THIS SECURITIES PURCHASE AGREEMENT made as of the 29th day of November, 2007. B E T W E E N : CONSOLIDATED MERCANTILE INCORPORATED, a company existing under the laws of the Province of Ontario, (hereinafter referred to as the "Vendor") OF THE FIRST...
EXHIBIT 4.2
THIS SECURITIES PURCHASE
AGREEMENT made as of the 29th day of
November, 2007.
B E T W E
E N :
CONSOLIDATED MERCANTILE
INCORPORATED,
a company existing under
the
laws of the Province of
Ontario,
(hereinafter referred to as the "Vendor")
OF THE FIRST PART;
- and -
337572 ONTARIO
LIMITED,
a company existing under
the
laws of the Province of
Ontario,
(hereinafter referred to as the "Purchaser")
OF THE SECOND PART;
- and -
▇▇▇▇ ▇▇▇▇▇▇▇▇,
of the Province of
Ontario,
(hereinafter referred to as the "Principal")
OF THE THIRD PART;
- and -
DISTINCTIVE DESIGNS FURNITURE
INC.,
a company existing under
the
laws of the Province of
Ontario,
(hereinafter referred to as the "Company")
OF THE FOURTH PART.
WHEREAS the Vendor is the
registered and beneficial holder of certain debt and equity interests in the
Company, the particulars of which are detailed on Schedule “A” annexed hereto
(collectively, the “Securities”);
AND WHEREAS the Purchaser has
agreed to purchase the Securities from the Vendor and the Vendor has agreed to
sell the Securities to the Purchaser on the terms and conditions hereinafter set
forth;
AND WHEREAS the Principal is
the senior officer and significant shareholder of the Company as well as the
sole shareholder and officer and director of the Purchaser;
NOW THEREFORE THIS AGREEMENT
WITNESSETH that, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration (the receipt and
sufficiency of which is hereby acknowledged), the parties hereto covenant and
agree with each other as follows:
ARTICLE
1: PURCHASE OF SECURITIES
1.1 Agreement to Purchase
Securities. Subject to the terms and conditions hereof, the
Vendor agrees to sell to the Purchaser and the Purchaser agrees to purchase from
the Vendor, at Closing, the Securities free and clear of all liens, charges and
encumbrances.
ARTICLE
2: PURCHASE PRICE
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2.1
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Amount of Purchase
Price.
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(a)
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The
purchase price payable by the Purchaser to the Vendor for the Securities
purchased by the Purchaser hereunder shall be an amount equal to the
following:
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(b)
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as
to the debt portion of the Securities, such amount as shall be equal to
the total amount of the principal and accrued interest owing thereunder up
to and including the Closing as detailed on Schedule “A” (the “Debt Purchase Price”);
and
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(c)
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as
to the equity portion of the Securities, up to the amount of ONE MILLION
DOLLARS ($1,000,000.00) (the “Equity Purchase
Price”).
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(d)
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The
Debt Purchase Price and the Equity Purchase Price (collectively, “Purchase Price”) shall
be paid by the Purchaser in accordance with Section 2.2
herein.
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2.2 Payment of Purchase
Price. The Debt Purchase Price shall be paid and satisfied at
the Closing by the delivery to counsel for the Vendor, Messrs. ▇▇▇▇▇▇▇, Spring,
Kichler & ▇▇▇▇▇▇▇ LLP, in trust, of a certified cheque or bank draft in an
amount equal to the Debt Purchase Price. The Equity Purchase Price
shall be satisfied at the Closing by delivery to the Vendor of a promissory note
of the Purchaser and the Principal in form annexed hereto as Schedule “B” (the
“Closing
Note”).
ARTICLE
3: CLOSING ARRANGEMENTS
3.1 Closing.
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(a)
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Time
shall be of the essence of this
Agreement.
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(b)
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The
closing of this transaction (the "Closing") shall take
place at 10:00 a.m. on the date which is thirty (30) days following the
execution of this Agreement (the "Closing Date") at the
offices of the Vendor’s counsel or at such other place or time as may be
agreed in writing between the Vendor and each of the other parties
hereto.
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3.2 Closing
Procedures: At or before Closing, the Vendor and the Purchaser
shall take or cause to be taken all actions, steps and corporate proceedings
necessary or desirable to validly and effectively approve or authorize the
completion of the transactions herein provided for; and, upon fulfillment of all
of the conditions set forth in section 7.2 which have not been waived in writing
as therein provided, the Vendor shall deliver to the Purchaser all documents
required to be delivered hereunder, and upon fulfilment of the foregoing
provisions of this section 3.2 and upon fulfilment of all of the conditions set
forth in section 7.1 which have not been waived in writing as therein provided,
the Purchaser and the Principal shall deliver to the Vendor or its counsel, as
the case may be, a certified cheque or bank draft in the amount of the Debt
Purchase Price along with the Closing Note and the Pledge (referred to
below).
ARTICLE
4: COVENANTS
4.1 Approvals. The
parties hereto agree to obtain, on or before the Closing date, all necessary
regulatory approvals that are required to permit the purchase and sale of the
Securities hereunder.
4.2 Corporate
Authority. The parties hereto agree to take all necessary
corporate steps and proceedings and shall take all necessary corporate steps and
proceedings to authorize the execution and delivery of this Agreement and to
authorize the sale and transfer of the Securities hereunder.
4.3 Insurance & Death of
Principal. The Company, the Purchaser and the Principal
covenant and agree to maintain that certain life insurance policy on the life of
the Principal in the face amount of $500,000.00 issued by Manulife Financial
(the “Insurance Policy”) in good standing at all times until full payment of the
Closing Note in all respects. Prior to Closing the Insurance Policy
shall be amended to note the interest of the Vendor thereon as a 50% beneficiary
thereof, subject to the terms of this Agreement. The amount of
insurance assigned to the Vendor pursuant hereto shall be reduced on a dollar
for dollar basis once the amount due under the Closing Note is less than
$250,000.00. Any amounts received by the Vendor pursuant to the
Insurance Policy shall be deducted from the outstanding balance of the Closing
Note. Upon payment of the Closing Note in full, the Vendor shall sign
all documents and take all actions as necessary to reassign its interest in the
Insurance Policy to the Company or as the Company may direct. The
Principal will provide all necessary cooperation and consents should the Vendor
wish, at its own expense, to obtain additional insurance on the life of the
Principal.
In the
event of the death of the Principal prior to the Closing Note having been paid
in full, the Company and the Purchaser agree to cause the sale of all the shares
of the Company or all the assets of the Company as soon as possible for the fair
market value thereof. The insurance proceeds received by the Company
and the Vendor in respect the Insurance Policy shall be added to the proceeds of
sale of the assets or shares or the Company, and the aggregate of such amounts
shall be paid in accordance with Section 7 of the Closing Note, which for
greater certainty shall be follows:
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(a)
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firstly,
to the secured creditors of the Company (including the Purchaser to the
extent of the Purchaser’s secured debt upon the assets of the
Company);
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(b)
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secondly,
to the Purchaser and the Vendor equally until all amounts owing in
relation to the Closing Note have been paid in full;
and
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(c)
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any
balance shall be paid to the
Purchaser.
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ARTICLE
5: REPRESENTATIONS
AND WARRANTIES OF THE
VENDOR
The Vendor represents and warrants to
the Purchaser as follows, it being acknowledged that the Purchaser is relying
upon such representations and warranties in connection with the purchase of the
Securities pursuant to the provisions herein:
5.1 Organization. The
Vendor is duly incorporated or otherwise registered and organized and validly
subsisting under the laws of the Province of Ontario and has the corporate power
to own or lease its property, to carry on its business as now being conducted by
it, to enter into this Agreement and all documentation flowing therefrom, and to
perform it obligations thereunder.
5.2 Authorization. This
Agreement and all documentation flowing therefrom has been duly authorized,
executed and delivered by the Vendor and is a legal, valid and binding
obligation of the Vendor, enforceable against the Vendor by the Purchaser in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency and other laws affecting the rights of creditors generally and except
that equitable remedies may be granted only in the discretion of a court of
competent jurisdiction.
5.3 Title. The
Securities are owned by the Vendor free and clear of all liens, charges and
encumbrances.
5.4 Securities. To
the best of the Vendor’s knowledge and belief:
(a) Schedule
“A” is true and accurate in all material respects;
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(b)
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The
debt portion of the Securities detailed on Schedule “A” annexed hereto
represents valid indebtedness due and owing by the Company to the Vendor
as of the date of execution of this
Agreement;
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(c)
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The
GSA (as defined in Schedule “A”) creates a valid security interest in
favour of the Vendor in all property and assets of the Company in which
the Company now has rights or may hereafter acquire
rights;
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(d)
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All
necessary registrations have been made and maintained under the Personal Property Security Act
(Ontario) in order to perfect and preserve thereunder the Vendor’s
security interest under the GSA;
and
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(e)
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the
Vendor has not done or permitted any act to be done to release, discharge,
or invalidate the debt portion of the Securities or the
GSA.
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ARTICLE
6: REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER AND THE
PRINCIPAL
6.1 Purchasing as
Principal. The Purchaser and the Principal, jointly and
severally, represent and warrant to the Vendor that the Purchaser is purchasing
the Securities to be purchased by it pursuant to the provisions
herein:
6.2 Organization. The
Purchaser is duly incorporated or otherwise registered and organized and validly
subsisting under the laws of the Province of Ontario and has the corporate power
to own or lease its property, to carry on its business as now being conducted by
it, to enter into this Agreement and all documentation flowing therefrom, and to
perform it obligations thereunder.
6.3 Authorization. This
Agreement and all documentation flowing therefrom has been duly authorized,
executed and delivered by the Purchaser and is a legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser by the Vendor in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency and other laws affecting the rights of creditors generally and except
that equitable remedies may be granted only in the discretion of a court of
competent jurisdiction.
6.4 Schedule
“A”. To the best of the Purchaser’s knowledge and belief,
Schedule “A” is true and accurate in all material respects.
ARTICLE
7: CONDITIONS OF CLOSING
7.1 Conditions for the Benefit
of the Purchaser. The Purchaser shall not be obliged to
complete the purchase herein provided for unless, at or prior to Closing, each
of the following conditions shall have been satisfied, it being understood that
the said conditions are included for the exclusive benefit of the Purchaser and
may be waived in writing by the Purchaser at any time; and the Vendor covenants
and agrees with the Purchaser to use its best efforts to ensure that such
conditions are fulfilled at or prior to Closing:
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(b)
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Compliance. All
of the items, covenants and agreements set forth in this Agreement to be
complied with or performed by the Vendor at or prior to Closing shall have
been complied with or performed by the Vendor at or prior to
Closing.
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(c)
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Representations and
Warranties. The representations and warranties of the
Vendor contained in this Agreement shall be true and correct in all
material respects as of the date of this Agreement, and shall also be true
and correct in all material respects on and as of the Closing Date with
the same force and effect as if such representations and warranties had
been made on and as of such date.
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(d)
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Deliveries. The
Vendor shall have delivered to the Purchaser the documents contemplated in
section 3.2 and otherwise hereunder, including but not limited
to:
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(i)
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a
share certificate evidencing the equity portion of the Securities duly
endorsed for transfer to the Purchaser, along with a duly executed minute
book transfer of such shares executed in favour of the
Purchaser;
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(ii)
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an
assignment of the debt portion of the Securities and related GSA from the
Vendor in favour of the Purchaser, and any other documents that the
Purchaser reasonably considers necessary or desirable to validly and
effectively transfer the debt portion of the Securities and related GSA to
the Purchaser, all in a form reasonably satisfactory to the Purchaser;
and
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(iii)
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all
documentation possessed by the Vendor evidencing the debt portion of the
Securities and related GSA.
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(e)
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Shareholders’
Agreement. The pre-existing shareholders agreement in
place with respect to the Company shall have been terminated in all
respects and each party thereto shall have been released from the
provisions thereof.
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(f)
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Mutual
Releases. The Vendor and ▇▇▇▇ ▇▇▇▇▇▇, on the one hand,
and the Purchaser, the Principal and the Company, on the other hand, shall
have executed and delivered mutual releases in favour of one another on
mutually acceptable terms and
conditions.
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In case
of any of the foregoing conditions shall not have been fulfilled at or prior to
Closing, the Purchaser in its sole discretion may either: (a)
terminate its obligation to purchase the Securities by notice in writing to the
Vendor, in which event the Purchaser shall be released from all obligations
under this Agreement, and unless the Purchaser can show that the condition for
which the Purchaser has terminated it obligations could reasonably have been
performed or complied with or caused to have been performed or complied with by
the Vendor, then the Vendor shall also be released from all obligations in
respect of the Purchaser hereunder; or (b) waive compliance with any such
condition if its shall see fit to do so, without prejudice to its right of
termination in the event of non-fulfillment of any other condition in whole or
in part.
7.2 Conditions for the Benefit
of the Vendor. The Vendor shall not be obliged to complete the
sale herein provided for unless, at or prior to Closing, each of the following
conditions shall have been satisfied, it being understood that the said
conditions are included for the exclusive benefit of the Vendor and may be
waived in writing by the Vendor at any time; and the Purchaser and the Principal
covenant and agree with the Vendor to use their best efforts to ensure that such
conditions are fulfilled at or prior to Closing:
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(1)
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Compliance. All
of the items, covenants and agreements set forth in this Agreement to be
complied with or performed by the Purchaser and the Principal at or prior
to Closing shall have been complied with or performed by the Purchaser at
or prior to Closing.
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(2)
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Representations and
Warranties. The representations and warranties of the
Purchaser and the Principal contained in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and
shall also be true and correct in all material respects on and as of the
Closing Date with the same force and effect as if such representations and
warranties had been made on and as of such
date.
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(3)
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Deliveries. The
Purchaser shall have delivered to the Vendor certified cheques or bank
drafts in an amount equal to the Debt Purchase Price along with the
Closing Note and Pledge (referred to
below).
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(4)
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Shareholders
Agreement. The pre-existing shareholders agreement in
place with respect to the Company shall have been terminated in all
respects and each party thereto shall have been released from the
provisions thereof.
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(5)
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Mutual
Releases. The Vendor and ▇▇▇▇ ▇▇▇▇▇▇, on the one hand,
and the Purchaser, the Principal and the Company, on the other hand, shall
have executed and delivered mutual releases in favour of one another on
mutually acceptable terms and
conditions.
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(6)
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Security for Closing
Note. As security for the Closing Note, the Purchaser
and the Principal shall grant a first charge pledge of all the issued and
outstanding shares of the Company in favour of the Vendor pursuant to a
share pledge agreement in the form annexed hereto as Schedule “C” (the
“Pledge”).
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(7)
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Insurance. The
Company shall have assigned to the Vendor one-half the proceeds of the
Insurance Policy.
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In case
of any of the foregoing conditions shall not have been fulfilled at or prior to
Closing, the Vendor in its sole discretion may either: (a) terminate
this Agreement in respect of the Purchaser by notice in writing to the
Purchaser, in which event the Vendor shall be released from all obligations
under this Agreement, and unless the Vendor can show that the condition for
which it terminated this Agreement could reasonably have been performed or
complied with by the Purchaser and the Principal, the Purchaser and the
Principal shall also be released from all obligations hereunder; or (b) waive
compliance with any such condition if it shall see fit to do so, without
prejudice to its right of termination in the event of non-fulfillment of any
other condition in whole or in part.
ARTICLE
8: GENERAL
8.1 Interpretation.
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(1)
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Schedules. Schedules
and other documents attached or referred to in this Agreement are an
integral party of this Agreement.
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(2)
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Section and
Headings. 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 of interpretation
hereof.
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(3)
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Extended
Meanings. Words importing the singular number include
the plural and vice-versa; words importing the masculine gender include
the feminine and neuter genders.
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(4)
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Funds. All
dollar amounts referred to in this Agreement are in lawful money of
Canada.
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8.2 Further
Assurances. Each of the parties hereto from time to time at
the request and expense of any of the other parties hereto and without further
consideration, shall execute and deliver such other instruments of transfer,
conveyance and assignment and take such further actions as the other parties may
require to more effectively complete any matter provided for
herein.
8.3 Entire
Agreement. This Agreement and any documents flowing therefrom,
constitutes the entire agreement(s) among the parties hereto and except as
herein stated and in the instruments and documents to be executed and delivered
pursuant hereto, contains all of the representations and warranties of the
parties hereto. There are no oral representations or warranties of
any kind among the parties hereto. This Agreement may not be amended
or modified in any respect except by written instrument signed by all the
parties hereto.
8.4 Non-Merger. Each
party hereby agrees that all provisions of this Agreement shall survive the
execution and delivery of this Agreement, the completion of all transactions
contemplated hereby and delivery of all documents in connection
herewith.
8.5 Applicable
Law. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable thereto.
8.6 Severability. Any
covenant or provision hereof determined to be void or unenforceable in whole or
in part shall not be deemed to affect or impair the validity of any other
covenant or provision hereof and the covenants and provisions hereof are
declared to be separate and distinct.
8.7 Notices. Any
notice required or permitted to be given hereunder shall be in writing and shall
be effectively given if (1) delivered personally or (ii) sent by prepaid courier
service, addressed, in the case of notice to parties as follows:
(a) To
the
Vendor: ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇
▇▇▇▇▇▇
with a
copy to:
▇▇▇▇▇▇▇,
Spring, Kichler & ▇▇▇▇▇▇▇ LLP
Barristers
and Solicitors
700 – ▇▇
▇▇▇▇▇▇▇▇ ▇▇▇. ▇.
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇
To Purchaser and/or
the
Principal: 6
Tillingham Keep
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
with a
copy to:
Kronis,
Rotsztain, Margles, ▇▇▇▇▇▇
Barristers
and Solicitors
▇▇▇ - ▇▇
▇▇▇▇▇▇▇▇ ▇▇▇. ▇.
▇▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇
▇. ▇▇▇▇▇▇, Q.C.
Any
notice so given shall be deemed conclusively to have been given and received
when so personally delivered or on the second day following the sending thereof
by private courier. Any party hereto or others mentioned above may
change any particulars of its address for notice by notice to the others in the
manner aforesaid.
8.8 Successors and
Assigns. This Agreement shall enure to the benefit of and be
binding upon the parties hereto and their respective successors and
assigns. Notwithstanding the foregoing, this Agreement shall not be
assignable by the Vendor without the express written consent of the
Purchaser.
8.9 Survival. The
covenants, representations and warranties of the parties as of the Closing
contained in Article 5 and 6 hereof shall survive the Closing and shall continue
in full force and effect until the Closing Note is paid in full.
8.10 Counterparts. This
Agreement may be executed in one or more counterparts, each of which so executed
shall constitute an original and of which together shall constitute one and the
same instrument, provided that this Agreement may be treated by the Vendor as a
separate Agreement in respect of the Purchaser.
IN WITNESS WHEREOF this Agreement has
been executed by the parties hereto.
CONSOLIDATED MERCANTILE
INCORPORATED
Per:
Authorized Signing
Officer
337572 ONTARIO LIMITED
Per:
Authorized Signing
Officer
Witness ▇▇▇▇ ▇▇▇▇▇▇▇▇
DISTINCTIVE DESIGNS FURNITURE
INC.
Per:
Authorized Signing
Officer
SCHEDULE
“A”
Vendor’s
Equity and Debt Interest in the Company
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EQUITY
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- 824,103
Common Shares (50.3% of Class)
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645,000
Class A Preferred Shares Series 2 (61.11% of Class), non voting, non
participating, cumulative (1/2 prime + 1%) redeemable at $1 each, with a
cumulative dividend as at November 30, 2007 of
$213,358.00
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100,000
Class B Preferred Shares (50% of Class), non voting, non cumulative,
redeemable at nominal value
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53,100
Class C Preferred Shares Series 2 (58.9% of Class), non voting, non
participating, cumulative (2.5%) redeemable at $10 each with a cumulative
dividend as at November 30, 2007 of
$109,583.00
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DEBT
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A
$200,568 Secured Note Receivable bearing interest at prime plus 2% with no
specific terms of repayment, postponed under terms of Distinctive Designs
Furniture Inc.’s Bank Loan
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A
$547,500 Secured Note Receivable bearing interest at 10% per annum with no
specific terms of repayment, postponed under terms of Distinctive Designs
Furniture Inc.’s Bank Loan
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$78,885.86
Interest owing in respect of above two Secured Notes to November 30,
2007
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The
two Secured Notes are secured pursuant to a General Security Agreement
executed by the Company n favour of the Vendor dated August 17, 2005 (the
“GSA”)
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SCHEDULE
“B”
PROMISSORY
NOTE
DATED: January 11, 2008
This
Promissory Note is being delivered pursuant to subsection 2.2 of a certain
purchase agreement made the 29th day of November, 2007 (such purchase
agreement being herein referred to as the "Purchase Agreement") among
Consolidated Mercantile Incorporated, 337572 Ontario Limited, ▇▇▇▇ ▇▇▇▇▇▇▇▇ and
Distinctive Designs Furniture Inc.
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1.
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For
value received, the undersigned, 337572 Ontario Limited and ▇▇▇▇ ▇▇▇▇▇▇▇▇
(collectively, the “Promisor”) hereby,
jointly and severally, acknowledge themselves indebted to and promises to
pay to Consolidated Mercantile Incorporated (“Holder”) up to the
principal amount of ONE MILLION DOLLARS ($1,000,000.00) in lawful money of
Canada (the "Principal Amount") on the terms and conditions set forth in
this Promissory Note.
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2.
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The
amounts due under this Promissory Note shall be due and payable in ten
(10) equal consecutive annual instalments of ONE HUNDRED THOUSAND DOLLARS
($100,000.00) each (the “Annual Payments”), with
the first of such annual payments becoming due and payable on the 15th
day of January, 2009 and each anniversary date thereafter until paid in
full; provided that such Annual Payments shall only be due and payable in
any given year if Distinctive Designs Furniture Inc. continues to operate
its business (provided that payment shall not be excused if the Purchaser,
▇▇▇▇ ▇▇▇▇▇▇▇▇ or members of his immediate family or persons otherwise
non-arm’s length to them re-commence a similar business to Distinctive
Designs Furniture Inc., directly or indirectly); and further provided that
if the Promisor shall default in the payment of any Annual Payment
hereunder, such amount in default shall bear interest at the rate of 18%
per annum.
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3.
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To
the extent that Distinctive Designs Furniture Inc. shall, at any time
during the term of this Promissory Note, experience annual pre-tax
earnings of at least TWO MILLION DOLLARS ($2,000,000.00) in any year, the
Holder herein shall have the option by written notice to the Promisor to
require that the Promisor increase the Annual Payment for that year by the
sum of FIFTY THOUSAND DOLLARS ($50,000.00) for each ONE MILLION DOLLARS
($1,000,000.00) of pre-tax earnings of Distinctive Designs Furniture Inc.
in excess of TWO MILLION DOLLARS ($2,000,000.00) in that year, provided
that the maximum liability under this Promissory Note shall remain
unchanged..
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4.
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If
Distinctive Designs Furniture Inc. shall in any year pay to either 337572
Ontario Limited and/or ▇▇▇▇ ▇▇▇▇▇▇▇▇ and members of their immediate family
gross annual compensation (inclusive of any benefits which are over and
above the benefits generally and reasonably available to the employees of
Distinctive Designs Furniture Inc.) or dividends or any other
extraordinary distributions whatsoever in excess of the Threshold
Distribution (as defined below) for that year, then for each dollar of
compensation, dividend or other distribution paid in excess of the
Threshold Distribution, the Annual Payment due hereunder for that year
shall be increased equally. For greater clarity, it is
understood and agreed that any sum paid to the Purchaser, ▇▇▇▇ ▇▇▇▇▇▇▇▇ or
members of his immediate family as aforesaid in excess of the Threshold
Distribution may only be paid if the Holder is paid each Annual Payment
contemplated hereunder.
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For
the purposes hereof, the “Threshold Distribution”
for 2008 shall be equal to THREE HUNDRED SEVENTY-TWO THOUSAND DOLLARS
($372,000.00) (consisting of gross compensation of $272,000.00 plus
$100,000.00 annually to be paid to ▇▇▇▇ ▇▇▇▇▇▇▇▇ to equalize him with the
Holder in respect of the Annual Payments due to him under this Promissory
Note). The Threshold Distribution for each subsequent year
shall be increased by the annual inflation rate for that year, as
specified by the increase in the Consumer Price Index for the City of
Toronto.
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5.
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The
Holder shall have the right at all times, upon reasonable notice, during
the term of this Promissory Note to have free and unfettered access to
such financial records of Distinctive Designs Furniture Inc. as shall be
necessary to verify and support the terms of this Promissory Note,
including but not limited to the annual financial statements of
Distinctive Designs Furniture Inc., subject to the Holder agreeing to
maintain all such information in
confidence.
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6.
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Notwithstanding
anything herein contained to the contrary, but subject to Section 7
herein, it is acknowledged and agreed by the Holder that the amounts due
and payable under this Promissory Note shall no longer be due and payable
and the Promisor, and each of them, shall immediately cease to have any
further obligation to the Holder hereunder in the event that Distinctive
Designs Furniture Inc. shall cease to carry on business or shall otherwise
become bankrupt within the meaning of the Bankruptcy and Insolvency Act
(Canada), provided that the Purchaser, ▇▇▇▇ ▇▇▇▇▇▇▇▇, or members of
his immediate family or persons otherwise non-arm’s length to them have
not directly or indirectly recommenced a similar business
thereafter.
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7.
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Notwithstanding
anything herein contained to the contrary, if the Promisor shall sell
their shares of Distinctive Designs Furniture Inc. during the term of this
Promissory Note or if Distinctive Designs Furniture Inc. shall sell all or
substantially all of its assets and undertaking during the term of this
Promissory Note, and as a consequence of any such transaction the Promisor
or Distinctive Designs Furniture Inc. realizes net proceeds of disposition
in excess of the Promisor’s security upon the assets of Distinctive
Designs Furniture Inc., then such surplus proceeds shall be paid, to the
extent of fifty percent (50%) thereof, to the Holder up to the full amount
of the unpaid principal sum due and owing hereunder as of the date of
closing of such transaction of purchase and
sale.
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8.
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Notwithstanding
anything herein contained to the contrary, in the event that ▇▇▇▇ ▇▇▇▇▇▇▇▇
shall die during the term of this Promissory Note prior to the Principal
Amount having been paid in full, ▇▇▇▇ ▇▇▇▇▇▇▇▇ (and his estate) shall
cease to have any further liability hereunder, it being understood and
agreed that the death of ▇▇▇▇ ▇▇▇▇▇▇▇▇ shall in no way alter or diminish
the liability of 337572 Ontario Limited
hereunder.
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9. The
Promisor hereby:
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(a)
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waives
demand, diligence, presentment for payment, protest and demand, and notice
of extension, dishonour, protest, demand and non-payment of this
Promissory Note; and
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(b)
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agrees
that Consolidated Mercantile Incorporated may extend the time for payment
of all or any part of the amounts due and payable under this Promissory
Note without diminishing or altering the liability of the Promisor under
this Promissory Note.
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10.
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This
Promissory Note shall be governed by and construed in accordance with the
laws of the Province of Ontario and the federal laws of Canada applicable
therein.
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11. Time
is of the essence of this Promissory Note.
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12.
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In
the event that the Holder shall negotiate, sell or assign this Promissory
Note, it shall provide written notice thereof to the
Promisor.
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13.
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To
the extent there is any default hereunder, the Holder agrees to provide
ten (10) days written notice of default prior to taking any action under
any related security held by the Holder in respect of this Promissory
Note.
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DATED this 11th day of
January, 2008.
SIGNED,
SEALED AND
DELIVERED ) 337572 ONTARIO
LIMITED
in the
presence
of: )
)
) Per:__________________________________
) ▇▇▇▇ ▇▇▇▇▇▇▇▇
)
)
____________________________ ) _____________________________________
Witness ) ▇▇▇▇ ▇▇▇▇▇▇▇▇
SCHEDULE
“C”
SHARE PLEDGE
AGREEMENT
THIS AGREEMENT made the l
day of ___________, 2007.
B E T W E
E N:
337572 ONTARIO
LIMITED,
a corporation existing under
the
laws of the Province of
Ontario,
(hereinafter called the
"Pledgor")
OF THE FIRST PART;
- and -
CONSOLIDATED MERCANTILE
INCORPORATED,
a corporation existing under
the
laws of the Province of
Ontario,
(hereinafter called the
"Pledgee")
OF THE SECOND PART;
- and -
DISTINCTIVE DESIGNS FURNITURE
INC.,
a corporation existing under
the
laws of the Province of
Ontario,
(hereinafter called the
"Corporation")
OF THE THIRD PART;
- and -
▇▇▇▇▇▇▇, SPRING, KICHLER &
▇▇▇▇▇▇▇ LLP,
Barristers
and Solicitors
700 – ▇▇
▇▇▇▇▇▇▇▇ ▇▇▇. ▇.
▇▇▇▇▇▇▇,
▇▇ ▇▇▇ ▇▇▇,
by its
Partner, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
(hereinafter called the "Escrow
Agent")
OF THE FOURTH PART.
WHEREAS the Pledgor and ▇▇▇▇ ▇▇▇▇▇▇▇▇
executed and delivered a Promissory Note dated the l
day of November, 2007, in favour of the Pledgee (the "Promissory
Note");
AND WHEREAS as collateral security for
the complete and proper performance and satisfaction of all payments and
obligations under the Promissory Note, the Pledgor has agreed to pledge one hundred percent (100%) of the
outstanding shares in the capital stock of the Corporation (the "Pledged
Shares") in accordance with the provisions of this Agreement;
AND WHEREAS concurrently with the
execution of this Agreement, the Pledgor has delivered to the Escrow Agent a
share certificate or certificates representing the Pledged Shares duly endorsed
in blank for transfer to be held and dealt with by the Escrow Agent in
accordance with this Agreement.
WITNESSETH that in consideration of the
premises, and the mutual covenants hereinafter contained and the sum of TEN
DOLLARS ($10.00) now paid by each of the parties hereto to the other (the
receipt of which is hereby acknowledged by each of them) the parties hereto
covenant and agree as follows:
1. The
foregoing recitals are absolutely true, correct and accurate in every
respect.
2. As
collateral security for the complete and proper performance and satisfaction of
all payments and obligations under the Promissory Note, the Pledgor hereby
pledges, hypothecates, transfers, assigns and sets over to the Pledgee, the
Pledged Shares and all its right, title and interest therein and thereto to be
held by the Escrow Agent, all subject to and on the terms and conditions herein
set out.
3. The
term "Pledged Shares" as used herein shall include any shares or other
securities or capital property which shall result from either:
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(i)
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a
consolidation, change, classification, reclassification or subdivision, as
the case may be, of any of the Pledged Shares;
or
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(ii)
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every
organization, liquidation, dissolution, winding up, amalgamation, merger,
arrangement, continuation or continuance, as the case may be, of the
Corporation;
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and in
any such event, all such shares or other securities or capital property and all
certificates or other instruments or documents representing any such shares or
other securities or capital property received in substitution for or in respect
of the Pledged Shares shall be immediately delivered to the Escrow Agent to be
held as part of the Pledged Shares on the terms and conditions herein set out,
and the Pledgor shall forthwith pledge, assign, hypothecate, transfer and set
over to the Pledgee any such shares and/or other securities and/or capital
property so received or substituted and delivered to such Pledgee, accompanied
by powers of attorney for transfer and assignment thereof, or other appropriate
instruments of transfer and assignment, duly executed in blank.
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4.
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(a)
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Upon
payment in full by the Pledgor of the Promissory Note to the Pledgee in
accordance with its terms, the Escrow Agent shall forthwith return the
Pledged Shares to the Pledgor free of the provisions of this Agreement and
this Agreement shall then be
terminated.
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(b)
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So
long as there is no default under the Promissory Note, the Pledgor shall
be entitled to vote the Pledged Shares as it deems advisable, and in the
event of any dividends being declared or other distribution made upon or
in respect of the Pledged Shares during the time they are held by the
Escrow Agent in excess of the Threshold Distribution as outlined in
Section 4 of the Promissory Note (the “Excess Distribution”), the payments
due under the Promissory Note shall be increased on a dollar
for dollar basis up to the amount of the unpaid principal sum due and
owing on the Promissory Note, and such increase shall be paid at the same
time as the Excess dividend or Distribution made in respect of the Pledged
Shares.
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(c)
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In
the event that payment is not made under the Promissory Note as required
on the date any such payment is required to be made, subject in all cases
to ten (10) days prior written notice of default thereunder, the Escrow
Agent shall, upon the written direction of the Pledgee and upon receiving
a statutory declaration of the Pledgee containing the circumstances of the
default as aforesaid, deliver the Pledged Shares to or to the order of the
Pledgee.
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5. In
the event that the Pledgee becomes entitled to the Pledged Shares pursuant to
this Agreement, the Pledgee shall be entitled to deal with the Pledged Shares in
the manner provided for in the Personal Property Security Act (Ontario) for the
dealing with collateral by a secured party.
6. Any
notice or other document which is to be given hereunder shall be in writing and
shall be given by either personally delivering or mailing the same in a prepaid
registered envelope addressed to the relevant party or parties as
follows:
If to the Pledgor
to: 6
Tillingham Keep
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇
▇▇▇▇▇▇▇▇
If to the Pledgee
to: ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attn: ▇▇▇▇
▇▇▇▇▇▇
If to the Corporation
to: ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇
▇▇▇
Attn: ▇▇▇▇
▇▇▇▇▇▇▇▇
If to the Escrow Agent
to: 700
– ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇. ▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇
▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇
any such
notice or other document, if delivered personally, shall be deemed to have been
delivered at the time of such delivery and, if mailed by prepaid registered post
as aforesaid, shall, in the absence of any intervening postal disruption, be
deemed to have been delivered on the third (3rd) business day following the day
of mailing. Any party may change its address for service by written
notice to the other parties in the manner set out above.
7. Time
shall be of the essence of this Agreement and every part thereof.
8. No
waiver on behalf of any party or breach of any of the covenants, conditions and
provisions herein contained shall be effective or binding upon such party unless
the same shall be expressed in writing, and any waiver shall not limit or affect
such party's rights with respect to any other future breach.
9. Each
of the parties hereto covenants and agrees to perform such further and other
acts and things and to execute such further and other documents as may be
necessary or desirable from time to time in order to give effect to this
Agreement and every part thereof.
10. In
this Agreement words importing the singular number only shall include the plural
and vice versa and words importing the masculine gender shall include the
feminine gender and the neuter gender and vice versa and shall include one or
more persons, their heirs, executors, administrators, successor or assigns, as
the case may be. To the extent the Pledgee shall assign any of its
rights hereunder, the Pledgee shall provide written notice thereof to all the
parties herein.
11. This
Agreement shall enure to the benefit of and be binding upon the parties hereto
their heirs, executors, administrators, successor and assigns.
IN WITNESS WHEREOF the parties have
hereto executed this Pledge Agreement.
SIGNED,
SEALED AND
DELIVERED ) 337572 ONTARIO
LIMITED
in the
presence
of: )
)
) Per:__________________________________
) ▇▇▇▇ ▇▇▇▇▇▇▇▇
)
)
) CONSOLIDATED
MERCANTILE
) INCORPORATED
)
)
) Per:___________________________________
) Authorized
Signing Officer
)
)
) DISTINCTIVE DESIGNS FURNITURE
INC.
)
)
)
) Per:__________________________________
) ▇▇▇▇ ▇▇▇▇▇▇▇▇
)
)
) ▇▇▇▇▇▇▇, SPRING,
) KICHLER & ▇▇▇▇▇▇▇
LLP
)
)
)
) Per:__________________________________
) ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ –
Partner