individually or
in the aggregate have a material adverse effect on the Corporation's or any
Material Subsidiary's business, prospects, properties, condition (financial or
other), results of operations or net worth. Neither the Corporation nor any
Material Subsidiary is in breach or default of any of the terms of the Material
Contracts, and the Corporation is not aware of any breach or default of any of
the terms of the Material Contracts by any other party thereto, and each such
contract is in good standing and in full force and effect without amendment
thereto.
7.15 Financial Statements; Undisclosed Liabilities. The Financial
Statements are in accordance with the books and records of the Corporation, are
true, correct and complete and accurately present the Corporation's financial
position as of the dates set forth therein and the results of the Corporation's
operations and changes in the Corporation's financial position for the periods
then ended, all in conformity with generally accepted accounting principles
applied in the United States or Canada, as the case may be, on a consistent
basis during each period and on a basis consistent with that of prior periods.
Except (i) as disclosed in the Financial Statements; (ii) as disclosed in this
Agreement; and (iii) as are incurred in the ordinary course of the routine daily
affairs of the Corporation's and the Material Subsidiaries' business since the
date of the Financial Statements, neither the Corporation nor any Material
Subsidiary has any liabilities or obligations of any nature or kind, known or
unknown, whether accrued, absolute, contingent, or otherwise. To the knowledge
of the Corporation, there is no basis for assertion against the Corporation or
any Material Subsidiary of any material claim, liability or obligation not fully
disclosed in the Financial Statements or in this Agreement.
7.16 Solvent. To the best of its knowledge, the Corporation and the
Material Subsidiaries is solvent and is generally able to pay their debts as
they come due and will be able to do so after giving effect to the transactions
contemplated in this Agreement.
7.17 Shareholder Loans. As of the date of this Agreement, no monies are
owed to any shareholders of the Corporation, or any Affiliates of any such
shareholders, other than the Management Credit Facility, the Convertible
Debentures, short term, unsecured facilities owing to Criterion and ▇▇▇▇▇▇▇
▇▇▇▇▇ in the amount of approximately Four Hundred and Fifty Thousand Canadian
Dollars ($450,000.00 CDN), and to suppliers of the Corporation and the Material
Subsidiaries in the ordinary course of business.
7.18 Guarantees. Other than Permitted Encumbrances or as disclosed in the
Financial Statements or previously disclosed to Holder, neither the Corporation
nor any of the Material Subsidiaries have guaranteed the obligations of any
Person.
7.19 Proprietary Rights. Neither the Corporation nor any Material
Subsidiary has received any communications alleging that it has violated or, by
14
conducting its business as proposed would violate, any proprietary rights of any
other person, nor is the Corporation aware of any basis for the foregoing.
7.20 No Litigation. Other than has been disclosed in the Disclosure
Document, the Financial Statements or otherwise disclosed to Holder, there is no
action, suit or proceeding pending or, to the knowledge of the Corporation,
threatened against or affecting the Corporation, any Material Subsidiary or any
of their properties or rights before any court or by or before any Governmental
Authority, and the Corporation and the Material Subsidiaries is not in default
with respect to any final judgment, writ, injunction, decree, rule or regulation
of any court or Governmental Authority.
7.21 Tax Matters. The Corporation and the Material Subsidiaries have duly
and timely filed, or obtained extensions of time for filing, all material tax
returns required by federal, provincial and local authorities (the "Returns").
All information reported on the Returns is true, accurate, and complete. Neither
the Corporation nor the Material Subsidiaries is a party to, and is not aware
of, any pending or threatened action, suit, proceeding, or assessment against it
for the collection of taxes by any Governmental Authority. The Corporation and
the Material Subsidiaries have paid in full all taxes, interest, penalties,
assessments and deficiencies owed by it to all taxing authorities. The
Corporation and the Material Subsidiaries have withheld and remitted all amounts
required to be withheld by it including without limitation, income tax, social
security plan contributions and employment insurance premiums and has paid such
amounts including any penalties or interest due to the appropriate authority on
a timely basis and in the form required under the appropriate legislation.
7.22 Pension Plans. The Corporation and the Material Subsidiaries do not
currently have a pension plan or deferred compensation plan for any of its
employees. To the best of the Corporation's knowledge as at the date of this
Agreement, there are no strikes or other labour disputes against the Corporation
or any of its Material Subsidiaries that are pending or threatened. All payments
due from the Corporation or any of its Material Subsidiaries on account of
employee health plans and vacation pay have been paid. None of the Corporation
or any of its Material Subsidiaries have any obligations under any
collective-bargaining agreement nor, to the best of their knowledge, is there
any organizing activity involving the Corporation or any of its Material
Subsidiaries by any labour union or group of employees.
7.23 Manner of Offering. The Securities are being issued pursuant to (i)
Regulation S of the United States Securities Act of 1933, as amended (the
"Securities Act"); and (ii) Multilateral Instrument 45 - 103 Capital Raising
Exemptions ("MI 45 - 103") of Canadian Securities Administrators (the "Canadian
Rules").
7.24 Reporting Company. The Corporation is (i) a foreign private issuer
under the Securities Act; (ii) a reporting issuer under the Securities Act
(British Columbia) and the Securities Act (Ontario) (such Securities Acts and
the rules and regulations thereunder are collectively referred to as the
"Provincial Securities Acts"); (iii) in compliance with its material obligations
under the Provincial Securities Acts, the Canadian Rules, the Securities Act and
the Exchange Act (the "Security Rules"); and (iv) the information contained in
all materials, reports, financial statements, disclosures and other documents
filed by the Corporation under the Security Rules are true, accurate, and
complete. The Corporation is listed on the National Association of Securities
15
Dealers, Inc. ("NASD"), Over-the-Counter Bulletin Board ("OTCBB") and Canada
Trading & Quotation System ("CNQ").
7.25 Full Disclosure. All factual information heretofore or herewith
furnished by or on behalf of the Corporation to Holder for purposes of or in
connection with this Agreement or any transaction contemplated hereby is true
and accurate and all statements made by representatives of the Corporation in
connection with the negotiation of this Agreement do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements contained herein not misleading. There is no fact known to
the Corporation which materially adversely affects the accuracy of the
representations and warranties contained in this Agreement or the financial
condition, operations, business, earnings, assets, or liabilities of the
Corporation or the Material Subsidiaries. The Disclosure Document fully and
accurately discloses the business, assets and undertaking of the Corporation and
the Material Subsidiaries as of the date of its filing and no material changes
have occurred in respect of the information described therein, except as
publicly disclosed by the Corporation.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF HOLDER
Holder hereby represents, warrants and covenants to the Corporation as of
the Closing Date:
8.1 Requisite Power and Authority. Holder has all necessary power and
authority to execute and deliver the Transaction Documents and to carry out
their provisions. All actions on Holder's part required for the lawful execution
and delivery of the Transaction Documents for which it has executed and
delivered have been or will be effectively taken prior to the Closing.
8.2 Investment Representations. Holder understands that none of the
Securities to be acquired by Holder have yet been registered under the
Securities Act or the Provincial Securities Acts. Holder also understands that
the Securities to be acquired by Holder are being offered and sold pursuant to
an exemption from registration, and in the case of the Provincial Securities
Acts, the prospectus requirements, contained in regulations under the Securities
Act and the Provincial Securities Acts, based in part upon Holder's
representations contained in this Agreement.
(a) Acquisition for Own Account. Holder is acquiring the Securities
for its own account, or the account of its designated assignee, for investment
only, and not with a view towards distribution in violation of applicable
securities laws.
(b) Accredited Investor. Holder represents that it is an "accredited
investor" within the meaning of (i) Rule 501(a) of Regulation D as promulgated
under the Securities Act; and (ii) MI 45-103. Forthwith upon request of the
Corporation, Holder will, upon request of the Corporation, furnish the
Corporation with a certificate or certificates in respect of its status as an
"accredited investor" hereunder.
(c) Non-Foreign Status. Holder is a non resident of both the United
States and Canada for purposes of income taxation as such term is defined in the
Internal Revenue Code of 1986, as amended, and the Income Tax Act (Canada).
16
(d) Financial Experience. Holder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Securities and it is able to bear the economic
risk of loss of its entire investment.
(e) Information. The Corporation has provided to Holder the
opportunity to ask questions and receive answers concerning the terms and
conditions of the transactions contemplated in this Agreement and it has had
access to such information concerning the Corporation as it has considered
necessary or appropriate in connection with its investment decision to acquire
the Securities.
(f) No Registration. Holder acknowledges that the Securities have not
been registered under the Securities Act or the securities laws of any state of
the United States, that the Securities may not be offered or sold, directly or
indirectly, in the United States except pursuant to registration under the
Securities Act and the securities laws of all applicable states or available
exemptions therefrom, and that, except as set forth in Article 12, the
Corporation has no obligation or present intention of filing a registration
statement under the Securities Act in respect of any of the Securities. "United
States" means the United States of America, its territories and possessions, any
state of the United States and the District of Columbia;
(g) No Offer in the United States. Holder acknowledges and agrees
that:
(i) Holder is not in the United States and the offer to purchase
the Securities was not made to a person in the United States;
(ii) this Agreement was delivered to, executed and delivered by
the Holder outside the United States;
(iii) Holder is not, and will not be purchasing the Securities
for the account or benefit of, any U.S. Person or person in the United States;
(iv) the current structure of this transaction and all
transactions and activities contemplated hereunder is not a scheme to avoid the
registration requirements of the Securities Act;
(v) Holder has no intention to distribute either directly or
indirectly any of the Securities in the United States, except in compliance with
the Securities Act;
(vi) Holder's affairs are controlled and directed from outside of
the United States, its purchase of the Securities was not solicited in the
United States, no part of the transaction which is the subject of this Agreement
occurred in the United States, and the Corporation has informed the Holder that
no market for the Securities currently exists in the United States; and
(vii) Holder understands that the Securities may not be converted
or exchanged in the United States or by or on behalf of a U.S. Person or a
person in the United States unless exemptions are available from the
registration requirements of the Securities Act and any applicable state
17
securities laws and the holder thereof has provided an opinion of counsel
reasonably satisfactory to the Corporation to such effect.
In this subsection 8.2(g), "U.S. Person" has the meaning ascribed to it in
Regulation S promulgated under the Securities Act. Without limiting the
foregoing, but for greater clarity in this Agreement, a U.S. Person includes,
subject to the exclusions set forth in Regulation S, (i) any natural person
resident in the United States, (ii) any partnership or corporation organized or
incorporated under the laws of the United States, (iii) any estate or trust of
which any executor, administrator or trustee is a U.S. Person, (iv) any
discretionary account or similar account (other than an estate or trust) held by
a dealer or other fiduciary organized, incorporated, or (if an individual)
resident in the United States, and (v) any partnership or corporation organized
or incorporated under the laws of any non-U.S. jurisdiction which is formed by a
U.S. Person principally for the purpose of investing in securities not
registered under the Securities Act, unless it is organized or incorporated, and
owned, by U.S. Accredited Investors who are not natural persons, estates or
trusts;
(h) Distribution Compliance Period. Holder has no intention to
distribute either directly or indirectly any of the Securities in the United
States, except in compliance with the Securities Act and the securities laws of
all applicable states of the United States or an exemption from such
requirements is available and further that it will not offer or sell any of the
Securities to or for the account or benefit of any person in the United States
(other than a distributor) or engage in any "directed selling efforts" (as
defined in Regulation S under the Securities Act) prior to a 40-day
"distribution compliance period" (as defined in Regulation S) that applies to
the distribution of the Securities under Rule 903(b)(2) of Regulation S, and
further that it will not resell the Securities except in accordance with the
provisions of applicable securities legislation, regulations, rules, policies
and orders and stock exchange rules.
(i) Reporting Obligations under the Exchange Act. Holder acknowledges
that the Common Shares of the Corporation are registered under the Exchange Act
and agrees that it will comply with the applicable reporting requirements of the
Exchange Act in connection with its ownership of the Securities.
(j) Transfer Restrictions. Holder agrees that if it decides to offer,
sell or otherwise transfer any of the Securities, it will not offer, sell or
otherwise transfer any of such Securities directly or indirectly, unless:
(i) the sale is made pursuant to registration under the
Securities Act, the Canadian Rules and the Provincial Securities Acts; or
(ii) the sale is made pursuant to an exemption from the
registration requirements under the Securities Act, the Canadian Rules and the
Provincial Securities Acts.
(k) Sale in Canada. Holder further represents and warrants that it
will not offer, sell or otherwise transfer any of the Securities within Canada
or to a Canadian resident (as such term is defined in the Income Tax Act
(Canada)) within the period that is four months and one day from the Closing
Date, except pursuant to an exemption from the prospectus and registration
requirements of the Provincial Securities Acts and the Canadian Rules.
18
(l) Legends. Holder understands and agrees that the certificates
representing the Securities will bear a legend stating that such shares have not
been registered under the Securities Act, and are subject to the resale
restrictions under the Canadian Rules, and may not be offered for sale or sold
unless registered under the Securities Act an no longer subject to resale
restrictions under the Canadian Rules or an exemption from such registration
requirements is available.
(m) Notations. Holder consents to the Corporation making a notation on
its records or giving instructions to any transfer agent of the Corporation in
order to implement the restrictions on transfer set forth and described herein.
Unless the Corporation has received an opinion of counsel, reasonably acceptable
to the Corporation, that a legend is not required upon issuance of the
Securities, the Securities may be imprinted with a legend in substantially the
following form:
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF
THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [FOUR
MONTHS PLUS ONE DAY FROM THE DATE OF ISSUANCE OF THIS
SECURITY].
(n) Due Diligence. Holder has been solely responsible for its own "due
diligence" investigation of the Corporation, and its respective management,
business and financial condition, for its own analysis of the merits and risks
of this investment, and for its own analysis of the fairness and desirability of
the terms of the investment; (ii) in taking any action or performing any role
relative to the arranging of the proposed investment, Holder has acted solely in
its own interest; and (iii) neither Holder nor any of its agents or employees
has acted as an agent of the Corporation, or as an issuer, underwriter, broker,
dealer or investment adviser relative to any security involved in this
investment.
(o) Tax Consequences. Holder understands and agrees that there may be
material tax consequences to Holder of an acquisition or disposition of the
Securities. The Corporation gives no opinion and makes no representation with
respect to the tax consequences to Holder under any tax law in respect of
Holder's acquisition or disposition of Securities.
8.3 Indemnification. Holder shall notwithstanding termination of this
Agreement and without limitation as to time, indemnify and hold harmless the
Corporation and its officers, directors, agents, employees and affiliates, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs, expenses (including legal fees and
disbursements on a solicitor and his own client basis), as incurred, arising out
of, or relating to, a breach or breaches of any representation, warranty,
covenant or agreement by Holder under this Agreement.
9. ENVIRONMENTAL REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 Environmental Representations and Warranties. The Corporation and each
Material Subsidiary represent and warrant that:
19
(a) the Corporation and each Material Subsidiary operates and will
continue to operate in conformity with all Environmental Laws and Permits and
will ensure its staff is trained as required for such purposes;
(b) the businesses of the Corporation and the Material Subsidiaries do
not require it to maintain an environmental emergency response plan;
(c) neither the Corporation nor any Material Subsidiary stores,
generates, uses, treats, manufactures, handles or disposes of any Hazardous
Materials on any of its properties other than in compliance with all
Environmental Laws and Permits thereunder, or has disposed of any Hazardous
Materials in a manner contrary to Environmental Law or any Permit;
(d) the Corporation and each Material Subsidiary possesses and will
maintain all necessary environmental Permits and other approvals required by any
Governmental Authority as may be necessary for the conduct of its business;
(e) its assets are and will remain free of environmental damage or
contamination; and
(f) the Corporation and each Material Subsidiary has no knowledge of,
and has not received any notice of, any pending or threatened claim, complaint,
proceeding, prosecution, investigation or otherwise against or affecting any of
the Corporation or any Material Subsidiary, or any of its properties, assets or
operations relating to Environmental Laws.
9.2 Environmental Covenants. The Corporation and each Material Subsidiary
covenants and agrees with Holder that so long as Holder retains any Class A
Shares or Class B Shares, then, unless another time frame is specifically stated
herein, they will:
(a) advise Holder immediately upon becoming aware of any environmental
problem relating to the Corporation's or any Material Subsidiary's business,
properties or assets;
(b) provide Holder with copies of all communications with
environmental officials, Governmental Authorities and all environmental studies
or assessments prepared for any of the Corporation or any Material Subsidiary;
and
(c) not install on or under any of their properties, storage tanks for
petroleum products or Hazardous Materials, without Holder's prior written
consent and only upon full compliance with all Environmental Laws and the
standards and requirements of the Governmental Authorities having jurisdiction
over the Corporation's or any Material Subsidiary's activities or assets.
10. CORPORATION'S POSITIVE COVENANTS
The Corporation covenants and agrees with Holder that so long as Holder
retains any Class A Shares or Class B Shares, then, unless another time frame is
specifically stated herein:
10.1 To Grant Stock Options. Forthwith following the Closing, the
Corporation shall grant, or reserve for granting, the Stock Options set out in
Schedule D.
20
10.2 To Pay Amounts Due. The Corporation will duly and punctually pay or
cause to be paid to Holder all amounts, in cash, shares or otherwise, due to
Holder under the Transaction Documents at the dates and places, in the manner
mentioned therein.
10.3 Use of Proceeds. The Corporation shall use the net proceeds from the
sale of the Class A Shares for general corporate working capital purposes.
10.4 To Carry on Its Business. The Corporation will, and will cause the
Material Subsidiaries to, carry on their business in a proper and efficient
manner, and will keep or cause to be kept proper books of account and make or
cause to be made therein true and faithful entries of all material dealings and
transactions in relation to its business.
10.5 Maintain Existence. The Corporation shall, and shall cause each of the
Material Subsidiaries to, at all times maintain its corporate existence and the
corporate existence of all the Material Subsidiaries.
10.6 Compliance with Laws. The Corporation shall, and will cause the
Material Subsidiaries to, carry on its business in material compliance with all
Laws.
10.7 Perform Obligations. The Corporation and each Material Subsidiary will
observe and perform, in a timely fashion all obligations, covenants, agreements
and undertakings on each of its part required to be observed or performed under
the terms of the Transaction Documents. The Corporation will, and will cause
each of the Material Subsidiaries to, from time to time, punctually observe and
perform all of their material obligations, including, but not limited to, the
obligations pursuant to the Material Contracts.
10.8 Reduce Payables. The Corporation, together with representatives of the
Holder, will use all reasonable commercial efforts to negotiate the reduction in
the accounts payable of the Corporation as of the date of this Agreement.
10.9 Amend Global Facility. The Corporation will use all reasonable
commercial efforts to negotiate an amendment to the Global Facility providing
for an agreement by Global, subject to the right to convert all or any part of
the Global Facility into Common Shares at a price of $2.00 per Common Share, not
to demand repayment of the principal of the Global Facility, unless the
Corporation is in default under the Global Facility, until November 23, 2005.
10.10 No Liens. The Corporation and each Material Subsidiary shall keep
their property, assets and undertakings free and clear of all Liens other than
the Permitted Encumbrances.
10.11 Renew Rights. The Corporation and each Material Subsidiary shall at
all times renew or cause to be preserved and renewed all material rights,
powers, permits, consents, privileges, franchises, licences, goodwill and
intellectual property owned by it and necessary for the conduct of its business
and shall at all times comply with all Laws applicable to them.
10.12 Maintain Records. The Corporation shall keep proper books of record
and account in which full and correct entry shall be made of all financial
transactions, assets and business of the Corporation and the Material
21
Subsidiaries in accordance with generally accepted accounting principles applied
in the United States or Canada, as the case may be.
10.13 Furnish Information. The Corporation shall promptly provide Holder
with all information requested by Holder from time to time concerning its, or
any Material Subsidiary's, financial condition and property and shall permit
representatives of Holder to inspect any of its, or any Material Subsidiary's
property and to examine and take extracts from financial books, accounts and
records including but not limited to accounts and records stored in computer
data banks and computer software systems, and to discuss its financial condition
with the Corporation's senior officers and the Corporation's auditors. The
Corporation shall forthwith provide to Holder copies of all financial
statements, both audited and unaudited, as they become available from time to
time;
10.14 Notice of Claim. The Corporation shall promptly give written notice
to Holder of: (i) the commencement of any claim, litigation, proceeding or
investigation against the Corporation or any Material Subsidiary or any of their
assets; (ii) any damage to or destruction of any of the assets or property of
the Corporation or any Material Subsidiary which might give rise to a material
insurance claim; and (iii) the occurrence of any Event of Default (as defined in
the Class A Special Rights and Restrictions and the Class B Special Rights and
Restrictions) under the Transaction Documents.
10.15 To Insure. The Corporation shall maintain all risks comprehensive
insurance coverage with reputable insurers reasonably satisfactory to Holder,
and to provide Holder with evidence of such insurance, in amounts and against
risks normally insured by owners of similar businesses (which insurance, at a
minimum, shall cover against risk of loss or damage to property of the
Corporation and each Material Subsidiary up to its full replacement value, and
including public liability and damage to property of third parties and business
interruption insurance) and the Corporation shall provide written notice to
Holder within twenty-four (24) hours of any material change to the insurance
coverage of the Corporation or any Material Subsidiary or any material change by
the Corporation or any Material Subsidiary of any of their insurers.
10.16 To Repair. The Corporation and each Material Subsidiary shall
maintain and preserve all of their respective property and assets in good
repair, working order and condition (reasonable wear and tear excepted) and,
from time to time, make all needed and proper repairs, renewals, replacements,
additions and improvements thereto, so that the business carried on by the
Corporation and the Material Subsidiaries may be properly and advantageously
conducted at all times in accordance with prudent business practices;
10.17 To Pay Taxes. The Corporation shall, and shall the cause the Material
Subsidiaries to pay, and discharge promptly when due, all taxes, assessments and
other governmental charges or levies imposed upon it or upon its properties or
assets or upon any part thereof, as well as all claims of any kind (including
claims for labour, materials and supplies) which, if unpaid, would by law become
a Lien; provided however that the Corporation shall not be required to pay any
such tax, assessment, charge or levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Corporation shall have set aside on its books the reserve
to the extent required by generally accepted accounting principles applied in
22
the United States or Canada, as the case may be, in an amount which is
reasonably adequate with respect thereto.
10.18 Remittances. The Corporation shall, and shall cause the Material
Subsidiaries to, pay, on a timely basis and within the prescribed period of
time, all remittances owed to any Government Authority as required by Law.
10.19 Notice of Financing. The Corporation shall provide to Holder prior
written notice of any proposed debt or equity financing made by or to the
Corporation or any Material Subsidiary.
10.20 Reservation of Shares. The Corporation will reserve and keep
available, for so long as may be required, that maximum number of its authorized
but unissued capital shares as may be required for the issuance of any of the
Securities.
10.21 Listing of Common Shares. The Corporation shall use all reasonable
commercial best efforts to maintain the listing of its Common Shares on the NASD
OTCBB or such other exchange on which the Common Shares are then listed.
10.22 To Pay Expenses. The Corporation shall pay all expenses (including
legal fees and disbursements on a solicitor and his own client basis), of or
incurred by Holder in connection with the enforcement of the Transaction
Documents.
10.23 Reporting Requirements. The Corporation shall duly and timely file
all materials, reports, financial statements, disclosures and other documents
required by law, including all reporting required by the Security Rules.
10.24 Removal of Legends. At the request of Holder from time to time, the
Corporation shall furnish Holder and the Corporation's transfer agent with
directions from the Corporation in connection with the removal of any legends
placed on the Securities pursuant to subsection 8.2(l), subject to receipt by
the Corporation of satisfactory legal opinions from counsel to the Holder.
11. CORPORATION'S NEGATIVE COVENANTS
The Corporation covenants and agrees with Holder that so long as Holder
retains any Class A Shares or Class B Shares, then, unless another time frame is
specifically stated herein:
11.1 Not to Pay Dividends. The Corporation and the Material Subsidiaries
shall not, without the prior written consent of the Holder, such consent to not
to be unreasonably withheld declare, pay or set aside for payment any dividend
of any capital shares of the Corporation or any Material Subsidiary other than
in connection with the Class A Shares and the Class B Shares.
11.2 Not to Issue Shares. The Corporation and the Material Subsidiaries
shall not, without the prior written consent of the Holder, such consent to not
to be unreasonably withheld, issue any class of shares in the capital of the
Corporation or the Material Subsidiaries or any rights, warrants or options to
acquire, or instruments convertible into or exchangeable for any class of shares
23
in the capital of the Corporation or the Material Subsidiaries, other than
securities issuable pursuant to the securities set out in Schedule G and no
greater than 110,000 Common Shares to be issued at One Dollar ($1.00) per share
to certain existing shareholders of the Corporation.
11.3 Not to Create Liens. The Corporation and the Material Subsidiaries
shall not, without the prior written consent of the Holder, such consent to not
to be unreasonably withheld, other than Permitted Encumbrances, make, give,
create or permit or attempt to make, give or create Liens on the assets of the
Corporation or any Material Subsidiary other than the Permitted Encumbrances.
11.4 Not to Sell Assets. The Corporation and the Material Subsidiaries
shall not, without the prior written consent of the Holder, such consent to not
to be unreasonably withheld, make any sale of or dispose of any substantial or
material part of its, or any Material Subsidiary's, business, assets or
undertaking, or shares or assets of any subsidiary, outside of the ordinary
course of business.
11.5 Not to Borrow Money. The Corporation and the Material Subsidiaries
shall not, without the prior written consent of the Holder, such consent to not
to be unreasonably withheld borrow or cause any Material Subsidiary or any other
subsidiary to borrow money from any Person save and except for purchase money
security interests, chattel mortgages, and equipment leases entered into in the
ordinary course of business, and borrowing pursuant to the CAPCO Facility.
11.6 No Loans to Shareholders. The Corporation and the Material
Subsidiaries shall not, without the prior written consent of the Holder, such
consent to not to be unreasonably withheld, make loans to any shareholders of
the Corporation or any Affiliates of any such shareholders.
11.7 Not to Increase CAPCO Facility. The Corporation and the Material
Subsidiaries shall not, without the prior written consent of the Holder, such
consent to not to be unreasonably withheld, whether in respect of the CAPCO
Facility or otherwise, allow the aggregate of such amounts, together with all
other indebtedness of the Corporation and CCB(US) to CAPCO, to exceed One
Million Dollars ($1,000,000.00).
11.8 No Guarantees. The Corporation and the Material Subsidiaries shall
not, without the prior written consent of the Holder, such consent to not to be
unreasonably withheld, guarantee the obligations of any other Person, directly
or indirectly.
11.9 Capital Expenditures. The Corporation and the Material Subsidiaries
shall not, without the prior written consent of the Holder, such consent to not
to be unreasonably withheld, make any capital expenditure in excess of
One-Hundred Thousand Dollars ($100,000.00) which is (i) not in the ordinary
course of business and (ii) attributable to the core business of the
Corporation.
24
12. REGISTRATION RIGHTS
12.1 Definitions. As used in this Article 12, the following terms shall
have the following respective meanings:
(a) "registered," and "registration" shall refer to a registration
effected by preparing and filing a registration statement or prospectus, as the
case may be, in compliance with the Securities Act or the Canadian Rules, as the
case may be, and the declaration or ordering of the effectiveness of such
registration statement by the applicable Governmental Authority.
(b) "Registrable Securities" shall mean the Securities and any capital
shares of the Corporation issued as a dividend or other distribution with
respect to or in exchange for or in replacement of the Securities.
12.2 Piggyback Registration.
(a) Request for Inclusion. If at any time after the date hereof there
is a registration by the Corporation which permits the inclusion of any
Registrable Securities which are not then registered under the Securities Act or
the Canadian Rules, as the case may be, or are not otherwise tradable without
restriction under the Securities Act or the Canadian Rules, as the case may be,
the Corporation will promptly give Holder written notice thereof and, subject to
subsection 12.2(b), shall include in the registration (the "Piggyback
Registration") all of the Registrable Securities requested to be included
therein pursuant to the written request of Holder received within twenty (20)
days after delivery of the Corporation's notice.
(b) Underwriting. If the Piggyback Registration relates to an
underwritten public offering, the Corporation shall so advise Holder as a part
of the written notice given pursuant to subsection 12.2(a). In such event, the
right of Holder to participate in such registration shall be conditioned upon
Holder's participation in such underwriting in accordance with the terms and
conditions thereof and Holder shall enter into an underwriting agreement in
customary form with the underwriter and the Corporation. In connection with any
underwritten registration, the Corporation will enter into an underwriting
agreement reasonably satisfactory to Holder containing customary underwriting
provisions, including indemnification and contribution provisions.
12.3 Expenses of Registration. All stock transfer taxes, underwriting
discounts, expenses for special counsel of a selling stockholder and selling
commissions incurred by the Corporation relating to Registrable Securities
included in any Piggyback Registration shall be reimbursed by Holder.
12.4 Termination of Registration Rights. The right of Holder to request
inclusion of Registrable Securities in any registration pursuant to this Article
12 shall terminate at the date that is the earlier of: (i) that date that all
Registrable Securities have been registered under the Securities Act or the
Canadian Rules, as the case may be, or have otherwise been sold to the public;
(ii) the date that all Registrable Securities are eligible for resale without
restriction under the Securities Act and the Canadian Rules.
25
13. INDEMNITY
The Corporation and each Material Subsidiary agrees to indemnify and hold
Holder and its officers, directors, employees, agents and advisors (each, an
"Indemnified Person") harmless from and against any and all suits, actions,
demands, obligations, proceedings, claims, damages, losses, liabilities, costs
and expenses of any kind or nature whatsoever (including any and all reasonable
professional fees and disbursements incurred by Holder in connection with the
preparation, negotiation and enforcement of the Transaction Documents) which may
be instituted, asserted against or incurred by any Indemnified Person as a
result of or arising out of, any breach of the representations, warranties or
covenants of the Corporation or any of the Material Subsidiaries hereunder, any
breach or violation of any Laws, the transactions contemplated hereunder or
under any other Transaction Documents, any investigation, litigation or
proceeding in connection herewith or any other Transaction Documents, and the
enforcement, performance, administration, action or inaction by any of the
Indemnified Persons of or under this Agreement or any of the other Transaction
Documents, including, without limitation, relating to the operation of the
Corporation's, or any Material Subsidiary's, business and any environmental
liability (collectively, the "Indemnified Liabilities"), except to the extent
that any such Indemnified Liabilities are finally determined by a court of
competent jurisdiction to have resulted solely from such Indemnified Person's
gross negligence or wilful misconduct. No Indemnified Person shall be
responsible or liable to any other party to this Agreement or any other
Transaction Document, any heir, executor, administrator, other legal personal
representative, successor, assignee or third party beneficiary of such Person or
any other Person asserting claims derivatively through such party, for indirect,
punitive, exemplary or consequential damages which may be alleged or incurred as
a result of or arising out of any of the above, including, without limitation,
any of the transactions contemplated under this Agreement or any other
Transaction Document. This indemnity is severable and distinct from the
remainder of this Agreement and shall survive any termination of this Agreement
or any other Transaction Document for any reasons whatsoever.
14. EXPENSE REIMBURSEMENTS
The Corporation hereby agrees to reimburse Holder for all of its reasonable
and documented legal expenses, disbursements and taxes incurred in connection
with the transactions contemplated hereby to a maximum of Fifty Thousand Dollars
($50,000.00).
15. MISCELLANEOUS
15.1 Currency. Except as may be otherwise expressly provided, all dollar
amounts herein are references to lawful currency of the United States of
America.
15.2 Force Majeure. Notwithstanding anything in this Agreement to the
contrary, if any party is prevented from or delayed in performing any obligation
under this Agreement, and such failure in occasioned by any cause beyond its
reasonable control, excluding only lack of finances, then the time for
observance of the condition or performance of the obligation in question shall
be extended for a period equivalent to the total period the cause of the
prevention or delay persists or remains in effect regardless of the length of
such total period. Any party to this Agreement claiming suspension of its
obligations as aforesaid shall promptly notify the other party to that effect
26
and shall take all reasonable steps to remove or remedy the cause and effect of
the force majeure described in the notice insofar as it is reasonably able to do
so and as soon as possible; provided that the terms of settlement of any labour
disturbance or dispute, strike or lockout shall be wholly in the discretion of
the party claiming suspension of its obligations by reason thereof, and that
party shall not be required to accede to the demands of its opponents in any
such labour disturbance or dispute, strike or lockout solely to remedy or remove
the force majeure thereby constituted. The party claiming suspension of its
obligations shall promptly notify the other party when the cause of the force
majeure has been removed.
15.3 Governing Law. Except where otherwise required by the law of any
jurisdiction as it relates to certain corporate and securities laws
requirements, the validity, interpretation and enforcement of the Transaction
Documents shall be governed by and construed in accordance with, the laws of the
Province of British Columbia and of Canada applicable therein. The Corporation
and Holder submit to the jurisdiction of the Courts of the Province of British
Columbia and agree to be bound by any suit, action or proceeding commenced in
such Courts and by any order or judgment resulting from such suit, action or
proceeding, but the foregoing will in no way limit the right of Holder to
commence suites, actions, or proceedings based on the Transaction Documents in
any jurisdiction it deems appropriate.
15.4 Further Assurances. Each party to this Agreement covenants and agrees
that, from time to time prior to or subsequent to the Closing Date, it will, at
the request and expense of the requesting party, execute and deliver all such
documents and do all such other acts and things as any other party to this
Agreement, acting reasonably, may from time to time request be executed or done
in order to better evidence or perfect or effectuate the transactions
contemplated in this Agreement.
15.5 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by or on behalf of Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Corporation pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Corporation hereunder solely as of the date of such certificate or instrument.
15.6 Successors and Assigns. Holder shall not be entitled to assign its
rights under any of the Transaction Documents, without the consent of the
Corporation, which consent shall not be unreasonably withheld or delayed;
provided, however, that no such consent shall be required for Holder to assign
such rights to any person or group of persons controlling or owning the majority
of all beneficial interests of Holder, any other entity controlled by such
person or persons, or an entity controlled by Holder, provided that such entity
shall continue to be so controlled by such persons or Holder as applicable and
shall continue to be an "accredited investor" within the meaning of (i) Rule
501(a) of Regulation D as promulgated under the Securities Act; and (ii) MI
45-103. The provisions hereof shall inure to the benefit of, and be binding
upon, the successors, permitted assigns, heirs, executors and administrators of
the parties hereto.
15.7 Entire Agreement; Amendment and Waiver. The Transaction Documents
expressly delivered pursuant hereto or thereto supersede any other agreement,
whether written or oral, that may have been made or entered into by the parties
27
hereto relating to the matters contemplated hereby, and constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
in any manner by any representations, warranties, covenants and agreements
except as specifically set forth or incorporated by reference herein and
therein. Neither the Transaction Documents, nor any term thereof may be amended,
waived, discharged or terminated except by a written instrument signed by the
Corporation and Holder.
15.8 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
15.9 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next Business
Day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) Business Day after
deposit with a nationally recognized overnight courier, special next day
delivery, with verification of receipt. All communications shall be sent:
to the Corporation at:
Clearly Canadian Beverage Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Mr. ▇▇▇▇▇ ▇▇▇▇▇▇
to Holder, at:
BG Capital Group Ltd.
Slot #2000 A.P. 59223
Nassau, Bahamas
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇ Law Corporation
▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇
facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
or at such other address as the Corporation or Holder may designate by ten (10)
days advance written notice to the other parties hereto.
15.10 Time of Essence. Time shall be of the essence of the Transaction
Documents.
28
15.11 Counterparts; Facsimile. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. This Agreement may be executed and delivered by
facsimile.
15.12 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein other than a One Hundred Thousand Dollars
($100,000.00) finder's fee payable from the Corporation to Y&R Investment
Capital Inc.
15.13 Schedules: The following are the exhibits and schedules delivered
concurrently with, and incorporated in, this Agreement:
Schedule A - 2005 Budgeted Targets
Schedule B - 2005 Pro Forma Budget
Schedule C - Description of Lands
Schedule D - New Stock Option Plan
Schedule E - Class A Special Rights and Restrictions
Schedule F - Class B Special Rights and Restrictions
Schedule G - Capitalization Table
Schedule H - List of Intellectual Property
Schedule I - Projected Outstanding Fully Diluted Common Shares
[signatures on next page]
29
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
CLEARLY CANADIAN BEVERAGE
CORPORATION.
By:
-------------------------------------------
Name:
Title:
BG CAPITAL GROUP LTD.:
By:
----------------------------------------------
Name:
Title:
SCHEDULE A
2005 BUDGETED TARGETS
On a pre-bonus and pre-deferred compensation basis, the 2005 Budgeted Targets
for the Corporation for the fiscal year ended December 31, 2005 shall be as
follows:
1. the Corporation is to achieve not less than $16,000,000 in Sales, as
referred to in the Corporation's audited financial statements; and
2. the Loss from Operations (based on "normalized EBITDA"), as referred to in
the Corporation's audited financial statements, will not be greater than
$1,100,000, as adjusted to exclude any additional expenses for
extraordinary or non-recurring items that are required by the Company's
auditors or authorized by the Corporation's board of directors (which will
include the representatives of BG Capital) and which are not included in
the 2005 Pro Forma Budget.
The above targets for Sales and Loss from Operations for the year are based on
the $1,000,000 preferred share subscription funding from BG Capital and the
$3,000,000 brokered private placement subscription proceeds being received from
standard securities being received by the Company on or before April 30, 2005.
If such funding is received after April 30, 2005, the targets for Sales and Loss
from Operations for the year will be reduced to reflect such delay in receipt of
the funds.
For purposes of this Agreement, the term "normalized EBITDA" means earnings
before interest, taxes, depreciation and amortization and other expenses (ie.
gross profit less selling, general and administrative expenses) and such term
contemplates and includes such adjustments as are necessary to neutralize the
effect on earnings of expenses of an extraordinary or unusual or non-recurring
nature with respect to the continuing operations of the business. Extraordinary,
unusual and non-recurring items are to be interpreted in accordance with
Canadian generally accepted accounting principles.
SCHEDULE B
2005 PRO FORMA BUDGET
SCHEDULE C
DESCRIPTION OF LANDS
1. Formosa Property
In the Village of Formosa, in the Township of Culross, in the County of ▇▇▇▇▇
and being composed of:
FIRSTLY: Lot Number 17 in the said Village of Formosa, according to Registered
Plan Number 282.
SECONDLY: Lot Number 18, in the said Village of Formosa, according to Registered
Plan Number 282, SAVE AND EXCEPT from said Lot number 18 the Southerly 197 feet
of said Lot Number 18, more particularly described as follows:
COMMENCING at the South-east angle of said Lot number 18;
THENCE Northerly along the Easterly limit of said Lot, a distance of 197 feet;
THENCE Westerly parallel to the Southern limit of said Lot, a distance of 466.62
feet more or less to the Westerly limit of said Lot;
THENCE Southerly along the Westerly limit of said Lot, a distance of 197 feet;
THENCE Easterly along the Southerly limit of said Lot, a distance of 466.62 feet
to the place of beginning. As previously described in instrument number 239756.
2. Collingwood Property
(a) Part of the West Half of Lot 9, concession 14, in the Township of Osprey,
in the County of Grey and being more particularly described as follows:
COMMENCING at the Northeasterly angle of the West Half of said Lot 9;
HENCE Westerly and along the Northerly limit of the said Lot the distance
of 350 feet;
HENCE Southerly and parallel to the Easterly limit of the said Lot the
distance of 500 feet;
HENCE Easterly and parallel to the Northerly limit of the said Lot to the
distance of 350 feet to the dividing line between the West and East Halves
of the said Lot;
HENCE Northerly and along the said dividing line the distance of 500 feet
to the place of beginning.
The aforesaid lands being the same lands at those described in Instrument
No. 139825.
(b) Part Lot 9, Concession 14, designated as part 2 on Plan 17R-1177, Township
of Osprey, County of Grey
Registry Division of Grey (No. 16)
SCHEDULE D
NEW STOCK OPTION PLAN
Stock Options under new stock option plan shall be fully vested upon
granting, except where otherwise indicated below. Stock Options will expire
five (5) years from the date of granting provided that they will be subject
to earlier expiration after a period of one (1) year following termination
of the option holder.
Total Stock Options Available Under Plan: 1,750,000
-----------------------------------------
Allocation of Options:
Stock Options issued to ▇▇▇▇ ▇▇▇▇▇ exercisable @ $1.00 US: 500,000
Stock Option issued to ▇▇▇▇▇ ▇▇▇▇▇▇ exercisable @ $1.00 US: 100,000
Stock Option issued to ▇▇▇ ▇▇▇▇▇▇ exercisable @ $1.00 US: 100,000
Stock Options issued in part consideration for termination compensation under
the Consulting/Employment Agreements (which options vest upon termination) to
the following:
▇▇▇▇ ▇▇▇▇▇ (Criterion Capital Corporation) exercisable @ $1.00 US: 150,000
▇▇▇▇▇ ▇▇▇▇▇▇ (▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Law Corporation) exercisable @ $1.00 US: 100,000
▇▇▇ ▇▇▇▇▇▇ exercisable @ $1.00 US: 100,000
Options allocated by ▇▇▇▇ ▇▇▇▇▇ as incentive for the following management and
employees:
▇▇▇▇▇ ▇▇▇▇▇ exercisable @ $1.00 US: 75,000
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ exercisable @ $1.00 US: 15,000
Clive Shallow exercisable @ $1.00 US: 15,000
▇▇▇▇ ▇▇▇▇▇▇▇▇ exercisable @ $1.00 US: 45,000
Options to be allocated to representatives of BG Capital that
become officers, directors, employees or consultants of the
Corporation exercisable @$1.00 US: 550,000
-------
Total Options to be allocated: 1,750,000
=========
SCHEDULE E
CLASS A SPECIAL RIGHTS AND RESTRICTIONS
SCHEDULE F
CLASS B SPECIAL RIGHTS AND RESTRICTIONS
SCHEDULE G
CAPITALIZATION TABLE
Authorized Capital of the Corporation:
--------------------------------------
1. 210,000,000 shares divided into 200,000,000 Common Shares without par
value; and
2. 10,000,000 preferred shares with a par value of $1.00 Cdn per share.
Issued Capital of the Corporation:
----------------------------------
10,803,682 Common Shares
Convertible Securities of the Corporation:
------------------------------------------
----------------------------------------------------------------------------------------------------------
PRIVATE PLACEMENT WARRANTS: Exercise Price
Nov.24/00 - 5 year warrants issued re private placement
(expiring Nov. 24, 2005) $1.10 Cdn 565,000
Mar. 4/04 - 2 year warrants issued to Dundee Securities
(expiring Mar. 4/06) $0.34 Cdn 250,000
-------
TOTAL PRIVATE PLACEMENT WARRANTS: 815,500
----------------------------------------------------------------------------------------------------------
STOCK OPTIONS: Exercise Price
Employee/Director (expiring: April 4, 2006) $0.65 Cdn 25,169
Employee/Director (expiring: Oct. 29, 2006) $0.65 Cdn 76,234
Employee/Director (expiring: Nov. 4, 2006) $0.65 Cdn 2,488
Employee (expiring Mar. 27, 2007) $0.65 Cdn 588
Employee/Director (expiring Jan. 5, 2008) $0.65 Cdn 134,118
Director (expiring: Sept. 3, 2008) $0.65 Cdn 5,882
Employee/Officer (expiring Dec. 23, 2009) $0.65 Cdn 94,857
Director (expiring Nov. 15, 2010) $1.05 Cdn 25,000
Employee/Director (expiring Feb. 21, 2011) $1.15 Cdn 255,000
Employee (expiring August 23, 2011) $1.35 Cdn 25,000
Director/Officer (expiring May 15, 2012) $1.25 Cdn 370,000
Employee (expiring Sept. 23, 2012) $1.00 Cdn 40,000
Director/Officer (expiring Feb. 11, 2013) $0.70 Cdn 230,000
Employee/Director/Officer (expiring April 29, 2013) $0.65 Cdn 265,000
Consultant (expiring April 29, 2008) $0.65 Cdn 35,000
Employee (expiring September 8, 2013) $0.65 Cdn 10,000
Consultant (expiring April 15, 2006) $0.40 Cdn 100,000
-------
TOTAL STOCK OPTIONS: 1,694,336
----------------------------------------------------------------------------------------------------------
CONVERTIBLE DEBENTURES
Dec.02/02 - 1 year (plus 3 year extension) convertible debenture $0.80 Cdn 837,500
(expiring Dec. 2, 2006)
------------------------------------------------------------------------------------- ---------------------
Authorized Capital of Blue Mountain:
------------------------------------
1. unlimited number of common shares; and
2. unlimited number of preference shares.
Issued Capital of Blue Mountain:
--------------------------------
11,875 common shares
Authorized Capital of CCB(US):
------------------------------
1,000 common shares
Issued Capital of CCB(US):
--------------------------
100 common shares
SCHEDULE H
LIST OF INTELLECTUAL PROPERTY
SCHEDULE I
PROJECTED OUTSTANDING FULLY DILUTED COMMON SHARES
Shares Outstanding (after 10:1 rollback): 1,080,368
Conversion of existing debentures and secured
loans for Management & associates : 635,953 (approximately)
Shares to be issued to ▇▇▇▇▇, ▇▇▇▇▇▇ and US Group, et al. 100,000 (approximately)
Conversion of Global Loan: 406,500
US$3,000,000 new funding: 3,000,000
New Stock Options (@ US$1.00): 1,750,000
Old Stock Options (@ between Cdn$4.00 - Cdn$13.50): 169,433
Finders Fee to BG Capital: 450,000
Preferred Conversion Fees: 200,000
GRAND TOTAL PROJECTED SHARES
OUTSTANDING: 7,792,254
