UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
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GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT
OF 1934
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PLANET 13 HOLDINGS INC.
(Exact
name of registrant as specified in its charter)
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British Columbia
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83-2787199
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. employer
identification no.)
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2548 West Desert Inn Road, Suite 100
Las Vegas, Nevada 89109
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(702) 206-1313
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(Address
of principal executive offices and zip code)
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(Registrant’s
telephone number, including area code)
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Securities
to be registered pursuant to Section 12(b) of the Act:
None
Securities
to be registered pursuant to Section 12(g) of the Act:
Common Shares
(Title
of class)
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large accelerated filer
☐
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Accelerated filer
☐
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Non-accelerated filer
☒
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Smaller reporting company
☐
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Emerging growth company
☒
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financing accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
TABLE OF CONTENTS
IMPLICATIONS OF BEING AN EMERGING GROWTH
COMPANY AND FILING THIS REGISTRATION STATEMENT
As a
company with less than $1.07 billion in revenue during our
most recently completed fiscal year, we qualify as an
“emerging growth company” as defined in
Section 2(a) of the Securities Act of 1933, as amended, which
we refer to as the “Securities Act,” as modified by
the Jumpstart Our Business Startups Act of 2012, or the
“JOBS Act.” As
an emerging growth company, we may take advantage of specified
reduced disclosure and other exemptions from requirements that are
otherwise applicable to public companies that are not emerging
growth companies. These provisions include:
●
Reduced disclosure
about our executive compensation arrangements;
●
Exemptions from
non-binding shareholder advisory votes on executive compensation or
golden parachute arrangements; and
●
Exemption from the
auditor attestation requirement in the assessment of our internal
control over financial reporting.
We may
take advantage of these exemptions for up to five years or such
earlier time that we are no longer an emerging growth company. We
would cease to be an emerging growth company if we have more than
$1.07 billion in annual revenues as of the end of a fiscal
year, if we are deemed to be a large-accelerated filer under the
rules of the Securities and Exchange Commission (the
“SEC”) or if we
issue more than $1.0 billion of non-convertible debt over a
three-year period.
In
addition, the JOBS Act provides that an emerging growth company can
take advantage of an extended transition period for complying with
new or revised accounting standards. This provision allows an emerging growth
company to delay the adoption of some accounting standards until
those standards would otherwise apply to private companies. We have
elected to use this extended transition period for complying with
new or revised accounting standards that have different effective
dates for public and private companies until the earlier of the
date we (i) are no longer an emerging growth company or (ii)
affirmatively and irrevocably opt out of the extended transition
period provided in the JOBS Act.
You
should rely only on the information contained in this document or
to which we have referred you. We have not authorized anyone to
provide you with information that is different. You should assume
that the information contained in this document is accurate as of
the date of this registration statement on Form 10
only.
This
registration statement will become effective automatically 60 days
from the date of the original filing, pursuant to
Section 12(g)(1) of the Securities Exchange Act of 1934, as
amended (the “Exchange
Act”). As of the effective date, we will become
subject to the reporting requirements of Section 13(a) under
the Exchange Act and will be required to file annual reports on
Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K, and we will be required to comply with all other
obligations of the Exchange Act applicable to issuers that are
subject to the Exchange Act.
USE OF NAMES AND CURRENCY
In this
registration statement on Form 10, unless the context otherwise
requires, the terms “we,” “us,” “our,” “Company,” or “Planet 13” refer to Planet 13
Holdings Inc. together with its wholly-owned
subsidiaries.
Unless
otherwise indicated, all references to “$,”
“US$” or “USD” in this registration
statement refer to United States dollars, and all references to
“C$” or “CAD” refer to Canadian
dollars.
DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS
This registration statement includes “forward-looking
information” and “forward-looking statements”
within the meaning of applicable Canadian securities laws and
United States securities laws. All information, other than
statements of historical facts, included in this registration
statement that addresses activities, events or developments that we
expect or anticipate will or may occur in the future is
forward-looking information. Forward-looking information is often
identified by the words “may,” “would,”
“could,” “should,” “will,”
“intend,” “plan,” “anticipate,”
“believe,” “estimate,” “expect”
or similar expressions and includes, among others, information
regarding: expectations for the effects of the Business Combination
(defined herein); statements relating to the business and future
activities of, and developments related to, us after the date of
this registration statement, including such things as future
business strategy, competitive strengths, goals, expansion and
growth of our business, operations and plans, new revenue streams,
the completion by us of contemplated acquisitions of additional
real estate, cultivation and licensing assets, the roll out of new
dispensaries, the application for additional licenses and the grant
of licenses or renewals of existing licenses that have been applied
for, the expansion of existing cultivation and production
facilities, the completion of cultivation and production facilities
that are under construction, the construction of additional
cultivation and production facilities, the expansion into
additional U.S. markets, any potential future legalization of
adult-use and/or medical cannabis under U.S. federal law;
expectations of market size and growth in the United States and the
states in which we operate or contemplate future operations;
expectations for other economic, business, regulatory and/or
competitive factors related to us or the cannabis industry
generally; and other events or conditions that may occur in the
future.
Readers are cautioned that forward-looking information and
statements are not based on historical facts but instead are based
on reasonable assumptions and estimates of our management at the
time they were provided or made and involve known and unknown
risks, uncertainties and other factors which may cause our actual
results, performance or achievements, as applicable, to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
information and statements. Such factors include, among others our
actual financial position and results of operations differing from
management’s expectations; our business model; a lack of
business diversification; increasing competition in the industry;
public opinion and perception of the cannabis industry; expected
significant costs and obligations; current reliance on limited
jurisdictions; development of our business; access to capital;
risks relating to the management of growth; risks inherent in an
agricultural business; risks relating to energy costs; risks
related to research and market development; risks related to
breaches of security at our facilities; reliance on suppliers;
risks relating to the concentrated voting control of the Company;
risks related to our being a holding company; risks related to
service providers withdrawing or suspending services under threat
of prosecution; risks related to proprietary intellectual property
and potential infringement by third parties; risks of litigation
relating to intellectual property; negative clinical trial results;
insurance related risks; risk of litigation generally; risks
associated with cannabis products manufactured for human
consumption, including potential product recalls; risks relating to
being unable to attract and retain key personnel; risks relating to
obtaining and retaining relevant licenses; risks relating to
integration of acquired businesses; risks related to quantifying
our target market; risks related to industry growth and
consolidation; fraudulent activity by employees, contractors and
consultants; cyber-security risks; conflicts of interest; risks
related to reputational damage in certain circumstances; leased
premises risks; risks related to the COVID-19 pandemic; U.S.
regulatory landscape and enforcement related to cannabis, including
political risks; heightened scrutiny by Canadian regulatory
authorities; risks related to capital raising due to heightened
regulatory scrutiny; risks related to tax liabilities; risks
related to U.S. state and local law regulations; risks related to
access to banks and credit card payment processors; risks related
to potential violation of laws by banks and other financial
institutions; ability and constraints on marketing products; risks
related to lack of U.S. federal trademark and patent protection;
risks related to the enforceability of contracts; the limited
market for our securities; difficulty for U.S. holders of Common
Shares to resell over the CSE (as defined herein); price volatility
of Common Shares; uncertainty regarding legal and regulatory status
and changes; risks related to legislation and cannabis regulation
in the states in which we operate or contemplate future operations;
future sales by shareholders; no guarantee regarding use of
available funds; currency fluctuations; risks related to entry into
the U.S; and other factors beyond our control, as more particularly
described under the heading “Risk Factors” in this
registration statement.
Readers are cautioned that the foregoing list is not exhaustive of
all factors and assumptions which may have been used. Although we
have attempted to identify important factors that could cause
actual results to differ materially, there may be other factors
that cause results not to be as anticipated, estimated or intended.
There can be no assurance that such forward-looking information and
statements will prove to be accurate as actual results and future
events could differ materially from those anticipated in such
information and statements. Accordingly, readers should not place
undue reliance on forward-looking information and statements. The
forward-looking information and statements contained herein are
presented for the purposes of assisting readers in understanding
our expected financial and operating performance and our plans and
objectives and may not be appropriate for other
purposes.
The forward-looking information and statements contained in this
registration statement represent our views and expectations as of
the date of this registration statement. We anticipate that
subsequent events and developments may cause our views to change.
However, while we may elect to update such forward-looking
information and statements at a future time, we have no current
intention of doing so except to the extent required by applicable
law.
Background
We are
a vertically integrated cultivator and provider of cannabis and
cannabis-infused products in the State of Nevada. Through our
subsidiaries in Nevada, we hold six licenses for cultivation (three
medical licenses and three recreational licenses), six licenses for
production (three medical licenses and three recreational
licenses), three dispensary licenses (one medical
license and two recreational licenses) and two distribution
licenses (one active and one conditional). Additionally, in
California, through Newtonian Principles, Inc. (“Newtonian”), a wholly-owned
subsidiary of ours located in Santa Ana, California, we hold one
dispensary license and one distribution license. Our common shares
are listed for trading on the Canadian Securities Exchange
(“CSE”) under
the symbol “PLTH” and quoted on the OTCQX in the United
States under the symbol “PLNHF.”
We
currently sell over 107 different strains of cannabis (more than 20
of which are grown in house) and have a customer-loyalty database
of over 45,000 customers. We own and manufacture cannabis products
under the following brands: HaHa (gummies and beverages), Dreamland
(chocolates), TRENDI (vapes and concentrates), Medizin (flower,
vapes, concentrates), Leaf and Vine (vapes).
We
operate our cultivation licenses at three separate facilities, each
location operating jointly under a medical and adult-use
cultivation license. Two of our cultivation licenses operate out of
Clark County, Nevada (Las Vegas) and include indoor cultivation and
perpetual harvest cycles. One is located in an approximately 16,100
square foot facility, and the other operates out of a 25,000 square
foot facility and is in construction to expand to a total of 45,000
square feet. The third cultivation license is located near the town
of Beatty in Nye County, Nevada. The Beatty cultivation facility
currently houses approximately 500 square feet of research and
development and genetics testing with the potential to expand to
over 2,300,000 square feet of greenhouse production capacity on 80
acres of owned land that includes municipal water and abundant
electrical power already at the edge of the property.
Our six
production licenses operate at three licensed production
facilities, each location operating jointly under a medical and
adult-use cultivation license. One production facility is a 18,500
square foot customer facing production facility that opened inside
our cannabis entertainment complex adjacent to the Las Vegas Strip
(the “Planet 13 Las Vegas
Superstore”). This facility incorporates butane hash
oil extraction (BHO extraction), distillation equipment and
microwave assisted extraction equipment as well as a
state-of-the-art bottling and infused beverage line and an edibles
line able to produce infused chocolates, infused gummies and other
edible products. The second production facility is co-located at
the Beatty facility, and the third facility is co-located in a
25,000 square foot cultivation facility located in Las
Vegas.
We
operate two dispensaries in Nevada under two adult-use and one
medical licenses. Since 2018, two licenses (one medical and one
adult-use) jointly operate out of the Planet 13 Las Vegas
Superstore and occupy approximately 24,000 square feet of retail
space adjacent to the Las Vegas Strip. Prior to relocating to the
Planet 13 Las Vegas Superstore, the licenses operated out of a
2,300 square foot facility located approximately six miles off the
Las Vegas Strip (the “Medizin
Facility”). In September 2020, we received an
unincorporated Clark County recreational license for the Medizin
Facility dispensary which had closed when its dispensary licenses
were transferred to the Planet 13 Las Vegas Superstore and
re-opened the Medizin Facility on November 30, 2020.
Additionally,
we have an active distribution license and launched a distribution
and delivery service in Nevada to augment our retail locations and
deliver product to both wholesale customers and local Nevada state
residents throughout the State of Nevada. We expect our Las Vegas
conditional license to be operational in 2022.
We
operate one dispensary in California and occupy approximately
25,600 square feet of retail space on Warner Boulevard in the City
of Santa Ana located in Orange County (the “Planet 13 OC Superstore”). We have
a licensed 6,300 square feet distribution facility adjacent to the
Planet 13 OC Superstore, and launched a distribution and delivery
service in Orange County to augment our retail location and deliver
product to customers and local California state residents
throughout Orange County and the surrounding area.
On
August 5, 2021, our subsidiary, Planet 13 Illinois LLC
(“Planet 13
Illinois”), which is owned 49% by us and 51% by Frank
Cowan, a resident of Illinois, was a lottery winner for a
Social-Equity Justice Involved Conditional Adult Use Dispensing
Organization License in the Chicago-Naperville-Elgin region from
the Department of Financial and Professional Regulation in the
State of Illinois. We intend to open a dispensary in the downtown
Chicago area and anticipate that it will be operational in late
2022. On October 5, 2021, we formed Planet 13 Chicago, LLC as a
100% owned leasing entity to support future operations in
Illinois.
On
October 1, 2021, our wholly owned subsidiary, Planet 13 Florida
Inc. (“Planet 13
Florida”), completed the acquisition of a license from
a subsidiary of Harvest Health & Recreation Inc. (the
“Seller”)
pursuant to which Planet 13 Florida purchased from the Seller a
license to operate as a Medical Marijuana Treatment Center issued
by the Florida Department of Health for $55,000,000 in cash. No
other assets or liabilities were acquired. Licensed Medical
Marijuana Treatment Centers (“MMTCs”) are vertically integrated
and the only businesses in Florida authorized to dispense medical
marijuana cannabis to qualified patients and caregivers. MMTCs are
authorized to cultivate, process, transport and dispense medical
marijuana. As of September 24, 2021, there were 22 companies with
MMTC licenses with 370 dispensing locations across
Florida. License holders
are not subject to restrictions on the number of dispensaries that
may be opened or on the number or size of cultivation and
processing facilities they may operate.
The
following table presents the inter-corporate relationships between
us and our subsidiaries as at the date hereof.
Subsidiaries of Company
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Ownership and control
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Description
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MM Development Company, Inc.
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100%
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Licensed Nevada cannabis operations
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BLC Management Company, LLC
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100%
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Management / Holding Entity
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LBC CBD, LLC
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100%
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CBD products / sales company
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BLC NV Food, LLC
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100%
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Holding company for By The Slice, LLC
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By The Slice, LLC
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100%
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Subsidiary of BLC NV Food, LLC, holdings restaurant and retail
operations
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Newtonian Principles, Inc.
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100%
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Licensed California cannabis operations
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Planet 13 Illinois, LLC
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49%
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Applicant entity for Illinois dispensary license in Chicago
region
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Planet 13 Florida, Inc.
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100%
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Holding company for Florida cannabis license
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Planet 13 Chicago, LLC
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100%
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Holding entity for prospective Illinois lease(s)
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MM Development MI, Inc.
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100%
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Inactive shelf corporation
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MM Development CA, Inc.
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100%
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Inactive shelf corporation
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Our
registered office is located at 10th floor, 595 Howe St.,
Vancouver, BC V6C 2T5, and our head office is located at 2548 West
Desert Inn Road, Suite 100, Las Vegas, Nevada 89109.
History of the Company
We were
incorporated under the Canada Business Corporations Act
(“CBCA”) on
April 26, 2002 under the name “High Income Preferred Shares
Corporation.” On October 18, 2010, Wombat Investment Trust
acquired control of us and on January 1, 2011, we changed our name
to “Carpincho Capital Corp.” (“Carpincho”).
MM
Development Company, Inc. (“MMDC”), now one of our wholly
owned subsidiaries, was formed on March 20, 2014 as a Nevada
limited liability company under the name MM Development Company,
LLC (“MMDC LLC”)
with the mission to provide compassionate, dignified and affordable
access to cannabis, cannabis concentrates and cannabis-infused
products to approved customers in the State of Nevada. MMDC LLC
underwent a statutory conversion to a Nevada corporation and became
MMDC on March 14, 2018. On June 11, 2018, MMDC completed a
reverse-take-over (“RTO” or “Business Combination”) transaction
of Carpincho and filed Articles of Amendment to effect (i) a
consolidation of its share capital on a 0.875 (new) for one (1) old
basis; (ii) a name change from “Carpincho Capital
Corp.” to “Planet 13 Holdings Inc.”; and (iii)
the creation of a new class of convertible, class A restricted
voting shares (the “Restricted Voting Shares”). The
Restricted Voting Shares were convertible into common shares of the
Company (the “Common
Shares”) at the option of the holders on a
share-for-share basis.
On May
31, 2018, the Nevada State Department of Taxation
(“DOT”), the
agency which regulates cannabis operations in Nevada, approved the
transfer of MMDC’s cultivation production and dispensary
licenses to us.
On June
26, 2019, we continued out of the jurisdiction of Canada under the
CBCA into the jurisdiction of the Province of British Columbia
under the Business Corporations Act (British Columbia)
(“BCBCA”). On
August 12, 2019, our wholly owned subsidiary 10653918 Canada
Inc. (“Finco”)
was continued out of the jurisdiction of Canada under the CBCA into
the jurisdiction of the Province of British Columbia under the
BCBCA and on September 24, 2019, we completed a short-form vertical
amalgamation with Finco (the “Short Form Amalgamation”). The
Short Form Amalgamation was undertaken to simplify our corporate
structure and to obtain certain administrative and financial
reporting efficiencies. No securities were issued in connection
with the Short Form Amalgamation.
Prior
to the completion of the Business Combination, the only active
business operations of Carpincho was to carry on activities as a
venture capital company seeking assets or businesses with good
growth potential to merge with or acquire. Following the Business
Combination, we have continued the business of MMDC.
2018 Financings
Prior
to 2018, MMDC was largely financed by its founders Robert Groesbeck
and Larry Scheffler, and companies controlled by them, through a
combination of cash contributions classified as debt with accrued
interest exceeding US$6,600,000 and reinvestment of operating
proceeds.
On
January 1, 2018, Messrs. Groesbeck and Scheffler converted an
aggregate of US$3,334,304 of their controlled entity debts to
equity in MMDC and Chris Wren, Vice President of Operations of
MMDC, contributed valuable intellectual property, including genetic
strains, cultivation processes, and manufacturing processes, to
MMDC in return for a 6% interest in MMDC. The foregoing resulted in
MMDC issuing to such persons, in the aggregate, 25,300 class A
common voting shares of MMDC and 49,700,000 class B common
non-voting shares of MMDC which were subsequently converted into
25,300,000 Common Shares and 49,700,000
Restricted Voting Shares, respectively, on closing of the Business
Combination.
On June
20, 2018, Messrs. Groesbeck and Scheffler, through controlled
companies, converted an aggregate of approximately US$3.4 million
principal amount and accrued interest of unsecured promissory notes
of the Company held by them into an aggregate of 5,532,940
Restricted Voting Shares, or 2,766,470 Restricted Voting Shares
each, at a conversion price of C$0.80 per Restricted Voting
Share.
On
October 15, 2015, an original member of MMDC LLC, Ollehea, LLC,
requested that MMDC LLC repurchase its interest as allowed under an
operating agreement then in effect. Consequently, the remaining
members of MMDC LLC at the time agreed to issue promissory notes to
Ollehea on behalf of the MMDC LLC in the amount of US$101,997 each
to satisfy the repurchase requirement. The notes were repaid by us
on July 9, 2018.
2018 Subscription Receipt Offering
Over
the course of three tranches on April 26, May 18 and May 23, 2018,
Finco completed private placements of subscription receipts (the
“Subscription
Receipts”) at a price of C$0.80 per Subscription
Receipt for aggregate gross proceeds of approximately C$25.1
million (the “Subscription
Receipt Offering”), the brokered portion
of which was conducted by a syndicate of agents co-led by Beacon
Securities Limited and Canaccord Genuity Corp. and including
Haywood Securities Inc. (collectively, the “Agents”). The proceeds from the
Subscription Receipt Offering, less certain expenses, were placed
into escrow on completion of the Subscription Receipt Offering. In
connection with the completion of the Business Combination, the
Subscription Receipts were converted on a one-for-one basis into a
total of 31,458,300 common shares of Finco and 15,729,150 common
share purchase warrants of Finco, which upon completion of the
acquisition of Finco by us were exchanged for an equal number of
Common Shares and Common Share purchase warrants (the
“Common Share
Warrants”), respectively, and the escrowed proceeds
from the Subscription Receipt Offering, less the commission of the
Agents and certain fees and expenses, were released from escrow to
us. Each Common Share Warrant may be exercised for one Common Share
at an exercise price of C$1.40 for a period of 24 months from the
date of issue. In consideration for services rendered, the Agents
were paid a cash commission equal to 6% of the gross proceeds of
the Subscription Receipt Offering and issued 1,485,645 compensation
warrants (the “Compensation
Warrants”). Each Compensation Warrant entitled the
holder thereof to purchase one Common Share at an exercise price of
C$0.80 until June 11, 2020.
2018 Bought Deal Offering
On
December 4, 2018, we issued 8,735,250 units (each, a
“Unit”) at a
price of C$3.00 per Unit and 425,000 Common Share Warrants (the
“Over-Allotment
Warrants”) for a price of C$0.44 per Over-Allotment
Warrant for aggregate gross proceeds of C$26,392,750 pursuant to a
bought deal offering (the “2018 Bought Deal Offering”). The 2018 Bought Deal
Offering was led by Beacon Securities Limited and included
Canaccord Genuity Corp and Cormark Securities Inc. (collectively,
the “2018 Bought Deal Underwriters”). Each
Unit was comprised of one Common Share and one-half of one Common
Share purchase warrant (each whole warrant, a “Unit Warrant” and, together with
the Over-Allotment Warrants, the “2018 Bought Deal Warrants”). Each
2018 Bought Deal Warrant entitled the holder to purchase one Common
Share at an exercise price of C$3.75 for a period of 36 months
following the closing of the 2018 Bought Deal Offering unless
earlier accelerated by us pursuant to the terms thereof. On
December 23, 2020, we announced that we had elected to
accelerate the expiry date of the outstanding 2018 Bought Deal
Warrants to January 28, 2021.
As
consideration for services rendered, the 2018 Bought Deal
Underwriters were paid a cash commission equal to 6.0% of the gross
proceeds of the 2018 Bought Deal Offering and issued compensation
options equal to 6% of the number of Units and Over-Allotment
Warrants sold (the “Compensation Options”). Each
Compensation Option entitled the holder thereof to purchase one
Common Share at an exercise price of C$3.00 for a period of
24 months following the closing of the 2018 Bought Deal
Offering. We recorded share issuance costs of
C$1,536,302.
2019 Formation of Non-Operational Entities
In
2019, we formed MM Development MI, Inc. and Planet 13 Illinois, LLC
for the purpose of state and local cannabis applications, and LBC
CBD, LLC for the purpose of marketing and selling our cannabidiol
(“CBD”) line of
products. We also formed BLC NV Food, LLC in January 2020, for the
purpose of potential lounge, restaurant, and catering
opportunities, and submitted restricted license applications to
local jurisdictions in Nevada. These projects are non-operational
as at the date hereof, and as material
information develops related to each entity, it will be disclosed
at the appropriate time and manner by us.
2020 Acquisitions and Financing, Re-Opening Medizin
Dispensary
Santa Ana Acquisition
On May
20, 2020, we acquired all of the issued and outstanding common
stock (the “Newtonian
Shares”) of Newtonian Principles Inc.
(“Newtonian”)
(the “Santa Ana
Acquisition”), resulting in our acquiring a
provisional cannabis retail license, adult use issued by the State
of California Bureau of Cannabis Control (the “California License”) and a
regulatory safety permit issued by the City of Santa Ana (the
“Santa Ana
Permit”), which were both held by Newtonian, and a
30-year lease for a dispensary in Santa Ana, California (the
“Santa Ana
Premises”) along with certain other assets
(collectively, the “Warner
Assets”) from Warner Management Group, LLC
(“Warner”).
Newtonian had no operations at the time of the Santa Ana
Acquisition. We issued 3,940,932 Restricted Voting Shares (the
“Santa Ana Consideration
Shares”), representing an agreed value of
US$4,000,000, to certain vendors in consideration for the Newtonian
Shares, and paid Warner US$1,000,000 in cash and cancelled an
interim buildout loan to Warner in consideration for the Warner
Assets.
The
Santa Ana Consideration Shares were subject to a four-month and one
day hold period under Canadian securities laws and were subject to
a lock-up whereby 1/8 of the Santa Ana Consideration Shares were
released from lock-up each month beginning on September 22,
2020.
On
September 25, 2020, Newtonian received a Regulatory Safety Permit
Phase 1 approval from the City of Santa Ana for distribution
activities at the Santa Ana Premises. On June 18, 2021, Newtonian
received both a Commercial Cannabis Adult-Use Retail Sales and a
Commercial Cannabis Distribution Regulatory Safety Permit Phase 2
approval from the City of Santa Ana, and on June 21, 2021, received
a California Adult-Use and Medicinal – Distributor
License.
In
mid-June 2021, we completed the build-out of the Planet 13 OC
Superstore dispensary and distribution facility, and opened the
facility for California State and the City of Santa Ana licensed
cannabis sales and distribution starting July 1, 2021.
WCDN Acquisition
On July
17, 2020, we entered into an asset purchase agreement (the
“WCDN Asset Acquisition
Agreement”) with West Coast Development Nevada, LLC
(“WCDN”), W The
Brand, LLC, and R. Scott Coffman, pursuant to which we, through
MMDC, acquired cannabis inventory, equipment and tenant
improvements located in a 25,000 square feet facility at 4801 West
Bell Drive, Las Vegas, Nevada 89118 (the “WCDN Acquisition Facility”), which
has the ability to expand to 45,000 square feet (the
“WCDN
Acquisition”). The purchase price for the asset
purchase was US$4.1 million and consisted of US$1.156 million in
cash for the inventory and US$3 million (US$0.5 million cash and
US$2.5 million of Common Shares, resulting in the issuance of
1,374,833 Common Shares (the “WCDN Consideration Shares”) based
on a 10-day volume weighted average price of the Common Shares as
of the close of trading on July 16, 2020) for the operating assets
and licenses. The WCDN Consideration Shares were held in escrow
until the Second Closing (as defined herein). The WCDN Acquisition
allowed us to solidify our vertical integration in Nevada. The
privileged licenses included medical and adult-use cultivation and
production licenses in unincorporated Clark County, and these
licenses were transferred to our existing Nevada subsidiary, MMDC,
to be operated on the same terms and subject to the same oversight
provided at MMDC’s current production and cultivation
operations in unincorporated Clark County, Nevada.
The
transaction was scheduled to close in two parts, the first closing
being cash transferred for the equipment and cannabis inventory
which occurred on July 17, 2020, and the second closing (the
“Second
Closing”) being contingent on the approval to transfer
the license and receipt of the cultivation and production licenses
from the State of Nevada’s Cannabis Control Board (the
“CCB”). On
August 25, 2020, the CCB conditionally approved the transfer of the
cultivation and production licenses to MMDC, and on September 3,
2020, MMDC received the cultivation and production licenses
pursuant to a letter from the CCB and certificates issued on
November 3, 2020. By way of an October 12, 2020 letter from the
CCB, MMDC received a conditional distribution license from WCDN.
The CCB later revisited that letter, claimed it was issued
unintentionally or in error, and by CCB public hearing approved the
transfer of the conditional distribution license from WCDN to MMDC
on December 18, 2020. The approval of the conditional distribution
license was confirmed in a letter from the CCB dated January 4,
2021. This is a conditional permit, and no certificate will be
available until receipt of a final inspection by the CCB on or
prior to February 5, 2022.
On
September 11, 2020, we mutually agreed with WCDN that the receipt
by MMDC of a business license issued by unincorporated Clark County
which would permit us to conduct business in Clark County (the
“Clark County Business
License”) was a necessary condition precedent to the
Second Closing. MMDC received the Clark County Business License and
subsequently completed the Second Closing on November 27, 2020, at
which time WCDN Consideration Shares were released from escrow to
WCDN.
Concurrent
with the first closing of the WCDN Acquisition, RX Land, LLC
(“RX Land”), an
entity owned by Robert Groesbeck and Larry Scheffler (our co-chief
executive officers, collectively the “Co-CEOs” and each a
“Co-CEO”),
acquired the WCDN Acquisition Facility for US$3.3 million and
entered into a lease agreement with WCDN in respect of such
facility (the “Initial West
Bell Lease”). In accordance with the terms of the WCDN
Asset Acquisition Agreement and approvals by our independent
directors, WCDN assigned the Initial West Bell Lease to MMDC on
November 25, 2020, and MMDC subsequently entered into an amending
agreement with RX Land on November 27, 2020, to amend certain
terms of such lease agreement including increasing the lease
payments, extending the duration of the lease and, if desired,
allowing for second floor installation by MMDC without a
corresponding lease rate increase due to an increase in facility
size.
July 2020 Bought Deal Offering
On July
3, 2020, we completed bought deal financing for aggregate gross
proceeds of C$11,521,850 (the “July 2020 Bought Deal”)
pursuant to which an aggregate of 5,359,000 units (each, a
“July 2020 Bought Deal
Unit”) of the Company were sold at a price of C$2.15
per July 2020 Bought Deal Unit. Each July 2020 Bought Unit
consisted of one Common Share and one-half (1/2) of one Common
Share purchase warrant (each whole warrant, a “July 2020 Bought Deal
Warrant”). Each July 2020 Bought Deal Warrant entitles
the holder thereof to acquire one Common Share at an exercise price
of C$2.85 per Common Share until July 3, 2022.
The
underwriters received a cash commission equal to 6.0% of the gross
proceeds from the sale of the July 2020 Bought Deal Units. The
underwriters also received compensation options (each a
“July 2020 Bought Deal
Compensation Option”) equal to 6.0% of the number of
July 2020 Bought Deal Units sold. Each July 2020 Bought Deal
Compensation Option entitles the underwriters to purchase one
Common Share at a price of C$2.15 until July 3,
2022.
September 2020 Bought Deal Offering
On
September 10, 2020, we completed our previously announced bought
deal financing for aggregate gross proceeds of C$23,019,550 (the
“September 2020 Bought
Deal”) pursuant to which an aggregate of 6,221,500
units (each, a “September
2020 Bought Deal Unit”) of the Company were sold at a
price of C$3.70 per September 2020 Bought Deal Unit. Each
September 2020 Bought Unit consisted of one Common Share
and one-half (1/2) of one Common Share purchase warrant (each whole
warrant, a “September 2020
Bought Deal Warrant”). Each September 2020 Bought
Deal Warrant entitles
the holder thereof to acquire one Common Share at an exercise price
of C$5.00 per Common Share until September 10, 2022.
The
underwriters received a cash commission equal to 6.0% of the gross
proceeds from the sale of the September 2020 Bought Deal Units. The
underwriters also received compensation options (each a
“September 2020 Bought Deal
Compensation Option”) equal to 6.0% of the number of
September 2020 Bought Deal Units sold. Each September 2020 Bought
Deal Compensation Option entitles the underwriters to purchase one
Common Share at a price of C$3.70 until September 10,
2022.
November 2020 Bought Deal Offering
On
November 5, 2020, we completed our previously announced bought deal
financing for aggregate gross proceeds of C$28,604,625 (the
“November 2020 Bought
Deal”) pursuant to which an aggregate of 6,698,750
units (each, a “November 2020
Bought Deal Unit”) of the Company were sold at a price
of C$4.30 per November 2020 Bought Deal Unit. Each November 2020
Bought Unit consisted
of one Common Share and one-half (1/2) of one Common Share purchase
warrant (each whole warrant, a “November 2020 Bought Deal
Warrant”). Each November 2020 Bought Deal Warrant entitles the holder
thereof to acquire one Common Share at an exercise price of C$5.80
per Common Share until November 5, 2022.
The
underwriters received a cash commission equal to 6.0% of the gross
proceeds from the sale of the November 2020 Bought Deal Units. The
underwriters also received compensation options (each a
“November 2020 Bought Deal
Compensation Option”) equal to 6.0% of the number of
November 2020 Bought Deal Units sold. Each November 2020 Bought
Deal Compensation Option entitles the underwriters to purchase one
Common Share at a price of C$4.30 until November 5,
2022.
Medizin Re-opening
MMDC
applied for dispensary licenses in Nevada pursuant to a competitive
application process in September 2018, and was notified that
no licenses were awarded in December 2018. On information known at
that time, MMDC filed a lawsuit against the State of Nevada, along
with a significant majority of similarly denied applicants. After
the first week of trial in July 2020 concerning that litigation
pending from December 2018, MMDC entered into a settlement
agreement with the State of Nevada, and defendants in intervention
to receive a license in unincorporated Clark County to reopen the
Medizin location (the “Nevada
License Settlement”). On July 31, 2020, the Nevada Tax
Commission convened and approved the signed Nevada License
Settlement and requested that the CCB, which had authority over
Nevada-licensed cannabis businesses as of July 1, 2020, also
convene and approve the settlement. On August 7, 2020, the CCB
convened and approved the Nevada License Settlement. Pursuant to
the Nevada License Settlement, our subsidiary MMDC agreed to a
release and waiver of its claims against the State of Nevada and
the defendants in intervention, in return for MMDC receiving the
provisional unincorporated Clark County adult-use dispensary
license originally received by Nevada Organic Remedies in December
2018. Pursuant to a letter dated September 3, 2020, the CCB
transferred the conditional Clark County dispensary license to
MMDC. On November 20, 2020, we opened the Medizin store location,
having received CCB final inspection approvals and a Clark County
business license.
2021 Bought Deal Offering, Opening of Planet 13 OC Superstore,
Illinois Conditional license award and Florida License Purchase
Agreement
On
February 2, 2021, we completed a bought deal financing for
aggregate gross proceeds of C$69,028,750 (the “February 2021 Bought Deal”)
pursuant to which an aggregate of 9,861,250 units (each, a
“February 2021 Bought Deal
Unit”) of the Company were sold at a price of C$7.00
per February 2021 Bought Deal Unit. Each February 2021
Bought Unit consisted
of one Common Share and one-half (1/2) of one Common Share purchase
warrant (each whole warrant, a “February 2021 Bought Deal
Warrant”). Each February 2021 Bought Deal Warrant entitles the holder
thereof to acquire one Common Share at an exercise price of C$9.00
per Common Share until February 2, 2023.
The
underwriters received a cash commission equal to 6.0% of the gross
proceeds from the sale of the February 2021 Bought Deal Units. The
underwriters also received compensation options (each a
“February 2021 Bought Deal
Compensation Option”) equal to 6.0% of the number of
February 2021 Bought Deal Units sold. Each February 2021 Bought
Deal Compensation Option entitles the underwriters to purchase one
Common Share at a price of C$7.00 until February 2,
2023.
Following
completion of tenant improvement construction in the first and
second quarters of 2021, on July 1, 2021 the our subsidiary,
Newtonian, opened the Planet 13 OC Superstore, a California
licensed and City of Santa Ana permitted cannabis dispensary and
distribution facilities, at 25,600 and 6,300 square feet,
respectively.
On
August 5, 2021, our subsidiary, Planet 13 Illinois, which is owned
49% by us and 51% by Frank Cowan, a resident of Illinois, was a
lottery winner for a Social-Equity Justice Involved Conditional
Adult Use Dispensing Organization License in the
Chicago-Naperville-Elgin region from the Department of Financial
and Professional Regulation in the State of Illinois. We intend to
launch a dispensary in the downtown Chicago area and anticipate
that it will be operational in late 2022.
On
October 1, 2021, Planet 13 Florida completed the acquisition of a
license from the Seller pursuant to which Planet 13 Florida
purchased from the Seller a license to operate as a MMTC issued by
the Florida Department of Health for $55,000,000 in
cash.
Overview of the Company’s Cannabis Business
Introduction
On
November 1, 2018, we opened the Planet 13 Las Vegas Superstore,
less than 500 feet from the Trump Tower and less than 2,500 feet
from the Wynn hotel. MMDC entered into an arm’s length
agreement to lease a 100,000 square foot building to house its
Planet 13 Las Vegas Superstore dispensary and corporate office
space in a Phase I build-out of the location. In October 2019,
we opened a 4,500-square-foot coffee shop and pizzeria in the
Planet 13 Las Vegas Superstore. In 2020, the coffee shop and
pizzeria was renamed as the Trece Eatery + Spirits restaurant,
owned and operated by us through our subsidiaries. Future plans
include the opening of a possible consumption lounge and a
non-cannabis retail facility. The Planet 13 Las Vegas Superstore
lease has a seven-year term with two seven-year renewal options and
we have a right-of-first-refusal on any sale of the building. Prior
to opening the Planet 13 Las Vegas Superstore, we sold both medical
and recreational products from our then existing facilities. On
April 1, 2019, we entered into a lease and sub-license agreement
for an additional 4.17 acres of land directly adjacent to the
Planet 13 Las Vegas Superstore for additional parking. The term of
the April 1, 2019 lease and sub-license runs concurrent with the
Planet 13 Las Vegas Superstore lease.
We may
in the future build a 100,000 square foot greenhouse for
cultivation and an approximately 43,000 square foot
processing/production facility located in Beatty, Nevada,
approximately 120 miles north-west of Las Vegas. The Beatty
location is licensed and zoned for up to three million square feet
of greenhouse space for the cultivation of cannabis. The site,
which is owned by us, has been permitted and is ready for
construction to begin. We are evaluating the timing of construction
based on a current excess of supply of wholesale cannabis product
in the State of Nevada and in the event of future federal
legalization. We expect to revisit our expansion plans for the
Beatty facility once the wholesale market in Nevada
stabilizes.
Cultivation
We,
through MMDC, cultivate our cannabis products at: (i) a 16,100
square foot leased facility with a perpetual harvest cycle located
in Las Vegas (Clark County); (ii) a 500 square foot facility in Nye
County where we conduct product research and development and
genetics testing, and (iii) a 25,000 square foot leased facility,
which is currently undergoing a 20,000 square foot expansion that
will bring the total size of the facility to 45,000 square feet,
that houses both cultivation and production facilities located in
Las Vegas (Clark County).
Production
Since
October 2019, we produce our cannabis products in (i) a
14,000 square foot
leased facility in Las Vegas (Clark County) co-located at the
Planet 13 Las Vegas Superstore, expanded in Q3 2021 to 18,500
square feet, and separate from the 16,100 square foot cultivation
and distribution facility in Las Vegas (Clark County); (ii) a
facility in Nye County owned by us and co-located with cultivation
operations, and (iii) a 25,000 square foot leased facility,
currently undergoing an expansion to add an additional 20,000
square feet to the facility for cultivation and production located
in Las Vegas (Clark County). From prior to opening the 18,500
square foot production facility that is co-located in the Planet 13
Las Vegas Superstore complex and up to the end of October 2019, we
produced our cannabis products at a separate 4,750 square foot
facility leased in Las Vegas (Clark County). All cannabis
production licenses held by us in the State of Nevada have been
issued to MMDC.
Distribution
We
currently operate Nevada distribution activities, primarily for the
transport of our products between our cultivation, production, and
dispensing operations, out of our 16,100 square foot cultivation
facility located in Las Vegas (Clark County). In addition to
self-distribution services, the distribution license is used for
the delivery of our wholesale products to licensed Nevada-state
cannabis retailers. All distribution licenses held by us in the
State of Nevada have been issued to MMDC.
We
currently operate California distribution activities at our
licensed facility in Santa Ana, California to receive cannabis
products purchased from our vendors prior to placement in the
Planet 13 OC Superstore.
Dispensing
We have
three Nevada dispensary licenses, one for medical and two for the
sale of adult-use product, and an adult-use California dispensary
license. The Planet 13 Las Vegas Superstore, approximately 23,000
square feet of retail space located adjacent to the Las Vegas
Strip, houses one medical and one adult-use license. The other
adult-use license operates out of the Medizin-branded store in
Clark County, a 2,300 square foot retail facility. The
Planet 13 Las Vegas Superstore has the capacity to serve
between 2,000 to 3,000 customers per day through its new, enhanced
dispensary. We intend to build out the balance of the Planet 13 Las
Vegas Superstore location with ancillary services such as a
potential cannabis lounge in a segregated area of the facility
where patrons will be able to consume products that have been
purchased at the dispensary. Lounge facility build-out and
operation are pending state and county regulation and ordinance
drafting and subsequent licensing of the facility.
The Planet 13 Las Vegas Superstore also houses our corporate
offices. The Planet 13 OC Superstore, with approximately 15,000
square feet of retail space is located in Santa Ana.
In
March 2020, per executive order of Nevada’s Governor Steve
Sisolak in response to the public health crisis arising from the
novel strain of the coronavirus known as SARS-CoV-2 which is
responsible for the coronavirus disease known as COVID-19, all
Nevada dispensaries were mandated as an essential service but were
restricted to delivery only, with no curb-side pickup or in-store
sales permitted until such delivery-only order was lifted on May
30, 2020, when the Planet 13 Las Vegas Superstore re-opened with no
more than ten customers allowed in the store at any given time.
During the delivery-only restricted operational period, we
increased our delivery vehicle fleet to 29 vehicles, and upon the
re-opening of the Planet 13 Las Vegas Superstore, we were able to
meet the increased home-delivery requests by keeping 20 of those
vehicles in constant operation. On June 4, 2020, the State of
Nevada increased the allowed occupancy of all businesses in Nevada
to a maximum of 50% of the fire rated capacity of the location. We
are currently adhering to the guidelines set by the State of Nevada
and are able to serve 268 customers in the Planet 13 Las Vegas
Superstore at one time under the revised capacity limits set out as
of June 4, 2020. On November 24, 2020, Governor Sisolak instituted
a Nevada state-wide “pause”, which limited certain
industries such as gaming and restaurants, to 25% capacity, but did
not further restrict the 50% fire rated capacity limits imposed on
cannabis establishments. On December 4, 2020, Nevada announced a
COVID-19 vaccine allocation plan, and on December 14, 2020, the
first shipment of vaccines was received in Nevada and began
distribution under the Nevada allocation plan. The Nevada
state-wide “pause” was extended on December 13, 2020,
and again for an additional 30-days on January 11, 2021. On March
4, 2021, Nevada announced a “Roadmap to Recovery”
relaxing the restrictions in phases and a release from State-level
oversight to local jurisdictions in May 2021. As of June 1,
2021, businesses have been allowed to operate at 100% capacity so
long as they adhere to both state and local COVID-19 operating
protocols, which, currently include maintaining social distancing
and the requirement to wear masks while indoors.
We have
identified that regulatory permits, applications, and submittals
are taking longer for Nevada and California regulators to process,
as those jurisdictions at the state and local levels have
redesignated resources towards COVID-19 response, furloughed
regulatory employees, or maintained limited office hours for
submissions. As of the date hereof, we do not yet know the duration
or magnitude of the COVID-19 pandemic but will continue to operate
our core business of dispensing cannabis to adult-use and medical
customers in accordance with the federal and state guidelines and
restrictions. The current COVID-19 protocols in California includes
a general industry safety order by Cal/OSHA that masks are required
statewide for unvaccinated individuals in indoor public settings
and workplaces.
On July
31, 2020, the Nevada Tax Commission convened and approved the
Nevada License Settlement, we and other plaintiffs, and intervening
defendants in connection with the DOT License Matter (as defined
herein). While the Nevada Tax Commission approved the settlement,
it also requested that the CCB, which had authority over
Nevada-licensed cannabis businesses as of July 1, 2020, also
convene and approve of the settlement. On August 7, 2020, the
CCB convened and approved the Nevada License Settlement. Pursuant
to the Nevada License Settlement, our subsidiary MMDC agreed to a
release and waiver of its claims against the State of Nevada and
the defendants in intervention, in return for MMDC receiving the
provisional unincorporated Clark County adult-use dispensary
license originally received by Nevada Organic Remedies in December
2018. As a further condition of the settlement, many of the
enjoined parties were re-categorized by the State of Nevada, and
thus no longer subject to a preliminary injunction. In a letter
dated September 3, 2020, the CCB transferred the conditional Clark
County dispensary license to MMDC. On November 20, 2020, we opened
the Medizin store location, having received CCB final inspection
approvals and the Clark County Business License.
Licenses
We are
licensed to operate in the State of Nevada as a Retail and Medical
Cultivator, a Retail and Medical Product Manufacturer and a Retail
and Medical Dispensary. In the State of Nevada,
“Retail” refers to the recreational cannabis market.
Please see Table 1 below for a list of the licenses issued to us in
respect of our operations in Nevada. Under applicable laws, the
licenses permit us to cultivate, manufacture, process, package,
sell, and purchase marijuana pursuant to the terms of the licenses,
which were formerly issued by the DOT under the provisions of
Nevada Revised Statutes section 453A through June 30, 2020 and
issued by the CCB under NRS 678A, B and D starting July 1, 2020.
All licenses are independently issued for each approved activity
for use at our facilities and retail locations in
Nevada.
All
Nevada marijuana establishments must register with the CCB. If
applications contain all required information and after vetting by
officers, establishments are issued a marijuana establishment
registration certificate. In a local governmental jurisdiction that
issues business licenses, the issuance by the CCB of a marijuana
establishment registration certificate is considered provisional
until the local government has issued a business license for
operation and the establishment is in compliance with all
applicable local governmental ordinances. Final registration
certificates are valid for a period of one year and are subject to
annual renewals after required fees are paid and the business
remains in good standing. It is important to note conditional
licenses do not permit the operation of any commercial or medical
cannabis activity. Only after a conditional licensee has gone
through necessary state and local inspections, if applicable, and
has received a final registration certificate from the CCB may an
entity engage in cannabis business operation. The CCB limits
application for all licenses.
On May
20, 2020, pursuant to the Santa Ana Acquisition, we acquired a 100%
interest in Newtonian which holds the California Adult-Use
Dispensary License (the “California License”), permitting
us to sell cannabis goods to customers at the Santa Ana Premises.
Newtonian also holds the Santa Ana Regulatory Permit for Commercial
Cannabis Adult-use Sales for the Santa Ana Premises. We opened the
Planet 13 OC Superstore dispensary on July 1, 2021 and
commenced retail sales operations under the California License and
also launched distribution activities at the Santa Ana Premises
under the California State distribution license. Both licenses were
active but were not used in operations until completion of tenant
improvements and are now in operation since July 1,
2021.
On
August 5, 2021, our subsidiary, Planet 13 Illinois, which is owned
49% by us and 51% by Frank Cowan, a resident of Illinois, was a
lottery winner for a Social-Equity Justice Involved Conditional
Adult Use Dispensing Organization License in the
Chicago-Naperville-Elgin region from the Department of Financial
and Professional Regulation in the State of Illinois
(“IDFPR”). As of
the date of this registration statement, the license has not been
issued by the IDFPR. We intend to launch a superstore dispensary in
the downtown Chicago area and anticipate that it will be
operational in late 2022.
On
October 1, 2021, through our subsidiary Planet 13 Florida., we
acquired a license from Harvest Health & Recreation Inc. issued
by the Florida Department of Health to operate as a MMTC in the
State of Florida for US$55 million in cash. Licensed MMTCs are
vertically integrated and the only businesses in Florida authorized
to dispense medical marijuana to qualified patients and caregivers.
MMTCs are authorized to cultivate, process, transport and dispense
medical marijuana. As of September 24, 2021, there were 22
companies with MMTC licenses with 370 dispensing locations across
Florida. License holders are not subject to restrictions in the
number of dispensaries that may be opened or on the number or size
of cultivation and processing facilities they may
operate.
Table 1: Licenses
Holding Entity
|
Permit/License
|
Jurisdiction
|
Expiration/Renewal Date
|
Description
|
MMDC
|
Medical/Retail
|
Clark
County, NV
|
June
30, 2022
|
Dispensary
|
MMDC
|
Retail
|
Clark
County, NV
|
November
30, 2022
|
Dispensary
|
MMDC
|
Medical/Retail
|
Clark
County, NV
|
June
30, 2022
|
Cultivation
|
MMDC
|
Medical/Retail
|
Clark
County, NV
|
June
30, 2022
|
Production
|
MMDC
|
Medical/Retail
|
Nye
County, NV
|
June
30, 2022
|
Cultivation
|
MMDC
|
Medical/Retail
|
Clark
County, NV
|
June
30, 2022
|
Cultivation
|
MMDC
|
Medical/Retail
|
Clark
County, NV
|
June
30, 2022
|
Production
|
MMDC
|
Medical
|
Nye
County, NV
|
June
30, 2022
|
Production
|
MMDC
|
Retail
|
Nye
County, NV
|
December
31, 2021
|
Production
|
MMDC
|
Distribution
|
Nevada
|
March
31, 2022
|
Distribution
|
MMDC
|
Distribution
|
Nevada
|
February
5, 2022
|
Distribution1
|
Newtonian
|
Adult-Use
Retailer
|
Santa
Ana, CA
|
April
17, 2022
|
Dispensary
|
Newtonian
|
Adult-Use
/ Medical Distribution
|
Santa
Ana, CA
|
June
11, 2022
|
Distribution
|
Planet
13 Florida
|
MMTC
|
Florida
|
October
25, 2022
|
MMTC
|
Planet
13 Illinois
|
Adult-Use
Dispensing
|
Chicago-Naperville-Elgin
|
TBD
|
Dispensary2
|
Notes:
(1)
Transferred from
WCDN to MMDC as being associated with the former WCDN cultivation
and production facility, approved by CCB hearing on December 18,
2020, as confirmed in the CCB letter dated January 4, 2021. This is
a conditional permit, and no certificate will be available until
receipt of a final inspection by the CCB on or prior to February 5,
2022.
(2)
As of the date of
this registration statement, the conditional license has not been
issued by the IDFPR.
Uses of Cannabis
Cannabis
can be vaporized, smoked or ingested to alleviate pain and other
ailments. Since 2014, we have been cultivating and selling cannabis
within the price range from US$7.50 to US$14.50 per gram, depending
on the strain. Typically, growth time and strain yield will
determine whether a strain is low or high priced. Very particular
strains may be priced higher than the given range, but this would
be the exception.
We
offer our customers a diverse range of products, including cannabis
flowers, cannabis concentrates and cannabis-infused products. In
total, we currently offer over 100 cannabis strains at our
dispensaries, up to 20 of which are proprietary strains grown
in-house, covering the entire cannabis spectrum. We believe that
carrying a popular variety of strains of medical and recreational
cannabis is essential to long-term success. Each strain of medical
cannabis is different. Some of the factors that impact whether a
particular strain may be right for a customer include levels of THC
and/or CBD and whether the plant strain is a Sativa, Indica or
Hybrid genetic variant.
We
believe that we can gain a competitive advantage by growing high
yielding strains which are good extractors and which mature in a
short growing cycle while still providing medicinal benefits that
are appropriate for a customer’s specific ailments or desired
effects. Further, finding the right product for a customer’s
condition or needs may require sampling a variety of strains, as
every person is different.
Our
cultivation, production, distribution and marketing business is
currently focused on the medical and recreational segments, with
product offerings sold through our own licensed retail
dispensaries.
Principal
Products and Services
We
currently operate the Planet 13 Las Vegas Superstore, a 24,000
square foot licensed cannabis dispensary located near the Las Vegas
Strip, from which we: (i) dispense medical (Medizin) and retail
(Planet 13) product lines and provides customer experiences through
entertainment features; (ii) provide the consultation, education
and convenience services described below; and (iii) own and operate
Trece Eatery + Spirits as well as operate a non-cannabis retail
merchandise store and event space. Our principal products are
cannabis and cannabis-infused items sold to consumers in the
medical and retail cannabis markets in the State of Nevada. We sell
more than more than 100 strains of cannabis, up to 20 of which
are grown in-house by us.
Co-located with the
Planet 13 Las Vegas Superstore complex, we operate a
customer-viewable production facility manufacturing wholesale
edible and concentrate products, include the TRENDI line, the Leaf
& Vine line Dreamland Chocolates, HaHa gummies and sparkling
beverages. These products are sold in-store and wholesale to 57
other dispensaries in Nevada.
We also
operate the Medizin dispensary, reopened in November 2020 and
operate the Planet 13 OC Superstore dispensary in Santa Ana,
California on July 1, 2021.
Services
In
addition to our product offerings, we offer a number of services
designed to educate, spread awareness of the benefits of medical
cannabis and increase customer convenience. These services include
the following:
1.
Cardholder Process Navigation. Our
dispensary staff assist new patients through the medical cannabis
cardholder application process. We also work with a referral
network of doctors to whom they can send potential new patients in
order to commence the process.
2.
Individual Consultations. We offer one-on-one consultations for
first time patients/customers who might be apprehensive about the
use of cannabis as a medicinal or recreational
product.
3.
Compassionate Care Program. We offer a
compassion program for eligible, cardholding veterans, offering
such veterans access to our alternative healing services,
regardless of financial status.
4.
Patient Education. Trained sales
associates and customer service representatives provide patient education services with a
goal of providing patient education in the context of every service
we offer.
5.
Express Service. We offer customers the
option to place orders in advance of arriving at the dispensary
similar to pick up orders at a restaurant.
6.
Home Delivery. We offer our customers a
convenient home delivery program at our Nevada and California
locations.
7.
Curbside. We offer curbside pick up,
providing an additional channel for customers to access our
products and services at our Nevada and California
locations.
Provision of Services
Our
services are currently provided at our Planet 13 Las Vegas
Superstore dispensary located at 2548 West Dessert Inn Rd, Las
Vegas, Nevada, at our Medizin dispensary located at 4850 W. Sunset
Rd., Ste 130, Las Vegas, Nevada, and at our Planet 13 OC Superstore
located at 2400 Warner Blvd, Santa Ana, California. We also offer
home delivery services through our distribution licenses that
currently operate out of the Planet 13 Las Vegas Superstore and
Planet 13 OC Superstore locations.
Competition
With
respect to retail operations, we compete with other retail license
holders across Nevada and California. In addition to physical
dispensaries, we also compete with third-party delivery services
which provide direct-to-consumer delivery services in Nevada and
California. In terms of cultivation and production, we compete with
other licensed cultivators and operators in Nevada, California, and
other states in which we may operate in the future.
Other
than the Nevada state cap on licenses and California local
jurisdictional caps on licenses, the retail markets in Nevada and
California have fewer barriers to entry and more closely reflect
free market dynamics typically seen in mature retail and
manufacturing industries. The growth of these markets poses a risk
of increased competition. However, given that we have entered the
Nevada and California cannabis market at an early stage, management
views our market share as less at risk than operators without a
current operating footprint.
Management
also believes that there are a number of illegally operating
dispensaries and cultivators in Nevada and California which serve
as competition to us. We expect, however, that the majority of
these illegal dispensaries and cultivators will be forced to cease
operations in the near-term. See “Risk Factors”.
Components
The
main raw materials and components used in the production of our
products are cannabis seeds and clones, water, plant nutrients, and
electricity.
Water
for our Clark County operations is obtained from the municipal
water system in Las Vegas, Nevada. The price of water is determined
by the City of Las Vegas. Our Nye County operations are similarly
part of the municipal water and waste disposal system.
Raw
materials include soil, nutrients, organic integrated pest and
disease management, environmental supplementation, disposable
supplies, and other miscellaneous inputs, all of which are readily
available from multiple sources at wholesale or lower
prices.
Cycles
There
have been potential seasonal fluctuations observed in the first few
years of operations at the Planet 13 Las Vegas Superstore,
reflective of the Las Vegas market specifically, as well as
industry-wide cannabis-themed holidays and events. These potential
seasonal fluctuations have been interrupted by the COVID-19
pandemic, which have presented the industry and the Planet 13 Las
Vegas Superstore with a unique set of opportunities and challenges.
As at the date hereof, we do not know the long-term impact that the
COVID-19 pandemic will have on the previously observed trends. Our
Planet 13 OC Superstore location opened July 1, 2021 and has a
limited operating history. We are continuing to monitor the
seasonal fluctuations at this location.
Intellectual Property
We have
applied for trademarks at Nevada state and federal level, some of
which are currently pending for Medizin, Planet 13, TRENDI, Leaf
& Vine, HaHa, and Dreamland. In California,
we have registrations for Planet 13 and Planet M. These
trademarks were applied for and are designed for use on clothing,
wearables, and other non-cannabis products with the intent of
creating a valuable brand.
Environmental
We do
not anticipate that environmental protection requirements will have
a material financial or operational effect on our capital
expenditures, earnings, and competitive position in the current
financial year or in future years.
Human Capital
We
employ approximately 600 full-time and 150 part-time employees, and
anticipate that number will increase as we expand our operations in
California, Florida, Illinois, and Nevada. Full time employees are
distributed among several departments, including sales, management
and administration, security, cultivation, operations, marketing,
facilities, human resources, finance, accounting and legal. In
order to ensure that the motivation, integrity and culture of our
team stays strong, our Board of Directors (the “Board”) and executive team put
significant focus on our human capital resources.
We are
committed to diversity and to providing equal employment
opportunities to all employees and applicants. This commitment
extends to all of our employment practices including recruiting,
hiring, training, promotions, and benefits.
Our
goal is to use the highest standards in attracting and training the
best talent. Our recruiting practices and decisions on whom to hire
are among our most important activities. We utilize professional
services, industry groups, social media, local job fairs, and
educational organizations across the country to find diverse,
motivated, and responsible employees. It is a requirement that all
of our employees pass background checks and drug screening. To
support the advancement of our employees, we offer training and
development programs encouraging advancement from within. These
programs include employee mentoring and one-on-one quality and
regulatory training sessions overseen by our Human Resources
Department and Regulatory Compliance team.
The
main objective of our compensation program is to attract, retain,
motivate, and reward superior employees who must operate in a
quick-paced and patient-focused environment. To accomplish this, we
offer a package of company-sponsored benefits to our employees.
Eligibility depends on each employee’s full-time or part-time
status, location, and other factors, and benefits include medical
and dental plans, paid and unpaid leaves, and flexible time-off. We
provide employee wages that are competitive and consistent with
employee positions, skill levels, experience, knowledge, and
geographic location. Additionally, we believe in aligned incentives
and utilize share unit and stock option plans as well as annual
bonuses to align the long-term compensation of eligible directors,
employees, officers and contractors with our shareholders’
interests for a competitive total rewards program.
Legal and Regulatory Matters
United States Federal Law Overview
At the
federal level, cannabis currently remains a Schedule I controlled
substance under the U.S. Controlled Substance Act of 1970 (the
“CSA”). Despite
this federal prohibition, 48 states and the District of Columbia
have either decriminalized or legalized adult-use and/or medical
cannabis, and of the two states that have not yet decriminalized or
authorized cannabis, Nebraska has decriminalized the first offense.
Under U.S. federal law, a Schedule I drug or substance has a high
potential for abuse, no accepted medical use in the United States,
and a lack of accepted safety for the use of the drug under medical
supervision. As such, the manufacture, importation, possession, use
or distribution of cannabis remains illegal under U.S. federal law.
This has created a dichotomy between state and federal law, whereby
many states have elected to regulate and remove state-level
penalties regarding a substance that is still illegal at the
federal level.
While
technically illegal, the U.S. federal government’s approach
to enforcement of such laws has, at least until recently, trended
toward non-enforcement. On August 29, 2013, the U.S. Department of
Justice (“DOJ”)
issued a memorandum known as the “Cole Memorandum” to all U.S.
Attorneys’ offices (federal prosecutors). The Cole Memorandum
generally directed U.S. Attorneys not to prioritize the enforcement
of federal marijuana laws against individuals and businesses that
rigorously comply with state regulatory provisions in states with
strictly-regulated medical or adult-use cannabis programs. The Cole
Memorandum, while not legally binding, assisted in managing the
tension between state and federal laws concerning state-regulated
marijuana businesses.
However,
on January 4, 2018, the Cole Memorandum was revoked by then
Attorney General Jeff Sessions. While this did not create a change
in federal law - as the Cole Memorandum was not itself law - the
revocation added to the uncertainty of U.S. federal enforcement of
the CSA in states where cannabis use is regulated. Sessions also
issued a one-page memorandum known as the “Sessions Memorandum”. This
confirmed the rescission of the Cole Memorandum and explained that
the Cole Memorandum was “unnecessary” due to existing
general enforcement guidance as set forth in the U.S.
Attorney’s Manual (the “USAM”). The USAM enforcement
priorities, like those of the Cole Memorandum, are also based on
the federal government’s limited resources, and include
“law enforcement priorities set by the Attorney
General,” the “seriousness” of the alleged
crimes, the “deterrent effect of criminal prosecution,”
and “the cumulative impact of particular crimes on the
community.”
While
the Sessions Memorandum does emphasize that marijuana is a Schedule
I controlled substance and states the statutory view that it is a
“dangerous drug and that marijuana activity is a serious
crime,” it does not otherwise guide U.S. Attorneys that the
prosecution of marijuana-related offenses is now a DOJ priority.
Furthermore, the Sessions Memorandum explicitly describes itself as
a guide to prosecutorial discretion. Such discretion is firmly in
the hands of U.S. Attorneys in deciding whether to prosecute
marijuana-related offenses. U.S. Attorneys could individually
continue to exercise their discretion in a manner similar to that
displayed under the Cole Memorandum’s guidance. Dozens of
U.S. Attorneys across the country have affirmed their commitment to
proceeding in this manner, or otherwise affirming that their view
of federal enforcement priorities has not changed, although a few
have displayed greater ambivalence. On November 7, 2018, Mr.
Sessions tendered his resignation as Attorney General at the
request of President Donald Trump. Following Mr. Sessions’
resignation, and Matthew Whitaker serving as Acting United States
Attorney General, William Barr was appointed as US Attorney General
on January 15, 2019. Mr. Barr stated at his confirmation hearing to
the Senate Judiciary Committee that he would “not go after
companies” that had relied upon the Obama-era guidance (the
Cole Memorandum) that former Attorney General Jeff Sessions had
rescinded in states where cannabis has been legalized. The
Department of Justice under Mr. Barr did not take a formal position
on federal enforcement of laws relating to cannabis.
On
January 21, 2021, Joseph Biden, Jr. was sworn in as President of
the United States. President Biden’s Attorney General,
Merrick Garland, was confirmed by the United States Senate on March
10, 2021. It is not yet known whether the Department of Justice
under President Biden and Attorney General Garland will re-adopt
the Cole Memorandum or announce a substantive marijuana enforcement
policy. Mr. Garland indicated at a confirmation hearing before the
United States Senate that it did not seem to him to be a good use
of limited resources to pursue prosecutions in states that have
legalized and that are regulating the use of marijuana, either
medically or otherwise. Nonetheless, there is no guarantee that
state laws legalizing and regulating the sale and use of marijuana
will not be repealed or overturned, or that local governmental
authorities will not limit the applicability of state laws within
their respective jurisdictions. Unless and until the United States
Congress amends the CSA with respect to marijuana (and as to the
timing or scope of any such potential amendments there can be no
assurance), there is a risk that federal authorities may enforce
current U.S. federal law. Currently, in the absence of uniform
federal guidance, as had been established by the Cole memorandum,
enforcement priorities are determined by respective United States
Attorneys.
While
it is too soon to determine what prosecutorial effects will be
created by the rescission of the Cole Memorandum under the Trump
administration and the appointment of Mr. Garland under the current
administration, a nationwide “crackdown” on regulated
marijuana business is unlikely. The sheer size of the cannabis
industry, in addition to participation by state and local
governments and investors, suggests that a large-scale enforcement
operation would more than likely create unwanted political backlash
for the DOJ and the current administration. It is also possible
that the rescission of the Cole Memorandum could motivate Congress
to reconcile federal and state laws. Regardless, marijuana remains
a Schedule I controlled substance at the federal level, and the
federal government of the U.S. continues to reserve the right to
enforce federal law in regard to the sale and disbursement of
medical or adult-use marijuana, even where state law sanctioned
such sale and disbursement. From a purely legal perspective, the
criminal risk today remains identical to the risk on January 3,
2018, prior to the Cole Memorandum being rescinded. It remains
unclear whether the risk of enforcement has been
altered.
Additionally,
under U.S. federal law, it may potentially be a violation of
federal anti-money laundering statutes for financial institutions
to take any proceeds from the sale of marijuana or any other
Schedule I controlled substance. Canadian banks are likewise
hesitant to deal with cannabis companies, due to the uncertain
legal and regulatory framework of the industry. Banks and other
financial institutions, particularly those that are federally
chartered in the U.S., could be prosecuted and possibly convicted
of money laundering for providing services to cannabis
businesses.
Despite
these laws, the U.S. Department of the Treasury’s Financial
Crimes Enforcement Network (“FinCEN”) issued a memorandum on
February 14, 2014 (the “FinCEN Memorandum”) outlining the
pathways for financial institutions to bank state-sanctioned
marijuana businesses in compliance with federal enforcement
priorities. The FinCEN Memorandum echoed the enforcement priorities
of the Cole Memorandum. Under these guidelines, financial
institutions must submit a Suspicious Activity Report
(“SAR”) in
connection with all marijuana-related banking activities by any
client of such financial institution, in accordance with federal
money laundering laws. These marijuana-related SARs are divided
into three categories – marijuana limited, marijuana
priority, and marijuana terminated – based on the financial
institution’s belief that the business in question follows
state law, is operating outside of compliance with state law, or
where the banking relationship has been terminated, respectively.
On the same day as the FinCEN Memorandum was published, the DOJ
issued a memorandum (the “2014 DOJ Memorandum”)
directing prosecutors to apply the enforcement priorities of the
Cole Memorandum in determining whether to charge individuals or
institutions with crimes related to financial transactions
involving the proceeds of marijuana-related conduct. The 2014 DOJ
Memorandum has been rescinded as of January 4, 2018, along
with the Cole Memorandum, removing guidance that enforcement of
applicable financial crimes against state-compliant actors was not
a DOJ priority.
However,
former Attorney General Sessions’ revocation of the Cole
Memorandum and the 2014 DOJ Memorandum has not affected the status
of the FinCEN Memorandum, nor has the Department of the Treasury
given any indication that it intends to rescind the FinCEN
Memorandum itself. Though it was originally intended for the 2014
DOJ Memorandum and the FinCEN Memorandum to work in tandem, the
FinCEN Memorandum appears to be a standalone document which
explicitly lists the eight enforcement priorities originally cited
in the Cole Memorandum. As such, the FinCEN Memorandum remains
intact, indicating that the Department of the Treasury and FinCEN
intend to continue abiding by its guidance. However, in the United
States, it is difficult for cannabis-based businesses to open and
maintain a bank account with any bank or other financial
institution.
In the
U.S., the SAFE Banking Act of 2019, H.R. 1595 (“SAFE Banking Act”), was first
introduced on March 7, 2019 and passed a vote on September 25,
2019 by the Committee of the Whole Congress, but failed to receive
the support needed to pass the U.S. Senate. Generally, the act
would let banks offer services to cannabis-related businesses. They
could also offer services to those businesses’ employees. In
both Canada and the U.S., transactions involving banks and other
financial institutions are both difficult and unpredictable under
the current legal and regulatory landscape. Legislative changes
could help to reduce or eliminate these challenges for companies in
the cannabis space and would improve the efficiency of both
significant and minor financial transactions. The SAFE Banking Act
re-emerged in March 2021, H.R. 1996, with more bipartisan support
including with 180 cosponsors. On April 19, 2021, the House passed
the re-introduced SAFE Banking Act in a bipartisan vote of 321
– 101, but it again stalled in the Senate. While there is
strong support in the public and within Congress for the SAFE
Banking Act and similar legislation, there can be no assurance that
it will be passed as presently proposed or at all.
Although
the Cole Memorandum and 2014 DOJ Memorandum have been rescinded,
Congress has used the Rohrabacher-Leahy Amendment as a rider
provision in the FY 2015, 2016, 2017, 2018, 2019 2020, and 2021
Consolidated Appropriations Acts and accompanying stopgap spending
measures to prevent the federal government from using
congressionally appropriated funds to enforce federal marijuana
laws against regulated medical marijuana actors operating in
compliance with state and local law. President Joe Biden became the
first president to propose a budget with the Rohrabacher-Farr
Amendment included. On September 30, 2021 and on December 3,
2021 the amendment was renewed through the signing of a stopgap
spending, and remains effective through February 18,
2022.
Despite
the legal, regulatory, and political obstacles the marijuana
industry currently faces, the industry has continued to grow. It
was anticipated that the federal government would eventually repeal
the federal prohibition on cannabis and thereby leave the states to
decide for themselves whether to permit regulated cannabis
cultivation, production and sale, just as states are free today to
decide policies governing the distribution of alcohol or
tobacco.
Given
current political trends, however, these developments are
considered unlikely to materialize in the near-term. As an industry
best practice, despite the recent rescission of the Cole
Memorandum, we intend to abide by the following to ensure
compliance with the guidance provided by the Cole
Memorandum:
●
ensure that our
operations are compliant with all licensing requirements as
established by the applicable state, county, municipality, town,
township, borough, and other political/administrative
divisions;
●
ensure that our
cannabis related activities adhere to the scope of the licensing
obtained (for example, in states where cannabis is permitted only
for adult-use, the products are only sold to individuals who meet
the requisite age requirements);
●
implement policies
and procedures to ensure that cannabis products are not distributed
to minors;
●
implement policies
and procedures in place to ensure that funds are not distributed to
criminal enterprises, gangs or cartels;
●
implement an
inventory tracking system and necessary procedures to ensure that
such compliance system is effective in tracking inventory and
preventing diversion of cannabis or cannabis products into those
states where cannabis is not permitted by state law, or cross any
state lines in general;
●
ensure that our
state-authorized cannabis business activity is not used as a cover
or pretense for trafficking of other illegal drugs, is engaged in
any other illegal activity or any activities that are contrary to
any applicable anti-money laundering statutes; and
●
ensure that our
products comply with applicable regulations and contain necessary
disclaimers about the contents of the products to prevent adverse
public health consequences from cannabis use and prevent impaired
driving.
In
addition, we may (and frequently do) conduct background checks to
ensure that the principals and management of our operating
subsidiaries are of good character and have not been involved with
other illegal drugs, engaged in illegal activity or activities
involving violence, or use of firearms in cultivation,
manufacturing or distribution of cannabis. We also conduct ongoing
reviews of the activities of our cannabis businesses, the premises
on which they operate and the policies and procedures that are
related to possession of cannabis or cannabis products outside of
the licensed premises, including the cases where such possession is
permitted by regulation.
Nevada State Law Overview
In
2000, Nevada voters passed a medical marijuana initiative allowing
physicians to recommend cannabis for an inclusive set of qualifying
conditions including chronic pain and created a limited
non-commercial medical marijuana patient/caregiver system. Senate
Bill 374, which passed the legislature and was signed by the Nevada
Governor in 2013, expanded this program and established a
for-profit regulated medical marijuana industry.
In
2014, Nevada accepted medical marijuana business applications and a
few months later the Nevada Division of Public and Behavioral
Health (the “Division”) approved 182
cultivation licenses, 118 licenses for the production of edibles
and infused products, 17 independent testing laboratories, and 55
medical marijuana dispensary licenses. The number of dispensary
licenses was then increased to 66 by legislative action in 2015.
The application process was merit-based, competitive, and is
currently closed.
Nevada
has a medical marijuana program and passed adult-use legalization
through the ballot box in November 2016. Under Nevada’s
adult-use marijuana law, the state licensed marijuana cultivation
facilities, product manufacturing facilities, distributors, retail
stores and testing facilities. For the first 18 months after
legalization, applications to the DOT for adult-use establishment
licenses were only accepted from existing medical marijuana
establishments and from existing liquor distributors for the
adult-use distribution license. The Division licensed and regulated
medical marijuana establishments up until July 1, 2017, when the
state’s medical marijuana program merged with adult-use
marijuana enforcement under the DOT. After merging medical and
adult-use marijuana regulation and enforcement, the single
regulatory agency was known as the “Marijuana Enforcement
Division of the Department of Taxation”. The DOT oversaw
regulation of cannabis operations until the CCB took over on
July 1, 2020. As of October 5, 2020, all five members of the
CCB were appointed by the Nevada Governor.
In
February 2017, the state announced plans to issue “early
start” recreational marijuana establishment licenses in the
summer of 2017. These licenses expired at the end of the year and,
beginning on July 1, 2017, allowed marijuana establishments holding
both a retail marijuana store and dispensary license to sell their
existing medical marijuana inventory as either medical or adult-use
marijuana. All cannabis cultivated and infused products produced
under the adult-use program that were not existing inventory at a
medical marijuana dispensary were transported to retail marijuana
stores utilizing a licensed retail marijuana distributor. Starting
on July 1, 2017, medical and adult-use marijuana became subject to
a 15% excise tax on the first wholesale sale (calculated on the
fair market value) and adult-use cannabis is subject to an
additional 10% special retail marijuana sales tax in addition to
any general state and local sales and use taxes.
The
regular retail marijuana program began in early 2018. The
Regulation and Taxation of Marijuana Act specifies that, for the
first 18 months of the program, only existing medical marijuana
establishment certificate holders could apply for a retail
marijuana establishment license. As that restriction expired in
November 2018, on December 5, 2018, the DOT expanded the
application process and awarded an additional 61 licenses for
retail marijuana dispensaries in Nevada. The regular program was
governed by permanent regulations found in Nevada Administrative
Code Sections 453A and 453D through June 30, 2020.
In
early 2019, Nevada legislature passed Nevada Assembly Bill 533
(“AB533”), which
authorized the formation of the CCB to be vested with the authority
to license and regulate persons and establishments engaged in
cannabis activities within Nevada and promulgated statutes which
will replace Nevada Revised Statute (“NRS”) 453A and 453D effective on
July 1, 2020. Those statutes are currently codified at NRS 678A, B,
C and D. On July 21, 2020, the CCB adopted final Nevada
Cannabis Compliance Regulations 1 through 15 (or,
“NCCR”) which
are substantially similar to the former Nevada Administrative Code
Sections 453A and 453D.
In
response to industry feedback, on October 20, 2020, the CCB amended
NCCR 5 to give clarity regarding public company ownership of Nevada
cannabis companies. Generally, those amendments include such
companies being required to provide to the CCB notice of annual
general meetings of shareholders and a non-objecting beneficial
owners (“NOBO”)
list as of the record date of each such meeting, and disclosure of
any stockholders having 5% or greater ownership interest or that
are able to exert control over a Nevada cannabis establishment.
Additionally, the CCB requires an updated list of all beneficial
owners, regardless of amount or type of ownership, but if a list of
all beneficial owners cannot be obtained through reasonable cost
and/or effort, the publicly traded company must provide an updated
NOBO list as of the annual meeting record date, and explain why it
cannot provide a list of all beneficial owners through reasonable
cost and effort.
Nevada
does not have any U.S. residency requirements with respect to
license ownership, but does require background checks of all
individuals having an ownership interest. Background checks are
waivable at the discretion of the CCB for individuals having less
than 5% ownership interest, and we have submitted waiver requests
to the CCB for all ownership interests less than 5%. Although the
CCB has not chosen to exercise their authority to require a
background check on ownership interests in public cannabis
companies that remain under 5% and do not otherwise exercise
control over a Nevada cannabis licensee, the CCB does have
authority to require a licensee to investigate and submit any
ownership interest, beneficial or direct, for CCB approval. For
example, under Nevada cannabis laws, any beneficial holder of any
of our securities, regardless of the number of shares, may be
required to file an application, be investigated, and have his or
her suitability as a beneficial holder of the voting securities
determined if the CCB has reason to believe that such ownership
would otherwise be inconsistent with the declared policies of the
State of Nevada.
In
addition, vertical integration is neither required nor prohibited.
All medical marijuana sales are made subject to the recipient
holding a registry identification card issued by the State of
Nevada as defined at NRS 678A.235. We are permitted to sell medical
marijuana products to non-Nevada patients as non-Nevada patients
are permitted reciprocity under NRS 678C.470.
Nevada Licenses
There
are five types of retail marijuana establishment licenses under
Nevada law:
●
Cultivation
Facility – Licenses to cultivate (grow), process, and package
marijuana; to have marijuana tested by a testing facility; and to
sell marijuana to retail marijuana stores, to marijuana product
manufacturing facilities, and to other cultivation facilities, but
not to consumers.
●
Distributor -
Licenses to transport marijuana from a marijuana establishment to
another marijuana establishment.
●
Product
Manufacturing Facility - Licenses to purchase marijuana;
manufacture, process, and package marijuana and marijuana products;
and sell marijuana and marijuana products to other product
manufacturing facilities and to retail marijuana stores, but not to
consumers.
●
Testing Facility -
Licenses to test marijuana and marijuana products, including for
potency and contaminants.
●
Retail Store -
Licenses to purchase marijuana from cultivation facilities,
marijuana and marijuana products from product manufacturing
facilities, and marijuana from other retail stores; can sell
marijuana and marijuana products to consumers.
MMDC
applied for and did not receive any of the 61 new licenses granted
by DOT on December 5, 2018. Upon review of this result, we
determined that there were significant irregularities in the
license application and review process. MMDC filed a complaint
against the State of Nevada and DOT on December 10, 2018, and
concurrently pursued all available administrative remedies (the
“DOT License
Matter”). MMDC requested a judicial review of the
license application process and the scoring criteria utilized by
DOT, and requested that the court award MMDC monetary damages as a
result of DOT’s failure to properly award licenses and that
the court award retail dispensary licenses to MMDC. On August 23,
2019, as a result of discrepancies discovered in the application
process administered by the State of Nevada, a court issued a
partial preliminary injunction against the State of Nevada from
moving forward with the numerous holders of provisional licenses
awarded under the December 5, 2018, provisional license
awards.
After
the first week of trial in July 2020, MMDC entered into a
settlement agreement with the State of Nevada and defendants in
intervention to receive a license in unincorporated Clark County to
reopen the Medizin location. On July 31, 2020, the Nevada Tax
Commission convened and approved the signed Nevada License
Settlement and requested that the CCB, which had authority over
Nevada-licensed cannabis businesses as of July 1, 2020, also
convene and approve the settlement. On August 7, 2020, the CCB
convened and approved the Nevada License Settlement. Pursuant to
the Nevada License Settlement, our subsidiary MMDC agreed to a
release and waiver of its claims against the State of Nevada and
the defendants in intervention, in return for MMDC receiving the
provisional unincorporated Clark County adult-use dispensary
license originally received by Nevada Organic Remedies in December
2018. Pursuant to a letter dated September 3, 2020, the CCB
transferred the conditional Clark County dispensary license to
MMDC. On November 20, 2020, we opened the Medizin store location,
having received CCB final inspection approvals and a Clark County
business license.
Cannabis
consumption lounges were authorized in Nevada pursuant to AB 341 in
the 2021 81st Session of the
Nevada Legislature. On July 9, 2021, our subsidiary MMDC received a
notification letter of eligibility to hold a retail cannabis
consumption lounge license from the CCB. On December 2,
2021 the CCB released
draft regulations for the cannabis consumption lounge application
and requirements to operate, and has scheduled a December 14,
2021 workshop to receive comment and discuss the draft regulations
with stakeholders.
Nevada Reporting Requirements
Nevada
has selected Franwell Inc.’s METRC solution
(“METRC”) as the
state’s track-and-trace system used to track commercial
cannabis activity and movement across the distribution chain.
Individual licensees whether directly or through third-party
integration systems are required to push data to the state to meet
all reporting requirements. For all licensed facilities, we have
designated an in-house computerized seed to sale software that
integrates with METRC via an application programming interface, and
captures the required data points for cultivation, manufacturing
and retail as required by Nevada statutes and
regulations.
Nevada Regulatory Compliance
Our
licenses are in good standing to cultivate, possess and/or
wholesale marijuana in the State of Nevada and we, through MMDC,
are in compliance with Nevada’s marijuana regulatory program.
MMDC has responded to all DOT and CCB inspections and received
approval on all corrective actions.
We
comply with applicable Nevada state licensing requirements as
follows: (i) MMDC is licensed pursuant to applicable Nevada state
law to cultivate, possess and/or distribute THC-bearing cannabis
(or “marijuana”) in Nevada; (ii) renewal dates for such
licenses are docketed by legal counsel and/or other advisors;
(iii) random internal audits of our business activities are
conducted by the applicable Nevada state regulator and by us to
ensure compliance with applicable Nevada state law; (iv) each of
our employees is provided with an employee handbook that outlines
internal standard operating procedures in connection the
cultivation, possession and distribution of marijuana to ensure
that all marijuana inventory and proceeds from the sale of such
marijuana are properly accounted for and tracked and using scanners
to confirm each customer’s legal age and the validity of each
customer’s drivers’ license; (v) each room that
marijuana inventory and/or proceeds from the sale of such inventory
enter is monitored by video surveillance; (vi) software is used to
track marijuana inventory from seed to sale; and (vii) we are
contractually obligated to comply with applicable Nevada state law
in the United States in connection with the cultivation, possession
and/or distribution of marijuana in Nevada.
We have
a full time General Counsel on staff in Nevada, who is a licensed
attorney under the State Bar of Nevada, in good standing, whose
responsibilities include monitoring the day-to-day activities of
regulatory compliance staff, including ensuring that the
established standard operating procedures are being adhered to at
each stage of the cultivation, processing and distribution cycle,
to identify any non-compliance matters and to put in place the
necessary modifications to ensure compliance. The regulatory
compliance staff conducts regular unannounced audits against our
established standard operating procedures and State of Nevada
regulations. Each employee is provided with an employee handbook
outlining the standard operating procedures and state regulations
upon hiring and is then provided with one-on-one quality and
regulatory training through programs overseen by the General
Counsel.
California State Law Overview
In
1996, California was the first state to legalize medical marijuana
through Proposition 215, the Compassionate Use Act of 1996. This
legalized the use, possession and cultivation of medical marijuana
by patients with a physician recommendation for treatment of
cancer, anorexia, AIDS, chronic pain, spasticity, glaucoma,
arthritis, migraine, or any other illness for which marijuana
provides relief.
In
2003, Senate Bill 420 was signed into law establishing an optional
identification card system for medical marijuana patients. In
September 2015, the California legislature passed three bills
collectively known as the Medical Cannabis Regulation and Safety
Act (“MCRSA”).
The MCRSA established a licensing and regulatory framework for
medical marijuana businesses in California. The system created
multiple license types for dispensaries, infused products
manufacturers, cultivation facilities, testing laboratories,
transportation companies, and distributors. Edible infused product
manufacturers would require either volatile solvent or non-volatile
solvent manufacturing licenses depending on their specific
extraction methodology. Multiple agencies would oversee different
aspects of the program and businesses would require a state license
and local approval to operate. However in November 2016, voters in
California overwhelmingly passed Proposition 64, the Adult-Use of Marijuana Act
(“AUMA”)
creating an adult-use marijuana program for adults 21 years of age
or older. AUMA included certain conflicting provisions with MCRSA,
so in June 2017, the California State Legislature passed Senate
Bill No. 94, known as Medicinal and Adult-Use Cannabis Regulation
and Safety Act (“MAUCRSA”), which amalgamates MCRSA
and AUMA to provide a set of regulations to govern a
medical and adult-use
licensing regime for cannabis businesses in the State of
California. At that time the four agencies that
regulated marijuana at
the state level were the Bureau of Cannabis Control
(“BCC”),
California Department of Food and Agriculture, California
Department of Public Health, and California Department of Tax and
Fee Administration. MAUCRSA came into effect on January 1, 2018.
One of the central features of MAUCRSA is known as “local
control.” In order to legally operate a medical or adult-use
marijuana business in California, an operator must have both a
local and state license. This requires license holders to operate
in cities or counties with marijuana licensing programs. Cities and
counties in California are allowed to determine the number of
licenses they will issue to marijuana operators, or can choose to
outright ban marijuana.
State
cannabis licenses in California must be renewed annually. Depending
on the jurisdiction, our local authorizations must generally be
renewed annually as well. Each year, licensees are required to
submit a renewal application per State cannabis regulatory
guidelines. Provided renewal applications are submitted in a timely
manner, we can expect the renewals to be granted in the ordinary
course of business.
On
January 10, 2020, the three commercial cannabis licensing agencies
in California, the BCC, the Department of Food and
Agriculture, and the Department of Public Health
(collectively, “California
Licensing Agencies”) announced that California
Governor Gavin Newsom’s budget proposal
for cannabis industry regulation and taxation included
plans to consolidate the three licensing entities that
are currently housed at the California Licensing Agencies into a
single Department of Cannabis Control by July
2021. With the passage of AB 141 on July 12, 2021, the
California Licensing Agencies were consolidated into the Department
of Cannabis Control (“DCC”). On September 8, 2021,
the DCC announced proposed emergency regulations to move all
cannabis regulations into Title 4 of the California Code of
Regulations, with a stated goal of consolidating and improving the
regulations. The proposed emergency regulations were in the
review and comment period which closed on September 20,
2021.
MAUCRSA
allows local municipalities and jurisdictions to authorize the
on-site consumption of cannabis by state-licensed retailers and/or
microbusinesses. If a city or county permits it, retailers and
microbusinesses can have on-site consumption if: (i) access to the
area where cannabis consumption is allowed is restricted to
persons 21 years of age and older, (ii) cannabis consumption
is not visible from any public place or nonage-restricted area, and
(iii) the sale or consumption of alcohol or tobacco is not
allowed on the premises.
The
City of Santa Ana is silent on on-site consumption and does not
explicitly prohibit cannabis lounges and on-site consumption by
licensees. Santa Ana does prohibit the on-site sales of alcohol or
tobacco products, (excluding rolling papers and lighters) and no
on-site consumption of food, alcohol or tobacco by patrons.
Currently, on-site consumption is permitted in various forms in the
City of West Hollywood, San Francisco, City of Oakland, City of
Alameda and Palm Springs.
California Reporting Requirements
California
has selected METRC as the state’s track-and-trace system used
to track commercial cannabis activity and movement across the
distribution chain. Individual licensees whether directly or
through third-party integration systems are required to push data
to the state to meet all reporting requirements. For all licensed
facilities, we have designated an in-house computerized seed to
sale software that integrates with METRC via an application
programming interface, and captures the required data points for
cultivation, manufacturing and retail as required by California
statutes and regulations.
California License and Regulatory Compliance
We,
through our subsidiary Newtonian, hold the Santa Ana Permit and the
California License and are in compliance with applicable licensing
requirements and the regulatory framework enacted by the State of
California. In order to qualify for these licenses, we submitted
applications with detailed plans and procedures evidencing to the
applicable regulators that it complies with all statutory and
regulatory requirements in California for the operation of the
licenses. We have further retained a California regulatory
consultant, with experience operating regulatory-compliant
California license operations, to advise us on regulatory
requirements and updates in that state. Additionally, our General
Counsel works regularly with our California regulatory consultant
and oversees all aspects of services provided in connection with
the Santa Ana Permit and the California License to ensure
compliance and continuity of those licenses.
Florida State Law Overview
In
2014, the Florida Legislature passed the Compassionate Use Act,
which was the first legal medical cannabis program in the
state’s history. The original Compassionate Use Act only
allowed for low-THC cannabis to be dispensed and purchased by
patients suffering from cancer and epilepsy. In 2016, the
Legislature passed the Right To Try Act which allowed for full
potency cannabis to be dispensed to patients suffering from a
diagnosed terminal condition. Also in 2016, the Florida Medical
Marijuana Legalization Initiative was introduced by citizen
referendum and passed on November 8. This language, known as
“Amendment 2,”
amended the state constitution and mandated an expansion of the
state’s medical cannabis program.
Amendment
2, and the resulting expansion of qualifying medical conditions,
became effective on January 3, 2017. The Florida Department of
Health, physicians, dispensing organizations and patients are bound
by Article X Section 29 of the Florida Constitution and
Florida Statutes Section 381.986. On June 9, 2017, the Florida
House of Representatives and Florida Senate passed respective
legislation to implement the expanded program by replacing large
portions of the existing Compassionate Use Act, which officially
became law on June 23, 2017.
The
Florida Statutes Section 381.986(8) provides a regulatory framework
that requires licensed producers, which are statutorily defined as
“Medical Marijuana Treatment Centers”, to cultivate,
process and dispense medical cannabis in a vertically-integrated
marketplace.
Licenses
are issued by the OMMU and must be renewed biennially. License
holders can only own one license. Currently, the dispensaries can
be in any geographic location within the state, provided that the
local jurisdiction’s zoning regulations authorize such a use,
the proposed site is zoned for a pharmacy and the site is not
within 500 feet of a school.
The
MMTC license permits us to sell medical cannabis to qualified
patients to treat certain medical conditions in Florida, which are
delineated in Florida Statutes Section 381.986. As we expect
our operations in Florida to be vertically-integrated, we will be
able to cultivate, harvest, process and sell/dispense/deliver our
own medical cannabis products. Under the terms of our Florida
license, we are permitted to sell medical cannabis only to
qualified medical patients that are registered with the State. Only
qualified physicians who have successfully completed a medical
cannabis educational program can register patients on the Florida
Office of Medical Marijuana Use Registry.
Florida Reporting Requirements
Florida
law calls for the OMMU to establish, maintain, and control a
computer software tracking system that traces cannabis from seed to
sale and allows real-time, 24-hour access by the OMMU to such data.
The tracking system must allow for integration of other
seed-to-sale systems and, at a minimum, include notification of
certain events, including when marijuana seeds are planted, when
marijuana plants are harvested and destroyed and when cannabis is
transported, sold, stolen, diverted, or lost. Each medical
marijuana treatment center shall use the seed-to-sale tracking
system established by the OMMU or integrate its own seed-to-sale
tracking system with the seed-to-sale tracking system established
by the OMMU. At this time the OMMU has not implemented a statewide
seed-to-sale tracking system. Additionally, the OMMU also maintains
a patient and physician registry and the licensee must comply with
all requirements and regulations relative to the provision of
required data or proof of key events to said system in order to
retain its license. Florida requires all MMTCs to abide by
representations made in their original application to the State
of Florida or any subsequent variances to same. Any changes or
expansions of previous representations and disclosures to the OMMU
must be approved by the OMMU via a variance process.
Security and Storage Requirements
Adequate
outdoor lighting is required from dusk to dawn for all MMTC
facilities. 24-hour per day video surveillance is required and all
MMTCs must maintain at least a rolling 45-day period that is made
available to law enforcement and the OMMU upon demand. Alarm
systems must be active at all times for all entry points and
windows. Interior spaces must also have motion detectors and all
cameras must have an unobstructed view of key areas. Panic alarms
must also be available for employees to be able to signal
authorities when needed.
In
dispensaries, the MMTC must provide a waiting area with a
sufficient seating area. There must also be a minimum of one
private consultation/education room for the privacy of the
patient(s) and their caregiver (if applicable). The MMTC may only
dispense products between 7:00 am and 9:00 pm. All active products
must be kept in a secure location within the dispensary and only
empty packaging may be kept in the general area of the dispensary
which is readily accessible to customers and visitors. No product
or delivery devices may be on display in, or visible from, the
waiting area.
An MMTC
must at all times provide secure and logged access for all cannabis
materials. This includes approved vaults or locked rooms. There
must be at least two employees of the MMTC or an approved security
provider on site at all times where cultivation, processing, or
storing of cannabis occurs. All employees must wear proper
identification badges and visitors must be logged in and wear a
visitor badge while on the premises. The MMTC must report any
suspected activity of loss, diversion or theft of cannabis
materials within 24 hours of becoming aware of such an
occurrence.
Florida Transportation Requirements
When
transporting cannabis to dispensaries or to patients, a manifest
must be prepared and transportation must be done using an approved
vehicle. The cannabis must be stored in a separate, locked area of
the vehicle and at all times while in transit there must be two
people in a delivery vehicle. During deliveries, one person must
remain with the vehicle. The delivery employees must at all times
have identification badges. The manifest must include the following
information: (i) departure date and time; (ii) name, address and
license number of the originating MMTC; (iii) name and address of
the receiving entity; (iv) the quantity, form and delivery device
of the cannabis; (v) arrival date and time; (vi) the make, model
and license plate of the delivery vehicle; and (vii) the name and
signatures of the MMTC delivery employees. These manifests must be
kept by the MMTC for inspection for up to three years. During the
delivery, a copy of the manifest is also provided to the
recipient.
OMMU Inspections in Florida
The
OMMU may conduct announced or unannounced inspections of
MMTC’s to determine compliance with applicable laws and
regulations. The OMMU is to inspect an MMTC upon receiving a
complaint or notice that the MMTC has dispensed cannabis containing
mold, bacteria, or other contaminants that may cause an adverse
effect to humans or the environment. The OMMU is to conduct at
least a biennial inspection of each MMTC to evaluate the
MMTC’s records, personnel, equipment, security, sanitation
practices, and quality assurance practices.
Florida License and Regulatory Compliance
We,
through our subsidiary, Planet 13 Florida, hold the MMTC license
and are in compliance with applicable licensing requirements and
the regulatory framework enacted by the State of Florida. We have
retained Florida regulatory consultants, with experience to advise
us on regulatory requirement and update sin that state. Our General
Counsel works regularly with our Florida regulatory consultant and
oversees all aspects of statutory and regulatory compliance for our
MMTC license.
Illinois State Law
Overview
In June
2019, Illinois passed into law The Cannabis Regulation and Tax Act
(“CRTA”), which
legalized cannabis for recreational use and created one of the
largest adult use markets in the country. The law went into effect
on June 25, 2019, and adult use sales of cannabis began in the
state on January 1, 2020. Under the CRTA, existing medical
cannabis license holders were allowed to apply for Early Approval
Adult Use Dispensing Organization (“EAAUDO”) licenses to be able to
sell adult use product at existing medical cannabis dispensaries
(known as “co-located” or “same site”
dispensaries). Existing medical operators also received the
privilege of opening a secondary adult use only retail dispensary
for every medical cannabis dispensary location already existing in
the operator’s portfolio. All EAAUDO license holders were
also required to commit to Illinois’s groundbreaking Social
Equity program either through a financial contribution, grant
agreement, donation, incubation program, or sponsorship
program.
The
CRTA also authorized the issuance of an additional 75 Adult Use
Dispensing Organization (“AUDO”) licenses, 40 craft grower
licenses as well as infuser and transporter licenses in 2020.
Generally speaking, these licenses were to be awarded via a
competitive application process. The CRTA provided a significant
advantage to applicants that qualified as a “Social Equity
Applicant” under the CRTA. In addition, the CRTA authorized
issuance up to 110 additional AUDO licenses and 60 craft
grower licenses by December 21, 2021. However, due the
Covid-19 pandemic, litigation relating to the application process,
and the passage of H.B. 1443, which amended the CRTA, the issuance
of new cannabis licenses in Illinois was delayed until July 2021.
As of the date of this filing, the IDFPR reports 40 craft
grower licenses, along with infuser and transporter licenses have
been issued. On September 3, 2021, Illinois announced that 185
AUDO licenses have been awarded through three license lotteries
that took place on July 29, 2021, August 5, 2021, and August 19,
2021 respectively. However, no AUDO licenses have been issued
to the lottery winners and it is uncertain when they will be
issued. Illinois also announced that it would issue 60 more craft
grower licenses by December 21, 2021.
Illinois Reporting Requirements
The
state of Illinois uses BioTrack THC as its computerized
track-and-trace system for seed-to-sale reporting. Individual
licensees, whether directly or through third-party integration
systems, are required to push data to the state to meet all
reporting requirements.
Illinois Licenses and Regulatory Compliance
Illinois
allows for four types of cannabis businesses within the state:
(1) cultivation/craft grower; (2) infusing;
(3) transportation; and (4) dispensary. Dispensaries are
regulated by the IDFPR. The remaining licenses are regulated by the
Illinois Department of Agriculture (IDOA).
We have
been awarded, but not yet issued, a Conditional Adult Use
Dispensary license in the Chicago-Naperville-Elgin region—the
most populated region of Illinois. Such a license will cease
to be “conditional” once it is tethered to an approved
location, which according to the CRTA should occur within 180 days
of issuance. The CRTA and regulations provide for extensions of
this deadline.
All
cultivation, infusing, and transporter establishments must register
with IDOA. All dispensaries must register with the IDFPR. If
applications contain all required information, establishments are
issued a marijuana establishment registration certificate.
Registration certificates are valid for a period of one year and
are subject to annual renewals after required fees are paid and the
business remains in good standing. Pursuant to Illinois law,
registration renewal applications must be received 45 days prior to
expiration and may be denied if the license has a history of
non-compliance and penalties.
The
cultivation licenses permit a licensee to acquire, possess,
cultivate, manufacture and process cannabis into edible products
and cannabis-infused products. Cultivators can transfer, have
tested, supply or sell cannabis and cannabis products and related
supplies to dispensaries and infusers. Infusing licenses
permit a licensee to acquire and possess distillate from a licensed
cultivator and to manufacture edible and cannabis-infused products.
Infusers can transfer, have tested, supply or sell cannabis and
cannabis products to dispensaries. The transporter license permits
a licensee to transport cannabis and cannabis products to and from
licensed entities.
The
retail dispensary license permits us to purchase cannabis and
manufactured cannabis products from licensed cultivation facilities
and infusing organizations and to sell such products to adult
consumers (21 years old or older).
We have
retained Illinois regulatory consultants, with experience to advise
us on regulatory requirements during the pre-license issuance
period and following the anticipated license issuance to Planet 13
Illinois, LLC. Our General Counsel works regularly with our
Illinois regulatory consultants and oversees all aspects of
statutory and regulatory compliance.
Compliance with State Law
We are
in compliance with U.S. state law and the related licensing
framework. We use reasonable commercial efforts to confirm, through
the advice of our General Counsel and local consultants, through
the monitoring and review of our business practices, and through
regular monitoring of changes to U.S. Federal enforcement
priorities, that our businesses are in compliance with applicable
licensing requirements and the regulatory frameworks enacted by the
states in which we operate. Our General Counsel works with external
legal advisors in Nevada, California, Illinois, and Florida to
ensure that we and our subsidiaries are in compliance with
applicable state laws, including:
●
weekly
correspondence and updates with advisors;
●
development and
maintenance of standard operating procedures with respect to
cultivation, processing and distribution;
●
ongoing monitoring
of compliance with operating procedures and regulations by on-site
management;
●
appropriate
employee training for all standard operating procedures;
and
●
subscription to
monitoring programs to ensure compliance with the FinCEN
Memorandum.
We have
not received any noncompliance orders, citations or notices of
violation that remain uncorrected or that may have an ongoing
impact on our licenses, business activities or
operations.
In
addition, we will continue to ensure we are in compliance with
applicable licensing requirements and the regulatory framework
enacted in the states in which we operate by continuous review of
our licenses and affirmation certifications from management. Each
new license received by us undergoes both internal and independent
reviews, and is subject to all compliance monitoring and
requirements that are applied to existing licenses held or
controlled by us. While our business activities are compliant with
applicable state and local law, such activities remain illegal
under United States federal law.
Storage and Security
To
ensure the safety and security of cannabis business premises and to
maintain adequate controls against the diversion, theft, and loss
of cannabis or cannabis products, we do the following in full
compliance with state statutes and regulations:
●
have an enclosed,
locked facility, with appropriate entrance security;
●
train employees in
security measures and controls, emergency response protocol,
confidentiality requirements, safe handling of equipment,
procedures for handling products, as well as the differences in
strains, methods of consumption, methods of cultivation, methods of
fertilization and methods for health monitoring;
●
install
sophisticated, regulatory-compliant security equipment to deter and
prevent unauthorized entrances;
●
install security
alarms to alert local law enforcement of unauthorized breach of
security; and
●
implement security
procedures that:
o
restrict access of
the establishment to only those persons/employees authorized to be
there;
o
deter and prevent
theft;
o
provide
identification (badge) for those persons/employees authorized to be
in the establishment;
o
require and explain
electronic monitoring; and
o
require and explain
the use of automatic or electronic notification to alert local law
enforcement of an unauthorized breach of security.
Regulatory Risks
The
U.S. cannabis industry is highly regulated, highly competitive and
evolving rapidly. As such, new risks may emerge, and management may
not be able to predict all such risks or be able to predict how
such risks may impact on actual results.
Participants
in the U.S. cannabis industry will incur ongoing costs and
obligations related to regulatory compliance. Failure to comply
with regulations may result in additional costs for corrective
measures, penalties or restrictions of operations. In addition,
changes in regulations, more vigorous enforcement thereof or other
unanticipated events could require extensive changes to operations,
increased compliance costs or give rise to material liabilities,
which could have a material adverse effect on our business, results
of operations and financial condition. Further, we may be subject
to a variety of claims and lawsuits. Adverse outcomes in some or
all of these claims may result in significant monetary damages or
injunctive relief that could adversely affect our ability to
conduct our business. The litigation and other claims are subject
to inherent uncertainties and management’s view of these
matters may change in the future. A material adverse impact on our
financial statements also could occur for the period in which the
effect of an unfavorable outcome becomes probable and reasonably
estimable.
The
U.S. cannabis industry is subject to extensive controls and
regulations, which may significantly affect the financial condition
of market participants. The marketability of any product may be
affected by numerous factors that are beyond our control and which
cannot be predicted, such as changes to government regulations,
including those relating to taxes and other government levies which
may be imposed. Changes in government levies, including taxes,
could reduce our earnings and could make future growth uneconomic.
The industry is also subject to numerous legal challenges, which
may significantly affect our financial condition and which cannot
be reliably predicted.
We
expect to derive all of our revenues from the U.S. cannabis
industry, which industry is illegal under U.S. federal law. As
a result of the conflicting views between state legislatures and
the federal government regarding cannabis, cannabis businesses in
the U.S. are subject to inconsistent legislation and regulation. We
began our operations in the State of Nevada, which has legalized
the medical and recreational adult-use of cannabis, and have
expanded or plan to expand in other states with licensed cannabis
opportunities. The U.S. federal government has not enacted similar
legislation and the cultivation, sale and use of cannabis remains
illegal under federal law pursuant to the CSA. The federal
government of the U.S. has specifically reserved the right to
enforce federal law in regard to the sale and disbursement of
medical or recreational adult-use cannabis even if state law
sanctioned such sale and disbursement. It is presently unclear
whether the U.S. federal government intends to enforce federal laws
relating to cannabis where the conduct at issue is legal under
applicable state law. This risk was further heightened by the
revocation of the Cole Memorandum in January 2018. See
“United States Federal Law
Overview.”
Further,
there can be no assurance that state laws legalizing and regulating
the sale and use of cannabis will not be repealed or overturned, or
that local government authorities will not limit the applicability
of state laws within their respective jurisdictions. It is also
important to note that local and city ordinances may strictly limit
and/or restrict the distribution of cannabis in a manner that will
make it extremely difficult or impossible to transact business in
the cannabis industry. If the U.S. federal government begins to
enforce federal laws relating to cannabis in states where the sale
and use of cannabis is currently legal, or if existing state laws
are repealed or curtailed, then our business would be materially
and adversely affected. U.S. federal actions against any individual
or entity engaged in the cannabis industry or a substantial repeal
of cannabis related legislation could adversely affect us. Our
involvement in the medical and recreational adult-use cannabis
industry is illegal under the applicable federal laws of the United
States and may be illegal under other applicable law. There can be
no assurances the federal government of the United States or other
jurisdictions will not seek to enforce the applicable laws against
us. The consequences of such enforcement would be materially
adverse to our business and could result in the forfeiture or
seizure of all or substantially all of our assets. See
“Risk
Factors.”
Nature of the Company’s Involvement in the U.S. Cannabis
Industry
We have
a material direct involvement in the cannabis industry in Nevada
and California. Currently, we are directly engaged in the
cultivation, manufacture and production, possession, use, sale and
distribution of cannabis in the medical and adult-recreational use
cannabis marketplace in Nevada and the adult-recreational use
cannabis market in California. Approximately 41.3% of our assets
and 100% of our revenues are directly attributable to the medical
and recreational adult-use cannabis market in Nevada and
California. We hold cultivation, production and retail distribution
licenses for the State of Nevada and retail and distribution
licenses for the State of California.
As
previously stated, violations of any federal laws and regulations
could result in significant fines, penalties, administrative
sanctions, convictions or settlements arising from civil
proceedings conducted by either the federal government or private
citizens, or criminal charges, including, but not limited to,
disgorgement of profits, cessation of business activities or
divestiture. This could have a material adverse effect on us,
including our reputation and ability to conduct business, the
listing of our securities on any stock exchange, our financial
position, operating results and profitability. In addition, it is
difficult for us to estimate the time or resources that would be
needed for the investigation of any such matters or their final
resolution because, in part, the time and resources that may be
needed are dependent on the nature and extent of any information
requested by the applicable authorities involved, and such time or
resources could be substantial. The approach to the enforcement of
cannabis laws may be subject to change or may not proceed as
previously outlined. See “Risk Factors.”
Our
operations in the U.S. cannabis industry are presently only in the
States of Nevada and California and we currently hold licenses in
Illinois and Florida. We may, in future periods, expand our
operations outside of Nevada and California and intend to restrict
such future expansion to: (i) only those states that have enacted
laws legalizing cannabis; and (ii) only those states where we can
comply with state (and local) laws and regulations and have the
licenses, permits or authorizations to properly carry on each
element of our business.
In
addition, we will continue to ensure we are in compliance with
applicable licensing requirements and the regulatory framework
enacted in the states in which we operate by continuous review of
our licenses and affirmation certifications from
management.
We will
continue to monitor, evaluate and re-assess the regulatory
framework in the states in which we operate and any state that we
may look to expand our operations to in the future, and the federal
laws applicable thereto, on an ongoing basis; and will update our
continuous disclosure regarding government policy changes or new or
amended guidance, laws or regulations regarding cannabis in the U.S
as required.
Anti-Money Laundering Laws and Regulations
We are
subject to a variety of laws and regulations in the U.S. that
involve money laundering, financial recordkeeping and proceeds of
crime, including the U.S. Currency
and Foreign Transactions Reporting Act of 1970
(commonly known as the Bank Secrecy Act), as amended by
Title III of the Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT
Act) and the rules and regulations thereunder, and any related or
similar rules, regulations or guidelines, issued, administered or
enforced by governmental authorities in the U.S. Further, under
U.S. federal law, banks or other financial institutions that
provide a cannabis business with a checking account, debit or
credit card, small business loan, or any other service could be
found guilty of money laundering, aiding and abetting, or
conspiracy.
Our
activities, and any proceeds thereof, may be considered proceeds of
crime due to the fact that cannabis remains illegal federally in
the U.S. This may restrict our ability to declare or pay dividends
or effect other distributions. Furthermore, while we have no
current intention to declare or pay dividends on our Common Shares
in the foreseeable future, we may decide to, or be required to,
suspend declaring or paying dividends without advance notice and
for an indefinite period of time.
Ability to Access Private and Public Capital
Prior
to the RTO, we relied entirely on access to private capital in
order to support our continuing operations and capital expenditure
requirements. We expect to rely on both private and public capital
markets to finance our growth plans in the U.S. legal cannabis
industry. However, there is no assurance we will be successful, in
whole or in part, in raising funds, particularly if the U.S.
federal authorities change their position toward enforcing the CSA.
Further, access to funding from U.S. residents may be limited due
their unwillingness to be associated with activities which violate
U.S. federal laws.
Available Information
Our
website address is www.planet13holdings.com. Through this
website, our filings with the SEC, including annual reports on Form
10-K, quarterly reports on Form 10-Q and current reports on Form
8-K will be accessible (free of charge) as soon as reasonably
practicable after materials are electronically filed or furnished
to the SEC. The information
provided on our website is not part of this registration statement.
The SEC also maintains a website that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC. Our filings with the
SEC are available to the public on the SEC’s website at
www.sec.gov.
Summary
of Risk Factors
Our
business is subject to a number of risks and uncertainties which
you should evaluate before making a decision to invest in our
Common Shares. This summary does not address all of the risks
related to our business. Additional discussion of the risks
summaries may be found under the “Risk Factors” section and
elsewhere in this registration statement, and should be carefully
considered before making a decision to invest in our Common Shares.
These risks include, among others:
Risks Related to Regulation and our Industry
●
Cannabis continues
to be a controlled substance under the CSA and our business model
and the nature of our operations could result in adverse actions by
agencies of the U.S. federal government.
●
Some of our planned
business activities, while compliant with applicable U.S. state and
local law, are illegal under U.S. federal law.
●
The industry in
which we operate is still developing and subject to extensive
regulation.
●
We face risks due
to industry immaturity or limited comparable, established industry
best practices.
●
The size of our
target market is difficult to quantify and investors will be
reliant on their own estimates on the accuracy of market
data.
●
Our sales and
marketing activities and enforcement of contracts may be hindered
by regulatory restrictions.
●
We expect to incur
significant ongoing costs and obligations related to our investment
in infrastructure, growth, regulatory compliance and
operations.
●
Regulatory scrutiny
of the industry in which we operate may negatively impact our
ability to raise additional capital.
●
Banks and other
financial institutions which service the cannabis industry are at
risk of violating certain financial laws, including anti-money
laundering statutes.
●
The
re-classification of cannabis or changes in U.S. controlled
substance laws and regulations could have a material adverse effect
on our business.
●
We may incur
significant tax liabilities due to limitations on tax deductions
and credits under section 280E of the Internal Revenue Code of
1986, as amended, (the “Code”).
●
We may have
difficulty accessing the service of banks and processing credit
card payments in the future.
●
Failure to obtain
or maintain the necessary licenses, permits, authorizations or
accreditations could have a material adverse effect on our
business.
●
U.S. state laws
legalizing and regulating the sale and use of cannabis could be
repealed or overturned.
●
We may face
limitations on ownership of cannabis licenses, which may restrict
our ability to grow.
●
We may become
subject to FDA or ATF regulation that may have an adverse effect on
our business, and we may be subject to negative clinical
trials.
●
We could be subject
to criminal prosecution or civil liabilities under
RICO.
●
We lack access to
U.S. bankruptcy protections.
Risks Related to our Business and Operations
●
The full effect of
the COVID-19 pandemic on our operations is unknown at this time,
and it may continue to have a significant negative effect on us in
the future.
●
We face increasing
competition that may materially and adversely affect our business,
financial condition and results of operations.
●
Our probable lack
of business diversification could have a material adverse effect on
our business.
●
There is no
assurance that we will be profitable or pay dividends.
●
We are a developing
company and have only recently begun to generate positive cash
flow.
●
Our business is
exposed to risks inherent in an agricultural business.
●
We are dependent on
the popularity of consumer acceptance of our brand portfolio to
generate revenues.
●
We may be adversely
impacted by rising or volatile energy costs.
●
We may encounter
unknown environmental risks that may delay the development of our
businesses.
●
Our business is
subject to risks and hazards for which we may not be able to obtain
insurance coverage.
●
Product recalls
could lead to decreased demand for our products.
●
Our research and
development activities may not prove profitable, and we may not be
able to accurately forecast our operating results and plan our
operations due to uncertainties in the cannabis
industry.
●
We rely on our
executive officers, our key research and development personnel and
our key growth and extraction personnel for our future success, and
if any such persons were unable to continue in their present
positions, we might not be able to replace them.
●
Unfavorable
publicity or consumer perception could lead to a material adverse
effect on the demand for our products and our business, results of
operations, financial condition and cash flows.
●
We are a holding
company and are dependent on the earnings and distributions by our
subsidiary, MMDC.
●
Currency
fluctuations could expose us to exchange risk.
●
We may face
difficulties acquiring additional financing to fund our
growth.
●
Our officers and
directors may be engaged in a range of business activities
resulting in conflicts of interest.
●
Our actual
financial position and results of operations may differ materially
from the expectations of management.
Risks Related to Intellectual Property
●
We may be forced to
litigate to defend our intellectual property rights, or to defend
against claims by third parties against us relating to intellectual
property rights.
●
U.S. federal
trademark and patent protection may not be available for our
intellectual property due to the current classification of cannabis
as a Schedule I controlled substance.
Risks Related to our Common Shares
●
Our Co-CEOs are
able to exert significant influence over all matters requiring
shareholder approval.
●
We are a U.S.
domestic company for U.S. federal income tax purposes, are subject
to U.S. tax law.
●
Dividends received
by Canadian holders of Common Shares are subject to U.S.
withholdings tax.
●
The market price
for the Common Shares may be volatile and subject to wide
fluctuations in response to numerous factors, many of which are
beyond our control.
●
It may be
difficult, if not impossible, for U.S. holders of the Common Shares
to resell them over the CSE.
●
Future sales of the
Common Shares by existing shareholders could reduce the market
price of the Common Shares.
Risks Related to our Acquisitions and Growth Strategy
●
Our failure to
successfully integrate acquired businesses, their products and
other assets, may result in our inability to realize any benefit
from such acquisition.
●
We may not be able
to effectively manage our growth and operations, which could
materially and adversely affect our business.
Risks
Related to Regulation and our Industry
Cannabis continues to be a
controlled substance under the CSA and our business model, and the nature of our
operations could result in adverse actions by agencies of the U.S.
federal government, which could have a material adverse effect on
us.
Unlike
in Canada, which has federal legislation uniformly governing the
cultivation, distribution, sale and possession of medical cannabis
under the Access to Cannabis for Medical Purposes Regulations
(Canada) and the Cannabis
Act (Canada), in the United States, cannabis is largely
regulated at the state level. To date, a total of 36 states,
Washington D.C., and the territories of Guam, Puerto Rico, the U.S.
Virgin Islands, and the Northern Mariana Islands, have legalized
medical cannabis in some form, and 15 of those states, Washington
D.C., and the territories of Guam and the Northern Mariana Islands
have legalized recreational cannabis.
If the
DOJ policy were to aggressively pursue financiers or equity owners
of cannabis-related business, and United States attorneys followed
such DOJ policies through pursuing prosecutions, then we could
face: (i) seizure of our cash and other assets used to support or
derived from our cannabis subsidiaries; and (ii) the arrest of our
employees, directors, officers, managers and investors, who could
face charges of ancillary criminal violations of the CSA for aiding
and abetting and conspiring to violate the CSA by virtue of
providing financial support to state-licensed or permitted
cultivators, processors, distributors, and/or retailers of
cannabis. Additionally, as has recently been affirmed by U.S.
Customs and Border Protection, our employees, directors, officers,
managers and investors who are not U.S. citizens face the risk of
being barred from entry into the United States for
life.
Our
primary businesses (owned directly or through one or more of our
operating companies) are intended to be leading cultivators and
dispensaries of cannabis and cannabis-infused products in the State
of Nevada and other U.S. states. Because the production and
sale of recreational cannabis remain illegal under federal law, it
is possible that our future suppliers (and other third-party
service providers) and customers may be forced to cease activities.
The U.S. federal government, through both the U.S. Drug Enforcement
Administration (the “DEA”) and the U.S. Internal
Revenue Service (the “IRS”), has the right to actively
investigate, audit and shut-down cannabis growing facilities and
retailers. The U.S. federal government may also attempt to seize
our property. Any action taken by the DEA and/or the IRS to
interfere with, seize, or shut down our operations will have an
adverse effect on our business, operating results and financial
condition.
Some of our planned business activities, while compliant with
applicable U.S. state and local law, are illegal under U.S. federal
law.
Because
the possession, use, cultivation, and transfer of cannabis and any
related drug paraphernalia is illegal under U.S. federal law, and
any such acts are criminal acts under federal law under any and all
circumstances under the CSA, an investor’s contribution to
and involvement in such activities may result in federal civil
and/or criminal prosecution, including forfeiture of his, her or
its entire investment. We may also be deemed to be aiding and
abetting illegal activities through the contracts we have entered
into and the products that we intend to provide. As a result, U.S.
law enforcement authorities, in their attempt to regulate the
illegal use of cannabis and any related drug paraphernalia, may
seek to bring an action or actions against us, including, but not
limited to, aiding and abetting another’s criminal
activities. The U.S. federal aiding and abetting statute provides
that anyone who “commits an offense against the United States
or aids, abets, counsels, commands, induces or procures its
commission, is punishable as a principal.” As a result of
such an action, we may be forced to cease operations and be
restricted from operating in the U.S., and our investors could lose
their entire investment. Such an action would have a material
negative effect on our business and operations.
Because the
cannabis industry remains illegal under U.S. federal law, any
property owned by participants in the cannabis industry which are
either used in the course of conducting such business, or are the
proceeds of such business, could be subject to seizure by law
enforcement and subsequent civil asset forfeiture. Even if the
owner of the property was never charged with a crime, the property
in question could still be seized and subject to an administrative
proceeding by which with minimal due process, it could be subject
to forfeiture.
In
addition, companies providing goods and/or services to companies
like us that are engaged in cannabis-related activities may, under
threat of federal civil and/or criminal prosecution, suspend or
withdraw their services. Any suspension of service and inability to
procure goods or services from an alternative source, even on a
temporary basis, that causes interruptions in our operations could
have a material and adverse effect on our business, financial
condition and results of operations.
There is uncertainty surrounding the U.S. federal government and
Attorney General Merrick B. Garland and their influence and
policies in opposition to the cannabis industry as a whole, and
their actions could result in significant fines penalties,
convictions or criminal charges, which could have a material
adverse effect on us.
As a
result of the conflicting views between state legislatures and the
federal government regarding cannabis, investments in cannabis
business in the United States are subject to inconsistent
legislation and regulation. The response to this inconsistency was
addressed in the Cole Memorandum. The Cole Memorandum was addressed
to all United States district attorneys acknowledging that
notwithstanding the designation of cannabis as a controlled
substance at the federal level in the United States, several U.S.
states have enacted laws relating to cannabis for medical purposes.
The Cole Memorandum outlined certain priorities for the DOJ
relating to the prosecution of cannabis offenses. In particular,
the Cole Memorandum noted that in jurisdictions that have enacted
laws legalizing cannabis in some form and that have also
implemented strong and effective regulatory and enforcement systems
to control the cultivation, distribution, sale and possession of
cannabis, conduct in compliance with those laws and regulations is
less likely to be a priority at the federal level. Notably,
however, the DOJ has never provided specific guidelines for what
regulatory and enforcement systems it deems sufficient under the
Cole Memorandum standard.
In
light of limited investigative and prosecutorial resources, the
Cole Memorandum concluded that the DOJ should be focused on
addressing only the most significant threats related to cannabis.
States where medical cannabis had been legalized were not
characterized as a high priority. On January 4, 2018, former U.S.
Attorney General Jeff Sessions issued a memorandum to U.S. district
attorneys which rescinded the Cole Memorandum. With the Cole
Memorandum rescinded, U.S. federal prosecutors can exercise their
discretion in determining whether to prosecute compliant state law
cannabis-related operations as violations of U.S. federal law
throughout the United States. The potential impact of the decision
to rescind the Cole Memorandum is unknown and may have a material
adverse effect on our business and results of operations. Through
September 30, 2021, DOJ appropriations prohibit use of funds for
enforcement actions against medical cannabis. Merrick B. Garland
was sworn in on March 11, 2021 as the 86th U.S. Attorney
General, and it remains unknown what position he or President
Biden’s administration will take regarding federal
enforcement actions against the cannabis industry.
With
the repeal of the Cole Memorandum by former Attorney General Jeff
Sessions, the Department of Justice could allege that we and our
Board and, potentially our shareholders, “aided and
abetted” violations of federal law by providing finances and
services to our portfolio cannabis companies. Under these
circumstances, it is possible that the federal prosecutor would
seek to seize our assets and to recover the “illicit
profits” previously distributed to shareholders resulting
from any of the foregoing financing or services. In these
circumstances, our operations would cease, shareholders may lose
their entire investment and our directors, officers and/or
shareholders may be left to defend any criminal charges against
them at their own expense and, if convicted, be sent to federal
prison.
Violations
of any federal laws and regulations could result in significant
fines, penalties, administrative sanctions, convictions or
settlements arising from civil proceedings conducted by either the
federal government or private citizens, or criminal charges,
including, but not limited to, disgorgement of profits, cessation
of business activities or divestiture. This could have a material
adverse effect on us, including our reputation and ability to
conduct business, our holding (directly or indirectly) of cannabis
licenses in the United States, the listing of our securities on
stock exchanges, our financial position, operating results,
profitability or liquidity or the market price of our publicly
traded Common Shares. In addition, it is difficult to estimate the
time or resources that would be needed for the investigation of any
such matters or its final resolution because, in part, the time and
resources that may be needed are dependent on the nature and extent
of any information requested by the applicable authorities
involved, and such time or resources could be
substantial.
Our
business interests in the United States include the cultivation and
provision of cannabis and cannabis-infused products. We are not
aware of any non-compliance with the applicable licensing
requirements or regulatory framework enacted by the states in which
any of our customers or partners are operating.
The industry in which we operate is still developing and subject to
extensive regulation.
The
cannabis industry is a new industry that may not succeed. Should
the federal government in the U.S. change course and decide to
prosecute those dealing in medical or other cannabis under
applicable law, there may not be any market for our products and
services in the U.S. Cannabis is a new industry subject to
extensive regulation, and there can be no assurance that it will
grow, flourish or continue to the extent necessary to permit us to
succeed. We are treating the cannabis industry as a deregulating
industry with significant unsatisfied demand for our proposed
products and will adjust our future operations, product mix and
market strategy as the industry develops and matures. Further, few
clinical trials on the benefits of cannabis or isolated
cannabinoids have been conducted. Future research and clinical
trials may draw opposing conclusions to statements contained in the
articles, reports and studies currently favored, or could reach
different or negative conclusions regarding the medical benefits,
viability, safety, efficacy, dosing or other facts and perceptions
related to medical cannabis, which could adversely affect social
acceptance of cannabis and the demand for our products and
dispensary services.
Accordingly,
there is no assurance that the cannabis industry and the market for
medicinal and/or adult-use cannabis will continue to exist and grow
as currently anticipated or function and evolve in a manner
consistent with management’s expectations and assumptions.
Any event or circumstance that adversely affects the cannabis
industry, such as the imposition of further restrictions on sales
and marketing or further restrictions on sales in certain areas and
markets could have a material adverse effect on our business,
financial condition and results of operations.
We face risks due to industry immaturity or limited comparable,
competitive or established industry best practices.
As a
relatively new industry, there are not many established operators
in the medical and adult use cannabis industries whose business
models we can follow or build upon. Similarly, there is no or
limited information about comparable companies available for
potential investors to review in making a decision about whether to
invest in us.
Shareholders
and investors should consider, among other factors, our prospects
for success in light of the risks and uncertainties encountered by
companies, like us, that are in their early stages. For example,
unanticipated expenses and problems or technical difficulties may
occur, which may result in material delays in the operation of our
business. We may fail to successfully address these risks and
uncertainties or successfully implement our operating strategies.
If we fail to do so, it could materially harm our business to the
point of having to cease operations and could impair the value of
the Common Shares to the extent that investors may lose their
entire investments.
The size of our target market is difficult to quantify and
investors will be reliant on their own estimates on the accuracy of
market data.
Because
the cannabis industry is in an early stage with uncertain
boundaries, there is a lack of information about comparable
companies available for potential investors to review in deciding
about whether to invest in us and, few, if any, established
companies whose business model we can follow or upon whose success
we can build. Accordingly, investors will have to rely on their own
estimates in deciding about whether to invest in us. There can be
no assurance that our estimates are accurate or that the market
size is sufficiently large for our business to grow as projected,
which may negatively impact our financial results.
Our sales and marketing activities and enforcement of contracts may
be hindered by regulatory restrictions.
The
development of our business and operating results may be hindered
by applicable restrictions on sales and marketing activities
imposed by government regulatory bodies. The regulatory environment
in the United States limits our ability to compete for market share
in a manner similar to other industries. If we are unable to
effectively market our products and compete for market share, or if
the costs of compliance with government legislation and regulation
cannot be absorbed through increased selling prices for our
products, our sales and operating results could be adversely
affected. In addition, because our contracts involve cannabis and
other activities that are not legal under U.S. federal law and in
some jurisdictions, we may face difficulties in enforcing our
contracts in U.S. federal and certain state courts.
We expect to incur significant
ongoing costs and obligations related to our investment in
infrastructure, growth, regulatory compliance and operations, and
uncertainty regarding legal and regulatory status and
changes may have a material
adverse effect on our business.
We
expect to incur significant ongoing costs and obligations related
to our investment in infrastructure and growth and for regulatory
compliance, which could have a material adverse effect on our
results of operations, financial condition and cash flows. In
addition, future changes in regulations, more vigorous enforcement
thereof or other unanticipated events could require extensive
changes to our operations, increased compliance costs or give rise
to material liabilities, which could have a material adverse effect
on our business, results of operations and financial condition. Our
efforts to grow our business may be costlier than management
expects, and we may not be able to increase our revenue enough to
offset higher operating expenses. We may incur significant losses
in the future for a number of reasons, and unforeseen expenses,
difficulties, complications and delays, and other unknown events.
If we are unable to achieve and sustain profitability, the market
price of the Common Shares may significantly decrease.
Achievement
of our business objectives is also contingent, in part, upon
compliance with regulatory requirements enacted by governmental
authorities and obtaining other required regulatory approvals. The
regulatory regime applicable to the cannabis industry in Canada and
the United States is currently undergoing significant proposed
changes and we cannot predict the impact of the regime on our
business once the structure of the regime is finalized. Similarly,
we cannot predict the timeline required to secure all appropriate
regulatory approvals for our products, or the extent of testing and
documentation that may be required by governmental authorities. Any
delays in obtaining, or failing to obtain, required regulatory
approvals may significantly delay or impact the development of our
markets, products and sales initiatives and could have a material
adverse effect on our business, results of operations and financial
condition. We will incur ongoing costs and obligations related to
regulatory compliance. Failure to comply with regulations may
result in additional costs for corrective measures, penalties or in
restrictions on our operations.
Our investors, directors, officers and employees may be subject to
entry bans into the United States.
Because
cannabis remains illegal under United States federal law, those
employed at or investing in legal and licensed Canadian cannabis
companies could face detention, denial of entry or lifetime bans
from the United States for their business associations with
cannabis businesses. Entry happens at the sole discretion of the
U.S. customs and border protection (“CBP”) officers on duty, and these
officers have wide latitude to ask questions to determine the
admissibility of a foreign national. The government of Canada has
started warning travelers on its website that previous use of
cannabis, or any substance prohibited by United States federal
laws, could mean denial of entry to the United States. Business or
financial involvement in the legal cannabis industry in Canada or
in the United States could also be reason enough for United States
border guards to deny entry.
On
September 21, 2018, CBP released a statement outlining its current
position with respect to enforcement of the laws of the United
States. It stated that Canada’s legalization of cannabis will
not change CBP enforcement of United States laws regarding
controlled substances, and because cannabis continues to be a
controlled substance under United States law, working in or
facilitating the proliferation of the legal cannabis industry in
U.S. states where it is deemed legal or Canada may affect
admissibility to the United States. As a result, CBP has affirmed
that, employees, directors, officers, managers and investors of
companies involved in business activities related to cannabis in
the United States or Canada, like us, who are not United States
citizens face the risk of being barred from entry into the United
States for life. As described above, on October 9, 2018, CBP
released an additional statement regarding the admissibility of
Canadian citizens working in the legal cannabis industry. CBP
stated that a Canadian citizen working in or facilitating the
proliferation of the legal cannabis industry in Canada coming into
the United States for reasons unrelated to the cannabis industry
will generally be admissible to the United States; however, if such
person is found to be coming into the United States for reasons
related to the cannabis industry, such person may be deemed
inadmissible. Any entry bans against our investors, directors,
officers and employees may have a material adverse effect on
us.
Our operations may become the subject of heightened scrutiny, which
may lead to the imposition of additional restrictions on our
operations.
Currently,
our Common Shares trade on the CSE and are quoted on the OTCQX in
the United States. Our business, operations and investments in the
United States, and any future business, operations or investments,
may become the subject of heightened scrutiny by regulators, stock
exchanges and other authorities in Canada and the United States. As
a result, we may be subject to significant direct and indirect
interaction with public officials. There can be no assurance that
this heightened scrutiny will not in turn lead to the imposition of
certain restrictions on our ability to operate or invest in the
United States or any other jurisdiction, in addition to those
described herein.
It had
been reported in Canada that the Canadian Depository for Securities
Limited is considering a policy shift that would see its
subsidiary, CDS Clearing and Depository Services Inc.
(“CDS”), refuse
to settle trades for cannabis issuers that have investments in the
United States. CDS is Canada’s central securities depository,
clearing and settling trades in the Canadian equity, fixed income
and money markets.
On
February 8, 2018, following discussions with the Canadian
Securities Administrators and recognized Canadian securities
exchanges, the TMX Group announced the signing of a Memorandum of
Understanding (“MOU”) with Aequitas NEO Exchange
Inc., the CSE, the Toronto Stock Exchange, and the TSX Venture
Exchange. The MOU outlines the parties’ understanding of
Canada’s regulatory framework applicable to the rules,
procedures, and regulatory oversight of the exchanges and CDS as it
relates to issuers with cannabis-related activities in the United
States. The MOU confirms, with respect to the clearing of listed
securities, that CDS relies on the exchanges to review the conduct
of listed issuers. As a result, there is no CDS ban on the clearing
of securities of issuers with cannabis-related activities in the
United States. However, there can be no guarantee that this
approach to regulation will continue in the future. If such a ban
were to be implemented at a time when the Common Shares are listed
on a stock exchange, it would have a material adverse effect on the
ability of holders of the Common Shares to make and settle trades.
In particular, the Common Shares would become highly illiquid until
an alternative was implemented, investors would have no ability to
effect a trade of the Common Shares through the facilities of the
applicable stock exchange.
Regulatory scrutiny of the industry in which we operate may
negatively impact our ability to raise additional
capital.
Our
business activities rely on newly established and developing laws
and regulations in the states in which we operate or intend to
operate. These laws and regulations are rapidly evolving and
subject to change with minimal notice. Regulatory changes,
including changes in the interpretation and/or administration of
applicable regulatory requirements may adversely affect our
profitability or cause us to cease operations entirely. Any
determination that our business fails to comply with applicable
cannabis regulations would require us either to significantly
change or terminate our business activities, which would have a
material adverse effect on our business.
The
cannabis industry may come under the scrutiny or further scrutiny
by the U.S. Food and Drug Administration, Securities and Exchange
Commission, the DOJ, the Financial Industry Regulatory Advisory or
other federal, state or nongovernmental regulatory authorities or
self-regulatory organizations that supervise or regulate the
production, distribution, sale or use of cannabis for medical or
nonmedical purposes in the United States. It is impossible to
determine the extent of the impact of any new laws, regulations or
initiatives that may be proposed, or whether any proposals will
become law. The regulatory uncertainty surrounding our industry may
adversely affect the business and our operations, including,
without limitation, the costs to remain compliant with applicable
laws and the impairment of our ability to raise additional capital,
which could reduce, delay or eliminate any return on investment in
us.
Due to the classification of cannabis as a Schedule I controlled
substance under the CSA, banks and other financial institutions
which service the cannabis industry are at risk of violating
certain financial laws, including anti-money laundering
statutes.
Because
the manufacture, distribution, and dispensation of cannabis remains
illegal under the CSA, banks and other financial institutions
providing services to cannabis-related businesses risk violation of
federal anti-money laundering statutes, the unlicensed
money-remitter statute and the U.S. Bank Secrecy Act. These
statutes can impose criminal liability for engaging in certain
financial and monetary transactions with the proceeds of a
“specified unlawful activity” such as distributing
controlled substances which are illegal under federal law,
including cannabis, and for failing to identify or report financial
transactions that involve the proceeds of cannabis-related
violations of the CSA. In the event that any of our investments, or
any proceeds thereof, any dividends or distributions therefrom, or
any profits or revenues accruing from such investments in the
United States are found to be in violation of money laundering
legislation or otherwise, such transactions may be viewed as
proceeds of crime under one or more of the statutes noted above or
any other applicable legislation. This finding could restrict or
otherwise jeopardize our ability to declare or pay dividends,
effect other distributions or subsequently repatriate such funds
back to Canada. Furthermore, while we have no current intention to
declare or pay dividends in the foreseeable future, in the event
that a determination is made that any such investments in the
United States could reasonably be shown to constitute proceeds of
crime, we may decide or be required to suspend declaring or paying
dividends without advance notice and for an indefinite period of
time.
The re-classification of cannabis or changes in U.S. controlled
substance laws and regulations could have a material adverse effect
on our business.
If
cannabis is re-classified as a Schedule II or lower controlled
substance under the CSA, the ability to conduct research on the
medical benefits of cannabis would most likely be more accessible;
however, if cannabis is re-categorized as a Schedule II or lower
controlled substance, the resulting re-classification would result
in the need for approval by the U.S. Food and Drug Administration
(the “FDA”) if
medical claims are made about our medical cannabis products. As a
result of such a re-classification, the manufacture, importation,
exportation, domestic distribution, storage, sale and use of such
products could become subject to a significant degree of regulation
by the DEA. In that case, we may be required to be registered to
perform these activities and have the security, control,
recordkeeping, reporting and inventory mechanisms required by the
DEA to prevent drug loss and diversion. Obtaining the necessary
registrations may result in delay of the manufacturing or
distribution of our products. The DEA conducts periodic inspections
of registered establishments that handle controlled substances.
Failure to maintain compliance could have a material adverse effect
on our business, financial condition and results of operations. The
DEA may seek civil penalties, refuse to renew necessary
registrations, or initiate proceedings to restrict, suspend or
revoke those registrations. In certain circumstances, violations
could lead to criminal proceedings.
We, and/or contract counterparties that are directly engaged in the
trafficking of cannabis, may incur significant tax liabilities due
to limitations on tax deductions and credits under section 280E of
the Code.
Section
280E of the Code prohibits businesses from taking deductions or
credits in carrying on any trade or business consisting of
trafficking in certain controlled substances that are prohibited by
federal law. The IRS has invoked Section 280E in tax audits against
various cannabis businesses in the U.S. that are authorized under
state laws, seeking substantial sums in tax liabilities, interest
and penalties resulting from underpayment of taxes due to the
application of Section 280E. Under a number of cases, the United
States Supreme Court has held that income means gross income (not
gross receipts). Under this reasoning, the cost of goods sold
(“COGS”) is
permitted as a reduction in determining gross income,
notwithstanding Section 280E. Although proper reductions for COGS
are generally allowed to determine gross income, the scope of such
items has been the subject of debate, and deductions for
significant costs may not be permitted. While there are currently
several pending cases before various administrative and federal
courts challenging these restrictions, there is no guarantee that
these courts will issue an interpretation of Section 280E favorable
to cannabis businesses. Thus, we, to the extent of our
“trafficking” activities (if applicable), and/or key
contract counterparties directly engaged in trafficking in
cannabis, may be subject to United States federal tax, without the
benefit of deductions or credits. To the extent such tax
limitations create a financial burden on contract counterparties,
such burdens may impact the ability of such counterparties to make
full or timely payment to us, which would have a material adverse
effect on our business.
State and local laws and regulations may heavily regulate brands
and forms of cannabis products, and there is no guarantee that our
proposed products and brands will be approved for sale and
distribution in any state.
States
generally only allow the manufacture, sale and distribution of
cannabis products that are grown in that state and may require
advance approval of such products. Certain states and local
jurisdictions have promulgated certain requirements for approved
cannabis products based on the form of the product and the
concentration of the various cannabinoids in the product. While we
intend to follow the guidelines and regulations of each applicable
state and local jurisdiction in preparing products for sale and
distribution, there is no guarantee that such products will be
approved to the extent necessary. If the products are approved,
there is a risk that any state or local jurisdiction may revoke its
approval for such products based on changes in laws or regulations
or based on its discretion or otherwise. As we expand into other
U.S. jurisdictions, we plan to undertake no cross-border cannabis
commerce between states until the federal regulatory environment
permits such commerce to occur.
We may have difficulty accessing the service of banks and
processing credit card payments in the future, which may make it
difficult for us to operate.
In
February 2014, the FinCEN issued guidance (which is not law) with
respect to financial institutions providing banking services to
cannabis businesses, including burdensome due diligence
expectations and reporting requirements. This guidance does not
provide any safe harbors or legal defenses from examination or
regulatory or criminal enforcement actions by the DOJ, FinCEN or
other federal regulators. Thus, most banks and other financial
institutions do not appear to be comfortable providing banking
services to cannabis-related businesses, or relying on this
guidance, which can be amended or revoked at any time by the Biden
administration. In addition to the foregoing, banks may refuse to
process debit card payments and credit card companies generally
refuse to process credit card payments for cannabis-related
businesses. As a result, we may have limited or no access to
banking or other financial services in the United States and may
have to operate our business on an all-cash basis. The inability or
limitation in our ability to open or maintain bank accounts, obtain
other banking services and/or accept credit card and debit card
payments may make it difficult for us to operate and conduct our
business as planned.
Failure to comply with applicable environmental laws, regulations
and permitting requirements may result in enforcement
actions.
Our
operations are subject to environmental regulation in the various
jurisdictions in which we operate. These regulations mandate, among
other things, the maintenance of air and water quality standards.
They also set forth limitations on the generation, transportation,
storage and disposal of solid and hazardous waste. Environmental
legislation is evolving in a manner that will require stricter
standards and enforcement, increased fines and penalties for
non-compliance, more stringent environmental assessments of
proposed projects and a heightened degree of responsibility for
companies and their officers, directors (or the equivalent thereof)
and employees. There is no assurance that future changes in
environmental regulation, if any, will not adversely affect our
operations.
Government
approvals and permits are currently, and may in the future, be
required in connection with our operations. To the extent such
approvals are required and not obtained, we may be curtailed or
prohibited from our current or proposed production, manufacturing
or sale of marijuana or marijuana products or from proceeding with
the development of our operations as currently
proposed.
Failure
to comply with applicable laws, regulations and permitting
requirements may result in enforcement actions thereunder,
including orders issued by regulatory or judicial authorities
causing operations to cease or be curtailed, and may include
corrective measures requiring capital expenditures, installation of
additional equipment, or remedial actions. We may be required to
compensate those suffering loss or damage by reason of its
operations and may have civil or criminal fines or penalties
imposed for violations of applicable laws or
regulations.
Amendments
to current laws, regulations and permits governing the production,
manufacturing or sale of marijuana or marijuana products, or more
stringent implementation thereof, could have a material adverse
impact on us and cause increases in expenses, capital expenditures
or production or manufacturing costs or reduction in levels of
production, manufacturing or sale or require abandonment or delays
in development.
Failure to obtain or maintain the necessary licenses, permits,
authorizations or accreditations could have a material adverse
effect on our business.
We may
not be able to obtain or maintain the necessary licenses, permits,
authorizations or accreditations, or may only be able to do so at
great cost, to operate our businesses. In addition, we may not be
able to comply fully with the wide variety of laws and regulations
applicable to the cannabis industry. Failure to comply with or to
obtain the necessary licenses, permits, authorizations or
accreditations could result in restrictions on our ability to
operate in the cannabis industry, which could have a material
adverse effect on our business.
If
obtained, any state licenses in the U.S. are expected to be subject
to ongoing compliance and reporting requirements. Should any state
in which we consider a license important not grant, extend or renew
such license or should it renew such license on different terms, or
should it decide to grant more than the anticipated number of
licenses, our business, financial condition and results of the
operation could be materially adversely affected.
U.S. state laws legalizing and regulating the sale and use of
cannabis could be repealed or overturned, and local governmental
authorities will not limit the applicability of state laws within
their respective jurisdictions.
There
is no assurance that state laws legalizing and regulating the sale
and use of cannabis will not be repealed or overturned, or that
local governmental authorities will not limit the applicability of
state laws within their respective jurisdictions. If the U.S.
federal government begins to enforce U.S. federal laws relating to
cannabis in states where the sale and use of cannabis is currently
legal, or if existing state laws are repealed or curtailed, our
business or operations in those states or under those laws would be
materially and adversely affected. Federal actions against any
individual or entity engaged in the cannabis industry or a
substantial repeal of cannabis related legislation could adversely
affect us, our business and our assets or investments.
The
rulemaking process at the state level that applies to cannabis
operators in any state will be ongoing and result in frequent
changes. As a result, a compliance program is essential to manage
regulatory risk. All operating policies and procedures we have
implemented are compliance-based and are derived from the state
regulatory structure governing ancillary cannabis businesses and
their relationships to state-licensed or permitted cannabis
operators, if any. Notwithstanding our efforts and diligence,
regulatory compliance and the process of obtaining regulatory
approvals can be costly and time-consuming. No assurance can be
given that we will receive the requisite licenses, permits or cards
to continue operating our businesses.
In
addition, local laws and ordinances could restrict our business
activity. Although our operations are legal under the laws of the
states in which our business operates, local governments have the
ability to limit, restrict and ban cannabis businesses from
operating within their jurisdiction. Land use, zoning, local
ordinances and similar laws could be adopted or changed and have a
material adverse effect on our business.
Multiple
states where medical and/or adult use cannabis is legal have or are
considering special taxes or fees on businesses in the cannabis
industry. It is uncertain at this time whether other states are in
the process of reviewing such additional taxes and fees. The
implementation of special taxes or fees could have a material
adverse effect on our business, prospects, revenue, results of
operation and financial condition.
We may face limitations on ownership of cannabis licenses, which
may restrict our ability to grow.
In
certain states, the cannabis laws and regulations limit not only
the number of cannabis licenses issued, but also the number of
cannabis licenses that one person or entity may own. Such
limitations on the ownership of additional licenses within certain
states may limit our ability to grow in such states. We employ
joint ventures from time to time to ensure continued compliance
with the applicable regulatory guidelines. Currently, we have a
joint venture with a third party in Illinois. We intend to
structure our joint ventures on a case-by-case basis but generally
intend to maintain operational control over the joint venture
business and a variable economic interest through the applicable
governing documents.
We may become subject to FDA or ATF regulation that may have an
adverse effect on our business, and we may be subject to negative
clinical trials.
Cannabis
remains a Schedule I controlled substance under U.S. federal law.
If the federal government reclassifies cannabis to a Schedule II
controlled substance, it is possible that the FDA would seek to
regulate cannabis under the Food, Drug and Cosmetics Act of 1938.
Additionally, the FDA may issue rules and regulations, including
good manufacturing practices, related to the growth, cultivation,
harvesting and processing of medical cannabis. Clinical trials may
be needed to verify the efficacy and safety of cannabis. It is also
possible that the FDA would require facilities where medical use
cannabis is grown to register with the FDA and comply with certain
federally prescribed regulations. In the event that some or all of
these regulations are imposed, the impact they would have on the
cannabis industry is unknown, including the costs, requirements and
possible prohibitions that may be enforced. If we are unable to
comply with the potential regulations or registration requirements
prescribed by the FDA, it may have an adverse effect on our
business, prospects, revenue, results of operation and financial
condition.
It is
also possible that the federal government could seek to regulate
cannabis under the U.S. Bureau of Alcohol, Tobacco, Firearms and
Explosives (the “ATF”). The ATF may issue rules and
regulations related to the use, transporting, sale and advertising
of cannabis or cannabis products, including smokeless cannabis
products.
From
time to time, studies or clinical trials on cannabis products may
be conducted by academics or others, including government agencies.
The publication of negative results of studies or clinical trials
related to our proposed products or the therapeutic areas in which
our proposed products will compete could have a material adverse
effect on our sales.
Some of our planned business activities are contingent upon the
enactment of adoption of new regulations in the State of
Nevada.
Our
objective is to build out a portion of the Planet 13 Las Vegas
Superstore for use as an on-site cannabis consumption lounge as
part of its phased expansion plans. In order to operate a
consumption lounge, we are reliant on the CCB passing the required
regulations to enable on-site consumption lounges. There is no
guarantee that the CCB will pass the required regulations, and
there is no guarantee that if the regulations are passed that we
will be awarded the necessary license(s) to operate a consumption
lounge. Should we not be awarded the necessary licenses, we may be
unable to position the reserved space at the Planet 13 Las Vegas
Superstore to its highest and best intended use.
Nevada has updated its regulatory framework in accordance with a
revised statutory framework effective on July 1, 2020 which
could have a material adverse effect on our business.
We,
through our subsidiary MMDC, hold privileged licenses issued under
the previous NRS 453A and NRS 453D statutory framework in Nevada.
Starting on July 1, 2020, the NRS 453A and 453D statutory framework
expired and was replaced by NRS 678A, B, C and D, under which
framework the MMDC licenses will continue in full force and effect.
Nevada has established the CCB, which oversees the regulation of
cannabis licenses and regulation in Nevada. On July 21, 2020, the
CCB adopted regulations substantially similar to the NAC 453A and
453D regime under which licensee previously operated. As the CCB
clarifies how it will interpret the statutes and regulations, there
may be impact on the processes, procedures, administration,
taxation, costs, and generally the operations of MMDC. On October
20, 2020, the CCB adopted regulations requiring disclosure of all
public company shareholders having a 5% or greater ownership
interest in a Nevada cannabis company, and that all public
companies disclose to the CCB their NOBO list as of the record date
of each annual general meeting of shareholders.
California is considering a revised statutory framework for agency
consolidation and tax simplification in 2021.
We,
through our subsidiary Newtonian, hold the California License
issued under the MAUCRSA statutory framework in California.
California’s Department of Cannabis Control under the
administration of Governor Gavin Newsom (the “Newsom Administration”)
consolidated the California Licensing Agencies into a single
department and approved consolidated emergency regulations which
are now in effect. The regulations create consistent standards for
cannabis licenses across all license types, which may impact the
processes, procedures, administration, and generally the operations
of commercial cannabis licenses in California. The Newsom
Administration is also considering tax simplification in 2022,
which would shift the responsibilities of tax collection from the
final distributor to the first for cultivation, and for the retail
excise tax from the distributor to the retailer. While we are
closely following the Newsom Administration’s budget
proposals and revisions and will provide public comment, the
enacted form of the uniform licensing protocols and regulatory
clean-up as part of a short-term and longer-term strategy are
unknown and the regulations and regulatory impact on the licenses
and operations therefrom is not currently known.
We could be subject to criminal prosecution or civil liabilities
under RICO.
The
Racketeer Influenced Corrupt Organizations Act (“RICO”) criminalizes the use of any
profits from certain defined “racketeering” activities
in interstate commerce. While intended to provide an additional
cause of action against organized crime, due to the fact that
cannabis is illegal under U.S. federal law, the production and sale
of cannabis qualifies cannabis related businesses as
“racketeering” as defined by RICO. As such, all
officers, managers and owners in a cannabis related business could
be subject to criminal prosecution under RICO, which carries
substantial criminal penalties.
RICO
can create civil liability as well: persons harmed in their
business or property by actions which would constitute racketeering
under RICO often have a civil cause of action against such
“racketeers,” and can claim triple their amount of
estimated damages in attendant court proceedings. We, as well as
our officers, managers and owners, could all be subject to civil
claims under RICO.
We lack access to U.S. bankruptcy protections.
Many
courts have denied cannabis businesses bankruptcy protections
because the use of cannabis is illegal under federal law. In the
event of a company’s bankruptcy, it may be very difficult for
lenders to recoup their investments in the cannabis industry. If we
experience a bankruptcy, there is no guarantee that U.S. federal
bankruptcy protections would be available, which would have a
material adverse effect on us.
Our internal controls over financial reporting may not be
effective, which could have a significant and adverse effect on our
business.
We will
be subject to various SEC reporting and other regulatory
requirements. We have incurred and will continue to incur expenses
and, to a lesser extent, diversion of our management’s time
in our efforts to comply with Section 404 of the
Sarbanes-Oxley Act regarding internal controls over financial
reporting. Effective internal controls over financial reporting are
necessary for us to provide reliable financial reports and,
together with adequate disclosure controls and procedures, are
designed to prevent fraud. Any failure to implement required new or
improved controls, or difficulties encountered in their
implementation could cause us to fail to meet our reporting
obligations. In addition, any testing we conduct in connection with
Section 404 of the Sarbanes-Oxley Act, or the subsequent
testing by our independent registered public accounting firm when
required, may reveal deficiencies in our internal controls over
financial reporting that are deemed to be material weaknesses or
that may require prospective or retrospective changes to our
consolidated financial statements or identify other areas for
further attention or improvement. Inferior internal controls could
also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading
price of the Common Shares.
Risks Related to our Business and Operations
The full effect of the COVID-19 pandemic on our operations is
unknown at this time, and it may continue to have a significant
negative effect on us in the future.
As
reflected in the Management’s Discussion & Analysis, the
COVID-19 pandemic has had a negative effect on our business. While
the continued impact of COVID-19 on us remains unknown, continued
spread of COVID-19 or its variants may have a material adverse
effect on global economic activity, and can result in volatility
and disruption to global supply chains, labor productivity,
operations, mobility of people as a result of travel restrictions
and border closures and the financial markets, which could affect
interest rates, credit ratings, credit risk, inflation, business,
financial conditions, results of operations and expected timelines
and other factors relevant to us. The current global uncertainty
with respect to the spread of COVID-19 or its variants and its
effect on the broader global economy may have a significant
negative effect on us.
Management
is committed to keeping our retail stores open to customers but
continues to monitor the situation on a daily basis and is prepared
to take necessary actions in response to directives of government
and public health authorities, and any actions that are in the best
interests of our team members, customers, and other stakeholders.
We have already taken and will continue to take actions to mitigate
the effects of COVID-19 on our operations, such as the expansion of
our fleet of delivery vehicles, while protecting the health and
safety of our team members, customers and other
stakeholders.
Uncertain
economic conditions resulting from the COVID-19 pandemic may, in
the short or long term, adversely impact demand for our products.
We rely on consumers’ demand for the cannabis products we
sell in our retail stores. Consumer spending may decline across
cannabis retail. Such a situation could adversely affect our
business, financial condition, liquidity and results of operations.
A limited or general decline in consumption of cannabis products
could occur in the future due to a variety of factors related to
the COVID-19 pandemic, including: (i) a continued decline in
economic or geopolitical conditions, including increased or
prolonged unemployment, resulting in reduced consumer disposable
income; (ii) concern about the health consequences of consuming
cannabis products given the increased awareness of health concerns
during this time; and (iii) a general decline in consumers leaving
their homes and favoring online shopping, resulting in less foot
traffic in our retail stores.
Many of
the third-party statistics or data presented herein predate the
COVID-19 pandemic, and forecasts or estimates may be impacted by
economic or regulatory changes resulting from the pandemic.
Although we have yet to experience a material decline in consumer
spending, the ultimate impact is currently unknown and may become
significant as consumers continue to experience financial hardship
from prolonged unemployment.
We face increasing competition that may materially and adversely
affect our business, financial condition and results of
operations.
The
cannabis industry and businesses ancillary to and directly involved
with cannabis businesses are undergoing rapid growth and
substantial change, which has resulted in an increase in
competitors, consolidation and formation of strategic
relationships. As such, we face competition from companies that may
have greater capitalization, access to public equity markets, more
experienced management or more maturity as a business. The vast
majority of both manufacturing and retail competitors in the
cannabis market consist of localized businesses (those doing
business in a single state), although there are multistate
operators with which we compete directly. Aside from this direct
competition, out-of-state operators that are capitalized well
enough to enter markets through acquisitive growth are also part of
the competitive landscape. Similarly, as we execute our growth
strategy, operators in our future state markets will inevitably
become direct competitors. We are likely to continue to face
increasing and intense competition from these companies. Increased
competition by larger and better financed competitors could
materially and adversely affect our business, financial condition
and results of operations.
If the
number of users of adult-use and medical marijuana in the United
States increases, the demand for products will increase.
Consequently, we expect that competition will become more intense
as current and future competitors begin to offer an increasing
number of diversified products to respond to such increased demand.
To remain competitive, we will require a continued investment in
research and development, marketing, sales and client support. We
may not have sufficient resources to maintain sufficient levels of
investment in research and development, marketing, sales and client
support efforts to remain competitive, which could materially and
adversely affect our business, financial condition and results of
operations.
Acquisitions
or other consolidating transactions in the cannabis industry could
harm us in a number of ways, including losing customers, revenue
and market share, or forcing us to expend greater resources to meet
new or additional competitive threats, all of which could harm our
operating results. As competitors enter the market and become
increasingly sophisticated, competition in our industry may
intensify and place downward pressure on retail prices for our
products and services, which could negatively impact our
profitability.
Our reliance on our operations in limited jurisdictions means that
adverse changes or developments could have a material adverse
effect on our business.
To
date, our activities and resources have been primarily focused
within the States of Nevada and California, and we have acquired or
announced award of licenses in the States of Florida and Illinois
in 2021. We expect to continue the focus on these states as we
continue to review further expansion opportunities into other
jurisdictions in the United States. Adverse changes or developments
within California, Florida, Illinois, or Nevada could have a
material adverse effect on our ability to continue producing
cannabis, and our business, financial condition and
prospects.
Our probable lack of business diversification could have a material
adverse effect on our business.
Because
we are initially focused solely on developing our cannabis
business, the prospects for our success will depend upon the future
performance and market acceptance of our intended facilities,
products, processes, and services. Unlike certain entities that
have the resources to develop and explore numerous product lines,
operating in multiple industries or multiple areas of a single
industry, we do not anticipate the ability to immediately diversify
or benefit from the possible spreading of risks or offsetting of
losses.
There is no assurance that we will be profitable or pay
dividends.
There
is no assurance as to whether we will achieve profitability or pay
dividends. We have incurred and anticipate that we will continue to
incur substantial expenses relating to the development and initial
operations of our business. The payment and amount of any future
dividends, if any, will depend upon, among other things, our
results of operations, cash flow, financial condition, and
operating and capital requirements. There is no assurance that
future dividends will be paid, and, if dividends are paid, there is
no assurance with respect to the amount of any such dividends. In
the event that any of our investments, or any proceeds thereof, any
dividends or distributions therefrom, or any profits or revenues
accruing from such investments in the United States were found to
be in violation of money laundering legislation or otherwise, such
transactions may be viewed as proceeds of crime under one or more
of the statutes noted above or any other applicable legislation.
This could restrict or otherwise jeopardize our ability to declare
or pay dividends, effect other distributions or subsequently
repatriate such funds back to Canada.
We are a developing company and have only recently begun to
generate positive cash flow.
We have
only recently begun to generate positive cash flow and opened the
Planet 13 Las Vegas Superstore on November 1, 2018, and the Planet
13 OC Superstore on July 1, 2021. It is extremely difficult to make
accurate predictions and forecasts of our finances. This is
compounded by the fact that we operate in the cannabis industry,
which is rapidly transforming. There is no guarantee that our
products or services will continue to be attractive to current and
potential consumers.
Our business is exposed to risks inherent in an agricultural
business, which may have a material adverse effect on
us.
Our
business involves the growing of cannabis, an agricultural product.
As such, there are many similar risks as with any agricultural
commodity, such as fluctuations in pricing. We will be subject to
other risks inherent in the agricultural business, such as insects,
plant diseases, drought, and similar cultivation risks. Although we
expect that any such growing will be completed under
climate-controlled conditions, there can be no assurance that
natural elements will not have a material adverse effect on any
such future production.
We are dependent on the popularity of consumer acceptance of our
brand portfolio to generate revenues.
Our
ability to generate revenue and be successful in the implementation
of our business plan is dependent on consumer acceptance of and
demand for our products. Acceptance of our products depends on
several factors, including availability, cost, ease of use,
familiarity of use, convenience, effectiveness, safety and
reliability. If these customers do not accept our products, or if
such products fail to adequately meet customers’ needs and
expectations, our ability to continue generating revenues could be
reduced.
We may be adversely impacted by rising or volatile energy
costs.
Our
cannabis growing operations consume considerable energy, which
makes us vulnerable to rising energy costs. Accordingly, rising or
volatile energy costs may adversely affect our business and our
ability to operate profitably.
We may encounter unknown environmental risks that may delay the
development of our businesses.
There
can be no assurance that we will not encounter hazardous
conditions, such as asbestos or lead, at the sites of the real
estate used to operate our businesses, which may delay the
development of our businesses. Upon encountering a hazardous
condition, work at our facilities may be suspended. If we receive
notice of a hazardous condition, we may be required to correct the
condition prior to continuing construction. If additional hazardous
conditions were present, it would likely delay construction and may
require significant expenditure of our resources to correct the
conditions. Such conditions could have a material impact on our
investment returns.
Threats to our information technology systems and potential
cyber-attacks and security breaches could have a material adverse
effect on our business, reputation and financial
condition.
Our
operations depend, in part, on how well we and our suppliers
protect networks, equipment, information technology
(“IT”) systems
and software against damage and threats, including, but not limited
to, cable cuts, damage to physical plants, natural disasters,
intentional damage and destruction, fire, power loss, hacking,
computer viruses, vandalism and theft. Our operations also depend
on the timely maintenance and replacement of network equipment, IT
systems and software, as well as pre-emptive expenses to mitigate
associated risks. Given the nature of our products and the lack of
legal availability outside of channels approved by the federal
government, as well as the concentration of inventory in our
facilities, there remains a risk of shrinkage, as well as theft. A
security breach at one of our facilities could expose us to
additional liability and to potentially costly litigation, increase
expenses relating to the resolution and future prevention of these
breaches and may deter potential consumers from choosing our
products. If there were a breach in security and we fell victim to
theft or robbery, the loss of cannabis plants, cannabis oils,
cannabis flowers and cultivations and processing equipment, or if
there were a failure in information systems, it could adversely
affect our reputation and business continuity.
Additionally,
we may store and collect personal information about customers and
are responsible for protecting that information from privacy
breaches that may occur through procedural or process failure, IT
malfunction or deliberate unauthorized intrusions. Theft of data
for competitive purposes, particularly consumer lists and
preferences, is an ongoing risk whether perpetrated via employee
collusion or negligence or through deliberate cyber-attack. Any
such theft or privacy breach would have a material adverse effect
on our business, prospects, revenue, results of operation and
financial condition.
We have
not experienced any material losses to date relating to
cyber-attacks or other information security breaches, but there can
be no assurance that we will not incur such losses in the future.
Our risk and exposure to these matters cannot be fully mitigated
because of, among other things, the evolving nature of these
threats. As a result, cyber security and the continued development
and enhancement of controls, processes and practices designed to
protect systems, computers, software, data and networks from
attack, damage or unauthorized access is a priority. As cyber
threats continue to evolve, we may be required to expend additional
resources to continue to modify or enhance protective measures or
to investigate and remediate any security
vulnerabilities.
We are
subject to laws, rules and regulations in the United States (such
as the California Consumer Privacy Act (“CCPA”)) and other jurisdictions
relating to the collection, processing, storage, transfer and use
of personal data. Our ability to execute transactions and to
possess and use personal information and data in conducting our
business subjects us to legislative and regulatory burdens that may
require us to notify regulators and customers, employees and other
individuals of a data security breach. Evolving compliance and
operational requirements under the CCPA and the privacy laws, rules
and regulations of other jurisdictions in which we operate impose
significant costs that are likely to increase over time. In
addition, non-compliance could result in proceedings against us by
governmental entities and/or significant fines, could negatively
impact our reputation and may otherwise adversely impact our
business, financial condition and operating results.
Our business is subject to a number of risks and hazards for which
we may not be able to obtain any or adequate insurance
coverage.
Our
business is subject to a number of risks and hazards generally,
including adverse environmental conditions, accidents, labor
disputes and changes in the regulatory environment. Such
occurrences could result in damage to assets, personal injury or
death, environmental damage, delays in operations, monetary losses
and possible legal liability.
Although
we intend to continue to maintain insurance to protect against
certain risks in such amounts as we consider to be reasonable, our
insurance will not cover all the potential risks associated with
our operations. We may also be unable to maintain insurance to
cover these risks at economically feasible premiums. Insurance
coverage may not continue to be available or may not be adequate to
cover any resulting liability. Moreover, insurance against risks
such as environmental pollution or other hazards encountered in our
operations is not generally available on acceptable terms. We might
also become subject to liability for pollution or other hazards
which we may not be insured against or which we may elect not to
insure against because of premium costs or other reasons. Losses
from these events may cause us to incur significant costs that
could have a material adverse effect on our financial performance
and results of operations.
Our
business faces risks of exposure to product liability claims,
regulatory action, complaints, enforcement action and litigation
that could prevent or inhibit the commercialization of our
potential products.
As a
distributor of products designed to be ingested by humans, we face
an inherent risk of exposure to product liability claims,
regulatory action and litigation if our products are alleged to
have caused significant loss or injury. In addition, the sale of
our products involves the risk of injury to consumers due to
tampering by unauthorized third parties or product contamination.
Previously unknown adverse reactions resulting from human
consumption of our products alone or in combination with other
medications or substances could occur. We may be subject to various
product liability claims, including, among others, that our
products caused injury, illness or death, include inadequate
instructions for use or include inadequate warnings concerning
possible side effects or interactions with other substances. A
product liability claim or regulatory action against us could
result in increased costs, could adversely affect our reputation
with our clients and consumers generally and could have a material
adverse effect on our business, results of operations and financial
condition. There can be no assurances that we will be able to
obtain or maintain product liability insurance on acceptable terms
or with adequate coverage against potential liabilities. Such
insurance is expensive and may not be available in the future on
acceptable terms, or at all. The inability to obtain sufficient
insurance coverage on reasonable terms or to otherwise protect
against potential product liability claims could prevent or inhibit
the commercialization of our potential products.
In
general, our participation in the cannabis industry may lead to
litigation, formal or informal complaints, enforcement actions, and
inquiries by various federal, state, or local governmental
authorities against us. Litigation, complaints, and enforcement
actions involving either us and/or our subsidiaries could consume
considerable amounts of financial and other corporate resources,
which could have an adverse effect on our future cash flows,
earnings, results of operations and financial
condition.
Product recalls could lead to decreased demand for our products and
could have a material adverse effect on our results of operations
and financial condition.
Manufacturers
and distributors of products are sometimes subject to the recall or
return of their products for a variety of reasons, including
product defects, such as contamination, unintended harmful side
effects or interactions with other substances, packaging safety and
inadequate or inaccurate labelling disclosure. If any of our
products are recalled due to an alleged product defect or for any
other reason, we could be required to incur the unexpected expense
of the recall and any legal proceedings that might arise in
connection with the recall. We may lose a significant amount of
sales and may not be able to replace those sales at an acceptable
margin or at all. In addition, a product recall may require
significant management attention. Although we have detailed
procedures in place for testing our products, there can be no
assurance that any quality, potency or contamination problems will
be detected in time to avoid unforeseen product recalls, regulatory
action or lawsuits. Additionally, if one of our brands were subject
to recall, the image of that brand and of us could be harmed. A
recall for any of the foregoing reasons could lead to decreased
demand for our products and could have a material adverse effect on
our results of operations and financial condition. Additionally,
product recalls may lead to increased scrutiny of our operations by
regulatory agencies, requiring further management attention and
potential legal fees and other expenses.
Our research and development activities may not prove profitable,
and we may not be able to accurately forecast our operating results
and plan our operations due to uncertainties in the cannabis
industry.
Although
we are committed to researching and developing new markets and
products and improving existing products, there can be no
assurances that such research and market development activities
will prove profitable or that the resulting markets and/or
products, if any, will be commercially viable or successfully
produced and marketed.
We are
operating our business in a relatively new medical and adult-use
cannabis industry and market. We must rely largely on our own
market research to forecast sales as detailed forecasts are not
generally obtainable from other sources at this early stage of the
medical and adult-use cannabis industry in the States of
California, Florida, Illinois, or Nevada. Further, because U.S.
federal and state laws prevent widespread participation in and
otherwise hinder market research in the medical and adult-use
cannabis industry as a whole, the third-party market data available
to us is limited and unreliable. Our market research and
projections of estimated total retail sales, demographics, demand,
and similar consumer research, are based on assumptions from
limited and unreliable market data, and generally represent the
personal opinions of our management team. Due to the early stage of
the regulated cannabis industry, forecasts regarding the size of
the industry and the sales of products by us are inherently
difficult to prepare with a high degree of accuracy and
reliability. Any event or circumstance that affects the
recreational or medical cannabis industry or market could have a
material adverse effect on our business, financial condition and
results of operations. No assurances can be given that this
industry and market will continue to exist or grow as currently
estimated or anticipated, or function and evolve in a manner
consistent with management’s expectations and assumptions. A
failure in the demand for products to materialize as a result of
competition, technological change or other factors could have a
material adverse effect on our business, results of operations and
financial condition.
We rely on our executive officers, our key research and development
personnel and our key growth and extraction personnel for our
future success, and if any such persons were unable to continue in
their present positions, we might not be able to replace
them.
Our
success has depended, and continues to depend, upon our ability to
attract and retain key management, including our Co-CEOs, Chief
Financial Officer, Vice-President of Finance, Vice-President of
Operations, Vice-President of Sales and Marketing, General Counsel
and technical experts. We will attempt to enhance our management
and technical expertise by continuing to recruit qualified
individuals who possess desired skills and experience in certain
targeted areas. Our inability to retain employees and attract and
retain sufficient additional employees or engineering and technical
support resources could have a material adverse effect on our
business, results of operations, sales, cash flow or financial
condition. Shortages in qualified personnel or the loss of key
personnel could adversely affect our financial condition, results
of operations of the business and could limit our ability to
develop and market our cannabis-related products. Qualified
individuals are in high demand, and we may incur significant costs
to attract and retain them.
Our
future success depends substantially on the continued services of
our executive officers, our key research and development personnel
and our key growth and extraction personnel. If one or more of our
executive officers or key personnel were unable or unwilling to
continue in their present positions, we might not be able to
replace them easily or at all. In addition, if any of our executive
officers or key employees join a competitor or form a competing
company, we may lose know-how, key professionals and staff members.
These executive officers and key employees could compete with and
take customers away. The loss of any of our senior management or
key employees could materially adversely affect our ability to
execute our business plan and strategy, and we may not be able to
find adequate replacements on a timely basis, or at all. We do not
maintain key person life insurance policies on any of our
employees.
We could be liable for fraudulent or illegal activity by our
employees, contractors and consultants resulting in significant
financial losses and claims against us.
We are
exposed to the risk that our employees, independent contractors and
consultants may engage in fraudulent or other illegal activity.
Misconduct by these parties could include intentional, reckless
and/or negligent conduct or disclosure of unauthorized activities
to us that violate government regulations. It is not always
possible for us to identify and deter misconduct by our employees
and other third parties, and the precautions we take to detect and
prevent this activity may not be effective in controlling unknown
or unmanaged risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure
to be in compliance with such laws or regulations. If any such
actions are instituted against us, and we are not successful in
defending ourselves or asserting our rights, those actions could
have a significant impact on our business, including the imposition
of civil, criminal and administrative penalties, damages, monetary
fines, contractual damages, reputational harm, diminished profits
and future earnings, and curtailment of our operations, any of
which could have a material adverse effect on our business,
financial condition and results of operations.
In certain circumstances, our reputation could be damaged,
resulting in a material adverse effect to our
business.
Damage
to our reputation can be the result of the actual or perceived
occurrence of any number of events and could include any negative
publicity, whether true or not. The increased usage of social media
and other web-based tools used to generate, publish and discuss
user-generated content and to connect with other users has made it
increasingly easy for individuals and groups to communicate and
share opinions and views regarding us and our activities, whether
true or not. Although we believe that we operate in a manner that
is respectful to all stakeholders and that we take care in
protecting our image and reputation, we do not ultimately have
direct control over how we are perceived by others. Reputation loss
may result in decreased investor confidence, increased challenges
in developing and maintaining community relations and an impediment
to our overall ability to advance our projects, thereby having a
material adverse impact on our financial performance, financial
condition, cash flows and growth prospects.
Unfavorable publicity or consumer perception could lead to a
material adverse effect on the demand for our products and our
business, results of operations, financial condition and cash
flows.
We
believe the medical and recreational cannabis industries are highly
dependent upon consumer perception regarding the safety, efficacy
and quality of cannabis distributed to such consumers. Consumer
perception of our products may be significantly influenced by
scientific research or findings, regulatory investigations,
litigation, media attention and other publicity regarding the
consumption of cannabis or derivative products. There can be no
assurance that future scientific research, findings, regulatory
proceedings, litigation, media attention or other research findings
or publicity will be favorable to the medical or recreational
cannabis market or any particular product, or consistent with
earlier publicity. Future research reports, findings, regulatory
proceedings, litigation, media attention or other publicity that
are perceived as less favorable than, or that question, earlier
research reports, findings or publicity could have a material
adverse effect on the demand for our products and our business,
results of operations, financial condition and cash flows. Our
dependence on consumer perceptions means that adverse scientific
research reports, findings, regulatory proceedings, litigation,
media attention or other publicity, whether or not accurate or with
merit, could have a material adverse effect on us, the demand for
our products, and our business, results of operations, financial
condition and cash flows. Further, adverse publicity reports or
other media attention regarding the safety, efficacy and quality of
cannabis in general, or our products specifically, or associating
the consumption of cannabis with illness or other negative effects
or events, could have such a material adverse effect. Such adverse
publicity reports or other media attention could arise even if the
adverse effects associated with such products resulted from
consumers’ failure to consume such products appropriately or
as directed. Public opinion and support for medical and
recreational cannabis has traditionally been inconsistent and
varies from jurisdiction to jurisdiction. While public opinion and
support appears to be rising for legalizing medical and adult-use
cannabis, it remains a controversial issue subject to differing
opinions surrounding the level of legalization (for example,
medical cannabis as opposed to legalization in
general).
Because of our reliance on key inputs and their related costs, any
significant interruption or negative change in the availability or
economics of our supply chain could have a materially adverse
impact on our business, financial condition and operating
results.
The
cultivation, extraction and processing of cannabis and derivative
products is dependent on a number of key inputs and their related
costs, including raw materials, electricity, water and other local
utilities. Any significant interruption or negative change in the
availability or economics of the supply chain for key inputs could
materially impact our business, financial condition and operating
results. Some of these inputs may only be available from a single
supplier or a limited group of suppliers. If a sole source supplier
were to go out of business, the relevant investment entity might be
unable to find a replacement for such source in a timely manner or
at all. Any inability to secure required supplies and services or
to do so on appropriate terms could have a materially adverse
impact on our business, financial condition and operating
results.
Our
ability to compete and grow will also be dependent on having
access, at a reasonable cost and in a timely manner, to equipment,
parts and components. No assurances can be given that we will be
successful in maintaining our required supply of equipment, parts
and components. This could have an adverse effect on our financial
results.
We are a holding company and are dependent on the earnings and
distributions by our subsidiary, MMDC.
We are
a holding company and the vast majority of our assets are the
capital stock of MMDC. As a result, our investors are subject to
the risks attributable to MMDC. As a holding company, we conduct
substantially all of our business through MMDC, which generates
substantially all of our revenues. Consequently, our cash flows and
ability to complete current or desirable future enhancement
opportunities are dependent on the earnings of MMDC and the
distribution of those earnings to us. The ability of MMDC to pay
dividends and other distributions will depend on its operating
results and will be subject to applicable laws and regulations
which require that solvency and capital standards be maintained by
MMDC and contractual restrictions contained in the instruments
governing its debt. In the event of a bankruptcy, liquidation or
reorganization of MMDC, holders of indebtedness and trade creditors
may be entitled to payment of their claims from the assets of MMDC
before us.
The termination of any of our leases may have a material adverse
effect on our business, financial condition and
prospects.
We
currently lease our production and cultivation facility, the Planet
13 Las Vegas Superstore, the Medizin dispensary in Las Vegas,
Nevada, and the Planet 13 OC Superstore. Each of the leases
specifically contemplates carrying on licensed cannabis activities
pursued by us and through our subsidiaries at those locations.
While we currently have a good relationship with each of our
landlords, a termination of any of the leases by any of our
respective landlords could have a material adverse effect on our
business, financial condition and prospects.
Competition
for the acquisition and leasing of properties suitable for the
cultivation, production and sale of medical and adult use cannabis
may impede our ability to make acquisitions or increase the cost of
these acquisitions, which could adversely affect our operating
results and financial condition.
We
compete for the acquisition of properties suitable for the
cultivation, production and sale of medical and adult use cannabis
with entities engaged in agriculture and real estate investment
activities, including corporate agriculture companies, cultivators,
producers and sellers of cannabis. These competitors may prevent us
from acquiring and leasing desirable properties, may cause an
increase in the price we must pay for properties or may result in
us having to lease our properties on less favorable terms than we
expect. Our competitors may have greater financial and operational
resources than we do and may be willing to pay more for certain
assets or may be willing to accept more risk than we believe can be
prudently managed. In particular, larger companies may enjoy
significant competitive advantages that result from, among other
things, a lower cost of capital and enhanced operating
efficiencies. Our competitors may also adopt transaction structures
similar to ours, which would decrease our competitive advantage in
offering flexible transaction terms. In addition, due to a number
of factors, including but not limited to potential greater clarity
of the laws and regulations governing medical use cannabis by state
and federal governments, the number of entities and the amount of
funds competing for suitable investment properties may increase,
resulting in increased demand and increased prices paid for these
properties. If we pay higher prices for properties or enter into
leases for such properties on less favorable terms than we expect,
our profitability and ability to generate cash flow and make
distributions to our stockholders may decrease. Increased
competition for properties may also preclude us from acquiring
those properties that would generate attractive returns to
us.
We face costs of maintaining a public listing which could adversely
affect our business, financial condition and results of
operations.
As a
public company with securities listed on the CSE, there are costs
associated with legal, accounting and other expenses related to
regulatory compliance. Securities legislation and the rules and
policies of the CSE require listed companies to, among other
things, adopt corporate governance and related practices, and to
continuously prepare and disclose material information, all of
which add to a company’s legal and financial compliance
costs. We may also elect to devote greater resources than we
otherwise would have on communication and other activities
typically considered important by publicly traded
companies.
In
addition we are subject, or will become subject, to the reporting
requirements, rules and regulations under applicable Canadian and
U.S. securities laws. The requirements of existing and potential
future rules and regulations will increase our legal, accounting
and financial compliance costs, make some activities more
difficult, time-consuming or costly and may place undue strain on
our personnel, systems and resources, which could adversely affect
our business, financial condition and results of
operations.
Currency fluctuations could expose us to exchange risk, which may
have a material adverse effect on our business.
Our
revenues and expenses are expected to be primarily denominated in
U.S. dollars, while funding may occur in Canadian dollars or other
non-U.S. currencies, therefore exposing us to currency exchange
fluctuations. Recent events in the global financial markets have
been coupled with increased volatility in the currency markets.
Fluctuations in the exchange rate between the U.S. dollar and the
Canadian dollar may have a material adverse effect on our business,
financial condition and operating results. We may, in the future,
establish a program to hedge a portion of our foreign currency
exposure with the objective of minimizing the impact of adverse
foreign currency exchange movements. However, even if we develop a
hedging program, there can be no assurance that it will effectively
mitigate currency risks.
We may face difficulties acquiring additional financing to fund our
growth, and we can provide no guarantee on the use of available
funds.
The
development of our business and our ability to execute on expansion
opportunities will depend, in part, upon the amount of additional
financing available. Failure to obtain sufficient financing may
result in delaying, scaling back, eliminating or indefinitely
postponing our expansion opportunities and our current or future
operations. There can be no assurance that additional capital or
other types of financing will be available if needed or that, if
available, the terms of such financing will be acceptable. In
addition, there can be no assurance that future financing can be
obtained without substantial dilution to existing shareholders. Our
inability to raise financing through traditional banking to fund
ongoing operations, capital expenditures or acquisitions could
limit our growth and may have a material adverse effect on our
business, prospects, revenue, results of operation and financial
condition.
We
expect to continue to have access to equity and debt financing from
the public and prospectus exempt (private placement) markets in
Canada. If such equity and/or debt financing is no longer available
in the public markets in Canada due to changes in applicable law,
then we expect that we would have access to raise equity and/or
debt financing privately. However, we can provide no assurances
that access to such sources of capital will be available in the
future.
Commercial
banks, private equity firms and venture capital firms have
approached the cannabis industry cautiously to date. However, there
are increasing numbers of high-net-worth individuals and family
offices that have made meaningful investments in companies and
projects similar to our projects. Although there has been an
increase in the amount of private financing available over the last
several years, there is neither a broad nor deep pool of
institutional capital that is available to cannabis license holders
and license applicants. There can be no assurance that additional
financing, if raised privately, will be available to us when needed
or on terms that are acceptable. Any inability by us to raise
financing, if, as, or when required, to fund capital expenditures
or acquisitions could limit our growth and may have a material
adverse effect upon future profitability.
Further,
we cannot specify with certainty the particular uses of our
available funds. Management has broad discretion in the application
of our available funds. Accordingly, shareholders of the Common
Shares will have to rely upon the judgment of management with
respect to the use of available funds, with only limited
information concerning management’s specific intentions. Our
management may spend a portion or all of the available funds in
ways that our shareholders might not desire, that might not yield a
favorable return and that might not increase the value of a
shareholder’s investment. The failure by management to apply
these funds effectively could harm our business. Pending use of
such funds, we might invest available funds in a manner that does
not produce income or that loses value.
Our officers and directors may be engaged in a range of business
activities resulting in conflicts of interest.
Although
certain of our officers are bound by non-competition agreements
limiting their ability to enter into competing and/or conflicting
ventures or businesses during, and for a period of 12 months after,
their employment with us, we may be subject to various potential
conflicts of interest because some of our officers and directors
may be engaged in a range of business activities. In addition, our
executive officers and directors may devote time to their outside
business interests, so long as such activities do not materially or
adversely interfere with their duties to us. In some cases, our
executive officers and directors may have fiduciary obligations
associated with these business interests that interfere with their
ability to devote time to our business and affairs and that could
adversely affect our operations. These business interests could
require significant time and attention of our executive officers
and directors.
In
addition, we may also become involved in other transactions which
conflict with the interests of our directors and the officers who
may from time to time deal with persons, firms, institutions or
companies with which we may be dealing, or which may be seeking
investments similar to those desired by us. The interests of these
persons could conflict with ours. In addition, from time to time,
these persons may be competing with us for available investment
opportunities. Conflicts of interest, if any, will be subject to
the procedures and remedies provided under applicable laws. In
particular, if such a conflict of interest arises at a meeting of
our directors, a director who has such a conflict will abstain from
voting for or against the approval of such participation or such
terms. In accordance with applicable laws, our directors are
required to act honestly, in good faith and in our best
interests.
Our actual financial position and results of operations may differ
materially from the expectations of management.
Our actual
financial position and results of operations may differ materially
from management’s expectations. As a result, our revenue, net
income and cash flow may differ materially from our projected
revenue, net income and cash flow. The process for estimating our
revenue, net income and cash flow requires the use of judgment in
determining the appropriate assumptions and estimates. These
estimates and assumptions may be revised as additional information
becomes available and as additional analyses are performed. In
addition, the assumptions used in planning may not prove to be
accurate, and other factors may affect our financial condition or
results of operations.
Risks
Related to Intellectual Property
We may be forced to litigate to defend our intellectual property
rights, or to defend against claims by third parties against us
relating to intellectual property rights.
We may be forced to
litigate to enforce or defend our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of
other parties’ proprietary rights. Any such litigation could
be very costly and could distract management from focusing on
operating our business. The existence and/or outcome of any such
litigation could harm our business. Further, because the content of
much of our intellectual property concerns cannabis and other
activities that are not legal in some state jurisdictions or under
federal law, we may face additional difficulties in defending our
intellectual property rights.
U.S. federal trademark and patent protection may not be available
for our intellectual property due to the current classification of
cannabis as a Schedule I controlled substance, and we may be unable
to adequately protect our proprietary and intellectual property
rights, particularly in the U.S., even if available.
Our
ability to compete may depend on the superiority, uniqueness and
value of any intellectual property and technology that we may
develop. To the extent we are able to do so, to protect any
proprietary rights, we intend to rely on a combination of patent,
trademark, copyright and trade secret laws, confidentiality
agreements with our employees and third parties, and protective
contractual provisions. Despite these efforts, any of the following
occurrences may reduce the value of any of our intellectual
property:
1.
The market for our
products and services may depend to a significant extent upon the
goodwill associated with our trademarks and trade names, and our
ability to register certain of our intellectual property under U.S.
federal and state law is impaired by the illegality of cannabis
under U.S. federal law;
2.
Patents in the
cannabis industry involve complex legal and scientific questions
and patent protection may not be available for some or any
products;
3.
Our applications
for trademarks and copyrights relating to our business may not be
granted and, if granted, may be challenged or
invalidated;
4.
Issued patents,
trademarks and registered copyrights may not provide us with
competitive advantages;
5.
Our efforts to
protect our intellectual property rights may not be effective in
preventing misappropriation of any of our products or intellectual
property;
6.
Our efforts may not
prevent the development and design by others of products or
marketing strategies similar to or competitive with, or superior to
those we develop;
7.
Another party may
assert a blocking patent and we would need to either obtain a
license or design around the patent in order to continue to offer
the contested feature or service in our products; or
8.
The expiration of
patent or other intellectual property protections for any assets we
own could result in significant competition, potentially at any
time and without notice, resulting in a significant reduction in
sales.
The
effect of the loss of these protections on us and our financial
results will depend, among other things, upon the nature of the
market and the position of our products in the market from time to
time, the growth of the market, the complexities and economics of
manufacturing a competitive product and regulatory approval
requirements, but the impact could be material and
adverse.
Further,
as long as cannabis remains illegal under U.S. federal law as a
Schedule I controlled substance pursuant to the CSA, the benefit of
certain federal laws and protections which may be available to most
businesses, such as a federal trademark regarding the intellectual
property of a business, may not be available to us. As a result,
our intellectual property may never be adequately or sufficiently
protected against the use or misappropriation by third parties. In
addition, because the regulatory framework of the cannabis industry
is in a constant state of flux, we can provide no assurance that we
will ever obtain any protection of our intellectual property,
whether on a federal, state or local level.
Risks Related to our Common Shares
Our Co-CEOs are able to exert significant influence over all
matters requiring shareholder approval.
Robert
Groesbeck and Larry Scheffler, the Co-CEOs, co-Chairmen and each a
director of the Company, are promoters of the Company. As of
December 8, 2021: (i) Mr. Groesbeck owns, or controls or directs,
directly or indirectly, a total of 38,819,587 Common Shares, and
562,511 restricted share units (“Restricted Share Units” or
“RSUs”),
representing in the aggregate approximately 18.71% of the equity of
the Company on a fully diluted basis; and (ii) Mr. Scheffler owns,
or controls or directs, directly or indirectly, a total of
39,470,859 Common Shares and 562,511 RSUs, representing in the
aggregate approximately 19.02% of the equity of the Company on a
fully diluted basis. By virtue of their status as our principal
shareholders, and by each being a director and/or our executive
officer, each of Messrs. Groesbeck and Scheffler have the power to
exercise significant influence over all matters requiring
shareholder approval, including the election of directors,
amendments to our articles, mergers, business combinations and the
sale of substantially all of our assets. As a result, we could be
prevented from entering into transactions that could be beneficial
to us or our other shareholders. Also, third parties could be
discouraged from making a takeover bid. Further, sales by either
Messrs. Groesbeck and Scheffler of a substantial number of Common
Shares could cause the market price of the Common Shares to
decline.
We are a U.S. domestic company for U.S. federal income tax
purposes, and we and our shareholders are subject to U.S. tax
law.
We are
treated as a U.S. domestic corporation for U.S. federal income tax
purposes under Section 7874(b) of the Code. As a result, we are
subject to U.S. income tax on our worldwide income, and any
dividends paid by us to holders of our shares not domiciled in the
U.S. (“Non-U.S.
Holders”) are generally subject to U.S. federal income
tax withholding at a 30% rate or such lower rate as provided in an
applicable treaty. We expect to continue to be treated as a U.S.
domestic corporation for U.S. federal tax purposes.
In
addition, Section 382 of the Code contains rules that limit for
U.S. federal income tax purposes the ability of a corporation that
undergoes an “ownership change” to utilize its net
operating losses (and certain other tax attributes) existing as of
the date of such ownership change. Under these rules, a corporation
generally is treated as having had an “ownership
change” if there is more than a 50% increase in stock
ownership by one or more “five percent shareholders,”
within the meaning of Section 382 of the Code, during a rolling
three-year period. We do not have any net operating loss carry
forwards or research and development credit carry forwards as of
December 31, 2017 that would be subject to Section 382 of the
Code.
Furthermore,
we will be subject to Canadian income tax on our worldwide income.
Consequently, it is anticipated that we may be liable for both U.S.
and Canadian income tax, which could have a material adverse effect
on our financial condition and results of operations.
Because
the Common Shares are treated as shares of a U.S. domestic
corporation, the U.S. gift, estate and generation-skipping
transfer tax rules may apply to a Non-U.S. Holder of Common
Shares.
Dividends received by Canadian holders of Common Shares are subject
to U.S. withholdings tax.
Dividends
received by holders of Common Shares who are residents of Canada
for purposes of the Income Tax Act (Canada) (the
“Tax Act”) will
be subject to U.S. withholding tax. A foreign tax credit under the
Tax Act in respect of such U.S. withholding taxes may not be
available to such holder.
Dividends
received by non-resident holders of Common Shares who are U.S.
holders will not be subject to U.S. withholding tax but will
be subject to Canadian withholding tax. Because we will be
considered to be a U.S. domestic company for U.S. federal
income tax purposes, dividends paid by us will be characterized as
U.S. source income for purposes of the foreign tax credit
rules under the Code.
The market price for the Common Shares may be volatile and subject
to wide fluctuations in response to numerous factors, many of which
are beyond our control.
The
market price for the Common Shares may be volatile and subject to
wide fluctuations in response to numerous factors, many of which
are beyond our control, including the following: (i) actual or
anticipated fluctuations in our quarterly results of operations;
(ii) recommendations by securities research analysts; (iii) changes
in the economic performance or market valuations of companies in
the industry in which we operate; (iv) addition or departure of our
executive officers and other key personnel; (v) release or
expiration of lock-up or other transfer restrictions on outstanding
Common Shares; (vi) sales or perceived sales of additional Common
Shares; (vii) significant acquisitions or business combinations,
strategic partnerships, joint ventures or capital commitments by or
involving us or our competitors; (viii) fluctuations to the costs
of vital production materials and services; (ix) changes in global
financial markets and global economies and general market
conditions, such as interest rates and pharmaceutical product price
volatility; (x) operating and share price performance of other
companies that investors deem comparable to us or from a lack of
market comparable companies; (xi) news reports relating to trends,
concerns, technological or competitive developments, regulatory
changes and other related issues in our industry or target markets;
and (xii) regulatory changes in the industry.
Financial
markets have at times historically experienced significant price
and volume fluctuations that have particularly affected the market
prices of equity securities of companies and that have often been
unrelated to the operating performance, underlying asset values or
prospects of such companies. Accordingly, the market price of the
Common Shares may decline even if our operating results, underlying
asset values or prospects have not changed. Additionally, these
factors, as well as other related factors, may cause decreases in
asset values that are deemed to be other than temporary, which
might result in impairment losses. There can be no assurance that
continuing fluctuations in price and volume will not occur. If such
increased levels of volatility and market turmoil continue, our
operations could be adversely affected and the trading price of the
Common Shares might be materially adversely affected.
It may be difficult, if not impossible, for U.S. holders of the
Common Shares to resell them over the CSE or at all.
It has
recently come to management’s attention that all major
securities clearing firms in the U.S. have ceased participating in
transactions related to securities of Canadian public companies
involved in the medical cannabis industry. This appears to be due
to the fact that cannabis continues to be listed as a controlled
substance under U.S. federal law, with the result that
cannabis-related practices or activities, including the
cultivation, possession or distribution of cannabis, are illegal
under U.S. federal law. Accordingly, U.S. residents who acquire the
Common Shares as “restricted securities” may find it
difficult – if not impossible – to resell such shares
over the facilities of any Canadian stock exchange on which the
shares may then be listed including the CSE. It remains unclear
what impact, if any, this and any future actions among market
participants in the U.S. will have on the ability of
U.S. residents to resell any of the Common Shares that they
may acquire in open market transactions.
Generally,
given the heightened risk profile associated with cannabis in the
United States, capital markets participants may be unwilling to
assist with the settlement of trades for U.S. resident
securityholders of companies with operations in the U.S. cannabis
industry, which may prohibit or significantly impair the ability of
securityholders in the United States to trade our securities. If
residents of the United States are unable to settle trades of our
securities, this may affect the pricing of such securities in the
secondary market, the transparency and availability of trading
prices and the liquidity of these securities.
Future sales of the Common Shares by existing shareholders could
reduce the market price of the Common Shares.
Sales
of a substantial number of the Common Shares in the public market
could occur at any time. These sales, or the market perception that
the holders of a large number of the Common Shares intend to sell
the Common Shares, could reduce the market price of the Common
Shares. Additional Common Shares may be available for sale into the
public market, subject to applicable securities laws, which could
reduce the market price for the Common Shares. Holders of our
incentive stock options may have an immediate income inclusion for
tax purposes when they exercise their options (that is, tax is not
deferred until they sell the underlying Common Shares). As a
result, these holders may need to sell the Common Shares purchased
on the exercise of options in the same year that they exercise
their options. This might result in a greater number of Common
Shares being sold in the public market, and fewer long-term holds
of Common Shares by our management and employees.
Risks Related to our Acquisitions and Growth Strategy
Our failure to successfully integrate acquired businesses, their
products and other assets, or if integrated, failure to further our
business strategy, may result in our inability to realize any
benefit from such acquisition.
We may
grow by acquiring other businesses. The consummation and
integration of any acquired business, product or other assets may
be complex and time consuming and, if such businesses and assets
are not successfully integrated, we may not achieve the anticipated
benefits, cost-savings or growth opportunities. Furthermore, these
acquisitions and other arrangements, even if successfully
integrated, may fail to further our business strategy as
anticipated, expose us to increased competition or other challenges
with respect to our products or geographic markets, and expose us
to additional liabilities associated with an acquired business,
technology or other asset or arrangement. If integration is not
managed successfully by our management, we may experience
interruptions in our business activities, deterioration in our
employee, customer or other relationships, increased costs of
integration and harm to our reputation, all of which could have a
material adverse effect on our business, prospects, financial
condition, results of operations and cash flows.
If and
when we acquire cannabis businesses, we may obtain the rights to
applications for licenses as well as licenses; however, the
procurement of such applications for licenses and licenses
generally will be subject to governmental and regulatory approval.
There are no guarantees that we will successfully consummate such
acquisitions, and even if we consummate such acquisitions, the
procurement of applications for licenses may never result in the
grant of a license by any state or local governmental or regulatory
agency and the transfer of any rights to licenses may never be
approved by the applicable state and/or local governmental or
regulatory agency.
While
we intend to conduct reasonable due diligence in connection with
our acquisitions, there are risks inherent in any acquisition.
Specifically, there could be unknown or undisclosed risks or
liabilities of such entities or assets for which we are not
sufficiently indemnified. Any such unknown or undisclosed risks or
liabilities could materially and adversely affect our financial
performance and results of operations. We could encounter
additional transaction and integration related costs or other
factors such as the failure to realize all of the benefits from the
acquisition. All of these factors could cause dilution to our
revenue per share or decrease or delay the anticipated accretive
effect of the acquisition and cause a decrease in the market price
of the Common Shares.
We may not be able to effectively manage our growth and operations,
which could materially and adversely affect our
business.
If we
implement our business plan as intended, we may in the future
experience rapid growth and development in a relatively short
period of time. The management of this growth will require, among
other things, continued development of our financial and management
controls and management information systems, stringent control of
costs, the ability to attract and retain qualified management
personnel and the training of new personnel. We intend to utilize
outsourced resources and hire additional personnel to manage our
expected growth and expansion. Failure to successfully manage our
possible growth and development could have a material adverse
effect on our business and the value of the Common
Shares.
There
is a risk that some or all of the anticipated strategic and
financial benefits may fail to materialize, may not continue on
their existing terms, or may not occur within the time period
anticipated. Although we have conducted due diligence with respect
to material aspects of the development of our business, there is no
certainty that our due diligence procedures will reveal all of the
risks and liabilities associated with our current plans. Although
we are not aware of any specific liabilities, such liabilities may
be unknown and, accordingly, the potential monetary cost of such
liability is also unknown.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This
management’s discussion and analysis (“MD&A”) of the financial
condition and results of operations of Planet 13 Holdings Inc. (the
“Company” or
“Planet 13”) is
for the nine months ended September 30, 2021 and 2020 and for the
years ended December 31, 2020, 2019 and 2018. It is
supplemental to, and should be read in conjunction with, our
consolidated financial statements for the nine months ended
September 30, 2021 and 2020 and the years ended December 31, 2020,
2019 and 2018 and the
accompanying notes for each respective periods. Our financial
statements are prepared in accordance with accounting principles
generally accepted in the United States of America
(“GAAP”).
Financial information presented in this MD&A is presented in
United States dollars (“$” or “US$”), unless otherwise
indicated.
This
MD&A contains certain “forward-looking statements”
and certain “forward-looking information” as defined
under applicable Canadian and United States securities laws. Please
refer to the discussion of forward-looking statements and
information set out under the heading “Disclosure Regarding
Forward-Looking Statements,” identified in this registration
statement. As a result of many factors, our actual results may
differ materially from those anticipated in these forward-looking
statements and information.
Overview of the Company
Our
predecessor, MMDC, was incorporated on March 20, 2014, as a Nevada
limited liability company. On March 14, 2018, MMDC underwent a
statutory conversion to a Nevada domestic corporation named MM
Development Company, Inc. On June 11, 2018, MMDC then completed a
reverse-take-over of Carpincho, and the resulting entity was
renamed Planet 13 Holdings Inc.
We
continued on June 26, 2019, under the jurisdiction and laws of
British Columbia and hold 100% ownership in MMDC, a vertically
integrated US subsidiary corporation active in the cultivation,
production, distribution, and retail sale of both medical and
recreational cannabis which at the date of this registration
statement is restricted to the State of Nevada. For purposes of
this registration statement, reference to the Company may also
include MMDC as a wholly owned and controlled subsidiary of
Company. We hold six cultivation licenses operating at three
licensed cultivation facilities, each location operating jointly
under a medical and adult-use cultivation license. One cultivation
license is located in Clark County Nevada (Las Vegas) in an
approximately 16,100 square foot facility with indoor cultivation
and a perpetual harvest cycle. The second cultivation license is
located near the town of Beatty in Nye County, Nevada. The facility
currently houses approximately 500 square feet of research and
development and genetics testing. The Beatty site has the potential
for over 2,300,000 square feet of greenhouse production capacity on
80 acres of owned land with municipal water and abundant electrical
power already at the edge of the property. The third cultivation
license is located in Clark County Nevada (Las Vegas) in a 25,000
square foot facility with indoor cultivation and a perpetual
harvest cycle in Las Vegas, Nevada. This facility is in the process
of being expanded to 45,000 square feet.
We also
have six production licenses operating at three licensed production
facilities, each location operating jointly under a medical and
adult-use cultivation license, four of which are located in Clark
County. Two of the four were previously co-located within the
16,100 square foot cultivation facility and were approximately
2,300 square feet. These two licenses were relocated to the 18,500
square foot customer facing production facility that opened inside
the Planet 13 Las Vegas Superstore cannabis entertainment complex
in November 2019. This facility incorporates butane hash oil
extraction (BHO extraction), distillation equipment and microwave
assisted extraction equipment as well as a state-of-the-art
bottling and infused beverage line and an edibles line able to
produce infused chocolates, infused gummies and other edible
products and was expanded to 18,500 square feet in September 2021.
The second production facility is co-located at the Beatty facility
and the third facility is co-located in the 25,000 square foot
cultivation facility (currently undergoing an expansion to 45,000
square feet) but is not active at present.
We also
have three dispensary licenses. Two licenses are operating at one
licensed dispensary facility, one license is medical and the other
is for adult-use retail sales. The licenses operate out of the same
joint location and presently occupy approximately 24,000 square
feet of retail space (expanded from 16,000 square feet in
September 2021) located adjacent to the Las Vegas Strip where
we opened, on November 1, 2018, the Planet 13 Las Vegas
Superstore. Prior to November 1, 2018, the licenses operated out of
a 2,300 square feet facility located approximately six miles off
the Las Vegas Strip (the “Medizin Facility”). The licenses
were transferred to the Planet 13 Las Vegas Superstore
location on October 31, 2018.
We were
successful in our litigation (for additional discussion regarding
this litigation refer to the heading Medizin Re-opening) and were awarded an
additional Clark County recreational license and have transferred
the license to our Medizin dispensary that was closed when the
licenses were transferred to the Planet 13 Las Vegas
Superstore. We reopened the Medizin dispensary on November 20,
2020. We have also been granted a distribution license and launched
a distribution and delivery service in Nevada to augment our retail
locations and be able to deliver product to both wholesale
customers and local Nevada state residents throughout the State of
Nevada.
We
opened the second phase of the Planet 13 Las Vegas Superstore
location with ancillary offerings that include a coffee shop,
restaurant and event space in November 2019. The build out of a
merchandise store and CBD store selling our Planet M branded CBD
products inside the Planet 13 Las Vegas Superstore entertainment
complex was completed in September 2021. The recent expansion of
the Planet 13 Las Vegas Superstore dispensary floor space to 24,000
square added new entertainment features, a second entrance and an
additional 40 point-of-sale terminals, all designed to reduce wait
times for customers and improve on the already fantastic customer
experience was completed in September 2021 We also plan to build a
potential cannabis lounge in a segregated area of the facility
where patrons will be able to consume products that have been
purchased at the dispensary. The state and county have passed the
necessary legislation that legalizes consumption lounges, and we
are scheduled to obtain a license for such an activity and are
waiting on final approval of local regulations prior to determining
the final design of the planned lounge. The Planet 13 Las Vegas
Superstore also houses our corporate offices. In addition, the
production facility housed within the superstore complex, described
above, has enabled us to expand our vertical integration and
increase the amount of our own branded products that are sold in
the Planet 13 Las Vegas Superstore as well as re-entering the
wholesale market selling concentrates, edibles and infused
beverages.
On July
17, 2020, we expanded our premium indoor cultivation capacity and
added additional production and distribution capabilities with the
purchase of the inventory, equipment and tenant improvements and
cannabis cultivation, production and distribution licenses located
in a 25,000 square foot facility with indoor cultivation and a
perpetual harvest cycle in Las Vegas, Nevada, which is currently
being expanded to 45,000 square feet (the “WCDN Asset Acquisition”). The WCDN
Asset Acquisition has allowed us to expand our vertically
integrated product offerings in Nevada.
The
Santa Ana Acquisition occurred on May 20, 2020, whereby we acquired
all of the issued and outstanding common stock of Newtonian,
resulting in our acquiring the California License and the Santa Ana
Permit, which were both held by Newtonian, and a 30-year lease for
the Santa Ana Premises along with the Warner Assets. Newtonian had no
operations at the time of the Santa Ana Acquisition. On July 1,
2021, we opened the Planet 13 OC Superstore dispensary to the
public. Upon application made, on September 25, 2020, our
subsidiary Newtonian received a City of Santa Ana Regulatory Safety
Permit Phase 1 for distribution at the Santa Ana Premise, and plans
to open a distribution facility upon completion of construction and
receipt of the Regulatory Safety Permit Phase 2 from the City of
Santa Ana. The construction budget for the 33,000 square foot
adult-use retail facility and distribution at the Santa Ana Premise
was US$7.5 to $8.5 million. Although there have been minor delays
due to temporary staffing shutdowns at the City of Santa Ana
related primarily to COVID-19, and the City of Santa Ana not
allowing in-person plan submissions, we managed to open the
facility on time and within budget. Total buildout costs, including
the costs associated with the buildout of our wholesale
distribution license was $9.2 million.
The
focus of activity during the nine months ended September 30, 2021,
was to continue to grow and provide cannabis and cannabis related
products to our medical cannabis and adult recreational customers
as well as selling branded recreational and medical cannabis
products and related cannabis products to our growing wholesale
customer base in the State of Nevada. In addition, in the State of
California, we were focused on the opening of the Planet 13 OC
Superstore on July 1, 2021 and growing revenue from the sale of
recreational cannabis through both the retail store and home
delivery, and on continuing the integration and optimization of the
WCDN Asset Acquisition.
On
March 19, 2020, we announced that we would continue to provide core
dispensary services during the COVID-19 pandemic and encouraged all
local Nevada resident customers to utilize our express pick-up
and/or delivery services so as to limit personal interactions and
practice social distancing as recommended by the Centre for Disease
Control. On March 17, 2020, Nevada State Governor Steve Sisolak
announced the closure of all non-essential business starting at
noon on March 18, 2020, for 30 days as part of the State’s
response to curb the threat of the spread of the COVID-19 virus.
This shutdown was extended until June 1, 2020. On April 30, 2020,
all retail cannabis dispensaries in Nevada were allowed to offer
online ordering with curbside pick-up in addition to delivery and
on May 7, 2020, as part of the State of Nevada’s COVID 19
reopening plan, all dispensaries were allowed to reopen to the
general public at significantly reduced number of customers allowed
in the facility at the same time. All dispensaries are allowed to
have a maximum of 50% of the dispensary location’s fire rated
occupancy level. The shutdown due to COVID-19 during the months of
April, May and June 2020 had a material impact on our business in
Q2 2020 from the business closures and lack of tourist traffic in
Las Vegas coupled with the reduction in allowed customer traffic
during the shutdown period. The partial reopening of resorts,
hotels and casinos resulted in increased tourist traffic to Las
Vegas and an increase of customers to the Planet 13 Las Vegas
Superstore in July to October 2020 and coincided with a return of
in-store retail sales, with the store operating at 50% capacity
under COVID-19 social distancing safety measure and protocols,
coupled with continued online ordering with home delivery and
curbside pick-up. This saw operations return to, and surpass,
pre-COVID-19 revenue in the months of July to October 2020. The
State of Nevada initiated renewed COVID-19 restrictions in November
2020, and, coupled with the lockdowns in California that
drastically reduced the amount of tourist traffic to Las Vegas
during November and December 2020, caused a significant reduction
in tourist traffic to the Planet 13 Las Vegas Superstore
during the final two months of 2020 and through to the end of
February 2021. The easing of restrictions in Nevada and surrounding
states in January 2021 and the move to further open the State of
Nevada on February 15, 2021, resulted in an increase in
tourist traffic to the Planet 13 Las Vegas Superstore during the
first three months of 2021, with us reporting record revenues for
the months of March and April 2021. On May 1, 2021, the State of
Nevada allowed businesses to operate at 80% of their fire rated
occupancy limits and on June 1, 2021, further eased its COVID-19
restrictions to allow all businesses to fully open. Current
COVID-19 protocols in Nevada include mask mandates in Clark and Nye
county, where we have operations, for all individuals within public
indoor settings. Current COVID-19 protocols in California includes
a general industry safety order by Cal/OSHA that masks are required
statewide for unvaccinated individuals in indoor public settings
and workplaces.
We
caution that current global uncertainty with respect to the spread
of COVID-19 or its variants and its effect on the broader global
economy may have a significant negative effect on us. While the
precise impact of COVID-19 on us remains unknown, rapid spread of
COVID-19 or its variants may have a material adverse effect on
global economic activity and can result in volatility and
disruption to global supply chains, operations, mobility of people
and the financial markets, which could affect interest rates,
credit ratings, credit risk, inflation, business, financial
conditions, results of operations and other factors relevant to
us.
Results of Operations
Three Months and Nine Months Ended September 30, 2021 Compared to
Three and Nine Months Ended September 31, 2020
Expressed in USD$
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
Revenues,
net of discounts
|
$32,952,254
|
$22,797,338
|
44.5%
|
Cost
of Goods Sold
|
(15,235,120)
|
(10,244,725)
|
48.7%
|
Gross Profit
|
$17,717,134
|
$12,552,613
|
41.1%
|
Gross Profit Margin %
|
53.8%
|
55.1%
|
|
|
|
|
|
Expenses
|
|
|
|
General
and Administrative
|
13,174,781
|
6,223,792
|
111.7%
|
Sales
and Marketing
|
1,959,579
|
991,215
|
97.7%
|
Lease
expense
|
673,878
|
612,329
|
10.1%
|
Depreciation
and Amortization
|
1,376,520
|
945,537
|
45.6%
|
Share
based compensation expense
|
6,613,846
|
569,227
|
1061.9%
|
Total Expenses
|
23,798,604
|
9,342,100
|
154.7%
|
|
|
|
|
Income (Loss) From Operations
|
(6,081,470)
|
3,210,513
|
(289.4%)
|
|
|
|
|
Other (Income) Expense:
|
|
|
|
Interest
Expense, net
|
8,111
|
13,367
|
(39.3%)
|
Realized
Foreign Exchange (gain) loss
|
(362,402)
|
169,684
|
(313.6%)
|
Transaction
costs
|
-
|
135,075
|
|
Change
in fair value of warrants
|
(6,240,073)
|
3,959,128
|
(257.6%)
|
Other
expense (income)
|
(152,466)
|
(174,145)
|
(12.4%)
|
Total Other (Income) Expense
|
(6,746,830)
|
4,103,109
|
(264.4%)
|
|
|
|
|
Income (loss) for the period before tax
|
665,360
|
(892,596)
|
(174.5%)
|
Provision
for income tax (current and deferred)
|
3,397,821
|
4,754,018
|
(6.4%)
|
Income (Loss) for the period
|
$ (2,732,461)
|
$(5,646,614)
|
(33.0%)
|
|
|
|
|
Income (Loss) per share for the period
|
|
|
|
Basic
and fully diluted income (loss) per share
|
$ (0.01)
|
$(0.03)
|
|
|
|
|
|
Weighted
Average Number of Shares Outstanding
|
|
|
|
Basic
and diluted
|
196,357,392
|
162,536,424
|
|
Expressed in USD$
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
Revenues,
net of discounts
|
89,612,050
|
50,351,336
|
78.0%
|
Cost
of Goods Sold
|
(39,827,876)
|
(23,853,435)
|
67.0%
|
Gross Profit
|
$49,784,174
|
$26,497,901
|
87.9%
|
Gross Profit Margin %
|
55.6%
|
52.6%
|
|
|
|
|
|
Expenses
|
|
|
|
General
and Administrative
|
31,974,118
|
17,547,769
|
82.2%
|
Sales
and Marketing
|
4,162,934
|
2,684,174
|
55.1%
|
Lease
expense
|
1,934,138
|
1,502,412
|
28.7%
|
Depreciation
and Amortization
|
3,325,524
|
2,753,936
|
20.8%
|
Share
based compensation expense
|
12,211,567
|
2,006,067
|
508.7%
|
Total Expenses
|
53,608,281
|
26,494,358
|
102.3%
|
|
|
|
|
Income (Loss) From Operations
|
(3,824,107)
|
3,543
|
(108,034.2%)
|
|
|
|
|
Other (Income) Expense:
|
|
|
|
Interest
Expense, net
|
23,698
|
23,914
|
(0.9%)
|
Realized
Foreign Exchange (gain) loss
|
(1,805,953)
|
(266,003)
|
578.9%
|
Transaction
costs
|
256,666
|
135,075
|
90.0%
|
Change
in fair value of warrants
|
2,728,386
|
(423,917)
|
(743.6%)
|
Other
expense (income)
|
(338,890)
|
(250,212)
|
35.4%
|
Total Other (Income) Expense
|
863,907
|
(781,143)
|
(210.6%)
|
|
|
|
|
Income (loss) for the period before tax
|
(4,688,014)
|
784,686
|
(697.4%)
|
Provision
for income tax (current and deferred)
|
9,632,808
|
7,581,972
|
40.9%
|
Income (Loss) for the period
|
(14,320,822)
|
(6,797,286)
|
126.1%
|
|
|
|
|
Income (Loss) per share for the period
|
|
|
|
Basic
and fully diluted income (loss) per share
|
$ (0.07)
|
$(0.05)
|
|
|
|
|
|
Weighted
Average Number of Shares Outstanding
|
|
|
|
Basic
and diluted
|
194,529,766
|
144,932,087
|
|
We
experienced a 44.5%% increase in revenue during the three months
ended September 30, 2021, when compared to the three months ended
September 30, 2020. The increase is directly attributable to an
increase in the number of customers and an increase in average
spend per customer at our Planet 13 Las Vegas Superstore dispensary
during both the three and nine months ended September 30, 2021 when
compared to the same periods ended September 30, 2020. The increase
in wholesale transactions during the period, the re-opening of the
Medizin Dispensary in late November 2020 and the addition of
revenue from the recently opened Planet 13 OC Superstore in Santa
Ana, also contributed to the increase in overall revenue when
compared to the three and nine months ended September 30, 2020 that
was negatively impacted by the COVID-19-related shutdowns. The
Medizin dispensary and the Planet 13 OC Superstore were not open
during the nine months ended September 30, 2020 and, and we had
limited wholesale business during the prior year period. Curb-side
pick-up and home delivery revenue decreased by 36% and 57%
respectively in Q2 2021 when compared to Q2 2020 as a result of the
easing of COVID-19 operating protocols during Q2 2021 that lead to
more customers opting for an in-person shopping experience. While
the COVID-19 shutdown impacted our tourist customer base due to the
partial shutdown of hotels and resorts in the State of Nevada
during April 2021, the increase in average spend per customer
during May and June 2021 more than off-set the decline in curb-side
pick-up and home delivery revenue. The reopening of the Medizin
dispensary and the addition of a robust wholesale business and the
opening of the Planet 13 OC Superstore drove an overall 44.5%
increase in revenue in Q3 2021 when compared to Q3 2020. Overall
revenue for the nine months ended September 30, 2021, increased by
78.0% when compared to revenue during the nine months ended
September 30, 2020.
The
easing of restrictions in Nevada and surrounding states in January
2021 and the move to further open the State of Nevada on February
15, 2021, resulted in an increase in tourist traffic to the
Superstore during the first three months of 2021, with us reporting
record revenues for the months of March and April 2021. On May 1,
2021, the State of Nevada allowed businesses to operate at 80% of
their fire rated occupancy limits and on June 1, 2021, the State
further eased its COVID-19 restrictions and allowed all businesses
to fully open. Current COVID-19 protocols in Nevada include mask
mandates in Clark and Nye county, where we have operations, for all
individuals within public indoor settings.
On
August 5, 2021, our subsidiary, Planet 13 Illinois LLC won a
Conditional Adult Use Dispensing Organization License in the
Chicago-Naperville-Elgin region from the Illinois Department of
Financial and Professional Regulation. We are evaluating potential
locations for a dispensary. We own 49% of Planet 13 Illinois and
51% is owned by Frank Cowan.
On
October 1, 2021, we, through our wholly owned subsidiary, Planet 13
Florida Inc., completed the purchase of a license issued by the
Florida Department of Health to operate as a Medical Marijuana
Treatment Center in the state of Florida for $55.0 million in
cash.
Licensed
Medical Marijuana Treatment Centers (“MMTCs”) are vertically integrated
and the only businesses in Florida authorized to dispense medical
marijuana cannabis to qualified patients and caregivers. MMTCs are
authorized to cultivate, process, transport and dispense medical
marijuana. As of October 1, 2021, there were 22 companies with MMTC
licenses with 370 dispensing locations across Florida. License
holders are not subject to restrictions on the number of
dispensaries that may be opened or on the number or size of
cultivation and processing facilities they may operate.
Details
of net revenue by product category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Flower
|
$15,797,957
|
$13,881,768
|
13.8%
|
Concentrates
|
$8,896,194
|
$4,002,641
|
122.3%
|
Edibles
|
$5,197,188
|
$3,012,090
|
72.5%
|
Topicals
and Other Revenue
|
$1,947,811
|
$1,179,786
|
65.1%
|
Wholesale
|
$1,099,580
|
$721,053
|
52.5%
|
Total
Revenue
|
$32,938,730
|
$22,797,338
|
44.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
Flower
|
$46,400,764
|
$27,398,621
|
69.4%
|
Concentrates
|
$22,365,768
|
$11,078,934
|
101.9%
|
Edibles
|
$12,596,942
|
$8,113,031
|
55.3%
|
Topicals
and Other Revenue
|
$4,858,491
|
$2,754,363
|
76.4%
|
Wholesale
|
$3,376,359
|
$1,006,387
|
235.5%
|
Total
Revenue
|
$89,598,324
|
$50,351,336
|
77.9%
|
Gross
Profit margin for Q3 2021 decreased to 53.8% from 55.1% when
compared Q3 2020 (increased to 55.6% compared to 52.6% for the nine
months ended September 30, 2021, and 2020 respectively). The
decrease in Q3 2021 was a result of lower revenue contribution from
in-store sales at the Las Vegas Superstore when compared to Q3
2020. Revenue from the Medizin dispensary, the Santa Ana
dispensary, wholesale revenue and revenue from curb side pick-up
and home delivery all have lower gross margin profitability when
compared to in-store retail sales at the our Planet 13 Las Vegas
Superstore.
The
following revenue amounts are before the allocation of sales
discounts and loyalty accruals and are for the nine months ended
September 30, 2021, and 2020:
●
Superstore In-Store
revenue of $62.8 million in 2021 compared to $38.2 million in
2020.
●
Nevada Delivery
& Curbside revenue of $9.8 million in 2021 compared to $10.5
million in 2020.
●
Wholesale revenue
of $3.4 million in 2021 compared to $1.0 million in
2020.
●
Medizin In-Store
revenue of $9.6 million in 2021 compared to $0 in 2020.
●
Orange County
In-Store revenue of $2.1 million in 2021 compared to $0 in 2020.
●
Orange County
Delivery & Curbside of $0.321 million compared to $0 in 2020.
●
Other revenue
(Restaurant and other) of $1.6 million in 2021 compared to $0.562
million in 2020.
●
Total revenue of
$89.6 million in 2021 compared to $50.3 million 2020, representing
an increase of 78.0% over 2020.
The
costs of internal cultivation have continued to trend down as we
continue to improve our yields and cultivation efficiency across
all of our cultivation facilities. In addition, margin enhancement
through the creation of internally generated brands, such as
TRENDI, Leaf & Vine, HaHa Gummies, Dreamland Chocolate, HaHa
Beverages and Medizin, continue to have a positive impact on gross
margins during the three and nine months ended September 30, 2021,
helping offset the lower margins received on the sale of wholesale
product and the sales to local customers in the State of Nevada. We
anticipate that margins will trend upward as tourist customers
return to Las Vegas and the Planet 13 Las Vegas Superstore in
greater numbers.
Our
premium cultivation facilities were operating near capacity during
the three and nine months ended September 30, 2021, and 2020,
respectively. The amount of cannabis grown during Q3 2021 (and the
nine months ended September 30, 2021) increased significantly when
compared to Q3 2020 (and the nine months ended September 30, 2020)
due to the addition of the 25,000 square feet of cultivation
capacity that was added as part of the WVapes acquisition that
closed in November 2020.
The
yield per plant for the nine months ended September 30, 2021, was
negatively impacted by our acquisition of the WCDN cultivation
facility and the WCDN strains thereby acquired. Several of the
acquired WCDN strains genetically yield a lesser number of grams
per plant than our Medizin strains. We have optimized the WCDN
facility, both by introducing higher yielding Medizin strains as
well as increasing the yield of the retained WCDN strains through
improved cultivation techniques. Management believes that aggregate
yields for the balance of 2021 will continue to show improvement.
The comparative metrics for the overall cultivation were as
follows:
|
|
|
|
|
|
|
|
|
Stage
of growth
|
42.20%
|
39.10%
|
Yield
by plant
|
|
|
Survival
rate
|
87.90%
|
87.10%
|
Wholesale
Selling price
|
$5.29
|
$4.73
|
Overall
gross margin was $17,717,134 in Q3 2021 compared to $12,552,613 in
Q3 2020, an increase of 41.1% (Gross margins were $49,784,174 and
$26,497,901 for the nine months ended September 30, 2021, and 2020
respectively, an increase of 87.9%).
General
and Administrative (“G&A”) expenses (which excludes
non-cash share-based compensation expenses, sales and marketing
expenses and depreciation and amortization expenses) increased by
111.7% in Q3 2021 when compared to Q3 2020 (increased 82.2% for the
nine months ended September 30, 2021, compared to the nine months
ended September 30, 2020). The large increase in G&A expenses
incurred during Q3 2021 and the nine months ended September 30,
2021, was a result of increased costs incurred as a result of
COVID-19 operating procedures, Medizin dispensary G&A expense
for the full nine-month period, pre-operating labor and expenses
for the Planet 13 OC Superstore location as well as operating
costs post-opening July 1, 2021, and the expansion of our wholesale
and delivery sales channels as well as increased expenditures
related to corporate initiatives during the current periods when
compared to the prior periods. Overall, G&A expenses as a
percentage of revenue equaled 39.9% for the three months ended
September 30, 2021, as compared to 49.6% for the three months ended
September 30, 2020, (35.7% for the nine months ended September
30, 2021, compared to 34.9% for the nine months ended September 30,
2020).
A
detailed breakdown of G&A expenses is as follows:
|
For the three
months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and
wages
|
$6,134,539
|
$2,420,126
|
153.5%
|
Executive
compensation
|
447,800
|
392,142
|
14.2%
|
Licenses and
permits
|
969,610
|
301,707
|
221.4%
|
Payroll taxes and
benefits
|
931,950
|
451,497
|
106.4%
|
Supplies and office
expenses
|
621,642
|
275,107
|
126.0%
|
Subcontractors
|
953,356
|
444,175
|
114.6%
|
Professional fees
(legal, audit and other)
|
938,028
|
848,726
|
10.5%
|
Miscellaneous
general and administrative expenses
|
2,177,855
|
1,090,312
|
99.7%
|
|
$13,174,781
|
$6,223,792
|
111.7%
|
|
For the nine
months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and
wages
|
$14,481,158
|
$6,546,241
|
121.2%
|
Executive
compensation
|
1,385,009
|
897,203
|
54.4%
|
Licenses and
permits
|
2,258,551
|
1,296,695
|
74.2%
|
Payroll taxes and
benefits
|
2,380,171
|
1,370,969
|
73.6%
|
Supplies and office
expenses
|
1,562,832
|
641,796
|
143.5%
|
Subcontractors
|
2,166,299
|
1,056,499
|
105.0%
|
Professional fees
(legal, audit and other)
|
2,842,599
|
2,592,331
|
9.7%
|
Miscellaneous
general and administrative expenses
|
4,897,500
|
3,146,035
|
55.7%
|
|
$31,974,118
|
$17,547,769
|
82.2%
|
Sales
and marketing expenses increased by 97.7% during Q3 2021 when
compared to Q3 2020. The large increase was a result of the State
of Nevada easing COVID-19 operating restrictions resulting in a
return of the tourist customer to Las Vegas with sales and
marketing expenditures ramping up to promote the Planet 13 Las
Vegas Superstore location to potential tourist customers. We
continue to refine our marketing efforts to optimize marketing
spend on initiatives that drive increased customer traffic to the
Superstore complex. In addition, we ramped up our sales and
marketing spend at the Planet 13 OC Superstore location, which
opened on July 1, 2021, in order to drive awareness and traffic to
the new location.
Depreciation
and Amortization increased by 45.6% during Q3 2021 when compared to
Q3 2020 and increased 20.8% during the nine months ended
September 30, 2021, when compared to the nine months ended
September 30, 2020, because of our recording depreciation on
the WCDN cultivation facility during the period as well as
additional depreciation resulting from the Planet 13 OC Superstore
location that opened July 1, 2021.
Non-cash,
share based compensation of $6,613,846 were recognized during Q3
2021 ($12,211,567 during the nine months ended September 30, 2021)
and increased from the $569,227 incurred in Q3 2020 ($2,006,067 for
the nine months ended September 30, 2020). The increase can be
attributable to the vesting schedule for both RSUs and incentive
stock options that were previously granted, particularly the RSUs
that were granted on April 18, 2021, that vest 1/3 on December 1,
2021, and 1/3 on the first and second anniversary of the first
vesting date. During the nine months ended September 30, 2020, we
also granted 50,000 RSUs to an employee on January 1, 2020, that
vest 1/3 on the grant date and 1/3 on the first and second
anniversary of the grant date. These amounts are non-cash, and the
expense is recognized in accordance with the vesting schedule of
the underlying stock options and RSUs. (See Note 14 in our audited
consolidated financial statements for the year ended December 31,
2020, for additional details on the assumptions used to calculate
fair value as well as information regarding the vesting of the
various components of the non-cash share-based
compensation).
Interest
expense recorded in Q3 2021 of $8,111 and $13,367 in Q3 2020 (as
well as interest expense of $23,698 during the nine months ended
September 30, 2021, and $23,914 during the nine months ended
September 30, 2020), relates to accrued interest on our long-term
debt that is due and payable on demand. The balance of long-term
debt as of September 30, 2021, was $884,000 compared to $884,000 as
of December 31, 2020.
We
conduct our operations in both the United States and Canada holding
financial assets in both currencies and incurs expenses in both USD
and CAD. On December 31, 2020, the value of the USD was USD$1.00=
CAD$1.2732 compared to the value of the USD of USD$1.00=CAD$1.2741
as at September 30, 2021, resulting in our realizing a foreign
exchange gain of $362,42 for Q3 2021 compared to a foreign exchange
loss of ($169,684) Q3 2020 (realized foreign currency gain of
$1,805,953 and a foreign exchange gain of $266,003 for the nine
months ended September 30, 2021 and 2020 respectively). It is our
policy to not hedge our CAD$ exposure.
Warrants
are accounted for in accordance with the applicable authoritative
accounting guidance in ASC Topic 815, Derivatives and Hedging
– Contracts in Entity’s Own Equity (“ASC
815”), as derivative liabilities based on the specific terms
of the warrant agreements. Liability-classified instruments are
recorded at fair value at each reporting period with any change in
fair value recognized as a component of change in fair value of
derivative liabilities in the consolidated statements of operations
and comprehensive loss. Transaction costs allocated to warrants
that are presented as a liability are expensed immediately within
other expenses (income) in the statements of net loss and
comprehensive loss. During Q3 2021 the change in fair value of the
warrants resulted in a gain of $6,240,073 compared to a loss of
$3,959,128 during Q3 2020 (loss of $2,728,386 for the nine months
ended September 30, 2021, and a gain of $423,917 for the nine
months ended September 30, 2020).
Other
income, consisting of Automated Teller Machine (ATM) fees, interest
and other miscellaneous income was $152,466 for Q3 2021 compared to
$174, 145 for Q3 2020 ($338,890 for the nine months ended
September 30, 2021, and $250, 212 for the nine months ended
September 30, 2020).
The
income tax provision for Q3 2021, was $3,397,821
compared to $4,754,018 for Q3 2020. The tax provision decreased due
to the decrease in taxable profitability during the period. We are
subject to US Federal tax legislation that denies the deduction of
certain expenditures for tax purposes that would otherwise be
available to non-cannabis-based businesses that results in our
being subject to a higher overall tax rate on net
income.
The
income tax provision for the nine months ended September 30, 2021
was 9,632,808 compared to $7,581,972 for the nine months ended
September 30, 2020. The tax provision increased due to the increase
in taxable profitability durign the period.
Overall
net loss after tax for the three months ended September 30, 2021
was $2,732,461 (($0.01) per share) compared to a net loss of
$5,646,614 ($0.03) per share) for the three months ended September
30, 2020.
The
overall net loss for the nine months ended September 30, 2021 was
$14,320,822 (($0.07) per share) compared to an overall net loss of
$6,797,286 (($0.05) pershare) for the nine months ended September
30, 2020.
Year Ended December 31, 2020 Compared to Year Ended December 31,
2019
Expressed in USD$
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
Revenues,
net of discounts
|
70,491,280
|
63,595,036
|
10.8%
|
Cost
of Goods Sold
|
(35,394,019)
|
(27,086,453)
|
30.7%
|
Gross Profit
|
35,097,261
|
36,508,583
|
(3.9%)
|
Gross Profit Margin %
|
49.8%
|
57.4%
|
|
|
|
|
|
Expenses
|
|
|
|
General
and Administrative
|
24,903,598
|
20,407,487
|
22.0%
|
Sales
and Marketing
|
3,305,639
|
6,539,483
|
(49.5%)
|
Lease
expense
|
2,114,743
|
1,912,984
|
10.5%
|
Depreciation
and Amortization
|
3,674,907
|
2,287,249
|
60.7%
|
Share
based compensation expense
|
2,512,568
|
4,822,787
|
(47.9%)
|
Total Expenses
|
36,511,455
|
35,969,990
|
1.5%
|
|
|
|
|
Income (Loss) From Operations
|
(1,414,194)
|
538,593
|
(362.6%)
|
|
|
|
|
Other (Income) Expense:
|
|
|
|
Interest
Expense, net
|
22,202
|
27,073
|
(18.0%)
|
Realized
Foreign Exchange (gain) loss
|
(398,525)
|
271,240
|
(246.9%)
|
Transaction
costs
|
275,250
|
-
|
|
Change
in fair value of warrants
|
16,805,941
|
5,541,590
|
203.3%
|
Other
expense (income)
|
(216,850)
|
(350,775)
|
(38.2%)
|
Total Other (Income) Expense
|
16,488,019
|
5,489,128
|
200.4%
|
|
|
|
|
Income (loss) for the period before tax
|
(17,902,213)
|
(4,950,535)
|
261.6%
|
Provision
for income tax (current and deferred)
|
7,106,516
|
7,352,808
|
(3.3%)
|
Income (Loss) for the period
|
(25,008,729)
|
(12,303,343)
|
103.3%
|
|
|
|
|
Income (Loss) per share for the period
|
|
|
|
Basic
and fully diluted income (loss) per share
|
$(0.16)
|
$(0.09)
|
|
|
|
|
|
Weighted
Average Number of Shares Outstanding
|
|
|
|
Basic
and diluted
|
151,825,439
|
134,074,476
|
|
We
experienced a 10.8% increase in revenue during the year ended
December 31, 2020, when compared to the year ended December 31,
2019. The increase is directly attributable to an increase in
average spend per customer at our Planet 13 Las Vegas Superstore
dispensary as well as the addition of curb-side pickup and home
delivery transactions during the period offset by the impact of
COVID-19 on revenue and customer traffic during Q2 2020 when a full
lock-down was in place in Nevada, and we were only able to offer
on-line ordering/home delivery followed by a partial reopening
towards the end of Q2 2020. Curb-side pick-up was not available
during the prior year period and home delivery volumes represented
an immaterial amount of our revenue during the year ended December
31, 2019. The large increase in both home delivery and curb-side
pick-up during the period was the result of the impact of the
COVID-19 pandemic and the change in consumer buying habits that it
has caused. While the COVID-19 shutdown impacted our tourist
customer base due to the full lock-down and partial reopening of
hotels and resorts in the State of Nevada during the year ended
December 31, 2020, the increase in average spend per customer
during the period, coupled with the addition of increased home
delivery volume and curb-side pick-up volumes and revenue from our
wholesale business and recently opened Medizin dispensary in
November 2020 more than offset the reduction in customer traffic
when compared to the year ended December 31, 2019.
Details
of gross revenue, excluding loyalty and discounts, by product
category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Flower
|
$38,628,268
|
$26,145,413
|
47.7%
|
Concentrates
|
15,316,769
|
19,018,607
|
(19.5%)
|
Edibles
|
11,019,130
|
13,470,082
|
(18.2%)
|
Topicals
and Other Revenue
|
3,812,053
|
4,960,934
|
(23.2%)
|
Wholesale
|
1,715,059
|
-
|
n/a
|
Total
Revenue
|
$70,491,280
|
$63,595,036
|
10.8%
|
Gross
Profit margin decreased to 48.5% for the year ended December 31,
2020 when compared to the Gross Profit margin of 57.3% experienced
during the ended December 31, 2019. Gross profit margin for the
year ended December 31, 2020 was affected by the revenue mix and
the addition of lower margin home delivery and wholesale revenue
during the year when compared to the year ended December 31, 2019.
Wholesale revenue has lower gross margin profitability while the
home delivery and curb-side pick-up revenue is heavily skewed to
the local Nevada customer that receives a set discount from the
listed price for being a Nevada state resident. The costs of
internal cultivation have continued to trend down as we continue to
improve our yields and cultivation efficiency. In addition, margin
enhancement through the creation of internally generated brands,
such as TRENDI, Leaf & Vine, HaHa Gummies, Dreamland Chocolate,
HaHa Beverages and Medizin, continue to have a positive impact on
gross margins during the three months and year ended December 31,
2020, helping offset the lower margins received on the sale of
wholesale product and the sales to local customers.
Our
premium cultivation facilities were operating near capacity during
the year ended December 31, 2020, as well as during the year ended
December 31, 2019. The amount of cannabis grown during each period
was similar, the price per gram was also similar. The yield for the
year ended December 31, 2020, was 79 grams/plant, while the yield
for the year ended December 31, 2019, was 140 grams per plant. The
yield per plant for the year ended December 31, 2020, was
negatively impacted by our acquisition of the WCDN cultivation
facility and the WCDN strains thereby acquired. Several of the
acquired WCDN strains genetically yield a lesser number of grams
per plant than our Medizin strains. For the year ended December 31,
2020, the average yield of our Medizin strains equalled 142 grams
per plant whereas the acquired WCDN strains average yield equalled
36 grams per plant. The amount of cannabis harvested in each of the
years ended December 31, 2020 and 2019, respectively, was similar
and resulted in a consistent level of biological assets being
transferred to inventory and sold during each year. We also added
an additional 25,000 square feet of cultivation as part of the WCDN
asset acquisition that was announced on July 17, 2020 (the
transaction formally closed in November 2020).
Overall
gross margin was 36,511,456 for the year ended December 31, 2020,
compared to $35,969,990 for the year ended December 30, 2019, an
increase of 1.5% for the year ended December 31, 2020.
G&A
expenses (which excludes non-cash share-based compensation
expenses, sales and marketing expenses and depreciation and
amortization expenses) increased by 22.0% in the year ended
December 31, 2020 when compared to the year ended December 31,
2019. The large increase in G&A expenses was a result of
increased costs incurred as a result of COVID-19 operating
procedures and the expansion of our wholesale and delivery sales
channels.
|
|
|
|
|
|
|
|
|
|
Salaries and
wages
|
$9,611,047
|
$6,941,111
|
38.5%
|
Executive
compensation
|
1,204,925
|
874,598
|
37.8%
|
Licenses and
permits
|
1,957,183
|
1,704,755
|
14.8%
|
Payroll taxes and
benefits
|
1,971,215
|
1,531,261
|
28.7%
|
Supplies and office
expenses
|
960,456
|
1,184,401
|
(18.9%)
|
Subcontractors
|
1,569,921
|
1,272,414
|
23.4%
|
Professional fees
(legal, audit and other)
|
2,944,706
|
2,723,555
|
8.1%
|
Miscellaneous
general and administrative expenses
|
4,684,145
|
4,175,392
|
12.2%
|
|
$24,903,598
|
$20,407,487
|
22.0%
|
Sales
and marketing expenses decreased by 49.5% during the year ended
December 31, 2020 when compared to the year ended December 31,
2019. The large decrease was a result of the COVID-19 shutdown of
the Las Vegas strip resulting in the curtailment of our sales and
marketing activities geared towards the tourist customer and a
switch to less costly sales and marketing activity that focused on
the local customer when compared to the prior year periods. We
continued to refine our marketing efforts to optimize marketing
spend on initiatives that drive increased customer traffic to the
Planet 13 Las Vegas Superstore complex, in light of the phased
reopening of the Las Vegas Strip and the Planet 13 Las Vegas
Superstore since June 1, 2020, the reopening of the Medizin
dispensary in November 2020 and the opening of the Santa Ana
dispensary in July 2021.
Lease
expense increased by $201,759 or 10.5% for the year ended December
31, 2020, when compared to the prior year as a result of the
additional lease expense associated with the acquired WCDN
cultivation facility during the in July 2020.
Depreciation
and Amortization increased by $1,387,658 or 60.7% for the year
ended December 31, 2020, when compared to the prior year as a
result of our completing the buildout of Phase II of the Planet 13
Las Vegas Superstore entertainment complex during Q4 2019 and the
recording depreciation on the Phase II assets during the year ended
December 31, 2020. In addition, we also began recording
depreciation on the acquired WCDN cultivation facility during the
three months and year ended December 31, 2020.
Non-cash,
share based payments of $2,512,568 were recognized during the year
ended December 31, 2020, a decrease from the $4,822,787 for the
year ended December 31, 2019. The decrease can be attributable to
the vesting schedule for both RSUs and incentive stock options
granted on June 11, 2018 and on June 30, 2019 that vested 1/3 on
January 1, 2020 and 1/3 on the first and second anniversary of the
grant date. We also granted 50,000 RSUs to an employee on January
1, 2020 that vest 1/3 on the grant date and 1/3 on the first and
second anniversary of the grant date. We granted 100,000 options to
employees on January 7, 2019, and 22,500 on June 30, 2019, that
vest 1/3 on the grant date and 1/3 on the first and second
anniversaries of the grant date. We granted 100,000 options to one
of our consultants on July 4, 2019, that vested 1/4 on the grant
date and 1/4 every three months from the grant date to April 4,
2020 and granted 50,518 RSUs to a consultant on July 3, 2020 for
services rendered that vested immediately. The expense represents
the recognition over time of the fair market value of incentive
options and RSUs that were granted to our employees, consultants,
officers and directors. These amounts are non-cash and the expense
is recognized in accordance with the vesting schedule of the
underlying stock options and RSUs.
We
conduct our operations in both the United States and Canada holding
financial assets in both currencies and incurs expenses in both USD
and CAD. On December 31, 2019, the value of the USD was
USD$1.00=CAD$1.2998 compared to the value of the USD of
USD$1.00=CAD$1.2732 as at December 31, 2020, resulting in our
recording realized foreign exchange gains of 398,525 for the year
ended December 31, 2020 and a realized foreign exchange loss of
$271,240 for the year ended December 31, 2019. It is our policy to
not hedge our CAD$ or USD$ exposure.
The
large swing in the CAD$/USD$ exchange rate during the year combined
with changes in volatility and the trading prices of the listed
warrants had a significant impact on the fair market value of the
warrant liability recognized by us. The change in the fair market
value of the warrants resulted in our recognizing a loss of
$16,805,941 during the year ended December 31, 2020, when compared
to the loss of $5,541,590 recognized in the year ended December 31,
2019.
We
incurred transaction costs of $275,250 during the year ended
December 31, 2020, that relates to the issuance of warrants as part
of unit financings that were completed during the
year.
The
income tax provision (combined current and deferred tax provisions)
for the year ended December 31, 2020, was $7,106,5166 compared
to $7,352,808 for the year ended December 31, 2019. The tax
provision decreased due to the decrease in taxable profitability
during the year. We are subject to U.S. Federal tax legislation
that denies the deduction of certain expenditures for tax purposes
that would otherwise be available to non-cannabis-based businesses
that results in our being subject to a higher overall tax rate on
net income.
Overall
net loss after tax for the year ended December 31, 2020, was
$25,008,729 compared to a net loss of $12,303,343 for the year
ended December 30, 2019.
Year Ended December 31, 2019 Compared to Year Ended December 31,
2018
Expressed in USD$
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
Revenues,
net of discounts
|
63,595,036
|
21,166,755
|
200.4%
|
Cost
of Goods Sold
|
(27,086,453)
|
(11,708,639)
|
131.3%
|
Gross Profit
|
36,508,583
|
9,458,116
|
286.0%
|
Gross Profit Margin %
|
57.4%
|
44.7%
|
|
|
|
|
|
Expenses
|
|
|
|
General
and Administrative
|
20,407,487
|
9,583,376
|
112.9%
|
Sales
and Marketing
|
6,539,483
|
1,702,841
|
284.0%
|
Lease
expense
|
1,912,984
|
-
|
n/a
|
Depreciation
and Amortization
|
2,287,249
|
400,116
|
471.6%
|
Share
based compensation expense
|
4,822,787
|
2,663,679
|
81.1%
|
Total Expenses
|
35,969,990
|
14,350,012
|
150.7%
|
|
|
|
|
Income (Loss) From Operations
|
538,593
|
(4,891,896)
|
(111.0%)
|
|
|
|
|
Other (Income) Expense:
|
|
|
|
Interest
Expense, net
|
27,073
|
241,860
|
(88.8%)
|
Realized
Foreign Exchange (gain) loss
|
271,240
|
63,634
|
326.3%
|
Transaction
costs
|
-
|
1,932,702
|
(100.0%)
|
Change
in fair value of warrants
|
5,541,590
|
3,579,934
|
54.8%
|
Other
expense (income)
|
(350,775)
|
16,055
|
(2,284.8%)
|
Total Other (Income) Expense
|
5,489,128
|
5,834,185
|
(5.9%)
|
|
|
|
|
Income (loss) for the period before tax
|
(4,950,535)
|
(10,726,081)
|
(53.8%)
|
Provision
for income tax (current and deferred)
|
7,352,808
|
1,900,069
|
287.0%
|
Income (Loss) for the period
|
(12,303,343)
|
(12,626,150)
|
(2.6%)
|
|
|
|
|
Income (Loss) per share for the period
|
|
|
|
Basic
and fully diluted income (loss) per share
|
$(0.09)
|
$(0.13)
|
|
|
|
|
|
Weighted
Average Number of Shares Outstanding
|
|
|
|
Basic
and diluted
|
134,074,476
|
95,997,827
|
|
We
experienced a 200.4% increase in revenue during the year ended
December 31, 2019, when compared to the year ended December 31,
2018 (the year ended December 31, 2018, included ten months of
activity from our former Medizin dispensary and two months of
start-up activity at the Planet 13 Las Vegas Superstore). The
results from the prior periods in 2018 represent medical and
recreational cannabis sales from our former Medizin dispensary, a
premium 2,500 square foot retail cannabis dispensary that was
located approximately 5.9 miles from the Planet 13 Las Vegas
Superstore cannabis entertainment complex. We experienced revenue
growth across all of our cannabis product categories (Flower sales,
Concentrates, Edibles, Topicals and Other revenue) for the year
ended December 31, 2019, when compared to the prior
year.
Details
of gross revenue, excluding discounts, by product category are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Flower
|
$26,145,413
|
$11,749,570
|
122.5%
|
Concentrates
|
19,018,607
|
6,320,351
|
200.9%
|
Edibles
|
13,470,082
|
2,282,282
|
490.2%
|
Topicals
and Other Revenue
|
4,960,934
|
814,552
|
509.0%
|
Wholesale
|
-
|
-
|
n/a
|
Total
Revenue
|
$63,595,036
|
$21,166,755
|
200.4%
|
Overall
revenue increased by 200.4% or by $42,428,281 when compared to the
year ended December 31, 2018. The increase is due to both increased
customer traffic and an increase in the average spend per customer.
In addition, the prior year December 31, 2018, only included two
months of sales from the Planet 13 Las Vegas Superstore. The
average number of daily customer visits was up over 159% in the
three months ended December 31, 2019, when compared to the three
months ended December 31, 2018. The large increase in daily
customer visits during this period was due to the Planet 13 Las
Vegas Superstore opening on November 1, 2018, resulting in only 2
months of activity at the Planet 13 Las Vegas Superstore being
recorded in the year ended December 31, 2018, with the remaining 10
months of the year coming from the much smaller Medizin dispensary,
which closed on October 30, 2021, when we transferred the licenses
to the Planet13 Las Vegas Superstore location. For the year ended
December 31, 2019, the average number of daily customers increased
by 135% when compared to the year ended December 31, 2018, and the
average ticket price per customer increased to $91.47 from $70.94
for the year ended December 31, 2018.
Gross
Profit margin for the year ended December 31, 2019, was 57.4%
compared to a gross profit margin of 44.7% for the year ended
December 31, 2018. The increase during the year ended December 31,
2019, is attributable to better pricing on product purchased in the
wholesale market during the year ended December 31, 2019 when
compared to the year ended December 3, 2018, as well as the
additional costs incurred on the purchases of initial ramp-up in
inventory product purchases during the stocking of the Planet 13
Las Vegas Superstore for its opening on November 1, 2018. The costs
of internal cultivation have continued to trend down as we have
improved our yields and cultivation efficiency. In addition, margin
enhancement through the creation of internally generated brands,
such as TRENDI, Leaf & Vine, HaHa Gummies, Dreamland Chocolate,
HaHa Beverages and Medizin branded flower and vape products, has
also had a positive impact on gross margins. Our premium
cultivation facility was operating near its capacity during the
year ended December 31, 2019, as well as the year ended December
31, 2018. The amount of cannabis grown during each period was
similar, the price per gram was also similar. The yield for the
year ended December 31, 2019, was 140 grams/plant while the yield
for the year ended December 31, 2018, was 195 grams per plant. The
yield per plant for the year ended December 31, 2019, was
negatively impacted by our decision to add additional, movable
plant tables to our grow rooms. By adding additional plants, the
amount of photo electronic energy each plant received was reduced,
thereby reducing yields on a plant-by-plant basis. Consequently, we
have explored additional ways to increase the yield, including
testing new fertilizers to boost individual plant yields. Harvests
during the three months ended December 31, 2019, have generated
yields in excess of our historic rate, and 2020 yields showed an
improvement over 2019 rates. The amount of cannabis harvested in
each of the years ended December 31, 2019, and 2018 was
similar.
Overall
gross margin increased to $36,508,583 for the year ended December
31, 2019, compared to $9,458,116 for the year ended December 31,
2018, an increase of 286.0%.
G&A
expenses (which excludes non-cash share-based compensation
expenses, sales and marketing expenses and depreciation and
amortization expenses) increased by 112.9% for the year ended
December 31, 2019, when compared to the year ended December 31,
2018. The large increase in G&A expenses incurred during the
year ended December 31, 2019, when compared to 2018 is attributable
to the increase in our overall activity level. A detailed breakdown
of G&A expenses is as follows:
|
|
|
|
|
|
|
|
|
|
Salaries and
wages
|
$6,941,111
|
$3,151,509
|
120.2%
|
Executive
compensation
|
874,598
|
553,814
|
57.9%
|
Licenses and
permits
|
1,704,755
|
589,178
|
189.3%
|
Payroll taxes and
benefits
|
1,531,261
|
641,906
|
138.5%
|
Supplies and office
expenses
|
1,184,401
|
1,222,053
|
(3.1%)
|
Subcontractors
|
1,272,414
|
1,024,175
|
24.2%
|
Professional fees
(legal, audit and other)
|
2,723,555
|
600,877
|
353.3%
|
Miscellaneous
general and administrative expenses
|
4,175,392
|
1,799,864
|
132.0%
|
|
$20,407,487
|
$9,583,376
|
112.9%
|
Sales
and marketing expenses increased by 284.0% in the year ended
December 31, 2019, when compared to the year ended December 31,
2018. The large increase of $4,836,642 for the year period is a
result of marketing efforts to support the corresponding increases
in revenue for the same periods. We continued to refine our
marketing efforts to optimize marketing spend on initiatives that
drive increased customer traffic to the Planet 13 Las Vegas
Superstore complex.
Lease
expense increased by $1,912,984 for the year ended December 31,
2019, when compared to the prior year as a result of the additional
lease expense associated with the Planet 13 Las Vegas Superstore
that was opened for the full year when compared to the two months
it was open during 2018.
Depreciation
and Amortization increased by $1,887,133 for the year ended
December 31, 2019, when compared to the year ended December 31,
2018, because of the opening of the Planet 13 Las Vegas Superstore
entertainment complex. The prior year ended December 31, 2018,
includes Depreciation and Amortization from our significantly
smaller Medizin location for 10 months and only two months for the
Planet 13 Las Vegas Superstore location compared to a full year of
the Planet 13 Las Vegas Superstore location during the year ended
December 31, 2019.
Non-cash
share-based payments of $4,822,787 incurred for the year ended
December 31, 2019, increased from the $2,663,679 incurred during
the year ended December 31, 2018. The increase in the year ended
December 31, 2019, can be attributable to the vesting schedule for
both RSUs and incentive stock options granted on June 11, 2018, and
on June 30, 2019 that vest 1/3 on the initial grant date and 1/3 on
the first and second anniversary of the grant date. We also granted
100,000 options to employees on January 7, 2019, and 22,500 on June
30, 2019, that vest 1/3 on the grant date and 1/3 on the first and
second anniversaries of the grant date. We granted 100,000 options
to one of our consultants on July 4, 2019, that vest 1/4 on the
grant date and 1/4 every three months from the grant date to
April 4, 2020. The expense represents the recognition over
time of the fair market value of incentive options and RSUs that
were granted to our employees, consultants, officers and directors
on the closing of the RTO on June 11, 2018, as well as
incentive RSUs and options granted to directors, officers,
consultants and employees on June 30, 2019, options granted to
employees on January 7, 2019, and options granted to a consultant
on July 4, 2019. These amounts are non-cash and the expense is
recognized in accordance with the vesting schedule of the
underlying stock options and RSUs.
Interest
expenses recorded in the year ended December 31, 2019, relates to
interest incurred on third party debt that was outstanding during
the period. Interest expense incurred during the year ended
December 31, 2018, related to interest expense on the related
party notes that were outstanding in the period. The balance of
long-term debt as at December 31, 2019 was $884,000 compared to
$928,227 as at December 31, 2018.
We
conduct our operations in both the United States and Canada holding
financial assets in both currencies and incur expenses in both USD
and CAD. On December 31, 2018, the value of the USD was
USD$1.00=CAD$1.3642 compared to the value of the USD declining to
CAD$1.2998 as at December 31, 2019, resulting in our recording
unrealized foreign exchange losses of $770,134 and realized foreign
exchange losses of $406,213 for the year ended December 31, 2019
(unrealized foreign exchange gain of $431,402 and realized foreign
exchange loss of $442,546 for the year ended December 31, 2018). It
is our policy to not hedge our CAD$ or USD$ exposure.
We
incurred transaction costs of $1,932,702 during the year ended
December 31, 2018, that relate to the issuance of warrants as part
of a unit financings that was completed during the year and costs
associated with the RTO of Carpinchico Capital Corporation that
closed in June 2018.
The
large swing in the CAD$/USD$ exchange rate during the year,
combined with changes in volatility and the trading prices of the
listed warrants had a significant impact on the fair market value
of the warrant liability recognized by us. The change in the fair
market value of the warrants resulted in us recognizing a loss of
$5,541,590 on the change in fair value of the warrants during the
year ended December 31, 2019, when compared to the loss of
$3,579,934 recognized in the year ended December 31,
2018.
The
income tax provision (combined current and deferred) for the year
ended December 31, 2019, was $7,352,808 compared to $1,900,069 for
the year ended December 31, 2018. The tax provision increased
substantially due to the increase in revenue and taxable
profitability during the period. We are subject to U.S. Federal tax
legislation that denies the deduction of certain expenditures for
tax purposes that would otherwise be available to
non-cannabis-based businesses that results in our being subject to
a higher overall tax rate on net income.
Overall
net (loss) after tax for the for the year ended December 31, 2019,
was $12,303,343 compared to a net (loss) of $12,626,150 for the
year ended December 31, 2018.
Segmented Disclosure
We
operate in a single reportable operating segment as a vertically
integrated cannabis company with cultivation, production and
distribution operations in Nevada, and retail dispensary and
distribution operations in California since July 2021. The
following tables present the results of our cannabis operations in
Nevada and California, and our Corporate activities for the nine
months ended September 30, 2021 and 2020 and the years ended
December 31, 2020, 2019, and 2018:
Expressed in USD$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
net of discounts
|
$2,425,210
|
$87,186,840
|
$-
|
$89,612,050
|
Gross profit
|
$1,461,978
|
$48,322,196
|
$-
|
$49,784,174
|
Gross Profit Margin %
|
60.3%
|
55.4%
|
na
|
55.6%
|
|
|
|
|
|
Expenses
|
|
|
|
|
General
and Administrative
|
3,556,884
|
24,491,350
|
3,925,884
|
31,974,118
|
Sales
and Marketing
|
598,204
|
3,564,730
|
-
|
4,162,934
|
Lease
expense
|
324,475
|
1,609,663
|
-
|
1,934,138
|
Depreciation
and Amortization
|
557,896
|
2,767,628
|
-
|
3,325,524
|
Share
based compensation
|
-
|
-
|
12,211,567
|
12,211,567
|
Total Expenses
|
$5,037,459
|
$32,433,371
|
$16,137,451
|
$53,608,281
|
Income (Loss) From Operations
|
$(3,575,481)
|
$15,888,825
|
$(16,137,451)
|
$(3,824,107)
|
Total Other Expense (Income)
|
|
|
|
|
Interest
expense, net
|
-
|
23,698
|
-
|
23,698
|
Realized
foreign exchange (gain) loss
|
-
|
-
|
(1,805,953)
|
(1,805,953)
|
Transaction
costs
|
-
|
-
|
256,666
|
256,666
|
Change
in fair value of warrants
|
-
|
-
|
2,728,386
|
2,728,386
|
Other
income
|
-
|
(338,890)
|
-
|
(338,890)
|
|
$-
|
$(315,192)
|
$1,179,099
|
$863,907
|
|
|
|
|
|
Income tax provision
|
$309,353
|
$ 9,323,455
|
$-
|
$ 9,632,808
|
|
|
|
|
|
Income (Loss) for the year after tax
|
$(3,884,834)
|
$ 6,880,562
|
$(17,316,550)
|
$ (14,320,822)
|
Expressed in USD$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
net of discounts
|
$70,491,280
|
$-
|
$70,491,280
|
Gross profit
|
$35,097,261
|
$-
|
$35,097,261
|
Gross Profit Margin %
|
49.8%
|
na
|
49.8%
|
|
|
|
|
Expenses
|
|
|
|
General
and Administrative
|
21,670,725
|
3,232,873
|
24,903,598
|
Sales
and Marketing
|
3,305,639
|
-
|
3,305,639
|
Lease
expense
|
2,114,743
|
-
|
2,114,743
|
Depreciation
and Amortization
|
3,674,907
|
-
|
3,674,907
|
Share
based compensation
|
-
|
2,512,568
|
2,512,568
|
Total Expenses
|
$30,766,014
|
$5,745,441
|
$36,511,455
|
|
|
|
|
Income (Loss) From Operations
|
$4,331,247
|
$(5,745,441)
|
$(1,414,194)
|
|
|
|
|
Total Other Expense (Income)
|
|
|
|
Interest
expense, net
|
22,194
|
8
|
22,202
|
Realized
foreign exchange (gain) loss
|
-
|
(398,525)
|
(398,525)
|
Transaction
costs
|
-
|
275,250
|
275,250
|
Change
in fair value of warrants
|
-
|
16,805,941
|
16,805,941
|
Other
income
|
(216,850)
|
-
|
(216,850)
|
Total other (income) expense
|
$(194,656)
|
$16,682,675
|
$16,488,019
|
|
|
|
|
Income tax provision
|
$7,106,516
|
$-
|
$7,106,516
|
Income (Loss) for the year after tax
|
$(2,580,613)
|
$(22,428,116)
|
$(25,008,729)
|
Expressed in USD$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
net of discounts
|
$63,595,036
|
$-
|
$63,595,036
|
Gross profit
|
$36,508,583
|
$-
|
$36,508,583
|
Gross Profit Margin %
|
57.4%
|
na
|
57.4%
|
|
|
|
|
Expenses
|
|
|
|
General
and Administrative
|
17,342,149
|
3,065,338
|
20,407,487
|
Sales
and Marketing
|
6,539,483
|
-
|
6,539,483
|
Lease
expense
|
1,912,984
|
-
|
1,912,984
|
Depreciation
and Amortization
|
2,287,249
|
-
|
2,287,249
|
Share
based compensation
|
-
|
4,822,787
|
4,822,787
|
Total Expenses
|
$28,081,865
|
$7,888,125
|
$35,969,990
|
|
|
|
|
Income (Loss) From Operations
|
$8,426,718
|
$(7,888,125)
|
$538,593
|
|
|
|
|
Total Other Expense (Income)
|
|
|
|
Interest
expense, net
|
27,073
|
-
|
27,073
|
Realized
foreign exchange (gain) loss
|
-
|
271,240
|
271,240
|
Transaction
costs
|
-
|
-
|
-
|
Change
in fair value of warrants
|
-
|
5,541,590
|
5,541,590
|
Other
income
|
(350,775)
|
-
|
(350,775)
|
Total other (income) expense
|
(323,702)
|
5,812,830
|
$5,489,128
|
|
|
|
|
Income tax provision
|
$7,352,808
|
$-
|
$7,352,808
|
|
|
|
|
Income (Loss) for the year after tax
|
$1,397,612
|
$(13,700,955)
|
$(12,303,343)
|
Expressed in USD$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
net of discounts
|
$21,166,755
|
$-
|
$21,166,755
|
Gross profit
|
$9,458,116
|
$-
|
$9,458,116
|
Gross Profit Margin %
|
44.7%
|
na
|
44.7%
|
|
|
|
|
Expenses
|
|
|
|
General
and Administrative
|
8,616,336
|
967,040
|
9,583,376
|
Sales
and Marketing
|
1,702,841
|
-
|
1,702,841
|
Lease
expense
|
-
|
-
|
-
|
Depreciation
and Amortization
|
400,116
|
-
|
400,116
|
Share
based compensation
|
-
|
2,663,679
|
2,663,679
|
Total Expenses
|
$10,719,293
|
$3,630,719
|
$14,350,012
|
|
|
|
|
Income (Loss) From Operations
|
$(1,261,177)
|
$(3,630,719)
|
$(4,891,896)
|
|
|
|
|
Other Expense (Income)
|
|
|
|
Interest
expense, net
|
241,860
|
-
|
241,860
|
Realized
foreign exchange (gain) loss
|
-
|
63,634
|
63,634
|
Transaction
costs
|
-
|
1,932,702
|
1,932,702
|
Change
in fair value of warrants
|
-
|
3,579,934
|
3,579,934
|
Other
income
|
(80,285)
|
96,340
|
16,055
|
Total other (income) expense
|
$161,575
|
$5,672,610
|
$5,834,185
|
|
|
|
|
Income tax provision
|
$1,900,069
|
$-
|
$1,900,069
|
|
|
|
|
Income (Loss) for the year after tax
|
$(3,322,821)
|
$(9,303,329)
|
$(12,626,150)
|
Financial Position and Liquidity
As at
September 30, 2021, our financial instruments consist of cash,
accounts payable and accrued liabilities, and sales tax
receivables. We have no speculative financial instruments,
derivatives, forward contracts, or hedges.
As at
September 30, 2021, we had working capital, excluding restricted
cash, of $80,539,210 compared to working capital of
$81,498,467 as at December 31, 2020.
The
following table relates to the nine months ended September 30,
2021, and 2020, and the years ended December 31, 2020, 2019
and 2018:
|
Nine
Months Ended
September 30,
|
|
|
|
|
|
|
|
Cash flows provided
by operating activities
|
$ 825,239
|
$ 8,755,204
|
$(3,688,853)
|
$4,701,020
|
$(6,189,556)
|
Cash flows used in
investing activities
|
$(14,624,473)
|
$(5,787,465)
|
$(8,031,458)
|
$(16,061,582)
|
$(13,313,401)
|
Cash flows provided
by financing activities
|
$ 64,520,739
|
$ 40,807,997
|
$77,335,979
|
$5,030,185
|
$38,723,249
|
Cash Flow from Operating Activities
Net cash provided by operating activities was $825,239
for the nine months ended September 30, 2021, compared to
$8,755,204 for the nine months ended September 30,
2020. The decrease is primarily due to the net changes in non-cash
working capital items, included income tax liability, that
decreased as a result of cash payments for income taxes during the
nine months ended September 30, 2021, when compared to the nine
months ended September 30, 2020.
Net cash provided by (used in) operating activities was
($3,688,853) for the year ended December 31, 2020, a decrease
of $8,389,873 compared to cash provided by operating activities of
$4,701,020 for the year ended December 31, 2019. This is primarily
due to changes in non-cash working capital during the period,
including a growth in inventory levels, as we ramped the business
to support the revenue growth experienced during the
year.
Net cash provided by operating activities was $4,701,020 for the
year ended December 31, 2019, an increase of $10,890,576, compared
to ($6,189,556) used in operations during the year ended December
31, 2018. This is primarily due to the impact of changes
in inventory and accounts payable and accrued liabilities related
to our growth and expanded product mix, partially offset by our
increase in gross profit from operations as a result of the
increase in organic growth from a large increase in customers
served.
Cash Flow from Investing Activities
Net cash used in investing activities was $14,624.473 for the nine
months ended September 30, 2021, compared to net cash used in
investing activities of $5,787,465 for the nine months ended
September 30, 2020. The increase is due to the build-out of the
Planet 13 OC Superstore location and the expansion of the Planet 13
Las Vegas Superstore dispensary floor space and production facility
during the nine months ended September 30, 2021.
Net cash used in investing activities was $8,031,458 for the year
ended December 31, 2020, decrease of $8,030,124 , compared to the
$16,061,582 net cash used in investing activities for the year
ended December31, 2019. The decrease is due a smaller number of
expansion projects undertaken during the year ended December 31,
2020, when compared to the prior year.
Net cash used in investing activities was $16,061,582 for the year
ended December 31, 2019, an increase of $2,748,181, compared to the
$13,313,401 net cash used in investing activities for the year
ended December 31, 2018. The increase is due to the additional
enhancements made to the Planet 13 Las Vegas Superstore location
during the Phase II and III buildouts compared to the Phase I
buildout that occurred in the year ended December 31,
2018.
Cash Flow from Financing Activities
Net cash provided by financing activities was
$64,520,739 for the nine months ended September 30,
2021, compared to net cash provided by financing activities of
$40,807,997 for the nine months ended September 30,
2020. The increase was primarily related to an increase in proceeds
for the issuance of unit (each unit comprised of one common share
and one half of a common share purchase warrant) offering that
occurred in the nine months ended September 30, 2021, as well as
increased cash proceeds received from the exercise of common share
purchase warrants during the period, when compared to the nine
months ended September 30, 2020.
Net cash provided by financing activities was $77,335,979 for the
year ended December 31, 2020, an increase of $72,305,794, compared
to the $5,030,185 net cash provided by financing activities for the
year ended December 31, 2019. The increase was primarily related to
$48,125,125 in gross proceeds from the issuance of units (each unit
comprised of one common share and one half of a common share
purchase warrant) that occurred for the year ended December 31,
2020, compared to $0 during the year ended December 31, 2019. In
addition, we received cash proceeds of $32,871,439 from the
exercise of common share purchase warrants during the year ended
December 31, 2020, compared to cash proceeds of $5,030,185 during
the year ended December 31, 2019, an increase of
$27,841,254.
Net cash provided by financing activities was $5,030,185 for the
year ended December 31, 2019, a decrease of $33,693,064 compared to
the $38,723,249 net cash provided by financing activities for the
year ended December 31, 2018. The decrease was primarily
related to the $40,381,022 net proceeds received from the issuance
of units (each unit comprised of one common share and one half of a
common share purchase warrant) that occurred in the year ended
December 31, 2018, compared to $0 during the year ended December
31, 2019. This was partially offset by the $5,030,185 in cash
proceeds received from the exercise of common share purchase
warrants during the year ended December 31, 2019, compared to cash
proceeds of $2,374,253 during the year ended December 31, 2019, an
increase of $2,655,932.
Financial Instruments and Risk Management
Financial instrument classification and measurement
Our
financial instruments carried on the annual audited consolidated
statement of financial position are carried at amortized cost with
the exception of cash, which is carried at fair value. There are no
significant differences between the carrying value of financial
instruments and their estimated fair values as at September 30,
2021 or December 31, 2020, or December 31, 2019, due to the
immediate or short-term maturities of the financial
instruments.
Fair values of financial assets and liabilities
Our
financial instruments include cash, accounts payable and accrued
expenses. At September 30, 2021, the carrying value of cash is
fair value. Financial instruments classified as loans and
receivables and other financial liabilities are carried at
amortized cost using the effective interest method. Transaction
costs are included in the amount initially recognized. Accounts
payable and other liabilities, notes payable, and notes payable
related parties have been classified as other financial
liabilities.
Credit risk
Credit
risk is the risk that one party to a financial instrument will fail
to discharge an obligation and cause the other party to incur a
financial loss. It is management’s opinion that we are not
exposed to significant credit risk arising from these financial
instruments. A portion of our revenue utilizes third-party payment
platforms. These platforms batch process several days’ worth
of activity before funds are remitted to us. A failure of such
platforms, or the inability of the platform provider to remit funds
in a timely manner to us could have a material impact on our
financial position. We limit credit risk by entering into business
arrangements with high credit-quality counterparties. Thus, the
credit risk associated with other receivables is also considered to
be negligible.
Interest Rate Risk
Interest
rate risk is the risk of losses that arise as a result of changes
in contracted interest rates. We are not exposed to significant
interest rate risk.
Currency risk
We
operate internationally and are exposed to foreign exchange risk
arising from various currency exposures. We primarily operate in
Canada and the United States and incur certain expenditures and
obtain financing in both Canadian and US dollars. Foreign exchange
risk arises from future commercial transactions and recognized
assets and liabilities denominated in a currency that is not the
functional currency of the Company or the subsidiary that holds the
financial asset or liability. Our risk management policy is to
review our exposure to non-US dollar forecast operating costs on a
case-by-case basis. The majority of our forecast operating costs
are in US dollars and Canadian dollars. The risk is measured using
sensitivity analysis and cash flow forecasting.
The
carrying amount of foreign currency financial assets and
liabilities in US dollars as at September 30, 2021, is as
follows:
US
Dollar amounts of foreign currency assets and
liabilities
|
|
|
|
Canadian
Dollars
|
$1,466,671
|
$137,890
|
|
|
|
Based
on the financial instruments held as at September 30, 2021, we
would have recognized an additional unrealized foreign exchange
loss of $169,300 had the US dollar shifted by 10% as a result of
foreign exchange effect on translation of non-US dollar denominated
financial instruments. As at September 30, 2021, we have no hedging
agreements in place with respect to foreign exchange rates. We have
not entered into any agreements or purchased any instruments to
hedge possible currency risks at this time.
Liquidity Risk
Prudent
liquidity risk management implies maintaining at all times
sufficient cash and liquid investments to meet our commitments as
they arise. We manage liquidity risk by maintaining adequate cash
reserves and by continuously monitoring forecast and actual cash
flows. Where insufficient liquidity may exist, we may pursue
various debt and equity instruments for short or long-term
financing of our operations.
As at
September 30, 2021, we had working capital (excluding
restricted cash) of $81,498,467 (December 31, 2020 -
$81,584,108) and anticipate that revenue from operations will
provide sufficient funds to cover all our operating expenditures
for the next 12 months and available cash on hand will be
sufficient to fund any and all capital expenditure requirements for
the build-out of operations in the State of Florida and the State
of Illinois over the next 12 months.
Planned
expansion of our cultivation facilities, production and
manufacturing facilities and retail distribution facilities will
require us to raise additional capital from outside sources. We
will consider financing alternatives while contemplating minimal
shareholder dilution.
Our
potential sources of cash flow in the upcoming year will be from
the proceeds of the sale of cannabis and cannabis related products
and possible equity financings, loans, lease financing and entering
into joint venture agreements, or any combination
thereof.
Pricing Risk
Price
risk is the risk of variability in fair value due to movements in
equity or market prices.
Concentration Risk
We
currently operate exclusively in Southern Nevada and Southern
California. Should economic conditions deteriorate within those
regions, our results of operations and financial position would be
negatively impacted.
Capital Resources
We have
a recent history of operating losses. It may be necessary for us to
arrange for additional financing to meet our on-going growth
initiatives.
Management
believes it will be able to raise equity capital as required in the
long term, but recognizes the risks attached thereto. There can be
no assurance that it will be able to obtain adequate financing in
the future or that the terms of such financing may be
favorable.
Capital Management
Our
capital consists of shareholders’ equity. Our objective when
managing capital is to maintain adequate levels of funding to
support the development of our businesses and maintain the
necessary corporate and administrative functions to facilitate
these activities. This is done primarily through equity financing
and incurring debt. Future financings are dependent on market
conditions. and there can be no assurance we will be able to raise
funds in the future. We invest all capital that is surplus to our
immediate operational needs in short-term, highly liquid,
high-grade financial instruments. There were no changes to our
approach to capital management during the period. We are not
subject to externally imposed capital requirements.
Off-Balance Sheet Arrangements
We have
no off-balance sheet arrangements as of September 30, 2021 and
2020, respectively, or as of the date hereof.
Critical Accounting Estimates
The
preparation of consolidated financial statements in conformity with
GAAP requires our management to make judgements, estimates and
assumptions about future events that affect the amounts reported in
the consolidated financial statements. Although these estimates are
based on management’s best knowledge of the amount, event or
actions, actual results may differ from those estimates. Estimates
and judgements are continuously evaluated and are based on
management’s experience and other factors, including
expectations of future events that are believed to be
reasonable.
Revisions
to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods
affected.
Leases
We
apply judgement in determining whether a contract contains a lease
and if a lease is classified as an operating lease or a finance
lease.
We
determine the lease term as the non-cancellable term of the lease,
which may include options to extend or terminate the lease when it
is reasonably certain that we will exercise that option. The lease
term is used in determining classification between operating lease
and finance lease, calculating the lease liability and determining
the incremental borrowing rate. We have several lease contracts
that include extension and termination options. We apply judgement
in evaluating whether it is reasonably certain to exercise the
option to renew or terminate the lease. That is, it considers all
relevant factors that create an economic incentive for it to
exercise either the renewal or termination. After the commencement
date of the lease, we reassess the lease term if there is a
significant event or change in circumstances that is within its
control and affects its ability to exercise or not to exercise the
option to renew or to terminate (e.g., construction of significant
leasehold improvements or significant customization to the leased
asset).
We are
required to discount lease payments using the rate implicit in the
lease if that rate is readily available. If that rate cannot be
readily determined, the lessee is required to use its incremental
borrowing rate. We generally use the incremental borrowing rate
when initially recording real estate leases. Information from the
lessor regarding the fair value of underlying assets and initial
direct costs incurred by the lessor related to the leased assets is
not available. We determine the incremental borrowing rate as the
interest rate we would pay to borrow over a similar term the funds
necessary to obtain an asset of a similar value to the right-of-use
asset in a similar economic environment.
Share-based compensation
We use
the Black-Scholes valuation model to determine the fair value of
options and warrants granted to employees and non-employees under
share-based payment arrangements, where appropriate. In instances
where equity awards have performance or market conditions, we
utilize the Monte Carlo valuation model to simulate the various
outcomes that affect the value of the award. In estimating fair
value, management is required to make certain assumptions and
estimates such as the expected term of the instrument, volatility
of our future share price, risk free rates, future dividend yields
and estimated forfeitures at the initial grant date, by reference
to the underlying terms of the instrument, and our experience with
similar instruments. Changes in assumptions used to estimate fair
value could result in materially different results. Refer to Note
13 in our audited consolidated annual financial statements for the
year ended December 31, 2020 for further information.
Estimated useful lives and depreciation and amortization of
property and equipment, right-of-use asset and intangible
assets
Depreciation
and amortization of property and equipment, right-of-use assets and
intangible assets are dependent upon estimates of useful lives,
which are determined through the exercise of judgment. The
assessment of any impairment of these assets is dependent upon
estimates of recoverable amounts that consider factors such as
economic and market conditions and the useful lives of assets.
Refer to Notes 6 and 7 for further information.
Fair value measurement
We use
valuation techniques to determine the fair value of financial
instruments (where active market quotes are not available) and
non-financial assets. This involves developing estimates and
assumptions consistent with how market participants would price the
instrument. We base our assumptions on observable data as far as
possible, but this is not always available. In that case, we use
the best information available. Estimated fair values may vary from
the actual prices that would be achieved in an arm’s length
transaction at the reporting date.
Deferred tax assets and uncertain tax positions
We
recognize deferred tax assets and liabilities based on the
differences between the Consolidated financial statement carrying
amounts and the respective tax bases of our assets and liabilities.
We measure deferred tax assets and liabilities using current
enacted tax rates expected to apply to taxable income in the years
in which the temporary differences are expected to reverse. We routinely evaluate
the likelihood of realizing the benefit of our deferred tax assets
and may record a valuation allowance if, based on all available
evidence, we determine that some portion of the tax benefit will
not be realized.
In
evaluating the ability to recover deferred tax assets within the
jurisdiction from which they arise, we consider all available
positive and negative evidence, including scheduled
reversals of deferred tax
liabilities, projected future taxable income, tax-planning
strategies and results of operations. In projecting future taxable
income, we consider historical results and incorporate assumptions
about the amount of future pretax operating income adjusted for
items that do not have tax consequences. Our assumptions regarding
future taxable income are consistent with the plans and estimates
that are used to manage our underlying businesses. In evaluating
the objective evidence that historical results provide, we consider
three years of cumulative operating income/(loss). The income tax
expense, deferred tax assets and liabilities and liabilities for
unrecognized tax benefits reflect our best assessment of estimated
current and future taxes to be paid. Deferred tax asset valuation
allowances and liabilities for unrecognized tax benefits require
significant judgment regarding applicable statutes and their
related interpretation, the status of various income tax audits and
our particular facts and circumstances. Although we believe that
the judgments and estimates discussed herein are reasonable, actual
results, including forecasted COVID-19 business recovery, could
differ, and we may be exposed to losses or gains that could be
material. To the extent we prevail in matters for which a liability
has been established or is required to pay amounts in excess of the
established liability, the effective income tax rate in a given
financial statement period could be materially
affected.
The
following tables set forth our principal physical properties.
We believe our existing
properties and equipment are in good operating condition and are
suitable for the conduct of our business.
Type
|
Location
|
Lease/owned
|
Corporate
Properties
|
|
|
Headquarters,
U.S.
|
Las
Vegas, NV
|
Leased
|
Business Operation Properties
|
Cultivation
& Production Facility
|
Clark
County, NV
|
Leased
|
Cultivation
& Distribution Facility
|
Clark
County, NV
|
Leased
|
Cultivation
& Production Facility
|
Nye
County, NV
|
Owned
|
Dispensary
& Production Facility
|
Clark
County, NV
|
Leased
|
Dispensary
Facility
|
Clark
County, NV
|
Leased
|
Dispensary
& Distribution Facility
|
Orange
County, CA
|
Leased
|
Cultivation
& Production Facility
|
Marion
County, FL
|
Leased
|
Properties Subject to an Encumbrance. There is a mortgage on
one property owned by us in Nye County, Nevada.
Leases
We
currently have rights and obligations under the following
leases:
1.
Lease 1: MMDC signed a five-year, triple
net lease dated July 22, 2015 for our 4,750 square foot Clark
County dispensary location with a rate of US$1.75 per square foot,
per month, with the right to extend for two additional terms of
five years each.
2.
Lease 2: MMDC signed a lease starting on
August 30, 2014 and ending on December 31, 2034 for the Clark
County cultivation and production location, with a monthly rent of
US$9,667.67, with the right to extend for two additional terms of
five years each. MMDC also entered into a sub-lease at that
facility for an additional, approximately 2,000 square feet from
the neighboring tenant, with a termination date of December 31,
2034. The landlord was initially an entity owned by Mr. Scheffler,
our Co-CEO. That entity subsequently sold the building effective
September 26, 2018 and the new owner, an arm’s length party,
has assumed all the obligations of the former landlord under the
terms of the lease.
3.
Lease 3: MMDC signed a lease dated April
23, 2018 in respect of the Planet 13 Las Vegas Superstore location
(the “Planet 13 Las Vegas
Superstore Lease”) for approximately 112,663 square
feet of office and warehouse space located at 2548 West Desert Inn
Road, Las Vegas, Nevada, on a 9.14 acre parcel for a term of seven
years, starting at a base rent of US$0.20 per square foot, per
month, and rising to US$0.824 per square foot, per month for the
last year of the initial seven year term. MMDC has the right to
extend the lease for two additional terms of seven years
each.
4.
Lease 4: MMDC signed a lease dated April
1, 2019 with respect to certain premises located next to the Planet
13 Las Vegas Superstore consisting of a 3,378 square foot building
(“Building 2”),
32,400 square feet of land immediately adjacent to such building
and a license for use of approximately 4.17 acres of land situated
immediately adjacent and north of Building 2. The lease is for a
term of six years and five months, starting with a base rent of
US$8,000 per month for months one to three and US$12,000 per month
for months four to 17. MMDC has the right to extend the lease for
two additional terms of seven years each. MMDC intends to use Building 2 for general office,
warehouse and services use, and the remaining land as parking space
that it expects it will need to accommodate our growth plans with
respect to the Planet 13 Las Vegas Superstore.
5.
Lease 5: BLC Management Company, LLC
assumed a lease from Warner Management Company at the closing of
the Santa Ana Acquisition on May 20, 2020, for 16,263 square feet
of office and warehouse space located at 3400 Warner Ave., Units,
F, F-2, G and H, commencing December 1, 2018. The lease is for a
term of eleven years and six months with a base rent of US$2.00 per
square foot, and includes four five-year options to renew. That
lease has been subsequently amended to include Units A through H
for the retail facility under construction and Units K-M for the
distribution facility currently under construction, for a total of
30,001 square feet of office and warehouse space. The lease
includes a tenant improvement allowance at US$25.00 per square foot
of improvement, and a roof repair/replacement contribution
allowance capped at US$112,000.
6.
Lease 6: On November 25, 2020, MMDC
entered into an assignment and assumption agreement with WCDN and
RX Land pursuant to which WCDN assigned to MMDC all of WCDN’s
right, title and interest under the Initial West Bell Lease, which
lease agreement was subsequently amended pursuant to an amendment
to lease entered into between MMDC and RX Land on November 27, 2020
(the “Amended West Bell
Lease” and, together with the Initial West Bell Lease,
the “West Bell
Lease”). The West Bell Lease is for a term of 15
years, at a base rent of US$1.66 per square foot, subject to
further annual rate increases of 3%, with MMDC having the right to
extend the lease for two additional terms of five years each. MMDC
is using the space for licensed cultivation and production
operations.
7.
Lease 7: On September 7, 2021, Planet 13
Florida entered into a lease for approximately 9,000 square feet of
nursery and warehouse space located in Marion County, Florida. The
lease is for a term of one year, with two options to extend the
lease for additional terms of one year each, and has a base rent of
$6,000.00 per month for the first three months, and $8,500 per
month for the remaining term. Planet 13 Florida will maintain this
space as the licensed Florida cultivation and production facility
until such time as it identifies a more permanent installation to
support its expansion plans in Florida.
ITEM
4.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The
following table sets forth the expected beneficial ownership of our
voting securities as of December 8, 2021 for
(i) each member of the Board, (ii) each named executive
officer (as defined herein), (iii) each person known to us to be
the beneficial owner of more than 5% of our voting securities and
(iv) the members of the Board and our executive officers as a
group. Beneficial ownership is determined according to the rules of
the SEC. Generally, a person has beneficial ownership of a security
if the person possesses sole or shared voting or investment power
of that security, including any securities that a person has the
right to acquire beneficial ownership within 60 days. Except as
indicated, all shares of our securities will be owned directly, and
the person or entity listed as the beneficial owner has sole voting
and investment power. The percentage ownership in the below table
is based on 198,674,245 Common Shares outstanding as of December 8,
2021. On May 7, 2021, all of the outstanding Restricted Voting
Shares were converted to Common Shares. As a result, there are no
Restricted Voting Shares outstanding and we have only one class of
outstanding shares, the Common Shares. To our knowledge, except as
noted below, no person or entity is the beneficial owner of more
than 5% of the Common Shares. The address for each director and
executive officer is c/o Planet 13 Holdings Inc., 548 West Desert
Inn Road, Suite 100, Las Vegas, Nevada 89109.
|
|
Name of
Beneficial Owner
|
Number
Beneficially Owned
|
Percent of
Total Common Shares
|
Larry
Scheffler
|
39,470,859(1)
|
19.87%
|
Robert
Groesbeck
|
38,819,587(2)
|
19.54%
|
Dennis
Logan
|
184,129(3)
|
*
|
Chris
Wren
|
4,665,582(4)
|
2.35%
|
Michael
Harman
|
268,609
|
*
|
Adrienne
O’Neal
|
137,295
|
*
|
All directors and
executive officers as a group (10 persons)
|
84,304,992
|
42.43%
|
* Less
than one percent.
(1)
Beneficial
ownership includes 562,500 Common Shares owned by the Scheffler
Family Limited Partnership (the “Partnership”) and 5,000,000 Common Shares owned by Thirteen,
LLC (“Thirteen”)
and 33,016,470 Common Shares owned by Scheffler RX LLC. The
Partnership, Scheffler RX LLC and Thirteen are entities owned and
controlled by Mr. Scheffler. Mr. Scheffler has the sole voting power over 39,470,859
Common Shares, shared voting power
over no Common Shares, sole
dispositive power over 39,470,859 Common Shares and shared
dispositive power over no Common Shares.
(2)
Beneficial
ownership includes 30,413,176
Common Shares owned by RAG Holdings LLC (“RAG”) and 7,603,294 Common Shares owned by PRMN
Investments, LLC (“PRMN”). RAG and PRMN are entities
owned and controlled by Mr. Groesbeck. Mr. Groesbeck has
the sole voting power over
30,413,176 Common Shares, shared
voting power over no Common Shares, sole dispositive power over 30,143,176
Common Shares and shared dispositive power over no Common
Shares.
(3)
Beneficial
ownership includes 56,887
Common Shares owned securities through his registered retirement
savings plan. Mr. Logan has the sole
voting power over 184,129 Common Shares, shared voting power over no Common
Shares, sole dispositive power
over 184,129 Common Shares and shared dispositive power over
no Common Shares.
(4)
Beneficial
ownership includes 4,037,000
Common Shares owned by 4 Degrees Higher LLC (“4 Degrees”). 4 Degrees is an
entity owned and controlled by Mr. Wren. Mr. Wren has the sole voting power over 4,665,582 Common
Shares, shared voting power
over no Common Shares, sole
dispositive power over 4,665,582 Common Shares and shared
dispositive power over no Common Shares.
ITEM
5.
DIRECTORS AND EXECUTIVE OFFICERS
The
articles of the Company (the “Articles”) provide that the number
of directors should not be fewer than three directors. Each
director shall hold office until the close of our next annual
general meeting, or until his or her successor is duly elected or
appointed, unless his or her office is earlier vacated. Our Board
currently consists of four directors.
The
following table sets forth our directors and executive officers and
their respective positions:
Name
|
|
Age
|
|
Position
|
Robert
Groesbeck
|
|
60
|
|
Director,
Co-Chairman and Co-CEO
|
Larry
Scheffler
|
|
71
|
|
Director,
Co-Chairman and Co-CEO
|
Michael
Harman
|
|
49
|
|
Director
|
Adrienne
O’Neal
|
|
62
|
|
Director
|
Dennis
Logan
|
|
54
|
|
Chief
Financial Officer
|
Leighton
Koehler
|
|
43
|
|
General
Counsel
|
Chris
Wren
|
|
39
|
|
Vice
President Operations
|
William
Vargas
|
|
62
|
|
Vice
President Finance
|
David
Farris
|
|
27
|
|
Vice
President Sales and Marketing
|
Stephen
Markle
|
|
33
|
|
Vice
President Production
|
Director
and Executive Officer Biographies
Robert Groesbeck has served as Co-CEO and a director of the
Company since June 2018. Prior to that, Mr. Groesbeck served as
Co-President of MMDC, a subsidiary of the Company, from 2014 to
June 2018. Mr. Groesbeck also serves as General Counsel and Advisor
to C&S Waste Solutions, a provider of comprehensive solid waste and
recycling services, since 2013. He
has practiced law for over 25 years and has also served as the
mayor of the City of Henderson, Nevada from 1993 to 1997. Mr.
Groesbeck earned his B.S. in Criminal Justice from the University
of Nevada, a M.B.A. from National University and a J.D. from
Western Michigan University.
We believe that Mr. Groesbeck’s experience as a long-time
entrepreneur, starting and/or assisting in the creation of a number
of businesses, qualifies him to serve on the Board.
Larry Scheffler has served as Co-CEO and a director of the
Company since June 2018. Prior to that, Mr. Scheffler served as
Co-President of MMDC, a subsidiary of the Company, from 2014 to
June 2018. He is also the Chairman and Founder of Las Vegas Color
Graphics, Inc., a privately owned commercial
printing company, where he has served since
1978. Mr. Scheffler has also
served as a councilman for the city of Henderson, Nevada from 1990
to 1995. Mr. Scheffler has also served as a commissioner on six
major commissions in Southern Nevada government and has an
extensive background in real estate. He has founded and is managing
director of entities controlling over 1,000 acres in three states
that are under some form of development.
We
believe that Mr. Scheffler’s broad management experience and
past success with guiding the growth of the Company qualifies him
to serve on the Board.
Michael Harman, CPA, has been a director of the
Company since June 2018. He is the Managing Partner and senior audit
partner with HRP CPAs, a certified public accounting and consulting
firm, since July 2016. Prior to that, Mr. Harman was a
Partner at LLB CPAs from 1998 to June 2016. He holds FINRA series 27 and 63
licenses, serves as Financial Operations Principal for a Broker
Dealer in Las Vegas, is a member of the American Institute of
Certified Public Accountants, the Turnaround Management Association
and the Nevada Society of Certified Public Accountants and is a CPA
licensed in the State of Nevada.
We believe that Mr. Harman is qualified to serve on the Board due
to his extensive accounting experience and his familiarity in
working with management of a variety of companies in his role as a
CPA.
Adrienne O’Neal has been a director of the Company
since June 2019. She has been the owner of Las Vegas Counselor LLC
since 2004, where she provides marriage and family therapy
services, and she is also the co-owner of Red Rock Counseling, a
private practice agency which includes licensed therapists and
training for pre-licensed graduate students since December
2018. Prior to 2004,
Ms. O’Neal was an Account Manager at R&R Partners, an
advertising, marketing,
public relations, and public affairs firm, for 13 years
between 1984 to 2004. From June 2017 to February 2021, Ms.
O’Neal was appointed by former State of Nevada Governor Brian
Sandoval and served on the Nevada State Board of Marriage &
Family Therapy and Clinical Professional Counselors. Ms.
O’Neal has also served as a part-time instructor at the
University of Nevada, Las Vegas School of Medicine’s Marriage
and Family Therapy Graduate Program, where she has served since
January 2017. Ms. O’Neal has passed the Series 7 exam, which
measures the degree to which a candidate possesses the knowledge
needed to perform the critical functions of a general securities
representative, including sales of corporate securities, municipal
securities, investment company securities, variable annuities,
direct participation programs, options and government securities,
administered by the Financial Industry Regulatory Authority. She
holds a B.S. in Marketing and a M.S. in Marriage and Family Therapy
degree from the University of Nevada.
We
believe that Ms. O’Neal’s expertise in securities
matters and her background in a variety of types of business
qualifies her to serve on the
Board.
Dennis Logan has served as Chief Financial Officer of the
Company since June 2018. He is currently the part-time Chief
Financial Officer of BTU Metals Corp.
(TSX-V: BTU), a junior exploration company, since August 2017, and
is the part-time Chief Financial Officer or Sterling Metals Corp.
(TSX-V: SAG), a mineral exploration company, since September
2017. Previously, Mr. Logan
was the Chief Financial Officer, Director and Corporate Secretary
of Almonty Industries Inc., a publicly traded tungsten mining and
processing company (TSX-V: AII), from September 2011 until March
2017. Mr. Logan was also the Chair of the Audit Committee of
Magna Terra Minerals Inc. (TSX-V: MTT), a precious metals focused exploration
company, from September 2017 until May 2021. From June 2015 until April
2018, he served as the
Chairman of the Audit Committee of Eurocontrol Technics Group Ltd.
(TSX-V: EUO), a detection and marking systems developer. Mr.
Logan started his career in finance and accounting at Ernst &
Young LLP in 1992.
Leighton Koehler has
been the General Counsel of the Company since June 2018. Mr.
Koehler is a licensed attorney and CPA, whose previous experience
includes working at Dickinson Wright, a U.S.-Canada law firm, as a
transactional and tax attorney from October 2016 to May 2018,
regional and local law firms Fabian VanCott and Gerrard Cox Larsen
from 2013 through October 2016, the Internal Revenue Service as a
senior revenue agent from 2007 to 2013, and at Ernst & Young in
both the audit and tax divisions from 2004 to 2007. He holds a B.A.
and M.A. in Accounting from Southern Utah University, a J.D. from
the Boyd School of Law, and he is a U.S. Army veteran. Prior
to joining the Company, Mr. Koehler successfully represented his
Fortune 500 company clients and other clients before federal,
state, and local regulators, and served as Nevada counsel for the
Company’s reverse take-over transaction.
Chris Wren has been the Vice President Operations of the
Company since March 2014
and is responsible for the oversight of all production and
cultivation operations. He possesses more than 16 years of cannabis
industry cultivation and extraction experience. Mr. Wren also
managed the construction of the Company’s dispensary, the
Clark County cultivation facility and the Beatty complex, as well
as design and implementation of the Company processes at those
facilities. Mr. Wren is an internationally recognized cannabis
horticulturist and has won several awards for his cultivation
efforts, including first place in the 2015 International
Cannagraphic Growers Cup.
William Vargas has been the Vice
President Finance of the Company since June 2018. He currently serves as Chief Financial
Officer and Senior Vice President of Las Vegas Color Graphics,
Inc., a privately owned commercial printing company,
since July 2000. Previously, Mr. Vargas served as Vice
President Finance, Chief Financial Officer and Corporate Secretary
of LEC Technologies, Inc., a publicly-traded computer leasing
company, from 1995 to 2000. Mr. Vargas started his career in
finance and accounting as audit manager with Arthur Andersen &
Co. in 1995.
David Farris has been Vice President Sales &
Marketing of the Company
since December 2019. Prior to that, he was the Company’s
Director of Sales and Marketing from June 2018 through December
2019, MMDC’s Director of Sales and Marketing from October
2017 through June 2018, MMDC’s General Manager from June 2017
through October 2017, and MMDC’s Marketing and Sales
Coordinator from January 2016 through June 2017. Mr. Farris has
established branding and advertising initiatives in the cannabis
marketplace focused on creating an unparalleled experience and
patient education. Mr. Farris oversees a multidisciplinary sales
and marketing team responsible for advertising, events, promotions,
product packaging, design, and web development/design. In addition
to creative efforts, he currently oversees the operations at three
dispensaries in Nevada and California, including adult-use and
medical sales, and wholesale sales in Nevada. Mr. Farris holds a
B.S. in Business Administration – Marketing from University
of Nevada.
Stephen Markle has served as the Vice President of
Production of the Company since June 2018. Prior to that, Mr.
Markle worked in manufacturing and processing for MMDC, a
subsidiary of the Company, from March 2017 to June 2018. Prior to
joining MMDC, Mr. Markle was an analytical chemist from 2012 to
2015 for Procaps Laboratories, where he implemented all of their
inorganic testing procedures. In early 2015, Mr. Markle entered the
newly legalized medical cannabis industry and assisted in the
design, buildout and operation of MM Lab, an independent cannabis
testing facility located in Las Vegas, Nevada. He is responsible
for all concentrate and infused product manufacturing for MMDC. Mr.
Markle has provided notice of his resignation as VicePresident of
Production and his last date of employment with the Company will be
December 31, 2021.
Board Committees
We
currently have an audit committee, compensation committee and a
corporate governance and nominating committee. A brief description
of each committee is set out below.
Audit Committee
The
audit committee of the Board (the “Audit Committee”) assists the
Board in fulfilling its responsibilities for oversight of
financial, audit and accounting matters. The Board has adopted a
written charter for the Audit Committee, which sets out the Audit
Committee’s responsibilities. The Audit Committee reviews the
financial reports and other financial information provided by us to
regulatory authorities and our shareholders, as well as reviews our
system of internal controls regarding finance and accounting,
including auditing, accounting and financial reporting processes.
The current members of the Audit Committee include the following
directors: Michael Harman (Chair), Adrienne O’Neal and Larry
Scheffler.
Compensation Committee
The
compensation committee of the Board (the “Compensation Committee”) assists
the Board in fulfilling its responsibilities for compensation
philosophy and guidelines. The Compensation Committee also has
responsibility for fixing compensation levels for our executive
officers. In addition, the Compensation Committee is charged with
reviewing our incentive plans and proposing changes thereto,
approving any awards of options under our incentive plans and
recommending any other employee benefit plans, incentive awards and
perquisites with respect to our executive officers. The
Compensation Committee is also responsible for reviewing, approving
and reporting to the Board annually (or more frequently as
required) on our succession plans for our executive officers. The
current members of the Compensation Committee include the following
directors: Michael Harman and Adrienne O’Neal
(Chair).
For
additional details on the Compensation Committee, see Item
6—“Compensation Committee.”
Corporate Governance and Nominating Committee
The
corporate governance and nominating committee (the
“CG&N
Committee”) assists us in fulfilling our corporate
governance responsibilities under applicable law and is responsible
for reviewing and assessing the effectiveness of the Board,
evaluating the Board and its directors and making policy
recommendations aimed at enhancing Board effectiveness. In addition
to assisting us with the recruitment and education of new and
current directors, the CG&N Committee reports to the Board to
assist us in identifying and recommending individuals qualified to
become members of the Board and evaluating the Board and its
directors. The current members of the CG&N Committee include
the following directors: Michael Harman and Adrienne O’Neal
(Chair).
In
accordance with reduced disclosure rules applicable to emerging
growth companies as set forth in Item 402 of Regulation S-K, this
section explains how our compensation program is structured for the
co-CEOs and NEOs, as defined below.
Compensation Committee
The
Board as a whole determines the level of compensation in respect of
our senior executives. The Compensation Committee is appointed by
and reports to the Board. The Compensation Committee, on behalf of
the Board, establishes policies with respect to the compensation of
our Co-CEOs, CFO and other senior executive officers. The
Compensation Committee assists the Board in discharging the
Board’s oversight responsibilities relating to the
attraction, compensation, evaluation and retention of key senior
management employees, and in particular the Co-CEOs, with the
skills and expertise needed to enable us to achieve our goals and
strategies at fair and competitive compensation and appropriate
performance incentives.
The
Compensation Committee is responsible to review and approve
corporate goals and objectives relevant to the Co-CEOs and other
senior executive officers’ compensation, evaluate the
performance of the Co-CEOs and each senior executive
officer’s performance in light of those goals and objectives,
and recommend to the Board for approval the compensation level each
senior executive officer based on this evaluation. The Compensation
Committee is also responsible for the review of our compensation
systems in order to ensure the fairness and appropriateness of the
compensation of senior executive officers that may participate,
including incentive compensation plans and equity-based
plans.
Named Executive Officers
For the
purpose of this registration statement, a named executive officer
(“NEO”) of the
Company means each of the following individuals:
●
each co-CEO of the
Company;
●
the two most highly
compensated executive officers other than the Co-CEOs who were
serving as executive officers at the end of the last completed
fiscal year; and
●
up to two
additional individuals for whom disclosure would have been provided
under the above but for the fact that the individual was not
serving as an executive officer at the end of the last completed
fiscal year.
For the
year ended December 31, 2020, we had four NEOs: Robert Groesbeck,
Co-CEO, Larry Scheffler, Co-CEO, Dennis Logan, Chief Financial
Officer, and Chris Wren, Vice-President, Operations.
Elements of Compensation
In
determining such compensation, the Compensation Committee will
consider our performance and relative shareholder return and the
compensation of CEOs and other senior executive officers at
comparable companies. Additionally, the Compensation Committee may
consider input from the Co-CEOs on senior executive compensation,
but the Co-CEOs may not provide input with respect to their own
compensation.
A
combination of fixed and variable compensation is used to motivate
executives to achieve overall company goals. The basic components
of the executive compensation program are:
1. Base Salary. Base salary is the fixed
portion of each executive officer’s total compensation. It is
designed to provide income certainty and retain executives. In
determining the base level of compensation for the executive
officers, weight is placed on the following objective factors: the
particular responsibilities related to the position; salaries or
fees paid by companies of similar size in the industry; level of
experience and expertise; and subjective factors such as
leadership, commitment and attitude.
2. Annual Bonus. The annual bonus is
intended to reward an executive officer for his or her yearly
individual contribution and performance of personal objectives in
the context of our overall annual performance. The bonus is
designed to motivate executives annually to achieve their
predetermined objectives. In determining compensation and, in
particular, bonuses, the Compensation Committee and the Board
consider factors over which the executive officer can exercise
control, such as their role in identifying and completing
acquisitions and integrating such acquisitions into our business,
meeting any budget targets established by controlling costs, taking
successful advantage of business opportunities and enhancing our
competitive and business prospects.
3. Stock Options. Stock options are a form
of long-term equity incentive compensation granted from time to
time to align executives’ interests with those of the Company
and its shareholders and reward executives for their contribution
to the creation of shareholder value. Participants benefit only if
the market value of our Common Shares at the time of the stock
option exercise is greater than the exercise price of the stock
options at the time of grant. In establishing the number of stock
options that may be granted, reference is made to the
recommendations made by the Compensation Committee as well as, from
time to time, the number of similar awards granted to officers and
directors of other publicly-traded companies of similar size in the
same business as us. The Compensation Committee and the Board also
consider previous grants of stock options and the overall number of
stock options that are outstanding relative to the number of
outstanding securities in determining whether to make any new
grants and the size and terms of any such grants. With respect to
executive officers, the Compensation Committee and the Board also
consider the level of effort, time, responsibility, ability,
experience and level of commitment of the executive officer in
determining the level of long-term equity incentive awards. With
respect to directors, the Compensation Committee and the Board also
consider committee assignments and committee chair
responsibilities, as well as the overall time requirements of the
Board members in determining the level of long-term equity
incentive awards.
4. Restricted Share Units. Restricted
Share Units are a form of long-term equity incentive compensation
granted from time to time to align executives’ interests with
those of the Company and its shareholders and to attract and retain
executives. Restricted Share Units are notional shares that have
the same value as Common Shares and earn dividend equivalents as
additional units, at the same rate as dividends paid on Common
Shares. No dividend equivalents will vest unless the associated
Restricted Share Units also vest. In determining new grants of
Restricted Share Units, the Compensation Committee and the Board
consider factors similar to those contemplated when making new
grants of stock options.
It is
expected that stock options and Restricted Share Units held by
management will be taken into consideration by the Compensation
Committee at the time of any subsequent grants under the
compensation plan in determining the amount or terms of any such
subsequent award grants. The Compensation Committee will further
consider the base salary, bonuses and competitive market factors.
The size of a grant of an award is anticipated to be proportionate
to the deemed ability of the individual to make an impact on our
success, as determined by the Board.
We do
not have a defined benefits plan, defined contribution plan,
deferred compensation or pension or retirement plan applicable to
our NEOs and no plans are currently in place in respect of change
of control or termination.
Summary Compensation Table
The
following table is a summary of annual compensation paid, or
recognized as an expense in accordance with Accounting Standards
Codification (“ASC”) Topic 718 (Compensation
– Stock Compensation), to the NEOs for our two most recently
completed fiscal years. All amounts are expressed in US
Dollars:
Name and
Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
awards
($)(1)
|
Option awards
($)
|
Non-equity
incentive plan compensation ($)
|
Non-qualified
deferred compensation earnings($)
|
All other
compensation ($)(2)
|
Total($)
|
Larry Scheffler
Co-Chief
Executive Officer
|
2020
2019
|
280,062
288,000
|
-
-
|
-
1,224,839
|
-
-
|
28,800
21,600
|
-
-
|
16,985(3)
16,985(3)
|
333,785
1,543,486
|
Robert
Groesbeck
Co-Chief
Executive Officer
|
2020
2019
|
288,000
263,077
|
-
-
|
-
1,224,839
|
-
-
|
28,800
21,600
|
-
-
|
17,106(4)
13,692(4)
|
333,906
1,523,208
|
Dennis Logan
Chief Financial
Officer
|
2020
2019
|
200,000
200,000
|
-
-
|
-
454,415
|
-
-
|
20,000
15,000
|
-
-
|
12,523(5)
13,045(5)
|
232,523
682,460
|
Chris Wren
Vice-President,
Operations
|
2020
2019
|
240,000
253,597
|
-
-
|
-
681,622
|
-
-
|
24,000
18,000
|
-
-
|
35,492(6)
34,366(6)
|
299,492
987,585
|
Notes:
(1)
The amounts reported in
the Stock Awards column reflects the aggregate grant date fair
value computed in accordance with ASC Topic 718
(Compensation – Stock Compensation). These amounts reflect
our calculation of the value of these awards at the grant date and
do not necessarily correspond to the actual value that may
ultimately be realized by the named executive officer. Assumptions
used in the calculation of these amounts are included in Note 13 to
our audited consolidated financial statements for the fiscal year
ended December 31, 2020. The
values provided in this column are calculated based on the closing
price of our Common Shares on the CSE on the date of grant of
CAD$2.60 converted to US Dollars using the exchange rate provided
by the Bank of Canada on the grant date of USD$1.00 =
CAD$1.3087.
(2)
The values provided for
Mr. Logan in this column are converted to US Dollars using the average exchange
rate for the year indicated as provided by the Bank of Canada. For
2019 USD$1.00 = CAD$1.3269; for 2020
USD$1.00=CAD$1.3415.
(3)
The amounts consist of car allowance ($16,985 for each of 2020 and
2019).
(4)
The amounts consist of car allowance ($1,800 for each of 2020 and
2019) and health benefits ($15,306 for 2020; $11,892 for
2019).
(5)
The amounts consist of car allowance ($5,367 for 2020; $5,889 for
2019) and health benefits ($7,156 for each of 2020 and
2019).
(6)
The amounts consist of car allowance ($15,170 for each of 2020 and
2019) and health benefits ($20,322 for 2020; $19,196 for
2019).
Narrative Discussion
For a
summary of the significant terms of each NEO’s employment
agreement or arrangement, please see below under the heading
“Employment Agreements and Termination and Change of Control
Benefits”.
Outstanding Equity Awards at Fiscal Year-End Table
The
following table sets forth outstanding equity awards for the NEOs
at December 31, 2020. All
amounts are expressed in US Dollars:
|
|
|
|
|
|
Number of
securities underlying unexercised options
(#)
exercisable
|
Number of
Securities underlying unexercised option (#)
unexercisable
|
Equity incentive
plan awards: Number of securities underlying unexercised unearned
options (#)
|
Option exercise
price
($)
|
|
Number of shares
or units of stock that have not vested
(#)
|
Market value of
shares of units of stock that have not vested
($)
|
Equity incentive
plan awards: Number of unearned shares, units or other rights that
have not vested (#)(1)
|
Equity incentive
plan awards: Market or payout value of unearned shares, units or
other rights that have not vested ($)(2)
|
Robert
Groesbeck
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
411,012
|
2,288,780
|
Larry Scheffler
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
411,012
|
2,288,780
|
Dennis Logan
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
152,485
|
849,135
|
Chris Wren
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
228,728
|
1,273,7055
|
Notes:
(1)
For each named
executive officer 50% of the listed incentive awards vested January
1, 2021, and 50% vested on December 1, 2021.
(2)
Based on the
closing share price of the Common Shares as traded on the CSE on
December 31, 2020 of CAD$7.09 at an exchange rate of USD$1.00 =
CAD$1.2732.
Employment Agreements and Termination and Change of Control
Benefits
Summary of Employment Agreements
Larry Scheffler
In June
2018, we entered into an employment agreement with Larry Scheffler,
our Co-CEO, for an initial term of five years. The agreement
provides for payment of an annual base salary to Mr. Scheffler,
which for the current fiscal year ending December 31, 2021 is
USD$500,000 (subject to any further increases as may be approved by
the Compensation Committee). Mr. Scheffler is also entitled to
receive other benefits and perquisites, including participation in
our benefit plans, an annual bonus, performance bonuses and
participation in our stock option plan, approved by the Board on
May 22, 2018 (the “Stock
Option Plan”) and other equity plans in effect from
time to time. If Mr. Scheffler’s employment is terminated by
us with “cause” or by Mr. Scheffler without “good
reason” (as such terms are defined in the agreement), we will
pay Mr. Scheffler any accrued but unpaid base salary, accrued but
unused vacation and any earned but unpaid annual bonus with respect
to any completed calendar year immediately preceding the date of
termination, except in the event Mr. Scheffler’s employment
is terminated by us for cause in which case any such accrued but
unpaid annual bonus shall be forfeited. If Mr. Scheffler’s
employment is terminated by us without cause or by Mr. Scheffler
for good reason, including upon the change of control of the
Company, we will, for the duration of the remaining term of the
agreement, continue to pay Mr. Scheffler his base salary and
continue to provide him with health care benefits at a
substantially similar level to the benefits provided to him while
he was employed by us. In addition, Mr. Scheffler shall be paid any
earned but unpaid annual bonus with respect to any completed
calendar year immediately preceding the date of termination and all
outstanding equity incentive awards granted to him would fully vest
on the date of such termination of employment. The employment
agreement also provides for, among other things, confidentiality,
non-solicitation and non-competition covenants in favor of the
Company. The non-solicitation and non-competition covenants apply
during the term of employment and for 12 months following
resignation or the termination of Mr. Scheffler’s employment.
In March 2021, we entered into an amendment to the employment
agreement with Mr. Scheffler extending the term through December
31, 2025.
Robert Groesbeck
In June
2018, we entered into an employment agreement with Robert
Groesbeck, our Co-CEO, for an initial term of five years. The
agreement provides for payment of an annual base salary to Mr.
Groesbeck, which for the current fiscal year ending December 31,
2021 is USD$500,000 (subject to any further increases as may be
approved by the Compensation Committee). Mr. Groesbeck is also
entitled to receive other benefits and perquisites, including
participation in our benefit plans, an annual bonus, performance
bonuses and participation in the Stock Option Plan and other equity
plans in effect from time to time. If Mr. Groesbeck’s
employment is terminated by us with “cause” or by Mr.
Groesbeck without “good reason” (as such terms are
defined in the agreement), we will pay Mr. Groesbeck any accrued
but unpaid base salary, accrued but unused vacation and any earned
but unpaid annual bonus with respect to any completed calendar year
immediately preceding the date of termination, except in the event
Mr. Groesbeck’s employment is terminated by us for cause in
which case any such accrued but unpaid annual bonus shall be
forfeited. If Mr. Groesbeck’s employment is terminated by us
without cause or by Mr. Groesbeck for good reason, including upon
the change of control of the Company, we will, for the duration of
the remaining term of the agreement, continue to pay Mr. Groesbeck
his base salary and continue to provide him with health care
benefits at a substantially similar level to the benefits provided
to him while he was employed by us. In addition, Mr. Groesbeck
shall be paid any earned but unpaid annual bonus with respect to
any completed calendar year immediately preceding the date of
termination and all outstanding equity incentive awards granted to
him would fully vest on the date of such termination of employment.
The employment agreement also provides for, among other things,
confidentiality, non-solicitation and non-competition covenants in
favor of the Company. The non-solicitation and non-competition
covenants apply during the term of employment and for 12 months
following resignation or the termination of Mr. Groesbeck’s
employment. In March
2021, we entered into an amendment to the employment agreement with
Mr. Groesbeck extending the term through December 31,
2025.
Dennis Logan
In June
2018, we entered into an employment agreement with Dennis Logan,
our Chief Financial Officer, which agreement was amended in January
2019, for an initial term of five years. The amended agreement
provides for payment of an annual base salary to Mr. Logan, which
for the current fiscal year ending December 31, 2021 is USD$300,000
(subject to any further increases as may be approved by the
Compensation Committee). Mr. Logan is also entitled to receive
other benefits and perquisites, including participation in our
benefit plans, an annual bonus, performance bonuses and
participation in the Stock Option Plan and other equity plans in
effect from time to time. If Mr. Logan’s employment is
terminated by us with “cause” or by Mr. Logan without
“good reason” (as such terms are defined in the
agreement), we will pay Mr. Logan any accrued but unpaid base
salary, accrued but unused vacation and any earned but unpaid
annual bonus with respect to any completed calendar year
immediately preceding the date of termination, except in the event
Mr. Logan’s employment is terminated by us for cause in which
case any such accrued but unpaid annual bonus shall be forfeited.
If Mr. Logan’s employment is terminated by us without cause
or by Mr. Logan for good reason, including upon the change of
control of the Company, we will, for a period of 18 months from the
date of termination, continue to pay Mr. Logan his base salary and
continue to provide him with health care benefits at a
substantially similar level to the benefits provided to him while
he was employed by us. In addition, Mr. Logan shall be paid any
earned but unpaid annual bonus with respect to any completed
calendar year immediately preceding the date of termination and all
outstanding equity incentive awards granted to him would fully vest
on the date of such termination of employment. The employment
agreement also provides for, among other things, confidentiality,
non-solicitation and non-competition covenants in favor of the
Company. The non-solicitation and non-competition covenants apply
during the term of employment and for 12 months following
resignation or the termination of Mr. Logan’s
employment.
Chris Wren
In June
2018, we entered into an employment agreement with Chris Wren, our
Vice President, Operations, for an initial term of five years. The
agreement provides for payment of an annual base salary to Mr.
Wren, which for the current fiscal year ending December 31, 2021 is
$415,000 (subject to
any further increases as may be approved by the Compensation
Committee). Mr. Wren is also entitled to receive other benefits and
perquisites, including participation in our benefit plans, an
annual bonus, performance bonuses and participation in the Stock
Option Plan and other equity plans in effect from time to time. If
Mr. Wren’s employment is terminated by us with
“cause” or by Mr. Wren without “good
reason” (as such terms are defined in the agreement), we will
pay Mr. Wren any accrued but unpaid base salary, accrued but unused
vacation and any earned but unpaid annual bonus with respect to any
completed calendar year immediately preceding the date of
termination, except in the event Mr. Wren’s employment is
terminated by us for cause in which case any such accrued but
unpaid annual bonus shall be forfeited. If Mr. Wren’s
employment is terminated by us without cause or by Mr. Wren for
good reason, including upon the change of control of the Company,
we will, for the duration of the remaining term of the agreement,
continue to pay Mr. Wren his base salary and continue to provide
him with health care benefits at a substantially similar level to
the benefits provided to him while he was employed by us. In
addition, Mr. Wren shall be paid any earned but unpaid annual bonus
with respect to any completed calendar year immediately preceding
the date of termination and all outstanding equity incentive awards
granted to him would fully vest on the date of such termination of
employment. The employment agreement also provides for, among other
things, confidentiality, non-solicitation and non-competition
covenants in favor of the Company. The non-solicitation and
non-competition covenants apply during the term of employment and
for 12 months following resignation or the termination of Mr.
Wren’s employment. In March 2021, we entered into an
amendment to the employment agreement with Mr. Wren extending the
term through December 31, 2025.
Director Compensation Table
We do
not provide separate or additional compensation to directors who
are also executives in connection with their services as a
director. Prior to January 1, 2021, non-employee directors did not
receive any compensation, except for Stock Options under the Stock
Option Plan or Restricted Share Units under the Amended and
Restated Share Unit Plan. We adopted a director compensation plan
effective January 1, 2021 which provides for the payment of annual
base fees to non-employee directors of $100,000 each that is
payable quarterly in arears. Other than as set out in the table
below and prior to January 1, 2021, no non-employee director has
received compensation pursuant to:
(a)
any standard
arrangement for the compensation of directors for their services in
their capacity as directors, including any additional amounts
payable for committee participation or special
assignments;
(b)
any other
arrangement, in addition to, or in lieu of, any standard
arrangement, for the compensation of directors in their capacity as
directors; or
(c)
any arrangement for
the compensation of directors for services as consultants or
experts.
The
following table sets forth all compensation paid to or earned,
or recognized as an expense in
accordance ASC Topic 718, by each non-employee director
during our fiscal year ended December 31, 2020. All amounts are
expressed in US Dollars:
Name
|
FeesEarned or
paid in cash($)
|
|
|
Non-equity
incentive plan compensation
($)
|
Nonqualified
deferred compensation earnings ($)
|
All
OtherCompensation ($)
|
|
Michael
Harman
|
-
|
116,859
|
-
|
-
|
-
|
-
|
116,859
|
|
-
|
165,827
|
-
|
-
|
-
|
-
|
165,827
|
Notes:
(1)
The values provided in this column are calculated
based on the closing price of our Common Shares on the CSE on the
date of grant converted to US Dollars using the exchange rate
provided by the Bank of Canada on the grant date. As of December
31, 2020, (a) Mr. Harman had an aggregate of 157,426
Common Shares and 101,555
RSUs outstanding, and (b) Ms.
O’Neal had an aggregate of 93,965 Common Shares and 50,777 RSUs outstanding.
Compensation Committee Interlocks and Insider
Participation
During 2020, our Compensation Committee members were
Adrienne O’Neal (Chair)
and Michael Harman, none of
whom currently is, or formerly was, an officer or employee of the
Company. None of our executive officers served as a member of the
Board or Compensation Committee of any other company that had one
or more executive officers serving as a member of our board of
directors or Compensation Committee.
ITEM
7.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR
INDEPENDENCE
Transactions with Related Persons
The
following is a description of each transaction since January 1,
2018 and each currently proposed transaction in which:
●
we have been or are
to be a participant;
●
the amounts
involved exceeded or will exceed $120,000; and
●
any of our
directors, executive officers or holders of more than 5% of our
capital stock, or an affiliate or immediate family member of the
foregoing persons, had or will have a direct or indirect material
interest.
Other
than as described below, there have not been, nor are there any
currently proposed, transactions or series of similar transactions
to which we have been or will be a party other than compensation
arrangements, which are described where required under the section
entitled “Executive Compensation” and “Director
Compensation Table.”
Clark Country Cultivation Facility Lease
Prior
to September 2018, we leased approximately 15,000 square feet of
office and production space for our Clark County Cultivation
facility from a limited partnership controlled by Larry Scheffler,
co-CEO of the Company. On September 26, 2018, the property was
acquired by an arm’s length third party. Related-party rents
paid under this lease for the year ended December 31, 2018 equaled
$384,010.
Office Space Sublease and Storage Space
We
sub-let approximately 2,000 square feet of office space and
purchase certain printed marketing collateral and stationery items
from a company owned by Larry Scheffler, one of our co-CEOs.
Amounts paid to such company for rent for the nine months ended
September 30, 2021, equaled $16,027 and for the years ended
December 31, 2020, 2019 and 2018 equaled $24,040, $24,040 and
$24,040, respectively. Amounts paid for printed marketing
collateral and stationery items for the nine months ended September
30, 2021, equaled $382,264 and for the years ended December 31,
2020, 2019 equaled $170,009, $279,457 and $8,769 respectively. As
at September 30, 2021, there was $76,747 included in accounts
payable that was owed to this related party.
From
November 2020 to April 2021, we leased a 25,000 square foot
cultivation facility from an entity owned by both our Co-CEOs.
Rents paid for this facility for the nine months ended September
30, 2021 equaled $301,894. For the year ended December 31, 2020,
equaled $339,688; $0 for the years ended December 31, 2019 and 2018
respectively.
2018 Financings
Prior
to 2018, MMDC was largely financed by its founders Robert Groesbeck
and Larry Scheffler, and companies controlled by them, through a
combination of cash contributions classified as debt with accrued
interest exceeding US$6,600,000 and reinvestment of operating
proceeds.
On
January 1, 2018, Messrs. Groesbeck and Scheffler converted an
aggregate of US$3,334,304 of their controlled entity debts to
equity in MMDC and Chris Wren, Vice President of Operations of
MMDC, contributed valuable intellectual property, including genetic
strains, cultivation processes, and manufacturing processes, to
MMDC in return for a 6% interest in MMDC. The foregoing resulted in
MMDC issuing to such persons, in the aggregate, 25,300 class A
common voting shares of MMDC and 49,700,000 class B common
non-voting shares of MMDC which were subsequently converted into
25,300,000 Common Shares and 49,700,000
Restricted Voting Shares, respectively, on closing of the Business
Combination.
On June
20, 2018, Messrs. Groesbeck and Scheffler, through controlled
companies, converted an aggregate of approximately US$3.4 million
principal amount and accrued interest of unsecured promissory notes
of the Company held by them into an aggregate of 5,532,940
Restricted Voting Shares, or 2,766,470 Restricted Voting Shares
each, at a conversion price of C$0.80 per Restricted Voting Share.
On October 15, 2015, an original member of MMDC, Ollehea, LLC,
requested that MMDC repurchase its interest as allowed under an
operating agreement then in effect. Consequently, the remaining
members of MMDC at the time agreed to issue promissory notes to
Ollehea LLC on behalf of MMDC in the amount of US $101,997 each to
satisfy the repurchase requirement. The notes were repaid by us on
July 9, 2018.
WCDN Acquisition
Concurrent
with the first closing of the WCDN Acquisition previously described
herein, RX Land, an entity that was owned by our Co-CEOs, acquired
the WCDN Acquisition Facility for US$3.3 million and entered into
Initial West Bell Lease. In accordance with the terms of the WCDN
Asset Acquisition Agreement and approvals by our independent
directors, WCDN assigned the Initial West Bell Lease to MMDC on
November 25, 2020, and MMDC subsequently entered into an amending
agreement with RX Land on November 27, 2020, to amend certain terms
of such lease agreement including increasing the lease payments,
extending the duration of the lease and, if desired, allowing for
second floor installation by MMDC without a corresponding lease
rate increase due to an increase in facility size. In April 2021,
RX Land was sold to an arm’s length third party.
Related Person Transaction Policy
We have
adopted a written related person transactions policy that provides
that our executive officers, directors, nominees for election as a
director, beneficial owners of more than 5% of any class of our
voting securities, and any members of the immediate family of the
foregoing persons, are not permitted to enter into a material
related person transaction with us without the review and approval
of our audit committee. The policy provides that any request for us
to enter into a transaction with an executive officer, director,
nominee for election as a director, beneficial owner of more than
5% of our common stock or with any of their immediate family
members or affiliates in which the amount involved exceeds $120,000
will be presented to our audit committee for review, consideration
and approval, subject to exceptions for certain transaction for
which there is standing pre-approval as described in the policy,
including for employment of executive officers and director
compensation. In approving or rejecting any such proposal, our
audit committee shall take into account, among other factors it
deems appropriate, (i) whether the transaction was undertaken in
our ordinary course of business, (ii) whether the transaction was
initiated by us, a subsidiary of us, or the related person, (iii)
whether the transaction is proposed to be, or was, entered into on
terms no less favorable to us than terms that could have been
reached with an unrelated third party, (iv) the purpose of, and the
potential benefits to us of, the transaction, (v) the approximate
dollar value of the amount involved in the transaction,
particularly as it relates to the related person, (vi) the related
person’s interest in the transaction and (vii) any other
information regarding the transaction or the related person that
would be material to investors in light of the circumstances of the
particular transaction.
Promoters
Robert
Groesbeck and Larry Scheffler, the co-CEOs, co-Chairmen and each a
director of the Company, are promoters of the Company. As of
December 8, 2021: (i) Mr. Groesbeck owns, or controls or directs,
directly or indirectly, a total of 38,819,587 Common Shares, and
562,511 RSUs, representing in the aggregate approximately 18.71% of
the equity of the Company on a fully diluted basis; and (ii) Mr.
Scheffler owns, or controls or directs, directly or indirectly, a
total of 39,470,859 Common Shares and 562,511 RSUs, representing in
the aggregate approximately 19.02 of the equity of the Company on a
fully diluted basis.
Director Independence
Our
board of directors is composed of two “independent
directors” as defined under the rules of Nasdaq. We use the
definition of “independence” of Nasdaq to make this
determination. Nasdaq Listing Rule 5605(a)(2) provides that an
“independent director” is a person other than an
officer or employee of the Company or any other individual having a
relationship which, in the opinion of the Board, would interfere
with the exercise of independent judgment in carrying out the
responsibilities of a director. The Nasdaq listing rules provide
that a director cannot be considered independent if:
● the
director is, or at any time during the past three (3) years was, an
employee of the company;
●
the director or a
family member of the director accepted any compensation from the
company in excess of $120,000 during any period of twelve (12)
consecutive months within the three (3) years preceding the
independence determination (subject to certain exemptions,
including, among other things, compensation for board or board
committee service);
●
the director or a
family member of the director is a partner in, controlling
shareholder of, or an executive officer of an entity to which the
company made, or from which the company received, payments in the
current or any of the past three fiscal years that exceed 5% of the
recipient’s consolidated gross revenue for that year or
$200,000, whichever is greater (subject to certain
exemptions);
●
the director or a
family member of the director is employed as an executive officer
of an entity where, at any time during the past three (3) years,
any of the executive officers of the company served on the
compensation committee of such other entity; or
●
the director or a
family member of the director is a current partner of the
company’s outside auditor, or at any time during the past
three (3) years was a partner or employee of the company’s
outside auditor, and who worked on the company’s
audit.
Under such definitions, Adrienne O’Neil and Michael
Harman are each independent directors.
However, our shares are not currently quoted or listed on any U.S.
national exchange or interdealer quotation system with a
requirement that a majority of our Board be independent and,
therefore, we are not subject to any director independence
requirements in the U.S.
There
are no actual or to our knowledge contemplated legal proceedings
material to us or our subsidiaries or to which any of our or any of
our subsidiaries’ property is the subject
matter.
ITEM
9.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The
Common Shares are listed and posted for trading on the CSE under
the symbol “PLTH” and quoted on the OTCQX under the
symbol “PLNHF.” The Common Shares commenced trading on
the CSE effective June 21, 2018.
The
following table indicates the high and low values with respect to
trading activity for the Common Shares on the CSE for the periods
indicated below (source:
www.thecse.com
and www.finance.yahoo.com).
Period
Ended
|
Low Trading
Price (C$)
|
High Trading
Price (C$)
|
Third
Quarter Ended September 30, 2021
|
5.36
|
8.78
|
Second
Quarter Ended June 30, 2021
|
7.19
|
9.29
|
First
Quarter Ended March 31, 2021
|
6.54
|
10.88
|
Fourth
Quarter Ended December 31, 2020
|
3.57
|
8.20
|
Third
Quarter Ended September 30, 2020
|
1.96
|
5.51
|
Second
Quarter Ended June 30, 2020
|
1.26
|
2.69
|
First
Quarter Ended March 31, 2020
|
0.99
|
2.62
|
Fourth
Quarter Ended December 31, 2019
|
1.72
|
2.48
|
Third
Quarter Ended September 30, 2019
|
2.12
|
2.86
|
Second
Quarter Ended June 30, 2019
|
2.15
|
3.60
|
First
Quarter Ended March 31, 2019
|
1.44
|
2.26
|
The
following table indicates the high and low values with respect to
trading activity for the Common Shares on the OTCQX for the periods
indicated below (source:
www.otcmarkets.com).
Any over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down, or commission and may not
necessarily represent actual transactions.
Period
Ended
|
Low Trading
Price (US$)
|
High Trading
Price (US$)
|
Third
Quarter Ended September 30, 2021
|
4.21
|
7.14
|
Second
Quarter Ended June 30, 2021
|
5.72
|
7.37
|
First
Quarter Ended March 31, 2021
|
5.1
|
8.67
|
Fourth
Quarter Ended December 31, 2020
|
2.67
|
6.40
|
Third
Quarter Ended September 30, 2020
|
1.5684
|
4.19
|
Second
Quarter Ended June 30, 2020
|
0.8815
|
1.99
|
First
Quarter Ended March 31, 2020
|
0.63
|
2.02
|
Fourth
Quarter Ended December 31, 2019
|
1.2556
|
2.00
|
Third
Quarter Ended September 30, 2019
|
1.60
|
2.18
|
Second
Quarter Ended June 30, 2019
|
1.61
|
2.70
|
First
Quarter Ended March 31, 2019
|
1.09
|
1.72
|
Shareholders
As of
December 8, 2021, there were 47 holders of record of Common Shares
and no holders of record of Restricted Voting Shares.
Dividends
We have
not paid dividends since the completion of the Business Combination
and currently intend to reinvest all future earnings to finance the
development and growth of our business. As a result, we do not
intend to pay dividends on the Common Shares or any Restricted
Voting Shares in the foreseeable future. Any future determination
to pay distributions will be at the discretion of the Board and
will depend on the financial condition, business environment,
operating results, capital requirements, any contractual
restrictions on the payment of distributions and any other factors
that the Board deems relevant. We are not bound or limited in any
way to pay dividends in the event that the Board determined that a
dividend was in the best interest of our shareholders.
Equity Compensation Plans
The
shareholders and the Board approved the Stock Option Plan on May
22, 2018, and approved the Amended and Restated Share Unit Plan
(“Unit Plan” and
together with the Stock Option Plan, collectively the
“Compensation
Plans”) on May 22, 2018, as amended on July 11, 2018.
The granting of awards under the Compensation Plans is intended to
promote the interests of the Company and its shareholders by aiding
us in attracting and retaining persons capable of assuring our
future success, to offer such persons incentives to put forth
maximum efforts for the success of our business and to compensate
such persons through various stock based arrangements and provide
them with opportunities for stock ownership in the Company, thereby
aligning the interests of such persons with our shareholders.
Eligible participants under the Compensation Plans include
non-employee directors, officers (including the named executive
officers), employees, consultants and advisors of the Company and
its subsidiaries.
The
following table provides
information regarding compensation plans, previously approved by
shareholders, under which
securities of the Company are authorized for issuance in effect as
of December 31, 2020:
|
Number of
securities to be issued upon exercise of outstanding options and
rights (a)
|
Weighted-average
exercise price of outstanding options and rights
(b)
|
Number of
securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))(c)
|
Stock Option
Plan
|
293,838
|
|
10,599,237
|
Amended and
Restated Share Unit Plan
|
1,764,250
|
-
|
10,599,237
|
Total
|
2,058,088
|
-
|
10,599,237
|
As of
December 31, 2020: (i) options to purchase an aggregate of 293,838
Common Shares were outstanding, representing approximately 0.23% of
the issued and outstanding Common Shares on such date; (ii)
Restricted Share Units to acquire an aggregate of 1,764,250 Common
Shares were outstanding, representing approximately 1.39% of the
issued and outstanding Common Shares on such date, for a total of
2,058,088 Common Shares issuable pursuant to outstanding awards. As
a result, Stock Options/ Restricted Share Units under our equity
compensation plans to purchase/receive a total of 10,599,237 Common
Shares, representing approximately 7.94% of the total issued and
outstanding Common Shares, were available for grant as of December
31, 2020.
ITEM
10.
RECENT SALES OF UNREGISTERED SECURITIES
The
following information represents securities sold by us within the
past three years through October, 2021 which were not registered
under the Securities Act. Included are new issuances of Common
Shares and Restricted Voting Shares and issuances of securities
convertible into or exchangeable, redeemable or exercisable for
Common Shares. We sold all of the securities listed below pursuant
to the exemption from registration provided by Section 3(a)(9)
and Section 4(a)(2) of the Securities Act, and Rule 144A,
Regulation D, Regulation S or Rule 701 promulgated
thereunder.
Since
January 1, 2021, we had the following issuances of unregistered
securities:
●
On January 4, 2021,
we issued 852,124 Common Shares to holders of RSUs that had vested.
We did not receive any cash proceeds from the
issuance.
●
On January 4, 2021,
we issued 109,669 Common Shares to holders of options who exercised
109,669 options that resulted in $79,202 in cash proceeds to us
from the exercise.
●
On June 10, 2021,
we issued 3,704 Common Shares to holders of RSUs that vested. We
did not receive any cash proceeds from the issuance.
●
On July 9, 2021, we
issued 59,945 Common Shares to holders of RSUs that had vested. We
did not receive any cash proceeds from the issuance.
●
On July 9, 2021, we
issued 11,667 Common Shares to holders of options who exercised
11,667 options that resulted in $5,028 in cash proceeds to us from
the exercise.
●
On December
9, 2021, we issued 2,212,974 Common
Shares to holders of RSUs that had vested. We did not receive any
cash proceeds from the issuance.
●
During the nine
months ended September 30, 2021, we issued 3,758,940 Common Shares
to warrant holders who exercised warrants during the period. We
received $14,076,477 in cash proceeds from the
exercises.
●
We issued
55,232,940 Common Shares to holders of Restricted Voting Shares who
exercised their right to exchange Restricted Voting Shares into
Common Shares. We did not receive any cash proceeds
from the issuance.
●
On February 2,
2021, we completed the February 2021 Bought Deal for aggregate
gross proceeds of $53,852,980 (C$69,028,750) at a price of C$7.00
per unit. The principal underwriters were Beacon Securities Limited
(“Beacon”) and
Canaccord Genuity Corp (“Canaccord”). We issued 9,861,250
units of the Company. Each unit was comprised of one Common Share
in the capital of the Company and one-half of one Common Share
purchase warrant. Each whole warrant entitles the holder to acquire
one Common Share at an exercise price of C$9.00 per Common Share
for a period of 24 months. We also issued 591,676 broker warrants
that entitle the holder to purchase one Common Share for a period
of 24 months from the closing of the offering at a price of C$7.00
per Common Share.
●
Between
October 1 and December 9, 2021, we issued 13,700 Common Shares on
the exercise of Common Share purchase warrants and realized cash
proceeds of $30,885.
During
the year ended December 31, 2020, we had the following issuances of
unregistered securities:
●
During the year
ended December 31, 2020, we issued 2,685,344 Common Shares on the
exercise of RSUs that had vested during the period. We did not
receive any cash proceeds on the exercise and transferred
$3,313,152 to share capital from the carrying value ascribed to the
RSUs that were exercised.
●
On January 17,
2020, we issued 75,000 Common Shares on the exercise of options
that had an exercise price of C$0.80 per common share resulting in
cash proceeds of $45,966 (C$60,000).
●
On January 17,
2020, we issued 33,334 Common Shares on the exercise of options
that had an exercise price of C$1.55 per common share resulting in
cash proceeds of $37,064 (C$51,668).
●
On July 3, 2020, we
issued 8,333 Common Shares on the exercise of options that had an
exercise price of C$0.75 resulting in cash proceeds to us of $4,617
(C$6,249).
●
On July 3, 2020, we
issued 116,334 Common Shares on the exercise of options that had an
exercise price of C$0.80 resulting in cash proceeds to us of
$68,771 (C$93,066).
●
On October 9, 2020,
we issued 50,000 Common Shares on the exercise of options that had
an exercise price of C$0.80 resulting in cash proceeds to us of
$30,786 (C$40,000).
●
On October 14,
2020, we issued 50,000 Common Shares on the exercise of options
that had an exercise price of C$0.80 resulting in cash proceeds to
us of $30,786 (C$40,000).
●
During the year
ended December 31, 2020, we issued 17,532,271 Common Shares to
warrant holders who exercised 17,532,271 warrants resulting in cash
proceeds of $32,653,449 (C$43,079,021).
●
On May 20, 2020, we
issued 3,940,932 Restricted Voting Shares on the acquisition of
Newtonian Principles Inc. to shareholders of Newtonian Principles.
The shares were valued at $4,453,831 (C$6,187,263, C$1.57 per share
based on the closing price of the Company’s
shares).
●
On July 17, 2020,
we issued 1,374,833 Common Shares on the acquisition of WCDN to
shareholders of WCDN. The shares were valued at $2,918,277
(C$3,959,519, C$2.88 per share based on the closing price of the
Company’s common shares on July 17, 2020).
●
On July 3, 2020, we
completed the July 2020 Bought Deal for aggregate gross proceeds of
$8,493,808 (C$11,521,850) at a price of C$2.15 per unit. The
principal underwriters were Beacon and Canaccord. We issued
5,359,000 units of the Company. Each unit was comprised of one
Common Share in the capital of the Company and one-half of one
Common Share purchase warrant. Each whole warrant entitled the
holder to acquire one common share at an exercise price of C$2.85
per Common Share for a period of 24 months. We also issued 321,540
broker warrants that entitle the holder to purchase one Common
Share for a period of 24 months from the closing of the offering at
a price of C$2.15 per common share.
●
On September 10,
2020, we completed the September 2020 Bought Deal for aggregate
gross proceeds of $17,489,401 (C$23,019,550) at a price of C$3.70
per unit. The principal underwriters were Beaconand Canaccord. We
issued 6,221,500 units of the Company. Each unit was comprised of
one Common Share in the capital of the Company and one-half of one
Common Share purchase warrant. Each whole warrant entitled the
holder to acquire one Common Share at an exercise price of C$5.00
per Common Share for a period of 24 months. We also issued 373,290
broker warrants that entitle the holder to purchase one Common
Share for a period of 24 months from the closing of the offering at
a price of C$3.70 per common share.
●
On November 5,
2020, we completed the November 2020 Bought Deal for aggregate
gross proceeds of $22,141,920 (C$28,804,625) at a price of C$4.30
per unit. The principal underwriters were Beacon and Canaccord. We
issued 6,698,750 units of the Company. Each unit was comprised of
one Common Share in the capital of the Company and one-half of one
Common Share purchase warrant. Each whole warrant entitled the
holder to acquire one Common Share at an exercise price of C$5.80
per Common Share for a period of 24 months. We also issued 401,925
broker warrants that entitle the holder to purchase one Common
Share for a period of 24 months from the closing of the offering at
a price of C$4.30 per Common Share.
During
the year ended December 31, 2019, we had the following issuances of
unregistered securities:
●
On March 1, 2019,
we issued 1,922,786 Common Shares on the exercise of RSUs that had
vested during the period. We did not receive any cash proceeds on
the issuance.
●
On March 20, 2019,
we issued 15,002 Common Shares on the exercise of options that had
an exercise price of C$0.80 per Common Share resulting in cash
proceeds of C$12,002.
●
On July 9, 2019, we
issued 205,660 Common Shares on the exercise of options that had an
exercise price of C$0.80 per Common Share, issued 5,000 Common
Shares on the exercise of options that had an exercise price of
C$0.75 per Common Share and issued 33,332 Common Shares on the
exercise of options with a strike price of C$1.55 resulting in cash
proceeds of $175,474.
●
On July 9, 2019, we
issued 1,833,732 Common Shares on the exercise of RSUs that had
vested during the period. We did not receive any cash proceeds on
the issuance.
●
During the period
July 31 to December 31, 2019, we issued 198,000 Common Shares on
the exercise of RSUs that had vested at a rate of 33,000 per month
from June 30 to December 31, 2019. We did not receive any cash
proceeds from the issuance.
●
During the year
ended December 31, 2019, we issued 4,889,647 Common Shares to
warrant holders who exercised 4,889,647 warrants resulting in cash
proceeds of $4,854,711.
During
the year ended December 31, 2018, we had the following issuances of
unregistered securities:
●
On June 11, 2018,
we closed the RTO transaction, and issued 5,250,000 Common Shares
to former shareholders of Carpincho Capital Corp.
●
The RTO closing
also triggered the closing of a private placement that was being
held in escrow pending the closing of the RTO. We closed the
private placement by issuing 31,458,400 units at a price of C$0.80
per unit to shareholders of Carpincho for gross proceeds of
$19,508,445. Each unit was comprised of one Common Share and
one-half of Common Share purchase warrant. Each whole warrant
entitled the holder to purchase one common share for a period of 24
months from the closing of the offering at a price of CAD$1.40 per
Common Share. We also issued 1,485,645 broker warrants that
entitled the holder to purchase one Common Share for a period of 24
months from the closing of the offering at a price of C$0.80 per
common share.
●
During the year
ended December 31, 2018, we issued 2,580,810 Common Shares to
warrant holders who exercised 2,580,810 warrants resulting in cash
proceeds of $2,374,253.
●
On June 19, 2018,
we issued 5,532,940 Restricted Voting Shares at a price of C$0.80
per share for total equity of $3,409,476 on the settlement of notes
held by related parties that were converted to equity on closing of
the RTO at the option of the note holder.
●
On December 4,
2018, we issued 8,735,250 Common Shares and 4,792,625 common share
purchase warrants at a price of C$3.00 per unit with each unit
consisting of one common share and one-half of a Common Share
purchase warrant. Each whole warrant entitled the holder to
purchase one Common Share of the Company at an exercise price of
C$3.75 for a period of 36 months following the closing. The
warrants could be accelerated by us in our sole discretion at any
time in the event that the volume-weighted average closing price of
the Common Shares on the CSE was greater than or equal to C$5.00
per share for a period of 20 consecutive trading days by giving
notice to the warrant holders. In such a case the warrants expired
at 4:00pm eastern time on the earlier of the 30th day after the
date on which notice is given and the actual expiry date of the
warrants. We also issued 524,115 broker warrants that entitle the
holder to purchase one Common Share for a period of 24 months from
the closing of the offering at a price of C$3.00 per common share
for total aggregate gross proceeds of $19,965,769
(C$26,392,750).
ITEM
11.
DESCRIPTION OF THE REGISTRANT’S SECURITIES TO BE
REGISTERED
We are
authorized to issue an unlimited number of Common Shares and an
unlimited number of Restricted Voting Shares. As of December
9, 2021, 198,674,245 Common Shares were issued and
outstanding and no Restricted Voting Shares were issued and
outstanding.
Common Shares
Holders
of Common Shares are entitled to dividends, if, as and when
declared by the Board, to one vote per share at meetings of
shareholders of the Company and, upon dissolution, to share equally
in such assets of the Company as are distributable to the holders
of Common Shares. The Common Shares do not have pre-emptive or
subscription rights, and there are no redemption or sinking-fund
provisions applicable to the Common Shares.
Subject
to the rights of the shares of any other class ranking senior to
the Common Shares with respect to priority upon a liquidation
event, in the event of a liquidation event, the holders of Common
Shares and the holders of Restricted Voting Shares will participate
ratably in equal amounts per share, without preference or
distinction, in the remaining assets of the Company.
Restricted Voting Shares
As a
condition to the completion of the Business Combination, we issued
Restricted Voting Shares to former shareholders of MMDC who were
resident in the United States. Unlike the Common Shares, the
Restricted Voting Shares do not entitle the holder to exercise
voting rights in respect of the election or removal of directors of
the Company.
The
restrictions on conversion of the Restricted Voting Shares were
designed to prevent us from becoming a “domestic
issuer” (“Domestic
Issuer”) as defined under Rule 902(e) of Regulation S
pursuant to the U.S. Securities Act of 1933 (the
“1933 Act”).
Generally, we would be a Domestic Issuer if: (A) 50% or more of the
holders of Common Shares are U.S. Persons (as defined under the
1933 Act); and (B) (i) the majority of our executive officers or
directors are United States citizens or residents; (ii) we have 50%
or more of our assets located in the United States; or (iii) our
business is principally administered in the United States. Holders
of the Restricted Voting Shares were able to convert each issued
and outstanding Restricted Voting Share into one Common Share
(subject to customary adjustments) provided that we were not a
Domestic Issuer or the conversion would not cause us to become a
Domestic Issuer.
Upon
review of the shareholder demographics in May 2021, we expected
that substantially greater than 50% of our outstanding Common
Shares would be held by United States residents as of the annual
determination date of June 30, 2021, regardless of whether the
Restricted Voting Shares were converted. On May 7, 2021, all of the
outstanding Restricted Voting Shares were converted to Common
Shares. As a result, there are currently no Restricted Voting
Shares outstanding.
Special Majority
The
majority of votes required to pass a special resolution at a
general meeting of shareholders is two-thirds of the votes cast on
the resolution.
ITEM
12.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
We are
subject to the provisions of Part 5, Division 5 of the
BCBCA.
Under
Section 160 of the BCBCA, we may, subject to Section 163
of the BCBCA:
(a)
indemnify an
individual who:
(i)
is or was a
director or officer of our company,
(ii)
is or was a
director or officer of another corporation (A) at a time when such
corporation is or was an affiliate of our company; or (B) at our
request, or
(iii)
at our request, is
or was, or holds or held a position equivalent to that of, a
director or officer of a partnership, trust, joint venture or other
unincorporated entity,
including, subject
to certain limited exceptions described below, the heirs and
personal or other legal representatives of that individual
(collectively, an “eligible
party”), against all eligible penalties, defined
below, to which the eligible party is or may be liable;
and
(b)
after the final
disposition of an eligible proceeding, pay the expenses actually
and reasonably incurred by an eligible party in respect of that
proceeding, where:
(i)
“eligible penalty” means a
judgment, penalty or fine awarded or imposed in, or an amount paid
in settlement of, an eligible proceeding,
(ii)
“eligible proceeding” means a
proceeding in which an eligible party or any of the heirs and
personal or other legal representatives of the eligible party, by
reason of the eligible party being or having been a director or
officer of, or holding or having held a position equivalent to that
of a director or officer of, our company or an associated
corporation (A) is or may be joined as a party, or (B) is or may be
liable for or in respect of a judgment, penalty or fine in, or
expenses related to, the proceeding,
(iii)
“expenses” includes costs, charges
and expenses, including legal and other fees, but does not include
judgments, penalties, fines or amounts paid in settlement of a
proceeding, and
(iv)
“proceeding” includes any legal
proceeding or investigative action, whether current, threatened,
pending or completed.
Under
Section 161 of the BCBCA, and subject to Section 163 of
the BCBCA, we must, after the final disposition of an eligible
proceeding, pay the expenses actually and reasonably incurred by an
eligible party in respect of that proceeding if the eligible party
(a) has not been reimbursed for those expenses and (b) is
wholly successful, on the merits or otherwise, in the outcome of
the proceeding or is substantially successful on the merits in the
outcome of the proceeding.
Under
Section 162 of the BCBCA, and subject to Section 163 of
the BCBCA, we may pay, as they are incurred in advance of the final
disposition of an eligible proceeding, the expenses actually and
reasonably incurred by an eligible party in respect of the
proceeding, provided that we must not make such payments unless we
first receive from the eligible party a written undertaking that,
if it is ultimately determined that the payment of expenses is
prohibited under Section 163 of the BCBCA, the eligible party
will repay the amounts advanced.
Under
Section 163 of the BCBCA, we must not indemnify an eligible
party against eligible penalties to which the eligible party is or
may be liable or pay the expenses of an eligible party in respect
of that proceeding under Sections 160, 161 or 162 of the BCBCA, as
the case may be, if any of the following circumstances
apply:
(a)
if the indemnity or
payment is made under an earlier agreement to indemnify or pay
expenses and, at the time that the agreement to indemnify or pay
expenses was made, we were prohibited from giving the indemnity or
paying the expenses by our memorandum or Articles;
(b)
if the indemnity or
payment is made otherwise than under an earlier agreement to
indemnify or pay expenses and, at the time that the indemnity or
payment is made, we are prohibited from giving the indemnity or
paying the expenses by our memorandum or Articles;
(c)
if, in relation to
the subject matter of the eligible proceeding, the eligible party
did not act honestly and in good faith with a view to the best
interests of our company or the associated corporation, as the case
may be; or
(d)
in the case of an
eligible proceeding other than a civil proceeding, if the eligible
party did not have reasonable grounds for believing that the
eligible party’s conduct in respect of which the proceeding
was brought was lawful.
If an
eligible proceeding is brought against an eligible party by or on
behalf of our company or by or on behalf of an associated
corporation, we must not either indemnify the eligible party under
Section 160(a) of the BCBCA against eligible penalties to
which the eligible party is or may be liable, or pay the expenses
of the eligible party under Sections 160(b), 161 or 162 of the
BCBCA, as the case may be, in respect of the
proceeding.
Under
Section 164 of the BCBCA, and despite any other provision of
Part 5, Division 5 of the BCBCA and whether or not payment of
expenses or indemnification has been sought, authorized or declined
under Part 5, Division 5 of the BCBCA, on the application of our
company or an eligible party, the court may do one or more of the
following:
(a)
order us to
indemnify an eligible party against any liability incurred by the
eligible party in respect of an eligible proceeding;
(b)
order us to pay
some or all of the expenses incurred by an eligible party in
respect of an eligible proceeding;
(c)
order the
enforcement of, or any payment under, an agreement of
indemnification entered into by us;
(d)
order us to pay
some or all of the expenses actually and reasonably incurred by any
person in obtaining an order under Section 164 of the BCBCA;
or
(e)
make any other
order the court considers appropriate.
Section 165
of the BCBCA and our Articles provide that we may purchase and
maintain insurance for the benefit of an eligible party or the
heirs and personal or other legal representatives of the eligible
party against any liability that may be incurred by reason of the
eligible party being or having been a director, alternate director
or officer of, or holding or having held a position equivalent to
that of a director, alternate director or officer of, our company
or an associated corporation.
Pursuant
to our Articles, subject to the BCBCA, we must indemnify a
director, former director or alternative director of our company
and his or her heirs and legal personal representatives against all
eligible penalties to which such person is or may be liable, and we
must, after the final disposition of an eligible proceeding, pay
the expenses actually and reasonably incurred by such person in
respect of that proceeding. Each director and alternate director is
deemed to have contracted with us on the terms of the indemnity
contained in Article 21.2 of our Articles.
Subject
to our Articles and any restrictions in the BCBCA, we may indemnify
any person.
The
failure of a director, alternative director or officer of our
company to comply with the BCBCA or our Articles or, if applicable,
any former Companies Act or
former Articles, does not invalidate any indemnity to which such
director, alternative director or officer is entitled under the
Articles.
We have
entered into employment agreements that include indemnification
provisions with each of our executive officers. Under these
provisions, each executive officer is entitled, subject to the
terms and conditions thereof, to the right of indemnification and
contribution for certain expenses to the fullest extent permitted
by applicable law. We believe that these provisions are necessary
to attract and retain qualified individuals to serve as executive
officers.
We are
obligated to purchase and maintain insurance for the benefit of any
such executive officer who is party to the employment
agreements.
We have
an insurance policy covering our directors and officers, within the
limits and subject to the limitations of the policy, with respect
to certain liabilities arising out of claims based on acts or
omissions in their capacities as directors or
officers.
ITEM
13.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
financial statements required to be included in this registration
statement appear immediately following the signature page to this
registration statement beginning on page F-1.
ITEM
14.
CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM
15.
FINANCIAL STATEMENTS AND EXHIBITS
The
financial statements required to be included in this registration
statement appear immediately following the signature page to this
registration statement beginning on page F-1.
Exhibit
No.
|
|
Description of Exhibit
|
|
|
Acquisition
Agreement, dated December 20, 2019, among BLC Management Company,
LLC, Planet 13 Holdings Inc., Kyle Desmet, Newtonian Principles,
Inc., Warner Management Group, LLC and Sarah Sibia, as amended by
Amendment No. 1 to Acquisition Agreement, dated April 16, 2020, and
Amendment No. 2 to Acquisition Agreement, dated May 20,
2020.
|
|
|
Asset Purchase
Agreement, dated July 17, 2020, among Planet 13 Holdings Inc., MM
Development Company, Inc., W the Brand, LLC, West Coast Development
Nevada, LLC and R. Scott Coffman.
|
|
|
Share Exchange
Agreement, dated April 26, 2018, among MM Development Company,
Inc., Carpincho Capital Corp., PRMN Investments Ltd., Thirteen, LLC
and 4 Degrees Higher, LLC.
|
|
|
Master Agreement,
dated April 26, 2018, among Carpincho Capital Corp., 10713791
Canada Inc. and 10653918 Canada Inc.
|
|
|
License Purchase
Agreement, dated August 31, 2021, among Buyer, Planet 13 Holdings
Inc., Seller and Harvest Health & Recreation Inc.
|
|
|
Certificate
of Amalgamation, Notice of Articles and Articles dated September
24, 2019.
|
|
|
Warrant Indenture,
dated July 3, 2020, between Planet 13 Holdings Inc. and Odyssey
Trust Company.
|
|
|
Warrant Indenture,
dated September 10, 2020, between Planet 13 Holdings Inc. and
Odyssey Trust Company.
|
|
|
Warrant Indenture,
dated November 5, 2020, between Planet 13 Holdings Inc. and Odyssey
Trust Company.
|
|
|
Warrant Indenture,
dated February 2, 2021, between Planet 13 Holdings, Inc. and
Odyssey Trust Company.
|
|
|
Warrant Indenture,
dated December 4, 2018, between Planet 13 Holdings Inc. and Odyssey
Trust Company.
|
|
|
Warrant Indenture,
dated April 26, 2018, among 10653918 Canada Inc., Odyssey Trust
Company and Carpincho Capital Corp.
|
|
|
Industrial Real
Estate Lease, dated April 23, 2018, between MM Development Company,
Inc. and Lessor.
|
|
|
Lease Agreement,
dated August 30, 2014, between Fargo District Holdings, LLC and MM
Development Company, Inc., as amended by Amendment to Lease, dated
January 1, 2018, and Second Amendment to Lease Agreement, dated
September 14, 2018.
|
|
|
Lease Agreement,
dated July 17, 2020, between RX Land, LLC and MM Development
Company, Inc., as amended by Amendment to Lease, dated November 27,
2020.
|
|
|
Standard
Industrial/Commercial Multi-Tenant Lease – Net, dated May 1,
2018, between Lessor and BLC Management Company, LLC, as amended by
First Amendment to Standard Industrial/Commercial Multi-Tenant
Lease – Net, dated November 8, 2019, and Second Amendment to
Standard Industrial/Commercial Multi-Tenant Lease – Net,
dated April 17, 2020, and by Third Amendment to Standard
Industrial/Commercial Multi-Tenant Lease – Net, dated
September 8, 2020.
|
|
|
Agreement Regarding
Release of Leasehold Estate, dated August 31, 2020, between LaBarre
Chastang, Inc. and BLC Management Company, LLC.
|
|
|
Planet 13 Holdings
Inc. 2018 Stock Option Plan.
|
|
|
Planet 13 Holdings
Inc. 2018 Share Unit Plan, as amended on July 11, 2018 and May 20,
2020.
|
|
|
Form of Stock
Option Award Agreement.
|
|
|
Form of Share Unit
Plan Award Agreement.
|
|
|
Employment
Agreement, dated June 1, 2018, between Christopher Wren and MM
Development Company, Inc., as amended by Amendment to Employment
Agreement, dated March 10, 2021.
|
|
|
Employment
Agreement, dated June 1, 2018, between Larry Scheffler and MM
Development Company, Inc., as amended by Amendment to Employment
Agreement, dated March 10, 2021.
|
|
|
Employment
Agreement, dated June 1, 2018, between Robert Groesbeck and MM
Development Company, Inc., as amended by Amendment to Employment
Agreement, dated March 10, 2021.
|
|
|
Employment
Agreement, dated June 1, 2018, between Dennis Logan and Planet 13
Holdings Inc.
|
|
|
List of
Subsidiaries of Planet 13 Holdings Inc.
|
*
Certain information
has been excluded from this exhibit because it is both (i) not
material and (ii) private
or confidential.
§
This filing omits exhibits and/or schedules pursuant to Item
601(a)(5) of Regulation S-K.
+
Indicates
a management contract or compensatory plan, contract or arrangement
in which directors or executive officers participate.
SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
PLANET 13 HOLDINGS INC.
|
|
/s/ Robert Groesbeck
|
By:
Robert Groesbeck
|
Title:
Co-Chief Executive Officer
|
Date:
December 13, 2021
|
/s/ Larry Scheffler
|
By:
Larry Scheffler
|
Title:
Co-Chief Executive Officer
|
Date:
December 13, 2021
Index to Financial Statements
Audited Financial
Statements
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Interim Financial Statements
|
Page
|
|
|
|
|
|
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the
Shareholders and Directors of
Planet
13 Holdings Inc.
Opinion on the Consolidated Financial Statements
We have
audited the accompanying consolidated balance sheets of Planet 13
Holdings Inc. and its subsidiaries (together,
the “Company”) as of December 31, 2020 and 2019,
and the related consolidated statements of operations and
comprehensive loss, changes in shareholders’ equity, and cash
flows for the years ended December 31, 2020, 2019 and 2018
including the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of
December 31, 2020 and 2019 and the results of its operations and
its cash flows for the years ended December 31, 2020, 2019 and
2018, in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since
2019.
/s/ DAVIDSON & COMPANY LLP
Chartered
Professional Accountants
Vancouver,
Canada
December
13, 2021
Planet 13 Holdings Inc.
Consolidated balance
sheets
(in
United States dollars except per share amounts)
As at
|
|
|
|
|
|
|
|
Assets
|
|
|
|
Current
Cash
|
|
$79,000,850
|
$12,814,712
|
Accounts
Receivable, net
|
|
436,874
|
214,964
|
Inventory
|
5
|
6,919,840
|
5,127,567
|
Prepaid
expenses and other current assets
|
6
|
2,198,005
|
3,495,852
|
Total current
assets
|
|
88,555,569
|
21,653,095
|
|
|
|
|
Property and
equipment
|
7
|
32,073,925
|
30,211,154
|
Intangible
assets
|
8
|
7,551,141
|
-
|
Right-of-use assets
– operating
|
9
|
20,497,895
|
10,117,537
|
Right-of-use assets
– finance
|
9
|
44,672
|
90,866
|
Long-term deposits
and other assets
|
|
1,054,443
|
694,601
|
Total
assets
|
|
$149,777,645
|
$62,767,253
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
Current
|
|
|
|
Accounts
payable
|
|
$1,681,027
|
$861,455
|
Accrued
expenses
|
|
2,844,714
|
1,910,046
|
Income
taxes payable
|
15
|
1,446,235
|
7,159,753
|
Notes
payable – current portion
|
10
|
884,000
|
884,000
|
Operating
lease liability – current portion
|
9
|
161,021
|
48,906
|
Finance
lease liability – current portion
|
9
|
46,372
|
45,952
|
Total current
liabilities
|
|
7,063,369
|
10,910,112
|
|
|
|
|
Operating lease
liabilities
|
9
|
22,365,892
|
10,895,921
|
Finance lease
liabilities
|
9
|
-
|
46,372
|
Warrant
liability
|
12
|
13,204,211
|
9,823,510
|
Other long-term
liabilities
|
|
28,000
|
28,000
|
Deferred tax
liability
|
15
|
410,359
|
-
|
Total
liabilities
|
|
43,071,831
|
31,703,915
|
Commitments
and contingencies (Note 19)
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
Common shares, no
par value, unlimited Common Shares
|
|
|
|
authorized,
181,806,190 issued and outstanding at December
|
|
|
|
31,
2020 and 137,660,559 at December 31, 2019
|
11
|
-
|
-
|
Class A Restricted
shares, no par value, unlimited Class A
|
|
|
|
Restricted
share authorized, 5,619,119 issued and
|
|
|
|
outstanding
at December 31, 2020 and 2019
|
11
|
-
|
-
|
Additional paid in
capital
|
|
159,399,056
|
58,747,851
|
Deficit
|
|
(52,693,242)
|
(27,684,513)
|
Total
shareholders’ equity
|
|
106,705,814
|
31,063,338
|
Total
liabilities and shareholders’ equity
|
|
$149,777,645
|
$62,767,253
|
On behalf of the Board:
Michael
Haran
|
|
Adrienne O’Neal
|
Director
|
|
Director
|
See
accompanying notes to the consolidated financial
statements
Planet 13 Holdings Inc.
Consolidated statements of operations and comprehensive loss
(In U.S. dollars, except share amounts)
|
|
|
|
|
|
|
|
|
|
Revenues, net of
discounts
|
3(h)
|
$70,491,280
|
$63,595,036
|
$21,166,755
|
Cost of
sales
|
|
(35,394,019)
|
(27,086,453)
|
(11,708,639)
|
Gross
profit
|
|
35,097,261
|
36,508,583
|
9,458,116
|
|
|
|
|
|
Expenses
|
|
|
|
|
General
and administrative
|
16
|
24,903,598
|
20,407,487
|
9,583,376
|
Sales
and marketing
|
|
3,305,639
|
6,539,483
|
1,702,841
|
Lease
expense
|
9
|
2,114,743
|
1,912,984
|
-
|
Depreciation
|
7, 9
|
3,674,907
|
2,287,249
|
400,116
|
Share-based
compensation expense
|
13
|
2,512,568
|
4,822,787
|
2,663,679
|
Total
expenses
|
|
36,511,455
|
35,969,990
|
14,350,012
|
(Loss) income from
operations
|
|
(1,414,194)
|
538,593
|
(4,891,896)
|
|
|
|
|
|
Other income
(expense)
|
|
|
|
|
Interest
expense, net
|
|
(22,202)
|
(27,073)
|
(241,860)
|
Foreign
exchange gain (loss)
|
|
398,524
|
(271,240)
|
(63,634)
|
Transaction
costs
|
4, 11
|
(275,250)
|
-
|
(1,932,702)
|
Change
in fair value of warrant liability
|
12
|
(16,805,941)
|
(5,541,590)
|
(3,579,934)
|
Other
income
|
|
216,850
|
350,775
|
80,285
|
Loss
on settlement of accounts payable
|
11
|
-
|
-
|
(96,340)
|
|
|
(16,488,019)
|
(5,489,128)
|
(5,834,185)
|
|
|
|
|
|
Loss before income
taxes
|
|
(17,902,213)
|
(4,950,535)
|
(10,726,081)
|
|
|
|
|
|
Current
income tax expense
|
15
|
(7,239,936)
|
(7,352,808)
|
(2,279,017)
|
Deferred
income tax recoveries
|
15
|
133,420
|
-
|
378,948
|
Net (loss) and
comprehensive (loss) for the year
|
|
(25,008,729)
|
(12,303,343)
|
(12,626,150)
|
|
|
|
|
|
|
|
|
|
|
Loss per
share
|
|
|
|
|
Basic
and diluted loss per share
|
14
|
$(0.16)
|
$(0.09)
|
$(0.13)
|
|
|
|
|
|
Weighted average
number of common shares
|
|
|
|
|
Basic
and diluted
|
14
|
151,825,439
|
134,074,476
|
98,908,344
|
See accompanying notes to the consolidated
financial statements
Planet 13 Holdings Inc.
Consolidated statements of changes
in shareholders’ equity
(in U.S
dollars)
|
|
|
|
|
|
|
|
|
Class A
restricted shares
|
|
Additional Paid
in Capital
|
|
Total
Shareholders’ Equity
|
Balance January 1,
2018
|
|
-
|
-
|
-
|
$-
|
$(3,182,528)
|
$(3,182,528)
|
Conversion of debt to Common
shares
|
11
|
25,300,000
|
-
|
-
|
1,124,661
|
-
|
1,124,661
|
Conversion of debt for Class A
shares
|
11
|
-
|
49,700,000
|
-
|
2,209,643
|
-
|
2,209,643
|
Shares issued in private
placements and prospectus offerings -
net
|
11
|
40,193,650
|
-
|
2,009,760
|
28,900,394
|
-
|
28,900,394
|
Shares issued to former Carpincho
shareholders on RTO closing
|
4, 11
|
5,250,000
|
-
|
-
|
11,544
|
-
|
11,544
|
Class A shares issued on conversion
of debt
|
11
|
-
|
5,532,940
|
-
|
3,409,476
|
-
|
3,409,476
|
Shares issued on exercise of broker
warrants
|
11
|
813,935
|
-
|
(813,935)
|
501,712
|
-
|
501,712
|
Shares issued on exercise of other
warrants
|
11, 12
|
1,766,875
|
-
|
-
|
4,208,084
|
|
4,208,084
|
Shares issued on settlement of
RSUs
|
11, 13
|
-
|
-
|
-
|
2,800,335
|
-
|
2,800,335
|
Share based compensation -
options
|
13
|
-
|
-
|
-
|
305,890
|
-
|
305,890
|
Net (loss) for the
period
|
|
-
|
-
|
-
|
-
|
(12,626,150)
|
(12,626,150)
|
|
|
|
|
|
|
|
|
Balance December 31,
2018
|
|
73,324,460
|
55,232,940
|
1,195,825
|
$43,471,739
|
$(15,808,678)
|
$27,663,061
|
|
|
|
|
|
|
|
|
Impact of adoption of ASC
842
|
9
|
-
|
-
|
-
|
-
|
427,508
|
427,508
|
Shares issued on settlement of
RSUs
|
11, 13
|
3,954,518
|
-
|
-
|
4,564,167
|
-
|
4,564,167
|
Shares issued on exercise of broker
warrants
|
11
|
608,110
|
-
|
(608,110)
|
368,310
|
-
|
368,310
|
Shares issued on exercise of other
warrants
|
11, 12
|
4,281,537
|
-
|
-
|
9,909,541
|
-
|
9,909,541
|
Shares issued on exercise of
options
|
11, 13
|
258,994
|
-
|
-
|
175,474
|
-
|
175,474
|
Share based compensation -
options
|
13
|
-
|
-
|
-
|
258,620
|
-
|
258,620
|
Net loss for the
year
|
|
-
|
-
|
-
|
-
|
(12,303,343)
|
(12,303,343)
|
|
|
|
|
|
|
|
|
Balance, December 31,
2019
|
|
82,427,619
|
55,232,940
|
587,715
|
$58,747,851
|
$(27,684,513)
|
$31,063,338
|
|
|
|
|
|
|
|
|
Shares issued upon
conversion
|
8, 11
|
3,940,932
|
(3,940,932)
|
-
|
4,453,831
|
-
|
4,453,831
|
Shares issued for
acquisition
|
8, 11
|
1,374,833
|
3,940,932
|
-
|
2,918,277
|
-
|
2,918,277
|
Shares issued on settlement of
RSUs
|
11, 13
|
2,685,344
|
-
|
-
|
2,456,018
|
-
|
2,456,018
|
Shares issued on exercise of broker
warrants
|
11
|
1,533,507
|
-
|
(1,533,507)
|
3,220,099
|
-
|
3,220,099
|
Shares issued on exercise of other
warrants
|
11, 12
|
15,998,764
|
-
|
-
|
45,155,719
|
-
|
45,155,719
|
Shares issuance on exercise of
options
|
11, 13
|
333,001
|
-
|
-
|
217,990
|
-
|
217,990
|
Shares based compensation -
options
|
13
|
-
|
-
|
-
|
56,550
|
-
|
56,550
|
Shares issued on private
placement
|
11
|
18,279,250
|
-
|
1,096,755
|
42,172,721
|
-
|
42,172,721
|
Net loss for the
year
|
|
-
|
-
|
-
|
-
|
(25,008,729)
|
(25,008,729)
|
|
|
|
|
|
|
|
|
Balance, December 31,
2020
|
|
126,573,250
|
55,232,940
|
150,963
|
$159,399,056
|
$(52,693,242)
|
$106,705,814
|
See
accompanying notes to the consolidated financial
statements
Planet 13 Holdings Inc.
Consolidated statements of cash
flows
(in U.S
dollars)
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used in)
|
|
|
|
|
Operating
activities
|
|
|
|
|
Net
loss
|
|
$(25,008,729)
|
$(12,303,343)
|
$(12,626,150)
|
Adjustments for
items not involving cash
|
|
|
|
|
Share-
based compensation expense
|
11,18
|
2,512,568
|
4,822,787
|
2,663,679
|
Non-cash
lease expense
|
|
3,539,018
|
2,145,541
|
-
|
Non-cash
interest expense
|
|
-
|
-
|
217,048
|
Depreciation
|
7,9
|
5,269,627
|
2,971,894
|
988,768
|
Loss on
disposal of assets
|
7
|
-
|
82,882
|
-
|
Share
base payment to Carpincho shareholders on reverse
takeover
|
4
|
-
|
-
|
11,544
|
Deferred
income tax recoveries
|
15
|
(133,420)
|
-
|
(378,948)
|
Loss on
settlement of accounts payable
|
|
-
|
-
|
96,340
|
Change
in fair value of warrant liability
|
12
|
16,805,941
|
5,541,590
|
3,579,934
|
(Gain)
loss on translation of warrant liability
|
12
|
(293,450)
|
468,740
|
(742,451)
|
Transaction
costs
|
11
|
275,250
|
-
|
1,259,191
|
Unrealized
(gain) loss on foreign currency exchange
|
|
(542,000)
|
211,097
|
335,807
|
|
|
2,424,805
|
3,941,188
|
(4,595,238)
|
|
|
|
|
|
Net
changes in non-cash working capital items
|
17
|
(3,776,652)
|
2,007,378
|
(1,582,473)
|
Repayment of lease
liabilities
|
|
(2,337,006)
|
(1,247,546)
|
(11,845)
|
Total
operating
|
|
(3,688,853)
|
4,701,020
|
(6,189,556)
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
Proceeds from
private placements
|
11
|
48,125,129
|
-
|
40,381,022
|
Proceeds from
exercise of warrants and options
|
11
|
32,871,439
|
5,030,185
|
2,374,253
|
Financing issuance
cost expense
|
11
|
(3,660,589)
|
-
|
(4,032,026)
|
Total
financing
|
|
77,335,979
|
5,030,185
|
38,723,249
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
Purchase of
property, plant and equipment
|
7
|
(4,481,058)
|
(16,061,582)
|
(13,313,401)
|
Purchase of
licenses
|
8
|
(3,550,400)
|
-
|
-
|
Total
investing
|
|
(8,031,458)
|
(16,061,582)
|
(13,313,401)
|
|
|
|
|
|
Effect
of foreign exchange on cash
|
570,470
|
(218,997)
|
(308,075)
|
|
|
|
|
|
Net change in cash
during the year
|
|
66,186,138
|
(6,549,374)
|
18,912,217
|
|
|
|
|
|
Cash
|
|
|
|
|
Beginning
of year
|
|
$12,814,712
|
$19,364,086
|
$451,869
|
|
|
|
|
|
End
of year
|
|
$79,000,850
|
$12,814,712
|
$19,364,086
|
See
accompanying notes to the consolidated financial
statements
Planet 13 Holdings Inc. (formerly Carpincho
Capital Corp.) ("P13" or the “Company") was incorporated
under the Canada Business Corporations Act on April 26, 2002 and
continued under the British Columbia Business Corporations Act on
September 24, 2019.
MM
Development Company, Inc. (“MMDC”) is a privately held
corporation existing under the laws of the State of Nevada. MMDC,
founded on March 20, 2014, is a vertically integrated cultivator
and provider of cannabis and cannabis-infused products licensed
under the laws of the State of Nevada, with two licenses for
cultivation, two licenses for production, and two dispensary
licenses (one medical license and one recreational license). On
June 11, 2018 MMDC completed a reverse-takeover (“RTO”)
of Carpincho Capital Corp. Upon completion of the RTO, the
shareholders of MMDC obtained control of the consolidated entity of
P13. In accordance with ASC 805 Business Combinations (“ASC
805”), MMDC was identified as the accounting acquirer, and,
accordingly, P13 is considered to be a continuation of MMDC, with
the net assets of the Company at the date of the RTO deemed to have
been acquired by MMDC (Note 4).
The
Company is a vertically integrated cultivator and provider of
cannabis and cannabis-infused products licensed under the laws of
the State of Nevada, with six licenses for cultivation (three
medical and three recreational), six licenses for production (three
medical and three recreational), and three dispensary licenses (one
medical and two recreational). In addition, the Company holds one
recreational dispensary license in the city of Santa Ana,
California.
P13 is
a public company which is listed on the Canadian Securities
Exchange (“CSE”) under the symbol “PLTH”
and the OTCQX exchange under the symbol
“PLNHF”.
The
Company’s registered office is located at 595 Howe Street,
10th
floor, Vancouver, BC V6C 2T5 and the head office address is 2548
West Desert Inn. Rd, Las Vegas, NV 89109.
While
cannabis and CBD-infused products are legal under the laws of
several U.S. states (with varying restrictions applicable), the
United States Federal Controlled Substances Act classifies all
“marijuana” as a Schedule I drug, whether for medical
or recreational use. Under U.S. federal law, a Schedule I drug or
substance has a high potential for abuse, no accepted medical use
in the United States, and a lack of safety for use under medical
supervision.
The
federal government currently is prohibited by statute from
prosecuting businesses that operate in compliance with applicable
state and local medical cannabis laws and regulations; however,
this does not protect adult use cannabis. In addition, if the
federal government changes this position, it would be financially
detrimental to the Company.
These
consolidated financial statements reflect the accounts of the
Company and have been prepared in accordance with generally
accepted accounting principles in the United States of America
(“GAAP”) and pursuant to the rules and regulations of
the U.S. Securities and Exchange Commission (“SEC”) for
all periods presented. These consolidated financial statements have
been prepared on a going concern basis, which assumes that the
Company will continue in operation for the foreseeable future and,
accordingly, will be able to realize its assets and discharge its
liabilities in the normal course of operations as they come due,
under the historical cost
convention except for certain financial instruments that are
measured at fair value, as detailed in the Company’s
accounting policies.
Failure
to arrange adequate financing on acceptable terms and/or achieve
profitability may have an adverse effect on the financial position,
results of operations, cash flows and prospects of the Company.
These consolidated financial statements do not give effect to
adjustments to assets or liabilities that would be necessary should
the Company be unable to continue as a going concern. Such
adjustments could be material. These consolidated financial
statements are presented in U.S. dollars, which is also the
Company’s and its subsidiaries’ functional
currency.
These
consolidated financial statements were authorized for issuance by
the Board of Directors of the Company on December 13,
2021.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
2. Basis of presentation (continued)
i.
Basis of
consolidation
The
accompanying consolidated financial statements include the accounts
of the Company and all subsidiaries. Subsidiaries are entities in
which the Company has a controlling voting interest or is the
primary beneficiary of a variable interest entity. Subsidiaries
are fully consolidated
from the date control is transferred to the Company and are
de-consolidated from the date control ceases. All
intercompany accounts and transactions have been eliminated on
consolidation. The
consolidated financial statements include all the assets,
liabilities, revenues, expenses and cash flows of the Company and
its subsidiaries after eliminating intercompany balances and
transactions.
These
consolidated financial statements include the accounts of the
Company and the following entities which are subsidiaries of the
Company:
Subsidiaries as
at
December 31,
2020
|
|
Jurisdiction of
incorporation
|
|
|
|
|
MM Development
Company, Inc. (“MMDC”)
|
|
USA
|
100%
|
100%
|
100%
|
Vertically
integrated cannabis operations
|
BLC Management
Company LLC. (“BLC”)
|
|
USA
|
100%
|
100%
|
100%
|
Management
company
|
10653918 Canada
Inc. (“Finco”)
|
|
Canada
|
-
|
-
|
100%
|
Holding
company
|
LBC CBD LLC.
(“LBC”)
|
|
USA
|
100%
|
100%
|
-
|
CBD retail sales
and marketing
|
Newtonian
Principles Inc.
|
|
USA
|
100%
|
-
|
-
|
Cannabis retail
sales
|
MM Development MI,
Inc.
|
|
USA
|
100%
|
100%
|
-
|
Holding
company
|
MM Development CA,
Inc.
|
|
USA
|
100%
|
100%
|
-
|
Holding
company
|
MMDC Casa Holdings,
Inc
|
|
USA
|
-
|
100%
|
-
|
Holding
company
|
PLTHCA SA,
Inc.
|
|
USA
|
-
|
100%
|
-
|
Holding
company
|
Planet 13 Illinois,
LLC
|
|
USA
|
49%
|
-
|
-
|
Holding
company
|
BLC NV Food,
LLC
|
|
USA
|
100%
|
-
|
-
|
|
|
|
USA
|
100%
|
-
|
-
|
|
ii.
Variable interest
entities
A
variable interest entity ("VIE") is an entity that does not have
sufficient equity at risk to finance its activities without
additional subordinated financial support or is structured such
that equity investors lack the ability to control the entity's
activities or do not substantially participate in the gains and
losses of the entity. Upon inception of a contractual agreement,
and thereafter, if a reconsideration event occurs, the Company
performs an assessment to determine whether the arrangement
contains a variable interest in an entity and whether that entity
is a VIE. The primary beneficiary of a VIE is the party that has
both the power to direct the activities that most significantly
impact the VIE's economic performance and the obligation to absorb
losses or the right to receive benefits from the VIE that could
potentially be significant to the VIE. Where the Company concludes
that it is the primary beneficiary of a VIE, the Company
consolidates the accounts of that VIE.
These
consolidated financial statements are presented in U.S. dollars
(“USD”), which is the Company’s and its
subsidiaries' functional currency.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
2. Basis of presentation (continued)
Foreign
currency transactions are remeasured to the respective functional
currencies of the Company’s entities at the exchange rates in
effect on the date of the transactions. Monetary assets and
liabilities denominated in foreign currencies are remeasured to the
functional currency at the foreign exchange rate applicable at the
statement of balance sheets date. Non-monetary items carried
at historical cost denominated in foreign currencies are remeasured
to the functional currency at the date of the transactions.
Non-monetary items carried at fair value denominated in foreign
currencies are remeasured to the functional currency at the date
when the fair value was determined. Realized and unrealized
exchange gains and losses are recognized through profit and
loss.
iv.
Emerging growth
company
The
Company is an “Emerging Growth Company,” as defined in
Section 2(a) of the Securities Act of 1933, as amended (the
“Securities Act”), as modified by the Jumpstart Our
Business Startups Act of 2012 (the “JOBS Act”), and it
has taken advantage of certain exemptions from various reporting
requirements that are not applicable to other public companies that
are not emerging growth companies including, but not limited to,
not being required to comply with the independent registered public
accounting firm attestation requirements of Section 404 of the
Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in its periodic reports and proxy
statements, and exemptions from the requirements of holding a
nonbinding advisory vote on executive compensation and shareholder
approval of any golden parachute payments not previously
approved.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies
from being required to comply with new or revised financial
accounting standards until private companies (that is, those that
have not had a Securities Act registration statement declared
effective or do not have a class of securities registered under the
Exchange Act) are required to comply with the new or revised
financial accounting standards. The JOBS Act provides that a
Company can elect to opt out of the extended transition period and
comply with the requirements that apply to non-emerging growth
companies but any such election to opt out is irrevocable. The
Company has elected not to opt out of such extended transition
period which means that when a standard is issued or revised and it
has different application dates for public or private companies,
the Company, as an emerging growth company, can adopt the new or
revised standard at the time private companies adopt the new or
revised standard.
3. Significant accounting policies
Cash is
comprised of cash deposits in financial institutions plus cash held
at the retail location and other deposits that are readily
convertible to cash.
Inventory
is comprised of raw materials, finished goods and work-in-progress.
Cost include expenditures directly related to the
manufacturing process as well as suitable portions of related
production overheads, based on normal operating capacity. Cannabis:
Inventory cost includes pre-harvest, post-harvest and shipment and
fulfillment, as well as related accessories. Pre-harvest costs
include labor and direct materials to grow cannabis, which includes
water, electricity, nutrients, integrated pest management, growing
supplies and allocated overhead. Post-harvest costs include costs
associated with drying, trimming, blending, extraction,
purification, quality testing and allocated overhead. Shipment and
fulfillment costs include the costs of packaging, labelling,
courier services and allocated overhead. Inventory is stated at the
lower of cost or net realizable value, determined using weighted
average cost. Net realizable value is defined as the estimated
selling price in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation. At
the end of each reporting period, the Company performs an
assessment of inventory and records write-downs for excess and
obsolete inventories based on the Company’s estimated
forecast of product demand, production requirements, market
conditions, regulatory environment, and spoilage. Actual
inventory losses may differ from management’s estimates and
such differences could be material to the Company’s balance
sheets, statements of operations and comprehensive
loss and statements of cash flows.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
3. Significant accounting policies (continued)
(c) Property and equipment
Property
and equipment are stated at cost, net of accumulated depreciation
and impairment losses, if any. Additions and improvements that
materially increase the life of the assets are capitalized, while
maintenance and repairs are expensed as incurred. Significant
expenditures, which extend the useful lives of assets or increase
productivity, are capitalized. When significant parts of one of our
property and equipment have different useful lives, they are
accounted for as separate items or components of property and
equipment. When assets are retired or disposed of, the cost and
accumulated amortization are removed from the respective accounts
and any related gain or loss is recognized in the consolidated
statement of operations.
Depreciation
is calculated on a straight-line basis over the expected useful
lives of the assets, which are as follows:
Land
|
|
Not
depreciated
|
Land
improvements
|
|
5
years
|
Building
|
|
5
– 40 years
|
Equipment
|
|
5 - 7
years
|
Leasehold
improvements
|
|
Shorter
of estimated useful life or remaining life of lease
|
Construction in
progress
|
|
Not
depreciated
|
An
asset’s residual value, useful life and depreciation method
are reviewed at each reporting period with the effect of any
changes in estimate accounted for on a prospective basis.
Depreciation of property and equipment commences when the asset is
available for use.
Construction
in progress includes construction progress payments, deposits,
engineering costs and other costs directly related to the
construction of the facilities. Expenditures are capitalized during
the construction period and construction in progress is transferred
to the relevant class of property and equipment when the assets are
available for use, at which point in time the amortization of the
asset commences.
Property
and equipment acquired in a business combination is depreciated
over the remaining useful life of the asset.
(d) Intangible assets
Intangible
assets include licenses acquired as part of business combinations
and other business transactions.
When
there is no foreseeable limit on the period of time over which an
intangible asset is expected to contribute to the cash flows of the
Company, an intangible asset is determined to have an indefinite
life. Indefinite life intangible assets are tested for impairment
annually, or more frequently when events or circumstances indicate
that impairment may have occurred. As part of the impairment
evaluation, the Company may elect to perform an assessment of
qualitative factors. If this qualitative assessment indicates that
it is more likely than not that the fair value of the
indefinite-lived intangible asset is less than its’ carrying
value, a quantitative impairment test is required to compare the
fair value of the asset to its’ carrying value. An impairment
charge is recorded if the carrying value exceeds the fair value.
The Company elected to perform a qualitative assessment on November
1, 2020 and determined that the fair value of the intangible assets
was greater than the carrying value.
Licenses
acquired in a business combination are measured at fair value at
the acquisition date. The estimated useful life and amortization
method are reviewed at the end of each reporting period, with the
effect of any changes in estimate being accounted for on a
prospective basis.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
3. Significant accounting policies (continued)
(e) Impairment of long-lived assets
The
Company reviews long-lived assets, including property and equipment
and definite life intangible assets, for impairment whenever events
or changes in circumstances indicate that the carrying value of an
asset may not be recoverable. In order to determine if assets have
been impaired, assets are grouped and tested at the lowest level
for which identifiable independent cash flows are available
(“asset group”). When indicators of potential
impairment are present the Company prepares a projected
undiscounted cash flow analysis for the respective asset or asset
group. If the sum of the undiscounted cash flow is less than the
carrying value of the asset or asset group, an impairment loss is
recognized equal to the excess of the carrying value over the fair
value, if any. Fair value can be determined using a market
approach, income approach or cost approach. The reversal of
impairment losses is prohibited.
(f) Share-based compensation
The
Company has an equity incentive plan which includes issuances of
stock options and restricted share units (“RSUs”). From
time to time, the Company also enters into share-based compensation
arrangements with non-employees. The accounting for these
arrangements typically aligns with those of employees.
After
adopting ASU 2018-07 which made amendments to ASC Topic 718,
Stock Compensation, an
acquirer measures share-based compensation to non-employees in
exchange for goods or services in the same manner as share-based
payments to employees, using a fair-value based approach measured
at the grant date. This guidance is followed if the acquirer
considers the assets and goods to be used or consumed in its own
operation. If not, the Company has elected to account for the
equity interests issued in accordance with ASC 805, Business Combinations based on the fair
value of the equity interests issued. The fair value of share-based
compensation to non-employees is periodically re-measured until
counterparty performance is complete, and any change therein is
recognized over the period and in the same manner as if the Company
had paid cash instead of paying with or using equity
instruments. The corresponding
amount is recorded to the share-based payment reserve for options
and to restricted share units for RSUs.
The
Company measures equity settled share-based payments based on their
fair value at the grant date and recognizes compensation expense on
a straight-line basis over the vesting period. The amount
recognized as an expense is adjusted to reflect the number of
awards for which the related service and non-market performance
conditions are expected to be satisfied, such that the amount
ultimately recognized is based on the number of awards that
ultimately vest.
The
fair value of the options granted is measured using the Black
Scholes option pricing model, taking into account the terms and
conditions upon which the share-based payments were
granted.
The
fair value of RSUs is determined using the closing market price of
the Company’s shares on the grant date. The
number of RSUs expected to vest is reviewed and adjusted at the end
of each reporting period such that the amount recognized for
services received as consideration for the equity instruments
granted shall be based on the number of equity instruments that
eventually vest. Amounts recorded for forfeited or expired RSUs are
transferred to deficit in the year of forfeiture or expiry. Upon
the issuance of common shares in exchange for vested RSUs, the
amount of the related Restricted Share Unit reserve is transferred
to share capital.
(g) Warrant liability
Warrants
are accounted for in accordance with the applicable authoritative
accounting guidance in ASC Topic 815, Derivatives and Hedging
– Contracts in Entity’s Own Equity (“ASC
815”), as either derivative liabilities or as equity
instruments depending on the specific terms of the warrant
agreements. Liability-classified instruments are recorded at fair
value at each reporting period with any change in fair value
recognized as a component of the change in fair value
of derivative liabilities in the consolidated statements of
operations and comprehensive loss. Transaction costs allocated to
warrants that are presented as a liability are expensed immediately
within other expenses (income) in the consolidated statements of
operations and comprehensive loss. Refer to paragraph
(p) below as well as Note 12 for a discussion on the
change in the warrant liability value.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
3. Significant accounting policies (continued)
(h) Revenue recognition
The
Company earns revenue from the sale of cannabis to customers. The
Company recognizes revenue to depict the transfer of promised goods
or services to the customer in an amount that reflects the
consideration to which the Company expects to be entitled in
exchange for the performance obligations.
In
order to recognize revenue, the Company applies the following five
(5) steps:
1)
Identify the contract with a customer
2)
Identify the performance obligation(s)
3)
Determine the transaction price
4)
Allocate the transaction price to the performance
obligations(s)
5)
Recognize revenue when/as performance obligations(s) are
satisfied
Revenue
from the sale of cannabis to customers is recognized at a point in
time when control over the goods has transferred to the customer.
This corresponds with when the Company satisfies its performance
obligation. Revenue is recorded net of any point-of-sale discounts
provided to the customer. The Company’s revenues are
principally derived from arrangements with fixed consideration.
Variable consideration, if any, is not material.
The
majority of the Company’s revenue is cash at point of sale.
Payment is due upon transferring the goods or providing services to
the customer or within a specified time period permitted under the
Company’s credit policy. In those cases where the Company
provides goods or services on credit, the Company considers whether
or not collection is probable in determining if a contract exists
under ASC 606 Revenue from
contracts with customers. Costs associated with goods or
services is expensed in the year performance obligations are
satisfied.
Loyalty Points Reward Programs
In
certain of its markets, the Company offers a loyalty reward program
to its dispensary customers that allows its customers to earn
discounts on future purchases. Loyalty points are earned when a
qualifying purchase is made. When a customer attains a certain
number of points, the customer can redeem the credits on his/her
next in-store purchase, up to a certain annual minimum. Loyalty
points do not have an expiration date.
A
portion of the revenue generated in a sale is allocated to the
loyalty points earned. The amount allocated to the points earned is
deferred until the loyalty points are redeemed.
Deferred Income
Deferred income represents cash payments received in advance
of the Company's transfer of control of products or services to its
customers and generally consists of unearned revenue from the
Company’s loyalty programs. The Company's deferred
income balances were $464,000 and $230,000 as of December 31, 2020
and 2019, respectively, and were recorded within accrued expenses
in the consolidated balance sheets. During the years ended December
31, 2020 and 2019 and December 31, 2018, the Company recognized
$187,056, $120,722 and $nil, respectively of net revenues from
amounts recorded as deferred income in the earlier years. The
deferred income balance as of December 31, 2020 is expected to be
recognized as revenue within the next 12-18
months.
The
Company determined that no provision for returns or refunds was
necessary as at December 31, 2020 (2019 –
$nil). State
taxes remitted to tax authorities are government-imposed
excise taxes on cannabis. Excise taxes are recorded
as a reduction of sales in net revenue in the
consolidated statements of operations and comprehensive loss
and recognized as a current liability within accounts
payable and other current liabilities on the consolidated balance
sheets, with the liability subsequently reduced when the taxes are
remitted to the tax authority. In addition, amounts disclosed as
net revenue are net of state taxes, sales tax, duty tax,
allowances, and discounts.
The
Company concluded there is no requirement to disaggregate
revenue.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
3. Significant accounting policies (continued)
(i) Leases
The Company determines if an arrangement is a lease at inception.
Operating leases are included in operating lease right of use
(“ROU”) assets and operating lease liability under
operating lease in the consolidated balance sheets. Finance lease
ROU assets are included in finance ROU assets and finance lease
liability under finance lease liability in the consolidated balance
sheets.
ROU
assets represent the Company’s right to use an underlying
asset for the lease term and lease liabilities represent the
Company’s obligation to make lease payments arising from the
lease. ROU assets are classified as a finance lease or an operating
lease. A finance lease is a lease in which 1) ownership of the
property transfers to the lessee by the end of the lease term; 2)
the lessor grants the lessee an option to purchase the
underlying asset that the lessee is reasonably certain to exercise;
3) the lease is for a major part of the remaining economic life of
the underlying asset; 4) the present value of the sum of the lease
payments and any residual value guaranteed by the lessee that is
not already included in the lease payments equals or exceeds
substantially all of the fair value; or 5) the underlying asset is
of such a specialized nature that it is expected to have no
alternative use to the lessor at the end of the lease term. The
Company classifies a lease as an operating lease when it does not
meet any one of these criteria.
ROU
assets and liabilities are recognized at commencement date based on
the present value of lease payments over the lease term. As most of
the Company’s leases do not provide an implicit rate, the
incremental borrowing rate is used based on the information
available at commencement date in determining the present value of
lease payments. The Company uses the implicit rate when readily
determinable. The ROU assets also include any lease payments made
prior to the commencement date and excludes lease incentives. The
lease terms may include options to extend or terminate the lease
when it is reasonably certain that the Company will exercise that
option.
For
finance leases, lease expenses are the sum of interest on the lease
obligations and amortization of the ROU assets. ROU assets are
amortized based on the lesser of the lease term and the useful life
of the leased asset according to the property and equipment
accounting policy. If ownership of the ROU assets transfers to the
Company at the end of the lease term or if the Company is
reasonably certain to exercise a purchase option, amortization is
calculated using the estimated useful life of the leased
asset.
For
operating leases, the lease expenses are generally recognized on a
straight-line basis over the lease term and recorded to general and
administrative expenses in the consolidated statements of
operations and comprehensive loss.
The
Company has elected to apply the practical expedient in ASC 842
Leases, for each class of
the underlying asset, except real estate leases, to
not separate non-lease components from the associated lease
components of the lessee’s contract and account for both
components as a single lease component. Additionally, for certain
equipment leases, the Company applies a portfolio approach to
effectively account for the operating lease ROU assets and
liabilities.
The
Company has elected not to recognize ROU assets and lease
liabilities for short-term leases that have a lease term of 12
months or less that do not include an option to purchase the
underlying asset that the Company is reasonably certain to
exercise. Short-term leases include real estate and vehicles and
are not significant in comparison to the Company’s overall
lease portfolio. The Company continues to recognize the lease
payments associated with these leases as expenses on a
straight-line basis over the lease term.
(j) Income taxes
Income taxes are comprised of current and deferred taxes. These
taxes are accounted for using the asset and liability method of
accounting for income taxes under ASC 740 Income
Taxes. Deferred tax is
recognized on the difference between the carrying amount of an
asset or a liability, as reflected in the consolidated financial
statements, and the corresponding tax base used in the computation
of income for tax purposes ("temporary difference").
Measurement of deferred tax is based on the enacted
tax rates and laws as at the balance sheet date that are expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of
a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the enactment
date. Management assesses the likelihood that a deferred tax asset
will be realized, and a valuation allowance is provided to the
extent that it is more likely than not that all or a portion of a
deferred tax asset will not be realized. If it is subsequently
determined that the Company will be able to realize deferred tax
assets in excess of the net recorded amount, then the valuation
allowance will be adjusted accordingly in the period in which this
determination is made.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
3. Significant accounting policies (continued)
(j) Income taxes (continued)
Current
tax is recognized in connection with income for tax purposes,
unrecognized tax benefits and the recovery of tax paid in a prior
period and measured using the enacted tax rates and laws applicable
to the taxation period during which the income for tax purposes
arose. An unrecognized tax benefit may arise in connection with a
period that has not yet been reviewed by the relevant tax
authority. A change in the recognition or measurement of an
unrecognized tax benefit is reflected in the period during which
the change occurs.
The
Company recognizes uncertain income tax positions at the largest
amount that is more-likely-than-not to be sustained upon
examination by the relevant taxing authority. An uncertain income
tax position will not be recognized if it has less than a 50%
likelihood of being sustained. Recognition or measurement is
reflected in the period in which the likelihood changes. Any
interest and penalties related to unrecognized tax liabilities are
presented within income tax expense (recovery) in the consolidated
statements of operations and comprehensive loss.
Interest
and penalties in respect of income taxes are not recognized in the
consolidated statement of operations as a component of income taxes
but as a component of interest expense.
As the
Company operates in the cannabis industry, it is subject to the
limits of U.S. Internal Revenue Code (“IRC”) Section
280E (“Section 280E”) under which the Company is only
allowed to deduct expenses directly related to the cost of
producing the products or cost of production.
(k) Sales and marketing
The
Company expenses sales and marketing costs when the sales and
marketing first take place. Sales and marketing expense was
approximately $3,305,639 for the year ended December 31, 2020 (2019
- $6,539,483; 2018 - $1,702,841).
(l) Fair value
Fair
value is the price that would be received to sell an asset, or paid
to transfer a liability, in an orderly transaction between market
participants at the measurement date. Fair value measurement for
invested assets are categorized into levels within a fair value
hierarchy based on the nature of the valuation inputs (Levels 1, 2
or 3). The three levels are defined based on the observability of
significant inputs to the measurement, as follows:
●
Level 1: quoted
prices (unadjusted) in active markets for identical or
liabilities;
●
Level 2: inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or
indirectly; and
●
Level 3: one or more
significant inputs used in a valuation technique are unobservable
in determining fair values of the asset or liability
Determination
of fair value and the resulting hierarchy requires the use of
observable market data whenever available. The classification of an
asset or liability in the hierarchy is based upon the lowest level
of input that is significant to the measurement of fair value.
The carrying value of
the Company’s cash, deposits, accounts payable, accrued
expenses, and notes payable approximate their fair value due to
their short-term nature.
The Company's prepaid
and other current assets, long lived assets, including property and
equipment, and intangible assets are measured at fair value when
there is an indicator of impairment and are recorded at fair value
only when an impairment charge is recognized.
(m) Cost of sales
Cost of
sales represents costs directly related to manufacturing and
distribution of the Company’s products. Primary costs include
raw materials, packaging, direct labor, overhead, shipping and
handling, the depreciation of certain property, plant and
equipment, and tariffs. Manufacturing overhead and related expenses
include salaries, wages, employee benefits, utilities, maintenance,
and property taxes. Cost of sales also includes inventory valuation
adjustments. The Company recognizes the cost of sales as the
associated revenues are recognized.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
3. Significant accounting policies (continued)
(n) Earnings (loss) per share
Basic
earnings per share (“Basic EPS”) is calculated by
dividing the net earnings available to common shareholders by the
weighted average number of common shares outstanding during the
period. Diluted earnings per share (“Diluted EPS”) is
calculated using the treasury method of calculating the weighted
average number of common shares outstanding. The treasury method
assumes that outstanding stock options with an average exercise
price below the market price of the underlying shares are exercised
and the assumed proceeds are used to repurchase common shares of
the Company at the average price of the common shares for the
period.
(o) Operating segments
Operating
segments are components of the Company that engage in business
activities which generate revenues and incur expenses (including
intercompany revenues and expenses related to transactions
conducted with other components of the Company). The operations of
an operating segment are distinct, and the operating results are
regularly reviewed by the chief operating decision maker
(“CODM”) for the purposes of resource allocation
decisions and assessing its performance.
The
Company operates in a single reportable operating segment as a
vertically integrated cannabis company with cultivation, production
and distribution operations in the state of Nevada and dispensary
operations in both the state of Nevada and the state of
California.
As at
December 31, 2020 and 2019, all the Company’s non-current
assets were located in the United States and 100% of the
Company’s revenue was generated in the United
States.
(p) Critical accounting estimates and judgements
The
preparation of consolidated financial statements in conformity with
GAAP requires the Company’s management to make judgements,
estimates and assumptions about future events that affect the
amounts reported in the consolidated financial statements. Although
these estimates are based on management’s best knowledge of
the amount, event or actions, actual results may differ from those
estimates. Estimates and judgements are continuously evaluated and
are based on management’s experience and other factors,
including expectations of future events that are believed to be
reasonable.
Revisions
to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods
affected.
Leases
The
Company applies judgement in determining whether a contract
contains a lease and if a lease is classified as an operating lease
or a finance lease.
The
Company determines the lease term as the non-cancellable term of
the lease, which may include options to extend or terminate the
lease when it is reasonably certain that the Company will exercise
that option. The lease term is used in determining classification
between operating lease and finance lease, calculating the lease
liability and determining the incremental borrowing rate. The
Company has several lease contracts that include extension and
termination options. The Company applies judgement in evaluating
whether it is reasonably certain to exercise the option to renew or
terminate the lease. That is, it considers all relevant factors
that create an economic incentive for it to exercise either the
renewal or termination. After the commencement date of the lease,
the Company reassesses the lease term if there is a significant
event or change in circumstances that is within its control and
affects its ability to exercise or not to exercise the option to
renew or to terminate (e.g., construction of significant leasehold
improvements or significant customization to the leased
asset).
The
Company is required to discount lease payments using the rate
implicit in the lease if that rate is readily available. If that
rate cannot be readily determined, the lessee is required to use
its incremental borrowing rate. The Company generally uses the
incremental borrowing rate when initially recording real estate
leases. Information from the lessor regarding the fair value of
underlying assets and initial direct costs incurred by the lessor
related to the leased assets is not available. The Company
determines the incremental borrowing rate as the interest rate the
Company would pay to borrow over a similar term the funds necessary
to obtain an asset of a similar value to the right-of-use asset in
a similar economic environment.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
3. Significant accounting policies (continued)
(p) Critical accounting estimates and judgements
(continued)
Share-based compensation
The
Company uses the Black-Scholes valuation model to determine the
fair value of options and warrants granted to employees and
non-employees under share-based payment arrangements, where
appropriate. In estimating fair value, management is required to
make certain assumptions and estimates such as the expected term of
the instrument, volatility of the Company’s future share
price, risk free rates, future dividend yields and estimated
forfeitures at the initial grant date, by reference to the
underlying terms of the instrument, and the Company’s
experience with similar instruments. Changes in assumptions used to
estimate fair value could result in materially different results.
Refer to Note 13 for further information.
Estimated useful lives and depreciation of property and equipment,
right-of-use assets
Depreciation
and amortization of property and equipment, right-of-use assets and
intangible assets are dependent upon estimates of useful lives,
which are determined through the exercise of judgment. Impairment
of definite long-lived assets is influenced by judgment in defining
a reporting unit and determining the indicators of impairment, and
estimates used to measure impairment losses. Refer to Notes 7 and 8
for further information.
Impairment of indefinite life intangible assets
Indefinite
life intangible assets are tested for impairment annually, or more
frequently when events or circumstances indicate that impairment
may have occurred. As part of the impairment evaluation, the
Company may elect to perform an assessment of qualitative factors.
If this qualitative assessment indicates that it is more likely
than not that the fair value of the indefinite-lived intangible
asset or the reporting unit is less than its carrying value, a
quantitative impairment test is required to compare the fair value
of the asset to its’ carrying value. An impairment charge is
recorded if the carrying value exceeds the fair value. The
assessment of whether an indication of impairment exists is
performed at the end of each reporting period and requires the
application of judgment, historical experience, and external and
internal sources of information. The Company makes estimates in
determining the future cash flows and discount rates in the
quantitative impairment test to compare the fair value to the
carrying value.
Valuation of inventory
Inventory
is comprised of raw materials, work-in-progress and finished goods.
Cannabis and hemp costs include expenditures directly related to
the manufacturing process as well as suitable portions of related
production overheads, based on normal operating capacity. At the
end of each reporting period, the Company performs an assessment of
inventory and record inventory valuation adjustments for excess and
obsolete inventories based on the estimated forecast of product
demand, production requirements, market conditions, regulatory
environment, and spoilage. A reserve is estimated to ensure the
inventory balance at the end of the year reflects the estimates of
product the Company expect to sell in the next year. Changes in the
regulatory structure, lack of retail distribution locations or lack
of consumer demand could result in future inventory
reserves.
Warrant liability
The
fair value of the warrant liability is measured using a Black
Scholes pricing model. Assumptions and estimates are made in
determining an appropriate risk-free interest rate, volatility,
term, dividend yield, discount due to exercise restrictions, and
the fair value of common stock. Any significant adjustments to the
unobservable inputs would have a direct impact on the fair value of
the warrant liability.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
3. Significant accounting policies (continued)
(p) Critical accounting estimates and judgements
(continued)
Deferred tax assets and uncertain tax positions
The
Company recognizes deferred tax assets and liabilities based on the
differences between the consolidated financial statement carrying
amounts and the respective tax bases of its assets and liabilities.
The Company measures deferred tax assets and liabilities using
current enacted tax rates expected to apply to taxable income in
the years in which the temporary differences are expected to
reverse. The Company routinely evaluates the likelihood of
realizing the benefit of its deferred tax assets and may record a
valuation allowance if, based on all available evidence, it
determines that some portion of the tax benefit will not be
realized.
In
evaluating the ability to recover deferred tax assets within the
jurisdiction from which they arise, the Company considers all
available positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable
income, tax-planning strategies and results of operations. In
projecting future taxable income, the Company considers historical
results and incorporates assumptions about the amount of future
pretax operating income adjusted for items that do not have tax
consequences. The Company’s assumptions regarding future
taxable income are consistent with the plans and estimates that are
used to manage its underlying businesses. In evaluating the
objective evidence that historical results provide, the Company
considers three years of cumulative operating income/(loss). The
income tax expense, deferred tax assets and liabilities and
liabilities for unrecognized tax benefits reflect the
Company’s best assessment of estimated current and future
taxes to be paid. Deferred tax asset valuation allowances and
liabilities for unrecognized tax benefits require significant
judgment regarding applicable statutes and their related
interpretation, the status of various income tax audits and the
Company’s particular facts and circumstances. Although the
Company believes that the judgments and estimates discussed herein
are reasonable, actual results, including forecasted COVID-19
business recovery, could differ, and the Company may be exposed to
losses or gains that could be material. To the extent the Company
prevails in matters for which a liability has been established or
is required to pay amounts in excess of the established liability,
the effective income tax rate in a given financial statement period
could be materially affected.
(q) Accounting standards adopted
Revenue recognition
In May
2014, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers (“ASC 606”). The
new revenue recognition standard provides a five-step model to
determine when and how revenue is recognized. The core principle is
that a company should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for those goods or services. This guidance was effective
for non-public business entities for annual periods beginning after
December 15, 2018 and is applied either retrospectively to each
period presented or as a cumulative-effect adjustment as of the
date of adoption. Early adoption is permitted, and as a result the
Company has used the modified retrospective method to early adopt
the new revenue recognition guidance on January 1, 2018. Adoption
of the new standard did not have a material impact to revenue
recognition.
Leases
In February 2016, the FASB issued ASU 2016-02 Leases (“ASC
842”) (“ASC 2016-02”), which modifies the
classification criteria and requires lessees to recognize
right-of-use assets and lease liabilities arising from most leases
on the balance sheet with additional disclosures about leasing
arrangements. The effective date was subsequently amended by ASU
2021-05 Leases for non-public business entities to be effective for
fiscal years beginning after December 31, 2021, with earlier
application permitted.
The Company had no leases until its completion of the RTO
transaction discussed in Note 4. As a result, the Company elected
to early adopt ASC 842 in accordance with the transition provisions
of ASU 2016-02, with a date of initial application of January 1,
2019. There was no impact on the consolidated financial
statements.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
3. Significant accounting policies (continued)
(q) Accounting standards adopted (continued)
Financial instruments with down round features
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share
(“ASC 260”), Distinguishing Liabilities from Equity
(“ASC 480”), Derivatives and Hedging (“ASC
815”) Part I. Accounting for Certain Financial
Instruments with Down Round Features Part II Replacement of the
Indefinite Deferral for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception
(“ASU 2017-11”). Part I applies to entities that issue
financial instruments such as warrants, convertible debt or
convertible preferred stock that contain down-round features.
Part II replaces the indefinite deferral for certain
mandatorily redeemable noncontrolling interests and mandatorily
redeemable financial instruments of nonpublic entities contained
within ASC Topic 480 with a scope exception and does not impact the
accounting for these mandatorily redeemable instruments. The ASU is
effective for non-public business entities for fiscal periods
beginning after December 15, 2020, however early adoption is
permitted for all entities. The Company early adopted the standard
effective January 1, 2018 and such adoption did not have a material
effect on its consolidated financial statements.
Disclosure framework – fair value measurement
In August 2018, FASB issued ASU 2018-13, Disclosure Framework -
Changes to the Disclosure Requirements for Fair Value Measurement
(“ASC 820”) (“ASC 2018-13”). ASU 2018-13
removes (a) the prior requirement to disclose the amount and reason
for transfers between Level 1 and Level 2 of the fair value
hierarchy contained in ASC 820, (b) the policy for timing of
transfers between levels, and (c) the valuation process used for
Level 3 fair value measurements. ASU 2018-13 also adds, among other
items, a requirement to disclose the range and weighted average of
significant unobservable inputs used in Level 3 fair value
measurements. The ASU is effective for all entities for fiscal
periods beginning after December 15, 2019, however the amendments
can be early adopted and should be applied retrospectively to all
periods presented upon their effective date. The Company adopted
ASU 2018-13 effective January 1, 2018 and such adoption did not
have a material effect on its consolidated financial
statements.
Codification improvements
In March 2020, the FASB issued ASU 2020-03, Codification
Improvements to Financial Instruments. This ASU amends a wide
variety of Topics in the Codification, including revolving-debt
arrangements and allowance for credit losses related to leases. The
amendments in this ASU are effective for non-public business
entities for fiscal periods beginning after December 15, 2019 and
interim periods within those fiscal years beginning after December
15, 2020. The company has adopted issues 1 – 5
of the guidance in ASU 2020-03 on January 1, 2020. Issues 6 –
7 of the guidance in ASU 2020-03 relate to ASU 2016-13 including
the same adoption date requirements, and as noted below have not
yet been adopted by the Company. The adoption of ASU 2020-03 did
not have a material impact on the consolidated financial
statements.
Intangibles – Goodwill and Other
In March 2021, the FASB issued ASU 2021-03,
Intangibles—Goodwill and Other (“ASC 350”):
Accounting Alternative for Evaluating Triggering Events. The
amendments in this ASU are effective on a prospective basis for
fiscal years beginning after December 15, 2019. Early adoption is
permitted for all entities for both interim and annual financial
statements that have not yet been issued or made available for
issuance. As a result, the Company has elected to early
adopt ASU 2021-03, effective January 1,
2018, and such adoption did not have a material effect on its
consolidated financial statements.
(r) Accounting standards issued but not yet effective
Allowance for credit losses
In June
2016, the FASB issued ASU 2016-13, Financial Instruments - Credit
Losses (“ASC 326”): Measurement of Credit Losses on
Financial Instruments. This guidance was subsequently amended by
ASU 2018-19, Codification Improvements, ASU 2019-04, Codification
Improvements, ASU 2019-05, Targeted Transition Relief, ASU 2019-10,
Effective Dates, and ASU 2019-11, Codification Improvements. These
ASUs are referred to collectively as the new guidance on current
expected credit loss (“CECL”). The standard is
effective for non-public business entities for fiscal
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
3. Significant accounting policies (continued)
(r) Accounting standards issued but not yet effective
(continued)
years
beginning after December 15, 2022, including interim periods within
those fiscal years. Early adoption is permitted. The Company is
currently evaluating the effect of adopting this ASU.
Income taxes
In
December 2019, the FASB issued ASU 2019-12, Income Taxes
(“ASC 740”) - Simplifying the Accounting for Income
Taxes (“ASU 2019-12”), which is intended to simplify
various aspects related to accounting for income taxes. ASU 2019-12
removes certain exceptions to the general principles in ASC 740 and
also clarifies and amends existing guidance to improve consistent
application. The standard is effective for non-public business
entities for annual reporting periods beginning after December 15,
2021 and including interim periods within those fiscal years, which
means that it will be effective for the Company in the first
quarter of our year beginning January 1, 2022. Early adoption is
permitted. The Company is currently evaluating the effect of
adopting this ASU.
Debt with conversion options and other options
In
August 2020, the FASB issued ASU 2020-06, Debt - Debt with
Conversion and Other Options (“ASC 470-20”) and
Derivatives and Hedging—Contracts in Entity’s Own
Equity (“ASC 815-40”): Accounting for Convertible
Instruments and Contracts in an Entity’s Own Equity
(“ASU 2020-06”), which is intended to address issues
identified as a result of the complexity associated with applying
generally accepted accounting principles (GAAP) for certain
financial instruments with characteristics of liabilities and
equity. ASU 2020-06 is effective for public smaller reporting
companies and non-public entities in fiscal years beginning after
December 15, 2023. The Company is currently evaluating the effect
of adopting this ASU.
Freestanding written call options
In May
2021, the FASB issued ASU 2021-04, Earnings Per Share (“ASC
260”), Debt - Modifications and Extinguishments (“ASC
470-50”), Compensation – Stock Compensation (“ASC
718”), and Derivatives and Hedging - Contracts in Entity's
Own Equity (“ASC 815-40”), which clarifies existing
guidance for freestanding written call options which are equity
classified and remain so after they are modified or exchanged in
order to reduce diversity in practice. The standard is effective
for all entities in fiscal years beginning after December 15, 2021,
including interim periods within those fiscal years. Early adoption
is permitted, including adoption in an interim period. The Company
is currently evaluating the effect of adopting this
ASU.
Business Combinations
In
October 2021, the FASB issued ASU 2021-08, Accounting for Contract
Assets and Contact Liabilities from Contracts with Customers
(“ASU 2021-08”) (“ASC 805”). ASU 2021-08
requires an acquirer in a business combination to recognize and
measure contract assets and contract liabilities from acquired
contracts using the revenue recognition guidance under ASC 606 in
order to align the recognition of a contract liability with the
definition of performance obligation. This approach differences
from the current requirement to measure contract assets and
contract liabilities acquired in a business combination at fair
value. ASU 2021-08 is effective for financial statements of
non-public business entities issued for fiscal years beginning
after December 15, 2023 and early adoption is permitted. The
Company is currently evaluating the effect of adopting this
ASU.
4. Reverse Takeover (“RTO”) transaction and listing
expense
On June
11, 2018, MMDC and P13 (formerly Carpincho Capital Corp.) completed
the definitive share exchange agreement entered into on April 26,
2018, (the “RTO Agreement”), whereby MMDC acquired all
of the issued and outstanding shares of Carpincho Capital Corp, on
the basis of 0.875 consolidated common shares of the resulting
entity for every one (1) outstanding common share of Carpincho
Capital Corp. In accordance with ASC 805, the transaction is
categorized as a reverse takeover (“RTO”) of a
non-operating company. The transaction does not constitute a
business combination since Carpincho Capital Corp did not meet the
definition of a business under ASC 805.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
4. Reverse Takeover (“RTO”) transaction and listing
expense (continued)
These
types of transactions are considered to be capital transactions of
the legal acquiree and are equivalent to the issuance of shares by
the private entity for the net monetary assets of the public shell
corporation accompanied by a recapitalization. As a result, the
transaction has been accounted for as an asset acquisition with
MMDC being identified as the acquirer (legal subsidiary) and
Carpincho Capital Corp. being treated as the accounting acquiree
(legal parent) with the transaction being measured at the fair
value of the equity consideration issued to Carpincho Capital Corp
shareholders. The excess of the fair value of the shares issued
over the value of the net monetary assets acquired has been
recognized as a reduction of equity. The fair value of the net
assets acquired was $11,544 as per the below:
|
|
Net
assets acquired
|
|
Cash
and cash equivalents
|
$34,678
|
HST
receivable
|
8,020
|
Accounts
payable and accrued liabilities
|
(31,154)
|
Net
assets acquired
|
$11,544
|
Shares
issued and transaction costs incurred recorded
|
|
Fair value of
5,250,000 shares issued by MMDC at CAD $1.00 per share
|
4,040,637
|
Less net assets
acquired
|
(11,544)
|
Net cost of shares
issued on RTO recorded within additional paid in
capital
|
$4,029,093
|
Transaction
costs of $673,511 were incurred as part of the transaction and
recorded within transaction costs.
5. Inventory
Finished goods inventory consists of dried cannabis, concentrates,
edibles, and other products that are complete and
available for sale (both internally generated inventory and
third-party products purchased in the wholesale market). Work in
process inventory consists of cannabis after harvest, in the
processing stage. Packaging and miscellaneous consist of
consumables for use in the transformation of biological assets and
other inventory used in production of finished goods. Raw
materials consist of harvested cannabis. The Company’s
inventory is comprised of:
|
|
|
|
|
|
Raw
materials
|
$1,292,310
|
$1,030,349
|
Packaging and
miscellaneous
|
566,157
|
500,109
|
Work in
progress
|
1,801,434
|
1,254,118
|
Finished
goods
|
3,259,939
|
2,342,991
|
|
$6,919,840
|
$5,127,567
|
Cost of
Inventory is recognized as an expense when sold and included in
cost of goods sold. During the year ended December 31, 2020, the
Company recognized $35,394,019 (2019 - $27,086,453, 2018 -
$11,708,639) of inventory expensed to cost of goods
sold.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
6. Prepaid expenses and other current assets
|
|
|
Security
deposits
|
1,031,255
|
2,210,249
|
Funds awaiting
settlement
|
1,263
|
481,214
|
HST
receivable
|
103,445
|
16,544
|
Insurance
|
550,946
|
356,531
|
Prepaid rent and
other
|
511,096
|
431,314
|
|
$2,198,005
|
$3,495,852
|
7. Property and equipment
|
Land and land
Improvements
|
|
|
|
|
|
Gross carrying
amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31,
2019
|
625,146
|
1,698,077
|
4,075,085
|
27,094,559
|
1,778,283
|
35,271,150
|
Additions
|
-
|
9,817
|
2,096,736
|
2,110,612
|
3,174,371
|
7,391,536
|
Transfers
|
-
|
-
|
65,435
|
1,242,871
|
(1,308,306)
|
-
|
Disposals
|
-
|
-
|
-
|
-
|
(277,093)
|
(277,093)
|
Balance as at December 31,
2020
|
$625,146
|
$1,707,894
|
$6,237,256
|
$30,448,042
|
$3,367,255
|
$42,385,593
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31,
2019
|
76,737
|
161,258
|
1,242,945
|
3,579,056
|
-
|
5,059,996
|
Additions
|
51,194
|
42,492
|
1,034,935
|
4,141,006
|
-
|
5,269,627
|
Disposals
|
-
|
-
|
(17,955)
|
-
|
-
|
(17,955)
|
Balance as at December 31,
2020
|
$127,931
|
$203,750
|
$2,259,925
|
$7,720,062
|
$-
|
$10,311,668
|
|
|
|
|
|
|
|
Carrying
amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
$548,409
|
$1,536,819
|
$2,832,140
|
$23,515,503
|
$1,778,283
|
$30,211,154
|
December 31,
2020
|
$497,215
|
$1,504,144
|
$3,977,331
|
$22,727,980
|
$3,367,255
|
$32,073,925
|
|
|
|
|
|
|
|
As at
December 31, 2020, costs related to the construction of facilities
were capitalized as construction in progress and not depreciated.
Depreciation will commence when the facility is available for its
intended use. The contractual construction commitment on the
Superstore Entertainment Complex at December 31, 2020 was $nil
(2019 – $4,516,513). On December 14, 2020, the Company
entered into a Guaranteed Maximum Price Construction Agreement for
the phase I build out of its planned Planet 13 Orange County
cannabis entertainment complex in Santa Ana, California. The
construction commitment as at December 31, 2020, was $7,084,300
(December 31, 2019 - $Nil) (Note 19).
For the year ended December 31, 2020 depreciation expense was
$5,269,627 (2019- $2,971,894) of which $1,637,415
(2019 - $730,839) was included in cost of goods
sold.
During
the year ended December 31, 2020 on completion of Construction in
Progress, the Company transferred $1,242,871 (2019 - $5,146,336) to
Leasehold Improvements and transferred $65,435 (2019 - $950,535) to
Equipment.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
8.
Intangible assets
|
Retail
Dispensary Santa Ana
|
Retail
Dispensary Clark County
|
Cultivation and
Production Clark County
|
|
Carrying
amount
|
|
|
|
|
Balance, December
31, 2019
|
$-
|
$-
|
$-
|
$-
|
Additions
|
6,151,343
|
690,000
|
709,798
|
7,551,141
|
Balance, December
31, 2020
|
$6,151,343
|
$690,000
|
$709,798
|
$7,551,141
|
Santa Ana acquisition
On May
20, 2020, the Company closed on its acquisition of Newtonian
Principles, Inc. resulting in the Company acquiring a California
cannabis sales license held by Newtonian Principles, Inc and a
30-year lease for a dispensary in Santa Ana, California. The
acquisition was accounted for as an asset purchase acquisition as
Newtonian Principles, Inc. was deemed to not be a business under
ASC 805 Business Combinations. The facility became operational in
July 2021.
The
following table summarizes the allocation of consideration
exchanged to the estimated fair value of identifiable intangible
assets acquired assumed:
Consideration
paid:
|
|
Cash
|
$1,153,733
|
Issuance of
3,940,932 Class A shares (Note 11)
|
4,453,831
|
|
$5,607,564
|
Fair value of net
assets acquired:
|
|
Right of use
asset
|
$4,395,037
|
Right of use
liability
|
(4,395,037)
|
Deferred tax
liability
|
(543,779)
|
Intangible
asset-License
|
6,151,343
|
|
$5,607,564
|
WVapes acquisition
On July
17, 2020, the Company entered into an asset purchase agreement with
West Coast Developments Nevada, LLC and W The Brand, LLC (together
“WCDN”) pursuant to which the Company acquired cannabis
inventory, equipment and tenant improvements located in Las Vegas,
Nevada. The acquisition was accounted for as an asset purchase
acquisition as WCDN assets acquired was deemed to not be a
business.
The
following table summarizes the allocation of consideration
exchanged to the estimated fair value of tangible and
intangible
assets acquired:
Consideration
paid:
|
|
Cash
|
$1,706,667
|
Issuance
of 1,374,833 Common shares (Note 11)
|
2,918,277
|
|
$4,624,944
|
Fair value of net
assets acquired:
|
|
Inventory
|
$1,632,872
|
Fixed
assets
|
2,282,274
|
Intangible
asset - License
|
709,798
|
|
$4,624,944
|
The
Company acquired two cultivation licenses (one medical and one
recreational), two production licenses (one medical and one
recreational) and one conditional distribution license. The
transaction was scheduled to close in two parts, the first closing
being cash transferred for the equipment and cannabis inventory
which occurred on July 17, 2020, and the second closing (the
“Second Closing”) being contingent on the approval to
transfer the license and receipt of the cultivation and production
licenses from the State of Nevada’s Cannabis Control Board
(“CCB”).
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
8. Intangible assets (continued)
On
August 25, 2020, the CCB conditionally approved the transfer of the
cultivation and production licenses to MMDC, and on September 3,
2020, the Company received the cultivation and production licenses
pursuant to a letter from the CCB.
On
September 11, 2020, the Company mutually agreed with WCDN that the
receipt by the Company of a business license issued by
unincorporated Clark County which would permit the Company to
conduct business in Clark County (the “Clark County Business
License”) was a necessary condition precedent to the Second
Closing. As a result, the Second Closing occurred, and the
1,374,833 common shares in the Capital of the Company were released
from escrow to WCDN, on November 27, 2020 upon receipt by the
Company of the Clark County Business License.
Concurrent
with the first closing of the WCDN assets acquired, RX Land, LLC
(“RX Land”), an entity owned by the Corporation’s
co-CEOs, acquired the WCDN facility for US$3.3 million and entered
into a lease agreement with WCDN in respect of such facility (the
“Initial West Bell Lease”). In accordance with the
terms of the WCDN asset acquisition and approvals by the
independent directors of Planet 13, WCDN assigned the Initial West
Bell Lease to MMDC on November 25, 2020, and MMDC subsequently
entered into an amending agreement with RX Land on November 27,
2020, to amend certain terms of such lease agreement including
increasing the lease payments, extending the duration of the lease
and, if desired, allowing for second floor installation by MMDC
without a corresponding lease rate increase due to an increase in
facility size. The entering into by MMDC of the assignment
agreement and the amending agreement with RX Land constitutes a
“related party transaction”.
By way
of an October 10, 2020 letter from the CCB, the Company received a
conditional distribution license from WCDN.
Medizin license acquisition
On July
31, 2020, the Nevada Tax Commission approved a settlement agreement
between the Nevada Tax Commission, the Corporation and other
plaintiffs, and intervening defendants (the “Nevada License
Settlement”) in connection with a lawsuit filed by the
Company and other defendants after the defendants were notified in
December 2018 that no licenses had been awarded to any of the
defendants as part of a competitive application process that the
Company and the other defendants had participated in for Nevada
cannabis dispensary licenses in September 2018.
On
August 7, 2020, the CCB convened and approved the Nevada License
Settlement.
On
September 3, 2020, the CCB transferred the conditional Clark County
dispensary license to MMDC.
On
November 20, 2020, the Corporation opened the Medizin store
location, having received CCB final inspection approvals and a
Clark County business license. The Company has capitalized $690,000
in costs incurred to secure the license under the Nevada License
Settlement.
9. Leases
On
January 1, 2019, the Company adopted ASC 842, Leases (“ASC
842”) using the modified retrospective transition method.
Topic 842 requires the recognition of lease assets and liabilities
for operating and finance leases. Beginning on January 1, 2019, the
Company’s consolidated financial statements are presented in
accordance with the revised policies.
Management
elected to utilize the practical expedients permitted under the
transition guidance within Topic 842, which allowed the Company to
carry forward prior conclusions about lease identification,
classification and initial direct costs for leases entered prior to
adoption of Topic 842. Additionally, management elected not to
separate lease and non-lease components for all of the
Company’s leases. For leases with a term of 12 months or
less, management elected the short-term lease exemption, which
allowed the Company to not recognize right-of-use assets
(“ROU”) or lease liabilities for qualifying leases
existing at transition and new leases the Company may enter into in
the future.
The
Company’s lease agreements are for cultivation,
manufacturing, retail, and office premises and for vehicles. The
property lease terms range between 7 years and 21 years depending
on the facility and are subject to an average of 2 renewal periods
of equal length as the original lease. Leases for vehicles are
typically between 4 years and 6 years with no renewal terms.
Certain leases include escalation clauses or payment of executory
costs such as property taxes,
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
9. Leases (continued)
utilities,
or insurance and maintenance. Rent expense for leases with
escalation clauses is accounted for on a straight-line basis over
the lease term. The Company’s lease agreements do not contain
any material residual value guarantees or material restrictive
covenants.
On
initial recognition, the Company recorded operating right-of-use
assets of $8,708,316, operating lease liabilities of $8,639,028 and
finance ROU assets and finance lease liabilities of $133,561. On
initial recognition, operating ROU assets were adjusted for prepaid
rent and deferred rent was reversed which resulted in the Company
recording $427,508 to opening accumulated deficit. The
Company’s incremental borrowing rate was used in determining
the present value of future payments at the commencement date of
the lease.
The
following table provides the components of lease cost recognized in
the consolidated statement of operations and comprehensive loss for
2020 and 2019:
|
|
|
Operating lease
costs
|
$3,227,428
|
$2,019,931
|
Finance lease
cost:
|
|
|
Amortization
of lease assets
|
46,194
|
42,695
|
Interest
on lease liabilities
|
10,774
|
15,489
|
Finance lease
cost
|
56,968
|
58,184
|
Short term lease
expense
|
17,154
|
6,080
|
Total lease
costs
|
$3,301,550
|
$ 2,084,195
|
Other
information related to operating and finance leases as of and for
the year end December 31, 2020 and 2019 are as
follows:
|
|
|
|
|
|
|
|
Weighted average
discount rate
|
15.00%
|
15.00%
|
15.00%
|
15.00%
|
Weighted average
remaining lease term (in years)
|
0.88
|
12.80
|
1.88
|
17.10
|
The
maturity of the contractual undiscounted lease liabilities as of
December 31, 2020 and 2019 are:
|
|
|
|
|
|
|
|
2020
|
$-
|
$-
|
$56,726
|
$1,353,594
|
2021
|
49,803
|
3,180,999
|
49,803
|
1,539,901
|
2022
|
-
|
3,354,437
|
-
|
1,611,855
|
2023
|
-
|
3,482,126
|
-
|
1,687,256
|
2024
|
-
|
3,614,972
|
-
|
1,766,272
|
2025
|
-
|
3,694,021
|
-
|
1,789,854
|
2026
|
-
|
3,757,894
|
|
|
Thereafter
|
-
|
54,138,155
|
-
|
27,009,842
|
Total undiscounted
lease liabilities
|
49,803
|
75,222,604
|
106,529
|
36,758,574
|
Interest on lease
liabilities
|
(3,431)
|
(52,695,691)
|
(14,205)
|
(25,813,747)
|
Total present value
of minimum lease payments
|
46,372
|
22,526,913
|
92,324
|
10,944,827
|
Lease liability
– current portion
|
(46,372)
|
(161,021)
|
(45,952)
|
(48,906)
|
Lease
liability
|
$-
|
$22,365,892
|
$46,372
|
$10,895,921
|
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
9. Leases (continued)
Additional
information on the right-of-use assets by class of assets is as
follows:
|
|
|
|
|
|
Gross
carrying amount
|
|
|
Balance, January 1,
2019
|
$133,561
|
$8,708,316
|
Additions
|
-
|
2,024,771
|
Balance, December
31, 2019
|
133,561
|
10,733,087
|
Lease
modifications
|
-
|
335,798
|
Additions
|
-
|
10,893,679
|
Balance, December
31, 2020
|
$133,561
|
$21,962,564
|
|
|
|
Depreciation
|
|
|
|
|
|
Balance, January 1,
2019
|
$-
|
$-
|
Additions
|
42,695
|
615,550
|
Balance, December
31, 2019
|
42,695
|
615,550
|
Additions
|
46,194
|
849,119
|
Balance, December
31, 2020
|
$88,889
|
$1,464,669
|
|
|
|
|
|
|
Carrying
amount December 31, 2019
|
$90,866
|
$10,117,537
|
Carrying
amount December 31, 2020
|
$44,672
|
$20,497,895
|
For the
year ended December 31, 2020, the Company incurred $3,227,428 of
operating lease costs (2019 - $2,019,931), of which $1,112,685
(2019 - $106,947) was capitalized to inventory.
During
the year ended December 31, 2020, two leases were modified to
increase the space under lease and one lease was modified to
increase lease payments after the building under lease was sold by
the lessor. The modifications were treated as continuations of the
existing leases.
10. Notes payable
Non-related parties
|
|
|
Promissory note
dated November 4, 2015, with semi-annual interest at 5.0%, secured
by deed of trust, due December 1, 2019
|
$884,000
|
$884,000
|
Less: current
portion
|
(884,000)
|
(884,000)
|
Long-term portion
of promissory notes
|
$-
|
$-
|
Stated
maturities of debt obligations are as follows:
Next 12 months promissory note
|
$ 884,000
|
The
promissory note with an outstanding balance at December 31, 2020 of
$884,000 (December 31, 2019 - $884,000) is collateralized by a deed
of trust on the related land.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
11. Share capital
Unlimited
number of common shares and unlimited number of Class A
shares.
|
|
|
|
|
|
|
Common
shares
|
|
|
|
|
Balance at January
1
|
|
82,427,619
|
73,324,460
|
25,300,000
|
Shares issued to
former Carpincho Capital Corp Shareholders
|
i.
|
-
|
-
|
5,250,000
|
Shares issued on
private placement
|
|
-
|
-
|
31,458,400
|
Shares issued on
prospectus offering
|
|
-
|
-
|
8,735,250
|
Shares issued on
settlement of RSUs
|
|
2,685,344
|
3,954,518
|
-
|
Shares issued on
exercise of options
|
|
333,001
|
258,994
|
-
|
Shares issued on
exercise of warrants
|
|
17,532,271
|
4,889,647
|
2,580,810
|
Shares issued on
financing - July 2020
|
|
5,359,000
|
-
|
-
|
Shares issued on
financing - September 2020
|
|
6,221,500
|
-
|
-
|
Shares issued on
financing - November 2020
|
|
6,698,750
|
-
|
-
|
Shares issued on
conversion of Class A shares (Note 8)
|
|
3,940,932
|
-
|
-
|
Shares issued on
acquisition (Note 8)
|
|
1,374,833
|
-
|
-
|
Total
common shares outstanding on December 31
|
|
126,573,250
|
82,427,619
|
73,324,460
|
i. Shares issued to former Carpincho Capital Corp
Shareholders
On June
11, 2018 the Company closed the RTO transaction, and it issued
5,250,000 common shares to former shareholders of Carpincho Capital
Corp. at fair value. The Company recorded Share capital in the
amount of $11,544 associated with the issuance of shares to the
former shareholders of Carpincho (Note 4).
ii. Shares issued in private placement
The RTO
closing also triggered the closing of a private placement that was
being held in escrow pending the closing of the RTO. The Company
closed the private placement by issuing 31,458,400 units at a price
of CAD$0.80 per unit for gross proceeds of $20,205,692
(CAD$26,253,256). Each unit was comprised of one common share and
one-half of common share purchase warrant. Each whole warrant
entitles the holder to purchase one common share for a period of 24
months from the closing of the offering at a price of CAD$1.40 per
common share.
The
Company also issued 1,485,645 broker warrants that entitled the
holder to purchase one common share for a period of 24 months from
the closing of the offering at a price of CAD$0.80 per common
share. The broker warrants were measured based on the fair value of
the warrants using a Black Scholes valuation model.
The
Company incurred $2,309,453 in cash share issuance costs and
$647,406 in broker warrant costs. The warrants are initially
measured at fair value (Note 12) with residual proceeds being
allocated to the common shares. Issuance costs have been allocated
in the same proportion, with costs allocated to the warrant
liability being expensed as incurred. The net proceeds were
allocated as follows:
|
|
|
June
11, 2018 Financing
|
|
|
Common Shares
(APIC)
|
12,132,370
|
(1,775,426)
|
Warrant Liability
(Note 12)
|
8,073,322
|
(1,181,433)
|
Total
|
20,205,692
|
2,956,859
|
|
|
|
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
11. Share capital (continued)
iii. Shares issued on prospectus offering
On
December 4, 2018, the Company issued 8,735,250 common shares and
4,792,625 common share purchase warrants at a price of CAD$3.00 per
unit with each unit consisting of one common share and ½ of a
common share purchase warrant. Total aggregate gross proceeds on
the financing were $20,175,329 (CAD$26,669,767). Each whole warrant
entitles the holder to purchase one common share of the Company at
an exercise price of CAD$3.75 for a period of 36 months following
the closing. The warrants may be accelerated by the Company in its
sole discretion at any time in the event that the volume-weighted
average closing price of the common shares on the Canadian
Securities Exchange is greater than or equal to CAD$5.00 per share
for a period of 20 consecutive trading days by giving notice to the
warrant holders. In such a case the warrants will expire at 4:00pm
Eastern Time on the earlier of the 30th day after the
date on which notice is given and the actual expiry date of the
warrants.
The
Company also issued 524,115 broker warrants that entitle the holder
to purchase one common share for a period of 24 months from the
closing of the offering at a price of CAD$3.00 per common share.
The broker warrants were measured based on the fair value of the
warrants using a Black Scholes valuation model.
The
Company incurred $1,722,572 in cash share issuance costs and
$750,012 in broker warrant costs. The warrants are initially
measured at fair value (Note 12) with residual proceeds being
allocated to the common shares. Issuance costs have been allocated
in the same proportion, with costs allocated to the warrant
liability being expensed as incurred. The net proceeds were
allocated as follows:
|
|
|
December
4, 2018 Financing
|
|
|
Common Shares
(APIC)
|
19,540,856
|
(2,394,824)
|
Warrant Liability
(Note 12)
|
634,473
|
(77,760)
|
Total
|
20,175,329
|
2,472,584
|
iv. Shares issued for Restricted Share Units
During
the year ended December 31, 2020, the Company issued 2,685,344
common shares on the settlement of Restricted Share Units
(“RSUs”) that had vested during the period. The Company
did not receive any cash proceeds on the settlement and transferred
$3,313,152 to share capital from the carrying value ascribed to the
RSUs that were settled.
During
the year ended December 31, 2019, the Company issued 3,954,518
common shares on the settlement of RSUs that had vested during the
year. The Company did not receive any cash proceeds on the
settlement and transferred $3,245,017 to share capital from the
carrying value ascribed to the RSUs that were settled.
v. Shares issued for Stock Options
During
the year ended December 31, 2020, the Company issued 333,001 common
shares on the exercise of options that had a strike price in the
range of CAD$0.75 to CAD$1.55 per common share resulting in cash
proceeds of $217,990 (CAD$290,983).
During
the year ended December 31, 2019, the Company issued 258,994 common
shares on the exercise of options with a strike price in the range
of CAD$0.75 to CAD$1.55 per common share resulting in cash proceeds
of $175,474 (CAD$231,945).
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
11. Share capital (continued)
vi. Shares issued on the exercise of Warrants
During
the year ended December 31, 2020, the Company issued 17,532,271
common shares to warrant holders who exercised 17,532,271 warrants
resulting in cash proceeds of $32,653,449
(CAD$43,079,021).
During
the year ended December 31, 2019, the Company issued 4,889,647
common shares to warrant holders who exercised 4,889,647 warrants
resulting in cash proceeds of $4,854,711
(CAD$6,480,875).
During
the year ended December 31, 2018, the Company issued 2,580,810
common shares to warrant holders who
exercised
2,580,810 warrants resulting in cash proceeds of $2,374,253
(CAD$3,124,773).
vii. Shares issued on Financing – July 2020
On July
3, 2020, the Company completed a bought deal financing for
aggregate gross proceeds of $8,493,808 (CAD$11,521,850) at a price
of CAD$2.15 per unit. The Company issued 5,359,000 units of the
Company. Each unit was comprised of one common share in the capital
of the Company and one-half of one common share purchase warrant.
Each whole warrant entitles the holder to acquire one common share
at an exercise price of CAD$2.85 per common share for a period of
24 months.
The
Company also issued 321,540 broker warrants that entitle the holder
to purchase one common share for a period of 24 months from the
closing of the offering at a price of CAD$2.15 per common share.
The broker warrants were measured based on the fair value of the
warrants using a Black Scholes valuation model.
The
Company incurred $825,359 in cash share issuance costs and $222,398
in broker warrant costs. The warrants are initially measured at
fair value (Note 12) with residual proceeds being allocated to the
common shares. Issuance costs have been allocated in the same
proportion, with costs allocated to the warrant liability being
expensed as incurred. The net proceeds were allocated as
follows:
|
|
|
July
3, 2020 Financing
|
|
|
Common Shares
(APIC)
|
8,118,500
|
(1,001,461)
|
Warrant Liability
(Note 12)
|
375,308
|
(46,296)
|
Total
|
8,493,808
|
(1,047,757)
|
viii. Shares issued on Financing – September
2020
On
September 10, 2020, the Company completed a bought deal financing
for aggregate gross proceeds of $17,489,401 (CAD$23,019,550) at a
price of CAD$3.70 per unit. The Company issued 6,221,500 units of
the Company. Each unit was comprised of one common share in the
capital of the Company and one-half of one common share purchase
warrant. Each whole warrant entitles the holder to acquire one
common share at an exercise price of CAD$5.00 per common share for
a period of 24 months.
The
Company also issued 373,290 broker warrants that entitle the holder
to purchase one common share for a period of 24 months from the
closing of the offering at a price of CAD$3.70 per common share.
The broker warrants were measured based on the fair value of the
warrants using a Black Scholes valuation model.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
11. Share capital (continued)
The
Company incurred $1,291,216 in cash share issuance costs and
$585,816 in broker warrant costs. The warrants are initially
measured at fair value (Note 12) with residual proceeds being
allocated to the common shares. Issuance costs have been allocated
in the same proportion, with costs allocated to the warrant
liability being expensed as incurred. The net proceeds were
allocated as follows:
|
|
|
September
10, 2020 Financing
|
|
|
Common Shares
(APIC)
|
16,662,200
|
(1,788,253)
|
Warrant Liability
(Note 12)
|
827,201
|
(88,779)
|
Total
|
17,489,401
|
(1,877,032)
|
ix. Shares issued on Financing – November 2020
On
November 5, 2020, the Company completed a bought deal financing for
aggregate gross proceeds of $22,141,920 (CAD$28,804,625) at a price
of CAD$4.30 per unit. The Company issued 6,698,750 units of the
Company. Each unit was comprised of one common share in the capital
of the Company and one-half of one Common Share purchase warrant.
Each whole warrant entitles the holder to acquire one common share
at an exercise price of CAD$5.80 per common share for a period of
24 months.
The
Company also issued 401,925 broker warrants that entitle the holder
to purchase one common share for a period of 24 months from the
closing of the offering at a price of CAD$4.30 per common share.
The broker warrants were measured based on the fair market value of
the warrants using a Black Scholes valuation model.
The
Company incurred $1,544,014 in cash share issuance costs and
$730,523 in broker warrant costs. The warrants are initially
measured at fair value (Note 12) with residual proceeds being
allocated to the common shares. Issuance costs have been allocated
in the same proportion, with costs allocated to the warrant
liability being expensed as incurred. The net proceeds were
allocated as follows:
|
|
|
November
5, 2020 Financing
|
|
|
Common Shares
(APIC)
|
20,777,360
|
(2,134,362)
|
Warrant Liability
(Note 12)
|
1,364,560
|
(140,175)
|
Total
|
22,141,920
|
(2,274,537)
|
|
|
|
|
|
|
Class
A shares
|
|
|
|
Balance at January
1
|
55,232,940
|
55,232,940
|
49,700,000
|
Shares issued on
exchange of notes payablei.
|
-
|
-
|
5,532,940
|
Shares issued on
acquisition (Note 8)
|
3,940,932
|
-
|
-
|
Conversion of Class
A to Common (Note 8)
|
(3,940,932)
|
-
|
-
|
Total
Class A shares outstanding on December 31
|
55,232,940
|
55,232,940
|
55,232,940
|
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
11. Share capital (continued)
In
March 2014, the Company entered into agreements with its founders
(who are now shareholders) in order to provide funds to support
operations of the Company. The notes matured on December 31, 2019
and interest accrues on each advance on the day an advance is made
at a rate of 15%. On January 1, 2018, the holders of the notes
converted 50% of the notes outstanding for an aggregate of
$3,334,304 of principal into members' contributions at
carrying value. On March 14, 2018, MMDC LLC, the predecessor
company of MMDC underwent a statutory conversion to a Nevada
domestic corporation, converting from a member based limited
liability company to a Corporation. The members’ equity in
MMDC LLC was converted into common voting shares of 25,300,000
amounting to $1,124,661 and 49,700,000 non-voting capital stock
amounting to $2,209,643. The common stock of MMDC were then
exchanged for 25,300,000 common shares of P13 and 49,700,000 Class
A restricted shares of P13 on closing of the RTO (Note
4).
On
closing of the RTO on June 11, 2018, the holders of the notes
converted the remaining amounts of principal and accrued interest
due to them of $3,409,476, into 5,532,940 shares of Class A
restricted shares of the Company.
The
Class A restricted shares have equal ratable rights as the
Company’s common shares to dividends, all of the
Company’s assets that are available for distribution upon
liquidation, dissolution or winding up of the Company’s
affairs, do not have pre-emptive rights, are entitled to receive
notice and attend shareholders meetings and to exercise one vote
for each Class A share held at all meetings of shareholders of the
Company other than with respect to the vote for the election or
removal of directors. Each Class A shareholder is able to convert
each outstanding Class A share at the option of the holder thereof
into one common share at any time provided that such conversion
would not cause the Company to become a US Domestic Issuer. The
restriction on conversion of Class A shares are designed to prevent
the Company from becoming a US Domestic Issuer. Generally, a
company will be considered to be a US Domestic Issuer
if:
(A) 50%
or more of the holders of a company’s common voting shares
are U.S. Persons; and either (B) (i) the majority of the executive
officers or directors of the Issuer are United States citizens or
residents; (ii) the company has 50% or more of its assets located
in the United States; or (iii) the business of the company is
principally administered in the United States.
As
there are no restrictions on issue or transfer of the
Company’s common shares, there is no guarantee that the
Company will not become a US Domestic Issuer in the future. The
Company’s Class A Shares were issued to all shareholders of
the Company who were resident in the United States on the date of
the closing of the RTO. During fiscal 2021, the
Company has failed the foreign private issuer (“FPI”)
test (Note 22).
i. Shares issued on exchange of notes payable
The
Company issued 5,532,940 Class A restricted shares at a price of
CAD$0.80 per share for total equity of $3,409,476 on the settlement
of notes held by related parties that were converted to equity on
closing of the RTO at the option of the note holder.
12. Warrants
The
following table summarizes the fair value of the warrant liability
at December 31, 2020, 2019 and 2018:
|
|
|
|
Opening balance as
at January 1
|
$9,823,510
|
$9,237,466
|
$-
|
Additions
|
2,567,069
|
-
|
8,707,794
|
Exercise
|
(15,698,859)
|
(5,424,285)
|
(2,307,811)
|
Foreign
exchange
|
(293,450)
|
468,739
|
(742,451)
|
Change
in fair value
|
16,805,941
|
5,541,590
|
3,579,934
|
Closing balance as
at December 31
|
$13,204,211
|
$9,823,510
|
$9,237,466
|
The
warrant liability is adjusted to fair value on the date the
warrants are exercised and at the end of each reporting period. The
amount that is reclassified to equity on the date of exercise is
the fair value at that date.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
12. Warrants (continued)
The
following table summarizes the number of warrants outstanding at
December 31, 2020, 2019 and 2018:
|
|
Weighted
average
exercise price
– CAD
|
|
Weighted
average
exercise price -
CAD
|
|
Weighted
average
exercise price -
CAD
|
Balance – beginning of
year
|
15,061,078
|
$2.20
|
19,950,725
|
$1.99
|
-
|
-
|
Issued
|
10,236,380
|
$4.53
|
-
|
-
|
22,531,535
|
$1.90
|
Exercised
|
(17,532,271)
|
$2.46
|
(4,889,647)
|
$1.33
|
(2,580,810)
|
$1.21
|
Expired
|
(606,850)
|
$1.40
|
-
|
-
|
-
|
-
|
Balance – end of
year
|
7,158,337
|
$4.98
|
15,061,078
|
$2.20
|
19,950,725
|
$1.99
|
The
Company received cash proceeds of $32,653,449 (CAD$43,079,021) from
the exercise of warrants (2019 - $4,854,711 (CAD$6,480,875), 2018 -
$2,374,253 (CAD$3,124,773)).
The
following assumptions were used to arrive at the fair value of the
level 3 Warrants issued on June 11, 2018 using a Black Scholes
Option Pricing model as at December 31, 2019 ($Nil –
2020):
|
|
Share price –
CAD$
|
$2.57
|
Strike price
– CAD$
|
$1.40
|
Risk-free
rate
|
1.71%
|
Expected dividend
yield
|
0.00%
|
Expected
volatility
|
70.00%
|
Warrant life in
years
|
0.45
|
Fair values
The
Company complies with ASC 820, Fair Value Measurement, for its
financial assets and liabilities that are re-measured and reported
at fair value at each reporting period, and non-financial assets
and liabilities that are re-measured and reported at fair value at
least annually. Financial instruments recorded at fair value in the
consolidated balance sheet are classified using a fair value
hierarchy that reflects the observability of significant inputs
used in making the measurements. In general, fair values determined
by Level 1 inputs utilize quoted prices (unadjusted) in active
markets for identical assets or liabilities. Fair values determined
by Level 2 inputs utilize data points that are observable such as
quoted prices, interest rates and yield curves. Fair values
determined by Level 3 inputs are unobservable data points for the
asset or liability, and includes situations where there is little,
if any, market activity for the asset or liability. The fair value
hierarchy requires the use of observable market inputs whenever
such inputs exist. A financial instrument is classified to the
lowest level of the hierarchy for which a significant input has
been considered in measuring fair value.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
The
following tables present information about the Company’s
assets and liabilities that are measured at fair value on a
recurring basis as of December 31, 2020, 2019 and
2018:
|
Quoted prices in
active markets for identical assets (Level 1)
|
Significant
unobservable inputs (Level 3)
|
|
December
31, 2020:
|
|
|
|
Warrant
liability
|
$(13,204,211)
|
$-
|
$(13,204,211)
|
|
|
|
|
December
31, 2019:
|
|
|
|
Warrant
liability
|
$(737,993)
|
$(9,085,518)
|
$(9,823,510)
|
|
|
|
|
December
31, 2018:
|
|
|
|
Warrant
liability
|
$(843,153)
|
$(8,394,313)
|
$(9,237,466)
|
12. Warrants (continued)
Warrants
issued on June 11, 2018 were calculated using the Black Scholes
model. This issuance therefore has significant unobservable inputs
and are considered level 3 financial instruments. All warrants
issued post-June 2018 are publicly traded and therefore are
considered level 1 financial instruments.
Any
significant adjustments to the unobservable inputs disclosed in the
table below would have a direct impact on the fair value of the
warrant liability. A 15% change in the following assumption will
have the following impact on the fair value of the level 3 warrant
liability:
|
|
Fair value at December 31, 2019
|
|
Valuation technique
|
|
Unobservable input
|
Range (weighted average)
|
+15%
|
-15%
|
June 2018 warrants
|
$
|
(9,085,518)
|
|
Black Scholes
|
|
Volatility
|
70%
|
(9,353,526)
|
(8,900,085)
|
13. Share based compensation
(a) Stock options
The
Company has established an incentive stock option plan (the
“Plan”) for employees, management, directors, and
consultants of the Company, as designated and administered by a
committee of the Company’s Board of Directors. Under the
Plan, the Company may grant options for up to 10% of the issued and
outstanding common shares of the Company.
During the year ended December 31, 2020
No
incentive stock options were granted during the
period.
During the year ended December 31, 2019
On
January 7, 2019, the Company granted 100,000 incentive stock
options to employees of the Company. These options are exercisable
at a price of CAD$1.55 per common share for a period of 5 years
from the grant date.
On June
30, 2019, the Company granted 22,500 incentive stock options to
employees of the Company. These options are exercisable at a price
of CAD$2.60 per common share for a period of 5 years from the grant
date.
On July
4, 2019, the Company granted 100,000 incentive stock options to
consultants of the Company. The options are exercisable at a price
of CAD$2.65 per common share for a period of 3 years from the grant
date.
During the year ended December 31, 2018
On June
11, 2018 the Company granted 625,000 incentive stock options to
employees of the Company. These options are exercisable at
a price of CAD$0.80 per common share for a period of five years
from the grant date.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
13. Share based compensation (continued)
On June
11, 2018 the Company granted 175,000 incentive stock options to
consultants of the Company. These options are exercisable at a
price of CAD$0.80 per common share for a period of three years from
the grant date. The incentive options granted to consultants were
measured based on the fair market value of the options at the date
of granting using a Black Scholes valuation model as the fair
market value of the services received cannot be reliably
measured.
On July
31, 2018 the Company granted 25,000 incentive stock options to an
employee of the Company. These options are exercisable at
a price of CAD$0.75 per common share for a period of 5 years from
the grant date.
The
following table summarizes information about stock options
outstanding at December 31, 2020, 2019 and 2018:
Expiry
date
|
|
December 31, 2020
outstanding
|
December 31, 2020
exercisable
|
December 31, 2019
outstanding
|
December 31, 2019
exercisable
|
December 31, 2018
outstanding
|
December 31, 2018
exercisable
|
June 11,
2021
|
$0.80
|
-
|
-
|
175,000
|
175,000
|
175,000
|
131,250
|
July 4,
2022
|
$2.65
|
100,000
|
100,000
|
100,000
|
550,000
|
-
|
-
|
June 11,
2023
|
$0.80
|
158,004
|
158,004
|
282,674
|
139,332
|
590,002
|
196,668
|
July 31,
2023
|
$0.75
|
11,667
|
11,667
|
20,000
|
11,667
|
25,000
|
8,333
|
January 7,
2024
|
$1.55
|
16,667
|
-
|
66,668
|
33,334
|
-
|
-
|
June 30,
2024
|
$2.60
|
7,500
|
-
|
22,500
|
7,500
|
-
|
-
|
|
|
293,838
|
269,671
|
666,842
|
916,833
|
790,002
|
336,251
|
The
employee options vest one third on the grant date and one third on
the first and second anniversary of the grant date. The fair value
ascribed to the options issued was $nil (2019: $625,947, 2018: $625,947)
and is being recognized as non-cash compensation expense over the
vesting period of the options. The following assumptions were used
to arrive at the value ascribed to the options issued using a Black
Scholes Option Pricing model:
|
|
|
|
Closing share price
in CAD the day prior to granting
|
$1.00
|
$1.00
|
0.75
|
Risk-free
rate
|
2.14%
|
1.99%
|
2.21%
|
Expected dividend
yield
|
0.00%
|
0.00%
|
0.00%
|
Expected
volatility
|
98.10%
|
98.10%
|
98.10%
|
Option life in
years
|
5.00
|
3.00
|
5.00
|
|
|
|
|
Closing share price
in CAD the day prior to granting
|
$1.55
|
$2.60
|
2.65
|
Risk-free
rate
|
1.87%
|
1.40%
|
1.62%
|
Expected dividend
yield
|
0.00%
|
0.00%
|
0.00%
|
Expected
volatility
|
110.41%
|
98.86%
|
98.29%
|
Option life in
years
|
5.00
|
5.00
|
3.00
|
Volatility
was estimated by comparing the volatility of publicly traded
companies that operate in the US cannabis market. The expected life
in years represents the period of time that options granted are
expected to be outstanding. The risk-free rate is based on the
Government of Canada Bond yields on the date of the option grant
with a remaining term equal to the expected life of the
options.
Share
based compensation expense attributable to employee options was
$56,550 for the year ended December 31, 2020, (2019: $258,620,
2018: $357,974).
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
13. Share based compensation (continued)
|
|
Weighted average
CAD$ exercise price
|
|
Weighted average
CAD$ exercise price
|
|
Weighted average
CAD$ exercise price
|
Balance –
beginning of year
|
666,842
|
$1.22
|
790,002
|
$0.80
|
-
|
$-
|
Granted
|
-
|
-
|
222,500
|
2.15
|
820,000
|
0.80
|
Exercised
|
(333,001)
|
0.87
|
(258,994)
|
0.88
|
-
|
-
|
Expired
|
(40,003)
|
1.79
|
-
|
-
|
-
|
-
|
Forfeited
|
-
|
-
|
(86,666)
|
0.80
|
(29,998)
|
0.80
|
Balance – end
of year
|
293,838
|
$1.52
|
666,842
|
$1.22
|
790,002
|
$0.80
|
|
|
|
|
The
outstanding options have a weighted-average CAD$ exercise price of
$
|
$1.52
|
$1.22
|
0.80
|
The weighted
average remaining life in years of the outstanding options
is:
|
2.19
|
2.88
|
4.01
|
(c)
Restricted
Share Units
The
Company has established a Restricted Share Unit incentive plan (the
“RSU Plan”) for employees, management, directors, and
consultants of the Company, as designated and administered by a
committee of the Company’s Board of Directors. Under the RSU
Plan, the Company may grant RSUs and/or options for up to 10% of
the issued and outstanding common shares of the
Company.
The
following table summarizes the RSUs that are outstanding as at
December 31, 2020, 2019 and 2018:
RSU
Activity
|
|
|
|
|
|
|
|
Balance - beginning of the year
|
4,355,742
|
5,367,691
|
-
|
Granted
|
100,518
|
3,259,624
|
5,663,358
|
Exercised
|
(2,685,344)
|
(3,954,518)
|
-
|
Cancelled
|
(6,666)
|
(317,055)
|
(295,667)
|
Balance – end of the year
|
1,764,250
|
4,355,742
|
5,367,691
|
The
Company recognized $2,456,018 in share-based compensation expense
attributable to RSUs vesting during the year ended December 31,
2020 ($4,564,167 for the year ended December 31, 2019, $2,305,705
for the year ended December 31, 2018).
During the year ended December 31, 2020
On
January 1, 2020, the Company issued 50,000 RSUs under the RSU plan.
The value ascribed to the RSUs issued was CAD$2.57 per share, the
closing share price of the Company’s common shares on
December 31, 2019.
On June
30, 2020, 6,666 RSUs that were previously granted on June 11, 2018
were cancelled as a result of an employee resignation.
On July
3, 2020, the Company issued 50,518 RSUs under the RSU plan. The
value ascribed to the RSUs issued was CAD$2.04 per share, the
closing share price of the Company’s common shares on July 3,
2020.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
13. Share based compensation (continued)
During the year ended December 31, 2019
On June
24, 2019, 82,362 RSUs that were previously granted on June 11, 2018
were cancelled as a result of a Director not standing for
re-election.
On June
30, 2019 the Company issued 3,259,624 RSUs under the RSU plan. The
value ascribed to the RSUs issued was CAD$2.60 per share, the
closing share price of the Company’s common shares on June
28, 2019. 136,278 of the RSUs vested immediately and the balance of
the RSUs vest 1/3 on January 1, 2020, 1/3 on January 1, 2021 and
1/3 on January 1, 2022.
On
August 29, 2019, 82,362 RSUs that were previously granted on June
11, 2018 were cancelled and 152,331 RSUs that were previously
granted on June 30, 2019 were cancelled as a result of a Director
resignation.
During the year ended December 31, 2018
On June
11, 2018, the Company granted Management and Directors and
Consultants of the Company 5,638,358 Restricted Share Units under
the RSU plan. The value ascribed to the RSU issued was CAD$1.00 per
share, the closing share price of the Company’s common shares
on June 11, 2018. The RSUs vest 1/3 on the grant date and 1/3 on
each of the first and second anniversaries of the grant date.
575,000 of the RSUs granted were issued to a consultant of the
Company as payment of an outstanding accounts payable in the amount
of $346,206. The fair value of the RSUs issued was $442,546. The
Company recorded a loss on settlement of the accounts payable of
$96,340. The RSUs issued on settlement of the accounts payable
amount vest on the same terms as the rest of the RSU
grant.
On July
31, 2018, the Company granted a member of Management of the Company
25,000 Restricted Share Units under the RSU plan. The value
ascribed to the RSU issued was CAD$0.75 per share, the closing
share price of the Company’s common shares on July 31, 2018.
The RSUs vest 1/3 on the grant date and 1/3 on each of the first
and second anniversaries of the grant date.
On
November 9, 2018, 295,667 RSUs that were previously granted on June
11, 2018 were cancelled as a result of an
employee
resignation.
On June
24, 2019, 82,362 RSUs that were previously granted on June 11, 2018
were cancelled as a result of a Director
not
standing for re-election.
On June
30, 2019 the Company issued 3,259,624 Restricted Share Units under
the RSU plan. The value ascribed to the RSUs issued was CAD$2.60
per share, the closing share price of the Company’s common
shares on June 28, 2019. 136,278 of the RSU’s vested
immediately and the balance of the RSUs vest 1/3 on January 1,
2020, 1/3 on January 1, 2021 and 1/3 on January 1,
2022.
On
August 29, 2019, 82,362 RSUs that were previously granted on June
11, 2018 were cancelled and 152,331 RSUs that were previously
granted on June 30, 2019 were cancelled as a result of a Director
resignation.
The
Company issued 2,685,345 common shares on the exercise of 2,685,345
RSUs during the year ended December 31, 2020 (3,954,518 common
shares on the exercise of 3,954,518 RSUs for the year ended
December 31, 2019, nil common shares on the exercise of nil RSUs
for the year ended December 31, 2018).
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
14. Loss per share
|
|
|
|
(Loss)
available to common shareholders
|
$(25,008,729)
|
$(12,303,343)
|
$(12,626,150)
|
|
|
|
|
Weighted average
number of shares, basic and diluted
|
151,825,439
|
134,074,476
|
98,908,344
|
|
|
|
|
Basic
and diluted (loss) per share
|
$(0.16)
|
$(0.09)
|
$(0.13)
|
|
|
|
|
Approximately
9,216,425, 20,083,662 and 26,108,428 of potentially dilutive
securities for the periods ended December 31, 2020, December 31,
2019 and December 31, 2018 respectively were excluded in the
calculation of diluted EPS as their impact would have been
anti-dilutive due to net loss in the year.
15. Income taxes
The
components of income tax expense (benefit) of the Company are
summarized as follows:
|
|
|
|
|
|
|
|
Current
tax expense (recovery)
|
|
|
|
Current
period
|
$7,239,936
|
$7,352,808
|
$2,279,017
|
|
|
|
|
Deferred
tax expense (recovery)
|
|
|
|
Origination and
reversal of temporary differences
|
(2,478,308)
|
(1,139,833)
|
(1,064,788)
|
Change in
unrecognized temporary differences
|
2,344,888
|
1,139,833
|
685,840
|
Income tax
expense
|
$7,106,516
|
$7,352,808
|
$1,900,069
|
The
actual income tax provision differs from the expected amount
calculated by applying the statutory income tax rate to the loss
before tax. These differences result from the
following:
|
|
|
|
|
|
|
|
Loss before income
tax
|
$(17,902,213)
|
$(4,950,535)
|
$(10,726,081)
|
Statutory income
tax rate
|
21.0%
|
21.0%
|
21.0%
|
Increase tax
expense statutory rate
|
(3,759,465)
|
(1,039,612)
|
(2,252,477)
|
Increase
(reduction) in income taxes resulting from:
|
|
|
|
Change in fair
value of warrant liability
|
4,453,574
|
1,468,521
|
948,683
|
Other non-taxable
amounts
|
6,071,951
|
6,921,569
|
2,939,080
|
Change in valuation
allowance
|
2,344,888
|
1,083,292
|
685,840
|
Foreign exchange
impacts
|
(575,595)
|
(327,920)
|
100,337
|
Difference in
rates
|
(1,317,876)
|
(753,552)
|
(511,159)
|
Other
|
(110,961)
|
510
|
(10,235)
|
Income tax expense
(benefit)
|
$7,106,516
|
$7,352,808
|
$1,900,069
|
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
15. Income taxes (continued)
Section
280E prohibits businesses engaged in the trafficking of Schedule I
or Schedule II controlled substances from deducting normal business
expenses, such as payroll and rent, from gross income (revenue less
cost of goods sold). Section 280E was originally intended to
penalize criminal market operators, but because cannabis remains a
Schedule I controlled substance for Federal purposes, the Internal
Revenue Service (“IRS”) has subsequently applied
Section 280E to state-legal cannabis businesses. Cannabis
businesses operating in states that align their tax codes with the
IRC are also unable to deduct normal business expenses from taxable
income subject to state taxes. The non-taxable amounts shown in the
effective rate reconciliation above include the impact of applying
IRC Section 280E to the Company's businesses that are involved in
selling cannabis, along with other typical non-deductible expenses.
As the application and IRS interpretations on Section 280E continue
to evolve, the impact of this cannot be reliably estimated. Any
changes to the application of Section 280E may have a material
effect on the Company’s interim financial
statements.
Deferred
tax assets and liabilities have been offset where they relate to
income taxes levied by the same taxation authority and the Company
has the legal right and intent to offset. Deferred tax assets
(liabilities) are attributable to the following:
|
|
|
|
|
|
|
|
Loss
carryforwards
|
$5,303,168
|
$3,173,256
|
$708,094
|
Share issue
costs
|
1,381,446
|
795,041
|
977,881
|
Exchange rate
difference on monetary assets
|
563,080
|
125,520
|
(100,337)
|
Accrued
expenses
|
49,129
|
-
|
-
|
Property and
equipment
|
(1,251,229)
|
(1,424,886)
|
-
|
Licenses
|
(543,779)
|
-
|
-
|
Deferred tax assets
(liabilities)
|
$5,501,814
|
$ 2,668,931
|
$1,585,638
|
Valuation
allowance
|
$(5,912,173)
|
$ (2,668,931)
|
$(1,585,638)
|
Net deferred tax
liability
|
$(410,359)
|
$-
|
$-
|
As at
December 31, 2020, the Company has $12,013,192 (December 31, 2019 -
$6,810,981) in Canadian non-capital loss carryforwards that expire
between 2035 and 2040. In addition, as at December 31, 2020, the
Company has U.S. federal Net Operating Losses of $9,692,291
(December 31, 2019 - $6,515,931). The U.S federal Net Operating
Losses attributable to 2019 will expire in 2039 and the losses
attributable to 2020 onward will have an indefinite carry forward.
As at December 31, 2020, the Company has California state Net
Operating Losses of $953,517. The California State Net
Operating will expire in 2040.
In
March 2020, the U.S. enacted the Coronavirus Aid, Relief, and
Economic Security Act (the “Act”). The Act, among other
provisions, reinstates the ability of corporations to carry net
operating losses back to the five preceding tax years, has
increased the excess interest limitation on modified taxable income
from 30 percent to 50 percent. The Company has made a reasonable
estimate of the effects on existing deferred tax balances and has
concluded that the Act has not had a significant on the deferred
tax balances.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
The
Company believes that, pursuant to Section 7874 of the Code, even
though it is organized as a Canadian corporation, the Company
should be treated as a U.S. domestic corporation for U.S. federal
income tax purposes. Because the Company is a taxable corporation
in Canada, it is likely to be subject to income taxation in both
the United States and Canada on the same income, which in turn, may
reduce the amount of income available for distribution to
shareholders. The balance of this discussion assumes the Company is
a U.S. domestic corporation for U.S. federal income tax purposes.
However, no tax opinion or ruling from the Internal Revenue Service
(“IRS”) concerning the U.S. federal income tax
characterization of the Company has been obtained and none will be
requested. Thus, there can be no assurance that the IRS will not
challenge the characterization of the Company as a domestic
corporation, or that if challenged, a U.S. court would not agree
with the IRS. If the Company is not treated as a U.S. domestic
corporation, then the acquisition, ownership and disposition of
common shares, warrants and common shares received on the exercise
of warrants may have materially different implications for Non-U.S.
Holders.
16. General and administrative
|
|
|
|
Salaries and
wages
|
$9,611,047
|
$6,941,111
|
$3,151,509
|
Executive
compensation
|
1,204,925
|
874,598
|
553,814
|
Licenses and
permits
|
1,957,183
|
1,704,755
|
589,178
|
Payroll taxes and
benefits
|
1,971,215
|
1,531,261
|
641,906
|
Supplies and office
expenses
|
960,456
|
1,184,401
|
1,222,053
|
Subcontractors
|
1,569,921
|
1,272,414
|
1,024,175
|
Professional fees
(legal, audit and other)
|
2,944,706
|
2,723,555
|
600,877
|
Miscellaneous
general and administrative expenses
|
4,684,145
|
4,175,392
|
1,799,864
|
|
$24,903,598
|
$20,407,487
|
$9,583,376
|
17. Supplemental cash flow information
|
|
Change
in working capital
|
|
|
|
|
|
|
|
HST
receivable
|
$(91,533)
|
$85,287
|
$(101,831)
|
Inventory
|
(159,401)
|
(284,626)
|
(2,071,808)
|
Prepaid expenses
and other assets
|
1,160,976
|
(2,357,578)
|
(1,299,148)
|
Long term deposits
and other assets
|
(359,842)
|
(100,262)
|
(594,339)
|
Accounts
payable
|
451,998
|
(859,267)
|
798,672
|
Accrued
expenses
|
934,668
|
603,902
|
250,318
|
Income tax
payable
|
(5,713,518)
|
4,891,922
|
1,008,155
|
Other
liabilities
|
-
|
28,000
|
427,508
|
|
$(3,776,652)
|
$2,007,378
|
$(1,582,473)
|
Cash
paid
|
|
|
|
Income
taxes
|
$12,953,454
|
$-
|
$1,270,862
|
Non-cash
financing and investing activities
|
|
|
|
Carrying value of
warrants exercised
|
$15,708,309
|
$5,684,960
|
$2,307,811
|
Carrying value of
RSUs settled
|
$3,313,149
|
$3,245,016
|
$-
|
Carrying value of
options exercised
|
$179,908
|
$165,071
|
$-
|
Licenses and
intangible assets
|
$4,997,610
|
$-
|
$-
|
MMDC conversion of
notes payable to equity
|
$-
|
$-
|
$6,743,780
|
Shares issued to
former Carpincho shareholders
|
$-
|
$-
|
$4,040,637
|
Construction in
progress in accounts payable
|
$369,066
|
$-
|
$589,935
|
Lease Liabilities
and Right of use assets
|
$11,229,477
|
$2,024,771
|
$-
|
Additions to
buildings and structures on ASC 842 adoption
|
$-
|
$8,789,741
|
$-
|
Addition to lease
liabilities on ASC 842 adoption
|
$-
|
$8,307,650
|
$-
|
Reclassification of
prepaid rent to lease liabilities on ASC 842 adoption
|
$-
|
$54,584
|
$-
|
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
18. Related party transactions and balances
Related
party transactions are summarized as follows:
a)
Building Lease
The
Company is the sub-lessee of approximately 2,000 square feet of
office space and purchases certain printed marketing collateral and
stationery items from a company owned by one of the Company’s
Co-CEO. Amounts paid for rent for each of the years ended December
31, 2020, 2019 and 2018 was $24,040 each year. Amounts paid for
printed marketing collateral and stationery items to the same
company were $170,009, $279,457, and $8,769 for the years ended
December 31, 2020, 2019 and 2018 respectively.
The
Company leased a cultivation facility from an entity owned by the
Company’s co-CEOs. Rent paid for this facility for the years
ended December 31, 2020, 2019 and 2018 was $339,688, $nil, and nil.
On April 30, 2021, the Company’s Co-CEOs sold this building
to an arm’s length third party who assumed the
lease.
Prior
to September 2018, the Company leased approximately 15,000 square
feet of office and production space for the Company’s Clark
County Cultivation facility from a limited partnership controlled
by one of the Co-CEOs of the Company. On September 26, 2018, the
property was acquired by an arm’s length third party.
Related-party rents paid under this lease for the year ended
December 31, 2020, 2019 and 2018 totaled $nil, $nil and $384,010,
respectively.
(b)
Officer Compensation
The
Company’s key management personnel have the authority and
responsibility for planning, directing and controlling the
activities of the Company and consists of the Company’s
executive management team and board of directors. The following
table summarizes amounts paid to related parties as compensation
for the year ended December 31, 2020, 2019 and 2018:
|
|
|
|
Included in
accounts payable
|
Management
compensation
|
$2020
|
$1,796,223
|
$1,803,894
|
29,202
|
|
2019
|
1,526,638
|
3,259,729
|
-
|
|
2018
|
1,622,682
|
1,851,747
|
4,000
|
Director
Compensation
|
2020
|
-
|
282,687
|
-
|
|
2019
|
-
|
407,598
|
-
|
|
2018
|
-
|
332,795
|
-
|
(c)
Strategic disbursement
On or
around June 28, 2018, the landlord for the Company’s Clark
County cultivation facility, who is also one of the Company’s
Co-CEOs, notified that the Company that the mortgage holder of the
loan secured by such location was considering foreclosure action
against the facility due to the Company’s business conducted
therein. The landlord further indicated that the building was
listed for sale and that it was anticipated that a sale would be
completed before December 31, 2018. In connection therewith, and in
order to ensure the Company’s ability to continue to use the
leased premises, the Company made a strategic disbursement of
$1,254,862 to the holder of the note secured by the facility. This
disbursement was secured by a promissory note bearing interest at
3.95% from July 18, 2018 to July 17, 2019 and then 8% annually
after, a deed of trust and a personal guarantee. The note and
accrued interest thereon, was repaid on September 28, 2018.
Interest earned on the promissory note is included in Interest
expense, net on the consolidated statements of operations and
comprehensive loss.
(d)
Other
A
company owned by one of the Company’s executives pays the
Company for storage space. Amounts paid to the Company for storage
space was $62,720 for the year ended December 31, 2020,
respectively (2019 and 2018 – nil).
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
19. Commitments and contingencies
(a) Construction Commitments
On
December 31, 2020 the Company had construction commitments
outstanding of $nil (2019
– $4,516,513, 2018 - $281,150) related to the Phase II
build-out of the Company’s Planet 13 cannabis entertainment
complex. On December 14, 2020 the Company entered into a Guaranteed
Maximum Price Construction Agreement for the phase I build out of
its planned Planet 13 Orange County cannabis entertainment complex
in Santa Ana California.
The
construction commitment as at December 31, 2020 was $7,084,300
(December 31, 2019 and 2018- $nil).
The
Company's operations are subject to a variety of local and state
regulation. Failure to comply with one or more of those regulations
could result in fines, restrictions on its operations, or losses of
permits that could result in the Company ceasing operations. While
management of the Company believes that the Company is in
compliance with applicable local and state regulations at December
31, 2020, medical and adult use cannabis regulations continue to
evolve and are subject to differing interpretations. As a result,
the Company may be subject to regulatory fines, penalties, or
restrictions in the future.
(c) Claims and Litigation
From
time to time, the Company may be involved in litigation relating to
claims arising out of operations in the normal course of business.
At December 31, 2020, 2019, and 2018, there were no pending or
threatened lawsuits that could reasonably be expected to have a
material effect on the results of the Company’s operations.
There are also no proceedings in which any of the Company’s
directors, officers or affiliates is an adverse party or has a
material interest adverse to the Company’s
interest.
(d) Operating Licenses
Although
the possession, cultivation, and distribution of marijuana for
medical and adult use is permitted in Nevada, marijuana is a
Schedule-I controlled substance and its use remains a violation of
federal law. Since federal law criminalizing the use of marijuana
pre-empts state laws that legalize its use, strict enforcement of
federal law regarding marijuana would likely result in the
Company’s inability to proceed with our business plans. In
addition, the Company’s assets, including real property,
cash, equipment, and other goods, could be subject to asset
forfeiture because marijuana is still federally
illegal.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
20. Risks
Credit risk
Credit
risk is the risk that a third party might fail to discharge its
obligations under the terms of a financial instrument. Credit risk
arises from cash with banks and financial institutions. It is
management's opinion that the Company is not exposed to significant
credit risk arising from these financial instruments. The Company
limits credit risk by entering into business arrangements with high
credit-quality counterparties.
The Company evaluates the collectability of its accounts receivable
and maintains an allowance for credit losses at an amount
sufficient to absorb losses inherent in the existing accounts
receivable portfolio as of the reporting dates based on the
estimate of expected net credit losses.
Concentration risk
The
Company operates exclusively in Southern Nevada. Should economic
conditions deteriorate within that region, its results of
operations and financial position would be negatively
impacted.
20. Risks (continued)
Banking Risk
Notwithstanding
that a majority of states have legalized medical marijuana, there
has been no change in US federal banking laws related to the
deposit and holding of funds derived from activities related to the
marijuana industry. Given that US federal law provides that the
production and possession of cannabis is illegal, there is a strong
argument that banks cannot accept for deposit funds from businesses
involved with the marijuana industry. Consequently, businesses
involved in the marijuana industry often have difficulty accessing
the US banking system and traditional financing sources. The
inability to open bank accounts with certain institutions may make
it difficult to operate the business of the Company and leaves
their cash holdings vulnerable.
Asset Forfeiture Risk
Because
the cannabis industry remains illegal under US federal law, any
property owned by participants in the cannabis industry which are
either used in the course of conducting such business, or are the
proceeds of such business, could be subject to seizure by law
enforcement and subsequent civil asset forfeiture. Even if the
owner of the property was never charged with a crime, the property
in question could still be seized and subject to an administrative
proceeding by which with minimal due process, it could be subject
to forfeiture.
Currency rate risk
As at
December 31,2020, a portion of the Company’s financial assets
and liabilities held in Canadian dollars consist of cash and cash
equivalents of $21,771,531 (2019 - $1,093,191, 2018 - $17,801,634).
The Company’s objective in managing its foreign currency risk
is to minimize its net exposure to foreign currency cash flows by
transacting, to the greatest extent possible, with third parties in
the functional currency. The Company is exposed to currency rate
risk in other comprehensive income, relating to foreign
subsidiaries which operate in a foreign currency. The Company does
not currently use foreign exchange contracts to hedge its exposure
of its foreign currency cash flows as management has determined
that this risk is not significant at this point in
time.
21. COVID-19
In
March 2020, the World Health Organization declared coronavirus
COVID-19 a global pandemic. The outbreak of this contagious
disease, along with the related adverse public health developments,
have negatively affected workforces, economies, and financial
markets on a global scale. The Company incurred lower revenues, and
additional expenditures related to COVID-19 during the first half
of 2020. During the first half of 2020 the Company’s
operations in Nevada were mandated as an essential service but were
restricted to delivery only, with no curb-side pickup or instore
sales permitted until such delivery-only order was lifted on May
30, 2020. The Company’s operating results were not materially
impacted during the second half of 2020. Currently, the Company is
closely monitoring the impact of the pandemic on all aspects of its
business and it is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and
its effects on the Company’s business or results of
operations.
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
22. Subsequent events
During
fiscal 2021, the Company has failed the FPI test in
accordance with Rule 405 of Regulation C under the Securities Act
and Rule 3b-4 under the Exchange Act. As a result, the Company
expects to become subject to the same registration and
disclosure requirements applicable to U.S. domestic issuers
effective January 1, 2022.
On
December 22, 2020, the Company issued a Notice of Accelerated
Expiry to the Odyssey Trust Company, the warrant agent, and all
registered holders of the December 4, 2018 warrants effective on
that date. The Company has chosen to accelerate the expiry time of
the warrants to 5:00 PM EST on January 28, 2021.
On
January 8, 2021, the Company issued 93,002 common shares on the
exercise of options that had a strike price of CAD$0.80 per common
share resulting in cash proceeds of $58,758
(CAD$74,402).
On
January 8, 2021, the Company issued 16,667 common shares on the
exercise of options that had a strike price of CAD$1.55 per common
share resulting in cash proceeds of $20,444
(CAD$25,835).
Planet 13 Holdings Inc.
Notes to the consolidated financial statements
(in United States dollars)
For the years ended December 31, 2020, 2019 and 2018
22. Subsequent events (continued)
On July
9, 2021, the Company issued 11,667 common shares on the exercise of
options that had a strike price of CAD$0.75 per common share
resulting in cash proceeds of $7,014 (CAD$8,750)
On
February 2, 2021, the Company completed a bought deal financing for
aggregate gross proceeds of $53,852,980 (CAD$69,028,750). A total
of 9,861,250 units of the Company were issued at a price of
CAD$7.00 per unit. Each unit consists of one common share in the
capital of the Company and one-half (1/2) of one common share
purchase warrant. Each whole warrant entitles the holder to acquire
one common share at an exercise price of CAD$9.00 for a period of
24 months from the closing of the financing.
Between January 1, 2021 and December 9, 2021, the
Company issued 3,772,640 common shares on the exercise
of common share purchase warrants and realized cash proceeds of
$14,110,566.
On
January 8, 2021, the Company issued 852,154 common shares on the
vesting of RSU that were outstanding. The Company did
not receive any cash proceeds from the issuance.
On
April 19, 2021, the Company granted 4,082,474 RSUs to officers,
directors, and employees pursuant to the Company’s RSU Plan.
The RSUs granted vest in three equal tranches on November 1, 2021,
November 1, 2022, and November 1, 2023, unless otherwise varied
pursuant to the terms of the plan.
On June
10, 2021, the Company granted 3,704 RSUs to a consultant of the
Company. Pursuant to the Company’s RSU Plan. The RSUs vested
immediately and were exercised on June 10, 2021. The company issued
3,704 common shares on the exercise and did not receive any cash
proceeds from the issuance.
On July
9, 2021, the Company issued 59,945 common shares on the exercise of
Restricted Share Units that had vested during the
period.
In
total the Company transferred $1,898,979 to share capital from
Restricted Share Units, representing the carrying value of the RSUs
that were exercised during the period January 1, 2021 and November
30, 2021
On
August 5, 2021, the Company’s subsidiary, Planet 13 Illinois
LLC, won a Conditional Adult Use Dispensing Organization License in
the Chicago-Naperville-Elgin region from the Illinois Department of
Financial and Professional Regulation. Planet 13 Illinois LLC is
owned 51% by Frank Cowan and 49% by the Company.
On
October 1, 2021, the Company completed the purchase of a license
issued by the Florida Department of Health to operate as a Medical
Marijuana treatment Center (the “License”) in the state
of Florida for $55,000,000 in cash.
On
December 9, 2021, the Company issued 2,212,974 common shares on the
exercise of Restricted Share Units that had vested during the
period.
Interim condensed consolidated balance sheet
(Unaudited, in United States dollars except per share
amounts)
As at
|
|
|
|
|
|
|
|
Assets
|
|
|
|
Current
Cash
|
|
$73,694,308
|
$79,000,850
|
Restricted cash
|
5
|
55,000,000
|
-
|
Accounts receivable, net
|
|
831,158
|
436,874
|
Income taxes receivable
|
13
|
168,251
|
-
|
Inventory
|
3
|
13,223,061
|
6,919,840
|
Prepaid expenses and other current
assets
|
7
|
5,823,259
|
2,198,005
|
Total current assets
|
|
148,740,037
|
88,555,569
|
|
|
|
|
Property and equipment
|
4
|
42,506,758
|
32,073,925
|
Intangible assets
|
5
|
7,809,201
|
7,551,141
|
Right-of-use assets – operating
|
6
|
20,648,053
|
20,497,895
|
Right-of-use assets – finance
|
6
|
6,499
|
44,672
|
Long-term deposits and other assets
|
|
1,066,819
|
1,054,443
|
Deferred tax asset
|
13
|
3,654
|
-
|
Total asset
|
|
$220,781,021
|
$149,777,645
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
Current
|
|
|
|
Accounts payable
|
|
$4,134,376
|
$1,681,027
|
Accrued expenses
|
8
|
6,821,741
|
2,844,714
|
Income taxes payable
|
13
|
-
|
1,446,235
|
Notes payable – current
portion
|
8
|
884,000
|
884,000
|
Operating lease liability – current
portion
|
6
|
394,331
|
161,021
|
Finance lease liability – current
portion
|
6
|
7,122
|
46,372
|
Total current liabilities
|
|
12,241,570
|
7,063,369
|
|
|
|
|
Operating lease liabilities
|
6
|
23,156,583
|
22,365,892
|
Warrant liability
|
10
|
9,910,509
|
13,204,211
|
Other long-term liabilities
|
|
28,000
|
28,000
|
Deferred tax liabilities
|
13
|
-
|
410,359
|
Total liabilities
|
|
45,336,662
|
43,071,831
|
Commitments and contingencies
|
17
|
|
|
Shareholders’ equity
|
|
|
|
Common shares, no par value, unlimited Common Shares authorized,
196,463,519 issued and outstanding at September 31, 2021 and
181,806,190 at December 31, 2020
|
9
|
-
|
-
|
Class A Restricted shares, no par value, unlimited Class A
Restricted share authorized, nil issued and outstanding at
September 30, 2021 and 5,619,119 at December 31, 2020
|
9
|
-
|
-
|
Additional paid in capital
|
|
242,458,423
|
159,399,056
|
Deficit
|
|
(67,014,064)
|
(52,693,242)
|
Total shareholders’ equity
|
|
175,444,359
|
106,705,814
|
Total liabilities and shareholders’ equity
|
|
$220,781,021
|
$149,777,645
|
|
|
|
|
On behalf of the Board:
Michael
Harman
|
|
Adrienne O’Neal
|
Director
|
|
Director
|
See accompanying notes to the interim condensed consolidated
financial statements
Planet 13 Holdings Inc.
Interim condensed consolidated statements of operations and
comprehensive loss
(Unaudited, in United States dollars, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
net of discounts
|
|
$32,952,254
|
$22,797,338
|
$89,612,050
|
$50,351,336
|
Cost
of goods sold
|
|
(15,235,120)
|
(10,244,725)
|
(39,827,876)
|
(23,853,435)
|
Gross
profit
|
|
17,717,134
|
12,552,613
|
49,784,174
|
26,497,901
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
General
and administrative
|
14
|
13,174,781
|
6,223,792
|
31,974,118
|
17,547,769
|
Sales
and marketing
|
|
1,959,579
|
991,215
|
4,162,934
|
2,684,174
|
Lease
expense
|
6
|
673,878
|
612,329
|
1,934,138
|
1,502,412
|
Depreciation
and amortization
|
4 & 6
|
1,376,520
|
945,537
|
3,325,524
|
2,753,936
|
Share-based
compensation expense
|
11
|
6,613,846
|
569,227
|
12,211,567
|
2,006,067
|
Total
expenses
|
|
23,798,604
|
9,342,100
|
53,608,281
|
26,494,358
|
(Loss)
income from operations
|
|
(6,081,470)
|
3,210,513
|
(3,824,107)
|
3,543
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
Interest
expense, net
|
|
(8,111)
|
(13,367)
|
(23,698)
|
(23,914)
|
Foreign
exchange gain/(loss)
|
|
362,402
|
(169,684)
|
1,805,953
|
266,003
|
Transaction
costs
|
10
|
-
|
(135,075)
|
(256,666)
|
(135,075)
|
Change
in fair value of warrant liability
|
10
|
6,240,073
|
(3,959,128)
|
(2,728,386)
|
423,917
|
Other
income
|
|
152,466
|
174,145
|
338,890
|
250,212
|
|
|
6,746,830
|
(4,103,109)
|
(863,907)
|
781,143
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
665,360
|
(892,596)
|
(4,688,014)
|
784,686
|
|
|
|
|
|
|
Current
income tax expense
|
13
|
(3,601,904)
|
(4,819,639)
|
(10,046,821)
|
(7,757,805)
|
Deferred
income tax recoveries
|
13
|
203,273
|
65,621
|
414,013
|
175,833
|
Net
loss and comprehensive loss for the period
|
|
$(2,732,461)
|
$(5,646,614)
|
$(14,320,822)
|
$(6,797,286)
|
|
|
|
|
|
|
Loss
per share
|
|
|
|
|
|
Basic
and diluted loss per share
|
12
|
$(0.01)
|
$(0.03)
|
$(0.07)
|
$(0.05)
|
|
|
|
|
|
|
Weighted
average number of common shares
|
|
|
|
|
|
Basic
and diluted
|
12
|
196,457,950
|
162,624,567
|
194,576,544
|
148,587,612
|
|
|
|
|
|
|
See accompanying notes to the interim condensed consolidated
financial statements
Planet 13 Holdings Inc.
Interim condensed consolidated statements of changes in
shareholders’ (deficit) equity
(Unaudited, in United States dollars, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
Class A restricted shares
|
|
Additional Paid in Capital
|
|
|
Balance
January 1, 2020
|
|
82,427,619
|
55,232,940
|
587,715
|
$58,747,851
|
$(27,592,605)
|
$31,155,246
|
Shares issued
for acquisition
|
5, 9
|
3,940,932
|
(3,940,932)
|
-
|
4,453,831
|
-
|
4,453,831
|
Shares issued
for acquisition
|
5, 9
|
1,374,833
|
3,940,932
|
-
|
2,918,277
|
-
|
2,918,277
|
Shares issued
on settlement of RSUs
|
9, 11
|
2,685,344
|
-
|
-
|
1,954,834
|
-
|
1,954,834
|
Shares issued
on exercise of broker warrants
|
9
|
548,501
|
-
|
(548,501)
|
1,035,194
|
-
|
1,035,194
|
Shares issued
on exercise of warrants
|
9, 10
|
11,771,867
|
-
|
-
|
22,783,870
|
-
|
22,783,870
|
Shares issued
on exercise of options
|
9, 11
|
233,001
|
-
|
-
|
156,419
|
-
|
156,419
|
Issuance of
share options
|
11
|
-
|
-
|
-
|
51,233
|
-
|
51,233
|
Shares issued
on bought deal financings - net
|
9
|
11,580,500
|
-
|
694,830
|
22,799,200
|
-
|
22,799,200
|
Net (loss) for
the period
|
|
-
|
-
|
-
|
-
|
(6,797,286)
|
(6,797,286)
|
Balance
September 30, 2020
|
|
114,562,597
|
55,232,940
|
734,044
|
$114,900,709
|
$(34,389,891)
|
$80,510,818
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2021
|
|
126,573,250
|
55,232,940
|
150,963
|
$159,399,056
|
$(52,601,334)
|
$106,797,722
|
Shares issued
on conversion
|
9
|
55,232,940
|
(55,232,940)
|
-
|
-
|
-
|
-
|
Shares issued
on settlement of RSUs
|
9, 11
|
915,803
|
-
|
-
|
12,208,463
|
-
|
12,208,463
|
Shares issued
on exercise of broker warrants
|
9
|
446,801
|
-
|
(446,801)
|
2,163,065
|
-
|
2,163,065
|
Shares issued
on exercise of other warrants
|
9, 10
|
3,312,139
|
-
|
-
|
20,868,784
|
-
|
20,868,784
|
Shares issued
on exercise of options
|
9, 11
|
121,336
|
-
|
-
|
86,216
|
-
|
86,216
|
Share based
compensation - options
|
11
|
-
|
-
|
-
|
3,104
|
--
|
3,104
|
Shares issued
in private placements - net
|
9
|
9,861,250
|
-
|
591,676
|
47,729,735
|
|
47,729,735
|
Net (loss) for
the period
|
|
-
|
-
|
-
|
-
|
(14,320,822)
|
(14,117,549)
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2021
|
|
196,463,519
|
-
|
295,838
|
$242,458,423
|
$(67,014,064)
|
$175,444,359
|
See accompanying notes to the interim condensed consolidated
financial statements
Planet 13 Holdings Inc.
Interim condensed consolidated statements of cash flows
(Unaudited, in United States dollars, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in)
|
|
|
|
Operating activities
|
|
|
|
Net loss
|
|
$(14,320,822)
|
$(6,797,286)
|
Adjustments for items not involving cash
|
|
|
|
Non-cash compensation expense
|
9 & 16
|
12,211,567
|
2,006,067
|
Non-cash lease expense
|
|
3,332,858
|
2,329,065
|
Depreciation and amortization
|
4 & 5
|
4,725,546
|
3,884,497
|
Deferred tax liability
|
13
|
(414,013)
|
(175,833)
|
Fair value change on warrant liability
|
10
|
2,728,386
|
(423,917)
|
Change in fair value of warrant liability
|
10
|
48,924
|
(555,118)
|
Transaction costs
|
9
|
256,666
|
135,074
|
Unrealized (gain) loss on foreign currency
exchange
|
|
(35,558)
|
(145,000)
|
|
|
8,533,554
|
257,549
|
|
|
|
|
Net changes in non-cash working capital items
|
15
|
(6,290,402)
|
9,961,575
|
Repayment of lease liabilities
|
6
|
(2,469,078)
|
(1,463,920)
|
Total operating
|
|
(225,926)
|
8,755,204
|
|
|
|
|
Financing activities
|
|
|
|
Proceeds from private placements
|
9
|
53,852,980
|
25,983,029
|
Proceeds from exercise of warrants and options
|
9
|
14,162,689
|
16,941,543
|
Financing issuance cost expense
|
9
|
(3,494,930)
|
(2,116,575)
|
Total financing
|
|
64,520,739
|
40,807,997
|
|
|
|
|
Investing activities
|
|
|
|
Purchase of property, plant and equipment
|
4
|
(14,560,627)
|
(3,027,445)
|
Purchase of licenses
|
5
|
(258,060)
|
(2,760,020)
|
Proceeds on disposal of property and equipment
|
4
|
194,214
|
-
|
Total investing
|
|
(14,624,473)
|
(5,787,465)
|
|
|
|
|
Effect of foreign exchange on cash
|
|
23,118
|
170,412
|
|
|
|
|
Net change in cash during the period
|
|
49,693,458
|
43,946,148
|
|
|
|
|
Cash
|
|
|
|
Beginning of period
|
|
79,000,850
|
12,814,712
|
|
|
|
|
End of period
|
|
$128,694,308
|
$56,760,860
|
|
|
|
|
Cash
|
|
$73,694,308
|
$56,760,860
|
Restricted cash and cash equivalents
|
|
55,000,000
|
-
|
Cash, restricted cash and cash equivalents
|
|
$128,694,308
|
$56,760,860
|
|
|
|
|
Supplemental cash-flow information (Note 15)
See accompanying notes to the interim condensed consolidated
financial statements
Planet 13 Holdings Inc. (formerly Carpincho Capital Corp.) ("P13"
or the “Company") was incorporated
under the Canada Business Corporations Act on April 26, 2002 and
continued under the British Columbia Business Corporations Act on
September 24, 2019.
MM Development Company, Inc. (“MMDC”) is a privately
held corporation existing under the laws of the State of Nevada.
MMDC, founded on March 20, 2014, is a vertically integrated
cultivator and provider of cannabis and cannabis-infused products
licensed under the laws of the State of Nevada, with two licenses
for cultivation, two licenses for production, and two dispensary
licenses (one medical license and one recreational license). On
June 11, 2018 MMDC completed a reverse-takeover (“RTO”)
of Carpincho Capital Corp. Upon completion of the RTO, the
shareholders of MMDC obtained control of the consolidated entity of
P13. In accordance with ASC 805 Business Combinations (“ASC
805”), MMDC was identified as the accounting acquirer, and,
accordingly, P13 is considered to be a continuation of MMDC, with
the net assets of the Company at the date of the RTO deemed to have
been acquired by MMDC (Note 4).
The Company is a vertically integrated cultivator and provider of
cannabis and cannabis-infused products licensed under the laws of
the State of Nevada, with six licenses for cultivation (three
medical and three recreational), six licenses for production (three
medical and three recreational), and three dispensary licenses (one
medical and two recreational). In addition, the Company holds one
recreational dispensary license in the city of Santa Ana,
California.
P13 is a public company which is listed on the Canadian Securities
Exchange (“CSE”) under the symbol “PLTH”
and the OTCQX exchange under the symbol
“PLNHF”.
The Company’s registered office is located at 595 Howe
Street, 10th
floor, Vancouver, BC V6C 2T5 and the
head office address is 2548 West Desert Inn. Rd, Las Vegas, NV
89109.
While cannabis and CBD-infused products are legal under the laws of
several U.S. states (with varying restrictions applicable), the
United States Federal Controlled Substances Act classifies all
“marijuana” as a Schedule I drug, whether for medical
or recreational use. Under U.S. federal law, a Schedule I drug or
substance has a high potential for abuse, no accepted medical use
in the United States, and a lack of safety for use under medical
supervision.
The federal government currently is prohibited by statute from
prosecuting businesses that operate in compliance with applicable
state and local medical cannabis laws and regulations; however,
this does not protect adult use cannabis. In addition, if the
federal government changes this position, it would be financially
detrimental to the Company.
2.
Basis of presentation and summary of significant accounting
policies
These unaudited interim condensed consolidated financial statements
reflect the accounts of the Company and have been prepared in
accordance with generally accepted accounting principles in the
United States of America (“GAAP”) and pursuant to the
rules and regulations of the U.S. Securities and Exchange
Commission (“SEC”). Certain information and footnote
disclosures normally included in the audited annual consolidated
financial statement prepared in accordance with U.S. GAAP have been
omitted or condensed. The information included in the interim
condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements
included in this Form 10 for the year ended December 31, 2020 (the
“Annual Financial Statements”). These financial
statements reflect all adjustments (consisting of normal recurring
adjustments), which, in the opinion of management, are necessary
for a fair presentation of the results for the interim periods
presented. Interim results are not necessarily indicative of
results for a full year.
These interim condensed consolidated financial statements have been
prepared on a going concern basis, which assumes that the Company
will continue in operation for the foreseeable future and,
accordingly, will be able to realize its assets and discharge its
liabilities in the normal course of operations as they come
due.
2. Basis of presentation and summary of significant accounting
policies (continued)
Failure to arrange adequate financing on acceptable terms and/or
achieve profitability may have an adverse effect on the financial
position, results of operations, cash flows and prospects of the
Company. These interim condensed consolidated financial statements
do not give effect to adjustments to assets or liabilities that
would be necessary should the Company be unable to continue as a
going concern. Such adjustments could be material. These interim
condensed consolidated financial statements are presented in U.S.
dollars, which is also the Company’s and its
subsidiaries’ functional currency.
These interim condensed consolidated financial statements were
authorized for issuance by the Board of Directors of the Company on
December 13, 2021.
i.
Basis
of consolidation
The accompanying interim condensed consolidated financial
statements include the accounts of the Company and all
subsidiaries. Subsidiaries are entities in which the Company has a
controlling voting interest or is the primary beneficiary of a
variable interest entity. Subsidiaries are fully consolidated from
the date control is transferred to the Company and are
de-consolidated from the date control ceases. All intercompany
accounts and transactions have been eliminated on consolidation.
The interim condensed consolidated financial statements include all
the assets, liabilities, revenues, expenses and cash flows of the
Company and its subsidiaries after eliminating intercompany
balances and transactions.
These consolidated financial statements include the accounts of the
Company and the following entities which are subsidiaries of the
Company:
Subsidiaries as at
September 30, 2021
|
Jurisdiction of incorporation
|
Ownership interest 2021
|
Ownership interest 2020
|
Nature of business
|
MM Development Company, Inc. (“MMDC”)
|
USA
|
100%
|
100%
|
Vertically integrated cannabis operations
|
BLC Management Company LLC. (“BLC”)
|
USA
|
100%
|
100%
|
Management company
|
LBC CBD LLC. (“LBC”)
|
USA
|
100%
|
100%
|
CBD retail sales and marketing
|
Newtonian Principles Inc.
|
USA
|
100%
|
-
|
Cannabis retail sales
|
MM Development MI, Inc.
|
USA
|
100%
|
100%
|
Holding company
|
MM Development CA, Inc.
|
USA
|
100%
|
100%
|
Holding company
|
MMDC Casa Holdings, Inc
|
USA
|
-
|
100%
|
Holding company
|
PLTHCA SA, Inc.
|
USA
|
-
|
100%
|
Holding company
|
Planet 13 Illinois, LLC
|
USA
|
49%
|
-
|
Holding company
|
Planet 13 Florida, LLC
|
USA
|
100%
|
-
|
Holding company
|
BLC NV Food, LLC
|
USA
|
100%
|
100%
|
Food retailing
|
By The Slice, LLC
|
USA
|
100%
|
-
|
Food retailing
|
The Company’s functional currency is the United States dollar
(“USD”), and management has chosen to present these
consolidated financial statements in USD. The functional currency
of the Company’s subsidiaries is USD. All amounts are
presented in USD values unless otherwise stated.
Canadian currency transactions are translated into USD at exchange
rates in effect on the date of the transaction. Monetary assets and
liabilities denominated in Canadian dollars are translated to USD
at the foreign exchange rate applicable at the end of each
reporting period.
Realized and unrealized exchange gains and losses are recognized in
the consolidated statement of operations and comprehensive loss.
Non-monetary assets and liabilities that are measured in terms of
historical cost in CAD are translated using the exchange rate at
the date of the transaction.
2. Basis of presentation and summary of significant accounting
policies (continued)
The assets and liabilities are translated into US dollars at period
end exchange rates. Income and expenses, and cash flows are
translated into USD using the average exchange rate. Exchange
differences resulting from the translation of Canadian operations
are recognized in the interim condensed consolidated statement of
operations and comprehensive loss.
The preparation of these consolidated financial statements and
accompanying notes in conformity with GAAP requires management to
make estimates and assumptions that affect the amounts reported.
Actual results could differ from those estimates.
Restricted cash includes cash held in escrow by third-party escrow
agent.
3. Inventory
Finished goods inventory consists of dried cannabis, concentrates,
edibles, and other products that are complete and available for
sale (both internally generated inventory and third-party products
purchased in the wholesale market). Work in process inventory
consists of cannabis after harvest, in the processing stage.
Packaging and miscellaneous consist of consumables for use in the
transformation of biological assets and other inventory used in
production of finished goods. The Company’s inventories are
comprised of:
|
|
|
|
|
|
Raw materials
|
$2,216,916
|
$1,292,310
|
Packaging and miscellaneous
|
1,348,892
|
566,157
|
Work in progress
|
2,864,236
|
1,801,434
|
Finished goods
|
6,793,017
|
3,259,939
|
|
$13,223,061
|
$6,919,840
|
Cost of inventory is recognized as an expense when sold and
included in cost of goods sold. During the three and nine months
ended September 30, 2021, the Company recognized $15,235,120 and
$39,827,876 (September 30, 2020 - $10,244,725 and $23,853,435) of
inventory expensed to cost of goods sold.
4. Property and equipment
|
Land and land Improvements
|
|
|
|
|
|
Gross carrying amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2020
|
$625,146
|
$1,707,894
|
$6,237,256
|
$30,448,042
|
$3,367,255
|
$42,385,593
|
Additions
|
-
|
-
|
1,683,229
|
1,365,921
|
12,286,430
|
15,335,580
|
Transfers
|
-
|
-
|
1,810,355
|
12,047,542
|
(13,857,897)
|
-
|
Disposals
|
-
|
-
|
-
|
-
|
(190,759)
|
(190,759)
|
Balance as at September 30, 2021
|
$625,146
|
$1,707,894
|
$9,730,840
|
$43,861,505
|
$1,605,029
|
$57,530,414
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at
December 31, 2020
|
$127,931
|
$203,750
|
$2,259,925
|
$7,720,062
|
$-
|
$10,311,668
|
Additions
|
38,396
|
32,023
|
1,014,950
|
3,640,177
|
-
|
4,725,546
|
Disposals
|
-
|
-
|
(1,197)
|
(12,361)
|
-
|
(13,558)
|
Balance as at September 30, 2021
|
$166,327
|
$235,773
|
$3,273,678
|
$11,347,878
|
$-
|
$15,023,656
|
|
|
|
|
|
|
|
Carrying amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
$497,215
|
$1,504,144
|
$3,977,331
|
$22,727,980
|
$3,367,255
|
$32,073,925
|
September 30, 2021
|
$458,819
|
$1,472,121
|
$6,457,162
|
$32,513,627
|
$1,605,029
|
$42,506,758
|
As at September 30, 2021, costs related to the construction of
facilities were capitalized as construction in progress and not
depreciated. Depreciation will commence when construction is
completed, and the facility is available for its intended use. Once
construction is completed, the construction in progress balance is
moved to the appropriate account and depreciation commences. The
contractual construction commitment as of September 31, 2021 was
$6,610,568 (December 31, 2020 – $7,084,300) (Note
17).
For the nine months ended September 30, 2021, depreciation expense
was $4,725,546 (2020 - $3,886,973) of which $1,378,124 (2020 -
$1,167,206) was included in cost of goods sold.
5. Intangible assets
|
Retail Dispensary Santa Ana
|
Retail Dispensary Clark County
|
Cultivation and Production Clark County
|
|
|
Gross
carrying amount
|
|
|
|
|
|
Balance,
December 31, 2020
|
$6,151,343
|
$690,000
|
$709,798
|
$-
|
$7,551,141
|
Additions
|
-
|
-
|
-
|
258,060
|
258,060
|
Balance,
September 30, 2021
|
$6,151,343
|
$690,000
|
$709,798
|
$258,060
|
$7,809,201
|
5. Intangible assets (continued)
Florida license acquisition and restricted cash
On September 28, 2021, the Florida Department of Health’s
Office of Medical Marijuana Use (“OMMU”) approved the
Company to acquire a license to operate as a Medical Marijuana
Treatment Center issued by the Florida Department of Health from a
subsidiary of Harvest Health & Recreation Inc. As of September
30, 2021, the Company deposited $55,000,000 with an escrow agent
per the terms of the license acquisition agreement. The acquisition
closed with an effective date of October 1, 2021, and the Company
released $55,000,000 of restricted cash that was being held in
escrow to the seller in exchange for receipt of the Medical
Marijuana Treatment Center license (Note 20).
The Company capitalized costs associated with the pending license
acquisition in the amount of $258,060 that had been incurred up to
that date
6. Leases
The Company’s lease agreements are for cultivation,
manufacturing, retail, and office premises and for vehicles. The
property lease terms range between 7 years and 21 years depending
on the facility and are subject to an average of 2 renewal periods
of equal length as the original lease. Leases for vehicles are
typically between 4 years and 6 years with no renewal terms.
Certain leases include escalation clauses or payment of executory
costs such as property taxes, utilities, or insurance and
maintenance. Rent expense for leases with escalation clauses is
accounted for on a straight-line basis over the lease term. The
Company’s lease agreements do not contain any material
residual value guarantees or material restrictive
covenants.
The following table provides the components of lease cost
recognized in the interim condensed consolidated statements of
operations and comprehensive loss for the three and nine months
ended September 30, 2021:
|
|
|
|
|
|
|
|
Operating lease
costs
|
$1,131,328
|
$999,247
|
$3,306,488
|
$2,171,921
|
Finance lease cost:
|
|
|
|
|
Amortization of lease liabilities
|
13,086
|
11,700
|
38,173
|
34,166
|
Interest on lease liabilities
|
608
|
2,488
|
3,295
|
8,731
|
Finance lease cost
|
13,694
|
14,188
|
41,468
|
42,897
|
Short term lease expense
|
4,289
|
1,520
|
12,866
|
4,560
|
Total lease costs
|
$1,149,311
|
$1,014,955
|
$3,360,822
|
$2,219,387
|
|
|
|
|
|
Other information related to operating and finance leases as of and
for the nine months ended September 30, 2021 are as
follows:
|
|
|
Weighted
average discount rate
|
15.00%
|
15.00%
|
Weighted
average remaining lease term (in years)
|
16.21
|
0.14
|
6. Leases (continued)
The maturity of the contractual undiscounted lease liabilities as
of September 30, 2021:
|
|
|
|
|
|
2021
|
$7,258
|
$3,562,176
|
2022
|
-
|
3,695,766
|
2023
|
-
|
3,834,683
|
2024
|
-
|
3,953,471
|
2025
|
-
|
3,910,993
|
Thereafter
|
-
|
55,089,826
|
Total
undiscounted lease liabilities
|
7,258
|
74,046,914
|
Interest
on lease liabilities
|
136
|
50,496,000
|
Total
present value of minimum lease payments
|
7,122
|
23,550,914
|
Lease
liability – current portion
|
7,122
|
394,331
|
Lease
liability
|
$-
|
$23,156,583
|
Additional information on the right-of-use assets by class of
assets is as follows:
|
|
|
|
|
|
Gross carrying amount
|
|
|
Balance,
December 31, 2020
|
$133,561
|
$21,962,564
|
|
|
|
Additions
|
-
|
867,561
|
Balance,
September 30, 2021
|
$133,561
|
$22,830,125
|
|
|
|
Depreciation
|
|
|
|
|
|
Balance,
December 31, 2020
|
$88,889
|
$1,464,669
|
|
|
|
Additions
|
38,173
|
717,403
|
Balance,
September 30, 2021
|
$127,062
|
$2,182,072
|
|
|
|
|
|
|
Carrying amount December 31, 2020
|
$44,672
|
$20,497,895
|
Carrying amount September 30, 2021
|
$6,499
|
$20,648,053
|
For the three and nine months ended September 30, 2021, the Company
incurred $1,131,328 and $3,306,448 of operating lease costs
respectively (September 30, 2020 - $999,247 and $2,171,920), of
which $457,450 and $1,372,350 (September 30, 2020 - $386,918 and
$669,508) was capitalized to inventory or included within cost of
goods sold.
7. Prepaid expenses and other current assets
|
|
|
Security deposits
|
$4,382,369
|
$1,031,255
|
Funds awaiting settlement
|
-
|
1,263
|
HST receivable
|
49,144
|
103,445
|
Insurance
|
587,764
|
550,946
|
Prepaid rent and other
|
803,982
|
511,096
|
|
$5,823,259
|
$2,198,005
|
8. Accrued expenses
|
|
|
Payroll
|
$2,776,842
|
$368,032
|
Excise and other taxes
|
2,255,637
|
940,892
|
Loyalty program
|
651,432
|
230,638
|
Other
|
1,137,830
|
1,305,152
|
|
$6,821,741
|
$2,844,714
|
9. Share capital
Unlimited number of common shares and unlimited number of Class A
shares.
|
|
|
|
|
|
|
Common shares
|
|
|
|
Balance
at January 1
|
|
126,573,250
|
82,427,619
|
Shares
issued on settlement of RSUs
|
|
915,803
|
2,685,344
|
Shares
issued on exercise of options
|
|
121,336
|
333,001
|
Shares
issued on exercise of warrants
|
|
3,758,940
|
17,532,271
|
Shares
issued on financing - July 2020
|
|
-
|
5,359,000
|
Shares
issued on financing - September 2020
|
|
-
|
6,221,500
|
Shares
issued on financing - November 2020
|
|
-
|
6,698,750
|
Shares
issued on financing – February 2021
|
|
9,861,250
|
-
|
Shares
issued on conversion of Class A shares (Note 5)
|
|
55,232,940
|
3,940,932
|
Shares
issued on acquisition (Note 5)
|
|
-
|
1,374,833
|
Total common shares outstanding
|
|
196,463,519
|
126,573,250
|
i. Shares issued for Restricted Share Units
During the nine months ended September 30, 2021, the Company issued
915,803 common shares on the settlement of Restricted Share Units
(“RSUs”) that had vested during the period. The Company
did not receive any cash proceeds on the settlement and transferred
$1,898,979 to share capital from the carrying value ascribed to the
RSUs that were settled.
During the year ended December 31, 2020, the Company issued
2,685,344 common shares on the settlement of Restricted Share Units
(“RSUs”) that had vested during the period. The Company
did not receive any cash proceeds on the settlement and transferred
$3,313,152 to share capital from the carrying value ascribed to the
RSUs that were settled.
ii. Shares issued for Stock Options
During the nine months ended September 30, 2021, the Company issued
121,336 common shares on the exercise of options that had a strike
price in the range of CAD$0.75 to CAD$1.55 per common share
resulting in cash proceeds of $86,216 (CAD$108,987).
9. Share capital (continued)
During the year ended December 31, 2020, the Company issued 333,001
common shares on the exercise of options that had a strike price in
the range of CAD$0.75 to CAD$1.55 per common share resulting in
cash proceeds of $217,990 (CAD$290,983).
iii. Shares issued on the exercise of Warrants
During the nine months ended September 30, 2021, the Company issued
3,758,940 common shares to warrant holders who exercised 3,758,940
warrants resulting in cash proceeds of $14,076,473
(CAD$17,809,039).
During the year ended December 31, 2020, the Company issued
17,532,271 common shares to warrant holders who exercised
17,532,271 warrants resulting in cash proceeds of $32,653,449
(CAD$43,079,021).
iv. Shares issued on Financing – July 2020
On July 3, 2020, the Company completed a bought deal financing for
aggregate gross proceeds of $8,493,808 (CAD$11,521,850) at a price
of CAD$2.15 per unit. The Company issued 5,359,000 units of the
Company. Each unit was comprised of one common share in the capital
of the Company and one-half of one common share purchase warrant.
Each whole warrant entitles the holder to acquire one common share
at an exercise price of CAD$2.85 per common share for a period of
24 months.
The Company also issued 321,540 broker warrants that entitle the
holder to purchase one common share for a period of 24 months from
the closing of the offering at a price of CAD$2.15 per common
share. The broker warrants were measured based on the fair value of
the warrants using a Black Scholes valuation model.
The Company incurred $825,359 in cash share issuance costs and
$222,398 in broker warrant costs. The warrants are initially
measured at fair value (Note 10) with residual proceeds being
allocated to the common shares. Issuance costs have been allocated
in the same proportion, with costs allocated to the warrant
liability being expensed as incurred. The net proceeds were
allocated as follows:
July 3, 2020 Financing
|
|
|
|
|
|
Common Shares (APIC)
|
8,118,500)
|
(1,001,461
|
Warrant Liability (Note 10)
|
375,308
|
(46,296)
|
Total
|
8,493,808
|
(1,047,757)
|
v. Shares issued on Financing – September 2020
On September 10, 2020, the Company completed a bought deal
financing for aggregate gross proceeds of $17,489,401
(CAD$23,019,550) at a price of CAD$3.70 per unit. The Company
issued 6,221,500 units of the Company. Each unit was comprised of
one common share in the capital of the Company and one-half of one
common share purchase warrant. Each whole warrant entitles the
holder to acquire one common share at an exercise price of CAD$5.00
per common share for a period of 24 months.
The Company also issued 373,290 broker warrants that entitle the
holder to purchase one common share for a period of 24 months from
the closing of the offering at a price of CAD$3.70 per common
share. The broker warrants were measured based on the fair value of
the warrants using a Black Scholes valuation model.
9. Share capital (continued)
The Company incurred $1,291,216 in cash share issuance costs and
$585,816 in broker warrant costs. The warrants are initially
measured at fair value (Note 10) with residual proceeds being
allocated to the common shares. Issuance costs have been allocated
in the same proportion, with costs allocated to the warrant
liability being expensed as incurred. The net proceeds were
allocated as follows:
September 10, 2020 Financing
|
|
|
|
|
|
Common Shares (APIC)
|
16,662,200
|
(1,788,253)
|
Warrant Liability (Note 10)
|
827,201
|
(88,779)
|
Total
|
17,489,401
|
(1,877,032)
|
vi. Shares issued on Financing – November 2020
On November 5, 2020, the Company completed a bought deal financing
for aggregate gross proceeds of $22,141,920 (CAD$28,804,625) at a
price of CAD$4.30 per unit. The Company issued 6,698,750 units of
the Company. Each unit was comprised of one common share in the
capital of the Company and one-half of one Common Share purchase
warrant. Each whole warrant entitles the holder to acquire one
common share at an exercise price of CAD$5.80 per common share for
a period of 24 months.
The Company also issued 401,925 broker warrants that entitle the
holder to purchase one common share for a period of 24 months from
the closing of the offering at a price of CAD$4.30 per common
share. The broker warrants were measured based on the fair market
value of the warrants using a Black Scholes valuation
model.
The Company incurred $1,544,014 in cash share issuance costs and
$730,523 in broker warrant costs. The warrants are initially
measured at fair value (Note 10) with residual proceeds being
allocated to the common shares. Issuance costs have been allocated
in the same proportion, with costs allocated to the warrant
liability being expensed as incurred. The net proceeds were
allocated as follows:
November 5, 2020 Financing
|
|
|
|
|
|
Common Shares (APIC)
|
20,777,360
|
(2,134,362)
|
Warrant Liability (Note 10)
|
1,364,560
|
(140,175)
|
Total
|
22,141,920
|
(2,274,537)
|
vii. Shares issued on Financing – February 2021
On February 2, 2021, the Company completed a bought deal financing
for aggregate gross proceeds of $53,852,980 (CAD$69,028,750) at a
price of CAD$7.00 per unit. The Company issued 9,861,250 units of
the Company. Each unit was comprised of one common share in the
capital of the Company and one-half of one Common Share purchase
warrant. Each whole warrant entitles the holder to acquire one
common share at an exercise price of CAD$9.00 per common share for
a period of 24 months.
The Company also issued 591,676 broker warrants that entitle the
holder to purchase one common share for a period of 24 months from
the closing of the offering at a price of CAD$7.00 per common
share. The broker warrants were measured based on the fair market
value of the warrants using a Black Scholes valuation
model.
9. Share capital (continued)
The Company incurred $3,494,930 in cash share issuance costs and
$1,296,170 in broker warrant costs. The warrants are initially
measured at fair value (Note 10) with residual proceeds being
allocated to the common shares. Issuance costs have been allocated
in the same proportion, with costs allocated to the warrant
liability being expensed as incurred. The net proceeds were
allocated as follows:
February 2, 2021 Financing
|
|
|
|
|
|
Common Shares (APIC)
|
50,967,999
|
(4,534,434)
|
Warrant Liability (Note 10)
|
2,884,981
|
(256,666)
|
Total
|
53,852,980
|
(4,791,100)
|
viii. Shares issued on conversion of Class A Shares
On May 6, 2021, the Company issued 55,232,940 common shares on the
conversion of 55,232,940 Class A shares. As of September 30, 2021,
there were no longer any Class A shares outstanding.
|
|
|
|
|
Class
A shares
|
|
|
|
|
|
Balance
at January 1
|
55,232,940
|
55,232,940
|
Shares
issued on acquisition (Note 5)
|
-
|
3,940,932
|
Conversion
of Class A to Common
|
(55,232,940)
|
(3,940,932)
|
Total
Class A shares outstanding
|
-
|
55,232,940
|
The Class A restricted shares have equal ratable rights as the
Company’s common shares to dividends, all of the
Company’s assets that are available for distribution upon
liquidation, dissolution or winding up of the Company’s
affairs, do not have pre-emptive rights, are entitled to receive
notice and attend shareholders meetings and to exercise one vote
for each Class A share held at all meetings of shareholders of the
Company other than with respect to the vote for the election or
removal of directors. Each Class A shareholder is able to convert
each outstanding Class A share at the option of the holder thereof
into one common share at any time provided that such conversion
would not cause the Company to become a US Domestic Issuer. The
restriction on conversion of Class A shares are designed to prevent
the Company from becoming a US Domestic Issuer. Generally, a
company will be considered to be a US Domestic Issuer
if:
(A) 50% or more of the holders of a company’s common voting
shares are U.S. Persons; and either (B) (i) the majority of the
executive officers or directors of the Issuer are United States
citizens or residents; (ii) the company has 50% or more of its
assets located in the United States; or (iii) the business of the
company is principally administered in the United
States.
On May 6, 2021, the Company issued 55,232,940 common shares on the
conversion of 55,232,940 Class A shares. As of September 30, 2021,
there were no longer any Class A shares outstanding.
10. Warrant liability
The following table summarizes the fair value of the warrant
liability for the periods presented:
|
|
|
Opening
balance as at January 1
|
$13,204,211
|
$9,823,510
|
Additions
|
2,884,981
|
2,567,069
|
Exercise
|
(8,955,993)
|
(15,698,859)
|
Foreign
exchange
|
48,925
|
(293,450)
|
Change
in fair value
|
2,728,386
|
16,805,941
|
Closing
balance end of period
|
$9,910,510
|
$13,204,211
|
The warrant liability is adjusted to fair value on the date the
warrants are exercised and at the end of each reporting period. The
amount that is reclassified to equity on the date of exercise is
the fair value at that date.
The following table summarizes the number of warrants outstanding
for the periods presented:
|
|
Weighted average
exercise price – CAD
|
|
Weighted average
exercise price - CAD
|
Balance – beginning of period
|
7,158,337
|
$4.98
|
15,061,078
|
$2.20
|
Issued
|
5,522,301
|
$8.79
|
10,236,380
|
$4.53
|
Exercised
|
(3,758,940)
|
$4.74
|
(17,532,271)
|
$2.46
|
Expired
|
(46,047)
|
$3.75
|
(606,850)
|
$1.40
|
Balance – end of period
|
8,875,651
|
$7.46
|
7,158,337
|
$4.98
|
The Company received cash proceeds of $14,076,473 (CAD$17,809,039)
from the exercise of warrants for the nine-month period ended
September 31, 2020 (December 31, 2020 - $32,653,449
(CAD$43,079,021)).
The following table present information about the Company’s
assets and liabilities that are measured at fair value on a
recurring basis for the periods presented:
|
Quoted prices in active markets for identical assets (Level
1)
|
September 30, 2021:
|
|
Warrant
liability
|
$(9,910,510)
|
|
|
December 31, 2020:
|
|
Warrant
liability
|
$(13,204,211)
|
11. Share based compensation
(a) Stock options
The Company has established an incentive stock option plan (the
“Plan”) for employees, management, directors, and
consultants of the Company, as designated and administered by a
committee of the Company’s Board of Directors. Under the
Plan, the Company may grant options for up to 10% of the issued and
outstanding common shares of the Company.
11. Share based compensation (continued)
During the nine months ended September 30, 2021
No incentive stock options were granted during the
period.
During the year ended December 31, 2020
No incentive stock options were granted during the
year.
The following table summarizes information about stock options
outstanding at September 30, 2021:
Expiry date
|
|
September 30, 2021 outstanding
|
(September
30, 2021 exercisable
|
|
|
|
|
July
4, 2022
|
$2.65
|
100,000
|
100,000
|
June
11, 2023
|
$0.80
|
61,668
|
61,668
|
July
31, 2023
|
$0.75
|
-
|
-
|
January
7, 2024
|
$1.55
|
-
|
-
|
June
30, 2024
|
$2.60
|
7,500
|
7,500
|
|
|
169,168
|
169,168
|
The employee options vest one third on the grant date and one third
on the first and second anniversary of the grant date. The
following table reflects the continuity of stock options for the
period presented:
|
|
Weighted
average CAD$ exercise price
|
|
|
|
Balance – beginning of period
|
293,838
|
$1.52
|
Granted
|
-
|
-
|
Exercised
|
(121,336)
|
0.91
|
Expired
|
(3,334)
|
0.80
|
Forfeited
|
-
|
-
|
Balance – end of period
|
169,168
|
$1.97
|
|
|
The outstanding options have a weighted-average CAD$ exercise price
of $
|
1.97
|
|
|
The weighted average remaining life in years of the outstanding
options is:
|
1.19
|
The company recorded $3,104 of share-based compensation expense
attributable to employee options for the nine months ended
September 30, 2021 ($51,233 for the nine months ended September 30,
2020).
11. Share based compensation (continued)
(b)
Restricted Share Units
The Company has established a Restricted Share Unit incentive plan
(the “RSU Plan”) for employees, management, directors,
and consultants of the Company, as designated and administered by a
committee of the Company’s Board of Directors. Under the RSU
Plan, the Company may grant RSUs and/or options for up to 10% of
the issued and outstanding common shares of the
Company.
The following table summarizes the RSUs that are outstanding as at
September 30, 2021:
RSU Activity
|
|
|
|
Balance - beginning of the period
|
1,764,250
|
Granted
to Participants
|
4,086,178
|
Exercised
|
(915,801)
|
Cancelled
|
-
|
Balance – end of the period
|
4,934,627
|
The Company recorded $12,208,463 in share-based compensation
expense attributable to RSUs for the nine months ended September
30, 2021 ($1,954,834 for the nine months ended September 20,
2020).
During the nine months ended September 31, 2021
On January 4, 2021, the Company issued 852,154 common shares to
settle 852,154 RSUs that had vested. The Company did not receive
any cash proceeds from the issuance.
On April 19, 2021, the Company granted 4,082,474 RSUs to officers,
directors, and employees pursuant to the Company’s RSU Plan.
The RSUs granted vest in three equal tranches on November 1, 2021,
November 1, 2022, and November 1, 2023, unless otherwise varied
pursuant to the terms of the plan.
On June 10, 2021, the Company granted 3,704 RSUs to a consultant of
the Company. Pursuant to the Company’s RSU Plan. The RSUs
vested immediately and were exercised on June 10, 2021. The company
issued 3,704 common shares on the exercise and did not receive any
cash proceeds from the issuance.
In total the Company transferred $1,898,979 to share capital from
Restricted Share Units, representing the carrying value of the RSUs
that were exercised during the period.
During the year ended December 31, 2020
On January 1, 2020, the Company issued 50,000 RSUs under the RSU
plan. The value ascribed to the RSUs issued was CAD$2.57 per share,
the closing share price of the Company’s common shares on
December 31, 2019.
On September 30, 2020, 6,666 RSUs that were previously granted on
June 11, 2018 were cancelled as a result of an employee
resignation.
On July 3, 2020, the Company issued 50,518 RSUs under the RSU plan.
The value ascribed to the RSUs issued was CAD$2.04 per share, the
closing share price of the Company’s common shares on July 3,
2020.
12. Loss per share
|
|
|
|
|
|
|
|
Loss available to common shareholders
|
$(3,783,626)
|
$(5,646,614)
|
$(15,371,987)
|
$(6,797,286)
|
|
|
|
|
|
Weighted average number of shares, basic and
diluted
|
196,457,950
|
162,624,567
|
194,576,544
|
148,587,612
|
|
|
|
|
|
Basic and diluted (loss) per share
|
$(0.02)
|
$(0.03)
|
$(0.08)
|
$(0.05)
|
Approximately 13,979,446 of potentially dilutive securities for the
three and nine months ended September 30, 2021 and 10,817,031 of
potentially dilutive securities for the three and nine months ended
September 30, 2020 were excluded in the calculation of diluted EPS
as their impact would have been anti-dilutive due to net loss in
the period.
13. Income taxes
The components of income tax expense (benefit) of the Company are
summarized as follows:
|
|
|
|
|
|
|
|
Current tax expense (recovery)
|
|
|
|
|
Current
period
|
$3,601,094
|
$4,819,639
|
$10,046,821
|
$7,757,805
|
|
|
|
|
|
Deferred tax expense (recovery)
|
|
|
|
|
Origination
and reversal of temporary differences
|
$(123,621)
|
$(79,388)
|
$(2,204,751)
|
$(240,716)
|
Change
in unrecognized temporary differences
|
(79,652)
|
13,767
|
1,790,738
|
64,883
|
Income
tax expense
|
$3,397,821
|
$4,754,018
|
$9,632,808
|
$7,581,972
|
The actual income tax provision differs from the expected amount
calculated by applying the statutory income tax rate to the loss
before tax. These differences result from the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
income before income tax
|
$665,360
|
$(892,596)
|
$(4,688,014)
|
$784,686
|
Statutory
income tax rate
|
21.0%
|
21.0%
|
21.0%
|
21.0%
|
Income
tax expense (benefit)
at
statutory rate
|
139,726
|
(187,445)
|
(984,483)
|
164,784
|
|
|
|
|
|
Increase
(reduction) resulting from:
|
|
|
|
|
Non-taxable
items
|
3,454,566
|
4,803,575
|
10,333,697
|
6,321,993
|
Change
in valuation allowance
|
(79,652)
|
471,967
|
1,790,739
|
1,391,126
|
Foreign
exchange impacts
|
144,701
|
-
|
(226,066)
|
-
|
Difference
in rates
|
(261,519)
|
(334,079)
|
(1,281,079)
|
(295,931)
|
Income
tax expense
|
$3,397,821
|
$4,754,018
|
$9,632,808
|
$7,581,972
|
13. Income taxes (continued)
Section 280E prohibits businesses engaged in the trafficking of
Schedule I or Schedule II controlled substances from deducting
normal business expenses, such as payroll and rent, from gross
income (revenue less cost of goods sold). Section 280E was
originally intended to penalize criminal market operators, but
because cannabis remains a Schedule I controlled substance for
Federal purposes, the Internal Revenue Service (“IRS”)
has subsequently applied Section 280E to state-legal cannabis
businesses. Cannabis businesses operating in states that align
their tax codes with the IRC are also unable to deduct normal
business expenses from taxable income subject to state taxes. The
non-taxable amounts shown in the effective rate reconciliation
above include the impact of applying IRC Section 280E to the
Company's businesses that are involved in selling cannabis, along
with other typical non-deductible expenses. As the application and
IRS interpretations on Section 280E continue to evolve, the impact
of this cannot be reliably estimated.
Any changes to the application of Section 280E may have a material
effect on the Company’s interim condensed consolidated
financial statements.
Deferred tax assets and liabilities have been offset where they
relate to income taxes levied by the same taxation authority and
the Company has the legal right and intent to offset. Deferred tax
assets (liabilities) are attributable to the
following:
|
|
|
Deferred tax assets
|
|
|
Loss carryforwards $
|
8,584,506
|
$5,303,168
|
Share
issue costs
|
1,832,234
|
1,381,446
|
Exchange
rate differences on monetary assets
|
8,108
|
563,080
|
Accrued
expenses
|
129,516
|
49,128
|
Deferred tax assets
|
10,554,364
|
7,296,822
|
Valuation
allowance
|
(8,561,453)
|
(5,912,173)
|
Set
off of tax
|
(1,863,395)
|
(1,384,649)
|
Net deferred tax asset
|
129,516
|
-
|
Deferred tax liabilities
|
|
|
Property
and equipment
|
(1,445,478)
|
(1,251,229)
|
Licenses
|
(543,779)
|
(543,779)
|
Deferred tax liabilities
|
(1,989,257)
|
(1,795,008)
|
Set
off of tax
|
1,863,395
|
1,384,649
|
Net deferred tax liability $
|
(125,862)
|
$(410,359)
|
As at December 31, 2020, the Company has $15,821,242 (December 31,
2020 - $12,013,192) in Canadian non-capital loss carryforwards that
expire between 2035 and 2041. In addition, as at December 31, 2020,
the Company has U.S. federal Net Operating Losses of $14,976,543
(December 31, 2020 - $9,692,291). The U.S federal Net Operating
Losses attributable to 2019 will expire in 2039 and the losses
attributable to 2020 onward will have an indefinite carry forward.
As at September 30, 2021, the Company has California state Net
Operating Losses of $5,916,883 (December 31, 2020 - $953,517). The
California state Net Operating will expire in 2040 and
2041.
In March 2020, the U.S. enacted the Coronavirus Aid, Relief, and
Economic Security Act (the “Act”). The Act, among other
provisions, reinstates the ability of corporations to carry net
operating losses back to the five preceding tax years, has
increased the excess interest limitation on modified taxable income
from 30 percent to 50 percent. The Company has made a reasonable
estimate of the effects on existing deferred tax balances and has
concluded that the Act has not had a significant on the deferred
tax balances.
13. Income taxes (continued)
The Company believes that, pursuant to Section 7874 of the Code,
even though it is organized as a Canadian corporation, the Company
should be treated as a U.S. domestic corporation for U.S. federal
income tax purposes. Because the Company is a taxable corporation
in Canada, it is likely to be subject to income taxation in both
the United States and Canada on the same income, which in turn, may
reduce the amount of income available for distribution to
shareholders. The balance of this discussion assumes the Company is
a U.S. domestic corporation for U.S. federal income tax purposes.
However, no tax opinion or ruling from the Internal Revenue Service
(“IRS”) concerning the U.S. federal income tax
characterization of the Company has been obtained and none will be
requested. Thus, there can be no assurance that the IRS will not
challenge the characterization of the Company as a domestic
corporation, or that if challenged, a U.S. court would not agree
with the IRS. If the Company is not treated as a U.S. domestic
corporation, then the acquisition, ownership and disposition of
common shares, warrants and common shares received on the exercise
of warrants may have materially different implications for Non-U.S.
Holders.
14. General and administrative
|
|
|
|
|
|
|
|
Salaries
and wages
|
$6,134,539
|
$2,420,126
|
$14,481,158
|
$6,546,241
|
Executive
compensation
|
447,800
|
392,142
|
1,385,009
|
897,203
|
Licenses
and permits
|
969,610
|
301,707
|
2,258,551
|
1,296,695
|
Payroll
taxes and benefits
|
931,950
|
451,497
|
2,380,171
|
1,370,969
|
Supplies
and office expenses
|
621,642
|
275,107
|
1,562,832
|
641,796
|
Subcontractors
|
953,356
|
444,175
|
2,166,299
|
1,056,499
|
Professional
fees (legal, audit and other)
|
938,028
|
848,726
|
2,842,599
|
2,592,331
|
Miscellaneous
general and administrative expenses
|
2,177,856
|
1,090,312
|
4,897,499
|
3,146,035
|
|
$13,174,781
|
$6,223,792
|
$31,974,118
|
$17,547,769
|
15. Supplemental cash flow information
|
|
Change in working capital
|
|
|
|
|
|
Accounts
receivable, net
|
$(394,191)
|
$(47,316)
|
Inventory
|
(6,303,221)
|
(1,453,161)
|
Prepaid
expenses and other assets
|
(3,620,412)
|
1,690,717
|
Long
term deposits and other assets
|
(12,376)
|
(336,751)
|
Accounts
payable
|
1,677,256
|
1,231,431
|
Accrued
expenses
|
3,977,028
|
1,116,045
|
Income
tax payable
|
(1,614,486)
|
7,760,610
|
|
$(6,290,402)
|
$9,961,575
|
Cash paid
|
|
|
Income
taxes
|
$11,631,307
|
$-
|
|
|
|
Non-cash activities
|
|
|
Settlement
of warrants liability by issuing warrants
|
$8,955,993
|
$7,008,759
|
Acquisition
of licenses and intangible assets in exchange for
shares
|
$-
|
$7,372,108
|
Initial
recognition of ROU assets and lease liabilities
|
$867,561
|
$10,893,679
|
16. Related party transactions and balances
Related party transactions are summarized as follows:
(a) Officer Compensation
The Company’s key management personnel have the authority and
responsibility for planning, directing and controlling the
activities of the Company and consists of the Company’s
executive management team and board of directors. The following
table summarizes amounts paid to related parties as
compensation:
|
Nine Months ended
September 30,
|
|
|
Included in
Accounts payable
|
|
|
|
|
|
Management
compensation
|
2021
|
$1,945,223
|
$9,875,693
|
$-
|
|
2020
|
1,194,466
|
1,404,237
|
8,176
|
Director
compensation
|
2021
|
$150,000
|
$1,227,580
|
$-
|
|
2020
|
-
|
199,254
|
-
|
*Amounts disclosed were paid or accrued to the related party during
the nine months ended September 30, 2021 and 2020
(b) Other
The Company sub-lets approximately 2,000 square feet of office
space and purchases certain printed marketing collateral and
stationery items from a company owned by one of the Company’s
Co-CEOs. Amounts paid to such company for rent for the nine months
ended September 30, 2021, and 2020 equaled $16,027 and $18,030,
respectively. Amounts paid for printed marketing collateral and
stationery items equaled $382,264 and $215,069 respectively for the
nine months ended September 30, 2021, and 2020. As at September 30,
2021, there was $22,682 (2020-$61,407) included in accounts payable
that was owed to this related party.
A company owned by one of the Company’s executives pays the
Company for storage space. Amounts paid to the Company for storage
space equaled $122,447 for the nine months ended September 30, 2021
(2020 – nil).
Through to April 30, 2021, the Company leased a cultivation
facility from an entity owned by the Company’s co-CEOs. Rents
paid for this facility for the nine months ended September 30,
2021, equaled $301,894 (2020 – nil). On April 30, 2021, the
Company’s Co-CEOs sold this building to an arm’s length
third party who assumed the lease.
17. Commitments and contingencies
(a) Construction Commitments
At September 30, 2021, the Company had construction commitments
outstanding of $6,610,568 (December 31, 2020 - $7,084,300),
$2,904,562 related to the build-out of the Company’s Planet
13 Santa Ana cannabis entertainment complex and $3,706,006 related
to the build out of the Company’s Planet 13 Las Vegas
Superstore.
The Company's operations are subject to a variety of local and
state regulation. Failure to comply with one or more of those
regulations could result in fines, restrictions on its operations,
or losses of permits that could result in the Company ceasing
operations. While management of the Company believes that the
Company is in compliance with applicable local and state
regulations as at September 30, 2021, medical and adult use
cannabis regulations continue to evolve and are subject to
differing interpretations. As a result, the Company may be subject
to regulatory fines, penalties, or restrictions in the
future.
17. Commitments and contingencies (continued)
(c) Claims and Litigation
From time to time, the Company may be involved in litigation
relating to claims arising out of operations in the normal course
of business. At September 30, 2021, there were no pending or
threatened lawsuits that could reasonably be expected to have a
material effect on the results of the Company’s operations.
There are also no proceedings in which any of the Company’s
directors, officers or affiliates is an adverse party or has a
material interest adverse to the Company’s
interest.
(d) Operating Licenses
Although the possession, cultivation, and distribution of marijuana
for medical and adult use is permitted in Nevada, marijuana is a
Schedule-I controlled substance and its use remains a violation of
federal law. Since federal law criminalizing
the use of marijuana pre-empts state laws that legalize its use,
strict enforcement of federal law regarding marijuana would likely
result in the Company’s inability to proceed with our
business plans. In addition, the Company’s assets, including
real property, cash, equipment and other goods, could be subject to
asset forfeiture because marijuana is still federally
illegal.
(e) Employment Agreements
The Company has employment agreements in place with its Executive
Management team and certain key employees. The annual salaries
pursuant to such agreements range from $100,000 to
$500,000.
18. Risks
Credit risk
Credit risk is the risk that a third party might fail to discharge
its obligations under the terms of a financial instrument. Credit
risk arises from cash with banks and financial institutions. It is
management's opinion that the Company is not exposed to significant
credit risk arising from these financial instruments. The Company
limits credit risk by entering into business arrangements with high
credit-quality counterparties.
The Company evaluates the collectability of its accounts receivable
and maintains an allowance for credit losses at an amount
sufficient to absorb losses inherent in the existing accounts
receivable portfolio as of the reporting dates based on the
estimate of expected net credit losses.
Concentration risk
The Company operates exclusively in Southern Nevada. Should
economic conditions deteriorate within that region, its results of
operations and financial position would be negatively
impacted.
Banking Risk
Notwithstanding that a majority of states have legalized medical
marijuana, there has been no change in US federal banking laws
related to the deposit and holding of funds derived from activities
related to the marijuana industry. Given that US federal law
provides that the production and possession of cannabis is illegal,
there is a strong argument that banks cannot accept for deposit
funds from businesses involved with the marijuana industry.
Consequently, businesses involved in the marijuana industry often
have difficulty accessing the US banking system and traditional
financing sources. The inability to open bank accounts with certain
institutions may make it difficult to operate the business of the
Company and leaves their cash holdings vulnerable.
Asset Forfeiture Risk
Because the cannabis industry remains illegal under US federal law,
any property owned by participants in the cannabis industry which
are either used in the course of conducting such business, or are
the proceeds of such business, could be subject to seizure by law
enforcement and subsequent civil asset forfeiture. Even if the
owner of the property was never charged with a crime, the property
in question could still be seized and subject to an administrative
proceeding by which with minimal due process, it could be subject
to forfeiture.
18. Risks (continued)
Currency rate risk
As at September 30, 2021, a portion of the Company’s
financial assets and liabilities held in Canadian dollars consist
of cash and cash equivalents of $1,621,021 (2020 - $21,771,531).
The Company’s objective in managing its foreign currency risk
is to minimize its net exposure to foreign currency cash flows by
transacting, to the greatest extent possible, with third parties in
the functional currency. The Company is exposed to currency rate
risk in other comprehensive income, relating to foreign
subsidiaries which operate in a foreign currency. The Company does
not currently use foreign exchange contracts to hedge its exposure
of its foreign currency cash flows as management has determined
that this risk is not significant at this point in
time.
19. COVID-19
In March 2020, the World Health Organization declared coronavirus
COVID-19 a global pandemic. The outbreak of this contagious
disease, along with the related adverse public health developments,
have negatively affected workforces, economies, and financial
markets on a global scale. The Company incurred lower revenues, and
additional expenditures related to COVID-19 during the first half
of 2020. During the first half of 2020 the Company’s
operations in Nevada were mandated as an essential service but were
restricted to delivery only, with no curb-side pickup or instore
sales permitted until such delivery-only order was lifted on May
30, 2020. The Company’s operating results were not materially
impacted during the second half of 2020. Currently, the Company is
closely monitoring the impact of the pandemic on all aspects of its
business and it is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and
its effects on the Company’s business or results of
operations.
20. Subsequent events
On October 1, 2021, the Company completed the purchase of a license
issued by the Florida Department of Health to operate as a Medical
Marijuana treatment Center (the “License”) in the state
of Florida for $55,000,000 in cash (Note 5).
Between October 1, 2021 and December 9, 2021, the Company issued
13,700 common shares on the exercise of common share purchase
warrants and realized cash proceeds of $30,885.
On December 9, 2021, the Company issued 2,212,974 common shares on
the exercise of Restricted Share Units that had vested during the
period.
THIS AGREEMENT IS SUBJECT TO STRICT REQUIREMENTS FOR ONGOING
REGULATORY COMPLIANCE BY THE PARTIES HERETO, INCLUDING, WITHOUT
LIMITATION, REQUIREMENTS THAT THE PARTIES TAKE NO ACTION IN
VIOLATION OF THE NEVADA CANNABIS LAWS OR THE GUIDANCE OR
INSTRUCTION OF THE REGULATORY AUTHORITIES. SECTION 10.3(D) OF THIS
AGREEMENT CONTAINS SPECIFIC REQUIREMENTS AND COMMITMENTS BY THE
PARTIES TO MAINTAIN FULLY THEIR RESPECTIVE COMPLIANCE WITH THE
NEVADA CANNABIS LAWS AND THE REGULATORY AUTHORITIES. THE PARTIES
HAVE READ AND FULLY UNDERSTAND THE REQUIREMENTS OF SECTION
10.3(D).
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this
“Agreement”),
dated as of July 17, 2020 (the “Effective Date”),
is entered into by Planet 13 Holdings Inc., a corporation organized
under the Business Corporations
Act (British Columbia)
(“Planet
13”), MM Development
Company, Inc., a Nevada corporation (“Buyer”,
and together with Planet 13 the “Planet 13
Parties”), and W the
Brand, LLC, a Delaware limited liability company
(“W
Vapes”), and West Coast
Development Nevada, LLC, a Nevada limited liability company
(“Seller”)
and R. Scott Coffman, a North Carolina resident
(“Coffman”
and together with Seller and W Vapes, the
“Transferors”).
Buyer, Planet 13, Seller, W Vapes and Coffman are sometimes
referred to individually as a “Party”
and collectively as the “Parties.”
RECITALS
A. Buyer
desires to purchase certain assets relating to the Business of
Seller, and Seller desires to sell such assets to Buyer on the
terms herein.
B. W
Vapes is treated as the parent company of Seller by virtue of a
certain Beneficial Holding Agreement effective as of February 28,
2017 by and between Coffman, and W Vapes.
C. Planet
13 is the parent company of Buyer.
D. On
the First Closing Date, Seller wishes to sell to Buyer, and Buyer
wishes to purchase from Seller, the Purchased Assets except for the
Second Closing MRB Assets, free and clear of all Encumbrances
except for Permitted Encumbrances, and Seller wishes to assign to
Buyer, and Buyer wishes to assume from Seller, the Assumed
Liabilities, but excluding the Second Closing Assumed Liabilities,
all upon the terms and conditions contained in this
Agreement.
E. On
the Second Closing Date, Seller desires to sell to Buyer, the
Second Closing MRB Assets, and Buyer desires to purchase from
Seller, the Second Closing MRB Assets, subject to the Regulatory
Approval and the assumption by Buyer of the Second Closing Assumed
Liabilities.
AGREEMENT:
NOW,
THEREFORE, in consideration of
the mutual covenants and promises contained in this Agreement, and
for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the Parties agree as
follows:
ARTICLE 1
DEFINITIONS; RECITALS
1.1.
Definitions.
For all purposes, capitalized terms in this Agreement shall have
the respective meanings set forth below in this
Agreement in Schedule 1
to this
Agreement.
1.2.
Recitals.
The Recitals are hereby incorporated herein by this
reference.
1.3.
Usage of
Terms. Except where the context
otherwise requires, words importing the singular
number will include the plural number and vice versa. Use of the
word “including” means “including, without
limitation.”
1.4.
References to
Articles, Sections, Exhibits and Schedules. All references in this Agreement
to Articles, Sections (and other subdivisions), Exhibits and
Schedules refer to the corresponding Articles, Sections (and other
subdivisions), Exhibits and Schedules of or attached to this
Agreement, unless expressly provided
otherwise.
ARTICLE 2
PURCHASE AND SALE OF PURCHASED ASSETS AND MRB ASSETS
2.1.
Purchase of Assets at
First Closing.
(a) In
accordance with the terms and upon the conditions of this
Agreement, on the First Closing Date, Buyer shall purchase and
accept from Seller, and Seller shall sell, transfer, assign, convey
and deliver to Buyer, all of its right, title and interest in and
to the following assets, properties, rights and claims of Seller,
and, free and clear of all Encumbrances (other than Permitted
Encumbrances) (collectively, the “Purchased
Assets”):
(i) all
Tangible Personal Property;
(ii) the
MRB Inventory;
(iii) all
equipment owned or leased (to the extent assignable) in connection
with Business and the additional equipment set forth on
Schedule
2.1(a)(iii) (but excluding MRB
Assets described in Section
2.2(a)(i)(v);
(iv) all
Contracts and agreements between Seller and third parties set forth
on Schedule
2.1(a)(iv) (the
“Assumed
Contracts”) other than
the MRB Contracts;
(v) books,
records and other documents and information in Seller's possession
pertaining solely to the Purchased Assets;
(vi) all
transferable Permits (excluding the MRB Licenses set forth
on Schedule
2.1(a)(vi);
and
(vii) all
rights, claims and causes of action against third parties arising
on or after the First Closing Date related solely to the operation
of the Business.
(b) Excluded
Assets. Notwithstanding
anything to the contrary herein, Seller shall not contribute, sell,
transfer, or assign to Buyer, and Buyer shall not receive, any of
Seller’s right, title and interest in, any assets other than the Purchased
Assets as set forth in Section 2.1(a)
above on the First Closing Date and
the MRB Assets set forth in Section 2.2(a)
below on the Second Closing Date
(collectively, the “Excluded
Assets”), including,
without limitation, any of the following
assets:
(i) all
cash, cash equivalents and securities existing on the First Closing
Date;
(ii) all
accounts arising from the provision of goods to customers, billed
and unbilled, recorded and unrecorded, for products provided by
Seller/Indus (pursuant to the Excluded Management Agreement) prior
to the First Closing Date;
(iii) all
rights, claims, and causes of action against third parties arising
prior to the First Closing Date, or not related solely to the
operation of the Business;
(iv) all
refunds of Taxes and tax loss carry-forwards of Seller relating to
the Purchased Assets and the Business with respect to any
Pre-Closing Tax Period;
(v) all
bank and other depository accounts and safe deposit boxes of
Seller;
(vi) the
organizational charter or other governing documents of Seller and
all qualifications to conduct business as a foreign entity,
taxpayer identification numbers, seals, minute books, and other
books, records, correspondence and documents relating to the
organization, maintenance, existence, or tax matters of
Seller;
(vii) any
employee benefit plans currently or formerly offered by the
Seller;
(viii) all
Excluded MRB Inventory;
(ix) the
Excluded Management Agreement; and
(x) any
and all books, records, correspondence and documents solely
relating to the Excluded Assets.
(c) Assumed
Liabilities at First Closing.
Buyer agrees to assume, effective as of the First Closing, all
liabilities related to the Assumed Contracts but only to the extent
that such liabilities (i) are required to be performed after the
First Closing Date; and (ii) do not relate to any failure to
perform, improper performance, warranty or other breach, default or
violation by Seller on or prior to the First Closing Date
(collectively, the “First Closing Assumed
Liabilities”). All
liabilities related to the Seller, W Vapes, Indus, the Purchased
Assets and the MRB Assets, other than the First Closing Assumed
Liabilities and Second Closing Assumed Liabilities (as defined
below) (the “Excluded
Liabilities”), shall not
be assumed by Buyer.
2.2.
Transfer of MRB Assets
at Second Closing.
(a) In
accordance with the terms and upon the conditions of this
Agreement, on the Second Closing Date and upon issuance of the
Regulatory Approvals, Buyer will purchase and accept from Seller
and Seller will sell, transfer, assign, convey and deliver to Buyer
all of its right, title and interest in and to the following assets
of Seller, free and clear of all Encumbrances (other than Permitted
Encumbrances) (the “Second Closing MRB
Assets”):
(i) the
then
existing MRB
Inventory;
(ii) the
MRB Licenses;
(iii) all
Contracts entered into by Seller related to the Business to the
extent that Seller must be authorized to hold any MRB License or
MRB Inventory under the terms of such Contract or applicable Laws
(the “MRB
Contracts”), a list of
which is set forth on Schedule
2.2(a)(iii);
(iv) any
assets, tangible or intangible, related to the Business which are
required to be held by a Person authorized to hold any MRB License
or MRB Inventory under applicable Laws; and
(v) all
books, records and other documents and information pertaining
solely to the MRB Assets in Seller's possession, but excluding
books, records and other documents and information pertaining to
the Excluded Assets.
(b) For
the avoidance of doubt, the MRB Assets shall not include the
Excluded Assets. Buyer and Seller will enter into all customary
instruments of transfer, assumption, filings, assignments or other
documents, in form and substance reasonably satisfactory to the
Parties, to evidence the transfer of the MRB Assets from Seller to
Buyer on the Second Closing Date.
(c) Assumed
Liabilities at Second Closing.
Buyer agrees to assume, effective as of the Second Closing, any and
all liabilities arising from the Lease and from operations under
the Management Agreement, including, without limitation, all
accounts payable, all obligations under Contracts and other
agreements and arrangements, tort claims, and all other liabilities
and obligations relating to the operations under the Management
Agreement. Collectively, the assumption and, if applicable,
cancellation of Liability set forth in this Section 2.2(c)
are referred to herein as the
“Second Closing
Assumed Liabilities”,
and, collectively with the First Closing Assumed Liabilities, the
“Assumed Liabilities”.
For purposes of this Agreement and the Transferors’
obligation of indemnity set forth herein, delivery by the Planet 13
Parties of an “Estoppel Certificate” to the Regulatory
Authorities in connection with the Planet 13 Parties application
for the Regulatory Approvals shall not be deemed an assumption of
the Excluded Liabilities by the Planet 13
Parties.
2.3.
Purchase
Price. The total aggregate
purchase price (collectively, the “Purchase
Price”) to be
paid by Buyer to Seller, in consideration for delivery of the
Purchased Assets on the First Closing Date and the Second Closing
MRB Assets on the Second Closing Date consists of the
following:
(a) the
Cash Purchase Price; plus
(b) a
certificate representing that number of Planet 13 common shares
having a value of Two Million Five Hundred Thousand U.S. Dollars
(US$2,500,000) measured on the basis of the volume weighted average
trading price of the common shares of Planet 13 for the ten (10)
trading days preceding the First Closing Date (the
“Consideration
Shares”).
2.4.
Payment and Delivery
of Purchase Price.
(a) First
Closing Payments. Upon the
First Closing Date, Buyer shall cause the following to
occur:
(i) Payment
of the Cash Purchase Price to Seller minus
the sum of (i) the aggregate amount of
the Closing Indebtedness set forth on the Pre-Closing Statement and
(ii) the aggregate amount
of the Transaction Expenses set forth on the Pre-Closing Statement,
payable to an account designated in writing by Seller prior to the
Closing, in cash by wire transfer of immediately available funds to
such accounts and in such amounts as Seller designates in writing
to Buyer; and
(ii) Payment
of the Closing Indebtedness to the respective lenders as set forth
on the Pre-Closing Statement;
(iii) Payment
of the Transaction Expenses to the Persons as set forth on the
Pre-Closing Statement; and
(iv) A
certificate representing that number of Consideration Shares having
an aggregate value of Two Million Five Hundred Thousand US Dollars
(US$2,500,000.00) as established pursuant to Section
2.3(b) has been issued in the
name of Seller and has been deposited with the Escrow Holder to be
held pursuant of the terms of the Share Escrow Agreement to be
released to Seller on the Second Closing Date or returned to Planet
13 if the Second Closing Date shall not occur as provided in
Section
8.2.
(b) On
the Second Closing Date, the Escrow Holder shall release to the
Seller the certificate representing the Consideration Shares issued
in the name of Seller.
(c) Payments.
Unless otherwise stated herein, all payments pursuant to
this Section 2.4
will be paid by Buyer to Seller,
lenders or service providers, as applicable, by wire transfer of
immediately available funds to such account(s) designated by
Seller, lenders or service providers, as applicable, in writing in
advance of the First Closing Date.
(d) Withholding.
Buyer and any other applicable withholding agent will be entitled
to deduct and withhold from any amounts payable pursuant to or as
contemplated by this Agreement any Taxes or other amounts required
under the Code or any applicable Law to be deducted and withheld,
as a result of the purchase and sale transactions provided for in
this Agreement, and to the extent that any amounts are so deducted
or withheld, such amounts shall be promptly and timely paid over to
such taxing authority and be treated for all purposes of this
Agreement as having been paid to the Person in respect of which
such deduction and withholding was made.
2.5.
Transfer Taxes / Stock
Transfer Taxes.. Seller will be
responsible for the payment of any and
all Transfer Taxes associated with the transfer of the Purchased
Assets and the MRB Assets and any deficiency, interest or penalty
with respect to such Taxes. The Parties will reasonably cooperate
with respect to the preparation and filing of all Tax Returns
required to be filed in connection with any such Transfer Taxes.
Buyer will be responsible for the payment of any and all costs,
including, but not limited to, Stock Transfer Taxes, associated
with the issuance and transfer of the Consideration Shares, both to
Seller and into and out of the Escrow
Holder.
2.6.
Allocation of Purchase
Price, Buyer will propose the
allocation of the Purchase Price among the Purchased Assets and the MRB Assets in
accordance with Section 1060 of the Code (the
“Purchase Price
Allocation”) which shall
allocate not less than $1,100,000 to inventory purchased on the
First Closing Date, and will deliver such Purchase Price Allocation
to Seller within ninety (90) days after the First Closing Date or
as soon as reasonably practicable. The Parties agree to confer and
to mutually approve the Purchase Price Allocation and to timely
file IRS Form 8594 based upon the Purchase Price Allocation The
Parties shall file all Tax Returns (including amended returns and
claims for refund) and information reports in a manner consistent
with the Purchase Price Allocation, and shall not contend or
represent that such allocation is not a correct allocation in any
action, arbitration, audit, hearing, investigation, litigation,
suit or other proceeding related to the determination of any Tax,
except as may otherwise
be (i) required pursuant to a final determination within the
meaning of Section 1313(a)(1) of the Code or any corresponding
provision of state, local or foreign Law or (ii) agreed to by the
Parties in writing. Each Party agrees to notify the other if any
Governmental Authority proposes to reallocate the Purchase
Price.
2.7.
Lease; Management
Agreement. As of the First
Closing Date, Seller will shall enter into the
Lease and the Option Agreement with Rx Land, and Buyer and Seller
shall enter into the Management
Agreement.
2.8.
Pre-Closing
Statement. At least five
Business Days prior to the First Closing Date, Seller
shall prepare and deliver to Buyer a statement
(the “Pre-Closing
Statement”) setting forth
(i) the amount of Indebtedness of Seller immediately prior to the
First Closing Date(collectively, the “Closing
Indebtedness”)
and (ii) the amount of the Transaction Expenses, including a list
of the payees and the amounts payable to each.
ARTICLE 3
FIRST AND SECOND CLOSINGS
3.1.
First Closing. The first
closing of the Transaction, when the ownership of the Purchased
Assets is transferred to Buyer as described in Section 2.1 (the “First Closing”),
will take place remotely via the electronic exchange of documents
and signatures as soon as practicable following the satisfaction or
waiver of the applicable conditions set forth in Article 7 and in
any event not later than the earlier of: (i) fourteen (14) Business
Days thereafter, (ii) July 17, 2020, or (iii) or on such later date
as Buyer and Seller may mutually agree upon
(the “First Closing
Date”). The First Closing will be deemed
to have occurred at 12:01 a.m., Pacific Time, on the First Closing
Date.
3.2.
Second
Closing. The second and final
closing of the Transaction, when ownership of the
Second Closing MRB Assets will be transferred to
Buyer as described in Section 2.2
(the “Second Closing”),
will take place remotely via the electronic exchange of documents
and signatures as soon as practicable following the satisfaction or
waiver of the applicable conditions set forth in Article 7 and in
any event within 14 days after the receipt of the last of the
Regulatory Approvals, or on such other date as Buyer and Seller may
mutually agree upon (the “Second Closing
Date”). The Second
Closing will be deemed to have occurred at 12:01 a.m., Pacific
Time, on the Second Closing Date.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF SELLER AND W VAPES
Except as set forth on the disclosure schedules
delivered by Seller to Buyer on the Effective Date (the
“Disclosure
Schedules”) and subject
to the Cannabis Carve Out set forth in Section 10.11
below, Seller represents and
warrants to Buyer that the representations and warranties set forth
in this Article 4 are true and correct as of the Effective Date and
shall be true and correct on the First Closing Date and on the
Second Closing Date, as may be applicable. Notwithstanding anything
to the contrary provided in this Agreement (in addition to any
specific exception to Federal Cannabis Laws and any similar Law set
forth in this Article 4), all representations, warranties,
covenants and disclosures of Seller in this Article 4 are being
made with exception to and not with respect to Federal Cannabis
Laws.
4.1.
Organization and
Authority to Conduct Business; Power and Authority; Binding
Effect. Seller is duly
organized, validly existing and in good status under the Laws of
the State of Nevada. Seller has full limited liability company
power and authority to conduct its business and to own and lease
its properties and assets (except under Federal Cannabis Laws).
Seller has, subject to the Parties obtaining all
required Regulatory Approvals relating to the MRB Assets, all
necessary power and authority to execute, deliver and perform its
obligations under this Agreement and consummate the Transaction
(except under Federal Cannabis Laws). This Agreement has been duly
executed and delivered by Seller and constitutes a legal, valid and
binding obligation of Seller enforceable against Seller in
accordance with its terms, except as such enforcement may be
limited by Federal Cannabis Laws.
4.2.
Consents and
Approvals. Subject to the
requirements under the Nevada Cannabis Laws,
except as set forth on Schedule 4.2
of the Disclosure Schedules, no
consent, approval or authorization of, or declaration, filing or
registration with, any Person is required to be made or obtained by
Seller in connection with the execution, delivery and performance
of this Agreement and the consummation of the Transaction or will
be necessary to ensure the continuing validity and effectiveness
immediately following the First Closing or the Second Closing of
any Permit, Assumed Contract and MRB Contract of Seller, as
applicable. This Agreement and each other Transaction Document has
been duly and validly executed and delivered by Seller and
(assuming the due authorization, execution and delivery by the
other parties hereto and thereto) constitutes the legal, valid and
binding obligations of Seller enforceable against Seller in
accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar Laws
affecting creditors’ rights and remedies generally, and
subject, as to enforceability, to general principles of equity,
including principles of commercial reasonableness, good faith and
fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
4.3.
No Violation; Consents
and Approvals. The execution
and delivery by the Seller and W Vape of this Agreement and all other instruments
and agreements to be delivered by each such Transferor as
contemplated hereby do not and the performance by it of its
obligations hereunder and thereunder, do not and will not (a)
conflict with or violate any provision of Law applicable to such
Transferor or by which any property or asset of such Transferor is
bound or affected, (b) conflict with or violate any Order to which
such Transferor is subject, (c) require a registration, filing,
application, notice, consent, approval, order, qualification, or
waiver with, to or from any Governmental Authority or any other
Person; (d) except as set forth on Schedule
4.3,require a consent, approval
or waiver from, or notice to, any party to any contract to which
such Transferor is a party or in a breach of, constitute change of
control or a default under, or result in the acceleration of
material obligations, loss of benefit or increase in any
liabilities or fees under, or create in any party the right to
terminate, vest in, cancel or modify, any contract to which such
Transferor is a party; or (e) result in the creation of any
Encumbrance on any property or asset of such Transferor (including
the Purchased Assets) or give any Person the right to prevent, or
to cause any delay to, the Transactions contemplated by this
Agreement.
4.4.
Financial
Statements. Schedule 4.4
sets forth copies of (i) the tax basis
balance sheet (the “Balance
Sheet”) each of Seller as
of December 31, 2018 and December 31, 2019 (the
“Balance Sheet
Date”) and the related
statements of profit and loss for each of the years then ended
(collectively, the “Annual Financial
Statements”), (ii) the
tax basis balance sheets of the Seller as of May 31, 2020 (the
“Interim Balance
Sheet” and the date of
such balance sheet the “Interim Balance Sheet
Date”) and the related
unaudited statements of profit and loss for the three- and
one-month periods then ended (collectively, the
“Interim Financial
Statements” and, together
with the Annual Financial Statements,, the
“Financial
Statements”). The
Financial Statements fairly present the financial condition and the
results of operations and cash flows of the Seller at the
respective dates of and for the periods referred to in such
Financial Statements; provided, however, that the Financial
Statements are subject to normal and non recurring year-end
adjustments (the effect of which will not have Material Adverse
Effect). The Financial Statements reflect the consistent
application of Seller’s accounting practices throughout the
periods involved. The parties recognize that some of the Financial
Statements include results of operations of a Seller Affiliated
Oregon entity, and that the Oregon entity results of operations
should not be deemed to include in Financial Statements for
purposes of the representation made in this Section
4.4.
4.5.
No Undisclosed
Liabilities. To the Knowledge
of Seller, Seller has no Liabilities except
for (i) Liabilities reflected and accrued for or
reserved against on the face of the Interim Balance Sheet, (ii)
future performance obligations arising under the terms of any
executory contracts that are listed on Schedule 4.11
or entered into in the Ordinary Course
of Business that are not required to be listed thereon, excluding
Liabilities for any breach of any Contract, breach of warranty,
tort, infringement or violation of Law, and (iii) Liabilities
incurred in the Ordinary Course of Business since the Interim
Balance Sheet Date consistent in amount and kind with past practice
(none of which results from, arises out of, relates to, is in the
nature of or was caused by any breach of Contract, breach of
warranty, tort, infringement or violation of Law). Seller does not
engage in or maintain any off-balance sheet arrangements (as
defined in Item 303 of Regulation S-K of the United States Securities Act
of 1933, as amended (the
“Securities
Act”).
4.6.
Intentionally
omitted.
4.7.
Title to Assets;
Encumbrances. Seller owns good
and transferable title to, or in the case of
property
held under a lease or other contract, a valid and enforceable
leasehold interest in or right to use, all of the Purchased Assets,
free and clear of any Encumbrances other than Permitted
Encumbrances. Schedule 4.7 lists the Tangible Personal Property
included on the Interim Financial Statements.
4.8.
Absence of Certain
Developments. Since the Balance
Sheet Date, there has not been any Material
Adverse Effect and, no event has occurred or circumstances exist
that are reasonably expected to result in a Material Adverse
Effect.
(a) Seller
at all times has been treated as a disregarded entity for federal
income tax purposes.
(b) All
Tax Returns that were required to be filed by or on behalf of
Seller and W Vapes, pursuant to applicable requirements of any
Governmental Authority, were timely filed or extended, and all such
Tax Returns were true, correct and complete and were prepared in
substantial compliance with all applicable requirements of the
relevant Governmental Authority. The Seller and W Vapes (or its
members) have paid all Taxes that have or may have become due to be
paid by them for all periods covered by the Tax Returns or
otherwise, or pursuant to any assessment received by Seller or W
Vapes, except such Taxes, if any, as are being contested in good
faith and as to which adequate reserves (determined in accordance
with GAAP consistently applied) have been provided in the Balance
Sheet and the Interim Balance Sheet. There are no Encumbrances on
any of the Assets that arose as a result of any failure (or alleged
failure) to pay any Tax.
(c) There
are no audits, claims, proceedings or assessments regarding Taxes
pending or threatened in writing against Seller or the Business.
Seller has received no written notification from any other state
that it is subject to income tax in such state.
(d) The
Seller has withheld and paid over to the proper Governmental
Authority all Taxes required to have been withheld and paid over by
Seller with respect to the Business operations, and complied with
all information reporting and backup withholding requirements,
including maintenance of required records with respect
thereto.
(e) The
Seller has reserved the required amounts necessary to pay all
unemployment Taxes and/or other Taxes due by the Seller based on
taxable wages paid by Seller through the First Closing Date, and
such amounts have been segregated for later payment to the
appropriate Governmental Authorities
and all Forms W-2 and 1099 required with respect to employees and
independent contractors have been, or will be, properly completed
and timely filed.
4.10.
Intellectual
Property.
(a) To
the Knowledge of Seller, the operations of Seller do not infringe,
misappropriate or otherwise violate any Intellectual Property owned
by any other Person. During the last three years, Seller has not
received notice from any Person claiming the operations of Seller
infringe, misappropriate or otherwise violate any Intellectual
Property of such Person.
(b) Schedule
4.10(b) contains a complete
list of all material licenses, sublicenses, consent to use
agreements, settlements, coexistence agreements, covenants not to
sue, waivers, releases, permissions and other Contracts, whether
written or oral, relating to the Intellectual Property to which
Seller is a party, beneficiary or otherwise bound, whether as
grantor or grantee, licensor or licensee or in any other capacity
(“IP
Agreements”). Each IP
Agreement is valid and binding and is in full force and effect. No
party to an IP Agreement is, or to the Knowledge of Seller is
alleged to be, in breach of or default under, or has provided or
received any notice of breach of, default under, or intention to
terminate (including by non-renewal) any IP
Agreement.
4.11.
Contracts.
(a) Schedule
4.11(a) (arranged in
subsections corresponding to the subsections set forth below)
contains an accurate and complete list Material Contracts
previously disclosed on the Indus Purchase Agreement (the "Indus
Disclosed Contracts") which continue to be in effect together with,
to the Knowledge of Seller, additional Contracts entered into
subsequent to the date of the Indus Purchase Agreement the
“Material
Contracts”):
(b)
Except as set forth on Schedule 4.11(b):
(i) neither
the execution and delivery or performance of this Agreement by
Seller nor the consummation or performance of the Transaction
contemplated hereby will, directly or indirectly (with or without
notice or lapse of time) (x) violate or conflict with, or result in
a breach of any provision of or forfeiture of any rights under, or
require any consent, waiver or approval (not otherwise obtained in
connection herewith), or result in a default or give rise to any
right of termination, cancellation, modification or acceleration
(or an event that, with the giving of notice, the passage of time
or otherwise, would constitute a default or give rise to any such
right) under, any of the terms, conditions or provisions of such
Indus Disclosed Contracts or (y) result in the imposition or
creation, pursuant to the terms of such Indus Disclosed Contracts,
of any Encumbrance upon or with respect to any of the Purchased
Assets;
(ii) to
the Knowledge of Seller, the Seller is in compliance in all
material respects with the terms and requirements of the Material
Contracts;
(iii) to
the Knowledge of Seller, each other Person that has or had any
obligation or liability under such Material Contract is in material
compliance with all terms of such Material Contract;
(iv) to
the Knowledge of Seller, no event has occurred or circumstance
exists that may contravene, conflict with or result in a breach of,
or give Seller or, to the Knowledge of Seller, any other Person the
right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or payment under, or to
cancel, terminate or modify, such Material Contract;
and
(v) Seller
has not given to or, to the Knowledge of Seller, received from any
other Person any notice regarding (x) any actual or alleged
violation or breach of, or default under, such Material
Contract
or (y) any event or circumstances that would reasonably be expected
to constitute or result in a violation, breach or default under
such Material Contract;
(a) Schedule
4.12(a) contains a complete and
accurate list of the following information for each employee of
Seller, including each employee on leave of absence or layoff
status, each former employee of Seller receiving benefits under
COBRA, and each consultant and independent contractor of Seller:
name; job title; classification as exempt or non-exempt; date of
hire; current salary and bonus paid or payable; other compensation
and fringe benefits that such employee is entitled to receive; sick
and vacation leave that is accrued but unused; service credited for
purposes of vesting and eligibility to participate in any Benefit
Plan; and whether such employee, consultant or independent
contractor is engaged directly or through a staffing agency or
other third Person. All employees have provided the required
documentation and have attested that they are either U.S. citizens
or residents specifically authorized to engage in employment in the
United States in accordance with all applicable
Laws.
(b) Schedule
4.12(b) contains a complete and
accurate list of the following information for each retired
employee of Seller, and each of their dependents, that as of the
First Closing Date is receiving benefits or is scheduled to receive
benefits in the future from Seller: name, Benefit Plan benefits,
and other benefits.
(c) Seller
is not a party to any collective bargaining agreement or collective
bargaining relationship with any labor organization. To the
Knowledge of Seller, no union, other labor organization or similar
entity is engaged in any organizing activity with respect to any
employees of Seller and no such organizing activity is threatened.
There is not, and in the past five years there has not been, any,
(i) unfair labor practice charge or complaint or material labor
grievance or labor arbitration pending or, to the Knowledge of
Seller, threatened in writing against Seller before the National
Labor Relations Board or any Governmental Authority or arbitrator,
(ii) except as set forth in Schedule
4.12(c) charge of
discrimination or complaint against Seller pending or, to the
Knowledge of Seller, threatened, before the Equal Employment
Opportunity Commission, U.S. Department of Labor, or any similar
Governmental Authority or other federal, local or state agency that
enforces Laws related to labor and employment, or (iii) other
Proceeding pending, or, to the Knowledge of Seller, threatened,
against Seller pertaining to the employment of labor, including
those relating to wages, hours, collective bargaining, employment
discrimination, sexual harassment, workers’ compensation, and
the payment or withholding of Taxes.
(d) To
the Knowledge of Seller, Seller is, and during the past three years
has been, in material compliance with all Laws and other applicable
requirements of Governmental Authorities relating to employment,
employment practices, terms and conditions of employment, equal
employment opportunity, nondiscrimination, immigration, wages,
overtime, classification, temporary workers, independent
contractors, leave, hours, benefits, worker’s compensation,
labor relations, plant closings or layoffs, the payment of social
security and similar Taxes and occupational safety and health Laws
(“Labor and Employment Legal Requirements”). To the
Knowledge of Seller, Seller is not liable for any outstanding
payments of any Taxes, fines, penalties or other amounts, however
designated, for failure to comply with any of the foregoing
requirements. To the Knowledge of Seller, no employee, consultant
or independent contractor has been misclassified with respect to
application of any Labor and Employment Legal Requirements. Seller
has not implemented any plant closing or mass layoff of employees
as those terms are defined in the Worker Adjustment Retraining and
Notification Act of 1988 Act or any similar Law. To the Knowledge
of Seller, there is no, and during the prior three years has not
been, any Proceeding or Order pending or, to the Knowledge of
Seller, threatened by or against Seller alleging any violation of
or failure to comply with Labor and Employment Legal Requirements,
and no event has occurred,
and no circumstance exists, that would reasonably be expected to
give rise to or serve as a basis for the commencement of any such
Proceeding or Order against Seller.
4.13.
Employee
Benefits. Seller does not and
has never been required to operate a Benefit
Plan.
4.14.
Litigation.
There is no, and during the prior five years there has not been,
any Proceeding or Order pending or, to the Knowledge of Seller,
threatened by or against Seller or that otherwise directly pertains
to the Business or any of the Purchased Assets. To the Knowledge of
Seller, no event has occurred or circumstance exists that would
reasonably be expected to give rise to or serve as a basis for the
commencement of any Proceeding or Order against
Seller.
4.15.
Compliance with Laws;
Permits.
(a)
Except as set forth on Schedule
4.15(a):
(i) Seller
has not received, at any time in the last five years, any notice or
communication from any Governmental Authority or any other Person
regarding (x) any actual, alleged, possible or potential violation
of, or failure to comply with, any Law or (y) any actual, alleged,
possible or potential obligation on the part of Seller to
undertake, or to bear all or any portion of the cost of, any
remedial action of any nature; and
(ii) Seller
is not now and has not during the last five years been bound by an
Order of any Governmental Authority.
(b) Neither
Seller, nor to the Knowledge of Seller, any director, manager,
officer, employee, agent or other Person acting on behalf of Seller
has, directly or indirectly, (i) used any funds of any Transferor
for unlawful contributions, unlawful gifts, unlawful entertainment
or other unlawful expense relating to political activity; (ii) made
any unlawful payment or gift, promise to pay, or authorization of
any payment or gift of anything of value to foreign or domestic
governmental officials or employees or to foreign or domestic
political parties or campaigns; (iii) violated or is in violation
of the Foreign Corrupt Practices Act of 1977, as amended, or any
other applicable Law that relates to bribery or corruption; (iv)
established or maintained any unlawful fund of monies or other
assets of Seller; (v) made any fraudulent entry on the books or
records of a Transferor; or (vi) made any unlawful bribe, unlawful
kickback or other unlawful payment to any person, private or
public, regardless of form, whether in money, property or services,
to obtain favorable treatment in securing business to obtain
special concessions for a Transferor.
4.16.
Privacy and Data
Security. To the Knowledge of
Seller, Seller is in compliance with all applicable Laws relating
to Personal Data and any terms of Contracts to which it is a party
relating to Personal Data, data privacy, security or breach
notification. To the Knowledge of Seller, Seller has established
and implemented policies, programs and procedures as required by
applicable Laws or otherwise necessary and appropriate, including
administrative, technical and physical safeguards, to protect the
confidentiality, integrity and security of Personal Data in its
possession, custody or control against unauthorized access, use,
modification, disclosure or other misuse. To the Knowledge of
Seller, in the past three years Seller has not experienced any
unauthorized access, disclosure, use or breach of security of any
Personal Data in its possession, custody or control, or otherwise
held or processed on its behalf or received any written claim,
complaint, inquiry, or request for information from any
Governmental Body related to Seller’s collection, processing,
use, storage, security, and/or disclosure of Personal
Data.
4.17.
Environmental
Matters. Except as set forth in
Schedule 4.17, (a) to the Knowledge of Seller, Seller is in
compliance with all applicable Environmental Laws, including the
possession of all Permits required under Environmental Laws and
compliance with such Permits; (b) to the Knowledge of Seller, no
Hazardous Materials related to Seller’s operation of the
Business are present in or under the land, ground water and surface
water at the Real Property; and (c) to the Knowledge of Seller,
Seller has not received any written notice of any actual or alleged
noncompliance with or Liability under any Environmental Law or
Permit. Seller has provided to Buyer complete copies of all
environmental audits, reports and other documents relating to
Environmental Liabilities within Sellers’ actual possession
relating to the Business or the Purchased
Assets.
4.18.
Insurance.
Schedule
4.18 contains a complete and
correct list of all insurance policies maintained by the Seller
(specifying the insurer, policy number, amount of and nature of
coverage, the risk insured against, the deductible amount (if any)
and the date through which coverage will continue by virtue of
premiums already paid). All such insurance policies are in full
force and effect, all premiums owed thereunder have been paid and
Seller is not in default regarding its obligations under any of
such insurance policies. To the Knowledge of Seller, Seller has not
failed to give any notice or present any claim under any insurance
policy in a timely fashion or in the manner required by such
insurance policies. Except for workers’ compensation
insurance claims incurred in the Ordinary Course of
Business, Schedule
4.18(a) contains a list of all
pending claims under such insurance policies, any instances in the
past five years of a denial or limitation of coverage or claim by
Seller under any such policy, and all claims paid by the insurers
of such policies during the last five years. There is no claim by
Seller pending under any such insurance policies as to which
coverage has been questioned, denied or disputed by the relevant
insurer.
4.19.
Brokers.
The Transferors have not entered into any agreement, arrangement or
understanding with any Person which will result in the obligation
to pay any finder’s fee, brokerage commission or similar
payment in connection with the Transaction.
4.20.
W Vapes and Coffman
Representations and Warranties.
W Vapes and Coffman jointly and severally represent and warrant to
Buyer that the representations and warranties set forth in
this Section 4.20
are true and correct as of the
Effective Date.
(a) W
Vapes Organization and Authority to Conduct
Business. W Vapes is duly
organized, validly existing and in good status under the Laws of
the State of Delaware. W Vapes has full limited Liability company
power and authority to conduct its business and to own and lease
its properties and assets (except under Federal Cannabis
Laws).
(b) W
Vapes Power and Authority; Binding Effect. W Vapes has all necessary power and authority
and has taken all action necessary to authorize, execute and
deliver this Agreement, to consummate the Transaction, and to
perform its obligations under this Agreement. This Agreement has
been duly executed and delivered by W Vapes and constitutes a
legal, valid and binding obligation of W Vapes enforceable against
W Vapes in accordance with its terms, except as such enforcement
may be limited by Federal Cannabis Laws.
(c) Ownership
of Seller. W Vapes is the
beneficial owner of Seller.
(d) W
Vapes No Conflict or Violation.
The execution and delivery of this Agreement, the consummation of
the Transaction, and the fulfillment of the terms of this
Agreement, do not and will not result in or constitute (a) a
violation of or conflict with any provision of the organizational
or other governing documents of W Vapes, (b) a violation by W Vapes
of any statute, rule, regulation, ordinance, by-law, code, order,
judgment, writ, injunction, decree or award applicable to W Vapes
which could
result in a penalty or a loss of privilege or (c) an imposition of
any Encumbrance (other than a Permitted Encumbrance) on the assets
of W Vapes.
(e)
W Vapes
Consents and Approvals. Except
as set forth on Schedule
4.2, no consent, approval or
authorization of, or declaration, filing or registration with, any
Person is required to be made or obtained by W Vapes or Coffman in
connection with the execution, delivery and performance of this
Agreement and the consummation of the Transaction other than from
the Regulatory Authorities in connection with the Second
Closing.
4.21.
Securities
Matters. The Transferors
jointly and severally represent and warrant to Buyer that the
representations, warranties and acknowledgments set forth in this
Section 4.21 are true and correct as of the Effective
Date.
(i) No
Prior Holdings; Acquisition for Investment. No Transferor is the registered or beneficial
holder of any securities of Planet 13. The Transferors acknowledge
they will be acquiring the Consideration Shares issuable pursuant
to this Agreement for investment for their own account and not as
nominees or agents, and not with a view to the resale or
distribution of any part thereof, and further represent that they
have no present intention of selling, granting any participation
in, or otherwise distributing the same. The Transferors further
represent that they do not have any Contract, undertaking,
agreement or arrangement with any Person to sell, transfer or grant
participation to such person or to any third person, with respect
to any of the Consideration Shares. The Transferors understand that
any Consideration Share issuable hereunder will not be registered
under the Securities Act, on the ground that the sale and the
issuance of securities hereunder is exempt from registration under
the Securities Act pursuant to Section 4(a)(2) thereof, and that
Planet 13’s reliance on such exemption is predicated on the
Transferors’ representation set forth herein, including the
Transferors’ completion and execution of the Questionnaire.
The Transferors further understand that any Consideration Share
issuable hereunder will constitute a distribution of securities
that is exempt from the prospectus requirement of applicable
Canadian Securities Laws.
(ii) Investment
Experience. Each Transferor
acknowledges that it can bear the economic risk of the investment,
and it has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of
the investment in the Consideration Shares. Each Transferor (x) is
an “accredited investor” within the meaning of Rule 501
promulgated under the Securities Act (as amended by Section 413(a)
of the Dodd-Frank Wall Street Reform and Consumer Protection Act),
and has duly completed and executed the Questionnaire, in the form
attached hereto as Exhibit H
(the” Questionnaire”),
and (y) agrees that it will not take any action that could
negatively impact the availability of the exemption from
registration provided by Section 4(a)(2) of the Securities Act with
respect to the sale and the issuance of securities
hereunder.
(iii) Information.
The Transferors have carefully reviewed such information as they
have deemed necessary with respect to the Consideration Shares. The
Consideration Shares shall be subject to a hold period of four
months and a day commencing not later than five Business Days after
the First Closing Date under Canadian Securities Laws (depending
upon the actual effective date of the issuance of the Certificate),
and shall not be registered under Securities Act, and may not be
offered or sold within the United States absent registration under
United States federal and state securities laws or an applicable
exemption from such United States registration requirements. To the
Transferors’ full satisfaction, each Transferor has been
furnished all materials requested by such Transferor relating to
Planet 13, and the issuance of Consideration Shares hereunder, and
each Transferor has been afforded the opportunity to ask questions
of representatives of Planet 13, to obtain any information
necessary to verify the accuracy of any representations or
information made or given to such Transferor.
(iv) Restricted
Securities. The Transferors
understand that the Consideration Shares issuable pursuant to this
Agreement may not be sold, transferred, or otherwise disposed of
without registration under the Securities Act and applicable state
and federal securities laws or an exemption therefrom, and that in
the absence of an effective registration statement covering the
Consideration Shares or any available exemption from registration
under the Securities Act and applicable state and federal
securities laws, the Consideration Shares must be held
indefinitely. Without limitation of the foregoing, each of the
Purchased Assets (excluding the MRB Inventory) and MRB Assets sold
to the Buyer hereunder by Seller have a fair value of not less than
CDN$150,000 and each Transferor understands that the Consideration
Shares may not be resold under applicable Canadian Securities Laws
before the date that is four (4) months plus one (1) day following
the First Closing Date (subject to release of the Consideration
Shares to the Seller pursuant to the Share Escrow Agreement (the
“Stock
Release”)), is aware that
the certificate which it shall receive evidencing the Consideration
Shares will bear a legend with respect to the resale restrictions
under applicable Canadian Securities Laws in substantially the
following form:
UNLESS
PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY
MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS FOUR MONTHS AND
ONE DAY AFTER THE FIRST CLOSING DATE.
and, understands that after the date that is four (4) months plus
one (1) day following the First Closing Date, subject to the
occurrence of the Stock Release, the Consideration Shares may be
resold under applicable Canadian Securities Laws in each Province
and Territory of Canada, provided: (i) the trade is not a
“control distribution” as defined in National
Instrument 45-102 – Resale of
Securities; (ii) no unusual
effort is made to prepare the market or create a demand for the
Consideration Shares; (iii) no extraordinary commission or
consideration is paid in respect of such trade; and (iv) if the
selling securityholder is an “insider” or
“officer” of Planet 13 (as such terms are defined by
applicable Canadian Securities Laws), the insider or officer has no
reasonable grounds to believe that Planet 13 is in default of
applicable Canadian Securities Laws. Unless registered under the
Securities Act and applicable state securities laws, the
certificate representing the Consideration Shares shall also bear a
legend in the following form:
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED, (THE “SECURITIES ACT”) AND MAY NOT BE OFFERED,
SOLD, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO OR FOR THE BENEFIT OF
ANY NATIONAL, CITIZEN OR RESIDENT OF THE UNITED STATES, ANY
CORPORATION, PARTNERSHIP OR OTHER ENTITY CREATED OR ORGANIZED IN OR
UNDER THE LAWS OF THE UNITED STATES, EXCEPT: (A) TO THE ISSUER, (B)
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF REGULATION
S UNDER THE SECURITIES ACT AND WITH APPLICABLE STATE SECURITIES
LAWS, (C) IN COMPLIANCE WITH (1) RULE 144 OR (2) RULE 144A UNDER
THE SECURITIES ACT AND WITH APPLICABLE STATE SECURITIES LAWS, (D)
IN CONNECTION WITH ANOTHER EXEMPTION UNDER THE SECURITIES ACT, OR
(E) WITH THE PRIOR WRITTEN CONSENT OF THE ISSUER, UPON THE ISSUER
RECEIVING, IN THE CASE OF CLAUSES (C)(1) AND (D) ABOVE, AN OPINION
OF COUNSEL FOR THE HOLDER, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
Notwithstanding
the foregoing, (i) at any time Planet 13 or its successor company
is a “foreign issuer”, as defined in Rule 902(e) of
Regulation S of the Securities Act, if such securities are being
sold in accordance with the requirements of Rule 904 of Regulation
S of the Securities Act, as referred to above, and in compliance
with local Laws and regulations, the legend may be removed by
providing a declaration to the Planet 13’s transfer agent for
such securities, in the form as may be prescribed by Planet 13 or
its successor company from time to time, together with any other
evidence, which may include an opinion of counsel of recognized
standing reasonably satisfactory to Planet 13 or its successor
company to the effect that such legend is no longer required under
applicable requirements of the Securities Act, required by Planet
13 or its successor company or such transfer agent; and (ii) if any
such securities are being sold pursuant to Rule 144 under the
Securities Act, the legend may be removed by delivery to the
registrar and transfer agent for such securities of an opinion of
counsel of recognized standing reasonably satisfactory to Planet 13
or its successor company to the effect that such legend is no
longer required under applicable requirements of the Securities Act
or applicable state securities laws.
The Seller is acquiring the Consideration Shares
as principal for its own account and not with a view toward, or for
sale in connection with, any distribution thereof, or with any
present intention of distributing or selling the Consideration
Shares in any Province or Territory of Canada. The Seller is an
“accredited investor” as defined in National Instrument
45-106 Prospectus Exemptions
of the Canadian Securities
Administrators and is able to bear the economic risk of an
investment in the Consideration Shares.
The Transferors acknowledge that Planet 13 may be required to file
a report with the Canadian securities regulatory authorities
containing personal information about Coffman and the other
beneficial owners of Seller and W Vapes, including their full
names, addresses and telephone numbers, the number and type of
securities purchased, the total purchase price paid for the
securities, the date of the closing and the exemption relied upon
under applicable Canadian Securities Laws.
(v) Rule
144. Transferors understand and
acknowledge that (i) if Planet 13 or any successor company is
deemed to have been at any time previously an issuer with no or
nominal operations and no or nominal assets other than cash and
cash equivalents, other than a Capital Pool Company (as such term
is defined in the TSXV Corporate Finance Manual), Rule 144 under
the Securities Act may not be available for resales of the
Consideration Shares and (ii) Planet 13 is not obligated to make
Rule 144 under the Securities Act available for resales of such
Consideration Shares.
(vi) No
Registration Statement.
Transferors understand and acknowledge that Planet 13 has no
obligation or present intention of filing with the United States
Securities and Exchange Commission or with any state securities
administrator any registration statement in respect of resales of
the Consideration Shares in the United States.
(vii) Foreign
Issuer. Transferors understand
and acknowledge that Planet 13 or any successor company (i) is not
obligated to remain a “foreign issuer” within the
meaning of Rule 902(e) of Regulation S of the Securities Act, (ii)
may not, at the time the Consideration Shares are resold by it or
at any other time, be a foreign issuer, and (iii) may engage in one
or more transactions which could cause Planet 13 or any successor
company not to be a foreign issuer, and if Planet 13 or any
successor company is not a foreign issuer at the time of sale or
transfer of the Consideration Shares pursuant to Rule 904
of Regulation
S of the Securities Act, the certificate representing the
Consideration Shares may continue to bear the legend described
above.
(viii)
Financial
Statements. Each Transferor
understands and acknowledges that the financial statements of
Planet 13 have been prepared in accordance with International
Financial Reporting Standards, which differ in some respects from
United States generally accepted accounting principles, and thus
may not be comparable to financial statements of United States
companies.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Each
of Buyer and Planet 13 represents and warrants to Transferors that
each of the representations and warranties set forth in this
Article 5 are true and correct as of the Effective Date and shall
be true and correct on the First Closing Date and on the Second
Closing Date. Notwithstanding anything to the contrary provided in
this Agreement (in addition to any specific exception to Federal
Cannabis Laws and any similar Law set forth in this Article 5), all
representations, warranties, covenants and disclosures of Buyer and
Planet 13 in this Article 5 are being made with exception to and
not with respect to Federal Cannabis Laws.
5.1.
Organization and Good
Standing. Buyer is a
corporation, duly organized, validly existing
and in good standing under the Laws of the State of Nevada. Buyer
has full corporate power and authority to conduct its business and
to own and lease its properties and assets (except under Federal
Cannabis Laws). Planet 13 Holdings Inc is a corporation duly
organized, validly existing and in good standing under the
Business
Corporations Act (British
Columbia). Planet 13 has full corporate power and authority to
conduct its business and to own and lease its properties and assets
(except under Federal Cannabis Laws).
5.2.
Authority;
Authorization; Binding Effect.
Each of Buyer and Planet 13 have all necessary
power and authority to execute and deliver this Agreement and to
consummate the Transaction and to perform its obligations under
this Agreement (except under Federal Cannabis Laws). This Agreement
has been duly executed and delivered by Buyer and Planet 13 and
constitutes a legal, valid and binding obligation of Buyer and
Planet 13 respectively, enforceable against Buyer and Planet 13 in
accordance with its terms, except as such enforcement may be
limited by Federal Cannabis Laws.
5.3.
Consents and
Approvals. Subject to the
requirements under the Nevada Cannabis Laws,
and applicable Canadian Securities Laws and U.S. securities laws
filings and Canadian Securities Exchange requirements, and except
as set forth on Schedule 5.3
of the Disclosure Schedules, no
consent, approval or authorization of, or declaration, filing or
registration with, any Person is required to be made or obtained by
Buyer or Planet 13 in connection with the execution, delivery and
performance of this Agreement and the consummation of the
Transaction.
5.4.
No
Brokers. The Planet 13 Parties
have not entered into any agreement, arrangement
or
understanding with any Person which will result in the obligation
to pay any finder’s fee, brokerage commission or similar
payment in connection with the Transaction.
ARTICLE 6
PRE-CLOSING COVENANTS
6.1. Reasonable Best
Efforts. During the period from
the Effective Date and continuing until the earlier of the
termination of this Agreement or the Second Closing
Date:
(a) Each
Party will cooperate with the other Party and use its commercially
reasonable efforts to promptly (i) take or cause to be taken all
actions, and do or cause to be done all things, necessary, proper
or advisable under this Agreement and the ancillary documents
referenced in this Agreement and applicable Law to consummate and
make effective the Transaction as soon as practicable, including
preparing and filing promptly and fully all documentation to effect
all necessary filings, notices, petitions, statements,
registrations, submissions of information, applications and other
documents, (ii) obtain all approvals, consents, registrations,
permits, authorizations and other confirmations required to be
obtained from any third party and/or Governmental Authority
necessary, proper or advisable to consummate the Transaction, and
(iii) execute and deliver such documents, certificates and other
papers as a Party may reasonably request to evidence the other
Party’s satisfaction of its obligations hereunder. Subject to
applicable Law relating to the exchange of information and in
addition to Section
6.1(b), the Parties will have
the right to review in advance, and, to the extent practicable,
each will consult the other Party on, any information relating to
Seller or Buyer and their respective Affiliates, as the case may
be, that appears in any filing made with, or written materials
submitted to, any third party and/or any Governmental Authority in
connection with the Transaction.
(b) Without
limiting the forgoing Section
6.1(a), the Parties will: (i)
cooperate with one another promptly to determine whether any
filings are required to be or should be made or consents,
approvals, permits or authorizations are required to be or should
be obtained under any applicable Law, and (ii) in promptly making
any such filings, furnishing information required in connection
therewith and seeking to obtain timely any such consents, permits,
authorizations or approvals.
(c) Without
limiting Section
6.1(a), Seller shall not
voluntarily mortgage, pledge, or subject to any lien any of the
Purchased Assets or MRB Assets. Transferors hereby undertake and
agree that until the earlier of Second Closing Date or the valid
termination of this Agreement, neither Transferor or their
respective affiliates shall, and shall cause their respective
officers, owners, directors, employees, investment bankers,
attorneys, accountants, financial advisors, agents and other
representatives (collectively, “Representatives”)
not to, directly or indirectly:
(i) Initiate,
solicit, encourage or knowingly facilitate or induce the submission
of any inquiries, proposals or offers that constitute, or may
reasonably be expected to lead to, any “Alternative
Transaction” (defined as
a proposal with respect to the purchase of the Purchased Assets,
any equity in the owner of such assets, or a merger, exchange,
recapitalization, reorganization, or other transaction resulting in
a change of control of the subsidiaries which own the Purchased
Assets.
(ii) Engage
or participate in any discussions or negotiations regarding, or
provide or cause to be provided any non-public information or data
relating to the Business or the Purchased Assets or have any
discussions with any person relating to, an actual or proposed
Alternative Transaction; or
(iii) Enter
into any letter of intent, agreement in principle, merger
agreement, acquisition agreement, option agreement or other similar
statement of intention or agreement relating to any Alternative
Transaction.
(d) Each
Party will keep the other Party reasonably apprised of the status
of matters relating to the completion of the Transaction and work
cooperatively in connection with obtaining all required approvals
or consents of any Governmental Authority. In that regard, each
Party will without limitation: (i) promptly notify the other
Parties of, and if in writing, furnish the other Party with copies
of (or, in the case of material oral communications, advise the
other Party orally of) any communications from or with any
Governmental Authority with respect to the Transaction, (ii) permit
the other Party to review and discuss in advance, and consider in
good faith the views of the other Party in connection
with,
any proposed written (or any material proposed oral) communication
with any such Governmental Authority, (iii) not participate in any
meeting with any such Governmental Authority unless it consults
with the other Party in advance and, to the extent permitted by
such Governmental Authority, gives the other the opportunity to
attend and participate, (iv) furnish the other Party with copies of
all correspondence, filings and communications (and memoranda
setting forth the substance thereof) between it and any such
Governmental Authority with respect to this Agreement, any
ancillary documents and the Transaction, and (v) furnish the other
Party with such necessary information and reasonable assistance as
the other Party may reasonably request in connection with its
preparation of necessary filings or submissions of information to
any such Governmental Authority. Notwithstanding the foregoing,
Seller shall not be required to disclose any information it
reasonably believes is subject to any applicable privilege or
obligations of confidentiality.
(e) Seller
shall not amend any Assumed Contracts or enter into any new
Contracts or other agreements with any third party related to the
Purchased Assets or MRB Assets without giving Buyer the opportunity
to review such amendments, Contracts or other agreements and
receiving the consent of Buyer, which consent shall not be
unreasonably, withheld, conditioned or delayed.
6.2.
Intentionally
Omitted.
6.3.
Confidentiality and
Publicity. The Parties to this
Agreement acknowledge, covenant and
agree that each Party and such Party’s Representatives and
Affiliates will keep all information relating to the Parties
confidential, and no Party, its Representatives or Affiliates will
disclose or allow to be disclosed any confidential information with
respect to the other Party, directly or indirectly, to any third
party without the prior written approval of all Parties, except
where the information is already generally available to the public
through no act of a Party or where a Party is required by any
applicable Law to disclose confidential information (and then prior
notice of such disclosure shall be given to the other Parties).
Notwithstanding the foregoing, the Mutual Non-Disclosure Agreement
between the Parties dated June 12, 2020, shall also continue in
effect.
6.4.
Access.
During the period from the Effective Date and continuing until the
earlier of the
termination of this Agreement or the First Closing Date, Seller
will permit Representatives of Buyer (including legal counsel and
accountants) to have, upon prior written notice, reasonable access
during normal business hours and under reasonable circumstances,
and in a manner so as not to interfere with the normal business
operations of Seller, to the premises, personnel, books, records
(including Tax records (but excluding income Tax Returns of any
federal consolidated (and state combined or unitary) group of which
Seller is a member and limited with respect to all other Tax
Returns and correspondence with accountants to the portions of such
Tax Returns and correspondence with accountants that specifically
relate to Seller)), material Contracts, Permits and documents of or
pertaining to the Business, subject to applicable Laws and security
procedures of Seller and the Company. Neither Buyer, Planet 13, nor
any of their Representatives will contact any employee, customer,
supplier or landlord of Seller without the prior approval of Seller
prior to the First Closing Date.
6.5.
Notification of
Certain Matters. During the
period from the Effective Date and continuing
until the earlier of the termination of this Agreement or the
Second Closing Date, except as prohibited by applicable Law, each
Party will give prompt notice to the other Parties of (a) the
occurrence or nonoccurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation
or warranty of such Party contained in this Agreement to be untrue
or inaccurate in any material respect at or prior to the First
Closing or Second Closing such that the conditions set forth
in Section 7.2(a),
Section 7.2(o) or Section 7.3(a) would not be satisfied, and (b) any material
failure of such Party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied
by
such Party hereunder such that the conditions set forth in
Section
7.2(e), 7.2(p) or Section 7.3(b) would not be satisfied.
6.6.
Applications for
Regulatory Approval. Promptly
following the First Closing, Buyer
will
prepare, and Buyer and Seller will submit the applicable
Applications with the Regulatory Authorities in order to obtain the
consent and approval of the Regulatory Authorities for the transfer
or substitution of Buyer as the owner of the MRB Licenses. Seller
will cooperate in good faith with Buyer and take all actions
necessary to support the timely submission of the Applications.
Buyer and Seller agree to execute and deliver any forms required by
the Regulatory Authorities for the transfer or substitution of
Buyer as the owner of the MRB Licenses. Buyer and Seller shall
promptly respond to requests for additional information, documents,
forms or fees from any Regulatory Authorities with jurisdiction to
approve the transfer or substitution of Buyer as owner of the MRB
Licenses. Seller’s obligation to seek the Regulatory
Approvals will be an ongoing post-First Closing covenant until
successful completion thereof and the Second Closing occurs.
Notwithstanding the foregoing, in no event shall Seller be
obligated to incur any costs, including, but not limited to, any
filing fees with respect to the foregoing activities.
6.7.
Disclosure
Schedules. Between the
Effective Date and the First Closing Date,
Transferors
shall use Transferors’ reasonable best efforts to promptly
correct and supplement the information set forth on the Disclosure
Schedules delivered by Transferors pursuant to this Agreement in
order to cause such Disclosure Schedule to remain correct and
complete in all respects. Transferors’ delivery to the Planet
13 Parties of any corrections or supplements shall, without further
notice or action on the part of Transferors or Buyer, immediately
and automatically constitute an amendment to the Disclosure
Schedule to which such corrections and supplements relate;
provided,
however,
that solely for purposes of determining whether the condition
precedent pursuant to Section 7.3.(a)
has been satisfied, or whether Buyer
has the right to terminate this Agreement pursuant to
Section
8.1), any such amendment to the
Disclosure Schedule shall be disregarded.
(a) The
information in the Disclosure Schedules constitutes: (i) exceptions
to particular representations, warranties, covenants and
obligations of Transferors as set forth in this Agreement; or (ii)
descriptions or lists of assets and other items referred to in this
Agreement. If there is any inconsistency between the statements in
this Agreement and those in the Disclosure Schedules (other than an
exception expressly set forth as such in the Disclosure Schedule
with respect to a specifically identified representation or
warranty), the statements in the Disclosure Schedules shall
control.
(b) The
Disclosure Schedules shall be deemed to be a part of this Agreement
and are fully incorporated into this Agreement by reference. Any
capitalized terms used in the Disclosure Schedules but not
otherwise defined therein shall have the meanings ascribed to such
terms in this Agreement. The inclusion of any item referenced in
one section or subsection of the Disclosure Schedules shall be
deemed to refer to (a) the corresponding section or subsection of
this Agreement and (b) any other section or subsection of the
Disclosure Schedules (and accordingly to the applicable sections or
subsections of this Agreement), whether or not an explicit
cross-reference appears, if the applicability of such item to the
other section or subsection is reasonably apparent on the face of
such disclosure
ARTICLE 7
CONDITIONS TO FIRST CLOSING AND SECOND CLOSING
7.1
Conditions to
Obligations of Each Party Under This Agreement. The respective obligations
of each Party to effect the Transaction will be subject to the
satisfaction at or prior to the First Closing Date and/or the
Second Closing Date, as applicable, of the following conditions,
any or all of which may be waived in writing by
a
Party with respect only to itself, in whole or in part, to
the extent permitted by applicable Law:
(i) No
Governmental Authority of competent jurisdiction will have enacted,
issued, promulgated, enforced or entered, other than the Federal
Cannabis Laws, any statute, rule, regulation, or Order (whether
temporary, preliminary or permanent) that is in effect and has the
effect of making the Transaction illegal or otherwise prohibiting
consummation of the Transaction.
(ii) No
Proceeding will have been commenced against any Party which could
reasonably prevent the First Closing or Second Closing to occur
(either by way of injunction or other legal remedy).
(iii) There
will be no other legal impediment to the First Closing or Second
Closing, except for the existence of the Federal Cannabis
Laws.
(iv) There
will be no Nevada-state or local mandated closure of the cannabis
dispensaries located in Las Vegas, Nevada.
(v) The
Excluded Management Agreement will be terminated on terms
acceptable to Seller.
7.2. Additional
Conditions to Obligations of Buyer. The obligations of Buyer to effect the
Transaction are subject to satisfaction of the following additional
conditions, any or all of which may be waived in writing by Buyer,
in whole or in part, to the extent permitted by applicable
Law:
(a) Representations
and Warranties. The
representations and warranties of Seller set forth in this
Agreement will be true and correct in all material respects (giving
effect to the applicable exceptions set forth in the Disclosure
Schedules but without giving effect to any limitation as to
“materiality”) as of the First Closing Date and Second
Closing Date, as if made as of such time (except to the extent that
such representations and warranties expressly speak as of another
date, in which case such representations and warranties will be
true and correct as of such date). Buyer will have received a
certificate signed on behalf of Seller to such
effect.
(b) Title
to Purchased Assets and MRB Assets. As of the First Closing Date Seller shall have
good and valid title to, or a valid leasehold in, all of the
Purchased Assets (except for the Second Closing MRB Assets), free
and clear of all Encumbrances except for Permitted Encumbrances.
With respect to the Second Closing, subject to the Nevada Cannabis
Laws and satisfaction of all other conditions precedent hereunder
to transfer of the Second Closing MRB Assets to Buyer on the Second
Closing Date, Seller shall have on or before the Second Closing
Date, good and valid title to, or a valid leasehold in, all of the
Second Closing MRB Assets, free and clear of all Encumbrances,
other than Permitted Encumbrances and the full and unrestricted
power to sell, assign, transfer and deliver the Second Closing MRB
Assets pursuant to the terms of this Agreement.
(c) Organization
and Authority of Seller to Conduct Business. As of the First Closing Date, Seller shall be
duly organized, validly existing and in good status under the Laws
of the State of Nevada. Seller shall have full limited liability
company power and authority to conduct the Business and to own and
lease its properties and assets (except under Federal Cannabis
Laws).
(d) Good
Standing. Seller shall have
delivered to Buyer a certificate of the secretary or an officer of
Seller, in form and substance reasonably satisfactory to Buyer,
certifying as to (i) the certificate of formation of Seller, as
amended, certified by the Secretary of State of the State of
Nevada, as of a recent date, and stating that no amendment has been
made to such articles since such date; (ii) its
operating
agreement or equivalent; (iii) the resolutions or authority of its
respective members and/or managers authorizing the execution and
performance of the Transaction Documents and the transactions
contemplated thereby; (iv) a certificate of good standing, as of a
recent date, certified by the Secretary of State of the State of
Nevada, and (v) incumbency and signatures of its respective
officers executing the Transaction Documents.
(e) MRB
Licenses. As of the First
Closing Date and the Second Closing Date, the MRB Licenses shall
constitute all Permits used in the operation of and necessary to
conduct the Business and all MRB Licenses shall be valid and in
full force and effect with no Proceeding pending or, to the
Knowledge of Seller, threatened to revoke or limit any of the MRB
Licenses.
(f) Agreements
and Covenants. Transferors
shall have performed and complied with all of their covenants
hereunder in all material respects through the First Closing Date
and the Second Closing Date, respectively, and Buyer will have
received a certificate signed on behalf of Seller to such
effect.
(g) Documents.
As of the First Closing Date, the Management Agreement and all of
the documents, instruments and agreements to be executed and/or
delivered pursuant to this Agreement at the First Closing,
including the First Closing Documents and such other customary
instruments of transfer, assumption, filings, assignments or other
documents, in form and substance reasonably satisfactory to Buyer
and Seller, will have been executed by the Parties thereto other
than Buyer and delivered to Buyer. As of the Second Closing Date,
all of the Second Closing Date Documents, to be executed and/or
delivered pursuant to this Agreement, in form and substance
reasonably satisfactory to Buyer and Seller, will have been
executed by the Parties thereto other than Buyer and delivered to
Buyer.
(h) UCC
Release/Payoffs Required at First Closing. Seller shall have delivered to Buyer releases or
pay-off letters from the applicable lenders with respect to all
outstanding Closing Indebtedness of Seller and evidence
satisfactory to Buyer that all Encumbrances affecting Seller or the
Purchased Assets will be released upon the consummation of the
First Closing (including, where applicable, UCC termination
statements authorized to be filed by Buyer upon the consummation of
the Closing);
(i) Designation
of Point of Contact. As of the
First Closing Date, Buyer shall have the right to designate an
individual to serve as the new point of contact to manage all
communications with the Regulatory Authorities regarding the MRB
Licenses, and Seller shall take all necessary steps to ensure that
the individual designated by Buyer is listed as the point of
contact with the Regulatory Authorities for the MRB
Licenses.
(j) Consents
and Approvals. As of the First
Closing Date and the Second Closing Date, as applicable, Seller
will have received all of the consents and approvals set out
in Schedule 4.2
of the Disclosure Schedules, on terms
satisfactory to Buyer and Seller in their reasonable
discretion.
(k) Material
Adverse Change. As of the First
Closing Date, there shall have occurred no Material Adverse Effect
between the Effective Date and the First Closing
Date.
(l) Lease
and Option Agreement. As of the
First Closing Date, Rx Land shall have acquired the Leased
Premises, and Seller and Rx Land shall have entered into the Lease
and the Option Agreement.
(m) Regulatory
Confirmation. With respect to
the First Closing only, Buyer shall have received assurances
reasonably satisfactory to Buyer that the MRB Licenses are, subject
to approval from the Regulatory Authorities, transferable to Buyer
under the Nevada Cannabis Laws.
(n) Regulatory
Approvals. With respect to the
Second Closing only, Buyer and Seller shall have received the
Regulatory Approvals. Any waiver of the closing condition set forth
in this Section 7.2(n)
as to any individual MRB Licenses will
not result in a reduction in the Purchase
Price.
(o) Destruction
of Excluded MRB Inventory. On
or prior to the First Closing, Indus shall have destroyed or sold
as the case may be, the Excluded Inventory in compliance with
Nevada Cannabis Laws.
7.3. Additional Conditions
to Obligations of Transferors.
The obligations of Transferors to effect the Transaction are
subject to satisfaction of the following additional conditions, any
or all of which may be waived in writing by Transferors, in whole
or in part, to the extent permitted by applicable
Law:
(a) Representations
and Warranties. The
representations and warranties of the Planet 13 Parties set forth
in this Agreement will be true and correct in all material respects
(without giving effect to any limitation as to
“materiality”) as of the First Closing Date and the
Second Closing Date, as if made as of such time (except to the
extent that such representations and warranties expressly speak as
of another date, in which case such representations and warranties
will be true and correct as of such date). Transferors will have
received a certificate signed on behalf of the Planet 13 Parties to
such effect.
(b) Agreements
and Covenants. The Planet 13
Parties will have performed and complied with all of their
covenants hereunder in all material respects through the First
Closing Date and the Second Closing Date. Transferors will have
received a certificate signed on behalf of Planet 13 Parties to
such effect.
(c) Documents.
As of the First Closing Date, the Management Agreement and all of
the documents, instruments and agreements to be executed and/or
delivered at the First Closing pursuant to this Agreement,
including the First Closing Documents and such other customary
instruments of transfer, assumption, filings, assignments or other
documents, in form and substance reasonably satisfactory to Seller,
will have been executed by the parties thereto other than Seller
and delivered to Seller. As of the Second Closing Date, all of the
Second Closing Date Documents, instruments and agreements to be
executed and/or delivered pursuant to this Agreement, including
customary instruments of transfer, assumption, filings, assignments
or other documents, in form and substance reasonably satisfactory
to Seller, will have been executed by the parties thereto other
than Seller and delivered to Seller.
(d) Consents
and Approvals. As of the First
Closing Date and the Second Closing Date, as applicable, Seller
will have received all of the consents and approvals set out
in Schedule 4.2
of the Disclosure Schedules, on terms
satisfactory to Buyer and Seller in their reasonable
discretion.
(e) Regulatory
Approvals. With respect to the
Second Closing only, Buyer and Seller shall have received the
Regulatory Approvals. Any waiver of the closing condition set forth
in this Section 7.3(e)
as to any individual MRB Licenses will
not result in a reduction in the Purchase
Price.
(f) Termination
of Indus Transaction.
Transferors shall have terminated (i) their obligation to sell the
Purchased Assets and the MRB Assets to Indus and its Affiliates
(the “Prior
APA”), (ii) the current
lease between Seller and Indus, and (iii) the Excluded Management
Agreement, on terms acceptable to Transferors.
ARTICLE 8
TERMINATION
8.1. Termination Prior to
First Closing Date.
(a) This
Agreement may be terminated and the Transaction may be abandoned at
any time prior to the First Closing Date:
(i)
By
mutual written consent of Buyer and Seller;
(ii)
By
either Buyer or Seller if:
(A) the
First Closing Date has not occurred on or before August 31, 2020 or
another date mutually agreed to in writing by Buyer and
Seller; provided,
that the right to terminate this Agreement under this
Section
8.1(a)(ii)(A) will not be
available to any Party whose failure to fulfill any material
obligation under this Agreement has been the cause of the failure
of the First Closing Date to have occurred on or before such
date;
(B) a
Governmental Authority shall have issued an Order or taken any
other action (excluding any Order or action arising under, relating
to or in connection with the Federal Cannabis Laws), in each case
that has become final and non-appealable and that restrains,
enjoins or otherwise prohibits the Transaction or any part of it;
provided that this Agreement shall not be terminated unless the
Party terminating this Agreement has utilized commercially
reasonable efforts to oppose the issuance of such Order, decree or
ruling or the taking of such action;
(iii) By
Buyer, if (i) any of the representations and warranties of Seller
or W Vapes in this Agreement become untrue or inaccurate in any
material respect such that Section 7.2(a)
would not be satisfied or (ii) there
has been a material breach on the part of Seller or W Vapes of any
of their respective covenants or agreements contained in this
Agreement such that Section 7.2(e)
would not be satisfied;
or
(iv) By
Seller if (i) any of the representations and warranties of Buyer or
Planet 13 in this Agreement become untrue or inaccurate in any
material respect such that Section
7.3(a) would
not be satisfied or (ii) there has been a material breach on the
part of Buyer or Planet 13 of any of its covenants or agreements
contained in this Agreement such that Section 7.3(b)
would not be
satisfied.
(b) Notice
of Termination. If Buyer
intends to terminate this Agreement under Sections 8.1(a)(ii)(A),
8.1(a)(ii)(B), or 8.1(a)(iii , or if Seller intends to terminate
this Agreement under Sections
8.1(a)(ii)(A), 8.1(a)(ii)(B) or 8.1(a)(iv), such Person will provide the other Party with
written notice of their intent, indicating in reasonable detail the
deficiencies relied upon to terminate this
Agreement.
(c) Effect
of Termination. In the event of
the termination of this Agreement pursuant to any provision
of Section 8.1(a),
this Agreement (other than this
Section
8.1(c), Section 6.3 and Article
10, which will survive such termination) will forthwith become
void, and there will be no Liability on the part of any Party or
any of their respective officers or managers to the other and all
rights and obligations of any Party will cease; provided, however,
that nothing in this Section 8.1(c)
will relieve any Party from Liability
for fraud in the giving of any representations or warranties or for
any willful and material breach, prior to termination of this
Agreement.
8.2.
Termination After
First Closing Date and Prior to Second Closing
Date.
(a) If
the Regulatory Authorities deny the issuance of the Regulatory
Approvals prior the first anniversary of the First Closing Date,
then, the Seller, in its sole discretion, may
elect to terminate this Agreement and unwind the Transaction
(except for the purchase of the MRB Inventory on the First Closing
Date), and exercise its option to under the Option Agreement to
reacquire the Real Property and Tangible Personal Property in which
case the parties shall take the action described
below:
(A) The
Consideration Shares issued on the First Closing Date shall be
returned to Planet 13, the Share Escrow Agreement cancelled and
such Consideration Shares cancelled by Planet 13;
(B) all
ancillary documents executed in connection with this Agreement,
(including the First Closing Documents) shall be
terminated;
(C) Seller
and Rx Land lease shall be cancelled;
(D) all
of Tangible Personal Property transferred to Buyer pursuant to this
Agreement shall be returned to the full ownership and control of
Seller, free and clear of any Encumbrances other than Encumbrances
existing as of the First Closing Date or approved in writing by
Seller and the Buyer; provided, however, that to the extent Buyer
no longer owns certain Tangible Personal, reasonable replacement
assets may be transferred to Seller in substitution, as determined
in good faith by mutual agreement of the Parties;
(E) If
permitted by the Regulatory Authorities, the Parties will work
together in good faith to take such actions as are commercially
reasonable to return the Parties to the situation and condition
existing immediately prior to the First Closing; and
(F) Buyer
will terminate the Management Agreement, and will be responsible
for the cancellation, payment, or satisfaction of any liabilities
and obligations incurred by Buyer under the Management Agreement
which are not automatically cancelled or terminated upon the
termination of the Management Agreement, unless Seller, in its sole
discretion, elects in writing to assume such liabilities and/or
obligations;
(G) the
Parties will work together in good faith to execute and deliver and
take such additional actions as are reasonably necessary to return
the Parties to the situation and condition existing immediately
prior to the First Closing,
(b) If
the Regulatory Authorities have not issued all Regulatory Approvals
within six (6) years of the First Closing Date for any reason (and
if Section 8.2(a)
has not previously applied) then, this
Agreement shall terminate and:
(A) The
Consideration Shares shall be returned to Planet 13, the Share
Escrow Agreement terminated, and such Consideration Shares
cancelled by Planet 13;
(B) all
ancillary documents executed in connection with this Agreement,
(including the First Closing Documents) shall be
terminated;
(C) Seller
shall assume the Lease from Rx Land;
(D) all
of the Tangible Personal Property transferred to Buyer pursuant to
this Agreement (subject to changes reflecting the operation of the
Business in the ordinary course) shall be returned to the full
ownership and control of Seller, free and clear of any Encumbrances
other than Encumbrances existing as of the First Closing Date or
approved in writing by Seller and the Buyer; provided, however,
that to the extent Buyer no longer owns certain Tangible Personal
Property, reasonable replacement assets may be transferred to
Seller in substitution, as determined in good faith by mutual
agreement of the Parties;
(E) If
permitted by the Regulatory Authorities, the Parties will work
together in good faith to take such actions as are commercially
reasonable to return the Parties to the situation and condition
existing immediately prior to the First Closing; and
(F) Buyer
will terminate the Management Agreement, and will be responsible
for the cancellation, payment, or satisfaction of any liabilities
and obligations incurred by Buyer under the Management Agreement
which are not automatically cancelled or terminated upon the
termination of the Management Agreement, unless Seller, in its sole
discretion, elects in writing to assume such liabilities and/or
obligations;
(G) the
Parties will work together in good faith to execute and deliver and
take such additional actions as are reasonably necessary to return
the Parties to the situation and condition existing immediately
prior to the First Closing,
(c) In
the event of the termination of this Agreement pursuant to
Section
8.2(a)(ii), this
Agreement (other than Section
8.2(a)(ii), this
Section
8.2(c), Section 6.3 and Article
10, which will survive such termination) will forthwith become
void, and there will be no Liability on the part of any Party or
any of their respective officers or managers to the other and all
rights and obligations of any Party will cease; provided, however,
that nothing in this Section 8.2(c)
will relieve any Party from Liability
for fraud in the giving of any representations or warranties or for
any willful and material breach, prior to termination of this
Agreement in accordance with its terms, of any covenant or
agreement contained in this Agreement.
ARTICLE 9
COVENANTS AND CONDUCT OF THE PARTIES AFTER THE FIRST CLOSING
AND
SECOND CLOSING
9.1.
Survival and Indemnification.
(a) Survival
of Representations, Warranties, Covenants and
Agreements. All representations
and warranties of Seller and Buyer contained in this Agreement will
survive the Second Closing Date for a period of two (2) years. Any
claim made by Buyer or Seller based on fraud in the giving of any
representations and warranties will survive indefinitely. All
covenants and agreements made by Seller and Buyer contained in this
Agreement (including the obligation of Buyer and Seller to submit
the Applications (pursuant to Section
6.6) and to convey the
MRB
Assets (pursuant to
Section
2.2) to Buyer), will survive
the First Closing Date and Second Closing Date until fully
performed or discharged. Any written claim for breach of
representation and warranty delivered prior to the above-referenced
applicable expiration date to the Party against whom such
indemnification is sought will survive thereafter and, as to any
such claim, such expiration, if any, will not affect the rights to
indemnification under this Article 9 of the Party making such
claim.
(b)
Indemnification by
Seller.
(i) Seller
agrees to defend, indemnify and hold harmless the Planet 13 Parties
and their Affiliates, and the managers, directors, officers and
employees of the Planet 13 Parties and their respective Affiliates
(each a “Buyer
Party” and collectively,
the “Buyer
Parties”), from, against,
and in respect of:
(A) any
and all Losses suffered or incurred by a Buyer Party by reason of
any breached or untrue representation or warranty of Seller
contained in Article 4 of this Agreement;
(B) any
and all Losses suffered or incurred by a Buyer Party by reason of
the breach of or non-compliance with any covenant or agreement by
Seller contained in this Agreement or any ancillary agreements
executed in connection with this Agreement;
(C) any
and all Losses suffered or incurred by a Buyer Party attributable
to (1) any and all Taxes of Seller, (2) without duplication, and
subject to Section 2.5 (Transfer
Taxes), any and all Taxes (or
the non-payment thereof) imposed on Buyer with respect to the
Purchased Assets and MRB Licenses attributable to any Pre-Closing
Tax Period or any MRB Pre-Closing Tax Period, and (3) any and all
withholding, payroll, social security, unemployment or similar
Taxes attributable to any payments made by Seller that are
contingent upon or payable as a result of the transactions
contemplated by this Agreement;
(D) any
and all Losses suffered or incurred by a Buyer Party by reason of
any Excluded Liabilities or Excluded Assets or Taxes which are the
responsibility of Seller pursuant to Section 9.2;
(E) any
and all Losses suffered or incurred by a Buyer Party by reason of
any Third-Party Claim based upon, resulting from or arising out of
the business, operations, properties, assets or obligations of
Seller (other than the Purchased Assets or Assumed Liabilities)
conducted, existing or arising on or prior to the Second Closing
Date, except to the extent indemnified by Buyer as set forth
in Section
9.1(c)(iv) below;
and
(F) any
and all Losses suffered or incurred by a Buyer Party by reason of
fraud by Seller.
(ii) W
Vapes and Coffman jointly and severally agree to defend, indemnify
and hold harmless the Buyer Parties from, against, and in respect
of:
(A) any
and all Losses suffered or incurred by a Buyer Party by reason of
any breached or untrue representation or warranty of W Vapes and
Coffman contained in Article 4 of this Agreement;
(B) any
and all Losses suffered or incurred by a Buyer Party by reason of
the breach of or non-compliance with any covenant or agreement by W
Vapes and Coffman contained in this Agreement or any ancillary
agreements executed in connection with this Agreement;
and
(C) by
a Transferor Taxes which are the responsibility of Seller pursuant
to Section
9.2;
(D)
any and all Losses suffered or incurred by a Buyer Party
by
reason of fraud by Transferors.
(c) Indemnification by
Planet 13 Parties. The Planet
13 Parties jointly and severally
agree to indemnify and hold harmless the Transferors and their
Affiliates, and the managers, officers and employees of Seller and
their respective Affiliates (each a “Seller
Party”), and
collectively, the “Seller Parties”)
from, against, and in respect of:
(i) any
and all Losses suffered or incurred by a Seller Party by reason of
any breach of a representation or warranty by a Planet 13 Party
contained in Article 5 of this Agreement;
(ii) any
and all Losses suffered or incurred by a Seller Party by reason of
the breach of or non-compliance with any covenant or agreement by a
Planet 13 Party contained in this Agreement or any ancillary
agreements executed in connection with this Agreement;
(iii) any
and all Losses suffered or incurred by a Seller Party by reason of
any Assumed Liabilities, or Taxes which are the responsibility of
the Planet 13 Parties pursuant to Section
9.2.
(iv) any
and all Losses suffered or incurred by a Seller Party by reason of
any Third-Party Claim based upon, resulting from or arising out of
the business, operations, properties, assets or obligations of the
Business (including the Purchased Assets, and Assumed Liabilities)
conducted, existing or arising after the First Closing Date (to the
extent that such Third-Party Claim does not relate to the MRB
Assets or the actions of Seller after the First Closing Date and
prior to the Second Closing Date); and
(v) any
and all Losses suffered or incurred by a Seller Party by reason of
fraud by a Planet 13 Party.
(d) Notification of Claims. In the
event that any party hereto entitled to indemnification
pursuant to this Agreement (the “Indemnified
Party”) proposes to make
any claim for such indemnification, the Indemnified Party will
deliver to the indemnifying party (the “Indemnifying
Party”), which delivery
with respect to the Losses arising from breaches of representations
and warranties will be on or prior to the date upon which the
applicable representations and warranties expire pursuant to
Section 9.1(a) hereof, a signed certificate, which certificate will
(i) state that Losses have been incurred or that a claim has been
made for which Losses may be incurred, (ii) specify the sections of
this Agreement under which such claim is made, and (iii) specify in
reasonable detail each individual item of Loss or other claim
including the amount thereof and the date such Loss was incurred.
In addition, each Indemnified Party will give notice to the
Indemnifying Party promptly following its receipt of service of any
suit or proceeding initiated by a third party which pertains to a
matter for which indemnification may be sought (a
“Third Party
Claim”);
provided,
however,
that the failure to give such notice will not relieve the
Indemnifying Party of its obligations hereunder if the Indemnifying
Party has not been prejudiced thereby.
(e) Defense of Third Party
Claims. Any Indemnified Party
will in good faith cooperate
and assist the Indemnifying Party in defending against any claims
or asserted claims with respect to which the Indemnified Party
seeks indemnification under this Agreement. If requested by the
Indemnifying Party, the Indemnified Party will join in any action,
litigation, arbitration or proceeding, provided
that the Indemnified Party will pay
its own costs caused by such joinder. The Indemnified Party will
not settle or compromise any claim or asserted claim, nor agree to
extend any statute of limitations applicable to any claim or
asserted claim, for which the Indemnified Party seeks
indemnification under this
Agreement,
without the prior written consent of the Indemnifying Party, which
consent will not be unreasonably withheld.
(f)
Other Indemnification
Matters.
(i) All
indemnification payments made pursuant to this Section 9.1
by the Transferors will be treated as
an adjustment to the Purchase Price unless otherwise required by
applicable Law.
(ii) Except
(A) with respect to claims based upon fraud, (B) for remedies that
cannot be waived as a matter of Law and (C) injunctive and
provisional relief in accordance with the terms of this Agreement,
if the First Closing occurs, this Section 9.1
will be the sole and exclusive remedy
for breach of, inaccuracy in, or failure to comply with, any
representation, warranty, or covenant contained in this Agreement,
or otherwise in respect of the transactions contemplated by this
Agreement.
(iii) With
respect to any indemnification payment obligations of Seller, W
Vapes or Coffman under this Section 9.1
that is determined to be a Final
Indemnification Claim, a Buyer Party shall be entitled to recover
such amounts from Seller, W Vapes or Coffman, as applicable, under
this Agreement. provided, that, such recovery shall come from the
following sources in the following order of priority: first, from
the Consideration Shares, and second, from Seller, W Vapes or
Coffman, as applicable. Any Consideration Shares that is used in
satisfaction of such indemnification obligation shall be valued at
the greater of: (i) the volume weighted average trading price of
the Consideration Shares on the Canadian Securities Exchange during
the 10-trading day period preceding such payment date, and (ii) the
value of such Restricted Shares established at the First Closing. A
“Final Indemnification
Claim” shall mean any
claim by any Transferor against Seller or W Vapes pursuant
to Section 9.1(b)
with respect to any Losses suffered or
incurred by any Transferor that is (i) subject to a written
agreement between Seller and any Transferor, (ii) a final
settlement between Seller and any Transferor; or (iii) a final
adjudication determined by a court of competent jurisdiction that
an indemnification obligation is owing by Seller to a Buyer
Party.
(iv) No
Buyer Party shall be entitled to indemnification with respect to
the breach or inaccuracy of any representation or warranty unless,
until and only to the extent that any Buyer Party (individually or
collectively with all other Buyer Parties) has suffered or incurred
actual Losses in respect aggregating in excess of $75,000 (the
“Basket”),
in which case Buyer Parties shall be entitled to recover all Losses
to the extent they exceed the Basket, subject to the other
limitations set forth herein.
(v) In
no event shall Seller Parties be obligated to indemnify Buyer
Parties with respect to the breach or inaccuracy of any
representation or warranty for amounts in excess of $4,100,000 (the
“Purchase Price
Cap”).
(a) The
amount of any Taxes based on or measured by income, receipts,
profits, including, without limitation sales, use, value added,
excise, employment, payroll or withholding taxes arising prior to
or First Closing Date applicable, shall be the obligation of
Seller.
(b) Buyer
and Seller will cooperate fully, as and to the extent reasonably
requested by the other Parties, in connection with the filing of
Tax Returns and any audit, litigation, or other proceeding with
respect to Taxes. Such cooperation will include the retention and
(upon the other Party’s request) the provision of records and
information that are available and reasonably relevant to any such
audit, litigation, or other proceeding and making employees
available on a mutually convenient basis to provide additional
information and explanation of any material provided
hereunder.
9.3.
Agreement Not To
Compete.
(a) For
a period ending on the earlier of: (i) the termination of this
Agreement, or (ii) five (5) years from and after the First Closing
Date (the “Restricted
Period”), each Transferor
and A. Todd Justice (the “Obligated
Parties”) shall not, and
shall cause its Affiliates not to, directly or indirectly, own,
operate, lease, manage, control, engage in, invest in, lend to, own
any debt or equity security of, permit its or his name to be used
by, act as consultant or advisor to, render services for (alone or
in association with any person, firm, corporate or other business
organization) or otherwise assist in any manner or be involved in
any other capacity with any business that engages in business
activities competitive with the Business (a
“Competing
Business”) (including any
Person engaged in whole or in part in any Competing Business) from
a physical location anywhere in Nevada; provided, however, that
nothing herein shall prohibit any Obligated Party from (i) taking
any of the foregoing actions or acting in any of the foregoing
capacities with respect to a business that is a Competitive
Business solely by reason of producing, manufacturing, marketing
and selling hemp CBD products or (ii) being a passive beneficial
owner (including “group” that is a beneficial owner) of
less than two percent (2%) of any class of securities of any entity
that is registered pursuant to the Securities Act and traded on a
national securities exchange.
(b) During
the Restricted Period, no Obligated Party shall, and each shall
cause its Affiliates not to, directly or indirectly: (i) induce or
attempt to induce any of employee or consultant to leave the employ
of, or engagement with, Buyer, or materially interfere with the
relationship between Buyer and any employee or consultant, (ii)
hire or engage any employee or consultant of the Planet 13 Parties
or any of their Affiliates (or any person who was an employee or
consultant of any Planet 13 Party or any of its Affiliates within
the preceding 12 months, unless such employment or consulting
relationship was terminated by Buyer) or (iii) induce or attempt to
induce any person or entity who is or was within the prior two
years a customer, supplier, licensee, licensor, franchisee or other
business relation of any Transferor to cease doing business with
any of the Planet 13 Parties or materially interfere with the
relationship between any Planet 13 Party and any such
Person.
(c) During
the Restricted Period, each Obligated Party shall not, and shall
cause its Affiliates not to, make or publish any statement or
communication which is disparaging, negative or unflattering with
respect to any of the Planet 13 Parties or any of their respective
Affiliates, members, officers, managers, directors or employees.
For purposes of this Section
9.3(c), a statement shall be
deemed to be made by an Obligated Party only if made by an
individual Obligated Party or by a member, officer, manager,
director or senior managerial employee of a non-individual
Obligated Party.
(d) Obligated
Parties acknowledge and agree that the covenants and agreements set
forth in this Section 9.3
were a material inducement to the
Planet 13 Parties to enter into this Agreement and to perform its
obligations hereunder and that the Planet 13 Parties would not have
entered into this Agreement but for each Obligated Party’s
agreement to the restrictions set forth in this Section
9.3. Obligated
Parties further acknowledge and agree that the Planet 13 Parties
would be irreparably damaged if any Obligated Party were to engage
directly or indirectly in any Competing Business, that any such
competition by any Obligated Party would result in a significant
loss of goodwill by the Planet 13 Parties and that money damages
would not be an adequate remedy for any such breach. Therefore, in
the event a breach or threatened breach of this Section
9.3, the Planet 13 Parties and
each of their Affiliates or their respective successors and
assigns, in addition to other rights and remedies existing in their
favor, shall be entitled to specific performance, injunctive and
other equitable relief from a court of competent jurisdiction in
order to enforce, or prevent any violations of, the provisions
hereof (without posting a bond or other surety and at the expense
of such Obligated Party, including reasonable attorneys’ fees
and expenses). The restrictive covenants set forth in this
Section
9.3 shall be construed as
agreements independent of any other provision in this Agreement,
and the existence of any claim or cause of action of any Obligated
Party against The Planet 13 Parties, whether predicated upon this
Agreement or otherwise,
shall not constitute a defense to the enforcement by The Planet 13
Parties of any restrictive covenant contained in this
Section
9.3. In the event of a breach
or violation by any Obligated Party of this Section 9.3, the
Restricted Period shall be tolled with respect to such Obligated
Party until such breach or violation has been duly
cured.
(e) Each
Obligated Party agrees that the restrictions contained in this
Section 9.3 are reasonable. If the final judgment of a court of
competent jurisdiction nevertheless declares any term or provision
of this Section 9.3
to be invalid or unenforceable, the
Parties agree that the court making the determination of invalidity
or unenforceability shall have the power to reduce the scope,
duration or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable
and that comes closest to expressing the intention of the invalid
or unenforceable term or provision, and this Agreement shall be
enforceable as so modified to cover the maximum duration, scope or
area permitted by Law.
ARTICLE 10
MISCELLANEOUS
10.1. Further
Assurances. Following the First
Closing and Second Closing, each Party will cooperate in good faith
with each other Party and will take all appropriate action and
execute any agreement, instrument or other writing of any kind
which may be reasonably necessary or advisable to carry out and
consummate the Transaction.
10.2.
Notices. Unless otherwise provided in this Agreement, any
agreement, notice, request, instruction or other communication to
be given hereunder by any Party to the other will be in writing and
(a) delivered personally (such delivered notice to be effective on
the date it is delivered), (b) deposited with a reputable overnight
courier service for next Business Day delivery (such couriered
notice to be effective one (1) Business Day after the date it is
sent by courier; provided it is actually sent to be delivered on
one (1) Business Day after the date it is sent; otherwise, when
actually delivered), (c) sent by e-mail (with electronic
confirmation of delivery or receipt), as follows:
To
any Planet 13 Party: Planet 13 Holdings, Inc.
BLC
Management Company, LLC
2548
West Desert Inn Road
Las
Vegas, Nevada 89109
Attn:
Leighton Koehler
Fax:
702
[REDACTED]
with
a mandatory copy to (which shall not constitute
Notice):
Holley
Driggs Ltd.
400
S. Fourth Street, Third Floor
Attn: Michael Kearney, Esq.
[REDACTED]
If
to Seller or W Vapes, to:
W
the Brand, LLC
West
Coast Development Nevada, LLC
[REDACTED]
c/o
A. Todd Justice
[REDACTED]
If to Coffman: R. Scott
Coffman
[REDACTED]
With a copy (which shall not constitute notice) to:
Gavigan
Law, PLLC
10700
Sikes Place, Suite 375
Charlotte,
NC 28277
Fax:
N/A
Attn:
Timothy Gavigan, Esq.
Any
Party may designate in a writing to any other Party any other
address or facsimile number to which, and any other Person to whom
or which, a copy of any such notice, request, instruction or other
communication should be sent.
10.3. Governing Law: Dispute
Resolution.
(a) Governing
Law. All issues and questions
concerning the application, construction, validity, interpretation,
and enforcement of this Agreement shall be governed by and
construed in accordance with the internal Laws of the State of
Nevada, without giving effect to any choice or conflict of law
provision or rule (whether of the State of Nevada or any other
jurisdiction) that would cause the application of Laws of any
jurisdiction other than those of the State of
Nevada.
(b) Jurisdiction:
Venue. The Parties hereby agree
that any suit, action, or proceeding seeking to enforce any
provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated
hereby, whether in contract, tort, or otherwise, shall be brought
exclusively in the state courts of the State of Nevada located in
Clark County thereafter. Each of the Parties hereby irrevocably
consents to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action, or proceeding
and irrevocably waives, to the fullest extent permitted by Law, any
objection that it may now or hereafter have to the laying of the
venue of any such suit, action, or proceeding in any such court or
that any such suit, action, or proceeding which is brought in any
such court has been brought in an inconvenient
forum.
(c) Waiver
of July Trial. EACH OF THE
PARTIES WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OR RELATED TO
THIS AGREEMENT IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY
TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY
AFFILIATE OF ANY OTHER SUCH PARTY, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS OR OTHERWISE. THE PARTIES AGREE THAT ANY SUCH
CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL
WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY
OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE
VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION
HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT.
(d)Cannabis
Laws. This Agreement is subject
to strict requirements for ongoing
regulatory compliance by the Parties, including, without
limitation, requirements that the Parties take no action in
violation of either the marijuana establishment Laws of any
jurisdiction or jurisdictions to which Seller or any of its
subsidiaries are, or may at any time become, subject, including,
without limitation, the Nevada Cannabis Laws. The Parties
acknowledge and understand that the Nevada Cannabis Laws and/or the
requirements of the Regulatory Authorities are subject to change
and are evolving as the marketplace for state-compliant cannabis
businesses continues to evolve. If necessary to comply with the
requirements of the Nevada Cannabis Laws and/or the Regulatory
Authorities, the Parties hereby agree to (and to cause their
respective Affiliates and Representatives to) use their respective
commercially reasonable efforts to take all actions reasonably
requested to ensure compliance with the Nevada Cannabis Laws and/or
the Regulatory Authorities, including, without limitation,
negotiating in good faith to amend, restate, amend and restate,
supplement, or otherwise modify this Agreement to reflect terms
that most closely approximate the Parties’ original
intentions but are responsive to and compliant with the
requirements of the Nevada Cannabis Laws and/or the Regulatory
Authorities. In furtherance of the foregoing, the Parties further
agree to cooperate with the Regulatory Authorities to promptly
respond to any informational requests, supplemental disclosure
requirements, or other correspondence from the Regulatory
Authorities and, to the extent permitted by the Regulatory
Authorities, keep all other parties hereto fully and promptly
informed as to any such requests, requirements, or
correspondence.
10.4. Expenses.
Except as expressly provided otherwise in this Agreement, (a)
Seller will pay all legal, accounting and other expenses of Seller
related to this Agreement and (b) Buyer will pay all legal,
accounting and other expenses of Buyer related to this Agreement;
provided, however, that any costs incurred to consummate the
Transaction pursuant to the Nevada Cannabis Laws, including any
costs required to be reimbursed to the Regulatory Authority (but
excluding fees or penalties assessed against the Transferors
arising out of or related to the sole act or omission by a
Transferor) shall be paid by the Buyer.
10.5. Titles.
The headings of the articles and sections of this Agreement are
inserted for convenience of reference only and will not affect the
meaning or interpretation of this Agreement.
10.6. Waiver.
No failure of any Party to require, and no delay by any Party in
requiring, any other Party to comply with any provision of this
Agreement will constitute a waiver of the right to require such
compliance. No failure of any Party to exercise, and no delay by
any Party in exercising, any right or remedy under this Agreement
will constitute a waiver of such right or remedy. No waiver by any
Party of any right or remedy under this Agreement will be effective
unless made in writing. Any waiver by any Party of any right or
remedy under this Agreement will be limited to the specific
instance and will not constitute a waiver of such right or remedy
in the future.
10.7. Effective;
Binding. This Agreement will be
effective upon the due execution hereof by all of the Parties. Upon
becoming effective, this Agreement will be binding upon each Party
and upon each successor and assignee of each Party and will inure
to the benefit of, and be enforceable by, each Party and each
successor, designee and assignee of each Party; provided,
however,
that, except as provided for in the immediately following sentence,
no Party may assign any right or obligation arising pursuant to
this Agreement without first obtaining the written consent of the
other Party. Buyer may assign all or a portion
of its rights and obligations under this Agreement to one or more
designees of Buyer upon prior written notice to Seller,
provided
that: (i) the assignment to any
designee of Buyer will not materially negatively affect the ability
to perform the obligations of Buyer under this Agreement, (ii) the
designee of Buyer purchasing the Purchased Assets and paying the
Purchase Price shall have the requisite resources and funds to
perform Buyer’s obligations hereunder and any designee of
Buyer purchasing the Assets shall have the necessary qualifications
to obtain all necessary consents and approvals under Nevada
Cannabis Laws; and (iii) the designee shall assume the obligations
under the respective ancillary agreements hereto to the extent the
designee succeeds to the interests and obligations of Buyer that
are the subject of such ancillary agreements. Buyer will remain
liable hereunder notwithstanding any such assignment to one or more
designees.
10.8. Entire
Agreement. This Agreement
contains the entire agreement between the Parties with respect to
the subject matter of this Agreement and supersedes each course of
conduct previously pursued, accepted or acquiesced in, and each
written or oral agreement and representation previously made, by
the Parties with respect to the subject matter of this
Agreement.
10.9. Modification.
No course of performance or other conduct hereafter pursued,
accepted or acquiesced in, and no oral agreement or representation
made in the future, by any Party, whether or not relied or acted
upon, and no usage of trade, whether or not relied or acted upon,
will modify or terminate this Agreement, impair or otherwise affect
any obligation of any Party pursuant to this Agreement or otherwise
operate as a waiver of any such right or remedy. No modification of
this Agreement or waiver of any such right or remedy will be
effective unless made in writing duly executed by the
Parties.
10.10. Counterparts;
Electronic Copies. This
Agreement may be executed in one or more counterparts, each of
which will be deemed an original and all of which taken together
will constitute one and the same instrument. Documents executed,
scanned and transmitted electronically and electronic signatures
shall be deemed original signatures for purposes of this Agreement
and all matters related thereto, with such scanned and electronic
signatures having the same legal effect as original signatures. The
Parties agree that this Agreement or any other document necessary
for the consummation of the transactions contemplated by this
Agreement may be accepted, executed or agreed to through the use of
an electronic signature in accordance with the Electronic
Signatures in Global and National Commerce Act
("E-Sign
Act"), Title 15, United States
Code, Sections 7001 et seq., the Uniform Electronic Transaction Act
("UETA")
and any applicable state law. Any document accepted, executed or
agreed to in conformity with such laws will be binding on all
Parties the same as if it were physically executed and each Party
hereby consents to the use of any third party electronic signature
capture service providers as may be chosen and utilized by any
Party.
10.11. Cannabis
Carve-Out. Notwithstanding any
provision in this Agreement to the contrary, the Parties
acknowledge that they are aware of and fully understand that
despite the medical and retail cannabis laws of the State of Nevada
and the terms, conditions and covenants of this Agreement,
individuals and entities engaged in the cultivation,
transportation, sale, distribution or possession of medical and
retail cannabis may still be arrested by federal and some state
officers and prosecuted under Federal Cannabis Law; consequently,
such activities are expressly excluded from any and all
representations, warranties, obligations and covenants applicable
to the Transferors under this Agreement. The Parties hereby waive
illegality as a defense to any contract enforcement
action.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS
WHEREOF, the Parties have
caused this Asset Purchase Agreement to be executed as of the
Effective Date.
Planet 13 Parties:
Planet
13 Holdings Inc.
By:
/s/ Larry Scheffler
Name: Larry Scheffler
Title: Co-CEO
By:
/s/ Robert Groesbeck
Name: Robert Groesbeck
Title: Co-CEO
MM
Development Company, Inc.
By: /s/ Larry
Scheffler
Name: Larry Scheffler
Title: Manager
By: /s/ Robert
Groesbeck
Name: Robert Groesbeck
Title: Manager
Transferors:
West
Coast Development Nevada, LLC
By: /s/ R. Scott
Coffman
Name: R. Scott Coffman
Title: Manager
W
the Brand, LLC
By: /s/ R. Scott
Coffman
Name: R. Scott Coffman
Title: Manager
Execution
EXHIBITS
Exhibit
A
Management
Agreement
Exhibit B
Intentionally
Omitted
Exhibit E
Assignment
and Assumption Agreement
Exhibit F
Share
Escrow Agreement
Exhibit
G
Release
Agreement
SCHEDULES
Schedule
1.1(u)
MRB
Licenses
Schedule 2.1(a)(iii)
Additional
Equipment
Schedule 2.1(a)(vi)
Permits
Schedule
2.4(b)
Nevada
Licenses
Schedule 4.2
Seller
Consent and Approvals
Schedule 4.4
Financial
Statements
Schedule 4.7
Tangible
Personal Property
Schedule 4.8
Subsequent
Events
Schedule 4.11
Material
Contracts
Schedule 4.12
Labor
Matters
Schedule
4.15
Compliance
with Law
Schedule 4.17
Environmental
Schedule
5.3
Buyer’s
Consents and Approvals
SCHEDULE 1
DEFINED TERMS
Defined Terms. As used in this
Agreement, the following terms will have the following
meanings:
(a) “Affiliate”
means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition,
“control” (including, with its correlative meanings,
“controlled by” and “under common control
with”) means possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership
interests, by contract or otherwise).
(b) “Affiliate
Agreements” means each of
the following documents in substantially the forms attached hereto:
(i) the Management Agreement in the form attached hereto as
Exhibit
A, and (ii) the Lease Agreement
in the form attached hereto as Exhibit
C.
(c) “Agreement”
means, unless the context otherwise requires, this Asset Purchase
Agreement, as it may be amended from time to time, together with
the Schedules and Exhibits attached hereto.
(d) “Applications”
means any and all applications, documentation, change requests and
correspondence provided to, and received from, the Regulatory
Authorities or a state, county, city or local Governmental
Authority involving the applications for, issuance of, or transfer
of the Permits or MRB Licenses.
(e) “Benefit
Plan” includes all
“employee benefit plans” as defined in Section 3(3) of
ERISA, and any other pension plans or employee benefit agreements,
arrangements, programs or payroll practices (including severance
pay, other termination benefits or compensation, vacation pay,
salary, company awards, stock option, stock purchase, salary
continuation for disability, sick leave, retirement, deferred
compensation, bonus or other incentive compensation, stock purchase
arrangements or policies, hospitalization, medical insurance, life
insurance and scholarship programs) (whether funded or unfunded,
written or oral, qualified or nonqualified), sponsored, maintained
or contributed to or required to be contributed to by Seller or by
any trade or business, whether or not incorporated, that together
with a Seller would be deemed a “single employer”
within the meaning of Section 4001 of ERISA for the benefit of any
employee, leased employee, director, officer, shareholder or
independent contractor (in each case either current or former) of
Seller or Seller ERISA Affiliate.
(f) “Business”
means the cultivation, manufacture, internal testing, marketing,
promotion, and wholesale distribution of products containing
cannabis and products that enable persons to consume cannabis in
different forms, and other cannabis related products, for both
medicinal and recreational uses, in each case within the State of
Nevada.
(g) “Business
Day” means any day other
than a Saturday, Sunday or a legal holiday on which banks are not
open for general business in the State of
Nevada.
(h) “Cash
Purchase Price” means the
sum of (i) One Million Six Hundred Thousand U.S. Dollars
(US$1,600,000), plus
(ii) Three Thousand Three Hundred
Thirty-Three and 33/100 U.S.
Dollars (US$3,333.33) for every day after June 30, 2020 up to and
including the First Closing Date (the “Per
Diem”).
(i) “Code”
means the Internal Revenue Code of 1986, as
amended.
(j) “Consideration
Shares” has the meaning
given such term in Section
2.3.
(k) “Contract”
means all contracts, agreements and obligations currently in force
relating to the Purchased Assets, and Seller including, without
limitation, all sale, management, construction, insurance,
commission, architectural, engineering, operating, employment,
service, supply and maintenance agreements.
(l) “Encumbrance”
means any claim, lien, mortgage, pledge, option, charge, security
interest, right of way, encroachment, Tax, reservation,
restriction, encumbrance, or other right of any Person, or any
other restriction or limitation of any nature whatsoever, affecting
title to, any assets of Seller.
(m) “Escrow
Holder” means Odyssey
Trust Company.
(n) “Environmental
Liabilities” means any
Liability arising from or under any Environmental Law (including as
a result of any breach thereof or compliance
therewith).
(o) “Environmental
Law” means any Law as now
or hereafter in effect in any way relating to the protection of the
environment or natural resources or, in relation thereto, human
health and safety, including the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. § 9601 et
seq.), the Hazardous Materials Transportation Act (49 U.S.C. App.
§ 1801 et seq.), the Resource Conservation and Recovery Act
(42 U.S.C. § 6901 et seq.), the Clean Water Act (33 U.S.C.
§ 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. § 2601 et
seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. § 136 et seq.) and the Occupational Safety and Health
Act (29 U.S.C. § 651 et seq.), as those Laws have been
amended, any analogous state and local Laws and the regulations
promulgated pursuant thereto.
(p) “ERISA”
means the Employment Retirement Income Security Act of 1974 and the
regulations promulgated pursuant thereto, each as
amended.
(q) “Excluded
Management Agreement”
means the Management Services Agreement between Seller, W Vapes.
and Indus, effective January 31, 2020.
(r) “Excluded
MRB Inventory” means
expired or otherwise unsaleable MRB inventory that is scheduled for
destruction, and any cannabis distillate or vape oil
products.
(s) “Federal
Cannabis Laws” means any
U.S. federal laws, civil, criminal or otherwise, as such relate,
either directly or indirectly, to the cultivation, harvesting,
production, distribution, sale and possession of cannabis,
marijuana or related substances or products containing or relating
to the same, including, without limitation, the prohibition on drug
trafficking under 21 U.S.C. § 841(a), et seq., the conspiracy
statute under 18 U.S.C. § 846, the bar against aiding and
abetting the conduct of an offense under 18 U.S.C. § 2, the
bar against misprision of a felony (concealing another’s
felonious conduct) under 18 U.S.C. § 4, the bar against being
an accessory after the fact to criminal conduct under 18 U.S.C.
§ 3, and federal money laundering statutes under 18 U.S.C.
§§ 1956, 1957, and 1960 and the regulations and rules
promulgated under any of the foregoing.
(t) “First
Closing Documents” means
each of the following documents, in substantially the forms
attached hereto, to be entered into on the First Closing Date: (i)
the Affiliate Agreements in the forms attached hereto as
Exhibits
A and C, (ii) a bill of sale
for the Purchased Assets in the form attached hereto as
Exhibit
D (the
“Bill of
Sale”), (iii) an
assignment and assumption agreement in the form attached hereto
as Exhibit E
the “Assignment and
Assumption Agreement”),
(iv) evidence that a certificate representing that number of
Consideration Shares having an aggregate value of Two Million Five
Hundred Thousand U.S. Dollars (US$2,500,000) as established
pursuant to Section
2.3(b) has
been issued in the name of Seller and has been deposited with the
Escrow Holder to the held pursuant to the terms of the Share Escrow
Agreement (v) the escrow agreement for the Consideration Shares in
the form attached hereto as Exhibit F
(the “Share Escrow
Agreement”), (vi) a
release and indemnity agreement from Indus in the form attached
hereto as Exhibit G
(the “Release
Agreement”), and (vii)
all other ancillary agreements, contracts and documents to be
entered into in connection with this Agreement.
(u) “Governmental
Authority” means any
federal, state, commonwealth, provincial, municipal, local or
foreign government, or any political subdivision thereof, or any
court, agency or other entity, body, organization or group,
exercising any executive, legislative, judicial, quasi-judicial,
regulatory or administrative function of government, or any
supranational body, arbitrator, court or tribunal of competent
jurisdiction.
(v) “Hazardous
Material” means any
substance, material or waste that is regulated, classified or
otherwise characterized under or pursuant to any Environmental Law
as “hazardous,” “toxic,”
“pollutant,” “contaminant,”
“radioactive,” “medical waste,”
“biohazard” or words of similar meaning or effect,
including petroleum and its by-products, asbestos, polychlorinated
biphenyls, radon, mold or other fungi, and urea formaldehyde
insulation.
(w) “Indebtedness”
shall mean all obligations of: (i) for borrowed money; (ii)
evidenced by notes, bonds, debentures or similar instruments; (iii)
for the deferred purchase price of goods or services (other than
trade payables or accruals incurred in the Ordinary Course of
Business); (iv) under capital leases; and (v) in the nature of
guarantees of the obligations described in clauses (i) through
(iv) above of any other
Person.
(x) “Indus”
shall mean Indus Nevada, LLC, a Nevada limited liability
company.
(y) “Intellectual
Property” means any and
all intellectual property and rights in or to intellectual
property, including (a) any and all trademarks, service marks,
brand names, certification marks, trade dress, assumed names, trade
names, logos and other indications of origin, sponsorship or
affiliation, together with the goodwill associated therewith
(whether the foregoing are registered or unregistered);
registrations thereof in any jurisdiction and applications to
register any of the foregoing in any jurisdiction, and any
extension, modification or renewal of any such registration or
application; (b) any and all inventions, developments,
improvements, discoveries, know how, concepts and ideas, whether
patentable or not in any jurisdiction; (c) any and all patents,
revalidations, industrial designs, industrial models and utility
models, patent applications (including reissues, continuations,
divisions, continuations in-part and extensions) and patent
disclosures; (d) any and all mask works and other semiconductor
chip rights and registrations thereof; (e) any and all non-public
information, trade secrets and proprietary or confidential
information and rights in any jurisdiction to limit the use or
disclosure thereof by any Person; (f) any and all writings and
other works, whether copyrighted, copyrightable or not in any
jurisdiction, such works including computer programs and software
(including source code, object code, data and databases); (g) any
and all copyrights, copyright registrations and applications for
registration of copyrights in any jurisdiction, and any renewals or
extensions thereof; (h) any and all other intellectual property or
proprietary rights; (i) any and all agreements, licenses,
immunities, covenants not to sue and
the like relating to any of the foregoing; and (j) any and all
claims or causes of action arising out of or related to any
infringement or misappropriation of any of the foregoing.
Notwithstanding the foregoing, “Intellectual Property”
shall not mean any and all of the foregoing to the extent it
relates to or pertains to any of the Excluded Assets.
(z) “Inventory”
means all raw materials, ingredients and finished cannabis goods
inventory of the Business.
(aa) “Knowledge”
and similar phrases using the term “Knowledge” means
the actual knowledge of the subject Person with respect to the
matters which are relevant to the representation, warranty,
covenant or agreement being made or given.
(bb) “Knowledge of
Seller” mean the
Knowledge of A. Todd Justice, R. Scott Coffman, Lance Blundell, or
Eric Richardson
(cc) “Law”
means any federal, state, local, municipal, provincial, foreign or
other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, consent order, consent decree,
decree, Order, judgment, rule, regulation, ruling, guideline,
notice, protocol, directive, regulatory guidance, agreement or
requirement issued, enacted, adopted, promulgated, implemented or
otherwise put into effect by or with or under the authority of any
Governmental Authority, whether or not having the force of
law.
(dd) “Lease”
means the lease agreement relating to the Leased Premises between
Seller and Rx Land in the form attached hereto as
Exhibit
C.
(ee) “Leased
Premises” means the real
property located at 4801 West Bell Drive, Las Vegas, Nevada,
Assessor’s Parcel No. 162-20-104-003.
(ff) “Liabilities”
shall mean all Indebtedness, obligations and other liabilities of a
Person (whether absolute, accrued, contingent, fixed or otherwise,
or whether due or to become due).
(gg) “Losses”
mean all out-of-pocket, losses, liabilities, obligations, Taxes,
Encumbrances, deficiencies and damages, encumbrances, fines,
penalties, claims, demands, orders, dues, costs and other expenses
(including all fines, interest, penalties and other amounts paid
pursuant to a judgment, compromise or settlement, or costs
associated with enforcing any right to indemnification hereunder),
court costs and reasonable legal and accounting fees and
disbursements; provided, however, that “Losses” will
not include incidental or consequential damages, or punitive
damages, except to the extent such punitive damages are payable to
a third party.
(hh) “Material Adverse
Effect” shall mean any
event or circumstance that has or will have, or could reasonably be
expected to have, a material adverse effect on the Business,
Purchased Assets, operations, financial condition, or results of
operations of the Seller taken as a whole, after the First Closing
Date or Second Closing Date, it being understood that in no event
shall any of the following be deemed by itself or by themselves,
either individually or in the aggregate, to constitute a Material
Adverse Effect: (a) a failure by Seller to meet internal earnings,
revenue or other projections or earnings, revenue or other
predictions of any analyst, (b) any event, circumstance or market
condition occurring as a general economic or financial conditions
or other developments that are not unique to Seller, or (c) the
appointment of a receiver to operate the Business, the operation of
the Business by such a receiver and the results of operations of
the Business during such period of operation, the imposition of
monetary penalties that shall constitute Excluded
Liabilities.
(ii) “MRB
Inventory” means any and
all Inventory of Seller to be transferred to Buyer at the First
Closing, including but not limited to all items listed as held by
the Seller on their Metrc system as of June 16, 2020, and all
flower, trim, bud, kief, and all biological assets and all
intellectual property rights to those biological assets such as
strains and genetics currently located within the Leased Premises
of Seller, and any biological assets or inventory resulting
therefrom entered into Metrc following June 16, 2020 and up through
the Effective Date of this Agreement.
(jj)
“MRB
Licenses” means any and
all Permits required by or requested from any Regulatory Authority
for the conduct of the Business, excluding the Excluded Assets,
that cannot, without Regulatory Approvals, be transferred to Buyer
at the First Closing, a list of which are set forth on
Schedule
1.1(u).
(kk) “Nevada Cannabis
Laws” means the marijuana
establishment laws of any jurisdictions within the State of Nevada
to which Seller is or may at any time become, subject, including,
without limitation, Chapter 453A of the Nevada Revised Statutes, as
amended, 453D of the Nevada Revised Statutes, as amended, Title 60
of the Nevada Revised Statutes codifying NV AB533 and the rules and
regulations adopted by the Nevada Division of Public and Behavioral
Health, the Nevada Department of Taxation, the Nevada Cannabis
Compliance Board, the City of Las Vegas, NV or any other state or
local government agency with authority to regulate any marijuana
operation (or proposed marijuana operation) including the guidance
or instruction of any other state or local government agency with
authority to regulate any marijuana operation (or proposed
operation).
(ll) “Option
Agreement” means an
option agreement whereby Rx Land and Buyer grants to Seller the
option to reacquire the Real Property for $3,3000,00 and the
Tangible Personal Property for $500,000, respectively, upon the
happening of certain events.
(mm) “Order”
means any order, writ, assessment, decision, injunction, decree,
judgment, ruling, award, settlement or stipulation issued,
promulgated or entered into by or with any Governmental
Authority.
(nn) “Ordinary Course of
Business” means actions
taken by a Person in the ordinary and usual course of normal
day-to-day operations of such Person’s business, consistent
with past practice.
(oo) “Permits”
mean all permits, licenses, consents, franchises, approvals,
registrations, certificates, variances and other authorizations
required to be obtained from any Governmental Authority or other
Person in connection with the operation of the Business and
necessary to conduct the Business presently conducted or planned to
be conducted.
(pp) “Permitted
Encumbrances” means any
easement, right of way, encroachment, conflict, discrepancy,
overlapping of improvements, protrusion, lien, encumbrance,
restriction, condition, covenant, exception, including the Lease
and Assumed Liabilities, or other matter with respect to the Real
Property, Premises, Purchased Assets or the Business approved by
the Planet 13 Parties.
(qq) “Personal
Data” shall mean a
person’s name, street address, telephone number, email
address, date of birth, gender, photograph, Social Security Number
or Tax identification number, driver’s license number,
passport number, credit card number, bank account information and
other financial information, account numbers, account access codes
and passwords, or any other piece of information that allows the
identification of such person or enables access to such
person’s financial information, or as that term is otherwise
defined by applicable Law.
(rr)“Person”
means any Governmental Authority, individual, association,
joint
venture, partnership, corporation, limited liability company, trust
or other entity.
(ss)“Proceeding”
means any claim, demand, action, suit, litigation, dispute,
order,
writ, injunction, judgment, assessment, decree, grievance, arbitral
action, investigation or other proceeding.
(tt)“Real
Property” means the
Leased Premises together with (i) all buildings
and
improvements located thereon and (ii) all rights, privileges,
interests, easements, hereditaments and appurtenances thereunto in
any way incident, appertaining or belonging thereto.
(uu) “Regulatory
Approvals” shall mean the
consent and approval of the Regulatory Authorities to the sale,
transfer, conveyance, substitution and/or delivery of the MRB
Licenses to Buyer or, issuance of any new MRB Licenses to Buyer to
the extent any such MRB License is non-transferable (as submitted
in the Applications to the Regulatory Authorities in accordance
with Section
6.6).
(vv) “Regulatory
Authorities” or
“Regulatory
Authority” means any
Governmental Authorities with actual authority over the
Applications for or sale, transfer, conveyance, issuance,
substitution and/or delivery of the MRB
Licenses.
(ww) “Representative”
means any manager, officer, director, principal, attorney,
accountant, agent, employee or other representative of any
Person.
(xx)‘Second Closing
Documents” shall mean a
(i) Bill of Sale for MRB Assets to be
purchased on the Second Closing, (ii) an Assignment and Assumption
Agreement for the MRB Contracts assumed on the Second Closing,
(iii) instructions to the Escrow Holder to release all
Consideration Shares to Seller, and (iv) all other ancillary
agreements, contracts and documents to be entered into in
connection with this Agreement.
(yy) “Rx
Land” means Rx Land, LLC,
a Nevada limited liability company.
(zz)“Tangible Personal
Property” means all
tangible personal property (other than
Inventory) owned or leased by Seller or in which Seller has any
interest and relating to the Business, including vehicles and
production and processing equipment, warehouse equipment, computer
hardware, furniture and fixtures, leasehold improvements, supplies
and other tangible assets, together with any transferable
manufacturer or vendor warranties related thereto.
(aaa) “Tax” or “Taxes”
means any federal, state, local or non-U.S. income, gross receipts,
license, payroll, employment, excise, severance, startup, stamp,
occupation, premium, windfall profits, environmental, customs
duties, capital stock, franchise, profits, withholding, social
security (or similar), health, unemployment, disability, real
property, personal property, intangible property, abandoned
property or escheat, sales, use, ad valorem, transfer,
registration, value added, goods and services, harmonized,
alternative or add-on minimum, estimated, or other tax or similar
obligation of any kind whatsoever to any Tax authority, including
any interest, penalty or addition thereto, whether disputed or
not.
(bbb) “Tax
Return” means any return,
declaration, report, form, claim for refund, election or
information return or statement relating to Taxes, including any
schedule or attachment thereto, and any amendment
thereof.
(ccc) “Transaction”
means the asset purchases contemplated under this
Agreement.
(ddd) “Transaction
Documents” means this
Agreement and any other document, agreement, certificate or
instrument required to be delivered at the Closing pursuant to the
terms hereof. For the avoidance of doubt, the Management Agreement
shall not be deemed to be a Transaction
Document.
(eee) “Transaction
Expenses” means the
aggregate amount of all fees, costs and expenses incurred or
subject to reimbursement by Seller in connection with this
Agreement or the transactions contemplated hereby (whether incurred
prior to or after the date hereof) and not previously paid,
including: (i) all fees, expenses, costs, commissions and
disbursements of any broker, finder, financial advisor, consultant,
accountant or legal counsel incurred by or on behalf of Seller in
connection with this Agreement and the transactions contemplated
hereby, (ii) any and all transaction, success, change-of-control or
similar bonuses payable to employees, directors, managers or
consultants of Seller (including any applicable payroll Taxes
related thereto) as a result of the Transaction contemplated
hereby; and (iii) expenses or payments resulting from the change of
control of Seller or otherwise payable in connection with receipt
of any consent or approval in connection with the transactions
contemplated hereby (but excluding, for the avoidance of doubt, any
expenses of the Planet 13 Parties).
(fff) “Transfer
Taxes” means any sales,
use, stock transfer, value added, real property transfer, transfer,
stamp, registration, documentary, recording or similar duties or
taxes together with any interest thereon, penalties, fines, costs,
fees, additions to tax or additional amounts with respect thereto
incurred in connection with the transactions contemplated by this
Agreement. Notwithstanding the foregoing, "transfer Taxes" shall
specifically exclude any and all of the foregoing described taxes
that pertain to or result from the issuance and transfers of the
Consideration Shares (the "Stock Transfer
Taxes").
Additional Definitions
Alternative
Transaction
6.1(c)
Annual Financial
Statement
4.9
Assignment and Assumption
Agreement
Definition
(l)
Bill of
Sale
Definition
(l)
Consideration
Shares
2.3(b)
Disclosure
Schedules
Article
4
Excluded
Liabilities
2.1(c)
Final Indemnification
Claim
9.1(e)
First Closing Assumed
Liabilities
2.1(c)
Indemnifying
Parties
9.1(d)
Interim Balance
Sheet
4.4
Interim Balance Sheet
Date
4.4
Interim Financial
Statements
4.4
Labor and Employment legal Requirements 4.12
Planet 13
Parties
Preamble
Pre-Closing
Statement
2.8
Purchase Price
Allocation
2.6
Purchase Price Cap
9.1(f)
Release
Agreement
Definition
(l)
Second Closing MRB
Assets
2,2(a)
Second Closing Date Assumed Liabilities 2.2(a)
Second Closing
Date
3.2(b)
Share Escrow
Agreement
Definition
(l)
DISCLOSURE SCHEDULES
ASSET PURCHASE AGREEMENT
BY AND AMONG
PLANET 13 HOLDINGS INC., AND MM DEVELOPMENT COMPANY,
INC.
AND
W THE BRAND, LLC, WEST COAST DEVELOPMENT NEVADA, LLC,
AND R. SCOTT COFFMAN.
SELLER’S DISCLOSURE SCHEDULE
Schedule
1.1(jj)
MRB
Licenses
Schedule
2.1(a)(iii)
Equipment
Schedule
2.1(a)(iv)
Assumed
Contracts
Schedule
2.1(a)(vi)
Permits
Schedule
2.2(a)(iii)
MRB
Contracts
Schedule
2.4(b)
Nevada
Licenses
Schedule 4.2
Seller
Consent and Approvals
Schedule
4.7
Tangible
Personal Property
Schedule
4.11
Material
Contracts
Schedule
4.12
Labor
Matters
Schedule 4.15
Compliance
with Law
Schedule
4.17
Environmental
Schedule 5.3
Buyer’s
Consents and Approvals
ASSET PURCHASE AGREEMENT
BY AND AMONG
PLANET 13 HOLDINGS INC., AND MM DEVELOPMENT COMPANY,
INC.,
AND
W THE BRAND, LLC, WEST COAST DEVELOPMENT NEVADA, LLC,
AND R. SCOTT COFFMAN.
SELLER’S DISCLOSURE SCHEDULE
INTRODUCTION
This Disclosure Schedule (the
“Disclosure
Schedule”) is delivered
in connection with the execution of that certain Asset Purchase
Agreement between and among Planet 13 Holdings Inc., a corporation
organized under the Business Corporations
Act (British Columbia)
(“Planet
13”), MM Development
Company, Inc., a Nevada corporation (“Buyer”,
and together with Planet 13 the “Planet 13
Parties”), and W the
Brand, LLC, a Delaware limited liability company (“W
Vapes”),
and West Coast Development Nevada, LLC, a Nevada limited liability
company (“Seller”)
and R. Scott Coffman, a North Carolina resident
(“Coffman”
and together with Seller and W Vapes, the
“Transferors”).
Capitalized terms used herein but not defined shall have the
identical meaning assigned to such terms in the Agreement. The
numbers below correspond to the section numbers of the
Agreement.
Schedule 1.1(jj)
MRB Licenses
1.
State
of Nevada - Marijuana Cultivation Facility License No.
C06757708763289160503743 and License No. RC067-17755737390295686365
(Expires 6/30/19)
2.
State
of Nevada - Marijuana Product Manufacturing License No.
P03417968777460576775552 and License No. RP034-13351121953140240442
(Expires 6/30/19)
3.
Clark County Business License No. 2000024.MMR-301,
and License No. 20000251MMR-301
issued in the names of Sweet Goldy,
LLC and Sweet Goldy Production, LLC,
respectively.
Schedule 2.1(a)(iii)
Computer Hardware; Furniture; Vehicles
Nevada
Furniture
1. L-Office
Desk - 3
2. Admin
Desk - 1
3. Couch-
2
4. Lounge
Chair - 2
5. Coffee
Table - 1
6. Conference
Table - 2
7. 4
Desk cubicle - 1
8. Uline
Desk - 1
9. Desk
Chairs - 10
10. Chair
- 8
11. Folding
Chair - 8
12. Lab
Bench - 2
13. Lab
Island - 2
14. Lab
Stool- 2
15. Tables
- 2
16. Folding
Table - 3
17. Microwave
- 2
18. Water
Dispenser - 2
19. Small
Step Ladder - 2
20. Step
Ladder - 2
21. File
Cabinet - 2
Computer Hardware
1. Printer
- 3
2. Desktop
Computer - 3
3. Laptops
- 6
4. Monitors
- 8
5. Label
Printer - 3
6. TVs-4
7. DVR-2
8. Data
Center - 1
(See
Additional Specific Description Schedule 4.7(b))
Vehicles
1. 2017 Ford F-150 owned by West Coast Development Nevada,
LLC.
Equipment
1. Waters
SFE Bio-Botanical Extraction Systems - 2
2. Argus
Nutrient Water Application System
Schedule 2.1(a)(iv)
Assumed Contracts
Waters Tech Lease for Waters SFE Bio-Botanical Extraction System
with TAW dated April 7, 2017.
Schedule 2.1(a)(vi)
Transferable Permits
MRB Licenses – State of Nevada licenses subject to CCB
Approval
2.
State of Nevada - Marijuana Cultivation Facility License No.
C06757708763289160503743 and License No. RC067-17755737390295686365
(Expires 6/30/19)
4. State
of Nevada - Marijuana Product Manufacturing License No.
P03417968777460576775552 and License No. RP034-13351121953140240442
(Expires 6/30/19)
5. Clark
County Business License No. 2000024.MMR-301, and License No.
20000251MMR-301
issued in the names of Sweet Goldy,
LLC and Sweet Goldy Production, LLC,
respectively.
Schedule 2.1(c)
Excluded Liabilities
1.
The
Restricted Equity Grant dated February 1,2018 outstanding to Sean
Corrigan that provides for an award of up to 300,000 Membership
Units in W The Brand, LLC. Such Units vest 50% after his 18th month
employment anniversary, and 50% after his 36th month employment
anniversary. There is also an acceleration provision that vests the
Units in their entirety upon a sale of all or substantially all of
the assets of W The Brand, LLC.
2.
The Sean Corrigan Employment Agreement. that That
certain Executive Employment Agreement, dated February 1, 2018, by
and between Sean Corrigan and W The Brand, LLC (the
"Sean Corrigan
Employment Agreement").
3.
Asset
Purchase Agreement dated as of May 14, 2019, as amended, among
Indus Brand Management LLC, a Delaware limited liability company
(“Brand Purchaser”), Indus Nevada LLC, a Nevada limited
liability company (“Nevada Purchaser”), and Indus
Oregon LLC, an Oregon limited liability company (“Oregon
Purchaser”, and collectively with Brand Purchaser and Nevada
Purchaser, the “Purchaser Parties”), and W The Brand,
LLC (“W”), West Coast Development Nevada LLC
(“WCDN”) and West Coast Development Oregon LLC
(WCDO”), each a Delaware limited liability company
(collectively, W, WCDN and WCDO are referred to herein as the
“Sellers”).
4.
Excluded
Management Agreement (as defined in Agreement)
5.
The
Release (as defined in the Agreement)
6.
Termination
Agreement among Indus Brand Management LLC, a Delaware limited
liability company (“Brand Purchaser”), Indus Nevada
LLC, a Nevada limited liability company (“Nevada
Purchaser”), and Indus Oregon LLC, an Oregon limited
liability company (“Oregon Purchaser”, and collectively
with Brand Purchaser and Nevada Purchaser, the “Purchaser
Parties”), and W The Brand, LLC (“W”), West Coast
Development Nevada LLC (“WCDN”) and West Coast
Development Oregon LLC (WCDO”), each a Delaware limited
liability company (collectively, W, WCDN and WCDO are referred to
herein as the “Sellers”).
7.
The
DCL Loan (as hereinafter defined).
8.
The B Nevada Loan. Loan Agreement, dated April 17,
2017 (as amended, the "B Nevada
Loan"), by and between West
Coast Development Nevada, LLC and B Nevada, LLC
("B
Nevada"), as amended by that
certain First Amendment to Loan Agreement, effective as of April
17, 2017, B Nevada has been awarded a 30% equity interest in West
Coast Development Nevada, LLC with such award having vested upon
the completion of the transfer of certain marijuana licenses from
Sweet Goldy, LLC and Sweet Goldy Production, LLC. The grant of the
award is conditioned upon the State of Nevada's approval of B
Nevada to be qualified to conduct marijuana cultivation
and
manufacturing
activities and is also immediately triggered upon a sale of all or
substantially all of the assets of Seller.
9.
The
Dominick Loan (as hereinafter defined).
10.
The
Edge Loan (as hereinafter defined).
11.
The
Jeff Nagel Settlement Agreement (as hereinafter
defined).
12.
Offer
Letter Re: State of Nevada v. W The Brand, LLC, et at, dated March
18, 2019, by The State of Nevada Office of the Attorney General, to
W The Brand, LLC.
13.
All
liabilities as disclosed by WCDN to Planet 13 Holdings, Inc. and MM
Development Company, Inc. in the 5/31/2020 dated WCDN Balance
Sheet, as such may be or have been updated through the Effective
Date of this Agreement, an extract of which is provided
below:
Liabilities
Current Liabilities
Accounts Payable (A!P)
Credit Cards
Credit Card - CC Master Card
Credit Card - CC Visa
|
01 NV
76,751.58
7,615.13
9,558.94
|
|
|
Total
112,342.37
7,615.13
9,558.94
|
|
$
|
$
|
$
|
$
|
|
17,174.07
|
0.00
|
0.00
|
17,174.07
|
Other Current Liabilities
|
|
|
|
|
|
23,186.35
|
|
|
23,186.35
|
|
|
|
287,600.00
|
287,600.00
|
|
|
|
|
|
|
|
|
51,242.55
|
51,242.55
|
|
$
|
$
|
$
|
$
|
|
0.00
|
0.00
|
338,842.55
|
338,842.55
|
|
|
|
|
|
|
1,987,133.12
|
228,344.86
|
|
2,215,477.98
|
Related Party - Sweet Goldy
|
-161,589.50
|
|
|
-161,589.50
|
|
$
|
$
|
$
|
|
Total Other Current Liabilities
|
1,848,729.97
|
228,344.86
|
338,842.55
|
$2,415,917.38
|
|
$
|
$
|
$
|
|
Total Current Liabilities
|
1,942,655.62
|
263,935.65
|
338,842.55
|
$2,545,433.82
|
Long-Term Liabilities Due to B Nevada
|
|
|
5,000,000.00
|
5,000,000.00
|
|
|
|
924,999.95
|
924,999.95
|
|
$
|
$
|
$
|
|
|
0.00
|
0.00
|
5,924,999.95
|
$5,924,999.95
|
Due to W The Brand (0308 !
|
|
|
|
|
1738)
|
|
|
6,043,290.69
|
6,043,290.69
|
Interest Payable to W The
|
|
|
|
|
|
|
|
408,960.43
|
408,960.43
|
Total Due to W The Brand (0308 !
|
$
|
$
|
$
|
|
1738)
|
0.00
|
0.00
|
6,452,251.12
|
$6,452,251.12
|
|
$
|
$
|
$
|
|
Total Long-Term Liabilities
|
0.00
|
0.00
|
12,377,251.07
|
$12,377,251.07
|
|
$
|
$
|
$
|
|
|
1,942,655.62
|
263,935.65
|
12,716,093.62
|
$14,922,684.89
|
Schedule 2.2(a)(iii)
MRB Contracts
*
Schedule 4.2
Sellers' Required Consents
1. The
consent of the landlord under the Nevada Lease.
2. The
consent of Waters Technologies Corporation under the Nevada Waters
Tech Agreement .
3. Recreational
Marijuana Retail Application, upon completion of application within
7 days of Effective Date of APA. The cover-letter to this
application shall also re-confirm the withdrawal of the previous
WCDN request to transfer ownership to Indus Parties.
Schedule 4.4
Financial Statements
See attached.
Schedule 4.7
Property, Plant, and Equipment
Nevada
1
2”
Pope Distiller + equipment
1
4”
Pope Distiller + equipment
1
BR
Instruments Distiller + computer
1
Data
Center w/security DVRs
1
EL
Cold EL51XLLT Freezer
1
Futurola
SH-110 Shredder
1
Hyperlogic
CWF Hydro-44A-216
7
Leader
Ecojet R110 Pump
1
Leader
Ecojet R240 Pump
1
Quest
Dry 150 Dehumidifier
1
Quest
Dry 180 Dehumidifier
9
Quest
Dry 240 Dehumidifier
1
Quest
Dry 40 Dehumidifier
180
Soleil
Model 50/hps lights
90
Solistek
A1 277V Lights
1
STM
RB 453 pre roll machine
1
Thompson
Duke MCF1 Filling machine
2
Water
SFE Bio-Botanical Extraction Systems + computer
2
Whirlpool
Refrigerators
Schedule 4.7(b) continued: Generally, all assets represented by the
accounting schedule on the following two pages showing cost basis
of assets as at 12/31/2018, and as such may have been updated
through 07/17/2020, notwithstanding whether such asset is included
of the named assets listed above under Schedules 4.7(b)
“Property, Plant, and Equipment” and 2.1(a)(iii)
“Computer Hardware; Furniture; Vehicles”, exclusive of
the “Licenses” asset listed as item 42 on the schedule
below.
|
Beginning Balance
12/31/2017
|
Audit
Additions DisposalsAdjustments
|
Ending Balance
12/31/2018
|
Beginning Balance
12/31/2017 IRC
179 Bonus
|
Audit
Additions Disposals Adjustments
|
Ending Balance
12/31/2018 NBV
|
9
Cultivation5/17/2017
|
61,353.00
|
- - -
|
61,353.00
|
(35,060.00) -
|
- (7,512.00) - -
|
(42,572.00) 18,781.00
|
Equipment
|
|
|
|
|
|
|
10
Cultivation5/31/2017
|
4,772.00
|
- - -
|
4,772.00
|
(2,727.00) -
|
- (584.00) - -
|
(3,311.00) 1,461.00
|
Equipment
|
|
|
|
|
|
|
11
Cultivation8/7/2017
|
11,640.00
|
- - -
|
11,640.00
|
(6,652.00) -
|
- (1,425.00) - -
|
(8,077.00) 3,563.00
|
Equipment
|
|
|
|
|
|
|
12
Cultivation8/8/2017
|
3,394.00
|
- - -
|
3,394.00
|
(1,940.00) -
|
- (415.00) - -
|
(2,355.00) 1,039.00
|
Equipment
|
|
|
|
|
|
|
13
Cultivation8/23/2017
|
3,086.00
|
- - -
|
3,086.00
|
(1,764.00) -
|
- (378.00) - -
|
(2,142.00) 944.00
|
Equipment
|
|
|
|
|
|
|
14
Cultivation8/24/2017
|
4,725.00
|
- - -
|
4,725.00
|
(2,701.00) -
|
- (578.00) - -
|
(3,279.00) 1,446.00
|
Equipment
|
|
|
|
|
|
|
15
Cultivation8/29/2017
|
3,151.00
|
- - -
|
3,151.00
|
(1,801.00) -
|
- (386.00) - -
|
(2,187.00) 964.00
|
Equipment
|
|
|
|
|
|
|
16
Cultivation8/31/2017
|
2,722.00
|
- - -
|
2,722.00
|
(1,556.00) -
|
- (333.00) - -
|
(1,889.00) 833.00
|
Equipment
|
|
|
|
|
|
|
17
Cultivation9/12/2017
|
10,500.00
|
- - -
|
10,500.00
|
(6,000.00) -
|
- (1,286.00) - -
|
(7,286.00) 3,214.00
|
Equipment
|
|
|
|
|
|
|
18
Cultivation9/14/2017
|
3,227.00
|
- - -
|
3,227.00
|
(1,845.00) -
|
- (395.00) - -
|
(2,240.00) 987.00
|
Equipment
|
|
|
|
|
|
|
19
Cultivation9/21/2017
|
2,326.00
|
- - -
|
2,326.00
|
(1,329.00) -
|
- (285.00) - -
|
(1,614.00) 712.00
|
Equipment
|
|
|
|
|
|
|
20 Lab 4/7/2017
|
97,736.00
|
- - -
|
97,736.00
|
(58,642.00) -
|
- (15,638.00) - -
|
(74,280.00) 23,456.00
|
Equipment
|
|
|
|
|
|
|
21 Lab 4/27/2017
|
3,750.00
|
- - -
|
3,750.00
|
(2,250.00) -
|
- (600.00) - -
|
(2,850.00) 900.00
|
Equipment
|
|
|
|
|
|
|
22 Lab 4/28/2017
|
3,968.00
|
- - -
|
3,968.00
|
(2,381.00) -
|
- (635.00) - -
|
(3,016.00) 952.00
|
Equipment
|
|
|
|
|
|
|
23 Lab 5/9/2017
|
9,068.00
|
- - -
|
9,068.00
|
(5,441.00) -
|
- (1,451.00) - -
|
(6,892.00) 2,176.00
|
Equipment
|
|
|
|
|
|
|
24 Lab 5/12/2017
|
15,613.00
|
- - -
|
15,613.00
|
(9,368.00) -
|
- (2,498.00) - -
|
(11,866.00) 3,747.00
|
Equipment
|
|
|
|
|
|
|
25 Lab 5/19/2017
|
33,418.00
|
- - -
|
33,418.00
|
(20,051.00) -
|
- (5,347.00) - -
|
(25,398.00) 8,020.00
|
Equipment
|
|
|
|
|
|
|
26 Lab 5/23/2017
|
6,331.00
|
- - -
|
6,331.00
|
(3,799.00) -
|
- (1,013.00) - -
|
(4,812.00) 1,519.00
|
Equipment
|
|
|
|
|
|
|
27 Lab 5/26/2017
|
6,247.00
|
- - -
|
6,247.00
|
(3,749.00) -
|
- (999.00) - -
|
(4,748.00) 1,499.00
|
Equipment
|
|
|
|
|
|
|
28 Lab 5/30/2017
|
13,552.00
|
- - -
|
13,552.00
|
(8,131.00) -
|
- (2,168.00) - -
|
(10,299.00) 3,253.00
|
Equipment
|
|
|
|
|
|
|
29 Lab 6/23/2017
|
26,054.00
|
- - -
|
26,054.00
|
(15,633.00) -
|
- (4,168.00) - -
|
(19,801.00) 6,253.00
|
Equipment
|
|
|
|
|
|
|
30 Lab 7/24/2017
|
5,387.00
|
- - -
|
5,387.00
|
(3,233.00) -
|
- (862.00) - -
|
(4,095.00) 1,292.00
|
Equipment
|
|
|
|
|
|
|
31 Lab 8/1/2017
|
31,065.00
|
- - -
|
31,065.00
|
(18,640.00) -
|
- (4,970.00) - -
|
(23,610.00) 7,455.00
|
Equipment
|
|
|
|
|
|
|
32 Office 5/10/2017
|
2,558.00
|
- - -
|
2,558.00
|
(1,535.00) -
|
- (409.00) - -
|
(1,944.00) 614.00
|
Equipment
|
|
|
|
|
|
|
33 Office 5/23/2017
|
3,407.00
|
- - -
|
3,407.00
|
(2,045.00) -
|
- (545.00) - -
|
(2,590.00) 817.00
|
Equipment
|
|
|
|
|
|
|
34 Office 5/23/2017
|
2,806.00
|
- - -
|
2,806.00
|
(1,684.00) -
|
- (449.00) - -
|
(2,133.00) 673.00
|
Equipment
|
|
|
|
|
|
|
35 Truck 5/1/2017
|
41,000.00
|
- - -
|
41,000.00
|
(24,600.00) -
|
- (6,560.00) - -
|
(31,160.00) 9,840.00
|
36
Warehouse5/12/2017
|
17,080.00
|
- - -
|
17,080.00
|
(9,760.00) -
|
- (2,091.00) - -
|
(11,851.00) 5,229.00
|
Equipment
|
|
|
|
|
|
|
37
Warehouse7/5/2017
|
46,312.00
|
- - -
|
46,312.00
|
(26,464.00) -
|
(5,671.00) - -
|
(32,135.00) 14,177.00
|
Equipment
|
|
|
|
|
|
|
38
Warehouse8/8/2017
|
3,694.00
|
- - -
|
3,694.00
|
(2,111.00) -
|
- (452.00) - -
|
(2,563.00) 1,131.00
|
Equipment
|
|
|
|
|
|
|
39 Building 3/13/2017
|
306,726.00
|
- - -
|
306,726.00
|
(6,226.00) -
|
- (7,865.00) - -
|
(14,091.00)292,635.00
|
Improvements
|
|
|
|
|
|
|
40 3/30/2017
|
15,000.00
|
- - -
|
15,000.00
|
(305.00) -
|
- (385.00) - -
|
(690.00) 14,310.00
|
Architectural
Costs
|
|
|
|
|
|
|
41 Building 4/7/2017
|
100,000.00
|
- - -
|
100,000.00
|
(1,816.00) -
|
- (2,564.00) - -
|
(4,380.00) 95,620.00
|
Improvements
|
|
|
|
|
|
|
43
Leasehold5/31/2017
|
980,953.00
|
- - -
|
980,953.00
|
(515,001.00) -
|
- (46,595.00) - -
|
(561,596.00)419,357.00
|
Improvements
|
|
|
|
|
|
|
44 Building 4/25/2017
|
25,000.00
|
- - -
|
25,000.00
|
(454.00) -
|
- (641.00) - -
|
(1,095.00) 23,905.00
|
Improvements
|
|
|
|
|
|
|
45 Building 4/26/2017
|
43,198.00
|
- - -
|
43,198.00
|
(785.00) -
|
- (1,108.00) - -
|
(1,893.00) 41,305.00
|
Improvements
- Alarm
|
|
|
|
|
|
|
46 Land 5/25/2017
|
3,926.00
|
- - -
|
3,926.00
|
(2,061.00) -
|
- (187.00) - -
|
(2,248.00) 1,678.00
|
Improvements
|
|
|
|
|
|
|
47 6/5/2017
|
14,661.00
|
- - -
|
14,661.00
|
(204.00) -
|
- (376.00) - -
|
(580.00) 14,081.00
|
Architectural
Costs
|
|
|
|
|
|
|
48 7/25/2017
|
5,359.00
|
- - -
|
5,359.00
|
(63.00) -
|
- (137.00) - -
|
(200.00) 5,159.00
|
Architectural
Costs
|
|
|
|
|
|
|
49 Building 6/23/2017
|
78,610.00
|
- - -
|
78,610.00
|
(1,092.00) -
|
- (2,016.00) - -
|
(3,108.00) 75,502.00
|
Improvements
|
|
|
|
|
|
|
50
Machinery8/11/2017
|
5,200.00
|
- - -
|
5,200.00
|
(3,120.00) -
|
- (832.00) - -
|
(3,952.00) 1,248.00
|
&
Equipment
|
|
|
|
|
|
|
51
Machinery8/18/2017
|
2,925.00
|
- - -
|
2,925.00
|
(1,756.00) -
|
- (468.00) - -
|
(2,224.00) 701.00
|
&
Equipment
|
|
|
|
|
|
|
52 Building 8/23/2017
|
2,550.00
|
- - -
|
2,550.00
|
(24.00) -
|
- (65.00) - -
|
(89.00) 2,461.00
|
Improvements
|
|
|
|
|
|
|
53 Building 9/5/2017
|
7,538.00
|
- - -
|
7,538.00
|
(56.00) -
|
- (193.00) - -
|
(249.00) 7,289.00
|
Improvements
|
|
|
|
|
|
|
54 HVAC's 5/31/2017
|
128,016.00
|
- - -
|
128,016.00
|
(2,051.00) -
|
- (3,282.00) - -
|
(5,333.00) 122,683.00
|
55 Water 5/31/2017
|
17,307.00
|
- - -
|
17,307.00
|
(10,385.00) -
|
- (2,769.00) - -
|
(13,154.00) 4,153.00
|
Filtration
|
|
|
|
|
|
|
56 Bench 5/31/2017
|
21,595.00
|
- - -
|
21,595.00
|
(12,341.00) -
|
- (2,644.00) -
|
( 14,985.00) 6,610.00
|
System
|
|
|
|
|
|
|
57 Lighting 5/31/2017
|
29,133.00
|
- - -
|
29,133.00
|
0 (16,648.00) -
|
- (3,567.00) - -
|
(20,215.00) 8,918.00
|
63
Leasehold 02/27/2018
|
-
|
8,990.00 - -
|
8,990.00
|
- -
|
(202.00) - -
|
(202.00) 8,788.00
|
Improvements
|
|
|
|
-
|
|
|
64
Leasehold 03/15/2018
|
-
|
5,981.50 - -
|
5,981.50
|
- -
|
(121.00) - -
|
(121.00) 5,860.50
|
Improvements
|
|
|
|
-
|
|
|
65
Leasehold 04/17/2018
|
-
|
5,981.50 - -
|
5,981.50
|
- -
|
(108.00) - -
|
(108.00) 5,873.50
|
Improvements
|
|
|
|
-
|
|
|
66
Leasehold 06/04/2018
|
-
|
350,000.00 - -
|
350,000.00
|
- -
|
(4,861.00) - -
|
(4,861.00) 345,139.00
|
Improvements
|
|
|
|
-
|
|
|
67
Leasehold 06/13/2018
|
-
|
150,000.00 - -
|
150,000.00
|
- -
|
(2,083.00) - -
|
(2,083.00) 147,917.00
|
Improvements
|
|
|
|
-
|
|
|
68
Leasehold 06/18/2018
|
-
|
9,500.00 - -
|
9,500.00
|
- -
|
(132.00) - -
|
(132.00) 9,368.00
|
Improvements
|
|
|
|
-
|
|
|
69
Leasehold 07/16/2018
|
-
|
128,315.29 - -
|
128,315.29
|
- -
|
(1,508.00) - -
|
(1,508.00) 126,807.29
|
Improvements
|
|
|
|
-
|
|
|
70
Leasehold 07/26/2018
|
-
|
26,470.23 - -
|
26,470.23
|
- -
|
(311.00) - -
|
(311.00) 26,159.23
|
Improvements
|
|
|
|
-
|
|
|
71
Leasehold 07/27/2018
|
-
|
200,000.00 - -
|
200,000.00
|
- -
|
(2,350.00) - -
|
(2,350.00) 197,650.00
|
Improvements
|
|
|
|
-
|
|
|
72
Leasehold 07/30/2018
|
-
|
3,200.00 - -
|
3,200.00
|
- -
|
(38.00) - -
|
(38.00) 3,162.00
|
Improvements
|
|
|
|
-
|
|
|
73
Leasehold 08/03/2018
|
-
|
100,000.00 - -
|
100,000.00
|
- -
|
(962.00) - -
|
(962.00) 99,038.00
|
Improvements
|
|
|
|
-
|
|
|
74
Leasehold 08/08/2018
|
-
|
6,546.03 - -
|
6,546.03
|
- -
|
(63.00) - -
|
(63.00) 6,483.03
|
Improvements
|
|
|
|
-
|
|
|
75
Leasehold 08/08/2018
|
-
|
12,694.34 - -
|
12,694.34
|
- -
|
(122.00) - -
|
(122.00) 12,572.34
|
Improvements
|
|
|
|
-
|
|
|
76
Leasehold 08/09/2018
|
-
|
400,000.00 - -
|
400,000.00
|
- -
|
(3,846.00) - -
|
(3,846.00) 396,154.00
|
Improvements
|
|
|
|
-
|
|
|
77
Leasehold 08/17/2018
|
-
|
140,000.00 - -
|
140,000.00
|
- -
|
(1,346.00) - -
|
(1,346.00) 138,654.00
|
Improvements
|
|
|
|
-
|
|
|
78
Leasehold 08/17/2018
|
-
|
200,000.00 - -
|
200,000.00
|
- -
|
(1,923.00) - -
|
(1,923.00) 198,077.00
|
Improvements
|
|
|
|
-
|
|
|
79
Leasehold 08/23/2018
|
-
|
5,089.59 - -
|
5,089.59
|
- -
|
(49.00) - -
|
(49.00) 5,040.59
|
Improvements
|
|
|
|
-
|
|
|
80
Leasehold 08/31/2018
|
-
|
100,000.00 - -
|
100,000.00
|
- -
|
(962.00) - -
|
(962.00) 99,038.00
|
Improvements
|
|
|
|
-
|
|
|
81
Leasehold 10/12/2018
|
-
|
2,725.00 - -
|
2,725.00
|
- -
|
(15.00) - -
|
(15.00) 2,710.00
|
Improvements
|
|
|
|
-
|
|
|
82
Leasehold 11/01/2018
|
-
|
147,560.00 - -
|
147,560.00
|
- -
|
(473.00) - -
|
(473.00) 147,087.00
|
Improvements
|
|
|
|
-
|
|
|
83
Leasehold 11/16/2018
|
-
|
14,905.00 - -
|
14,905.00
|
- -
|
(48.00) - -
|
(48.00) 14,857.00
|
Improvements
|
|
|
|
-
|
|
|
84
Leasehold 11/20/2018
|
-
|
25,800.00 - -
|
25,800.00
|
- -
|
(83.00) - -
|
(83.00) 25,717.00
|
Improvements
|
|
|
|
-
|
|
|
85
Leasehold 12/14/2018
|
-
|
100,000.00 - -
|
100,000.00
|
- -
|
(107.00) - -
|
(107.00) 99,893.00
|
Improvements
|
|
|
|
-
|
|
|
86
Cultivation 03/06/2018
|
-
|
19,193.00 - -
|
19,193.00
|
- -
|
(390.00) - -
|
(390.00) 18,803.00
|
Expansion
|
|
|
|
-
|
|
|
87
Cultivation 03/26/2018
|
-
|
100,000.00 - -
|
100,000.00
|
- -
|
(2,030.00) - -
|
(2,030.00) 97,970.00
|
Expansion
|
|
|
|
-
|
|
|
88
Cultivation 05/17/2018 Expansion
|
-
|
100,000.00 - -
|
100,000.00
|
- -
-
|
(1,603.00) - -
|
(1,603.00) 98,397.00
|
89
Lab Equipment
|
02/22/2018
|
|
30,674.0
|
- -
30,674.00
|
- -
(30,674
00)
|
-
(30,674.00)
|
|
|
|
|
0
|
|
|
|
|
|
|
90 Lab
|
02/28/2018
|
|
|
- -
|
- -
|
-
|
|
|
Equipment
|
|
|
10,100.0
|
10,100.00
|
(10,100
00)
|
(10,100.00)
|
|
|
|
|
0
|
|
|
|
|
|
|
91 Lab
|
06/12/2018
|
|
|
- -
|
- -
|
-
|
|
|
Equipment
|
|
|
52,167.1
|
52,167.16
|
(52,167
16)
|
(52,167.16)
|
|
|
|
|
6
|
|
|
|
|
|
|
92 Lab
|
06/12/2018
|
|
|
|
|
|
|
|
Equipment
|
|
|
10,100.0
|
10,100.00
|
|
(10,100
00)
|
|
(10,100.00)
|
|
|
0
|
|
|
|
|
|
|
|
|
93
Lab
|
06/15/2018
|
|
|
-
|
|
-
|
-
|
-
|
-
|
Equipment
|
|
|
7,036.2
|
7,036.25
|
|
(7,036.25)
|
|
(7,036.25)
|
|
|
5
-
|
|
-
-
|
- -
|
|
-
-
|
-
|
-
-
|
-
|
42
Licenses
|
5/31/2017
|
1,443,224.00
|
- -
|
- 1,443,224.00
|
(56,125.00) -
|
-
|
(96,215.00) -
|
|
- (152,340.00) 1,290,884.00
|
|
|
3,710,863.00
|
2,473,028.89 -
|
- 6,183,891.89
|
(913,405.00) -
|
(110,077.41)
|
(267,748.00) -
|
|
- (1,291,230.41) 4,892,661.48
|
Schedule 4.10(b)
Intellectual Property
All intellectual property rights to those biological assets such as
strains and genetics currently located within
the Leased Premises of Seller, and any biological assets or
inventory resulting therefrom entered into
Metrc following June 16, 2020 and up through the Effective Date of
this Agreement.
Schedule 4.11
Contracts
(i)
None.
(ii)
1.Lease Agreement, dated April 7, 2017, by and
between Waters Technologies Corporation and West Coast Development
Nevada, LLC (the "Nevada Waters Tech
Agreement").
(iii)
1. The
Option.
(iv)
1. The
Option
2. The
Nevada Lease.
4. The
Nevada Waters Tech Agreement.
(iv)
None.
(vi)
None.
(vii)
None.
(viii)
1. The
Jeff Nagel Settlement Agreement.
2. The
Option.
(ix)
1. The
DCL Loan.
2. The B
Nevada Loan.
3. Promissory Note, dated May 2, 2017, by W The
Brand LLC, in favor of Brian M. Dominick, as modified by that
certain Loan Modification Agreement, dated September 7, 2017, by
and among W The Brand, LLC, Brian M. Dominick, R. Scott Coffman,
Morehead Food & Beverage, Inc. KCD Holdings, LLC, BDWK, LLC,
Morehead Tyron Properties, LLC, and Midnight Diner, LLC, and that
certain Second Loan Modification, dated October 31, 2018
(collectively, the "Dominick
Loan").
4.
The Nevada Lease.
(x)
None.
(xi)
1. The
Sean Corrigan Employment Agreement
2. The
Restricted Equity Grant.
(xii)
None.
(xiii)
1. The
Restricted Equity Grant.
2. The
DCL Loan.
3. The
B Nevada Loan.
(xiv)
None
(xv)
None.
(xvi)
None
(xvii)
None.
(xviii)
1. The
Nevada Lease.
(xix)
None.
(xx)
None.
(xxi)
None.
Schedule 4.12(a) and (b)
Employee Census
(a) Employee
Census
1. See attached.
(b) Fringe
Benefits
1. See attached.
Schedule 4.12(c)
Labor Matters
1. On March 4, 2019, Mindy
Coats, a former Regional Sales Manager of W Vapes and Seller, filed
a complaint in the Eighth Judicial District Court of Clark County,
Nevada (Case No. A-19790393-C), alleging that she was owed 5% in
commissions on her gross sales and was only paid 2.5% commission.
The complaint seeks relief for (i) wage and benefits deprivation;
(ii) failure to timely pay all wages due and owing upon termination
pursuant to NRS 608.140 and 608.020.050; and (iii) unjust
enrichment/quantum meruit.
Schedule 4.15(a)
Compliance with Laws; Permits
1. Seller may be in violation of Clark County law requiring a Clark
County Marijuana Support Business License be obtained by a
purchaser of a business during the transition period after its
purchase of the Nevada licenses from the Sweet Goldy, LLC and Sweet
Goldy Production, LLC until such time as those licenses are
transferred to West Coast Development Nevada, LLC. To date, Nevada
Seller has not obtained such Clark County Marijuana Support
Business License.
Schedule 4.17
Environmental Matters
None.
Schedule 4.18(a)
Insurance Policies
Insurer
|
Policy
No.
|
Nature
of Coverage
|
Risk
Insured
|
Deductible
|
Policy
Period
|
Traveler’s
|
6JUB-
|
Workers
|
Bodily
Injury
|
N/A
|
06/30/2018
–
|
Property
and
|
1K47406-A-
|
Compensation
|
by
Accident;
|
|
06/30/2019
|
Casualty
Company of
|
18
|
and
Employers
|
Bodily
Injury by Disease
|
|
|
America
|
|
Liability
|
|
|
|
|
|
Policy
|
|
|
|
Country
|
P27A5108162
|
Automobile
|
Bodily
Injury
|
$500
|
05/27/2019
–
|
Preferred
|
|
Policy
|
Liability;
|
|
11/27-2019
|
Insurance
|
|
|
Property
|
|
|
Company
|
|
|
Damage
|
|
|
|
|
|
Liability
|
|
|
Certain identified information has been excluded from the exhibit
because it is both not material and is the type that
the registrant treats as private or
confidential.
THIS SHARE EXCHANGE AGREEMENT made as of the 26th
day of April, 2018.
AMONG:
MM DEVELOPMENT COMPANY,
INC., a corporation existing
under the laws of the State of Nevada
(hereinafter called the “Corporation”)
OF THE FIRST PART
AND:
CARPINCHO CAPITAL
CORP., a corporation existing
under the federal laws of the Canada
(hereinafter called the “Acquiror”)
OF THE SECOND PART
AND:
ALL OF THE SHAREHOLDERS OF THE CORPORATION AS SET OUT IN SCHEDULE
“A” HERETO
(hereinafter called the “Shareholders”)
WHEREAS the Shareholders wish to transfer, and the
Acquiror wishes to acquire from the Shareholders all of the
Acquired Corporation Shares (as defined below), for the
consideration and upon the terms and conditions set forth in this
Agreement;
AND WHEREAS the parties intend that the Transaction will
constitute as a single integrated transaction qualifying for
tax-deferred treatment under Section 351 of the U.S. Internal Revenue
Code (“Code”)
and that, upon completion of the Transaction, the Acquiror shall be
treated as a U.S. domestic corporation for U.S. federal income tax
purposes under Section 7874(b) of the Code.
NOW THEREFORE THIS AGREEMENT
WITNESSES THAT in consideration
of the mutual covenants and agreements herein contained, and other
good and valuable consideration (the receipt and sufficiency of
which are hereby acknowledged), the parties hereto covenant and
agree as follows:
ARTICLE 1
INTERPRETATION
1.1
Where
used herein or in any amendments or schedules hereto, the following
terms shall have the following meanings:
“Accounts
Receivable” means
accounts receivable, bills receivable, trade accounts, book debts
and insurance claims recorded as receivable in the Books and
Records and other amounts due or deemed to be due to the
Corporation including refunds and rebates receivable to the extent
reflected in the Financial Statements of the
Corporation;
“Acquiror Public Disclosure
Record” means the
Acquiror’s publically filed documents, as filed on the System
for Electronic Document Analysis and Retrieval
(SEDAR);
“Acquiror Shareholder
Approval” means the
approval by the shareholders of the Acquiror of the Transaction
Resolutions by unanimous written consent
resolution;
“Acquiror
Shares” means the common
shares in the capital of the Acquiror as currently
constituted;
“Acquiror Special
Warrants” means special
warrants to acquire Acquiror Shares;
“Acquired Corporation
Shares” means,
collectively, the 25,300,000 Corporation Shares and the 49,700,000
Corporation Non-Voting Shares to be held collectively by the
Shareholders as of the Closing Date, as set out in Schedule
“A” hereto;
“Acquisition
Price” has the meaning
ascribed to such team in Section 2.3 hereof;
“Acquisition
Proposal” means, other
than the transactions contemplated by this Agreement, any
bona fide
offer, proposal, expression of
interest, or inquiry from any Person (other than the Acquiror or
any of its affiliates) made after the date hereof relating
to:
(a)
any
acquisition or sale, direct or indirect, whether in a single
transaction or a series of related transactions, of: (i) assets of
the Corporation or the Acquiror, as the case may be, that
constitutes 50% or more of the fair market value of the assets of
the Corporation or the Acquiror, as the case may be; or (ii) 50% or
more of any voting or equity securities of the Corporation or the
Acquiror; or
(b)
any
plan of arrangement, merger, amalgamation, consolidation, share
exchange, business combination, reorganization, recapitalization,
liquidation, dissolution or other similar transaction involving the
Corporation or the Acquiror;
“Agreement” means this Agreement and all amendments
made hereto by written agreement signed by the parties and includes
the schedules hereto;
“Amalco” means the company resulting from the
Amalgamation;
“Amalgamation” means the amalgamation of a wholly-owned
subsidiary of the Acquiror with Finco, to be set out in an
agreement among Acquiror, a wholly-owned subsidiary of the
Acquiror, and Finco, in connection with the completion of the
Transaction;
“Applicable
Laws” means, in relation
to any person or persons, applicable Securities Laws and all other
statutes, regulations, statutory rules, orders, by-laws, codes,
ordinances, decrees, the terms and conditions of any grant of
approval, permission, authority or licence, or any judgment, order,
decision, ruling, award, policy or guideline, of any Governmental
Entity that are applicable to such person or persons or its or
their business, undertaking, property or securities and emanate
from a Governmental Entity, having jurisdiction over the person or
persons or its or their business, undertaking, property or
securities;
“Assets” includes all assets of the Corporation,
including Intellectual Property, having a fair market value in
excess of $5,000, and includes, but is not limited to, all of the
assets to be described in the Financial Statements of the
Corporation;
“Authorizations”
means all required corporate, regulatory and shareholder approvals,
consents, authorizations and waivers relating to (i) the
consummation of the transactions contemplated by this Agreement,
(ii) the Transaction, (iii) the Amalgamation; and (iv) the Stock
Exchange Listing, shall have been obtained on terms and conditions
satisfactory to the parties, acting reasonably;
“Books
and Records” means books
and records of the Corporation relating to the Corporation,
including financial, corporate, operations and sales books,
records, books of account, sales and purchase records, lists of
suppliers and customers, formulae, business reports, plans and
projections and all other documents, surveys, plans, files,
records, assessments, correspondence, and other data and
information, financial or otherwise, including all data,
information and databases stored on computer-related or other
electronic media;
“Brokered
Financing” means the
brokered financing of Finco Subscription Receipts to be completed
prior to the Closing for gross proceeds of up to $25 million; the
net proceeds of which will be placed in escrow and released to
Finco, and the Finco Subscription Receipts will automatically be
converted into Finco Units, on satisfaction of certain escrow
release conditions, and each Finco Share will then be exchanged for
one Resulting Issuer Share and each Finco Warrant will then be
exchanged for one Resulting Issuer Warrant, respectively, in
connection with the Transaction and the
Amalgamation;
“Business” means the business carried on by the
Corporation which involves the cultivation, extraction, production,
and sale of cannabis and cannabis-related products including
ancillary activities related thereto, as more particularly
described in the Listing Statement;
“Business Day” means any day which is not a Saturday,
Sunday or a statutory holiday in the Province of
Ontario;
“CBCA” means the Canada Business Corporations
Act, R.S.C., 1985, c. C-44, as
amended and any legislation enacted in substitution
therefor;
“CSE” means the Canadian Securities
Exchange;
“Closing Date” has the meaning ascribed to such term in
Section 2.9 hereof; “Closing” has the meaning ascribed to such term in
Section 2.9 hereof; “Code” means the United States Internal Revenue
Code of 1986, as amended;
“Consideration
Shares” means,
collectively, the Resulting Issuer Shares and the Restricted
Shares, all as more particularly set forth in Schedule
“A” hereto;
“Consolidation”
means the consolidation of the Acquiror Shares on the basis of
0.875 of a new Acquiror Share for every one existing Acquiror
Share;
“Copyright” means all rights, titles, interests and
benefits in and to (a) all copyright and neighbouring rights in the
Works, (b) all registrations for copyright and neighbouring rights,
pending applications for registrations of copyright and
neighbouring rights, and rights to file applications for
registrations of copyright and neighbouring rights for the Works,
and (c) all sui generis rights in the
Databases.
“Corporation
Board” means the board of
directors of the Corporation;
“Corporation
Nominee” means each
director of the Resulting Issuer who is nominated by the Acquiror,
on the recommendation of the Corporation, prior to the completion
of the Transaction;
“Corporation Non-Voting
Shares” means the class B
common non-voting shares in the capital of the
Corporation;
“Corporation Shareholder
Approval” means the
approval by the shareholders of the Corporation of the Corporation
Transaction Resolution by unanimous written consent
resolution;
“Corporation
Shares” means the class A
common voting shares in the capital of the
Corporation;
“Corporation Transaction
Resolution” means the
resolution of the Shareholders approving the
Transaction;
“Databases” has the meaning set out in the definition
of Works.
“Encumbrances” means any and all claims, liens, security
interests, mortgages, pledges, preemptive rights, charges, options,
equity interests, encumbrances, proxies, voting agreements, voting
trusts, leases, tenancies, easements or other interests of any
nature or kind whatsoever, howsoever created, but shall not
include: (i) an encumbrance for Taxes not yet due and delinquent;
(ii) inchoate or statutory encumbrances of contractors,
subcontractors, mechanics,
workers, suppliers, materialmen, carriers and others in respect of
the construction, maintenance, repair or operation of the Assets,
provided that such encumbrances are related to obligations not due
or delinquent and in respect of which adequate holdbacks are being
maintained as required by Applicable Law; and (iii) the right
reserved to or vested in any Governmental Entity by any statutory
provision or by the terms of any lease, licence, franchise, grant
or permit of either Party, to terminate any such lease, licence,
franchise, grant or permit, or to require annual or other payments
as a condition of their continuance;
“Environmental
Laws” means all
applicable federal, provincial, state, local and foreign laws,
imposing liability or standards of conduct for, or relating to, the
regulation of activities, materials, substances or wastes in
connection with, or for, or to, the protection of human health,
safety, the environment or natural resources (including ambient
air, surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and
vegetation);
“Environmental
Liabilities” means, with
respect to any Person, all liabilities, remedial and removal costs,
investigation costs, capital costs, operation and maintenance
costs, losses, damages, (including punitive damages, property
damages, consequential damages and treble damages), costs and
expenses, fines, penalties and sanctions incurred as a result of,
or related to, any claim, suit, action, administrative order,
investigation, proceeding or demand by any Person, whether based in
contract, tort, implied or express warranty, strict liability,
criminal or civil statute or common law arising under, or related
to, any Environmental Laws, Environmental Permits, or in connection
with any Release or threatened Release or presence of a Hazardous
Substance whether on, at, in, under, from or about or in the
vicinity of any real or personal property;
“Environmental
Permits” means all
permits, licenses, written authorizations, certificates, approvals,
program participation requirements, sign-offs or registrations
required by or available with or from any Governmental Entity under
any Environmental Laws;
“Financial Statements of the
Corporation” means the
audited financial statements of the Corporation for the fiscal
years ended December 31, 2017 and December 31, 2016, consisting of
the balance sheet and the income statement, to be prepared in
accordance with Applicable Laws and the regulations of the CSE in
connection with the listing of the Resulting Issuer Shares and to
be filed in the listing statement of the Acqurior on SEDAR in
connection with the Transaction;
“Finco” means 10653918 Canada Inc., a company
existing under the federal laws of Canada;
“Finco
Financing” means,
collectively, the Brokered Financing and the Non-Brokered
Financing;
“Finco
Shares” means common
shares in the authorized share capital of
Finco;
“Finco
Subscription Receipts”
means subscription receipts of Finco issued in the Finco Financing
at a price of $0.80 per subscription receipt, which will
automatically be converted into Finco Units immediately prior to
the completion of the Transaction;
“Finco
Units” means the units of
Finco to be issued on exercise or deemed exercise of the Finco
Subscription Receipts, each such unit consisting of one (1) Finco
Share and one-half of one Finco Warrant;
“Finco
Warrants” means the whole
share purchase warrants issued to holders of Finco Subscription
Receipts upon satisfaction of certain escrow release conditions,
each whole such Finco Warrant entitling the holder thereof to
purchase one (1) Finco Share at a price of $1.40 per share for a
period of 24 months following the satisfaction of certain escrow
release conditions;
“Governmental
Entity” means any
applicable: (a) multinational, federal, provincial, state,
regional, municipal, local or other government, governmental or
public department, central bank, court, tribunal, arbitral body,
commission, board, bureau or agency, domestic or foreign; (b)
subdivision, agent, commission, board or authority of any of the
foregoing; (c) quasi-governmental or private body, including any
tribunal, commission, regulatory agency or self-regulatory
organization, exercising any regulatory, expropriation or taxing
authority under or for the account of any of the foregoing; or (d)
stock exchange, including the CSE;
“Hazardous
Substance” means any
pollutant, contaminant, waste or chemical or any toxic,
radioactive, ignitable, corrosive, reactive or otherwise hazardous
or deleterious substance, or material, including petroleum,
polychlorinated biphenyls, asbestos and urea-formaldehyde
insulation, and any other material or contaminant regulated or
defined under any Environmental Law;
“IFRS” means the International Financial
Reporting Standards as issued by the International Accounting
Standards Board;
“Information
Technology” means
computer hardware, software in source code and object code form
(including documentation, interfaces and development tools),
programs, websites for the Corporation, databases,
telecommunications equipment and facilities and other information
technology systems owned, used or held by the
Corporation;
“Intellectual
Property” means
intellectual property rights, whether registered or not, owned,
licensed or used, throughout the world,
including:
(c)
inventions,
algorithms, methods, procedures, techniques, instructions, guides,
manuals, samples, specifications, schematics, invention
disclosures, statutory invention registrations, trade secrets and
confidential business information, know-how, manufacturing and
product processes and techniques, research and development
information, records, financial, marketing and business data,
pricing and cost information, business and marketing plans and
customer and supplier lists and information, whether patentable or
non-patentable, whether copyrightable or non-copyrightable and
whether or not reduced to practice;
(d)
patents,
pending patent applications, utility models, design registrations
and certificates of invention and other governmental grants for the
protection of
inventions
or industrial designs (including divisionals, reissues, renewals,
reexaminations, continuations, continuations-in-part and
extensions);
(e)
trade-marks
and service marks, trade dress, trade-names, corporate names,
business names, doing business designations, logos, slogans,
distinguishing guises, other indicia of origin and all
registrations and applications for registration thereof, common law
trademarks and service marks and all goodwill associated with the
foregoing;
(f)
all
rights, titles, interests and benefits in and to the Works,
including the Copyright and the moral rights and all waivers of
moral rights in the Works;
(g)
all
rights, titles, interests and benefits in and to the
Know-How;
(h)
industrial
designs and all registrations thereof;
(i)
Information
Technology and all registrations thereof;
(j)
mask
works, semiconductor topologies, integrated circuit topographies
and registrations and applications for registration thereof;
and
(k)
other
proprietary rights relating to any of the foregoing, whether
recognized by statutory law or common or civil law (including
remedies against infringement thereof and rights of protection of
interest therein under Applicable Laws);
(l)
income
and proceeds from any of the intellectual property listed in
paragraphs (c) to (k) above;
(m)
rights
to damages and profits by reason of the infringement of any of the
intellectual property described in items (c) to (k) above;
and
(n)
goodwill
associated with any of the foregoing;
“Know-How” means all know-how, trade secrets,
proprietary information, confidential information and information
of a sensitive nature used by the Corporation in the Business that
have value to the Business or relate to business opportunities for
the Corporation, in whatever form communicated, maintained or
stored, including (a) all formulae, recipes, algorithms, business
methods, technical processes, specifications, manuals, drawings,
prototypes, models, corporate plans, management systems and
techniques, (b) all information relating to the research,
development, manufacture, marketing, sales or post-sales activities
of any past, present or future goods or services, including lab
journals, notebooks, design documentation, engineering
documentation, manufacturing documentation, costing information,
advertising plans, pricing information, customer names, customer
lists and other details of customers, supplier names, supplier
lists and other details of suppliers, sales targets, sales
statistics, market share information, market research and survey
information;
“Leased Real
Property” means lands
and/or premises which are used by the Corporation and which are
leased, subleased, licensed to or otherwise occupied by the
Corporation;
“Letter
Agreement” means the
letter agreement dated February 13, 2018 between the Acquiror and
Corporation, as amended on March 8, 2018;
“Licensed IP” means the Intellectual Property that is
necessary and material to the business of the Corporation as
presently conducted or as proposed to be conducted and that is
owned by any person other than the Corporation;
“Listing
Statement” means the
listing statement of the Acquiror in accordance with requirements
of the CSE in respect of the Transaction;
“Material Adverse
Change” means a change
with respect to a Person that would have a Material Adverse
Effect;
“Material Adverse
Effect” means, in respect
of any Person, any change, effect, event, circumstance, fact or
occurrence that individually or in the aggregate with other such
changes, effects, events, circumstances, facts or occurrences, is
or would reasonably be expected to be, material and adverse to the
business, condition (financial or otherwise), properties,
prospects, assets (tangible or intangible), liabilities (including
any contingent liabilities), operations or results of operations of
that Person and its subsidiaries, taken as a whole, except any
change, effect, event, circumstance, fact or occurrence resulting
from or relating to: (i) the announcement of the execution of this
Agreement or the transactions contemplated hereby; (ii) general
political, economic or financial conditions in Canada or the United
States of America; (iii) the state of securities or commodity
markets in general (provided that it does not have a materially
disproportionate effect on that Person relative to comparable
cannabis companies); (iv) any natural disaster or the commencement
or continuation of any war, armed hostilities or acts of terrorism
(provided that it does not have a materially disproportionate
effect on that Person relative to comparable cannabis companies);
or (v) any decrease in the trading price or any decline in the
trading volume of that Person’s common shares (it being
understood that the causes underlying such change in trading price
or trading volume (other than those in items (i) to (v) above) may
be taken into account in determining whether a Material Adverse
Effect has occurred);
“Material
Contract” is any contract
material to the business, prospects or affairs of the Corporation
and includes but is not limited to, those Material Contracts listed
in Schedule “B” attached hereto;
“Non-Brokered
Financing” means the
non-brokered financing of Finco Subscription Receipts to be
completed prior to the Closing for gross proceeds of up to $5
million; the gross proceeds of which will be placed in escrow and
released to Finco, and the Finco Subscription Receipts will
automatically be converted into Finco Units, on satisfaction of
certain escrow release conditions, and each Finco Share will then
be exchanged for one Resulting Issuer Share and each Finco Warrant
will then be exchanged for one Resulting Issuer Warrant,
respectively, in connection with the Transaction and the
Amalgamation;
“Owned
Real Property” means real
property owned by the Corporation, and real property, other than
Leased Real Property, in which the Corporation has an ownership
interest;
“Permit” means any license, permit, certificate,
consent, order, grant, approval, classification, registration or
other authorization of and from any Governmental
Entity;
“Person” includes an individual, partnership,
association, unincorporated organization, trust and corporation and
a natural person acting in such person’s individual capacity
or in such person’s capacity as trustee, executor,
administrator, agent or other legal
representative;
“Personally Identifiable
Information” means any
information that alone or in combination with other information
held by the Corporation can be used to specifically identify a
person including but not limited to a natural person’s name,
street address, telephone number, e-mail address, photograph,
social insurance number, driver’s license number, passport
number, credit or debit card number or customer or financial
account number or any similar information that is treated as
“Personally Identifiable Information” under any
Applicable Laws;
“Real
Property Leases” means
contracts pursuant to which the Corporation uses or occupies the
Leased Real Property;
“Release” means any release, spill, emission,
leaking, pumping, pouring, emitting, emptying, escape, injection,
deposit, disposal, discharge, dispersal, dumping, leaching or
migration of Hazardous Substance in the indoor or outdoor
environment, including the movement of Hazardous Substance through
or in the air, soil, surface water, groundwater or
property;
“Representatives”
means, collectively, in respect of a Person, (a) its directors,
officers, employees, agents, representatives and any financial
advisor, law firm, accounting firm or other professional firm
retained to assist the Person in connection with the transactions
contemplated in this Agreement, and (b) the Person’s
affiliates and subsidiaries and the directors, officers, employees,
agents and representatives and advisors
thereof;
“Restricted
Shares” means the Class A
Restricted Voting Shares in the capital of the Resulting Issuer
having the terms and conditions in substantially the form set out
in Schedule “C” hereto and to be received by the
Shareholders as set forth in Schedule “A”
hereto;
“Resulting
Issuer” means the
Acquiror following the Consolidation and the completion of the
Transaction, and to be renamed “Planet 13 Holdings
Inc.”, or such other name as determined by the directors of
the Acquiror;
“Resulting Issuer
Shares” means common
shares in the capital of the Resulting Issuer;
“Resulting Issuer
Warrant” means common
share purchase warrants to acquire Resulting Issuer
Shares;
“Securities
Authorities” means the
securities commissions or other securities regulatory authorities
in Alberta, British Columbia, Newfoundland and Labrador, Nova
Scotia, Ontario, Prince Edward Island, and Quebec, and each of the
other provinces and territories of Canada;
“Securities
Act” means the
Securities
Act (Ontario) and the rules,
regulations and published policies made thereunder, as now in
effect and as they may be promulgated or amended from time to
time;
“Securities
Laws” means the
Securities Act, together with all applicable Canadian provincial
securities laws, rules and regulations and published policies
thereunder as now in effect and as they may be promulgated or
amended from time to time;
“Shareholders” means, collectively, the holders of an
aggregate of 25,300,000 Corporation Shares and 49,700,000
Corporation Non-Voting Shares, as listed in Schedule
“A”;
“Software” means all computer programs and all
updates, upgrades and all versions thereof owned or licensed, by
the Corporation and developed, sold, licensed to third parties,
marketed or supported by the Corporation in its normal course of
business, including but not limited to all computer software code,
applications, utilities, development tools, diagnostics, databases
and embedded systems, whether in source code, interpreted code or
object code form, program files, data files, computer related data,
field and data definitions and relationships, data definitions
specifications, data models, programs and systems logic,
interfaces, program modules, routines, sub-routines, algorithms,
program architecture, design concepts, system designs, program
structure, sequence and organization, screen displays and report
layouts;
“Stock
Exchange Listing” means
the conditional approval of CSE for the listing of the
Consideration Shares on the CSE;
“Tangible Personal
Property” means
machinery, equipment, furniture, furnishings, office equipment,
computer hardware, vehicles and tangible assets owned and currently
used by the Corporation, excluding all obsolete and non-functional
assets of the Corporation;
“Tax
Act” means the
Income Tax
Act (Canada), as amended from
time to time;
“Taxes” in respect of a Party means: any and all
taxes, imposts, levies, withholdings, duties, fees, premiums,
assessments and other charges of any kind, however denominated and
instalments in respect thereof, including any interest, penalties,
fines or other additions that have been, are or will become payable
in respect thereof, imposed by any Governmental Entity, including
for greater certainty all income or profits, taxes (including
federal, provincial, state, municipal and territorial income
taxes), payroll and employee withholding taxes, employment taxes,
unemployment insurance, disability taxes, social insurance taxes,
sales and use taxes, ad valorem taxes, excise taxes, goods and services taxes,
harmonized sales taxes, franchise taxes, gross receipts taxes,
capital taxes, business license taxes, alternative minimum taxes,
estimated taxes, abandoned or unclaimed (escheat) taxes, occupation taxes, real and personal
property taxes, stamp taxes, environmental taxes, transfer taxes,
severance taxes, workers’ compensation, Canada, United
States, Nevada, Ontario, and other government pension plan premiums
or contributions and other governmental charges, and other
obligations of the same or of a similar nature to any of the
foregoing, which such Party or any of its subsidiaries is required
to pay, withhold or collect, together with any interest, penalties
or other additions to tax that may
become
payable in respect of such taxes, and any interest in respect of
such interest, penalties and additions whether disputed or
not;
“Technical
Information” means
know-how and related technical knowledge owned, used or held by the
Corporation, including: (a) trade secrets, confidential information
and other proprietary know-how; (b) public information and
non-proprietary know-how; (c) information of a scientific,
technical, financial or business nature regardless of its form; (d)
uniform resource locators, domain names, telephone, telecopy,
internet protocol and email addresses, and UPC consumer packaging
codes; and (e) documented research, forecasts, studies, marketing
plans, budgets, market data, developmental, demonstration or
engineering work, information that can be used to define a design
or process or procure, produce, support or operate material and
equipment, methods of production and procedures, all formulas and
designs and drawings, blueprints, patterns, plans, flow charts,
parts lists, manuals and records, specifications, and test
data;
“Technology” means Intellectual Property, Technical
Information and Information Technology;
“Termination
Date” has the meaning
ascribed to such term in Section 13.1(d)
hereof;
“Time of
Closing” has the meaning
ascribed to such term in Section 2.9 hereof;
“Transaction” means, together with the Amalgamation, the
exchange by the Shareholders of the Acquired Corporation Shares for
the Consideration Shares as contemplated in Sections 2.1 and 2.3,
and the liquidation of Amalco under Section
2.4;
“Transaction
Resolutions” has the
meaning set out in Section 6.1(a);
“U.S. Securities
Act” means the United
States Securities Act of 1933, as amended; and
“Works” means all works and subject matter used by
the Corporation in the Business, in which copyright, neighbouring
rights or moral rights subsist, including (a) all Software, (b) all
databases and database layouts (the “Databases”), (c) all documents and other works
relating to the Software or the Databases, (d) all other literary,
artistic, pictorial, graphic, musical, dramatic and audio-visual
works, (e) all performer’s performances, sound recordings,
and other neighbouring works, (f) all compilations of the
foregoing, and (g) all derivatives, enhancements and modifications
of the foregoing.
The Corporation, the Acquiror and each person or
entity that becomes a party hereto in accordance with the terms
hereof are collectively referred to as “Parties” and individually as a
“Party”.
1.3
Interpretation
Not Affected by Headings
The
division of this Agreement into Articles and Sections and the
insertion of headings are for convenience of reference only and
shall not affect in any way the meaning or
interpretation
of this Agreement. Unless the contrary intention appears,
references in this Agreement to an Article, Section or Schedule by
number or letter or both refer to the Article, Section or Schedule,
respectively, bearing that designation in this
Agreement.
In this Agreement, unless the contrary intention
appears, words importing the singular include the plural and
vice
versa, and words importing
gender include all genders.
If
the date on or by which any action is required or permitted to be
taken hereunder by a Party is not a Business Day, such action shall
be required or permitted to be taken on the next succeeding day
which is a Business Day.
Unless
otherwise stated, all references in this Agreement to sums of money
are expressed in lawful money of Canada and “$” refers
to Canadian dollars.
Unless
otherwise stated, all accounting terms used in this Agreement shall
have the meanings attributable thereto under IFRS and all
determinations of an accounting nature required to be made shall be
made in a manner consistent with IFRS consistently
applied.
In
this Agreement, references to “the knowledge of the
Corporation” means the actual collective knowledge of Robert
A. Groesbeck and Larry Scheffler, in their respective capacities as
Co-Chief Executive Officers of the Corporation.
In
this Agreement, references to “the knowledge of the
Acquiror” means the actual knowledge of Lonnie Kirsh in his
capacity as President, Chief Executive Officer, and acting Chief
Financial Officer of the Acquiror.
The
following Schedules are annexed to this Agreement and are
incorporated by reference into this Agreement and form a part
hereof:
Schedule
“A”
Shareholders
of the Corporation
Schedule
“B”
Material
Contracts of the Corporation
Schedule
“C”
Restricted
Share Terms
Schedule
“D”
Consents
and Approvals
Schedule
“E”
Owned
and Leased Real Property
ARTICLE 2
AGREEMENT TO EXCHANGE AND CANCEL
2.1
Subject
to the terms and conditions hereof, and immediately after the
completion of the Amalgamation, at the Time of Closing, and for
greater certainty, concurrently with the closing of the Transaction
and the Stock Exchange Listing, the Shareholders shall transfer to
the Acquiror, and the Acquiror shall accept from the Shareholders,
the Acquired Corporation Shares held by the Shareholders and the
Shareholders shall deliver to the Acquiror certificates
representing the Acquired Corporation Shares, duly endorsed in
blank for transfer, registered in the name of the Acquiror or
accompanied by duly executed powers of attorney in respect thereof
for the transfer of Acquired Corporation Shares to the
Acquiror.
2.2
U.S. Tax
Treatment. The parties to this
Agreement intend that the Transaction contemplated by this
Agreement shall constitute a single integrated transaction which
qualifies as tax-deferred exchange pursuant to Section 351 of the
Code. In connection with the Transaction and at all times from and
after the Closing, the parties agree to treat Resulting Issuer as a
United States domestic corporation for U.S. federal income tax
purposes pursuant to Section 7874(b) of the Code. No party shall
take any action, fail to take any action, cause any action to be
taken or cause any action to fail to be taken that could reasonably
be expected to prevent: (i) the Transaction from qualifying as a
tax-deferred transaction within the meaning of Section 351 of the
Code; or (ii) the Resulting Issuer from being treated as a United
States domestic corporation for U.S. federal income tax purposes
pursuant to Section 7874(b) of the Code. Each party hereto agrees
to act in good faith, consistent with the intent of the parties and
the intended U.S. federal income tax treatment of the Transaction
as set forth in this Section 2.2 and Section 2.3. Notwithstanding
the foregoing, none of the Shareholders, the Acquiror, the
Corporation nor the Resulting Issuer makes any representation,
warranty or covenant to any other party or to any Shareholder
equity holder, Acquiror equity holder, Corporation equity holder or
Resulting Issuer equity holder (including, without limitation,
stock, membership interests, options, warrants, debt instruments or
other similar rights or instruments) regarding the U.S. tax
treatment of the transactions contemplated by this
Agreement.
2.3
The acquisition price (the
“Acquisition
Price”) for the Acquired
Corporation Shares shall be paid and satisfied by the issuance and
delivery at the Time of Closing of the Consideration Shares by the
Acquiror to the Shareholders in accordance with Schedule
“A” hereto, and no other
consideration.
2.4
As
soon as reasonably practicable following the completion of the
Transaction, the Resulting Issuer shall take all such necessary and
reasonable steps required to effect a voluntary liquidation of
Amalco under the CBCA.
2.5
The
Parties acknowledge and agree that the maximum number of
Consideration Shares issuable in exchange for the Acquired
Corporation Shares pursuant to Section 2.1 shall be approximately
25,300,000 Resulting Issuer Shares and approximately 49,700,000
Restricted Shares. The Consideration Shares to be issued hereunder
shall be issued as fully paid and non-assessable shares in the
Resulting Issuer, free and clear of any and all
Encumbrances.
2.6 The Shareholders acknowledge and agree with
the Acquiror that a portion of the Consideration
Shares to be issued as part of the Transaction will be subject to
escrow requirements of the CSE, resale restrictions under
applicable Securities Laws, the securities laws of the United
States and/or the policies of the CSE, and that any escrowed
Consideration Shares will not be transferable if such Consideration
Shares are subject to resale restrictions and CSE escrow
requirements, until the Consideration Shares are no longer subject
to escrow restrictions and are released from escrow.
2.7 Restricted Share Provisions.
The Restricted Shares of the Resulting
Issuer shall have the rights,
privileges, conditions and restrictions set forth in Schedule
“C”.
2.8 The Acquiror does not assume and shall not be
liable for any taxes under the Tax Act, the
Code or any other taxes whatsoever which may be or become payable
by the Shareholders including, without limiting the generality of
the foregoing, any taxes resulting from or arising as a consequence
of the sale by the Shareholders to the Acquiror of the Acquired
Corporation Shares herein contemplated, and the Shareholders shall
indemnify and save harmless the Acquiror from and against all such
taxes.
2.9 The Transaction shall be closed (the
“Closing”), at the offices of the
Corporation’s
Canadian counsel, Cassels Brock & Blackwell LLP, at 8:30 a.m.
local time in Toronto, Ontario (the “Time of
Closing”) on the day that
all conditions contained in this Agreement have been met or waived
(the “Closing Date”).
2.10 Any cheque, document, instrument or thing
which is to be delivered by any Party hereto at the Closing shall
be tabled at a pre-Closing at the place of Closing referred to
above by the Party which is to deliver such cheque, document,
instrument or thing, and any cheque, document, instrument or thing
so tabled by a Party hereto shall be held in escrow by counsel for
such Party until the Time of Closing and released from escrow at
the Time of Closing provided all cheques, documents, instruments
and things which are to be delivered at the Closing are tabled in
accordance with this section at the Closing.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
3.1 The Corporation hereby represents and
warrants to the Acquiror as at the date hereof and
as at the Closing Date and acknowledges and confirms that the
Acquiror is relying upon such representations and warranties in
connection with the acquisition by the Acquiror of the Acquired
Corporation Shares from the Shareholders as follows:
(a)
Organization and
Qualification. The Corporation
is a corporation duly incorporated and
validly existing under the Applicable Laws of the State of Nevada
and has all necessary corporate or legal power and capacity to own
its property and assets as now owned and to carry on its business
as it is now being conducted. A true and complete copy of the
constating documents of the Corporation has been provided to the
Acquiror. The Corporation is duly registered, licensed or otherwise
authorized and qualified to do business and is in good standing in
each jurisdiction in which
the
character of its properties, owned, leased, licensed or otherwise
held, or the nature of its activities, makes such qualification
necessary, except where the failure to be so registered or in good
standing or to have such permits would not have a Material Adverse
Effect on the Corporation.
(b)
Authority Relative to
this Agreement. The Corporation
has all necessary corporate power, authority and capacity to enter
into this Agreement and all other agreements and instruments to be
executed by the Corporation as contemplated by this Agreement, and
to perform its obligations hereunder and under such agreements and
instruments. The execution and delivery of this Agreement by the
Corporation and the performance by the Corporation of its
obligations under this Agreement have been duly authorized by the
Corporation Board in the manner contemplated herein, and subject to
providing the Nevada Secretary of State under Chapter 78 of the
Nevada Revised Statues any records, information or other documents
required by it in connection with the Transaction, no other
corporate proceedings on its part are necessary to authorize this
Agreement. This Agreement has been duly executed and delivered by
the Corporation and constitutes a legal, valid and binding
obligation of the Corporation, enforceable against the Corporation
in accordance with its terms, subject to the qualification that
such enforceability may be limited by bankruptcy, insolvency,
reorganization or other laws of general application relating to or
affecting rights of creditors and that equitable remedies,
including specific performance, are discretionary and may not be
ordered.
(c)
No
Violation. Neither the
authorization, execution and delivery of this Agreement by the
Corporation nor the completion of the Transaction, nor the
performance of its obligations herein, nor compliance by the
Corporation with any of the provisions hereof
will:
(i) result in a violation or breach of, constitute a
default (or an event which, with notice or lapse of time or both,
would become a default), require any consent or approval to be
obtained or notice to be given under, or give rise to any third
party right of termination, cancellation, suspension, acceleration,
penalty or payment obligation or right to acquire or sale under,
any provision of:
(A)
its
articles, charters or by-laws or other comparable organizational
documents;
(B)
any
Permit or Material Contract to which the Corporation is a party or
to which it, or any of its properties or assets, may be subject or
by which it is bound; or
(C)
any
laws, regulation, order, judgment or decree applicable to the
Corporation or any of its respective properties or
assets;
(ii)
give
rise to any rights of first refusal or trigger any change in
control provisions, rights of first offer or first refusal or any
similar provisions or any restrictions or limitation under any
note, bond, mortgage, indenture, Material Contract, license,
franchise or Permit, except, to the extent that any of the
foregoing instruments are material to the Corporation, where
waivers to such rights have been obtained by the
Corporation;
(iii)
give
rise to any termination or acceleration of indebtedness, or cause
any third party indebtedness to come due before its stated maturity
or cause any available credit to cease to be
available;
(iv)
result
in the imposition of any Encumbrance upon any of the property or
assets of the Corporation or restrict, hinder, impair or limit the
ability of the Corporation to conduct the Business which would
reasonably be expected to have a Material Adverse Effect on the
Corporation; or
(v)
result
in any material payment (including retention, severance,
unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any director, officer or employee of the
Corporation, or increase any benefit payable to such director,
officer or employee by the Corporation, or result in the
acceleration of the time of payment or vesting of any such
benefits.
Capitalization. The authorized
share capital of the Corporation consists of 50,000,000 Corporation
Shares with a par value of US$0.001 per Corporation Share, and
100,000,000 Corporation Non-Voting Shares with a par value of
US$0.001 per Corporation Non-Voting Share, of which a total of
25,300,000 Corporation Shares (and no more) and the 49,700,000
Corporation Non-Voting Shares (and no more) will be will be validly
issued and outstanding as fully paid and non-assessable shares in
the capital of the Corporation immediately prior to the Time of
Closing. As of the date hereof, there are 25,300,000 Corporation
Shares and 49,700,000 Corporation Non-Voting Shares issued and
outstanding Corporation Shares. There are no options, warrants,
conversion privileges or other rights, agreements, arrangements or
commitments (pre-emptive, contingent or otherwise) of any character
whatsoever requiring or which may require the issuance, sale or
transfer by the Corporation of any securities of the Corporation
(including Corporation Shares), or any securities or obligations
convertible into, or exchangeable or exercisable for, or otherwise
evidencing a right or obligation to acquire, any securities of the
Corporation (including Corporation Shares), provided, however,
there may be options exercisable into Corporation Shares (at an
exercise price not less than $0.80 per Corporation Share) and
restricted share units of the Corporation outstanding immediately
prior to the Closing Date. All outstanding Corporation Shares have
been duly authorized and validly issued, are fully paid and
non-assessable. All securities of the Corporation (including the
Corporation Shares) have been issued in compliance with all
Applicable Laws and Securities Laws. There are no securities of the
Corporation outstanding which have the right to
vote
generally
(or are convertible into or exchangeable for securities having the
right to vote generally) with the Shareholders on any matter. There
are no outstanding contractual or other obligations of the
Corporation to repurchase, redeem or otherwise acquire any of its
securities. There are no outstanding bonds, debentures or other
evidences of indebtedness of the Corporation having the right to
vote with the holders of the outstanding Corporation Shares on any
matters.
(d)
Ownership of
Subsidiaries. The Corporation
does not beneficially own, or exercise control or direction over,
10% or more of the outstanding voting shares of any company and
does not own any securities or, have any interest in any joint
venture entity or other Person.
(e)
Non-reporting
issuer. The Corporation is not
a reporting issuer, as that term is defined by Securities Laws,
there is no published market for the Acquired Corporation Shares
and the number of holders of common shares in the capital of the
Corporation as at the date hereof is not more than 50, exclusive of
holders who
(i) are
in the employment of the Corporation or an affiliate of the
Corporation, or
(ii) were
formerly in the employment of the Corporation or in the employment
of an entity that was an affiliate of the Corporation at the time
of that employment and who while in that employment were, and have
continued after that employment to be, security holders of the
Corporation.
(f)
Books and
Records. The financial books,
records and accounts of the Corporation: (i) have been maintained
in accordance with Applicable Laws; and (ii) are stated in
reasonable detail and accurately and fairly reflect the material
transactions, acquisitions and dispositions of the assets of the
Corporation.
(g)
Minute
Books. The corporate minute
books of the Corporation contain resolutions of the Corporation
Board and committees thereof, and shareholders or members, as
applicable, held according to Applicable Laws and are complete and
accurate in all material respects.
(h)
No
Proceedings. No proceedings
have been taken, instituted or are pending for the dissolution,
winding-up or liquidation of the Corporation and no board approvals
have been given to commence any such
proceedings.
(i)
No Undisclosed
Liabilities. At the time of
Closing, the Corporation shall have no outstanding indebtedness,
liability or obligation (including liabilities or obligations to
fund any operations or work, to give any guarantees or for Taxes
due), whether accrued, absolute, contingent or otherwise, and are
not party to or bound by any suretyship, guarantee, indemnification
or assumption agreement, or endorsement of, or any other similar
commitment with respect to the obligations, liabilities or
indebtedness of any Person which shall not be disclosed or
reflected in the Financial Statements of the Corporation, other
than those incurred in the ordinary course of
business.
(j)
No Material
Change. Since March 31, 2018,
except as contemplated by this Agreement, or otherwise disclosed to
the Acquiror:
(i)
the
Corporation has conducted its business only in the ordinary and
regular course of business;
(ii)
there
has not occurred any event that constituted or with the passage of
time would constitute a Material Adverse Effect in respect of the
Corporation;
(iii)
other
than in the ordinary and regular course of business consistent with
past practice, there has not been any incurrence, assumption or
guarantee by the Corporation of any debt for borrowed money, any
creation or assumption by the Corporation of any Encumbrance or any
making by the Corporation of any loan, advance or capital
contribution to or investment in any other Person;
(iv)
there
has been no dividend or distribution of any kind declared, paid or
made by the Corporation on any Corporation Shares;
(v)
the
Corporation has not affected or passed any resolution to approve a
split, consolidation or reclassification of any of the outstanding
Corporation Shares; and
(vi)
there
has not been any material increase in or modification of the
compensation payable to or to become payable by the Corporation to
any of its directors, officers, employees or consultants or any
grant to any such director, officer, employee or consultant of any
increase in severance or termination pay or any increase or
modification of any bonus, pension, insurance or benefit
arrangement made to, for or with any of such directors, officers,
employees or consultants.
(k)
Litigation.
There is no claim, action, suit, grievance, complaint, proceeding
or investigation that has been commenced or, to the knowledge of
the Corporation, is threatened affecting the Corporation or
affecting any of its property or assets at law or in equity before
or by any Governmental Entity, including matters arising under
Environmental Laws, which, individually or in the aggregate, if
determined adversely to the Corporation, as the case may be, has or
could reasonably be expected to result in liability to the
Corporation. Neither the Corporation nor its respective assets or
properties is subject to any outstanding judgment, order, writ,
injunction or decree.
(l)
Accuracy of
Information. The Corporation
has made available to the Acquiror all material information
concerning the Corporation, and all such information as made
available
to the Acquiror is accurate, true and correct in all material
respects.
(m)
No
Payments. There are no payments
required to be made to directors, officers and employees of the
Corporation as a result of the Transaction under any contract,
settlements, bonus plans, retention agreements, change of control
agreements and severance obligations (whether resulting from
termination, change of control or alteration of
duties).
(i)
Other than [REDACTED – COMMERCIALLY SENSITIVE INFORMATION],
the Corporation has filed, caused, or will cause to be filed all
returns required to be filed by Applicable Law on or before the
Closing Date. All such filed returns are correct and complete in
all material respects. Other than described above, the Corporation
has timely paid all material Taxes that are due and payable by the
Corporation, including all instalments on account of taxes for the
current year that are due and payable by the Corporation whether or
not assessed (or reassessed) by the appropriate Governmental
Entity, and has, as applicable, timely remitted such Taxes to the
appropriate Governmental Entity under Applicable Law. There are no
Encumbrances for Taxes upon any of the assets or properties of the
Corporation.
(ii)
There
is no material dispute or claim, including any audit, investigation
or examination by any Governmental Entity, actual, pending or, to
the knowledge of the Corporation, threatened, concerning any Tax
liability of the Corporation, no written notice of such an audit,
investigation, examination, material dispute or claim has been
received by the Corporation.
(iii)
The
Corporation has not requested, or entered into any agreement or
other arrangement, or executed any waiver providing for, any
extension of time within which:
(A)
the
Corporation is required to pay or remit any Taxes or amounts on
account of Taxes (which have not since been paid or remitted);
or
(B)
any
Governmental Entity may assess or collect Taxes for which the
Corporation is liable.
(iv)
Other than [REDACTED – COMMERCIALLY SENSITIVE INFORMATION],
the Corporation has duly and timely deducted, collected or withheld
from any amount paid or credited by it to or for the account or
benefit of any Person and has duly and timely remitted the same (or
is properly holding for such remittance) to the appropriate
Governmental Entity all Taxes and amounts it is required by
Applicable Law to so deduct or collect and remit. Any outstanding
tax liability will
be
accurately reflected in the audited financial statements of the
Corporation for the fiscal years ended December 31, 2016 and 2017,
and the Corporation has a plan for payment of all outstanding tax
liabilities in place.
(v)
The
Corporation has not acquired property or services from, or disposed
of property or provided services to, any Person with whom it does
not deal at arm’s length for an amount that is other than the
fair market value of such property or services.
(vi)
No
written claim has ever been made by any Governmental Entity in a
jurisdiction where the Corporation does not file returns that the
Corporation is or may be subject to Taxes or is required to file
returns in that jurisdiction.
(vii)
There
are no rulings or closing agreements issued to the Corporation
which could affect the Corporation’s liability for Taxes for
any taxable period after the Closing Date other than rulings of
general application. The Corporation has not requested an advance
tax ruling from the Canada Revenue Agency or comparable rulings
from other taxing authorities.
(i)
To
the knowledge of the Corporation, the Corporation has obtained and
is in material compliance with all material Permits required by
Applicable Laws, necessary to conduct its Business as now being
conducted and as proposed to be conducted in the next 12 month
period; and
(ii)
to
the knowledge of the Corporation, there are no facts, events or
circumstances that would reasonably be expected to result in a
failure to obtain or be in material compliance with such material
Permits as are necessary to conduct the Business;
(p)
Assets.
Except with respect to Technology of which the Corporation is not
the sole beneficial and registered owner and leased assets to be
described in the Financial Statements of the Corporation, the
Corporation is the beneficial owner of its Assets or interests
therein, has good and marketable title to all of its Assets, no
person has any contract or any right or privilege capable of
becoming a right to purchase any personal property from the
Corporation, and any and all agreements pursuant to which the
Corporation holds any such interest in its Assets are valid and
subsisting agreements in full force and effect, enforceable in
accordance with their respective terms, and the Corporation is not,
and will not be at the Time of Closing, in material default of any
of the provisions of any such agreement nor has any default been
alleged and, such Assets are in good standing under the applicable
statutes, rules,
regulations,
licenses and permits of the jurisdiction in which they are situated
and all leases pursuant to which the Corporation derives its
interest in such Assets are in good standing and there has been no
default under any of such leases.
(q)
Condition of Certain
Assets. To the knowledge of the
Corporation, the Tangible Personal Property is in good condition,
repair and (where applicable) proper working order, reasonable wear
and tear excepted having regard to its use and age, subject to
normal maintenance and repair.
(r)
Collectability of
Accounts Receivable. To the
knowledge of the Corporation and the Shareholders, the Accounts
Receivable are good and collectible at the aggregate recorded
amounts within one hundred and eighty (180) days from the Closing
Date, except to the extent of any reserves and allowances for
doubtful accounts provided for such Accounts Receivable to be set
out in the Financial Statements of the Corporation, and are not
subject to any defence, counterclaim or set
off.
(s)
Qualification to do
Business. The Corporation is
registered, licensed or otherwise qualified to do business under
the Applicable Laws of Nevada and neither the character nor the
location of the properties and assets owned by the Corporation nor
the nature of the Business requires registration, licensing or
other qualification under the Applicable Laws of any other
jurisdiction, except where the failure to be so registered,
licensed or otherwise qualified to do business would not have a
Material Adverse Effect on the Corporation.
(t)
Sanctions.
neither the Corporation nor, to the knowledge of the Corporation,
any director, officer, agent, employee or affiliate of the
Corporation, has had any sanctions administered by the Office of
Foreign Assets Control of the U.S. Treasury Department, the
Government of Canada or any other relevant sanctions authority
(collectively, “Sanctions”) imposed upon such Person, and the
Corporation is not in violation of any of the Sanctions or any law
or executive order relating thereto, or is conducting business with
any person subject to any Sanctions.
(u)
Compliance with
Anti-Corruption Laws. The
Corporation has not violated the Corruption of Foreign Public
Officials Act (Canada) or
the U.S.
Foreign Corrupt Practices Act,
or the anti-corruption laws of any other jurisdiction where the
Business is carried on.
(v)
Anti-Money
Laundering. The operations of
the Corporation are and have been conducted at all times in
compliance with applicable financial record-keeping and reporting
requirements of the Proceeds of Crime (Money
Laundering) and Terrorist Financing Act (Canada), the United States Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act, and the money laundering statutes of all
applicable jurisdictions, the rules and regulations thereunder and
any related or similar rules, regulations or guidelines issued,
administered or enforced by any Governmental Entity (collectively,
the “Money Laundering
Laws”) and no action,
suit or proceeding by or before any
court
or Governmental Entity or any arbitrator involving the Corporation
with respect to the Money Laundering Laws is pending or, to the
best knowledge of the Corporation, threatened.
(w)
Intellectual
Property.
(i)
to
the best of the Corporation’s knowledge, the Corporation
owns, or have obtained valid and enforceable licenses for, or other
rights to use, the Intellectual Property; the Corporation has no
knowledge that the Corporation lacks or will be unable to obtain
any rights or licenses to use all Intellectual Property necessary
and material for the conduct of the business of the Corporation; to
the best of the Corporation’s knowledge, no third parties
have rights to any Intellectual Property of the Corporation, except
for the ownership rights of the owners of the Licensed IP or except
for any licenses of use granted by the Corporation therein; there
is no pending or, to the best of the Corporation’s knowledge,
threatened action, suit, proceeding or claim by others challenging
the validity or enforceability of any Intellectual Property or the
Corporation’s rights in or to any Intellectual Property, the
Corporation has no knowledge of any facts which form a reasonable
basis for any such claim, and to the best of the
Corporation’s knowledge, there has been no finding of
unenforceability or invalidity of the Intellectual Property; to the
best of the Corporation’s knowledge, there is no patent or
published patent application that contains claims that interfere
with the issued or pending claims of any of the Intellectual
Property of the Corporation; and to the best of the
Corporation’s knowledge, there is no prior art that
necessarily renders any patent application owned by the Corporation
unpatentable that has not been disclosed to the US Patent and
Trademark Office or any similar office in any other
jurisdiction;
(ii)
to
the best of the Corporation’s knowledge, other than Licensed
IP, the Corporation is the legal and beneficial owners of, have
good and marketable title to, and own all right, title and interest
in all Intellectual Property free and clear of all Encumbrances or
adverse interests whatsoever, covenants, conditions, options to
acquire and restrictions or other adverse claims of any kind or
nature which could, individually or in the aggregate, have a
Material Adverse Effect, and the Corporation has no knowledge of
any claim of adverse ownership in respect thereof; other than the
Licensed IP, no consent of any person is necessary to make, use,
reproduce, license, sell, modify, update, enhance or otherwise
exploit any Intellectual Property and none of the Intellectual
Property of the Corporation comprises an improvement to Licensed IP
that would give any person any rights to any such Intellectual
Property, including, without limitation, rights to license any such
Intellectual Property;
(iii)
the
Corporation has not received any notice or claim (whether written,
oral or otherwise) challenging the ownership or right to use of any
of the Intellectual Property or suggesting that any other person
has any claim of legal or beneficial ownership or other claim or
interest with respect thereto, nor is there a reasonable basis for
any claim that any person other than the Corporation have any claim
of legal or beneficial ownership or other claim or interest in any
of the Intellectual Property; and
(iv)
to
the best of the Corporation’s knowledge, the conduct of the
business of the Corporation (including, without limitation, the
sale of their respective services, or the use or other exploitation
of the Intellectual Property by the Corporation or any customers,
distributors or other licensees thereof) has not infringed,
violated, misappropriated or otherwise conflicted with any
Intellectual Property right of any person; there is no pending or
threatened action, suit, proceeding or claim by others that the
Corporation infringes or otherwise violates any Intellectual
Property of others, and the Corporation has no knowledge of any
facts which form a reasonable basis for any such
claim;
(x)
Material
Contracts. Each Material
Contract of the Corporation is set out in Schedule “B”
hereto and is a legal, valid and binding obligation of the
Corporation, enforceable against the Corporation in accordance with
its terms and neither the Corporation nor any other party to a
Material Contract is in default thereunder;
(y)
Owned Real
Property. The Owned Real
Property is accurately described in Schedule “E”
hereto.
(z)
Leased Real
Property.
(i)
The
Leased Real Property is accurately described in Schedule
“E” hereto;
(ii)
Except
as described in Schedule “E” hereto, the Real Property
Leases have not been altered or amended and are in full force and
effect. There are no Contracts between the landlord and tenant, or
sub-landlord and subtenant, or other relevant parties relating to
the use and occupation of the Leased Real Property, other than as
contained in the Real Property Leases; and
(iii)
The
Corporation has a good and valid leasehold interest in and to the
Leased Real Property of which it is a tenant, free and clear of all
Encumbrances.
(aa) Environmental
Matters.
(i)
the
Corporation has carried on its Business and operations in
compliance with all applicable Environmental Laws and all terms and
conditions of all Environmental Permits;
(ii)
except
in compliance with Applicable Laws, the Corporation has not used
any of its property or facilities to generate, manufacture,
process, distribute, use, treat, store, dispose of, transport or
handle any Hazardous Substance in a manner that could, individually
or in the aggregate, reasonably be expected to result in a Material
Adverse Effect; except in compliance with Applicable Laws, the
Corporation has not caused or permitted the release, in any manner
whatsoever, of any Hazardous Substances on or from any of its
properties or assets or any such release on or from a facility
owned or operated by third parties but with respect to which the
Corporation is or may reasonably be alleged to have material
liability or has received any notice that it is potentially
responsible for a federal, state, municipal or local clean-up site
or corrective action under any Applicable Laws, statutes,
ordinances, bylaws, regulations or any orders, directions or
decisions rendered by any ministry, department or administrative
regulatory agency relating to the protection of the environment,
occupational health and safety or otherwise relating to or dealing
with Hazardous Substances in a manner that could, individually or
in the aggregate, reasonably be expected to result in a Material
Adverse Effect;
(iii)
the
Corporation has not received any order, request or notice from any
Person alleging a material violation of any Environmental
Law;
(iv)
the
Corporation (i) is not a party to any litigation or administrative
proceeding, nor is any litigation or administrative proceeding
threatened against it or its property or assets, which in either
case (1) asserts or alleges that it violated any Environmental
Laws, (2) asserts or alleges that it is required to clean up,
remove or take remedial or other response action due to the Release
of any Hazardous Substances, or (3) asserts or alleges that it is
required to pay all or a portion of the cost of any past, present
or future cleanup, removal or remedial or other response action
which arises out of or is related to the Release of any Hazardous
Substances, and (ii) is not subject to any judgment, decree, order
or citation related to or arising out of applicable Environmental
Law and has not been named or listed as a potentially responsible
party by any Governmental Entity in a matter arising under any
Environmental Laws; and
(v)
is
not involved in remediation operations and does not know of any
facts, circumstances or conditions, including any release of
Hazardous
Substance,
that would reasonably be expected to result in any Environmental
Liabilities.
(bb) Compliance with
Laws. The Corporation has
complied with and is not in violation of any Applicable Laws, other
than non-compliance or violations which would not, individually or
in the aggregate, have a Material Adverse Effect on the
Corporation, with the exception of any U.S. federal laws, statutes,
and/or regulations which deal with the production, trafficking,
distribution, processing, extraction or sale of cannabis and
related substances, and it has not received any written notices or
other correspondence from any Governmental Entity regarding any
circumstances that have existed or currently exist which would lead
to a loss, suspension, or modification of, or a refusal to issue,
any material license, permit, authorization, approval, registration
or consent of a Governmental Entity relating to its activities
which would reasonably be expected to restrict, curtail, limit or
adversely affect the ability of the Corporation to operate its
Business in a manner proposed and which would have a Material
Adverse Effect on the Corporation.
(cc) Employment
Matters.
(i)
Other
than with respect to a written employment agreement between the
Corporation and Christopher Brian Wren, Vice-President of
Operations of the Corporation, and a written employment agreement
between the Corporation and Tanya Lupien, Vice-President of Sales
of the Corporation, the Corporation is not:
(A)
a
party to any written or oral agreement, arrangement, plan,
obligation, policy or understanding providing for severance or
termination payments to, or any employment or consulting agreement
with, any director or officer of the Corporation;
(B)
a
party to any collective bargaining agreement nor, to the knowledge
of the Corporation, subject to any application for certification or
threatened or apparent union-organizing campaigns for employees not
covered under a collective bargaining agreement nor are there any
current, or to the knowledge of the Corporation, pending or
threatened strikes or lockouts at the Corporation; and
(C)
subject
to any claim for wrongful dismissal, constructive dismissal or any
other tort claim, actual or, to the knowledge of the Corporation,
threatened, or any litigation, actual or, to the knowledge of the
Corporation, threatened, relating to its employees or independent
contractors (including any termination of such
individuals).
(ii)
The
Corporation has been and is now in compliance, in all material
respects, with all Applicable Laws with respect to employment and
labour and there are no current, or, to the knowledge of the
Corporation, pending or threatened proceedings before any
Governmental Entity with respect to any of the areas listed
herein.
(iii)
Other
than performance related employee bonus plans, employee healthcare
benefits, 401k matching contributions and an employee group
insurance plan, the Corporation has not and is not subject to any
present or future obligation or liability under, any pension plan,
deferred compensation plan, retirement income plan, stock option or
stock purchase plan, profit sharing plan, program policy or
practice, formal or informal, with respect to its
employees.
(dd) Related Party
Transactions. With the
exception of any contracts related to loans with officers and/or
directors of the Corporation, bonus payments paid or payable to
certain employees, senior executive officers or directors of the
Corporation, or as otherwise disclosed to the Acquiror, there are
no contracts or other transactions currently in place between the
Corporation, and: (i) any officer or director of the Corporation;
(ii) any holder of record or, to the knowledge of the Corporation,
beneficial owner of 10% or more of the Corporation Shares; and
(iii) any affiliate or associate of any such, officer, director,
holder of record or beneficial owner, on the other
hand.
(ee) Expropriation.
No part of the property or assets of the Corporation has been
taken, condemned or expropriated by any Governmental Entity nor has
any written notice or proceeding in respect thereof been given or
commenced nor does the Corporation know of any intent or proposal
to give such notice or commence any such
proceedings.
(ff)
Rights of Other
Persons. Except in respect of
the Acquiror’s interest in the Property, no Person has any
right of first refusal or option to acquire or any other right of
participation in any of the properties or assets owned by the
Corporation or any part thereof.
(gg) Restrictions on
Business Activities. There is
no arbitral award, judgment, injunction, constitutional ruling,
order or decree binding upon the Corporation that has or could
reasonably be expected to have the effect of prohibiting,
restricting, or impairing any business practice of the Corporation,
any acquisition or disposition of property by the Corporation, or
the conduct of the business by the Corporation as currently
conducted or as proposed, which could reasonably be expected to
have a Material Adverse Effect on the
Corporation.
(hh) Directors and Officers
of a Reporting Issuer. The
Corporation is not aware of any of the directors or officers of the
Corporation receiving any objection from securities regulatory
authorities to their serving in capacities as directors or officers
of a reporting issuer in any jurisdiction of
Canada.
(ii)
No
Violations. No filing or
registration with, or authorization, consent or approval of any
domestic or foreign public body or authority is necessary by the
Corporation in connection with the consummation of the Transaction,
except for such filings or registrations which, if not made, or for
such authorizations, consents or approvals, which, if not received,
would not have any Material Adverse Effect on the ability of
Corporation to consummate the transactions contemplated by this
Agreement or any other agreement in connection with the
Transaction, or operate its business in the ordinary course
following the completion of the Transaction.
(jj)
Authorizations and
Consents.
(i)
Except
for the approval of the CSE contemplated in Section 7.1(a), the
approval of the shareholders of the Corporation contemplated in
Section 7.1(d), and the approval of the Nevada Department of
Taxation contemplated in Section 7.1(e), no Authorization or
declaration or filing with any Governmental Entity on the part of
the Corporation is required for the valid execution, delivery and
performance of its obligations under this Agreement or the
completion of the Transaction pursuant to this
Agreement.
(ii)
Except
as set forth in Schedule “D”, no consent, approval or
waiver is required pursuant to the terms of any Material Contract,
agreement or instrument to which the Corporation is a party for the
valid execution, delivery and performance of its obligations under
this Agreement or the completion of the Transaction pursuant to
this Agreement.
(kk)
Fees.
Other than the agents to the Brokered Financing, no broker,
investment banker, financial advisor or other Person is entitled to
any broker’s, finder’s, financial advisor’s or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of
the Corporation.
(ll)
Benefits.
Except as disclosed to the Acqurior in writing, there are no plans
for retirement, bonus, stock purchase, profit sharing, stock
option, deferred compensation, severance or termination pay,
insurance, medical, hospital, dental, vision care, drug, sick
leave, disability, salary continuation, legal benefits,
unemployment benefits, vacation, incentive or otherwise contributed
to or required to be contributed to, by the Corporation for the
benefit of any current or former director, officer, employee or
consultant of the Corporation;.
(mm) Royalty
Interests. no director,
officer, consultant, insider or other non-arm’s length party
to the Corporation (or any associate or affiliate thereof) has any
right, title or interest in (or the right to acquire any right,
title or interest in) any royalty interest, carried interest,
participation interest or any other interest whatsoever which are
based on revenue from or otherwise in respect of any assets of the
Corporation.
(nn) Escrow Release
Conditions. To the knowledge of
the Corporation, no event has occurred which is reasonably likely
to prevent the escrow release conditions in connection with the
Finco Subscription Receipts from being satisfied on or before the
escrow release deadline relating to the Finco Subscription
Receipts.
(oo) Insurance.
As of the date hereof, the Corporation has all insurance maintained
by the Corporation in full force and effect and in good standing
and is in amounts and in respect of such risks as are normal and
usual for companies of similar size and customary in the businesses
in which the Corporation is engaged.
(pp) Listing
Statement. The description of
the Corporation to be contained in the listing statement of the
Acqurior prepared in accordance with the regulations of the CSE in
connection with the listing of the Resulting Issuer Shares shall
not, at the time of filing thereof on SEDAR, fail to be true and
correct in any material respect or contain any untrue statement of
a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
(qq) Data
Provided. To the knowledge of
the Corporation, any confidential information provided by or on
behalf of the Corporation to the Acquiror and its Representatives
is true and accurate in all material respects as of the respective
dates of such confidential information.
(rr) Licenced Cannabis
Company. The Corporation is a
licenced producer in the medical and recreational cannabis industry
in the State of Nevada, under Applicable Laws in the State of
Nevada, authorizing the Corporation to, among other things, grow,
produce, sell, possess, process, ship, transport, deliver and
destroy cannabis, dried cannabis and cannabis oil in the State of
Nevada, and all operations of the Corporation have been and
continue to be conducted in compliance with all Applicable Laws in
the State of Nevada.
(ss) Cannabis-related
Matters.
(i)
To
the knowledge of the Corporation, there is no legislation, or
proposed legislation to be published by a legislative body, which
it anticipates will materially and adversely affect the business,
affairs, operations, assets, liabilities (contingent or otherwise)
or prospects of the Corporation, with the exception of any U.S.
federal laws, statutes, and/or regulations which deal with the
production, trafficking, distribution, processing, extraction, or
sale of cannabis and related substances.
(ii)The
execution and delivery of this Agreement and the performance
of
the
transactions contemplated hereby do not and will not result in a
breach of, and do not create a state of facts which, after notice
or lapse of time or both, will result in a breach of Nevada state
law related to cannabis nor the licenses, permits, authorizations,
certifications or consents issued to the Corporation by any Nevada
state or local governmental authority.
(tt) Compliance with
Healthcare Laws. The
Corporation: (A) is and at all times has
been in compliance in all material respects with
all applicable statutes, rules, regulations, ordinances, orders,
by-laws, decrees and guidances applicable to it under any
Applicable Laws relating in whole or in part to health and safety
and/or the environment, any implementing regulations pursuant to
any of the foregoing, and all similar or related federal, state,
provincial or local healthcare statutes, regulations and directives
applicable to the business of the Corporation, including but not
limited to Applicable Laws concerning fee-splitting, kickbacks,
corporate practice of medicine, disclosure of ownership, related
party requirements, survey, certification, licensing, civil
monetary penalties, self-referrals, or laws concerning the privacy
and/or security of personal health information and breach
notification requirements concerning personal health information
(collectively, “Applicable Healthcare
Laws”); (B) has not
received any correspondence or notice from any Governmental Entity
alleging or asserting material noncompliance with any Applicable
Healthcare Laws or any Permits required by any such Applicable
Healthcare Laws; (C) has not received notice of any pending or
threatened claim, suit, proceeding, charge, hearing, enforcement,
audit, inspection, investigation, arbitration or other action from
any Governmental Entity or third party alleging that any operation
or activity of the Corporation, or any of their directors, officers
and/or employees is in material violation of any Applicable
Healthcare Laws or Permit required by any such Applicable
Healthcare Laws, and the Corporation does not have any knowledge or
reason to believe that any such Governmental Entity or third party
is considering or would have reasonable grounds to consider any
such claim, suit, proceeding, charge, hearing, enforcement, audit,
inspection, investigation, arbitration or other action; and (D)
either directly has, or indirectly on its behalf has, filed,
declared, obtained, maintained or submitted all reports, documents,
forms, notices, applications, records, claims, submissions and
supplements or amendments as required by any Applicable Healthcare
Laws or Governmental Entity required by any such Applicable
Healthcare Laws in order to keep all Permits in good standing,
valid and in full force (except where the failure to so file,
declare, obtain, maintain or submit would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect on the Corporation), and all such reports, documents, forms,
notices, applications, records, claims, submissions and supplements
or amendments were complete and correct in all material respects on
the date filed (or were corrected or supplemented by a subsequent
submission).
(uu) Regulatory
Proceedings. Except for
ordinary course inquiries by any Governmental Entity, no
Governmental Entity is presently alleging or asserting, or, to
the
Corporation’s
knowledge, threatening to allege or assert, noncompliance with any
applicable legal requirement or registration in respect of the
Corporation’s products.
(vv) Products.
The Corporation’s products are currently processed,
manufactured, tested, packaged and labeled at facilities which are
in compliance with good production practices prescribed by
Applicable Laws and such other regulatory requirements applicable
to the Corporation’s products.
(ww) Protection of Personal
Information. The Corporation
has security measures and safeguards in place to protect Personally
Identifiable Information it collects from customers and other
parties from illegal or unauthorized access or use by its personnel
or third parties or access or use by its personnel or third parties
in a manner that violates the privacy rights of third parties. The
Corporation has complied in all material respects with all
Applicable Laws relating to privacy and consumer protection and
neither has collected, received, stored, disclosed, transferred,
used, misused or permitted unauthorized access to any information
protected by Applicable Laws related to privacy, whether collected
directly or from third parties, in an unlawful manner. The
Corporation has taken all reasonable steps to protect Personally
Identifiable Information against loss or theft and against
unauthorized access, copying, use, modification, disclosure or
other misuse.
(xx) Investor
Presentation. The information
and statements contained in the investor presentation dated
February 2018 (the “Investor
Presentation”) as
prepared by the Corporation, and this Agreement, with respect to
the Corporation are true and correct and do not (i) contain any
untrue statement of a material fact in respect of the Corporation
or the affairs, prospects, operations or condition of the Corporation, or any
of its assets; or (ii) to the knowledge of the Corporation, omit
any statement of a material fact necessary in order to make the
statements in respect of the Corporation, the affairs,
prospects, operations or condition of the Corporation or its
assets contained herein or therein not misleading. There is no fact
known to the Corporation which materially and adversely affects the
affairs, prospects, operations or condition of the Corporation or
any of its assets which has not been set forth in this Agreement.
All forward-looking information and statements of the Corporation
contained in the Investor Presentation and the assumptions
underlying such information and statements, subject to any
qualifications contained therein, are to the knowledge of the
Corporation, reasonable in the circumstances as at the date on
which such assumptions were made.
3.2 The representations and warranties of the Corporation contained
in this Agreement shall survive
the execution and delivery of this Agreement and shall expire and
be terminated on the earlier of the Time of Closing and the date on
which this Agreement is terminated in accordance with its terms.
Any investigation by the Acquiror and its Representatives shall not
mitigate, diminish or affect the representations and warranties of
the Corporation pursuant to this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
4.1 Each of the Shareholders hereby severally represents and
warrants to the Acquiror and
acknowledges and confirms that the Acquiror is relying upon such
Shareholders’ representations and warranties in connection
with the purchase by the Acquiror of the Acquired Corporation
Shares to be transferred by the Shareholders to the Acquiror
pursuant to Section 2.1 of this Agreement and in connection with
the issuance of the Consideration Shares:
(a)
neither
the execution and delivery of this Agreement, or any other
agreements and instruments
executed in connection with the Transaction by the Shareholder nor
the performance by the Shareholder of its obligations hereunder and
thereunder will conflict with or result in:
(i)
a
violation, contravention or breach by the Shareholder of any of the
terms, conditions or provisions of any agreement or instrument to
which such the Shareholder is a party, or by which the Shareholder
is bound or constitute a default by the Shareholder thereunder, or,
to the knowledge of the Shareholder, after due inquiry, under any
statute, regulation, judgment, decree or law by which the
Shareholder is subject or bound, or result in the creation or
imposition of any mortgage, lien, charge or Encumbrance of any
nature whatsoever upon any of the Shareholder’s Acquired
Corporation Shares; or
(ii)
a
violation by the Shareholder of any law or regulation or any
applicable order of any court, arbitrator or governmental authority
having jurisdiction over the Shareholder, or require the
Shareholder, prior to the Closing or as a condition precedent
thereof, to make any governmental or regulatory filings, obtain any
consent, authorization, approval, clearance or other action by any
Person, or await the expiration of any applicable waiting
period;
(b)
no
Person has any agreement or option or any right or privilege
(whether pre-emptive
or contractual) capable of becoming an agreement or option for the
acquisition from the Shareholder of any of the Shareholder’s
Acquired Corporation Shares;
(c)
the
Shareholder has all necessary power, authority and capacity to
enter into theAgreement,
and all other agreements and instruments to be executed by it as
contemplated by the Agreement and to carry out its obligations
under the Agreement, and such other agreements and
instruments;
(d)
the
execution and delivery of the Agreement, and such other agreements
and instruments
and the consummation of the Transaction have been duly authorized
by all necessary corporate action on the part of the Shareholder as
may be required;
(e)
the
Agreement constitutes a valid and binding obligation of the
Shareholderenforceable
against the undersigned in accordance with its terms subject,
however, to limitations with respect to enforcement imposed by law
in connection with bankruptcy, insolvency, reorganization or other
laws affecting creditors’ rights generally and to the extent
that equitable remedies such as specific performance and
injunctions are only available in the discretion of the court from
which they are sought;
(f)
the
Shareholder is the registered and legal beneficial owner of its
Acquired Corporation
Shares as set forth in Schedule “A” to the Agreement
and identified on the signature page hereto and has good and valid
title thereto free and clear of any Encumbrances;
(g)
the
Shareholder has the exclusive right and full power to transfer its
Acquired Corporation
Shares to the Acquiror as contemplated in the Agreement free and
clear of any Encumbrances;
(h)
there
is not pending or, to the knowledge of the Shareholder, after due
inquiry, threatened
or contemplated, any suit, action, legal proceeding, litigation or
governmental investigation of any sort which would:
(i)
in any manner restrain or prevent
the Shareholder from effectually or legally
transferring its Acquired Corporation Shares to the Acquiror in
accordance with the Agreement;
(ii)
cause
any Encumbrance to be attached to its Acquired Corporation
Shares;
(iii)
divest
title to its Acquired Corporation Shares; or
(iv)
make
the Acquiror or the Corporation liable for damages in connection
with the Transaction;
(i)
to
the knowledge of the undersigned, after due inquiry, there is not
pending, threatened
or contemplated, any suit, action, legal proceeding, litigation or
governmental investigation of any sort relating to the Shareholder,
its Acquired Corporation Shares or the Transaction, nor is there
any present state of facts or circumstances which can be reasonably
anticipated to be a basis for any such suit, action, legal
proceeding, litigation or governmental investigation nor is there
presently outstanding against the Shareholder, any judgment,
decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality, or
arbitrator;
(j)
the
Shareholder has not entered into any agreement that would entitle
any person to any
valid claim against the Acquiror for a broker’s commission,
finder’s fee, or any like payment in respect of the
acquisition and sale of the Acquired Corporation Shares or any
other matters contemplated by the Agreement, and in the event
that
any
Person acting or purporting to act for the undersigned establishes
a claim for any fee from the Acquiror, the Shareholder severally
covenants to indemnify and hold harmless the Acquiror with respect
thereto and with respect to all costs reasonably incurred in the
defence thereof;
(k)
the
Shareholder has had the opportunity to ask questions of and receive
answers from the Acquiror regarding the acquisition of the
Consideration Shares, and has received all the information
regarding Acquiror that it has requested;
(l)
the
Shareholder acknowledges that the Consideration Shares are highly
speculative in nature and that the Shareholder has such
sophistication and experience in business and financial matters as
to be capable of evaluating the merits and risks of the investment.
In connection with the delivery of the Consideration Shares, the
Shareholder has not relied upon the Acquiror for investment, legal
or tax advice, or other professional advice, and has in all cases
sought or elected not to seek the advice of his own personal
investment advisers, legal counsel and tax advisers. The
Shareholder is able, without impairing his financial condition, to
bear the economic risk of, and withstand a complete loss of the
investment and he can otherwise be reasonably assumed to have the
capacity to protect his own interests in connection with its
investment in the Consideration Shares;
(m)
the
Shareholder acknowledges that the Consideration Shares have not
been and will not be registered under the U.S. Securities Act or
applicable state securities laws, and the Consideration Shares are
being offered and sold to the Shareholder in reliance upon Rule
506(b) of Regulation D and/or Section 4(a)(2) under the U.S.
Securities Act;
(n)
the
Shareholder is an “accredited investor” as defined in
Rule 501(a) of Regulation D under the U.S. Securities
Act;
(o)
the
Shareholder acknowledges that it is not acquiring the Consideration
Shares as a result of “general solicitation” or
“general advertising” (as such terms are used in
Regulation D under the U.S. Securities Act), including without
limitation, advertisements, articles, notices or other
communications published in any newspaper, magazine or similar
media or on the internet, or broadcast over radio or television or
on the internet, or any seminar or meeting whose attendees have
been invited by general solicitation or general
advertising;
(p)
the
Shareholder acknowledges that the Consideration Shares are
“restricted securities”, as such term is defined under
Rule 144 of the Securities Act, and may not be offered, sold,
pledged, or otherwise transferred, directly or indirectly, without
prior registration under the U.S. Securities Act and applicable
state securities laws, or pursuant to an exemption from the
registration requirements of the U.S. Securities Act;
(q)
the
Shareholder understands that upon the issuance thereof, and until
such time as the same is no longer required under the applicable
requirements of the U.S. Securities Act or applicable U.S. state
laws and regulations, the certificates representing the
Consideration Shares will bear a legend in substantially the
following form:
“THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE “U.S. SECURITIES ACT”). THESE SECURITIES
MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO
THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH
RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, (C) IN
COMPLIANCE WITH THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF
AVAILABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS,
OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER
THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE LAWS, AND THE
HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED TO THE CORPORATION AN
OPINION OF COUNSEL OR OTHER EVIDENCE OF EXEMPTION, IN EITHER CASE
REASONABLY SATISFACTORY TO THE CORPORATION. DELIVERY OF THIS
CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN
SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN
CANADA.”,
provided,
that if the Consideration Shares are being sold under clause (B)
above, the legend set forth above may be removed by providing a
declaration to Acquiror’s registrar and transfer agent in
such form as the Resulting Issuer or its registrar and transfer
agent may prescribe from time to time, to the effect that the sale
of the securities is being made in compliance with Rule 904 of
Regulation S under the U.S. Securities Act;
provided
further that if the Consideration Shares are being sold under
clauses (C) and (D) above, the legend may be removed by delivery to
the Resulting Issuer and its transfer agent of an opinion of
counsel of recognized standing in form and substance reasonably
satisfactory to the Resulting Issuer to the effect that the legend
is no longer required under applicable requirements of the U.S.
Securities Act;
(r)
none
of the foregoing representations and warranties knowingly contains
any untrue statement of material fact or knowingly omits to state
any material fact necessary to make any such covenant, warranty or
representation not misleading to a prospective acquiror seeking
full information as to the Acquired Corporation Shares;
and
(s)
to the knowledge of the Shareholder, none of the
representations and warranties made
by the Corporation in Section 3.1 of this Agreement is untrue or
inaccurate in any material respect.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR
5.1The Acquiror represents and warrants to the Shareholders and the
Corporation as follows
as
at the date hereof and as at the Closing Date and acknowledges that
the Shareholders and the Corporation are relying upon such
representations and warranties in connection with the sale by the
Shareholders and the Corporation of the Acquired Corporation
Shares:
(a)
Authority Relative to
this Agreement. The Acquiror
has all necessary corporate power, authority and capacity to enter
into this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement by the Acquiror and the
performance by the Acquiror of its obligations hereunder have been
duly authorized by its board of directors and no other corporate
proceedings on its part are necessary to authorize this Agreement
or the Transaction. This Agreement has been duly executed and
delivered by the Acquiror and constitutes a legal, valid and
binding obligation of the Acquiror, enforceable against the
Acquiror in accordance with its terms, subject to the qualification
that such enforceability may be limited by bankruptcy, insolvency,
reorganization or other laws of general application relating to or
affecting rights of creditors and that equitable remedies,
including specific performance, are discretionary and may not be
ordered.
(b)
Organization and
Qualification. The Acquiror is
a corporation duly incorporated and validly existing under the
federal laws of the Canada and has all necessary corporate or legal
power and capacity to own its property and assets as now owned and
to carry on its business as it is now being conducted. The Acquiror
(a) has all Permits necessary to conduct its business substantially
as now conducted, and (b) is duly registered, licensed or otherwise
authorized and qualified to do business and each is in good
standing in each jurisdiction in which the character of its
properties, owned, leased, licensed or otherwise held, or the
nature of its activities makes such qualification necessary, except
where the failure to be so registered or in good standing or to
have such Permits would not have a Material Adverse Effect on the
Acquiror.
(c)
Ordinary
Course. Since October 18, 2010,
the Acquiror has carried on no business other than activities as a
venture capital company seeking assets or businesses with good
growth potential to merge with or acquire.
(d)
No Material
Change. Since December 31,
2017, except as disclosed in the Acquiror Public Disclosure
Record:
(i)
other than as described in Section 5.1(c)
hereof, the Acquiror has not carried
on any business;
(ii)
there
has not occurred any event that constituted or with the passage of
time would constitute a Material Adverse Effect in respect of the
Acquiror;
(iii)
the
Acquiror has not effected or passed any resolution to approve a
split, consolidation or reclassification of any of the outstanding
Acquiror Shares;
(iv)
the
Acquiror has not effected any material change in its accounting
methods, principles or practices;
(v)
there
has been no dividend or distribution of any kind declared, paid or
made by the Acquiror on any the Acquiror Shares;
(vi)
there
has not occurred any event that constituted or with the passage of
time would constitute a Material Adverse Effect in respect of the
Acquiror and its subsidiaries taken as a whole;
(vii)
the
business and property of the Acquiror conform in all material
respects to the description thereof contained in the Acquiror
Public Disclosure Record;
(viii)
other
than in the ordinary and regular course of business consistent with
past practice, there has not been any incurrence, assumption or
guarantee by the Acquiror of any debt for borrowed money, any
creation or assumption by the Acquiror of any Encumbrance or any
making by the Acquiror or any of its subsidiaries of any loan,
advance or capital contribution to, or investment in, any other
Person.
(e)
No
Violations. Neither the
authorization, execution and delivery of this
Agreement by
the Acquiror nor the completion of the transactions contemplated by
the Agreement or the Transaction, nor the performance of its
obligations thereunder, nor compliance by the Acquiror with any of
the provisions hereof will:
(i)
result
in a violation or breach of, constitute a default (or an event
which, with
notice or lapse of time or both, would become a default), require
any consent or approval to be obtained or notice to be given under,
or give rise to any third party right of termination, cancellation,
suspension, acceleration, penalty or payment obligation or right to
acquire or sale under, any provision of: (A) the notice of
articles, articles of incorporation, or other constating documents
of the Acquiror or any of its subsidiaries, (B) any Permit or
material contract to which the Acquiror or any of its subsidiaries
is a party or to which any of them, or any of their respective
properties or assets, may be subject or by which the Acquiror or
any of its subsidiaries is bound, or (C) any law,
regulation,
order, judgment or decree applicable to the Acquiror or any of its
subsidiaries or any of their respective properties or
assets.
(ii)
give
rise to any rights of first refusal or trigger any change in
control provisions, rights of first offer or first refusal or any
similar provisions or any restrictions or limitation under any
note, bond, mortgage, indenture, material contract, license,
franchise or Permit to which the Acquiror or any of its
subsidiaries is a party;
(iii)
give
rise to any termination or acceleration of indebtedness, or cause
any third party indebtedness to come due before its stated maturity
or cause any available credit to cease to be available;
or
(iv)
result
in the imposition of any Encumbrance upon any of the property or
assets of the Acquiror or any of its subsidiaries or restrict,
hinder, impair or limit the ability of the Acquiror or any of its
subsidiaries to conduct the business of the Acquiror or such
subsidiary as and where it is now being conducted which would,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Acquiror.
No
consents, approvals and notices required from any third party under
any material contracts of the Acquiror or any of its subsidiaries
in order for the Acquiror to proceed with the execution and
delivery of this Agreement and the completion of the
Transaction.
(f)
Capitalization.
The authorized share capital of the Acquiror consists of an
unlimited number of Acquiror Shares. As at the date hereof,
5,000,000 Acquiror Shares were issued and outstanding, and an
aggregate of 1,000,000 Acquiror Shares are issuable upon the
exercise of the Acquiror Special Warrants, and, except for such
Acquiror Special Warrants, as of the date hereof, there are no
options, warrants, conversion privileges or other rights,
shareholder rights plans, agreements, arrangements or commitments
(pre-emptive, contingent or otherwise) of any character whatsoever
requiring or which may require the issuance, sale or transfer by
the Acquiror of any securities of the Acquiror (including the
Acquiror Shares), or any securities or obligations convertible
into, or exchangeable or exercisable for, or otherwise evidencing a
right or obligation to acquire, any securities of the Acquiror
(including the Acquiror Shares) or subsidiaries of the Acquiror.
All outstanding Acquiror Shares have been duly authorized and
validly issued, are fully paid and non-assessable, and all the
Acquiror Shares issuable upon the exercise of the Acquiror Special
Warrants in accordance with their respective terms have been duly
authorized and, upon issuance, will be validly issued as fully paid
and non-assessable, and are not and will not be subject to, or
issued in violation of, any pre-emptive rights.
(g)
Reporting Status and
Securities Laws Matters. The
Acquiror is a “reporting issuer” and not on the list of
reporting issuers in default under applicable Canadian provincial
Securities Laws applicable in the Provinces of Alberta, Ontario,
Quebec, Nova Scotia, Prince Edward Island, and Newfoundland and
Labrador. The Acquiror Shares are not listed on any stock
exchange.
(h)
Public
Filings. Since October 18,
2010, the Acquiror has filed all documents required to be filed by
it in accordance with applicable Securities Laws with the
Securities Authorities to maintain the Acquiror’s status as a
reporting issuer not on the list of reporting issuers in default
under applicable Canadian provincial Securities Laws in the
Provinces of Alberta, Ontario, Quebec, Prince Edward Island, Nova
Scotia, and Newfoundland and Labrador. All such documents and
information comprising the Acquiror Public Disclosure Record, as of
their respective dates (and the dates of any amendments thereto),
(1) did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in
which they were made, not misleading, and (2) complied in all
material respects with the requirements of applicable Securities
Laws, and any amendments to the Acquiror Public Disclosure Record
required to be made have been filed on a timely basis with the
Securities Authorities. The Acquiror has not filed any confidential
material change report with any Securities Authorities that at the
date of this Agreement remains confidential. There has been no
change in a material fact or a material change (as those terms are
defined under the Securities Act) in any of the information
contained in the Acquiror Public Disclosure Record, except for
changes in material facts or material changes that are reflected in
a subsequently filed document included in the Acquiror Public
Disclosure Record.
(i)
The Acquiror Financial
Statements. The
Acquiror’s audited financial statements as at and for the
years ended June 30, 2016 and 2017 (including the notes thereto and
related management’s discussion and analysis (the
“Acquiror
MD&A”) and the
Acquiror’s unaudited condensed interim financial statements
as at and for the six month period ended December 31, 2017
(collectively, the “Acquiror Financial
Statements”) were
prepared in accordance with IFRS, respectively, consistently
applied (except as otherwise indicated in such financial statements
and the notes thereto or in the related report of the
Acquiror’s independent auditors) and present fairly in all
material respects the financial condition, results of operations
and changes in financial position of the Acquiror as of the dates
thereof and for the periods indicated therein and reflect reserves
required by IFRS, as applicable, in respect of all material
contingent liabilities, if any, of the
Acquiror.
(j)
No Undisclosed
Liabilities. The Acquiror has
no outstanding indebtedness, liability or obligation (including
liabilities or obligations to fund any operations or work or
exploration program, to give any guarantees or for Taxes), whether
accrued, absolute, contingent or otherwise, and are not party to or
bound by any suretyship, guarantee, indemnification or assumption
agreement, or endorsement of, or any other similar commitment with
respect to the obligations, liabilities or
indebtedness
of
any Person, other than those specifically disclosed in the Acquiror
Public Disclosure Record filed prior to the date of this Agreement,
specifically identified in the Acquiror Financial Statements, or
incurred in connection with the transactions contemplated herein or
maintaining the Acquiror’s status as a reporting issuer not
on the list of reporting issuers in default under applicable
Canadian provincial Securities Laws applicable in the Provinces of
Alberta, Ontario, Quebec, Prince Edward Island, Nova Scotia, and
Newfoundland and Labrador.
(k)
Litigation.
There is no claim, action, suit, grievance, complaint, proceeding
or investigation that has been commenced or, to the knowledge of
the Acquiror, is threatened affecting the Acquiror or affecting any
of its property or assets at law or in equity before or by any
Governmental Entity, including matters arising under Environmental
Laws, which, individually or in the aggregate, if determined
adversely to the Acquiror, as the case may be, has or could
reasonably be expected to result in liability to the Acquiror.
Neither the Acquiror nor its respective assets or properties is
subject to any outstanding judgment, order, writ, injunction or
decree.
(i)
Since
October 18, 2010, the Acquiror has filed or caused or will cause to
be filed all returns required to be filed by Applicable Law on or
before the Closing Date. All such returns are correct and complete
in all material respects. The Acquiror has timely paid all material
Taxes that are due and payable by the Acquiror, including all
instalments on account of taxes for the current year that are due
and payable by the Acquiror whether or not assessed (or reassessed)
by the appropriate Governmental Entity, and has, as applicable,
timely remitted such Taxes to the appropriate Governmental Entity
under Applicable Law. There are no Encumbrances for Taxes upon any
of the assets or properties of the Acquiror.
(ii)
There
is no material dispute or claim, including any audit, investigation
or examination by any Governmental Entity, actual, pending or, to
the knowledge of the Acquiror, threatened, concerning any Tax
liability of the Acquiror, no written notice of such an audit,
investigation, examination, material dispute or claim has been
received by the Acquiror.
(iii)
The
Acquiror has not requested, or entered into any agreement or other
arrangement, or executed any waiver providing for, any extension of
time within which:
(A)
to
file any return (which has not since been filed) in respect of any
Taxes for which the Acquiror is or may be liable;
(B)
to
file any elections, designations or similar filings relating to
Taxes (which have not since been filed) for which the Acquiror is
or may be liable;
(C)
the
Acquiror is required to pay or remit any Taxes or amounts on
account of Taxes (which have not since been paid or remitted);
or
(D)
any
Governmental Entity may assess or collect Taxes for which the
Acquiror is liable.
(iv)
Since
October 18, 2010, the Acquiror has duly and timely deducted,
collected or withheld from any amount paid or credited by it to or
for the account or benefit of any Person and has duly and timely
remitted the same (or is properly holding for such remittance) to
the appropriate Governmental Entity all Taxes and amounts it is
required by Applicable Law to so deduct or collect and
remit.
(v)
Since
October 18, 2010, the Acquiror has not acquired property or
services from, or disposed of property or provided services to, any
Person with whom it does not deal at arm’s length, within the
meaning of the Tax Act, for an amount that is other than the fair
market value of such property or services.
(vi)
Since
October 18, 2010, for all transactions between the Acquiror and any
Person who is not resident in Canada for purposes of the Tax Act
with whom the Acquiror was not dealing at arm’s length for
purposes of the Tax Act, the Acquiror has made or obtained records
or documents that meet the requirements of paragraphs 247(4)(a) to
(c) of the Tax Act.
(vii)
Since
October 18, 2010, no claim has been made by any Governmental Entity
in a jurisdiction where the Acquiror does not file returns that the
Acquiror is or may be subject to Taxes or is required to file
returns in that jurisdiction.
(viii)
There
are no rulings or closing agreements relating to the Acquiror which
could affect the Acquiror’s liability for Taxes for any
taxable period after the Closing Date. The Acquiror has not
requested an advance tax ruling from the Canada Revenue Agency or
comparable rulings from other taxing authorities.
(m)
Issuance of the
Acquiror Shares. The
Consideration Shares will, when issued pursuant to the Transaction,
be duly and validly issued as fully paid and non-assessable shares
in the capital of the Acquiror.
(n)
Expropriation.
No part of the property or assets of the Acquiror or any of its
material subsidiaries has been taken, condemned or expropriated by
any Governmental Entity nor has any written notice or proceeding in
respect thereof
been
given or commenced nor does the Acquiror or any of its material
subsidiaries know of any intent or proposal to give such notice or
commence any such proceedings.
(o)
Rights of Other
Persons. No Person has any
right of first refusal or option to acquire or any other right of
participation in any of the material properties or assets owned by
the Acquiror, or any part thereof, except as disclosed in the
Acquiror Financial Statements.
(p)
Compliance with
Laws. The Acquiror has complied
with and is not in violation of any Applicable Laws, other than
non-compliance or violations which would not, individually or in
the aggregate, have a Material Adverse Effect on the Acquiror and
has not received any written notices or other correspondence from
any Governmental Entity regarding any circumstances that have
existed or currently exist which would lead to a loss, suspension,
or modification of, or a refusal to issue, any material license,
permit, authorization, approval, registration or consent of a
Governmental Entity relating to its activities which would
reasonably be expected to restrict, curtail, limit or adversely
affect the ability of the Acquiror to operate its businesses in a
manner which would have a Material Adverse Effect on the
Acquiror.
(q)
Related Party
Transactions. Other than as set
forth in the Acquiror Public Disclosure Record, there are no
contracts or other transactions currently in place between the
Acquiror or its subsidiaries, on the one hand, and: (i) any officer
or director of the Acquiror or its subsidiaries; (ii) any holder of
record or, to the knowledge of the Acquiror, beneficial owner of
10% or more of the Acquiror Shares; and (iii) any affiliate or
associate of any such, officer, director, holder of record or
beneficial owner, on the other hand.
(r)
Restrictions on
Business Activities. There is
no arbitral award, judgment, injunction, constitutional ruling,
order or decree binding upon the Acquiror or its subsidiaries that
has or could reasonably be expected to have the effect of
prohibiting, restricting, or impairing any business practice of any
of them, any acquisition or disposition of property by any of them,
or the conduct of the business by any of them as currently
conducted, which could reasonably be expected to have a Material
Adverse Effect on the Acquiror.
(s)
Authorizations and
Consents.
(i) Except for the approval of the CSE contemplated in
Section 7.1(a) and the approval of the shareholders of the Acquiror
contemplated in Section 7.1(d), no Authorization or declaration or
filing with any Governmental Entity on the part of the Acquiror is
required for the valid execution, delivery and performance of its
obligations under this Agreement or the completion of the
Transaction pursuant to this Agreement.
(ii) No
consent, approval or waiver is required pursuant to the terms of
any Material
Contract to which the Acquiror is a party for the valid execution,
delivery and performance of its obligations under this Agreement or
the completion of the Transaction pursuant to this
Agreement.
(t)
No Cease
Trade. The Acquiror is not
subject to any cease trade or other order of any applicable
Securities Authority and, to the knowledge of the Acquiror, no
investigation or other proceedings involving the Acquiror which may
operate to prevent or restrict trading of any securities of the
Acquiror are currently in progress or pending before any applicable
Securities Authority.
(u)
Fees.
No broker, investment banker, financial advisor or other Person is
entitled to any broker’s, finder’s, financial
advisor’s or other similar fee or commission in connection
with the transactions contemplated hereby based upon arrangements
made by or on behalf of the Acquiror.
(v)
United States
Securities Laws. The Acquiror
is not registered, and is not required to be registered as, an
“investment company” under the United States Investment
Company Act of 1940, as amended.
5.2 The representations
and warranties of the Acquiror contained in this Agreement shall
not
survive the completion of the Transaction and shall expire and be
terminated on the earlier of the Time of Closing and the date on
which this Agreement is terminated in accordance with its terms.
Any investigation by the Shareholders and their Representatives
shall not mitigate, diminish or affect the representations and
warranties of the Acquiror pursuant to this Agreement.
ARTICLE 6
STOCK EXCHANGE LISTING, SHAREHOLDER APPROVALS,
TRANSACTION
MATTERS AND EXCHANGE ESCROW
6.1 Stock Exchange
Listing, Filings and Approvals
(a) Subject to Section 6.4 below, the Acquiror
covenants and agrees to take, in a timely
manner, all commercially reasonable actions and steps necessary in
order that: (i) prior to the completion of the Transaction, the
Acquiror will seek shareholder approval to: (a) effect the
Consolidation; (b) effect a change of its name to such name as may
be approved by the Corporation and acceptable to applicable
regulatory authorities; (c) amend its articles to create the
Restricted Shares; and (d) elect the Corporation Nominees to
replace the current slate directors of the Acquiror immediately
following the Closing of the Transaction (collectively, the
“Transaction
Resolutions”), in
accordance with Section 6.3 below; (ii) the Consideration Shares
issued to the Shareholders by the Resulting Issuer will be listed
and posted for trading on the CSE; (iii) when received, the
Acquiror shall provide the Corporation with copies of the final
approval regarding the listing and posting for trading of the
Resulting Issuer Shares on the CSE; and (iv)
the
distribution
of the Consideration Shares to the Shareholders is exempt from
theprospectus
and registration requirements of applicable Securities
Laws.
(b) Subject to Section 6.4 below, the Corporation will
use its commercially reasonable efforts to obtain the Stock
Exchange Listing and thereafter fulfill the conditions of the CSE.
The Acquiror will provide the Corporation and its legal counsel
with reasonable advance notice and an opportunity to comment on the
content thereof, and to participate in, any communications or
submissions to the CSE and other securities regulatory
authorities.
6.2 Preparation of
Financial Statements
The Corporation shall be responsible for preparing, as required in
connection with the Transaction, the audited and interim financial
statements of the Corporation, and the pro forma financial
statements reflecting the combination of the Acquiror and the
Corporation (including Finco), in each case in the form required by
the CSE and the relevant securities regulatory
authorities.
6.3 Shareholder
Approval
As soon as is practicable after the date hereof, the Acquiror shall
take all necessary steps to obtain shareholder approval in
connection with the Transaction Resolutions.
6.4 Transaction
Costs
The Acquiror will be responsible for the payment of up to $300,000
of expenses incurred by both the Acquiror and the Corporation (but
not the Shareholders) incurred in connection with the transactions
contemplated herein. These expenses will be funded from the
proceeds of Acquiror’s private placement of Acquiror Special
Warrants, which proceeds have been deposited into escrow and
Acquiror will have no liability for expenses hereunder other than
from the escrowed funds. Each party hereto shall thereafter be
responsible for its own costs and expenses incurred with respect to
the transactions contemplated herein including, without limitation,
all costs and expenses incurred prior to the date of this Agreement
and all reasonable legal and accounting fees and disbursements
relating to preparing the Transaction documents or otherwise
relating to the transactions contemplated herein. Notwithstanding
the foregoing, the parties agree that the Corporation and its
counsel shall be primarily responsible for preparation of all
documentation and filings in connection with the Transaction and
the payment of all related costs and fees, including, without
limitation, this Agreement, all shareholder meetings and the
application to the CSE for the Stock Exchange Listing, while the
Acquiror and its counsel shall perform a review function and
cooperate and assist in the preparation of such documentation and
required filings; however, each party shall permit the other party
and its counsel to review the preparation of all documentation to
be sent to the shareholders of such party or otherwise used in
connection with the approval of the Transaction by the shareholders
of such party and the CSE.
6.5 Exchange
Escrow
Each Shareholder shall comply with and be bound by, if applicable,
all escrow requirements imposed by the CSE on which the Resulting
Issuer Shares are listed or proposed to be listed and under
applicable Securities Laws.
ARTICLE 7
MUTUAL CONDITIONS PRECEDENT
7.1 The respective
obligations of the Acquiror and the Corporation to complete the
Transaction are subject to the fulfillment prior to or at the
Closing of each of the following conditions:
(a)
the
CSE shall have conditionally approved the Transaction and the
Acquiror shall have obtained the Stock Exchange Listing, subject
only to compliance with the usual requirements of the
CSE;
(b)
the
Brokered Financing shall have closed;
(c)
the
Amalgamation shall have occurred;
(d)
all
required Authorizations shall have been obtained on terms and
conditions satisfactory to the parties, acting
reasonably;
(e)
the
required approval of the Nevada Department of Taxation shall have
been received;
(f)
on
or before the Closing Date, there shall have been obtained all
regulatory approvals and all third party consents as may be
required to complete the Transaction, if any, in form and terms
satisfactory to the Acquiror and the Corporation, each acting
reasonably, unless otherwise provided for between the parties, or
if a failure to obtain such approvals or consents would not have a
Material Adverse Effect on the Acquiror or the Corporation or
materially impede the completion of the Transaction;
(g)
no
action shall have been taken by any court or governmental body
prohibiting or making illegal the execution and delivery of this
Agreement or any transaction contemplated by this Agreement;
and
(h)
this
Agreement shall not have been terminated pursuant to Article
13.
The conditions precedent in this Article 7 are for the mutual
benefit of the Acquiror and the Corporation and may be waived, in
whole or in part, at any time if waived by both the Acquiror and
the Corporation, such waiver being without prejudice to any other
right that any Party may have. In case any of the foregoing
conditions cannot be fulfilled on or before the Closing Date to the
satisfaction of the Acquiror and the Corporation, any of the
Acquiror and the Corporation may rescind this Agreement by notice
to the other Party and in such event each of the
Corporation, the Shareholders and the Acquiror shall be released
from all obligations hereunder, other than in respect of liability
of a party for breach of any of the terms or conditions set forth
herein before such termination.
ARTICLE 8
CONDITIONS PRECEDENT TO ACQUIROR’S OBLIGATIONS
8.1 All obligations of the
Acquiror to acquire the Acquired Corporation Shares under this
Agreement are subject to the fulfillment prior to or at the Closing
of each of the following conditions:
(a)
the
representations and warranties made by the Corporation and the
Shareholders under this Agreement shall be true in all material
respects as of the Time of Closing (any breach of a representation
or warranty shall be determined without reference to any
materiality qualifier with respect thereto) and the Corporation
shall deliver a certificate signed by a senior officer, dated the
Closing Date in the form satisfactory to counsel to the Acquiror
confirming this and confirming that the Corporation has not
received notice of any inaccuracy in any of the Shareholders’
representations and warranties contained herein, and confirming
such other matters as may be reasonably requested by counsel to the
Acquiror;
(b)
no
Material Adverse Change shall have occurred in the business,
results of operations, assets, financial condition or affairs of
the Corporation, financial or otherwise, between the date of the
Letter Agreement and the completion of the
Transaction;
(c)
there
will be no debts or amounts owing to the Corporation by any of its
officers, former officers, directors, former directors,
shareholders, employees or former employees or any family member
thereof, or any Person with whom either the Corporation does not
deal at arm’s length, except for any amounts advanced to such
Person for expenses incurred on behalf of the Corporation, in the
ordinary course;
(d)
each
of the Shareholders and the Corporation shall have complied with
all covenants and agreements herein agreed to be performed or
caused to be performed by it;
(e)
the
Acquiror shall have received evidence in form satisfactory to the
Acquiror, acting reasonably, that all actions required to be taken
by the Corporation prior to Closing have been taken and all
consents and approvals, including, but not limited to, any consent,
approval or waiver required pursuant to the terms of any Material
Contract to which the Corporation is a party for the valid
execution, delivery and performance of its obligations under this
Agreement or the completion of the Transaction, orders and
authorizations required to be obtained by the Corporation for the
Closing have been obtained;
(f)
no
action, suit or proceeding shall have been instituted and be
continuing by any Person to restrain, modify or prevent the
consummation of the Transaction as contemplated by this Agreement,
or to seek damages against the Shareholders in connection with such
Transaction, or that has been or is reasonably likely to have a
material adverse effect on the ability of any Party hereto to fully
consummate the Transaction as contemplated by this
Agreement;
(g)
no
change, fact or circumstance shall have occurred in the affairs,
operations, business or financial condition of the Corporation that
the directors of the Acquiror determine, in their sole discretion,
to have a Material Adverse Effect on such Party in proceeding with
the Transaction and except as is disclosed in this
Agreement;
(h)
the
Shareholders shall have delivered to the Acquiror the Acquired
Corporation Shares free and clear of any Encumbrances, in
accordance with the provisions of Section 2.1 hereto;
and
(i)
the
Financial Statements of the Corporation shall, in all material
respects, be consistent with the draft Financial Statements of the
Corporation delivered by the Corporation to the Acquiror on or
prior to the date hereof.
In case any of the foregoing conditions cannot be fulfilled on or
before the Closing Date to the satisfaction of the Acquiror, the
Acquiror may rescind this Agreement by notice to the Corporation
and in such event each of the Acquiror, the Shareholders and the
Corporation shall be released from all obligations hereunder other
than in respect of liability of a party for breach of any of the
terms or conditions set forth herein before such termination;
provided, however, that any such conditions may be waived in whole
or in part by the Acquiror without prejudice to its rights of
rescission in the event of the non-fulfillment of any other
condition or conditions, and that the Closing of the Transaction as
contemplated by the Agreement shall be deemed to be a waiver of any
unfulfilled conditions.
ARTICLE 9
CONDITIONS PRECEDENT TO THE SHAREHOLDERS’ AND
THE
CORPORATION’S OBLIGATIONS
9.1 The obligations of the
Corporation and the Shareholders to complete the transactions
contemplated herein including, without limitation, the obligations
of the Shareholders to sell the Acquired Corporation Shares under
this Agreement, are subject to the fulfilment prior to or at the
Closing of each of the following conditions:
(a)
the
shareholders of the Acquiror shall have approved the Transaction,
if required by the CSE;
(b)
there
will be no debts or amounts owing to the Acquiror by any of its
officers, former officers, directors, former directors,
shareholders, employees or former employees or any family member
thereof, or any Person with whom either the
Acquiror
does not deal at arm’s length, except for any amounts
advanced to such
Person
for expenses incurred on behalf of the Acquiror, in the ordinary
course;
(c)
the
representations and warranties made by the Acquiror under this
Agreement shall be true in all material respects as of the Time of
Closing (any breach of a representation or warranty shall be
determined without reference to any materiality qualifier with
respect thereto) and the Acquiror shall deliver to the Corporation
a certificate signed by a senior officer, dated the Closing Date in
the form satisfactory to counsel to the Corporation confirming this
and such other matters as may reasonably requested by counsel to
the Corporation;
(d)
no
Material Adverse Change shall have occurred in business, results of
operations assets, liabilities, financial condition or affairs of
the Acquiror, financial or otherwise, between the date of the
Letter Agreement and the completion of the
Transaction;
(e)
all
liabilities of the Acquiror showing on its unaudited December 31,
2017 balance sheet or incurred since that date shall have been
eliminated, other than liabilities incurred in connection with any
transaction contemplated by this Agreement or incurred following
the date thereof to maintain the Acqurior’s status as a
reporting issuer not in default under applicable Canadian
provincial Securities Laws applicable in the Provinces of Alberta,
Ontario, Quebec, Nova Scotia, Prince Edward Island, and
Newfoundland and Labrador;
(f)
the
Acquiror shall have complied with all covenants and agreements
herein agreed to be performed or caused to be performed by
it;
(g)
receipt
by the Corporation of a written resignation from each of the
officers and directors of the Acquiror, such resignations to be
effective at the Time of Closing;
(h)
the
CSE shall not have objected to the appointment of the Corporation
Nominees to the board of directors of the Resulting Issuer, or of
the management nominees of the Corporation to serve as officers of
the Resulting Issuer, each upon closing of the
Transaction;
(i)
no
action, suit or proceeding shall have been instituted and be
continuing by any Person to restrain, modify or prevent the
consummation of the Transaction as contemplated by this Agreement,
or to seek damages against the Acquiror in connection with such
Transaction, or that has been or is reasonably likely to have a
Material Adverse Effect on such Party to fully consummate the
Transaction as contemplated by this Agreement;
(j)
the
Acquiror shall pay and satisfy the Acquisition Price in accordance
with Section 2.3 of this Agreement and shall deliver to the
Shareholders and/or an escrow agent, as applicable, certificates,
in form reasonably satisfactory to counsel
to
the Shareholders, representing the Consideration Shares to be
issued in accordance with Article 2 hereto registered in the names
of the Shareholders; and
(k) all
convertible securities of the Acquiror outstanding prior to the
Time of Closing shall have been converted and the Acquiror shall
not have outstanding (following such conversion), more than
5,250,000 Acquiror Shares.
In case any of the foregoing conditions cannot be fulfilled on or
before the Closing Date to the satisfaction of the Shareholders,
the Shareholders may rescind this Agreement by notice to the
Acquiror and in such event each of the Corporation, the
Shareholders and the Acquiror shall be released from all
obligations hereunder other than in respect of liability of a party
for breach of any of the terms or conditions set forth herein
before such termination, provided, however, that any such
conditions may be waived in whole or in part by the Shareholders
without prejudice to its rights of rescission in the event of the
non- fulfilment of any other condition or conditions, and that the
Closing of the Transaction as contemplated by the Agreement shall
be deemed to be a waiver of any unfulfilled
conditions.
ARTICLE 10
COVENANTS OF THE CORPORATION
10.1 The Corporation agrees that during the period commencing on
the date of this Agreement and continuing until Closing or the
earlier termination of this Agreement, the
Corporation:
(a)
subject
to the terms of this Agreement, agrees to prepare and circulate a
form of unanimous written consent resolution for the purpose of
obtaining the Corporation Shareholder Approval in accordance with
the Corporation’s articles, by-laws and Applicable Law, as
soon as reasonably practicable, and shall use its best efforts to
obtain the Corporation Shareholder Approval no later than April 30,
2018;
(b)
will
carry on its business in, and only in, the ordinary course in
substantially the same manner as heretofore conducted;
(c)
will
not issue, authorize or propose the issuance of, or acquire or
propose the acquisition of, any shares of its capital stock of any
class or securities convertible into, or rights, warrants or
options to acquire, any such shares or other convertible securities
other than those currently outstanding or upon exercise of existing
convertible securities or as otherwise contemplated
hereby;
(d)
will
not borrow any money or incur any indebtedness in an aggregate
amount in excess of US$200,000 (except for trade payables incurred
in the ordinary course), without the prior written consent of the
Acquiror;
(e)
will
not to declare or pay any dividends or distribute any of the
Corporation’s properties or Assets to shareholders of the
Corporation;
(f)
will
not to alter or amend the Corporation’s articles or by-laws
in any manner which may adversely affect the success of the
Transaction, except as is agreed to by the
Acquiror
in writing or as strictly required to give effect to the matters
contemplated herein;
(g)
will
use its reasonable commercial efforts to obtain any third parties
approvals required in respect of the Transaction, including any
lenders or financial institutions, licensors and strategic
partners;
(h)
will
cooperate fully with the Acquiror and to use all reasonable
commercial efforts to assist the Acquiror in its efforts to acquire
all of the Acquired Corporation Shares, unless such cooperation and
efforts would subject the Corporation to liability or would be in
breach of applicable statutory and regulatory
requirements;
(i)
will
not sell, lease or otherwise dispose of a material portion of its
Assets, other than: (i) in the ordinary course; (ii) in connection
with a reorganization completed in connection with the transactions
contemplated herein; (iii) or with the prior written consent of the
Acquiror, such consent not to be unreasonably
withheld;
(j)
will
use its reasonable efforts to comply promptly with all requirements
which Applicable Law may impose on the Corporation with respect to
the Transaction;
(k)
will
cooperate and provide the Acquiror and its representatives with
full copies of and access to, all contracts, financial records and
statements, books, records, documents and other such information
regarding its previous businesses as they may require, as well as
access to the Acquiror’s auditors, technical personnel and to
such premises and personnel of the Acquiror, if any, as may be
reasonably requested;
(l)
will
promptly advise the Acquiror orally and in writing of any Material
Adverse Change of the Corporation; and
(m)
will
cooperate in obtaining all necessary and desirable consents and
regulatory approvals in connection with the
Transaction.
ARTICLE 11
COVENANTS OF THE ACQUIROR
11.1 The Acquiror covenants and agrees that until Closing or the
earlier termination of this Agreement it will:
(a)
subject
to the terms of this Agreement, the Acquiror agrees to circulate a
form of unanimous written consent resolution for the purpose of
obtaining the Acquiror Shareholder Approval in accordance with the
Acquiror’s articles, by-laws and Applicable Law, as soon as
reasonably practicable, and shall use its best efforts to obtain
the Acquiror Shareholder Approval no later than April 30,
2018;
(b)
not
issue any debt or equity or other securities without the prior
written consent of the Corporation, except as required to complete
the Amalgamation, or for the
issuance
of Acquiror Shares upon the exercise of existing convertible
securities as contemplated hereunder;
(c)
not
carry on any business except as required to complete the
Transaction and retain its status as reporting issuer not in
default under applicable Canadian provincial Securities Laws
applicable in the Provinces of Alberta, Ontario, Quebec, Nova
Scotia, Prince Edward Island, and Newfoundland and Labrador, not
borrow any money or incur any indebtedness (except for trade
payables incurred in the ordinary course);
(d)
not
make loans, advances or other similar payments to any party,
excluding advances to the Corporation or third parties for expenses
reasonably necessary to carry out the terms of this
Agreement;
(e)
not
make any expenditures except those that are reasonably necessary to
carry out the terms of this Agreement, that are necessary to fulfil
the Acquiror’s obligations as a “public company”
or that are incurred to reimburse directors or officers for
reasonable expenses incurred for the foregoing
purposes;
(f)
not
declare or pay any dividends or distribute any of the
Acquiror’s property or assets to shareholders;
(g)
not
alter or amend the Acquiror’s articles or by-laws in any
manner which may adversely affect the success of the Transaction,
except as strictly required to give effect to the matters
contemplated herein, including, but not limited to, the creation of
the class of Restricted Shares, the Consolidation and the change of
name of the Corporation, as contemplated pursuant to Section
6.1(a);
(h)
not
enter into any transaction or material contract, except as
reasonably necessary to give effect to the matters contemplated
herein;
(i)
use
its reasonable commercial efforts to obtain any third parties
approvals required in respect of the Transaction, including any
lenders or financial institutions, licensors and strategic
partners;
(j)
cooperate
fully with the Corporation and to use all reasonable commercial
efforts to otherwise complete the Transaction, unless such
cooperation and efforts would subject the Acquiror to liability or
would be in breach of applicable statutory and regulatory
requirements;
(k)
promptly
advise the Corporation orally and in writing of any Material
Adverse Change with respect to the Acquiror;
(l)
cooperate
in obtaining all necessary consents and regulatory approvals in
connection with the Transaction;
(m)
maintain its corporate status and comply with all applicable
securities requirements (including any applicable filing
requirements);
(n)
provide the Corporation with full copies of, and access to, all
contracts, financial records and statements, books, records,
documents and other such information regarding its previous
businesses as is available and they may require, as well as access
to the Acquiror’s auditors and to such premises and personnel
of the Acquiror, if any, as may be reasonably requested;
and
(o)
use its commercially reasonable best efforts to obtain CSE approval
of the Transaction as expeditiously as possible.
ARTICLE 12
ADDITIONAL COVENANTS
12.1 Non-Solicitation.
(a) Each
of the Acquiror and the Corporation agree that during the period
from the date hereof
until the earlier of the Closing Date and the Termination Date,
it:
(i)
shall
immediately cease and cause to be terminated any existing
discussions or negotiations or other proceedings initiated prior to
the date hereof by it, or its respective Representatives with
respect to all Acquisition Proposals; shall not amend, modify,
waive, release or otherwise forebear in the enforcement of, and
shall use all commercially reasonable efforts to enforce, any
confidentiality, non-solicitation or standstill or similar
agreements or provisions to which it and any third parties are
parties; and shall discontinue access to any of its confidential
information (and not establish or allow access to any of its
confidential information, or any data room, virtual or
otherwise);
(ii)
shall
not directly or indirectly, through any Representative, solicit,
initiate or knowingly encourage (including by way of furnishing
information), or cause or facilitate anyone else to solicit,
initiate or knowingly encourage, any Acquisition Proposal, or any
inquiries or the making of any proposal that constitutes or may
reasonably be expected to lead to an Acquisition Proposal, from any
Person, or engage in any discussion, negotiations or inquiries
relating thereto, provided however that the Acquiror may request
information from any Person who has made an Acquisition Proposal
for the sole purpose of clarifying the terms of such Acquisition
Proposal;
(iii)
shall
not provide information concerning its securities, assets or
business to any Person for or in furtherance of anything mentioned
in Sections 12.1(i)or (ii) other than as required by Applicable
Law;
(iv)
shall
(i) immediately notify the Corporation if the Acquiror or any of
its Representatives receives any indications of interest, requests
for information or offers in respect of any Acquisition Proposal;
and (ii) provide full details to the Corporation of the terms of
any such indication, request or offers, subject to any contractual
obligations of confidentiality; and
(v)
shall
not accept, recommend, approve or enter into or propose to publicly
accept, recommend, approve or enter into an agreement to implement
an Acquisition Proposal.
ARTICLE 13
TERMINATION
13.1 This Agreement may, by notice given before or at the Closing,
be terminated by:
(a)
mutual
agreement of the Acquiror and the Corporation;
(b)
either
the Acquiror or the Corporation upon notice to the other in the
event that any condition set forth in this Agreement for their
benefit is not satisfied to the satisfaction of such Party prior to
the Closing Date or becomes incapable of being satisfied and such
Party does not waive such condition;
(c)
either
the Acquiror or the Corporation, if there shall be any Applicable
Law that makes consummation of the Transaction illegal or otherwise
prohibited, any applicable regulatory authority having notified in
writing either the Acquiror or the Corporation that it will not
permit the Transaction to proceed, or if any judgment, injunction,
order or decree of a competent governmental entity enjoining the
Acquiror or the Corporation from consummating the Transaction shall
be entered and such judgment, injunction, order or decree shall
have become final and non-appealable;
(d)
either
the Acquiror or the Corporation upon notice to the other in the
event that the Brokered Financing is not completed on or prior to
April 30, 2018 provided that if the lead agent for the Brokered
Financing has confirmed in writing prior to April 30, 2018 that
commitments for the full Brokered Financing have been received but
closing has not yet occurred, such date will be extended to May 6,
2018;
(e)
either the Acquiror or the Corporation upon notice
to the other in the event that the Transaction is not completed
before June 30, 2018 (the “Termination
Date”), or such other
date as the Acquiror and the Corporation may agree in
writing;
(f) the
Corporation if:
(i)
the
Acquiror has breached any of its representations, warranties or
covenants in this Agreement in any material respect and such breach
is not curable or if curable, is not cured within five Business
Days after notice thereof has been received by the Party alleged to
be in breach;
(ii)
there
shall occur after the date hereof, any change, effect, event,
circumstance or fact that constitutes a Material Adverse Effect in
respect of the Acquiror;
(g) the
Acquiror if:
(i)
the
Corporation has breached any of its representations, warranties or
covenants in this Agreement in any material respect and such breach
is not curable or if curable, is not cured within five Business
Days after notice thereof has been received by the Corporation;
or
(ii)
there
shall occur after the date hereof, any change, effect, event,
circumstance or fact that constitutes a Material Adverse Effect in
respect of the Corporation.
13.2 Each Party’s right of termination under Section 13.1
hereto is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of such right of
termination will not be an election of remedies. If this Agreement
is terminated pursuant to Section 13.1 hereto, all obligations of
the Parties under this Agreement will terminate, except as provided
under Section 13.3 hereto; provided, however, that for greater
certainty if this Agreement is terminated by a Party because of the
breach of the Agreement by another Party or because one or more of
the conditions to the terminating Party’s obligations under
this Agreement is not satisfied as a result of any other
Party’s failure to comply with its obligations under this
Agreement, the terminating Party’s right to pursue all legal
remedies will survive such termination unimpaired.
13.3 Expenses and Reimbursement.
(a)
Subject
to Section 6.4, all fees, costs and expenses incurred in connection
with this Agreement shall be paid by the Party incurring such fees,
costs or expenses.
(b)
Nothing
in this Section 13.3 shall preclude a Party from seeking injunctive
relief to restrain any breach or threatened breach of the covenants
or agreements set forth in this Agreement or otherwise to obtain
specific performance of any such covenants or
agreements.
ARTICLE 14
NOTICES
14.1 All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when
delivered personally to the recipient or by email addressed to the
recipient. Such notices, demands and other communications shall be
delivered, mailed or sent electronically to the parties at the
respective addresses or email addresses indicated
below:
(a)
If
to the Corporation or the Shareholders, addressed as
follows:
MM
Development Company Inc.
4850
W. Sunset Road, Suite 130
Las
Vegas, Nevada 89118
Attention:
Larry Scheffler or Robert Groesbeck, Co-Chief Executive
Officers
E-mail:
lscheffler@lasvegascolor.com or bobgroesbeck@gmail.com
(b)
If to the Acquiror,
addressed as follows:
Carpincho Capital
Corp.
181
University Avenue, Suite 800
Toronto, Ontario
M5H 2X7
Attention: Lonnie
Kirsh, Chief Executive Officer
E-mail:
lonnie@acuitylaw.ca
or to such other address as the Party to be notified shall have
furnished to the other parties in writing. Any notice given in
accordance with the foregoing shall be deemed to have been given
when delivered in person or on the next Business Day following the
date on which it shall have been sent electronically or
mailed.
ARTICLE 15
GENERAL
15.1 This Agreement:
(a)
shall
be construed and enforced in accordance with the laws of the
Province of Ontario; and
(b)
shall
enure to the benefit of and be binding upon the Acquiror, the
Shareholders and the Corporation and their respective executors,
administrators, legal representatives, successors and permitted
assigns, nothing in this Agreement, express or implied, being
intended to confer upon any other person any rights or remedies
hereunder.
15.2 This Agreement may be amended or modified only by a written
instrument executed by the parties affected thereby, or by their
respective successors and permitted assigns.
15.3 This Agreement, the Schedules hereto and the documents
specifically referred to herein or executed and delivered
concurrently herewith or at the Closing constitute the entire
agreement, understanding, representations and warranties of the
parties hereto and supersede any prior agreement, understanding,
representation, warranty or documents relating to the subject
matter of this Agreement including, for greater certainty, the
Letter Agreement.
15.4 Time shall be of the essence hereof.
15.5 Each of the Parties hereto covenants and agrees that at any
time and from time to time after the Closing Date such Party will,
upon the request of any other Party, do, execute, acknowledge and
deliver all such further acts, documents and assurances as may be
reasonably required for the better carrying out of the terms of
this Agreement.
15.6 This Agreement may be executed by facsimile or PDF email and
in one or more counterparts, each of which shall be considered an
original but all of which together shall constitute one and the
same agreement.
15.7 The parties hereto agree to file in a timely manner all forms
required to be filed after the Closing Date by Applicable Law and
by the regulations and policies of all applicable securities
regulatory authorities in connection with the Transaction. The
parties acknowledge that a copy of this Agreement will be filed on
SEDAR.
15.8 Neither this Agreement nor any right or obligation hereunder
shall be assignable by any Party hereto without the prior written
consent of the other parties hereto, which consent may be
arbitrarily withheld.
15.9 Until immediately after the Time of Closing, all documents and
information exchanged or received hereunder by the Acquirors, the
Shareholders or the Corporation and their respective auditors and
solicitors shall be treated as confidential information except as
may be required by law, or regulation. Any press releases shall be
subject to joint approval of the Acquiror and the Corporation. The
parties acknowledge that a copy of this Agreement will be required
to be filed by Acquiror on SEDAR pursuant to applicable Securities
Laws.
[The remainder of this page has been left intentionally blank.
Signature page follows.]
IN WITNESS WHEREOF the parties
hereto have duly executed this Agreement as of the date first above
written.
MM DEVELOPMENT COMPANY, INC.
By: /s/ Robert
Groesbeck
Authorized Signatory
CARPINCHO CAPITAL CORP.
By: /s/Lonnie
Kirsh
Authorized Signatory
PRMN INVESTMENTS LTD.
By: /s/ Robert
Groesbeck
Authorized Signatory
THIRTEEN, LLC
By: /s/ Larry
Scheffler
Authorized Signatory
4 DEGREES HIGHER, LLC
By: /s/ Chris
Wren
Authorized Signatory
SCHEDULE “A”
SHAREHOLDERS OF CORPORATION
Name and Address of Registered Shareholder
|
Number of Corporation
Shares
|
Number of
Corporation Non-
Voting Shares
|
Number of
Consideration Shares to be Issued on Closing
|
PRMN
Investments Ltd.
205
N. Stephanie St., Suite D-126
Henderson,
Nevada
89074
|
11,891,000
|
23,359,000
|
11,891,000
Resulting
Issuer Shares and
23,359,000
Restricted Shares
|
Thirteen,
LLC
205
N. Stephanie St., Suite D-126
Henderson,
Nevada
89074
|
11,891,000
|
23,359,000
|
11,891,000
Resulting
Issuer Shares and
23,359,000
Restricted Shares
|
4
Degrees Higher, LLC
205
N. Stephanie St., Suite D-126
Henderson,
Nevada
89074
|
1,518,000
|
2,982,000
|
1,518,000
Resulting Issuer Shares and 2,982,000 Restricted
Shares
|
TOTAL:
|
25,300,000
|
49,700,000
|
25,300,000 Resulting Issuer Shares and 49,700,000 Restricted
Shares
|
SCHEDULE “B”
MATERIAL CONTRACTS OF THE CORPORATION
1.
Exclusive
Services Agreement (Software) between Blackbird Logistics, Corp.
and the Corporation dated November 8, 2017;
2.
IT
Services Agreement between Intelligent Design I.T. Consulting and
the Corporation dated December 1, 2015;
3.
Marketing
Agreement between Artisans on Fire and the Corporation dated
January 24, 2018;
4.
Marketing
Agreement between Ghost Management Group, LLC and the Corporation
dated January 8, 2018;
5.
Professional
Services Agreement between On Scene Investigation & Security,
Inc. and the Corporation dated December 10, 2015;
6.
Software
License Installation Agreement between [REDACTED –
CONFIDENTIAL INFORMATION] and the Corporation (signed by the
Corporation on January 18, 2016);
7.
Software
Agreement between [REDACTED – CONFIDENTIAL INFORMATION] and
the Corporation dated November 6, 2017;
8.
Microbulk
Products Sales Agreement between Airgas USA, LLC and the
Corporation dated August 12, 2015;
9.
Service
Agreement between Green Clean Commercial Cleaning Services and the
Corporation dated December 1, 2017;
10.
Proposal
for Pest Control presented by Pride Pest Control LLC dba Bears Pest
Control for Grow House Beatty (undated);
11.
Pest
Control and Service Agreement between American Pest Control, Inc.
and the Corporation dated April 22, 2016;
12.
Rental
Service Agreement between Cintas Corporation and the Corporation
dated August 5, 2017;
13.
Decorator/Design
Services Agreement between Briana Tiberti, T Square Studio LLC, and
the Corporation dated November 16, 2017;
14.
Professional
Services Agreement between On Scene Investigation & Security,
Inc. and the Corporation dated December 10, 2015; and
15.
Credit
Facility between [REDACTED – CONFIDENTIAL INFORMATION] and
the Corporation dated February 24, 2018.
SCHEDULE “C”
RESTRICTED SHARE TERMS
[See Following Page]
1.1 General
Definitions
In this Part, the following terms shall have the following meanings
unless the context otherwise requires:
(a) “1933 Act” means the United States Securities Act of
1933, as amended from time to time.
(b) “Common
Shares” means the common
shares in the capital of the Company.
(c) “Company” means “Planet 13 Holdings
Inc.”
(d) “Conversion
Notice” means a written
notice to the transfer agent of the Restricted Voting Shares, in
form and substance satisfactory to the Company and the transfer
agent, executed by a person registered in the records of the
Company or the transfer agent, as the case may be, as a holder of
the Restricted Voting Shares, or by his or her attorney duly
authorized in writing and specifying the number of Restricted
Voting Shares which the holder thereof desires to have converted
into Common Shares, and accompanied by:
(1)
if
share certificates were issued to such holder, the share
certificate or certificates representing the Restricted Voting
Shares which such holder desires to convert;
(2)
a
letter of transmittal, direction, transfer, power or attorney
and/or such other documentation as is specified by the Company or
the transfer agent for the Restricted Voting Shares, acting
reasonably, as being required to give full effect to the conversion
duly completed and executed by the person registered in the records
of the Company or the transfer agent, as the case may be, as the
holder of the Restricted Voting Shares to be converted or by his or
her attorney duly authorized in writing; and
(3)
a
duly completed and executed Residency Declaration or an opinion or
memorandum of counsel (which may be the Company's counsel), in form
and substance satisfactory to the Company and the transfer agent,
to the effect that the conversion of such Restricted Voting Shares
into Common Shares would not cause the Company to become a Domestic
Issuer.
(e) “Domestic
Issuer”' has the meaning
ascribed thereto in Rule 902(c) of Regulation S under the 1933
Act.
(f) “Exclusionary
Offer” means an offer to
purchase Restricted Voting Shares which must be made, by reason of
applicable securities legislation or by the rules or policies of a
stock exchange on which any shares or the Company are listed, to
all or substantially all of the holders or Restricted Voting
Shares.
(g) “Fundamental
Transaction” means a
reorganization, recapitalization, reclassification, merger or
amalgamation or any similar transaction involving the
Company.
(h)
“Liquidation
Event” means a
distribution of assets of the Company to its shareholders arising
on the winding-up, liquidation or dissolution of the Company,
whether voluntary or involuntary, or any other distribution of its
assets for the purpose of winding up its affairs or
otherwise.
(i)
“Residency
Declaration” means (i) a
declaration by a person attesting that such person is not a
resident of the United States and (ii) any indemnity required by
the Company or the transfer agent in respect of such declaration in
favour of the Company from the person providing the declaration, in
each case in form approved by the Company from time to
time.
(j)
“Restricted Voting
Shares” means the Class A
Restricted Voting Shares in the capital of the
Company.
(k)
“United
States” means the United
States of America, its territories and possessions, any State of
the United States and the District of Columbia.
COMMON SHARES
1.2 Voting
Each Common Share entitles the holder to receive notice of and to
attend any meeting of shareholders and to exercise one vote for
each Common Share held at all meetings of shareholders of the
Company, other than meetings at which only the holders of another
class or series of shares are entitled to vote separately as a
class or series. Except as provided otherwise herein or as required
by law, holders of Common Shares and Restricted Voting Shares shall
vote as one class at all meetings of shareholders of the
Company.
1.3 Dividends
Subject to the Business Corporations Act, and subject to the rights
of the shares or any other class ranking senior to the Common
Shares with respect to priority in the payment or dividends, the
holders or Common Shares shall be entitled to receive dividends,
and the Company shall pay dividends thereon, as and when declared
by the Board out of moneys properly applicable to the payment of
dividends, pari passu with the holders of the Restricted Voting Shares
on a per share basis, in such amount and in such form as the Board
may from time to time determine; provided however that no dividend
on the Common Shares shall be declared unless contemporaneously
therewith the Board shall declare a dividend, payable at the same
time as such dividend on the Common Shares, on each Restricted
Voting Share. All dividends declared on the Common Shares and on
the Restricted Voting Shares shall be declared and paid in equal
amounts per share on all Common Shares and Restricted Voting Shares
at the time outstanding on the applicable record data for such
dividend. For purposes hereof, the payment of dividends by way of a
stock dividend in Common Shares on the Common Shares and in
Restricted Voting Shares on the Restricted Voting Shares in the
same number per share shall be considered to be a
pari passu
payment of
dividends.
Subject to the rights of the shares of any other class ranking
senior to the Common Shares with respect to priority upon a
Liquidation Event, in the event of a Liquidation Event, the holders
of Common Shares and the holders of Restricted Voting Shares shall
participate rateably in equal amounts per share, without preference
or distinction, in the remaining assets of the
Company.
1.5 Changes to Common Shares
The
Common Shares shall not be subdivided, consolidated, reclassified
or otherwise changed unless, contemporaneously therewith, the
Restricted Voting Shares are subdivided, consolidated, reclassified
or otherwise changed in the same proportion and in the same manner
as the Common Shares.
RESTRICTED VOTING SHARES
1.6 Voting
Subject
to Section 1.7, each Restricted Voting Share entitles the holder to
receive notice of and to attend any meeting of shareholders of the
Company and to exercise one vote for each Restricted Voting Share
held at all meetings of shareholders of the Company, other than
meetings at which only the holders or another class or series of
shares are entitled to vote separately as a class or series. Except
as provided otherwise herein or as required by law, holders or
Common Shares and Restricted Voting Shares shall vote as one class
at all meetings of shareholders of the Company.
1.7 Limitation on Voting Rights
The Restricted Voting Shares carry no entitlement for the holder
thereof to vote for the election or removal of directors of the
Company.
1.8 Dividends
Subject to the Business Corporations Act, and subject to the rights
of the shares of any other class ranking senior to the Restricted
Voting Shares with respect to priority in the payment of dividends,
the holders of Restricted Voting Shares shall be entitled to
receive dividends, and the Company shall pay dividends thereon, as
and when declared by the Board out of moneys properly applicable to
the payment of dividends, pari passu with the holders of the Common Shares on a per
share basis, in such amount and in such form as the Board may from
time to time determine; provided however that no dividend on the
Restricted Voting Shares shall be declared unless contemporaneously
therewith the Board shall declare a dividend, payable at the same
time as such dividend on the Restricted Voting Shares, on each
Common Share. All dividends declared on the Common Shares and on
the Restricted Voting Shares shall be declared and paid in equal
amounts per share on all Common Shares and Restricted Voting Shares
at the time outstanding on the applicable record date for such
dividend. For purposes hereof, the payment of dividends by way of a
stock dividend in Common Shares on the Common Shares and
in
Restricted Voting Shares on the Restricted Voting Shares in the
same number per share shall be considered to be a
pari passu
payment of
dividends.
1.9 Liquidation Event
Subject
to the rights of the shares of any other class ranking senior to
the Restricted Voting Shares with respect to priority upon a
Liquidation Event, in the event of a Liquidation Event, the holders
of Restricted Voting Shares and the holders of Common Shares shall
participate rateably in equal amounts per share, without preference
or distinction, in the remaining assets of the Company.
1.10 Restrictions on Transfer
No Restricted Voting Share shall be transferred by any holder
thereof pursuant to an Exclusionary Offer unless, concurrently with
the Exclusionary Offer, an offer to acquire Common Shares is made
that is identical to the Exclusionary Offer in terms of price per
share, percentage of outstanding shares to be taken up (exclusive
of shares owned immediately before the Exclusionary Offer by the
offeror) and in all other material respects (except with respect to
any additional conditions that may be attached to the Exclusionary
Offer).
1.11 Conversion at the Option of the Holder
Each Restricted Voting Share may be converted into one Common
Share, without payment of additional consideration, at any time and
from time to time, at the option of the holder thereof, in
accordance with the procedures set forth in Section 1.12
hereof.
1.12 Conversion Procedure
A holder of Restricted Voting Shares may convert all or any number
of Restricted Voting Shares held by such holder into Common Shares
in accordance with Section 1.11 upon delivery by the holder of such
Restricted Voting Shares of a duly completed and executed
Conversion Notice and upon receipt by the transfer agent of the
Company of such notice and upon compliance with any requirements
the transfer agent or the Company may reasonably request, the
Company shall issue or cause to be issued the relevant number of
fully paid Common Shares. The effective time of conversion shall be
the close of business on the date of receipt of a valid Conversion
Notice by the transfer agent of the Company and the Common Shares
issuable upon conversion of such Restricted Voting Shares shall be
deemed to be issued and outstanding of record as of such
time.
1.13 Conversion at the Option of the Company
Each
Restricted Voting Share may be converted into one Common Share, at
any time and from time to time, at the option of the Company by
delivery to a holder of the Restricted Voting Share of a notice
indicating same and the holder of Restricted Voting Shares shall
only have the right to receive the relevant number of Common Shares
resulting from such conversion and any accrued and unpaid dividends
on the Restricted Voting Shares so converted upon compliance with
the terms of the notice. The effective time of conversion shall be
the close of business on the date specified in the notice of the
Company and the Common Shares issuable upon
conversion of such Restricted Voting Shares shall be deemed to be
issued and outstanding of record as of such time and the applicable
Restricted Voting Shares shall be cancelled at that
time.
1.14 Withdrawal of Conversion Notice
Despite
any other provision hereof, a holder of a Restricted Voting Share
that has duly presented a Conversion Notice may, at any time before
such Restricted Voting Shares are converted and Common Shares are
issued, by irrevocable written notice to the Company, advise the
Company that the holder no longer desires that such Restricted
Voting Shares be converted into Common Shares and, upon receipt of
such written notice, the Company shall return to the holder the
certificates(s) representing such Restricted Voting Shares, if any,
and thereupon the Company shall cease to have any obligation to
convert such Restricted Voting Shares hereunder unless such
Restricted Voting Shares are again tendered for conversion by the
holder in accordance with the provisions hereof.
1.15 Fractional Common Shares
The
Company shall not issue fractional Common Shares in satisfaction of
the conversion rights herein provided for. Where the exercise of
conversion rights pursuant to this Article would otherwise result
in fractional Common Shares being issued, the number of Common
Shares to be issued by the Company shall be rounded down to the
nearest whole number of Common Shares. A determination of whether
or not any fractional share would be issuable upon a conversion of
Restricted Voting Shares shall be made on the basis of the total
number of Restricted Voting Shares the holder has at the time
converting into Common Shares and the appropriate number of Common
Shares issuable upon conversion.
1.16 Dividend Entitlement
A holder of Restricted Voting Shares on the record date for the
determination of holders of Restricted Voting Shares entitled to
receive a dividend declared payable on the Restricted Voting Shares
will be entitled to such dividend notwithstanding that such share
is converted after such record date and before the payment date of
such dividend, and the holders of any Common Shares resulting from
any conversion shall be entitled to rank equally with the holders
of all other Common Shares in respect of all dividends declared
payable to holders of Common Shares of record on any date on or
after the date of conversion.
1.17 Adjustments
(1) If
there shall occur any Fundamental Transaction involving the Company
inwhich
the Common Shares (but not the Restricted Voting Shares) are
converted into or exchanged for securities, cash or other property
(other than a transaction otherwise covered by this Section 1.17)
then, following such Fundamental Transaction each Restricted Voting
Share shall thereafter be convertible, in lieu of the Common Share
into which it was convertible before such event, into the kind and
amount or securities, cash or other property which a holder of the
number of
Common
Shares issuable upon conversion of one Restricted Voting Share
immediately before such Fundamental Transaction would have been
entitled to receive pursuant to such transaction; and, in such
case, appropriate adjustment (as determined by the Board) shall be
made in the application of the provisions of this subsection
1.17(1) with respect to the rights and interests thereafter of the
holders of the Restricted Voting Shares, to the end that the
provisions set forth in this subsection 1.17(1) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any
securities or other property thereafter deliverable upon the
conversion of the Restricted Voting Shares.
(2) The
Restricted Voting Shares shall not be subdivided, consolidated,
reclassified or otherwise
changed unless, contemporaneously therewith, the Common Shares are
subdivided, consolidated, reclassified or otherwise changed in the
sameproportion and in the same manner as the Restricted Voting
Shares.
1.18 Public Distribution Requirements
Conversion of Restricted Voting Shares into Common Shares permitted
under this Article shall be subject to the Company meeting
applicable distribution requirements for public shareholders of the
exchange on which the Common Shares are then listed and posted for
trading.
SCHEDULE “D”
CONSENTS AND APPROVALS
1.
Credit
Facility between [REDACTED – CONFIDENTIAL INFORMATION] and
the Corporation dated February 24, 2018; and
2.
Dispensary
lease agreement [REDACTED – COMMERCIALLY SENSITIVE
INFORMATION].
D-1
SCHEDULE “E”
OWNED AND LEASED REAL PROPERTY
Leases:
1. [REDACTED
– COMMERCIALLY SENSITIVE INFORMATION].
2. [REDACTED
– COMMERCIALLY SENSITIVE INFORMATION].
3. [REDACTED
– COMMERCIALLY SENSITIVE INFORMATION].
Real
Property Ownership:
1.
Nye
County cultivation and production real estate and buildings at 101
Airport Road, Beatty, Nevada 89003, approximately 80 acres owned by
Corporation, with planning for significant capital outlay to expand
cultivation, APN #[REDACTED – CONFIDENTIAL
INFORMATION].
E-1
Exhibit 2.4
MASTER AGREEMENT
THIS AGREEMENT made as of the 26th day of April,
2018
AMONG:
CARPINCHO
CAPITAL CORP.
a
corporation incorporated under the federal laws of Canada
("Carpincho")
- and
-
10713791
CANADA INC.
a
corporation incorporated under the federal laws of Canada
("Subco")
- and
-
10653918
CANADA INC.
a
corporation incorporated under the federal laws of Canada
("Finco")
WHEREAS:
1.
Carpincho wishes to
acquire all of the Finco Shares (as hereinafter defined) by way of
Amalgamation (as hereinafter defined);
2.
Carpincho has also
entered into the Share Exchange Agreement (as hereinafter defined)
pursuant to which Carpincho will acquire all of the issued and
outstanding securities of MM Development Company Inc.
(“MMDC”);
3.
As soon as
practicable following the date hereof, Finco intends to complete
the Finco Financing (as hereinafter defined), with the net proceeds
of the Finco Financing to be placed into escrow and released to
Finco immediately prior to the completion of the
Amalgamation;
4.
Finco and Subco
wish to amalgamate and continue as one corporation in accordance
with the terms and conditions hereof;
5.
Subco is a
wholly-owned subsidiary of Carpincho, and has been incorporated
solely for the purposes of amalgamating with Finco, and has not
carried on any active business, in each case other than as set
forth herein; and
6.
The parties have
entered into this Agreement to provide for the matters referred to
in the foregoing recitals and for other matters relating to the
proposed Amalgamation.
NOW THEREFORE IN CONSIDERATION OF THE COVENANTS AND AGREEMENTS
CONTAINED IN THIS AGREEMENT THE PARTIES HERETO AGREE AS
FOLLOWS:
(a)
Definitions. In this Agreement
(including the recitals hereto) and each schedule
hereto:
“Act” means the Canada Business Corporations Act and
the regulations prescribed thereunder, as the same may be varied,
supplemented or amended from time to time;
“Agreement” means this master
agreement and the schedules hereto, as may be amended, modified,
restated, supplemented or replaced from time to time;
“Amalco” means the entity formed by
the Amalgamation of the Amalgamating Parties;
“Amalco Shares” means the common
shares of Amalco;
“Amalgamating Parties” means Finco
and Subco;
“Amalgamation” means the
amalgamation of Finco and Subco under the provisions of section 185
of the Act and otherwise on the terms and subject to the conditions
set forth in this Agreement;
“Amalgamation Agreement” means the
form of amalgamation agreement to be entered into between Finco,
Subco and Carpincho in accordance with the terms hereof, in
substantially the form set forth in Schedule “A”
hereto;
“Applicable Laws” means with
respect to any person, all laws, statutes, regulations, by-laws,
statutory rules, orders, ordinances, protocols, codes, guidelines,
notices, directions (including all applicable Canadian securities
laws), and terms and conditions of any grant of approval,
permission, authority or license of any court, governmental
authority, statutory body or self-regulatory authority (including,
where applicable, the CSE), in each case, that is binding upon or
applicable to such person, as amended unless expressly specified
otherwise;
“Articles of Amalgamation” means
the articles of amalgamation of Amalco;
“Brokered Financing” means the
brokered private placement of up to 31,250,000 Finco Subscription
Receipts by Finco at a price of $0.80 per Finco Subscription
Receipt; the net proceeds of which will be placed into escrow and
released to Finco, and the Finco Subscription Receipts will
automatically be converted into Finco Units, on satisfaction of the
Release Conditions, and each Finco Share will then be exchanged for
one New Carpincho Share and each whole Finco Warrant will then be
exchanged for one New Carpincho Warrant, respectively, in
connection with the Amalgamation;
“Business Day” means a day other
than a Saturday, Sunday or a civic or statutory holiday in the City
of Toronto, Ontario;
“CSE” means the Canadian Securities
Exchange;
“Certificate” means the certificate
of amalgamation issued by the Director under the Act in respect of
the Amalgamation;
“Carpincho
Material Adverse Effect” means any change, effect,
event or occurrence that, individually or taken together with any
other change, effect, event or occurrence, is or would reasonably
be expected to be materially adverse to the financial condition,
operations, assets, liabilities, capitalization or business of
Carpincho, considered as a whole, or would reasonably be expected
to prevent, materially delay or materially impair the ability of
Carpincho to consummate the transactions contemplated by this
Agreement; provided, however, that a Carpincho Material Adverse
Effect shall not include an adverse change or adverse effect
resulting from a change, effect, event or occurrence: (i) which
arises out of or in connection with a matter that has been
disclosed in writing to Finco or its representatives by Carpincho
or its representatives prior to the date of this Agreement; (ii)
expenses incurred by Carpincho to pursue the transactions
contemplated by this Agreement and any related transactions and to
maintain its status as a reporting issuer; or (iii) resulting from
general economic, financial, currency exchange, securities or
commodity market conditions in Canada, unless, with respect to
clause (iii), such matter has a materially disproportionate effect
on Carpincho, considered as a whole, relative to comparable
entities operating in the industries in which Carpincho operates.
References in certain sections of this Agreement to dollar amounts
are not intended to be, and shall not be deemed to be, illustrative
or interpretative for purposes of determining whether a
“Carpincho Material Adverse Effect” has
occurred;
“Carpincho
Shares” means the issued and outstanding common shares
in the capital of Carpincho as constituted on the date
hereof;
“Carpincho
Shareholder” means a registered holder of Carpincho
Shares;
“Confidentiality”
means to maintain in confidence and not to disclose the applicable
information to third parties, except:
(i)
employees,
officers, directors, consultants, agents and other representatives
that need to know or ought to know in order to discharge their
respective duties in an efficient manner; or
(ii)
persons that are or
may be interested in advancing, loaning, investing or otherwise
providing potential debt or equity financing to a party, including
banks, financial institutions, brokerage companies and their
respective employees, officers, directors, consultants, agents and
other representatives, provided, however, that such persons agree
to maintain the information to be disclosed in
confidence;
and
“Confidential”
and “Confidence”
shall have similar meanings;
“Confidential
Information” shall have the meaning ascribed thereto
in Section 25;
“Consolidation”
means the consolidation of the Carpincho Shares on the basis of
0.875 of a New Carpincho Share for every one existing Carpincho
Share;
“Director”
means the Director appointed under section 260 of the
Act;
“Effective
Date” means the effective date of the Amalgamation as
set forth in the Certificate;
“Effective
Time” shall have the meaning ascribed thereto in
Subsection 2(c)(iii);
“Finco
Compensation Options” means the compensation options
to be issued on closing of the Brokered Financing, each such
compensation option entitling the holder to purchase one
(1)
Finco
Share at a price of $0.80 per Finco Share upon completion of the
Amalgamation on the Effective Date, and anytime for a period of 24
months thereafter;
“Finco
Financing” means, collectively, the Brokered Financing
and the Non-Brokered Financing;
“Finco
Material Adverse Effect” means any change, effect,
event or occurrence that, individually or taken together with any
other change, effect, event or occurrence, is or would reasonably
be expected to be materially adverse to the financial condition,
operations, assets, liabilities, capitalization or business of
Finco, or would reasonably be expected to prevent, materially delay
or materially impair the ability of Finco to consummate the
transactions contemplated by this Agreement; provided, however,
that a Finco Material Adverse Effect shall not include an adverse
change or adverse effect resulting from a change, effect, event or
occurrence: (i) which arises out of or in connection with a matter
that has been disclosed in writing to Carpincho or its
representatives by Finco or its representatives prior to the date
of this Agreement; or (ii) resulting from general economic,
financial, currency exchange, securities or commodity market
conditions in Canada unless, with respect to clause (ii), such
matter has a materially disproportionate effect on Finco relative
to comparable entities operating in the industries in which Finco
operates. References in certain sections of this Agreement to
dollar amounts are not intended to be, and shall not be deemed to
be, illustrative or interpretative for purposes of determining
whether a “Finco Material Adverse Effect” has
occurred;
“Finco
Shareholder” means a registered holder of Finco
Shares;
“Finco
Shares” means the issued and outstanding common shares
in the capital of Finco;
“Finco
Subscription Receipts” means the subscription receipts
of Finco to be issued pursuant to the Finco Financing, each such
subscription receipt to be deemed to be exchanged, without payment
of any additional consideration and subject to adjustment, for one
Finco Unit upon satisfaction of the Release Conditions, all in
accordance with the terms of the Subscription Receipt
Agreement;
“Finco
Units” means the units of Finco to be issued on
exercise or deemed exercise of the Finco Subscription Receipts,
each such unit consisting of one (1) Finco Share and one-half of
one Finco Warrant;
“Finco
Warrants” means the whole share purchase warrants
issued to holders of Finco Subscription Receipts upon satisfaction
of the Release Conditions, each whole such Finco Warrant entitling
the holder thereof to purchase one (1) Finco Share;
“IFRS”
means the international financial reporting standards as set out in
the Handbook of the Canadian Institute of Chartered Accountants, at
the relevant time applied on a consistent basis;
“New
Carpincho Compensation Options” means compensation
options issued in exchange for Finco Compensation Options, each
such option entitling the holder to purchase one (1) New Carpincho
Share at a price of $0.80 per New Carpincho Share for a period of
24 months from the Effective Date;
“New
Carpincho Shares” means the Carpincho Shares, after
giving effect to the Consolidation;
“New
Carpincho Warrants” means share purchase warrants
issued in exchange for Finco Warrants, each such warrant entitling
the holder thereof to purchase one (1) New Carpincho
Share
at a price of $1.40 per New Carpincho Share for a period of 24
months from the Effective Date;
“Non-Brokered
Financing” means the non-brokered financing of up to
6,250,000 Finco Subscription Receipts by Finco at a price of $0.80
per Finco Subscription Receipt; the gross proceeds of which will be
placed in escrow and released to Finco, and the Finco Subscription
Receipts will automatically be converted into Finco Units, on
satisfaction of certain escrow release conditions, and each Finco
Share will then be exchanged for one New Carpincho Share and each
whole Finco Warrant will then be exchanged for one New Carpincho
Warrant, respectively, in connection with the Transaction and the
Amalgamation;
“Release
Conditions” shall have the meaning given to it in the
Subscription Receipt Agreement;
“Share
Exchange Agreement” means the share exchange agreement
dated April 26, 2018 among Carpincho, MMDC and the shareholders of
MMDC;
“Subco
Shares” means the issued and outstanding common shares
in the capital of Subco;
“Subscription
Receipt Agent” means Odyssey Trust Company, in its
capacity as subscription receipt agent appointed pursuant to the
terms of the Subscription Receipt Agreement;
“Subscription
Receipt Agreement” means the subscription receipt
agreement to be entered into among Finco, the Subscription Receipt
Agent and Beacon Securities Limited governing the terms of the
Finco Subscription Receipts;
“subsidiary”
shall have the meaning ascribed thereto in the Act;
“Termination
Deadline” means June 30, 2018;
“Transaction”
means, together with the Amalgamation, the sale by the shareholders
of MMDC and the acquisition by Carpincho of all of the shares of
MMDC to form a resulting issuer company as contemplated pursuant to
the terms of the Share Exchange Agreement, and effect a stock
exchange listing on the CSE, and all ancillary matters to be
completed in connection with the foregoing; and
“Transfer
Agent” means Odyssey Trust Company, in its capacity as
registrar and transfer agent for the New Carpincho
Shares.
(b)
The division of
this Agreement into articles, sections and subsections is for
convenience of reference only and does not affect the construction
or interpretation of this Agreement. The terms “this
Agreement”, “hereof”, “herein”,
“hereby” and “hereunder” and similar
expressions refer to this Agreement (including the appendices
hereto) and not to any particular article, section or other portion
hereof and include any agreement or instrument supplementary or
ancillary hereto.
(c)
Words importing the
singular number include the plural and vice versa, words importing
the use of any gender include all genders, and words importing
persons include firms and corporations and vice versa.
(d)
If any date on
which any action is required to be taken hereunder by any of the
parties is not a Business Day and a business day in the place where
an action is required to be taken, such action is required to be
taken on the next succeeding day which is a Business Day and a
business day, as applicable, in such place.
(e) Unless
otherwise stated, all sums of money which are referred to in this
Agreement are expressed in lawful money of Canada.
(f) Unless
otherwise stated, all accounting terms used in this Agreement shall
have the meanings attributable thereto under IFRS and all
determinations of an accounting nature required to be made
hereunder shall be made in a manner consistent with
IFRS.
(g) In this
Agreement, whenever a representation or warranty is made on the
basis of the knowledge or awareness of a party, such knowledge or
awareness consists only of the actual collective knowledge or
awareness, as of the date hereof, of the senior officers of such
party, in their capacity as senior officers of such party and not
in their personal capacity and without personal liability, but does
not include the knowledge or awareness of any other individual or
any constructive, implied or imputed knowledge; provided that the
party making the representation and warranty shall have conducted a
reasonable investigation as to the subject matter relating thereto
and the level of such investigation shall be that of a reasonably
prudent person investigating a material consideration in the
context of a material transaction and the use of such phrase shall
constitute a representation and warranty by the party making the
representation and warranty in each case that such investigation
has actually been made.
(h) References in
this Agreement to any statute or sections thereof shall include
such statute as amended or substituted and any regulations
promulgated thereunder from time to time in effect.
(i) The following
Appendices are annexed to this Agreement and are hereby
incorporated by reference into the Agreement and form part
hereof:
Schedule
“A”
Amalgamation Agreement
2.
Amalgamation. The Amalgamating Parties
hereby agree to amalgamate and continue as one corporation under
the provisions of the Act upon the terms and conditions hereinafter
set out. Each of Carpincho and Finco acknowledge and agree that the
Amalgamation and the matters related thereto as contemplated hereby
are subject to (a) the receipt of all regulatory approvals; and (b)
the approval of the Amalgamation by the shareholders of each of
Finco and Subco, all in accordance with Applicable Laws. In
furtherance of the foregoing, subject to the terms and conditions
herein set forth and on the basis of the covenants,
representations, warranties and agreements of the parties herein
contained, each of Finco, Subco and Carpincho covenant and agree
to:
(a)
enter into the
Amalgamation Agreement forthwith after receipt of the requisite
approvals of the securityholders of each of Finco and Subco to the
Amalgamation, all as further set forth herein;
(b)
co-operate with
each other, as promptly as reasonably practicable, in the
preparation of all documents required by applicable legislation
and/or regulation in connection with all securityholder and
regulatory approvals required in respect of the Amalgamation and
the other matters contemplated hereby, and in connection therewith,
each party shall provide such other parties with such information
and material concerning its affairs as the other parties shall
reasonably request;
(c)
use all
commercially reasonable efforts and do all things necessary or
reasonably desirable on its part to facilitate the implementation
of the Amalgamation and all related matters in connection therewith
as set forth herein prior to the Termination Deadline, including,
without limiting the generality of the foregoing, as
applicable:
(i)
the approval of the
CSE for the listing of the New Carpincho Shares to be issued in
connection with the Amalgamation;
(ii)
obtaining such
other consents, orders or approvals as counsel to Finco, Subco and
Carpincho may advise are necessary or desirable to be obtained for
the implementation of the Amalgamation, and preparing and
delivering all necessary documents in connection therewith;
and
(iii)
subject to
obtaining the approval of the holders Finco Shares and the approval
of Carpincho as the sole shareholder of Subco: (A) the filing with
the Director of the Articles of Amalgamation to be made effective
at 12:01 a.m. (Toronto time) on the Effective Date (the
“Effective
Time”); and (B) the obtaining of the Certificate in
that regard; and
(d)
take and cause to
be taken such other steps and actions and execute such other
documents, agreements and instruments as may be reasonably
necessary or desirable in connection with the consummation of the
transactions contemplated hereby.
3.
Effect of Amalgamation. Subject to the
terms and conditions of this Agreement, on the Effective Date, in
accordance with section 185 of the Act:
(a)
the Amalgamation
shall be effective;
(b)
Amalco shall be
authorized to issue an unlimited number of shares designated as
common shares which shall have the rights, privileges, restrictions
and conditions set forth in the Articles of
Amalgamation;
(c)
there shall be no
restrictions on the business that Amalco may carry on;
(d)
the property of
each of the Amalgamating Parties shall continue to be the property
of Amalco;
(e)
Amalco shall
continue to be liable for the obligations of each of the
Amalgamating Parties;
(f)
any existing cause
of action, claim or liability to prosecution with respect to either
or both of the Amalgamating Parties shall be
unaffected;
(g)
any civil, criminal
or administrative action or proceeding pending by or against any of
the Amalgamating Parties may be continued to be prosecuted by or
against Amalco;
(h)
any conviction
against, or ruling, order or judgment in favour of or against, any
of the Amalgamating Parties may be enforced by or against
Amalco;
(i)
the by-laws of
Subco shall be the by-laws of Amalco; and
(j)
the Articles of
Amalgamation will be deemed to be the articles of incorporation of
Amalco.
4.
Finco Financing. Finco shall use its
commercially reasonable efforts to complete the Finco
Financing prior to
the Effective Date.
(a)
Additional terms of
the Finco Financing.
(i)
Upon the closing of
Finco Financing, the gross proceeds raised from the sale of the
Subscription Receipts, less the reasonable fees, disbursements and
applicable taxes thereon of the agents to the Brokered Financing
(up to a maximum of $150,000, exclusive of disbursements and taxes)
incurred prior to the closing date of the Finco Financing shall be
deposited with the Subscription Receipt Agent pursuant to the terms
of the Subscription Receipt Agreement, and such funds and all
interest earned thereon will only be released in accordance with
the terms thereof in the event that the Release Conditions are
satisfied on or prior to the Termination Deadline, all in
accordance with the terms of the Subscription Receipt
Agreement.
(ii)
Each Subscription
Receipt will be exchangeable into one Finco Unit in accordance with
the terms of the Subscription Receipt Agreement and on satisfaction
of the Release Conditions.
(iii)
if the Release
Conditions are not satisfied or waived on or prior to the
Termination Deadline (as the same may be extended in accordance
with the terms of the Subscription Receipt Agreement), then all of
the issued and outstanding Finco Subscription Receipts shall be
cancelled and the Escrowed Funds (as such term is defined in the
Subscription Receipt Agreement) shall be used to pay holders of
Finco Subscription Receipts an amount equal to $0.80 per Finco
Subscription Receipt held (plus an amount equal to a pro rata share of any interest or other
income earned thereon) without any further action or formality, all
in accordance with the terms and conditions of the Subscription
Receipt Agreement.
5.
Treatment of Securities. Subject to the
terms and conditions of this Agreement, on the
Effective
Date:
(a)
each issued and
outstanding Subco Share shall be converted into one fully paid and
non-assessable Amalco Share;
(b)
each one (1) issued
and outstanding Finco Share shall immediately be converted into the
right to receive one (1) New Carpincho Share, resulting in the
issuance of up to 37,500,100 New Carpincho Shares in the aggregate
to be distributed proportionately amongst the holders of such Finco
Shares, and all such Finco Shares shall be cancelled;
(c)
each Finco Warrant
outstanding on the Effective Date shall be cancelled and its place
Carpincho shall issue one (1) New Carpincho Warrant on the same
terms and conditions as the cancelled Finco Warrants, except to the
extent their terms may be adjusted (in accordance with the terms of
such Finco Warrant) to reflect the Amalgamation; and
(d)
each Finco
Compensation Option outstanding on the Effective Date shall be
cancelled and in its place Carpincho shall issue one (1) New
Carpincho Compensation Option on the same terms and conditions as
the cancelled Finco Compensation Options, except to the extent
their terms may be adjusted (in accordance with the terms of such
Finco Compensation Option) to reflect the
Amalgamation.
6.
Issuance of Amalco Shares to Carpincho.
On the Effective Date, in consideration of Carpincho issuing the
New Carpincho Shares to the holders of Finco Shares as provided for
in Subsection 5(b), Amalco shall allot and issue to Carpincho one
fully paid and non-assessable Amalco Share for each Finco Share
outstanding immediately before the Effective Date.
7.
Fractional Shares. Notwithstanding
Section 5 of this Agreement, no fractional New Carpincho Shares
will be issuable to Finco Shareholders pursuant to the
Amalgamation, and no cash payment or other form of consideration
will be payable in lieu thereof. Any such fractional New Carpincho
Share interest to which a Finco Shareholder would otherwise be
entitled pursuant to the Amalgamation will be rounded down to the
nearest whole New Carpincho Share. Notwithstanding the foregoing,
each Finco Shareholder shall receive a minimum of one (1) New
Carpincho Share.
(a)
At the Effective
Time:
(i)
the Finco
Shareholders (other than holders of Finco Shares on conversion of
the Finco Subscription Receipts) shall be deemed to be the
registered holders of the New Carpincho Shares to which they are
entitled hereunder. All Finco Shareholders (other than holders of
Finco Shares on conversion of the Finco Subscription Receipts)
shall be required to deliver and surrender to the Transfer Agent
the certificates representing all of their respective Finco Shares
which have been exchanged for New Carpincho Shares in accordance
with Subsection 5(b) hereof, and such other documentation as may be
required by the Transfer Agent, following which the Transfer Agent
shall, as soon as practicable, issue to such Finco Shareholders
certificates representing the number of New Carpincho Shares to
which such Finco Shareholders are entitled;
(ii)
Carpincho, as the
registered holder of the Subco Shares, shall be deemed to be the
registered holder of the Amalco Shares to which it is entitled
hereunder and, upon surrender of the certificates representing such
Subco Shares to Amalco, Carpincho shall be entitled to receive a
share certificate representing the number of Amalco Shares to which
it is entitled as set forth in Section 6 hereof; and
(iii)
share certificates
evidencing Finco Shares shall cease to represent any claim upon or
interest in Finco or Amalco other than the right of the registered
holders of Finco Shares to receive pursuant to the terms hereof and
the Amalgamation, New Carpincho Shares in accordance with Section 5
hereof, all as further set forth herein.
(b)
Immediately
following the satisfaction of the Release Conditions:
(i)
the holders of
Finco Subscription Receipts shall be deemed to be the registered
holders of the Finco Shares and Finco Warrants to which they are
entitled
pursuant to the
terms of the Finco Subscription Receipts. No certificates shall be
delivered to any securityholder of Finco evidencing any Finco
Shares or Finco Warrants and accordingly, any securityholder of
Finco which is entitled to any Finco Shares or Finco Warrants
issuable upon conversion of the Subscription Receipts pursuant to
the Subscription Receipt Agreement, shall receive delivery of
certificates representing the number of New Carpincho Shares and
New Carpincho Warrants to which such holder is entitled pursuant to
the Amalgamation directly from the Transfer Agent as soon as
practicable following the Amalgamation, without any further action
on the part of such securiyholder of Finco;
(ii)
certificates
evidencing Subscription Receipts shall cease to represent any claim
upon or interest in Finco other than the right of the registered
holder to receive pursuant to the terms of the Amalgamation, New
Carpincho Shares and New Carpincho Warrants, respectively, in
accordance with Section 5 hereof; and
(iii)
holders of Finco
Compensation Options shall be deemed to be the registered holders
of the New Carpincho Compensation Options to which they are
entitled hereunder and, upon surrender of the certificates
representing such Finco Compensation Options to Carpincho, holders
of the Finco Compensation Options shall be entitled to receive
certificates representing the number of New Carpincho Compensation
Options to which they are entitled as set forth in Section 5
hereof.
9.
Stated Capital. The stated capital of
Amalco immediately following the Amalgamation but prior to giving
effect to the issuance of Amalco Shares as provided for in Section
6 of this Agreement, shall be as set forth in the Amalgamation
Agreement or as may otherwise be agreed upon between the parties
hereto.
10.
Articles of Amalgamation. Upon the Finco
Shareholders and Carpincho, as the sole shareholder of Subco,
approving the Amalgamation on the terms and subject to the
conditions set forth in this Agreement, in each case in accordance
with Applicable Laws, and provided that the conditions to the
completion of the Amalgamation specified in Sections 17, 18 and 19
hereof have then been satisfied or waived (to the extent such
waiver is permitted hereunder), Finco and Subco shall jointly file,
in duplicate, with the Director appointed under the Act, the
Articles of Amalgamation and such other documents as may be
required pursuant to the Act.
11.
Covenants of Finco. Finco hereby
covenants and agrees with Subco and Carpincho that it
will:
(a)
use its
commercially reasonable efforts to obtain, on or prior to the
Effective Date, the approval of the Amalgamation by Finco
Shareholders by way of unanimous written consent resolution
executed by such all of the Finco Shareholders, all in accordance
with Applicable Laws;
(b)
use all
commercially reasonable efforts to complete the Finco Financing, as
soon as practicable and as market conditions permit, on terms
acceptable to both Finco and Carpincho, each acting
reasonably;
(c)
act in good faith
and use all commercially reasonable efforts to cause each of the
conditions precedent to the Amalgamation set forth in Sections 17
and 18 hereof to be complied with, in each case on or prior to the
Effective Date;
(d)
unless Carpincho
otherwise agrees in writing, such consent not to be unreasonably
withheld, until the earlier of the Effective Date and the date that
this Agreement is terminated by its terms,
(i)
not carry on any
business other than the completion of the Finco Financing and the
Amalgamation;
(ii)
not: (i) amend its
constating documents; (ii) declare, set aside or pay any dividend
or make any other distribution or payment (whether in cash, shares
or property) in respect of its outstanding securities; (iii)
redeem, purchase or otherwise acquire any of its outstanding shares
or other securities; (iv) split, combine or reclassify any of its
securities; (v) adopt a plan of liquidation or resolutions
providing for its liquidation, dissolution, merger, consolidation
or reorganization; (vi) enter into or modify any contract,
agreement, commitment or arrangement with respect to any of the
foregoing; (vii) other than in connection with the Finco Financing,
issue any Finco Shares or securities convertible into Finco Shares,
or effect any financing transaction whether by means of debt,
equity or otherwise, or issue, grant, sell, pledge, lease, dispose
of or encumber or agree to issue, grant, sell, pledge, lease,
dispose of or encumber, any Finco Shares, or securities convertible
into or exchangeable or exercisable for, or otherwise evidencing a
right to acquire, Finco Shares; or (viii) solicit, initiate or take
any other action, directly or indirectly, which may result in Finco
becoming a “reporting issuer” (or the equivalent) under
the securities laws of any province or territory of
Canada;
(iii)
not directly or
indirectly, through any officer, director, affiliate, agent or
advisor of Finco, solicit, initiate, knowingly encourage, or enter
into any agreements in respect of any new acquisitions by Finco,
without the prior written consent of Carpincho;
(iv)
not grant any
officer, director or employee an increase in compensation in any
form, grant any general salary increase, take any action with
respect to the amendment or grant of any severance or termination
pay policies or arrangements for any directors, officers or
employees, nor adopt or amend any stock option or other employee
compensation plans, nor make any loan to any officer, director or
any other party not at arm’s length;
(v)
not take any action
or refrain from taking any action inconsistent with this Agreement
which might reasonably be expected to directly or indirectly
interfere with or affect the consummation of the Amalgamation;
and
(e)
subject to the
conditions set forth in Sections 17, 18 and 19 hereof being
obtained, jointly with Subco, file with the Director the Articles
of Amalgamation and such other documents as may be required to give
effect to the Amalgamation upon and subject to the terms and
conditions of this Agreement.
12.
Covenants of Carpincho. Carpincho hereby
covenants and agrees with Finco that it will:
(a)
sign a special
resolution, on or prior to the Effective Date, as the sole
shareholder of Subco in favour of the approval of the Amalgamation,
this Agreement and the transactions contemplated hereby in
accordance with the Act;
(b)
act in good faith
and use all commercially reasonable efforts to cause each of the
conditions precedent set forth in Section 17 and 19 hereof to be
complied with, in each case on or prior to the Effective
Date;
(c)
unless Finco
otherwise agrees in writing, such consent not to be unreasonably
withheld, until the earlier of the Effective Date and the date that
this Agreement is terminated by its terms,
(i)
not carry on any
business except as required to complete the Amalgamation, or any of
the matters related thereto as contemplated hereby, and retain its
status as reporting issuer not in default under applicable Canadian
provincial Securities Laws applicable in the Provinces of Alberta,
Ontario, Quebec, Nova Scotia, Prince Edward Island, and
Newfoundland and Labrador, not borrow any money or incur any
indebtedness (except for trade payables incurred in the ordinary
course or to pursue the Amalgamation and related
transactions);
(ii)
not take any action
or refrain from taking any action inconsistent with this Agreement
which might reasonably be expected to directly or indirectly
interfere with or affect the consummation of the Amalgamation or
any of the matters related thereto as contemplated
hereby;
(iii)
not, except as
required to complete the Amalgamation or any of the matters related
thereto as contemplated hereby: (i) amend its constating documents;
(ii) declare, set aside or pay any dividend or make any other
distribution or payment (whether in cash, shares or property) in
respect of its outstanding securities; (iii) redeem, purchase or
otherwise acquire any of its outstanding shares or other
securities; (iv) split, combine or reclassify any of its
securities; (v) adopt a plan of liquidation or resolutions
providing for its liquidation, dissolution, merger, consolidation
or reorganization; (vi) enter into or modify any contract,
agreement, commitment or arrangement with respect to any of the
foregoing; or (vii) issue any Carpincho Shares or securities
convertible into Carpincho Shares, or effect any financing
transaction whether by means of debt, equity or otherwise, or
issue, grant, sell, pledge, lease, dispose of or encumber or agree
to issue, grant, sell, pledge, lease, dispose of or encumber, any
Carpincho Shares, or securities convertible into or exchangeable or
exercisable for, or otherwise evidencing a right to acquire,
Carpincho Shares except in connection with the exercise of
outstanding special warrants of Carpincho to acquire an aggregate
of 1,000,000 Carpincho Shares;
(iv)
not directly or
indirectly, through any officer, director, affiliate, agent or
advisor of Carpincho, solicit, initiate, knowingly encourage, or
enter into any agreements in respect of any new acquisitions by
Carpincho, without the prior written consent of Finco;
and
(v)
not grant any
officer, director or employee an increase in compensation in any
form, grant any general salary increase, take any action with
respect to the amendment or grant of any severance or termination
pay policies or arrangements for any directors, officers or
employees, nor adopt or amend any stock option or other employee
compensation plans, nor make any loan to any officer, director or
any other party not at arm’s length; and
(d)
subject to the
conditions set forth in Sections 17, 18 and 19 hereof being
obtained, issue that number of New Carpincho Shares as required by
Subsection 5(b) hereof on completion of the
Amalgamation.
13.
Covenants of Subco. Subco hereby
covenants and agrees with Finco that it will:
(a)
until the Effective
Date, not carry on active business (other as is necessary to effect
the Amalgamation);
(b)
use its
commercially reasonable efforts to cause each of the conditions
precedent set forth in Sections 17 and 19 hereof to be complied
with on or prior to the Effective Date;
(c)
unless Finco
otherwise agrees in writing, until the earlier of the Effective
Date and the date that this Agreement is terminated by its
terms,
(i)
not conduct any
business (other than as required in connection with the
Amalgamation), and shall use all commercially reasonable efforts to
maintain and preserve its corporate existence; and
(ii)
not directly or
indirectly, amend its constating documents, declare, set aside or
pay any dividend or other distribution or payment or otherwise to
or for the benefit of its shareholders or reduce its stated
capital; and
(d)
subject to the
conditions set forth in Sections 17, 18 and 19 hereof being
obtained, jointly with Finco, file with the Director the Articles
of Amalgamation and such other documents as may be required to give
effect to the Amalgamation upon and subject to the terms and
conditions of this Agreement.
14.
Representations and Warranties of
Carpincho. Carpincho represents and warrants to and in
favour of Finco as follows, and acknowledges that Finco is relying
upon such representations and warranties:
(a)
Carpincho is a
corporation existing under the federal laws of the Canada and has
the corporate power, capacity and authority to carry on its
business as currently conducted; own, lease and operate its
property and assets; enter into and perform its obligations under
this Agreement in accordance with the provisions hereof; and to
issue and deliver the New Carpincho Shares in connection with the
Amalgamation;
(b)
this Agreement has
been duly authorized, executed and delivered by Carpincho and
constitutes a valid and binding obligation of Carpincho enforceable
in accordance with its terms (subject to such limitations and
prohibitions as may exist or may be enacted in Applicable Laws
relating to bankruptcy, insolvency, liquidation, moratorium,
reorganization, arrangement or winding-up and other laws, rules and
regulations of general application affecting the rights, powers,
privileges, remedies and/or interests of creditors
generally);
(c)
Since October 18,
2010, Carpincho has carried on no business other than activities as
a venture capital company seeking assets or businesses with good
growth potential to merge with or acquire;
(d)
the Amalgamation
has been authorized by all necessary corporate action on the part
of Carpincho and the issue and delivery of the New Carpincho
Shares, New Carpincho Warrants and New Carpincho Compensation
Options on the Effective Date pursuant to the Amalgamation will be
authorized by all necessary corporate action on the part of
Carpincho prior to the Effective Date;
(e)
there is no
requirement to make any filing with, give any notice to, or obtain
any authorization of, any governmental authority, or to obtain any
consent, approval or authorization of any other party or person
(other than the approval of the shareholders of each of Finco and
Subco), as a condition to the lawful completion of the transactions
contemplated by this Agreement, including specifically the
Amalgamation, except for the filing of the Articles of Amalgamation
giving effect to the Amalgamation and other filings, notifications
and authorizations required under applicable securities
laws;
(f)
to its knowledge,
Carpincho is not in default of any requirement of Applicable Laws
which would reasonably be expected to have a Carpincho Material
Adverse Effect;
(g)
on the Effective
Date, the New Carpincho Shares will be duly and validly issued and
outstanding as fully paid and non-assessable, and the New Carpincho
Warrants and New Carpincho Compensation Options will be duly and
validly issued;
(h)
other than Subco,
Carpincho has no direct or indirect subsidiaries or
branches;
(i)
the authorized
capital of Carpincho consists of an unlimited number of Carpincho
Shares, of which 5,000,000 Carpincho Shares are issued and
outstanding as of the date of this Agreement, all of which shares
have been duly authorized and validly issued, and are fully paid
and non-assessable and are not subject to, nor issued in violation
of, any preemptive rights, and immediately prior to the Effective
Time, there will be no more than 5,250,000 New Carpincho Shares
issued and outstanding;
(j)
no person, firm,
corporation or other entity holds any securities convertible or
exchangeable into securities of Carpincho, or now has any
agreement, warrant, option, right or privilege (whether pre-emptive
or contractual) being or capable of becoming an agreement, option
or right for the purchase, subscription or issuance of any unissued
shares, securities (including convertible securities) or warrants
of Carpincho, other than (A) special warrants to acquire an
aggregate of 1,000,000 Carpincho Shares; and (B) as contemplated
hereby in connection with the Amalgamation;
(k)
the authorized
capital of Subco consists of an unlimited number of Subco Shares.
An aggregate of 100 Subco Shares are issued and outstanding, all of
which are owned by Carpincho. All outstanding Subco Shares have
been duly authorized and validly issued, and are fully paid and
non-assessable and are not subject to, nor issued in violation of,
any pre-emptive rights. No person, firm, corporation or other
entity holds any securities convertible or exchangeable into
securities of Subco, or now has any agreement, warrant, option,
right or privilege (whether pre-emptive or contractual) being or
capable of becoming an agreement, option or right for the purchase,
subscription or issuance of any unissued shares, securities
(including convertible securities) or warrants of
Subco;
(l)
Carpincho is a
reporting issuer in the provinces of Alberta, Ontario, Quebec, Nova
Scotia, Prince Edward Island, and Newfoundland and Labrador. The
issued and outstanding Carpincho Shares are not listed or posted
for trading on any stock exchange;
(m)
since October 18,
2010, Carpincho has filed all documents required to be filed by it
in accordance with Applicable Laws to maintain the Acquiror’s
status as a reporting issuer not on the list of reporting issuers
in default under applicable Canadian provincial securities laws in
the Provinces of Alberta, Ontario, Quebec, Prince Edward Island,
Nova Scotia, and Newfoundland and Labrador. All such documents and
information, as of their respective dates (and the dates of any
amendments thereto), (1) did not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading,
and (2) complied in all material respects with the requirements of
Applicable Laws, and any amendments to Carpincho’s public
disclosure record required to be made have been filed on a timely
basis with the applicable regulatory authorities. Carpincho has not
filed any confidential material change report with any applicable
regulatory authorities that at the date of this Agreement remains
confidential. There has been no change in a material fact or a
material change (as those terms are defined under the Securities Act (Ontario)) in any of the
information contained in Carpincho’s public disclosure
record, except for changes in material facts or material changes
that are reflected in a subsequently filed document included in
Carpincho’s public disclosure record;
(n)
Carpincho’s
audited financial statements as at and for the years ended June 30,
2016 and 2017 (including the notes thereto and related
management’s discussion and analysis (the “Carpincho MD&A”) and
Carpincho’s unaudited condensed interim financial statements
as at and for the six month period ended December 31, 2017
(collectively, the “Carpincho
Financial Statements”) were prepared in accordance
with International Financial Reporting Standards as issued by the
International Accounting Standards Board (“IFRS”), respectively, consistently
applied (except as otherwise indicated in such financial statements
and the notes thereto or in the related report of Carpincho’s
independent auditors) and present fairly in all material respects
the financial condition, results of operations and changes in
financial position of Carpincho as of the dates thereof and for the
periods indicated therein and reflect reserves required by IFRS, as
applicable, in respect of all material contingent liabilities, if
any, of Carpincho;
(o)
since October 18,
2010, all taxes (including domestic and foreign federal and
provincial income tax, capital tax, payroll and withholding taxes,
employment insurance premiums, unemployment insurance, social
insurance taxes, Canada Pension Plan contributions, sales, use and
goods and services taxes, value added taxes, ad valorem taxes,
excise taxes, franchise taxes, gross receipts taxes, environmental
taxes, capital taxes, production taxes, recapture, surtaxes,
customs, import and export taxes, business license taxes,
occupation taxes, stamp taxes, employer health tax, workers’
compensation payments, real and personal property taxes, custom and
land transfer taxes and other governmental charges, and other
obligations of the same or of a similar nature to any of the
foregoing), duties, fees, excises, premiums, royalties, levies,
imposts, assessments, deductions, charges or withholdings of any
kind whatsoever however denominated, and all liabilities with
respect thereto including any arrears, penalty and interest payable
with respect thereto imposed by any Governmental Authority
responsible for the imposition of any Tax, whether computed on a
separate, consolidated, unitary, combined or other basis
(collectively, “Taxes”) due and payable or
required to be collected or withheld and remitted, by Carpincho
have been paid, collected or withheld and remitted, as applicable;
(ii) all tax returns required to be filed by Carpincho have been
filed with all appropriate governmental authorities and all such
tax returns are complete and accurate and no material fact or facts
have been omitted therefrom that would make any of
them
misleading; (iii)
no examination of any tax return of Carpincho is currently in
progress and there are no issues or disputes outstanding with any
governmental authority respecting any taxes that have been paid, or
may be payable, by Carpincho; and (iv) there are no agreements,
waivers or other arrangements with any taxation authority providing
for an extension of time for any assessment or reassessment of
Taxes with respect to Carpincho;
(p)
Carpincho has no
outstanding indebtedness, liability or obligation (including
liabilities or obligations to fund any operations or work or
exploration program, to give any guarantees or for Taxes), whether
accrued, absolute, contingent or otherwise, and are not party to or
bound by any suretyship, guarantee, indemnification or assumption
agreement, or endorsement of, or any other similar commitment with
respect to the obligations, liabilities or indebtedness of any
person, other than those specifically disclosed in
Carpincho’s public disclosure record filed prior to the date
of this Agreement, specifically identified in the Carpincho
Financial Statements, or incurred in connection with the
transactions contemplated herein or maintaining Carpincho’s
status as a reporting issuer not on the list of reporting issuers
in default under Applicable Laws in the Provinces of British
Columbia, Alberta, Ontario, Quebec, New Brunswick, Prince Edward
Island, Nova Scotia, and Newfoundland and Labrador;
(q)
there is no claim,
action, suit, grievance, complaint, proceeding or investigation
that has been commenced or, to the knowledge of Carpincho, is
threatened affecting Carpincho or affecting any of its property or
assets at law or in equity before or by any governmental entity,
which, individually or in the aggregate, if determined adversely to
Carpincho, as the case may be, has or could reasonably be expected
to result in liability to Carpincho. Neither Carpincho nor its
respective assets or properties is subject to any outstanding
judgment, order, writ, injunction or decree;
(r)
neither the
authorization, execution and delivery of this Agreement by
Carpincho nor the completion of the transactions contemplated by
this Agreement or the Amalgamation, nor the performance of its
obligations thereunder, nor compliance by Carpincho with any of the
provisions hereof will: (A) result in a violation or breach of,
constitute a default (or an event which, with notice or lapse of
time or both, would become a default), require any consent or
approval to be obtained or notice to be given under, or give rise
to any third party right of termination, cancellation, suspension,
acceleration, penalty or payment obligation or right to acquire or
sale under, any provision of: (i) the notice of articles, articles
of incorporation, or other constating documents of Carpincho or any
of its subsidiaries, (ii) any permit or material contract to which
Carpincho is a party or to which it, or its properties or assets,
may be subject or by which Carpincho is bound, or (iii) any law,
regulation, order, judgment or decree applicable to Carpincho or
any of its subsidiaries or any of their respective properties or
assets; and (B) give rise to any rights of first refusal or trigger
any change in control provisions, rights of first offer or first
refusal or any similar provisions or any restrictions or limitation
under any note, bond, mortgage, indenture, material contract,
license, franchise or permit to which Carpincho is a party (except,
in the case of each of clauses (i), (ii) and (iii) above, for such
breaches, violations, conflicts, defaults, terminations or
accelerations which would not have a Carpincho Material Adverse
Effect);
(s)
Carpincho has
complied with and is not in violation of any Applicable Laws, other
than non-compliance or violations which would not, individually or
in the aggregate, have a Carpincho Material Adverse Effect and has
not received any written notices or other
correspondence from
any governmental entity regarding any circumstances that have
existed or currently exist which would lead to a loss, suspension,
or modification of, or a refusal to issue, any material license,
permit, authorization, approval, registration or consent of a
governmental entity relating to its activities which would
reasonably be expected to restrict, curtail, limit or adversely
affect the ability of Carpincho to operate its businesses in a
manner which would have a Carpincho Material Adverse
Effect;
(t)
there is no
arbitral award, judgment, injunction, constitutional ruling, order
or decree binding upon Carpincho that has or could reasonably be
expected to have the effect of prohibiting, restricting, or
impairing any business practice of any of them, any acquisition or
disposition of property by any of them, or the conduct of the
business by any of them as currently conducted, which could
reasonably be expected to have a Carpincho Material Adverse
Effect;
(u)
other than as set
forth in Carpincho’s public disclosure record, there are no
contracts or other transactions currently in place between
Carpincho or Subco, on the one hand, and: (i) any officer or
director of Carpincho or Subco; (ii) any holder of record or, to
the knowledge of Carpincho, beneficial owner of 10% or more of the
Carpincho Shares; and (iii) any affiliate or associate of any such,
officer, director, holder of record or beneficial owner, on the
other hand;
(v)
Carpincho is not
subject to any cease trade or other order of any Applicable Laws
and, to the knowledge of Carpincho, no investigation or other
proceedings involving Carpincho which may operate to prevent or
restrict trading of any securities of Carpincho are currently in
progress or pending before any applicable regulatory authority;
and
(w)
no agent, broker,
investment banker or other firm or person is or will be entitled to
claim against Carpincho for any broker’s or finder’s
fee or other commission or similar fee incurred by Carpincho in
connection with any of, or the consummation of any of, the
transactions contemplated hereby or the Amalgamation.
15.
Representation and Warranties of Finco.
Finco represents and warrants to and in favour of Carpincho and
Subco as follows, and acknowledges that Carpincho and Subco are
relying upon such representations and warranties:
(a)
Finco is a
corporation existing under the federal laws of Canada;
(b)
Finco has the power
and capacity and is duly authorized to execute and deliver, and
perform its obligations under, this Agreement and this Agreement is
a valid and binding agreement, enforceable against Finco in
accordance with its terms (subject to such limitations and
prohibitions as may exist or may be enacted in Applicable Laws
relating to bankruptcy, insolvency, liquidation, moratorium,
reorganization, arrangement or winding-up and other laws, rules and
regulations of general application affecting the rights, powers,
privileges, remedies and/or interests of creditors generally) and
no other proceeding on the part of Finco is necessary to authorize
the transactions contemplated under this Agreement;
(c)
Finco has been
incorporated solely for the purposes of the Amalgamation and the
Finco Financing, and has never carried on any active business
(other than such business required in connection with the
Amalgamation and the Finco Financing), and has no material assets
and no liabilities;
(d)
immediately
following the satisfaction of the Release Conditions in accordance
with the terms of the Subscription Receipt Agreement, the Finco
Shares issuable upon the deemed exercise of the Finco Subscription
Receipts shall be duly and validly issued and outstanding as fully
paid and non-assessable, and the Finco Warrants issuable upon the
deemed exercise of the Finco Subscription Receipts shall be
issued;
(e)
there is no
requirement to make any filing with, give any notice to, or obtain
any authorization of, any governmental authority, or to obtain any
consent, approval or authorization of any other party or person
(other than the approval of the shareholders of Finco and Subco as
required by the Act), as a condition to the lawful completion of
the transactions contemplated by this Agreement, including
specifically the Amalgamation, except for the filing of Articles of
Amalgamation giving effect to the Amalgamation and other filings,
notifications and authorizations required under applicable
securities laws;
(f)
there are no
actions, suits, proceedings or inquiries, including, to the
knowledge of Finco, pending or threatened, against or affecting
Finco at law or in equity or before or by any federal, state,
provincial, municipal or other governmental department, commission,
board, bureau, agency or instrumentality;
(g)
neither the
authorization, execution and delivery of this Agreement by Finco
nor the completion of the transactions contemplated by this
Agreement or the Amalgamation, nor the performance of its
obligations thereunder, nor compliance by Finco with any of the
provisions hereof will: (A) result in a violation or breach of,
constitute a default (or an event which, with notice or lapse of
time or both, would become a default), require any consent or
approval to be obtained or notice to be given under, or give rise
to any third party right of termination, cancellation, suspension,
acceleration, penalty or payment obligation or right to acquire or
sale under, any provision of: (i) the notice of articles, articles
of incorporation, or other constating documents of Finco or any of
its subsidiaries, (ii) any permit or material contract to which
Finco is a party or to which it, or its properties or assets, may
be subject or by which Finco is bound, or (iii) any law,
regulation, order, judgment or decree applicable to Finco or any of
its subsidiaries or any of their respective properties or assets;
and (B) give rise to any rights of first refusal or trigger any
change in control provisions, rights of first offer or first
refusal or any similar provisions or any restrictions or limitation
under any note, bond, mortgage, indenture, material contract,
license, franchise or permit to which Finco is a party (except, in
the case of each of clauses (i), (ii) and (iii) above, for such
breaches, violations, conflicts, defaults, terminations or
accelerations which would not have a Finco Material Adverse
Effect); and
(h)
the authorized
capital of Finco consists of an unlimited number of Finco Shares,
of which 100 Finco Shares are issued and outstanding as of the date
hereof, all of which shares have been duly authorized and validly
issued, and are fully paid and non-assessable and are not subject
to, nor issued in violation of, any pre-emptive rights. Other than
Finco Subscription Receipts to be issued pursuant to the Finco
Financing, there are no other Finco Shares or securities
convertible or exercisable for Finco Shares that will be
outstanding prior to the completion of the Amalgamation and no
person has or prior to completion of the Amalgamation will have,
any agreement, right or option (whether direct, indirect or
contingent or whether pre-emptive, contractual or by law) to
purchase, or otherwise acquire any securities of any nature or kind
of Finco. All such Finco Shares to be issued on conversion of the
Finco Subscription Receipts will, when issued, be duly and validly
issued as fully paid and non-assessable shares of
Finco.
16.
Representations and Warranties of Subco.
Subco represents and warrants to and in favour of Finco as follows,
and acknowledges that Finco is relying upon such representations
and warranties:
(a)
Subco is a
corporation existing under the federal laws Canada;
(b)
Subco has the power
and capacity and is duly authorized to execute and deliver, and
perform its obligations under, this Agreement and this Agreement is
a valid and binding agreement, enforceable against Subco in
accordance with its terms (subject to such limitations and
prohibitions as may exist or may be enacted in Applicable Laws
relating to bankruptcy, insolvency, liquidation, moratorium,
reorganization, arrangement or winding-up and other laws, rules and
regulations of general application affecting the rights, powers,
privileges, remedies and/or interests of creditors generally) and
no other proceeding on the part of Subco, other than the approval
of the Amalgamation by Carpincho, as sole shareholder of Subco, is
necessary to authorize the transactions contemplated under this
Agreement;
(c)
Subco has been
incorporated solely for the purpose of the Amalgamation and has
never carried on any active business (other than such business
required in connection with the Amalgamation), and has no material
assets and no liabilities;
(d)
there is no
requirement to make any filing with, give any notice to, or obtain
any authorization of, any governmental authority, or to obtain any
consent, approval or authorization of any other party or person
(other than the approval of the shareholders of Finco and Subco as
required by the Act), as a condition to the lawful completion of
the transactions contemplated by this Agreement, including
specifically the Amalgamation, except for the filing of Articles of
Amalgamation giving effect to the Amalgamation and other filings,
notifications and authorizations required under applicable
securities laws;
(e)
there are no
actions, suits, proceedings or inquiries, including, to the
knowledge of Subco, pending or threatened, against or affecting
Subco at law or in equity or before or by any federal, state,
provincial, municipal or other governmental department, commission,
board, bureau, agency or instrumentality; and
(f)
the authorized
capital of Subco consists of an unlimited number of Subco Shares.
An aggregate of 100 Subco Shares are issued and outstanding, all of
which are owned by Carpincho. All outstanding Subco Shares have
been duly authorized and validly issued, and are fully paid and
non-assessable and are not subject to, nor issued in violation of,
any pre-emptive rights. No person, firm, corporation or other
entity holds any securities convertible or exchangeable into
securities of Subco, or now has any agreement, warrant, option,
right or privilege (whether pre-emptive or contractual) being or
capable of becoming an agreement, option or right for the purchase,
subscription or issuance of any unissued shares, securities
(including convertible securities) or warrants of
Subco.
17.
General Conditions Precedent. The
respective obligations of the parties hereto to consummate the
transactions contemplated hereby are subject to the satisfaction,
on or before the Effective Date, of the following conditions, any
of which may be waived by the mutual consent of such parties
without prejudice to their right to rely on any other of such
conditions, subject to the last paragraph of this Section
17:
(a)
the Finco Financing
shall have been completed and the proceeds from the Finco
Financing, less the reasonable fees, disbursements and applicable
taxes thereon of the agents to the Brokered Financing (up to a
maximum of $150,000, exclusive of disbursements and taxes) incurred
prior to the closing date of the Finco Financing shall be deposited
with the Subscription Receipt Agent pursuant to the terms of the
Subscription Receipt Agreement, and shall be held in escrow pending
release pursuant to the Transaction;
(b)
the Finco
Subscription Receipts will have converted into Finco Units
immediately prior to the Effective Time;
(c)
the Amalgamation
shall have been approved by Carpincho as the sole shareholder of
Subco by way of written resolution executed by such sole
shareholder, all in accordance with the applicable provisions of
the Act;
(d)
the Amalgamation
shall have been approved by the shareholders of Finco, all in
accordance with the applicable provisions of the Act;
(e)
Carpincho shall
have obtained the conditional approval for the listing of the New
Carpincho Shares from the CSE, subject only to customary listing
conditions of the CSE;
(f)
all conditions
precedent to the closing of the Transaction shall have been met or
waived, provided that any waivers shall require the prior written
consent of each of Carpincho and Finco, such consent not to be
unreasonably withheld or delayed;
(g)
the Articles of
Amalgamation to be filed with the Director in accordance with the
Amalgamation shall be in form and substance satisfactory to each of
Carpincho and Finco, acting reasonably;
(h)
there shall not be
in force any order or decree restraining or enjoining the
consummation of the transactions contemplated by this Agreement,
including, without limitation, the Amalgamation;
(i)
all other necessary
third party, regulatory and governmental approvals, waivers and
consents in respect of the transactions contemplated herein shall
have been obtained on terms and
conditions satisfactory to Carpincho and Finco, each acting
reasonably;
(j)
no material action
or proceeding shall be pending or threatened by any person,
company, firm, governmental authority, regulatory body or agency
and there shall be no action taken under any existing Applicable
Law or regulation, nor any statute, rule, regulation or order which
is enacted, enforced, promulgated or issued by any court,
department, commission, board, regulatory body, government or
governmental authority or similar agency, domestic or foreign,
that:
(i)
makes illegal or
otherwise directly or indirectly restrains, enjoins or prohibits
the Amalgamation or any other transactions contemplated herein;
or
(ii)
results in a
judgment or assessment of material damages directly or indirectly
relating to the transactions contemplated herein;
(k)
this Agreement
shall not have been terminated pursuant to Section 22
hereof;
(l)
the Share Exchange
Agreement shall not have been terminated in accordance with its
terms; and
(m)
the Effective Time
shall have occurred on or prior to the Termination
Deadline.
The
conditions described above are for the mutual benefit of Carpincho,
Finco and Subco and may be asserted by Carpincho, Finco and Subco
regardless of the circumstances, and such conditions (other than
the conditions set forth in Subsections 17(a), 17(b), 17(c), 17(d),
17(e) and 17(f) above) may be waived by Carpincho, Finco and Subco
in their sole discretion, in whole or in part, at any time and from
time to time without prejudice to any other rights which Carpincho,
Finco and Subco may have.
18.
Conditions to Obligations of Carpincho and
Subco. The obligations of Carpincho and Subco to consummate
the transactions contemplated hereby are subject to the
satisfaction, on or before the Effective Date (or such other time
specified in respect thereof), of the following
conditions:
(a)
each of the
covenants, acts and undertakings of Finco to be performed on or
before the Effective Date pursuant to the terms of this Agreement
shall have been duly performed by it and there shall have been no
Finco Material Adverse Effect from and after the date hereof to the
Effective Date;
(b)
Carpincho and Subco
shall have received a certificate from a senior officer of Finco
confirming that the conditions set forth in Sections 17 and 18
hereof have been satisfied;
(c)
the
representations, warranties, covenants and agreements of Finco set
forth in this Agreement (without giving effect to any materiality
qualifiers) shall be true and correct as of the date of this
Agreement and shall be true and correct as of the Effective Date as
if made by Finco immediately preceding the Amalgamation on the
Effective Date, except where the failure of such representations
and warranties to be true and complete, individually or in the
aggregate, would not result or would not reasonably be expected to
result in a Finco Material Adverse Effect; and
(d)
Finco shall have
furnished Carpincho with certified copies of:
(i)
the resolutions,
duly passed by the sole director of Finco approving the
Amalgamation, this Agreement and the consummation of the
transactions contemplated hereby;
(ii)
the resolutions,
duly passed by the sole director of Finco, approving the Finco
Financing; and
(iii)
the resolutions of
the Finco Shareholders approving the Amalgamation in accordance
with the terms hereof.
The
conditions described above are for the exclusive benefit of
Carpincho and Subco and may be asserted by Carpincho and Subco
regardless of the circumstances, and such conditions may be waived
by Carpincho and Subco in their sole discretion, in whole or in
part, at any time and from time to time without prejudice to any
other rights which Carpincho and Subco may have.
19.
Conditions to Obligations of Finco. The
obligations of Finco to consummate the transactions contemplated
hereby are subject to the satisfaction, on or before the Effective
Date (or such other time specified in respect thereof), of the
following conditions:
(a)
each of the
covenants, acts and undertakings of Carpincho and Subco to be
performed on or before the Effective Date pursuant to the terms of
this Agreement shall have been duly performed by them and there
shall have been no Carpincho Material Adverse Effect from and after
the date hereof to the Effective Date;
(b)
Finco shall have
received a certificate from a senior officer of each of Carpincho
and Subco confirming that the conditions set forth in Sections 17
and 19 hereof have been satisfied;
(c)
the
representations, warranties, covenants and agreements of Carpincho
and Subco set forth in this Agreement (without giving effect to any
materiality qualifiers) shall be true and correct as of the date of
this Agreement and shall be true and correct as of the Effective
Date as if made by Carpincho or Subco, as the case may be,
immediately preceding the Amalgamation on the Effective Date,
except where the failure of such representations and warranties to
be true and complete, individually or in the aggregate, would not
result or would not reasonably be expected to result in a Carpincho
Material Adverse Effect;
(d)
completion of the
Consolidation; and
(e)
Carpincho shall
have furnished Finco with certified copies of:
(i)
the resolutions,
duly passed by the board of directors of Carpincho: (A) approving
the Amalgamation, this Agreement and the consummation of the
transactions contemplated hereby; and (B) conditionally allotting
for issuance the aggregate number of New Carpincho Shares that may
be required to be issued in accordance with the terms of this
Agreement upon the Amalgamation taking effect; and
(ii)
the written
resolution of the sole shareholder of Subco approving the
Amalgamation in accordance with the terms hereof.
The
conditions described above are for the exclusive benefit of Finco
and may be asserted by Finco regardless of the circumstances, and
such conditions may be waived by Finco in its sole discretion, in
whole or in part, at any time and from time to time without
prejudice to any other rights which Finco may have.
20.
Notice and Effect of Failure to Comply with
Conditions. Each of Finco and Carpincho (on its behalf and
on behalf of Subco) shall give prompt notice to the other of the
occurrence, or failure to occur, at any time from the date hereof
to the Effective Date of any event or state of facts which
occurrence or failure would, or would be likely to, (i) cause any
of the representations or warranties of any party contained herein
to be untrue or inaccurate in any material respect, or (ii) result
in the failure to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by any party hereunder
provided, however, that no such notification will affect the
representations or warranties of the parties or the conditions to
the obligations of the parties hereunder.
21.
Amendment. This Agreement may at any
time and from time to time be amended by written agreement of the
parties hereto without, subject to Applicable Law, further notice
to or authorization on the part of their respective securityholders
and any such amendment may, without limitation:
(a)
change the time for
performance of any of the obligations or acts of the parties
hereto;
(b)
waive any
inaccuracies or modify any representation or warranty contained
herein or in any document delivered pursuant hereto;
(c)
waive compliance
with or modify any of the covenants contained herein and waive or
modify performance of any of the obligations of the parties hereto;
or
(d)
waive compliance
with or modify any other conditions precedent contained herein;
provided that no
such amendment shall change the provisions hereof regarding the
consideration to be received by Finco Shareholders in exchange for
their Finco Shares without approval by the shareholders of Finco
given in the same manner as required for the approval of the
Amalgamation.
22.
Termination. This Agreement may be
terminated:
(a)
at any time prior
to the issuance of the Certificate, by mutual written agreement of
the respective boards of directors of the parties hereto, without
further action on the part of the shareholders of Finco, Carpincho
or Subco;
(b)
at any time prior
to the Termination Deadline, by either Finco or Carpincho, if the
Share Exchange Agreement is terminated;
(c)
at any time after
the Termination Deadline, by either Finco or Carpincho (on its
behalf and on behalf of Subco) by notice in writing to the other
Party, provided that such terminating party is not in material
breach of this Agreement, if the Certificate has not been issued by
the Director on or before such date, without further action on the
part of the shareholders of Finco, Carpincho or Subco;
(d)
by either the
Carpincho or Finco upon notice to the other in the event that the
Finco Financing is not completed on or prior to April 30, 2018
provided that if the lead agent for the Finco Financing has
confirmed in writing prior to April 30, 2018 that commitments for
the full Finco Financing have been received but closing has not yet
occurred, such date will be extended to May 6, 2018;
(e)
either Carpincho or
Finco, if there shall be any Applicable Law that makes consummation
of the Amalgamation illegal or otherwise prohibited, any applicable
regulatory authority having notified in writing either Carpincho or
Finco that it will not permit the Amalgamation to proceed, or if
any judgment, injunction, order or decree of a competent
governmental entity enjoining Carpincho or Finco from consummating
the Amalgamation shall be entered and such judgment, injunction,
order or decree shall have become final and
non-appealable;
(f)
provided Carpincho
and Subco are not in material breach of this Agreement, upon five
Business Days’ written notice by Carpincho (on its behalf and
on behalf of Subco) to Finco, at any time prior to the Effective
Date if Finco is in breach of any of its representations or
warranties made in this Agreement (without giving effect to any
materiality qualifiers contained therein) or covenants made in this
Agreement which breach individually or in the aggregate causes or
would be reasonably expected to cause a Finco Material Adverse
Effect; or
(g)
provided Finco is
not in material breach of this Agreement, upon five Business
Days’ written notice by Finco to Carpincho (on its own behalf
and on behalf of Subco), at any time prior to the Effective Date if
Carpincho or Subco is in breach of any of its representations or
warranties made in this Agreement (without giving effect to any
materiality qualifiers contained therein) or covenants made in this
Agreement which breach individually or in the aggregate causes or
would be reasonably expected to cause a Carpincho Material Adverse
Effect.
Following the
termination of this Agreement in accordance with any of the above
provisions, this agreement will terminate but the provisions in
Sections 23 (Costs and Expenses) and 25 (Confidentiality) shall
remain binding and enforceable and in full force and effect. If
this Agreement is terminated pursuant to any provision of this
Agreement, the parties shall return all materials and copies of all
materials delivered to Finco or Carpincho, as the case may be, or
their respective representatives.
23.
Costs and Expenses. The parties
acknowledge and agree that, whether or not the transactions
contemplated hereby are completed, all costs and expenses relating
to the transactions contemplated by this Agreement will be paid by
the party incurring same.
24.
Binding Effect. This Agreement shall be
binding upon and enure to the benefit of the parties
hereto.
(a)
“Confidential Information” means
any information relating to the disclosing party’s
businesses, operations, assets, liabilities, plans, prospects or
affairs, or to the transactions contemplated hereby, which has been
or is disclosed to or acquired by the receiving parties regardless
of whether such information is in oral, visual, electronic, written
or other form and whether or not it is identified as
“confidential”.
Confidential
Information does not include any information that:
(i)
is or becomes
generally available to the public other than as a result of
disclosure directly or indirectly by the receiving parties or their
directors, officers, employees, agents, representatives or advisors
(the “Representatives”);
(ii)
is or becomes
available to the receiving parties on a non-confidential basis from
a source other than the disclosing party unless the receiving
parties know after reasonable inquiry that such source is
prohibited from disclosing the information to the receiving parties
by a contractual, fiduciary or other legal obligation to the
disclosing party; or
(iii)
the receiving
parties can show was independently acquired or developed by the
receiving parties prior to the disclosure by the other party and
without the use of any Confidential Information;
(b)
The receiving
parties shall keep confidential the Confidential Information, shall
not disclose the Confidential Information in any manner whatsoever,
in whole or in part, except as permitted by this Section 25, and
shall use the Confidential Information solely to evaluate the
transactions contemplated hereby and not directly or indirectly for
any other purpose.
(c)
The receiving
parties shall not disclose to any person the fact that the
Confidential Information has been made available, this Agreement
has been entered into, discussions or negotiations are taking place
or have taken place concerning a possible transaction, or any of
the terms, conditions or other facts with respect to the foregoing,
including the status thereof, except as permitted by this
Agreement. Notwithstanding the foregoing, the parties acknowledge
and agree that Carpincho shall be required to disclose the terms
hereof in accordance with the applicable timely disclosure
obligations.
(d)
The receiving
parties may disclose Confidential Information to their
Representatives but only to the extent that such Representatives
need to know the Confidential Information for the purposes of
evaluating the transactions contemplated hereby, have been informed
of the confidential nature of the Confidential Information, are
directed to hold the Confidential Information in the strictest
confidence, and agree to act in accordance with the terms and
conditions of this Agreement. Each party shall cause its
Representatives to observe the terms of this Agreement and is
responsible for any breach by its Representatives of any of the
provisions of this Agreement.
(e)
The disclosure
restrictions contained in this Agreement do not apply to disclosure
that is required by Applicable Laws, unless the receiving parties
are permitted or required by Applicable Law to refrain from making
such disclosure for confidentiality or other reasons, or that the
disclosing party gives the receiving parties prior written consent
to disclose. Prior to making any disclosure pursuant to Applicable
Laws, the receiving parties shall, to the extent not prohibited by
Applicable Laws:
(i)
give the disclosing
party prompt notice of the requirement and the proposed content of
any disclosure;
(ii)
at the disclosing
party’s request and expense, co-operate with the disclosing
party in limiting the extent of the disclosure and in obtaining an
appropriate protective order or pursuing such legal action, remedy
or assurance as the disclosing party deems necessary to preserve
the confidentiality of the Confidential Information, at the
disclosing party’s cost; and
(iii)
if a protective
order or other remedy is not obtained or the disclosing party fails
to waive compliance with the provisions of this Agreement, disclose
only that portion of the Confidential Information that it is
required to disclose and exercise commercially reasonable efforts
to obtain reliable assurance that confidential treatment is given
to the Confidential Information disclosed.
(f)
The receiving
parties shall make the same efforts to safeguard the Confidential
Information as they make to safeguard their own confidential and
proprietary business information, or all commercially reasonable
efforts to safeguard the Confidential Information if such efforts
would impose on it a higher standard of care.
(g)
If this Agreement
is terminated pursuant to Section 22, each party shall, subject to
Section 25(h), within seven Business Days of such
termination:
(i)
return all
Confidential Information to the other party without retaining any
copies; or
(ii)
destroy or
permanently erase all copies of the Confidential Information;
and
(iii)
certify to the
other party in writing that this Section 25(g) has been complied
with Return or
destruction of Confidential Information shall not minimize the
receiving party’s obligation to protect and maintain the
Confidential Information in the strictest confidence as provided
for herein.
(h)
Despite 24(g),
Carpincho and Finco may each retain data or electronic records
containing the Confidential Information solely for the purposes of
backup, recovery, contingency planning or business continuity
planning so long as such data or records are not accessible in the
ordinary course of business and are not accessed except as required
for backup, recovery, contingency planning or business continuity
purposes. Each party shall keep such retained Confidential
Information confidential, subject to the terms of this Agreement.
Carpincho and Finco shall permanently delete any data or records
that are restored or otherwise become accessible in the ordinary
course of business.
26.
Entire Agreement. This Agreement
constitutes the entire agreement between the parties pertaining to
the subject matter hereof and supercedes all prior agreements,
understandings, negotiations and discussions, whether oral or
written, between the parties with respect to the subject matter
hereof.
27.
Assignment. No party to this Agreement
may assign any of its rights or obligations under this Agreement
without the prior written consent of each of the other
parties.
28.
Press Releases. Notwithstanding any
other provision hereof, all press releases issued by any of Subco,
Carpincho and/or Finco in connection with the Amalgamation or other
matters contemplated hereby must be provided to each of Carpincho
and Finco for approval and comment prior to their release, provided
however that this Section 28 shall not be interpreted so as to
prohibit any party from complying with its timely disclosure
obligations under Applicable Laws.
29.
Further Assurances. Each of the parties
hereto agrees to execute and deliver such further instruments and
to do such further reasonable acts and things as may be necessary
or appropriate to carry out the intent of this
Agreement.
30.
Notice. Any notice which a party may
desire to give or serve upon another party shall be in writing and
may be delivered or sent by e-mail to the following
addresses:
(a) 10653918
Canada Inc.
Suite
2100, Scotia Plaza
40 King
Street W.
Toronto, Ontario
M5H 3C2
Attention: David
Gardos
E-mail:
dennisplogan@gmail.com or dgardos@casselsbrock.com
(b) Carpincho
Capital Corp. or Subco
181
University Avenue, Suite 800
Toronto, Ontario
M5H 2X7
Attention: Chief
Executive Officer
E-mail: lonnie@acuitylaw.ca
or to
such other address as the party to or upon whom notice is to be
given or served has communicated to the other parties by notice
given or served in the manner provided for in this Section. Notice
shall be deemed to be given on the date of delivery and in the case
of e-mail, notice shall be deemed to be given on the date of the
e-mail.
31.
Time of Essence. Time shall be of the
essence of this Agreement.
32.
Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
Province of Ontario and the federal laws of Canada applicable
therein.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF this Master Agreement has been duly
executed by the parties hereto as of the date first written
above.
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10653918
CANADA INC.
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Per:
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/s/
Dennis
Logan
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Name: Dennis
Logan
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Title: President
& CEO
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CARPINCHO CAPITAL CORP.
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Per:
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/s/
Lonnie
Kirsh
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Name: Lonnie
Kirsh
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Title:
President
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10713791
CANADA INC.
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Per:
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/s/
Lonnie
Kirsh
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Name: Lonnie
Kirsh
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Title:
President
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SCHEDULE “A”
AMALGAMATION AGREEMENT
THIS AGREEMENT made as of the ● day
of ●,
2018
AMONG:
10653918
CANADA INC.
a
corporation incorporated under the federal laws of Canada
("Finco")
- and
-
10713791
CANADA INC.
a
corporation incorporated under the federal laws of Canada
("Subco")
- and
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CARPINCHO
CAPITAL CORP.
a
corporation incorporated under the federal laws of Canada
("Carpincho")
RECITALS:
WHEREAS Carpincho, Subco and Finco have
entered into a master agreement dated as of April 26, 2018 pursuant
to which the parties thereto have agreed that the business and
assets of Finco will be combined with those of Carpincho (the
"Master
Agreement");
AND WHEREAS it is desirable for Subco
and Finco to amalgamate (the "Amalgamation") under the CBCA (as
hereinafter defined) upon the terms and conditions hereinafter set
out;
NOW THEREFORE in consideration of the mutual covenants and
agreements contained herein and other good and valuable
consideration (the receipt and sufficiency of which are hereby
acknowledged) the parties hereto do hereby agree as
follows:
Interpretation
In this
Agreement including the recitals:
"Acquisition"
means the acquisition by Carpincho of Finco pursuant to the terms
of the Master Agreement;
"Agreement"
means this agreement and any amendment made to this
Agreement;
"Amalco"
means the corporation resulting from the Amalgamation and
continuing the corporate existence of the Amalgamating
Corporations;
"Amalco
Shares" means the common shares in the capital of
Amalco;
"Amalgamating
Corporation" means each of Subco and Finco and "Amalgamating Corporations" means both of
them;
"Amalgamation"
means the amalgamation of the Amalgamating Corporations pursuant to
the provisions of section 185 of the CBCA in the manner
contemplated in and pursuant to this Agreement;
"Finco
Shares" means common shares in the capital of
Finco;
"Finco
Shareholder" means a registered holder of Finco Shares, from
time to time, and "Finco
Shareholders" means all of such holders;
"CBCA"
means the Canada Business
Corporations Act, as the same has been and may hereafter
from time to time be amended;
"Certificate
of Amalgamation" means the certificate of amalgamation to be
issued by the Director in respect of the Amalgamation;
"Carpincho
Shares" means common shares in the capital of Carpincho as
constituted immediately prior to the Amalgamation;
"Director"
means the director appointed under section 260 of the
CBCA;
"Effective
Date" means the date shown on the Certificate of
Amalgamation;
"Effective
Time" has the meaning ascribed to it in Section
10;
"Government
Authority" means any foreign, national, provincial, local or
state government, any political subdivision or any governmental,
judicial, public or statutory instrumentality, court, tribunal,
commission, board, agency (including those pertaining to health,
safety or the environment), authority, body or entity, or other
regulatory bureau, authority, body or entity having legal
jurisdiction over the activity or Person in question and, for
greater certainty;
"Master
Agreement" has the meaning ascribed thereto in the recitals
to this Agreement;
"Paid-up
Capital" means paid-up capital within the meaning of
subsection 89(1) of the Income Tax
Act (Canada);
"Parties"
means Carpincho, Subco and Finco;
"Person"
includes any individual, sole proprietorship, firm, partnership,
joint venture, venture capital fund, limited liability company,
unlimited liability company, association, trust, trustee, executor,
administrator, legal personal representative, estate, group, body
corporate, corporation, unincorporated association or organization,
union, Government Authority, syndicate or other entity, whether or
not having legal status;
“Subco
Shares” means the issued and outstanding common shares
in the capital of Subco; and
“Transfer
Agent” means Odyssey Trust Company, in its capacity as
registrar and transfer agent for the Carpincho Shares.
1. Paramountcy
In the
event of any conflict between the provisions of this Agreement and
the provisions of the Master Agreement, the provisions of the
Master Agreement shall prevail.
2. Agreement to
Amalgamate
Each of
the Parties hereby agrees to the Amalgamation. The Amalgamating
Corporations shall amalgamate to create Amalco on the terms and
conditions set out in this Agreement.
3. Amalgamation
Events
The
Parties shall cause the Articles of Amalgamation to be filed
pursuant to section 185 of the CBCA to effect the Amalgamation.
Under the Amalgamation:
(a)
Finco and Subco
will amalgamate and continue as Amalco;
(b)
the Finco
Shareholders shall receive one (1) Carpincho Share for each one (1)
Finco Share held, resulting in the issuance of up to 37,500,100
Carpincho Shares in the aggregate to be distributed proportionately
amongst the Finco Shareholders, and all Finco Shares shall be
cancelled;
(c)
all other
convertible securities issued by Finco shall be exchanged for
convertible securities in the capital of Carpincho on a one (1) for
one (1) basis, with all terms thereof adjustd
accordingly;
(d)
each issued and
outstanding Subco Share shall be converted into one fully paid and
non-assessable Amalco Share;
(e)
as consideration
for the issuance of the Carpincho Shares to effect the
Amalgamation, Carpincho will receive one Amalco Share for each one
Finco Share outstanding immediately prior to the Effective
Time;
(f)
all of the property
and assets of each of the Amalgamating Corporations will be the
property and assets of Amalco and Amalco will be liable for all of
the liabilities and obligations of each of the Amalgamating
Corporations; and
(g)
Amalco will be a
wholly-owned subsidiary of Carpincho.
4. Delivery of
Securities Following Amalgamation
In
accordance with normal commercial practice, as soon as practicable
following the Effective Date, Carpincho, directly or through the
Transfer Agent, shall issue certificates (or direct registration
statement advices) representing the appropriate number of Carpincho
Shares to the former holders of Finco Shares.
5. Negative
Covenants
From
the date hereof to and including the Effective Date, each of Finco
and Subco covenants that it will not:
(a)
reserve, allot,
create, issue or distribute any of its securities;
(b)
declare or pay
dividends on any of its shares or make any other issue, payment or
distribution to the holders of its securities including, without
limitation, the issue, payment or distribution of any of its assets
or property to such holders;
(c)
other than as
contemplated in this Agreement, authorize or take any action to
amalgamate, merge, reorganize, effect an arrangement, liquidate,
dissolve, wind-up or transfer all or substantially all of its
undertaking or assets to another corporation or
entity;
(d)
reclassify any
outstanding securities or change such securities into other shares
or securities or subdivide, redivide, reduce, combine or
consolidate such securities into a greater or lesser number of
securities, effect any other capital reorganization or amend the
designation of or the rights, privileges, restrictions or
conditions attaching to such securities;
(e)
other than as
contemplated in this Agreement, amend its Articles; or
(f)
other than as
contemplated in this Agreement, enter into any transaction, or take
any other action, out of the ordinary course of its
business.
6. Conditions
Precedent to the Amalgamation
The
Amalgamation is subject to all conditions precedent to the
completion of the Amalgamation having obtained or waived in
accordance with the Master Agreement on or before the Effective
Date.
A
certificate signed by a senior officer of each of Carpincho, Finco
and Subco confirming the satisfaction or waiver of such conditions
shall be conclusive evidence that such conditions have been
satisfied and that Carpincho, Finco and Subco may amalgamate in
accordance with Section 3 hereof.
7. Fractional
Shares
No
fractional New Carpincho Shares will be issued or delivered to any
Finco Shareholders otherwise entitled thereto as a result of the
Amalgamation, if any. Instead, the number of Carpincho Shares
issued to each exchanging holder of Finco Shares will be rounded
down to the nearest whole number. Notwithstanding the foregoing,
each Finco Shareholder shall receive a minimum of one (1) Carpincho
Share.
8. Filing of Articles
of Amalgamation
If this
Agreement is adopted by each of the Amalgamating Corporations as
required by the CBCA, the Amalgamating Corporations agree that they
will, jointly and together, file with the Director, agreed upon
Articles of Amalgamation in the form prescribed under the
CBCA.
9. Effective
Time
The
Amalgamation shall take effect and go into operation at 12:01 a.m.
on the effective date of the Articles of Amalgamation (the
“Effective
Time”), if this Agreement has been adopted as required
by law and all necessary filings have been made with the Director
before that time, or at such later time, or time and date, as may
be determined by the directors or by special resolutions of the
Amalgamating Corporations when this Agreement shall have been
adopted as required by law; provided, however, that if the
directors of both of the Amalgamating Corporations determine not to
proceed with the Amalgamation, then the Amalgamating Corporations
may by agreement in writing terminate this Agreement at any time
prior to the Amalgamating Corporations being amalgamated, and in
such event, the Amalgamation shall not take place notwithstanding
the fact that this Agreement may have been adopted by the
shareholders of the Amalgamating Corporations.
10. Registered
Office
The
registered office of Amalco shall be in the Province of
Ontario.
11. Activities
There
will be no limitations on the activities of Amalco. The directors
of Amalco shall be authorized to borrow money on the credit of
Amalco. The articles of Subco shall be the articles of
Amalco.
12. Authorized
Capital
The
authorized capital of Amalco shall consist of an unlimited number
of common shares without nominal or par value.
13. Capital
The
amount to be added to the stated capital in respect of the Amalco
Shares issuable by Amalco pursuant to Sections 4(c) and 4(d) of
this Agreement shall be the aggregate of: (i) the Paid-up Capital,
determined before the Effective Time, of the Subco Shares converted
into Amalco Shares pursuant to section 4(c); and (ii) the Paid-up
Capital, determined before the Effective Time, of all of the issued
and outstanding Finco Shares immediately before the Effective Time
(other than any Finco Shares held by Subco, if any).
14. Number of
Directors
The
board of directors of Amalco shall consist of not less than one and
not more than 10 directors, the exact number of which shall be
determined by the directors from time to time.
15. Initial
Director
The
first director of Amalco shall be the person whose names and
residential addresses appear below:
Name
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Prescribed
Address
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Dennis
Logan
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●
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The
above director will hold office from the Effective Date until the
first annual meeting of shareholders of Amalco or until his
successor is elected or appointed.
16. Termination
This
Agreement may be terminated by agreement in writing of the Parties
and shall automatically concurrently terminate upon the termination
of the Master Agreement, notwithstanding the approval of this
Agreement by the shareholders of the Amalgamating Corporations, at
any time prior to the issuance of the Certificate of Amalgamation
without, except as provided in the Master Agreement, any recourse
by any Party hereto or any of their shareholders or other
Persons.
17. Governing
Law
This
Agreement shall be governed by, and construed in accordance with,
the laws of the Province of Ontario and the federal laws of Canada
applicable therein. Each Party hereby irrevocably attorns to the
jurisdiction of the courts of the Province of Ontario in respect of
all matters arising under or in relation to this
Agreement.
18. Further
Assurances
Each of
the Parties agrees to execute and deliver such further instruments
and to do such further reasonable acts and things as may be
necessary or appropriate to carry out the intent of this
Agreement.
19. Time of the
Essence
Time
shall be of the essence of this Agreement.
20. Amendments
This
Agreement may only be amended or otherwise modified by written
agreement executed by the Parties.
This
Agreement may be signed in counterparts (including counterparts by
facsimile or other electronic transmission), and all such signed
counterparts, when taken together, shall constitute one and the
same agreement, effective on this date.
[The remainder of this page has been left intentionally blank.
Signature page follows.]
IN WITNESS WHEREOF the Parties have
executed this Agreement.
10653918 CANADA INC. By:
Name:
Title:
10713791 CANADA INC. By:
Name:
Title:
CARPINCHO
CAPITAL CORP. By:
Name:
Title:
Exhibit 2.5
Certain identified information has been excluded from the exhibit
because it is both not material and is the type that
the registrant treats as private or
confidential.
LICENSE PURCHASE AGREEMENT
by and among
[Buyer],
PLANET 13 HOLDINGS INC.,
[Seller],
and
HARVEST HEALTH & RECREATION INC.
dated as of
August 31, 2021
LICENSE PURCHASE AGREEMENT
This License Purchase Agreement (this
“Agreement”),
dated as of August 31, 2021 (the “Effective
Date”), is entered into
by and among [Buyer], a Florida corporation (which shall be renamed
“Planet 13 Florida Inc.” promptly following the
Effective Date) (“Buyer”),
Planet 13 Holdings Inc., a British Columbia corporation
(“Buyer
Parent”), [Seller], a
Florida corporation (“Seller”)
and Harvest Health & Recreation Inc., a British Columbia
corporation (“Seller
Parent”).
WHEREAS, Seller owns a Medical Marijuana Treatment
Center license number MMTC-2016-0006 (the
“License”)
issued by the Florida Department of Health to Seller;
and
WHEREAS,
Seller wishes to sell and assign to Buyer, and Buyer wishes to
purchase from Seller, the License, subject to the terms and
conditions set forth herein.
NOW,
THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms have the meanings specified or referred to in
this Article
I:
“Action”
means any claim, action, cause of action, demand, lawsuit,
arbitration, inquiry, audit, notice of violation, proceeding,
litigation, citation, summons, subpoena or investigation of any
nature, civil, criminal, administrative, regulatory or otherwise,
whether at law or in equity.
“Affiliate”
of a Person means any other Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person. The term
“control” (including the terms “controlled
by” and “under common control with”) means the
possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or
otherwise.
“Ancillary
Documents” means the Bill
of Sale, the Escrow Agreement and the other agreements, instruments
and documents required to be delivered in connection with this
Agreement or at the Closing.
“Business
Day” means a day (other
than a Saturday or a Sunday) on which banks are open for general
business in New York City.
“Cannabis
Laws” means any U.S.
federal laws, civil, criminal or otherwise, to the extent that such
law is directly or indirectly related to the cultivation,
harvesting, production, manufacturing, processing, marketing,
distribution, sale or possession of cannabis, marijuana or related
substances or products containing cannabis, marijuana or related
substances, including the prohibition on drug trafficking under the
Controlled Substances Act (21 U.S.C. § 801, et seq.), the
conspiracy statute under 18 U.S.C. § 846, the bar against
aiding and abetting the conduct of an offense under 18 U.S.C.
§ 2, the bar against misprision of a felony (concealing
another’s felonious conduct)
under 18 U.S.C. § 4, the bar against being an accessory after
the fact to criminal conduct under 18 U.S.C. § 3, and federal
money laundering statutes under 18 U.S.C. §§ 1956, 1957
and 1960, and any state controlled substances acts.
“CSE” means the Canadian Securities
Exchange.
“Disclosure
Schedules” means the
Disclosure Schedules, if any, delivered by Seller and Buyer
concurrently with the execution and delivery of this
Agreement.
“Encumbrance”
means any charge, claim, community property interest, pledge,
condition, equitable interest, lien (statutory or other), option,
security interest, mortgage, easement, encroachment, right of way,
right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income or exercise
of any other attribute of ownership.
“Escrow
Agent” means GLAS
Americas LLC, New York limited liability
company.
“Fraud”
means actual common law fraud in the making of a representation,
warranty, or other statement committed by a Person making such
representation, warranty, or statement with the intent to deceive
another Person, and to induce any Person to enter into this
Agreement or any Ancillary Document and requires (a) a false
representation, warranty, or statement of material fact; (b) actual
knowledge or belief that such representation, warranty, or
statement is false; (c) an intention to induce such other Person to
whom such representation, warranty, or statement was made to act or
refrain from acting in reliance upon it; (d) causing that Person,
in justifiable reliance upon such false representation, warranty,
or statement to take or refrain from taking action; and (e) causing
such Person or any party hereto to suffer damage by reason of such
reliance.
“GAAP”
means United States generally accepted accounting principles and
practices, consistently applied.
“Governmental
Authority” means any
federal, state, local or foreign government or political
subdivision thereof, or any agency or instrumentality of such
government or political subdivision, or any self-regulated
organization or other non-governmental regulatory authority or
quasi-governmental authority (to the extent that the rules,
regulations or orders of such organization or authority have the
force of Law), or any arbitrator, court or tribunal of competent
jurisdiction, including, without limitation, the OMMU and any local
licensing authority.
“Governmental
Order” means any order,
writ, judgment, injunction, decree, stipulation, determination or
award entered by or with any Governmental
Authority.
“Law” means any foreign or United States
statute, law, ordinance, regulation, rule, code, order,
constitution, treaty, common law or other requirement or rule of
law of any Governmental Authority; provided, however, that the
parties acknowledge and agree that Cannabis Laws shall not be
deemed to be Law.
“Liabilities”
means liabilities, obligations or commitments of any nature
whatsoever, asserted or unasserted, known or unknown, absolute or
contingent, accrued or unaccrued, matured or unmatured or
otherwise.
“Losses”
means losses, damages, liabilities, deficiencies, Actions,
judgments, interest, awards, penalties, fines, costs or expenses of
whatever kind, including reasonable attorneys’ fees and the
cost of enforcing any right to indemnification hereunder and the
cost of pursuing any insurance providers;
provided, however, that “Losses” shall not
include punitive damages, except to the extent actually awarded to
a Governmental Authority or other third party.
“Material Adverse
Effect” means any event,
occurrence, fact, condition or change that is materially adverse
to: (a) the License; or (b) the ability of Seller to consummate the
transactions contemplated hereby; provided, however, that
“Material Adverse Effect” shall not include any event,
occurrence, fact, condition or change, directly or indirectly,
arising out of or attributable to: (i) general economic or
political conditions; (ii) conditions generally affecting the
industries in which Seller operates; (iii) any changes in
financial, banking or securities markets in general, including any
disruption thereof and any decline in the price of any security or
any market index or any change in prevailing interest rates; (iv)
acts of war (whether or not declared), armed hostilities or
terrorism, or the escalation or worsening thereof; (v) any action
required or permitted by this Agreement or any action taken (or
omitted to be taken) with the written consent of or at the written
request of Buyer; (vi) any changes in applicable Laws or accounting
rules (including GAAP) or the enforcement, implementation or
interpretation thereof; or (vii) any natural or manmade disaster or
acts of God, including the COVID-19 virus or any other epidemic or
pandemic; provided, further, that any event, occurrence, fact,
condition or change referred to in clauses (i), (ii), or (iii)
immediately above shall be taken into account in determining
whether a Material Adverse Effect has occurred to the extent that
such event, occurrence, fact, condition or change has a
disproportionate effect on Seller, taken as a whole, compared to
other participants in the industries in which Seller conducts its
business.
“OMMU”
means the Florida Department of Health’s Office of Medical
Marijuana Use.
“OMMU
Approval” means the
approval by the OMMU necessary to consummate the transactions
contemplated by this Agreement.
“Person”
means an individual, corporation, partnership, joint venture,
limited liability company, Governmental Authority, unincorporated
organization, trust, association or other
entity.
“Remaining Deposit
Notice” means a written
notice from Seller to Buyer setting forth the closing date of the
transactions contemplated by that certain Arrangement Agreement,
dated May 10, 2021 (the “Arrangement
Agreement”), between
Seller Parent and Trulieve Cannabis Corp., a British Columbia
corporation (the “Harvest/Trulieve
Transaction”).
“Representative”
means, with respect to any Person, any and all directors, officers,
employees, consultants, financial advisors, counsel, accountants
and other agents of such Person.
“Security
Interest” means that
security interest in the License granted by Seller pursuant to the
Security Agreement, dated as of December 20, 2019, by and among
Seller, the other “Grantors” party thereto, and Odyssey
Trust Company, as collateral trustee (the
“Collateral
Trustee”), to secure
obligations of Seller Parent under the Trust Indenture, dated as of
December 20, 2019, by and between Harvest and the Collateral
Trustee
“Seller’s
Knowledge” or any other
similar knowledge qualification, means the actual knowledge of
Steve White or Nicole Stanton following due
inquiry.
“Taxes”
means all federal, state, local, foreign and other income, gross
receipts, sales, use, production, ad valorem, transfer,
documentary, franchise, registration, profits, license,
withholding, payroll, employment, unemployment, excise, severance,
stamp, occupation, premium, property (real or personal), customs,
duties or other taxes, fees, assessments or charges of any kind
whatsoever, together with any interest, additions or penalties with
respect thereto.
“Tax
Return” means any and all
returns, declarations, reports, information returns and statements
and other documents relating to Taxes (including amended returns
and claims for refund).
ARTICLE II
PURCHASE AND SALE OF LICENSE
Section 2.01 Purchase and Sale
of License. Subject to the
terms and conditions set forth herein, at the Closing, Seller shall
sell, assign, transfer, convey and deliver to Buyer, and Buyer
shall purchase from Seller, free and clear of any Encumbrances, all
of Seller’s right, title and interest in, to and under the
License. Other than the License, Buyer expressly understands and
agrees that it is not purchasing or acquiring, and Seller is not
selling or assigning, any other assets or properties of Seller, and
all such other assets and properties shall be excluded from the
transaction contemplated by this Agreement (collectively, the
“Excluded
Assets”).
Section 2.02 Buyer Liabilities; Excluded Liabilities.
(a) Buyer
agrees to pay, perform and discharge when due any and all
Liabilities arising out of or relating to Buyer’s ownership
of the License or the operation of the business to be conducted by
Buyer and its Affiliates under the License on or after the Closing
Date.
(b) Buyer
shall not assume and shall not be responsible to pay, perform or
discharge any Liabilities of Seller and its Affiliates of any kind
or nature, including any and all Liabilities arising out of or
relating to Seller’s ownership of the License or the
operation of the business conducted by Seller and its Affiliates
under the License prior to the Closing Date (collectively, the
“Excluded
Liabilities”). Seller
shall, and shall cause each of its Affiliates to, pay and satisfy
in due course all Excluded Liabilities which they are obligated to
pay and satisfy.
Section 2.03 Purchase
Price. The aggregate purchase
price for the License shall be US$55,000,000 (the
“Purchase
Price”), payable as
follows:
(a) Upon
the execution of the Escrow Agreement, Buyer shall deposit
US$2,000,000 (the “Initial
Deposit”) with the Escrow
Agent which shall be held by the Escrow Agent in an escrow account
(the “Escrow
Account”) pursuant to the
terms and conditions of this Agreement and the escrow agreement
entered into as of even date herewith by and among Buyer, Seller
and the Escrow Agent (the “Escrow
Agreement”). Each party
shall deliver to the Escrow Agent its respective documents required
for the Escrow Agent to complete its “Know Your
Customer” compliance identity verification no later than
three Business Days following the Effective Date. Buyer and Seller
acknowledge and agree that the Escrow Agreement is in
final form
(as between Buyer and Seller) as of the Effective Date, and Buyer
and Seller shall execute the Escrow Agreement as promptly as
possible following the Effective Date.
(b) Within
two Business Days of Buyer’s and the Escrow Agent’s
receipt of the Remaining Deposit Notice from Seller, Buyer shall
deposit US$53,000,000 (the “Remaining Deposit”)
with the Escrow Agent which shall be held by the Escrow Agent
pursuant to the terms and conditions of this Agreement and the
Escrow Agreement; provided, that [Remaining Deposit Notice timing
requirement]; provided, further that, if the Closing under this
Agreement does not occur within [Remaining Deposit timing
requirement] following the funding of the Remaining Deposit, if
Buyer, in its sole discretion, so chooses, Buyer and Seller shall
deliver joint written instructions to the Escrow Agent to request
the return to Buyer of the Remaining Deposit. Upon the return of
the Remaining Deposit to Buyer, Seller shall be obligated to send
another Remaining Deposit Notice to Buyer and the Escrow Agent in
order for Buyer to re-deposit the Remaining Deposit with the Escrow
Agent.
(c) At
the Closing, the Escrow Agent shall release the entire Purchase
Price (i.e., the Initial Deposit plus the Remaining Deposit)
to Seller in accordance with the terms and conditions of this
Agreement and the Escrow Agreement.
ARTICLE III
CLOSING
Section 3.01
Closing. Subject to the terms
and conditions of this Agreement, the consummation of the
transactions contemplated by this Agreement (the
“Closing”)
shall take place remotely by exchange of documents and signatures
(or their electronic counterparts), within five Business Days after
all of the conditions to Closing set forth in Article VII
are either satisfied or waived (other
than conditions which, by their nature, are to be satisfied on the
Closing Date), or at such other time, date or place as Seller and
Buyer may mutually agree upon in writing; provided, that
notwithstanding anything to the contrary herein, Buyer and Seller
hereby agree that the Closing shall take place simultaneously upon
the consummation of the Harvest/Trulieve Transaction. The date on
which the Closing is to occur is herein referred to as the
“Closing
Date.”
Section 3.02 Closing Deliverables.
(a) At
the Closing, Seller and Buyer shall deliver joint written
instructions to the Escrow Agent instructing the Escrow Agent to
release the Escrow Funds to Seller in accordance with this
Agreement and the Escrow Agreement. In addition, Seller shall
deliver to Buyer the following:
(i) a
bill of sale substantially in the form attached hereto as
Exhibit
A (the
“Bill of
Sale”), duly executed by
Seller;
(ii) a
certificate pursuant to Treasury Regulations Section 1.1445-2(b)
that Seller is not a foreign person within the meaning of Section
1445 of the Code, duly executed by Seller;
(iii) a
certificate, dated as of the Closing Date and signed by a duly
authorized officer of Seller, certifying that each of the
conditions set forth in Section 7.02(a)
and Section 7.02(b)
have been
satisfied;
(iv) a
certificate from a duly authorized officer of Seller certifying
that attached thereto are true and complete copies of the
resolutions adopted by the board of directors of Seller authorizing
the execution, delivery and performance of this Agreement, the
Ancillary Documents and the consummation of the transactions
contemplated hereby and thereby; and
(v) such
other documents or instruments as Buyer reasonably requests and are
reasonably necessary to consummate the transactions contemplated by
this Agreement.
(b) At
the Closing, Buyer shall deliver to Seller the
following:
(i) evidence
that Buyer has obtained a performance bond (or its equivalent) that
satisfies the requirements of section 381.986(8)(b)7, Florida
Statutes;
(ii) a
certificate, dated as of the Closing Date and signed by a duly
authorized officer of Buyer, certifying that each of the conditions
set forth in Section 7.03(a)
and Section 7.03(b)
have been
satisfied;
(iii) a
certificate from a duly authorized officer of Buyer certifying that
attached thereto are true and complete copies of the resolutions
adopted by the board of directors of Buyer authorizing the
execution, delivery and performance of this Agreement, the
Ancillary Documents and the consummation of the transactions
contemplated hereby and thereby; and
(iv) such
other documents or instruments as Seller reasonably requests and
are reasonably necessary to consummate the transactions
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller
represents and warrants to Buyer that:
Section 4.01 Organization and
Authority of Seller. Seller is
a corporation duly organized, validly existing and in good standing
under the Laws of the State of Florida. Seller Parent is a
corporation duly incorporated, validly existing and in good
standing under the Laws of the Province of British Columbia. Each
of Seller and Seller Parent has all necessary corporate power and
authority to enter into this Agreement and the Ancillary Documents
to which Seller or Seller Parent, as applicable, is a party, to
carry out its obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and thereby. The
execution and delivery by each of Seller and Seller Parent of this
Agreement and any Ancillary Document to which Seller or Seller
Parent, as applicable, is a party, the performance by each of
Seller and Seller Parent of its obligations hereunder and
thereunder, and the consummation by each of Seller and Seller
Parent of the transactions contemplated hereby and thereby have
been duly authorized by all requisite corporate action on the part
of Seller and Seller Parent, as applicable. This Agreement and the
Ancillary Documents constitute legal, valid and binding obligations
of Seller and Seller Parent enforceable against Seller and Seller
Parent in accordance with their respective terms, except
as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar Laws affecting
creditors’ rights generally and by general principles of
equity (regardless of whether enforcement is sought in a proceeding
at law or in equity).
Section 4.02 No Conflicts or
Consents. The execution,
delivery and performance by each of Seller and Seller Parent of
this Agreement and the Ancillary Documents to which it is a party,
and the consummation of the transactions contemplated hereby and
thereby, do not and will not: (a) violate or breach any provision
of the articles of incorporation, bylaws or other constating
documents of Seller or Seller Parent; (b) violate or breach any
provision of any Law or Governmental Order applicable to Seller,
Seller Parent or the License; or (c) except for the OMMU Approval,
require any consent, permit, Governmental Order, filing or notice
from, with or to any Governmental Authority or any other Person by
or with respect to Seller or Seller Parent in connection with the
execution and delivery of this Agreement and the Ancillary
Documents and the consummation of the transactions contemplated
hereby and thereby.
Section 4.03 Title to
License. Except for the
Security Interest, Seller has good and valid title to the License,
free and clear of all Encumbrances.
Section 4.04 Legal Proceedings; Governmental Orders.
(a) There
are no Actions pending or, to Seller’s Knowledge, threatened
against or by Seller or Seller Parent: (a) relating to or affecting
the License, which if determined adversely to Seller or Seller
Parent, as applicable, would result in a Material Adverse Effect;
or (b) that challenge or seek to prevent, enjoin or otherwise delay
the transactions contemplated by this Agreement or any Ancillary
Document.
(b) There
are no outstanding Governmental Orders against, relating to or
affecting the License which would have a Material Adverse
Effect.
Section 4.05 Compliance with
Laws; License. Seller is in
compliance in all material respects with all Laws applicable to the
ownership and use of the License. Neither Seller nor Parent has
received any written communication from any Governmental Authority
or other Person that remains unresolved as of the Effective Date
that alleges that Seller is not in material compliance with any
such Laws. The License is in good standing, is valid and is in full
force and effect. All fees and charges with respect to the License
as of Effective Date have been paid in full. No event has occurred
that, with or without notice or lapse of time or both, would
reasonably be expected to result in the revocation, suspension,
lapse or limitation of the License. The License was obtained in
compliance with Law. The License has a current expiration date of
October 26, 2022 (the “License Expiration
Date”), and Seller is not
aware of any reason the License will not be renewed or capable of
being renewed on or before the License Expiration
Date.
Section 4.06
Brokers. Except for Canaccord
Genuity Corp., no broker, finder, or investment banker is entitled
to any brokerage, finder’s, or other fee or commission in
connection with the transactions contemplated by this Agreement or
any Ancillary Document based upon arrangements made by or on behalf
of Seller.
Section 4.07 No Other
Representations and Warranties.
Except for the representations and warranties contained in
this Article IV
(including the related portions of
the Disclosure
Schedules, if any), neither Seller nor any other Person has made or
makes any other express or implied representation or warranty,
either written or oral, on behalf of Seller, including any
representation or warranty arising from statute or otherwise in
Law.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer
represents and warrants to Seller that:
Section 5.01 Organization and
Authority of Buyer. Buyer is a
Florida corporation duly organized, validly existing and in good
standing under the Laws of the State of Florida. Buyer Parent is a
corporation duly incorporate, validly existing and in good standing
under the Laws of the Province of British Columbia. Buyer has been
registered to do business in the State of Florida for at least five
consecutive years prior to the Effective Date, as required by
section 381.986(8)(b)1., Florida Statutes. Each of Buyer and Buyer
Parent has all necessary corporate power and authority to enter
into this Agreement and the Ancillary Documents to which Buyer or
Buyer Parent, as applicable, is a party, to carry out its
obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and
delivery by each of Buyer and Buyer Parent of this Agreement and
any Ancillary Document to which Buyer or Buyer Parent, as
applicable, is a party, the performance by each of Buyer and Buyer
Parent of its obligations hereunder and thereunder and the
consummation by each of Buyer and Buyer Parent of the transactions
contemplated hereby and thereby have been duly authorized by all
requisite corporate action on the part of Buyer and Buyer Parent,
as applicable. This Agreement and the Ancillary Documents
constitute legal, valid and binding obligations of Buyer and Buyer
Parent enforceable against Buyer and Buyer Parent in accordance
with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar Laws affecting creditors’ rights generally and by general principles of
equity (regardless of whether enforcement is sought in a proceeding
at law or in equity).
Section 5.02 No Conflicts;
Consents. The execution,
delivery and performance by each of Buyer and Buyer Parent of this
Agreement and the Ancillary Documents to which it is a party, and
the consummation of the transactions contemplated hereby and
thereby, do not and will not: (a) violate or breach any provision
of the articles of incorporation, bylaws or other constating
documents of Buyer or Buyer Parent; (b) violate or breach any
provision of any Law or Governmental Order applicable to Buyer or
Buyer Parent; (c) require the consent, notice or other action by
any Person under, conflict with, violate or breach, constitute a
default under or result in the acceleration of any agreement to
which Buyer or Buyer Parent is a party; or (d) except for the OMMU
Approval, require any consent, permit, Governmental Order, filing
or notice from, with or to any Governmental Authority or any other
Person by or with respect to Buyer or Buyer Parent in connection
with the execution and delivery of this Agreement and the Ancillary
Documents and the consummation of the transactions contemplated
hereby and thereby.
Section 5.03
Capitalization. One hundred
percent (100%) of the issued and outstanding stock of Buyer is
owned by Buyer Parent. No individual or entity who directly or
indirectly owns, controls, or holds with power to vote five percent
or more of the voting interests of Buyer has any direct or indirect
ownership or control of any voting interests or other form of
ownership of any Florida licensed medical marijuana treatment
center. No individual or entity who has any direct or
indirect ownership or control of any voting
interests or other form of ownership of Buyer directly or
indirectly owns, controls, or holds with power to vote five percent
or more of the voting interests of any Florida licensed medical
marijuana treatment center.
Section 5.04 Solvency;
Sufficiency of Funds. Immediately after giving effect to the
transactions contemplated hereby, Buyer shall be solvent and shall:
(a) be able to pay its debts as they become due; (b) own property
that has a fair saleable value greater than the amounts required to
pay its debts (including a reasonable estimate of the amount of all
Liabilities); and (c) have adequate capital to build out and
construct cultivation and dispensary facilities for the operation
of its cannabis business under the License and the financial
ability to maintain such operations for at least two years. No
transfer of property is being made and no obligation is being
incurred in connection with the transactions contemplated hereby
with the intent to hinder, delay or defraud either present or
future creditors of Buyer or Seller. In connection with the
transactions contemplated hereby, Buyer has not incurred, nor plans
to incur, debts beyond its ability to pay as they become absolute
and matured. Buyer has sufficient cash on hand or other sources of
immediately available funds to enable it to make payment of the
Purchase Price and consummate the transactions contemplated by this
Agreement.
Section 5.05 Legal
Proceedings. There are no
Actions pending or, to Buyer’s knowledge, threatened against or by Buyer or
Buyer Parent that challenge or seek to prevent, enjoin or otherwise
delay the transactions contemplated by this
Agreement.
Section 5.06
Brokers. Except for Beacon
Securities Limited, no broker, finder, or investment banker is
entitled to any brokerage, finder’s, or other fee or commission in connection with
the transactions contemplated by this Agreement or any Ancillary
Document based upon arrangements made by or on behalf of
Buyer.
Section 5.07 Independent
Investigation. Buyer has
conducted its own independent investigation, review and analysis of
the License. Buyer acknowledges and agrees that: (a) in making its
decision to enter into this Agreement and to consummate the
transactions contemplated hereby, Buyer has relied solely upon its
own investigation and the express representations and warranties of
Seller set forth in Article IV
of this Agreement (including related
portions of the Disclosure Schedules, if any); and (b) neither
Seller nor any other Person has made any representation or warranty
as to Seller, the License or this Agreement, except as expressly
set forth in Article IV
of this Agreement (including the
related portions of the Disclosure Schedules, if
any).
ARTICLE VI
COVENANTS
Section 6.01
Confidentiality. The parties
hereto acknowledge and agree that the Confidentiality Agreement,
dated as of August 26, 2021 between Buyer Parent and Harvest
Enterprises, Inc. (the “Confidentiality
Agreement”) remains in
full force and effect and, in addition, each party covenants and
agrees to keep confidential, in accordance with the provisions of
the Confidentiality Agreement, information provided by any party to
the other pursuant to this Agreement.
Section 6.02 Public
Announcements. Unless otherwise
required by applicable Law or stock exchange applicable to a party
or its Affiliates, no party to this Agreement shall make any public
announcements in respect of this Agreement or the transactions
contemplated hereby without the prior written consent of the other
party (which consent shall not be unreasonably withheld,
conditioned or delayed), and the parties shall cooperate as to the
timing and contents of any such announcement; provided, however,
that any party and its Affiliates may, without the prior written
consent of other party(ies), make any public statement or
disclosure to the extent the substance of such public statement or
disclosure is consistent with any previous press release, statement
or disclosure made in accordance with, or permitted by, this
Section
6.02.
Section 6.03 Transfer
Taxes. All transfer, sales,
use, registration, documentary, stamp, value added and other such
Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement and the Ancillary Documents, if any,
shall be borne and paid by Buyer when due. Buyer shall, at its own
expense, timely file any Tax Return or other document with respect
to such Taxes or fees (and Seller shall cooperate with respect
thereto as necessary).
Section 6.04 Further
Assurances. Following the
Closing, each of the parties hereto shall, and shall cause their
respective Affiliates to, execute and deliver such additional
documents, instruments, conveyances and assurances and take such
further actions as may be reasonably required to carry out the
provisions hereof and give effect to the transactions contemplated
by this Agreement and the Ancillary Documents.
Section 6.05
Exclusivity. Seller shall not,
and shall not authorize or permit any of its Affiliates or any of
its or their Representatives to, directly or indirectly (i)
solicit, initiate or continue any discussions or negotiations with
any Person concerning the actual or potential sale of the License,
(ii) enter into discussions or negotiations with, or provide any
information to, any Person concerning the actual or potential sale
of the License or (iii) enter into any agreements or other
instruments (whether or not binding) regarding any actual or
potential sale of the License. Seller shall immediately cease and
cause to be terminated, and shall cause its Affiliates and all of
their Representatives to immediately cease and cause to be
terminated, all existing discussions or negotiations with any
Persons conducted heretofore with respect to, or that could
reasonably lead to, any actual or potential sale of the License. In
addition to the other obligations under this Section
6.05, Seller shall promptly
(and in any event within one Business Day after receipt thereof by
Seller, its Affiliates or its or their respective Representatives)
advise Buyer orally and in writing of any bona fide proposal
relating to the actual or potential sale of the
License.
Section 6.06 Governmental Approvals and Consents.
(a) Each
party hereto shall, as promptly as possible, (i) make, or cause or
be made, all filings and submissions required under any Law or
stock exchange requirement applicable to such party or any of its
Affiliates; and (ii) use commercially reasonable efforts to obtain,
or cause to be obtained, all consents, authorizations, orders and
approvals from all Governmental Authorities that may be or become
necessary for its execution and delivery of this Agreement and the
performance of its obligations pursuant to this Agreement and the
Ancillary Documents, including without limitation, the OMMU
Approval. Each party shall cooperate fully with the other party and
its Affiliates in promptly seeking to obtain all such consents,
authorizations, orders and approvals. The parties hereto shall not
willfully take any action that will have the effect of delaying,
impairing or impeding the receipt of any required consents,
authorizations, orders and approvals.
(b) In
furtherance of the foregoing:
(i) promptly
following the Effective Date, but in no event more than one
Business Day following the Effective Date, Seller will submit to
the OMMU a request for approval of the transfer of the License from
Seller to Buyer, which approval shall contain evidence of
satisfaction of all regulatory requirements and Buyer’s plan
of operation for the business to be conducted under the License, as
described in greater detail on Schedule 1
attached hereto, and Buyer will use
commercially reasonable efforts to cooperate and provide all
information requested by Seller and/or required by the OMMU in
connection with such request for approval; provided, however, the
parties agree the request for approval contemplated by this
Section
6.06(b)(i) shall not include
the items set forth in Section
6.06(b)(ii);
and
(ii) [Florida
regulatory requirements Buyer covenants].
(c) Without limiting the generality of the
parties’ undertakings pursuant to subsections (a) and (b)
above, each of the parties hereto shall use commercially reasonable
efforts to:
(i) respond
within three Business Days following receipt to any inquiries by
any Governmental Authority regarding any matter with respect to the
transactions contemplated by this Agreement or any Ancillary
Document;
(ii) avoid
the imposition of any order or the taking of any action that would
restrain, alter or enjoin the transactions contemplated by this
Agreement or any Ancillary Document; and
(iii) in
the event any Governmental Order adversely affecting the ability of
the parties to consummate the transactions contemplated by this
Agreement or any Ancillary Document has been issued, to have such
Governmental Order vacated or lifted.
(d)
All analyses, appearances, meetings, discussions, presentations,
memoranda, briefs, filings, arguments, and proposals made by or on
behalf of either party before any Governmental Authority or the
staff or regulators of any Governmental Authority, in connection
with the transactions contemplated hereunder (but, for the
avoidance of doubt, not including any interactions between Seller
or Buyer with Governmental Authorities in the ordinary course of
business, any disclosure which is not permitted by Law or any
disclosure containing confidential
information) shall be disclosed to the other party hereunder in
advance of any filing, submission or attendance, it being the
intent that the parties will consult and cooperate with one
another, and consider in good faith the views of one another, in
connection with any such analyses, appearances, meetings,
discussions, presentations, memoranda, briefs, filings, arguments,
and proposals. Each party shall give notice to the other party with
respect to any meeting, discussion, appearance or contact with any
Governmental Authority or the staff or regulators of any
Governmental Authority, with such notice being sufficient to
provide the other party with the opportunity to attend and
participate in such meeting, discussion, appearance or
contact.
Section 6.07 Seller Parent
Guaranty. Seller Parent hereby
guarantees to Buyer the full, prompt and unconditional payment when
due of all obligations of Seller to Buyer under this Agreement,
including, without limitation, all indemnification obligations set
forth in Article
VIII. This
guaranty is an absolute, unconditional, irrevocable and continuing
guaranty of the full and punctual payment and performance of
Seller’s obligations under this Agreement and not of their
collectability only and is in no way conditioned upon any
requirement that Buyer first attempt to collect any of the
obligations under this Agreement from Seller or resort to any
security or other means of obtaining their payment. Should Seller
default in the payment or performance of any of the obligations
under this Agreement, the obligations of Seller Parent as guarantor
hereunder shall become immediately due and payable to Buyer,
without demand or notice of any nature, all of which are expressly
waived by Seller Parent.
Section 6.08 Buyer Parent
Guaranty. Buyer Parent hereby
guarantees to Seller the full, prompt and unconditional payment
when due of all obligations of Buyer to Seller under this
Agreement, including, without limitation, all indemnification
obligations set forth in Article
VIII. This
guaranty is an absolute, unconditional, irrevocable and continuing
guaranty of the full and punctual payment and performance of
Buyer’s obligations under this Agreement and not of their
collectability only and is in no way conditioned upon any
requirement that Seller first attempt to collect any of the
obligations under this Agreement from Buyer or resort to any
security or other means of obtaining their payment. Should Buyer
default in the payment or performance of any of the obligations
under this Agreement, the obligations of Buyer Parent as guarantor
hereunder shall become immediately due and payable to Seller,
without demand or notice of any nature, all of which are expressly
waived by Buyer Parent.
Section 6.09 Negative
Covenants. From the Effective
Date until the earlier to occur of the Closing Date or the
termination of this Agreement in accordance with its terms, and
except as otherwise expressly permitted elsewhere in this
Agreement, Seller shall not, and shall cause Seller Parent and its
Affiliates not to: (i) pledge, encumber, sell, or otherwise allow
any Encumbrance to be placed on, the License or any right, title,
or interest in or to the License, or (ii) take or permit any action
that would cause the License to not be in good standing or not be
transferable or would, to Seller’s Knowledge, cause any of
the representations and warranties set forth in Article IV
to become untrue.
Section 6.10 Operation of the
Business Between Signing and Closing. From the Effective Date until the earlier to
occur of the Closing Date or the termination of this Agreement in
accordance with its terms, Seller shall (i) conduct its business in
the ordinary course of business consistent with past practice, (ii)
comply in all material respects with applicable Law, including all
Laws with respect to the License.
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.01 Conditions to
Obligations of All Parties. The
obligations of each party to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment,
at or prior to the Closing, of each of the following
conditions:
(a) No
Governmental Authority or stock exchange applicable to a party or
its Affiliates shall have enacted, issued, promulgated, enforced or
entered any Governmental Order or decision which is in effect and
has the effect of making the transactions contemplated by this
Agreement illegal (excluding federal illegality with regards to
marijuana being classified as a federally controlled substance),
otherwise restraining or prohibiting consummation of such
transactions or causing any of the transactions contemplated
hereunder to be rescinded following completion
thereof.
(b) The
parties shall have received the OMMU Approval.
(c) No
Action shall have been commenced or threatened against any party
that seeks to enjoin or would prevent the Closing or would have a
material impact on the License. No injunction or restraining order
shall have been issued by any Governmental Authority, and be in
effect, which restrains or prohibits any transaction contemplated
hereby.
Section 7.02 Conditions to
Obligations of Buyer. The
obligations of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment or
Buyer’s waiver, at or prior to the Closing, of each of
the following conditions:
(a) The
representations and warranties of Seller contained in this
Agreement shall be true and correct in all respects on and as of
the date hereof and on and as of the Closing Date with the same
effect as though made at and as of such date (except those
representations and warranties that address matters only as of a
specified date, the accuracy of which shall be determined as of
that specified date in all respects), except where the failure of
such representations and warranties to be true and correct would
not have a Material Adverse Effect.
(b) Seller
shall have duly performed and complied in all material respects
with all agreements, covenants and conditions required by this
Agreement and each of the Ancillary Documents to be performed or
complied with by it prior to or on the Closing Date.
(c) The
CSE shall not have objected to the Closing of the transactions
contemplated herein.
(d) Seller
shall have delivered to Buyer duly executed counterparts to the
Ancillary Documents and such other documents and deliveries set
forth in Section
3.02(a).
(e) All
Encumbrances relating to the License shall have been released in
full, and Seller shall have delivered to Buyer written evidence, in
form satisfactory to Buyer in its sole discretion, of the release
of such Encumbrances.
(f) From
the Effective Date, there shall not have occurred a Material
Adverse Effect.
(g) Seller
shall have delivered to Buyer such other documents or instruments
as Buyer reasonably requests and are reasonably necessary to
consummate the transactions contemplated by this
Agreement.
Section 7.03 Conditions to
Obligations of Seller. The
obligations of Seller to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment or
Seller’s waiver, at or prior to the Closing, of each of
the following conditions:
(a) The
representations and warranties of Buyer contained in this Agreement
shall be true and correct in all respects on and as of the date
hereof and on and as of the Closing Date with the same effect as
though made at and as of such date (except those representations
and warranties that address matters only as of a specified date,
the accuracy of which shall be determined as of that specified date
in all respects), except where the failure of such representations
and warranties to be true and correct would not have a material
adverse effect on Buyer’s ability to consummate the transactions
contemplated hereby.
(b) Buyer
shall have duly performed and complied in all material respects
with all agreements, covenants and conditions required by this
Agreement and each of the Ancillary Documents to be performed or
complied with by it prior to or on the Closing Date.
(c) Buyer
shall have delivered to Seller duly executed counterparts to the
Ancillary Documents and such other documents and deliveries set
forth in Section
3.02(b).
(d) Buyer
shall have delivered the Purchase Price to the Escrow Agent
pursuant to Section
2.03.
(e) Seller
shall have simultaneously herewith closed the Harvest/Trulieve
Transaction.
ARTICLE VIII
INDEMNIFICATION
Section 8.01
Survival. Subject to the
limitations and other provisions of this Agreement, the
representations and warranties contained herein shall survive the
Closing and shall remain in full force and effect until the date
that is one year from the Closing Date; provided, however, that the
representations and warranties in: (i) Section
4.01, Section
4.02, Section
4.03, Section 4.06
(collectively, the “Seller Fundamental
Representations”), Section 5.01
and Section 5.06
shall survive for the full period of
all applicable statutes of limitations (giving effect to any
waiver, mitigation or extension thereof) plus 60 days. None of the
covenants or other agreements contained in this Agreement shall
survive the Closing Date other than those which by their terms
contemplate performance after the Closing Date, and each such
surviving covenant and agreement shall survive the Closing for the
period contemplated by its terms. Notwithstanding the foregoing,
any claims asserted in good faith with reasonable specificity (to
the extent known at such time) and in writing by notice from the
non-breaching party to the breaching party prior to the expiration
date of the applicable
survival period shall not thereafter be barred by the expiration of
the relevant representation or warranty and such claims shall
survive until finally resolved.
Section 8.02 Indemnification by
Seller. Subject to the other
terms and conditions of this Article
VIII, Seller shall indemnify
and defend each of Buyer and its Affiliates and their respective
Representatives (collectively, the “Buyer
Indemnitees”) against,
and shall hold each of them harmless from and against, and shall
pay and reimburse each of them for, any and all Losses incurred or
sustained by, or imposed upon, the Buyer Indemnitees based upon,
arising out of, with respect to or by reason
of:
(a) any
inaccuracy in or breach of any of the representations or warranties
of Seller contained in this Agreement, the Ancillary Documents or
in any certificate or instrument delivered by or on behalf of
Seller pursuant to this Agreement;
(b) any
breach or non-fulfillment of any covenant, agreement or obligation
to be performed by Seller pursuant to this Agreement, the Ancillary
Documents or any certificate or instrument delivered by or on
behalf of Seller pursuant to this Agreement;
(c) any
Excluded Asset or any Excluded Liability; or
(d) any
Third-Party Claim related to the foregoing that alleges facts that,
if true, would entitle the Buyer Indemnitees to recovery under
this Article
VIII.
Section 8.03 Indemnification by
Buyer. Subject to the other
terms and conditions of this Article
VIII, Buyer shall indemnify and
defend each of Seller and its Affiliates and their respective
Representatives (collectively, the “Seller
Indemnitees”) against,
and shall hold each of them harmless from and against, and shall
pay and reimburse each of them for, any and all Losses incurred or
sustained by, or imposed upon, the Seller Indemnitees based upon,
arising out of, with respect to or by reason
of:
(a) any
inaccuracy in or breach of any of the representations or warranties
of Buyer or any of its Affiliates contained in this Agreement, the
Ancillary Documents or in any certificate or instrument delivered
by or on behalf of Buyer pursuant to this Agreement;
(b) any
breach or non-fulfillment of any covenant, agreement or obligation
to be performed by Buyer or any of its Affiliates pursuant to this
Agreement, the Ancillary Documents or any certificate or instrument
delivered by or on behalf of Buyer pursuant to this Agreement;
or
(c) any
Liability arising out of or relating to Buyer’s ownership of
the License or the operation of the business to be conducted by
Buyer and its Affiliates under the License on or after the
Closing.
Section 8.04 Limits on
Indemnification. Notwithstanding anything in this
Article
VIII to the contrary, in
respect of the indemnification obligations provided for in
Section
8.02:
(a) [Basket and cap limits on Seller indemnification
obligations].
(b) Notwithstanding
the foregoing, the limitations set forth in Section 8.04(a)
shall not apply to Losses based upon,
arising out of, with respect to or by reason of (i) any inaccuracy
in or breach of any Seller Fundamental Representation or (ii) any
Fraud or willful misconduct.
(c) Any
payments by Seller pursuant to Section 8.02
in respect of any Loss shall be
limited to the amount of any liability or damage that remains after
deducting therefrom any insurance proceeds and any indemnity,
contribution or other similar payment actually received (taking
into account any increase in insurance premiums relating to
recovery under any such applicable insurance policy) by Buyer in
respect of any such claim. Buyer shall use its commercially
reasonable efforts to recover under insurance policies or
indemnity, contribution or other similar agreements for any Losses
prior to seeking indemnification under this
Agreement.
(d) Buyer
shall take, and cause its Affiliates to take, all reasonable steps
to mitigate any Loss upon becoming aware of any event or
circumstance that would be reasonably expected to, or does, give
rise thereto, including incurring costs only to the minimum extent
necessary to remedy the breach that gives rise to such
Loss.
Section 8.05 Indemnification
Procedures. The party making a
claim under this Article VIII
is referred to as the
“Indemnified
Party”, and the party against whom such claims are
asserted under this Article VIII
is referred to as the
“Indemnifying
Party.”
(a) Third-Party
Claims. If any Indemnified
Party receives notice of the assertion or commencement of any
Action made or brought by any Person who is not a party to this
Agreement or an Affiliate of a party to this Agreement or a
Representative of the foregoing (a “Third-Party
Claim”) against such Indemnified Party with respect to
which the Indemnifying Party is obligated to provide
indemnification under this Agreement, the Indemnified Party shall
give the Indemnifying Party prompt written notice thereof, but in
any event no later than five Business Days after the Indemnified
Party becomes aware of such Third-Party Claim. The failure to give
such prompt written notice shall not, however, relieve the
Indemnifying Party of its indemnification obligations, except and
only to the extent that the Indemnifying Party forfeits material
rights or material defenses by reason of such failure. Such notice
by the Indemnified Party shall describe the Third-Party Claim in
reasonable detail, shall include copies of all material written
evidence thereof and shall indicate the estimated amount, if
reasonably practicable, of the Loss that has been or may be
sustained by the Indemnified Party. The Indemnifying Party shall
have the right to participate in, or by giving written notice to
the Indemnified Party within three Business Days following receipt
of notice of such Third-Party Claim, to assume the defense of any
Third-Party Claim at the Indemnifying Party’s expense and by the Indemnifying
Party’s own counsel, and the Indemnified Party shall
cooperate in good faith in such defense. In the event that the
Indemnifying Party assumes the defense of any Third-Party Claim,
subject to Section
8.05(b), it
shall have the right to take such action as it deems necessary to
avoid, dispute, defend, appeal or make counterclaims pertaining to
any such Third-Party Claim in the name and on behalf of the
Indemnified Party. The Indemnified Party shall have the right, at
its own cost and expense, to participate in the defense of any
Third-Party Claim with counsel selected by it subject to the
Indemnifying Party’s right to control the defense thereof. If the
Indemnifying Party elects not to compromise or defend such
Third-Party Claim or fails to promptly notify the Indemnified Party
in writing of its election to defend as provided in this Agreement,
the Indemnified Party may, subject to Section
8.05(b), pay, compromise,
defend such Third-Party Claim and seek indemnification for any and
all Losses based upon, arising from or relating to such Third-Party
Claim. Seller and Buyer shall cooperate with each other in all
reasonable respects in connection with the defense of any
Third-Party Claim, including making available (subject to the
provisions of Section
6.01) records relating to such
Third-Party Claim and furnishing, without expense (other than
reimbursement of actual out-of-pocket expenses) to the defending
party, management employees of the non-defending party as may be
reasonably necessary for the preparation of the defense of such
Third-Party Claim.
(b) Settlement of
Third-Party Claims.
Notwithstanding any other provision of this Agreement, the
Indemnifying Party shall not enter into settlement of any
Third-Party Claim without the prior written consent of the
Indemnified Party (which consent shall not be unreasonably
withheld, conditioned or delayed), except as provided in
this Section
8.05(b). If a firm offer is
made to settle a Third-Party Claim and such offer (i) does not lead
to liability or the creation of a financial or other obligation on
the part of the Indemnified Party, (ii) in the reasonable opinion
of the Indemnified Party, would not be material adverse to its
business or the License and (iii) provides, in customary form, for
the unconditional release of each Indemnified Party from all
Liabilities in connection with such Third-Party Claim and the
Indemnifying Party desires to accept and agree to such offer, the
Indemnifying Party shall give written notice to that effect to the
Indemnified Party. If the Indemnified Party fails to consent to
such firm offer within ten (10) Business Days after its receipt of
such notice, the Indemnified Party may continue to contest or
defend such Third-Party Claim and in such event, the maximum
liability of the Indemnifying Party as to such Third-Party Claim
shall not exceed the amount of such settlement offer. If the
Indemnified Party fails to consent to such firm offer and also
fails to assume defense of such Third-Party Claim, the Indemnifying
Party may settle the Third-Party Claim upon the terms set forth in
such firm offer to settle such Third-Party Claim. If the
Indemnified Party has assumed the defense pursuant to
Section
8.05(a), it shall not agree to
any settlement without the written consent of the Indemnifying
Party (which consent shall not be unreasonably withheld,
conditioned or delayed).
(c) Direct
Claims. Any indemnification
claim by an Indemnified Party on account of a Loss which does not
result from a Third-Party Claim (a “Direct
Claim”) shall be asserted by the Indemnified Party
giving the Indemnifying Party prompt written notice thereof, but in
any event not later than five Business Days after the Indemnified
Party becomes aware of such Direct Claim. The failure to give such
prompt written notice shall not, however, relieve the Indemnifying
Party of its indemnification obligations, except and only to the
extent that the Indemnifying Party forfeits rights or defenses by
reason of such failure. Such notice by the Indemnified Party shall
describe the Direct Claim in reasonable detail, shall include
copies of all material written evidence thereof and shall indicate
the estimated amount, if reasonably practicable, of the Loss that
has been or may be sustained by the Indemnified Party. The
Indemnifying Party shall have 30 days after its receipt of such
notice to respond in writing to such Direct Claim. The Indemnified
Party shall allow the Indemnifying Party and its professional
advisors to investigate the matter or circumstance alleged to give
rise to the Direct Claim, and whether and to what extent any amount
is payable in respect of the Direct Claim and the Indemnified Party
shall assist the Indemnifying Party’s investigation by giving such information and
assistance (including access to the Indemnified
Party’s premises and personnel and the right to examine
and copy any accounts, documents or records) as the Indemnifying
Party or any of its professional advisors may reasonably request.
If the Indemnifying Party does not so respond
within
such 30-day period, the Indemnifying Party shall be deemed to have
rejected such claim, in which case the Indemnified Party shall be
free to pursue such remedies as may be available to the Indemnified
Party on the terms and subject to the provisions of this
Agreement.
Section 8.06 Tax Treatment of
Indemnification Payments. All
indemnification payments made under this Agreement shall be treated
by the parties as an adjustment to the Purchase Price for Tax
purposes, unless otherwise required by Law.
Section 8.07 Exclusive
Remedies. Subject to
Section
10.12, the parties acknowledge
and agree that their sole and exclusive remedy with respect to any
and all claims (other than claims arising from Fraud on the part of
a party hereto in connection with the transactions contemplated by
this Agreement) for any breach of any representation, warranty,
covenant, agreement or obligation set forth herein or otherwise
relating to the subject matter of this Agreement, shall be pursuant
to the indemnification provisions set forth in this
Article
VIII. In furtherance of the
foregoing, except with respect to Section
10.12, each party hereby
waives, to the fullest extent permitted under Law, any and all
rights, claims and causes of action for any breach of any
representation, warranty, covenant, agreement or obligation set
forth herein or otherwise relating to the subject matter of this
Agreement it may have against the other party hereto and its
Affiliates and each of their respective Representatives arising
under or based upon any Law, except pursuant to the indemnification
provisions set forth in this Article
VIII. Nothing in this
Section
8.07 shall limit any
Person’s right to seek and obtain any equitable relief to
which any Person shall be entitled pursuant to Section 10.12
or to seek any remedy on account of
Fraud by any party hereto.
ARTICLE IX
TERMINATION
Section 9.01
Termination. This Agreement may
be terminated at any time prior to the Closing:
(a) by
the mutual written consent of Seller and Buyer;
(b) by
Buyer by written notice to Seller if Buyer is not then in material
breach of any provision of this Agreement and there has been a
breach, inaccuracy in or failure to perform any representation,
warranty, covenant or agreement made by Seller pursuant to this
Agreement that would give rise to the failure of any of the
conditions specified in Article VII
and such breach, inaccuracy or failure
has not been cured by Seller within 10 days of
Seller’s receipt of written notice of such breach from
Buyer, unless such failure shall be due to the failure of Buyer to
perform or comply with any of the covenants, agreements or
conditions hereof to be performed or complied with by it prior to
the Closing;
(c) by
Seller by written notice to Buyer if Seller is not then in material
breach of any provision of this Agreement and there has been a
breach, inaccuracy in or failure to perform any representation,
warranty, covenant or agreement made by Buyer pursuant to this
Agreement that would give rise to the failure of any of the
conditions specified in Article VII
and such breach, inaccuracy or failure
has not been cured by Buyer within 10 days of
Buyer’s receipt of written notice of such breach from
Seller, unless such failure shall be due to the failure of Seller
to perform or
comply with any of the covenants, agreements or conditions hereof
to be performed or complied with by it prior to the
Closing;
(d) by
Buyer or Seller in the event that: (i) there shall be any Law that
makes consummation of the transactions contemplated by this
Agreement illegal or otherwise prohibited; or (ii) any Governmental
Authority shall have issued a Governmental Order restraining or
enjoining the transactions contemplated by this Agreement, and such
Governmental Order shall have become final and
non-appealable;
(e) by
Seller by written notice to Buyer if the OMMU Approval has not been
obtained by the date that is 90 days from the Effective Date (the
“Outside
Date”); provided,
however, that Seller may elect to extend the Outside Date for
additional 30-day periods until May 1, 2022 by written notice to
Buyer no later than three Business Days prior to the Outside Date
and the expiration of any applicable 30-day period; provided,
further, that the right to terminate this Agreement under
this Section 9.01(e)
shall not be available to Seller if
Seller’s failure to fulfill in any material respect any
covenant, agreement or obligation to be performed by Seller
pursuant to this Agreement is the primary cause of the failure to
obtain the OMMU Approval on or before the Outside
Date;
(f) by
Seller by written notice to Buyer upon any termination of the
Arrangement Agreement; or
(g) by
Buyer by written notice to Seller if Closing shall not have
occurred by May 1, 2022; provided, that the right to terminate this
Agreement under this Section 9.01(g)
shall not be available to Buyer if
Buyer’s failure to fulfill in any material respect any
covenant, agreement or obligation to be performed by Buyer pursuant
to this Agreement is the primary cause of the failure to close on
or before May 1, 2022.
Section 9.02 Effect of
Termination. In the event of
the termination of this Agreement in accordance with this
Article
IX, this Agreement shall
forthwith become void and there shall be no liability on the part
of any party hereto except:
(a) as
set forth in Section
6.01, this Article IX
and Article X
hereof;
(b) (i)
if this Agreement is terminated pursuant to Section 9.01(c)
or Section
9.01(e), then Buyer and Seller
shall promptly provide joint written instructions to the Escrow
Agent instructing the Escrow Agent to release the Initial Deposit
to Seller, and Seller shall retain the Initial Deposit in
consideration of the opportunity cost of the Company’s
exclusivity with Buyer pursuant to this Agreement; and (ii) if this
Agreement is terminated pursuant to any other subsection of
Section
9.01, then Buyer and Seller
shall promptly provide joint written instructions to the Escrow
Agent instructing the Escrow Agent to release the Initial Deposit
to Buyer;
(c) if
this Agreement is terminated pursuant to Section
9.01(a), Section
9.01(b), Section
9.01(d), Section
9.01(e), Section 9.01(f)
or Section
9.01(g), and Buyer has
deposited the Remaining Deposit with the Escrow Agent pursuant
to Section
2.03, then Buyer and Seller
shall promptly provide joint written instructions to the Escrow
Agent instructing the Escrow Agent to release the Remaining Deposit
to Buyer;
(d) if
this Agreement is terminated pursuant to Section
9.01(c), Buyer will pay to
Seller as liquidated damages $2,000,000 (the
“Termination
Fee”) as follows: (i) if
Buyer has not yet deposited the Remaining Deposit with the Escrow
Agent pursuant to Section 2.03
at the time of such termination, then
by wire transfer of immediately available funds within five
Business Days after such termination; or (ii) if Buyer has already
deposited the Remaining Deposit with the Escrow Agent pursuant
to Section 2.03
at the time of such termination, then
Buyer and Seller shall promptly provide joint written instructions
to the Escrow Agent instructing the Escrow Agent to release the
Termination Fee to Seller and the remaining amount of the Remaining
Deposit to Buyer; and
(e) that
nothing herein shall relieve any party hereto from liability for
any intentional breach of any provision hereof.
The parties acknowledge that the agreements contained in
Section
9.02(b)(i) and
Section
9.02(d) are an integral part of
the transactions contemplated by this Agreement, and that without
these agreements the parties would not enter into this Agreement,
and that the releasing of the Initial Deposit to Seller in
accordance with Section
9.02(b)(i) and the Termination
Fee represent liquidated damages, which are a genuine pre-estimate
of the damages, including opportunity costs, which the Seller will
suffer or incur as a result of the event giving rise to such
damages and resultant termination of this Agreement, and are not
penalties. Buyer irrevocably waives any rights it may have to raise
as a defense that any such liquidated damages are excessive or
punitive. Seller agrees that the payment of the Initial Deposit to
Seller under Section
9.02(b)(i) and the Termination
Fee are the sole remedies of Seller against Buyer in respect of the
termination of this Agreement pursuant to Section 9.01(c)
or Section
9.01(e), as applicable;
provided however, that nothing shall preclude Seller from pursuing
additional damages, including for lost opportunities or other
consequential losses, in the event of any intentional breach by
Buyer of any provision hereof.
ARTICLE X
MISCELLANEOUS
Section 10.01
Expenses. Except as otherwise
expressly provided herein, all costs and expenses, including,
without limitation, fees and disbursements of counsel, financial
advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses, whether or not the
Closing shall have occurred.
Section 10.02
Notices. All notices, requests,
consents, claims, demands, waivers and other communications
hereunder shall be in writing and shall be deemed to have been
given: (a) when delivered by hand (with written confirmation of
receipt); (b) when received by the addressee if sent by a
nationally recognized overnight courier (receipt requested); (c) on
the date sent by facsimile or e-mail of a PDF document (with
confirmation of transmission) if sent during normal business hours
of the recipient, and on the next Business Day if sent after normal
business hours of the recipient or (d) on the third day after the
date mailed, by certified or registered mail, return receipt
requested, postage prepaid. Such communications must be sent to the
respective parties at the following addresses (or at such other
address for a party as shall be specified in a notice given in
accordance with this Section
10.02):
If
to Buyer or Buyer Parent: [Buyer contact information]
If
to Seller or Seller Parent: [Seller contact
information]
Section 10.03
Interpretation. For purposes of
this Agreement: (a) the words “include,”
“includes” and “including” shall be deemed
to be followed by the words “without limitation”; (b)
the word “or” is not exclusive; and (c) the words
“herein,” “hereof,” “hereby,”
“hereto” and “hereunder” refer to this
Agreement as a whole. Unless the context otherwise requires,
references herein: (x) to Articles, Sections, Disclosure Schedules
and Exhibits mean the Articles and Sections of, and Disclosure
Schedules and Exhibits attached to, this Agreement, if any; (y) to
an agreement, instrument or other document means such agreement,
instrument or other document as amended, supplemented and modified
from time to time to the extent permitted by the provisions thereof
and (z) to a statute means such statute as amended from time to
time and includes any successor legislation thereto and any
regulations promulgated thereunder. This Agreement shall be
construed without regard to any presumption or rule requiring
construction or interpretation against the party drafting an
instrument or causing any instrument to be drafted. The Disclosure
Schedules, if any, and Exhibits referred to herein shall be
construed with, and as an integral part of, this Agreement to the
same extent as if they were set forth verbatim
herein.
Section 10.04 Disclosure
Schedules. To the extent there
are Disclosure Schedules attached to this Agreement, this
Section
10.04 shall apply. All section
headings in the Disclosure Schedules correspond to the sections of
this Agreement, but information provided in any section of the
Disclosure Schedules shall constitute disclosure for purposes of
each section of this Agreement where such information is relevant.
Unless the context otherwise requires, all capitalized terms used
in the Disclosure Schedules shall have the respective meanings
assigned to such terms in this Agreement. Certain information set
forth in the Disclosure Schedules is included solely for
informational purposes, and may not be required to be disclosed
pursuant to this Agreement. No reference to or disclosure of any
item or other matter in the Disclosure Schedules shall be construed
as an admission or indication that such item or other matter is
required to be referred to or disclosed in the Disclosure
Schedules. No disclosure in the Disclosure Schedules relating to
any possible breach or violation of any agreement or Law shall be
construed as an admission or indication that any such breach or
violation exists or has actually occurred. The inclusion of any
information in the Disclosure Schedules shall not be deemed to be
an admission or acknowledgment by Seller that in and of itself,
such information is material to or outside the ordinary course of
the business or is required to be disclosed on the Disclosure
Schedules. No disclosure in the Disclosure Schedules shall be
deemed to create any rights in any third party.
Section 10.05
Headings. The headings in this
Agreement are for reference only and shall not affect the
interpretation of this Agreement.
Section 10.06
Severability. If any term or
provision of this Agreement is invalid, illegal or unenforceable in
any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other term or provision of this Agreement or
invalidate or render unenforceable such term or
provision
in any other jurisdiction. Upon such determination that any term or
other provision is invalid, illegal or unenforceable, the parties
hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible
in a mutually acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to
the greatest extent possible.
Section 10.07 Entire
Agreement. This Agreement and
the Ancillary Documents constitute the sole and entire agreement of
the parties to this Agreement with respect to the subject matter
contained herein and therein, and supersede all prior and
contemporaneous understandings and agreements, both written and
oral, with respect to such subject matter. In the event of any
inconsistency between the statements in the body of this Agreement
and those in the Ancillary Documents, the Exhibits and Disclosure
Schedules, if any (other than an exception expressly set forth as
such in the Disclosure Schedules), the statements in the body of
this Agreement will control.
Section 10.08 Successors and
Assigns. This Agreement shall
be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
Neither party may assign its rights or obligations hereunder
without the prior written consent of the other party, which consent
shall not be unreasonably withheld or delayed. No assignment shall
relieve the assigning party of any of its obligations
hereunder.
Section 10.09 No Third-Party
Beneficiaries. Except as
provided in Article
VIII, this Agreement is for the
sole benefit of the parties hereto and their respective successors
and permitted assigns and nothing herein, express or implied, is
intended to or shall confer upon any other Person or entity any
legal or equitable right, benefit or remedy of any nature
whatsoever under or by reason of this
Agreement.
Section 10.10 Amendment and
Modification; Waiver. This
Agreement may only be amended, modified or supplemented by an
agreement in writing signed by each party hereto. No waiver by any
party of any of the provisions hereof shall be effective unless
explicitly set forth in writing and signed by the party so waiving.
No waiver by any party shall operate or be construed as a waiver in
respect of any failure, breach or default not expressly identified
by such written waiver, whether of a similar or different
character, and whether occurring before or after that waiver. No
failure to exercise, or delay in exercising, any right, remedy,
power or privilege arising from this Agreement shall operate or be
construed as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of
any other right, remedy, power or privilege.
Section 10.11 Governing Law; Submission to Jurisdiction; Waiver of
Jury Trial.
(a) This
Agreement shall be governed by and construed in accordance with the
internal laws of the State of Florida without giving effect to any
choice or conflict of law provision or rule (whether of the State
of Florida or any other jurisdiction).
(b) ANY
LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS
AGREEMENT, THE ANCILLARY DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY MUST BE INSTITUTED IN THE LEON COUNTY CIRCUIT COURT LOCATED IN
TALLAHASSEE, FLORIDA, AND EACH PARTY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF SUCH COURT IN ANY SUCH SUIT, ACTION OR
PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT
BY MAIL TO SUCH PARTY’S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE
SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT
IN SUCH COURT. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE
ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY
PROCEEDING IN SUCH COURT AND IRREVOCABLY WAIVE AND AGREE NOT TO
PLEAD OR CLAIM IN SUCH COURT THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE ANCILLARY
DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES
AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
ANCILLARY DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES
THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO
ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B)
SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
10.11(c).
Section 10.12 Specific
Performance. The parties agree
that irreparable damage would occur if any provision of this
Agreement were not performed in accordance with the terms hereof
and that the parties shall be entitled to specific performance of
the terms hereof, in addition to any other remedy to which they are
entitled at law or in equity.
Section 10.13
Reformation. This Agreement and
the transactions contemplated herein may be subject to review and
approval by one or more Governmental Authority, including but not
limited to the OMMU and applicable local licensing authorities. If
a Governmental Authority determines this Agreement or any Ancillary
Document must be reformed, the parties shall negotiate in good
faith to so reform such agreement according to the Governmental
Authority’s requirements while effectuating the original
intent of such agreement as near as possible.
Section 10.14
Counterparts. This Agreement
may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall be deemed to be one and
the same agreement. A signed copy of this Agreement delivered by
facsimile, email or other means of electronic transmission shall be
deemed to have the same legal effect as delivery of an original
signed copy of this Agreement.
[Signature Page Follows]
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first written above by their respective
authorized agents.
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BUYER:
[Buyer]
/s/ Robert
Groesbeck
Name: Robert Groesbeck
Title: Co-CEO
/s/ Larry Scheffler
Name: Larry Scheffler
Title:
Co-CEO
BUYER PARENT:
Planet 13 Holdings Inc.
/s/ Robert
Groesbeck
Name: Robert Groesbeck
Title: Co-CEO
/s/ Larry Scheffler
Name: Larry Scheffler
Title:
Co-CEO
SELLER:
[Seller]
/s/ Steve White
Name:
Steve White
Title:
Chief Executive Officer
SELLER
PARENT:
Harvest
Health & Recreation, Inc.
/s/ Steve White
Name:
Steve White
Title:
Chief Executive Officer
|
Exhibit A
FORM OF BILL OF SALE
For good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, [Seller], a Florida
corporation (“Seller”),
does hereby grant, bargain, transfer, sell, assign, convey and
deliver to [Buyer], a Florida corporation
(“Buyer”),
all of its right, title, and interest in and to the License, as
such term is defined in the License Purchase Agreement, dated as of
August 31, 2021 (the “Purchase
Agreement”), by and
between Seller and Buyer, to have and to hold the same unto Buyer,
its successors and assigns, forever.
Buyer
acknowledges that Seller makes no representation or warranty with
respect to the License except as specifically set forth in the
Purchase Agreement.
IN
WITNESS WHEREOF, Seller has duly executed this Bill of Sale as of
[DATE]
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SELLER:
[Seller]
Name:
Steve White
Title:
Chief Executive Officer
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Schedule 1
BUYER’S PLAN OF OPERATION
1. A
description of Buyer’s technical and technological ability to
cultivate and produce marijuana, including, but not limited to,
low-THC cannabis, and a summary of the methods that will be
utilized to cultivate and produce such products in
Florida.
2. A
description of Buyer’s ability to secure the premises,
resources, and personnel necessary to operate as a medical
marijuana treatment center.
3. A
description of Buyer’s ability to maintain accountability of
all raw materials, finished products, and any byproducts to prevent
diversion or unlawful access to or possession of these
substances.
4. A
description of Buyer’s current and intended infrastructure
that will be utilized to cultivate, process, and dispense
marijuana, including a timeline for buildout of all such
infrastructure.
5. A
description of Buyer’s financial ability to maintain
operations for the duration of the 2-year approval
cycle.
6. An
organization chart listing all Buyer’s owners, officers,
directors, and managers.
7. A
description of the medical director who will be employed to
supervise Buyer’s medical marijuana treatment center
activities, including a curriculum vitae, copy of the medical
director’s license, and a copy of the continuing education
certificate required for medical directors.
CERTIFICATE
OF
AMALGAMATION
BUSINESS CORPORATIONS ACT
I Hereby Certify that 10653918 CANADA INC., incorporation number
C1219356, and PLANET 13 HOLDINGS INC., incorporation number
C1214182 were amalgamated as one company under the name PLANET 13
HOLDINGS INC. on September 24, 2019 at 03:01 PM Pacific
Time.
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Issued under my hand at Victoria, British
Columbia On September 24, 2019
|
|
CAROL PREST
Registrar of Companies
Province of British Columbia
Canada
|
ELECTRONIC
CERTIFICATE
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|
|
Mailing
Address:
PO
Box 9431 Stn Prov Govt
Victoria
BC V8W 9V3
www.corporateonline.gov.bc.ca
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Location:
2nd
Floor - 940 Blanshard Street
Victoria
BC
1
877 526-1526
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CERTIFIED COPY
Of
a Document filed with the Province of British Columbia Registrar of
Companies
Notice of Articles
|
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BUSINESS CORPORATIONS ACT
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CAROL
PREST
|
|
|
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This Notice of Articles was issued by the Registrar on: September
24, 2019 03:01 PM Pacific Time
Incorporation
Number: BC1224419
Recognition Date and Time: September 24, 2019 03:01 PM Pacific Time
as a result of an Amalgamation
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|
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NOTICE OF ARTICLES
Name of Company:
PLANET
13 HOLDINGS INC.
REGISTERED OFFICE INFORMATION
Mailing
Address:
Delivery Address:
10TH FLOOR, 595 HOWE ST
10TH
FLOOR, 595 HOWE ST
VANCOUVER BC V6C 2T5
VANCOUVER
BC V6C 2T5
RECORDS OFFICE INFORMATION
Mailing Address:
Delivery Address:
10TH FLOOR, 595 HOWE ST
10TH
FLOOR, 595 HOWE ST
VANCOUVER BC V6C 2T5
VANCOUVER
BC V6C 2T5
Page:
1 of 2
DIRECTOR INFORMATION
Last Name, First Name, Middle
Name:
SCHEFFLER, LARRY
Mailing Address:
2548
WEST DESERT INN ROAD
LAS
VEGAS NV 89109
UNITED
STATES
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Delivery Address:
2548
WEST DESERT INN ROAD LAS VEGAS NV 89109
UNITED
STATES
|
Last Name, First Name, Middle
Name:
HARMAN, MICHAEL
Mailing Address:
2548
WEST DESERT INN ROAD
LAS
VEGAS NV 89109
UNITED
STATES
|
Delivery Address:
2548
WEST DESERT INN ROAD LAS VEGAS NV 89109
UNITED
STATES
|
Last Name, First Name, Middle
Name:
O'Neal, Adrienne
Mailing Address:
2548
WEST DESERT INN ROAD
LAS
VEGAS NV 89109
UNITED
STATES
|
Delivery Address:
2548
WEST DESERT INN ROAD LAS VEGAS NV 89109
UNITED
STATES
|
Last Name, First Name, Middle
Name:
GROESBECK, ROBERT
Mailing Address:
2548
WEST DESERT INN ROAD
LAS
VEGAS NV 89109
UNITED
STATES
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Delivery Address:
2548
WEST DESERT INN ROAD LAS VEGAS NV 89109
UNITED
STATES
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AUTHORIZED SHARE STRUCTURE
1. No
Maximum Common
Shares
Without Par Value
With
Special Rights or Restrictions attached
2. No
Maximum Class
A Restricted Voting
Shares
Without Par Value
With
Special Rights or Restrictions attached
Page: 2 of 2
Planet 13 Holdings Inc.
(the "Company")
The
Company has as its articles the following articles.
ARTICLES
1.
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Interpretation
|
2
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2.
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Shares and Share
Certificates
|
2
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3.
|
Issue of Shares
|
4
|
4.
|
Share Registers
|
5
|
5.
|
Share Transfers
|
5
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6.
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Transmission of
Shares
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7
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7.
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Purchase of Shares
|
7
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8.
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Borrowing Powers
|
8
|
9.
|
Alterations
|
9
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10.
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Meetings of
Shareholders
|
10
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11.
|
Proceedings at Meetings of
Shareholders
|
12
|
12.
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Votes of
Shareholders
|
16
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13.
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Directors
|
20
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14.
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Election and Removal of
Directors
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22
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15.
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Alternate
Directors
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25
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16.
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Powers and Duties of
Directors
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26
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17.
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Interests of Directors and
Officers
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27
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18.
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Proceedings of
Directors
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28
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19.
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Executive and Other
Committees
|
31
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20.
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Officers
|
32
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21.
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Indemnification
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33
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22.
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Dividends
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34
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23.
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Accounting Records and
Auditors
|
36
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24.
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Notices
|
36
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25.
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Seal
|
39
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26.
|
Prohibitions
|
40
|
27.
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Special Rights and
Restrictions
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40
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- 2 -
1. INTERPRETATION
1.1 Definitions
In
these Articles, unless the context otherwise requires:
(1) "board
of directors", "directors" and "board" mean the directors or sole
director of the Company for the time being;
(2) "Business
Corporations Act" means
the Business Corporations
Act (British Columbia) from
time to time in force and all amendments thereto and includes all
regulations and amendments thereto made pursuant to that
Act;
(3) "Interpretation
Act" means the
Interpretation
Act (British Columbia) from
time to time in force and all amendments thereto and includes all
regulations and amendments thereto made pursuant to that
Act;
(4) "legal
personal representative" means the personal or other legal
representative of a shareholder;
(5) "registered
address" of a shareholder means the shareholder's address as
recorded in the central securities register;
(6) "seal"
means the seal of the Company, if any.
1.2 Business
Corporations Act and
Interpretation
Act Definitions
Applicable
The definitions in the Business Corporations
Act and the definitions and
rules of construction in the Interpretation
Act, with the necessary
changes, so far as applicable, and unless the context requires
otherwise, apply to these Articles as if they were set out herein.
If there is a conflict between a definition in the
Business
Corporations Act and a
definition or rule in the Interpretation Act
relating to a term used in these
Articles, the definition in the Business Corporations
Act will prevail in relation to
the use of the term in these Articles. If there is a conflict or
inconsistency between these Articles and the Business Corporations
Act, the Business Corporations
Act will
prevail.
2. SHARES
AND SHARE CERTIFICATES
2.1 Authorized
Share Structure
The
authorized share structure of the Company consists of shares of the
class or classes and series, if any, described in the Notice of
Articles of the Company.
2.2 Form
of Share Certificate
Each share certificate issued by the Company must
comply with, and be signed as required by, the Business Corporations
Act.
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- 3 -
2.3 Shareholder
Entitled to Certificate or Acknowledgment or Written
Notice
Unless the shares of which a shareholder is the
registered owner are uncertificated shares, each shareholder is
entitled, on request and at the shareholder’s option, without
charge, to (a) one share certificate representing the shares of
each class or series of shares registered in the shareholder's name
or (b) a non-transferable written acknowledgment of the
shareholder's right to obtain such a share certificate, provided
that in respect of a share held jointly by several persons, the
Company is not bound to issue more than one share certificate or
acknowledgment and delivery of a share certificate or
acknowledgment to one of several joint shareholders or to a duly
authorized agent of one of the joint shareholders will be
sufficient delivery to all. Within a reasonable time after the
issue or transfer of a share that is an uncertificated share, the
Company must send to the shareholder a written notice containing
the information required by the Business Corporations
Act.
2.4 Delivery
by Mail
Any
share certificate, non-transferable written acknowledgment of a
shareholder's right to obtain a share certificate or written notice
of the issue or transfer of an uncertificated share may be sent to
the shareholder by mail at the shareholder's registered address and
neither the Company nor any director, officer or agent of the
Company is liable for any loss to the shareholder because the share
certificate, acknowledgement or written notice is lost in the mail
or stolen.
2.5 Replacement
of Worn Out or Defaced Certificate or
Acknowledgement
If
the directors are satisfied that a share certificate or a
non-transferable written acknowledgment of the shareholder's right
to obtain a share certificate is worn out or defaced, they must, on
production to them of the share certificate or acknowledgment, as
the case may be, and on such other terms, if any, as they think
fit:
(1) order
the share certificate or acknowledgment, as the case may be, to be
cancelled; and
(2) issue
a replacement share certificate or acknowledgment, as the case may
be.
2.6 Replacement
of Lost, Stolen or Destroyed Certificate or
Acknowledgment
If a share certificate or a non-transferable
written acknowledgment of a shareholder's right to obtain a share
certificate is lost, stolen or destroyed, a replacement share
certificate or acknowledgment, as the case may be, must be issued
to the person entitled to that share certificate or acknowledgment,
as the case may be, provided such person has complied with the
requirements of the Business Corporations
Act.
2.7 Splitting
Share Certificates
If
a shareholder surrenders a share certificate to the Company with a
written request that the Company issue in the shareholder's name
two or more share certificates, each representing a specified
number of shares and in the aggregate representing the same number
of shares as the share certificate so surrendered, the Company must
cancel the surrendered share certificate and issue replacement
share certificates in accordance with that request.
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- 4 -
2.8 Certificate
Fee
There must be paid as a fee to the Company for the
issuance of any share certificate under Articles 2.5, 2.6 or 2.7,
the amount, if any, determined by the directors, which must not
exceed the amount prescribed under the Business Corporations
Act.
2.9 Recognition
of Trusts
Except
as required by law or statute or these Articles, no person will be
recognized by the Company as holding any share upon any trust, and
the Company is not bound by or compelled in any way to recognize
(even when having notice thereof) any equitable, contingent, future
or partial interest in any share or fraction of a share or (except
as required by law or statute or these Articles or as ordered by a
court of competent jurisdiction) any other rights in respect of any
share except an absolute right to the entirety thereof in the
shareholder.
3. ISSUE
OF SHARES
3.1 Directors
Authorized
Subject to the Business Corporations
Act and the rights, if any, of
the holders of issued shares of the Company, the Company may issue,
allot, sell or otherwise dispose of the unissued shares, and issued
shares held by the Company, at the times, to the persons, including
directors, in the manner, on the terms and conditions and for the
issue prices (including any premium at which shares with par value
may be issued) that the directors may determine. The issue price
for a share with par value must be equal to or greater than the par
value of the share.
3.2 Commissions
and Discounts
The
Company may at any time, pay a reasonable commission or allow a
reasonable discount to any person in consideration of that person
purchasing or agreeing to purchase shares of the Company from the
Company or any other person or procuring or agreeing to procure
purchasers for shares of the Company.
3.3 Brokerage
The
Company may pay such brokerage fee or other consideration as may be
lawful for or in connection with the sale or placement of its
securities.
3.4 Conditions
of Issue
Except as provided for by the Business Corporations
Act, no share may be issued
until it is fully paid. A share is fully paid
when:
(1) consideration is provided to the Company for the
issue of the share by one or more of the
following:
(a) past
services performed for the Company;
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(b) property;
(c) money;
and
(2) the
directors in their discretion have determined that the value of the
consideration received by the Company is equal to or greater than
the issue price set for the share under Article
3.1.
3.5 Share
Purchase Warrants and Rights
Subject to the Business Corporations
Act, the Company may issue
share purchase warrants, options, convertible debentures and rights
upon such terms and conditions as the directors determine, which
share purchase warrants, options, convertible debentures and rights
may be issued alone or in conjunction with debentures, debenture
stock, bonds, shares or any other securities issued or created by
the Company from time to time.
4. SHARE
REGISTERS
4.1 Central
Securities Register and Any Branch Securities
Register
As required by and subject to the
Business
Corporations Act, the Company
must maintain a central securities register and may maintain a
branch securities register. The directors may, subject to
the Business Corporations
Act, appoint an agent to
maintain the central securities register or any branch securities
register. The directors may also appoint one or more agents,
including the agent which keeps the central securities register, as
transfer agent for its shares or any class or series of its shares,
as the case may be, and the same or another agent as registrar for
its shares or such class or series of its shares, as the case may
be. The directors may terminate such appointment of any agent at
any time and may appoint another agent in its
place.
4.2 Closing
Register
The
Company must not at any time close its central securities
register.
5. SHARE
TRANSFERS
5.1 Registering
Transfers
A
transfer of a share of the Company must not be registered unless
the Company or the transfer agent or registrar for the class or
series of share to be transferred has received:
(1) a
duly signed instrument of transfer in respect of the
share;
(2) if
a share certificate has been issued by the Company in respect of
the share to be transferred, that share certificate;
(3) if
a non-transferable written acknowledgment of the shareholder's
right to obtain a share certificate has been issued by the Company
in respect of the share to be transferred, that acknowledgment;
and
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(4) such
other evidence, if any, as the Company or the transfer agent or
registrar for the class or series of share to be transferred may
require to prove the title of the transferor or the transferor's
right to transfer the share, the due signing of the instrument of
transfer and the right of the transferee to have the transfer
registered.
For
the purpose of this Article, delivery or surrender to the transfer
agent or registrar which maintains the Company's central securities
register or a branch securities register, if applicable, will
constitute receipt by or surrender to the Company.
5.2 Form
of Instrument of Transfer
The
instrument of transfer in respect of any share of the Company must
be either in the form, if any, on the back of the Company's share
certificates or in any other form that may be approved from time to
time by the directors or the transfer agent or registrar for the
class or series of share to be transferred.
5.3 Transferor
Remains Shareholder
Except to the extent that the Business Corporations
Act otherwise provides, the
transferor of shares is deemed to remain the holder of the shares
until the name of the transferee is entered in a securities
register of the Company in respect of the
transfer.
5.4 Signing
of Instrument of Transfer
If
a shareholder, or his or her duly authorized attorney, signs an
instrument of transfer in respect of shares registered in the name
of the shareholder, the signed instrument of transfer constitutes a
complete and sufficient authority to the Company and its directors,
officers and agents to register the number of shares specified in
the instrument of transfer or specified in any other manner, or, if
no number is specified, all the shares represented by the share
certificate(s) or set out in the written acknowledgments deposited
with the instrument of transfer or, if the shares are
uncertificated shares, then all of the uncertificated shares
registered in the name of the shareholder:
(1) in
the name of the person named as transferee in that instrument of
transfer; or
(2) if
no person is named as transferee in that instrument of transfer, in
the name of the person on whose behalf the instrument is deposited
for the purpose of having the transfer registered.
5.5 Enquiry
as to Title Not Required
Neither
the Company nor any director, officer or agent of the Company is
bound to inquire into the title of the person named in the
instrument of transfer as transferee or, if no person is named as
transferee in the instrument of transfer, of the person on whose
behalf the instrument is deposited for the purpose of having the
transfer registered or is liable for any claim related to
registering the transfer by the shareholder or by any intermediate
owner or holder of the shares, of any interest in
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the
shares, of any share certificate representing such shares or of any
written acknowledgment of a right to obtain a share certificate for
such shares.
5.6 Transfer
Fee
There
must be paid as a fee to the Company, in relation to the
registration of any transfer, the amount, if any, determined by the
directors.
6. TRANSMISSION
OF SHARES
6.1 Legal
Personal Representative Recognized on Death
In
case of the death of a shareholder, the legal personal
representative of the shareholder, or, in the case of shares
registered in the shareholder's name and the name of another person
in joint tenancy, the surviving joint holder will be the only
person recognized by the Company as having any title to the
shareholder's interest in the shares. Before recognizing a person
as a legal personal representative of the shareholder, the
directors may require a declaration of transmission made by the
legal personal representative stating the particulars of the
transmission, proof of appointment by a court of competent
jurisdiction, a grant of letters probate, letters of administration
or such other evidence or documents as the directors consider
appropriate.
6.2 Rights
of Legal Personal Representative
The legal personal representative of a shareholder
has the same rights, privileges and obligations with respect to the
shares as were held by the shareholder, including the right to
transfer the shares in accordance with these Articles, provided the
documents required by the Business Corporations
Act and the directors have been
deposited with the Company. This Article 6.2 does not apply in the
case of the death of a shareholder with respect to shares
registered in the shareholder's name and the name of another person
in joint tenancy.
7. PURCHASE
OF SHARES
7.1 Company
Authorized to Purchase Shares
Subject to Article 7.2, the special rights and
restrictions attached to the shares of any class or series and
the Business Corporations
Act, the Company may, if
authorized by resolution of the directors, purchase, redeem or
otherwise acquire any of its shares at the price and upon the terms
determined by the directors.
7.2 Purchase
When Insolvent
The
Company must not make a payment or provide any other consideration
to purchase, redeem or otherwise acquire any of its shares if there
are reasonable grounds for believing that:
(1) the
Company is insolvent; or
(2) making
the payment or providing the consideration would render the Company
insolvent.
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7.3 Redemption
of Shares
If
the Company proposes to redeem some but not all of the shares of
any class, the directors may, subject to any special rights and
restrictions attached to such class of shares, determine the manner
in which the shares to be redeemed shall be selected.
7.4 Sale
and Voting of Purchased Shares
If
the Company retains a share which it has redeemed, purchased or
otherwise acquired, the Company may sell, gift or otherwise dispose
of the share, but, while such share is held by the Company,
it:
(1) is
not entitled to vote the share at a meeting of its
shareholders;
(2) must
not pay a dividend in respect of the share; and
(3) must
not make any other distribution in respect of the
share.
8. BORROWING
POWERS
8.1 Powers
of the Company
The
Company, if authorized by the directors, may:
(1) borrow
money in the manner and amount, on the security, from the sources
and on the terms and conditions that the directors consider
appropriate;
(2) issue
bonds, debentures and other debt obligations either outright or as
security for any liability or obligation of the Company or any
other person and at such discounts or premiums and on such other
terms as they consider appropriate;
(3) guarantee
the repayment of money by any other person or the performance of
any obligation of any other person; and
(4) mortgage,
charge, whether by way of specific or floating charge, grant a
security interest in, or give other security on, the whole or any
part of the present and future assets and undertaking of the
Company.
8.2 Bonds,
Debentures, Debt
Any
bonds, debentures or other debt obligations of the Company may be
issued at a discount, premium or otherwise, or with special
privileges as to redemption, surrender, drawing, allotment of or
conversion into or exchange for shares or other securities,
attending and voting at general meetings of the Company,
appointment of directors or otherwise and may, by their terms, be
assignable free from any equities between the Company and the
person to whom they were issued or any subsequent holder thereof,
all as the directors may determine.
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9. ALTERATIONS
9.1 Alteration
of Authorized Share Structure
Subject to Article 9.2 and the Business Corporations
Act, the Company
may:
(1) by
directors' resolution or by ordinary resolution, in each case as
determined by the directors:
(a) create one or more classes or series of shares or,
if none of the shares of a class or series of shares are allotted
or issued, eliminate that class or series of
shares;
(b) increase, reduce or eliminate the maximum number
of shares that the Company is authorized to issue of any class or
series of shares or establish a maximum number of shares that the
Company is authorized to issue out of any class or series of shares
for which no maximum is established;
(c) subdivide
or consolidate all or any of its unissued, or fully paid issued,
shares;
(d) if the
Company is authorized to issue shares of a class of shares with par
value:
(i) decrease
the par value of those shares; or
(ii) if
none of the shares of that class of shares are allotted or issued,
increase the par value of those shares;
(e) change all or any of its unissued shares with par
value into shares without par value or any of its unissued shares
without par value into shares with par value or change all or any
of its fully paid issued shares with par value into shares without
par value; or
(f) alter the identifying name of any of its shares;
and
(2) by
ordinary resolution otherwise alter its shares or authorized share
structure; and, if applicable, alter its Notice of Articles and, if
applicable, alter its Articles accordingly.
9.2 Special
Rights and Restrictions
Subject to the Business Corporations
Act, the Company
may:
(1) by
directors' resolution or by ordinary resolution, in each case as
determined by the directors, create special rights or restrictions
for, and attach those special rights or restrictions to, the shares
of any class or series of shares if none of those shares have been
issued; or vary or delete any special rights or restrictions
attached to the shares of any class or series of shares if none of
those shares have been issued; and
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(2) by
special resolution of the shareholders of the class or series
affected, do any of the acts in (1) above if any of the shares of
the class or series of shares have been issued,
and
alter its Notice of Articles and Articles accordingly.
9.3 Change
of Name
The
Company may by directors' resolution or by ordinary resolution, in
each case as determined by the directors, authorize an alteration
of its Notice of Articles in order to change its name and may, by
directors' resolution or ordinary resolution, in each case as
determined by the directors, adopt or change any translation of
that name.
9.4 Other
Alterations
If the Business Corporations
Act does not specify the type
of resolution and these Articles do not specify another type of
resolution, the Company may by directors' resolution or by ordinary
resolution, in each case as determined by the directors, alter
these Articles.
10. MEETINGS
OF SHAREHOLDERS
10.1 Annual General Meetings
Unless an annual general meeting is deferred or
waived in accordance with the Business Corporations
Act, the Company must hold its
first annual general meeting within 18 months after the date on
which it was incorporated or otherwise recognized, and after that
must hold an annual general meeting at least once in each calendar
year and not more than 15 months after the last annual reference
date at such time and place as may be determined by a resolution of
the directors.
10.2 Resolution Instead of Annual General Meeting
If
all the shareholders who are entitled to vote at an annual general
meeting consent by a unanimous resolution to all of the business
that is required to be transacted at that annual general meeting,
the annual general meeting is deemed to have been held on the date
of the unanimous resolution. The shareholders must, in any
unanimous resolution passed under this Article 10.2, select as the
Company's annual reference date a date that would be appropriate
for the holding of the applicable annual general
meeting.
10.3 Calling of Meetings of Shareholders
The
directors may, at any time, call a meeting of
shareholders.
10.4 Location of Meetings of Shareholders
A
meeting of the Company may be held:
(1) in
the Province of British Columbia;
(2) at
another location outside British Columbia if that location
is:
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(a) approved
by resolution of the directors before the meeting is held;
or
(b) approved
in writing by the Registrar of Companies before the meeting is
held.
10.5 Notice
for Meetings of Shareholders
Subject
to Article 10.2, the Company must send notice of the date, time and
location of any meeting of shareholders (including, without
limitation, any notice specifying the intention to propose a
resolution as an exceptional resolution, a special resolution or a
special separate resolution, and any notice to consider approving
an amalgamation into a foreign jurisdiction, an arrangement or the
adoption of an amalgamation agreement, and any notice of a general
meeting, class meeting or series meeting), in the manner provided
in these Articles, or in such other manner, if any, as may be
prescribed by directors' resolution (whether previous notice of the
resolution has been given or not), to each shareholder entitled to
attend the meeting, to each director and to the auditor of the
Company, unless these Articles otherwise provide, at least the
following number of days before the meeting:
(1) if
and for so long as the Company is a public company, 21
days;
(2) otherwise,
10 days.
10.6 Notice of Resolution to which Shareholders May
Dissent
The
Company must send to each of its shareholders, whether or not their
shares carry the right to vote, a notice of any meeting of
shareholders at which a resolution entitling shareholders to
dissent is to be considered specifying the date of the meeting and
containing a statement advising of the right to send a notice of
dissent together with a copy of the proposed resolution at least
the following number of days before the meeting:
(1) if
and for so long as the Company is a public company, 21 days;
or
(2) otherwise,
10 days.
10.7 Record
Date for Notice
The directors may set a date as the record date
for the purpose of determining shareholders entitled to notice of
any meeting of shareholders. The record date must not precede the
date on which the meeting is to be held by more than two months or,
in the case of a general meeting requisitioned by shareholders
under the Business Corporations
Act, by more than four months.
The record date must not precede the date on which the meeting is
held by fewer than:
(1) if
and for so long as the Company is a public company, 21 days;
or
(2) otherwise,
10 days.
If
no record date is set, the record date is 5 p.m. on the day
immediately preceding the first date on which the notice is sent
or, if no notice is sent, the beginning of the
meeting.
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10.8 Record Date for Voting
The directors may set a date as the record date
for the purpose of determining shareholders entitled to vote at any
meeting of shareholders. The record date must not precede the date
on which the meeting is to be held by more than two months or, in
the case of a general meeting requisitioned by shareholders under
the Business Corporations
Act, by more than four months.
If no record date is set, the record date is 5 p.m. on the day
immediately preceding the first date on which the notice is sent
or, if no notice is sent, the beginning of the
meeting.
10.9 Failure to Give Notice and Waiver of Notice
The
accidental omission to send notice of any meeting of shareholders
to, or the non-receipt of any notice by, any of the persons
entitled to notice does not invalidate any proceedings at that
meeting. Any person entitled to notice of a meeting of shareholders
may, in writing or otherwise, waive that entitlement or may agree
to reduce the period of that notice. Attendance of a person at a
meeting of shareholders is a waiver of entitlement to notice of the
meeting unless that person attends the meeting for the express
purpose of objecting to the transaction of any business on the
grounds that the meeting is not lawfully called.
10.10 Notice of Special Business at Meetings of
Shareholders
If
a meeting of shareholders is to consider special business within
the meaning of Article 11.1, the notice of meeting or a circular
prepared in connection with the meeting must:
(1) state
the general nature of the special business; and
(2) if
the special business includes considering, approving, ratifying,
adopting or authorizing any document or the signing of or giving of
effect to any document, have attached to it a copy of the document
or state that a copy of the document will be available for
inspection by shareholders:
(a) at
the Company's records office, or at such other reasonably
accessible location in British Columbia as is specified in the
notice; and
(b) during
statutory business hours on any one or more specified days before
the day set for the holding of the meeting.
11. PROCEEDINGS
AT MEETINGS OF SHAREHOLDERS
11.1 Special Business
At
a meeting of shareholders, the following business is special
business:
(1) at
a meeting of shareholders that is not an annual general meeting,
all business is special business except business relating to the
conduct of or voting at the meeting;
(2) at
an annual general meeting, all business is special business except
for the following:
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(a) business
relating to the conduct of or voting at the meeting;
(b) consideration
of any financial statements of the Company presented to the
meeting;
(c) consideration
of any reports of the directors or auditor;
(d) the
setting or changing of the number of directors;
(e) the
election or appointment of directors;
(f) the
appointment of an auditor;
(g) the
setting of the remuneration of an auditor;
(h) business
arising out of a report of the directors not requiring the passing
of a special resolution or an exceptional resolution;
and
(i) any
other business which, under these Articles or the
Business
Corporations Act, may be
transacted at a meeting of shareholders without prior notice of the
business being given to the shareholders.
11.2 Special Majority
The
majority of votes required for the Company to pass a special
resolution at a general meeting of shareholders is two-thirds of
the votes cast on the resolution.
11.3 Quorum
Subject
to the special rights and restrictions attached to the shares of
any class or series of shares, the quorum for the transaction of
business at a meeting of shareholders is one person present or
represented by proxy.
11.4 Persons Entitled to Attend Meeting
In addition to those persons who are entitled to
vote at a meeting of shareholders, the only other persons entitled
to be present at the meeting are the directors, the president (if
any), the secretary (if any), the assistant secretary (if any), any
lawyer for the Company, the auditor of the Company, any persons
invited to be present at the meeting by the directors or by the
chair of the meeting and any persons entitled or required under
the Business Corporations
Act or these Articles to be
present at the meeting; but if any of those persons does attend the
meeting, that person is not to be counted in the quorum and is not
entitled to vote at the meeting unless that person is a shareholder
or proxyholder entitled to vote at the meeting.
11.5 Requirement of Quorum
No
business, other than the election of a chair of the meeting and the
adjournment of the meeting, may be transacted at any meeting of
shareholders unless a quorum of shareholders entitled to
vote
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is
present at the commencement of the meeting, but such quorum need
not be present throughout the meeting.
11.6 Lack of Quorum
If,
within one-half hour from the time set for the holding of a meeting
of shareholders, a quorum is not present:
(1) in
the case of a general meeting requisitioned by shareholders, the
meeting is dissolved, and
(2) in
the case of any other meeting of shareholders, the meeting stands
adjourned to the same day in the next week at the same time and
place.
11.7 Lack of Quorum at Succeeding Meeting
If,
at the meeting to which the meeting referred to in Article 11.6(2)
was adjourned, a quorum is not present within one-half hour from
the time set for the holding of the meeting, the meeting shall be
terminated.
11.8 Chair
The
following individual is entitled to preside as chair at a meeting
of shareholders:
(1) the
chair of the board, if any; or
(2) if
the chair of the board is absent or unwilling to act as chair of
the meeting, the president, if any.
11.9 Selection of Alternate Chair
If,
at any meeting of shareholders, there is no chair of the board or
president willing to act as chair of the meeting or present within
15 minutes after the time set for holding the meeting, or if the
chair of the board and the president have advised the secretary, if
any, or any director present at the meeting, that they will not be
present at the meeting, the directors present must choose a
director, officer or corporate counsel to be chair of the meeting
or if none of the above persons are present or if they decline to
take the chair, the shareholders entitled to vote at the meeting
who are present in person or by proxy may choose any person present
at the meeting to chair the meeting.
11.10 Adjournments
The
chair of a meeting of shareholders may, and if so directed by the
meeting must, adjourn the meeting from time to time and from place
to place, but no business may be transacted at any adjourned
meeting other than the business left unfinished at the meeting from
which the adjournment took place.
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11.11 Notice of Adjourned Meeting
It
is not necessary to give any notice of an adjourned meeting of
shareholders or of the business to be transacted at an adjourned
meeting of shareholders except that, when a meeting is adjourned
for 30 days or more, notice of the adjourned meeting must be given
as in the case of the original meeting.
11.12 Decisions by Show of Hands or Poll
Subject to the Business Corporations
Act, every motion put to a vote
at a meeting of shareholders will be decided on a show of hands
unless a poll, before or on the declaration of the result of the
vote by show of hands, is directed by the chair or demanded by any
shareholder entitled to vote who is present in person or by
proxy.
11.13 Declaration of Result
The
chair of a meeting of shareholders must declare to the meeting the
decision on every question in accordance with the result of the
show of hands or the poll, as the case may be, and that decision
must be entered in the minutes of the meeting. A declaration of the
chair that a resolution is carried by the necessary majority or is
defeated is, unless a poll is directed by the chair or demanded
under Article 11.12, conclusive evidence without proof of the
number or proportion of the votes recorded in favour of or against
the resolution.
11.14 Motion Need Not be Seconded
No
motion proposed at a meeting of shareholders need be seconded
unless the chair of the meeting rules otherwise, and the chair of
any meeting of shareholders is entitled to propose or second a
motion.
11.15 Casting Vote
In
case of an equality of votes, the chair of a meeting of
shareholders, either on a show of hands or on a poll, does not have
a second or casting vote in addition to the vote or votes to which
the chair may be entitled as a shareholder.
11.16 Manner of Taking Poll
Subject
to Article 11.17, if a poll is duly demanded at a meeting of
shareholders:
(1) the
poll must be taken:
(a) at
the meeting, or within seven days after the date of the meeting, as
the chair of the meeting directs; and
(b) in
the manner, at the time and at the place that the chair of the
meeting directs;
(2) the
result of the poll is deemed to be the decision of the meeting at
which the poll is demanded; and
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(3) the
demand for the poll may be withdrawn by the person who demanded
it.
11.17 Demand for Poll on
Adjournment
A
poll demanded at a meeting of shareholders on a question of
adjournment must be taken immediately at the meeting.
11.18 Chair Must Resolve Dispute
In
the case of any dispute as to the admission or rejection of a vote
given on a poll, the chair of the meeting must determine the
dispute, and his or her determination made in good faith is final
and conclusive.
11.19 Casting of Votes
On
a poll, a shareholder entitled to more than one vote need not cast
all the votes in the same way.
11.20 No Demand for Poll on Election of Chair
No
poll may be demanded in respect of the vote by which a chair of a
meeting of shareholders is elected.
11.21 Demand for Poll Not to Prevent Continuance of
Meeting
The
demand for a poll at a meeting of shareholders does not, unless the
chair of the meeting so rules, prevent the continuation of a
meeting for the transaction of any business other than the question
on which a poll has been demanded.
11.22 Retention of Ballots and Proxies
The
Company must, for at least three months after a meeting of
shareholders, keep each ballot cast on a poll and each proxy voted
at the meeting, and, during that period, make them available for
inspection during normal business hours by any shareholder or proxy
holder entitled to vote at the meeting. At the end of such three
month period, the Company may destroy such ballots and
proxies.
12. VOTES OF
SHAREHOLDERS
12.1 Number of Votes by Shareholder or by Shares
Subject
to any special rights or restrictions attached to any shares and to
the restrictions imposed on joint shareholders under Article
12.3:
(1) on a
vote by show of hands, every person present who is a shareholder or
proxy holder and entitled to vote on the matter has one vote;
and
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(2) on a
poll, every shareholder entitled to vote on the matter has one vote
in respect of each share entitled to be voted on the matter and
held by that shareholder and may exercise that vote either in
person or by proxy.
12.2 Votes of Persons in Representative Capacity
A
person who is not a shareholder may vote at a meeting of
shareholders, whether on a show of hands or on a poll, and may
appoint a proxy holder to act at the meeting, if, before doing so,
the person satisfies the chair of the meeting, or the directors,
that the person is a legal personal representative or a trustee in
bankruptcy for a shareholder who is entitled to vote at the
meeting.
12.3 Votes by Joint Holders
If
there are joint shareholders registered in respect of any
share:
(1) any
one of the joint shareholders may vote at any meeting of
shareholders, either personally or by proxy, in respect of the
share as if that joint shareholder were solely entitled to it;
or
(2) if
more than one of the joint shareholders is present at any meeting
of shareholders, personally or by proxy, and more than one of them
votes in respect of that share, then only the vote of the joint
shareholder present whose name stands first on the central
securities register in respect of the share will be
counted.
12.4 Legal Personal Representatives as Joint
Shareholders
Two
or more legal personal representatives of a shareholder in whose
sole name any share is registered are, for the purposes of Article
12.3, deemed to be joint shareholders registered in respect of that
share.
12.5 Representative of a Corporate Shareholder
If
a corporation, that is not a subsidiary of the Company, is a
shareholder, that corporation may appoint a person to act as its
representative at any meeting of shareholders of the Company,
and:
(1) for
that purpose, the instrument appointing a representative must be
received:
(a) at
the registered office of the Company or at any other place
specified, in the notice calling the meeting, for the receipt of
proxies, at least the number of business days specified in the
notice for the receipt of proxies, or if no number of days is
specified, two business days before the day set for the holding of
the meeting or any adjourned meeting; or
(b) by
the chair of the meeting at the meeting or adjourned meeting or by
a person designated by the chair of the meeting or adjourned
meeting;
(2) if a
representative is appointed under this Article
12.5:
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(a) the
representative is entitled to exercise in respect of and at that
meeting the same rights on behalf of the corporation that the
representative represents as that corporation could exercise if it
were a shareholder who is an individual, including, without
limitation, the right to appoint a proxy holder; and
(b) the
representative, if present at the meeting, is to be counted for the
purpose of forming a quorum and is deemed to be a shareholder
present in person at the meeting.
Evidence
of the appointment of any such representative may be sent to the
Company by written instrument, fax or any other method of
transmitting legibly recorded messages. Notwithstanding the
foregoing, a corporation that is a shareholder may appoint a proxy
holder.
12.6 Proxy Provisions Do Not Apply to All Companies
Articles
12.7 to 12.15 do not apply to the Company if and for so long as it
is a public company or a pre-existing reporting company which has
the Statutory Reporting Company Provisions as part of its Articles
or to which the Statutory Reporting Company Provisions
apply.
12.7 Appointment of Proxy Holders
Every
shareholder of the Company, including a corporation that is a
shareholder but not a subsidiary of the Company, entitled to vote
at a meeting of shareholders may, by proxy, appoint up to two proxy
holders to attend and act at the meeting in the manner, to the
extent and with the powers conferred by the proxy.
12.8 Alternate Proxy Holders
A
shareholder may appoint one or more alternate proxy holders to act
in the place of an absent proxy holder.
12.9 When Proxy Holder Need Not Be Shareholder
A
person must not be appointed as a proxy holder unless the person is
a shareholder, although a person who is not a shareholder may be
appointed as a proxy holder if:
(1) the
person appointing the proxy holder is a corporation or a
representative of a corporation appointed under Article
12.5;
(2) the
Company has at the time of the meeting for which the proxy holder
is to be appointed only one shareholder entitled to vote at the
meeting; or
(3) the
shareholders present in person or by proxy at and entitled to vote
at the meeting for which the proxy holder is to be appointed, by a
resolution on which the proxy holder is not entitled to vote but in
respect of which the proxy holder is to be counted in the quorum,
permit the proxy holder to attend and vote at the
meeting.
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12.10 Deposit of Proxy
A
proxy for a meeting of shareholders must:
(1) be
received at the registered office of the Company or at any other
place specified, in the notice calling the meeting, for the receipt
of proxies, at least the number of business days specified in the
notice, or if no number of days is specified, two business days
before the day set for the holding of the meeting or any adjourned
meeting; or
(2) unless
the notice provides otherwise, be received, at the meeting or any
adjourned meeting, by the chair of the meeting or any adjourned
meeting or by a person designated by the chair of the meeting or
adjourned meeting.
A
proxy may be sent to the Company by written instrument, fax or any
other method of transmitting legibly recorded
messages.
12.11 Validity of Proxy Vote
A
vote given in accordance with the terms of a proxy is valid
notwithstanding the death or incapacity of the shareholder giving
the proxy and despite the revocation of the proxy or the revocation
of the authority under which the proxy is given, unless notice in
writing of that death, incapacity or revocation is
received:
(1) at
the registered office of the Company, at any time up to and
including the last business day before the day set for the holding
of the meeting or any adjourned meeting at which the proxy is to be
used; or
(2) at
the meeting or any adjourned meeting by the chair of the meeting or
adjourned meeting, before any vote in respect of which the proxy
has been given or has been taken.
12.12 Form of Proxy
A
proxy, whether for a specified meeting or otherwise, must be either
in the following form or in any other form approved by the
directors or the chair of the meeting:
[name of company]
(the "Company")
The
undersigned, being a shareholder of the Company, hereby appoints
[name] or, failing that person, [name], as proxy holder for the
undersigned to attend, act and vote for and on behalf of the
undersigned at the meeting of shareholders of the Company to be
held on [month, day, year] and at any adjournment of that
meeting.
Number
of shares in respect of which this proxy is given (if no number is
specified, then this proxy is given in respect of all shares
registered in the name of the undersigned):
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Signed
[month, day, year]
[Signature
of shareholder]
[Name
of shareholder—printed]
12.13 Revocation of Proxy
Subject
to Article 12.14, every proxy may be revoked by an instrument in
writing that is received:
(1)
at
the registered office of the Company at any time up to and
including the last business day before the day set for the holding
of the meeting or any adjourned meeting at which the proxy is to be
used; or
(2)
at
the meeting or any adjourned meeting, by the chair of the meeting
or adjourned meeting, before any vote in respect of which the proxy
has been given has been taken.
12.14 Revocation of Proxy Must Be Signed
An
instrument referred to in Article 12.13 must be signed as
follows:
(1)
if
the shareholder for whom the proxy holder is appointed is an
individual, the instrument must be signed by the shareholder or his
or her legal personal representative or trustee in
bankruptcy;
(2)
if
the shareholder for whom the proxy holder is appointed is a
corporation, the instrument must be signed by the corporation or by
a representative appointed for the corporation under Article
12.5.
12.15 Production of Evidence of Authority to Vote
The
chair of any meeting of shareholders may, but need not, inquire
into the authority of any person to vote at the meeting and may,
but need not, demand from that person production of evidence as to
the existence of the authority to vote.
13. DIRECTORS
13.1 First Directors; Number of Directors
The first directors are the persons designated as
directors of the Company in the Notice of Articles that applies to
the Company when it is recognized under the Business Corporations
Act. The number of directors,
excluding additional directors appointed under Article 14.8, is set
at:
(1)
subject to paragraphs (2) and (3), the number of
directors that is equal to the number of the Company's first
directors;
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(2)
if the Company is a public company, the greater of
three and the most recently set of:
(a) the
number of directors elected by ordinary resolution (whether or not
previous notice of the resolution was given); and
(b) the
number of directors set under Article 14.4;
(3)
if the Company is not a public company, the most
recently set of:
(a) the
number of directors elected by ordinary resolution (whether or not
previous notice of the resolution was given); and
(b) the
number of directors set under Article 14.4.
13.2 Change in Number of Directors
If the number of directors is set under Articles
13.1(2)(a) or 13.1(3)(a):
(1)
the
shareholders may elect or appoint the directors needed to fill any
vacancies in the board of directors up to that number;
(2)
if
theshareholders do not elect or appoint the directors needed to
fill any vacancies in the board of directors up to that number
contemporaneously with the setting of that number, then the
directors, subject to Article 14.8, may appoint, or the
shareholders may elect or appoint, directors to fill those
vacancies.
13.3 Directors' Acts Valid Despite Vacancy
An
act or proceeding of the directors is not invalid merely because
fewer than the number of directors set or otherwise required under
these Articles is in office.
13.4 Qualifications of Directors
A director is not required to hold a share in the
capital of the Company as qualification for his or her office but
must be qualified as required by the Business Corporations
Act to become, act or continue
to act as a director.
13.5 Remuneration of Directors
The
directors are entitled to the remuneration for acting as directors,
if any, as the directors may from time to time determine. If the
directors so decide, the remuneration of the directors, if any,
will be determined by the shareholders. That remuneration may be in
addition to any salary or other remuneration paid to any officer or
employee of the Company as such, who is also a
director.
13.6 Reimbursement of Expenses of Directors
The
Company must reimburse each director for the reasonable expenses
that he or she may incur in and about the business of the
Company.
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13.7 Special Remuneration for Directors
If
any director performs any professional or other services for the
Company that in the opinion of the directors are outside the
ordinary duties of a director, or if any director is otherwise
specially occupied in or about the Company's business, he or she
may be paid remuneration fixed by the directors, or, at the option
of that director, fixed by ordinary resolution, and such
remuneration may be either in addition to, or in substitution for,
any other remuneration that he or she may be entitled to
receive.
13.8 Gratuity, Pension or Allowance on Retirement of
Director
Unless
otherwise determined by ordinary resolution, the directors on
behalf of the Company may pay a gratuity or pension or allowance on
retirement to any director or to his or her spouse or dependants
and may make contributions to any fund and pay premiums for the
purchase or provision of any such gratuity, pension or
allowance.
14. ELECTION AND REMOVAL
OF DIRECTORS
14.1 Election at Annual General Meeting
At
every annual general meeting and in every unanimous resolution
contemplated by Article 10.2:
(1) the
shareholders entitled to vote at the annual general meeting for the
election of directors must elect, or in the unanimous resolution
appoint, a board of directors consisting of the number of directors
for the time being set under these Articles; and
(2) those
directors whose term of office expires at the annual general
meeting cease to hold office immediately before the election or
appointment of directors under paragraph (1), but are eligible for
re-election or re-appointment.
14.2 Consent to be a Director
No
election, appointment or designation of an individual as a director
is valid unless:
(1) that
individual consents to be a director in the manner provided for in
the Business Corporations
Act;
(2) that
individual is elected or appointed at a meeting at which the
individual is present and the individual does not refuse, at the
meeting, to be a director; or
(3) with
respect to first directors, the designation is otherwise valid
under the Business Corporations
Act.
14.3 Failure to Elect or
Appoint Directors
If:
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(1) the
Company fails to hold an annual general meeting, and all the
shareholders who are entitled to vote at an annual general meeting
fail to pass the unanimous resolution contemplated by Article 10.2,
on or before the date by which the annual general meeting is
required to be held under the Business Corporations
Act; or
(2) the
shareholders fail, at the annual general meeting or in the
unanimous resolution contemplated by Article 10.2, to elect or
appoint any directors;
then
each director then in office continues to hold office until the
earlier of:
(3) when
his or her successor is elected or appointed; and
(4) when
he or she otherwise ceases to hold office under the
Business
Corporations Act or these
Articles.
14.4 Places of Retiring Directors Not Filled
If,
at any meeting of shareholders at which there should be an election
of directors, the places of any of the retiring directors are not
filled by that election, those retiring directors who are not
reelected and who are asked by the newly elected directors to
continue in office will, if willing to do so, continue in office to
complete the number of directors for the time being set pursuant to
these Articles until further new directors are elected at a meeting
of shareholders convened for that purpose. If any such election or
continuance of directors does not result in the election or
continuance of the number of directors for the time being set
pursuant to these Articles, the number of directors of the Company
is deemed to be set at the number of directors actually elected or
continued in office.
14.5 Directors May Fill Casual Vacancies
Any
casual vacancy occurring in the board of directors may be filled by
the directors.
14.6 Remaining Directors' Power to Act
The directors may act notwithstanding any vacancy
in the board of directors, but if the Company has fewer directors
in office than the number set pursuant to these Articles as the
quorum of directors, the directors may only act for the purpose of
appointing directors up to that number or of calling a meeting of
shareholders for the purpose of filling any vacancies on the board
of directors or, subject to the Business Corporations
Act, for any other
purpose.
14.7 Shareholders May Fill Vacancies
If
the Company has no directors or fewer directors in office than the
number set pursuant to these Articles as the quorum of directors,
the shareholders may elect or appoint directors to fill any
vacancies on the board of directors.
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14.8 Additional Directors
Notwithstanding
Articles 13.1 and 13.2, between annual general meetings or
unanimous resolutions contemplated by Article 10.2, the directors
may appoint one or more additional directors, but the number of
additional directors appointed under this Article 14.8 must not at
any time exceed:
(1) one-third
of the number of first directors, if, at the time of the
appointments, one or more of the first directors have not yet
completed their first term of office; or
(2) in
any other case, one-third of the number of the current directors
who were elected or appointed as directors other than under this
Article 14.8.
Any
director so appointed ceases to hold office immediately before the
next election or appointment of directors under Article 14.1(1),
but is eligible for re-election or re-appointment.
14.9 Ceasing to be a Director
A
director ceases to be a director when:
(1) the
term of office of the director expires;
(2) the
director dies;
(3) the
director resigns as a director by notice in writing provided to the
Company or a lawyer for the Company; or
(4) the
director is removed from office pursuant to Articles 14.10 or
14.11.
14.10 Removal
of Director by Shareholders
The
Company may remove any director before the expiration of his or her
term of office by special resolution. In that event, the
shareholders may elect, or appoint by ordinary resolution, a
director to fill the resulting vacancy. If the shareholders do not
elect or appoint a director to fill the resulting vacancy
contemporaneously with the removal, then the directors may appoint
or the shareholders may elect, or appoint by ordinary resolution, a
director to fill that vacancy.
14.11 Removal of Director by Directors
The
directors may remove any director before the expiration of his or
her term of office if the director is convicted of an indictable
offence, or if the director ceases to be qualified to act as a
director of a company and does not promptly resign, and the
directors may appoint a director to fill the resulting
vacancy.
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15. ALTERNATE
DIRECTORS
15.1 Appointment of Alternate Director
Any director (an "appointor") may by notice in
writing received by the Company appoint any person (an "appointee")
who is qualified to act as a director to be his or her alternate to
act in his or her place at meetings of the directors or committees of the
directors at which the appointor is not present unless (in the case
of an appointee who is not a director) the directors have
reasonably disapproved the appointment of such person as an
alternate director and have given notice to that effect to his or
her appointor within a reasonable time after the notice of
appointment is received by the Company.
15.2 Notice of Meetings
Every
alternate director so appointed is entitled to notice of meetings
of the directors and of committees of the directors of which his or
her appointor is a member and to attend and vote as a director at
any such meetings at which his or her appointor is not
present.
15.3 Alternate for More Than One Director Attending
Meetings
A
person may be appointed as an alternate director by more than one
director, and an alternate director:
(1) will
be counted in determining the quorum for a meeting of directors
once for each of his or her appointors and, in the case of an
appointee who is also a director, once more in that
capacity;
(2) has
a separate vote at a meeting of directors for each of his or her
appointors and, in the case of an appointee who is also a director,
an additional vote in that capacity;
(3) will
be counted in determining the quorum for a meeting of a committee
of directors once for each of his or her appointors who is a member
of that committee and, in the case of an appointee who is also a
member of that committee as a director, once more in that capacity;
and
(4) has
a separate vote at a meeting of a committee of directors for each
of his or her appointors who is a member of that committee and, in
the case of an appointee who is also a member of that committee as
a director, an additional vote in that capacity.
15.4 Consent Resolutions
Every
alternate director, if authorized by the notice appointing him or
her, may sign in place of his or her appointor any resolutions to
be consented to in writing.
15.5 Alternate Director Not an Agent
Every
alternate director is deemed not to be the agent of his or her
appointor.
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15.6 Revocation of Appointment of Alternate Director
An
appointor may at any time, by notice in writing received by the
Company, revoke the appointment of an alternate director appointed
by him or her.
15.7 Ceasing to be an Alternate Director
The
appointment of an alternate director ceases when:
(1) his
or her appointor ceases to be a director and is not promptly
re-elected or re-appointed;
(2) the
alternate director dies;
(3) the
alternate director resigns as an alternate director by notice in
writing provided to the Company or a lawyer for the
Company;
(4) the
alternate director ceases to be qualified to act as a director;
or
(5) his
or her appointor revokes the appointment of the alternate
director.
15.8
Remuneration and Expenses of Alternate Director
The
Company may reimburse an alternate director for the reasonable
expenses that would be properly reimbursed if he or she were a
director, and the alternate director is entitled to receive from
the Company such proportion, if any, of the remuneration otherwise
payable to the appointor as the appointor may from time to time
direct.
16. POWERS AND DUTIES OF
DIRECTORS 16.1 Powers of Management
The directors must, subject to the
Business
Corporations Act and these
Articles, manage or supervise the management of the business and
affairs of the Company and have the authority to exercise all such
powers of the Company as are not, by the Business Corporations
Act or by these Articles,
required to be exercised by the shareholders of the
Company.
16.2 Appointment of Attorney of Company
The
directors may from time to time, by power of attorney or other
instrument, under seal if so required by law, appoint any person to
be the attorney of the Company for such purposes, and with such
powers, authorities and discretions (not exceeding those vested in
or exercisable by the directors under these Articles and excepting
the power to fill vacancies in the board of directors, to remove a
director, to change the membership of, or fill vacancies in, any
committee of the directors, to appoint or remove officers appointed
by the directors and to declare dividends) and for such period, and
with such remuneration and subject to such conditions as the
directors may think fit. Any such power of attorney may contain
such provisions for the protection or convenience of persons
dealing with such attorney as the directors think fit. Any such
attorney may be
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authorized
by the directors to sub-delegate all or any of the powers,
authorities and discretions for the time being vested in him or
her.
17. INTERESTS OF DIRECTORS
AND OFFICERS 17.1 Obligation to Account for
Profits
A director or senior officer who holds a
disclosable interest (as that term is used in the
Business
Corporations Act) in a contract
or transaction into which the Company has entered or proposes to
enter is liable to account to the Company for any profit that
accrues to the director or senior officer under or as a result of
the contract or transaction only if and to the extent provided in
the Business Corporations
Act.
17.2 Restrictions on Voting by Reason of Interest
A
director who holds a disclosable interest in a contract or
transaction into which the Company has entered or proposes to enter
is not entitled to vote on any directors' resolution to approve
that contract or transaction, unless all the directors have a
disclosable interest in that contract or transaction, in which case
any or all of those directors may vote on such
resolution.
17.3 Interested Director Counted in Quorum
A
director who holds a disclosable interest in a contract or
transaction into which the Company has entered or proposes to enter
and who is present at the meeting of directors at which the
contract or transaction is considered for approval may be counted
in the quorum at the meeting whether or not the director votes on
any or all of the resolutions considered at the
meeting.
17.4 Disclosure of Conflict of Interest or Property
A director or senior officer who holds any office
or possesses any property, right or interest that could result,
directly or indirectly, in the creation of a duty or interest that
materially conflicts with that individual's duty or interest as a
director or senior officer, must disclose the nature and extent of
the conflict as required by the Business Corporations
Act.
17.5 Director Holding Other Office in the Company
A
director may hold any office or place of profit with the Company,
other than the office of auditor of the Company, in addition to his
or her office of director for the period and on the terms (as to
remuneration or otherwise) that the directors may
determine.
17.6 No Disqualification
No
director or intended director is disqualified by his or her office
from contracting with the Company either with regard to the holding
of any office or place of profit the director holds with the
Company or as vendor, purchaser or otherwise, and no contract or
transaction entered into by or on behalf of the Company in which a
director is in any way interested is liable to be voided for that
reason.
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17.7 Professional Services by Director or Officer
Subject to the Business Corporations
Act, a director or officer, or
any person in which a director or officer has an interest, may act
in a professional capacity for the Company, except as auditor of
the Company, and the director or officer or such person is entitled
to remuneration for professional services as if that director or
officer were not a director or officer.
17.8 Director or Officer in Other Corporations
A director or officer may be or become a director,
officer or employee of, or otherwise interested in, any person in
which the Company may be interested as a shareholder or otherwise,
and, subject to the Business Corporations
Act, the director or officer is
not accountable to the Company for any remuneration or other
benefits received by him or her as director, officer or employee
of, or from his or her interest in, such other
person.
18. PROCEEDINGS OF
DIRECTORS
18.1 Meetings of Directors
The
directors may meet together for the conduct of business, adjourn
and otherwise regulate their meetings as they think fit, and
meetings of the directors held at regular intervals may be held at
the place, at the time and on the notice, if any, as the directors
may from time to time determine.
18.2 Voting at Meetings
Questions
arising at any meeting of directors are to be decided by a majority
of votes and, in the case of an equality of votes, the chair of the
meeting does not have a second or casting vote.
18.3 Chair of Meetings
The
following individual is entitled to preside as chair at a meeting
of directors:
(1) the
chair of the board, if any;
(2) in
the absence of the chair of the board or if designated by the
chair, the president, a director or other officer; or
(3) any
other director or officer chosen by the directors if:
(a) neither
the chair of the board nor the president is present at the meeting
within 15 minutes after the time set for holding the
meeting;
(b) neither
the chair of the board nor the president is willing to chair the
meeting; or
(c) the
chair of the board and the president have advised the secretary, if
any, or any other director, that they will not be present at the
meeting.
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18.4 Meetings by Telephone or Other Communications
Medium
A
director may participate in a meeting of the directors or of any
committee of the directors:
(1) in
person;
(2) by
telephone; or
(3) with
the consent of all directors who wish to participate in the
meeting, by other communications medium;
if all directors participating in the meeting,
whether in person or by telephone or other communications medium,
are able to communicate with each other. A director who
participates in a meeting in a manner contemplated by this Article
18.4 is deemed for all purposes of the Business Corporations
Act and these Articles to be
present at the meeting and to have agreed to participate in that
manner.
18.5 Calling of Meetings
A
director may, and the secretary or an assistant secretary of the
Company, if any, on the request of a director must, call a meeting
of the directors at any time.
18.6 Notice of Meetings
Other
than for meetings held at regular intervals as determined by the
directors pursuant to Article 18.1, reasonable notice of each
meeting of the directors, specifying the place, day and time of
that meeting must be given to each of the directors and the
alternate directors by any method set out in Article 24.1 or orally
or by telephone.
18.7 When Notice Not Required
It
is not necessary to give notice of a meeting of the directors to a
director or an alternate director if:
(1) the
meeting is to be held immediately following a meeting of
shareholders at which that director was elected or appointed, or is
the meeting of the directors at which that director is appointed;
or
(2) the
director or alternate director, as the case may be, has waived
notice of the meeting.
18.8 Meeting
Valid Despite Failure to Give Notice
The
accidental omission to give notice of any meeting of directors to,
or the non-receipt of any notice by, any director or alternate
director, does not invalidate any proceedings at that
meeting.
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18.9 Waiver of Notice of Meetings
Any
director or alternate director may send to the Company a document
signed by him or her waiving notice of any past, present or future
meeting or meetings of the directors and may at any time withdraw
that waiver with respect to meetings held after that withdrawal.
After sending a waiver with respect to all future meetings and
until that waiver is withdrawn, no notice of any meeting of the
directors need be given to that director and, unless the director
otherwise requires by notice in writing to the Company, to his or
her alternate director, and all meetings of the directors so held
are deemed not to be improperly called or constituted by reason of
notice not having been given to such director or alternate
director. Attendance of a director or alternate director at a
meeting of directors is a waiver of notice of the meeting unless
that director or alternate director attends the meeting for the
express purpose of objecting to the transaction of any business on
the grounds that the meeting is not lawfully called.
18.10 Quorum
The
quorum necessary for the transaction of the business of the
directors may be set by the directors and, if not so set, is deemed
to be set at a majority of directors or, if the number of directors
is set at one, is deemed to be set at one director, and that
director may constitute a meeting.
18.11 Validity of Acts Where Appointment Defective
Subject to the Business Corporations
Act, an act of a director or
officer is not invalid merely because of an irregularity in the
election or appointment or a defect in the qualification of that
director or officer.
18.12 Consent Resolutions in Writing
A
resolution of the directors or of any committee of the directors
may be passed without a meeting:
(1) in
all cases, if each of the directors entitled to vote on the
resolution consents to it in writing; or
(2) in
the case of a resolution to approve a contract or transaction in
respect of which a director has disclosed that he or she has or may
have a disclosable interest, if each of the other directors who
have not made such a disclosure consents in writing to the
resolution.
A consent in writing under this Article may be by
signed document, fax, e-mail or any other method of transmitting
legibly recorded messages. A consent in writing may be in two or
more counterparts which together are deemed to constitute one
consent in writing. A resolution of the directors or of any
committee of the directors passed in accordance with this Article
18.12 is effective on the date stated in the consent in writing or
on the latest date stated on any counterpart and is deemed to be a
proceeding at a meeting of directors or of the committee of the
directors and to be as valid and effective as if it had been passed
at a meeting of the directors or of the committee of the directors
that satisfies all the requirements of the Business Corporations
Act and all the requirements of
these Articles relating to meetings of the directors or of a
committee of the directors.
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19. EXECUTIVE AND OTHER
COMMITTEES
19.1 Appointment and Powers of Executive Committee
The
directors may, by resolution, appoint an executive committee
consisting of the director or directors that they consider
appropriate, and this committee has, during the intervals between
meetings of the board of directors, all of the directors' powers,
except:
(1) the
power to fill vacancies in the board of directors;
(2) the
power to remove a director;
(3) the
power to change the membership of, or fill vacancies in, any
committee of the directors; and
(4) such
other powers, if any, as may be set out in the resolution or any
subsequent directors' resolution.
19.2 Appointment and Powers of
Other Committees
The directors may, by
resolution:
(1) appoint one or more committees (other than the
executive committee) consisting of the director or directors that
they consider appropriate;
(2) delegate to a committee appointed under paragraph
(1) any of the directors' powers, except:
(a) the
power to fill vacancies in the board of directors;
(b) the
power to remove a director;
(c) the
power to change the membership of, or fill vacancies in, any
committee of the directors; and
(d) the
power to appoint or remove officers appointed by the directors;
and
(3) make
any delegation referred to in paragraph (2) subject to the
conditions set out in the resolution or any subsequent directors'
resolution.
19.3 Obligations of Committees
Any
committee appointed under Articles 19.1 or 19.2, in the exercise of
the powers delegated to it, must:
(1) conform to any rules that may from time to time be
imposed on it by the directors; and
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(2) report every act or thing done in exercise of
those powers at such times and in such manner and form as the
directors may require.
19.4 Powers of Board
The
directors may, at any time, with respect to a committee appointed
under Articles 19.1 or 19.2:
(1)
revoke
or alter the authority given to the committee, or override a
decision made by the committee, except as to acts done before such
revocation, alteration or overriding;
(2)
terminate
the appointment of, or change the membership of, the committee;
and
(3)
fill vacancies in the
committee.
19.5 Committee
Meetings
Subject
to Article 19.3(1) and unless the directors otherwise provide in
the resolution appointing the committee or in any subsequent
resolution, with respect to a committee appointed under Articles
19.1 or 19.2:
(1) the
committee may meet and adjourn as it thinks proper;
(2) the
committee may elect a chair of its meetings but, if no chair of a
meeting is elected, or if at a meeting the chair of the meeting is
not present within 15 minutes after the time set for holding the
meeting, the directors present who are members of the committee may
choose one of their number to chair the meeting;
(3) a
majority of the members of the committee constitutes a quorum of
the committee; and
(4) questions
arising at any meeting of the committee are determined by a
majority of votes of the members present, and in case of an
equality of votes, the chair of the meeting does not have a second
or casting vote.
20. OFFICERS
20.1 Directors May Appoint Officers
The
directors may, from time to time, appoint such officers, if any, as
the directors determine and the directors may, at any time,
terminate any such appointment.
20.2 Functions, Duties and
Powers of Officers The
directors may, for each officer:
(1) determine
the functions and duties of the officer;
(2) entrust
to and confer on the officer any of the powers exercisable by the
directors on such terms and conditions and with such restrictions
as the directors think fit; and
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(3) revoke, withdraw, alter or vary
all or any of the functions, duties and powers of the
officer.
20.3
Qualifications
No officer may be appointed unless that officer is
qualified in accordance with the Business Corporations
Act. One person may hold more
than one position as an officer of the Company. Any person
appointed as the chair of the board or as the managing director
must be a director. Any other officer need not be a
director.
20.4 Remuneration and Terms of Appointment
All
appointments of officers are to be made on the terms and conditions
and at the remuneration (whether by way of salary, fee, commission,
participation in profits or otherwise) that the directors thinks
fit and are subject to termination at the pleasure of the
directors, and an officer may in addition to such remuneration be
entitled to receive, after he or she ceases to hold such office or
leaves the employment of the Company, a pension or
gratuity.
21. INDEMNIFICATION
21.1 Definitions In this Article
21:
(1) "eligible penalty" means a judgment, penalty or
fine awarded or imposed in, or an amount paid in settlement of, an
eligible proceeding;
(2) "eligible proceeding" means a legal proceeding or
investigative action, whether current, threatened, pending or
completed, in which a director, former director or alternate
director of the Company (an "eligible party") or any of the heirs
and legal personal representatives of the eligible party, by reason
of the eligible party being or having been a director or alternate
director of the Company:
(a) is
or may be joined as a party; or
(b) is
or may be liable for or in respect of a judgment, penalty or fine
in, or expenses related to, the proceeding;
(3) "expenses" has the meaning set out in the
Business
Corporations Act.
21.2 Mandatory
Indemnification of Eligible Parties
Subject to the Business Corporations
Act, the Company must indemnify
a director, former director or alternate director of the Company
and his or her heirs and legal personal representatives against all
eligible penalties to which such person is or may be liable, and
the Company must, after the final disposition of an eligible
proceeding, pay the expenses actually and reasonably incurred by
such person in respect of that proceeding. Each director and
alternate director is deemed to have contracted with the Company on
the terms of the indemnity contained in this Article
21.2.
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21.3 Indemnification
Subject to any restrictions in the
Business
Corporations Act and these
Articles, the Company may indemnify any
person.
21.4 Non-Compliance with Business Corporations
Act
The failure of a director, alternate director or
officer of the Company to comply with the Business Corporations
Act or these Articles or, if
applicable, any former Companies Act
or former Articles, does not
invalidate any indemnity to which he or she is entitled under this
Part.
21.5 Company May Purchase Insurance
The
Company may purchase and maintain insurance for the benefit of any
person (or his or her heirs or legal personal representatives)
who:
(1) is
or was a director, alternate director, officer, employee or agent
of the Company;
(2) is
or was a director, alternate director, officer, employee or agent
of a corporation at a time when the corporation is or was an
affiliate of the Company;
(3) at
the request of the Company, is or was a director, alternate
director, officer, employee or agent of a corporation or of a
partnership, trust, joint venture or other unincorporated entity;
or
(4) at
the request of the Company, holds or held a position equivalent to
that of a director, alternate director or officer of a partnership,
trust, joint venture or other unincorporated entity;
against
any liability incurred by him or her as such director, alternate
director, officer, employee or agent or person who holds or held
such equivalent position.
22. DIVIDENDS
22.1 Payment of Dividends Subject to Special Rights
The
provisions of this Article 22 are subject to the rights, if any, of
shareholders holding shares with special rights as to
dividends.
22.2 Declaration of Dividends
Subject to the Business Corporations
Act, the directors may from
time to time declare and authorize payment of such dividends as
they may deem advisable.
22.3 No Notice Required
The
directors need not give notice to any shareholder of any
declaration under Article 22.2.
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22.4 Record Date
The
directors may set a date as the record date for the purpose of
determining shareholders entitled to receive payment of a dividend.
The record date must not precede the date on which the dividend is
to be paid by more than two months. If no record date is set, the
record date is 5 p.m. on the date on which the directors pass the
resolution declaring the dividend.
22.5 Manner of Paying Dividend
A
resolution declaring a dividend may direct payment of the dividend
wholly or partly in money or by the distribution of specific assets
or of fully paid shares or of bonds, debentures or other securities
of the Company or any other corporation, or in any one or more of
those ways.
22.6 Settlement of Difficulties
If
any difficulty arises in regard to a distribution under Article
22.5, the directors may settle the difficulty as they deem
advisable, and, in particular, may:
(1) set
the value for distribution of specific assets;
(2) determine
that money in substitution for all or any part of the specific
assets to which any shareholders are entitled may be paid to any
shareholders on the basis of the value so fixed in order to adjust
the rights of all parties; and
(3) vest
any such specific assets in trustees for the persons entitled to
the dividend.
22.7 When Dividend Payable
Any
dividend may be made payable on such date as is fixed by the
directors.
22.8 Dividends to be Paid in Accordance with Number of
Shares
All
dividends on shares of any class or series of shares must be
declared and paid according to the number of such shares
held.
22.9 Receipt by Joint Shareholders
If
several persons are joint shareholders of any share, any one of
them may give an effective receipt for any dividend, bonus or other
money payable in respect of the share.
22.10 Dividend Bears No Interest
No
dividend bears interest against the Company.
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22.11 Fractional Dividends
If
a dividend to which a shareholder is entitled includes a fraction
of the smallest monetary unit of the currency of the dividend, that
fraction may be disregarded in making payment of the dividend and
that payment represents full payment of the dividend.
22.12 Payment of Dividends
Any
dividend or other distribution payable in money in respect of
shares may be paid by cheque, made payable to the order of the
person to whom it is sent, and mailed to the registered address of
the shareholder, or in the case of joint shareholders, to the
registered address of the joint shareholder who is first named on
the central securities register, or to the person and to the
address the shareholder or joint shareholders may direct in
writing. The mailing of such cheque will, to the extent of the sum
represented by the cheque (plus the amount of the tax required by
law to be deducted), discharge all liability for the dividend
unless such cheque is not paid on presentation or the amount of tax
so deducted is not paid to the appropriate taxing
authority.
22.13 Capitalization of Retained Earnings or Surplus
Notwithstanding
anything contained in these Articles, the directors may from time
to time capitalize any retained earnings or surplus of the Company
and may from time to time issue, as fully paid, shares or any
bonds, debentures or other securities of the Company as a dividend
representing the retained earnings or surplus so capitalized or any
part thereof.
23. ACCOUNTING
RECORDS AND AUDITORS 23.1 Recording of Financial
Affairs
The directors must cause adequate accounting
records to be kept to record properly the financial affairs and
condition of the Company and to comply with the Business Corporations
Act.
23.2 Inspection of Accounting Records
Unless
the directors determine otherwise, or unless otherwise determined
by ordinary resolution, no shareholder of the Company is entitled
to inspect or obtain a copy of any accounting records of the
Company.
23.3 Remuneration of Auditors
The
directors may set the remuneration of the auditors. If the
directors so decide, the remuneration of the auditors will be
determined by the shareholders.
24. NOTICES
24.1 Method of Giving Notice
Unless the Business Corporations
Act or these Articles provides
otherwise, a notice, statement, report or other record (for the
purposes of this Article 24, a "record") required or permitted by
the
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Business Corporations
Act or these Articles to be
sent by or to a person may be sent by any one of the following
methods:
(1) mail
addressed to the person at the applicable address for that person
as follows:
(a) for
a record mailed to a shareholder, the shareholder's registered
address;
(b) for
a record mailed to a director or officer, the prescribed address
for mailing shown for the director or officer in the records kept
by the Company or the mailing address provided by the recipient for
the sending of that record or records of that class;
or
(c) in
any other case, the mailing address of the intended
recipient;
(2) delivery at the applicable address for that person
as follows, addressed to the person:
(a) for
a record delivered to a shareholder, the shareholder's registered
address;
(b) for
a record delivered to a director or officer, the prescribed address
for delivery shown for the director or officer in the records kept
by the Company or the delivery address provided by the recipient
for the sending of that record or records of that class;
or
(c) in
any other case, the delivery address of the intended
recipient;
(3) sending the record by fax to the fax number
provided by the intended recipient for the sending of that record
or records of that class;
(4) sending the record by email to the email address
provided by the intended recipient for the sending of that record
or records of that class;
(5) making the record available for public electronic
access in accordance with the procedures referred to as
"notice-and-access" under National Instrument 54-101 and National
Instrument 51-102, as applicable, of the Canadian Securities
Administrators, or in accordance with any similar electronic
delivery or access method permitted by applicable securities
legislation from time to time; or
(6) physical delivery to the intended
recipient.
24.2 Deemed Receipt
A
notice, statement, report or other record that is:
(1) mailed
to a person by ordinary mail to the applicable address for that
person referred to in Article 24.1 is deemed to be received by the
person to whom it was mailed on the day (Saturdays, Sundays and
holidays excepted) following the date of mailing;
(2) faxed
to a person to the fax number provided by that person referred to
in Article 24.1 is deemed to be received by the person to whom it
was faxed on the day it was faxed;
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(3) e-mailed
to a person to the e-mail address provided by that person referred
to in Article 24.1 is deemed to be received by the person to whom
it was e-mailed on the date it was e-mailed; and
(4) made
available for public electronic access in accordance with the
"notice-and-access" or similar delivery procedures referred to in
Article 24.1(5) is deemed to be received by a person on the date it
was made available for public electronic access.
24.3 Certificate of Sending
A
certificate signed by the secretary, if any, or other officer of
the Company or of any other corporation acting in that capacity on
behalf of the Company stating that a notice, statement, report or
other record was sent in accordance with Article 24.1 is conclusive
evidence of that fact.
24.4 Notice to Joint Shareholders
A
notice, statement, report or other record may be provided by the
Company to the joint shareholders of a share by providing such
record to the joint shareholder first named in the central
securities register in respect of the share.
24.5 Notice to Legal Personal Representatives and
Trustees
A
notice, statement, report or other record may be provided by the
Company to the persons entitled to a share in consequence of the
death, bankruptcy or incapacity of a shareholder by:
(1) mailing the record, addressed to
them:
(a) by
name, by the title of the legal personal representative of the
deceased or incapacitated shareholder, by the title of trustee of
the bankrupt shareholder or by any similar description;
and
(b) at
the address, if any, supplied to the Company for that purpose by
the persons claiming to be so entitled; or
(2) if an
address referred to in paragraph (1)(b) has not been supplied to
the Company, by giving the notice in a manner in which it might
have been given if the death, bankruptcy or incapacity had not
occurred.
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24.6 Undelivered Notices
If
on two consecutive occasions, a notice, statement, report or other
record is sent to a shareholder pursuant to Article 24.1 and on
each of those occasions any such record is returned because the
shareholder cannot be located, the Company shall not be required to
send any further records to the shareholder until the shareholder
informs the Company in writing of his or her new
address.
25. SEAL
25.1 Who May Attest Seal
Except as provided in Articles 25.2 and 25.3, the
Company's seal, if any, must not be impressed on any record
except when that impression is attested by the signatures
of:
(1) any
two directors;
(2) any
officer, together with any director;
(3) if
the Company only has one director, that director; or
(4) any
one or more directors or officers or persons as may be determined
by the directors.
25.2 Sealing
Copies
For
the purpose of certifying under seal a certificate of incumbency of
the directors or officers of the Company or a true copy of any
resolution or other document, despite Article 25.1, the impression
of the seal may be attested by the signature of any director or
officer or the signature of any other person as may be determined
by the directors.
25.3 Mechanical Reproduction of Seal
The directors may authorize the seal to be
impressed by third parties on share certificates or bonds,
debentures or other securities of the Company as they may determine
appropriate from time to time. To enable the seal to be impressed
on any share certificates or bonds, debentures or other securities
of the Company, whether in definitive or interim form, on which
facsimiles of any of the signatures of the directors or officers of
the Company are, in accordance with the Business Corporations
Act or these Articles, printed
or otherwise mechanically reproduced, there may be delivered to the
person employed to engrave, lithograph or print such definitive or
interim share certificates or bonds, debentures or other securities
one or more unmounted dies reproducing the seal and such persons as
are authorized under Article 25.1 to attest the Company's seal may
in writing authorize such person to cause the seal to be impressed
on such definitive or interim share certificates or bonds,
debentures or other securities by the use of such dies. Share
certificates or bonds, debentures or other securities to which the
seal has been so impressed are for all purposes deemed to be under
and to bear the seal impressed on them.
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26. PROHIBITIONS
26.1 Definitions In this Article 26:
(1) "designated security" means:
(a) a
voting security of the Company;
(b) a
security of the Company that is not a debt security and that
carries a residual right to participate in the earnings of the
Company or, on the liquidation or winding up of the Company, in its
assets; or
(c) a
security of the Company convertible, directly or indirectly, into a
security described in paragraph (a) or (b);
(2) "security" has the meaning assigned in the
Securities
Act (British
Columbia);
(3) "voting security" means a security of the Company
that:
(a) is
not a debt security, and
(b) carries
a voting right either under all circumstances or under some
circumstances that have occurred and are continuing.
26.2 Application
Article
26.3 does not apply to the Company if and for so long as it is a
public company or a preexisting reporting company which has the
Statutory Reporting Company Provisions as part of its Articles or
to which the Statutory Reporting Company Provisions
apply.
26.3 Consent Required for Transfer of Shares or Designated
Securities
No
share or designated security may be sold, transferred or otherwise
disposed of without the consent of the directors and the directors
are not required to give any reason for refusing to consent to any
such sale, transfer or other disposition.
27. SPECIAL RIGHTS AND
RESTRICTIONS 27.1 General Definitions
In
this Article, the following terms shall have the following meanings
unless the context otherwise requires:
(1) “1933
Act” means the United States Securities Act of 1933, as
amended from time to time.
(2) “Common
Shares” means the common shares in the capital of the
Company.
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(3) “Company” means “Planet 13
Holdings Inc.”
(4) “Conversion Notice” means a written
notice to the transfer agent of the Restricted Voting Shares, in
form and substance satisfactory to the Company and the transfer
agent, executed by a person registered in the records of the
Company or the transfer agent, as the case may be, as a holder of
the Restricted Voting Shares, or by his or her attorney duly
authorized in writing and specifying the number of Restricted
Voting Shares which the holder thereof desires to have converted
into Common Shares, and accompanied by:
(a) if
share certificates were issued to such holder, the share
certificate or certificates representing the Restricted Voting
Shares which such holder desires to convert;
(b) a
letter of transmittal, direction, transfer, power or attorney
and/or such other documentation as is specified by the Company or
the transfer agent for the Restricted Voting Shares, acting
reasonably, as being required to give full effect to the conversion
duly completed and executed by the person registered in the records
of the Company or the transfer agent, as the case may be, as the
holder of the Restricted Voting Shares to be converted or by his or
her attorney duly authorized in writing; and
(c) a
duly completed and executed Residency Declaration or an opinion or
memorandum of counsel (which may be the Company's counsel), in form
and substance satisfactory to the Company and the transfer agent,
to the effect that the conversion of such Restricted Voting Shares
into Common Shares would not cause the Company to become a Domestic
Issuer.
(5) “Domestic Issuer”' has the meaning
ascribed thereto in Rule 902(c) of Regulation S under the 1933
Act.
(6) “Exclusionary Offer” means an offer to
purchase Restricted Voting Shares which must be made, by reason of
applicable securities legislation or by the rules or policies of a
stock exchange on which any shares or the Company are listed, to
all or substantially all of the holders or Restricted Voting
Shares.
(7) “Fundamental Transaction” means a
reorganization, recapitalization, reclassification, merger or
amalgamation or any similar transaction involving the
Company.
(8) “Liquidation Event” means a
distribution of assets of the Company to its shareholders arising
on the winding-up, liquidation or dissolution of the Company,
whether voluntary or involuntary, or any other distribution of its
assets for the purpose of winding up its affairs or
otherwise.
(9) “Residency Declaration” means (i) a
declaration by a person attesting that such person is not a
resident of the United States and (ii) any indemnity required by
the Company or the transfer agent in respect of such declaration in
favour of the Company from the person providing the declaration, in
each case in form approved by the Company from time to
time.
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(10) “Restricted
Voting Shares” means the Class A Restricted Voting Shares in
the capital of the Company.
(11) “United
States” means the United States of America, its territories
and possessions, any State of the United States and the District of
Columbia.
27.2 Common Shares
(1) Voting
Each
Common Share entitles the holder to receive notice of and to attend
any meeting of shareholders and to exercise one vote for each
Common Share held at all meetings of shareholders of the Company,
other than meetings at which only the holders of another class or
series of shares are entitled to vote separately as a class or
series. Except as provided otherwise herein or as required by law,
holders of Common Shares and Restricted Voting Shares shall vote as
one class at all meetings of shareholders of the
Company.
(2) Dividends
Subject
to the Canada Business Corporations Act, and subject to the rights
of the shares or any other class ranking senior to the Common
Shares with respect to priority in the payment or dividends, the
holders or Common Shares shall be entitled to receive dividends,
and the Company shall pay dividends thereon, as and when declared
by the Board out of moneys properly applicable to the payment of
dividends, pari passu with the holders of the Restricted Voting
Shares on a per share basis, in such amount and in such form as the
Board may from time to time determine; provided however that no
dividend on the Common Shares shall be declared unless
contemporaneously therewith the Board shall declare a dividend,
payable at the same time as such dividend on the Common Shares, on
each Restricted Voting Share. All dividends declared on the Common
Shares and on the Restricted Voting Shares shall be declared and
paid in equal amounts per share on all Common Shares and Restricted
Voting Shares at the time outstanding on the applicable record data
for such dividend. For purposes hereof, the payment of dividends by
way of a stock dividend in Common Shares on the Common Shares and
in Restricted Voting Shares on the Restricted Voting Shares in the
same number per share shall be considered to be a pari passu
payment of dividends.
(3) Liquidation
Event
Subject
to the rights of the shares of any other class ranking senior to
the Common Shares with respect to priority upon a Liquidation
Event, in the event of a Liquidation Event, the holders of Common
Shares and the holders of Restricted Voting Shares shall
participate rateably in equal amounts per share, without preference
or distinction, in the remaining assets of the
Company.
(4) Changes
to Common Shares
The
Common Shares shall not be subdivided, consolidated, reclassified
or otherwise changed unless, contemporaneously therewith, the
Restricted Voting Shares are subdivided, consolidated,
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reclassified
or otherwise changed in the same proportion and in the same manner
as the Common Shares.
27.3 Restricted Voting Shares
(1) Voting
Subject
to Article 27.3(2), each Restricted Voting Share entitles the
holder to receive notice of and to attend any meeting of
shareholders of the Company and to exercise one vote for each
Restricted Voting Share held at all meetings of shareholders of the
Company, other than meetings at which only the holders or another
class or series of shares are entitled to vote separately as a
class or series. Except as provided otherwise herein or as required
by law, holders or Common Shares and Restricted Voting Shares shall
vote as one class at all meetings of shareholders of the
Company.
(2) Limitation
on Voting Rights
The
Restricted Voting Shares carry no entitlement for the holder
thereof to vote for the election or removal of directors of the
Company.
(3) Dividends
Subject
to the Canada Business Corporations Act, and subject to the rights
of the shares of any other class ranking senior to the Restricted
Voting Shares with respect to priority in the payment of dividends,
the holders of Restricted Voting Shares shall be entitled to
receive dividends, and the Company shall pay dividends thereon, as
and when declared by the Board out of moneys properly applicable to
the payment of dividends, pari passu with the holders of the Common
Shares on a per share basis, in such amount and in such form as the
Board may from time to time determine; provided however that no
dividend on the Restricted Voting Shares shall be declared unless
contemporaneously therewith the Board shall declare a dividend,
payable at the same time as such dividend on the Restricted Voting
Shares, on each Common Share. All dividends declared on the Common
Shares and on the Restricted Voting Shares shall be declared and
paid in equal amounts per share on all Common Shares and Restricted
Voting Shares at the time outstanding on the applicable record date
for such dividend. For purposes hereof, the payment of dividends by
way of a stock dividend in Common Shares on the Common Shares and
in Restricted Voting Shares on the Restricted Voting Shares in the
same number per share shall be considered to be a pari passu
payment of dividends.
(4) Liquidation
Event
Subject
to the rights of the shares of any other class ranking senior to
the Restricted Voting Shares with respect to priority upon a
Liquidation Event, in the event of a Liquidation Event, the holders
of Restricted Voting Shares and the holders of Common Shares shall
participate rateably in equal amounts per share, without preference
or distinction, in the remaining assets of the
Company.
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(5) Restrictions
on Transfer
No
Restricted Voting Share shall be transferred by any holder thereof
pursuant to an Exclusionary Offer unless, concurrently with the
Exclusionary Offer, an offer to acquire Common Shares is made that
is identical to the Exclusionary Offer in terms of price per share,
percentage of outstanding shares to be taken up (exclusive of
shares owned immediately before the Exclusionary Offer by the
offeror) and in all other material respects (except with respect to
any additional conditions that may be attached to the Exclusionary
Offer).
(6) Conversion
at the Option of the Holder
Each
Restricted Voting Share may be converted into one Common Share,
without payment of additional consideration, at any time and from
time to time, at the option of the holder thereof, in accordance
with the procedures set forth in Article 27.3(7)
hereof.
(7) Conversion
Procedure
A
holder of Restricted Voting Shares may convert all or any number of
Restricted Voting Shares held by such holder into Common Shares in
accordance with Article 27.3(6) upon delivery by the holder of such
Restricted Voting Shares of a duly completed and executed
Conversion Notice and upon receipt by the transfer agent of the
Company of such notice and upon compliance with any requirements
the transfer agent or the Company may reasonably request, the
Company shall issue or cause to be issued the relevant number of
fully paid Common Shares. The effective time of conversion shall be
the close of business on the date of receipt of a valid Conversion
Notice by the transfer agent of the Company and the Common Shares
issuable upon conversion of such Restricted Voting Shares shall be
deemed to be issued and outstanding of record as of such
time.
(8) Conversion
at the Option of the Company
Each
Restricted Voting Share may be converted into one Common Share, at
any time and from time to time, at the option of the Company by
delivery to a holder of the Restricted Voting Share of a notice
indicating same and the holder of Restricted Voting Shares shall
only have the right to receive the relevant number of Common Shares
resulting from such conversion and any accrued and unpaid dividends
on the Restricted Voting Shares so converted upon compliance with
the terms of the notice. The effective time of conversion shall be
the close of business on the date specified in the notice of the
Company and the Common Shares issuable upon conversion of such
Restricted Voting Shares shall be deemed to be issued and
outstanding of record as of such time and the applicable Restricted
Voting Shares shall be cancelled at that time.
(9) Withdrawal
of Conversion Notice
Despite
any other provision hereof, a holder of a Restricted Voting Share
that has duly presented a Conversion Notice may, at any time before
such Restricted Voting Shares are converted and Common Shares are
issued, by irrevocable written notice to the Company, advise the
Company that the holder no longer desires that such Restricted
Voting Shares be converted into Common Shares and, upon receipt of
such written notice, the Company shall return to the holder the
certificates(s) representing such Restricted Voting Shares, if any,
and thereupon the Company shall cease to have
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any
obligation to convert such Restricted Voting Shares hereunder
unless such Restricted Voting Shares are again tendered for
conversion by the holder in accordance with the provisions
hereof.
(10) Fractional
Common Shares
The
Company shall not issue fractional Common Shares in satisfaction of
the conversion rights herein provided for. Where the exercise of
conversion rights pursuant to this Article would otherwise result
in fractional Common Shares being issued, the number of Common
Shares to be issued by the Company shall be rounded down to the
nearest whole number of Common Shares. A determination of whether
or not any fractional share would be issuable upon a conversion of
Restricted Voting Shares shall be made on the basis of the total
number of Restricted Voting Shares the holder has at the time
converting into Common Shares and the appropriate number of Common
Shares issuable upon conversion.
(11) Dividend
Entitlement
A
holder of Restricted Voting Shares on the record date for the
determination of holders of Restricted Voting Shares entitled to
receive a dividend declared payable on the Restricted Voting Shares
will be entitled to such dividend notwithstanding that such share
is converted after such record date and before the payment date of
such dividend, and the holders of any Common Shares resulting from
any conversion shall be entitled to rank equally with the holders
of all other Common Shares in respect of all dividends declared
payable to holders of Common Shares of record on any date on or
after the date of conversion.
(12) Adjustments
(a) If
there shall occur any Fundamental Transaction involving the Company
in which the Common Shares (but not the Restricted Voting Shares)
are converted into or exchanged for securities, cash or other
property (other than a transaction otherwise covered by this
Article 27.3(12)) then, following such Fundamental Transaction each
Restricted Voting Share shall thereafter be convertible, in lieu of
the Common Share into which it was convertible before such event,
into the kind and amount or securities, cash or other property
which a holder of the number of Common Shares issuable upon
conversion of one Restricted Voting Share immediately before such
Fundamental Transaction would have been entitled to receive
pursuant to such transaction; and, in such case, appropriate
adjustment (as determined by the Board) shall be made in the
application of the provisions of this Article 27.3(12)(a) with
respect to the rights and interests thereafter of the holders of
the Restricted Voting Shares, to the end that the provisions set
forth in this Article 27.3(12)(a) shall thereafter be applicable,
as nearly as reasonably may be, in relation to any securities or
other property thereafter deliverable upon the conversion of the
Restricted Voting Shares.
(b) The
Restricted Voting Shares shall not be subdivided, consolidated,
reclassified or otherwise changed unless, contemporaneously
therewith, the Common Shares are
|
- 46 -
subdivided,
consolidated, reclassified or otherwise changed in the same
proportion and in the same manner as the Restricted Voting
Shares.
(13) Public Distribution
Requirements
Conversion
of Restricted Voting Shares into Common Shares permitted under this
Article shall be subject to the Company meeting applicable
distribution requirements for public shareholders of the exchange
on which the Common Shares are then listed and posted for
trading.
|
Exhibit 4.1
PLANET 13 HOLDINGS INC.
- and
-
ODYSSEY TRUST COMPANY
WARRANT INDENTURE
Providing
for the Issue of
up to
2,679,500 Common Share Purchase Warrants
July 3,
2020
TABLE OF CONTENTS
ARTICLE 1 INTERPRETATION
|
6
|
1.1
|
Definitions
|
6
|
1.2
|
Words Importing the Singular
|
10
|
1.3
|
Interpretation not Affected by Headings
|
10
|
1.4
|
Day not a Business Day
|
10
|
1.5
|
Time of the Essence
|
11
|
1.6
|
Governing Law
|
11
|
1.7
|
Meaning of "outstanding" for Certain Purposes
|
11
|
1.8
|
Currency
|
11
|
1.9
|
Termination
|
11
|
ARTICLE 2 ISSUE OF WARRANTS
|
11
|
2.1
|
Issue of Warrants
|
11
|
2.2
|
Form and Terms of Warrants
|
12
|
2.3
|
Signing of Warrant Certificates
|
12
|
2.4
|
Authentication by the Warrant Agent
|
13
|
2.5
|
Warrantholder not a Shareholder, etc.
|
13
|
2.6
|
Issue in Substitution for Lost Warrant Certificates
|
13
|
2.7
|
Warrants to Rank Pari Passu
|
14
|
2.8
|
Registration and Transfer of Warrants
|
14
|
2.9
|
Registers Open for Inspection
|
16
|
2.10
|
Exchange of Warrants
|
16
|
2.11
|
Ownership of Warrants
|
16
|
2.12
|
Uncertificated Warrants
|
16
|
2.13
|
Adjustment of Exchange Basis
|
18
|
2.14
|
Rules Regarding Calculation of Adjustment of Exchange
Basis
|
22
|
2.15
|
Postponement of Subscription
|
24
|
2.16
|
Notice of Adjustment
|
24
|
2.17
|
No Action after Notice
|
24
|
2.18
|
Purchase of Warrants for Cancellation
|
25
|
2.19
|
Protection of Warrant Agent
|
25
|
2.20
|
U.S. Legend on Warrant Certificates and Warrant Share
certificates
|
25
|
ARTICLE 3 EXERCISE OF WARRANTS
|
27
|
3.1
|
Method of Exercise of Warrants
|
27
|
3.2
|
No Fractional Shares
|
29
|
3.3
|
Effect of Exercise of Warrants
|
29
|
3.4
|
Cancellation of Warrants
|
30
|
3.5
|
Subscription for less than Entitlement
|
30
|
3.6
|
Expiration of Warrant
|
30
|
3.7
|
Prohibition on Exercise by U.S. Persons; Exception
|
30
|
ARTICLE 4 COVENANTS FOR WARRANTHOLDERS' BENEFIT
|
31
|
4.1
|
General Covenants of the Company
|
31
|
4.2
|
Warrant Agent's Remuneration and Expenses
|
33
|
4.3
|
Performance of Covenants by Warrant Agent
|
33
|
4.4
|
Enforceability of Warrants
|
33
|
ARTICLE 5 ENFORCEMENT
|
33
|
5.1
|
Suits by Warrantholders
|
33
|
5.2
|
Limitation of Liability
|
34
|
5.3
|
Waiver of Default
|
34
|
ARTICLE 6 MEETINGS OF WARRANTHOLDERS
|
34
|
6.1
|
Right to Convene Meetings
|
34
|
6.2
|
Notice
|
35
|
6.3
|
Chairman
|
35
|
6.4
|
Quorum
|
35
|
6.5
|
Power to Adjourn
|
36
|
6.6
|
Show of Hands
|
36
|
6.7
|
Poll and Voting
|
36
|
6.8
|
Regulations
|
36
|
6.9
|
Company, Warrant Agent and Counsel may be Represented
|
36
|
6.10
|
Powers Exercisable by Extraordinary Resolution
|
36
|
6.11
|
Meaning of "Extraordinary Resolution"
|
37
|
6.12
|
Powers Cumulative
|
38
|
6.13
|
Minutes
|
38
|
6.14
|
Instruments in Writing
|
38
|
6.15
|
Binding Effect of Resolutions
|
39
|
6.16
|
Holdings by the Company or Subsidiaries of the Company
Disregarded
|
39
|
6.17
|
Common Shares or Warrants Owned by the Company or its Subsidiaries
–
|
Certificate to be Provided
|
39
|
ARTICLE 7
|
|
40
|
7.1
|
Provision for Supplemental Indentures for Certain
Purposes
|
40
|
7.2
|
Successor Companies
|
41
|
ARTICLE 8 CONCERNING THE WARRANT AGENT
|
41
|
8.1
|
Indenture Legislation
|
41
|
8.2
|
Rights and Duties of Warrant Agent
|
41
|
8.3
|
Evidence, Experts and Advisers
|
42
|
8.4
|
Securities, Documents and Monies Held by Warrant Agent
|
44
|
8.5
|
Actions by Warrant Agent to Protect Interests
|
44
|
8.6
|
Warrant Agent not Required to Give Security
|
44
|
8.7
|
Protection of Warrant Agent
|
44
|
8.8
|
Replacement of Warrant Agent
|
46
|
8.9
|
Conflict of Interest
|
47
|
8.10
|
Acceptance of Duties and Obligations
|
47
|
8.11
|
Warrant Agent not to be Appointed Receiver
|
47
|
8.12
|
Authorization to Carry on Business
|
48
|
ARTICLE 9 GENERAL
|
48
|
9.1
|
Notice to the Company and the Warrant Agent
|
48
|
9.2
|
Notice to the Warrantholders
|
49
|
9.3
|
Privacy
|
49
|
9.4
|
Third Party Interests
|
50
|
9.5
|
Securities Exchange Commission Certification
|
50
|
9.6
|
Discretion of Directors
|
50
|
9.7
|
Satisfaction and Discharge of Indenture
|
51
|
9.8
|
Provisions of Indenture and Warrants for the Sole Benefit of
Parties and
|
Warrantholders
|
51
|
9.9
|
Indenture to Prevail
|
51
|
9.10
|
Assignment
|
51
|
9.11
|
Severability
|
51
|
9.12
|
Force Majeure
|
51
|
9.13
|
Counterparts and Formal Date
|
52
|
Schedule
“A” Form of Warrant Certificate
Schedule
“B” Form of Declaration for Removal of
Legend
THIS WARRANT INDENTURE dated as of July 3, 2020
BETWEEN:
PLANET
13 HOLDINGS INC.,
a
company existing under the laws of British Columbia
(the
"Company")
AND
ODYSSEY
TRUST COMPANY,
a trust
company incorporated under the laws of Alberta and authorized to
carry on business in the provinces of Alberta and British
Columbia
(the
"Warrant
Agent")
RECITALS
WHEREAS:
A.
In connection with
the public offering by the Company of up to 5,359,000 Units (as
defined below) pursuant to a short form prospectus dated June 26,
2020 (the "Offering"), the
Company proposes to issue and sell to the public up to 2,679,500
Warrants (as defined below), of which 2,330,000 Warrants will be
issuable as a part of the base Offering and up to 349,500 Warrants
will be issuable upon the due exercise of the Over-Allotment Option
(as defined below);
B.
Each Warrant
entitles the holder thereof to purchase, subject to adjustment in
certain events, one Warrant Share (as defined below) at a price of
$2.85 at any time prior to 5:00 p.m. (Toronto time) on July 3,
2022;
C.
For such purpose
the Company deems it necessary to create and issue Warrants and
Warrant Certificates (as defined below) to be constituted and
issued in the manner hereinafter set forth;
D.
The Company is duly
authorized to create and issue the Warrants to be issued as herein
provided;
E.
All things
necessary have been done and performed to make the Warrants, when
Authenticated (as defined below) or certified by the Warrant Agent
and issued as provided in this Indenture, legal, valid and binding
upon the Company with the benefits of and subject to the terms of
this Indenture;
F.
The foregoing
recitals are made as statements of fact by the Company and not by
the Warrant Agent; and
G.
The Warrant Agent
has agreed to enter into this Indenture and to hold all rights,
interests and benefits contained herein for and on behalf of those
persons who become holders of Warrants issued pursuant to this
Indenture from time to time;
NOW THEREFORE THIS INDENTURE WITNESSES
that for good and valuable consideration mutually given and
received, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed and declared as
follows:
ARTICLE 1 INTERPRETATION
In this
Indenture, unless there is something in the subject matter or
context inconsistent therewith:
"Applicable Legislation" means the
provisions of the statutes of Canada and its provinces and the
regulations under those statutes relating to warrant indentures
and/or the rights, duties or obligations of issuers and warrant
agents under warrant indentures as are from time to time in force
and applicable to this Indenture;
"Authenticated" means (a) with respect to
the issuance of a Warrant Certificate, one which has been duly
signed by the Company and authenticated by manual signature of an
authorized officer of the Warrant Agent, and (b) with respect to
the issuance of an Uncertificated Warrant, one in respect of which
the Warrant Agent has completed all Internal Procedures such that
the particulars of such Uncertificated Warrant as required by
Section 2.4 are entered in the register of Warrantholders,
"Authenticate",
"Authenticating" and
"Authentication" have the
appropriate correlative meanings;
"Beneficial Owner" means a person that
has a beneficial interest in a Warrant;
"Book-Entry Only System" means the
book-based securities system administered by CDS in accordance with
its operating rules and procedures in force from time to
time;
"Business Day" means a day that is not a
Saturday, Sunday, or a day on which banks are closed or which is a
civic or statutory holiday in the City of Toronto, Ontario or
Calgary, Alberta;
"Capital Reorganization" has the meaning
ascribed to that term in Section 2.13(4); "CDS" means CDS Clearing and Depository
Services Inc. and its successors in interest;
"CDSX" means the CDS settlement and
clearing system for equity and debt securities in
Canada;
"Closing Date" means July 3, 2020 or such
other date as agreed to by the Company and the
Underwriters;
"Common Share Reorganization" has the
meaning ascribed to that term in Section 2.13(1); "Common Shares" means the common shares
in the capital of the Company;
"Company" means Planet 13 Holdings Inc.,
a corporation existing under the laws of British Columbia, and its
lawful successors from time to time;
"Company's Auditors" means the chartered
(professional) accountant or firm of chartered (professional)
accountants duly appointed as auditor or auditors of the Company
from time to time, including prior auditors of the Company, as
applicable;
"Confirmation" has the meaning ascribed
that term in Section 3.1(4);
"counsel" means a barrister and solicitor
or lawyer or a firm of barristers and solicitors or lawyers, in
both cases acceptable to the Warrant Agent;
"CSE" means the Canadian Securities
Exchange;
"Current Market Price" means, at any
date, the volume weighted average price per share at which the
Common Shares have traded:
(b)
if the Common
Shares are not listed on the CSE, on any stock exchange upon which
the Common Shares are listed, as may be selected for this purpose
by the board of directors of the Company, acting reasonably;
or
(c)
if the Common
Shares are not listed on any stock exchange, on any
over-the-counter market on which the Common Shares are trading, as
may be selected for this purpose by the board of directors of the
Company, acting reasonably;
during
the 20 consecutive trading days (on each of which at least 500
Common Share are traded in board lots) ending the second trading
day before such date; provided that the volume weighted average
price shall be determined by dividing the aggregate sale price of
all Common Shares sold in board lots on the exchange or market, as
the case may be, during the 20 consecutive trading days by the
number of Common Shares so sold on said exchange or market or, if
not traded on any recognized exchange or market, as determined by
the directors of the Company, acting reasonably;
"director" means a member of the board of
directors of the Company for the time being, and unless otherwise
specified herein, reference to "action by the board of directors" means
action by the board of directors of the Company as a board or,
whenever duly empowered, action by a committee of the
board;
"Dividend Paid in the Ordinary Course"
means dividends paid in any financial year of the Company, whether
in (i) cash, (ii) shares of the Company, (iii) warrants or similar
rights to purchase any shares of the Company or property or other
assets of the Company provided that the value of such dividends per
outstanding Common Share does not in such financial year exceed in
aggregate 5% of the Exercise Price;
"Exchange Basis" means, at any time, the
number of Warrant Shares or other classes of shares or securities
or property which a Warrantholder is entitled to receive upon the
exercise of the rights attached to the Warrants pursuant to the
terms of this Indenture, as the number may be adjusted pursuant to
Article 2 hereof, such number being equal to one Warrant Share per
Warrant as of the date hereof;
"Exercise Date" with respect to any
Warrant means the date on which such Warrant is duly surrendered
for exercise in accordance with the provisions of Article 3
hereof;
"Exercise Notice" has the meaning
ascribed that term in Section 3.1(4);
"Exercise Price" means $2.85 for each
Warrant Share, subject to adjustment in accordance with the
provisions of Article 2 hereof;
“Expiry Date” means July 3,
2022;
"extraordinary resolution" has the
meaning ascribed to that term in sections 6.12 and
6.15;
"Internal Procedures" means in respect of
the making of any one or more entries to, changes in or deletions
of any one or more entries in the register at any time (including
without limitation, original issuance or registration of transfer
of ownership) the minimum number of the Warrant Agent's internal
procedures customary at such time for the entry, change or deletion
made to be complete under the operating procedures followed at the
time by the Warrant Agent;
"Offering" has the meaning ascribed
thereto in Recital A of this Indenture;
“Original U.S. Purchaser” means a
Qualified Institutional Buyer who purchased Warrants as part of the
Offering;
"Over-Allotment Option" means the option
granted by the Company to the Underwriters, which may be exercised
in the Underwriters' sole discretion and without obligation, to
purchase up to an additional 699,000 Units, including up to 699,000
Unit Shares and up to 349,500 Warrants, for the purpose of covering
over-allotments made in connection with the Offering and for market
stabilization purposes, and which is exercisable for any
combination of additional Units, additional Unit Shares and/or
additional Warrants, from and including thirty (30) days following
the Closing Date;
"Participant" means a person recognized
by CDS as a participant in the Book-Entry Only System;
"person" means an individual, a
corporation, a limited liability company, a partnership, a
syndicate, a trustee or any unincorporated organization and words
importing persons are intended to have a similarly extended
meaning;
“Price” means the Exercise
Price;
“Qualified Institutional Buyer”
means a “qualified institutional buyer” as such term is
defined in Rule 144A under the U.S. Securities Act;
"QIB Letter" means the Qualified
Institutional Buyer Letter signed by the Original U.S.
Purchaser;
"Regulation S" means Regulation S as
promulgated under the U.S. Securities Act; "Rights Offering" has the meaning
ascribed to that term in Section 2.13(2); "Rights Offering Price" has the meaning
ascribed to that term in Section 2.14(8);
"Securities Laws" means, collectively,
the applicable securities laws and regulations of each of the
provinces of Canada, except Quebec, the United States and each of
the states of the United States, together with all respective
regulations made and forms prescribed thereunder,
published rules,
policy statements, notices, orders and rulings of the securities
commissions or similar regulatory authorities thereto, as
applicable, including the rules and policies of the
CSE;
"shareholder" means an owner of record of
one or more Common Shares or shares of any other class or series of
the Company;
"Special Distribution" has the meaning
ascribed to that term in Section 2.13(3);
"Subsidiary" means a corporation, a
majority of the outstanding voting shares of which are owned,
directly or indirectly, by the Company or by one or more
subsidiaries of the Company and, as used in this definition,
"voting shares" means shares of a class or classes ordinarily
entitled to vote for the election of the majority of the directors
of a corporation irrespective of whether or not shares of any other
class or classes shall have or might have the right to vote for
directors by reason of the happening of any
contingency;
"successor company" has the meaning
ascribed to that term in Section 7.2;
"this Indenture", "herein", "hereby" and similar expressions mean or
refer to this Common Share purchase warrant indenture and any
indenture, deed or instrument supplemental or ancillary hereto; and
the expressions "Article",
"section", or "paragraph" followed by a number or
letter mean and refer to the specified Article, section, or
paragraph of this Indenture;
"Time of Expiry" means 5:00 p.m. (Toronto
time) on the Expiry Date;
"trading day" means a day on which the
CSE (or such other exchange on which the Common Shares are listed)
is open for trading, and if the Common Shares are not listed on a
stock exchange, a day on which an over-the-counter market where
such shares are traded is open for business;
"transaction instruction" means a written
order signed by the holder or CDS, entitled to request that one or
more actions be taken, or such other form as may be reasonably
acceptable to the Warrant Agent, requesting one or more such
actions to be taken in respect of an Uncertificated
Warrant;
"Transfer Agent" means the transfer agent
or agents for the time being for the Common Shares;
"U.S. Person" means a U.S. person as that
term is defined under Regulation S; "U.S. Securities Act" means the United
States Securities Act of 1933, as amended;
"Uncertificated Warrant" means any
Warrant which is issued under the Book-Entry Only System or any
Warrant which is not a certificated Warrant;
"Underwriters" means collectively Beacon
Securities Limited and Canaccord Genuity Corp.;
"Unit Share" means a Common Share
comprising part of each Unit;
"United States" means the United States
as that term is defined in Regulation S;
"Units" means the units of the Company,
each Unit being comprised of one Unit Share and one-half
Warrant;
"Warrant Agent" means Odyssey Trust
Company, a trust company incorporated under the laws of Alberta and
authorized to carry on business in the provinces of Alberta and
British Columbia or any lawful successor thereto including through
the operation of Section 8.8;
"Warrant Certificates" means the
certificates representing Warrants substantially in the form
attached as Schedule "A" hereto or such other form as may be
approved by the Company and the Warrant Agent;
"Warrant Shares" means the Common Shares
or, as a result of any adjustment to the subscription rights
pursuant to Article 2 hereof, other securities or property issuable
upon the exercise of the Warrants;
"Warrantholders" or "holders" means the persons whose names
are entered for the time being in the register maintained pursuant
to Section 2.8;
"Warrantholders' Request" means an
instrument, signed in one or more counterparts by Warrantholders
representing, in the aggregate, at least 20% of the aggregate
number of Warrants then outstanding, which requests the Warrant
Agent to take some action or proceeding specified
therein;
"Warrants" means the Common Share
purchase warrants of the Company issued and Authenticated hereunder
as Uncertificated Warrants or to be issued and countersigned in the
form of Warrant Certificates, in either case, entitling the holders
thereof to purchase Warrant Shares on the basis of one Warrant
Share for each Warrant upon payment of the Exercise Price prior to
the Time of Expiry; provided that in each case the number and/or
class of securities or property receivable on the exercise of the
Warrants may be subject to increase or decrease or change in
accordance with the terms and provisions hereof; and
"written direction of the Company",
"written request of the
Company", "written consent
of the Company", "Officer's
Certificate" and "certificate of the Company" and any
other document required to be signed by the Company, means,
respectively, a written direction, request, consent, certificate or
other document signed in the name of the Company by any officer or
director and may consist of one or more instruments so
executed.
1.2
Words Importing the Singular
Unless
elsewhere otherwise expressly provided, or unless the context
otherwise requires, words importing the singular include the plural
and vice versa and words importing the masculine gender include the
feminine and neuter genders.
1.3
Interpretation not Affected by Headings
The
division of this Indenture into Articles, sections, and paragraphs,
the provision of a table of contents and the insertion of headings
are for convenience of reference only and shall not affect the
construction or interpretation of this Indenture.
1.4
Day not a Business Day
If any
day on or before which any action is required or permitted to be
taken hereunder is not a Business Day, then such action shall be
required or permitted to be taken on or before the requisite time
on the next succeeding day that is a Business Day.
Time
shall be of the essence in all respects of this Indenture and the
Warrants issued hereunder.
This
Indenture and the Warrants issued hereunder shall be construed and
enforced in accordance with the laws of the Province of Ontario and
the federal laws of Canada applicable therein and shall be treated
in all respects as Ontario contracts.
1.7
Meaning of "outstanding" for Certain Purposes
Every
Warrant Authenticated or certified by the Warrant Agent hereunder
shall be deemed to be outstanding until it shall be cancelled or
delivered to the Warrant Agent for cancellation, exercised pursuant
to Section 3.1 or until the Time of Expiry; provided that where a
new Warrant Certificate has been issued pursuant to Section 2.6 to
replace one which is lost, mutilated, stolen or destroyed, the
Warrants represented by only one of such Warrant Certificates shall
be counted for the purpose of determining the aggregate number of
Warrants outstanding.
Unless
otherwise stated, all dollar amounts referred to in this Indenture
are in Canadian dollars.
This
Indenture shall continue in full force and effect until the earlier
of: (a) the Time of Expiry; and (b) provided that no Warrants
remain issuable pursuant to the terms of this Indenture, the date
that no Warrants are outstanding hereunder; provided that this
Indenture shall continue in effect thereafter, if applicable, until
the Company and the Warrant Agent have fulfilled all of their
respective obligations under this Indenture.
ARTICLE 2 ISSUE OF WARRANTS
Subject
to adjustment in accordance with the provisions hereof, the Company
creates and authorizes the issuance of up to 2,679,500 Warrants
entitling the registered holders thereof to acquire an aggregate of
up to 2,679,500 Warrant Shares, all of which are hereby created and
authorized to be issued hereunder at the Exercise Price upon the
terms and conditions as set forth herein. Uncertificated Warrants
shall be Authenticated by the Warrant Agent and deposited in CDS
and Warrant Certificates evidencing the Warrants shall be executed
by the Company, certified by or on behalf of the Warrant Agent and
delivered by the Warrant Agent in accordance with a written
direction of the Company, all in accordance with sections 2.3 and
2.4. Subject to adjustment in accordance with the provisions of
this Indenture, each of the
Warrants issued hereunder shall entitle the holder thereof to
receive from the Company, at the Exercise Price, the number of
Warrant Shares equal to the Exchange Basis in effect on the
Exercise Date.
2.2
Form and Terms of Warrants
(1) The Warrants may be
issued in either certificated or uncertificated form. The Warrant
Certificates shall be substantially in the form attached as
Schedule "A" hereto, subject to the provisions of this Indenture,
with such additions, variations and changes as may be required or
permitted by the terms of this Indenture, and to give effect to any
Warrants not being issued as Uncertificated Warrants, and which may
from time to time be agreed upon by the Warrant Agent and the
Company, and shall have such legends, distinguishing letters and
numbers as the Company may, with the approval of the Warrant Agent,
prescribe. Except as hereinafter provided in this Article 2, all
Warrants shall, save as to denominations, be of like tenor and
effect. The Warrant Certificates may be engraved, printed,
lithographed, photocopied or be partially in one form or another,
as the Company may determine. No change in the form of the Warrant
Certificate shall be required by reason of any adjustment made
pursuant to this Article 2 in the number and/or class of securities
or type of securities or property that may be acquired pursuant to
the Warrants. All Warrants issued to CDS may be in either a
certificated or uncertificated form, such uncertificated form being
evidenced by a book position on the register of Warrantholders to
be maintained by the Warrant Agent in accordance with Section
2.8.
(2) Each Warrant
authorized to be issued hereunder shall entitle the registered
holder thereof to acquire (subject to sections 2.13, 2.14 and 2.15)
upon due exercise and upon the transaction instruction or due
execution of the exercise form endorsed on the Warrant Certificate,
as applicable, or other instrument of exercise in such form as the
Warrant Agent and/or the Company may from time to time prescribe
and upon payment of the Exercise Price, one Warrant Share or such
other kind and amount of shares or securities or property,
calculated pursuant to the provisions of sections 2.13 and 2.14, as
the case may be, at any time after the date of issuance of such
Warrants and prior to the Time of Expiry, in accordance with the
provisions of this Indenture.
(3) Fractional Warrants
shall not be issued or otherwise provided for. If any fraction of a
Warrant would otherwise be issuable and result in a fraction of a
Warrant Share being issuable, any such fractional Warrant so issued
shall be rounded down to the nearest whole Warrant without
compensation therefor.
2.3
Signing of Warrant Certificates
Warrant
Certificates shall be signed by any one of the directors or
officers of the Company and may, but need not be under the
corporate seal of the Company or a reproduction thereof. The
signature of any such director or officer may be mechanically
reproduced in facsimile or other electronic format and Warrant
Certificates bearing such facsimile or other electronic format
signatures shall be binding upon the Company as if they had been
manually signed by such director or officer. Notwithstanding that
the person whose manual or electronic signature appears on any
Warrant Certificate as a director or officer may no longer hold
office at the date of issue of the Warrant Certificate or at the
date of certification or delivery thereof, any Warrant Certificate
Authenticated or signed as aforesaid shall, subject to Section 2.4,
be valid and binding upon the Company and the registered holder
thereof will be entitled to the benefits of this
Indenture.
2.4
Authentication by the Warrant Agent
(1) No Warrant shall be
issued or, if issued, shall be valid for any purpose or entitle the
registered holder to the benefit hereof or thereof until it has
been Authenticated by or on behalf of the Warrant Agent, as
applicable, and such Authentication by the Warrant Agent shall be
conclusive evidence as against the Company that the Warrant so
Authenticated has been duly issued hereunder and the holder is
entitled to the benefits hereof.
(2) The Warrant Agent
shall Authenticate Uncertificated Warrants (whether upon original
issuance, exchange, registration of transfer, partial payment, or
otherwise) by completing its Internal Procedures and the Company
shall, and hereby acknowledges that it shall, thereupon be deemed
to have duly and validly issued such Uncertificated Warrants under
this Indenture. Such Authentication shall be conclusive evidence
that such Uncertificated Warrant has been duly issued hereunder and
that the holder or holders are entitled to the benefits of this
Indenture. The register shall be final and conclusive evidence as
to all matters relating to Uncertificated Warrants with respect to
which this Indenture requires the Warrant Agent to maintain records
or accounts. In case of differences between the register at any
time and any other time, the register at the later time shall be
controlling, absent manifest error and such Uncertificated Warrants
are binding on the Company.
(3) Any Warrant
Certificate validly issued in accordance with the terms of this
Indenture in effect at the time of issue shall, subject to the
terms of this Indenture and applicable law, validly entitle the
holder to acquire Warrant Shares, notwithstanding that the form of
such Warrant Certificate may not be in the form currently required
by this Indenture.
(4) No Warrant
Certificate shall be considered issued or shall be obligatory or
shall entitle the holder thereof to the benefits of this Indenture,
until it has been Authenticated by or on behalf of the Warrant
Agent substantially in the form of the Warrant Certificate set out
in Schedule "A" hereto. Such Authentication on any such Warrant
Certificate shall be conclusive evidence that such Warrant
Certificate is duly Authenticated and is valid and a binding
obligation of the Company and that the holder is entitled to the
benefits of this Indenture.
(5) The Authentication
or certification of the Warrant Agent on the Warrants issued
hereunder, including by way of entry on the register, shall not be
construed as a representation or warranty by the Warrant Agent as
to the validity of this Indenture or the Warrants (except the due
Authentication and certification thereof) or as to the performance
by the Company of its obligations under this Indenture and the
Warrant Agent shall in no respect be liable or answerable for the
use made of the Warrants or any of them or of the consideration
therefor except as otherwise specified herein.
2.5
Warrantholder not a Shareholder, etc.
Nothing
in this Indenture or the holding of a Warrant shall be construed as
conferring upon a Warrantholder any right or interest whatsoever as
a shareholder, including but not limited to the right to vote at,
to receive notice of, or to attend meetings of shareholders or any
other proceedings of the Company, nor entitle the holder to any
right or interest in respect thereof except as herein and in the
Warrants expressly provided.
2.6
Issue in Substitution for Lost Warrant Certificates
(1) If any Warrant
Certificates issued and certified under this Indenture shall become
mutilated or be lost, destroyed or stolen, the Company, subject to
applicable law, and Section 2.6(2), shall issue and thereupon the
Warrant Agent shall certify and deliver a new Warrant Certificate
of like denomination, date and tenor as the one mutilated, lost,
destroyed or stolen in exchange for, in place of and upon
cancellation of such mutilated Warrant Certificate, or in lieu of
and in substitution for such lost, destroyed or stolen Warrant
Certificate, and the substituted Warrant Certificate shall be
substantially in the form set out in Schedule "A" hereto and
Warrants evidenced by it will entitle the holder thereof to the
benefits hereof and shall rank equally in accordance with its terms
with all other Warrant Certificates issued or to be issued
hereunder.
(2) The applicant for
the issue of a new Warrant Certificate pursuant to this Section
shall bear the reasonable cost of the issue thereof and in the case
of mutilation shall, as a condition precedent to the issue thereof,
deliver to the Warrant Agent the mutilated Warrant Certificate, and
in the case of loss, destruction or theft shall, as a condition
precedent to the issue thereof, furnish to the Company and to the
Warrant Agent such evidence of ownership and of the loss,
destruction or theft of the Warrant Certificate so lost, destroyed
or stolen as shall be satisfactory to the Company and to the
Warrant Agent in their sole discretion, acting reasonably, and such
applicant may be required to furnish an indemnity and surety bond
in amount and form satisfactory to the Company and the Warrant
Agent in their sole discretion, acting reasonably, and shall pay
the reasonable charges of the Company and the Warrant Agent in
connection therewith.
2.7
Warrants to Rank Pari Passu
All
Warrants shall rank pari
passu with all other Warrants, whatever may be the actual
date of issue of the Warrants.
2.8
Registration and Transfer of Warrants
(1) The
Warrant Agent will create and keep at the principal stock transfer
offices of the Warrant Agent in the City of Calgary,
Alberta:
(a)
a register of
holders in which shall be entered in alphabetical order the names
and addresses of the holders of Warrants and particulars of the
Warrants held by them and the Warrant Agent shall be entitled to
rely on such register in connection with the exchange, transfer,
exercise or deemed exercise of any Warrant(s) pursuant to the terms
of this Indenture or the terms thereof; and
(b)
a register of
transfers in which all transfers of Warrants and the date and other
particulars of each such transfer shall be entered.
(2) No
transfer of any Warrant will be valid unless entered on the
register of transfers referred to in Section 2.8(1), upon surrender
to the Warrant Agent of the Warrant Certificate evidencing such
Warrant, and a duly completed and executed transfer form endorsed
on the Warrant Certificate or in the case of Uncertificated
Warrants a duly executed transaction instruction from the holder
(or such other instructions, in form satisfactory to the Warrant
Agent) executed by the registered holder or his executors,
administrators or other legal representatives or his attorney duly
appointed by an instrument in writing in form and execution
satisfactory to the Warrant Agent, if applicable, and, upon
compliance with such requirements and such other reasonable
requirements as the Warrant Agent may prescribe and all applicable
securities requirements of regulatory authorities, such transfer
will be recorded on the register of transfers by the Warrant Agent.
Upon compliance with such requirements, the Warrant Agent shall
issue to the transferee a Warrant Certificate, or in the case of an
Uncertificated Warrant, the Warrant Agent shall Authenticate and
deliver a Warrant Certificate upon request that part of the
Uncertificated Warrant be certificated. Transfers within the
systems of CDS are not the responsibility of the Warrant Agent and
will not be noted on the register maintained by the Warrant
Agent.
(3) The transferee of
any Warrant will, after surrender to the Warrant Agent of the
Warrant as required by Section 2.8(2) and upon compliance with all
other conditions in respect thereof required by this Indenture or
by law, be entitled to be entered on the register of holders
referred to in Section 2.8(1) as the owner of such Warrant free
from all equities or rights of setoff or counterclaim between the
Company and the transferor or any previous holder of such Warrant,
except in respect of equities of which the Company is required to
take notice by statute or by order of a court of competent
jurisdiction.
(4) The Company will be
entitled, and may direct the Warrant Agent, to refuse to recognize
any transfer, or enter the name of any transferee, of any Warrant
on the registers referred to in Section 2.8(1), if such transfer
would constitute a violation of the Securities Laws of any
applicable jurisdiction or the rules, regulations or policies of
any regulatory authority having jurisdiction. The Warrant Agent is
entitled to assume compliance with all applicable Securities Laws
unless otherwise notified in writing by the Company. No duty shall
rest with the Warrant Agent to determine compliance of the
transferee or transferor of any Warrant with applicable Securities
Laws.
(5) Any Warrant issued
to a transferee upon transfers contemplated by this section 2.8
shall bear the appropriate legend as set forth in Section 2.20(2),
if applicable.
(6) If a Warrant
tendered for transfer bears the legend set forth in Section
2.20(2), the Warrant Agent shall not register such transfer unless
the transferor has provided the Warrant Agent with the Warrant and
complies with the requirements of the said Section
2.20(2).
(7) Warrants, in
certificated form, bearing the legend set forth in Section 2.20(2)
shall not be offered, sold, pledged or otherwise transferred,
directly or indirectly, except (A) to the Company; (B) outside the
United States in compliance with Rule 904 of Regulation S, if
available, and in compliance with applicable local laws and
regulations; (C) pursuant to an exemption from registration under
the U.S. Securities Act provided by (i) Rule 144 or (ii) Rule 144A
thereunder, if available, and in compliance with applicable U.S.
state securities laws; (D) in compliance with another exemption
from registration under the U.S. Securities Act and applicable
state securities laws; or (E) under an effective registration
statement under the U.S. Securities Act, provided that in the case
of transfers pursuant to (C)(i) or (D) above, a legal opinion or
other evidence, reasonably satisfactory to the Company, must first
be provided to the Company and the Warrant Agent to the effect that
such transfer is exempt from registration under the U.S. Securities
Act and applicable state securities laws..
(8)
The Warrant Agent shall give notice to the Company of the
transfer made by a Warrantholder pursuant to Section 2.8(7) and the
Company shall provide written authorization to proceed with the
transfer before such transfer is made effective by the issuance of
the Warrant.
2.9
Registers Open for Inspection
The
registers referred to in Section 2.8(1) shall be open at all
reasonable times during business hours on a Business Day for
inspection by the Company or any Warrantholder. The Warrant Agent
shall, from time to time when requested to do so in writing by the
Company, furnish the Company with a list of the names and addresses
of holders of Warrants entered in the register of holders kept by
the Warrant Agent and showing the number of Warrants held by each
such holder.
2.10
Exchange of Warrants
(1) Warrants may, upon
compliance with the reasonable requirements of the Warrant Agent,
be exchanged for Warrants in any other authorized denomination
representing in the aggregate an equal number of Warrants as the
number of Warrants represented by the Warrants being exchanged. The
Company shall sign and the Warrant Agent shall Authenticate or
certify, in accordance with sections 2.3 and 2.4, all Warrants
necessary to carry out the exchanges contemplated
herein.
(2) Warrants may be
exchanged only at the principal stock transfer offices of the
Warrant Agent in the City of Calgary, Alberta or at any other place
that is designated by the Company with the approval of the Warrant
Agent. Any Warrants tendered for exchange shall be surrendered to
the Warrant Agent and cancelled.
(3) Except as otherwise
herein provided, the Warrant Agent may charge Warrantholders
requesting an exchange a reasonable sum for each Warrant
Certificate issued; and payment of such charges and reimbursement
of the Warrant Agent or the Company for any and all taxes or
governmental or other charges required to be paid shall be made by
the party requesting such exchange as a condition precedent to such
exchange.
2.11
Ownership of Warrants
The
Company and the Warrant Agent and their respective agents may deem
and treat the registered holder of any Warrant as the absolute
owner of the Warrant represented thereby for all purposes and the
Company and the Warrant Agent and their respective agents shall not
be affected by any notice or knowledge to the contrary except as
required by statute or order of a court of competent jurisdiction.
The holder of any Warrant shall be entitled to the rights evidenced
by that Warrant free from all equities or rights of set-off or
counterclaim between the Company and the original or any
intermediate holder thereof, except in respect of equities of which
the Company is required to take notice by statute or by order of a
court of competent jurisdiction and all persons may act accordingly
and the receipt by any holder of the Warrant Shares or monies
obtainable pursuant to the exercise of the Warrant shall be a good
discharge to the Company and the Warrant Agent for the same and
neither the Company nor the Warrant Agent shall be bound to inquire
into the title of any holder.
2.12
Uncertificated
Warrants
(1)
Registration and re-registration of beneficial interests in and
transfers of Warrants held by CDS shall be made only through the
Book-Entry Only System and no Warrant Certificates shall be issued
in respect of such Warrants except where physical certificates
evidencing
ownership in such securities are required or as set out herein or
as may be requested by CDS, as determined by the Company, from time
to time. Except as provided in this Section 2.12, owners of
beneficial interests in any Uncertificated Warrants shall not be
entitled to have Warrants registered in their names and shall not
receive or be entitled to receive Warrants in definitive form or to
have their names appear in the register referred to in Section 2.8
herein. Notwithstanding any terms set out herein, Warrants subject
to the restrictions and any legend set forth in Section 2.20 herein
and held in the name of CDS may only be held in the form of
Uncertificated Warrants with the prior consent of the Company and
CDS.
(2)
If any Warrant is issued in uncertificated form and any of the
following events occurs:
(a)
CDS or the Company
has notified the Warrant Agent that (A) CDS is unwilling or unable
to continue as depository or (B) CDS ceases to be a clearing agency
in good standing under applicable laws and, in either case, the
Company is unable to locate a qualified successor depository within
ninety (90) days of delivery of such notice;
(b)
the Company has
determined, in its sole discretion, acting reasonably, to terminate
the Book-Entry Only System in respect of such Uncertificated
Warrants and has communicated such determination to the Warrant
Agent in writing;
(c)
the Company or CDS
is required by applicable law to take the action contemplated in
this section;
(d)
there is an
exercise of Warrants pursuant to 3.1(4) and the Warrantholder is
unable to make the representations in 3.1(4) (a), (b), (c) and (d)
thereto; or
(e)
the Book-Entry Only
System administered by CDS ceases to exist,
then
one or more definitive fully registered Warrant Certificates shall
be executed by the Company and certified and delivered by the
Warrant Agent to CDS in exchange for the Uncertificated Warrants
held by CDS. The Company shall provide an Officer's Certificate
giving notice to the Warrant Agent of the occurrence of any event
outlined in this Section 2.12(2).
Fully
registered Warrant Certificates issued and exchanged pursuant to
this section shall be registered in such names and in such
denominations as CDS shall instruct the Warrant Agent, provided
that the aggregate number of Warrants represented by such Warrant
Certificates shall be equal to the aggregate number of
Uncertificated Warrants so exchanged. Upon exchange of
Uncertificated Warrants for one or more Warrant Certificates in
definitive form, such Uncertificated Warrants shall be cancelled by
the Warrant Agent.
(3)
Subject to the provisions of this Section 2.12, any exchange of
Warrants for Warrants which are
not Uncertificated Warrants may be made in whole or in part in
accordance with the provisions of Section 2.10, mutatis mutandis. All such Warrants
issued in exchange for Uncertificated Warrants or any portion
thereof shall be registered in such names as CDS for such
Uncertificated Warrants shall direct and shall be entitled to the
same benefits and subject to the same terms and conditions (except
insofar as they relate specifically to Uncertificated
Warrants) as the Uncertificated Warrants or portion thereof
surrendered upon such exchange.
(4) Every
Warrant Authenticated upon registration of transfer of
Uncertificated Warrants, or in exchange for or in lieu of
Uncertificated Warrants or any portion thereof, whether pursuant to
this Section 2.12, or otherwise, shall be Authenticated in the form
of, and shall be, an Uncertificated Warrant, unless such Warrant is
registered in the name of a person other than CDS for such
Uncertificated Warrant or a nominee thereof.
(5) Notwithstanding
anything to the contrary in this Indenture, subject to Applicable
Legislation, the Warrants to be issued to CDS or a nominee thereof
will be issued as an Uncertificated Warrant, unless otherwise
requested in writing by CDS or the Company.
(6) The
rights of Beneficial Owners of Warrants who hold securities
entitlements in respect of the Warrants through the Book-Entry Only
System shall be limited to those established by applicable law and
agreements between CDS and the Participants and between such
Participants and the Beneficial Owners of Warrants who hold
securities entitlements in respect of the Warrants through the
Book-Entry Only System, and such rights must be exercised through a
Participant in accordance with the rules and procedures of
CDS.
(7) Notwithstanding
anything herein to the contrary, neither the Company nor the
Warrant Agent nor any agent thereof shall have any responsibility
or liability for:
(a)
the electronic
records maintained by CDS relating to any ownership interests or
any other interests in the Warrants or the depository system
maintained by CDS, or payments made on account of any ownership
interest or any other interest of any person in any Warrant
represented by an electronic position in the Book-Entry Only System
(other than CDS or its nominee);
(b)
maintaining,
supervising or reviewing any records of CDS or any Participant
relating to any such interest; or
(c)
any advice or
representation made or given by CDS or those contained herein that
relate to the rules and regulations of CDS or any action to be
taken by CDS on its own direction or at the direction of any
Participant.
(8) The
Company may terminate the application of this Section 2.12 in its
sole discretion, acting reasonably, in which case all Warrants
shall be evidenced by Warrant Certificates registered in the
name(s) of a person other than CDS.
2.13
Adjustment of Exchange Basis
Subject
to Section 2.14, the Exchange Basis shall be subject to adjustment
from time to time in the events and in the manner provided as
follows:
(1) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, the Company shall:
(a)
issue Common Shares
or securities exchangeable for or convertible into Common Shares to
all or substantially all the holders of the Common Shares as a stock
dividend or other distribution (other than a distribution of Common
Shares upon the exercise of Warrants); or
(b)
subdivide, redivide
or change its then outstanding Common Shares into a greater number
of Common Shares; or
(c)
reduce, combine or
consolidate its then outstanding Common Shares into a lesser number
of Common Shares,
(any of
such events in these paragraphs (a), (b) or (c) being called a
"Common Share
Reorganization"), then the Exchange Basis in effect on the
effective date of such subdivision or consolidation, or on the
record date of such stock dividend or other distribution, as the
case may be, shall be adjusted by multiplying the Exchange Basis in
effect immediately prior to such effective or record date by a
fraction:
(a)
the numerator of
which shall be the total number of Common Shares outstanding on
such date immediately after giving effect to such Common Share
Reorganization (including, in the case where securities
exchangeable for or convertible into Common Shares are distributed,
the number of Common Shares that would have been outstanding had
such securities been exchanged for or converted into Common Shares
on such record date, assuming in any case where such securities are
not then convertible or exchangeable but subsequently become so,
that they were convertible or exchangeable on the record date on
the basis upon which they first become convertible or
exchangeable), and
(b)
the denominator of
which shall be the total number of Common Shares outstanding on
such date before giving effect to such Common Share
Reorganization.
The
resulting product, adjusted to the nearest 1/100th, shall
thereafter be the Exchange Basis until further adjusted as provided
in this Article 2. To the extent that any adjustment in the
Exchange Basis occurs pursuant to this Section 2.13(1) as a result
of the fixing by the Company of a record date for the distribution
of securities exchangeable for or convertible into Common Shares
and the Common Share Reorganization does not occur or any
conversion or exchange rights are not fully exercised, the Exchange
Basis shall be readjusted immediately after the expiry of any
relevant exchange or conversion right or the termination of the
Common Share Reorganization, as the case may be, to the Exchange
Basis that would then be in effect, based upon the number of Common
Shares actually issued and remaining issuable pursuant to the
Common Share Reorganization after such expiry and shall be further
readjusted in such manner upon the expiry of any further such
right.
(2) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, the Company shall fix a record date for the
distribution to all or substantially all of the holders of its
outstanding Common Shares of rights, options or warrants entitling
them, for a period expiring not more than forty-five (45) days
after such record date, to subscribe for or purchase Common Shares,
or securities exchangeable for or convertible into Common Shares,
at a price per share to the holder (or at an exchange or conversion
price per share) of less than 95% of the Current Market Price on
such record date (any of such events being called a "Rights Offering"), then the Exchange
Basis shall be adjusted effective immediately after such record
date
for the Rights Offering by multiplying the Exchange Basis in effect
immediately prior to such record date by a
fraction:
(a)
the numerator of
which shall be the number of Common Shares which would be
outstanding after giving effect to the Rights Offering (assuming
the exercise of all of the rights, options or warrants under the
Rights Offering and assuming the exchange for or conversion into
Common Shares of all exchangeable or convertible securities issued
upon exercise of such rights, options or warrants, if any),
and
(b)
the denominator of
which shall be the aggregate of:
(i)
the total number of
Common Shares outstanding as of the record date for the Rights
Offering, and
(ii)
a number of Common
Shares determined by dividing
(A)
the amount equal to
the aggregate consideration payable on the exercise of all of the
rights, options and warrants under the Rights Offering plus the
aggregate consideration, if any, payable on the exchange or
conversion of the exchangeable or convertible securities issued
upon exercise of such rights, options or warrants (assuming the
exercise of all rights, options and warrants under the Rights
Offering and assuming the exchange or conversion of all
exchangeable or convertible securities issued upon exercise of such
rights, options and warrants);
by
(B)
the Current Market
Price as of the record date for the Rights Offering.
The
resulting product, adjusted to the nearest 1/100th, shall thereafter
be the Exchange Basis until further adjusted as provided in this
Article 2. Any Common Shares owned by or held for the account of
the Company or any of its Subsidiaries or a partnership in which
the Company is directly or indirectly a party to will be deemed not
to be outstanding for the purpose of any computation. If, at the
date of expiry of the rights, options or warrants subject to the
Rights Offering, less than all the rights, options or warrants have
been exercised, then the Exchange Basis shall be readjusted
immediately after the date of expiry to the Exchange Basis that
would have been in effect on the date of expiry if only the rights,
options or warrants issued had been those exercised. If at the date
of expiry of the rights of exchange or conversion of any securities
issued pursuant to the Rights Offering less than all of such
securities have been exchanged or converted into Common Shares,
then the Exchange Basis shall be readjusted immediately after the
date of expiry to the Exchange Basis that would have been in effect
on the date of expiry if only the exchangeable or convertible
securities issued had been those securities actually exchanged for
or converted into Common Shares.
(3) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, the Company shall fix a record date for the
issuance or distribution to all or substantially all the
holders
of its outstanding Common Shares of:
(a)
shares of the
Company of any class other than Common Shares; or
(b)
rights, options or
warrants to acquire Common Shares or securities exchangeable for or
convertible into Common Shares; or
(c)
evidences of
indebtedness; or
(d)
cash, securities or
any property or other assets,
and if
such issuance or distribution does not constitute a Common Share
Reorganization or a Rights Offering (any of such non-excluded
events being herein called a "Special Distribution"), the Exchange
Basis shall be adjusted effective immediately after such record
date for the Special Distribution by multiplying the Exchange Basis
in effect immediately prior to such record date by a
fraction:
(a)
the numerator of
which shall be the number of Common Shares outstanding on such
record date multiplied by the Current Market Price on such record
date, and
(b)
the denominator of
which shall be:
(A)
the number of
Common Shares outstanding on such record date multiplied by the
Current Market Price on such record date, less
(B)
the fair market
value, as determined by action by the board of directors acting
reasonably and in good faith (whose determination, absent manifest
error, shall be conclusive), to the holders of the Common Shares of
the shares, rights, options, warrants, evidences of indebtedness or
securities, property or other assets issued or distributed in the
Special Distribution provided that no such adjustment shall be made
if the result of such adjustment would be to decrease the Exchange
Basis in effect immediately before such record date.
The
resulting product, adjusted to the nearest 1/100th, shall thereafter
be the Exchange Basis until further adjusted as provided in this
Article 2. Any Common Shares owned by or held for the account of
the Company or any of its Subsidiaries or a partnership of which
the Company is directly or indirectly a party, will be deemed not
to be outstanding for the purpose of any such
computation.
(4) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, there shall be a reclassification of the Common
Shares at any time outstanding or change or exchange of the Common
Shares into or for other shares or into or for other securities or
property (other than a Common Share Reorganization), or a
consolidation, amalgamation, arrangement or merger of the Company
with or into any other corporation or other entity (other than a
consolidation, amalgamation, arrangement or merger which does not
result in any reclassification of the outstanding Common Shares or
a change or exchange of the Common Shares into or for other shares,
securities or property), or a transfer (other than to a Subsidiary)
of the undertaking or assets of the Company as an entirety or
substantially as an entirety to another corporation
or other entity (any of such events being herein called a
"Capital Reorganization"),
any Warrantholder who thereafter shall exercise his right to
receive Warrant Shares pursuant to Warrant(s) shall be entitled to
receive, and shall accept in lieu of the number of Warrant Shares
to which such holder was theretofore entitled upon such exercise,
the aggregate number of shares, other securities or other property
resulting from the Capital Reorganization which such holder would
have been entitled to receive as a result of such Capital
Reorganization if, on the effective date or record date thereof, as
the case may be, the Warrantholder had been the registered holder
of the number of Warrant Shares to which such holder was
theretofore entitled upon exercise. If appropriate, adjustments
shall be made as a result of any such Capital Reorganization in the
application of the provisions in this Indenture with respect to the
rights and interests thereafter of Warrantholders to the end that
the provisions in this Indenture shall thereafter correspondingly
be made applicable as nearly as may reasonably be possible in
relation to any shares, other securities or other property
thereafter deliverable upon the exercise of any Warrant. Any such
adjustment shall be made by and set forth in an indenture
supplemental hereto approved by the directors of the Company and by
the Warrant Agent and entered into pursuant to the provisions of
this Indenture and shall for all purposes be conclusively deemed to
be an appropriate adjustment.
(5) Any adjustment to
the Exchange Basis as set forth herein shall also include a
corresponding adjustment to the Price which shall be calculated by
multiplying the Price by a fraction: (a) the numerator of which
shall be the Exchange Basis prior to the adjustment,
and
(b) the
denominator of which shall be the Exchange Basis after the
adjustment.
2.14
Rules Regarding Calculation of Adjustment of Exchange
Basis
For the
purposes of Section 2.13:
(1) The adjustments
provided for in Section 2.13 shall be cumulative and such
adjustments shall be made successively whenever an event referred
to in Section 2.13 shall occur, subject to the following
subsections of this Section 2.14.
(2) No adjustment in
the: (a) Exchange Basis shall be required unless such adjustment
would result in a change of at least 0.01 of a Warrant Share based
on the prevailing Exchange Basis; or (b) the Price shall be
required unless such adjustment would result in a change of at
least 1% of the Price, provided that any adjustments which, except
for the provisions of this subsection, would otherwise have been
required to be made, shall be carried forward and taken into
account in any subsequent adjustment.
(3) No adjustment in
the Exchange Basis or the Price shall be made in respect of any
event described in Section 2.13, other than the events referred to
in paragraphs (b) and
(c) of
subsection (1) thereof, if Warrantholders are entitled to
participate in such event on the same terms, mutatis mutandis, as if Warrantholders
had exercised their Warrants prior to or on the effective date or
record date of such event, any such participation being subject to
regulatory approval.
(4) No adjustment in
the Exchange Basis or the Price shall be made pursuant to Section
2.13 in respect of (i) the issue from time to time of Warrant
Shares purchasable on exercise of the Warrants and any such issue
shall be deemed not to be a Common Share Reorganization; (ii) a
Dividend Paid in the Ordinary Course; or (iii) a distribution of
Common Shares pursuant to the exercise of stock options granted
under stock option plans of the Company.
(5) If a dispute shall
at any time arise with respect to adjustments provided for in
Section 2.13, such dispute shall, absent manifest error, be
conclusively determined by the Company's Auditors, or if they are
unable or unwilling to act, by such other firm of independent
chartered accountants as may be selected by the directors and any
further determination, absent manifest error, shall be binding upon
the Company, the Warrant Agent and the Warrantholders.
(6) If the Company
shall set a record date to determine the holders of the Common
Shares for the purpose of entitling them to receive any dividend or
distribution or any subscription or purchase rights and shall,
thereafter and before the distribution to such shareholders of any
such dividend, distribution, or subscription or purchase rights,
legally abandon its plan to pay or deliver such dividend,
distribution, or subscription or purchase rights, then no
adjustment in the Exchange Basis shall be required by reason of the
setting of such record date.
(7) In the absence of a
resolution of the directors fixing a record date for a Rights
Offering or Special Distribution, the Company shall be deemed to
have fixed as the record date therefor the date on which the Rights
Offering or Special Distribution is effected.
(8) If the purchase
price provided for in any Rights Offering (the "Rights Offering Price") is decreased,
the Exchange Basis shall forthwith be changed so as to increase the
Exchange Basis to such Exchange Basis as would have been obtained
had the adjustment to the Exchange Basis made pursuant to Section
2.13(2) upon the issuance of such Rights Offering been made upon
the basis of the Rights Offering Price as so decreased, provided
that the provisions of this subsection shall not apply to any
decrease in the Rights Offering Price resulting from provisions in
any such Rights Offering designed to prevent dilution if the event
giving rise to such decrease in the Rights Offering Price itself
requires an adjustment to the Exchange Basis pursuant to the
provisions of Section 2.13.
(9) As a condition
precedent to the taking of any action that would require any
adjustment in any of the subscription rights pursuant to any of the
Warrants, including the Exchange Basis, the Company shall take any
corporate action which may, in the opinion of counsel, be necessary
in order that the Company have unissued and reserved in its
authorized capital and may validly and legally issue as fully paid
and non-assessable all the shares or other securities that all the
holders of such Warrants are entitled to receive on the exercise of
all the subscription rights attaching thereto in accordance with
the provisions thereof.
(10) In
case the Company, after the date hereof, shall take any action
affecting any Common Shares, other than action described in Section
2.13, which in the opinion of the directors acting reasonably and
in good faith would materially affect the rights of Warrantholders,
the Exchange Basis shall be adjusted in such manner, if any, and at
such time, as the directors, in their sole discretion acting
reasonably and in good faith, may determine to be equitable in the
circumstances. Failure of the taking of any action by the directors
so as to provide for an adjustment in the Exchange Basis prior to
the effective date of any action by the Company affecting the
Common Shares shall be conclusive evidence that the directors have
determined that it is equitable to make no adjustment in the
circumstances.
(11) The
Warrant Agent shall be entitled to act and rely on any adjustment
calculations by the Company or the Company's Auditors.
2.15
Postponement of Subscription
In any
case where the application of Section 2.13 results in an increase
in the number of Common Shares that are issuable upon exercise of
the Warrants taking effect immediately after the record date for a
specific event, if any Warrant is exercised after that record date
and prior to completion of such specific event, the Company may
postpone the issuance to the Warrantholder of the Warrant Shares to
which he is entitled by reason of such adjustment, but such Warrant
Shares shall be so issued and delivered to that holder upon
completion of that event, with the number of such Warrant Shares
calculated on the basis of the number of Warrant Shares on the date
that the Warrant was exercised, adjusted for completion of that
event and the Company shall deliver to the person or persons in
whose name or names the Warrant Shares are to be issued an
appropriate instrument evidencing the right of such person or
persons to receive such Warrant Shares and the right to receive any
dividends or other distributions which, but for the provisions of
this Section 2.15, such person or persons would have been entitled
to receive in respect of such Warrant Shares from and after the
date that the Warrant was exercised in respect
thereof.
2.16
Notice of Adjustment
(1) At
least fourteen (14) days prior to the effective date or record
date, as the case may be, of any event which requires or might
require adjustment pursuant to Section 2.13, the Company
shall:
(a)
file with the
Warrant Agent a certificate of the Company specifying the
particulars of such event (including the record date or the
effective date for such event) and, if determinable, the required
adjustment and the computation of such adjustment and setting forth
in reasonable detail the method of calculation and the facts upon
which such calculation is based; and
(b)
give notice to the
Warrantholders of the particulars of such event (including the
record date or the effective date for such event) and, if
determinable, the required adjustment.
(2) In
case any adjustment for which a notice in Section 2.16(1) has been
given is not then determinable, the Company shall promptly after
such adjustment is determinable:
(a)
file with the
Warrant Agent a computation of such adjustment; and
(b)
give notice to the
Warrantholders of the adjustment.
(3) The
Warrant Agent may and shall be protected in so doing, absent
manifest error, act and rely upon certificates of the Company and
other documents filed by the Company pursuant to this Section 2.16
for all purposes of the adjustment.
2.17
No Action after Notice
The
Company covenants with the Warrant Agent that it will not close its
books nor take any other corporate action which might deprive a
Warrantholder of the opportunity of exercising the rights of
acquisition pursuant thereto during the period of ten (10) days
after the giving of the notice set forth in paragraph (b) of
Sections 2.16(1) and (2).
2.18
Purchase of Warrants for Cancellation
The
Company may, at any time and from time to time, purchase Warrants
by invitation to tender, by private contract, on any stock exchange
(if then listed) or otherwise (which shall include a purchase
through an investment dealer or firm holding membership on a
Canadian stock exchange) on such terms as the Company may
determine. All Warrants purchased pursuant to the provisions of
this Section 2.18 shall be forthwith delivered to and cancelled by
the Warrant Agent and shall not be reissued. If required by the
Company, the Warrant Agent shall furnish the Company with a
certificate as to such destruction.
2.19
Protection of Warrant
Agent
The
Warrant Agent shall not:
(a)
at any time be
under any duty or responsibility to any registered holder of
Warrants to determine whether any facts exist that may require any
adjustment contemplated by this Article 2, nor to verify the nature
and extent of any such adjustment when made or the method employed
in making the same;
(b)
be accountable with
respect to the validity or value or the kind or amount of any
Warrant Shares or of any other securities or property that may at
any time be issued or delivered upon the exercise of the
Warrants;
(c)
be responsible for
any failure of the Company to make any cash payment, to issue,
transfer or deliver Warrant Shares or certificates upon the
surrender of any Warrants for the purpose of the exercise of such
rights or to comply with any of the covenants contained in Section
2.13; or
(d)
incur any liability
or responsibility whatsoever or be in any way responsible for the
consequence of any breach on the part of the Company of any of the
representations, warranties or covenants of the Company or any acts
or deeds of the agents or servants of the Company.
2.20
U.S. Legend on Warrant
Certificates and Warrant Share certificates
(1) The Warrant Agent
understands and acknowledges that the Warrants and the Warrant
Shares issuable upon exercise of the Warrants have not been, and
will not be, registered under the U.S. Securities Act or the
securities laws of any state of the United States.
(2) Each Warrant, in
certificated form, originally issued in the United States or, to or
for the account or benefit of, a U.S. Person, and all Warrant
Shares issued upon exercise of such Warrants, and all certificates
issued in exchange or in substitution thereof or upon transfer
thereof, shall bear the following legend:
"THE
SECURITIES REPRESENTED HEREBY [for
Warrants, add: AND THE SECURITIES ISSUABLE ON EXERCISE
HEREOF] HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "U.S. SECURITIES ACT") OR UNDER ANY STATE SECURITIES
LAWS, AND THE SECURITIES REPRESENTED HEREBY [for Warrants, add: AND THE SECURITIES
ISSUABLE ON EXERCISE HEREOF] MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, DIRECTLY OR INDIRECTLY, ONLY (A) TO THE COMPANY, (B)
OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE
U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS
AND REGULATIONS, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE U.S. SECURITIES ACT PROVIDED BY (i) RULE 144 OR (ii)
RULE144A THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH
APPLICABLE U.S. STATE SECURITIES LAWS, (D) IN COMPLIANCE WITH
ANOTHER EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS, OR (E) UNDER AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT, PROVIDED THAT
IN THE CASE OF TRANSFERS PURSUANT TO (C)(i) OR (D) ABOVE, A LEGAL
OPINION OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY,
MUST FIRST BE PROVIDED TO THE COMPANY AND THE COMPANY'S TRANSFER
AGENT TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY" IN
SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN
CANADA.”
[for Warrants, include: "THIS WARRANT
MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR
FOR THE ACCOUNT OR BENEFIT OF, A PERSON IN THE UNITED STATES OR A
U.S. PERSON UNLESS THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. "UNITED
STATES" AND "U.S. PERSON" ARE AS DEFINED BY REGULATION S UNDER THE
U.S. SECURITIES ACT."]
provided that, if the Warrants or
Warrant Shares issuable upon exercise of the Warrants are being
sold in accordance with Rule 904 of Regulation S, the legend may be
removed by providing to the Warrant Agent or the Transfer Agent, as
the case may be, (i) a declaration in the form attached hereto as
Schedule "B" (or as the Company may prescribe from time to time in
order to address changes in applicable laws) and (ii) if required
by the Transfer Agent, an opinion of counsel, of recognized
standing reasonably satisfactory to the Company, or other evidence
reasonably satisfactory to the Company, that the proposed transfer
may be effected without registration under the U.S. Securities
Act.
provided further, that if the Warrants
or Warrant Shares are being sold pursuant to Rule 144 under the
U.S. Securities Act, if available, the legend may be removed by
delivering to the Company and the Warrant Agent or the Transfer
Agent, as the case may be, an opinion of counsel of recognized
standing in form and substance reasonably satisfactory to the
Company, to the effect that the legend is no longer required under
applicable requirements of the U.S. Securities Act.
(3) If
a Warrant or Warrant Share issued with respect to an exercise of
Warrants is tendered for transfer and bears the legend set forth in
Section 2.20(2) herein and the holder thereof has not obtained the
prior written consent of the Company, the Warrant Agent or the
Transfer Agent, as the case may be, shall not register such
transfer unless the holder complies with the requirements of the
said Section 2.20(2) hereof.
ARTICLE 3 EXERCISE OF WARRANTS
3.1
Method of Exercise of Warrants
(1) The registered
holder of any Warrant may exercise the rights thereby conferred on
him to acquire all or any part of the Warrant Shares to which such
Warrant entitles the holder, by surrendering the Warrant
Certificate representing such Warrants to the Warrant Agent at any
time prior to the Time of Expiry at its principal stock transfer
offices in the City of Calgary, Alberta (or at such additional
place or places as may be decided by the Company from time to time
with the approval of the Warrant Agent), with a duly completed and
executed exercise form of the registered holder or his executors,
administrators or other legal representative or his attorney duly
appointed by an instrument in writing in the form and manner
satisfactory to the Warrant Agent, substantially in the form
endorsed on the Warrant Certificate specifying the number of
Warrant Shares subscribed for together with a certified cheque,
bank draft or money order in lawful money of Canada, payable to or
to the order of the Company in an amount equal to the Exercise
Price multiplied by the number of Warrant Shares subscribed for. A
Warrant Certificate with the duly completed and executed exercise
form and payment of the Exercise Price shall be deemed to be
surrendered only upon personal delivery thereof to or, if sent by
mail or other means of transmission, upon actual receipt thereof by
the Warrant Agent.
(2) Any exercise form
referred to in Section 3.1(1) shall be signed by the Warrantholder,
or his executors, or administrators or other legal representative
or his attorney duly appointed by an instrument in writing in the
form and manner satisfactory to the Warrant Agent, but such
exercise form need not be executed by CDS. Such exercise form shall
specify the person(s) in whose name such Warrant Shares are to be
issued, the address(es) of such person(s) and the number of Warrant
Shares to be issued to each person, if more than one is so
specified. If any of the Warrant Shares subscribed for are to be
issued to person(s) other than the Warrantholder, the Warrantholder
shall also complete the transfer form, substantially in the form
endorsed on the Warrant Certificate. The signatures set out in the
exercise form referred to in Section 3.1(1) and the signatures set
out in the transfer form shall be guaranteed by a Canadian Schedule
1 chartered bank or a medallion signature guarantee from a member
of a recognized Signature Medallion Guarantee Program and the
Warrantholder shall pay to the Company or the Warrant Agent all
applicable transfer or similar taxes and the Company shall not be
required to issue or deliver certificates evidencing Warrant Shares
unless or until such Warrantholder shall have paid to the Company
or the Warrant Agent on behalf of the Company the amount of such
tax or shall have established to the satisfaction of the Company
that such tax has been paid or that no tax is due.
(3) If, at the time of
exercise of the Warrants, in accordance with the provisions of
Section 3.1(1), there are any trading restrictions on the Warrant
Shares pursuant to applicable Securities Laws or stock exchange
requirements, the Company shall, on the advice of counsel, endorse
any certificates representing the Warrant Shares to such effect.
The Warrant Agent is entitled to assume
compliance with all applicable Securities Laws unless otherwise
notified in writing by the Company.
(4) A Beneficial Owner
who desires to exercise his, her or its Uncertificated Warrants,
must do so by causing a Participant to deliver to CDS (at its
office in the City of Toronto, Ontario), on behalf of the
Beneficial Owner at any time prior to the Time of Expiry, a written
notice of the Beneficial Owner's intention to exercise Warrants
(the "Exercise Notice");
provided, that a Beneficial Owner holding Uncertificated Warrants
that is in the United States or that is a U.S. Person will first
request the withdrawal of the Uncertificated Warrant(s) from the
Book-Entry Only System and request certificated Warrant(s) in
exchange for such Uncertificated Warrant(s). Forthwith upon receipt
by CDS of such notice, as well as payment for the Exercise Price,
CDS shall deliver to the Warrant Agent confirmation of its
intention to exercise Warrants (the "Confirmation") in a manner acceptable to
the Warrant Agent, including by electronic means through the
Book-Entry Only System, including CDSX. An electronic exercise of
the Warrants initiated by the Beneficial Owner through a Book-Entry
Only System, including CDSX, shall constitute a representation to
both the Company and the Warrant Agent that the Beneficial Owner at
the time of exercise of such Warrants (a) is not in the United
States; (b) did not acquire the Warrants in the United States or on
behalf of, or for the account or benefit of, a U.S. Person or a
person in the United States; (c) is not a U.S. Person and is not
exercising such Warrants on behalf of a U.S. Person or a person in
the United States; and (d) did not execute or deliver the notice of
the owner's intention to exercise such Warrants in the United
States. If the Participant is not able to make or deliver the
foregoing representation by initiating the electronic exercise of
the Warrants, then such Warrants shall be withdrawn from the
Book-Entry Only System, including CDSX, by the Participant and an
individually registered Warrant Certificate shall be issued by the
Warrant Agent to such Beneficial Owner or Participant and the
exercise procedures set forth in Section 3.1(1) shall be followed.
Payment representing the aggregate Exercise Price must be provided
to the appropriate office of the Participant in a manner acceptable
to it. A notice in form acceptable to the Participant and payment
from such Beneficial Owner should be provided through the
Book-Entry Only System sufficiently in advance so as to permit the
Participant to deliver notice and payment to CDS and for CDS in
turn to deliver notice and payment to the Warrant Agent prior to
Time of Expiry. CDS will initiate the exercise by way of the
Confirmation and forward the aggregate Exercise Price
electronically to the Warrant Agent and the Warrant Agent will
execute the exercise by issuing to CDS through the Book- Entry Only
System the Warrant Shares to which the exercising Beneficial Owner
is entitled pursuant to the exercise. Any expense associated with
the preparation and delivery of Exercise Notices will be for the
account of the Beneficial Owner exercising the
Warrants.
(5) By causing a
Participant to deliver notice to CDS, a Warrantholder shall be
deemed to have irrevocably surrendered his, her or its Warrants so
exercised and appointed such Participant to act as his, her or its
exclusive settlement agent with respect to the exercise and the
receipt of Warrant Shares in connection with the obligations
arising from such exercise.
(6) Any notice which
CDS determines to be incomplete, not in proper form or not duly
executed shall for all purposes be void and of no effect and the
exercise to which it relates shall be considered for all purposes
not to have been exercised thereby. A failure by a Participant to
exercise or to give effect to the settlement thereof in accordance
with the Beneficial Owner's instructions will not give rise to any
obligations or liability on the part of the Company or Warrant
Agent to the Participant or the Beneficial Owner.
(7)
Any exercise referred to in this Section 3.1 shall require that the
entire Exercise
Price
for the Warrant Shares subscribed for must be paid at the time of
subscription and such Exercise Price and original Exercise Notice
or exercise form executed by the Registered Warrantholder or the
Confirmation from CDS must be received by the Warrant Agent prior
to the Time of Expiry.
(8) Warrants may only
be exercised pursuant to this Section 3.1 by or on behalf of a
Warrantholder, as applicable, who makes the certifications set
forth on the exercise form substantially in the form endorsed on
the Warrant Certificate.
(9) If the exercise
form set forth in the Warrant Certificate shall have been amended,
the Company shall cause the amended exercise form to be forwarded
to all registered Warrantholders.
(10) Exercise
forms, Exercise Notices and Confirmations must be delivered to the
Warrant Agent at any time during the Warrant Agent's actual
business hours on any Business Day prior to the Time of Expiry. Any
exercise form, Exercise Notice or Confirmation received by the
Warrant Agent after business hours on any Business Day other than
the Time of Expiry will be deemed to have been received by the
Warrant Agent on the next following Business Day.
(11) Any
Warrant with respect to which a Confirmation is not received by the
Warrant Agent before the Time of Expiry shall be deemed to have
expired and become void and all rights with respect to such
Warrants shall terminate and be cancelled.
Under
no circumstances shall the Company be obliged to issue any
fractional Warrant Shares or any cash or other consideration in
lieu thereof upon the exercise of one or more Warrants. To the
extent that the holder of one or more Warrants would otherwise have
been entitled to receive on the exercise or partial exercise
thereof a fraction of a Warrant Share, that holder may exercise
that right in respect of the fraction only in combination with
another Warrant or Warrants that in the aggregate entitle the
holder to purchase a whole number of Warrant Shares.
3.3
Effect of Exercise of Warrants
(1) Upon compliance by
the Warrantholder with the provisions of Section 3.1, the Warrant
Shares subscribed for shall be deemed to have been issued and the
person to whom such Warrant Shares are to be issued shall be deemed
to have become the holder of record of such Warrant Shares on the
Exercise Date unless the transfer registers of the Company for the
Common Shares shall be closed on such date, in which case the
Warrant Shares subscribed for shall be deemed to have been issued
and such person shall be deemed to have become the holder of record
of such Warrant Shares on the date on which such transfer registers
are reopened.
(2)
The Warrant Agent shall as soon as practicable account
to the Company with respect to Warrants exercised, and shall as
soon as practicable forward to the Company (or into an account or
accounts of the Company with the bank or trust company designated
by the Company for that purpose), all monies received by the
Warrant Agent on the subscription of Warrant Shares through the
exercise of Warrants. All such monies and any securities or other
instruments, from time to time received by the Warrant Agent, shall
be received in trust for the Warrantholders and
the Company as their interests may appear and shall be segregated
and kept apart by the Warrant Agent.
(3)
Within five Business Days following the due exercise of a Warrant
pursuant to Section 3.1, the Company shall cause the Transfer Agent
to issue and the Warrant Agent to deliver, within such five
Business Day period, to CDS through the Book-Entry Only System the
Warrant Shares to which the exercising Warrantholder is entitled
pursuant to the exercise or mail to the person in whose name the
Warrant Shares so subscribed for are to be issued, as specified in
the exercise form completed on the Warrant Certificate, at the
address specified in such exercise form, a certificate or
certificates for the Warrant Shares to which the Warrantholder is
entitled or, if so specified in writing by the holder, cause to be
delivered to such person or persons at the office of the Warrant
Agent where the Warrant Certificate was surrendered, a certificate
or certificates for the appropriate number of Warrant Shares
subscribed for, or any other appropriate evidence of the issuance
of Warrant Shares to such person or persons in respect of Warrant
Shares issued under the Book-Entry Only System and, if applicable,
shall cause the Warrant Agent to mail a Warrant Certificate
representing any Warrants not then exercised.
3.4
Cancellation of Warrants
All
Warrants surrendered to the Warrant Agent pursuant to sections 2.6,
2.8(2), 2.10 or 3.1 shall be cancelled by the Warrant Agent and the
Warrant Agent shall record the cancellation of such Warrants on the
register of holders maintained by the Warrant Agent pursuant to
Section 2.8(1). The Warrant Agent shall, if required by the
Company, furnish the Company with a certificate identifying the
Warrants so cancelled. All Warrants that have been duly cancelled
shall be without further force or effect whatsoever.
3.5
Subscription for less than Entitlement
The
holder of any Warrant may subscribe for and purchase a whole number
of Warrant Shares that is less than the number that the holder is
entitled to purchase pursuant to a surrendered Warrant. In such
event, the holder thereof shall be entitled to receive a new
Warrant Certificate in respect of the balance of Warrants that were
not then exercised, such new Warrant Certificate to contain the
same legend as provided for in Section 2.20(2), if
applicable.
3.6
Expiration of Warrant
After
the Time of Expiry, all rights under any Warrant in respect of
which the right of subscription and purchase herein and therein
provided for shall not theretofore have been exercised shall wholly
cease and terminate and such Warrant shall be void and of no
effect.
3.7
Prohibition on Exercise by U.S. Persons; Exception
(1) Warrants
may not be exercised within the United States or by or on behalf
of, or for the account or benefit of, any U.S. Person or any person
in the United States unless an exemption is available from the
registration requirements of the U.S. Securities Act and applicable
state securities laws. The Warrant Agent shall be entitled to rely
upon the registered address of the Warrantholder as set forth in
the Warrantholders register for the purchase of Units in
determining whether the address is in the United States or the
Warrantholder is a U.S. Person.
(2)
Any holder which
exercises any Warrants shall provide to the Company
either:
(a)
a written
certification that such holder (a) at the time of exercise of the
Warrants is not in the United States; (b) is not a U.S. Person and
is not exercising the Warrants on behalf of a U.S. Person or person
in the United States; (c) did not execute or deliver the exercise
form for the Warrants in the United States; and (d) has in all
other aspects complied with the terms of an "offshore transaction"
as defined under Regulation S (which written certification shall be
deemed delivered by checking Box 1 in the Exercise Form attached to
the Warrant, as provided for in Schedule “A” hereof);
or
(b)
a written
certification that the holder (i) purchased the Warrants as part of
the Units in the Offering; (ii) is exercising the Warrants solely
for its own account or for the benefit of a U.S. Person or a person
in the United States for whose account such holder acquired the
Warrants as a part of the Units in the Offering and for whose
account such holders exercises sole investment discretion; (iii)
was and is, and any beneficial purchaser for whose account such
holder acquired the Warrant and is exercising the Warrants was and
is, a Qualified Institutional Buyer both on the date the Units were
purchased in the Offering and on the Exercise Date; and (iv) the
representations and warranties made by the holder or any beneficial
purchaser, as the case may be, to the Company in such
holder’s QIB Letter remain true and correct on the Exercise
Date (which written certification shall be deemed delivered by
checking Box 2 in the Exercise Form attached to the Warrant, as
provided for in Schedule “A” hereof); or
(c)
a written opinion
of counsel of recognized standing in form and substance
satisfactory to the Company or evidence satisfactory to the Company
to the effect that an exemption from the registration requirements
of the U.S. Securities Act and applicable state securities laws is
available for the issuance of the Warrant Shares issuable on
exercise of the Warrants.
(3) No
Warrant Shares will be registered or delivered to an address in the
United States unless the holder of Warrants complies with the
requirements of paragraph (b) or (c) of Section
3.7(2).
ARTICLE 4 COVENANTS FOR WARRANTHOLDERS' BENEFIT
4.1
General Covenants of the Company
The
Company represents, warrants and covenants with the Warrant Agent
for the benefit of the Warrant Agent and the Warrantholders
that:
(1) The
Company will at all times, so long as any Warrants remain
outstanding or issuable hereunder, maintain its existence, unless
otherwise inconsistent with the fiduciary duties of the board of
directors of the Company, and will keep or cause to be kept proper
books of account in
accordance with applicable law until the Time of
Expiry.
(2) The Company is duly
authorized to create and issue the Warrants to be issued hereunder
and the Warrants, when issued, Authenticated and countersigned, as
applicable, will be legal, valid, binding and enforceable
obligations of the Company.
(3) The Company will
reserve and keep available a sufficient number of Warrant Shares
for the purpose of enabling the Company to satisfy its obligations
to issue Common Shares upon the exercise of the Warrants, and all
Warrants Shares shall, when issued as provided herein, be valid and
enforceable against the Company.
(4) The Company will
cause the Warrant Shares from time to time subscribed for pursuant
to the Warrants issued by the Company hereunder, in the manner
herein provided, to be duly issued in accordance with the Warrants
and the terms hereof.
(5) All Warrant Shares
that shall be issued by the Company upon exercise of the rights
provided for herein shall be issued as fully paid and
non-assessable Common Shares of the Company.
(6) The Company will
use commercially reasonable efforts to ensure that the Warrants,
and the Common Shares outstanding on the date hereof and issuable
from time to time on the exercise of the Warrants, continue to be
or are listed and posted for trading on the CSE (or such other
Canadian stock exchange acceptable to the Company), provided that
this Section 4.1(6) shall not be construed as limiting or
restricting the Company from completing a consolidation,
amalgamation, arrangement, takeover bid, merger or other form of
business combination that would result in the Warrants and/or the
Common Shares ceasing to be listed and posted for trading on such
exchanges, so long as the holders of Common Shares have approved
the transaction in accordance with the requirements of applicable
corporate and securities laws and the policies of such exchanges or
the holders of Common Shares receive securities of an entity which
is listed on a stock exchange in North America or
cash.
(7) Except to the
extent that the Company participates in a takeover bid,
consolidation, merger, arrangement, amalgamation, or other form of
business combination transaction, the Company will use its
commercially reasonable efforts to maintain its status as a
"reporting issuer" (or the equivalent thereof) in each of the
provinces of Canada and other Canadian jurisdictions in which it is
currently or becomes a reporting issuer, make all requisite filings
under applicable Securities Laws including those necessary to
remain a reporting issuer not in default of the requirements of the
applicable Securities Laws of such province or jurisdiction, until
the Time of Expiry.
(8) The Company will
perform and carry out all of the acts or things to be done by it as
provided in this Indenture.
(9) The Company will
not take any action or omit to take any action which would have the
effect of preventing the Warrantholders from receiving any of the
Warrant Shares issuable upon the exercise of the
Warrants.
(10) The
Company will promptly advise the Warrant Agent and the
Warrantholders in writing of any breach or default under the terms
of this Indenture no later than five (5) Business Days following
the occurrence of such breach or default.
(11)
If, in the opinion of counsel, any instrument is required to be
filed with, or any permission, order or ruling is required to be
obtained from any securities regulatory authority, or any other
step is required under any federal or provincial law of Canada
before the Warrant Shares may be issued and delivered to a
Warrantholder, the Company covenants that it will use its best
efforts to file such instrument, obtain such permission, order or
ruling or take all such other actions, at its expense, as is
required or appropriate in the circumstances.
4.2
Warrant Agent's Remuneration and Expenses
The
Company covenants that it will pay to the Warrant Agent from time
to time reasonable remuneration for its services hereunder and will
pay or reimburse the Warrant Agent upon its request for all
reasonable expenses and disbursements and advances incurred or made
by the Warrant Agent in the administration or execution of the
trusts hereby created (including the reasonable compensation and
the disbursements of its counsel and all other advisers, experts,
accountants and assistants not regularly in its employ) both before
any default hereunder and thereafter until all duties of the
Warrant Agent hereunder shall be finally and fully performed. Any
amount owing hereunder and remaining unpaid after thirty (30) days
from the invoice date will bear interest at the then current rate
charged by the Warrant Agent against unpaid invoices and shall be
payable upon demand. This section shall survive the resignation or
removal of the Warrant Agent and/or the termination of this
Indenture.
4.3
Performance of Covenants by Warrant Agent
Subject
to Section 8.7, if the Company shall fail to perform any of its
covenants contained in this Indenture and the Company has not
rectified such failure within twenty-five (25) Business Days after
either giving notice of such default pursuant to Section 4.1(10) or
receiving written notice from the Warrant Agent of such failure,
the Warrant Agent may notify the Warrantholders of such failure on
the part of the Company or may itself perform any of the said
covenants capable of being performed by it, but shall be under no
obligation to perform said covenants. All reasonable sums expended
or disbursed by the Warrant Agent in so doing shall be repayable as
provided in Section 4.2. No such performance, expenditure or
advance by the Warrant Agent shall be deemed to relieve the Company
of any default hereunder or of its continuing obligations under the
covenants herein contained.
4.4
Enforceability of Warrants
The
Company covenants and agrees that it is duly authorized to create
and issue the Warrants to be issued hereunder and that the
Warrants, when issued and Authenticated as herein provided, will be
valid and enforceable against the Company in accordance with the
provisions hereof and that, subject to the provisions of this
Indenture, the Company will cause the Warrant Shares from time to
time acquired upon exercise of Warrants issued under this Indenture
to be duly issued and delivered in accordance with the terms of
this Indenture.
ARTICLE 5 ENFORCEMENT
5.1
Suits by Warrantholders
Subject
to Section 6.10, all or any of the rights conferred upon a
Warrantholder by the terms of the Warrants held by him and/or this
Indenture may be enforced by such Warrantholder by
appropriate legal proceedings but without prejudice to the right
that is hereby conferred upon the Warrant Agent to proceed in its
own name to enforce each and all of the provisions herein contained
for the benefit of the holders of the Warrants from time to time
outstanding. The Warrant Agent shall also have the power at any
time and from time to time to institute and to maintain such suits
and proceedings as it may reasonably be advised shall be necessary
or advisable to preserve and protect its interests and the
interests of the Warrantholders.
5.2
Limitation of Liability
The
obligations hereunder (including without limitation under Section
8.7(5)) are not personally binding upon, nor shall resort hereunder
be had to, the private property of any of the past, present or
future directors or shareholders of the Company or any of the past,
present or future officers, employees or agents of the Company, but
only the property of the Company (or any successor person) shall be
bound in respect hereof.
Upon
the happening of any default hereunder:
(a)
the Warrantholders
of not less than 50% plus 1 of the Warrants then outstanding shall
have power (in addition to the powers exercisable by Extraordinary
Resolution) by requisition in writing to instruct the Warrant Agent
to waive any default hereunder and the Warrant Agent shall
thereupon waive the default upon such terms and conditions as shall
be prescribed in such requisition; or
(b)
the Warrant Agent
shall have power to waive any default hereunder upon such terms and
conditions as the Warrant Agent may deem advisable, on the advice
of counsel, if, in the Warrant Agent's opinion, based on the advice
of counsel, the same shall have been cured or adequate provision
made therefor,
provided that no
delay or omission of the Warrant Agent or of the Warrantholders to
exercise any right or power accruing upon any default shall impair
any such right or power or shall be construed to be a waiver of any
such default or acquiescence therein and provided further that no
act or omission either of the Warrant Agent or of the
Warrantholders in the premises shall extend to or be taken in any
manner whatsoever to affect any subsequent default hereunder of the
rights resulting therefrom.
ARTICLE 6 MEETINGS OF WARRANTHOLDERS
6.1
Right to Convene Meetings
The
Warrant Agent may at any time and from time to time, and shall on
receipt of a written request of the Company or of a Warrantholders'
Request, convene a meeting of the Warrantholders provided that the
Warrant Agent has been provided with sufficient funds and is
indemnified to its reasonable satisfaction by the Company or by the
Warrantholders signing such Warrantholders' Request against the
costs, charges, expenses and liabilities that may be incurred in
connection with the calling and holding of such meeting. If within
fifteen (15) Business Days after the receipt of a written request
of the Company or a Warrantholders' Request, funding and indemnity
given as aforesaid the Warrant Agent fails to give the requisite
notice specified in Section 6.2 to convene a meeting, the Company
or such Warrantholders, as the case may be, may convene such
meeting. Every such meeting shall be held in the City of Toronto,
Ontario or at such other place as may be approved or determined by
the Warrant Agent.
At
least fourteen (14) days prior notice of any meeting of
Warrantholders shall be given to the Warrantholders at the expense
of the Company in the manner provided for in Section 9.2 and a copy
of such notice shall be delivered to the Warrant Agent unless the
meeting has been called by it, and to the Company unless the
meeting has been called by it. Such notice shall state the date,
time and place of the meeting, the general nature of the business
to be transacted and shall contain such information as is
reasonably necessary to enable the Warrantholders to make a
reasoned decision on the matter, but it shall not be necessary for
any such notice to set out the terms of any resolution to be
proposed or any of the provisions of this Article 6. The notice
convening any such meeting may be signed by an appropriate officer
of the Warrant Agent or of the Company or the person designated by
such Warrantholders, as the case may be.
The
Warrant Agent may nominate in writing an individual (who need not
be a Warrantholder) to be chairman of the meeting and if no
individual is so nominated, or if the individual so nominated is
not present within fifteen (15) minutes after the time fixed for
the holding of the meeting, the Warrantholders present in person or
by proxy shall appoint an individual present to be chairman of the
meeting. The chairman of the meeting need not be a
Warrantholder.
Subject
to the provisions of Section 6.11, at any meeting of the
Warrantholders a quorum shall consist of two Warrantholders present
in person or represented by proxy and representing at least 20% of
the aggregate number of Warrants then outstanding. If a quorum of
the Warrantholders shall not be present within one-half hour from
the time fixed for holding any meeting, the meeting, if summoned by
the Warrantholders or on a Warrantholders' Request, shall be
dissolved; but in any other case the meeting shall be adjourned to
the same day in the next week (unless such day is not a Business
Day in which case it shall be adjourned to the next following
Business Day) at the same time and place to the extent possible
and, subject to the provisions of Section 6.11, no notice of the
adjournment need be given. Any business may be brought before or
dealt with at an adjourned meeting that might have been dealt with
at the original meeting in accordance with the notice calling the
same. At the adjourned meeting the Warrantholders present in person
or represented by proxy shall form a quorum and may transact the
business for which the meeting was originally convened,
notwithstanding that they may not represent at least 20% of the
aggregate number of Warrants then unexercised and outstanding. No
business shall be transacted at any meeting, except an adjourned
meeting as described above, unless a quorum is present at the
commencement of business.
The
chairman of any meeting at which a quorum of the Warrantholders is
present may, with the consent of the meeting, adjourn any such
meeting, and no notice of such adjournment need be given except
such notice, if any, as the meeting may prescribe.
Every
question submitted to a meeting shall be decided in the first place
by a majority of the votes given on a show of hands except that
votes on an extraordinary resolution shall be given in the manner
hereinafter provided. At any such meeting, unless a poll is duly
demanded as herein provided, a declaration by the chairman that a
resolution has been carried or carried unanimously or by a
particular majority or lost or not carried by a particular majority
shall be conclusive evidence of the fact.
On
every extraordinary resolution, and when demanded by the chairman
or by one or more of the Warrantholders acting in person or by
proxy on any other question submitted to a meeting and after a vote
by show of hands, a poll shall be taken in such manner as the
chairman shall direct. Questions other than those required to be
determined by extraordinary resolution shall be decided by a
majority of the votes cast on the poll. On a show of hands, every
person who is present and entitled to vote, whether as a
Warrantholder or as proxy for one or more absent Warrantholders, or
both, shall have one vote. On a poll, each Warrantholder present in
person or represented by a proxy duly appointed by instrument in
writing shall be entitled to one vote in respect of each whole
Warrant then held by her. A proxy need not be a Warrantholder. The
chairman of any meeting shall be entitled, both on a show of hands
and on a poll, to vote in respect of the Warrants, if any, held or
represented by her.
Subject
to the provisions of this Indenture, the Warrant Agent or the
Company with the approval of the Warrant Agent may from time to
time make and from time to time vary such regulations as it shall
consider necessary or appropriate generally for the calling of
meetings of Warrantholders and the conduct of business thereat
including setting a record date for Warrantholders entitled to
receive notice of or to vote at such meeting.
Any
regulations so made shall be binding and effective and the votes
given in accordance therewith shall be valid and shall be counted.
Save as such regulations may provide, the only persons who shall be
recognized at any meeting as a Warrantholder, or be entitled to
vote or be present at the meeting in respect thereof (subject to
Section 6.9), shall be Warrantholders or persons holding proxies of
Warrantholders.
6.9
Company, Warrant Agent and Counsel may be Represented
The
Company and the Warrant Agent, by their respective directors,
officers and employees and the counsel for each of the Company, the
Warrantholders and the Warrant Agent may attend any meeting of the
Warrantholders and speak thereat but shall not be entitled to vote
unless in their capacities as Warrantholders or proxies
therefor.
6.10
Powers Exercisable by Extraordinary
Resolution
In
addition to all other powers conferred upon them by any other
provisions of this Indenture or by law, the Warrantholders at a
meeting shall have the power, exercisable from time to time by
extraordinary resolution:
(a)
to agree with the
Company to any modification, alteration, compromise or arrangement
of the rights of Warrantholders and/or the Warrant Agent in its
capacity as Warrant Agent hereunder (subject to the Warrant Agent's
approval) or on behalf of the Warrantholders against the Company,
whether such rights arise under this Indenture or the Warrants or
otherwise;
(b)
to amend, modify or
repeal any extraordinary resolution previously passed or sanctioned
by the Warrantholders;
(c)
to direct or
authorize the Warrant Agent (subject to the Warrant Agent receiving
funding and indemnity) to enforce any of the covenants on the part
of the Company contained in this Indenture or the Warrants or to
enforce any of the rights of the Warrantholders in any manner
specified in such extraordinary resolution or to refrain from
enforcing any such covenant or right;
(d)
to waive, authorize
and direct the Warrant Agent to waive any default on the part of
the Company in complying with any provisions of this Indenture or
the Warrants either unconditionally or upon any conditions
specified in such extraordinary resolution;
(e)
to restrain any
Warrantholder from taking or instituting any suit, action or
proceeding against the Company for the enforcement of any of the
covenants on the part of the Company contained in this Indenture or
the Warrants or to enforce any of the rights of the
Warrantholders;
(f)
to direct any
Warrantholder who, as such, has brought any suit, action or
proceeding to stay or discontinue or otherwise deal with any such
suit, action or proceeding, upon payment of the costs, charges and
expenses reasonably and properly incurred by such Warrantholder in
connection therewith;
(g)
to assent to any
change in or omission from the provisions contained in this
Indenture or any ancillary or supplemental instrument which may be
agreed to by the Company, and to authorize the Warrant Agent to
concur in and execute any ancillary or supplemental indenture
embodying the change or omission; and
(h)
with the consent of
the Company, such consent not to be unreasonably withheld, to
remove the Warrant Agent or its successor in office and to appoint
a new warrant agent or warrant agents to take the place of the
Warrant Agent so removed.
6.11
Meaning of "Extraordinary
Resolution"
(1)
The expression
"extraordinary resolution"
when used in this Indenture means, subject as
hereinafter in this Section 6.11 and in Section 6.14 provided, a
resolution proposed at a meeting of Warrantholders duly convened
for that purpose and held in accordance with the provisions of this
Article 6 at which there are present in person or by proxy at least
two Warrantholders representing at least 20% of the aggregate
number of all the then outstanding Warrants and passed by the
affirmative votes of Warrantholders representing not less than
662/3% of the aggregate
number of all the then outstanding Warrants represented at the
meeting and voted on the poll upon such resolution.
(2) If, at any meeting
called for the purpose of passing an extraordinary resolution,
Warrantholders representing at least 20% of the aggregate number of
all the then outstanding Warrants are not present in person or by
proxy within one-half hour after the time appointed for the
meeting, then the meeting, if convened by Warrantholders or on a
Warrantholders' Request, shall be dissolved; but in any other case
it shall stand adjourned to such day, being not less than ten (10)
Business Days later, and to such place and time as may be appointed
by the chairman. Not less than three (3) Business Days prior notice
shall be given of the time and place of such adjourned meeting in
the manner provided in sections 9.1 and 9.2. Such notice shall
state that at the adjourned meeting the Warrantholders present in
person or represented by proxy shall form a quorum but it shall not
be necessary to set forth the purposes for which the meeting was
originally called or any other particulars. At the adjourned
meeting the Warrantholders present in person or represented by
proxy shall form a quorum and may transact the business for which
the meeting was originally convened and a resolution proposed at
such adjourned meeting and passed by the requisite vote as provided
in Section 6.11(1) shall be an extraordinary resolution within the
meaning of this Indenture notwithstanding that Warrantholders
representing at least 20% of all the then outstanding Warrants are
not present in person or represented by proxy at such adjourned
meeting.
(3) Votes on an
extraordinary resolution shall always be given on a poll and no
demand for a poll on an extraordinary resolution shall be
necessary.
6.12
Powers
Cumulative
It is
hereby declared and agreed that any one or more of the powers or
any combination of the powers in this Indenture stated to be
exercisable by the Warrantholders by extraordinary resolution or
otherwise may be exercised from time to time and the exercise of
any one or more of such powers or any combination of powers from
time to time shall not be deemed to exhaust the right of the
Warrantholders to exercise such powers or combination of powers
then or thereafter from time to time.
6.13
Minutes
Minutes
of all resolutions and proceedings at every meeting of
Warrantholders as aforesaid shall be made and duly entered in books
to be provided for that purpose by the Warrant Agent at the expense
of the Company and any minutes as aforesaid, if signed by the
chairman of the meeting at which resolutions were passed or
proceedings had, or by the chairman of the next succeeding meeting
of the Warrantholders, shall be prima facie evidence of the matters
therein stated and, until the contrary is proved, every meeting, in
respect of the proceedings of which minutes shall have been made,
shall be deemed to have been duly convened and held, and all
resolutions passed thereat or proceedings taken, to have been duly
passed and taken.
6.14
Instruments in
Writing
All
actions that may be taken and all powers that may be exercised by
the Warrantholders at a meeting held as provided in this Article 6
may also be taken and exercised by Warrantholders representing a
majority, or in the case of an extraordinary resolution at least
662/3%, of the
aggregate number of all the then outstanding Warrants by an
instrument in writing signed in one or more counterparts by such
Warrantholders in person or by attorney duly appointed in writing,
and the expression "extraordinary resolution" when used in this
Indenture shall include an instrument so signed.
6.15
Binding Effect of
Resolutions
Every
resolution and every extraordinary resolution passed in accordance
with the provisions of this Article 6 at a meeting of
Warrantholders shall be binding upon all the Warrantholders,
whether present at or absent from such meeting, and every
instrument in writing signed by Warrantholders in accordance with
Section 6.14 shall be binding upon all the Warrantholders, whether
signatories thereto or not, and each and every Warrantholder and
the Warrant Agent (subject to the provisions for indemnity herein
contained) shall be bound to give effect accordingly to every such
resolution and instrument in writing. In the case of an instrument
in writing, the Warrant Agent shall give notice in the manner
contemplated in sections 9.1 and 9.2 of the effect of the
instrument in writing to all Warrantholders and the Company as soon
as is reasonably practicable.
6.16
Holdings by the Company or
Subsidiaries of the Company Disregarded
In
determining whether Warrantholders are present at a meeting of
Warrantholders for the purpose of determining a quorum or have
concurred in any consent, waiver, extraordinary resolution,
Warrantholders' Request or other action under this Indenture,
Warrants owned legally or beneficially by the Company or its
Subsidiaries or in partnership of which the Company is directly or
indirectly a party to shall be disregarded.
6.17
Common Shares or Warrants
Owned by the Company or its Subsidiaries – Certificate to be
Provided
For the
purpose of disregarding any Warrants owned legally or beneficially
by the Company in Section 6.16, the Company shall provide to the
Warrant Agent, upon written request, a certificate of the Company
setting forth as at the date of such certificate:
(a)
the names (other
than the name of the Company) of the Warrantholders which, to the
knowledge of the Company, hold Warrants that are owned by or held
for the account of the Company; and
(b)
the number of
Warrants owned legally or beneficially by the Company, and the
Warrant Agent, in making the computations in Section 6.16, shall be
entitled to rely on such certificate without any additional
evidence
ARTICLE 7
SUPPLEMENTAL INDENTURES AND SUCCESSOR COMPANIES
7.1
Provision for Supplemental Indentures for Certain
Purposes
From
time to time the Company (if properly authorized by its directors)
and the Warrant Agent may, subject to the provisions hereof, and
they shall, when so directed in accordance with the provisions
hereof, execute and deliver by their proper officers, indentures or
instruments supplemental hereto, which thereafter shall form part
hereof, for any one or more or all of the following
purposes:
(a)
providing for the
issuance of additional Warrants hereunder including Warrants in
excess of the number set out in Section 2.1 and any consequential
amendments hereto as may be required by the Warrant Agent, relying
on the advice of counsel;
(b)
setting forth
adjustments in the application of Article 2;
(c)
adding to the
provisions hereof such additional covenants and enforcement
provisions as, in the opinion of counsel are necessary or
advisable, provided that the same are not in the opinion of the
Warrant Agent, relying on the advice of counsel, prejudicial to the
interests of the Warrantholders as a group;
(d)
giving effect to
any extraordinary resolution passed as provided in Article
6;
(e)
making such
provisions not inconsistent with this Indenture as may be necessary
or desirable with respect to matters or questions arising hereunder
provided that such provisions are not, in the opinion of the
Warrant Agent, relying on the advice of counsel, prejudicial to the
interests of the Warrantholders as a group;
(f)
adding to or
amending the provisions hereof in respect of the transfer of
Warrants, making provision for the exchange of Warrants and making
any modification in the form of the Warrant Certificate that does
not affect the substance thereof;
(g)
amending any of the
provisions of this Indenture or relieving the Company from any of
the obligations, conditions or restrictions herein contained,
provided that no such amendment or relief shall be or become
operative or effective if, in the opinion of the Warrant Agent,
relying on the advice of counsel, such amendment or relief impairs
any of the rights of the Warrantholders as a group or of the
Warrant Agent, and provided further that the Warrant Agent may in
its sole discretion decline to enter into any supplemental
indenture that in its opinion may not afford adequate protection to
the Warrant Agent when the same shall become operative;
and
(h)
for any other
purpose not inconsistent with the terms of this
Indenture, 40
including the
correction or rectification of any ambiguities, defective or
inconsistent provisions, errors or omissions herein, provided that,
in the opinion of the Warrant Agent, relying on the advice of
counsel, the rights of the Warrant Agent and the Warrantholders as
a group are in no way prejudiced thereby.
In the
case of the amalgamation, consolidation, arrangement, merger or
transfer of the undertaking or assets of the Company as an entirety
or substantially as an entirety to or with another person (a
"successor company"), the
successor company resulting from the amalgamation, consolidation,
arrangement, merger or transfer (if not the Company) shall be bound
by the provisions hereof and all obligations for the due and
punctual performance and observance of each and every covenant and
obligation contained in this Indenture to be performed by the
Company and the successor company shall by supplemental indenture
satisfactory in form to the Warrant Agent and executed and
delivered to the Warrant Agent, expressly assume those
obligations.
ARTICLE 8 CONCERNING THE WARRANT AGENT
8.1
Indenture Legislation
(1) If and to the
extent that any provision of this Indenture limits, qualifies or
conflicts with a mandatory requirement of Applicable Legislation,
such mandatory requirement shall prevail.
(2) The Company and the
Warrant Agent agree that each will at all times in relation to this
Indenture and any action to be taken hereunder observe and comply
with and be entitled to the benefit of Applicable
Legislation.
8.2
Rights and Duties of Warrant Agent
(1) The Warrant Agent
accepts the duties and responsibilities under this Indenture,
solely as custodian, bailee and agent. No trust is intended to be,
or is or will be, created hereby and the Warrant Agent shall owe no
duties hereunder as a trustee.
(2) In the exercise of
the rights and duties prescribed or conferred by the terms of this
Indenture, the Warrant Agent shall act honestly and in good faith
with a view to the best interests of the Warrantholders and shall
exercise the degree of care, diligence and skill that a reasonably
prudent warrant agent would exercise in comparable circumstances.
No provision of this Indenture shall be construed to relieve the
Warrant Agent from, or require any other person to indemnify the
Warrant Agent against liability for its own gross negligence,
wilful misconduct, bad faith or fraud.
(3) The Warrant Agent
shall not be bound to do or take any act, action or proceeding for
the enforcement of any of the obligations of the Company under this
Indenture unless and until it shall have received a Warrantholders'
Request specifying the act, action or proceeding that the Warrant
Agent is requested to take. The obligation of the Warrant Agent to
commence or continue any act, action or proceeding for the purpose
of enforcing any rights of the Warrant Agent or the Warrantholders
hereunder shall be conditional upon the
Warrantholders
furnishing, when required by notice in writing by the Warrant
Agent, sufficient funds to commence or continue such act, action or
proceeding and an indemnity reasonably satisfactory to the Warrant
Agent and its counsel to protect and hold harmless the Warrant
Agent, its officers, directors, employees, agents, successors and
assigns against the costs, charges and expenses and liabilities to
be incurred thereby and any loss and damage it may suffer by reason
thereof. None of the provisions contained in this Indenture shall
require the Warrant Agent to expend or risk its own funds or
otherwise incur financial liability in the performance of any of
its duties or in the exercise of any of its rights or powers unless
indemnified and funded as aforesaid.
(4) The Warrant Agent
may, before commencing any act, action or proceeding, or at any
time during the continuance thereof require the Warrantholders at
whose instance it is acting to deposit with the Warrant Agent the
Warrants held by them, for which Warrants the Warrant Agent shall
issue receipts.
(5) Every provision of
this Indenture that, by its terms, relieves the Warrant Agent of
liability or entitles it to rely upon any evidence submitted to it
is subject to the provisions of Applicable
Legislation.
(6) The Warrant Agent
shall not be bound to give any notice or do or take any act, action
or proceeding by virtue of the powers conferred on it hereunder
unless and until it shall have been required to do so under the
terms hereof; nor shall the Warrant Agent be required to take
notice of any default hereunder, unless and until notified in
writing of such default, which notice shall specifically set out
the default desired to be brought to the attention of the Warrant
Agent and in the absence of such notice the Warrant Agent may for
all purposes of this Indenture conclusively assume that no default
has occurred or been made in the performance or observance of the
representations, warranties and covenants, agreements or conditions
herein contained. Any such notice shall in no way limit any
discretion herein given to the Warrant Agent to determine whether
or not the Warrant Agent shall take action with respect to any
default.
(7) In this Indenture,
whenever confirmations or instructions are required to be given to
the Warrant Agent, in order to be valid, such confirmations and
instructions shall be in writing.
8.3
Evidence, Experts and Advisers
(1) In addition to the
reports, certificates, opinions and other evidence required by this
Indenture, the Company shall furnish to the Warrant Agent such
additional evidence of compliance with any provision hereof and in
such form as may be prescribed by Applicable Legislation or as the
Warrant Agent may reasonably require by written notice to the
Company.
(2) In the exercise of
its rights and duties hereunder, the Warrant Agent may, if it is
acting in good faith, act and rely absolutely as to the truth of
the statements and the accuracy of the opinions expressed therein,
upon statutory declarations, opinions, reports, written requests,
consents, or orders of the Company, certificates of the Company or
other evidence furnished to the Warrant Agent pursuant to any
provision hereof or of Applicable Legislation or pursuant to a
request of the Warrant Agent, provided that such evidence complies
with Applicable Legislation and that the Warrant Agent complies
with Applicable Legislation and that the Warrant Agent examines the
same and determines that such evidence complies with the applicable
requirements of this Indenture. The Warrant Agent shall be under no
responsibility in
respect of the validity of this Indenture or the execution and
delivery hereof by or on behalf of the Company or in respect of the
validity or the execution of any Warrant Certificate by the Company
and issued hereunder, nor shall it be responsible for any breach by
the Company of any covenant or condition contained in this
Indenture or in any such Warrant Certificate; nor shall it by any
act hereunder be deemed to make any representation or warranty as
to the authorization or reservation of any securities to be issued
upon the right to acquire provided for in this Indenture and/or in
any Warrant or as to whether any securities will when issued be
duly authorized or be validly issued and fully paid and
non-assessable.
(3) Whenever provided
for in this Indenture or Applicable Legislation requires that the
Company deposit with the Warrant Agent resolutions, certificates,
reports, opinions, requests, orders or other documents, it is
intended that the truth, accuracy and good faith on the effective
date thereof and the facts and opinions stated in all such
documents so deposited shall, in each and every such case, be
conditions precedent to the right of the Company to have the
Warrant Agent take the action to be based thereon.
(4) Proof of the
execution of an instrument in writing, including a Warrantholders'
Request, by any Warrantholder may be made by a certificate of a
notary public or other person with similar powers that the person
signing such instrument acknowledged to him the execution thereof,
or by an affidavit of a witness to such execution or in any other
manner which the Warrant Agent may consider adequate and in respect
of a corporate Warrantholder, shall include a certificate of
incumbency of such Warrantholder together with a certified
resolution authorizing the person who signs such instrument to sign
such instrument.
(5) The Warrant Agent
may act and rely and shall be protected in acting and relying upon
any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, letter, or other paper
document believed by it to be genuine and to have been signed, sent
or presented by or on behalf of the proper party or parties. The
Warrant Agent has sole discretion and shall be protected in acting
and relying upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order,
letter or other paper document received in facsimile or e-mail
form.
(6) The Warrant Agent
may employ or retain such counsel, accountants, engineers,
appraisers or other experts or advisers as it may reasonably
require for the purpose of determining and discharging its duties
hereunder and shall pay reasonable remuneration for all services so
performed by any of them, without taxation of costs of any counsel
and shall not be responsible for any misconduct or negligence on
the part of any of them who has been selected with due care by the
Warrant Agent. Any reasonable remuneration paid by the Warrant
Agent shall be paid by the Company in accordance with Section
4.2.
(7) The Warrant Agent
may act and rely and shall be protected in acting and relying in
good faith on the opinion or advice of or information obtained from
any counsel, accountant, appraiser, engineer or other expert or
advisor, whether retained or employed by the Company or the Warrant
Agent, in relation to any matter arising in fulfilling its duties
and obligations hereof.
(8) The Warrant Agent
may, as a condition precedent to any action to be taken by it under
this Indenture, require such opinions, statutory declarations,
reports, certificates or other evidence as it, acting reasonably,
considers necessary or advisable in the circumstances.
(9)
The Warrant Agent is not required to expend or place its own funds
at risk in executing its duties and obligations.
8.4
Securities, Documents and Monies Held by Warrant Agent
(90)
Any securities, documents of title, monies or other instruments
that may at any time be held by the Warrant Agent subject to the
duties and obligations hereof, for the benefit of the Company, may
be placed in the deposit vaults of the Warrant Agent or of any
Schedule 1 Canadian chartered bank under the Bank Act (Canada) or deposited for
safekeeping with any such bank or the Warrant Agent. Any monies
held pending the application or withdrawal thereof under any
provisions of this Indenture, shall be held, invested and
reinvested in "Permitted Investments" as directed in writing by the
Company. "Permitted Investments" shall be treasury bills guaranteed
by the Government of Canada having a term to maturity not to exceed
ninety (90) days, or term deposits or bankers' acceptances of a
Canadian chartered bank having a term to maturity not to exceed
ninety (90) days, or such other investments that is in accordance
with the Warrant Agent's standard type of investments. Unless
otherwise specifically provided herein, all interest or other
income received by the Warrant Agent in respect of such deposits
and investments shall belong to the Company and shall be paid to
the Company upon discharge of this Indenture.
(2) Any written
direction for the investment or release of funds received shall be
received by the Warrant Agent by 9:00 a.m. (Calgary time) on the
Business Day on which such investment or release is to be made,
failing which such direction will be handled on a commercially
reasonable efforts basis and may result in funds being invested or
released on the next Business Day.
(3) The Warrant Agent
shall have no responsibility or liability for any diminution of any
funds resulting from any investment made in accordance with this
Indenture, including any losses on any investment liquidated prior
to maturity in order to make a payment required
hereunder.
(4) In the event that
the Warrant Agent does not receive a direction or only a partial
direction, the Warrant Agent may hold cash balances constituting
part or all of such monies and may, but need not, invest same in
its deposit department, the deposit department of one of its
affiliates, or the deposit department of a Canadian chartered bank;
but the Warrant Agent, its affiliates or a Canadian chartered bank
shall not be liable to account for any profit to any parties to
this Indenture or to any other person or entity.
8.5
Actions by Warrant Agent to Protect Interests
The
Warrant Agent shall have the power to institute and to maintain
such actions and proceedings as it may consider necessary or
expedient to preserve, protect or enforce its interests and the
interests of the Warrantholders pursuant to the provisions of this
Indenture.
8.6
Warrant Agent not Required to Give Security
The
Warrant Agent shall not be required to give any bond or security in
respect of the execution of the duties and obligations of this
Indenture or otherwise.
8.7
Protection of Warrant Agent
By way
of supplement to the provisions of any law for the time being
relating to warrant agents, it is
expressly declared and agreed as follows:
(1) The Warrant Agent
shall not be liable for or by reason of any representations,
statements of fact or recitals in this Indenture or in the Warrants
(except the representation contained in Section 8.9 or in the
Authentication of the Warrant Agent on the Warrants) or be required
to verify the same and all such statements of fact or recitals are
and shall be deemed to be made by the Company.
(2) Nothing herein
contained shall impose any obligation on the Warrant Agent to see
to or to require evidence of the registration or filing (or renewal
thereof) of this Indenture or any instrument ancillary or
supplemental hereto.
(3) The Warrant Agent
shall not be bound to give notice to any person or persons of the
execution hereof.
(4) The Warrant Agent
shall not incur any liability or responsibility whatsoever or be in
any way responsible for the consequence of any breach on the part
of the Company of any of the covenants or warranties herein
contained or of any acts of any directors, officers, employees,
agents or servants of the Company.
(5) Without limiting
any protection or indemnity of the Warrant Agent under any other
provision hereof, or otherwise at law, the Company hereby agrees to
indemnify and hold harmless the Warrant Agent and its affiliates,
directors, officers, agents and employees, successors and assigns
(the "Indemnified Parties")
from and against any and all liabilities whatsoever, losses,
damages, penalties, claims, demands, proceedings, charges, actions,
suits, costs, expenses and disbursements, including reasonable
legal or advisor fees and disbursements on a solicitor and client
basis, of whatever kind and nature which may at any time be imposed
on, incurred by or asserted against the Indemnified Parties, or any
of them, whether at law or in equity, in any way caused by or
arising from the performance of its duties hereunder, directly or
indirectly, in respect of any act, deed, matter or thing whatsoever
made, done, acquiesced in or omitted in or about or in relation to
the execution of the Indemnified Parties' duties, or any other
services that Warrant Agent may provide in connection with or in
any way relating to this Indenture. The Company agrees that its
liability hereunder shall be absolute and unconditional regardless
of the correctness of any representations of any third parties and
regardless of any liability of third parties to the Indemnified
Parties, and shall accrue and become enforceable without prior
demand or any other precedent action or proceeding; provided that
the Company shall not be required to indemnify the Indemnified
Parties in the event of the gross negligence, fraud or wilful
misconduct of the Warrant Agent, and this provision shall survive
the resignation or removal of the Warrant Agent or the termination
or discharge of this Indenture.
(6) Notwithstanding the
foregoing or any other provision of this Indenture, any liability
of the Warrant Agent shall be limited, in the aggregate, to the
amount of annual retainer fees paid by the Company to the Warrant
Agent under this Indenture in the twelve (12) months immediately
prior to the Warrant Agent receiving the first notice of the claim;
provided that this limitation shall not apply in respect of any
gross negligence, fraud or wilful misconduct of the Warrant Agent.
Notwithstanding any other provision of this Indenture, and whether
such losses or damages are foreseeable or unforeseeable, the
Warrant Agent shall not be liable under any circumstances
whatsoever for any (a) breach by any other party of securities law
or other rule of any securities regulatory authority, (b) lost
profits or (c) special, indirect, incidental, consequential,
exemplary, aggravated or punitive losses or damages.
(7) If any of the funds
provided to the Warrant Agent hereunder are received by it in the
form of an uncertified cheque or bank draft, the Warrant Agent
shall delay the release of such funds and the related Warrant
Shares until such uncertified cheque has cleared the financial
institution upon which the same is drawn.
(8) The forwarding of a
cheque or the sending of funds by wire transfer by the Warrant
Agent will satisfy and discharge the liability of any amounts due
to the extent of the sum represented thereby unless such cheque is
not honoured on presentation, provided that in the event of the
non-receipt of such cheque by the payee, or the loss or destruction
thereof, the Warrant Agent, upon being furnished with reasonable
evidence of such non-receipt, loss or destruction and indemnity
reasonably satisfactory to it, will issue to such payee a
replacement cheque for the amount of such cheque.
(9) The Warrant Agent
shall retain the right not to act and shall not be liable for
refusing to act if, due to a lack of information or for any other
reason whatsoever, the Warrant Agent, in its sole judgement,
determines that such act might cause it to be in non-compliance
with any applicable anti-money laundering, anti-terrorist or
economic sanctions legislation, regulation or guideline. Further,
should the Warrant Agent, in its sole judgement, determine at any
time that its acting under this Indenture has resulted in its being
in non-compliance with any applicable anti-money laundering,
anti-terrorist or economic sanctions legislation, regulation or
guideline, then it shall have the right to resign on ten (10) days'
written notice to the Company provided: (i) that the Warrant
Agent's written notice shall describe the circumstances of such
non-compliance; and (ii) that if such circumstances are rectified
to the Warrant Agent's satisfaction within such ten (10) day
period, then such resignation shall not be effective.
8.8
Replacement of Warrant Agent
(1) The
Warrant Agent may resign its appointment and be discharged from all
further duties and liabilities hereunder by giving to the Company
not less than sixty (60) days prior notice in writing or such
shorter prior notice as the Company may accept as sufficient. The
Warrantholders by extraordinary resolution shall have the power at
any time to remove the existing Warrant Agent and to appoint a new
warrant agent. In the event of the Warrant Agent resigning or being
removed as aforesaid or being dissolved, becoming bankrupt, going
into liquidation or otherwise becoming incapable of acting
hereunder, the Company shall forthwith appoint a new warrant agent
unless a new warrant agent has already been appointed by the
Warrantholders; failing such appointment by the Company, the
retiring Warrant Agent or any Warrantholder may apply to a justice
of the Ontario Superior Court of Justice (the "Court") at the Company's expense, on
such notice as such justice may direct, for the appointment of a
new warrant agent; but any new warrant agent so appointed by the
Company or by the Court shall be subject to removal as aforesaid by
the Warrantholders. Any new warrant agent appointed under any
provision of this Section 8.8 shall be a corporation authorized to
carry on the business of a transfer agent or a trust company in one
or more provinces of Canada and, if required by Applicable
Legislation of any province, in such province. On any such
appointment the new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been
originally named herein as Warrant Agent without any further
assurance, conveyance, act or deed; but there shall be immediately
executed, at the expense of the Company, all such conveyances or
other instruments as may, in the opinion of counsel, be necessary
or advisable for the purpose of assuring the same to the new
warrant agent, provided that any resignation or removal of the
Warrant Agent and appointment of a
successor warrant agent shall not become effective until the
successor warrant agent shall have executed an appropriate
instrument accepting such appointment and, at the request of the
Company, the predecessor Warrant Agent, upon payment of its
outstanding remuneration and expenses, shall execute and deliver to
the successor warrant agent an appropriate instrument transferring
to such successor warrant agent all rights and powers of the
Warrant Agent hereunder and all securities, documents of title and
other instruments and all monies and properties held by the Warrant
Agent hereunder.
(2) Upon the
appointment of a successor warrant agent, the Company shall
promptly notify the Warrantholders thereof in the manner provided
for in Section 9.2.
(3) Any corporation
into or with which the Warrant Agent may be merged or consolidated
or amalgamated, or any corporation succeeding to the corporate
trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without any further act on its part or of
any of the parties hereto, provided that such corporation would be
eligible for appointment as a new warrant agent under Section
8.8(1).
(4) Any Warrants
Authenticated or certified but not delivered by a predecessor
Warrant Agent may be Authenticated or certified by the new or
successor warrant agent in the name of the predecessor or the new
or successor warrant agent.
(1) The Warrant Agent
represents to the Company, to the best of its knowledge, that at
the time of execution and delivery hereof no material conflict of
interest exists which it is aware of in the Warrant Agent's role
hereunder and agrees that in the event of a material conflict of
interest arising which it becomes aware of hereafter it will,
within ninety (90) days after ascertaining that it has such a
material conflict of interest, either eliminate the same or resign
its appointment hereunder. If any such material conflict of
interest exists or hereafter shall exist, the validity and
enforceability of this Indenture and the Warrants shall not be
affected in any manner whatsoever by reason thereof.
(2) Subject to Section
8.9(1), the Warrant Agent, in its personal or any other capacity,
may buy, lend upon and deal in securities of the Company and
generally may contract and enter into financial transactions with
the Company or any Subsidiary without being liable to account for
any profit made thereby.
8.10
Acceptance of Duties and
Obligations
The
Warrant Agent hereby accepts the duties and obligations in this
Indenture declared and provided for and agrees to perform the same
upon the terms and conditions herein set forth and agrees to hold
all rights, interests and benefits contained herein on behalf of
those persons who become holders of Warrants from time to time
issued under this Indenture.
8.11
Warrant Agent not to be
Appointed Receiver
The
Warrant Agent and any person related to the Warrant Agent shall not
be appointed a receiver or receiver and manager or liquidator of
all or any part of the assets or undertaking of the Company or any
Subsidiary or any partnership of which the Company is directly or
indirectly involved.
8.12
Authorization to Carry on
Business
The
Warrant Agent represents to the Company that it is registered to
carry on business under Applicable Legislation in the provinces of
Alberta and British Columbia.
ARTICLE 9 GENERAL
9.1
Notice to the Company and the Warrant Agent
(1) Unless
herein otherwise expressly provided, any notice to be given
hereunder to the Company or the Warrant Agent shall be deemed to be
validly given if delivered, if sent by registered letter, postage
prepaid or if transmitted by email to the following addresses or
facsimile numbers:
(a) If to the Company,
to:
Planet 13 Holdings
Inc.
2548 West Desert
Inn Road
Las Vegas,
Nevada
89109
Attention:
Leighton Koehler
E-mail:
[REDACTED]
with a copy
to:
Wildeboer Dellelce
LLP
396 Bay Street,
Suite 80
Toronto,
ON
M5H
2V1
Attention:
Charlie Malone
E-mail:
[REDACTED]
(b) If to the Warrant
Agent, to:
Odyssey
Trust Company
Suite
1230, 300 5th Avenue
SW
Calgary,
Alberta
T2P
3C4
Attention:
Dan Sander
Email:
[REDACTED]
and any
notice given in accordance with the foregoing shall be deemed to
have been received on the date of delivery if that date is a
Business Day (and if that date is not a Business Day, on the next
Business Day) or, if mailed, on the fifth Business Day following
the date of the postmark on such notice or, if transmitted by
email, on the Business Day following the transmission.
(2)
The Company or the
Warrant Agent, as the case may be, may from time to tim
notify
the other in the manner provided in Section 9.1(1) of a change of
address which, from the effective date of such notice and until
changed by like notice, shall be the address of the Company or the
Warrant Agent, as the case may be, for all purposes of this
Indenture.e
(3) If,
by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to
the Warrant Agent or to the Company hereunder could reasonably be
considered unlikely to reach its destination, the notice shall be
valid and effective only if it is delivered to an officer of the
party to which it is addressed or if it is delivered to that party
at the appropriate address provided in Section 9.1(1) by facsimile
or other means of prepaid, transmitted or recorded communication
and any notice delivered in accordance with the foregoing shall be
deemed to have been received on the date of delivery to the officer
or if delivered by facsimile or other means of prepaid,
transmitted, recorded communication on the third Business Day
following the date of the sending of the notice by the person
giving the notice.
9.2
Notice to the Warrantholders
(1) Any
notice to the Warrantholders under the provisions of this Indenture
shall be deemed to be validly given if the notice is sent by
prepaid mail or, if delivered by hand, to the holders at their
addresses appearing in the register of holders. Any notice so
delivered shall be deemed to have been received on the date of
delivery if that date is a Business Day or the Business Day
following the date of delivery if such date is not a Business Day
or on the third Business Day if delivered by mail. All notices may
be given to whichever one of the Warrantholders (if more than one)
is named first in the appropriate register hereinbefore mentioned,
and any notice so given shall be sufficient notice to all
Warrantholders and any other persons (if any) interested in such
Warrants. Accidental error or omission in giving notice or
accidental failure to mail notice to any Warrantholder will not
invalidate any action or proceeding founded thereon.
(2) If,
by reason of strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to
the Warrantholders could reasonably be considered unlikely to reach
its destination, the notice may be given in a news release
disseminated through a newswire service, filed on SEDAR and posted
on the Company's website; provided that in the case of a notice
convening a meeting of the holders of Warrants, the Warrant Agent
may require such additional publications of that notice, in
Toronto, Ontario or in other cities or both, as it may deem
necessary for the reasonable notification of the holders of
Warrants or to comply with any applicable requirement of law or any
stock exchange. Any notice so given shall be deemed to have been
given on the day on which it has been published in all of the
cities in which publication was required.
The
Company acknowledges that the Warrant Agent may, in the course of
providing services hereunder, collect or receive financial and
other personal information about such parties and/or their
representatives, as individuals, or about other individuals related
to the subject matter hereof, and use such information for the
following purposes:
(a)
to provide the
services required under this Indenture and other services that may
be requested from time to time;
(b)
to help the Warrant
Agent manage its servicing relationships with such
individuals
(c)
to meet the Warrant
Agent's legal and regulatory requirements; and
(d)
if Social Insurance
Numbers are collected by the Warrant Agent, to perform tax
reporting and to assist in verification of an individual's identity
for security purposes.
The
Company acknowledges and agrees that the Warrant Agent may receive,
collect, use and disclose personal information provided to it or
acquired by it in the course of its acting as agent hereunder for
the purposes described above and, generally, in the manner and on
the terms described in its privacy code, which the Warrant Agent
shall make available on its website or upon request, including
revisions thereto. Some of this personal information may be
transferred to servicers in the United States for data processing
and/or storage. Further, the Company agrees that it shall not
provide or cause to be provided to the Warrant Agent any personal
information relating to an individual who is not a party to this
Indenture unless the Company has assured itself that such
individual understands and has consented to the aforementioned uses
and disclosures.
9.4
Third Party Interests
The
Company represents to the Warrant Agent that any account to be
opened by, or interest to held by the Warrant Agent in connection
with this Indenture, for or to the credit of such party, either (i)
is not intended to be used by or on behalf of any third party; or
(ii) is intended to be used by or on behalf of a third party, in
which case such party hereto agrees to complete and execute
forthwith a declaration in the Warrant Agent prescribed form as to
the particulars of such third party.
9.5
Securities Exchange Commission Certification
The
Company confirms that as at the date of this Indenture it does not
have a class of securities registered pursuant to section 12 of the
U.S. Securities and Exchange Act of 1934, as amended (the
"Exchange Act") or have a
reporting obligation pursuant to section 15(d) of the Exchange
Act.
The
Company covenants that in the event that (i) any class of its
securities shall become registered pursuant to section 12 of the
Exchange Act or the Company shall incur a reporting obligation
pursuant to section 15(d) of the Exchange Act, or (ii) any such
registration or reporting obligation shall be terminated by the
Company in accordance with the Exchange Act, the Company shall
promptly deliver to the Warrant Agent an Officer's Certificate (in
a form provided by the Warrant Agent) notifying the Warrant Agent
of such registration or termination and such other information as
the Warrant Agent may reasonably require at the time. The Company
acknowledges that the Warrant Agent is relying upon the foregoing
representation and covenants in order to meet certain United States
Securities and Exchange Commission ("SEC") obligations with respect to those
clients who are filing with the SEC.
9.6
Discretion of Directors
Any
matter provided herein to be determined by the directors in their
sole discretion and determination so made will be
conclusive.
9.7
Satisfaction and Discharge of Indenture
Upon
the earlier of the Time of Expiry or the date by which there shall
have been delivered to the Warrant Agent for exercise or
destruction in accordance with the provisions hereof all Warrants
theretofore Authenticated or certified hereunder and by which no
Warrants shall remain issuable hereunder, this Indenture, except to
the extent that Warrant Shares and any certificates therefor have
not been issued and delivered hereunder or the Company has not
performed any of its obligations hereunder, shall cease to be of
further effect in respect of the Company, and the Warrant Agent, on
written demand of and at the cost and expense of the Company, and
upon delivery to the Warrant Agent of a certificate of the Company
stating that all conditions precedent to the satisfaction and
discharge of this Indenture have been complied with and upon
payment to the Warrant Agent of the expenses, fees and other
remuneration payable to the Warrant Agent, shall execute proper
instruments acknowledging satisfaction of and discharging this
Indenture; provided that if the Warrant Agent has not then
performed any of its obligations hereunder any such satisfaction
and discharge of the Company's obligations hereunder shall not
affect or diminish the rights of any Warrantholder or the Company
against the Warrant Agent.
9.8
Provisions of Indenture and Warrants for the Sole Benefit of
Parties and Warrantholders
Nothing
in this Indenture or the Warrant Certificates, expressed or
implied, shall give or be construed to give to any person other
than the parties hereto and the holders from time to time of the
Warrants any legal or equitable right, remedy or claim under this
Indenture, or under any covenant or provision therein contained,
all such covenants and provisions being for the sole benefit of the
parties hereto and the Warrantholders.
To the
extent of any discrepancy or inconsistency between the terms and
conditions of this Indenture and the Warrant Certificate, the terms
of this Indenture will prevail.
9.10
Assignment
This
Indenture nor any benefits or burdens under this Indenture shall be
assignable by the Company or the Warrant Agent without the prior
written consent of the other party, such consent not to be
unreasonably withheld. Subject to the foregoing, this Indenture
shall enure to the benefit of and be binding upon the Company and
the Warrant Agent and their respective successors (including any
successor by reason of amalgamation) and permitted
assigns.
If, in
any jurisdiction, any provision of this Indenture or its
application to any party or circumstance is restricted, prohibited
or unenforceable, such provision will, as to such jurisdiction, be
ineffective only to the extent of such restriction, prohibition or
unenforceability without invalidating the remaining provisions of
this Indenture and without affecting the validity or enforceability
of such provision in any other jurisdiction or without affecting
its application to other parties or circumstances.
9.12
Force
Majeure
No
party shall be liable to the other, or held in breach of this
Indenture, if prevented, hindered, or
delayed in the performance or observance of any provision contained
herein by reason of act of God, riots, terrorism, acts of war,
epidemics, governmental action or judicial order, earthquakes, or
any other similar causes (including, but not limited to,
mechanical, electronic or communication interruptions, disruptions
or failures). Performance times under this Indenture shall be
extended for a period of time equivalent to the time lost because
of any delay that is excusable under this
section.
9.13
Counterparts and Formal
Date
This
Indenture may be simultaneously executed in several counterparts,
each of which when so executed shall be deemed to be an original
and such counterparts together shall constitute one and the same
instrument and notwithstanding their date of execution shall be
deemed to bear the date set out at the top of the first page of
this Indenture.
(Signature page follows)
IN WITNESS WHEREOF the
parties hereto have executed this Indenture under the hands of
their proper officers in that behalf.
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PLANET 13 HOLDINGS
INC.
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By:
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/s/ Dennis
Logan
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Dennis
Logan
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Chief
Financial Officer
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ODYSSEY TRUST COMPANY
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By:
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/s/ Dan
Sander
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Authorized
Signatory
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By:
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/s/ Amy
Douglas
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SCHEDULE “A”
FORM OF WARRANT CERTIFICATE
WARRANTS TO PURCHASE COMMON SHARES
OF PLANET 13 HOLDINGS INC.
(a
company existing under the laws of British Columbia)
[For
Warrants issued in the United States or to, or for the account or
benefit of, U.S. Persons, also include the following
legends:]
THE
SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE ON
EXERCISE HEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S.
SECURITIES ACT") OR UNDER ANY STATE SECURITIES LAWS, AND THE
SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE ON
EXERCISE HEREOF MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
DIRECTLY OR INDIRECTLY, ONLY (A) TO THE COMPANY, (B) OUTSIDE THE
UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE U.S.
SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND
REGULATIONS, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE U.S. SECURITIES ACT PROVIDED BY (i) RULE 144 OR (ii) RULE144A
THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH APPLICABLE U.S.
STATE SECURITIES LAWS, (D) IN COMPLIANCE WITH ANOTHER EXEMPTION
FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS, OR (E) UNDER AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE U.S. SECURITIES ACT, PROVIDED THAT IN THE CASE
OF TRANSFERS PURSUANT TO (C)(i) OR (D) ABOVE, A LEGAL OPINION OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, MUST FIRST
BE PROVIDED TO THE COMPANY AND THE COMPANY'S TRANSFER AGENT TO THE
EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE
U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. DELIVERY
OF THIS CERTIFICATE MAY NOT CONSTITUTE GOOD DELIVERY" IN SETTLEMENT
OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.
THIS
WARRANT MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON
BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A PERSON IN THE UNITED
STATES OR A U.S. PERSON UNLESS THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS
AVAILABLE. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED BY
REGULATION S UNDER THE U.S. SECURITIES ACT.
CUSIP
No. 72706K135
ISIN
No.
CA72706K1350
Warrant Certificate
Number: ●
Representing
●
Warrants to
THIS CERTIFIES that, for value received,
the registered holder hereof, ●
(the "holder") is entitled
at any time at or before the Expiry Time (as defined below) to
acquire, subject to
adjustment
in certain events, the number of Common Shares ("Common Shares") of Planet 13 Holdings
Inc. (the "Company")
specified above, as presently constituted, by surrendering to
Odyssey Trust Company (the "Warrant
Agent") at its principal office in Calgary, Alberta, this
Warrant Certificate with the duly completed and executed Exercise
Form endorsed on the back of this Warrant Certificate, and
accompanied by payment of $2.85 per Common Share (the "Warrant Exercise Price") by certified
cheque, bank draft or money order in lawful money of Canada payable
to, or to the order of, the Company at par at the above-mentioned
office of the Warrant Agent. The holder of this Warrant Certificate
may purchase less than the number of Common Shares which he is
entitled to purchase on the exercise of the Warrants represented by
this Warrant Certificate, in which event a new Warrant Certificate
representing the Warrants not then exercised will be issued to the
holder.
The
Warrants evidenced under this Warrant Certificate are exercisable
on or before 5:00 p.m. (Toronto time) (the "Expiry Time") on July 3, 2022 (the
"Expiry Date"). After the
Expiry Time, Warrants evidenced hereby shall be deemed to be void
and of no further force or effect.
This
Warrant Certificate represents Warrants of the Company issued or
issuable under the provisions of a warrant indenture (which
indenture together with all other instruments supplemental or
ancillary thereto is herein referred to as the "Warrant Indenture") dated as of July 3,
2020, between the Company and the Warrant Agent, as may be amended
from time to time, which contains particulars of the rights of the
holders of the Warrants and the Company and of the Warrant Agent in
respect thereof and the terms and conditions upon which the
Warrants are issued and held, all to the same effect as if the
provisions of the Warrant Indenture were herein set forth, to all
of which the holder of this Warrant Certificate by acceptance
hereof assents. Unless otherwise defined herein, all capitalized
terms shall have the meanings ascribed to them in the Warrant
Indenture. A copy of the Warrant Indenture can be requested by
contacting the Warrant Agent. In
the event of any conflict between the provisions contained in this
Warrant Certificate and the provisions of the Warrant Indenture,
the provisions of the Warrant Indenture shall
prevail.
Upon
acceptance hereof, the holder hereof hereby expressly waives the
right to receive any fractional Common Shares upon the exercise
hereof in full or in part and further waives the right to receive
any cash or other consideration in lieu thereof. The Warrants
represented by this Warrant Certificate shall be deemed to have
been surrendered, and payment by certified cheque, bank draft or
money order shall be deemed to have been made only upon personal
delivery thereof or, if sent by post or other means of
transmission, upon actual receipt thereof by the Warrant Agent at
its office in the City of Calgary, Alberta.
Upon
due exercise of the Warrants represented by this Warrant
Certificate and payment of the Warrant Exercise Price, the Company
shall cause to be issued to the person(s) in whose name(s) the
Common Shares have been so subscribed for, the number of Common
Shares to be issued to such person(s) (provided that if the Common
Shares are to be issued to a person other than the registered
holder of this Warrant Certificate, the holder's signature on the
Exercise Form herein shall be guaranteed by a Schedule I Canadian
chartered bank or by a medallion signature guarantee from a member
of a recognized Signature Medallion Guarantee Program), and the
holder shall pay to the Company or the Warrant Agent all applicable
transfer or similar taxes and the Company shall not be required to
issue or deliver certificates evidencing the Common Shares unless
or until the holder shall have paid the Company or the Warrant
Agent the amount of such tax (or shall have satisfied the Company
that such tax has been paid or that no tax is due), and such
person(s) shall become a holder in respect of such Common Shares
with effect from the date of such exercise, and upon due surrender
of this Warrant Certificate, the Transfer Agent shall issue a
certificate(s) representing such Common Shares to be issued within
five Business Days after the exercise of the Warrants (or portion
thereof) represented hereby.
Neither
the Warrants represented by this Warrant Certificate nor the Common
Shares issuable upon exercise hereof have been or will be
registered under the United States Securities Act of 1933, as
amended (the “U.S. Securities
Act”), or any state securities laws. The Warrants
represented by this Warrant Certificate may not be exercised within
the United States or by, or for the account or benefit of, a U.S.
person or a person within the United States unless registered under
the U.S. Securities Act and any applicable state securities laws or
unless an exemption from such registration is available.
Certificates representing Common Shares issued in the United States
or to, or for the account or benefit of, U.S. persons will bear a
legend restricting the transfer and exercise of such securities
under applicable United States federal and state securities laws.
"United States" and "U.S. person" are as defined in Regulation S
under the U.S. Securities Act.
The
holder acknowledges that the Warrants represented by this Warrant
Certificate and the Common Shares issuable upon exercise hereof may
be offered, sold or otherwise transferred only in compliance with
all applicable securities laws.
No
transfer of any Warrant will be valid unless entered on the
register of transfers, upon surrender to the Warrant Agent of the
Warrant Certificate evidencing such Warrant, duly endorsed by, or
accompanied by a transfer form or other written instrument of
transfer in form satisfactory to the Warrant Agent executed by the
registered holder or his executors, administrators or other legal
representatives or his or their attorney duly appointed by an
instrument in writing in form and execution satisfactory to the
Warrant Agent. Subject to the provisions of the Warrant Indenture
and upon compliance with the reasonable requirements of the Warrant
Agent, Warrant Certificates may be exchanged for Warrants
Certificates entitling the holder thereof to acquire an equal
aggregate number of Common Shares subject to adjustment as provided
for in the Warrant Indenture. The Company and the Warrant Agent may
treat the registered holder of this Warrant Certificate for all
purposes as the absolute owner hereof. The holding of the Warrants
represented by this Warrant Certificate shall not constitute the
holder hereof a holder of Common Shares nor entitle him to any
right or interest in respect thereof except as herein and in the
Warrant Indenture expressly provided.
The
Warrant Indenture provides for adjustment in the number of Common
Shares to be delivered upon exercise of the right of purchase
hereby granted and to the Warrant Exercise Price in certain events
therein set forth.
The
Warrant Indenture contains provisions making binding upon all
holders of Warrants outstanding thereunder resolutions passed at
meetings of such holders held in accordance with such provisions
and instruments in writing signed by the Warrantholders entitled to
acquire upon the exercise of the Warrants a specified percentage of
the Common Shares.
The
Warrants and the Warrant Indenture shall be governed by and
performed, construed and enforced in accordance with the laws of
the Province of Ontario and the federal laws of Canada applicable
therein and shall be treated in all respects as Ontario contracts.
Time shall be of the essence hereof and of the Warrant
Indenture.
The
Company may from time to time at any time prior to the Expiry Time
purchase any of the Warrants by private agreement or
otherwise.
This
Warrant Certificate shall not be valid for any purpose until it has
been certified by or on behalf of the
Warrant Agent for the time being under the Warrant Indenture. All
dollar amounts herein are expressed in the lawful money of
Canada.
(Signature page follows)
IN WITNESS WHEREOF the Company has
caused this Warrant Certificate to be signed by its duly
authorized officer as of this _________ day of ________,
20
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PLANET 13 HOLDINGS
INC.
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By:
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Authorized Signing
Officer
Countersigned this
_______ day
of ______,
20
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ODYSSEY
TRUST COMPANY
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By:
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Authorized Signing
Officer
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EXERCISE FORM
TO:
Planet 13 Holdings
Inc.
c/o
Odyssey Trust Company
Suite
1230, 300 5th Avenue
SW
Calgary,
Alberta
T2P
3C4
The
undersigned holder of the within Warrants hereby irrevocably
exercises the right of such holder to be issued and hereby
subscribes
for
Common Shares of Planet 13 Holdings Inc. (the "Company") at the Warrant Exercise Price
referred to in the attached Warrant Certificate on the terms and
conditions set forth in such certificate and the Warrant Indenture
and encloses herewith a certified cheque, bank draft or money order
payable at par in the City of Calgary, in the Province of Alberta
to the order of the Company in payment in full of the subscription
price of the Common Shares hereby subscribed for.
Unless
otherwise defined herein, all capitalized terms shall have the
meanings ascribed to them in the warrant indenture between the
Company and Odyssey Trust Company dated July 3, 2020.
(Please
check the ONE box
applicable):
☐
1.The undersigned
certifies that it (i) is not in the United States and is not a
"U.S.
person", within the
meaning of Regulation S under the United States Securities Act of
1933, as amended (the "U.S.
Securities Act"), (ii) is not exercising this Warrant for
the account or benefit of any U.S. Person or person in the United
States, (iii) did not execute or deliver this Exercise Form within
the United States and (iv) has in all other aspects complied with
the terms of Regulation S under the U.S. Securities
Act.
☐
2.The undersigned
certifies that it (i) purchased the Warrants as a part of the
Units
in the
Offering; (ii) is exercising the Warrants solely for its own
account or for the benefit of a U.S. Person or a person in the
United States for whose account such holder acquired the Warrants
as a part of the Units in the Offering and for whose account such
holders exercises sole investment discretion; (iii) was and is, and
any beneficial purchaser for whose account such holder acquired the
Warrant and is exercising the Warrants was and is, a Qualified
Institutional Buyer both on the date the Units were purchased in
the Offering and on the Exercise Date; and (iv) the representations
and warranties made by the holder or any beneficial purchaser, as
the case may be, to the Company in such holder’s QIB Letter
remain true and correct on the Exercise Date.
☐
3.The undersigned
is delivering a written opinion of United States legal counsel
or
evidence
satisfactory to the Company to the effect that the Warrant and the
Common Shares to be delivered upon exercise hereof have been
registered under the U.S. Securities Act or are exempt from the
registration requirements of the U.S. Securities Act and applicable
state securities laws.
It is
understood that the Company may require evidence to verify the
foregoing representations.
The
undersigned hereby directs that the said Common Shares be issued as
follows:
NAME(S)
IN FULL
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ADDRESS(ES)
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NUMBER OFCOMMON SHARES
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Please
print full name in which certificates representing the Common
Shares are to be issued. If any Common Shares are to be issued to a
person or persons other than the registered holder, the registered
holder must pay to the Warrant Agent all eligible transfer taxes or
other government charges, if any, and the Transfer Form must be
duly executed.
Once
completed and executed, this Exercise Form must be mailed or
delivered to Odyssey Trust Company, c/o Corporate
Trust.
)
)
Witness
) (Signature of
Warrantholder, to be the same as
)
appears on the face of this Warrant Certificate)
)
Name of
Registered Warrantholder
[
] Please check this
box if the securities are to be delivered at the office where these
Warrants are surrendered, failing which the securities will be
mailed.
NOTES:
1.
Certificates will
not be registered or delivered to an address in the United States
unless Box 2 or Box 3 above is checked.
2.
If Box 3 above is
checked, holders are encouraged to contact the Company in advance
to determine that the legal opinion or evidence tendered in
connection with exercise will be satisfactory in form and substance
to the Company.
TRANSFER FORM
TO:
Planet 13 Holdings
Inc.
c/o
Odyssey Trust Company
Suite
1230, 300 5th Avenue
SW
Calgary,
Alberta
T2P
3C4
FOR VALUE RECEIVED, the undersigned
transferor hereby sells, assigns and transfers unto
(Transferee)
(Address)
(Social
Insurance Number)
of the Warrants registered in the name of the undersigned
transferor represented by the Warrant Certificate.
In the
case of a Warrant Certificate that contains a U.S. restrictive
legend, the undersigned hereby represents, warrants and certifies
that (one (only) of the following must be checked):
☐
(A) the transfer is
being made only to the Company; or
☐
(B) the transfer is
being made outside the United States in accordance with Regulation
S under the United States Securities Act of 1933, as amended (the
“U.S. Securities
Act”), and in compliance with any applicable local
securities laws and regulations and the holder has provided
herewith the Declaration for Removal of Legend attached as Schedule
"B" to the Warrant Indenture; or
☐
(C) the transfer is
being made pursuant to the exemption from the registration
requirements of the U.S. Securities Act provided by (i) Rule 144 or
(ii) Rule 144A thereunder, and in either case in accordance with
applicable state securities laws; or
☐
(D) the transfer is
being made within the United States or to, or for the account or
benefit of, U.S. persons, in accordance with a transaction that
does not require registration under the U.S. Securities Act or any
applicable state securities laws and the undersigned has furnished
to the Company and the Warrant Agent an opinion of counsel of
recognized standing in form and substance reasonably satisfactory
to the Company to such effect.
In the
case of a transfer in accordance with (C)(i) or (D) above, the
Company and the Warrant Agent shall first have received an opinion
of counsel of recognized standing in form and substance reasonably
satisfactory to the Company, to such effect.
In the
case of a Warrant Certificate that does not contain a U.S.
restrictive legend, if the proposed transfer is to, or for the
account or benefit of a U.S. person or to a person in the United
States, the undersigned hereby represents, warrants and certifies
that the transfer of the Warrants is being completed pursuant to an
exemption from the registration requirements of the U.S. Securities
Act and any applicable state securities laws, in which case the
undersigned has furnished to the Company and the Warrant Agent an
opinion of counsel of recognized standing in form and substance
reasonably satisfactory to the Company to such effect.
"United
States" and "U.S. Person" are as defined by Regulation S under the
U.S. Securities Act.
SPACE FOR GUARANTEES)
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OF SIGNATURES (BELOW
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)
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)
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)
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Signature
of Transferor
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)
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)
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)
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Guarantor's
Signature/Stamp
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)
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Name of
Transferor
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REASON
FOR TRANSFER – For US Residents only (where the individual(s)
or corporation receiving the securities is a US resident). Please
select only one (see instructions below).
☐
Gift
☐
Estate
☐
Private Sale
☐
Other (or no change
in
ownership)
Date
of Event (Date of gift, death or sale):
Value
per Warrant on the date of event:
USD
NOTES:
1.
The signature to
this transfer must correspond with the name as recorded on the
Warrants in every particular without alteration or enlargement or
any change whatever. The signature of the person executing this
transfer must be guaranteed by a Schedule I Canadian chartered
bank, or by a medallion signature guarantee from a member of a
recognized Signature Medallion Guarantee Program.
2.
Warrants shall only
be transferable in accordance with the warrant indenture between
Planet 13 Holdings Inc. and Odyssey Trust Company dated July 3,
2020 (the "Warrant
Indenture"),applicable laws and the rules and policies of
any applicable stock exchange. Without limiting the foregoing, if
the Warrant Certificate bears a legend restricting the transfer of
the Warrants except pursuant to an exemption from registration
under the U.S. Securities Act, and applicable state securities
laws, this Transfer Form must be accompanied by a properly
completed and executed declaration for removal of legend in the
form attached as Schedule "B" to the Warrant
Indenture.
CERTAIN
REQUIREMENTS RELATING TO TRANSFERS – READ
CAREFULLY
The
signature(s) of the transferor(s) must correspond with the name(s)
as written upon the face of this certificate(s), in every
particular, without alteration or enlargement, or any change
whatsoever. All securityholders or a legally authorized
representative must sign this form. The signature(s) on this form
must be guaranteed in accordance with the transfer agent's then
current guidelines and requirements at the time of transfer.
Notarized or witnessed signatures are not acceptable as guaranteed
signatures. As at the time of closing, you may choose one of the
following methods (although subject to change in accordance with
industry practice and standards):
●
Canada and the USA: A Medallion
Signature Guarantee obtained from a member of an acceptable
Medallion Signature Guarantee Program (STAMP, SEMP, NYSE, MSP).
Many commercial banks, savings banks, credit unions, and all broker
dealers participate in a Medallion Signature Guarantee Program. The
Guarantor must affix a stamp bearing the actual words "Medallion
Guaranteed", with the correct prefix covering the face value of the
certificate.
●
Canada: A Signature Guarantee obtained
from an authorized officer of the Royal Bank of Canada, Scotia Bank
or TD Canada Trust. The Guarantor must affix a stamp bearing the
actual words "Signature Guaranteed", sign and print their full name
and alpha numeric signing number. Signature Guarantees are not
accepted from Treasury Branches, Credit Unions or Caisse Populaires
unless they are members of a Medallion Signature Guarantee Program.
For corporate holders, corporate signing resolutions, including
certificate of incumbency, are also required to accompany the
transfer, unless there is a "Signature & Authority to Sign
Guarantee" Stamp affixed to the transfer (as opposed to a
"Signature Guaranteed" Stamp) obtained from an authorized officer
of the Royal Bank of Canada, Scotia Bank or TD Canada Trust or a
Medallion Signature Guarantee with the correct prefix covering the
face value of the certificate.
●
Outside North America: For holders
located outside North America, present the certificates(s) and/or
document(s) that require a guarantee to a local financial
institution that has a corresponding Canadian or American affiliate
which is a member of an acceptable Medallion Signature Guarantee
Program. The corresponding affiliate will arrange for the signature
to be over-guaranteed.
OR
The
signature(s) of the transferor(s) must correspond with the name(s)
as written upon the face of this certificate(s), in every
particular, without alteration or enlargement, or any change
whatsoever. The signature(s) on this form must be guaranteed by an
authorized officer of Royal Bank of Canada, Scotia Bank or TD
Canada Trust whose sample signature(s) are on file with the
transfer agent, or by a member of an acceptable Medallion Signature
Guarantee Program (STAMP, SEMP, NYSE, MSP). Notarized or witnessed
signatures are not acceptable as guaranteed signatures. The
Guarantor must affix a stamp bearing the actual words: "SIGNATURE
GUARANTEED", "MEDALLION GUARANTEED" OR "SIGNATURE & AUTHORITY
TO SIGN GUARANTEE", all in accordance with the transfer agent's
then current guidelines and
requirements at the time of transfer. For corporate holders,
corporate signing resolutions, including certificate of incumbency,
will also be required to accompany the transfer unless there is a
"SIGNATURE & AUTHORITY TO SIGN GUARANTEE" Stamp affixed to the
Form of Transfer obtained from an authorized officer of the Royal
Bank of Canada, Scotia Bank or TD Canada Trust or a "MEDALLION
GUARANTEED" Stamp affixed to the Form of Transfer, with the correct
prefix covering the face value of the
certificate.
REASON FOR TRANSFER – FOR US RESIDENTS ONLY
Consistent with US
IRS regulations, Odyssey Trust Company is required to request cost
basis information from US securityholders. Please indicate the
reason for requesting the transfer as well as the date of event
relating to the reason. The event date is not the day in which the
transfer is finalized, but rather the date of the event which led
to the transfer request (i.e. date of gift, date of death of the
securityholder, or the date the private sale took
place).
SCHEDULE “B”
FORM OF DECLARATION FOR REMOVAL OF LEGEND
TO:
Planet 13 Holdings
Inc.
c/o
Odyssey Trust Company
Suite
1230, 300 5th Avenue
SW
Calgary,
Alberta
T2P
3C4
The
undersigned (a) acknowledges that the sale of the securities of
Planet 13 Holdings Inc. (the "Company") to which this declaration
relates is being made in reliance on Rule 904 of Regulation S
("Regulation S") under the
United States Securities Act of 1933, as amended (the "U.S. Securities Act") and (b) certifies
that (1) it is not an affiliate of the Company (as defined in Rule
405 under the U.S. Securities Act), (2) the offer of such
securities was not made to a person in the United States and either
(A) at the time the buy order was originated, the buyer was outside
the United States, or the seller and any person acting on its
behalf reasonably believe that the buyer was outside the United
States, or (B) the transaction was executed on or through the
facilities of the Canadian Securities Exchange and neither the
seller nor any person acting on its behalf knows that the
transaction has been prearranged with a buyer in the United States,
(3) neither the seller nor any affiliate of the seller nor any
person acting on any of their behalf has engaged or will engage in
any directed selling efforts in the United States in connection
with the offer and sale of such securities, (4) the sale is bona
fide and not for the purpose of "washing off" the resale
restrictions imposed because the securities are "restricted
securities" (as such term is defined in Rule 144(a)(3) under the
U.S. Securities Act), (5) the seller does not intend to replace the
securities sold in reliance on Rule 904 of the U.S. Securities Act
with fungible unrestricted securities, and (6) the sale was not a
transaction, or part of a series of transactions which, although in
technical compliance with Regulation S, is part of a plan or scheme
to evade the registration provisions of the U.S. Securities Act.
Terms used herein have the meanings given to them by Regulation
S.
Name:
Title:
Affirmation By Seller's Broker-Dealer (required for sales in
accordance with Section (b)(2)(B)
above)
We have
read the foregoing representations of our customer,
(the "Seller") dated
, with regard to our sale, for such Seller's account, of the
securities of the Company described therein, and on behalf of
ourselves we certify and affirm that (A) we have no knowledge that
the transaction had been prearranged with a buyer in the United
States, (B) the transaction was executed on or through the
facilities of designated offshore securities market, (C) neither
we, nor any person acting on our behalf, engaged in any directed
selling efforts in connection with the offer and sale of such
securities, and (D) no selling concession, fee or other
remuneration is being paid to us in connection with this offer and
sale other than the usual and customary broker's commission that
would be received by a person executing such transaction as agent.
Terms used herein have the meanings given to them by Regulation
S.
Name of
Firm
By:
Authorized
officer
Date:
PLANET 13 HOLDINGS INC.
- and -
ODYSSEY TRUST COMPANY
WARRANT INDENTURE
Providing for the Issue of
up to 3,110,750 Common Share Purchase Warrants
September 10, 2020
TABLE OF CONTENTS
ARTICLE 1 INTERPRETATION
|
6
|
1.1
|
Definitions
|
6
|
1.2
|
Words Importing the Singular
|
10
|
1.3
|
Interpretation not Affected by Headings
|
10
|
1.4
|
Day not a Business Day
|
11
|
1.5
|
Time of the Essence
|
11
|
1.6
|
Governing Law
|
11
|
1.7
|
Meaning of "outstanding" for Certain Purposes
|
11
|
1.8
|
Currency
|
11
|
1.9
|
Termination
|
11
|
ARTICLE 2 ISSUE OF WARRANTS
|
11
|
2.1
|
Issue of Warrants
|
11
|
2.2
|
Form and Terms of Warrants
|
12
|
2.3
|
Signing of Warrant Certificates
|
12
|
2.4
|
Authentication by the Warrant Agent
|
13
|
2.5
|
Warrantholder not a Shareholder, etc.
|
13
|
2.6
|
Issue in Substitution for Lost Warrant Certificates
|
14
|
2.7
|
Warrants to Rank Pari Passu
|
14
|
2.8
|
Registration and Transfer of Warrants
|
14
|
2.9
|
Registers Open for Inspection
|
16
|
2.10
|
Exchange of Warrants
|
16
|
2.11
|
Ownership of Warrants
|
16
|
2.12
|
Uncertificated Warrants
|
16
|
2.13
|
Adjustment of Exchange Basis
|
18
|
2.14
|
Rules Regarding Calculation of Adjustment of Exchange
Basis
|
22
|
2.15
|
Postponement of Subscription
|
24
|
2.16
|
Notice of Adjustment
|
24
|
2.17
|
No Action after Notice
|
24
|
2.18
|
Purchase of Warrants for Cancellation
|
25
|
2.19
|
Protection of Warrant Agent
|
25
|
2.20
|
U.S. Legend on Warrant Certificates and Warrant Share
certificates
|
25
|
ARTICLE 3 EXERCISE OF WARRANTS
|
27
|
3.1
|
Method of Exercise of Warrants
|
27
|
3.2
|
No Fractional Shares
|
29
|
3.3
|
Effect of Exercise of Warrants
|
29
|
3.4
|
Cancellation of Warrants
|
30
|
3.5
|
Subscription for less than Entitlement
|
30
|
|
|
|
3.6
|
Expiration of Warrant
|
30
|
3.7
|
Prohibition on Exercise by U.S. Persons; Exception
|
30
|
ARTICLE 4 COVENANTS FOR WARRANTHOLDERS' BENEFIT
|
31
|
4.1
|
General Covenants of the Company
|
31
|
4.2
|
Warrant Agent's Remuneration and Expenses
|
33
|
4.3
|
Performance of Covenants by Warrant Agent
|
33
|
4.4
|
Enforceability of Warrants
|
33
|
ARTICLE 5 ENFORCEMENT
|
33
|
5.1
|
Suits by Warrantholders
|
33
|
5.2
|
Limitation of Liability
|
34
|
5.3
|
Waiver of Default
|
34
|
ARTICLE 6 MEETINGS OF WARRANTHOLDERS
|
34
|
6.1
|
Right to Convene Meetings
|
34
|
6.2
|
Notice
|
35
|
6.3
|
Chairman
|
35
|
6.4
|
Quorum
|
35
|
6.5
|
Power to Adjourn
|
36
|
6.6
|
Show of Hands
|
36
|
6.7
|
Poll and Voting
|
36
|
6.8
|
Regulations
|
36
|
6.9
|
Company, Warrant Agent and Counsel may be Represented
|
36
|
6.10
|
Powers Exercisable by Extraordinary Resolution
|
37
|
6.11
|
Meaning of "Extraordinary Resolution"
|
38
|
6.12
|
Powers Cumulative
|
38
|
6.13
|
Minutes
|
38
|
6.14
|
Instruments in Writing
|
39
|
6.15
|
Binding Effect of Resolutions
|
39
|
6.16
|
Holdings by the Company or Subsidiaries of the Company
Disregarded
|
39
|
6.17
|
Common Shares or Warrants Owned by the Company or its Subsidiaries
– Certificate to
be Provided
|
39
|
ARTICLE 7 SUPPLEMENTAL INDENTURES AND SUCCESSOR
COMPANIES
|
40
|
7.1
|
Provision for Supplemental Indentures for Certain
Purposes
|
40
|
7.2
|
Successor Companies
|
41
|
ARTICLE 8 CONCERNING THE WARRANT AGENT
|
41
|
8.1
|
Indenture Legislation
|
41
|
8.2
|
Rights and Duties of Warrant Agent
|
41
|
8.3
|
Evidence, Experts and Advisers
|
42
|
8.4
|
Securities, Documents and Monies Held by Warrant Agent
|
44
|
8.5
|
Actions by Warrant Agent to Protect Interests
|
44
|
8.6
|
Warrant Agent not Required to Give Security
|
44
|
|
|
|
8.7
|
Protection of Warrant Agent
|
44
|
8.8
|
Replacement of Warrant Agent
|
46
|
8.9
|
Conflict of Interest
|
47
|
8.10
|
Acceptance of Duties and Obligations
|
47
|
8.11
|
Warrant Agent not to be Appointed Receiver
|
47
|
8.12
|
Authorization to Carry on Business
|
47
|
ARTICLE 9 GENERAL
|
48
|
9.1
|
Notice to the Company and the Warrant Agent
|
48
|
9.2
|
Notice to the Warrantholders
|
49
|
9.3
|
Privacy
|
49
|
9.4
|
Third Party Interests
|
50
|
9.5
|
Securities Exchange Commission Certification
|
50
|
9.6
|
Discretion of Directors
|
50
|
9.7
|
Satisfaction and Discharge of Indenture
|
51
|
9.8
|
Provisions of Indenture and Warrants for the Sole Benefit of
Parties and Warrantholders
|
|
9.9
|
Indenture to Prevail
|
51
|
9.10
|
Assignment
|
51
|
9.11
|
Severability
|
51
|
9.12
|
Force Majeure
|
51
|
9.13
|
Rights of Rescission and Withdrawal for Holders
|
52
|
9.14
|
Counterparts and Formal Date
|
52
|
Schedule “A” Form of Warrant Certificate
Schedule “B” Form of Declaration for Removal of
Legend
THIS WARRANT INDENTURE
dated as of September 10,
2020
BETWEEN:
PLANET 13 HOLDINGS INC.,
a
company existing under the laws of British Columbia
(the "Company")
AND
ODYSSEY TRUST COMPANY,
a
trust company incorporated under the laws of Alberta and authorized
to carry on business in the provinces of Alberta and British
Columbia
(the "Warrant
Agent")
RECITALS
WHEREAS:
A.
In connection with the public offering by the
Company of up to 6,221,500 Units (as defined below) pursuant to a
short form prospectus dated September 2, 2020 (the
"Offering"), the Company proposes to issue and sell to the
public up to 3,110,750 Warrants (as defined below), of which
2,705,000 Warrants will be issuable as a part of the base Offering
and up to 405,750 Warrants will be issuable upon the due exercise
of the Over-Allotment Option (as defined
below);
B.
Each
Warrant entitles the holder thereof to purchase, subject to
adjustment in certain events, one Warrant Share (as defined below)
at a price of $5.00 at any time prior to 5:00 p.m. (Toronto time)
on September 10, 2022;
C.
For
such purpose the Company deems it necessary to create and issue
Warrants and Warrant Certificates (as defined below) to be
constituted and issued in the manner hereinafter set
forth;
D.
The
Company is duly authorized to create and issue the Warrants to be
issued as herein provided;
E.
All
things necessary have been done and performed to make the Warrants,
when Authenticated (as defined below) or certified by the Warrant
Agent and issued as provided in this Indenture, legal, valid and
binding upon the Company with the benefits of and subject to the
terms of this Indenture;
F.
The
foregoing recitals are made as statements of fact by the Company
and not by the Warrant Agent; and
G.
The
Warrant Agent has agreed to enter into this Indenture and to hold
all rights, interests and benefits contained herein for and on
behalf of those persons who become holders of Warrants issued
pursuant to this Indenture from time to time;
NOW THEREFORE THIS INDENTURE
WITNESSES that for good and
valuable consideration mutually given and received, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed
and declared as follows:
ARTICLE 1 INTERPRETATION
In
this Indenture, unless there is something in the subject matter or
context inconsistent therewith:
"Applicable
Legislation" means the
provisions of the statutes of Canada and its provinces and the
regulations under those statutes relating to warrant indentures
and/or the rights, duties or obligations of issuers and warrant
agents under warrant indentures as are from time to time in force
and applicable to this Indenture;
"Authenticated"
means (a) with respect to the issuance of a Warrant Certificate,
one which has been duly signed by the Company and authenticated by
manual signature of an authorized officer of the Warrant Agent, and
(b) with respect to the issuance of an Uncertificated Warrant, one
in respect of which the Warrant Agent has completed all Internal
Procedures such that the particulars of such Uncertificated Warrant
as required by Section 2.4 are entered in the register of
Warrantholders, "Authenticate", "Authenticating"
and "Authentication"
have the appropriate correlative meanings;
"Beneficial
Owner" means a person that has
a beneficial interest in a Warrant;
"Book-Entry Only
System" means the book-based
securities system administered by CDS in accordance with its
operating rules and procedures in force from time to
time;
"Business Day" means a day that is not a Saturday, Sunday, or a
day on which banks are closed or which is a civic or statutory
holiday in the City of Toronto, Ontario or Calgary,
Alberta;
"Capital
Reorganization" has the meaning
ascribed to that term in Section 2.13(4); "CDS" means CDS Clearing and Depository Services Inc.
and its successors in interest;
"CDSX" means the CDS settlement and clearing system for
equity and debt securities in Canada;
"Closing Date" means September 10, 2020 or such other date as
agreed to by the Company and the Underwriters;
"Common Share
Reorganization" has the meaning
ascribed to that term in Section 2.13(1); "Common
Shares" means the common shares
in the capital of the Company;
"Company" means Planet 13 Holdings Inc., a corporation
existing under the laws of British Columbia, and its lawful
successors from time to time;
"Company's
Auditors" means the chartered
(professional) accountant or firm of chartered
(professional)
accountants duly appointed as auditor or auditors of the Company
from time to time, including prior auditors of the Company, as
applicable;
"Confirmation" has the meaning ascribed that term in Section
3.1(4);
"counsel" means a barrister and solicitor or lawyer or a
firm of barristers and solicitors or lawyers, in both cases
acceptable to the Warrant Agent;
"CSE" means the Canadian Securities
Exchange;
"Current Market
Price" means, at any date, the
volume weighted average price per share at which the Common Shares
have traded:
(b)
if
the Common Shares are not listed on the CSE, on any stock exchange
upon which the Common Shares are listed, as may be selected for
this purpose by the board of directors of the Company, acting
reasonably; or
(c)
if
the Common Shares are not listed on any stock exchange, on any
over-the-counter market on which the Common Shares are trading, as
may be selected for this purpose by the board of directors of the
Company, acting reasonably;
during
the 20 consecutive trading days (on each of which at least 500
Common Share are traded in board lots) ending the second trading
day before such date; provided that the volume weighted average
price shall be determined by dividing the aggregate sale price of
all Common Shares sold in board lots on the exchange or market, as
the case may be, during the 20 consecutive trading days by the
number of Common Shares so sold on said exchange or market or, if
not traded on any recognized exchange or market, as determined by
the directors of the Company, acting reasonably;
"director" means a member of the board of directors of the
Company for the time being, and unless otherwise specified herein,
reference to "action by the board of
directors" means action by the
board of directors of the Company as a board or, whenever duly
empowered, action by a committee of the board;
"Dividend Paid in the Ordinary
Course" means dividends paid in
any financial year of the Company, whether in (i) cash, (ii) shares
of the Company, (iii) warrants or similar rights to purchase any
shares of the Company or property or other assets of the Company
provided that the value of such dividends per outstanding Common
Share does not in such financial year exceed in aggregate 5% of the
Exercise Price;
"Exchange
Basis" means, at any time, the
number of Warrant Shares or other classes of shares or securities
or property which a Warrantholder is entitled to receive upon the
exercise of the rights attached to the Warrants pursuant to the
terms of this Indenture, as the number may be adjusted pursuant to
Article 2 hereof, such number being equal to one Warrant Share per
Warrant as of the date hereof;
"Exercise
Date" with respect to any
Warrant means the date on which such Warrant is duly surrendered
for exercise in accordance with the provisions of Article 3
hereof;
"Exercise
Notice" has the meaning
ascribed that term in Section 3.1(4);
"Exercise
Price" means $5.00 for each
Warrant Share, subject to adjustment in accordance with the
provisions of Article 2 hereof;
“Expiry Date” means September 10,
2022;
"extraordinary
resolution" has the meaning
ascribed to that term in sections 6.12 and
6.15;
"Internal
Procedures" means in respect of
the making of any one or more entries to, changes in or deletions
of any one or more entries in the register at any time (including
without limitation, original issuance or registration of transfer
of ownership) the minimum number of the Warrant Agent's internal
procedures customary at such time for the entry, change or deletion
made to be complete under the operating procedures followed at the
time by the Warrant Agent;
"Offering" has the meaning ascribed thereto in Recital A of
this Indenture;
“Original U.S.
Purchaser” means a
Qualified Institutional Buyer who purchased Warrants as part of the
Offering;
"Over-Allotment
Option" means the option
granted by the Company to the Underwriters, which may be exercised
in the Underwriters' sole discretion and without obligation, to
purchase up to an additional 811,500 Units, including up to 811,500
Unit Shares and up to 405,750 Warrants, for the purpose of covering
over-allotments made in connection with the Offering and for market
stabilization purposes, and which is exercisable for any
combination of additional Units, additional Unit Shares and/or
additional Warrants, from and including thirty (30) days following
the Closing Date;
"Participant" means a person recognized by CDS as a
participant in the Book-Entry Only System;
"person" means an individual, a corporation, a limited
liability company, a partnership, a syndicate, a trustee or any
unincorporated organization and words importing persons are
intended to have a similarly extended meaning;
“Price” means the Exercise
Price;
“Qualified Institutional
Buyer” means a
“qualified institutional buyer” as such term is defined
in Rule 144A under the U.S. Securities Act;
"QIB Letter" means the Qualified Institutional Buyer Letter
signed by the Original U.S. Purchaser;
"Regulation S" means Regulation S as promulgated under the U.S.
Securities Act;
"Rights
Offering" has the meaning
ascribed to that term in Section 2.13(2);
"Rights Offering
Price" has the meaning ascribed
to that term in Section 2.14(8);
"Securities
Laws" means, collectively, the
applicable securities laws and regulations of each of the provinces
of Canada, except Quebec, the United States and each of the states
of the United States, together with all respective regulations made
and forms prescribed thereunder published
rules, policy statements, notices, orders and rulings of the
securities commissions or similar regulatory authorities thereto,
as applicable, including the rules and policies of the
CSE;
"shareholder" means an owner of record of one or more Common
Shares or shares of any other class or series of the
Company;
"Special
Distribution" has the meaning
ascribed to that term in Section 2.13(3);
"Subsidiary" means a corporation, a majority of the
outstanding voting shares of which are owned, directly or
indirectly, by the Company or by one or more subsidiaries of the
Company and, as used in this definition, "voting shares" means
shares of a class or classes ordinarily entitled to vote for the
election of the majority of the directors of a corporation
irrespective of whether or not shares of any other class or classes
shall have or might have the right to vote for directors by reason
of the happening of any contingency;
"successor
company" has the meaning
ascribed to that term in Section 7.2;
"this
Indenture",
"herein",
"hereby" and similar expressions mean or refer to this
Common Share purchase warrant indenture and any indenture, deed or
instrument supplemental or ancillary hereto; and the expressions
"Article", "section", or "paragraph" followed by a number or letter mean and refer to
the specified Article, section, or paragraph of this
Indenture;
"Time of
Expiry" means 5:00 p.m.
(Toronto time) on the Expiry Date;
"trading day" means a day on which the CSE (or such other
exchange on which the Common Shares are listed) is open for
trading, and if the Common Shares are not listed on a stock
exchange, a day on which an over-the-counter market where such
shares are traded is open for business;
"transaction
instruction" means a written
order signed by the holder or CDS, entitled to request that one or
more actions be taken, or such other form as may be reasonably
acceptable to the Warrant Agent, requesting one or more such
actions to be taken in respect of an Uncertificated
Warrant;
"Transfer
Agent" means the transfer agent
or agents for the time being for the Common
Shares;
"U.S. Person" means a U.S. person as that term is defined
under Regulation S;
"U.S. Securities
Act" means the United States
Securities Act of 1933, as amended;
"Uncertificated
Warrant" means any Warrant
which is issued under the Book-Entry Only System or any Warrant
which is not a certificated Warrant;
"Underwriters" means collectively Beacon Securities Limited and
Canaccord Genuity Corp.;
"Unit Share" means a Common Share comprising part of each
Unit;
"United
States" means the United States
as that term is defined in Regulation S;
"Units" means the units of the Company, each Unit being
comprised of one Unit Share and one-half
Warrant;
"Warrant
Agent" means Odyssey Trust
Company, a trust company incorporated under the laws of Alberta and
authorized to carry on business in the provinces of Alberta and
British Columbia or any lawful successor thereto including through
the operation of Section 8.8;
"Warrant
Certificates" means the
certificates representing Warrants substantially in the form
attached as Schedule "A" hereto or such other form as may be
approved by the Company and the Warrant Agent;
"Warrant
Shares" means the Common Shares
or, as a result of any adjustment to the subscription rights
pursuant to Article 2 hereof, other securities or property issuable
upon the exercise of the Warrants;
"Warrantholders"
or "holders" means the persons whose names are entered for
the time being in the register maintained pursuant to Section
2.8;
"Warrantholders'
Request" means an instrument,
signed in one or more counterparts by Warrantholders representing,
in the aggregate, at least 20% of the aggregate number of Warrants
then outstanding, which requests the Warrant Agent to take some
action or proceeding specified therein;
"Warrants" means the Common Share purchase warrants of the
Company issued and Authenticated hereunder as Uncertificated
Warrants or to be issued and countersigned in the form of Warrant
Certificates, in either case, entitling the holders thereof to
purchase Warrant Shares on the basis of one Warrant Share for each
Warrant upon payment of the Exercise Price prior to the Time of
Expiry; provided that in each case the number and/or class of
securities or property receivable on the exercise of the Warrants
may be subject to increase or decrease or change in accordance with
the terms and provisions hereof; and
"written direction of the
Company", "written request of the
Company", "written consent of the
Company", "Officer's
Certificate" and
"certificate
of the Company" and any other
document required to be signed by the Company, means, respectively,
a written direction, request, consent, certificate or other
document signed in the name of the Company by any officer or
director and may consist of one or more instruments so
executed.
1.2
Words Importing the Singular
Unless
elsewhere otherwise expressly provided, or unless the context
otherwise requires, words importing the singular include the plural
and vice versa and words importing the masculine gender include the
feminine and neuter genders.
1.3
Interpretation not Affected by Headings
The
division of this Indenture into Articles, sections, and paragraphs,
the provision of a table of contents and the insertion of headings
are for convenience of reference only and shall not affect the
construction or interpretation of this Indenture.
1.4
Day not a Business Day
If
any day on or before which any action is required or permitted to
be taken hereunder is not a Business Day, then such action shall be
required or permitted to be taken on or before the requisite time
on the next succeeding day that is a Business Day.
Time
shall be of the essence in all respects of this Indenture and the
Warrants issued hereunder.
This
Indenture and the Warrants issued hereunder shall be construed and
enforced in accordance with the laws of the Province of Ontario and
the federal laws of Canada applicable therein and shall be treated
in all respects as Ontario contracts.
1.7
Meaning of "outstanding" for Certain Purposes
Every
Warrant Authenticated or certified by the Warrant Agent hereunder
shall be deemed to be outstanding until it shall be cancelled or
delivered to the Warrant Agent for cancellation, exercised pursuant
to Section 3.1 or until the Time of Expiry; provided that where a
new Warrant Certificate has been issued pursuant to Section 2.6 to
replace one which is lost, mutilated, stolen or destroyed, the
Warrants represented by only one of such Warrant Certificates shall
be counted for the purpose of determining the aggregate number of
Warrants outstanding.
Unless
otherwise stated, all dollar amounts referred to in this Indenture
are in Canadian dollars.
This
Indenture shall continue in full force and effect until the earlier
of: (a) the Time of Expiry; and (b) provided that no Warrants
remain issuable pursuant to the terms of this Indenture, the date
that no Warrants are outstanding hereunder; provided that this
Indenture shall continue in effect thereafter, if applicable, until
the Company and the Warrant Agent have fulfilled all of their
respective obligations under this Indenture.
ARTICLE 2 ISSUE OF WARRANTS
Subject
to adjustment in accordance with the provisions hereof, the Company
creates and authorizes the issuance of up to 3,110,750 Warrants
entitling the registered holders thereof to acquire an aggregate of
up to 3,110,750 Warrant Shares, all of which are hereby created and
authorized to be issued hereunder at the Exercise Price upon the
terms and conditions as set forth herein. Uncertificated Warrants
shall be Authenticated by the Warrant Agent and deposited in CDS
and Warrant Certificates evidencing the Warrants shall be executed
by the Company, certified by or on behalf of the Warrant Agent and
delivered by the Warrant
Agent in accordance with a written direction of the Company, all in
accordance with sections 2.3 and 2.4. Subject to adjustment in
accordance with the provisions of this Indenture, each of the
Warrants issued hereunder shall entitle the holder thereof to
receive from the Company, at the Exercise Price, the number of
Warrant Shares equal to the Exchange Basis in effect on the
Exercise Date.
2.2
Form and Terms of Warrants
(1) The
Warrants may be issued in either certificated or uncertificated
form. The Warrant Certificates shall be substantially in the form
attached as Schedule "A" hereto, subject to the provisions of this
Indenture, with such additions, variations and changes as may be
required or permitted by the terms of this Indenture, and to give
effect to any Warrants not being issued as Uncertificated Warrants,
and which may from time to time be agreed upon by the Warrant Agent
and the Company, and shall have such legends, distinguishing
letters and numbers as the Company may, with the approval of the
Warrant Agent, prescribe. Except as hereinafter provided in this
Article 2, all Warrants shall, save as to denominations, be of like
tenor and effect. The Warrant Certificates may be engraved,
printed, lithographed, photocopied or be partially in one form or
another, as the Company may determine. No change in the form of the
Warrant Certificate shall be required by reason of any adjustment
made pursuant to this Article 2 in the number and/or class of
securities or type of securities or property that may be acquired
pursuant to the Warrants. All Warrants issued to CDS may be in
either a certificated or uncertificated form, such uncertificated
form being evidenced by a book position on the register of
Warrantholders to be maintained by the Warrant Agent in accordance
with Section 2.8.
(2) Each
Warrant authorized to be issued hereunder shall entitle the
registered holder thereof to acquire (subject to sections 2.13,
2.14 and 2.15) upon due exercise and upon the transaction
instruction or due execution of the exercise form endorsed on the
Warrant Certificate, as applicable, or other instrument of exercise
in such form as the Warrant Agent and/or the Company may from time
to time prescribe and upon payment of the Exercise Price, one
Warrant Share or such other kind and amount of shares or securities
or property, calculated pursuant to the provisions of sections 2.13
and 2.14, as the case may be, at any time after the date of
issuance of such Warrants and prior to the Time of Expiry, in
accordance with the provisions of this Indenture.
(3) Fractional
Warrants shall not be issued or otherwise provided for. If any
fraction of a Warrant would otherwise be issuable and result in a
fraction of a Warrant Share being issuable, any such fractional
Warrant so issued shall be rounded down to the nearest whole
Warrant without compensation therefor.
2.3
Signing of Warrant Certificates
Warrant
Certificates shall be signed by any one of the directors or
officers of the Company and may, but need not be under the
corporate seal of the Company or a reproduction thereof. The
signature of any such director or officer may be mechanically
reproduced in facsimile or other electronic format and Warrant
Certificates bearing such facsimile or other electronic format
signatures shall be binding upon the Company as if they had been
manually signed by such director or officer. Notwithstanding that
the person whose manual or electronic signature appears on any
Warrant Certificate as a director or officer may no longer hold
office at the date of issue of the Warrant Certificate or at the
date of certification or delivery thereof, any Warrant Certificate
Authenticated or signed as aforesaid shall, subject to Section 2.4,
be valid
and binding upon the Company and the registered holder thereof will
be entitled to the benefits of this Indenture.
2.4
Authentication by the Warrant Agent
(1) No
Warrant shall be issued or, if issued, shall be valid for any
purpose or entitle the registered holder to the benefit hereof or
thereof until it has been Authenticated by or on behalf of the
Warrant Agent, as applicable, and such Authentication by the
Warrant Agent shall be conclusive evidence as against the Company
that the Warrant so Authenticated has been duly issued hereunder
and the holder is entitled to the benefits hereof.
(2) The
Warrant Agent shall Authenticate Uncertificated Warrants (whether
upon original issuance, exchange, registration of transfer, partial
payment, or otherwise) by completing its Internal Procedures and
the Company shall, and hereby acknowledges that it shall, thereupon
be deemed to have duly and validly issued such Uncertificated
Warrants under this Indenture. Such Authentication shall be
conclusive evidence that such Uncertificated Warrant has been duly
issued hereunder and that the holder or holders are entitled to the
benefits of this Indenture. The register shall be final and
conclusive evidence as to all matters relating to Uncertificated
Warrants with respect to which this Indenture requires the Warrant
Agent to maintain records or accounts. In case of differences
between the register at any time and any other time, the register
at the later time shall be controlling, absent manifest error and
such Uncertificated Warrants are binding on the
Company.
(3) Any
Warrant Certificate validly issued in accordance with the terms of
this Indenture in effect at the time of issue shall, subject to the
terms of this Indenture and applicable law, validly entitle the
holder to acquire Warrant Shares, notwithstanding that the form of
such Warrant Certificate may not be in the form currently required
by this Indenture.
(4) No
Warrant Certificate shall be considered issued or shall be
obligatory or shall entitle the holder thereof to the benefits of
this Indenture, until it has been Authenticated by or on behalf of
the Warrant Agent substantially in the form of the Warrant
Certificate set out in Schedule "A" hereto. Such Authentication on
any such Warrant Certificate shall be conclusive evidence that such
Warrant Certificate is duly Authenticated and is valid and a
binding obligation of the Company and that the holder is entitled
to the benefits of this Indenture.
(5) The
Authentication or certification of the Warrant Agent on the
Warrants issued hereunder, including by way of entry on the
register, shall not be construed as a representation or warranty by
the Warrant Agent as to the validity of this Indenture or the
Warrants (except the due Authentication and certification thereof)
or as to the performance by the Company of its obligations under
this Indenture and the Warrant Agent shall in no respect be liable
or answerable for the use made of the Warrants or any of them or of
the consideration therefor except as otherwise specified
herein.
2.5
Warrantholder not a Shareholder, etc.
Nothing
in this Indenture or the holding of a Warrant shall be construed as
conferring upon a Warrantholder any right or interest whatsoever as
a shareholder, including but not limited to the right to vote at,
to receive notice of, or to attend meetings of shareholders or any
other proceedings of the Company, nor entitle the holder to any
right or interest in respect thereof except as herein and in the
Warrants expressly provided.
2.6
Issue in Substitution for Lost Warrant Certificates
(1) If
any Warrant Certificates issued and certified under this Indenture
shall become mutilated or be lost, destroyed or stolen, the
Company, subject to applicable law, and Section 2.6(2), shall issue
and thereupon the Warrant Agent shall certify and deliver a new
Warrant Certificate of like denomination, date and tenor as the one
mutilated, lost, destroyed or stolen in exchange for, in place of
and upon cancellation of such mutilated Warrant Certificate, or in
lieu of and in substitution for such lost, destroyed or stolen
Warrant Certificate, and the substituted Warrant Certificate shall
be substantially in the form set out in Schedule "A" hereto and
Warrants evidenced by it will entitle the holder thereof to the
benefits hereof and shall rank equally in accordance with its terms
with all other Warrant Certificates issued or to be issued
hereunder.
(2) The
applicant for the issue of a new Warrant Certificate pursuant to
this Section shall bear the reasonable cost of the issue thereof
and in the case of mutilation shall, as a condition precedent to
the issue thereof, deliver to the Warrant Agent the mutilated
Warrant Certificate, and in the case of loss, destruction or theft
shall, as a condition precedent to the issue thereof, furnish to
the Company and to the Warrant Agent such evidence of ownership and
of the loss, destruction or theft of the Warrant Certificate so
lost, destroyed or stolen as shall be satisfactory to the Company
and to the Warrant Agent in their sole discretion, acting
reasonably, and such applicant may be required to furnish an
indemnity and surety bond in amount and form satisfactory to the
Company and the Warrant Agent in their sole discretion, acting
reasonably, and shall pay the reasonable charges of the Company and
the Warrant Agent in connection therewith.
2.7
Warrants to Rank Pari Passu
All Warrants shall rank pari passu with all other Warrants, whatever may be the
actual date of issue of the Warrants.
2.8
Registration and Transfer of Warrants
(1) The
Warrant Agent will create and keep at the principal stock transfer
offices of the Warrant Agent in the City of Calgary,
Alberta:
(a)
a
register of holders in which shall be entered in alphabetical order
the names and addresses of the holders of Warrants and particulars
of the Warrants held by them and the Warrant Agent shall be
entitled to rely on such register in connection with the exchange,
transfer, exercise or deemed exercise of any Warrant(s) pursuant to
the terms of this Indenture or the terms thereof; and
(b)
a
register of transfers in which all transfers of Warrants and the
date and other particulars of each such transfer shall be
entered.
(2) No
transfer of any Warrant will be valid unless entered on the
register of transfers referred to in Section 2.8(1), upon surrender
to the Warrant Agent of the Warrant Certificate evidencing such
Warrant, and a duly completed and executed transfer form endorsed
on the Warrant Certificate or in the case of Uncertificated
Warrants a duly executed transaction instruction from the holder
(or such other instructions, in form satisfactory to
the Warrant
Agent) executed by the registered holder or his executors,
administrators or other legal representatives or his attorney duly
appointed by an instrument in writing in form and execution
satisfactory to the Warrant Agent, if applicable, and, upon
compliance with such requirements and such other reasonable
requirements as the Warrant Agent may prescribe and all applicable
securities requirements of regulatory authorities, such transfer
will be recorded on the register of transfers by the Warrant Agent.
Upon compliance with such requirements, the Warrant Agent shall
issue to the transferee a Warrant Certificate, or in the case of an
Uncertificated Warrant, the Warrant Agent shall Authenticate and
deliver a Warrant Certificate upon request that part of the
Uncertificated Warrant be certificated. Transfers within the
systems of CDS are not the responsibility of the Warrant Agent and
will not be noted on the register maintained by the Warrant
Agent.
(3) The
transferee of any Warrant will, after surrender to the Warrant
Agent of the Warrant as required by Section 2.8(2) and upon
compliance with all other conditions in respect thereof required by
this Indenture or by law, be entitled to be entered on the register
of holders referred to in Section 2.8(1) as the owner of such
Warrant free from all equities or rights of setoff or counterclaim
between the Company and the transferor or any previous holder of
such Warrant, except in respect of equities of which the Company is
required to take notice by statute or by order of a court of
competent jurisdiction.
(4) The
Company will be entitled, and may direct the Warrant Agent, to
refuse to recognize any transfer, or enter the name of any
transferee, of any Warrant on the registers referred to in Section
2.8(1), if such transfer would constitute a violation of the
Securities Laws of any applicable jurisdiction or the rules,
regulations or policies of any regulatory authority having
jurisdiction. The Warrant Agent is entitled to assume compliance
with all applicable Securities Laws unless otherwise notified in
writing by the Company. No duty shall rest with the Warrant Agent
to determine compliance of the transferee or transferor of any
Warrant with applicable Securities Laws.
(5) Any
Warrant issued to a transferee upon transfers contemplated by this
section 2.8 shall bear the appropriate legend as set forth in
Section 2.20(2), if applicable.
(6) If
a Warrant tendered for transfer bears the legend set forth in
Section 2.20(2), the Warrant Agent shall not register such transfer
unless the transferor has provided the Warrant Agent with the
Warrant and complies with the requirements of the said Section
2.20(2).
(7) Warrants,
in certificated form, bearing the legend set forth in Section
2.20(2) shall not be offered, sold, pledged or otherwise
transferred, directly or indirectly, except (A) to the Company; (B)
outside the United States in compliance with Rule 904 of Regulation
S, if available, and in compliance with applicable local laws and
regulations; (C) pursuant to an exemption from registration under
the U.S. Securities Act provided by (i) Rule 144 or (ii) Rule 144A
thereunder, if available, and in compliance with applicable U.S.
state securities laws; (D) in compliance with another exemption
from registration under the U.S. Securities Act and applicable
state securities laws; or (E) under an effective registration
statement under the U.S. Securities Act, provided that in the case
of transfers pursuant to (C)(i) or (D) above, a legal opinion or
other evidence, reasonably satisfactory to the Company, must first
be provided to the Company and the Warrant Agent to the effect that
such transfer is exempt from registration under the U.S. Securities
Act and applicable state securities laws.
(8) The
Warrant Agent shall give notice to the Company of the transfer made
by a
Warrantholder
pursuant to Section 2.8(7) and the Company shall provide written
authorization to proceed with the transfer before such transfer is
made effective by the issuance of the Warrant.
2.9
Registers Open for Inspection
The
registers referred to in Section 2.8(1) shall be open at all
reasonable times during business hours on a Business Day for
inspection by the Company or any Warrantholder. The Warrant Agent
shall, from time to time when requested to do so in writing by the
Company, furnish the Company with a list of the names and addresses
of holders of Warrants entered in the register of holders kept by
the Warrant Agent and showing the number of Warrants held by each
such holder.
2.10 Exchange of
Warrants
(1) Warrants
may, upon compliance with the reasonable requirements of the
Warrant Agent, be exchanged for Warrants in any other authorized
denomination representing in the aggregate an equal number of
Warrants as the number of Warrants represented by the Warrants
being exchanged. The Company shall sign and the Warrant Agent shall
Authenticate or certify, in accordance with sections 2.3 and 2.4,
all Warrants necessary to carry out the exchanges contemplated
herein.
(2) Warrants
may be exchanged only at the principal stock transfer offices of
the Warrant Agent in the City of Calgary, Alberta or at any other
place that is designated by the Company with the approval of the
Warrant Agent. Any Warrants tendered for exchange shall be
surrendered to the Warrant Agent and cancelled.
(3) Except
as otherwise herein provided, the Warrant Agent may charge
Warrantholders requesting an exchange a reasonable sum for each
Warrant Certificate issued; and payment of such charges and
reimbursement of the Warrant Agent or the Company for any and all
taxes or governmental or other charges required to be paid shall be
made by the party requesting such exchange as a condition precedent
to such exchange.
2.11 Ownership of
Warrants
The
Company and the Warrant Agent and their respective agents may deem
and treat the registered holder of any Warrant as the absolute
owner of the Warrant represented thereby for all purposes and the
Company and the Warrant Agent and their respective agents shall not
be affected by any notice or knowledge to the contrary except as
required by statute or order of a court of competent jurisdiction.
The holder of any Warrant shall be entitled to the rights evidenced
by that Warrant free from all equities or rights of set-off or
counterclaim between the Company and the original or any
intermediate holder thereof, except in respect of equities of which
the Company is required to take notice by statute or by order of a
court of competent jurisdiction and all persons may act accordingly
and the receipt by any holder of the Warrant Shares or monies
obtainable pursuant to the exercise of the Warrant shall be a good
discharge to the Company and the Warrant Agent for the same and
neither the Company nor the Warrant Agent shall be bound to inquire
into the title of any holder.
2.12
Uncertificated Warrants
(1)
Registration
and re-registration of beneficial interests in and transfers
of
Warrants
held by CDS shall be made only through the Book-Entry Only System
and no Warrant Certificates shall be issued in respect of such
Warrants except where physical certificates evidencing ownership in
such securities are required or as set out herein or as may be
requested by CDS, as determined by the Company, from time to time.
Except as provided in this Section 2.12, owners of beneficial
interests in any Uncertificated Warrants shall not be entitled to
have Warrants registered in their names and shall not receive or be
entitled to receive Warrants in definitive form or to have their
names appear in the register referred to in Section 2.8 herein.
Notwithstanding any terms set out herein, Warrants subject to the
restrictions and any legend set forth in Section 2.20 herein and
held in the name of CDS may only be held in the form of
Uncertificated Warrants with the prior consent of the Company and
CDS.
(2)
If any Warrant is issued in uncertificated form and any of the
following events
occurs:
(a)
CDS
or the Company has notified the Warrant Agent that (A) CDS is
unwilling or unable to continue as depository or (B) CDS ceases to
be a clearing agency in good standing under applicable laws and, in
either case, the Company is unable to locate a qualified successor
depository within ninety (90) days of delivery of such
notice;
(b)
the
Company has determined, in its sole discretion, acting reasonably,
to terminate the Book-Entry Only System in respect of such
Uncertificated Warrants and has communicated such determination to
the Warrant Agent in writing;
(c)
the
Company or CDS is required by applicable law to take the action
contemplated in this section;
(d)
there
is an exercise of Warrants pursuant to 3.1(4) and the Warrantholder
is unable to make the representations in 3.1(4) (a), (b), (c) and
(d) thereto; or
(e)
the
Book-Entry Only System administered by CDS ceases to
exist,
then
one or more definitive fully registered Warrant Certificates shall
be executed by the Company and certified and delivered by the
Warrant Agent to CDS in exchange for the Uncertificated Warrants
held by CDS. The Company shall provide an Officer's Certificate
giving notice to the Warrant Agent of the occurrence of any event
outlined in this Section 2.12(2).
Fully
registered Warrant Certificates issued and exchanged pursuant to
this section shall be registered in such names and in such
denominations as CDS shall instruct the Warrant Agent, provided
that the aggregate number of Warrants represented by such Warrant
Certificates shall be equal to the aggregate number of
Uncertificated Warrants so exchanged. Upon exchange of
Uncertificated Warrants for one or more Warrant Certificates in
definitive form, such Uncertificated Warrants shall be cancelled by
the Warrant Agent.
(3)
Subject to the provisions of this Section 2.12, any exchange of
Warrants for Warrants which are not Uncertificated Warrants may be
made in whole or in part in accordance with the provisions of
Section 2.10, mutatis
mutandis. All such Warrants
issued in exchange for Uncertificated Warrants or any portion
thereof shall be registered in such names as
CDS
for
such Uncertificated Warrants shall direct and shall be entitled to
the same benefits and subject to the same terms and conditions
(except insofar as they relate specifically to Uncertificated
Warrants) as the Uncertificated Warrants or portion thereof
surrendered upon such exchange.
(4) Every
Warrant Authenticated upon registration of transfer of
Uncertificated Warrants, or in exchange for or in lieu of
Uncertificated Warrants or any portion thereof, whether pursuant to
this Section 2.12, or otherwise, shall be Authenticated in the form
of, and shall be, an Uncertificated Warrant, unless such Warrant is
registered in the name of a person other than CDS for such
Uncertificated Warrant or a nominee thereof.
(5) Notwithstanding
anything to the contrary in this Indenture, subject to Applicable
Legislation, the Warrants to be issued to CDS or a nominee thereof
will be issued as an Uncertificated Warrant, unless otherwise
requested in writing by CDS or the Company.
(6) The
rights of Beneficial Owners of Warrants who hold securities
entitlements in respect of the Warrants through the Book-Entry Only
System shall be limited to those established by applicable law and
agreements between CDS and the Participants and between such
Participants and the Beneficial Owners of Warrants who hold
securities entitlements in respect of the Warrants through the
Book-Entry Only System, and such rights must be exercised through a
Participant in accordance with the rules and procedures of
CDS.
(7) Notwithstanding
anything herein to the contrary, neither the Company nor the
Warrant Agent nor any agent thereof shall have any responsibility
or liability for:
(a)
the
electronic records maintained by CDS relating to any ownership
interests or any other interests in the Warrants or the depository
system maintained by CDS, or payments made on account of any
ownership interest or any other interest of any person in any
Warrant represented by an electronic position in the Book-Entry
Only System (other than CDS or its nominee);
(b)
maintaining,
supervising or reviewing any records of CDS or any Participant
relating to any such interest; or
(c)
any
advice or representation made or given by CDS or those contained
herein that relate to the rules and regulations of CDS or any
action to be taken by CDS on its own direction or at the direction
of any Participant.
(8) The
Company may terminate the application of this Section 2.12 in its
sole discretion, acting reasonably, in which case all Warrants
shall be evidenced by Warrant Certificates registered in the
name(s) of a person other than CDS.
2.13
Adjustment of Exchange Basis
Subject
to Section 2.14, the Exchange Basis shall be subject to adjustment
from time to time in the events and in the manner provided as
follows:
(1) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, the Company shall:
(a)
issue
Common Shares or securities exchangeable for or convertible into
Common Shares to all or substantially all the holders of the Common
Shares as a stock dividend or other distribution (other than a
distribution of Common Shares upon the exercise of Warrants);
or
(b)
subdivide,
redivide or change its then outstanding Common Shares into a
greater number of Common Shares; or
(c)
reduce,
combine or consolidate its then outstanding Common Shares into a
lesser number of Common Shares,
(any of such events in these paragraphs (a), (b)
or (c) being called a "Common Share
Reorganization"), then the
Exchange Basis in effect on the effective date of such subdivision
or consolidation, or on the record date of such stock dividend or
other distribution, as the case may be, shall be adjusted by
multiplying the Exchange Basis in effect immediately prior to such
effective or record date by a fraction:
(a)
the
numerator of which shall be the total number of Common Shares
outstanding on such date immediately after giving effect to such
Common Share Reorganization (including, in the case where
securities exchangeable for or convertible into Common Shares are
distributed, the number of Common Shares that would have been
outstanding had such securities been exchanged for or converted
into Common Shares on such record date, assuming in any case where
such securities are not then convertible or exchangeable but
subsequently become so, that they were convertible or exchangeable
on the record date on the basis upon which they first become
convertible or exchangeable), and
(b)
the
denominator of which shall be the total number of Common Shares
outstanding on such date before giving effect to such Common Share
Reorganization.
The
resulting product, adjusted to the nearest 1/100th, shall
thereafter be the Exchange Basis until further adjusted as provided
in this Article 2. To the extent that any adjustment in the
Exchange Basis occurs pursuant to this Section 2.13(1) as a result
of the fixing by the Company of a record date for the distribution
of securities exchangeable for or convertible into Common Shares
and the Common Share Reorganization does not occur or any
conversion or exchange rights are not fully exercised, the Exchange
Basis shall be readjusted immediately after the expiry of any
relevant exchange or conversion right or the termination of the
Common Share Reorganization, as the case may be, to the Exchange
Basis that would then be in effect, based upon the number of Common
Shares actually issued and remaining issuable pursuant to the
Common Share Reorganization after such expiry and shall be further
readjusted in such manner upon the expiry of any further such
right.
(2) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, the Company shall fix a record date for the
distribution to all or substantially all of the holders of its
outstanding Common Shares of rights, options or warrants entitling
them, for a period expiring not more than forty-five (45) days
after such record date, to subscribe for or purchase Common Shares,
or securities exchangeable for or convertible into Common Shares,
at a price per share to the holder (or at an exchange or conversion
price per share) of less than 95% of the Current Market Price on such record date (any
of such events being called a "Rights
Offering"), then the Exchange
Basis shall be adjusted effective immediately after such record
date for the Rights Offering by multiplying the Exchange Basis in
effect immediately prior to such record date by a
fraction:
(a)
the
numerator of which shall be the number of Common Shares which would
be outstanding after giving effect to the Rights Offering (assuming
the exercise of all of the rights, options or warrants under the
Rights Offering and assuming the exchange for or conversion into
Common Shares of all exchangeable or convertible securities issued
upon exercise of such rights, options or warrants, if any),
and
(b)
the
denominator of which shall be the aggregate of:
(i)
the
total number of Common Shares outstanding as of the record date for
the Rights Offering, and
(ii)
a
number of Common Shares determined by dividing
(A)
the
amount equal to the aggregate consideration payable on the exercise
of all of the rights, options and warrants under the Rights
Offering plus the aggregate consideration, if any, payable on the
exchange or conversion of the exchangeable or convertible
securities issued upon exercise of such rights, options or warrants
(assuming the exercise of all rights, options and warrants under
the Rights Offering and assuming the exchange or conversion of all
exchangeable or convertible securities issued upon exercise of such
rights, options and warrants);
by
(B)
the
Current Market Price as of the record date for the Rights
Offering.
The resulting product, adjusted to the nearest
1/100th,
shall thereafter be the Exchange Basis until further adjusted as
provided in this Article 2. Any Common Shares owned by or held for
the account of the Company or any of its Subsidiaries or a
partnership in which the Company is directly or indirectly a party
to will be deemed not to be outstanding for the purpose of any
computation. If, at the date of expiry of the rights, options or
warrants subject to the Rights Offering, less than all the rights,
options or warrants have been exercised, then the Exchange Basis
shall be readjusted immediately after the date of expiry to the
Exchange Basis that would have been in effect on the date of expiry
if only the rights, options or warrants issued had been those
exercised. If at the date of expiry of the rights of exchange or
conversion of any securities issued pursuant to the Rights Offering
less than all of such securities have been exchanged or converted
into Common Shares, then the Exchange Basis shall be readjusted
immediately after the date of expiry to the Exchange Basis that
would have been in effect on the date of expiry if only the
exchangeable or convertible securities issued had been those
securities actually exchanged for or converted into Common
Shares.
(3) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, the Company shall fix a record date for the
issuance or distribution to all or substantially all the holders of
its outstanding Common Shares of:
(a)
shares
of the Company of any class other than Common Shares;
or
(b)
rights,
options or warrants to acquire Common Shares or securities
exchangeable for or convertible into Common Shares; or
(c)
evidences
of indebtedness; or
(d)
cash,
securities or any property or other assets,
and if such issuance or distribution does not
constitute a Common Share Reorganization or a Rights Offering (any
of such non-excluded events being herein called a
"Special
Distribution"), the Exchange
Basis shall be adjusted effective immediately after such record
date for the Special Distribution by multiplying the Exchange Basis
in effect immediately prior to such record date by a
fraction:
(a)
the
numerator of which shall be the number of Common Shares outstanding
on such record date multiplied by the Current Market Price on such
record date, and
(b)
the
denominator of which shall be:
(A)
the
number of Common Shares outstanding on such record date multiplied
by the Current Market Price on such record date, less
(B)
the
fair market value, as determined by action by the board of
directors acting reasonably and in good faith (whose determination,
absent manifest error, shall be conclusive), to the holders of the
Common Shares of the shares, rights, options, warrants, evidences
of indebtedness or securities, property or other assets issued or
distributed in the Special Distribution provided that no such
adjustment shall be made if the result of such adjustment would be
to decrease the Exchange Basis in effect immediately before such
record date.
The resulting product, adjusted to the nearest
1/100th,
shall thereafter be the Exchange Basis until further adjusted as
provided in this Article 2. Any Common Shares owned by or held for
the account of the Company or any of its Subsidiaries or a
partnership of which the Company is directly or indirectly a party,
will be deemed not to be outstanding for the purpose of any such
computation.
(4) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, there shall be a reclassification of the Common
Shares at any time outstanding or change or exchange of the Common
Shares into or for other shares or into or for other securities or
property (other than a Common Share Reorganization), or a
consolidation, amalgamation, arrangement or merger of the Company
with or into any other corporation or other entity (other than a
consolidation, amalgamation, arrangement or merger which does not
result in any reclassification of the outstanding Common Shares or
a change or exchange of the Common Shares into or for other shares, securities or
property), or a transfer (other than to a Subsidiary) of the
undertaking or assets of the Company as an entirety or
substantially as an entirety to another corporation or other entity
(any of such events being herein called a "Capital
Reorganization"), any
Warrantholder who thereafter shall exercise his right to receive
Warrant Shares pursuant to Warrant(s) shall be entitled to receive,
and shall accept in lieu of the number of Warrant Shares to which
such holder was theretofore entitled upon such exercise, the
aggregate number of shares, other securities or other property
resulting from the Capital Reorganization which such holder would
have been entitled to receive as a result of such Capital
Reorganization if, on the effective date or record date thereof, as
the case may be, the Warrantholder had been the registered holder
of the number of Warrant Shares to which such holder was
theretofore entitled upon exercise. If appropriate, adjustments
shall be made as a result of any such Capital Reorganization in the
application of the provisions in this Indenture with respect to the
rights and interests thereafter of Warrantholders to the end that
the provisions in this Indenture shall thereafter correspondingly
be made applicable as nearly as may reasonably be possible in
relation to any shares, other securities or other property
thereafter deliverable upon the exercise of any Warrant. Any such
adjustment shall be made by and set forth in an indenture
supplemental hereto approved by the directors of the Company and by
the Warrant Agent and entered into pursuant to the provisions of
this Indenture and shall for all purposes be conclusively deemed to
be an appropriate adjustment.
(5)
Any
adjustment to the Exchange Basis as set forth herein shall also
include a corresponding adjustment to the Price which shall be
calculated by multiplying the Price by a fraction: (a) the
numerator of which shall be the Exchange Basis prior to the
adjustment, and (b) the denominator of which shall be the Exchange
Basis after the adjustment.
2.14
Rules Regarding Calculation of Adjustment of Exchange
Basis
For the purposes of Section 2.13:
(1) The
adjustments provided for in Section 2.13 shall be cumulative and
such adjustments shall be made successively whenever an event
referred to in Section 2.13 shall occur, subject to the following
subsections of this Section 2.14.
(2) No
adjustment in the: (a) Exchange Basis shall be required unless such
adjustment would result in a change of at least 0.01 of a Warrant
Share based on the prevailing Exchange Basis; or (b) the Price
shall be required unless such adjustment would result in a change
of at least 1% of the Price, provided that any adjustments which,
except for the provisions of this subsection, would otherwise have
been required to be made, shall be carried forward and taken into
account in any subsequent adjustment.
(3) No
adjustment in the Exchange Basis or the Price shall be made in
respect of any event described in Section 2.13, other than the
events referred to in paragraphs (b) and
(c) of subsection (1) thereof, if Warrantholders
are entitled to participate in such event on the same terms,
mutatis
mutandis, as if Warrantholders
had exercised their Warrants prior to or on the effective date or
record date of such event, any such participation being subject to
regulatory approval.
(4) No
adjustment in the Exchange Basis or the Price shall be made
pursuant to Section 2.13 in respect of (i) the issue from time to
time of Warrant Shares purchasable on exercise of the Warrants and
any such issue shall be deemed not to be a Common Share
Reorganization; (ii) a Dividend Paid in the Ordinary Course; or
(iii) a distribution of Common Shares
pursuant to the exercise of stock options granted under stock
option plans of the Company.
(5) If
a dispute shall at any time arise with respect to adjustments
provided for in Section 2.13, such dispute shall, absent manifest
error, be conclusively determined by the Company's Auditors, or if
they are unable or unwilling to act, by such other firm of
independent chartered accountants as may be selected by the
directors and any further determination, absent manifest error,
shall be binding upon the Company, the Warrant Agent and the
Warrantholders.
(6) If
the Company shall set a record date to determine the holders of the
Common Shares for the purpose of entitling them to receive any
dividend or distribution or any subscription or purchase rights and
shall, thereafter and before the distribution to such shareholders
of any such dividend, distribution, or subscription or purchase
rights, legally abandon its plan to pay or deliver such dividend,
distribution, or subscription or purchase rights, then no
adjustment in the Exchange Basis shall be required by reason of the
setting of such record date.
(7) In
the absence of a resolution of the directors fixing a record date
for a Rights Offering or Special Distribution, the Company shall be
deemed to have fixed as the record date therefor the date on which
the Rights Offering or Special Distribution is
effected.
(8) If
the purchase price provided for in any Rights Offering (the
"Rights
Offering Price") is decreased,
the Exchange Basis shall forthwith be changed so as to increase the
Exchange Basis to such Exchange Basis as would have been obtained
had the adjustment to the Exchange Basis made pursuant to Section
2.13(2) upon the issuance of such Rights Offering been made upon
the basis of the Rights Offering Price as so decreased, provided
that the provisions of this subsection shall not apply to any
decrease in the Rights Offering Price resulting from provisions in
any such Rights Offering designed to prevent dilution if the event
giving rise to such decrease in the Rights Offering Price itself
requires an adjustment to the Exchange Basis pursuant to the
provisions of Section 2.13.
(9) As
a condition precedent to the taking of any action that would
require any adjustment in any of the subscription rights pursuant
to any of the Warrants, including the Exchange Basis, the Company
shall take any corporate action which may, in the opinion of
counsel, be necessary in order that the Company have unissued and
reserved in its authorized capital and may validly and legally
issue as fully paid and non-assessable all the shares or other
securities that all the holders of such Warrants are entitled to
receive on the exercise of all the subscription rights attaching
thereto in accordance with the provisions thereof.
(10) In
case the Company, after the date hereof, shall take any action
affecting any Common Shares, other than action described in Section
2.13, which in the opinion of the directors acting reasonably and
in good faith would materially affect the rights of Warrantholders,
the Exchange Basis shall be adjusted in such manner, if any, and at
such time, as the directors, in their sole discretion acting
reasonably and in good faith, may determine to be equitable in the
circumstances. Failure of the taking of any action by the directors
so as to provide for an adjustment in the Exchange Basis prior to
the effective date of any action by the Company affecting the
Common Shares shall be conclusive evidence that the directors have
determined that it is equitable to make no adjustment in the
circumstances.
(11) The
Warrant Agent shall be entitled to act and rely on any
adjustment calculations
by the Company or the Company's Auditors.
2.15
Postponement of Subscription
In
any case where the application of Section 2.13 results in an
increase in the number of Common Shares that are issuable upon
exercise of the Warrants taking effect immediately after the record
date for a specific event, if any Warrant is exercised after that
record date and prior to completion of such specific event, the
Company may postpone the issuance to the Warrantholder of the
Warrant Shares to which he is entitled by reason of such
adjustment, but such Warrant Shares shall be so issued and
delivered to that holder upon completion of that event, with the
number of such Warrant Shares calculated on the basis of the number
of Warrant Shares on the date that the Warrant was exercised,
adjusted for completion of that event and the Company shall deliver
to the person or persons in whose name or names the Warrant Shares
are to be issued an appropriate instrument evidencing the right of
such person or persons to receive such Warrant Shares and the right
to receive any dividends or other distributions which, but for the
provisions of this Section 2.15, such person or persons would have
been entitled to receive in respect of such Warrant Shares from and
after the date that the Warrant was exercised in respect
thereof.
2.16
Notice of Adjustment
(1) At
least fourteen (14) days prior to the effective date or record
date, as the case may be, of any event which requires or might
require adjustment pursuant to Section 2.13, the Company
shall:
(a)
file
with the Warrant Agent a certificate of the Company specifying the
particulars of such event (including the record date or the
effective date for such event) and, if determinable, the required
adjustment and the computation of such adjustment and setting forth
in reasonable detail the method of calculation and the facts upon
which such calculation is based; and
(b)
give
notice to the Warrantholders of the particulars of such event
(including the record date or the effective date for such event)
and, if determinable, the required adjustment.
(2) In
case any adjustment for which a notice in Section 2.16(1) has been
given is not then determinable, the Company shall promptly after
such adjustment is determinable:
(a)
file
with the Warrant Agent a computation of such adjustment;
and
(b)
give
notice to the Warrantholders of the adjustment.
(3) The
Warrant Agent may and shall be protected in so doing, absent
manifest error, act and rely upon certificates of the Company and
other documents filed by the Company pursuant to this Section 2.16
for all purposes of the adjustment.
2.17
No Action after Notice
The
Company covenants with the Warrant Agent that it will not close its
books nor take any other corporate action which might deprive a
Warrantholder of the opportunity of exercising the
rights of acquisition pursuant thereto during the period of ten
(10) days after the giving of the notice set forth in paragraph (b)
of Sections 2.16(1) and (2).
2.18
Purchase of Warrants for Cancellation
The
Company may, at any time and from time to time, purchase Warrants
by invitation to tender, by private contract, on any stock exchange
(if then listed) or otherwise (which shall include a purchase
through an investment dealer or firm holding membership on a
Canadian stock exchange) on such terms as the Company may
determine. All Warrants purchased pursuant to the provisions of
this Section 2.18 shall be forthwith delivered to and cancelled by
the Warrant Agent and shall not be reissued. If required by the
Company, the Warrant Agent shall furnish the Company with a
certificate as to such destruction.
2.19
Protection of Warrant Agent
The Warrant Agent shall not:
(a)
at
any time be under any duty or responsibility to any registered
holder of Warrants to determine whether any facts exist that may
require any adjustment contemplated by this Article 2, nor to
verify the nature and extent of any such adjustment when made or
the method employed in making the same;
(b)
be
accountable with respect to the validity or value or the kind or
amount of any Warrant Shares or of any other securities or property
that may at any time be issued or delivered upon the exercise of
the Warrants;
(c)
be
responsible for any failure of the Company to make any cash
payment, to issue, transfer or deliver Warrant Shares or
certificates upon the surrender of any Warrants for the purpose of
the exercise of such rights or to comply with any of the covenants
contained in Section 2.13; or
(d)
incur
any liability or responsibility whatsoever or be in any way
responsible for the consequence of any breach on the part of the
Company of any of the representations, warranties or covenants of
the Company or any acts or deeds of the agents or servants of the
Company.
2.20
U.S. Legend on Warrant Certificates and Warrant Share
certificates
(1) The
Warrant Agent understands and acknowledges that the Warrants and
the Warrant Shares issuable upon exercise of the Warrants have not
been, and will not be, registered under the U.S. Securities Act or
the securities laws of any state of the United States.
(2) Each
Warrant, in certificated form, originally issued in the United
States or, to or for the account or benefit of, a U.S. Person, and
all Warrant Shares issued upon exercise of such Warrants, and all
certificates issued in exchange or in substitution thereof or upon
transfer thereof, shall bear the following legend:
"THE SECURITIES REPRESENTED HEREBY [for Warrants,
add: AND
THE
SECURITIES ISSUABLE ON EXERCISE HEREOF] HAVE NOT
BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT") OR UNDER ANY
STATE SECURITIES LAWS, AND THE SECURITIES REPRESENTED HEREBY
[for
Warrants, add: AND THE
SECURITIES ISSUABLE ON EXERCISE HEREOF] MAY BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, DIRECTLY OR INDIRECTLY, ONLY (A) TO THE
COMPANY, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH
REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH
APPLICABLE LOCAL LAWS AND REGULATIONS, (C) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY (i)
RULE 144 OR (ii) RULE144A THEREUNDER, IF AVAILABLE, AND IN
COMPLIANCE WITH APPLICABLE U.S. STATE SECURITIES LAWS, (D) IN
COMPLIANCE WITH ANOTHER EXEMPTION FROM REGISTRATION UNDER THE U.S.
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR (E) UNDER
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT,
PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (C)(i) OR (D)
ABOVE, A LEGAL OPINION OR OTHER EVIDENCE, REASONABLY SATISFACTORY
TO THE COMPANY, MUST FIRST BE PROVIDED TO THE COMPANY AND THE
COMPANY'S TRANSFER AGENT TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT
FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS. DELIVERY OF THIS CERTIFICATE MAY NOT
CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON STOCK
EXCHANGES IN CANADA.”
[for Warrants,
include: "THIS WARRANT MAY NOT
BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE
ACCOUNT OR BENEFIT OF, A PERSON IN THE UNITED STATES OR A U.S.
PERSON UNLESS THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. "UNITED
STATES" AND "U.S. PERSON" ARE AS DEFINED BY REGULATION S UNDER THE
U.S. SECURITIES ACT."]
provided that, if the Warrants or Warrant Shares issuable
upon exercise of the Warrants are being sold in accordance with
Rule 904 of Regulation S, the legend may be removed by providing to
the Warrant Agent or the Transfer Agent, as the case may be, (i) a
declaration in the form attached hereto as Schedule "B" (or as the
Company may prescribe from time to time in order to address changes
in applicable laws) and (ii) if required by the Transfer Agent, an
opinion of counsel, of recognized standing reasonably satisfactory
to the Company, or other evidence reasonably satisfactory to the
Company, that the proposed transfer may be effected without
registration under the U.S. Securities Act.
provided
further, that if the Warrants
or Warrant Shares are being sold pursuant to Rule 144 under the
U.S. Securities Act, if available, the legend may be removed by
delivering to the Company and the Warrant Agent or the Transfer
Agent, as the case may be, an opinion of counsel of recognized
standing in form and substance reasonably satisfactory to the
Company, to the effect that the legend is no longer required under
applicable requirements of the U.S. Securities
Act.
(3) If
a Warrant or Warrant Share issued with respect to an exercise of
Warrants is tendered for transfer and bears the legend set forth in
Section 2.20(2) herein and the holder thereof has not obtained the
prior written consent of the Company, the Warrant Agent or the
Transfer Agent, as the case may be, shall not register such
transfer unless the holder complies with the requirements of the
said Section 2.20(2) hereof.
ARTICLE 3 EXERCISE OF WARRANTS
3.1
Method of Exercise of Warrants
(1) The
registered holder of any Warrant may exercise the rights thereby
conferred on him to acquire all or any part of the Warrant Shares
to which such Warrant entitles the holder, by surrendering the
Warrant Certificate representing such Warrants to the Warrant Agent
at any time prior to the Time of Expiry at its principal stock
transfer offices in the City of Calgary, Alberta (or at such
additional place or places as may be decided by the Company from
time to time with the approval of the Warrant Agent), with a duly
completed and executed exercise form of the registered holder or
his executors, administrators or other legal representative or his
attorney duly appointed by an instrument in writing in the form and
manner satisfactory to the Warrant Agent, substantially in the form
endorsed on the Warrant Certificate specifying the number of
Warrant Shares subscribed for together with a certified cheque,
bank draft or money order in lawful money of Canada, payable to or
to the order of the Company in an amount equal to the Exercise
Price multiplied by the number of Warrant Shares subscribed for. A
Warrant Certificate with the duly completed and executed exercise
form and payment of the Exercise Price shall be deemed to be
surrendered only upon personal delivery thereof to or, if sent by
mail or other means of transmission, upon actual receipt thereof by
the Warrant Agent.
(2) Any
exercise form referred to in Section 3.1(1) shall be signed by the
Warrantholder, or his executors, or administrators or other legal
representative or his attorney duly appointed by an instrument in
writing in the form and manner satisfactory to the Warrant Agent,
but such exercise form need not be executed by CDS. Such exercise
form shall specify the person(s) in whose name such Warrant Shares
are to be issued, the address(es) of such person(s) and the number
of Warrant Shares to be issued to each person, if more than one is
so specified. If any of the Warrant Shares subscribed for are to be
issued to person(s) other than the Warrantholder, the Warrantholder
shall also complete the transfer form, substantially in the form
endorsed on the Warrant Certificate. The signatures set out in the
exercise form referred to in Section 3.1(1) and the signatures set
out in the transfer form shall be guaranteed by a Canadian Schedule
1 chartered bank or a medallion signature guarantee from a member
of a recognized Signature Medallion Guarantee Program and the
Warrantholder shall pay to the Company or the Warrant Agent all
applicable transfer or similar taxes and the Company shall not be
required to issue or deliver certificates evidencing Warrant Shares
unless or until such Warrantholder shall have paid to the Company
or the Warrant Agent on behalf of the Company the amount of such
tax or shall have established to the satisfaction of the Company
that such tax has been paid or that no tax is due.
(3) If,
at the time of exercise of the Warrants, in accordance with the
provisions of Section 3.1(1), there are any trading restrictions on
the Warrant Shares pursuant to applicable Securities Laws or stock
exchange requirements, the Company shall, on the advice of
counsel, endorse
any certificates representing the Warrant Shares to such effect.
The Warrant Agent is entitled to assume compliance with all
applicable Securities Laws unless otherwise notified in writing by
the Company.
(4) A
Beneficial Owner who desires to exercise his, her or its
Uncertificated Warrants, must do so by causing a Participant to
deliver to CDS (at its office in the City of Toronto, Ontario), on
behalf of the Beneficial Owner at any time prior to the Time of
Expiry, a written notice of the Beneficial Owner's intention to
exercise Warrants (the "Exercise
Notice"); provided, that a
Beneficial Owner holding Uncertificated Warrants that is in the
United States or that is a U.S. Person will first request the
withdrawal of the Uncertificated Warrant(s) from the Book-Entry
Only System and request certificated Warrant(s) in exchange for
such Uncertificated Warrant(s). Forthwith upon receipt by CDS of
such notice, as well as payment for the Exercise Price, CDS shall
deliver to the Warrant Agent confirmation of its intention to
exercise Warrants (the "Confirmation") in a manner acceptable to the Warrant Agent,
including by electronic means through the Book-Entry Only System,
including CDSX. An electronic exercise of the Warrants initiated by
the Beneficial Owner through a Book-Entry Only System, including
CDSX, shall constitute a representation to both the Company and the
Warrant Agent that the Beneficial Owner at the time of exercise of
such Warrants (a) is not in the United States; (b) did not acquire
the Warrants in the United States or on behalf of, or for the
account or benefit of, a U.S. Person or a person in the United
States; (c) is not a U.S. Person and is not exercising such
Warrants on behalf of a U.S. Person or a person in the United
States; and (d) did not execute or deliver the notice of the
owner's intention to exercise such Warrants in the United States.
If the Participant is not able to make or deliver the foregoing
representation by initiating the electronic exercise of the
Warrants, then such Warrants shall be withdrawn from the Book-Entry
Only System, including CDSX, by the Participant and an individually
registered Warrant Certificate shall be issued by the Warrant Agent
to such Beneficial Owner or Participant and the exercise procedures
set forth in Section 3.1(1) shall be followed. Payment representing
the aggregate Exercise Price must be provided to the appropriate
office of the Participant in a manner acceptable to it. A notice in
form acceptable to the Participant and payment from such Beneficial
Owner should be provided through the Book-Entry Only System
sufficiently in advance so as to permit the Participant to deliver
notice and payment to CDS and for CDS in turn to deliver notice and
payment to the Warrant Agent prior to Time of Expiry. CDS will
initiate the exercise by way of the Confirmation and forward the
aggregate Exercise Price electronically to the Warrant Agent and
the Warrant Agent will execute the exercise by issuing to CDS
through the Book- Entry Only System the Warrant Shares to which the
exercising Beneficial Owner is entitled pursuant to the exercise.
Any expense associated with the preparation and delivery of
Exercise Notices will be for the account of the Beneficial Owner
exercising the Warrants.
(5) By
causing a Participant to deliver notice to CDS, a Warrantholder
shall be deemed to have irrevocably surrendered his, her or its
Warrants so exercised and appointed such Participant to act as his,
her or its exclusive settlement agent with respect to the exercise
and the receipt of Warrant Shares in connection with the
obligations arising from such exercise.
(6) Any
notice which CDS determines to be incomplete, not in proper form or
not duly executed shall for all purposes be void and of no effect
and the exercise to which it relates shall be considered for all
purposes not to have been exercised thereby. A failure by a
Participant to exercise or to give effect to the settlement thereof
in accordance with the Beneficial Owner's instructions will not
give rise to any obligations or liability on the part of the
Company or Warrant Agent to the Participant or the Beneficial
Owner.
(7) Any
exercise referred to in this Section 3.1 shall require that the
entire Exercise Price for the Warrant Shares subscribed for must be
paid at the time of subscription and such Exercise Price and
original Exercise Notice or exercise form executed by the
Registered Warrantholder or the Confirmation from CDS must be
received by the Warrant Agent prior to the Time of
Expiry.
(8) Warrants
may only be exercised pursuant to this Section 3.1 by or on behalf
of a Warrantholder, as applicable, who makes the certifications set
forth on the exercise form substantially in the form endorsed on
the Warrant Certificate.
(9) If
the exercise form set forth in the Warrant Certificate shall have
been amended, the Company shall cause the amended exercise form to
be forwarded to all registered Warrantholders.
(10) Exercise
forms, Exercise Notices and Confirmations must be delivered to the
Warrant Agent at any time during the Warrant Agent's actual
business hours on any Business Day prior to the Time of Expiry. Any
exercise form, Exercise Notice or Confirmation received by the
Warrant Agent after business hours on any Business Day other than
the Time of Expiry will be deemed to have been received by the
Warrant Agent on the next following Business Day.
(11) Any
Warrant with respect to which a Confirmation is not received by the
Warrant Agent before the Time of Expiry shall be deemed to have
expired and become void and all rights with respect to such
Warrants shall terminate and be cancelled.
Under
no circumstances shall the Company be obliged to issue any
fractional Warrant Shares or any cash or other consideration in
lieu thereof upon the exercise of one or more Warrants. To the
extent that the holder of one or more Warrants would otherwise have
been entitled to receive on the exercise or partial exercise
thereof a fraction of a Warrant Share, that holder may exercise
that right in respect of the fraction only in combination with
another Warrant or Warrants that in the aggregate entitle the
holder to purchase a whole number of Warrant Shares.
3.3
Effect of Exercise of Warrants
(1) Upon
compliance by the Warrantholder with the provisions of Section 3.1,
the Warrant Shares subscribed for shall be deemed to have been
issued and the person to whom such Warrant Shares are to be issued
shall be deemed to have become the holder of record of such Warrant
Shares on the Exercise Date unless the transfer registers of the
Company for the Common Shares shall be closed on such date, in
which case the Warrant Shares subscribed for shall be deemed to
have been issued and such person shall be deemed to have become the
holder of record of such Warrant Shares on the date on which such
transfer registers are reopened.
(2) The
Warrant Agent shall as soon as practicable account to the Company
with respect to Warrants exercised, and shall as soon as
practicable forward to the Company (or into an account or accounts
of the Company with the bank or trust company designated by the
Company for that purpose), all monies received by the Warrant Agent
on the subscription of Warrant Shares through the exercise of
Warrants. All such monies and any securities or other
instruments,
from time to time received by the Warrant Agent, shall be received
in trust for the Warrantholders and the Company as their interests
may appear and shall be segregated and kept apart by the Warrant
Agent.
(3) Within
five Business Days following the due exercise of a Warrant pursuant
to Section 3.1, the Company shall cause the Transfer Agent to issue
and the Warrant Agent to deliver, within such five Business Day
period, to CDS through the Book-Entry Only System the Warrant
Shares to which the exercising Warrantholder is entitled pursuant
to the exercise or mail to the person in whose name the Warrant
Shares so subscribed for are to be issued, as specified in the
exercise form completed on the Warrant Certificate, at the address
specified in such exercise form, a certificate or certificates for
the Warrant Shares to which the Warrantholder is entitled or, if so
specified in writing by the holder, cause to be delivered to such
person or persons at the office of the Warrant Agent where the
Warrant Certificate was surrendered, a certificate or certificates
for the appropriate number of Warrant Shares subscribed for, or any
other appropriate evidence of the issuance of Warrant Shares to
such person or persons in respect of Warrant Shares issued under
the Book-Entry Only System and, if applicable, shall cause the
Warrant Agent to mail a Warrant Certificate representing any
Warrants not then exercised.
3.4
Cancellation of Warrants
All
Warrants surrendered to the Warrant Agent pursuant to sections 2.6,
2.8(2), 2.10 or 3.1 shall be cancelled by the Warrant Agent and the
Warrant Agent shall record the cancellation of such Warrants on the
register of holders maintained by the Warrant Agent pursuant to
Section 2.8(1). The Warrant Agent shall, if required by the
Company, furnish the Company with a certificate identifying the
Warrants so cancelled. All Warrants that have been duly cancelled
shall be without further force or effect whatsoever.
3.5
Subscription for less than Entitlement
The
holder of any Warrant may subscribe for and purchase a whole number
of Warrant Shares that is less than the number that the holder is
entitled to purchase pursuant to a surrendered Warrant. In such
event, the holder thereof shall be entitled to receive a new
Warrant Certificate in respect of the balance of Warrants that were
not then exercised, such new Warrant Certificate to contain the
same legend as provided for in Section 2.20(2), if
applicable.
3.6
Expiration of Warrant
After
the Time of Expiry, all rights under any Warrant in respect of
which the right of subscription and purchase herein and therein
provided for shall not theretofore have been exercised shall wholly
cease and terminate and such Warrant shall be void and of no
effect.
3.7
Prohibition on Exercise by U.S. Persons; Exception
(1) Warrants
may not be exercised within the United States or by or on behalf
of, or for the account or benefit of, any U.S. Person or any person
in the United States unless an exemption is available from the
registration requirements of the U.S. Securities Act and applicable
state securities laws. The Warrant Agent shall be entitled to rely
upon the registered address of the Warrantholder as set forth in
the Warrantholders register for the purchase of Units in
determining whether the address is in the United States or the
Warrantholder is a U.S. Person.
(2)
Any
holder which exercises any Warrants shall provide to the Company
either:
(a)
a
written certification that such holder (a) at the time of exercise
of the Warrants is not in the United States; (b) is not a U.S.
Person and is not exercising the Warrants on behalf of a U.S.
Person or person in the United States; (c) did not execute or
deliver the exercise form for the Warrants in the United States;
and (d) has in all other aspects complied with the terms of an
"offshore transaction" as defined under Regulation S (which written
certification shall be deemed delivered by checking Box 1 in the
Exercise Form attached to the Warrant, as provided for in Schedule
“A” hereof); or
(b)
a
written certification that the holder (i) purchased the Warrants as
part of the Units in the Offering; (ii) is exercising the Warrants
solely for its own account or for the benefit of a U.S. Person or a
person in the United States for whose account such holder acquired
the Warrants as a part of the Units in the Offering and for whose
account such holders exercises sole investment discretion; (iii)
was and is, and any beneficial purchaser for whose account such
holder acquired the Warrant and is exercising the Warrants was and
is, a Qualified Institutional Buyer both on the date the Units were
purchased in the Offering and on the Exercise Date; and (iv) the
representations and warranties made by the holder or any beneficial
purchaser, as the case may be, to the Company in such
holder’s QIB Letter remain true and correct on the Exercise
Date (which written certification shall be deemed delivered by
checking Box 2 in the Exercise Form attached to the Warrant, as
provided for in Schedule “A” hereof); or
(c)
a
written opinion of counsel of recognized standing in form and
substance satisfactory to the Company or evidence satisfactory to
the Company to the effect that an exemption from the registration
requirements of the U.S. Securities Act and applicable state
securities laws is available for the issuance of the Warrant Shares
issuable on exercise of the Warrants.
(3) No
Warrant Shares will be registered or delivered to an address in the
United States unless the holder of Warrants complies with the
requirements of paragraph (b) or (c) of Section
3.7(2).
ARTICLE 4 COVENANTS FOR WARRANTHOLDERS' BENEFIT
4.1
General Covenants of the Company
The
Company represents, warrants and covenants with the Warrant Agent
for the benefit of the Warrant Agent and the Warrantholders
that:
(1) The
Company will at all times, so long as any Warrants remain
outstanding or issuable hereunder, maintain its existence, unless
otherwise inconsistent with the fiduciary
duties
of the board of directors of the Company, and will keep or cause to
be kept proper books of account in accordance with applicable law
until the Time of Expiry.
(2) The
Company is duly authorized to create and issue the Warrants to be
issued hereunder and the Warrants, when Authenticated, will be
legal, valid, binding and enforceable obligations of the
Company.
(3) The
Company will reserve and keep available a sufficient number of
Warrant Shares for the purpose of enabling the Company to satisfy
its obligations to issue Common Shares upon the exercise of the
Warrants, and all Warrants Shares shall, when issued as provided
herein, be valid and enforceable against the Company.
(4) The
Company will cause the Warrant Shares from time to time subscribed
for pursuant to the Warrants issued by the Company hereunder, in
the manner herein provided, to be duly issued in accordance with
the Warrants and the terms hereof.
(5) All
Warrant Shares that shall be issued by the Company upon exercise of
the rights provided for herein shall be issued as fully paid and
non-assessable Common Shares of the Company.
(6) The
Company will use commercially reasonable efforts to ensure that the
Warrants, and the Common Shares outstanding on the date hereof and
issuable from time to time on the exercise of the Warrants,
continue to be or are listed and posted for trading on the CSE (or
such other Canadian stock exchange acceptable to the Company),
provided that this Section 4.1(6) shall not be construed as
limiting or restricting the Company from completing a
consolidation, amalgamation, arrangement, takeover bid, merger or
other form of business combination that would result in the
Warrants and/or the Common Shares ceasing to be listed and posted
for trading on such exchanges, so long as the holders of Common
Shares have approved the transaction in accordance with the
requirements of applicable corporate and securities laws and the
policies of such exchanges or the holders of Common Shares receive
securities of an entity which is listed on a stock exchange in
North America or cash.
(7) Except
to the extent that the Company participates in a takeover bid,
consolidation, merger, arrangement, amalgamation, or other form of
business combination transaction, the Company will use its
commercially reasonable efforts to maintain its status as a
"reporting issuer" (or the equivalent thereof) in each of the
provinces of Canada and other Canadian jurisdictions in which it is
currently or becomes a reporting issuer, make all requisite filings
under applicable Securities Laws including those necessary to
remain a reporting issuer not in default of the requirements of the
applicable Securities Laws of such province or jurisdiction, until
the Time of Expiry.
(8) The
Company will perform and carry out all of the acts or things to be
done by it as provided in this Indenture.
(9) The
Company will not take any action or omit to take any action which
would have the effect of preventing the Warrantholders from
receiving any of the Warrant Shares issuable upon the exercise of
the Warrants.
(10) The
Company will promptly advise the Warrant Agent and the
Warrantholders in writing of any breach or default under the terms
of this Indenture no later than five (5) Business Days following
the occurrence of such breach or default.
(11) If,
in the opinion of counsel, any instrument is required to be filed
with, or any permission, order or ruling is required to be obtained
from any securities regulatory authority, or any other step is
required under any federal or provincial law of Canada before the
Warrant Shares may be issued and delivered to a Warrantholder, the
Company covenants that it will use its best efforts to file such
instrument, obtain such permission, order or ruling or take all
such other actions, at its expense, as is required or appropriate
in the circumstances.
4.2
Warrant Agent's Remuneration and Expenses
The
Company covenants that it will pay to the Warrant Agent from time
to time reasonable remuneration for its services hereunder and will
pay or reimburse the Warrant Agent upon its request for all
reasonable expenses and disbursements and advances incurred or made
by the Warrant Agent in the administration or execution of the
trusts hereby created (including the reasonable compensation and
the disbursements of its counsel and all other advisers, experts,
accountants and assistants not regularly in its employ) both before
any default hereunder and thereafter until all duties of the
Warrant Agent hereunder shall be finally and fully performed. Any
amount owing hereunder and remaining unpaid after thirty (30) days
from the invoice date will bear interest at the then current rate
charged by the Warrant Agent against unpaid invoices and shall be
payable upon demand. This section shall survive the resignation or
removal of the Warrant Agent and/or the termination of this
Indenture.
4.3
Performance of Covenants by Warrant Agent
Subject
to Section 8.7, if the Company shall fail to perform any of its
covenants contained in this Indenture and the Company has not
rectified such failure within twenty-five (25) Business Days after
either giving notice of such default pursuant to Section 4.1(10) or
receiving written notice from the Warrant Agent of such failure,
the Warrant Agent may notify the Warrantholders of such failure on
the part of the Company or may itself perform any of the said
covenants capable of being performed by it, but shall be under no
obligation to perform said covenants. All reasonable sums expended
or disbursed by the Warrant Agent in so doing shall be repayable as
provided in Section 4.2. No such performance, expenditure or
advance by the Warrant Agent shall be deemed to relieve the Company
of any default hereunder or of its continuing obligations under the
covenants herein contained.
4.4
Enforceability of Warrants
The
Company covenants and agrees that it is duly authorized to create
and issue the Warrants to be issued hereunder and that the
Warrants, when issued and Authenticated as herein provided, will be
valid and enforceable against the Company in accordance with the
provisions hereof and that, subject to the provisions of this
Indenture, the Company will cause the Warrant Shares from time to
time acquired upon exercise of Warrants issued under this Indenture
to be duly issued and delivered in accordance with the terms of
this Indenture.
ARTICLE 5 ENFORCEMENT
5.1
Suits by Warrantholders
Subject
to Section 6.10, all or any of the rights conferred upon a
Warrantholder by the terms of the Warrants held by him and/or this
Indenture may be enforced by such
Warrantholder
by appropriate legal proceedings but without prejudice to the right
that is hereby conferred upon the Warrant Agent to proceed in its
own name to enforce each and all of the provisions herein contained
for the benefit of the holders of the Warrants from time to time
outstanding. The Warrant Agent shall also have the power at any
time and from time to time to institute and to maintain such suits
and proceedings as it may reasonably be advised shall be necessary
or advisable to preserve and protect its interests and the
interests of the Warrantholders.
5.2
Limitation of Liability
The
obligations hereunder (including without limitation under Section
8.7(5)) are not personally binding upon, nor shall resort hereunder
be had to, the private property of any of the past, present or
future directors or shareholders of the Company or any of the past,
present or future officers, employees or agents of the Company, but
only the property of the Company (or any successor person) shall be
bound in respect hereof.
Upon
the happening of any default hereunder:
(a)
the
Warrantholders of not less than 50% plus 1 of the Warrants then
outstanding shall have power (in addition to the powers exercisable
by Extraordinary Resolution) by requisition in writing to instruct
the Warrant Agent to waive any default hereunder and the Warrant
Agent shall thereupon waive the default upon such terms and
conditions as shall be prescribed in such requisition;
or
(b)
the
Warrant Agent shall have power to waive any default hereunder upon
such terms and conditions as the Warrant Agent may deem advisable,
on the advice of counsel, if, in the Warrant Agent's opinion, based
on the advice of counsel, the same shall have been cured or
adequate provision made therefor,
provided
that no delay or omission of the Warrant Agent or of the
Warrantholders to exercise any right or power accruing upon any
default shall impair any such right or power or shall be construed
to be a waiver of any such default or acquiescence therein and
provided further that no act or omission either of the Warrant
Agent or of the Warrantholders in the premises shall extend to or
be taken in any manner whatsoever to affect any subsequent default
hereunder of the rights resulting therefrom.
ARTICLE 6 MEETINGS OF WARRANTHOLDERS
6.1
Right to Convene Meetings
The
Warrant Agent may at any time and from time to time, and shall on
receipt of a written request of the Company or of a Warrantholders'
Request, convene a meeting of the Warrantholders provided that the
Warrant Agent has been provided with sufficient funds and is
indemnified to its reasonable satisfaction by the Company or by the
Warrantholders signing such Warrantholders' Request against the
costs, charges, expenses and liabilities that may be incurred in
connection with the calling and holding of such meeting. If within
fifteen (15) Business
Days after the receipt of a written request of the Company or a
Warrantholders' Request, funding and indemnity given as aforesaid
the Warrant Agent fails to give the requisite notice specified in
Section 6.2 to convene a meeting, the Company or such
Warrantholders, as the case may be, may convene such meeting. Every
such meeting shall be held in the City of Toronto, Ontario or at
such other place as may be approved or determined by the Warrant
Agent.
At
least fourteen (14) days prior notice of any meeting of
Warrantholders shall be given to the Warrantholders at the expense
of the Company in the manner provided for in Section 9.2 and a copy
of such notice shall be delivered to the Warrant Agent unless the
meeting has been called by it, and to the Company unless the
meeting has been called by it. Such notice shall state the date,
time and place of the meeting, the general nature of the business
to be transacted and shall contain such information as is
reasonably necessary to enable the Warrantholders to make a
reasoned decision on the matter, but it shall not be necessary for
any such notice to set out the terms of any resolution to be
proposed or any of the provisions of this Article 6. The notice
convening any such meeting may be signed by an appropriate officer
of the Warrant Agent or of the Company or the person designated by
such Warrantholders, as the case may be.
The
Warrant Agent may nominate in writing an individual (who need not
be a Warrantholder) to be chairman of the meeting and if no
individual is so nominated, or if the individual so nominated is
not present within fifteen (15) minutes after the time fixed for
the holding of the meeting, the Warrantholders present in person or
by proxy shall appoint an individual present to be chairman of the
meeting. The chairman of the meeting need not be a
Warrantholder.
Subject
to the provisions of Section 6.11, at any meeting of the
Warrantholders a quorum shall consist of two Warrantholders present
in person or represented by proxy and representing at least 20% of
the aggregate number of Warrants then outstanding. If a quorum of
the Warrantholders shall not be present within one-half hour from
the time fixed for holding any meeting, the meeting, if summoned by
the Warrantholders or on a Warrantholders' Request, shall be
dissolved; but in any other case the meeting shall be adjourned to
the same day in the next week (unless such day is not a Business
Day in which case it shall be adjourned to the next following
Business Day) at the same time and place to the extent possible
and, subject to the provisions of Section 6.11, no notice of the
adjournment need be given. Any business may be brought before or
dealt with at an adjourned meeting that might have been dealt with
at the original meeting in accordance with the notice calling the
same. At the adjourned meeting the Warrantholders present in person
or represented by proxy shall form a quorum and may transact the
business for which the meeting was originally convened,
notwithstanding that they may not represent at least 20% of the
aggregate number of Warrants then unexercised and outstanding. No
business shall be transacted at any meeting, except an adjourned
meeting as described above, unless a quorum is present at the
commencement of business.
The
chairman of any meeting at which a quorum of the Warrantholders is
present may, with the consent of the meeting, adjourn any such
meeting, and no notice of such adjournment need be given except
such notice, if any, as the meeting may prescribe.
Every
question submitted to a meeting shall be decided in the first place
by a majority of the votes given on a show of hands except that
votes on an extraordinary resolution shall be given in the manner
hereinafter provided. At any such meeting, unless a poll is duly
demanded as herein provided, a declaration by the chairman that a
resolution has been carried or carried unanimously or by a
particular majority or lost or not carried by a particular majority
shall be conclusive evidence of the fact.
On
every extraordinary resolution, and when demanded by the chairman
or by one or more of the Warrantholders acting in person or by
proxy on any other question submitted to a meeting and after a vote
by show of hands, a poll shall be taken in such manner as the
chairman shall direct. Questions other than those required to be
determined by extraordinary resolution shall be decided by a
majority of the votes cast on the poll. On a show of hands, every
person who is present and entitled to vote, whether as a
Warrantholder or as proxy for one or more absent Warrantholders, or
both, shall have one vote. On a poll, each Warrantholder present in
person or represented by a proxy duly appointed by instrument in
writing shall be entitled to one vote in respect of each whole
Warrant then held by her. A proxy need not be a Warrantholder. The
chairman of any meeting shall be entitled, both on a show of hands
and on a poll, to vote in respect of the Warrants, if any, held or
represented by her.
Subject
to the provisions of this Indenture, the Warrant Agent or the
Company with the approval of the Warrant Agent may from time to
time make and from time to time vary such regulations as it shall
consider necessary or appropriate generally for the calling of
meetings of Warrantholders and the conduct of business thereat
including setting a record date for Warrantholders entitled to
receive notice of or to vote at such meeting.
Any
regulations so made shall be binding and effective and the votes
given in accordance therewith shall be valid and shall be counted.
Save as such regulations may provide, the only persons who shall be
recognized at any meeting as a Warrantholder, or be entitled to
vote or be present at the meeting in respect thereof (subject to
Section 6.9), shall be Warrantholders or persons holding proxies of
Warrantholders.
6.9
Company, Warrant Agent and Counsel may be Represented
The
Company and the Warrant Agent, by their respective directors,
officers and employees and the counsel for each of the Company, the
Warrantholders and the Warrant Agent may attend any meeting of the
Warrantholders and speak thereat but shall not be entitled to vote
unless in their capacities as Warrantholders or proxies
therefor.
6.10
Powers
Exercisable by Extraordinary Resolution
In
addition to all other powers conferred upon them by any other
provisions of this Indenture or by law, the Warrantholders at a
meeting shall have the power, exercisable from time to time by
extraordinary resolution:
(a)
to
agree with the Company to any modification, alteration, compromise
or arrangement of the rights of Warrantholders and/or the Warrant
Agent in its capacity as Warrant Agent hereunder (subject to the
Warrant Agent's approval) or on behalf of the Warrantholders
against the Company, whether such rights arise under this Indenture
or the Warrants or otherwise;
(b)
to
amend, modify or repeal any extraordinary resolution previously
passed or sanctioned by the Warrantholders;
(c)
to
direct or authorize the Warrant Agent (subject to the Warrant Agent
receiving funding and indemnity) to enforce any of the covenants on
the part of the Company contained in this Indenture or the Warrants
or to enforce any of the rights of the Warrantholders in any manner
specified in such extraordinary resolution or to refrain from
enforcing any such covenant or right;
(d)
to
waive, authorize and direct the Warrant Agent to waive any default
on the part of the Company in complying with any provisions of this
Indenture or the Warrants either unconditionally or upon any
conditions specified in such extraordinary resolution;
(e)
to
restrain any Warrantholder from taking or instituting any suit,
action or proceeding against the Company for the enforcement of any
of the covenants on the part of the Company contained in this
Indenture or the Warrants or to enforce any of the rights of the
Warrantholders;
(f)
to
direct any Warrantholder who, as such, has brought any suit, action
or proceeding to stay or discontinue or otherwise deal with any
such suit, action or proceeding, upon payment of the costs, charges
and expenses reasonably and properly incurred by such Warrantholder
in connection therewith;
(g)
to
assent to any change in or omission from the provisions contained
in this Indenture or any ancillary or supplemental instrument which
may be agreed to by the Company, and to authorize the Warrant Agent
to concur in and execute any ancillary or supplemental indenture
embodying the change or omission; and
(h)
with
the consent of the Company, such consent not to be unreasonably
withheld, to remove the Warrant Agent or its successor in office
and to appoint a new warrant agent or warrant agents to take the
place of the Warrant Agent so removed.
6.11
Meaning of
"Extraordinary Resolution"
(1) The
expression "extraordinary
resolution" when used in this
Indenture means, subject as hereinafter in this Section 6.11 and in
Section 6.14 provided, a resolution proposed at a meeting of
Warrantholders duly convened for that purpose and held in
accordance with the provisions of this Article 6 at which there are
present in person or by proxy at least two Warrantholders
representing at least 20% of the aggregate number of all the then
outstanding Warrants and passed by the affirmative votes of
Warrantholders representing not less than 662/3%
of the aggregate number of all the then outstanding Warrants
represented at the meeting and voted on the poll upon such
resolution.
(2) If,
at any meeting called for the purpose of passing an extraordinary
resolution, Warrantholders representing at least 20% of the
aggregate number of all the then outstanding Warrants are not
present in person or by proxy within one-half hour after the time
appointed for the meeting, then the meeting, if convened by
Warrantholders or on a Warrantholders' Request, shall be dissolved;
but in any other case it shall stand adjourned to such day, being
not less than ten (10) Business Days later, and to such place and
time as may be appointed by the chairman. Not less than three (3)
Business Days prior notice shall be given of the time and place of
such adjourned meeting in the manner provided in sections 9.1 and
9.2. Such notice shall state that at the adjourned meeting the
Warrantholders present in person or represented by proxy shall form
a quorum but it shall not be necessary to set forth the purposes
for which the meeting was originally called or any other
particulars. At the adjourned meeting the Warrantholders present in
person or represented by proxy shall form a quorum and may transact
the business for which the meeting was originally convened and a
resolution proposed at such adjourned meeting and passed by the
requisite vote as provided in Section 6.11(1) shall be an
extraordinary resolution within the meaning of this Indenture
notwithstanding that Warrantholders representing at least 20% of
all the then outstanding Warrants are not present in person or
represented by proxy at such adjourned meeting.
(3) Votes
on an extraordinary resolution shall always be given on a poll and
no demand for a poll on an extraordinary resolution shall be
necessary.
6.12 Powers
Cumulative
It
is hereby declared and agreed that any one or more of the powers or
any combination of the powers in this Indenture stated to be
exercisable by the Warrantholders by extraordinary resolution or
otherwise may be exercised from time to time and the exercise of
any one or more of such powers or any combination of powers from
time to time shall not be deemed to exhaust the right of the
Warrantholders to exercise such powers or combination of powers
then or thereafter from time to time.
6.13
Minutes
Minutes
of all resolutions and proceedings at every meeting of
Warrantholders as aforesaid shall be made and duly entered in books
to be provided for that purpose by the Warrant Agent at the expense
of the Company and any minutes as aforesaid, if signed by the
chairman of the meeting at which resolutions were passed or
proceedings had, or by the chairman of the next succeeding meeting
of the Warrantholders, shall be prima facie evidence of the matters
therein stated and, until the contrary is proved, every meeting, in
respect of the proceedings of which minutes shall have been made,
shall be deemed to have been duly convened and held, and all
resolutions passed thereat or proceedings taken, to have
been duly
passed and taken.
6.14
Instruments in Writing
All actions that may be taken and all powers that
may be exercised by the Warrantholders at a meeting held as
provided in this Article 6 may also be taken and exercised by
Warrantholders representing a majority, or in the case of an
extraordinary resolution at least 662/3%,
of the aggregate number of all the then outstanding Warrants by an
instrument in writing signed in one or more counterparts by such
Warrantholders in person or by attorney duly appointed in writing,
and the expression "extraordinary resolution" when used in this
Indenture shall include an instrument so
signed.
6.15
Binding Effect of Resolutions
Every
resolution and every extraordinary resolution passed in accordance
with the provisions of this Article 6 at a meeting of
Warrantholders shall be binding upon all the Warrantholders,
whether present at or absent from such meeting, and every
instrument in writing signed by Warrantholders in accordance with
Section 6.14 shall be binding upon all the Warrantholders, whether
signatories thereto or not, and each and every Warrantholder and
the Warrant Agent (subject to the provisions for indemnity herein
contained) shall be bound to give effect accordingly to every such
resolution and instrument in writing. In the case of an instrument
in writing, the Warrant Agent shall give notice in the manner
contemplated in sections 9.1 and 9.2 of the effect of the
instrument in writing to all Warrantholders and the Company as soon
as is reasonably practicable.
6.16
Holdings by the Company or Subsidiaries of the Company
Disregarded
In
determining whether Warrantholders are present at a meeting of
Warrantholders for the purpose of determining a quorum or have
concurred in any consent, waiver, extraordinary resolution,
Warrantholders' Request or other action under this Indenture,
Warrants owned legally or beneficially by the Company or its
Subsidiaries or in partnership of which the Company is directly or
indirectly a party to shall be disregarded.
6.17
Common Shares or Warrants Owned by the Company or its Subsidiaries
– Certificate to be Provided
For
the purpose of disregarding any Warrants owned legally or
beneficially by the Company in Section 6.16, the Company shall
provide to the Warrant Agent, upon written request, a certificate
of the Company setting forth as at the date of such
certificate:
(a)
the
names (other than the name of the Company) of the Warrantholders
which, to the knowledge of the Company, hold Warrants that are
owned by or held for the account of the Company; and
(b)
the
number of Warrants owned legally or beneficially by the Company,
and the Warrant Agent, in making the computations in Section 6.16,
shall be entitled to rely on such certificate without any
additional evidence.
ARTICLE 7 SUPPLEMENTAL INDENTURES AND SUCCESSOR
COMPANIES
7.1
Provision for Supplemental Indentures for Certain
Purposes
From
time to time the Company (if properly authorized by its directors)
and the Warrant Agent may, subject to the provisions hereof, and
they shall, when so directed in accordance with the provisions
hereof, execute and deliver by their proper officers, indentures or
instruments supplemental hereto, which thereafter shall form part
hereof, for any one or more or all of the following
purposes:
(a)
providing
for the issuance of additional Warrants hereunder including
Warrants in excess of the number set out in Section 2.1 and any
consequential amendments hereto as may be required by the Warrant
Agent, relying on the advice of counsel;
(b)
setting
forth adjustments in the application of Article 2;
(c)
adding
to the provisions hereof such additional covenants and enforcement
provisions as, in the opinion of counsel are necessary or
advisable, provided that the same are not in the opinion of the
Warrant Agent, relying on the advice of counsel, prejudicial to the
interests of the Warrantholders as a group;
(d)
giving
effect to any extraordinary resolution passed as provided in
Article 6;
(e)
making
such provisions not inconsistent with this Indenture as may be
necessary or desirable with respect to matters or questions arising
hereunder provided that such provisions are not, in the opinion of
the Warrant Agent, relying on the advice of counsel, prejudicial to
the interests of the Warrantholders as a group;
(f)
adding
to or amending the provisions hereof in respect of the transfer of
Warrants, making provision for the exchange of Warrants and making
any modification in the form of the Warrant Certificate that does
not affect the substance thereof;
(g)
amending
any of the provisions of this Indenture or relieving the Company
from any of the obligations, conditions or restrictions herein
contained, provided that no such amendment or relief shall be or
become operative or effective if, in the opinion of the Warrant
Agent, relying on the advice of counsel, such amendment or relief
impairs any of the rights of the Warrantholders as a group or of
the Warrant Agent, and provided further that the Warrant Agent may
in its sole discretion decline to enter into any supplemental
indenture that in its opinion may not afford adequate protection to
the Warrant Agent when the same shall become operative;
and
(h)
for
any other purpose not inconsistent with the terms of this
Indenture, including the correction or rectification of any
ambiguities, defective or
inconsistent
provisions, errors or omissions herein, provided that, in the
opinion of the Warrant Agent, relying on the advice of counsel, the
rights of the Warrant Agent and the Warrantholders as a group are
in no way prejudiced thereby.
In the case of the amalgamation, consolidation,
arrangement, merger or transfer of the undertaking or assets of the
Company as an entirety or substantially as an entirety to or with
another person (a "successor
company"), the successor
company resulting from the amalgamation, consolidation,
arrangement, merger or transfer (if not the Company) shall be bound
by the provisions hereof and all obligations for the due and
punctual performance and observance of each and every covenant and
obligation contained in this Indenture to be performed by the
Company and the successor company shall by supplemental indenture
satisfactory in form to the Warrant Agent and executed and
delivered to the Warrant Agent, expressly assume those
obligations.
ARTICLE 8 CONCERNING THE WARRANT AGENT
8.1
Indenture Legislation
(1) If
and to the extent that any provision of this Indenture limits,
qualifies or conflicts with a mandatory requirement of Applicable
Legislation, such mandatory requirement shall prevail.
(2) The
Company and the Warrant Agent agree that each will at all times in
relation to this Indenture and any action to be taken hereunder
observe and comply with and be entitled to the benefit of
Applicable Legislation.
8.2
Rights and Duties of Warrant Agent
(1) The
Warrant Agent accepts the duties and responsibilities under this
Indenture, solely as custodian, bailee and agent. No trust is
intended to be, or is or will be, created hereby and the Warrant
Agent shall owe no duties hereunder as a trustee.
(2) In
the exercise of the rights and duties prescribed or conferred by
the terms of this Indenture, the Warrant Agent shall act honestly
and in good faith with a view to the best interests of the
Warrantholders and shall exercise the degree of care, diligence and
skill that a reasonably prudent warrant agent would exercise in
comparable circumstances. No provision of this Indenture shall be
construed to relieve the Warrant Agent from, or require any other
person to indemnify the Warrant Agent against liability for its own
gross negligence, wilful misconduct, bad faith or
fraud.
(3) The
Warrant Agent shall not be bound to do or take any act, action or
proceeding for the enforcement of any of the obligations of the
Company under this Indenture unless and until it shall have
received a Warrantholders' Request specifying the act, action or
proceeding that the Warrant Agent is requested to take. The
obligation of the Warrant Agent to commence or continue any act,
action or proceeding for the purpose of enforcing any rights of the
Warrant Agent or the Warrantholders hereunder shall be conditional
upon the Warrantholders furnishing, when required by notice in
writing by the Warrant Agent, sufficient
funds
to commence or continue such act, action or proceeding and an
indemnity reasonably satisfactory to the Warrant Agent and its
counsel to protect and hold harmless the Warrant Agent, its
officers, directors, employees, agents, successors and assigns
against the costs, charges and expenses and liabilities to be
incurred thereby and any loss and damage it may suffer by reason
thereof. None of the provisions contained in this Indenture shall
require the Warrant Agent to expend or risk its own funds or
otherwise incur financial liability in the performance of any of
its duties or in the exercise of any of its rights or powers unless
indemnified and funded as aforesaid.
(4) The
Warrant Agent may, before commencing any act, action or proceeding,
or at any time during the continuance thereof require the
Warrantholders at whose instance it is acting to deposit with the
Warrant Agent the Warrants held by them, for which Warrants the
Warrant Agent shall issue receipts.
(5) Every
provision of this Indenture that, by its terms, relieves the
Warrant Agent of liability or entitles it to rely upon any evidence
submitted to it is subject to the provisions of Applicable
Legislation.
(6) The
Warrant Agent shall not be bound to give any notice or do or take
any act, action or proceeding by virtue of the powers conferred on
it hereunder unless and until it shall have been required to do so
under the terms hereof; nor shall the Warrant Agent be required to
take notice of any default hereunder, unless and until notified in
writing of such default, which notice shall specifically set out
the default desired to be brought to the attention of the Warrant
Agent and in the absence of such notice the Warrant Agent may for
all purposes of this Indenture conclusively assume that no default
has occurred or been made in the performance or observance of the
representations, warranties and covenants, agreements or conditions
herein contained. Any such notice shall in no way limit any
discretion herein given to the Warrant Agent to determine whether
or not the Warrant Agent shall take action with respect to any
default.
(7) In
this Indenture, whenever confirmations or instructions are required
to be given to the Warrant Agent, in order to be valid, such
confirmations and instructions shall be in writing.
8.3
Evidence, Experts and Advisers
(1) In
addition to the reports, certificates, opinions and other evidence
required by this Indenture, the Company shall furnish to the
Warrant Agent such additional evidence of compliance with any
provision hereof and in such form as may be prescribed by
Applicable Legislation or as the Warrant Agent may reasonably
require by written notice to the Company.
(2) In
the exercise of its rights and duties hereunder, the Warrant Agent
may, if it is acting in good faith, act and rely absolutely as to
the truth of the statements and the accuracy of the opinions
expressed therein, upon statutory declarations, opinions, reports,
written requests, consents, or orders of the Company, certificates
of the Company or other evidence furnished to the Warrant Agent
pursuant to any provision hereof or of Applicable Legislation or
pursuant to a request of the Warrant Agent, provided that such
evidence complies with Applicable Legislation and that the Warrant
Agent complies with Applicable Legislation and that the Warrant
Agent examines the same and determines that such evidence complies
with the applicable requirements of this Indenture. The Warrant
Agent shall be under no responsibility in respect of the validity
of this Indenture or the execution and delivery hereof
by
or
on behalf of the Company or in respect of the validity or the
execution of any Warrant Certificate by the Company and issued
hereunder, nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Indenture or
in any such Warrant Certificate; nor shall it by any act hereunder
be deemed to make any representation or warranty as to the
authorization or reservation of any securities to be issued upon
the right to acquire provided for in this Indenture and/or in any
Warrant or as to whether any securities will when issued be duly
authorized or be validly issued and fully paid and
non-assessable.
(3) Whenever
provided for in this Indenture or Applicable Legislation requires
that the Company deposit with the Warrant Agent resolutions,
certificates, reports, opinions, requests, orders or other
documents, it is intended that the truth, accuracy and good faith
on the effective date thereof and the facts and opinions stated in
all such documents so deposited shall, in each and every such case,
be conditions precedent to the right of the Company to have the
Warrant Agent take the action to be based thereon.
(4) Proof
of the execution of an instrument in writing, including a
Warrantholders' Request, by any Warrantholder may be made by a
certificate of a notary public or other person with similar powers
that the person signing such instrument acknowledged to him the
execution thereof, or by an affidavit of a witness to such
execution or in any other manner which the Warrant Agent may
consider adequate and in respect of a corporate Warrantholder,
shall include a certificate of incumbency of such Warrantholder
together with a certified resolution authorizing the person who
signs such instrument to sign such instrument.
(5) The
Warrant Agent may act and rely and shall be protected in acting and
relying upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, letter, or other
paper document believed by it to be genuine and to have been
signed, sent or presented by or on behalf of the proper party or
parties. The Warrant Agent has sole discretion and shall be
protected in acting and relying upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent,
order, letter or other paper document received in facsimile or
e-mail form.
(6) The
Warrant Agent may employ or retain such counsel, accountants,
engineers, appraisers or other experts or advisers as it may
reasonably require for the purpose of determining and discharging
its duties hereunder and shall pay reasonable remuneration for all
services so performed by any of them, without taxation of costs of
any counsel and shall not be responsible for any misconduct or
negligence on the part of any of them who has been selected with
due care by the Warrant Agent. Any reasonable remuneration paid by
the Warrant Agent shall be paid by the Company in accordance with
Section 4.2.
(7) The
Warrant Agent may act and rely and shall be protected in acting and
relying in good faith on the opinion or advice of or information
obtained from any counsel, accountant, appraiser, engineer or other
expert or advisor, whether retained or employed by the Company or
the Warrant Agent, in relation to any matter arising in fulfilling
its duties and obligations hereof.
(8) The
Warrant Agent may, as a condition precedent to any action to be
taken by it under this Indenture, require such opinions, statutory
declarations, reports, certificates or other evidence as it, acting
reasonably, considers necessary or advisable in the
circumstances.
(9) The
Warrant Agent is not required to expend or place its own funds at
risk in executing its duties and obligations.
8.4
Securities, Documents and Monies Held by Warrant Agent
(90)
Any securities, documents of title,
monies or other instruments that may at any time be held by the
Warrant Agent subject to the duties and obligations hereof, for the
benefit of the Company, may be placed in the deposit vaults of the
Warrant Agent or of any Schedule 1 Canadian chartered bank under
the Bank
Act (Canada) or deposited for
safekeeping with any such bank or the Warrant Agent. Any monies
held pending the application or withdrawal thereof under any
provisions of this Indenture, shall be held, invested and
reinvested in "Permitted Investments" as directed in writing by the
Company. "Permitted Investments" shall be treasury bills guaranteed
by the Government of Canada having a term to maturity not to exceed
ninety (90) days, or term deposits or bankers' acceptances of a
Canadian chartered bank having a term to maturity not to exceed
ninety (90) days, or such other investments that is in accordance
with the Warrant Agent's standard type of investments. Unless
otherwise specifically provided herein, all interest or other
income received by the Warrant Agent in respect of such deposits
and investments shall belong to the Company and shall be paid to
the Company upon discharge of this Indenture.
(2) Any
written direction for the investment or release of funds received
shall be received by the Warrant Agent by 9:00 a.m. (Calgary time)
on the Business Day on which such investment or release is to be
made, failing which such direction will be handled on a
commercially reasonable efforts basis and may result in funds being
invested or released on the next Business Day.
(3) The
Warrant Agent shall have no responsibility or liability for any
diminution of any funds resulting from any investment made in
accordance with this Indenture, including any losses on any
investment liquidated prior to maturity in order to make a payment
required hereunder.
(4) In
the event that the Warrant Agent does not receive a direction or
only a partial direction, the Warrant Agent may hold cash balances
constituting part or all of such monies and may, but need not,
invest same in its deposit department, the deposit department of
one of its affiliates, or the deposit department of a Canadian
chartered bank; but the Warrant Agent, its affiliates or a Canadian
chartered bank shall not be liable to account for any profit to any
parties to this Indenture or to any other person or
entity.
8.5
Actions by Warrant Agent to Protect Interests
The
Warrant Agent shall have the power to institute and to maintain
such actions and proceedings as it may consider necessary or
expedient to preserve, protect or enforce its interests and the
interests of the Warrantholders pursuant to the provisions of this
Indenture.
8.6
Warrant Agent not Required to Give Security
The
Warrant Agent shall not be required to give any bond or security in
respect of the execution of the duties and obligations of this
Indenture or otherwise.
8.7
Protection of Warrant Agent
By
way of supplement to the provisions of any law for the time being
relating to warrant agents, it is expressly declared and agreed as
follows:
(1) The
Warrant Agent shall not be liable for or by reason of any
representations, statements of fact or recitals in this Indenture
or in the Warrants (except the representation contained in Section
8.9 or in the Authentication of the Warrant Agent on the Warrants)
or be required to verify the same and all such statements of fact
or recitals are and shall be deemed to be made by the
Company.
(2) Nothing
herein contained shall impose any obligation on the Warrant Agent
to see to or to require evidence of the registration or filing (or
renewal thereof) of this Indenture or any instrument ancillary or
supplemental hereto.
(3) The
Warrant Agent shall not be bound to give notice to any person or
persons of the execution hereof.
(4) The
Warrant Agent shall not incur any liability or responsibility
whatsoever or be in any way responsible for the consequence of any
breach on the part of the Company of any of the covenants or
warranties herein contained or of any acts of any directors,
officers, employees, agents or servants of the
Company.
(5) Without
limiting any protection or indemnity of the Warrant Agent under any
other provision hereof, or otherwise at law, the Company hereby
agrees to indemnify and hold harmless the Warrant Agent and its
affiliates, directors, officers, agents and employees, successors
and assigns (the "Indemnified
Parties") from and against any
and all liabilities whatsoever, losses, damages, penalties, claims,
demands, proceedings, charges, actions, suits, costs, expenses and
disbursements, including reasonable legal or advisor fees and
disbursements on a solicitor and client basis, of whatever kind and
nature which may at any time be imposed on, incurred by or asserted
against the Indemnified Parties, or any of them, whether at law or
in equity, in any way caused by or arising from the performance of
its duties hereunder, directly or indirectly, in respect of any
act, deed, matter or thing whatsoever made, done, acquiesced in or
omitted in or about or in relation to the execution of the
Indemnified Parties' duties, or any other services that Warrant
Agent may provide in connection with or in any way relating to this
Indenture. The Company agrees that its liability hereunder shall be
absolute and unconditional regardless of the correctness of any
representations of any third parties and regardless of any
liability of third parties to the Indemnified Parties, and shall
accrue and become enforceable without prior demand or any other
precedent action or proceeding; provided that the Company shall not
be required to indemnify the Indemnified Parties in the event of
the gross negligence, fraud or wilful misconduct of the Warrant
Agent, and this provision shall survive the resignation or removal
of the Warrant Agent or the termination or discharge of this
Indenture.
(6) Notwithstanding
the foregoing or any other provision of this Indenture, any
liability of the Warrant Agent shall be limited, in the aggregate,
to the amount of annual retainer fees paid by the Company to the
Warrant Agent under this Indenture in the twelve (12) months
immediately prior to the Warrant Agent receiving the first notice
of the claim; provided that this limitation shall not apply in
respect of any gross negligence, fraud or wilful misconduct of the
Warrant Agent. Notwithstanding any other provision of this
Indenture, and whether such losses or damages are foreseeable or
unforeseeable, the Warrant Agent shall not be liable under any
circumstances whatsoever for any (a) breach by any other party of
securities law or other rule of any securities regulatory
authority, (b) lost profits or (c) special, indirect, incidental,
consequential, exemplary, aggravated or punitive losses or
damages.
(7) If
any of the funds provided to the Warrant Agent hereunder are
received by it in the form of an uncertified cheque or bank draft,
the Warrant Agent shall delay the release of such funds and the
related Warrant Shares until such uncertified cheque has cleared
the financial institution upon which the same is
drawn.
(8) The
forwarding of a cheque or the sending of funds by wire transfer by
the Warrant Agent will satisfy and discharge the liability of any
amounts due to the extent of the sum represented thereby unless
such cheque is not honoured on presentation, provided that in the
event of the non-receipt of such cheque by the payee, or the loss
or destruction thereof, the Warrant Agent, upon being furnished
with reasonable evidence of such non-receipt, loss or destruction
and indemnity reasonably satisfactory to it, will issue to such
payee a replacement cheque for the amount of such
cheque.
(9) The
Warrant Agent shall retain the right not to act and shall not be
liable for refusing to act if, due to a lack of information or for
any other reason whatsoever, the Warrant Agent, in its sole
judgement, determines that such act might cause it to be in
non-compliance with any applicable anti-money laundering,
anti-terrorist or economic sanctions legislation, regulation or
guideline. Further, should the Warrant Agent, in its sole
judgement, determine at any time that its acting under this
Indenture has resulted in its being in non-compliance with any
applicable anti-money laundering, anti-terrorist or economic
sanctions legislation, regulation or guideline, then it shall have
the right to resign on ten (10) days' written notice to the Company
provided: (i) that the Warrant Agent's written notice shall
describe the circumstances of such non-compliance; and (ii) that if
such circumstances are rectified to the Warrant Agent's
satisfaction within such ten (10) day period, then such resignation
shall not be effective.
8.8
Replacement of Warrant Agent
(1) The
Warrant Agent may resign its appointment and be discharged from all
further duties and liabilities hereunder by giving to the Company
not less than sixty (60) days prior notice in writing or such
shorter prior notice as the Company may accept as sufficient. The
Warrantholders by extraordinary resolution shall have the power at
any time to remove the existing Warrant Agent and to appoint a new
warrant agent. In the event of the Warrant Agent resigning or being
removed as aforesaid or being dissolved, becoming bankrupt, going
into liquidation or otherwise becoming incapable of acting
hereunder, the Company shall forthwith appoint a new warrant agent
unless a new warrant agent has already been appointed by the
Warrantholders; failing such appointment by the Company, the
retiring Warrant Agent or any Warrantholder may apply to a justice
of the Ontario Superior Court of Justice (the "Court") at the Company's expense, on such notice as
such justice may direct, for the appointment of a new warrant
agent; but any new warrant agent so appointed by the Company or by
the Court shall be subject to removal as aforesaid by the
Warrantholders. Any new warrant agent appointed under any provision
of this Section 8.8 shall be a corporation authorized to carry on
the business of a transfer agent or a trust company in one or more
provinces of Canada and, if required by Applicable Legislation of
any province, in such province. On any such appointment the new
warrant agent shall be vested with the same powers, rights, duties
and responsibilities as if it had been originally named herein as
Warrant Agent without any further assurance, conveyance, act or
deed; but there shall be immediately executed, at the expense of
the Company, all such conveyances or other instruments as may, in
the opinion of counsel, be necessary or advisable for the purpose
of assuring the same to the new warrant agent, provided that any
resignation or removal of the Warrant Agent and appointment of a
successor warrant agent shall not become effective until the
successor warrant
agent shall have executed an appropriate instrument accepting such
appointment and, at the request of the Company, the predecessor
Warrant Agent, upon payment of its outstanding remuneration and
expenses, shall execute and deliver to the successor warrant agent
an appropriate instrument transferring to such successor warrant
agent all rights and powers of the Warrant Agent hereunder and all
securities, documents of title and other instruments and all monies
and properties held by the Warrant Agent hereunder.
(2) Upon
the appointment of a successor warrant agent, the Company shall
promptly notify the Warrantholders thereof in the manner provided
for in Section 9.2.
(3) Any
corporation into or with which the Warrant Agent may be merged or
consolidated or amalgamated, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without any further act on
its part or of any of the parties hereto, provided that such
corporation would be eligible for appointment as a new warrant
agent under Section 8.8(1).
(4) Any
Warrants Authenticated or certified but not delivered by a
predecessor Warrant Agent may be Authenticated or certified by the
new or successor warrant agent in the name of the predecessor or
the new or successor warrant agent.
(1) The
Warrant Agent represents to the Company, to the best of its
knowledge, that at the time of execution and delivery hereof no
material conflict of interest exists which it is aware of in the
Warrant Agent's role hereunder and agrees that in the event of a
material conflict of interest arising which it becomes aware of
hereafter it will, within ninety (90) days after ascertaining that
it has such a material conflict of interest, either eliminate the
same or resign its appointment hereunder. If any such material
conflict of interest exists or hereafter shall exist, the validity
and enforceability of this Indenture and the Warrants shall not be
affected in any manner whatsoever by reason thereof.
(2) Subject
to Section 8.9(1), the Warrant Agent, in its personal or any other
capacity, may buy, lend upon and deal in securities of the Company
and generally may contract and enter into financial transactions
with the Company or any Subsidiary without being liable to account
for any profit made thereby.
8.10 Acceptance of Duties
and Obligations
The
Warrant Agent hereby accepts the duties and obligations in this
Indenture declared and provided for and agrees to perform the same
upon the terms and conditions herein set forth and agrees to hold
all rights, interests and benefits contained herein on behalf of
those persons who become holders of Warrants from time to time
issued under this Indenture.
8.11 Warrant Agent not to
be Appointed Receiver
The
Warrant Agent and any person related to the Warrant Agent shall not
be appointed a receiver or receiver and manager or liquidator of
all or any part of the assets or undertaking of the Company or any
Subsidiary or any partnership of which the Company is directly or
indirectly involved.
8.12 Authorization to Carry
on Business
The
Warrant Agent represents to the Company that it is registered to
carry on business under Applicable Legislation in the provinces of
Alberta and British Columbia.
ARTICLE 9 GENERAL
9.1
Notice to the Company and the Warrant Agent
(1) Unless
herein otherwise expressly provided, any notice to be given
hereunder to the Company or the Warrant Agent shall be deemed to be
validly given if delivered, if sent by registered letter, postage
prepaid or if transmitted by email to the following addresses or
facsimile numbers:
(a) If to the Company,
to:
Planet 13 Holdings
Inc.
2548 West Desert
Inn Road
Las Vegas,
Nevada
89109
Attention:
Leighton Koehler
E-mail:
[REDACTED]
with a copy
to:
Wildeboer Dellelce
LLP
396 Bay Street,
Suite 80
Toronto,
ON
M5H
2V1
Attention:
Charlie Malone
E-mail:
[REDACTED]
(b) If to the Warrant
Agent, to:
Odyssey
Trust Company
Suite
1230, 300 5th Avenue
SW
Calgary,
Alberta
T2P
3C4
Attention:
Dan Sander
Email:
[REDACTED]
and
any notice given in accordance with the foregoing shall be deemed
to have been received on the date of delivery if that date is a
Business Day (and if that date is not a Business Day, on the next
Business Day) or, if mailed, on the fifth Business Day following
the date of the postmark on such notice or, if transmitted by
email, on the Business Day following the transmission.
(2) The
Company or the Warrant Agent, as the case may be, may from time to
time notify the other in the manner provided in Section 9.1(1) of a
change of address which, from the
effective date of such notice and until changed by like notice,
shall be the address of the Company or the Warrant Agent, as the
case may be, for all purposes of this Indenture.
(3) If,
by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to
the Warrant Agent or to the Company hereunder could reasonably be
considered unlikely to reach its destination, the notice shall be
valid and effective only if it is delivered to an officer of the
party to which it is addressed or if it is delivered to that party
at the appropriate address provided in Section 9.1(1) by facsimile
or other means of prepaid, transmitted or recorded communication
and any notice delivered in accordance with the foregoing shall be
deemed to have been received on the date of delivery to the officer
or if delivered by facsimile or other means of prepaid,
transmitted, recorded communication on the third Business Day
following the date of the sending of the notice by the person
giving the notice.
9.2
Notice to the Warrantholders
(1) Any
notice to the Warrantholders under the provisions of this Indenture
shall be deemed to be validly given if the notice is sent by
prepaid mail or, if delivered by hand, to the holders at their
addresses appearing in the register of holders. Any notice so
delivered shall be deemed to have been received on the date of
delivery if that date is a Business Day or the Business Day
following the date of delivery if such date is not a Business Day
or on the third Business Day if delivered by mail. All notices may
be given to whichever one of the Warrantholders (if more than one)
is named first in the appropriate register hereinbefore mentioned,
and any notice so given shall be sufficient notice to all
Warrantholders and any other persons (if any) interested in such
Warrants. Accidental error or omission in giving notice or
accidental failure to mail notice to any Warrantholder will not
invalidate any action or proceeding founded
thereon.
(2) If,
by reason of strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to
the Warrantholders could reasonably be considered unlikely to reach
its destination, the notice may be given in a news release
disseminated through a newswire service, filed on SEDAR and posted
on the Company's website; provided that in the case of a notice
convening a meeting of the holders of Warrants, the Warrant Agent
may require such additional publications of that notice, in
Toronto, Ontario or in other cities or both, as it may deem
necessary for the reasonable notification of the holders of
Warrants or to comply with any applicable requirement of law or any
stock exchange. Any notice so given shall be deemed to have been
given on the day on which it has been published in all of the
cities in which publication was required.
The
Company acknowledges that the Warrant Agent may, in the course of
providing services hereunder, collect or receive financial and
other personal information about such parties and/or their
representatives, as individuals, or about other individuals related
to the subject matter hereof, and use such information for the
following purposes:
(a)
to
provide the services required under this Indenture and other
services that may be requested from time to time;
(b)
to
help the Warrant Agent manage its servicing relationships with such
individuals;
(c)
to
meet the Warrant Agent's legal and regulatory requirements;
and
(d)
if
Social Insurance Numbers are collected by the Warrant Agent, to
perform tax reporting and to assist in verification of an
individual's identity for security purposes.
The
Company acknowledges and agrees that the Warrant Agent may receive,
collect, use and disclose personal information provided to it or
acquired by it in the course of its acting as agent hereunder for
the purposes described above and, generally, in the manner and on
the terms described in its privacy code, which the Warrant Agent
shall make available on its website or upon request, including
revisions thereto. Some of this personal information may be
transferred to servicers in the United States for data processing
and/or storage. Further, the Company agrees that it shall not
provide or cause to be provided to the Warrant Agent any personal
information relating to an individual who is not a party to this
Indenture unless the Company has assured itself that such
individual understands and has consented to the aforementioned uses
and disclosures.
9.4
Third Party Interests
The
Company represents to the Warrant Agent that any account to be
opened by, or interest to held by the Warrant Agent in connection
with this Indenture, for or to the credit of such party, either (i)
is not intended to be used by or on behalf of any third party; or
(ii) is intended to be used by or on behalf of a third party, in
which case such party hereto agrees to complete and execute
forthwith a declaration in the Warrant Agent prescribed form as to
the particulars of such third party.
9.5
Securities Exchange Commission Certification
The Company confirms that as at the date of this
Indenture it does not have a class of securities registered
pursuant to section 12 of the U.S. Securities and Exchange Act of
1934, as amended (the "Exchange Act") or have a reporting obligation pursuant to
section 15(d) of the Exchange Act.
The Company covenants that in the event that (i)
any class of its securities shall become registered pursuant to
section 12 of the Exchange Act or the Company shall incur a
reporting obligation pursuant to section 15(d) of the Exchange Act,
or (ii) any such registration or reporting obligation shall be
terminated by the Company in accordance with the Exchange Act, the
Company shall promptly deliver to the Warrant Agent an Officer's
Certificate (in a form provided by the Warrant Agent) notifying the
Warrant Agent of such registration or termination and such other
information as the Warrant Agent may reasonably require at the
time. The Company acknowledges that the Warrant Agent is relying
upon the foregoing representation and covenants in order to meet
certain United States Securities and Exchange Commission
("SEC") obligations with respect to those clients who
are filing with the SEC.
9.6
Discretion of Directors
Any
matter provided herein to be determined by the directors in their
sole discretion and determination so made will be
conclusive.
9.7
Satisfaction and Discharge of Indenture
Upon
the earlier of the Time of Expiry or the date by which there shall
have been delivered to the Warrant Agent for exercise or
destruction in accordance with the provisions hereof all Warrants
theretofore Authenticated or certified hereunder and by which no
Warrants shall remain issuable hereunder, this Indenture, except to
the extent that Warrant Shares and any certificates therefor have
not been issued and delivered hereunder or the Company has not
performed any of its obligations hereunder, shall cease to be of
further effect in respect of the Company, and the Warrant Agent, on
written demand of and at the cost and expense of the Company, and
upon delivery to the Warrant Agent of a certificate of the Company
stating that all conditions precedent to the satisfaction and
discharge of this Indenture have been complied with and upon
payment to the Warrant Agent of the expenses, fees and other
remuneration payable to the Warrant Agent, shall execute proper
instruments acknowledging satisfaction of and discharging this
Indenture; provided that if the Warrant Agent has not then
performed any of its obligations hereunder any such satisfaction
and discharge of the Company's obligations hereunder shall not
affect or diminish the rights of any Warrantholder or the Company
against the Warrant Agent.
9.8
Provisions of Indenture and Warrants for the Sole Benefit of
Parties and Warrantholders
Nothing
in this Indenture or the Warrant Certificates, expressed or
implied, shall give or be construed to give to any person other
than the parties hereto and the holders from time to time of the
Warrants any legal or equitable right, remedy or claim under this
Indenture, or under any covenant or provision therein contained,
all such covenants and provisions being for the sole benefit of the
parties hereto and the Warrantholders.
To
the extent of any discrepancy or inconsistency between the terms
and conditions of this Indenture and the Warrant Certificate, the
terms of this Indenture will prevail.
9.10 Assignment
This
Indenture nor any benefits or burdens under this Indenture shall be
assignable by the Company or the Warrant Agent without the prior
written consent of the other party, such consent not to be
unreasonably withheld. Subject to the foregoing, this Indenture
shall enure to the benefit of and be binding upon the Company and
the Warrant Agent and their respective successors (including any
successor by reason of amalgamation) and permitted
assigns.
If,
in any jurisdiction, any provision of this Indenture or its
application to any party or circumstance is restricted, prohibited
or unenforceable, such provision will, as to such jurisdiction, be
ineffective only to the extent of such restriction, prohibition or
unenforceability without invalidating the remaining provisions of
this Indenture and without affecting the validity or enforceability
of such provision in any other jurisdiction or without affecting
its application to other parties or circumstances.
9.12 Force
Majeure
No
party shall be liable to the other, or held in breach of this
Indenture, if prevented, hindered,
or delayed in the performance or observance of any provision
contained herein by reason of act of God, riots, terrorism, acts of
war, epidemics, governmental action or judicial order, earthquakes,
or any other similar causes (including, but not limited to,
mechanical, electronic or communication interruptions, disruptions
or failures). Performance times under this Indenture shall be
extended for a period of time equivalent to the time lost because
of any delay that is excusable under this section.
9.13 Rights of Rescission
and Withdrawal for Holders
Should
a holder of Warrants exercise any legal, statutory, contractual or
other right of withdrawal or rescission that may be available to
it, and the holder’s funds which were paid on exercise have
already been released to the Company by the Warrant Agent, the
Warrant Agent shall not be responsible for ensuring the exercise is
cancelled and a refund is paid back to the holder. In such cases,
the holder shall seek a refund directly from the Company and
subsequently, the Company, upon surrender to the Company or the
Warrant Agent of any underlying Warrant Shares or other securities
that may have been issued, or such other procedure as agreed to by
the parties hereto, shall instruct the Warrant Agent in writing to
cancel the exercise transaction and any such underlying Warrant
Shares or other securities on the register that may have already
been issued upon the Warrant exercise. In the event that any
payment is received from the Company by virtue of the holder being
a shareholder for such Warrants that were subsequently rescinded,
such payment must be returned to the Company by such holder. The
Warrant Agent shall not be under any duty or obligation to take any
steps to ensure or enforce the return of the funds pursuant to this
section, nor shall the Warrant Agent be in any other way
responsible in the event that any payment is not delivered or
received pursuant to this section. Notwithstanding the foregoing,
in the event that the Company provides the refund to the Warrant
Agent for distribution to the holder, the Warrant Agent shall
return such funds to the holder as soon as reasonably practicable,
and in so doing, the Warrant Agent shall incur no liability with
respect to the delivery or non-delivery of any such
funds.
9.14 Counterparts and
Formal Date
This
Indenture may be simultaneously executed in several counterparts,
each of which when so executed shall be deemed to be an original
and such counterparts together shall constitute one and the same
instrument and notwithstanding their date of execution shall be
deemed to bear the date set out at the top of the first page of
this Indenture.
(Signature page follows)
IN WITNESS WHEREOF
the parties hereto
have executed this Indenture under the hands of their proper
officers in that behalf.
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PLANET 13 HOLDINGS
INC.
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By:
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/s/ Dennis
Logan
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Dennis
Logan
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Chief
Financial Officer
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ODYSSEY TRUST COMPANY
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By:
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/s/ Dan
Sander
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Dan
Sander
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VP, Corp Trust
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By:
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/s/ Amy
Douglas
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Amy
Douglas
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SCHEDULE “A”
[For Warrants issued in the United States or to, or for the account
or benefit of, U.S. Persons, also include the following
legends:]
THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE ON
EXERCISE HEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S.
SECURITIES ACT") OR UNDER ANY STATE SECURITIES LAWS, AND THE
SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE ON
EXERCISE HEREOF MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
DIRECTLY OR INDIRECTLY, ONLY (A) TO THE COMPANY, (B) OUTSIDE THE
UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE U.S.
SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND
REGULATIONS, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE U.S. SECURITIES ACT PROVIDED BY (i) RULE 144 OR (ii) RULE144A
THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH APPLICABLE U.S.
STATE SECURITIES LAWS, (D) IN COMPLIANCE WITH ANOTHER EXEMPTION
FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS, OR (E) UNDER AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE U.S. SECURITIES ACT, PROVIDED THAT IN THE CASE
OF TRANSFERS PURSUANT TO (C)(i) OR (D) ABOVE, A LEGAL OPINION OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, MUST FIRST
BE PROVIDED TO THE COMPANY AND THE COMPANY'S TRANSFER AGENT TO THE
EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE
U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. DELIVERY
OF THIS CERTIFICATE MAY NOT CONSTITUTE GOOD DELIVERY" IN SETTLEMENT
OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.
THIS WARRANT MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON
BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A PERSON IN THE UNITED
STATES OR A U.S. PERSON UNLESS THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS
AVAILABLE. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED BY
REGULATION S UNDER THE U.S. SECURITIES ACT.
FORM OF WARRANT CERTIFICATE
WARRANTS TO PURCHASE COMMON SHARES
OF PLANET 13 HOLDINGS INC.
(a company existing under the laws of British
Columbia)
CUSIP
No. 72706K143 ISIN
No.
CA72706K1434
Warrant Certificate Number: ●
Representing ●
Warrants to
purchase
Common Shares (as defined below)
THIS CERTIFIES
that, for value received, the
registered holder hereof, ●
(the "holder") is entitled at any time at or before the Expiry
Time (as defined below) to acquire, subject to adjustment in
certain events, the number of Common Shares ("Common
Shares") of Planet 13 Holdings
Inc. (the "Company") specified above, as presently constituted, by
surrendering to Odyssey Trust Company (the "Warrant
Agent") at its principal office
in Calgary, Alberta, this Warrant Certificate with the duly
completed and executed Exercise Form endorsed on the back of this
Warrant Certificate, and accompanied by payment of $5.00 per Common
Share (the "Warrant Exercise
Price") by certified cheque,
bank draft or money order in lawful money of Canada payable to, or
to the order of, the Company at par at the above-mentioned office
of the Warrant Agent. The holder of this Warrant Certificate may
purchase less than the number of Common Shares which he is entitled
to purchase on the exercise of the Warrants represented by this
Warrant Certificate, in which event a new Warrant Certificate
representing the Warrants not then exercised will be issued to the
holder.
The Warrants evidenced under this Warrant
Certificate are exercisable on or before 5:00 p.m. (Toronto time)
(the "Expiry
Time") on September 10, 2022
(the "Expiry
Date"). After the Expiry Time,
Warrants evidenced hereby shall be deemed to be void and of no
further force or effect.
This Warrant Certificate represents Warrants of
the Company issued or issuable under the provisions of a warrant
indenture (which indenture together with all other instruments
supplemental or ancillary thereto is herein referred to as the
"Warrant
Indenture") dated as of
September 10, 2020, between the Company and the Warrant Agent, as
may be amended from time to time, which contains particulars of the
rights of the holders of the Warrants and the Company and of the
Warrant Agent in respect thereof and the terms and conditions upon
which the Warrants are issued and held, all to the same effect as
if the provisions of the Warrant Indenture were herein set forth,
to all of which the holder of this Warrant Certificate by
acceptance hereof assents. Unless otherwise defined herein, all
capitalized terms shall have the meanings ascribed to them in the
Warrant Indenture. A copy of the Warrant Indenture can be requested
by contacting the Warrant Agent. In the event of any conflict
between the provisions contained in this Warrant Certificate and
the provisions of the Warrant Indenture, the provisions of the
Warrant Indenture shall prevail.
Upon
acceptance hereof, the holder hereof hereby expressly waives the
right to receive any fractional Common Shares upon the exercise
hereof in full or in part and further waives the right to receive
any cash or other consideration in lieu thereof. The Warrants
represented by this Warrant Certificate shall be deemed to have
been surrendered, and payment by certified cheque, bank draft or
money order shall be deemed to have been made only upon personal
delivery thereof or, if sent by post or other means of
transmission, upon actual receipt thereof by the Warrant Agent at
its office in the City of Calgary, Alberta.
Upon
due exercise of the Warrants represented by this Warrant
Certificate and payment of the Warrant Exercise Price, the Company
shall cause to be issued to the person(s) in whose name(s) the
Common Shares have been so subscribed for, the number of Common
Shares to be issued to such person(s) (provided that if the Common
Shares are to be issued to a person other than the registered
holder of this Warrant Certificate, the holder's signature on the
Exercise Form herein shall be guaranteed by a Schedule I Canadian
chartered bank or by a medallion signature guarantee from a member
of a recognized Signature Medallion Guarantee Program), and the
holder shall pay to the Company or the Warrant Agent all applicable
transfer or similar taxes and the Company shall not be required to
issue or deliver certificates evidencing the Common Shares unless
or until the holder shall have paid the Company or the Warrant
Agent the amount of such tax (or shall have satisfied the Company
that such tax has been paid or that no tax is due), and such
person(s) shall become a holder in respect of such Common Shares
with effect from the date
of such exercise, and upon due surrender of this Warrant
Certificate, the Transfer Agent shall issue a certificate(s)
representing such Common Shares to be issued within five Business
Days after the exercise of the Warrants (or portion thereof)
represented hereby.
Neither the Warrants represented by this Warrant
Certificate nor the Common Shares issuable upon exercise hereof
have been or will be registered under the United States Securities
Act of 1933, as amended (the “U.S. Securities
Act”), or any state
securities laws. The Warrants represented by this Warrant
Certificate may not be exercised within the United States or by, or
for the account or benefit of, a U.S. person or a person within the
United States unless registered under the U.S. Securities Act and
any applicable state securities laws or unless an exemption from
such registration is available. Certificates representing Common
Shares issued in the United States or to, or for the account or
benefit of, U.S. persons will bear a legend restricting the
transfer and exercise of such securities under applicable United
States federal and state securities laws. "United States" and "U.S.
person" are as defined in Regulation S under the U.S. Securities
Act.
The
holder acknowledges that the Warrants represented by this Warrant
Certificate and the Common Shares issuable upon exercise hereof may
be offered, sold or otherwise transferred only in compliance with
all applicable securities laws.
No
transfer of any Warrant will be valid unless entered on the
register of transfers, upon surrender to the Warrant Agent of the
Warrant Certificate evidencing such Warrant, duly endorsed by, or
accompanied by a transfer form or other written instrument of
transfer in form satisfactory to the Warrant Agent executed by the
registered holder or his executors, administrators or other legal
representatives or his or their attorney duly appointed by an
instrument in writing in form and execution satisfactory to the
Warrant Agent. Subject to the provisions of the Warrant Indenture
and upon compliance with the reasonable requirements of the Warrant
Agent, Warrant Certificates may be exchanged for Warrants
Certificates entitling the holder thereof to acquire an equal
aggregate number of Common Shares subject to adjustment as provided
for in the Warrant Indenture. The Company and the Warrant Agent may
treat the registered holder of this Warrant Certificate for all
purposes as the absolute owner hereof. The holding of the Warrants
represented by this Warrant Certificate shall not constitute the
holder hereof a holder of Common Shares nor entitle him to any
right or interest in respect thereof except as herein and in the
Warrant Indenture expressly provided.
The
Warrant Indenture provides for adjustment in the number of Common
Shares to be delivered upon exercise of the right of purchase
hereby granted and to the Warrant Exercise Price in certain events
therein set forth.
The
Warrant Indenture contains provisions making binding upon all
holders of Warrants outstanding thereunder resolutions passed at
meetings of such holders held in accordance with such provisions
and instruments in writing signed by the holders entitled to
acquire upon the exercise of the Warrants a specified percentage of
the Common Shares.
The
Warrants and the Warrant Indenture shall be governed by and
performed, construed and enforced in accordance with the laws of
the Province of Ontario and the federal laws of Canada applicable
therein and shall be treated in all respects as Ontario contracts.
Time shall be of the essence hereof and of the Warrant
Indenture.
The
Company may from time to time at any time prior to the Expiry Time
purchase any of the Warrants by private agreement or
otherwise.
This
Warrant Certificate shall not be valid for any purpose until it has
been certified by or on behalf of the Warrant Agent for the time
being under the Warrant Indenture.
All
dollar amounts herein are expressed in the lawful money of
Canada.
(Signature page follows)
IN WITNESS WHEREOF the Company has
caused this Warrant Certificate to be signed by its duly
authorized officer as of this _________ day of ________,
20
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PLANET 13 HOLDINGS
INC.
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By:
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Authorized Signing
Officer
Countersigned this
_______ day
of ______,
20
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By:
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Authorized Signing
Officer
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EXERCISE FORM
TO:
Planet
13 Holdings Inc.
c/o
Odyssey Trust Company
Suite 1230, 300 5th
Avenue SW
Calgary,
Alberta
T2P
3C4
The undersigned holder of the within Warrants hereby irrevocably
exercises the right of such holder to be issued and hereby
subscribes for
Common Shares of Planet 13
Holdings Inc. (the "Company") at the Warrant Exercise Price referred to in
the attached Warrant Certificate on the terms and conditions set
forth in such certificate and the Warrant Indenture and encloses
herewith a certified cheque, bank draft or money order payable at
par in the City of Calgary, in the Province of Alberta to the order
of the Company in payment in full of the subscription price of the
Common Shares hereby subscribed for.
Unless otherwise defined herein, all capitalized terms shall have
the meanings ascribed to them in the warrant indenture between the
Company and Odyssey Trust Company dated September 10,
2020.
(Please check the ONE box applicable):
☐
1.The
undersigned certifies that it (i) is not in the United States and
is not a "U.S.
person", within the meaning of Regulation S under
the United States Securities Act of 1933, as amended (the
"U.S.
Securities Act"), (ii) is not
exercising this Warrant for the account or benefit of any U.S.
Person or person in the United States, (iii) did not execute or
deliver this Exercise Form within the United States and (iv) has in
all other aspects complied with the terms of Regulation S under the
U.S. Securities Act.
☐
2.The
undersigned certifies that it (i) purchased the Warrants as a part
of the Units
in
the Offering; (ii) is exercising the Warrants solely for its own
account or for the benefit of a U.S. Person or a person in the
United States for whose account such holder acquired the Warrants
as a part of the Units in the Offering and for whose account such
holders exercises sole investment discretion; (iii) was and is, and
any beneficial purchaser for whose account such holder acquired the
Warrant and is exercising the Warrants was and is, a Qualified
Institutional Buyer both on the date the Units were purchased in
the Offering and on the Exercise Date; and (iv) the representations
and warranties made by the holder or any beneficial purchaser, as
the case may be, to the Company in such holder’s QIB Letter
remain true and correct on the Exercise Date.
☐
3.The
undersigned is delivering a written opinion of United States legal
counsel or
evidence
satisfactory to the Company to the effect that the Warrant and the
Common Shares to be delivered upon exercise hereof have been
registered under the U.S. Securities Act or are exempt from the
registration requirements of the U.S. Securities Act and applicable
state securities laws.
It is understood that the Company may require evidence to verify
the foregoing representations.
The undersigned hereby directs that the said Common Shares be
issued as follows:
NAME(S) IN FULL
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ADDRESS(ES)
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NUMBER OF COMMON SHARES
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Please
print full name in which certificates representing the Common
Shares are to be issued. If any Common Shares are to be issued to a
person or persons other than the registered holder, the registered
holder must pay to the Warrant Agent all eligible transfer taxes or
other government charges, if any, and the Transfer Form must be
duly executed.
Once
completed and executed, this Exercise Form must be mailed or
delivered to Odyssey Trust Company, c/o Corporate
Trust.
)
)
)
Witness
)
(Signature of Warrantholder, to be the same as
)
appears on the face of this Warrant Certificate)
)
)
Name
of Registered Warrantholder
[
]
Please check this box if the securities are to be delivered at the
office where these Warrants are surrendered, failing which the
securities will be mailed.
NOTES:
1.
Certificates
will not be registered or delivered to an address in the United
States unless Box 2 or Box 3 above is checked.
2.
If
Box 3 above is checked, holders are encouraged to contact the
Company in advance to determine that the legal opinion or evidence
tendered in connection with exercise will be satisfactory in form
and substance to the Company.
TRANSFER FORM
TO:
Planet
13 Holdings Inc.
c/o
Odyssey Trust Company
Suite 1230, 300 5th
Avenue SW
Calgary,
Alberta
T2P
3C4
FOR VALUE
RECEIVED, the undersigned
transferor hereby sells, assigns and transfers
unto
(Transferee)
(Address)
(Social Insurance Number)
of the Warrants registered in the name of the undersigned
transferor represented by the Warrant Certificate.
In
the case of a Warrant Certificate that contains a U.S. restrictive
legend, the undersigned hereby represents, warrants and certifies
that (one (only) of the following must be checked):
☐
(A) the transfer is
being made only to the Company; or
☐
(B) the transfer is
being made outside the United States in accordance with Regulation
S under the United States Securities Act of 1933, as amended (the
“U.S. Securities
Act”), and in compliance with any applicable local
securities laws and regulations and the holder has provided
herewith the Declaration for Removal of Legend attached as Schedule
"B" to the Warrant Indenture; or
☐
(C) the transfer is
being made pursuant to the exemption from the registration
requirements of the U.S. Securities Act provided by (i) Rule 144 or
(ii) Rule 144A thereunder, and in either case in accordance with
applicable state securities laws; or
☐
(D) the transfer is
being made within the United States or to, or for the account or
benefit of, U.S. persons, in accordance with a transaction that
does not require registration under the U.S. Securities Act or any
applicable state securities laws and the undersigned has furnished
to the Company and the Warrant Agent an opinion of counsel of
recognized standing in form and substance reasonably satisfactory
to the Company to such effect.
In
the case of a transfer in accordance with (C)(i) or (D) above, the
Company and the Warrant Agent shall first have received an opinion
of counsel of recognized standing in form and substance reasonably
satisfactory to the Company, to such effect.
In
the case of a Warrant Certificate that does not contain a U.S.
restrictive legend, if the proposed transfer is to, or for the
account or benefit of a U.S. person or to a person in the United
States, the undersigned hereby represents, warrants and certifies
that the transfer of the Warrants is being completed pursuant to an
exemption from the registration requirements of the U.S. Securities
Act and any applicable state securities laws, in which case the
undersigned has furnished to the Company and the Warrant Agent an
opinion of counsel of recognized standing in form and substance
reasonably satisfactory to the Company to such effect.
"United
States" and "U.S. Person" are as defined by Regulation S under the
U.S. Securities Act.
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SPACE FOR GUARANTEES)
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OF SIGNATURES (BELOW
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)
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)
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)
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Signature
of Transferor
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)
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)
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)
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Guarantor's
Signature/Stamp
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)
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Name of
Transferor
|
REASON
FOR TRANSFER – For US Residents only (where the individual(s)
or corporation receiving the securities is a US resident). Please
select only one (see instructions below).
☐
Gift
☐
Estate
☐
Private Sale
☐
Other (or no change
in
ownership)
Date
of Event (Date of gift, death or sale):
Value
per Warrant on the date of event:
USD
NOTES:
1.
The signature to
this transfer must correspond with the name as recorded on the
Warrants in every particular without alteration or enlargement or
any change whatever. The signature of the person executing this
transfer must be guaranteed by a Schedule I Canadian chartered
bank, or by a medallion signature guarantee from a member of a
recognized Signature Medallion Guarantee Program.
2.
Warrants shall only
be transferable in accordance with the warrant indenture between
Planet 13 Holdings Inc. and Odyssey Trust Company dated July 3,
2020 (the "Warrant
Indenture"),applicable laws and the rules and policies of
any applicable stock exchange. Without limiting the foregoing, if
the Warrant Certificate bears a legend restricting the transfer of
the Warrants except pursuant to an exemption from registration
under the U.S. Securities Act, and applicable state securities
laws, this Transfer Form must be accompanied by a properly
completed and executed declaration for removal of legend in the
form attached as Schedule "B" to the Warrant
Indenture.
CERTAIN REQUIREMENTS RELATING TO TRANSFERS – READ
CAREFULLY
The
signature(s) of the transferor(s) must correspond with the name(s)
as written upon the face of this certificate(s), in every
particular, without alteration or enlargement, or any change
whatsoever. All securityholders or a legally authorized
representative must sign this form. The signature(s) on this form
must be guaranteed in accordance with the transfer agent's then
current guidelines and requirements at the time of transfer.
Notarized or witnessed signatures are not acceptable as guaranteed
signatures. As at the time of closing, you may choose one of the
following methods (although subject to change in accordance with
industry practice and standards):
●
Canada and the USA:
A Medallion Signature Guarantee
obtained from a member of an acceptable Medallion Signature
Guarantee Program (STAMP, SEMP, NYSE, MSP). Many commercial banks,
savings banks, credit unions, and all broker dealers participate in
a Medallion Signature Guarantee Program. The Guarantor must affix a
stamp bearing the actual words "Medallion Guaranteed", with the
correct prefix covering the face value of the
certificate.
●
Canada: A Signature Guarantee obtained from an authorized
officer of the Royal Bank of Canada, Scotia Bank or TD Canada
Trust. The Guarantor must affix a stamp bearing the actual words
"Signature Guaranteed", sign and print their full name and alpha
numeric signing number. Signature Guarantees are not accepted from
Treasury Branches, Credit Unions or Caisse Populaires unless they
are members of a Medallion Signature Guarantee Program. For
corporate holders, corporate signing resolutions, including
certificate of incumbency, are also required to accompany the
transfer, unless there is a "Signature & Authority to Sign
Guarantee" Stamp affixed to the transfer (as opposed to a
"Signature Guaranteed" Stamp) obtained from an authorized officer
of the Royal Bank of Canada, Scotia Bank or TD Canada Trust or a
Medallion Signature Guarantee with the correct prefix covering the
face value of the certificate.
●
Outside North America:
For holders located outside North
America, present the certificates(s) and/or document(s) that
require a guarantee to a local financial institution that has a
corresponding Canadian or American affiliate which is a member of
an acceptable Medallion Signature Guarantee Program. The
corresponding affiliate will arrange for the signature to be
over-guaranteed.
OR
The
signature(s) of the transferor(s) must correspond with the name(s)
as written upon the face of this certificate(s), in every
particular, without alteration or enlargement, or any change
whatsoever. The signature(s) on this form must be guaranteed by an
authorized officer of Royal Bank of Canada, Scotia Bank or TD
Canada Trust whose sample signature(s) are on file with the
transfer agent, or by a member of an acceptable Medallion Signature
Guarantee Program (STAMP, SEMP, NYSE, MSP). Notarized or witnessed
signatures are not acceptable as guaranteed signatures. The
Guarantor must affix a stamp bearing the actual words: "SIGNATURE
GUARANTEED", "MEDALLION GUARANTEED" OR "SIGNATURE & AUTHORITY
TO SIGN GUARANTEE", all in accordance with the transfer agent's
then current
guidelines
and requirements at the time of transfer. For corporate holders,
corporate signing resolutions, including certificate of incumbency,
will also be required to accompany the transfer unless there is a
"SIGNATURE & AUTHORITY TO SIGN GUARANTEE" Stamp affixed to the
Form of Transfer obtained from an authorized officer of the Royal
Bank of Canada, Scotia Bank or TD Canada Trust or a "MEDALLION
GUARANTEED" Stamp affixed to the Form of Transfer, with the correct
prefix covering the face value of the certificate.
REASON FOR TRANSFER – FOR US RESIDENTS ONLY
Consistent
with US IRS regulations, Odyssey Trust Company is required to
request cost basis information from US securityholders. Please
indicate the reason for requesting the transfer as well as the date
of event relating to the reason. The event date is not the day in
which the transfer is finalized, but rather the date of the event
which led to the transfer request (i.e. date of gift, date of death
of the securityholder, or the date the private sale took
place).
SCHEDULE “B”
FORM OF DECLARATION FOR REMOVAL OF LEGEND
TO:
Planet
13 Holdings Inc.
c/o
Odyssey Trust Company
Suite 1230, 300 5th
Avenue SW
Calgary,
Alberta
T2P
3C4
The undersigned (a) acknowledges that the sale of
the securities of Planet 13 Holdings Inc. (the "Company") to which this declaration relates is being made
in reliance on Rule 904 of Regulation S ("Regulation S") under the United States Securities Act of 1933,
as amended (the "U.S. Securities
Act") and (b) certifies that
(1) it is not an affiliate of the Company (as defined in Rule 405
under the U.S. Securities Act), (2) the offer of such securities
was not made to a person in the United States and either (A) at the
time the buy order was originated, the buyer was outside the United
States, or the seller and any person acting on its behalf
reasonably believe that the buyer was outside the United States, or
(B) the transaction was executed on or through the facilities of
the Canadian Securities Exchange and neither the seller nor any
person acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States, (3) neither the
seller nor any affiliate of the seller nor any person acting on any
of their behalf has engaged or will engage in any directed selling
efforts in the United States in connection with the offer and sale
of such securities, (4) the sale is bona fide and not for the
purpose of "washing off" the resale restrictions imposed because
the securities are "restricted securities" (as such term is defined
in Rule 144(a)(3) under the U.S. Securities Act), (5) the seller
does not intend to replace the securities sold in reliance on Rule
904 of the U.S. Securities Act with fungible unrestricted
securities, and (6) the sale was not a transaction, or part of a
series of transactions which, although in technical compliance with
Regulation S, is part of a plan or scheme to evade the registration
provisions of the U.S. Securities Act. Terms used herein have the
meanings given to them by Regulation S.
Name:
Title:
Affirmation By Seller's Broker-Dealer (required for sales in
accordance with Section (b)(2)(B)
above)
We have
read the foregoing representations of our customer,
(the "Seller") dated
, with regard to our sale, for such Seller's account, of the
securities of the Company described therein, and on behalf of
ourselves we certify and affirm that (A) we have no knowledge that
the transaction had been prearranged with a buyer in the United
States, (B) the transaction was executed on or through the
facilities of designated offshore securities market, (C) neither
we, nor any person acting on our behalf, engaged in any directed
selling efforts in connection with the offer and sale of such
securities, and (D) no selling concession, fee or other
remuneration is being paid to us in connection with this offer and
sale other than the usual and customary broker's commission that
would be received by a person executing such transaction as agent.
Terms used herein have the meanings given to them by Regulation
S.
Name of
Firm
By:
Authorized
officer
Date:
PLANET 13 HOLDINGS INC.
- and -
WARRANT INDENTURE
Providing for the Issue of
up to 3,349,375 Common Share Purchase Warrants
November 5, 2020
TABLE OF CONTENTS
ARTICLE 1 INTERPRETATION
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6
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1.1
Definitions
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6
|
1.2
Words Importing the Singular
|
10
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1.3
Interpretation not Affected by Headings
|
10
|
1.4
Day not a Business Day
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10
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1.5
Time of the Essence
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10
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1.6
Governing Law
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10
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1.7
Meaning of "outstanding" for Certain Purposes
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11
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1.8
Currency
|
11
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1.9
Termination
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11
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ARTICLE 2 ISSUE OF WARRANTS
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11
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2.1
Issue of Warrants
|
11
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2.2
Form and Terms of Warrants
|
11
|
2.3
Signing of Warrant Certificates
|
12
|
2.4
Authentication by the Warrant Agent
|
12
|
2.5
Warrantholder not a Shareholder, etc
|
13
|
2.6
Issue in Substitution for Lost Warrant Certificates
|
13
|
2.7
Warrants to Rank Pari Passu
|
14
|
2.8
Registration and Transfer of Warrants
|
14
|
2.9
Registers Open for Inspection
|
15
|
2.10
Exchange of Warrants
|
15
|
2.11
Ownership of Warrants
|
16
|
2.12
Uncertificated Warrants
|
16
|
2.13
Adjustment of Exchange Basis
|
18
|
2.14
Rules Regarding Calculation of Adjustment of Exchange
Basis
|
21
|
2.15
Postponement of Subscription
|
23
|
2.16
Notice of Adjustment
|
23
|
2.17
No Action after Notice
|
24
|
2.18
Purchase of Warrants for
Cancellation
|
24
|
2.19
Protection of Warrant
Agent
|
24
|
2.20
U.S. Legend on Warrant Certificates
and Warrant Share certificates
|
24
|
ARTICLE 3 EXERCISE OF WARRANTS
|
26
|
3.1
Method of Exercise of Warrants
|
26
|
3.2
No Fractional Shares
|
28
|
3.3
Effect of Exercise of Warrants
|
28
|
3.4
Cancellation of Warrants
|
29
|
3.5
Subscription for less than Entitlement
|
29
|
3.6
Expiration of Warrant
|
29
|
ARTICLE 4 COVENANTS FOR WARRANTHOLDERS' BENEFIT
|
30
|
4.1
General Covenants of the Company
|
30
|
4.2
Warrant Agent's Remuneration and Expenses
|
31
|
4.3
Performance of Covenants by Warrant Agent
|
32
|
4.4
Enforceability of Warrants
|
32
|
ARTICLE 5 ENFORCEMENT
|
32
|
5.1
Suits by Warrantholders
|
32
|
5.2
Limitation of Liability
|
32
|
5.3
Waiver of Default
|
33
|
ARTICLE 6 MEETINGS OF WARRANTHOLDERS
|
33
|
6.1
Right to Convene Meetings
|
33
|
6.2
Notice
|
33
|
6.3
Chairman
|
34
|
6.4
Quorum
|
34
|
6.5
Power to Adjourn
|
34
|
6.6
Show of Hands
|
34
|
6.7
Poll and Voting
|
34
|
6.8
Regulations
|
35
|
6.9
Company, Warrant Agent and Counsel may be Represented
|
35
|
6.10
Powers Exercisable by Extraordinary
Resolution
|
35
|
6.11
Meaning of "Extraordinary
Resolution"
|
36
|
6.12
Powers Cumulative
|
37
|
6.13
Minutes
|
37
|
6.14
Instruments in Writing
|
37
|
6.15
Binding Effect of Resolutions
|
37
|
6.16
Holdings by the Company or
Subsidiaries of the Company Disregarded
|
37
|
6.17
Common
Shares or Warrants Owned by the Company or its Subsidiaries -
Certificate to
be Provided
|
38
|
ARTICLE 7 SUPPLEMENTAL INDENTURES AND SUCCESSOR
COMPANIES
|
38
|
7.1
Provision for Supplemental Indentures for Certain
Purposes
|
38
|
7.2
Successor Companies
|
39
|
ARTICLE 8 CONCERNING THE WARRANT AGENT
|
39
|
8.1
Indenture Legislation
|
39
|
8.2
Rights and Duties of Warrant Agent
|
39
|
8.3
Evidence, Experts and Advisers
|
41
|
8.4
Securities, Documents and Monies Held by Warrant Agent
|
41
|
8.5
Actions by Warrant Agent to Protect Interests
|
41
|
8.6
Warrant Agent not Required to Give Security
|
41
|
8.7
Protection of Warrant Agent
|
43
|
8.8
Replacement of Warrant Agent
|
44
|
8.9
Conflict of Interest
|
45
|
8.10
Acceptance of Duties
and Obligations
|
45
|
8.11
Warrant Agent not to be
Appointed Receiver
|
45
|
8.12
Authorization to Carry on
Business
|
45
|
ARTICLE 9 GENERAL
|
46
|
9.1
Notice to the Company and the Warrant Afent
|
46
|
9.2
Notice to the Warrantholders
|
47
|
9.3
Privacy
|
47
|
9.4
Third Party Interests
|
48
|
9.5
Securities Exchange Commission Certification
|
48
|
9.6
Discretion of Directors
|
48
|
9.7
Satisfaction and Discharge of Indenture
|
48
|
9.8
Provisions of Indenture and Warrants for the Sole Benefit of
Parties and Warrantholders
|
49
|
9.9
Indenture to Prevail
|
49
|
9.10
Assignment
|
49
|
9.11
Severability
|
49
|
9.12
Force Majeure
|
49
|
9.13
Rights of Rescission and
Withdrawal for Holders
|
49
|
9.14
Counterparts and Formal
Date
|
50
|
Schedule “A” Form of Warrant Certificate
Schedule “B” Form of Declaration for Removal of
Legend
THIS WARRANT INDENTURE dated as
of November 5, 2020
BETWEEN:
PLANET 13 HOLDINGS INC.,
a
company existing under the laws of British Columbia
(the "Company")
AND
ODYSSEY TRUST COMPANY,
a
trust company incorporated under the laws of Alberta
and
authorized
to carry on business in the provinces of Alberta and
British
Columbia
(the "Warrant Agent")
RECITALS
WHEREAS:
A. In connection with the public offering by the
Company of up to 6,698,750 Units (as defined below) pursuant to a
short form prospectus dated October 30, 2020 (the
"Offering"),
the Company proposes to issue and sell
to the public up to 3,349,375 Warrants (as defined below), of which
2,912,500 Warrants will be issuable as a part of the base Offering
and up to 436,875 Warrants will be issuable upon the due exercise
of the Over-Allotment Option (as defined
below);
B. Each
Warrant entitles the holder thereof to purchase, subject to
adjustment in certain events, one Warrant Share (as defined below)
at a price of $5.80 at any time prior to 5:00 p.m. (Toronto time)
on November 5, 2022;
C. For
such purpose the Company deems it necessary to create and issue
Warrants and Warrant Certificates (as defined below) to be
constituted and issued in the manner hereinafter set
forth;
D. The
Company is duly authorized to create and issue the Warrants to be
issued as herein provided;
E. All
things necessary have been done and performed to make the Warrants,
when Authenticated (as defined below) or certified by the Warrant
Agent and issued as provided in this Indenture, legal, valid and
binding upon the Company with the benefits of and subject to the
terms of this Indenture;
F. The
foregoing recitals are made as statements of fact by the Company
and not by the Warrant Agent; and
G. The
Warrant Agent has agreed to enter into this Indenture and to hold
all rights, interests and benefits contained herein for and on
behalf of those persons who become holders of Warrants issued
pursuant to this Indenture from time to time;
NOW
THEREFORE THIS INDENTURE WITNESSES that for good and valuable
consideration mutually given and received, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed
and declared as follows:
ARTICLE 1 INTERPRETATION
1.1 Definitions
In
this Indenture, unless there is something in the subject matter or
context inconsistent therewith:
"Applicable Legislation" means
the provisions of the statutes of Canada and its provinces and the
regulations under those statutes relating to warrant indentures
and/or the rights, duties or obligations of issuers and warrant
agents under warrant indentures as are from time to time in force
and applicable to this Indenture;
"Authenticated" means (a) with
respect to the issuance of a Warrant Certificate, one which has
been duly signed by the Company and authenticated by manual
signature of an authorized officer of the Warrant Agent, and (b)
with respect to the issuance of an Uncertificated Warrant, one in
respect of which the Warrant Agent has completed all Internal
Procedures such that the particulars of such Uncertificated Warrant
as required by Section 2.4 are entered in the register of
Warrantholders, "Authenticate",
"Authenticating" and
"Authentication"
have the appropriate correlative
meanings;
"Beneficial Owner" means a
person that has a beneficial interest in a
Warrant;
"Book-Entry Only System" means
the book-based securities system administered by CDS in accordance
with its operating rules and procedures in force from time to
time;
"Business Day" means a day that
is not a Saturday, Sunday, or a day on which banks are closed or
which is a civic or statutory holiday in the City of Toronto,
Ontario or Calgary, Alberta;
"Capital Reorganization" has
the meaning ascribed to that term in Section
2.13(4);
"CDS" means CDS Clearing and
Depository Services Inc. and its successors in
interest;
"CDSX" means the CDS settlement
and clearing system for equity and debt securities in
Canada;
"Closing Date" means November
5, 2020 or such other date as agreed to by the Company and the
Underwriters;
"Common Share Reorganization" has the meaning ascribed to that term in
Section 2.13(1);
"Common Shares" means the
common shares in the capital of the Company;
"Company" means Planet 13
Holdings Inc., a corporation existing under the laws of British
Columbia, and its lawful successors from time to
time;
"Company's Auditors" means the
chartered (professional) accountant or firm of
chartered
(professional) accountants duly appointed as auditor or auditors of
the Company from time to time, including prior auditors of the
Company, as applicable;
"Confirmation" has the meaning
ascribed that term in Section 3.1(4);
"counsel" means a barrister and
solicitor or lawyer or a firm of barristers and solicitors or
lawyers, in both cases acceptable to the Warrant
Agent;
"CSE" means the Canadian
Securities Exchange;
"Current Market Price" means,
at any date, the volume weighted average price per share at which
the Common Shares have traded:
(a) on
the CSE;
(b) if
the Common Shares are not listed on the CSE, on any stock exchange
upon which the Common Shares are listed, as may be selected for
this purpose by the board of directors of the Company, acting
reasonably; or
(c) if
the Common Shares are not listed on any stock exchange, on any
over-the- counter market on which the Common Shares are trading, as
may be selected for this purpose by the board of directors of the
Company, acting reasonably;
during
the 20 consecutive trading days (on each of which at least 500
Common Share are traded in board lots) ending the second trading
day before such date; provided that the volume weighted average
price shall be determined by dividing the aggregate sale price of
all Common Shares sold in board lots on the exchange or market, as
the case may be, during the 20 consecutive trading days by the
number of Common Shares so sold on said exchange or market or, if
not traded on any recognized exchange or market, as determined by
the directors of the Company, acting reasonably;
"director" means a member of
the board of directors of the Company for the time being, and
unless otherwise specified herein, reference to "action by the board of
directors" means action by the
board of directors of the Company as a board or, whenever duly
empowered, action by a committee of the board;
"Dividend Paid in the Ordinary Course" means dividends paid in any financial year of the
Company, whether in (i) cash, (ii) shares of the Company, (iii)
warrants or similar rights to purchase any shares of the Company or
property or other assets of the Company provided that the value of
such dividends per outstanding Common Share does not in such
financial year exceed in aggregate 5% of the Exercise
Price;
"Exchange Basis" means, at any
time, the number of Warrant Shares or other classes of shares or
securities or property which a Warrantholder is entitled to receive
upon the exercise of the rights attached to the Warrants pursuant
to the terms of this Indenture, as the number may be adjusted
pursuant to Article 2 hereof, such number being equal to one
Warrant Share per Warrant as of the date
hereof;
"Exercise Date" with respect to
any Warrant means the date on which such Warrant is duly
surrendered for exercise in accordance with the provisions of
Article 3 hereof;
"Exercise Notice" has the
meaning ascribed that term in Section 3.1(4);
"Exercise Price" means $5.80
for each Warrant Share, subject to adjustment in accordance with
the provisions of Article 2 hereof;
“Expiry Date” means
Novembers, 2022;
"extraordinary resolution" has
the meaning ascribed to that term in sections 6.12 and
6.15;
"Internal Procedures" means in
respect of the making of any one or more entries to, changes in or
deletions of any one or more entries in the register at any time
(including without limitation, original issuance or registration of
transfer of ownership) the minimum number of the Warrant Agent's
internal procedures customary at such time for the entry, change or
deletion made to be complete under the operating procedures
followed at the time by the Warrant Agent;
"Offering" has the meaning
ascribed thereto in Recital A of this
Indenture;
“Original U.S. Purchaser” means a Qualified Institutional Buyer who
purchased Warrants as part of the Offering;
"Over-Allotment Option" means
the option granted by the Company to the Underwriters, which may be
exercised in the Underwriters' sole discretion and without
obligation, to purchase up to an additional 873,750 Units,
including up to 873,750 Unit Shares and up to 436,875 Warrants, for
the purpose of covering over-allotments made in connection with the
Offering and for market stabilization purposes, and which is
exercisable for any combination of additional Units, additional
Unit Shares and/or additional Warrants, from and including thirty
(30) days following the Closing Date;
"Participant" means a person
recognized by CDS as a participant in the Book-Entry Only
System;
"person" means an individual, a
corporation, a limited liability company, a partnership, a
syndicate, a trustee or any unincorporated organization and words
importing persons are intended to have a similarly extended
meaning;
“Price” means the
Exercise Price;
“Qualified Institutional Buyer” means a “qualified institutional
buyer” as such term is defined in Rule 144A under the U.S.
Securities Act;
"QIB Letter" means the
Qualified Institutional Buyer Letter signed by the Original U.S.
Purchaser;
"Regulation S" means Regulation
S as promulgated under the U.S. Securities Act;
"Rights Offering" has the
meaning ascribed to that term in Section
2.13(2);
"Rights Offering Price" has the
meaning ascribed to that term in Section
2.14(8);
"Securities Laws" means,
collectively, the applicable securities laws and regulations of
each of the provinces of Canada, except Quebec, the United States
and each of the states of the United States, together with all
respective regulations made and forms prescribed
thereunder,
published rules, policy statements, notices, orders and rulings of
the securities commissions or similar regulatory authorities
thereto, as applicable, including the rules and policies of the
CSE;
"shareholder" means an owner of
record of one or more Common Shares or shares of any other class or
series of the Company;
"Special Distribution" has the
meaning ascribed to that term in Section
2.13(3);
"Subsidiary" means a
corporation, a majority of the outstanding voting shares of which
are owned, directly or indirectly, by the Company or by one or more
subsidiaries of the Company and, as used in this definition,
"voting shares" means shares of a class or classes ordinarily
entitled to vote for the election of the majority of the directors
of a corporation irrespective of whether or not shares of any other
class or classes shall have or might have the right to vote for
directors by reason of the happening of any
contingency;
"successor company" has the
meaning ascribed to that term in Section 7.2;
"this Indenture", "herein", "hereby" and similar expressions mean or refer to this
Common Share purchase warrant indenture and any indenture, deed or
instrument supplemental or ancillary hereto; and the
expressions "Article", "section",
or "paragraph" followed by a number or letter mean and refer to
the specified Article, section, or paragraph of this
Indenture;
"Time of Expiry" means 5:00
p.m. (Toronto time) on the Expiry Date;
"trading day" means a day on
which the CSE (or such other exchange on which the Common Shares
are listed) is open for trading, and if the Common Shares are not
listed on a stock exchange, a day on which an over-the-counter
market where such shares are traded is open for
business;
"transaction instruction" means
a written order signed by the holder or CDS, entitled to request
that one or more actions be taken, or such other form as may be
reasonably acceptable to the Warrant Agent, requesting one or more
such actions to be taken in respect of an Uncertificated
Warrant;
"Transfer Agent" means the
transfer agent or agents for the time being for the Common
Shares;
"U.S. Person" means a U.S.
person as that term is defined under Regulation
S;
"U.S. Securities Act" means the
United States Securities Act of 1933, as
amended;
"Uncertificated Warrant" means
any Warrant which is issued under the Book-Entry Only System or any
Warrant which is not a certificated Warrant;
"Underwriters" means
collectively Canaccord Genuity Corp. and Beacon Securities
Limited;
"Unit Share" means a Common
Share comprising part of each Unit;
"United States" means the
United States as that term is defined in Regulation
S;
"Units" means the units of the
Company, each Unit being comprised of one Unit Share and one-half
Warrant;
"Warrant Agent" means Odyssey
Trust Company, a trust company incorporated under the laws of
Alberta and authorized to carry on business in the provinces of
Alberta and British Columbia or any lawful successor thereto
including through the operation of Section 8.8;
"Warrant Certificates" means
the certificates representing Warrants substantially in the form
attached as Schedule "A" hereto or such other form as may be
approved by the Company and the Warrant Agent;
"Warrant Shares" means the
Common Shares or, as a result of any adjustment to the subscription
rights pursuant to Article 2 hereof, other securities or property
issuable upon the exercise of the Warrants;
"Warrantholders" or
"holders"
means the persons whose names are
entered for the time being in the register maintained pursuant to
Section 2.8;
"Warrantholders' Request" means
an instrument, signed in one or more counterparts by Warrantholders
representing, in the aggregate, at least 20% of the aggregate
number of Warrants then outstanding, which requests the Warrant
Agent to take some action or proceeding specified
therein;
"Warrants" means the Common
Share purchase warrants of the Company issued and Authenticated
hereunder as Uncertificated Warrants or to be issued and
countersigned in the form of Warrant Certificates, in either case,
entitling the holders thereof to purchase Warrant Shares on the
basis of one Warrant Share for each Warrant upon payment of the
Exercise Price prior to the Time of Expiry; provided that in each
case the number and/or class of securities or property receivable
on the exercise of the Warrants may be subject to increase or
decrease or change in accordance with the terms and provisions
hereof; and
"written direction of the Company", "written request of the
Company", "written consent of the Company", "Officer's
Certificate" and
"certificate of the
Company" and any other document
required to be signed by the Company, means, respectively, a
written direction, request, consent, certificate or other document
signed in the name of the Company by any officer or director and
may consist of one or more instruments so
executed.
1.2 Words
Importing the Singular
Unless
elsewhere otherwise expressly provided, or unless the context
otherwise requires, words importing the singular include the plural
and vice versa and words importing the masculine gender include the
feminine and neuter genders.
1.3 Interpretation
not Affected by Headings
The
division of this Indenture into Articles, sections, and paragraphs,
the provision of a table of contents and the insertion of headings
are for convenience of reference only and shall not affect the
construction or interpretation of this Indenture.
1.4 Day
not a Business Day
If
any day on or before which any action is required or permitted to
be taken hereunder is not a Business Day, then such action shall be
required or permitted to be taken on or before the requisite time
on the next succeeding day that is a Business Day.
1.5 Time
of the Essence
Time
shall be of the essence in all respects of this Indenture and the
Warrants issued hereunder.
1.6 Governing
Law
This
Indenture and the Warrants issued hereunder shall be construed and
enforced in accordance with the laws of the Province of Ontario and
the federal laws of Canada applicable therein and shall be treated
in all respects as Ontario contracts.
1.7 Meaning
of "outstanding" for Certain Purposes
Every
Warrant Authenticated or certified by the Warrant Agent hereunder
shall be deemed to be outstanding until it shall be cancelled or
delivered to the Warrant Agent for cancellation, exercised pursuant
to Section 3.1 or until the Time of Expiry; provided that where a
new Warrant Certificate has been issued pursuant to Section 2.6 to
replace one which is lost, mutilated, stolen or destroyed, the
Warrants represented by only one of such Warrant Certificates shall
be counted for the purpose of determining the aggregate number of
Warrants outstanding.
1.8 Currency
Unless
otherwise stated, all dollar amounts referred to in this Indenture
are in Canadian dollars.
1.9 Termination
This
Indenture shall continue in full force and effect until the earlier
of: (a) the Time of Expiry; and (b) provided that no Warrants
remain issuable pursuant to the terms of this Indenture, the date
that no Warrants are outstanding hereunder; provided that this
Indenture shall continue in effect thereafter, if applicable, until
the Company and the Warrant Agent have fulfilled all of their
respective obligations under this Indenture.
ARTICLE 2 ISSUE OF WARRANTS
2.1 Issue
of Warrants
Subject
to adjustment in accordance with the provisions hereof, the Company
creates and authorizes the issuance of up to 3,349,375 Warrants
entitling the registered holders thereof to acquire an aggregate of
up to 3,349,375 Warrant Shares, all of which are hereby created and
authorized to be issued hereunder at the Exercise Price upon the
terms and conditions as set forth herein. Uncertificated Warrants
shall be Authenticated by the Warrant Agent and deposited in CDS
and Warrant Certificates evidencing the Warrants shall be executed
by the Company, certified by or on behalf of the Warrant Agent and
delivered by the Warrant Agent in accordance with a written
direction of the Company, all in accordance with sections 2.3 and
2.4. Subject to adjustment in accordance with the provisions of
this Indenture, each of the Warrants issued hereunder shall entitle
the holder thereof to receive from the Company, at the Exercise
Price, the number of Warrant Shares equal to the Exchange Basis in
effect on the Exercise Date.
2.2 Form
and Terms of Warrants
(1) The
Warrants may be issued in either certificated or uncertificated
form. The Warrant Certificates shall be substantially in the form
attached as Schedule "A" hereto, subject to the provisions of this
Indenture, with such additions, variations and changes as may be
required or permitted by the terms of this Indenture, and to give
effect to any Warrants not being issued as Uncertificated Warrants,
and which may from time to time be agreed upon by the Warrant Agent
and the Company, and shall have such legends, distinguishing
letters and numbers as the Company may, with the approval of the
Warrant Agent, prescribe. Except as hereinafter provided in this
Article 2, all Warrants shall, save as to denominations, be of like
tenor and effect. The Warrant Certificates may be engraved,
printed, lithographed, photocopied or be partially in one form or
another, as the Company may determine. No change in the form of the
Warrant Certificate shall be required by reason of any adjustment
made pursuant to this Article 2 in the number and/or class of
securities or type of securities or property that may be acquired
pursuant to the Warrants. All Warrants issued to CDS may be in
either a certificated or uncertificated form, such uncertificated
form being evidenced by a book position on the register of
Warrantholders to be maintained by the Warrant Agent in accordance
with Section 2.8.
(2) Each
Warrant authorized to be issued hereunder shall entitle the
registered holder thereof to acquire (subject to sections 2.13,2.14
and 2.15) upon due exercise and upon the transaction instruction or
due execution of the exercise form endorsed on the Warrant
Certificate, as applicable, or other instrument of exercise in such
form as the Warrant Agent and/or the Company may from time to time
prescribe and upon payment of the Exercise Price, one Warrant Share
or such other kind and amount of shares or securities or property,
calculated pursuant to the provisions of sections 2.13 and 2.14, as
the case may be, at any time after the date of issuance of such
Warrants and prior to the Time of Expiry, in accordance with the
provisions of this Indenture.
(3) Fractional
Warrants shall not be issued or otherwise provided for. If any
fraction of a Warrant would otherwise be issuable and result in a
fraction of a Warrant Share being issuable, any such fractional
Warrant so issued shall be rounded down to the nearest whole
Warrant without compensation therefor.
2.3 Signing
of Warrant Certificates
Warrant
Certificates shall be signed by any one of the directors or
officers of the Company and may, but need not be under the
corporate seal of the Company or a reproduction thereof. The
signature of any such director or officer may be mechanically
reproduced in facsimile or other electronic format and Warrant
Certificates bearing such facsimile or other electronic format
signatures shall be binding upon the Company as if they had been
manually signed by such director or officer. Notwithstanding that
the person whose manual or electronic signature appears on any
Warrant Certificate as a director or officer may no longer hold
office at the date of issue of the Warrant Certificate or at the
date of certification or delivery thereof, any Warrant Certificate
Authenticated or signed as aforesaid shall, subject to Section 2.4,
be valid and binding upon the Company and the registered holder
thereof will be entitled to the benefits of this
Indenture.
2.4 Authentication
by the Warrant Agent
(1) No
Warrant shall be issued or, if issued, shall be valid for any
purpose or entitle the registered holder to the benefit hereof or
thereof until it has been Authenticated by or on behalf of the
Warrant Agent, as applicable, and such Authentication by the
Warrant Agent shall be conclusive evidence as against the Company
that the Warrant so Authenticated has been duly issued hereunder
and the holder is entitled to the benefits hereof.
(2) The
Warrant Agent shall Authenticate Uncertificated Warrants (whether
upon original issuance, exchange, registration of transfer, partial
payment, or otherwise) by completing its Internal Procedures and
the Company shall, and hereby acknowledges that it shall, thereupon
be deemed to have duly and validly issued such Uncertificated
Warrants under this Indenture. Such Authentication shall be
conclusive evidence that such Uncertificated Warrant has been duly
issued hereunder and that the holder or holders are entitled to the
benefits of this Indenture. The register shall be final and
conclusive evidence as to all matters relating to Uncertificated
Warrants with respect to which this Indenture requires the Warrant
Agent to maintain records or accounts. In case of differences
between the register at any time and any other time, the register
at the later time shall be controlling, absent manifest error and
such Uncertificated Warrants are binding on the
Company.
(3) Any
Warrant Certificate validly issued in accordance with the terms of
this Indenture in effect at the time of issue shall, subject to the
terms of this Indenture and applicable law, validly entitle the
holder to acquire Warrant Shares, notwithstanding that the form of
such Warrant Certificate may not be in the form currently required
by this Indenture.
(4) No
Warrant Certificate shall be considered issued or shall be
obligatory or shall entitle the holder thereof to the benefits of
this Indenture, until it has been Authenticated by or on behalf of
the Warrant Agent substantially in the form of the Warrant
Certificate set out in Schedule "A" hereto. Such Authentication on
any such Warrant Certificate shall be conclusive evidence that such
Warrant Certificate is duly Authenticated and is valid and a
binding obligation of the Company and that the holder is entitled
to the benefits of this Indenture.
(5) The
Authentication or certification of the Warrant Agent on the
Warrants issued hereunder, including byway of entry on the
register, shall not be construed as a representation or warranty by
the Warrant Agent as to the validity of this Indenture or the
Warrants (except the due Authentication and certification thereof)
or as to the performance by the Company of its obligations under
this Indenture and the Warrant Agent shall in no respect be liable
or answerable for the use made of the Warrants or any of them or of
the consideration therefor except as otherwise specified
herein.
2.5 Warrantholder
not a Shareholder, etc.
Nothing
in this Indenture or the holding of a Warrant shall be construed as
conferring upon a Warrantholder any right or interest whatsoever as
a shareholder, including but not limited to the right to vote at,
to receive notice of, or to attend meetings of shareholders or any
other proceedings of the Company, nor entitle the holder to any
right or interest in respect thereof except as herein and in the
Warrants expressly provided.
2.6 Issue
in Substitution for Lost Warrant Certificates
(1) If
any Warrant Certificates issued and certified under this Indenture
shall become mutilated or be lost, destroyed or stolen, the
Company, subject to applicable law, and Section 2.6(2), shall issue
and thereupon the Warrant Agent shall certify and deliver a new
Warrant Certificate of like denomination, date and tenor as the one
mutilated, lost, destroyed or stolen in exchange for, in place of
and upon cancellation of such mutilated Warrant Certificate, or in
lieu of and in substitution for such lost, destroyed or stolen
Warrant Certificate, and the substituted Warrant Certificate shall
be substantially in the form set out in Schedule "A" hereto and
Warrants evidenced by it will entitle the holder thereof to the
benefits hereof and shall rank equally in accordance with its terms
with all other Warrant Certificates issued or to be issued
hereunder.
(2) The
applicant for the issue of a new Warrant Certificate pursuant to
this Section shall bear the reasonable cost of the issue thereof
and in the case of mutilation shall, as a condition precedent to
the issue thereof, deliver to the Warrant Agent the mutilated
Warrant Certificate, and in the case of loss, destruction or theft
shall, as a condition precedent to the issue thereof, furnish to
the Company and to the Warrant Agent such evidence of ownership and
of the loss, destruction or theft of the Warrant Certificate so
lost, destroyed or stolen as shall be satisfactory to the Company
and to the Warrant Agent in their sole discretion, acting
reasonably, and such applicant may be required to furnish an
indemnity and surety bond in amount and form satisfactory to the
Company and the Warrant Agent in their sole discretion, acting
reasonably, and shall pay the reasonable charges of the Company and
the Warrant Agent in connection therewith.
2.7 Warrants
to Rank Pari Passu
All Warrants shall rank pari passu with all other Warrants, whatever may be the
actual date of issue of the Warrants.
2.8 Registration
and Transfer of Warrants
(1) The
Warrant Agent will create and keep at the principal stock transfer
offices of the Warrant Agent in the City of Calgary,
Alberta:
(a) a
register of holders in which shall be entered in alphabetical order
the names and addresses of the holders of Warrants and particulars
of the Warrants held by them and the Warrant Agent shall be
entitled to rely on such register in connection with the exchange,
transfer, exercise or deemed exercise of any Warrant(s) pursuant to
the terms of this Indenture or the terms thereof; and
(b) a
register of transfers in which all transfers of Warrants and the
date and other particulars of each such transfer shall be
entered.
(2) No
transfer of any Warrant will be valid unless entered on the
register of transfers referred to in Section 2.8(1), upon surrender
to the Warrant Agent of the Warrant Certificate evidencing such
Warrant, and a duly completed and executed transfer form endorsed
on the Warrant Certificate or in the case of Uncertificated
Warrants a duly executed transaction instruction from the holder
(or such other instructions, in form satisfactory to
the
Warrant Agent) executed by the registered holder or his executors,
administrators or other legal representatives or his attorney duly
appointed by an instrument in writing in form and execution
satisfactory to the Warrant Agent, if applicable, and, upon
compliance with such requirements and such other reasonable
requirements as the Warrant Agent may prescribe and all applicable
securities requirements of regulatory authorities, such transfer
will be recorded on the register of transfers by the Warrant Agent.
Upon compliance with such requirements, the Warrant Agent shall
issue to the transferee a Warrant Certificate, or in the case of an
Uncertificated Warrant, the Warrant Agent shall Authenticate and
deliver a Warrant Certificate upon request that part of the
Uncertificated Warrant be certificated. Transfers within the
systems of CDS are not the responsibility of the Warrant Agent and
will not be noted on the register maintained by the Warrant
Agent.
(3) The
transferee of any Warrant will, after surrender to the Warrant
Agent of the Warrant as required by Section 2.8(2) and upon
compliance with all other conditions in respect thereof required by
this Indenture or by law, be entitled to be entered on the register
of holders referred to in Section 2.8(1) as the owner of such
Warrant free from all equities or rights of setoff or counterclaim
between the Company and the transferor or any previous holder of
such Warrant, except in respect of equities of which the Company is
required to take notice by statute or by order of a court of
competent jurisdiction.
(4) The
Company will be entitled, and may direct the Warrant Agent, to
refuse to recognize any transfer, or enter the name of any
transferee, of any Warrant on the registers referred to in Section
2.8(1), if such transfer would constitute a violation of the
Securities Laws of any applicable jurisdiction or the rules,
regulations or policies of any regulatory authority having
jurisdiction. The Warrant Agent is entitled to assume compliance
with all applicable Securities Laws unless otherwise notified in
writing by the Company. No duty shall rest with the Warrant Agent
to determine compliance of the transferee or transferor of any
Warrant with applicable Securities Laws.
(5)
Any
Warrant issued to a transferee upon transfers contemplated by this
section 2.8 shall
bear the appropriate legend as set forth in Section 2.20(2), if
applicable.
(6) If
a Warrant tendered for transfer bears the legend set forth in
Section 2.20(2), the Warrant Agent shall not register such transfer
unless the transferor has provided the Warrant Agent with the
Warrant and complies with the requirements of the said Section
2.20(2).
(7) Warrants,
in certificated form, bearing the legend set forth in Section
2.20(2) shall not be offered, sold, pledged or otherwise
transferred, directly or indirectly, except (A) to the Company; (B)
outside the United States in compliance with Rule 904 of Regulation
S, if available, and in compliance with applicable local laws and
regulations; (C) pursuant to an exemption from registration under
the U.S. Securities Act provided by (i) Rule 144 or (ii) Rule 144A
thereunder, if available, and in compliance with applicable U.S.
state securities laws; (D) in compliance with another exemption
from registration under the U.S. Securities Act and applicable
state securities laws; or (E) under an effective registration
statement under the U.S. Securities Act, provided that in the case
of transfers pursuant to (C)(i) or (D) above, a legal opinion or
other evidence, reasonably satisfactory to the Company, must first
be provided to the Company and the Warrant Agent to the effect that
such transfer is exempt from registration under the U.S. Securities
Act and applicable state securities laws..
(8) The
Warrant Agent shall give notice to the Company of the transfer made
by a
Warrantholder pursuant to Section 2.8(7) and the Company shall
provide written authorization to proceed with the transfer before
such transfer is made effective by the issuance of the
Warrant.
2.9 Registers
Open for Inspection
The
registers referred to in Section 2.8(1) shall be open at all
reasonable times during business hours on a Business Day for
inspection by the Company or any Warrantholder. The Warrant Agent
shall, from time to time when requested to do so in writing by the
Company, furnish the Company with a list of the names and addresses
of holders of Warrants entered in the register of holders kept by
the Warrant Agent and showing the number of Warrants held by each
such holder.
2.10 Exchange
of Warrants
(1) Warrants
may, upon compliance with the reasonable requirements of the
Warrant Agent, be exchanged for Warrants in any other authorized
denomination representing in the aggregate an equal number of
Warrants as the number of Warrants represented by the Warrants
being exchanged. The Company shall sign and the Warrant Agent shall
Authenticate or certify, in accordance with sections 2.3 and 2.4,
all Warrants necessary to carry out the exchanges contemplated
herein.
(2) Warrants
may be exchanged only at the principal stock transfer offices of
the Warrant Agent in the City of Calgary, Alberta or at any other
place that is designated by the Company with the approval of the
Warrant Agent. Any Warrants tendered for exchange shall be
surrendered to the Warrant Agent and cancelled.
(3) Except
as otherwise herein provided, the Warrant Agent may charge
Warrantholders requesting an exchange a reasonable sum for each
Warrant Certificate issued; and payment of such charges and
reimbursement of the Warrant Agent or the Company for any and all
taxes or governmental or other charges required to be paid shall be
made by the party requesting such exchange as a condition precedent
to such exchange.
2.11 Ownership
of Warrants
The
Company and the Warrant Agent and their respective agents may deem
and treat the registered holder of any Warrant as the absolute
owner of the Warrant represented thereby for all purposes and the
Company and the Warrant Agent and their respective agents shall not
be affected by any notice or knowledge to the contrary except as
required by statute or order of a court of competent jurisdiction.
The holder of any Warrant shall be entitled to the rights evidenced
by that Warrant free from all equities or rights of set-off or
counterclaim between the Company and the original or any
intermediate holder thereof, except in respect of equities of which
the Company is required to take notice by statute or by order of a
court of competent jurisdiction and all persons may act accordingly
and the receipt by any holder of the Warrant Shares or monies
obtainable pursuant to the exercise of the Warrant shall be a good
discharge to the Company and the Warrant Agent for the same and
neither the Company nor the Warrant Agent shall be bound to inquire
into the title of any holder.
2.12 Uncertificated
Warrants
(1) Registration
and re-registration of beneficial interests in and transfers of
Warrants held by CDS shall be made only through the Book-Entry Only
System and no Warrant Certificates shall be issued in respect of
such Warrants except where physical certificates evidencing
ownership in such securities are required or as set out herein or
as may be requested by CDS, as determined by the Company, from time
to time. Except as provided in this Section 2.12, owners of
beneficial interests in any Uncertificated Warrants shall not be
entitled to have Warrants registered in their names and shall not
receive or be entitled to receive Warrants in definitive form or to
have their names appear in the register referred to in Section 2.8
herein. Notwithstanding any terms set out herein, Warrants subject
to the restrictions and any legend set forth in Section 2.20 herein
and held in the name of CDS may only be held in the form of
Uncertificated Warrants with the prior consent of the Company and
CDS.
(2) If
any Warrant is issued in uncertificated form and any of the
following events
occurs:
(a) CDS
or the Company has notified the Warrant Agent that (A) CDS is
unwilling or unable to continue as depository or (B) CDS ceases to
be a clearing agency in good standing under applicable laws and, in
either case, the Company is unable to locate a qualified successor
depository within ninety (90) days of delivery of such
notice;
(b) the
Company has determined, in its sole discretion, acting reasonably,
to terminate the Book-Entry Only System in respect of such
Uncertificated Warrants and has communicated such determination to
the Warrant Agent in writing;
(c) the
Company or CDS is required by applicable law to take the action
contemplated in this section;
(d) there
is an exercise of Warrants pursuant to 3.1(4) and the Warrantholder
is unable to make the representations in 3.1(4) (a),
(b),
(c) and
(d) thereto; or
(e) the
Book-Entry Only System administered by CDS ceases to
exist,
then
one or more definitive fully registered Warrant Certificates shall
be executed by the Company and certified and delivered by the
Warrant Agent to CDS in exchange for the Uncertificated Warrants
held by CDS. The Company shall provide an Officer's Certificate
giving notice to the Warrant Agent of the occurrence of any event
outlined in this Section 2.12(2).
Fully
registered Warrant Certificates issued and exchanged pursuant to
this section shall be registered in such names and in such
denominations as CDS shall instruct the Warrant Agent, provided
that the aggregate number of Warrants represented by such Warrant
Certificates shall be equal to the aggregate number of
Uncertificated Warrants so exchanged. Upon exchange of
Uncertificated Warrants for one or more Warrant Certificates in
definitive form, such Uncertificated Warrants shall be cancelled by
the Warrant Agent.
(3) Subject to the provisions of this Section 2.12,
any exchange of Warrants for Warrants which are not Uncertificated
Warrants may be made in whole or in part in accordance with the
provisions of Section 2.10, mutatis mutandis.
All such Warrants issued in exchange
for Uncertificated Warrants or any portion thereof shall be
registered in such names as CDS for such Uncertificated Warrants
shall direct and shall be entitled to the same benefits and subject
to the same terms and conditions (except insofar as they relate
specifically to Uncertificated Warrants) as the Uncertificated
Warrants or portion thereof surrendered upon such
exchange.
(4) Every
Warrant Authenticated upon registration of transfer of
Uncertificated Warrants, or in exchange for or in lieu of
Uncertificated Warrants or any portion thereof, whether pursuant to
this Section 2.12, or otherwise, shall be Authenticated in the form
of, and shall be, an Uncertificated Warrant, unless such Warrant is
registered in the name of a person other than CDS for such
Uncertificated Warrant or a nominee thereof.
(5) Notwithstanding
anything to the contrary in this Indenture, subject to Applicable
Legislation, the Warrants to be issued to CDS or a nominee thereof
will be issued as an Uncertificated Warrant, unless otherwise
requested in writing by CDS or the Company.
(6) The
rights of Beneficial Owners of Warrants who hold securities
entitlements in respect of the Warrants through the Book-Entry Only
System shall be limited to those established by applicable law and
agreements between CDS and the Participants and between such
Participants and the Beneficial Owners of Warrants who hold
securities entitlements in respect of the Warrants through the
Book-Entry Only System, and such rights must be exercised through a
Participant in accordance with the rules and procedures of
CDS.
(7) Notwithstanding
anything herein to the contrary, neither the Company nor the
Warrant Agent nor any agent thereof shall have any responsibility
or liability for:
(a) the
electronic records maintained by CDS relating to any ownership
interests or any other interests in the Warrants or the depository
system maintained by CDS, or payments made on account of any
ownership interest or any other interest of any person in any
Warrant represented by an electronic position in the Book-Entry
Only System (other than CDS or its nominee);
(b) maintaining,
supervising or reviewing any records of CDS or any Participant
relating to any such interest; or
(c) any
advice or representation made or given by CDS or those contained
herein that relate to the rules and regulations of CDS or any
action to be taken by CDS on its own direction or at the direction
of any Participant.
(8) The
Company may terminate the application of this Section 2.12 in its
sole discretion, acting reasonably, in which case all Warrants
shall be evidenced by Warrant Certificates registered in the
name(s) of a person other than CDS.
2.13 Adjustment
of Exchange Basis
Subject
to Section 2.14, the Exchange Basis shall be subject to adjustment
from time to time in the events and in the manner provided as
follows:
(1) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, the Company shall:
(a) issue
Common Shares or securities exchangeable for or convertible into
Common Shares to all or substantially all the holders of the Common
Shares as a stock dividend or other distribution (other than a
distribution of Common Shares upon the exercise of Warrants);
or
(b) subdivide,
redivide or change its then outstanding Common Shares into a
greater number of Common Shares; or
(c) reduce,
combine or consolidate its then outstanding Common Shares into a
lesser number of Common Shares,
(any of such events in these paragraphs (a), (b)
or (c) being called a "Common Share
Reorganization"), then the
Exchange Basis in effect on the effective date of such subdivision
or consolidation, or on the record date of such stock dividend or
other distribution, as the case may be, shall be adjusted by
multiplying the Exchange Basis in effect immediately prior to such
effective or record date by a fraction:
(a) the
numerator of which shall be the total number of Common Shares
outstanding on such date immediately after giving effect to such
Common Share Reorganization (including, in the case where
securities exchangeable for or convertible into Common Shares are
distributed, the number of Common Shares that would have been
outstanding had such securities been exchanged for or converted
into Common Shares on such record date, assuming in any case where
such securities are not then convertible or exchangeable but
subsequently become so, that they were convertible or exchangeable
on the record date on the basis upon which they first become
convertible or exchangeable), and
(b) the
denominator of which shall be the total number of Common Shares
outstanding on such date before giving effect to such Common Share
Reorganization.
The
resulting product, adjusted to the nearest 1/100th, shall
thereafter be the Exchange Basis until further adjusted as provided
in this Article 2. To the extent that any adjustment in the
Exchange Basis occurs pursuant to this Section 2.13(1) as a result
of the fixing by the Company of a record date for the distribution
of securities exchangeable for or convertible into Common Shares
and the Common Share Reorganization does not occur or any
conversion or exchange rights are not fully exercised, the Exchange
Basis shall be readjusted immediately after the expiry of any
relevant exchange or conversion right or the termination of the
Common Share Reorganization, as the case may be, to the Exchange
Basis that would then be in effect, based upon the number of Common
Shares actually issued and remaining issuable pursuant to the
Common Share Reorganization after such expiry and shall be further
readjusted in such manner upon the expiry of any further such
right.
(2) If and whenever, at any time after the date hereof
and prior to the Time of Expiry, the Company shall fix a record
date for the distribution to all or substantially all of the
holders of its outstanding Common Shares of rights, options or
warrants entitling them, for a period expiring not more than
forty-five (45) days after such record date, to subscribe for or
purchase Common Shares, or securities exchangeable for or
convertible into Common Shares, at a price per share to the holder
(or at an exchange or conversion price per share) of less than 95%
of the Current Market Price on such record date (any of such events
being called a "Rights Offering"),
then the Exchange Basis shall be
adjusted effective immediately after such record date for the
Rights Offering by multiplying the Exchange Basis in effect
immediately prior to such record date by a
fraction:
(a) the
numerator of which shall be the number of Common Shares which would
be outstanding after giving effect to the Rights Offering (assuming
the exercise of all of the rights, options or warrants under the
Rights Offering and assuming the exchange for or conversion into
Common Shares of all exchangeable or convertible securities issued
upon exercise of such rights, options or warrants, if any),
and
(b) the
denominator of which shall be the aggregate of:
(i) the
total number of Common Shares outstanding as of the record date for
the Rights Offering, and
(ii) a
number of Common Shares determined by dividing
(A) the
amount equal to the aggregate consideration payable on the exercise
of all of the rights, options and warrants under the Rights
Offering plus the aggregate consideration, if any, payable on the
exchange or conversion of the exchangeable or convertible
securities issued upon exercise of such rights, options or warrants
(assuming the exercise of all rights, options and warrants under
the Rights Offering and assuming the exchange or conversion of all
exchangeable or convertible securities issued upon exercise of such
rights, options and warrants);
by
(B) the
Current Market Price as of the record date for the Rights
Offering.
The resulting product, adjusted to the nearest
1/100th,
shall thereafter be the Exchange Basis until further adjusted as
provided in this Article 2. Any Common Shares owned by or held for
the account of the Company or any of its Subsidiaries or a
partnership in which the Company is directly or indirectly a party
to will be deemed not to be outstanding for the purpose of any
computation. If, at the date of expiry of the rights, options or
warrants subject to the Rights Offering, less than all the rights,
options or warrants have been exercised, then the Exchange Basis
shall be readjusted immediately after the date of expiry to the
Exchange Basis that would have been in effect on the date of expiry
if only the rights, options or warrants issued had been those
exercised. If at the date of expiry of the rights of exchange or
conversion of any securities issued pursuant to the Rights Offering
less than all of such securities have been exchanged or converted
into Common Shares, then the Exchange Basis shall be readjusted
immediately after the date of expiry to the Exchange Basis that
would have been in effect on the date of expiry if only the
exchangeable or convertible securities issued had been those
securities actually exchanged for or converted into Common
Shares.
(3) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, the Company shall fix a record date for the
issuance or distribution to all or substantially all the holders of
its outstanding Common Shares of:
(a) shares
of the Company of any class other than Common Shares;
or
(b) rights,
options or warrants to acquire Common Shares or securities
exchangeable for or convertible into Common Shares; or
(c) evidences
of indebtedness; or
(d) cash,
securities or any property or other assets,
and if such issuance or distribution does not
constitute a Common Share Reorganization or a Rights Offering (any
of such non-excluded events being herein called a
"Special
Distribution"), the Exchange
Basis shall be adjusted effective immediately after such record
date for the Special Distribution by multiplying the Exchange Basis
in effect immediately prior to such record date by a
fraction:
(a) the
numerator of which shall be the number of Common Shares outstanding
on such record date multiplied by the Current Market Price on such
record date, and
(b) the
denominator of which shall be:
(A) the
number of Common Shares outstanding on such record date multiplied
by the Current Market Price on such record date, less
(B) the
fair market value, as determined by action by the board of
directors acting reasonably and in good faith (whose determination,
absent manifest error, shall be conclusive), to the holders of the
Common Shares of the shares, rights, options, warrants, evidences
of indebtedness or securities, property or other assets issued or
distributed in the Special Distribution provided that no such
adjustment shall be made if the result of such adjustment would be
to decrease the Exchange Basis in effect immediately before such
record date.
The resulting product, adjusted to the nearest
1/100th,
shall thereafter be the Exchange Basis until further adjusted as
provided in this Article 2. Any Common Shares owned by or held for
the account of the Company or any of its Subsidiaries or a
partnership of which the Company is directly or indirectly a party,
will be deemed not to be outstanding for the purpose of any such
computation.
(4) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, there shall be a reclassification of the Common
Shares at any time outstanding or change or exchange of the Common
Shares into or for other shares or into or for other securities or
property (other than a Common Share Reorganization), or a
consolidation, amalgamation, arrangement or merger of the Company
with or into any other corporation or other entity (other than a
consolidation, amalgamation, arrangement or merger which does not
result in any reclassification of the outstanding Common Shares or
a change or exchange of the Common Shares into or for other shares, securities or
property), or a transfer (other than to a Subsidiary) of the
undertaking or assets of the Company as an entirety or
substantially as an entirety to another corporation or other entity
(any of such events being herein called a "Capital
Reorganization"), any
Warrantholder who thereafter shall exercise his right to receive
Warrant Shares pursuant to Warrant(s) shall be entitled to receive,
and shall accept in lieu of the number of Warrant Shares to which
such holder was theretofore entitled upon such exercise, the
aggregate number of shares, other securities or other property
resulting from the Capital Reorganization which such holder would
have been entitled to receive as a result of such Capital
Reorganization if, on the effective date or record date thereof, as
the case may be, the Warrantholder had been the registered holder
of the number of Warrant Shares to which such holder was
theretofore entitled upon exercise. If appropriate, adjustments
shall be made as a result of any such Capital Reorganization in the
application of the provisions in this Indenture with respect to the
rights and interests thereafter of Warrantholders to the end that
the provisions in this Indenture shall thereafter correspondingly
be made applicable as nearly as may reasonably be possible in
relation to any shares, other securities or other property
thereafter deliverable upon the exercise of any Warrant. Any such
adjustment shall be made by and set forth in an indenture
supplemental hereto approved by the directors of the Company and by
the Warrant Agent and entered into pursuant to the provisions of
this Indenture and shall for all purposes be conclusively deemed to
be an appropriate adjustment.
(5) Any
adjustment to the Exchange Basis as set forth herein shall also
include a corresponding adjustment to the Price which shall be
calculated by multiplying the Price by a fraction: (a) the
numerator of which shall be the Exchange Basis prior to the
adjustment, and (b)
the
denominator of which shall be the Exchange Basis after the
adjustment.
2.14 Rules
Regarding Calculation of Adjustment of Exchange Basis
For the purposes of Section
2.13:
(1) The
adjustments provided for in Section 2.13 shall be cumulative and
such adjustments shall be made successively whenever an event
referred to in Section 2.13 shall occur, subject to the following
subsections of this Section 2.14.
(2) No
adjustment in the: (a) Exchange Basis shall be required unless such
adjustment would result in a change of at least 0.01 of a Warrant
Share based on the prevailing Exchange Basis; or (b) the Price
shall be required unless such adjustment would result in a change
of at least 1% of the Price, provided that any adjustments which,
except for the provisions of this subsection, would otherwise have
been required to be made, shall be carried forward and taken into
account in any subsequent adjustment.
(3) No
adjustment in the Exchange Basis or the Price shall be made in
respect of any event described in Section 2.13, other than the
events referred to in paragraphs (b) and (c) of subsection (1) thereof, if Warrantholders are
entitled to participate in such event on the same terms,
mutatis
mutandis, as if Warrantholders
had exercised their Warrants prior to or on the effective date or
record date of such event, any such participation being subject to
regulatory approval.
(4) No
adjustment in the Exchange Basis or the Price shall be made
pursuant to Section 2.13 in respect of (i) the issue from time to
time of Warrant Shares purchasable on exercise of the Warrants and
any such issue shall be deemed not to be a Common Share
Reorganization; (ii) a Dividend Paid in the Ordinary Course; or
(iii) a distribution of Common Shares pursuant to the exercise of
stock options granted under stock option plans of the
Company.
(5) If
a dispute shall at any time arise with respect to adjustments
provided for in Section 2.13, such dispute shall, absent manifest
error, be conclusively determined by the Company's Auditors, or if
they are unable or unwilling to act, by such other firm of
independent chartered accountants as may be selected by the
directors and any further determination, absent manifest error,
shall be binding upon the Company, the Warrant Agent and the
Warrantholders.
(6) If
the Company shall set a record date to determine the holders of the
Common Shares for the purpose of entitling them to receive any
dividend or distribution or any subscription or purchase rights and
shall, thereafter and before the distribution to such shareholders
of any such dividend, distribution, or subscription or purchase
rights, legally abandon its plan to pay or deliver such dividend,
distribution, or subscription or purchase rights, then no
adjustment in the Exchange Basis shall be required by reason of the
setting of such record date.
(7) In
the absence of a resolution of the directors fixing a record date
for a Rights Offering or Special Distribution, the Company shall be
deemed to have fixed as the record date therefor the date on which
the Rights Offering or Special Distribution is
effected.
(8) If the purchase price provided for in any Rights
Offering (the "Rights Offering Price")
is decreased, the Exchange Basis shall
forthwith be changed so as to increase the Exchange Basis to such
Exchange Basis as would have been obtained had the adjustment to
the Exchange Basis made pursuant to Section 2.13(2) upon the
issuance of such Rights Offering been made upon the basis of the
Rights Offering Price as so decreased, provided that the provisions
of this subsection shall not apply to any decrease in the Rights
Offering Price resulting from provisions in any such Rights
Offering designed to prevent dilution if the event giving rise to
such decrease in the Rights Offering Price itself requires an
adjustment to the Exchange Basis pursuant to the provisions of
Section 2.13.
(9) As
a condition precedent to the taking of any action that would
require any adjustment in any of the subscription rights pursuant
to any of the Warrants, including the Exchange Basis, the Company
shall take any corporate action which may, in the opinion of
counsel, be necessary in order that the Company have unissued and
reserved in its authorized capital and may validly and legally
issue as fully paid and non-assessable all the shares or other
securities that all the holders of such Warrants are entitled to
receive on the exercise of all the subscription rights attaching
thereto in accordance with the provisions thereof.
(10) In
case the Company, after the date hereof, shall take any action
affecting any Common Shares, other than action described in Section
2.13, which in the opinion of the directors acting reasonably and
in good faith would materially affect the rights of Warrantholders,
the Exchange Basis shall be adjusted in such manner, if any, and at
such time, as the directors, in their sole discretion acting
reasonably and in good faith, may determine to be equitable in the
circumstances. Failure of the taking of any action by the directors
so as to provide for an adjustment in the Exchange Basis prior to
the effective date of any action by the Company affecting the
Common Shares shall be conclusive evidence that the directors have
determined that it is equitable to make no adjustment in the
circumstances.
(11) The
Warrant Agent shall be entitled to act and rely on any adjustment
calculations by the Company or the Company's Auditors.
2.15 Postponement
of Subscription
In
any case where the application of Section 2.13 results in an
increase in the number of Common Shares that are issuable upon
exercise of the Warrants taking effect immediately after the record
date for a specific event, if any Warrant is exercised after that
record date and prior to completion of such specific event, the
Company may postpone the issuance to the Warrantholder of the
Warrant Shares to which he is entitled by reason of such
adjustment, but such Warrant Shares shall be so issued and
delivered to that holder upon completion of that event, with the
number of such Warrant Shares calculated on the basis of the number
of Warrant Shares on the date that the Warrant was exercised,
adjusted for completion of that event and the Company shall deliver
to the person or persons in whose name or names the Warrant Shares
are to be issued an appropriate instrument evidencing the right of
such person or persons to receive such Warrant Shares and the right
to receive any dividends or other distributions which, but for the
provisions of this Section 2.15, such person or persons would have
been entitled to receive in respect of such Warrant Shares from and
after the date that the Warrant was exercised in respect
thereof.
2.16 Notice
of Adjustment
(1) At
least fourteen (14) days prior to the effective date or record
date, as the case may be, of any event which requires or might
require adjustment pursuant to Section 2.13, the Company
shall:
(a) file
with the Warrant Agent a certificate of the Company specifying the
particulars of such event (including the record date or the
effective date for such event) and, if determinable, the required
adjustment and the computation of such adjustment and setting forth
in reasonable detail the method of calculation and the facts upon
which such calculation is based; and
(b) give
notice to the Warrantholders of the particulars of such event
(including the record date or the effective date for such event)
and, if determinable, the required adjustment.
(2) In
case any adjustment for which a notice in Section 2.16(1) has been
given is not then determinable, the Company shall promptly after
such adjustment is determinable:
(a) file
with the Warrant Agent a computation of such adjustment;
and
(b) give
notice to the Warrantholders of the adjustment.
(3) The
Warrant Agent may and shall be protected in so doing, absent
manifest error, act and rely upon certificates of the Company and
other documents filed by the Company pursuant to this Section 2.16
for all purposes of the adjustment.
2.17 No
Action after Notice
The
Company covenants with the Warrant Agent that it will not close its
books nor take any other corporate action which might deprive a
Warrantholder of the opportunity of exercising
the rights of acquisition pursuant thereto during the period of ten
(10) days after the giving of the notice set forth in paragraph (b)
of Sections 2.16(1) and (2).
2.18 Purchase
of Warrants for Cancellation
The
Company may, at any time and from time to time, purchase Warrants
by invitation to tender, by private contract, on any stock exchange
(if then listed) or otherwise (which shall include a purchase
through an investment dealer or firm holding membership on a
Canadian stock exchange) on such terms as the Company may
determine. All Warrants purchased pursuant to the provisions of
this Section 2.18 shall be forthwith delivered to and cancelled by
the Warrant Agent and shall not be reissued. If required by the
Company, the Warrant Agent shall furnish the Company with a
certificate as to such destruction.
2.19 Protection
of Warrant Agent
The
Warrant Agent shall not:
(a) at
any time be under any duty or responsibility to any registered
holder of Warrants to determine whether any facts exist that may
require any adjustment contemplated by this Article 2, nor to
verify the nature and extent of any such adjustment when made or
the method employed in making the same;
(b) be
accountable with respect to the validity or value or the kind or
amount of any Warrant Shares or of any other securities or property
that may at any time be issued or delivered upon the exercise of
the Warrants;
(c) be
responsible for any failure of the Company to make any cash
payment, to issue, transfer or deliver Warrant Shares or
certificates upon the surrender of any Warrants for the purpose of
the exercise of such rights or to comply with any of the covenants
contained in Section 2.13; or
(d) incur
any liability or responsibility whatsoever or be in any way
responsible for the consequence of any breach on the part of the
Company of any of the representations, warranties or covenants of
the Company or any acts or deeds of the agents or servants of the
Company.
2.20 U.S.
Legend on Warrant Certificates and Warrant Share
certificates
(1) The
Warrant Agent understands and acknowledges that the Warrants and
the Warrant Shares issuable upon exercise of the Warrants have not
been, and will not be, registered under the U.S. Securities Act or
the securities laws of any state of the United States.
(2) Each
Warrant, in certificated form, originally issued in the United
States or, to or for the account or benefit of, a U.S. Person, and
all Warrant Shares issued upon exercise of such Warrants, and all
certificates issued in exchange or in substitution thereof or upon
transfer thereof, shall bear the following legend:
"THE SECURITIES REPRESENTED HEREBY
[for Warrants,
add: AND
THE
SECURITIES ISSUABLE ON EXERCISE HEREOF] HAVE NOT
BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT") OR UNDER ANY
STATE SECURITIES LAWS, AND THE SECURITIES REPRESENTED HEREBY
[for Warrants,
add: AND THE SECURITIES
ISSUABLE ON EXERCISE HEREOF] MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, DIRECTLY OR INDIRECTLY, ONLY (A) TO THE COMPANY, (B)
OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE
U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS
AND REGULATIONS, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE U.S. SECURITIES ACT PROVIDED BY (i) RULE 144 OR (ii)
RULE144A THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH
APPLICABLE U.S. STATE SECURITIES LAWS, (D) IN COMPLIANCE WITH
ANOTHER EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS, OR (E) UNDER AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT, PROVIDED THAT
IN THE CASE OF TRANSFERS PURSUANT TO (C)(i) OR (D) ABOVE, A LEGAL
OPINION OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY,
MUST FIRST BE PROVIDED TO THE COMPANY AND THE COMPANY'S TRANSFER
AGENT TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY" IN
SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN
CANADA.”
[for Warrants, include:
"THIS WARRANT MAY NOT BE EXERCISED IN
THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR
BENEFIT OF, A PERSON IN THE UNITED STATES OR A U.S. PERSON UNLESS
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS ORAN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS IS AVAILABLE. "UNITED STATES" AND "U.S.
PERSON" ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES
ACT."]
provided that, if the Warrants or Warrant Shares issuable
upon exercise of the Warrants are being sold in accordance with
Rule 904 of Regulation S, the legend may be removed by providing to
the Warrant Agent or the Transfer Agent, as the case may be, (i) a
declaration in the form attached hereto as Schedule "B" (or as the
Company may prescribe from time to time in order to address changes
in applicable laws) and (ii) if required by the Transfer Agent, an
opinion of counsel, of recognized standing reasonably satisfactory
to the Company, or other evidence reasonably satisfactory to the
Company, that the proposed transfer may be effected without
registration under the U.S. Securities Act.
provided further,
that if the Warrants or Warrant Shares
are being sold pursuant to Rule 144 under the U.S. Securities Act,
if available, the legend may be removed by delivering to the
Company and the Warrant Agent or the Transfer Agent, as the case
may be, an opinion of counsel of recognized standing in form and
substance reasonably satisfactory to the Company, to the effect
that the legend is no longer required under applicable requirements
of the U.S. Securities
Act.
(3) If
a Warrant or Warrant Share issued with respect to an exercise of
Warrants is tendered for transfer and bears the legend set forth in
Section 2.20(2) herein and the holder thereof has not obtained the
prior written consent of the Company, the Warrant Agent or the
Transfer Agent, as the case may be, shall not register such
transfer unless the holder complies with the requirements of the
said Section 2.20(2) hereof.
ARTICLE 3 EXERCISE OF WARRANTS
3.1 Method
of Exercise of Warrants
(1) The
registered holder of any Warrant may exercise the rights thereby
conferred on him to acquire all or any part of the Warrant Shares
to which such Warrant entitles the holder, by surrendering the
Warrant Certificate representing such Warrants to the Warrant Agent
at any time prior to the Time of Expiry at its principal stock
transfer offices in the City of Calgary, Alberta (or at such
additional place or places as may be decided by the Company from
time to time with the approval of the Warrant Agent), with a duly
completed and executed exercise form of the registered holder or
his executors, administrators or other legal representative or his
attorney duly appointed by an instrument in writing in the form and
manner satisfactory to the Warrant Agent, substantially in the form
endorsed on the Warrant Certificate specifying the number of
Warrant Shares subscribed for together with a certified cheque,
bank draft or money order in lawful money of Canada, payable to or
to the order of the Company in an amount equal to the Exercise
Price multiplied by the number of Warrant Shares subscribed for. A
Warrant Certificate with the duly completed and executed exercise
form and payment of the Exercise Price shall be deemed to be
surrendered only upon personal delivery thereof to or, if sent by
mail or other means of transmission, upon actual receipt thereof by
the Warrant Agent.
(2) Any
exercise form referred to in Section 3.1(1) shall be signed by the
Warrantholder, or his executors, or administrators or other legal
representative or his attorney duly appointed by an instrument in
writing in the form and manner satisfactory to the Warrant Agent,
but such exercise form need not be executed by CDS. Such exercise
form shall specify the person(s) in whose name such Warrant Shares
are to be issued, the address(es) of such person(s) and the number
of Warrant Shares to be issued to each person, if more than one is
so specified. If any of the Warrant Shares subscribed for are to be
issued to person(s) other than the Warrantholder, the Warrantholder
shall also complete the transfer form, substantially in the form
endorsed on the Warrant Certificate. The signatures set out in the
exercise form referred to in Section 3.1(1) and the signatures set
out in the transfer form shall be guaranteed by a Canadian Schedule
1 chartered bank or a medallion signature guarantee from a member
of a recognized Signature Medallion Guarantee Program and the
Warrantholder shall pay to the Company or the Warrant Agent all
applicable transfer or similar taxes and the Company shall not be
required to issue or deliver certificates evidencing Warrant Shares
unless or until such Warrantholder shall have paid to the Company
or the Warrant Agent on behalf of the Company the amount of such
tax or shall have established to the satisfaction of the Company
that such tax has been paid or that no tax is due.
(3) If,
at the time of exercise of the Warrants, in accordance with the
provisions of Section 3.1(1), there are any trading restrictions on
the Warrant Shares pursuant to applicable Securities Laws or stock
exchange requirements, the Company shall, on the advice of counsel,
endorse any certificates representing the Warrant Shares to such
effect. The Warrant Agent is entitled to assume compliance with all
applicable Securities Laws unless otherwise notified in writing by
the Company.
(4) A Beneficial Owner who desires to exercise his,
her or its Uncertificated Warrants, must do so by causing a
Participant to deliver to CDS (at its office in the City of
Toronto, Ontario), on behalf of the Beneficial Owner at any time
prior to the Time of Expiry, a written notice of the Beneficial
Owner's intention to exercise Warrants (the "Exercise Notice");
provided, that a Beneficial Owner
holding Uncertificated Warrants that is in the United States or
that is a U.S. Person will first request the withdrawal of the
Uncertificated Warrant(s) from the Book-Entry Only System and
request certificated Warrant(s) in exchange for such Uncertificated
Warrant(s). Forthwith upon receipt by CDS of such notice, as well
as payment for the Exercise Price, CDS shall deliver to the Warrant
Agent confirmation of its intention to exercise Warrants
(the "Confirmation")
in a manner acceptable to the Warrant
Agent, including by electronic means through the Book-Entry Only
System, including CDSX. An electronic exercise of the Warrants
initiated by the Beneficial Owner through a Book-Entry Only System,
including CDSX, shall constitute a representation to both the
Company and the Warrant Agent that the Beneficial Owner at the time
of exercise of such Warrants (a) is not in the United States; (b)
did not acquire the Warrants in the United States or on behalf of,
or for the account or benefit of, a U.S. Person or a person in the
United States; (c) is not a U.S. Person and is not exercising such
Warrants on behalf of a U.S. Person or a person in the United
States; and (d) did not execute or deliver the notice of the
owner's intention to exercise such Warrants in the United States.
If the Participant is not able to make or deliver the foregoing
representation by initiating the electronic exercise of the
Warrants, then such Warrants shall be withdrawn from the Book-Entry
Only System, including CDSX, by the Participant and an individually
registered Warrant Certificate shall be issued by the Warrant Agent
to such Beneficial Owner or Participant and the exercise procedures
set forth in Section 3.1(1) shall be followed. Payment representing
the aggregate Exercise Price must be provided to the appropriate
office of the Participant in a manner acceptable to it. A notice in
form acceptable to the Participant and payment from such Beneficial
Owner should be provided through the Book-Entry Only System
sufficiently in advance so as to permit the Participant to deliver
notice and payment to CDS and for CDS in turn to deliver notice and
payment to the Warrant Agent prior to Time of Expiry. CDS will
initiate the exercise by way of the Confirmation and forward the
aggregate Exercise Price electronically to the Warrant Agent and
the Warrant Agent will execute the exercise by issuing to CDS
through the Book- Entry Only System the Warrant Shares to which the
exercising Beneficial Owner is entitled pursuant to the exercise.
Any expense associated with the preparation and delivery of
Exercise Notices will be for the account of the Beneficial Owner
exercising the Warrants.
(5) By
causing a Participant to deliver notice to CDS, a Warrantholder
shall be deemed to have irrevocably surrendered his, her or its
Warrants so exercised and appointed such Participant to act as his,
her or its exclusive settlement agent with respect to the exercise
and the receipt of Warrant Shares in connection with the
obligations arising from such exercise.
(6) Any
notice which CDS determines to be incomplete, not in proper form or
not duly executed shall for all purposes be void and of no effect
and the exercise to which it relates shall be considered for all
purposes not to have been exercised thereby. A failure by a
Participant to exercise or to give effect to the settlement thereof
in accordance with the Beneficial Owner's instructions will not
give rise to any obligations or liability on the part of the
Company or Warrant Agent to the Participant or the Beneficial
Owner.
(7) Any
exercise referred to in this Section 3.1 shall require that the
entire Exercise Price for the Warrant Shares subscribed for must be
paid at the time of subscription and such Exercise Price and
original Exercise Notice or exercise form executed by the
Registered Warrantholder or the Confirmation from CDS must be
received by the Warrant Agent prior to the Time of
Expiry.
(8) Warrants
may only be exercised pursuant to this Section 3.1 by or on behalf
of a Warrantholder, as applicable, who makes the certifications set
forth on the exercise form substantially in the form endorsed on
the Warrant Certificate.
(9) If
the exercise form set forth in the Warrant Certificate shall have
been amended, the Company shall cause the amended exercise form to
be forwarded to all registered Warrantholders.
(10) Exercise
forms, Exercise Notices and Confirmations must be delivered to the
Warrant Agent at any time during the Warrant Agent's actual
business hours on any Business Day prior to the Time of Expiry. Any
exercise form, Exercise Notice or Confirmation received by the
Warrant Agent after business hours on any Business Day other than
the Time of Expiry will be deemed to have been received by the
Warrant Agent on the next following Business Day.
(11) Any
Warrant with respect to which a Confirmation is not received by the
Warrant Agent before the Time of Expiry shall be deemed to have
expired and become void and all rights with respect to such
Warrants shall terminate and be cancelled.
3.2 No
Fractional Shares
Under
no circumstances shall the Company be obliged to issue any
fractional Warrant Shares or any cash or other consideration in
lieu thereof upon the exercise of one or more Warrants. To the
extent that the holder of one or more Warrants would otherwise have
been entitled to receive on the exercise or partial exercise
thereof a fraction of a Warrant Share, that holder may exercise
that right in respect of the fraction only in combination with
another Warrant or Warrants that in the aggregate entitle the
holder to purchase a whole number of Warrant Shares.
3.3 Effect
of Exercise of Warrants
(1) Upon
compliance by the Warrantholder with the provisions of Section 3.1,
the Warrant Shares subscribed for shall be deemed to have been
issued and the person to whom such Warrant Shares are to be issued
shall be deemed to have become the holder of record of such Warrant
Shares on the Exercise Date unless the transfer registers of the
Company for the Common Shares shall be closed on such date, in
which case the Warrant Shares subscribed for shall be deemed to
have been issued and such person shall be deemed to have become the
holder of record of such Warrant Shares on the date on which such
transfer registers are reopened.
(2) The
Warrant Agent shall as soon as practicable account to the Company
with respect to Warrants exercised, and shall as soon as
practicable forward to the Company (or into an account or accounts
of the Company with the bank or trust company designated by the
Company for that purpose), all monies received by the Warrant Agent
on the subscription of Warrant Shares through the exercise of
Warrants. All such monies and any securities or other
instruments,
from time to time received by the Warrant Agent, shall be received
in trust for the Warrantholders and the Company as their interests
may appear and shall be segregated and kept apart by the Warrant
Agent.
(3) Within
five Business Days following the due exercise of a Warrant pursuant
to Section 3.1, the Company shall cause the Transfer Agent to issue
and the Warrant Agent to deliver, within such five Business Day
period, to CDS through the Book-Entry Only System the Warrant
Shares to which the exercising Warrantholder is entitled pursuant
to the exercise or mail to the person in whose name the Warrant
Shares so subscribed for are to be issued, as specified in the
exercise form completed on the Warrant Certificate, at the address
specified in such exercise form, a certificate or certificates for
the Warrant Shares to which the Warrantholder is entitled or, if so
specified in writing by the holder, cause to be delivered to such
person or persons at the office of the Warrant Agent where the
Warrant Certificate was surrendered, a certificate or certificates
for the appropriate number of Warrant Shares subscribed for, or any
other appropriate evidence of the issuance of Warrant Shares to
such person or persons in respect of Warrant Shares issued under
the Book-Entry Only System and, if applicable, shall cause the
Warrant Agent to mail a Warrant Certificate representing any
Warrants not then exercised.
3.4 Cancellation
of Warrants
All
Warrants surrendered to the Warrant Agent pursuant to sections 2.6,
2.8(2), 2.10 or 3.1
shall
be cancelled by the Warrant Agent and the Warrant Agent shall
record the cancellation of such Warrants on the register of holders
maintained by the Warrant Agent pursuant to Section 2.8(1). The
Warrant Agent shall, if required by the Company, furnish the
Company with a certificate identifying the Warrants so cancelled.
All Warrants that have been duly cancelled shall be without further
force or effect whatsoever.
3.5 Subscription
for less than Entitlement
The
holder of any Warrant may subscribe for and purchase a whole number
of Warrant Shares that is less than the number that the holder is
entitled to purchase pursuant to a surrendered Warrant. In such
event, the holder thereof shall be entitled to receive a new
Warrant Certificate in respect of the balance of Warrants that were
not then exercised, such new Warrant Certificate to contain the
same legend as provided for in Section 2.20(2), if
applicable.
3.6 Expiration
of Warrant
After
the Time of Expiry, all rights under any Warrant in respect of
which the right of subscription and purchase herein and therein
provided for shall not theretofore have been exercised shall wholly
cease and terminate and such Warrant shall be void and of no
effect.
3.7 Prohibition
on Exercise by U.S. Persons; Exception
(1)
Warrants may not be exercised within the United States or by or on
behalf of, or for the account or benefit of, any U.S. Person or any
person in the United States unless an exemption is available from
the registration requirements of the U.S. Securities Act and
applicable state securities laws. The Warrant Agent shall be
entitled to rely upon the registered address of the Warrantholder
as set forth in the Warrantholders register for the purchase of
Units in determining whether the address is in the United States or
the Warrantholder is a U.S.
Person.
(2) Any
holder which exercises any Warrants shall provide to the Company
either:
(a) a
written certification that such holder (a) at the time of exercise
of the Warrants is not in the United States; (b) is not a U.S.
Person and is not exercising the Warrants on behalf of a U.S.
Person or person in the United States; (c) did not execute or
deliver the exercise form for the Warrants in the United States;
and (d) has in all other aspects complied with the terms of an
"offshore transaction" as defined under Regulation S (which written
certification shall be deemed delivered by checking Box 1 in the
Exercise Form attached to the Warrant, as provided for in Schedule
“A” hereof); or
(b) a
written certification that the holder (i) purchased the Warrants as
part of the Units in the Offering; (ii) is exercising the Warrants
solely for its own account or for the benefit of a U.S. Person or a
person in the United States for whose account such holder acquired
the Warrants as a part of the Units in the Offering and for whose
account such holders exercises sole investment discretion; (iii)
was and is, and any beneficial purchaser for whose account such
holder acquired the Warrant and is exercising the Warrants was and
is, a Qualified Institutional Buyer both on the date the Units were
purchased in the Offering and on the Exercise Date; and (iv) the
representations and warranties made by the holder or any beneficial
purchaser, as the case may be, to the Company in such
holder’s QIB Letter remain true and correct on the Exercise
Date (which written certification shall be deemed delivered by
checking Box 2 in the Exercise Form attached to the Warrant, as
provided for in Schedule “A” hereof); or
(c) a
written opinion of counsel of recognized standing in form and
substance satisfactory to the Company or evidence satisfactory to
the Company to the effect that an exemption from the registration
requirements of the U.S. Securities Act and applicable state
securities laws is available for the issuance of the Warrant Shares
issuable on exercise of the Warrants.
(3) No
Warrant Shares will be registered or delivered to an address in the
United States unless the holder of Warrants complies with the
requirements of paragraph (b) or (c) of Section
3.7(2).
ARTICLE 4 COVENANTS FOR WARRANTHOLDERS' BENEFIT
4.1 General
Covenants of the Company
The
Company represents, warrants and covenants with the Warrant Agent
for the benefit of the Warrant Agent and the Warrantholders
that:
(1)
The Company will at all times, so long as any Warrants remain
outstanding or issuable hereunder, maintain its existence, unless
otherwise inconsistent with the fiduciary duties of the board of
directors of the Company, and will keep or cause to be kept proper
books of account in accordance with applicable law until the Time
of Expiry.
(2) The
Company is duly authorized to create and issue the Warrants to be
issued hereunder and the Warrants, when Authenticated, will be
legal, valid, binding and enforceable obligations of the
Company.
(3) The
Company will reserve and keep available a sufficient number of
Warrant Shares for the purpose of enabling the Company to satisfy
its obligations to issue Common Shares upon the exercise of the
Warrants, and all Warrants Shares shall, when issued as provided
herein, be valid and enforceable against the Company.
(4) The
Company will cause the Warrant Shares from time to time subscribed
for pursuant to the Warrants issued by the Company hereunder, in
the manner herein provided, to be duly issued in accordance with
the Warrants and the terms hereof.
(5) All
Warrant Shares that shall be issued by the Company upon exercise of
the rights provided for herein shall be issued as fully paid and
non-assessable Common Shares of the Company.
(6) The
Company will use commercially reasonable efforts to ensure that the
Warrants, and the Common Shares outstanding on the date hereof and
issuable from time to time on the exercise of the Warrants,
continue to be or are listed and posted for trading on the CSE (or
such other Canadian stock exchange acceptable to the Company),
provided that this Section 4.1(6) shall not be construed as
limiting or restricting the Company from completing a
consolidation, amalgamation, arrangement, takeover bid, merger or
other form of business combination that would result in the
Warrants and/or the Common Shares ceasing to be listed and posted
for trading on such exchanges, so long as the holders of Common
Shares have approved the transaction in accordance with the
requirements of applicable corporate and securities laws and the
policies of such exchanges or the holders of Common Shares receive
securities of an entity which is listed on a stock exchange in
North America or cash.
(7) Except
to the extent that the Company participates in a takeover bid,
consolidation, merger, arrangement, amalgamation, or other form of
business combination transaction, the Company will use its
commercially reasonable efforts to maintain its status as a
"reporting issuer" (or the equivalent thereof) in each of the
provinces of Canada and other Canadian jurisdictions in which it is
currently or becomes a reporting issuer, make all requisite filings
under applicable Securities Laws including those necessary to
remain a reporting issuer not in default of the requirements of the
applicable Securities Laws of such province or jurisdiction, until
the Time of Expiry.
(8) The
Company will perform and carry out all of the acts or things to be
done by it as provided in this Indenture.
(9) The
Company will not take any action or omit to take any action which
would have the effect of preventing the Warrantholders from
receiving any of the Warrant Shares issuable upon the exercise of
the Warrants.
(10) The
Company will promptly advise the Warrant Agent and the
Warrantholders in writing of any breach or default under the terms
of this Indenture no later than five (5) Business Days following
the occurrence of such breach or default.
(11) If,
in the opinion of counsel, any instrument is required to be filed
with, or any permission, order or ruling is required to be obtained
from any securities regulatory authority, or any other step is
required under any federal or provincial law of Canada before the
Warrant Shares may be issued and delivered to a Warrantholder, the
Company covenants that it will use its best efforts to file such
instrument, obtain such permission, order or ruling or take all
such other actions, at its expense, as is required or appropriate
in the circumstances.
4.2 Warrant
Agent's Remuneration and Expenses
The
Company covenants that it will pay to the Warrant Agent from time
to time reasonable remuneration for its services hereunder and will
pay or reimburse the Warrant Agent upon its request for all
reasonable expenses and disbursements and advances incurred or made
by the Warrant Agent in the administration or execution of the
trusts hereby created (including the reasonable compensation and
the disbursements of its counsel and all other advisers, experts,
accountants and assistants not regularly in its employ) both before
any default hereunder and thereafter until all duties of the
Warrant Agent hereunder shall be finally and fully performed. Any
amount owing hereunder and remaining unpaid after thirty (30) days
from the invoice date will bear interest at the then current rate
charged by the Warrant Agent against unpaid invoices and shall be
payable upon demand. This section shall survive the resignation or
removal of the Warrant Agent and/or the termination of this
Indenture.
4.3 Performance
of Covenants by Warrant Agent
Subject
to Section 8.7, if the Company shall fail to perform any of its
covenants contained in this Indenture and the Company has not
rectified such failure within twenty-five (25) Business Days after
either giving notice of such default pursuant to Section 4.1(10) or
receiving written notice from the Warrant Agent of such failure,
the Warrant Agent may notify the Warrantholders of such failure on
the part of the Company or may itself perform any of the said
covenants capable of being performed by it, but shall be under no
obligation to perform said covenants. All reasonable sums expended
or disbursed by the Warrant Agent in so doing shall be repayable as
provided in Section 4.2. No such performance, expenditure or
advance by the Warrant Agent shall be deemed to relieve the Company
of any default hereunder or of its continuing obligations under the
covenants herein contained.
4.4 Enforceability
of Warrants
The
Company covenants and agrees that it is duly authorized to create
and issue the Warrants to be issued hereunder and that the
Warrants, when issued and Authenticated as herein provided, will be
valid and enforceable against the Company in accordance with the
provisions hereof and that, subject to the provisions of this
Indenture, the Company will cause the Warrant Shares from time to
time acquired upon exercise of Warrants issued under this Indenture
to be duly issued and delivered in accordance with the terms of
this Indenture.
ARTICLE 5 ENFORCEMENT
5.1 Suits
by Warrantholders
Subject
to Section 6.10, all or any of the rights conferred upon a
Warrantholder by the terms of the Warrants held by him and/or this
Indenture may be enforced by such
Warrantholder by appropriate legal proceedings but without
prejudice to the right that is hereby conferred upon the Warrant
Agent to proceed in its own name to enforce each and all of the
provisions herein contained for the benefit of the holders of the
Warrants from time to time outstanding. The Warrant Agent shall
also have the power at any time and from time to time to institute
and to maintain such suits and proceedings as it may reasonably be
advised shall be necessary or advisable to preserve and protect its
interests and the interests of the Warrantholders.
5.2 Limitation
of Liability
The
obligations hereunder (including without limitation under Section
8.7(5)) are not personally binding upon, nor shall resort hereunder
be had to, the private property of any of the past, present or
future directors or shareholders of the Company or any of the past,
present or future officers, employees or agents of the Company, but
only the property of the Company (or any successor person) shall be
bound in respect hereof.
5.3 Waiver
of Default
Upon
the happening of any default hereunder:
(a) the
Warrantholders of not less than 50% plus 1 of the Warrants then
outstanding shall have power (in addition to the powers exercisable
by Extraordinary Resolution) by requisition in writing to instruct
the Warrant Agent to waive any default hereunder and the Warrant
Agent shall thereupon waive the default upon such terms and
conditions as shall be prescribed in such requisition;
or
(b) the
Warrant Agent shall have power to waive any default hereunder upon
such terms and conditions as the Warrant Agent may deem advisable,
on the advice of counsel, if, in the Warrant Agent's opinion, based
on the advice of counsel, the same shall have been cured or
adequate provision made therefor,
provided
that no delay or omission of the Warrant Agent or of the
Warrantholders to exercise any right or power accruing upon any
default shall impair any such right or power or shall be construed
to be a waiver of any such default or acquiescence therein and
provided further that no act or omission either of the Warrant
Agent or of the Warrantholders in the premises shall extend to or
be taken in any manner whatsoever to affect any subsequent default
hereunder of the rights resulting therefrom.
ARTICLE 6 MEETINGS OF WARRANTHOLDERS
6.1 Right
to Convene Meetings
The
Warrant Agent may at any time and from time to time, and shall on
receipt of a written request of the Company or of a Warrantholders'
Request, convene a meeting of the Warrantholders provided that the
Warrant Agent has been provided with sufficient funds and is
indemnified to its reasonable satisfaction by the Company or by the
Warrantholders signing such Warrantholders' Request against the
costs, charges, expenses and liabilities that may be incurred in
connection with the calling and holding of such meeting. If within
fifteen (15)
Business Days after the receipt of a written request of the Company
or a Warrantholders' Request, funding and indemnity given as
aforesaid the Warrant Agent fails to give the requisite notice
specified in Section 6.2 to convene a meeting, the Company or such
Warrantholders, as the case may be, may convene such meeting. Every
such meeting shall be held in the City of Toronto, Ontario or at
such other place as may be approved or determined by the Warrant
Agent.
6.2 Notice
At
least fourteen (14) days prior notice of any meeting of
Warrantholders shall be given to the Warrantholders at the expense
of the Company in the manner provided for in Section
9.2
and
a copy of such notice shall be delivered to the Warrant Agent
unless the meeting has been called by it, and to the Company unless
the meeting has been called by it. Such notice shall state the
date, time and place of the meeting, the general nature of the
business to be transacted and shall contain such information as is
reasonably necessary to enable the Warrantholders to make a
reasoned decision on the matter, but it shall not be necessary for
any such notice to set out the terms of any resolution to be
proposed or any of the provisions of this Article 6. The notice
convening any such meeting may be signed by an appropriate officer
of the Warrant Agent or of the Company or the person designated by
such Warrantholders, as the case may be.
6.3 Chairman
The
Warrant Agent may nominate in writing an individual (who need not
be a Warrantholder) to be chairman of the meeting and if no
individual is so nominated, or if the individual so nominated is
not present within fifteen (15) minutes after the time fixed for
the holding of the meeting, the Warrantholders present in person or
by proxy shall appoint an individual present to be chairman of the
meeting. The chairman of the meeting need not be a
Warrantholder.
6.4 Quorum
Subject
to the provisions of Section 6.11, at any meeting of the
Warrantholders a quorum shall consist of two Warrantholders present
in person or represented by proxy and representing at least 20% of
the aggregate number of Warrants then outstanding. If a quorum of
the Warrantholders shall not be present within one-half hour from
the time fixed for holding any meeting, the meeting, if summoned by
the Warrantholders or on a Warrantholders' Request, shall be
dissolved; but in any other case the meeting shall be adjourned to
the same day in the next week (unless such day is not a Business
Day in which case it shall be adjourned to the next following
Business Day) at the same time and place to the extent possible
and, subject to the provisions of Section 6.11, no notice of the
adjournment need be given. Any business may be brought before or
dealt with at an adjourned meeting that might have been dealt with
at the original meeting in accordance with the notice calling the
same. At the adjourned meeting the Warrantholders present in person
or represented by proxy shall form a quorum and may transact the
business for which the meeting was originally convened,
notwithstanding that they may not represent at least 20% of the
aggregate number of Warrants then unexercised and outstanding. No
business shall be transacted at any meeting, except an adjourned
meeting as described above, unless a quorum is present at the
commencement of business.
6.5 Power
to Adjourn
The
chairman of any meeting at which a quorum of the Warrantholders is
present may, with the consent of the meeting, adjourn any such
meeting, and no notice of such adjournment need be given except
such notice, if any, as the meeting may prescribe.
6.6 Show
of Hands
Every
question submitted to a meeting shall be decided in the first place
by a majority of the votes given on a show of hands except that
votes on an extraordinary resolution shall be given in the manner
hereinafter provided. At any such meeting, unless a poll is duly
demanded as herein provided, a declaration by the chairman that a
resolution has been carried or carried unanimously or by a
particular majority or lost or not carried by a particular majority
shall be conclusive evidence of the fact.
6.7 Poll
and Voting
On
every extraordinary resolution, and when demanded by the chairman
or by one or more of the Warrantholders acting in person or by
proxy on any other question submitted to a meeting and after a vote
by show of hands, a poll shall be taken in such manner as the
chairman shall direct. Questions other than those required to be
determined by extraordinary resolution shall be decided by a
majority of the votes cast on the poll. On a show of hands, every
person who is present and entitled to vote, whether as a
Warrantholder or as proxy for one or more absent Warrantholders, or
both, shall have one vote. On a poll, each Warrantholder present in
person or represented by a proxy duly appointed by instrument in
writing shall be entitled to one vote in respect of each whole
Warrant then held by her. A proxy need not be a Warrantholder. The
chairman of any meeting shall be entitled, both on a show of hands
and on a poll, to vote in respect of the Warrants, if any, held or
represented by her.
6.8 Regulations
Subject
to the provisions of this Indenture, the Warrant Agent or the
Company with the approval of the Warrant Agent may from time to
time make and from time to time vary such regulations as it shall
consider necessary or appropriate generally for the calling of
meetings of Warrantholders and the conduct of business thereat
including setting a record date for Warrantholders entitled to
receive notice of or to vote at such meeting.
Any
regulations so made shall be binding and effective and the votes
given in accordance therewith shall be valid and shall be counted.
Save as such regulations may provide, the only persons who shall be
recognized at any meeting as a Warrantholder, or be entitled to
vote or be present at the meeting in respect thereof (subject to
Section 6.9), shall be Warrantholders or persons holding proxies of
Warrantholders.
6.9 Company,
Warrant Agent and Counsel may be Represented
The
Company and the Warrant Agent, by their respective directors,
officers and employees and the counsel for each of the Company, the
Warrantholders and the Warrant Agent may attend any meeting of the
Warrantholders and speak thereat but shall not be entitled to vote
unless in their capacities as Warrantholders or proxies
therefor.
6.10 Powers
Exercisable by Extraordinary Resolution
In
addition to all other powers conferred upon them by any other
provisions of this Indenture or by law, the Warrantholders at a
meeting shall have the power, exercisable from time to time by
extraordinary resolution:
(a) to
agree with the Company to any modification, alteration, compromise
or arrangement of the rights of Warrantholders and/or the Warrant
Agent in its capacity as Warrant Agent hereunder (subject to the
Warrant Agent's approval) or on behalf of the Warrantholders
against the Company, whether such rights arise under this Indenture
or the Warrants or otherwise;
(b) to
amend, modify or repeal any extraordinary resolution previously
passed or sanctioned by the Warrantholders;
(c) to
direct or authorize the Warrant Agent (subject to the Warrant Agent
receiving funding and indemnity) to enforce any of the covenants on
the part of the Company contained in this Indenture or the Warrants
or to enforce any of the rights of the Warrantholders in any manner
specified in such extraordinary resolution or to refrain from
enforcing any such covenant or right;
(d) to
waive, authorize and direct the Warrant Agent to waive any default
on the part of the Company in complying with any provisions of this
Indenture or the Warrants either unconditionally or upon any
conditions specified in such extraordinary resolution;
(e) to
restrain any Warrantholder from taking or instituting any suit,
action or proceeding against the Company for the enforcement of any
of the covenants on the part of the Company contained in this
Indenture or the Warrants or to enforce any of the rights of the
Warrantholders;
(f) to
direct any Warrantholder who, as such, has brought any suit, action
or proceeding to stay or discontinue or otherwise deal with any
such suit, action or proceeding, upon payment of the costs, charges
and expenses reasonably and properly incurred by such Warrantholder
in connection therewith;
(g) to
assent to any change in or omission from the provisions contained
in this Indenture or any ancillary or supplemental instrument which
may be agreed to by the Company, and to authorize the Warrant Agent
to concur in and execute any ancillary or supplemental indenture
embodying the change or omission; and
(h) with
the consent of the Company, such consent not to be unreasonably
withheld, to remove the Warrant Agent or its successor in office
and to appoint a new warrant agent or warrant agents to take the
place of the Warrant Agent so removed.
6.11 Meaning
of "Extraordinary Resolution
(1) The expression "extraordinary
resolution" when used in this
Indenture means, subject as hereinafter in this Section
6.11
and in Section 6.14 provided, a resolution proposed at a meeting of
Warrantholders duly convened for that purpose and held in
accordance with the provisions of this Article 6 at which there are
present in person or by proxy at least two Warrantholders
representing at least 20% of the aggregate number of all the then
outstanding Warrants and passed by the affirmative votes of
Warrantholders representing not less than 66%% of the aggregate
number of all the then outstanding Warrants represented at the
meeting and voted on the poll upon such
resolution.
(2) If,
at any meeting called for the purpose of passing an extraordinary
resolution, Warrantholders representing at least 20% of the
aggregate number of all the then outstanding Warrants are not
present in person or by proxy within one-half hour after the time
appointed for the meeting, then the meeting, if convened by
Warrantholders or on a Warrantholders' Request, shall be dissolved;
but in any other case it shall stand adjourned to such day, being
not less than ten (10) Business Days later, and to such place and
time as may be appointed by the chairman. Not less than three (3)
Business Days prior notice shall be given of the time and place of
such adjourned meeting in the manner provided in sections 9.1 and
9.2. Such notice shall state that at the adjourned meeting the
Warrantholders present in person or represented by proxy shall form
a quorum but it shall not be necessary to set forth the purposes
for which the meeting was originally called or any other
particulars. At the adjourned meeting the Warrantholders present in
person or represented by proxy shall form a quorum and may transact
the business for which the meeting was originally convened and a
resolution proposed at such adjourned meeting and passed by the
requisite vote as provided in Section 6.11(1) shall be an
extraordinary resolution within the meaning of this Indenture
notwithstanding that Warrantholders representing at least 20% of
all the then outstanding Warrants are not present in person or
represented by proxy at such adjourned meeting.
(3) Votes
on an extraordinary resolution shall always be given on a poll and
no demand for a poll on an extraordinary resolution shall be
necessary.
6.12 Powers
Cumulative
It
is hereby declared and agreed that any one or more of the powers or
any combination of the powers in this Indenture stated to be
exercisable by the Warrantholders by extraordinary resolution or
otherwise may be exercised from time to time and the exercise of
any one or more of such powers or any combination of powers from
time to time shall not be deemed to exhaust the right of the
Warrantholders to exercise such powers or combination of powers
then or thereafter from time to time.
6.13 Minutes
Minutes
of all resolutions and proceedings at every meeting of
Warrantholders as aforesaid shall be made and duly entered in books
to be provided for that purpose by the Warrant Agent at the expense
of the Company and any minutes as aforesaid, if signed by the
chairman of the meeting at which resolutions were passed or
proceedings had, or by the chairman of the next succeeding meeting
of the Warrantholders, shall be prima facie evidence of the matters
therein stated and, until the contrary is proved, every meeting, in
respect of the proceedings of which minutes shall have been made,
shall be deemed to have been duly convened and held, and all
resolutions passed thereat or proceedings taken, to have
been
duly passed and taken.
6.14 Instruments
in Writing
All
actions that may be taken and all powers that may be exercised by
the Warrantholders at a meeting held as provided in this Article 6
may also be taken and exercised by Warrantholders representing a
majority, or in the case of an extraordinary resolution at least
66%%, of the aggregate number of all the then outstanding Warrants
by an instrument in writing signed in one or more counterparts by
such Warrantholders in person or by attorney duly appointed in
writing, and the expression "extraordinary resolution" when used in
this Indenture shall include an instrument so signed.
6.15 Binding
Effect of Resolutions
Every
resolution and every extraordinary resolution passed in accordance
with the provisions of this Article 6 at a meeting of
Warrantholders shall be binding upon all the Warrantholders,
whether present at or absent from such meeting, and every
instrument in writing signed by Warrantholders in accordance with
Section 6.14 shall be binding upon all the Warrantholders, whether
signatories thereto or not, and each and every Warrantholder and
the Warrant Agent (subject to the provisions for indemnity herein
contained) shall be bound to give effect accordingly to every such
resolution and instrument in writing. In the case of an instrument
in writing, the Warrant Agent shall give notice in the manner
contemplated in sections 9.1 and 9.2 of the effect of the
instrument in writing to all Warrantholders and the Company as soon
as is reasonably practicable.
6.16 Holdings
by the Company or Subsidiaries of the Company
Disregarded
In
determining whether Warrantholders are present at a meeting of
Warrantholders for the purpose of determining a quorum or have
concurred in any consent, waiver, extraordinary resolution,
Warrantholders' Request or other action under this Indenture,
Warrants owned legally or beneficially by the Company or its
Subsidiaries or in partnership of which the Company is directly or
indirectly a party to shall be disregarded.
6.17 Common
Shares or Warrants Owned by the Company or its Subsidiaries -
Certificate
to be Provided
For
the purpose of disregarding any Warrants owned legally or
beneficially by the Company in Section 6.16, the Company shall
provide to the Warrant Agent, upon written request, a certificate
of the Company setting forth as at the date of such
certificate:
(a) the
names (other than the name of the Company) of the Warrantholders
which, to the knowledge of the Company, hold Warrants that are
owned by or held for the account of the Company; and
(b) the
number of Warrants owned legally or beneficially by the Company,
and
the
Warrant Agent, in making the computations in Section 6.16, shall be
entitled to rely
on such certificate without any additional evidence.
ARTICLE 7 SUPPLEMENTAL INDENTURES AND SUCCESSOR
COMPANIES
7.1 Provision
for Supplemental Indentures for Certain Purposes
From
time to time the Company (if properly authorized by its directors)
and the Warrant Agent may, subject to the provisions hereof, and
they shall, when so directed in accordance with the provisions
hereof, execute and deliver by their proper officers, indentures or
instruments supplemental hereto, which thereafter shall form part
hereof, for any one or more or all of the following
purposes:
(a) providing
for the issuance of additional Warrants hereunder including
Warrants in excess of the number set out in Section 2.1 and any
consequential amendments hereto as may be required by the Warrant
Agent, relying on the advice of counsel;
(b) setting
forth adjustments in the application of Article 2;
(c) adding
to the provisions hereof such additional covenants and enforcement
provisions as, in the opinion of counsel are necessary or
advisable, provided that the same are not in the opinion of the
Warrant Agent, relying on the advice of counsel, prejudicial to the
interests of the Warrantholders as a group;
(d) giving
effect to any extraordinary resolution passed as provided in
Article 6;
(e) making
such provisions not inconsistent with this Indenture as may be
necessary or desirable with respect to matters or questions arising
hereunder provided that such provisions are not, in the opinion of
the Warrant Agent, relying on the advice of counsel, prejudicial to
the interests of the Warrantholders as a group;
(f) adding
to or amending the provisions hereof in respect of the transfer of
Warrants, making provision for the exchange of Warrants and making
any modification in the form of the Warrant Certificate that does
not affect the substance thereof;
(g) amending
any of the provisions of this Indenture or relieving the Company
from any of the obligations, conditions or restrictions herein
contained, provided that no such amendment or relief shall be or
become operative or effective if, in the opinion of the Warrant
Agent, relying on the advice of counsel, such amendment or relief
impairs any of the rights of the Warrantholders as a group or of
the Warrant Agent, and provided further that the Warrant Agent may
in its sole discretion decline to enter into any supplemental
indenture that in its opinion may not afford adequate protection to
the Warrant Agent when the same shall become operative;
and
(h) for
any other purpose not inconsistent with the terms of this
Indenture, including the correction or rectification of any
ambiguities, defective or inconsistent provisions, errors or
omissions herein, provided that, in the opinion
of the Warrant Agent, relying on the advice of counsel, the rights
of the Warrant Agent and the Warrantholders as a group are in no
way prejudiced thereby.
7.2 Successor
Companies
In the case of the amalgamation, consolidation,
arrangement, merger or transfer of the undertaking or assets of the
Company as an entirety or substantially as an entirety to or with
another person (a "successor company"),
the successor company resulting from
the amalgamation, consolidation, arrangement, merger or transfer
(if not the Company) shall be bound by the provisions hereof and
all obligations for the due and punctual performance and observance
of each and every covenant and obligation contained in this
Indenture to be performed by the Company and the successor company
shall by supplemental indenture satisfactory in form to the Warrant
Agent and executed and delivered to the Warrant Agent, expressly
assume those obligations.
ARTICLE 8 CONCERNING THE WARRANT AGENT
8.1 Indenture
Legislation
(1) If
and to the extent that any provision of this Indenture limits,
qualifies or conflicts with a mandatory requirement of Applicable
Legislation, such mandatory requirement shall prevail.
(2) The
Company and the Warrant Agent agree that each will at all times in
relation to this Indenture and any action to be taken hereunder
observe and comply with and be entitled to the benefit of
Applicable Legislation.
8.2 Rights
and Duties of Warrant Agent
(1) The
Warrant Agent accepts the duties and responsibilities under this
Indenture, solely as custodian, bailee and agent. No trust is
intended to be, or is or will be, created hereby and the Warrant
Agent shall owe no duties hereunder as a trustee.
(2) In
the exercise of the rights and duties prescribed or conferred by
the terms of this Indenture, the Warrant Agent shall act honestly
and in good faith with a view to the best interests of the
Warrantholders and shall exercise the degree of care, diligence and
skill that a reasonably prudent warrant agent would exercise in
comparable circumstances. No provision of this Indenture shall be
construed to relieve the Warrant Agent from, or require any other
person to indemnify the Warrant Agent against liability for its own
gross negligence, wilful misconduct, bad faith or
fraud.
(3) The
Warrant Agent shall not be bound to do or take any act, action or
proceeding for the enforcement of any of the obligations of the
Company under this Indenture unless and until it shall have
received a Warrantholders' Request specifying the act, action or
proceeding that the Warrant Agent is requested to take. The
obligation of the Warrant Agent to commence or continue any act,
action or proceeding for the purpose of enforcing any rights of the
Warrant Agent or the Warrantholders hereunder shall be conditional
upon the Warrantholders furnishing, when required by notice in
writing by the Warrant Agent, sufficient funds to commence or
continue such act, action or proceeding and an indemnity reasonably
satisfactory to the Warrant Agent and its counsel to protect and
hold harmless the Warrant Agent, its officers, directors,
employees, agents, successors and assigns against the costs,
charges and expenses and liabilities to be incurred thereby and any
loss and damage it may suffer by reason thereof. None of the
provisions contained in this Indenture shall require the Warrant
Agent to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties or in the
exercise of any of its rights or powers unless indemnified and
funded as aforesaid.
(4) The
Warrant Agent may, before commencing any act, action or proceeding,
or at any time during the continuance thereof require the
Warrantholders at whose instance it is acting to deposit with the
Warrant Agent the Warrants held by them, for which Warrants the
Warrant Agent shall issue receipts.
(5) Every
provision of this Indenture that, by its terms, relieves the
Warrant Agent of liability or entitles it to rely upon any evidence
submitted to it is subject to the provisions of Applicable
Legislation.
(6) The
Warrant Agent shall not be bound to give any notice or do or take
any act, action or proceeding by virtue of the powers conferred on
it hereunder unless and until it shall have been required to do so
under the terms hereof; nor shall the Warrant Agent be required to
take notice of any default hereunder, unless and until notified in
writing of such default, which notice shall specifically set out
the default desired to be brought to the attention of the Warrant
Agent and in the absence of such notice the Warrant Agent may for
all purposes of this Indenture conclusively assume that no default
has occurred or been made in the performance or observance of the
representations, warranties and covenants, agreements or conditions
herein contained. Any such notice shall in no way limit any
discretion herein given to the Warrant Agent to determine whether
or not the Warrant Agent shall take action with respect to any
default.
(7) In
this Indenture, whenever confirmations or instructions are required
to be given to the Warrant Agent, in order to be valid, such
confirmations and instructions shall be in writing.
8.3 Evidence,
Experts and Advisers
(1) In
addition to the reports, certificates, opinions and other evidence
required by this Indenture, the Company shall furnish to the
Warrant Agent such additional evidence of compliance with any
provision hereof and in such form as may be prescribed by
Applicable Legislation or as the Warrant Agent may reasonably
require by written notice to the Company.
(2) In
the exercise of its rights and duties hereunder, the Warrant Agent
may, if it is acting in good faith, act and rely absolutely as to
the truth of the statements and the accuracy of the opinions
expressed therein, upon statutory declarations, opinions, reports,
written requests, consents, or orders of the Company, certificates
of the Company or other evidence furnished to the Warrant Agent
pursuant to any provision hereof or of Applicable Legislation or
pursuant to a request of the Warrant Agent, provided that such
evidence complies with Applicable Legislation and that the Warrant
Agent complies with Applicable Legislation and that the Warrant
Agent examines the same and determines that such evidence complies
with the applicable requirements of this Indenture. The Warrant
Agent shall be under no responsibility in respect of the validity
of this Indenture or the execution and delivery hereof by or on
behalf of the Company or in respect of the validity or the
execution of any Warrant Certificate by the Company and issued
hereunder, nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Indenture or
in any such Warrant Certificate; nor shall it by any act hereunder
be deemed to make any representation or warranty as to the
authorization or reservation of any securities to be issued upon
the right to acquire provided for in this Indenture and/or in any
Warrant or as to whether any securities will when issued be duly
authorized or be validly issued and fully paid and
non-assessable.
(3) Whenever
provided for in this Indenture or Applicable Legislation requires
that the Company deposit with the Warrant Agent resolutions,
certificates, reports, opinions, requests, orders or other
documents, it is intended that the truth, accuracy and good faith
on the effective date thereof and the facts and opinions stated in
all such documents so deposited shall, in each and every such case,
be conditions precedent to the right of the Company to have the
Warrant Agent take the action to be based thereon.
(4) Proof
of the execution of an instrument in writing, including a
Warrantholders' Request, by any Warrantholder may be made by a
certificate of a notary public or other person with similar powers
that the person signing such instrument acknowledged to him the
execution thereof, or by an affidavit of a witness to such
execution or in any other manner which the Warrant Agent may
consider adequate and in respect of a corporate Warrantholder,
shall include a certificate of incumbency of such Warrantholder
together with a certified resolution authorizing the person who
signs such instrument to sign such instrument.
(5) The
Warrant Agent may act and rely and shall be protected in acting and
relying upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, letter, or other
paper document believed by it to be genuine and to have been
signed, sent or presented by or on behalf of the proper party or
parties. The Warrant Agent has sole discretion and shall be
protected in acting and relying upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent,
order, letter or other paper document received in facsimile or
e-mail form.
(6) The
WarrantAgent may employ or retain such counsel, accountants,
engineers, appraisers or other experts or advisers as it may
reasonably require for the purpose of determining and discharging
its duties hereunder and shall pay reasonable remuneration for all
services so performed by any of them, without taxation of costs of
any counsel and shall not be responsible for any misconduct or
negligence on the part of any of them who has been selected with
due care by the Warrant Agent. Any reasonable remuneration paid by
the Warrant Agent shall be paid by the Company in accordance with
Section 4.2.
(7) The
Warrant Agent may act and rely and shall be protected in acting and
relying in good faith on the opinion or advice of or information
obtained from any counsel, accountant, appraiser, engineer or other
expert or advisor, whether retained or employed by the Company or
the Warrant Agent, in relation to any matter arising in fulfilling
its duties and obligations hereof.
(8) The
Warrant Agent may, as a condition precedent to any action to be
taken by it under this Indenture, require such opinions, statutory
declarations, reports, certificates or other evidence as it, acting
reasonably, considers necessary or advisable in the
circumstances.
(9) The
Warrant Agent is not required to expend or place its own funds at
risk in executing its duties and obligations.
8.4 Securities.
Documents and Monies Held by Warrant Agent
(1) Any securities, documents of title, monies or
other instruments that may at any time be held by the Warrant Agent
subject to the duties and obligations hereof, for the benefit of
the Company, may be placed in the deposit vaults of the Warrant
Agent or of any Schedule 1 Canadian chartered bank under the
Bank Act
(Canada) or deposited for safekeeping
with any such bank or the Warrant Agent. Any monies held pending
the application or withdrawal thereof under any provisions of this
Indenture, shall be held, invested and reinvested in "Permitted
Investments" as directed in writing by the Company. "Permitted
Investments" shall be treasury bills guaranteed by the Government
of Canada having a term to maturity not to exceed ninety (90) days,
or term deposits or bankers' acceptances of a Canadian chartered
bank having a term to maturity not to exceed ninety (90) days, or
such other investments that is in accordance with the Warrant
Agent's standard type of investments. Unless otherwise specifically
provided herein, all interest or other income received by the
Warrant Agent in respect of such deposits and investments shall
belong to the Company and shall be paid to the Company upon
discharge of this Indenture.
(2) Any
written direction for the investment or release of funds received
shall be received by the Warrant Agent by 9:00 a.m. (Calgary time)
on the Business Day on which such investment or release is to be
made, failing which such direction will be handled on a
commercially reasonable efforts basis and may result in funds being
invested or released on the next Business Day.
(3) The
Warrant Agent shall have no responsibility or liability for any
diminution of any funds resulting from any investment made in
accordance with this Indenture, including any losses on any
investment liquidated prior to maturity in order to make a payment
required hereunder.
(4) In
the event that the Warrant Agent does not receive a direction or
only a partial direction, the Warrant Agent may hold cash balances
constituting part or all of such monies and may, but need not,
invest same in its deposit department, the deposit department of
one of its affiliates, or the deposit department of a Canadian
chartered bank; but the Warrant Agent, its affiliates or a Canadian
chartered bank shall not be liable to account for any profit to any
parties to this Indenture or to any other person or
entity.
8.5 Actions
by Warrant Agent to Protect Interests
The
Warrant Agent shall have the power to institute and to maintain
such actions and proceedings as it may consider necessary or
expedient to preserve, protect or enforce its interests and the
interests of the Warrantholders pursuant to the provisions of this
Indenture.
8.6 Warrant
Agent not Required to Give Security
The
Warrant Agent shall not be required to give any bond or security in
respect of the execution of the duties and obligations of this
Indenture or otherwise.
8.7 Protection
of Warrant Agent
By
way of supplement to the provisions of any law for the time being
relating to warrant agents, it is expressly declared and agreed as
follows:
(1) The
Warrant Agent shall not be liable for or by reason of any
representations, statements of fact or recitals in this Indenture
or in the Warrants (except the representation contained in Section
8.9 or in the Authentication of the Warrant Agent on the Warrants)
or be required to verify the same and all such statements of fact
or recitals are and shall be deemed to be made by the
Company.
(2) Nothing
herein contained shall impose any obligation on the Warrant Agent
to see to or to require evidence of the registration or filing (or
renewal thereof) of this Indenture or any instrument ancillary or
supplemental hereto.
(3) The
Warrant Agent shall not be bound to give notice to any person or
persons of the execution hereof.
(4) The
Warrant Agent shall not incur any liability or responsibility
whatsoever or be in any way responsible for the consequence of any
breach on the part of the Company of any of the covenants or
warranties herein contained or of any acts of any directors,
officers, employees, agents or servants of the
Company.
(5) Without limiting any protection or indemnity of
the Warrant Agent under any other provision hereof, or otherwise at
law, the Company hereby agrees to indemnify and hold harmless the
Warrant Agent and its affiliates, directors, officers, agents and
employees, successors and assigns (the "Indemnified Parties")
from and against any and all
liabilities whatsoever, losses, damages, penalties, claims,
demands, proceedings, charges, actions, suits, costs, expenses and
disbursements, including reasonable legal or advisor fees and
disbursements on a solicitor and client basis, of whatever kind and
nature which may at any time be imposed on, incurred by or asserted
against the Indemnified Parties, or any of them, whether at law or
in equity, in any way caused by or arising from the performance of
its duties hereunder, directly or indirectly, in respect of any
act, deed, matter or thing whatsoever made, done, acquiesced in or
omitted in or about or in relation to the execution of the
Indemnified Parties' duties, or any other services that Warrant
Agent may provide in connection with or in any way relating to this
Indenture. The Company agrees that its liability hereunder shall be
absolute and unconditional regardless of the correctness of any
representations of any third parties and regardless of any
liability of third parties to the Indemnified Parties, and shall
accrue and become enforceable without prior demand or any other
precedent action or proceeding; provided that the Company shall not
be required to indemnify the Indemnified Parties in the event of
the gross negligence, fraud or wilful misconduct of the Warrant
Agent, and this provision shall survive the resignation or removal
of the Warrant Agent or the termination or discharge of this
Indenture.
(6) Notwithstanding
the foregoing or any other provision of this Indenture, any
liability of the Warrant Agent shall be limited, in the aggregate,
to the amount of annual retainer fees paid by the Company to the
Warrant Agent under this Indenture in the twelve (12) months
immediately prior to the Warrant Agent receiving the first notice
of the claim; provided that this limitation shall not apply in
respect of any gross negligence, fraud or wilful misconduct of the
Warrant Agent. Notwithstanding any other provision of this
Indenture, and whether such losses or damages are foreseeable or
unforeseeable, the Warrant Agent shall not be liable under any
circumstances whatsoever for any (a) breach by any other party of
securities law or other rule of any securities regulatory
authority, (b) lost profits or (c) special, indirect, incidental,
consequential, exemplary, aggravated or punitive losses or
damages.
(7) If
any of the funds provided to the Warrant Agent hereunder are
received by it in the form of an uncertified cheque or bank draft,
the Warrant Agent shall delay the release of such funds and the
related Warrant Shares until such uncertified cheque has cleared
the financial institution upon which the same is
drawn.
(8) The
forwarding of a cheque or the sending of funds by wire transfer by
the Warrant Agent will satisfy and discharge the liability of any
amounts due to the extent of the sum represented thereby unless
such cheque is not honoured on presentation, provided that in the
event of the non-receipt of such cheque by the payee, or the loss
or destruction thereof, the Warrant Agent, upon being furnished
with reasonable evidence of such non-receipt, loss or destruction
and indemnity reasonably satisfactory to it, will issue to such
payee a replacement cheque for the amount of such
cheque.
(9) The
Warrant Agent shall retain the right not to act and shall not be
liable for refusing to act if, due to a lack of information or for
any other reason whatsoever, the Warrant Agent, in its sole
judgement, determines that such act might cause it to be in
non-compliance with any applicable anti-money laundering,
anti-terrorist or economic sanctions legislation, regulation or
guideline. Further, should the Warrant Agent, in its sole
judgement, determine at any time that its acting under this
Indenture has resulted in its being in non-compliance with any
applicable anti-money laundering, anti-terrorist or economic
sanctions legislation, regulation or guideline, then it shall have
the right to resign on ten (10) days' written notice to the Company
provided: (i) that the Warrant Agent's written notice shall
describe the circumstances of such non-compliance; and (ii) that if
such circumstances are rectified to the Warrant Agent's
satisfaction within such ten (10) day period, then such resignation
shall not be effective.
8.8 Replacement
of Warrant Agent
(1) The
Warrant Agent may resign its appointment and be discharged from all
further duties and liabilities hereunder by giving to the Company
not less than sixty (60) days prior notice in writing or such
shorter prior notice as the Company may accept as sufficient. The
Warrantholders by extraordinary resolution shall have the power at
any time to remove the existing Warrant Agent and to appoint a new
warrant agent. In the event of the Warrant Agent resigning or being
removed as aforesaid or being dissolved, becoming bankrupt, going
into liquidation or otherwise becoming incapable of acting
hereunder, the Company shall forthwith appoint a new warrant agent
unless a new warrant agent has already been appointed by the
Warrantholders; failing such appointment by the Company, the
retiring Warrant Agent or any Warrantholder may apply to a justice
of the Ontario Superior Court of Justice (the "Court") at the
Company's expense, on such notice as such justice may direct, for
the appointment of a new warrant agent; but any new warrant agent
so appointed by the Company or by the Court shall be subject to
removal as aforesaid by the Warrantholders. Any new warrant agent
appointed under any provision of this Section 8.8 shall be a
corporation authorized to carry on the business of a transfer agent
or a trust company in one or more provinces of Canada and, if
required by Applicable Legislation of any province, in such
province. On any such appointment the new warrant agent shall be
vested with the same powers, rights, duties and responsibilities as
if it had been originally named herein as Warrant Agent without any
further assurance, conveyance, act or deed; but there shall be
immediately executed, at the expense of the Company, all such
conveyances or other instruments as may, in the opinion of counsel,
be necessary or advisable for the purpose of assuring the same to
the new warrant agent, provided that any resignation or removal of
the Warrant Agent and appointment of a successor warrant agent
shall not become effective until the successor warrant agent shall
have executed an appropriate instrument accepting such appointment
and, at the request of the Company, the predecessor Warrant Agent,
upon payment of its outstanding remuneration and expenses, shall
execute and deliver to the successor warrant agent an appropriate
instrument transferring to such successor warrant agent all rights
and powers of the Warrant Agent hereunder and all securities,
documents of title and other instruments and all monies and
properties held by the Warrant Agent hereunder.
(2) Upon
the appointment of a successor warrant agent, the Company shall
promptly notify the Warrantholders thereof in the manner provided
for in Section 9.2.
(3) Any
corporation into or with which the Warrant Agent may be merged or
consolidated or amalgamated, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without any further act on
its part or of any of the parties hereto, provided that such
corporation would be eligible for appointment as a new warrant
agent under Section 8.8(1).
(4) Any
Warrants Authenticated or certified but not delivered by a
predecessor Warrant Agent may be Authenticated or certified by the
new or successor warrant agent in the name of the predecessor or
the new or successor warrant agent.
8.9 Conflict
of Interest
(1) The
Warrant Agent represents to the Company, to the best of its
knowledge, that at the time of execution and delivery hereof no
material conflict of interest exists which it is aware of in the
Warrant Agent's role hereunder and agrees that in the event of a
material conflict of interest arising which it becomes aware of
hereafter it will, within ninety (90) days after ascertaining that
it has such a material conflict of interest, either eliminate the
same or resign its appointment hereunder. If any such material
conflict of interest exists or hereafter shall exist, the validity
and enforceability of this Indenture and the Warrants shall not be
affected in any manner whatsoever by reason thereof.
(2) Subject
to Section 8.9(1), the Warrant Agent, in its personal or any other
capacity, may buy, lend upon and deal in securities of the Company
and generally may contract and enter into financial transactions
with the Company or any Subsidiary without being liable to account
for any profit made thereby.
8.10 Acceptance
of Duties and Obligations
The
Warrant Agent hereby accepts the duties and obligations in this
Indenture declared and provided for and agrees to perform the same
upon the terms and conditions herein set forth and agrees to hold
all rights, interests and benefits contained herein on behalf of
those persons who become holders of Warrants from time to time
issued under this Indenture.
8.11 Warrant
Agent not to be Appointed Receiver
The
Warrant Agent and any person related to the Warrant Agent shall not
be appointed a receiver or receiver and manager or liquidator of
all or any part of the assets or undertaking of the Company or any
Subsidiary or any partnership of which the Company is directly or
indirectly involved.
8.12 Authorization
to Carry on Business
The
Warrant Agent represents to the Company that it is registered to
carry on business under Applicable Legislation in the provinces of
Alberta and British Columbia.
ARTICLE 9 GENERAL
9.1 Notice
to the Company and the Warrant Agent
(1) Unless
herein otherwise expressly provided, any notice to be given
hereunder to the Company or the Warrant Agent shall be deemed to be
validly given if delivered, if sent by registered letter, postage
prepaid or if transmitted by email to the following addresses or
facsimile numbers:
(a) If to the Company,
to:
Planet 13 Holdings
Inc.
2548 West Desert
Inn Road
Las Vegas,
Nevada
89109
Attention:
Leighton Koehler
E-mail:
[REDACTED]
with a copy
to:
Wildeboer Dellelce
LLP
396 Bay Street,
Suite 80
Toronto,
ON
M5H
2V1
Attention:
Charlie Malone
E-mail:
[REDACTED]
(b) If to the Warrant
Agent, to:
Odyssey
Trust Company
Suite
1230, 300 5th Avenue
SW
Calgary,
Alberta
T2P
3C4
Attention:
Dan Sander
Email:
[REDACTED]
and
any notice given in accordance with the foregoing shall be deemed
to have been received on the date of delivery if that date is a
Business Day (and if that date is not a Business Day, on the next
Business Day) or, if mailed, on the fifth Business Day following
the date of the postmark on such notice or, if transmitted by
email, on the Business Day following the transmission.
(2) The
Company or the Warrant Agent, as the case may be, may from time to
time
notify the other in the manner provided in Section 9.1(1) of a
change of address which, from the effective date of such notice and
until changed by like notice, shall be the address of the Company
or the Warrant Agent, as the case may be, for all purposes of this
Indenture.
(3) If,
by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to
the Warrant Agent or to the Company hereunder could reasonably be
considered unlikely to reach its destination, the notice shall be
valid and effective only if it is delivered to an officer of the
party to which it is addressed or if it is delivered to that party
at the appropriate address provided in Section 9.1(1) by facsimile
or other means of prepaid, transmitted or recorded communication
and any notice delivered in accordance with the foregoing shall be
deemed to have been received on the date of delivery to the officer
or if delivered by facsimile or other means of prepaid,
transmitted, recorded communication on the third Business Day
following the date of the sending of the notice by the person
giving the notice.
9.2 Notice
to the Warrantholders
(1) Any
notice to the Warrantholders under the provisions of this Indenture
shall be deemed to be validly given if the notice is sent by
prepaid mail or, if delivered by hand, to the holders at their
addresses appearing in the register of holders. Any notice so
delivered shall be deemed to have been received on the date of
delivery if that date is a Business Day or the Business Day
following the date of delivery if such date is not a Business Day
or on the third Business Day if delivered by mail. All notices may
be given to whichever one of the Warrantholders (if more than one)
is named first in the appropriate register hereinbefore mentioned,
and any notice so given shall be sufficient notice to all
Warrantholders and any other persons (if any) interested in such
Warrants. Accidental error or omission in giving notice or
accidental failure to mail notice to any Warrantholder will not
invalidate any action or proceeding founded thereon.
(2) If,
by reason of strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to
the Warrantholders could reasonably be considered unlikely to reach
its destination, the notice may be given in a news release
disseminated through a newswire service, filed on SEDAR and posted
on the Company's website; provided that in the case of a notice
convening a meeting of the holders of Warrants, the Warrant Agent
may require such additional publications of that notice, in
Toronto, Ontario or in other cities or both, as it may deem
necessary for the reasonable notification of the holders of
Warrants or to comply with any applicable requirement of law or any
stock exchange. Any notice so given shall be deemed to have been
given on the day on which it has been published in all of the
cities in which publication was required.
9.3 Privacy
The
Company acknowledges that the Warrant Agent may, in the course of
providing services hereunder, collect or receive financial and
other personal information about such parties and/or their
representatives, as individuals, or about other individuals related
to the subject matter hereof, and use such information for the
following purposes:
(a) to
provide the services required under this Indenture and other
services that may be requested from time to time;
(b) to
help the Warrant Agent manage its servicing relationships with such
individuals;
(c) to
meet the Warrant Agent's legal and regulatory requirements;
and
(d) if
Social Insurance Numbers are collected by the Warrant Agent, to
perform tax reporting and to assist in verification of an
individual's identity for security purposes.
The
Company acknowledges and agrees that the Warrant Agent may receive,
collect, use and disclose personal information provided to it or
acquired by it in the course of its acting as agent hereunder for
the purposes described above and, generally, in the manner and on
the terms described in its privacy code, which the Warrant Agent
shall make available on its website or upon request, including
revisions thereto. Some of this personal information may be
transferred to servicers in the United States for data processing
and/or storage. Further, the Company agrees that it shall not
provide or cause to be provided to the Warrant Agent any personal
information relating to an individual who is not a party to this
Indenture unless the Company has assured itself that such
individual understands and has consented to the aforementioned uses
and disclosures.
9.4 Third
Party Interests
The
Company represents to the Warrant Agent that any account to be
opened by, or interest to held by the Warrant Agent in connection
with this Indenture, for or to the credit of such party, either (i)
is not intended to be used by or on behalf of any third party; or
(ii) is intended to be used by or on behalf of a third party, in
which case such party hereto agrees to complete and execute
forthwith a declaration in the Warrant Agent prescribed form as to
the particulars of such third party.
9.5 Securities
Exchange Commission Certification
The Company confirms that as at the date of this
Indenture it does not have a class of securities registered
pursuant to section 12 of the U.S. Securities and Exchange Act of
1934, as amended (the "Exchange Act")
or have a reporting obligation
pursuant to section 15(d) of the Exchange Act.
The Company covenants that in the event that (i)
any class of its securities shall become registered pursuant to
section 12 of the Exchange Act or the Company shall incur a
reporting obligation pursuant to section 15(d) of the Exchange Act,
or (ii) any such registration or reporting obligation shall be
terminated by the Company in accordance with the Exchange Act, the
Company shall promptly deliver to the Warrant Agent an Officer's
Certificate (in a form provided by the Warrant Agent) notifying the
Warrant Agent of such registration or termination and such other
information as the Warrant Agent may reasonably require at the
time. The Company acknowledges that the Warrant Agent is relying
upon the foregoing representation and covenants in order to meet
certain United States Securities and Exchange Commission
("SEC")
obligations with respect to those
clients who are filing with the SEC.
9.6 Discretion
of Directors
Any
matter provided herein to be determined by the directors in their
sole discretion and determination so made will be
conclusive.
9.7 Satisfaction
and Discharge of Indenture
Upon
the earlier of the Time of Expiry or the date by which there shall
have been delivered to the Warrant Agent for exercise or
destruction in accordance with the provisions hereof all Warrants
theretofore Authenticated or certified hereunder and by which no
Warrants shall remain issuable hereunder, this Indenture, except to
the extent that Warrant Shares and any certificates therefor have
not been issued and delivered hereunder or the Company has not
performed any of its obligations hereunder, shall cease to be of
further effect in respect of the Company, and the Warrant Agent, on
written demand of and at the cost and expense of the Company, and
upon delivery to the Warrant Agent of a certificate of the Company
stating that all conditions precedent to the satisfaction and
discharge of this Indenture have been complied with and upon
payment to the Warrant Agent of the expenses, fees and other
remuneration payable to the Warrant Agent, shall execute proper
instruments acknowledging satisfaction of and discharging this
Indenture; provided that if the Warrant Agent has not then
performed any of its obligations hereunder any such satisfaction
and discharge of the Company's obligations hereunder shall not
affect or diminish the rights of any Warrantholder or the Company
against the Warrant Agent.
9.8 Provisions
of Indenture and Warrants for the Sole Benefit of Parties
andWarrantholders
Nothing
in this Indenture or the Warrant Certificates, expressed or
implied, shall give or be construed to give to any person other
than the parties hereto and the holders from time to time of the
Warrants any legal or equitable right, remedy or claim under this
Indenture, or under any covenant or provision therein contained,
all such covenants and provisions being for the sole benefit of the
parties hereto and the Warrantholders.
9.9 Indenture
to Prevail
To
the extent of any discrepancy or inconsistency between the terms
and conditions of this Indenture and the Warrant Certificate, the
terms of this Indenture will prevail.
9.10 Assignment
This
Indenture nor any benefits or burdens under this Indenture shall be
assignable by the Company or the Warrant Agent without the prior
written consent of the other party, such consent not to be
unreasonably withheld. Subject to the foregoing, this Indenture
shall enure to the benefit of and be binding upon the Company and
the Warrant Agent and their respective successors (including any
successor by reason of amalgamation) and permitted
assigns.
9.11 Severability
If,
in any jurisdiction, any provision of this Indenture or its
application to any party or circumstance is restricted, prohibited
or unenforceable, such provision will, as to such jurisdiction, be
ineffective only to the extent of such restriction, prohibition or
unenforceability without invalidating the remaining provisions of
this Indenture and without affecting the validity or enforceability
of such provision in any other jurisdiction or without affecting
its application to other parties or circumstances.
9.12 Force
Maieure
No
party shall be liable to the other, or held in breach of this
Indenture, if prevented, hindered, or delayed in the performance or
observance of any provision contained herein by reason of act of
God, riots, terrorism, acts of war, epidemics, governmental action
or judicial order, earthquakes, or any other similar causes
(including, but not limited to, mechanical, electronic or
communication interruptions, disruptions or failures). Performance
times under this Indenture shall be extended for a period of time
equivalent to the time lost because of any delay that is excusable
under this section.
9.13 Rights
of Rescission and Withdrawal for Holders
Should
a holder of Warrants exercise any legal, statutory, contractual or
other right of withdrawal or rescission that may be available to
it, and the holder’s funds which were paid on exercise have
already been released to the Company by the Warrant Agent, the
Warrant Agent shall not be responsible for ensuring the exercise is
cancelled and a refund is paid back to the holder. In such cases,
the holder shall seek a refund directly from the Company and
subsequently, the Company, upon surrender to the Company or the
Warrant Agent of any underlying Warrant Shares or other securities
that may have been issued, or such other procedure as agreed to by
the parties hereto, shall instruct the Warrant Agent in writing to
cancel the exercise transaction and any such underlying Warrant
Shares or other securities on the register that may have already
been issued upon the Warrant exercise. In the event that any
payment is received from the Company by virtue of the holder being
a shareholder for such Warrants that were subsequently rescinded,
such payment must be returned to the Company by such holder. The
Warrant Agent shall not be under any duty or obligation to take any
steps to ensure or enforce the return of the funds pursuant to this
section, nor shall the Warrant Agent be in any other way
responsible in the event that any payment is not delivered or
received pursuant to this section. Notwithstanding the foregoing,
in the event that the Company provides the refund to the Warrant
Agent for distribution to the holder, the Warrant Agent shall
return such funds to the holder as soon as reasonably practicable,
and in so doing, the Warrant Agent shall incur no liability with
respect to the delivery or non-delivery of any such
funds.
9.14 Counterparts
and Formal Date
This
Indenture may be simultaneously executed in several counterparts,
each of which when so executed shall be deemed to be an original
and such counterparts together shall constitute one and the same
instrument and notwithstanding their date of execution shall be
deemed to bear the date set out at the top of the first page of
this Indenture.
(Signature page follows)
IN WITNESS WHEREOF
the parties hereto have executed this
Indenture under the hands of their proper officers in that
behalf.
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PLANET 13 HOLDINGS
INC.
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By:
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/s/ Dennis
Logan
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Dennis
Logan
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Chief
Financial Officer
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ODYSSEY TRUST COMPANY
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By:
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/s/ Dan
Sander
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Dan Sander
VP, Corporate
Trust
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By:
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/s/ Amy
Douglas
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Amy Douglas
Director, Corporate Trust
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SCHEDULE“A”
[For Warrants issued in the United States or to, or for the account
or benefit of, U.S. Persons, also include the following
legends:]
THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE ON
EXERCISE HEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S.
SECURITIES ACT") OR UNDER ANY STATE SECURITIES LAWS, AND THE
SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE ON
EXERCISE HEREOF MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
DIRECTLY OR INDIRECTLY, ONLY (A) TO THE COMPANY, (B) OUTSIDE THE
UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE U.S.
SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND
REGULATIONS, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE U.S. SECURITIES ACT PROVIDED BY (i) RULE 144 OR (ii) RULE144A
THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH APPLICABLE U.S.
STATE SECURITIES LAWS, (D) IN COMPLIANCE WITH ANOTHER EXEMPTION
FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS, OR (E) UNDER AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE U.S. SECURITIES ACT, PROVIDED THAT IN THE CASE
OF TRANSFERS PURSUANT TO (C)(i) OR (D) ABOVE, A LEGAL OPINION OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, MUST FIRST
BE PROVIDED TO THE COMPANY AND THE COMPANY'S TRANSFER AGENT TO THE
EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE
U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. DELIVERY
OF THIS CERTIFICATE MAY NOT CONSTITUTE GOOD DELIVERY" IN SETTLEMENT
OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.
THIS WARRANT MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON
BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A PERSON IN THE UNITED
STATES OR A U.S. PERSON UNLESS THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS
AVAILABLE. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED BY
REGULATION S UNDER THE U.S. SECURITIES ACT.
FORM OF WARRANT CERTIFICATE
WARRANTS TO PURCHASE COMMON SHARES
OF PLANET 13 HOLDINGS INC.
(a company existing under the laws of British
Columbia)
CUSIP
No. 72706K150 ISIN
No.
CA72706K1509
Warrant Certificate Number: ●
Representing ● Warrants
to
purchase
Common Shares (as defined below)
THIS CERTIFIES
that, for value received, the
registered holder hereof, ● (the "holder") is entitled at any time at or before the Expiry
Time (as defined below) to acquire, subject to adjustment in
certain events, the number of Common Shares ("Common Shares")
of Planet 13 Holdings Inc. (the
"Company")
specified above, as presently
constituted, by surrendering to Odyssey Trust Company (the
"Warrant
Agent") at its principal office
in Calgary, Alberta, this Warrant Certificate with the duly
completed and executed Exercise Form endorsed on the back of this
Warrant Certificate, and accompanied by payment of $5.80 per Common
Share (the "Warrant Exercise
Price") by certified cheque,
bank draft or money order in lawful money of Canada payable to, or
to the order of, the Company at par at the above-mentioned office
of the Warrant Agent. The holder of this Warrant Certificate may
purchase less than the number of Common Shares which he is entitled
to purchase on the exercise of the Warrants represented by this
Warrant Certificate, in which event a new Warrant Certificate
representing the Warrants not then exercised will be issued to the
holder.
The Warrants evidenced under this Warrant
Certificate are exercisable on or before 5:00 p.m. (Toronto time)
(the "Expiry
Time") on November 5, 2022
(the "Expiry
Date"). After the Expiry Time,
Warrants evidenced hereby shall be deemed to be void and of no
further force or effect.
This Warrant Certificate represents Warrants of
the Company issued or issuable under the provisions of a warrant
indenture (which indenture together with all other instruments
supplemental or ancillary thereto is herein referred to as
the "Warrant
Indenture") dated as of
November 5, 2020, between the Company and the Warrant Agent, as may
be amended from time to time, which contains particulars of the
rights of the holders of the Warrants and the Company and of the
Warrant Agent in respect thereof and the terms and conditions upon
which the Warrants are issued and held, all to the same effect as
if the provisions of the Warrant Indenture were herein set forth,
to all of which the holder of this Warrant Certificate by
acceptance hereof assents. Unless otherwise defined herein, all
capitalized terms shall have the meanings ascribed to them in the
Warrant Indenture. A copy of the Warrant Indenture can be requested
by contacting the Warrant Agent. In the event of any conflict
between the provisions contained in this Warrant Certificate and
the provisions of the Warrant Indenture, the provisions of the
Warrant Indenture shall prevail.
Upon
acceptance hereof, the holder hereof hereby expressly waives the
right to receive any fractional Common Shares upon the exercise
hereof in full or in part and further waives the right to receive
any cash or other consideration in lieu thereof. The Warrants
represented by this Warrant Certificate shall be deemed to have
been surrendered, and payment by certified cheque, bank draft or
money order shall be deemed to have been made only upon personal
delivery thereof or, if sent by post or other means of
transmission, upon actual receipt thereof by the Warrant Agent at
its office in the City of Calgary, Alberta.
Upon
due exercise of the Warrants represented by this Warrant
Certificate and payment of the Warrant Exercise Price, the Company
shall cause to be issued to the person(s) in whose name(s) the
Common Shares have been so subscribed for, the number of Common
Shares to be issued to such person(s) (provided that if the Common
Shares are to be issued to a person other than the registered
holder of this Warrant Certificate, the holder's signature on the
Exercise Form herein shall be guaranteed by a Schedule I Canadian
chartered bank or by a medallion signature guarantee from a member
of a recognized Signature Medallion Guarantee Program), and the
holder shall pay to the Company or the Warrant Agent all applicable
transfer or similar taxes and the Company shall not be required to
issue or deliver certificates evidencing the Common Shares unless
or until the holder shall have paid the Company or the Warrant
Agent the amount of such tax (or shall have satisfied the Company
that such tax has been paid or that no tax is due), and such
person(s) shall become a holder in respect of such Common Shares
with effect from the date of such exercise, and upon due surrender
of this Warrant Certificate, the Transfer Agent shall issue a
certificate(s) representing such Common Shares to be issued within
five Business Days after the exercise of the Warrants (or portion
thereof) represented hereby.
Neither the Warrants represented by this Warrant
Certificate nor the Common Shares issuable upon exercise hereof
have been or will be registered under the United States Securities
Act of 1933, as amended (the “U.S. Securities
Act”), or any state
securities laws. The Warrants represented by this Warrant
Certificate may not be exercised within the United States or by, or
for the account or benefit of, a U.S. person or a person within the
United States unless registered under the U.S. Securities Act and
any applicable state securities laws or unless an exemption from
such registration is available. Certificates representing Common
Shares issued in the United States or to, or for the account or
benefit of, U.S. persons will bear a legend restricting the
transfer and exercise of such securities under applicable United
States federal and state securities laws. "United States" and "U.S.
person" are as defined in Regulation S under the U.S. Securities
Act.
The
holder acknowledges that the Warrants represented by this Warrant
Certificate and the Common Shares issuable upon exercise hereof may
be offered, sold or otherwise transferred only in compliance with
all applicable securities laws.
No
transfer of any Warrant will be valid unless entered on the
register of transfers, upon surrender to the Warrant Agent of the
Warrant Certificate evidencing such Warrant, duly endorsed by, or
accompanied by a transfer form or other written instrument of
transfer in form satisfactory to the Warrant Agent executed by the
registered holder or his executors, administrators or other legal
representatives or his or their attorney duly appointed by an
instrument in writing in form and execution satisfactory to the
Warrant Agent. Subject to the provisions of the Warrant Indenture
and upon compliance with the reasonable requirements of the Warrant
Agent, Warrant Certificates may be exchanged for Warrants
Certificates entitling the holder thereof to acquire an equal
aggregate number of Common Shares subject to adjustment as provided
for in the Warrant Indenture. The Company and the Warrant Agent may
treat the registered holder of this Warrant Certificate for all
purposes as the absolute owner hereof. The holding of the Warrants
represented by this Warrant Certificate shall not constitute the
holder hereof a holder of Common Shares nor entitle him to any
right or interest in respect thereof except as herein and in the
Warrant Indenture expressly provided.
The
Warrant Indenture provides for adjustment in the number of Common
Shares to be delivered upon exercise of the right of purchase
hereby granted and to the Warrant Exercise Price in certain events
therein set forth.
The
Warrant Indenture contains provisions making binding upon all
holders of Warrants outstanding thereunder resolutions passed at
meetings of such holders held in accordance with such provisions
and instruments in writing signed by the holders entitled to
acquire upon the exercise of the Warrants a specified percentage of
the Common Shares.
The
Warrants and the Warrant Indenture shall be governed by and
performed, construed and enforced in accordance with the laws of
the Province of Ontario and the federal laws of Canada applicable
therein and shall be treated in all respects as Ontario contracts.
Time shall be of the essence hereof and of the Warrant
Indenture.
The
Company may from time to time at any time prior to the Expiry Time
purchase any of the Warrants by private agreement or
otherwise.
This
Warrant Certificate shall not be valid for any purpose until it has
been certified by or on behalf of the Warrant Agent for the time
being under the Warrant Indenture.
All
dollar amounts herein are expressed in the lawful money of
Canada.
(Signature page follows)
IN WITNESS WHEREOF the Company has
caused this Warrant Certificate to be signed by its duly
authorized officer as of this _________ day of ________,
20
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PLANET 13 HOLDINGS
INC.
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By:
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Authorized Signing
Officer
Countersigned this
_______ day
of ______,
20
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ODYSSEY
TRUST COMPANY
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By:
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Authorized Signing
Officer
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EXERCISE FORM
TO:
Planet
13 Holdings Inc.
c/o Odyssey Trust Company
Suite 1230, 300 5th
Avenue SW
Calgary, Alberta T2P 3C4
The
undersigned holder of the within Warrants hereby irrevocably
exercises the right of such holder to
be issued and hereby subscribes
for
Common Shares of Planet 13 Holdings Inc. (the "Company") at the Warrant Exercise Price referred to in the
attached Warrant Certificate on the terms and conditions set forth
in such certificate and the Warrant Indenture and encloses herewith
a certified cheque, bank draft or money order payable at par in the
City of Calgary, in the Province of Alberta to the order of the
Company in payment in full of the subscription price of the Common
Shares hereby subscribed for.
Unless otherwise defined herein, all capitalized terms shall have
the meanings ascribed to them in the warrant indenture between the
Company and Odyssey Trust Company dated November 5,
2020.
(Please check the ONE box applicable):
☐ 1. The
undersigned certifies that it (i) is not in the United States and
is not a "U.S.
person", within the meaning of Regulation S under
the United States Securities Act of 1933, as amended (the
"U.S. Securities
Act"), (ii) is not exercising
this Warrant for the account or benefit of any U.S. Person or
person in the United States, (iii) did not execute or deliver this
Exercise Form within the United States and (iv) has in all other
aspects complied with the terms of Regulation S under the U.S.
Securities Act.
☐ 2. The
undersigned certifies that it (i) purchased the Warrants as a part
of the Units
in
the Offering; (ii) is exercising the Warrants solely for its own
account or for the benefit of a U.S. Person or a person in the
United States for whose account such holder acquired the Warrants
as a part of the Units in the Offering and for whose account such
holders exercises sole investment discretion; (iii) was and is, and
any beneficial purchaser for whose account such holder acquired the
Warrant and is exercising the Warrants was and is, a Oualified
Institutional Buyer both on the date the Units were purchased in
the Offering and on the Exercise Date; and (iv) the representations
and warranties made by the holder or any beneficial purchaser, as
the case may be, to the Company in such holder’s GIB Letter
remain true and correct on the Exercise Date.
☐ 3.
The undersigned is delivering a written opinion of United States
legal counsel or
evidence
satisfactory to the Company to the effect that the Warrant and the
Common Shares to be delivered upon exercise hereof have been
registered under the U.S. Securities Actor are exempt from the
registration requirements of the U.S. Securities Act and applicable
state securities laws.
It is understood that the Company may require evidence to verify
the foregoing representations.
The undersigned hereby directs that the said Common Shares be
issued as follows:
NAME(S) IN FULL
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ADDRESS(ES)
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NUMBER OF COMMON SHARES
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Please print full name in which certificates representing the
Common Shares are to be issued. If any Common Shares are to be
issued to a person or persons other than the registered holder, the
registered holder must pay to the Warrant Agent all eligible
transfer taxes or other government charges, if any, and the
Transfer Form must be duly executed.
Once completed and executed, this Exercise Form must be mailed or
delivered to Odyssey Trust Company, c/o Corporate
Trust.
)
)
Witness
)
(Signature of Warrantholder, to be the same as
)
appears on the face of this Warrant Certificate)
Name
of Registered Warrantholder
[ ]
Please check this box if the securities are to be delivered at the
office where these
Warrants
are surrendered, failing which the securities will be
mailed.
NOTES:
1.
Certificates
will not be registered or delivered to an address in the United
States unless Box 2 or Box 3 above is checked.
2.
If
Box 3 above is checked, holders are encouraged to contact the
Company in advance to determine that the legal opinion or evidence
tendered in connection with exercise will be satisfactory in form
and substance to the Company.
TRANSFER FORM
TO:
Planet
13 Holdings Inc.
c/o Odyssey Trust
Company Suite 1230, 300
5th
Avenue SW Calgary,
Alberta T2P 3C4
FOR VALUE RECEIVED, the undersigned transferor hereby sells,
assigns and transfers unto
(Transferee)
(Address)
(Social Insurance Number)
of the Warrants registered in the name of
the undersigned transferor represented by the Warrant
Certificate.
In the case of a Warrant Certificate that contains a U.S.
restrictive legend, the undersigned hereby represents, warrants and
certifies that (one (only) of the following must be
checked):
☐ (A)
the transfer is being made only to the Company; or
☐ (B)
the transfer is being made outside the United States
in
accordance with Regulation S under the United
States Securities Act of 1933, as amended (the
“U.S.
Securities Act”), and in
compliance with any applicable local securities laws and
regulations and the holder has provided herewith the Declaration
for Removal of Legend attached as Schedule "B" to the Warrant
Indenture; or
☐ (C)
the transfer is being made pursuant to the exemption
from
the registration requirements of the U.S. Securities Act provided
by (i) Rule 144 or (ii) Rule 144A thereunder, and in either case in
accordance with applicable state securities laws; or
☐ (D)
the transfer is being made within the United States or
to,
or for the account or benefit of, U.S. persons, in accordance with
a transaction that does not require registration under the U.S.
Securities Act or any applicable state securities laws and the
undersigned has furnished to the Company and the Warrant Agent an
opinion of counsel of recognized standing in form and substance
reasonably satisfactory to the Company to such effect.
In the case of a transfer in accordance with (C)(i) or (D) above,
the Company and the Warrant Agent shall first have received an
opinion of counsel of recognized standing in form and substance
reasonably satisfactory to the Company, to such
effect.
In the case of a Warrant Certificate that does not contain a U.S.
restrictive legend, if the proposed transfer is to, or for the
account or benefit of a U.S. person or to a person in the United
States, the undersigned hereby represents, warrants and certifies
that the transfer of the Warrants is being completed pursuant to an
exemption from the registration requirements of the U.S. Securities
Act and any applicable state securities laws, in which case the
undersigned has furnished to the Company and the Warrant Agent an
opinion of counsel of recognized standing in form and substance
reasonably satisfactory to the Company to such effect.
"United States" and "U.S. Person" are as defined by Regulation S
under the U.S. Securities Act.
In
the case of a Warrant Certificate that does not contain a U.S.
restrictive legend, if the proposed transfer is to, or for the
account or benefit of a U.S. person or to a person in the United
States, the undersigned hereby represents, warrants and certifies
that the transfer of the Warrants is being completed pursuant to an
exemption from the registration requirements of the U.S. Securities
Act and any applicable state securities laws, in which case the
undersigned has furnished to the Company and the Warrant Agent an
opinion of counsel of recognized standing in form and substance
reasonably satisfactory to the Company to such effect.
"United
States" and "U.S. Person" are as defined by Regulation S under the
U.S. Securities Act.
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SPACE
FOR GUARANTEES)
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OF
SIGNATURES (BELOW
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)
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)
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)
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Signature of
Transferor
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)
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)
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)
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Guarantor's
Signature/Stamp
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)
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Name of
Transferor
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REASON
FOR TRANSFER – For US Residents only (where the individual(s)
or corporation receiving the securities is a US resident). Please
select only one (see instructions below).
☐
Gift
☐
Estate
☐
Private Sale
☐
Other (or no change
in
ownership)
Date
of Event (Date of gift, death or sale):
Value
per Warrant on the date of event:
USD
NOTES:
1.
The
signature to this transfer must correspond with the name as
recorded on the Warrants in every particular without alteration or
enlargement or any change whatever. The signature of the person
executing this transfer must be guaranteed by a Schedule I Canadian
chartered bank, or by a medallion signature guarantee from a member
of a recognized Signature Medallion Guarantee Program.
2.
Warrants shall only be transferable in accordance
with the warrant indenture between Planet 13 Holdings Inc. and
Odyssey Trust Company dated November 5, 2020 (the
"Warrant
Indenture"),applicable laws and
the rules and policies of any applicable stock exchange. Without
limiting the foregoing, if the Warrant Certificate bears a legend
restricting the transfer of the Warrants except pursuant to an
exemption from registration under the U.S. Securities Act, and
applicable state securities laws, this Transfer Form must be
accompanied by a properly completed and executed declaration for
removal of legend in the form attached as 0 to the Warrant
Indenture.
CERTAIN REQUIREMENTS RELATING TO TRANSFERS - READ
CAREFULLY
The signature(s) of the transferor(s) must correspond with the
name(s) as written upon the face of this certificate(s), in every
particular, without alteration or enlargement, or any change
whatsoever. All securityholders or a legally authorized
representative must sign this form. The signature(s) on this form
must be guaranteed in accordance with the transfer agent's then
current guidelines and requirements at the time of transfer.
Notarized or witnessed signatures are not acceptable as guaranteed
signatures. As at the time of closing, you may choose one of the
following methods (although subject to change in accordance with
industry practice and standards):
●
Canada and the USA:
A Medallion Signature Guarantee
obtained from a member of an acceptable Medallion Signature
Guarantee Program (STAMP, SEMP, NYSE, MSP). Many commercial banks,
savings banks, credit unions, and all broker dealers participate in
a Medallion Signature Guarantee Program. The Guarantor must affix a
stamp bearing the actual words "Medallion Guaranteed", with the
correct prefix covering the face value of the
certificate.
●
Canada: A Signature Guarantee obtained from an authorized
officer of the Royal Bank of Canada, Scotia Bank or TD Canada
Trust. The Guarantor must affix a stamp bearing the actual words
"Signature Guaranteed", sign and print their full name and alpha
numeric signing number. Signature Guarantees are not accepted from
Treasury Branches, Credit Unions or Caisse Populaires unless they
are members of a Medallion Signature Guarantee Program. For
corporate holders, corporate signing resolutions, including
certificate of incumbency, are also required to accompany the
transfer, unless there is a "Signature & Authority to Sign
Guarantee" Stamp affixed to the transfer (as opposed to a
"Signature Guaranteed" Stamp) obtained from an authorized officer
of the Royal Bank of Canada, Scotia Bank or TD Canada Trust or a
Medallion Signature Guarantee with the correct prefix covering the
face value of the certificate.
●
Outside North America:
For holders located outside North
America, present the certificates(s) and/or document(s) that
require a guarantee to a local financial institution that has a
corresponding Canadian or American affiliate which is a member of
an acceptable Medallion Signature Guarantee Program. The
corresponding affiliate will arrange for the signature to be
over-guaranteed.
OR
The signature(s) of the transferor(s) must correspond with the
name(s) as written upon the face of this certificate(s), in every
particular, without alteration or enlargement, or any change
whatsoever. The signature(s) on this form must be guaranteed by an
authorized officer of Royal Bank of Canada, Scotia Bank or TD
Canada Trust whose sample signature(s) are on file with the
transfer agent, or by a member of an acceptable Medallion Signature
Guarantee Program (STAMP, SEMP, NYSE, MSP). Notarized or witnessed
signatures are not acceptable as guaranteed signatures. The
Guarantor must affix a stamp bearing the actual words: "SIGNATURE
GUARANTEED", "MEDALLION GUARANTEED" OR "SIGNATURE & AUTHORITY
TO SIGN GUARANTEE", all in accordance with the transfer agent's
then current guidelines and requirements at the time of transfer.
For corporate holders, corporate signing resolutions, including
certificate of incumbency, will also be required to accompany the
transfer unless there is a "SIGNATURE & AUTHORITY TO SIGN
GUARANTEE" Stamp affixed to the Form of Transfer obtained from an
authorized officer of the Royal Bank of Canada, Scotia Bank or TD
Canada Trust or a "MEDALLION GUARANTEED" Stamp affixed to the Form
of Transfer, with the correct prefix covering the face value of the
certificate.
REASON FOR TRANSFER - FOR US RESIDENTS ONLY
Consistent with US IRS regulations, Odyssey Trust Company is
required to request cost basis information from US securityholders.
Please indicate the reason for requesting the transfer as well as
the date of event relating to the reason. The event date is not the
day in which the transfer is finalized, but rather the date of the
event which led to the transfer request (i.e. date of gift, date of
death of the securityholder, or the date the private sale took
place).
SCHEDULE“B”
FORM OF DECLARATION FOR REMOVAL OF LEGEND
TO:
Planet
13 Holdings Inc.
c/o Odyssey Trust
Company Suite 1230, 300
5th
Avenue SW Calgary,
Alberta T2P 3C4
The undersigned (a) acknowledges that the sale of the securities of
Planet 13 Holdings Inc. (the "Company") to which this declaration relates is being made in
reliance on Rule 904 of Regulation S ("Regulation S")
under the United States Securities Act
of 1933, as amended (the "U.S. Securities Act")
and (b) certifies that (1) it is not
an affiliate of the Company (as defined in Rule 405 under the U.S.
Securities Act), (2) the offer of such securities was not made to a
person in the United States and either (A) at the time the buy
order was originated, the buyer was outside the United States, or
the seller and any person acting on its behalf reasonably believe
that the buyer was outside the United States, or (B) the
transaction was executed on or through the facilities of the
Canadian Securities Exchange and neither the seller nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States, (3) neither the
seller nor any affiliate of the seller nor any person acting on any
of their behalf has engaged or will engage in any directed selling
efforts in the United States in connection with the offer and sale
of such securities, (4) the sale is bona fide and not for the
purpose of "washing off the resale restrictions imposed because the
securities are "restricted securities" (as such term is defined in
Rule 144(a)(3) under the U.S. Securities Act), (5) the seller does
not intend to replace the securities sold in reliance on Rule 904
of the U.S. Securities Act with fungible unrestricted securities,
and (6) the sale was not a transaction, or part of a series of
transactions which, although in technical compliance with
Regulation S, is part of a plan or scheme to evade the registration
provisions of the U.S. Securities Act. Terms used herein have the
meanings given to them by Regulation S.
Name:
Title:
Affirmation By Seller's Broker-Dealer (required for sales in
accordance with Section (b)(2)(B)
above)
We have
read the foregoing representations of our customer,
(the "Seller") dated
, with regard to our sale, for such Seller's account, of the
securities of the Company described therein, and on behalf of
ourselves we certify and affirm that (A) we have no knowledge that
the transaction had been prearranged with a buyer in the United
States, (B) the transaction was executed on or through the
facilities of designated offshore securities market, (C) neither
we, nor any person acting on our behalf, engaged in any directed
selling efforts in connection with the offer and sale of such
securities, and (D) no selling concession, fee or other
remuneration is being paid to us in connection with this offer and
sale other than the usual and customary broker's commission that
would be received by a person executing such transaction as agent.
Terms used herein have the meanings given to them by Regulation
S.
Name of
Firm
By:
Authorized
officer
Date:
PLANET 13 HOLDINGS INC.
- and -
WARRANT INDENTURE
Providing for the Issue of
up to 4,930,625 Common Share Purchase Warrants
February 2, 2021
TABLE OF CONTENTS
ARTICLE 1 INTERPRETATION
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6
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1.1
Definitions
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6
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1.2
Words Importing the Singular
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10
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1.3
Interpretation not Affected by Headings
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10
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1.4
Day not a Business Day
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10
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1.5
Time of the Essence
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10
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1.6
Governing Law
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10
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1.7
Meaning of "outstanding" for Certain Purposes
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11
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1.8
Currency
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11
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1.9
Termination
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11
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ARTICLE 2 ISSUE OF WARRANTS
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11
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2.1
Issue of Warrants
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11
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2.2
Form and Terms of Warrants
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11
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2.3
Signing of Warrant Certificates
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12
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2.4
Authentication by the Warrant Agent
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12
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2.5
Warrantholder not a Shareholder, etc
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13
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2.6
Issue in Substitution for Lost Warrant Certificates
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13
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2.7
Warrants to Rank Pari Passu
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14
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2.8
Registration and Transfer of Warrants
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14
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2.9
Registers Open for Inspection
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15
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2.10
Exchange of Warrants
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15
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2.11
Ownership of Warrants
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16
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2.12
Uncertificated Warrants
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16
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2.13
Adjustment of Exchange Basis
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18
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2.14
Rules Regarding Calculation of Adjustment of Exchange
Basis
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21
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2.15
Postponement of Subscription
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23
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2.16
Notice of Adjustment
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23
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2.17
No Action after Notice
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24
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2.18
Purchase of Warrants for
Cancellation
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24
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2.19
Protection of Warrant
Agent
|
24
|
2.20
U.S. Legend on Warrant Certificates
and Warrant Share certificates
|
24
|
ARTICLE 3 EXERCISE OF WARRANTS
|
26
|
3.1
Method of Exercise of Warrants
|
26
|
3.2
No Fractional Shares
|
28
|
3.3
Effect of Exercise of Warrants
|
28
|
3.4
Cancellation of Warrants
|
29
|
3.5
Subscription for less than Entitlement
|
29
|
3.6
Expiration of Warrant
|
29
|
ARTICLE
4 COVENANTS FOR WARRANTHOLDERS' BENEFIT
|
30
|
4.1
General Covenants of the Company
|
30
|
4.2
Warrant Agent's Remuneration and Expenses
|
31
|
4.3
Performance of Covenants by Warrant Agent
|
32
|
4.4
Enforceability of Warrants
|
32
|
ARTICLE
5 ENFORCEMENT
|
32
|
5.1
Suits by Warrantholders
|
32
|
5.2
Limitation of Liability
|
32
|
5.3
Waiver of Default
|
33
|
ARTICLE
6 MEETINGS OF WARRANTHOLDERS
|
33
|
6.1
Right to Convene Meetings
|
33
|
6.2
Notice
|
33
|
6.3
Chairman
|
34
|
6.4
Quorum
|
34
|
6.5
Power to Adjourn
|
34
|
6.6
Show of Hands
|
34
|
6.7
Poll and Voting
|
34
|
6.8
Regulations
|
35
|
6.9
Company, Warrant Agent and Counsel may be Represented
|
35
|
6.10
Powers Exercisable by Extraordinary
Resolution
|
35
|
6.11
Meaning of "Extraordinary
Resolution"
|
36
|
6.12
Powers Cumulative
|
37
|
6.13
Minutes
|
37
|
6.14
Instruments in Writing
|
37
|
6.15
Binding Effect of Resolutions
|
37
|
6.16
Holdings by the Company or
Subsidiaries of the Company Disregarded
|
37
|
6.17
Common
Shares or Warrants Owned by the Company or its Subsidiaries -
Certificate to be Provided
|
38
|
ARTICLE
7 SUPPLEMENTAL INDENTURES AND SUCCESSOR COMPANIES
|
38
|
7.1
Provision for Supplemental Indentures for Certain
Purposes
|
38
|
7.2
Successor Companies
|
39
|
ARTICLE
8 CONCERNING THE WARRANT AGENT
|
39
|
8.1
Indenture Legislation
|
39
|
8.2
Rights and Duties of Warrant Agent
|
39
|
8.3
Evidence, Experts and Advisers
|
41
|
8.4
Securities, Documents and Monies Held by Warrant Agent
|
41
|
8.5
Actions by Warrant Agent to Protect Interests
|
41
|
8.6
Warrant Agent not Required to Give Security
|
41
|
8.7
Protection of Warrant Agent
|
43
|
8.8
Replacement of Warrant Agent
|
44
|
8.9
Conflict of Interest
|
45
|
8.10
Acceptance of Duties
and Obligations
|
45
|
8.11
Warrant Agent not to be
Appointed Receiver
|
45
|
8.12
Authorization to Carry on
Business
|
45
|
ARTICLE 9 GENERAL
|
46
|
9.1
Notice to the Company and the Warrant Afent
|
46
|
9.2
Notice to the Warrantholders
|
47
|
9.3
Privacy
|
47
|
9.4
Third Party Interests
|
48
|
9.5
Securities Exchange Commission Certification
|
48
|
9.6
Discretion of Directors
|
48
|
9.7
Satisfaction and Discharge of Indenture
|
48
|
9.8
Provisions of Indenture and Warrants for the Sole Benefit of
Parties and Warrantholders
|
49
|
9.9
Indenture to Prevail
|
49
|
9.10
Assignment
|
49
|
9.11
Severability
|
49
|
9.12
Force Majeure
|
49
|
9.13
Rights of Rescission and
Withdrawal for Holders
|
49
|
9.14
Counterparts and Formal
Date
|
50
|
Schedule “A” Form of Warrant Certificate
Schedule “B” Form of Declaration for Removal of
Legend
THIS WARRANT INDENTURE dated as
of February 2, 2021
BETWEEN:
PLANET 13 HOLDINGS INC.,
a
company existing under the laws of British Columbia
(the "Company")
AND
ODYSSEY TRUST COMPANY,
a
trust company incorporated under the laws of Alberta
and
authorized
to carry on business in the provinces of Alberta and
British
Columbia
(the "Warrant Agent")
RECITALS
WHEREAS:
A. In connection with the public offering by the
Company of up to 9,861,250 Units (as defined below) pursuant to a short form
prospectus dated January 25, 2021 (the "Offering"),
the Company proposes to issue and sell
to the public up to 4,930,625 Warrants (as defined below), of which
4,287,500
Warrants will be issuable as a part of
the base Offering and up to 643,125 Warrants will be issuable upon the due exercise of
the Over-Allotment Option (as defined below);
B. Each Warrant entitles the holder thereof to
purchase, subject to adjustment in certain events, one Warrant
Share (as defined below) at a price of $9.00 at any time prior to 5:00 p.m. (Toronto time) on February
2,
2023;
C. For
such purpose the Company deems it necessary to create and issue
Warrants and Warrant Certificates (as defined below) to be
constituted and issued in the manner hereinafter set
forth;
D. The
Company is duly authorized to create and issue the Warrants to be
issued as herein provided;
E. All
things necessary have been done and performed to make the Warrants,
when Authenticated (as defined below) or certified by the Warrant
Agent and issued as provided in this Indenture, legal, valid and
binding upon the Company with the benefits of and subject to the
terms of this Indenture;
F. The
foregoing recitals are made as statements of fact by the Company
and not by the Warrant Agent; and
G. The
Warrant Agent has agreed to enter into this Indenture and to hold
all rights, interests and benefits contained herein for and on
behalf of those persons who become holders of Warrants issued
pursuant to this Indenture from time to time;
NOW
THEREFORE THIS INDENTURE WITNESSES that for good and valuable
consideration mutually given and received, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed
and declared as follows:
ARTICLE 1 INTERPRETATION
1.1 Definitions
In
this Indenture, unless there is something in the subject matter or
context inconsistent therewith:
"Applicable Legislation" means
the provisions of the statutes of Canada and its provinces and the
regulations under those statutes relating to warrant indentures
and/or the rights, duties or obligations of issuers and warrant
agents under warrant indentures as are from time to time in force
and applicable to this Indenture;
"Authenticated" means (a) with
respect to the issuance of a Warrant Certificate, one which has
been duly signed by the Company and authenticated by manual
signature of an authorized officer of the Warrant Agent, and (b)
with respect to the issuance of an Uncertificated Warrant, one in
respect of which the Warrant Agent has completed all Internal
Procedures such that the particulars of such Uncertificated Warrant
as required by Section 2.4 are entered in the register of
Warrantholders, "Authenticate",
"Authenticating" and
"Authentication"
have the appropriate correlative
meanings;
"Beneficial Owner" means a
person that has a beneficial interest in a
Warrant;
"Book-Entry Only System" means
the book-based securities system administered by CDS in accordance
with its operating rules and procedures in force from time to
time;
"Business Day" means a day that
is not a Saturday, Sunday, or a day on which banks are closed or
which is a civic or statutory holiday in the City of Toronto,
Ontario or Calgary, Alberta;
"Capital Reorganization" has
the meaning ascribed to that term in Section
2.13(4);
"CDS" means CDS Clearing and
Depository Services Inc. and its successors in
interest;
"CDSX" means the CDS settlement
and clearing system for equity and debt securities in
Canada;
"Closing Date" means February
2, 2021 or such other date as agreed to by the Company and the
Underwriters;
"Common Share Reorganization" has the meaning ascribed to that term in
Section 2.13(1);
"Common Shares" means the
common shares in the capital of the Company;
"Company" means Planet 13
Holdings Inc., a corporation existing under the laws of British
Columbia, and its lawful successors from time to
time;
"Company's Auditors" means the
chartered (professional) accountant or firm of
chartered
(professional) accountants duly appointed as auditor or auditors of
the Company from time to time, including prior auditors of the
Company, as applicable;
"Confirmation" has the meaning
ascribed that term in Section 3.1(4);
"counsel" means a barrister and
solicitor or lawyer or a firm of barristers and solicitors or
lawyers, in both cases acceptable to the Warrant
Agent;
"CSE" means the Canadian
Securities Exchange;
"Current Market Price" means,
at any date, the volume weighted average price per share at which
the Common Shares have traded:
(a) on
the CSE;
(b) if
the Common Shares are not listed on the CSE, on any stock exchange
upon which the Common Shares are listed, as may be selected for
this purpose by the board of directors of the Company, acting
reasonably; or
(c) if
the Common Shares are not listed on any stock exchange, on any
over-the- counter market on which the Common Shares are trading, as
may be selected for this purpose by the board of directors of the
Company, acting reasonably;
during
the 20 consecutive trading days (on each of which at least 500
Common Share are traded in board lots) ending the second trading
day before such date; provided that the volume weighted average
price shall be determined by dividing the aggregate sale price of
all Common Shares sold in board lots on the exchange or market, as
the case may be, during the 20 consecutive trading days by the
number of Common Shares so sold on said exchange or market or, if
not traded on any recognized exchange or market, as determined by
the directors of the Company, acting reasonably;
"director" means a member of
the board of directors of the Company for the time being, and
unless otherwise specified herein, reference to "action by the board of
directors" means action by the
board of directors of the Company as a board or, whenever duly
empowered, action by a committee of the board;
"Dividend Paid in the Ordinary Course" means dividends paid in any financial year of the
Company, whether in (i) cash, (ii) shares of the Company, (iii)
warrants or similar rights to purchase any shares of the Company or
property or other assets of the Company provided that the value of
such dividends per outstanding Common Share does not in such
financial year exceed in aggregate 5% of the Exercise
Price;
"Exchange Basis" means, at any
time, the number of Warrant Shares or other classes of shares or
securities or property which a Warrantholder is entitled to receive
upon the exercise of the rights attached to the Warrants pursuant
to the terms of this Indenture, as the number may be adjusted
pursuant to Article 2 hereof, such number being equal to one
Warrant Share per Warrant as of the date
hereof;
"Exercise Date" with respect to
any Warrant means the date on which such Warrant is duly
surrendered for exercise in accordance with the provisions of
Article 3 hereof;
"Exercise Notice" has the
meaning ascribed that term in Section 3.1(4);
"Exercise Price" means $9.00
for each Warrant Share, subject to adjustment in accordance with
the provisions of Article 2 hereof;
“Expiry Date” means
February 2, 2023;
"extraordinary resolution" has
the meaning ascribed to that term in sections 6.12 and
6.15;
"Internal Procedures" means in
respect of the making of any one or more entries to, changes in or
deletions of any one or more entries in the register at any time
(including without limitation, original issuance or registration of
transfer of ownership) the minimum number of the Warrant Agent's
internal procedures customary at such time for the entry, change or
deletion made to be complete under the operating procedures
followed at the time by the Warrant Agent;
"Offering" has the meaning
ascribed thereto in Recital A of this
Indenture;
“Original U.S. Purchaser” means a Qualified Institutional Buyer who
purchased Warrants as part of the Offering;
"Over-Allotment Option" means
the option granted by the Company to the Underwriters, which may be
exercised in the Underwriters' sole discretion and without
obligation, to purchase up to an additional 1,286,250 Units,
including up to 1,286,250 Unit Shares and up to 643,125 Warrants,
for the purpose of covering over-allotments made in connection with
the Offering and for market stabilization purposes, and which is
exercisable for any combination of additional Units, additional
Unit Shares and/or additional Warrants, from and including thirty
(30) days following the Closing Date;
"Participant" means a person
recognized by CDS as a participant in the Book-Entry Only
System;
"person" means an individual, a
corporation, a limited liability company, a partnership, a
syndicate, a trustee or any unincorporated organization and words
importing persons are intended to have a similarly extended
meaning;
“Price” means the
Exercise Price;
“Qualified Institutional Buyer” means a “qualified institutional
buyer” as such term is defined in Rule 144A under the U.S.
Securities Act;
"QIB Letter" means the
Qualified Institutional Buyer Letter signed by the Original U.S.
Purchaser;
"Regulation S" means Regulation
S as promulgated under the U.S. Securities Act;
"Rights Offering" has the
meaning ascribed to that term in Section
2.13(2);
"Rights Offering Price" has the
meaning ascribed to that term in Section
2.14(8);
"Securities Laws" means,
collectively, the applicable securities laws and regulations of
each of the provinces of Canada, except Quebec, the United States
and each of the states of the United States, together with all
respective regulations made and forms prescribed
thereunder,
published rules, policy statements, notices, orders and rulings of
the securities commissions or similar regulatory authorities
thereto, as applicable, including the rules and policies of the
CSE;
"shareholder" means an owner of
record of one or more Common Shares or shares of any other class or
series of the Company;
"Special Distribution" has the
meaning ascribed to that term in Section
2.13(3);
"Subsidiary" means a
corporation, a majority of the outstanding voting shares of which
are owned, directly or indirectly, by the Company or by one or more
subsidiaries of the Company and, as used in this definition,
"voting shares" means shares of a class or classes ordinarily
entitled to vote for the election of the majority of the directors
of a corporation irrespective of whether or not shares of any other
class or classes shall have or might have the right to vote for
directors by reason of the happening of any
contingency;
"successor company" has the
meaning ascribed to that term in Section 7.2;
"this Indenture", "herein", "hereby" and similar expressions mean or refer to this
Common Share purchase warrant indenture and any indenture, deed or
instrument supplemental or ancillary hereto; and the
expressions "Article", "section",
or "paragraph" followed by a number or letter mean and refer to
the specified Article, section, or paragraph of this
Indenture;
"Time of Expiry" means 5:00
p.m. (Toronto time) on the Expiry Date;
"trading day" means a day on
which the CSE (or such other exchange on which the Common Shares
are listed) is open for trading, and if the Common Shares are not
listed on a stock exchange, a day on which an over-the-counter
market where such shares are traded is open for
business;
"transaction instruction" means
a written order signed by the holder or CDS, entitled to request
that one or more actions be taken, or such other form as may be
reasonably acceptable to the Warrant Agent, requesting one or more
such actions to be taken in respect of an Uncertificated
Warrant;
"Transfer Agent" means the
transfer agent or agents for the time being for the Common
Shares;
"U.S. Person" means a U.S.
person as that term is defined under Regulation
S;
"U.S. Securities Act" means the
United States Securities Act of 1933, as
amended;
"Uncertificated Warrant" means
any Warrant which is issued under the Book-Entry Only System or any
Warrant which is not a certificated Warrant;
"Underwriters" means
collectively Canaccord Genuity Corp. and Beacon Securities
Limited;
"Unit Share" means a Common
Share comprising part of each Unit;
"United States" means the
United States as that term is defined in Regulation
S;
"Units" means the units of the
Company, each Unit being comprised of one Unit Share and one-half
Warrant;
"Warrant Agent" means Odyssey
Trust Company, a trust company incorporated under the laws of
Alberta and authorized to carry on business in the provinces of
Alberta and British Columbia or any lawful successor thereto
including through the operation of Section 8.8;
"Warrant Certificates" means
the certificates representing Warrants substantially in the form
attached as Schedule "A" hereto or such other form as may be
approved by the Company and the Warrant Agent;
"Warrant Shares" means the
Common Shares or, as a result of any adjustment to the subscription
rights pursuant to Article 2 hereof, other securities or property
issuable upon the exercise of the Warrants;
"Warrantholders" or
"holders"
means the persons whose names are
entered for the time being in the register maintained pursuant to
Section 2.8;
'Warrantholders' Request" means
an instrument, signed in one or more counterparts by Warrantholders
representing, in the aggregate, at least 20% of the aggregate
number of Warrants then outstanding, which requests the Warrant
Agent to take some action or proceeding specified
therein;
"Warrants" means the Common
Share purchase warrants of the Company issued and Authenticated
hereunder as Uncertificated Warrants or to be issued and
countersigned in the form of Warrant Certificates, in either case,
entitling the holders thereof to purchase Warrant Shares on the
basis of one Warrant Share for each Warrant upon payment of the
Exercise Price prior to the Time of Expiry; provided that in each
case the number and/or class of securities or property receivable
on the exercise of the Warrants may be subject to increase or
decrease or change in accordance with the terms and provisions
hereof; and
"written direction of the Company", "written request of the
Company", "written consent of the Company", "Officer's
Certificate" and
"certificate of the
Company" and any other document
required to be signed by the Company, means, respectively, a
written direction, request, consent, certificate or other document
signed in the name of the Company by any officer or director and
may consist of one or more instruments so
executed.
1.2 Words
Importing the Singular
Unless
elsewhere otherwise expressly provided, or unless the context
otherwise requires, words importing the singular include the plural
and vice versa and words importing the masculine gender include the
feminine and neuter genders.
1.3 Interpretation
not Affected by Headings
The
division of this Indenture into Articles, sections, and paragraphs,
the provision of a table of contents and the insertion of headings
are for convenience of reference only and shall not affect the
construction or interpretation of this Indenture.
1.4 Day
not a Business Day
If
any day on or before which any action is required or permitted to
be taken hereunder is not a Business Day, then such action shall be
required or permitted to be taken on or before the requisite time
on the next succeeding day that is a Business Day.
1.5 Time
of the Essence
Time
shall be of the essence in all respects of this Indenture and the
Warrants issued hereunder.
1.6 Governing
Law
This
Indenture and the Warrants issued hereunder shall be construed and
enforced in accordance with the laws of the Province of Ontario and
the federal laws of Canada applicable therein and shall be treated
in all respects as Ontario contracts.
1.7 Meaning
of "outstanding" for Certain Purposes
Every
Warrant Authenticated or certified by the Warrant Agent hereunder
shall be deemed to be outstanding until it shall be cancelled or
delivered to the Warrant Agent for cancellation, exercised pursuant
to Section 3.1 or until the Time of Expiry; provided that where a
new Warrant Certificate has been issued pursuant to Section 2.6 to
replace one which is lost, mutilated, stolen or destroyed, the
Warrants represented by only one of such Warrant Certificates shall
be counted for the purpose of determining the aggregate number of
Warrants outstanding.
1.8 Currency
Unless
otherwise stated, all dollar amounts referred to in this Indenture
are in Canadian dollars.
1.9 Termination
This
Indenture shall continue in full force and effect until the earlier
of: (a) the Time of Expiry; and (b) provided that no Warrants
remain issuable pursuant to the terms of this Indenture, the date
that no Warrants are outstanding hereunder; provided that this
Indenture shall continue in effect thereafter, if applicable, until
the Company and the Warrant Agent have fulfilled all of their
respective obligations under this Indenture.
ARTICLE 2 ISSUE OF WARRANTS
2.1 Issue
of Warrants
Subject
to adjustment in accordance with the provisions hereof, the Company
creates and authorizes the issuance of up to 4,930,625 Warrants
entitling the registered holders thereof to acquire an aggregate of
up to 4,930,625 Warrant Shares, all of which are hereby created and
authorized to be issued hereunder at the Exercise Price upon the
terms and conditions as set forth herein. Uncertificated Warrants
shall be Authenticated by the Warrant Agent and deposited in CDS
and Warrant Certificates evidencing the Warrants shall be executed
by the Company, certified by or on behalf of the Warrant Agent and
delivered by the Warrant Agent in accordance with a written
direction of the Company, all in accordance with sections 2.3 and
2.4. Subject to adjustment in accordance with the provisions of
this Indenture,
each of the Warrants issued hereunder shall entitle the holder
thereof to receive from the Company, at the Exercise Price, the
number of Warrant Shares equal to the Exchange Basis in effect on
the Exercise Date.
2.2 Form
and Terms of Warrants
(1) The Warrants may be issued in either certificated
or uncertificated form. The Warrant Certificates shall be
substantially in the form attached as Schedule "A" hereto, subject
to the provisions of this Indenture, with such additions,
variations and changes as may be required or permitted by the terms
of this Indenture, and to give effect to any Warrants not being
issued as Uncertificated Warrants, and which may from time to time
be agreed upon by the Warrant Agent and the Company, and shall have
such legends, distinguishing letters and numbers as the Company
may, with the approval of the Warrant Agent, prescribe. Except as
hereinafter provided in this Article 2, all Warrants shall, save as
to denominations, be of like tenor and effect. The Warrant
Certificates may be engraved, printed, lithographed, photocopied or
be partially in one form or another, as the Company may determine.
No change in the form of the Warrant Certificate shall be required
by reason of any adjustment made pursuant to this Article 2 in the
number and/or class of securities or type of securities or property
that may be acquired pursuant to the Warrants. All Warrants issued
to CDS may be in either a certificated or uncertificated form, such
uncertificated form being evidenced by a book position on the
register of Warrantholders to be maintained by the Warrant Agent in
accordance with Section 2.8.
(2) Each
Warrant authorized to be issued hereunder shall entitle the
registered holder thereof to acquire (subject to sections 2.13,
2.14 and 2.15) upon due exercise and upon the transaction
instruction or due execution of the exercise form endorsed on the
Warrant Certificate, as applicable, or other instrument of exercise
in such form as the Warrant Agent and/or the Company may from time
to time prescribe and upon payment of the Exercise Price, one
Warrant Share or such other kind and amount of shares or securities
or property, calculated pursuant to the provisions of sections 2.13
and 2.14, as the case may be, at any time after the date of
issuance of such Warrants and prior to the Time of Expiry, in
accordance with the provisions of this Indenture.
(3) Fractional
Warrants shall not be issued or otherwise provided for. If any
fraction of a Warrant would otherwise be issuable and result in a
fraction of a Warrant Share being issuable, any such fractional
Warrant so issued shall be rounded down to the nearest whole
Warrant without compensation therefor.
2.3 Signing
of Warrant Certificates
Warrant
Certificates shall be signed by any one of the directors or
officers of the Company and may, but need not be under the
corporate seal of the Company or a reproduction thereof. The
signature of any such director or officer may be mechanically
reproduced in facsimile or other electronic format and Warrant
Certificates bearing such facsimile or other electronic format
signatures shall be binding upon the Company as if they had been
manually signed by such director or officer. Notwithstanding that
the person whose manual or electronic signature appears on any
Warrant Certificate as a director or officer may no longer hold
office at the date of issue of the Warrant Certificate or at the
date of certification or delivery thereof, any Warrant Certificate
Authenticated or signed as aforesaid shall, subject to Section 2.4,
be valid and binding upon the Company and the registered holder
thereof will be entitled to the benefits of this
Indenture.
2.4 Authentication
by the Warrant Agent
(1) No
Warrant shall be issued or, if issued, shall be valid for any
purpose or entitle the registered holder to the benefit hereof or
thereof until it has been Authenticated by or on behalf of the
Warrant Agent, as applicable, and such Authentication by the
Warrant Agent shall be conclusive evidence as against the Company
that the Warrant so Authenticated has been duly issued hereunder
and the holder is entitled to the benefits hereof.
(2) The
Warrant Agent shall Authenticate Uncertificated Warrants (whether
upon original issuance, exchange, registration of transfer, partial
payment, or otherwise) by completing its Internal Procedures and
the Company shall, and hereby acknowledges that it shall, thereupon
be deemed to have duly and validly issued such Uncertificated
Warrants under this Indenture. Such Authentication shall be
conclusive evidence that such Uncertificated Warrant has been duly
issued hereunder and that the holder or holders are entitled to the
benefits of this Indenture. The register shall be final and
conclusive evidence as to all matters relating to Uncertificated
Warrants with respect to which this Indenture requires the Warrant
Agent to maintain records or accounts. In case of differences
between the register at any time and any other time, the register
at the later time shall be controlling, absent manifest error and
such Uncertificated Warrants are binding on the
Company.
(3) Any
Warrant Certificate validly issued in accordance with the terms of
this Indenture in effect at the time of issue shall, subject to the
terms of this Indenture and applicable law, validly entitle the
holder to acquire Warrant Shares, notwithstanding that the form of
such Warrant Certificate may not be in the form currently required
by this Indenture.
(4) No
Warrant Certificate shall be considered issued or shall be
obligatory or shall entitle the holder thereof to the benefits of
this Indenture, until it has been Authenticated by or on behalf of
the Warrant Agent substantially in the form of the Warrant
Certificate set out in Schedule "A" hereto. Such Authentication on
any such Warrant Certificate shall be conclusive evidence that such
Warrant Certificate is duly Authenticated and is valid and a
binding obligation of the Company and that the holder is entitled
to the benefits of this Indenture.
(5) The
Authentication or certification of the Warrant Agent on the
Warrants issued hereunder, including by way of entry on the
register, shall not be construed as a representation or warranty by
the Warrant Agent as to the validity of this Indenture or the
Warrants (except the due Authentication and certification thereof)
or as to the performance by the Company of its obligations under
this Indenture and the Warrant Agent shall in no respect be liable
or answerable for the use made of the Warrants or any of them or of
the consideration therefor except as otherwise specified
herein.
2.5 Warrantholder
not a Shareholder, etc.
Nothing
in this Indenture or the holding of a Warrant shall be construed as
conferring upon a Warrantholder any right or interest whatsoever as
a shareholder, including but not limited to the right to vote at,
to receive notice of, or to attend meetings of shareholders or any
other proceedings of the Company, nor entitle the holder to any
right or interest in respect thereof except as herein and in the
Warrants expressly provided.
2.6 Issue
in Substitution for Lost Warrant Certificates
(1) If
any Warrant Certificates issued and certified under this Indenture
shall become mutilated or be lost, destroyed or stolen, the
Company, subject to applicable law, and Section 2.6(2), shall issue
and thereupon the Warrant Agent shall certify and deliver a new
Warrant Certificate of like denomination, date and tenor as the one
mutilated, lost, destroyed or stolen in exchange for, in place of
and upon cancellation of such mutilated Warrant Certificate, or in
lieu of and in substitution for such lost, destroyed or stolen
Warrant Certificate, and the substituted Warrant Certificate shall
be substantially in the form set out in Schedule "A" hereto and
Warrants evidenced by it will entitle the holder thereof to the
benefits hereof and shall rank equally in accordance with its terms
with all other Warrant Certificates issued or to be issued
hereunder.
(2) The
applicant for the issue of a new Warrant Certificate pursuant to
this Section shall bear the reasonable cost of the issue thereof
and in the case of mutilation shall, as a condition precedent to
the issue thereof, deliver to the Warrant Agent the mutilated
Warrant Certificate, and in the case of loss, destruction or theft
shall, as a condition precedent to the issue thereof, furnish to
the Company and to the Warrant Agent such evidence of ownership and
of the loss, destruction or theft of the Warrant Certificate so
lost, destroyed or stolen as shall be satisfactory to the Company
and to the Warrant Agent in their sole discretion, acting
reasonably, and such applicant may be required to furnish an
indemnity and surety bond in amount and form satisfactory to the
Company and the Warrant Agent in their sole discretion, acting
reasonably, and shall pay the reasonable charges of the Company and
the Warrant Agent in connection therewith.
2.7 Warrants
to Rank Pari Passu
All Warrants shall rank pari passu with all other Warrants, whatever may be the
actual date of issue of the Warrants.
2.8 Registration
and Transfer of Warrants
(1) The
Warrant Agent will create and keep at the principal stock transfer
offices of the Warrant Agent in the City of Calgary,
Alberta:
(a) a
register of holders in which shall be entered in alphabetical order
the names and addresses of the holders of Warrants and particulars
of the Warrants held by them and the Warrant Agent shall be
entitled to rely on such register in connection with the exchange,
transfer, exercise or deemed exercise of any Warrant(s) pursuant to
the terms of this Indenture or the terms thereof; and
(b) a
register of transfers in which all transfers of Warrants and the
date and other particulars of each such transfer shall be
entered.
(2) No
transfer of any Warrant will be valid unless entered on the
register of transfers referred to in Section 2.8(1), upon surrender
to the Warrant Agent of the Warrant Certificate evidencing such
Warrant, and a duly completed and executed transfer form endorsed
on the Warrant Certificate or in the case of Uncertificated
Warrants a duly executed transaction instruction from the holder
(or such other instructions, in form satisfactory to
the
Warrant Agent) executed by the registered holder or his executors,
administrators or other legal representatives or his attorney duly
appointed by an instrument in writing in form and execution
satisfactory to the Warrant Agent, if applicable, and, upon
compliance with such requirements and such other reasonable
requirements as the Warrant Agent may prescribe and all applicable
securities requirements of regulatory authorities, such transfer
will be recorded on the register of transfers by the Warrant Agent.
Upon compliance with such requirements, the Warrant Agent shall
issue to the transferee a Warrant Certificate, or in the case of an
Uncertificated Warrant, the Warrant Agent shall Authenticate and
deliver a Warrant Certificate upon request that part of the
Uncertificated Warrant be certificated. Transfers within the
systems of CDS are not the responsibility of the Warrant Agent and
will not be noted on the register maintained by the Warrant
Agent.
(3) The
transferee of any Warrant will, after surrender to the Warrant
Agent of the Warrant as required by Section 2.8(2) and upon
compliance with all other conditions in respect thereof required by
this Indenture or by law, be entitled to be entered on the register
of holders referred to in Section 2.8(1) as the owner of such
Warrant free from all equities or rights of setoff or counterclaim
between the Company and the transferor or any previous holder of
such Warrant, except in respect of equities of which the Company is
required to take notice by statute or by order of a court of
competent jurisdiction.
(4) The
Company will be entitled, and may direct the Warrant Agent, to
refuse to recognize any transfer, or enter the name of any
transferee, of any Warrant on the registers referred to in Section
2.8(1), if such transfer would constitute a violation of the
Securities Laws of any applicable jurisdiction or the rules,
regulations or policies of any regulatory authority having
jurisdiction. The Warrant Agent is entitled to assume compliance
with all applicable Securities Laws unless otherwise notified in
writing by the Company. No duty shall rest with the Warrant Agent
to determine compliance of the transferee or transferor of any
Warrant with applicable Securities Laws.
(5) Any
Warrant issued to a transferee upon transfers contemplated by this
section 2.8
shall
bear the appropriate legend as set forth in Section 2.20(2), if
applicable.
(6) If a Warrant tendered for transfer bears the
legend set forth in Section 2.20(2), the Warrant Agent shall not
register such transfer unless the transferor has provided the
Warrant Agent with the Warrant and complies with the requirements
of the said Section 2.20(2).
(7) Warrants,
in certificated form, bearing the legend set forth in Section
2.20(2) shall not be offered, sold, pledged or otherwise
transferred, directly or indirectly, except (A) to the Company; (B)
outside the United States in compliance with Rule 904 of Regulation
S, if available, and in compliance with applicable local laws and
regulations; (C) pursuant to an exemption from registration under
the U.S. Securities Act provided by (i) Rule 144 or (ii) Rule 144A
thereunder, if available, and in compliance with applicable U.S.
state securities laws; (D) in compliance with another exemption
from registration under the U.S. Securities Act and applicable
state securities laws; or (E) under an effective registration
statement under the U.S. Securities Act, provided that in the case
of transfers pursuant to (C)(i) or (D) above, a legal opinion or
other evidence, reasonably satisfactory to the Company, must first
be provided to the Company and the Warrant Agent to the effect that
such transfer is exempt from registration under the U.S. Securities
Act and applicable state securities laws..
(8) The
Warrant Agent shall give notice to the Company of the transfer made
by a
Warrantholder pursuant to Section 2.8(7) and the Company shall
provide written authorization to proceed with the transfer before
such transfer is made effective by the issuance of the
Warrant.
2.9 Registers
Open for Inspection
The
registers referred to in Section 2.8(1) shall be open at all
reasonable times during business hours on a Business Day for
inspection by the Company or any Warrantholder. The Warrant Agent
shall, from time to time when requested to do so in writing by the
Company, furnish the Company with a list of the names and addresses
of holders of Warrants entered in the register of holders kept by
the Warrant Agent and showing the number of Warrants held by each
such holder.
2.10 Exchange
of Warrants
(1) Warrants
may, upon compliance with the reasonable requirements of the
Warrant Agent, be exchanged for Warrants in any other authorized
denomination representing in the aggregate an equal number of
Warrants as the number of Warrants represented by the Warrants
being exchanged. The Company shall sign and the Warrant Agent shall
Authenticate or certify, in accordance with sections 2.3 and 2.4,
all Warrants necessary to carry out the exchanges contemplated
herein.
(2) Warrants
may be exchanged only at the principal stock transfer offices of
the Warrant Agent in the City of Calgary, Alberta or at any other
place that is designated by the Company with the approval of the
Warrant Agent. Any Warrants tendered for exchange shall be
surrendered to the Warrant Agent and cancelled.
(3) Except
as otherwise herein provided, the Warrant Agent may charge
Warrantholders requesting an exchange a reasonable sum for each
Warrant Certificate issued; and payment of such charges and
reimbursement of the Warrant Agent or the Company for any and all
taxes or governmental or other charges required to be paid shall be
made by the party requesting such exchange as a condition precedent
to such exchange.
2.11 Ownership
of Warrants
The
Company and the Warrant Agent and their respective agents may deem
and treat the registered holder of any Warrant as the absolute
owner of the Warrant represented thereby for all purposes and the
Company and the Warrant Agent and their respective agents shall not
be affected by any notice or knowledge to the contrary except as
required by statute or order of a court of competent jurisdiction.
The holder of any Warrant shall be entitled to the rights evidenced
by that Warrant free from all equities or rights of set-off or
counterclaim between the Company and the original or any
intermediate holder thereof, except in respect of equities of which
the Company is required to take notice by statute or by order of a
court of competent jurisdiction and all persons may act accordingly
and the receipt by any holder of the Warrant Shares or monies
obtainable pursuant to the exercise of the Warrant shall be a good
discharge to the Company and the Warrant Agent for the same and
neither the Company nor the Warrant Agent shall be bound to inquire
into the title of any holder.
2.12 Uncertificated
Warrants
(1) Registration
and re-registration of beneficial interests in and transfers
of Warrants
held by CDS shall be made only through the Book-Entry Only System
and no Warrant Certificates shall be issued in respect of such
Warrants except where physical certificates evidencing ownership in
such securities are required or as set out herein or as may be
requested by CDS, as determined by the Company, from time to time.
Except as provided in this Section 2.12, owners of beneficial
interests in any Uncertificated Warrants shall not be entitled to
have Warrants registered in their names and shall not receive or be
entitled to receive Warrants in definitive form or to have their
names appear in the register referred to in Section 2.8 herein.
Notwithstanding any terms set out herein, Warrants subject to the
restrictions and any legend set forth in Section 2.20 herein and
held in the name of CDS may only be held in the form of
Uncertificated Warrants with the prior consent of the Company and
CDS.
(2) If
any Warrant is issued in uncertificated form and any of the
following events
occurs:
(a) CDS
or the Company has notified the Warrant Agent that (A) CDS is
unwilling or unable to continue as depository or (B) CDS ceases to
be a clearing agency in good standing under applicable laws and, in
either case, the Company is unable to locate a qualified successor
depository within ninety (90) days of delivery of such
notice;
(b) the
Company has determined, in its sole discretion, acting reasonably,
to terminate the Book-Entry Only System in respect of such
Uncertificated Warrants and has communicated such determination to
the Warrant Agent in writing;
(c) the
Company or CDS is required by applicable law to take the action
contemplated in this section;
(d) there
is an exercise of Warrants pursuant to 3.1(4) and the Warrantholder
is unable to make the representations in 3.1(4) (a),
(b),
(c) and
(d) thereto; or
(e) the
Book-Entry Only System administered by CDS ceases to
exist,
then
one or more definitive fully registered Warrant Certificates shall
be executed by the Company and certified and delivered by the
Warrant Agent to CDS in exchange for the Uncertificated Warrants
held by CDS. The Company shall provide an Officer's Certificate
giving notice to the Warrant Agent of the occurrence of any event
outlined in this Section 2.12(2).
Fully
registered Warrant Certificates issued and exchanged pursuant to
this section shall be registered in such names and in such
denominations as CDS shall instruct the Warrant Agent, provided
that the aggregate number of Warrants represented by such Warrant
Certificates shall be equal to the aggregate number of
Uncertificated Warrants so exchanged. Upon exchange of
Uncertificated Warrants for one or more Warrant Certificates in
definitive form, such Uncertificated Warrants shall be cancelled by
the Warrant Agent.
(3) Subject to the provisions of this Section 2.12,
any exchange of Warrants for Warrants which are not Uncertificated
Warrants may be made in whole or in part in accordance with the
provisions of Section 2.10, mutatis mutandis.
All such Warrants issued in exchange
for Uncertificated Warrants or any portion thereof shall be
registered in such names as CDS for such Uncertificated Warrants
shall direct and shall be entitled to the same benefits and subject
to the same terms and conditions (except insofar as they relate
specifically to Uncertificated Warrants) as the Uncertificated
Warrants or portion thereof surrendered upon such
exchange.
(4) Every
Warrant Authenticated upon registration of transfer of
Uncertificated Warrants, or in exchange for or in lieu of
Uncertificated Warrants or any portion thereof, whether pursuant to
this Section 2.12, or otherwise, shall be Authenticated in the form
of, and shall be, an Uncertificated Warrant, unless such Warrant is
registered in the name of a person other than CDS for such
Uncertificated Warrant or a nominee thereof.
(5) Notwithstanding
anything to the contrary in this Indenture, subject to Applicable
Legislation, the Warrants to be issued to CDS or a nominee thereof
will be issued as an Uncertificated Warrant, unless otherwise
requested in writing by CDS or the Company.
(6) The
rights of Beneficial Owners of Warrants who hold securities
entitlements in respect of the Warrants through the Book-Entry Only
System shall be limited to those established by applicable law and
agreements between CDS and the Participants and between such
Participants and the Beneficial Owners of Warrants who hold
securities entitlements in respect of the Warrants through the
Book-Entry Only System, and such rights must be exercised through a
Participant in accordance with the rules and procedures of
CDS.
(7) Notwithstanding
anything herein to the contrary, neither the Company nor the
Warrant Agent nor any agent thereof shall have any responsibility
or liability for:
(a) the
electronic records maintained by CDS relating to any ownership
interests or any other interests in the Warrants or the depository
system maintained by CDS, or payments made on account of any
ownership interest or any other interest of any person in any
Warrant represented by an electronic position in the Book-Entry
Only System (other than CDS or its nominee);
(b) maintaining,
supervising or reviewing any records of CDS or any Participant
relating to any such interest; or
(c) any
advice or representation made or given by CDS or those contained
herein that relate to the rules and regulations of CDS or any
action to be taken by CDS on its own direction or at the direction
of any Participant.
(8) The
Company may terminate the application of this Section 2.12 in its
sole discretion, acting reasonably, in which case all Warrants
shall be evidenced by Warrant Certificates registered in the
name(s) of a person other than CDS.
2.13 Adjustment
of Exchange Basis
Subject
to Section 2.14, the Exchange Basis shall be subject to adjustment
from time to time in the events and in the manner provided as
follows:
(1) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, the Company shall:
(a) issue
Common Shares or securities exchangeable for or convertible into
Common Shares to all or substantially all the holders of the Common
Shares as a stock dividend or other distribution (other than a
distribution of Common Shares upon the exercise of Warrants);
or
(b) subdivide,
redivide or change its then outstanding Common Shares into a
greater number of Common Shares; or
(c) reduce,
combine or consolidate its then outstanding Common Shares into a
lesser number of Common Shares,
(any of such events in these paragraphs (a), (b)
or (c) being called a "Common Share
Reorganization"), then the
Exchange Basis in effect on the effective date of such subdivision
or consolidation, or on the record date of such stock dividend or
other distribution, as the case may be, shall be adjusted by
multiplying the Exchange Basis in effect immediately prior to such
effective or record date by a fraction:
(a) the
numerator of which shall be the total number of Common Shares
outstanding on such date immediately after giving effect to such
Common Share Reorganization (including, in the case where
securities exchangeable for or convertible into Common Shares are
distributed, the number of Common Shares that would have been
outstanding had such securities been exchanged for or converted
into Common Shares on such record date, assuming in any case where
such securities are not then convertible or exchangeable but
subsequently become so, that they were convertible or exchangeable
on the record date on the basis upon which they first become
convertible or exchangeable), and
(b) the
denominator of which shall be the total number of Common Shares
outstanding on such date before giving effect to such Common Share
Reorganization.
The
resulting product, adjusted to the nearest 1/100th, shall
thereafter be the Exchange Basis until further adjusted as provided
in this Article 2. To the extent that any adjustment in the
Exchange Basis occurs pursuant to this Section 2.13(1) as a result
of the fixing by the Company of a record date for the distribution
of securities exchangeable for or convertible into Common Shares
and the Common Share Reorganization does not occur or any
conversion or exchange rights are not fully exercised, the Exchange
Basis shall be readjusted immediately after the expiry of any
relevant exchange or conversion right or the termination of the
Common Share Reorganization, as the case may be, to the Exchange
Basis that would then be in effect, based upon the number of Common
Shares actually issued and remaining issuable pursuant to the
Common Share Reorganization after such expiry and shall be further
readjusted in such manner upon the expiry of any further such
right.
(2) If and whenever, at any time after the date hereof
and prior to the Time of Expiry, the Company shall fix a record
date for the distribution to all or substantially all of the
holders of its outstanding Common Shares of rights, options or
warrants entitling them, for a period expiring not more than
forty-five (45) days after such record date, to subscribe for or
purchase Common Shares, or securities exchangeable for or
convertible into Common Shares, at a price per share to the holder
(or at an exchange or conversion price per share) of less than 95%
of the Current Market Price on such record date (any of such events
being called a "Rights Offering"),
then the Exchange Basis shall be
adjusted effective immediately after such record date for the
Rights Offering by multiplying the Exchange Basis in effect
immediately prior to such record date by a
fraction:
(a) the
numerator of which shall be the number of Common Shares which would
be outstanding after giving effect to the Rights Offering (assuming
the exercise of all of the rights, options or warrants under the
Rights Offering and assuming the exchange for or conversion into
Common Shares of all exchangeable or convertible securities issued
upon exercise of such rights, options or warrants, if any),
and
(b) the
denominator of which shall be the aggregate of:
(i) the
total number of Common Shares outstanding as of the
record
date
for the Rights Offering, and
(ii) a
number of Common Shares determined by dividing
(A) the
amount equal to the aggregate consideration payable on the exercise
of all of the rights, options and warrants under the Rights
Offering plus the aggregate consideration, if any, payable on the
exchange or conversion of the exchangeable or convertible
securities issued upon exercise of such rights, options or warrants
(assuming the exercise of all rights, options and warrants under
the Rights Offering and assuming the exchange or conversion of all
exchangeable or convertible securities issued upon exercise of such
rights, options and warrants);
by
(B) the
Current Market Price as of the record date for the Rights
Offering.
The resulting product, adjusted to the nearest
1/100th,
shall thereafter be the Exchange Basis until further adjusted as
provided in this Article 2. Any Common Shares owned by or held for
the account of the Company or any of its Subsidiaries or a
partnership in which the Company is directly or indirectly a party
to will be deemed not to be outstanding for the purpose of any
computation. If, at the date of expiry of the rights, options or
warrants subject to the Rights Offering, less than all the rights,
options or warrants have been exercised, then the Exchange Basis
shall be readjusted immediately after the date of expiry to the
Exchange Basis that would have been in effect on the date of expiry
if only the rights, options or warrants issued had been those
exercised. If at the date of expiry of the rights of exchange or
conversion of any securities issued pursuant to the Rights Offering
less than all of such securities have been exchanged or converted
into Common Shares, then the Exchange Basis shall be readjusted
immediately after the date of expiry to the Exchange Basis that
would have been in effect on the date of expiry if only the
exchangeable or convertible securities issued had been those
securities actually exchanged for or converted into Common
Shares.
(3) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, the Company shall fix a record date for the
issuance or distribution to all or substantially all the holders of
its outstanding Common Shares of:
(a) shares
of the Company of any class other than Common Shares;
or
(b) rights,
options or warrants to acquire Common Shares or securities
exchangeable for or convertible into Common Shares; or
(c) evidences
of indebtedness; or
(d) cash,
securities or any property or other assets,
and if such issuance or distribution does not
constitute a Common Share Reorganization or a Rights Offering (any
of such non-excluded events being herein called a
"Special
Distribution"), the Exchange
Basis shall be adjusted effective immediately after such record
date for the Special Distribution by multiplying the Exchange Basis
in effect immediately prior to such record date by a
fraction:
(a) the
numerator of which shall be the number of Common Shares outstanding
on such record date multiplied by the Current Market Price on such
record date, and
(b) the
denominator of which shall be:
(A) the
number of Common Shares outstanding on such record date multiplied
by the Current Market Price on such record date, less
(B) the
fair market value, as determined by action by the board of
directors acting reasonably and in good faith (whose determination,
absent manifest error, shall be conclusive), to the holders of the
Common Shares of the shares, rights, options, warrants, evidences
of indebtedness or securities, property or other assets issued or
distributed in the Special Distribution provided that no such
adjustment shall be made if the result of such adjustment would be
to decrease the Exchange Basis in effect immediately before such
record date.
The resulting product, adjusted to the nearest
1/100th,
shall thereafter be the Exchange Basis until further adjusted as
provided in this Article 2. Any Common Shares owned by or held for
the account of the Company or any of its Subsidiaries or a
partnership of which the Company is directly or indirectly a party,
will be deemed not to be outstanding for the purpose of any such
computation.
(4) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, there shall be a reclassification of the Common
Shares at any time outstanding or change or exchange of the Common
Shares into or for other shares or into or for other securities or
property (other than a Common Share Reorganization), or a
consolidation, amalgamation, arrangement or merger of the Company
with or into any other corporation or other entity (other than a
consolidation, amalgamation, arrangement or merger which does not
result in any reclassification of the outstanding Common Shares or
a change or exchange of the Common
Shares into or for other shares, securities or
property), or a transfer (other than to a Subsidiary) of the
undertaking or assets of the Company as an entirety or
substantially as an entirety to another corporation or other entity
(any of such events being herein called a "Capital
Reorganization"), any
Warrantholder who thereafter shall exercise his right to receive
Warrant Shares pursuant to Warrant(s) shall be entitled to receive,
and shall accept in lieu of the number of Warrant Shares to which
such holder was theretofore entitled upon such exercise, the
aggregate number of shares, other securities or other property
resulting from the Capital Reorganization which such holder would
have been entitled to receive as a result of such Capital
Reorganization if, on the effective date or record date thereof, as
the case may be, the Warrantholder had been the registered holder
of the number of Warrant Shares to which such holder was
theretofore entitled upon exercise. If appropriate, adjustments
shall be made as a result of any such Capital Reorganization in the
application of the provisions in this Indenture with respect to the
rights and interests thereafter of Warrantholders to the end that
the provisions in this Indenture shall thereafter correspondingly
be made applicable as nearly as may reasonably be possible in
relation to any shares, other securities or other property
thereafter deliverable upon the exercise of any Warrant. Any such
adjustment shall be made by and set forth in an indenture
supplemental hereto approved by the directors of the Company and by
the Warrant Agent and entered into pursuant to the provisions of
this Indenture and shall for all purposes be conclusively deemed to
be an appropriate adjustment.
(5) Any
adjustment to the Exchange Basis as set forth herein shall also
include a corresponding adjustment to the Price which shall be
calculated by multiplying the Price by a fraction: (a) the
numerator of which shall be the Exchange Basis prior to the
adjustment, and (b)
the
denominator of which shall be the Exchange Basis after the
adjustment.
2.14 Rules
Regarding Calculation of Adjustment of Exchange
Basis
For the purposes of Section
2.13:
(1) The
adjustments provided for in Section 2.13 shall be cumulative and
such adjustments shall be made successively whenever an event
referred to in Section 2.13 shall occur, subject to the following
subsections of this Section 2.14.
(2) No
adjustment in the: (a) Exchange Basis shall be required unless such
adjustment would result in a change of at least 0.01 of a Warrant
Share based on the prevailing Exchange Basis; or (b) the Price
shall be required unless such adjustment would result in a change
of at least 1% of the Price, provided that any adjustments which,
except for the provisions of this subsection, would otherwise have
been required to be made, shall be carried forward and taken into
account in any subsequent adjustment.
(3) No
adjustment in the Exchange Basis or the Price shall be made in
respect of any event described in Section 2.13, other than the
events referred to in paragraphs (b) and (c)
of subsection (1) thereof, if Warrantholders are
entitled to participate in such event on the same terms,
mutatis
mutandis, as if Warrantholders
had exercised their Warrants prior to or on the effective date or
record date of such event, any such participation being subject to
regulatory approval.
(4) No
adjustment in the Exchange Basis or the Price shall be made
pursuant to Section 2.13 in respect of (i) the issue from time to
time of Warrant Shares purchasable on exercise of the Warrants and
any such issue shall be deemed not to be a Common Share
Reorganization; (ii) a Dividend Paid in the Ordinary Course; or
(iii) a distribution of Common
Shares pursuant to the exercise of stock options granted under
stock option plans of the Company.
(5) If
a dispute shall at any time arise with respect to adjustments
provided for in Section 2.13, such dispute shall, absent manifest
error, be conclusively determined by the Company's Auditors, or if
they are unable or unwilling to act, by such other firm of
independent chartered accountants as may be selected by the
directors and any further determination, absent manifest error,
shall be binding upon the Company, the Warrant Agent and the
Warrantholders.
(6) If
the Company shall set a record date to determine the holders of the
Common Shares for the purpose of entitling them to receive any
dividend or distribution or any subscription or purchase rights and
shall, thereafter and before the distribution to such shareholders
of any such dividend, distribution, or subscription or purchase
rights, legally abandon its plan to pay or deliver such dividend,
distribution, or subscription or purchase rights, then no
adjustment in the Exchange Basis shall be required by reason of the
setting of such record date.
(7) In
the absence of a resolution of the directors fixing a record date
for a Rights Offering or Special Distribution, the Company shall be
deemed to have fixed as the record date therefor the date on which
the Rights Offering or Special Distribution is
effected.
(8) If the purchase price provided for in any Rights
Offering (the "Rights Offering Price")
is decreased, the Exchange Basis shall
forthwith be changed so as to increase the Exchange Basis to such
Exchange Basis as would have been obtained had the adjustment to
the Exchange Basis made pursuant to Section 2.13(2) upon the
issuance of such Rights Offering been made upon the basis of the
Rights Offering Price as so decreased, provided that the provisions
of this subsection shall not apply to any decrease in the Rights
Offering Price resulting from provisions in any such Rights
Offering designed to prevent dilution if the event giving rise to
such decrease in the Rights Offering Price itself requires an
adjustment to the Exchange Basis pursuant to the provisions of
Section 2.13.
(9) As
a condition precedent to the taking of any action that would
require any adjustment in any of the subscription rights pursuant
to any of the Warrants, including the Exchange Basis, the Company
shall take any corporate action which may, in the opinion of
counsel, be necessary in order that the Company have unissued and
reserved in its authorized capital and may validly and legally
issue as fully paid and non-assessable all the shares or other
securities that all the holders of such Warrants are entitled to
receive on the exercise of all the subscription rights attaching
thereto in accordance with the provisions thereof.
(10) In
case the Company, after the date hereof, shall take any action
affecting any Common Shares, other than action described in Section
2.13, which in the opinion of the directors acting reasonably and
in good faith would materially affect the rights of Warrantholders,
the Exchange Basis shall be adjusted in such manner, if any, and at
such time, as the directors, in their sole discretion acting
reasonably and in good faith, may determine to be equitable in the
circumstances. Failure of the taking of any action by the directors
so as to provide for an adjustment in the Exchange Basis prior to
the effective date of any action by the Company affecting the
Common Shares shall be conclusive evidence that the directors have
determined that it is equitable to make no adjustment in the
circumstances.
(11) The
Warrant Agent shall be entitled to act and rely on any
adjustment calculations
by the Company or the Company's Auditors.
2.15 Postponement
of Subscription
In
any case where the application of Section 2.13 results in an
increase in the number of Common Shares that are issuable upon
exercise of the Warrants taking effect immediately after the record
date for a specific event, if any Warrant is exercised after that
record date and prior to completion of such specific event, the
Company may postpone the issuance to the Warrantholder of the
Warrant Shares to which he is entitled by reason of such
adjustment, but such Warrant Shares shall be so issued and
delivered to that holder upon completion of that event, with the
number of such Warrant Shares calculated on the basis of the number
of Warrant Shares on the date that the Warrant was exercised,
adjusted for completion of that event and the Company shall deliver
to the person or persons in whose name or names the Warrant Shares
are to be issued an appropriate instrument evidencing the right of
such person or persons to receive such Warrant Shares and the right
to receive any dividends or other distributions which, but for the
provisions of this Section 2.15, such person or persons would have
been entitled to receive in respect of such Warrant Shares from and
after the date that the Warrant was exercised in respect
thereof.
2.16 Notice
of Adjustment
(1) At
least fourteen (14) days prior to the effective date or record
date, as the case may be, of any event which requires or might
require adjustment pursuant to Section 2.13, the Company
shall:
(a) file
with the Warrant Agent a certificate of the Company specifying the
particulars of such event (including the record date or the
effective date for such event) and, if determinable, the required
adjustment and the computation of such adjustment and setting forth
in reasonable detail the method of calculation and the facts upon
which such calculation is based; and
(b) give
notice to the Warrantholders of the particulars of such event
(including the record date or the effective date for such event)
and, if determinable, the required adjustment.
(2) In
case any adjustment for which a notice in Section 2.16(1) has been
given is not then determinable, the Company shall promptly after
such adjustment is determinable:
(a) file
with the Warrant Agent a computation of such adjustment;
and
(b) give
notice to the Warrantholders of the adjustment.
(3) The
Warrant Agent may and shall be protected in so doing, absent
manifest error, act and rely upon certificates of the Company and
other documents filed by the Company pursuant to this Section 2.16
for all purposes of the adjustment.
2.17 No
Action after Notice
The
Company covenants with the Warrant Agent that it will not close its
books nor take any other corporate action which might deprive a
Warrantholder of the opportunity of exercising
the rights of acquisition pursuant thereto during the period of ten
(10) days after the giving of the notice set forth in paragraph (b)
of Sections 2.16(1) and (2).
2.18 Purchase
of Warrants for Cancellation
The
Company may, at any time and from time to time, purchase Warrants
by invitation to tender, by private contract, on any stock exchange
(if then listed) or otherwise (which shall include a purchase
through an investment dealer or firm holding membership on a
Canadian stock exchange) on such terms as the Company may
determine. All Warrants purchased pursuant to the provisions of
this Section 2.18 shall be forthwith delivered to and cancelled by
the Warrant Agent and shall not be reissued. If required by the
Company, the Warrant Agent shall furnish the Company with a
certificate as to such destruction.
2.19 Protection
of Warrant Agent
The
Warrant Agent shall not:
(a) at
any time be under any duty or responsibility to any registered
holder of Warrants to determine whether any facts exist that may
require any adjustment contemplated by this Article 2, nor to
verify the nature and extent of any such adjustment when made or
the method employed in making the same;
(b) be
accountable with respect to the validity or value or the kind or
amount of any Warrant Shares or of any other securities or property
that may at any time be issued or delivered upon the exercise of
the Warrants;
(c) be
responsible for any failure of the Company to make any cash
payment, to issue, transfer or deliver Warrant Shares or
certificates upon the surrender of any Warrants for the purpose of
the exercise of such rights or to comply with any of the covenants
contained in Section 2.13; or
(d) incur
any liability or responsibility whatsoever or be in any way
responsible for the consequence of any breach on the part of the
Company of any of the representations, warranties or covenants of
the Company or any acts or deeds of the agents or servants of the
Company.
2.20 U.S.
Legend on Warrant Certificates and Warrant Share
certificates
(1) The
Warrant Agent understands and acknowledges that the Warrants and
the Warrant Shares issuable upon exercise of the Warrants have not
been, and will not be, registered under the U.S. Securities Act or
the securities laws of any state of the United States.
(2) Each
Warrant, in certificated form, originally issued in the United
States or, to or for the account or benefit of, a U.S. Person, and
all Warrant Shares issued upon exercise of such Warrants, and all
certificates issued in exchange or in substitution thereof or upon
transfer thereof, shall bear the following legend:
"THE SECURITIES REPRESENTED HEREBY
[for Warrants,
add: AND
THE
SECURITIES ISSUABLE ON EXERCISE HEREOF] HAVE NOT
BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT") OR UNDER ANY
STATE SECURITIES LAWS, AND THE SECURITIES REPRESENTED HEREBY
[for Warrants,
add: AND THE SECURITIES
ISSUABLE ON EXERCISE HEREOF] MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, DIRECTLY OR INDIRECTLY, ONLY (A) TO THE COMPANY, (B)
OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE
U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS
AND REGULATIONS, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE U.S. SECURITIES ACT PROVIDED BY (i) RULE 144 OR (ii)
RULE144A THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH
APPLICABLE U.S. STATE SECURITIES LAWS, (D) IN COMPLIANCE WITH
ANOTHER EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS, OR (E) UNDER AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT, PROVIDED THAT
IN THE CASE OF TRANSFERS PURSUANT TO (C)(i) OR (D) ABOVE, A LEGAL
OPINION OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY,
MUST FIRST BE PROVIDED TO THE COMPANY AND THE COMPANY'S TRANSFER
AGENT TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY" IN
SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN
CANADA.”
[for Warrants, include:
"THIS WARRANT MAY NOT BE EXERCISED IN
THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR
BENEFIT OF, A PERSON IN THE UNITED STATES OR A U.S. PERSON UNLESS
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS ORAN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS IS AVAILABLE. "UNITED STATES" AND "U.S.
PERSON" ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES
ACT."]
provided that, if the Warrants or Warrant Shares issuable
upon exercise of the Warrants are being sold in accordance with
Rule 904 of Regulation S, the legend may be removed by providing to
the Warrant Agent or the Transfer Agent, as the case may be, (i) a
declaration in the form attached hereto as Schedule "B" (or as the
Company may prescribe from time to time in order to address changes
in applicable laws) and (ii) if required by the Transfer Agent, an
opinion of counsel, of recognized standing reasonably satisfactory
to the Company, or other evidence reasonably satisfactory to the
Company, that the proposed transfer may be effected without
registration under the U.S. Securities Act.
provided further,
that if the Warrants or Warrant Shares
are being sold pursuant to Rule 144 under the U.S. Securities Act,
if available, the legend may be removed by delivering to the
Company and the Warrant Agent or the Transfer Agent, as the case
may be, an opinion of counsel of recognized standing in form and
substance reasonably satisfactory to the Company, to the effect
that the legend is no longer required under applicable requirements
of the U.S.
Securities Act.
(3) Each
Warrant, in certificated form, issued outside the United States to
a non- U.S. Person, and all certificates issued in exchange or in
substitution thereof or upon transfer thereof, shall bear the
following legend:
"THE
SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE ON
EXERCISE HEREOF] HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S.
SECURITIES ACT") OR UNDER ANY STATE SECURITIES LAWS. THIS WARRANT
MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR
FOR THE ACCOUNT OR BENEFIT OF, A PERSON IN THE UNITED STATES OR A
U.S. PERSON UNLESS THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. "UNITED
STATES" AND "U.S. PERSON" ARE AS DEFINED BY REGULATION S UNDER THE
U.S. SECURITIES ACT.”
(4) If
a Warrant or Warrant Share issued with respect to an exercise of
Warrants is tendered for transfer and bears the legend set forth in
Section 2.20(2) herein and the holder thereof has not obtained the
prior written consent of the Company, the Warrant Agent or the
Transfer Agent, as the case may be, shall not register such
transfer unless the holder complies with the requirements of the
said Section 2.20(2) hereof.
ARTICLE 3 EXERCISE OF WARRANTS
3.1 Method
of Exercise of Warrants
(1) The
registered holder of any Warrant may exercise the rights thereby
conferred on him to acquire all or any part of the Warrant Shares
to which such Warrant entitles the holder, by surrendering the
Warrant Certificate representing such Warrants to the Warrant Agent
at any time prior to the Time of Expiry at its principal stock
transfer offices in the City of Calgary, Alberta (or at such
additional place or places as may be decided by the Company from
time to time with the approval of the Warrant Agent), with a duly
completed and executed exercise form of the registered holder or
his executors, administrators or other legal representative or his
attorney duly appointed by an instrument in writing in the form and
manner satisfactory to the Warrant Agent, substantially in the form
endorsed on the Warrant Certificate specifying the number of
Warrant Shares subscribed for together with a certified cheque,
bank draft or money order in lawful money of Canada, payable to or
to the order of the Company in an amount equal to the Exercise
Price multiplied by the number of Warrant Shares subscribed for. A
Warrant Certificate with the duly completed and executed exercise
form and payment of the Exercise Price shall be deemed to be
surrendered only upon personal delivery thereof to or, if sent by
mail or other means of transmission, upon actual receipt thereof by
the Warrant Agent.
(2) Any
exercise form referred to in Section 3.1(1) shall be signed by the
Warrantholder, or his executors, or administrators or other legal
representative or his attorney duly appointed by an instrument in
writing in the form and manner satisfactory to the Warrant Agent,
but such exercise form need not be executed by CDS. Such exercise
form shall specify the person(s) in whose name such Warrant Shares
are to be issued, the address(es) of such person(s) and the number
of Warrant Shares to be issued to each person, if more than one is
so specified. If any of the Warrant Shares subscribed for are to be
issued to person(s) other than the Warrantholder, the Warrantholder
shall also complete the transfer form, substantially in the form
endorsed on the Warrant Certificate. The signatures set out in the
exercise form referred to in Section 3.1(1) and the signatures set
out in the transfer form shall be guaranteed by a Canadian Schedule
1 chartered bank or a medallion signature guarantee from a member
of a recognized Signature Medallion Guarantee Program and the
Warrantholder shall pay to the Company or the Warrant Agent all
applicable transfer or similar taxes and the Company shall not be
required to issue or deliver certificates evidencing Warrant Shares
unless or until such Warrantholder shall have paid to the Company
or the Warrant Agent on behalf of the Company the amount of such
tax or shall have established to the satisfaction of the Company
that such tax has been paid or that no tax is due.
(3) If,
at the time of exercise of the Warrants, in accordance with the
provisions of Section 3.1(1), there are any trading restrictions on
the Warrant Shares pursuant to applicable Securities Laws or stock
exchange requirements, the Company shall, on the advice of counsel,
endorse any certificates representing the Warrant Shares to such
effect. The Warrant Agent is entitled to assume compliance with all
applicable Securities Laws unless otherwise notified in writing by
the Company.
(4) A Beneficial Owner who desires to exercise his,
her or its Uncertificated Warrants, must do so by causing a
Participant to deliver to CDS (at its office in the City of
Toronto, Ontario), on behalf of the Beneficial Owner at any time
prior to the Time of Expiry, a written notice of the Beneficial
Owner's intention to exercise Warrants (the "Exercise Notice");
provided, that a Beneficial Owner
holding Uncertificated Warrants that is in the United States or
that is a U.S. Person will first request the withdrawal of the
Uncertificated Warrant(s) from the Book-Entry Only System and
request certificated Warrant(s) in exchange for such Uncertificated
Warrant(s). Forthwith upon receipt by CDS of such notice, as well
as payment for the Exercise Price, CDS shall deliver to the Warrant
Agent confirmation of its intention to exercise Warrants
(the "Confirmation")
in a manner acceptable to the Warrant
Agent, including by electronic means through the Book-Entry Only
System, including CDSX. An electronic exercise of the Warrants
initiated by the Beneficial Owner through a Book-Entry Only System,
including CDSX, shall constitute a representation to both the
Company and the Warrant Agent that the Beneficial Owner at the time
of exercise of such Warrants (a) is not in the United States; (b)
did not acquire the Warrants in the United States or on behalf of,
or for the account or benefit of, a U.S. Person or a person in the
United States; (c) is not a U.S. Person and is not exercising such
Warrants on behalf of a U.S. Person or a person in the United
States; and (d) did not execute or deliver the notice of the
owner's intention to exercise such Warrants in the United States.
If the Participant is not able to make or deliver the foregoing
representation by initiating the electronic exercise of the
Warrants, then such Warrants shall be withdrawn from the Book-Entry
Only System, including CDSX, by the Participant and an individually
registered Warrant Certificate shall be issued by the Warrant Agent
to such Beneficial Owner or Participant and the exercise procedures
set forth in Section 3.1(1) shall be followed. Payment representing
the aggregate Exercise Price must be provided to the appropriate
office of the Participant in a manner acceptable to it. A notice in
form acceptable to the Participant and payment from such Beneficial
Owner should be provided through the Book-Entry Only System
sufficiently in advance so as to permit the Participant to deliver
notice and payment to CDS and for CDS in turn to deliver notice and
payment to the Warrant Agent prior to Time of Expiry. CDS will
initiate the exercise by way of the Confirmation and forward the
aggregate Exercise Price electronically to the Warrant Agent and
the Warrant Agent will execute the exercise by issuing to CDS
through the Book- Entry Only System the Warrant Shares to which the
exercising Beneficial Owner is entitled pursuant to the exercise.
Any expense associated with the preparation and delivery of
Exercise Notices will be for the account of the Beneficial Owner
exercising the Warrants.
(5) By
causing a Participant to deliver notice to CDS, a Warrantholder
shall be deemed to have irrevocably surrendered his, her or its
Warrants so exercised and appointed such Participant to act as his,
her or its exclusive settlement agent with respect to the exercise
and the receipt of Warrant Shares in connection with the
obligations arising from such exercise.
(6) Any
notice which CDS determines to be incomplete, not in proper form or
not duly executed shall for all purposes be void and of no effect
and the exercise to which it relates shall be considered for all
purposes not to have been exercised thereby. A failure by a
Participant to exercise or to give effect to the settlement thereof
in accordance with the Beneficial Owner's instructions will not
give rise to any obligations or liability on the part of the
Company or Warrant Agent to the Participant or the Beneficial
Owner.
(7) All
Warrants in certificated form, including Warrants required to be
withdrawn from the Book-Entry Only System, including CDSX pursuant
to Section 3.4(4), may not be exercised unless an exemption is
available from the registration requirements of the U.S. Securities
Act and applicable state securities laws, and any holder which
exercises any Warrants shall provide to the Company
either:
(a) a
written certification that such holder (a) at the time of exercise
of the Warrants is not in the United States; (b) is not a U.S.
Person and is not exercising the Warrants on behalf of a U.S.
Person or person in the United States; (c) did not execute or
deliver the exercise form for the Warrants in the United States;
and (d) has in all other aspects complied with the terms of an
"offshore transaction" as defined under Regulation S (which written
certification shall be deemed delivered by checking Box 1 in the
Exercise Form attached to the Warrant, as provided for in Schedule
“A” hereof); or
(b) a
written certification that the holder (i) purchased the Warrants as
part of the Units in the Offering; (ii) is exercising the Warrants
solely for its own account or for the benefit of a U.S. Person or a
person in the United States for whose account such holder acquired
the Warrants as a part of the Units in the Offering and for whose
account such holders exercises sole investment discretion; (iii)
was and is, and any beneficial purchaser for whose account such
holder acquired the Warrant and is exercising the Warrants was and
is, a Qualified Institutional Buyer both on the date the Units were
purchased in the Offering and on the Exercise Date; and (iv) the
representations and warranties made by the holder or any beneficial
purchaser, as the case may be, to the Company in such
holder’s QIB Letter remain true and correct on the Exercise
Date (which written certification shall be deemed delivered by
checking Box 2 in the Exercise Form attached to the Warrant, as
provided for in Schedule “A” hereof); or
(c) a
written opinion of counsel of recognized standing in form and
substance satisfactory to the Company or evidence satisfactory to
the Company to the effect that an exemption from the registration
requirements of the U.S. Securities Act and applicable state
securities laws is available for the issuance of the Warrant Shares
issuable on exercise of the Warrants.
(8) No
Warrant Shares will be registered or delivered to an address in the
United States unless the holder of Warrants complies with the
requirements of paragraph (b) or (c) of Section
3.1(7).
(9) Any
exercise referred to in this Section 3.1 shall require that the
entire Exercise Price for the Warrant Shares subscribed for must be
paid at the time of subscription and such Exercise Price and
original Exercise Notice or exercise form executed by the
Registered Warrantholder or the Confirmation from CDS must be
received by the Warrant Agent prior to the Time of
Expiry.
(10) Warrants
may only be exercised pursuant to this Section 3.1 by or on behalf
of a Warrantholder, as applicable, who makes the certifications set
forth on the exercise form substantially in the form endorsed on
the Warrant Certificate.
(11) If
the exercise form set forth in the Warrant Certificate shall have
been amended, the Company shall cause the amended exercise form to
be forwarded to all registered Warrantholders.
(12) Exercise
forms, Exercise Notices and Confirmations must be delivered to the
Warrant Agent at any time during the Warrant Agent's actual
business hours on any Business Day prior to the Time of Expiry. Any
exercise form, Exercise Notice or Confirmation received by the
Warrant Agent after business hours on any Business Day other than
the Time of Expiry will be deemed to have been received by the
Warrant Agent on the next following Business Day.
(13) Any
Warrant with respect to which a Confirmation is not received by the
Warrant Agent before the Time of Expiry shall be deemed to have
expired and become void and all rights with respect to such
Warrants shall terminate and be cancelled.
3.2 No
Fractional Shares
Under
no circumstances shall the Company be obliged to issue any
fractional Warrant Shares or any cash or other consideration in
lieu thereof upon the exercise of one or more Warrants. To the
extent that the holder of one or more Warrants would otherwise have
been entitled to receive on the exercise or partial exercise
thereof a fraction of a Warrant Share, that holder may exercise
that right in respect of the fraction only in combination with
another Warrant or Warrants that in the aggregate entitle the
holder to purchase a whole number of Warrant Shares.
3.3 Effect
of Exercise of Warrants
(1)
Upon compliance by the Warrantholder with the provisions of Section
3.1, the Warrant Shares subscribed for shall be deemed to have been
issued and the person to whom such Warrant Shares are to be issued
shall be deemed to have become the holder of record of such Warrant
Shares on the Exercise Date unless the transfer registers of the
Company for
the Common Shares shall be closed on such date, in which case the
Warrant Shares subscribed for shall be deemed to have been issued
and such person shall be deemed to have become the holder of record
of such Warrant Shares on the date on which such transfer registers
are reopened.
(2) The
Warrant Agent shall as soon as practicable account to the Company
with respect to Warrants exercised, and shall as soon as
practicable forward to the Company (or into an account or accounts
of the Company with the bank or trust company designated by the
Company for that purpose), all monies received by the Warrant Agent
on the subscription of Warrant Shares through the exercise of
Warrants. All such monies and any securities or other instruments,
from time to time received by the Warrant Agent, shall be received
in trust for the Warrantholders and the Company as their interests
may appear and shall be segregated and kept apart by the Warrant
Agent.
(3) Within
five Business Days following the due exercise of a Warrant pursuant
to Section 3.1, the Company shall cause the Transfer Agent to issue
and the Warrant Agent to deliver, within such five Business Day
period, to CDS through the Book-Entry Only System the Warrant
Shares to which the exercising Warrantholder is entitled pursuant
to the exercise or mail to the person in whose name the Warrant
Shares so subscribed for are to be issued, as specified in the
exercise form completed on the Warrant Certificate, at the address
specified in such exercise form, a certificate or certificates for
the Warrant Shares to which the Warrantholder is entitled or, if so
specified in writing by the holder, cause to be delivered to such
person or persons at the office of the Warrant Agent where the
Warrant Certificate was surrendered, a certificate or certificates
for the appropriate number of Warrant Shares subscribed for, or any
other appropriate evidence of the issuance of Warrant Shares to
such person or persons in respect of Warrant Shares issued under
the Book-Entry Only System and, if applicable, shall cause the
Warrant Agent to mail a Warrant Certificate representing any
Warrants not then exercised.
3.4 Cancellation
of Warrants
All
Warrants surrendered to the Warrant Agent pursuant to sections 2.6,
2.8(2), 2.10 or 3.1
shall
be cancelled by the Warrant Agent and the Warrant Agent shall
record the cancellation of such Warrants on the register of holders
maintained by the Warrant Agent pursuant to Section 2.8(1). The
Warrant Agent shall, if required by the Company, furnish the
Company with a certificate identifying the Warrants so cancelled.
All Warrants that have been duly cancelled shall be without further
force or effect whatsoever.
3.5 Subscription
for less than Entitlement
The
holder of any Warrant may subscribe for and purchase a whole number
of Warrant Shares that is less than the number that the holder is
entitled to purchase pursuant to a surrendered Warrant. In such
event, the holder thereof shall be entitled to receive a new
Warrant Certificate in respect of the balance of Warrants that were
not then exercised, such new Warrant Certificate to contain the
same legend as provided for in Section 2.20(2), if
applicable.
3.6 Expiration
of Warrant
After
the Time of Expiry, all rights under any Warrant in respect of
which the right of subscription and purchase herein and therein
provided for shall not theretofore have been
exercised shall wholly cease and terminate and such Warrant shall
be void and of no effect.
ARTICLE 4 COVENANTS FOR WARRANTHOLDERS' BENEFIT
4.1 General
Covenants of the Company
The
Company represents, warrants and covenants with the Warrant Agent
for the benefit of the Warrant Agent and the Warrantholders
that:
(1) The
Company will at all times, so long as any Warrants remain
outstanding or issuable hereunder, maintain its existence, unless
otherwise inconsistent with the fiduciary duties of the board of
directors of the Company, and will keep or cause to be kept proper
books of account in accordance with applicable law until the Time
of Expiry.
(2) The
Company is duly authorized to create and issue the Warrants to be
issued hereunder and the Warrants, when Authenticated, will be
legal, valid, binding and enforceable obligations of the
Company.
(3) The
Company will reserve and keep available a sufficient number of
Warrant Shares for the purpose of enabling the Company to satisfy
its obligations to issue Common Shares upon the exercise of the
Warrants, and all Warrants Shares shall, when issued as provided
herein, be valid and enforceable against the Company.
(4) The
Company will cause the Warrant Shares from time to time subscribed
for pursuant to the Warrants issued by the Company hereunder, in
the manner herein provided, to be duly issued in accordance with
the Warrants and the terms hereof.
(5) All
Warrant Shares that shall be issued by the Company upon exercise of
the rights provided for herein shall be issued as fully paid and
non-assessable Common Shares of the Company.
(6) The
Company will use commercially reasonable efforts to ensure that the
Warrants, and the Common Shares outstanding on the date hereof and
issuable from time to time on the exercise of the Warrants,
continue to be or are listed and posted for trading on the CSE (or
such other Canadian stock exchange acceptable to the Company),
provided that this Section 4.1(6) shall not be construed as
limiting or restricting the Company from completing a
consolidation, amalgamation, arrangement, takeover bid, merger or
other form of business combination that would result in the
Warrants and/or the Common Shares ceasing to be listed and posted
for trading on such exchanges, so long as the holders of Common
Shares have approved the transaction in accordance with the
requirements of applicable corporate and securities laws and the
policies of such exchanges or the holders of Common Shares receive
securities of an entity which is listed on a stock exchange in
North America or cash.
(7) Except
to the extent that the Company participates in a takeover bid,
consolidation, merger, arrangement, amalgamation, or other form of
business combination transaction, the Company will use its
commercially reasonable efforts to maintain its status as a
"reporting issuer" (or the equivalent thereof) in each of the
provinces of Canada and other Canadian jurisdictions in which it is
currently or becomes a reporting issuer, make all requisite filings
under applicable Securities Laws including those necessary to
remain a reporting issuer not in default of the requirements of the
applicable Securities Laws of such province or
jurisdiction, until the Time of Expiry.
(8) The
Company will perform and carry out all of the acts or things to be
done by it as provided in this Indenture.
(9) The
Company will not take any action or omit to take any action which
would have the effect of preventing the Warrantholders from
receiving any of the Warrant Shares issuable upon the exercise of
the Warrants.
(10) The
Company will promptly advise the Warrant Agent and the
Warrantholders in writing of any breach or default under the terms
of this Indenture no later than five (5) Business Days following
the occurrence of such breach or default.
(11) If,
in the opinion of counsel, any instrument is required to be filed
with, or any permission, order or ruling is required to be obtained
from any securities regulatory authority, or any other step is
required under any federal or provincial law of Canada before the
Warrant Shares may be issued and delivered to a Warrantholder, the
Company covenants that it will use its best efforts to file such
instrument, obtain such permission, order or ruling or take all
such other actions, at its expense, as is required or appropriate
in the circumstances.
4.2 Warrant
Agent's Remuneration and Expenses
The
Company covenants that it will pay to the Warrant Agent from time
to time reasonable remuneration for its services hereunder and will
pay or reimburse the Warrant Agent upon its request for all
reasonable expenses and disbursements and advances incurred or made
by the Warrant Agent in the administration or execution of the
trusts hereby created (including the reasonable compensation and
the disbursements of its counsel and all other advisers, experts,
accountants and assistants not regularly in its employ) both before
any default hereunder and thereafter until all duties of the
Warrant Agent hereunder shall be finally and fully performed. Any
amount owing hereunder and remaining unpaid after thirty (30) days
from the invoice date will bear interest at the then current rate
charged by the Warrant Agent against unpaid invoices and shall be
payable upon demand. This section shall survive the resignation or
removal of the Warrant Agent and/or the termination of this
Indenture.
4.3 Performance
of Covenants by Warrant Agent
Subject
to Section 8.7, if the Company shall fail to perform any of its
covenants contained in this Indenture and the Company has not
rectified such failure within twenty-five (25) Business Days after
either giving notice of such default pursuant to Section 4.1(10) or
receiving written notice from the Warrant Agent of such failure,
the Warrant Agent may notify the Warrantholders of such failure on
the part of the Company or may itself perform any of the said
covenants capable of being performed by it, but shall be under no
obligation to perform said covenants. All reasonable sums expended
or disbursed by the Warrant Agent in so doing shall be repayable as
provided in Section 4.2. No such performance, expenditure or
advance by the Warrant Agent shall be deemed to relieve the Company
of any default hereunder or of its continuing obligations under the
covenants herein contained.
4.4 Enforceability
of Warrants
The
Company covenants and agrees that it is duly authorized to create
and issue the Warrants to be issued hereunder and that the
Warrants, when issued and Authenticated as herein provided, will be
valid and enforceable against the Company in accordance with the
provisions hereof and that, subject to the provisions of this
Indenture, the Company will cause the Warrant Shares from time to
time acquired upon exercise of Warrants issued under this Indenture
to be duly issued and delivered in accordance with the terms of
this Indenture.
ARTICLE 5 ENFORCEMENT
5.1 Suits
by Warrantholders
Subject
to Section 6.10, all or any of the rights conferred upon a
Warrantholder by the terms of the Warrants held by him and/or this
Indenture may be enforced by such Warrantholder by appropriate
legal proceedings but without prejudice to the right that is hereby
conferred upon the Warrant Agent to proceed in its own name to
enforce each and all of the provisions herein contained for the
benefit of the holders of the Warrants from time to time
outstanding. The Warrant Agent shall also have the power at any
time and from time to time to institute and to maintain such suits
and proceedings as it may reasonably be advised shall be necessary
or advisable to preserve and protect its interests and the
interests of the Warrantholders.
5.2 Limitation
of Liability
The
obligations hereunder (including without limitation under Section
8.7(5)) are not personally binding upon, nor shall resort hereunder
be had to, the private property of any of the past, present or
future directors or shareholders of the Company or any of the past,
present or future officers, employees or agents of the Company, but
only the property of the Company (or any successor person) shall be
bound in respect hereof.
5.3 Waiver
of Default
Upon
the happening of any default hereunder:
(a) the
Warrantholders of not less than 50% plus 1 of the Warrants then
outstanding shall have power (in addition to the powers exercisable
by Extraordinary Resolution) by requisition in writing to instruct
the Warrant Agent to waive any default hereunder and the Warrant
Agent shall thereupon waive the default upon such terms and
conditions as shall be prescribed in such requisition;
or
(b) the
Warrant Agent shall have power to waive any default hereunder upon
such terms and conditions as the Warrant Agent may deem advisable,
on the advice of counsel, if, in the Warrant Agent's opinion, based
on the advice of counsel, the same shall have been cured or
adequate provision made therefor,
provided
that no delay or omission of the Warrant Agent or of the
Warrantholders to exercise any right or power accruing upon any
default shall impair any such right or power or shall be construed
to be a waiver of any such default or acquiescence therein and
provided further that no act or omission either of the Warrant
Agent or of the Warrantholders in the premises shall extend to or
be taken in any manner whatsoever to affect any subsequent default
hereunder of the rights resulting therefrom.
ARTICLE 6 MEETINGS OF WARRANTHOLDERS
6.1 Right
to Convene Meetings
The
Warrant Agent may at any time and from time to time, and shall on
receipt of a written request of the Company or of a Warrantholders'
Request, convene a meeting of the Warrantholders provided that the
Warrant Agent has been provided with sufficient funds and is
indemnified to its reasonable satisfaction by the Company or by the
Warrantholders signing such Warrantholders' Request against the
costs, charges, expenses and liabilities that may be incurred in
connection with the calling and holding of such meeting. If within
fifteen (15) Business Days after the receipt of a written request
of the Company or a Warrantholders' Request, funding and indemnity
given as aforesaid the Warrant Agent fails to give the requisite
notice specified in Section 6.2 to convene a meeting, the Company
or such Warrantholders, as the case may be, may convene such
meeting. Every such meeting shall be held in the City of Toronto,
Ontario or at such other place as may be approved or determined by
the Warrant Agent.
6.2 Notice
At
least fourteen (14) days prior notice of any meeting of
Warrantholders shall be given to the Warrantholders at the expense
of the Company in the manner provided for in Section
9.2
and
a copy of such notice shall be delivered to the Warrant Agent
unless the meeting has been called by it, and to the Company unless
the meeting has been called by it. Such notice shall state the
date, time and place of the meeting, the general nature of the
business to be transacted and shall contain such information as is
reasonably necessary to enable the Warrantholders to make a
reasoned decision on the matter, but it shall not be necessary for
any such notice to set out the terms of any resolution to be
proposed or any of the provisions of this Article 6. The notice
convening any such meeting may be signed by an appropriate officer
of the Warrant Agent or of the Company or the person designated by
such Warrantholders, as the case may be.
6.3 Chairman
The
Warrant Agent may nominate in writing an individual (who need not
be a Warrantholder) to be chairman of the meeting and if no
individual is so nominated, or if the individual so nominated is
not present within fifteen (15) minutes after the time fixed for
the holding of the meeting, the Warrantholders present in person or
by proxy shall appoint an individual present to be chairman of the
meeting. The chairman of the meeting need not be a
Warrantholder.
6.4 Quorum
Subject
to the provisions of Section 6.11, at any meeting of the
Warrantholders a quorum shall consist of two Warrantholders present
in person or represented by proxy and representing at least 20% of
the aggregate number of Warrants then outstanding. If a quorum of
the Warrantholders shall not be present within one-half hour from
the time fixed for holding any meeting, the meeting, if summoned by
the Warrantholders or on a Warrantholders' Request, shall be
dissolved; but in any other case the meeting shall be adjourned to
the same day in the next week (unless such day is not a Business
Day in which case it shall be adjourned to the next following
Business Day) at the same time and place to the extent possible
and, subject to the provisions of Section 6.11, no notice of the
adjournment need be given. Any business may be brought before or
dealt with at an adjourned meeting that might have been dealt with
at the original meeting in accordance with the notice calling the
same. At the adjourned meeting the Warrantholders present in person
or represented by proxy shall form a quorum and may transact the
business for which the meeting was originally convened,
notwithstanding that they may not represent at least 20% of the
aggregate number of Warrants then unexercised and outstanding. No
business shall be transacted at any meeting, except an adjourned
meeting as described above, unless a quorum is present at the
commencement of business.
6.5 Power
to Adjourn
The
chairman of any meeting at which a quorum of the Warrantholders is
present may, with the consent of the meeting, adjourn any such
meeting, and no notice of such adjournment need be given except
such notice, if any, as the meeting may prescribe.
6.6 Show
of Hands
Every
question submitted to a meeting shall be decided in the first place
by a majority of the votes given on a show of hands except that
votes on an extraordinary resolution shall be given in the manner
hereinafter provided. At any such meeting, unless a poll is duly
demanded as herein provided, a declaration by the chairman that a
resolution has been carried or carried unanimously or by a
particular majority or lost or not carried by a particular majority
shall be conclusive evidence of the fact.
6.7 Poll
and Voting
On
every extraordinary resolution, and when demanded by the chairman
or by one or more of the Warrantholders acting in person or by
proxy on any other question submitted to a meeting and after a vote
by show of hands, a poll shall be taken in such manner as the
chairman shall direct. Questions other than those required to be
determined by extraordinary resolution shall be decided by a
majority of the votes cast on the poll. On a show of hands, every
person who is present and entitled to vote, whether as a
Warrantholder or as proxy for one or more absent Warrantholders, or
both, shall have one vote. On a poll, each Warrantholder present in
person or represented by a proxy duly appointed by instrument in
writing shall be entitled to one vote in respect of each whole
Warrant then held by her. A proxy need not be a Warrantholder. The
chairman of any meeting shall be entitled, both on a show of hands
and on a poll, to vote in respect of the Warrants, if any, held or
represented by her.
6.8 Regulations
Subject
to the provisions of this Indenture, the Warrant Agent or the
Company with the approval of the Warrant Agent may from time to
time make and from time to time vary such regulations as it shall
consider necessary or appropriate generally for the calling of
meetings of Warrantholders and the conduct of business thereat
including setting a record date for Warrantholders entitled to
receive notice of or to vote at such meeting.
Any
regulations so made shall be binding and effective and the votes
given in accordance therewith shall be valid and shall be counted.
Save as such regulations may provide, the only persons who shall be
recognized at any meeting as a Warrantholder, or be entitled to
vote or be present at the meeting in respect thereof (subject to
Section 6.9), shall be Warrantholders or persons holding proxies of
Warrantholders.
6.9 Company,
Warrant Agent and Counsel may be Represented
The
Company and the Warrant Agent, by their respective directors,
officers and employees and the counsel for each of the Company, the
Warrantholders and the Warrant Agent may attend any meeting of the
Warrantholders and speak thereat but shall not be entitled to vote
unless in their capacities as Warrantholders or proxies
therefor.
6.10 Powers
Exercisable by Extraordinary Resolution
In
addition to all other powers conferred upon them by any other
provisions of this Indenture or by law, the Warrantholders at a
meeting shall have the power, exercisable from time to time by
extraordinary resolution:
(a) to
agree with the Company to any modification, alteration, compromise
or arrangement of the rights of Warrantholders and/or the Warrant
Agent in its capacity as Warrant Agent hereunder (subject to the
Warrant Agent's approval) or on behalf of the Warrantholders
against the Company, whether such rights arise under this Indenture
or the Warrants or otherwise;
(b) to
amend, modify or repeal any extraordinary resolution previously
passed or sanctioned by the Warrantholders;
(c) to
direct or authorize the Warrant Agent (subject to the Warrant Agent
receiving funding and indemnity) to enforce any of the covenants on
the part of the Company contained in this Indenture or the Warrants
or to enforce any of the rights of the Warrantholders in any manner
specified in such extraordinary resolution or to refrain from
enforcing any such covenant or right;
(d) to
waive, authorize and direct the Warrant Agent to waive any default
on the part of the Company in complying with any provisions of this
Indenture or the Warrants either unconditionally or upon any
conditions specified in such extraordinary resolution;
(e) to
restrain any Warrantholder from taking or instituting any suit,
action or proceeding against the Company for the enforcement of any
of the covenants on the part of the Company contained in this
Indenture or the Warrants or to enforce any of the rights of the
Warrantholders;
(f) to
direct any Warrantholder who, as such, has brought any suit, action
or proceeding to stay or discontinue or otherwise deal with any
such suit, action or proceeding, upon payment of the costs, charges
and expenses reasonably and properly incurred by such Warrantholder
in connection therewith;
(g) to
assent to any change in or omission from the provisions contained
in this Indenture or any ancillary or supplemental instrument which
may be agreed to by the Company, and to authorize the Warrant Agent
to concur in and execute any ancillary or supplemental indenture
embodying the change or omission; and
(h) with
the consent of the Company, such consent not to be unreasonably
withheld, to remove the Warrant Agent or its successor in office
and to appoint a new warrant agent or warrant agents to take the
place of the Warrant Agent so removed.
6.11 Meaning
of "Extraordinary Resolution"
(1) The
expression "extraordinary resolution" when used in this Indenture
means, subject as hereinafter in this Section 6.11 and in Section
6.14 provided, a resolution proposed at a meeting of Warrantholders
duly convened for that purpose and held in accordance with the
provisions of this Article 6 at which there are present in person
or by proxy at least two Warrantholders representing at least 20%
of the aggregate number of all the then outstanding Warrants and
passed by the affirmative votes of Warrantholders representing not
less than 66%% of the aggregate number of all the then outstanding
Warrants represented at the meeting and voted on the poll upon such
resolution.
(2) If,
at any meeting called for the purpose of passing an extraordinary
resolution, Warrantholders representing at least 20% of the
aggregate number of all the then outstanding Warrants are not
present in person or by proxy within one-half hour after the time
appointed for the meeting, then the meeting, if convened by
Warrantholders or on a Warrantholders' Request, shall be dissolved;
but in any other case it shall stand adjourned to such day, being
not less than ten (10) Business Days later, and to such place and
time as may be appointed by the chairman. Not less than three (3)
Business Days prior notice shall be given of the time and place of
such adjourned meeting in the manner provided in sections 9.1 and
9.2. Such notice shall state that at the adjourned meeting the
Warrantholders present in person or represented by proxy shall form
a quorum but it shall not be necessary to set forth the purposes
for which the meeting was originally called or any other
particulars. At the adjourned meeting the Warrantholders present in
person or represented by proxy shall form a quorum and may transact
the business for which the meeting was originally convened and a
resolution proposed at such adjourned meeting and passed by the
requisite vote as provided in Section 6.11(1) shall be an
extraordinary resolution within the meaning of this Indenture
notwithstanding that Warrantholders representing at least 20% of
all the then outstanding Warrants are not present in person or
represented by proxy at such adjourned meeting.
(3) Votes
on an extraordinary resolution shall always be given on a poll and
no demand for a poll on an extraordinary resolution shall be
necessary.
6.12 Powers
Cumulative
It
is hereby declared and agreed that any one or more of the powers or
any combination of the powers in this Indenture stated to be
exercisable by the Warrantholders by extraordinary resolution or
otherwise may be exercised from time to time and the exercise of
any one or more of such powers or any combination of powers from
time to time shall not be deemed to exhaust the right of the
Warrantholders to exercise such powers or combination of powers
then or thereafter from time to time.
6.13 Minutes
Minutes
of all resolutions and proceedings at every meeting of
Warrantholders as aforesaid shall be made and duly entered in books
to be provided for that purpose by the Warrant Agent at the expense
of the Company and any minutes as aforesaid, if signed by the
chairman of the meeting at which resolutions were passed or
proceedings had, or by the chairman of the next succeeding meeting
of the Warrantholders, shall be prima facie evidence of the matters
therein stated and, until the contrary is proved, every meeting, in
respect of the proceedings of which minutes shall have been made,
shall be deemed to have been duly convened and held, and all
resolutions passed thereat or proceedings taken, to have been duly
passed and taken.
6.14 Instruments
in Writing
All
actions that may be taken and all powers that may be exercised by
the Warrantholders at a meeting held as provided in this Article 6
may also be taken and exercised by Warrantholders representing a
majority, or in the case of an extraordinary resolution at least
66%%, of the aggregate number of all the then outstanding Warrants
by an instrument in writing signed in one or more counterparts by
such Warrantholders in person or by attorney duly appointed in
writing, and the expression "extraordinary resolution" when used in
this Indenture shall include an instrument so signed.
6.15 Binding
Effect of Resolutions
Every
resolution and every extraordinary resolution passed in accordance
with the provisions of this Article 6 at a meeting of
Warrantholders shall be binding upon all the Warrantholders,
whether present at or absent from such meeting, and every
instrument in writing signed by Warrantholders in accordance with
Section 6.14 shall be binding upon all the Warrantholders, whether
signatories thereto or not, and each and every Warrantholder and
the Warrant Agent (subject to the provisions for indemnity herein
contained) shall be bound to give effect accordingly to every such
resolution and instrument in writing. In the case of an instrument
in writing, the Warrant Agent shall give notice in the manner
contemplated in sections 9.1 and 9.2 of the effect of the
instrument in writing to all Warrantholders and the Company as soon
as is reasonably practicable.
6.16 Holdings
by the Company or Subsidiaries of the Company
Disregarded
In
determining whether Warrantholders are present at a meeting of
Warrantholders for the purpose of determining a quorum or have
concurred in any consent, waiver, extraordinary resolution,
Warrantholders' Request or other action under this Indenture,
Warrants owned legally or beneficially by the Company or its
Subsidiaries or in partnership of which the Company is directly or
indirectly a party to shall be disregarded.
6.17 Common
Shares or Warrants Owned by the Company or its Subsidiaries -
Certificate
to be Provided
For
the purpose of disregarding any Warrants owned legally or
beneficially by the Company in Section 6.16, the Company shall
provide to the Warrant Agent, upon written request, a certificate
of the Company setting forth as at the date of such
certificate:
(a)
the names (other than the name of the Company) of the
Warrantholders which, to the knowledge of the Company, hold
Warrants that are owned by or held for the account of the Company;
and
(b)
the number of Warrants owned legally or beneficially by the
Company, and the Warrant Agent, in making the computations in
Section 6.16, shall be entitled to
rely on such certificate without any additional
evidence.
ARTICLE 7 SUPPLEMENTAL INDENTURES AND SUCCESSOR
COMPANIES
7.1 Provision
for Supplemental Indentures for Certain Purposes
From
time to time the Company (if properly authorized by its directors)
and the Warrant Agent may, subject to the provisions hereof, and
they shall, when so directed in accordance with the provisions
hereof, execute and deliver by their proper officers, indentures or
instruments supplemental hereto, which thereafter shall form part
hereof, for any one or more or all of the following
purposes:
(a) providing
for the issuance of additional Warrants hereunder including
Warrants in excess of the number set out in Section 2.1 and any
consequential amendments hereto as may be required by the Warrant
Agent, relying on the advice of counsel;
(b) setting
forth adjustments in the application of Article 2;
(c) adding
to the provisions hereof such additional covenants and enforcement
provisions as, in the opinion of counsel are necessary or
advisable, provided that the same are not in the opinion of the
Warrant Agent, relying on the advice of counsel, prejudicial to the
interests of the Warrantholders as a group;
(d) giving
effect to any extraordinary resolution passed as provided in
Article 6;
(e) making
such provisions not inconsistent with this Indenture as may be
necessary or desirable with respect to matters or questions arising
hereunder provided that such provisions are not, in the opinion of
the Warrant Agent, relying on the advice of counsel, prejudicial to
the interests of the Warrantholders as a group;
(f) adding
to or amending the provisions hereof in respect of the transfer of
Warrants, making provision for the exchange of Warrants and making
any modification in the form of the Warrant Certificate that does
not affect the substance thereof;
(g) amending
any of the provisions of this Indenture or relieving the Company
from any of the obligations, conditions or restrictions herein
contained, provided that no such amendment or relief shall be or
become operative or effective if, in the opinion of the Warrant
Agent, relying on the advice of counsel, such amendment or relief
impairs any of the rights of the Warrantholders as a group or of
the Warrant Agent,
and
provided further that the Warrant Agent may in its sole discretion
decline to enter into any supplemental indenture that in its
opinion may not afford adequate protection to the Warrant Agent
when the same shall become operative; and
(h) for
any other purpose not inconsistent with the terms of this
Indenture, including the correction or rectification of any
ambiguities, defective or inconsistent provisions, errors or
omissions herein, provided that, in the opinion of the Warrant
Agent, relying on the advice of counsel, the rights of the Warrant
Agent and the Warrantholders as a group are in no way prejudiced
thereby.
7.2 Successor
Companies
In the case of the amalgamation, consolidation,
arrangement, merger or transfer of the undertaking or assets of the
Company as an entirety or substantially as an entirety to or with
another person (a "successor company"),
the successor company resulting from
the amalgamation, consolidation, arrangement, merger or transfer
(if not the Company) shall be bound by the provisions hereof and
all obligations for the due and punctual performance and observance
of each and every covenant and obligation contained in this
Indenture to be performed by the Company and the successor company
shall by supplemental indenture satisfactory in form to the Warrant
Agent and executed and delivered to the Warrant Agent, expressly
assume those obligations.
ARTICLE 8 CONCERNING THE WARRANT AGENT
8.1 Indenture
Legislation
(1) If
and to the extent that any provision of this Indenture limits,
qualifies or conflicts with a mandatory requirement of Applicable
Legislation, such mandatory requirement shall prevail.
(2) The
Company and the Warrant Agent agree that each will at all times in
relation to this Indenture and any action to be taken hereunder
observe and comply with and be entitled to the benefit of
Applicable Legislation.
8.2 Rights
and Duties of Warrant Agent
(1) The
Warrant Agent accepts the duties and responsibilities under this
Indenture, solely as custodian, bailee and agent. No trust is
intended to be, or is or will be, created hereby and the Warrant
Agent shall owe no duties hereunder as a trustee.
(2) In
the exercise of the rights and duties prescribed or conferred by
the terms of this Indenture, the Warrant Agent shall act honestly
and in good faith with a view to the best interests of the
Warrantholders and shall exercise the degree of care, diligence and
skill that a reasonably prudent warrant agent would exercise in
comparable circumstances. No provision of this Indenture shall be
construed to relieve the Warrant Agent from, or require any other
person to indemnify the Warrant Agent against liability for its own
gross negligence, wilful misconduct, bad faith or
fraud.
(3) The
Warrant Agent shall not be bound to do or take any act, action or
proceeding for the enforcement of any of the obligations of the
Company under this Indenture unless and until it shall have
received a Warrantholders' Request specifying the act, action or
proceeding that the Warrant Agent is requested to take. The
obligation of the Warrant Agent to commence or continue any act,
action or proceeding for the purpose of enforcing any rights of the
Warrant Agent or the Warrantholders hereunder shall be conditional
upon the Warrantholders furnishing, when required by notice in
writing by the Warrant Agent, sufficient funds to commence or
continue such act, action or proceeding and an indemnity reasonably
satisfactory to the Warrant Agent and its counsel to protect and
hold harmless the Warrant Agent, its officers, directors,
employees, agents, successors and assigns against the costs,
charges and expenses and liabilities to be incurred thereby and any
loss and damage it may suffer by reason thereof. None of the
provisions contained in this Indenture shall require the Warrant
Agent to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties or in the
exercise of any of its rights or powers unless indemnified and
funded as aforesaid.
(4) The
Warrant Agent may, before commencing any act, action or proceeding,
or at any time during the continuance thereof require the
Warrantholders at whose instance it is acting to deposit with the
Warrant Agent the Warrants held by them, for which Warrants the
Warrant Agent shall issue receipts.
(5) Every
provision of this Indenture that, by its terms, relieves the
Warrant Agent of liability or entitles it to rely upon any evidence
submitted to it is subject to the provisions of Applicable
Legislation.
(6) The
Warrant Agent shall not be bound to give any notice or do or take
any act, action or proceeding by virtue of the powers conferred on
it hereunder unless and until it shall have been required to do so
under the terms hereof; nor shall the Warrant Agent be required to
take notice of any default hereunder, unless and until notified in
writing of such default, which notice shall specifically set out
the default desired to be brought to the attention of the Warrant
Agent and in the absence of such notice the Warrant Agent may for
all purposes of this Indenture conclusively assume that no default
has occurred or been made in the performance or observance of the
representations, warranties and covenants, agreements or conditions
herein contained. Any such notice shall in no way limit any
discretion herein given to the Warrant Agent to determine whether
or not the Warrant Agent shall take action with respect to any
default.
(7) In
this Indenture, whenever confirmations or instructions are required
to be given to the Warrant Agent, in order to be valid, such
confirmations and instructions shall be in writing.
8.3 Evidence,
Experts and Advisers
(1) In
addition to the reports, certificates, opinions and other evidence
required by this Indenture, the Company shall furnish to the
Warrant Agent such additional evidence of compliance with any
provision hereof and in such form as may be prescribed by
Applicable Legislation or as the Warrant Agent may reasonably
require by written notice to the Company.
(2) In
the exercise of its rights and duties hereunder, the Warrant Agent
may, if it is acting in good faith, act and rely absolutely as to
the truth of the statements and the accuracy of the opinions
expressed therein, upon statutory declarations, opinions, reports,
written requests, consents, or orders of the Company, certificates
of the Company or other evidence furnished to the Warrant Agent
pursuant to any provision hereof or of Applicable Legislation or
pursuant to a request of the Warrant Agent, provided that such
evidence complies with Applicable Legislation and that the Warrant
Agent complies with Applicable Legislation and that the Warrant
Agent examines the same and determines that such evidence complies
with the applicable requirements of this Indenture. The Warrant
Agent shall be under no responsibility in respect of the validity
of this Indenture or the execution and delivery hereof by or on
behalf of the Company or in respect of the validity or the
execution of any Warrant Certificate by the Company and issued
hereunder, nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Indenture or
in any such Warrant Certificate; nor shall it by any act hereunder
be deemed to make any representation or warranty as to the
authorization or reservation of any securities to be issued upon
the right to acquire provided for in this Indenture and/or in any
Warrant or as to whether any securities will when issued be duly
authorized or be validly issued and fully paid and
non-assessable.
(3) Whenever
provided for in this Indenture or Applicable Legislation requires
that the Company deposit with the Warrant Agent resolutions,
certificates, reports, opinions, requests, orders or other
documents, it is intended that the truth, accuracy and good faith
on the effective date thereof and the facts and opinions stated in
all such documents so deposited shall, in each and every such case,
be conditions precedent to the right of the Company to have the
Warrant Agent take the action to be based thereon.
(4) Proof
of the execution of an instrument in writing, including a
Warrantholders' Request, by any Warrantholder may be made by a
certificate of a notary public or other person with similar powers
that the person signing such instrument acknowledged to him the
execution thereof, or by an affidavit of a witness to such
execution or in any other manner which the Warrant Agent may
consider adequate and in respect of a corporate Warrantholder,
shall include a certificate of incumbency of such Warrantholder
together with a certified resolution authorizing the person who
signs such instrument to sign such instrument.
(5) The
Warrant Agent may act and rely and shall be protected in acting and
relying upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, letter, or other
paper document believed by it to be genuine and to have been
signed, sent or presented by or on behalf of the proper party or
parties. The Warrant Agent has sole discretion and shall be
protected in acting and relying upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent,
order, letter or other paper document received in facsimile or
e-mail form.
(6) The
Warrant Agent may employ or retain such counsel, accountants,
engineers, appraisers or other experts or advisers as it may
reasonably require for the purpose of determining and discharging
its duties hereunder and shall pay reasonable remuneration for all
services so performed by any of them, without taxation of costs of
any counsel and shall not be responsible for any misconduct or
negligence on the part of any of them who has been selected with
due care by the Warrant Agent. Any reasonable remuneration paid by
the Warrant Agent shall be paid by the Company in accordance with
Section 4.2.
(7) The
Warrant Agent may act and rely and shall be protected in acting and
relying in good faith on the opinion or advice of or information
obtained from any counsel, accountant, appraiser, engineer or other
expert or advisor, whether retained or employed by the Company or
the Warrant Agent, in relation to any matter arising in fulfilling
its duties and obligations hereof.
(8) The
Warrant Agent may, as a condition precedent to any action to be
taken by it under this Indenture, require such opinions, statutory
declarations, reports, certificates or other evidence as it, acting
reasonably, considers necessary or advisable in the
circumstances.
(9) The
Warrant Agent is not required to expend or place its own funds at
risk in executing its duties and obligations.
8.4 Securities,
Documents and Monies Held by Warrant Agent
(1) Any securities, documents of title, monies or
other instruments that may at any time be held by the Warrant Agent
subject to the duties and obligations hereof, for the benefit of
the Company, may be placed in the deposit vaults of the Warrant
Agent or of any Schedule 1 Canadian chartered bank under the
Bank Act
(Canada) or deposited for safekeeping
with any such bank or the Warrant Agent. Any monies held pending
the application or withdrawal thereof under any provisions of this
Indenture, shall be held, invested and reinvested in "Permitted
Investments" as directed in writing by the Company. "Permitted
Investments" shall be treasury bills guaranteed by the Government
of Canada having a term to maturity not to exceed ninety (90) days,
or term deposits or bankers' acceptances of a Canadian chartered
bank having a term to maturity not to exceed ninety (90) days, or
such other investments that is in accordance with the Warrant
Agent's standard type of investments. Unless otherwise specifically
provided herein, all interest or other income received by the
Warrant Agent in respect of such deposits and investments shall
belong to the Company and shall be paid to the Company upon
discharge of this Indenture.
(2) Any
written direction for the investment or release of funds received
shall be received by the Warrant Agent by 9:00 a.m. (Calgary time)
on the Business Day on which such investment or release is to be
made, failing which such direction will be handled on a
commercially reasonable efforts basis and may result in funds being
invested or released on the next Business Day.
(3) The
Warrant Agent shall have no responsibility or liability for any
diminution of any funds resulting from any investment made in
accordance with this Indenture, including any losses on any
investment liquidated prior to maturity in order to make a payment
required hereunder.
(4) In
the event that the Warrant Agent does not receive a direction or
only a partial direction, the Warrant Agent may hold cash balances
constituting part or all of such monies and may, but need not,
invest same in its deposit department, the deposit department of
one of its affiliates, or the deposit department of a Canadian
chartered bank; but the Warrant Agent, its affiliates or a Canadian
chartered bank shall not be liable to account for any profit to any
parties to this Indenture or to any other person or
entity.
8.5 Actions
by Warrant Agent to Protect Interests
The
Warrant Agent shall have the power to institute and to maintain
such actions and proceedings as it may consider necessary or
expedient to preserve, protect or enforce its interests and the
interests of the Warrantholders pursuant to the provisions of this
Indenture.
8.6 Warrant
Agent not Required to Give Security
The
Warrant Agent shall not be required to give any bond or security in
respect of the execution of the duties and obligations of this
Indenture or otherwise.
8.7 Protection
of Warrant Agent
By
way of supplement to the provisions of any law for the time being
relating to warrant agents, it is expressly declared and agreed as
follows:
(1) The
Warrant Agent shall not be liable for or by reason of any
representations, statements of fact or recitals in this Indenture
or in the Warrants (except the representation contained in Section
8.9 or in the Authentication of the Warrant Agent on the Warrants)
or be required to verify the same and all such statements of fact
or recitals are and shall be deemed to be made by the
Company.
(2) Nothing
herein contained shall impose any obligation on the Warrant Agent
to see to or to require evidence of the registration or filing (or
renewal thereof) of this Indenture or any instrument ancillary or
supplemental hereto.
(3) The
Warrant Agent shall not be bound to give notice to any person or
persons of the execution hereof.
(4) The
Warrant Agent shall not incur any liability or responsibility
whatsoever or be in any way responsible for the consequence of any
breach on the part of the Company of any of the covenants or
warranties herein contained or of any acts of any directors,
officers, employees, agents or servants of the
Company.
(5) Without limiting any protection or indemnity of
the Warrant Agent under any other provision hereof, or otherwise at
law, the Company hereby agrees to indemnify and hold harmless the
Warrant Agent and its affiliates, directors, officers, agents and
employees, successors and assigns (the "Indemnified Parties")
from and against any and all
liabilities whatsoever, losses, damages, penalties, claims,
demands, proceedings, charges, actions, suits, costs, expenses and
disbursements, including reasonable legal or advisor fees and
disbursements on a solicitor and client basis, of whatever kind and
nature which may at any time be imposed on, incurred by or asserted
against the Indemnified Parties, or any of them, whether at law or
in equity, in any way caused by or arising from the performance of
its duties hereunder, directly or indirectly, in respect of any
act, deed, matter or thing whatsoever made, done, acquiesced in or
omitted in or about or in relation to the execution of the
Indemnified Parties' duties, or any other services that Warrant
Agent may provide in connection with or in any way relating to this
Indenture. The Company agrees that its liability hereunder shall be
absolute and unconditional regardless of the correctness of any
representations of any third parties and regardless of any
liability of third parties to the Indemnified Parties, and shall
accrue and become enforceable without prior demand or any other
precedent action or proceeding; provided that the Company shall not
be required to indemnify the Indemnified Parties in the event of
the gross negligence, fraud or wilful misconduct of the Warrant
Agent, and this provision shall survive the resignation or removal
of the Warrant Agent or the termination or discharge of this
Indenture.
(6) Notwithstanding
the foregoing or any other provision of this Indenture, any
liability of the Warrant Agent shall be limited, in the aggregate,
to the amount of annual retainer fees paid by the Company to the
Warrant Agent under this Indenture in the twelve (12) months
immediately prior to the Warrant Agent receiving the first notice
of the claim; provided that this limitation shall not apply in
respect of any gross negligence, fraud or wilful misconduct of the
Warrant Agent. Notwithstanding any other provision of this
Indenture, and whether such losses or damages are foreseeable or
unforeseeable, the Warrant Agent shall not be liable under any
circumstances whatsoever for any (a) breach by any other party of
securities law or other rule of any securities regulatory
authority, (b) lost profits or (c) special, indirect, incidental,
consequential, exemplary, aggravated or punitive losses or
damages.
(7) If
any of the funds provided to the Warrant Agent hereunder are
received by it in the form of an uncertified cheque or bank draft,
the Warrant Agent shall delay the release of such funds and the
related Warrant Shares until such uncertified cheque has cleared
the financial institution upon which the same is
drawn.
(8) The
forwarding of a cheque or the sending of funds by wire transfer by
the Warrant Agent will satisfy and discharge the liability of any
amounts due to the extent of the sum represented thereby unless
such cheque is not honoured on presentation, provided that in the
event of the non-receipt of such cheque by the payee, or the loss
or destruction thereof, the Warrant Agent, upon being furnished
with reasonable evidence of such non-receipt, loss or destruction
and indemnity reasonably satisfactory to it, will issue to such
payee a replacement cheque for the amount of such
cheque.
(9) The
Warrant Agent shall retain the right not to act and shall not be
liable for refusing to act if, due to a lack of information or for
any other reason whatsoever, the Warrant Agent, in its sole
judgement, determines that such act might cause it to be in
non-compliance with any applicable anti-money laundering,
anti-terrorist or economic sanctions legislation, regulation or
guideline. Further, should the Warrant Agent, in its sole
judgement, determine at any time that its acting under this
Indenture has resulted in its being in non-compliance with any
applicable anti-money laundering, anti-terrorist or economic
sanctions legislation, regulation or guideline, then it shall have
the right to resign on ten (10) days' written notice to the Company
provided: (i) that the Warrant Agent's written notice shall
describe the circumstances of such non-compliance; and (ii) that if
such circumstances are rectified to the Warrant Agent's
satisfaction within such ten (10) day period, then such resignation
shall not be effective.
8.8 Replacement
of Warrant Agent
(1) The
Warrant Agent may resign its appointment and be discharged from all
further duties and liabilities hereunder by giving to the Company
not less than sixty (60) days prior notice in writing or such
shorter prior notice as the Company may accept as sufficient. The
Warrantholders by extraordinary resolution shall have the power at
any time to remove the existing Warrant Agent and to appoint a new
warrant agent. In the event of the Warrant Agent resigning or being
removed as aforesaid or being dissolved, becoming bankrupt, going
into liquidation or otherwise becoming incapable of acting
hereunder, the Company shall forthwith appoint a new warrant agent
unless a new warrant agent has already been appointed by the
Warrantholders; failing such appointment by the Company, the
retiring Warrant Agent or any Warrantholder may apply to a justice
of the Ontario Superior Court of Justice (the "Court") at the
Company's expense, on such notice as such justice may direct, for
the appointment of a new warrant agent; but any new warrant agent
so appointed by the Company or by the Court shall be subject to
removal as aforesaid by the Warrantholders. Any new warrant agent
appointed under any provision of this Section 8.8 shall be a
corporation authorized to carry on the business of a transfer agent
or a trust company in one or more provinces of Canada and, if
required by Applicable Legislation of any province, in such
province. On any such appointment the new warrant agent shall be
vested with the same powers, rights, duties and responsibilities as
if it had been originally named herein as Warrant Agent without any
further assurance, conveyance, act or deed; but there shall be
immediately executed, at the expense of the Company, all such
conveyances or other instruments as may, in the opinion of counsel,
be necessary or advisable for the purpose of assuring the same to
the new warrant agent, provided that any resignation or removal of
the Warrant Agent and appointment of a successor warrant agent
shall not become effective until the successor warrant agent shall
have executed an appropriate instrument accepting such appointment
and, at the request of the Company, the predecessor Warrant Agent,
upon payment of its outstanding remuneration and expenses, shall
execute and deliver to the successor warrant agent an appropriate
instrument transferring to such successor warrant agent all rights
and powers of the Warrant Agent hereunder and all securities,
documents of title and other instruments and all monies and
properties held by the Warrant Agent hereunder.
(2) Upon
the appointment of a successor warrant agent, the Company shall
promptly notify the Warrantholders thereof in the manner provided
for in Section 9.2.
(3) Any
corporation into or with which the Warrant Agent may be merged or
consolidated or amalgamated, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without any further act on
its part or of any of the parties hereto, provided that such
corporation would be eligible for appointment as a new warrant
agent under Section 8.8(1).
(4) Any
Warrants Authenticated or certified but not delivered by a
predecessor Warrant Agent may be Authenticated or certified by the
new or successor warrant agent in the name of the predecessor or
the new or successor warrant agent.
8.9 Conflict
of Interest
(1) The
Warrant Agent represents to the Company, to the best of its
knowledge, that at the time of execution and delivery hereof no
material conflict of interest exists which it is aware of in the
Warrant Agent's role hereunder and agrees that in the event of a
material conflict of interest arising which it becomes aware of
hereafter it will, within ninety (90) days after ascertaining that
it has such a material conflict of interest, either eliminate the
same or resign its appointment hereunder. If any such material
conflict of interest exists or hereafter shall exist, the validity
and enforceability of this Indenture and the Warrants shall not be
affected in any manner whatsoever by reason thereof.
(2) Subject
to Section 8.9(1), the Warrant Agent, in its personal or any other
capacity, may buy, lend upon and deal in securities of the Company
and generally may contract and enter into financial transactions
with the Company or any Subsidiary without being liable to account
for any profit made thereby.
8.10 Acceptance
of Duties and Obligations
The
Warrant Agent hereby accepts the duties and obligations in this
Indenture declared and provided for and agrees to perform the same
upon the terms and conditions herein set forth and agrees to hold
all rights, interests and benefits contained herein on behalf of
those persons who become holders of Warrants from time to time
issued under this Indenture.
8.11 Warrant
Agent not to be Appointed Receiver
The
Warrant Agent and any person related to the Warrant Agent shall not
be appointed a receiver or receiver and manager or liquidator of
all or any part of the assets or undertaking of the Company or any
Subsidiary or any partnership of which the Company is directly or
indirectly involved.
8.12 Authorization
to Carry on Business
The
Warrant Agent represents to the Company that it is registered to
carry on business under Applicable Legislation in the provinces of
Alberta and British Columbia.
ARTICLE 9 GENERAL
9.1 Notice
to the Company and the Warrant Agent
(1)
Unless herein otherwise expressly provided, any notice to be given
hereunder to the Company or the Warrant Agent shall be deemed to be
validly given if delivered, if sent by registered letter, postage
prepaid or if transmitted by email to the following addresses or
facsimile numbers:
(a) If to the Company,
to:
Planet 13 Holdings
Inc.
2548 West Desert
Inn Road
Las Vegas,
Nevada
89109
Attention:
Leighton Koehler
E-mail:
[REDACTED]
with a copy
to:
Wildeboer Dellelce
LLP
396 Bay Street,
Suite 80
Toronto,
ON
M5H
2V1
Attention:
Charlie Malone
E-mail:
[REDACTED]
(b) If to the Warrant
Agent, to:
Odyssey
Trust Company
Suite
1230, 300 5th Avenue
SW
Calgary,
Alberta
T2P
3C4
Attention:
Dan Sander
Email:
[REDACTED]
and
any notice given in accordance with the foregoing shall be deemed
to have been received on the date of delivery if that date is a
Business Day (and if that date is not a Business
Day, on the next Business Day) or, if mailed, on the fifth Business
Day following the date of the postmark on such notice or, if
transmitted by email, on the Business Day following the
transmission.
(2) The
Company or the Warrant Agent, as the case may be, may from time to
time notify the other in the manner provided in Section 9.1(1) of a
change of address which, from the effective date of such notice and
until changed by like notice, shall be the address of the Company
or the Warrant Agent, as the case may be, for all purposes of this
Indenture.
(3) If,
by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to
the Warrant Agent or to the Company hereunder could reasonably be
considered unlikely to reach its destination, the notice shall be
valid and effective only if it is delivered to an officer of the
party to which it is addressed or if it is delivered to that party
at the appropriate address provided in Section 9.1(1) by facsimile
or other means of prepaid, transmitted or recorded communication
and any notice delivered in accordance with the foregoing shall be
deemed to have been received on the date of delivery to the officer
or if delivered by facsimile or other means of prepaid,
transmitted, recorded communication on the third Business Day
following the date of the sending of the notice by the person
giving the notice.
9.2 Notice
to the Warrantholders
(1) Any
notice to the Warrantholders under the provisions of this Indenture
shall be deemed to be validly given if the notice is sent by
prepaid mail or, if delivered by hand, to the holders at their
addresses appearing in the register of holders. Any notice so
delivered shall be deemed to have been received on the date of
delivery if that date is a Business Day or the Business Day
following the date of delivery if such date is not a Business Day
or on the third Business Day if delivered by mail. All notices may
be given to whichever one of the Warrantholders (if more than one)
is named first in the appropriate register hereinbefore mentioned,
and any notice so given shall be sufficient notice to all
Warrantholders and any other persons (if any) interested in such
Warrants. Accidental error or omission in giving notice or
accidental failure to mail notice to any Warrantholder will not
invalidate any action or proceeding founded thereon.
(2) If,
by reason of strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to
the Warrantholders could reasonably be considered unlikely to reach
its destination, the notice may be given in a news release
disseminated through a newswire service, filed on SEDAR and posted
on the Company's website; provided that in the case of a notice
convening a meeting of the holders of Warrants, the Warrant Agent
may require such additional publications of that notice, in
Toronto, Ontario or in other cities or both, as it may deem
necessary for the reasonable notification of the holders of
Warrants or to comply with any applicable requirement of law or any
stock exchange. Any notice so given shall be deemed to have been
given on the day on which it has been published in all of the
cities in which publication was required.
9.3 Privacy
The
Company acknowledges that the Warrant Agent may, in the course of
providing services hereunder, collect or receive financial and
other personal information about such parties and/or their
representatives, as individuals, or about other individuals related
to the subject matter hereof, and use such information for the
following purposes:
(a) to
provide the services required under this Indenture and other
services that may be requested from time to time;
(b) to
help the Warrant Agent manage its servicing relationships with such
individuals;
(c) to
meet the Warrant Agent's legal and regulatory requirements;
and
(d) if
Social Insurance Numbers are collected by the Warrant Agent, to
perform tax reporting and to assist in verification of an
individual's identity for security purposes.
The
Company acknowledges and agrees that the Warrant Agent may receive,
collect, use and disclose personal information provided to it or
acquired by it in the course of its acting as agent hereunder for
the purposes described above and, generally, in the manner and on
the terms described in its privacy code, which the Warrant Agent
shall make available on its website or upon request, including
revisions thereto. Some of this personal information may be
transferred to servicers in the United States for data processing
and/or storage. Further, the Company agrees that it shall not
provide or cause to be provided to the Warrant Agent any personal
information relating to an individual who is not a party to this
Indenture unless the Company has assured itself that such
individual understands and has consented to the aforementioned uses
and disclosures.
9.4 Third
Party Interests
The
Company represents to the Warrant Agent that any account to be
opened by, or interest to held by the Warrant Agent in connection
with this Indenture, for or to the credit of such party, either (i)
is not intended to be used by or on behalf of any third party; or
(ii) is intended to be used by or on behalf of a third party, in
which case such party hereto agrees to complete and execute
forthwith a declaration in the Warrant Agent prescribed form as to
the particulars of such third party.
9.5 Securities
Exchange Commission Certification
The Company confirms that as at the date of this
Indenture it does not have a class of securities registered
pursuant to section 12 of the U.S. Securities and Exchange Act of
1934, as amended (the "Exchange Act")
or have a reporting obligation
pursuant to section 15(d) of the Exchange Act.
The Company covenants that in the event that (i)
any class of its securities shall become registered pursuant to
section 12 of the Exchange Act or the Company shall incur a
reporting obligation pursuant to section 15(d) of the Exchange Act,
or (ii) any such registration or reporting obligation shall be
terminated by the Company in accordance with the Exchange Act, the
Company shall promptly deliver to the Warrant Agent an Officer's
Certificate (in a form provided by the Warrant Agent) notifying the
Warrant Agent of such registration or termination and such other
information as the Warrant Agent may reasonably require at the
time. The Company acknowledges that the Warrant Agent is relying
upon the foregoing representation and covenants in order to meet
certain United States Securities and Exchange Commission
("SEC")
obligations with respect to those
clients who are filing with the SEC.
9.6 Discretion
of Directors
Any
matter provided herein to be determined by the directors in their
sole discretion and determination so made will be
conclusive.
9.7 Satisfaction
and Discharge of Indenture
Upon
the earlier of the Time of Expiry or the date by which there shall
have been delivered to the Warrant Agent for exercise or
destruction in accordance with the provisions hereof all Warrants
theretofore Authenticated or certified hereunder and by which no
Warrants shall remain issuable hereunder, this Indenture, except to
the extent that Warrant Shares and any certificates therefor have
not been issued and delivered hereunder or the Company has not
performed any of its obligations hereunder, shall cease to be of
further effect in respect of the Company, and the Warrant Agent, on
written demand of and at the cost and expense of the Company, and
upon delivery to the Warrant Agent of a certificate of the Company
stating that all conditions precedent to the satisfaction and
discharge of this Indenture have been complied with and upon
payment to the Warrant Agent of the expenses, fees and other
remuneration payable to the Warrant Agent, shall execute proper
instruments acknowledging satisfaction of and discharging this
Indenture; provided that if the Warrant Agent has not then
performed any of its obligations hereunder any such satisfaction
and discharge of the Company's obligations hereunder shall not
affect or diminish the rights of any Warrantholder or the Company
against the Warrant Agent.
9.8 Provisions
of Indenture and Warrants for the Sole Benefit of Parties and
Warrantholders
Nothing
in this Indenture or the Warrant Certificates, expressed or
implied, shall give or be construed to give to any person other
than the parties hereto and the holders from time to time of the
Warrants any legal or equitable right, remedy or claim under this
Indenture, or under any covenant or provision therein contained,
all such covenants and provisions being for the sole benefit of the
parties hereto and the Warrantholders.
9.9 Indenture
to Prevail
To
the extent of any discrepancy or inconsistency between the terms
and conditions of this Indenture and the Warrant Certificate, the
terms of this Indenture will prevail.
9.10 Assignment
This
Indenture nor any benefits or burdens under this Indenture shall be
assignable by the Company or the Warrant Agent without the prior
written consent of the other party, such consent not to be
unreasonably withheld. Subject to the foregoing, this Indenture
shall enure to the benefit of and be binding upon the Company and
the Warrant Agent and their respective successors (including any
successor by reason of amalgamation) and permitted
assigns.
9.11 Severability
If,
in any jurisdiction, any provision of this Indenture or its
application to any party or circumstance is restricted, prohibited
or unenforceable, such provision will, as to such jurisdiction, be
ineffective only to the extent of such restriction, prohibition or
unenforceability without invalidating the remaining provisions of
this Indenture and without affecting the validity or enforceability
of such provision in any other jurisdiction or without affecting
its application to
other parties or circumstances.
9.12 Force
Majeure
No
party shall be liable to the other, or held in breach of this
Indenture, if prevented, hindered, or delayed in the performance or
observance of any provision contained herein by reason of act of
God, riots, terrorism, acts of war, epidemics, governmental action
or judicial order, earthquakes, or any other similar causes
(including, but not limited to, mechanical, electronic or
communication interruptions, disruptions or failures). Performance
times under this Indenture shall be extended for a period of time
equivalent to the time lost because of any delay that is excusable
under this section.
9.13 Rights
of Rescission and Withdrawal for Holders
Should
a holder of Warrants exercise any legal, statutory, contractual or
other right of withdrawal or rescission that may be available to
it, and the holder’s funds which were paid on exercise have
already been released to the Company by the Warrant Agent, the
Warrant Agent shall not be responsible for ensuring the exercise is
cancelled and a refund is paid back to the holder. In such cases,
the holder shall seek a refund directly from the Company and
subsequently, the Company, upon surrender to the Company or the
Warrant Agent of any underlying Warrant Shares or other securities
that may have been issued, or such other procedure as agreed to by
the parties hereto, shall instruct the Warrant Agent in writing to
cancel the exercise transaction and any such underlying Warrant
Shares or other securities on the register that may have already
been issued upon the Warrant exercise. In the event that any
payment is received from the Company by virtue of the holder being
a shareholder for such Warrants that were subsequently rescinded,
such payment must be returned to the Company by such holder. The
Warrant Agent shall not be under any duty or obligation to take any
steps to ensure or enforce the return of the funds pursuant to this
section, nor shall the Warrant Agent be in any other way
responsible in the event that any payment is not delivered or
received pursuant to this section. Notwithstanding the foregoing,
in the event that the Company provides the refund to the Warrant
Agent for distribution to the holder, the Warrant Agent shall
return such funds to the holder as soon as reasonably practicable,
and in so doing, the Warrant Agent shall incur no liability with
respect to the delivery or non-delivery of any such
funds.
9.14 Counterparts
and Formal Date
This
Indenture may be simultaneously executed in several counterparts,
each of which when so executed shall be deemed to be an original
and such counterparts together shall constitute one and the same
instrument and notwithstanding their date of execution shall be
deemed to bear the date set out at the top of the first page of
this Indenture.
(Signature page follows)
IN WITNESS WHEREOF
the parties hereto have executed this
Indenture under the hands of their proper officers in that
behalf.
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PLANET 13 HOLDINGS
INC.
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By:
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/s/ Dennis
Logan
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Dennis
Logan
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Chief Financial
Officer
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ODYSSEY TRUST COMPANY
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By:
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/s/ Dan
Sander
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Dan Sander
VP, Corporate
Trust
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By:
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/s/ Amy
Douglas
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Amy Douglas
Director, Corporate Trust
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SCHEDULE“A”
[For Warrants required to bear the legend set forth in Section
2.20(2) of the Warrant Indenture:]
THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE ON
EXERCISE HEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S.
SECURITIES ACT") OR UNDER ANY STATE SECURITIES LAWS, AND THE
SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE ON
EXERCISE HEREOF MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
DIRECTLY OR INDIRECTLY, ONLY (A) TO THE COMPANY, (B) OUTSIDE THE
UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE U.S.
SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND
REGULATIONS, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE U.S. SECURITIES ACT PROVIDED BY (i) RULE 144 OR (ii) RULE144A
THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH APPLICABLE U.S.
STATE SECURITIES LAWS, (D) IN COMPLIANCE WITH ANOTHER EXEMPTION
FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS, OR (E) UNDER AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE U.S. SECURITIES ACT, PROVIDED THAT IN THE CASE
OF TRANSFERS PURSUANT TO (C)(i) OR (D) ABOVE, A LEGAL OPINION OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, MUST FIRST
BE PROVIDED TO THE COMPANY AND THE COMPANY'S TRANSFER AGENT TO THE
EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE
U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. DELIVERY
OF THIS CERTIFICATE MAY NOT CONSTITUTE GOOD DELIVERY" IN SETTLEMENT
OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.
THIS WARRANT MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON
BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A PERSON IN THE UNITED
STATES OR A U.S. PERSON UNLESS THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS
AVAILABLE. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED BY
REGULATION S UNDER THE U.S. SECURITIES ACT.
[For Warrants required to bear the legend set forth in Section
2.20(3) of the Warrant Indenture:]
THIS WARRANT MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON
BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A PERSON IN THE UNITED
STATES OR A U.S. PERSON UNLESS THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS
AVAILABLE. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED BY
REGULATION S UNDER THE U.S. SECURITIES ACT.
FORM OF WARRANT CERTIFICATE
WARRANTS TO PURCHASE COMMON SHARES
OF PLANET 13 HOLDINGS INC.
(a company existing under the laws of British
Columbia)
CUSIP No. 72706K168
ISIN No. CA72706K1681
Warrant Certificate Number: ●
Representing ● Warrants
to
purchase
Common Shares (as defined below)
THIS CERTIFIES
that, for value received, the
registered holder hereof, ● (the "holder") is entitled at any time at or before the Expiry
Time (as defined below) to acquire, subject to adjustment in
certain events, the number of Common Shares ("Common Shares")
of Planet 13 Holdings Inc. (the
"Company")
specified above, as presently
constituted, by surrendering to Odyssey Trust Company (the
"Warrant
Agent") at its principal office
in Calgary, Alberta, this Warrant Certificate with the duly
completed and executed Exercise Form endorsed on the back of this
Warrant Certificate, and accompanied by payment of $9.00 per Common
Share (the "Warrant Exercise
Price") by certified cheque,
bank draft or money order in lawful money of Canada payable to, or
to the order of, the Company at par at the above-mentioned office
of the Warrant Agent. The holder of this Warrant Certificate may
purchase less than the number of Common Shares which he is entitled
to purchase on the exercise of the Warrants represented by this
Warrant Certificate, in which event a new Warrant Certificate
representing the Warrants not then exercised will be issued to the
holder.
The Warrants evidenced under this Warrant
Certificate are exercisable on or before 5:00 p.m. (Toronto time)
(the "Expiry
Time") on February 2, 2023
(the "Expiry
Date"). After the Expiry Time,
Warrants evidenced hereby shall be deemed to be void and of no
further force or effect.
This Warrant Certificate represents Warrants of
the Company issued or issuable under the provisions of a warrant
indenture (which indenture together with all other instruments
supplemental or ancillary thereto is herein referred to as
the "Warrant
Indenture") dated as of
February 2, 2021, between the Company and the Warrant Agent, as may
be amended from time to time, which contains particulars of the
rights of the holders of the Warrants and the Company and of the
Warrant Agent in respect thereof and the terms and conditions upon
which the Warrants are issued and held, all to the same effect as
if the provisions of the Warrant Indenture were herein set forth,
to all of which the holder of this Warrant Certificate by
acceptance hereof assents. Unless otherwise defined herein, all
capitalized terms shall have the meanings ascribed to them in the
Warrant Indenture. A copy of the Warrant Indenture can be requested
by contacting the Warrant Agent. In the event of any conflict
between the provisions contained in this Warrant Certificate and
the provisions of the Warrant Indenture, the provisions of the
Warrant Indenture shall prevail.
Upon
acceptance hereof, the holder hereof hereby expressly waives the
right to receive any fractional Common Shares upon the exercise
hereof in full or in part and further waives the right to receive
any cash or other consideration in lieu thereof. The Warrants
represented by this Warrant Certificate shall be deemed to have
been surrendered, and payment by certified cheque, bank draft or
money order shall be deemed to have been made only upon personal
delivery thereof or, if sent by post or other means of
transmission, upon actual receipt thereof by the Warrant Agent at
its office in the City of Calgary, Alberta.
Upon
due exercise of the Warrants represented by this Warrant
Certificate and payment of the Warrant Exercise Price, the Company
shall cause to be issued to the person(s) in whose name(s) the
Common Shares have been so subscribed for, the number of Common
Shares to be issued to such person(s) (provided that if the Common
Shares are to be issued to a person other than the registered
holder of this Warrant Certificate, the holder's signature on the
Exercise Form herein shall be guaranteed by a Schedule I Canadian
chartered bank or by a medallion signature guarantee from a member
of a recognized Signature Medallion Guarantee Program), and the
holder shall pay to the Company or the Warrant Agent all applicable
transfer or similar taxes and the Company shall not be required to
issue or deliver certificates evidencing the Common Shares unless
or until the holder shall have paid the Company or the Warrant
Agent the amount of such tax (or shall have satisfied the Company
that such tax has been paid or that no tax is due), and such
person(s) shall become a holder in respect of such Common Shares
with effect from the date of such exercise, and upon due surrender
of this Warrant Certificate, the Transfer Agent shall issue a
certificate(s) representing such Common Shares to be issued within
five Business Days after the exercise of the Warrants (or portion
thereof) represented hereby.
Neither the Warrants represented by this Warrant
Certificate nor the Common Shares issuable upon exercise hereof
have been or will be registered under the United States Securities
Act of 1933, as amended (the “U.S. Securities
Act”), or any state
securities laws. The Warrants represented by this Warrant
Certificate may not be exercised within the United States or by, or
for the account or benefit of, a U.S. person or a person within the
United States unless registered under the U.S. Securities Act and
any applicable state securities laws or unless an exemption from
such registration is available. Certificates representing Common
Shares issued in the United States or to, or for the account or
benefit of, U.S. persons will bear a legend restricting the
transfer and exercise of such securities under applicable United
States federal and state securities laws. "United States" and "U.S.
person" are as defined in Regulation S under the U.S. Securities
Act.
The
holder acknowledges that the Warrants represented by this Warrant
Certificate and the Common Shares issuable upon exercise hereof may
be offered, sold or otherwise transferred only in compliance with
all applicable securities laws.
No
transfer of any Warrant will be valid unless entered on the
register of transfers, upon surrender to the Warrant Agent of the
Warrant Certificate evidencing such Warrant, duly endorsed by, or
accompanied by a transfer form or other written instrument of
transfer in form satisfactory to the Warrant Agent executed by the
registered holder or his executors, administrators or other legal
representatives or his or their attorney duly appointed by an
instrument in writing in form and execution satisfactory to the
Warrant Agent. Subject to the provisions of the Warrant Indenture
and upon compliance with the reasonable requirements of the Warrant
Agent, Warrant Certificates may be exchanged for Warrants
Certificates entitling the holder thereof to acquire an equal
aggregate number of Common Shares subject to adjustment as provided
for in the Warrant Indenture. The Company and the Warrant Agent may
treat the registered holder of this Warrant Certificate for all
purposes as the absolute owner hereof. The holding of the Warrants
represented by this Warrant Certificate shall not constitute the
holder hereof a holder of Common Shares nor entitle him to any
right or interest in respect thereof except as herein and in the
Warrant Indenture expressly provided.
The
Warrant Indenture provides for adjustment in the number of Common
Shares to be delivered upon exercise of the right of purchase
hereby granted and to the Warrant Exercise Price in certain events
therein set forth.
The
Warrant Indenture contains provisions making binding upon all
holders of Warrants outstanding thereunder resolutions passed at
meetings of such holders held in accordance with such provisions
and instruments in writing signed by the holders entitled to
acquire upon the exercise of the Warrants a specified percentage of
the Common Shares.
The
Warrants and the Warrant Indenture shall be governed by and
performed, construed and enforced in accordance with the laws of
the Province of Ontario and the federal laws of Canada applicable
therein and shall be treated in all respects as Ontario contracts.
Time shall be of the essence hereof and of the Warrant
Indenture.
The
Company may from time to time at any time prior to the Expiry Time
purchase any of the Warrants by private agreement or
otherwise.
This
Warrant Certificate shall not be valid for any purpose until it has
been certified by or on behalf of the Warrant Agent for the time
being under the Warrant Indenture.
All
dollar amounts herein are expressed in the lawful money of
Canada.
IN WITNESS WHEREOF the Company has
caused this Warrant Certificate to be signed by its duly
authorized officer as of this _________ day of ________,
20
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PLANET 13 HOLDINGS
INC.
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By:
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Authorized Signing
Officer
Countersigned this
_______ day
of ______,
20
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ODYSSEY
TRUST COMPANY
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By:
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Authorized Signing
Officer
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EXERCISE FORM
TO:
Planet
13 Holdings Inc.
c/o Odyssey Trust Company
Suite 1230, 300 5th
Avenue SW
Calgary, Alberta T2P 3C4
The undersigned holder of the within Warrants hereby irrevocably
exercises the right of such
holder to be issued and hereby subscribes
for Common Shares of
Planet 13
Holdings Inc. (the "Company") at the Warrant Exercise Price referred to in the
attached Warrant Certificate on the terms and conditions set forth
in such certificate and the Warrant Indenture and encloses herewith
a certified cheque, bank draft or money order payable at par in the
City of Calgary, in the Province of Alberta to the order of the
Company in payment in full of the subscription price of the Common
Shares hereby subscribed for.
Unless otherwise defined herein, all capitalized terms shall have
the meanings ascribed to them in the warrant indenture between the
Company and Odyssey Trust Company dated February 2,
2021.
(Please check the ONE box applicable):
☐
1. The
undersigned certifies that it (i) is not in the United States and
is not a "U.S.
person", within the meaning of Regulation S under
the United States Securities Act of 1933, as amended (the
"U.S. Securities
Act"), (ii) is not exercising
this Warrant for the account or benefit of any U.S. Person or
person in the United States, (iii) did not execute or deliver this
Exercise Form within the United States and (iv) has in all other
aspects complied with the terms of Regulation S under the U.S.
Securities Act.
☐
2. The
undersigned certifies that it (i) purchased the Warrants as a part
of the Units
in
the Offering; (ii) is exercising the Warrants solely for its own
account or for the benefit of a U.S. Person or a person in the
United States for whose account such holder acquired the Warrants
as a part of the Units in the Offering and for whose account such
holders exercises sole investment discretion; (iii) was and is, and
any beneficial purchaser for whose account such holder acquired the
Warrant and is exercising the Warrants was and is, a Oualified
Institutional Buyer both on the date the Units were purchased in
the Offering and on the Exercise Date; and (iv) the representations
and warranties made by the holder or any beneficial purchaser, as
the case may be, to the Company in such holder’s GIB Letter
remain true and correct on the Exercise Date.
☐ 3.
The undersigned is delivering a written opinion of United States
legal counsel or
evidence
satisfactory to the Company to the effect that the Warrant and the
Common Shares to be delivered upon exercise hereof have been
registered under the U.S. Securities Actor are exempt from the
registration requirements of the U.S. Securities Act and applicable
state securities laws.
It is understood that the Company may require evidence to verify
the foregoing representations.
The undersigned hereby directs that the said Common Shares be
issued as follows:
NAME(S) IN FULL
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ADDRESS(ES)
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NUMBER OF COMMON SHARES
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Please print full name in which certificates representing the
Common Shares are to be issued. If any Common Shares are to be
issued to a person or persons other than the registered holder, the
registered holder must pay to the Warrant Agent all eligible
transfer taxes or other government charges, if any, and the
Transfer Form must be duly executed.
Once completed and executed, this Exercise Form must be mailed or
delivered to Odyssey Trust Company, c/o Corporate
Trust.
DATED
this day
of
)
)
)
Witness )
(Signature of Warrantholder, to be the same as
)
appears on the face of this Warrant Certificate)
)
Name
of Registered Warrantholder
[ ]
Please check this box if the securities are to be delivered at the
office where these
Warrants
are surrendered, failing which the securities will be
mailed.
NOTES:
1.
Certificates
will not be registered or delivered to an address in the United
States unless Box 2 or Box 3 above is checked.
2.
If
Box 3 above is checked, holders are encouraged to contact the
Company in advance to determine that the legal opinion or evidence
tendered in connection with exercise will be satisfactory in form
and substance to the Company.
TRANSFER FORM
TO:
Planet
13 Holdings Inc.
c/o Odyssey Trust
Company Suite 1230, 300
5th
Avenue SW Calgary,
Alberta T2P 3C4
FOR VALUE RECEIVED, the undersigned transferor hereby sells,
assigns and transfers unto
(Transferee)
(Address)
(Social Insurance Number)
of the
Warrants registered in the name of the undersigned
transferor
represented
by the Warrant Certificate.
In the
case of a Warrant Certificate that contains a U.S. restrictive
legend, the undersigned hereby represents, warrants and certifies
that (one (only) of the following must be checked):
☐ (A) the transfer is
being made only to the Company; or
☐ (B) the
transfer is being made outside the United States in
accordance with
Regulation S under the United States Securities Act of 1933, as
amended (the “U.S. Securities Act”), and in compliance
with any applicable local securities laws and regulations and the
holder has provided herewith the Declaration for Removal of Legend
attached as Schedule "B" to the Warrant Indenture; or
☐ (C) the
transfer is being made pursuant to the exemption
from
the registration requirements of the U.S. Securities Act provided
by (i) Rule 144 or (ii) Rule 144A thereunder, and in either case in
accordance with applicable state securities laws; or
☐ (D) the
transfer is being made within the United States or
to, or
for the account or benefit of, U.S. persons, in accordance with a
transaction that does not require registration under the U.S.
Securities Act or any applicable state securities laws and the
undersigned has furnished to the Company and the Warrant Agent an
opinion of counsel of recognized standing in form and substance
reasonably satisfactory to the Company to such effect.
In the
case of a transfer in accordance with (C)(i) or (D) above, the
Company and the Warrant Agent shall first have received an opinion
of counsel of recognized standing in form and substance reasonably
satisfactory to the Company, to such effect.
In the
case of a Warrant Certificate that does not contain a U.S.
restrictive legend, if the proposed transfer is to, or for the
account or benefit of a U.S. person or to a person in the United
States, the undersigned hereby represents, warrants and certifies
that the transfer of the Warrants is being completed pursuant to an
exemption from the registration requirements of the U.S. Securities
Act and any applicable state securities laws, in which case the
undersigned has furnished to the Company and the Warrant Agent an
opinion of counsel of recognized standing in form and substance
reasonably satisfactory to the Company to such effect.
"United States" and "U.S. Person" are as defined by Regulation S
under the U.S. Securities Act.
SPACE
FOR GUARANTEES)
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OF
SIGNATURES (BELOW
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)
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)
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)
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Signature of
Transferor
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)
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)
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)
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Guarantor's
Signature/Stamp
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)
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Name of
Transferor
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REASON
FOR TRANSFER – For US Residents only (where the individual(s)
or corporation receiving the securities is a US resident). Please
select only one (see instructions below).
☐
Gift
☐
Estate
☐
Private Sale
☐
Other (or no change
in
ownership)
Date
of Event (Date of gift, death or sale):
Value
per Warrant on the date of event:
USD
NOTES:
1.
The
signature to this transfer must correspond with the name as
recorded on the Warrants in every particular without alteration or
enlargement or any change whatever. The signature of the person
executing this transfer must be guaranteed by a Schedule I Canadian
chartered bank, or by a medallion signature guarantee from a member
of a recognized Signature Medallion Guarantee Program.
2.
Warrants shall only be transferable in accordance
with the warrant indenture between Planet 13
Holdings Inc. and Odyssey Trust
Company dated February 2, 2021
(the "Warrant
Indenture"), applicable laws
and the rules and policies of any applicable stock exchange.
Without limiting the foregoing, if the Warrant Certificate bears a
legend restricting the transfer of the Warrants except pursuant to
an exemption from registration under the U.S. Securities Act, and
applicable state securities laws, this Transfer Form must be
accompanied by a properly completed and executed declaration for
removal of legend in the form attached as Schedule “B”
to the Warrant Indenture.
CERTAIN REQUIREMENTS RELATING TO TRANSFERS - READ
CAREFULLY
The signature(s) of the transferor(s) must correspond with the
name(s) as written upon the face of this certificate(s), in every
particular, without alteration or enlargement, or any change
whatsoever. All securityholders or a legally authorized
representative must sign this form. The signature(s) on this form
must be guaranteed in accordance with the transfer agent's then
current guidelines and requirements at the time of transfer.
Notarized or witnessed signatures are not acceptable as guaranteed
signatures. As at the time of closing, you may choose one of the
following methods (although subject to change in accordance with
industry practice and standards):
●
Canada and the USA:
A Medallion Signature Guarantee
obtained from a member of an acceptable Medallion Signature
Guarantee Program (STAMP, SEMP, NYSE, MSP). Many commercial banks,
savings banks, credit unions, and all broker dealers participate in
a Medallion Signature Guarantee Program. The Guarantor must affix a
stamp bearing the actual words "Medallion Guaranteed", with the
correct prefix covering the face value of the
certificate.
●
Canada: A Signature Guarantee obtained from an authorized
officer of the Royal Bank of Canada, Scotia Bank or TD Canada
Trust. The Guarantor must affix a stamp bearing the actual words
"Signature Guaranteed", sign and print their full name and alpha
numeric signing number. Signature Guarantees are not accepted from
Treasury Branches, Credit Unions or Caisse Populaires unless they
are members of a Medallion Signature Guarantee Program. For
corporate holders, corporate signing resolutions, including
certificate of incumbency, are also required to accompany the
transfer, unless there is a "Signature & Authority to Sign
Guarantee" Stamp affixed to the transfer (as opposed to a
"Signature Guaranteed" Stamp) obtained from an authorized officer
of the Royal Bank of Canada, Scotia Bank or TD Canada Trust or a
Medallion Signature Guarantee with the correct prefix covering the
face value of the certificate.
●
Outside North America:
For holders located outside North
America, present the certificates(s) and/or document(s) that
require a guarantee to a local financial institution that has a
corresponding Canadian or American affiliate which is a member of
an acceptable Medallion Signature Guarantee Program. The
corresponding affiliate will arrange for the signature to be
over-guaranteed.
OR
The signature(s) of the transferor(s) must correspond with the
name(s) as written upon the face of this certificate(s), in every
particular, without alteration or enlargement, or any change
whatsoever. The signature(s) on this form must be guaranteed by an
authorized officer of Royal Bank of Canada, Scotia Bank or TD
Canada Trust whose sample signature(s) are on file with the
transfer agent, or by a member of an acceptable Medallion Signature
Guarantee Program (STAMP, SEMP, NYSE, MSP). Notarized or witnessed
signatures are not acceptable as guaranteed signatures. The
Guarantor must affix a stamp bearing the actual words: "SIGNATURE
GUARANTEED", "MEDALLION GUARANTEED" OR "SIGNATURE & AUTHORITY
TO SIGN GUARANTEE", all in accordance with the transfer agent's
then current guidelines and requirements at the time of transfer.
For corporate holders, corporate signing resolutions, including
certificate of incumbency, will also be required to accompany the
transfer unless there is a "SIGNATURE & AUTHORITY TO SIGN
GUARANTEE" Stamp affixed to the Form of Transfer obtained from an
authorized officer of the Royal Bank of Canada, Scotia Bank or TD
Canada Trust or a "MEDALLION GUARANTEED" Stamp affixed to the Form
of Transfer, with the correct prefix covering the face value of the
certificate.
REASON FOR TRANSFER - FOR US RESIDENTS ONLY
Consistent with US IRS regulations, Odyssey Trust Company is
required to request cost basis information from US securityholders.
Please indicate the reason for requesting the transfer as well as
the date of event relating to the reason. The event date is not the
day in which the transfer is finalized, but rather the date of the
event which led to the transfer request (i.e. date of gift, date of
death of the securityholder, or the date the private sale took
place).
SCHEDULE“B”
FORM OF DECLARATION FOR REMOVAL OF LEGEND
TO:
Planet
13 Holdings Inc.
c/o Odyssey Trust
Company Suite 1230, 300
5th
Avenue SW Calgary,
Alberta T2P 3C4
The undersigned (a) acknowledges that the sale of the securities of
Planet 13 Holdings Inc. (the "Company")
to which this declaration relates is
being made in reliance on Rule 904 of Regulation S
("Regulation
S") under the United States
Securities Act of 1933, as amended (the "U.S.
Securities Act") and (b)
certifies that (1) it is not an affiliate of the Company (as
defined in Rule 405 under the U.S. Securities Act), (2) the offer
of such securities was not made to a person in the United States
and either (A) at the time the buy order was originated, the buyer
was outside the United States, or the seller and any person acting
on its behalf reasonably believe that the buyer was outside the
United States, or (B) the transaction was executed on or through
the facilities of the Canadian Securities Exchange and neither the
seller nor any person acting on its behalf knows that the
transaction has been prearranged with a buyer in the United States,
(3) neither the seller nor any affiliate of the seller nor any
person acting on any of their behalf has engaged or will engage in
any directed selling efforts in the United States in connection
with the offer and sale of such securities, (4) the sale is bona
fide and not for the purpose of "washing off the resale
restrictions imposed because the securities are "restricted
securities" (as such term is defined in Rule 144(a)(3) under the
U.S. Securities Act), (5) the seller does not intend to replace the
securities sold in reliance on Rule 904 of the U.S. Securities Act
with fungible unrestricted securities, and (6) the sale was not a
transaction, or part of a series of transactions which, although in
technical compliance with Regulation S, is part of a plan or scheme
to evade the registration provisions of the U.S. Securities Act.
Terms used herein have the meanings given to them by Regulation
S.
Name:
Title:
Affirmation By Seller's Broker-Dealer (required for sales in
accordance with Section (b)(2)(B)
above)
We have
read the foregoing representations of our customer,
(the "Seller") dated
, with regard to our sale, for such Seller's account, of the
securities of the Company described therein, and on behalf of
ourselves we certify and affirm that (A) we have no knowledge that
the transaction had been prearranged with a buyer in the United
States, (B) the transaction was executed on or through the
facilities of designated offshore securities market, (C) neither
we, nor any person acting on our behalf, engaged in any directed
selling efforts in connection with the offer and sale of such
securities, and (D) no selling concession, fee or other
remuneration is being paid to us in connection with this offer and
sale other than the usual and customary broker's commission that
would be received by a person executing such transaction as agent.
Terms used herein have the meanings given to them by Regulation
S.
Name of
Firm
By:
Authorized
officer
Date:
PLANET 13 HOLDINGS INC.
- and -
WARRANT INDENTURE
Providing for the Issue of
up to 4,792,625 Common Share Purchase Warrants
December 4, 2018
TABLE OF CONTENTS
ARTICLE
1 INTERPRETATION
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2
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1.1
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Definitions
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2
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1.2
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Words Importing the Singular
|
7
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1.3
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Interpretation not Affected by Headings
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7
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1.4
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Day not a Business Day
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7
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1.5
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Time of the Essence
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7
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1.6
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Governing Law
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7
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1.7
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Meaning of "outstanding" for Certain Purposes
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7
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1.8
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Currency
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8
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1.9
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Termination
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8
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ARTICLE 2 ISSUE OF WARRANTS
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8
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2.1
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Issue
of Warrants
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8
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2.2
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Form
and Terms of Warrants
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8
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2.3
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Signing
of Warrant Certificates
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9
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2.4
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Authentication
by the Warrant Agent
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10
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2.5
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Warrantholder
not a Shareholder, etc
|
10
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2.6
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Issue
in Substitution for Lost Warrant Certificates
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11
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2.7
|
Warrants
to Rank Pari
Passu
|
11
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2.8
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Registration
and Transfer of Warrants
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11
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2.9
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Registers
Open for Inspection
|
13
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2.10
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Exchange
of Warrants
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13
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2.11
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Ownership
of Warrants
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13
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2.12
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Uncertificated
Warrants
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13
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2.13
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Adjustment
of Exchange Basis
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15
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2.14
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Rules
Regarding Calculation of Adjustment of Exchange Basis
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19
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2.15
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Postponement
of Subscription
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20
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2.16
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Notice
of Adjustment
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21
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2.17
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No
Action after Notice
|
21
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2.18
|
Purchase
of Warrants for Cancellation
|
22
|
2.19
|
Protection
of Warrant Agent
|
22
|
2.20
|
U.S.
Legend on Warrant Certificates and Warrant Share
certificates
|
22
|
ARTICLE 3 EXERCISE OF WARRANTS
|
24
|
3.1
|
Method
of Exercise of Warrants
|
24
|
3.2
|
No
Fractional Shares
|
26
|
3.3
|
Effect
of Exercise of Warrants
|
26
|
3.4
|
Cancellation
of Warrants
|
27
|
3.5
|
Subscription
for less than Entitlement
|
27
|
3.6
|
Expiration
of Warrant
|
27
|
3.7
|
Prohibition
on Exercise by U.S. Persons; Exception
|
27
|
ARTICLE 4 COVENANTS FOR WARRANTHOLDERS'
BENEFIT
|
28
|
4.1
|
General
Covenants of the Company
|
28
|
4.2
|
Warrant
Agent's Remuneration and Expenses
|
30
|
4.3
|
Performance
of Covenants by Warrant Agent
|
30
|
4.4
|
Enforceability
of Warrants
|
30
|
ARTICLE 5 ENFORCEMENT
|
30
|
5.1
|
Suits
by Warrantholders
|
30
|
5.2
|
Limitation
of Liability
|
31
|
5.3
|
Waiver
of Default
|
31
|
ARTICLE 6 MEETINGS OF WARRANTHOLDERS
|
31
|
6.1
|
Right
to Convene Meetings
|
31
|
6.2
|
Notice
|
32
|
6.3
|
Chairman
|
32
|
6.4
|
Quorum
|
32
|
6.5
|
Power
to Adjourn
|
32
|
6.6
|
Show of
Hands
|
33
|
6.7
|
Poll
and Voting
|
33
|
6.8
|
Regulations
|
33
|
6.9
|
Company,
Warrant Agent and Counsel may be Represented
|
33
|
6.10
|
Powers
Exercisable by Extraordinary Resolution
|
33
|
6.11
|
Meaning
of "Extraordinary Resolution"
|
34
|
6.12
|
Powers
Cumulative
|
35
|
6.13
|
Minutes
|
35
|
6.14
|
Instruments
in Writing
|
35
|
6.15
|
Binding
Effect of Resolutions
|
36
|
6.16
|
Holdings
by the Company or Subsidiaries of the Company
Disregarded
|
36
|
6.17
|
Common
Shares or Warrants Owned by the Company or its Subsidiaries -
Certificate to be provided
|
36
|
ARTICLE 7 SUPPLEMENTAL
INDENTURES AND SUCCESSOR COMPANIES
|
36
|
7.1
|
Provision
for Supplemental Indentures for Certain Purposes
|
36
|
7.2
|
Successor
Companies
|
38
|
ARTICLE 8
CONCERNING THE WARRANT AGENT
|
38
|
8.1
|
Indenture
Legislation
|
38
|
8.2
|
Rights
and Duties of Warrant Agent
|
38
|
8.3
|
Evidence,
Experts and Advisers
|
39
|
8.4
|
Securities,
Documents and Monies Held by Warrant Agent
|
40
|
8.5
|
Actions
by Warrant Agent to Protect Interests
|
41
|
8.6
|
Warrant
Agent not Required to Give Security
|
41
|
8.7
|
Protection
of Warrant Agent
|
41
|
8.8
|
Replacement
of Warrant Agent
|
43
|
8.9
|
Conflict
of Interest
|
44
|
8.10
|
Acceptance
of Duties and Obligations
|
44
|
8.11
|
Warrant
Agent not to be Appointed Receiver
|
44
|
8.12
|
Authorization
to Carry on Business
|
44
|
ARTICLE 9 GENERAL
|
45
|
9.1
|
Notice to the Company and the Warrant Agent
|
45
|
9.2
|
Notice to the Warrantholders
|
46
|
9.3
|
Privacy
|
46
|
9.4
|
Third Party Interests
|
47
|
9.5
|
Securities Exchange Commission Certification
|
47
|
9.6
|
Discretion of Directors
|
47
|
9.7
|
Satisfaction and Discharge of Indenture
|
47
|
9.8
|
Provisions of Indenture and Warrants for the Sole Benefit of
Parties and Warrantholders
|
48
|
9.9
|
Indenture to Prevail
|
48
|
9.10
|
Assignment
|
48
|
9.11
|
Severability
|
48
|
9.12
|
Force Majeure
|
48
|
9.13
|
Counterparts and Formal Date
|
49
|
Schedule "A" Form of Warrant Certificate
|
Schedule "A" Form of Warrant Certificate
|
|
Schedule "B" Form of Declaration for Removal of Legend
|
Schedule "B" Form of Declaration for Removal of Legend
|
|
THIS WARRANT INDENTURE
dated as of December 4,
2018
BETWEEN:
PLANET 13 HOLDINGS INC.,
a
company existing under the federal laws of Canada
(the "Company")
AND
ODYSSEY TRUST COMPANY,
a
trust company incorporated under the laws of Alberta
and
authorized
to carry on business in the provinces of Alberta and
British
Columbia
(the "Warrant Agent")
RECITALS
WHEREAS:
A. In connection with the public offering by the
Company of up to 9,585,250 Units (as defined below) pursuant to a
short form prospectus dated November 28, 2018 (the
"Offering"),
the Company proposes to issue and sell
to the public up to 4,792,625 Warrants (as defined below), of which
4,167,500 Warrants will be issuable as a part of the base Offering
and up to 625,125 Warrants will be issuable upon the due exercise
of the Over-Allotment Option (as defined
below);
B. Each
Warrant entitles the holder thereof to purchase, subject to
adjustment in certain events, one Warrant Share (as defined below)
at a price of $3.75 at any time prior to 5:00 p.m. (Toronto time)
on December 4, 2021, subject to the Acceleration Right (as defined
below);
C. For
such purpose the Company deems it necessary to create and issue
Warrants and Warrant Certificates (as defined below) to be
constituted and issued in the manner hereinafter set
forth;
D. The
Company is duly authorized to create and issue the Warrants to be
issued as herein provided;
E. All
things necessary have been done and performed to make the Warrants,
when Authenticated (as defined below) or certified by the Warrant
Agent and issued as provided in this Indenture, legal, valid and
binding upon the Company with the benefits of and subject to the
terms of this Indenture;
The
foregoing recitals are made as statements of fact by the Company
and not by the Warrant Agent; and
F. The
Warrant Agent has agreed to enter into this Indenture and to hold
all rights, interests and benefits contained herein for and on
behalf of those persons who become holders of Warrants issued
pursuant to this Indenture from time to time;
NOW
THEREFORE THIS INDENTURE WITNESSES that for good and valuable
consideration mutually given and received, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed
and declared as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions
In
this Indenture, unless there is something in the subject matter or
context inconsistent therewith:
"Acceleration Notice" means a
notice of an Acceleration Trigger from the Company to each of the
Warrantholders pursuant to Section 9.2 hereof, advising that the
preconditions to the exercise of the Acceleration Right have been
met and the Acceleration Right has been
exercised;
"Acceleration Right" means the
right of the Company to accelerate the Expiry Date to a date that
is not less than 30 days following provision of the Acceleration
Notice if, at any time after the date of issuance of the Warrants,
an Acceleration Trigger shall have occurred;
"Acceleration Threshold Price" means $5.00 per Common Share, subject to
adjustment in accordance with the provisions of Article 2
hereof;
"Acceleration Trigger" means a
situation whereby the daily volume weighted average closing price
of the Common Shares on the CSE (or such other exchange on which
the Common Shares may trade) is at a price equal to or greater than
the Acceleration Threshold Price for a period of 20 consecutive
trading days following the date of issuance of the
Warrants;
"Acceleration Trigger Date" means the Expiry Date specified by the Company on
the Acceleration Notice, which shall be not less than 30 days after
the occurrence of the Acceleration Trigger;
"Applicable Legislation" means
the provisions of the statutes of Canada and its provinces and the
regulations under those statutes relating to warrant indentures
and/or the rights, duties or obligations of issuers and warrant
agents under warrant indentures as are from time to time in force
and applicable to this Indenture;
"Authenticated" means (a) with
respect to the issuance of a Warrant Certificate, one which has
been duly signed by the Company and authenticated by manual
signature of an authorized officer of the Warrant Agent, and (b)
with respect to the issuance of an Uncertificated Warrant, one in
respect of which the Warrant Agent has completed all Internal
Procedures such that the particulars of such Uncertificated Warrant
as required by Section 2.4 are entered in the register of
Warrantholders, "Authenticate",
"Authenticating" and
"Authentication"
have the appropriate correlative
meanings;
"Beneficial Owner" means a
person that has a beneficial interest in a
Warrant;
"Book-Entry Only System" means
the book-based securities system administered by CDS in accordance
with its operating rules and procedures in force from time to
time;
"Business Day" means a day that
is not a Saturday, Sunday, or a day on which banks are closed or
which is a civic or statutory holiday in the City of Toronto,
Ontario or Calgary, Alberta;
"Capital Reorganization" has
the meaning ascribed to that term in Section
2.13(4);
"CDS" means CDS Clearing and
Depository Services Inc. and its successors in
interest;
"CDSX" means the CDS settlement
and clearing system for equity and debt securities in
Canada;
"Closing Date" means December
4, 2018 or such other date as agreed to by the Company and the
Underwriters;
"Common Share Reorganization" has the meaning ascribed to that term in
Section 2.13(1);
"Common Shares" means the
common shares in the capital of the Company;
"Company" means Planet 13
Holdings Inc., a corporation existing under the federal laws of
Canada, and its lawful successors from time to
time;
"Company's Auditors" means the
chartered (professional) accountant or firm of chartered
(professional) accountants duly appointed as auditor or auditors of
the Company from time to time, including prior auditors of the
Company, as applicable;
"Confirmation" has the meaning
ascribed that term in Section 3.1(4);
"counsel" means a barrister and
solicitor or lawyer or a firm of barristers and solicitors or
lawyers, in both cases acceptable to the Warrant
Agent;
"CSE" means the Canadian
Securities Exchange;
"Current Market Price" means,
at any date, the volume weighted average price per share at which
the Common Shares have traded:
(a) on
the CSE;
(b)
if
the Common Shares are not listed on the CSE, on any stock exchange
upon which the Common Shares are listed, as may be selected for
this purpose by the board of directors of the Company, acting
reasonably; or
(c)
if
the Common Shares are not listed on any stock exchange, on any
over-the- counter market on which the Common Shares are trading, as
may be selected for this purpose by the board of directors of the
Company, acting reasonably;
during
the 20 consecutive trading days (on each of which at least 500
Common Share are traded in board lots) ending the second trading
day before such date; provided that the volume weighted average
price shall be determined by dividing the aggregate sale price of
all Common Shares sold in board lots on the exchange or market, as
the case may be, during the 20 consecutive trading days by the
number of Common Shares so sold on said exchange or market or, if
not traded on any recognized exchange or market, as determined by
the directors of the Company, acting reasonably;
"director" means a member of
the board of directors of the Company for the time being, and
unless otherwise specified herein, reference to "action by the board of
directors" means action by the
board of directors of the Company as a board or, whenever duly
empowered, action by a committee of the board;
"Dividend Paid in the Ordinary Course" means dividends paid in any financial year of the
Company, whether in (i) cash, (ii) shares of the Company, (iii)
warrants or similar rights to purchase any shares of the Company or
property or other assets of the Company provided that the value of
such dividends per outstanding Common Share does not in such
financial year exceed in aggregate 5% of the Exercise
Price;
"Exchange Basis" means, at any
time, the number of Warrant Shares or other classes of shares or
securities or property which a Warrantholder is entitled to receive
upon the exercise of the rights attached to the Warrants pursuant
to the terms of this Indenture, as the number may be adjusted
pursuant to Article 2 hereof, such number being equal to one
Warrant Share per Warrant as of the date
hereof;
"Exercise Date" with respect to
any Warrant means the date on which such Warrant is duly
surrendered for exercise in accordance with the provisions of
Article 3 hereof;
"Exercise Notice" has the
meaning ascribed that term in Section 3.1(4);
"Exercise Price" means $3.75
for each Warrant Share, subject to adjustment in accordance with
the provisions of Article 2 hereof;
“Expiry Date” means
the earlier of: (a) December 4, 2021; and (b) the Acceleration
Trigger Date;
"extraordinary resolution" has
the meaning ascribed to that term in sections 6.12 and
6.15;
"Internal Procedures" means in
respect of the making of any one or more entries to, changes in or
deletions of any one or more entries in the register at any time
(including without limitation, original issuance or registration of
transfer of ownership) the minimum number of the Warrant Agent's
internal procedures customary at such time for the entry, change or
deletion made to be complete under the operating procedures
followed at the time by the Warrant Agent;
"Offering" has the meaning
ascribed thereto in Recital A of this
Indenture;
“Original U.S. Purchaser” means a Qualified Institutional Buyer who
purchased Warrants as part of the Offering;
"Over-Allotment Option" means
the option granted by the Company to the Underwriters, which may be
exercised in the Underwriters' sole discretion and without
obligation, to purchase up to an additional 1,250,250 Units,
including up to 1,250,250 Unit Shares and up to 625,125 Warrants,
for the purpose of covering over-allotments made in connection with
the Offering and for market stabilization purposes, and which is
exercisable for any combination of additional
Units, additional Unit Shares and/or additional Warrants, from and
including 30 days following the Closing Date;
"Participant" means a person
recognized by CDS as a participant in the Book-Entry Only
System;
"person" means an individual, a
corporation, a limited liability company, a partnership, a
syndicate, a trustee or any unincorporated organization and words
importing persons are intended to have a similarly extended
meaning;
“Prices” means each
of the Exercise Price and the Acceleration Threshold
Price;
“Qualified Institutional Buyer” means a “qualified institutional
buyer” as such term is defined in Rule 144A under the U.S.
Securities Act;
"QIB Letter" means the
Qualified Institutional Buyer Letter signed by the Original U.S.
Purchaser;
"Regulation S" means Regulation
S as promulgated under the U.S. Securities Act;
"Rights Offering" has the
meaning ascribed to that term in Section
2.13(2);
"Rights Offering Price" has the
meaning ascribed to that term in Section
2.14(8);
"Securities Laws" means,
collectively, the applicable securities laws and regulations of
each of the provinces of Canada, except Quebec, the United States
and each of the states of the United States, together with all
respective regulations made and forms prescribed thereunder,
published rules, policy statements, notices, orders and rulings of
the securities commissions or similar regulatory authorities
thereto, as applicable, including the rules and policies of the
CSE;
"shareholder" means an owner of
record of one or more Common Shares or shares of any other class or
series of the Company;
"Special Distribution" has the
meaning ascribed to that term in Section
2.13(3);
"Subsidiary" means a
corporation, a majority of the outstanding voting shares of which
are owned, directly or indirectly, by the Company or by one or more
subsidiaries of the Company and, as used in this definition,
"voting shares" means shares of a class or classes ordinarily
entitled to vote for the election of the majority of the directors
of a corporation irrespective of whether or not shares of any other
class or classes shall have or might have the right to vote for
directors by reason of the happening of any
contingency;
"successor company" has the
meaning ascribed to that term in section 7.2;
"this Indenture", "herein", "hereby" and similar expressions mean or refer to this
Common Share purchase warrant indenture and any indenture, deed or
instrument supplemental or ancillary hereto; and the
expressions "Article", "section",
or "paragraph" followed by a number or letter mean and refer to
the specified Article, section, or paragraph of this
Indenture;
"Time of Expiry" means 5:00
p.m. (Toronto time) on the Expiry Date;
"trading day" means a day on
which the CSE (or such other exchange on which the Common Shares
are listed) is open for trading, and if the Common Shares are not
listed on a stock exchange, a day on which an over-the-counter
market where such shares are traded is open for
business;
"transaction instruction" means
a written order signed by the holder or CDS, entitled to request
that one or more actions be taken, or such other form as may be
reasonably acceptable to the Warrant Agent, requesting one or more
such actions to be taken in respect of an Uncertificated
Warrant;
"Transfer Agent" means the
transfer agent or agents for the time being for the Common
Shares;
"U.S. Person" means a U.S.
person as that term is defined under Regulation
S;
"U.S. Securities Act" means the
United States Securities Act of 1933, as
amended;
"Uncertificated Warrant" means
any Warrant which is issued under the Book-Entry Only System or any
Warrant which is not a certificated Warrant;
"Underwriters" means
collectively Beacon Securities Limited, Canaccord Genuity Corp. and
Cormark Securities Inc.;
"Unit Share" means a Common
Share comprising part of each Unit;
"United States" means the
United States as that term is defined in Regulation
S;
"Units" means the units of the
Company, each Unit being comprised of one Unit Share and one-half
Warrant;
"Warrant Agent" means Odyssey
Trust Company, a trust company incorporated under the laws of
Alberta and authorized to carry on business in the provinces of
Alberta and British Columbia or any lawful successor thereto
including through the operation of section 8.8;
"Warrant Certificates" means
the certificates representing Warrants substantially in the form
attached as Schedule "A" hereto or such other form as may be
approved by the Company and the Warrant Agent;
"Warrant Shares" means the
Common Shares or, as a result of any adjustment to the subscription
rights pursuant to Article 2 hereof, other securities or property
issuable upon the exercise of the Warrants;
"Warrantholders" or
"holders"
means the persons whose names are
entered for the time being in the register maintained pursuant to
section 2.8;
'Warrantholders' Request" means
an instrument, signed in one or more counterparts by Warrantholders
representing, in the aggregate, at least 20% of the aggregate
number of Warrants then outstanding, which requests the Warrant
Agent to take some action or proceeding specified
therein;
"Warrants" means the Common
Share purchase warrants of the Company issued and Authenticated
hereunder as Uncertificated Warrants or to be issued and
countersigned in the form of Warrant Certificates, in either case,
entitling the holders thereof to purchase Warrant Shares on the
basis of one Warrant Share for each Warrant upon payment of the
Exercise Price prior to the Time of Expiry; provided that in each
case the number and/or class of securities or property receivable
on the exercise of the Warrants may be subject to increase or
decrease or change in accordance with the terms and provisions
hereof; and
"written direction of the Company", "written request of the
Company", "written consent of the Company", "Officer's
Certificate" and
"certificate of the
Company" and any other document
required to be signed by the Company, means, respectively, a
written direction, request, consent, certificate or other document
signed in the name of the Company by any officer or director and
may consist of one or more instruments so
executed.
1.2 Words
Importing the Singular
Unless
elsewhere otherwise expressly provided, or unless the context
otherwise requires, words importing the singular include the plural
and vice versa and words importing the masculine gender include the
feminine and neuter genders.
1.3 Interpretation
not Affected by Headings
The
division of this Indenture into Articles, sections, and paragraphs,
the provision of a table of contents and the insertion of headings
are for convenience of reference only and shall not affect the
construction or interpretation of this Indenture.
1.4 Day
not a Business Day
If
any day on or before which any action is required or permitted to
be taken hereunder is not a Business Day, then such action shall be
required or permitted to be taken on or before the requisite time
on the next succeeding day that is a Business Day.
1.5 Time
of the Essence
Time
shall be of the essence in all respects of this Indenture and the
Warrants issued hereunder.
1.6 Governing
Law
This
Indenture and the Warrants issued hereunder shall be construed and
enforced in accordance with the laws of the Province of Ontario and
the federal laws of Canada applicable therein and shall be treated
in all respects as Ontario contracts.
1.7 Meaning
of "outstanding" for Certain Purposes
Every
Warrant Authenticated or certified by the Warrant Agent hereunder
shall be deemed to be outstanding until it shall be cancelled or
delivered to the Warrant Agent for cancellation, exercised pursuant
to section 3.1 or until the Time of Expiry; provided that where a
new Warrant Certificate has been issued pursuant to section 2.6 to
replace one which is lost, mutilated, stolen or destroyed, the
Warrants represented by only one of such Warrant
Certificates shall be counted for the purpose of determining the
aggregate number of Warrants outstanding.
1.8 Currency
Unless
otherwise stated, all dollar amounts referred to in this Indenture
are in Canadian
dollars.
1.9 Termination
This
Indenture shall continue in full force and effect until the earlier
of: (a) the Time of Expiry; and (b) provided that no Warrants
remain issuable pursuant to the terms of this Indenture, the date
that no Warrants are outstanding hereunder; provided that this
Indenture shall continue in effect thereafter, if applicable, until
the Company and the Warrant Agent have fulfilled all of their
respective obligations under this Indenture.
ARTICLE 2
ISSUE OF WARRANTS
2.1 Issue
of Warrants
Subject
to adjustment in accordance with the provisions hereof, the Company
creates and authorizes the issuance of up to 4,792,625 Warrants
entitling the registered holders thereof to acquire an aggregate of
up to 4,792,625 Warrant Shares, all of which are hereby created and
authorized to be issued hereunder at the Exercise Price upon the
terms and conditions as set forth herein. Uncertificated Warrants
shall be Authenticated by the Warrant Agent and deposited in CDS
and Warrant Certificates evidencing the Warrants shall be executed
by the Company, certified by or on behalf of the Warrant Agent and
delivered by the Warrant Agent in accordance with a written
direction of the Company, all in accordance with sections 2.3 and
2.4. Subject to adjustment in accordance with the provisions of
this Indenture, each of the Warrants issued hereunder shall entitle
the holder thereof to receive from the Company, at the Exercise
Price, the number of Warrant Shares equal to the Exchange Basis in
effect on the Exercise Date.
2.2 Form
and Terms of Warrants
(1) The
Warrants may be issued in either certificated or uncertificated
form. The Warrant Certificates shall be substantially in the form
attached as Schedule "A" hereto, subject to the provisions of this
Indenture, with such additions, variations and changes as may be
required or permitted by the terms of this Indenture, and to give
effect to any Warrants not being issued as Uncertificated Warrants,
and which may from time to time be agreed upon by the Warrant Agent
and the Company, and shall have such legends, distinguishing
letters and numbers as the Company may, with the approval of the
Warrant Agent, prescribe. Except as hereinafter provided in this
Article 2, all Warrants shall, save as to denominations, be of like
tenor and effect. The Warrant Certificates may be engraved,
printed, lithographed, photocopied or be partially in one form or
another, as the Company may determine. No change in the form of the
Warrant Certificate shall be required by reason of any adjustment
made pursuant to this Article 2 in the number and/or class of
securities or type of securities or property that may be acquired
pursuant to the Warrants. All Warrants issued to CDS may be in
either a certificated or uncertificated form, such uncertificated
form being evidenced by a book position on the register of
Warrantholders to be maintained by the Warrant Agent in accordance
with section 2.8.
(2) Each
Warrant authorized to be issued hereunder shall entitle the
registered holder thereof to acquire (subject to sections 2.13,
2.14 and 2.15) upon due exercise and upon the transaction
instruction or due execution of the exercise form endorsed on the
Warrant Certificate, as applicable, or other instrument of exercise
in such form as the Warrant Agent and/or the Company may from time
to time prescribe and upon payment of the Exercise Price, one
Warrant Share or such other kind and amount of shares or securities
or property, calculated pursuant to the provisions of sections 2.13
and 2.14, as the case may be, at any time after the date of
issuance of such Warrants and prior to the Time of Expiry, in
accordance with the provisions of this Indenture.
(3) Fractional
Warrants shall not be issued or otherwise provided for. If any
fraction of a Warrant would otherwise be issuable and result in a
fraction of a Warrant Share being issuable, any such fractional
Warrant so issued shall be rounded down to the nearest whole
Warrant without compensation therefor.
(4) If
at any time after the date of the issuance of the Warrants, the
Acceleration Trigger shall have occurred, the Company shall have
the sole right, but not the obligation, to exercise the
Acceleration Right. In the event the Company elects to exercise the
Acceleration Right, the Company shall deliver, or cause to be
delivered, the Acceleration Notice to Warrantholders pursuant to
Section 9.2 hereof. Upon delivery of the Acceleration Notice to the
Warrantholders, such holders shall have the right, but not the
obligation, to exercise their Warrants pursuant to the terms set
forth herein and in the Warrant Certificates. Effective as of the
date that is 30 days following the delivery of the Acceleration
Notice to the Warrantholders pursuant to Section 9.2 hereof, all
unexercised Warrants shall be terminated and of no further force or
effect without any action on the part of the Company or the
Warrantholders. Concurrent with the delivery of the Acceleration
Notice to the Warrantholders contemplated hereunder, the Company
shall also provide the Acceleration Notice to the Warrant Agent
pursuant to Section 9.1 hereof and issue a news release announcing
the exercise of the Acceleration Right. The receipt of the
Acceleration Notice by the Warrant Agent and the issuance of the
news release announcing the Acceleration Right will not impact the
timing of the exercise of the Acceleration Right by the
Company.
2.3 Signing
of Warrant Certificates
Warrant
Certificates shall be signed by any one of the directors or
officers of the Company and may, but need not be under the
corporate seal of the Company or a reproduction thereof. The
signature of any such director or officer may be mechanically
reproduced in facsimile or other electronic format and Warrant
Certificates bearing such facsimile or other electronic format
signatures shall be binding upon the Company as if they had been
manually signed by such director or officer. Notwithstanding that
the person whose manual or electronic signature appears on any
Warrant Certificate as a director or officer may no longer hold
office at the date of issue of the Warrant Certificate or at the
date of certification or delivery thereof, any Warrant Certificate
Authenticated or signed as aforesaid shall, subject to section 2.4,
be valid and binding upon the Company and the registered holder
thereof will be entitled to the benefits of this
Indenture.
2.4 Authentication
by the Warrant Agent
(1) No
Warrant shall be issued or, if issued, shall be valid for any
purpose or entitle the registered holder to the benefit hereof or
thereof until it has been Authenticated by or on behalf of the
Warrant Agent, as applicable, and such Authentication by the
Warrant Agent shall be conclusive evidence as against the Company
that the Warrant so Authenticated has been duly issued hereunder
and the holder is entitled to the benefits hereof.
(2) The
Warrant Agent shall Authenticate Uncertificated Warrants (whether
upon original issuance, exchange, registration of transfer, partial
payment, or otherwise) by completing its Internal Procedures and
the Company shall, and hereby acknowledges that it shall, thereupon
be deemed to have duly and validly issued such Uncertificated
Warrants under this Indenture. Such Authentication shall be
conclusive evidence that such Uncertificated Warrant has been duly
issued hereunder and that the holder or holders are entitled to the
benefits of this Indenture. The register shall be final and
conclusive evidence as to all matters relating to Uncertificated
Warrants with respect to which this Indenture requires the Warrant
Agent to maintain records or accounts. In case of differences
between the register at any time and any other time, the register
at the later time shall be controlling, absent manifest error and
such Uncertificated Warrants are binding on the
Company.
(3) Any
Warrant Certificate validly issued in accordance with the terms of
this Indenture in effect at the time of issue shall, subject to the
terms of this Indenture and applicable law, validly entitle the
holder to acquire Warrant Shares, notwithstanding that the form of
such Warrant Certificate may not be in the form currently required
by this Indenture.
(4) No
Warrant Certificate shall be considered issued or shall be
obligatory or shall entitle the holder thereof to the benefits of
this Indenture, until it has been Authenticated by or on behalf of
the Warrant Agent substantially in the form of the Warrant
Certificate set out in Schedule "A" hereto. Such Authentication on
any such Warrant Certificate shall be conclusive evidence that such
Warrant Certificate is duly Authenticated and is valid and a
binding obligation of the Company and that the holder is entitled
to the benefits of this Indenture.
(5) The
Authentication or certification of the Warrant Agent on the
Warrants issued hereunder, including by way of entry on the
register, shall not be construed as a representation or warranty by
the Warrant Agent as to the validity of this Indenture or the
Warrants (except the due Authentication and certification thereof)
or as to the performance by the Company of its obligations under
this Indenture and the Warrant Agent shall in no respect be liable
or answerable for the use made of the Warrants or any of them or of
the consideration therefor except as otherwise specified
herein.
2.5 Warrantholder
not a Shareholder, etc.
Nothing
in this Indenture or the holding of a Warrant shall be construed as
conferring upon a Warrantholder any right or interest whatsoever as
a shareholder, including but not limited to the right to vote at,
to receive notice of, or to attend meetings of shareholders or any
other proceedings of the Company, nor entitle the holder to any
right or interest in respect thereof except as herein and in the
Warrants expressly provided.
2.6 Issue
in Substitution for Lost Warrant Certificates
(1) If
any Warrant Certificates issued and certified under this Indenture
shall become mutilated or be lost, destroyed or stolen, the
Company, subject to applicable law, and Section 2.6(2), shall issue
and thereupon the Warrant Agent shall certify and deliver a new
Warrant Certificate of like denomination, date and tenor as the one
mutilated, lost, destroyed or stolen in exchange for, in place of
and upon cancellation of such mutilated Warrant Certificate, or in
lieu of and in substitution for such lost, destroyed or stolen
Warrant Certificate, and the substituted Warrant Certificate shall
be substantially in the form set out in Schedule "A" hereto and
Warrants evidenced by it will entitle the holder thereof to the
benefits hereof and shall rank equally in accordance with its terms
with all other Warrant Certificates issued or to be issued
hereunder.
(2) The
applicant for the issue of a new Warrant Certificate pursuant to
this section
2.6 shall
bear the reasonable cost of the issue thereof and in the case of
mutilation shall, as a condition precedent to the issue thereof,
deliver to the Warrant Agent the mutilated Warrant Certificate, and
in the case of loss, destruction or theft shall, as a condition
precedent to the issue thereof, furnish to the Company and to the
Warrant Agent such evidence of ownership and of the loss,
destruction or theft of the Warrant Certificate so lost, destroyed
or stolen as shall be satisfactory to the Company and to the
Warrant Agent in their sole discretion, acting reasonably, and such
applicant may be required to furnish an indemnity and surety bond
in amount and form satisfactory to the Company and the Warrant
Agent in their sole discretion, acting reasonably, and shall pay
the reasonable charges of the Company and the Warrant Agent in
connection therewith.
2.7 Warrants to
Rank Pari
Passu
All Warrants shall rank pari passu with all other Warrants, whatever may be the
actual date of issue of the Warrants.
2.8 Registration
and Transfer of Warrants
(1) The
Warrant Agent will create and keep at the principal stock transfer
offices of the Warrant Agent in the City of Calgary,
Alberta:
(a)
a
register of holders in which shall be entered in alphabetical order
the names and addresses of the holders of Warrants and particulars
of the Warrants held by them and the Warrant Agent shall be
entitled to rely on such register in connection with the exchange,
transfer, exercise or deemed exercise of any Warrant(s) pursuant to
the terms of this Indenture or the terms thereof; and
(b)
a
register of transfers in which all transfers of Warrants and the
date and other particulars of each such transfer shall be
entered.
(2) No
transfer of any Warrant will be valid unless entered on the
register of transfers referred to in Section 2.8(1), upon surrender
to the Warrant Agent of the Warrant Certificate evidencing such
Warrant, and a duly completed and executed transfer form endorsed
on the Warrant Certificate or in the case of Uncertificated
Warrants a duly executed transaction instruction from the holder
(or such other instructions, in form satisfactory to the Warrant
Agent) executed by the registered holder or his executors,
administrators or other legal representatives or his attorney duly
appointed by an instrument in writing in form and execution
satisfactory to the Warrant Agent, if applicable, and, upon
compliance with such requirements and such other reasonable
requirements as the Warrant Agent may prescribe and all applicable
securities requirements of regulatory authorities, such transfer
will be recorded on the register of transfers by the Warrant Agent.
Upon compliance with such requirements, the Warrant Agent shall
issue to the transferee a Warrant Certificate, or in the case of an
Uncertificated Warrant, the Warrant Agent shall Authenticate and
deliver a Warrant Certificate upon request that part of the
Uncertificated Warrant be certificated. Transfers within the
systems of CDS are not the responsibility of the Warrant Agent and
will not be noted on the register maintained by the Warrant
Agent.
(3) The
transferee of any Warrant will, after surrender to the Warrant
Agent of the Warrant as required by Section 2.8(2) and upon
compliance with all other conditions in respect thereof required by
this Indenture or by law, be entitled to be entered on the register
of holders referred to in Section 2.8(1) as the owner of such
Warrant free from all equities or rights of setoff or counterclaim
between the Company and the transferor or any previous holder of
such Warrant, except in respect of equities of which the Company is
required to take notice by statute or by order of a court of
competent jurisdiction.
(4) The
Company will be entitled, and may direct the Warrant Agent, to
refuse to recognize any transfer, or enter the name of any
transferee, of any Warrant on the registers referred to in Section
2.8(1), if such transfer would constitute a violation of the
Securities Laws of any applicable jurisdiction or the rules,
regulations or policies of any regulatory authority having
jurisdiction. The Warrant Agent is entitled to assume compliance
with all applicable Securities Laws unless otherwise notified in
writing by the Company. No duty shall rest with the Warrant Agent
to determine compliance of the transferee or transferor of any
Warrant with applicable Securities Laws.
(5) Any
Warrant issued to a transferee upon transfers contemplated by this
section 2.8 shall
bear the appropriate legend as set forth in Section 2.20(2), if
applicable.
(6) If
a Warrant tendered for transfer bears the legend set forth in
Section 2.20(2), the Warrant Agent shall not register such transfer
unless the transferor has provided the Warrant Agent with the
Warrant and complies with the requirements of the said Section
2.20(2).
(7) Warrants,
in certificated form, bearing the legend set forth in Section
2.20(2) shall not be offered, sold, pledged or otherwise
transferred, directly or indirectly, except (A) to the Company; (B)
outside the United States in compliance with Rule 904 of Regulation
S, if available, and in compliance with applicable local laws and
regulations; (C) pursuant to an exemption from registration under
the U.S. Securities Act provided by (i) Rule 144 or (ii) Rule 144A
thereunder, if available, and in compliance with applicable U.S.
state securities laws; (D) in compliance with another exemption
from registration under the U.S. Securities Act and applicable
state securities laws; or (E) under an effective registration
statement under the U.S. Securities Act, provided that in the case
of transfers pursuant to (C)(i) or (D) above, a legal opinion or
other evidence, reasonably satisfactory to the Company, must first
be provided to the Company and the Warrant Agent to the effect that
such transfer is exempt from registration under the U.S. Securities
Act and applicable state securities laws..
(8) The
Warrant Agent shall give notice to the Company of the transfer made
by a Warrantholder pursuant to Section 2.8(7) and the Company shall
provide written authorization to proceed with the transfer before
such transfer is made effective by the issuance of the
Warrant.
2.9 Registers
Open for Inspection
The
registers referred to in Section 2.8(1) shall be open at all
reasonable times during business hours on a Business Day for
inspection by the Company or any Warrantholder. The Warrant Agent
shall, from time to time when requested to do so in writing by the
Company, furnish the Company with a list of the names and addresses
of holders of Warrants entered in the register of holders kept by
the Warrant Agent and showing the number of Warrants held by each
such holder.
2.10 Exchange
of Warrants
(1) Warrants
may, upon compliance with the reasonable requirements of the
Warrant Agent, be exchanged for Warrants in any other authorized
denomination representing in the aggregate an equal number of
Warrants as the number of Warrants represented by the Warrants
being exchanged. The Company shall sign and the Warrant Agent shall
Authenticate or certify, in accordance with sections 2.3 and 2.4,
all Warrants necessary to carry out the exchanges contemplated
herein.
(2) Warrants
may be exchanged only at the principal stock transfer offices of
the Warrant Agent in the City of Calgary, Alberta or at any other
place that is designated by the Company with the approval of the
Warrant Agent. Any Warrants tendered for exchange shall be
surrendered to the Warrant Agent and cancelled.
(3) Except
as otherwise herein provided, the Warrant Agent may charge
Warrantholders requesting an exchange a reasonable sum for each
Warrant Certificate issued; and payment of such charges and
reimbursement of the Warrant Agent or the Company for any and all
taxes or governmental or other charges required to be paid shall be
made by the party requesting such exchange as a condition precedent
to such exchange.
2.11 Ownership
of Warrants
The
Company and the Warrant Agent and their respective agents may deem
and treat the registered holder of any Warrant as the absolute
owner of the Warrant represented thereby for all purposes and the
Company and the Warrant Agent and their respective agents shall not
be affected by any notice or knowledge to the contrary except as
required by statute or order of a court of competent jurisdiction.
The holder of any Warrant shall be entitled to the rights evidenced
by that Warrant free from all equities or rights of set-off or
counterclaim between the Company and the original or any
intermediate holder thereof, except in respect of equities of which
the Company is required to take notice by statute or by order of a
court of competent jurisdiction and all persons may act accordingly
and the receipt by any holder of the Warrant Shares or monies
obtainable pursuant to the exercise of the Warrant shall be a good
discharge to the Company and the Warrant Agent for the same and
neither the Company nor the Warrant Agent shall be bound to inquire
into the title of any holder.
2.12 Uncertificated
Warrants
(1) Registration
and re-registration of beneficial interests in and transfers of
Warrants held by CDS shall be made only through the Book-Entry Only
System and no Warrant Certificates shall be issued in respect of
such Warrants except where physical certificates evidencing
ownership in such securities are required or as set out herein or
as may be requested by CDS, as determined by the Company, from time
to time. Except as provided in this section 2.12, owners of
beneficial interests in any Uncertificated Warrants shall not be
entitled to have Warrants registered in their names and shall not
receive or be entitled to receive Warrants in definitive form or to
have their names appear in the register referred to in section 2.8
herein. Notwithstanding any terms set out herein, Warrants subject
to the restrictions and any legend set forth in section 2.20 herein
and held in the name of CDS may only be held in the form of
Uncertificated Warrants with the prior consent of the Company and
CDS.
(2) If
any Warrant is issued in uncertificated form and any of the
following events
occurs:
(a)
CDS
or the Company has notified the Warrant Agent that (A) CDS is
unwilling or unable to continue as depository or (B) CDS ceases to
be a clearing agency in good standing under applicable laws and, in
either case, the Company is unable to locate a qualified successor
depository within 90 days of delivery of such notice;
(b)
the
Company has determined, in its sole discretion, acting reasonably,
to terminate the Book-Entry Only System in respect of such
Uncertificated Warrants and has communicated such determination to
the Warrant Agent in writing;
(c)
the
Company or CDS is required by applicable law to take the action
contemplated in this section;
(d)
there
is an exercise of Warrants pursuant to 3.1(4) and the Warrantholder
is unable to make the representations in 3.1(4) (a), (b), (c) and
(d) thereto; or
(e)
the
Book-Entry Only System administered by CDS ceases to
exist,
then
one or more definitive fully registered Warrant Certificates shall
be executed by the Company and certified and delivered by the
Warrant Agent to CDS in exchange for the Uncertificated Warrants
held by CDS. The Company shall provide an Officer's Certificate
giving notice to the Warrant Agent of the occurrence of any event
outlined in this Section 2.12(2).
Fully
registered Warrant Certificates issued and exchanged pursuant to
this section shall be registered in such names and in such
denominations as CDS shall instruct the Warrant Agent, provided
that the aggregate number of Warrants represented by such Warrant
Certificates shall be equal to the aggregate number of
Uncertificated Warrants so exchanged. Upon exchange of
Uncertificated Warrants for one or more Warrant Certificates in
definitive form, such Uncertificated Warrants shall be cancelled by
the Warrant Agent.
(3) Subject to the provisions of this section 2.12,
any exchange of Warrants for Warrants which are not Uncertificated
Warrants may be made in whole or in part in accordance with the
provisions of section 2.10, mutatis mutandis.
All such Warrants issued in exchange
for Uncertificated Warrants or any portion thereof shall be
registered in such names as CDS for such Uncertificated Warrants
shall direct and shall be entitled to the same benefits and subject
to the same terms and conditions (except insofar as they relate
specifically to Uncertificated Warrants) as the Uncertificated
Warrants or portion thereof surrendered upon such
exchange.
(4) Every
Warrant Authenticated upon registration of transfer of
Uncertificated Warrants, or in exchange for or in lieu of
Uncertificated Warrants or any portion thereof, whether pursuant to
this section 2.12, or otherwise, shall be Authenticated in the form
of, and shall be, an Uncertificated Warrant, unless such Warrant is
registered in the name of a person other than CDS for such
Uncertificated Warrant or a nominee thereof.
(5) Notwithstanding
anything to the contrary in this Indenture, subject to Applicable
Legislation, the Warrants to be issued to CDS or a nominee thereof
will be issued as an Uncertificated Warrant, unless otherwise
requested in writing by CDS or the Company.
(6) The
rights of Beneficial Owners of Warrants who hold securities
entitlements in respect of the Warrants through the Book-Entry Only
System shall be limited to those established by applicable law and
agreements between CDS and the Participants and between such
Participants and the Beneficial Owners of Warrants who hold
securities entitlements in respect of the Warrants through the
Book-Entry Only System, and such rights must be exercised through a
Participant in accordance with the rules and procedures of
CDS.
(7) Notwithstanding
anything herein to the contrary, neither the Company nor the
Warrant Agent nor any agent thereof shall have any responsibility
or liability for:
(a)
the
electronic records maintained by CDS relating to any ownership
interests or any other interests in the Warrants or the depository
system maintained by CDS, or payments made on account of any
ownership interest or any other interest of any person in any
Warrant represented by an electronic position in the Book-Entry
Only System (other than CDS or its nominee);
(b)
maintaining,
supervising or reviewing any records of CDS or any Participant
relating to any such interest; or
(c)
any
advice or representation made or given by CDS or those contained
herein that relate to the rules and regulations of CDS or any
action to be taken by CDS on its own direction or at the direction
of any Participant.
(8) The
Company may terminate the application of this section 2.12 in its
sole discretion, acting reasonably, in which case all Warrants
shall be evidenced by Warrant Certificates registered in the
name(s) of a person other than CDS.
2.13 Adjustment
of Exchange Basis
Subject
to section 2.14, the Exchange Basis shall be subject to adjustment
from time to time in the events and in the manner provided as
follows:
(1) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, the Company shall:
(a)
issue
Common Shares or securities exchangeable for or convertible into
Common Shares to all or substantially all the holders of the Common
Shares as a stock dividend or other distribution (other than a
distribution of Common Shares upon the exercise of Warrants);
or
(b)
subdivide,
redivide or change its then outstanding Common Shares into a
greater number of Common Shares; or
(c)
reduce,
combine or consolidate its then outstanding Common Shares into a
lesser number of Common Shares,
(any of such events in these paragraphs (a), (b)
or (c) being called a "Common Share
Reorganization"), then the
Exchange Basis in effect on the effective date of such subdivision
or consolidation, or on the record date of such stock dividend or
other distribution, as the case may be, shall be adjusted by
multiplying the Exchange Basis in effect immediately prior to such
effective or record date by a fraction:
(a)
the
numerator of which shall be the total number of Common Shares
outstanding on such date immediately after giving effect to such
Common Share Reorganization (including, in the case where
securities exchangeable for or convertible into Common Shares are
distributed, the number of Common Shares that would have been
outstanding had such securities been exchanged for or converted
into Common Shares on such record date, assuming in any case where
such securities are not then convertible or exchangeable but
subsequently become so, that they were convertible or exchangeable
on the record date on the basis upon which they first become
convertible or exchangeable), and
(b)
the
denominator of which shall be the total number of Common Shares
outstanding on such date before giving effect to such Common Share
Reorganization.
The
resulting product, adjusted to the nearest 1/100th, shall
thereafter be the Exchange Basis until further adjusted as provided
in this Article 2. To the extent that any adjustment in the
Exchange Basis occurs pursuant to this Section 2.13(1) as a result
of the fixing by the Company of a record date for the distribution
of securities exchangeable for or convertible into Common Shares
and the Common Share Reorganization does not occur or any
conversion or exchange rights are not fully exercised, the Exchange
Basis shall be readjusted immediately after the expiry of any
relevant exchange or conversion right or the termination of the
Common Share Reorganization, as the case may be, to the Exchange
Basis that would then be in effect, based upon the number of Common
Shares actually issued and remaining issuable pursuant to the
Common Share Reorganization after such expiry and shall be further
readjusted in such manner upon the expiry of any further such
right.
(2) If and whenever, at any time after the date hereof
and prior to the Time of Expiry, the Company shall fix a record
date for the distribution to all or substantially all of the
holders of its outstanding Common Shares of rights, options or
warrants entitling them, for a period expiring not more than 45
days after such record date, to subscribe for or purchase Common
Shares, or securities exchangeable for or convertible into Common
Shares, at a price per share to the holder (or at an exchange or
conversion price per share) of less than 95% of the Current Market
Price on such record date (any of such events being called a
"Rights
Offering"), then the Exchange
Basis shall be adjusted effective immediately after such record
date for the Rights Offering by multiplying the Exchange Basis in
effect immediately prior to such record date by a
fraction:
(a)
the
numerator of which shall be the number of Common Shares which would
be outstanding after giving effect to the Rights Offering (assuming
the exercise of all of the rights, options or warrants under the
Rights Offering and assuming the exchange for or conversion into
Common Shares of all exchangeable or convertible securities issued
upon exercise of such rights, options or warrants, if any),
and
(b) the
denominator of which shall be the aggregate of:
(i) the
total number of Common Shares outstanding as of the
record
date
for the Rights Offering, and
(ii) a
number of Common Shares determined by dividing
(A)
the
amount equal to the aggregate consideration payable on the exercise
of all of the rights, options and warrants under the Rights
Offering plus the aggregate consideration, if any, payable on the
exchange or conversion of the exchangeable or convertible
securities issued upon exercise of such rights, options or warrants
(assuming the exercise of all rights, options and warrants under
the Rights Offering and assuming the exchange or conversion of all
exchangeable or convertible securities issued upon exercise of such
rights, options and warrants);
by
(B)
the
Current Market Price as of the record date for the Rights
Offering.
The resulting product, adjusted to the nearest
1/100th,
shall thereafter be the Exchange Basis until further adjusted as
provided in this Article 2. Any Common Shares owned by or held for
the account of the Company or any of its Subsidiaries or a
partnership in which the Company is directly or indirectly a party
to will be deemed not to be outstanding for the purpose of any
computation. If, at the date of expiry of the rights, options or
warrants subject to the Rights Offering, less than all the rights,
options or warrants have been exercised, then the Exchange Basis
shall be readjusted immediately after the date of expiry to the
Exchange Basis that would have been in effect on the date of expiry
if only the rights, options or warrants issued had been those
exercised. If at the date of expiry of the rights of exchange or
conversion of any securities issued pursuant to the Rights Offering
less than all of such securities have been exchanged or converted
into Common Shares, then the Exchange Basis shall be readjusted
immediately after the date of expiry to the Exchange Basis that
would have been in effect on the date of expiry if only the
exchangeable or convertible securities issued had been those
securities actually exchanged for or converted into Common
Shares.
(3) If
and whenever, at any time after the date hereof and prior to the
Time of Expiry, the Company shall fix a record date for the
issuance or distribution to all or substantially all the holders of
its outstanding Common Shares of:
(a) shares
of the Company of any class other than Common Shares;
or
(b)
rights,
options or warrants to acquire Common Shares or securities
exchangeable for or convertible into Common Shares; or
(c) evidences
of indebtedness; or
(d) cash,
securities or any property or other assets,
and if such issuance or distribution does not
constitute a Common Share Reorganization or a Rights Offering (any
of such non-excluded events being herein called a
"Special
Distribution"), the Exchange
Basis shall be adjusted effective immediately after such record
date for the Special Distribution by multiplying the Exchange Basis
in effect immediately prior to such record date by a
fraction:
(a)
the
numerator of which shall be the number of Common Shares outstanding
on such record date multiplied by the Current Market Price on such
record date, and
(b) the
denominator of which shall be:
(A)
the
number of Common Shares outstanding on such record date multiplied
by the Current Market Price on such record date, less
(B)
the
fair market value, as determined by action by the board of
directors acting reasonably and in good faith (whose determination,
absent manifest error, shall be conclusive), to the holders of the
Common Shares of the shares, rights, options, warrants, evidences
of indebtedness or securities, property or other assets issued or
distributed in the Special Distribution provided that no such
adjustment shall be made if the result of such adjustment would be
to decrease the Exchange Basis in effect immediately before such
record date.
The resulting product, adjusted to the nearest
1/100th,
shall thereafter be the Exchange Basis until further adjusted as
provided in this Article 2. Any Common Shares owned by or held for
the account of the Company or any of its Subsidiaries or a
partnership of which the Company is directly or indirectly a party,
will be deemed not to be outstanding for the purpose of any such
computation.
(4) If and whenever, at any time after the date hereof
and prior to the Time of Expiry, there shall be a reclassification
of the Common Shares at any time outstanding or change or exchange
of the Common Shares into or for other shares or into or for other
securities or property (other than a Common Share Reorganization),
or a consolidation, amalgamation, arrangement or merger of the
Company with or into any other corporation or other entity (other
than a consolidation, amalgamation, arrangement or merger which
does not result in any reclassification of the outstanding Common
Shares or a change or exchange of the Common Shares into or for
other shares, securities or property), or a transfer (other than to
a Subsidiary) of the undertaking or assets of the Company as an
entirety or substantially as an entirety to another corporation or
other entity (any of such events being herein called a
"Capital
Reorganization"), any
Warrantholder who thereafter shall exercise his right to receive
Warrant Shares pursuant to Warrant(s) shall be entitled to receive,
and shall accept in lieu of the number of Warrant Shares to which
such holder was theretofore entitled upon such exercise, the
aggregate number of shares, other securities or other property
resulting from the Capital Reorganization which such holder would
have been entitled to receive as a result of such Capital
Reorganization if, on the effective date or record date thereof, as
the case may be, the Warrantholder had been the registered holder
of the number of Warrant Shares to which such holder was
theretofore entitled upon exercise. If appropriate, adjustments
shall be made as a result of any such Capital Reorganization in the
application of the provisions in this Indenture with respect to the
rights and interests thereafter of Warrantholders to the end that
the provisions in this Indenture shall thereafter correspondingly
be made applicable as nearly as may reasonably be possible in
relation to any shares, other securities or other property
thereafter deliverable upon the exercise of any Warrant. Any such
adjustment shall be made by and set forth in an indenture
supplemental hereto approved by the directors of the Company and by
the Warrant Agent and entered into pursuant to the provisions of
this Indenture and shall for all purposes be conclusively deemed to
be an appropriate adjustment.
(5) Any
adjustment to the Exchange Basis as set forth herein shall also
include a corresponding adjustment to the Prices which shall be
calculated by multiplying the Prices by a fraction: (a) the
numerator of which shall be the Exchange Basis prior to the
adjustment, and (b) the denominator of which shall be the Exchange
Basis after the adjustment.
2.14 Rules
Regarding Calculation of Adjustment of Exchange Basis
For
the purposes of section 2.13:
(1) The
adjustments provided for in section 2.13 shall be cumulative and
such adjustments shall be made successively whenever an event
referred to in section 2.13 shall occur, subject to the following
subsections of this section 2.14.
(2) No
adjustment in the: (a) Exchange Basis shall be required unless such
adjustment would result in a change of at least 0.01 of a Warrant
Share based on the prevailing Exchange Basis; or (b) the Prices
shall be required unless such adjustment would result in a change
of at least 1% of the Prices, provided that any adjustments which,
except for the provisions of this subsection, would otherwise have
been required to be made, shall be carried forward and taken into
account in any subsequent adjustment.
(3) No adjustment in the Exchange Basis or the Prices
shall be made in respect of any event described in section 2.13,
other than the events referred to in paragraphs (b) and (c) of
subsection (1) thereof, if Warrantholders are entitled to
participate in such event on the same terms, mutatis mutandis,
as if Warrantholders had exercised
their Warrants prior to or on the effective date or record date of
such event, any such participation being subject to regulatory
approval.
(4) No
adjustment in the Exchange Basis or the Prices shall be made
pursuant to section 2.13 in respect of (i) the issue from time to
time of Warrant Shares purchasable on exercise of the Warrants and
any such issue shall be deemed not to be a Common Share
Reorganization; (ii) a Dividend Paid in the Ordinary Course; or
(iii) a distribution of Common Shares pursuant to the exercise of
stock options granted under stock option plans of the
Company.
(5) If
a dispute shall at any time arise with respect to adjustments
provided for in section 2.13, such dispute shall, absent manifest
error, be conclusively determined by the Company's Auditors, or if
they are unable or unwilling to act, by such other firm of
independent chartered accountants as may be selected by the
directors and any further determination, absent manifest error,
shall be binding upon the Company, the Warrant Agent and the
Warrantholders.
(6) If
the Company shall set a record date to determine the holders of the
Common Shares for the purpose of entitling them to receive any
dividend or distribution or any subscription or purchase rights and
shall, thereafter and before the distribution to such shareholders
of any such dividend, distribution, or subscription or purchase
rights, legally abandon its plan to pay or deliver such dividend,
distribution, or subscription or purchase rights, then no
adjustment in the Exchange Basis shall be required by reason of the
setting of such record date.
(7) In
the absence of a resolution of the directors fixing a record date
for a Rights Offering or Special Distribution, the Company shall be
deemed to have fixed as the record date therefor the date on which
the Rights Offering or Special Distribution is
effected.
(8) If the purchase price provided for in any Rights
Offering (the "Rights Offering Price")
is decreased, the Exchange Basis shall
forthwith be changed so as to increase the Exchange Basis to such
Exchange Basis as would have been obtained had the adjustment to
the Exchange Basis made pursuant to section 2.13(2) upon the
issuance of such Rights Offering been made upon the basis of the
Rights Offering Price as so decreased, provided that the provisions
of this subsection shall not apply to any decrease in the Rights
Offering Price resulting from provisions in any such Rights
Offering designed to prevent dilution if the event giving rise to
such decrease in the Rights Offering Price itself requires an
adjustment to the Exchange Basis pursuant to the provisions of
section 2.13.
(9) As
a condition precedent to the taking of any action that would
require any adjustment in any of the subscription rights pursuant
to any of the Warrants, including the Exchange Basis, the Company
shall take any corporate action which may, in the opinion of
counsel, be necessary in order that the Company have unissued and
reserved in its authorized capital and may validly and legally
issue as fully paid and non-assessable all the shares or other
securities that all the holders of such Warrants are entitled to
receive on the exercise of all the subscription rights attaching
thereto in accordance with the provisions thereof.
(10) In
case the Company, after the date hereof, shall take any action
affecting any Common Shares, other than action described in section
2.13, which in the opinion of the directors acting reasonably and
in good faith would materially affect the rights of Warrantholders,
the Exchange Basis shall be adjusted in such manner, if any, and at
such time, as the directors, in their sole discretion acting
reasonably and in good faith, may determine to be equitable in the
circumstances. Failure of the taking of any action by the directors
so as to provide for an adjustment in the Exchange Basis prior to
the effective date of any action by the Company affecting the
Common Shares shall be conclusive evidence that the directors have
determined that it is equitable to make no adjustment in the
circumstances.
(11) The
Warrant Agent shall be entitled to act and rely on any adjustment
calculations by the Company or the Company's Auditors.
2.15 Postponement
of Subscription
In
any case where the application of section 2.13 results in an
increase in the number of Common Shares that are issuable upon
exercise of the Warrants taking effect immediately
after
the record date for a specific event, if any Warrant is exercised
after that record date and prior to completion of such specific
event, the Company may postpone the issuance to the Warrantholder
of the Warrant Shares to which he is entitled by reason of such
adjustment, but such Warrant Shares shall be so issued and
delivered to that holder upon completion of that event, with the
number of such Warrant Shares calculated on the basis of the number
of Warrant Shares on the date that the Warrant was exercised,
adjusted for completion of that event and the Company shall deliver
to the person or persons in whose name or names the Warrant Shares
are to be issued an appropriate instrument evidencing the right of
such person or persons to receive such Warrant Shares and the right
to receive any dividends or other distributions which, but for the
provisions of this section 2.15, such person or persons would have
been entitled to receive in respect of such Warrant Shares from and
after the date that the Warrant was exercised in respect
thereof.
2.16 Notice
of Adjustment
(1) At
least 14 days prior to the effective date or record date, as the
case may be, of any event which requires or might require
adjustment pursuant to section 2.13, the Company
shall:
(a)
file
with the Warrant Agent a certificate of the Company specifying the
particulars of such event (including the record date or the
effective date for such event) and, if determinable, the required
adjustment and the computation of such adjustment and setting forth
in reasonable detail the method of calculation and the facts upon
which such calculation is based; and
(b)
give
notice to the Warrantholders of the particulars of such event
(including the record date or the effective date for such event)
and, if determinable, the required adjustment.
(2) In
case any adjustment for which a notice in Section 2.16(1) has been
given is not then determinable, the Company shall promptly after
such adjustment is determinable:
(a)
file
with the Warrant Agent a computation of such adjustment;
and
(b)
give
notice to the Warrantholders of the adjustment.
(3) The
Warrant Agent may and shall be protected in so doing, absent
manifest error, act and rely upon certificates of the Company and
other documents filed by the Company pursuant to this section 2.16
for all purposes of the adjustment.
2.17 No
Action after Notice
The
Company covenants with the Warrant Agent that it will not close its
books nor take any other corporate action which might deprive a
Warrantholder of the opportunity of exercising the rights of
acquisition pursuant thereto during the period of 10 days after the
giving of the notice set forth in paragraph (b) of Sections 2.16(1)
and (2).
2.18 Purchase
of Warrants for Cancellation
The
Company may, at any time and from time to time, purchase Warrants
by invitation to tender, by private contract, on any stock exchange
(if then listed) or otherwise (which shall include a purchase
through an investment dealer or firm holding membership on a
Canadian stock exchange) on such terms as the Company may
determine. All Warrants purchased pursuant to the provisions of
this section 2.18 shall be forthwith delivered to and cancelled by
the Warrant Agent and shall not be reissued. If required by the
Company, the Warrant Agent shall furnish the Company with a
certificate as to such destruction.
2.19 Protection
of Warrant Agent
The
Warrant Agent shall not:
(a)
at
any time be under any duty or responsibility to any registered
holder of Warrants to determine whether any facts exist that may
require any adjustment contemplated by this Article 2, nor to
verify the nature and extent of any such adjustment when made or
the method employed in making the same;
(b)
be
accountable with respect to the validity or value or the kind or
amount of any Warrant Shares or of any other securities or property
that may at any time be issued or delivered upon the exercise of
the Warrants;
(c)
be
responsible for any failure of the Company to make any cash
payment, to issue, transfer or deliver Warrant Shares or
certificates upon the surrender of any Warrants for the purpose of
the exercise of such rights or to comply with any of the covenants
contained in section 2.13; or
(d)
incur
any liability or responsibility whatsoever or be in any way
responsible for the consequence of any breach on the part of the
Company of any of the representations, warranties or covenants of
the Company or any acts or deeds of the agents or servants of the
Company.
2.20 U.S.
Legend on Warrant Certificates and Warrant Share
certificates
(1) The
Warrant Agent understands and acknowledges that the Warrants and
the Warrant Shares issuable upon exercise of the Warrants have not
been, and will not be, registered under the U.S. Securities Act or
the securities laws of any state of the United States.
(2) Each
Warrant, in certificated form, originally issued in the United
States or, to or for the account or benefit of, a U.S. Person, and
all Warrant Shares issued upon exercise of such Warrants, and all
certificates issued in exchange or in substitution thereof or upon
transfer thereof, shall bear the following legend:
"THE SECURITIES REPRESENTED HEREBY
[for Warrants,
add: AND THE SECURITIES
ISSUABLE ON EXERCISE HEREOF] HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "U.S. SECURITIES ACT") OR UNDER ANY STATE SECURITIES
LAWS, AND THE SECURITIES REPRESENTED HEREBY [for Warrants, add:
AND THE SECURITIES ISSUABLE ON
EXERCISE
HEREOF]
MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, DIRECTLY OR
INDIRECTLY, ONLY (A) TO THE COMPANY, (B) OUTSIDE THE UNITED STATES
IN ACCORDANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT AND
IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS, (C)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE U.S.
SECURITIES ACT PROVIDED BY (i) RULE 144 OR (ii) RULE144A
THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH APPLICABLE U.S.
STATE SECURITIES LAWS, (D) IN COMPLIANCE WITH ANOTHER EXEMPTION
FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS, OR (E) UNDER AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE U.S. SECURITIES ACT, PROVIDED THAT IN THE CASE
OF TRANSFERS PURSUANT TO (C)(i) OR (D) ABOVE, A LEGAL OPINION OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, MUST FIRST
BE PROVIDED TO THE COMPANY AND THE COMPANY'S TRANSFER AGENT TO THE
EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE
U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. DELIVERY
OF THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY" IN
SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN
CANADA.”
[for Warrants,
include-. "THIS WARRANT MAY NOT
BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE
ACCOUNT OR BENEFIT OF, A PERSON IN THE UNITED STATES OR A U.S.
PERSON UNLESS THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. "UNITED
STATES" AND "U.S. PERSON" ARE AS DEFINED BY REGULATION S UNDER THE
U.S. SECURITIES ACT."]
provided that, if the Warrants or Warrant Shares issuable
upon exercise of the Warrants are being sold in accordance with
Rule 904 of Regulation S, the legend may be removed by providing to
the Warrant Agent or the Transfer Agent, as the case may be, (i) a
declaration in the form attached hereto as Schedule "B" (or as the
Company may prescribe from time to time in order to address changes
in applicable laws) and (ii) if required by the Transfer Agent, an
opinion of counsel, of recognized standing reasonably satisfactory
to the Company, or other evidence reasonably satisfactory to the
Company, that the proposed transfer may be effected without
registration under the U.S. Securities Act.
provided further,
that if the Warrants or Warrant Shares
are being sold pursuant to Rule 144 under the U.S. Securities Act,
if available, the legend may be removed by delivering to the
Company and the Warrant Agent or the Transfer Agent, as the case
may be, an opinion of counsel of recognized standing in form and
substance reasonably satisfactory to the Company, to the effect
that the legend is no longer required under applicable requirements
of the U.S. Securities Act.
(3) If
a Warrant or Warrant Share issued with respect to an exercise of
Warrants is tendered for transfer and bears the legend set forth in
Section 2.20(2) herein and the holder thereof has not obtained the
prior written consent of the Company, the Warrant Agent or
the
Transfer Agent, as the case may be, shall not register such
transfer unless the holder complies with the requirements of the
said Section 2.20(2) hereof.
ARTICLE 3
EXERCISE OF WARRANTS
3.1 Method
of Exercise of Warrants
(1) The
registered holder of any Warrant may exercise the rights thereby
conferred on him to acquire all or any part of the Warrant Shares
to which such Warrant entitles the holder, by surrendering the
Warrant Certificate representing such Warrants to the Warrant Agent
at any time prior to the Time of Expiry at its principal stock
transfer offices in the City of Calgary, Alberta (or at such
additional place or places as may be decided by the Company from
time to time with the approval of the Warrant Agent), with a duly
completed and executed exercise form of the registered holder or
his executors, administrators or other legal representative or his
attorney duly appointed by an instrument in writing in the form and
manner satisfactory to the Warrant Agent, substantially in the form
endorsed on the Warrant Certificate specifying the number of
Warrant Shares subscribed for together with a certified cheque,
bank draft or money order in lawful money of Canada, payable to or
to the order of the Company in an amount equal to the Exercise
Price multiplied by the number of Warrant Shares subscribed for. A
Warrant Certificate with the duly completed and executed exercise
form and payment of the Exercise Price shall be deemed to be
surrendered only upon personal delivery thereof to or, if sent by
mail or other means of transmission, upon actual receipt thereof by
the Warrant Agent.
(2) Any
exercise form referred to in Section 3.1(1) shall be signed by the
Warrantholder, or his executors, or administrators or other legal
representative or his attorney duly appointed by an instrument in
writing in the form and manner satisfactory to the Warrant Agent,
but such exercise form need not be executed by CDS. Such exercise
form shall specify the person(s) in whose name such Warrant Shares
are to be issued, the address(es) of such person(s) and the number
of Warrant Shares to be issued to each person, if more than one is
so specified. If any of the Warrant Shares subscribed for are to be
issued to person(s) other than the Warrantholder, the Warrantholder
shall also complete the transfer form, substantially in the form
endorsed on the Warrant Certificate. The signatures set out in the
exercise form referred to in Section 3.1(1) and the signatures set
out in the transfer form shall be guaranteed by a Canadian Schedule
1 chartered bank or a medallion signature guarantee from a member
of a recognized Signature Medallion Guarantee Program and the
Warrantholder shall pay to the Company or the Warrant Agent all
applicable transfer or similar taxes and the Company shall not be
required to issue or deliver certificates evidencing Warrant Shares
unless or until such Warrantholder shall have paid to the Company
or the Warrant Agent on behalf of the Company the amount of such
tax or shall have established to the satisfaction of the Company
that such tax has been paid or that no tax is due.
(3) If,
at the time of exercise of the Warrants, in accordance with the
provisions of Section 3.1(1), there are any trading restrictions on
the Warrant Shares pursuant to applicable Securities Laws or stock
exchange requirements, the Company shall, on the advice of counsel,
endorse any certificates representing the Warrant Shares to such
effect. The Warrant Agent is entitled to assume compliance with all
applicable Securities Laws unless otherwise notified in writing by
the Company.
(4) A Beneficial Owner who desires to exercise his,
her or its Uncertificated Warrants, must do so by causing a
Participant to deliver to CDS (at its office in the City of
Toronto, Ontario), on behalf of the Beneficial Owner at any time
prior to the Time of Expiry, a written notice of the Beneficial
Owner's intention to exercise Warrants (the "Exercise Notice");
provided, that a Beneficial Owner
holding Uncertificated Warrants that is in the United States or
that is a U.S. Person will first request the withdrawal of the
Uncertificated Warrant(s) from the Book-Entry Only System and
request certificated Warrant(s) in exchange for such Uncertificated
Warrant(s). Forthwith upon receipt by CDS of such notice, as well
as payment for the Exercise Price, CDS shall deliver to the Warrant
Agent confirmation of its intention to exercise Warrants
(the "Confirmation")
in a manner acceptable to the Warrant
Agent, including by electronic means through the Book-Entry Only
System, including CDSX. An electronic exercise of the Warrants
initiated by the Beneficial Owner through a Book-Entry Only System,
including CDSX, shall constitute a representation to both the
Company and the Warrant Agent that the Beneficial Owner at the time
of exercise of such Warrants (a) is not in the United States; (b)
did not acquire the Warrants in the United States or on behalf of,
or for the account or benefit of, a U.S. Person or a person in the
United States; (c) is not a U.S. Person and is not exercising such
Warrants on behalf of a U.S. Person or a person in the United
States; and (d) did not execute or deliver the notice of the
owner's intention to exercise such Warrants in the United States.
If the Participant is not able to make or deliver the foregoing
representation by initiating the electronic exercise of the
Warrants, then such Warrants shall be withdrawn from the Book-Entry
Only System, including CDSX, by the Participant and an individually
registered Warrant Certificate shall be issued by the Warrant Agent
to such Beneficial Owner or Participant and the exercise procedures
set forth in Section 3.1(1) shall be followed. Payment representing
the aggregate Exercise Price must be provided to the appropriate
office of the Participant in a manner acceptable to it. A notice in
form acceptable to the Participant and payment from such Beneficial
Owner should be provided through the Book-Entry Only System
sufficiently in advance so as to permit the Participant to deliver
notice and payment to CDS and for CDS in turn to deliver notice and
payment to the Warrant Agent prior to Time of Expiry. CDS will
initiate the exercise by way of the Confirmation and forward the
aggregate Exercise Price electronically to the Warrant Agent and
the Warrant Agent will execute the exercise by issuing to CDS
through the Book- Entry Only System the Warrant Shares to which the
exercising Beneficial Owner is entitled pursuant to the exercise.
Any expense associated with the preparation and delivery of
Exercise Notices will be for the account of the Beneficial Owner
exercising the Warrants.
(5) By
causing a Participant to deliver notice to CDS, a Warrantholder
shall be deemed to have irrevocably surrendered his, her or its
Warrants so exercised and appointed such Participant to act as his,
her or its exclusive settlement agent with respect to the exercise
and the receipt of Warrant Shares in connection with the
obligations arising from such exercise.
(6) Any
notice which CDS determines to be incomplete, not in proper form or
not duly executed shall for all purposes be void and of no effect
and the exercise to which it relates shall be considered for all
purposes not to have been exercised thereby. A failure by a
Participant to exercise or to give effect to the settlement thereof
in accordance with the Beneficial Owner's instructions will not
give rise to any obligations or liability on the part of the
Company or Warrant Agent to the Participant or the Beneficial
Owner.
(7) Any
exercise referred to in this section 3.1 shall require that the
entire Exercise Price for the Warrant Shares subscribed for must be
paid at the time of subscription and such Exercise Price and
original Exercise Notice or exercise form executed by the
Registered Warrantholder or the Confirmation from CDS must be
received by the Warrant Agent prior to the Time of
Expiry.
(8) Warrants
may only be exercised pursuant to this section 3.1 by or on behalf
of a Warrantholder, as applicable, who makes the certifications set
forth on the exercise form substantially in the form endorsed on
the Warrant Certificate.
(9) If
the exercise form set forth in the Warrant Certificate shall have
been amended, the Company shall cause the amended exercise form to
be forwarded to all registered Warrantholders.
(10) Exercise
forms, Exercise Notices and Confirmations must be delivered to the
Warrant Agent at any time during the Warrant Agent's actual
business hours on any Business Day prior to the Time of Expiry. Any
exercise form, Exercise Notice or Confirmation received by the
Warrant Agent after business hours on any Business Day other than
the Time of Expiry will be deemed to have been received by the
Warrant Agent on the next following Business Day.
(11) Any
Warrant with respect to which a Confirmation is not received by the
Warrant Agent before the Time of Expiry shall be deemed to have
expired and become void and all rights with respect to such
Warrants shall terminate and be cancelled.
3.2 No
Fractional Shares
Under
no circumstances shall the Company be obliged to issue any
fractional Warrant Shares or any cash or other consideration in
lieu thereof upon the exercise of one or more Warrants. To the
extent that the holder of one or more Warrants would otherwise have
been entitled to receive on the exercise or partial exercise
thereof a fraction of a Warrant Share, that holder may exercise
that right in respect of the fraction only in combination with
another Warrant or Warrants that in the aggregate entitle the
holder to purchase a whole number of Warrant Shares.
3.3 Effect
of Exercise of Warrants
(1) Upon
compliance by the Warrantholder with the provisions of section 3.1,
the Warrant Shares subscribed for shall be deemed to have been
issued and the person to whom such Warrant Shares are to be issued
shall be deemed to have become the holder of record of such Warrant
Shares on the Exercise Date unless the transfer registers of the
Company for the Common Shares shall be closed on such date, in
which case the Warrant Shares subscribed for shall be deemed to
have been issued and such person shall be deemed to have become the
holder of record of such Warrant Shares on the date on which such
transfer registers are reopened.
(2) The
Warrant Agent shall as soon as practicable account to the Company
with respect to Warrants exercised, and shall as soon as
practicable forward to the Company (or into an account or accounts
of the Company with the bank or trust company designated by the
Company for that purpose), all monies received by the Warrant Agent
on the subscription of Warrant Shares through the exercise of
Warrants. All such monies and any securities or other instruments,
from time to time received by the Warrant Agent, shall be received
in trust for the Warrantholders and the Company as their interests
may appear and shall be segregated and kept apart by the Warrant
Agent.
(3) Within
five Business Days following the due exercise of a Warrant pursuant
to section 3.1, the Company shall cause the Transfer Agent to issue
and the Warrant Agent to deliver, within such five Business Day
period, to CDS through the Book-Entry Only System the
Warrant Shares to which the exercising Warrantholder is entitled
pursuant to the exercise or mail to the person in whose name the
Warrant Shares so subscribed for are to be issued, as specified in
the exercise form completed on the Warrant Certificate, at the
address specified in such exercise form, a certificate or
certificates for the Warrant Shares to which the Warrantholder is
entitled or, if so specified in writing by the holder, cause to be
delivered to such person or persons at the office of the Warrant
Agent where the Warrant Certificate was surrendered, a certificate
or certificates for the appropriate number of Warrant Shares
subscribed for, or any other appropriate evidence of the issuance
of Warrant Shares to such person or persons in respect of Warrant
Shares issued under the Book-Entry Only System and, if applicable,
shall cause the Warrant Agent to mail a Warrant Certificate
representing any Warrants not then exercised.
3.4 Cancellation
of Warrants
All
Warrants surrendered to the Warrant Agent pursuant to sections 2.6,
2.8(2), 2.10 or
3.1 shall
be cancelled by the Warrant Agent and the Warrant Agent shall
record the cancellation of such Warrants on the register of holders
maintained by the Warrant Agent pursuant to Section 2.8(1). The
Warrant Agent shall, if required by the Company, furnish the
Company with a certificate identifying the Warrants so cancelled.
All Warrants that have been duly cancelled shall be without further
force or effect whatsoever.
3.5 Subscription
for less than Entitlement
The
holder of any Warrant may subscribe for and purchase a whole number
of Warrant Shares that is less than the number that the holder is
entitled to purchase pursuant to a surrendered Warrant. In such
event, the holder thereof shall be entitled to receive a new
Warrant Certificate in respect of the balance of Warrants that were
not then exercised, such new Warrant Certificate to contain the
same legend as provided for in Section 2.20(2), if
applicable.
3.6 Expiration
of Warrant
After
the Time of Expiry, all rights under any Warrant in respect of
which the right of subscription and purchase herein and therein
provided for shall not theretofore have been exercised shall wholly
cease and terminate and such Warrant shall be void and of no
effect.
3.7 Prohibition
on Exercise by U.S. Persons; Exception
(1)
Warrants may not be exercised within the United States or by or on
behalf of, or for the account or benefit of, any U.S. Person or any
person in the United States unless an exemption is available from
the registration requirements of the U.S. Securities Act and
applicable state securities laws. The Warrant Agent shall be
entitled to rely upon the registered address of the Warrantholder
as set forth in the Warrantholders register for the purchase of
Units in determining whether the address is in the United States or
the Warrantholder is a U.S. Person.
(2) Any
holder which exercises any Warrants shall provide to the Company
either:
(a)
a
written certification that such holder (a) at the time of exercise
of the Warrants is not in the United States; (b) is not a U.S.
Person and is not exercising the Warrants on behalf of a U.S.
Person or person in the
United
States; (c) did not execute or deliver the exercise form for the
Warrants in the United States; and (d) has in all other aspects
complied with the terms of an "offshore transaction" as defined
under Regulation S (which written certification shall be deemed
delivered by checking Box 1 in the Exercise Form attached to the
Warrant, as provided for in Schedule “A” hereof);
or
(b)
a
written certification that the holder (i) purchased the Warrants as
part of the Units in the Offering; (ii) is exercising the Warrants
solely for its own account or for the benefit of a U.S. Person or a
person in the United States for whose account such holder acquired
the Warrants as a part of the Units in the Offering and for whose
account such holders exercises sole investment discretion; (iii)
was and is, and any beneficial purchaser for whose account such
holder acquired the Warrant and is exercising the Warrants was and
is, a Qualified Institutional Buyer both on the date the Units were
purchased in the Offering and on the Exercise Date; and (iv) the
representations and warranties made by the holder or any beneficial
purchaser, as the case may be, to the Company in such
holder’s QIB Letter remain true and correct on the Exercise
Date (which written certification shall be deemed delivered by
checking Box 2 in the Exercise Form attached to the Warrant, as
provided for in Schedule “A” hereof); or
(c)
a
written opinion of counsel of recognized standing in form and
substance satisfactory to the Company or evidence satisfactory to
the Company to the effect that an exemption from the registration
requirements of the U.S. Securities Act and applicable state
securities laws is available for the issuance of the Warrant Shares
issuable on exercise of the Warrants.
(3) No
Warrant Shares will be registered or delivered to an address in the
United States unless the holder of Warrants complies with the
requirements of paragraph (b) or (c) of Section
3.7(2).
ARTICLE 4
COVENANTS FOR WARRANTHOLDERS' BENEFIT
4.1 General
Covenants of the Company
The
Company represents, warrants and covenants with the Warrant Agent
for the benefit of the Warrant Agent and the Warrantholders
that:
(1) The
Company will at all times, so long as any Warrants remain
outstanding or issuable hereunder, maintain its existence, unless
otherwise inconsistent with the fiduciary duties of the board of
directors of the Company, and will keep or cause to be kept proper
books of account in accordance with applicable law until the Time
of Expiry.
(2) The
Company is duly authorized to create and issue the Warrants to be
issued hereunder and the Warrants, when issued, Authenticated and
countersigned, as applicable, will be legal, valid, binding and
enforceable obligations of the Company.
(3) The
Company will reserve and keep available a sufficient number of
Warrant Shares for the purpose of enabling the Company to satisfy
its obligations to issue Common Shares upon the exercise of the
Warrants, and all Warrants Shares shall, when issued as provided
herein, be valid and enforceable against the Company.
(4) The
Company will cause the Warrant Shares from time to time subscribed
for pursuant to the Warrants issued by the Company hereunder, in
the manner herein provided, to be duly issued in accordance with
the Warrants and the terms hereof.
(5) All
Warrant Shares that shall be issued by the Company upon exercise of
the rights provided for herein shall be issued as fully paid and
non-assessable Common Shares of the Company.
(6) The
Company will use commercially reasonable efforts to ensure that the
Warrants, and the Common Shares outstanding on the date hereof and
issuable from time to time on the exercise of the Warrants,
continue to be or are listed and posted for trading on the CSE (or
such other Canadian stock exchange acceptable to the Company),
provided that this Section 4.1(6) shall not be construed as
limiting or restricting the Company from completing a
consolidation, amalgamation, arrangement, takeover bid, merger or
other form of business combination that would result in the
Warrants and/or the Common Shares ceasing to be listed and posted
for trading on such exchanges, so long as the holders of Common
Shares have approved the transaction in accordance with the
requirements of applicable corporate and securities laws and the
policies of such exchanges or the holders of Common Shares receive
securities of an entity which is listed on a stock exchange in
North America or cash.
(7) Except
to the extent that the Company participates in a takeover bid,
consolidation, merger, arrangement, amalgamation, or other form of
business combination transaction, the Company will use its
commercially reasonable efforts to maintain its status as a
"reporting issuer" (or the equivalent thereof) in each of the
provinces of Canada and other Canadian jurisdictions in which it is
currently or becomes a reporting issuer, make all requisite filings
under applicable Securities Laws including those necessary to
remain a reporting issuer not in default of the requirements of the
applicable Securities Laws of such province or jurisdiction, until
the Time of Expiry.
(8) The
Company will perform and carry out all of the acts or things to be
done by it as provided in this Indenture.
(9) The
Company will not take any action or omit to take any action which
would have the effect of preventing the Warrantholders from
receiving any of the Warrant Shares issuable upon the exercise of
the Warrants.
(10) The
Company will promptly advise the Warrant Agent and the
Warrantholders in writing of any breach or default under the terms
of this Indenture no later than five Business Days following the
occurrence of such breach or default.
(11) If,
in the opinion of counsel, any instrument is required to be filed
with, or any permission, order or ruling is required to be obtained
from any securities regulatory authority, or any other step is
required under any federal or provincial law of Canada before the
Warrant Shares may be issued and delivered to a Warrantholder, the
Company covenants that it will use its best efforts to file such
instrument, obtain such permission, order or ruling or take all
such other actions, at its expense, as is required or appropriate
in the circumstances.
4.2 Warrant
Agent's Remuneration and Expenses
The
Company covenants that it will pay to the Warrant Agent from time
to time reasonable remuneration for its services hereunder and will
pay or reimburse the Warrant Agent upon its request for all
reasonable expenses and disbursements and advances incurred or made
by the Warrant Agent in the administration or execution of the
trusts hereby created (including the reasonable compensation and
the disbursements of its counsel and all other advisers, experts,
accountants and assistants not regularly in its employ) both before
any default hereunder and thereafter until all duties of the
Warrant Agent hereunder shall be finally and fully performed. Any
amount owing hereunder and remaining unpaid after 30 days from the
invoice date will bear interest at the then current rate charged by
the Warrant Agent against unpaid invoices and shall be payable upon
demand. This section shall survive the resignation or removal of
the Warrant Agent and/or the termination of this
Indenture.
4.3 Performance
of Covenants by Warrant Agent
Subject
to section 8.7, if the Company shall fail to perform any of its
covenants contained in this Indenture and the Company has not
rectified such failure within 25 Business Days after either giving
notice of such default pursuant to Section 4.1(10) or receiving
written notice from the Warrant Agent of such failure, the Warrant
Agent may notify the Warrantholders of such failure on the part of
the Company or may itself perform any of the said covenants capable
of being performed by it, but shall be under no obligation to
perform said covenants. All reasonable sums expended or disbursed
by the Warrant Agent in so doing shall be repayable as provided in
section 4.2. No such performance, expenditure or advance by the
Warrant Agent shall be deemed to relieve the Company of any default
hereunder or of its continuing obligations under the covenants
herein contained.
4.4 Enforceability
of Warrants
The
Company covenants and agrees that it is duly authorized to create
and issue the Warrants to be issued hereunder and that the
Warrants, when issued and Authenticated as herein provided, will be
valid and enforceable against the Company in accordance with the
provisions hereof and that, subject to the provisions of this
Indenture, the Company will cause the Warrant Shares from time to
time acquired upon exercise of Warrants issued under this Indenture
to be duly issued and delivered in accordance with the terms of
this Indenture.
ARTICLE 5
ENFORCEMENT
5.1 Suits
by Warrantholders
Subject
to section 6.10, all or any of the rights conferred upon a
Warrantholder by the terms of the Warrants held by him and/or this
Indenture may be enforced by such Warrantholder by appropriate
legal proceedings but without prejudice to the right that is hereby
conferred upon the Warrant Agent to proceed in its own name to
enforce each and all of the provisions herein contained for the
benefit of the holders of the Warrants from time to time
outstanding. The Warrant Agent shall also have the power at any
time and from time to time to institute and to maintain such suits
and proceedings as it may reasonably be advised shall be necessary
or advisable to preserve and protect its interests and the
interests of the Warrantholders.
5.2 Limitation
of Liability
The
obligations hereunder (including without limitation under Section
8.7(5)) are not personally binding upon, nor shall resort hereunder
be had to, the private property of any of the past, present or
future directors or shareholders of the Company or any of the past,
present or future officers, employees or agents of the Company, but
only the property of the Company (or any successor person) shall be
bound in respect hereof.
5.3 Waiver
of Default
Upon
the happening of any default hereunder:
(a)
the
Warrantholders of not less than 50% plus 1 of the Warrants then
outstanding shall have power (in addition to the powers exercisable
by Extraordinary Resolution) by requisition in writing to instruct
the Warrant Agent to waive any default hereunder and the Warrant
Agent shall thereupon waive the default upon such terms and
conditions as shall be prescribed in such requisition;
or
(b)
the
Warrant Agent shall have power to waive any default hereunder upon
such terms and conditions as the Warrant Agent may deem advisable,
on the advice of counsel, if, in the Warrant Agent's opinion, based
on the advice of counsel, the same shall have been cured or
adequate provision made therefor,
provided
that no delay or omission of the Warrant Agent or of the
Warrantholders to exercise any right or power accruing upon any
default shall impair any such right or power or shall be construed
to be a waiver of any such default or acquiescence therein and
provided further that no act or omission either of the Warrant
Agent or of the Warrantholders in the premises shall extend to or
be taken in any manner whatsoever to affect any subsequent default
hereunder of the rights resulting therefrom.
ARTICLE 6
MEETINGS OF WARRANTHOLDERS
6.1 Right to Convene
Meetings
The
Warrant Agent may at any time and from time to time, and shall on
receipt of a written request of the Company or of a Warrantholders'
Request, convene a meeting of the Warrantholders provided that the
Warrant Agent has been provided with sufficient funds and is
indemnified to its reasonable satisfaction by the Company or by the
Warrantholders signing such Warrantholders' Request against the
costs, charges, expenses and liabilities that may be incurred in
connection with the calling and holding of such meeting. If within
15 Business Days after the receipt of a written request of the
Company or a Warrantholders' Request, funding and indemnity given
as aforesaid the Warrant Agent fails to give the requisite notice
specified in section 6.2 to convene a meeting, the Company or such
Warrantholders, as the case may be, may convene such meeting. Every
such meeting shall be held in the City of Toronto, Ontario or at
such other place as may be approved or determined by the Warrant
Agent.
6.2 Notice
At
least 14 days prior notice of any meeting of Warrantholders shall
be given to the Warrantholders at the expense of the Company in the
manner provided for in section 9.2 and a copy of such notice shall
be delivered to the Warrant Agent unless the meeting has been
called by it, and to the Company unless the meeting has been called
by it. Such notice shall state the date, time and place of the
meeting, the general nature of the business to be transacted and
shall contain such information as is reasonably necessary to enable
the Warrantholders to make a reasoned decision on the matter, but
it shall not be necessary for any such notice to set out the terms
of any resolution to be proposed or any of the provisions of this
Article 6. The notice convening any such meeting may be signed by
an appropriate officer of the Warrant Agent or of the Company or
the person designated by such Warrantholders, as the case may
be.
6.3 Chairman
The
Warrant Agent may nominate in writing an individual (who need not
be a Warrantholder) to be chairman of the meeting and if no
individual is so nominated, or if the individual so nominated is
not present within 15 minutes after the time fixed for the holding
of the meeting, the Warrantholders present in person or by proxy
shall appoint an individual present to be chairman of the meeting.
The chairman of the meeting need not be a
Warrantholder.
6.4 Quorum
Subject
to the provisions of section 6.11, at any meeting of the
Warrantholders a quorum shall consist of two Warrantholders present
in person or represented by proxy and representing at least 20% of
the aggregate number of Warrants then outstanding. If a quorum of
the Warrantholders shall not be present within one-half hour from
the time fixed for holding any meeting, the meeting, if summoned by
the Warrantholders or on a Warrantholders' Request, shall be
dissolved; but in any other case the meeting shall be adjourned to
the same day in the next week (unless such day is not a Business
Day in which case it shall be adjourned to the next following
Business Day) at the same time and place to the extent possible
and, subject to the provisions of section 6.11, no notice of the
adjournment need be given. Any business may be brought before or
dealt with at an adjourned meeting that might have been dealt with
at the original meeting in accordance with the notice calling the
same. At the adjourned meeting the Warrantholders present in person
or represented by proxy shall form a quorum and may transact the
business for which the meeting was originally convened,
notwithstanding that they may not represent at least 20% of the
aggregate number of Warrants then unexercised and outstanding. No
business shall be transacted at any meeting, except an adjourned
meeting as described above, unless a quorum is present at the
commencement of business.
6.5 Power
to Adjourn
The
chairman of any meeting at which a quorum of the Warrantholders is
present may, with the consent of the meeting, adjourn any such
meeting, and no notice of such adjournment need be given except
such notice, if any, as the meeting may prescribe.
6.6 Show
of Hands
Every
question submitted to a meeting shall be decided in the first place
by a majority of the votes given on a show of hands except that
votes on an extraordinary resolution shall be given in the manner
hereinafter provided. At any such meeting, unless a poll is duly
demanded as herein provided, a declaration by the chairman that a
resolution has been carried or carried unanimously or by a
particular majority or lost or not carried by a particular majority
shall be conclusive evidence of the fact.
6.7 Poll
and Voting
On
every extraordinary resolution, and when demanded by the chairman
or by one or more of the Warrantholders acting in person or by
proxy on any other question submitted to a meeting and after a vote
by show of hands, a poll shall be taken in such manner as the
chairman shall direct. Questions other than those required to be
determined by extraordinary resolution shall be decided by a
majority of the votes cast on the poll. On a show of hands, every
person who is present and entitled to vote, whether as a
Warrantholder or as proxy for one or more absent Warrantholders, or
both, shall have one vote. On a poll, each Warrantholder present in
person or represented by a proxy duly appointed by instrument in
writing shall be entitled to one vote in respect of each whole
Warrant then held by her. A proxy need not be a Warrantholder. The
chairman of any meeting shall be entitled, both on a show of hands
and on a poll, to vote in respect of the Warrants, if any, held or
represented by her.
6.8 Regulations
Subject
to the provisions of this Indenture, the Warrant Agent or the
Company with the approval of the Warrant Agent may from time to
time make and from time to time vary such regulations as it shall
consider necessary or appropriate generally for the calling of
meetings of Warrantholders and the conduct of business thereat
including setting a record date for Warrantholders entitled to
receive notice of or to vote at such meeting.
Any
regulations so made shall be binding and effective and the votes
given in accordance therewith shall be valid and shall be counted.
Save as such regulations may provide, the only persons who shall be
recognized at any meeting as a Warrantholder, or be entitled to
vote or be present at the meeting in respect thereof (subject to
section 6.9), shall be Warrantholders or persons holding proxies of
Warrantholders.
6.9 Company,
Warrant Agent and Counsel may be Represented
The
Company and the Warrant Agent, by their respective directors,
officers and employees and the counsel for each of the Company, the
Warrantholders and the Warrant Agent may attend any meeting of the
Warrantholders and speak thereat but shall not be entitled to vote
unless in their capacities as Warrantholders or proxies
therefor.
6.10 Powers
Exercisable by Extraordinary Resolution
In
addition to all other powers conferred upon them by any other
provisions of this Indenture or by law, the Warrantholders at a
meeting shall have the power, exercisable from time to time by
extraordinary resolution:
(a)
to
agree with the Company to any modification, alteration, compromise
or arrangement of the rights of Warrantholders and/or the Warrant
Agent in its capacity as Warrant Agent hereunder (subject to the
Warrant Agent's approval) or on behalf of the Warrantholders
against the Company, whether such rights arise under this Indenture
or the Warrants or otherwise;
(b)
to
amend, modify or repeal any extraordinary resolution previously
passed or sanctioned by the Warrantholders;
(c)
to
direct or authorize the Warrant Agent (subject to the Warrant Agent
receiving funding and indemnity) to enforce any of the covenants on
the part of the Company contained in this Indenture or the Warrants
or to enforce any of the rights of the Warrantholders in any manner
specified in such extraordinary resolution or to refrain from
enforcing any such covenant or right;
(d)
to
waive, authorize and direct the Warrant Agent to waive any default
on the part of the Company in complying with any provisions of this
Indenture or the Warrants either unconditionally or upon any
conditions specified in such extraordinary resolution;
(e)
to
restrain any Warrantholder from taking or instituting any suit,
action or proceeding against the Company for the enforcement of any
of the covenants on the part of the Company contained in this
Indenture or the Warrants or to enforce any of the rights of the
Warrantholders;
(f)
to
direct any Warrantholder who, as such, has brought any suit, action
or proceeding to stay or discontinue or otherwise deal with any
such suit, action or proceeding, upon payment of the costs, charges
and expenses reasonably and properly incurred by such Warrantholder
in connection therewith;
(g)
to
assent to any change in or omission from the provisions contained
in this Indenture or any ancillary or supplemental instrument which
may be agreed to by the Company, and to authorize the Warrant Agent
to concur in and execute any ancillary or supplemental indenture
embodying the change or omission; and
(h)
with
the consent of the Company, such consent not to be unreasonably
withheld, to remove the Warrant Agent or its successor in office
and to appoint a new warrant agent or warrant agents to take the
place of the Warrant Agent so removed.
6.11 Meaning
of "Extraordinary Resolution"
(1) The expression "extraordinary
resolution" when used in this
Indenture means, subject as hereinafter in this section
6.11
and in section 6.14 provided, a resolution proposed at a meeting of
Warrantholders duly convened for that purpose and held in
accordance with the provisions of this Article 6 at which there are
present in person or by proxy at least two Warrantholders
representing at least 20% of the aggregate number of all the then
outstanding
Warrants and passed by the affirmative votes of Warrantholders
representing not less than 66%% of the aggregate number of all the
then outstanding Warrants represented at the meeting and voted on
the poll upon such resolution.
(2) If,
at any meeting called for the purpose of passing an extraordinary
resolution, Warrantholders representing at least 20% of the
aggregate number of all the then outstanding Warrants are not
present in person or by proxy within one-half hour after the time
appointed for the meeting, then the meeting, if convened by
Warrantholders or on a Warrantholders' Request, shall be dissolved;
but in any other case it shall stand adjourned to such day, being
not less than 10 Business Days later, and to such place and time as
may be appointed by the chairman. Not less than three Business Days
prior notice shall be given of the time and place of such adjourned
meeting in the manner provided in sections 9.1 and 9.2. Such notice
shall state that at the adjourned meeting the Warrantholders
present in person or represented by proxy shall form a quorum but
it shall not be necessary to set forth the purposes for which the
meeting was originally called or any other particulars. At the
adjourned meeting the Warrantholders present in person or
represented by proxy shall form a quorum and may transact the
business for which the meeting was originally convened and a
resolution proposed at such adjourned meeting and passed by the
requisite vote as provided in Section 6.11(1) shall be an
extraordinary resolution within the meaning of this Indenture
notwithstanding that Warrantholders representing at least 20% of
all the then outstanding Warrants are not present in person or
represented by proxy at such adjourned meeting.
(3) Votes
on an extraordinary resolution shall always be given on a poll and
no demand for a poll on an extraordinary resolution shall be
necessary.
6.12 Powers
Cumulative
It
is hereby declared and agreed that any one or more of the powers or
any combination of the powers in this Indenture stated to be
exercisable by the Warrantholders by extraordinary resolution or
otherwise may be exercised from time to time and the exercise of
any one or more of such powers or any combination of powers from
time to time shall not be deemed to exhaust the right of the
Warrantholders to exercise such powers or combination of powers
then or thereafter from time to time.
6.13 Minutes
Minutes
of all resolutions and proceedings at every meeting of
Warrantholders as aforesaid shall be made and duly entered in books
to be provided for that purpose by the Warrant Agent at the expense
of the Company and any minutes as aforesaid, if signed by the
chairman of the meeting at which resolutions were passed or
proceedings had, or by the chairman of the next succeeding meeting
of the Warrantholders, shall be prima facie evidence of the matters
therein stated and, until the contrary is proved, every meeting, in
respect of the proceedings of which minutes shall have been made,
shall be deemed to have been duly convened and held, and all
resolutions passed thereat or proceedings taken, to have been duly
passed and taken.
6.14 Instruments
in Writing
All
actions that may be taken and all powers that may be exercised by
the Warrantholders at a meeting held as provided in this Article 6
may also be taken and exercised by Warrantholders representing a
majority, or in the case of an extraordinary resolution at least
66%%, of the aggregate number of all the then outstanding Warrants
by an instrument in writing signed in one or more counterparts by
such Warrantholders in person or by attorney duly appointed in
writing, and the expression "extraordinary resolution" when used in
this Indenture shall include an instrument so signed.
6.15 Binding
Effect of Resolutions
Every
resolution and every extraordinary resolution passed in accordance
with the provisions of this Article 6 at a meeting of
Warrantholders shall be binding upon all the Warrantholders,
whether present at or absent from such meeting, and every
instrument in writing signed by Warrantholders in accordance with
section 6.14 shall be binding upon all the Warrantholders, whether
signatories thereto or not, and each and every Warrantholder and
the Warrant Agent (subject to the provisions for indemnity herein
contained) shall be bound to give effect accordingly to every such
resolution and instrument in writing. In the case of an instrument
in writing, the Warrant Agent shall give notice in the manner
contemplated in sections 9.1 and 9.2 of the effect of the
instrument in writing to all Warrantholders and the Company as soon
as is reasonably practicable.
6.16 Holdings
by the Company or Subsidiaries of the Company
Disregarded
In
determining whether Warrantholders are present at a meeting of
Warrantholders for the purpose of determining a quorum or have
concurred in any consent, waiver, extraordinary resolution,
Warrantholders' Request or other action under this Indenture,
Warrants owned legally or beneficially by the Company or its
Subsidiaries or in partnership of which the Company is directly or
indirectly a party to shall be disregarded.
6.17 Common
Shares or Warrants Owned by the Company or its Subsidiaries -
Certificate to be Provided
For
the purpose of disregarding any Warrants owned legally or
beneficially by the Company in section 6.16, the Company shall
provide to the Warrant Agent, upon written request, a certificate
of the Company setting forth as at the date of such
certificate:
(a)
the
names (other than the name of the Company) of the Warrantholders
which, to the knowledge of the Company, hold Warrants that are
owned by or held for the account of the Company; and
(b)
the
number of Warrants owned legally or beneficially by the
Company,
and
the Warrant Agent, in making the computations in section 6.16,
shall be entitled to rely on such certificate without any
additional evidence.
ARTICLE 7
SUPPLEMENTAL INDENTURES AND SUCCESSOR COMPANIES
7.1 Provision
for Supplemental Indentures for Certain Purposes
From
time to time the Company (if properly authorized by its directors)
and the Warrant Agent may, subject to the provisions hereof, and
they shall, when so directed in accordance
with the provisions hereof, execute and deliver by their proper
officers, indentures or instruments supplemental hereto, which
thereafter shall form part hereof, for any one or more or all of
the following purposes:
(a)
providing
for the issuance of additional Warrants hereunder including
Warrants in excess of the number set out in section 2.1 and any
consequential amendments hereto as may be required by the Warrant
Agent, relying on the advice of counsel;
(b)
setting
forth adjustments in the application of Article 2;
(c)
adding
to the provisions hereof such additional covenants and enforcement
provisions as, in the opinion of counsel are necessary or
advisable, provided that the same are not in the opinion of the
Warrant Agent, relying on the advice of counsel, prejudicial to the
interests of the Warrantholders as a group;
(d)
giving
effect to any extraordinary resolution passed as provided in
Article
6;
(e)
making
such provisions not inconsistent with this Indenture as may be
necessary or desirable with respect to matters or questions arising
hereunder provided that such provisions are not, in the opinion of
the Warrant Agent, relying on the advice of counsel, prejudicial to
the interests of the Warrantholders as a group;
(f)
adding
to or amending the provisions hereof in respect of the transfer of
Warrants, making provision for the exchange of Warrants and making
any modification in the form of the Warrant Certificate that does
not affect the substance thereof;
(g)
amending
any of the provisions of this Indenture or relieving the Company
from any of the obligations, conditions or restrictions herein
contained, provided that no such amendment or relief shall be or
become operative or effective if, in the opinion of the Warrant
Agent, relying on the advice of counsel, such amendment or relief
impairs any of the rights of the Warrantholders as a group or of
the Warrant Agent, and provided further that the Warrant Agent may
in its sole discretion decline to enter into any supplemental
indenture that in its opinion may not afford adequate protection to
the Warrant Agent when the same shall become operative;
and
(h)
for
any other purpose not inconsistent with the terms of this
Indenture, including the correction or rectification of any
ambiguities, defective or inconsistent provisions, errors or
omissions herein, provided that, in the opinion of the Warrant
Agent, relying on the advice of counsel, the rights of the Warrant
Agent and the Warrantholders as a group are in no way prejudiced
thereby.
7.2 Successor
Companies
In the case of the amalgamation, consolidation,
arrangement, merger or transfer of the undertaking or assets of the
Company as an entirety or substantially as an entirety to or with
another person (a "successor company"),
the successor company resulting from
the amalgamation, consolidation, arrangement, merger or transfer
(if not the Company) shall be bound by the provisions hereof and
all obligations for the due and punctual performance and observance
of each and every covenant and obligation contained in this
Indenture to be performed by the Company and the successor company
shall by supplemental indenture satisfactory in form to the Warrant
Agent and executed and delivered to the Warrant Agent, expressly
assume those obligations.
ARTICLE 8
CONCERNING THE WARRANT AGENT
8.1 Indenture
Legislation
(1) If
and to the extent that any provision of this Indenture limits,
qualifies or conflicts with a mandatory requirement of Applicable
Legislation, such mandatory requirement shall prevail.
(2) The
Company and the Warrant Agent agree that each will at all times in
relation to this Indenture and any action to be taken hereunder
observe and comply with and be entitled to the benefit of
Applicable Legislation.
8.2 Rights
and Duties of Warrant Agent
(1) The
Warrant Agent accepts the duties and responsibilities under this
Indenture, solely as custodian, bailee and agent. No trust is
intended to be, or is or will be, created hereby and the Warrant
Agent shall owe no duties hereunder as a trustee.
(2) In
the exercise of the rights and duties prescribed or conferred by
the terms of this Indenture, the Warrant Agent shall act honestly
and in good faith with a view to the best interests of the
Warrantholders and shall exercise the degree of care, diligence and
skill that a reasonably prudent warrant agent would exercise in
comparable circumstances. No provision of this Indenture shall be
construed to relieve the Warrant Agent from, or require any other
person to indemnify the Warrant Agent against liability for its own
gross negligence, wilful misconduct, bad faith or
fraud.
(3) The
Warrant Agent shall not be bound to do or take any act, action or
proceeding for the enforcement of any of the obligations of the
Company under this Indenture unless and until it shall have
received a Warrantholders' Request specifying the act, action or
proceeding that the Warrant Agent is requested to take. The
obligation of the Warrant Agent to commence or continue any act,
action or proceeding for the purpose of enforcing any rights of the
Warrant Agent or the Warrantholders hereunder shall be conditional
upon the Warrantholders furnishing, when required by notice in
writing by the Warrant Agent, sufficient funds to commence or
continue such act, action or proceeding and an indemnity reasonably
satisfactory to the Warrant Agent and its counsel to protect and
hold harmless the Warrant Agent, its officers, directors,
employees, agents, successors and assigns against the costs,
charges and expenses and liabilities to be incurred thereby and any
loss and damage it may suffer by reason thereof. None of the
provisions contained in this Indenture shall require the Warrant
Agent to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties or in the
exercise of any of its rights or powers unless indemnified and
funded as aforesaid.
(4) The
Warrant Agent may, before commencing any act, action or proceeding,
or at any time during the continuance thereof require the
Warrantholders at whose instance it is acting to deposit with the
Warrant Agent the Warrants held by them, for which Warrants the
Warrant Agent shall issue receipts.
(5) Every
provision of this Indenture that, by its terms, relieves the
Warrant Agent of liability or entitles it to rely upon any evidence
submitted to it is subject to the provisions of Applicable
Legislation.
(6) The
Warrant Agent shall not be bound to give any notice or do or take
any act, action or proceeding by virtue of the powers conferred on
it hereunder unless and until it shall have been required to do so
under the terms hereof; nor shall the Warrant Agent be required to
take notice of any default hereunder, unless and until notified in
writing of such default, which notice shall specifically set out
the default desired to be brought to the attention of the Warrant
Agent and in the absence of such notice the Warrant Agent may for
all purposes of this Indenture conclusively assume that no default
has occurred or been made in the performance or observance of the
representations, warranties and covenants, agreements or conditions
herein contained. Any such notice shall in no way limit any
discretion herein given to the Warrant Agent to determine whether
or not the Warrant Agent shall take action with respect to any
default.
(7) In
this Indenture, whenever confirmations or instructions are required
to be given to the Warrant Agent, in order to be valid, such
confirmations and instructions shall be in writing.
8.3 Evidence,
Experts and Advisers
(1) In
addition to the reports, certificates, opinions and other evidence
required by this Indenture, the Company shall furnish to the
Warrant Agent such additional evidence of compliance with any
provision hereof and in such form as may be prescribed by
Applicable Legislation or as the Warrant Agent may reasonably
require by written notice to the Company.
(2) In
the exercise of its rights and duties hereunder, the Warrant Agent
may, if it is acting in good faith, act and rely absolutely as to
the truth of the statements and the accuracy of the opinions
expressed therein, upon statutory declarations, opinions, reports,
written requests, consents, or orders of the Company, certificates
of the Company or other evidence furnished to the Warrant Agent
pursuant to any provision hereof or of Applicable Legislation or
pursuant to a request of the Warrant Agent, provided that such
evidence complies with Applicable Legislation and that the Warrant
Agent complies with Applicable Legislation and that the Warrant
Agent examines the same and determines that such evidence complies
with the applicable requirements of this Indenture. The Warrant
Agent shall be under no responsibility in respect of the validity
of this Indenture or the execution and delivery hereof by or on
behalf of the Company or in respect of the validity or the
execution of any Warrant Certificate by the Company and issued
hereunder, nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Indenture or
in any such Warrant Certificate; nor shall it by any act hereunder
be deemed to make any representation or warranty as to the
authorization or reservation of any securities to be issued upon
the right to acquire provided for in this Indenture and/or in any
Warrant or as to whether any securities will when issued be duly
authorized or be validly issued and fully paid and
non-assessable.
(3) Whenever
provided for in this Indenture or Applicable Legislation requires
that the Company deposit with the Warrant Agent resolutions,
certificates, reports, opinions, requests, orders or other
documents, it is intended that the truth, accuracy and good faith
on the effective date thereof and the facts and opinions stated in
all such documents so deposited shall, in each and every such case,
be conditions precedent to the right of the Company to have the
Warrant Agent take the action to be based thereon.
(4) Proof
of the execution of an instrument in writing, including a
Warrantholders' Request, by any Warrantholder may be made by a
certificate of a notary public or other person with similar powers
that the person signing such instrument acknowledged to him the
execution thereof, or by an affidavit of a witness to such
execution or in any other manner which the Warrant Agent may
consider adequate and in respect of a corporate Warrantholder,
shall include a certificate of incumbency of such Warrantholder
together with a certified resolution authorizing the person who
signs such instrument to sign such instrument.
(5) The
Warrant Agent may act and rely and shall be protected in acting and
relying upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, letter, or other
paper document believed by it to be genuine and to have been
signed, sent or presented by or on behalf of the proper party or
parties. The Warrant Agent has sole discretion and shall be
protected in acting and relying upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent,
order, letter or other paper document received in facsimile or
e-mail form.
(6) The
Warrant Agent may employ or retain such counsel, accountants,
engineers, appraisers or other experts or advisers as it may
reasonably require for the purpose of determining and discharging
its duties hereunder and shall pay reasonable remuneration for all
services so performed by any of them, without taxation of costs of
any counsel and shall not be responsible for any misconduct or
negligence on the part of any of them who has been selected with
due care by the Warrant Agent. Any reasonable remuneration paid by
the Warrant Agent shall be paid by the Company in accordance with
section 4.2.
(7) The
Warrant Agent may act and rely and shall be protected in acting and
relying in good faith on the opinion or advice of or information
obtained from any counsel, accountant, appraiser, engineer or other
expert or advisor, whether retained or employed by the Company or
the Warrant Agent, in relation to any matter arising in fulfilling
its duties and obligations hereof.
(8) The
Warrant Agent may, as a condition precedent to any action to be
taken by it under this Indenture, require such opinions, statutory
declarations, reports, certificates or other evidence as it, acting
reasonably, considers necessary or advisable in the
circumstances.
(9) The
Warrant Agent is not required to expend or place its own funds at
risk in executing its duties and obligations.
8.4 Securities,
Documents and Monies Held by Warrant Agent
(1) Any securities, documents of title, monies or
other instruments that may at any time be held by the Warrant Agent
subject to the duties and obligations hereof, for the benefit of
the Company, may be placed in the deposit vaults of the Warrant
Agent or of any Schedule 1 Canadian chartered bank under the
Bank Act
(Canada) or deposited for safekeeping
with any such bank or the Warrant Agent. Any monies held pending
the application or withdrawal thereof under any provisions of this
Indenture, shall be held, invested and reinvested in "Permitted
Investments" as directed in writing by the Company. "Permitted
Investments" shall be treasury bills guaranteed by the Government
of Canada having a term to maturity not to exceed ninety (90) days,
or term deposits or bankers' acceptances of a Canadian chartered
bank having a term to maturity not to exceed ninety (90) days, or
such other investments that is in accordance with the Warrant
Agent's standard type of investments. Unless otherwise specifically
provided herein, all interest or other income received by the
Warrant Agent in respect of such deposits and investments shall
belong to the Company and shall be paid to the Company upon
discharge of this Indenture.
(2) Any
written direction for the investment or release of funds received
shall be received by the Warrant Agent by 9:00 a.m. (Calgary time)
on the Business Day on which such investment or release is to be
made, failing which such direction will be handled on a
commercially reasonable efforts basis and may result in funds being
invested or released on the next Business Day.
(3) The
Warrant Agent shall have no responsibility or liability for any
diminution of any funds resulting from any investment made in
accordance with this Indenture, including any losses on any
investment liquidated prior to maturity in order to make a payment
required hereunder.
(4) In
the event that the Warrant Agent does not receive a direction or
only a partial direction, the Warrant Agent may hold cash balances
constituting part or all of such monies and may, but need not,
invest same in its deposit department, the deposit department of
one of its affiliates, or the deposit department of a Canadian
chartered bank; but the Warrant Agent, its affiliates or a Canadian
chartered bank shall not be liable to account for any profit to any
parties to this Indenture or to any other person or
entity.
8.5 Actions
by Warrant Agent to Protect Interests
The
Warrant Agent shall have the power to institute and to maintain
such actions and proceedings as it may consider necessary or
expedient to preserve, protect or enforce its interests and the
interests of the Warrantholders pursuant to the provisions of this
Indenture.
8.6 Warrant
Agent not Required to Give Security
The
Warrant Agent shall not be required to give any bond or security in
respect of the execution of the duties and obligations of this
Indenture or otherwise.
8.7 Protection
of Warrant Agent
By
way of supplement to the provisions of any law for the time being
relating to warrant agents, it is expressly declared and agreed as
follows:
(1) The
Warrant Agent shall not be liable for or by reason of any
representations, statements of fact or recitals in this Indenture
or in the Warrants (except the representation contained in section
8.9 or in the Authentication of the Warrant Agent on the Warrants)
or be required to verify the same and all such statements of fact
or recitals are and shall be deemed to be made by the
Company.
(2) Nothing
herein contained shall impose any obligation on the Warrant Agent
to see to or to require evidence of the registration or filing (or
renewal thereof) of this Indenture or any instrument ancillary or
supplemental hereto.
(3) The
Warrant Agent shall not be bound to give notice to any person or
persons of the execution hereof.
(4) The
Warrant Agent shall not incur any liability or responsibility
whatsoever or be in any way responsible for the consequence of any
breach on the part of the Company of any of the covenants or
warranties herein contained or of any acts of any directors,
officers, employees, agents or servants of the
Company.
(5) Without limiting any protection or indemnity of
the Warrant Agent under any other provision hereof, or otherwise at
law, the Company hereby agrees to indemnify and hold harmless the
Warrant Agent and its affiliates, directors, officers, agents and
employees, successors and assigns (the "Indemnified Parties")
from and against any and all
liabilities whatsoever, losses, damages, penalties, claims,
demands, proceedings, charges, actions, suits, costs, expenses and
disbursements, including reasonable legal or advisor fees and
disbursements on a solicitor and client basis, of whatever kind and
nature which may at any time be imposed on, incurred by or asserted
against the Indemnified Parties, or any of them, whether at law or
in equity, in any way caused by or arising from the performance of
its duties hereunder, directly or indirectly, in respect of any
act, deed, matter or thing whatsoever made, done, acquiesced in or
omitted in or about or in relation to the execution of the
Indemnified Parties' duties, or any other services that Warrant
Agent may provide in connection with or in any way relating to this
Indenture. The Company agrees that its liability hereunder shall be
absolute and unconditional regardless of the correctness of any
representations of any third parties and regardless of any
liability of third parties to the Indemnified Parties, and shall
accrue and become enforceable without prior demand or any other
precedent action or proceeding; provided that the Company shall not
be required to indemnify the Indemnified Parties in the event of
the gross negligence, fraud or wilful misconduct of the Warrant
Agent, and this provision shall survive the resignation or removal
of the Warrant Agent or the termination or discharge of this
Indenture.
(6) Notwithstanding
the foregoing or any other provision of this Indenture, any
liability of the Warrant Agent shall be limited, in the aggregate,
to the amount of annual retainer fees paid by the Company to the
Warrant Agent under this Indenture in the twelve (12) months
immediately prior to the Warrant Agent receiving the first notice
of the claim; provided that this limitation shall not apply in
respect of any gross negligence, fraud or wilful misconduct of the
Warrant Agent. Notwithstanding any other provision of this
Indenture, and whether such losses or damages are foreseeable or
unforeseeable, the Warrant Agent shall not be liable under any
circumstances whatsoever for any (a) breach by any other party of
securities law or other rule of any securities regulatory
authority, (b) lost profits or (c) special, indirect, incidental,
consequential, exemplary, aggravated or punitive losses or
damages.
(7) If
any of the funds provided to the Warrant Agent hereunder are
received by it in the form of an uncertified cheque or bank draft,
the Warrant Agent shall delay the release of such funds and the
related Warrant Shares until such uncertified cheque has cleared
the financial institution upon which the same is
drawn.
(8) The
forwarding of a cheque or the sending of funds by wire transfer by
the Warrant Agent will satisfy and discharge the liability of any
amounts due to the extent of the sum represented thereby unless
such cheque is not honoured on presentation, provided that in the
event of the non-receipt of such cheque by the payee, or the loss
or destruction thereof, the Warrant Agent, upon being furnished
with reasonable evidence of such non-receipt, loss or destruction
and indemnity reasonably satisfactory to it, will issue to such
payee a replacement cheque for the amount of such
cheque.
(9) The
Warrant Agent shall retain the right not to act and shall not be
liable for refusing to act if, due to a lack of information or for
any other reason whatsoever, the Warrant Agent, in its sole
judgement, determines that such act might cause it to be in
non-compliance with any applicable anti-money laundering,
anti-terrorist or economic sanctions legislation, regulation or
guideline. Further, should the Warrant Agent, in its sole
judgement, determine at any time that its acting under this
Indenture has resulted in its being in non-compliance with any
applicable anti-money laundering, anti-terrorist or economic
sanctions legislation, regulation or guideline, then it shall have
the right to resign on 10 days' written notice to the Company
provided: (i) that the Warrant Agent's written notice shall
describe the circumstances of such non-compliance; and (ii) that if
such circumstances are rectified to the Warrant Agent's
satisfaction within such 10-day period, then such resignation shall
not be effective.
8.8 Replacement
of Warrant Agent
(1) The
Warrant Agent may resign its appointment and be discharged from all
further duties and liabilities hereunder by giving to the Company
not less than 60 days prior notice in writing or such shorter prior
notice as the Company may accept as sufficient. The Warrantholders
by extraordinary resolution shall have the power at any time to
remove the existing Warrant Agent and to appoint a new warrant
agent. In the event of the Warrant Agent resigning or being removed
as aforesaid or being dissolved, becoming bankrupt, going into
liquidation or otherwise becoming incapable of acting hereunder,
the Company shall forthwith appoint a new warrant agent unless a
new warrant agent has already been appointed by the Warrantholders;
failing such appointment by the Company, the retiring Warrant Agent
or any Warrantholder may apply to a justice of the Ontario Superior
Court of Justice (the "Court") at the Company's expense, on such
notice as such justice may direct, for the appointment of a new
warrant agent; but any new warrant agent so appointed by the
Company or by the Court shall be subject to removal as aforesaid by
the Warrantholders. Any new warrant agent appointed under any
provision of this section 8.8 shall be a corporation authorized to
carry on the business of a transfer agent or a trust company in one
or more provinces of Canada and, if required by Applicable
Legislation of any province, in such province. On any such
appointment the new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been
originally named herein as Warrant Agent without any further
assurance, conveyance, act or deed; but there shall be immediately
executed, at the expense of the Company, all such conveyances or
other instruments as may, in the opinion of counsel, be necessary
or advisable for the purpose of assuring the same to the new
warrant agent, provided that any resignation or removal of the
Warrant Agent and appointment of a successor warrant agent shall
not become effective until the successor warrant agent shall have
executed an appropriate instrument accepting such appointment and,
at the request of the Company, the predecessor Warrant Agent, upon
payment of its outstanding remuneration and expenses, shall execute
and deliver to the successor warrant agent an appropriate
instrument transferring to such successor warrant agent all rights
and powers of the Warrant Agent hereunder and all securities,
documents of title and other instruments and all monies and
properties held by the Warrant Agent hereunder.
(2) Upon
the appointment of a successor warrant agent, the Company shall
promptly notify the Warrantholders thereof in the manner provided
for in section 9.2.
(3) Any
corporation into or with which the Warrant Agent may be merged or
consolidated or amalgamated, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without any further act on
its part or of any of the parties hereto, provided that such
corporation would be eligible for appointment as a new warrant
agent under Section 8.8(1).
(4) Any
Warrants Authenticated or certified but not delivered by a
predecessor Warrant Agent may be Authenticated or certified by the
new or successor warrant agent in the name of the predecessor or
the new or successor warrant agent.
8.9 Conflict
of Interest
(1) The
Warrant Agent represents to the Company, to the best of its
knowledge, that at the time of execution and delivery hereof no
material conflict of interest exists which it is aware of in the
Warrant Agent's role hereunder and agrees that in the event of a
material conflict of interest arising which it becomes aware of
hereafter it will, within 90 days after ascertaining that it has
such a material conflict of interest, either eliminate the same or
resign its appointment hereunder. If any such material conflict of
interest exists or hereafter shall exist, the validity and
enforceability of this Indenture and the Warrants shall not be
affected in any manner whatsoever by reason thereof.
(2) Subject
to Section 8.9(1), the Warrant Agent, in its personal or any other
capacity, may buy, lend upon and deal in securities of the Company
and generally may contract and enter into financial transactions
with the Company or any Subsidiary without being liable to account
for any profit made thereby.
8.10 Acceptance
of Duties and Obligations
The
Warrant Agent hereby accepts the duties and obligations in this
Indenture declared and provided for and agrees to perform the same
upon the terms and conditions herein set forth and agrees to hold
all rights, interests and benefits contained herein on behalf of
those persons who become holders of Warrants from time to time
issued under this Indenture.
8.11 Warrant
Agent not to be Appointed Receiver
The
Warrant Agent and any person related to the Warrant Agent shall not
be appointed a receiver or receiver and manager or liquidator of
all or any part of the assets or undertaking of the Company or any
Subsidiary or any partnership of which the Company is directly or
indirectly involved.
8.12 Authorization
to Carry on Business
The
Warrant Agent represents to the Company that it is registered to
carry on business under Applicable Legislation in the provinces of
Alberta and British Columbia.
ARTICLE 9
GENERAL
9.1 Notice
to the Company and the Warrant Agent
(1) Unless
herein otherwise expressly provided, any notice to be given
hereunder to the Company or the Warrant Agent shall be deemed to be
validly given if delivered, if sent by registered letter, postage
prepaid or if transmitted by email to the following addresses or
facsimile numbers:
(a) If
to the Company, to:
Planet
13 Holdings Inc.
2548
West Desert Inn Road
Las
Vegas, Nevada 89109
Attention: Leighton Koehler
E-mail: [REDACTED]
with
a copy to:
Cassels
Brock & Blackwell LLP
Suite
2100, Scotia Plaza 40
King
Street West Toronto,
Ontario
M5H 3C2
Attention: Jay Goldman
E-mail: [REDACTED]
(b) If
to the Warrant Agent, to:
Odyssey Trust Company Suite
350, 300 5th
Avenue SW
Calgary, Alberta T2P 3C4
Attention: Dan Sander
Email: [REDACTED]
and
any notice given in accordance with the foregoing shall be deemed
to have been received on the date of delivery if that date is a
Business Day (and if that date is not a Business Day, on the next
Business Day) or, if mailed, on the fifth Business Day following
the date of the postmark on such notice or, if transmitted by
email, on the Business Day following the transmission.
(2) The
Company or the Warrant Agent, as the case may be, may from time to
time notify the other in the manner provided in Section 9.1(1) of a
change of address which, from the effective date of such notice and
until changed by like notice, shall be the address of the Company
or the Warrant Agent, as the case may be, for all purposes of this
Indenture.
(3) If,
by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to
the Warrant Agent or to the Company hereunder could reasonably be
considered unlikely to reach its destination, the notice shall be
valid and effective only if it is delivered to an officer of the
party to which it is addressed or if it is delivered to that party
at the appropriate address provided in Section 9.1(1) by facsimile
or other means of prepaid, transmitted or recorded communication
and any notice delivered in accordance with the foregoing shall be
deemed to have been received on the date of delivery to the officer
or if delivered by facsimile or other means of prepaid,
transmitted, recorded communication on the third Business Day
following the date of the sending of the notice by the person
giving the notice.
9.2 Notice
to the Warrantholders
(1) Any
notice to the Warrantholders under the provisions of this Indenture
shall be deemed to be validly given if the notice is sent by
prepaid mail or, if delivered by hand, to the holders at their
addresses appearing in the register of holders. Any notice so
delivered shall be deemed to have been received on the date of
delivery if that date is a Business Day or the Business Day
following the date of delivery if such date is not a Business Day
or on the third Business Day if delivered by mail. All notices may
be given to whichever one of the Warrantholders (if more than one)
is named first in the appropriate register hereinbefore mentioned,
and any notice so given shall be sufficient notice to all
Warrantholders and any other persons (if any) interested in such
Warrants. Accidental error or omission in giving notice or
accidental failure to mail notice to any Warrantholder will not
invalidate any action or proceeding founded thereon.
(2) If,
by reason of strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to
the Warrantholders could reasonably be considered unlikely to reach
its destination, the notice may be given in a news release
disseminated through a newswire service, filed on SEDAR and posted
on the Company's website; provided that in the case of a notice
convening a meeting of the holders of Warrants, the Warrant Agent
may require such additional publications of that notice, in
Toronto, Ontario or in other cities or both, as it may deem
necessary for the reasonable notification of the holders of
Warrants or to comply with any applicable requirement of law or any
stock exchange. Any notice so given shall be deemed to have been
given on the day on which it has been published in all of the
cities in which publication was required.
9.3 Privacy
The
Company acknowledges that the Warrant Agent may, in the course of
providing services hereunder, collect or receive financial and
other personal information about such parties and/or their
representatives, as individuals, or about other individuals related
to the subject matter hereof, and use such information for the
following purposes:
(a)
to
provide the services required under this Indenture and other
services that may be requested from time to time;
(b)
to
help the Warrant Agent manage its servicing relationships with such
individuals;
(c)
to
meet the Warrant Agent's legal and regulatory requirements;
and
(d)
if
Social Insurance Numbers are collected by the Warrant Agent, to
perform tax reporting and to assist in verification of an
individual's identity for security purposes.
The
Company acknowledges and agrees that the Warrant Agent may receive,
collect, use and disclose personal information provided to it or
acquired by it in the course of its acting as agent hereunder for
the purposes described above and, generally, in the manner and on
the terms described in its privacy code, which the Warrant Agent
shall make available on its website or upon request, including
revisions thereto. Some of this personal information may be
transferred to servicers in the United States for data processing
and/or storage. Further, the Company agrees that it shall not
provide or cause to be provided to the Warrant Agent any personal
information relating to an individual who is not a party to this
Indenture unless the Company has assured itself that such
individual understands and has consented to the aforementioned uses
and disclosures.
9.4 Third
Party Interests
The
Company represents to the Warrant Agent that any account to be
opened by, or interest to held by the Warrant Agent in connection
with this Indenture, for or to the credit of such party, either (i)
is not intended to be used by or on behalf of any third party; or
(ii) is intended to be used by or on behalf of a third party, in
which case such party hereto agrees to complete and execute
forthwith a declaration in the Warrant Agent prescribed form as to
the particulars of such third party.
9.5 Securities
Exchange Commission Certification
The Company confirms that as at the date of this
Indenture it does not have a class of securities registered
pursuant to section 12 of the U.S. Securities and Exchange Act of
1934, as amended (the "Exchange Act")
or have a reporting obligation
pursuant to section 15(d) of the Exchange Act.
The Company covenants that in the event that (i)
any class of its securities shall become registered pursuant to
section 12 of the Exchange Act or the Company shall incur a
reporting obligation pursuant to section 15(d) of the Exchange Act,
or (ii) any such registration or reporting obligation shall be
terminated by the Company in accordance with the Exchange Act, the
Company shall promptly deliver to the Warrant Agent an Officer's
Certificate (in a form provided by the Warrant Agent) notifying the
Warrant Agent of such registration or termination and such other
information as the Warrant Agent may reasonably require at the
time. The Company acknowledges that the Warrant Agent is relying
upon the foregoing representation and covenants in order to meet
certain United States Securities and Exchange Commission
("SEC")
obligations with respect to those
clients who are filing with the SEC.
9.6 Discretion
of Directors
Any
matter provided herein to be determined by the directors in their
sole discretion and determination so made will be
conclusive.
9.7 Satisfaction
and Discharge of Indenture
Upon
the earlier of the Time of Expiry or the date by which there shall
have been delivered to the Warrant Agent for exercise or
destruction in accordance with the provisions hereof all Warrants
theretofore Authenticated or certified hereunder and by which no
Warrants shall remain issuable hereunder, this Indenture, except to
the extent that Warrant Shares and any certificates therefor have
not been issued and delivered hereunder or the Company has not
performed any of its obligations hereunder, shall cease to be of
further effect in respect of the Company, and the Warrant Agent, on
written demand of and at the cost and expense of the Company, and
upon delivery to the Warrant Agent of a certificate of the Company
stating that all conditions precedent to the satisfaction and
discharge of this Indenture have been complied with and upon
payment to the Warrant Agent of the expenses, fees and other
remuneration payable to the Warrant Agent, shall execute proper
instruments acknowledging satisfaction of and discharging this
Indenture; provided that if the Warrant Agent has not then
performed any of its obligations hereunder any such satisfaction
and discharge of the Company's obligations hereunder shall not
affect or diminish the rights of any Warrantholder or the Company
against the Warrant Agent.
9.8 Provisions
of Indenture and Warrants for the Sole Benefit of Parties and
Warrantholders
Nothing
in this Indenture or the Warrant Certificates, expressed or
implied, shall give or be construed to give to any person other
than the parties hereto and the holders from time to time of the
Warrants any legal or equitable right, remedy or claim under this
Indenture, or under any covenant or provision therein contained,
all such covenants and provisions being for the sole benefit of the
parties hereto and the Warrantholders.
9.9 Indenture
to Prevail
To
the extent of any discrepancy or inconsistency between the terms
and conditions of this Indenture and the Warrant Certificate, the
terms of this Indenture will prevail.
9.10 Assignment
This
Indenture nor any benefits or burdens under this Indenture shall be
assignable by the Company or the Warrant Agent without the prior
written consent of the other party, such consent not to be
unreasonably withheld. Subject to the foregoing, this Indenture
shall enure to the benefit of and be binding upon the Company and
the Warrant Agent and their respective successors (including any
successor by reason of amalgamation) and permitted
assigns.
9.11 Severability
If,
in any jurisdiction, any provision of this Indenture or its
application to any party or circumstance is restricted, prohibited
or unenforceable, such provision will, as to such jurisdiction, be
ineffective only to the extent of such restriction, prohibition or
unenforceability without invalidating the remaining provisions of
this Indenture and without affecting the validity or enforceability
of such provision in any other jurisdiction or without affecting
its application to other parties or circumstances.
9.12 Force
Majeure
No
party shall be liable to the other, or held in breach of this
Indenture, if prevented, hindered, or delayed in the performance or
observance of any provision contained herein by reason of act of
God, riots, terrorism, acts of war, epidemics, governmental action
or judicial order, earthquakes, or any other similar causes
(including, but not limited to, mechanical, electronic or
communication interruptions, disruptions or failures). Performance
times under this
Indenture shall be extended for a period of time equivalent to the
time lost because of any delay that is excusable under this
section.
9.13 Counterparts
and Formal Date
This
Indenture may be simultaneously executed in several counterparts,
each of which when so executed shall be deemed to be an original
and such counterparts together shall constitute one and the same
instrument and notwithstanding their date of execution shall be
deemed to bear the date set out at the top of the first page of
this Indenture.
(Signature page follows)
IN WITNESS WHEREOF
the parties hereto have executed this
Indenture under the hands of their proper officers in that
behalf.
PLANET 13 HOLDINGS INC.
By: /s/ Dennis
Logan
Dennis
Logan
Chief
Financial Officer
ODYSSEY TRUST COMPANY
By: /s/ Dan
Sander
Authorized
Signatory
By: /s/ Jenna
Kaye
Authorized
Signatory
SCHEDULE"A"
FORM OF WARRANT CERTIFICATE
WARRANTS TO PURCHASE COMMON SHARES
OF PLANET 13 HOLDINGS INC.
(a company existing pursuant to the federal laws of
Canada)
[For Warrants issued in the United States or to, or for the account
or benefit of, U.S. Persons, also include the following
legends:]
THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE ON
EXERCISE HEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S.
SECURITIES ACT") OR UNDER ANY STATE SECURITIES LAWS, AND THE
SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE ON
EXERCISE HEREOF MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
DIRECTLY OR INDIRECTLY, ONLY (A) TO THE COMPANY, (B) OUTSIDE THE
UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE U.S.
SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND
REGULATIONS, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE U.S. SECURITIES ACT PROVIDED BY (i) RULE 144 OR (ii) RULE144A
THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH APPLICABLE U.S.
STATE SECURITIES LAWS, (D) IN COMPLIANCE WITH ANOTHER EXEMPTION
FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS, OR (E) UNDER AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE U.S. SECURITIES ACT, PROVIDED THAT IN THE CASE
OF TRANSFERS PURSUANT TO (C)(i) OR (D) ABOVE, A LEGAL OPINION OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, MUST FIRST
BE PROVIDED TO THE COMPANY AND THE COMPANY'S TRANSFER AGENT TO THE
EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE
U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. DELIVERY
OF THIS CERTIFICATE MAY NOT CONSTITUTE GOOD DELIVERY" IN SETTLEMENT
OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.
THIS WARRANT MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON
BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A PERSON IN THE UNITED
STATES OR A U.S. PERSON UNLESS THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS
AVAILABLE. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED BY
REGULATION S UNDER THE U.S. SECURITIES ACT.
Warrant Certificate Number: ● Representing ● Warrants to purchase Common Shares (subject to
adjustment and acceleration as provided for in the Warrant
Indenture (as defined below))
THIS CERTIFIES
that, for value received, the
registered holder hereof, ● (the "holder") is entitled at any time at or before the Expiry
Time (as defined below) to acquire, subject to adjustment in
certain events, the number of Common Shares ("Common Shares")
of Planet 13 Holdings Inc. (the
"Company")
specified above, as presently
constituted, by surrendering to Odyssey Trust Company (the
"Warrant
Agent") at its principal office
in Calgary, Alberta, this Warrant Certificate with the duly
completed and executed Exercise Form endorsed on the back of this
Warrant Certificate, and accompanied by payment of $3.75 per Common
Share (the "Warrant Exercise
Price") by certified cheque,
bank draft or money order in lawful money of Canada payable to, or
to the order of, the Company at par at the above-mentioned office
of the Warrant Agent. The holder of this Warrant Certificate may
purchase less than the number of Common Shares which he is entitled
to purchase on the exercise of the Warrants represented by this
Warrant Certificate, in which event a new Warrant Certificate
representing the Warrants not then exercised will be issued to the
holder.
The Warrants evidenced under this Warrant
Certificate are exercisable on or before 5:00 p.m. (Toronto time)
(the "Expiry
Time") on December 4, 2021
(the "Expiry
Date"), subject to acceleration
as described below. After the Expiry Time, Warrants evidenced
hereby shall be deemed to be void and of no further force or
effect. In the event that the volume weighted average closing price
of the Common Shares on the Canadian Securities Exchange (or such
other exchange on which the Common Shares may trade) is at a price
equal to or greater than $5.00 (subject to adjustment in accordance
with the terms of the Warrant Indenture) for a period of 20
consecutive trading days after the date hereof, the Company may
accelerate the Expiry Date of the Warrants by giving not less than
30 days' written notice to the Warrantholders (the
“Acceleration
Notice”), and in such
case, the Warrants will expire on the date that is not less than 30
days from the date the Acceleration Notice is provided to the
Warrantholders pursuant to a written notice to Warrantholders in
accordance with the terms of the Warrant Indenture. Concurrent with
the delivery of the Acceleration Notice to the Warrantholders, the
Company shall also provide the Acceleration Notice to the Warrant
Agent pursuant to terms of the Warrant Indenture and issue a news
release announcing the exercise of the Acceleration Right (as such
term is defined in the Warrant Indenture). The receipt of the
Acceleration Notice by the Warrant Agent and issuance of the news
release announcing the Acceleration Right will not impact the
timing of the exercise of the Acceleration Right by the
Company.
This Warrant Certificate represents Warrants of
the Company issued or issuable under the provisions of a warrant
indenture (which indenture together with all other instruments
supplemental or ancillary thereto is herein referred to as
the "Warrant
Indenture") dated as of
December 4, 2018, between the Company and the Warrant Agent, as may
be amended from time to time, which contains particulars of the
rights of the holders of the Warrants and the Company and of the
Warrant Agent in respect thereof and the terms and conditions upon
which the Warrants are issued and held, all to the same effect as
if the provisions of the Warrant Indenture were herein set forth,
to all of which the holder of this Warrant Certificate by
acceptance hereof assents. Unless otherwise defined herein, all
capitalized terms shall have the meanings ascribed to them in the
Warrant Indenture. A copy of the Warrant Indenture can be requested
by contacting the Warrant Agent. In the event of any conflict
between the provisions contained in this Warrant Certificate and
the provisions of the Warrant Indenture, the provisions of the
Warrant Indenture shall prevail.
Upon
acceptance hereof, the holder hereof hereby expressly waives the
right to receive any fractional Common Shares upon the exercise
hereof in full or in part and further waives the right to receive
any cash or other consideration in lieu thereof. The Warrants
represented by this Warrant Certificate shall be deemed to have
been surrendered, and payment by certified cheque, bank draft or
money order shall be deemed to have been made only upon personal
delivery thereof or, if sent by post or other means of
transmission, upon actual receipt thereof by the Warrant Agent at
its office in the City of Calgary, Alberta.
Upon
due exercise of the Warrants represented by this Warrant
Certificate and payment of the Warrant Exercise Price, the Company
shall cause to be issued to the person(s) in whose name(s) the
Common Shares have been so subscribed for, the number of Common
Shares to be issued to such person(s) (provided that if the Common
Shares are to be issued to a person other than the registered
holder of this Warrant Certificate, the holder's signature on the
Exercise Form herein shall be guaranteed by a Schedule I Canadian
chartered bank or by a medallion signature guarantee from a member
of a recognized Signature Medallion Guarantee Program), and the
holder shall pay to the Company or the Warrant Agent all applicable
transfer or similar taxes and the Company shall not be required to
issue or deliver certificates evidencing the Common Shares unless
or until the holder shall have paid the Company or the Warrant
Agent the amount of such tax (or shall have satisfied the Company
that such tax has been paid or that no tax is due), and such
person(s) shall become a holder in respect of such Common Shares
with effect from the date of such exercise, and upon due surrender
of this Warrant Certificate, the Transfer Agent shall issue a
certificate(s) representing such Common Shares to be issued within
five Business Days after the exercise of the Warrants (or portion
thereof) represented hereby.
Neither the Warrants represented by this Warrant
Certificate nor the Common Shares issuable upon exercise hereof
have been or will be registered under the United States Securities
Act of 1933, as amended (the “U.S. Securities
Act”), or any state
securities laws. The Warrants represented by this Warrant
Certificate may not be exercised within the United States or by, or
for the account or benefit of, a U.S. person or a person within the
United States unless registered under the U.S. Securities Act and
any applicable state securities laws or unless an exemption from
such registration is available. Certificates representing Common
Shares issued in the United States or to, or for the account or
benefit of, U.S. persons will bear a legend restricting the
transfer and exercise of such securities under applicable United
States federal and state securities laws. "United States" and "U.S.
person" are as defined in Regulation S under the U.S. Securities
Act.
The
holder acknowledges that the Warrants represented by this Warrant
Certificate and the Common Shares issuable upon exercise hereof may
be offered, sold or otherwise transferred only in compliance with
all applicable securities laws.
No
transfer of any Warrant will be valid unless entered on the
register of transfers, upon surrender to the Warrant Agent of the
Warrant Certificate evidencing such Warrant, duly endorsed by, or
accompanied by a transfer form or other written instrument of
transfer in form satisfactory to the Warrant Agent executed by the
registered holder or his executors, administrators or other legal
representatives or his or their attorney duly appointed by an
instrument in writing in form and execution satisfactory to the
Warrant Agent. Subject to the provisions of the Warrant Indenture
and upon compliance with the reasonable requirements of the Warrant
Agent, Warrant Certificates may be exchanged for Warrants
Certificates entitling the holder thereof to acquire an equal
aggregate number of Common Shares subject to adjustment as provided
for in the Warrant Indenture. The Company and the Warrant Agent may
treat the registered holder of this Warrant Certificate for all
purposes as the absolute owner hereof. The holding of the Warrants
represented by this Warrant Certificate shall not constitute the
holder hereof a holder of Common Shares nor entitle him to any
right or interest in respect thereof except as herein and in the
Warrant Indenture expressly provided.
The
Warrant Indenture provides for adjustment in the number of Common
Shares to be delivered upon exercise of the right of purchase
hereby granted and to the Warrant Exercise Price in certain events
therein set forth.
The
Warrant Indenture contains provisions making binding upon all
holders of Warrants outstanding thereunder resolutions passed at
meetings of such holders held in accordance with such provisions
and instruments in writing signed by the Warrantholders entitled to
acquire upon the exercise of the Warrants a specified percentage of
the Common Shares.
The
Warrants and the Warrant Indenture shall be governed by and
performed, construed and enforced in accordance with the laws of
the Province of Ontario and the federal laws of Canada applicable
therein and shall be treated in all respects as Ontario contracts.
Time shall be of the essence hereof and of the Warrant
Indenture.
The
Company may from time to time at any time prior to the Expiry Time
purchase any of the Warrants by private agreement or
otherwise.
This
Warrant Certificate shall not be valid for any purpose until it has
been certified by or on behalf of the Warrant Agent for the time
being under the Warrant Indenture.
All
dollar amounts herein are expressed in the lawful money of
Canada.
(Signature page follows)
IN WITNESS WHEREOF the
Company has caused this Warrant Certificate to be signed by its
duly authorized officer as of this day of ,
20 .
PLANET 13 HOLDINGS INC.
By:
_________________________
Authorized Signing
Officer
Countersigned this
_______ day
of 20__
ODYSSEY TRUST COMPANY
By:
_________________________
Authorized Signing
Officer
EXERCISE FORM
TO: Planet 13 Holdings
Inc.
c/o Odyssey Trust Company Suite 350, 300
5th
Avenue SW Calgary, Alberta T2P
3C4
The undersigned holder of the within Warrants hereby irrevocably
exercises the right of such
holder to be issued and hereby subscribes for ______________Common Shares of Planet 13
Holdings Inc. (the "Company") at the Warrant Exercise Price referred to in the
attached Warrant Certificate on the terms and conditions set forth
in such certificate and the Warrant Indenture and encloses herewith
a certified cheque, bank draft or money order payable at par in the
City of Calgary, in the Province of Alberta to the order of the
Company in payment in full of the subscription price of the Common
Shares hereby subscribed for.
Unless otherwise defined herein, all capitalized terms shall have
the meanings ascribed to them in the warrant indenture between the
Company and Odyssey Trust Company dated December 4,
2018.
(Please check the ONE box applicable):
☐ 1. The
undersigned certifies that it (i) is not in the United States and
is not a "U.S.
person", within the meaning of Regulation S under
the United States Securities Act of 1933, as amended (the
"U.S. Securities
Act"), (ii) is not exercising
this Warrant for the account or benefit of any U.S. Person or
person in the United States, (iii) did not execute or deliver this
Exercise Form within the United States and (iv) has in all other
aspects complied with the terms of Regulation S under the U.S.
Securities Act.
☐ 2. The
undersigned certifies that it (i) purchased the Warrants as a part
of the Units
in
the Offering; (ii) is exercising the Warrants solely for its own
account or for the benefit of a U.S. Person or a person in the
United States for whose account such holder acquired the Warrants
as a part of the Units in the Offering and for whose account such
holders exercises sole investment discretion; (iii) was and is, and
any beneficial purchaser for whose account such holder acquired the
Warrant and is exercising the Warrants was and is, a Oualified
Institutional Buyer both on the date the Units were purchased in
the Offering and on the Exercise Date; and (iv) the representations
and warranties made by the holder or any beneficial purchaser, as
the case may be, to the Company in such holder’s GIB Letter
remain true and correct on the Exercise Date.
☐ 3.
The undersigned is delivering a written opinion of United States
legal counsel or
evidence
satisfactory to the Company to the effect that the Warrant and the
Common Shares to be delivered upon exercise hereof have been
registered under the U.S. Securities Act or are exempt from the
registration requirements of the U.S. Securities Act and applicable
state securities laws.
It is understood that the Company may require evidence to verify
the foregoing representations.
NAME(S) IN FULL
|
ADDRESS(ES)
|
NUMBER OF COMMON SHARES
|
|
|
|
|
|
|
|
|
|
The undersigned hereby directs that the said Common Shares be
issued as follows:
Please print full name in which certificates representing the
Common Shares are to be issued. If any Common Shares are to be
issued to a person or persons other than the registered holder, the
registered holder must pay to the Warrant Agent all eligible
transfer taxes or other government charges, if any, and the
Transfer Form must be duly executed.
Once completed and executed, this Exercise Form must be mailed or
delivered to Odyssey Trust Company, c/o Corporate
Trust.
DATED this ___________
day of
_________)
_________)
_________)
__________ )
Witness
________) (Signature of Warrantholder, to be the same as appears on
the face of this Warrant Certificate)
Name of
Registered Warrantholder
[ ]
Please check this box if the securities are to be delivered at the
office where these
Warrants
are surrendered, failing which the securities will be
mailed.
NOTES:
1. Certificates
will not be registered or delivered to an address in the United
States unless Box 2 or Box 3 above is checked.
2. If
Box 3 above is checked, holders are encouraged to contact the
Company in advance to determine that the legal opinion or evidence
tendered in connection with exercise will be satisfactory in form
and substance to the Company.
TRANSFER FORM
TO: Planet
13 Holdings Inc.
c/o
Odyssey Trust Company Suite 1230, 300 5th Avenue SW Calgary,
Alberta T2P 3C4
FOR
VALUE RECEIVED, the undersigned transferor hereby sells, assigns
and transfers unto
(Transferee)
(Address)
(Social
Insurance Number)
of the
Warrants registered in the name of the undersigned
transferor
represented
by the Warrant Certificate.
In the
case of a Warrant Certificate that contains a U.S. restrictive
legend, the undersigned hereby represents, warrants and certifies
that (one (only) of the following must be checked):
☐ (A) the transfer is
being made only to the Company; or
☐ (B) the
transfer is being made outside the United States in
accordance with
Regulation S under the United States Securities Act of 1933, as
amended (the “U.S. Securities
Act”), and in compliance with any applicable local
securities laws and regulations and the holder has provided
herewith the Declaration for Removal of Legend attached as Schedule
"B" to the Warrant Indenture; or
☐ (C) the
transfer is being made pursuant to the exemption
from
the registration requirements of the U.S. Securities Act provided
by (i) Rule 144 or (ii) Rule 144A thereunder, and in either case in
accordance with applicable state securities laws; or
☐ (D) the
transfer is being made within the United States or
to, or
for the account or benefit of, U.S. persons, in accordance with a
transaction that does not require registration under the U.S.
Securities Act or any applicable state securities laws and the
undersigned has furnished to the Company and the Warrant Agent an
opinion of counsel of recognized standing in form and substance
reasonably satisfactory to the Company to such effect.
In the
case of a transfer in accordance with (C)(i) or (D) above, the
Company and the Warrant Agent shall first have received an opinion
of counsel of recognized standing in form and substance reasonably
satisfactory to the Company, to such effect.
In the
case of a Warrant Certificate that does not contain a U.S.
restrictive legend, if the proposed transfer is to, or for the
account or benefit of a U.S. person or to a person in the United
States, the
In the case of a Warrant Certificate that does not contain a U.S.
restrictive legend, if the proposed transfer is to, or for the
account or benefit of a U.S. person or to a person in the United
States, the undersigned hereby represents, warrants and certifies
that the transfer of the Warrants is being completed pursuant to an
exemption from the registration requirements of the U.S. Securities
Act and any applicable state securities laws, in which case the
undersigned has furnished to the Company and the Warrant Agent an
opinion of counsel of recognized standing in form and substance
reasonably satisfactory to the Company to such effect.
"United States" and "U.S. Person" are as defined by Regulation S
under the U.S. Securities Act.
REASON FOR TRANSFER – For US Residents only (where the
individual(s) or corporation receiving the securities is a US
resident). Please select only one (see instructions
below).
☐ Gift
|
☐ Estate
|
☐ Private Sale
|
☐ Other (no change in ownership
|
Date of Event (Date of gift, death or
sale): Value per Warrant
on the date of event:
☐ CAD OR USD ☐
NOTES:
1.
The
signature to this transfer must correspond with the name as
recorded on the Warrants in every particular without alteration or
enlargement or any change whatever. The signature of the person
executing this transfer must be guaranteed by a Schedule I Canadian
chartered bank, or by a medallion signature guarantee from a member
of a recognized Signature Medallion Guarantee Program.
2.
Warrants shall only be transferable in accordance
with the warrant indenture between Planet 13 Holdings Inc. and Odyssey Trust Company dated
December 4,
2018 (the "Warrant Indenture"),
applicable laws and the rules and
policies of any applicable stock exchange. Without limiting the
foregoing, if the Warrant Certificate bears a legend restricting
the transfer of the Warrants except pursuant to an exemption from
registration under the U.S. Securities Act, and applicable state
securities laws, this Transfer Form must be accompanied by a
properly completed and executed declaration for removal of legend
in the form attached as Schedule "B" to the Warrant
Indenture.
CERTAIN REQUIREMENTS RELATING TO TRANSFERS - READ
CAREFULLY
The signature(s) of the transferor(s) must correspond with the
name(s) as written upon the face of this certificate(s), in every
particular, without alteration or enlargement, or any change
whatsoever. All securityholders or a legally authorized
representative must sign this form. The signature(s) on this form
must be guaranteed in accordance with the transfer agent's then
current guidelines and requirements at the time of transfer.
Notarized or witnessed signatures are not acceptable as guaranteed
signatures. As at the time of closing, you may choose one of the
following methods (although subject to change in accordance with
industry practice and standards):
●
Canada and the USA:
A Medallion Signature Guarantee
obtained from a member of an acceptable Medallion Signature
Guarantee Program (STAMP, SEMP, NYSE, MSP). Many commercial banks,
savings banks, credit unions, and all broker dealers participate in
a Medallion Signature Guarantee Program. The Guarantor must affix a
stamp bearing the actual words "Medallion Guaranteed", with the
correct prefix covering the face value of the
certificate.
●
Canada: A Signature Guarantee obtained from an authorized
officer of the Royal Bank of Canada, Scotia Bank or TD Canada
Trust. The Guarantor must affix a stamp bearing the actual words
"Signature Guaranteed", sign and print their full name and alpha
numeric signing number. Signature Guarantees are not accepted from
Treasury Branches, Credit Unions or Caisse Populaires unless they
are members of a Medallion Signature Guarantee Program. For
corporate holders, corporate signing resolutions, including
certificate of incumbency, are also required to accompany the
transfer, unless there is a "Signature & Authority to Sign
Guarantee" Stamp affixed to the transfer (as opposed to a
"Signature Guaranteed" Stamp) obtained from an authorized officer
of the Royal Bank of Canada, Scotia Bank or TD Canada Trust or a
Medallion Signature Guarantee with the correct prefix covering the
face value of the certificate.
●
Outside North America:
For holders located outside North
America, present the certificates(s) and/or document(s) that
require a guarantee to a local financial institution that has a
corresponding Canadian or American affiliate which is a member of
an acceptable Medallion Signature Guarantee Program. The
corresponding affiliate will arrange for the signature to be
over-guaranteed.
OR
The signature(s) of the transferor(s) must correspond with the
name(s) as written upon the face of this certificate(s), in every
particular, without alteration or enlargement, or any change
whatsoever. The signature(s) on this form must be guaranteed by an
authorized officer of Royal Bank of Canada, Scotia Bank or TD
Canada Trust whose sample signature(s) are on file with the
transfer agent, or by a member of an acceptable Medallion Signature
Guarantee Program (STAMP, SEMP, NYSE, MSP). Notarized or witnessed
signatures are not acceptable as guaranteed signatures. The
Guarantor must affix a stamp bearing the actual words: "SIGNATURE
GUARANTEED", "MEDALLION GUARANTEED" OR "SIGNATURE & AUTHORITY
TO SIGN GUARANTEE", all in accordance with the transfer agent's
then current guidelines and requirements at the time of transfer.
For corporate holders, corporate signing resolutions, including
certificate of incumbency, will also be required to accompany the
transfer unless there is a "SIGNATURE & AUTHORITY TO SIGN
GUARANTEE" Stamp affixed to the Form of Transfer obtained from an
authorized officer of the Royal Bank of Canada, Scotia Bank or TD
Canada Trust or a "MEDALLION GUARANTEED" Stamp affixed to the Form
of Transfer, with the correct prefix covering the face value of the
certificate.
REASON FOR TRANSFER - FOR US RESIDENTS ONLY
Consistent with US IRS regulations, Odyssey Trust Company is
required to request cost basis information from US securityholders.
Please indicate the reason for requesting the transfer as well as
the date of event relating to the reason. The event date is not the
day in which the transfer is finalized, but rather the date of the
event which led to the transfer request (i.e. date of gift, date of
death of the securityholder, or the date the private sale took
place).
SCHEDULE"B"
FORM OF DECLARATION FOR REMOVAL OF LEGEND
TO: Planet 13 Holdings
Inc.
c/o Odyssey Trust Company Suite 350, 300
5th
Avenue SW Calgary, Alberta T2P
3C4
The undersigned (a) acknowledges that the sale of the securities of
Planet 13 Holdings Inc. (the "Company") to which this declaration relates is being made in
reliance on Rule 904 of Regulation S ("Regulation S")
under the United States Securities Act
of 1933, as amended (the "U.S. Securities Act")
and (b) certifies that (1) it is not
an affiliate of the Company (as defined in Rule 405 under the U.S.
Securities Act), (2) the offer of such securities was not made to a
person in the United States and either (A) at the time the buy
order was originated, the buyer was outside the United States, or
the seller and any person acting on its behalf reasonably believe
that the buyer was outside the United States, or (B) the
transaction was executed on or through the facilities of the
Canadian Securities Exchange and neither the seller nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States, (3) neither the
seller nor any affiliate of the seller nor any person acting on any
of their behalf has engaged or will engage in any directed selling
efforts in the United States in connection with the offer and sale
of such securities, (4) the sale is bona fide and not for the
purpose of "washing off the resale restrictions imposed because the
securities are "restricted securities" (as such term is defined in
Rule 144(a)(3) under the U.S. Securities Act), (5) the seller does
not intend to replace the securities sold in reliance on Rule 904
of the U.S. Securities Act with fungible unrestricted securities,
and (6) the sale was not a transaction, or part of a series of
transactions which, although in technical compliance with
Regulation S, is part of a plan or scheme to evade the registration
provisions of the U.S. Securities Act. Terms used herein have the
meanings given to them by Regulation S.
Dated: By:
Name:
Title:
Affirmation By Seller's Broker-Dealer (required for sales in
accordance with Section (b)(2)(B)
above)
We have read the foregoing representations of our
customer, (the
"Seller") dated , with
regard to our sale, for such Seller's account, of
the
securities of the Company described therein, and on behalf of
ourselves we certify and affirm that (A) we have no knowledge that
the transaction had been prearranged with a buyer in the United
States, (B) the transaction was executed on or through the
facilities of designated offshore securities market, (C) neither
we, nor any person acting on our behalf, engaged in any directed
selling efforts in connection with the offer and sale of such
securities, and (D) no selling concession, fee or other
remuneration is being paid to us in connection with this offer and
sale other than the usual and customary broker's commission that
would be received by a person executing such transaction as agent.
Terms used herein have the meanings given to them by Regulation
S.
Name of
Firm
By:
Authorized
officer
Date:
Exhibit 4.6
10653918 CANADA INC.
as the Corporation
and
ODYSSEY TRUST COMPANY
as the Warrant Agent
and
CARPINCHO CAPITAL CORP.
as the Resulting Issuer
WARRANT INDENTURE
Providing for the Issue of Warrants
Dated as of April 26, 2018
TABLE OF CONTENTS
ARTICLE 1
INTERPRETATION
Section
1.1
|
Definitions
|
2
|
Section
1.2
|
Gender
and Number
|
5
|
Section
1.3
|
Headings,
Etc
|
5
|
Section
1.4
|
Day
not a Business Day
|
5
|
Section
1.5
|
Time
of the Essence
|
5
|
Section
1.6
|
Monetary
References
|
5
|
Section
1.7
|
Applicable
Law
|
6
|
Section
1.8
|
Completion
of the Transactions
|
6
|
ARTICLE 2
ISSUE OF WARRANTS
Section
2.1
|
Creation
and Issue of Warrants
|
6
|
Section
2.2
|
Terms
of Warrants
|
6
|
Section
2.3
|
Warrantholder
not a Shareholder
|
6
|
Section
2.4
|
Warrants
to Rank Pari Passu
|
7
|
Section
2.5
|
Form
of Warrants, Certificated Warrants
|
7
|
Section
2.6
|
Book
Entry Only Warrants
|
8
|
Section
2.7
|
Warrant
Certificate
|
9
|
Section
2.8
|
Register
of Warrants
|
10
|
Section
2.9
|
Issue
in Substitution for Warrant Certificates Lost, etc
|
10
|
Section
2.10
|
Exchange
of Warrant Certificates
|
10
|
Section
2.11
|
Transfer
and Ownership of Warrants
|
11
|
Section
2.12
|
Cancellation
of Surrendered Warrants
|
11
|
ARTICLE 3
EXERCISE OF WARRANTS
Section
3.1
|
Right
of Exercise
|
12
|
Section
3.2
|
Warrant
Exercise
|
12
|
Section
3.3
|
Prohibition on Exercise by Persons in the United States and U.S.
Persons
|
13
|
Section
3.4
|
Transfer
Fees and Taxes
|
13
|
Section
3.5
|
Warrant
Agency
|
13
|
Section
3.6
|
Effect
of Exercise of Warrants
|
14
|
Section
3.7
|
Partial
Exercise of Warrants; Fractions
|
14
|
Section
3.8
|
Expiration
of Warrants
|
14
|
Section
3.9
|
Accounting
and Recording
|
14
|
Section
3.10
|
Securities
Restrictions
|
14
|
ARTICLE 4
ADJUSTMENT OF NUMBER OF COMMON SHARES
AND EXERCISE PRICE
Section
4.1
|
Adjustment
of Number of Common Shares and Exercise Price
|
15
|
Section
4.2
|
Entitlement
to Common Shares on Exercise of Warrant
|
17
|
Section
4.3
|
No
Adjustment for Certain Transactions
|
17
|
Section
4.4
|
Determination
by Independent Firm
|
17
|
Section
4.5
|
Proceedings
Prior to any Action Requiring Adjustment
|
17
|
Section
4.6
|
Certificate
of Adjustment
|
18
|
Section
4.7
|
Notice
of Special Matters
|
18
|
Section
4.8
|
No
Action after Notice
|
18
|
Section
4.9
|
Other
Action
|
18
|
Section
4.10
|
Protection
of Warrant Agent
|
18
|
Section
4.11
|
Participation
by Warrantholder
|
19
|
Section
4.12
|
Regulatory
Approval of Adjustments
|
19
|
ARTICLE 5
RIGHTS OF THE CORPORATION AND COVENANTS
Section
5.1
|
Optional
Purchases by the Corporation
|
19
|
Section
5.2
|
General
Covenants
|
19
|
Section
5.3
|
Warrant
Agent’s Remuneration and Expenses
|
20
|
Section
5.4
|
Performance
of Covenants by Warrant Agent
|
20
|
Section
5.5
|
Enforceability
of Warrants
|
20
|
ARTICLE 6
ENFORCEMENT
Section
6.1
|
Suits
by Warrantholders
|
20
|
Section
6.2
|
Suits
by the Corporation
|
20
|
Section
6.3
|
Immunity
of Shareholders, etc
|
21
|
Section
6.4
|
Waiver
of Default
|
21
|
ARTICLE
7
MEETINGS OF REGISTERED WARRANTHOLDERS
Section
7.1
|
Right
to Convene Meetings
|
21
|
Section
7.2
|
Notice
|
21
|
Section
7.3
|
Chairman
|
21
|
Section
7.4
|
Quorum
|
22
|
Section
7.5
|
Power
to Adjourn
|
22
|
Section
7.6
|
Show
of Hands
|
22
|
Section
7.7
|
Poll
and Voting
|
22
|
Section
7.8
|
Regulations
|
22
|
Section
7.9
|
Corporation
and Warrant Agent May be Represented
|
22
|
Section
7.10
|
Powers
Exercisable by Extraordinary Resolution
|
23
|
Section
7.11
|
Meaning
of Extraordinary Resolution
|
23
|
Section
7.12
|
Powers
Cumulative
|
23
|
Section
7.13
|
Minutes
|
24
|
Section
7.14
|
Instruments
in Writing
|
24
|
Section
7.15
|
Binding
Effect of Resolutions
|
24
|
Section
7.16
|
Holdings
by Corporation Disregarded
|
24
|
ARTICLE 8
SUPPLEMENTAL INDENTURES
Section
8.1
|
Provision for
Supplemental Indentures for Certain Purposes
|
24
|
Section
8.2
|
Successor
Entities
|
25
|
ARTICLE 9
CONCERNING THE WARRANT AGENT
Section
9.1
|
Warrant
Indenture Legislation
|
25
|
Section
9.2
|
Rights
and Duties of Warrant Agent
|
25
|
Section
9.3
|
Evidence,
Experts and Advisers
|
25
|
Section
9.4
|
Documents,
Monies, etc. Held by Warrant Agent
|
26
|
Section
9.5
|
Actions
by Warrant Agent to Protect Interest
|
27
|
Section
9.6
|
Warrant
Agent Not Required to Give Security
|
27
|
Section
9.7
|
Protection
of Warrant Agent
|
27
|
Section
9.8
|
Replacement
of Warrant Agent; Successor by Merger
|
28
|
Section
9.9
|
Conflict
of Interest
|
28
|
Section
9.10
|
Acceptance
of Agency
|
29
|
Section
9.11
|
Warrant
Agent Not to be Appointed Receiver
|
29
|
Section
9.12
|
Warrant
Agent Not Required to Give Notice of Default
|
29
|
Section
9.13
|
Anti-Money
Laundering
|
29
|
Section
9.14
|
Compliance
with Privacy Code
|
30
|
ARTICLE 10 GENERAL
Section
10.1
|
Notice
to the Corporation and the Warrant Agent
|
30
|
Section
10.2
|
Notice
to Warrantholders
|
31
|
Section
10.3
|
Ownership
of Warrants
|
31
|
Section
10.4
|
Counterparts
|
31
|
Section
10.5
|
Satisfaction
and Discharge of Indenture
|
31
|
Section
10.6
|
Provisions of
Indenture and Warrants for the Sole Benefit of Parties and
Warrantholders
|
31
|
Section 10.7
|
Common
Shares or Warrants Owned by the Corporation or its Subsidiaries -
Certificate to be Provided
|
32
|
Section
10.8
|
Severability
|
32
|
Section
10.9
|
Force
Majeure
|
32
|
Section
10.10
|
Assignment,
Successors and Assigns
|
32
|
SCHEDULES
SCHEDULE
“A” - FORM OF WARRANT CERTIFICATE
SCHEDULE
“B” - EXERCISE FORM
Schedule “C” FORM OF DECLARATION OF REMOVAL OF
LEGEND
WARRANT INDENTURE
THIS WARRANT INDENTURE
is dated as of April 26, 2018.
AMONG:
10653918 CANADA INC.,
a corporation existing under the
federal laws of the Canada (the “Corporation”)
and
-
ODYSSEY TRUST COMPANY,
a trust company existing under the
laws of the Province of Alberta, and authorized to carry on
business in the Provinces of Alberta and British Columbia
(the
“Warrant Agent”)
and
-
CARPINCHO CAPITAL CORP.,
a corporation existing under the
federal laws of Canada (“Carpincho”)
WHEREAS it is proposed that MM Development Company,
Inc. (“Planet
13”) will complete a
reverse takeover of Carpincho, an unlisted reporting issuer in
certain jurisdictions in Canada, which is expected to involve: (i)
the consolidation of the common shares of Carpincho on the basis of
0.875 of one (1) new common share of Carpincho for every one (1)
existing common share of Carpincho (the “Consolidation”);
(ii) the acquisition (the
“Acquisition”)
of all of the common shares and
restricted voting shares of Planet 13, on the terms and conditions
of a share exchange agreement (the “Share Exchange
Agreement”) between
Carpincho, Planet 13, and the shareholders of Planet 13; and (iii)
the amalgamation (together with the Acquisition, the
“Transactions”)
of a wholly-owned subsidiary of
Carpincho (“Subco”)
with the Corporation, on the terms and
conditions of an amalgamation agreement (the “Amalgamation
Agreement”) between
Carpincho, Subco and the Corporation, whereby the holders of the
Common Shares and Warrants will receive Carpincho Shares and
warrants to acquire Carpincho Shares on a one for one basis on
completion of the Transactions;
AND WHEREAS in connection with, and prior to the completion
of, the Transactions, the Corporation proposes to issue up to
37,500,000 Subscription Receipts pursuant to which up to 37,500,000
units (the “Units”)
will be issuable upon the satisfaction
of certain escrow release conditions, and with each Unit comprised
of one Common Share and one-half of one
Warrant;
AND WHEREAS the Corporation is proposing to issue up to
18,750,000 Warrants in accordance with this Indenture pursuant to
the Subscription Receipts;
AND WHEREAS prior to the completion of the Transactions, and
pursuant to this Indenture, each whole Warrant shall, subject to
adjustment, entitle the holder thereof to acquire one (1) Common
Share upon payment of the Exercise Price upon the terms and
conditions herein set forth;
AND WHEREAS following the completion of the Transactions, and
pursuant to this Indenture, each whole Warrant shall, subject to
adjustment, entitle the holder thereof to acquire one (1) Carpincho
Share, in lieu of one (1) Common Share, upon payment of the
Exercise Price upon the terms and conditions herein set
forth;
AND WHEREAS all acts and deeds necessary have been done and
performed to make the Warrants, when created and issued as provided
in this Indenture, legal, valid and binding upon the Corporation
and Carpincho with the benefits and subject to the terms of this
Indenture;
AND WHEREAS the foregoing recitals are made as representations
and statements of fact by the Corporation and Carpincho and not by
the Warrant Agent;
NOW THEREFORE,
in consideration of the premises and
mutual covenants hereinafter contained and other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the Corporation hereby appoints the Warrant Agent as
warrant agent to hold the rights, interests and benefits contained
herein for and on behalf of those persons who from time to time
become the holders of Warrants issued pursuant to this Indenture
and the parties hereto agree as follows:
INTERPRETATION
Section 1.1 Definitions.
In
this Indenture, including the recitals and schedules hereto, and in
all indentures supplemental hereto:
“Adjustment Period” means the period from the date hereof up to and
including the Expiry Time;
“Applicable Legislation” means any statute of Canada or a province thereof,
and the regulations under any such named or other statute, relating
to warrant indentures or to the rights, duties and obligations of
warrant agents under warrant indentures, to the extent that such
provisions are at the time in force and applicable to this
Indenture;
“Applicable Securities Laws” means the applicable securities laws and
regulations of each of the provinces and territories of Canada, and
the applicable federal and state securities laws and regulations of
the United States, together with all related rules, policies,
notices and orders of applicable regulatory
authorities;
“Auditors” means a
firm of professional accountants duly appointed as auditors of the
Corporation, from time to time;
“Authenticated” means (a) with respect to the issuance of a
Warrant Certificate, one which has been duly signed by the
Corporation and authenticated by manual signature of an authorized
officer of the Warrant Agent, and (b) with respect to the issuance
of an Uncertificated Warrant, one in respect of which the Warrant
Agent has completed all Internal Procedures such that the
particulars of such Uncertificated Warrant as required by Section
2.7 are entered in the register of holders of Warrants,
“Authenticate",
“Authenticating” and “Authentication”
have the appropriate correlative
meanings;
“Book Based System” means the book-based securities registration and
transfer system administered by the Depository in accordance with
its operating rules and procedures in force from time to
time;
“Book Entry Only Participants” means institutions that participate directly or
indirectly in the Depository’s book entry registration system
for the Warrants;
“Book Entry Only Warrants” means Warrants that are to be held only by or on
behalf of the Depository;
“Business Day” means any day other than Saturday, Sunday or a
statutory or civic holiday, or any other day on which banks are not
open for business in the City of Toronto, Ontario or in the City of
Calgary, Alberta;
“CDS Global Warrants” means Warrants representing all or a portion of
the aggregate number of Warrants issued in the name of the
Depository represented by an Uncertificated Warrant, or if
requested by the Depository or the Corporation, by a Warrant
Certificate;
“CSE” means the
Canadian Securities Exchange;
“Carpincho” means
Carpincho Capital Corp.;
“Carpincho Shares” means common shares in the capital of Carpincho as
constituted following the completion of the
Consolidation;
“Certificated Warrant” means a Warrant evidenced by a writing or writings
substantially in the form of Schedule “A”, attached
hereto;
“Common Share Reorganization” has the meaning set forth in Section
4.1(a);
“Common Shares” means, subject to Article 4, fully paid and
non-assessable common shares of the Corporation as presently
constituted;
“Confirmation” has
the meaning set forth in Section 3.2(1);
“Corporation” means
10653918 Canada Inc., or any successor entity
thereto;
“Counsel” means a
barrister and/or solicitor or a firm of barristers and/or
solicitors retained by the Warrant Agent or retained by the
Corporation, acceptable to the Warrant Agent, which may or may not
be counsel for the Corporation;
“Current Market Price” of the Common Shares at any date means the volume
weighted average of the closing price per Common Share for such
Common Shares for each day there was a closing price for the twenty
(20) consecutive Trading Days ending five (5) days prior to such
date on the CSE or if on such date the Common Shares are not listed
on the CSE, on such stock exchange upon which such Common Shares
are listed and as selected by the directors, or, if such Common
Shares are not listed on any stock exchange then on such
over-the-counter market as may be selected for such purpose by the
directors of the Corporation, acting
reasonably;
“Depository” means
CDS Clearing and Depository Services Inc. or such other person as
is designated in writing by the Corporation to act as depository in
respect of the Warrants;
“Dividends” means
any dividends paid by the Corporation on its Common
Shares;
“Effective Date” means the date on which the Carpincho Shares
commence trading on the CSE after the completion of the
Transactions;
“Exchange Rate” means the number of Common Shares subject to the
right of purchase under each Warrant, which, at the date of this
Indenture, is one (1) Common Share;
“Exercise Date” means, in relation to a Warrant, the Business Day
on which such Warrant is validly exercised or deemed to be validly
exercised in accordance with Article 3 hereof;
“Exercise Notice” has the meaning set forth in Section
3.2(1);
“Exercise Price” at
any time means the price at which a whole Common Share may be
purchased by the exercise of a Warrant, which is initially $1.40
per Common Share, payable in immediately available Canadian funds,
subject to adjustment in accordance with the provisions of this
Indenture;
“Expiry Date” means
the date which is twenty four (24) months following the Effective
Date;
“Expiry Time” means
4:00 p.m. (Toronto time) on the Expiry Date;
“Extraordinary Resolution” has the meaning set forth in Section
7.11(1);
“Internal Procedures” means in respect of the making of any one or more
entries to, changes in or deletions of any one or more entries in
the register at any time (including without limitation, original
issuance or registration of transfer of ownership) the minimum
number of the Warrant Agent’s internal procedures customary
at such time for the entry, change or deletion made to be complete
under the operating procedures followed at the time by the Warrant
Agent, it being understood that neither preparation and issuance
shall constitute part of such procedures for any purpose of this
definition;
“Issue Date” means
the date the Warrants are issued pursuant to the Subscription
Receipts;
“person” means an
individual, body corporate, partnership, limited liability company,
trust, warrant agent, executor, administrator, legal representative
or any unincorporated organization;
“QIB Purchaser” means a Qualified Institutional Buyer who first
purchased Subscription Receipts on the date of original issuance of
the Subscription Receipts and who, in connection with such
purchase, executed a U.S. Subscription
Agreement;
“Qualified Institutional Buyer” means a qualified institutional buyer as that term
is defined in Rule 144A under the U.S. Securities
Act;
“register” means
the one set of records and accounts maintained by the Warrant Agent
pursuant to Section 2.8;
“Regulation S” means Regulation S adopted by the United States
Securities and Exchange Commission under the U.S. Securities
Act;
“Rights Offering” has the meaning set forth in Section
4.1(b);
“Shareholders” means holders of Common
Shares;
“Subscription Receipts” means, collectively, the up to 37,500,000
subscription receipts to be issued by the Corporation prior to the
completion of the Transactions pursuant to a brokered and
non-brokered private placement;
“Tax Act” means
the Income Tax
Act (Canada) and the
regulations thereunder;
“this Warrant Indenture”, “this Indenture”,
“hereto”, “herein”, “hereby”,
“hereof” and
similar expressions mean and refer to this Indenture and any
indenture, deed or instrument supplemental hereto; and the
expressions “Article”,
“Section”, “subsection” and “paragraph”
followed by a number, letter or both
mean and refer to the specified article, section, subsection or
paragraph of this Indenture;
“Trading Day” means, with respect to the CSE a day on which such
exchange is open for the transaction of business and with respect
to another exchange or an over-the-counter market means a day on
which such exchange or market is open for the transaction of
business;
“Transactions” has
the meaning set forth in the recitals;
“Uncertificated Warrant” means any Warrant which is not a Certificated
Warrant;
“United States” or “U.S.”
means the United States of America,
its territories and possessions, any state of the United States,
and the District of Columbia;
“Units” has the
meaning set forth in the recitals above;
“U.S. Accredited Investor” means an “accredited investor” within
the meaning of Rule 501(a) of Regulation D under the U.S.
Securities Act;
“U.S. Accredited Investor Purchaser”
means a U.S. Accredited Investor who
first purchased Subscription Receipts on the date of original
issuance of the Subscription Receipts and who, in connection with
such purchase, executed a U.S. Subscription
Agreement;
“U.S. Person” means
a U.S. person as that term is defined in Rule 902(k) of Regulation
S;
“U.S. Securities Act”
means
the United States Securities Act of 1933, as amended;
“U.S. Subscription Agreement" means the U.S. subscription agreement delivered to
and executed by QIB Purchasers or U.S. Accredited Investors of the
Subscription Receipts in the United States or that are U.S.
Persons;
“Warrants” means
the Common Share purchase warrants created by and authorized by and
issuable under this Indenture, to be issued and countersigned
hereunder as a Certificated Warrant and /or Uncertificated Warrant
held through the book entry registration system on a no certificate
issued basis, entitling the holder or holders thereof to purchase
up to 18,750,000 Common Shares (subject to adjustment as herein
provided) at the Exercise Price prior to the Expiry Time and, where
the context so requires, also means the Warrants issued and
Authenticated hereunder, whether by way of Warrant Certificate or
Uncertificated Warrant;
“Warrant Agency” means the principal office of the Warrant Agent in
the City of Calgary, or such other place as may be designated in
accordance with Section 3.5;
“Warrant Agent” means Odyssey Trust Company, in its capacity as
warrant agent of the Warrants, or its successors from time to
time;
“Warrant Certificate” means a certificate, substantially in the form set
forth in Schedule “A” hereto, to evidence those
Warrants that will be evidenced by a
certificate;
“Warrantholders”, or “holders”
without reference to Warrants, means
the persons who are registered owners of Warrants as such names
appear on the register, and for greater certainty, shall include
the Depository as well as the holders of Uncertificated Warrants
appearing on the register of the Warrant Agent;
“Warrantholders’ Request” means an instrument signed in one or more
counterparts by Warrantholders holding in the aggregate not less
than 50% of the aggregate number of Warrants then unexercised and
then-outstanding, requesting the Warrant Agent to take some action
or proceeding specified therein; and
“written order of the Corporation”, “written
request of the Corporation”, “written consent of the
“Corporation” and “certificate of the
Corporation” mean,
respectively, a written order, request, consent and certificate
signed in the name of the Corporation by any one duly authorized
signatory of the Corporation and may consist of one or more
instruments so executed.
Section 1.2
Gender and Number.
Words
importing the singular number or masculine gender shall include the
plural number or the feminine or neuter genders, and vice
versa.
Section 1.3
Headings, Etc.
The
division of this Indenture into Articles and Sections, the
provision of a Table of Contents and the insertion of headings are
for convenience of reference only and shall not affect the
construction or interpretation of this Indenture or of the
Warrants.
Section 1.4
Day not a Business Day.
If
any day on or before which any action or notice is required to be
taken or given hereunder is not a Business Day, then such action or
notice shall be required to be taken or given on or before the
requisite time on the next succeeding day that is a Business
Day.
Section 1.5
Time of the Essence.
Time
shall be of the essence of this Indenture.
Section 1.6
Monetary References.
Whenever
any amounts of money are referred to herein, such amounts shall be
deemed to be in lawful money of Canada unless otherwise
expressed.
Section 1.7
Applicable Law.
This
Indenture, the Warrants, the Warrant Certificates (including all
documents relating thereto, which by common accord have been and
will be drafted in English) shall be construed in accordance with
the laws of the Province of Ontario and the federal laws of Canada
applicable therein and shall be treated in all respects as Ontario
contracts. Each of the parties hereto, which shall include the
Warrantholders, irrevocably attorns to the exclusive jurisdiction
of the courts of the Province of Ontario with respect to all
matters arising out of this Indenture and the transactions
contemplated herein.
Section 1.8
Completion of the Transactions.
Immediately
upon completion of the Transactions:
(1)
Carpincho,
which, following completion of the Transactions will be renamed
“Planet 13 Holdings Inc.”, assumes and agrees to
perform all obligations of the Corporation under this Indenture,
and the Warrant Agent hereby agrees to such
assumption;
(2)
the
holder shall be entitled to receive upon the exercise of a Warrant
and payment of the Exercise Price, and the holder shall accept, in
lieu of the number of Common Shares that prior to the completion of
the Transactions the holder would have been entitled to receive,
the number of Carpincho Shares determined in accordance with
Section 4.1(d); and
(3)
in
accordance with Section 4.1(h), the term “Common
Shares” where used in this Indenture shall be interpreted to
mean Carpincho Shares, and the term “Corporation” where
used in this Indenture shall be interpreted to mean
Carpincho.
ARTICLE 2
ISSUE OF WARRANTS
Section 2.1 Creation and Issue of Warrants.
A
maximum of 18,750,000 Warrants (subject to adjustment as herein
provided) are hereby authorized to be issued in accordance with the
terms and conditions hereof. By written order of the Corporation
confirming that all conditions to the issuance of the Warrants
pursuant to the Subscription Receipts are satisfied, the Warrant
Agent shall create and issue the Warrants in accordance with the
written order of the Corporation. The Warrant Agent shall deliver
Warrant Certificates to Warrantholders and record the name of the
Warrantholders on the Warrant register. Registration of interests
in Warrants held by the Depository may be evidenced by a position
appearing on the register for Warrants of the Warrant Agent for an
amount representing the aggregate number of such Warrants
outstanding from time to time.
Section 2.2 Terms of Warrants.
(1)
Subject
to the applicable conditions for exercise set out in Articles
having been satisfied and subject to adjustment in accordance
herewith, each whole Warrant shall entitle each Warrantholder
thereof, upon exercise at any time after the Issue Date and prior
to the Expiry Time, to acquire one (1) Common Share upon payment of
the Exercise Price.
(2)
No
fractional Warrants shall be issued or otherwise provided for
hereunder and Warrants may only be exercised in a sufficient number
to acquire whole numbers of Common Shares.
(3)
Each
Warrant shall entitle the holder thereof to such other rights and
privileges as are set forth in this Indenture.
(4)
The
number of Common Shares which may be purchased pursuant to the
Warrants and the Exercise Price therefor shall be adjusted upon the
events and in the manner specified in Section 4.1.
Section 2.3 Warrantholder not a Shareholder.
Except
as may be specifically provided herein, nothing in this Indenture
or in the holding of a Warrant Certificate, entitlement to a
Warrant or otherwise, shall, in itself, confer or be construed as
conferring upon a Warrantholder any right or interest whatsoever as
a Shareholder, including, but not limited to, the right to vote at,
to receive notice of, or to attend, meetings of Shareholders or any
other proceedings of the Corporation, or the right to Dividends and
other allocations.
Section 2.4 Warrants to Rank Pari Passu.
All
Warrants shall rank equally and without preference over each other,
whatever may be the actual date of issue thereof.
Section 2.5 Form of Warrants, Certificated Warrants.
(1)
The
Warrants, as well as all certificates or written notices issued in
exchange for or in substitution of such Warrants or written
notices, issued prior to the completion of the Transactions, shall
bear the following legend:
“UNLESS PERMITTED UNDER SECURITIES
LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE
SECURITY BEFORE THE DATE THAT IS 4 MONTHS AND A DAY AFTER THE LATER
OF (i) [INSERT:
DATE OF DISTRIBUTION], AND (ii)
THE DATE THE ISSUER BECOMES A REPORTING ISSUER IN ANY PROVINCE OR
TERRITORY.”
(2)
The
Warrants may be issued in both certificated and uncertificated
form. All Warrants issued in certificated form shall be evidenced
by a Warrant Certificate (including all replacements issued in
accordance with this Indenture), substantially in the form set out
in Schedule “A” hereto, which shall be dated as of the
Issue Date, shall bear such distinguishing letters and numbers as
the Corporation may, with the approval of the Warrant Agent,
prescribe, and shall be issuable in any denomination excluding
fractions. All Warrants issued to the Depository may be in either a
certificated or uncertificated form, such uncertificated form being
evidenced by a book position on the register of Warrantholders to
be maintained by the Warrant Agent in accordance with Section
2.8.
(3)
Upon
the original issuance of the Warrants (both prior to the completion
of the Transactions and post-Transactions) and until such time as
it is no longer required under applicable requirements of the U.S.
Securities Act or applicable state securities laws, all
certificates representing the Warrants issued to or for the account
or benefit of, a U.S. Accredited Investor and all certificates
issued in exchange therefor or in substitution thereof, shall bear
a legend or other provision to the following effect:
“THIS
WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT
BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT, OR
THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THESE
SECURITIES MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR FOR
THE ACCOUNT OR BENEFIT OF A U.S. PERSON OR A PERSON IN THE UNITED
STATES UNLESS THESE SECURITIES AND THE UNDERLYING SECURITIES HAVE
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS IS AVAILABLE. “UNITED STATES” AND
“U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE
U.S. SECURITIES ACT.”
(4)
Neither
the Warrants issued prior to the completion of the Transactions nor
the Common Shares issuable upon exercise of the Warrants prior to
the completion of the Transactions have been or will be registered
under the U.S. Securities Act or under any United States state
securities laws. Any Warrant Certificate or certificated Common
Shares issued to, or for the account or benefit of, a U.S.
Accredited Investor prior to the completion of the Transactions and
each Warrant Certificate or certificated Common Shares issued in
exchange therefor or in substitution thereof shall bear, for so
long as required by the U.S. Securities Act or applicable state
securities laws, the following legend or such variations thereof as
the Corporation may prescribe from time to time:
“THE
OFFER AND SALE OF SECURITIES REPRESENTED HEREBY [AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF] HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE “U.S. SECURITIES ACT”) OR ANY STATE
SECURITIES LAWS, AND THE SECURITIES REPRESENTED HEREBY [AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF] MAY BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, OR
(B) OUTSIDE THE UNITED STATES TO A PERSON WHO IS NOT A “U.S.
PERSON” (AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES
ACT) IN ACCORDANCE WITH AN APPLICABLE EXEMPTION UNDER THE U.S.
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. DELIVERY OF
THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN
SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN
CANADA.”
(5)
Neither
the Warrants issued post-Transactions nor the Common Shares
issuable upon exercise of the Warrants post-Transactions have been
or will be registered under the U.S. Securities Act or under any
United States state securities laws. Any Warrant Certificate or
certificated Common Shares issued to, or for the account or benefit
of, a U.S. Accredited Investor post-Transactions and each Warrant
Certificate or certificated Common Shares issued in exchange
therefor or in substitution thereof shall bear, for so long as
required by the U.S. Securities Act or applicable state securities
laws, the following legend or such variations thereof as Carpincho
may prescribe from time to time:
“THE
SECURITIES REPRESENTED HEREBY [for post-Transactions Warrants
include: AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF] HAVE NOT
BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR
ANY STATE SECURITIES LAWS. THE HOLDER HEREOF, BY ACQUIRING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (A) TO THE CORPORATION; (B) OUTSIDE THE UNITED STATES IN
COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES
ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS;
(C) IN ACCORDANCE WITH THE EXEMPTION FROM REGISTRATION UNDER THE
U.S. SECURITIES ACT PROVIDED BY (i) RULE 144 OR (ii) RULE 144A
THEREUNDER, IF AVAILABLE AND IN COMPLIANCE WITH STATE SECURITIES OR
(D) WITHIN THE UNITED STATES, WITH ANY OTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS, PROVIDED, IN THE CASE OF AN OFFER, SALE,
ASSIGNMENT, PLEDGE, ENCUMBRANCE OR OTHER TRANSFER PURSUANT TO
(C)(i) OR (D), THE HOLDER SHALL HAVE PROVIDED TO THE CORPORATION AN
OPINION OF COUNSEL TO THE EFFECT THAT THE PROPOSED TRANSFER MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE U.S. SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, WHICH OPINION AND COUNSEL MUST BE
SATISFACTORY TO THE CORPORATION. DELIVERY OF THIS CERTIFICATE MAY
NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF
TRANSACTIONS ON STOCK EXCHANGES IN CANADA OR
ELSEWHERE.”
provided,
that if the securities issued
post-Transactions are being sold under clause (B) above (and in
compliance with Canadian local laws and regulations), the legend
set forth above may be removed by providing a declaration and
broker letter in the forms attached as Schedule “C” to
this Indenture, or in such form as Carpincho, may from time to time
prescribe, together with such other documentation as Carpincho may
reasonably require, including, but not limited to, an opinion of
counsel of recognized standing or other evidence of exemption, in
either case reasonably satisfactory to Carpincho, to the effect
that the sale of the securities is being made in compliance with
Rule 904 of Regulation S under the U.S. Securities Act;
and
provided
further, that, if any of the
securities issued post-Transactions are being sold pursuant to Rule
144 of the U.S. Securities Act, the legend may be removed by
delivery to the Transfer Agent of an opinion of counsel of
recognized standing in form and substance reasonably satisfactory
to Carpincho, to the effect that the legend is no longer required
under applicable requirements of the U.S. Securities
Act.
Section 2.6 Book Entry Only Warrants.
(1)
Reregistration
of beneficial interests in and transfers of Warrants held by the
Depository shall be made only through the book entry registration
system and no Warrant Certificates shall be issued in respect of
such Warrants except where physical certificates evidencing
ownership in such securities are required or as set out herein or
as may be requested by the Depository, as determined by the
Corporation, from time to time. Except as provided in this Section
2.6, owners of beneficial interests in any CDS Global Warrants
shall not be entitled to have Warrants registered in their names
and shall not receive or be entitled to receive Warrants in
definitive form or to have their names appear in the register
referred to in Section 2.8 herein.
(2)
Notwithstanding
any other provision in this Indenture, no CDS Global Warrants may
be exchanged in whole or in part for Warrants registered, and no
transfer of any CDS Global Warrants in whole or in part may be
registered, in the name of any person other than the Depository for
such CDS Global Warrants or a nominee thereof unless:
(a)
the
Depository notifies the Corporation that it is unwilling or unable
to continue to act as depository in connection with the Book Entry
Only Warrants and the Corporation is unable to locate a qualified
successor;
(b)
the
Corporation determines that the Depository is no longer willing,
able or qualified to discharge properly its responsibilities as
holder of the CDS Global Warrants and the Corporation is unable to
locate a qualified successor;
(c)
the
Depository ceases to be a clearing agency or otherwise ceases to be
eligible to be a depository and the Corporation is unable to locate
a qualified successor;
(d)
the
Corporation determines that the Warrants shall no longer be held as
Book Entry Only Warrants through the Depository;
(e)
such
right is required by applicable law, as determined by the
Corporation and the Corporation’s Counsel;
(f)
the
Warrant is to be Authenticated to or for the account or benefit of
a QIB Purchaser or U.S. Accredited Investor; or
(g)
such
registration is effected in accordance with the internal procedures
of the Depository and the Warrant Agent, following
which, Warrants for those holders requesting the same shall be
registered and issued to the beneficial owners of such Warrants or
their nominees as directed by the holder. The Corporation shall
provide an certificate of the Corporation giving notice to the
Warrant Agent of the occurrence of any event outlined in this
Section 2.6(2)(a)-(f).
(3)
Subject
to the provisions of this Section 2.6, any exchange of CDS Global
Warrants for Warrants which are not CDS Global Warrants may be made
in whole or in part in accordance with the provisions of Section
2.11, mutatis mutandis. All such Warrants issued in exchange for a
CDS Global Warrant or any portion thereof shall be registered in
such names as the Depository for such CDS Global Warrants shall
direct and shall be entitled to the same benefits and subject to
the same terms and conditions (except insofar as they relate
specifically to CDS Global Warrants) as the CDS Global Warrants or
portion thereof surrendered upon such exchange.
(4)
Every
Warrant that is Authenticated upon registration or transfer of a
CDS Global Warrant, or in exchange for or in lieu of a CDS Global
Warrant or any portion thereof, whether pursuant to this Section
2.6, or otherwise, shall be Authenticated in the form of, and shall
be, a CDS Global Warrant, unless such Warrant is registered in the
name of a person other than the Depository for such CDS Global
Warrant or a nominee thereof.
(5)
Notwithstanding
anything to the contrary in this Indenture, subject to applicable
law, the CDS Global Warrant will be issued as an Uncertificated
Warrant, unless otherwise requested in writing by the Depository or
the Corporation.
(6)
The
rights of beneficial owners of Warrants who hold securities
entitlements in respect of the Warrants through the book entry
registration system shall be limited to those established by
applicable law and agreements between the Depository and the Book
Entry Only Participants and between such Book Entry Only
Participants and the beneficial owners of Warrants who hold
securities entitlements in respect of the Warrants through the book
entry registration system, and such rights must be exercised
through a Book Entry Only Participant in accordance with the rules
and procedures of the Depository.
(7)
Notwithstanding
anything herein to the contrary, neither the Corporation nor the
Warrant Agent nor any agent thereof shall have any responsibility
or liability for:
(a)
the
electronic records maintained by the Depository relating to any
ownership interests or any other interests in the Warrants or the
depository system maintained by the Depository, or payments made on
account of any ownership interest or any other interest of any
person in any Warrant represented by an electronic position in the
book entry registration system (other than the Depository or its
nominee);
(b)
maintaining,
supervising or reviewing any records of the Depository or any Book
Entry Only Participant relating to any such interest; or
any
advice or representation made or given by the Depository or those
contained herein that relate to the rules and regulations of the
Depository or any action to be taken by the Depository on its own
direction or at the direction of any Book Entry Only
Participant.
(8)
The
Corporation may terminate the application of this Section 2.6 in
its sole discretion in which case all Warrants shall be evidenced
by Warrant Certificates registered in the name of a Person other
than the Depository.
Section 2.7 Warrant Certificate.
(1)
For
Warrants issued in certificated form, the form of certificate
representing Warrants shall be substantially as set out in Schedule
“A” hereto or such other form as is authorized from
time to time by the Warrant Agent and the Corporation. Each Warrant
Certificate shall be Authenticated manually on behalf of the
Warrant Agent. Each Warrant Certificate shall be signed by any one
duly authorized signatory of the Corporation; whose signature shall
appear on the Warrant Certificate and may be printed, lithographed
or otherwise mechanically reproduced thereon and, in such event,
certificates so signed are as valid and binding upon the
Corporation as if it had been signed manually. Any Warrant
Certificate which has a signature as hereinbefore provided shall be
valid notwithstanding that the person whose signature is printed,
lithographed or mechanically reproduced no longer holds office at
the date of issuance of such certificate. The Warrant Certificates
may be engraved, printed or lithographed, or partly in one form and
partly in another, as the Warrant Agent may determine.
(2)
The
Warrant Agent shall Authenticate Uncertificated Warrants (whether
upon original issuance, exchange, registration of transfer, partial
payment, or otherwise) by completing its Internal Procedures and
the Corporation shall, and hereby acknowledges that it shall,
thereupon be deemed to have duly and validly issued such
Uncertificated Warrants under this Indenture. Such Authentication
shall be conclusive evidence that such Uncertificated Warrant has
been duly issued hereunder and that the holder or holders are
entitled to the benefits of this Indenture. The register shall be
final and conclusive evidence as to all matters relating to
Uncertificated Warrants with respect to which this Indenture
requires the Warrant Agent to maintain records or accounts. In case
of differences between the register at any time and any other time
the register at the later time shall be controlling, absent
manifest error and such Uncertificated Warrants are binding on the
Corporation.
(3)
Any
Warrant Certificate validly issued in accordance with the terms of
this Indenture in effect at the time of issue of such Warrant
Certificate shall, subject to the terms of this Indenture and
applicable law, validly entitle the holder to acquire Common
Shares, notwithstanding that the form of such Warrant Certificate
may not be in the form currently required by this
Indenture.
(4)
No
Warrant shall be considered issued and shall be valid or obligatory
or shall entitle the holder thereof to the benefits of this
Indenture, until it has been Authenticated by the Warrant Agent.
Authentication by the Warrant Agent, including by way of entry on
the register, shall not be construed as a representation or
warranty by the Warrant Agent as to the validity of this Indenture
or of such Warrant Certificates or Uncertificated Warrants (except
the due Authentication thereof) or as to the performance by the
Corporation of its obligations under this Indenture and the Warrant
Agent shall in no respect be liable or answerable for the use made
of the Warrants or any of them or of the consideration thereof.
Authentication by the Warrant Agent shall be conclusive evidence as
against the Corporation that the Warrants
so Authenticated have been duly issued hereunder and that the
holder thereof is entitled to the benefits of this
Indenture.
Section 2.8 Register of Warrants
(1)
The
Warrant Agent shall maintain records and accounts concerning the
Warrants, whether certificated or uncertificated, which shall
contain the information called for below with respect to each
Warrant, together with such other information as may be required by
law or as the Warrant Agent may elect to record. All such
information shall be kept in one set of accounts and records which
the Warrant Agent shall designate (in such manner as shall permit
it to be so identified as such by an unaffiliated party) as the
register of the holders of Warrants. The information to be entered
for each account in the register of Warrants at any time shall
include (without limitation):
(a)
the
name and address of the holder of the Warrants, the date of
Authentication thereof and the number of Warrants;
(b)
whether
such Warrant is a Certificated Warrant or an Uncertificated Warrant
and, if a Warrant Certificate, the unique number or code assigned
to and imprinted thereupon and, if an Uncertificated Warrant, the
unique number or code assigned thereto if any;
(c)
whether
such Warrant has been cancelled; and
(d)
a
register of transfers in which all transfers of Warrants and the
date and other particulars of each transfer shall be
entered.
The
register shall be available for inspection by the Corporation or
any Warrantholder during the Warrant Agent’s regular business
hours on a Business Day and upon payment to the Warrant Agent of
its reasonable fees. Any Warrantholder exercising such right of
inspection shall first provide an affidavit in form satisfactory to
the Corporation and the Warrant Agent stating the name and address
of the Warrantholder and agreeing not to use the information
therein except in connection with an effort to call a meeting of
Warrantholders or to influence the voting of Warrantholders at any
meeting of Warrantholders.
Once
an Uncertificated Warrant has been Authenticated, the information
set forth in the register with respect thereto at the time of
Authentication may be altered, modified, amended, supplemented or
otherwise changed only to reflect exercise or proper instructions
to the Warrant Agent from the holder as provided herein, except
that the Warrant Agent may act unilaterally to make purely
administrative changes internal to the Warrant Agent and changes to
correct errors. Each person who becomes a holder of an
Uncertificated Warrant, by his, her or its acquisition thereof
shall be deemed to have irrevocably (i) consented to the foregoing
authority of the Warrant Agent to make such minor error
corrections, and (ii) agreed to pay to the Warrant Agent, promptly
upon written demand, the full amount of all loss and expense
(including without limitation reasonable legal fees of the
Corporation and the Warrant Agent plus interest, at an appropriate
then prevailing rate of interest to the Warrant Agent), sustained
by the Corporation or the Warrant Agent as a proximate result of
such error if but only if and only to the extent that such present
or former
holder realized any benefit as a result of such error and could
reasonably have prevented, forestalled or minimized such loss and
expense by prompt reporting of the error or avoidance of accepting
benefits thereof whether or not such error is or should have been
timely detected and corrected by the Warrant Agent; provided, that
no person who is a bona fide purchaser shall have any such
obligation to the Corporation or to the Warrant Agent.
Section 2.9 Issue in Substitution for Warrant Certificates Lost,
etc.
(1)
If
any Warrant Certificate becomes mutilated or is lost, destroyed or
stolen, the Corporation, subject to applicable law, shall issue and
thereupon the Warrant Agent shall certify and deliver, a new
Warrant Certificate of like tenor, and bearing the same legend, if
applicable, as the one mutilated, lost, destroyed or stolen in
exchange for and in place of and upon cancellation of such
mutilated Warrant Certificate, or in lieu of and in substitution
for such lost, destroyed or stolen Warrant Certificate, and the
substituted Warrant Certificate shall be in a form approved by the
Warrant Agent and the Warrants evidenced thereby shall be entitled
to the benefits hereof and shall rank equally in accordance with
its terms with all other Warrants issued or to be issued
hereunder.
(2)
The
applicant for the issue of a new Warrant Certificate pursuant to
this Section 2.9 shall bear the cost of the issue thereof and in
case of loss, destruction or theft shall, as a condition precedent
to the issuance thereof, furnish to the Corporation and to the
Warrant Agent such evidence of ownership and of the loss,
destruction or theft of the Warrant Certificate so lost, destroyed
or stolen as shall be satisfactory to the Corporation and to the
Warrant Agent, in their sole discretion, and such applicant shall
also be required to furnish an indemnity and surety bond in amount
and form satisfactory to the Corporation and the Warrant Agent, in
their sole discretion, and shall pay the reasonable charges of the
Corporation and the Warrant Agent in connection
therewith.
Section 2.10
Exchange of Warrant Certificates.
(1)
Any
one or more Warrant Certificates representing any number of
Warrants may, upon compliance with the reasonable requirements of
the Warrant Agent (including compliance with applicable securities
legislation), be exchanged for one or more other Warrant
Certificates representing the same aggregate number of Warrants,
and bearing the same legend, if applicable, as represented by the
Warrant Certificate or Warrant Certificates so
exchanged.
(2)
Warrant
Certificates may be exchanged only at the Warrant Agency or at any
other place that is designated by the Corporation with the approval
of the Warrant Agent. Any Warrant Certificate from the holder (or
such other instructions, in form satisfactory to the Warrant
Agent), tendered for exchange shall be surrendered to the Warrant
Agency and cancelled by the Warrant Agent.
Section 2.11 Transfer and Ownership of Warrants.
(1)
The
Warrants may only be transferred on the register kept by the
Warrant Agent at the Warrant Agency by the holder or its legal
representatives or its attorney duly appointed by an instrument in
writing in form and execution satisfactory to the
Warrant
Agent only upon (a) in the case of a Warrant Certificate,
surrendering to the Warrant Agent at the Warrant Agency the Warrant
Certificate representing the Warrants to be transferred together
with a duly executed transfer form as set forth in Schedule
“A” and (b) in the case of Book Entry Only Warrants, in
accordance with procedures prescribed by the Depository under the
book entry registration system, and (c) upon compliance
with:
(i)
the
conditions herein;
(ii)
such
reasonable requirements as the Warrant Agent may prescribe;
and
(iii)
all
applicable securities legislation and requirements of regulatory
authorities;
and,
in the case of a Warrant Certificate, such transfer shall be duly
noted in such register by the Warrant Agent. Upon compliance with
such requirements, the Warrant Agent shall issue to the transferee
of a Certificated Warrant, a Warrant Certificate, or the Warrant
Agent shall Authenticate and deliver a Warrant Certificate upon
request that part of the CDS Global Warrant be certificated.
Transfers within the systems of the Depository are not the
responsibility of the Warrant Agent and will not be noted on the
register maintained by the Warrant Agent and Warrants that are held
as Book Entry Only Warrants shall be transferred and recorded
through the relevant Book Entry Only Participant in accordance with
the book entry registration system as the entitlement holder in
respect of such Warrants.
(2)
Subject
to the provisions of this Indenture, Applicable Legislation and
applicable law, the Warrantholder shall be entitled to the rights
and privileges attaching to the Warrants, and the issue of Common
Shares by the Corporation upon the exercise of Warrants in
accordance with the terms and conditions herein contained shall
discharge all responsibilities of the Corporation and the Warrant
Agent with respect to such Warrants and neither the Corporation nor
the Warrant Agent shall be bound to inquire into the title of any
such holder.
(3)
If
a Warrant Certificate tendered for transfer bears the legend set
forth in or Section 2.5(4), the Warrant Agent shall not register
such transfer unless the transferor has provided the Warrant Agent
with the Warrant Certificate and the holder certifies in the form
of transfer, either (A) the transfer is made to the Corporation; or
(B) the transfer is made outside of the United States in a
transaction meeting the requirements of Rule 904 of Regulation S
and in compliance with applicable local laws and
regulations.
(4)
If
a Warrant Certificate tendered for transfer bears the legend set
forth in Section 2.5(5), the Warrant Agent shall not register such
transfer unless the transferor has provided the Warrant Agent with
the Warrant Certificate and the holder certifies in the form of
transfer, either (A) the transfer is made to the Corporation; or
(B) the transfer is made outside of the United States in a
transaction meeting the requirements of Rule 904 of Regulation S
and in compliance with applicable local laws and regulations; or
(C) the transfer is being made pursuant to the exemption from the
registration requirements of the U.S. Securities Act provided by
(i) Rule 144A under the U.S. Securities Act, if available, or (ii)
Rule 144 under the U.S. Securities Act, if available, and, in each
case, in accordance with applicable state securities laws; or (D)
the transfer is being made pursuant to another transaction that
does not require registration under the U.S. Securities Act or any
applicable state securities laws, provided further that in the case
of transfer pursuant to (C)(ii) or (D) the Corporation shall first
have received an opinion of counsel of recognized standing, or
other evidence, in either case in form and substance reasonably
satisfactory to the Corporation, to the effect that the proposed
transfer may be effected without registration under the U.S.
Securities Act and applicable state securities laws.
Section 2.12 Cancellation of Surrendered Warrants.
All
Warrant Certificates surrendered pursuant to Section 2.9, Section
2.10, Section 2.11, Articles or Section 5.1 shall be cancelled by
the Warrant Agent and upon such circumstances all such
Uncertificated Warrants shall be deemed cancelled and so noted on
the register by the Warrant Agent. Upon request by the Corporation,
the Warrant Agent shall furnish to the Corporation a cancellation
certificate identifying the Warrant Certificates so cancelled, the
number of Warrants evidenced thereby, the number of Common Shares,
if any, issued pursuant to such Warrants and the details of any
Warrant Certificates issued in substitution or exchange for such
Warrant Certificates cancelled.
ARTICLE 3
EXERCISE OF WARRANTS
Section 3.1 Right of
Exercise.
Subject
to the provisions hereof, each Registered Warrantholder may
exercise the right conferred on such holder to subscribe for and
purchase, subject to adjustment, one (1) Common Share for each
Warrant after the Issue Date and prior to the Expiry Time and in
accordance with the conditions herein.
Section 3.2
Warrant Exercise.
(1) Warrantholders of Warrant Certificates who
wish to exercise the Warrants held by them in order to acquire
Common Shares must complete the exercise form (the
“Exercise
Notice”) attached to the
Warrant Certificate(s) which form is attached hereto as Schedule
“B”, which may be amended by the Corporation with the
consent of the Warrant Agent, if such amendment does not, in the
reasonable opinion of the Corporation and the Warrant Agent, which
may be based on the advice of Counsel, materially and adversely
affect the rights, entitlements and interests of the
Warrantholders, and deliver such certificate(s), the executed
Exercise Notice and a certified cheque, bank draft or money order
payable to or to the order of the Corporation for the aggregate
Exercise Price to the Warrant Agent at the Warrant Agency. The
Warrants represented by a Warrant Certificate shall be deemed to be
surrendered upon personal delivery of such certificate, Exercise
Notice and aggregate Exercise Price or, if such documents are sent
by mail or other means of transmission, upon actual receipt thereof
by the Warrant Agent at the office referred to
above.
A
beneficial holder of Uncertificated Warrants evidenced by a
security entitlement in respect of Warrants in the book entry
registration system who desires to exercise his or her Warrants
must do so by causing a Book Entry Only Participant to deliver to
the
Depository on behalf of the entitlement holder,
notice of the owner’s intention to exercise Warrants in a
manner acceptable to the Depository. Forthwith upon receipt by the
Depository of such notice, as well as payment for the aggregate
Exercise Price, the Depository shall deliver to the Warrant Agent
confirmation of its intention to exercise Warrants (a
“Confirmation”)
in a manner acceptable to the Warrant
Agent, including by electronic means through a book based
registration system, including CDSX. An electronic exercise of the
Warrants initiated by the Book Entry Only Participant through a
Book Based System, including CDSX, shall constitute a
representation to both the Corporation and the Warrant Agent that
the beneficial owner at the time of exercise of such Warrants (a)
is not in the United States; (b) is not a U.S. Person and is not
exercising such Warrants on behalf of a U.S. Person or a person in
the United States; and (c) did not execute or deliver the notice of
the owner’s intention to exercise such Warrants in the United
States. If the Book Entry Only Participant is not able to make or
deliver the foregoing representation by initiating the electronic
exercise of the Warrants, then such Warrants shall be required to
be withdrawn from the Book Based System by the Book Entry Only
Participant and an individually registered Warrant Certificate
shall be issued by the Warrant Agent to such beneficial owner or
Book Entry Only Participant and the exercise procedures set forth
in Section 3.2(1) shall be followed (and provided, for greater
certainty, that the foregoing does not apply, in the case of a OlB
Purchaser who complies with Section 3.3(2)).
(2)
Subject
to Section 3.3(2) below, the Warrants may not be exercised by or on
behalf of a person in the United States or a U.S.
Person.
(3)
Payment
representing the aggregate Exercise Price must be provided to the
appropriate office of the Book Entry Only Participant in a manner
acceptable to it. A notice in form acceptable to the Book Entry
Only Participant and payment from such beneficial holder should be
provided to the Book Entry Only Participant sufficiently in advance
so as to permit the Book Entry Only Participant to deliver notice
and payment to the Depository and for the Depository in turn to
deliver notice and payment to the Warrant Agent prior to the Expiry
Time. The Depository will initiate the exercise by way of the
Confirmation and forward the aggregate Exercise Price
electronically to the Warrant Agent and the Warrant Agent will
execute the exercise by causing the issuance to the Depository
through the book entry registration system of the Common Shares to
which the exercising Warrantholder is entitled pursuant to the
exercise. Any expense associated with the exercise process will be
for the account of the entitlement holder exercising the Warrants
and/or the Book Entry Only Participant exercising the Warrants on
its behalf.
(4)
By
causing a Book Entry Only Participant to deliver notice to the
Depository, a beneficial holder shall be deemed to have irrevocably
surrendered his or her Warrants so exercised and appointed such
Book Entry Only Participant to act as his or her exclusive
settlement agent with respect to the exercise of the Warrants and
the receipt of Common Shares in connection with the obligations
arising from such exercise.
(5)
Any
notice which the Depository determines to be incomplete, not in
proper form or not duly executed shall for all purposes be void and
of no effect and the exercise to which it relates shall be
considered for all purposes not to have been exercised thereby. A
failure by a Book Entry Only Participant to exercise or to give
effect to the settlement thereof in accordance with the beneficial
holder’s instructions will not give rise to any obligations
or liability on the part of the Corporation or Warrant Agent to the
Book Entry Only Participant or the Warrantholder.
(6)
Any
exercise form or Exercise Notice referred to in this Section 3.2
shall be signed by the Registered Warrantholder, or its executors
or administrators or other legal representatives or an attorney of
the Registered Warrantholder, duly appointed by an instrument in
writing satisfactory to the Warrant Agent but such exercise form or
Exercise Notice need not be executed by the
Depository.
(7)
Any
exercise referred to in this Section 3.2 shall require that the
entire Exercise Price for Common Shares subscribed must be paid at
the time of subscription and such Exercise Price and original
Exercise Notice executed by the Registered Warrantholder or the
Confirmation from the Depository must be received by the Warrant
Agent prior to the Expiry Time.
(8)
If
the form of Exercise Notice set forth in the Warrant Certificate
shall have been amended, the Corporation shall cause the amended
Exercise Notice to be forwarded to all Warrantholders.
(9)
Exercise
Notices and Confirmations must be delivered to the Warrant Agent at
any time during the Warrant Agent’s actual business hours on
any Business Day prior to the Expiry Time. Any Exercise Notice or
Confirmations received by the Warrant Agent after business hours on
any Business Day other than the Expiry Date will be deemed to have
been received by the Warrant Agent on the next following Business
Day.
(10)
Any
Warrant with respect to which a Confirmation or valid exercise is
not received by the Warrant Agent before the Expiry Time shall be
deemed to have expired and become void and all rights with respect
to such Warrants shall terminate and be cancelled.
Section 3.3 Prohibition on Exercise by Persons in the United States
and U.S.
Persons
(1)
Subject
to Section 3.3(2) below, (i) Warrants may not be exercised within
the United States or by or on behalf of any person in the United
States or U.S. Person; and (ii) no Common Shares issued upon
exercise of Warrants may be delivered to any address in the United
States.
Notwithstanding
Section 3.2(2) or Section 3.3(1), (i) Warrants may be exercised in
the United States or by or on behalf of a person in the United
States or U.S. Person, and (ii) Common Shares issued upon exercise
of any such Warrants may be delivered to an address in the United
States, provided that the person exercising the Warrants is a QIB
Purchaser or a U.S. Accredited Investor Purchaser with respect to
those Warrants that originally executed a U.S. Subscription
Agreement or has provided an opinion of counsel of recognized
standing in form and substance reasonably satisfactory to the
Corporation that the exercise of the Warrants and the issuance of
the Common Shares are exempt from the registration requirements of
the U.S. Securities Act and applicable state securities
laws.
(2)
If
certificates representing Common Shares are issued prior to the
completion of the Transactions upon the exercise of Certificated
Warrants which bear the legends set forth in Section 2.5(3) and
Section 2.5(4) and which are issued pursuant to Box (c) or (d) of
the Exercise Form, upon such issuance of certificated Common Shares
they shall bear the legend set forth in Section
2.5(4).
(3)
If
certificates representing Common Shares are issued
post-Transactions upon the exercise of Certificated Warrants which
bear the legends set forth in Section 2.5(3) and Section 2.5(4) and
which are issued pursuant to Box (c) or (d) of the Exercise Form,
upon such issuance of certificated Common Shares they shall bear
the legend set forth in Section 2.5(5).
Section 3.4
Transfer Fees and Taxes.
If
any of the Common Shares subscribed for are to be issued to a
person or persons other than the Registered Warrantholder, the
Registered Warrantholder shall execute the form of transfer as set
forth in Schedule “A” and will comply with such
reasonable requirements as the Warrant Agent may stipulate and will
pay to the Corporation or the Warrant Agent on behalf of the
Corporation, all applicable transfer or similar taxes and the
Corporation will not be required to issue or deliver certificates
evidencing Common Shares unless or until such Warrantholder shall
have paid to the Corporation or the Warrant Agent on behalf of the
Corporation, the amount of such tax or shall have established to
the satisfaction of the Corporation and the Warrant Agent that such
tax has been paid or that no tax is due.
Section 3.5
Warrant Agency.
To
facilitate the exchange, transfer or exercise of Warrants and
compliance with such other terms and conditions hereof as may be
required, the Corporation has appointed the Warrant Agency, as the
agency at which Warrants may be surrendered for exchange or
transfer or at which Warrants may be exercised and the Warrant
Agent has accepted such appointment. The Corporation may from time
to time designate alternate or additional places as the Warrant
Agency (subject to the Warrant Agent’s prior approval) and
will give notice to the Warrant Agent of any proposed change of the
Warrant Agency. Branch registers shall also be kept at such other
place or places, if any, as the Corporation, with the approval of
the Warrant Agent, may designate. The Warrant Agent will from time
to time when requested to do so by the Corporation or any
Registered Warrantholder, upon payment of the Warrant Agent’s
reasonable charges, furnish a list of the names and addresses of
Warrantholders showing the number of Warrants held by each such
Registered Warrantholder.
Section 3.6 Effect of Exercise of Warrants.
(1)
Upon the exercise of Warrants pursuant to and in compliance with
Section 3.2 and subject to Section 3.3, the Common Shares to be
issued pursuant to the Warrants exercised shall be deemed to have
been issued and the person or persons to whom such Common Shares
are to be issued shall be deemed to have become the holder or
holders of such Common Shares on the Exercise Date unless the
register shall be closed on such date, in which case the Common
Shares subscribed for shall be deemed to have been issued and such
person or persons deemed to have become the holder or holders of
record of such Common Shares, on the date on which
such
register
is reopened. It is hereby understood that, in order for persons to
whom Common Shares are to be issued, to become holders of Common
Shares on record on the Exercise Date, beneficial holders must
commence the exercise process sufficiently in advance so that the
Warrant Agent is in receipt of all items of exercise at least one
Business Day prior to such Exercise Date.
(2)
Within five Business Days after the Exercise Date with respect to a
Warrant, the Warrant Agent shall cause to be delivered or mailed to
the person or persons in whose name or names the Warrant is
registered or, if so specified in writing by the holder, cause to
be delivered to such person or persons at the Warrant Agency where
the Warrant Certificate was surrendered, a certificate or
certificates for the appropriate number of Common Shares subscribed
for, or any other appropriate evidence of the issuance of Common
Shares to such person or persons in respect of Common Shares issued
under the book entry registration system or direct registration
system.
Section 3.7 Partial Exercise of Warrants; Fractions.
(1)
The
holder of any Warrants may exercise his right to acquire a number
of whole Common Shares less than the aggregate number which the
holder is entitled to acquire. In the event of any exercise of a
number of Warrants less than the number which the holder is
entitled to exercise, the holder of Warrants upon such exercise
shall, in addition, be entitled to receive, without charge
therefor, a new Warrant Certificate(s), bearing the same legend, if
applicable, or other appropriate evidence of Warrants, in respect
of the balance of the Warrants held by such holder and which were
not then exercised.
(2)
Notwithstanding
anything herein contained including any adjustment provided for in
Section 4.1, the Corporation shall not be required, upon the
exercise of any Warrants, to issue fractions of Common Shares.
Warrants may only be exercised in a sufficient number to acquire
whole numbers of Common Shares and any fractional Common Shares
shall be rounded down to the nearest whole number.
Section 3.8
Expiration of Warrants.
Immediately
after the Expiry Time, all rights under any Warrant in respect of
which
the
right of acquisition provided for herein shall not have been
exercised shall cease and
terminate
and each Warrant shall be void and of no further force or
effect.
Section 3.9
Accounting and Recording.
(1)
The Warrant Agent shall promptly account to the Corporation with
respect to Warrants exercised, and shall promptly forward to the
Corporation (or into an account or accounts of the Corporation with
the bank or trust company designated by the Corporation for that
purpose), all monies received by the Warrant Agent on the
subscription of Common Shares through the exercise of Warrants. All
such monies and any securities or other instruments, from time to
time received by the Warrant Agent, shall be received as agent for,
and shall be segregated and kept apart by the Warrant Agent for,
the Warrantholders and the Corporation as their interests may
appear.
(2)
The Warrant Agent shall record the particulars of Warrants
exercised, which particulars shall include the names and addresses
of the persons who become holders of Common Shares on exercise and
the Exercise Date, in respect thereof. The Warrant Agent shall
provide such particulars in writing to the Corporation within five
Business Days of any request by the Corporation
therefor.
Section 3.10 Securities Restrictions.
Notwithstanding
anything herein contained, no Common Shares will be issued pursuant
to the exercise of any Warrant if the issuance of such Common
Shares would constitute a violation of the securities laws of any
applicable jurisdiction, and, without limiting the generality of
the foregoing, the Corporation will legend the certificates
representing the Common Shares issuable upon exercise of any
Warrant if, in the opinion of counsel to the Corporation, such
legend is necessary in order to avoid a violation of any securities
laws of any applicable jurisdiction or to comply with the
requirements of any stock exchange on which the Common Shares are
listed; provided that if, at any time, in the opinion of outside
counsel to the Corporation, acting reasonably, such legends are no
longer necessary in order to avoid a violation of any such laws, or
the holder of any such legended certificate, at his expense,
provides the Corporation with evidence satisfactory in form and
substance to the Corporation (which may include an opinion of
counsel of recognized standing satisfactory to the Corporation) to
the effect that such holder is entitled to sell or otherwise
transfer such securities in a transaction in which such legends are
not required, such legended certificates may thereafter be
surrendered to the Warrant Agent in exchange for a certificate that
does not bear such legends.
The
Warrant Agent shall be entitled to assume that the Common Shares
may be issued pursuant to the exercise of any Warrant without
violating any Applicable Securities Laws and without legending the
certificate representing the Common Shares unless the Warrant Agent
has received notice in writing from the Corporation stating
otherwise and setting forth the restrictions on the exercise of the
Warrants and any legend the certificates representing the Common
Shares should bear.
ARTICLE 4
ADJUSTMENT OF NUMBER OF COMMON SHARES
AND EXERCISE PRICE
Section 4.1 Adjustment of Number of Common Shares and Exercise
Price.
The
subscription rights in effect under the Warrants for Common Shares
issuable upon the exercise of the Warrants shall be subject to
adjustment from time to time as follows:
(a)
if,
at any time during the Adjustment Period, the Corporation
shall:
(i)
subdivide,
re-divide or change its outstanding Common Shares into a greater
number of Common Shares;
(ii)
reduce,
combine or consolidate its outstanding Common Shares into a lesser
number of Common Shares; or :
(iii)
issue
Common Shares or securities exchangeable for, or convertible into,
Common Shares to all or substantially all of the holders of Common
Shares by way of stock dividend or other distribution (other than a
distribution of Common Shares upon the exercise of Warrants or any
outstanding options);
(any of such events in Section 4.1 (a)(i), (ii) or
(iii) being called a “Common Share
Reorganization”) then the
Exercise Price shall be adjusted as of the effective date or record
date of such event so that it shall equal the amount determined by
multiplying the Exercise Price in effect immediately prior to such
effective date or record date by a fraction, the numerator of which
shall be the number of Common Shares outstanding on such effective
date or record date before giving effect to such Common Share
Reorganization and the denominator of which shall be the number of
Common Shares outstanding as of the effective date or record date
after giving effect to such Common Share Reorganization (including,
in the case where securities exchangeable for or convertible into
Common Shares are distributed, the number of Common Share that
would have been outstanding had such securities been exchanged for
or converted into Common Shares on such record date or effective
date). Such adjustment shall be made successively whenever any
event referred to in this Section 4.1(a) shall occur. Upon any
adjustment of the Exercise Price pursuant to Section 4.1(a), the
Exchange Rate shall be contemporaneously adjusted by multiplying
the number of Common Shares theretofore obtainable on the exercise
thereof by a fraction of which the numerator shall be the Exercise
Price in effect immediately prior to such adjustment and the
denominator shall be the Exercise Price resulting from such
adjustment;
(b)
if and whenever at any time during the Adjustment
Period, the Corporation shall fix a record date for the issuance of
rights, options or warrants to all or substantially all the holders
of its outstanding Common Shares entitling them, for a period
expiring not more than 45 days after such record date, to subscribe
for or purchase Common Shares (or securities convertible or
exchangeable into Common Shares) at a price per Common Share (or
having a conversion or exchange price per Common Share) less than
95% of the Current Market Price on such record date (a
“Rights
Offering”), the Exercise
Price shall be adjusted immediately after such record date so that
it shall equal the amount determined by multiplying the Exercise
Price in effect on such record date by a fraction, of which the
numerator shall be the total number of Common Shares outstanding on
such record date plus a number of Common Shares equal to the number
arrived at by dividing the aggregate price of the total number of
additional Common Shares offered for subscription or purchase (or
the aggregate conversion or exchange price of the convertible or
exchangeable securities so offered) by the Current Market Price,
and of which the denominator shall be the total number of Common
Shares outstanding on such record date plus the total number of
additional Common Shares offered for subscription or purchase or
into which the convertible or exchangeable securities so offered
are convertible or exchangeable; any Common Shares owned by or held
for the account of the Corporation shall be deemed not to be
outstanding for the purpose of any such computation; such
adjustment shall be made successively whenever such a record date
is fixed; to the extent that no such rights or warrants are
exercised prior to the expiration thereof, the Exercise Price shall
be readjusted to the Exercise Price which would then be in effect
if such record date had not been fixed or, if any such rights or
warrants are exercised, to the Exercise Price which would then be
in effect based upon the number of Common Shares (or securities
convertible or exchangeable into Common Shares) actually issued
upon the exercise of such rights or warrants, as the case may be.
Such adjustment will be made successively whenever such a record
date is fixed, provided that if two or more such record dates or
record dates referred to in this Section 4.1(b) are fixed within a
period of 25 Trading Days, such adjustment will be made
successively as if each of such record dates occurred on the
earliest of such record dates;
(c)
if
and whenever at any time during the Adjustment Period the
Corporation shall fix a record date for the making of a
distribution to all or substantially all the holders of its
outstanding Common Shares of (i) securities of any class, whether
of the Corporation or any other person (other than Common Shares),
(ii) rights, options or warrants to subscribe for or purchase
Common Shares (or other securities convertible into or exchangeable
for Common Shares), other than pursuant to a Rights Offering; (iii)
evidences of its indebtedness or (iv) any property or other assets
then, in each such case, the Exercise Price shall be adjusted
immediately after such record date so that it shall equal the price
determined by multiplying the Exercise Price in effect on such
record date by a fraction, of which the numerator shall be the
total number of Common Shares outstanding on such record date
multiplied by the Current Market Price on such record date, less
the excess, if any, of the fair market value on such record date,
as determined by the Corporation (subject to CSE approval), of such
securities or other assets so issued or distributed over the fair
market value of any consideration received therefor by the
Corporation from the holders of the Common Shares, and of which the
denominator shall be the total number of Common Shares outstanding
on such record date multiplied by the Current Market Price; and
Common Shares owned by or held for the account of the Corporation
shall be deemed not to be outstanding for the purpose of any such
computation; such adjustment shall be made successively whenever
such a record date is fixed; to the extent that such distribution
is not so made, the Exercise Price shall be readjusted to the
Exercise Price which would then be in effect if such record date
had not been fixed;
(d)
if and whenever at any time during the Adjustment
Period there is a reclassification or redesignation of the Common
Shares, or a capital reorganization of the Corporation (other than
as described in Section 4.1(a)), or a consolidation, amalgamation,
arrangement, merger or other form of business combination of the
Corporation with or into any other body corporate, trust,
partnership or other entity that results in any reclassification of
the Common Shares or any change or exchange of the Common Shares
into or for other securities, including, without limitation, any
exchange of the Common Shares for other securities upon completion
of the Transactions, or any sale, lease, exchange, transfer or
conveyance of the property, undertaking and assets of the
Corporation as an entirety or substantially as an entirety to any
other body corporate, trust, partnership or other entity (any of
such events being a “Capital
Reorganization”), any
Registered Warrantholder who has not exercised its right of
acquisition prior to the effective date of such Capital
Reorganization, upon the exercise of such right thereafter, shall
be entitled to receive upon payment of the Exercise Price and shall
accept, in lieu of the number of Common Shares that prior to such
effective date the Registered Warrantholder would have been
entitled to receive, the number of shares or other securities or
property of the Corporation or of the body corporate, trust,
partnership or other entity resulting from such Capital
Reorganization, that such Registered Warrantholder would have been
entitled to receive on such Capital Reorganization, if, on the
effective date thereof, as the case may be, the Registered
Warrantholder had been the registered holder of the number of
Common Shares to which prior to such effective date it was entitled
to acquire upon the exercise of the Warrants. If determined
appropriate by the Warrant Agent, relying on advice of Counsel, to
give effect to or to evidence the provisions of this Section
4.1(d), the Corporation, its successor, or such purchasing body
corporate, partnership, trust or other entity, as the case may be,
shall, prior to or contemporaneously with any such Capital
Reorganization, enter into an indenture which shall provide, to the
extent possible, for the application of the provisions set forth in
this Indenture with respect to the rights and interests thereafter
of the Warrantholders to the end that the provisions set forth in
this Indenture shall thereafter correspondingly be made applicable,
as nearly as may reasonably be, with respect to any shares, other
securities or property to which a Registered Warrantholder is
entitled on the exercise of its acquisition rights thereafter. Any
indenture entered into between the Corporation, any successor to
the Corporation or such purchasing body corporate, partnership,
trust or other entity and the Warrant Agent pursuant to the
provisions of this Section 4.1(d) shall be a supplemental indenture
entered into pursuant to the provisions of Article 8 hereof. Any
indenture entered into between the Corporation, any successor to
the Corporation or such purchasing body corporate, partnership,
trust or other entity and the Warrant Agent shall provide for
adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided in this Section 4.1 and
which shall apply to successive reclassifications, redesignations,
capital reorganizations, arrangements, amalgamations,
consolidations, mergers, sales or conveyances;
(e)
in any case in which this Section 4.1 shall require that an
adjustment shall become effective immediately after a record date
for an event referred to herein, the Corporation may defer, until
the occurrence of such event, issuing to the Registered
Warrantholder of any Warrant exercised after the record date and
prior to completion of such event the additional Common Shares
issuable by reason of the adjustment required by such event before
giving effect to such adjustment; provided, however, that the
Corporation shall deliver to such Registered Warrantholder an
appropriate instrument evidencing such Registered
Warrantholder’s right to receive such additional Common
Shares upon the occurrence of the event requiring such adjustment
and the right to receive any distributions made on such additional
Common Shares declared in favour of holders of record of Common
Shares on and after the relevant date of exercise or such later
date as such Registered Warrantholder would, but for the provisions
of this Section 4.1(e), have become the holder of record of such
additional Common Shares pursuant to Section
4.1;
(f)
in
any case in which Section 4.1 (a)(iii), Section 4.1(b) or Section
4.1(c) require that an adjustment be made to the Exercise Price, no
such adjustment shall be made if the Warrantholders of the
outstanding Warrants receive, subject to any required stock
exchange or regulatory approval, the rights or warrants referred to
in Section 4.1 (a)(iii), Section 4.1(b) or the shares, rights,
options, warrants, evidences of indebtedness or assets referred to
in Section 4.1(c), as the case may be, in such kind and number as
they would have received if they had been holders of Common Shares
on the applicable record date or effective date, as the case may
be, by virtue of their outstanding Warrant having then been
exercised into Common Shares at the Exercise Price in effect on the
applicable record date or effective date, as the case may
be;
(g)
the
adjustments provided for in this Section 4.1 are cumulative, and
shall, in the case of adjustments to the Exercise Price be computed
to the nearest whole cent and shall apply to successive
subdivisions, re-divisions, reductions, combinations,
consolidations, distributions, issues or other events resulting in
any adjustment under the provisions of this Section 4.1, provided
that, notwithstanding any other provision of this Section, no
adjustment of the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in
the Exercise Price then in effect; provided, however, that any
adjustments which by reason of this Section 4.1(g) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment; and
(h)
after
any adjustment pursuant to this Section 4.1, the term “Common
Shares” where used in this Indenture shall be interpreted to
mean securities of any class or classes which, as a result of such
adjustment and all prior adjustments pursuant to this Section 4.1,
the Registered Warrantholder is entitled to receive upon the
exercise of his Warrant, and the number of Common Shares indicated
by any exercise made pursuant to a Warrant shall be interpreted to
mean the number of Common Shares or other property or securities a
Registered Warrantholder is entitled to receive, as a result of
such adjustment and all prior adjustments pursuant to this Section
4.1, upon the full exercise of a Warrant.
Section 4.2 Entitlement to Common Shares on Exercise of
Warrant.
All
Common Shares or shares of any class or other securities, which a
Registered Warrantholder is at the time in question entitled to
receive on the exercise of its Warrant, whether or not as a result
of adjustments made pursuant to this Article 4, shall, for the
purposes of the interpretation of this Indenture, be deemed to be
Common Shares which such Registered Warrantholder is entitled to
acquire pursuant to such Warrant.
Section 4.3 No Adjustment for Certain Transactions.
Notwithstanding
anything in this Article 4, no adjustment shall be made in the
acquisition rights attached to the Warrants if the issue of Common
Shares is being made pursuant to this Indenture or in connection
with (a) any stock option plan, share incentive plan or restricted
share plan or share purchase plan in force from time to time for
directors, officers,
employees, consultants or other service providers of the
Corporation; or (b) the satisfaction of existing instruments issued
at the date hereof.
Section 4.4 Determination by Independent Firm.
In
the event of any question arising with respect to the adjustments
provided for in this Article 4 such question shall be conclusively
determined by an independent firm of chartered accountants other
than the Auditors, who shall have access to all necessary records
of the Corporation, and such determination shall be binding upon
the Corporation, the Warrant Agent, all holders and all other
persons interested therein.
Section 4.5 Proceedings Prior to any Action Requiring
Adjustment.
As
a condition precedent to the taking of any action which would
require an adjustment in any of the acquisition rights pursuant to
any of the Warrants, including the number of Common Shares which
are to be received upon the exercise thereof, the Corporation shall
take any action which may, in the opinion of Counsel, be necessary
in order that the Corporation has unissued and reserved in its
authorized capital and may validly and legally issue as fully paid
and non-assessable all the Common Shares which the holders of such
Warrants are entitled to receive on the full exercise thereof in
accordance with the provisions hereof.
Section 4.6
Certificate of Adjustment.
The
Corporation shall from time to time immediately after the
occurrence of any event which requires an adjustment or
readjustment as provided in Section 4.1, deliver a certificate of
the Corporation to the Warrant Agent specifying the nature of the
event requiring the same and the amount of the adjustment or
readjustment necessitated thereby and setting forth in reasonable
detail the method of calculation and the facts upon which such
calculation is based, which certificate shall be supported by a
certificate of the Corporation’s Auditors verifying such
calculation, if requested by the Warrant Agent. The Warrant Agent
shall rely, and shall be protected in so doing, upon the
certificate of the Corporation or of the Corporation’s
Auditor and any other document filed by the Corporation pursuant to
this Article 4 for all purposes.
Section 4.7
Notice of Special Matters.
The
Corporation covenants with the Warrant Agent that, so long as any
Warrant remains outstanding, it will give notice to the Warrant
Agent and to the Warrantholders of its intention to fix a record
date that is prior to the Expiry Date for any matter for which an
adjustment may be required pursuant to Section 4.1. Such notice
shall specify the particulars of such event and the record date for
such event, provided that the Corporation shall only be required to
specify in the notice such particulars of the event as shall have
been fixed and determined on the date on which the notice is given.
The notice shall be given in each case not less than 14 days prior
to such applicable record date. If notice has been given and the
adjustment is not then determinable, the Corporation shall
promptly, after the adjustment is determinable, file with the
Warrant Agent a computation of the adjustment and give notice to
the Warrantholders of such adjustment computation.
Section 4.8
No Action after Notice.
The
Corporation covenants with the Warrant Agent that it will not close
its transfer books or take any other corporate action which might
deprive the Registered Warrantholder of the opportunity to exercise
its right of acquisition pursuant thereto during the period of 14
days after the giving of the certificate or notices set forth in
Section 4.6 and Section 4.7.
Section 4.9
Other Action.
If
the Corporation, after the date hereof, shall take any action
affecting the Common Shares other than completing the Transactions
or an action described in Section 4.1, which in the reasonable
opinion of the directors of the Corporation would materially affect
the rights of Warrantholders, the Exercise Price and/or Exchange
Rate, the number of Common Shares which may be acquired upon
exercise of the Warrants shall be adjusted in such manner and at
such time, by action of the directors, acting reasonably and in
good faith, in their sole discretion as they may determine to be
equitable to the Warrantholders in the circumstances, provided that
no such adjustment will be made unless any requisite prior approval
of any stock exchange on which the Common Shares are listed for
trading has been obtained.
Section 4.10
Protection of Warrant Agent.
The
Warrant Agent shall not:
(a)
at
any time be under any duty or responsibility to any Registered
Warrantholder to determine whether any facts exist which may
require any adjustment contemplated by Section 4.1, or with respect
to the nature or extent of any such adjustment when made, or with
respect to the method employed in making the same;
(b)
be
accountable with respect to the validity or value (or the kind or
amount) of any Common Shares or of any other securities or property
which may at any time be issued or delivered upon the exercise of
the rights attaching to any Warrant;
(c)
be
responsible for any failure of the Corporation to issue, transfer
or deliver Common Shares or certificates for the same upon the
surrender of any Warrants for the purpose of the exercise of such
rights or to comply with any of the covenants contained in this
Article; and
(d)
incur
any liability or be in any way responsible for the consequences of
any breach on the part of the Corporation of any of the
representations, warranties or covenants herein contained or of any
acts of the directors, officers, employees, agents or servants of
the Corporation.
Section 4.11
Participation by Warrantholder.
No
adjustments shall be made pursuant to this Article 4 if the
Warrantholders are entitled to participate in any event described
in this Article 4 on the same terms, mutatis mutandis, as if the
Warrantholders had exercised their Warrants prior to, or on the
effective date or record date of, such event.
Section 4.12
Regulatory Approval of Adjustments.
Notwithstanding
the foregoing, any adjustment to the Exercise Price and/or Exchange
Rate may be subject to the prior written consent of the
CSE.
ARTICLE 5
RIGHTS OF THE CORPORATION AND COVENANTS Section 5.1 Optional
Purchases by the Corporation.
Subject
to compliance with applicable securities legislation and approval
of applicable regulatory authorities, if any, the Corporation may
from time to time purchase by private contract or otherwise any of
the Warrants. Any such purchase shall be made at the lowest price
or prices at which, in the opinion of the directors, such Warrants
are then obtainable, plus reasonable costs of purchase, and may be
made in such manner, from such persons and on such other terms as
the Corporation, in its sole discretion, may determine. In the case
of Certificated Warrants, Warrant Certificates representing the
Warrants purchased pursuant to this Section 5.1 shall forthwith be
delivered to and cancelled by the Warrant Agent and reflected
accordingly on the register of Warrants. In the case of
Uncertificated Warrants, the Warrants purchased pursuant to this
Section 5.1 shall be reflected accordingly on the register of
Warrant and in accordance with procedures prescribed by the
Depository under the book entry registration system. No Warrants
shall be issued in replacement thereof.
Section 5.2
General Covenants.
The
Corporation covenants with the Warrant Agent for the benefit of the
Warrant Agent and the Warrantholders that so long as any Warrants
remain outstanding:
(a)
it
will reserve and keep available a sufficient number of Common
Shares for the purpose of enabling it to satisfy its obligations to
issue Common Shares upon the exercise of the Warrants;
(b)
it
will cause the Common Shares from time to time acquired pursuant to
the exercise of the Warrants to be duly issued and delivered in
accordance with the Warrants and the terms hereof;
(c)
all
Common Shares which shall be issued upon exercise of the right to
acquire provided for herein shall be fully paid and
non-assessable;
(d)
it
will use commercially reasonable efforts to maintain its existence;
provided that this clause shall not be construed as limiting or
restricting the Corporation from agreeing to a consolidation,
amalgamation, arrangement, takeover bid or merger even if the
consideration being offered are not securities that are listed and
posted for trading on a recognized Canadian stock exchange,
provided that such transaction has been approved in accordance with
the requirements of applicable corporate and securities laws and
the rules and policies of the applicable stock
exchange;
(e)
generally,
it will well and truly perform and carry out all of the acts or
things to be done by it as provided in this Indenture;
and
(f)
the
Corporation will promptly notify the Warrant Agent and the
Warrantholders in writing of any default under the terms of this
Warrant Indenture which remains unrectified for more than five days
following its occurrence.
Carpincho
covenants with the Warrant Agent for the benefit of the Warrant
Agent and the Warrantholders that so long as any Warrants remain
outstanding following completion of the Transactions:
(a)
it
will use commercially reasonable efforts to ensure that all Common
Shares outstanding or issuable from time to time (including without
limitation the Common Shares issuable on the exercise of the
Warrants) continue to be or are listed and posted for trading on
the CSE (or such other Canadian stock exchange acceptable to the
Corporation), provided that this clause shall not be construed as
limiting or restricting the Corporation from completing a
consolidation, amalgamation, arrangement, takeover bid or merger
that would result in the Common Shares ceasing to be listed and
posted for trading on such exchanges, so long as the holders of the
Common Shares have approved the transaction in accordance with the
requirements of applicable corporate and securities laws and the
policies of such exchanges or the holders of Common Shares receive
securities of an entity which is listed on a stock exchange in
Canada or cash; and
(b)
it
will
make all requisite filings under and otherwise take all requisite
steps under and satisfy applicable Canadian securities legislation
including those filings and other steps necessary to remain a
reporting issuer not in default in each of the provinces and other
Canadian jurisdictions where it is or becomes a reporting
issuer.
Section 5.3
General
Covenants.
Warrant Agent’s Remuneration and
Expenses.
The
Corporation covenants that it will pay to the Warrant Agent from
time to time reasonable remuneration for its services hereunder and
will pay or reimburse the Warrant Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by
the Warrant Agent in the administration or execution of its duties
and obligations hereunder (including the reasonable compensation
and the disbursements of its Counsel and all other advisers and
assistants not regularly in its employ) both before any default
hereunder and thereafter until all duties of the Warrant Agent
hereunder shall be finally and fully performed. Any amount owing
hereunder and remaining unpaid after 30 days from the invoice date
will bear interest at the then current rate charged by the Warrant
Agent against unpaid invoices and shall be payable upon demand.
This Section shall survive the resignation or removal of the
Warrant Agent and/or the termination of this
Indenture.
Section 5.4
Performance of Covenants by Warrant Agent.
If
the Corporation shall fail to perform any of its covenants
contained in this Indenture, the Warrant Agent may notify the
Warrantholders of such failure on the part of the Corporation and
may itself perform any of the covenants capable of being performed
by it but, subject to Section 9.2, shall be under no obligation to
perform said covenants or to notify the Warrantholders of such
performance by it. All sums expended or advanced by the Warrant
Agent in so doing shall be repayable as provided in Section 5.3. No
such performance,
expenditure or advance by the Warrant Agent shall relieve the
Corporation of any
default hereunder or of its continuing obligations under the
covenants herein contained.
Section 5.5
Enforceability of Warrants.
The
Corporation covenants and agrees that it is duly authorized to
create and issue the Warrants to be issued hereunder and that the
Warrants, when issued and Authenticated as herein provided, will be
valid and enforceable against the Corporation in accordance with
the provisions hereof and the terms hereof and that, subject to the
provisions of this Indenture, the Corporation will cause the Common
Shares from time to time acquired upon exercise of Warrants issued
under this Indenture to be duly issued and delivered in accordance
with the terms of this Indenture.
ARTICLE 6
ENFORCEMENT
Section 6.1
Suits by Warrantholders.
All
or any of the rights conferred upon any Registered Warrantholder by
any of the terms of this Indenture may be enforced by the
Registered Warrantholder by appropriate proceedings but without
prejudice to the right which is hereby conferred upon the Warrant
Agent to proceed in its own name to enforce each and all of the
provisions herein contained for the benefit of the
Warrantholders.
Section 6.2
Suits by the Corporation.
The
Corporation shall have the right to enforce full payment of the
Exercise Price of all Common Shares issued by the Warrant Agent to
a Registered Warrantholder hereunder and shall be entitled to
demand such payment from the Registered Warrantholder or
alternatively to instruct the Warrant Agent to cause the
cancellation of the share certificates and amend the securities
register accordingly.
Section 6.3
Immunity of Shareholders, etc.
The
Warrant Agent and the Warrantholders hereby waive and release any
right, cause of action or remedy now or hereafter existing in any
jurisdiction against any incorporator or any past, present or
future shareholder, trustee, employee or agent of the Corporation
or any successor Corporation on any covenant, agreement,
representation or warranty by the Corporation herein. Only the
Corporation shall be bound in respect hereof.
Section 6.4
Waiver of Default.
Upon
the happening of any default hereunder:
(a)
the
Warrantholders of not less than a majority of the Warrants then
outstanding shall have power (in addition to the powers exercisable
by Extraordinary Resolution) by requisition in writing to instruct
the Warrant Agent to waive any default hereunder and the Warrant
Agent shall thereupon waive the default upon such terms and
conditions as shall be prescribed in such requisition;
or
(b)
the
Warrant Agent shall have power to waive any default hereunder upon
such terms and conditions as the Warrant Agent may deem advisable,
on the advice of Counsel, if, in the Warrant Agent’s opinion,
based on the advice of Counsel, the same shall have been cured or
adequate provision made therefor;
provided
that no delay or omission of the Warrant Agent or of the
Warrantholders to exercise any right or power accruing upon any
default shall impair any such right or power or shall be construed
to be a waiver of any such default or acquiescence therein and
provided further that no act or omission either of the Warrant
Agent or of the Warrantholders in the premises shall extend to or
be taken in any manner whatsoever to affect any subsequent default
hereunder of the rights resulting therefrom.
ARTICLE 7
MEETINGS OF REGISTERED WARRANTHOLDERS Section 7.1 Right to Convene
Meetings.
The
Warrant Agent may at any time and from time to time, and shall on
receipt of a written request of the Corporation or of a
Warrantholders’ Request and upon being indemnified and funded
to its reasonable satisfaction by the Corporation or by the
Warrantholders signing such Warrantholders’ Request against
the costs which may be incurred in connection with the calling and
holding of such meeting, convene a meeting of the Warrantholders.
If the Warrant Agent fails to so call a meeting within seven days
after receipt of such written request of the Corporation or such
Warrantholders’ Request and the indemnity and funding given
as aforesaid, the Corporation or such Warrantholders, as the case
may be, may convene such meeting. Every such meeting shall be held
in the City of Toronto, in the Province of Ontario, or at such
other place as may be approved or determined by the Warrant
Agent.
At
least 21 days’ prior written notice of any meeting of
Warrantholders shall be given to the Warrantholders in the manner
provided for in Section 10.2 and a copy of such notice shall be
sent by mail to the Warrant Agent (unless the meeting has been
called by the Warrant Agent) and to the Corporation (unless the
meeting has been called by the Corporation). Such notice shall
state the time when and the place where the meeting is to be held,
shall state briefly the general nature of the business to be
transacted thereat and shall contain such information as is
reasonably necessary to enable the Warrantholders to make a
reasoned decision on the matter, but it shall not be necessary for
any such notice to set out the terms of any resolution to be
proposed or any of the provisions of this Section 7.2.
An
individual (who need not be a Registered Warrantholder) designated
in writing by the Warrant Agent shall be chairman of the meeting
and if no individual is so designated, or if the individual so
designated is not present within fifteen minutes from the time
fixed for the holding of the meeting, the Warrantholders present in
person or by proxy shall choose an individual present to be
chairman.
Section 7.4 Quorum.
Subject
to the provisions of Section 7.11, at any meeting of the
Warrantholders a quorum shall consist of Registered
Warrantholder(s) present in person or by proxy holding at least 25%
of the then outstanding Warrants. If a quorum of the Warrantholders
shall not be present within thirty minutes from the time fixed for
holding any meeting, the meeting, if summoned by Warrantholders or
on a Warrantholders’ Request, shall be dissolved; but in any
other case the meeting shall be adjourned to the same day in the
next week (unless such day is not a Business Day, in which case it
shall be adjourned to the next following Business Day) at the same
time and place and no notice of the adjournment need be given. Any
business may be brought before or dealt with at an adjourned
meeting which might have been dealt with at the original meeting in
accordance with the notice calling the same. No business shall be
transacted at any meeting unless a quorum be present at the
commencement of business. At the adjourned meeting the
Warrantholders present in person or by proxy shall form a quorum
and may transact the business for which the meeting was originally
convened, notwithstanding that they may not hold at least 25% of
the aggregate number of all then outstanding Warrants.
Section 7.5
Power to Adjourn.
The
chairman of any meeting at which a quorum of the Warrantholders is
present may, with the consent of the meeting, adjourn any such
meeting, and no notice of such adjournment need be given except
such notice, if any, as the meeting may prescribe.
Section 7.6
Show of Hands.
Every
question submitted to a meeting shall be decided in the first place
by a majority of the votes given on a show of hands except that
votes on an Extraordinary Resolution shall be given in the manner
hereinafter provided. At any such meeting, unless a poll is duly
demanded as herein provided, a declaration by the chairman that a
resolution has been carried or carried unanimously or by a
particular majority or lost or not carried by a particular majority
shall be conclusive evidence of the fact.
Section 7.7
Poll and Voting.
(1)
On
every Extraordinary Resolution, and on any other question submitted
to a meeting and after a vote by show of hands when demanded by the
chairman or by one or more of the Warrantholders acting in person
or by proxy and holding in the aggregate at least 5% of the
aggregate number of Warrants then outstanding, a poll shall be
taken in such manner as the chairman shall direct. Questions other
than those required to be determined by Extraordinary Resolution
shall be decided by a majority of the votes cast on the
poll.
(2)
On
a show of hands, every person who is present and entitled to vote,
whether as a Registered Warrantholder or as proxy for one or more
absent Warrantholders, or both, shall have one vote. On a poll,
each Registered Warrantholder present in person or represented by a
proxy duly appointed by instrument in writing shall be entitled to
one vote in respect of each Warrant then held or represented by it.
A proxy need not be a Registered Warrantholder. The chairman of any
meeting shall be entitled, both on a show of hands and on a poll,
to vote in respect of the Warrants, if any, held or represented by
him.
Section 7.8 Regulations.
(1)
The
Warrant Agent, or the Corporation with the approval of the Warrant
Agent, may from time to time make and from time to time vary such
regulations as it shall think fit for the setting of the record
date for a meeting for the purpose of determining Warrantholders
entitled to receive notice of and to vote at the
meeting.
(2)
Any
regulations so made shall be binding and effective and the votes
given in accordance therewith shall be valid and shall be counted.
Save as such regulations may provide, the only persons who shall be
recognized at any meeting as a Registered Warrantholder, or be
entitled to vote or be present at the meeting in respect thereof
(subject to Section 7.9), shall be Warrantholders or proxies of
Warrantholders.
Section 7.9 Corporation and Warrant Agent May be
Represented.
The
Corporation and the Warrant Agent, by their respective directors,
officers, agents, and employees and the Counsel for the Corporation
and for the Warrant Agent may attend any meeting of the
Warrantholders.
Section 7.10 Powers Exercisable by Extraordinary
Resolution.
In
addition to all other powers conferred upon them by any other
provisions of this Indenture or by law, the Warrantholders at a
meeting shall, subject to the provisions of Section 7.11, have the
power exercisable from time to time by Extraordinary
Resolution:
(a)
to
agree to any modification, abrogation, alteration, compromise or
arrangement of the rights of Warrantholders or the Warrant Agent in
its capacity as warrant agent hereunder (subject to the Warrant
Agent’s prior consent, acting reasonably) or on behalf of the
Warrantholders against the Corporation whether such rights arise
under this Indenture or otherwise;
(b)
to
amend, alter or repeal any Extraordinary Resolution previously
passed or sanctioned by the Warrantholders;
(c)
to
direct or to authorize the Warrant Agent, subject to Section 9.2(2)
hereof, to enforce any of the covenants on the part of the
Corporation contained in this Indenture or to enforce any of the
rights of the Warrantholders in any manner specified in such
Extraordinary Resolution or to refrain from enforcing any such
covenant or right;
(d)
to
waive, and to direct the Warrant Agent to waive, any default on the
part of the Corporation in complying with any provisions of this
Indenture either unconditionally or upon any conditions specified
in such Extraordinary Resolution;
(e)
to
restrain any Registered Warrantholder from taking or instituting
any suit, action or proceeding against the Corporation for the
enforcement of any of the covenants on the part of the Corporation
in this Indenture or to enforce any of the rights of the
Warrantholders;
(f)
to
direct any Registered Warrantholder who, as such, has brought any
suit, action or proceeding to stay or to discontinue or otherwise
to deal with the same upon payment of the costs, charges and
expenses reasonably and properly incurred by such Registered
Warrantholder in connection therewith;
(g)
to
assent to any change in or omission from the provisions contained
in this Indenture or any ancillary or supplemental instrument which
may be agreed to by the Corporation, and to authorize the Warrant
Agent to concur in and execute any ancillary or supplemental
indenture embodying the change or omission;
(h)
with
the consent of the Corporation, such consent not to be unreasonably
withheld, to remove the Warrant Agent or its successor in office
and to appoint a new warrant agent or warrant agents to take the
place of the Warrant Agent so removed; and
(i)
to
assent to any compromise or arrangement with any creditor or
creditors or any class or classes of creditors, whether secured or
otherwise, and with holders of any shares or other securities of
the Corporation.
Section 7.11 Meaning of Extraordinary Resolution.
(1)
The expression “Extraordinary
Resolution” when used in
this Indenture means, subject as hereinafter provided in this
Section 7.11 and in Section 7.14, a resolution: (i)
proposed at a meeting of Warrantholders duly
convened for that purpose and held in accordance with the
provisions of this Article 7 at which there are present in person or by proxy
Warrantholders holding in the aggregate at least 25% of the
aggregate number of Warrants then outstanding and passed by the
affirmative votes of Warrantholders holding not less than 66
1/3%
of the aggregate number of Warrants then outstanding at the meeting
and voted on the poll upon such resolution; or (ii) in writing
signed by the holders of at least 66 2/3%
of the then outstanding Warrants on any matter that would otherwise
be voted upon at a meeting called to approve such resolution as
contemplated in this Section 7.11(1).
outstanding
Warrants are not present in person or by proxy at such adjourned
meeting.
(2)
If,
at the meeting at which an Extraordinary Resolution is to be
considered, Warrantholders holding at least 25% of the aggregate
number of Warrants then outstanding are not present in person or by
proxy within 30 minutes after the time appointed for the meeting,
then the meeting, if convened by Warrantholders or on a
Warrantholders’ Request, shall be dissolved; but in any other
case it shall stand adjourned to such day, being not less than 15
or more than 60 days later, and to such place and time as may be
appointed by the chairman. Not less than 14 days’ prior
notice shall be given of the time and place of such adjourned
meeting in the manner provided for in Section 10.2. Such notice
shall state that at the adjourned meeting the Warrantholders
present in person or by proxy shall form a quorum but it shall not
be necessary to set forth the purposes for which the meeting was
originally called or any other particulars. At the adjourned
meeting the Warrantholders present in person or by proxy shall form
a quorum and may transact the business for which the meeting was
originally convened and a resolution proposed at such adjourned
meeting and passed by the requisite vote as provided in Section
7.11(1) shall be an Extraordinary Resolution within the meaning of
this Indenture notwithstanding that Warrantholders holding at least
25% of the aggregate number of the then outstanding Warrants are
not in person or by proxy at such adjourned meeting.
(3)
Subject
to Section 7.14, votes on an Extraordinary Resolution shall always
be given on a poll and no demand for a poll on an Extraordinary
Resolution shall be necessary.
Section 7.12
Powers Cumulative.
Any
one or more of the powers or any combination of the powers in this
Indenture stated to be exercisable by the Warrantholders by
Extraordinary Resolution or otherwise may be exercised from time to
time and the exercise of any one or more of such powers or any
combination of powers from time to time shall not be deemed to
exhaust the right of the Warrantholders to exercise such power or
powers or combination of powers then or thereafter from time to
time.
Minutes
of all resolutions and proceedings at every meeting of
Warrantholders shall be made and duly entered in books to be
provided from time to time for that purpose by the Warrant Agent at
the expense of the Corporation, and any such minutes as aforesaid,
if signed by the chairman or the secretary of the meeting at which
such resolutions were passed or proceedings had shall be prima
facie evidence of the matters therein stated and, until the
contrary is proved, every such meeting in respect of the
proceedings of which minutes shall have been made shall be deemed
to have been duly convened and held, and all resolutions passed
thereat or proceedings taken shall be deemed to have been duly
passed and taken.
Section 7.14
Instruments in Writing.
All actions which may be taken and all powers that
may be exercised by the Warrantholders at a meeting held as
provided in this Article 7 may also be taken and exercised by
Warrantholders holding not less than a majority or in the case of
an Extraordinary Resolution, holding not less than 66
2/3%,
of the aggregate number of all of the then outstanding Warrants by
an instrument in writing signed in one or more counterparts by such
Warrantholders in person or by attorney duly appointed in writing,
and the expression “Extraordinary
Resolution” when used in
this Indenture shall include an instrument so signed by holders of
not less than 66 2/3%
of the aggregate number of all of the then outstanding
Warrants.
Section 7.15
Binding Effect of Resolutions.
Every
resolution and every Extraordinary Resolution passed in accordance
with the provisions of this Article 7 at a meeting of
Warrantholders shall be binding upon all the Warrantholders,
whether present at or absent from such meeting, and every
instrument in writing signed by Warrantholders in accordance with
Section 7.14 shall be binding upon all the Warrantholders, whether
signatories thereto or not, and each and every Warrantholder and
the Warrant Agent (subject to the provisions for indemnity herein
contained) shall be bound to give effect accordingly to every such
resolution and instrument in writing.
Section 7.16 Holdings by Corporation Disregarded.
In
determining whether Warrantholders are holding the required number
of Warrants at a meeting of Warrantholders for the purpose of
determining a quorum or have concurred in any consent, waiver,
Extraordinary Resolution, Warrantholders’ Request or other
action under this Indenture, Warrants owned legally or beneficially
by the Corporation shall be disregarded in accordance with the
provisions of Section 10.7.
ARTICLE 8
SUPPLEMENTAL INDENTURES
Section 8.1 Provision for Supplemental Indentures for Certain
Purposes.
Subject
to regulatory approval, from time to time, the Corporation (when
authorized by action of the directors) and the Warrant Agent may,
subject to the provisions hereof and they shall, when so directed
in accordance with the provisions hereof, execute and deliver by
their proper officers, indentures or instruments supplemental
hereto, which thereafter shall form part hereof, for any one or
more or all of the following purposes:
(a)
setting
forth any adjustments resulting from the application of the
provisions of Article 4;
(b)
adding
to the provisions hereof such additional covenants and enforcement
provisions as, in the opinion of Counsel, are necessary or
advisable in the premises, provided that the same are not in the
opinion of the Warrant Agent, relying on the advice of Counsel,
prejudicial to the interests of the Warrantholders;
(c)
giving
effect to any Extraordinary Resolution passed as provided in
Section 7.11;
(d)
making
such provisions not inconsistent with this Indenture as may be
necessary or desirable with respect to matters or questions arising
hereunder or for the purpose of obtaining a listing or quotation of
the Warrants on any stock exchange, provided that such provisions
are not, in the opinion of the Warrant Agent, relying on the advice
of Counsel, prejudicial to the interests of the
Warrantholders;
(e)
adding
to or altering the provisions hereof in respect of the transfer of
Warrants, making provision for the exchange of Warrants, and making
any modification in the form of the Warrant Certificates which does
not affect the substance thereof;
(f)
modifying
any of the provisions of this Indenture, including relieving the
Corporation from any of the obligations, conditions or restrictions
herein contained, provided that such modification or relief shall
be or become operative or effective only if, in the opinion of the
Warrant Agent, relying on the advice of Counsel, such modification
or relief in no way prejudices any of the rights of the
Warrantholders or of the Warrant Agent, and provided further that
the Warrant Agent may in its sole discretion decline to enter into
any such supplemental indenture which in its opinion may not afford
adequate protection to the Warrant Agent when the same shall become
operative;
(g)
providing
for the issuance of additional Warrants hereunder, including
Warrants in excess of the number set out in Section 2.1 and any
consequential amendments hereto as may be required by the Warrant
Agent relying on the advice of Counsel; and
(h)
for
any other purpose not inconsistent with the terms of this
Indenture, including the correction or rectification of any
ambiguities, defective or inconsistent provisions, errors, mistakes
or omissions herein, provided that in the opinion of the Warrant
Agent, relying on the advice of Counsel, the rights of the Warrant
Agent and of the Warrantholders are in no way prejudiced
thereby.
Section 8.2 Successor Entities.
Except in relation to the Transactions, in the
case of the consolidation, amalgamation, arrangement, merger or
transfer of the undertaking or assets of the Corporation as an
entirety or substantially as an entirety to or with another
entity (“successor
entity”), the successor
entity resulting from such consolidation, amalgamation,
arrangement, merger or transfer (if not the Corporation) shall
expressly assume, by supplemental indenture satisfactory in form to
the Warrant Agent and executed and delivered to the Warrant Agent,
the due and punctual performance and observance of each and every
covenant and condition of this Indenture to be performed and
observed by the Corporation. For greater certainty, Section 1.8
shall apply to the Transactions.
ARTICLE 9
CONCERNING THE WARRANT AGENT
Section 9.1 Warrant Indenture Legislation.
(1)
If
and to the extent that any provision of this Indenture limits,
qualifies or conflicts with a mandatory requirement of Applicable
Legislation, such mandatory requirement shall prevail.
(2)
The
Corporation and the Warrant Agent agree that each will, at all
times in relation to this Indenture and any action to be taken
hereunder, observe and comply with and be entitled to the benefits
of Applicable Legislation.
Section 9.2 Rights and Duties of Warrant Agent.
(1)
In the exercise of the rights and duties
prescribed or conferred by the terms of this Indenture, the Warrant
Agent shall exercise that degree of care, diligence and skill that
a reasonably prudent warrant agent would exercise in comparable
circumstances. No provision of this Indenture shall be construed to
relieve the Warrant Agent from liability for its own gross
negligence, wilful misconduct, bad faith or
fraud.
(2)
The obligation of the
Warrant Agent to commence or continue any act, action or proceeding
for the purpose of enforcing any rights of the Warrant Agent or
the Warrantholders hereunder shall be conditional
upon the Warrantholders furnishing, when required by notice by the
Warrant Agent, sufficient funds to commence or to continue such
act, action or proceeding and an indemnity reasonably satisfactory
to the Warrant Agent to protect and to hold harmless the Warrant
Agent and its officers, directors, employees and agents, against
the costs, charges and expenses and liabilities to be incurred
thereby and any loss and damage it may suffer by reason thereof.
None of the provisions contained in this Indenture shall require
the Warrant Agent to expend or to risk its own funds or otherwise
to incur financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers unless
indemnified and funded as aforesaid.
(3)
The
Warrant Agent may, before commencing or at any time during the
continuance of any such act, action or proceeding, require the
Warrantholders, at whose instance it is acting to deposit with the
Warrant Agent the Warrants Certificates held by them, for which
Warrants the Warrant Agent shall issue receipts.
(4)
Every
provision of this Indenture that by its terms relieves the Warrant
Agent of liability or entitles it to rely upon any evidence
submitted to it is subject to the provisions of Applicable
Legislation.
Section 9.3 Evidence, Experts and Advisers.
(1)
In
addition to the reports, certificates, opinions and other evidence
required by this Indenture, the Corporation shall furnish to the
Warrant Agent such additional evidence of compliance with any
provision hereof, and in such form, as may be prescribed by
Applicable Legislation or as the Warrant Agent may reasonably
require by written notice to the Corporation.
(2)
In
the exercise of its rights and duties hereunder, the Warrant Agent
may, if it is acting in good faith, rely as to the truth of the
statements and the accuracy of the opinions expressed in statutory
declarations, opinions, reports, written requests, consents, or
orders of the Corporation, certificates of the Corporation or other
evidence furnished to the Warrant Agent pursuant to a request of
the Warrant Agent, provided that the Warrant Agent examines the
same and determines that such evidence complies with the applicable
requirements of this Indenture.
(3)
Whenever it is provided in this Indenture or under
Applicable Legislation that the Corporation shall deposit with the
Warrant Agent resolutions, certificates, reports, opinions,
requests, orders or other documents, it is intended that the truth,
accuracy and good faith on the effective date thereof and the facts
and opinions stated in all such documents so deposited shall, in
each and every such case, be conditions precedent to the right of
the Corporation to have the Warrant Agent take the action to be
based thereon.
(4)
Whenever Applicable
Legislation requires that evidence referred to in Subsection 9.3(1)
be in the form of a statutory declaration, the Warrant Agent may
accept such statutory declaration in lieu of a certificate of the
Corporation required by any provision hereof. Any such statutory
declaration may be made by one or more of the Chairman of the Board
and Chief Executive Officer, President and Chief Operating Officer,
Executive Vice-President, Vice-President, Secretary, Controller,
Treasurer, or any Assistant-Secretary or Assistant-Treasurer of the
Corporation.
(5)
Proof
of the execution of an instrument in writing, including a
Warrantholders' Request, by any Warrantholder may be made by the
certificate of a notary, solicitor or commissioner for oaths, or
other officer with similar powers, that the person signing such
instrument acknowledged to him the execution thereof, or by an
affidavit of a witness to such execution or in any other manner
which the Warrant Agent may consider adequate and in respect of a
corporate Warrantholder, shall include a certificate of incumbency
of such Warrantholder together with a certified resolution
authorizing the person who signs such instrument to sign such
instrument.
(6)
The
Warrant Agent may employ or retain such Counsel, accountants,
appraisers or other experts or advisers as it may reasonably
require for the purpose of discharging its duties hereunder and may
pay reasonable remuneration for all services so performed by any of
them, without taxation of costs of any Counsel, and shall not be
responsible for any misconduct or negligence on the part of any
such experts or advisers who have been appointed with due care by
the Warrant Agent. The Corporation shall pay or reimburse the
Warrant Agent for any reasonable fees, expenses and disbursements
of such counsel or advisors.
(7)
The
Warrant Agent may act and rely and shall be protected in acting and
relying in good faith on the opinion or advice of or information
obtained from any Counsel, accountant, appraiser, engineer or other
expert or adviser, whether retained or employed by the Corporation
or by the Warrant Agent, in relation to any matter arising in the
administration of the agency hereof.
Section 9.4 Documents, Monies, etc. Held by Warrant
Agent.
(1)
Any monies, securities, documents of title or
other instruments that may at any time be held by the Warrant Agent
shall be placed in the deposit vaults of the Warrant Agent or of
any Canadian chartered bank listed in Schedule I of the
Bank
Act (Canada), or deposited for
safekeeping with any such bank. Any monies held pending the
application or withdrawal thereof under any provisions of this
Indenture, shall be held, invested and reinvested in
“Permitted Investments” as directed in writing by the
Corporation. “Permitted Investments” shall be treasury
bills guaranteed by the Government of Canada having a term to
maturity not to exceed ninety (90) days, or term deposits or
bankers’ acceptances of a Canadian chartered bank having a
term to maturity not to exceed ninety (90) days, or such other
investments that is in accordance with the Warrant Agent’s
standard type of investments. Unless otherwise specifically
provided herein, all interest or other income received by the
Warrant Agent in respect of such deposits and investments shall
belong to the Corporation.
(2)
Any written
direction for the investment or release of funds received shall be
received by the Warrant Agent by 9:00 a.m. (Toronto time) on the
Business Day on which such investment or release is to be made,
failing which such direction will be handled on a commercially
reasonable efforts basis and may result in funds being invested or
released on the next Business Day.
The Warrant Agent shall have no responsibility or
liability for any diminution of any funds resulting from any
investment made in accordance with this Indenture, including any
losses on any investment liquidated prior to maturity in order to
make a payment required
hereunder.
(4)
In
the event that the Warrant Agent does not receive a direction or
receives only a partial direction, the Warrant Agent may hold cash
balances constituting part or all of such monies and may, but need
not, invest same in its deposit department, the deposit department
of one of its affiliates, or the deposit department of a Canadian
chartered bank; but the Warrant Agent, its affiliates or a Canadian
chartered bank shall not be liable to account for any profit to any
parties to this Indenture or to any other person or
entity.
Section 9.5 Actions by Warrant Agent to Protect
Interest.
The
Warrant Agent shall have power to institute and to maintain such
actions and proceedings as it may consider necessary or expedient
to preserve, protect or enforce its interests and the interests of
the Warrantholders.
Section 9.6 Warrant Agent Not Required to Give
Security.
The
Warrant Agent shall not be required to give any bond or security in
respect of the execution of the agency and powers of this Indenture
or otherwise in respect of the premises.
Section 9.7 Protection of Warrant Agent.
By
way of supplement to the provisions of any law for the time being
relating to the Warrant Agent it is expressly declared and agreed
as follows:
(a)
the
Warrant Agent shall not be liable for or by reason of any
statements of fact or recitals in this Indenture or in the Warrant
Certificates (except the representation contained in Section 9.9 or
in the authentication of the Warrant Agent on the Warrant
Certificates) or be required to verify the same, but all such
statements or recitals are and shall be deemed to be made by the
Corporation;
(b)
nothing
herein contained shall impose any obligation on the Warrant Agent
to see to or to require evidence of the registration or filing (or
renewal thereof) of this Indenture or any instrument ancillary or
supplemental hereto;
(c)
the
Warrant Agent shall not be bound to give notice to any person or
persons of the execution hereof;
(d)
the
Warrant Agent shall not incur any liability or responsibility
whatsoever or be in any way responsible for the consequence of any
breach on the part of the Corporation of any of its covenants
herein contained or of any acts of any directors, officers,
employees, agents or servants of the Corporation;
(e)
the Corporation hereby indemnifies and agrees to
hold harmless the Warrant Agent, its affiliates, their officers,
directors, employees, agents, successors and assigns (the
“Indemnified
Parties”) from and
against any and all liabilities whatsoever, losses (other than loss
of profits), damages (other than contingent damages), penalties,
claims, demands, actions, suits, proceedings, costs, charges,
assessments, judgments, expenses and disbursements, including
reasonable legal fees and disbursements of whatever kind and nature
which may at any time be imposed on or incurred by or asserted
against the Indemnified Parties, or any of them, whether at law or
in equity, in any way caused by or arising, directly or indirectly,
in respect of any act, deed, matter or thing whatsoever made, done,
acquiesced in or omitted in or about or in relation to the
execution of the Indemnified Parties’ duties, or any other
services that the Indemnified Parties may provide in connection
with or in any way relating to this Indenture. The Corporation
agrees that its liability hereunder shall be absolute and
unconditional regardless of the correctness of any representations
of any third parties and regardless of any liability of third
parties to the Indemnified Parties, and shall accrue and become
enforceable without prior demand or any other precedent action or
proceeding; provided that the Corporation shall not be required to
indemnify the Indemnified Parties in the event of the gross
negligence or wilful misconduct of the Warrant Agent, and this
provision shall survive the resignation or removal of the Warrant
Agent or the termination or discharge of this
Indenture;
(f)
notwithstanding
the foregoing or any other provision of this Indenture, except for
any liability arising out of the Warrant Agent’s own gross
negligence, wilful misconduct, bad faith or fraud, any liability of
the Warrant Agent shall be limited, in the aggregate, to the amount
of annual retainer fees paid by the Corporation to the Warrant
Agent under this Indenture in the twelve (12) months immediately
prior to the Warrant Agent receiving the first notice of the claim.
Notwithstanding any other provision of this Indenture, and whether
such losses or damages are foreseeable or unforeseeable, the
Warrant Agent shall not be liable under any circumstances
whatsoever for any (a) breach by any other party of securities law
or other rule of any securities regulatory authority, (b) lost
profits or (c) special, indirect, incidental, consequential,
exemplary, aggravated or punitive losses or damages;
and
(g)
the
Warrant Agent shall not be liable for any error in judgment or for
any act done or step taken or omitted by it in good faith or for
any mistake, in fact or law, or for anything which it may do or
refrain from doing in connection herewith except arising out of its
own gross negligence, wilful misconduct, bad faith or
fraud.
Section 9.8 Replacement of Warrant Agent; Successor by
Merger.
(1)
The
Warrant Agent may resign its agency and be discharged from all
further duties and liabilities hereunder, subject to this Section
9.8, by giving to the Corporation not less than 60 days’
prior notice in writing or such shorter prior notice as the
Corporation may accept as sufficient. The Warrantholders by
Extraordinary Resolution shall have power at any time to remove the
existing Warrant Agent and to appoint a new warrant agent. In the
event of the Warrant Agent resigning or being removed as aforesaid
or being dissolved, becoming bankrupt, going into liquidation or
otherwise becoming incapable of acting hereunder, the Corporation
shall forthwith appoint a new warrant agent unless a new warrant
agent has already been appointed by the Warrantholders; failing
such appointment by the Corporation, the retiring Warrant Agent or
any Registered Warrantholder may apply to a judge of the Superior
Court of the Province of Ontario on such notice as such judge may
direct, for the appointment of a new warrant agent; but any new
warrant agent so appointed by the Corporation or by the Court shall
be subject to removal as aforesaid by the Warrantholders. Any new
warrant agent appointed under any provision of this Section 9.8
shall be an entity authorized to carry on the business of a trust
company in the Province of Ontario and, if required by the
Applicable Legislation for any other provinces, in such other
provinces. On any such appointment the new warrant agent shall be
vested with the same powers, rights, duties and responsibilities as
if it had been originally named herein as Warrant Agent
hereunder.
(2)
Upon
the appointment of a successor warrant agent, the Corporation shall
promptly notify the Warrantholders thereof in the manner provided
for in Section 10.2.
(3)
Any
Warrant Certificates Authenticated but not delivered by a
predecessor Warrant Agent may be Authenticated by the successor
Warrant Agent in the name of the predecessor or successor Warrant
Agent.
(4)
Any
corporation into which the Warrant Agent may be merged or
consolidated or amalgamated, or any corporation resulting therefrom
to which the Warrant Agent shall be a party, or any corporation
succeeding to substantially the corporate trust business of the
Warrant Agent shall be the successor to the Warrant Agent hereunder
without any further act on its part or any of the parties hereto,
provided that such corporation would be eligible for appointment as
successor Warrant Agent under Section 9.8(1).
Section 9.9 Conflict of Interest.
(1)
The Warrant Agent represents to the Corporation
that at the time of execution and delivery hereof no material
conflict of interest exists between its role as a Warrant Agent
hereunder and its role in any other capacity and agrees that in the
event of a material conflict of interest arising hereafter it will,
within 90 days after ascertaining that it has such material
conflict of interest, either eliminate the same or assign its
agency hereunder to a successor Warrant Agent approved by the
Corporation and meeting the requirements set forth in Section
9.8(1). Notwithstanding the foregoing provisions of this Section
9.9(1), if any such material conflict of interest exists or
hereafter shall exist, the validity and enforceability of this
Indenture and the Warrant Certificate shall not be affected in any
manner whatsoever by reason thereof.
(2)
Subject
to Section 9.9(1), the Warrant Agent, in its personal or any other
capacity, may buy, lend upon and deal in securities of the
Corporation and generally may contract and enter into financial
transactions with the Corporation without being liable to account
for any profit made thereby.
Section 9.10 Acceptance of Agency
The
Warrant Agent hereby accepts the agency in this Indenture declared
and provided for and agrees to perform the same upon the terms and
conditions herein set forth.
Section 9.11 Warrant Agent Not to be Appointed
Receiver
The
Warrant Agent and any person related to the Warrant Agent shall not
be appointed a receiver, a receiver and manager or liquidator of
all or any part of the assets or undertaking
of the Corporation.
Section 9.12 Warrant Agent Not Required to Give Notice of
Default.
The
Warrant Agent shall not be bound to give any notice or do or take
any act, action or proceeding by virtue of the powers conferred on
it hereby unless and until it shall have been required so to do
under the terms hereof; nor shall the Warrant Agent be required to
take notice of any default hereunder, unless and until notified in
writing of such default, which notice shall distinctly specify the
default desired to be brought to the attention of the Warrant Agent
and in the absence of any such notice the Warrant Agent may for all
purposes of this Indenture conclusively assume that no default has
been made in the observance or performance of any of the
representations, warranties, covenants, agreements or conditions
contained herein. Any such notice shall in no way limit any
discretion herein given to the Warrant Agent to determine whether
or not the Warrant Agent shall take action with respect to any
default.
Section 9.13 Anti-Money Laundering.
(1)
Each
party to this Indenture other than the Warrant Agent hereby
represents to the Warrant Agent that any account to be opened by,
or interest to be held by the Warrant Agent in connection with this
Indenture, for or to the credit of such party, either (i) is not
intended to be used by or on behalf of any third party; or (ii) is
intended to be used by or on behalf of a third party, in which case
such party hereto agrees to complete and execute forthwith a
declaration in the Warrant Agent’s prescribed form as to the
particulars of such third party.
(2)
The
Warrant Agent shall retain the right not to act and shall not be
liable for refusing to act if, due to a lack of information or for
any other reason whatsoever, the Warrant Agent, in its sole
judgment, determines that such act might cause it to be in non-
compliance with any applicable anti-money laundering,
anti-terrorist or economic sanctions legislation, regulation or
guideline. Further, should the Warrant Agent, in its sole judgment,
determine at any time that its acting under this Indenture has
resulted in its being in non-compliance with any applicable
anti-money laundering, antiterrorist or economic sanctions
legislation, regulation or guideline, then it shall have the right
to resign on ten (10) days written notice to the other parties to
this Indenture, provided (i) that the Warrant Agent's written
notice shall describe the circumstances of such non-compliance; and
(ii) that if such circumstances are rectified to the Warrant
Agent's satisfaction within such ten (10) day period, then such
resignation shall not be effective.
Section 9.14 Compliance with Privacy Code.
The
Corporation acknowledges that the Warrant Agent may, in the course
of providing services hereunder, collect or receive financial and
other personal information about such parties and/or their
representatives, as individuals, or about other individuals related
to the subject matter hereof, and use such information for the
following purposes:
(a)
to
provide the services required under this Indenture and other
services that may be requested from time to time;
(b)
to
help the Warrant Agent manage its servicing relationships with such
individuals;
(c) to
meet the Warrant Agent’s legal and regulatory requirements;
and
(d)
if
Social Insurance Numbers are collected by the Warrant Agent, to
perform tax reporting and to assist in verification of an
individual’s identity for security purposes.
The
Corporation acknowledges and agrees that the Warrant Agent may
receive, collect, use and disclose personal information provided to
it or acquired by it in the course of its acting as agent hereunder
for the purposes described above and, generally, in the manner and
on the terms described in its privacy code, which the Warrant Agent
shall make available on its website or upon request, including
revisions thereto. Further, the Corporation agrees that it shall
not provide or cause to be provided to the Warrant Agent any
personal information relating to an individual who is not a party
to this Indenture unless the Corporation has assured itself that
such individual understands and has consented to the aforementioned
uses and disclosures. The Warrant Agent may transfer personal
information to other companies in or outside of Canada that provide
data processing and storage or other support in order to facilitate
the services it provides.
ARTICLE 10
GENERAL
Section 10.1 Notice to the Corporation and the Warrant
Agent.
(1)
Unless herein otherwise expressly provided, any notice to be given
hereunder to the Corporation or the Warrant Agent shall be deemed
to be validly given if delivered, sent by registered letter,
postage prepaid, if faxed or if emailed:
(a) If
to the Corporation:
10653918
Canada Inc. c/o Cassels
Brock
& Blackwell LLP Suite 2100,
Scotia
Plaza 40 King Street West
Toronto,
ON M5H 3C2
Email:
[REDACTED]
Attention: Jay Goldman
(b) If
to Carpincho:
181
University Avenue, Suite 800
Toronto,
Ontario M5H 2X7
Attention:
Lonnie Kirsh
Email:
[REDACTED]
(c) If
to the Warrant Agent:
Odyssey
Trust Company
Stock
Exchange Tower
350
- 300 5th Avenue SW
Calgary,
AB T2P 3C4
Email: [REDACTED]
Attention: Dan Sander
(2)
The
Corporation or the Warrant Agent, as the case may be, may from time
to time notify the other in the manner provided in Section 10.1(1)
of a change of address which, from the effective date of such
notice and until changed by like notice, shall be the address of
the Corporation or the Warrant Agent, as the case may be, for all
purposes of this Indenture.
(3)
If,
by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to
the Warrant Agent or to the Corporation hereunder could reasonably
be considered unlikely to reach its destination, such notice shall
be valid and effective only if it is delivered to the named officer
of the party to which it is addressed, as provided in Section
10.1(1), or given by facsimile or email or other means of prepaid,
transmitted and recorded communication.
Section 10.2 Notice to Warrantholders.
(1)
Unless
otherwise provided herein, notice to the Warrantholders under the
provisions of this Indenture shall be valid and effective if
delivered or sent by ordinary prepaid post addressed to such
holders at their post office addresses appearing on the register
hereinbefore mentioned and shall be deemed to have been effectively
received and given on the date of delivery or, if mailed, on the
third Business Day following the date of mailing such notice. In
the event that Warrants are held in the name of the Depository, a
copy of such notice shall also be sent by electronic communication
to the Depository and shall be deemed received and given on the day
it is so sent.
(2)
If, by reason of a strike, lockout or other work
stoppage, actual or threatened, involving postal employees, any
notice to be given to the Warrantholders hereunder could reasonably
be considered unlikely to reach its destination, such notice shall
be valid and effective only if it is delivered to such
Warrantholders to the address for such Warrantholders contained in
the register maintained by the Warrant Agent or such notice may be
given, at the Corporation’s expense, by means of publication
in the Globe and Mail, National Edition, or any other English
language daily newspaper or newspapers of general circulation in
Canada, in each two successive weeks, the first such notice to be
published within 5 business days of such event, and any so notice
published shall be deemed to have been received and given on the
latest date the publication takes place.
(3)
Accidental
error or omission in giving notice or accidental failure to mail
notice to any Warrantholder will not invalidate any action or
proceeding founded thereon.
Section 10.3 Ownership of Warrants.
The
Corporation and the Warrant Agent may deem and treat the
Warrantholders as the absolute owner thereof for all purposes, and
the Corporation and the Warrant Agent shall not be affected by any
notice or knowledge to the contrary except where the Corporation or
the Warrant Agent is required to take notice by statute or by order
of a court of competent jurisdiction. The receipt of any such
Registered Warrantholder of the Common Shares which may be acquired
pursuant thereto shall be a good discharge to the Corporation and
the Warrant Agent for the same and neither the Corporation nor the
Warrant Agent shall be bound to inquire into the title of any such
holder except where the Corporation or the Warrant Agent is
required to take notice by statute or by order of a court of
competent jurisdiction.
Section 10.4 Counterparts.
This
Indenture may be executed in several counterparts, each of which
when so executed shall be deemed to be an original and such
counterparts together shall constitute one and the same instrument
and notwithstanding their date of execution they shall be deemed to
be dated as of the date hereof. Delivery of an executed copy of
this Indenture by electronic facsimile transmission or other means
of electronic communication capable of producing a printed copy
will be deemed to be execution and delivery of this Indenture as of
the date hereof.
Section 10.5 Satisfaction and Discharge of
Indenture.
Upon
the earlier of:
(1)
the date of the termination of the Share Exchange
Agreement or the Amalgamation Agreement;
(2)
The
date by which there shall have been delivered to the Warrant Agent
for exercise or cancellation all Warrants theretofore Authenticated
hereunder, in the case of Certificated Warrants, or such other
instructions, in a form satisfactory to the Warrant Agent, in the
case of Uncertificated Warrants, or by way of standard processing
through the book entry only system in the case of a CDS Global
Warrant; and
and
if all certificates or other entry on the register representing
Common Shares required to be issued in compliance with the
provisions hereof have been issued and delivered hereunder or to
the Warrant Agent in accordance with such provisions, this
Indenture shall cease to be of further effect and the Warrant
Agent, on demand of and at the cost and expense of the Corporation
and upon delivery to the Warrant Agent of a certificate of the
Corporation stating that all conditions precedent to the
satisfaction and discharge of this Indenture have been complied
with, shall execute proper instruments acknowledging satisfaction
of and discharging this Indenture. Notwithstanding the foregoing,
the indemnities provided to the Warrant Agent by the Corporation
hereunder shall remain in full force and effect and survive the
termination of this Indenture.
Section 10.6 Provisions of Indenture and Warrants for the Sole
Benefit of Parties and Warrantholders.
Nothing
in this Indenture or in the Warrants, expressed or implied, shall
give or be construed to give to any person other than the parties
hereto and the Warrantholders, as the case may be, any legal or
equitable right, remedy or claim under this Indenture, or under any
covenant or provision herein or therein contained, all such
covenants and provisions being for the sole benefit of the parties
hereto and the Warrantholders.
Section 10.7 Common Shares or Warrants Owned by the Corporation or
its Subsidiaries - Certificate to be Provided.
For
the purpose of disregarding any Warrants owned legally or
beneficially by the Corporation in Section 7.16, the Corporation
shall provide to the Warrant Agent, from time to time, a
certificate of the Corporation setting forth as at the date of such
certificate:
(a)
the
names (other than the name of the Corporation) of the
Warrantholders which, to the knowledge of the Corporation, are
owned by or held for the account of the Corporation;
and
(b)
the
number
of Warrants owned legally or beneficially by the
Corporation;
and
the Warrant Agent, in making the computations in Section 7.16,
shall be entitled to rely on such certificate without any
additional evidence.
Section 10.8 Severability
If,
in any jurisdiction, any provision of this Indenture or its
application to any party or circumstance is restricted, prohibited
or unenforceable, such provision will, as to such jurisdiction, be
ineffective only to the extent of such restriction, prohibition or
unenforceability without invalidating the remaining provisions of
this Indenture and without affecting the validity or enforceability
of such provision in any other jurisdiction or without affecting
its application to other parties or circumstances.
Section 10.9 Force Majeure
No
party shall be liable to the other, or held in breach of this
Indenture, if prevented, hindered, or delayed in the performance or
observance of any provision contained herein by reason of act of
God, riots, terrorism, acts of war, epidemics, governmental action
or judicial order, earthquakes, or any other similar causes
(including, but not limited to, mechanical, electronic or
communication interruptions, disruptions or failures). Performance
times under this Indenture shall be extended for a period of time
equivalent to the time lost because of any delay that is excusable
under this Section.
Section 10.10 Assignment, Successors and
Assigns
Neither
of the parties hereto may assign its rights or interest under this
Indenture, except as provided in Section 9.8 in the case of the
Warrant Agent, or as provided in Section 8.2 in the case of the
Corporation. Subject thereto, this Indenture shall enure to the
benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns.
IN WITNESS WHEREOF the parties
hereto have executed this Indenture under the hands of their proper
officers in that behalf as of the date first written
above.
10653918 CANADA INC.
By: /s/ Dennis
Logan
Name:
Dennis Logan
Title:
President and CEO
ODYSSEY TRUST COMPANY
By: /s/ Dan
Sander
Name:
Dan Sander
Title:
VP Corporate Trust
By: /s/ Jay
Campbell
Name:
Jay Campbell
Title:
President
CARPINCHO CAPITAL CORP.
By: /s/ Lonnie
Kirsh
Name:
Lonnie Kirsh
Title:
President
SCHEDULE“A”
FORM OF WARRANT
[For all Warrants issued prior to the completion of the
Transactions, include the following-.]
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS
SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS 4
MONTHS AND A DAY AFTER THE LATER OF (I) [INSERT: DATE
OF DISTRIBUTION] AND (II) THE
DATE THE ISSUER BECOMES A REPORTING ISSUER IN ANY PROVINCE OR
TERRITORY.
[For Warrants issued to U.S. Accredited Investors prior to the
completion of the Transactions, include the
following-.]
THE OFFER AND SALE OF SECURITIES REPRESENTED HEREBY AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN AND WILL NOT
BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE “U.S. SECURITIES ACT”) OR ANY STATE
SECURITIES LAWS, AND THE SECURITIES REPRESENTED HEREBY AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPOFRATION, OR
(B) OUTSIDE THE UNITED STATES TO A PERSON WHO IS NOT A “U.S.
PERSON” IN ACCORDANCE WITH AN APPLICABLE EXEMPTION UNDER THE
U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE
NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT,
OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THESE
SECURITIES MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR FOR
THE ACCOUNT OR BENEFIT OF A U.S. PERSON OR A PERSON IN THE UNITED
STATES UNLESS THESE SECURITIES AND THE UNDERLYING SECURITIES HAVE
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS IS AVAILABLE. “UNITED STATES” AND
“U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE
U.S. SECURITIES ACT.
[For Warrants issued to U.S. Accredited Investors
post-Transactions, include the following-.]
THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S.
SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. THE HOLDER
HEREOF, BY ACQUIRING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE
CORPORATION THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION; OUTSIDE THE
UNITED STATES IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE
U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS
AND REGULATIONS; (C) IN ACCORDANCE WITH THE EXEMPTION FROM
REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY (i) RULE 144
OR (ii) RULE 144A THEREUNDER, IF AVAILABLE AND IN COMPLIANCE WITH
STATE SECURITIES OR (D) WITHIN THE UNITED STATES, WITH ANY OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES
ACT AND APPLICABLE STATE SECURITIES LAWS, PROVIDED, IN THE CASE OF
AN OFFER, SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE OR OTHER TRANSFER
PURSUANT TO (C)(i) OR (D), THE HOLDER SHALL HAVE PROVIDED TO THE
CORPORATION AN OPINION OF COUNSEL TO THE EFFECT THAT THE PROPOSED
TRANSFER MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE U.S.
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, WHICH OPINION
AND COUNSEL MUST BE SATISFACTORY TO THE CORPORATION. DELIVERY OF
THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN
SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA OR
ELSEWHERE.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE
NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT,
OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THESE
SECURITIES MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR FOR
THE ACCOUNT OR BENEFIT OF A U.S. PERSON OR A PERSON IN THE UNITED
STATES UNLESS THESE SECURITIES AND THE UNDERLYING SECURITIES HAVE
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS IS AVAILABLE. “UNITED STATES” AND
“U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE
U.S. SECURITIES ACT.
WARRANT
To acquire Common Shares of
10653918 CANADA INC.
(existing pursuant to the federal laws of Canada)
Warrant Certificate No. _____
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Certificate for _______ Warrants, each entitling the
holder to acquire one (10 Common Share (subject to adjustment as
provided for in the Warrant Indenture (as defined below)
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THIS IS TO CERTIFY THAT, for value received,
(the “Warrantholder”)
is the registered holder of the number
of common share purchase warrants (the “Warrants”)
of 10653918 Canada Inc. (the
“Corporation”)
specified above, and is entitled, on
exercise of these Warrants upon and subject to the terms and
conditions set forth herein and in the Warrant Indenture, to
purchase at any time before 5:00 p.m. (Calgary time) (the
“Expiry
Time”) on
[●][INSERT
DATE THAT IS TWO YEARS FOLLOWING THE COMPLETION OF THE
TRANSACTIONS] (the
“Expiry
Date”), one fully paid
and nonassessable common share without par value in the capital of
the Corporation as constituted on the date hereof (a
“Common
Share”) for each Warrant
subject to adjustment in accordance with the terms of the Warrant
Indenture.
The right to purchase Common Shares may only be exercised by the
Warrantholder within the time set forth above by:
(a)
duly completing and executing the exercise form
(the “Exercise
Form”) attached hereto;
and
(b)
surrendering this warrant certificate (the
“Warrant
Certificate”), with the
Exercise Form to the Warrant Agent at the principal office of the
Warrant Agent, in the City of Calgary, Alberta, together with a
certified cheque, bank draft or money order in the lawful money of
Canada payable to or to the order of the Corporation in an amount
equal to the purchase price of the Common Shares so subscribed
for.
The surrender of this Warrant Certificate, the duly completed
Exercise Form and payment as provided above will be deemed to have
been effected only on personal delivery thereof to, or if sent by
mail or other means of transmission on actual receipt thereof by,
the Warrant Agent at its principal office as set out
above.
Subject to adjustment thereof in the events and in the manner set
forth in the Warrant Indenture hereinafter referred to, the
exercise price payable for each Common Share upon the exercise of
Warrants shall be $1.40 per Common Share (the “Exercise
Price”).
Certificates for the Common Shares subscribed for will be mailed to
the persons specified in the Exercise Form at their respective
addresses specified therein or, if so specified in the Exercise
Form, delivered to such persons at the office where this Warrant
Certificate is surrendered. If fewer Common Shares are purchased
than the number that can be purchased pursuant to this Warrant
Certificate, the holder hereof will be entitled to receive without
charge a new Warrant Certificate in respect of the balance of the
Warrants not so exercised. No fractional Common Shares will be
issued upon exercise of any Warrant.
This Warrant Certificate evidences Warrants of the Corporation
issued or issuable under the provisions of a warrant indenture
(which indenture together with all other instruments supplemental
or ancillary thereto is herein referred to as the
“Warrant
Indenture”) dated as of
April 26, 2018 among the Corporation, Carpincho Capital
Corp. (“Carpincho”)
and Odyssey Trust Company, as Warrant
Agent, to which Warrant Indenture reference is hereby made for
particulars of the rights of the holders of Warrants, the
Corporation, Carpincho and the Warrant Agent in respect thereof and
the terms and conditions on which the Warrants are issued and held,
all to the same effect as if the provisions of the Warrant
Indenture were herein set forth, to all of which the holder, by
acceptance hereof, assents. The Corporation will furnish to the
holder, on request and without charge, a copy of the Warrant
Indenture.
Neither the Warrants nor the Common Shares issuable upon exercise
hereof have been or will be registered under the United States
Securities Act of 1933, as amended (the “U.S. Securities
Act”), or U.S. state
securities laws. The Warrants may not be exercised in the United
States, or by or on behalf of, or for the account or benefit of, a
U.S. person or a person in the United States, unless (i) this
Warrant and such Common Shares have been registered under the U.S.
Securities Act and the applicable laws of any such state, or (ii)
an exemption from such registration requirements is available and
the requirements set forth in the Exercise Form have been
satisfied. “United States” and “U.S.
person” are as defined in Regulation S under the U.S.
Securities Act.
On presentation at the principal office of the Warrant Agent as set
out above, subject to the provisions of the Warrant Indenture and
on compliance with the reasonable requirements of the Warrant
Agent, one or more Warrant Certificates may be exchanged for one or
more Warrant Certificates representing in the aggregate an equal
number of Warrants as are held under the Warrant Certificate(s) so
exchanged.
The Warrant Indenture contains provisions for the adjustment of the
Exercise Price payable for each Common Share upon the exercise of
Warrants and the number of Common Shares issuable upon the exercise
of Warrants in the events and in the manner set forth
therein.
The Warrant Indenture also contains provisions making binding on
all holders of Warrants outstanding thereunder resolutions passed
at meetings of holders of Warrants held in accordance with the
provisions of the Warrant Indenture and instruments in writing
signed by Warrantholders of Warrants holding a specific majority of
the Warrants.
Nothing contained in this Warrant Certificate, the Warrant
Indenture or elsewhere shall be construed as conferring upon the
holder hereof any right or interest whatsoever as a holder of
Common Shares or any other right or interest except as herein and
in the Warrant Indenture expressly provided. In the event of any
discrepancy between anything contained in this Warrant Certificate
and the terms and conditions of the Warrant Indenture, the terms
and conditions of the Warrant Indenture shall govern.
Warrants may only be transferred in compliance with the conditions
of the Warrant Indenture on the register to be kept by the Warrant
Agent in Calgary, or such other registrar as the Corporation, with
the approval of the Warrant Agent, may appoint at such other place
or places, if any, as may be designated, upon surrender of this
Warrant Certificate to the Warrant Agent or other registrar
accompanied by a written instrument of transfer in form and
execution satisfactory to the Warrant Agent or other registrar and
upon compliance with the conditions prescribed in the Warrant
Indenture and with such reasonable requirements as the Warrant
Agent or other registrar may prescribe and upon the transfer being
duly noted thereon by the Warrant Agent or other registrar. Time is
of the essence hereof.
This Warrant Certificate will not be valid for any purpose until it
has been countersigned by or on behalf of the Warrant Agent from
time to time under the Warrant Indenture.
The parties hereto have declared that they have required that these
presents and all other documents related hereto be in the English
language. Les parties aux presentes declarant qu’elles ont
exige que la presente convention, de meme que tous les documents
s’y rapportant, soient rediges en anglais.
Any capitalized term in this Warrant Certificate that is not
otherwise defined herein, shall have the meaning ascribed thereto
in the Warrant Indenture.
IN WITNESS WHEREOF
the Corporation has caused this
Warrant Certificate to be duly executed as
of ,
2018.
10653918 CANADA INC.
By:
Authorized
Signatory
ODYSSEY TRUST COMPANY
By:
Name:
Title:
FORM OF TRANSFER
To: Odyssey Trust Company
FOR VALUE RECEIVED the
undersigned hereby sells, assigns and transfers to
(print
name and address) the Warrants represented by this Warrant
Certificate and hereby irrevocable constitutes and appoints
as its attorney with full power
of substitution
to transfer the said securities on the appropriate register of the
Warrant Agent.
In the case of a warrant certificate that contains U.S. restrictive
legends substantially in the form set forth in Section 2.5(3) and
2.5(4) of the Warrant Indenture, the undersigned hereby represents,
warrants and certifies that (one (only) of the following must be
checked):
□ (A) the transfer is being made only to the
Corporation; or
□ (B) the transfer is being made outside the United
States to a person who is not a “U.S. person” (as
defined by Regulation S under the U.S. Securities Act) in
accordance with an applicable exemption under the U.S. Securities
Act and applicable state securities laws.
In the case of a warrant certificate that contains U.S. restrictive
legends substantially in the form set forth in Section 2.5(3) and
Section 2.5(5) of the Warrant Indenture, the undersigned hereby
represents, warrants and certifies that (one (only) of the
following must be checked):
□ (A) the transfer is being made only to the
Corporation;
□ (B) the transfer is being made outside the United
States in compliance with Regulation S under the U.S. Securities
Act and in compliance with any applicable local securities laws and
regulations and the holder has provided herewith the Declaration
for Removal of Legend attached as Schedule “C” to the
Warrant Indenture;
□ (C) the transfer is being made pursuant to the
exemption from the registration requirements of the U.S. Securities
Act provided by Rule 144A under the U.S. Securities Act and in
accordance with applicable state securities laws;
or
□ (D) the transfer is being made pursuant to the
exemption from registration requirements of the U.S. Securities Act
provided by (i) Rule 144 under the U.S. Securities Act or (ii) in
another transaction that does not require registration under the
U.S. Securities Act or any applicable state securities laws, and in
each case the Corporation shall first have received an opinion of
counsel of recognized standing, or other evidence, in either case
in form and substance reasonably satisfactory to the Corporation,
to such effect.
DATED this day of , .
SPACE FOR GUARANTEES
OF )
SIGNATURES (BELOW)
)
)
Signature of Transferor
)
)
Guarantor's
Signature/Stamp )
Name of Transferor
)
REASON FOR TRANSFER – For US Residents only (where the
individual(s) or corporation receiving the securities is a US
resident). Please select only one (see instructions
below).
Gift
in ownership)
Estate
Private Sale
Other (or no change
Date of Event (Date of gift, death or
sale): Value per Warrant
on the date of event:
CAD OR
USD
CERTAIN REQUIREMENTS RELATING TO TRANSFERS - READ
CAREFULLY
The signature(s) of the transferor(s) must correspond with the
name(s) as written upon the face of this certificate(s), in every
particular, without alteration or enlargement, or any change
whatsoever. All securityholders or a legally authorized
representative must sign this form. The signature(s) on this form
must be guaranteed in accordance with the transfer agent’s
then current guidelines and requirements at the time of transfer.
Notarized or witnessed signatures are not acceptable as guaranteed
signatures. As at the time of closing, you may choose one of the
following methods (although subject to change in accordance with
industry practice and standards):
●
Canada and the USA:
A Medallion Signature Guarantee
obtained from a member of an acceptable Medallion Signature
Guarantee Program (STAMP, SEMP, NYSE, MSP). Many commercial banks,
savings banks, credit unions, and all broker dealers participate in
a Medallion Signature Guarantee Program. The Guarantor must affix a
stamp bearing the actual words “Medallion Guaranteed”,
with the correct prefix covering the face value of the
certificate.
●
Canada: A Signature Guarantee obtained from an authorized
officer of the Royal Bank of Canada, Scotia Bank or TD Canada
Trust. The Guarantor must affix a stamp bearing the actual words
“Signature Guaranteed”, sign and print their full name
and alpha numeric signing number. Signature Guarantees are not
accepted from Treasury Branches, Credit Unions or Caisse Populaires
unless they are members of a Medallion Signature Guarantee Program.
For corporate holders, corporate signing resolutions, including
certificate of incumbency, are also required to accompany the
transfer, unless there is a “Signature & Authority to
Sign Guarantee” Stamp affixed to the transfer (as opposed to
a “Signature Guaranteed” Stamp) obtained from an
authorized officer of the
Royal
Bank of Canada, Scotia Bank or TD Canada Trust or a Medallion
Signature Guarantee with the correct prefix covering the face value
of the certificate.
● Outside North
America: For holders located
outside North America, present the certificates(s) and/or
document(s) that require a guarantee to a local financial
institution that has a corresponding Canadian or American affiliate
which is a member of an acceptable Medallion Signature Guarantee
Program. The corresponding affiliate will arrange for the signature
to be over-guaranteed.
OR
The signature(s) of the transferor(s) must correspond with the
name(s) as written upon the face of this certificate(s), in every
particular, without alteration or enlargement, or any change
whatsoever. The signature(s) on this form must be guaranteed by an
authorized officer of Royal Bank of Canada, Scotia Bank or TD
Canada Trust whose sample signature(s) are on file with the
transfer agent, or by a member of an acceptable Medallion Signature
Guarantee Program (STAMP, SEMP, NYSE, MSP). Notarized or witnessed
signatures are not acceptable as guaranteed signatures. The
Guarantor must affix a stamp bearing the actual words:
“SIGNATURE GUARANTEED”, “MEDALLION
GUARANTEED” OR “SIGNATURE & AUTHORITY TO SIGN
GUARANTEE”, all in accordance with the transfer agent’s
then current guidelines and requirements at the time of transfer.
For corporate holders, corporate signing resolutions, including
certificate of incumbency, will also be required to accompany the
transfer unless there is a “SIGNATURE & AUTHORITY TO SIGN
GUARANTEE” Stamp affixed to the Form of Transfer obtained
from an authorized officer of the Royal Bank of Canada, Scotia Bank
or TD Canada Trust or a “MEDALLION GUARANTEED” Stamp
affixed to the Form of Transfer, with the correct prefix covering
the face value of the certificate.
REASON FOR TRANSFER - FOR US RESIDENTS ONLY
Consistent with US IRS regulations, Odyssey Trust Company is
required to request cost basis information from US securityholders.
Please indicate the reason for requesting the transfer as well as
the date of event relating to the reason. The event date is not the
day in which the transfer is finalized, but rather the date of the
event which led to the transfer request (i.e. date of gift, date of
death of the securityholder, or the date the private sale took
place).
SCHEDULE“B” EXERCISE FORM
TO: 10653918 Canada
Inc.
AND TO: Odyssey Trust
Company
Stock
Exchange Tower 350 - 300 5th Avenue SW Calgary, AB T2P
3C4
The
undersigned holder of the Warrants evidenced by this Warrant
Certificate hereby exercises the right to acquire:
Common
Shares of 10653918 Canada Inc. pursuant to the right of such
holder
to be issued, and hereby subscribes for, the Common Shares that are
issuable pursuant to the exercise of such Warrants on the terms
specified in such Warrant Certificate and in the Indenture for an
aggregate exercise price of .
The
undersigned hereby acknowledges that the undersigned is aware that
the Common Shares received on exercise may be subject to
restrictions on resale under applicable securities
legislation.
Any capitalized term in this Warrant Certificate that is not
otherwise defined herein, shall have the meaning ascribed thereto
in the Warrant Indenture.
The
undersigned hereby represents, warrants and certifies that (check
box (a), (b), (c) or (d) as applicable):
☐
(a)
the undersigned (i) is not in the United States; (ii) is not a U.S.
Person; (iii) is
not
exercising the Warrants on behalf of, or for the account or benefit
of, a U.S. Person or a person in the United States; (iv) did not
acquire the Warrants in the United States or on behalf of, or for
the account or benefit of, a U.S. Person or a person in the United
States; (v) did not receive an offer to exercise the Warrants in
the United States; (vi) did not execute or deliver this Exercise
Form in the United States; (vii) delivery of the underlying Common
Shares will not be to an address in the United States; and (viii)
has, in all other respects, complied with the terms of Regulation S
in connection herewith;
☐
(b)
the undersigned (i) is a Qualified Institutional Buyer as defined
in Rule 144A
under
the U.S. Securities Act, who first purchased Subscription Receipts
on the date of original issuance of the Subscription Receipts and
who, in connection with such purchase, executed a U.S. Subscription
Agreement; (ii) is exercising the Warrants for its own account or
for the account of a disclosed principal that was named in the U.S.
Subscription Agreement; (iii) is, and such disclosed principal, if
any, is a Qualified Institutional Buyer at the time of exercise of
these Warrants; and (iv) confirms the representations and
warranties made by the undersigned in the U.S. Subscription
Agreement including all applicable schedules attached thereto at
the time of the original purchase of the Subscription Receipts
remain true and complete as of the date hereof;
☐
(c)
the undersigned (i) is a U.S. Accredited Investor, who first
purchased
Subscription
Receipts on the date of original issuance of the Subscription
Receipts and who, in connection with such purchase, executed a U.S.
Subscription Agreement; (ii) is exercising the Warrants for its own
account or for the account of a disclosed principal that was named
in the U.S. Subscription Agreement; (iii) is, and such disclosed
principal, if any, is a U.S. Accredited Investor at the time of
exercise of these Warrants; and (iv) confirms the representations
and warranties made by the undersigned in the U.S. Subscription
Agreement including all applicable schedules attached thereto at
the time of the original purchase of the Subscription Receipts
remain true and complete as of the date hereof; or
☐
(d)
the undersigned (A) is (i) present in the United States, (ii) a
U.S. Person, (iii) a person
exercising the Warrants for the account or benefit of a U.S. Person
or a person in the United States, or (iv) requesting delivery in
the United States of the Common Shares issuable upon such exercise,
and (B) has an exemption from the registration requirements of the
U.S. Securities Act and all applicable state securities laws for
the exercise of the Warrants, and attached hereto is a written
opinion of U.S. counsel or other evidence in form and substance
reasonably satisfactory to the Corporation to that
effect.
If
the Warrants are being exercised prior to the completion of the
Transactions, then unless Box (a) or (b) above is checked,
certificates representing Common Shares will bear the legend set
forth in Section 2.5(4) of the Warrant Indenture.
If
the Warrants are being exercised post-Transactions, then unless Box
(a) or (b) above is checked, certificates representing Common
Shares will bear the legend set forth in Section 2.5(5) of the
Warrant Indenture.
If
Box (d) above is checked, holders are encouraged to consult with
the Corporation in advance to determine that the legal opinion
tendered in connection with the exercise will be satisfactory in
form and substance to the Corporation.
The
undersigned hereby exercises the right of such holder to be issued,
and hereby subscribes for, Common Shares that are issuable pursuant
to the exercise of such Warrants on the terms specified in such
Warrant Certificate and in the Warrant Indenture.
The undersigned hereby acknowledges that the undersigned is aware
that the Common Shares received on exercise may be subject to
restrictions on resale under applicable securities legislation
including the resale restrictions in the U.S. Subscription
Agreement applicable to QIB Purchasers and U.S. Accredited Investor
Purchasers.
The
undersigned hereby irrevocably directs that the said Common Shares
be issued, registered and delivered as follows:
Name(s) in Full and Social Insurance Number(s) (if
applicable)
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Number of Common Shares
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Please
print full name in which certificates representing the Common
Shares are to be issued. If any Common Shares are to be issued to a
person or persons other than the registered holder, the registered
holder must pay to the Warrant Agent all eligible transfer taxes or
other government charges, if any, and the Form of Transfer must be
duly executed.
Once completed and executed, this Exercise Form must be mailed or
delivered to Odyssey Trust Company, at Stock Exchange Tower, 350 -
300 5th Avenue SW, Calgary, AB T2P3C4.
DATED this day
of ,
20_
)
Witness ) (Signature of
Warrantholder, to be the same as
)
appears on the face of this Warrant Certificate)
)
)
Name of Registered Warrantholder
)
Please
check if the certificates representing the Common Shares are to be
delivered at the office where this Warrant Certificate is
surrendered, failing which such certificates will be mailed to the
address set out above. Certificates will be delivered or mailed as
soon as practicable after the surrender of this Warrant Certificate
to the Warrant Agent.
SCHEDULE“C”
FORM OF DECLARATION OF REMOVAL OF LEGEND
Declarations for Removal of Legend To: Odyssey Trust Company, as
Registrar and Transfer Agent for the [warrants/common shares] of
[Resulting Issuer] (the “Corporation”).
The undersigned (A) acknowledges that the sale of securities of the
Corporation to which this declaration relates is being made in
reliance on Rule 904 of Regulation S under the United States
Securities Act of 1933, as amended (the “U.S. Securities
Act”), and (B) certifies that (1) the undersigned is not (a)
an “affiliate” (as defined in Rule 405 under the U.S.
Securities Act) of the Corporation, (b) a “distributor”
as defined in Regulation S, or (c) an affiliate of a distributor;
(2) the offer of such securities was not made to a “U.S.
person” or to a person in the United States and either (a) at
the time the buy order was originated, the buyer was outside the
United States, or the seller and any person acting on its behalf
reasonably believed that the buyer was outside the United States,
or (b) the transaction was executed on or through the facilities of
the a “designated offshore securities market”, and
neither the seller nor any person acting on its behalf knows that
the transaction was prearranged with a buyer in the United States;
(3) neither the seller nor any affiliate of the seller nor any
person acting on any of their behalf has engaged or will engage in
any directed selling efforts in the United States in connection
with the offer and sale of such securities; (4) the sale is
bona fide
and not for the purpose of
“washing off the resale restrictions imposed because the
securities are “restricted securities” (as that term is
defined in Rule 144(a)(3) under the U.S. Securities Act); (5) the
seller does not intend to replace such securities with fungible
unrestricted securities; and (6) the contemplated sale is not a
transaction, or part of a series of transactions, which, although
in technical compliance with Regulation S, is part of a plan or
scheme to evade the registration provisions of the U.S. Securities
Act. Terms used herein have the meanings given to them by
Regulation S under the U.S. Securities Act.
By:
Signature
Name (please print)
Date
AFFIRMATION BY SELLER’S BROKER-DEALER (REQUIRED FOR SALES IN
ACCORDANCE WITH SECTION (B)(2)(b) ABOVE)
We have read the foregoing representations of our
customer, (the
“Seller”) dated , with regard to our sale, for such Seller’s
account, of the
securities of the Corporation described therein, and on behalf of
ourselves we certify and affirm that (A) we have no knowledge that
the transaction had been prearranged with a buyer in the United
States, (B) the transaction was executed on or through the
facilities of a “designated offshore securities
market”, (C) neither we, nor any person acting on our behalf,
engaged in any directed selling efforts in connection with the
offer and sale of such securities, and (D) no selling concession,
fee or other remuneration is being paid to us in connection with
this offer and sale other than the usual and customary
broker’s commission that would be received by a person
executing such transaction as agent. Terms used herein have the
meanings given to them by Regulation S under the U.S. Securities
Act.
Name of Firm
By:
Authorized
officer
Date:
Exhibit 10.1
Certain identified information has been excluded from the exhibit
because it is both not material and is the type that
the registrant treats as private or
confidential.
INDUSTRIAL REAL ESTATE LEASE
(Multi- Tenant Facility)
ARTICLE ONE: BASIC TERMS
This
Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and
Paragraphs of the Lease referred to in this Article One explain and
define the Basic Terms and are to be read in conjunction with the
Basic Terms.
Section
1.01.
Date
of Lease:
April
23rd,
2018
Section
1.02.
Landlord:
[REDACTED]
Section
1.03.
Tenant
: MM Development Company, Inc., a Nevada corporation, and, Planet
13 Holdings, Inc., a Canadian corporation, jointly and severally
(collectively dba "Planet 13")
Address
of Tenant:
2548
West Desert Inn Road, Las Vegas, Nevada 89109
Section
1.04.
Premises:
The Premises is part of Landlord% multi-tenant real property
development known as 2548 W. Desert Inn Rd., Las Vegas, Nevada and
described or depicted in Exhibit "A.I" (the "Project"). The Project
includes the land, the buildings and all other improvements located
on the land, and the common areas described in Paragraph 4.05(a).
The Premises is an approximate 112,663 square foot office and
warehouse building situated on a portion of a 9.14 acre parcel of
land located at 2548 W. Desert Inn, Las Vegas, Nevada, APN
162-08-805-009, inclusive of a portion of yard and parking area as
shown on Exhibit "A.2" attached hereto.
Section
1.05.
Lease
Term: Seven (7) years beginning May 01, 2018 ("Commencement Date"),
or such other date as is specified in this Lease, and ending on
April 30, 2025.
Section
1.06.
Permitted
Uses: (See Article Five) Tenant shall utilize the Premises for
general office, administrative purposes, and retail sales of a
Marijuana dispensary, Marijuana production (including but not
limited to the installation and operation of a commercial kitchen,
and other ancillary uses which may include smoking lounge/cafe, a
nightclub, and other related uses and all related uses compliant
with the laws of the State of Nevada as may be approved by Landlord
in its reasonable discretion. Notwithstanding anything contained in
the foregoing Tenant shall not conduct any grow facilities on the
Premises.
Section
1.07.
Performance
Deed of Trust in Lieu of Guaranty. In lieu of a personal guaranty
MM Development Company, Inc., a Nevada corporation, having a
financial interest in Tenant shall pledge, in the form of a
Performance Deed of Trust (the "Lease Guaranty Deed of Trust") all
of its right, title and interest in and to that certain real
property more fully described in Exhibit "D" attached herewith and
incorporated herein by this reference, and as more fully set forth
in Section 13.18.
Section
1.08.
Brokers:
(See Article Fourteen)
[REDACTED]
Section
1.09.
Commission
Payable to Landlord's Broker: (See Article Fourteen) Per separate
agreement
Section
1.10.
Initial
Security Deposit: (See Section 3.03) $95,396.00
Section
1.11.
Vehicle
Parking Spaces Allocated to Tenant: (See Section 4.05)
Section
1.12.
Rent
and Other Charges Payable by Tenant:
Period
/
SF / Month
$
/ Month
[REDACTED]
Tenant
shall be
responsible for NNN expenses for the
months Base Rent is abated.
(b) OTHER
PERIODIC PAYMENTS: This Lease is net-net-net and Tenant shall be
required to pay all of the following: (i) Real Property Taxes (See
Section 4.02); (ii) Utilities (See Section 4,03); (iii) Insurance
Premiums (See Section 4.04); (iv) Tenant shall pay its pro rate
share of Common Area Expenses currently estimated at $0.10 per sq.
ft. of the Premises or $12,663.00 per month (See Section 4.05); (v)
Impounds for Insurance Premiums and Property Taxes (See Section
4.08); (vi) Maintenance, Repairs and Alterations (See Article Six).
All of the foregoing shall be deemed "Additional Rent". As utilized
in this Lease the term "Rent" shall be deemed to include Additional
Rent and Base Rent. All Additional Rent is subject to increase in
an amount and basis as determined by the Landlord as more fully
discussed in Article Four below. Tenant's initial pro rata share of
all Common Area Expenses is 70.428% of the total.
Section
1.13.
Landlord's
Share of Profit on Assignment or Sublease: (See Section 9.05) five
percent (5%) the Profit (the "Landlord's Share").
Section
1.14.
Exhibits/Riders:
The following Exhibits are attached to and made a part of this
Lease:
Exhibit
"A. l" -Site Plan (Project and Premises Description)
Exhibit
"A.T" -Yard & Parking Area
Exhibit
"B" -Condition of Premises; Tenant Improvement
Exhibit
"C" -Rules & Regulations
Exhibit
"D" -Performance Deed of Trust
Section
1.15. Option to Extend: So long as Tenant has not been in default
of the terms of this Lease Tenant shall be granted two (2) options
to renew the Lease each for an additional eighty-four (84) month
term upon the same terms and conditions of this Lease, with the
exception that the Base Rent shall be adjusted to include Base
Rental increases of five percent (5.0%) per annum. Tenant must
notify Landlord of its intent to exercise the Option by providing
Landlord with written notice no less than six (6) months and no
more than nine (9) months prior to the expiration of the Lease
Term. This option is assignable by Tenant provided any such
assignee has agreed to be bound by the provisions of this Lease and
such assignment is in compliance with any other requirements
applicable to an assignment as may be set forth
herein.
Section
1.16. Payments by Check. All payments due to Landlord of Rent,
Additional Rent, or otherwise, shall be payable by electronic who
transfer or check (supported by good fluids). Cash payments will
not be accepted except in such circumstances wherein Tenant,
through no fault of its own, is unable to utilize a banking
institution due to the nature of Tenant's business operations. In
such circumstances, Landlord may accept cash payment in order to
avoid a default by Tenant, but only until Tenant is able to
re-establish a banking relationship whereby Tenant will be able to
again commence payment by check or wire transfer. Notwithstanding
the foregoing, Landlord shall only be obligated to accept cash
payment (and only under the circumstances described above) for a
period of up to three (3) months.
ARTICLE TWO: LEASE TERM
Section
2.01. Lease of Premises For Lease Term; "Commencement Date".
Landlord leases the Premises to Tenant and Tenant leases the
Premises from Landlord for the Lease Term. The Lease Term is for
the period stated in Section 1.05 above and shall begin and end on
the dates specified in Section 1.05 above, unless the beginning or
end of the Lease Term is changed under any provision of this Lease.
The "Commencement Date" shall be the date specified in Section 1.05
above for the beginning of the Lease Term, unless advanced or
delayed under any provision of this Lease.
Section
2.02. Delay in Commencement. Landlord shall not be liable to Tenant
if Landlord does not deliver possession of the Premises to Tenant
on the Commencement Date. Landlord's non-delivery of the Premises
to Tenant on that date shall not affect this Lease or the
obligations of Tenant under this Lease except that the Commencement
Date shall be delayed until Landlord delivers possession of the
Premises to Tenant and the Lease Term shall be extended for a
period equal to the delay in delivery of possession of the Premises
to Tenant, plus the number: of days necessary to end the Lease Term
on the last day of a month. If Landlord does not deliver possession
of the Premises to Tenant within sixty (60) days after the
Commencement Date, Tenant may elect to cancel this Lease by giving
written notice to Landlord within ten (10) days after the sixty
(60)-day period ends. If Tenant gives such notice, the Lease shall
be canceled and neither Landlord nor Tenant shall have any further
obligations to the other. If Tenant does not give such notice,
Tenant's right to cancel the Lease shall expire and the Lease Term
shall commence upon the delivery of possession of the Premises to
Tenant. If delivery of possession of the Premises to Tenant is
delayed, Landlord and Tenant shall, upon such delivery, execute an
amendment to this Lease setting forth the actual Commencement Date
and expiration date of the Lease. Failure to execute such amendment
shall not affect the actual Commencement Date and expiration date
of the Lease.
Section
2.03. Early Occupancy; Tenant Access; Other Access. Tenant shall be
allowed early occupancy of the Premises, subject to the payment of
utilities and the option fee per the Proposal to Lease dated
October 6, 2017 executed between Landlord and Tenant, upon full
execution of the Lease including providing Landlord with a
Certificate of Insurance as provided herein and payment of all
monies due at execution until the date of Lease Commencement.
Tenant's occupancy of the Premises shall be subject to all of the
provisions of this Lease. Early occupancy of the Premises shall not
advance the expiration date of this Lease. Tenant shall be granted
access to the Premises twenty-four (24) hours per day, seven (7)
days per week. Tenant acknowledges and agrees that the Premises is
part of a larger project and ingress and egress over the various
properties comprising the project is hereby permitted.
Specifically, and without limiting the generality of the foregoing,
Tenant specifically acknowledges and agrees that Building 3
depicted on Exhibit "A" shall have ingress and egress through, on
and over the driveways on
Highland Drive and/or Desert Inn Road in a manner reasonably
acceptable to both Tenant and Landlord.
Section
2.04. Holding Over. Tenant shall vacate the Premises upon the
expiration or earlier termination of this Lease. Tenant shall
reimburse Landlord for and indemnify Landlord against all damages
which Landlord incurs from. Tenant's delay in vacating the
Premises. If Tenant does not vacate the Premises upon the
expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the
Premises shall be a "month-to-month" tenancy, subject to all of the
terms of this Lease applicable to a month-to-month tenancy, except
that the Base Rent then in effect shall be increased to one hundred
fifty percent (125%) of the then applicable Base Rent.
Section
2.05. Option to Extend. As stated in Paragraph 1.15
above.
ARTICLE THREE: BASE RENT
Section
3.01. Time and Manner of Payment. Upon execution of this Lease
Tenant shall pay the first installment of Base Rent ($69,287.75),
the first installment of monthly estimated nnn expenses
($12,663.00) and a Security Deposit in the amount of $95,396.00,
Tenant shall thereafter pay Landlord the Base Rent amount stated in
Paragraph 1.12(a) above for the fourth month of the Lease Term. On
the first day of the fourth month of the Lease term and each month
thereafter, Tenant shall pay Landlord the Base Rent in advance
without offset, deduction or prior demand. The Base Rent, and any
other payment required hereunder shall be payable at Landlord's
address or at such other place as Landlord may designate in
writing.
Section
3.02.
Rent
Increases. Increases in Base Rent shall be pursuant to Paragraph
1.12 above.
Section
3.03.
Security
Deposit; Increases.
(a) Upon
execution of this Lease, Tenant shall deposit with Landlord a cash
Security Deposit in the amount set forth in Section 1.10 above.
Landlord may apply all or part of the Security Deposit to any
unpaid rent or other charges due from Tenant or to cure any other
defaults of Tenant. If Landlord uses any part of the Security
Deposit, Tenant shall restore the Security Deposit to its full
amount within ten (10) days after Landlord's written request.
Tenant's failure to do so shall be a material default under this
Lease. No interest shall be paid on the Security Deposit. Landlord
shall not be required to keep the Security Deposit separate from
its other accounts and no trust relationship is created with
respect to the Security Deposit.
(b) Each
Time the Base Rent is increased, Tenant shall deposit additional
funds with Landlord sufficient to increase the Security Deposit to
an amount which bears the same relationship to the adjusted Base
Rent as the initial Security Deposit bore to the initial Base
Rent.
Section
3.04. Termination; Advance Payments; Landlord's Termination Right.
Upon termination of this Lease under Article Seven (Damage or
Destruction), Article Eight (Condemnation) or any other termination
not resulting from Tenant's default, and after Tenant has vacated
the Premises in the manner required by this Lease, Landlord shall
refined or credit to Tenant (or Tenant's successor) the unused
portion of the Security Deposit, any advance rent or other advance
payments made by Tenant to Landlord, any amounts paid for real
property taxes and other reserves which apply to any time periods
after termination of the Lease. Following the initial Lease Term,
and in the event Tenant has properly exercised its options to
extend the Lease as set forth in Section 1.15, in the event
Landlord determines that it desires to redevelopment either the
Project or the Premises, based upon a bona fide plan acceptable to
the Landlord, Landlord shall have the right to terminate the Lease
conditioned upon the following: (a) the termination right shall
only become effective during an option period (said termination
rights shall not be available to Landlord during the initial Lease
Term); (b) Landlord shall provide written notice to the Tenant of
the exercise of the termination right thirty (30) days prior to the
effective date of termination; (c) within thirty (30) days of
Landlord deriving at an acceptable redevelopment plan, or receiving
an acceptable letter of intent, offer, or similar memorandum of
interest concerning such plan of redevelopment of the Property,
Landlord shall inform Tenant, in writing, of such plan or interest
from a third party (the "ROFR Notice") and continue to update
Tenant on a monthly basis regarding the progress of any
negotiations; and (d) in the event Landlord ultimately desires to
exercise its termination right, Tenant shall have a right to
purchase the Premises ("Tenant's Right of First Refusal") on the
exact terms of sale being offered to Landlord in the event landlord
is selling the Premises. If Tenant does not exercise Tenant's Right
of First Refusal within ten (10) days of the Landlord's delivery of
the ROFR Notice described above, Landlord may proceed to terminate
the Lease and shall pay Tenant a maximum termination fee of Four
Hundred Fifty Thousand Dollars ($450,000.00) amortized over sixty
(60) months. By way of example, in the event Landlord exercises the
termination right and the effective date of the termination is the
first day of the option term the termination fee would be Four
Hundred Fifty Thousand Dollars ($450,000.00). If Landlord exercises
its termination right and the effective date of the termination is
half way through the option term, the termination fee would be Two
Hundred Twenty-Five Thousand Dollars ($225,000.00). For further
clarity, in the event the termination right is exercised and the
effective date of the termination is ninety percent (90%) of the
way through the option term, the termination fee would be
Forty-Five Thousand Dollars ($45,000.00) (the remaining 10% of the
full termination fee). Payment of the termination fee (if such
right is exercised) shall be made by Landlord in one (I) lump sum
payment. Tenant's Right of First Refusal shall be evidenced by a Memorandum of Right
of First Refusal
in a form acceptable to Landlord in its sole discretion, to be
executed by Tenant and Landlord and recorded in the official
records of the Clark County Recorder concurrently with the
execution of this Lease.
Notwithstanding
anything contained herein to the contrary, Landlord may not
exercise the termination right set forth in this Section 3.04 if
any of the anticipated future uses involves any marijuana related
business or establishment that exceeds up to twenty percent (20%)
of the Premises. The foregoing limitation shall terminate five (5)
years from the date Landlord exercises the termination right set
forth in this Section..
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section
4.01. Additional Rent. All charges payable by Tenant other than
Base Rent are called "Additional Rent" Unless this Lease provides
otherwise, Tenant shall pay all Additional Rent then due with the
next monthly installment of Base Rent. The term "Rent" shall mean
Base Rent and Additional Rent.
Section
4.02. Property Taxes.
(a) Real
Property Taxes. Tenant shall pay all real property taxes on the
Premises (including any fees, taxes or assessments against, or as a
result o£ any tenant improvements installed on the Premises by
or for the benefit of Tenant) during the Lease Term. Subject to
Paragraph 4.02(c) and Section 4.08 below, such payment shall be
made at least ten (10) days prior to the delinquency date of the
taxes. Within such ten (10) day period, Tenant shall furnish
Landlord with satisfactory evidence that the real property taxes
have been paid. If Tenant fails to pay the real property taxes
whene due, Landlord may pay the taxes and Tenant shall reimburse
Landlord for the amount of such tax payment as Additional Rent such
failure to pay by Tenant shall be a default hereunder.
(b) Definition
of "Real Property Tax". "Real property tax" means: (i) any fee,
license fee, license tax,
business license fee, commercial rental tax, levy, charge,
assessment, penalty or tax imposed by any taxing authority against
the Premises; (ii) any tax on the Landlord's right to receive, or
the receipt of, rent or income from the Premsies or against
Landlord's business of leasing the Premises; (iii) any tax or
charge for fire protection, streets, sidewalks, road maintenance,
refuse or other services provided to the Premises by any
governmental agency; (iv) any tax imposed upon this transaction or
based upon a reassessment of the Premises due to a change of
ownership, as defined by applicable law, or othertransfer of all or
part of Landlord's interst in the Premises; and (v) any charge or
fee replacing any tax previously included within the definition of
real property tax. "Real property tax" does not, however, include
Landlord's federal or state income, franchise, inheritance or
estate taxes.
(c) Joint
Assessment. If the Premises is not separately assessed, Landlord
shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.02(a) from the assessor's
worksheets or other reasonably available information. Tenant shall
pay such share to Landlord within fifteen (15) days after receipt
of Landlord's written statement.
(d) Personal
Property Taxes.
(1) Tenant
shall pay all taxes charged against trade fixtures, furnishings,
equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from
the Premises.
(ii) If
any of Tenant's personal property is taxed with the Premises,
Tenant shall pay Landlord the taxes for the personal property
within fifteen (15) days after Tenant receives a written statement
from Landlord for such personal property taxes.
Section
4.03. Utilities. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer
service, telephone, water, refuse disposal and other utilities and
services supplied to the Premises. However, if any services or
utilities are jointly metered with other property, Landlord shall
make a reasonable and objective determination of Tenant's
proportionate share of the cost of such utilities and services and
Tenant shall pay such share to Landlord within fifteen (15) days
after receipt of Landlord's written statement.
Section
4.04. Insurance Policies.
(a) Liability
Insurance. During the Lease Term, Tenant shall maintain a policy of
commercial general liability insurance (sometimes known as broad
form comprehensive general liability insurance) insuring Tenant
against liability for bodily injury, property damage (including
loss of use of property) and personal injury arising out of the
operation, use or occupancy of the Premises. Tenant shall name
Landlord as an additional insured
under such policy. The initial amount of such insurance shall be
[REDACTED]
oroccurrence
and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's
professional insurance advisers and other relevant factors. The
liability insurance obtained by Tenant under this Paragraph 4.04(a)
shall (i) be primary and non-contributing (ii) contain
cross-liability endorsements; and (iii) insure Landlord against
Tenant's performance under Section 5.05, if the matters giving rise
to the indemnity under Section 5.05 result from the negligence of
Tenant. The amount and coverage of such insurance shall not limit
Tenant's liability nor relieve Tenant of any other obligation under
this Lease. To the extent that, in Landlord's reasonable
determination Tenant's existing policies of insurance are
insufficient to protect Landlord's reasonable interests, Landlord
may also obtain comprehensive public liability insurance in an
amount and with coverage reasonably determined by Landlord to be
necessary for the purpose of insuring Landlord against liability
arising out of ownership, operation, use or occupancy of the
Premises. The policy obtained by Landlord shall not be contributory
and shall not provide primary insurance.
(b) Premises
and Rental Income Insurance. During the Lease Term, Landlord shall
maintain policies of insurance covering loss of or damage to the
Premises in the full amount of its replacement value. Such policy
shall contain an Inflation Guard Endorsement and shall provide
protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, special
extended perils (all risk), sprinkler leakage and any other perils
which Landlord deems reasonably necessary. Landlord shall have the
right to obtain flood and earthquake insurance if required by any
lender holding a security interest in the Premises. Landlord shall
not obtain insurance for Tenant's fixtures or equipment or building
improvements installed by Tenant on the Premises. During the Lease
Term, Landlord shall also maintain a rental income insurance
policy, with loss payable to Landlord, in an amount equal to one
year's Base Rent, plus estimated real property taxes and insurance
premiums. Tenant shall be liable for the payment of any deductible
amount under Landlord's or Tenant's insurance policies maintained
pursuant to this Section 4.04, in an amount not to exceed Five
Thousand Dollars ($5,000.00). Tenant shall not do or permit
anything to be done which invalidates any such insurance
policies.
(c) Payment
of Premiums. Subject to Section 4.08, Tenant shall pay all premiums
for the insurance policies described in Paragraphs 4.04(a) and (b)
(whether obtained by Landlord or Tenant) within fifteen (15) days
after Tenant's receipt of a copy of the premium statement or other
evidence of the amount due, except Landlord shall pay all premiums
for non-primary comprehensive public liability insurance which
Landlord elects to obtain as provided in Paragraph 4.04(a). For
insurance policies maintained by Landlord which cover improvements
on the entire Project, Tenant shall pay Tenant's prorated share of
the premiums, in accordance with the formula in Paragraph 4.05(e)
for determining Tenant's share of Common Area costs. If insurance
policies maintained by Landlord cover improvements on real property
other than the Project, Landlord shall deliver to Tenant a
statement of the premium applicable to the Premises showing in
reasonable detail how Tenant's share of the premium was computed.
If the Lease Term expires before the expiration of an insurance
policy maintained by Landlord, Tenant shall be liable for Tenant's
prorated share of the insurance premiums. Before the Commencement
Date, Tenant shall deliver to Landlord a copy of any policy of
insurance which Tenant is required to maintain under this Section
4.04. At least thirty (30) days prior to the expiration of any such
policy, Tenant shall deliver to Landlord a renewal of such policy.
As an alternative to providing a policy of insurance, Tenant shall
have the right to provide Landlord a Certificate of Insurance,
executed by an authorized officer of the insurance company, showing
that the insurance which Tenant is required to maintain under this
Section 4.04 is in full force and effect and containing such other
information which Landlord reasonably requires.
(d) General
Insurance Provisions.
(i)
Any insurance which Tenant is required to maintain
under this Lease shall include
a provision which requires the insurance carrier to give Landlord
not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) If
Tenant fails to deliver any policy, certificate or renewal to
Landlord required under this Lease within the prescribed time
period or if any such policy is canceled or modified during the
Lease Tenn without Landlord's consent, Landlord may obtain such
insurance, in which case Tenant shall reimburse Landlord for the
cost of such insurance within fifteen (15) days after receipt of a
statement that indicates the cost of such
insurance.
(iii) Tenant
shall maintain all insurance required under this Lease with
companies holding a "General Policy Rating" or A-12 or better, as
set forth in the most current issue of "Best Key Rating Guide".
Landlord and Tenant acknowledge the insurance markets are rapidly
changing and that insurance in the form and amounts described in
this Section 4.04 may not be available in the future. Tenant
acknowledges that the insurance described in this Section 4.04 is
for the primary benefit of Landlord. If at any time during the
Lease Term, Tenant is unable to maintain the insurance required
under the Lease, Tenant shall nevertheless maintain insurance
coverage which is customary and commercially reasonable in the
insurance industry for Tenant's type of business, as that coverage
may change from time to time. Landlord makes no representation as
to the adequacy of such insurance to protect Landlord's or Tenant's
interests. Therefore, Tenant shall obtain any such additional
property or liability insurance which Tenant deems necessary to
protect Landlord and Tenant
(iv) Unless
prohibited under any applicable insurance policies maintained,
Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees,
agents or representatives of the other, for loss of or damage to
its property or the property of others under its control, if such
loss or damage is covered by any insurance policy in force (whether
or not described in this Lease) at the time of such loss or damage.
Upon obtaining the required policies of insurance, Landlord and
Tenant shall give notice to the insurance carriers of this mutual
waiver of subrogation.
Section
4.05. Common Areas; Use, Maintenance and Costs.
(a) Common
Areas. As used in this Lease, "Common Areas" shall mean all areas
within the Project which are available for the common use of
tenants of the Project and which are not leased or held for the
exclusive use of Tenant or other tenants, including, but not
limited to, parking areas, driveways. sidewalks, loading areas,
access roads, corridors, landscaping and planted areas. Landlord,
from time to time, may change the size, location, nature and use of
any of the Common Areas, convert Common Areas into leasable areas,
construct additional parking facilities ('including parking
structures) in the Common Areas, and increase or decrease Common
Area land and/or facilities. Notwithstanding the foregoing,
Landlord may not make any substantive or unreasonable changes to
the Common Areas which in any way alter the access to the Premises
from surrounding surface streets nor which substantively or
unreasonably interfere with the interior traffic flow or parking
serving the Premises. Tenant acknowledges that such activities may
result in inconvenience to Tenant. Such activities and changes are
permitted if they do not materially affect Tenant's use of the
Premises.
(b) Use
of Common Areas. Tenant shall have the nonexclusive right (in
common with other tenants and all others to whom Landlord has
granted or may grant such rights) to use the Common Areas for the
purposes intended, subject to such reasonable rules and regulations
as Landlord may establish from time to time. Tenant shall abide by
such rules and regulations and shall use its best effort to cause
others who use the Common Areas with Tenant's express or implied
permission to abide by Landlord's rules and regulations. Tenant
shall not interfere with the rights of Landlord, or other tenants
or any other person entitled to use the Common
Areas.
(c) Specific
Provision re: Vehicle Parking. Tenant shall be entitled to use the
vehicle parking spaces within the yard of their Premises (see
Subject area in Exhibit "A.2") of the Lease without paying any
additional rent. Tenant's parking shaft not be reserved and shall
be limited to vehicles no larger than standard size automobiles or
pickup utility vehicles. Tenant shall not cause large trucks or
other large vehicles to be parked within the Project, other than
within the yard area of their Premises, or on the adjacent public
streets. Temporary parking of large delivery vehicles in the
Project may be permitted by the rules and regulations established
by Landlord. Vehicles shall be parked only in striped parking
spaces and not in driveway, loading areas or other locations not
specifically designated for parking. Handicapped spaces shall only
be used by those legally permitted to use them. If Tenant parks
vehicles in the common area of the Project of this Lease, such
conduct shall be a material breach of this Lease. In addition to
Landlord's other remedies under the Lease, Tenant shall pay a daily
charge determined by Landlord for each such additional vehicle. The
common area as illustrated in Exhibit "A"
shall be used solely for the purposes of ingress/egress and for
common, day-use only parking for customers of the
Project
(d) Maintenance
of Common Areas. Landlord shall maintain the Common Areas in good
order, condition and repair and shall operate the Project, in
Landlord's sole discretion, in a commercially reasonable condition.
Tenant shall pay Tenant's pro rata share (as determined below) of
all costs incurred by Landlord for the operation and maintenance of
the Common Areas. Common Area costs include, but are not limited
to, costs and expenses for the following: gardening and
landscaping; utilities, water and sewage charges; maintenance of
signs (other than tenants' signs); premiums for liability, property
damage, fire and other types of casualty insurance on the Common
Areas and worker's compensation insurance; all property taxes and
assessments levied on or attributable to the Common Areas and all
Common Area improvements; all personal property taxes levied on or
attributable to personal property used in connection with the
Common Areas; straight-line depreciation on personal property owned
by Landlord which is consumed in the operation or maintenance of
the Common Areas; rental or lease payments paid by Landlord for
rented or leased personal property used In the operation or
maintenance of the Common Areas; fees for required licenses and
permits; repairing, resurfacing, repaving, maintaining, painting,
lighting, cleaning, refuse removal, security and similar items;
reserves for roof replacement, pavement replacement, exterior
painting and other appropriate reserves; and a reasonable allowance
to Landlord for Landlord's supervision of the Common Areas (not to
exceed ten percent (10%) of the gross rents of the Project for the
calendar year). Landlord may cause any or all of such services to
be provided by third parties and the cost of such services shall be
included in Common Area costs. Common Area costs shall not include
depreciation of real property which forms part of the Common Areas.
Notwithstanding the foregoing, Common Area costs shall not include:
(1) the initial costs of equipment properly chargeable to a capital
account using generally accepted accounting principles consistently
applied or the original costs of constructing the Premises/Common
Areas; (2) expenses for which the Landlord is or will be reimbursed
by another source, including but not limited to repair or
replacement of any item covered by warranty; (3) costs incurred to
benefit ( or as a result of) a specific tenant or items and
services selectively supplied to any specific tenant; (4) expenses
for the defense of the Landlords title to the Property; (5)
depreciation and amortization of the Premises or financing costs,
including Interest and principal amortization of debts; (6)
charitable, lobbying, special interest or political contributions;
(7) costs of improving or renovating space for a tenant or space
vacated by a tenant; (8) costs to correct original or latent
defects in the design, construction or equipment of the
Premises/Common Areas; (9) expenses paid directly by any tenant for
any reason (such as excessive utility use (10) any repair,
rebuilding or other work necessitated by condemnation, fire,
windstorm or other insured casualty or hazard; and (1 1) cost of
the initial stock of tools and equipment for operation, repair and
maintenance of the Premises/Common Areas.
(e) Tenant's
Share and Payment. Tenant shall pay Tenant's annual pro rata share
of all Common Area costs (prorated for any fractional month) upon
written notice from Landlord that such costs are due and payable,
and in any event prior to delinquency. Tenants pro rata share shall
be calculated by dividing the square foot area of the Premises, as
set forth in Section 1.04 of the Lease, by the aggregate square
foot area of the Project which is leased or held for lease by
tenants, as of the date on which the computation is made. Tenants
initial pro rata share is set out in Paragraph 1.12(b). Any changes
in the Common Area costs and/or the aggregate area of the Project
leased or held for lease during the Lease Term shall be effective
on the first day of the month after such change occurs. Landlord
may, at Landlords election, estimate in advance and charge to
Tenant as Common Area costs, all real property taxes for which
Tenant is liable under Section 4.02 of the Lease, all insurance
premiums for which Tenant is liable under Section 4.04 of the
Lease, all maintenance and repair costs for which Tenant is liable
under Section 6.04 of the Lease, and all other Common Area costs
payable by Tenant hereunder. At Landlord's election, such
statements of estimated Common Area costs shall be delivered
monthly, quarterly or at any other periodic intervals to be
designated by Landlord. Landlord may adjust such estimates at any
time based upon Landlord's experience and reasonable anticipation
of costs. Such adjustments shall be effective as of the next Rent
payment date after notice to Tenant. Within sixty (60) days after
the end of each calendar year of the Lease Term, Landlord shall
deliver to Tenant a statement prepared in accordance with generally
accepted accounting principles setting forth, in reasonable detail,
the Common Area costs paid or incurred by Landlord during the
preceding calendar year and Tenant's pro rata share. Upon receipt
of such statement, there shall be an adjustment between Landlord
and Tenant, with payment to or credit given by Landlord (as the
case may be) so that Landlord shall receive the entire amount of
Tenant's share of such costs and expenses for such period. Landlord
shall keep records showing all expenditures incurred as Common Area
costs, Landlord's Insurance and Real Property Taxes for each
calendar year for a period of one (1) year following each year, and
such records shall be made available for
inspection and photocopying by Tenant and/or its agents during
ordinary business hours in the city in which the Premises are
located. Any dispute with respect to Landlord's calculations of
Tenant's share of Common Area costs shall be resolved by the
parties through consultation in good faith within sixty (60 )days.
However, if the dispute cannot be resolved within such period, the
parties shall request an audit of the disputed matter from an
independent, certified public accountant selected by both Landlord
and Tenant, whose decision shall be based on generally accepted
accounting principles and shall be final and binding on the
parties. If there is a variance of seven percent (7%) or more
between said decision and the Landlord's determination, Landlord
shall pay the costs of said audit and shall credit any overpayment
toward the next rent payment falling due or pay such overpayment to
Tenant within thirty (30) days. If the variance is less than seven
percent (7%), Tenant shall pay the cost of said
audit.
(f) Cap on Controllable Common Area Costs.
Tenant shall not be obligated to pay for
Controllable Common Area Costs in any year to the extent they have
increased by more than five percent (5%) per annum, compounded
annually on a cumulative basis from the first full calendar year
following the Commencement Date during the Term. For purposes of
this Section, Controllable CommonArea Costs shall mean all Common
Area costs as set forth in this Section of the Lease, except for
taxes, insurance premiums, costs in connection with adverse weather
conditions (including, without limitation, snow removal), and
repairs or maintenance necessary exclusively as a result of
activities of Tenant or its agents at the Project and utility
costs. Controllable Common Area Costs shall be determined on an
aggregate basis and not on an individual basis, and the cap on
Controllable Common Area Costs shall be determined on Common Area
costs as they have been adjusted for vacancy or usage pursuant to
the terms of the Lease. In the event the original Premises is
expanded, the first full calendar year following any expansion
shall become the base year for the purposes of calculating the cap
on increases to Controllable Operating Expenses after any such
expansion date.
Section 4.06. Late Charges. Tenant's failure to pay Rent promptly
may cause Landlord to incur unanticipated costs. The exact amount
of such costs are impractical or extremely difficult to ascertain.
Such costs may include, but are not limited to, processing and
accounting charges and late charges which may be imposed on
Landlord by any ground lease, mortgage or trust deed encumbering
the Premises. Therefore, if Landlord does not receive any Rent
payment within ten (10) days after it becomes due, Tenant shall pay
Landlord a late charge equal to one percent (I%) of the overdue
amount per each day such payment is late up to a maximum of ten
percent (10%) if such payment is ten (10) or more days late. The
parties agree that such late charge represents a fair and
reasonable estimate of the costs Landlord will incur by reason of
such late payment.
Section 4.07. Interest on Past Due Obligations. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest
at the lesser of (i) the prime rate then in effect plus five
percent (5%) per annum; or (ii) fifteen percent (15%) from the due
date of such amount. However, interest shall not be payable on late
charges to be paid by Tenant under this Lease. The payment of
interest on such amounts shall not excuse or cure any default by
Tenant under this Lease. If the interest rate specified in this
Lease is higher than the rate permitted by law, the interest rate
is hereby decreased to the maximum legal interest rate permitted by
law. As used herein, the term "prime rate" shall mean the prime
rate as published in the Money Rates Section of The Wall Street
Journal; however, if such rate is, at any time during the term of
this Agreement, no longer so published, the term prime rate shall
mean the average of the prime interest rates which are announced,
from time to time, by the three (3) largest banks (by assets)
headquartered in the United States which publish a prime, base or
reference rate.
Section 44)8. Impounds for Insurance Premiums and Real Property
Taxes. If requested by any lender to whom Landlord has granted a
security interest in the Premises, or if Tenant is more than ten
(10) days late in payment of Rent more than once in any consecutive
twelve (12) month period,Tenant shall pay landlord a sum equal to
one-twelfth (1/12) of the annual real property taxes and insurance
premiums payable by Tenant under this Lease, together with each
payment of Base Rent. Landlord shall hold such payments in a
non-interest bearing impound account. If unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance
premiums when due. Tenant shall pay any deficiency of funds in the
impound account to Landlord upon written request. If Tenant
defaults under this Lease, Landlord may apply any funds in the
impound account to any obligation then due under this
Lease.
ARTICLE FIVE: USE OF PREMISES
Section 5.01. Permitted Uses. Tenant may use the Premises only for
the Permitted Uses set forth in Section 1.06 above. To Landlord's
best knowledge and belief the Permitted Uses are not prohibited by
any CC&Rs, loan covenants, declarations, or any other document
or agreement which would preclude the use of the Premises for
marijuana related uses or which otherwise would prohibit any
uses.
Section 5.02. Manner of Use. Tenant shall not cause or permit the
Premises to be used in any way which constitutes a violation of any
law, ordinance, or governmental regulation or order, which annoys
or interferes with the rights of tenants of the Project, or which
constitutes a nuisance or waste. Tenant shall obtain and pay for
all permits, including a Certificate of Occupancy, required for
Tenant's occupancy of the Premises and shall promptly take all
actions necessary to comply with all applicable statutes,
ordinances, rules, regulations, orders and requirements regulating
the use by Tenant of the Premises, including the Occupational
Safety and Health Act.
Section 5.03. Hazardous Materials. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives,
radioactive materials, hazardous or toxic substances, material or
waste or related materials, including any substances defined as or
included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials" or "toxic substances" now or
subsequently regulated under any applicable federal, state or local
laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide,. DDT, printing inks,
acids, pesticides, ammonia compounds and other chemical products,
asbestos, PCBs and similar compounds, and including any different
products and materials which are subsequently found to have adverse
effects on the environment or the health and safety of persons.
Except in instances where such use is reasonable or customary, as
defined below, for Tenant's Permitted Uses. Tenant shall not cause
or permit any Hazardous Material to be generated, produced, brought
upon, used, stored, treated or disposed of in or about the Premises
by Tenant, its agents, employees, contractors, sub-lessees or
invitees without the prior written consent of Landlord. Landlord
shall be entitled to take into account such other factors or facts
as Landlord may reasonably determine to be relevant in determining
whether to grant or withhold consent to Tenant's proposed activity
with respect to Hazardous Material. In no event, however, shall
Landlord be required to consent to the installation or use of any
storage tanks on the Premises. Reasonable and customary use shall
mean Tenant's use of chemicals, compounds, and materials in the
formulation and production of goods, which uses are both reasonable
and customary in the manufacturing industry, including marijuana
production facilities, and which Permitted Uses are permitted and
approved under applicable federal, state or local
laws.
Section 5.04. Signs
and Auctions. Landlord shall permit Tenant to install signage on
the Premises subject to Landlord's prior written approval, which
approval may not be unreasonably withheld, conditioned or delayed.
Additionally, at Tenant's cost, Tenant shall have the right to
place signage on the east face of the 3290 S. Highland building
(the wall that faces the common parking area of the Premises). Said
signage will be affixed in a manner deemed appropriate by the
Landlord to such standards as may be adopted by the Landlord in its
reasonable discretion. All such signage must be in compliance with
all State, County, Municipal and local codes and restrictions, as
applicable. Tenant shall be responsible for any and all costs
related to said signage. Tenant shall not conduct or permit any
auctions or sheriffs sales at the Premises. Please see Exhibit "C"
attached.
Section
5.05. Indemnity. Tenant shall indemnify Landlord against and hold
Landlord harmless from any and all costs, claims or liability
arising from: (a) Tenant's use of the Premises; (b) the conduct of
Tenant's business or anything else done or permitted by Tenant to
be done in or about the Premises, including any contamination of
the Premises or any other property resulting from the presence or
use of Hazardous Material caused or permitted by Tenant; (c) any
breach or default in the performance of Tenant's obligations under
this Lease; (d) any misrepresentation or breach of warranty by
Tenant under this Lease; or (e) other acts or omissions of Tenant.
Tenant shall defend Landlord against any such cost, claim or
liability at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs incurred by Landlord in
connection with any such claim. As a material part of the
consideration to Landlord, Tenant assumes all risk of damage to
property or injury to persons in or about the Premises arising from
any cause, and Tenant hereby waives all claims in respect thereof
against Landlord, except for any claim arising out of Landlord's
gross negligence or wilful misconduct. As used in this Section, the
term "Tenant" shall include Tenant's employees, agents, contractors
and invitees, if applicable. Notwithstanding anything contained in
the foregoing, Tenant's
obligation to indemnify and hold Landlord harmless shall not
include any cost, claim or liability arising from, or in connection
with those specific environmental conditions disclosed by Landlord
in that certain Phase I Environmental Site Report conducted by SCS
Engineers (Project No. 01212007.00), dated February 8, 2012 and
that certain Ground Water Monitoring Report (201724) conducted by
OGI Environmental, dated January 10, 2018 (collectively the
"Identified Environmental Issues"). Landlord agrees to indemnify,
defend and hold Tenant harmless from claims which may arise
directly from the Identified Environmental Issues. Additionally,
and except as otherwise herein provided, Landlord and its
successors and assigns shall indemnify, defend, and hold Tenant
harmless from and against any and all subterranean environmental
damages, including the cost of remediation, which result from
Hazardous Substances which existed in any subterranean portion of
the Premises prior to Tenant's occupancy, or which are caused by
the gross negligence or willful misconduct of Landlord, its agents
or employees.
Section 5.06. Landlord's Access. Landlord or its agents may enter
the Premises at all reasonable times to show the Premises to
potential buyers, investors or tenants or other parties; to do any
other act or to inspect and conduct tests in order to monitor
Tenant's compliance with all applicable environmental laws and all
laws governing the presence and use of Hazardous Material; or for
any other purpose Landlord deems necessary. Landlord shall give
Tenant prior notice of such entry, except in the case of an
emergency. Landlord may place "For Sale" or "For Lease" signs on
the Premises upon the following conditions: (a) Tenant has notified
Landlord that it does not intend to exercise a renewal option; (b)
the period of time in which the Tenant was to have exercised a
renewal option has lapsed; (c) the Lease has otherwise been
terminated pursuant to the terms of the Lease; or (d) Tenant is in
the process of vacating or otherwise abandoning the Premises.
Landlord acknowledges that the Tenant will have certain obligations
relating to the Permitted Use which may limit Landlord's right to
access some or all of the Premises and which may require that the
Landlord is accompanied by a representative of Tenant during any
such access. Landlord shall comply with all of Tenant's security
protocols and requirements. Except in the case of emergency,
Landlord's access rights granted in this Section 5.06 shall be
further subject to all applicable regulations relating to the
Permitted Use.
Section 5.07. Quiet Possession. If Tenant is not in default of any
of the provisions hereof and pays all Rent and other charges
described herein and complies with all other terms of this Lease,
Tenant may occupy and enjoy the Premises for the MI Lease Term,
subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OP' PREMISES: MAINTENANCE. REPAIRS AND
ALTERATIONS
Section 6.01. Existing Conditions. Tenant accepts the Premises in
its "AS IS", "WHERE IS" condition as of the execution of the Lease,
subject to all recorded matters, laws, ordinances, and governmental
regulations and orders. Except as provided herein, Tenant
acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Premises or the
suitability of the Premises for Tenant's intended use. Tenant
represents and warrants that Tenant has made its own inspection of
and inquiry regarding the condition of the Premises and is not
relying on any representations of Landlord or any Broker with
respect thereto.
Section 6.02. Exemption of Landlord from Liability. Landlord shall
not be liable for any damage or injury to the person, business (or
any loss of income therefrom), goods, wares, merchandise or other
property of Tenant, Tenant's employees, invitees, customers or any
other person in or about the Premises, whether such damage or
injury is caused by or results from: (a) fire, steam, electricity,
water, gas or rain; (b) the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures or any other cause; (c)
conditions arising in or about the Premises or upon other portions
of the Project, or from other sources or places; or (d) any act or
omission of any other tenant of the Project. Landlord shall not be
liable for any such damage or injury even though the cause of or
the means of repairing such damage or injury are not accessible to
Tenant. The provisions of this Section 6.02 shall not, however,
exempt Landlord from liability for Landlord's gross negligence or
willful misconduct.
Section 6.03. Landlord's Obligations.
(a) Except as provided in Article Seven
(Damage or Destruction) and Article Eight
(Condemnation), Landlord shall keep the following in good order,
condition and repair: the foundations, pre-existing underground
utilities, exterior walls and roof of the Premises (excluding
painting the exterior surface of the exterior walls of the Premises
which shall be an obligation of Tenant, if necessary in Landlord's
discretion). However,
Landlord shall not be obligated to maintain or repair windows,
doors, plate glass or the interior surfaces of exterior walls.
Landlord shall make repairs under this Section 6.03 within a
reasonable time after receipt of written notice from Tenant of the
need for such repairs. In no event shall the Landlord be obligated
to maintain the heating or air conditioning systems, or any other
HVAC/ventilation facilities located in the Premises, all of which
shall be the responsibility of Tenant.
(b) Tenant shall pay or reimburse Landlord for
all costs Landlord incurs under Paragraph 6.03(a) above as Common
Area costs as provided for in Section 4.05 of the Lease. Tenant
waives the benefit of any statute in effect now or in the future
which might give Tenant the right to make repairs at Landlord's
expense or to terminate this Lease due to Landlord's failure to
keep the Premises in good order, condition and
repair.
Section 6.04. Tenant's Obligations.
(a) Except
as provided in Section 6.03, Article Seven (Damage or Destruction)
and Article Eight (Condemnation), Tenant shall keep all portions of
the Premises (including structural, nonstructural, interior,
systems and equipment) in good order, condition and repair
(including interior repainting and refinishing, as needed). If any
portion of the Premises or any system or equipment in the Premises
which Tenant is obligated to repair cannot be fully repaired or
restored, Tenant shall promptly replace such portion of the
Premises or system or equipment in the Premises, regardless of
whether the benefit of such replacement extends beyond the Lease
Term. Tenant shall maintain a preventive maintenance contract
providing for the regular inspection and maintenance of the heating
and air conditioning system by a licensed ventilation, heating and
air conditioning contractor. If any part of the Premises or the
Project is damaged by any act or omission of Tenant, Tenant shall
pay Landlord the cost of repairing or replacing such damaged
property, whether or not Landlord would otherwise be obligated to
pay the cost of maintaining or repairing such property. It is the
intention of Landlord and Tenant that at all times Tenant shall
maintain the portions of the Premises which Tenant is obligated to
maintain in an attractive, first-class and fully operative
condition.
(b) Tenant
shall fulfill all of Tenant's obligations under this Section 6.04
at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Premises as required by this Section 6.04, Landlord
may, upon ten (10) days' prior notice to Tenant (except that no
notice shall be required in the case of an emergency), enter the
Premises and perform such maintenance or repair (including
replacement, as needed) on behalf of Tenant. In such case, Tenant
shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 6.05. Alterations, Additions, and
Improvements.
(a) After
the initial Tenant Improvements more fully described in Exhibit
"B", Tenant shall not make any alterations, additions, or
improvements to the Premises without Landlord's prior written
consent, except for non-structural alterations which do not exceed
Fifty Thousand Dollars ($50,000) in cost annually and which are not
visible from the outside of any building of which the Premises is
part. Landlord may require Tenant to provide demolition and/or lien
and completion bonds in form and amount satisfactory to Landlord.
Tenant shall promptly remove any alterations, additions, or
improvements constructed in violation of this Paragraph 6.05(a)
upon Landlord's written request. All alterations, additions, and
improvements shall be done in a good and workmanlike manner, in
conformity with all applicable laws and regulations, and by a
contractor approved by Landlord. Upon completion of any such work,
Tenant shall provide Landlord with "as built" plans, copies of all
construction contracts, and proof of payment for all labor and
materials.
(b) Tenant
shall pay when due all claims for labor and material furnished to
the Premises. Tenant shall give Landlord at least thirty (30) days'
prior written notice of the commencement of any work on the
Premises, regardless of whether Landlord's consent to such work is
required. Landlord may elect to record and post notices of
non-responsibility on the Premises.
Section 6.06. Condition upon Termination. Upon the termination of
the Lease, Tenant shall surrender the Premises to Landlord, broom
clean and in the same condition as received. In addition, Landlord
may require Tenant to remove any alterations, additions or
improvements (whether or not made with Landlord's consent) prior to
the expiration of the Lease and to restore the Premises to its
prior condition, all at Tenant's expense. All alterations,
additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered
to Landlord upon the expiration or earlier termination of the
Lease, except that Tenant may remove any of Tenant's machinery or
equipment which can be removed without material damage to the
Premises. Tenant shall repair, at Tenant's expense, any damage to
the Premises caused by the removal of any such machinery or
equipment. In no event, however, shall Tenant remove any of the
following materials or equipment (which shall be deemed Landlord's
property) without Landlord's prior written consent: any power
wiring or power panels; lighting or lighting fixtures; wall
coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other
heating or air conditioning equipment fencing or security gates; or
other similar building operating equipment and
decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. Partial Damage to Premises.
(a) Tenant
shall notify Landlord in writing immediately upon the occurrence of
any damage to the Premises. If the Premises is only partially
damaged (i.e., less than fifty percent (50%) of the Premises is
untenantable as a result of such damage or less than fifty percent
(50%) of Tenant's operations are materially impaired) and if the
proceeds received by Landlord from the insurance policies described
in Paragraph 4.04(b) are sufficient to pay for the necessary
repairs, this Lease shall remain in effect and Landlord shall
repair the damage as soon as reasonably possible. Landlord may
elect (but is not required) to repair any damage to Tenant's
fixtures, equipment, or improvements.
(b) If
the insurance proceeds received by Landlord are not sufficient to
pay the entire cost of repair, or if the cause of the damage is not
covered by the insurance policies which Landlord maintains under
Paragraph 4.04(b), Landlord may elect either to (i) repair the
damage as soon as reasonably possible, in which case this Lease
shall remain in full force and effect, or (ii) terminate this Lease
as of the date the damage occurred. Landlord shall notify Tenant
within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or
terminate the. Lease. If Landlord elects to repair the damage,
Tenant shall pay Landlord the "deductible amount" (if any) under
Landlord's insurance policies and, if the damage was due to an act
or omission of Tenant, or Tenant's employees, agents, contractors
or invitees, the difference between the actual cost of repair and
any insurance proceeds received by Landlord. If Landlord elects to
terminate the Lease, Tenant may elect to continue this Lease in
full force and effect in which case Tenant shall repair any damage
to the Premises and any building in which the Premises is, located.
Tenant shall pay the cost of such repairs, except that upon
satisfactory completion of such repairs, Landlord shall deliver to
Tenant any insurance proceeds received by Landlord for the damage
repaired by Tenant. Tenant shall give Landlord written notice of
such election within ten (10) days after receiving Landlord's
termination notice.
(c) If
the damage to the Premises occurs during the last six (6) months of
the Lease Term and such damage will require more than thirty (30)
days to repair, either Landlord or Tenant may elect to terminate
this Lease as of the date the damage occurred, regardless of the
sufficiency of any insurance proceeds. The party electing to
terminate this Lease shall give written notification to the other
party of such election within thirty (30) days after Tenant's
notice to Landlord of the occurrence of the
damage.
Section 7.02. Substantial or Total Destruction. If the Premises is
substantially or totally destroyed by any cause whatsoever (i.e.,
the damage to the Premises is greater than partial damage as
described in Section 7.01), and regardless of whether Landlord
receives any insurance proceeds, this Lease shall terminate as of
the date the destruction occurred. Notwithstanding the preceding
sentence, if the Premises can be rebuilt within six (6) months
after the date of destruction, Landlord may elect to rebuild the
Premises at Landlord's own expense, in which case this Lease shall
remain in full force and effect. Landlord shall notify Tenant of
such election within thirty (30) days after Tenant's notice of the
occurrence of total or substantial destruction. If Landlord so
elects, Landlord shall rebuild the Premises at Landlord's sole
expense, except that if the destruction was caused by an act or
omission of Tenant, Tenant shall pay Landlord the difference
between the actual cost of rebuilding and any insurance proceeds
received by Landlord.
Section 7.03. Temporary Reduction of Rent. If the Premises is
destroyed or damaged and Landlord or Tenant repairs or restores the
Premises pursuant to the provisions of this Article Seven, any Rent
payable during the
period of such damage, repair and/or restoration shall be reduced
according to the degree, if any, to which Tenant's use of the
Premises is impaired. However, the reduction shall not exceed the
sum of one year's payment of Base Rent, insurance premiums and real
property taxes. Except for such possible reduction in Base Rent,
insurance premiums and real property taxes, Tenant shall not be
entitled to any compensation, reduction, or reimbursement from
Landlord as a result of any damage, destruction, repair, or
restoration of or to the Premises.
Section 7.04.
Waiver. Tenant waives the protection of any statute, code or
judicial decision which grants a tenant the right to terminate a
lease in the event of the substantial or total destruction of the
leased property. Tenant agrees that the provisions of Section 7.02
above shall govern the rights and obligations of Landlord and
Tenant in the event of any substantial or total destruction of the
Premises.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Premises is taken under the power of
eminent domain or sold under the threat of that power (all of which
are called "Condemnation"), this Lease shall terminate as to the
part taken or sold on the date the condemning authority takes title
or possession, whichever occurs first If more than twenty percent
(20%) of the floor area of the building in which the Premises is
located, or which is located on the Premises, is taken, either
Landlord or Tenant may terminate this Lease as of the date the
condemning authority takes title or possession, by delivering
written notice to the other within ten (10) days after receipt of
written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority takes title or
possession). If neither Landlord nor Tenant terminates this Lease,
this Lease shall remain in effect as to the portion of the Premises
not taken, except that the Base Rent and Additional Rent shall be
reduced in proportion to the reduction in the floor area of the
Premises. Any Condemnation award or payment shall be distributed in
the following order: (a) first, to any ground lessor, mortgagee or
beneficiary under a deed of trust encumbering the Premises, the
amount of its interest in the Premises; (b) second, to Tenant, only
the amount of any award specifically designated for loss of or
damage to Tenant's trade fixtures or removable personal property;
and (c) third, to Landlord, the remainder of such award, whether as
compensation for reduction in the value of the leasehold, the
taking of the fee, or otherwise. If this Lease is not terminated,
Landlord shall repair any damage to the Premises caused by the
Condemnation, except that Landlord shall not be obligated to repair
any damage for which Tenant has been reimbursed by the condemning
authority. If the severance damages received by Landlord are not
sufficient to pay for such repair, Landlord shall have the right to
either terminate this Lease or make such repair at Landlord's
expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. Landlord's Consent Required. No portion of the
Premises or of Tenant's interest in this Lease may be acquired by
any other person or entity, whether by sale, assignment, mortgage,
sublease, transfer, operation of law, or act of Tenant, without
Landlord's prior written consent, except as provided in Section
9.02 below. Landlord has the right to grant or withhold its consent
as provided in Section 9.05 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of
this Lease. If Tenant is an entity, any cumulative transfer of more
than twenty-five percent (25%) of the entity (whether stock,
membership interests, partnership interests, or otherwise)
interests shall require Landlord's written consent If Tenant is a
corporation, any change in the ownership of a twenty-five percent
(25%) or more interest of the voting stock of the corporation shall
require Landlord's consent. Notwithstanding the two immediately
preceding sentences, Landlord acknowledges that Tenant is currently
anticipating transitioning into a publicly-traded entity whose
shares are freely traded on one or more public markets. The
restrictions on transfer of ownership of more then twenty-five
percent (25%) of the stock/voting stock of the Tenant shall not
require Landlord's consent in the event that: (i) Tenant's stock is
listed on a domestic or reputable foreign public exchange within
three (3) years of the Date of Lease; and (ii) the Tenant entity
has a minimum net worth of Fifty Million Dollars ($50,000,000.00)
at the time of such transfer.
Section 9.02. Tenant Affiliate/Ancillary Uses. Tenant may assign
this Lease once during the initial Lease Term, without Landlord's
consent, to any corporation which controls, is controlled by or is
under common control with Tenant, or to any corporation resulting
from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in
writing all of Tenant's obligations under this Lease, and there
shall be no release of the Tenant (or any Guarantor) upon such
assignment Notwithstanding anything contained herein to the
contrary, Tenant shall be entitled to sublease any portion of the
Premises to a user for a use which is complementary or ancillary to
the Permitted Uses upon obtaining Landlord's consent, which consent
shall not be
unreasonably withheld, conditioned or delayed. Notwithstanding the
foregoing Tenant shall at all times be and remain primarily
responsible for performance of the obligations under this
Lease.
Section 9.03. No Release of Tenant. No transfer permitted by this
Article Nine, whether with or without Landlord's consent, shall
release Tenant or change Tenant's primary liability to pay the Rent
and to perform all other obligations of Tenant under this Lease.
Landlord's acceptance of Rent from any other person is not a waiver
of any provision of this Article Nine. Consent to one transfer is
not a consent to any subsequent transfer. If Tenant's transferee
defaults under this Lease, Landlord may proceed directly against
Tenant without pursuing remedies against the transferee. Landlord
may consent to subsequent assignments or modifications of this
Lease by Tenant's transferee, without notifying Tenant or obtaining
its consent. Such action shall not relieve Tenant's liability under
this Lease.
Section 9.04. Offer to Terminate. If Tenant desires to assign the
Lease or sublease the Premises, Tenant shall have the right, but
not the obligation, to offer, in writing, to terminate the Lease as
of a date specified in the offer. If Landlord elects in writing to
accept the offer to terminate within twenty (20) days after notice
of the offer, the Lease shall terminate as of the date specified
and all the terms and provisions of the Lease governing termination
shall apply. If Landlord does not so elect, the Lease shall
continue in effect until otherwise terminated and the provisions of
Section 9.05 with respect to any proposed transfer shall continue
to apply.
Section 9.05. Landlord's Consent.
(a) Tenant's
request for consent to any transfer described in Section 9.01 shall
set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the
prospective transferee, financial details of the proposed transfer
(e.g., the term of and the Rent and security deposit payable under
any proposed assignment or sublease), and any other information
Landlord deems relevant. Landlord shall have the right to withhold
consent, if reasonable, or to grant consent, based on the following
factors: (i) the business of the proposed assignee or subtenant and
the proposed use of the Premises; (ii) the net worth and financial
reputation of the proposed assignee or subtenant; (iii) Tenant's
compliance with all of its obligations under the Lease; and (iv)
such other factors as Landlord may reasonably deem
relevant.
(b) If
Tenant assigns or subleases, the following shall
apply:
(i) Tenant
shall pay to Landlord as Additional Rent under the Lease the
Landlord's Share (stated in Section 1.13) of the Profit (defined
below) on such transaction as and when received by Tenant, unless
Landlord gives written notice to Tenant and the assignee or
subtenant that Landlord's Share shall be paid by the assignee or
subtenant to Landlord directly. The "Profit" means (A) all amounts
paid to Tenant for such assignment or sublease, including "key"
money, monthly rent in excess of the monthly rent payable under the
Lease, and all fees and other consideration paid for the assignment
or sublease, including fees under any collateral agreements, less
(B) costs and expenses directly incurred by Tenant in connection
with the execution and performance of such assignment or sublease
for real estate broker's commissions and costs of renovation or
construction of tenant improvements required under such assignment
or sublease. Tenant is entitled to recover such costs and expenses
before Tenant is obligated to pay the Landlord's Share to Landlord.
The Profit in the case of a sublease of less than all the Premises
is the rent allocable to the subleased space as a percentage on a
square footage basis.
(ii) Tenant
shall provide Landlord a written statement certifying all amounts
to be paid from any assignment or sublease of the Premises within
thirty (30) days after the transaction documentation is signed, and
Landlord may inspect Tenant's books and records to verify the
accuracy of such statement. On written request, Tenant shall
promptly furnish to Landlord copies of all the transaction
documentation, all of which shall be certified by Tenant to be
complete, true and correct. Landlord's receipt of Landlord's Share
shall not be a consent to any further assignment or subletting. The
breach of Tenant's obligation wider this Paragraph 9.05(b) shall be
a material default of the Lease.
Section 9.06. No Merger. No merger shall result from Tenant's
sublease of the Premises under this Article Nine, Tenant's
surrender of this Lease or the termination of this Lease in any
other manner. In any such event, Landlord may
terminate any or all sub-tenancies or succeed to the interest of
Tenant as sub-Landlord under any or all
sub-tenancies.
ARTICLE
TEN: DEFAULTS: REMEDIES
Section 10.01. Covenants and Conditions. Tenant's performance of
each of Tenant's obligations under this Lease is a condition as
well as a covenant. Tenant's right to continue in possession of the
Premises is conditioned upon such performance. Time is of the
essence in the performance of all covenants and
conditions.
Section 10.02. Defaults. Tenant shall be in material default under
this Lease:
(a) If
Tenant abandons the Premises or if Tenant's vacation of the
Premises lasts longer than fifteen (15) days or results in the
cancellation of any insurance described in Section
4.04;
(b) If
Tenant fails to pay Rent or any other charge when
due;
(c) If
Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of ten (10) days after written notice
from Landlord; provided that if more than thirty (30) days are
required to complete such performance, Tenant shall not be in
default if Tenant commences such performance within the thirty
(30)-day period and thereafter diligently pursues its completion.
However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of
this Lease. The notice required by this Paragraph is intended to
satisfy any and all notice requirements imposed by law on Landlord
and is not in addition to any such requirement
(d) (i)
If Tenant makes a general assignment or general arrangement for the
benefit of creditors; (ii) if a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or
against Tenant and is not dismissed within thirty (30) days; (iii)
if a trustee or receiver is appointed to take possession of
substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of
Tenant's assets located at the Premises or of Tenant's interest in
this Lease is subjected to attachment, execution or other judicial
seizure which is not discharged within thirty (30) days. If a court
of competent jurisdiction determines that any of the acts described
in this subparagraph (d) is not a default under this Lease, and a
trustee is appointed to take possession (or if Tenant remains a
debtor in possession) and such trustee or Tenant transfers Tenant's
interest hereunder, then Landlord shall receive, as Additional
Rent, the excess, if any, of the Rent (or any other consideration)
paid in connection with such assignment or sublease over the Rent
payable by Tenant under this Lease.
(e) If
Tenant attempts to revoke or otherwise terminate, or purports to
revoke or otherwise terminate, the Lease Guaranty Deposit or the
Security Device.
Section 10.03. Remedies. On the occurrence of any material default
by Tenant, Landlord may, at any time thereafter, with or without
notice or demand and without limiting Landlord in the exercise of
any right or remedy which Landlord may have:
(a) Terminate
Tenant's right to possession of the Premises by any lawful means,
in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In
such event, Landlord shall be entitled to recover from Tenant all
damages incurred by Landlord by reason of Tenant's default,
including (i) the worth at the time of the award of the unpaid Base
Rent, Additional Rent and other charges which Landlord had earned
at the time of the termination; (ii) the worth at the time of the
award of the amount by which the unpaid Base Rent, Additional Rent
and other charges which Landlord would have earned after
termination until the time of the award exceeds the amount of such
rental loss that Tenant proves Landlord could have reasonably
avoided; (iii) the worth at the time of the award of the amount by
which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the
time of award exceeds the amount of such rental loss that Tenant
proves Landlord could have reasonably avoided; and (iv) any other
amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations
under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any
costs or expenses Landlord incurs in maintaining or preserving the
Premises after such default, the
cost of recovering possession of the Premises, expenses of
reletting, including necessary renovation or alteration of the
Premises, Landlord's reasonable attorneys' fees incurred in
connection therewith, and any real estate commission paid or
payable. As used in subparts (i) and (ii) above, the "worth at the
time of the award" is computed by allowing interest on unpaid
amounts at the rate of fifteen percent (15%) per annum, or such
lesser amount as may then be the maximum lawful rate. As used in
subpart (iii) above, the "worth at the time of the award" is
computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award,
plus one percent (1%). If Tenant has abandoned the Premises,
Landlord shall have the option of (i) retaking possession of the
Premises and Recovering from Tenant the amount specified in this
Paragraph 10.03(a), or (ii) proceeding under Paragraph
10.03(b);
(b) Maintain
Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant has abandoned the
Premises. in such event, Landlord shall be entitled to enforce all
of Landlord's rights and remedies under this Lease, including the
right to recover the Rent as it becomes due;
(c) Pursue
any other remedy now or hereafter available to Landlord under the
laws or judicial decisions of the state in which the Premises is
located.
Section 10.04. Repayment of "Free" Rent. If this Lease provides for
a postponement of any monthly rental payments, a period of "free"
Rent or other Rent concession, such postponed Rent or "free" Rent
is called the "Abated Rent". Tenant shall be credited with having
paid all of the Abated Rent on the expiration of the Lease Term
only if Tenant has fully, faithfully, and punctually performed all
of Tenant's obligations hereunder, including the payment of all
Rent (other than the Abated Rent) and all other monetary
obligations and the surrender of the Premises in the physical
condition required by this Lease. Tenant acknowledges that its
right to receive credit for the Abated Rent is absolutely
conditioned upon Tenant's full, faithful and punctual performance
of its obligations under this Lease. If Tenant defaults and does
not cure within any applicable grace period, the Abated Rent shall
immediately become due and payable in full and this Lease shall be
enforced as if there were no such rent abatement or other rent
concession. In such case Abated Rent shall be calculated based on
the full initial Rent payable under this Lease.
Section 10.05. Optional Termination. Notwithstanding any other term
or provision hereof to the contrary, the Lease shall, at Landlord's
option, terminate on the occurrence of any act which affirms the
Landlord's intention to terminate the Lease as provided in Section
10.03 hereof; including the filing of an unlawful detainer action
against Tenant. On such termination, Landlord's damages for default
shall include all costs and fees, including reasonable attorneys'
fees that Landlord incurs in connection with the filing,
commencement, pursuing and/or defending of any action in any
bankruptcy court or other court with respect to the Lease; the
obtaining of relief from any stay in bankruptcy restraining any
action to evict Tenant; or the pursuing of any action with respect
to Landlord's right to possession of the Premises. All such damages
suffered (apart from Base Rent and other rent payable hereunder)
shall constitute damages which must be reimbursed to Landlord prior
to assumption of the Lease by Tenant or any successor to Tenant in
any bankruptcy or other proceeding.
Section 10.06.
Cumulative Remedies. Landlord's exercise of any right or remedy
shall not prevent it from exercising any other right or
remedy.
ARTICLE
ELEVEN: PROTECTION OF
LENDERS
Section 11.01. Subordination. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or
mortgage encumbering the Premises, any advances made on the
security thereof and any renewals, modifications, consolidations,
replacements or extensions thereof, whenever made or recorded.
Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Premises or the Lease. Tenant
shall execute such further documents and assurances as such lender
may require, provided that Tenant's obligations under this Lease
shall not be increased in any material way (the performance of
ministerial acts shall not be deemed material), and Tenant shall
not be deprived of its rights under this Lease. Tenant's right to
quiet possession of the Premises during the Lease Term shall not be
disturbed if Tenant pays the Rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If
any ground lessor, beneficiary or mortgagee elects to have this
Lease prior to the lien of its ground lease, deed of trust or
mortgage and gives written notice thereof to Tenant, this Lease
shall be deemed prior to such ground lease, deed of trust or
mortgage whether this
Lease is dated prior or subsequent to the date of said ground
lease, deed of trust or mortgage or the date of recording
thereof.
Section 11.02. Attornment. If Landlord's interest in the Premises
is acquired by any ground lessor, beneficiary under a deed of
trust, mortgagee, or purchaser at a foreclosure sale, Tenant shall
attorn to the transferee of or successor to Landlord's interest in
the Premises and recognize such transferee or successor as Landlord
under this Lease. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Premises upon
the transfer of Landlord's interest.
Section 11.03. Signing of Documents. Tenant shall sign and deliver
any instrument or documents necessary or appropriate to evidence
any such sacrament or subordination or agreement to do so. If
Tenant fails to do so within ten (10) days after written request,
Tenant hereby makes, constitutes and irrevocably appoints Landlord,
or any transferee or successor of Landlord, the attorney-in-fact of
Tenant to execute and deliver any such instrument or
document.
Section 11.04. Estoppel Certificates.
(a) Upon
Landlord's written request, Tenant shall immediately execute,
acknowledge and deliver to Landlord a written statement certifying:
(i) that none of the terms or provisions of this Lease have been
changed (or if they have been changed, stating how they have been
changed); (ii) that this Lease has not
been canceled or terminated; (iii) the last date of payment of the
Base Rent and other charges and the time period covered by such
payment; (iv) that Landlord is not in default under this Lease (or,
if Landlord is claimed to be in default, stating why); and (v) such
other representations or information with respect to Tenant or the
Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Premises may require. Tenant shall
deliver such statement to Landlord within five (5) days after
Landlord's request. Landlord may give any such statement by Tenant
to any prospective purchaser or encumbrancer of the Premises. Such
purchaser or encumbrancer may rely conclusively upon such statement
as true and correct.
(b) If
Tenant does not deliver such statement to Landlord within such five
(5) day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following
facts: (i) that the terms and provisions of this Lease have not
been changed except as otherwise represented by Landlord; (ii) that
this Lease has not been canceled or terminated except as otherwise
represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that
Landlord is not in default under the Lease. In such event, Tenant
shall be estopped from denying the truth of such
facts.
(c) Upon
the request of Tenant, Landlord shall deliver an estoppel
certificate of the same type, and in the same manner as applicable
to Tenant pursuant to Sections 11.04(a) and
(b).
Section 11.05. Tenant's Financial Condition. No more than once per
calendar year, and within ten (10) days after written request from
Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth
of Tenant or any assignee, subtenant, or guarantor of Tenant. In
addition, and no more than once per calendar year, Tenant shall
deliver to any lender designated by Landlord any financial
statements required by such lender to facilitate the financing or
refinancing of the Premises. Tenant represents and warrants to
Landlord that each such financial statement is a true and accurate
statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the
purposes set forth in this Lease. Tenant's obligation to deliver
the foregoing financial information shall be conditioned on
receiving a commercially reasonably nondisclosure agreement from
Landlord and any party which will be given access to such financial
information.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. Legal Proceedings. If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting
Party") shall reimburse the other party (the "Nondefaulting Party")
upon demand for any costs or expenses that the Nondefaulting Party
incurs in connection with any breach or default of the Defaulting
Party under this Lease, whether or not suit is commenced or
judgment entered. Such costs shall include reasonable legal fees
and costs incurred for the negotiation of a settlement, enforcement
of rights or otherwise. Furthermore, if
any action for breach of or to enforce the provisions of this Lease
is commenced, the court in such action shall award to the party in
whose favor a judgment is entered, a reasonable sum as attorneys'
fees and costs. The losing party in such action shall pay such
attorneys' fees and costs. Tenant shall also indemnify Landlord
against and hold Landlord harmless from all costs, expenses,
demands and liability Landlord may incur if Landlord becomes or is
made a party to any claim or action (a) instituted by Tenant
against any third party, or by any third party against Tenant, or
by or against any person holding any interest under or using the
Premises by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor or material furnished to or for
Tenant or such other person; (c) otherwise arising out of or
resulting from any act or transaction of Tenant or such other
person; or (d) necessary to protect Landlord's interest under this
Lease in a bankruptcy proceeding, or other proceeding under Title
11 of the United States Code, as amended. Tenant shall defend
Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's
election, Tenant shall reimburse Landlord for any legal fees or
costs Landlord incurs in any such claim or
action.
Section 12.02.
Landlord's Consent. Tenant shall pay Landlord's reasonable
attorneys' fees incurred in connection with Tenant's request for
Landlord's consent wider Article Nine (Assignment and Subletting),
or in connection with any other act which Tenant proposes to do and
which requires Landlord's consent.
ARTICLE THIRTEEN:
MISCELLANEOUS PROVISIONS
Section 13.01. Landlord's liability; Certain
Duties.
(a) As
used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Premises or Project or the
leasehold estate under a ground lease of the Premises or Project at
the time in question. Each Landlord is obligated to perform the
obligations of Landlord under this Lease only during the time such
Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to
the obligations of Landlord under this Lease to be performed on or
after the date of transfer. However, each Landlord shall deliver to
its transferee all funds that Tenant previously paid if such funds
have not yet been applied under the terms of this
Lease.
(b) Tenant
shall give written notice of any failure by Landlord to perform any
of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust
encumbering the Premises whose name and address have been furnished
to Tenant in writing. Landlord shall not be in default under this
Lease unless Landlord (or such ground lessor, mortgagee or
beneficiary) fails to cure such nonperformance within thirty (30)
days after receipt of Tenant's notice. However, if such
non-performance reasonably requires more than thirty (30) days to
cure, Landlord shall not be in default if such cure is commenced
within such thirty (30) day period and thereafter diligently
pursued to completion.
(c) Notwithstanding
any term or provision herein to the contrary, the liability of
Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Premises and
the Project, and neither the Landlord nor its partners,
shareholders, officers or other principals shall have any personal
liability under this Lease.
Section
13.02. Severability. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof
is illegal or unenforceable shall not cancel or invalidate the
remainder of such provision or this Lease, which shall remain in
full force and effect.
Section 13.03. Interpretation. The captions of the Articles or
Sections of this Lease are to assist the parties in reading this
Lease and are not a part of the terms or provisions of this Lease.
Whenever required by the context of this Lease, the singular shall
include the plural and the plural shall include the singular. The
masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions
of Tenant, the term "Tenant" shall include Tenant's agents'
employees, contractors, invitees, successors or others using the
Premises with Tenant's expressed or implied
permission.
Section 13.04. Incorporation of Prior Agreements; Modifications.
This Lease is the only agreement between the parties pertaining to
the lease of the Premises and no other agreements are effective.
All amendments to this Lease shall be in writing and signed by all
parties. Any other attempted amendment shall be
void.
Section 13,05. Notices. All notices required or permitted under
this Lease shall be in writing and shall be personally delivered or
sent by certified mail, return receipt requested, postage prepaid.
Notices to Tenant shall be delivered to the address specified in
Section 1.03 above. Notices to Landlord shall be delivered to the
address specified in Section 1.02 above. An notices shall be
effective upon delivery. Either party may change its notice address
upon written notice to the other party.
Section 13.06. Waivers. All waivers must be in writing and signed
by the waiving party. Landlords failure to enforce any provision of
this Lease or its acceptance of rent shall not be a waiver and
shall not prevent Landlord from enforcing that provision or any
other provision of this Lease in the future. No statement on a
payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without
notice to Tenant, negotiate such check without being bound to the
conditions of such statement.
Section 13.07. No Recordation. Tenant shall not record this Lease
without prior written consent from Landlord. However, either
Landlord or Tenant may require that a "Short Form" memorandum of
this Lease executed by both parties be recorded. The party
requiring such recording shall pay all transfer taxes and recording
fees.
Section 13.08. Binding Effect; Choice of Law. This Lease binds any
party who legally acquires any rights or interest in this Lease
from Landlord or Tenant However, Landlord shall have no obligation
to Tenant's successor unless the rights of interests of Tenant's
successor are acquired in accordance with the terms of this Lease.
The laws of the State of Nevada shall govern this
Lease.
Section 13.09. Corporate Authority; Partnership Authority. If
Tenant is a corporation, each person signing this Lease on behalf
of Tenant represents and warrants that he has full authority to do
so and that this Lease binds the corporation. Within ten (10) days
after this Lease is signed, Tenant shall deliver to Landlord a
certified copy of a resolution of Tenant's Board of Directors
authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a
partnership, each person or entity signing this Lease for Tenant
represents and warrants that he or it is a general partner of the
partnership, that he or it has full authority to sign for the
partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written
notice to Landlord of any general partner's withdrawal or addition.
Within ten (10) days after this Lease is signed, Tenant shall
deliver to Landlord a copy of Tenant's recorded statement of
partnership or certificate of limited
partnership.
Section 13.10.
Joint and Several Liability. All parties signing this Lease as
Tenant shall be jointly and severally liable for all obligations of
Tenant.
Section
13.11. Reserved.
Section 13.12. Execution of Lease. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the
counterparts shall constitute a single binding instrument
Landlord's delivery of this Lease to Tenant shall not be deemed to
be an offer to lease and shall not be binding upon either party
until executed and delivered by both parties.
Section 13.13. Survival. All representations and warranties of
Landlord and Tenant shall survive the termination of this
Lease.
Section 13.14. Agency Disclosure; No Other Brokers. Landlord and
Tenant each warrant that they have dealt with no other real estate
broker(s) in connection with this transaction except: Jones Lang
LaSalle, whom represents the Landlord in this
transaction.
In the event that Jones Lang LaSalle represents both Landlord and
Tenant, Landlord and Tenant hereby confirm that they were timely
advised of the dual representation and that they consent to the
same, and that they do not expect said broker to disclose to either
of them the confidential information of the other
party.
Section 13.15. Confidentiality. Tenant acknowledges that the terms
and conditions contained herein and the details of this Lease will
remain confidential between the parties and any proposals, lease
drafts, leases or summaries of any
kind will be distributed, copies or otherwise transmitted, orally
or in writing to any other person of entity.
Section
13.16. Special Provisions; Tenant's Use.
(a) Tenant
represents and warrants that their use of the Premises will be in
compliance with all applicable local and state law. Additionally,
Tenant is of the opinion that even though their use is in conflict
with Federal law, Tenant believes that Federal policy is such that
the Federal government, or any agency thereof will not prosecute
Landlord for Tenant's use of the Premises.
(b) Tenant
and the principals of Tenant shall indemnify, defendant, and hold
harmless Landlord (including its affiliates or employees), from
loss and/or action taken by a governmental entity, or agency of
competent jurisdiction, as a direct result of Tenant's use of the
Premises.
Notwithstanding the above, Landlord may consider accepting an
insurance policy or bond that will adequately cover Landlord's risk
exposure with respect to Tenant's use.
(c) In
the event of any action taken against Landlord (including its
affifliates or employees) by a governmental entity, or agency of
competent authority in which Landlord (including its principals,
affiliates, or employees) is at risk of civil or criminal action as
a result of Tenant's occupancy and/or use of the Premises, then
Landlord may require an immediate termination of the use in
question at the Premises. Without limiting the generality of the
foregoing, a cease and desist letter (or similar directive)
directed to Landlord from a governmental authority of appropriate
jurisdiction shall be included in the definition of an
"action".
Section 13.17. Access to Building Three. Building Three, positioned
at the north-east corner of the Property, is currently unoccupied
and inhabitable. This building is also land-lock by the yard and
parking area of the Premises. Should Landlord wish to improve
Building Three and re-tenant same, then Tenant shall permit
reasonable access through their yard and/or parking area for 24/7
access to Building Three, subject to compliance with applicable
laws and regulations applicable to Tenant's Permitted
Use.
Section 13.18.
Lease Guaranty Deed of Trust - Replacement. In lieu of a personal
guaranty, the Performance Deed of Trust attached herewith as
Exhibit "D" shall be recorded against the property described
therein, commonly known as [REDACTED] (collectively the "Pledged
Property"). The Lease Guaranty Deed of Trust shall serve as
collateral for the obligations of Tenant to secure the performance
of Tenant's obligations as set forth in Section 6.06 of the Lease
relating to the condition of the Premises upon expiration or
earlier termination. [REDACTED.] At any time during the terms of
this Lease or any renewal thereof, Tenant may satisfy the
obligations of the Lease Guaranty Deed of Trust and cause it to be
reconveyed by Landlord by posting a security bond in favor of
Landlord in the amount of Six Hundred Thousand Dollars
($600,000.00) in a form acceptable to Landlord in its commercially
reasonable discretion, or by posting an additional cash security
deposit in the amount of Two Hundred Fifty Thousand Dollars
($250,000.00).
*** SIGNATURES ON NEXT PAGE ***
Landlord and Tenant
have executed this Lease at the place and on the dates specified
adjacent to their signatures below and have initialed all Exhibits
which are attached to or incorporated by reference in this
Lease.
[REDACTED]
MM DEVELOPMENT COMPANY, INC.,
A NEVADA CORPORATION
By: /s/ Robert A.
Groesbeck
Robert A. Groesbeck, President
PLANET 13 HOLDINGS, INC.,
A CANADIAN CORPORATION
By: /s/ Robert A.
Groesbeck
Robert A. Groescbeck, Co-CEO
By: /s/ Larry
Scheffler
Larry Scheffler,
Co-CEO
Exhibit “A”
EXHIBIT "Al"
SITE PLAN
(PROJECT AND PREMISES)
EXHIBIT "A.2"
YARD
& PARKING AREA
EXHIBIT "B"
CONDITION OF PREMISES; TENANT IMPROVEMENT
Notwithstanding
anything contained within the Lease to the contrary, Tenant shall
accept the Premises in an "AS IS", "WHERE IS"
condition.
Tenant
shall cause the following improvements to be made to the Premises
at Tenant's sole cost and expense:
1.Tenant,
at Tenant's sole cost and expense, shall build out a minimum of One
Million Dollars
($1,000,000)
of Tenant Improvements to the Premises within the firth twelve (12)
months of the Lease Term. The improvements include but are not
limited to the following:
Tenant,
at Tenant's sole cost and expense, shall build out a minimum of One
Million Dollars ($1,000,000) of Tenant Improvements to the Premises
within the first twelve (12) months of the Lease Term. The
improvements include, but are not limited to the following:
renovation of approximately 9,000 square feet of existing office
space, and development of approximately 16,200 square feet of
dispensary floor space, including operational support facilities,
in addition to exterior elevation improvements. Total cost of these
initial improvements are estimated at between $5,000,000-$6,000,000
(Tenant's Work).
Any
and all other Tenant's Work and other improvements and expenses
associated with the Premises shall be paid for by
Tenant."
("Tenant's
Work"). [Tenant's Work shall include the construction of demising
gates and fences to separate the Premises from remainder of the
Project].
Any
and all other improvements and expenses associated with the
Premises shall be paid for by the Tenant.
Exhibit "1"
Refer to Exhibit "A.1", the Site Plan.
EXHIBIT "C"
RULES AND REGULATIONS
(ATTACHED TO AND MADE A PART OF THIS LEASE)
Dated:
February 01, 2018
By
and Between: The Gabriel Gomes Saia, Jr. Revocable Living Trust
("Landlord') and MM Development Company, LLC
("Tenant").
General rules
1. Tenant
shall not suffer or permit the obstruction of any Common Areas,
including driveways and walkways.
2. Landlord
reserves the right to refuse access to any persons which Landlord,
in good faith, judges to be a threat to the safety, reputation, or
property of the Project and its occupants.
3. When
reasonably appropriate and when not in direct conflict with
Tenant's Permitted Use, Tenant shall perform all daily work
activities with the roll-up door(s) closed to abate any excessive
noise pollution.
4. Tenant
shall not make or permit any noise or odors that unreasonably annoy
or interfere with other Tenants or persons having business within
the Project.
5. Tenant
shall not keep animals or birds within the Project and shall not
bring bicycles, motorcycles or other vehicles into areas not
designated as authorized for same.
6. Storage
of items in the yard of the Premises shall be permitted so long as
such storage is kept in an orderly fashion and free of debris.
Storage of inoperable vehicles, inoperable equipment, and fallow
materials shall not be permitted.
7. Tenant
shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
8. Tenant
shall have signage rights upon Landlord's approval, which shall not
be unreasonably withheld. Tenant shall be responsible for all costs
related to Tenant Signage.
9. Landlord
will furnish Tenant, free of charge, with a key to each door in the
Premises of which Landlord has hi its possession of same. Landlord
may charge a reasonable fee for any additional keys. Tenant shall
be responsible for changing any lock or installing new or
additional locks or any bolts on any door of the
Premises.
10. Tenant
shall not deface the walls, partitions or other surfaces of the
Premises or Project.
11. Tenant
shall not employ any service or contractor for services or work to
be performed in the Building, except as reasonably approved in
advance by Landlord.
12. Tenant
shall return all keys at the termination of its tenancy and shall
be responsible for the cost of replacing any keys that are
lost.
13. Tenant
shalt not use or keep in the Premises or the Building any
unapproved kerosene, gasoline, or flammable or combustible fluid or
material, or use any method of heating or air conditioning other
than as are typically found in projects or operations of similar
type and quality in the Las Vegas area, or those that have been
previously approved in writing by Landlord and/or by applicable
governmental authorities.
14. The
Premises shall not be used for Commercial lodging.
15. Tenant
shall comply with all safety, fire protection and evacuation
regulations established by Landlord or any applicable governmental
agency.
16. The
washroom partitions, minors, wash basins and other plumbing
fixtures shall not be used for any purpose other than those for
which they were constructed, and no sweeping, rubbish, rags or
other substances shall be thrown therein. All damage resulting from
any misuse of the fixtures
shall be borne by the Tenant who, or whose servants, employees,
agents, visitors, or licensees, shall have caused the
same.
17. Tenant
shall not disturb, solicit, or canvass any occupant of the Building
and shall cooperate to prevent same.
18. Without
the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
19. Tenant
assumes all risk from theft or vandalism and agrees to keep its
Premises locked as may be required.
20. Tenant
shall not suffer or permit anything in or around the Premises or
Building that causes excessive vibration in any part of the
Project
21. Tenant
shall be responsible for any damage to the Project and/or Premises
arising from such activity as moving of furniture, freight and
equipment
22. Reserved.
23. Tenant
shall not suffer or permit smoking or carrying of lighted cigars or
cigarettes in areas reasonably designated by Landlord or by
applicable governmental agencies as non-smoking areas.
24. Reserved.
25. Reserved.
26. Landlord
reserves the right to waive anyone of these rules and regulations
and/or to any particular Tenant, and any such waiver shall not
constitute a waiver of any other rule or regulation or any
subsequent application thereof to such Tenant
27. Landlord
reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the
appropriate operation and safety of the Project and its occupants.
Tenant agrees to abide by these and such reasonable rules and
regulations.
28. Tenant
will be required to furnish their own trash dumpster at Tenant's
expense. Trash dumpsters maintained by Tenant shall be stored
within the yard of Tenant's Premises at all times except on pick-up
days. Should Landlord provide trash dumpsters as part of the Common
Area Maintenance, such dumpsters are to be used for common area
refuse only. No Equipment, production materials, or any other
discards are to be placed in the common area dumpsters or dumpster
enclosures. Any cardboard boxes shall be cut up and/ or flattened
and placed in the dumpster utilizing as little space as possible.
The dumpster is full, waste will be stored in Tenant's lease space
until the dumpster is emptied.
PARKING RULES
1. Users
of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
2. The
maintenance, of vehicles in the parking area or common area is
prohibited. Tenant shall be permitted to wash their vehicles within
the yard of their Premises, conditioned upon (a) no water runoff
shall travel to the common areas or to any other area for the
exclusive use of other tenants; and (b) Tenant shall be responsible
for damage caused to the pavement as a result of their washing
activities.
3. Tenant
shall be responsible for seeing that all of its employees, agents
and invitees comply with the applicable parking rules, regulations,
laws and agreements.
4. Parking
areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size
Vehicles". Vehicles other than Permitted Size Vehicles are herein
referred to as "Oversized Vehicles". No unauthorized parking of
recreational vehicles, motor homes, boats and/ or trailers, is
permitted within the Project
5.
Tenant's
service vehicles, if any, shall be parked within the yard of their
Premises warehouse at night.
6. Unless
otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Landlord will not be
responsible for any damage to vehicles, injury to persons or loss
of property, all of which risks are assumed by the party using the
parking area.
7. Landlord
reserves the right to modify these rules and/ or adopt such other
reasonable and nondiscriminatory rules and regulations as it may
deem necessary for the proper operation of the parking
area.
EXHIBIT "D"
Escrow
No.
When
Recorded please send to:
PERFORMANCE DEED OF
TRUST
This
Performance Deed of Trust ("Deed of Trust"), made this 24th day of
April, 2018, between MM DEVELOPMENT COMPANY, INC., a Nevada
corporation, herein called TRUSTOR herein, whose address is 2548 W.
Desert Inn Road, Las Vegas, Nevada 89109; FIRST AMERICAN
TILEI_
whose address is 2500 N. Buffalo #150 Las VNevada 89128, herein
called TRUSTEE, [REDACTED] herein called BENEFICIARY.
Witnesseth:
That Trustor IRREVOCABLY GRANTS, TRANSFERS AND ASSIGNS TO TRUSTEE
IN TRUST, WITH POWER OF SALE, that property in Nye County, Nevada,
described as follows:
PARCEL
1:
TOWNSHIP
12 SOUTH, RANGE 47 EAST, M.D.B.&M., SECTION 30; GOVERNMENT LOT
2 OF THE NORTHWEST QUARTER (NW 1/4).
PARCEL
2:
THE
SOUTHEAST QUARTER (SE 1/4) OF THE NORTHWEST QUARTER (NW 1/4) AND
THAT PORTION SOUTH OF THE CENTER LINE OF BEAM AIRPORT ROAD, OF THE
NORTHEAST QUARTER (NE 1/4) OF TIM NORTHWEST QUARTER (NW 1/4) OF
SECTION 30, TOWNSHIP 12 SOUTH, RANGE 47 EAST, M.D.B.&M., AS
MORE FULLY SET FORTH IN THAT CERTAIN MAP ATTACHED AS EXHIBIT "AS"
TO THAT OFFER OF DEDICATION OF STREET/ROAD RIGHT-OF-WAY RECORDED ON
SEPTEMBER 28, 2007, AS FILE NO. 694944 OF NYE COUNTY,
NEVADA.
Assessor's
Parcel Nos. 018-37-16 and 018-37-17
This
Deed of Trust is given for the purpose of securing full and timely
performance of Trustor's obligations as set forth in that certain
Industrial Real Estate Lease (Multi-Tenant Facility) dated April
-1.kt
2018, and specifically Tenant's obligations set forth in Sections
6.06 and 13.18 thereof. A copy of said Lease is attached hereto as
Exhibit "A" and incorporated herein by this reference. In the event
of default as set forth in the Lease, and resulting foreclosure,
Beneficiary shall be entitled to credit bid all amounts reasonably
expended in connection with the referenced Sections of the Lease,
including without limitation any attorney fees and costs incurred
together with any foreclosure fees, costs or expenses
incurred.
The undersigned Trustor requests that a copy of any Notice of
Default and of any Notice of Sale hereunder be mailed to 2548 W.
Desert Inn Road, Las Vegas, Nevada 89109 hereinbefore set
forth.
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MM DEVELOPMENT COMPANY,
INC
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By:
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/s/ Robert A.
Groesbeck
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Its:
President
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INDUSTRIAL REAL ESTATE LEASE
(Multi- Tenant Facility)
ADDENDUM:
This
addendum is made this 23rd day of April, 2018,
and is added to and amends that certain agreement and between MM
Development Company, Inc. as Tenant [REDACTED] Landlord, which
agreement is dated 23rd day of April,
2018.
Recitals
WHEREAS,
the lease requires the signatures of Robert Groesbeck and Larry
Scheffler as co-CEOs of Planet 13 Holdings, Inc., which entity
exists at this time under the name of Carpincho Capital Corp., a
Canadian public company.
WHEREAS,
MM Development Company, Inc. has engaged in a reverse take-over
process with Carpincho Capital Corp., with the share exchange
agreement anticipated to be signed on or around April 26, 2018, and
public disclosures have been made regarding a subsequent name
change of Carpincho Capital Corp. to Planet 13 Holdings, Inc., and
that the Canadian public company will be a tenant at the facilities
described herein.
WHEREAS,
MM Development Company, Inc. is indirectly owned 47% by Robert
Groesbeck, 47% by Larry Scheffler, and 6% by Chris Wren, all of
whom have approved and committed to the reverse take-over
transaction.
WHEREAS,
pursuant to the reverse take-over transaction, Robert Groesbeck and
Larry Scheffler will hold a majority of the shares of Carpincho
Capital Corp., and have agreements to be appointed as the co-CEO's
of Carpincho Capital Corp. for a term of 5 years, and further are
designated as directors of the public company following the close
of the transaction.
WHEREAS,
immediately after the consummation of the reverse take-over,
Carpincho Capital Corp. shall file a name change to Planet 13
Holdings, Inc.
NOW
THEREFORE, Robert Groesbeck and Larry Scheffler, individually, do
hereby covenant and agree as follows:
1. Upon
appointment as co-CEOs of Planet 13 Holdings, Inc., they shall
immediately execute this lease agreement as corporate officers of
Planet 13 Holdings, Inc. and Planet 13 Holdings, Inc. shall have
all obligations and rights arising under this lease upon such
execution.
2. They
shall notify all investors and make such disclosures as necessary
to put all parties on notice, public or otherwise, that a requisite
event of the reverse take-over described in the recitals to this
lease addendum includes that Planet 13 Holdings, Inc. shall enter
into the lease agreement as a tenant on or immediately after the
close of the reverse take-over transaction.
By:
/s/ Robert A.
Groesbeck
Date:
4-23-18
Robert A. Groesbeck, individually
By:
/s/
Larry Scheffler
Date:
4-23-18
Larry Scheffler, individually
INDUSTRIAL REAL ESTATE LEASE
(Multi-
Tenant Facility)
ADDENDUM, page 2:
Addendum acknowledged and accepted by:
"LANDLORD"
[REDACTED]
Exhibit 10.2
LEASE AGREEMENT
THIS
LEASE AGREEMENT (the “Lease”) is made this
30th day
of August, 2014, by and between FARGO DISTRICT HOLDINGS, LLC, a
Nevada limited liability company, (hereinafter called
“Landlord”), and MM DEVELOPMENT COMPANY, LLC, a Nevada
limited liability company, (hereinafter called
“Tenant”).
WITNESSETH:
SECTION 1.
PARTIES
1.1 Landlord.
Landlord warrants that it owns the Premises and has full right and
power to execute and deliver this Lease without the consent or
agreement of any other person, and those persons executing this
Lease on behalf of Landlord have the right and power to execute and
deliver this Lease.
1.2 Tenant. Tenant warrants that
Tenant has full right and power to execute and deliver this Lease
without the consent or agreement of any other person, and that
those persons who have executed and delivered this Lease have the
authority and power to execute this lease on Tenant’s behalf
and deliver this Lease to Landlord.
SECTION 2.
PREMISES
2.1 Description.
The Premises herein leased (hereinafter called the
“Premises”) are legally
described in Exhibit “A” attached hereto and made a
part hereof. The Premises also include the building(s) and
improvements on the land area described in Exhibit “A”.
Landlord also grants to Tenant, its customers, guests, invitees
employees, and licensees all easements, rights and privileges
appurtenant thereto, including the right to use the parking areas,
driveways, roads, alleys and means of ingress and egress. The
Premises are located at 4280 Wagon Trail Avenue, Las Vegas, NV,
also identified as APN: 177-06-501-008.
2.2 Quiet Enjoyment. Landlord
agrees to warrant and defend Tenant in the quiet enjoyment and
possession of the Premises during the term of this Lease so long as
Tenant complies with the provisions hereof.
SECTION 3.
TERM: OPTION TO EXTEND
3.1 Lease
Commencement Date. The term of this Lease shall commence on
the date referenced above (the “Lease Commencement
Date”), with rent payments to commence upon issuance of
applicable certificates of occupancy issued by the local governing
authority, and shall terminate on December 31, 2034, (the
“Lease Termination Date”), which is the last day of the
month preceding the twentieth (20th) anniversary day of the Lease
Commencement Date unless extended by Tenant in accordance with any
extension option contained in this Lease or any rider thereto or
unless terminated in accordance with the provisions
hereof.
3.2 Extension Terms. Tenant shall
have the right to extend the term of this Lease for two (2)
additional terms of five (5) years each (the “Extension
Terms”) in its sole discretion upon delivering written notice
to the Landlord of its intent to exercise this option to extend not
less than twelve (12) months before the expiration date of the
initial term or of any previously exercised Extension Term of this
Lease. If Tenant exercises any of the Extension Terms in the manner
provided for in this paragraph, then the Lease shall terminate five
(5) years after the Lease Termination Date or the end of the
previously exercised Extension Term unless a subsequent Extension
Term is exercised, and all provisions of this Lease shall be
applicable to the Extension Terms.
3.3 Prorations. If any payments,
rights or obligations hereunder (whether relating to payment of
rent, taxes, insurance, other impositions, or to any other
provision of this Lease) relate to a period in part before the
Lease Commencement Date or in part after the date of expiration or
termination of the term, appropriate adjustments and prorations
shall be made.
3.4 Surrender at End of Term. Upon
the last day of the Lease term or upon the earlier termination of
this Lease pursuant to the provisions hereof and irrespective of
when and how such termination occurs, Tenant shall surrender and
deliver to Landlord the Premises and all buildings and improvements
thereon other than Tenant’s Property, without delay, broom
clean and in good order, condition and repair, reasonable wear and
tear and damage due to casualty excepted, whereupon Tenant shall
have no further right, title or interest in and to said Premises.
Any trade fixtures, business equipment, inventory, trademarked
items, signs and other removable personal property located or
installed in or on the Premises (“Tenant’s
Property”) shall be removed by Tenant on or before the last
day of the Lease term or upon the earlier termination of this Lease
pursuant to the provisions hereof, and Tenant shall repair any
damage occasioned by the removal of Tenant’s
Property.
SECTION 4.
RENT
4.1 Rent.
Commencing on the date (“Rent Commencement Date”) which
is thirty (30) days from issuance of certificate of occupancy from
the local governing authority, Tenant covenants and agrees to pay
to Landlord in lawful money of the United States of America, during
each Lease year, an annual rental of One Hundred Sixteen Thousand
and No/100 ($116,000), (the “Rent”). The Rent shall be
payable in equal monthly installments of Nine Thousand Six Hundred
Sixty Six and 67/100 ($9,666.67) each, in advance on or before the
first day of each and every calendar month of the term of this
Lease. The Rent shall be paid in addition to and over and above all
other payments to be made by Tenant herein. The first Lease year
shall be a full year commencing on the Lease Commencement Date and
each following Lease year shall be an annual period commencing on
the anniversary date of the Lease Commencement Date. Appropriate
proration shall be made if the Lease Commencement Date is not on
the first day of a calendar month, or if the date of termination of
the Lease is not on the last day of a calendar month.
4.2 Rental Adjustments. The Rent
shall be adjusted on the first day of the thirteenth (13th) month
following the calendar month in which the Rent Commencement Date
occurs (the “Anniversary Dale”) and on the first day of
each and every Anniversary Date thereafter for the term of the
Lease, plus any option periods, in accordance with the Consumer
Price Index for All Urban Consumers (the “CPI-U”) as
published by the Bureau of Labor Statistics, Washington, D.C. On
the First Anniversary Date thereafter, the Rent shall be adjusted
to equal the Current Rent then payable, plus the increased amount
in accordance with the CPI-U adjustment for the preceding year. In
no case, however, shall the Rent be decreased by any decrease in
the CPI-U. Following each Anniversary Date, the adjusted Rent shall
be due and payable for each and every month of the adjustment
period commencing with the respective Anniversary
Date.
4.3 Taxes.
(a) Tenant shall be
responsible for the payment of all real property taxes and
assessments (“Real Estate Taxes”) levied against the
Premises by any governmental or quasi- governmental authority,
which are due and payable during the Term hereof, except as set
forth herein. Real Estate Taxes shall include any taxes,
assessments, surcharges, or service or other fees of a nature not
presently in effect which shall hereinafter be levied on the
Premises as a result of the use, ownership, or operation of the
Premises or for any other reason, whether in lieu of or in addition
to any current real estate taxes and assessments. Any special
assessments will be amortized over the maximum period allowed by
law or applicable tax rules, whichever is longer, and Real Estate
Taxes will include only the prorated and amortized amount, which
becomes due during the Term hereof. Real Estate Taxes shall exclude
any income, excess profits, single business, inheritance,
succession, transfer, franchise, capital, or other tax assessments
upon Landlord or Landlord’s interest in the Premises. If any
special assessment for a public improvement is assessed against the
Premises, Tenant shall be responsible for only that portion of the
assessment allocable to the Tenant based on the length of time that
a benefit is derived by the Tenant during the Term of the Lease
calculated against the useful life of the improvement.
(b) Tenant shall remit
all payments for Real Estate Taxes directly to the taxing or
assessing authority. Upon receipt of all tax bills and assessment
bills attributed to any calendar year during the Term hereof,
Landlord shall furnish Tenant with a copy of the tax bill or
assessment bill, so as to allow Tenant to take advantage of the
maximum payment discount available, if Tenant so
desires.
(c) Tenant will have
the right to contest the amount or validity, in whole or in part,
of any tax that Tenant is required to pay, in whole or in part, by
appropriate proceedings diligently conducted in good faith, only
after paying such tax or posting such security that Landlord
reasonably requires in order to protect the Premises against loss
or forfeiture. Upon the conclusion of any such protest proceedings,
Tenant will pay its share of the tax, as finally determined, in
accordance with this Lease, the payment of which tax may have been
deferred during the prosecution of the proceedings, together with
any costs, fees, interest, penalties, or other related liabilities.
Landlord will not be required to join in any contest or proceedings
unless the provisions of any law or regulations then in effect
require that the proceedings be brought by or in the name of
Landlord. In that event, Landlord will join in the proceedings or
permit them to be brought in its name; however, Landlord will not
be subjected to any liability for the payment of any costs or
expenses in connection with any contest or proceedings, and Tenant
will indemnify Landlord against and save Landlord harmless from any
costs and expenses in this regard.
4.4 Services and Utilities. Tenant
shall be solely responsible for providing all services and
utilities to the Premises, including, but not limited to: gas,
telephone, heating, air conditioning, electrical, waste disposal,
water, janitorial, lighting or other services, together with any
taxes or penalties thereon. In the event of any interruption,
reduction or discontinuance of services (either temporarily or
permanently), Landlord shall not be liable for damages to persons
or property as a result thereof, nor shall the occurrence of any
such event in any way be construed as an eviction of Tenant. If an
interruption of services which materially affects Tenant’s
use and enjoyment of the Premises continues for more than thirty
(30) consecutive calendar days, and such interruption is not due to
an act or omission of Tenant, Tenant shall have the right to
terminate this Lease upon written notice to Landlord, and shall
surrender the Premises to Landlord.
SECTION 5.
USE: COMP LIANCE WITH LAWS: MAINTENANCE AND REPAIRS
5.1 Use
of Premises. Tenant shall have the right to use the Premises
for any lawful purpose, including the cultivation and processing of
marijuana and marijuana-based products, as provided for in
pertinent regulations associated with medical marijuana
establishments. Tenant shall not commit waste on the Premises and
shall not use the Premises for any unlawful or improper purpose or
in violation of any certificate of occupancy or for any purpose
which may constitute a nuisance, public or private, nor suffer any
dangerous article to be brought on the Premises unless safeguarded
as required by law.
5.2 Compliance with Laws. Tenant
shall reasonably, promptly, and effectively comply with all
applicable and lawful statutes, regulations, rules, ordinances,
orders, and requirements of any public official or agency having
jurisdiction in respect of the Premises and Tenant’s specific
use thereof (herein referred to as “Governmental
Authorities”). Landlord shall promptly give notice to Tenant
of any written notice in respect of the Premises from Governmental
Authorities. Tenant may, in good faith, dispute the validity of any
complaint or action taken pursuant to or under color of any of the
foregoing, defend against the same, and in good faith diligently
conduct any necessary proceedings to prevent and avoid any adverse
consequence of the same. Tenant agrees that any such contest shall
be prosecuted to a final conclusion as speedily as possible, and
Tenant will indemnify and hold Landlord completely harmless with
respect to any actions taken by any Governmental Authorities with
respect thereto.
5.3 Maintenance and Repairs by
Tenant. Except as otherwise provided in section 5.4 below,
throughout the term of this Lease, Tenant shall, at Tenant’s
sole cost and expense, keep the Premises and all improvements in
good order, condition, and repair and shall make or cause to be
made all repairs to correct any damage thereto. Notwithstanding
anything to the contrary set forth herein, in no event shall Tenant
be responsible in any way for any of the following:
(a) Costs of repairs or
other work occasioned by fire, windstorm or other insured
casualty;
(b) Costs of repairs or
rebuilding necessitated by condemnation; and/or
(c) Any costs, fines,
or penalties relating to environmental investigation
or
(d) remediation on, in,
or under the Premises not resulting from the acts or omissions of
Tenant,
(e) its agents, and
contractors.
SECTION 6.
ALTERATIONS: LIENS: SIGNAGE
6.1 Alterations.
Tenant shall not make any structural alterations in the Premises
without Landlord’s prior written consent, not to be
unreasonably withheld or delayed. Tenant shall have the right to
make interior, non-structural alterations, and structural
alterations under $25,000.00, without Landlord’s
consent.
6.2 Liens. All persons are put on
notice of the fact that Tenant under no circumstances shall have
the power to subject the interest of Landlord in the Premises to
any mechanic’s or materialman’s lien, or liens of any
kind. All persons who hereafter, during the life of this Lease, may
furnish work, services, or materials to the Premises upon the
request or order of Tenant or any person claiming under, by or
through Tenant, must look wholly to the interest of Tenant and not
to that of Landlord. Tenant covenants and agrees with Landlord that
Tenant will not permit or suffer to be filed or claimed against the
interest of Landlord in the Premises during the continuance of this
Lease any lien or liens of any kind by any person claiming under,
by, through, or against Tenant; and if any such lien is claimed or
filed, it shall be the duty of Tenant, within sixty (60) days after
the claim of lien or suit claiming a lien has been filed, to cause
the Premises to be released from such claim, either through payment
or through bonding with corporate surety or through the deposit
into court, pursuant to statute, of the necessary sums of money, or
in any other way that will affect the release of Landlord’s
interest in the Premises from such claim.
6.3 Signage. Notwithstanding
anything to the contrary set forth in this Lease, 1 tenant shall
have the absolute right to install, at its sole cost, such signage
on the Premises as Tenant may deem necessary or appropriate,
subject to appropriate governmental approvals. Landlord agrees to
fully cooperate with Tenant in filing any required signage
application, permit, and/or variance for said signage or with
respect to the Premises generally.
SECTION 7.
INSURANCE
7.1 Types
of Insurance. Tenant shall, at its own cost and expense,
carry the following insurance
in respect to the Premises and improvements:
(a) Comprehensive
public liability insurance in an amount of not less than
$2,000,000.00 combined bodily injury and property damage liability;
and
(b) With respect to
improvements (if any), insurance against loss or damage by fire and
other risks covered by fire insurance with extended coverage
endorsements in an amount of the full insurable replacement value
of such improvements (exclusive of cost of excavation, foundation,
and footings below the ground floor and without deduction for
depreciation) and in amounts sufficient to prevent Landlord or
Tenant from becoming a coinsurer under such policies of
insurance.
7.2 Provisions Applicable to All
Insurance. With respect to all insurance required to be
maintained hereunder by Tenant:
(a) Each such policy
shall name Landlord, Tenant, and any mortgagee as insured as their
interests appear and shall contain a Standard Mortgagee Clause
reasonably satisfactory to Landlord;
(b) Tenant shall, at
Tenant’s sole cost and expense, observe and comply with all
policies of insurance in force with respect to the Premises and
improvements; and
(c) Upon
Landlord’s request, Tenant shall send to Landlord
certificates of insurance or receipts or other evidence
satisfactory to Landlord showing the payments of all premiums and
other charges due thereon.
7.3 Landlord’s Right to Obtain
Insurance. If Tenant shall fail to maintain any such
insurance required hereunder, Landlord may, at Landlord’s
election, after ten (10) days’ written notice to Tenant,
procure the same, adding the premium cost to the monthly
installment of rental next due, it being hereby expressly
covenanted and agreed that payment by Landlord of any such premium
shall not be deemed to waive or release the obligation of Tenant to
make payment thereof. Tenant’s failure to either procure or
maintain the insurance required hereunder, after thirty (30)
days’ written notice from Landlord to Tenant, shall
constitute a default by Tenant under this Lease.
7.4 Use of Insurance Proceeds. Any
insurance proceeds recovered by reason of damage to or destruction
of the Premises or improvements thereto, improvements shall be made
available to Tenant and must be used to repair, restore or replace
the Premises and improvements so damaged or destroyed with any
excess proceeds made available to Tenant.
7.5 Damage or Destruction. If the
Premises (including improvements) are damaged to the extent of 50%
or more of its insurable value, Landlord may, in its sole
discretion, elect (a) to repair or restore the Premises
improvements, (b) to construct new Premises and improvements, or to
terminate this Lease without liability to either party. If Landlord
elects to repair or restore the Premises and improvements or
construct new Premises or improvements, it shall do so promptly and
Tenant shall receive an abatement of rent in proportion to the
extent of the damage until such time as the repair, restoration or
reconstruction is completed, but in no event shall Landlord’s
repair, restoration or reconstruction take, nor shall the rent
abatement period exceed, one hundred eighty (180) days. If Landlord
elects to terminate this Lease, Landlord shall so notify Tenant
within thirty (30) days after the damage occurs, whereupon Landlord
shall be entitled to all proceeds of insurance and right of
recovery against insurers covering such damage.
7.6 Subrogation. Landlord and
Tenant shall each obtain from their respective
insurers
under all policies of fire, theft, public liability, workers’
compensation and other insurance maintained by either of them at
any time during the term hereof insuring or covering the Premises,
a waiver of all rights of subrogation which the insurer of the
party might otherwise have, if at all, against the other
party.
SECTION 8.
EMINENT DOMAIN
If any
portion of the Premises which materially affects Tenant’s
ability to continue to use the remainder thereof for the purposes
set forth herein, or which renders the Premises untenantable, is
taken by right of eminent domain or by condemnation, or is conveyed
in lieu of any such taking, then this Lease may be terminated at
the option of either Party. Such option shall be exercised by
giving notice to the other Party of such termination within 30 days
after such taking or conveyance; whereupon this Lease shall
forthwith terminate and the Rent shall be duly apportioned as of
the date of such taking or conveyance. Upon such termination,
Tenant shall surrender to Landlord the Premises and all of
Tenant’s interest therein under this Lease, and Landlord may
re-enter and take possession of the Premises or remove Tenant
therefrom. If any portion of the Premises is taken which does not
materially affect Tenant’s right to use the remainder of the
Premises for the purposes set forth herein, this Lease shall
continue in full force and effect, and Landlord shall promptly
perform any repair or restoration work required to restore the
Premises, insofar as possible, to its former condition, and the
rental owing hereunder shall be adjusted, if necessary, in such
just manner and proportion as the part so taken (and its effect on
Tenant’s ability to use the remainder of the Premises) bears
to the whole. In the event of taking or conveyance as described
herein, Landlord shall receive the award or consideration for the
lands and improvements so taken; provided, however, that Landlord
shall have no interest in any award made for Tenant’s loss of
business or value of its leasehold interest or for the taking of
Tenant’s fixtures or property, or for Tenant’s
relocation expenses. Landlord and Tenant shall cooperate with one
another in making claims for condemnation awards.
SECTION 9.
ASSIGNMENT AND SUBLETTING: ATTORNMENT: TENANT
FINANCING
9.1 Assignment
by Landlord. At any time, Landlord may sell its interest in
the Premises or assign this Lease or Landlord’s reversion
hereunder, either absolutely or as security for a loan, without the
necessity of obtaining Tenant’s consent or permission, but
any such sale or assignment shall be at all times subject to this
Lease and the rights of Tenant hereunder.
9.2 Assignment and Subletting by
Tenant. Tenant shall have the right to assign,
sublet,
or otherwise transfer its interest in this Lease and its rights
hereunder to any entity or person with Landlord’s prior
written consent, which shall not be unreasonably withheld,
conditioned, or delayed. Notwithstanding the foregoing, Tenant may
assign, sublet, or otherwise transfer its interest in this Lease,
without Landlord’s consent, written or otherwise, to any (i)
parent, subsidiary, or affiliate of Tenant, or to a corporation or
other business entity with which Tenant may merge, amalgamate, or
consolidate, or (ii) entity in which the Premises is intended to be
leased back by such entity to Tenant, or any parent, subsidiary, or
affiliate of Tenant, or to a corporation or other business entity
with which Tenant may merge, amalgamate, or consolidate. This Lease
contains no provision restricting, purporting to restrict, or
referring in any manner to a change in control or change in
shareholders, directors, management, or organization of Tenant, or
any subsidiary, affiliate, or parent of Tenant, or to the issuance,
sale, purchase, public offering, disposition, or recapitalization
of the capital stock of Tenant, or any subsidiary, affiliate, or
parent of Tenant. In the event of any transfer, sublet, or
assignment of Tenant’s interest in this Lease, Tenant shall
remain liable for all obligations hereunder.
9.3 Attornment. Any assignee of
Landlord or Tenant hereby agrees to attorn to the Tenant or
Landlord, respectively, as the case may be.
9.4 Tenant Financing. Tenant shall
have the absolute right from time to time during the Term hereof to
grant and assign a mortgage or other security interest in
Tenant’s interest in this Lease with the prior written
consent of the Landlord, not to be unreasonably withheld, and
without Landlord’s further approval, written or otherwise,
all of Tenant’s property located on or used in connection
with the Premises to Tenant’s lenders in connection with
Tenant’s financing arrangements. Landlord agrees to execute
such confirmation certificates and other documents (except
amendments to this Lease unless Landlord hereafter consents) as
Tenant’s lenders may reasonably request in connection with
any such financing.
SECTION 10.
DEFAULT AND REMEDIES
10.1 Events
of Default. If:
(a) Tenant shall
default in the due and punctual payment of the Rent, insurance
premiums or impositions of any other amounts or rents due under
this Lease or any part thereof, and such default shall continue for
sixty (60) days after notice thereof in writing to Tenant;
or
(b) Tenant shall
default in the performance or in compliance with any of the other
covenants, agreements, or conditions contained in this Lease and
such default shall not be cured within sixty (60) days after notice
thereof in writing from Landlord to Tenant; or
(c) Tenant shall file a
petition for voluntary bankruptcy or under Chapter VII or XI of the
Federal Bankruptcy Act or any similar law, state or federal,
whether now or hereafter existing, or an answer admitting
insolvency or inability to pay its debts, or fail to obtain a
vacation or lift of stay of involuntary proceedings within ninety
(90) days after the involuntary petition is filed; or
(d) Tenant shall be
adjudicated a bankrupt, or a trustee or receiver shall be appointed
for Tenant or for all of its property or the major part thereof in
any involuntary proceedings, or any court shall have taken
jurisdiction of the property of Tenant or the majority part thereof
in any involuntary proceeding for reorganization, dissolution,
liquidation, or winding up of Tenant, and such trustee or receiver
shall not be discharged or such jurisdiction relinquished or
vacated or stayed on appeal or otherwise within ninety (90) days;
or
(e) Tenant shall make
an assignment for the benefit of its creditors; then and in any
such event referred to in clauses (a), (b), (c), (d) or (e) above,
Landlord shall have the remedies with respect to the Premises as
set forth below.
10.2 Landlord’s
Remedies Upon Default. Upon the occurrence of an Event of
Default by Tenant, then Landlord shall be entitled to the following
remedies:
(a) Landlord may
terminate this Lease by giving written notice of termination to
Tenant, in which event Tenant shall immediately surrender the
premises to Landlord. If Tenant fails to so surrender the Premises,
then Landlord may, without prejudice to any other remedy it has for
possession of the Premises or arrearages in rent or other damages,
re-enter and take possession of the Premises and expel or remove
Tenant and any other person occupying the Premises or any part
thereof, in accordance with applicable law; or
(b) Landlord may
re-enter and take possession of the Premises without terminating
the Lease in accordance with applicable law, and relet the Premises
and apply the Rent received to the account of Tenant. In the event
Landlord so re-enters and takes possession of the Premises as set
forth above, Landlord agrees to use reasonable efforts to relet the
Premises for a commercially reasonable rate at the lime of such
reletting. No reletting by Landlord is considered to be for
Landlord’s own account unless Landlord has notified Tenant in
writing that this Lease has been terminated. In addition, no such
reletting is to be considered an acceptance of Tenant’s
surrender of the Premises or a release of Tenant’s obligation
to pay Rent and all other charges payable hereunder (which
obligation Tenant agrees shall continue), unless Landlord so
notifies Tenant in writing.
(c) Landlord shall have
the right to accelerate the Rent and other amounts payable
hereunder should Tenant become more than two (2) months delinquent
in the payment of Rent or such other amounts payable, after the
expiration of notice and all cure periods hereunder. Landlord shall
have the right to sue Tenant for any consequential, punitive or
incidental damages including, without limitation, any claims for
lost profits and/or lost business opportunity. If Landlord does
accelerate the Rent or such other charges due hereunder, then the
accelerated rent shall be an amount equal to the Rent payable over
the balance of the Lease Term (as if this Lease had not been
terminated) less the fair rental value of the Premises for the
corresponding period. The accelerated rent shall be discounted to
the date payable at an annual interest rate equal to the prime rate
as published from time to time in the Money Section of the Wall
Street Journal, or if the same is not published, then at the prime
rate published by Bank of America in Nevada. Upon payment of the
accelerated rent discounted to present value, Tenant shall be
released from all further liability under this Lease.
10.3 Mitigation
of Damages. In the event that a right of action by Landlord
against Tenant arises under this Lease, Landlord shall attempt to
mitigate damages by using its best efforts to seek to relet the
Premises.
10.4 Landlord’s
Default. The failure of Landlord to perform any covenant,
condition, agreement, or provision contained herein within sixty
(60) days after receipt by Landlord of written notice of such
failure shall constitute an “Event of Default”
hereunder. Upon the occurrence and continuance of an Event of
Default, Tenant may, at its option and without any obligation to do
so, other than those obligations created in this document, elect
any one or both of the following remedies:
(a) Terminate and
cancel this Lease; or
(b) Pursue any other
remedy now or hereafter available at law or in equity
(c) in the state in
which the Premises are situated.
SECTION 11.
OTHER PROVISIONS
11.1 Remedies
to Be Cumulative. No remedy conferred upon or reserved to
Landlord or Tenant shall be considered exclusive of any other
remedy, but the same shall be cumulative and shall be in addition
to every other remedy given under this Lease or now or hereafter
existing at common law or by statute. Every power and remedy given
Landlord or Tenant may be exercised from time to time and as often
as occasion may arise or may be deemed expedient.
11.2 Notices.
All notices, requests, demands, or other communications which may
be or are required or permitted to be served or given hereunder (in
this Article collectively called “Notices”) shall be in
writing and shall be sent by registered or certified mail, return
receipt requested, postage prepaid, or by a nationally recognized
overnight delivery service to Tenant or to Landlord at the address
set forth below. Either party may, by Notice given as aforesaid,
change its address for all subsequent Notices. Notices shall be
deemed given when received in accordance herewith.
If to
Landlord:
|
Fargo
District Holding, LLC
14
Highland Creek Dr.
Henderson,
NV 89052
Attn:
Larry Scheffler
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If to
Tenant:
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MM
Development Company, LLC
205 N.
Stephanie St,
Ste
D-126
Henderson,
NV 89074
Attn:
Robert A. Groesbeck
|
11.3 No
Broker. Landlord and Tenant each warrant to the other that
no broker or agent has been employed with respect to this Lease and
each agrees to indemnify and hold the other harmless from any
claims by any broker or agent claiming compensation in respect of
this Lease alleging an agreement by Landlord or Tenant, as the case
may be.
11.4 Waiver
of Jury Trial. Landlord and Tenant waive trial by jury in
any action or proceeding brought by either of the parties hereto
against the other or on any counterclaim in respect thereof on any
matters whatsoever arising out of or in any way connected with the
Lease, the relationship of Landlord and Tenant, Tenant’s use
or occupancy of the Premises and/or any claim of injury or damage
under this Lease.
11.5 No
Partnership. Landlord shall not be construed or held to be a
partner or associate of Tenant in the conduct of Tenant’s
business, it being expressly understood and agreed that the
relationship between the parties hereto is and shall at all times
remain, during the Lease term, that of Landlord and
Tenant.
11.6 Non-Waiver.
No failure by Landlord or Tenant to insist upon the performance of
any covenant, agreement, provision, or condition of this Lease or
to exercise any right or remedy, consequent upon a default
hereunder, and no acceptance of full or partial rent during the
continuance of any such default, shall constitute a waiver of any
such default or of such covenant, agreement, provision, or
condition. No waiver of any default shall affect or alter this
Lease, but each and every covenant, agreement, provision, and
condition of this Lease shall continue in full force and effect
with respect to any other then-existing or subsequent default
hereunder.
11.7 Gender
and Number. Words of any gender used in this Lease shall be
held to include another gender and words in the singular number
shall be held to include the plural and words in the plural shall
be held to include the singular, when the sense
requires.
11.8 Captions.
The captions, titles, article, section, or paragraph headings are
inserted only for convenience and they are in no way to be
construed as a part of this Lease or as a limitation on the scope
of the particular provisions to which they refer.
11.9 Governing
Law. This Lease is made pursuant to, and shall be governed
by, and construed in accordance with, the laws of the State of
Nevada.
11.10 Successors
and Assigns. The covenants, conditions, and agreements in
this Lease shall bind and inure to the benefit of Landlord and
Tenant and, except as otherwise provided in this Lease, their
respective heirs, devisees, executors, administrators, legal
representatives, distributees, successors, and
assigns.
11.11 Amendment.
Any agreement hereafter made shall be ineffective to change,
modify, or discharge this Lease in whole or in part unless such
agreement is in writing and signed by the party against whom
enforcement of the change, modification, or discharge is
sought.
11.12 Hazardous
Materials. Tenant shall not do anything throughout the term
of this Lease and any extension thereof that will violate any
Environmental Laws (defined below). Tenant shall indemnify, defend,
and hold harmless Landlord, its directors, officers, employees,
agents, and assignees or successors to Landlord’s interest in
the Premises, their directors, officers, employees, and agents from
and against any and all losses, claims, suits, damages, judgments,
penalties, and liability including, without limitation, (i) all
out-of-pocket litigation costs and reasonable attorneys’
fees, (ii) all damages (including consequential damages), directly
or indirectly arising out of the use, generation, storage, release
or threatened release or disposal of Hazardous Materials by Tenant,
its agents and contractors, and (iii) the cost of and the
obligation to perform any required or necessary repair, clean-up,
investigation, removal, remediation or abatement, and the
preparation of any closure or other required plans, to the full
extent that such actions is attributable, directly or indirectly,
to the use, generation, storage, release, or threatened release or
disposal of Hazardous Materials by Tenant, its agents, and
contractors. This indemnification obligation of Tenant does not
extend to any repair, clean-up, investigation, removal,
remediation, or abatement of Hazardous Materials (i) which were
present on, under, or in the Premises before or on the Lease
Commencement Date or (ii) for which Landlord is otherwise obligated
to indemnify Tenant pursuant to this Paragraph 11.13, Hazardous
Materials shall include but not be limited to substances defined as
“hazardous materials,” or “toxic
substances” in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C.
Section 9601, et.seq.\ the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et. seq.\ the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et.seq.\ the common law; and any and all
state, local, or federal laws, rules, regulations, and orders
pertaining to environmental, public health, or welfare matters, as
the same may be amended or supplemented from time to time
(collectively, the “Environmental Laws”). Any terms
mentioned in this Lease which are defined in any applicable
Environmental Laws shall have the meanings ascribed to such terms
in such laws, provided, however, that if any such laws are amended
so as to broaden any term defined therein, such broader meaning
shall apply subsequent to the effective date of such
amendment.
In the
event any clean-up, investigation, removal, remediation, abatement,
or other similar action on, in, or under the Premises is required
by an governmental or quasi-governmental agency as a result of the
actions or omissions of any party other than Tenant or its agents,
contractors or invitees before or after the Lease Commencement Date
and such action requires that Tenant be closed for business for
greater than a 24-hour period, or if access to the Premises as a
result of such action is materially adversely affected for a period
in excess of 24 hours, then Tenant’s rental and other payment
obligations under this Lease shall be abated entirely during the
period beyond the 24 hours that Tenant is required to be closed for
business or abated in proportion to the amount of lost business
suffered by Tenant if access to the Premises is
impaired.
The
provisions of this Paragraph 11.13 shall survive the expiration or
sooner termination of this Lease.
11.13 Attorney’s
Fees. In the event that at any time during the Term of this
Lease either Landlord or Tenant shall institute any action or
proceeding against the other relating to the provisions of this
Lease, or any default hereunder, the unsuccessful party in such
action or proceeding agrees to reimburse the successful party for
the reasonable expenses of attorney’s fees and paralegal fees
and disbursements incurred therein by the successful party. Such
reimbursement shall include all legal expenses incurred in
arbitration, prior to trial, at trial, and at all levels of appeal
and post judgment proceedings.
11.14 Counterparts.
This Lease may be executed in any number of counterparts, each of
which shall be an original but all of which shall constitute one
and the same instrument. A telecopy signature of any party shall be
considered to have the same binding legal effect as an original
signature.
11.15 Severability.
In the event that any term, section, subsection, paragraph,
sentence, or clause of this Lease is held invalid or unenforceable,
such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Lease.
11.16 Lease
Recordation. No recordation of this Lease nor a Memorandum
of Lease is permitted at any time.
11.17 Time.
All terms are expressly deemed material to this Lease and time is
of the essence with respect to the performance of all obligation to
be performed or observed by the Parties hereto.
IN
WITNESS WHEREOF, on the day and year first written above, Landlord
and Tenant have duly executed this Lease under seal as their free
act and deed.
LANDLORD:
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|
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TENANT:
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FARGO DISTRICT
HOLDING, LLC
|
|
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MM
DEVELOPMENT COMPANY, LLC
|
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a Nevada Limited Liability Corporation
|
|
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a
Nevada Limited Liability Corporation
|
|
|
|
|
|
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/s/ Larry
Scheffler
|
|
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/s/ Robert A.
Groesbeck
|
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Larry
Scheffler
|
|
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Robert A.
Groesbeck
|
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Manager
|
|
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President
|
|
EXHIBIT “A”
Legal Description
THAT PORTION OF THE NORTHWEST QUARTER (NW 1/4)
OF THE NORTHEAST QUARTER (NE 1/4)
OF SECTION 6, TOWNSHIP 22 SOUTH, RANGE 61 EAST, M.D.B. & M.,
DESCRIBED AS FOLLOWS:
LOT TWO (2) AS SHOWN BY THE MAP THEREOF IN FILE 103 OF PARCEL MAPS,
PAGE 79, IN THE OFFICE OF THE COUNTY RECORDER, CLARK COUNTY,
NEVADA.
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE AGREEMENT (this
“Amendment”) is made as of the 1st
day of January 2018, between Fargo
District Holdings LLC, a Nevada limited liability company
(“Landlord”), and MM Development Company, LLC, a Nevada
limited liability
company(“Tenant”).
PRELIMINARY STATEMENTS
A.
Landlord
and Tenant are parties to that certain Lease Agreement, dated
August 30, 2014 (the “Lease”), under which Tenant
leased certain premises located at 4280 Wagon Trail Avenue, Las
Vegas, Nevada, including, without limitation, the building and
improvements located thereon.
B.
Landlord
and Tenant desire to enter into this Amendment for the purpose of
clarifying the Premises under Section 2.1 and the related Exhibit
“A”, clarifying the Rental under Section 4.1, and
modifying the Rental Adjustments provision under Section 4.2 to the
Lease.
NOW,
THEREFORE, for good and valuable consideration and for the
covenants and conditions of this Amendment, the receipt and
sufficiency of which are hereby conclusively acknowledged, Landlord
and Tenant agree as follows:
1.
Recitals.
The above recitals are true and correct and are agreed to by
Landlord and Tenant as if such recitals were fully set forth
herein.
2.
Terms.
All undefined capitalized terms herein shall have the same meaning
as defined in the Lease.
3.
Description.
Section 2.1 of the Lease is hereby
amended and restated in its entirety as
follows:
“The Premises herein leased (hereinafter called the
“Premises”) are legally described in Exhibit
“A” attached hereto and made a part of hereof. The
Premises also include the building(s) and improvements on or to be
constructed on the land area described in Exhibit “A”.
Landlord also grants to Tenant, its customers, guests, invites,
employees and licensees all easements, rights and privileges
appurtenant thereto, including the right to use the parking areas,
driveways, roads , alleys and means of ingress and egress. The
Premises are located at 4280 Wagon Trail Avenue, Suite B, Las
Vegas, Nevada, 89118 and include approximately 2,000 square feet of
office space located at 4280 Wagon Trail Avenue, Suite A, Las
Vegas, Nevada, 89118.”
4.
Rent.
Section 4.1 of the Lease is hereby amended and restated in its
entirety as follows:
“Commencing on the date (“Rent Commencement
Date”) which is thirty (30) days from issuance of a
certificate of occupancy from the local governing authority, Tenant
covenants and agrees to pay to Landlord in lawful money of the
United States of America, during each Lease year, an annual rental
of One Hundred Nineteen Thousand Seven Hundred Twenty Seven and
84/100 Dollars ($119,727.84), (the “Rent”). The Rent
shall be payable in equal monthly installments of Nine Thousand
Nine Hundred Seventy Seven and 32/100 Dollars ($9,977.32) each, in
advance on or before the First day of each and every calendar month
of the term of this Lease. The Rent shall be paid in addition to
and over and above all other payments to be made by Tenant herein.
The first Lease year shall be a full year commencing on the Lease
Commencement Date and each following Lease year shall be an annual
period commencing on the anniversary date of the Lease Commencement
Date. Appropriate proration shall be made if the Lease Commencement
Date is not on the First day of a calendar month, or if the date of
termination of the Lease is not on the last day of a calendar
month.”
5.
Rental
Adjustments. Pursuant to this
Amendment to Lease, the Rent shall be adjusted to equal the rent
then currently payable, plus an increased amount as
follows:
January 1, 2018 and each year
thereafter
3.0%
6.
Exhibit
“A”. Exhibit
“A” to the Lease is hereby deleted in its entirety and
replaced with a new Exhibit “A” as attached to this
Amendment to Lease.
7.
Ratification of
Lease. Unless expressly
modified herein, all conditions of the Lease are hereby ratified
and reaffirmed in their entirety.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first written above.
LANDLORD:
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TENANT:
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FARGO DISTRICT
HOLDING, LLC
|
|
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MM DEVELOPMENT
COMPANY, LLC
|
|
a Nevada Limited Liability
Corporation
|
|
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a Nevada Limited Liability
Corporation
|
|
|
|
|
|
|
/s/ Larry
Scheffler
|
|
|
/s/ Robert A.
Groesbeck
|
|
Larry Scheffler
|
|
|
Robert A.
Groesbeck
|
|
Manager
|
|
|
President
|
|
EXHIBIT “A”
Legal Description
THAT PORTION OF THE NORTHWEST QUARTER (NW 1/4)
OF THE NORTHEAST QUARTER (NE 1/4)
OF SECTION 6, TOWNSHIP 22 SOUTH, RANGE 61 EAST, M.D.B. & M.,
DESCRIBED AS FOLLOWS:
LOT TWO (2) AS SHOWN BY THE MAP THEREOF IN FILE 103 OF PARCEL MAPS,
PAGE 79, IN THE OFFICE OF THE COUNTY RECORDER, CLARK COUNTY, NEVADA
AND MORE COMMONLY REFERRED TO AS 4280 WAGON TRAIL AVENUE, SUITE B,
LAS VEGAS, NV 89118 PLUS +/- 2,000 SQUARE FEET OF OFFICE SPACE
LOCATED AT 4280 WAGON TRAIL AVENUE, SUITE A, LAS VEGAS, NEVADA,
89118.
SECOND AMENDMENT TO LEASE AGREEMENT
This SECOND AMENDMENT TO LEASE AGREEMENT (the
“Amendment”) is entered into and made as of the
14th
day of September,
2018, by and between
FARGO DISTRICT
HOLDINGS, LLC, a Nevada limited
liability company (“Landlord”), and MM DEVELOPMENT COMPANY,
INC., a Nevada corporation
(successor to MM Development Company, LLC, a Nevada limited
liability company, pursuant to Articles of Conversion, dated March
14, 2018) (“Tenant”).
RECITALS
WHEREAS, Landlord and Tenant
entered into a Lease Agreement dated August 30,
2014, hereinafter called the
“Original
Lease”, and a subsequent
Amendment to Lease Agreement, dated January 1, 2018 and with the
foregoing, collectively, the “Lease”.
STATEMENT OF AGREEMENT
WHEREAS, Landlord and Tenant
desire to modify and amend the Lease by this further
Amendment.
NOW THEREFORE, in consideration
of the mutual covenants herein set forth, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as
follows:
1. Section 2.1,
PREMISES. Section 3 of the
Amendment to Lease, dated January 1, 2018 is hereby amended in its
entirety and restated as follows: That certain portion of the
Project (as defined below), including all improvements therein,
commonly known by the street address of 4280 Wagon Trail Avenue,
Suite B, located in the city of Las Vegas, County of Clark, State
of Nevada, with zip code 89118 (the “Premises”) and generally described as approximately
12,348 square feet of two-story office/lab space (see
Exhibit A
attached hereto) located within the
4280 Wagon Trail building, which totals approximately 25,372 square
feet. In addition to Tenant’s rights to use and occupy the
Premises as described in the Lease, Tenant shall have non-exclusive
rights to any utility raceways of the building and to the common
areas. The Premises, the building, the common areas and the land
upon which they are located, are herein collectively referred to as
the “Project.”
2. Section 2.1, PREMISES;
PARKING. Tenant shall be
entitled to use a maximum of twenty-five (25)
parking spaces on those
portions of the common areas designated from time to time by
Landlord for parking. Said parking spaces shall be used for parking
by vehicles no larger than full-size passenger automobiles or
pick-up trucks, hereinafter called “Permitted Size
Vehicles.” No vehicles
other than Permitted Size Vehicles may be parked in the common
areas without the prior written permission of the Landlord, except
for temporary parking (no longer than 48 hours in length) will be
permitted for trucks and vans in connection with shipping and
deliveries. In addition, Tenant shall not permit or allow any
vehicles that belong to or are controlled by Tenant or
Tenant’s employees, suppliers, shippers, customers,
contractors or invitees to be loaded, or parked in areas other than
those designated by Landlord for such activities and in no event,
shall Tenant conduct service, repair, washing or storage of any
vehicles in the common areas. If Tenant permits or allows any of
the prohibited activities described above, then Landlord shall have
the right, without notice, in addition to such other rights or
remedies that it might have, to remove or tow away the vehicle
involved and charge the cost to the Tenant, which cost shall be
immediately payable upon demand by Landlord.
3. Section 2.1, CONDITION OF
PREMISES. Tenant acknowledges
it has accepted possession of the Premises in its existing
“as-is” condition and that all existing building
systems are in good operating condition. Tenant acknowledges that:
(a) it has inspected and is satisfied with respect to the condition
of the Premises (including but not limited to the electrical, HVAC
and fire sprinkler systems, security, environmental aspects, and
compliance with all governmental codes and the Americans with
Disabilities Act) and their suitability for Tenant’s intended
use, (b) Tenant has made such investigation as it deems necessary
with reference to such matters and assumes all responsibility
therefore as the same relates to its occupancy of the Premises, and
(c) the Landlord has made no oral or written representations or
warranties with respect to said matters other than as set forth in
the Lease.
4. Section 3.4, TENANT’S
PROPERTY. At the expiration or
earlier termination of the Lease, Tenant will perform any clean-up
necessary to remove any odor or residue pertaining to the use of
the Premises for medical marijuana and other materials. The removal
of Tenant’s Property does not include removal of the HVAC and
other building systems at the Property.
5. Section 4.1,
RENT. Pursuant to this Second
Amendment, the base monthly rental due under the Lease shall be
Nine Thousand Nine Hundred Seventy Seven and 32/100 Dollars
($9,977.32). Rent and other financial obligations of Tenant
(sometimes referred to as “Additional
Rent”) will be paid to
Landlord by good and sufficient check drawn on a US-based bank or
bank wire transfer, in a manner reasonably acceptable to Landlord
(and not by delivery of currency to Landlord).
6. Section 4.1, RENT
DUE. The Payment of Rent (Base
Rent and Common Area Operating Expenses) is due on the first day of
each month, without notice
from the Landlord.
7. Section 4.1,
RENT/NON-SUFFICIENT FUNDS. Notwithstanding the provisions of the Lease as
amended (for late charges and interest on past due obligations), in
the event that Tenant’s monthly rent check is returned to
Landlord due to non-sufficient funds, Tenant shall be required, for
the remainder of the Lease Term, to pay Landlord said monthly rent
in the form of a cashier’s check.
8. Section 4.2 RENTAL
ADJUSTMENTS. The adjustment
date (“Adjustment
Date”) for the Base Rent
under Section 4.2 shall be on the first day of January 2019 and on
each and every subsequent anniversary thereof for the term of the
Lease. The amount of the adjustment/increase to monthly Base Rent
under Section 4.2 is fixed at a three percent (3.0%) annual increase
above the amount of monthly Base Rent payable at the end of the
immediately preceding annual period.
9. Section 4.4, TERMINATION BY
TENANT BECAUSE OF INTERRUPTION OF SERVICES. Tenant will not exercise its right to terminate
this Lease pursuant to Section 4.4 of the Lease unless Tenant has first given
Landlord at least twenty (20) days advance notice of its intent to
terminate the Lease under such Section 4.4 (which notice may be given at any time after the
interruption first occurs) if the interruption is not cured within
the 30-day time period provided in the Lease.
10. Section 5.1, USE OF
PREMISES. Tenant will obtain
Landlord’s consent, which will not be unreasonably withheld
or delayed, if Tenant intends to change the use of the Premises
pursuant to Section 5.1 from the specific use as named in
Section
5.1, as currently operated in
the Premises.
11. NET LEASE.
(A)
Payment of
Operating Expenses. Tenant
shall promptly pay the Landlord for Tenant’s proportionate
share of maintenance, repair and replacements, property taxes and
assessments, property insurance premiums, operating expenses, or
any other costs, expenses, charges or premiums under this Lease
relative to the leased Premises and Project (collectively,
“Operating
Expenses”), including
(without limitation) the costs incurred by Landlord for: (i)
maintenance, repair and replacement (as necessary) of the Building
roof and structure, improvements and other portions of the Project
(provided,
if the nature of the work is a capital improvement, which shall be
limited to the roof, the parking lot and the HVAC and evaporative
cooling equipment, the cost will be allocated over a twelve year
period and Tenant shall not be required to pay more than
Tenant’s share of 1/144 of the cost of such capital
improvement in any given month); (ii) Real Estate Taxes and
assessments affecting the Project; (iii) the cost of the premiums
for the “all risk” insurance policies required to be
carried by the Landlord for the Project (see Section 7 of the Lease as modified below); (iv) costs for
maintaining the common areas of the Project, including but not
limited to exterior window cleaning, exterior lighting, gardening
and landscaping, maintenance and repair of sprinkler systems,
fire/life safety protection systems, storm drainage systems,
elevator systems, striping, repairing, replacing (including any
alterations necessary to comply with any applicable Legal
Requirements, as defined below) and maintaining the Building,
improvements, roof system, HVAC and mechanical equipment, parking
and accessways of the Project; (v) the cost of utility services to
the Project and the Premises, including water, sewer, natural gas
and electricity; and (vi) reasonable management and administrative
fees on the Operating Expenses. Landlord may require Tenant to pay
monthly installments of estimated Operating Expenses, subject to an
annual reconciliation and adjustment after the actual Operating
Expenses for the year are determined. Upon request from Tenant from
time to time (but not more frequently than once each year, for the
most recently completed year), Tenant will have the right, at
Tenant’s expense and upon not less than forty-eight (48)
hours’ prior written to Landlord, to review or audit at
reasonable times Landlord’s books and records (to the extent
available) for purposes of verifying Landlord’s calculation
of Operating Expenses charged to Tenant. A copy of the review or
audit report will be provided simultaneously to Landlord and
Tenant. In the event the review or audit shows (and the parties in
good faith determine) that the Operating Expenses charged to Tenant
are greater or lesser than the amount previously invoiced to Tenant
for the year, then Landlord will grant a credit to Tenant against
the Operating Expenses next payable by Tenant or refund to Tenant
in cash, or Tenant will pay to Landlord, the amount of such
difference within 30 days after determination of the overpayment or
underpayment, as applicable. For purposes of the Lease,
Tenant’s “proportionate
share” shall be
Forty-Eight point
Sixty-Seven percent (48.67%),
which is equal to the rentable square footage of the Premises
(which is conclusively deemed to be 12,348 square feet of rentable
area) divided by the total rentable square footage of the Building
on the Project (which is conclusively deemed to be 25,372 square
feet of rentable area).
(B) Service Contracts.
Tenant shall, at
Tenant's
sole expense, procure and maintain contracts, with copies to
Landlord, in customary form and substance for, and with contractors
specializing and experienced in the maintenance of the following
equipment and improvements, if any, if and when installed on the
Premises: (i) HVAC equipment, (ii) elevators, and (ii) any other
equipment, if reasonably required by Landlord. However, Landlord
reserves the right, upon notice to Tenant, to procure and maintain
any or all of such service contracts, and Tenant shall reimburse
Landlord, upon demand, for the cost thereof.
(C) Section 5.4, Maintenance and
Repair. Section 5.4 of the Lease shall be deleted in its entirety and
replaced with the following: The costs incurred by Landlord in
doing any repair, maintenance or replacements to the Building and
other improvements on the Premises will be part of the Operating
Expenses payable by Tenant and the other tenant(s) of the Project,
pursuant to this Amendment. Operating Expenses include costs for
maintenance, repair and replacement (as necessary) from time to
time to the Building, improvements and other portions of the
Property so that they are maintained in first-class repair,
operating condition, working order and appearance, in accordance
with applicable requirements of Governmental Authorities and the
recorded covenants, conditions and easements (collectively,
“Legal
Requirements”).
(D) Section 5.5, Net Lease Payments
- Additional Rent.
Landlord’s budget for the Operating Expenses (the
“Additional
Rent”) for the fiscal
year 2018 is currently estimated to be $0.13 per square foot per
month, which equates to $1,605.42 monthly. Landlord may, if the
actual expenses change during the course of the year, choose to
adjust the amount impounded in order to more properly reflect the
actual expense to be incurred. Landlord currently does not provide
any interior maintenance or cleaning, security services, trash
removal, or interior pest control within the Operating Expenses,
which said services and expenses shall be the responsibility of the
Tenant. In addition, the Tenant acknowledges there is only one (1)
electrical meter serving the Project and the Premises and the
Tenant shall be responsible for allocating the pro-rata share for
the cost of said electrical service with the other Tenant(s) in the
Project. In the event the Landlord elects to provide such services
(at Landlord’s reasonable election), the Landlord reserves
the right to include the expenses as part of the Additional
Rent.
12. Section 6.1,
ALTERATIONS. Pursuant to
Section
6.1, Tenant will obtain
Landlord’s consent for any exterior changes or any interior
changes that may affect the structure or building systems for the
Premises if the cost would equal or exceed $25,000 or if a building
permit is required under applicable Legal Requirements for the work
being done.
12. Section 6.3, SIGNAGE. Section
6.3 of the Lease is modified to
require Landlord’s consent, not to be unreasonably withheld
or delayed, for exterior signage.
13. Section 7,
INSURANCE. Pursuant to
Section
7, Tenant will maintain
business interruption insurance, if desired by Tenant, and other
insurance coverage sufficient to insure the costs payable during
any period in which the Building is not operated for business as a
result of a casualty. The limits on the commercial general
liability (“CGL”) insurance in Section 7.1(a)
may be reasonably adjusted by Landlord
during the Lease term to the amount typically
maintained by businesses in the same geographic
area (the Las Vegas-Henderson greater metropolitan area) and will
cover Landlord as an additional insured. Tenant’s CGL
coverage shall be primary and any insurance maintained by Landlord
shall be excess and non-contributing insurance only. The
“fire insurance” in Section 7.1(b)
shall be so-called all risk (or
“special form”) insurance coverage and the Landlord
shall be the named insured for said coverage. All such insurance
shall: (i) provide for severability of interest; (ii) provide that
an act or omission of one of an additional insured (excluding
deliberate or intentional acts that are not covered under a general
liability policy) shall not reduce or avoid coverage to any other
named or additional insured; and (iii) afford coverage for all
claims based on acts, omissions, injury and damage, which claims
occurred or arose (or the onset of which occurred or arose) in
whole or in part during the policy period. The evidence of
insurance coverage in Section 7.2(c)
will include a copy of the insurance
policy or a certificate of insurance with enough detail on the
insurance as to reasonably satisfy Landlord that Tenant is
maintaining the insurance required by this
Lease.
15. Section 7.6, WAIVER OF
SUBROGATION. For purposes
of Section
7.6 and other provisions of
this Lease, each party hereby releases and waives any and all
rights to recover from the other party, and its officers,
directors, members, trustees, employees, agents and
representatives, for loss or damage to any property of the
releasing party or any person claiming through the releasing party
arising from any loss or damage caused by any risks covered by a
standard “special form” property insurance policy, or
from any other cause required to be insured against by the
releasing party under this Lease, and there shall be no subrogated
claim by one party’s insurance carrier against the other
party arising out of any such loss.
16. Section 9.2, ASSIGNMENT OR
SUBLEASE. Except
as otherwise permitted under
Section
9.2, any assignment, sublease
or other transfer (directly, indirectly, by operation of law or
otherwise) requires Landlord’s prior written consent pursuant
to the first sentence of Section 9.2, which will not be unreasonably withheld or
delayed. Tenant will promptly notify Landlord in the event Tenant
transfers its interest under this Lease pursuant to the second
sentence of Section 9.2 (a “Permitted
Transfer”), which will
include reasonable information on the name of the assignee and its
address for notices under this Lease. Tenant (and any guarantors
and co-obligors under this Lease from time to time) will remain
primarily liable under this Lease. Landlord will only be required
to send notices under this Lease to the holder from time to time of
the Tenant’s interest under this lease. On Landlord’s
reasonable request from time to time, Tenant will confirm in
writing any assignment or sublease of the
Premises.
17. Section 10.2(a), PAYMENT
DEFAULTS. For purposes
of Section
10.1(a), the time period is
modified from 60 days after notice to Tenant to ten (10) days after
Tenant’s receipt of written notice of nonpayment when due;
provided, if Tenant has twice in the prior twelve (12) months
received a notice of nonpayment of rent or other financial
obligations (whether or not the payment was made in such 20-day
period or the default was subsequently cured), Tenant will be in
default if Tenant fails to pay, within ten (10) days after the due
date (without the necessity for written notice) any Rent or other
financial obligations owed by Tenant to Landlord pursuant to this
Lease.
18. Section 10.2, LANDLORD’S
DEFAULT REMEDIES. In addition
to the remedies in Section 10.2,
Landlord may exercise any right or
remedy for default permitted under applicable Nevada
law.
19. Section 10.4, TENANT’S
TERMINATION RIGHTS. Tenant will
not exercise any remedies under Section 10.4
for a Landlord “Event of
Default” unless the required notice has been sent to Landlord
and to any mortgagee of Landlord that has requested such notice (a
“Landlord Default
Notice”). The Landlord
Default Notice will: (i) be given in the manner provided in this
Lease for notices, and (ii) contain reasonable detail concerning
the manner in which Landlord is in breach of its obligations
hereunder. If a non-emergency default is of such a nature that it
cannot be remedied fully within the 60-day period, this requirement
shall be satisfied if Landlord (or any mortgagee) begins correction
of the default within the 60-day period, and thereafter proceeds
with reasonable diligence to effect the remedy as soon as
practicable.
Any
mortgagee of Landlord that has notified Tenant of its address in
the manner provided for notices in this Lease will have the right
to cure Landlord’s defaults under this section. The cure
period for the mortgagee will commence on notice to such mortgagee
of the default and extend for a period ending twenty (20) days
after the end of the time period for Landlord to cure a default. In
this connection, any representative of the mortgagee shall have the
right to enter upon the Premises for the purpose of curing
Landlord’s default.
20. NON-DISTURBANCE
AGREEMENT. In connection with
any financing by Landlord from time to time, Tenant will sign a
subordination, non-disturbance and attornment agreement
(“SNDA”) with Landlord and Landlord’s
lender.
21. SECURITY
DEPOSIT/GUARANTOR. PLANET 13
HOLDINGS, INC., a Canadian corporation, pursuant to the Guaranty
attached hereto as Exhibit B and made a part hereof
(“Guaranty”).
22. RECORDATION. This Lease will NOT be recorded by Tenant,
unless Landlord has provided its express written consent and
executes and notarizes the document to be
recorded.
23. Addition to Lease, OTHER
PROVISIONS.
(a) Late Payments by
Tenant. Any Rent, Additional
Rent or other financial obligation of Tenant that is not paid
within five (5) days after receipt of written notice of nonpayment
when due will be subject to a late charge of five
(5) cents per
dollar of the overdue payment, to reimburse Landlord for the costs
of collecting the overdue payment. Tenant shall pay the late charge
upon demand by Landlord. In addition, if any Rent, Additional Rent
or other financial obligation of Tenant is not paid to Landlord
within ten (10) days after receipt of written notice of nonpayment
when due, the amount owed to Landlord will bear interest
(“Default Rate
interest”) at the rate of twelve
percent (12%) per annum, but not in any event at a rate higher than
the maximum rate of interest permitted under applicable law, until
paid in full. Landlord may levy and collect a late charge and
Default Rate interest in addition to all other remedies available
for Tenant’s default, and collection of a late charge and
Default Rate interest shall not waive the breach caused by the late
payment.
(b) Partial or Delinquent
Payments. Payment by Tenant or
receipt by Landlord of any amount less than the full monthly rental
or other charges due from Tenant, or any endorsement or statement
on any check or letter accompanying any check or rent payment,
shall not in any event be deemed an accord and satisfaction.
Landlord may accept such check or payment without prejudice to
Landlord’s right to recover the balance of such rental or
pursue any other remedy provided in this Lease.
() Additional Rent, No
Offsets. All payments required
to be paid by Tenant under this Lease, other than monthly base
rent, will constitute Additional Rent. All rent (including base
Rent and Additional Rent) shall be received by Landlord without
set-off, offset, abatement, or deduction of any
kind.
(c) Storage,
Trash. Tenant shall not store
anything outside except in areas which are appropriately screened
from view of the public and consistent with current usage. No trash
will be outside of the container and Tenant will use only trash and
garbage receptacles that are reasonably approved by Landlord.
Tenant shall dispose of any materials from Tenant’s
operations and trash and other matter at Tenant’s expense, in
a manner that complies with State and local legal governmental
requirements.
(d) Reasonable Rules and
Regulations. Landlord may make
and enforce reasonable rules and regulations consistent with this
Lease for the purpose of regulating access, establishing standards
and requirements concerning the conduct and operation of business,
and promoting safety, order, cleanliness, and good service to the
property. Tenant will promptly comply with all such rules and
regulations.
(e) Holdover
Tenancy. If Tenant remains in
possession of the Premises after the expiration or earlier
termination of this Lease, Tenant will pay a holdover Rent amount
to Landlord in the amount of 150% of the monthly Rent that was
payable immediately before the commencement of the holdover period.
Landlord may also elect to eject Tenant from the Premises and
recover damages caused by wrongful holdover, in accordance with
applicable law. If a month-to-month tenancy results from a holdover
by Tenant, the tenancy shall be terminable at the end of any
monthly period on written notice from Landlord given not less than
10 days prior to the termination date as specified in the notice.
Tenant waives any notice which would otherwise be provided by law
with respect to month-to-month tenancy.
(g) Tenant’s Rights.
Tenant hereby represents that it does
not currently have any first rights of refusal to purchase the
property, other pre-emptive rights to purchase or any other rights
not expressly set for herein.
(h) Time of
Essence. TIME IS OF THE ESSENCE
of the performance of each party’s obligations under this
Lease.
(i) No Implied
Appurtenances. This Lease does
not create any implied rights to light and air or any other rights,
easements or licenses, by implication or otherwise,
except
as expressly set forth in this Lease.
This Lease is an unsubordinated lease covering the Premises, and
any financing by Tenant will encumber only Tenant’s leasehold
interest. Landlord will not be subordinating the fee title or
Landlord’s interest to any mortgage or other lien securing
any financing by Tenant.
(j) Succession; Limitation on
Obligations of Landlord. This
Lease shall bind and inure to the benefit of the parties, their
respective heirs, successors, and assigns. Any claim against
Landlord under this Lease shall be limited to and enforceable only
against and to the extent of Landlord's interest in the Premises
during the period of Landlord’s ownership. No resort may be
had to the private property of any member, trustee, director,
officer, partner, beneficiary, stockholder, employee, or agent of
Landlord.
() Inspection. Landlord or its authorized representatives may
enter at any reasonable time after such advance notice as is
reasonable under the circumstances (except in cases of emergency,
for which no advance notice is required) to determine
Tenant’s compliance with this Lease, to make necessary
repairs, to show the Premises to a prospective party desiring to
acquire Landlord’s interest, or (during the last six (6)
months of the Lease term) to advertise the Premises as available
for rent, to have an appropriate sign posted at the Premises and to
show the Premises to any prospective tenants.
(k) Attornment. In the event any proceedings are brought for
foreclosure, or in the event of the exercise of the power of sale
under any mortgage or trust deed made by Landlord covering the
Premises, Tenant shall attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as Landlord under
this Lease
(l) Estoppel
Certificates. Within 10 days
after Landlord’s written request, Tenant shall deliver a
written statement stating the date to which the rent and other
charges have been paid, whether the Lease is unmodified and in full
force and effect, and any other matters that may reasonably be
requested by Landlord.
(m) Financial
Information. Tenant and any
guarantor of this Lease (“Guarantor”) will promptly provide to Landlord (on
request) copies of tax returns, detailed financial statements and
other information reasonably required from time to time, but
not more
frequently than annually or as
may be required by Landlord in connection with any financing or
intended sale of the Property by Landlord. Any financial
information on Tenant or a Guarantor will be maintained as
confidential information, except that it may be given by Landlord
to any actual or prospective buyer or mortgagee of
Landlord.
(n) Prior
Agreements. The Lease (as
amended) and this Amendment are the entire, final, and complete
agreement of the parties with respect to the matters set forth
therein, and supersede and replace all written and oral agreements
previously made or existing by and between the parties or their
representatives.
(o) Full Force and
Effect. Except as expressly
modified in this Amendment, the Lease is in full force and effect
in accordance with its terms.
[NO MORE TEXT ON THIS PAGE]
IN
WITNESS WHEREOF, each of the undersigned has caused this instrument
to be duly executed and delivered by authorized person(s) as of the
date first set forth above.
FARGO DISTRICT HOLDINGS, LLC,
MM
DEVELOPMENT COMPANY, INC.
a Nevada limited liability company
a
Nevada corporation
By /s/
Larry
Scheffler
By /s/
Robert A.
Groesbeck
Name (printed): Larry
Scheffler
Name (printed): Robert A.
Groesbeck
Its:
Manager
Its:
President
Name (printed): Leighton
Koehler
LEASE
AMENDMENT
Tenant
MM DEVELOPMENT COMPANY, INC.
Exhibit B - Guaranty
Exhibit
10.3
LEASE AGREEMENT
THIS
LEASE AGREEMENT (the “Lease”) is made this 17th of
July, 2020 by and between Rx Land, LLC , a Nevada limited liability
company (hereinafter called “Landlord”), and West Coast
Development Nevada, LLC a Nevada limited liability company.
(hereinafter called "Tenant').
WITNESSETH:
SECTION I
PARTIES
1.1 Landlord.
Landlord warrants that it owns the
Premises and has full right and power to execute and
deliver this Lease without the consent or agreement of any other
person, and those persons executing this Lease on behalf of
Landlord have the right and power to execute and deliver this
Lease.
1.2 Tenant.
Tenant warrants that Tenant has full
right and power to execute and deliver this Lease without
the consent or agreement of any other person and that those persons
who have executed and delivered this Lease have the authority and
power to execute this lease on Tenant's behalf and deliver this
Lease to Landlord.
SECTION 2
PREMISES
2.1 Description.
The Premises herein leased
(hereinafter called the "Premises") are legally described
in Exhibit "A" attached hereto and made a part hereof. The Premises
also include the
building(s) and improvements on the land described in Exhibit
“A”. Landlord also grants to Tenant, its customers,
guests, invitees employees, and licensees all easements, rights and
privileges appurtenant thereto, including the right to use the
parking areas, driveways, roads, alleys and means of ingress and
egress. The Premises are located at 4801 West Bell Drive, Las
Vegas, Nevada and also identified as APN: 162-30-104-003 and
162-30-104-005.
2.2 Quiet
Enjoyment. Landlord agrees to
warrant and defend Tenant in the quiet enjoyment and
possession of the Premises during the term of this Lease so long as
Tenant complies with the
provisions hereof.
SECTION
3
TERM: OPTION TO EXTEND
3.1 Lease Commencement
Date. The term of this Lease
shall commence on the date referenced above
(the “Lease Commencement Date”), with rent payments to
commence upon July 16, 2020 and shall terminate on June 30, 2030,
(the “Lease Termination Date”), which is the last day
of the month preceding the tenth (10th) anniversary day of the
Lease Commencement Date unless extended by Tenant in accordance
with any extension option contained in this Lease or any rider
thereto or unless terminated in accordance with the provisions
hereof.
3.2 Extension
Terms. Tenant shall have the
right to extend the term of this Lease for two (2)
additional terms of five (5) years each (the “Extension
Terms”) in its sole discretion upon delivering written notice
to the Landlord of its intent to exercise this option to extend not
less than twelve (12) months before the expiration date of the
initial term or of any previously exercised Extension Term of this
Lease. If Tenant exercises any of the Extension Terms in the manner
provided for in this paragraph, then the Lease shall terminate five
(5) years after the Lease Termination Date or the end of the
previously exercised Extension Term unless a subsequent Extension
Term is exercised, and all provisions of this Lease shall be
applicable to the Extension
Terms.
3.3
Prorations.
If any payments, rights or obligations hereunder (whether relating
to payment of rent, taxes, insurance, other impositions, or to any
other provision of this Lease) relate to a period in part before
the Lease Commencement Date or in part after the date of expiration
or termination of the term, appropriate adjustments and prorations
shall be made.
3.4 Surrender at End of
Term. Upon the last day of the
Lease term or upon the earlier termination
of this Lease pursuant to the provisions hereof and irrespective of
when and how such termination occurs, Tenant shall surrender and
deliver to Landlord the Premises and all buildings and improvements
thereon other than Tenant’s Property, without delay, broom
clean and in good order, condition and repair, reasonable wear and
tear and damage due to casualty excepted, whereupon Tenant shall
have no further right, title or interest in and to said Premises.
Any trade fixtures, business equipment, inventory, trademarked
items, signs and other removable personal property located or
installed in or on the Premises (“Tenant’s
Property”) shall be removed by Tenant on or before the last
day of the Lease term or upon the earlier termination of this Lease
pursuant to the provisions hereof, and Tenant shall repair any
damage occasioned by the removal of Tenant’s
Property.
SECTION 4
RENT
4.1 Rent.
Commencing on the date (“Rent Commencement Date”) which
is July 16, 2020, Tenant
covenants and agrees to pay to Landlord in lawful money of the
United States of America, during each Lease year, an annual rental
of Seven Hundred Forty Seven Thousand Seven Hundred Fifteen Dollars
& 20/100ths Dollars ($795,096.00) (the “Rent”). The
Rent shall be payable in equal monthly installments of Sixty Two
Thousand Three Hundred Nine and 60/100 ($62,309.60) each, in
advance on or before the first day of each and every calendar month
of the term of this Lease. The Rent shall be paid in addition to
and over and above all other payments to be made by Tenant herein.
The first Lease year shall be a full year commencing on the Lease
Commencement Date and each following Lease
year shall be an annual period commencing on the anniversary date
of the Lease Commencement Date. Appropriate proration shall be made
if the Lease Commencement Date is not on the first day of a
calendar month, or if the date of termination of the Lease is not
on the last day of a calendar month.
4.2 Rental
Adjustments. The Rent shall be
adjusted on the first day of the thirteent
(13'h) month following the
calendar month in which the Rent Commencement Date occurs (the
“Anniversary Dale”) and on the first day of each and
every Anniversary Date thereafter for the term of the Lease, plus
any option periods, in accordance with the Consumer Price Index for
All Urban Consumers (the “CPI-U”) as published by the
Bureau of Labor Statistics, Washington, D.C. On the First
Anniversary Date thereafter, the Rent shall be adjusted to equal
the Current Rent then payable, plus the increased amount in
accordance with the CPI-U adjustment for the preceding year. In no
case, however, shall the Rent be decreased by any decrease in the
CPI-U. Following each Anniversary Date, the adjusted Rent shall be
due and payable for each and every month of the adjustment period
commencing with the respective Anniversary Date.h
4.3 Taxes.
(a) Tenant
shall be responsible for the payment of all real property taxes and
assessments (“Real Estate Taxes”) levied against the
Premises by any governmental or quasi-governmental authority, which
are due and payable during the Term hereof, except as set forth
herein. Real Estate Taxes shall include any taxes, assessments,
surcharges, or service or other fees of a nature not presently in
effect which shall hereinafter be levied on the Premises as a
result of the use, ownership, or operation of the Premises or for
any other reason, whether in lieu of or in addition to any current
real estate taxes and assessments. Any special assessments will be
amortized over the maximum period allowed by law or applicable tax
rules, whichever is longer, and Real Estate Taxes will include only
the prorated and amortized amount, which becomes due during the
Term hereof. Real Estate Taxes shall exclude any income, excess
profits, single business, inheritance, succession, transfer,
franchise, capital, or other tax assessments upon
Landlord or
Landlord’s interest in the Premises. If any special
assessment for a public improvement is assessed against the
Premises, Tenant shall be responsible for only that portion of the
assessment allocable to the Tenant based on the length of time that
a benefit is derived by the Tenant during the Term of the Lease
calculated against the useful life of the improvement.
(b) Tenant shall remit
all payments for Real Estate Taxes directly to the taxing or
assessing authority. Upon receipt of all tax bills and assessment
bills attributed to any calendar year during the Term hereof,
Landlord shall furnish Tenant with a copy of the tax bill or
assessment bill, so as to allow Tenant to take advantage of the
maximum payment discount available, if Tenant so
desires.
(c) Tenant will have
the right to contest the amount or validity, in whole or in part,
of any tax that Tenant is required to pay, in whole or in part, by
appropriate proceedings diligently conducted in good faith, only
after paying such tax or posting such security that Landlord
reasonably requires in order to protect the Premises against loss
or forfeiture. Upon the conclusion of any such protest proceedings,
Tenant will pay its share of the tax, as finally determined, in
accordance with this Lease, the payment of which tax may have been
deferred during the prosecution of the proceedings, together with
any costs, fees, interest, penalties, or other related liabilities.
Landlord will not be required to join in any contest or proceedings
unless the provisions of any law or regulations then in effect
require that the proceedings be brought by or in the name of
Landlord. In that event, Landlord will join in the proceedings or
permit them to be brought in its name; however, Landlord will not
be subjected to any liability for the payment of any costs or
expenses in connection with any contest or proceedings, and Tenant
will indemnify Landlord against and save Landlord harmless from any
costs and expenses in this regard.
4.4
Services
and Utilities. Tenant shall be
solely responsible for providing all services and utilities to the
Premises, including, but not limited to: gas, telephone, heating,
air conditioning, electrical, waste
disposal, water, janitorial, lighting or other services, together
with any taxes or penalties thereon. In the event of any
interruption, reduction or discontinuance of services (either
temporarily or permanently), Landlord shall not be liable for
damages to persons or property as a result thereof, nor shall the
occurrence of any such event in any way be construed as an eviction
of Tenant. If an interruption of services which materially affects
Tenant’s use and enjoyment of the Premises continues for more
than thirty (30) consecutive calendar days, and such interruption
is not due to an act or omission of Tenant, Tenant shall have the
right to terminate this Lease upon written notice to Landlord, and
shall surrender the Premises to Landlord.
SECTION 5
USE: COMPLIANCE WITH LAWS: MAINTENANCE AND REPAIRS
5.1 Use of
Premises. Tenant shall have
the right to use the Premises for any lawful purpose, including the
cultivation and processing of marijuana and marijuana-based
products, as provided for in pertinent regulations associated with
medical marijuana establishments. Tenant shall not commit waste on
the Premises and shall not use the Premises for any unlawful or
improper purpose or in violation of any certificate of occupancy or
for any purpose which may constitute a nuisance, public or private,
nor suffer any dangerous article to be brought on the Premises
unless safeguarded as required by law.
5.2 Compliance with
Laws. Tenant shall reasonably,
promptly, and effectively comply with all
applicable and lawful statutes, regulations, rules, ordinances,
orders, and requirements of any public official or agency having
jurisdiction in respect of the Premises and Tenant’s specific
use thereof (herein referred to as “Governmental
Authorities”). Landlord shall promptly give notice to Tenant
of any written notice in respect of the Premises from Governmental
Authorities. Tenant may, in good faith, dispute the validity of any
complaint or action taken pursuant to or under color of any of the
foregoing, defend against the same, and in good faith diligently
conduct any necessary proceedings to prevent and avoid any adverse
consequence of the same. Tenant
agrees that any such contest shall be prosecuted to a final
conclusion as speedily as possible, and Tenant will indemnify and
hold Landlord completely harmless with respect to any actions taken
by any Governmental Authorities with respect thereto.
5.3 Maintenance and
Repairs by Tenant.
Tenant shall, at Tenant’s sole
expense, promptly and throughout the
Term, maintain, repair, and replace the Premises, including but not
limited to the roof, parking lot and HVAC system, in a good and
clean condition comparable to other similar commercial buildings in
the Las Vegas, Nevada metropolitan area, and in compliance with all
applicable laws, and will suffer no active, passive or permissive
waste or injury thereof or thereto. Tenant shall give Landlord
prompt notice of any specific needed repairs, replacements or
maintenance which will (1) affect the exterior walls, exterior
doors, windows of the building, the structural parts of the
building, the roof of the building, or the parking areas, or (2)
exceed Ten Thousand and 00/100 Dollars ($10,000.00) (collectively
“Material
Repairs”). Tenant shall provide Landlord copies of
plans and specifications for such Material Repairs, as required by
Landlord. Landlord shall then have twenty (20) days after receipt
of such plans and specifications to approve or reject the same by
delivering written notice to Tenant. If Landlord fails to respond
within such twenty-day period, Landlord shall be deemed to have
approved such plans and specifications. All Material Repairs to the
Premises shall be performed by Tenant using contractors or
mechanics approved by Landlord in accordance with plans and
specifications approved by Landlord, and shall be at Tenant’s
sole expense and at such times and in such manner as Landlord may
approve. Any mechanics’ or materialmen’s lien for which
Landlord has received a notice of intent to file or which has been
filed against the Premises arising out of work done for, or
materials furnished to Tenant, shall be discharged, bonded over, or
otherwise satisfied by Tenant within ten (10) days following the
earlier of the date Landlord receives (1) notice of intent to file
a lien or (2) notice that the lien has been filed. If Tenant fails
to discharge, bond over, or otherwise satisfy any such lien,
Landlord may do so at Tenant’s expense, and the amount
expended by Landlord, including reasonable attorney’s fees
and costs, shall be due and payable immediately
with interest thereon at the Interest Rate from the date of the
payment by Landlord until Landlord receives payment from Tenant. If
Tenant fails to comply with its maintenance, repair, or replacement
obligations in this Section 5.3, Landlord may, in
its sole discretion and in addition to any other remedies provided
herein, perform said maintenance, repair, or replacement. Any sums
so paid by Landlord, together with reasonable attorney’s fees
and costs, shall be deemed to be additional Rent owing by Tenant to
Landlord and shall be due and payable immediately with interest
thereon at ten percent (10%) per annum from the date of the payment
by Landlord until Landlord receives payment from
Tenant.
SECTION 6
ALTERATIONS: LIENS: SIGNAGE
6.1 Alterations.
Tenant shall not make any structural alterations in the Premises
without Landlord’s prior written consent, not to be
unreasonably withheld or delayed. Tenant shall have the right to
make interior, non-structural alterations, and structural
alterations under $25,000.00, without Landlord’s
consent.
6.2 Liens. All persons are put on
notice of the fact that Tenant under no circumstances shall have
the power to subject the interest of Landlord in the Premises to
any mechanic’s or materialman’s lien, or liens of any
kind. All persons who hereafter, during the life of this Lease, may
furnish work, services, or materials to the Premises upon the
request or order of Tenant or any person claiming under, by or
through Tenant, must look wholly to the interest of Tenant and not
to that of Landlord. Tenant covenants and agrees with Landlord that
Tenant will not permit or suffer to be filed or claimed against the
interest of Landlord in the Premises during the continuance of this
Lease any lien or liens of any kind by any person claiming under,
by, through, or against Tenant; and if any such lien is claimed or
filed, it shall be the duty of Tenant, within sixty (60) days after
the claim of lien or suit claiming a lien has been filed, to cause
the Premises to be released from such claim, either through payment
or through bonding with corporate surety or through the
deposit
into court, pursuant to statute, of the necessary sums of money, or
in any other way that will affect the release of Landlord’s
interest in the Premises from such claim.
6.3 Signage. Notwithstanding
anything to the contrary set forth in this Lease, Tenant
shall
have the absolute right to install, at its sole cost, such signage
on the Premises as Tenant may deem necessary or appropriate,
subject to appropriate governmental approvals. Landlord agrees to
fully cooperate with Tenant in filing any required signage
application, permit, and/or variance for said signage or with
respect to the Premises generally.
SECTION
7
INSURANCE
7.1 Types of
Insurance. Tenant shall, at
its own cost and expense, carry the following insurance in
respect to the Premises and improvements:
(a) Comprehensive
public liability insurance in an amount of not less than
$2,000,000.00 combined bodily injury and property damage liability;
and
(b) With respect to
improvements (if any), insurance against loss or damage by fire and
other risks covered by fire insurance with extended coverage
endorsements in an amount of the full insurable replacement value
of such improvements (exclusive of cost of excavation, foundation,
and footings below the ground floor and without deduction for
depreciation) and in amounts sufficient to prevent Landlord or
Tenant from becoming a co- insurer under such policies of
insurance.
7.2
Provisions Applicable
to All Insurance. With respect
to all insurance required to be maintained
hereunder by Tenant:
(a) Each such policy
shall name Landlord, Tenant, and any mortgagee as insured as their
interests appear and shall contain a Standard Mortgagee Clause
reasonably satisfactory to Landlord;
(b) Tenant shall, at
Tenant’s sole cost and expense, observe and comply
with all policies of
insurance in force with respect to the Premises and improvements;
and
(c)
Upon Landlord’s request, Tenant
shall send to Landlord certificates of insurance or receipts or
other evidence satisfactory to Landlord showing the payments of all
premiums and other charges due thereon.
7.3 Landlord’s
Right to Obtain Insurance. If
Tenant shall fail to maintain any such insurance required
hereunder, Landlord may, at Landlord’s election, after ten
(10) days’ written notice to Tenant, procure the same, adding
the premium cost to the monthly installment of rental next due, it
being hereby expressly covenanted and agreed that payment by
Landlord of any such premium shall not be deemed to waive or
release the obligation of Tenant to make payment thereof.
Tenant’s failure to either procure or maintain the insurance
required hereunder, after thirty (30) days' written notice from
Landlord to Tenant, shall constitute a default by Tenant under this
Lease.
7.4 Use of Insurance
Proceeds. Any insurance
proceeds recovered by reason of damage to or
destruction of the Premises or improvements thereto, improvements
shall be made available to Landlord in accordance with Section 7.5
below, with any excess proceeds made available to
Tenant.
7.5 Damage or
Destruction. If the Premises
(including improvements) are damaged to the extent of
50% or more of its insurable value, Landlord may, in its sole
discretion, elect (a) to repair or
restore the Premises improvements, (b) to construct new Premises
and improvements, or to terminate this Lease without liability to
either party. If Landlord elects to repair or restore the Premises
and improvements or construct new Premises or improvements, it
shall do so promptly and Tenant shall receive an abatement of rent
in proportion to the extent of the damage until such time as the
repair, restoration or reconstruction is completed, but in no event
shall Landlord’s repair, restoration or reconstruction take,
nor shall the rent abatement period exceed, one hundred eighty
(180) days. If Landlord elects to terminate this Lease, Landlord
shall so notify Tenant within thirty (30) days
after the damage occurs, whereupon Landlord shall be entitled to
all proceeds of insurance and right of recovery against insurers
covering such damage.
7.6 Subrogation.
Landlord and Tenant shall each obtain from their respective
insurers under all policies of fire, theft, public liability,
workers’ compensation and other insurance maintained by
either of them at any time during the term hereof insuring or
covering the Premises, a waiver of all rights of subrogation which
the insurer of the party might otherwise have, if at all, against
the other party.
SECTION 8
EMINENT
DOMAIN
If any
portion of the Premises which materially affects Tenant’s
ability to continue to use the remainder thereof for the purposes
set forth herein, or which renders the Premises untenantable, is
taken by right of eminent domain or by condemnation, or is conveyed
in lieu of any such taking, then this Lease may be terminated at
the option of either Party. Such option shall be exercised by
giving notice to the other Party of such termination within 30 days
after such taking or conveyance; whereupon this Lease shall
forthwith terminate and the Rent shall be duly apportioned as of
the date of such taking or conveyance. Upon such termination,
Tenant shall surrender to Landlord the Premises and all of
Tenant’s interest therein under this Lease, and Landlord may
re-enter and take possession of the Premises or remove Tenant
therefrom. If any portion of the Premises is taken which does not
materially affect Tenant’s right to use the remainder of the
Premises for the purposes set forth herein, this Lease shall
continue in full force and effect, and Landlord shall promptly
perform any repair or restoration work required to restore the
Premises, insofar as possible, to its former condition, and the
rental owing hereunder shall be adjusted, if necessary, in such
just manner and proportion as the part so taken (and its effect on
Tenant’s ability to use the remainder of the Premises) bears
to the whole. In the event of taking or
conveyance as described herein, Landlord shall receive the award or
consideration for the lands and improvements so taken; provided,
however, that Landlord shall have no interest in any award made for
Tenant’s loss of business or value of its leasehold interest
or for the taking of Tenant’s fixtures or property, or for
Tenant’s relocation expenses. Landlord and Tenant shall
cooperate with one another in making claims for condemnation
awards.
SECTION 9
ASSIGNMENT AND SUBLETTING: ATTORNMENT: TENANT
FINANCING; SUBORDINATION
9.1 Assignment by
Landlord. At any time,
Landlord may sell its interest in the Premises or assign
this Lease or Landlord’s reversion hereunder, either
absolutely or as security for a loan, without the necessity of
obtaining Tenant’s consent or permission, but any such sale
or assignment shall be at all times subject to this Lease and the
rights of Tenant hereunder.
9.2 Assignment and
Subletting by Tenant. Tenant
shall have the right to assign, sublet, or
otherwise transfer this Lease only to Planet 13 Holdings, Inc. or
its affiliates or subsidiaries.
9.3 Attornment.
Any assignee of Landlord or Tenant hereby agrees to attorn to
the Tenant or Landlord,
respectively, as the case may be.
9.4 Tenant
Financing. Tenant shall have
the absolute right from time to time during the Term
hereof to grant and assign a mortgage or other security interest in
Tenant’s interest in this Lease with the prior written
consent of the Landlord, not to be unreasonably withheld, and
without Landlord’s further approval, written or otherwise,
all of Tenant’s property located on or used in connection
with the Premises to Tenant’s lenders in connection with
Tenant’s financing arrangements. Landlord agrees to execute
such confirmation certificates and other documents (except
amendments to this Lease unless Landlord hereafter consents) as
Tenant’s lenders may reasonably request in connection with
any such financing.
9.5 Subordination.
This Lease shall be subordinate to
the lien or security title of any mortgage or
security deed or the lien resulting from any other method of
financing or refinancing now or hereafter in force against the
Premises, any portion thereof, or upon any buildings now or
hereafter placed upon the land of which the Premises are a part,
and to any and all advances to be made under such financing
instruments, and all renewals, modifications, extensions,
consolidations and replacements thereof. The aforesaid provisions
shall be self-operative and no further instrument of subordination
shall be required to evidence such subordination. Tenant covenants
and agrees to execute and deliver, upon demand, such further
instrument or instruments subordinating this Lease on the foregoing
basis to the lien of any such mortgage or mortgages as shall be
desired by Landlord and any mortgagees or proposed mortgagees, and
hereby irrevocably appoints Landlord the attorney-in-fact of Tenant
to execute and deliver such instrument or instruments within five
(5) days after written notice to do so.
SECTION
10
DEFAULT AND REMEDIES
10.1 Events of
Default.
If:
(a) Tenant shall
default in the due and punctual payment of the Rent, insurance
premiums or impositions of any other amounts or rents due under
this Lease or any part thereof, and such default shall continue for
sixty (60) days after notice thereof in writing to Tenant;
or
(b) Tenant shall
default in the performance or in compliance with any of the other
covenants, agreements, or conditions contained in this Lease and
such default shall not be cured within sixty (60) days after notice
thereof in writing from Landlord to Tenant; or
(c) Tenant shall file a
petition for voluntary bankruptcy or under Chapter VII or XI of the
Federal Bankruptcy Act or any similar law, state or federal,
whether now or hereafter existing, or an answer admitting
insolvency or inability to pay its debts, or fail to obtain a
vacation or lift of stay of involuntary proceedings within ninety
(90) days after the involuntary petition is filed; or
(d) Tenant shall be
adjudicated a bankrupt, or a trustee or receiver shall be appointed
for Tenant or for all of its property or the major part thereof in
any involuntary proceedings, or any court shall have taken
jurisdiction of the property of Tenant or the majority part thereof
in any involuntary proceeding for reorganization, dissolution,
liquidation, or winding up of Tenant, and such trustee or receiver
shall not be discharged or such jurisdiction relinquished or
vacated or stayed on appeal or otherwise within ninety (90) days;
or
(e)
Tenant
shall make an assignment for the benefit of its creditors; then and
in any such event referred
to in clauses (a), (b), (c), (d) or (e) above, Landlord shall have
the remedies with respect to the Premises as set forth
below.
10.2
Landlord’s
Remedies Upon Default. Upon
the occurrence of an Event of Default by Tenant, then Landlord
shall be entitled to the following remedies:
(a) Landlord may
terminate this Lease by giving written notice of
termination
to Tenant, in which event Tenant shall immediately surrender the
Premises to Landlord. If Tenant fails to so surrender the Premises,
then Landlord may, without prejudice to any other remedy it has for
possession of the Premises or arrearages in rent or other damages,
re-enter and take possession of the Premises and expel or remove
Tenant and any other person occupying the Premises or any part
thereof, in accordance with applicable law; or
(b) Landlord may
re-enter and take possession of the Premises without terminating
the Lease in accordance with applicable law, and relet the Premises
and apply the Rent received to the account of Tenant. In the event
Landlord so re-enters and takes possession of the Premises as set
forth above, Landlord agrees to use reasonable efforts to relet the
Premises for a commercially reasonable rate at the lime of such
reletting. No reletting by Landlord is considered to be for
Landlord’s own account unless Landlord has notified Tenant in
writing that this Lease has been terminated. In
addition, no such reletting is to be considered an acceptance of
Tenant’s surrender of the Premises or a release of
Tenant’s obligation to pay Rent and all other charges payable
hereunder (which obligation Tenant agrees shall continue), unless
Landlord so notifies Tenant in writing.
(c)
Landlord shall have the right to
accelerate the Rent and other amounts payable hereunder should
Tenant become more than two (2) months delinquent in the payment of
Rent or such other amounts payable, after the expiration of notice
and all cure periods hereunder. Landlord shall have the right to
sue Tenant for any consequential, punitive or incidental damages
including, without limitation, any claims for lost profits and/or
lost business opportunity. If Landlord does accelerate the Rent or
such other charges due hereunder, then the accelerated rent shall
be an amount equal to the Rent payable over the balance of the
Lease Term (as if this Lease had not been terminated) less the fair
rental value of the Premises for the corresponding period. The
accelerated rent shall be discounted to the date payable at an
annual interest rate equal to the prime rate as published from time
to time in the Money Section of the Wall Street Journal, or if the
same is not published, then at the prime rate published by Bank of
America in Nevada. Upon payment of the accelerated rent discounted
to present value, Tenant shall be released from all further
liability under this Lease.
10.3
Mitigation of
Damages. In the event that a
right of action by Landlord against Tenant arises under
this Lease, Landlord shall attempt to mitigate damages by using its
best efforts to seek to relet the Premises.
10.4 Landlord’s
Default. The failure of: (i)
Landlord to perform any covenant,
condition, agreement, or provision contained herein within sixty
(60) days after receipt by Landlord of written notice of such
failure; or (ii) any default, after giving effect to any notice and
cure provision, by Landlord as borrower under that certain Note
Secured by Dee of Trust executed simultaneously herewith shall
constitute an “Event of Default” hereunder. Upon the
occurrence and continuance of an
Event of Default, Tenant may, at its option and without any
obligation to do so, other than those obligations created in this
document, elect any one or both of the following
remedies:
(a) Terminate and
cancel this Lease; or
(b) Pursue any other
remedy now or hereafter available at law or in equity
in the
state in which the Premises are situated.
SECTION 11
OTHER PROVISIONS
11.1 Remedies to Be
Cumulative. No remedy
conferred upon or reserved to Landlord or Tenant shall be
considered exclusive of any other remedy, but the same shall be
cumulative and shall be in addition to every other remedy given
under this Lease or now or hereafter existing at common law or by
statute. Every power and remedy given Landlord or Tenant may be
exercised from time to time and as often as occasion may arise or
may be deemed expedient.
11.2 Notices.
All notices, requests, demands, or other communications which may
be or are required or
permitted to be served or given hereunder (in this Article
collectively called “Notices”) shall be in writing and
shall be sent by registered or certified mail, return receipt
requested, postage prepaid, or by a nationally recognized overnight
delivery service to Tenant or to Landlord at the address set forth
below. Either party may, by Notice given as aforesaid, change its
address for all subsequent Notices. Notices shall be deemed given
when received in accordance herewith.
If to
Landlord:
Rx Land,
LLC
If to
Tenant:
West Coast
Development
With a copy
to:
MM Development
Company, LLC
2548 West Desert
Inn Road
11.3 No
Broker. Landlord and Tenant
each warrant to the other that no broker or
agent
has been employed with respect to this Lease and each agrees to
indemnify and hold the other harmless from any claims by any broker
or agent claiming compensation in respect of this Lease alleging an
agreement by Landlord or Tenant, as the case may be.
11.4. Waiver of Jury
Trial. Landlord and Tenant
waive trial by jury in any action or proceeding brought
by either of the parties hereto against the other or on any
counterclaim in respect thereof on any matters whatsoever arising
out of or in any way connected with the Lease, the relationship of
Landlord and Tenant, Tenant’s use or occupancy of the
Premises and/or any claim of injury or damage under this
Lease.
11.5 No
Partnership. Landlord shall
not be construed or held to be a partner or associate
of
Tenant in the conduct of Tenant’s business, it being
expressly understood and agreed that the relationship between the
parties hereto is and shall at all times remain, during the Lease
term, that of Landlord and Tenant.
11.6 Non
-Waiver. No failure by
Landlord or Tenant to insist upon the performance
of any
covenant, agreement, provision, or condition of this Lease or to
exercise any right or remedy, consequent upon a default hereunder,
and no acceptance of full or partial rent during the continuance of
any such default, shall constitute a waiver of any such default or
of such covenant, agreement, provision, or condition. No waiver of
any default shall affect or alter this Lease, but each and every
covenant, agreement, provision, and condition of this Lease shall
continue in full force and effect with respect to any other
then-existing or subsequent default hereunder.
11.7 Gender and
Number. Words of any gender
used in this Lease shall be held to include another
gender and words in the singular number shall be held to include
the plural and words in the plural shall be held to include the
singular, when the sense requires.
11.8 Captions.
The captions, titles, article, section, or paragraph headings
are inserted only for
convenience and they are in no way to be construed as a part of
this Lease or as a limitation on the scope of the particular
provisions to which they refer.
11.9 Governing
Law. This Lease is made
pursuant to, and shall be governed by, and
construed in
accordance with, the laws of the State of Nevada.
11.10 Successors and
Assigns. The covenants,
conditions, and agreements in this Lease shall bind and
inure to the benefit of Landlord and Tenant and, except as
otherwise provided in this Lease, their respective heirs, devisees,
executors, administrators, legal representatives, distributees,
successors, and assigns.
11.11 Amendment.
Any agreement hereafter made shall be ineffective to
change, modify, or
discharge this Lease in whole or in part unless such agreement is
in writing and signed by the party against whom enforcement of the
change, modification, or discharge is sought.
11.12 Hazardous
Materials. Tenant shall not do
anything throughout the term of this Lease and any
extension thereof that will violate any Environmental Laws (defined
below). Tenant shall indemnify, defend, and hold harmless Landlord,
its directors, officers, employees, agents, and assignees or
successors to Landlord’s interest in the Premises, their
directors, officers, employees, and agents from and against any and
all losses, claims, suits, damages, judgments, penalties, and
liability including, without limitation, (i) all out-of-pocket
litigation costs and reasonable attorneys’ fees, (ii) all
damages (including consequential damages), directly or indirectly
arising out of the use, generation, storage, release or threatened
release or disposal of Hazardous Materials by Tenant, its agents
and contractors, and (iii) the cost of and the obligation to
perform any required or necessary repair, clean-up, investigation,
removal, remediation or abatement, and the preparation of any
closure or other required plans, to the full extent that such
actions is attributable, directly or indirectly, to the use,
generation, storage, release, or threatened release or disposal of
Hazardous Materials by Tenant, its agents, and contractors. This
indemnification obligation of Tenant does not extend to any repair,
clean-up, investigation,
removal, remediation, or abatement of Hazardous Materials (i) which
were present on, under, or in the Premises before or on the Lease
Commencement Date or (ii) for which Landlord is otherwise obligated
to indemnify Tenant pursuant to this Paragraph 11.13.
For the
purpose of this Paragraph 11.13, Hazardous Materials shall include
but not be limited to substances defined as “hazardous
materials,” or “toxic substances” in the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C. Section 9601, et.seq.\ the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801 et. seq.\ the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et.seq.\ the common
law; and any and all state, local, or federal laws, rules,
regulations, and orders pertaining to environmental, public health,
or welfare matters, as the same may be amended or supplemented from
time to time (collectively, the “Environmental Laws”).
Any terms mentioned in this Lease which are defined in any
applicable Environmental Laws shall have the meanings ascribed to
such terms in such laws, provided, however, that i f any such laws
are amended so as to broaden any term defined therein, such broader
meaning shall apply subsequent to the effective date of such
amendment.
In the
event any clean-up, investigation, removal, remediation, abatement,
or other similar action on, in, or under the Premises is required
by an governmental or quasi-governmental agency as a result of the
actions or omissions of any party other than Tenant or its agents,
contractors or invitees before or after the Lease Commencement Date
and such action requires that Tenant be closed for business for
greater than a 24-hour period, or if access to the Premises as a
result of such action is materially adversely affected for a period
in excess of 24 hours, then Tenant’s rental and other payment
obligations under this Lease shall be abated entirely during the
period beyond the 24 hours that Tenant is required to be closed for
business or abated in proportion to the amount of lost business
suffered by Tenant if access to the Premises is impaired. The
provisions of this Paragraph 11.13 shall survive the
expiration or
sooner termination of this Lease.
11.13 Attorney’s
Fees. In the event that at any
time during the Term of this Lease either Landlord or
Tenant shall institute any action or proceeding against the other
relating to the provisions of this Lease, or any default hereunder,
the unsuccessful party in such action or proceeding agrees to
reimburse the successful party for the reasonable expenses of
attorney’s fees and paralegal fees and disbursements incurred
therein by the successful party. Such reimbursement shall include
all legal expenses incurred in arbitration, prior to trial, at
trial, and at all levels of appeal and post judgment
proceedings.
11.14 Counterparts.
This Lease may be executed in any number of counterparts,
each of which shall be
an original but all of which shall constitute one and the same
instrument. A telecopy signature of any party shall be considered
to have the same binding legal effect as an original
signature.
11.15 Severability.
In the event that any term, section, subsection, paragraph,
sentence, or clause of this
Lease is held invalid or unenforceable, such invalidity or
unenforceability shall not affect the validity or enforceability of
the remainder of this Lease.
11.16 Lease
Recordation. No recordation of
this Lease nor a Memorandum of Lease permitted at any
time.
11.17 Time. All terms are expressly deemed material to this
Lease and time is of the essence with
respect to the performance of all obligations to be performed or
observed by the Parties
hereto.
11.18 Financial Reporting.
Upon Landlord’s request, Tenant
will furnish or cause to be furnished the
following
materials to Landlord; provided, however, that Landlord shall keep
confidential such items furnished by Tenant to the extent they are
not generally available to the public or Landlord is not required
by Applicable Laws to make disclosure of
them:
(i)
Within one hundred twenty (120) days after the end of each fiscal
year of Tenant, (A) the annual income statement and balance sheet
for Tenant for such fiscal year, including all supporting schedules
and comments, audited
by a certified public accounting firm, (B) a statement of revenues
and expenses of the Premises for such fiscal year in detail
reasonably satisfactory to Landlord, and (C) the annual debt
schedule for Tenant for such fiscal year;
(ii)
Within
forty-five (45) days after the end of each calendar quarter, the
following materials with respect to Tenant: a detailed balance
sheet, profit and loss statement, cash flow statement and census
data by payor type for such quarter in a form acceptable to
Landlord (including trailing twelve (12) month trends for
each).
(iii)
Within forty-five (45) days after the end of each calendar quarter,
the following materials with respect to the Premises: a profit and
loss statement, cash flow statement and census data by payor type
for such quarter in a form acceptable to Landlord (including
trailing twelve (12) month trends for each); and with reasonable
promptness, such other information respecting the financial
condition and affairs of Tenant as Landlord may reasonably request
from time to time.
IN
WITNESS WHEREOF, on the date and year first above written, Landlord
and Tenant have duly executed this Lease under seal as their free
act and deed.
Landlord
Rx
Land, LLC,
a
Nevada limited liability company
By:
/s/ Larry
Scheffler
Its:
Manager
Tenant
West
Coast Development Nevada, LLC
By:
/s/ Raymond Scott
Coffman
Its:
Manager
Exhibit
“A”
THE
LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE COUNTY OF CLARK,
STATE OF NEVADA , AND IS DESCRIBED AS FOLLOWS:
PARCEL
I: (APN 162-30-104-003)
THE
NORTHWEST QUARTER (NW 1/4) OF THE SOUTHEAST QUARTER (SE 1/4) OF THE
NORTHWEST QUARTER (NW 1/4) OF THE NORTHWEST QUARTER (NW 1/4) OF
SECTION 30, TOWNSHIP 21 SOUTH, RANGE 61 EAST, M.D.M.
EXCEPTING
THEREFROM THE NORTH 30 FEET (30.001)
AS CONVEYED TO CLARK COUNTY BY THAT CERTAIN GRANT, BARGAIN, SALE
DEED RECORDED MAY 9, 1985 AS DOCUMENT NO. 2066726 IN BOOK 2107 OF
OFFICIAL RECORDS, CLARK COUNTY, NEVADA.
FURTHER
EXCEPTING THEREFROM A PORTION OF THE NORTHWEST QUARTER (NW 1/ 4) OF
THE NORTHWEST QUARTER (NW 1/4) OF SECTION 30, TOWNSHIP 21 SOUTH,
RANGE 61 EAST, M.D.M., CLARK COUNTY, NEVADA, BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING
AT THE NORTHWEST CORNER OF SECTION 30, TOWNSHIP 21 SOUTH, RANGE 61
EAST,
M.D.M.,
CLARK COUNTY, NEVADA;
THENCE
SOUTH 00°1122" EAST A DISTANCE OF 661.78 FEET TO A
POINT;
THENCE
NORTH 89°58116"
EAST A DISTANCE OF 509.89 FEET TO A POINT;
THENCE
SOUTH 00°15113"
EAST A DISTANCE OF 30.00 FEET TO THE TRUE POINT OF
BEGINNING;
THENCE
CONTINUING SOUTH 00°15113"
EAST A DISTANCE OF 211.81 FEET TO A POINT;
THENCE
NORTH 00000113"
EAST A DISTANCE OF 211.81 FEET TO A POINT;
THENCE
SOUTH 89°58116"
WEST A DISTANCE OF 0.95 FEET TO THE TRUE POINT OF
BEGINNING.
PARCEL
II: (APN 162-30-104-005)
A
PORTION OF THE NORTHWEST QUARTER (NW 1/4) OF THE NORTHWEST QUARTER
(NW 1/4) OF SECTION 30, TOWNSHIP 21 SOUTH, RANGE 61 EAST, M.D.M.,
CLARK COUNTY, NEVADA, BEING MORE PARTICULARLY DESCRIBED AS
FOLLOWS:
COMMENCING
AT THE NORTHWEST CORNER OF SECTION 30, TOWNSHIP 21 SOUTH, RANGE 61
EAST, M.D.M. CLARK COUNTY, NEVADA; THENCE SOUTH 00°1122" EAST
A DISTANCE OF 661.78 FEET TO A POINT; THENCE NORTH 89°58'16"
EAST A DISTANCE OF 509.89 FEET TO A POINT; THENCE SOUTH
00°151311
EAST A DISTANCE OF 241.81 FEET TO THE TRUE POINT OF BEGINNING;
THENCE SOUTH 89°5824" WEST A DISTANCE OF 0.40 FEET TO A POINT;
THENCE SOUTH 00°00'13" EAST 89.10 FEET TO A POINT; THENCE
NORTH 89°5824" EAST 0.40 FEET TO A POINT; THENCE NORTH
00°00113"
EAST A DISTANCE OF 89.10 FEET TO THE TRUE POINT OF
BEGINNING.
4.
Consent, No Waiver.
Landlord consents to this Agreement and to the assignment of the
Lease as of the Assignment Effective Date from Assignor to
Assignee, and to the Amendment of Leases as shown in paragraph 3 of
this Agreement. By this Consent, Landlord does not waive any legal
remedies or rights available under the original lease, or as
amended.
6.
Expenses. The parties hereto
will bear their separate expenses in connection with this Agreement
and its performance.
7.
Entire Agreement. This
Agreement embodies the entire understanding of the parties hereto
and there are no other agreements or understandings written or oral
in effect between the parties relating to the subject matter hereof
unless expressly referred to by reference herein. This Agreement
may be amended or modified only by an instrument of equal formality
signed by the parties or their duly authorized agents.
8.
Governing Law. This Agreement
shall be governed by and construed in accordance with the laws of
the State of Nevada and each of the parties hereto submits to the
non-exclusive jurisdiction of the courts of the State of Nevada in
connection with any disputes arising out of this
Agreement.
8.
Successors and
Assigns. This Agreement and the provisions hereof shall be
binding upon and shall inure to the benefit of the successors and
assigns of the parties.
9.
Attorneys' Fees. In the event
of a dispute arising under this Agreement, the prevailing party
shall be entitled to recover all reasonable attorneys'
fees.
10.
Counterparts. This Agreement
may be executed in two or more counterparts, each of which shall be
deemed an original but all of which together shall constitute one
and the same instrument. Facsimile signatures shall be deemed the
same as originals.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Assignment Effective Date.
Assignor
West
Coast Development Nevada, LLC
By: R.
Scott Coffman, Manager
Assignee
/s/ Leighton Koehler
MM
Development Company, Inc.
By:
Leighton Koehler, Corporate Secretary
For consent and amendment purposes only (Sections 3 and
4)
Landlord
/s/ Larry Scheffler
RX
Land, LLC
By:
Larry Scheffler, Manager
Exhibit A: Lease Agreement dated July 17th,
2020
AMENDMENT TO LEASE
THIS
AMENDMENT TO LEASE AGREEMENT (this “Amendment”) is made
as of the 27th day of November 2020, between RX Land, LLC, a Nevada
limited liability company (“Landlord”), and MM
Development Company, Inc., a Nevada domestic corporation
(“Tenant”).
RECITALS
A.
On July 17, 2020,
RX Land, LLC purchased APNs 162-30-104-003 and 16230-104-005 and
buildings thereon, commonly known as 4801 West Bell Drive, Las
Vegas, NV 89118 (the “Premises”) from Indus Holdings
Co. (“Indus”). The land and buildings were subject to a
lease with West Coast Development Nevada, LLC (“WCDN”),
which was cancelled and re-issued pursuant to a commercial lease
acceptable to RX Land on July 17, 2020. The APNs referenced hold
special use permits allowing licensed cannabis cultivation and
production activities on the premises.
B.
Concurrent with the
land purchase transaction by RX Land, LLC, on July 17, 2020 Planet
13 Holdings, Inc., through its wholly owned subsidiary MM
Development Company, Inc. entered into an asset purchase agreement
for all assets and licenses of the cannabis operation, being
cultivation and production, by WCDN at the Premises. On November
27, 2020, MMDC and WCDN completed the second and final closing
under the asset purchase agreement, which included the assignment
and assumption of the lease from WCDN to MMDC.
C.
Prior to the July
17, 2020 transaction, the independent members of Planet 13
Holdings, Inc. Board of Directors approved and directed MMDC to
enter into a lease transaction that mirrored the terms of the
existing MMDC cultivation and production facility lease at 4280
Wagon Trail, Las Vegas, NV 89118, including for a substantially
similar rent and duration as at the 4280 Wagon Trail facility. The
4280 Wagon Trail facility was initially established for
approximately 6,376 square feet of the facility, wherein tenant
built a second story mezzanine, for which it was not charged
additional rent although this expanded the facility to
approximately 12,348 square feet. July 2020 rent paid to landlord
at the 4280 Wagon Trail facility was $10,584.94, resulting in a
price per square foot of approximately $1.66 per month. Applying
this rate to the buildings at the Premises having 43,880 square
feet of warehouse and office space results in a monthly payment of
$72,840.80. Also, the 4280 Wagon Trail lease includes rental
adjustments of 3% annually, and is not a CPI-U rate-based
adjustment.
D.
In accordance with
the authorization and directive of the independent directors in
paragraph C above, MMDC analyzed the October payment of the 4280
Wagon Trail lease, resulting in a determination that additional
lease duration from 10 to 15 years of initial term, with two
options for 5 year extensions, and to reflect the current rent per
square foot paid at the 4280 Wagon Trail premises at the 4801 West
Bell Drive Premises.
E.
Landlord and Tenant
desire to enter into this Amendment for the purpose of updating the
lease to comply with the independent directors authorization and
the understanding of the lease by and between MMDC and RX
Land.
NOW,
THEREFORE, for good and valuable consideration and for the
covenants and conditions of this Amendment, the receipt and
sufficiency of which are hereby conclusively acknowledged, Landlord
and Tenant agree as follows:
1.
Recitals. The above recitals
are true and correct and are agreed to by Landlord and Tenant as if
such recitals were fully set forth herein.
2.
Terms. All undefined
capitalized terms herein shall have the same meaning as defined in
the Lease.
Section
3.1 of the Lease is hereby amended and restated in its entirety as
follows: Original:
3.1
Lease Commencement
Date. The term of this Lease shall commence on the date
referenced above (the “Lease Commencement Date”), with
rent payments to commence upon July 16, 2020 and shall terminate on
June 30, 2030, (the “Lease Termination Date”), which is
the last day of the month preceding the tenth (10th) anniversary
day of the Lease Commencement Date unless extended by Tenant in
accordance with any extension option contained in this Lease or any
rider thereto or unless terminated in accordance with the
provisions hereof.
As
amended and restated:
3.1
Lease Commencement
Date. The term of this Lease shall commence on the date
referenced above (the “Lease Commencement Date”), with
rent payments to commence upon July 16, 2020 and shall terminate on
June 30, 2035, (the “Lease Termination Date”), which is
the last day of the month preceding the fifteenth (15th)
anniversary day of the Lease Commencement Date unless extended by
Tenant in accordance with any extension option contained in this
Lease or any rider thereto or unless terminated in accordance with
the provisions hereof.
Section
4.1 of the Lease is hereby amended and restated in its entirety as
follows: Original:
4.1
Rent. Commencing on
the date (“Rent Commencement Date”) which is July 16,
2020, Tenant covenants and agrees to pay to Landlord in lawful
money of the United States of America, during each Lease year, an
annual rental of Seven Hundred Forty Seven Thousand Seven Hundred
Fifteen Dollars & 20/100ths Dollars ($795,096.00) (the
“Rent”). The Rent shall be payable in equal monthly
installments of Sixty Two Thousand Three Hundred Nine and 60/100
($62,309.60) each, in advance on or before the first day of each
and every calendar month of the term of this Lease. The Rent shall
be paid in addition to and over and above all other payments to be
made by Tenant herein. The first Lease year shall be a full year
commencing on the Lease Commencement Date and each following Lease
year shall be an annual period commencing on the anniversary date
of the Lease Commencement Date. Appropriate proration shall be made
if the Lease Commencement Date is not on the first day of a
calendar month, or if the date of termination of the Lease is not
on the last day of a calendar month.
As
amended and restated:
4.1
Rent. Commencing on
the date (“Rent Commencement Date”) which is July 16,
2020, Tenant covenants and agrees to pay to Landlord in lawful
money of the United States of America, during each Lease year, an
annual rental of Eight Hundred Seventy Four Thousand Eighty Nine
Dollars & 60/100ths Dollars ($874,089.60) (the
“Rent”). The Rent shall be payable in equal monthly
installments of Seventy Two Thousand, Eight Hundred and Forty &
80/100ths dollars ($72,840.80) each, in advance on or before the
first day of each and every calendar month of the term of this
Lease. The Rent shall be paid in addition to and over and above all
other payments to be made by Tenant herein. The first Lease year
shall be a full year commencing on the Lease Commencement Date and
each following Lease year shall be an annual period commencing on
the anniversary date of the Lease Commencement Date. Appropriate
proration shall be made if the Lease Commencement Date is not on
the first day of a calendar month, or if the date of termination of
the Lease is not on the last day of a calendar month.
Section
4.2 of the Lease is hereby amended and restated in its entirety as
follows: Original:
4.2
Rental Adjustments.
The Rent shall be adjusted on the first day of the thirteenth
(13th) month following the calendar month in which the Rent
Commencement Date occurs (the “Anniversary Dale”) and
on the first day of each and every Anniversary Date thereafter for
the term of the Lease, plus any option periods, in accordance with
the Consumer Price Index for All Urban Consumers (the
“CPI-U”) as published by the Bureau of Labor
Statistics, Washington, D.C. On the First Anniversary Date
thereafter, the Rent shall be adjusted to equal the Current Rent
then payable, plus the increased amount in accordance with the
CPI-U adjustment for the preceding year. In no case, however, shall
the Rent be decreased by any decrease in the CPI-U. Following each
Anniversary Date, the adjusted Rent shall be due and payable for
each and every month of the adjustment period commencing with the
respective Anniversary Date.
As
amended and restated:
4.2
Rental Adjustments.
Pursuant to this Amendment to Lease, the Rent shall be
adjusted to equal
the rent then currently payable, plus an increased amount as
follows:
Effective Date
Increase: July 1, 2021 and each annual period ending on
July1 thereafter
Rate of
increase: 3.0%
Following each
Anniversary Date, the adjusted Rent shall be due and payable for
each and every month of the adjustment period commencing with the
respective Anniversary Date.
Section
6.1 of the lease is hereby amended and restated in its entirety as
follows: Original:
6.1
Alterations. Tenant shall not make any structural alterations in
the Premises without Landlord’s prior written consent, not to
be unreasonably withheld or delayed. Tenant shall have the right to
make interior, non-structural alterations, and structural
alterations under $25,000.00, without Landlord’s
consent.
As
amended and restated:
6.1
Alterations. Tenant shall not make any structural alterations in
the Premises without Landlord’s prior written consent, not to
be unreasonably withheld or delayed. Tenant shall have the right to
make interior, non-structural alterations, and structural
alterations under $25,000.00, without Landlord’s consent. In
the event that Tenant or Landlord shall make alterations adding a
mezzanine or second floor within the Premises, the rent shall not
be increased to reflect the increase in the square footage built or
created by the Tenant. By way of example, if a second floor or
mezzanine were to be added to the Premises, and such alteration
increased the building’s square footage from 43,880 square
feet to 50,000 square feet, rent shall continue at the rate as
described in Section 4.1, as such amount shall have been annually
increased in accordance with Section 4.2, and shall not reflect any
rent or additional rent due on the 6,120 square foot alteration
increase to the square footage.
IN
WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first written above.
Rx Land,
LLC
MM Development
Company, Inc.
a Nevada Limited
Liability Corporation
a Nevada Domestic
Corporation
BY: /s/ Larry
Scheffler
BY: /s/ Leighton
Koehler
Larry Scheffler, Manager
Leighton
Koehler
AGREEMENT REGARDING RELEASE OF LEASHOLD ESTATE
THIS AGREEMENT REGARDING
RELEASE OF LEASEHOLD ESTATE (this "Agreement")
is made and entered into on August 31, 2020, by an among LaBarre
Chastang, Inc. a California corporation, d.b.a. ABC Traffic
Programs ("Lessee"), and BLC Management Company, LLC, a Nevada
limited liability company ("BLC").
RECITALS
A. Grove
Investment Company, a California general partnership
("Lessor")
and Lessee entered into that certain
Standard Industrial/Commercial Multi-Tenant Gross Lease dated
January 1, 2019 (the "Lease")
for certain property commonly known as
3400 W. Warner Ave. (the "Building"),
Units C and D, Santa Ana, California
(the "Premises").
B. BLC
currently occupies a portion of the Building pursuant to the
Standard Industrial Commercial Multi-Tenant Lease — Net,
dated November 8, 2019 between Warner Management Group, LLC a New
York Limited liability company as Lessee and Lessor, including all
amendments and exhibits thereto and Agreements thereto (the
"Master
Lease").
C. BLC
desires to acquire the right to lease the Premises starting on
October 1, 2020 (the "Turnover
Date"), and Lessee has agreed
to relocate its business from the Premises and release its interest
in the Premises (but not the Lease) to Lessor, so that BLC can
occupy the Premises, in consideration for the payment by BLC to
Lessee of the sum of Three Hundred Fifty Thousand Dollars
($350,000.00) (the "BLC
Payment").
D. Lessor
is willing to consent to the release of the Premises and to add the
Premises to the Master Lease, such addition starting on the
Turnover Date.
E. Lessor
is willing to execute an amendment of the Lease to relocate Lessee
within Lessor's property, and Lessee is willing to enter into an
amendment of the Lease to relocate Lessee within Lessor's
property.
F. Lessor
is willing to consent to a sublease of the Premises from BLC to
Lessee for the period beginning on Oct. 1, 2020 and ending on
December 31, 2020.
NOW, THEREFORE,
in consideration of the mutual
benefits and covenants herein contained and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is hereby mutually agreed as
follows:
1. Release
of Premises. In consideration
for the BLC Payment, receipt of which is hereby acknowledged,
effective as of the Turnover Date, Lessee hereby releases its
right, title and interest in and to the
Premises.
2. BLC's
Representations. BLC represents to both Lessee and
Lessor, that BLC is familiar with the Premises and with the
improvements previously placed thereon by Lessor, Lessee and/or
others; and BLC, shall accept the Premises in its "As-Is, Where-Is"
condition as of the
Turnover Date.
3. Waiver
and Release. BLC represents,
warrants and agrees that neither Lessee nor any of Lessee's
shareholders, employees, representatives or agents have made any
representations, warranties or covenants with respect to the
condition of the Premises nor shall Lessee or any shareholders,
employees, representatives or agents have any liability or
responsibility to BLC or any other person or entity with respect to
the condition of the Premises, other than Lessee's agreement to
vacate the Premises on or before the Turnover Date. Other than for
claims arising against Lessee from non-BLC parties prior to the
final day that Lessee has use of the Premises through December 31,
2020, BLC hereby waives and releases Lessee and Lessee's
shareholders, employees, representatives and agents from any
rights, claims and causes of action it may otherwise have against
Lessee or Lessee's shareholders, employees, representatives or
agents.
4. Limited
Consent to Agreement. Lessor
has provided its limited consent to the release of the Premises
described herein as set forth in the Limited Joinder executed by
Lessor and attached hereto.
5. Amendment
of Master Lease. Lessor and BLC
hereby agree that the Master Lease shall be amended by the Third
Amendment to Standard Industrial Commercial Multi-Tenant Lease
— Net, dated November 8, 2019 between Lessor and BLC a true
and correct copy of which is attached hereto as Exhibit A
and by this reference incorporated
herein, effective upon execution by the Lessor as described in the
Limited Consent.
6. Amendment
of Lease. Lessor and Lessee
hereby agree that the Lease shall be amended by Lessor and Lessee
by that First Amendment between Lessor and Lessee a true and
correct copy of which is attached hereto as Exhibit B
and by this reference incorporated
herein, effective upon execution by the Lessor as described in the
Limited Consent.
7. Sublease
Agreement. Lessee and BLC
hereby agree that Lessee shall enter into a Sublease Agreement for
the Premises from BLC, a true and correct copy of which is attached
hereto as Exhibit C
and by this reference incorporated
herein, effective upon execution by the Lessor as described in the
Limited Consent.
8. Successors
and Assigns. This Agreement
shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and
assigns.
9. Amendment.
This Agreement may not be modified,
altered or amended nor may any provision hereof or rights hereunder
be waived, except by an instrument in writing signed by the Person
or entity against which such modification, alteration, amendment or
waiver is sought to be enforced.
10.
Further
Assurances. Each party hereto,
at its own expense, shall execute and deliver all such instruments
and take all such action as from time to time may be reasonably
necessary or reasonably requested in order for each party to obtain
the full benefits of this Agreement and of the rights and powers
herein created.
11.
Authority.
Each Person executing this Agreement
represents and warrants to the
parties hereto that such individual has the full right power and
authority to execute this Agreement and to bind the entity on whose
behalf such individual is executing this Agreement
12.
Legal Costs/Attorneys'
Fees. In the event any legal
proceeding is instituted by a party to enforce, this Agreement, the
prevailing party in such action (as determined by the arbitrator,
judge, agency or other authority before which such proceeding is
commenced), shall be entitled to such reasonable attorneys' fees
(including, without limitation, reasonable outside counsel fees and
in-house paralegals' and attorneys' time computed at similar
rates), costs and expenses as may be fixed by the decision maker.
This Agreement shall be construed and enforced in accordance with
the internal laws of the State of California (without regard to
conflicts of law). The parties hereby irrevocably waive their
respective rights to a jury trial of any claim or cause of action
based upon or arising out of this Agreement.
13.
Counterpart
Originals. This Agreement may
be executed in counterpart originals, confirmed by email, each of
which shall constitute the same agreement. Electronic signatures
shall have the same effect as original
signatures.
[Signatures on Next Pages]
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written by their proper officers and
pursuant to due and requisite company action.
LESSEE:
LaBarre
Chastang, Inc. a California corporation,
d.b.a. ABC Traffic Programs
By: /s/ Cherine
Child
Name: Cherine
Child
Its: CEO
BLC:
BLC
Management Company, LLC, a Nevada
limited liability company
By: /s/ Leighton
Koehler
Name: Leighton
Koehler
Its: Manager
LIMITED JOINDER
The undersigned GROVE INVESTMENT COMPANY, a
California general partnership ("Grove"), is joining this LEASEHOLD
ESTATE TRANSFER AGREEMENT (the "Transfer Agreement"), solely to indicate that, as described in Section
5, 6, and 7 of the Transfer Agreement, when the lease amendments,
attached hereto as Exhibit
"A" and Exhibit "B", and the sublease agreement, attached hereto
as Exhibit "C"
are all delivered to Grove, signed by
the counter-parties thereto, Grove will counter-sign each of those
and deliver a copy to the respective lessees named therein. Grove
is not otherwise approving of or joining in the Transfer
Agreement.
GROVE
INVESTMENT COMPANY, a
California
general partnership
By: /s/ Ernie
Gallardo
Ernie Gallardo, Asset Manager
EXHIBIT
A
THIRD
AMENDMENT TO MASTER LEASE
THIRD AMENDMENT TO STANDARD INDUSTRIAL / COMMERCIAL
MULTI-TENANT LEASE — NET
Dated: September 8, 2020
LESSOR:
GROVE INVESTMENT
COMPANY, a California general
partnership
LESSEE:
BLC MANAGEMENT COMPANY,
LLC, a Nevada limited liability
company
LEASED PREMISES:
3400 W. WARNER AVENUE, UNITS A, B, C, D, E, F, F-1, G, H, K, L, and
M
SANTA ANA, CALIFORNIA 92704
This
THIRD AMENDMENT TO STANDARD INDUSTRIAL / COMMERCIAL MULTI-TENANT
LEASE — NET (the "Amendment") is entered into between the
Lessor and Lessee, as identified above, and relates to the leased
premises identified above (the "Premises"). This Amendment is
entered into based on the facts contained in the Recitals, below,
and on the Terms and Conditions which are also set forth
below.
RECITALS
The
Lessor and Lessee's predecessor, WARNER MANAGEMENT GROUP, LLC, a
New York limited liability company (hereinafter "WARNER" or
"Assignor"), entered into a Standard Industrial/Commercial
Multi-Tenant Lease - Net (the "Original Lease") dated May 1, 2018,
which included Exhibits A through H, inclusive.
A
Guaranty of Lease (the "Guaranty"), relating to the Original Lease
was executed by NEWTONIAN PRINCIPLES, INC., a Delaware corporation
(the "Original Guarantor") in favor of the Lessor.
The
Original Lease has since been amended by: (1) The terms of the
FIRST AMENDMENT TO STANDARD INDUSTRIAL / COMMERCIAL MULTI-TENANT
LEASE
— NET, dated November 8, 2019 (the "First Amendment"),
entered into between Lessor and WARNER, which included a
reaffirmation of the Guaranty by the Original Guarantor, and (2)
The terms of the SECOND AMENDMENT TO STANDARD INDUSTRIAL /
COMMERCIAL MULTI-TENANT LEASE — NET, dated April 17, 2020
(the "Second Amendment"), entered into between Lessor and WARNER,
which included a reaffirmation of the Guaranty by the Original
Guarantor.
The
Original Lease, as amended by the First Amendment and Second
Amendment (the "Previously Amended Lease") has been assigned by
WARNER to BLC MANAGEMENT COMPANY, LLC, a Nevada limited liability
company (hereinafter referred to as "Lessee") in accordance with
the terms of the Assignment, Assumption and Consent to Assignment
of Lease dated May 20, 2020, entered into by WARNER, Lessee and
Lessor (the "Assignment"). WARNER was not released from liability
under the Previously Amended Lease by the terms of the
Assignment.
The
Original Guarantor was not a party to the Assignment, but PLANET 13
HOLDINGS, INC., a corporation organized under the Business
Corporations Act of British Columbia, Canada (the "New Guarantor")
guarantied the performance of the lessee under the terms of the
Previously Amended Lease, pursuant to the terms of a Guaranty of
Lease dated May 20, 2020 (the "New Guaranty"), which was delivered
to Lessor along with the Assignment.
Lessee
has entered into an agreement with La Barre Chastang, Inc. to
vacate Suite C and Suite D, which are defined above as a part of
the Premises (the "New Suites"), effective as of October 1, 2020,
and Lessee has agreed to take the risk that the New Suites will be
delivered to Lessee as of October 1, 2020, and Lessee has agreed to
start paying Lessor for such space, effective as of October 1,
2020, regardless of whether or not Lessee has gained possession of
the New Suites.
Initially
capitalized terms which are not otherwise identified in this
Amendment shall have the meaning ascribed to them in the Previously
Amended Lease.
TERMS AND CONDITIONS
NOW,
THEREFORE, Lessor and Lessee agree to modify the terms of the
Original Lease as follows:
1. Premises.
Effective as of October 1, 2020, the
Premises as defined in the Previously Amended Lease shall be
changed to also include the New Suites. The New Suites, when added
to the space leased under the terms of the Premises, results in the
total square footage being leased by Lessee being 33,001 square
feet. Lessee shall
begin
paying rents on the pre-existing Premises, plus the New Suites,
from and after October 1, 2020.
2. Base Rent.
Base Rent due under the Lease was most
recently revised in Paragraph 1 of the Second Amendment; that Base
Rent shall continue in effect through September 30, 2020. Effective
from and after October 1, 2020, Base Rent shall be revised and
shall be payable as follows:
A. Base
Rent for the period from October 1, 2020, until the
earlier of:
(i) March 31, 2021, or (H) the date
when Lessee opens for business at the Premises (hereinafter the
"Rent Abatement Period"), shall be revised to to
$49,254.00
per month;
B. If
the Rent Abatement Period does not end on or before December 31,
2020, the Base Rent shall be revised to $50,731.60 per month for the period from January 1, 2021
through the end of the Rent Abatement Period;
C. From
and after the later of the end of the Rent Abatement Period or
January 1, 2021, through December 31, 2021, Base Rent shall be
revised to $67,642.00 per month;
D. From
and after January 1, 2022, Base Rent shall be revised as set forth
in Paragraph 60, which is revised in this Amendment.
3. Lessee's Share.
Lessee's Share, as defined in Section
1.6 of the Previously Amended Lease shall be increased to
33.74%
from and after October 1,
2020.
4. Security Deposit.
The Security Deposit, referenced in
Section 1.7c, shall be increased from the current amount of
$180,000.00 to $203,000.00 and Lessee shall pay the difference of
$23,000.00 to Lessor upon the exchange of signed copies of this
Amendment.
5. Waiver. Lessee waives any right to any notice from Lessor
of the availability of the New Suites under the terms of the
Previously Amended Lease.
6. Revised Paragraph 60.
The Base Rent shall be increased at a
rate of three percent (3%) per annum on a compounding basis, during
the remainder of the Original Term. Accordingly, Paragraph 60 as
set forth in the First Amendment shall be replaced with the
following:
"60. Base Rent
Adjustments. The Base Rent
shall be increased at a rate of three percent (3%) per annum on a
compounding basis, during the remainder of the Original
Term.
Months
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January
1, 2022 - December 31, 2022
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$69,671.00
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January
1, 2023 - December 31, 2023
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$71,762.00
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January
1, 2024 - December 31, 2024
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$73,914.00
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January
1, 2025 - December 31, 2025
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$76,132.00
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January
1, 2026 - December 31, 2026
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$78,416.00
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January
1, 2027 - December 31, 2027
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$80,768.00
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January
1, 2028 - December 31, 2028
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$83,191.00
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January
1, 2029 - December 31, 2029
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$85,687.00
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January
1, 2030 - May 31, 2030
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$88,258.00''
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7. Exhibit "C" in the form attached to the First Amendment, shall
now be deemed to include the New Suites, which are identified
thereon.
8. Reaffirmation.
Except as expressly amended or
modified by the terms of this Amendment, the terms of the
Previously Amended Lease are ratified and reaffirmed by Lessor and
Lessee.
GROVE INVESTMENT
COMPANY, a California
general partnership
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BLC MANAGEMENT COMPANY, LLC, a
Nevada limited liability company
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/s/ Ernest
Gallardo
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/s/ Robert
Groesbeck
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Ernest
Gallardo
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Robert
Groesbeck
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Asset
Manager
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Manager
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REAFFIRMATION OF GUARANTY
The
undersigned provided the New Guaranty, referenced above in this
Amendment. The undersigned has reviewed this Amendment and agrees
that, as an inducement for Lessor to execute this Amendment, the
New Guaranty shall remain in full force and effect and, from and
after the date hereof, and that the New Guaranty shall operate as a
guaranty obligations arising out of the Previously Amended Lease,
as
amended
by the foregoing Amendment. The obligations of the undersigned
Guarantor and the rights of the Lessor, as provided in the New
Guaranty, shall be fully applicable to the Previously Amended
Lease, as amended by this Amendment.
PLANET 13 HOLDINGS,
INC., a corporation organized
under the
Business Corporations Act of British Columbia, Canada
/s/ Larry
Scheffler
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/s/ Robert
Groesbeck
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Larry
Scheffler
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Robert
Groesbeck
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President
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Co-President
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REAFFIRMATION OF BY WARNER
The
undersigned, WARNER, was not released from liability under the
Previously Amended Lease by the terms of the Assignment. The
undersigned has reviewed this Amendment and agrees that, as an
inducement for Lessor to execute this Amendment WARNER shall remain
liable as an assignor of the Previously Amended Lease (which
included rights to capture additional space under its terms), as
the same has been amended by the foregoing Amendment. The
obligations of the undersigned WARNER and the rights of the Lessor,
as provided in the Previously Amended Lease, and the Assignment
shall be fully applicable to the Previously Amended Lease, as
amended by this Amendment.
WARNER MANAGEMENT GROUP,
LLC, a New York limited
liability company
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By:
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/s/
Sarah
Sibia
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Sarah
Sibia
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Manager
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EXHIBIT
B
FIRST
AMENDMENT TO LEASE
EXHIBIT
B
FIRST AMENDMENT TO LEASE
This
FIRST AMENDMENT TO LEASE (this "Amendment") is entered into as
of
August,
2020 by and between GROVE INVESTMENT COMPANY, a California general
partnership ("Lessor"), and La Barre Chastang, Inc. a California
corporation, d.b.a. ABC Traffic Programs ("Lessee"), based on the
factual matters recited below and on the terms and condition
contained herein.
RECITALS
A. Lessor
and Lessee entered into that certain Standard IndustriaUCommercial
Multi- Tenant Lease
Gross,
dated January I, 2019 (the "Lease") for certain property commonly
known as 3400 W. Warner Ave. Units C and D, Santa Ana, California
(the "Old Premises").
B. The
parties hereto now wish to amend the Lease as of October I, 2020
(the "Effective Date"), to redefine the Premises, as referenced in the
Lease from the Old Premises to two industrial units containing
approximately 3,600 square feet of space, commonly known as 3440 W.
Warner Ave. Units I and J, Santa Ana, California (the "New
Premises"), to modify the Base Rent due under the terms of the
Lease and to address the other matters set forth
herein.
C. The
Lease was guaranteed by MICHELE HUNDLEY in accordance with the
terms of a Guaranty of Lease, which references the Old Premises and
which was delivered concurrently with the Lease (the "Guaranty");
MICHELE HUNDLEY has agreed to reaffirm her obligations under the
Guaranty as applicable to the Lease as amended by this
Amendment.
NOW,
THEREFORE, in consideration for the foregoing and the mutual
covenants hereinafter contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Recitals.
The foregoing recitals arc true and
correct and incorporated herein by reference.
2. Defined
Terms. All capitalized terms
used in the Amendment that are not defined herein shall have the
meanings as defined in the Lease.
3. Change
in the Premises. As of the
Effective Date, Section 1.2 (a) of the Lease, which defines the
Premises, is amended such that the Premises will include only the
New Premises and Lessee's right to occupy the Old Premises, under
the terms of the Lease, shall terminate as of Noon on October I,
2020. A Site Plan showing the New Premises is depicted on
Exhibit
A attached hereto, which as of
the Effective Date, shall replace Exhibit C
as attached to the Lease. From and
after October 1, 2020, the term "Premises" under the Lease shall
mean the New Premises. Lessee shall have the right to remove its
personal property, trade fixtures and the existing satellite
equipment and security cameras and related equipment from the Old
Premises.
4. Condition
of New Premises. Lessor agrees
that, notwithstanding any contrary provision of the Lease or any
interpretation of any provision thereof, the representations,
warranties and covenants of Lessor in the Lease, including without
limitation the representations, warranties and covenants of Lessor
in Sections 2.2 and 2.3 thereof, shall be applicable to the New
Premises and the "Start Date" with respect to the New Premises
shall be the date on which Lessor delivers exclusive possession of
the New Premises to Lessee.
5. Access
to
the New Premises. Upon
execution by Lessor and Lessee of this Amendment and mutual
delivery, Lessee shall have access to the New Premises for purposes
of building it out, at Lessee's sole cost and to Lessee's
specifications; provided that, such build out is completed in
accordance with plans submitted to and approved by the City of
Santa Ana (the "Approved Plans") and permits issued by the City of Santa Ana based
on the Approved Plans. Lessor shall reasonably cooperate in good
faith and in a timely manner with Lessee in Lessee's pu9uit and
obtaining of the approval of such plans and
permits.
6. Acknowledgment
of Re-Leasing. Lessee
acknowledges that Lessor is leasing the Old Premises to BLC
Management Company, LLC ("BLC") as of the Effective Date and that
Lessee and BLC are coordinating any holdover tenancy in the Old
Premises and that Lessee's obligation to pay rent on the New
Premises shall commence on October 1, 2020, regardless of whether
Lessee's build out of the New Premises is completed and regardless
of whether or not a certificate of occupancy has been issued for
the New Premises.
7. Base
Rent. Commencing on the on the
Effective Date, Section 1.5 of the Lease, relating to Base Rent, is
amended such that the new Base Rent is $5,191.50 per month plus
$216 per month as a trash fee. The new Base Rent shall then
increase by three percent (3%) effective as of March 1, 2021 and
annually thereafter, effective as of each successive March 1, on a
compounding basis.
8. Lessee's
Share of Common Area Operating Expenses. Commencing on the on the Effective Date, Lessee's
Share, as set forth in Section 1.6 of the Lease shall be reduced
from 3.82% to 3.68%.
9. No
Third Party Rights. Except as
otherwise expressly set forth herein, nothing contained in this
Amendment is intended to confer upon any person or entity other
than the parties and their successors.
10. Counterparts
and Fax or Electronic Transmission. This Amendment may be executed in two or more
counterparts, each counterpart being executed by fewer than both of
the parties hereto and shall be equally effective as if a single
original had been signed by all parties; but all such counterparts
shall be deemed to constitute a single
agreement.
11. Authority.
Each Person executing this Amendment
represents and warrants to the parties hereto that such individual
has the full right power and authority to execute this Amendment
and to bind the entity on whose behalf such individual is executing
this Amendment.
12. No
Change. Except as set forth
herein, all of the terms and conditions of the Lease remain
unchanged and in full force and effect.
13. Conflict.
In case of any conflict between the
terms and provisions of this Amendment and the Lease, the terms and
provisions of this Amendment shall govern.
[ Continue to Signature Page ]
IN
WITNESS WHEREOF, this Amendment has been executed as of the date
first set forth above.
LESSEE:
La Barre Chastang, Inc. a
California corporation, d.b.a. ABC Traffic Programs
By: /s/ Cherine
Child
Cherine Child, CEO
By: /s/ Michele
Hundley
Michele Hundley, CFO
LESSOR:
Grove Investment Company, a
California general partnership
By: /s/ Ernie
Gallardo
Ernie Gallardo
REAFFIRMATION OF GUARANTY
The undersigned provided the Guaranty which is
referenced above in this Amendment The undersigned has reviewed
this Amendment and agrees That, as an inducement for Lessor
to execute this Amendment, the Guaranty shall remain in full
force and effect from and after the date here4 and that the
Guaranty shall operate as a guaranty of the obligations arising out
of the Lees; as amended by the foregoing Amendment The obligations
of the undersigned Guarantor and the rights of the Lessor, as
provided in the Guaranty, shall be fully applicable to the Lease,
as amended by this Amendment
By: /s/ Michele
Hundley
Michele Hundley, an individual
EXHIBIT "A"
FLOOR PLAN
South Coast Business Center
3440 W. Warner Ave. Units I and J, Santa Ana, CA 92704
EXHIBIT "A"
SITE PLAN
South Coast Business Center
3400, 3440, and 3480 W. Warner Ave. Santa Ana, CA
92704
EXHIBIT
C
SUBLEASE
AGREEMENT
EXHIBIT
C
Sublease Between BLC Management Company, LLC and LaBarre Chastang,
Inc.
Effective Date of this
Agreement:
August 31, 2020
(the "Effective
Date")
This
Agreement is by and between
BLC Management Company,
LLC, a Nevada LLC,
("Sublessor") with a principal address of 2548 West Desert Inn
Road, Suite 100, Las Vegas, NV 89109,
And
LaBarre Cbastang, Inc. dba ABC
Traffic Programs ("Sublessee"),
a California corporation with an address of 3440 Warner Ave.,
Suites C and D Santa Ana California.
Background
A.
This
is an agreement (this "Agreement" or this "Sublease") to sublet
furnished real property, being commonly known as 3400 Warner Ave.,
Suites C & D, (the "Premises") according to the terms specified
below.
13.
Sublessee
and Sublessor are herein referred to individually as a "Party" and
collectively as the "Parties."
IN CONSIDERATION OF
Sublessor subletting, and Sublessee
renting, the Premises, both Parties agree to keep, perform and
fulfill the promises, conditions and agreements
below:
1. Sublease Premises and
Term
Sublessor
hereby subleases to Sublessee the Premises from October 1, 2020
through December 31, 2020 (the "Term"), with no option to renew
this Sublease beyond December 31, 2020, and no right to remain
within the Premises beyond December 31, 2020, regardless of any
circumstances, whatsoever. Sublessor represents and warrants to
Sublessee that Sublessor has the right to enter into this Sublease
and to permit the occupancy by Sublessee of the Premises as
described herein.
2. Payable Rent and
Triple Net
Subject
to the provisions of this Agreement, the monthly rent (the "Payable
Rent") to be paid by Sublessee to Sublessor pursuant to the terms
herein for the Premises is at a rate of $1.00 per month, being a
total of $3.00 for the entirety o£ the Term, and for which
amount Sublessor hereby acknowledges has been paid by Sublessee and
received by Sublessor as of the Effective Date.
Sublessor
shall receive all Payable Rent as provided in this Section 2 free
and clear of any and all impositions, encumbrances, charges,
obligations or expenses of any nature whatsoever in connection with
Sublessee's operations at the Premises and Sublessee's subsequent
relocation actions taken during the Term. In addition to the
Payable Rent to be paid pursuant to this Section
2,
except as expressly provided herein to the contrary, Sublessee
shall pay to the parties entitled thereto all impositions,
insurance premiums, operating expenses, liability claims,
maintenance charges and expenses which arise prior to or during the
Term and up to the extent such were payable by Sublessee pursuant
to the terms of its prior lease of the Premises.
3. Representations
and Warranties
Sublessee
represents and warrants that it shall vacate the Premises no later
than December 31, 2020.
Sublessee
represents and warrants that it shall comply with all statutes,
ordinances and requirements of all municipal, state and federal
authorities now in force, or that may hereafter be in force,
pertaining to the its business operations and its specific use of
the Premises.
Sublessee
represents and warrants that it shall continue insurance coverage
for its activities at the Premises prior to and continuing through
the Term in the amount of at least $2,000,000.
4. Condition
of Premises
Sublessee
acknowledges that (a) it is in possession of and is fully familiar
with the condition of the Premises and, notwithstanding anything
contained in this Sublease to the contrary, agrees to take the same
in its condition "as is" as of the first day of the Term, and (b)
Sublessor shall have no obligation to alter, repair or otherwise
prepare the Premises for Tenant's continued occupancy during the
Term. Furthermore, Sublessor makes no warranty or representation
regarding the suitability of the Premises for the use listed in
Section 7 below or for any other purpose, and hereby expressly
disclaims any liability, implied or otherwise, for the suitability
of the Premises for any purposes.
5. Notices
and Records
Any notice that either party may or is required to
give, shall be given by email [REDACTED] for BLC Management Company, LLC or to [REDACTED] for
LaBarre Chastang, Inc. dba ABC Traffic
Programs.
6. Termination
Sublessee
may terminate this Agreement by vacating the Premises and sending
written notice to Sublessor at any time during the
Term.
7. Uses
Permitted
Sublessee
may occupy and use the Premises only for the operation and business
of ABC Traffic Programs during the Term, as such business has
historically been run out of the, Premises, and in such
businesslike manner as previously operated.
8. Alterations
This
Sublessee shall not, without first obtaining the written consent of
Sublessor, make any alterations, additions, or improvements, in, to
or about the Premises.
9. Assignment
&
Subletting
Sublessee
shall not assign this Sublease or sublet any portion of the
Premises.
10. Indemnification
of Sublessor
Sublessee
agrees to indemnify Sublessor for any claims which arise from
Sublessee's use of the Premises during the Term, to include but not
limited to indemnification of Sublessor for any claims involving
any damage to or loss, for any reason, of property entrusted to the
employees of sublessee's business or held within the Premises, any
injury to or damage to persons or property resulting from any cause
whatsoever, unless caused by or due to the negligence or willful
misconduct of Sublessor, its agents or employees. For purposes of
this indemnification provision, Sublessor shall not be liable for
any latent defect in the Premises or in the building of which they
are a part.
11. Default
and Sublessor's Remedies
Upon
Sublessee's default of Sections 2, 3, 7, 8, 9, and which default
remains uncured for a period of three business days after written
notice of default by Sublessor, Sublessee agrees it shall cease its
use of the Premises, but not possession thereof, until the default
is cured. In the event Sublessee does not cease Its use of the
Premises, or within five business days of ceasing its use of the
Premises Sublessee has not cured the default, then all Sublessee
rights under this agreement shall terminate, but its obligations,
indemnification, representations, and warranties to Sublessor shall
survive.
In
no event shall the three day or five day periods discussed in this
Section 11 extend the Term of this Sublease beyond December 31,
2020.
12. Security
Deposit
No
security deposit shall be required of Sublessee for the
Premises.
13. Waiver
No
failure of Sublessor or Sublessee to enforce any term of this
Agreement shall be deemed to be a waiver,
14. Heirs,
Assigns & Successors
This
Agreement is binding upon and inures to the benefit of the heirs,
assigns and successors in interest to the parties.
15. Authority
of Parties/Signatories
Each
person signing this Agreement represents and warrants that he or
she is duly authorized and has legal capacity to execute and
deliver this Agreement on behalf of their respective corporation,
sole proprietorship, partnership or other entity. Each Party
represents and warrants to the other that the execution and
delivery of the Agreement and the performance of such Party's
obligations hereunder have been duly authorized and that the
Agreement is a valid and legal agreement binding on such Party and
enforceable in accordance with its terms.
16. Severability
If
any provision of this Agreement is found invalid or unenforceable
under judicial decree or decision, the remainder shall remain valid
and enforceable according to its terms. Without limiting the
previous, it is expressly understood and agreed that each and every
provision of this Agreement that provides for a limitation of
liability, disclaimer of warranties, or exclusion of damages is
intended by the Parties to be severable and independent of any
other provision and to be enforced as such. Further, it is
expressly understood and agreed that if any remedy under this
Agreement is determined to have failed of its essential purpose,
all other limitations of liability and exclusion of damages set
forth in this Agreement shall remain in full force and
effect.
17. Governing
Law
This
Agreement shall be governed by the laws of the State of
California,
18. Entire
Agreement
The
Parties acknowledge that this Agreement expresses their entire
understanding and agreement as to the three month sublease of the
Premises, and that there have been no warranties, representations,
covenants or understandings made by either party to the other,
regarding this Sublease, except such as are expressly set forth in
this agreement.
Understood, Agreed & Approved
The
Parties have carefully reviewed this contract and agree to and
accept all of its terms and conditions. The Parties hereto execute
this Agreement as of the Effective Date above.
Signatures on following page.
Commercial
Sublease Planet 13 & Sublessee Signature Page
Sublessee
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Sublessor
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LaBarre Chastang, Inc. dba ABC
Traffic
Programs
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BLC
Management Company, LLC
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/s/ Cherine
Child
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/s/ Leighton
Koehler
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Cherine
Child
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Leighton
Koehler
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CEO
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Manager
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August 31,
2021
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August 31,
2021
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Exhibit
10.6
PLANET 13 HOLDINGS INC.
2018 Stock Option Plan
Approved by the Shareholders on May 22, 2018
ARTICLE 1
GENERAL PROVISIONS
(a)
For the purposes of
the Plan, the following terms have the following
meanings:
“Affiliate” means an affiliate of
the Company within the meaning of Section 1.3 of NI 45-
106;
“Associate” has the meaning set out
in Section 2.22 of NI 45-106;
“Board” means the board of
directors of the Company or if established and duly authorized to
act, a committee appointed for such purpose by the board of
directors of the Company to administer the Plan;
“CSE” means the Canadian Securities
Exchange; and
“Change of Control” means the
occurrence of any one or more of the following events:
(i)
the Company is not
the surviving entity in a merger, amalgamation or other
reorganization (or survives only as a subsidiary of an entity other
than a previously wholly-owned subsidiary of the
Company);
(ii)
the Company sells,
leases or exchanges assets representing more than 50% of the fair
market value of its assets to any other person or entity (other
than an Affiliate of the Company);
(iii)
a resolution is
adopted to wind-up, dissolve or liquidate the Company;
(iv)
any person, entity
or group of persons or entities acting jointly or in concert (the
“Acquiror”) acquires, or acquires control (including,
without limitation, the power to vote or direct the voting) of, for
the first time, voting securities of the Company which, when added
to the voting securities owned of record or beneficially by the
Acquiror or which the Acquiror has the right to vote or in respect
of which the Acquiror has the right to direct the voting, would
entitle the Acquiror and/or Associates and/or affiliates of the
Acquiror to cast or direct the casting of 40% or more of the votes
attached to all of the Company’s outstanding voting
securities which may be cast to elect directors of the Company or
the successor company (regardless of whether a meeting has been
called to elect directors) and as a result of such acquisition of
control, directors of the Company holding such office immediately
before such acquisition of control shall not constitute a majority
of the Board;
(v)
as a result of or
in connection with: (A) the contested election of directors or (B)
a transaction referred to in paragraph (i) above, the nominees
named in the most recent management information circular of the
Company for election to the board of directors of the Company shall
not constitute a majority of the Board; or
(vi)
the Board adopts a
resolution to the effect that a Change of Control has occurred or
is imminent.
For the
purposes of the text above, “voting securities” means
common shares of the Company and any other shares entitled to vote
for the election of directors, and shall include any securities,
whether or not issued by the Company, which are not shares entitled
to vote for the election of directors but which are convertible
into or exchangeable for shares which are entitled to vote for the
election of directors, including any options or rights to purchase
such shares or securities;
“Company” means Planet 13 Holdings
Inc., and includes any successor to Planet 13 Holdings
Inc.;
“Eligible Contractor” means a
person who is not an employee, officer or director of the Company
that:
(i)
is engaged to
provide on a bona fide
basis consulting, technical, management or other services to the
Company or any Affiliate under a written contract with the Company
or the Affiliate;
(ii)
in the reasonable
opinion of the Board, spends or will spend a significant amount of
time and attention on the affairs and business of the Company or an
Affiliate; and
(iii)
who otherwise
qualifies as a “consultant” under section 2.22 of NI
45-106;
“Eligible Person” means, subject to
all applicable laws, (A) in respect of any grant of Options by the
Company, any director, employee, officer or Eligible Contractor of
(i) the Company or (ii) any Affiliate (and includes any such person
(other than an Eligible Contractor) who is on a leave of absence
authorized by the Board or the board of directors of any
Affiliate), and (B) in respect of any assignment of Options by a
person in (A) above pursuant to Section 2.5, means any Permitted
Assign of such person as the context requires;
“Exchange” means the CSE or such
other stock exchange or quotation system on which the Shares are
listed or quoted from time to time;
“Exchange Rate” means the noon spot
rate published by the Bank of Canada on the date the Option is
granted;
“Holding Entity” has the meaning
set out in Section 2.22 of NI 45-106;
“ISO” means an Option granted to a
US Participant that is intended to qualify as an “incentive
stock option” within the meaning of section 422 of the IRS
Code;
“Insider” means any officer,
director or other “insider” as defined by the Toronto
Stock Exchange Company Manual, from time to time;
“IRS Code” means the United States
Internal Revenue Code of 1986, as amended and the regulations and
other guidance issued under the code;
“Market Price” means the greater of
the closing Market Price of the Shares on the CSE on: (a) the
trading day prior to the date of grant of the Options; and (b) the
date of grant of the Options. In the event that the Shares are not
then listed and posted for trading on an Exchange, the Market Price
shall be the fair market value of such Shares as determined by the
Board in its sole discretion;
“NI 45-106” means National
Instrument 45-106 –
Prospectus Exemptions, as may be amended or replaced from
time to time;
“NQSO” means any Option granted to
a US Participant that is not an ISO;
“Option” means an option to
purchase Shares granted to an Eligible Person pursuant to the terms
of the Plan;
“Participant” means an Eligible
Person to whom an Option has been granted;
“Permitted Assign”
means:
(i)
a Holding Entity of
a Participant; or
(ii)
a RRSP, RRIF or
TFSA of a Participant;
“Plan” means this 2018 stock option
plan of the Company, as it may be amended from time to
time;
“Resignation” means the cessation
of board membership by a director, or employment (as an officer or
employee) of the Participant with the Company or an Affiliate as a
result of resignation;
“Retirement” means the Participant
ceasing to be an employee, officer or director of the Company or an
Affiliate after attaining a stipulated age in accordance with the
Company’s normal retirement policy or earlier with the
Company’s consent;
“Retirement Date” means the date on
which a Participant satisfies the conditions for Retirement, as
agreed between the Participant and the Company;
“RRIF” means a trust governed by a
“registered retirement income fund” as defined in the
Income Tax Act
(Canada);
“RRSP” means a trust governed by a
“registered retirement savings plan” as defined in the
Income Tax Act
(Canada);
“Share Unit Plan” means the
Company’s Share Unit Plan; “Shares” means the common shares in
the capital of the Company; “Shareholder” means a holder of
Shares;
“Subsidiary” means a
“subsidiary corporation”, whether now or hereafter
existing, as defined in section 424(f) of the IRS
Code;
“10% Shareholder” means a US
Participant who, at the time an ISO is granted, owns securities
representing more than 10% of the voting power of all classes of
shares of the Company or any Subsidiary, taking into account the
attribution rules under section 424(d) of the IRS
Code;
“Termination Date” means the date
on which the Participant ceases to be an Eligible Person subject to
section 2.6(b): (i) in the case of a director, the Termination Date
occurs on the termination of board membership of the director by
the Company or any Affiliate, the failure to re-elect or re-appoint
the individual as a director of the Company or an Affiliate or the
date of his Resignation, other than through Retirement; (ii) in the
case of an employee, the Termination Date occurs on the date of
termination of the employment of the employee, indicated in the
Company’s notice of termination, with or without cause, as
the context requires by the Company or an Affiliate, or the
effective date of his Resignation, other than through Retirement,
or in the case of an officer, upon removal of or failure to
re-elect or re-appoint the individual as an officer of the Company
or an
Affiliate, or the
effective date of his Resignation, other than through Retirement,
(iii) in the case of an Eligible Contractor, the date of
termination of the services of the Eligible
Contractor;
“TFSA” means a trust governed by a
“tax-free savings account” as described in the
Income Tax Act (Canada);
and
“US Participant” means a
Participant that is subject to federal income tax in the United
States of America pursuant to the IRS Code and any relevant tax
convention.
(b)
In the Plan, words
imparting the singular number only shall include the plural and
vice versa and words imparting the masculine shall include the
feminine.
(c)
The Plan and all
matters to which reference is made in the Plan shall be governed by
and interpreted in accordance with the laws of the Province of
British Columbia and the applicable laws of Canada.
The
purpose of the Plan is to advance the interests of the Company
by:
(a)
providing Eligible
Persons with additional incentive;
(b)
encouraging equity
ownership in the Company by such Eligible Persons;
(c)
increasing the
proprietary interest of Eligible Persons in the success of the
Company;
(d)
encouraging
Eligible Persons to remain with the Company or its Affiliates;
and
(e)
attracting new
directors, employees, officers and service providers.
(a)
The Plan shall be
administered by the Board and the Board shall have full authority
to administer this Plan, including the authority to interpret and
construe any provision of the Plan and to adopt, amend and rescind
such rules and regulations for administering the Plan as the Board
may deem necessary in order to comply with the requirements of the
Plan.
(b)
Subject to the
limitations of the Plan, the Board shall have the authority
to:
(ii)
determine the
terms, limitations, restrictions, vesting requirements and
conditions respecting Option granted;
(iii)
interpret the Plan
and adopt, amend and rescind such administrative guidelines and
other rules and regulations relating to the Plan as it shall from
time to time deem advisable subject to required prior approval by
any applicable regulatory authority or Shareholders;
(iv)
add a cashless
exercise feature to the Plan; and
(v)
make all other
determinations and take all other actions in connection with the
implementation and administration of the Plan.
(c)
The Board’s
guidelines, rules, regulations, interpretations and determinations
pursuant to or relating to the Plan shall be conclusive and binding
upon the Company and all other persons, including without
limitation all Participants. No member of the Board or any person
acting pursuant to the authority delegated by it under the Plan
shall be personally liable for any action or determination in
connection with the Plan made or taken in good faith.
(a)
The aggregate
number of Shares which may be reserved for issuance under the Plan
and all other security based compensation arrangements of the
Company (including the Share Unit Plan) shall not exceed 10% of the
Shares (on a non-diluted basis) issued and outstanding from time to
time. No fractional Shares shall be issued and the Board may
determine the manner in which fractional share values shall be
treated. If any Options granted under the Plan are cancelled or
terminated in accordance with the Plan without being exercised then
the Shares subject to those Options will again be available to be
granted under the Plan.
(b)
For greater
certainty, any increase in the issued and outstanding Shares will
result in an increase in the available number of the Shares
issuable under the Plan, and exercises of Options will make new
grants available under the Plan.
(c)
The maximum number
of Shares which may be reserved for issuance to any one person
under the Plan shall be 5% of the Shares issued and outstanding at
the time of the grant (on a non-diluted basis) less the aggregate
number of Shares reserved for issuance to such person under any
other security based compensation arrangements of the
Company.
(d)
If there is a
change in or substitution or exchange of the outstanding Shares by
reason of any stock dividend or split, recapitalization, merger,
amalgamation, arrangement, consolidation, reorganization,
combination or exchange of shares, or other corporate change, the
Board shall make, subject to the prior approval (if required) of
the relevant Exchange(s), appropriate substitution or adjustment
in:
(i)
the number or kind
of securities reserved for issuance pursuant to the Plan;
and
(ii)
the number or kind
of securities subject to unexercised Options granted and the option
exercise price of such securities; provided however that no
substitution or adjustment shall obligate the Company to issue or
sell fractional securities.
(e)
The Company shall
at all times during the term of the Plan reserve and keep available
such number of Shares as will be sufficient to satisfy the
requirements of the Plan.
1.5
Limits
with respect to Insiders
(a)
The maximum number
of Shares issuable to Insiders under the Plan and any other
security based compensation arrangements of the Company shall be
10% of the Shares issued and outstanding at the time of the grant
(on a non-diluted basis).
(b)
The maximum number
of Shares which may be issued to Insiders under the Plan and any
other security based compensation arrangements of the Company
within a 12 month period shall be 10% of the Shares, issued and
outstanding at the time of the issuance (on a non- diluted
basis).
Nothing
contained in the Plan shall prevent the Board from maintaining or
adopting other or additional compensation arrangements, subject to
any required approvals.
1.7
Amendment
or Termination
(a)
Subject to Section
1.7(b) below, the Board may at any time, and from time to time, and
without Shareholder approval amend any provision of the Plan, or
the terms of any Options granted, or terminate the Plan, subject to
any applicable regulatory or Exchange requirements or approvals at
the time of such amendment or termination, including, without
limitation, making amendments:
(i)
to Section 2.3
relating to the exercise of Options, including by the inclusion of
a cashless exercise feature;
(ii)
deemed by the Board
to be necessary or advisable because of any change in applicable
securities laws or other laws;
(iii)
to the definitions
set out in Section 1.1;
(iv)
to the Change of
Control provisions provided for in Section 3.1;
(v)
to Section 1.3
relating to the administration of the Plan;
(vi)
to the vesting
provisions of any outstanding Options;
(vii)
to postpone or
adjust any exercise of any Option or the issuance of any Shares
pursuant to the Plan as the Board in its discretion may deem
necessary in order to permit the Company to effect or maintain
registration of the Plan or the Shares issuable pursuant to the
Plan under the securities laws of any applicable jurisdiction, or
to determine that the Shares and the Plan are exempt from such
registration; and
(viii)
fundamental or
otherwise, not requiring Shareholder approval under applicable laws
or the rules of an Exchange, including amendments of a
“clerical” or “housekeeping” nature and
amendments to ensure that the Options granted under the Plan will
comply with any provisions respecting income tax and other laws in
force in any country or jurisdiction of which an Eligible Person
may from time to time be resident or a citizen.
(b)
Notwithstanding
Section 1.7(a), the Board shall not be permitted to amend the
following without first having obtained the approval of a majority
of the holders of the Shares voting at a duly called and held
meeting of Shareholders and, in the case of an amendment to Section
1.5 so as to increase the Insider participation limits, approval of
a majority of the Shareholders voting at a duly called and held
meeting of Shareholders excluding shares voted by Insiders who are
Eligible Persons:
(i)
Section 1.4(a) in
order to increase the maximum number of Shares which may be issued
under the Plan or Section 1.5 so as to increase the Insider
participation limits;
(ii)
Section 2.2 or this
Section 1.7 so as to increase the ability of the Board to amend the
Plan without Shareholder approval;
(iii)
the definitions of
“Eligible Person” and “Permitted
Assigns”;
(iv)
subject to Section
1.4(d), the exercise price of any Option issued under the Plan
where such amendment reduces the exercise price of such Option (for
this purpose, a cancellation or termination of an Option of a
Participant prior to its expiry for the purpose of re-issuing
Options to the same Participant with a lower exercise price shall
be treated as an amendment to reduce the exercise price of an
Option);
(v)
to Section 2.5
relating to the transferability of Options; or
(vi)
the term of any
Option issued under the Plan.
(c)
Any amendment or
termination of an Option shall not materially and adversely alter
the terms or conditions of any Option or materially and adversely
impair any right of any Participant under any Option granted before
the date of any such amendment or termination without the consent
of such Participant, except as otherwise required by law or as
provided in the Plan.
(d)
If the Plan is
terminated, the provisions of the Plan and any administrative
guidelines, and other rules adopted by the Board and in force at
such time, will continue in effect as long as any Options under the
Plan or any rights pursuant thereto remain outstanding. However,
notwithstanding the termination of the Plan, the Board may make any
amendments to the Plan or Options it would be entitled to make if
the Plan were still in effect.
1.8
Compliance
with Legislation
The
Plan, the grant and exercise of Options under the Plan and the
Company’s obligation to sell and deliver Shares upon exercise
of Options shall be subject to all applicable federal, provincial
and foreign laws, rules and regulations, the rules and regulations
of the Exchange and to such approvals by any regulatory or
governmental agency as may, in the opinion of counsel to the
Company, be required. The Company shall not be obligated by any
provision of the Plan or the grant of any Option under the Plan to
issue Shares in violation of such laws, rules and regulations or
any condition of such approvals. In addition, the Company shall
have no obligation to issue any Shares pursuant to the Plan unless
such Shares shall have been duly listed with the Exchange. The
Company shall, to the extent necessary, take all reasonable steps
to obtain such approvals, registrations and qualifications as may
be necessary for issuances of such Shares in compliance with
applicable laws and for the admission to listing of such Shares on
the Exchange. Shares issued and sold to Participants may be subject
to limitations on sale or resale under applicable securities
laws.
ARTICLE 2
OPTIONS
(a)
Subject to the
provisions of the Plan, the Board shall have the authority to
determine the terms, limitations, restrictions and conditions, if
any, applicable to the vesting or to the exercise of an Option,
including without limitation, the nature and duration of the
restrictions, if any, to be imposed upon the sale or other
disposition of Shares acquired upon exercise of the Option, and the
nature of the events, if any. An Eligible Person may receive
Options on more than one occasion under the Plan and may receive
separate Options on any one occasion. In addition (and without
limitation to the preceding text), at the sole discretion of the
Board, at the time of the grant, Options may be made subject to any
recoupment, reimbursement or claw-back compensation policy as may
be adopted by the Board from time to time (e.g. to address matters
such as fraud, or other significant misconduct of a
Participant).
(b)
The award of an
Option to an Eligible Person at any time shall neither entitle such
Eligible Person to receive nor preclude such Eligible Person from
receiving a subsequent Option.
(c)
Options may be
granted so that they qualify as ISOs under section 422 of the IRS
Code in accordance with the requirements and limitations in Section
4.3 below.
(d)
Each Option shall
be confirmed by an option agreement (electronic or otherwise) as
prescribed by the Board from time to time. Subject to specific
variations approved by the Board in respect of any Options all
terms and conditions set out in the Plan will be incorporated by
reference into and form part of any Option granted under the
Plan.
2.2
Option
Exercise Price
(a)
The Board will
establish the exercise price of an Option at the time each Option
is granted based on the terms set out under Section
2.2(b).
(b)
Subject to Section
4.3(e), the exercise price of an Option as established by the Board
pursuant to Section 2.2(a) will not be less than the Market
Price.
(a)
Options granted
must be exercised no later than five years after the date of grant
or such lesser period as the Board may approve. In the event that
any Option expires during, or within 48 hours after a
Company-imposed blackout period on the trading of securities of the
Company, such expiry will become the tenth day after the end of the
blackout period. A minimum of 100 Shares must be purchased by a
Participant upon exercise of Options at any one time (or, if less
the remainder of Shares available for purchase pursuant to all
Options granted to such Participant).
(b)
The exercise price
(and any applicable withholding taxes) of each Option to purchase
Shares shall be paid in full by the Participant by certified
cheque, or in another manner deemed acceptable to the Company, at
the time of such exercise, and upon receipt of payment in full, but
subject to the terms of the Plan and the related option agreement,
the number of Shares in respect of which the Option is exercised
shall be duly issued as fully paid and non-assessable.
(c)
Subject to the
provisions of the Plan and the related option agreement, an Option
may be exercised from time to time as advised by the Company from
time to time and upon payment in full of the Option exercise price
of the Shares to be purchased and any applicable withholding taxes.
Certificates for such Shares shall be issued and delivered to the
Participant within a reasonable period of time following the
receipt of such notice and payment but in any event not exceeding
five business days.
For
certainty and notwithstanding any other provision of the Plan, the
Company or any Affiliate may take such steps as it considers
necessary or appropriate for the deduction or withholding of any
income taxes or other amounts which the Company or any Affiliate is
required by any law or regulation of any governmental authority
whatsoever to deduct or withhold in connection with any Share
issued pursuant to the Plan, including, without limiting the
generality of the foregoing, (a) withholding of all or any portion
of any amount otherwise owing to a Participant; (b) the suspension
of the issue of Shares to be issued under the Plan, until such time
as the Participant has paid to the Company or any Affiliate an
amount equal to any amount which the Company or Affiliate is
required to deduct or withhold by law with respect to such taxes or
other amounts together with the exercise price for the Shares;
and/or (c) withholding and causing to be sold, by it as a trustee
on behalf of a Participant, such number of Shares as it determines
to be necessary to satisfy the withholding obligation. By
participating in the Plan, the Participant consents to any such
sale and authorizes the Company or any Affiliate, as applicable, to
effect the sale of such Shares on behalf of the Participant and to
remit the appropriate amount to the applicable governmental
authorities. Neither the Company nor any applicable Affiliate shall
be responsible for obtaining any particular price for the Shares
nor shall the Company or any applicable Affiliate be required to
issue any Shares under the Plan unless the Participant has made
suitable arrangements with the Company and any applicable Affiliate
to fund any withholding obligation.
(a)
Subject to Section
2.5(b), Options shall be non-assignable and non-transferable by the
Participants otherwise than by will or the laws of descent and
distribution, and shall be exercisable only by the Participant
during the lifetime of the Participant and only by the
Participant’s legal representative after death of the
Participant in accordance with the Plan.
(b)
Notwithstanding
Section 2.5(a), Options may, with the prior approval of the Board,
be assigned by a Participant to a Permitted Assign of such
Participant, following which such Options shall be non-assignable
and non-transferable by such Permitted Assign, except, with the
prior approval of the Board, to another Permitted Assign, otherwise
than by will or the laws of descent and distribution, and shall be
exercisable only by such Permitted Assign during the lifetime of
such Permitted Assign and only by such Permitted Assign’s
legal representative after death of such Permitted Assign in
accordance with the Plan. Notwithstanding the foregoing, an ISO may
not be transferred or assigned in any manner other than (i) by will
or the laws of descent and distribution or (ii) to the extent
required by a domestic relations order. An improper transfer of any
Options will not create any rights in the purported transferee,
will cause the immediate termination of the Options, and the
Company will not issue any Shares upon the attempted exercise of
improperly transferred Options.
2.6
Termination,
Retirement or Death
(a)
Except as otherwise
determined by the Board and subject to the limitation that Options
may not be exercised later than five years from their date of
grant:
(i)
if a Participant
ceases to be an Eligible Person for any reason whatsoever other
than death, Retirement or termination for cause, each vested Option
held by the Participant will cease to be exercisable 90 days after
the Termination Date, or in accordance with the Participant’s
employment agreement that was previously approved by the Board or
such longer period as determined by the Board; for greater
certainty, such determination may be made at any time subsequent to
the date of grant of Options, but none will be outstanding for a
period that exceeds the expiry date of the Option. If any portion
of an Option is not vested by a Participant’s Termination
Date, that portion of the Option may not be exercised by the
Participant unless the Board determines otherwise.
(ii)
If a Participant
ceases to be an Eligible Person because his relationship with the
Company or an Affiliate is terminated by the Company or the
Affiliate, as applicable, for cause, his Options shall cease to be
exercisable immediately upon such termination on the Termination
Date.
(iii)
if a Participant
retires, upon such Retirement the Participant’s unvested
Options will vest on his or her Retirement Date and the Participant
may exercise these Options within 180 days following his or her
Retirement Date or such longer period as determined by the Board,
for greater certainty such determination may be made at any time
after the date of grant of the Options, provided that no Option
shall remain outstanding for any period which exceeds the earlier
of (i) the expiry date of such Option; and (ii) 12 months following
the Retirement Date of the Participant.
(iv)
If a Participant
dies, upon such death the Participant’s Options will
immediately vest and the legal representative of the Participant
may exercise the Participant’s Options within 180 days
following the death of the Participant or such longer period as
determined by the Board, for greater certainty such determination
may be made at any time after the date of grant of the Options,
provided that no Option shall remain outstanding for any period
which exceeds the earlier of (i) the expiry date of such Option;
and (ii) 12 months following the date of death of the
Participant.
(v)
Notwithstanding the
foregoing, an ISO may not be exercisable by a US Participant beyond
the earlier of the date that is three months following the US
Participant’s termination of employment with the Company and
all Subsidiaries for reasons other than death or disability or the
expiry date of such ISO. In the event of the death of a US
Participant (including during the three month period after the US
Participant’s Termination Date) or in the event of a
termination of employment due to disability (as determined under
section 422(c)(6) of the IRS Code), no ISO still held by such US
Participant may be exercised beyond the earlier of the date that is
12 months after the date of such death or disability or the expiry
date of such ISO.
(b)
Any Participant to
whom an Option is granted under the Plan who subsequently ceases to
hold the position in which he or she received such Option shall
continue to be eligible to hold such Option as a Participant as
long as he or she otherwise falls within the definition of
“Eligible Person” in any capacity.
ARTICLE 3
CHANGE OF CONTROL
(a)
In the event of a
proposed Change of Control, the Board may, in its discretion, and
on such terms as it sees fit, accelerate the vesting of all of a
Participant’s unvested Options to a date determined by the
Board, such that all of a Participant’s Options will
immediately vest at such time. In such event, all Options so vested
will be exercisable from such date until their respective expiry
dates so as to permit the Participant to participate in such Change
of Control. For greater certainty, upon a Change of Control,
Participants shall not be treated any more favourably than
Shareholders with respect to the consideration that the
Participants may be entitled to receive for their
Shares.
(b)
If a Participant
elects to exercise its Options following a Change of Control, the
Participant shall be entitled to receive, and shall accept, in lieu
of the number of Shares which he was entitled upon such exercise,
the kind and amount of shares and other securities, property or
cash which such holder could have been entitled to receive as a
result of such Change of Control, on the effective date thereof,
had he been the registered holder of the number of Shares to which
he was entitled to purchase upon exercise of such
Options.
3.2
Right
to Terminate Options on Sale of Company
Notwithstanding any
other provision of the Plan, if the Board at any time by resolution
declares it advisable to do so in connection with any proposed
Change of Control (collectively, the “Proposed Transaction”), the
Company may give written notice to all Participants advising them
that, within 30-days or such greater period as the Board determines
in its sole discretion after the date of the notice and not
thereafter, each Participant must advise the Board whether the
Participant desires to exercise its Options before the closing of
the Proposed Transaction, and that upon the failure of a
Participant to provide such notice within the 30-day period or such
greater period as the Board determines in its sole discretion, all
rights of the Participant will terminate, provided that the
Proposed Transaction is completed within 180 days after the date of
the notice. If the Proposed Transaction is not completed within the
180-day period, no right under any Option will be exercised or
affected by the notice, except that the Option may not be exercised
between the date of expiration of the 30-day period or such greater
period as the Board determines in its sole discretion and the day
after the expiration of the 180-day period. If a Participant gives
notice that the Participant desires to exercise its Options before
the closing of the Proposed Transaction, then all Options which the
Participant elected by notice to exercise will be exercised
immediately before the effective date of the Proposed Transaction
or such earlier time as may be required to complete the Proposed
Transaction.
ARTICLE 4
MISCELLANEOUS PROVISIONS
4.1
No
Rights as Shareholder
The
holder of an Option shall not have any rights as a Shareholder with
respect to any of the Shares underlying an Option until such holder
has exercised such Option in accordance with the terms of the Plan
(including tendering payment in full of the exercise price in
respect of which the Option is being exercised and paying
applicable withholding taxes).
4.2
No
Rights to Continued Employment or Engagement
Nothing
in the Plan or any Option shall confer upon a Participant any right
to continue in the employment or engagement of the Company or any
Affiliate or affect in any way the right of the Company or any
Affiliate to terminate his employment or engagement at any time;
nor shall anything in the Plan or any Option be deemed or construed
to constitute an agreement, or an expression of intent, on the part
of the Company or any Affiliate to extend the employment or
engagement of any Participant beyond the date on which he would
normally be retired pursuant to the provisions of any present or
future retirement plan of the Company or any Affiliate, or beyond
the date on which his relationship with the Company or any
Affiliate would otherwise be terminated pursuant to the provisions
of any employment, consulting or other contract for services with
the Company or any Affiliate.
4.3
Special
Requirements for US Participants
(a)
Notwithstanding any
other provision of the Plan to the contrary, the aggregate number
of Shares available for ISOs shall not exceed 10% of the Shares (on
a non-diluted basis) issued and outstanding from time to time,
subject to adjustment pursuant to Section 1.4 of the Plan and
subject to the provisions of sections 422 and 424 of the IRS
Code.
(b)
Individuals
eligible to receive ISOs are US Participants who are employees of
the Company or a Subsidiary.
(c)
Each option
agreement or grant letter shall specify whether the related Option
is an ISO or a NQSO. If no such specification is made, the related
Option will be an NQSO.
(d)
An ISO shall be
treated as a NQSO to the extent that the aggregate Market Price
(determined as of the applicable grant date) with respect to which
ISOs are exercisable by the US Participant for the first time
during any calendar year (pursuant to the Plan and all other plans
of the Company and of any Affiliate for purposes of section 422 of
the IRS Code) will exceed US$100,000 or any other limitation
subsequently set out in section 422(d) of the IRS Code. If two or
more Options designated as ISOs first become exerciseable in the
same calendar year, the $100,000 limit shall be applied to the
Options in the order in which they were granted, and any Shares
whose value exceeds the limit shall be deemed to be covered by an
NQSO.
(e)
The exercise price
per Share of an ISO granted to a 10% Shareholder will be not less
than 110% of the Market Price on the applicable grant date and such
ISO shall not be exercisable later than the expiration of five
years after the date of grant.
(f)
An ISO may only be
granted within the 10-year period beginning from the earlier of the
date the Plan is adopted by the Board or the date the Plan is
approved by Shareholders.
(g)
If the Board
determines to extend the exercise period of an ISO pursuant to its
authority under Section 2.3 above or to make any other revision to
the terms of an ISO, such Option shall thereafter be treated as a
NQSO to the extent required under sections 422 and 424 of the IRS
Code.
(h)
No NQSO shall be
granted to a US Participant unless, with respect to such US
Participant, the Shares constitute “service recipient
stock” under section 409A of the IRS Code. Notwithstanding
any provision in the Plan to the contrary, any revision to the
terms of an NQSO granted to a US Participant shall be made only if
it does not create adverse tax consequences under section 409A of
the IRS Code.
ARTICLE 5
ADOPTION
The
Plan shall be effective upon the approval by the
Shareholders.
Exhibit 10.7
PLANET 13 HOLDINGS INC.
2018
SHARE UNIT PLAN
(Adopted May 22, 2018)
(Amended pursuant to majority shareholder vote, July 11, 2018
and
further amended pursuant to the approval of the board of directors
of
Planet 13 Holdings Inc. on May 20, 2020)
ARTICLE 1
DEFINITIONS AND
INTERPRETATION
1.1 For the purposes of
this Plan, unless such word or term is otherwise defined herein or
the context in which such word or term is used herein otherwise
requires, the following words and terms with the initial letter or
letters thereof capitalized shall have the following
meanings:
A.
“Act” means the Business Corporations Act (British
Columbia), or its successor, as amended, from time to
time;
B.
“Affiliate” means an affiliate of
the Company within the meaning of Section 1.3 of NI
45106;
C.
“Associate” has the meaning set out
in Section 2.22 of NI 45-106;
D.
“Award Date” means the date that a
Share Unit Award Agreement is awarded to, and agreed to by, a
Participant under this Plan, as evidenced by the register or
registers maintained by the Company for Share Units;
E.
“Board” means the board of
directors of the Company or if established and duly authorized to
act, a committee appointed for such purpose by the board of
directors of the Company to administer the Plan;
F.
“CSE” means the Canadian Securities
Exchange
G.
“Change of Control” means the
occurrence of any one or more of the following events:
(i)
the Company is not
the surviving entity in a merger, amalgamation or other
reorganization (or survives only as a subsidiary of an entity other
than a previously wholly-owned subsidiary of the
Company);
(ii)
the Company sells,
leases or exchanges assets representing more than 50% of the fair
market value of its assets to any other person or entity (other
than an Affiliate of the Company);
(iii)
a resolution is
adopted to wind-up, dissolve or liquidate the Company;
(iv)
any person, entity
or group of persons or entities acting jointly or in concert (the
“Acquiror”) acquires, or acquires control (including,
without limitation, the power to vote or direct the voting) of, for
the first time, voting securities of the Company which, when added
to the voting securities owned of record or beneficially by the
Acquiror or which the Acquiror has the right to vote or in respect
of which the Acquiror has the right to direct the voting, would
entitle the Acquiror and/or Associates and/or affiliates of the
Acquiror to cast or direct the casting of 40% or more of the votes
attached to all of the Company’s outstanding voting
securities which may be cast to elect directors of the Company or
the successor company (regardless of whether a meeting has been
called to elect directors) and as a result of such acquisition of
control, directors of the Company holding such office immediately
before such acquisition of control shall not constitute a majority
of the Board;
(v)
as a result of or
in connection with: (A) the contested election of directors or (B)
a transaction referred to in paragraph (i) above, the nominees
named in the most recent management information circular of the
Company for election to the board of directors of the Company shall
not constitute a majority of the Board; or
(vi)
the Board adopts a
resolution to the effect that a Change of Control has occurred or
is imminent.
For the
purposes of the text above, “voting securities” means
common shares of the Company and any other shares entitled to vote
for the election of directors, and shall include any securities,
whether or not issued by the Company, which are not shares entitled
to vote for the election of directors but which are convertible
into or exchangeable for shares which are entitled to vote for the
election of directors, including any options or rights to purchase
such shares or securities;
H.
“Company” means Planet 13 Holdings
Inc., a Company existing under the Act, and includes any successor
Company thereof;
I.
“Eligible Contractor” means a
person who is not an employee, officer or director of the Company
that:
(i)
is engaged to
provide on a bona fide
basis consulting, technical, management or other services to the
Company or any Affiliate under a written contract with the Company
or the Affiliate;
(ii)
in the reasonable
opinion of the Board, spends or will spend a significant amount of
time and attention on the affairs and business of the Company or an
Affiliate; and
(iii)
who otherwise
qualifies as a “consultant” under section 2.22 of NI
45-106 ;
J.
“Insider” means: (i) an insider as
defined in the Securities
Act (Ontario), as may be amended from time to time, other
than a person who is an Insider solely by virtue of being a
director or senior officer of an Affiliate; and (ii) an Associate
of any person who is an insider by virtue of (i);
K.
“Market Price” means the greater of
the closing Market Price of the Shares on the CSE on: (a) the
trading day prior to a Award Date; and (b) a Award Date. In the
event that the Shares are not then listed and posted for trading on
an Exchange, the Market Price shall be the fair market value of
such Shares as determined by the Board in its sole
discretion;
L.
“NI 45-106” means National
Instrument 45-106 – Prospectus Exemptions, as may be
amended or replaced from time to time;
M.
“Participant” means any director,
employee, officer or Eligible Contractor of the Company or any
Affiliate of the Company or of any Affiliate to whom Share Units
are awarded hereunder;
N.
“Plan” means this Share Unit Plan,
as same may be amended from time to time;
O.
“Required Shareholder Approval”
means the approval of this Plan by the shareholders of the Company,
as may be required by the CSE or any other Stock Exchange on which
the Shares are listed, as a plan allowing for the issuance of
Shares from treasury to satisfy Share Units no later than an
applicable Settlement Date, as contemplated in Article
4;
P.
“Resignation” means the cessation
of board membership by a director, or employment (as an officer or
employee) of the Participant with the Company or an Affiliate as a
result of resignation;
Q.
“Retirement” means the Participant
ceasing to be an employee, officer or director of the Company or an
Affiliate after attaining a stipulated age in accordance with the
Company’s normal retirement policy or earlier with the
Company’s consent;
R.
“Settlement Date” means the outside
date which the Company shall issue, or cause to be issued, to
Participants, Shares underlying a vested Share Unit, which shall be
specified in each Share Unit Award Agreement;
S.
“Shares” means the common shares in
the capital of the Company;
T.
“Share Unit” means a unit credited
by means of an entry on the books of the Company to a Participant,
representing the right to receive no later than the
Participant’s Settlement Date, subject to any Required
Shareholder Approval being obtained, such number of Shares issued
from treasury determined in accordance with Section 3.7(ii) and
Article 4;
U.
“Share Unit Award Agreement” means
an award of Share Units under this Plan as agreed to by a
Participant;
V.
“Stock Exchange” means the CSE or
any other stock exchange on which the Shares are listed for trading
at the relevant time;
W.
“Termination” means: (i) in the
case of a director, the termination of board membership of the
director by the Company or any Affiliate, the failure to re-elect
or re-appoint the individual as a director of the Company or an
Affiliate or Resignation, other than through Retirement; (ii) in
the case of an employee, the termination of the employment of the
employee, with or without cause, as the context requires by the
Company or an Affiliate or Resignation, other than through
Retirement or in the case of an officer, the removal of or failure
to re-elect or re-appoint the individual as an officer of the
Company or an Affiliate, or Resignation, other than through
Retirement, (iii) in the case of an Eligible Contractor, the
termination of the services of the Eligible Contractor by the
Contractor or the Company or any Affiliate; provided that in each
case if the Participant continues as a director, employee, officer
or Eligible Contractor after such Termination, then a Termination
will not occur until such time thereafter that the Participant
ceases to be a director, employee, officer or Eligible Contractor
in accordance with this definition; and
X.
“Triggering Event” means (i) in the
case of a director, the termination of board membership of the
director by the Company or any Affiliate, the failure to re-elect
or reappoint the individual as a director of the Company or an
Affiliate; (ii) in the case of an employee, the termination of the
employment of the employee, without cause, as the context requires
by the Company or an Affiliate or in the case of an officer, the
removal of or failure to re-elect or re-appoint the individual as
an officer of the Company or an Affiliate; (iii) in the case of an
employee or an officer, a material adverse change imposed by the
Company or the Affiliate (as the case may be) in duties, powers,
rights, discretion, prestige, salary, benefits, perquisites, as
they exist, and with respect to financial entitlements, the
conditions under and manner in which they were payable, immediately
prior to the Change of Control, or a material diminution of title
imposed by the Company or the Affiliate (as the case may be), as it
exists immediately prior to the Change of Control; (iv) in the case
of an Eligible Contractor, the termination of the services of the
Eligible Contractor by the Company or any Affiliate.
1.2 The headings of all
articles, Sections and paragraphs in this Plan are inserted for
convenience of reference only and shall not affect the construction
or interpretation of this Plan.
1.3 Whenever the
singular or masculine are used in this Plan, the same shall be
construed as being the plural or feminine or neuter or vice versa
where the context so requires.
1.4 The words
“herein”, “hereby”,
“hereunder”, “hereof” and similar
expressions mean or refer to this Plan as a whole and not to any
particular article, Section, paragraph or other part
hereof.
1.5 Unless otherwise
specifically provided, all references to dollar amounts in this
Plan are references to lawful money of Canada.
ARTICLE 2
PURPOSE AND ADMINISTRATION OF THE PLAN
2.1 This Plan provides
for the award of Share Units and the settlement of such Share Units
through the issuance of Shares from treasury (subject to vesting
and performance conditions or measures, if any, and subject to the
Required Shareholder Approval) for services rendered, for the
purpose of advancing the interests of the Company, its Affiliates
and its shareholders through the motivation, attraction and
retention of directors, employees, officers and Eligible
Contractors and the alignment of their interests with the interests
of the Company’s shareholders.
2.2 This Plan shall be
administered by the Board and the Board shall have full authority
to administer this Plan, including the authority to interpret and
construe any provision of this Plan and to adopt, amend and rescind
such rules and regulations for administering this Plan as the Board
may deem necessary in order to comply with the requirements of this
Plan. All actions taken and all interpretations and determinations
made by the Board in good faith shall be final and conclusive and
shall be binding on the Participants and the Company. No member of
the Board shall be personally liable for any action taken or
determination or interpretation made in good faith in connection
with this Plan and all members of the Board shall, in addition to
their rights as directors of the Company, be fully protected,
indemnified and held harmless by the Company with respect to any
such action taken or determination or interpretation made in good
faith. The appropriate officers of the Company are hereby
authorized and empowered to do all things and execute and deliver
all instruments, undertakings and applications and writings as
they, in their absolute discretion, consider necessary for the
implementation of this Plan and of the rules and regulations
established for administering this Plan. All costs incurred in
connection with this Plan shall be for the account of the
Company.
2.3 The Company shall
maintain a register in which it shall record the name and address
of each Participant and the number of Share Units awarded to each
Participant.
2.4 Subject to Section
3.1, the Board shall from time to time determine the Participants
who may participate in this Plan. The Board shall from time to time
determine the Participants to whom Share Units shall be awarded and
the provisions and restrictions with respect to such award, all
such determinations to be made in accordance with the terms and
conditions of this Plan.
ARTICLE 3
SHARE UNITS AWARDS
3.1 This Plan is hereby
established for directors, employees, officers and Eligible
Contractors of the Company and its Affiliates.
3.2 The number of Share
Units awarded to a Participant will be credited to the
Participant’s account, effective as of the Award
Date.
For the
avoidance of doubt, a Participant will have no right or entitlement
whatsoever to receive any Shares until the Share Unit has
vested.
3.3 The Board shall
determine when any Share Unit will vest which may be as early as
the Award Date, or in installments, or pursuant to a vesting
schedule, in accordance with the provisions of this Plan and rules
of the Stock Exchange, and specified in the Share Unit Award
Agreement.
3.4 Each Share Unit
award will be governed by a Share Unit Award Agreement as provided
for in section 3.8 and this Plan in the form attached as Schedule
“A”. Each Participant shall have the right to exercise
a vested Share Unit at any time prior to the Settlement Date, by
providing a notice of exercise to the Company in the form attached
as Schedule “B”. Upon receipt of a notice of exercise,
the Company shall deliver, or cause to be delivered, certificates
representing the Shares underlying such Share Unit to the
Participant in accordance with the Participant’s
instructions.
3.5 Subject to the
absolute discretion of the Board, the Board may elect to credit
each Participant with additional Share Units as a bonus in the
event any dividend (other than a stock dividend) is paid on the
Shares. In such case, the number of additional Share Units will be
equal to the aggregate amount of dividends that would have been
paid to the Participant if the Share Units (vested and unvested) in
the Participant’s account had been Shares divided by the
Market Price of a Share on the date on which dividends were paid by
the Company.
The
additional Shares Units will vest and be subject to the same terms
in proportion to the initial Share Units.
3.6 Except as otherwise
set forth in this section 3.6, a vested Share Unit will entitle the
Participant, subject to the satisfaction of any conditions,
measures, restrictions or limitations imposed under this Plan or
the applicable Share Unit Award Agreement, to receive one Share no
later than the Participant’s Settlement Date as set forth in
the applicable Share Unit Award Agreement.
Notwithstanding
the foregoing, unless the Board determines otherwise, a
Participant’s Settlement Date shall be accelerated as
follows:
(i)
in the event of the
death of the Participant, the Participant’s Settlement Date
shall be the date of death; and
(ii)
in the event of the
total disability of the Participant, the Participant’s
Settlement Date shall be the date which is 60 days following the
date on which the Participant becomes totally
disabled.
In the
event of the Termination with or without cause (or Retirement) of a
Participant, all unvested Share Units credited to the Participant
shall become void and the Participant shall have no entitlement and
will forfeit any rights to receive Shares under this Plan, except
as may otherwise be determined by the Board in its sole and
absolute discretion.
For
greater certainty, any Shares to be issued to a Participant on
exercise of a vested Share Unit shall be issued to the Participant
or the Participant’s estate on or immediately following
receipt by the Company of a notice of exercise prior to the
Settlement Date provided, however, that in the event a Participant
does not provide the Company with a notice of exercise in respect
of a vested Share Unit, the Company shall issue all Shares
underlying a vested Share Unit to the Participant on the earlier
of: (a) the Settlement Date; (b) the date of Termination of the
Participant; and (c) the death or total disability of the
Participant in accordance with Section 3.6(i) or Section
3.6(ii).
3.7 Subject to Section
5.1, the Company will satisfy its obligation to settle any vested
Share Units by the issuance of Shares to the Participant (in
accordance with Article 4) in an amount equal to the number of
Share Units being exercised or settled.
3.8 Each award of a
Share Unit under this Plan shall be evidenced by a Share Unit Award
Agreement between the Company and the Participant. Such Share Unit
Award Agreement shall be subject to all applicable terms and
conditions of this Plan and may be subject to any other terms and
conditions which are not inconsistent with this Plan and which the
Board deems appropriate for inclusion in a Share Unit Award
Agreement. The provisions of the various Share Unit Award Agreement
issued under this Plan need not be identical.
3.9 Concurrent with the
determination to award Share Units to a Participant, the Board
shall determine the Settlement Date applicable to such Share Units,
provided the Board shall have discretion to amend the Settlement
Date after such award. In addition, the Board may at the time Share
Units are awarded, make such Share Units subject to performance
conditions or measures to be achieved by the Company, the
Participant or a class of Participants, prior to the Settlement
Date, for such Share Units.
3.10 The
Board shall establish criteria for the award of Share Units to
Participants, if any, to be set out in the Share Unit Award
Agreement.
3.11 If
a Triggering Event occurs in connection with or within the 12-month
period immediately following a Change of Control pursuant to the
provisions of Section 1.1G(i), (ii), (iv), (v) or (vi) (with
respect to (vi), if the Board has adopted a resolution that a
Change of Control has occurred), all outstanding Share Units shall
vest (notwithstanding any contrary vesting provisions previously in
place) and the Settlement Date shall occur, on the date of such
Triggering Event.
3.12 In
the event of a Change in Control pursuant to the provisions of
Section 1.1G(iii), all Share Units outstanding shall immediately
vest and the Settlement Date shall occur.
ARTICLE 4
ADDITIONAL
PROVISIONS
4.1 This Plan shall
become effective only on receipt by the Company of any Stock
Exchange approval and of the Required Shareholder
Approval.
4.2 The maximum number
of Shares made available for the Plan shall be determined from time
to time by the Board, but in any case, shall not exceed, when
combined with all other share compensation arrangements (including
the stock option plan of the Company), 10% of the Shares issued and
outstanding from time to time, subject to adjustments pursuant to
Section 6.6. The Plan shall be a “rolling plan” and
therefore when Share Units are settled, cancelled or terminated,
Shares shall automatically be available for the award of new Share
Units under this Plan. For purposes of this Section 4.2, the number
of Shares then outstanding shall mean the number of Shares
outstanding (on a non-diluted basis) immediately prior to the
proposed award of the applicable Share Units.
4.3 The Board may from
time to time in its discretion (without shareholder approval)
amend, modify and change the provisions of the Plan (including any
Share Unit Award Agreements), including, without
limitation:
(i)
amendments of a
house keeping nature; and
(ii)
changes to the
Settlement Date of any Share Units.
However,
other than as set out above, any amendment, modification or change
to the provisions of the Plan which would:
(a)
materially increase
the benefits to the holder of the Share Units who is an Insider to
the material detriment of the Company and its
shareholders;
(b)
increase the number
of Shares or maximum percentage of Shares which may be issued
pursuant to the Plan other than by virtue of Section 6.6 of the
Plan;
(c)
reduce the range of
amendments requiring shareholder approval contemplated in this
Section;
(d)
permit Share Units
to be transferred other than for normal estate settlement
purposes;
(e)
change insider
participation limits which would result in shareholder approval
being required on a disinterested basis; or
(f)
materially modify
the eligibility requirements for participation in the
Plan.
shall
only be effective on such amendment, modification or change being
approved by the shareholders of the Company. In addition, any such
amendment, modification or change of any provision of the Plan
shall be subject to the approval, if required, by any Stock
Exchange having jurisdiction over the securities of the
Company.
4.4 Shares
Reserved
(a)
The aggregate
number of Shares which may be reserved for issuance under this Plan
and all other security based compensation arrangements of the
Company (including the Company’s incentive stock option plan)
shall not exceed 10% of the Shares (on a non-diluted basis) issued
and outstanding from time to time. No fractional Shares shall be
issued and the Board may determine the manner in which fractional
share values shall be treated. If any Share Units granted under
this Plan are cancelled or terminated in accordance with this Plan
without being exercised or settled then the Shares subject to those
Share Units will again be available to be granted under this
Plan.
(b)
For greater
certainty, any increase in the issued and outstanding Shares will
result in an increase in the available number of the Shares
issuable under this Plan, and the exercise or settlement of Share
Units will make new grants available under this Plan.
(c)
The maximum number
of Shares which may be reserved for issuance to any one person
under this Plan shall be 5% of the Shares issued and outstanding at
the time of the award of a Share Unit (on a non-diluted basis) less
the aggregate number of Shares reserved for issuance to such person
under any other security based compensation arrangements of the
Company.
(d)
If there is a
change in or substitution or exchange of the outstanding Shares by
reason of any stock dividend or split, recapitalization, merger,
amalgamation, arrangement, consolidation, reorganization,
combination or exchange of shares, or other corporate change, the
Board shall make, subject to the prior approval (if required) of
the relevant Stock Exchange(s), appropriate substitution or
adjustment in:
(i)
the number or kind
of securities reserved for issuance pursuant to this Plan;
and
(ii)
the number or kind
of securities subject to unredeemed Share Units awarded; provided
however that no substitution or adjustment shall obligate the
Company to issue fractional securities.
(e)
The Company shall
at all times during the term of this Plan reserve and keep
available such number of Shares as will be sufficient to satisfy
the requirements of this Plan.
ARTICLE 5
WITHHOLDING TAXES
5.1 For certainty and
notwithstanding any other provision of the Plan, the Company or any
Affiliate may take such steps as it considers necessary or
appropriate for the deduction or withholding of any income taxes or
other amounts which the Company or any Affiliate is required by any
law or regulation of any governmental authority whatsoever to
deduct or withhold in connection with any Share issued pursuant to
the Plan, including, without limiting the generality of the
foregoing, (a) withholding of all or any portion of any amount
otherwise owing to a Participant; (b) the suspension of the issue
of Shares to be issued under the Plan, until such time as the
Participant has paid to the Company or any Affiliate an amount
equal to any amount which the Company or Affiliate is required to
deduct or withhold by law with respect to such taxes or other
amounts; and/or (c) withholding and causing to be sold, by it as a
trustee on behalf of a Participant, such number of Shares as it
determines to be necessary to satisfy the withholding obligation.
By participating in the Plan, the Participant consents to any such
sale and authorizes the Company or any Affiliate, as applicable, to
effect the sale of such Shares on behalf of the Participant and to
remit the appropriate amount to the applicable governmental
authorities. Neither the Company nor any applicable Affiliate shall
be responsible for obtaining any particular price for the Shares
nor shall the Company or any applicable Affiliate be required to
issue any Shares under the Plan unless the Participant has made
suitable arrangements with the Company and any applicable Affiliate
to fund any withholding obligation.
ARTICLE 6
GENERAL
6.1 This Plan shall
remain in effect until it is terminated by the Board.
6.2 The Board may amend
or discontinue this Plan at any time in its sole discretion,
provided that such amendment or discontinuance may not in any
manner adversely affect the Participant’s rights under any
Share Unit awarded under this Plan. This section 6.2 shall be
subject to the restrictions outlined in section 4.3 on Article 4
becoming effective.
6.3 Except pursuant to
a will or by the laws of descent and distribution, no Share Unit
and no other right or interest of a Participant under this Plan is
assignable or transferable.
6.4 No holder of any
Share Units shall have any rights as a shareholder of the Company.
Except as otherwise specified herein or determined by the Board in
its discretion, no holder of any Share Units shall be entitled to
receive, and no adjustment is required to be made for, any
dividends, distributions or any other rights declared for
shareholders of the Company.
6.5 Nothing in this
Plan shall confer on any Participant the right to continue as a
director, employee, officer or Eligible Contractor of the Company
or any Affiliate, as the case may be, or interfere with the right
of the Company or Affiliate, as applicable, to remove such
director, officer and/or employee or terminate its contractual
relationship with such Eligible Contractor as applicable. Nothing
contained in this Plan shall confer or be deemed to confer on any
Participant the right to continue in the employment of, or to
provide services to, the Company or its Affiliates nor to interfere
or be deemed to interfere in any way with any right of the Company
or its Affiliates to discharge any Participant at any time for any
reason whatsoever, with or without cause.
6.6 In the event there
is any change in the Shares, whether by reason of a stock dividend,
consolidation, subdivision, reclassification or otherwise, an
appropriate adjustment shall be made to outstanding Share Units by
the Board, in its sole discretion, to reflect such changes. If the
foregoing adjustment shall result in a fractional Share or Share
Unit, the fraction shall be disregarded. All such adjustments shall
be conclusive, final and binding for all purposes of this
Plan.
6.7 For the avoidance
of doubt, all payments under this Plan to individuals subject to
United States income tax shall be made no later than the deadline
set forth in section 1.409A-1(b)(4)(i) of the United States
Treasury Regulations with respect to short-term deferrals of
compensation.
6.8 If any provision of
this Plan or any Share Unit contravenes any law or any order,
policy, by-law or regulation of any regulatory body having
jurisdiction, then such provision shall be deemed to be amended to
the extent necessary to bring such provision into compliance
therewith.
6.9 This Plan shall be
governed by and construed in accordance with the laws of the
Province of Ontario and the federal laws of Canada applicable
therein.
Schedule “A”
Form of Share Unit Award Agreement
Notice
is hereby given that, effective this ____ day of , Planet 13 Holdings Inc. (the
“Company”) has
awarded to (the “Participant”), a share unit (the
“Share Unit”) to
acquire common shares of the Company (the “Common Shares”). Each vested Share
Unit will entitle the Participant to receive one Common Share no
later than☐☐ (the
“Settlement
Date”).
The
Share Units shall vest and become exercisable in accordance with,
and upon satisfaction of the conditions set out in, the following
schedule:
☐
The
award of the Share Unit evidenced hereby is made subject to the
terms and conditions of the Company’s share unit plan (the
“Share Unit
Plan”), the terms and conditions of which are hereby
incorporated herein and acknowledged and agreed to by the
undersigned Participant.
Any
Common Shares to be issued to the Participant on exercise of a
vested Share Unit shall be issued to the Participant or the
Participant’s estate on or immediately following receipt of a
notice of redemption (“Notice
of Redemption”) by the Company in the form attached as
Schedule “B” to the Share Unit Plan prior to the
Settlement Date provided, however, that in the event a Participant
does not provide the Company with a Notice of Redemption in respect
of a vested Share Unit, the Company shall issue all Common Shares
underlying a vested Share Unit to the Participant on the earlier
of: (a) the Settlement Date; (b) the date of termination of the
Participant; and (c) the death or total disability of the
Participant in accordance with the terms of the Share Unit
Plan.
To
exercise any vested Share Units, you must deliver to the Company a
Notice of Redemption specifying the number of Common Shares you
wish to acquire. At the discretion of the Company a declaration of
residence may also be requested prior to the issuance of any Common
Shares. Upon receipt by the Company of requisite documents, and
upon you remitting to the Company any applicable income tax or
making appropriate arrangements for payment of any applicable tax,
the Company’s transfer agent will then issue a certificate
for the Common Shares so acquired as soon as practicable
thereafter.
PLANET
13 HOLDINGS INC.
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PARTICIPANT
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Authorized
Signatory
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Name:
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Schedule “B”
SHARE UNIT AWARD NOTICE OF EXERCISE
TO: PLANET 13 HOLDINGS INC. (THE
“COMPANY”)
The
undersigned hereby irrevocably elects to exercise vested Share
Units awarded by the Company to the undersigned pursuant to a Share
Unit Award Agreement dated☐ for the number of common
shares in the capital of the Company (“Common Shares”) as set forth
below:
Number of Common
Shares to be Acquired:
|
|
|
|
|
|
Amount
enclosed that is payable, if applicable, on account of withholding
of tax or other required deductions relating to the exercise of the
Share Units (contact the Company for details of such amount) (the
“Applicable Withholdings and
Deductions”):
|
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$
|
|
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☐ Or check
here if alternative arrangements have been made with the Company
with respect to the payment of Applicable Withholdings and
Deductions;
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and
directs such Common Shares to be registered and a certificate
therefore to be issued in the name of
____________________________________.
DATED this _____ day of ______________________,
______.
STOCK OPTION AGREEMENT
This Stock Option Agreement is dated this ___ day
of __________, 20___ between Planet 13 Holdings Inc. (the
“Corporation”) and [Name] (the “Optionee”).
WHEREAS the Optionee has been granted certain options (“Options”) to acquire common shares in the capital
of the Corporation(“Common
Shares”) under the Planet
13 2018 Stock Option Plan (the “Option Plan”), a copy of which has been provided to the
Eligible Optionee;
AND WHEREAS capitalized terms used herein and not otherwise
defined shall have the meanings given to them in the Option
Plan;
NOW THEREFORE
for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1.
The Corporation
confirms that the Optionee has been granted Options under the
Option Plan on the following basis, subject to, the terms and
conditions of the Option Plan:
DATE OF GRANT
|
NUMBER OF OPTIONS
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EXERCISE PRICE (CDN$)
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VESTING SCHEDULE
|
EXPIRY DATE
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[___]
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[___]
|
[___]
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[___]
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[___]
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1.
Attached to this
Agreement as Schedule “A” is a form of notice that the
Optionee may use to exercise any of his or her Options in
accordance with Section 2.1(d) of the Option Plan at any time and
from time to time prior the Expiry Date of such
Options.
2.
By signing this
Stock Option Agreement, the Optionee acknowledges that he or she
has read and understands the Option Plan and agrees to the terms
and conditions thereof and of this Stock Option
Agreement.
3.
This Agreement
shall be governed by the laws of the Province of Ontario and the
federal laws of Canada applicable therein. Time shall be of the
essence of this Agreement. This Agreement shall enure to the
benefit of and shall be binding upon the parties and their heirs,
attorneys, guardians, estate trustees, executors, trustees and
administrators and the successors of the Corporation.
IN WITNESS WHEREOF
the parties hereto have executed this
Agreement.
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PLANET 13 HOLDINGS INC.
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Name of Optionee:
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Authorized Signing Officer
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ELECTION TO EXERCISE STOCK OPTIONS
TO: PLANET 13 HOLDINGS
INC. (THE
“CORPORATION”)
The
undersigned option holder hereby irrevocably elects to exercise
options (“Options”) granted by the
Corporation to the undersigned pursuant to a Stock Option Agreement
dated __________, 20___ for the number of common shares in the
capital of the Corporation (“Common Shares”) as set forth
below:
Number
of Common Shares to be Acquired:
|
|
|
Option
Exercise Price (per Common Share):
|
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$
|
Aggregate
Purchase Price:
|
|
$
|
Amount
enclosed that is payable on account of withholding of tax or other
required deductions relating to the exercise of the Options
(contact the Corporation for details of such amount)(the
“Applicable Withholdings and
Deductions”):
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$
|
□
Or check here if alternative arrangements have been made with the
Corporation with respect to the payment of Applicable Withholdings
and Deductions;
|
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and
hereby tenders a certified cheque or bank draft for such Aggregate
Purchase Price, and, if applicable, Applicable Withholdings and
Deductions, and directs such Common Shares to be registered and a
certificate therefore to be issued in the name of
______________________________________________.
DATED this ____ day of __________________,
______.
Form of Share Unit Award Agreement
Notice
is hereby given that, effective this ____ day of
_____________________, Planet 13 Holdings Inc. (the
“Company”) has
awarded to ______________________ (the “Participant”), a share unit (the
“Share Unit”) to
acquire ______________ common shares of the Company (the
“Common
Shares”). Each vested Share Unit will entitle the
Participant to receive one Common Share no later than ____ (the
“Settlement
Date”).
The
Share Units shall vest and become exercisable in accordance with,
and upon satisfaction of the conditions set out in, the following
schedule:
[____]
The
award of the Share Unit evidenced hereby is made subject to the
terms and conditions of the Company’s share unit plan (the
“Share Unit
Plan”), the terms and conditions of which are hereby
incorporated herein and acknowledged and agreed to by the
undersigned Participant.
Any
Common Shares to be issued to the Participant on exercise of a
vested Share Unit shall be issued to the Participant or the
Participant’s estate on or immediately following receipt of a
notice of redemption (“Notice
of Redemption”) by the Company in the form attached as
Schedule “B” to the Share Unit Plan prior to the
Settlement Date provided, however, that in the event a Participant
does not provide the Company with a Notice of Redemption in respect
of a vested Share Unit, the Company shall issue all Common Shares
underlying a vested Share Unit to the Participant on the earlier
of: (a) the Settlement Date; (b) the date of termination of the
Participant; and (c) the death or total disability of the
Participant in accordance with the terms of the Share Unit
Plan.
To
exercise any vested Share Units, you must deliver to the Company a
Notice of Redemption specifying the number of Common Shares you
wish to acquire. At the discretion of the Company a declaration of
residence may also be requested prior to the issuance of any Common
Shares. Upon receipt by the Company of requisite documents, and
upon you remitting to the Company any applicable income tax or
making appropriate arrangements for payment of any applicable tax,
the Company’s transfer agent will then issue a certificate
for the Common Shares so acquired as soon as practicable
thereafter.
PLANET 13 HOLDINGS INC.
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PARTICIPANT
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Authorized Signatory
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Name:
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Exhibit 10.10
Employment Agreement
This
Employment Agreement (the “Agreement”) is made and
entered into as of June 1, 2018, by and between Christopher Brian
Wren (the “Executive”) and MM Development Company,
Inc., a Nevada domestic corporation (the
“Company”).
WHEREAS,
the Company desires to employ the Executive on the terms and
conditions set forth herein;
WHEREAS,
the Executive desires to be employed by the Company on such terms
and conditions; and,
WHEREAS,
MM Development Company, Inc. anticipates being the subsidiary of
Planet 13 Holdings, Inc., and Company and Executive anticipate that
Executives position shall be ratified by Planet 13 Holdings, Inc.,
and that Executive shall be providing services for both MM
Development Company, Inc. and Planet 13 Holdings, Inc., and for
other subsidiaries of Planet 13 Holdings, Inc.
NOW,
THEREFORE, in consideration of the mutual covenants, promises, and
obligations set forth herein, the parties agree as
follows:
1. Term.
The
Executive’s Employment hereunder shall be effective as of May
15, 2018, (the “Effective Date”) and shall continue
until the fifth anniversary thereof, unless terminated earlier
pursuant to Section 5 of this Agreement; provided that, on such
fifth anniversary of the Effective Date and each annual anniversary
thereafter (such date and each annual anniversary thereof, a
“Renewal Date”), the Agreement shall be deemed to be
automatically extended, upon the same terms and conditions, for
successive periods of one year, unless either party provides
written notice of its intention not to extend the term of the
Agreement at least 90 days’ prior to the applicable Renewal
Date. The period during which the Executive is employed by the
Company hereunder is hereinafter referred to as the
“Employment Term.”
2. Position
and Duties.
a. Position.
During
the Employment Term, the Executive shall serve as the Vice
President of Operations of the Company, reporting to the Chief
Executive Officer and to the Board. In such position, the Executive
shall have such duties, authority, and responsibility as shall be
determined from time to time by the Chief Executive Officer, which
duties, authority, and responsibility are consistent with the
Executive’s position. The Executive shall, if requested, also
serve as a member of the board of directors of the Company (the
“Board”) or as an officer or director of any affiliate
of the Company for no additional compensation.
b. Duties.
During
the Employment Term, the Executive shall perform such duties as are
ordinary and reasonable for the position listed in Item 2(a) and
shall provide reasonable time and attention to the performance of
the Executive’s duties hereunder.
3. Place
of Performance.
The
principal place of Executive’s employment shall be the
Company’s executive office currently located in Las Vegas,
Nevada; provided that, the Executive may be required to travel on
Company business during the Employment Term.
4. Compensation.
a. Base
Salary.
The
Company shall pay the Executive an annual rate of base salary of
USD $200,000 in periodic installments in accordance with the
Company’s customary payroll practices and applicable wage
payment laws, but no less frequently than bi-weekly. The
Executive’s base salary shall be reviewed at least annually
by the Compensation Committee of the Board (the “Compensation
Committee”). However, the Executive’s base salary may
not be decreased during the Employment Term. The Executive’s
annual base salary, as in effect from time to time, is hereinafter
referred to as “Base Salary”.
b. Annual
Bonus.
i.
For each calendar
year of the Employment Term, the Executive shall be eligible to
receive an annual bonus (the “Annual Bonus”). However,
the decision to provide any Annual Bonus and the amount and terms
of any Annual Bonus shall be in the sole and absolute discretion of
the Compensation Committee.
ii.
The Annual Bonus,
if any, will be paid within two and a half (2 1/2) months after the
end of the applicable calendar year.
iii.
Except as otherwise
provided in Section 5, the Annual Bonus will be subject to the
terms of the Company annual bonus plan under which it is
granted.
c. Performance
Bonus.
i.
Executive shall be
eligible to receive a performance bonus in accordance with the
performance bonus as established by the Compensation
Committee.
d. Equity
Awards.
i.
In consideration of
the Executive entering into this Agreement and as an inducement to
join the Company, on or within thirty days of the Effective Date,
the Company will grant the following equity awards to the Executive
pursuant to the Company’s Restricted Stock Unit Plan: 556,500
restricted stock units, which shall vest in accordance with the
terms of the Restricted Stock Unit Plan. All other terms and
conditions of such awards shall be governed by the terms and
conditions of the Restricted Stock Unit Plan and the applicable
award agreements; and
ii.
With respect to
each calendar year of the Company ending during the Employment
Term, the Executive shall be eligible to receive annual equity
awards under the Stock Option Plan and the Restricted Stock Unit
Plan or other equity plans of the Company.
e. Fringe
Benefits and Perquisites.
During
the Employment Term, the Executive shall be entitled to fringe
benefits and perquisites consistent with the practices of the
Company, and to the extent the Company provides similar benefits or
perquisites (or both) to similarly situated executives of the
Company, including without limitation, reimbursement of executives
cellular phone expenses, a monthly vehicle allowance, reimbursement
of professional licensing and agent cards, and reimbursement of
reasonable professional education expenses.
f. Employee
Benefits.
During
the Employment Term, the Executive shall be entitled to participate
in all employee benefit plans, practices, and programs maintained
by the Company, as in effect from time to time (collectively,
“Employee Benefit Plans”), on a basis which is no less
favorable than is provided to other similarly situated executives
of the Company, to the extent consistent with applicable law and
the terms of the applicable Employee Benefit Plans. The Company
reserves the right to amend or cancel any Employee Benefit Plans at
any time in its sole discretion, subject to the terms of such
Employee Benefit Plan and applicable law. Vacation; Paid Time-Off.
The Executive shall receive other paid time-off in accordance with
the Company’s policies for executive officers as such
policies may exist from time to time.
g. Relocation
Expenses.
Although Executive
and Company do not anticipate the need to relocate the Executive,
the Company shall pay, or reimburse the Executive for, all
reasonable relocation expenses incurred by the Executive relating
to his relocation that is requested by the Company, should such be
required at a future date.
h. Business
Expenses.
The
Executive shall be entitled to reimbursement for all reasonable and
necessary out-of-pocket business, entertainment, and travel
expenses incurred by the Executive in connection with the
performance of the Executive’s duties hereunder in accordance
with the Company’s expense reimbursement policies and
procedures.
i. Indemnification.
i.
In the event that
the Executive is made a party or threatened to be made a party to
any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (a “Proceeding”),
other than any Proceeding initiated by the Executive or the Company
related to any contest or dispute between the Executive and the
Company or any of its affiliates with respect to this Agreement or
the Executive’s employment hereunder, by reason of the fact
that the Executive is or was a director or officer of the Company,
or any affiliate of the Company, or is or was serving at the
request of the Company as a director, officer, member, employee, or
agent of another corporation or a partnership, joint venture,
trust, or other enterprise, the Executive shall be indemnified and
held harmless by the Company from and against any liabilities,
costs, claims, and expenses, including all costs and expenses
incurred in defense of any Proceeding (including attorneys’
fees). Costs and expenses incurred by the Executive in defense of
such Proceeding (including attorneys’ fees) shall be paid by
the Company in advance of the final disposition of such litigation
upon receipt by the Company of: (i) a written request for payment;
(ii) appropriate documentation evidencing the incurrence, amount,
and nature of the costs and expenses for which payment is being
sought; and (iii) an undertaking adequate under applicable law made
by or on behalf of the Executive to repay the amounts so paid if it
shall ultimately be determined that the Executive is not entitled
to be indemnified by the Company under this Agreement.
ii.
During the
Employment Term and for a period of six (6) years thereafter, the
Company or any successor to the Company shall purchase and
maintain, at its own expense, directors’ and officers’
liability insurance providing coverage to the Executive on terms
that are no less favorable than the coverage provided to other
directors and similarly situated executives of the
Company.
j. Clawback
Provisions.
Notwithstanding any
other provisions in this Agreement to the contrary, any
incentive-based compensation paid to the Executive pursuant to this
Agreement which is subject to recovery under any law, government
regulation or stock exchange listing requirement, will be subject
to such deductions and clawback as may be required to be made
pursuant to such law, government regulation, or stock exchange
listing requirement (or any policy adopted by the Company pursuant
to any such law, government regulation or stock exchange listing
requirement).
5. Termination
of Employment.
The
Employment Term and the Executive’s employment hereunder may
be terminated by either the Company or the Executive at any time
and for any reason; provided that, unless otherwise provided
herein, either party shall be required to give the other party at
least 30 days advance written notice of any termination of the
Executive’s employment. Upon termination of the
Executive’s employment during the Employment Term, the
Executive shall be entitled to the compensation and benefits
described in this Section 5 and shall have no further rights to any
compensation or any other benefits from the Company or any of its
affiliates.
a. For
Cause or Without Good Reason.
i.
The
Executive’s employment hereunder may be terminated by the
Company for Cause or by the Executive without Good Reason. If the
Executive’s employment is terminated, by the Company for
Cause or by the Executive without Good Reason, the Executive shall
be entitled to receive:
1.
any accrued but
unpaid Base Salary and accrued but unused vacation which shall be
paid [on the Termination Date (as defined below)/within one (1)
week following the Termination Date (as defined below)/on the pay
date immediately following the Termination Date (as defined below)
in accordance with the Company’s customary payroll
procedures;
2.
any earned but
unpaid Annual Bonus with respect to any completed calendar year
immediately preceding the Termination Date, which shall be paid on
the otherwise applicable payment date except to the extent payment
is otherwise deferred pursuant to any applicable deferred
compensation arrangement; provided that, if the Executive’s
employment is terminated by the Company for Cause, then any such
accrued but unpaid Annual Bonus shall be forfeited;
3.
reimbursement for
unreimbursed business expenses properly incurred by the Executive,
which shall be subject to and paid in accordance with the
Company’s expense reimbursement policy; and
4.
such employee
benefits (including equity compensation), if any, to which the
Executive may be entitled under the Company’s employee
benefit plans as of the Termination Date; provided that, in no
event shall the Executive be entitled to any payments in the nature
of severance or termination payments except as specifically
provided herein.
Items
5(a)(i)(1) through 5(a)(i)(4) are referred to herein collectively
as the “Accrued Amounts”.
ii.
For purposes of
this Agreement, “Cause” shall mean:
1.
the
Executive’s willful failure to perform his duties (other than
any such failure resulting from incapacity due to physical or
mental illness);
2.
the
Executive’s conviction of or plea of guilty or nolo
contendere to a crime (other than related to cannabis) that
constitutes a felony (or state law equivalent) or a crime that
constitutes a misdemeanor involving moral turpitude, if such felony
or other crime is work-related, materially impairs the
Executive’s ability to perform services for the Company or
results in material harm to the Company or its
affiliates;
For
purposes of this provision, no act or failure to act on the part of
the Executive shall be considered “willful” unless it
is done, or omitted to be done, by the Executive with malicious
intent against the furtherance of Company business or operations.
Any act, or failure to act, based upon 1) authority given pursuant
to a resolution duly adopted by the Board, 2) duties generally
considered part of the Executives position of a similarly situated
public company, or 3) upon the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done,
by the Executive in good faith and in the best interests of the
Company.
Termination
of the Executive’s employment shall not be deemed to be for
Cause unless and until the Company delivers to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less
than a majority of the Board (after reasonable written notice is
provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board),
finding that the Executive has engaged in the conduct described in
5(a)(ii) above. Except for a failure, breach, or refusal which, by
its nature, cannot reasonably be expected to be cured, the
Executive shall have ten (10) business days from the delivery of
written notice by the Company within which to cure any acts
constituting Cause; provided however, that, if the Company
reasonably expects irreparable injury from a delay of ten (10)
business days, the Company may give the Executive notice of such
shorter period within which to cure as is reasonable under the
circumstances, which may include the termination of the
Executive’s employment without notice and with immediate
effect. The Company may place the Executive on paid leave for up to
60 days while it is determining whether there is a basis to
terminate the Executive’s employment for Cause. Any such
action by the Company will not constitute Good Reason.
iii.
For purposes of
this Agreement, “Good Reason” shall mean the occurrence
of any of the following, in each case during the Employment Term
without the Executive’s written consent:
1.
a reduction in the
Executive’s Base Salary;
2.
a relocation of the
Executive’s principal place of employment by more than 50
miles;
3.
any material breach
by the Company of any material provision of this Agreement or any
material provision of any other agreement between the Executive and
the Company;
4.
the Company’s
failure to obtain an agreement from any successor to the Company to
assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if
no succession had taken place, except where such assumption occurs
by operation of law;
5.
a material, adverse
change in the Executive’s title, authority, duties, or
responsibilities (other than temporarily while the Executive is
physically or mentally incapacitated or as required by applicable
law) considering the Company’s size, status as a public
company, and capitalization as of the date of this Agreement;
or
6.
a material adverse
change in the reporting structure applicable to the
Executive.
The
Executive cannot terminate his employment for Good Reason unless he
has provided written notice to the Company of the existence of the
circumstances providing grounds for termination for Good Reason
within 14 days of the initial existence of such grounds and the
Company has had at least 14 days from the date on which such notice
is provided to cure such circumstances. If the Executive does not
terminate his employment for Good Reason within 14 days after the
first occurrence of the applicable grounds, then the Executive will
be deemed to have waived his right to terminate for Good Reason
with respect to such grounds.
b. Without
Cause or for Good Reason.
The
Employment Term and the Executive’s employment hereunder may
be terminated by the Executive for Good Reason or by the Company
without Cause. In the event of such termination, the Executive
shall be entitled to receive the Accrued Amounts and subject to the
Executive’s compliance with Section 6, Section 7, Section 8,
and Section 9 of this Agreement and his execution of a release of
claims in favor of the Company, its affiliates and their respective
officers and directors in a form provided by the Company (the
“Release”) and such Release becoming effective within
30 days following the Termination Date (such 30-day period, the
“Release Execution Period”)], the Executive shall be
entitled to receive the following:
i.
continued Base
Salary and health care benefits at a substantially similar level to
the benefits provided while Executive was employed by the Company
for a duration of the remaining Term of the Executive’s
employment as if there had been no Termination, from the
Termination Date payable in equal installments in accordance with
the Company’s normal payroll practices, but no less
frequently than monthly, which shall commence within 14 days
following the Termination Date;
ii.
subject to
proration, any earned but unpaid Annual Bonus with respect to any
calendar year immediately preceding the Termination Date, which
shall be paid on the otherwise applicable payment date except to
the extent payment is otherwise deferred pursuant to any applicable
deferred compensation arrangement;
iii.
Company shall
reimburse Executive for all reasonable administrative assistant
expenses incurred by Executive for a period of six months following
the Termination Date.
iv.
The treatment of
any outstanding equity awards shall be determined in accordance
with the terms of the Restricted Stock Unit plan and stock option
plan and the applicable award agreements.
v.
Notwithstanding the
terms of the Restricted Stock Unit plan and stock option plan or
any applicable award agreements:
1.
all outstanding
unvested stock options/stock appreciation rights/restricted stock
units granted to the Executive during the Employment Term shall
become fully vested and exercisable for the remainder of their full
term;
2.
all outstanding
equity-based compensation awards other than stock options/stock
appreciation rights that are not intended to qualify as
performance-based compensation under Section 162(m)(4)(C) of the
Internal Revenue Code of 1986, as amended (the “Code”),
shall become fully vested and the restrictions thereon shall lapse;
provided that, any delays in the settlement or payment of such
awards that are set forth in the applicable award agreement and
that are required under Section 409A of the Code (“Section
409A”) shall remain in effect; and
3.
all outstanding
equity-based compensation awards other than stock options/stock
appreciation rights that are intended to constitute
performance-based compensation under Section 162(m)(4)(C) of the
Code shall remain outstanding and shall vest or be forfeited in
accordance with the terms of the applicable award agreements, if
the applicable performance goals are satisfied.
c. Death
or Disability.
i.
The
Executive’s employment hereunder shall terminate
automatically upon the Executive’s death during the
Employment Term, and the Company may terminate the
Executive’s employment on account of the Executive’s
Disability.
ii.
If the
Executive’s employment is terminated during the Employment
Term on account of the Executive’s death or Disability, the
Executive (or the Executive’s estate and/or beneficiaries, as
the case may be) shall be entitled to receive the
following:
2.
a lump sum payment
equal to 12 months of the Executive’s current Base Salary, as
shown at Item 4(a) or as later increased by the Compensation
Committee; and,
3.
a lump sum payment
equal to the Annual Bonus, if any, that the Executive would have
earned for the calendar year in which the Termination Date occurs
based on the achievement of applicable performance goals for such
year, which shall be payable on the date that annual bonuses are
paid to the Company’s similarly situated executives, but in
no event later than two-and-a-half (2 1/2) months following the end
of the calendar year in which the Termination Date
occurs.
iii.
For purposes of
this Agreement, “Disability” shall mean the
Executive’s inability, due to physical or mental incapacity,
to perform the essential functions of his job, with or without
reasonable accommodation, for one hundred eighty (180) days out of
any three hundred sixty-five (365) day period or one hundred twenty
(120) consecutive days. Any question as to the existence of the
Executive’s Disability as to which the Executive and the
Company cannot agree shall be determined in writing by a qualified
independent physician mutually acceptable to the Executive and the
Company. If the Executive and the Company cannot agree as to a
qualified independent physician, each shall appoint such a
physician and those two physicians shall select a third who shall
make such determination in writing. The determination of Disability
made in writing to the Company and the Executive shall be final and
conclusive for all purposes of this Agreement.
d. Notice
of Termination.
Any
termination of the Executive’s employment hereunder by the
Company or by the Executive during the Employment Term (other than
termination pursuant to Section 5.3(a) on account of the
Executive’s death) shall be communicated by written notice of
termination (“Notice of Termination”) to the other
party hereto in accordance with Section 27. The Notice of
Termination shall specify:
i.
The termination
provision of this Agreement relied upon;
ii.
To the extent
applicable, the facts and circumstances claimed to provide a basis
for termination of the Executive’s employment under the
provision so indicated; and
iii.
The applicable
Termination Date.
e. Termination
Date.
The
Executive’s “Termination Date” shall
be:
i.
If the
Executive’s employment hereunder terminates on account of the
Executive’s death, the date of the Executive’s
death;
ii.
If the
Executive’s employment hereunder is terminated on account of
the Executive’s Disability, the date that it is determined
that the Executive has a Disability;
iii.
If the Company
terminates the Executive’s employment hereunder for Cause,
the date the Notice of Termination is delivered to the
Executive;
iv.
If the Company
terminates the Executive’s employment hereunder without
Cause, the date specified in the Notice of Termination, which shall
be no less than 30 days following the date on which the Notice of
Termination is delivered; provided that, the Company shall have the
option to provide the Executive with a lump sum payment equal to 30
days’ Base Salary in lieu of such notice, which shall be paid
in a lump sum on the Executive’s Termination Date and for all
purposes of this Agreement, the Executive’s Termination Date
shall be the date on which such Notice of Termination is
delivered;
v.
If the Executive
terminates his employment hereunder with or without Good Reason,
the date specified in the Executive’s Notice of Termination,
which shall be no less than 14 days following the date on which the
Notice of Termination is delivered; provided that, the Company may
waive all or any part of the 14 day notice period for no
consideration by giving written notice to the Executive and for all
purposes of this Agreement, the Executive’s Termination Date
shall be the date determined by the Company; and
vi.
If the
Executive’s employment hereunder terminates because either
party provides notice of non-renewal pursuant to Section 1, the
Renewal Date immediately following the date on which the applicable
party delivers notice of non-renewal.
Notwithstanding
anything contained herein, the Termination Date shall not occur
until the date on which the Executive incurs a “separation
from service” within the meaning of Section
409A.
f. Mitigation.
In no
event shall the Executive be obligated to seek other
employment or take any other
action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and except as
provided in Section 5.2(c), any amounts payable pursuant to this
Section 5 shall not be reduced by compensation the Executive earns
on account of employment with another employer.
g. Resignation
of All Other Positions.
Upon
termination of the Executive’s employment hereunder for any
reason, the Executive shall be deemed to have resigned from all
positions that the Executive holds as an officer or member of the
Board (or a committee thereof) of the Company or any of its
affiliates.
h. Section
280G.
i.
If any of the
payments or benefits received or to be received by the Executive
(including, without limitation, any payment or benefits received in
connection with a Change in Control or the Executive’s
termination of employment, whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement, or
otherwise) (all such payments collectively referred to herein as
the “280G Payments”) constitute “parachute
payments” within the meaning of Section 280G of the Code and
would, but for this Section 5.9, be subject to the excise tax
imposed under Section 4999 of the Code (the “Excise
Tax”), then prior to making the 280G Payments, a calculation
shall be made comparing (i) the Net Benefit (as defined below) to
the Executive of the 280G Payments after payment of the Excise Tax
to (ii) the Net Benefit to the Executive if the 280G Payments are
limited to the extent necessary to avoid being subject to the
Excise Tax. Only if the amount calculated under (i) above is less
than the amount under (ii) above will the 280G Payments be reduced
to the minimum extent necessary to ensure that no portion of the
280G Payments is subject to the Excise Tax. “Net
Benefit” shall mean the present value of the 280G Payments
net of all federal, state, local, foreign income, employment, and
excise taxes. Any reduction made pursuant to this Section 5.9 shall
be made in a manner determined by the Company that is consistent
with the requirements of Section 409A.
ii.
All calculations
and determinations under this Section 5.9 shall be made by an
independent accounting firm or independent tax counsel appointed by
the Company (the “Tax Counsel”) whose determinations
shall be conclusive and binding on the Company and the Executive
for all purposes. For purposes of making the calculations and
determinations required by this Section 5.9, the Tax Counsel may
rely on reasonable, good faith assumptions and approximations
concerning the application of Section 280G and Section 4999 of the
Code. The Company and the Executive shall furnish the Tax Counsel
with such information and documents as the Tax Counsel may
reasonably request in order to make its determinations under this
Section 5.9. The Company shall bear all costs the Tax Counsel may
reasonably incur in connection with its services.
6. Cooperation.
The parties
agree that certain matters in which the Executive will be involved
during the Employment Term may necessitate the Executive’s
cooperation in the future. Accordingly, following the termination
of the Executive’s employment for any reason, to the extent
reasonably requested by the Board, the Executive shall cooperate
with the Company in connection with matters arising out of the
Executive’s service to the Company; provided that, the
Company shall make reasonable efforts to minimize disruption of the
Executive’s other activities. The Company shall reimburse the
Executive for reasonable expenses incurred in connection with such
cooperation and, to the extent that the Executive is required to
spend substantial time on such matters, the Company shall
compensate the Executive at an hourly rate based on the
Executive’s Base Salary on the Termination Date.
7. Confidential
Information.
The
Executive understands and acknowledges that during the Employment
Term, he will have access to and learn about Confidential
Information, as defined below.
a. Confidential
Information Defined.
For
purposes of this Agreement, “Confidential Information”
includes, but is not limited to, all information not generally
known to the public, in spoken, printed, electronic or any other
form or medium, relating directly or indirectly to: business
processes, practices, terms of agreements, transactions, potential
transactions, know-how, trade secrets,[ financial information, and
customer lists of the Company or its businesses, or of any other
person or entity that has entrusted information to the Company in
confidence.
The
Executive understands that the above list is not exhaustive, and
that Confidential Information also includes other information that
is marked or otherwise identified as confidential or proprietary,
or that would otherwise appear to a reasonable person to be
confidential or proprietary in the context and circumstances in
which the information is known or used.
The
Executive understands and agrees that Confidential Information
includes information developed by him in the course of his
employment by the Company as if the Company furnished the same
Confidential Information to the Executive in the first instance.
Confidential Information shall not include information that is
generally available to and known by the public at the time of
disclosure to the Executive; provided that, such disclosure is
through no direct or indirect fault of the Executive or person(s)
acting on the Executive’s behalf.
b. Company
Creation and Use of Confidential Information.
The
Executive understands and acknowledges that the Company has
invested, and continues to invest, substantial time, money, and
specialized knowledge into developing its resources, creating a
customer base, generating customer and potential customer lists,
training its employees, and improving its offerings in the field of
state-legal wholesale and retail cannabis. The Executive
understands and acknowledges that as a result of these efforts, the
Company has created, and continues to use and create Confidential
Information. This Confidential Information provides the Company
with a competitive advantage over others in the
marketplace.
c. Disclosure
and Use Restrictions.
The
Executive agrees and covenants: (i) to treat all Confidential
Information as strictly confidential; (ii) not to directly or
indirectly disclose, publish, communicate, or make available
Confidential Information, or allow it to be disclosed, published,
communicated, or made available, in whole or part, to any entity or
person whatsoever (including other employees of the Company) not
having a need to know and authority to know and use the
Confidential Information in connection with the business of the
Company and, in any event, not to anyone outside of the direct
employ of the Company except as required in the performance of the
Executive’s authorized employment duties to the Company or
with the prior consent of the Board or Chief Executive Officer
acting on behalf of the Company in each instance (and then, such
disclosure shall be made only within the limits and to the extent
of such duties or consent); and (iii) not to access or use any
Confidential Information, and not to copy any documents, records,
files, media, or other resources containing any Confidential
Information, or remove any such documents, records, files, media,
or other resources from the premises or control of the Company ,
except as required in the performance of the Executive’s
authorized employment duties to the Company or with the prior
consent of Board or Chief Executive Officer acting on behalf of the
Company in each instance (and then, such disclosure shall be made
only within the limits and to the extent of such duties or
consent). Nothing herein shall be construed to prevent disclosure
of Confidential Information as may be required by applicable law or
regulation, or pursuant to the valid order of a court of competent
jurisdiction or an authorized government agency, provided that the
disclosure does not exceed the extent of disclosure required by
such law, regulation, or order. The Executive shall promptly
provide written notice of any such order to Board or Chief
Executive Officer.
d. Notice
of Immunity Under the Economic Espionage Act of 1996, as amended by
the Defend Trade Secrets Act of 2016
(“DTSA”).
Notwithstanding any
other provision of this Agreement:
i.
The Executive will
not be held criminally or civilly liable under any federal or state
trade secret law for any disclosure of a trade secret
that:
1.
is made (1) in
confidence to a federal, state, or local government official,
either directly or indirectly, or to an attorney; and (2) solely
for the purpose of reporting or investigating a suspected violation
of law; or
2.
is made in a
complaint or other document filed under seal in a lawsuit or other
proceeding.
ii.
If the Executive
files a lawsuit for retaliation by the Company for reporting a
suspected violation of law, the Executive may disclose the
Company’s trade secrets to the Executive’s attorney and
use the trade secret information in the court proceeding if the
Executive:
1.
files any document
containing trade secrets under seal; and
2.
does not disclose
trade secrets, except pursuant to court order.
The
Executive understands and acknowledges that his obligations under
this Agreement with regard to any particular Confidential
Information shall commence immediately upon the Executive first
having access to such Confidential Information (whether before or
after he begins employment by the Company) and shall continue
during and after his employment by the Company until such time as
such Confidential Information has become public knowledge other
than as a result of the Executive’s breach of this Agreement
or breach by those acting in concert with the Executive or on the
Executive’s behalf.
8. Restrictive
Covenants.
a. Non-Competition.
Because
of the Company’s legitimate business interest as described
herein and the good and valuable consideration offered to the
Executive, during the Employment Term and for the twelve months, to
run consecutively, beginning on the last day of the
Executive’s employment with the Company, the Executive agrees
and covenants not to engage in Prohibited Activity within a 50 mile
radius of Las Vegas.
For
purposes of this Section 8, “Prohibited Activity” is
activity in which the Executive contributes his knowledge, directly
or indirectly, in whole or in part, as an employee, employer,
owner, operator, manager, advisor, consultant, agent, employee,
partner, director, stockholder, officer, volunteer, intern, or any
other similar capacity to an entity engaged in the same or similar
business as the Company , including those engaged in the business
of licensed cannabis cultivation, production, or dispensary
operations. Prohibited Activity also includes activity that may
require or inevitably requires disclosure of trade secrets,
proprietary information or Confidential Information.
This
Section 8 does not, in any way, restrict or impede the Executive
from exercising protected rights to the extent that such rights
cannot be waived by agreement or from complying with any applicable
law or regulation or a valid order of a court of competent
jurisdiction or an authorized government agency, provided that such
compliance does not exceed that required by the law, regulation, or
order. The Executive shall promptly provide written notice of any
such order to Company.
b. Non-Solicitation
of Employees.
The
Executive agrees and covenants not to directly or indirectly
solicit, hire, recruit, attempt to hire or recruit, or induce the
termination of employment of any employee of the Company for 12
months, to run consecutively, beginning on the last day of the
Executive’s employment with the Company.
c. Non-Solicitation
of Customers and Vendors.
The
Executive understands and acknowledges that because of the
Executive’s experience with and relationship to the Company,
he will have access to and learn about much or all of the
Company’s customer and vendor information (or,
“Competitive Information”). Competitive includes, but
is not limited to, names, phone numbers, addresses, e-mail
addresses, order history, order preferences, chain of command,
pricing information, and other information identifying facts and
circumstances specific to the vendor or the customer and relevant
to sales.
The
Executive understands and acknowledges that loss of this customer
or vendor relationship and/or goodwill will cause significant and
irreparable harm.
The
Executive agrees and covenants, during 12 months, to run
consecutively, beginning on the last day of the Executive’s
employment with the Company, not to directly or indirectly solicit,
contact (including but not limited to e-mail, regular mail, express
mail, telephone, fax, and instant message), attempt to contact, or
meet with the Company’s current, former or prospective
vendors or customers for purposes of offering or accepting goods or
services similar to or competitive with those offered by the
Company.
This
restriction shall only apply to:
i.
Vendors, customers
or prospective customers the Executive contacted in any way during
the past 12 months;
ii.
Vendors or
customers about whom the Executive has trade secret or confidential
information;
iii.
Vendors or
customers who became vendors or customers during the
Executive’s employment with the Company; and
iv.
Vendors or
customers about whom the Executive has information that is not
available publicly.
9. Non-Disparagement.
The
Executive agrees and covenants that he will not at any time make,
publish or communicate to any person or entity or in any public
forum any defamatory or disparaging remarks, comments, or
statements concerning the Company or its businesses, or any of its
employees, officers, and existing and prospective customers,
suppliers, investors and other associated third
parties.
This
Section 9 does not, in any way, restrict or impede the Executive
from exercising protected rights to the extent that such rights
cannot be waived by agreement or from complying with any applicable
law or regulation or a valid order of a court of competent
jurisdiction or an authorized government agency, provided that such
compliance does not exceed that required by the law, regulation, or
order. The Executive shall promptly provide written notice of any
such order to the Chief Executive Officer.
The
Company agrees and covenants that it shall cause its officers and
directors to refrain from making any defamatory or disparaging
remarks, comments, or statements concerning the Executive to any
third parties.
10. Acknowledgement.
The
Executive acknowledges and agrees that the services to be rendered
by him to the Company are of a special and unique character; that
the Executive will obtain knowledge and skill relevant to the
Company’s industry, methods of doing business and marketing
strategies by virtue of the Executive’s employment; and that
the restrictive covenants and other terms and conditions of this
Agreement are reasonable and reasonably necessary to protect the
legitimate business interest of the Company.
The
Executive further acknowledges that the amount of his compensation
reflects, in part, his obligations and the Company’s rights
under Section 7, Section 8, and Section 9 of this Agreement; that
he has no expectation of any additional compensation, royalties or
other payment of any kind not otherwise referenced herein in
connection herewith; and that he will not be subject to undue
hardship by reason of his full compliance with the terms and
conditions of Section 7, Section 8, and Section 9 of this Agreement
or the Company’s enforcement thereof.
11. Remedies.
In the
event of a breach or threatened breach by the Executive of Section
7, 8, or Section 9 of this Agreement, the Executive hereby consents
and agrees that the Company shall be entitled to seek, in addition
to other available remedies, a temporary or permanent injunction or
other equitable relief against such breach or threatened breach
from any court of competent jurisdiction, without the necessity of
showing any actual damages or that money damages would not afford
an adequate remedy, and without the necessity of posting any bond
or other security. The aforementioned equitable relief shall be in
addition to, not in lieu of, legal remedies, monetary damages, or
other available forms of relief.
12. Proprietary
Rights.
a. Work
Product.
The
Executive acknowledges and agrees that all right, title, and
interest in and to all writings, works of authorship, technology,
inventions, discoveries, processes, techniques, methods, ideas,
concepts, research, proposals, materials, and all other work
product of any nature whatsoever, that are created, prepared,
produced, authored, edited, amended, conceived, or reduced to
practice by the Executive individually or jointly with others
during the period of his employment by the Company and relate in
any way to the business or contemplated business, products,
activities, research, or development of the Company or
result from any work performed by the Executive for the Company (in
each case, regardless of when or where prepared or whose equipment
or other resources is used in preparing the same), all rights and
claims related to the foregoing, and all printed, physical and
electronic copies, and other tangible embodiments thereof
(collectively, “Work Product”), as well as any and all
rights in and to US and foreign (a) patents, patent disclosures and
inventions (whether patentable or not), (b) trademarks, service
marks, trade dress, trade names, logos, corporate names, and domain
names, and other similar designations of source or origin, together
with the goodwill symbolized by any of the foregoing, (c)
copyrights and copyrightable works (including computer programs),
[mask works,] and rights in data and databases, (d) trade secrets,
know-how, and other confidential information, and (e) all other
intellectual property rights, in each case whether registered or
unregistered and including all registrations and applications for,
and renewals and extensions of, such rights, all improvements
thereto and all similar or equivalent rights or forms of protection
in any part of the world (collectively, “Intellectual
Property Rights”), shall be the sole and exclusive property
of the Company.
For
purposes of this Agreement, Work Product includes, but is not
limited to, Company information, including plans, publications,
research, strategies, documents, contracts, customer lists,
manufacturing information, marketing information, advertising
information, and sales information.
b. Work
Made for Hire; Assignment.
The
Executive acknowledges that, by reason of being employed by the
Company at the relevant times, to the extent permitted by law, all
of the Work Product consisting of copyrightable subject matter is
“work made for hire” as defined in 17 U.S.C. § 101
and such copyrights are therefore owned by the Company. To the
extent that the foregoing does not apply, the Executive hereby
irrevocably assigns to the Company, for no additional
consideration, the Executive’s entire right, title, and
interest in and to all Work Product and Intellectual Property
Rights therein, including the right to sue, counterclaim, and
recover for all past, present, and future infringement,
misappropriation, or dilution thereof, and all rights corresponding
thereto throughout the world. Nothing contained in this Agreement
shall be construed to reduce or limit the Company’s rights,
title, or interest in any Work Product or Intellectual Property
Rights so as to be less in any respect than that the Company would
have had in the absence of this Agreement.
c. Further
Assurances; Power of Attorney.
During
and after his employment, the Executive agrees to reasonably
cooperate with the Company to (a) apply for, obtain, perfect, and
transfer to the Company the Work Product as well as any and all
Intellectual Property Rights in the Work Product in any
jurisdiction in the world; and (b) maintain, protect and enforce
the same, including, without limitation, giving testimony and
executing and delivering to the Company any and all applications,
oaths, declarations, affidavits, waivers, assignments, and other
documents and instruments as shall be requested by the Company. The
Executive hereby irrevocably grants the Company power of attorney
to execute and deliver any such documents on the Executive’s
behalf in his name and to do all other lawfully permitted acts to
transfer the Work Product to the Company and further the transfer,
prosecution, issuance, and maintenance of all Intellectual Property
Rights therein, to the full extent permitted by law, if the
Executive does not promptly cooperate with the Company’s
request (without limiting the rights the Company shall have in such
circumstances by operation of law). The power of attorney is
coupled with an interest and shall not be affected by the
Executive’s subsequent incapacity.
d. No
License.
The
Executive understands that this Agreement does not, and shall not
be construed to, grant the Executive any license or right of any
nature with respect to any Work Product or Intellectual Property
Rights or any Confidential Information, materials, software, or
other tools made available to him by the Company.
13. Security.
a. Security
and Access.
The
Executive agrees and covenants (a) to comply with all Company
security policies and procedures as in force from time to time and
any and all other Company IT resources (“Facilities and
Information Technology Resources”); (b) not to access or use
any Facilities and Information Technology Resources except as
authorized by the Company; and (iii) not to access or use any
Facilities and Information Technology Resources in any manner after
the termination of the Executive’s employment by the Company,
whether termination is voluntary or involuntary. The Executive
agrees to notify the Company promptly in the event he learns of any
violation of the foregoing by others, or of any other
misappropriation or unauthorized access, use, reproduction, or
reverse engineering of, or tampering with any Facilities and
Information Technology Resources or other Company property or
materials by others.
b. Exit
Obligations.
Upon
(a) voluntary or involuntary termination of the Executive’s
employment or (b) the Company’s request at any time during
the Executive’s employment, the Executive shall (i) provide
or return to the Company any and all Company property and all
Company documents and materials belonging to the Company and stored
in any fashion, including but not limited to those that constitute
or contain any Confidential Information or Work Product, that are
in the possession or control of the Executive, whether they were
provided to the Executive by the Company or any of its business
associates or created by the Executive in connection with his
employment by the Company; and (ii) delete or destroy all copies of
any such documents and materials not returned to the Company that
remain in the Executive’s possession or control, including
those stored on any non-Company devices, networks, storage
locations, and media in the Executive’s possession or
control.
14. Publicity.
The
Executive hereby irrevocably consents to any and all uses and
displays, by the Company and its agents, representatives and
licensees, of the Executive’s name, voice, likeness, image,
appearance, and biographical information in, on or in connection
with any pictures, photographs, audio and video recordings, digital
images, websites, television programs and advertising, other
advertising and publicity, sales and marketing brochures, books,
magazines, other publications, CDs, DVDs, tapes, and all other
printed and electronic forms and media throughout the world, at any
time during or after the period of his employment by the Company,
for all legitimate commercial and business purposes of the Company
(“Permitted Uses”) without further consent from or
royalty, payment, or other compensation to the Executive. The
Executive hereby forever waives and releases the Company and its
directors, officers, employees, and agents from any and all claims,
actions, damages, losses, costs, expenses, and liability of any
kind, arising under any legal or equitable theory whatsoever at any
time during or after the period of his employment by the Company,
arising directly or indirectly from the Company‘s and its
agents’, representatives’, and licensees’
exercise of their rights in connection with any Permitted
Uses.
15. Governing
Law: Jurisdiction and Venue.
This
Agreement, for all purposes, shall be construed in accordance with
the laws of Nevada without regard to conflicts of law principles.
Any action or proceeding by either of the parties to enforce this
Agreement shall be brought only in a state or federal court located
in the state of Nevada, county of Clark. The parties hereby
irrevocably submit to the exclusive jurisdiction of such courts and
waive the defense of inconvenient forum to the maintenance of any
such action or proceeding in such venue.
16. Entire
Agreement.
Unless
specifically provided herein, this Agreement contains all of the
understandings and representations between the Executive and the
Company pertaining to the subject matter hereof and supersedes all
prior and contemporaneous understandings, agreements,
representations and warranties, both written and oral, with respect
to such subject matter. The parties mutually agree that the
Agreement can be specifically enforced in court and can be cited as
evidence in legal proceedings alleging breach of the
Agreement.
17. Modification
and Waiver.
No
provision of this Agreement may be amended or modified unless such
amendment or modification is agreed to in writing and signed by the
Executive and by Chief Executive Officer of the Company. No waiver
by either of the parties of any breach by the other party hereto of
any condition or provision of this Agreement to be performed by the
other party hereto shall be deemed a waiver of any similar or
dissimilar provision or condition at the same or any prior or
subsequent time, nor shall the failure of or delay by either of the
parties in exercising any right, power, or privilege hereunder
operate as a waiver thereof to preclude any other or further
exercise thereof or the exercise of any other such right, power, or
privilege.
18. Severability.
Should
any provision of this Agreement be held by a court of competent
jurisdiction to be enforceable only if modified, or if any portion
of this Agreement shall be held as unenforceable and thus stricken,
such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon
the parties with any such modification to become a part hereof and
treated as though originally set forth in this
Agreement.
The
parties further agree that any such court is expressly authorized
to modify any such unenforceable provision of this Agreement in
lieu of severing such unenforceable provision from this Agreement
in its entirety, whether by rewriting the offending provision,
deleting any or all of the offending provision, adding additional
language to this Agreement, or by making such other modifications
as it deems warranted to carry out the intent and agreement of the
parties as embodied herein to the maximum extent permitted by
law.
The
parties expressly agree that this Agreement as so modified by the
court shall be binding upon and enforceable against each of them.
In any event, should one or more of the provisions of this
Agreement be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not
affect any other provisions hereof, and if such provision or
provisions are not modified as provided above, this Agreement shall
be construed as if such invalid, illegal, or unenforceable
provisions had not been set forth herein.
19. Captions.
Captions and
headings of the sections and paragraphs of this Agreement are
intended solely for convenience and no provision of this Agreement
is to be construed by reference to the caption or heading of any
section or paragraph.
20. Counterparts.
This
Agreement may be executed in separate counterparts, each of which
shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
21. Tolling.
Should
the Executive violate any of the terms of the restrictive covenant
obligations articulated herein, the obligation at issue will run
from the first date on which the Executive ceases to be in
violation of such obligation.
22. Section
409A.
a. General
Compliance.
This
Agreement is intended to comply with Section 409A or an exemption
thereunder and shall be construed and administered in accordance
with Section 409A. Notwithstanding any other provision of this
Agreement, payments provided under this Agreement may only be made
upon an event and in a manner that complies with Section 409A or an
applicable exemption. Any payments under this Agreement that may be
excluded from Section 409A either as separation pay due to an
involuntary separation from service or as a short-term deferral
shall be excluded from Section 409A to the maximum extent possible.
For purposes of Section 409A, each installment payment provided
under this Agreement shall be treated as a separate payment. Any
payments to be made under this Agreement upon a termination of
employment shall only be made upon a “separation from
service” under Section 409A. Notwithstanding the foregoing,
the Company makes no representations that the payments and benefits
provided under this Agreement comply with Section 409A, and in no
event shall the Company be liable for all or any portion of any
taxes, penalties, interest, or other expenses that may be incurred
by the Executive on account of non-compliance with Section
409A.
b. Specified
Employees.
Notwithstanding any
other provision of this Agreement, if any payment or benefit
provided to the Executive in connection with his termination of
employment is determined to constitute “nonqualified deferred
compensation” within the meaning of Section 409A and the
Executive is determined to be a “specified employee” as
defined in Section 409A(a)(2)(b)(i), then such payment or benefit
shall not be paid until the first payroll date to occur following
the six-month anniversary of the Termination Date or, if earlier,
on the Executive’s death (the “Specified Employee
Payment Date”). The aggregate of any payments that would
otherwise have been paid before the Specified Employee Payment Date
[and interest on such amounts calculated based on the applicable
federal rate published by the Internal Revenue Service for the
month in which the Executive’s separation from service
occurs] shall be paid to the Executive in a lump sum on the
Specified Employee Payment Date and thereafter, any remaining
payments shall be paid without delay in accordance with their
original schedule.
c. Reimbursements.
To the
extent required by Section 409A, each reimbursement or in-kind
benefit provided under this Agreement shall be provided in
accordance with the following:
i.
the amount of
expenses eligible for reimbursement, or in-kind benefits provided,
during each calendar year cannot affect the expenses eligible for
reimbursement, or in-kind benefits to be provided, in any other
calendar year;
ii.
any reimbursement
of an eligible expense shall be paid to the Executive on or before
the last day of the calendar year following the calendar year in
which the expense was incurred; and
iii.
any right to
reimbursements or in-kind benefits under this Agreement shall not
be subject to liquidation or exchange for another
benefit.
d. Tax
Gross-ups.
Any tax
gross-up payments provided under this Agreement shall be paid to
the Executive on or before December 31 of the calendar year
immediately following the calendar year in which the Executive
remits the related taxes.
23. Notification
to Subsequent Employer.
When
the Executive’s employment with the Company terminates, the
Executive agrees to notify any subsequent employer of the
restrictive covenants sections contained in this Agreement. The
Executive will also deliver a copy of such notice to the Company
before the Executive commences employment with any subsequent
employer. In addition, the Executive authorizes the Company to
provide a copy of the restrictive covenants sections of this
Agreement to third parties, including but not limited to, the
Executive’s subsequent, anticipated, or possible future
employer.
24. Successors
and Assigns.
This
Agreement is personal to the Executive and shall not be assigned by
the Executive. Any purported assignment by the Executive shall be
null and void from the initial date of the purported assignment.
The Company may assign this Agreement to any successor or assign
(whether direct or indirect, by purchase, merger, consolidation, or
otherwise) to all or substantially all of the business or assets of
the Company. This Agreement shall inure to the benefit of the
Company and permitted successors and assigns.
25. Notice.
Notices
and all other communications provided for in this Agreement shall
be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, or by
overnight carrier to the parties at the addresses set forth below
(or such other addresses as specified by the parties by like
notice):
If to
the Company:
Planet
13 Holdings, Inc., or MM Development Company, Inc., currently
registered corporate office or registered agent.
If to
the Executive:
Address
written below.
26. Representations
of the Executive.
The
Executive represents and warrants to the Company that:
The
Executive’s acceptance of employment with the Company and the
performance of his duties hereunder will not conflict with or
result in a violation of, a breach of, or a default under any
contract, agreement, or understanding to which he is a party or is
otherwise bound.
The
Executive’s acceptance of employment with the Company and the
performance of his duties hereunder will not violate any
non-solicitation, non-competition, or other similar covenant or
agreement of a prior employer.
27. Withholding.
The
Company shall have the right to withhold from any amount payable
hereunder any Federal, state, and local taxes in order for the
Company to satisfy any withholding tax obligation it may have under
any applicable law or regulation.
28. Survival.
Upon
the expiration or other termination of this Agreement, the
respective rights and obligations of the parties hereto shall
survive such expiration or other termination to the extent
necessary to carry out the intentions of the parties under this
Agreement.
29. Gender
and Number.
Wherever
appropriate herein, the masculine may mean the feminine and the
singular may mean the plural or vice versa.
30. Acknowledgement
of Full Understanding.
THE
EXECUTIVE ACKNOWLEDGES AND AGREES THAT HE HAS FULLY READ,
UNDERSTANDS AND VOLUNTARILY ENTERS INTO THIS AGREEMENT. THE
EXECUTIVE ACKNOWLEDGES AND AGREES THAT HE HAS HAD AN OPPORTUNITY TO
ASK QUESTIONS AND CONSULT WITH AN ATTORNEY OF his CHOICE BEFORE
SIGNING THIS AGREEMENT.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Employee:
/s/ Christopher Brian Wren
Name:
Christopher Brian Wren
Address:
[REDACTED]
|
MM
Development Company
By:
/s/ Robert
Groesbeck
Robert
Groesbeck, co-President
By:
/s/ Larry
Scheffler
Name:
Larry Scheffler, co-President
|
Amendment to Employment Agreement
This
First Amendment (the “Amendment”) to the Employment
Agreement (the “Agreement”) is made and entered into as
of March 10, 2021, by and between Christopher Wren (the
“Executive”) and MM Development Company, Inc., a Nevada
domestic corporation (the “Company”).
WHEREAS,
the Compensation Committee of Planet 13 Holdings, Inc., the parent
company of MM Development Company, Inc. met on February 25, 2021,
and authorized an extension of the Term under the Agreement;
and
WHEREAS,
MM Development Company, Inc. is the US subsidiary of Planet 13
Holdings, Inc., and Executive’s position is effective for
Planet 13 Holdings, Inc., and that Executive continues to provide
services for both MM Development Company, Inc. and Planet 13
Holdings, Inc., and for other subsidiaries of Planet 13 Holdings,
Inc.
WHEREAS,
Planet 13 Holdings, Inc. Executives and officers of MM Development
Company, Inc. are paid through BLC Management Company, LLC, a
Nevada LLC as the US management branch of Planet 13 Holdings,
Inc.
NOW,
THEREFORE, in consideration of the mutual covenants, promises, and
obligations set forth herein, the parties agree to amend the June
1, 2018 Employment Agreement between Executive and MM Development
Company, Inc. as follows:
The
Term, as such word is defined at Section 1 of the Agreement, is
extended to December 31, 2025 from the originally defined date of
May 15, 2023. This Term extension shall also extend the calculation
of benefits due to the Executive under Section 5 (Termination of
Employment), Subsection b. (Without Cause or for Good Reason), Part
i. for the continuation of Base Salary and health care benefits, as
well as all other sections impacted by an extension of the
Term.
So
agreed this March 10, 2021 as to Executive, Company, and confirmed
by Planet 13 Holdings, Inc.
MM
Development Company, Inc.
/s/ Robert Groesbeck
Authorized
Officer
Executive
/s/ Christopher Wren
Christopher
Wren
Confirmation
of Amendment, Pre-Approved by Compensation Committee
Planet
13 Holdings, Inc.
/s/ Leighton Koehler
Authorized
Officer
Exhibit 10.11
Employment Agreement
This
Employment Agreement (the “Agreement”) is made and
entered into as of June 1, 2018, by and between Larry Scheffler
(the “Executive”) and MM Development Company, Inc., a
Nevada domestic corporation (the
“Company”).
WHEREAS, the
Company desires to employ the Executive on the terms and conditions
set forth herein;
WHEREAS, the
Executive desires to be employed by the Company on such terms and
conditions; and,
WHEREAS, MM
Development Company, Inc. anticipates being the subsidiary of
Planet 13 Holdings, Inc., and Company and Executive anticipate that
Executives position shall be ratified by Planet 13 Holdings, Inc.,
and that Executive shall be providing services for both MM
Development Company, Inc. and Planet 13 Holdings, Inc., and for
other subsidiaries of Planet 13 Holdings, Inc.
NOW,
THEREFORE, in consideration of the mutual covenants, promises, and
obligations set forth herein, the parties agree as
follows:
1. Term.
The Executive’s Employment hereunder shall be effective as of
May 15, 2018, (the “Effective Date”) and shall continue
until the fifth anniversary thereof, unless terminated earlier
pursuant to Section 5 of this Agreement; provided that, on such
fifth anniversary of the Effective Date and each annual anniversary
thereafter (such date and each annual anniversary thereof, a
“Renewal Date”), the Agreement shall be deemed to be
automatically extended, upon the same terms and conditions, for
successive periods of one year, unless either party provides
written notice of its intention not to extend the term of the
Agreement at least 90 days’ prior to the applicable Renewal
Date. The period during which the Executive is employed by the
Company hereunder is hereinafter referred to as the
“Employment Term.”
2. Position
and Duties.
a. Position.
During the Employment Term, the Executive shall serve as the
co-Chief Executive Officer of the Company, reporting to the Board.
In such position, the Executive shall have such duties, authority,
and responsibility consistent with the Executive’s position.
The Executive shall, if requested, also serve as a member of the
board of directors of the Company (the “Board”) or as
an officer or director of any affiliate of the Company for no
additional compensation.
b. Duties.
During the Employment Term, the Executive shall perform such duties
as are ordinary and reasonable for the position listed in Item 2(a)
and shall provide reasonable time and attention to the performance
of the Executive’s duties hereunder.
3. Place
of Performance. The principal place of Executive’s
employment shall be the Company’s executive office currently
located in Las Vegas, Nevada; provided that, the Executive may be
required to travel on Company business during the Employment
Term.
4. Compensation.
a. Base
Salary. The Company shall pay the Executive an annual rate
of base salary of USD $240,000, in periodic installments in
accordance with the Company’s customary payroll practices and
applicable wage payment laws, but no less frequently than
bi-weekly. The Executive’s base salary shall be reviewed at
least annually by the Compensation Committee of the Board (the
“Compensation Committee”). However, the
Executive’s base salary may not be decreased during the
Employment Term. The Executive’s annual base salary, as in
effect from time to time, is hereinafter referred to as “Base
Salary”.
b. Annual
Bonus.
i. For each calendar
year of the Employment Term, the Executive shall be eligible to
receive an annual bonus (the “Annual Bonus”). However,
the decision to provide any Annual Bonus and the amount and terms
of any Annual Bonus shall be in the sole and absolute discretion of
the Compensation Committee.
ii. The Annual Bonus,
if any, will be paid within two and a half (2 1/2) months after the
end of the applicable calendar year.
iii. Except
as otherwise provided in Section 5, the Annual Bonus will be
subject to the terms of the Company annual bonus plan under which
it is granted.
c. Performance
Bonus.
i. Executive shall be
eligible to receive a performance bonus in accordance with the
performance bonus as established by the Compensation
Committee.
d. Equity
Awards.
i. In consideration of
the Executive entering into this Agreement and as an inducement to
join the Company, on or within thirty days of the Effective Date,
the Company will grant the following equity awards to the Executive
pursuant to the Company’s Restricted Stock Unit Plan:
1,000,000 restricted stock units, which shall vest in accordance
with the terms of the Restricted Stock Unit Plan. All other terms
and conditions of such awards shall be governed by the terms and
conditions of the Restricted Stock Unit Plan and the applicable
award agreements; and
ii. With respect to
each calendar year of the Company ending during the Employment
Term, the Executive shall be eligible to receive annual equity
awards under the Stock Option Plan and the Restricted Stock Unit
Plan or other equity plans of the Company.
e. Fringe
Benefits and Perquisites. During the Employment Term, the
Executive shall be entitled to fringe benefits and perquisites
consistent with the practices of the Company, and to the extent the
Company provides similar benefits or perquisites (or both) to
similarly situated executives of the Company, including without
limitation, reimbursement of executives cellular phone expenses, a
monthly vehicle allowance, reimbursement of professional licensing
and agent cards, and reimbursement of reasonable professional
education expenses.
f. Employee
Benefits. During the Employment Term, the Executive shall be
entitled to participate in all employee benefit plans, practices,
and programs maintained by the Company, as in effect from time to
time (collectively, “Employee Benefit Plans”), on a
basis which is no less favorable than is provided to other
similarly situated executives of the Company, to the extent
consistent with applicable law and the terms of the applicable
Employee Benefit Plans. The Company reserves the right to amend or
cancel any Employee Benefit Plans at any time in its sole
discretion, subject to the terms of such Employee Benefit Plan and
applicable law. Vacation; Paid Time-Off. The Executive shall
receive other paid time-off in accordance with the Company’s
policies for executive officers as such policies may exist from
time to time.
g. Relocation
Expenses. Although Executive and Company do not anticipate
the need to relocate the Executive, the Company shall pay, or
reimburse the Executive for, all reasonable relocation expenses
incurred by the Executive relating to his relocation that is
requested by the Company, should such be required at a future
date.
h. Business
Expenses. The Executive shall be entitled to reimbursement
for all reasonable and necessary out-of-pocket business,
entertainment, and travel expenses incurred by the Executive in
connection with the performance of the Executive’s duties
hereunder in accordance with the Company’s expense
reimbursement policies and procedures.
i. Indemnification.
i. In the event that
the Executive is made a party or threatened to be made a party to
any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (a “Proceeding”),
other than any Proceeding initiated by the Executive or the Company
related to any contest or dispute between the Executive and the
Company or any of its affiliates with respect to this Agreement or
the Executive’s employment hereunder, by reason of the fact
that the Executive is or was a director or officer of the Company,
or any affiliate of the Company, or is or was serving at the
request of the Company as a director, officer, member, employee, or
agent of another corporation or a partnership, joint venture,
trust, or other enterprise, the Executive shall be indemnified and
held harmless by the Company from and against any liabilities,
costs, claims, and expenses, including all costs and expenses
incurred in defense of any Proceeding (including attorneys’
fees). Costs and expenses incurred by the Executive in defense of
such Proceeding (including attorneys’ fees) shall be paid by
the Company in advance of the final disposition of such litigation
upon receipt by the Company of: (i) a written request for payment;
(ii) appropriate documentation evidencing the incurrence, amount,
and nature of the costs and expenses for which payment is being
sought; and (iii) an undertaking adequate under applicable law made
by or on behalf of the Executive to repay the amounts so paid if it
shall ultimately be determined that the Executive is not entitled
to be indemnified by the Company under this Agreement.
ii. During the
Employment Term and for a period of six (6) years thereafter, the
Company or any successor to the Company shall purchase and
maintain, at its own expense, directors’ and officers’
liability insurance providing coverage to the Executive on terms
that are no less favorable than the coverage provided to other
directors and similarly situated executives of the
Company.
j. Clawback Provisions. Notwithstanding any
other provisions in this Agreement to the contrary, any
incentive-based compensation paid to the Executive pursuant to this
Agreement which is subject to recovery under any law, government
regulation or stock exchange listing requirement, will be subject
to such deductions and clawback as may be required to be made
pursuant to such law, government regulation, or stock exchange
listing requirement (or any policy adopted by the Company pursuant
to any such law, government regulation or stock exchange listing
requirement).
5. Termination
of Employment. The Employment Term and the Executive’s
employment hereunder may be terminated by either the Company or the
Executive at any time and for any reason; provided that, unless
otherwise provided herein, either party shall be required to give
the other party at least 30 days advance written notice of any
termination of the Executive’s employment. Upon termination
of the Executive’s employment during the Employment Term, the
Executive shall be entitled to the compensation and benefits
described in this Section 5 and shall have no further rights to any
compensation or any other benefits from the Company or any of its
affiliates.
a. For
Cause or Without Good Reason.
i. The
Executive’s employment hereunder may be terminated by the
Company for Cause or by the Executive without Good Reason. If the
Executive’s employment is terminated, by the Company for
Cause or by the Executive without Good Reason, the Executive shall
be entitled to receive:
1. any accrued but
unpaid Base Salary and accrued but unused vacation which shall be
paid [on the Termination Date (as defined below)/within one (1)
week following the Termination Date (as defined below)/on the pay
date immediately following the Termination Date (as defined below)
in accordance with the Company’s customary payroll
procedures;
2. any earned but
unpaid Annual Bonus with respect to any completed calendar year
immediately preceding the Termination Date, which shall be paid on
the otherwise applicable payment date except to the extent payment
is otherwise deferred pursuant to any applicable deferred
compensation arrangement; provided that, if the Executive’s
employment is terminated by the Company for Cause, then any such
accrued but unpaid Annual Bonus shall be forfeited;
3. reimbursement for
unreimbursed business expenses properly incurred by the Executive,
which shall be subject to and paid in accordance with the
Company’s expense reimbursement policy; and
4. such employee
benefits (including equity compensation), if any, to which the
Executive may be entitled under the Company’s employee
benefit plans as of the Termination Date; provided that, in no
event shall the Executive be entitled to any payments in the nature
of severance or termination payments except as specifically
provided herein.
Items
5(a)(i)(1) through 5(a)(i)(4) are referred to herein collectively
as the “Accrued Amounts”.
ii. For purposes of
this Agreement, “Cause” shall mean:
1. the
Executive’s willful failure to perform his duties (other than
any such failure resulting from incapacity due to physical or
mental illness);
2. the
Executive’s conviction of or plea of guilty or nolo
contendere to a crime (other than related to cannabis) that
constitutes a felony (or state law equivalent) or a crime that
constitutes a misdemeanor involving moral turpitude, if such felony
or other crime is work-related, materially impairs the
Executive’s ability to perform services for the Company or
results in material harm to the Company or its
affiliates;
For
purposes of this provision, no act or failure to act on the part of
the Executive shall be considered “willful” unless it
is done, or omitted to be done, by the Executive with malicious
intent against the furtherance of Company business or operations.
Any act, or failure to act, based upon 1) authority given pursuant
to a resolution duly adopted by the Board, 2) duties generally
considered part of the Executives position of a similarly situated
public company, or 3) upon the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done,
by the Executive in good faith and in the best interests of the
Company.
Termination of the
Executive’s employment shall not be deemed to be for Cause
unless and until the Company delivers to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than a
majority of the Board (after reasonable written notice is provided
to the Executive and the Executive is given an opportunity,
together with counsel, to be heard before the Board), finding that
the Executive has engaged in the conduct described in 5(a)(ii)
above. Except for a failure, breach, or refusal which, by its
nature, cannot reasonably be expected to be cured, the Executive
shall have ten (10) business days from the delivery of written
notice by the Company within which to cure any acts constituting
Cause; provided however, that, if the Company reasonably expects
irreparable injury from a delay of ten (10) business days, the
Company may give the Executive notice of such shorter period within
which to cure as is reasonable under the circumstances, which may
include the termination of the Executive’s employment without
notice and with immediate effect. The Company may place the
Executive on paid leave for up to 60 days while it is determining
whether there is a basis to terminate the Executive’s
employment for Cause. Any such action by the Company will not
constitute Good Reason.
iii. For
purposes of this Agreement, “Good Reason” shall mean
the occurrence of any of the following, in each case during the
Employment Term without the Executive’s written
consent:
1. a reduction in the
Executive’s Base Salary;
2. a relocation of the
Executive’s principal place of employment by more than 50
miles;
3. any material breach
by the Company of any material provision of this Agreement or any
material provision of any other agreement between the Executive and
the Company;
4. the Company’s
failure to obtain an agreement from any successor to the Company to
assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if
no succession had taken place, except where such assumption occurs
by operation of law;
5. a material, adverse
change in the Executive’s title, authority, duties, or
responsibilities (other than temporarily while the Executive is
physically or mentally incapacitated or as required by applicable
law) considering the Company’s size, status as a public
company, and capitalization as of the date of this Agreement;
or
6. a material adverse
change in the reporting structure applicable to the
Executive.
The
Executive cannot terminate his employment for Good Reason unless he
has provided written notice to the Company of the existence of the
circumstances providing grounds for termination for Good Reason
within 14 days of the initial existence of such grounds and the
Company has had at least 14 days from the date on which such notice
is provided to cure such circumstances. If the Executive does not
terminate his employment for Good Reason within 14 days after the
first occurrence of the applicable grounds, then the Executive will
be deemed to have waived his right to terminate for Good Reason
with respect to such grounds.
b. Without
Cause or for Good Reason. The Employment Term and the
Executive’s employment hereunder may be terminated by the
Executive for Good Reason or by the Company without Cause. In the
event of such termination, the Executive shall be entitled to
receive the Accrued Amounts and subject to the Executive’s
compliance with Section 6, Section 7, Section 8, and Section 9 of
this Agreement and his execution of a release of claims in favor of
the Company, its affiliates and their respective officers and
directors in a form provided by the Company (the
“Release”) and such Release becoming effective within
30 days following the Termination Date (such 30-day period, the
“Release Execution Period”)], the Executive shall be
entitled to receive the following:
i. continued Base
Salary and health care benefits at a substantially similar level to
the benefits provided while Executive was employed by the Company
for a duration of the remaining Term of the Executive’s
employment as if there had been no Termination, from the
Termination Date payable in equal installments in accordance with
the Company’s normal payroll practices, but no less
frequently than monthly, which shall commence within 14 days
following the Termination Date;
ii. subject to
proration, any earned but unpaid Annual Bonus with respect to any
calendar year immediately preceding the Termination Date, which
shall be paid on the otherwise applicable payment date except to
the extent payment is otherwise deferred pursuant to any applicable
deferred compensation arrangement;
iii. Company
shall reimburse Executive for all reasonable administrative
assistant expenses incurred by Executive for a period of six months
following the Termination Date.
iv. The treatment of
any outstanding equity awards shall be determined in accordance
with the terms of the Restricted Stock Unit plan and stock option
plan and the applicable award agreements.
v. Notwithstanding the
terms of the Restricted Stock Unit plan and stock option plan or
any applicable award agreements:
1. all outstanding
unvested stock options/stock appreciation rights/restricted stock
units granted to the Executive during the Employment Term shall
become fully vested and exercisable for the remainder of their full
term;
2. all outstanding
equity-based compensation awards other than stock options/stock
appreciation rights that are not intended to qualify as
performance-based compensation under Section 162(m)(4)(C) of the
Internal Revenue Code of 1986, as amended (the “Code”),
shall become fully vested and the restrictions thereon shall lapse;
provided that, any delays in the settlement or payment of such
awards that are set forth in the applicable award agreement and
that are required under Section 409A of the Code (“Section
409A”) shall remain in effect; and
3. all outstanding
equity-based compensation awards other than stock options/stock
appreciation rights that are intended to constitute
performance-based compensation under Section 162(m)(4)(C) of the
Code shall remain outstanding and shall vest or be forfeited in
accordance with the terms of the applicable award agreements, if
the applicable performance goals are satisfied.
c. Death
or Disability.
i. The
Executive’s employment hereunder shall terminate
automatically upon the Executive’s death during the
Employment Term, and the Company may terminate the
Executive’s employment on account of the Executive’s
Disability.
ii. If the
Executive’s employment is terminated during the Employment
Term on account of the Executive’s death or Disability, the
Executive (or the Executive’s estate and/or beneficiaries, as
the case may be) shall be entitled to receive the
following:
1. the Accrued
Amounts;
2. a lump sum payment
equal to 12 months of the Executive’s current Base Salary, as
shown at Item 4(a) or as later increased by the Compensation
Committee; and,
3. a lump sum payment
equal to the Annual Bonus, if any, that the Executive would have
earned for the calendar year in which the Termination Date occurs
based on the achievement of applicable performance goals for such
year, which shall be payable on the date that annual bonuses are
paid to the Company’s similarly situated executives, but in
no event later than two-and-a-half (2 1/2) months following the end
of the calendar year in which the Termination Date
occurs.
iii. For
purposes of this Agreement, “Disability” shall mean the
Executive’s inability, due to physical or mental incapacity,
to perform the essential functions of his job, with or without
reasonable accommodation, for one hundred eighty (180) days out of
any three hundred sixty-five (365) day period or one hundred twenty
(120) consecutive days. Any question as to the existence of the
Executive’s Disability as to which the Executive and the
Company cannot agree shall be determined in writing by a qualified
independent physician mutually acceptable to the Executive and the
Company. If the Executive and the Company cannot agree as to a
qualified independent physician, each shall appoint such a
physician and those two physicians shall select a third who shall
make such determination in writing. The determination of Disability
made in writing to the Company and the Executive shall be final and
conclusive for all purposes of this Agreement.
d. Notice
of Termination. Any termination of the Executive’s
employment hereunder by the Company or by the Executive during the
Employment Term (other than termination pursuant to Section 5.3(a)
on account of the Executive’s death) shall be communicated by
written notice of termination (“Notice of Termination”)
to the other party hereto in accordance with Section 27. The Notice
of Termination shall specify:
i. The termination
provision of this Agreement relied upon;
ii. To the extent
applicable, the facts and circumstances claimed to provide a basis
for termination of the Executive’s employment under the
provision so indicated; and
iii. The
applicable Termination Date.
e. Termination
Date. The Executive’s “Termination Date”
shall be:
i. If the
Executive’s employment hereunder terminates on account of the
Executive’s death, the date of the Executive’s
death;
ii. If the
Executive’s employment hereunder is terminated on account of
the Executive’s Disability, the date that it is determined
that the Executive has a Disability;
iii. If
the Company terminates the Executive’s employment hereunder
for Cause, the date the Notice of Termination is delivered to the
Executive;
iv. If the Company
terminates the Executive’s employment hereunder without
Cause, the date specified in the Notice of Termination, which shall
be no less than 30 days following the date on which the Notice of
Termination is delivered; provided that, the Company shall have the
option to provide the Executive with a lump sum payment equal to 30
days’ Base Salary in lieu of such notice, which shall be paid
in a lump sum on the Executive’s Termination Date and for all
purposes of this Agreement, the Executive’s Termination Date
shall be the date on which such Notice of Termination is
delivered;
v. If the Executive
terminates his employment hereunder with or without Good Reason,
the date specified in the Executive’s Notice of Termination,
which shall be no less than 14 days following the date on which the
Notice of Termination is delivered; provided that, the Company may
waive all or any part of the 14 day notice period for no
consideration by giving written notice to the Executive and for all
purposes of this Agreement, the Executive’s Termination Date
shall be the date determined by the Company; and
vi. If the
Executive’s employment hereunder terminates because either
party provides notice of non-renewal pursuant to Section 1, the
Renewal Date immediately following the date on which the applicable
party delivers notice of non-renewal.
Notwithstanding
anything contained herein, the Termination Date shall not occur
until the date on which the Executive incurs a “separation
from service” within the meaning of Section
409A.
f. Mitigation.
In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of
this Agreement and except as provided in Section 5.2(c), any
amounts payable pursuant to this Section 5 shall not be reduced by
compensation the Executive earns on account of employment with
another employer.
g. Resignation
of All Other Positions. Upon termination of the
Executive’s employment hereunder for any reason, the
Executive shall be deemed to have resigned from all positions that
the Executive holds as an officer or member of the Board (or a
committee thereof) of the Company or any of its
affiliates.
h. Section
280G.
i. If any of the
payments or benefits received or to be received by the Executive
(including, without limitation, any payment or benefits received in
connection with a Change in Control or the Executive’s
termination of employment, whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement, or
otherwise) (all such payments collectively referred to herein as
the “280G Payments”) constitute “parachute
payments” within the meaning of Section 280G of the Code and
would, but for this Section 5.9, be subject to the excise tax
imposed under Section 4999 of the Code (the “Excise
Tax”), then prior to making the 280G Payments, a calculation
shall be made comparing (i) the Net Benefit (as defined below) to
the Executive of the 280G Payments after payment of the Excise Tax
to (ii) the Net Benefit to the Executive if the 280G Payments are
limited to the extent necessary to avoid being subject to the
Excise Tax. Only if the amount calculated under (i) above is less
than the amount under (ii) above will the 280G Payments be reduced
to the minimum extent necessary to ensure that no portion of the
280G Payments is subject to the Excise Tax. “Net
Benefit” shall mean the present value of the 280G Payments
net of all federal, state, local, foreign income, employment, and
excise taxes. Any reduction made pursuant to this Section 5.9 shall
be made in a manner determined by the Company that is consistent
with the requirements of Section 409A.
ii. All calculations
and determinations under this Section 5.9 shall be made by an
independent accounting firm or independent tax counsel appointed by
the Company (the “Tax Counsel”) whose determinations
shall be conclusive and binding on the Company and the Executive
for all purposes. For purposes of making the calculations and
determinations required by this Section 5.9, the Tax Counsel may
rely on reasonable, good faith assumptions and approximations
concerning the application of Section 280G and Section 4999 of the
Code. The Company and the Executive shall furnish the Tax Counsel
with such information and documents as the Tax Counsel may
reasonably request in order to make its determinations under this
Section 5.9. The Company shall bear all costs the Tax Counsel may
reasonably incur in connection with its services.
6. Cooperation.
The parties agree that certain matters in which the Executive will
be involved during the Employment Term may necessitate the
Executive’s cooperation in the future. Accordingly, following
the termination of the Executive’s employment for any reason,
to the extent reasonably requested by the Board, the Executive
shall cooperate with the Company in connection with matters arising
out of the Executive’s service to the Company; provided that,
the Company shall make reasonable efforts to minimize disruption of
the Executive’s other activities. The Company shall reimburse
the Executive for reasonable expenses incurred in connection with
such cooperation and, to the extent that the Executive is required
to spend substantial time on such matters, the Company shall
compensate the Executive at an hourly rate based on the
Executive’s Base Salary on the Termination Date.
7. Confidential
Information. The Executive understands and acknowledges that
during the Employment Term, he will have access to and learn about
Confidential Information, as defined below.
a. Confidential Information Defined. For
purposes of this Agreement, “Confidential Information”
includes, but is not limited to, all information not generally
known to the public, in spoken, printed, electronic or any other
form or medium, relating directly or indirectly to: business
processes, practices, terms of agreements, transactions, potential
transactions, know-how, trade secrets,[ financial information, and
customer lists of the Company or its businesses, or of any other
person or entity that has entrusted information to the Company in
confidence.
The
Executive understands that the above list is not exhaustive, and
that Confidential Information also includes other information that
is marked or otherwise identified as confidential or proprietary,
or that would otherwise appear to a reasonable person to be
confidential or proprietary in the context and circumstances in
which the information is known or used.
The
Executive understands and agrees that Confidential Information
includes information developed by him in the course of his
employment by the Company as if the Company furnished the same
Confidential Information to the Executive in the first instance.
Confidential Information shall not include information that is
generally available to and known by the public at the time of
disclosure to the Executive; provided that, such disclosure is
through no direct or indirect fault of the Executive or person(s)
acting on the Executive’s behalf.
b. Company
Creation and Use of Confidential Information. The Executive
understands and acknowledges that the Company has invested, and
continues to invest, substantial time, money, and specialized
knowledge into developing its resources, creating a customer base,
generating customer and potential customer lists, training its
employees, and improving its offerings in the field of state-legal
wholesale and retail cannabis. The Executive understands and
acknowledges that as a result of these efforts, the Company has
created, and continues to use and create Confidential Information.
This Confidential Information provides the Company with a
competitive advantage over others in the marketplace.
c. Disclosure and Use Restrictions. The
Executive agrees and covenants: (i) to treat all Confidential
Information as strictly confidential; (ii) not to directly or
indirectly disclose, publish, communicate, or make available
Confidential Information, or allow it to be disclosed, published,
communicated, or made available, in whole or part, to any entity or
person whatsoever (including other employees of the Company) not
having a need to know and authority to know and use the
Confidential Information in connection with the business of the
Company and, in any event, not to anyone outside of the direct
employ of the Company except as required in the performance of the
Executive’s authorized employment duties to the Company; and
(iii) not to access or use any Confidential Information, and not to
copy any documents, records, files, media, or other resources
containing any Confidential Information, or remove any such
documents, records, files, media, or other resources from the
premises or control of the Company , except as required in the
performance of the Executive’s authorized employment duties
to the Company. Nothing herein shall be construed to prevent
disclosure of Confidential Information as may be required by
applicable law or regulation, or pursuant to the valid order of a
court of competent jurisdiction or an authorized government agency,
provided that the disclosure does not exceed the extent of
disclosure required by such law, regulation, or order.
d. Notice of Immunity Under the Economic Espionage
Act of 1996, as amended by the Defend Trade Secrets Act of 2016
(“DTSA”). Notwithstanding any other provision of
this Agreement:
i. The Executive will
not be held criminally or civilly liable under any federal or state
trade secret law for any disclosure of a trade secret
that:
1. is made (1) in
confidence to a federal, state, or local government official,
either directly or indirectly, or to an attorney; and (2) solely
for the purpose of reporting or investigating a suspected violation
of law; or
2. is made in a
complaint or other document filed under seal in a lawsuit or other
proceeding.
ii. If the Executive
files a lawsuit for retaliation by the Company for reporting a
suspected violation of law, the Executive may disclose the
Company’s trade secrets to the Executive’s attorney and
use the trade secret information in the court proceeding if the
Executive:
1. files any document
containing trade secrets under seal; and
2. does not disclose
trade secrets, except pursuant to court order.
The
Executive understands and acknowledges that his obligations under
this Agreement with regard to any particular Confidential
Information shall commence immediately upon the Executive first
having access to such Confidential Information (whether before or
after he begins employment by the Company) and shall continue
during and after his employment by the Company until such time as
such Confidential Information has become public knowledge other
than as a result of the Executive’s breach of this Agreement
or breach by those acting in concert with the Executive or on the
Executive’s behalf.
8. Restrictive
Covenants.
a. Non-Competition.
Because of the Company’s legitimate business interest as
described herein and the good and valuable consideration offered to
the Executive, during the Employment Term and for the twelve
months, to run consecutively, beginning on the last day of the
Executive’s employment with the Company, the Executive agrees
and covenants not to engage in Prohibited Activity within a 50 mile
radius of Las Vegas.
For
purposes of this Section 8, “Prohibited Activity” is
activity in which the Executive contributes his knowledge, directly
or indirectly, in whole or in part, as an employee, employer,
owner, operator, manager, advisor, consultant, agent, employee,
partner, director, stockholder, officer, volunteer, intern, or any
other similar capacity to an entity engaged in the same or similar
business as the Company , including those engaged in the business
of licensed cannabis cultivation, production, or dispensary
operations. Prohibited Activity also includes activity that may
require or inevitably requires disclosure of trade secrets,
proprietary information or Confidential Information.
This
Section 8 does not, in any way, restrict or impede the Executive
from exercising protected rights to the extent that such rights
cannot be waived by agreement or from complying with any applicable
law or regulation or a valid order of a court of competent
jurisdiction or an authorized government agency, provided that such
compliance does not exceed that required by the law, regulation, or
order. The Executive shall promptly provide written notice of any
such order to Company.
b. Non-Solicitation
of Employees. The Executive agrees and covenants not to
directly or indirectly solicit, hire, recruit, attempt to hire or
recruit, or induce the termination of employment of any employee of
the Company for 12 months, to run consecutively, beginning on the
last day of the Executive’s employment with the
Company.
c. Non-Solicitation
of Customers and Vendors. The Executive understands and
acknowledges that because of the Executive’s experience with
and relationship to the Company, he will have access to and learn
about much or all of the Company’s customer and vendor
information (or, “Competitive Information”).
Competitive includes, but is not limited to, names, phone numbers,
addresses, e-mail addresses, order history, order preferences,
chain of command, pricing information, and other information
identifying facts and circumstances specific to the vendor or the
customer and relevant to sales.
The
Executive understands and acknowledges that loss of this customer
or vendor relationship and/or goodwill will cause significant and
irreparable harm.
The
Executive agrees and covenants, during 12 months, to run
consecutively, beginning on the last day of the Executive’s
employment with the Company, not to directly or indirectly solicit,
contact (including but not limited to e-mail, regular mail, express
mail, telephone, fax, and instant message), attempt to contact, or
meet with the Company’s current, former or prospective
vendors or customers for purposes of offering or accepting goods or
services similar to or competitive with those offered by the
Company.
This
restriction shall only apply to:
i. Vendors, customers
or prospective customers the Executive contacted in any way during
the past 12 months;
ii. Vendors or
customers about whom the Executive has trade secret or confidential
information;
iii. Vendors
or customers who became vendors or customers during the
Executive’s employment with the Company; and
iv. Vendors or
customers about whom the Executive has information that is not
available publicly.
9. Non-Disparagement. The Executive agrees
and covenants that he will not at any time make, publish or
communicate to any person or entity or in any public forum any
defamatory or disparaging remarks, comments, or statements
concerning the Company or its businesses, or any of its employees,
officers, and existing and prospective customers, suppliers,
investors and other associated third parties.
This
Section 9 does not, in any way, restrict or impede the Executive
from exercising protected rights to the extent that such rights
cannot be waived by agreement or from complying with any applicable
law or regulation or a valid order of a court of competent
jurisdiction or an authorized government agency, provided that such
compliance does not exceed that required by the law, regulation, or
order.
The
Company agrees and covenants that it shall cause its officers and
directors to refrain from making any defamatory or disparaging
remarks, comments, or statements concerning the Executive to any
third parties.
10. Acknowledgement.
The Executive acknowledges and agrees that the services to be
rendered by him to the Company are of a special and unique
character; that the Executive will obtain knowledge and skill
relevant to the Company’s industry, methods of doing business
and marketing strategies by virtue of the Executive’s
employment; and that the restrictive covenants and other terms and
conditions of this Agreement are reasonable and reasonably
necessary to protect the legitimate business interest of the
Company.
The
Executive further acknowledges that the amount of his compensation
reflects, in part, his obligations and the Company’s rights
under Section 7, Section 8, and Section 9 of this Agreement; that
he has no expectation of any additional compensation, royalties or
other payment of any kind not otherwise referenced herein in
connection herewith; and that he will not be subject to undue
hardship by reason of his full compliance with the terms and
conditions of Section 7, Section 8, and Section 9 of this Agreement
or the Company’s enforcement thereof.
11. Remedies.
In the event of a breach or threatened breach by the Executive of
Section 7, 8, or Section 9 of this Agreement, the Executive hereby
consents and agrees that the Company shall be entitled to seek, in
addition to other available remedies, a temporary or permanent
injunction or other equitable relief against such breach or
threatened breach from any court of competent jurisdiction, without
the necessity of showing any actual damages or that money damages
would not afford an adequate remedy, and without the necessity of
posting any bond or other security. The aforementioned equitable
relief shall be in addition to, not in lieu of, legal remedies,
monetary damages, or other available forms of relief.
12. Proprietary
Rights.
a. Work Product. The Executive acknowledges
and agrees that all right, title, and interest in and to all
writings, works of authorship, technology, inventions, discoveries,
processes, techniques, methods, ideas, concepts, research,
proposals, materials, and all other work product of any nature
whatsoever, that are created, prepared, produced, authored, edited,
amended, conceived, or reduced to practice by the Executive
individually or jointly with others during the period of his
employment by the Company and relate in any way to the business or
contemplated business, products, activities, research, or
development of the Company or result from any work performed by the
Executive for the Company (in each case, regardless of when or
where prepared or whose equipment or other resources is used in
preparing the same), all rights and claims related to the
foregoing, and all printed, physical and electronic copies, and
other tangible embodiments thereof (collectively, “Work
Product”), as well as any and all rights in and to US and
foreign (a) patents, patent disclosures and inventions (whether
patentable or not), (b) trademarks, service marks, trade dress,
trade names, logos, corporate names, and domain names, and other
similar designations of source or origin, together with the
goodwill symbolized by any of the foregoing, (c) copyrights and
copyrightable works (including computer programs), [mask works,]
and rights in data and databases, (d) trade secrets, know-how, and
other confidential information, and (e) all other intellectual
property rights, in each case whether registered or unregistered
and including all registrations and applications for, and renewals
and extensions of, such rights, all improvements thereto and all
similar or equivalent rights or forms of protection in any part of
the world (collectively, “Intellectual Property
Rights”), shall be the sole and exclusive property of the
Company.
For
purposes of this Agreement, Work Product includes, but is not
limited to, Company information, including plans, publications,
research, strategies, documents, contracts, customer lists,
manufacturing information, marketing information, advertising
information, and sales information.
b. Work
Made for Hire; Assignment. The Executive acknowledges that,
by reason of being employed by the Company at the relevant times,
to the extent permitted by law, all of the Work Product consisting
of copyrightable subject matter is “work made for hire”
as defined in 17 U.S.C. § 101 and such copyrights are
therefore owned by the Company. To the extent that the foregoing
does not apply, the Executive hereby irrevocably assigns to the
Company, for no additional consideration, the Executive’s
entire right, title, and interest in and to all Work Product and
Intellectual Property Rights therein, including the right to sue,
counterclaim, and recover for all past, present, and future
infringement, misappropriation, or dilution thereof, and all rights
corresponding thereto throughout the world. Nothing contained in
this Agreement shall be construed to reduce or limit the
Company’s rights, title, or interest in any Work Product or
Intellectual Property Rights so as to be less in any respect than
that the Company would have had in the absence of this
Agreement.
c. Further
Assurances; Power of Attorney. During and after his
employment, the Executive agrees to reasonably cooperate with the
Company to (a) apply for, obtain, perfect, and transfer to the
Company the Work Product as well as any and all Intellectual
Property Rights in the Work Product in any jurisdiction in the
world; and (b) maintain, protect and enforce the same, including,
without limitation, giving testimony and executing and delivering
to the Company any and all applications, oaths, declarations,
affidavits, waivers, assignments, and other documents and
instruments as shall be requested by the Company. The Executive
hereby irrevocably grants the Company power of attorney to execute
and deliver any such documents on the Executive’s behalf in
his name and to do all other lawfully permitted acts to transfer
the Work Product to the Company and further the transfer,
prosecution, issuance, and maintenance of all Intellectual Property
Rights therein, to the full extent permitted by law, if the
Executive does not promptly cooperate with the Company’s
request (without limiting the rights the Company shall have in such
circumstances by operation of law). The power of attorney is
coupled with an interest and shall not be affected by the
Executive’s subsequent incapacity.
d. No
License. The Executive understands that this Agreement does
not, and shall not be construed to, grant the Executive any license
or right of any nature with respect to any Work Product or
Intellectual Property Rights or any Confidential Information,
materials, software, or other tools made available to him by the
Company.
13. Security.
a. Security
and Access. The Executive agrees and covenants (a) to comply
with all Company security policies and procedures as in force from
time to time and any and all other Company IT resources
(“Facilities and Information Technology Resources”);
(b) not to access or use any Facilities and Information Technology
Resources except as authorized by the Company; and (iii) not to
access or use any Facilities and Information Technology Resources
in any manner after the termination of the Executive’s
employment by the Company, whether termination is voluntary or
involuntary. The Executive agrees to notify the Company promptly in
the event he learns of any violation of the foregoing by others, or
of any other misappropriation or unauthorized access, use,
reproduction, or reverse engineering of, or tampering with any
Facilities and Information Technology Resources or other Company
property or materials by others.
b. Exit
Obligations. Upon (a) voluntary or involuntary termination
of the Executive’s employment or (b) the Company’s
request at any time during the Executive’s employment, the
Executive shall (i) provide or return to the Company any and all
Company property and all Company documents and materials belonging
to the Company and stored in any fashion, including but not limited
to those that constitute or contain any Confidential Information or
Work Product, that are in the possession or control of the
Executive, whether they were provided to the Executive by the
Company or any of its business associates or created by the
Executive in connection with his employment by the Company; and
(ii) delete or destroy all copies of any such documents and
materials not returned to the Company that remain in the
Executive’s possession or control, including those stored on
any non-Company devices, networks, storage locations, and media in
the Executive’s possession or control.
14. Publicity.
The Executive hereby irrevocably consents to any and all uses and
displays, by the Company and its agents, representatives and
licensees, of the Executive’s name, voice, likeness, image,
appearance, and biographical information in, on or in connection
with any pictures, photographs, audio and video recordings, digital
images, websites, television programs and advertising, other
advertising and publicity, sales and marketing brochures, books,
magazines, other publications, CDs, DVDs, tapes, and all other
printed and electronic forms and media throughout the world, at any
time during or after the period of his employment by the Company,
for all legitimate commercial and business purposes of the Company
(“Permitted Uses”) without further consent from or
royalty, payment, or other compensation to the Executive. The
Executive hereby forever waives and releases the Company and its
directors, officers, employees, and agents from any and all claims,
actions, damages, losses, costs, expenses, and liability of any
kind, arising under any legal or equitable theory whatsoever at any
time during or after the period of his employment by the Company,
arising directly or indirectly from the Company’s and its
agents’, representatives’, and licensees’
exercise of their rights in connection with any Permitted
Uses.
15. Governing
Law: Jurisdiction and Venue. This Agreement, for all
purposes, shall be construed in accordance with the laws of Nevada
without regard to conflicts of law principles. Any action or
proceeding by either of the parties to enforce this Agreement shall
be brought only in a state or federal court located in the state of
Nevada, county of Clark. The parties hereby irrevocably submit to
the exclusive jurisdiction of such courts and waive the defense of
inconvenient forum to the maintenance of any such action or
proceeding in such venue.
16. Entire
Agreement. Unless specifically provided herein, this
Agreement contains all of the understandings and representations
between the Executive and the Company pertaining to the subject
matter hereof and supersedes all prior and contemporaneous
understandings, agreements, representations and warranties, both
written and oral, with respect to such subject matter. The parties
mutually agree that the Agreement can be specifically enforced in
court and can be cited as evidence in legal proceedings alleging
breach of the Agreement.
17. Modification
and Waiver. No provision of this Agreement may be amended or
modified unless such amendment or modification is agreed to in
writing and signed by the Executive and by Board of Directors. No
waiver by either of the parties of any breach by the other party
hereto of any condition or provision of this Agreement to be
performed by the other party hereto shall be deemed a waiver of any
similar or dissimilar provision or condition at the same or any
prior or subsequent time, nor shall the failure of or delay by
either of the parties in exercising any right, power, or privilege
hereunder operate as a waiver thereof to preclude any other or
further exercise thereof or the exercise of any other such right,
power, or privilege.
18. Severability.
Should any provision of this Agreement be held by a court of
competent jurisdiction to be enforceable only if modified, or if
any portion of this Agreement shall be held as unenforceable and
thus stricken, such holding shall not affect the validity of the
remainder of this Agreement, the balance of which shall continue to
be binding upon the parties with any such modification to become a
part hereof and treated as though originally set forth in this
Agreement.
The
parties further agree that any such court is expressly authorized
to modify any such unenforceable provision of this Agreement in
lieu of severing such unenforceable provision from this Agreement
in its entirety, whether by rewriting the offending provision,
deleting any or all of the offending provision, adding additional
language to this Agreement, or by making such other modifications
as it deems warranted to carry out the intent and agreement of the
parties as embodied herein to the maximum extent permitted by
law.
The
parties expressly agree that this Agreement as so modified by the
court shall be binding upon and enforceable against each of them.
In any event, should one or more of the provisions of this
Agreement be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not
affect any other provisions hereof, and if such provision or
provisions are not modified as provided above, this Agreement shall
be construed as if such invalid, illegal, or unenforceable
provisions had not been set forth herein.
19. Captions.
Captions and headings of the sections and paragraphs of this
Agreement are intended solely for convenience and no provision of
this Agreement is to be construed by reference to the caption or
heading of any section or paragraph.
20. Counterparts.
This Agreement may be executed in separate counterparts, each of
which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
21. Tolling.
Should the Executive violate any of the terms of the restrictive
covenant obligations articulated herein, the obligation at issue
will run from the first date on which the Executive ceases to be in
violation of such obligation.
22. Section
409A.
a. General Compliance. This Agreement is
intended to comply with Section 409A or an exemption thereunder and
shall be construed and administered in accordance with Section
409A. Notwithstanding any other provision of this Agreement,
payments provided under this Agreement may only be made upon an
event and in a manner that complies with Section 409A or an
applicable exemption. Any payments under this Agreement that may be
excluded from Section 409A either as separation pay due to an
involuntary separation from service or as a short-term deferral
shall be excluded from Section 409A to the maximum extent possible.
For purposes of Section 409A, each installment payment provided
under this Agreement shall be treated as a separate payment. Any
payments to be made under this Agreement upon a termination of
employment shall only be made upon a “separation from
service” under Section 409A. Notwithstanding the foregoing,
the Company makes no representations that the payments and benefits
provided under this Agreement comply with Section 409A, and in no
event shall the Company be liable for all or any portion of any
taxes, penalties, interest, or other expenses that may be incurred
by the Executive on account of non-compliance with Section
409A.
b. Specified
Employees. Notwithstanding any other provision of this
Agreement, if any payment or benefit provided to the Executive in
connection with his termination of employment is determined to
constitute “nonqualified deferred compensation” within
the meaning of Section 409A and the Executive is determined to be a
“specified employee” as defined in Section
409A(a)(2)(b)(i), then such payment or benefit shall not be paid
until the first payroll date to occur following the six-month
anniversary of the Termination Date or, if earlier, on the
Executive’s death (the “Specified Employee Payment
Date”). The aggregate of any payments that would otherwise
have been paid before the Specified Employee Payment Date [and
interest on such amounts calculated based on the applicable federal
rate published by the Internal Revenue Service for the month in
which the Executive’s separation from service occurs] shall
be paid to the Executive in a lump sum on the Specified Employee
Payment Date and thereafter, any remaining payments shall be paid
without delay in accordance with their original
schedule.
c. Reimbursements.
To the extent required by Section 409A, each reimbursement or
in-kind benefit provided under this Agreement shall be provided in
accordance with the following:
i. the amount of
expenses eligible for reimbursement, or in-kind benefits provided,
during each calendar year cannot affect the expenses eligible for
reimbursement, or in-kind benefits to be provided, in any other
calendar year;
ii. any reimbursement
of an eligible expense shall be paid to the Executive on or before
the last day of the calendar year following the calendar year in
which the expense was incurred; and
iii. any
right to reimbursements or in-kind benefits under this Agreement
shall not be subject to liquidation or exchange for another
benefit.
d. Tax
Gross-ups. Any tax gross-up payments provided under this Agreement
shall be paid to the Executive on or before December 31 of the
calendar year immediately following the calendar year in which the
Executive remits the related taxes.
23. Notification to
Subsequent Employer. When the Executive’s employment
with the Company terminates, the Executive agrees to notify any
subsequent employer of the restrictive covenants sections contained
in this Agreement. The Executive will also deliver a copy of such
notice to the Company before the Executive commences employment
with any subsequent employer. In addition, the Executive authorizes
the Company to provide a copy of the restrictive covenants sections
of this Agreement to third parties, including but not limited to,
the Executive’s subsequent, anticipated, or possible future
employer.
24. Successors
and Assigns. This Agreement is personal to the Executive and
shall not be assigned by the Executive. Any purported assignment by
the Executive shall be null and void from the initial date of the
purported assignment. The Company may assign this Agreement to any
successor or assign (whether direct or indirect, by purchase,
merger, consolidation, or otherwise) to all or substantially all of
the business or assets of the Company. This Agreement shall inure
to the benefit of the Company and permitted successors and
assigns.
25. Notice.
Notices and all other communications provided for in this Agreement
shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, or by
overnight carrier to the parties at the addresses set forth below
(or such other addresses as specified by the parties by like
notice):
If to
the Company:
Planet
13 Holdings, Inc., or MM Development Company, Inc., currently
registered corporate office or registered agent.
If to
the Executive:
Address
written below.
26. Representations
of the Executive. The Executive represents and warrants to
the Company that:
The
Executive’s acceptance of employment with the Company and the
performance of his duties hereunder will not conflict with or
result in a violation of, a breach of, or a default under any
contract, agreement, or understanding to which he is a party or is
otherwise bound.
The
Executive’s acceptance of employment with the Company and the
performance of his duties hereunder will not violate any
non-solicitation, non-competition, or other similar covenant or
agreement of a prior employer.
27. Withholding.
The Company shall have the right to withhold from any amount
payable hereunder any Federal, state, and local taxes in order for
the Company to satisfy any withholding tax obligation it may have
under any applicable law or regulation.
28. Survival.
Upon the expiration or other termination of this Agreement, the
respective rights and obligations of the parties hereto shall
survive such expiration or other termination to the extent
necessary to carry out the intentions of the parties under this
Agreement.
29. Gender
and Number. Wherever appropriate herein, the masculine may
mean the feminine and the singular may mean the plural or vice
versa.
30. Acknowledgement
of Full Understanding. THE EXECUTIVE ACKNOWLEDGES AND AGREES
THAT HE HAS FULLY READ, UNDERSTANDS AND VOLUNTARILY ENTERS INTO
THIS AGREEMENT. THE EXECUTIVE ACKNOWLEDGES AND AGREES THAT HE HAS
HAD AN OPPORTUNITY TO ASK QUESTIONS AND CONSULT WITH AN ATTORNEY OF
his CHOICE BEFORE SIGNING THIS AGREEMENT.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Employee:
/s/
Larry
Scheffler
Name:
Larry Scheffler
Address:
[REDACTED]
|
MM
Development Company
By:
/s/ Robert
Groesbeck
Robert
Groesbeck, Director
By:
/s/ Larry
Scheffler
Name:
Larry Scheffler, Director
|
Amendment to Employment Agreement
This
First Amendment (the “Amendment”) to the Employment
Agreement (the “Agreement”) is made and entered into as
of March 10, 2021, by and between Larry Scheffler (the
“Executive”) and MM Development Company, Inc., a Nevada
domestic corporation (the “Company”).
WHEREAS, the
Compensation Committee of Planet 13 Holdings, Inc., the parent
company of MM Development Company, Inc. met on February 25, 2021,
and authorized an extension of the Term under the Agreement;
and
WHEREAS, MM
Development Company, Inc. is the US subsidiary of Planet 13
Holdings, Inc., and Executive’s position is effective for
Planet 13 Holdings, Inc., and that Executive continues to provide
services for both MM Development Company, Inc. and Planet 13
Holdings, Inc., and for other subsidiaries of Planet 13 Holdings,
Inc.
WHEREAS, Planet 13
Holdings, Inc. Executives and officers of MM Development Company,
Inc. are paid through BLC Management Company, LLC, a Nevada LLC as
the US management branch of Planet 13 Holdings, Inc.
NOW,
THEREFORE, in consideration of the mutual covenants, promises, and
obligations set forth herein, the parties agree to amend the June
1, 2018 Employment Agreement between Executive and MM Development
Company, Inc. as follows:
The
Term, as such word is defined at Section 1 of the Agreement, is
extended to December 31, 2025 from the originally defined date of
May 15, 2023. This Term extension shall also extend the calculation
of benefits due to the Executive under Section 5 (Termination of
Employment), Subsection b. (Without Cause or for Good Reason), Part
i. for the continuation of Base Salary and health care benefits, as
well as all other sections impacted by an extension of the
Term.
So
agreed this March 10, 2021 as to Executive, Company, and confirmed
by Planet 13 Holdings, Inc.
MM
Development Company, Inc.
/s/ Robert Groesbeck
Authorized
Officer
Executive
/s/ Larry Scheffler
Larry
Scheffler
Confirmation
of Amendment, Pre-Approved by Compensation Committee
Planet
13 Holdings, Inc.
/s/ Leighton Koehler
Authorized
Officer
Exhibit 10.12
Employment Agreement
This
Employment Agreement (the “Agreement”) is made and
entered into as of June 1, 2018, by and between Robert Groesbeck
(the “Executive”) and MM Development Company, Inc., a
Nevada domestic corporation (the
“Company”).
WHEREAS,
the Company desires to employ the Executive on the terms and
conditions set forth herein;
WHEREAS,
the Executive desires to be employed by the Company on such terms
and conditions; and,
WHEREAS,
MM Development Company, Inc. anticipates being the subsidiary of
Planet 13 Holdings, Inc., and Company and Executive anticipate that
Executives position shall be ratified by Planet 13 Holdings, Inc.,
and that Executive shall be providing services for both MM
Development Company, Inc. and Planet 13 Holdings, Inc., and for
other subsidiaries of Planet 13 Holdings, Inc.
NOW,
THEREFORE, in consideration of the mutual covenants, promises, and
obligations set forth herein, the parties agree as
follows:
1.
Term. The Executive’s Employment
hereunder shall be effective as of May 15, 2018, (the
“Effective Date”) and shall continue until the fifth
anniversary thereof, unless terminated earlier pursuant to Section
5 of this Agreement; provided that, on such fifth anniversary of
the Effective Date and each annual anniversary thereafter (such
date and each annual anniversary thereof, a “Renewal
Date”), the Agreement shall be deemed to be automatically
extended, upon the same terms and conditions, for successive
periods of one year, unless either party provides written notice of
its intention not to extend the term of the Agreement at least 90
days’ prior to the applicable Renewal Date. The period during
which the Executive is employed by the Company hereunder is
hereinafter referred to as the “Employment
Term.”
a.
Position.
During the Employment Term, the Executive shall serve as the
co-Chief Executive Officer of the Company, reporting to the Board.
In such position, the Executive shall have such duties, authority,
and responsibility consistent with the Executive’s position.
The Executive shall, if requested, also serve as a member of the
board of directors of the Company (the “Board”) or as
an officer or director of any affiliate of the Company for no
additional compensation.
b.
Duties.
During the Employment Term, the Executive shall perform such duties
as are ordinary and reasonable for the position listed in Item 2(a)
and shall provide reasonable time and attention to the performance
of the Executive’s duties hereunder.
3.
Place of Performance. The principal place of
Executive’s employment shall be the Company’s executive
office currently located in Las Vegas, Nevada; provided that, the
Executive may be required to travel on Company business during the
Employment Term.
a.
Base
Salary. The Company shall pay the Executive an
annual rate of base salary of USD $240,000, in periodic
installments in accordance with the Company’s customary
payroll practices and applicable wage payment laws, but no less
frequently than bi-weekly. The Executive’s base salary shall
be reviewed at least annually by the Compensation Committee of the
Board (the “Compensation Committee”). However, the
Executive’s base salary may not be decreased during the
Employment Term. The Executive’s annual base salary, as in
effect from time to time, is hereinafter referred to as “Base
Salary”.
i.
For each calendar
year of the Employment Term, the Executive shall be eligible to
receive an annual bonus (the “Annual Bonus”). However,
the decision to provide any Annual Bonus and the amount and terms
of any Annual Bonus shall be in the sole and absolute discretion of
the Compensation Committee.
ii.
The Annual Bonus,
if any, will be paid within two and a half (2 1/2) months after the
end of the applicable calendar year.
iii.
Except as otherwise
provided in Section 5, the Annual Bonus will be subject to the
terms of the Company annual bonus plan under which it is
granted.
i.
Executive shall be
eligible to receive a performance bonus in accordance with the
performance bonus as established by the Compensation
Committee.
i.
In consideration of
the Executive entering into this Agreement and as an inducement to
join the Company, on or within thirty days of the Effective Date,
the Company will grant the following equity awards to the Executive
pursuant to the Company’s Restricted Stock Unit Plan:
1,000,000 restricted stock units, which shall vest in accordance
with the terms of the Restricted Stock Unit Plan. All other terms
and conditions of such awards shall be governed by the terms and
conditions of the Restricted Stock Unit Plan and the applicable
award agreements; and
ii.
With respect to
each calendar year of the Company ending during the Employment
Term, the Executive shall be eligible to receive annual equity
awards under the Stock Option Plan and the Restricted Stock Unit
Plan or other equity plans of the Company.
e.
Fringe
Benefits and Perquisites. During the Employment Term, the
Executive shall be entitled to fringe benefits and perquisites
consistent with the practices of the Company, and to the extent the
Company provides similar benefits or perquisites (or both) to
similarly situated executives of the Company, including without
limitation, reimbursement of executives cellular phone expenses, a
monthly vehicle allowance, reimbursement of professional licensing
and agent cards, and reimbursement of reasonable professional
education expenses.
f.
Employee
Benefits. During the Employment Term, the
Executive shall be entitled to participate in all employee benefit
plans, practices, and programs maintained by the Company, as in
effect from time to time (collectively, “Employee Benefit
Plans”), on a basis which is no less favorable than is
provided to other similarly situated executives of the Company, to
the extent consistent with applicable law and the terms of the
applicable Employee Benefit Plans. The Company reserves the right
to amend or cancel any Employee Benefit Plans at any time in its
sole discretion, subject to the terms of such Employee Benefit Plan
and applicable law. Vacation; Paid Time-Off. The Executive shall
receive other paid time-off in accordance with the Company’s
policies for executive officers as such policies may exist from
time to time.
g.
Relocation
Expenses. Although Executive and Company do not
anticipate the need to relocate the Executive, the Company shall
pay, or reimburse the Executive for, all reasonable relocation
expenses incurred by the Executive relating to his relocation that
is requested by the Company, should such be required at a future
date.
h.
Business
Expenses. The Executive shall be entitled to
reimbursement for all reasonable and necessary out-of-pocket
business, entertainment, and travel expenses incurred by the
Executive in connection with the performance of the
Executive’s duties hereunder in accordance with the
Company’s expense reimbursement policies and
procedures.
i.
In the event that
the Executive is made a party or threatened to be made a party to
any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (a “Proceeding”),
other than any Proceeding initiated by the Executive or the Company
related to any contest or dispute between the Executive and the
Company or any of its affiliates with respect to this Agreement or
the Executive’s employment hereunder, by reason of the fact
that the Executive is or was a director or officer of the Company,
or any affiliate of the Company, or is or was serving at the
request of the Company as a director, officer, member, employee, or
agent of another corporation or a partnership, joint venture,
trust, or other enterprise, the Executive shall be indemnified and
held harmless by the Company from and against any liabilities,
costs, claims, and expenses, including all costs and expenses
incurred in defense of any Proceeding (including attorneys’
fees). Costs and expenses incurred by the Executive in defense of
such Proceeding (including attorneys’ fees) shall be paid by
the Company in advance of the final disposition of such litigation
upon receipt by the Company of: (i) a written request for payment;
(ii) appropriate documentation evidencing the incurrence, amount,
and nature of the costs and expenses for which payment is being
sought; and (iii) an undertaking adequate under applicable law made
by or on behalf of the Executive to repay the amounts so paid if it
shall ultimately be determined that the Executive is not entitled
to be indemnified by the Company under this Agreement.
ii.
During the
Employment Term and for a period of six (6) years thereafter, the
Company or any successor to the Company shall purchase and
maintain, at its own expense, directors’ and officers’
liability insurance providing coverage to the Executive on terms
that are no less favorable than the coverage provided to other
directors and similarly situated executives of the
Company.
j.
Clawback
Provisions. Notwithstanding any other provisions
in this Agreement to the contrary, any incentive-based compensation
paid to the Executive pursuant to this Agreement which is subject
to recovery under any law, government regulation or stock exchange
listing requirement, will be subject to such deductions and
clawback as may be required to be made pursuant to such law,
government regulation, or stock exchange listing requirement (or
any policy adopted by the Company pursuant to any such law,
government regulation or stock exchange listing
requirement)..
5.
Termination of Employment. The Employment Term and the
Executive’s employment hereunder may be terminated by either
the Company or the Executive at any time and for any reason;
provided that, unless otherwise provided herein, either party shall
be required to give the other party at least 30 days advance
written notice of any termination of the Executive’s
employment. Upon termination of the Executive’s employment
during the Employment Term, the Executive shall be entitled to the
compensation and benefits described in this Section 5 and shall
have no further rights to any compensation or any other benefits
from the Company or any of its affiliates.
a.
For
Cause or Without Good Reason.
i.
The
Executive’s employment hereunder may be terminated by the
Company for Cause or by the Executive without Good Reason. If the
Executive’s employment is terminated, by the Company for
Cause or by the Executive without Good Reason, the Executive shall
be entitled to receive:
1.
any accrued but
unpaid Base Salary and accrued but unused vacation which shall be
paid [on the Termination Date (as defined below)/within one (1)
week following the Termination Date (as defined below)/on the pay
date immediately following the Termination Date (as defined below)
in accordance with the Company’s customary payroll
procedures;
2.
any earned but
unpaid Annual Bonus with respect to any completed calendar year
immediately preceding the Termination Date, which shall be paid on
the otherwise applicable payment date except to the extent payment
is otherwise deferred pursuant to any applicable deferred
compensation arrangement; provided that, if the Executive’s
employment is terminated by the Company for Cause, then any such
accrued but unpaid Annual Bonus shall be forfeited;
3.
reimbursement for
unreimbursed business expenses properly incurred by the Executive,
which shall be subject to and paid in accordance with the
Company’s expense reimbursement policy; and
4.
such employee
benefits (including equity compensation), if any, to which the
Executive may be entitled under the Company’s employee
benefit plans as of the Termination Date; provided that, in no
event shall the Executive be entitled to any payments in the nature
of severance or termination payments except as specifically
provided herein.
Items
5(a)(i)(1) through 5(a)(i)(4) are referred to herein collectively
as the “Accrued Amounts”.
ii.
For purposes of
this Agreement, “Cause” shall mean:
1.
the
Executive’s willful failure to perform his duties (other than
any such failure resulting from incapacity due to physical or
mental illness);
2.
the
Executive’s conviction of or plea of guilty or nolo
contendere to a crime (other than related to cannabis) that
constitutes a felony (or state law equivalent) or a crime that
constitutes a misdemeanor involving moral turpitude, if such felony
or other crime is work-related, materially impairs the
Executive’s ability to perform services for the Company or
results in material harm to the Company or its
affiliates;
For
purposes of this provision, no act or failure to act on the part of
the Executive shall be considered “willful” unless it
is done, or omitted to be done, by the Executive with malicious
intent against the furtherance of Company business or operations.
Any act, or failure to act, based upon 1) authority given pursuant
to a resolution duly adopted by the Board, 2) duties generally
considered part of the Executives position of a similarly situated
public company, or 3) upon the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done,
by the Executive in good faith and in the best interests of the
Company.
Termination
of the Executive’s employment shall not be deemed to be for
Cause unless and until the Company delivers to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less
than a majority of the Board (after reasonable written notice is
provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board),
finding that the Executive has engaged in the conduct described in
5(a)(ii) above. Except for a failure, breach, or refusal which, by
its nature, cannot reasonably be expected to be cured, the
Executive shall have ten (10) business days from the delivery of
written notice by the Company within which to cure any acts
constituting Cause; provided however, that, if the Company
reasonably expects irreparable injury from a delay of ten (10)
business days, the Company may give the Executive notice of such
shorter period within which to cure as is reasonable under the
circumstances, which may include the termination of the
Executive’s employment without notice and with immediate
effect. The Company may place the Executive on paid leave for up to
60 days while it is determining whether there is a basis to
terminate the Executive’s employment for Cause. Any such
action by the Company will not constitute Good Reason.
iii.
For purposes of
this Agreement, “Good Reason” shall mean the occurrence
of any of the following, in each case during the Employment Term
without the Executive’s written consent:
1.
a reduction in the
Executive’s Base Salary;
2.
a relocation of the
Executive’s principal place of employment by more than 50
miles;
3.
any material breach
by the Company of any material provision of this Agreement or any
material provision of any other agreement between the Executive and
the Company;
4.
the Company’s
failure to obtain an agreement from any successor to the Company to
assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if
no succession had taken place, except where such assumption occurs
by operation of law;
5.
a material, adverse
change in the Executive’s title, authority, duties, or
responsibilities (other than temporarily while the Executive is
physically or mentally incapacitated or as required by applicable
law) considering the Company’s size, status as a public
company, and capitalization as of the date of this Agreement;
or
6.
a material adverse
change in the reporting structure applicable to the
Executive.
The
Executive cannot terminate his employment for Good Reason unless he
has provided written notice to the Company of the existence of the
circumstances providing grounds for termination for Good Reason
within 14 days of the initial existence of such grounds and the
Company has had at least 14 days from the date on which such notice
is provided to cure such circumstances. If the Executive does not
terminate his employment for Good Reason within 14 days after the
first occurrence of the applicable grounds, then the Executive will
be deemed to have waived his right to terminate for Good Reason
with respect to such grounds.
b.
Without
Cause or for Good Reason. The Employment Term and the
Executive’s employment hereunder may be terminated by the
Executive for Good Reason or by the Company without Cause. In the
event of such termination, the Executive shall be entitled to
receive the Accrued Amounts and subject to the Executive’s
compliance with Section 6, Section 7, Section 8, and Section 9 of
this Agreement and his execution of a release of claims in favor of
the Company, its affiliates and their respective officers and
directors in a form provided by the Company (the
“Release”) and such Release becoming effective within
30 days following the Termination Date (such 30-day period, the
“Release Execution Period”)], the Executive shall be
entitled to receive the following:
i.
continued Base
Salary and health care benefits at a substantially similar level to
the benefits provided while Executive was employed by the Company
for a duration of the remaining Term of the Executive’s
employment as if there had been no Termination, from the
Termination Date payable in equal installments in accordance with
the Company’s normal payroll practices, but no less
frequently than monthly, which shall commence within 14 days
following the Termination Date;
ii.
subject to
proration, any earned but unpaid Annual Bonus with respect to any
calendar year immediately preceding the Termination Date, which
shall be paid on the otherwise applicable payment date except to
the extent payment is otherwise deferred pursuant to any applicable
deferred compensation arrangement;
iii.
Company shall
reimburse Executive for all reasonable administrative assistant
expenses incurred by Executive for a period of six months following
the Termination Date.
iv.
The treatment of
any outstanding equity awards shall be determined in accordance
with the terms of the Restricted Stock Unit plan and stock option
plan and the applicable award agreements.
v.
Notwithstanding the
terms of the Restricted Stock Unit plan and stock option plan or
any applicable award agreements:
1.
all outstanding
unvested stock options/stock appreciation rights/restricted stock
units granted to the Executive during the Employment Term shall
become fully vested and exercisable for the remainder of their full
term;
2.
all outstanding
equity-based compensation awards other than stock options/stock
appreciation rights that are not intended to qualify as
performance-based compensation under Section 162(m)(4)(C) of the
Internal Revenue Code of 1986, as amended (the “Code”),
shall become fully vested and the restrictions thereon shall lapse;
provided that, any delays in the settlement or payment of such
awards that are set forth in the applicable award agreement and
that are required under Section 409A of the Code (“Section
409A”) shall remain in effect; and
3.
all outstanding
equity-based compensation awards other than stock options/stock
appreciation rights that are intended to constitute
performance-based compensation under Section 162(m)(4)(C) of the
Code shall remain outstanding and shall vest or be forfeited in
accordance with the terms of the applicable award agreements, if
the applicable performance goals are satisfied.
i.
The
Executive’s employment hereunder shall terminate
automatically upon the Executive’s death during the
Employment Term, and the Company may terminate the
Executive’s employment on account of the Executive’s
Disability.
ii.
If the
Executive’s employment is terminated during the Employment
Term on account of the Executive’s death or Disability, the
Executive (or the Executive’s estate and/or beneficiaries, as
the case may be) shall be entitled to receive the
following:
2.
a lump sum payment
equal to 12 months of the Executive’s current Base Salary, as
shown at Item 4(a) or as later increased by the Compensation
Committee; and,
3.
a lump sum payment
equal to the Annual Bonus, if any, that the Executive would have
earned for the calendar year in which the Termination Date occurs
based on the achievement of applicable performance goals for such
year, which shall be payable on the date that annual bonuses are
paid to the Company’s similarly situated executives, but in
no event later than two-and-a-half (2 1/2) months following the end
of the calendar year in which the Termination Date
occurs.
iii.
For purposes of
this Agreement, “Disability” shall mean the
Executive’s inability, due to physical or mental incapacity,
to perform the essential functions of his job, with or without
reasonable accommodation, for one hundred eighty (180) days out of
any three hundred sixty-five (365) day period or one hundred twenty
(120) consecutive days. Any question as to the existence of the
Executive’s Disability as to which the Executive and the
Company cannot agree shall be determined in writing by a qualified
independent physician mutually acceptable to the Executive and the
Company. If the Executive and the Company cannot agree as to a
qualified independent physician, each shall appoint such a
physician and those two physicians shall select a third who shall
make such determination in writing. The determination of Disability
made in writing to the Company and the Executive shall be final and
conclusive for all purposes of this Agreement.
d.
Notice
of Termination. Any termination of the
Executive’s employment hereunder by the Company or by the
Executive during the Employment Term (other than termination
pursuant to Section 5.3(a) on account of the Executive’s
death) shall be communicated by written notice of termination
(“Notice of Termination”) to the other party hereto in
accordance with Section 27. The Notice of Termination shall
specify:
i.
The termination
provision of this Agreement relied upon;
ii.
To the extent
applicable, the facts and circumstances claimed to provide a basis
for termination of the Executive’s employment under the
provision so indicated; and
iii.
The applicable
Termination Date.
e.
Termination
Date. The Executive’s
“Termination Date” shall be:
i.
If the
Executive’s employment hereunder terminates on account of the
Executive’s death, the date of the Executive’s
death;
ii.
If the
Executive’s employment hereunder is terminated on account of
the Executive’s Disability, the date that it is determined
that the Executive has a Disability;
iii.
If the Company
terminates the Executive’s employment hereunder for Cause,
the date the Notice of Termination is delivered to the
Executive;
iv.
If the Company
terminates the Executive’s employment hereunder without
Cause, the date specified in the Notice of Termination, which shall
be no less than 30 days following the date on which the Notice of
Termination is delivered; provided that, the Company shall have the
option to provide the Executive with a lump sum payment equal to 30
days’ Base Salary in lieu of such notice, which shall be paid
in a lump sum on the Executive’s Termination Date and for all
purposes of this Agreement, the Executive’s Termination Date
shall be the date on which such Notice of Termination is
delivered;
v.
If the Executive
terminates his employment hereunder with or without Good
Reason,
the date specified in the Executive’s Notice of Termination,
which shall be no less than 14 days following the date on which the
Notice of Termination is delivered; provided that, the Company may
waive all or any part of the 14 day notice period for no
consideration by giving written notice to the Executive and for all
purposes of this Agreement, the Executive’s Termination Date
shall be the date determined by the Company; and
vi.
If the
Executive’s employment hereunder terminates because either
party provides notice of non-renewal pursuant to Section 1, the
Renewal Date immediately following the date on which the applicable
party delivers notice of non-renewal.
Notwithstanding
anything contained herein, the Termination Date shall not occur
until the date on which the Executive incurs a “separation
from service” within the meaning of Section
409A.
f.
Mitigation.
In no event shall the Executive be obligated to seek other
employment or take any other
action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and except as
provided in Section 5.2(c), any amounts payable pursuant to this
Section 5 shall not be reduced by compensation the Executive earns
on account of employment with another employer.
g.
Resignation
of All Other Positions. Upon termination of the
Executive’s employment hereunder for any reason, the
Executive shall be deemed to have resigned from all positions that
the Executive holds as an officer or member of the Board (or a
committee thereof) of the Company or any of its
affiliates.
i.
If any of the
payments or benefits received or to be received by the Executive
(including, without limitation, any payment or benefits received in
connection with a Change in Control or the Executive’s
termination of employment, whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement, or
otherwise) (all such payments collectively referred to herein as
the “280G Payments”) constitute “parachute
payments” within the meaning of Section 280G of the Code and
would, but for this Section 5.9, be subject to the excise tax
imposed under Section 4999 of the Code (the “Excise
Tax”), then prior to making the 280G Payments, a calculation
shall be made comparing (i) the Net Benefit (as defined below) to
the Executive of the 280G Payments after payment of the Excise Tax
to (ii) the Net Benefit to the Executive if the 280G Payments are
limited to the extent necessary to avoid being subject to the
Excise Tax. Only if the amount calculated under (i) above is less
than the amount under (ii) above will the 280G Payments be reduced
to the minimum extent necessary to ensure that no portion of the
280G Payments is subject to the Excise Tax. “Net
Benefit” shall mean the present value of the 280G Payments
net of all federal, state, local, foreign income, employment, and
excise taxes. Any reduction made pursuant to this Section 5.9 shall
be made in a manner determined by the Company that is consistent
with the requirements of Section 409A.
ii.
All calculations
and determinations under this Section 5.9 shall be made by an
independent accounting firm or independent tax counsel appointed by
the Company (the “Tax Counsel”) whose determinations
shall be conclusive and binding on the Company and the Executive
for all purposes. For purposes of making the calculations and
determinations required by this Section 5.9, the Tax Counsel may
rely on reasonable, good faith assumptions and approximations
concerning the application of Section 280G and Section 4999 of the
Code. The Company and the Executive shall furnish the Tax Counsel
with such information and documents as the Tax Counsel may
reasonably request in order to make its determinations under this
Section 5.9. The Company shall bear all costs the Tax Counsel may
reasonably incur in connection with its services.
6.
Cooperation. The parties agree that certain matters
in which the Executive will be involved during the Employment Term
may necessitate the Executive’s cooperation in the future.
Accordingly, following the termination of the Executive’s
employment for any reason, to the extent reasonably requested by
the Board, the Executive shall cooperate with the Company in
connection with matters arising out of the Executive’s
service to the Company; provided that, the Company shall make
reasonable efforts to minimize disruption of the Executive’s
other activities. The Company shall reimburse the Executive for
reasonable expenses incurred in connection with such cooperation
and, to the extent that the Executive is required to spend
substantial time on such matters, the Company shall compensate the
Executive at an hourly rate based on the Executive’s Base
Salary on the Termination Date.
7.
Confidential Information. The Executive understands and
acknowledges that during the Employment Term, he will have access
to and learn about Confidential Information, as defined
below.
a.
Confidential
Information Defined. For purposes of this Agreement,
“Confidential Information” includes, but is not limited
to, all information not generally known to the public, in spoken,
printed, electronic or any other form or medium, relating directly
or indirectly to: business processes, practices, terms of
agreements, transactions, potential transactions, know-how, trade
secrets,[ financial information, and customer lists of the Company
or its businesses, or of any other person or entity that has
entrusted information to the Company in confidence.
The
Executive understands that the above list is not exhaustive, and
that Confidential Information also includes other information that
is marked or otherwise identified as confidential or proprietary,
or that would otherwise appear to a reasonable person to be
confidential or proprietary in the context and circumstances in
which the information is known or used.
The
Executive understands and agrees that Confidential Information
includes information developed by him in the course of his
employment by the Company as if the Company furnished the same
Confidential Information to the Executive in the first instance.
Confidential Information shall not include information that is
generally available to and known by the public at the time of
disclosure to the Executive; provided that, such disclosure is
through no direct or indirect fault of the Executive or person(s)
acting on the Executive’s behalf.
b.
Company
Creation and Use of Confidential Information. The Executive understands and
acknowledges that the Company has invested, and continues to
invest, substantial time, money, and specialized knowledge into
developing its resources, creating a customer base, generating
customer and potential customer lists, training its employees, and
improving its offerings in the field of state-legal wholesale and
retail cannabis. The Executive understands and acknowledges that as
a result of these efforts, the Company has created, and continues
to use and create Confidential Information. This Confidential
Information provides the Company with a competitive advantage over
others in the marketplace.
c.
Disclosure
and Use Restrictions. The Executive agrees and covenants:
(i) to treat all Confidential Information as strictly confidential;
(ii) not to directly or indirectly disclose, publish, communicate,
or make available Confidential Information, or allow it to be
disclosed, published, communicated, or made available, in whole or
part, to any entity or person whatsoever (including other employees
of the Company) not having a need to know and authority to know and
use the Confidential Information in connection with the business of
the Company and, in any event, not to anyone outside of the direct
employ of the Company except as required in the performance of the
Executive’s authorized employment duties to the Company; and
(iii) not to access or use any Confidential Information, and not to
copy any documents, records, files, media, or other resources
containing any Confidential Information, or remove any such
documents, records, files, media, or other resources from the
premises or control of the Company , except as required in the
performance of the Executive’s authorized employment duties
to the Company. Nothing herein shall be construed to prevent
disclosure of Confidential Information as may be required by
applicable law or regulation, or pursuant to the valid order of a
court of competent jurisdiction or an authorized government agency,
provided that the disclosure does not exceed the extent of
disclosure required by such law, regulation, or order.
d.
Notice
of Immunity Under the Economic Espionage Act of 1996, as amended by
the Defend Trade Secrets Act of 2016
(“DTSA”). Notwithstanding
any other provision of this Agreement:
i.
The Executive will
not be held criminally or civilly liable under any federal or state
trade secret law for any disclosure of a trade secret
that:
1.
is made (1) in
confidence to a federal, state, or local government official,
either directly or indirectly, or to an attorney; and (2) solely
for the purpose of reporting or investigating a suspected violation
of law; or
2.
is made in a
complaint or other document filed under seal in a lawsuit or other
proceeding.
ii.
If the Executive
files a lawsuit for retaliation by the Company for reporting a
suspected violation of law, the Executive may disclose the
Company’s trade secrets to the Executive’s attorney and
use the trade secret information in the court proceeding if the
Executive:
1.
files any document
containing trade secrets under seal; and
2.
does not disclose
trade secrets, except pursuant to court order.
The
Executive understands and acknowledges that his obligations under
this Agreement with regard to any particular Confidential
Information shall commence immediately upon the Executive first
having access to such Confidential Information (whether before or
after he begins employment by the Company) and shall continue
during and after his employment by the Company until such time as
such Confidential Information has become public knowledge other
than as a result of the Executive’s breach of this Agreement
or breach by those acting in concert with the Executive or on the
Executive’s behalf.
8.
Restrictive Covenants.
a.
Non-Competition.
Because of the Company’s legitimate business interest as
described herein and the good and valuable consideration offered to
the Executive, during the Employment Term and for the twelve
months, to run consecutively, beginning on the last day of the
Executive’s employment with the Company, the Executive agrees
and covenants not to engage in Prohibited Activity within a 50 mile
radius of Las Vegas.
For
purposes of this Section 8, “Prohibited Activity” is
activity in which the Executive contributes his knowledge, directly
or indirectly, in whole or in part, as an employee, employer,
owner, operator, manager, advisor, consultant, agent, employee,
partner, director, stockholder, officer, volunteer, intern, or any
other similar capacity to an entity engaged in the same or similar
business as the Company , including those engaged in the business
of licensed cannabis cultivation, production, or dispensary
operations. Prohibited Activity also includes activity that may
require or inevitably requires disclosure of trade secrets,
proprietary information or Confidential Information.
This
Section 8 does not, in any way, restrict or impede the Executive
from exercising protected rights to the extent that such rights
cannot be waived by agreement or from complying with any applicable
law or regulation or a valid order of a court of competent
jurisdiction or an authorized government agency, provided that such
compliance does not exceed that required by the law, regulation, or
order. The Executive shall promptly provide written notice of any
such order to Company.
b.
Non-Solicitation
of Employees. The Executive agrees and covenants not
to directly or indirectly solicit, hire, recruit, attempt to hire
or recruit, or induce the termination of employment of any employee
of the Company for 12 months, to run consecutively, beginning on
the last day of the Executive’s employment with the
Company.
c.
Non-Solicitation
of Customers and Vendors. The Executive understands and
acknowledges that because of the Executive’s experience with
and relationship to the Company, he will have access to and learn
about much or all of the Company’s customer and vendor
information (or, “Competitive Information”).
Competitive includes, but is not limited to, names, phone numbers,
addresses, e-mail addresses, order history, order preferences,
chain of command, pricing information, and other information
identifying facts and circumstances specific to the vendor or the
customer and relevant to sales.
The
Executive understands and acknowledges that loss of this customer
or vendor relationship and/or goodwill will cause significant and
irreparable harm.
The
Executive agrees and covenants, during 12 months, to run
consecutively, beginning on the last day of the Executive’s
employment with the Company, not to directly or indirectly solicit,
contact (including but not limited to e-mail, regular mail, express
mail, telephone, fax, and instant message), attempt to contact, or
meet with the Company’s current, former or prospective
vendors or customers for purposes of offering or accepting goods or
services similar to or competitive with those offered by the
Company.
This
restriction shall only apply to:
i.
Vendors, customers
or prospective customers the Executive contacted in any way during
the past 12 months;
ii.
Vendors or
customers about whom the Executive has trade secret or confidential
information;
iii.
Vendors or
customers who became vendors or customers during the
Executive’s employment with the Company; and
iv.
Vendors or
customers about whom the Executive has information that is not
available publicly.
9.
Non-Disparagement. The Executive agrees and covenants
that he will not at any time make, publish or communicate to any
person or entity or in any public forum any defamatory or
disparaging remarks, comments, or statements concerning the Company
or its businesses, or any of its employees, officers, and existing
and prospective customers, suppliers, investors and other
associated third parties.
This
Section 9 does not, in any way, restrict or impede the Executive
from exercising protected rights to the extent that such rights
cannot be waived by agreement or from complying with any applicable
law or regulation or a valid order of a court of competent
jurisdiction or an authorized government agency, provided that such
compliance does not exceed that required by the law, regulation, or
order.
The
Company agrees and covenants that it shall cause its officers and
directors to refrain from making any defamatory or disparaging
remarks, comments, or statements concerning the Executive to any
third parties.
10.
Acknowledgement. The Executive acknowledges and agrees
that the services to be rendered by him to the Company are of a
special and unique character; that the Executive will obtain
knowledge and skill relevant to the Company’s industry,
methods of doing business and marketing strategies by virtue of the
Executive’s employment; and that the restrictive covenants
and other terms and conditions of this Agreement are reasonable and
reasonably necessary to protect the legitimate business interest of
the Company.
The
Executive further acknowledges that the amount of his compensation
reflects, in part, his obligations and the Company’s rights
under Section 7, Section 8, and Section 9 of this Agreement; that
he has no expectation of any additional compensation, royalties or
other payment of any kind not otherwise referenced herein in
connection herewith; and that he will not be subject to undue
hardship by reason of his full compliance with the terms and
conditions of Section 7, Section 8, and Section 9 of this Agreement
or the Company’s enforcement thereof.
11.
Remedies. In the event of a breach or threatened
breach by the Executive of Section 7, 8, or Section 9 of this
Agreement, the Executive hereby consents and agrees that the
Company shall be entitled to seek, in addition to other available
remedies, a temporary or permanent injunction or other equitable
relief against such breach or threatened breach from any court of
competent jurisdiction, without the necessity of showing any actual
damages or that money damages would not afford an adequate remedy,
and without the necessity of posting any bond or other security.
The aforementioned equitable relief shall be in addition to, not in
lieu of, legal remedies, monetary damages, or other available forms
of relief.
a.
Work
Product. The Executive acknowledges and agrees
that all right, title, and interest in and to all writings, works
of authorship, technology, inventions, discoveries, processes,
techniques, methods, ideas, concepts, research, proposals,
materials, and all other work product of any nature whatsoever,
that are created, prepared, produced, authored, edited, amended,
conceived, or reduced to practice by the Executive individually or
jointly with others during the period of his employment by the
Company and relate in any way to the business or contemplated
business, products, activities, research, or development of the
Company or result from any work performed by the Executive for the
Company (in each case, regardless of when or where prepared or
whose equipment or other resources is used in preparing the same),
all rights and claims related to the foregoing, and all printed,
physical and electronic copies, and other tangible embodiments
thereof (collectively, “Work Product”), as well as any
and all rights in and to US and foreign (a) patents, patent
disclosures and inventions (whether patentable or not), (b)
trademarks, service marks, trade dress, trade names, logos,
corporate names, and domain names, and other similar designations
of source or origin, together with the goodwill symbolized by any
of the foregoing, (c) copyrights and copyrightable works (including
computer programs), [mask works,] and rights in data and databases,
(d) trade secrets, know-how, and other confidential information,
and (e) all other intellectual property rights, in each case
whether registered or unregistered and including all registrations
and applications for, and renewals and extensions of, such rights,
all improvements thereto and all similar or equivalent rights or
forms of protection in any part of the world (collectively,
“Intellectual Property Rights”), shall be the sole and
exclusive property of the Company.
For
purposes of this Agreement, Work Product includes, but is not
limited to, Company information, including plans, publications,
research, strategies, documents, contracts, customer lists,
manufacturing information, marketing information, advertising
information, and sales information.
b.
Work
Made for Hire; Assignment. The Executive acknowledges that, by
reason of being employed by the Company at the relevant times, to
the extent permitted by law, all of the Work Product consisting of
copyrightable subject matter is “work made for hire” as
defined in 17 U.S.C. § 101 and such copyrights are therefore
owned by the Company. To the extent that the foregoing does not
apply, the Executive hereby irrevocably assigns to the Company, for
no additional consideration, the Executive’s entire right,
title, and interest in and to all Work Product and Intellectual
Property Rights therein, including the right to sue, counterclaim,
and recover for all past, present, and future infringement,
misappropriation, or dilution thereof, and all rights corresponding
thereto throughout the world. Nothing contained in this Agreement
shall be construed to reduce or limit the Company’s rights,
title, or interest in any Work Product or Intellectual Property
Rights so as to be less in any respect than that the Company would
have had in the absence of this Agreement.
c.
Further
Assurances; Power of Attorney. During and after his employment, the
Executive agrees to reasonably cooperate with the Company to (a)
apply for, obtain, perfect, and transfer to the Company the Work
Product as well as any and all Intellectual Property Rights in the
Work Product in any jurisdiction in the world; and (b) maintain,
protect and enforce the same, including, without limitation, giving
testimony and executing and delivering to the Company any and all
applications, oaths, declarations, affidavits, waivers,
assignments, and other documents and instruments as shall be
requested by the Company. The Executive hereby irrevocably grants
the Company power of attorney to execute and deliver any such
documents on the Executive’s behalf in his name and to do all
other lawfully permitted acts to transfer the Work Product to the
Company and further the transfer, prosecution, issuance, and
maintenance of all Intellectual Property Rights therein, to the
full extent permitted by law, if the Executive does not promptly
cooperate with the Company’s request (without limiting the
rights the Company shall have in such circumstances by operation of
law). The power of attorney is coupled with an interest and shall
not be affected by the Executive’s subsequent
incapacity.
d.
No
License. The Executive understands that this
Agreement does not, and shall not be construed to, grant the
Executive any license or right of any nature with respect to any
Work Product or Intellectual Property Rights or any Confidential
Information, materials, software, or other tools made available to
him by the Company.
a.
Security
and Access. The Executive agrees and covenants (a)
to comply with all Company security policies and procedures as in
force from time to time and any and all other Company IT resources
(“Facilities and Information Technology Resources”);
(b) not to access or use any Facilities and Information Technology
Resources except as authorized by the Company; and (iii) not to
access or use any Facilities and Information Technology Resources
in any manner after the termination of the Executive’s
employment by the Company, whether termination is voluntary or
involuntary. The Executive agrees to notify the Company promptly in
the event helearns of any violation of the foregoing by others, or
of any other misappropriation or unauthorized access, use,
reproduction, or reverse engineering of, or tampering with any
Facilities and Information Technology Resources or other Company
property or materials by others.
b.
Exit
Obligations. Upon (a) voluntary or involuntary
termination of the Executive’s employment or (b) the
Company’s request at any time during the Executive’s
employment, the Executive shall (i) provide or return to the
Company any and all Company property and all Company documents and
materials belonging to the Company and stored in any fashion,
including but not limited to those that constitute or contain any
Confidential Information or Work Product, that are in the
possession or control of the Executive, whether they were provided
to the Executive by the Company or any of its business associates
or created by the Executive in connection with his employment by
the Company; and (ii) delete or destroy all copies of any such
documents and materials not returned to the Company that remain in
the Executive’s possession or control, including those stored
on any non-Company devices, networks, storage locations, and media
in the Executive’s possession or control.
14.
Publicity. The Executive hereby irrevocably
consents to any and all uses and displays, by the Company and its
agents, representatives and licensees, of the Executive’s
name, voice, likeness, image, appearance, and biographical
information in, on or in connection with any pictures, photographs,
audio and video recordings, digital images, websites, television
programs and advertising, other advertising and publicity, sales
and marketing brochures, books, magazines, other publications, CDs,
DVDs, tapes, and all other printed and electronic forms and media
throughout the world, at any time during or after the period of his
employment by the Company, for all legitimate commercial and
business purposes of the Company (“Permitted Uses”)
without further consent from or royalty, payment, or other
compensation to the Executive. The Executive hereby forever waives
and releases the Company and its directors, officers, employees,
and agents from any and all claims, actions, damages, losses,
costs, expenses, and liability of any kind, arising under any legal
or equitable theory whatsoever at any time during or after the
period of his employment by the Company, arising directly or
indirectly from the Company ‘s and its agents’,
representatives’, and licensees’ exercise of their
rights in connection with any Permitted Uses.
15.
Governing Law: Jurisdiction and Venue. This Agreement, for all purposes,
shall be construed in accordance with the laws of Nevada without
regard to conflicts of law principles. Any action or proceeding by
either of the parties to enforce this Agreement shall be brought
only in a state or federal court located in the state of Nevada,
county of Clark. The parties hereby irrevocably submit to the
exclusive jurisdiction of such courts and waive the defense of
inconvenient forum to the maintenance of any such action or
proceeding in such venue.
16.
Entire Agreement. Unless specifically provided herein,
this Agreement contains all of the understandings and
representations between the Executive and the Company pertaining to
the subject matter hereof and supersedes all prior and
contemporaneous understandings, agreements, representations and
warranties, both written and oral, with respect to such subject
matter. The parties mutually agree that the Agreement can be
specifically enforced in court and can be cited as evidence in
legal proceedings alleging breach of the Agreement.
17.
Modification and Waiver. No provision of this Agreement may be
amended or modified unless such amendment or modification is agreed
to in writing and signed by the Executive and by Board of
Directors. No waiver by either of the parties of any breach by the
other party hereto of any condition or provision of this Agreement
to be performed by the other party hereto shall be deemed a waiver
of any similar or dissimilar provision or condition at the same or
any prior or subsequent time, nor shall the failure of or delay by
either of the parties in exercising any right, power, or privilege
hereunder operate as a waiver thereof to preclude any other or
further exercise thereof or the exercise of any other such right,
power, or privilege.
18.
Severability. Should any provision of this Agreement
be held by a court of competent jurisdiction to be enforceable only
if modified, or if any portion of this Agreement shall be held as
unenforceable and thus stricken, such holding shall not affect the
validity of the remainder of this Agreement, the balance of which
shall continue to be binding upon the parties with any such
modification to become a part hereof and treated as though
originally set forth in this Agreement.
The
parties further agree that any such court is expressly authorized
to modify any such unenforceable provision of this Agreement in
lieu of severing such unenforceable provision from this Agreement
in its entirety, whether by rewriting the offending provision,
deleting any or all of the offending provision, adding additional
language to this Agreement, or by making such other modifications
as it deems warranted to carry out the intent and agreement of the
parties as embodied herein to the maximum extent permitted by
law.
The
parties expressly agree that this Agreement as so modified by the
court shall be binding upon and enforceable against each of them.
In any event, should one or more of the provisions of this
Agreement be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not
affect any other provisions hereof, and if such provision or
provisions are not modified as provided above, this Agreement shall
be construed as if such invalid, illegal, or unenforceable
provisions had not been set forth herein.
19.
Captions. Captions and headings of the sections
and paragraphs of this Agreement are intended solely for
convenience and no provision of this Agreement is to be construed
by reference to the caption or heading of any section or
paragraph.
20.
Counterparts. This Agreement may be executed in
separate counterparts, each of which shall be deemed an original,
but all of which taken together shall constitute one and the same
instrument.
21.
Tolling. Should the Executive violate any of
the terms of the restrictive covenant obligations articulated
herein, the obligation at issue will run from the first date on
which the Executive ceases to be in violation of such
obligation.
a.
General
Compliance. This Agreement is intended to comply
with Section 409A or an exemption thereunder and shall be construed
and administered in accordance with Section 409A. Notwithstanding
any other provision of this Agreement, payments provided under this
Agreement may only be made upon an event and in a manner that
complies with Section 409A or an applicable exemption. Any payments
under this Agreement that may be excluded from Section 409A either
as separation pay due to an involuntary separation from service or
as a short-term deferral shall be excluded from Section 409A to the
maximum extent possible. For purposes of Section 409A, each
installment payment provided under this Agreement shall be treated
as a separate payment. Any payments to be made under this Agreement
upon a termination of employment shall only be made upon a
“separation from service” under Section 409A.
Notwithstanding the foregoing, the Company makes no representations
that the payments and benefits provided under this Agreement comply
with Section 409A, and in no event shall the Company be liable for
all or any portion of any taxes, penalties, interest, or other
expenses that may be incurred by the Executive on account of
non-compliance with Section 409A.
b.
Specified
Employees. Notwithstanding any other provision of
this Agreement, if any payment or benefit provided to the Executive
in connection with his termination of employment is determined to
constitute “nonqualified deferred compensation” within
the meaning of Section 409A and the Executive is determined to be a
“specified employee” as defined in Section
409A(a)(2)(b)(i), then such payment or benefit shall not be paid
until the first payroll date to occur following the six-month
anniversary of the Termination Date or, if earlier, on the
Executive’s death (the “Specified Employee Payment
Date”). The aggregate of any payments that would otherwise
have been paid before the Specified Employee Payment Date [and
interest on such amounts calculated based on the applicable federal
rate published by the Internal Revenue Service for the month in
which the Executive’s separation from service occurs] shall
be paid to the Executive in a lump sum on the Specified Employee
Payment Date and thereafter, any remaining payments shall be paid
without delay in accordance with their original
schedule.
c.
Reimbursements.
To the extent required by Section 409A, each reimbursement or
in-kind benefit provided under this Agreement shall be provided in
accordance with the following:
i.
the amount of
expenses eligible for reimbursement, or in-kind benefits provided,
during each calendar year cannot affect the expenses eligible for
reimbursement, or in-kind benefits to be provided, in any other
calendar year;
ii.
any reimbursement
of an eligible expense shall be paid to the Executive on or before
the last day of the calendar year following the calendar year in
which the expense was incurred; and
iii.
any right to
reimbursements or in-kind benefits under this Agreement shall not
be subject to liquidation or exchange for another
benefit.
d.
Tax
Gross-ups. Any tax gross-up
payments provided under this Agreement shall be paid to the
Executive on or before December 31 of the calendar year immediately
following the calendar year in which the Executive remits the
related taxes.
23.
Notification to Subsequent Employer. When the Executive’s employment
with the Company terminates, the Executive agrees to notify any
subsequent employer of the restrictive covenants sections contained
in this Agreement. The Executive will also deliver a copy of such
notice to the Company before the Executive commences employment
with any subsequent employer. In addition, the Executive authorizes
the Company to provide a copy of the restrictive covenants sections
of this Agreement to third parties, including but not limited to,
the Executive’s subsequent, anticipated, or possible future
employ
24.
Successors and Assigns. This Agreement is personal to the
Executive and shall not be assigned by the Executive. Any purported
assignment by the Executive shall be null and void from the initial
date of the purported assignment. The Company may assign this
Agreement to any successor or assign (whether direct or indirect,
by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business or assets of the Company. This
Agreement shall inure to the benefit of the Company and permitted
successors and assigns.
25.
Notice. Notices and all other communications
provided for in this Agreement shall be in writing and shall be
delivered personally or sent by registered or certified mail,
return receipt requested, or by overnight carrier to the parties at
the addresses set forth below (or such other addresses as specified
by the parties by like notice):
If to
the Company:
Planet
13 Holdings, Inc., or MM Development Company, Inc., currently
registered corporate office or registered agent.
If to
the Executive:
Address
written below.
26.
Representations of the Executive. The Executive represents and warrants
to the Company that:
The
Executive’s acceptance of employment with the Company and the
performance of his duties hereunder will not conflict with or
result in a violation of, a breach of, or a default under any
contract, agreement, or understanding to which he is a party or is
otherwise bound.
The
Executive’s acceptance of employment with the Company and the
performance of his duties hereunder will not violate any
non-solicitation, non-competition, or other similar covenant or
agreement of a prior employer.
27.
Withholding. The Company shall have the right to
withhold from any amount payable hereunder any Federal, state, and
local taxes in order for the Company to satisfy any withholding tax
obligation it may have under any applicable law or
regulation.
28.
Survival. Upon the expiration or other
termination of this Agreement, the respective rights and
obligations of the parties hereto shall survive such expiration or
other termination to the extent necessary to carry out the
intentions of the parties under this Agreement.
29.
Gender and Number. Wherever appropriate herein, the
masculine may mean the feminine and the singular may mean the
plural or vice versa.
30.
Acknowledgement of Full Understanding. THE EXECUTIVE ACKNOWLEDGES AND AGREES
THAT HE HAS FULLY READ, UNDERSTANDS AND VOLUNTARILY ENTERS INTO
THIS AGREEMENT. THE EXECUTIVE ACKNOWLEDGES AND AGREES THAT HE HAS
HAD AN OPPORTUNITY TO ASK QUESTIONS AND CONSULT WITH AN ATTORNEY OF
his CHOICE BEFORE SIGNING THIS AGREEMENT.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Employee:
/s/
Robert
Groesbeck
Name:
Robert Groesbeck
Address:
[REDACTED]
|
MM
Development Company
By:
/s/ Robert
Groesbeck
Robert
Groesbeck, Director
By:
/s/ Larry
Scheffler
Name:
Larry Scheffler, Director
|
Amendment to Employment Agreement
This
First Amendment (the “Amendment”) to the Employment
Agreement (the “Agreement”) is made and entered into as
of March 10, 2021, by and between Robert Groesbeck (the
“Executive”) and MM Development Company, Inc., a Nevada
domestic corporation (the “Company”).
WHEREAS,
the Compensation Committee of Planet 13 Holdings, Inc., the parent
company of MM Development Company, Inc. met on February 25, 2021,
and authorized an extension of the Term under the Agreement; and
WHEREAS, MM Development Company, Inc. is the US subsidiary of
Planet 13 Holdings, Inc., and Executive’s position is
effective for Planet 13 Holdings, Inc., and that Executive
continues to provide services for both MM Development Company, Inc.
and Planet 13 Holdings, Inc., and for other subsidiaries of Planet
13 Holdings, Inc.
WHEREAS,
Planet 13 Holdings, Inc. Executives and officers of MM Development
Company, Inc. are paid through BLC Management Company, LLC, a
Nevada LLC as the US management branch of Planet 13 Holdings,
Inc.
NOW,
THEREFORE, in consideration of the mutual covenants, promises, and
obligations set forth herein, the parties agree to amend the June
1, 2018 Employment Agreement between Executive and MM Development
Company, Inc. as follows:
The
Term, as such word is defined at Section 1 of the Agreement, is
extended to December 31, 2025 from the originally defined date of
May 15, 2023. This Term extension shall also extend the calculation
of benefits due to the Executive under Section 5 (Termination of
Employment), Subsection b. (Without Cause or for Good Reason), Part
i. for the continuation of Base Salary and health care benefits, as
well as all other sections impacted by an extension of the
Term.
So
agreed this March 10, 2021 as to Executive, Company, and confirmed
by Planet 13 Holdings, Inc.
MM
Development Company, Inc.
/s/ Larry Scheffler
Authorized
Officer
Executive
/s/ Robert Groesbeck
Robert
Groesbeck
Confirmation
of Amendment, Pre-Approved by Compensation Committee
Planet
13 Holdings, Inc.
/s/ Leighton Koehler
Authorized
Officer
Exhibit 10.13
Employment Agreement
This
Employment Agreement (the “Agreement”) is made and
entered into as of June 1, 2018, by and between Dennis Logan (the
“Executive”) and Planet 13 Holdings, Inc., a Canadian
corporation (the “Company”).
WHEREAS, the
Company desires to employ the Executive on the terms and conditions
set forth herein;
WHEREAS, the
Executive desires to be employed by the Company on such terms and
conditions; and,
WHEREAS, Executive
shall be providing services for Planet 13 Holdings, Inc. and for
the subsidiaries of Planet 13 Holdings, Inc.
NOW,
THEREFORE, in consideration of the mutual covenants, promises, and
obligations set forth herein, the parties agree as
follows:
1. Term.
The Executive’s Employment hereunder shall be effective as of
June 1, 2018, (the “Effective Date”) and shall continue
until the fifth anniversary thereof, unless terminated earlier
pursuant to Section 5 of this Agreement; provided that, on such
third anniversary of the Effective Date and each annual anniversary
thereafter (such date and each annual anniversary thereof, a
“Renewal Date”), the Agreement shall be deemed to be
automatically extended, upon the same terms and conditions, for
successive periods of one year, unless either party provides
written notice of its intention not to extend the term of the
Agreement at least 90 days’ prior to the applicable Renewal
Date. The period during which the Executive is employed by the
Company hereunder is hereinafter referred to as the
“Employment Term.”
2. Position
and Duties.
a. Position.
During the Employment Term, the Executive shall serve as the Chief
Financial Officer of the Company, reporting to the Chief Executive
Officer and to the Board. In such position, the Executive shall
have such duties, authority, and responsibility as shall be
determined from time to time by the Chief Executive Officer, which
duties, authority, and responsibility are consistent with the
Executive’s position. The Executive shall, if requested, also
serve as a member of the board of directors of the Company (the
“Board”) or as an officer or director of any affiliate
of the Company for no additional compensation.
b. Duties.
During the Employment Term, the Executive shall perform such duties
as are ordinary and reasonable for the position listed in Item 2(a)
and shall provide reasonable time and attention to the performance
of the Executive’s duties hereunder.
3. Place
of Performance. The principal place of Executive’s
employment shall be Toronto, Ontario Canada ; provided that, the
Executive may be required to travel on Company business during the
Employment Term.
4. Compensation.
a. Base
Salary. The Company shall pay the Executive an annual rate
of base salary of CAD $120,000 in periodic installments in
accordance with the Company’s customary payroll practices and
applicable wage payment laws, but no less frequently than
bi-weekly.
The
Executive’s base salary shall be reviewed at least annually
by the Compensation Committee of the Board (the “Compensation
Committee”). However, the Executive’s base salary may
not be decreased during the Employment Term. The Executive’s
annual base salary, as in effect from time to time, is hereinafter
referred to as “Base Salary”.
b. Annual
Bonus.
i. For each calendar
year of the Employment Term, the Executive shall be eligible to
receive an annual bonus (the “Annual Bonus”). However,
the decision to provide any Annual Bonus and the amount and terms
of any Annual Bonus shall be in the sole and absolute discretion of
the Compensation Committee.
ii. The Annual Bonus,
if any, will be paid within two and a half (2 1/2) months after the
end of the applicable calendar year.
iii. Except
as otherwise provided in Section 5, the Annual Bonus will be
subject to the terms of the Company annual bonus plan under which
it is granted.
c. Performance
Bonus.
i. Executive shall be
eligible to receive a performance bonus in accordance with the
performance bonus as established by the Compensation
Committee.
d. Equity
Awards.
i. In consideration of
the Executive entering into this Agreement and as an inducement to
join the Company, on or within thirty days of the Effective Date,
the Company will grant the following equity awards to the Executive
pursuant to the Company’s Restricted Stock Unit Plan: 371,000
restricted stock units, which shall vest in accordance with the
terms of the Restricted Stock Unit Plan. All other terms and
conditions of such awards shall be governed by the terms and
conditions of the Restricted Stock Unit Plan and the applicable
award agreements; and
ii. With respect to
each calendar year of the Company ending during the Employment
Term, the Executive shall be eligible to receive annual equity
awards under the Stock Option Plan and the Restricted Stock Unit
Plan or other equity plans of the Company.
e. Fringe
Benefits and Perquisites. During the Employment Term, the
Executive shall be entitled to fringe benefits and perquisites
consistent with the practices of the Company, and to the extent the
Company provides similar benefits or perquisites (or both) to
similarly situated executives of the Company, including without
limitation, reimbursement of executives cellular phone expenses, a
monthly vehicle allowance, reimbursement of professional licensing
and agent cards, and reimbursement of reasonable professional
education expenses.
f. Employee Benefits. During the Employment
Term, the Executive shall be entitled to participate in all
employee benefit plans, practices, and programs maintained by the
Company, as in effect from time to time (collectively,
“Employee Benefit Plans”), on a basis which is no less
favorable than is provided to other similarly situated executives
of the Company, to the extent consistent with applicable law and
the terms of the applicable
Employee Benefit
Plans. The Company reserves the right to amend or cancel any
Employee Benefit Plans at any time in its sole discretion, subject
to the terms of such Employee Benefit Plan and applicable law.
Vacation; Paid Time-Off. The Executive shall receive other paid
time-off in accordance with the Company’s policies for
executive officers as such policies may exist from time to
time.
g. Relocation
Expenses. Although Executive and Company do not anticipate
the need to relocate the Executive, the Company shall pay, or
reimburse the Executive for, all reasonable relocation expenses
incurred by the Executive relating to his relocation that is
requested by the Company, should such be required at a future
date.
h. Business
Expenses. The Executive shall be entitled to reimbursement
for all reasonable and necessary out-of-pocket business,
entertainment, and travel expenses incurred by the Executive in
connection with the performance of the Executive’s duties
hereunder in accordance with the Company’s expense
reimbursement policies and procedures.
i. Indemnification.
i. In the event that
the Executive is made a party or threatened to be made a party to
any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (a “Proceeding”),
other than any Proceeding initiated by the Executive or the Company
related to any contest or dispute between the Executive and the
Company or any of its affiliates with respect to this Agreement or
the Executive’s employment hereunder, by reason of the fact
that the Executive is or was a director or officer of the Company,
or any affiliate of the Company, or is or was serving at the
request of the Company as a director, officer, member, employee, or
agent of another corporation or a partnership, joint venture,
trust, or other enterprise, the Executive shall be indemnified and
held harmless by the Company from and against any liabilities,
costs, claims, and expenses, including all costs and expenses
incurred in defense of any Proceeding (including attorneys’
fees). Costs and expenses incurred by the Executive in defense of
such Proceeding (including attorneys’ fees) shall be paid by
the Company in advance of the final disposition of such litigation
upon receipt by the Company of: (i) a written request for payment;
(ii) appropriate documentation evidencing the incurrence, amount,
and nature of the costs and expenses for which payment is being
sought; and (iii) an undertaking adequate under applicable law made
by or on behalf of the Executive to repay the amounts so paid if it
shall ultimately be determined that the Executive is not entitled
to be indemnified by the Company under this Agreement.
ii. During the
Employment Term and for a period of six (6) years thereafter, the
Company or any successor to the Company shall purchase and
maintain, at its own expense, directors’ and officers’
liability insurance providing coverage to the Executive on terms
that are no less favorable than the coverage provided to other
directors and similarly situated executives of the
Company.
j. Clawback Provisions. Notwithstanding any
other provisions in this Agreement to the contrary, any
incentive-based compensation paid to the Executive pursuant to this
Agreement which is subject to recovery under any law, government
regulation or stock exchange listing requirement, will be subject
to such deductions and clawback as may be required to be made
pursuant to such law, government regulation, or stock exchange
listing requirement (or any policy adopted by the Company pursuant
to any such law, government regulation or stock exchange listing
requirement).
5. Termination
of Employment. The Employment Term and the Executive’s
employment hereunder may be terminated by either the Company or the
Executive at any time and for any reason; provided that, unless
otherwise provided herein, either party shall be required to give
the other party at least 30 days advance written notice of any
termination of the Executive’s employment. Upon termination
of the Executive’s employment during the Employment Term, or
if the Executive is served with a written notice of the
Company’s intention not to extend the term of the Agreement
in accordance with Section 1, the Executive shall be entitled to
the compensation and benefits described in this Section 5 and shall
have no further rights to any compensation or any other benefits
from the Company or any of its affiliates.
a. For
Cause or Without Good Reason.
i. The
Executive’s employment hereunder may be terminated by the
Company for Cause or by the Executive without Good Reason. If the
Executive’s employment is terminated, by the Company for
Cause or by the Executive without Good Reason, the Executive shall
be entitled to receive:
1. any accrued but
unpaid Base Salary and accrued but unused vacation which shall be
paid [on the Termination Date (as defined below)/within one (1)
week following the Termination Date (as defined below)/on the pay
date immediately following the Termination Date (as defined below)
in accordance with the Company’s customary payroll
procedures;
2. any earned but
unpaid Annual Bonus with respect to any completed calendar year
immediately preceding the Termination Date, which shall be paid on
the otherwise applicable payment date except to the extent payment
is otherwise deferred pursuant to any applicable deferred
compensation arrangement; provided that, if the Executive’s
employment is terminated by the Company for Cause, then any such
accrued but unpaid Annual Bonus shall be forfeited;
3. reimbursement for
unreimbursed business expenses properly incurred by the Executive,
which shall be subject to and paid in accordance with the
Company’s expense reimbursement policy; and
4. such employee
benefits (including equity compensation), if any, to which the
Executive may be entitled under the Company’s employee
benefit plans as of the Termination Date; provided that, in no
event shall the Executive be entitled to any payments in the nature
of severance or termination payments except as specifically
provided herein.
Items
5(a)(i)(1) through 5(a)(i)(4) are referred to herein collectively
as the “Accrued Amounts”.
ii. For purposes of
this Agreement, “Cause” shall mean:
1. the
Executive’s willful failure to perform his duties (other than
any such failure resulting from incapacity due to physical or
mental illness);
2. the
Executive’s conviction of or plea of guilty or nolo
contendere to a crime (other than related to cannabis) that
constitutes a felony (or state law equivalent) or a crime that
constitutes a misdemeanor involving moral turpitude, if such felony
or other crime is work-related, materially impairs the
Executive’s ability to perform services for the Company or
results in material harm to the Company or its
affiliates;
For
purposes of this provision, no act or failure to act on the part of
the Executive shall be considered “willful” unless it
is done, or omitted to be done, by the Executive with malicious
intent against the furtherance of Company business or operations.
Any act, or failure to act, based upon 1) authority given pursuant
to a resolution duly adopted by the Board, 2) duties generally
considered part of the Executives position of a similarly situated
public company, or 3) upon the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done,
by the Executive in good faith and in the best interests of the
Company.
Termination of the
Executive’s employment shall not be deemed to be for Cause
unless and until the Company delivers to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than a
majority of the Board (after reasonable written notice is provided
to the Executive and the Executive is given an opportunity,
together with counsel, to be heard before the Board), finding that
the Executive has engaged in the conduct described in 5(a)(ii)
above. Except for a failure, breach, or refusal which, by its
nature, cannot reasonably be expected to be cured, the Executive
shall have ten (10) business days from the delivery of written
notice by the Company within which to cure any acts constituting
Cause; provided however, that, if the Company reasonably expects
irreparable injury from a delay of ten (10) business days, the
Company may give the Executive notice of such shorter period within
which to cure as is reasonable under the circumstances, which may
include the termination of the Executive’s employment without
notice and with immediate effect. The Company may place the
Executive on paid leave for up to 60 days while it is determining
whether there is a basis to terminate the Executive’s
employment for Cause. Any such action by the Company will not
constitute Good Reason.
iii. For
purposes of this Agreement, “Good Reason” shall mean
the occurrence of any of the following, in each case during the
Employment Term without the Executive’s written
consent:
1. a reduction in the
Executive’s Base Salary;
2. a relocation of the
Executive’s principal place of employment by more than 50
miles;
3. any material breach
by the Company of any material provision of this Agreement or any
material provision of any other agreement between the Executive and
the Company;
4. the Company’s
failure to obtain an agreement from any successor to the Company to
assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if
no succession had taken place, except where such assumption occurs
by operation of law;
5. a material, adverse
change in the Executive’s title, authority, duties, or
responsibilities (other than temporarily while the Executive is
physically or mentally incapacitated or as required by applicable
law) considering the Company’s size, status as a public
company, and capitalization as of the date of this Agreement;
or
6. a material adverse
change in the reporting structure applicable to the
Executive.
The
Executive cannot terminate his employment for Good Reason unless he
has provided written notice to the Company of the existence of the
circumstances providing grounds for termination for Good Reason
within 14 days of the initial existence of such grounds and the
Company has had at least 14 days from the date on which such notice
is provided to cure such circumstances. If the Executive does not
terminate his employment for Good Reason within 14 days after the
first occurrence of the applicable grounds, then the Executive will
be deemed to have waived his right to terminate for Good Reason
with respect to such grounds.
b. Without
Cause or for Good Reason. The Employment Term and the
Executive’s employment hereunder may be terminated by the
Executive for Good Reason or by the Company without Cause. In the
event of such termination, the Executive shall be entitled to
receive the Accrued Amounts and subject to the Executive’s
compliance with Section 6, Section 7, Section 8, and Section 9 of
this Agreement and his execution of a release of claims in favor of
the Company, its affiliates and their respective officers and
directors in a form provided by the Company (the
“Release”) and such Release becoming effective within
30 days following the Termination Date (such 30-day period, the
“Release Execution Period”)], the Executive shall be
entitled to receive the following:
i. continued Base
Salary and health care benefits at a substantially similar level to
the benefits provided while Executive was employed by the Company
for a period of 18 (eighteen) months as if there had been no
Termination, from the Termination Date payable in equal
installments in accordance with the Company’s normal payroll
practices, but no less frequently than monthly, which shall
commence within 14 days following the Termination
Date;
ii. subject to
proration, any earned but unpaid Annual Bonus with respect to any
calendar year immediately preceding the Termination Date, which
shall be paid on the otherwise applicable payment date except to
the extent payment is otherwise deferred pursuant to any applicable
deferred compensation arrangement;
iii. Company
shall reimburse Executive for all reasonable administrative
assistant expenses incurred by Executive for a period of six months
following the Termination Date.
iv. The treatment of
any outstanding equity awards shall be determined in accordance
with the terms of the Restricted Stock Unit plan and stock option
plan and the applicable award agreements.
v. Notwithstanding the
terms of the Restricted Stock Unit plan and stock option plan or
any applicable award agreements:
1. all outstanding
unvested stock options/stock appreciation rights/restricted stock
units granted to the Executive during the Employment Term shall
become fully vested and exercisable for the remainder of their full
term;
2. all outstanding
equity-based compensation awards other than stock options/stock
appreciation rights that are not intended to qualify as
performance-based compensation under Section 162(m)(4)(C) of the
Internal Revenue Code of 1986, as amended (the “Code”),
shall become fully vested and the restrictions thereon shall lapse;
provided that, any delays in the settlement or payment of such
awards that are set forth in the applicable award agreement and
that are required under Section 409A of the Code (“Section
409A”) shall remain in effect; and
3. all outstanding
equity-based compensation awards other than stock options/stock
appreciation rights that are intended to constitute
performance-based compensation under Section 162(m)(4)(C) of the
Code shall remain outstanding and shall vest or be forfeited in
accordance with the terms of the applicable award agreements, if
the applicable performance goals are satisfied.
c. Death
or Disability.
i. The
Executive’s employment hereunder shall terminate
automatically upon the Executive’s death during the
Employment Term, and the Company may terminate the
Executive’s employment on account of the Executive’s
Disability.
ii. If the
Executive’s employment is terminated during the Employment
Term on account of the Executive’s death or Disability, the
Executive (or the Executive’s estate and/or beneficiaries, as
the case may be) shall be entitled to receive the
following:
1. the Accrued
Amounts;
2. a lump sum payment
equal to 12 months of the Executive’s current Base Salary, as
shown at Item 4(a) or as later increased by the Compensation
Committee; and,
3. a lump sum payment
equal to the Annual Bonus, if any, that the Executive would have
earned for the calendar year in which the Termination Date occurs
based on the achievement of applicable performance goals for such
year, which shall be payable on the date that annual bonuses are
paid to the Company’s similarly situated executives, but in
no event later than two-and-a-half (2 1/2) months following the end
of the calendar year in which the Termination Date
occurs.
iii. For
purposes of this Agreement, “Disability” shall mean the
Executive’s inability, due to physical or mental incapacity,
to perform the essential functions of his job, with or without
reasonable accommodation, for one hundred eighty (180) days out of
any three hundred sixty-five (365) day period or one hundred twenty
(120) consecutive days. Any question as to the existence of the
Executive’s Disability as to which the Executive and the
Company cannot agree shall be determined in writing by a qualified
independent physician mutually acceptable to the Executive and the
Company. If the Executive and the Company cannot agree as to a
qualified independent physician, each shall appoint such a
physician and those two physicians shall select a third who shall
make such determination in writing. The determination of Disability
made in writing to the Company and the Executive shall be final and
conclusive for all purposes of this Agreement.
d. Notice
of Termination. Any termination of the Executive’s
employment hereunder by the Company or by the Executive during the
Employment Term (other than termination pursuant to Section 5.3(a)
on account of the Executive’s death) shall be communicated by
written notice of termination (“Notice of Termination”)
to the other party hereto in accordance with Section 24. The Notice
of Termination shall specify:
i. The termination
provision of this Agreement relied upon;
ii. To the extent
applicable, the facts and circumstances claimed to provide a basis
for termination of the Executive’s employment under the
provision so indicated; and
iii. The
applicable Termination Date.
e. Termination
Date. The Executive’s “Termination Date”
shall be:
i. If the
Executive’s employment hereunder terminates on account of the
Executive’s death, the date of the Executive’s
death;
ii. If the
Executive’s employment hereunder is terminated on account of
the Executive’s Disability, the date that it is determined
that the Executive has a Disability;
iii. If
the Company terminates the Executive’s employment hereunder
for Cause, the date the Notice of Termination is delivered to the
Executive;
iv. If the Company
terminates the Executive’s employment hereunder without
Cause, the date specified in the Notice of Termination, which shall
be no less than 30 days following the date on which the Notice of
Termination is delivered; provided that, the Company shall have the
option to provide the Executive with a lump sum payment equal to 30
days’ Base Salary in lieu of such notice, which shall be paid
in a lump sum on the Executive’s Termination Date and for all
purposes of this Agreement, the Executive’s Termination Date
shall be the date on which such Notice of Termination is
delivered;
v. If the Executive
terminates his employment hereunder with or without Good Reason,
the date specified in the Executive’s Notice of Termination,
which shall be no less than 14 days following the date on which the
Notice of Termination is delivered; provided that, the Company may
waive all or any part of the 14 day notice period for no
consideration by giving written notice to the Executive and for all
purposes of this Agreement, the Executive’s Termination Date
shall be the date determined by the Company; and
vi. If the
Executive’s employment hereunder terminates because either
party provides notice of non-renewal pursuant to Section 1, the
Renewal Date immediately following the date on which the applicable
party delivers notice of non-renewal.
f. Mitigation. In no event shall the
Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and except as
provided in Section 5.2(c), any amounts payable pursuant to this
Section 5 shall not be reduced by compensation the Executive earns
on account of employment with another employer.
g. Resignation
of All Other Positions. Upon termination of the
Executive’s employment hereunder for any reason, the
Executive shall be deemed to have resigned from all positions that
the Executive holds as an officer or member of the Board (or a
committee thereof) of the Company or any of its
affiliates.
6. Cooperation.
The parties agree that certain matters in which the Executive will
be involved during the Employment Term may necessitate the
Executive’s cooperation in the future. Accordingly, following
the termination of the Executive’s employment for any reason,
to the extent reasonably requested by the Board, the Executive
shall cooperate with the Company in connection with matters arising
out of the Executive’s service to the Company; provided that,
the Company shall make reasonable efforts to minimize disruption of
the Executive’s other activities. The Company shall reimburse
the Executive for reasonable expenses incurred in connection with
such cooperation and, to the extent that the Executive is required
to spend substantial time on such matters, the Company shall
compensate the Executive at an hourly rate based on the
Executive’s Base Salary on the Termination Date.
7. Confidential
Information. The Executive understands and acknowledges that
during the Employment Term, he will have access to and learn about
Confidential Information, as defined below.
a. Confidential
Information Defined. For purposes of this Agreement,
“Confidential Information” includes, but is not limited
to, all information not generally known to the public, in spoken,
printed, electronic or any other form or medium, relating directly
or indirectly to: business processes, practices, terms of
agreements, transactions, potential transactions, know-how, trade
secrets,[ financial information, and customer lists of the Company
or its businesses, or of any other person or entity that has
entrusted information to the Company in confidence.
The
Executive understands that the above list is not exhaustive, and
that Confidential Information also includes other information that
is marked or otherwise identified as confidential or proprietary,
or that would otherwise appear to a reasonable person to be
confidential or proprietary in the context and circumstances in
which the information is known or used.
The
Executive understands and agrees that Confidential Information
includes information developed by him in the course of his
employment by the Company as if the Company furnished the same
Confidential Information to the Executive in the first instance.
Confidential Information shall not include information that is
generally available to and known by the public at the time of
disclosure to the Executive; provided that, such disclosure is
through no direct or indirect fault of the Executive or person(s)
acting on the Executive’s behalf.
b. Company Creation and Use of Confidential
Information. The Executive understands and acknowledges that
the Company has invested, and continues to invest, substantial
time, money, and specialized knowledge into developing its
resources, creating a customer base, generating customer and
potential customer lists, training its employees, and improving its
offerings in the field of state-legal wholesale and retail
cannabis. The Executive understands and acknowledges that as a
result of these efforts, the Company has created, and continues to
use and create Confidential Information. This Confidential
Information provides the Company with a competitive advantage over
others in the marketplace.
c. Disclosure
and Use Restrictions. The Executive agrees and covenants:
(i) to treat all Confidential Information as strictly confidential;
(ii) not to directly or indirectly disclose, publish, communicate,
or make available Confidential Information, or allow it to be
disclosed, published, communicated, or made available, in whole or
part, to any entity or person whatsoever (including other employees
of the Company) not having a need to know and authority to know and
use the Confidential Information in connection with the business of
the Company and, in any event, not to anyone outside of the direct
employ of the Company except as required in the performance of the
Executive’s authorized employment duties to the Company or
with the prior consent of the Board or Chief Executive Officer
acting on behalf of the Company in each instance (and then, such
disclosure shall be made only within the limits and to the extent
of such duties or consent); and (iii) not to access or use any
Confidential Information, and not to copy any documents, records,
files, media, or other resources containing any Confidential
Information, or remove any such documents, records, files, media,
or other resources from the premises or control of the Company ,
except as required in the performance of the Executive’s
authorized employment duties to the Company or with the prior
consent of Board or Chief Executive Officer acting on behalf of the
Company in each instance (and then, such disclosure shall be made
only within the limits and to the extent of such duties or
consent). Nothing herein shall be construed to prevent disclosure
of Confidential Information as may be required by applicable law or
regulation, or pursuant to the valid order of a court of competent
jurisdiction or an authorized government agency, provided that the
disclosure does not exceed the extent of disclosure required by
such law, regulation, or order. The Executive shall promptly
provide written notice of any such order to Board or Chief
Executive Officer.
d. Notice of Immunity
Under the Economic Espionage Act of 1996 of the United States of
America, as amended by the Defend Trade Secrets Act of 2016
(“DTSA”). Notwithstanding any other provision of this
Agreement:
i. The Executive will
not be held criminally or civilly liable under any federal or state
trade secret law for any disclosure of a trade secret
that:
1. is made (1) in
confidence to a federal, state, or local government official,
either directly or indirectly, or to an attorney; and (2) solely
for the purpose of reporting or investigating a suspected violation
of law; or
2. is made in a
complaint or other document filed under seal in a lawsuit or other
proceeding.
ii. If the Executive
files a lawsuit for retaliation by the Company for reporting a
suspected violation of law, the Executive may disclose the
Company’s trade secrets to the Executive’s attorney and
use the trade secret information in the court proceeding if the
Executive:
1. files any document
containing trade secrets under seal; and
2. does not disclose
trade secrets, except pursuant to court order.
The
Executive understands and acknowledges that his obligations under
this Agreement with regard to any particular Confidential
Information shall commence immediately upon the Executive first
having access to such Confidential Information (whether before or
after he begins employment by the Company) and shall continue
during and after his employment by the Company until such time as
such Confidential Information has become public knowledge other
than as a result of the Executive’s breach of this Agreement
or breach by those acting in concert with the Executive or on the
Executive’s behalf.
8. Restrictive
Covenants.
a. Non-Competition.
Because of the Company’s legitimate business interest as
described herein and the good and valuable consideration offered to
the Executive, during the Employment Term and for the twelve
months, to run consecutively, beginning on the last day of the
Executive’s employment with the Company, the Executive agrees
and covenants not to engage in Prohibited Activity within a 50 mile
radius of Las Vegas.
For
purposes of this Section 8, “Prohibited Activity” is
activity in which the Executive contributes his knowledge, directly
or indirectly, in whole or in part, as an employee, employer,
owner, operator, manager, advisor, consultant, agent, employee,
partner, director, stockholder, officer, volunteer, intern, or any
other similar capacity to an entity engaged in the same or similar
business as the Company, including those engaged in the business of
licensed cannabis cultivation, production, or dispensary
operations. Prohibited Activity also includes activity that may
require or inevitably requires disclosure of trade secrets,
proprietary information or Confidential Information.
This
Section 8 does not, in any way, restrict or impede the Executive
from exercising protected rights to the extent that such rights
cannot be waived by agreement or from complying with any applicable
law or regulation or a valid order of a court of competent
jurisdiction or an authorized government agency, provided that such
compliance does not exceed that required by the law, regulation, or
order. The Executive shall promptly provide written notice of any
such order to Company.
b. Non-Solicitation
of Employees. The Executive agrees and covenants not to
directly or indirectly solicit, hire, recruit, attempt to hire or
recruit, or induce the termination of employment of any employee of
the Company for 12 months, to run consecutively, beginning on the
last day of the Executive’s employment with the
Company.
c. Non-Solicitation
of Customers and Vendors. The Executive understands and
acknowledges that because of the Executive’s experience with
and relationship to the Company, he will have access to and learn
about much or all of the Company’s customer and vendor
information (or, “Competitive Information”).
Competitive includes, but is not limited to, names, phone numbers,
addresses, e-mail addresses, order history, order preferences,
chain of command, pricing information, and other information
identifying facts and circumstances specific to the vendor or the
customer and relevant to sales.
The
Executive understands and acknowledges that loss of this customer
or vendor relationship and/or goodwill will cause significant and
irreparable harm.
The
Executive agrees and covenants, during 12 months, to run
consecutively, beginning on the last day of the Executive’s
employment with the Company, not to directly or indirectly solicit,
contact (including but not limited to e-mail, regular mail, express
mail, telephone, fax, and instant message), attempt to contact, or
meet with the Company’s current, former or prospective
vendors or customers for purposes of offering or accepting goods or
services similar to or competitive with those offered by the
Company.
This
restriction shall only apply to:
i. Vendors, customers
or prospective customers the Executive contacted in any way during
the past 12 months;
ii. Vendors or
customers about whom the Executive has trade secret or confidential
information;
iii. Vendors
or customers who became vendors or customers during the
Executive’s employment with the Company; and
iv. Vendors or
customers about whom the Executive has information that is not
available publicly.
9. Non-Disparagement.
The Executive agrees and covenants that he will not at any time
make, publish or communicate to any person or entity or in any
public forum any defamatory or disparaging remarks, comments, or
statements concerning the Company or its businesses, or any of its
employees, officers, and existing and prospective customers,
suppliers, investors and other associated third
parties.
This
Section 9 does not, in any way, restrict or impede the Executive
from exercising protected rights to the extent that such rights
cannot be waived by agreement or from complying with any applicable
law or regulation or a valid order of a court of competent
jurisdiction or an authorized government agency, provided that such
compliance does not exceed that required by the law, regulation, or
order. The Executive shall promptly provide written notice of any
such order to the Chief Executive Officer.
The
Company agrees and covenants that it shall cause its officers and
directors to refrain from making any defamatory or disparaging
remarks, comments, or statements concerning the Executive to any
third parties.
10. Acknowledgement.
The Executive acknowledges and agrees that the services to be
rendered by him to the Company are of a special and unique
character; that the Executive will obtain knowledge and skill
relevant to the Company’s industry, methods of doing business
and marketing strategies by virtue of the Executive’s
employment; and that the restrictive covenants and other terms and
conditions of this Agreement are reasonable and reasonably
necessary to protect the legitimate business interest of the
Company.
The
Executive further acknowledges that the amount of his compensation
reflects, in part, his obligations and the Company’s rights
under Section 7, Section 8, and Section 9 of this Agreement; that
he has no expectation of any additional compensation, royalties or
other payment of any kind not otherwise referenced herein in
connection herewith; and that he will not be subject to undue
hardship by reason of his full compliance with the terms and
conditions of Section 7, Section 8, and Section 9 of this Agreement
or the Company’s enforcement thereof.
11. Remedies. In
the event of a breach or threatened breach by the Executive of
Section 7, 8, or Section 9 of this Agreement, the Executive hereby
consents and agrees that the Company shall be entitled to seek, in
addition to other available remedies, a temporary or permanent
injunction or other equitable relief against such breach or
threatened breach from any court of competent jurisdiction, without
the necessity of showing any actual damages or that money damages
would not afford an adequate remedy, and without the necessity of
posting any bond or other security. The aforementioned equitable
relief shall be in addition to, not in lieu of, legal remedies,
monetary damages, or other available forms of relief.
12. Proprietary
Rights.
a. Work
Product. The Executive acknowledges and agrees that all
right, title, and interest in and to all writings, works of
authorship, technology, inventions, discoveries, processes,
techniques, methods, ideas, concepts, research, proposals,
materials, and all other work product of any nature whatsoever,
that are created, prepared, produced, authored, edited, amended,
conceived, or reduced to practice by the Executive individually or
jointly with others during the period of his employment by the
Company and relate in any way to the business or contemplated
business, products, activities, research, or development of the
Company or result from any work performed by the Executive for the
Company (in each case, regardless of when or where prepared or
whose equipment or other resources is used in preparing the same),
all rights and claims related to the foregoing, and all printed,
physical and electronic copies, and other tangible embodiments
thereof (collectively, “Work Product”), as well as any
and all rights in and to US and foreign (a) patents, patent
disclosures and inventions (whether patentable or not), (b)
trademarks, service marks, trade dress, trade names, logos,
corporate names, and domain names, and other similar designations
of source or origin, together with the goodwill symbolized by any
of the foregoing, (c) copyrights and copyrightable works (including
computer programs), [mask works,] and rights in data and databases,
(d) trade secrets, know-how, and other confidential information,
and (e) all other intellectual property rights, in each case
whether registered or unregistered and including all registrations
and applications for, and renewals and extensions of, such rights,
all improvements thereto and all similar or equivalent rights or
forms of protection in any part of the world (collectively,
“Intellectual Property Rights”), shall be the sole and
exclusive property of the Company.
For
purposes of this Agreement, Work Product includes, but is not
limited to, Company information, including plans, publications,
research, strategies, documents, contracts, customer lists,
manufacturing information, marketing information, advertising
information, and sales information.
b. Work
Made for Hire; Assignment. The Executive acknowledges that,
by reason of being employed by the Company at the relevant times,
to the extent permitted by law, all of the Work Product consisting
of copyrightable subject matter is “work made for hire”
as defined in 17 U.S.C. § 101 and such copyrights are
therefore owned by the Company. To the extent that the foregoing
does not apply, the Executive hereby irrevocably assigns to the
Company, for no additional consideration, the Executive’s
entire right, title, and interest in and to all Work Product and
Intellectual Property Rights therein, including the right to sue,
counterclaim, and recover for all past, present, and future
infringement, misappropriation, or dilution thereof, and all rights
corresponding thereto throughout the world. Nothing contained in
this Agreement shall be construed to reduce or limit the
Company’s rights, title, or interest in any Work Product or
Intellectual Property Rights so as to be less in any respect than
that the Company would have had in the absence of this
Agreement.
c. Further Assurances; Power of Attorney.
During and after his employment, the Executive agrees to reasonably
cooperate with the Company to (a) apply for, obtain, perfect, and
transfer to the Company the Work Product as well as any and all
Intellectual Property Rights in the Work Product in any
jurisdiction in the world; and (b) maintain, protect and enforce
the same, including, without limitation, giving testimony and
executing and delivering to the Company any and all applications,
oaths, declarations, affidavits, waivers, assignments, and other
documents and instruments as shall be requested by the Company. The
Executive hereby irrevocably grants the Company power of attorney
to execute and deliver any such documents on the Executive’s
behalf in his name and to do all other lawfully permitted acts to
transfer the Work Product to the Company and further the transfer,
prosecution, issuance, and maintenance of all Intellectual Property
Rights therein, to the full extent permitted by law, if the
Executive does not promptly cooperate with the Company’s
request (without limiting the rights the Company shall have in such
circumstances by operation of law). The power of attorney is
coupled with an interest and shall not be affected by the
Executive’s subsequent incapacity.
d. No
License. The Executive understands that this Agreement does
not, and shall not be construed to, grant the Executive any license
or right of any nature with respect to any Work Product or
Intellectual Property Rights or any Confidential Information,
materials, software, or other tools made available to him by the
Company.
13. Security.
a. Security
and Access. The Executive agrees and covenants (a) to comply
with all Company security policies and procedures as in force from
time to time and any and all other Company IT resources
(“Facilities and Information Technology Resources”);
(b) not to access or use any Facilities and Information Technology
Resources except as authorized by the Company; and (iii) not to
access or use any Facilities and Information Technology Resources
in any manner after the termination of the Executive’s
employment by the Company, whether termination is voluntary or
involuntary. The Executive agrees to notify the Company promptly in
the event he learns of any violation of the foregoing by others, or
of any other misappropriation or unauthorized access, use,
reproduction, or reverse engineering of, or tampering with any
Facilities and Information Technology Resources or other Company
property or materials by others.
b. Exit
Obligations. Upon (a) voluntary or involuntary termination
of the Executive’s employment or (b) the Company’s
request at any time during the Executive’s employment, the
Executive shall (i) provide or return to the Company any and all
Company property and all Company documents and materials belonging
to the Company and stored in any fashion, including but not limited
to those that constitute or contain any Confidential Information or
Work Product, that are in the possession or control of the
Executive, whether they were provided to the Executive by the
Company or any of its business associates or created by the
Executive in connection with his employment by the Company; and
(ii) delete or destroy all copies of any such documents and
materials not returned to the Company that remain in the
Executive’s possession or control, including those stored on
any non-Company devices, networks, storage locations, and media in
the Executive’s possession or control.
14. Publicity.
The Executive hereby irrevocably consents to any and all uses and
displays, by the Company and its agents, representatives and
licensees, of the Executive’s name, voice, likeness, image,
appearance, and biographical information in, on or in connection
with any pictures, photographs, audio and video recordings, digital
images, websites, television programs and advertising, other
advertising and publicity, sales and marketing brochures, books,
magazines, other publications, CDs, DVDs, tapes, and all other
printed and electronic forms and media throughout the world, at any
time during or after the period of his employment by the Company,
for all legitimate commercial and business purposes of the Company
(“Permitted Uses”) without further consent from or
royalty, payment, or other compensation to the Executive. The
Executive hereby forever waives and releases the Company and its
directors, officers, employees, and agents from any and all claims,
actions, damages, losses, costs, expenses, and liability of any
kind, arising under any legal or equitable theory whatsoever at any
time during or after the period of his employment by the Company,
arising directly or indirectly from the Company’s and its
agents’, representatives’, and licensees’
exercise of their rights in connection with any Permitted
Uses.
15. Governing
Law: Jurisdiction and Venue. This Agreement, for all
purposes, shall be construed in accordance with the laws of the
Province of Ontario, Canada without regard to conflicts of law
principles. Any action or proceeding by either of the parties to
enforce this Agreement shall be brought only in a provincial or
federal court located in the Province of Ontario, in the city of
Toronto. The parties hereby irrevocably submit to the exclusive
jurisdiction of such courts and waive the defense of inconvenient
forum to the maintenance of any such action or proceeding in such
venue.
16. Entire
Agreement. Unless specifically provided herein, this
Agreement contains all of the understandings and representations
between the Executive and the Company pertaining to the subject
matter hereof and supersedes all prior and contemporaneous
understandings, agreements, representations and warranties, both
written and oral, with respect to such subject matter. The parties
mutually agree that the Agreement can be specifically enforced in
court and can be cited as evidence in legal proceedings alleging
breach of the Agreement.
17. Modification
and Waiver. No provision of this Agreement may be amended or
modified unless such amendment or modification is agreed to in
writing and signed by the Executive and by Chief Executive Officer
of the Company. No waiver by either of the parties of any breach by
the other party hereto of any condition or provision of this
Agreement to be performed by the other party hereto shall be deemed
a waiver of any similar or dissimilar provision or condition at the
same or any prior or subsequent time, nor shall the failure of or
delay by either of the parties in exercising any right, power, or
privilege hereunder operate as a waiver thereof to preclude any
other or further exercise thereof or the exercise of any other such
right, power, or privilege.
18. Severability.
Should any provision of this Agreement be held by a court of
competent jurisdiction to be enforceable only if modified, or if
any portion of this Agreement shall be held as unenforceable and
thus stricken, such holding shall not affect the validity of the
remainder of this Agreement, the balance of which shall continue to
be binding upon the parties with any such modification to become a
part hereof and treated as though originally set forth in this
Agreement.
The
parties further agree that any such court is expressly authorized
to modify any such unenforceable provision of this Agreement in
lieu of severing such unenforceable provision from this Agreement
in its entirety, whether by rewriting the offending provision,
deleting any or all of the offending provision, adding additional
language to this Agreement, or by making such other modifications
as it deems warranted to carry out the intent and agreement of the
parties as embodied herein to the maximum extent permitted by
law.
The
parties expressly agree that this Agreement as so modified by the
court shall be binding upon and enforceable against each of them.
In any event, should one or more of the provisions of this
Agreement be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not
affect any other provisions hereof, and if such provision or
provisions are not modified as provided above, this Agreement shall
be construed as if such invalid, illegal, or unenforceable
provisions had not been set forth herein.
19. Captions.
Captions and headings of the sections and paragraphs of this
Agreement are intended solely for convenience and no provision of
this Agreement is to be construed by reference to the caption or
heading of any section or paragraph.
20. Counterparts.
This Agreement may be executed in separate counterparts, each of
which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
21. Tolling.
Should the Executive violate any of the terms of the restrictive
covenant obligations articulated herein, the obligation at issue
will run from the first date on which the Executive ceases to be in
violation of such obligation.
22. Notification
to Subsequent Employer. When the Executive’s
employment with the Company terminates, the Executive agrees to
notify any subsequent employer of the restrictive covenants
sections contained in this Agreement. The Executive will also
deliver a copy of such notice to the Company before the Executive
commences employment with any subsequent employer. In addition, the
Executive authorizes the Company to provide a copy of the
restrictive covenants sections of this Agreement to third parties,
including but not limited to, the Executive’s subsequent,
anticipated, or possible future employer.
23. Successors
and Assigns. This Agreement is personal to the Executive and
shall not be assigned by the Executive. Any purported assignment by
the Executive shall be null and void from the initial date of the
purported assignment. The Company may assign this Agreement to any
successor or assign (whether direct or indirect, by purchase,
merger, consolidation, or otherwise) to all or substantially all of
the business or assets of the Company. This Agreement shall inure
to the benefit of the Company and permitted successors and
assigns.
24. Notice.
Notices and all other communications provided for in this Agreement
shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, or by
overnight carrier to the parties at the addresses set forth below
(or such other addresses as specified by the parties by like
notice):
If to
the Company:
Planet
13 Holdings, Inc., or MM Development Company, Inc., currently
registered corporate office or registered agent.
If to
the Executive:
Address
written below.
117
Bedford Road
Toronto, Ontario
M5R 2K5
Canada
25. Representations
of the Executive. The Executive represents and warrants to
the Company that:
The
Executive’s acceptance of employment with the Company and the
performance of his duties hereunder will not conflict with or
result in a violation of, a breach of, or a default under any
contract, agreement, or understanding to which he is a party or is
otherwise bound.
The
Executive’s acceptance of employment with the Company and the
performance of his duties hereunder will not violate any
non-solicitation, non-competition, or other similar covenant or
agreement of a prior employer.
26. Withholding.
The Company shall have the right to withhold from any amount
payable hereunder any Federal, Provincial, and local taxes in order
for the Company to satisfy any withholding tax obligation it may
have under any applicable law or regulation.
27. Survival.
Upon the expiration or other termination of this Agreement, the
respective rights and obligations of the parties hereto shall
survive such expiration or other termination to the extent
necessary to carry out the intentions of the parties under this
Agreement.
28. Gender
and Number. Wherever appropriate herein, the masculine may
mean the feminine and the singular may mean the plural or vice
versa.
29. Acknowledgement
of Full Understanding. THE EXECUTIVE ACKNOWLEDGES AND AGREES
THAT HE HAS FULLY READ, UNDERSTANDS AND VOLUNTARILY ENTERS INTO
THIS AGREEMENT. THE EXECUTIVE ACKNOWLEDGES AND AGREES THAT HE HAS
HAD AN OPPORTUNITY TO ASK QUESTIONS AND CONSULT WITH AN ATTORNEY OF
HIS CHOICE BEFORE SIGNING THIS AGREEMENT.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Employee:
/s/
Dennis
Logan
Name:
Dennis Logan
Address:
[REDACTED]
|
Planet
13 Holdings, Inc.
By:
/s/ Robert
Groesbeck
Robert
Groesbeck, co-CEO
By:
/s/ Larry
Scheffler
Name:
Larry Scheffler, co-CEO
|
Exhibit 21
Subsidiaries of Planet 13
Holdings Inc.
Name of Subsidiaries
|
Jurisdiction of Incorporation
|
BLC
Management Company, LLC
|
Nevada
|
BLC NV
Food, LLC
|
Nevada
|
By The
Slice, LLC (a)
|
Nevada
|
LBC
CBD, LLC (b)
|
Nevada
|
MM
Development CA, Inc. (inactive)
|
California
|
MM
Development Company, Inc. (c)
|
Nevada
|
MM
Development MI, Inc. (inactive)
|
Michigan
|
Newtonian
Principles, Inc. (d)
|
Delaware
|
Planet
13 Chicago, LLC
|
Illinois
|
Planet
13 Florida, Inc.
|
Florida
|
Planet
13 Illinois, LLC
|
Illinois
|
(a)
Doing business as Trece Restaurant.
(b)
Doing business as Planet M.
(c)
Doing business as (1) Planet 13 and (2) Medizin.
(d)
Doing business as Planet 13.