LOAN AGREEMENT
THIS AGREEMENT dated as of the 3rd day of June, 2003
AMONG:
MEMORIAL GIFT TRUST, a trust established pursuant to the laws of
California and having as its trustee ▇▇▇ ▇▇▇▇▇▇▇▇ of ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
("Memorial")
AND:
▇▇▇▇▇ ▇▇▇▇▇▇▇ an individual residing at ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇,
(collectively, Memorial and ▇▇▇▇▇ ▇▇▇▇▇▇▇, the "Lender")
AND:
DYNAMOTIVE ENERGY SYSTEMS CORPORATION, a limited liability
company under the laws of the province of British Columbia
having as its records office, ▇▇▇▇-▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇.▇., ▇▇▇ ▇▇▇
(the "Borrower")
WHEREAS the Borrower wishes to borrow from the Lender, and the Lender has
agreed to establish in favour of the Borrower a loan with a principal amount
equal to $250,000 upon the terms and conditions set forth in this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and
the mutual covenants and agreements herein contained, the parties hereto
covenant and agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
Definitions
1.1 The terms defined in this ss. 1.1 shall for all purposes of this Agreement
(including the recitals hereto) have the meanings herein specified unless the
subject matter or context otherwise requires:
(a) "Advance" means the advance obtained under the Credit as provided at ss.2.1;
552173.6
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(b) "Borrower's Account" means one or more accounts established by the Borrower
at the Borrower's Bank into which the Advance is to be deposited by the
Lender and from which payments to the Lender are to be made by the Borrower;
(c)"Borrower's Bank" means the Canadian Imperial Bank of Commerce, Branch #▇▇▇▇▇
at ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇. ▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇;
(d) "Business Day" means any day excluding Saturday, Sunday or any day which
shall be in the United States or Canada a legal holiday or a day on which
banking institutions are required or authorized by law to close;
(e) "Change of Control" means (i) any transaction or series of transactions
that, individually or cumulatively, together with one or more prior
transactions, result in a transfer of over 50% of Borrower's assets, or (ii) a
merger, consolidation, sale of stock or other transaction, series of
transactions or cumulative transfers as a result of which, together with one or
more prior transactions, there is a cumulative change in ownership of over 50%
of the equity owners of Borrower, excluding any transfer to current owners of
Borrower or the surviving entity or successor-in-interest to Borrower
immediately upon completion of any such future transaction, as measured from the
date of this Agreement, or (iii) a change in the Chief Executive Officer of
Borrower other than a change resulting from the death or disability of the Chief
Executive Officer of the Borrower;
(f) "Credit" has the meaning specified in ss.2.1 hereof,
(g) "Credit Amount" means the principal amount of the loan from the Lender
to the Borrower which will be equal to $250,000;
(h) "Default Interest Rate" means 60% per annum, calculated annually in
accordance with generally accepted actuarial practices and principles, or the
maximum permitted by law;
(i) "Event of Default" means any of the events specified in ss.6.1;
(j) "First Advance" has the meaning given that term at 2.1;
(k) "Interest Rate" means the amount of interest that will accrue and be
payable on the amount owed by Borrower, equal to 2% per month;
(l) "Lender Representative" means Memorial or, if not Memorial, such other
person as all of the Lenders appoint in writing;
(m) "Lender's Bank" means the ETrade Bank, at ▇.▇. ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇.▇.,
▇▇▇▇▇-▇▇▇▇;
(n) "Loan Documents" means this Agreement and the other agreements referred
to in Section 1.3 hereof; and
(o) "Maturity Date" means the first anniversary of the First Advance, or such
other date as the parties may agree in writing.
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Interpretation
1.2 For purposes of this Agreement, except as otherwise expressly provided:
(a) "this Agreement" means this agreement, including the Schedules hereto, if
any, and any agreement, document or instrument entered into, made or delivered
pursuant to the terms hereof, as any of them may from time to time be
supplemented or amended and in effect;
(b) all references in this Agreement to a designated "Article", "Section",
"subsection" or other subdivision or to a Schedule is to the designated Article,
section, subsection or other subdivision of, or Schedule to, this Agreement;
(c) the words "herein", "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular Article,
Section, subsection or other subdivision or Schedule;
(d) the division of this Agreement into Articles, Sections and subsections and
the insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation of this Agreement;
(e) the word "including", when following any general statement, term or matter,
is not to be construed to limit such general statement, term or matter to the
specific items or matters set forth immediately following such word or to
similar items or matters, whether or not non-limiting language (such as "without
limitation" or "but not limited to" or words of similar import) is used with
reference thereto, but rather is to be construed to refer to all other items or
matters that could reasonably fall within the broadest possible scope of such
general statement, term or matter;
(f) all references to currency are deemed to mean lawful money of the United
States of America unless otherwise stated;
(g) any reference to a statute includes and is a reference to such statute and
to the regulations made pursuant thereto, with all amendments made thereto and
in force from time to time, and to any statute or regulation that may be passed
which has the effect of supplementing or superseding such statute or such
regulation;
(h) any reference to a corporate entity includes and is also a reference to
any corporate entity that is a successor to such entity; and
(i) words importing the masculine gender include the feminine or neuter gender
and words in the singular include the plural and vice versa.
Schedules
1.3 The following schedules are attached to and form part of this Agreement:
Schedule A- Secured Promissory Note
Schedule B - General Security Agreement
Schedule C - PPSA Search
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Schedule D - Form of Warrant Certificate
Schedule E - Registration Rights Agreement
ARTICLE 2
AMOUNT AND TERMS OF THE CREDIT
Establishment of Credit
2.1 Subject to the terms and conditions of this Agreement, the Lender hereby
establishes a credit (the "Credit") in favour of the Borrower pursuant to which
the Borrower shall be entitled to obtain from the Lender an Advance equal to
$250,000 (the "First Advance") of the Credit Amount on or before the first
Business Day after the date of this Agreement, provided that the Lender shall be
entitled to withhold up to $10,000 for fourteen (14) days following the date of
this Agreement for the payment of Lender counsel's reasonable legal fees and
costs, and the Lender shall remit any remaining balance to Borrower at the end
of such fourteen days along with a copy of such account paid.
Purpose of Credit
2.2 The purpose of the Credit will be to provide working capital to Borrower.
Manner of Making the Advance
2.3 The Lender shall deposit the Advance in the Borrower's Account, or as may be
directed by the Borrower and agreed by the Lender.
Interest on Credit
2.4 Subject to ss.6.2(b), the aggregate amounts outstanding under the Credit
from time to time shall bear interest at the Interest Rate on the daily unpaid
amount of the Advance.
Interest Payment Dates
2.5 Interest will be payable monthly on the last day of each month commencing
June 30, 2003, and where interest is payable for less than a full month, the
interest will be calculated pro rata based on the number of days in such month
that there was an outstanding amount under the Credit.
Secured Promissory Note
2.6 The indebtedness of the Borrower to the Lender under the Credit will be
evidenced by a secured promissory note in the form attached hereto as Schedule
A.
Security
2.7 The indebtedness of the Borrower to the Lender under the Credit will be
secured by a general security agreement in the form attached as Schedule B,
which, subject to 5.1 (a) and
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Schedule C, will form a first charge over all of the assets of Borrower
described in the general security agreement.
Warrant Consideration
2.8 As part of the consideration for the entering into of the Credit, the
Lender is to receive an aggregate of 2,500,000 warrants, in the form attached as
Schedule D; 2,000,000 of such warrants to be issued to Memorial and 500,000 to
be issued to ▇▇▇▇▇ ▇▇▇▇▇▇▇, which warrants will be issued on the date which is
the later of
(a) the date of the First Advance, or
(b) the date of filing of the Borrower's delinquent December 31, 2002
year end financial statements and the lifting of any securities
commission order regarding the Borrower's securities which may be issued
as a consequence of the delinquent filing.
ARTICLE 3
REPAYMENT OF CREDIT
Voluntary Repayment
3.1 The Borrower shall have the option to repay in whole or in part outstanding
amounts owed under the Credit from time to time on any Business Day without
premium or penalty.
Mandatory Repayment on Maturity Date
3.2 Subject to ss.3.3, the Borrower will repay to the Lender on or before
the Maturity Date all outstanding amounts owed under the Credit.
Alternative Mandatory Repayment
3.3 The Borrower will repay to the Lender all outstanding amounts owed under the
Credit on the first Business Day that is not more than 10 days following the
earlier of the date that the Borrower
(a) holds cash or cash equivalent assets equal to an amount greater
than $1,300,000, or
(b) successfully completes a financing, whether by way of equity or
debt, or a series of such financings within a 120 day period, in which
it raises a minimum of $1,000,000 net of all offering expenses, or
(c) experiences a Change in Control.
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Payments on Non-Business Days
3.4 Whenever any payment to be made hereunder shall be stated to be due on a day
which is not a Business Day, the due date thereof shall be extended to the next
succeeding Business Day.
Method and Place of Payment, etc.
3.5 All payments by the Borrower under this Agreement (unless otherwise
specified herein) shall be made to the Lender at the Lender's Bank to such
account as may be specified by Lender, or as may be otherwise directed by the
Lender not later than 10:00 a.m. (Vancouver, Canada time) for value on the date
when due, and shall be made in immediately available funds.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of the Borrower
4.1 The Borrower represents and warrants to the Lender that:
(a) the Borrower is a company duly incorporated under the laws of British
Columbia, is validly existing, has made all filings required under applicable
legislation, is duly registered in all jurisdictions in which it carries on
business,
(b) the U.S. subsidiary of the Borrower, DynaMotive Corporation, owns no assets,
the assets of the U.K. subsidiary of the Borrower, DynaMotive Europe Limited,
consist only of office furniture, and the only jurisdictions in which the
Borrower owns any property is British Columbia;
(c) the Borrower has all requisite corporate power and authority to enter into
and perform its obligations under this Agreement;
(d) the execution, delivery and performance by the Borrower of this Agreement
and each of the other Loan Documents to which it is a party have been duly
authorized by all necessary action on the part of the Borrower;
(e) to the best of its knowledge, the execution, delivery, and performance by
the Borrower of this Agreement and each of the other Loan Documents to which it
is a party do not and will not (i) violate any provision of federal, provincial,
or local law or regulation applicable to the Borrower, the charter documents of
the Borrower, or any order, judgment, or decree of any governmental body binding
on the Borrower, (ii) conflict with, result in a breach of, or constitute (with
due notice or lapse of time or both) a default under any material contractual
obligation of the Borrower, (iii) other than the lien on its assets created by
the general security agreement at Schedule B, result in or require the creation
or imposition of any lien of any nature whatsoever upon any properties or assets
of the Borrower, (iv) require the approval of the shareholders of the Borrower,
or (v) require any approval or consent of any person under any material contract
of the Borrower or any governmental body under any law, rule or regulation;
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(f) other than the filing of financing statements necessary to perfect the
security interest granted by the Borrower under the general security agreement,
the execution, delivery, and performance by the Borrower of this Agreement and
the Loan Documents to which the Borrower is a party do not and will not require
any registration with, consent, or approval of, or notice to, or other action
with or by, any governmental body or other person;
(g) this Agreement, together with the agreements attached hereto, constitute
valid and legal binding obligations of the Borrower, enforceable against it in
accordance with their terms, subject to the following qualifications:
(i) an order of specific performance and an injunction are discretionary
remedies and, in particular, may not be available where damages are
considered an adequate remedy; and
(ii) enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization reconstruction and other similar laws generally affecting
the enforceability of creditors' rights;
(h) the indebtedness of the Borrower to the creditors set out at Schedule C,
which amount is equal to an aggregate of CDN $3,632.91, represents all
outstanding secured indebtedness of the Borrower as of the date hereof,
(i) to the best of its knowledge, the lien on the assets of the Borrower created
under the general security agreement in favour of Lender is a validly created
and first priority lien, subject only to the liens disclosed in Schedule C
hereto;
(j) to the best of its knowledge, there are no actions, suits, or proceedings
pending or, threatened against the Borrower, except for matters that are fully
covered by insurance (subject to customary deductibles);
(k) the Borrower has delivered to Lender all available financial information
concerning the financial condition and results of operations of the Borrower on
a consolidated basis for the year ended December 31, 2002 and for the period
from January 1, 2003 to March 31, 2003, and there has been no material adverse
change in the financial condition or results of operations of the Borrower on a
consolidated basis since the date of such financial statements; and
(l) the Borrower has disclosed to Lender all material financial and other
information relating to the Borrower that, to the best of its knowledge, a
reasonably prudent investor would deem material in making a loan to the
Borrower.
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ARTICLE 5
COVENANTS
Positive Covenants
5.1 The Borrower covenants and agrees to, with and in favour of the Lender
that it shall:
(a) within two Business Days of the First Advance, pay the outstanding amounts,
which are equal to an aggregate of CDN$3,632.91, under indebtedness of the
Borrower to the creditors set out at Schedule C, and make commercially
reasonable efforts to obtain discharges of the security interests disclosed in
Schedule C within 30 days following the First Advance;
(b) within two Business Days of the First Advance, file the financing statements
required pursuant to the British Columbia Personal Property Security Act to
perfect the security interest created by the general security agreement given
pursuant to ss.2.7 and, within 30 days of such filing, deliver to the Lender
evidence of such filing;
(c) with respect to the Borrower, preserve and maintain its corporate existence,
licenses, rights, franchises and privileges in the jurisdiction of its
incorporation, amalgamation or continuation, as the case may be, and all
authorizations, consents, approvals, orders, licenses, exemptions from or
registrations or qualifications with any court or governmental authority,
commission, board, bureau, agency or instrumentality that are necessary or
materially valuable in the operation of the business of the Borrower;
(d) duly and punctually pay to the Lender the principal amount of the Advance,
interest thereon, and all other amounts from time to time payable hereunder on
the dates, at the places and in the manner set forth herein and duly observe and
perform each and every covenant and agreement contained herein and on the part
of the Borrower to be observed and performed;
(e) deliver to Lender, as soon as available, but in any event within 60 days
after the date of the First Advance, audited financial statements of the
Borrower on a consolidated basis for the year ended December 31, 2002, and
unaudited financial statements of the Borrower on a consolidated basis for the
quarter ended March 31, 2003;
(f) deliver to Lender, as soon as available, but in any event within 60 days
after the end of each fiscal quarter after the First Advance, financial
statements of the Borrower on a consolidated basis prepared by management of the
Borrower in accordance with GAAP;
(g) as soon as available, but in any event within 180 days after the end of the
Borrower's fiscal year ending December 31, 2003, audited financial statements of
the Borrower on a consolidated basis prepared in accordance with GAAP; 552173.6
9
(h) within 60 days following the First Advance, file all reports required to be
filed by the Borrower with the Securities and Exchange Commission for all prior
periods for which such reports are delinquent; and
(i) until full and final payment of the outstanding balance of the Credit
Amount and interest, the Borrower will not do any of the following:
(i) create, incur, assume, permit, guarantee, or otherwise become or
remain, directly or indirectly, liable with respect to any indebtedness,
except payables in the ordinary course of business;
(ii) create, incur, assume, or permit to exist, directly or indirectly,
any lien on or with respect to any of its assets, of any kind, whether
now owned or hereafter acquired, or any income or profits therefrom;
(iii) enter into any merger, consolidation, reorganization, or
recapitalization;
(iv) liquidate, wind up, or dissolve itself (or suffer any liquidation
or dissolution).
(v) convey, sell, lease, license, assign, transfer, or otherwise dispose
of, in one transaction or a series of transactions, all or any
substantial part of its assets.
(vi) loan money to any third person or guarantee or otherwise become in
any way liable with respect to the obligations of any third person.
ARTICLE 6
EVENTS OF DEFAULT
Events of Default
6.1 Each of the following events constitutes an "Event of Default" under this
Agreement:
(a) if the warrants to be issued to the Lender pursuant to ss.2.8 have not been
issued by July 30, 2003, provided that the Lender has made the First Advance;
(b) if the discharges of the security interests disclosed in Schedule C
have not been obtained within 90 days of the First Advance;
(c) if the Borrower defaults in the payment when due of principal of the
Advance;
(d) if the Borrower defaults in observing or performing any other covenant,
agreement or condition of this Agreement on its part to be observed or performed
and such default is not remedied within ten Business Days after receipt by the
Borrower of written notice of such default;
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(e) if any misrepresentation exists now or hereafter in any warranty or
representation made to Lender by the Borrower herein;
(f) if any or a material portion of the Borrower's assets are attached, seized,
subjected to a writ or distress warrant, or are levied upon, or come into
the possession of any trustee, receiver, controller, custodian, assignee for
the benefit of creditor;
(g) if a notice of lien, levy, or assessment is filed with respect to any of the
Borrower's assets by any governmental body or if any taxes or debts owing at any
time hereafter to any one or more of such entities becomes a lien, whether
▇▇▇▇▇▇ or otherwise, upon any of the Borrower's assets and the same is not paid
before such payment is delinquent; and
(h) if an order is made or a resolution is passed or a petition is filed for the
liquidation, dissolution or winding-up of the Borrower or if the Borrower makes
a voluntary assignment or proposal in bankruptcy.
Remedies Upon Event of Default
6.2 Upon the occurrence and during the continuance of any Event of Default,
(a) the Lender may declare the Credit to be terminated forthwith and demand
payment of the Advance whereupon the same shall be due and payable immediately
without protest, presentment, demand or further notice of any kind, all of which
are expressly waived by the Borrower, and the Lender, without notice to or
demand upon the Borrower, which are expressly waived by the Borrower, may
proceed to protect, exercise and enforce its rights and remedies under this
Agreement, the general security agreement, and such other rights and remedies as
are provided by law or by equity or by statute, and
(b) the aggregate amount outstanding under the Credit shall bear interest at
the Default Interest Rate on the daily unpaid amount of the Advance.
ARTICLE 7
GENERAL
Authority of the Lender Representative
7.1 All of the persons identified herein as the Lender hereby appoint the Lender
Representative as their sole representative for the purposes of taking all
actions and delivering all notices provided for under this Agreement. Any
actions required or allowed by the Lender may be made by the Lender
Representative on behalf of all of the Lenders, any obligations of the Borrower
with respect to the Lender may be fulfilled by completing such action with the
Lender Representative, and the Borrower may rely on and assume that the Lender
Representative has the exclusive authority to act for and represent all of the
Lenders. The Lender Representative shall forward any payments made to it by the
Borrower to each Lender in the proportion that such Lender has invested in the
Credit. The Lender Representative shall have no liability to any
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Lender or the Borrower for any action or inaction of the Lender Representative
with respect to this Agreement, except to the extent that such action or
inaction constitutes negligence or wilful misconduct.
No Waiver
7.2 No indulgence or forbearance by the Lender hereunder shall be deemed to
constitute a waiver of its rights to insist on performance in full and in a
timely manner of all covenants of the Borrower hereunder and any such waiver, in
order to be binding upon the Lender, must be express and in writing and signed
by the Lender, and then such waiver shall be effective only in the specific
instance and for the purpose for which it is given. Waiver of any term,
condition or covenant shall not be deemed to be a waiver by the Lender of its
right to require full and timely compliance with the same term, condition or
covenant thereafter, or with any other term, covenant or condition of this
Agreement at any time. No single or partial exercise of any right, power or
privilege of the Lender under this Agreement shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein expressly specified are cumulative and not exclusive
of any rights or remedies which the Lender would otherwise have. Nor shall the
acceptance by the Lender of any security or the acceptance by the Lender of any
payment of or on account of the Credit after a default or of any payment on
account of any partial default be construed to be a waiver of any right to take
advantage of any future default or of any past default not completely cured
thereby. The Lender may exercise any and all rights, powers, remedies and
recourses available to it under this Agreement, or any other remedy available to
it, concurrently or individually without the necessity of an election.
Governing Law
7.3 This Agreement shall be deemed to be made pursuant to the laws of the
province of British Columbia and the law of Canada applicable therein, and
without regard to principles of conflict of laws.
Attornment to Jurisdiction
7.4 The Borrower irrevocably submits to the non-exclusive jurisdiction of the
courts of British Columbia in any action or proceeding arising out of or related
to this Agreement and irrevocably agrees that all such actions and proceedings
may be heard and determined in any of such courts, and irrevocably waive, to the
fullest extent possible, the defence of inconvenient forum. The Borrower agrees
that a judgment or order in any such action or proceeding may be enforced in any
other jurisdiction in any manner provided by law.
Notice
7.5 A notice required or permitted to be given pursuant to this Agreement may
only be given by delivery or by facsimile transmission to the address of such
party set out below or at such other address as that party may designate by
notice under this Agreement:
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(a) if to the Borrower:
DynaMotive Energy Systems Corporation
Angus Corporate Centre
105 - ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Lender:
Memorial Gift Trust
C/o ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: (310) 276) 8745
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇
Any notice aforesaid shall, if actually delivered be deemed to have been given
and made at the time of delivery and if sent by facsimile transmission be deemed
to have been given or made on the day on which it was sent.
Severability
7.6 Any provision in this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction. Notwithstanding any provision to the contrary in this
Agreement, in the event that any rate of interest provided for in this Agreement
is found by a court to exceed the maximum rate allowed by applicable law, this
Agreement shall be modified to provide for a reduction in the rate of interest
previously charged, with any excess interest being applied to principal, and any
payments in excess of principal being returned to the Borrower.
Assigns
7.7 This Agreement shall not be assigned by the Borrower but may be assigned, in
whole or in part, by the Lender and on such terms as Lender may require. This
Agreement shall
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enure to the benefit of and be binding upon the parties hereto and shall be
binding upon and enure to the benefit of their respective heirs, executors,
successors and permitted assigns
Entire Agreement
7.8 There are no understandings, inducements, re=presentations, warranties,
collateral agreements or conditions affecting or supported by this Agreement
other than as expressed in or contemplated by this Agreement.
Modification in Writing
7.9 This Agreement may be amend o modified only by a written instrument
signed by each of the parties hereto.
Time of Essence
7.10 Time shall be of the essence of this Agreement.
Counterparts
7.11 This Agreement may be executed in any number of counterparts with the same
effect as if all parties to this Agreement had signed the same document, and all
counterparts will be, construed together and constitute one and the same
instrument.
Attorneys fees
7.12 The prevailing party in any action arising out of or in connection with
this Agreement shall be entitled to recover from the losing party the costs
of such action as permitted or determined by the Court, including attorneys'
and experts fees, costs and other reasonable expenses incurred by the prevailing
party.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto on the
day and year first above written.
MEMORIAL GIFT TRUST
Per:/s/ ▇▇▇ ▇▇▇▇▇▇▇▇
-------------------- Date: 06/03/03
Authorized Signatory
Signed, sealed and delivered by ▇▇▇▇▇ ▇▇▇▇▇▇▇
in the presence of:
By:/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ By:/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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Witness (Signature) ▇▇▇▇▇ ▇▇▇▇▇▇▇
By: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name (please print)
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Address
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Occupation
DYNAMOTIVE ENERGY SYSTEMS CORPORATION,
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Per: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
SECURED PROMISSORY NOTE
US$250,000 June 5, 2003
FOR VALUE RECEIVED, DYNAMOTIVE ENERGY SYSTEMS CORPORATION (the "Maker") promises
to pay to MEMORIAL GIFT TRUST and ▇▇▇▇▇ ▇▇▇▇▇▇▇ (collectively, the "Holder"), at
the location specified in the loan agreement dated as of June 3, 2003 between
the Maker and the Holder (the "Loan Agreement"), the principal sum of ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ DOLLARS (US$250,000), with interest as
set out in the Loan Agreement on June 5, 2O04 (or such other date as may be
determined in accordance with the Loan Agreement).
This Secured Promissory Note is secured by a. General Security Agreement as set
out in the Loan Agreement.
This Secured Promissory Note is governed governed by and shall be construed in
accordance with the laws of the province of British Columbia and the laws of
Canada applicable therein.
This Secured Promissory Note shall be binding upon the Maker and its successors
and assigns and shall enure to the benefit of the Holder and its successors and
assigns.
DYNAMOTIVE ENERGY SYSTEMS CORPORATION
Per:/s/
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Authorized Signatory
Per:/s/
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Authorized Signatory
SCHEDULE B
GENERAL SECURITY AGREEMENT
(General)
THIS AGREEMENT is dated effective the 4th day of June, 2003.
AMONG:
DYNAMOTIVE ENERGY SYSTEMS CORPORATION, a limited liability company
under the laws of the province of British Columbia having as its records
office, ▇▇▇▇-▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇.▇., ▇▇▇ ▇▇▇
(the "Debtor")
AND:
MEMORIAL GIFT TRUST, a trust established pursuant to the laws of
California and having as its trustee ▇▇▇ ▇▇▇▇▇▇▇▇ of ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇.,
▇-▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
("Memorial")
AND:
▇▇▇▇▇ ▇▇▇▇▇▇▇ an individual residing at ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
(collectively, Memorial and ▇▇▇▇▇ ▇▇▇▇▇▇▇, the "Secured Party")
1. Consideration
1.1 For valuable consideration, the receipt and sufficiency of which are
acknowledged by each party, the Debtor enters into this security agreement with
the Secured Party.
2. Obligations
2.1 The Security Interest (as hereinafter defined) is granted to the Secured
Party by the Debtor as continuing security for the payment of all present and
future indebtedness and liabilities of the Debtor to the Secured Party,
including interest thereon, and for the payment and performance of all other
present and future obligations of the Debtor to the Secured Party, whether
direct or indirect, contingent or absolute, matured or not, and whether the
Debtor is bound alone or with another or others, including obligations under
this Agreement and the obligations of the Debtor under any ▇▇▇▇ of exchange
issued, accepted or endorsed by the Debtor of which the Secured Par 552751.2
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3. Creation of Security Interest
3.1 The Debtor hereby grants, mortgages, charges, transfers, assigns and creates
to and in favour of the Secured Party as and by way of a continuing, fixed, and
specific charge to and in favour of Secured Party, a security interest in all of
the Debtor's present and after acquired personal property, and all personal
property in which the Debtor has rights, of whatever nature or kind and wherever
situate, including, without limitation, all of the following now owned or in
future owned or acquired by or on behalf of the Debtor:
3.2
(a) Equipment: all present and after-acquired equipment of the Debtor, including
all machinery, fixtures, plant, tools, furniture, vehicles of any kind or
description, all spare parts, accessories installed in or affixed or attached to
any of the foregoing, and all drawings, specifications, plans and manuals
relating thereto (the "Equipment"),
(b) Inventory: all present and after-acquired inventory of the Debtor, including
all raw materials, materials used or consumed in the business or profession of
the Debtor, work-in-progress, finished goods, goods used for packing, materials
used in the business of the Debtor not intended for sale, and goods acquired or
held for sale or lease, or that have been leased by the Debtor as lessor or
furnished or to be furnished under contracts of rental or service (the
"Inventory"),
(c) Accounts: all present and after-acquired debts, demands and amounts due or
accruing due to the Debtor whether or not earned by performance, including its
book debts, accounts receivable, and claims under policies of insurance; and all
contracts, security interests and other rights and benefits in respect thereof
(the "Accounts");
(d) Intangibles: all present and after-acquired intangibles of the Debtor,
including all contract rights, goodwill, patents, trade marks, copyrights and
other intellectual property, licences, and all other choses in action of the
Debtor of every kind, whether due at the present time or hereafter to become due
or owing (the "Intangibles"),
(e) Documents of Title: all present and after-acquired documents of title of the
Debtor, whether negotiable or otherwise including all warehouse receipts and
bills of lading (the "Documents of Title"),
(f) Chattel Paper: all present and after-acquired writings in favour of the
Debtor as secured party which evidence both a monetary obligation and a security
interest in, or a lease of, specific goods or specific goods and accessions (the
"Chattel Paper"),
(g) Instruments: all present and after-acquired bills, notes and cheques (as
such are defined pursuant to the Bills of Exchange Act (Canada)), all other
writings that evidence a right to payment of money and are of a type that in the
ordinary course of business are transferred by delivery without any necessary
endorsement or assignment and all letters of credit or advices of credit which
state thereon that the letter of credit or advice of credit must be surrendered
on claiming payment thereunder (the "Instruments"),
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(h) Money: all present and after-acquired money whether authorized as a medium
of exchange by the Parliament of Canada or authorized or adopted by any foreign
government as part of its currency (the "Money"),
(i) Securities: all present and after-acquired securities held by the Debtor,
including shares, options, rights, warrants, joint venture interests, interests
in limited partnerships, bonds, debentures and all other documents that are
recognized in the jurisdiction in which issued or dealt with as evidencing a
share, participation or other interest in property or in an enterprise or that
evidence of an obligation of the issuer (the "Securities"),
(j) Documents: all books, accounts, financial statements, invoices, letters,
papers, documents and other records in any form (the "Documents"),
(k) Undertaking: as and by way of a floating charge all present and after-
acquired personal property, business, and undertaking of the Debtor not being
Inventory, Equipment, Accounts, Intangibles, Documents of Title, Chattel Paper,
Instruments, Money, Securities or Documents (the "Undertaking"), and
(l) Proceeds: all personal property, fixtures and crops in any form derived
directly or indirectly from any dealing with Collateral (as hereinafter defined)
or proceeds therefrom, including rights to insurance payments and any other
payments representing indemnity or compensation for loss of or damage to
Collateral or proceeds therefrom (the "Proceeds").
3.3 All present and after-acquired personal property of the Debtor, including
Equipment, Inventory, Accounts, Intangibles, Documents of Title, Chattel Paper,
Instruments, Money, Securities, Documents, Undertaking and Proceeds are, or any
part thereof, collectively referred to in this Agreement as the "Collateral"
unless the context otherwise requires.
3.4 The grants, mortgages, charges, transfers, assignments and security
interests herein created are collectively referred to in this Agreement as the
"Security Interest".
3.5 The terms "equipment", "inventory", "accounts", "intangibles", "documents of
title" and "securities", as used in this ss.3 have the meanings specified in the
Personal Property Security Act (British Columbia) (the "PPSA").
4. Further Description of Collateral
4.1 Without limiting the generality of the description of Collateral as set out
in ss.3, for greater certainty the Collateral includes all present and future
personal property of the Debtor located on or about or in transit to or from the
real property described in Schedule A hereto. The Debtor agrees to promptly
inform the Secured Party in writing of the acquisition by the Debtor of any
personal property which is not of the nature or type described herein, and the
Debtor agrees to execute and deliver at its own expense from time to time
amendments to this Agreement or additional security agreements as may be
reasonably required by the Secured Party in order that the Security Interest
shall attach to all of the personal property of the Debtor.
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5. Attachment
5.1 The Debtor acknowledges that:
(a) value has been given,
(b) the Debtor has rights in the Collateral (other than after-
acquired property), and
(c) the parties have not agreed to postpone the time for attachment
of the Security Interest.
6. Dealings with Collateral
6.1 Until the occurrence of an Event of Default (hereinafter defined), the
Debtor may sell or lease the Inventory and, subject to ss.7, collect the
Accounts in the ordinary course of its business; except that all Accounts so
collected shall be deposited into an account in British Columbia maintained by
the Debtor with a deposit-taking institution approved by the Secured Party and
shall be held by the Debtor as agent and in trust for the Secured Party and paid
to the Secured Party immediately upon request.
7. Notification to Account Debtors Before Demand
7.1 The Secured Party may, before as well as after the occurrence of an
Event of Default,
Notify Debtors
(a) notify any person obligated to the Debtor in respect of an Account,
Intangible, Chattel Paper or Instrument to make payment to the Secured Party of
all such present and future amounts due or to become due under any Account,
Intangible, Chattel Paper or Instrument;
Control of Proceeds
(b) take control of the Proceeds; and
Apply Money
(c) apply any money taken as Collateral to the satisfaction of the
Obligations.
8. Exceptions
8.1 The last day of the term of any lease, sublease or agreement therefor is
specifically excepted from the Security Interest, but the Debtor agrees to stand
possessed of such last day in trust to assign and dispose of as the Secured
Party shall direct.
8.2 All Consumer Goods (as defined in the PPSA) are excepted from the
Security Interest.
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9. Representations of Debtor
9.1 The Debtor represents and warrants that:
(a) this Agreement is granted in accordance with resolutions of the directors
(and of the shareholders as applicable) of the Debtor and all other matters
and things have been done and performed so as to authorize and make the
execution and delivery of this Agreement and the performance of the obligations
of the Debtor hereunder legal, valid and binding; and
(b) the Debtor lawfully owns and possesses all presently held Collateral and has
good title thereto, free from all security interests, charges, encumbrances,
liens and claims, save only security interests, if any, consented to in writing
by the Secured Party or shown in Schedule B hereto, and the Debtor has good
right and lawful authority to grant the Security Interest.
10. Covenants of Debtor
10.1 The Debtor covenants and agrees:
Disposition of Collateral
(a) not to sell, exchange, transfer, assign, lease or otherwise dispose of or
deal in any way with Collateral or release, surrender or abandon possession of
Collateral or move or transfer Collateral from British Columbia, or enter into
any agreement or undertaking to do any of the foregoing except as may be
permitted in this Agreement;
Other Security Interests
(b) not to create or permit to exist any encumbrance or security interest in,
charge, encumbrance or lien over, or claim against any of its property, assets
or undertaking which ranks or could rank in priority to or pari passu with the
Security Interest;
Defend Title
(c) to defend the title to the Collateral for the benefit of the Secured
Party against all claims and demands;
Repair
(d) to keep the Collateral in good order and repair;
Insurance
(e) to obtain from insurers acceptable to the Secured Party and maintain:
(i) public liability insurance;
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(ii) all risks property insurance in respect of the Collateral on a
replacement cost basis;
(iii) business interruption insurance; and
(iv) insurance in respect of such other risks as the Secured Party may
reasonably require from time to time,
all of which policies of insurance shall be in such amounts as may be reasonably
required by the Secured Party and shall include a standard mortgage clause
approved by the Insurance Bureau of Canada, and the Debtor agrees to cause the
interest of the Secured Party to be noted as a loss payee as its interest may
appear on such policies of insurance (except public liability insurance), and to
furnish the Secured Party with certificates of insurance and certified copies of
such policies;
Taxes and Charges
(f) to promptly pay all taxes, assessments, rates, levies, payroll deductions,
workers' compensation assessments, and any other charges which could result in
the creation of a statutory lien or deemed trust in respect of the Collateral;
Further Assurances
(g) to do, make, execute and deliver such further and other assignments,
transfers, deeds, security agreements and other documents as may be required by
the Secured Party to establish, maintain and keep maintained in favour of the
Secured Party and perfect the Security Interest intended to be created hereby
and to accomplish the intention of this Agreement; and
Payment of Expenses
(h) to pay all expenses, including solicitors' fees and disbursements (on a
solicitor and own client basis) and receivers' fees and disbursements, incurred
by the Secured Party or its agents (including any Receiver, as hereinafter
defined) in connection with inspecting the Collateral, investigating title to
the Collateral, the preparation, perfection, preservation, and enforcement of
this Agreement, including taking, recovering and keeping possession of the
Collateral and all expenses incurred by the Secured Party or such agents in
dealing with other creditors of the Debtor in connection with the establishment
and confirmation of the priority of the Security Interest; all of which expenses
shall be payable forthwith upon demand with interest at 24% per annum calculated
monthly, not in advance, (the "Interest Rate") and shall form part of the
Obligations. "Prime" means the annual rate of interest announced from time to
time by the Secured Party as a reference rate then in effect for determining
interest rates on Canadian dollar loans in Canada.
(i) permit the Secured Party and its representatives, at all reasonable times,
access to all its property and to all its books of account and records for the
purpose of inspection, and render all assistance necessary for such inspection;
and
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(j) deliver to the Secured Party from time to time promptly upon request:
(i) all financial statements prepared by or for the Debtor regarding the
Debtor's business; and
(ii) any information concerning the Collateral the Debtor, to protect its
interest in the Collateral, may reasonably require.
11. Events of Default
11.1 The following shall be events of default (the "Events of Default") under
this Agreement:
(a) if the Debtor fails to satisfy or perform any of the Obligations when due
and such default is not remedied within ten business days after receipt by the
Debtor of written notice of such default;
(b) if any representation or warranty made by or on behalf of the Debtor to the
Secured Party is or becomes incorrect or untrue, or the Debtor breaches or fails
to comply with any term of this Agreement, or any other agreement or undertaking
now or hereafter given by the Debtor to the Secured Party;
(c) if the Debtor becomes bankrupt or makes a proposal under the Bankruptcy and
Insolvency Act (Canada) or similar legislation in any jurisdiction, a petition
in bankruptcy is filed against the Debtor, the Debtor makes an assignment for
the benefit of creditors, a trustee, receiver, receiver-manager or similar
procedure is appointed in respect of the Debtor or any of its assets,
proceedings under the Companies' Creditors Arrangement Act (Canada) are
commenced with respect to the Debtor, or steps are taken by or against the
Debtor for the dissolution, liquidation, or winding-up of the affairs of the
Debtor;
(d) if the Debtor ceases or threatens to cease to carry on its business or any
material part thereof as presently carried on, or makes or agrees to make a bulk
sale of its assets;
(e) if an execution or any similar process of any court becomes enforceable
against the Debtor, or a distress or any similar process is levied upon any
property of the Debtor;
(f) if any encumbrance affecting the Collateral becomes enforceable;
(g) if the Secured Party in good faith believes and has commercially reasonable
grounds to believe that the prospect of payment or performance of the
Obligations is or is about to be impaired or that the Collateral is in
jeopardy or is about to be placed in jeopardy and the Secured Party has given
notice of same to the Debtor and the Debtor fails to remedy the situation within
the time period provided in such notice; and
(h) if the Debtor is a corporation, there is, in the opinion of the Secured
Party, a change in control of the Debtor, or if the Debtor is a partnership,
there is a dissolution of the partnership.
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12. Enforcement and Remedies
12.1 Upon the occurrence of one or more Events of Default, the Debtor shall be
in default under this Agreement, the Obligations shall, at the option of the
Secured Party, be immediately due and payable, the Security Interest shall
become enforceable and the floating charge hereof shall crystallize at the
option of the Secured Party. Upon the Security Interest becoming enforceable,
the Secured Party shall have the following remedies in addition to any other
remedies available under the PPSA or otherwise at law or in equity or contained
in any other agreement between the Debtor and the Secured Party, all of which
remedies shall be independent and cumulative:
(a) entry of any premises where Collateral may be located;
(b) possession of Collateral by any method permitted by law;
(c) the sale or lease of all or any part of the Collateral, whether by
public or private sale or lease or otherwise, in such manner, at
such price as can be reasonably obtained, and on such terms as to
credit and with such conditions of sale and stipulations as to title
or conveyance or evidence of title or otherwise as to the Secured
Party may seem reasonable, provided that if any sale, lease, or other
disposition is on credit, the Debtor shall not be entitled to be
credited with the proceeds of any such sale, lease or other disposition
until the monies therefor are actually received; and
(d) the collection of any rents, income, and profits received in connection
with the business of the Debtor or the Collateral;
(e) the collection, realization, sale or other dealing with any Accounts of
the Debtor;
(f) the appointment by instrument in writing of a receiver, or a receiver-
manager (each of which is herein called a "Receiver") of the Collateral
(g) the exercise by the Secured Party of any of the powers set out in ss.
13, without the appointment of a Receiver;
(h) proceedings in any court of competent jurisdiction for the appointment
of a Receiver or for the sale of the Collateral; and
(i) the filing of proofs of claim and other documents in order to have the
claims of the Secured Party lodged in any bankruptcy, winding-up, or
other judicial proceeding relating to the Debtor.
13. Powers of Receiver
13.1 Any Receiver appointed by the Secured Party may be any person licensed as a
trustee under the Bankruptcy and Insolvency Act (Canada), and the Secured Party
may remove any Receiver so appointed and appoint another or others instead. Any
Receiver appointed shall act as agent for the Secured Party for the purposes of
taking possession of the Collateral, and (except as provided below) as agent for
the Debtor for all other purposes, including the
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occupation of any premises of the Debtor and in carrying on the Debtor's
business. For the purposes of realizing upon the Security Interest, the Receiver
may sell, lease, or otherwise dispose of Collateral as agent for the Debtor or
as agent for the Secured Party as it may determine in its discretion. The Debtor
agrees to ratify and confirm all actions of the Receiver acting as agent for the
Debtor, and to release and indemnify the Receiver in respect of all such
actions. Any Receiver so appointed shall have the power:
(a) to enter upon, use, and occupy all premises owned or occupied by the
Debtor;
(b) to take possession of the Collateral;
(c) to carry on the business of the Debtor;
(d) to borrow money required for the maintenance, preservation or
protection of the Collateral or for the carrying on of the business of the
Debtor, and in the discretion of such Receiver, to charge and grant further
security interests in the Collateral in priority to the Security Interest, as
security for the money so borrowed;
(e) to sell, lease, or otherwise dispose of the Collateral in whole or in part
and for cash or credit, or part cash and part credit on such terms and
conditions and in such manner as the Receiver shall determine in its discretion;
(f) to demand, commence, continue or defend any judicial or administrative
proceedings for the purpose of protecting, seizing, collecting, realizing or
obtaining possession or payment of the Collateral, and to give valid and
effectual receipts and discharges therefor and to compromise or give time for
the payment or performance of all or any part of the Accounts or any other
obligation of any third party to the Debtor; and
(g) to exercise any rights or remedies which could have been exercised by the
Secured Party against the Debtor or the Collateral.
14. Performance of Obligations
14.1 If the Debtor fails to perform any of its obligations hereunder, the
Secured Party may, but shall not be obliged to, perform any or all of such
obligations without prejudice to any other rights and remedies of the Secured
Party hereunder, and any payments made and any costs, charges, expenses and
legal fees and disbursements (on a solicitor/client basis) incurred in
connection therewith shall be payable by the Debtor to the Secured Party
forthwith upon demand with interest at the Interest Rate.
14.2 The Debtor agrees that the Secured Party may exercise its rights and
remedies under this Agreement immediately upon default, except as may be
otherwise provided in the Act, and the Debtor expressly confirms that, except as
may be otherwise provided in this Agreement or in the Act, the Secured Party has
not given any covenant, express or implied, and is under no obligation to allow
the Debtor any period of time to remedy any default before the Secured Party
exercises its rights and remedies under this Agreement.
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14.3 22.1 The Debtor irrevocably appoints the Secured Party or the Receiver, as
the case may be, with full power of substitution, to be the attorney of the
Debtor for and in the name of the Debtor to sign, endorse, or execute under seal
or otherwise any deeds, documents, transfers, cheques, instruments, demands,
assignments, assurances, or consents that the Debtor is obliged to sign,
endorse, or execute, and generally to use the name of the Debtor and to do all
things as may be necessary or incidental to the exercise of all or any of the
powers conferred on the Secured Party or the Receiver, as the case may be, under
this Agreement.
15. Failure to Exercise Remedies
15.1 The Secured Party shall not be liable for any delay or failure to enforce
any remedies available to it or to institute any proceedings for such purposes.
The Secured Party may waive any Event of Default, provided that no such waiver
shall be binding upon the Secured Party unless in writing nor shall it affect
the rights of the Secured Party in connection with any other or subsequent Event
of Default.
16. Application of Payments
16.1 All payments made in respect of the Obligations and all monies received by
the Secured Party or any Receiver appointed by the Secured Party in respect of
the enforcement of the Security Interest (including the receipt of any Money)
may be held as security for the Obligations or applied in such manner as may be
determined in the discretion of the Secured Party and the Secured Party may at
any time apply or change any such appropriation of such payments or monies to
such part or parts of the Obligations as the Secured Party may determine in its
discretion. The Debtor shall remain liable to the Secured Party for any
deficiency and any surplus funds realized after the satisfaction of all
Obligations shall be paid in accordance with applicable law.
17. Dealings by Secured Party
17.1 The Secured Party may grant extensions of time and other indulgences,
take and give up securities, accept compositions, grant releases and discharges,
and otherwise deal with the Collateral, the Debtor, debtors of the Debtor,
sureties of the Debtor, and others as the Secured Party may see fit, without
prejudice to the Obligations and the rights of the Secured Party to hold and
realize upon the Security Interest. The Secured Party has no obligation to keep
Collateral identifiable, or to preserve rights against other persons in respect
of any Collateral. The Secured Party shall not be responsible or liable for any
debts contracted by it, for damages to persons or property or for salaries or
non-fulfilment of contracts during any period when the Secured Party shall
manage the Collateral upon entry, as provided in this Agreement, nor shall the
Secured Party be liable to account as mortgagee in possession or for anything
except actual receipts or be liable for any loss on realization or for any
default or omission for which a mortgagee in possession may be liable. The
Secured Party shall not be bound to do, observe, or perform or to see to the
observance or performance by the Debtor of any obligations or covenants imposed
upon the Debtor, nor shall the Secured Party, in the case of Securities,
Instruments, or Chattel Paper, be obliged to preserve rights against other
persons, nor shall the Secured Party be obliged to keep any of the Collateral
identifiable. The Debtor waives any applicable provision of law
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permitted to be waived by it which imposes higher or greater obligations upon
the Secured Party than as contained in this paragraph.
18. Amalgamation by Debtor
18.1 The Debtor covenants that it shall not amalgamate with any other company or
entity without first obtaining the written consent of the Secured Party. The
Debtor hereby acknowledges and agrees that in the event it amalgamates with any
other corporation or corporations, it is the intention of the parties hereto
that the term Debtor, when used herein, shall apply to each of the amalgamating
corporations and to the amalgamated corporation, such that the Security Interest
granted hereby:
(a) shall extend to Collateral (as the term is herein defined) owned by each of
the amalgamating corporations and the amalgamated corporation at the time of
amalgamation and to any Collateral thereafter owned or acquired by the
amalgamated corporation;
(b) shall secure the Obligations (as the term is herein defined) of each of the
amalgamating corporations and the amalgamated corporation to the Secured Party
at the time of amalgamation and any Obligations of the amalgamated corporation
to the Secured Party arising after the amalgamation; and
(c) shall attached to Collateral owned by each corporation amalgamating with the
Debtor, and by the amalgamated corporation, at the time of amalgamation, and
shall attach to any Collateral thereafter owned or acquired by the amalgamated
corporation when such becomes owned or is acquired.
19. Notice
19.1 Without prejudice to any other method of giving notice, any notice required
or permitted to be given hereunder to any party shall be conclusively deemed to
have been received by such party on the date following the sending thereof by
prepaid private courier to such party at its address noted on the first page of
this Agreement.
20. Separate Security
20.1 This Agreement and the Security Interest are in addition to and not in
substitution for any other security now or hereafter held by the Secured Party
in respect of the Debtor, the Obligations or the Collateral.
21. Secured Party Not Obliged to Advance
21.1 Nothing in this Agreement shall obligate the Secured Party to make any loan
or accommodation to the Debtor, or extend the time for payment or satisfaction
of any Obligations.
22. Severability
22.1 If any provision of this Agreement is be deemed by any court of competent
jurisdiction to be invalid or void, the remaining provisions shall remain in
full force and effect.
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23. Time of Essence
23.1 Time is of the essence of this Agreement.
24. Grammatical Changes
24.1 This Agreement is to be read as if all changes in grammar, number and
gender rendered necessary by the context had been made, specifically including a
reference to a person as a corporation and vice-versa.
25. Including
25.1 The word "including", when following any word or words is not to be
construed as limiting the preceding word or words but the preceding word or
words are to be construed as referring to all items or matters that could fall
within the broadest possible interpretation of the preceding word or words.
26. Agreement Unconditional
26.1 There are no representations, warranties or collateral agreements by the
Secured Party to the Debtor relating to the subject-matter hereof and possession
of an executed copy of this Agreement by the Secured Party constitutes
conclusive evidence that it was executed and delivered by the Debtor free of all
conditions.
27. Governing Law; Attornment
27.1 This Agreement shall be interpreted in accordance with the laws of British
Columbia, and, without prejudice to the ability of the Secured Party to enforce
this Agreement in any other proper jurisdiction, the Debtor hereby irrevocably
submits and attorns to the jurisdiction of the courts of British Columbia.
28. Successors and Assigns
28.1 This Agreement and the Obligations may be assigned in whole or in part by
the Secured Party to any person, firm or corporation without notice to or the
consent of the Debtor. This Agreement may not be assigned by the Debtor without
the prior written consent of the Secured Party. This Agreement is binding upon
the parties hereto, and their respective heirs, executors, administrators, legal
personal representatives, successors and permitted assigns; "successors"
includes any corporation resulting from the amalgamation of any corporation with
another corporation.
29. Joint and Several Liability
29.1 If this Agreement has been executed by more than one Debtor, the
obligations of the Debtors shall be joint and several.
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30. Copy of Agreement
30.1 The Debtor acknowledges receipt of an executed copy of this Agreement.
31. Verification Statements; Financing Statements
31.1 The Debtor waives the right to receive any verification statement,
financing statement or financing change statement related to this Agreement or
related to any other security agreement in respect of the Obligations.
31.2 The Debtor authorizes the Secured Party to file such financing statements.
Financing change statements, and other documents, and do such acts, matters, and
things as the Secured Party may deem appropriate, to perfect on an ongoing
bases and Continue the Security Interest, to protect and reserve the Collateral,
and to realize upon the Security Interest.
IN WITNESS WHEREOF, this has been executed, sealed and delivered to, We Debtor
this 4th day of June, 2003,
DYNAMOTIVE ENERGY SYSTEMS CORPORATION
Per:/s/
---------------------------
Authorized Signatory
14
MEMORIAL GIFT TRUST
Per:/s/ ▇▇▇ ▇▇▇▇▇▇▇▇ Date: 6/3/03
------------------------
Authorized Signatory
Per
------------------------
Authorized Signatory
Signed, sealed and delivered by ▇▇▇▇▇
▇▇▇▇▇▇▇ in the presence of
--------------------------- ----------------------------
Witness (Signature) ▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------
Name (please print)
---------------------------
Address
---------------------------
City, Country
---------------------------
Occupation
SCHEDULE A
REAL PROPERTY
I . ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇
2. 105 - ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇
SCHEDULE B
[attach PPSA search]
SCHEDULE C
[attach PPSA registration]
SCHEDULE D
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THE WARRANTS SHALL
NOT TRADE THESE WARRANTS IN CANADA BEFORE THE FIRST ANNIVERSARY OF THE ISSUE
DATE.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE STATE LAWS, AND THIS WARRANT MAY NOT BE EXERCISED, NOR MAY ANY
INTEREST THEREIN BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE
TRANSFERRED, UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION OR SUCH
TRANSACTION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACTS AND LAWS.
Issue Date: August 31, 2003
COMMON SHARE PURCHASE WARRANT SERIES "R"
to acquire Common Shares of
DYNAMOTIVE ENERGY SYSTEMS CORPORATION
(incorporated under laws of the Province of British Columbia)
▇▇▇ - ▇▇▇▇ ▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇ ▇▇▇
THE RIGHT TO PURCHASE COMMON SHARES UNDER THIS WARRANT EXPIRES AT 4:30 P.M.
(VANCOUVER TIME) ON THE FIFTH ANNIVERSARY OF THE ISSUE DATE (THE "EXPIRY DATE").
ANY SHARES ACQUIRED BY EXERCISE PRIOR TO THE FIRST ANNIVERSARY OF THE ISSUE DATE
WILL BE SUBJECT TO RESALE RESTRICTIONS IN CANADA UNTIL THAT DATE AND WILL BEAR A
LEGEND TO THIS EFFECT.
Warrant Certificate CERTIFICATE FOR 2,000,000 Warrants, each Warrant
No. I entitling the holder thereof to acquire one Common
Share
THIS IS TO CERTIFY THAT,
Memorial Gift Trust
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(the "Holder") is the registered holder of the number of common share purchase
warrants (the "Warrants") of DYNAMOTIVE ENERGY SYSTEMS CORP. (the "Company") set
forth above, and is entitled, on exercise of these Warrants upon and subject to
the terms and conditions set forth herein, to purchase that number of Common
Shares at any time prior to 4:30 p.m. (Vancouver time) on the Expiry Date at a
price of US$0.20 per Common Share or on a cash-less basis upon the terms and
conditions hereinafter set forth.
The rights represented by this Warrant may be exercised by the Holder hereof, in
whole or in part and from time to time (but not for any fractional Common Share)
by surrendering this Warrant and the attached Warrant Exercise Form, duly
executed, to the offices of the Company with (i) cash or a bank draft, certified
cheque or money order payable to "DYNAMOTIVE ENERGY SYSTEMS CORP." for US$0.20
per Common Share to be acquired; or (ii) with notice of cash-less exercise
completed..
2
Notwithstanding the foregoing, the Warrants may not be transferred into or
within the United States or to or for the account or benefit of any person
within the United States or to any "U.S. Person" within the meaning of
Regulation S under the U.S. Securities Act without evidence satisfactory to the
Company of compliance with U.S. securities laws.
The Company covenants and agrees that all Common Shares which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
fully paid and non-assessable and free of all liens, charges and encumbrances.
The Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized and reserved, a sufficient number of Common Shares to
provide for the exercise of the rights represented by this Warrant.
THE FOLLOWING ARE THE TERMS AND CONDITIONS REFERRED TO IN THIS WARRANT:
I. As used herein, the term "Common Shares" shall mean and include the Company's
presently authorized common shares and shall also include any capital stock of
any class of the Company hereafter authorized which shall not be limited to a
fixed sum or percentage in respect of the rights of the Holders thereof to
participate in dividends and in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding-up of the Company.
2. In case the Company shall at any time subdivide its outstanding Common Shares
into a greater number of shares, the Warrant exercise price shall be
proportionately decreased and the number of subdivided Common Shares entitled to
be purchased proportionately increased, and conversely, in case the outstanding
Common Shares of the Company shall be consolidated into a smaller number of
shares, the Warrant purchase price shall be proportionately increased and the
number of combined Common Shares entitled to be purchased hereunder shall be
adjusted accordingly.
3. If any capital reorganization, reclassification or consolidation of the
capital stock of the Company, or the merger or amalgamation of the Company with
another corporation shall be effected, then as a condition of such
reorganization, reclassification, consolidation, merger or amalgamation,
adequate provision shall be made whereby the Holder hereof shall have the right
to purchase and receive upon the basis and upon the terms and conditions
specified in this Warrant and in lieu of the Common Shares immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such shares of stock, or other securities as may be issued
with respect to or in exchange for such number of outstanding Common Shares
equal to the number of Common Shares purchasable and receivable upon the
exercise of this Warrant had such reorganization, reclassification,
consolidation, merger or amalgamation taken place immediately after such
exercise. The Company shall not effect any merger or amalgamation unless prior
to or simultaneously with the consummation thereof the successor corporation (if
other than the Company) resulting from such merger or amalgamation shall assume
by written instrument executed and mailed or delivered to the Holder of this
Warrant the obligation to deliver to such Holder such Common Shares of stock or
securities in accordance with the foregoing provisions.
3
4. In case at any time:
(a) the Company shall pay any dividend payable in stock upon its common
shares or make any distribution to the Holders of its Common Shares;
(b) the Company shall offer for subscription pro rata to the Holders of its
Common Shares any additional shares of stock of any class or other
rights;
(c) there shall be any capital reorganization, or reclassification of the
capital stock of the Company, or consolidation or merger or amalgamation
of the Company with, or sale of all or substantially all of its assets
to, another corporation; or
(d) there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then, and in any one or more of such cases, the Company shall give to the Holder
of this Warrant, at least twenty days' prior written notice of the date on which
the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights, or for determining rights to vote
with respect to such reorganization, reclassification, consolidation, merger or
amalgamation, dissolution, liquidation or winding-up and in the case of any such
reorganization, reclassification, consolidation, merger or amalgamation,
dissolution, liquidation or winding-up, at least twenty days' prior written
notice of the date when the same shall take place. Such notice in accordance
with the foregoing clause, shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the Holders of Common
Shares shall be entitled thereto, and such notice in accordance with the
foregoing shall also specify the date on which the Holders of Common Shares
shall be entitled thereto, and such notice in accordance with the foregoing
shall also specify the date on which the Holders of Common Shares shall be
entitled to exchange their Common Shares for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger or
amalgamation, dissolution, liquidation or winding-up as the case may be. Each
such written notice shall be given by first class mail, registered postage
prepaid, addressed to the Holder of this Warrant at the address of such Holder,
as shown on the books of the Company.
5. This Warrant in and of itself shall not entitle the Holder hereof to
any rights as a shareholder of the Company, including without limitation, voting
rights.
6. This Warrant and all rights hereunder are transferable in Canada from and
after the first anniversary of the Issue Date. The Company may require as a
condition to any consent to transfer this Warrant made thereafter an opinion of
counsel in the jurisdiction of residence of the transferee and/or transferor
that the proposed transfer is in compliance with the applicable securities laws.
7. This Warrant is exchangeable, upon the surrender hereof by the Holder hereof
at the offices of the Company, for new Warrants of like tenor representing in
aggregate the right to subscribe for and purchase the number of Common Shares
which may be subscribed for and purchased hereunder, each of such new Warrants
to represent the right to subscribe for and
4
purchase such number of Common Shares as shall be designated by such Holder
hereof at the time of such surrender.
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 Common Shares not so
purchased.
IN WITNESS WHEREOF DYNAMOTIVE ENERGY SYSTEMS CORP. has caused this Warrant
Certificate to be duly signed and it shall bear the Issue Date, notwithstanding
its ' later date of actual issue or reissue of a certificate for a lesser number
of Warrants.
DYNAMOTIVE ENERGY SYSTEMS CORP.
By:/s/
-------------------------------
Authorized Signatory
WARRANT EXERCISE FORM
To: DYNAMOTIVE ENERGY SYSTEMS CORPORATION
▇▇▇ - ▇▇▇▇ ▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇ ▇▇▇
1 The undersigned Holder of the within Warrant Certificate hereby subscribes
for common shares ("Common Shares") of DYNAMOTIVE ENERGY SYSTEMS CORP.
(or such number of Common Shares or other securities or property to which such
subscription entitles him in lieu thereof or in addition thereto under the
provisions of the Warrant Certificate) at the price determined under, and on the
terms specified in, the Warrant Certificate and encloses herewith cash or a bank
draft, certified cheque or money order payable at par to or to the order of
DYNAMOTIVE ENERGY SYSTEMS CORP. in payment therefor at the rate of US$0.20 per
Common Share.
2. The undersigned is aware that any shares acquired by exercise of the Warrant
before the First Anniversary of the Issue Date will bear the following legends:
"Unless permitted under securities legislation, the holder of the securities
shall not trade the securities in Canada before the First Anniversary of the
Issue Date.
3.If the undersigned is a U.S. person, he is aware that the certificate issuable
hereunder will bear the following legend:
"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"). The holder hereof, by purchasing such securities, agrees for the benefit
of the Issuer that such securities may be offered, sold, pledged or otherwise
transferred only (a) outside the United States in accordance with Rule 904 of
Regulation S under the U.S. Securities Act if applicable, (b) inside the United
Sates (1) pursuant to 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 (2) in a transaction that
does not require registration under the U.S. Securities Act or any applicable
State laws and regulations governing the offer and sale of securities, and the
holder has prior to such sale furnished to the Company an opinion of counsel."
4. Cash-less Exercise:
The holder hereby elects cash less exercise for the maximum number or
(indicate percentage).
The holder may exercise this warrant without further cash payment for a number
of Common Shares calculated as:
[(A-B)x C]-A
2
where A = Market Value of Company's Common Shares
B = US$0.20
C = Number of unexercised warrants remaining on this certificate
Market Value of Company's Common Shares shall be the five day weighted average
closing trade price of the Company's shares on the OTC bulletin board or other
exchange on the day prior to the date of the exercise notice, provided that at
least one trade occurred during that five day period. If no trades have occurred
during the five day period on the day prior to the date of the exercise notice,
Market Value shall be the five day weighted average closing trade price of the
Company's shares on the OTC bulletin board or other exchange ending on the day
that the last trade on the OTC bulletin board occurred prior to the date of the
exercise notice. If at the time of exercise, the Company's Common Shares are not
traded on the OTC bulletin board or other exchange, then the Market Value shall
be the value of the Company's Common Shares used in any bona fide sale
transaction in the Company's Common Shares between two unrelated third parties.
Unless marked to the contrary, this Warrant will be exercised for the maximum
number of Common Shares.
5. The undersigned hereby irrevocably directs that the said Common Shares be
issued and delivered as follows:
Number(s) of
Names(s) in Full Address(es) (Include Postal Code) Common Shares
---------------- ---------------------------------- ---------------
---------------- ---------------------------------- ---------------
(Please print full name in which share certificates are to be issued. If any
shares are to be issued to a person or persons other than the Warrantholder, the
Warrantholder must pay to the Trustee all exigible transfer taxes or other
government charges.)
DATED this day of
-------------- ---------------, -----------
(If Common Shares are being
registered to other than the
registered warrantholder a
signature guarantee is required.)
----------------------- ------------------------
Signature Guaranteed By: Signature of Subscriber*
------------------------
Name of Subscriber
------------------------
Address of Subscriber
(Include Postal Code)
* This signature must correspond exactly with the name appearing on the first
page.
Please check box if the share certificates are to be delivered (at subscriber's
expense) failing which the certificates will be mailed.
SCHEDULE E
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into as of June
3, 2003 by and among Dynamotive Energy systems Corporation., a Canadian
corporation (the "Company"), Memorial Gift Trust ("MGT") u/t/a dated December 6,
1995, and ▇▇▇▇▇ ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇" and, collectively with MGT, the "Lender").
MGT, ▇▇▇▇▇▇▇, or any of their assignees, are hereinafter referred to as the
"Holder".
RECITALS
--------
A. The Company and Lender have entered into that certain loan transaction
evidenced by a Loan Agreement, Secured Promissory Note and General Security
Agreement, of even date herewith (the "Loan Documents"), pursuant to which the
Company is obligated to issue to the Lender warrants (the "Warrants")
exercisable for an aggregate 2,500,000 shares of the Company's common shares
(the "Warrant Shares"); and
B. The consummation of the transactions contemplated by the Loan Documents is
conditioned upon the Company's extension to the Holder of the rights set forth
herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises set forth in this Agreement, the parties hereto agree as follows:
I. General.
--------
1.1 Definitions. As used in this Agreement, the following terms shall have
the following respective meanings:
"Affiliate" shall have the meaning set forth in Rule 405 under the Securities
Act.
"Change in Control" shall mean (1) any consolidation or merger of the Company
with or into any other corporation or other entity or person, or any other
corporate reorganization, in which the Company shall not be the continuing or
surviving entity of such consolidation, merger or reorganization and the holders
of the Company's outstanding capital stock immediately preceding such event own
less than fifty percent (50%) of the outstanding capital stock of the surviving
corporation, or any transaction or series of related transactions by the Company
in which in excess of fifty percent (50%) of the Company's voting power is
transferred; or (2) a sale, lease, license or other disposition of all or
substantially all of the assets of the Company.
"Holder" means MGT, ▇▇▇▇▇▇▇ and any of their assignees.
1
"NASD" means the National Associate of Securities Dealers.
"Register," "registered," and "registration" refer to a registration effected by
preparing and filing a registration statement in compliance with the Securities
Act and applicable rules and regulations thereunder, and the declaration or
ordering of effectiveness of such registration statement or document.
"Registrable Securities" means all Warrants and Warrant Shares (whether issued
or issuable under Warrants) now or hereafter held by the Holder.
"Registration Expenses" shall have the meaning set forth in Sections 2.2 hereof.
"Securities Act" shall mean the United States Securities Act of 1933, as
amended.
"SEC" means the Securities and Exchange Commission.
2. Piggyback Registration Rights
------------------------------
2.1 Piggyback Registrations.
(a) The Company shall notify the Holder in writing at least thirty (30) days
prior to the filing of any registration statement under the Securities Act or
applicable securities laws of Canada or British Columbia (referred to herein as
"Canadian Securities Laws") for purposes of a public offering of securities of
the Company in the United States or Canada (including, but not limited to,
registration statements in connection with secondary offerings of securities of
the Company on behalf of the Company or any other holder of the Company's
securities) and will afford the Holder an opportunity to include in such
registration statement all or part of the Registrable Securities held by the
Holder. If Holder desires to include in any such registration statement all or
any part of the Registrable Securities held by it, then Holder shall, within
fifteen (15) days after receipt of the above-described notice from the Company,
so notify the Company in writing. Such notice shall state the intended method of
disposition of the Registrable Securities by the Holder. If the Holder decides
not to include all of its Registrable Securities in any registration statement
thereafter filed by the Company, the Holder shall nevertheless continue to have
the right to include any Registrable Securities in any subsequent registration
statement or registration statements as may be filed by the Company with respect
to offerings of its securities, all upon the terms and conditions set forth
herein.
(b) If the Registrable Securities that are the subject of the registration
statement to be filed pursuant to this Section 2.1 are to be distributed by
means of an underwriting, the Holder shall further have the right to participate
in the underwriting. If Holder proposes to distribute its Registrable Securities
through such underwriting, then it shall enter into an underwriting agreement in
customary form with the
2
underwriter or underwriters selected for such underwriting. If the Holder
disapproves of the terms of the underwriting, Holder may elect to sell the
Holder's Registrable Securities pursuant to such registration statement, but
without the benefit of an underwriter or Holder may elect to withdraw therefrom
by written notice to the Company. Notwithstanding any other provision of this
Agreement, if the underwriter(s) determine in good faith that marketing factors
require a limitation of the number of shares to be underwritten at the price and
upon the terms approved by or on behalf of the Company, the number of shares
that may be included in the underwriting shall be reduced to that number of
shares that the underwriters determine in their sole discretion will not
jeopardize the offering. In such case, the securities to be included in the
registration shall be reduced in the following order: (i) first, any securities
that are not Registrable Securities pro rata among the holders of such
securities in proportion (as nearly as practicable) to the amount of securities
owned by each holder requesting inclusion therein, (ii) second, the Registrable
Securities requested to be included therein by the Holder; but in no event shall
the amount of Registrable Securities included in the offering be reduced below
twenty five percent (25%) of the total amount of securities included in such
offering, and (iii) third, the securities the Company proposes to be included
therein
2.2 Expenses of Registration. All expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 2.1, herein shall
be borne by the Company including, without limitation (i) all registration and
filing fees, all fees and expenses associated with filings required to be made
with the NASD, as may be required by rules and regulations of the NASD (other
than fees required in excess of fees which would otherwise pertain in the event
that Shareholders is a member of the NASD), fees and expenses of compliance with
securities or blue sky laws and Canadian Securities Laws (including fees and
disbursements of counsel in connection with blue sky qualifications for the
Shares), if any, rating agency fees, printing expenses (including expenses of
printing certificates for the Shares in a form eligible for deposit with the
Depository Trust Company and of printing prospectuses, messenger and delivery
expenses, (ii) internal expenses (including, without limitation, all salaries
and expenses of their officers and employees performing legal or accounting
duties), (iii) fees and expenses of counsel for the Company and its independent
certified public accountants; (iv) printing and related costs; and (v) any
direct out-of-pocket expenses of Shareholders, including fees and expenses of
counsel or accountants for the Shareholders (collectively, the "Registration
Expenses") will be borne by the Company. The Holder shall solely be responsible
for, any underwriting discounts or commissions attributable to the sale of the
Registrable Shares. In the event that following effectiveness of the
Registration Statement, it becomes necessary for the Company to prepare and file
a supplemental prospectus or amended prospectus in order to maintain the
effectiveness of such Registration Statement, the Company shall pay all
Registration Expenses associated with the supplemental or amended Prospectus to
be distributed in connection with sales of their securities pursuant thereto.
3
2.3 Obligations of the Company. Whenever required to effect the registration of
any Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC (or as otherwise required under Canadian
Securities Law with respect to any offering in Canada) a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to be declared effective, and, upon the request of
the Holder, keep such registration statement effective for up to 180 days.
(b) Prepare and file with the SEC (or as otherwise required under Canadian
Securities Law with respect to any offering in Canada) such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act and Canadian Securities Law, with respect to
the disposition of all securities covered by such registration statement;
provided that, nothing herein shall require the Company to keep a registration
statement effective for more than 120 days.
(c) Furnish to the Holder such number of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act or Canadian Securities Law, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(d) Use its best efforts to register and qualify the securities covered by such
registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holder, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such jurisdictions.
(e) In the event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter(s) of such offering. The Holder shall also enter into
and perform its obligations under such an agreement.
(f) Notify the Holder any time when a prospectus relating thereto is required to
be delivered under the Securities Act or Canadian Securities Law of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
(g) Furnish, at the request of the Holder, on the date that such Registrable
Securities are delivered to the underwriter(s) for sale, if such securities are
4
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to the Holder, addressed to the
underwriter(s) and (ii) a letter dated as of such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering and reasonably satisfactory to the Holder,
addressed to the underwriter(s).
(h) Cause all such Registrable Securities registered pursuant hereunder to be
listed on each securities exchange on which similar securities issued to the
Company are then listed.
2.4 Delay of Registration. The Holder shall not have any right to obtain or seek
an injunction resisting or otherwise delaying any such registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.
2.5 Indemnification. In the event any Registrable Securities are included in a
registration statement under Section 2.1:
(a) To the extent permitted by law, the Company will indemnify and hold harmless
the Holder, the partners, officers, directors, legal counsel and accountants of
the Holder, any underwriter (as defined in the Securities Act) for the Holder
and each person, if any, who controls the Holder or underwriter within the
meaning of the Securities Act or the United States Securities Exchange Act of
1934, as amended, (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the 1934 Act, any applicable Canadian Securities Law or other
U.S., Canadian , provincial or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any Canadian
Securities Law, provincial or state securities law or any rule or regulation
promulgated under the Securities Act, the 1934 Act, Canadian Securities Labor
any provincial or state securities law in connection with the offering covered
by such registration statement; and the Company will reimburse the Holder,
partner, officer, director, legal counsel, accountant, underwriter or
controlling person for any legal or
5
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 2.5(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration statement by the Holder or any partner, officer,
director, underwriter or controlling person of the Holder.
(b) To the extent permitted by law, the Holder will indemnify and hold harmless
the Company, each of its partners, directors, officers, legal counsel and
accountants, each person, if any, who controls the Company within the meaning of
the Securities Act or the 1934 Act and any underwriter, against any losses,
claims, damages or liabilities (joint or several) to which the Company or any
such director, officer, controlling person, or underwriter who may become
subject under the Securities Act, the 1934 Act, , any applicable Canadian
Securities Law or other U.S., Canadian , provincial or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by or on behalf of the Holder
under an instrument duly executed by the Holder and stated to be specifically
for use in connection with such registration statement; and the Holder will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, legal counsel, accountant, controlling person, or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 2.5(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 2.5
exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section 2.5 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 2.5, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained
6
by the indemnifying party would be inappropriate due to actual or potential
conflicting interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if materially prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
under this Section 2.5, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 2.5.
(d) If the indemnification provided for in this Section 2.5 is held by a court
of competent jurisdiction to be unavailable to an indemnified party with respect
to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the Violation(s) that resulted in such loss, claim, damage or
liability. The relative fault of the indemnifying party and of the indemnified
party shall be determined by a court of law by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
(f) The obligations of the Company and Holder under this Section 2.4 shall
survive the completion of any offering of Registrable Securities in a
registration statement or otherwise.
2.6 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 2 may be transferred or
assigned by the Holder to a transferee or assignee of Registrable Securities.
2.7 Amendment of Registration Rights. Any provision of this Section 2 may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written mutual consent of the Company and the Holder, either of which may
withhold its consent in it sole discretion. By acceptance of any benefits under
this Section 2, the Holder hereby agrees to be bound by the provisions
hereunder.
7
2.8 Limitation on Subsequent Registration Rights. From and after the date of
this Agreement, the Company shall not, without the prior written consent of the
Holder enter into any agreement with any holder or prospective holder of any
securities of the Company which would provide registration rights to such holder
or prospective holder that are superior to the registration rights granted to
the Holder under Section 2.1 of this Agreement, without also providing such
superior registration rights to the Holder.
2.9 Termination of Registration Rights. The Holder shall not be entitled to
exercise any right provided for in this Section 2 after five (5) years have
expired from the date of this Agreement.
3. Covenants of the Company.
-------------------------
3.1 Corporate Existence. The Company will maintain its corporate existence and
use best efforts to comply with all laws, government regulations, rules and
ordinances and judicial orders, judgments and decrees applicable and material to
the Company, its business and properties.
3.2 Basic Financial Information and Reporting.
(a) The Company will maintain true books and records of account in which full
and correct entries will be made of all its business transactions pursuant to a
system of accounting established and administered in accordance with generally
accepted accounting principles consistently applied, and will set aside on its
books all such proper accruals and reserves as shall be required under generally
accepted accounting principles consistently applied.
(b) The Company will furnish to Holders as soon as practicable after the end of
each fiscal year of the Company, and in any event within 140 days thereafter, a
balance sheet of the Company, as of the end of such fiscal year, and statements
of income and cash flows of the Company for such year, all prepared in
accordance with generally accepted accounting principles consistently applied,
and audited and certified by independent public accountants selected by the
Company's Board of Directors.
(c) The Company will furnish to Holders as soon as practicable after the end of
the first, second and third quarterly accounting periods in each fiscal year of
the Company, and in any event within 60 days thereafter, an unaudited balance
sheet of the Company as of the end of each such quarterly period, and unaudited
statements of income and cash flows of the Company for such period and for the
current fiscal year to date (a "Quarterly Report"), all prepared in accordance
with generally accepted accounting principles consistently applied, with the
exception that no notes need be attached to such statements and year-end audit
adjustments may not have been made.
8
3.3 Inspection Rights. The Company shall permit Holders, at the Holders'
expense, to visit and inspect the Company's properties, to examine its books of
account and records and to discuss the Company's affairs, finances and accounts
with its officers, all at such reasonable times as may be requested by Holders.
3.4 Pooling and Escrow Restrictions. In the event that the Company proposes to
effect a public offering under Canadian Securities Law, it will use all
commercially reasonable efforts to exclude the Holders' Common Shares from
pooling and escrow restrictions, or if such restrictions are required as a
condition of issuing a receipt for a prospectus or required by the lead
underwriters of the Initial Public Offering, then to obtain most favorable
treatment for the Investors' Common Shares and to mitigate the adverse effects
of any pooling and escrow requirements on each Investor. The Company agrees that
commercially reasonable efforts will include, without limitation, selecting
escrow treatment (as between the policy statements of the Ontario Securities
Commission and the Founder's Stock Policy of The Toronto Stock Exchange) most
favorable to the Investors if such a policy choice is available to the Company,
and obtaining such exemption orders, decisions, rulings or interpretations of
any of the securities regulators or stock exchanges that may reasonably be
expected to be granted or given if applied for; provided that nothing herein
will be construed as obligating the Company to abandon a Toronto Stock Exchange
listing.
3.5 Canadian Public Offering. Subject to all regulatory requirements, the
Company will arrange for the listing of any outstanding Warrants and Warrant
Shares in the prospectus or other securities disclosure document in respect of
any public offering of shares or other securities of the Company under Canadian
Securities Law, and the Company will seek approval for the escrow period of any
Warrant Shares issued on the exercise of the Warrants to commence on the date of
acceptance of the prospectus and not from the date of exercise of the Warrant.
In the event of a public listing being completed by merger, amalgamation,
reverse takeover of another company or any method other than a public offering,
the Company will ensure that the Holders will be left in substantially the same
position after such merger, amalgamation, reverse takeover or other method of
obtaining a public listing, as if an initial public offering had occurred. The
Company further agrees that in the event any of its securities are listed on a
Canadian stock exchange, the Company will also list the Warrant Shares for
trading on such exchange, at its own expense, and take such further actions as
will permit the Holders to trade the Warrant Shares on such exchange.
4. Representations and Warranties.
--------------------------------
Company and Holder represent and warrant to one another as follows:
4.1 Holder has full power and authority to execute, deliver and perform this
Agreement and the transactions contemplated hereby, and this Agreement has been
duly authorized, executed and delivered by Holder and constitutes a legal, valid
and binding obligation of Holder, enforceable against it in accordance with its
terms except as the
9
same may be limited by bankruptcy, insolvency, reorganization or other laws
relating to or affecting creditors' rights generally.
4.2 No consent, approval, authorization, order, registration or qualification of
or with any court or government agency or body having jurisdiction over Holder,
is required for the execution, delivery and performance of this Agreement by
Holder.
4.3 The execution, delivery and performance of this Agreement by Holder has been
approved by all necessary action, corporate or otherwise, and neither the
execution, delivery nor performance of this Agreement will conflict with or
result in a material breach of or default under any of the terms or provisions
of its certificate of incorporation, bylaws, any statute, order, rule or
regulation of any court or government agency or body having jurisdiction over
Holder or any indenture, mortgage, deed of trust, loan agreement or other
material agreement to which Holder is a party.
4.4 Company has full power and authority to execute, deliver and perform this
Agreement and the transactions contemplated hereby, and this Agreement has been
duly authorized, executed and delivered by Company and constitutes a legal,
valid and binding obligation of Company, enforceable against it in accordance
with its terms except as the same may be limited by bankruptcy, insolvency,
reorganization or other laws relating to or affecting creditors' rights
generally.
4.5 No consent, approval, authorization, order, registration or qualification of
or with any court or government agency or body having jurisdiction over Company,
is required for the execution, delivery and performance of this Agreement by
Company.
4.6 The execution, delivery and performance of this Agreement by Company has
been approved by all necessary action, corporate or otherwise, and neither the
execution, delivery nor performance of this Agreement will conflict with or
result in a material breach of or default under any of the terms or provisions
of its certificate of incorporation, bylaws, any statute, order, rule or
regulation of any court or government agency or body having jurisdiction over
Company or any indenture, mortgage, deed of trust, loan agreement or other
material agreement to which Company is a party.
5. Miscellaneous.
--------------
5.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of California concerning contracts made and to be
whollyperformed in that jurisdiction, without regard to conflicts of law
principles. The parties agree to resolve any and all disputes arising under this
Agreement in the manner provided in the Loan Documents.
10
5.2 Survival. The representations, warranties, covenants, and agreements made
herein shall survive the execution and delivery hereof and the closing of the
transactions contemplated hereby.
5.3 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
5.4 Successors and Assigns. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by the Company and Holder
from time to time. Upon a Change in Control of the Company, the Company shall
require any successor-in-interest of the Company to assume the obligations of
the Company under this Agreement. Nothing herein shall be construed as making
the Warrants or Warrant Shares transferable except pursuant to a valid
registration.
5.5 Entire Agreement. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and no party shall be liable or bound to any other in any manner
by any representations, warranties, covenants and agreements except as
specifically set forth herein. In the event of a conflict between the terms and
conditions of this Agreement and the Loan Documents, the terms and conditions of
this Agreement shall prevail insofar as such conflict relates to the subject
matter of this Agreement.
5.6 Severability. In the event one or more of the provisions of this Agreement
should, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provisions of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein.
5.7 Expenses. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
5.8 Amendment and Waiver.
---------------------
(a) This Agreement may be amended or modified only upon the written consent
of the Company and the Holder.
(b) The obligations of the Company and the rights of the Holder under this
Agreement may be waived only with the written consent of the Holder. The
11
obligations of the Holder under this Agreement and rights of the Company under
this Agreement may be waived only with the prior written consent of the Company.
(c) Notwithstanding the foregoing, if the Company grants any person registration
rights which are more favorable to such person than the rights granted to the
Holder pursuant to Section 2 hereof, respectively (the "Superior Registration
Rights"), then Section 2, as the case may be, shall be deemed automatically
amended, without any further action by the Company or the Holder, such that the
rights granted to the Holder in Section 2, as the case may be, shall fully
conform with and be equal in all respects to the Superior Registration Rights.
5.9 Notices. All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (i) upon personal delivery to the party to be
notified, (ii) when sent by confirmed facsimile if sent during normal business
hours of the recipient; if not, then on the next business day, (iii) five (5)
days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (iv) two (2) days after deposit with a nationally
recognized overnight courier, with written verification of receipt. All
communications shall be sent to the party to be notified at the address as set
forth on the signature pages hereof or at such other address as such party may
designate by ten (10) days advance written notice to the other party hereto.
5.10 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
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[N WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth in the first paragraph hereof
COMPANY HOLDER:
--------------------------------------- ----------------------------
DYNAMOTIVE ENERGY SYSTEMS MEMORIAL GIFT TRUST
CORPORATION
By:/s/▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ By:/s/ ▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------- ------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Name: ▇▇▇ ▇▇▇▇▇▇▇▇
Title: President and CEO Title: Trustee
Address for Notices: Address for Notices:
--------------------- --------------------------------
Attention: c/o ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------- ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
--------------------- Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone Telephone: ▇▇▇ ▇▇▇ ▇▇▇▇
Facsimile: Facsimile: ▇▇▇ ▇▇▇-▇▇▇▇
By:/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
Address for Notices:
---------------------------------
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇ ▇▇▇-▇▇▇▇
Facsimile: ▇▇▇ ▇▇▇-▇▇▇▇
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