PERFORMANCE SHARES ESCROW AGREEMENT
THIS AGREEMENT is dated for reference the 17th day of August, 1995 and
made
AMONG:
MONTREAL TRUST COMPANY OF CANADA, of Montreal Trust
Company of Canada, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
(the "Escrow Agent")
AND:
MINCO MINING AND METALS CORPORATION, a British Columbia
company, having its registered and records office at
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇;
(the "Issuer")
AND:
EACH SHAREHOLDER, as defined in this Agreement;
(collectively, the "Parties").
WHEREAS the Shareholder has acquired or is about to acquire shares of the
Issuer;
AND WHEREAS the Escrow Agent has agreed to act as escrow agent in
respect of the shares upon the acquisition of the shares by the Shareholder;
NOW THEREFORE in consideration of the covenants contained in this agreement
and other good and valuable consideration (the receipt and sufficiency of which
is acknowledged), the Parties agree as follows:
1. INTERPRETATION
In this agreement:
(a) "Acknowledgment" means the acknowledgment and agreement to be bound in
the form attached as Schedule "A" to this agreement;
(b) "Act" means the Securities Act, S.B.C. 1985, c. 83;
(c) "Exchange" means the Vancouver Stock Exchange;
(d) "IPO" means the initial public offering of common shares of the Issuer
under a prospectus which has been filed with, and for which a receipt has been
obtained from, the Superintendent under section 42 of the Act;
(e) "Local Policy Statement 3-07" means the Local Policy Statement 3-07 in
effect as of the date of reference of this agreement and attached as Schedule
"B" to this agreement;
(f) "Shareholder" means a holder of shares of the Issuer who executes this
agreement or an Acknowledgment;
(g) "Shares" means the shares of the Shareholder described in Schedule "C"
to this agreement, as amended from time to time in accordance with section 9;
(h) "Superintendent" means the Superintendent of Brokers appointed under
the Act; and
(i) "Superintendent or the Exchange" means the Superintendent, if the
shares of the Issuer are not listed on the Exchange, or the Exchange, if the
shares of the Issuer are listed on the Exchange.
2. PLACEMENT OF SHARES IN ESCROW
The Shareholder places the Shares in escrow with the Escrow Agent and shall
deliver the certificates representing the Shares to the Escrow Agent as soon as
practicable.
3. VOTING OF SHARES IN ESCROW
Except as provided by section 4(a), the Shareholder may exercise all voting
rights attached to the Shares.
4. WAIVER OF SHAREHOLDER'S RIGHTS
The Shareholder waives the rights attached to the Shares
(a) to vote the Shares on a resolution to cancel any of the Shares,
(b) to receive dividends, and
(c) to participate in the assets and property of the Issuer on a
winding up or dissolution of the Issuer.
5. ABSTENTION FROM VOTING AS A DIRECTOR
A Shareholder that is or becomes a director of the Issuer shall abstain
from voting on a directors' resolution to cancel any of the Shares.
6. TRANSFER WITHIN ESCROW
(a) The Shareholder shall not transfer any of the Shares except in
accordance with Local Policy Statement 3-07 and with the consent
of the Superintendent or the Exchange.
(b) The Escrow Agent shall not effect a transfer of the Shares within
escrow unless the Escrow Agent has received
(i) a copy of an Acknowledgment executed by the person to whom
the Shares are to be transferred, and
(ii) a letter from the Superintendent or the Exchange consenting
to the transfer.
(c) Upon the death or bankruptcy of a Shareholder, the Escrow Agent
shall hold the Shares subject to this agreement for the person
that is legally entitled to become the registered owner of the
Shares.
(d) In the event the Shareholder ceases to be a principal or a
promoter of the Issuer, he shall be entitled to retain all of the
Shares and shall not be obligated to sell, transfer or otherwise
assign the Shares to anyone.
7. RELEASE FROM ESCROW
(a) The Shareholder irrevocably directs the Escrow Agent to retain
the Shares until the Shares are released from escrow pursuant to
subsection (2) or surrendered for cancellation pursuant to
section 8.
(b) The Escrow Agent shall not release the Shares from escrow unless
the Escrow Agent has received a letter from the Superintendent or
the Exchange consenting to the release.
(c) The approval of the Superintendent or the Exchange to a release
from escrow of any of the Shares shall terminate this agreement
only in respect of the Shares so released.
8. SURRENDER FOR CANCELLATION
The Shareholder shall surrender the Shares for cancellation and
the Escrow Agent shall deliver the certificates representing the Shares to the
Issuer
(a) at the time of a major reorganization of the Issuer, if required as a
condition of the consent to the reorganization by the Superintendent
or the Exchange,
(b) where the Issuer's shares have been subject to a cease trade order
issued under the Act for a period of 2 consecutive years,
(c) any shares not released from the escrow hereby created before the
expiration of five years from the date the Exchange accepts this
agreement for filing shall be surrendered by the shareholder for
cancellation forthwith and the Company and the Escrow Agent hereby
agree to take all such actions as may be necessary to expeditiously
effect such cancellation,
(d) where required by section 6(4).
9. AMENDMENT OF AGREEMENT
(a) Subject to subsection (2), this agreement may be amended only by a
written agreement among the Parties and with the written consent of
the Superintendent or the Exchange.
(b) Schedule "C" to this agreement shall be amended upon
(i) a transfer of Shares pursuant to section 6,
(ii) a release of Shares from escrow pursuant to section 7, or
(iii)a surrender of Shares for cancellation pursuant to section 8,
and the Escrow Agent shall note the amendment on the Schedule "C"
in its possession.
10. INDEMNIFICATION OF ESCROW AGENT
The Issuer and the Shareholders, jointly and severally, release,
indemnify and save harmless the Escrow Agent from all costs, charges, claims,
demands, damages, losses and expenses resulting from the Escrow Agent's
compliance in good faith with this agreement.
11. RESIGNATION OF ESCROW AGENT
(a) If the Escrow Agent wishes to resign as escrow agent in respect of the
Shares, the Escrow Agent shall give notice to the Issuer.
(b) If the Issuer wishes the Escrow Agent to resign as escrow agent in
respect of the Shares, the Issuer shall give notice to the Escrow
Agent.
(c) A notice referred to in subsection (1) or (2) shall be in writing and
delivered to
(i) the Issuer at ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇; or
(ii) the Escrow Agent at 830 - ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
and the notice shall be deemed to have been received on the date
of delivery. The Issuer or the Escrow Agent may change its address for notice by
giving notice to the other party in accordance with this subsection.
(d) A copy of a notice referred to in subsection (1) or (2) shall
concurrently be delivered to the Superintendent or the Exchange.
(e) The resignation of the Escrow Agent shall be effective and the Escrow
Agent shall cease to be bound by this agreement on the date that is
180 days after the date of receipt of the notice referred to in
subsection (1) or (2) or on such other date as the Escrow Agent and
the Issuer may agree upon (the "resignation date").
(f) The Issuer shall, before the resignation date and with the written
consent of the Superintendent or the Exchange, appoint another escrow
agent and that appointment shall be binding on the Issuer and the
Shareholders.
12. FURTHER ASSURANCES
The Parties shall execute and deliver any documents and perform
any acts necessary to carry out the intent of this agreement.
13. TIME
Time is of the essence of this agreement.
14. GOVERNING LAWS
This agreement shall be construed in accordance with and governed
by the laws of British Columbia and the laws of Canada applicable in British
Columbia.
15. COUNTERPARTS
This agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original and all of which shall constitute one
agreement.
16. LANGUAGE
Wherever a singular expression is used in this agreement, that
expression is deemed to include the plural or the body corporate where required
by the context.
17. ENUREMENT
This agreement enures to the benefit of and is binding on the
Parties and their heirs, executors, administrators, successors and permitted
assigns.
The Parties have executed and delivered this agreement as of the
date of reference of this agreement.
THE COMMON SEAL )
of MONTREAL TRUST COMPANY )
CANADA was hereto affixed in the )
presence of: ) c/s
)
/s/ illegible )
--------------------- )
Authorized Signatory )
)
)
/s/ ▇. ▇▇▇▇▇▇▇ )
--------------------- )
Authorized Signatory )
THE COMMON SEAL of MINCO )
MINING AND METALS )
CORPORATION was )
hereto affixed in the presence of: ) c/s
)
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ )
----------------------------- )
Authorized Signatory )
)
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---------------------------- )
Authorized Signatory )
SIGNED, SEALED and DELIVERED by )
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in the presence of: )
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Occupation: Businesswoman )
SIGNED, SEALED and DELIVERED by )
▇▇▇▇ ▇▇▇▇ in the presence of )
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Occupation: Retired )
SIGNED, SEALED and DELIVERED by )
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SIGNED, SEALED and DELIVERED by )
PETROS ▇.▇. ▇▇▇▇▇▇▇▇ in the presence of: )
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SIGNED, SEALED and DELIVERED by )
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4112 Puget Dr., Vancouer B.C ) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Occupation: Engineer )
SCHEDULE "A" TO ESCROW AGREEMENT
ACKNOWLEDGMENT AND AGREEMENT TO BE BOUND
To: Superintendor of Brokers Vancouver Stock Exchange
#▇▇▇▇ - ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, B. C. Vancouver, B. C.
V6Z 2H4 V7Y 1H1
(if the shares are not (if the shares are listed
listed on the Vancouver on the Vancouver Stock
Stock Exchange) Exchange)
I acknowledge that
(a) I have entered into an agreement with ____________________, under which
___________ shares of MINCO MINING AND METALS CORPORATION (the "Shares")
will be transferred to me upon receipt of regulatory approval, and
(b) the Shares are held in escrow subject to an escrow agreement dated for
reference _______, 2000, (the "Escrow Agreement"), a copy of which is
attached as Schedule "A" to this acknowledgment.
In consideration of $1.00 and other good and valuable consideration (the receipt
and sufficiency of which is acknowledged) I agree, effective upon receipt of
regulatory approval of the transfer to me of the Shares, to be bound by the
Escrow Agreement in respect of the Shares as if I were an original signatory to
the Escrow Agreement.
Dated at ___________________, on ____________________, 2000.
SIGNED, SEALED and DELIVERED by )
*transferee in the presence of: )
)
-------------------------------------- )
Name ) *transferee
-------------------------------------- )
Address )
-------------------------------------- )
Occupation )
SCHEDULE "B" TO ESCROW AGREEMENT
LOGO
Province of
British ColumbiBRITISH COLUMBIA SECURITIES COMMISSION
OFFICE OF THE CHAIRMAN
--------------------------------------------------------------------------------
LOCAL POLICY STATEMENT 3-07
POLICY GUIDELINES RESPECTING TRADING SHARES,
PERFORMANCE SHARES AND OTHER CONSIDERATION
-------------------------------------------------------------------------------
TABLE OF CONTENTS
PART TITLE PAGE
---- --------------------------------------------------- ----
1. IMPLEMENTATION 1
2. APPLICATION 1
2.1 Pre-prospectus
2.2 Reactivations and reorganizations
3. TRANSITION 2
3.1 Agreements made under former policy statement
3.2 Option of conforming with new policy statement
4. DEFINITIONS 2
4.1 Defined terms
4.2 Terms defined in legislation
5. GENERAL MATTERS 5
5.1 Review of opinions and reports
5.2 Requirement for valuation opinion
5.3 Out of pocket costs
5.4 Confirmation of fair value
PART TITLE PAGE
---- --------------------------------------------------- ----
6. ISSUANCE OF TRADING SHARES 6
6.1 Minimum price and maximum aggregate value
6.2 Interest in operating subsidiary
6.3 Value assigned to non-cash assets
6.4 Purchase of interest in mineral property
6.5 Accumulated deficit related to issuer's
stated business
6.6 Exclusion of amounts by Superintendent
7. ISSUANCE OF PERFORMANCE SHARES 8
7.1 Issuance to principals
7.2 Natural resource issuer
7.3 Industrial issuer
7.4 Escrow requirement
7.5 Escrow agreement
7.6 Limitations on rights of holders of
performance shares
7.7 Rights on ceasing to be a principal
7.8 Undertaking of holding company
8. TRANSFER OF PERFORMANCE SHARES WITHIN ESCROW 10
8.1 Permitted transferees
8.2 Request for consent to transfer
8.3 Documents to be filed with request
for consent to transfer
8.4 Letter of consent or objection
8.5 No transfer during period between prospectus
receipt and listing
9. RELEASE OF PERFORMANCE SHARES FROM ESCROW 11
9.1 Release of shares of natural resource
issuer
9.2 Reduction in release for natural
resource issuer
9.3 Release of shares of industrial issuer
9.4 Adjustment of release calculation
9.5 Requirements for release
9.6 Annual release based on annual
audited financial statements
9.7 Request for consent to release
9.8 Documents to be filed with request for
consent to release
9.9 Letter of consent or objection
9.10 Request by holder of performance shares for
consent to release
PART TITLE PAGE
---- --------------------------------------------------- ----
10. SURRENDER OF PERFORMANCE SHARES
FOR CANCELLATION 14
11. OTHER CONSIDERATION 14
11.1 Natural resource issuer
11.2 Industrial issuer
Appendix A Escrow Agreement
Appendix B Examples of earn-out prices for performance
shares issued by an industrial issuer
Appendix C Undertaking Required from Non-Reporting or
Closely Held Company
PART 1 IMPLEMENTATION
1.1 The following local policy statements are hereby rescinded and this
local policy statement substituted therefor, effective March 1, 1990:
(a) Local Policy Statement 3-07, dated February 6, 1987 (the "Former
Policy Statement"), and
(b) Local Policy Statements 3-08, 3-09 and 3-10, each dated February
1, 1987.
PART 2 APPLICATION
2.1 Pre-prospectus--This local policy statement sets out guidelines for
issuance of shares and payment of consideration for assets by an issuer
intending to do an initial public offering and obtain a listing on the
Vancouver Stock Exchange. This local policy statement addresses
(a) the issuance of trading shares, which are common shares issued as
consideration for cash or assets contributed to the issuer and,
in certain cases, expenses incurred to advance the business of
the issuer,
(b) the issuance of and escrow restrictions imposed on performance
shares, which are common shares issued to directors, officers,
promoters and other principals of the issuer to provide them with
both a reasonable assurance of control during the
formative stages of the issuer's development and an incentive to
support the issuer, and
(c) the payment of other consideration by the issuer for assets or
services.
2.2 Reactivations and reorganizations--This local policy statement applies,
with the necessary changes, to
(a) the reactivation of an issuer by way of a prospectus, carried out
in accordance with Local Policy Statement 3-35 and the policies
of the Vancouver Stock Exchange, and
(b) a major reorganization of an issuer, including a reverse take
over, carried out in accordance with the policies of the British
Columbia Securities Commission and the Vancouver Stock Exchange.
PART 3 TRANSITION
3.1 Agreements made under former policy statement--Subject to section 3.2,
shares issued in accordance with the Former Policy Statement will continue
to be governed by any agreements made in accordance with the Former Policy
Statement. Such shares, however, will be subject to the transfer
restrictions and procedures set out in Part 8 and the release criteria and
procedures set out in sections 9.5 through 9.10 of this local policy
statement.
3.2 Option of conforming with new policy statement--An issuer that has issued
shares in accordance with the Former Policy Statement may reorganize its
capital to fully conform with this local policy statement. Before doing so,
the issuer must obtain the approval of its shareholders and the written
consent of the Superintendent of Brokers, if the issuer's shares are not
listed on the Vancouver Stock Exchange, or the Vancouver Stock Exchange, if
the issuer's shares are listed on that exchange. Both the approval and
consent must be obtained by March 1, 1991.
PART 4 DEFINITIONS
4.1 Defined terms--In this local policy statement: "Act" means the Securities
Act, S.B.C. 1985, c. 83; "arm's length transaction" means a transaction
other than a non-arm's length transaction; "cash flow" means net income or
loss before tax, adjusted to add back the following expenses:
(a) depreciation,
(b) amortization of goodwill and deferred research and development costs,
excluding general and administrative costs,
(c) expensed research and development costs, excluding general and
administrative costs, and
(d) any other amounts permitted or required by the Superintendent:
"cumulative cash flow" means, at any time, the aggregate cash flow of
an issuer up to that time from a date no earlier than the issuer's
financial year end immediately preceding the date of its IPO, net of
any negative cash flow;
"earn-out factor" means the number obtained by squaring the
performance share percentage, expressed as a decimal, and multiplying
by four;
"earn-out price" means the IPO price multiplied by the earn-out
factor;
"escrow agreement" means an agreement in the form attached as Appendix
A to this local policy statement;
"Exchange" means the Vancouver Stock Exchange;
"industrial issuer" means an issuer other than a natural resource
issuer;
"IPO" means the initial public offering of common shares of an issuer
under a prospectus which has been filed with, and for which a receipt
has been obtained from, the Superintendent under section 42 of the
Act;
"IPO price" means the price per share paid by the public on an
issuer's IPO;
"non-arm's length transaction" means a transaction between the issuer
and a person that, at any time from the date of the transaction until
the date of completion of the issuer's IPO, is
(a) an insider, associate, affiliate or principal of the issuer,
(b) a person that
(i) has a control person, insider or promoter that is a
control person, insider or promoter of the issuer; or
(ii) has a control person, insider or promoter that is an
associate or affiliate of a control person, insider or
promoter of the issuer
except where the person's insiders that are described in
paragraphs (i) and (ii) hold in total less than 10% of the voting
securities of the person, or
(c) determined by the Superintendent not to be at arm's length to
the issuer;
"performance shares" means common shares of an issuer issued in
accordance with Part 7 of this local policy statement, so long as
they are held in escrow in accordance with this local policy
statement;
"performance share percentage" means the percentage, determined
on the date the issuer's shares are listed, posted and called for
trading on the Exchange, that the issued performance shares of
the issuer are of the total issued and outstanding voting
securities of the issuer;
"principal" means, in relation to an issuer,
(a) a promoter of the issuer,
(b) a director of the issuer or of an operating subsidiary
of the issuer,
(c) a full time management employee of the issuer, or of an
operating subsidiary of the issuer, whose direct or
indirect employment is with the issuer or the
subsidiary,
(d) a person who has provided key services or contributed a
fundamental asset to the issuer and has elected to be
treated as a principal, or
(e) a company all the voting securities of which are owned
by one or more of the persons referred to in
subsections (a) through (d);
"Regulation" means the Securities Regulation, B.C. Reg. 270/86;
"Superintendent or the Exchange" means the Superintendent, if the
issuer's shares are not listed on the Exchange, and the Exchange,
if the issuer's shares are listed on the Exchange;
"trading shares" means shares of the class of common shares
issued on an issuer's IPO, excluding performance shares issued in
accordance with Part 7 of this local policy statement;
"valuation opinion" means, in respect of
(a) a natural resource issuer, a written opinion prepared
by a qualified expert as to the fair market value of a
resource property, determined either through the
computation of present value or some other recognized
method of valuation acceptable to the Superintendent,
and
(b) an industrial issuer, a written opinion prepared in
accordance with generally applied valuation approaches
by a Chartered Business Valuator, or another expert
acceptable to the Superintendent, as to the highest
price available for the issuer's business, assets or
shares in an open and unrestricted market between
informed, prudent parties, acting at arm's length and
under no compulsion to act, expressed in terms of money
or money's worth.
4.2 Terms defined in legislation - Subject to section 4.1, terms defined in the
Act, the Regulation and the Interpretation Act, R.S.B.C. 1979, c. 206 and
used in this local policy statement have the same meaning as in the Act,
the Regulation and the Interpretation Act.
PART 5 GENERAL MATTERS
5.1 Review of opinions and reports - The Superintendent may, with the
agreement of an issuer, seek the opinion of an engineer, appraiser,
business valuator, accountant or other expert to determine the
acceptability of a valuation opinion or other report filed pursuant to
this local policy statement and, in such circumstances, the issuer will
be liable for the fees charged by such person in connection with
providing the opinion.
5.2 Requirement for valuation opinion - The Superintendent may, at the time
of reviewing an issuer's prospectus for its IPO, require a valuation
opinion in support of the value attributed to any non-cash assets.
5.3 Out of pocket costs - Where this local policy statement provides that
the value of trading shares issued or other consideration paid to a
person by an issuer for a non-cash asset must be calculated on the basis
of the out of pocket costs incurred by the person in respect of the
non-cash asset, those out of pocket costs must
(a) be reasonable,
(b) have contributed or be reasonably expected to contribute to the
future operations of the issuer,
(c) be supported by an audited statement of costs, and
(d) in respect of a resource property, be restricted to acquisition
costs and such other costs as are necessary to secure a
preliminary evaluation of the resource property and to lead to
the identification of exploration targets.
5.4 Confirmation of fair value - The onus will be on an issuer, if
questioned, to satisfy the Superintendent that fair value was received
for costs or expenditures associated with a non-arm's length
transaction.
PART 6 ISSUANCE OF TRADING SHARES
6.1 Minimum price and maximum aggregate value - Although in most cases trading
shares will be paid for in cash, trading shares may be issued for
consideration other than cash. Subject to sections 6.2 through 6.6, an
issuer may issue trading shares at a minimum price of $.25 per share up to
an aggregate value equal to:
(a) the amount of cash paid in as share capital; plus
(b) the fair market value of any non-cash assets contributed as share
capital; plus
(c) the issuer's retained earnings, if any; less
(d) where the issuer has an accumulated deficit, that portion of the
accumulated deficit that does not directly relate to the issuer's
stated business purpose at the time of its IPO.
6.2 Interest in operating subsidiary -- Where an issuer has an operating
subsidiary, or is proposing to issue trading shares in order to acquire an
operating subsidiary, and the value of that operating subsidiary is not
supported by a current valuation opinion, the principles of this Part will
apply to the operating subsidiary for the purpose of determining the number
of trading shares that may be issued by the issuer in respect of its
interest in the operating subsidiary.
6.3 Value assigned to non-cash assets -- For the purpose of section 6.1(b),
where non-cash assets are contributed to an issuer by a person in a
non-arm's length transaction, the fair market value attributed to the
non-cash assets must be either
(a) supported by a valuation opinion, or
(b) limited to an amount equal to the out of pocket costs incurred by
the person in respect of the non-cash assets, determined in
accordance with section 5.3.
6.4 Purchase of interest in mineral property -- A natural resource issuer that,
in an arm's length transaction, agrees to issue trading shares as
consideration for a mineral property or an option on a mineral property,
the value of which is not supported by a current valuation opinion, will
generally be required to meet the following conditions:
(a) The consideration must consist of not more than 200,000 trading
shares issuable in no fewer than four blocks, each block
consisting of not more than 50,000 trading shares.
(b) One block of shares may be issued prior to the date the issuer's
shares are listed, posted and called for trading on the Exchange.
(c) The remaining blocks of shares may be issued in stages upon the
filing with the Exchange of engineering reports, acceptable to
the Exchange, recommending further work on the mineral property.
6.5 Accumulated deficit related to issuer's stated business purpose -- For the
purpose of section 6.1(d), that portion of the issuer's accumulated deficit
that directly relates to the issuer's stated business purpose at the time
of its IPO includes
(a) for a natural resource issuer, expenses incurred
(i) in exploring and developing the resource properties upon
which the issuer's IPO proceeds are to be spent, and
(ii) in exploring and developing other resource properties,
provided that these expenses do not exceed the expenses
referred to in paragraph (i), and
(b) for an industrial issuer, expenses incurred in respect of the
project or business to be financed by the issuer's IPO proceeds.
6.6 Exclusion of amounts by superintendent -- The Superintendent may require
that an amount be excluded from the determination of the number of trading
shares that may be issued under this Part if in the circumstances he
considers that to include any such amount would be inappropriate or
unconscionable. For example, the Superintendent would question the
appropriateness of issuing trading shares for non-cash assets unrelated to
the issuer's stated business purpose at the time of its IPO or for
excessive administrative expenses.
PART 7 ISSUANCE OF PERFORMANCE SHARES
7.1 Issuance to principals -- Performance shares may be issued for cash to the
principals of an issuer
(a) to provide the principals with a measure of control to facilitate the
development of the issuer in an orderly fashion,
(b) to provide an incentive for the principals to diligently support the
affairs of the issuer, and
(c) to provide an incentive for the principals to contribute management
services or fundamental assets to the issuer.
7.2 Natural resource issuer -- A natural resource issuer may issue to its
principals up to a total of 750,000 performance shares, at a minimum price
of $.01 per share.
7.3 Industrial issuer -- An industrial issuer may issue performance shares to
its principals, at a minimum price of $.01 per share, provided that the
resulting performance share percentage does not exceed 65%.
7.4 Escrow requirement -- Performance shares are required to be escrowed. It
should be noted that the higher the performance share percentage, the more
difficult it becomes to obtain a release of the performance shares from
escrow. The table attached as Appendix B to this local policy statement
provides some examples of the operation of the release provisions for
industrial issuers set out in Part 9 of this local policy statement.
7.5 Escrow agreement -- Prior to or at the time of acquiring performance
shares, principals must execute an escrow agreement. The certificates
representing the performance shares must be registered in the names of the
holders of the shares and deposited with the escrow agent in accordance
with the terms of the escrow agreement. Only a trust company carrying on
business in British Columbia or a company approved by the Superintendent
may act as an escrow agent.
7.6 Limitations on rights of holders of performance shares -- The escrow
agreement requires that the parties to it set out in the agreement any
rights or obligations of a person who ceases to be a principal, dies or
becomes bankrupt to retain, transfer or surrender to the issuer for
cancellation any performance shares then held by the person.
7.7 Rights on ceasing to be a principal -- The escrow agreement requires that
the parties to it set out in the agreement any rights or obligations of a
person who ceases to be a principal, dies or becomes bankrupt to retain,
transfer or surrender to the issuer for cancellation any performance shares
then held by the person.
7.8 Undertaking of holding company -- Where performance shares are to be issued
to a non- reporting or closely held company, wherever situate, rather than
to an individual, the company must, prior to or at the time of acquiring
the performance shares, execute an undertaking in the form attached as
Appendix C to this local policy statement. In the undertaking, the company
agrees not to effect or permit any transfer of ownership of shares of the
company nor to issue further shares of any class in the company without the
consent of the Superintendent or the Exchange, so long as the company
continues to hold any of the issuer's performance shares. An application
for consent should be made in the same manner as an application for consent
to a transfer of performance shares pursuant to Part 8 of this local policy
statement.
PART 8 TRANSFER OF PERFORMANCE SHARES WITHIN ESCROW
8.1 Permitted transferees - Performance shares may be transferred only to
(a) other principals, including incoming principals,
(b) the issuer of the performance shares, or
(c) an offeror under a formal bid (as defined in section 74 of the Act).
8.2 Request for consent to transfer - In order to transfer performance shares,
the holder of performance shares must deliver to the Superintendent or the
Exchange a written request for consent to the transfer. The request for
consent to the transfer must include:
(a) the name of the escrow agent and the reference date of the escrow
agreement,
(b) an explanation of the reason for the transfer,
(c) a description of the consideration to be paid for the performance
shares,
(d) where the performance shares are to be transferred to a principal,
confirmation that the transferee is a principal or will become a
principal on or before the date of the proposed transfer, and
(e) a description of the exemptions in the Act or the Regulation, if any,
being relied upon to make the transfer.
8.3 Documents to be filed with request for consent to transfer - The request
for consent to the transfer must be accompanied by:
(a) a copy of the transfer agreement,
(b) an acknowledgment and agreement to be bound in the form attached as
Schedule A to the escrow agreement, executed by the transferee,
(c) where the performance shares are to be transferred to a non-reporting
or closely held company, wherever situate, rather than to an
individual, an undertaking by the company in the form attached as
Appendix C to this local policy statement;
(d) where applicable, evidence that the proposed change of control has
been approved by the shareholders of the issuer, and
(e) the appropriate application fee.
8.4 Letter of consent or objection - Upon receiving a request for consent to a
transfer and accompanying documents that comply with sections 8.2 and 8.3,
the Superintendent or the Exchange will issue to the applicant a letter
that either consents or objects to the transfer. A letter consenting to the
transfer will be copied to the escrow agent.
8.5 No transfer during period between prospectus receipt and listing - The
Superintendent will generally refuse to consent to a transfer of
performance shares during the period between the date of the receipt for
the issuer's prospectus for its IPO and the date the issuer's securities
are listed, posted and called for trading on the Exchange.
PART 9 RELEASE OF PERFORMANCE SHARES FROM ESCROW
9.1 Release of shares of natural resource issuer - Holders of performance
shares of a natural resource issuer will be entitled to the pro-rata
release of those performance shares on the basis of 15% of the original
number of performance shares for every $100,000 expended on exploration and
development of a resource property by
(a) the issuer, or
(b) a person other than the issuer in order to earn an interest in the
resource property, but only in respect of that proportion of the
expenditure equal to the issuer's remaining proportionate interest in
the resource property after the person's interest has been earned,
provided that
(c) no more than 50% of the original number of performance shares may be
released in any 12 month period, and
(d) no expenditure on exploration and development made prior to the date
of the receipt for the issuer's prospectus for its IPO may be
included. December 21, 1989
9.2 Reduction in release for natural resource issuer - Where administrative
expenses exceed 33% of total expenditures during the period on which the
calculation in section 9.1 is based,
(a) the pro-rata release factor of 15% will be reduced to 7.5%, and
(b) the percentage of the original number of performance shares available
for release in any 12 month period will be reduced to 25%.
9.3 Release of shares of industrial issuer - Holders of performance shares of
an industrial issuer will be entitled to the pro-rata release of a number
of performance shares equal to the amount of cumulative cash low, not
previously applied towards release, divided by the earn-out price.
9.4 Adjustment of release calculation - On a consolidation, subdivision,
amalgamation or reclassification of the issuer's shares, the release
calculation must be adjusted so that the proportion of the outstanding
performance shares available for release is unaffected by the
consolidation, subdivision, amalgamation or reclassification.
9.5 Requirements for release - No performance shares may be released from
escrow unless, at the time of the application for release,
(a) the issuer is meeting its current obligations in the ordinary course
of business as they generally become due, as evidenced by a statutory
declaration of the president or chief financial officer of the issuer,
(b) the issuer's shares are listed, posted and called for trading on all
stock exchanges having jurisdiction over it, as evidenced by letters
from those stock exchanges,
(c) the issuer is not in default of any requirement of the Act or the
Regulation, as evidenced by a certificate issued by the Commission,
and
(d) the issuer is in good standing with respect to its filing of returns
with the Registrar of Companies under the Company Act or, if the
issuer is incorporated, organized or continued in a jurisdiction other
than British Columbia, with the registrar of companies or similar
authority in that jurisdiction, as evidenced by a certificate issued
by the Registrar of Companies or by that similar authority.
9.6 Annual release based on annual audited financial statements - Performance
shares may be released only once during an issuer's financial year. The
release calculation must be based on the issuer's annual audited financial
statements for the year or years during which the release requirements were
met in respect of the performance shares to be released.
9.7 Request for consent to release - In order to obtain a release of
performance shares, the issuer must deliver to the Superintendent or the
Exchange a written request for consent to the release. The request for
consent to the release must include the name of the escrow agent and the
reference date of the escrow agreement.
9.8 Documents to be filed with request for consent to release - The request for
consent to the release must be accompanied by:
(a) written evidence of compliance with the requirements of section 9.5,
(b) annual audited financial statements of the issuer for the financial
year or years during which the release requirements were met in
respect of the performance shares to be released,
(c) where expenditures on a resource property were made by a person other
than the issuer, an audited statement of costs,
(d) a calculation, prepared by the issuer's auditor, of the number of
performance shares to be released, and
(e) the appropriate application fee.
9.9 Letter of consent or objection - Upon receiving a request for consent to a
release and accompanying documents that comply with sections 9.7 and 9.8,
the Superintendent or the Exchange will issue to the issuer a letter that
either consents or objects to the release. A letter consenting to the
release will be copied to the escrow agent.
9.10 Request by holder of performance shares for consent to release - A holder
of performance shares may apply to the Superintendent or the Exchange for
release where the issuer is unable or unwilling to do so. If the president
or chief financial officer of the issuer refuses to provide the statutory
declaration referred to in section 9.5(a), the Superintendent or the
Exchange may waive that requirement.
PART 10 SURRENDER OF PERFORMANCE SHARES FOR CANCELLATION
10.1 Performance shares must be surrendered to the issuer for cancellation
(a) at the time of a major reorganization of the issuer, if required as a
condition of the consent to the reorganization by the Superintendent
or the Exchange,
(b) where the issuer's shares have been subject to a cease trade order
issued under the Act for a period of 2 consecutive years, or
(c) 10 years from the later of the date of issue of the performance shares
and the date of the receipt for the issuer's prospectus for its IPO.
PART 11 OTHER CONSIDERATION
11.1 Natural resource issuer - Where a natural resource issuer proposes to
acquire from a person a resource property or an option on a resource
property, the value of which is not supported by a valuation opinion, the
following principles apply:
(a) In an arm's length transaction, the issuer may pay the person cash
consideration.
(b) In an arm's length transaction, the issuer may agree to pay the person
additional consideration at such time as the resource property
commences commercial production. Such additional consideration may,
depending on the circumstances,
consist of cash consideration, reasonable payments from net
profits, securities, or any combination of these.
(c) In a non-arm's length transaction, the issues may pay the person cash
consideration up to the amount of the out of pocket costs incurred by
the person in respect of the resource property, determined in
accordance with section 5.3.
(d) In a non-arm's length transaction, the issuer may agree to pay the
person additional consideration at such time as the resource property
commences commercial production, where the person has carried out
extensive exploration with results that indicate that the resource
property appears to have substantial merit. The extent of the person's
effort, skill and risk in developing the resource property will be
taken into account by the Superintendent in determining whether
additional consideration is justified. Such additional consideration
may, depending on the circumstances, consist of cash consideration,
reasonable payments from net profits, securities, or any combination
of these. A 15% net profits interest would normally be considered
reasonable.
11.2 Industrial issuer - Where an industrial issuer proposes to acquire from a
person non-cash assets, the value of which are not supported by a valuation
opinion, the following principles apply:
(a) In an arm's length transaction, the issuer may pay the person cash
consideration, a royalty or a combination of these.
(b) In a non-arm's length transaction, the issuer may pay the person cash
consideration up to the amount of the out of pocket costs incurred by
the person in respect of the non-cash assets, determined in accordance
with section 5.3.
DATED at Vancouver, British Columbia, this 21st day of December 1989.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chairman
APPENDIX A TO LOCAL POLICY STATEMENT 3-07
ESCROW AGREEMENT
THIS AGREEMENT is dated for reference ________________________, 2000,
and made
AMONG:
(the "Escrow Agent");
AND:
(the "Issuer");
AND: EACH SHAREHOLDER, as defined in this Agreement
(collectively, the "Parties").
WHEREAS the Shareholder has acquired or is about to acquire shares of the
Issuer;
AND WHEREAS the Escrow Agent has agreed to act as escrow agent in respect of the
shares upon the acquisition of the shares by the Shareholder;
NOW THEREFORE in consideration of the covenants contained in this agreement and
other good and valuable consideration (the receipt and sufficiency of which is
acknowledged), the Parties agree as follows:
1. INTERPRETATION
In this agreement:
(a) "ACKNOWLEDGMENT" means the acknowledgment and agreement to be bound in the
form attached as Schedule A to this agreement;
(b) "ACT" means the Securities Act, S.B.C. 1985, c. 83;
(c) "EXCHANGE" means the Vancouver Stock Exchange;
(d) "IPO" means the initial public offering of common shares of the Issuer
under a prospectus which has been filed with, and for which a receipt has
been obtained from, the Superintendent under section 42 of the Act;
(e) "Local Policy Statement 3-07" means the Local Policy Statement 3-07 in
effect as of the date of reference of this agreement and attached as
Schedule B to this agreement;
(f) "Shareholder" means a holder of shares of the Issuer who executes this
agreement or an Acknowledgment;
(g) "Shares" means the shares of the Shareholder described in Schedule C to
this agreement, as amended from time to time in accordance with section 9;
(h) "Superintendent" means the Superintendent of Brokers appointed under the
Act; and
(i) "Superintendent or the Exchange" means the Superintendent, if the shares of
the Issuer are not listed on the Exchange, or the Exchange, if the shares
of the Issuer are listed on the Exchange.
2. PLACEMENT OF SHARES IN ESCROW
The Shareholder places the Shares in escrow with the Escrow Agent and shall
deliver the certificates representing the Shares to the Escrow Agent as soon as
practicable.
3. VOTING OF SHARES IN ESCROW
Except as provided by section 4(a), the Shareholder may exercise all voting
rights attached to the Shares.
4. WAIVER OF SHAREHOLDER'S RIGHTS
The Shareholder waives the rights attached to the Shares
(a) to vote the Shares on a resolution to cancel any of the Shares,
(b) to receive dividends, and
(c) to participate in the assets and property of the Issuer on a winding up or
dissolution of the Issuer.
5. ABSTENTION FROM VOTING AS A DIRECTOR
A Shareholder that is or becomes a director of the Issuer shall abstain from
voting on a directors' resolution to cancel any of the Shares.
6. TRANSFER WITHIN ESCROW
(1) The Shareholder shall not transfer any of the Shares except in
accordance with Local Policy Statement 3-07 and with the consent of
the Superintendent or the Exchange.
(2) The Escrow Agent shall not effect a transfer of the Shares within
escrow unless the Escrow Agent has received
(a) a copy of an Acknowledgment executed by the person to whom the
Shares are to be transferred, and
(b) a letter from the Superintendent or the Exchange consenting to
the transfer.
(3) Upon the death or bankruptcy of a Shareholder, the Escrow Agent shall
hold the Shares subject to this agreement for the person that is
legally entitled to become the registered owner of the Shares.
(4) [SET OUT IN THIS SUBSECTION THE RIGHTS AND OBLIGATIONS OF A
SHAREHOLDER WHO CEASES TO BE A PRINCIPAL, AS THAT TERM IS DEFINED IN
LOCAL POLICY STATEMENT 3-07, DIES, OR BECOMES BANKRUPT, TO RETAIN,
TRANSFER OR SURRENDER TO THE ISSUER FOR CANCELLATION ANY SHARES HELD
BY THE SHAREHOLDER.]
7. RELEASE FROM ESCROW
(1) The Shareholder irrevocably directs the Escrow Agent to retain the Shares
until the Shares are released from escrow pursuant to subsection (2) or
surrendered for cancellation pursuant to section 8.
(2) The Escrow Agent shall not release the Shares from escrow unless the Escrow
Agent has received a letter from the Superintendent or the Exchange
consenting to the release.
(3) The approval of the Superintendent or the Exchange to a release from escrow
of any of the Shares shall terminate this agreement only in respect of the
Shares so released.
8. SURRENDER FOR CANCELLATION
The Shareholder shall surrender the Shares for cancellation and the Escrow Agent
shall deliver the certificates representing the Shares to the Issuer
(a) at the time of a major reorganization of the Issuer, if required as a
condition of the consent to the reorganization by the Superintendent
or the Exchange;
(b) where the Issuer's shares have been subject to a cease trade
order-issued under the Act for a period of 2 consecutive years;
(c) 10 years from the later of the date of issue of the Shares and the
date of the receipt for the Issuer's prospectus on its IPO; or
(d) where required by section 6(4).
9. AMENDMENT OF AGREEMENT
(1) Subject to subsection (2), this agreement may be amended only by a written
agreement among the Parties and with the written consent of the
Superintendent or the Exchange.
(2) Schedule C to this agreement shall be amended upon
(a) a transfer of Shares pursuant to section 6,
(b) a release of Shares from escrow pursuant to section 7, or
(c) a surrender of Shares for cancellation pursuant to section 8,
and the Escrow Agent shall note the amendment on the Schedule C in its
possession.
10. INDEMNIFICATION OF ESCROW AGENT
The Issuer and the Shareholders, jointly and severally, release, indemnify and
save harmless the Escrow Agent from all costs, charges, claims, demands,
damages, losses and expenses resulting from the Escrow Agent's compliance in
good faith with this agreement.
11. RESIGNATION OF ESCROW AGENT
(1) If the Escrow Agent wishes to resign as escrow agent in respect of the
Shares, the Escrow Agent shall give notice to the Issuer.
(2) If the Issuer wishes the Escrow Agent to resign as escrow agent in respect
of the Shares, the Issuer shall give notice to the Escrow Agent.
(3) A notice referred to in subsection (1) or (2) shall be in writing and
delivered to
(a) the Issuer at _________________________________, or
(b) the Escrow Agent at _______________________________
and the notice shall be deemed to have been received on the date of
delivery. The Issuer or the Escrow Agent may change its address for
notice by giving notice to the other party in accordance with this
subsection.
(4) A copy of a notice referred to in subsection (1) or shall concurrently be
delivered to the Superintendent or the Exchange.
(5) The resignation of the Escrow Agent shall be effective and the Escrow Agent
shall cease to be bound by this agreement on the date that is 180 days
after the date of receipt of the notice referred to in subsection (1) or
(2) or on such other date as the Escrow Agent and the Issuer may agree upon
(the "resignation date").
(6) The Issuer shall, before the resignation date and with the written consent
of the Superintendent or the Exchange, appoint another escrow agent and
that appointment shall be binding on the Issuer and the Shareholders.
12. FURTHER ASSURANCES
The Parties shall execute and deliver any documents and perform any acts
necessary to carry out the intent of this agreement.
13. TIME
Time is of the essence of this agreement.
14. GOVERNING LAWS
This agreement shall be construed in accordance with and governed by the laws of
British Columbia and the laws of Canada applicable in British Columbia.
15. COUNTERPARTS
This agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original and all of which shall constitute one agreement.
16. LANGUAGE
Wherever a singular expression is used in this agreement, that expression is
deemed to include the plural or the body corporate where required by the
context.
17. ENUREMENT
This Agreement enures to the benefit of and is binding on the Parties and their
heirs, executors, administrators, successors and permitted assigns.
The Parties have executed and delivered this agreements as of the date of
reference of this agreement.
The Corporate/Common Seal of )
[Escrow Agent] was affixed )
in the presence of: )
_______________ )_____________c/s
Authorized signatory )
------------- )
Authorized signatory )
The Corporate/Common Seal of )
[Escrow Agent] was affixed )
in the presence of: )
_______________ ) c/s
Authorized signatory )
-------------- )
Authorized signatory )
Where the Shareholder is an individual:
Signed, sealed and delivered by )
[Shareholder] in the presence of: )
--------------- )
Name ) [Shareholder]
--------------- )
Address )
--------------- )
)
--------------- )
Occupation )
Where the Shareholder is a company:
The Corporate/Common Seal of )
[Escrow Agent] was affixed )
in the presence of: )
_______________ ) c/s
Authorized signatory )
-------------- )
Authorized signatory )
SCHEDULE A TO ESCROW AGREEMENT
ACKNOWLEDGMENT AND AGREEMENT TO BE BOUND
To: Superintendor of Brokers or Vancouver Stock Exchange
#▇▇▇▇ - ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, B. C. Vancouver, B. C.
V6Z 2H4 V7Y 1H1
(if the shares are not (if the shares are listed
listed on the Vancouver on the Vancouver Stock
Stock Exchange) Exchange)
I acknowledge that
(a) I have entered into an agreement with ____________________, under which
___________ shares of _______________ (the "Shares") will be transferred
to me upon receipt of regulatory approval, and
(b) the Shares are held in escrow subject to an escrow agreement dated for
reference _______, 2000, (the "Escrow Agreement"), a copy of which is
attached as Schedule A to this acknowledgment.
In consideration of $1.00 and other good and valuable consideration (the receipt
and sufficiency of which is acknowledged) I agree, effective upon receipt of
regulatory approval of the transfer to me of the Shares, to be bound by the
Escrow Agreement in respect of the Shares as if I were an original signatory to
the Escrow Agreement.
Where the transferee is an individual:
SIGNED, SEALED AND DELIVERED by )
*transferee in the presence of: )
-------- )
Name ) *transferee
-------- )
Address )
-------- )
Occupation )
Where the transferee is a company:
The Corporate/Common Seal of )
[transferee] was affixed )
in the presence of: )
_______________ ) c/s
Authorized signatory )
-------------- )
Authorized signatory )
SCHEDULE C TO ESCROW AGREEMENT
--------------------------------------------------------------------------
NAME OF SHAREHONUMBER OF SHARES HELD IN ESCROW
-------------------------------------------------------------------------
APPENDIX B TO LOCAL POLICY STATEMENT 3-07
EXAMPLES OF EARN-OUT PRICES FOR PERFORMANCE SHARES
ISSUED BY AN INDUSTRIAL ISSUER
------------------------------------------------------------
EARN-OUT PRICE IN DOLLARS
--------------------------------------------------------------------------------------------------------
PERFORMANCE 5% 25% 45% 65%
SHARE PERCENTAGE
--------------------------------------------------------------------------------------------------------
EARN-OUT FACTOR .01x .25x .81x 1.69x
--------------------------------------------------------------------------------------------------------
I
P $0.40 .004 .10 .324 .676
O
$0.60 .006 .15 .486 1.014
P
R $0.80 .008 .20 .648 1.352
I
C $1.00 .010 .25 .810 1.690
E
The earn-out price represents the amount of cash flow that must be generated to
release one performance share from escrow. The following definitions are
applicable to the calculation.
Earn-out Price:
The IPO price multiplied by the earn-out factor.
IPO Price:
The price per share paid by the public on the issuer's IPO.
Earn-out Factor:
The number obtained by squaring the performance share percentage,
expressed as a decimal, and multiplying the result by four.
Performance Share Percentage:
The percentage, determined on the date the issuer's shares are
listed, posted and called for trading on the Exchange, that the
issued performance shares of the issuer are of the total issued
and outstanding voting securities of the issuer.
APPENDIX C TO LOCAL POLICY STATEMENT 3-07
UNDERTAKING REQUIRED FROM NON-REPORTING
OR CLOSELY HELD COMPANY
-------------------------------------------------
To: Superintendor of Brokers or Vancouver Stock Exchange
#▇▇▇▇ - ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, B. C. Vancouver, B. C.
V6Z 2H4 V7Y 1H1
(if the shares are not (if the shares are listed
listed on the Vancouver on the Vancouver Stock
Stock Exchange) Exchange)
_____________________________ (the "Company") undertakes, for the duration of
the time that the Company is the registered owner of escrowed shares
of_________________________ (the "Issuer"),
(a) to effect or permit transfer of ownership in the shares of the Company,
or
(b) to allot and issue further shares of any class of shares of the Company
only upon receipt of the written consent of the Superintendent of Brokers, if
the Issuer's shares are not listed on the Vancouver Stock Exchange (the
"Exchange"), or the Exchange, if the Issuer's shares are listed on the Exchange.
Dated at ___________________, on ____________________, 2000.
The Corporate/Common Seal of )
[Company] was affixed )
in the presence of: )
_______________ ) c/s
Authorized signatory )
-------------- )
Authorized signatory )