AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON SEPTEMBER 18, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
|X| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
OR
| | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
| |
For the transition period from ______________ to ______________
Commission file number ________________________________________
TURBODYNE TECHNOLOGIES INC.
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(Exact name of Registrant as specified in its charter)
Inapplicable
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(Translation of Registrant's name into English)
Province of British Columbia, CANADA
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(Jurisdiction of incorporation or organization)
Suite 510, 1090 West Pender Street
Vancouver, British Columbia, Canada V6C 2N7
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(Address of principal executive offices)
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Securities registered or to be registered pursuant to Section 12(b) of the Act.
Name of each exchange
Title of each class on which registered
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Common Stock Inapplicable
__________________ __________________
__________________ __________________
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common shares without par value:
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(Title of Class)
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(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
None
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(Title of Class)
Indicate the number of outstanding shares of each of the registrant's classes of
capital or common stock as of the close of the period covered by the annual
report.
Common shares without par value: 20,255,566 as at September 3, 1996
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
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Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 X Item 18
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Except as otherwise noted, all dollar amounts are presented in Canadian dollars.
Exchange Rates: As at September 3, 1996, the exchange rate of Canadian dollars
into United States dollars was $1.3706 Canadian to $1.00 United States.
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TABLE OF CONTENTS
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Part I Page No
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Item 1. Description of Business............................... 1 - 13
Introduction.......................................... 1
Registrant and Subsidiary Companies 1 - 2
Corporate Background.................................. 2 -7
Resource Property..................................... 7 - 11
Non-Resource Property................................. 11 - 12
Competition........................................... 12
1996 Fiscal Period Operational Plan................... 12 - 13
Employees............................................. 13
Item 2. Description of Property............................... 13
Item 3. Legal Proceedings..................................... 13
Item 4. Control of Registrant................................. 13 - 14
Item 5. Nature of Trading Market.............................. 14 - 15
Item 6. Exchange Controls and Other Limitations 15 - 16
Affecting Securities Holders..........................
Item 7. Taxation.............................................. 16 - 17
Item 8. Selected Financial Data............................... 17 - 22
Financial Statements.................................. 17
Statement of Operations Data.......................... 18 - 21
Balance Sheet Data.................................... 19 - 21
Exchange Rates........................................ 22
Item 9. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 22 - 24
Results of Operations................................. 22 - 23
Liquidity and Capital Resources....................... 23 - 24
Item 10. Directors and Officers of the Registrant.............. 24 - 26
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TABLE OF CONTENTS
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Page No.
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Item 11. Compensation of Directors and Officers................. 26
Item 12. Options to Purchase Securities from 26 - 28
Registrant or Subsidiaries.............................
Item 13. Interest of Management in Certain Transactions......... 28 - 29
Stock Options.......................................... 29
Part II
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Item 14. Description of Securities to be Registered............. 29 - 31
Part III
Item 15. Defaults Upon Senior Securities........................ 31
Item 16. Changes in Securities and Changes in 31
Security for Registered Securities.....................
Part IV
Item 17. Financial Statements................................... 31
Item 18. Financial Statements................................... 32
Item 19. Financial Statements and Exhibits...................... 32 - 34
(a) Financial Statements..........................
(b) Exhibits......................................
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1
PART I
Item 1. Description of Business
INTRODUCTION
Turbodyne Technologies Inc. (the "Registrant") is engaged in the business of
developing products to enhance performance and reduce emissions of internal
combustion engines. The Registrant's products employ a technology known as the
Turbodyne Technology which is designed to optimize air flow to both diesel and
gasoline engines resulting in enhanced performance and more efficient fuel
consumption. The Registrant's development of its products is substantially
complete and the Registrant is in the final stages of tooling for commercial
production. While the Registrant has not achieved any significant production or
sales of its products to date, the Registrant anticipates commencing commercial
production by the end of 1996. The Registrant conducts its Turbodyne business
through its subsidiary, Turbodyne Systems, Inc.
The Registrant has entered into an agreement to acquire 100% of Pacific Baja
Light Metals Holding, Inc. ("Baja") which is a manufacturer of aluminum cast
products primarily for the automotive industry. The acquisition of Baja by the
Registrant is described in detail below in Item 1 of this Registration
Statement.
REGISTRANT AND SUBSIDIARY COMPANY'S CORPORATE BACKGROUND
The Registrant was incorporated pursuant to the laws of the Province of British
Columbia, Canada on May 18, 1983 as Dundee Resources Corp. By special resolution
dated August 21, 1992 and effective January 20, 1993, the outstanding shares of
the Registrant were consolidated on a 5:1 basis and the Registrant's name was
changed to Clear View Ventures, Inc. By special resolution dated October 8, 1993
and effective April 28, 1994, the Registrant's name was changed to its current
name Turbodyne Technologies Inc.
The Registrant has called an extraordinary meeting of its shareholders to be
held on September 17, 1996 to seek shareholder approval to the continuation of
the Registrant under the Canada Business Corporations Act as a Canadian federal
corporation. Upon completion of the continuation, the Registrant will cease to
be a British Columbia company and will exist as a Canadian federal corporation
and will adopt articles of continuation and by-laws. The continuation will not
affect the assets or liabilities of the Registrant and no new corporate entity
will be created by the continuation.
During the period from its incorporation on May 18, 1983 until July of 1993 when
it commenced funding the development of the Turbodyne Technology, the Registrant
was engaged in the
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2
business of mineral exploration. The Registrant no longer holds any interest in
any mineral properties.
The Registrant owns 100% of Turbodyne Systems, Inc. ("Turbodyne Systems").
Turbodyne Systems was incorporated pursuant to the laws of the State of Nevada,
USA, on May 21, 1993.
Turbodyne Systems acquired the Turbodyne Technology from Edward M. Halimi, a
director, in consideration of the issue to Mr. Halimi of 100 common shares of
Turbodyne Systems, being all of the issued and outstanding shares of Turbodyne
Systems. The Registrant subsequently acquired ownership of Turbodyne Systems
pursuant to an agreement dated July 15, 1993 between the Registrant and Mr.
Halimi whereby the Registrant issued 1,000,000 common shares of the Registrant
to Edward M. Halimi in consideration for all of the issued and outstanding
shares of Turbodyne Systems. This transaction is characterized as a reverse
takeover transaction and was effected in accordance with the policies of the
Vancouver Stock Exchange.
Turbodyne Systems is the owner of the Turbodyne Technology and carries on the
business of development and manufacturing products incorporating the Turbodyne
Technology.
The Registrant owns 100% of Pacific Baja Acquisition Corp. Pacific Baja
Acquisition Corp.was incorporated pursuant to the laws of the State of Wyoming,
USA, on April 15, 1996.
Pacific Baja Acquisition Corp. was incorporated for the purposes of enabling the
Registrant to complete the acquisition of Baja which is to be completed by a
merger of Pacific Baja Acquisition Corp. and Baja, with Pacific Baja Acquisition
Corp. as the surviving corporation. Pacific Baja Acquisition Corp. has no assets
or liabilities as of the date of this filing.
INDUSTRY BACKGROUND AND PRODUCT
1. Products
The Registrant has developed three principal products employing the Turbodyne
Technology more particularly described as follows:
i. Turbodyne System
The Turbodyne System is an air flow enhancement product designed
to improve the performance of internal combustion engines by
increasing air flow to the cylinders. As a result of increased
air flow, more efficient combustion takes place within the
cylinders resulting in increased power for the same amount of
fuel and reduction of engine emissions.
In order for combustion to take place in an internal combustion
engine, both oxygen and fuel must be present within the
combustion chamber (cylinder).
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3
Typically the vacuum created by the action of the piston
returning to top dead centre position causes air to be sucked
into the engine through the carburetor. The fuel is supplied to
the cylinder under pressure through the action of the fuel pump
and fuel injectors. While engineers attempt to design engines so
that optimal combustion occurs, the variation in the air fuel
ratio which occurs as a result of the difficulty in controlling
air intake pressure results in intervals of inefficient
combustion especially during rapid acceleration or deceleration
and on cold start up. These variations in air fuel ratios result
in lack of or inconsistent engine power, fuel wastage and
emissions. The two principal attempts to solve this problem are
superchargers and turbochargers. A supercharger is essentially an
air compressor which is driven by a belt from the engine and
supplies positive air intake pressure to the cylinder through the
carburetor. Although superchargers solve most of the air fuel
ratio problems they have become unpopular because they are
expensive, rob engine power and increase fuel consumption.
Turbochargers perform the same function as superchargers by
delivering positive air intake pressure through the carburetor to
the cylinders. Unlike superchargers, turbochargers are driven
through the pressure of exhaust gases exiting the engine.
Although turbochargers solve many of the power and fuel
consumption problems of superchargers they are designed to work
efficiently at speeds from 30,000 to 120,000 RPM. Until the
pressure of exhaust gases spins the turbine blades of the
turbocharger above 30,000 RPM the air flow to the engine is too
slow causing the engine to burn a fuel rich mixture. This results
in the phenomenon known as turbo lag. Turbo lag occurs during the
period from initial acceleration to the time when the turbine
blades spin at full boost (30,000 + RPM). The lack of power
during the turbo lag period presents safety problems due to
lurches in the acceleration phase of the driving cycle. The
inefficient operation of the engine during the turbo lag period
increases fuel consumption and maintenance problems and causes an
increase in emissions due to the incorrect air fuel ratio.
Although turbochargers solve air fuel ratio problems during peak
operating periods, they actually exacerbate the problems during
the turbo lag period.
The Turbodyne System is an add on device for turbocharged engines
which uses an electric motor to drive the turbine and provide
positive intake pressure through the carburetor during the turbo
lag period.
The Turbodyne System provides constant speed to turbochargers
when exhaust gases are insufficient to maintain appropriate
turbocharger rpms. The Turbodyne System incorporates brushless
electric motors and clutch designs that eliminate wear problems.
The brushless motor and an electronic controller commute the
automotive D.C. power into a three phase power supply and
feed-back circuit. The motor is integrated as part of an air-duct
which is attached to the air intake port of a turbocharger.
Rotational power is transmitted through an automatic Bendix type
full disconnecting clutch with a conical clutch interface. When
the
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4
electric motor engages and the shaft rotates, the clutch assembly
transmits down the lead screw and engages the turbocharger. Upon
acceleration of the clutch assembly, radial load is centered
using a clutch piloting bore. The motor is activated by remote
sensors that monitor the demand for power and turboboost.
The earliest models of the Turbodyne System were developed
primarily for the purpose of overcoming turbo lag, modulating
power delivery and avoiding sudden power surges which may cause
accidents in turbocharged vehicles. The ability of the Turbodyne
System to reduce emissions was discovered during the development
of the Turbodyne System when it was observed that vehicles
equipped with the system did not generate customary smoke during
acceleration. The absence of smoke results from the fact that
turbocharger equipped engines are calibrated to deliver fuel to
the engine based on optimal air flow that occurs when the
turbocharger is running at 30,000+ rpms. During the turbolag
period the fuel to air ratio is too rich resulting in inefficient
combustion, excessive smoke, particulate matter emissions and
wasted fuel. Initial independent laboratory results to date
indicate that the Turbodyne System reduces fuel consumption and
emissions by providing optimal air fuel ratio for combustion.
More efficient combustion also results in better power delivery
and elimination of turbolag.
ii. Turbopac
Turbopac applies similar technology as the Turbodyne System to
make combustion more efficient in non-turbocharged vehicles by
optimizing air to fuel ratio. Testing to date indicates that
Turbopac extends the same benefits of increased engine power,
reduced fuel consumption and reduced emissions to non
turbocharged vehicles. Turbopac employs a high speed
electronically controlled brushless electric motor which runs
continuously once the engine has started, providing positive air
intake pressure to optimize the air to fuel ratio. Turbopac
essentially serves as an electronic supercharger. Turbopac can
also be installed on turbocharger equipped engines. Unlike the
Turbodyne System, Turbopac can be installed by unskilled
mechanics without the need for precision machining of a
turbocharger. The most significant aspect of Turbopac is that it
allows the Registrant to target much larger international markets
because of its ease of installation and ability to install on
non-turbocharged engines.
iii. Dynacharger
The Dynacharger is the Registrant's newest product. It is
essentially a Turbopac built into a turbocharger. It was
developed primarily as a result of feedback from evaluations by
potential customers who indicated that they would prefer to see
the Turbodyne Technology built into a turbocharger rather than
provided by an additional component. Its principal advantages
over the Turbodyne System
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attached to a turbocharger are in cost, weight and space
economies. Unlike the Turbodyne System, it does not switch off
after the lag period but continues to provide additional
rotational speed to the turbocharger. It is more appropriate for
the original equipment manufacturers market than the after
market.
The Registrant has also developed a product described as a motor
assisted variable geometry turbocharging system ("Motoassist")
which is essentially a Dynacharger with a valve system to
concentrate exhaust gases resulting in faster turbine
acceleration.
2. Proprietary Protection of Products
The Registrant has filed and will continue to file patent applications for its
products and inventions. The Registrant has made patent applications for its
Turbodyne Technology as described below. Except as indicated below, there is no
assurance that patents will be granted in respect of these patent applications.
A U.S. patent application was made by Edward M. Halimi, as inventor, in 1993 for
the Registrant's original Turbodyne Systems product. This patent application was
assigned by Mr. Halimi to the Registrant pursuant to an asset purchase agreement
between Mr. Halimi and the Registrant dated August 18, 1993. The Registrant has
been advised by the U.S. Patent Office that all claims in respect of this patent
application have been approved. The Registrant has submitted final drawings to
the Patent Office and has paid the patent issuance fee required for the issue of
the formal patent. The issue of the formal patent is subject only to the
acceptance by the Patent Office of the final drawings. No royalty is payable in
respect of this patent. The patent will expire 17 years from the date of formal
issuance.
Two U.S. patent applications were submitted by Edward M. Halimi, William
Woolenweber and Ralph Maloof, as inventors, in 1995 in respect of the
Registrant's proprietary Dynacharger products. The U.S. Patent Office has
approved all claims with respect to the earlier of the patent applications. The
Registrant has submitted final drawings in respect of this earlier patent
application and has paid the patent issuance fee required for the issuance of
the formal patent. The issue of the formal patent is subject only to the
acceptance of final drawings by the Patent Office. Patents issued in respect of
the Dynacharger products will expire 20 years from the date of application of
each patent. The inventors have executed formal patent assignment documents in
favour of the Registrant which have been submitted to the U.S. Patent Office for
registration. The Registrant has agreed to pay a royalty to each of the
inventors equal to 1% of the gross revenues directly attributable to the
Dynacharger products, for a total royalty equal to 3% of gross revenues.
Two U.S. patent applications were submitted in late 1995 by Edward Halimi,
William Woolenweber and Ralph Maloof, as inventors, in respect of the
Registrant's Turbopac products. The Registrant has yet to receive any notice
from the U.S. Patent Office approving or
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disapproving the claims made in these patent applications. The inventors have
executed formal patent assignments in favour of the Registrant in respect of
these patent applications which have been submitted to the U.S. Patent Office
for registration. The Registrant has agreed to pay a royalty to each of the
inventors equal to 1.5% of gross revenues directly attributable to the Turbopac
products, for a total royalty equal to 4.5% of gross revenues.
Application has also been made and will continue to be made under international
Patent Treaties for international patent protection of the Registrant's
Turbodyne Technology as deemed appropriate by the Registrant.
The Registrant's policy is to diligently defend any infringement of its patents.
To date the Registrant has not encountered any challenges or potential
challenges of its patents. The Registrant has not established a fund for defense
of its patents but may do so if significant sales of its products are achieved.
The Registrant also requires all employees, consultants and persons or companies
involved in the testing of the Registrant's products to execute confidentiality
agreements and to agree to keep confidential all proprietary information with
respect to the Registrant's products.
3. Impact of Government Regulation on Products
Emissions standards for diesel engines are imposed in the U.S. by the US
Environmental Protection Agency (the "US EPA) and by other regulatory agencies
such as the California Air Resources Board ("CARB"). Testing indicates that
vehicles equipped with Turbodyne Products meet the US EPA's emissions standards
as specified in the 1990 Clean Air Act Amendments of 1990 (the "Clean Air Act")
which established the US emission standards for on-highway diesel engines
produced through 2001. Insofar as light and medium heavy-duty diesel engines are
concerned, the CARB standards are similar to those adopted by the US EPA.
The current trend towards more stringent government regulation of air pollution
indicates increasing demand for Turbodyne's products, particularly in the
Original Equipment Manufacturing sector. Government regulations, especially in
the environmental and safety areas, have impacted and will continue to impact
trucking operations and equipment specifications. OEM Manufacturers for the
trucking industry will be required to ensure that there products comply with
these regulations. The Registrant believes that the incorporation of Turbodyne's
Technology will enable OEM Manufacturers to meet these requirements for their
products.
STAGE OF DEVELOPMENT
1. Status of Commercial Production
The Registrant considers the Turbodyne System, Turbopac and Dynacharger products
to be ready for commercial production. The Registrant has commenced limited
scale production of the
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products at its facility in Carpinteria, California and is in the final stages
of tooling for commercial production at Baja's facility in La Mirada,
California, which is expected to commence concurrent with completion of the Baja
Acquisition. To date, Baja has been producing housings for the Registrant's
products which are then assembled at the Carpinteria facility.
Turbopac specification and design is essentially complete. The Registrant's
engineering staff are in the process of finalizing parts and vendor lists and
coordinating delivery schedules for all components. The Registrant plans to
commence commercial production of Turbopac by the end of 1996. Milestones yet to
be completed prior to being ready for commercial production and sale of product
include completion of production equipment procurement and tooling,
establishment of manufacturing and testing standards/procedures, establishment
of the production/assembly lines, creation of installation procedures and
related documentation, and completion of environmental and other performance
tests on the final production units. There is no assurance that commercial
production will be achieved by the end of 1996 or that the products will be
commercially successful.
The Registrant is close to completion of specification and design for its
Dynacharger product. As many of the components and vendors for the Dynacharger
are consistent with Turbopac, the Registrant's management expects to ready the
first Dynacharger model for production very shortly after Turbopac, subject to a
commercial order being in place. No assurance can be given that this product
will be produced and if produced that it will be commercially successful.
The Registrant's production plan calls for the electronic components of Turbopac
and Dynacharger to be assembled and tested at the Registrant's facility in
Carpinteria. Final assembly and testing of the products will be done at the Baja
facility in La Mirada. The Registrant has adequate space at its Carpinteria
facility for these purposes and Baja intends to commit approximately 30,000
square feet at its La Mirada plant for final assembly and inventory of Turbodyne
products. The Registrant expects to concentrate its production and sales efforts
on the Turbopac and Dynacharger products, although limited sales and production
of the Turbodyne System are expected for customers interested in an add on
product for existing turbocharged vehicles.
The Registrant's limited production to date has been for the purposes of meeting
requirements of potential customers and testing agencies undertaking evaluations
of the Registrant's products. The Registrant believes that testing of its
Turbodyne System, Turbopac and Dynacharger products and final production designs
are substantially complete. Evaluations underway are primarily for the purpose
of allowing potential customers to determine the suitability and performance of
the products for their applications with the goal of obtaining purchase orders.
To date, the Registrant has had no significant sales of its products.
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2. Product Evaluations
The Registrant is currently completing evaluation programs and joint development
programs with potential OEM manufacturing customers. The Registrant's goal is to
convince OEM Manufacturers as to the effectiveness of the Turbodyne Technology
and to enter into supply contracts with these OEM manufacturers.
3. Distributorship Agreements
On June 13, 1996, the Registrant entered into an exclusive distributorship
agreement (the "Granatelli Agreement") with Granatelli Performance Technologies,
Inc. ("Granatelli") of Camarillo, California. Under the terms of the Granatelli
Agreement, Granatelli will act as the exclusive worldwide distributor of the
Registrant's Turbopac products for the automotive and motorcycle gasoline engine
performance aftermarket.
Under the terms of the Granatelli Agreement, Granatelli is required to purchase
a minimum of 15,000 units in 1996 at an aggregate cost of $9,375,000 US and
50,000 units at an aggregate cost of $31,250,000 US in each subsequent year in
order to maintatin its distributorship rights. The Registrant has agreed that it
will not terminate the Granatelli Agreement for failure to meet these minimum
orders if Granatelli has been diligent in promoting sales. The Registrant has
received purchase orders from Granatelli under the Granatelli Agreement in
excess of $9,000,000 to date. The Registrant has recently completed the initial
delivery of Turbopac products under this Granatelli Agreement.
The Granatelli Agreement does not restrict the Registrant's right to appoint
other distributors for aftermarket applications other than the automotive and
motorcycle gasoline engine performance aftermarket, or for the original
equipment manufacturer market.
The Granatelli Agreement is for an initial term of three years and will be
automatically renewed, subject to Granatelli complying with the terms of the
Granatelli Agreement, for successive two year periods.
There is no assurance the Registrant will be able to supply the Turbodyne
Products ordered under the Granatelli Agreement.
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DEVELOPMENT COSTS TO DATE
The development costs for the Turbodyne System to June 30, 1996, consist of the
following:
Capital Assets: $ 1,239,001
Product and Development Costs: $ 5,700,838
Operating Costs: $ 3,984,169
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Total: $10,924,008 (CDN.)
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ACQUISITION OF PACIFIC BAJA LIGHT METALS HOLDING, INC. ("Baja")
The Registrant has agreed to acquire all of the issued and outstanding shares of
Baja pursuant to an agreement dated March 15, 1996 (the "Acquisition Agreement")
among the Registrant, Pacific Baja Light Metals Holding, Inc. ("Baja") and
Lenart Renberg, Michael Joyce, Sadayappa Durairaj Family Trust, Naresh Saxena
and Mugerdish Balabanian (the "Principal Shareholders"). Under the terms of the
Acquisition Agreement, the Registrant will pay total consideration to the
shareholders of Baja equal to US $30,000,670 payable as to US $12,000,670 in
cash at closing and US $18,000,000 by the issuance of 3,076,923 common shares of
the Registrant at an agreed fair market value price of US $5.85 per share. The
Acquisition Agreement has been amended by an amendment agreement between the
parties dated as of July 15, 1996.
The Registrant has incorporated a wholly-owned subsidiary under the Wyoming
Business Corporations Act (hereinafter referred to as "Acquisition Corp.") in
order to complete this acuisition. Under the terms of the Acquisition Agreement,
Baja and Acquisition Corp. will enter into a merger agreement pursuant to
sections 368(1)(A) and 368(a)(2)(D) of the US Federal Internal Revenue Code
pursuant to which Baja and Acquisition Corp. will be merged to form one
corporation. The surviving corporation will be a wholly-owned subsidiary of the
Registrant and the share and cash consideration referred to above will be
distributed to the Baja shareholders as part of the merger.
Closing of the acquisition will be subject to the Registrant fulfilling a number
of conditions precedent including the following:
a. the Registrant filing an appropriate registration statement as required by
the US federal securities laws (the filing of this Form 20-F is intended to
satisfy this condition precedent);
b. the Registrant making an application for quotation of its shares on the
NASDAQ System and providing Baja and the Principal Shareholders with
satisfactory evidence that the application will likely be approved;
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10
c. the Acquisition Agreement being approved by the shareholders of both the
Registrant and Baja (Shareholder approval for each of Baja and the
Registrant has been obtained);
d. approval of all securities regulatory bodies having jurisdiction including
the Department of Corporations of the State of California; and
e. the Registrant having received a minimum of $1,000,000 of confirmed
purchase orders for its products.
Baja is a privately-held California company with two California subsidiaries,
Baja Pacific Light Metals, Inc. and Optima Wheels, Inc. Baja also beneficially
owns 100% Baja Oriente SA de CV as a Mexican subsidiary through which the
group's Mexican operations are conducted. Formed in 1989, Baja is a manufacturer
of permanent mould and sand cast aluminium products, both machined and raw, for
automotive and industrial applications. Baja produces custom wheels for the
automotive aftermarket, manifolds, compressor housings and pedestals
manufactured on a contract basis for original equipment manufacturers and short
productions runs of cast aluminium products, including prototypes, for a variety
of industrial customers. Its largest operating facility is an Ensenada, Mexico
(operating as a maquiladora) facility providing finished machined and ready to
assemble products to customers. Baja is one of a few aluminium foundries on the
west coast of the United States. Baja employs some 100 people in California and
325 people in Mexico.
Baja American headquarters and domestic production facilities are located in La
Mirada, CA in a 95,000 square foot leased facility. The maquiladora production
is located in Ensenada, Mexico in a 120,000 square foot leased facility which is
owned by certain Pacific Baja's shareholders. The group's assets include full
sand cast and regular cast aluminium foundries in both Ensenada and La Mirada.
Baja owns computer-numerically controlled equipment, transportation equipment
and other machinery necessary for its business.
Baja sales are a mix of custom wheels and other automotive parts for the OEM and
aftermarkets. Contract manufacturing sales are to companies such as Allied
Signals, Inc.'s ("Allied Signals") Garrett division, which manufacturers
turbocharger systems for Class 8 trucks, and Navistar International
Transportation Corporation ("Navistar"). Approximately 26% of 1995 sales were to
Allied Signals and a further 25% were to a single distribution organization,
Itco Tire Company.
Baja's business strategy is to enhance its contract manufacturing operations by
obtaining vehiclerelated parts contracts with up to five substantial
organizations. Discussions with Navistar have been ongoing and Baja recently
obtained small production run orders from Navistar. The trend in the automotive
and heavy equipment manufacturing industry is for the consolidation of contract
part manufacturers to several dependable contract manufacturers.
For the six months ended June 30, 1996, Baja had net income (before income tax
and amortization (depreciation)) of U.S. $3,157,000 on sales of U.S.
$20,024,000. The total purchase price of U.S. $30 million represents
approximately seven times earnings (before income tax and
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amortization (depreciation)) and approximately one times sales, based on the
financial statements of Baja for the year ending December 31, 1995. Baja has
been profitable since 1992.
The principal reason for the acquisition is to form an alliance with a
manufacturer with a proven track record of volume manufacturing of quality auto
parts, particularly in the turbocharger field. A number of potential customers
who have been evaluating the Registrant's products have indicated that such an
alliance would have a positive impact on their purchase decision. In addition,
the acquisition will bring to the Registrant personnel experienced in
manufacturing and who have contacts with turbocharger manufacturers and the
potential customers for the Registrant's products. Baja currently manufactures
the housings for the Registrant's Turbodyne, Turbopac and Dynacharger products
on a contract basis.
MARKETING
There are essentially two market sectors for the Registrant's products. The
primary market is the OEM (Original Equipment Manufacturer) sector. The
Registrant hopes to convince manufacturers that its solution to turbo-lag and
emissions problems is best. The Registrant would attempt to license the
Turbodyne Technology so that new vehicles would have factory-installed Turbodyne
products. The units could be made by a supplier, or the Registrant itself. The
secondary market is the "aftermarket," i.e., vehicles currently on the road. The
Registrant proposes to sell its Turbodyne System and Dynacharger products as
replacements for worn-out turbos, or as an upgrade to a new vehicle's standard
equipment.
The primary OEM market for Turbodyne System and Dynacharger products are
manufacturers of medium to heavy diesel engine trucks. The Registrant has
entered into a number of evaluation programs and joint development programs with
diesel truck and diesel engine manufacturers with the objective of securing OEM
supply contracts under which the Turbodyne System and the Dynacharger products
will be incorporated directly into new diesel trucks engines. An additional OEM
market consists of small manufacturing companies that convert and upgrade new
vehicles from their original factory standards. This market is anticipated to
grow as governement pollution regulations become more stringent. The Registrant
believes that the key to its success will be obtaining a major contract with an
original equipment manufacturer or aftermarket company.
A marketing plan has been designed to quickly establish a wide distribution of
the Turbodyne System and includes sales materials such as brochures,
advertisements and mail-outs. Trade shows will be attended three or four times
per year. Sales will be solicited through the assistance of marketing
departments of target customers which will be followed by comprehensive
technical presentations and demonstrations to senior management. These efforts
will be directed to the marketing departments on the basis that the product will
contribute to vehicle sales through performance enhancement and the reduction of
emissions. In this way, both the OEM and aftermarket levels can be pursued. No
assurance can be given that the Registrant's marketing plan will be successful.
<PAGE>
12
COMPETITION
While the Registrant believes there is no direct competition to the Turbodyne
Technology, competition to the Turbodyne Technology exists from competing
technologies marketed by companies who may have more resources and who may be
better financed than the Registrant. In addition, there is no assurance that new
competitors will not attempt to enter the industry.
1996 FISCAL YEAR PERIOD OPERATING PLAN
The Registrant intends to complete the following during the last six months of
its 1996 fiscal year and the first six months of its 1997 fiscal year:
(a) complete the acquisition of Baja (September, 1996);
(b) commence commercial production of the Registrant's Turbopac products;
(c) commence commercial production of the Registrant's Dynacharger
products;
(d) secure contracts with Original Equipment Manufactures and major
retrofitters for the commercial production and installation of the
Registrant's products as original equipment on diesel engines and
diesel engine turbocharger products;
(e) continue the research and development of the Registrant's products and
the Turbodyne Technology;
(f) continue joint development and evaluation programs with Original
Equipment Manufacturers and major retrofitters with the objective of
securing contracts with Original Equipment Manufacturers and major
retrofitters; and
(g) to manufacture and deliver the Turbopac products required to fill the
purchase orders received under the Registrant's agreement with
Granatelli.
EMPLOYEES
As of July 31, 1996, the Registrant had 34 full-time employees and 13
consultants. The Registrant's relationship with its employees is satisfactory.
Item 2. Description of Property
The administrative head office of the Registrant is located in leased premises
at Suite 510, 1090 West Pender Street, Vancouver, British Columbia. The office
is approximately 2,000 square feet and is leased on a month to month basis. The
Registrant's monthly rent is $2,500 (Cdn.).
<PAGE>
13
The Registrant's production and assembly facilities are located in leased
premises at 6155 Carpinteria Avenue, Carpinteria California, USA 93013. The
facilities are approximately 28,000 square feet on 3.17 acres of land and are
leased on a month to month basis from American Appliance Inc. , a private
company controlled by Mr. Halimi. The term of the lease to American Appliance
Inc. expires on January 30, 2005. The Registrant's monthly rent is $15,000
(U.S.)
plus operating costs, including taxes, insurance and utilities.
Item 3. Legal Proceedings
There are no material legal proceedings in progress or to the knowledge of the
Registrant, pending or threatened to which the Registrant is a party or to which
any of its properties is subject.
Item 4. Control of Registrant
1. As far as is known to the Registrant, and except as disclosed herein, the
Registrant is not directly or indirectly owned or controlled by any other
corporation or by any foreign government.
2. The following table sets forth as of July 31, 1996, information with respect
to (i) any person who is known to the Registrant to be the owner of more than
10% of any class of the Registrant's voting securities and (ii) the total amount
of the class of the Registrant's voting securities owned by the officers and
directors and by the directors and officers as a group:
Percent of
Director/Officer Amount Owned Class(1)
- ---------------- ------------ ----------
Edward Halimi 3,524,800 common shares(2) 17.40%
President & 0 options
Director
Leon Nowek 909,554 common shares(3) 4.49%
Director 0 options
Daniel Geronazzo 0 common shares 0.00%
Director 115,000 options
Wendell R. Anderson 1,000 common shares 0.005%
Director 50,000 options
Eugene A. Hodgson 1,000 common shares 0.005%
Director 75,000 options
Robert F. Taylor 0 common shares 0.00%
Director 0 options
<PAGE>
14
Richard Donaldson 0 common shares 0.00%
Secretary 0 options
Officers and Directors 4,436,354 common shares 21.90%
as a Group (7 persons) 240,000 options
(1) Based upon 20,255,566 common shares issued and outstanding as at August 13,
1996.
(2) This figure includes 3,250,000 escrow shares held in the name of March
Technologies Inc., a private company controlled by Mr. Halimi.
(3) This figure includes 900,000 escrow shares held in the name of L.N. Family
Holdings Inc., a private company controlled by Mr. Nowek.
As of the date hereof, there are no arrangements known to the Registrant, the
operation of which may result in a future change of control in the Registrant.
Item 5. Nature of Trading Market
The common shares of the Registrant are listed on the Vancouver Stock Exchange
in British Columbia, Canada. The Registrant's shares are not currently trading
on any United States stock exchange or in the over-the-counter market, and,
accordingly, there is currently no public market for the common stock of the
Registrant in the United States. There can be no assurance that any such market
will develop after the effective date of this Registration Statement.
As of August 12, 1996, the Registrant's share register indicates that 5,843,907
of the issued and outstanding common shares were held by 27 shareholders with
addresses in the United States.
The following table sets forth the reported high and low prices for the common
shares as quoted over the Vancouver Stock Exchange on a quarterly basis for the
most recent two fiscal periods.
Year and Month High* Low*
- -------------- ----- ----
April 1, 1996 - June 30, 1996 $15.00 $ 8.50
January 1, 1996 - March 31, 1996 $12.875 $ 4.90
October 1, 1995 - December 31, 1995 $ 5.75 $ 4.10
July 1, 1995 - Sept 30, 1995 $ 5.625 $ 3.30
April 1, 1995 - June 30, 1995 $ 6.75 $ 1.21
January 1, 1995 - March 31, 1995 $ 1.90 $ 0.30
October 1, 1994 - December 31, 1994 $ 0.63 $ 0.28
July 1, 1994 - September 30, 1994 $ 0.74 $ 0.37
April 1, 1994 - June 30, 1994 $ 0.90 $ 0.45
January 1, 1994 - March 31, 1994 $ 1.08 $ 0.36
* As quoted by the Vancouver Stock Exchange. Expressed in Canadian dollars.
<PAGE>
15
Item 6. Exchange Controls and Other Limitations Affecting Securities Holders
Except as discussed in Item 7, the Registrant is not aware of any Canadian
federal or provincial laws, decrees, or regulations that restrict the export or
import of capital, including foreign exchange controls, or that affect the
remittance of dividends, interest or other payments to nonCanadian holders of
the common shares. The Registrant is not aware of any limitations on the right
of non-Canadian owners to hold or vote the common shares imposed by Canadian
federal or provincial law or by the Memorandum or Articles of the Registrant.
The Investment Canada Act (the "Act") governs acquisitions of Canadian business
by a nonCanadian person or entity. The Act provides, among other things, for a
review of an investment in certain Canadian businesses having in excess of $25
million in gross assets.
The Act provides that a United States investor can hold up to 1/3 of the issued
and outstanding capital of a Canadian corporation without being deemed a
"control person", and that a United States investor holding greater than 1/3 but
less than 1/2 of the issued and outstanding capital of a Canadian corporation is
deemed to be a control person subject to a rebuttable presumption to the
contrary (i.e. providing evidence of another control or control group holding a
greater number of shares). If a United States investor wishes to acquire
"control" of a Canadian corporation, such investor is required to obtain
approval if the asset value of the corporation is greater than $25,000,000. If
the asset value of the corporation at the time of the proposed acquisition is
less than $25,000,000, the investor wishing to acquire "control" need only file
a form indicating his or her intentions. The Act also provides that if United
States investors collectively hold greater than 50% of the issued and
outstanding shares of the corporation, there is a rebuttable presumption that
the corporation's status has changed to that of an American corporation. The
effect of the change in status is that if the control of the Registrant is
deemed to be held by United States investors, and if the Registrant then wished
to make investments of greater than $25,000,000 in Canada, it would need
governmental approval.
Item 7. Taxation
Security holders who are residents of the United States and not residents of
Canada ("NonResident Security Holders"), and who do not carry on business in
Canada through a permanent establishment or perform independent personal
services from a fixed base in Canada to which the shares of the Non-Resident
Security Holder are effectively connected, will be subject to Canadian income
tax at the rate of 10% on the gross amount of dividends paid by the Registrant
if the NonResident Security Holder is a company which owns a least 10% of the
voting stock of the Registrant, and 15% of the gross amount of the dividends in
all other cases. Such tax is deducted at source and remitted to Revenue Canada
on behalf of the Non-Resident Security Holders.
If a Non-Resident Security Holder carries on business in Canada through a
"permanent establishment" or performs independent personal services from a fixed
base in Canada, and the
<PAGE>
16
holding of shares in respect of which the dividends are paid is effectively
connected with such permanent establishment or fixed base, the limitations set
out in the preceding paragraph will not apply. Instead, the dividends will be
taxed using the rates and rules of taxation generally applicable to residents of
Canada.
For present purposes, a "permanent establishment" of a Non-Resident Security
Holder can generally be described as a fixed place of business through which the
business of a resident is wholly or partly carried on.
Non-Resident Security Holders who hold shares of the Registrant as capital
property are not subject to Canadian tax on any gain realized on the disposition
of such shares, provided the shares are not "taxable Canadian property". The
shares will be taxable Canadian property if the NonResident Security Holder
disposing of such shares, together with parties related to the NonResident
Security Holder, have owned more than 25% of the issued shares of the Registrant
in the five years immediately preceding the disposition of the shares. If a
Non-Resident Security Holder together with related parties have owned more than
25% of the shares of the Registrant in the five years immediately preceding the
disposition of such shares, such security holder will be subject to tax on the
capital gain arising on the disposition of the shares under the provisions of
the Income Tax Act (Canada). However, the Canada/United States Income Tax
Convention (1980) (the "Convention") will exempt the Non-Resident Security
Holder from the payment of Canadian income tax arising on the disposition of the
shares provided the Non-Resident Security Holder was not a resident of Canada
for 120 months during the 20 consecutive years preceding the disposition of the
shares, and, if such is the case, the Non-Resident Security Holder was not a
resident of Canada at any time during the 10 years immediately preceding the
disposition of the shares.
If a Non-Resident Security Holder holds shares of the Registrant as capital
property that constitutes taxable Canadian property, and the gains on the
disposition of such property are not protected from Canadian income tax by the
provisions of the Convention, the income of the NonResident Security Holder for
the year in Canada will include the gains realized from the disposition of the
shares. The gain is the difference of the proceeds of disposition of the share
and their "adjusted cost base", as determined pursuant to the provisions of the
Income Tax Act (Canada). Three quarters of the gain is taxable.
Item 8. Selected Financial Data
Financial Statements for the Registrant
The following selected financial information is for the completed fiscal periods
following the Registrant's reverse takeover of Turbodyne Systems Inc. This
information should be read in conjunction with such Financial Statements and
notes thereto included elsewhere in this Registration Statement. The
Registrant's Financial Statements are prepared according to Canadian Generally
Accepted Accounting Principles (CGAAP). In addtion, the Registrant's accountants
have reconciled the Financial Statements for the periods ending December 31,
1993, December
<PAGE>
17
31, 1994, December 31, 1995, March 31, 1996 and June
30, 1996 in accordance with U.S. Generally Accepted Accounting Principles (US
GAAP). The reconciliation is contained in the notes to the financial statements.
Financial statements are given for the period commencing April 30, 1993, being
the effective date of the transfer of the assets comprising the Turbodyne
Technology to Turbodyne Systems from Edward M. Halimi. Turbodyne Systems was
acquired by the Registrant effective March 8, 1994 pursuant to an agreement
between the Registrant and Edward M. Halimi dated July 15, 1993 and amended by
amendment agreements dated October 1, 1993 and December 31, 1993.
To date, the Registrant has not paid any dividends on its common shares. The
Registrant's policy at the present time is to retain earnings for corporate
purposes. The payment of dividends in the future will depend on the earnings and
financial conditions of the Registrant and such other factors as the Board of
Directors of the Registrant may consider appropriate. Since the Registrant is
currently in a development and expansion stage, it is unlikely that earnings
will be available for the payment of dividends in the near future.
<PAGE>
18
Statement of Operations Data for the Registrant (Canadian GAAP)
January 1/96 to
June 30/96
(Cdn. $)
---------------
Gross Revenue nil
Net Loss for $1,081,407
Period
Net Loss Per $0.07
Share
January 1/95 to January 1/94 to
December 31/95 December 31/94
(Cdn. $) (Cdn. $)
--------------- ---------------
Gross Revenue nil nil
Net Loss for $1,527,342 $935,992
Period
Net Loss Per $0.16 $0.18
Share
April 30/93 to
Dec 31/93
(Cdn. $)
---------------
Gross Revenue nil
Net Loss for $122,142
Period
Net Loss Per $0.06
Share
<PAGE>
19
Balance Sheet Data for the Registrant (Canadian GAAP)
June 30/96
(Cdn. $)
---------------
Total Assets $10,325,940
Working Capital $ 2,198,608
Long Term $ 113,647
Liabilities
Total Liabilities $ 587,849
Shareholder's $9,738,091
Equity
December 31/95 December 31/94
(Cdn. $) (Cdn. $)
--------------- ----------------
Total Assets $5,201,899 $1,899,016
Working Capital $ 82,495 ($426,910)
Long Term $ 20,010 nil
Liabilities
Total Liabilities $503,122 $458,451
Shareholder's $4,698,777 $1,440,565
Equity
<PAGE>
20
Statement of Operations Data for the Registrant (U.S. GAAP)
Jan 1/96 to
June 30/96
(Cdn. $)
---------------
Gross Revenue nil
Net Loss for $2,896,928
Period
Net Loss Per $0.19
Share
Jan 1/95 to Jan1/94 to
Dec 31/95 Dec 31/94
(Cdn. $) (Cdn. $)
--------------- ---------------
Gross Revenue nil nil
Net Loss for $3,593,299 $1,428,974
Period
Net Loss Per $0.37 $0.28
Share
April 30/93 to
Dec 31/93
(Cdn. $)
---------------
Gross Revenue nil
Net Loss for $ 291,633
Period
Net Loss Per $0.14
Share
<PAGE>
21
Balance Sheet Data for the Registrant (U.S. GAAP)
June 30/96
(Cdn. $)
---------------
Total Assets $4,625,102
Working Capital $2,198,608
Long Term $ 113,647
Liabilities
Total Liabilities $ 587,849
Shareholder's $4,037,253
Equity
Dec 31/95 Dec 31/94
(Cdn. $) (Cdn. $)
--------------- ---------------
Total Assets $1,316,572 $ 79,656
Working Capital $ 82,485 ($426,910)
(deficit)
Long Term $ 20,010 nil
Liabilities
Total Liabilities $503,122 $458,451
Shareholder's ($813,460) ($378,451)
Equity (deficit)
<PAGE>
22
Dec 31/93
(Cdn. $)
---------------
Total Assets $ 44,500
Working Capital ($336,132)
(deficit)
Long Term nil
Liabilities
Total Liabilities $336,132
Shareholder's ($291,633)
Equity (deficit)
Financial information for the Registrant as of June 30, 1996 is unaudited.
Financial Statements for Baja
The following selected financial information for the completed fiscal periods of
Baja is derived from the Financial Statements of Baja. This information should
be read in conjunction with such Financial Statements and notes thereto included
elsewhere in this Registration Statement. The Registrant's Financial Statements
are prepared according to U.S. Generally Accepted Accounting Principles.
Financial information for Baja as of June 30, 1996 is based on unaudited
financial statements prepared by management of Baja.
<PAGE>
23
Statement of Operations Data (U.S. GAAP) for Baja
Jan 1/96 to Jan 1/95 to
June 30/96 Dec 31/95
(U.S. $) (U.S. $)
--------------- ---------------
Gross Revenue $20,024,000 $28,986,000
Net Income for $ 1,894,000 $ 815,000
Period
Jan 1/94 to Jan 1/93 to
Dec 31/94 Dec 31/93
(U.S. $) (U.S. $)
--------------- ---------------
Gross Revenue $19,392,000 $13,871,000
Net Income for $ 480,000 $ 245,000
Period
<PAGE>
24
Balance Sheet Data (U.S. GAAP) for Baja
June 30/96 Dec 31/95
(U.S. $) (U.S. $)
--------------- ---------------
Total Assets $18,773,007 $16,118,000
Working Capital $ 225,000 ($ 1,019,000)
Long Term $ 1,655,000 $ 2,177,000
Liabilities
Total Liabilities $12,028,000 $11,307,000
Shareholder's $ 6,705,000 $4,811,000
Equity
Dec 31/94
(U.S. $)
---------------
Total Assets $12,213,000
Working Capital $343,000
Long Term $ 922,000
Liabilities
Total Liabilities $8,217,000
Shareholder's $3,996,000
Equity
<PAGE>
25
Pro Forma Balance Sheet for Registrant
The Registrant's auditors have prepared an unaudited pro-forma balance sheet
and an unaudited pro-forma consolidated statement of operations, reconciled to
U.S. GAAP, for the Registrant and Baja as of June 30, 1996 based on the
unaudited financial statements of each of the Registrant and Baja as of June
30, 1996. Selected financial information from the consolidated balance sheet is
summarized below:
June 30, 1996
(U.S.$)
-------------
Total Assets $37,314,638
Working Capital $ 6,887,819
Long Term Liabilities $ 1,738,337
Total Liabilities $12,459,068
Shareholder's Equity $24,855,570
Net Sales $20,024,000
Net Income (loss) $ (518,491)
Exchange Rates
The following table sets forth, for the periods and dates indicated, certain
information concerning exchange rates of United States and Canadian dollars. All
the figures shown represent noon buying rates for cable transfers in New York
City, certified for customs purposes by the Federal Reserve Bank of New York.
The source of this data is the Federal Reserve Bulletin and Digest.
Period Period End Average
- ------ ---------- -------
December 1990 1.1635 1.1670 (CDN$/US$)
December 1991 1.1467 1.1460 (CDN$/US$)
December 1992 1.2725 1.2088 (CDN$/US$)
December 1993 1.3308 1.2902 (CDN$/US$)
December 1994 1.3893 1.3659 (CDN$/US$)
December 1995 1.4018 1.3725 (CDN$/US$)
June 30, 1996 1.3637 1.3613 (CDN$/US$)
<PAGE>
26
Item 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this Registration
Statement.
Results of Operations
Since the acquisition of the Turbodyne Technology in April, 1993, Turbodyne
Systems has been engaged principally in researching and developing products
incorporating the Turbodyne Techology to enhance engine perfomance and reduce
emissions of internal combustion engines. The development of the Registrant's
Turbodyne System, Turbopac and Dynacharger products are essentially complete and
the Registrant is now tooling for the commercial production. While the
Registrant has undertaken low volume production of its products, the products
produced have been primarily used for testing and evaluation products with
potential industry Original Equipment Manufacturer and major retrofit customers.
The Registrant does not have any revenues from its products to the date of this
Registration Statement and has expended $10,924,008 to June 30, 1996 as
development costs for the Turbodyne products.
Liquidity and Capital Resources
As of June 30, 1996, the Registrant had cash in the amount of $2,399,937. Upon
completion of the Registrant's special warrant private placement financing, as
described in Item 12, and the Acquisition of Baja, the Registrant will receive
an additional amount of cash in the amount of approximately $3,735,000.
The operating expenses of the Registrant will increase as the Registrant
finalizes its preparations for commercial production of the Turbodyne products.
The Registrant believes that its working capital upon completion of the
acquisition of Baja will be sufficient to fund carry out its operating plan
through to mid-1997.
The liquidity of the Registrant will be affected if the Registrant is unable to:
(a) finalize agreements with Original Equipment Manufactures and major
retrofitters for the incorporation of its Turbodyne products in new
diesel engines and aftermarket diesel engine products;
(b) acheive sales of its Turbodyne products directly to after-market
customers at commercially viable rates.
The Registrant is using its best efforts to enter into contracts with Original
Equipment Manufacturers and major retrofitters for the incorporation of its
Turbodyne products. The
<PAGE>
27
Registrant has received purchase orders in excess of $9,000,000 U.S. for its
after-market products under its distribution agreement with Granatelli. The
liquidity of the Registrant will be affected if the Registrant is unable to
commence commercial production of its products in time to meet these purchase
orders.
The Registrant has financed its operations to date, including research and
development activities, general and administrative expenditures, and evaluation
and joint development programs, from the sale of equity securities. The intial
acquisition of the Turbodyne Technology was completed by reverse takeover
whereby the Registrant issued 1,000,000 common shares to the shareholders of
Turbodyne Systems in order to acquire Turbodyne Systems.
The Registrant believes that additional funding will be readily available upon
the commencement of commercial production of the Turbodyne products and sales
indicating market acceptance of the Turbodyne products. The Registrant's working
capital should be sufficient to finance operations until additional revenues are
acheived or until additional financing becomes available, if required.
The Registrant's projection of its working capital being sufficient to fund its
operating plan to mid-1997 is exclusive of any funds which may be available from
the business of Baja after completion of the acquisition of Baja. The
Registrant's intent is to keep the cash flow for the Baja business for the
operation and expansion of the Baja business. The Registrant does not intend to
use the cash flow from the Baja business to fund the Turbodyne business.
Item 10. Directors and Officers of the Registrant
The following table sets forth all current directors and executive officers of
the Registrant, with each position and office held by them in the Registrant,
and the period of service as such:
Name and Position
with the Company Age Commencement of Service
- ---------------- --- -----------------------
EDWARD HALIMI 51 October 18, 1993
Carpinteria, California
President, Director
& Promoter
LEON E. NOWEK 39 October 18, 1993
Surrey, British Columbia
Director
DANIEL GERONAZZO 65 January 24, 1995
Christina Lake, British Columbia
Director
<PAGE>
28
RICHARD W. DONALDSON 57 October 18, 1993
Palm Desert, California
Secretary
WENDELL R. ANDERSON 63 November 20, 1995
Minneapolis, Minnesota
Director
EUGENE A. HODGSON 40 May 27, 1996
Vancouver, British Columbia
Director
ROBERT F. TAYLOR 56 July 12, 1996
Calgary, Alberta
Director
Edward Halimi is the President and Chief Executive Officer of the Registrant and
has served in those capacities since October 18, 1993. Mr. Halimi is the
developer of the Turbodyne System. He spent 11 years working with FerroPlast
Corporation, an international company specializing in the engineering and
manufacture of diesel engines, pumps, electric motors and farm equipment. As a
Vice-President, Mr. Halimi worked in the engineering and manufacturing divisions
in the Middle East and Europe and was responsible for the home building and
housing operations in the United States. Mr. Halimi was also the President and
Chief Executive Officer of Technodyne Corporation, a manufacturer of heat
management and temperature control units and he is currently the Chief Executive
Officer of Biosonics Corporation, a research and development company in the
fields of ultrasonics, vibration control and semi-conductor research and
electronics.
Leon E. Nowek is a director of the Registrant and has an accounting background
and is responsible for corporate finance, finance reporting and regulatory
compliance. He was appointed as a director of the Registrant in October, 1993.
Mr. Nowek is also a director and senior officer of New Westwin Ventures Inc. Mr.
Nowek has been involved in a similar role with a number of public companies
since 1983.
Daniel Geronazzo is a director of the Registrant. He was appointed as a director
on January 24, 1995. Mr. Geronazzo is an attorney in the Province of British
Columbia and has been in private legal practice for the past 35 years
Mr. Anderson is a director of the Registrant. He was appointed as a director on
November 20, 1995. Mr. Anderson has received his Doctor of Law Degree from the
University of Minnesota Law School in 1960. He has been in private practise
since 1963 and is presently an attorney with the firm of Larkin, Hoffman, Daly
and Lindgren Ltd. of Bloomington, Minnesota. Mr. Anderson has held several
positions of public office. From 1959 to 1963 he was a state representative from
Minnesota and served as state senator from 1963 to 1971. In 1971 Mr. Anderson
was elected as
<PAGE>
29
Governor of the State of Minnesota. At that time, he was the nation's youngest
governor. In 1977 Mr. Anderson became a United States Senator from the State of
Minnesota. He held office for a period of two years. During his term, he served
on such committees as the environment and public works committee, the budget
committee, the natural resources committee and armed services committee. Mr.
Anderson currently serves as a director of numerous corporations and foundations
including National City Bank Corporation and the University of Minnesota Board
of Trustees.
Richard W. Donaldson is the secretary of the Registrant. He was appointed as the
secretary on October 18, 1993. Mr. Donaldson has been a self-employed private
investor since 1978.
Eugene A. Hodgson is a director of the Registrant. Mr. Hodgson is a
self-employed management consultant. Mr. Hodgson was previously Director of
Corporate Development at Intrawest Corporation, a company listed on the Toronto
Stock Exchange, for a period of five years. Mr. Hodgson is currently Director of
the Vancouver Board of Trade and Chair of its communications committee. He is
also currently treasurer of the Liberal Party of Canada (British Columbia). Mr.
Hodgson has held a number of positions in both the British Columbia and Yukon
governments.
Robert F. Taylor is a director of the Registrant. Mr. Taylor is also a director
of Shell Canada Products. Mr. Taylor is a chartered accountant and is a member
of the Institute of Chartered Accountants of Alberta, Canada. Mr. Taylor was
appointed president of Shell Canada Products in 1993 and has served in various
capacities with Shell since 1967 in Calgary, Toronto and London, England.
Edward M. Halimi and Leon E. Nowek presently devote 100% of their time to the
business of the Registrant. Daniel Geronazzo, Richard W. Donaldson and Robert F.
Taylor devote such percentage of their time as is required by the Registrant to
the business of the Registrant. Eugene A. Hodgson devotes a majority of his
business time to the business of the Registrant.
Directors may be appointed at any time and are then re-elected annually by the
Stockholders. Directors receive no compensation for serving as such, other than
stock options. Officers are elected annually by the Board of Directors and serve
at the discretion of the Board.
Item 11. Compensation of Directors and Officers
The Registrant does not compensate directors for acting solely as directors.
The Registrant pays a salary of $60,000 per year to Mr. Edward M. Halimi as
President of the Registrant. Mr. Halimi was paid a salary of $60,000 per year in
1994 and 1995 and was granted options to purchase 500,000 shares of the
Registrant in 1995. Mr. Halimi did not receive any share purchase options in
1994.
<PAGE>
30
The Registrant is party to a management services agreement with Seeds Investment
Corporation ("Seeds") whereby the Registrant pays to Seeds a total of $2,500 per
month in consideration of Seeds providing the management services of Leon E.
Nowek to the Registrant. Seeds is a private British Columbia company controlled
by Leon E. Nowek, a director of the Registrant.
Item 12. Options to Purchase Securities from Registrant or Subsidiaries
As at July 31, 1996 the Registrant had outstanding options to purchase common
shares as follows:
Number of Shares Exercise Price Expiry Date
- ---------------- -------------- -----------
80,000 $1.65 April 20, 1997
265,000 $4.20 July 28, 1997
424,000 $4.66 December 20, 1997
250,000 $4.75 August 17, 1997
531,500 $7.13 February 27, 1998
350,000 $11.70 May 22, 1998
The officers and directors as a group hold an aggregate of 240,000 options to
purchase common shares.
The Registrant has outstanding as of July 31, 1996, non-transferable warrants to
purchase 490,673 common shares. These warrants were issued pursuant to various
private placement subscription agreements and are subject to various hold
periods. The following are the particulars of the warrants issued in connection
with such private placements, with reference to the number of common shares of
the Registrant issuable upon the exercise of the warranty in connection with
each private placement:
Number of Shares Exercise Price of Warrants Warrants Expiry Date
- ---------------- -------------------------- --------------------
24,509 $4.18 Oct 16/96
22,988 $4.45 Oct 25/96
30,000 $4.27 Nov 24/96
24,752 $4.14 Dec 1/96
30,000 $3.89 Dec 5/96
27,027 $3.80 Dec 7/96
25,000 $4.10 Dec 18/96
23,530 $4.35 Jan 2/97
23,529 $4.35 Jan 18/97
23,529 $4.35 Jan 22/97
23,529 $4.35 Feb 1/97
<PAGE>
31
19,047 $5.35 Feb 12/97
31,348 $6.48 Feb 23/97
15,873 $6.40 Feb 28/97
14,925 $6.80 Mar 5/97
15,948 $6.37 Mar 12/97
43,416 $7.01 Mar 15/97
13,793 $7.35 Mar 18/97
45,368 $7.55 Mar 19/97
12,562 $8.06 Mar 21/97
None of the warrants described above have been exercised as of the date of this
Registration Statement. All of the above-referenced options and warrants are
currently exercisable.
The Registrant has completed a private placement of special warrants, as
described below, in order to complete the acquisition of Pacific Baja. The
proceeds of the private placement in the amount of $18,750,000 are presently
held in escrow by the Registrant's registrar and transfer agent, Montreal Trust
Company of Canada pending completion of the acquisition of Pacific Baja by the
Registrant in accordance with the terms of the Acquisition Agreement. The
securities issued pursuant to this private placement of special warrants are
summarized below:
(a) A total of 3,750,000 Series "A" Special Warrants are outstanding and
were issued by the Registrant at a price of $5.00 per Series "A"
Special Warrant for total proceeds of $18,750,000. Each Series "A"
Special Warrant is exercisable into one unit (an "A-Unit") of the
Registrant for no additional consideration at any time prior to July
2, 1997. Each A-Unit shall consist of one common share of the
Registrant and one-half of one transferable share purchase warrant (an
"A- Warrant"). Each whole A-Warrant entitles the subscriber to
purchase a further common share of the Registrant for a price of $5.50
per share at any time prior to July 2, 1997.
The Series "A" Special Warrants will be deemed to be exercised on the
earlier of:
(a) the fifth business day following the date a receipt is issued by the
applicable regulatory authorities for a prospectus qualifying the
distribution of the A-Units; and
(b) the first anniversary of the closing of the financing.
<PAGE>
32
The Registrant intends to file a prospectus to qualify the distribution of the
units. In the event that the distribution of the units is not qualified within
90 days of the closing of the special warrant private placement, the Series "A"
Special Warrants will be convertible into a unit consisting of one common share
and one whole non-transferable share purchase warrant.
At the option of the agents who completed the Registrant's special warrant
private placement, a total of up to 375,000 Series "A" Special Warrants may be
issued to the agents in lieu of cash commissions payable on completion of the
private placement. In the event the agents elect to receive payment in Series
"A" Special Warrants, a total of 375,000 A-Warrants may be issued by the
Registrant upon the exercise of the Series "A" Special Warrants.
On August 19, 1996, the Registrant announced a private placement of 500,000
Series "C" Special Warrants to be issued by the Registrant at a price of $9.00
per Series "C" Special Warrant for a total proceeds of $4,500,000. Each Series
"C" Special Warrant will be exercisable into one unit (a "C-Unit") of the
Registrant for no additional consideration at any time prior to the one year
anniversary of the issue of the Series "C" Special Warrant. Each C-Unit shall
consist of one Common Share of the Registrant and one half of one transferable
share purchase warrant (a "C-Warrant"). Each whole C-Warrant will entitle the
subscriber to purchase a further Common Share of the Registrant at the price of
$9.50 per share at any time prior to the one year anniversary of the issue of
the Series "C" Special Warrants. At the option of the Agent who will be
completing the Registrant's Series "C" Special Warrant Private Placement, a
total of up to __,000 Series "C" Special Warrants may be issued to the Agent in
lieu of cash commission payable on completion of the private placement. In the
event the Agent elects to receive payment in Series "C" Special Warrants, a
total of 50,000 Common Shares of the Registrant and 50,000 C-Warrants may be
issued by the Registrant upon exercise of the Ser5ies "C" Special Warrants.
Item 13. Interest of Management in Certain Transactions
Material Agreements
Edward M. Halimi, a director of the Registrant, transferred all assets
comprising the Turbodyne Technology, as of the date of the transfer, to
Turbodyne Systems in consideration for the issue to Halimi of 100 common shares
of Turbodyne Systems, being all of the issued and outstanding shares of
Turbodyne Systems. The Registrant acquired all of the issued and outstanding
shares in Turbodyne Systems from Halimi pursuant to an agreement dated July 15,
1993 and amended by amendment agreements dated October 1, 1993 and December 31,
1993 whereby the Registrant issued 1,000,000 common shares to Halimi.
Pursuant to an agreement between the Registrant and Centrepoint Equities Inc.
("Centrepoint"), the Registrant pays Centrepoint $2,500 per month in
consideration of Centrepoint providing office space and secretarial and
reception services to the Registrant. During the fiscal year ended December 31,
1995 a total of $30,000 was paid or is payable to Centrepoint pursuant to this
<PAGE>
33
agreement. Centrepoint is a non-reporting British Columbia company, the shares
of which are owned by Leon E. Nowek, a director of the Registrant.
For the year ended December 31, 1995, the Registrant also paid a total of
$30,000 to Seeds Investment Corporation ("Seeds"), in consideration of Seeds
providing management services to the Registrant at a salary of $2,500 per month.
Seeds is a private British Columbia company controlled by Leon E. Nowek, a
director of the Registrant.
Stock Options
Management has an interest in the stock options and share purchase warrants
described under Items 4 and Items 12 of this Registrations Statement.
<PAGE>
34
PART II
Item 14. Description of Securities to be Registered
The class of capital stock of the Registrant being registered hereby is the
Registrant's common shares.
The issued and outstanding share capital of the Registrant is summarized as
follow:
SHARE CAPITAL STRUCTURE
The authorized capital of the Registrant consists of 100,000,000 common shares
without par value, 100,000,000 Class A preference shares with a par value of $10
per share and 100,000,000 Class B preference shares with a par value of $50 per
share. As of June 30, 1996, being the date of the most recent balance sheet of
the Registrant included in this Registrant, 20,218,566 of the Registrant's
common shares have been issued and are outstanding. As of September 3, 1996,
20,255,566 of the Registrant's common shares have been issued and are
outstanding. None of the Registrant's Class A or Class B preference shares have
been issued or are outstanding.
Each of the common shares has equal dividend, liquidation and voting rights.
Holders of the common shares are entitled to one vote per share on all matters
that may be brought before them. Holders of the common shares are entitled to
receive dividends when declared by the Board of Directors from funds legally
available therefor. The common shares are not redeemable, have no conversion
rights and carry no pre-emptive or other rights to subscribe for additional
shares. The outstanding common shares are fully paid and non-assessable. The
Articles of the Registrant contain provisions granting certain priorities over
the holders of the common shares to the holders of the classes of preference
shares in the event of liquidation, dissolution or winding-up of the Registrant.
Certain regulations of British Columbia and the Vancouver Stock Exchange set
forth distinctions between "free trading common shares" and common shares
required to be placed in escrow or in a "pool". Free trading common shares are
not subject to any restrictions on resale, and can be traded without regulatory
approval. Free trading shares are generally qualified by way of prospectus and
issued to the public. Conversely, shares issued by way of "private placement" to
certain investors and not the public, are usually subject to a one-year hold
period and cannot be traded until the relevant hold period has expired. Once the
hold period expires, the shares would then become free trading shares. Under the
policies of the Vancouver Stock Exchange, a listed company is entitled to sell
"performance shares" to principals of the Registrant at a minimum price of $0.01
per share on its original organization, or if the company is inactive, then upon
a reverse takeover transaction or a substantial corporate reorganization,
provided that the number of performance shareholders not exceed 65% of the
issuer's shares then outstanding. The shares
<PAGE>
35
are then placed in escrow and released in accordance with certain earnings
performance criteria to be met by the Registrant. Any of these escrow shares
that are not released within 10 years of issuance are cancelled.
As of September 3, 1996, none of the Registrant's shares were held in pool,
4,150,000 of the Registrant's common shares were held in escrow, 15,614,893
shares were free-trading and 490,673 shares were subject to varying hold terms
pursuant to the policies of the Vancouver Stock Exchange.
The holders of the escrow shares are as follows:
March Technologies Inc.* 3,250,000
L.N. Family Holdings Inc.** 900,000
* All of the voting shares of March Technologies Inc. are beneficially owned
by Edward Halimi, President, Chief Executive Officer and Director of the
Registrant.
** All of the voting shares of L.N. Family Holdings Inc. are beneficially
owned by Leon E. Nowek, a Director of the Registrant.
The escrow shares described above can only be released in complance with Local
Policy Statement 3-07 of the British Columbia Securities Commission. Under this
Local Policy Statement, releases of escrow shares from escrow shall be made on
the basis of a pro-rata release of that number of escrow shares equal to:
Amount of Cumulative Cash Flow
not Previously Applied to a Release
-----------------------------------
Earn Out Price
"Cumulative Cash Flow" means at any time, the aggregate cash flow of the
Registrant up to that time from a date no earlier than the Registrants's
financial year-end and immediately preceding the date of its initial public
offering, net of any negative cash flow. "Cash Flow" means the net income or
loss of the Registrant before tax, adjusted to add the following expeneses:
(a) depreciation;
(b) amortization of goodwill and amortization of research and development,
excluding general and administrative costs;
(c) expended research and development costs, excluding general and
administrative costs;
(d) any other amounts permitted or required by the Manitoba Securities
Commission.
"Earn Out Price" means the inital public offering price multiplied by the Earn
Out Factor. "Earn Out Factor" means the number obtained by squaring the escrow
share percentage expressed as a decimal and multiplying by four. The number of
escrow shares releasable from escrow during subsequent periods will be computed
by using the Escrow Release Formula (calculated above) provided that Cumulative
Cash Flow per share shall be for the period which has not already been
<PAGE>
36
included in a previous computation which resulted in a release of a certain
number of escrow shares.
None of the Escrowed Shares will be released from escrow until all applicable
escrow terms are satisfied.
The transfer agent and registrar for the common shares of the Registrant is
Montreal Trust Company of Canada of 2nd Floor, 510 Burrard Street, Vancouver,
British Columbia, V6C 3B9.
<PAGE>
37
PART III
Item 15. Defaults Upon Senior Securities
Inapplicable
Item 16. Changes in Securities and Changes in Security for Registered Securities
Inapplicable
<PAGE>
38
PART IV
Item 17. Financial Statements
See "Item 19. Financial Statements and Exhibits" for a list of those Financial
Statements of the Registrant which follows.
Item 18. Financial Statements
Inapplicable
Item 19. Financial Statements and Exhibits
(a) INDEX TO FINANCIAL STATEMENTS
(a) Unaudited Financial Statements of the Registrant as at June 30, 1996
- Auditors Report
- Consolidated Balance Sheet
- Consolidated Statement of Operations and Deficit
- Consolidated Statement of cash flows
- Consolidated Statement of Shareholders Equity
(b) Audited Financial Statements of the Registrant as at December 31,
1995, December 31, 1994 and December 31, 1993:
- Auditors Report
- Consolidated Balance Sheet
- Consolidated Statement of Operations and Deficit
- Consolidated Statement of cash flows
- Consolidated Statement of Shareholders Equity
(c) Auditors Report for Pacific Baja as at December 31, 1995:
- Consolidated balance sheet as at December 31, 1994 and 1995
- Consolidated statements of income for the years ended 1993, 1994
and 1995
- Consolidated Statement of Shareholders Equity
- Consolidated Statement of cash flow for years ending 1993, 1994,
and 1995
(d) Unaudited financial statements of Pacific Baja as at June 30, 1996 and
June 30, 1995
(e) Pro Forma Consolidated Balance Sheet and Pro-Forma Consolidated
Statement of Operations for the Registrant as at June 30, 1996
(f) Consent letters of Morgan & Company and McGladrey & Pullen, LLP, in
regard to the inclusion of Independent Auditors' Reports in the
Registration Statement.
<PAGE>
39
(b) EXHIBITS
1(a) Certificate of Incorporation of Dundee Resources Corp. dated May 18,
1983.
1(b) Articles of Dundee Resources Corp.
1(c) Memorandum of Dundee Resources Corp.
1(d) Certificate of Name Change from Dundee Resources Corp. to Clear View
Ventures Inc. dated January 20, 1993.
1(e) Amended Memorandum of Clear View Ventures Inc.
1(f) Certificate of Name Change from Clear View Ventures Inc. to
Turbodyne Technologies Inc. dated April 28, 1994.
1(g) Amended Memorandum of the Registrant.
1(h) Articles of the Registrant.
1(i) Proposed Articles of Continuation of the Registrant
1(j) Proposed By-laws of the Registrant to be adopted upon Continuation
2(a) Specimen Common Share Certificate.
3(i) Employment Agreement between the Registrant and Edward M. Halimi.
3(ii) Management Agreement between the Registrant and Seeds Investment
Corporation.
3(iii) Sub-Lease between American Appliance, Inc. and Carole D. King dated
December 1, 1994 for Carpinteria Property.
3(iv) Distribution Agreement between Turbodyne Systems and Granatelli
Performance Technologies Inc.
3(v) Acquisition Agreement between the Registrant, Pacific Baja Light
Metals Holding Inc., and Lenart Renberg, Michael Joyce, Sadayappa
Durairaj Family Trust, Naresh Saxens and Mugerdish Balabanian dated
March 15, 1996 (the "Acquisition Agreement")
<PAGE>
40
3(vi) Amendment Agreement between the Registrant, Pacific Baja Light
Metals Holding Inc., and Lenart Renberg, Michael Joyce, Sadayappa
Durairaj Family Trust, Naresh Saxens and Mugerdish Balabanian dated
June 14, 1996
<PAGE>
41
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
TURBODYNE TECHNOLOGIES INC.
(Registrant)
"EDWARD M. HALIMI"
EDWARD M. HALIMI
PRESIDENT AND DIRECTOR
(Authorized Signatory)
DATE: September ___, 1996
<PAGE>
TURBODYNE TECHNOLOGIES INC.
---------------------------
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
JUNE 30, 1996
-------------
(Stated in Canadian Dollars)
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 1
---------------------------
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
---------------------------
(Stated in Canadian Dollars)
June 30, December 31,
1996 1995
---- ----
(unaudited)
ASSETS
CURRENT
Cash $ 2,399,937 $ 308,634
GST refund receivable 82,354 51,264
Advances receivable 51,134 112,514
Prepaid expenses and deposits 139,385 93,185
---------- ---------
2,672,810 565,597
CAPITAL ASSETS (Note 3) 1,239,001 524,143
DEFERRED ACQUISITION COSTS 713,291 226,842
PROJECT DEVELOPMENT COSTS 5,700,838 3,885,317
---------- ---------
$ 10,325,940 $ 5,201,899
========== =========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 434,336 251,215
Loans payable (Note 4) 5,634 223,304
Current portion of long term debt 34,232 8,593
---------- ---------
474,202 483,112
LONG TERM DEBT (Note 5) 113,647 20,010
---------- ---------
587,849 503,122
---------- ---------
<PAGE>
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6)
Authorized:
100,000,000 Common shares without par value
100,000,000 Class A preference shares with a par value of $10
100,000,000 Class B preference shares with a par value of $50
Issued and outstanding
20,218,566 Common shares (of which
4,150,000 are held in escrow) at
June 30, 1996 and 16,542,121
common shares (of which 4,150,000 shares
are held in escrow) at December 31,
1995 13,722,260 7,139,209
Add share subscriptions received
0 shares at June 30, 1996 and
129,767 shares at December 31, 1995 - 462,330
DEFICIT ACCUMULATED DURING THE DEVELOPMENT
STAGE (3,984,169) (2,902,762)
---------- ---------
9,738,091 4,698,777
---------- ---------
$ 10,325,940 $ 5,201,899
========== =========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 2
---------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
-------------------------------------------------
FOR THE SIX MONTH PERIODS ENDED JUNE 30
---------------------------------------
(unaudited)
(Stated in Canadian Dollars)
1996 1995
---- ----
EXPENSES
Advertising and trade shows $ 26,689 $ 23,862
Bank charges, interest and exchange, net 4,401 82,260
Consulting fees 93,612 38,108
Depreciation 7,560 -
Finders' fees - 42,000
Filing and transfer fees 35,871 21,423
Fiscal agency fees 82,350 -
Investor relations 57,822 36,591
Management fees 15,000 15,000
Office rent, administration and sundry 177,041 100,391
Printing 16,549 58,834
Professional fees 186,724 132,300
Salaries and employee benefits 212,512 66,017
Telephone 24,590 18,515
Travel and business development 140,686 146,852
--------- ---------
LOSS FOR THE PERIOD (1,081,407) (782,153)
ACCUMULATED DEFICIT, BEGINNING OF PERIOD (2,902,762) (1,375,420)
--------- ---------
ACCUMULATED DEFICIT, END OF PERIOD $(3,984,169) $(2,157,573)
========= =========
LOSS PER SHARE $(0.07) $(0.09)
==== ====
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 15,689,098 8,278,646
========== =========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 3
---------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
-------------------------------------------------
FOR THE SIX MONTH PERIODS ENDED JUNE 30
---------------------------------------
(unaudited)
(Stated in Canadian Dollars)
Inception
April 30,
1993 to
June 30,
1996
----
EXPENSES
Advertising and trade shows $ 120,809
Bank charges, interest and exchange, net 164,597
Consulting fees 370,494
Depreciation 14,082
Finders' fees 42,000
Filing and transfer fees 74,039
Fiscal agency fees 82,350
Investor relations 236,493
Management fees 70,000
Office rent, administration and sundry 536,066
Printing 120,035
Professional fees 527,635
Salaries and employee benefits 469,283
Telephone 73,777
Travel and business development 755,223
---------
LOSS FOR THE PERIOD $ 3,656,883
=========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 4
---------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
(Stated in Canadian Dollars)
Number of
Shares Amount
-------- ------
Balance at date of inception, April 30, 1993 - $ -
Issuance of stock for project development costs 100 1,146,887
Net loss - -
---------- ----------
Balance December 31, 1993 100 1,146,887
Exchange of stock to acquire subsidiary
Turbodyne Systems Inc. (100) -
Turbodyne Technologies Inc. 1,078,052 -
Issuance of stock to acquire subsidiary
Common stock 1,100,000 -
Escrow performance stock 4,000,000 40,000
Issuance of common stock 4,485,000 1,629,098
Net asset deficiency of legal parent
at date of reverse take-over transaction - -
Net loss - -
---------- ----------
Balance December 31, 1994 10,663,052 2,815,985
<PAGE>
Issuance of common stock 5,879,069 4,323,224
Share subscriptions received 129,767 462,330
Net loss - -
---------- ----------
Balance December 31, 1995 16,671,888 7,601,539
Issuance of common stock 3,546,678 6,120,721
Net Loss
---------- ----------
Balance June 30, 1996 20,218,566 $ 13,722,260
========== ==========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 5
---------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
(Stated in Canadian Dollars)
Accumulated
Deficit Total
----------- -----
Balance at date of inception, April 30, 1993 $ - $ -
Issuance of stock for project development
costs - 1,146,887
Net loss (112,142) (112,142)
--------- ---------
Balance December 31, 1993 (112,142) 1,034,745
Exchange of stock to acquire subsidiary
Turbodyne Systems Inc. - -
Turbodyne Technologies Inc. - -
Issuance of stock to acquire subsidiary
Common stock - -
Escrow performance stock - 40,000
Issuance of common stock - 1,629,098
Net asset deficiency of legal parent at
date of reverse take-over transaction (327,286) (327,286)
Net loss (935,992) (935,992)
-------- --------
Balance December 31, 1994 (1,375,420) 1,440,565
Issuance of common stock - 4,323,224
Share subscriptions received - 462,330
Net loss (1,527,342) (1,527,342)
--------- ---------
Balance December 31, 1995 (2,902,762) 4,698,777
Issuance of common stock 6,120,721
Net Loss (1,081,407) (1,081,407)
--------- ---------
Balance June 30, 1996 $(3,984,169) $ 9,738,091
========= =========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 6
---------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE SIX MONTH PERIODS ENDED JUNE 30
---------------------------------------
(unaudited)
(Stated in Canadian Dollars)
1996 1995
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Loss for the period $(1,081,407) $ (782,153)
--------- ---------
ADJUSTMENTS TO RECONCILE LOSS TO NET
CASH USED BY OPERATING ACTIVITIES
Depreciation 7,560 -
Change in GST refund receivable (31,090) -
Change in advances receivable 61,380 -
Change in prepaid expense (46,200) (10,000)
Change in accounts payable 183,121 (383,596)
--------- ---------
TOTAL ADJUSTMENTS 174,771 (393,596)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (906,636) (1,175,749)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Capital assets (net of depreciation
allocated to project development costs) (722,418) (232,103)
Project development costs (1,815,521) (803,435)
Deferred acquisition costs (486,449) -
Net asset deficiency of legal parent
transaction at date of reverse
take-over transaction - -
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (3,024,388) (1,035,538)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock 6,120,721 3,061,337
Change in loan payable (217,670) 182,220
Change in long term debt 119,276 -
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,022,327 3,243,557
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,091,303 1,032,270
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 308,634 -
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,399,937 $ 1,032,270
========= =========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 7
---------------------------
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE SIX MONTH PERIODS ENDED JUNE 30
---------------------------------------
(unaudited)
(Stated in Canadian Dollars)
Inception,
April 30,
1993 to,
June 30,
1996
----
CASH FLOW FROM OPERATING ACTIVITIES
Loss for the period $(3,656,883)
----------
ADJUSTMENTS TO RECONCILE LOSS TO NET CASH
USED BY OPERATING ACTIVITIES
Depreciation 14,082
Change in GST refund receivable (82,354)
Change in advances receivable (51,134)
Change in prepaid expense (139,385)
Change in accounts payable 434,336
----------
TOTAL ADJUSTMENTS 175,545
----------
NET CASH USED IN OPERATING ACTIVITIES (3,481,338)
----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital assets (net of depreciation allocated
to project development costs) (1,253,083)
Project development costs (5,700,838)
Deferred acquisition costs (713,291)
Net asset deficiency of legal parent transaction
at date of reverse take-over transaction (327,286)
----------
NET CASH USED IN INVESTING ACTIVITIES (7,994,498)
----------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock 13,722,260
Change in loan payable 5,634
Change in long term debt 147,879
----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 13,875,773
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,399,937
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -
----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,399,937
==========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 8
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of June 30, 1996 and 1995
included herein have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosure normally included in financial statements prepared in
accordance with Canadian generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. It is
suggested that these financial statements be read in conjunction with the
December 31, 1995 audited consolidated financial statements and notes
thereto.
2. a) NATURE OF OPERATIONS
Development Stage Activities
The Company, through its subsidiary Turbodyne Systems, Inc., is engaged
in the development, production and sales of a device (the "Turbodyne
System") designed to eliminate turbo-lag and reduce black smoke emissions
in turbocharged engines. The Turbodyne System consists primarily of a
high speed electric motor coupled to the turbocharger at the intake by
means of a unique proprietary combination of one-way bearing or magnetic
clutches. The development and commercialization of this device is the
principal business of the Company and its subsidiary, Turbodyne Systems,
Inc.
b) SIGNIFICANT ACCOUNTING POLICIES
i) Consolidation
These financial statements include the accounts of the Company and
its wholly owned U.S. subsidiary Turbodyne Systems, Inc.
ii) Depreciation
Depreciation is calculated on a straight-line basis at the rate of
20% per annum.
iii) Deferred Acquisition Costs
The Company is deferring all direct costs incurred in connection
with the anticipated acquisition of Pacific Baja Light Metal
Holdings Inc.
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 9
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
b) SIGNIFICANT ACCOUNTING POLICIES (Continued)
iv) Project Development Costs
The Company is deferring all engineering, design consulting and
other costs directly related to the ongoing development and
commercialization of its "Turbodyne System" to be amortized against
related revenues when production commences.
v) Leases
Leases are classified as capital or operating leases. Leases which
transfer substantially all of the benefits and risks incident to
ownership of property are accounted for as capital leases. Assets
acquired under capital leases are amortized on a straight-line
method at the rate of 20%. All other leases are accounted for as
operating leases and the related lease payments are charged to
expense as incurred.
vi) Non-Monetary Transactions
Shares of common stock of the Company issued for non-monetary
consideration are valued at the quoted market price per share at
the close of trading on the day of completion of the transaction
except for those circumstances where, in the opinion of the Company
and due to the nature of the transaction, the trading price does
not fairly represent the value of the transaction. In such
circumstances, the value of the shares is determined based on the
estimated fair value of the consideration received.
vii) Foreign Currency Translation
Transactions recorded in foreign currencies have been translated
into Canadian dollars using the Temporal Method as follows:
i) monetary items at the rate prevailing at the balance sheet
date;
ii) non-monetary items at the historical exchange rate;
iii) revenue and expense at the average rate in effect during the
applicable accounting period.
Gains or losses arising on translation are included in the results
of operations.
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 10
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
b) SIGNIFICANT ACCOUNTING POLICIES (Continued)
viii) Cash Equivalents
The Company considers all highly liquid financial instruments
purchased with an original maturity of three months or less to be
cash equivalents.
ix) Income Taxes
During 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 - "Accounting for Income Taxes"(SFAS 109). This
standard requires the use of an asst and liability approach for
financial accounting and reporting on income taxes. It is more
likely than not that some portion of all of a deferred tax asset
will not be realized, a valuation allowance is recognized.
x) Loss Per Share
Loss per share is based on the weighted average number of common
shares outstanding during the year. Since the Company's stock
options, warrants and escrow shares are anti-dilutive, they have
not been included in the calculation. There were no stock options,
warrants or escrow shares outstanding prior to the December 31,
1994 fiscal year.
xi) Basis of Presentation
These financial statements are prepared in accordance with
accounting principles generally accepted in Canada. Had they been
prepared in accordance with accounting principles generally
accepted in the United States, the following differences in the
measurement of income, results of operations and shareholders'
equity would have resulted:
a) The $1,146,887 value attributed to the 100 shares of Turbodyne
Systems, Inc., issued in consideration of the accumulated time
and out-of-pocket expenditures incurred in the development of
the "Turbodyne System" prior to its acquisition by Turbodyne
Systems, Inc. would have been charged to shareholders' equity,
not capitalized as project development costs.
b) Ongoing project development costs would have been charged to
expense as incurred not capitalized on the balance sheet.
<PAGE>
Page 11
AMENDMENTS TO TURBODYNE'S JUNE 30, 1996 FINANCIAL STATEMENTS
TURBODYNE TECHNOLOGIES INC.
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
b) SIGNIFICANT ACCOUNTING POLICIES (Continued)
As such, these financial statements would be changed as follows:
Consolidated Statement of Operations and Deficit:
1996 1995
---- ----
Loss for the period shown on the
financial statements $ (1,081,407) $ (782,153)
Increase in loss resulting from
charging project development
costs to expense (1,815,521) (803,435)
---------- --------
Loss according to generally
accepted accounting principles
in the U.S. (2,896,928) (1,585,585)
Accumulated deficit, beginning
of period (6,788,079) (3,194,780)
---------- ---------
Accumulated deficit end of period
according to generally accepted
accounting principles
in the U.S. $ (9,685,007) $(4,780,365)
========== =========
Loss per share - U.S. GAAP $(0.19) $(0.19)
==== ====
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 12
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
June 30, December 31,
1996 1995
---- ----
Consolidated Balance Sheet:
Project development costs as shown
on the balance sheet $ 5,700,838 $ 3,885,317
Change as a result of (a) above
Reverse capitalization of project
development costs acquired for shares (1,146,887) (1,146,887)
Change as a result of (b) above
Reverse capitalization of ongoing project
development costs (4,553,951) (2,738,430)
---------- ---------
Project development costs according to
generally accepted accounting principles
in the U.S. $ - $ -
========== =========
Accumulated deficit as shown on the balance
sheet $(3,984,169) $(2,902,762)
Change as a result of (a) above
Charge value attributed to project
development costs acquired for shares
to shareholders' equity (1,146,887) (1,146,887)
Change as a result of (b) above
Charge ongoing project development costs
to expense (4,553,951) (2,738,430)
Accumulated deficit according to generally
accepted accounting principles in the U.S. $ (9,685,007) $(6,788,079)
========== =========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 13
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
Consolidated Statement of Stockholders' Equity:
NUMBER
OF SHARES AMOUNT
--------- ------
Balance June 30, 1996 as shown on the
consolidated financial statements 20,218,566 $13,722,260
Project development costs acquired for shares - -
Increase in net loss due to charging
ongoing project development costs to expense - -
Balance June 30, 1996, according to
generally accepted accounting principles
in the U.S. $ 20,218,566 $ 13,722,260
========== ==========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 14
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
Consolidated Statement of Stockholders' Equity:
ACCUMULATED
DEFICIT TOTAL
------- -----
Balance June 30, 1996 as shown on the
consolidated financial statements $ (3,984,169) $ 9,738,091
Project development costs acquired for shares (1,146,887) (1,146,887)
Increase in net loss due to charging
ongoing project development costs to expense
(4,553,951) (4,553,951)
----------- -----------
Balance June 30, 1996, according to
generally accepted accounting principles
in the U.S. $ (9,685,007) $ 4,037,253
=========== =========
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 15
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
3. CAPITAL ASSETS
June 30, December 31,
1996 1995
-------- -----------
Net Book Net Book
Value Value
-------- ----------
Office equipment $ 172,202 $ 123,883
Machinery 424,205 210,754
Leasehold improvements 124,858 106,090
Automobiles 156,764 83,416
Machinery under construction 222,831 -
--------- -------
1,100,860 524,143
Assets Under Capital Lease:
Machinery 85,531 -
Automobiles 52,610 -
--------- -------
$ 1,239,001 $ 524,143
========= =======
The Company was committed to purchase tooling machinery at June 30, 1996 of
$442,460.
4. LOANS PAYABLE
June 30, December 31,
1996 1995
---- ----
a) Promissory note, repayable at
$517 per month, including interest
at 10% per annum. $ 5,634 $ 11,279
b) Short term interest free loan,
secured by the personal guarantee
of two of the Company's director.
As additional consideration for
the loan, the Company issued 233,333
shares at a deemed value of $0.36
per share and agreed to pay a royalty
of $5 U.S. on each Turbodyne unit sold
to a maximum of $1,000,000 U.S. A
finder's fee of 116,667 common shares at
a deemed value of $0.36 per share was
issued in connection with the loan. - 212,025
----- -------
$ 5,634 $ 223,304
===== =======
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 16
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
5. LONG TERM DEBT
June 30, December 31,
1996 1995
---- ----
Bank term loan
Repayable at $720 per month, including
interest at 11% per annum, due
October 11, 1998, secured by an
automobile. $ 24,172 $ 28,603
Capital lease obligations 123,707 -
------- ------
147,879 28,603
Less: current portion 34,232 8,593
------- ------
$ 113,647 $ 20,010
======= ======
The Company leases machine tooling equipment and an automobile under the
terms of a capital lease. The following is a schedule of future minimum
lease payments over the life of the lease:
1997 39,642
1998 48,667
1999 29,790
2000 32,272
-------
150,371
Less amount representing interest
ranging from 9.3% to 11.0% 26,664
-------
Balance of obligation $ 123,707
=======
6. SHARE CAPITAL
a) Of the Company's issued and outstanding shares 4,150,000 are held in
escrow to be released in accordance with a formula based on
cumulative cash flow of the Company.
b) As at June 30, 1996 the Company had 490,673 outstanding share
purchase warrants.
The exercise prices and expiry dates range from $3.89 to $8.06 and
October 16, 1996 to March 21, 1997, respectively.
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 17
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
6. SHARE CAPITAL (Continued)
c) As at June 30, 1996 the Company had 1,937,500 outstanding incentive
stock options to directors and employees.
The exercised prices and expiry dates range from $1.65 to $11.70 and
April 20, 1997 to May 22, 1998, respectively. Subsequent to June 30,
1996, 37,000 incentive stock options were exercised for consideration
totalling $99,410.
d) On July 2, 1996 the Company closed into escrow, brokered private
placements of 3,750,000 Series A special warrants at a price of $5.00
per special warrant and 155,000 Series B special warrants at a price
of $12.00 per special warrant for gross proceeds of $20,610,000. All
of the proceeds are held in escrow by the Company's transfer agent
Montreal Trust Company pending expiry of retraction rights which may
arise based on the agent's final due diligence reviews by August 16,
1996 or in the event that the Company's acquisition of Pacific Baja
Light Metal Holdings, Inc. does not close within 120 days of July 2,
1996.
Commissions to the brokers will be 10% of the gross proceeds and the
brokers may elect to receive the commission in cash or special
warrants.
Each special warrant can be exercised into one unit of the Company
for no additional consideration. Each unit will consist of one
common share and one-half non-transferable share purchase warrant.
Each whole non-transferable Series A and Series B share purchase
warrants will entitle the holder to purchase one common share at
$5.50 and $13.00 respectively for a period of one year.
The Company has agreed to use its best efforts to file and obtain a
receipt for a final prospectus qualifying the distribution of the
Series A and Series B units on the exercise of the Series A and B
special warrants, within 90 days from July 2, 1996. In the event
that the prospectus is not receipted in the 90 day period, then the
Series A and B units will consist of one common share and one whole
transferable warrant.
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 18
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
7. COMMITMENTS
a) Subject to final due diligence requirements and regulatory approvals,
the Company has entered into an acquisition agreement with the
shareholders of Pacific Baja Light Metals Holdings Inc. ("Baja") for
the acquisition of 100% of the issued and outstanding shares of Baja.
Under the terms of the agreement, the Company will pay $12,000,670
U.S. cash and $18,000,000 U.S. by way of issuance to the shareholders
of Baja 3,076,923 common shares at a deemed price of $5.85 U.S.
(approximately $8.00 Cdn.) per share.
b) The Company has entered into a Fiscal Agency Agreement with Pecunia
GmbH as its exclusive European agent. The Fiscal Agency Agreement is
for a term expiring on the earlier of 30 days, following the closing
of the Company's acquisition of Baja Pacific Light Metal Holdings Inc.
or March 31, 1996. The Company is committed to pay the agent a fee of
$10,000 U.S. per month commencing November 1, 1995. During the
period, the Company has exercised its option to extend the Fiscal
Agency Agreement by an additional 12 months, to March 31, 1997.
c) The Company's subsidiary has entered into contractual commitments for
assistance in management development, international marketing,
licensing and financing, technical and educational services.
The commitment under these contracts for the next five years is as
follows:
1997 $ 325,996
1998 $ 240,064
1999 $ 163,680
2000 $ 163,680
2001 $ 163,680
The management training agreement is payable at $10,000 U.S. per month
and continues indefinitely until either party terminates the agreement
in writing with three months advance notice. Subject to regulatory
approval, the Company is to grant additional consideration of 200,000
common shares as part of the management training agreement.
d) The Company's subsidiary has entered into an agreement to lease
additional office premises in Encinitas, California, U.S.A. until May,
2000. The annual rent of the premise consists of a minimum rent plus
realty taxes and utilities. Minimum rent payable for the premise for
each of the next four years is as follows:
1997 $ 36,150
1998 $ 37,780
1999 $ 39,420
2000 $ 37,510
<PAGE>
TURBODYNE TECHNOLOGIES INC. Page 19
---------------------------
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(unaudited)
(Stated in Canadian Dollars)
7. COMMITMENTS (Continued)
The Company's head office and factory premises are rented on a month to
month basis.
e) As part of the consideration for short term financing during 1994, the
Company has a commitment to pay a royalty of $1 U.S. on each Turbodyne
unit sold, to a maximum of $500,000 U.S.
8. RELATED PARTY TRANSACTIONS
a) During the period the Company made payments to related parties as
follows:
1996 1995
---- ----
Project Management Fees $ 40,800 $ 41,316
====== ======
Consulting Fees $ 68,386 $ -
====== ======
Management Fees $ 15,000 $ 15,000
====== ======
Rent and Administrative Services $ 38,000 $ 15,000
====== ======
b) As at June 30, 1996 accounts payable and accrued liabilities in the
amount of $13,495 (December 31, 1995 - $Nil) were owed to related
parties.
c) As at June 30, 1996, advances receivable from a director in the amount
of $51,134 (December 31, 1995 - $112,514) were interest free and
payable on demand.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
<PAGE>
----------------------------------------
MORGAN & COMPANY
----------------------------------------
Chartered Accountants
----------------------------------------
P.O. Box 10007, Pacific Centre
Suite 1730 - 700 West Georgia Street
Vancouver, B.C. V7Y 1A1
Telephone (604) 687-5841
Fax (604) 687-0075
----------------------------------------
AUDITORS' REPORT
To the Shareholders
Turbodyne Technologies Inc.
(formerly Clear View Ventures Inc.)
We have audited the consolidated balance sheets of Turbodyne Technologies Inc.
(formerly Clear View Ventures Inc.) (A Development Stage Company) as at December
31, 1995 and 1994 and the consolidated statements of operations and deficit,
stockholders' equity and cash flows for the years ended December 31, 1995 and
1994 and the period ended December 31, 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1995
and 1994 and the results of its operations and its cash flows for the years
ended December 31, 1995 and 1994 and the period ended December 31, 1993 in
accordance with Canadian generally accepted accounting principles. As required
by the British Columbia Company Act, we report that, in our opinion, these
principles have been applied on a consistent basis.
Vancouver, Canada
/s/ Morgan & Company
April 26, 1996 Chartered Accountants
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
(Stated in Canadian Dollars)
1995 1994
---- ----
ASSETS
CURRENT
Cash $ 308,634 $ --
GST refund receivable 51,264 --
Advances receivable 112,514 --
Prepaid expense 93,185 31,541
---------- ----------
565,597 31,541
CAPITAL ASSETS (Note 3) 524,143 48,115
DEFERRED ACQUISITION COSTS 226,842 --
PROJECT DEVELOPMENT COSTS 3,885,317 1,819,360
---------- ----------
$5,201,899 $1,899,016
========== ==========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 251,215 413,451
Loans payable (Note 4) 223,304 45,000
Current portion of long term debt 8,593 --
---------- ----------
483,112 458,451
LONG TERM DEBT (Note 5) 20,010 --
---------- ----------
503,122 458,451
---------- ----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6)
Authorized:
100,000,000 Common shares without par value
100,000,000 Class A preference shares with a par value of $10
100,000,000 Class B preference shares with a par value of $50
Issued and outstanding
16,542,121 Common shares (of which
4,150,000 are held in escrow) at
December 31, 1995 and 10,663,052
common shares (of which 4,150,000
shares are held in escrow) at December 31,
1994 7,139,209 2,815,985
Add share subscriptions received
(Note 6(e)) 129,767 common shares at
December 31, 1995 and 0 at
December 31, 1994 462,330 --
DEFICIT ACCUMULATED DURING THE DEVELOPMENT
STAGE (2,902,762) (1,375,420)
---------- ----------
4,698,777 1,440,565
---------- ----------
$5,201,899 $1,899,016
========== ==========
Approved by the Board of Directors:
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Stated in Canadian Dollars)
Year Ended Year Ended
December 31, December 31,
1995 1994
---- ----
EXPENSES
Advertising and trade shows $ 40,716 $ 49,115
Bank charges, interest and exchange 115,315 40,877
Consulting fees 163,051 111,356
Depreciation 5,822 700
Finders' fees 42,000 --
Filing and transfer fees 30,362 7,806
Investor relations 103,312 75,359
Management fees 30,000 25,000
Office rent, administration and sundry 187,284 148,247
Printing 103,486 --
Professional fees 194,089 136,782
Salaries and employee
benefits 127,652 86,465
Telephone 42,549 5,272
Travel and business development 336,811 245,297
Vehicle 4,893 3,716
----------- -----------
LOSS FOR THE YEAR (1,527,342) (935,992)
ACCUMULATED DEFICIT, BEGINNING OF PERIOD (1,375,420) (112,142)
----------- -----------
(2,902,762) (1,048,134)
NET ASSET DEFICIENCY OF LEGAL PARENT AT DATE OF
REVERSE TAKE-OVER TRANSACTION -- (327,286)
----------- -----------
ACCUMULATED DEFICIT, END OF PERIOD $(2,902,762) $(1,375,420)
=========== ===========
LOSS PER SHARE $ (0.16) $ (0.18)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 9,805,870 5,106,385
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Stated in Canadian Dollars)
Period from
Date of Inception,
Incorporation, April 30,
April 30, 1993 1993 to,
to December 31, December 31,
1993 1995
---- ----
EXPENSES
Advertising and trade shows $ 4,289 $ 94,120
Bank charges, interest and exchange 4,004 160,196
Consulting fees 2,475 276,882
Depreciation -- 6,522
Finders' fees -- 42,000
Filing and transfer fees -- 38,168
Investor relations -- 178,671
Management fees -- 55,000
Office rent, administration and sundry 23,494 359,025
Printing -- 103,486
Professional fees 10,040 340,911
Salaries and employee benefits 42,654 256,771
Telephone 1,366 49,187
Travel and business development 23,820 605,928
Vehicle -- 8,609
----------- -----------
LOSS FOR THE YEAR (112,142) $(2,575,476)
===========
ACCUMULATED DEFICIT, BEGINNING OF PERIOD --
-----------
(112,142)
NET ASSET DEFICIENCY OF LEGAL PARENT AT DATE OF
REVERSE TAKE-OVER TRANSACTION --
ACCUMULATED DEFICIT, END OF PERIOD $ (112,142)
===========
LOSS PER SHARE $ (0.06)
===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,028,052
===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Stated in Canadian Dollars)
Number of
Shares Amount
------ ------
Balance at date of inception, April 30, 1993 -- $ --
Issuance of stock for project development costs 100 1,146,887
Net loss -- --
----------- -----------
Balance December 31, 1993 100 1,146,887
Exchange of stock to acquire subsidiary
Turbodyne Systems Inc. (100) --
Turbodyne Technologies Inc. 1,078,052 --
Issuance of stock to acquire subsidiary
Common stock 1,100,000 --
Escrow performance stock 4,000,000 40,000
Issuance of common stock 4,485,000 1,629,098
Net asset deficiency of legal parent at
date of reverse take-over transaction -- --
Net loss -- --
----------- -----------
Balance December 31, 1994 10,663,052 2,815,985
Issuance of common stock 5,879,069 4,323,224
Share subscriptions received 129,767 462,330
Net loss -- --
----------- -----------
Balance December 31, 1995 16,671,888 $ 7,601,539
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Stated in Canadian Dollars)
Accumulated
Deficit Total
------- -----
Balance at date of inception, April 30, 1993 $ -- $ --
Issuance of stock for project development
costs -- 146,887
Net loss (112,142) (112,142)
----------- -----------
Balance December 31, 1993 (112,142) 1,034,745
Exchange of stock to acquire subsidiary
Turbodyne Systems Inc. -- --
Turbodyne Technologies Inc. -- --
Issuance of stock to acquire subsidiary
Common stock -- --
Escrow performance stock -- 40,000
Issuance of common stock -- 1,629,098
Net asset deficiency of legal parent at date
of reverse take-over transaction (327,286) (327,286)
Net loss (935,992) (935,992)
----------- -----------
Balance December 31, 1994 (1,375,420) 1,440,565
Issuance of common stock -- 4,323,224
Share subscriptions received -- 462,330
Net loss (1,527,342) (1,527,342)
----------- -----------
Balance December 31, 1995 $(2,902,762) $ 4,698,777
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in Canadian Dollars)
Year Ended Year Ended
December 31, December 31,
1995 1994
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Loss for the period $(1,527,342) $ (935,992)
----------- -----------
ADJUSTMENTS TO RECONCILE LOSS TO NET CASH
USED BY OPERATING ACTIVITIES
Depreciation 5,822 700
Change in GST refund receivable (51,264) --
Change in advances receivable (112,514) --
Change in prepaid expense (61,644) (31,541)
Change in accounts payable (162,236) 77,318
----------- -----------
TOTAL ADJUSTMENTS (381,836) 46,477
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,909,178) (889,515
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital assets (net of depreciation
allocated to project development costs) (481,850) (4,315)
Project development costs (2,065,957) (492,982)
Deferred acquisition costs (226,842) --
Net asset deficiency of legal parent
at date of reverse take-over transaction -- (327,286)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,774,649) (824,583)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock 4,323,224 1,669,098
Share subscriptions received 462,330 --
Change in loan payable 178,304 45,000
Change in long term debt 28,603 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,992,461 1,714,098
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 308,634 --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD --
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 308,634 $ --
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in Canadian Dollars)
Period from
Date of Inception,
Incorporation, April 30,
April 30, 1993 1993 to,
to December 31, December 31,
1993 1995
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Loss for the period $ (112,142) $(2,575,476)
----------- -----------
ADJUSTMENTS TO RECONCILE LOSS TO NET CASH
USED BY OPERATING ACTIVITIES
Depreciation -- 6,522
Change in GST refund
receivable -- (51,264)
Change in advances
receivable -- (112,514)
Change in prepaid expense -- (93,185)
Change in accounts payable 336,133 251,215
----------- -----------
TOTAL ADJUSTMENTS 336,133 774
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES 223,991 (2,574,702)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital assets (net of depreciation
allocated to project development costs) (44,500) (530,665)
Project development costs (1,326,378) (3,885,317)
Deferred acquisition costs -- (226,842)
Net asset deficiency of legal parent
at date of reverse take-over transaction -- (327,286)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,370,878) (4,970,110)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock 1,146,887 7,139,209
Share subscriptions received -- 462,330
Change in loan payable -- 223,304
Change in long term debt -- 28,603
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,146,887 7,853,446
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS -- 308,634
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- --
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ 308,634
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Stated in Canadian Dollars)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Period from
Date of Inception
Incorporation April 30,
Year Ended Year Ended April 30, 1993 1993 to,
December 31, December 31, to December 31, December 31,
1995 1994 1993 1995
---- ---- ---- ----
Interest $ 84,000 $ 8,917 $ 2,110 $ 95,027
====== ===== ===== ======
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Effective March 8, 1994, Turbodyne Technologies Inc. acquired 100% of the
issued and outstanding shares of Turbodyne Systems, Inc. by issuing
5,100,000 common shares.
During the year ended December 31, 1994, the Company paid a loan bonus in
the amount of $20,000 by issuing 25,000 common shares.
During the year ended December 31, 1995 the Company made loan bonus
payments totalling $94,000 by issuing 258,333 common shares, paid a
finder's fee of $42,000 by issuing 116,667 common shares and settled debts
totalling $157,006 by issuing 301,933 common shares.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
1. a) NATURE OF OPERATIONS
Development Stage Activities
The Company, through its subsidiary Turbodyne Systems, Inc., is
engaged in the development, production and sales of a device (the
"Turbodyne System") designed to eliminate turbo-lag and reduce black
smoke emissions in turbocharged engines. The Turbodyne System consists
primarily of a high speed electric motor coupled to the turbocharger
at the intake by means of a unique proprietary combination of one-way
bearing or magnetic clutches. The development and commercialization of
this device is the principal business of the Company and its
subsidiary, Turbodyne Systems, Inc.
b) SIGNIFICANT ACCOUNTING POLICIES
i) Consolidation
These financial statements include the accounts of the Company
and its wholly owned U.S. subsidiary Turbodyne Systems, Inc.
ii) Depreciation
Depreciation is calculated on a straight-line basis at the rate
of 20% per annum.
iii) Deferred Acquisition Costs
The Company is deferring all direct costs incurred in connection
with the anticipated acquisition of Pacific Baja Light Metal
Holdings Inc. (Note 10(a)).
iv) Project Development Costs
The Company is deferring all engineering, design consulting and
other costs directly related to the ongoing development and
commercialization of its "Turbodyne System" to be amortized
against related revenues when production commences.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
b) SIGNIFICANT ACCOUNTING POLICIES (Continued)
v) Non-Monetary Transactions
Shares of common stock of the Company issued for non-monetary
consideration are valued at the quoted market price per share at
the close of trading on the day of completion of the transaction
except for those circumstances where, in the opinion of the
Company and due to the nature of the transaction, the trading
price does not fairly represent the value of the transaction. In
such circumstances, the value of the shares is determined based
on the estimated fair value of the consideration received.
vi) Foreign Currency Translation
Transactions recorded in foreign currencies have been translated
into Canadian dollars using the Temporal Method as follows:
i) monetary items at the rate prevailing at the balance sheet
date;
ii) non-monetary items at the historical exchange rate;
iii) revenue and expense at the average rate in effect during the
applicable accounting period.
Gains or losses arising on translation are included in the
results of operations.
vii) Cash Equivalents
The Company considers all highly liquid financial instruments
purchased with an original maturity of three months or less to be
cash equivalents.
viii) Income Taxes
During 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 - "Accounting for Income Taxes"(SFAS
109). This standard requires the use of an asst and liability
approach for financial accounting and reporting on income taxes.
It is more likely than not that some portion of all of a deferred
tax asset will not be realized, a valuation allowance is
recognized.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
b) SIGNIFICANT ACCOUNTING POLICIES (Continued)
ix) Loss Per Share
Loss per share is based on the weighted average number of common
shares outstanding during the year. Since the Company's stock
options, warrants and escrow shares are anti-dilutive, they have
not been included in the calculation. There were no stock
options, warrants or escrow shares outstanding prior to the
December 31, 1994 fiscal year.
x) Basis of Presentation
These financial statements are prepared in accordance with
accounting principles generally accepted in Canada. Had they been
prepared in accordance with accounting principles generally
accepted in the United States, the following differences in the
measurement of income, results of operations and shareholders'
equity would have resulted:
a) The $1,146,887 value attributed to the 100 shares of
Turbodyne Systems, Inc., issued in consideration of the
accumulated time and out-of-pocket expenditures incurred in
the development of the "Turbodyne System" prior to its
acquisition by Turbodyne Systems, Inc. would have been
charged to shareholders' equity, not capitalized as project
development costs.
b) Ongoing project development costs would have been charged to
expense as incurred not capitalized on the balance sheet.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
b) SIGNIFICANT ACCOUNTING POLICIES (Continued)
As such, these financial statements would be changed as follows:
Consolidated Statement of Operations and Deficit:
1995 1994
---- ----
Loss for the period shown on the
financial statements $(1,527,342) $ (935,992)
Increase in loss resulting from
charging project development
costs to expense (2,065,957) (492,982)
----------- -----------
Loss according to generally
accepted accounting principles
in the U.S. (3,593,299) (1,428,974)
Accumulated deficit, beginning
of period (3,194,780) (1,438,520)
----------- -----------
(6,788,079) (2,867,494)
Attributed value of project
development costs acquired
for shares -- --
Net asset deficiency of legal
parent at date of reverse
take-over transaction -- (327,286)
----------- -----------
Accumulated deficit end of year
according to generally accepted
accounting principles
in the U.S. $(6,788,079) $(3,194,780)
=========== ===========
Loss per share - U.S. GAAP $ (0.37) $ (0.28)
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
b) SIGNIFICANT ACCOUNTING POLICIES (Continued)
As such, these financial statements would be changed as follows:
Consolidated Statement of Operations and Deficit:
1993
----
Loss for the period shown on the
financial statements $ (112,142)
Increase in loss resulting from
charging project development
costs to expense (179,491)
-----------
Loss according to generally
accepted accounting principles
in the U.S. (291,633)
Accumulated deficit, beginning
of period --
-----------
(291,633)
Attributed value of project
development costs acquired
for shares (1,146,887)
Net asset deficiency of legal
parent at date of reverse
take-over transaction --
-----------
Accumulated deficit end of year
according to generally accepted
accounting principles
in the U.S. $(1,438,520)
===========
Loss per share - U.S. GAAP $ (0.14)
===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
1995 1994
---- ----
Consolidated Balance Sheet:
Project development costs as shown
on the balance sheet $ 3,885,317 $ 1,819,360
Change as a result of (a) above
Reverse capitalization of project
development costs acquired for shares (1,146,887) (1,146,887)
Change as a result of (b) above
Reverse capitalization of ongoing project
development costs (2,738,430) (672,473)
----------- -----------
Project development costs according to
generally accepted accounting principles
in the U.S. $ -- $ --
=========== ===========
Accumulated deficit as shown on the balance
sheet $(2,902,762) $(1,375,420)
Change as a result of (a) above
Charge value attributed to project
development costs acquired for shares
to shareholders' equity (1,146,887) (1,146,887)
Change as a result of (b) above
Charge ongoing project development costs
to expense (2,738,430) (672,473)
Accumulated deficit according to generally
accepted accounting principles in the U.S. $(6,788,079) $(3,194,780)
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
Consolidated Statement of Stockholders' Equity:
NUMBER
OF SHARES AMOUNT
--------- ------
Balance December 31, 1995 as shown on the
consolidated financial statements 16,671,888 $ 7,601,539
----------- -----------
Balance December 31,
1995, according to
generally accepted
account principles
in the U.S. $16,671,888 $ 7,601,539
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
Consolidated Statement of Stockholders' Equity:
ACCUMULATED
DEFICIT TOTAL
------- -----
Balance December 31, 1995 as shown on the
consolidated financial statements $(2,902,762) $ 4,698,777
Project development costs acquired
for shares (1,146,887) (1,146,887)
Increase in net loss due to charging
ongoing project development costs to
expense (2,738,430) (2,738,430)
------------ ------------
Balance December 31, 1995, according to
generally accepted accounting
principles in the U.S. $(6,788,079) $ (813,460)
============ ============
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
2. ACQUISITION OF SUBSIDIARY
Effective March 8, 1994 Turbodyne Technologies Inc. acquired 100% of the
issued and outstanding shares of Turbodyne Systems Inc. by issuing
5,100,000 common shares. Since the transaction resulted in the former
shareholders of Turbodyne Systems Inc. owning the majority of the issued
shares of Turbodyne Technologies Inc., the transaction, which is referred
to as a "reverse take-over" has been treated for accounting purposes as an
acquisition by Turbodyne Systems Inc. of the net assets and liabilities of
Turbodyne Technologies Inc. Under this purchase method of accounting the
results of operations of Turbodyne Technologies Inc. are included in these
financial statements from March 8, 1994.
Turbodyne Technologies Inc. had a net asset deficiency at the acquisition
date therefore 1,100,000 of the 5,100,000 shares issued on acquisition were
issued at an ascribed value of $Nil with the net asset deficiency of
$327,286 charged to deficit. The balance of the shares, subject to
performance and escrow provisions were issued for cash consideration of
$40,000. Turbodyne Systems Inc. is deemed to be the purchaser for
accounting purposes. Accordingly, its net assets are included in the
balance sheet at their previously recorded values.
The acquisition is summarized as follows:
Current assets $ 301,319
Capital assets 1,747 $ 303,066
-----------
Current liabilities 300,352
Share subscriptions received 330,000 630,352
----------- -----------
Net asset deficiency $ (327,286)
3. CAPITAL ASSETS
1995 1994
--------- --------
Net Book Net Book
Value Value
--------- --------
Office equipment $ 123,883 $ 28,138
Machinery 210,754 19,977
Leasehold improvements 106,090 --
Automobiles 83,416 --
--------- --------
$ 524,143 $ 48,115
========= ========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
4. LOANS PAYABLE
1995 1994
----------- -----------
a) Short term interest free loan,
secured by the personal guarantee
of two of the Company's director
As additional consideration for
the loan, the Company issued 233,333
shares at a deemed value of $0.36
per share and agreed to pay a royalty
of $5 U.S. on each Turbodyne unit sold
to a maximum of $1,000,000 U.S. A
finder's fee of 116,667 common shares at
a deemed value of $0.36 per share was
issued in connection with the loan $ 212,025 $ --
b) Promissory note payable repayable at
$517 per month, including interest
at 10% per annum 11,279 --
c) Short term interest free loan. As
additional consideration for the loan,
the Company issued 25,000 shares at a
deemed value of $0.40 per share and
agreed to pay a royalty of $1 U.S. on
each Turbodyne unit sold, to a maximum
of $500,000 U.S. -- 45,000
----------- -----------
$ 223,304 $ 45,000
=========== ===========
5. LONG TERM DEBT
1995 1994
----------- -----------
Bank term loan
Repayable at $720 per month, including
interest at 11% per annum, due
October 11, 1998, secured by an
automobile $ 28,603 $ --
Less: current portion 8,593 --
----------- -----------
$ 20,010 $ --
=========== ===========
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
6. SHARE CAPITAL
a) Of the Company's issued and outstanding shares 4,150,000 are held in
escrow to be released in accordance with a formula based on cumulative
cash flow of the Company.
b) As at December 31, 1995 the Company had 2,710,790 outstanding share
purchase warrants.
The exercise prices and expiry dates range from $0.60 to $4.27 and
February 10, 1996 to November 24, 1996, respectively. Subsequent to
the year end, 2,282,153 share purchase warrants were exercised for
consideration totalling $1,627,825.
c) As at December 31, 1995 the Company had 1,621,500 outstanding
incentive stock options to directors and employees as follows:
The exercise prices and expiry dates range from $0.55 to $4.75 and
September 22, 1996 to December 20, 1997, respectively. Subsequent to
the year end, 545,500 incentive stock options were exercised for
consideration totalling $1,666,325.
d) Subject to regulatory approval, the Company has negotiated a brokered
private placement of up to 3,750,000 special warrants at a price of
$5.00 per special warrant, for gross proceeds of $18,750,000. Each
special warrant can be exercised into one unit of the Company for no
additional consideration. Each unit will consist of one common share
and one-half non-transferable share purchase warrant. Each whole
non-transferable share purchase warrant will entitle the holder to
purchase one common share at $5.50 for a period of one year.
Commissions to the broker will be 10% of the gross proceeds and the
broker may elect to receive the commission in cash or special
warrants.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
6. SHARE CAPITAL (Continued)
e) The Company has arranged private placements totalling 129,767 units
for total consideration of $513,700 less finders' fees of $51,370. The
exercise price of the units range from $3.70 to $4.35 per unit. The
exercise price of the warrants range from $3.80 to $4.45 per warrant.
Each unit consists of one share and one non-transferable share
purchase warrant for the purchase of an additional share for a period
of one year. The expiry dates of the warrants range from October 25,
1996 to December 18, 1996.
Subsequent to December 31, 1995, the Company has issued 129,767 units
pursuant to these private placement agreements.
7. INCOME TAXES
At December 31, 1995, the Company and its subsidiary have approximately
$6,636,000 in net operating loss carryforwards available to offset future
taxable income. These carryforwards, if unused, will expire from 2001 to
2010. Due to net losses the Company did not record a provision for income
taxes in 1995, 1994 or 1993.
8. COMMITMENTS
a) During the year, the Company entered into a Fiscal Agency Agreement
with Pecunia GmbH as its exclusive European agent. The Fiscal Agency
Agreement is for a term expiring on the earlier of 30 days, following
the closing of the Company's acquisition of Baja Pacific Light Metal
Holdings Inc. or March 31, 1996. The Company is committed to pay the
agent a fee of $10,000 U.S. per month commencing November 1, 1995.
b) During the year, the Company's subsidiary entered into a consultant
agreement for assistance in international marketing, licensing and
financing. The consultant agreement is for a term of three years,
payable at $7,000 U.S. per month, commencing March 1, 1995.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
9. RELATED PARTY TRANSACTIONS
a) During the year the Company made payments to related parties as
follows:
1995 1994
---- ----
Project Management Fees $ 80,253 $ 93,455
======== ========
Consulting Fees $ - $ 34,529
======== ========
Management Fees $ 30,000 $ 25,000
======== ========
Rent and Administrative Services $ 30,000 $ 68,924
======== ========
b) As at December 31, 1995 accounts payable and accrued liabilities in
the amount of $Nil (1994 - $72,082) were owed to related parties.
c) As at December 31, 1995, advances receivable from a director in the
amount of $112,514 (1994 - $Nil) were interest free and payable on
demand.
10. SUBSEQUENT EVENTS
a) Subject to due diligence requirements, regulatory and shareholder
approvals, the Company has entered into an acquisition agreement with
the shareholders of Pacific Baja Light Metals Holdings Inc. ("Baja")
for the acquisition of 100% of the issued and outstanding shares of
Baja. Under the terms of the agreement, the Company will pay
$12,000,670 U.S. cash and $18,000,000 U.S. by way of issuance to the
shareholders of Baja 3,076,923 common shares at a deemed price of
$5.85 U.S. (approximately $8.00 Cdn.) per share.
b) Subject to regulatory approval, the Company has negotiated a brokered
private placement of up to 500,000 special warrants at a price of
$12.00 per special warrant, for gross proceeds of $6,000,000. Each
special warrant can be exercised into one unit of the Company for no
additional consideration. Each unit will consist of one common share
and one-half non-transferable share purchase warrant. Each whole
non-transferable share purchase warrant will entitle the holder to
purchase one common share at $13.00 for a period of one year.
Commissions to the broker will be 10% of the gross proceeds and the
broker may elect to receive the commission in cash or special
warrants.
c) Subject to regulatory approval, the Company has granted incentive
stock options to directors and employees for the purchase of up to
550,000 shares at $7.13 per share to February 27, 1998.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
(formerly Clear View Ventures Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(Stated in Canadian Dollars)
10. SUBSEQUENT EVENTS (Continued)
d) Subsequent to December 31, 1995, the Company has arranged, subject to
regulatory approval, private placements totalling 306,397 units for
total consideration of $1,838,000 less finders' fees of $183,800. The
exercise price of the units range from $3.70 to $4.35 per unit. The
exercise price of the warrants range from $3.80 to $4.45 per warrant.
Each unit consists of one share and one non-transferable share
purchase warrant for the purchase of an additional share for a period
of one year.
The expiry dates of the warrants range from January 2, 1997 to March
21, 1997.
<PAGE>
TURBOYDYNE TECHNOLOGIES INC.
----------------------------
INTRODUCTION TO PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------
AS AT JUNE 30, 1996 AND
-----------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------
AND THE SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------
(Stated in U.S. Dollars)
The following unaudited pro-forma consolidated balance sheet and pro-forma
consolidated statements of operations and explanatory notes give effect to the
proposed acquisition of Pacific Baja Light Metals Holding, Inc. by Turbodyne
Technologies Inc. and is based on the estimates and assumptions set forth in the
explanatory notes. This pro-forma consolidated balance sheet and these pro-
forma consolidated statements of operations have been prepared utilizing the
historical financial statements of Turbodyne Technologies Inc. and Pacific Baja
Light Metals Holding, Inc. and should be read in conjunction with the historical
financial statements and notes thereto included elsewhere in this registration
statement.
These pro-forma consolidated statements of operations have been prepared as if
the acquisition of Pacific Baja Light Metals Holding, Inc. by Turbodyne
Technologies Inc. had been consummated on January 1, 1995 under the purchase
method of accounting and carried through to June 30, 1996. The pro-forma
balance sheet has been prepared as if the acquisition was consummated on June
30, 1996. In addition, the unaudited pro-forma consolidated balance sheet and
pro-forma consolidated statements of operations have been prepared as if the
brokered private placements had closed effective January 1, 1995.
This pro-forma financial data is provided for comparative purposes only and does
not purport to be indicative of the actual financial position or results of
operations had the transaction occurred at the beginning of the fiscal period
presented, nor are they necessarily indicative of the results of future
operations.
<PAGE>
TURBODYNE TECHNOLOGIES INC.
---------------------------
PRO FORMA CONSOLIDATED BALANCE SHEET
------------------------------------
JUNE 30, 1996
-------------
(Stated in U.S. Dollars)
<TABLE><CAPTION>
Pacific Baja
Turbodyne Light Metals
Technologies Inc. Holding, Inc. Adjustments Pro-Forma
----------------- ------------- ----------- ---------
ASSETS
CURRENT
<S> <C> <C> <C> <C>
Cash $ 1,759,872 $ 441,000 {$ 17,051,250 (b) $ 7,251,452
{ (12,000,670) (a)
Accounts
receivable 60,390 6,722,000 6,782,390
Advances
receivable 37,497 - 37,497
Inventories - 2,585,000 2,585,000
Prepaid
expenses 102,211 657,000 759,211
Deferred tax
asset - 193,000 193,000
---------- ---------- ----------
1,959,970 10,598,000 17,608,550
CAPITAL ASSETS 908,558 8,135,000 9,043,558
GOODWILL - - 23,818,726 (a) 23,818,726
DEFERRED
ACQUISITION
COSTS 523,056 - (523,056) (a)
---------- ---------- ----------
$ 3,391,584 $ 18,733,000 $ 50,470,834
========== ========== ==========
<CAPTION>
LIABILITIES
CURRENT
<S> <C> <C> <C> <C>
Notes
payable $ - $ 4,485,000 $ 4,485,000
Accounts
payable and
accrued
liabilities 318,498 4,211,000 4,529,498
Loans payable 4,131 - 4,131
Current portion
of long term
debt 25,102 572,000 597,102
Income taxes
payable - 1,105,000 1,105,000
---------- ---------- ----------
347,731 10,373,000 10,720,731
LONG TERM DEBT 83,337 630,000 713,337
DEFERRED TAX
LIABILITY - 1,025,000 1,025,000
---------- ---------- ----------
431,068 12,028,000 12,459,068
---------- ---------- ----------
</TABLE>
<PAGE>
TURBODYNE TECHNOLOGIES INC.
---------------------------
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
------------------------------------------------
JUNE 30, 1996
-------------
(Stated in U.S. Dollars)
<TABLE><CAPTION>
Pacific Baja
Turbodyne Light Metals
Technologies Inc. Holding, Inc. Adjustments Pro-Forma
----------------- ------------- ----------- ---------
SHAREHOLDER'S EQUITY
<S> <C> <C> <C> <C>
SHARE CAPITAL 10,062,523 2,386,000 {(1,705,125) (c)
(27,970,489) { 1,705,125 (c)
common {17,051,250 (b)
shares) {18,000,000 (a)
{(2,386,000) (a) 45,113,773
ADDITIONAL PAID
IN CAPITAL - 492,000 (492,000) (a)
RETAINED EARNINGS
(DEFICIT) (7,102,007) 3,827,000 (3,827,000) (a) ( 7,102,007)
---------- ---------- ----------
2,960,516 6,705,000 38,011,766
---------- ---------- ----------
$ 3,391,584 $ 18,733,000 $ 50,470,834
========== ========== ==========
</TABLE>
<PAGE>
TURBODYNE TECHNOLOGIES INC.
---------------------------
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------
(Stated in U.S. Dollars)
<TABLE><CAPTION>
Pacific Baja
Turbodyne Light Metals
Technologies Inc. Holding, Inc. Adjustments Pro-Forma
----------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
NET SALES $ - $ 20,024,000 $ 20,024,000
COST OF GOODS
SOLD - 14,892,000 14,892,000
--------- ---------- ----------
GROSS PROFIT - 5,132,000 5,132,000
OPERATING
EXPENSES 2,124,315 1,686,000 595,468 (d) 4,405,783
--------- ---------- ------- ----------
OPERATING
INCOME (LOSS) (2,124,315) 3,446,000 726,217
NON OPERATING
EXPENSES
Interest
expense - (248,000) (248,000)
Other - (41,000) (41,000)
--------- ---------- ------- ----------
INCOME (LOSS)
BEFORE
INCOME TAXES (2,124,315) 3,157,000 437,217
INCOME TAX
EXPENSE - (1,263,000) (1,263,000)
--------- ---------- ----------
NET INCOME
(LOSS) $(2,124,315) $ 1,894,000 $ (825,783)
========= ========== ==========
NET INCOME
(LOSS)
PER SHARE $(0.04)
====
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES
OUTSTANDING 23,441,021
==========
</TABLE>
<PAGE>
TURBODYNE TECHNOLOGIES INC.
---------------------------
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------
(Stated in U.S. Dollars)
<TABLE><CAPTION>
Pacific Baja
Turbodyne Light Metals
Technologies Inc. Holding, Inc. Adjustments Pro-Forma
----------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
NET SALES $ - $ 28,986,000 $ 28,986,000
COST OF GOODS
SOLD - 23,333,000 23,333,000
--------- ---------- ----------
GROSS PROFIT - 5,653,000 5,653,000
OPERATING
EXPENSES 2,634,962 3,644,000 1,109,936 (d) 7,388,898
--------- ---------- ----------
OPERATING
INCOME (LOSS) (2,634,962) 2,009,000 (1,735,898)
NON OPERATING
EXPENSES
Interest
expense - (519,000) (519,000)
Other - 16,000 16,000
--------- ---------- ------- ----------
INCOME (LOSS)
BEFORE
INCOME TAXES (2,634,962) 1,506,000 (2,238,898)
INCOME TAX
EXPENSE - (691,000) (691,000)
--------- ---------- ----------
NET INCOME
(LOSS) $(2,634,962) $ 815,000 $ (2,929,898)
========= ========== ==========
NET INCOME
(LOSS)
PER SHARE $(0.17)
====
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES
OUTSTANDING 17,557,793
==========
</TABLE>
<PAGE>
TURBOYDYNE TECHNOLOGIES INC.
----------------------------
NOTES AND ASSUMPTIONS TO THE UNAUDITED CONSOLIDATED
---------------------------------------------------
PRO-FORMA BALANCE SHEET AND PRO-FORMA STATEMENTS OF OPERATIONS
--------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------
AND THE SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------
(Stated in U.S. Dollars)
1. ORGANIZATION AND BASIS OF PRESENTATION
The unaudited pro-forma consolidated balance sheet and pro-forma
consolidated statements of operations have been prepared based on historical
financial information, using U.S. generally accepted accounting principles,
of Turbodyne Technologies Inc. and Pacific Baja Light Metals Holding, Inc.
for the year ended December 31, 1995 and the six months ended June 30, 1996,
considering the effects of the following transactions:
i) for purposes of the pro-forma consolidated statements of operations the
proposed acquisition of Pacific Baja Light Metals Holding, Inc.
("Pacific Baja") was completed effective January 1, 1995 and for the
purposes of the pro-forma consolidated balance sheet the proposed
acquisition of Pacific Baja was completed effective June 30, 1996, and
that Pacific Baja was acquired for Total Consideration of U.S.
$30,000,670 that the fair market value of the ___________________
and that goodwill arising on acquisition will be amortized on a
straight line basis over 20 years;
ii) that brokered private placements of 3,750,000 special warrants at U.S.
$3.667 per special warrant and 500,000 special warrants at U.S. $6.60
per special warrant had closed effective January 1, 1995.
iii) that the 10% commission paid on the brokered private placements
referred to above were in the form of units for the 500,000 special
warrants at U.S. $6.60 per unit and for the 3,750,000 special warrants
at U.S. $3.667 per unit.
2. ASSUMPTION
The number of shares used in the calculation of the pro-forma net income per
share data is based on the weighted average number of shares outstanding
during the period adjusted to give effect to shares assumed to be issued had
the transactions referred to above been consummated January 1, 1995.
3. PRO-FORMA ADJUSTMENTS
a) Record acquisition of Pacific Baja Light Metals Holding, Inc. and
resulting goodwill arising on acquisition.
b) Record special warrant private placements.
c) Record commissions paid in connection with the special warrant private
placements.
d) Record amortization of goodwill.
<PAGE>
PACIFIC BAJA LIGHT METALS
HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1995
<PAGE>
CONTENTS
Page
- ------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT ON THE
FINANCIAL STATEMENTS 1
- ------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated balance sheets 2
Consolidated statements of income 3
Consolidated statements of stockholders' equity 4
Consolidated statements of cash flows 5
Notes to consolidated financial statements 6-15
- ------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT ON THE
FINANCIAL STATEMENT SCHEDULE 16
- ------------------------------------------------------------------------------
FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and qualifying
accounts - allowance for doubtful accounts 17
- ------------------------------------------------------------------------------
<PAGE>
[LOGO]
MCGLADREY & PULLEN, LLP
-------------------------------
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
INDEPENDENT AUDITOR'S REPORT ON THE
FINANCIAL STATEMENTS
To the Board of Directors
Pacific Baja Light Metals Holding, Inc.
Santa Fe Springs, California
We have audited the accompanying consolidated balance sheets of Pacific Baja
Light Metals Holding, Inc. and Subsidiaries as of December 31, 1995 and 1994 ,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pacific Baja Light
Metals Holding, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years ended December
31, 1995, 1994 and 1993 in conformity with generally accepted accounting
principles.
As described in No. 14 to the consolidated financial statements, the Company
changed its method of accounting for "free" rent and for recording the benefits
realized for net operating loss carryforwards arising prior to the date of the
quasi-reorganization.
/s/ McGladrey & Pullen, LLP
Anaheim, California
May 15, 1996
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 279,000 $ 39,000
Accounts receivable, less allowance for doubtful
accounts
of $97,000 in 1995 and $30,000 in 1994 (Notes 4 and 9) 4,358,000 3,333,000
Inventories (Notes 2 and 4) 3,080,000 2,526,000
Prepaid expenses 201,000 464,000
Deferred tax asset (Note 6) 193,000 357,000
----------------------------
TOTAL CURRENT ASSETS 8,111,000 6,719,000
Property, Plant and Equipment, net (Notes 3 and 4) 7,978,000 5,466,000
Other Assets 29,000 28,000
----------------------------
$ 16,118,000 $ 12,213,000
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------
Current Liabilities
Notes payable (Note 4) $ 3,480,000 $ 2,218,000
Current maturities of long-term debt (Note 4) 762,000 462,000
Accounts payable 3,619,000 2,942,000
Accrued Compensation 610,000 565,000
Accrued Other 659,000 189,000
----------------------------
TOTAL CURRENT LIABILITIES 9,130,000 6,376,000
----------------------------
Long-Term Debt, less current maturities (Note 4) 1,161,000 922,000
----------------------------
Deferred Tax Liability (Note 6) 1,016,000 919,000
----------------------------
Commitments (Notes 5 and 7)
Stockholders' Equity (Notes 6 and 7)
Common stock, no par value; authorized 5,000,000
shares; issued and outstanding 1,131,247 shares 2,386,000 2,386,000
Additional Paid-in capital 492,000 492,000
Retained earnings, since January 1, 1992 1,933,000 1,118,000
----------------------------
4,811,000 3,996,000
----------------------------
$ 16,118,000 $ 12,213,000
----------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
2
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND
1993
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales (Note 9) $ 28,986,000 $ 19,392,000 $ 13,871,000
Cost of Goods Sold (Note 14) 23,333,000 15,583,000 11,370,000
-----------------------------------------
GROSS PROFIT 5,653,000 3,809,000 2,501,000
Operating Expenses 3,644,000 2,608,000 1,533,000
-----------------------------------------
OPERATING INCOME 2,009,000 1,201,000 968,000
Nonoperating Income (Expense)
Interest (expense) (Note 4) (519,000) (355,000) (293,000)
Other 16,000 17,000
-----------------------------------------
INCOME BEFORE INCOME
TAXES (NOTE 2) 1,506,000 863,000 675,000
Income Tax Expense (Notes 6 and 14) 691,000 383,000 430,000
-----------------------------------------
NET INCOME $ 815,000 $ 480,000 $ 245,000
=========================================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995,
1994 AND 1993
<TABLE>
<CAPTION>
Retained
Earnings
Additional Since
Common Paid-In January 1,
Stock Capital 1992 Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1993 $ 2,311,000 $ 16,000 $ 393,000 $ 2,720,000
Issuance of 7,500 shares of
common stock with a stated
value of $10 a share 75,000 75,000
Net income, December 31, 1993 245,000 245,000
Additional paid-in capital
arising from "free" rent 180,000 180,000
(Note 14)
-------------------------------------------------
Balance, December 31, 1993 2,386,000 196,000 638,000 3,220,000
Net income, December 31, 1994 480,000 480,000
Utilization of net operating
loss
carryovers (Note 6) 116,000 116,000
Additional paid-in capital
arising from "free" rent 180,000 180,000
(Note 14)
-------------------------------------------------
Balance, December 31, 1994 2,386,000 492,000 1,118,000 3,996,000
Net income 815,000 815,000
-------------------------------------------------
Balance, December 31, 1995 $ 2,386,000 $ 492,000 $ 1,933,000 $ 4,811,000
=================================================
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to $ 815,000 $ 480,000 $ 245,000
net
cash provided by operating activities:
Depreciation 927,000 662,000 526,000
Deferred income taxes 262,000 367,000 348,000
Rent expense recorded for "free" rent 180,000 180,000
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivables (1,025,000) (598,000) (213,000)
Inventories (554,000) (471,000) (441,000)
Prepaid expenses 265,000 (282,000) (5,000)
Increase in:
Accounts payable 677,000 313,000 277,000
Accrued expenses 515,000 290,000 26,000
Other 34,000 17,000
-----------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 1,916,000 941,000 960,000
-----------------------------------------
Cash Flows from Investing Activities
Purchase of property, plant and equipment (3,493,000) (1,632,000) (1,342,000)
Other 16,000 (49,000) 42,000
-----------------------------------------
NET CASH (USED IN) INVESTING
ACTIVITIES (3,477,000) (1,681,000) (1,300,000)
-----------------------------------------
Cash Flows from Financial Activities
Net borrowings under line of credit 1,262,000 318,000 650,000
agreements
Proceeds from long-term borrowings 1,475,000 473,000 236,000
Proceeds from issuance of common stock 75,000
Principal payments on long-term (936,000) (51,000) (718,000)
borrowings
-----------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,801,000 740,000 243,000
-----------------------------------------
NET INCREASE (DECREASE) IN CASH 240,000 (97,000)
Cash
Beginning 39,000 39,000 136,000
-----------------------------------------
Ending $ 279,000 $ 39,000 $ 39,000
=========================================
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT POLICIES
NATURE OF BUSINESS:
The Company manufactures and distributes, on credit terms determined for each
customer, after-market automotive wheels, compressor housings, and manifolds to
wholesale distributors and original equipment manufacturers in the United States
and abroad and castings prepared to customer specifications on a contract basis.
A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:
Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and
two 100% owned subsidiaries (Optima Wheel, Inc. and Baja Pacific Light Metals,
Inc.) and one 96% owned subsidiary (Baja Oriente S.A. de C.V.). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Cash and cash equivalents:
For the purpose of reporting cash flows, the Company considers all time
deposits, certificates of deposit and highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
Inventories:
Inventories are stated at the lower of cost of market. For the materials portion
of inventories, the cost is determined using the LIFO (last-in, first-out)
method during 1995 and 1994. During 1993, the cost of the materials portion of
the inventory was determined using the FIFO (first-in, first-out) method (see
Note 2). For the other components of inventories (labor and overhead) the cost
is determined using the FIFO (first-in, first-out) method.
6
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT POLICIES (CONTINUED)
Depreciation:
Property, plant and equipment is recorded at its historical cost and is being
depreciated using the straight-line method over their estimated useful lives.
Leasehold improvements are depreciated over the lesser of its useful life or the
life of the lease. The following is a summary of depreciable life by asset type:
- -------------------------------------------------------------------------------
Building 30 years
Furniture and fixtures 5 - 10 years
Machinery and equipment 7 - 15 years
Transportation equipment 5 years
Leasehold improvements 8 - 20 years
Income taxes:
Deferred taxes are provided on the liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss
carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Foreign operations:
Baja Oriente S.A. de C.V. operates in Ensenada, Mexico and its functional
currency is the U.S. dollar. The foreign currency gain for 1995, 1994 and 1993
is approximately $7,000, $79,000, and $10,000, respectively, and is included in
operating expenses. Subsequent to December 31, 1995, the exchange rate has
changed from approximately 7.684 Mexican Pesos to $1.00 U.S. at December 31,
1995 to approximately 7.419 Mexican Pesos to $1.00 U.S. at May 15, 1996.
The net monetary liabilities denominated in Mexican Pesos as of December 31,
1995 is $322,000 (in U.S. dollars).
7
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value of financial instruments:
Financial Accounting Standards Board (FASB) Statement No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial intruments, whether or not recognized in the balance
sheet, for which it is practicable to estimate that value or other valuation
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instrument. Statement No. 107
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating the
fair value of each class of financial instruments for which it is practicable to
estimate that value:
Notes payable: The fair value of the Company's notes payable is estimated
based on the current rates offered to the Company for debt of the same
remaining maturities with similar collateral requirements. For variable rate
instruments, the fair market value approximates the carrying value. For fixed
rates instruments, the market value approximates the carrying value based
upon the maturity date of these instruments and their risk factors.
Seniority premiums and severance payments:
Seniority premiums, to which employees located in Mexico are entitled upon
retirement after fifteen years or more of service, in accordance with the
Mexican Federal Labor Law, are recognized as expenses in the years in which
services are rendered, based on Company estimates.
Any other payments to which employees may be entitled in the event of
separation, disability or death are charged to operations in the year in which
paid.
8
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------
Note 2. INVENTORIES
1995 1994
- --------------------------------------------------------------
Finished goods $ 1,187,000 $ 751,000
Work-in-process 484,000 766,000
Raw materials 1,409,000 1,009,000
----------------------------
$ 3,080,000 $ 2,526,000
----------------------------
During 1994, the method of determining the cost of the materials portion of
inventories was changed from the first-in, first-out (FIFO) method to the
last-in, first-out (LIFO) method. The change was made because management
believes the statement of income would more clearly report operations by
matching current costs with current revenue.
The use of the LIFO method of determining the cost of the materials portion of
inventories had the effect of decreasing reported inventories at December 31,
1995 and 1994 by $384,000 and $416,000 and increasing (decreasing) net income
before income taxes for 1995 by $32,000 and 1994 by (416,000) as compared to
what they would have been under the FIFO method.
NOTE 3. Property, Plant and Equipment
1995 1994
- --------------------------------------------------------------
Land $ 60,000 $ 60,000
Buildings 60,000 60,000
Furniture and fixtures 238,000 136,000
Machinery and equipment 8,161,000 6,144,000
Transportation equipment 266,000 217,000
Leasehold improvements 2,535,000 1,296,000
----------------------------
11,320,000 7,913,000
Less accumulated depreciation 3,342,000 2,447,000
----------------------------
$ 7,978,000 $ 5,466,000
----------------------------
Of the property, plant and equipment listed above, the assets located at the
production facility in Ensenada, Mexico, have a net book value of approximately
$4,678,000 and $3,676,000 at December 31, 1995 and 1994, respectively.
9
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Notes Payable and Long-Term Debt
1995 1994
- -------------------------------------------------------------------------
Notes payable:
Line of credit (A) $ 2,040,000 $ 1,721,000
Line of credit (B) 1,440,000 497,000
----------------------------
$ 3,480,000 $ 2,218,000
============================
(A) As of December 31, 1995, Optima Wheels, Inc. has a $3,000,000 line of
credit agreement with a bank, secured by all receivables, inventory and
equipment. The borrowings bear interest at the bank's prime rate (8.5% at
December 31, 1995) plus 1% and are limited to 30% of eligible inventory
and 80% of eligible accounts receivable. The agreement expires in
September 1996; is guaranteed by certain stockholders; and contains
certain liquidity and net worth covenants.
(B) At December 31, 1995, Baja Pacific Light Metals Holding, Inc. has a
$1,500,000 line of credit agreement with a bank, secured by all
receivables, inventory and equipment. The borrowings bear interest at the
bank's prime rate (8.5% at December 31, 1995) plus 1% and are limited to
80% of eligible accounts receivable. The agreement expires in September
1996; is guaranteed by certain stockholders; and contains certain
liquidity and net worth covenants. At December 31, 1995, Pacific Baja
Light Metals Holding, Inc. was in violation of certain covenants.
10
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Note 4. Notes Payable and Long-Term Debt (Continued)
1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Long-term debt:
Notes payable, interest ranging from 8.6% to 14.4, with
monthly installments of $22,403, including interest,
secured by equipment, maturing at various dates through
2000 $ 760,000 $ 531,000
Notes payable to a bank, interest at prime rate (8.5%
at December 31, 1995) plus 1%, with monthly
installments of $13,889, including interest,
secured by equipment, maturing September 1997 292,000 459,000
Notes payable, interest ranging from 7% to 15%, with
monthly installments of $29,829, including interest,
secured by equipment, maturing at various dates
through 1999 265,000 -
Note payable, interest at 8%, principle, due December 31, 250,000 368,000
1997
Note payable to a bank, interest at prime rate (8.5% at
December 31, 1995) plus 1%, with monthly installments of
$5,694, including interest, secured by equipment, maturing
September 1998 188,000
Note payable to stockholder due on demand, interest at 10%, 93,000
unsecured, interest payable annually
75,000 26,000
Other ------------------------
1,923,000 1,384,000
Less current maturities 762,000 462,000
-------------------------
$ 1,161,000 $ 922,000
=========================
</TABLE>
Aggregate maturities of long-term debt as of December 31, 1995 are as follows:
1996 $762,000; 1997 $684,000; 1998 $243,000; 1999 $170,000; 2000 $64,000 (total
$1,923,000).
During 1995, 1994 and 1993, approximately $103,000, $18,000 and $34,000,
respectively, in interest was incurred on the notes payable to stockholders.
11
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. LEASE COMMITMENTS AND RELATED PARTY TRANSACTION
The Company leases its California facility under a lease agreement which expires
in 2001. This agreement requires the Company to pay all property taxes, normal
maintenance and insurance on the property and contains a five year renewal
option. The Company leases its facilities in Ensenada, Mexico from certain
stockholders of the Company on a month-to-month operating lease requiring
monthly payments of $15,000 beginning in 1995. The Company recorded rent expense
of $15,000 per month for 1993 and 1994, offset by increases to paid-in capital
for the estimated fair value of the "free rent" (Note 14). The Company is in the
process of entering into a long-term lease on this facility. At December 31,
1995, the Company has leasehold improvements with a net book value of $1,622,000
on the Ensenada facility. These leasehold improvements are being amortized over
an 8 - 20 year period due to management's belief that the Company will be able
to enter into a satisfactory long-term lease arrangement and remain in this
facility long enough to recover the leasehold improvements.
Rent expense for 1995, 1994 and 1993 was approximately $517,000; $368,000 and
$303,000, respectively (including $180,000 per year on the Ensenada facility).
The total minimum lease commitments at December 31, 1995 is as follows: 1996
through 2000 $304,000 per year and thereafter $101,000 (total $1,621,000).
NOTE 6. INCOME TAX MATTERS
The components of the provision for income tax are as follows:
1995 1994 1993
- ---------------------------------------------------------------------
Current $ 348,000 $ 16,000 $ 3,000
Deferred 262,000 367,000 348,000
Foreign 81,000 79,000
-----------------------------------------
$ 691,000 $ 383,000 430,000
-----------------------------------------
Total tax expense differs from the expected tax expense due to the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Computed "expected" tax expense $ 512000 $ 293000 $ 230000
State taxes, net of federal tax benefit 90000 63000 51000
Foreign taxes 81000
Non-deductability of "free" rent 61000 61000
Other 8000 (34000) 9000
$ 691000 $ 383000 $ 430000
</TABLE>
12
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INCOME TAX MATTERS (CONTINUED)
Net deferred income taxes consist of the following at December 31,:
1995 1994
- -------------------------------------------------------------------------
Deferred Tax Assets
Inventories $ 71,000 $ 47,000
Net operating loss carryovers 214,000
Reserves for doubtful accounts 39,000 12,000
Accrued expenses 32,000 49,000
Investment tax credit 51,000 35,000
----------------------------
TOTAL CURRENT DEFERRED TAX ASSET $ 193,000 $ 357,000
============================
Long-Term Deferred Tax Liability, property,
plant and equipment $ 1,016,000 $ 919,000
============================
On January 1, 1992, the Company affected a quasi reorganization. Benefits
realized from the net operating loss carryforwards arising prior to the date of
the quasi reorganization are recorded as additions to paid-in capital in the
year recognized in net deferred tax assets. During 1994, $116,000 of these
benefits were realized. The Company has no unused operating loss carryforwards
at December 31, 1995. The investment tax credit carryforward of $51,000 expires
in 2005.
NOTE 7. STOCK OPTIONS
Officers, stockholders and employees of the Company have unexpired options to
purchase 92,000 shares of common stock of the Company. All options are currently
exercisable except for an option to purchase 75,000 shares at $1 which are
exercisable upon sale of the Company (see Note 10). The remaining options were
granted at prices ranging from $3 to $10 per share, which approximated the
market value at the dates of the grants.
In addition, the Company has granted an option to its president to purchase
shares of company stock at $3 per share. The agreement calls for options to be
issued totaling 5,000 shares for each $1 per share sales price of the Company.
These options are issuable only upon sale of the Company. If the sale discussed
in Note 10 is completed, the agreement will require options to be issued
totaling approximately 110,000 shares.
13
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. STOCK OPTIONS (CONTINUED)
Options for 5,000 shares at $7 per share were granted during 1994. No options
were granted in 1995 or 1993. No options were exercised or expired during 1995;
1994; or 1993.
NOTE 8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest for 1995; 1994 and 1993 totaled $624,000; $297,000
and $276,000, respectively. Cash payments for income taxes for 1995; 1994 and
1993 totaled $96,000; $3,000 and $37,000, respectively.
NOTE 9. CONCENTRATIONS
Major customers:
Net sales for 1995, 1994 and 1993 include sales to two customers that accounted
for more than 10% of the net sales of the Company. During 1995, sales to these
two customers amounted to $7,651,000 and $7,178,000, respectively. Accounts
receivable from these customers at December 31, 1995 was $270,000 and $962,000,
respectively. During 1994, sales to these two customers amounted to $5,034,000
and $4,699,000, respectively. Accounts receivable from these customers at
December 31, 1994 was $422,000 and $555,000, respectively. During 1993, sales to
these two customers amounted to $944,000 and $2,644,000, respectively.
Collective bargaining agreements:
The Company participates in collective bargaining agreements with unionized
employees in its Ensenada, Mexico facility. Eighty percent of the Company's
total labor force is covered by the agreements. None of the agreements are due
to expire within one year.
NOTE 10. SUBSEQUENT EVENT AND ACQUISITION AGREEMENT
On March 15, 1996, the Company signed an acquisition agreement to merge with a
company that is publicly traded on the Vancouver stock exchange.
NOTE 11. RECLASSIFICATIONS
Certain items on the financial statements for the years ended December 31, 1994
and 1993 have been reclassified to be consistent with the classifications of the
year ended December 31, 1995. These reclassifications had no effect on net
income or net shareholders' equity.
14
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. QUASI-REORGANIZATION
The Company effected a quasi-reorganization as of January 1, 1992 at which time
the Company eliminated a deficit of $1,312,000.
NOTE 13. RECENT ACCOUNTING PRONOUNCEMENT
In 1995 the FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation." Statement No. 123, establishes financial accounting and reporting
standards for stock-based employee compensation plans such as stock option
plans. The Statement generally suggests, but does not require, employee
stock-based compensation transactions be accounted for based on the fair value
of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. An enterprise may continue to
follow the requirements of Accounting Principles Board (APB) Opinion No. 25, for
employee based transactions, which does not require compensation to be recorded
if the consideration to be received is at least equal to the fair value at the
measurement date. If an enterprise elects to follow APB Opinion No. 25, it must
disclose the proforma effects on net income as if compensation were measured in
accordance with the suggestions of Statement No. 123. All stock based
transactions with non-employees entered into after December 15, 1995 must be
accounted for at the fair value of the instrument. The Company has not yet
determined if it will continue to follow APB Opinion No. 25, for employee based
transactions, or will adopt Statement No. 123. The Company does not believe
adoption of this pronouncement in 1996 will have a material impact on the
financial statements.
NOTE 14. ACCOUNTING CHANGE
In 1995 the Company changes its method of accounting for the "free" rent
provided on its Ensenada facility. In 1994 and 1993, the Company was not charged
rent on its Ensenada facility which is owned by certain stockholders of the
Company and did not record rent expense for this "free" rent. In 1995, the
Company changed its method of accounting and recorded $180,000 in 1994 and 1993
in rent expense (the estimated fair value of the leased facilities) offset by an
increase in paid-in capital.
In addition, the Company changed its method of accounting for tax benefits
arising prior to the date quasi-reorganization. Previously the Company recorded
the benefit realized from the net operating loss carryforwards as a reduction of
income tax expense. The Company changed it method of accounting to record these
benefits realized as additions to paid-in capital.
15
<PAGE>
[LOGO]
MCGLADREY & PULLEN, LLP
--------------------------------
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
INDEPENDENT AUDITOR'S REPORT ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
Pacific Baja Light Metals, Holding, Inc.
Santa Fe Springs, California
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental Schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
/s/ McGladrey & Pullen, LLP
Anaheim, California
May 15, 1996
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS - ALLOWANCE FOR DOUBTFUL
ACCOUNTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Write Offs Period
- --------------------------------------------------------------------------------
Years ended December 31,
1993 $ $ 95,000 $ (26,000) $ 69,000
===============================================================
1994 $ 69,000 $ 111,000 $ (150,000) $ 30,000
===============================================================
1995 $ 30,000 $ 84,000 $ (17,000) $ 97,000
===============================================================
17
<PAGE>
PACIFIC BAJA LIGHT METALS
HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
Unaudited
JUNE 30, 1996
<PAGE>
CONTENTS
Page
- --------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated balance sheet 1
Consolidated statements of income 2
Consolidated statements of cash flows 3
Notes to consolidated financial statements 4-6
- --------------------------------------------------------------
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
UNAUDITED
JUNE 30, 1996
ASSETS
- ----------------------------------------------------------------------
Current Assets
Cash $ 441,000
Accounts receivable, less allowance for
doubtful accounts of $97,000 6,722,000
Inventories 2,585,000
Prepaid expenses 657,000
Deferred tax asset 193,000
----------------
TOTAL CURRENT ASSETS 10,598,000
Property, Plant and Equipment, net 8,135,000
----------------
$ 18,733,000
================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------
Current Liabilities $ 4,485,000
Notes payable
Current maturities of
long-term debt (Note 4) 572,000
Accounts payable 3,533,000
Accrued compensation 417,000
Accrued other 261,000
Income taxes payable 1,105,000
----------------
TOTAL CURRENT LIABILITIES 10,373,000
----------------
Long-Term Debt, less current maturities (including
$76,000 due to stockholders) 630,000
----------------
Deferred Tax Liability 1,025,000
----------------
Stockholders' Equity
Common stock, no par value; authorized
5,000,000 shares; issued and
outstanding 1,131,247 shares 2,386,000
Additional Paid-in capital 492,000
Retained earnings, since January 1, 1992 3,827,000
----------------
6,705,000
----------------
$ 18,733,000
================
See Notes to Consolidated Financial Statements.
1
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
- --------------------------------------------------------------------------
Net Sales $ 20,024,000 $ 14,661,000
Cost of Goods Sold 14,892,000 11,671,000
----------------------------
Gross profit 5,132,000 2,990,000
Operating Expenses 1,686,000 1,563,000
----------------------------
Operating income 3,446,000 1,427,000
Nonoperating Income (Expense)
Interest expense (including $4,000
in 1996 and $17,000 in 1995 paid (248,000) (232,000)
to stockholders)
Other (41,000) (89,000)
----------------------------
Income before income taxes 3,157,000 1,106,000
Income Tax Expense 1,263,000 442,000
----------------------------
Net income 1,894,000 664,000
============================
See Notes to Consolidated Financial Statements.
2
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
- ------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 1,894,000 664,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 553,000 418,000
Deferred income taxes 9,000 (15,000)
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivables (2,364,000) (1,051,000)
Inventories 495,000 (954,000)
Prepaid expenses (456,000) (316,000)
Increase in:
Accounts payable (86,000) 562,000
Accrued expenses (591,000) 405,000
Income taxes payable 1,105,000 442,000
Other 29,000 28,000
-------------------------
Net cash provided by operating
activities 588,000 183,000
-------------------------
Cash Flows from Investing Activities
Net cash (used in) purchase of property,
plant and equipment (710,000) (1,199,000)
-------------------------
Cash Flows from Financial Activities
Net borrowings under line of credit
agreements 1,005,000 1,157,000
Proceeds from long-term borrowings 771,000
Principal payments on
long-term borrowings (1,492,000) (63,000)
-------------------------
Net cash provided by financing
activities 284,000 1,094,000
-------------------------
Net increase in cash 162,000 78,000
Cash
Beginning 279,000 39,000
-------------------------
Ending 441,000 117,000
=========================
See Notes to Consolidated Financial Statements.
3
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 1. Nature of Business and Significant Policies
Nature of Business:
The Company manufactures and distributes, on credit terms determined for each
customer, after-market automotive wheels, compressor housings, and manifolds to
wholesale distributors and original equipment manufacturers in the United States
and abroad and castings prepared to customer specifications on a contract basis.
A summary of the Company's significant accounting policies is as follows:
Unaudited interim information:
In the opinion of management, the unaudited financial statements reflect all
adjustments, consisting only of normal adjustments, necessary to present fairly
the financial position of Pacific Baja Light Metals Holding, Inc. and
subsidiaries at June 30, 1996 and the results of operations and cash flows for
the six months ended June 30, 1996 and 1995 in conformity with generally
accepted accounting principles.
These interim financial statements are not intended to include all disclosures
required under generally accepted accounting principles and should be read in
conjunction with the Company's financial statements for the year ended December
31, 1995.
NOTE 2. Inventories
June 30,
1996
- ------------------------------------------------------
Finished goods $ 778,000
Work-in-process 748,000
Raw materials 1,059,000
----------
$2,585,000
==========
During 1994, the method of determining the cost of the materials portion of
inventories was changed from the first-in, first-out (FIFO) method to the
last-in, first-out (LIFO) method. The change was made because management
believes the statement of income would more clearly report operations by
matching current costs with current revenue.
The use of the LIFO method of determining the cost of the materials portion of
inventories had the effect of decreasing reported inventories at June 30, 1996
by $460,000 and increasing (decreasing) net income before income taxes for the
six months ended June 30, 1996 and 1995 by ($56,000) and $-0-, respectively, as
compared to what they would have been under the FIFO method.
4
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
- --------------------------------------------------------------------------------
NOTE 3. Notes Payable
June
30,
1996
- --------------------------------------------------------------------------------
Line of credit (A) $ 3,239,000
Line of credit (B) 1,246,000
-----------
$ 4,485,000
===========
(A) As of June 30, 1996, Optima Wheel, Inc. has a $3,500,000 line of
credit agreement with a bank, secured by all receivables, inventory
and equipment. The borrowings bear interest at the bank's prime rate
(8.25% at June 30, 1996) plus 1% and are limited to 30% of eligible
inventory and 80% of eligible accounts receivable. The agreement
expires in September 1996; is guaranteed by certain stockholders; and
contains certain liquidity and net worth covenants.
(B) At June 30, 1996, Baja Pacific Light Metals Holding, Inc. has a
$1,500,000 line of credit agreement with a bank, secured by all
receivables, inventory and equipment. The borrowings bear interest at
the bank's prime rate (8.25% at June 30, 1996) plus 1% and are limited
to 80% of eligible accounts receivable. The agreement expires in
September 1996; is guaranteed by certain stockholders; and contains
certain liquidity and net worth covenants.
At June 30, 1996, the Company was in violation of certain covenants.
NOTE 4. Lease Commitments and Related Party Transaction
The Company leases its California facility under a lease agreement which expires
in 2001. This agreement requires the Company to pay all property taxes, normal
maintenance and insurance on the property and contains a five year renewal
option. The Company leases its facilities in Ensenada, Mexico from certain
stockholder's of the Company on a month-to-month operating lease requiring
monthly payments of $15,000. The Company is in the process of entering into a
long-term lease on this facility.
Rent expense for the six months ended June 30, 1996, and 1995 was approximately
$282,000 and $277,000, respectively (including $90,000 and $75,000,
respectively, on the Ensenada facility).
5
<PAGE>
PACIFIC BAJA LIGHT METALS HOLDING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
- --------------------------------------------------------------------------------
NOTE 5. Stock Options
Officers, stockholders and employees of the Company have unexpired options to
purchase 92,000 shares of common stock of the Company. All options are
currently exercisable except for an option to purchase 75,000 shares at $1 which
are exercisable upon sale of the Company (see Note 10). The remaining options
were granted at prices ranging from $3 to $10 per share, which approximated the
market value at the dates of the grants.
In addition, the Company has granted an option to its president to purchase
shares of company stock at $3 per share. The agreement calls for options to be
issued totaling 5,000 shares for each $1 per share sales price of the Company.
These options are issuable only upon sale of the Company. If the sale discussed
in Note 10 is completed, the agreement will require options to be issued
totaling approximately 110,000 shares.
When the options are granted, the difference between the fair market value of
the option and the option price will be charged against income during that
period.
Options for 5,000 shares at $7 per share were granted during 1994. No options
were granted in 1995 or 1993. No options were exercised or expired during 1995;
1994; or 1993.
NOTE 6. Acquisition Agreement
On March 15, 1996, the Company signed an acquisition agreement to merge with a
company that is publicly traded on the Vancouver stock exchange.
6
<PAGE>
----------------------------------------
MORGAN & COMPANY
----------------------------------------
Chartered Accountants
----------------------------------------
P.O. Box 10007, Pacific Centre
Suite 1730 - 700 West Georgia Street
Vancouver, B.C. V7Y 1A1
Telephone (604) 687-5841
Fax (604) 687-0075
----------------------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated April 26, 1996 on the
consolidated financial statements of Turbodyne Technologies Inc. for the year
ended December 31, 1995 in the Company's Form 20F Registration Statement. We
also consent to application of such report to the financial information in the
Form 20F Registration Statement, when such financial information is read in
conjunction with the financial statements referred to in our report.
Vancouver, Canada
/s/ Morgan & Company
September 13 , 1996 Chartered Accountants
<PAGE>
McGladrey & Pullen, LLP
Suite 800
222 South Harbor Boulevard
P.O. Box 200
Anaheim, California 92815-0200
To the Board of Directors
Pacific Baja Light Metal Holdings, Inc. and Subsidiaries
Santa Fe Springs, California
We hereby consent to the use of this Registration Statement to our
report, dated May 15, 1996, relating to the consolidated financial
statements of Pacific Baja Light Metal Holdings, Inc. and
subsidiaries, and to the reference to our Firm under the caption
"Experts" in the Prospectus.
McGladrey & Pullen, LLP
-----------------------
Anaheim, California
September 13, 1996
Exhibit 1(a)
CANADA NUMBER
PROVINCE OF BRITISH COLUMBIA 264264
PROVINCE OF BRITISH COLUMBIA
MINISTRY OF CONSUMER AND CORPORATE AFFAIRS
REGISTRAR OF COMPANIES
COMPANY ACT
CERTIFICATE OF INCORPORATION
I HEREBY CERTIFY THAT
DUNDEE RESOURCES CORP.
HAS THIS DAY BEEN INCORPORATED UNDER THE COMPANY ACT
GIVEN UNDER MY HAND AND SEAL OF OFFICE
AT VICTORIA, BRITISH COLUMBIA
THIS 18TH DAY OF MAY, 1983
" L. G. HUCK "
L.G. HUCH
DEPUTY REGISTRAR OF COMPANIES
Exhibit 1(b)
COMPANY ACT
(R.S.B.C. 1979, CHAPTER 59)
ARTICLES
OF
DUNDEE RESOURCES CORP.
PART 1
INTERPRETATION
1.01 In these Articles:
(a) "directors" means the directors of the Company for the time being;
(b) "Company Act" means the British Columbia Company Act from time to time
in force and all amendments thereto;
(c) "Registered Address" of a member means his address as recorded in the
register of members; and
(d) "Registered Address" of a director means his address as recorded in
the Company's register of directors to be kept pursuant to the Company
Act.
1.02 Words importing the singular include the plural and vice versa; and words
importing a male person include a female person and a corporation.
1.03 The definitions in the Company Act on the date of incorporation or creation
by amalgamation of the Company shall, with the necessary changes, apply to these
Articles.
<PAGE>
PART 2
SHARES
2.01 The allotment and issuance of shares shall be under the control of the
directors who may allot and issue or grant options to purchase shares at such
times and to such persons or class of persons and in such manner and upon such
terms as they think proper and, without limiting the generality of the
foregoing, the directors may grant options to purchase shares to directors,
officers or employees for such consideration and at such price or prices and
upon such terms as the directors may determine.
2.02 Shares without par value may be allotted and issued at such prices and for
such consideration as the directors may determine.
2.03 Shares may be allotted and issued as consideration for any property
acquired by or work done for or obligation undertaken for the Company.
2.04 The Company may at any time pay a commission or allow a discount to any
person in consideration of his subscribing or agreeing to subscribe, whether
absolutely or conditionally, or procuring or agreeing to procure subscriptions,
whether absolutely or conditionally, for any of its shares, but the commission
and discount in the aggregate shall not exceed 25% of the subscription price.
The commission or discount may be paid or satisfied in cash or in shares.
PART 3
SHARE CERTIFICATES
3.01 If a share certificate is defaced, lost or destroyed, it may be replaced on
payment of such fee, not exceeding $2.00 and on such terms as to evidence and
indemnity as the directors think fit.
<PAGE>
PART 4
REGISTER OF MEMBERS
4.01 The directors may make such provisions as they may think fit respecting the
keeping of the register of members or any branch register and for the
appointment of registrars and transfer agents for the purpose of issuing,
countersigning, registering, transferring and certifying the shares of the
Company.
4.02 The Company may cause one or more branch registers of members to be kept
outside British Columbia.
4.03 Except as required by law, no person shall be recognized by the Company as
holding any share upon any trust, and the Company shall not be bound by or be
compelled in any way to recognize, even when having notice thereof, any
equitable, contingent, future or partial interest in any share or any interest
in any fractional part of a share or, except as by these Articles or by law
otherwise provided, any other rights in respect of any share except in absolute
right to the entirety thereof in the registered holder.
PART 5
TRANSFER OF SHARES
5.01 The instrument of transfer of any shares of the Company shall be in such
usual or common form as the directors shall approve.
5.02 The transferor shall be deemed to remain the holder of the shares until the
name of the transferee is entered in the register of members in respect thereof.
5.03 The signature of the registered owner of any shares or of his duly
authorized attorney upon the form of transfer endorsed upon the certificate for
the said shares or upon a form of transfer accompanying the said certificate
shall constitute a complete and sufficient authority to the Company, its
directors, officers and agents to register in the name of the person, firm or
company named in the form of transfer as transferee or if no person, firm or
company is named therein as transferee then in the name of the
<PAGE>
person, firm or company in whose behalf the certificate is deposited with the
Company for the purpose of having the transfer registered of all of the shares
comprised in the said certificate or so many thereof as the form of transfer
shall state are to be transferred. Neither the Company nor any director, officer
or agent thereof shall be bound to inquire into the title of the person, firm or
company named in the form of transfer as transferee, or if no person, firm or
company is named therein as transferee, of the person, firm or company in whose
behalf the certificate is presented for the purpose of having the transfer
registered or be liable to any claim by such registered owner or by any
intermediate owner of the certificate or of the shares represented thereby for
registering the transfer, and transfer, when registered, shall confer upon the
person, firm or company in whose name the shares have been registered a valid
title to such shares.
5.04 The directors may decline to recognize any instrument of transfer unless
the instrument of transfer is accompanied by the certificate of the shares to
which it relates and such other evidence as the directors may reasonably require
to show the right of the transferor to make the transfer.
PART 6
PURCHASE OF SHARES
6.01 Subject to the special rights and restrictions attached to any class of
shares, the Company may, by a resolution of the directors, purchase any of its
shares at the price and upon the terms specified in such resolution.
PART 7
ALTERATION OF CAPITAL AND SHARES
7.01 Except as otherwise provided by conditions imposed at the time of creation
of any new shares or by these Articles, any addition to the authorized capital
resulting from the creation of new shares shall be subject to the provisions of
these Articles.
<PAGE>
PART 8
BORROWING POWERS
8.01 The directors may from time to time at their discretion authorize the
Company to borrow any sum of money for the purposes of the Company and may raise
or secure the repayment of that sum in such manner and upon such terms and
conditions, in all respects, as they think fit, and in particular, and without
limiting the generality of the foregoing, by the issue of bonds or debentures or
any mortgage or charge, whether specific or floating, or other security on the
undertaking or the whole or any part of the property of the Company, both
present and future.
8.02 The directors may make any debentures, bonds or other debt obligations
issued by the Company assignable free from any equities between the Company and
the person to whom they may be issued, or any other person who lawfully acquires
the same.
8.03 The directors may authorize the issue of any debentures, bonds, or other
debt obligations of the Company at a discount, premium or otherwise, and with
special or other rights or privileges as to redemption, surrender, drawings,
allotment of or conversion into shares, attending at general meetings of the
Company and otherwise as the directors may determine at or before the time of
issue.
8.04 If any director or any other person becomes personally liable for the
payment of any sum primarily due from the Company, the directors may execute or
cause to be executed any mortgage, charge or security over or affecting the
whole or any part of the assets of the Company by way of indemnity to secure
such director or person from any loss in respect of such liability.
PART 9
GENERAL AND CLASS MEETINGS
9.01 The general meetings of the Company shall be held at such time and place as
the directors appoint.
<PAGE>
9.02 Every general meeting, other than an annual general meeting, shall be
called an extraordinary general meeting.
9.03 The directors may, whenever they think fit, convene an extraordinary
general meeting.
9.04 Notice of a general meeting shall specify the place, the day and the hour
of meeting, and, in case of special business, the general nature of that
business. The accidental omission to give notice of any meeting to, or the
non-receipt of any notice by, any of the members entitled to receive notice
shall not invalidate any proceedings at that meeting.
9.05 If any special business includes the presenting, considering, approving,
ratifying or authorizing the execution of any document, then the portion of any
notice relating to that document is sufficient if it states that a copy of the
document or proposed document is or will be available for inspection by members
at an office of the Company in the Province of British Columbia or at one or
more designated places in the Province during business hours on any specified or
unspecified working day or days prior to the date of the meeting and at the
meeting.
9.06 The provisions of these Articles relating to the call and conduct of
general meetings apply, with the necessary changes and so far as are applicable,
to class meetings and to series meetings, except that the quorum for a class
meeting or a series meeting of the Company shall be one member present in person
or by proxy or (being a corporation) represented in accordance with Section 33
of the Company Act, holding not less than one-third of the shares affected.
PART 10
PROCEEDINGS AT GENERAL MEETINGS
10.01 The following business at a general meeting shall be deemed to be special
business:
(a) all business at an extraordinary general meeting;
(b) all business that is transacted at an annual general meeting, with the
exception of the consideration of the
<PAGE>
financial statement and the report of the directors and auditors, the
election of directors, the appointment of the auditors and such other
business as, under these Articles ought to be transacted at an annual
general meeting, or any business which is brought under consideration
by the report of the directors issued with the notice convening the
meeting.
10.02 No business, other than the election of a chairman and the adjournment or
termination of the meeting, shall be conducted at any general meeting at any
time when a quorum is not present. If at any time during a general meeting there
ceases to be a quorum present, any business then in progress shall be suspended
until there is a quorum present or until the meeting is adjourned or terminated,
as the case may be. A quorum shall be one member present in person or by proxy
or (being a corporation) represented in accordance with Section 33 of the
Company Act, holding not less than one voting share of the Company.
10.03 If within a half an hour from the time appointed for a general meeting a
quorum is not present, the meeting, if convened upon the requisition of members,
shall be terminated; but in any other case, it shall stand adjourned to the same
day in the next week, at the same time and place, and if, at the adjourned
meeting, a quorum is not present within half an hour from the time appointed for
the meeting, if the quorum for the meeting is one member holding or representing
one voting share, then the meeting shall be terminated, or, if the quorum is
greater than as aforesaid, the members present shall be a quorum.
10.04 Subject to Article 10.05, the Chairman of the Board, or in his absence,
the President of the Company, or in his absence one of the directors present
shall preside as chairman of every general meeting.
10.05 If at any general meeting there is no such officer or director present
within fifteen minutes after the time appointed for holding the meeting or if
the Chairman of the Board and the President and all the directors present are
unwilling to act as chairman, the members present shall choose a person (who
need not be a member) to be chairman.
10.06 The chairman of a general meeting may, with the consent of any meeting at
which a quorum is present, and shall, if so directed by the meeting, adjourn the
meeting from time to time and
<PAGE>
from place to place, but no business shall be transacted at any adjourned
meeting other than the business left unfinished at the meeting from which the
adjournment took place. When a meeting is adjourned for ten days or more, notice
of the adjourned meeting but not "advance notice" shall be given as in the case
of the original meeting. Except as aforesaid, it is not necessary to give any
notice of an adjournment or of the business to be transacted at an adjourned
general meeting.
10.07 No resolution proposed at a meeting may be put to the vote of the meeting
unless seconded and the chairman of any meeting is entitled to move or propose a
resolution.
10.08 In case of an equality of votes, the chairman shall not, either on a show
of hands or on a poll, have a casting or second vote in addition to the vote or
votes to which he may be entitled as a member.
10.09 In the case of any dispute as to the admission or rejection of a vote, the
chairman shall determine the same and his determination made in good faith is
final and conclusive.
10.10 A member entitled to more than one vote need not, if he votes, use all his
votes or cast all the votes he uses in the same way.
10.11 Subject to the provisions of Article 10.12, if a poll is duly demanded, it
shall be taken in such manner and at such time, within seven days after the date
of the meeting, and such place as the chairman of the meeting directs. The
result of the poll shall be deemed to be the resolution of the meeting at which
the poll is demanded. A demand for a poll may be withdrawn.
10.12 A poll demanded on a question of adjournment shall be taken at the meeting
without adjournment.
10.13 The demand for a poll shall not, unless the chairman so rules, prevent the
continuance of a meeting for the transaction of any business other than the
question on which a poll has been demanded.
<PAGE>
PART 11
VOTES OF MEMBERS
11.01 Subject to any rights or restrictions for the time being attached to any
class or classes of shares, on a show of hands every member present in person
has one vote, and on a poll every member, present in person or by proxy, has one
vote for each share he holds.
11.02 Any person who is not registered as a member but is entitled to vote at
any general meeting in respect of a share, may vote the share in the same manner
as if he were a member; but, unless the directors have previously admitted his
right to vote at that meeting in respect of the share, he shall satisfy the
directors of his right to vote the share before the time for holding the
meeting, or adjourned meeting, as the case may be, at which he proposes to vote.
11.03 Where there are joint members registered in respect of any share, any one
of the joint members may vote at any meeting, either personally or by proxy, in
respect of the share as if he were solely entitled to it. If more than one of
the joint members is present at any meeting, personally or by proxy, the joint
member present whose name stands first on the register in respect of the share
shall alone be entitled to vote in respect of that share. Several executors or
administrators of a deceased member in whose sole name any share stands shall,
for the purpose of this Article, be deemed joint members.
11.04 Subject to Section 183 of the Company Act, a corporation which is a member
may vote by its duly authorized representative who is entitled to speak and
vote, either in person or by proxy, and in all other respects exercise the
rights of a member and that representative shall be reckoned as a member for all
purposes in connection with any meeting of the Company.
11.05 A member for whom a committee has been duly appointed may vote, whether on
a show of hands or on a poll, by his committee and that committee may appoint a
proxyholder.
11.06 Unless the directors otherwise determine, the instrument appointing a
proxyholder and the power of attorney or other authority, if any, under which it
is signed or a notarially
<PAGE>
certified copy thereof shall be deposited at a place specified for that purpose
in the notice convening the meeting, not less than forty-eight hours before the
time for holding the meeting at which the proxyholder proposes to vote.
11.07 A vote given in accordance with the terms of an instrument of proxy is
valid notwithstanding the previous death or incapability of the member of
revocation of the proxy or of the authority under which the proxy was executed,
or the transfer of the share in respect of which the proxy is given, provided no
intimation in writing of the death, incapability, revocation or transfer has
been received at the registered office of the Company or by the chairman of the
meeting or adjourned meeting before the vote is given.
11.08 Unless, in the circumstances, the Company Act requires any other form of
proxy, an instrument appointing a proxyholder, whether for a specified meeting
or otherwise, shall be in common form, or in any other form that the directors
shall approve.
PART 12
DIRECTORS
12.01 The directors may exercise all such powers and do all such acts and things
as the Company may exercise and do, and which are not by these Articles or by
statute or otherwise lawfully directed or required to be exercised or done by
the Company in general meeting, but subject, nevertheless, to the provisions of
all laws affecting the Company and of these Articles and to any rules, not being
inconsistent with these Articles, which are made from time to time by the
Company in general meeting; but no rule made by the Company in general meeting
shall invalidate any prior act of the directors that would have been valid if
that rule had not been made.
12.02 The number of directors shall be not less than one (or, if the Company is
a reporting Company, not less than three) and not more than fifteen. The number
of directors may be determined from time to time by ordinary resolution.
12.03 A director is not required to have any share qualification.
<PAGE>
PART 13
RETIREMENT AND ELECTION OF DIRECTORS
13.01 Upon the termination of the first annual general meeting of the Company
after its incorporation or formation by amalgamation, and upon the termination
of every succeeding annual general meeting, all the directors shall retire. At
every annual general meeting the members shall fill up the offices to be vacated
by electing a like number of directors and, whenever the number of retiring
directors is less than the maximum number for the time being required by or
determined pursuant to Article 12.02, they may also elect such further number of
directors if any, as the Company then determines, but the total number of
directors elected shall not exceed that maximum.
13.02 If, at any general meeting at which an election of directors ought to take
place, the places of the retiring directors are not filled up, such of the
retiring directors as may be requested by the newly-elected directors shall, if
willing, continue in office until further new directors are elected either at an
extraordinary general meeting specially convened for that purpose or at the
annual general meeting in the next or some subsequent year, unless it is
determined to reduce the number of directors.
13.03 If the Company removes any director before the expiration of his period of
office and appoints another person in his stead, the person so appointed shall
hold office only during such time as the director in whose place he is appointed
would have held the office if he had not been removed.
13.04 The directors have the power at any time and from time to time to appoint
any person as a director to fill a casual vacancy in the directors. The
directors shall have the power at any time and from time to time to appoint one
or more additional directors; but the number of additional directors shall not
at any time exceed one-third of the number of directors elected or appointed at
the last annual general meeting of the Company. Any director so appointed holds
office only until the conclusion of the next following annual general meeting of
the Company, but is eligible for re-election at that meeting.
<PAGE>
13.05 A director may, with the approval of the directors, appoint any person,
whether a member of the Company or not, and whether a director of the Company or
not, to serve as his alternate director and as such to attend and vote in his
stead at meetings of directors, and such alternate director shall, if present,
be included in the count for a quorum, and if he is a director, he shall be
entitled to two votes, one as a director and the other as an alternate director.
If the appointing director so directs, notice of meetings of directors shall be
sent to the alternate director and not to the appointing director. An alternate
director shall ipso facto vacate office as an alternate director if and when the
appointing director vacates office as a director or removes the appointee from
office as alternate director, and any appointment or removal under this Article
shall be made in writing under the hand of the director making the same.
PART 14
PROCEEDINGS OF DIRECTORS
14.01 The directors may meet at such places as they think fit, adjourn and
otherwise regulate their meetings and proceedings as they see fit. The directors
may from time to time fix the quorum necessary for the transaction of business
and unless so fixed the quorum shall be a majority of the directors then in
office. Any director who is interested in a proposed contract or transaction
with the Company shall be counted in the quorum. The Chairman of the Board, or
in his absence the President of the Company, shall be chairman of all meetings
of the directors; but if at any meeting the Chairman of the Board or the
President is not present within thirty minutes after the time appointed for
holding the meeting, the directors present may choose someone of their number to
be chairman at that meeting. Any two directors may at any time and the
Secretary, upon the request of any two directors, shall, convene a meeting of
the directors.
14.02 The directors, or any committee of directors, may take any action required
or permitted to be taken by them and may exercise any of the authorities, powers
and discretions for the time being vested in or exercisable by them by
resolution either passed at a meeting at which a quorum is present or consented
to in writing under Section 149 of the Company Act.
<PAGE>
14.03 A director may participate in a meeting of directors or of any committee
of the directors by means of conference telephones or other communications
facilities by means of which all directors participating in the meeting can hear
each other and provided that all such directors agree to such participation. A
director participating in a meeting in accordance with this Article shall be
deemed to be present at the meeting and to have so agreed and shall be counted
in the quorum therefore and be entitled to speak and vote thereat.
14.04 For the first meeting of the directors to be held immediately following
the appointment or election of a director or directors at an annual or other
general meeting of shareholders, or for a meeting of the directors at which a
director is appointed to fill a vacancy in the directors, it is not necessary to
give notice of the meeting to the newly-elected or appointed director or
directors for the meeting to be duly constituted, if a quorum of the directors
is present.
14.05 Any director of the Company who may be temporarily absent from the
Province of British Columbia may file, at the registered office of the Company,
a written waiver of notice, which may be by letter, telegram, telex or cable, of
any meeting of the directors and may, at any time, withdraw the waiver, and
until the waiver is withdrawn, no notice of meetings of directors shall be sent
to that director, and all meetings of the directors of the Company, notice of
which has not been given to that director, shall, provided a quorum of the
directors is present, be valid and effective.
14.06 Questions arising at any meeting of the directors shall be decided by a
majority of votes. In case of an equality of votes, the chairman has a second or
casting vote.
14.07 No resolution proposed at a meeting of directors need be seconded and the
chairman of any meeting is entitled to move or propose a resolution.
14.08 A resolution in writing, signed by each director shall be as valid and
effectual as if it had been passed at a meeting of directors duly called and
held. Such resolution may be in one or more counterparts each signed by one or
more directors which together shall be deemed to constitute one resolution in
writing.
14.09 Not less than 48 hours' notice of a meeting of the directors shall be
given in writing by delivery by hand or by
<PAGE>
telegraph or by mail (if it is mailed by prepaid post at least three clear days
in advance exclusive of any Saturday or holiday) but any director may in writing
waive notice or accept shorter notice. The directors may, by resolution, fix a
regular time and place for meetings, and in that case notice shall be given of
such resolution or resolutions and thereafter no further notice need be given of
such meetings.
PART 15
DIRECTORS - MISCELLANEOUS PROVISIONS
15.01 The remuneration of the directors may from time to time
be determined by the directors.
15.02 The directors shall be reimbursed such reasonable travelling, hotel and
other expenses as they may incur in and about the business of the Company and if
any director shall be required to perform extra services or should otherwise be
specially occupied about the Company's business, he shall be entitled to receive
a remuneration to be fixed by the Board or, at the option of such director, by
the Company in general meeting, and such remuneration may be either in addition
to or in substitution for any other remuneration he may be entitled to receive,
and the same shall be charged as part of the ordinary working expenses.
15.03 Inasmuch as the directors of the Company are likely to be connected with
other companies, corporations or associations with which from time to time the
Company must or may have business dealings, no contract or other transaction
between the Company and any other company, corporation or association shall be
affected by the fact that directors of the Company are interested in or are
shareholders, directors or officers of such other company, corporation or
association.
PART 16
EXECUTIVE AND OTHER COMMITTEES
16.01 The directors may after the annual general meeting of the Company and from
time to time as vacancies occur, elect from among
<PAGE>
their members an Executive Committee. The Executive Committee shall consist of
not less than two members but the number of members may be increased or
decreased from time to time by resolution of the directors. The Executive
Committee shall advise and aid the officers of the Company in all matters
concerning its interests and the management of its business and affairs and may
(subject to any regulations or restrictions which the directors may from time to
time make or impose) exercise any and all powers of the directors while the
latter are not in session except the power to do any act which must by law be
performed by the directors themselves provided, however, that a report of all
acts and proceedings of the Executive Committee done or had in the interval
between meetings of the directors shall be made to the next following meeting of
the directors for the information thereof. The Executive Committee shall meet at
such times and at such place or places as shall be determined by the Executive
Committee and in accordance with such rules as may be provided by resolution of
the directors. A majority of the members of the Executive Committee shall
constitute a quorum for the transaction of business, provided that in the event
of there being no quorum present at any meeting of the Executive Committee, any
director or directors of the Company who is or are requested by the chairman of
such meeting to attend such meeting shall have the right to attend and shall
thereupon be a member or members of the Executive Committee for such meeting.
16.02 The members of the Executive Committee shall be entitled to receive such
remuneration for acting as members of the Executive Committee as the directors
may from time to time determine.
16.03 The directors may delegate any, but not all, of their powers to committees
(other than the Executive Committee) consisting of such director or directors as
they think fit. Any committee so formed in the exercise of the powers so
delegated shall conform to any rules that may from time to time be imposed on it
by the directors, and shall report every act or thing done in exercise of those
powers to the earliest meeting of the directors to be held next after it has
been done.
16.04 A committee may elect a chairman of its meetings; if no chairman is
elected, or if at any meeting the chairman is not present within thirty minutes
after the time appointed for holding the meeting, the directors present who are
members of the committee may choose one of their number to be chairman of the
meeting.
<PAGE>
16.05 The members of a committee may meet and adjourn as they think proper.
Questions arising at any meeting shall be determined by a majority of votes of
the members present and in case of an equality of votes the chairman shall have
a second or casting vote.
PART 17
OFFICERS
17.01 The directors shall elect from among their members a President and, if
they see fit, may elect a Chairman of the Board and may elect a Vice-Chairman,
either of whom may also be the President, all or any of whom shall hold office
until their successors are elected. Vacancies occurring from time to time in
these offices may be filled by the directors from among their members.
17.02 The directors may designate the Chairman of the Board or the
Vice-Chairman, if any, or the President to be the chief executive officer.
Failing such designation the Chairman of the Board or, if there is none, the
Vice-Chairman or, if there is none, the President, shall be the chief executive
officer. The chief executive officer shall, subject to the control of the
directors, have and exercise general supervision over the management and control
of the business and affairs of the Company, its officers and employees.
17.03 The directors, from time to time, shall appoint a Secretary and may
appoint one or more Vice-Presidents, one of whom may be the chief financial
officer, and such other officers as the directors may determine, so including
one or more assistants to any of the officers so appointed, and may determine
their duties and, in the discretion of the directors, in the absence of a
written agreement to the contrary, may remove or suspend them. One person may
hold more than one such office.
<PAGE>
PART 18
EXECUTION OF INSTRUMENTS
18.01 The directors may provide a common seal for the Company and for its use
and they shall have power from time to time to destroy the same and substitute a
new seal in place of the seal destroyed.
18.02 The directors may provide an official seal for use in any other province,
state, territory or country.
18.03 The directors shall provide for the safe custody of the common seal of the
Company which shall not be affixed to any instrument except in the presence of:
(a) any two of the Chairman of the Board or the Vice-Chairman (if any) or
the President or a Vice-President or the Directors or the Secretary;
or
(b) such other officers or persons as may be prescribed from time to time
by resolution of the directors;
and such officers, directors, and persons shall sign every instrument to which
the seal of the Company is affixed in their presence.
18.04 To enable the seal of the Company to be affixed to any bonds, debentures,
share certificates, share warrants or other securities of the Company, whether
in definitive or interim form on which facsimiles of the respective signatures
of Chairman of the Board, Vice-Chairman, or the President, or Vice-President,
and the Secretary are mechanically reproduced there may be delivered to the firm
or company employed to engrave, lithograph or print such definitive or interim
bonds, debentures, share certificates, share warrants or other securities one or
more unmounted dies reproducing the Company's seal and the President or a
Vice-President and the Secretary may by a writing authorize such firm or company
to cause the Company's seal to be affixed to such definitive or interim bonds,
debentures, share certificates, share warrants or other securities by the use of
such dies. Bonds, debentures, share certificates, share warrants or other
securities to which the Company's seal has been so affixed shall for all
purposes be deemed to be under and to bear the Company's seal as if it had
actually
<PAGE>
been affixed thereto and be valid and binding on the Company and this
notwithstanding that any person whose signature is so engraved, lithographed or
printed as that of the Chairman of the Board, Vice-Chairman, President,
Vice-President or Secretary may have ceased to hold such office at the date of
the issue thereof.
PART 19
DIVIDENDS
19.01 The directors may declare dividends and fix the date of record therefor
and the date for payment thereof.
19.02 Subject to the terms of shares with special rights or restrictions, all
dividends shall be declared according to the number of shares held.
19.03 Dividends may be declared to be payable out of the
profits of the Company. No dividend shall bear interest against
the Company.
19.04 A resolution declaring a dividend may direct payment of the dividend
wholly or partly by the distribution of specific assets or of paid-up shares,
bonds, debentures or other debt obligations of the Company, or in any one or
more of those ways, and, where any difficulty arises in regard to the
distribution, the directors may settle the same as they think expedient, and in
particular may fix the value for distribution of specific assets, and may
determine that cash payments shall be made to a member upon the basis of the
value so fixed in place of fractional shares, bonds, debentures or other debt
obligations in order to adjust the rights of all parties, and may vest any of
those specific assets in trustees upon such trusts for the persons entitled as
may seem expedient to the directors.
19.05 Any dividend or other moneys payable in cash in respect of a share may be
paid by cheque sent through the post to the member in a prepaid letter, envelope
or wrapper addressed to the member at his registered address, or in the case of
joint members, to the registered address of the joint member who is first named
on the register, or to such person and to such address as the member or joint
members, as the case may be, in writing direct. Any one of two or more joint
members may give effectual receipts for any
<PAGE>
dividend or other moneys payable or assets distributable in respect of a share
held by them.
19.06 Where the dividend to which a member is entitled includes a fraction of
one cent such shall be disregarded in making payment thereof and such payment
shall be deemed to be payment in full.
19.07 No notice of the declaration of a dividend need be given
to any member.
19.08 The directors may, before declaring a dividend, set aside out of the
profits of the Company such sums as they think proper as a reserve or reserves
which shall, at the discretion of the directors, be applicable for meeting
contingencies, or for equalizing dividends, or for any other purpose to which
the profits of the Company may be properly applied, and pending that application
may, at the like discretion, either be employed in the business of the Company
or be invested in such investments, other than shares of the Company, as the
directors may from time to time think fit.
PART 20
ACCOUNTS
20.01 The directors shall cause records and books of accounts to be kept as
necessary to record properly the financial affairs and condition of the Company
and to comply with the provisions of statutes applicable to the Company.
20.02 Unless the directors determine otherwise, or unless otherwise determined
by an ordinary resolution, no member of the Company shall be entitled to inspect
the accounting records of the Company.
PART 21
INDEMNIFICATION
21.01 The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding, whether or not brought
<PAGE>
by the Company or by a corporation or other legal entity or enterprise as
hereinafter mentioned and whether civil, criminal or administrative, by reason
of the fact that he is or was a director, officer, employee, or agent of the
Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, a partnership, joint venture,
trust or other enterprise, against all costs, charges and expenses, including
legal fees and any amount paid to settle the action or proceeding or satisfy a
judgment, if he acted honestly and in good faith with a view to the best
interests of the corporation or other legal entity or enterprise as aforesaid of
which he is or was a director, officer, employee or agent, as the case may be,
and exercised the care, diligence and skill of a reasonably prudent person, and
with respect to any criminal or administrative, action or proceeding, he had
reasonable grounds for believing that his conduct was lawful but the Company
shall not be bound to indemnify any such person, other than a director, officer
or an employee of the Company (who shall be deemed to have notice of this
Article and to have contracted with the Company in terms hereof solely by virtue
of his acceptance of such office or employment), if in acting as agent for the
Company or as a director, officer, employee or agent of another corporation or
other legal entity or enterprise as aforesaid, he does so by written request of
the Company containing an express reference to this Article and no
indemnification of a director or former director or officer or former officer of
the Company, of a corporation in which the Company is or was a shareholder,
shall be made except to the extent approved by the Court pursuant to the Company
Act or any other statute. The determination of any action, suit or proceeding by
judgment, order, settlement, conviction or otherwise shall not, of itself,
create a presumption that the person did not act honestly and in good faith and
in the best interests of the Company and did not exercise the care, diligence
and skill of a reasonably prudent person and, with respect to any criminal
action or proceeding, did not have reasonable grounds to believe that his
conduct was lawful.
21.02 The Company shall indemnify any person other than a director in respect of
any loss, damage, costs or expenses whatsoever incurred by him while acting as
an employee or agent for the Company unless such loss, damage, costs or expenses
shall arise out of failure to comply with instructions, or wilful act or default
or fraud by such person in any of which events the Company shall only indemnify
such person if the directors, in their absolute discretion, so decide or the
Company by ordinary resolution shall so direct.
<PAGE>
21.03 The indemnification provided by this Part shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled under
any other Part, or any valid and lawful agreement, vote of members or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall enure to the benefit of the heirs, executors and administrators
of such person. The indemnification provided by this Part shall not be exclusive
of any powers, rights, agreements or undertakings which may be legally
permissible or authorized by or under any applicable law. Notwithstanding any
other provisions set forth in this Part, the indemnification authorized by this
Part shall be applicable only to the extent that any such indemnification shall
not duplicate indemnity or reimbursement which that person has received or shall
receive otherwise than under this Part.
21.04 The directors are authorized from time to time to cause the Company to
give indemnities to any director, officer, employee, agent or other person who
has undertaken or is about to undertake any liability on behalf of the Company
or any corporation controlled by it.
21.05 No director or officer or employee for the time being of the Company shall
be liable for the acts, receipts, neglects or defaults of any other director or
officer or employee, or for joining in any receipt or act for conformity, or for
any loss, damage or expense happening to the Company through the insufficiency
or deficiency of title to any property acquired by order of the Board for the
Company, or for the insufficiency or deficiency of any security in or upon which
any of the monies of or belonging to the Company shall be invested or for any
loss or damages arising from the bankruptcy, insolvency, or tortuous act of any
person, firm or corporation with whom or which any monies, securities or effects
shall be lodged or deposited or for any loss occasioned by any error of judgment
or oversight on his part or for any other loss, damage or misfortune whatever
which may happen in the execution of the duties of his respective office or
trust or in relation thereto unless the same shall happen by or through his own
wilful act or default, negligence, breach of trust or breach of duty.
21.06 Directors may rely upon the accuracy of any statement of
fact represented by an officer of the Company to be correct or upon
<PAGE>
statements in a written report of the auditor of the Company and shall not be
responsible or held liable for any loss or damage resulting from the paying of
any dividends or otherwise acting in good faith upon any such statement.
21.07 The directors may cause the Company to purchase and maintain insurance for
the benefit of any person who is or was a director, officer, employee or agent
of the Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, a partnership, joint venture,
trust or other enterprise against any liability incurred by him as a director,
officer, employee or agent.
PART 22
NOTICES
22.01 Except as otherwise provided in these Articles, a notice may be given to
any member or director, either personally or by sending it by post to him in a
prepaid letter, envelope or wrapper addressed to the member or director at his
registered address.
22.02 A notice may be given by the Company to joint members in respect of a
share registered in their names by giving the notice to the joint member first
named in the register of members in respect of that share.
22.03 A notice may be given by the Company to the persons entitled to a share in
consequence of the death or bankruptcy of a member by sending it through the
post in a prepaid letter, envelope or wrapper addressed to them by name, or by
the title of representatives of the deceased, or trustee of the bankrupt, or by
any like description, at the address, if any, supplied for the purpose by the
persons claiming to be so entitled, or, until that address has been so supplied,
by giving the notice in any manner in which the same might have been given if
the death or bankruptcy has not occurred.
22.04 Any notice or document sent by post to, or left at, the Registered Address
of, any member, shall, notwithstanding that member is then deceased, and whether
or not the Company has notice of his death, be deemed to have been duly served
in respect of any registered shares, whether held solely or jointly with other
persons by that deceased member, until some other person is
<PAGE>
registered in his stead as the member or joint member in respect of those
shares, and that service shall for all purposes be deemed a sufficient service
of such notice or document on his personal representatives and all persons, if
any, jointly interested with him in those shares.
22.05 Any notice sent by post shall be deemed to have been served on the day,
Saturdays and holidays excepted, following that on which the letter, envelope or
wrapper containing the same is posted, and in proving service it is sufficient
to prove that the letter, envelope or wrapper containing the notice was properly
addressed and put in a Canadian Government post office, postage prepaid.
22.06 Notice of every general meeting shall be given in any manner hereinbefore
authorized to:
(a) every member holding a share or shares carrying the right to vote at
such meetings on the record date or, if no record date was established
by the directors, on the date of the mailing of such notice;
(b) every person upon whom the ownership of a share devolves by reason of
his being a legal personal representative or a trustee in bankruptcy
of a member where the member but for his death or bankruptcy would be
entitled to receive notice of the meeting.
No other person is entitled to receive notice of general meetings.
PART 23
SPECIAL RIGHTS AND RESTRICTIONS
23.01 The Class "A" Preference shares and the Class "B" Preference shares of the
Company shall have the rights and shall be subject to the restrictions,
conditions and limitations as follows:
(a) The directors may issue Class "A" Preference shares in one or more
series;
(b) The directors may alter by resolution the Memorandum of the Company to
fix the number of shares in, and to
<PAGE>
determine the designation of the shares of, each series of Class "A"
Preference shares, by resolution;
(c) The directors may alter by resolution the Memorandum of the Company or
these Articles or both to create, define and attach special rights and
restrictions to the shares of each series of Class "A" Preference
shares, subject to the special rights and restrictions attached to the
Class "A" Preference shares by this Part;
(d) Where shares of one or more series of Class "A" Preference shares are
entitled to cumulative dividends, and where cumulative dividends in
respect of a series of Class "A" Preference shares are not paid in
full, the shares of all series of Class "A" Preference shares entitled
to cumulative dividends shall participate rateably in respect of
accumulated dividends in accordance with the amounts that would be
payable on those shares if all the accumulated dividends were paid in
full;
(e) Where amounts payable on a winding-up, or on the occurrence of any
other event as a result of which the holders of the shares of all
series of Class "A" Preference shares are then entitled to return of
capital, are not paid in full, the shares of all series of Class "A"
Preference shares shall participate rateably in a return of capital in
respect of Class "A" Preference shares in accordance with the amounts
that would be payable on the return of capital if all amounts so
payable were paid in full;
(f) No special rights or restrictions attached to a series of Class "A"
Preference shares shall confer on the series priority over another
series of Class "A" Preference shares then outstanding respecting:
(i) dividends, or
(ii) a return of capital:
(A) on winding-up, or
(B) on the occurrence of another event that would result in the
holders of all series of Class
<PAGE>
"A" Preference shares being entitled to a return of capital;
(g) A directors' resolution pursuant to paragraphs (a), (b) or (c) may
only be passed prior to the issue of shares of the series to which the
resolution relates, and after the issue of shares of that series, the
number of shares in, the designation of and the special rights and
restrictions attached to, that series may be added to, altered, varied
or abrogated only pursuant to Sections 248, 249, 254 or 255 of the
Company Act, as the case may be;
(h) Except as expressly provided in the special rights, or restrictions
which the directors may create, define or attach to any series of
Class "A" Preference shares, shares of a series of Class "A"
Preference shares shall not confer on the holders thereof any right to
notice of or to be present or to vote, either in person or by proxy,
at any general meeting other than a separate meeting of the holders of
the Class "A" Preference shares, or of the holders of shares of a
series of the Class "A" Preference shares, as the case may be;
(i) All of the provisions of this Part with respect to the Class "A"
Preference shares shall apply, mutatis mutandis, to the Class "B"
Preference shares, as if set out here in full;
(j) Except as expressly provided in the special rights or restrictions
which the directors may create, define or attach to any series of
Class "A" Preference shares or Class "B" Preference shares, the
directors may declare dividends with respect to the common shares only
or with respect to any series of Class "A" Preference shares only or
with respect to any series of Class "B" Preference shares only or with
respect to any combination of two or more such classes or series of
classes only.
23.02 Except as hereinafter provided, in the event of the liquidation,
dissolution or winding-up of the Company or any distribution of its assets for
the purpose of winding-up its affairs, after the payment of dividends declared
but unpaid, the holders of the Class "A" Preference shares and the Class "B"
Preference shares shall be entitled pari passu to be paid such
<PAGE>
amount as the special rights and restrictions attaching to such shares shall
provide, and in the absence of any express provision with respect thereto the
amount of capital paid up in respect thereof per share for each Class "A"
Preference share and each Class "B" Preference share held by them, out of the
assets of the Company in preference to and with priority over any payment or
distribution of any capital asset or monies among the holders of any common
shares of the Company, and after payment to the holders of the Class "A"
Preference shares and Class "B" Preference shares of the amount so payable to
them they shall not be entitled to share in any other distribution of the
property or assets of the Company. The foregoing provisions of this Article
23.02 shall apply to all Class "A" Preference shares and Class "B" Preference
shares, except as expressly provided in the special rights and restrictions
which the directors may create, define or attach to any series of Class "A"
Preference shares or Class "B" Preference shares.
PART 24
PROHIBITIONS
24.01 No shares may be transferred except with the prior approval of the
directors, who may in their absolute discretion refuse to register the transfer
of any share, such approval to be evidenced by a resolution of the directors.
24.02 There shall not be any invitation to the public to subscribe for any
shares or debt obligations of the Company.
24.03 The provisions of this Part shall only apply if the Company is not a
reporting company.
- --------------------------------------------------------------------------------
FULL NAME, RESIDENT ADDRESS NUMBER AND KIND AND CLASS OF
AND OCCUPATION OF SUBSCRIBER SHARES(S) TAKEN BY SUBSCRIBER
- --------------------------------------------------------------------------------
/s/ Stephen F.X. O'Neill ONE COMMON SHARE
- ------------------------
STEPHEN F.X. O'NEILL, Solicitor
2583 Mariner Way,
Coquitlam, B.C.
<PAGE>
- --------------------------------------------------------------------------------
TOTAL SHARES TAKEN: ONE COMMON SHARE
- --------------------------------------------------------------------------------
DATED at Vancouver, British Columbia, this 16th day of May, 1983.
Exhibit 1(c)
COMPANY ACT
(R.S.B.C. 1979, Chapter 59)
MEMORANDUM
OF
DUNDEE RESOURCES CORP.
I wish to be formed into a company with limited liability under the Company
Act in pursuance of this Memorandum.
1. The name of the company is "DUNDEE RESOURCES CORP."
2. The authorized capital of the company consists of 300,000,000 shares divided
into:
(a) 100,000,000 common shares without par value;
(b) 100,000,000 Class "A" Preference shares with a par value of $10.00
each; and
(c) 100,000,000 Class "B" Preference shares with a par value of $50.00
each.
The special rights and restrictions attached to the Class "A" Preference shares
and the Class "B" Preference shares are as set out in the Articles of the
Company.
3. I agree to take the number and class of shares in the Company set opposite my
name.
- --------------------------------------------------------------------------------
FULL NAME, RESIDENT ADDRESS NUMBER AND CLASS OF SHARE(S)
AND OCCUPATION OF SUBSCRIBER TAKEN BY SUBSCRIBER
- --------------------------------------------------------------------------------
/s/ Stephen F.X. O'Neill ONE (1) COMMON SHARE
- ------------------------
STEPHEN F.X. O'NEILL, Solicitor
2583 Mariner Way,
Coquitlam, B.C.
- --------------------------------------------------------------------------------
TOTAL SHARES TAKEN: ONE (1) COMMON SHARE
- --------------------------------------------------------------------------------
DATED at Vancouver, British Columbia, this 16th day of May, 1983.
Exhibit 1(d)
NUMBER: 264264
CERTIFICATE
OF
CHANGE OF NAME
COMPANY ACT
CANADA
PROVINCE OF BRITISH COLUMBIA
I Hereby Certify that
DUNDEE RESOURCES CORP.
has this day changed its name to
CLEAR VIEW VENTURES, INC.
Issued under my hand at Victoria, British Columbia
on January 20, 1993
"JOHN S. POWELL"
JOHN S. POWELL
A/Registrar of Companies
Exhibit 1(e)
FORM 21
(Section 371)
PROVINCE OF BRITISH COLUMBIA
Certificate of
Incorporation No. 264264
-----------
COMPANY ACT
-----------
SPECIAL RESOLUTION
The following special resolution was passed by the undermentioned Company
on the date stated:
Name of Company: DUNDEE RESOURCES CORP.
Date resolution passed: August 21, 1992
Resolutions:
RESOLVED, as a special resolution, that:
(i) the name of the Company be changed to "CLEAR VIEW VENTURES, INC." and
(ii) Paragraph 1 of the Memorandum of the Company be altered to read:
1. The name of the Company is "CLEAR VIEW VENTURES, INC."
RESOLVED, as a special resolution, that:
(i) the 100,000,000 common shares without par value in the capital of the
Company, of which 5,390,261 are issued and fully paid, be consolidated
into 200,000,000 common shares without par value, of which 1,078,052.2
are issued and fully paid, every five common shares before
consolidation being consolidated into one common share; and
<PAGE>
(ii) thereafter the authorized capital of the Company be increased by
increasing the number of common shares without par value to
100,000,000 common shares, of which 1,078,052.2 are issued."
The Altered Memorandum is in the form attached hereto as Schedule "A".
Certified a true copy the 14th day of January, 1993.
(Signature) /s/" Leslie L. Kapusianyk "
---------------------------
(Relationship to Company) Solicitor
------------------------
<PAGE>
SCHEDULE "A"
COMPANY ACT
(R.S.B.C. 1979 CHAPTER 59)
ALTERED MEMORANDUM
OF
CLEAR VIEW VENTURES, INC.
(As altered by a Special Resolution passed August 21, 1992)
I wish to be formed into a company with limited liability under the Company
Act in pursuance of this memorandum.
1. The name of the company is "CLEAR VIEW VENTURES, INC."
2. The authorized capital of the company consists of 300,000,000 shares divided
into:
(a) 100,000,000 common shares without par value;
(b) 100,000,000 Class "A" Preference shares with a par value of $10.00
each; and
(c) 100,000,000 Class "B" Preference shares with a par value of $50.00
each.
The special rights and restrictions attached to the common shares, the Class "A"
Preference shares and the Class "B" Preference shares are as set out in the
Articles of the Company.
Exhibit 1(f)
NUMBER: 264264
CERTIFICATE
OF
CHANGE OF NAME
COMPANY ACT
CANADA
PROVINCE OF BRITISH COLUMBIA
I Hereby Certify that
CLEAR VIEW VENTURES, INC.
has this day changed its name to
TURBODYNE TECHNOLOGIES INC.
Issued under my hand at Victoria, British Columbia
on April 28, 1994
"JOHN S. POWELL"
JOHN S. POWELL
Registrar of Companies
Exhibit 1(g)
FORM 21
(Section 371)
PROVINCE OF BRITISH COLUMBIA
Certificate of
Incorporation No. 264264
COMPANY ACT
SPECIAL RESOLUTION
The following special resolution was passed by the under mentioned Company
on the date stated:
Name of Company: CLEAR VIEW VENTURES, INC.
Date resolution passed: October 8, 1993
Resolutions:
RESOLVED, as a special resolution, that:
(i) the name of the Company be changed to "TURBODYNE TECHNOLOGIES INC."
and
(ii) Paragraph 1 of the Memorandum of the Company be altered to read:
1. The name of the Company is "TURBODYNE TECHNOLOGIES INC."
The Altered Memorandum is in the form attached hereto as Schedule "A".
Certified a true copy the 3rd day of December, 1993.
(Signature) /s/ Leslie L. Ritchie
---------------------------------
(Relationship to Company) Solicitor
--------------------------
<PAGE>
SCHEDULE "A"
COMPANY ACT
(R.S.B.C. 1979 CHAPTER 59)
ALTERED MEMORANDUM
OF
TURBODYNE TECHNOLOGIES INC.
(As altered by a Special Resolution passed October 8, 1993)
I wish to be formed into a company with limited liability under the Company
Act in pursuance of this memorandum.
1. The name of the company is "TURBODYNE TECHNOLOGIES INC."
2. The authorized capital of the company consists of 300,000,000 shares divided
into:
(a) 100,000,000 common shares without par value;
(b) 100,000,000 Class "A" Preference shares with a par value of $10.00
each; and
(c) 100,000,000 Class "B" Preference shares with a par value of $50.00
each.
The special rights and restrictions attached to the common shares, the Class "A"
Preference shares and the Class "B" Preference shares are as set out in the
Articles of the Company.
Exhibit 1(h)
FORM 21
(Section 371)
PROVINCE OF BRITISH COLUMBIA
Certificate of
Incorporation No. 264264
-----------
COMPANY ACT
-----------
SPECIAL RESOLUTION
The following special resolution was passed by the under-mentioned Company
on the date stated:
Name of Company: DUNDEE RESOURCES CORP.
Date resolution passed: MARCH 27, 1986
Resolution:
"RESOLVED, as a special resolution, that the existing Articles of the Company be
cancelled and that the form of Articles attached hereto as Schedule "A" be
adopted as the Articles of the Company in substitution for and to the exclusion
of the existing Articles of the Company."
Certified a true copy the 16th day of June, 1986.
(Signature) /s/Michael F. Provenzano
------------------------
(Relationship to Company) Solicitor
---------
A copy of the Articles as adopted by the
special resolution is attached hereto as
Schedule "A".
<PAGE>
Schedule "A"
As adopted by a special resolution dated March 27, 1986
COMPANY ACT
(R.S.B.C. 1979, CHAPTER 59)
ARTICLES
OF
DUNDEE RESOURCES CORP.
PART 1
INTERPRETATION
1.01 In these Articles:
(a) "directors" means the directors of the Company for the time being;
(b) "Company Act" means the British Columbia Company Act from time to time
in force and all amendments thereto;
(c) "Registered Address" of a member means his address as recorded in the
register of members; and
(d) "Registered Address" of a director means his address as recorded in
the Company's register of directors to be kept pursuant to the Company
Act.
1.02 Words importing the singular include the plural and vice versa; and words
importing a male person include a female person and a corporation.
1.03 The definitions in the Company Act on the date of incorporation or creation
by amalgamation of the Company shall, with the necessary changes, apply to these
Articles.
PART 2
<PAGE>
SHARES
2.01 The allotment and issuance of shares shall be under the control of the
directors who may allot and issue or grant options to purchase shares at such
times and to such persons or class of persons and in such manner and upon such
terms as they think proper and, without limiting the generality of the
foregoing, the directors may grant options to purchase shares to directors,
officers or employees for such consideration and at such price or prices and
upon such terms as the directors may determine.
2.02 Shares without par value may be allotted and issued at such prices and for
such consideration as the directors may determine.
2.03 Shares may be allotted and issued as consideration for any property
acquired by or work done for or obligation undertaken for the Company.
2.04 The Company may at any time pay a commission or allow a discount to any
person in consideration of his subscribing or agreeing to subscribe, whether
absolutely or conditionally, or procuring or agreeing to procure subscriptions,
whether absolutely or conditionally, for any of its shares, but the commission
and discount in the aggregate shall not exceed 25% of the subscription price.
The commission or discount may be paid or satisfied in cash or in shares.
PART 3
SHARE CERTIFICATES
3.01 If a share certificate is defaced, lost or destroyed, it may be replaced on
payment of such fee, not exceeding $2.00 and on such terms as to evidence and
indemnity as the directors think fit.
PART 4
REGISTER OF MEMBERS
<PAGE>
4.01 The directors may make such provisions as they may think fit respecting the
keeping of the register of members or any branch register and for the
appointment of registrars and transfer agents for the purpose of issuing,
countersigning, registering, transferring and certifying the shares of the
Company.
4.02 The Company may cause one or more branch registers of members to be kept
outside British Columbia.
4.03 Except as required by law, no person shall be recognized by the Company as
holding any share upon any trust, and the Company shall not be bound by or be
compelled in any way to recognize, even when having notice thereof, any
equitable, contingent, future or partial interest in any share or any interest
in any fractional part of a share or, except as by these Articles or by law
otherwise provided, any other rights in respect of any share except in absolute
right to the entirety thereof in the registered holder.
PART 5
TRANSFER OF SHARES
5.01 The instrument of transfer of any shares of the Company shall be in such
usual or common form as the directors shall approve.
5.02 The transferor shall be deemed to remain the holder of the shares until the
name of the transferee is entered in the register of members in respect thereof.
5.03 The signature of the registered owner of any shares or of his duly
authorized attorney upon the form of transfer endorsed upon the certificate for
the said shares or upon a form of transfer accompanying the said certificate
shall constitute a complete and sufficient authority to the Company, its
directors, officers and agents to register in the name of the person, firm or
company named in the form of transfer as transferee or if no person, firm or
company is named therein as transferee then in the name of the person, firm or
company in whose behalf the certificate is deposited with the Company for the
purpose of having the transfer registered of all of the shares comprised in the
said certificate or so many thereof as the form of transfer shall state are to
be transferred. Neither the Company nor any director, officer or
<PAGE>
agent thereof shall be bound to inquire into the title of the person, firm or
company named in the form of transfer as transferee, or if no person, firm or
company is named therein as transferee, of the person, firm or company in whose
behalf the certificate is presented for the purpose of having the transfer
registered or be liable to any claim by such registered owner or by any
intermediate owner of the certificate or of the shares represented thereby for
registering the transfer, and transfer, when registered, shall confer upon the
person, firm or company in whose name the shares have been registered a valid
title to such shares.
5.04 The directors may decline to recognize any instrument of transfer unless
the instrument of transfer is accompanied by the certificate of the shares to
which it relates and such other evidence as the directors may reasonably require
to show the right of the transferor to make the transfer.
PART 6
PURCHASE OF SHARES
6.01 Subject to the special rights and restrictions attached to any class of
shares, the Company may, by a resolution of the directors, purchase any of its
shares at the price and upon the terms specified in such resolution.
PART 7
ALTERATION OF CAPITAL AND SHARES
7.01 Except as otherwise provided by conditions imposed at the time of creation
of any new shares or by these Articles, any addition to the authorized capital
resulting from the creation of new shares shall be subject to the provisions of
these Articles.
<PAGE>
PART 8
BORROWING POWERS
8.01 The directors may from time to time at their discretion authorize the
Company to borrow any sum of money for the purposes of the Company and may raise
or secure the repayment of that sum in such manner and upon such terms and
conditions, in all respects, as they think fit, and in particular, and without
limiting the generality of the foregoing, by the issue of bonds or debentures or
any mortgage or charge, whether specific or floating, or other security on the
undertaking or the whole or any part of the property of the Company, both
present and future.
8.02 The directors may make any debentures, bonds or other debt obligations
issued by the Company assignable free from any equities between the Company and
the person to whom they may be issued, or any other person who lawfully acquires
the same.
8.03 The directors may authorize the issue of any debentures, bonds, or other
debt obligations of the Company at a discount, premium or otherwise, and with
special or other rights or privileges as to redemption, surrender, drawings,
allotment of or conversion into shares, attending at general meetings of the
Company and otherwise as the directors may determine at or before the time of
issue.
8.04 If any director or any other person becomes personally liable for the
payment of any sum primarily due from the Company, the directors may execute or
cause to be executed any mortgage, charge or security over or affecting the
whole or any part of the assets of the Company by way of indemnity to secure
such director or person from any loss in respect of such liability.
PART 9
GENERAL AND CLASS MEETINGS
9.01 The general meetings of the Company shall be held at such time and place as
the directors appoint.
<PAGE>
9.02 Every general meeting, other than an annual general meeting, shall be
called an extraordinary general meeting.
9.03 The directors may, whenever they think fit, convene an extraordinary
general meeting.
9.04 Notice of a general meeting shall specify the place, the day and the hour
of meeting, and, in case of special business, the general nature of that
business. The accidental omission to give notice of any meeting to, or the
non-receipt of any notice by, any of the members entitled to receive notice
shall not invalidate any proceedings at that meeting.
9.05 If any special business includes the presenting, considering, approving,
ratifying or authorizing the execution of any document, then the portion of any
notice relating to that document is sufficient if it states that a copy of the
document or proposed document is or will be available for inspection by members
at an office of the Company in the Province of British Columbia or at one or
more designated places in the Province during business hours on any specified or
unspecified working day or days prior to the date of the meeting and at the
meeting.
9.06 The provisions of these Articles relating to the call and conduct of
general meetings apply, with the necessary changes and so far as are applicable,
to class meetings and to series meetings, except that the quorum for a class
meeting or a series meeting of the Company shall be one member present in person
or by proxy or (being a corporation) represented in accordance with Section 33
of the Company Act, holding not less than one-third of the shares affected.
PART 10
PROCEEDINGS AT GENERAL MEETINGS
10.01 The following business at a general meeting shall be deemed to be special
business:
(a) all business at an extraordinary general meeting;
(b) all business that is transacted at an annual general meeting, with the
exception of the consideration of the
<PAGE>
financial statement and the report of the directors and auditors, the
election of directors, the appointment of the auditors and such other
business as, under these Articles ought to be transacted at an annual
general meeting, or any business which is brought under consideration
by the report of the directors issued with the notice convening the
meeting.
10.02 No business, other than the election of a chairman and the adjournment or
termination of the meeting, shall be conducted at any general meeting at any
time when a quorum is not present. If at any time during a general meeting there
ceases to be a quorum present, any business then in progress shall be suspended
until there is a quorum present or until the meeting is adjourned or terminated,
as the case may be. A quorum shall be one member present in person or by proxy
or (being a corporation) represented in accordance with Section 33 of the
Company Act, holding not less than one voting share of the Company.
10.03 If within a half an hour from the time appointed for a general meeting a
quorum is not present, the meeting, if convened upon the requisition of members,
shall be terminated; but in any other case, it shall stand adjourned to the same
day in the next week, at the same time and place, and if, at the adjourned
meeting, a quorum is not present within half an hour from the time appointed for
the meeting, if the quorum for the meeting is one member holding or representing
one voting share, then the meeting shall be terminated, or, if the quorum is
greater than as aforesaid, the members present shall be a quorum.
10.04 Subject to Article 10.05, the Chairman of the Board, or in his absence,
the President of the Company, or in his absence one of the directors present
shall preside as chairman of every general meeting.
10.05 If at any general meeting there is no such officer or director present
within fifteen minutes after the time appointed for holding the meeting or if
the Chairman of the Board and the President and all the directors present are
unwilling to act as chairman, the members present shall choose a person (who
need not be a member) to be chairman.
10.06 The chairman of a general meeting may, with the consent of any meeting at
which a quorum is present, and shall, if so directed by the meeting, adjourn the
meeting from time to time and
<PAGE>
from place to place, but no business shall be transacted at any adjourned
meeting other than the business left unfinished at the meeting from which the
adjournment took place. When a meeting is adjourned for ten days or more, notice
of the adjourned meeting but not "advance notice" shall be given as in the case
of the original meeting. Except as aforesaid, it is not necessary to give any
notice of an adjournment or of the business to be transacted at an adjourned
general meeting.
10.07 No resolution proposed at a meeting may be put to the vote of the meeting
unless seconded and the chairman of any meeting is entitled to move or propose a
resolution.
10.08 In case of an equality of votes, the chairman shall not, either on a show
of hands or on a poll, have a casting or second vote in addition to the vote or
votes to which he may be entitled as a member.
10.09 In the case of any dispute as to the admission or rejection of a vote, the
chairman shall determine the same and his determination made in good faith is
final and conclusive.
10.10 A member entitled to more than one vote need not, if he votes, use all his
votes or cast all the votes he uses in the same way.
10.11 Subject to the provisions of Article 10.12, if a poll is duly demanded, it
shall be taken in such manner and at such time, within seven days after the date
of the meeting, and such place as the chairman of the meeting directs. The
result of the poll shall be deemed to be the resolution of the meeting at which
the poll is demanded. A demand for a poll may be withdrawn.
10.12 A poll demanded on a question of adjournment shall be taken at the meeting
without adjournment.
10.13 The demand for a poll shall not, unless the chairman so rules, prevent the
continuance of a meeting for the transaction of any business other than the
question on which a poll has been demanded.
<PAGE>
PART 11
VOTES OF MEMBERS
11.01 Subject to any rights or restrictions for the time being attached to any
class or classes of shares, on a show of hands every member present in person
has one vote, and on a poll every member, present in person or by proxy, has one
vote for each share he holds.
11.02 Any person who is not registered as a member but is entitled to vote at
any general meeting in respect of a share, may vote the share in the same manner
as if he were a member; but, unless the directors have previously admitted his
right to vote at that meeting in respect of the share, he shall satisfy the
directors of his right to vote the share before the time for holding the
meeting, or adjourned meeting, as the case may be, at which he proposes to vote.
11.03 Where there are joint members registered in respect of any share, any one
of the joint members may vote at any meeting, either personally or by proxy, in
respect of the share as if he were solely entitled to it. If more than one of
the joint members is present at any meeting, personally or by proxy, the joint
member present whose name stands first on the register in respect of the share
shall alone be entitled to vote in respect of that share. Several executors or
administrators of a deceased member in whose sole name any share stands shall,
for the purpose of this Article, be deemed joint members.
11.04 Subject to Section 183 of the Company Act, a corporation which is a member
may vote by its duly authorized representative who is entitled to speak and
vote, either in person or by proxy, and in all other respects exercise the
rights of a member and that representative shall be reckoned as a member for all
purposes in connection with any meeting of the Company.
11.05 A member for whom a committee has been duly appointed may vote, whether on
a show of hands or on a poll, by his committee and that committee may appoint a
proxyholder.
11.06 Unless the directors otherwise determine, the instrument appointing a
proxyholder and the power of attorney or other authority, if any, under which it
is signed or a notarially
<PAGE>
certified copy thereof shall be deposited at a place specified for that purpose
in the notice convening the meeting, not less than forty-eight hours before the
time for holding the meeting at which the proxyholder proposes to vote.
11.07 A vote given in accordance with the terms of an instrument of proxy is
valid notwithstanding the previous death or incapability of the member of
revocation of the proxy or of the authority under which the proxy was executed,
or the transfer of the share in respect of which the proxy is given, provided no
intimation in writing of the death, incapability, revocation or transfer has
been received at the registered office of the Company or by the chairman of the
meeting or adjourned meeting before the vote is given.
11.08 Unless, in the circumstances, the Company Act requires any other form of
proxy, an instrument appointing a proxyholder, whether for a specified meeting
or otherwise, shall be in common form, or in any other form that the directors
shall approve.
PART 12
DIRECTORS
12.01 The directors may exercise all such powers and do all such acts and things
as the Company may exercise and do, and which are not by these Articles or by
statute or otherwise lawfully directed or required to be exercised or done by
the Company in general meeting, but subject, nevertheless, to the provisions of
all laws affecting the Company and of these Articles and to any rules, not being
inconsistent with these Articles, which are made from time to time by the
Company in general meeting; but no rule made by the Company in general meeting
shall invalidate any prior act of the directors that would have been valid if
that rule had not been made.
12.02 The number of directors shall be not less than one (or, if the Company is
a reporting Company, not less than three) and not more than fifteen. The number
of directors may be determined from time to time by ordinary resolution.
12.03 A director is not required to have any share
qualification.
<PAGE>
PART 13
RETIREMENT AND ELECTION OF DIRECTORS
13.01 Upon the termination of the first annual general meeting of the Company
after its incorporation or formation by amalgamation, and upon the termination
of every succeeding annual general meeting, all the directors shall retire. At
every annual general meeting the members shall fill up the offices to be vacated
by electing a like number of directors and, whenever the number of retiring
directors is less than the maximum number for the time being required by or
determined pursuant to Article 12.02, they may also elect such further number of
directors if any, as the Company then determines, but the total number of
directors elected shall not exceed that maximum.
13.02 If, at any general meeting at which an election of directors ought to take
place, the places of the retiring directors are not filled up, such of the
retiring directors as may be requested by the newly-elected directors shall, if
willing, continue in office until further new directors are elected either at an
extraordinary general meeting specially convened for that purpose or at the
annual general meeting in the next or some subsequent year, unless it is
determined to reduce the number of directors.
13.03 If the Company removes any director before the expiration of his period of
office and appoints another person in his stead, the person so appointed shall
hold office only during such time as the director in whose place he is appointed
would have held the office if he had not been removed.
13.04 The directors have the power at any time and from time to time to appoint
any person as a director to fill a casual vacancy in the directors. The
directors shall have the power at any time and from time to time to appoint one
or more additional directors; but the number of additional directors shall not
at any time exceed one-third of the number of directors elected or appointed at
the last annual general meeting of the Company. Any director so appointed holds
office only until the conclusion of the next following annual general meeting of
the Company, but is eligible for re-election at that meeting.
<PAGE>
13.05 A director may, with the approval of the directors, appoint any person,
whether a member of the Company or not, and whether a director of the Company or
not, to serve as his alternate director and as such to attend and vote in his
stead at meetings of directors, and such alternate director shall, if present,
be included in the count for a quorum, and if he is a director, he shall be
entitled to two votes, one as a director and the other as an alternate director.
If the appointing director so directs, notice of meetings of directors shall be
sent to the alternate director and not to the appointing director. An alternate
director shall ipso facto vacate office as an alternate director if and when the
appointing director vacates office as a director or removes the appointee from
office as alternate director, and any appointment or removal under this Article
shall be made in writing under the hand of the director making the same.
PART 14
PROCEEDINGS OF DIRECTORS
14.01 The directors may meet at such places as they think fit, adjourn and
otherwise regulate their meetings and proceedings as they see fit. The directors
may from time to time fix the quorum necessary for the transaction of business
and unless so fixed the quorum shall be a majority of the directors then in
office. Any director who is interested in a proposed contract or transaction
with the Company shall be counted in the quorum. The Chairman of the Board, or
in his absence the President of the Company, shall be chairman of all meetings
of the directors; but if at any meeting the Chairman of the Board or the
President is not present within thirty minutes after the time appointed for
holding the meeting, the directors present may choose someone of their number to
be chairman at that meeting. Any two directors may at any time and the
Secretary, upon the request of any two directors, shall, convene a meeting of
the directors.
14.02 The directors, or any committee of directors, may take any action required
or permitted to be taken by them and may exercise any of the authorities, powers
and discretions for the time being vested in or exercisable by them by
resolution either passed at a meeting at which a quorum is present or consented
to in writing under Section 149 of the Company Act.
<PAGE>
14.03 A director may participate in a meeting of directors or of any committee
of the directors by means of conference telephones or other communications
facilities by means of which all directors participating in the meeting can hear
each other and provided that all such directors agree to such participation. A
director participating in a meeting in accordance with this Article shall be
deemed to be present at the meeting and to have so agreed and shall be counted
in the quorum therefore and be entitled to speak and vote thereat.
14.04 For the first meeting of the directors to be held immediately following
the appointment or election of a director or directors at an annual or other
general meeting of shareholders, or for a meeting of the directors at which a
director is appointed to fill a vacancy in the directors, it is not necessary to
give notice of the meeting to the newly-elected or appointed director or
directors for the meeting to be duly constituted, if a quorum of the directors
is present.
14.05 Any director of the Company who may be temporarily absent from the
Province of British Columbia may file, at the registered office of the Company,
a written waiver of notice, which may be by letter, telegram, telex or cable, of
any meeting of the directors and may, at any time, withdraw the waiver, and
until the waiver is withdrawn, no notice of meetings of directors shall be sent
to that director, and all meetings of the directors of the Company, notice of
which has not been given to that director, shall, provided a quorum of the
directors is present, be valid and effective.
14.06 Questions arising at any meeting of the directors shall be decided by a
majority of votes. In case of an equality of votes, the chairman has a second or
casting vote.
14.07 No resolution proposed at a meeting of directors need be seconded and the
chairman of any meeting is entitled to move or propose a resolution.
14.08 A resolution in writing, signed by each director shall be as valid and
effectual as if it had been passed at a meeting of directors duly called and
held. Such resolution may be in one or more counterparts each signed by one or
more directors which together shall be deemed to constitute one resolution in
writing.
14.09 Not less than 48 hours' notice of a meeting of the directors shall be
given in writing by delivery by hand or by
<PAGE>
telegraph or by mail (if it is mailed by prepaid post at least three clear days
in advance exclusive of any Saturday or holiday) but any director may in writing
waive notice or accept shorter notice. The directors may, by resolution, fix a
regular time and place for meetings, and in that case notice shall be given of
such resolution or resolutions and thereafter no further notice need be given of
such meetings.
PART 15
DIRECTORS - MISCELLANEOUS PROVISIONS
15.01 The remuneration of the directors may from time to time
be determined by the directors.
15.02 The directors shall be reimbursed such reasonable travelling, hotel and
other expenses as they may incur in and about the business of the Company and if
any director shall be required to perform extra services or should otherwise be
specially occupied about the Company's business, he shall be entitled to receive
a remuneration to be fixed by the Board or, at the option of such director, by
the Company in general meeting, and such remuneration may be either in addition
to or in substitution for any other remuneration he may be entitled to receive,
and the same shall be charged as part of the ordinary working expenses.
15.03 Inasmuch as the directors of the Company are likely to be connected with
other companies, corporations or associations with which from time to time the
Company must or may have business dealings, no contract or other transaction
between the Company and any other company, corporation or association shall be
affected by the fact that directors of the Company are interested in or are
shareholders, directors or officers of such other company, corporation or
association.
PART 16
EXECUTIVE AND OTHER COMMITTEES
16.01 The directors may after the annual general meeting of the Company and from
time to time as vacancies occur, elect from among
<PAGE>
their members an Executive Committee. The Executive Committee shall consist of
not less than two members but the number of members may be increased or
decreased from time to time by resolution of the directors. The Executive
Committee shall advise and aid the officers of the Company in all matters
concerning its interests and the management of its business and affairs and may
(subject to any regulations or restrictions which the directors may from time to
time make or impose) exercise any and all powers of the directors while the
latter are not in session except the power to do any act which must by law be
performed by the directors themselves provided, however, that a report of all
acts and proceedings of the Executive Committee done or had in the interval
between meetings of the directors shall be made to the next following meeting of
the directors for the information thereof. The Executive Committee shall meet at
such times and at such place or places as shall be determined by the Executive
Committee and in accordance with such rules as may be provided by resolution of
the directors. A majority of the members of the Executive Committee shall
constitute a quorum for the transaction of business, provided that in the event
of there being no quorum present at any meeting of the Executive Committee, any
director or directors of the Company who is or are requested by the chairman of
such meeting to attend such meeting shall have the right to attend and shall
thereupon be a member or members of the Executive Committee for such meeting.
16.02 The members of the Executive Committee shall be entitled to receive such
remuneration for acting as members of the Executive Committee as the directors
may from time to time determine.
16.03 The directors may delegate any, but not all, of their powers to committees
(other than the Executive Committee) consisting of such director or directors as
they think fit. Any committee so formed in the exercise of the powers so
delegated shall conform to any rules that may from time to time be imposed on it
by the directors, and shall report every act or thing done in exercise of those
powers to the earliest meeting of the directors to be held next after it has
been done.
16.04 A committee may elect a chairman of its meetings; if no chairman is
elected, or if at any meeting the chairman is not present within thirty minutes
after the time appointed for holding the meeting, the directors present who are
members of the committee may choose one of their number to be chairman of the
meeting.
<PAGE>
16.05 The members of a committee may meet and adjourn as they think proper.
Questions arising at any meeting shall be determined by a majority of votes of
the members present and in case of an equality of votes the chairman shall have
a second or casting vote.
PART 17
OFFICERS
17.01 The directors shall elect from among their members a President and, if
they see fit, may elect a Chairman of the Board and may elect a Vice-Chairman,
either of whom may also be the President, all or any of whom shall hold office
until their successors are elected. Vacancies occurring from time to time in
these offices may be filled by the directors from among their members.
17.02 The directors may designate the Chairman of the Board or the
Vice-Chairman, if any, or the President to be the chief executive officer.
Failing such designation the Chairman of the Board or, if there is none, the
Vice-Chairman or, if there is none, the President, shall be the chief executive
officer. The chief executive officer shall, subject to the control of the
directors, have and exercise general supervision over the management and control
of the business and affairs of the Company, its officers and employees.
17.03 The directors, from time to time, shall appoint a Secretary and may
appoint one or more Vice-Presidents, one of whom may be the chief financial
officer, and such other officers as the directors may determine, so including
one or more assistants to any of the officers so appointed, and may determine
their duties and, in the discretion of the directors, in the absence of a
written agreement to the contrary, may remove or suspend them. One person may
hold more than one such office.
<PAGE>
PART 18
EXECUTION OF INSTRUMENTS
18.01 The directors may provide a common seal for the Company and for its use
and they shall have power from time to time to destroy the same and substitute a
new seal in place of the seal destroyed.
18.02 The directors may provide an official seal for use in any other province,
state, territory or country.
18.03 The directors shall provide for the safe custody of the common seal of the
Company which shall not be affixed to any instrument except in the presence of:
(a) any two of the Chairman of the Board or the Vice-Chairman (if any) or
the President or a Vice-President or the Directors or the Secretary;
or
(b) such other officers or persons as may be prescribed from time to time
by resolution of the directors;
and such officers, directors, and persons shall sign every instrument to which
the seal of the Company is affixed in their presence.
18.04 To enable the seal of the Company to be affixed to any bonds, debentures,
share certificates, share warrants or other securities of the Company, whether
in definitive or interim form on which facsimiles of the respective signatures
of Chairman of the Board, Vice-Chairman, or the President, or Vice-President,
and the Secretary are mechanically reproduced there may be delivered to the firm
or company employed to engrave, lithograph or print such definitive or interim
bonds, debentures, share certificates, share warrants or other securities one or
more unmounted dies reproducing the Company's seal and the President or a
Vice-President and the Secretary may by a writing authorize such firm or company
to cause the Company's seal to be affixed to such definitive or interim bonds,
debentures, share certificates, share warrants or other securities by the use of
such dies. Bonds, debentures, share certificates, share warrants or other
securities to which the Company's seal has been so affixed shall for all
purposes be deemed to be under and to bear the Company's seal as if it had
actually
<PAGE>
been affixed thereto and be valid and binding on the Company and this
notwithstanding that any person whose signature is so engraved, lithographed or
printed as that of the Chairman of the Board, Vice-Chairman, President,
Vice-President or Secretary may have ceased to hold such office at the date of
the issue thereof.
PART 19
DIVIDENDS
19.01 The directors may declare dividends and fix the date of record therefor
and the date for payment thereof.
19.02 Subject to the terms of shares with special rights or restrictions, all
dividends shall be declared according to the number of shares held.
19.03 Dividends may be declared to be payable out of the
profits of the Company. No dividend shall bear interest against
the Company.
19.04 A resolution declaring a dividend may direct payment of the dividend
wholly or partly by the distribution of specific assets or of paid-up shares,
bonds, debentures or other debt obligations of the Company, or in any one or
more of those ways, and, where any difficulty arises in regard to the
distribution, the directors may settle the same as they think expedient, and in
particular may fix the value for distribution of specific assets, and may
determine that cash payments shall be made to a member upon the basis of the
value so fixed in place of fractional shares, bonds, debentures or other debt
obligations in order to adjust the rights of all parties, and may vest any of
those specific assets in trustees upon such trusts for the persons entitled as
may seem expedient to the directors.
19.05 Any dividend or other moneys payable in cash in respect of a share may be
paid by cheque sent through the post to the member in a prepaid letter, envelope
or wrapper addressed to the member at his registered address, or in the case of
joint members, to the registered address of the joint member who is first named
on the register, or to such person and to such address as the member or joint
members, as the case may be, in writing direct. Any one of two or more joint
members may give effectual receipts for any
<PAGE>
dividend or other moneys payable or assets distributable in respect of a share
held by them.
19.06 Where the dividend to which a member is entitled includes a fraction of
one cent such shall be disregarded in making payment thereof and such payment
shall be deemed to be payment in full.
19.07 No notice of the declaration of a dividend need be given
to any member.
19.08 The directors may, before declaring a dividend, set aside out of the
profits of the Company such sums as they think proper as a reserve or reserves
which shall, at the discretion of the directors, be applicable for meeting
contingencies, or for equalizing dividends, or for any other purpose to which
the profits of the Company may be properly applied, and pending that application
may, at the like discretion, either be employed in the business of the Company
or be invested in such investments, other than shares of the Company, as the
directors may from time to time think fit.
PART 20
ACCOUNTS
20.01 The directors shall cause records and books of accounts to be kept as
necessary to record properly the financial affairs and condition of the Company
and to comply with the provisions of statutes applicable to the Company.
20.02 Unless the directors determine otherwise, or unless otherwise determined
by an ordinary resolution, no member of the Company shall be entitled to inspect
the accounting records of the Company.
PART 21
INDEMNIFICATION
21.01 The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding, whether or not brought
<PAGE>
by the Company or by a corporation or other legal entity or enterprise as
hereinafter mentioned and whether civil, criminal or administrative, by reason
of the fact that he is or was a director, officer, employee, or agent of the
Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, a partnership, joint venture,
trust or other enterprise, against all costs, charges and expenses, including
legal fees and any amount paid to settle the action or proceeding or satisfy a
judgment, if he acted honestly and in good faith with a view to the best
interests of the corporation or other legal entity or enterprise as aforesaid of
which he is or was a director, officer, employee or agent, as the case may be,
and exercised the care, diligence and skill of a reasonably prudent person, and
with respect to any criminal or administrative, action or proceeding, he had
reasonable grounds for believing that his conduct was lawful but the Company
shall not be bound to indemnify any such person, other than a director, officer
or an employee of the Company (who shall be deemed to have notice of this
Article and to have contracted with the Company in terms hereof solely by virtue
of his acceptance of such office or employment), if in acting as agent for the
Company or as a director, officer, employee or agent of another corporation or
other legal entity or enterprise as aforesaid, he does so by written request of
the Company containing an express reference to this Article and no
indemnification of a director or former director or officer or former officer of
the Company, of a corporation in which the Company is or was a shareholder,
shall be made except to the extent approved by the Court pursuant to the Company
Act or any other statute. The determination of any action, suit or proceeding by
judgment, order, settlement, conviction or otherwise shall not, of itself,
create a presumption that the person did not act honestly and in good faith and
in the best interests of the Company and did not exercise the care, diligence
and skill of a reasonably prudent person and, with respect to any criminal
action or proceeding, did not have reasonable grounds to believe that his
conduct was lawful.
21.02 The Company shall indemnify any person other than a director in respect of
any loss, damage, costs or expenses whatsoever incurred by him while acting as
an employee or agent for the Company unless such loss, damage, costs or expenses
shall arise out of failure to comply with instructions, or wilful act or default
or fraud by such person in any of which events the Company shall only indemnify
such person if the directors, in their absolute discretion, so decide or the
Company by ordinary resolution shall so direct.
<PAGE>
21.03 The indemnification provided by this Part shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled under
any other Part, or any valid and lawful agreement, vote of members or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall enure to the benefit of the heirs, executors and administrators
of such person. The indemnification provided by this Part shall not be exclusive
of any powers, rights, agreements or undertakings which may be legally
permissible or authorized by or under any applicable law. Notwithstanding any
other provisions set forth in this Part, the indemnification authorized by this
Part shall be applicable only to the extent that any such indemnification shall
not duplicate indemnity or reimbursement which that person has received or shall
receive otherwise than under this Part.
21.04 The directors are authorized from time to time to cause the Company to
give indemnities to any director, officer, employee, agent or other person who
has undertaken or is about to undertake any liability on behalf of the Company
or any corporation controlled by it.
21.05 No director or officer or employee for the time being of the Company shall
be liable for the acts, receipts, neglects or defaults of any other director or
officer or employee, or for joining in any receipt or act for conformity, or for
any loss, damage or expense happening to the Company through the insufficiency
or deficiency of title to any property acquired by order of the Board for the
Company, or for the insufficiency or deficiency of any security in or upon which
any of the monies of or belonging to the Company shall be invested or for any
loss or damages arising from the bankruptcy, insolvency, or tortuous act of any
person, firm or corporation with whom or which any monies, securities or effects
shall be lodged or deposited or for any loss occasioned by any error of judgment
or oversight on his part or for any other loss, damage or misfortune whatever
which may happen in the execution of the duties of his respective office or
trust or in relation thereto unless the same shall happen by or through his own
wilful act or default, negligence, breach of trust or breach of duty.
21.06 Directors may rely upon the accuracy of any statement of
fact represented by an officer of the Company to be correct or upon
<PAGE>
statements in a written report of the auditor of the Company and shall not be
responsible or held liable for any loss or damage resulting from the paying of
any dividends or otherwise acting in good faith upon any such statement.
21.07 The directors may cause the Company to purchase and maintain insurance for
the benefit of any person who is or was a director, officer, employee or agent
of the Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, a partnership, joint venture,
trust or other enterprise against any liability incurred by him as a director,
officer, employee or agent.
PART 22
NOTICES
22.01 Except as otherwise provided in these Articles, a notice may be given to
any member or director, either personally or by sending it by post to him in a
prepaid letter, envelope or wrapper addressed to the member or director at his
registered address.
22.02 A notice may be given by the Company to joint members in respect of a
share registered in their names by giving the notice to the joint member first
named in the register of members in respect of that share.
22.03 A notice may be given by the Company to the persons entitled to a share in
consequence of the death or bankruptcy of a member by sending it through the
post in a prepaid letter, envelope or wrapper addressed to them by name, or by
the title of representatives of the deceased, or trustee of the bankrupt, or by
any like description, at the address, if any, supplied for the purpose by the
persons claiming to be so entitled, or, until that address has been so supplied,
by giving the notice in any manner in which the same might have been given if
the death or bankruptcy has not occurred.
22.04 Any notice or document sent by post to, or left at, the Registered Address
of, any member, shall, notwithstanding that member is then deceased, and whether
or not the Company has notice of his death, be deemed to have been duly served
in respect of any registered shares, whether held solely or jointly with other
persons by that deceased member, until some other person is
<PAGE>
registered in his stead as the member or joint member in respect of those
shares, and that service shall for all purposes be deemed a sufficient service
of such notice or document on his personal representatives and all persons, if
any, jointly interested with him in those shares.
22.05 Any notice sent by post shall be deemed to have been served on the day,
Saturdays and holidays excepted, following that on which the letter, envelope or
wrapper containing the same is posted, and in proving service it is sufficient
to prove that the letter, envelope or wrapper containing the notice was properly
addressed and put in a Canadian Government post office, postage prepaid.
22.06 Notice of every general meeting shall be given in any manner hereinbefore
authorized to:
(a) every member holding a share or shares carrying the right to vote at
such meetings on the record date or, if no record date was established
by the directors, on the date of the mailing of such notice;
(b) every person upon whom the ownership of a share devolves by reason of
his being a legal personal representative or a trustee in bankruptcy
of a member where the member but for his death or bankruptcy would be
entitled to receive notice of the meeting.
No other person is entitled to receive notice of general meetings.
PART 23
SPECIAL RIGHTS AND RESTRICTIONS
23.01 The Class "A" Preference shares and the Class "B" Preference shares of the
Company shall have the rights and shall be subject to the restrictions,
conditions and limitations as follows:
(a) The directors may issue Class "A" Preference shares in one or more
series;
(b) The directors may alter by resolution the Memorandum of the Company to
fix the number of shares in, and to
<PAGE>
determine the designation of the shares of, each series of Class "A"
Preference shares, by resolution;
(c) The directors may alter by resolution the Memorandum of the Company or
these Articles or both to create, define and attach special rights and
restrictions to the shares of each series of Class "A" Preference
shares, subject to the special rights and restrictions attached to the
Class "A" Preference shares by this Part;
(d) Where shares of one or more series of Class "A" Preference shares are
entitled to cumulative dividends, and where cumulative dividends in
respect of a series of Class "A" Preference shares are not paid in
full, the shares of all series of Class "A" Preference shares entitled
to cumulative dividends shall participate rateably in respect of
accumulated dividends in accordance with the amounts that would be
payable on those shares if all the accumulated dividends were paid in
full;
(e) Where amounts payable on a winding-up, or on the occurrence of any
other event as a result of which the holders of the shares of all
series of Class "A" Preference shares are then entitled to return of
capital, are not paid in full, the shares of all series of Class "A"
Preference shares shall participate rateably in a return of capital in
respect of Class "A" Preference shares in accordance with the amounts
that would be payable on the return of capital if all amounts so
payable were paid in full;
(f) No special rights or restrictions attached to a series of Class "A"
Preference shares shall confer on the series priority over another
series of Class "A" Preference shares then outstanding respecting:
(i) dividends, or
(ii) a return of capital:
(A) on winding-up, or
(B) on the occurrence of another event that would result in the
holders of all series of Class
<PAGE>
"A" Preference shares being entitled to a return of capital;
(g) A directors' resolution pursuant to paragraphs (a), (b) or (c) may
only be passed prior to the issue of shares of the series to which the
resolution relates, and after the issue of shares of that series, the
number of shares in, the designation of and the special rights and
restrictions attached to, that series may be added to, altered, varied
or abrogated only pursuant to Sections 248, 249, 254 or 255 of the
Company Act, as the case may be;
(h) Except as expressly provided in the special rights, or restrictions
which the directors may create, define or attach to any series of
Class "A" Preference shares, shares of a series of Class "A"
Preference shares shall not confer on the holders thereof any right to
notice of or to be present or to vote, either in person or by proxy,
at any general meeting other than a separate meeting of the holders of
the Class "A" Preference shares, or of the holders of shares of a
series of the Class "A" Preference shares, as the case may be;
(i) All of the provisions of this Part with respect to the Class "A"
Preference shares shall apply, mutatis mutandis, to the Class "B"
Preference shares, as if set out here in full;
(j) Except as expressly provided in the special rights or restrictions
which the directors may create, define or attach to any series of
Class "A" Preference shares or Class "B" Preference shares, the
directors may declare dividends with respect to the common shares only
or with respect to any series of Class "A" Preference shares only or
with respect to any series of Class "B" Preference shares only or with
respect to any combination of two or more such classes or series of
classes only.
23.02 Except as hereinafter provided, in the event of the liquidation,
dissolution or winding-up of the Company or any distribution of its assets for
the purpose of winding-up its affairs, after the payment of dividends declared
but unpaid, the holders of the Class "A" Preference shares and the Class "B"
Preference shares shall be entitled pari passu to be paid such
<PAGE>
amount as the special rights and restrictions attaching to such shares shall
provide, and in the absence of any express provision with respect thereto the
amount of capital paid up in respect thereof per share for each Class "A"
Preference share and each Class "B" Preference share held by them, out of the
assets of the Company in preference to and with priority over any payment or
distribution of any capital asset or monies among the holders of any common
shares of the Company, and after payment to the holders of the Class "A"
Preference shares and Class "B" Preference shares of the amount so payable to
them they shall not be entitled to share in any other distribution of the
property or assets of the Company. The foregoing provisions of this Article
23.02 shall apply to all Class "A" Preference shares and Class "B" Preference
shares, except as expressly provided in the special rights and restrictions
which the directors may create, define or attach to any series of Class "A"
Preference shares or Class "B" Preference shares.
PART 24
PROHIBITIONS
24.01 No shares may be transferred except with the prior approval of the
directors, who may in their absolute discretion refuse to register the transfer
of any share, such approval to be evidenced by a resolution of the directors.
24.02 There shall not be any invitation to the public to subscribe for any
shares or debt obligations of the Company.
24.03 The provisions of this Part shall only apply if the Company is not a
reporting company.
- --------------------------------------------------------------------------------
FULL NAME, RESIDENT ADDRESS NUMBER AND KIND AND CLASS OF
AND OCCUPATION OF SUBSCRIBER SHARES(S) TAKEN BY SUBSCRIBER
- --------------------------------------------------------------------------------
<PAGE>
___________________________ ONE COMMON SHARE
- --------------------------------------------------------------------------------
TOTAL SHARES TAKEN: ONE COMMON SHARE
- --------------------------------------------------------------------------------
DATED at Vancouver, British Columbia, this ___ day of _____________, 19___.
Exhibit 1(i)
FORM 11
ARTICLES OF CONTINUANCE
Canada Business
Corporations Act (Section 187)
- --------------------------------------------------------------------------------
1 - Name of corporation
TURBODYNE TECHNOLOGIES INC.
- --------------------------------------------------------------------------------
2 - The place in Canada where the registered office is to be
situated
VANCOUVER, BRITISH COLUMBIA
- --------------------------------------------------------------------------------
3 - The classes and any maximum number of shares that the
corporation is authorized to issue
100,000,000 Common Shares without par value
100,000,000 Class A Preference shares with par value of $10.00 per share
100,000,000 Class B Preference shares with par value of $50.00 per share
- --------------------------------------------------------------------------------
4 - Restrictions if any on share transfers
NIL
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5 - Number (of minimum and maximum number) of directors
NOT LESS THAN THREE (3) AND NOT MORE THAN NINE (9)
DIRECTORS
- --------------------------------------------------------------------------------
6 - Restrictions if any on business the corporation may carry on
NONE
- --------------------------------------------------------------------------------
7 - (1) If change of name effected, previous name
DUNDEE RESOURCES CORP.
CLEAR VIEW VENTURES INC.
(2) Details of incorporation
INCORPORATED IN BRITISH COLUMBIA ON MAY 18, 1983
<PAGE>
DUNDEE RESOURCES CORP.
CLEAR VIEW VENTURES INC.
- --------------------------------------------------------------------------------
8 - Other provisions if any
- --------------------------------------------------------------------------------
Date Signature Description of office
Director
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY
Corporation No. Filed
- --------------------------------------------------------------------------------
FORM.F11
Exhibit 1(j)
BY-LAW NO. 1
A by-law relating generally to the conduct of the business affairs of
TURBODYNE TECHNOLOGIES INC. (the "Corporation").
BE IT ENACTED, and it is hereby enacted, as a by-law of the Corporation as
follows:
Section One
INTERPRETATION
1.01 Definitions
(1) In the by-laws:
(a) "Act" means the Canada Business Corporations Act, as from time to
time amended and every statute that may be substituted therefore
and, in the case of such substitution, any references in the
by-laws of the Corporation to provisions of the Act shall be read
as references to the substituted provisions therefore in the new
statute or statutes;
(b) "appoint" includes "elect" and vice versa;
(c) "articles" means the articles of incorporation, amalgamation or
continuance of the Corporation as the case may be, as from time
to time amended or restated;
(d) "board" means the board of directors of the Corporation;
(e) "by-laws" means this by-law and all other by-laws of the
Corporation from time to time in force and effect;
(f) "Director" means the Director appointed pursuant to the Act;
(g) "meeting of shareholders" includes an annual meeting of
shareholders and a special meeting of shareholders;
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(h) "non-business day" means saturday, Sunday and any other day that
is a holiday as defined in the Interpretation Act (Canada);
(i) "ordinary resolution" means a resolution passed by a majority of
the votes cast by the shareholders who voted in respect of that
resolution;
(j) "recorded address" means in the case of a shareholder his address
as recorded in the securities register; and in the case of joint
shareholders the address appearing in the securities register in
respect of such joint holding or the first address so appearing
if there are more than one; and in the case of a director,
officer, auditor or member of a committee of the board, his
latest address as recorded in the records of the Corporation;
(k) "Regulations" means the regulations enacted under the Act as
published or from time to time amended and every regulation that
may be substituted therefor and, in the case of such
substitution, any references in the by-laws of the Corporation to
provisions of the Regulations shall be read as references to the
substituted provisions therefor in the new regulations;
(l) "signing officer" means, in relation to any instrument, any
person authorized, under this by-law or by a resolution passed
pursuant thereto, to sign the same on behalf of the Corporation;
(m) "special meeting of shareholders" includes a meeting of any class
or classes of shareholders and a special meeting of all
shareholders entitled to vote at an annual meeting of
shareholders;
(n) "special resolution" means a resolution passed by a majority of
not less than two-thirds of the votes cast by the shareholders
who voted in respect of that resolution or signed by all the
shareholders entitled to vote on that resolution;
(o) "unanimous shareholder agreement" means a written agreement among
all the shareholders of the Corporation, or among all such
shareholders and a person who is not a shareholder, that
restricts, in whole or in part, the powers of the directors to
manage the business and affairs of the Corporation, as from time
to time amended;
(2) Except as aforesaid, words and expressions defined in the Act have the
same meanings when used herein.
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(3) Words importing the singular number include the plural and vice versa;
words importing gender include the masculine, feminine and neuter genders; and
words importing persons include individuals, bodies corporate, partnerships,
trusts and unincorporated organizations.
Section Two
BUSINESS OF THE CORPORATION
2.01 Registered Office
The registered office of the Corporation shall be in such city in Canada
and at such location therein as the board may from time to time determine.
2.02 Financial Year
The financial year of the Corporation shall end on such date in each year
as the directors may from time to time determine.
2.03 Corporate Seal
(1) The Corporation may have one or more different corporate seals, which
seals may be adopted or changed from time to time by the board, on which the
name of the Corporation appears in one or more of the language forms set out in
the articles.
(2) The board may provide for use in any other province, state or country
an official seal which shall be a reproduction of the corporate seal of the
Corporation, with the addition on its face of the name of the province, state or
country where it is to be used.
(3) The board shall provide for the safe custody of the corporate seal of
the Corporation which shall not be impressed on any instrument except when such
impression is attested by the signatures of:
(a) the President, Secretary or Assistant Secretary, if any, for the
purpose of certifying under the seal of the Corporation copies of
extracts from the articles or by-laws, minutes of meetings or
resolutions of the members of the board or committees of the board or
any instrument executed or issued by the Corporation;
(b) such one or more directors or officers or other persons as are
prescribed by resolution of the board and that a general resolution
directing the use of the
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seal may at any time be passed by the board and shall apply to the use
of the seal until countermanded by another resolution of the board of
the Corporation;
(c) if there if only one director of the Corporation, the President or
that director, alone;
(d) any two directors;
provided that no instrument shall be invalid merely because the corporate seal
is not affixed thereto.
2.04 Execution of Instruments
(1) Instruments requiring the signatures of the Corporation may be signed
by any two directors; if there is only one director of the Corporation, the
President or that director, alone; the President, any Vice-President, or the
Secretary; or such other person or persons as the board may from time to time
appoint; and all other instruments so signed shall be binding upon the
Corporation without any further authorization or formality. The board shall have
power from time to time by resolution to appoint any officer or officers, or any
person or persons, on behalf of the Corporation either to sign instruments
generally or to sign specific instruments.
(2) The signature of any officer or director of the Corporation may, if
authorized by the board, be printed, lithographed, engraved or otherwise
reproduced upon any instrument or document to be signed, executed or issued by
the Corporation or by any such officer or director; and any instrument on which
the signature of any such person is so reproduced by authorization of the board
shall be as valid to all intents and purposes as if it had been signed manually
by such person, and notwithstanding that the person whose signature is so
reproduced is deceased or has ceased to hold office at the date of the
execution, delivery or issue of such document.
(3) The term "instrument" as used herein shall include deeds, mortgages,
hypothecs, charges, conveyances, transfers and assignments of property, real or
personal, agreements, releases and receipts and discharges for the payment of
money or other obligations, certificates of the Corporation's shares, share
warrants of the Corporation, bonds, debentures and other debt obligations of the
Corporation, and all paper writings.
2.05 Disposition, Exchange and Conversion of Securities
In particular, without limiting the generality of the foregoing section,
the President alone, or any two of a Vice-President, the Secretary, the
Treasurer or a director, or any two directors shall have authority to sell,
assign, transfer, exchange, convert or convey any and all shares, stocks, bonds,
debentures, rights, warrants or other securities owned by or registered in
<PAGE>
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the name of the Corporation and to sign and execute (under the seal of the
Corporation or otherwise) all assignments, transfers, conveyances, powers of
attorney and other instruments that may be necessary for the purpose of selling,
assigning, transferring, exchanging, converting or conveying any such shares,
stocks, bonds, debentures, rights, warrants or other securities.
2.06 Voting Rights in Other Bodies Corporate
(1) All of the shares or other securities carrying voting rights of any
other body corporate held from time to time by the Corporation may be voted at
any and all meetings of shareholders, bondholders, debenture holders or holders
of other securities (as the case may be) of such other body corporate and in
such manner and by such person or persons as the board of directors of the
Corporation shall from time to time determine.
(2) The signing officers of the Corporation may execute and deliver proxies
and arrange for the issuance of voting certificates or other evidence of the
right to exercise the voting rights attaching to any securities held by the
Corporation. Such instruments, certificates or other evidence shall be in favour
of such person or persons as may be determined by the officers executing such
proxies or arranging for the issuance of voting certificates or such other
evidence of the right to exercise such voting rights. In addition, the board may
from time to time direct the manner in which and the person or persons by whom
any particular voting rights or class of voting rights may or shall be
exercised.
2.07 Banking Arrangements
The banking business of the Corporation including, without limitation, the
borrowing of money and the giving of security therefor, shall be transacted with
such banks, trust companies or other bodies corporate, persons or organizations
as may from time to time be designated by or under the authority of the board.
Such banking business or any part thereof shall be transacted under such
agreements, instructions and delegations of powers as the board may from time to
time prescribe or authorize.
2.08 Creation and Consolidation of Divisions
The board may cause the business and operations of the Corporation or any
part thereof to be divided or to be segregated into one or more divisions upon
such basis, including without limitation, character or type of operation,
geographical territory, product manufactured or service rendered, as the board
may consider appropriate in each case. The board may also cause the business and
operations of any such division to be further divided into sub-units and the
business and operations of any such divisions or sub-units to be consolidated
upon such basis as the board may consider appropriate in each case.
2.09 Name of Division
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- 6 -
Any division or its sub-units may be designated by such name as the board
may from time to time determine and may transact business under such name,
provided that the Corporation shall set out its name in legible characters in
all contracts, invoices, negotiable instruments and orders for goods and
services issued or made by or on behalf of the Corporation.
2.10 Officers of Division
From time to time the board or, if authorized by the board, the chief
executive officer, may appoint one or more officers for any division, prescribe
their powers and duties and settle their terms of employment and remuneration.
The board or, if authorized by the board, the chief executive officer, may
remove at its or his pleasure any officer so appointed, without prejudice to
such officer's rights under any employment contract. Officers of divisions or
their sub-units shall not, as such, be officers of the Corporation.
Section Three
BORROWING AND SECURITIES
3.01 Borrowing Power
Subject to the provisions of any unanimous shareholders' agreement and of
the articles, the board may from time to time at its discretion, borrow any sum
or sums of money or incur indebtedness for the purposes of the Corporation and
may raise or secure the payment of such indebtedness or the repayment of any
such sum or sums in such manner and upon such terms and conditions in all
respects as the board thinks fit, and in particular, and without limiting the
borrowing powers of the Corporation as set forth in the Act, the board may from
time to time:
(a) borrow money upon the credit of the Corporation;
(b) issue, reissue, sell or pledge bonds, debentures or debenture stock,
any mortgage, notes or other evidences of indebtedness or obligation
or guarantee of the Corporation, whether secured or unsecured;
(c) give a guarantee to secure the performance of any present or future
indebtedness, liability or obligation of any person; and
(d) charge (whether specific or floating), mortgage, hypothecate, pledge
or otherwise create a security interest in all or any currently owned
or subsequently acquired real or personal, movable or immovable
property of the Corporation, including book debts, rights, powers,
franchises and undertakings, to secure any such bonds, debentures,
notes or other
<PAGE>
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evidences of indebtedness or guarantee or any other present or future
indebtedness or liability of the Corporation.
Nothing in this section limits or restricts the borrowing of money by the
Corporation on bills of exchange or promissory notes made, drawn, accepted or
endorsed by or on behalf of the Corporation.
3.02 Assignment of Debentures and Bonds
Debentures, debenture stock, bonds or other securities may be made
assignable free from any equities between the Corporation and the person to whom
the same may be issued, and any other person who shall lawfully acquire the same
by assignment, purchase or otherwise howsoever.
3.03 Issuance of Securities and Special Rights Thereon
Any debentures, debenture stock, bonds or other securities may be issued at
a discount, premium or otherwise, and with special or other rights or privileges
as to redemption, surrender, drawings, allotment of or conversion into shares,
attending and voting at a general meeting of the Corporation, appointment of
directors and otherwise as the board may determine at or prior to the time of
issuance.
3.04 Securities Register
The Corporation shall keep or cause to be kept in accordance with the Act a
securities register in which it records the securities issued by it in
registered form, and subject to the provisions of the Act may keep or cause to
be kept one or more branch registers of the holders of its securities as the
board may from time to time determine and the board may by resolution,
regulation or otherwise make such provisions as it thinks fit respecting the
keeping of branch registers.
3.05 Execution of Securities
Every bond, debenture or other security of the Corporation shall be signed
manually by at least one director or officer of the Corporation or by or on
behalf of a trustee, registrar, branch registrar, transfer agent or branch
transfer agent for the bond, debenture or other security appointed by the
Corporation or under any instrument under which the bond, debenture or other
security is issued and any additional signatures may be printed or otherwise
mechanically reproduced and, in such event, a bond, debenture or other security
so signed is as valid as if signed manually notwithstanding that any person
whose signature is so printed or mechanically reproduced shall have ceased to
hold the office that he is stated on such bond, debenture or other security to
hold at the date of the issue thereof.
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3.06 Indemnity of Persons for Corporation's Securities
If the directors or any of them or any other persons shall become
personally liable for the payment of any sum primarily due from the Corporation,
the directors may execute or cause to be executed any mortgage, charge or
security over or affecting the whole or any part of the assets of the
Corporation by way of indemnity to secure the directors or persons so becoming
liable as aforesaid from any loss in respect of such liability.
3.07 Delegation
The Board may from time to time delegate to such one or more of the
directors and officers of the Corporation as may be designated by the Board all
or any of the powers conferred on the Board by this section or by the Act to
such extent and in such manner as the Board shall determine at the time of each
such delegation.
Section Four
DIRECTORS
4.01 Number of Directors
The Board shall consist of such number or of not fewer than the minimum
number and not more than the maximum number of directors as set out in the
articles but if the Corporation's securities have been distributed to the public
there shall be not less than three directors, at least two of whom are not
officers or employees of the Corporation or its affiliates.
<PAGE>
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4.02 Qualification
(1) No person shall be qualified for election as a director if he is less
than 18 years of age; if he is of unsound mind and has been so found by a court
in Canada or elsewhere; if he is not an individual; or if he has the status of a
bankrupt.
(2) A director need not be a shareholder of the Corporation.
(3) A majority of the directors shall be resident Canadians, as that term
is defined in the Act, except where permitted by Section 105(4) of the Act for a
holding corporation in which case a minimum of one third of the directors must
be Canadians.
4.03 Election and Term
(1) The election of directors shall take place at the first meeting of
shareholders and at each annual meeting of shareholders and all the directors
then in office shall retire but, if qualified, shall be eligible for
re-election.
(2) The number of directors to be elected at any such meeting shall, if a
maximum and minimum number of directors is authorized, be the number of
directors then in office unless the directors or the shareholders otherwise
determine or shall, if a fixed number of directors is authorized, be such fixed
number.
(3) The election shall be by resolution.
(4) If an election of directors is not held at the proper time, the
incumbent directors shall continue in office until their successors are elected.
4.04 Removal of Directors
Subject to the provisions of the Act, the shareholders may by resolution
passed at a meeting specially called for such purpose remove any director from
office and the vacancy created by such removal may be filled at the same meeting
failing which it may be filled by the directors. Any person appointed a director
of the Corporation to fill the vacancy created upon the removal of a director
shall hold office only for the remaining part of the term of directorship of the
director in whose place he is appointed would have held the office if he had not
been removed.
4.05 Vacation of Office
The directorship of a director shall cease when:
(a) he dies;
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(b) he is removed from office by the shareholders;
(c) he ceases to be qualified for election as a director; or
(d) his written resignation is sent or delivered to the Corporation, or,
if a time is specified in such resignation, at the time so specified,
whichever is later.
4.06 Vacancies
Subject to the Act, a quorum of the board may fill a vacancy in the board,
except a vacancy resulting from an increase in the minimum number of directors
or from a failure of the shareholders to elect the minimum number of directors.
In the absence of a quorum of the board, or if the vacancy has arisen from a
failure of the shareholders to elect the minimum number of directors, the board
shall forthwith call a special meeting of shareholders to fill the vacancy. If
the board fails to call such meeting or if there are no directors then in
office, any shareholder may call the meeting.
4.07 Action by the Board
(1) Subject to the Act and any unanimous shareholder agreement, the board
shall manage the business and affairs of the Corporation and may exercise all
such powers and do all such acts and things as the Corporation may exercise and
do and which are not by the Act or any unanimous shareholder agreement or
otherwise lawfully directed or required to be exercised or done by the
Corporation in general meeting, but subject nevertheless, to the provisions of
all laws affecting the Corporation and of the articles, these by-laws, any
unanimous shareholder agreement and to any by-laws made from time to time; but
no by-laws made by the Corporation or any unanimous shareholder agreement shall
invalidate any prior act of the board that would have been valid if such by-law
had not been passed or such agreement not made.
(2) The powers of the board may be exercised by a meeting at which the
quorum is present or by resolution in writing signed by all the directors
entitled to vote on that resolution at a meeting of the board.
(3) Where there is a vacancy in the board, the remaining directors may
exercise all the powers of the board so long as a quorum remains in office. If
and so long as the number of directors holding office is reduced below the
number fixed by or pursuant to these by-laws as the quorum of directors, the
continuing director or directors may act for the purpose of increasing the
number of directors to that number or of summoning a general meeting of the
Corporation, but for no other purpose. Where the Corporation has only one
director, that director may constitute a meeting.
4.08 Quorum and Canadian Majority at Meetings
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(1) The quorum for the transaction of business at any meeting of the Board
may be fixed by the Board from time to time and unless so fixed, shall be a
majority of the directors then in office. Any alternate director shall be
counted in a quorum at a meeting of which his appointer is absent.
(2) Except as permitted by Section 114(3) of the Act, the board shall not
transact business at a meeting, other than filling a vacancy in the board,
unless a majority of the directors present are resident Canadians, except where:
(a) a resident Canadian director who is unable to be present approved in
writing or by telephone or other communications facilities the
business transacted at the meeting; and
(b) a majority of resident Canadians would have been present had that
director been present at the meeting.
4.09 Meeting by Telephone
If all the directors of the Corporation consent, a director may participate
in a meeting of the board or of a committee of the board by means of such
telephone or other communications facilities as permit all persons participating
in the meeting to hear each other, and a director participating in such a
meeting by such means is deemed to be present at the meeting and shall be
counted in the quorum therefor and shall be entitled to speak and vote thereat.
Any such consent shall be effective whether given before or after the meeting to
which it relates and may be given with respect to all meetings of the board and
of committees of the board.
4.10 Place of Meetings
Meetings of the board may be held at any place in or outside Canada.
4.11 Calling of Meetings
Meetings of the board shall be held from time to time at such time and at
such place as the board, the Chairman of the Board, the President or any two
directors may determine, and the board may adjourn meetings and otherwise
regulate its meetings and proceedings as it sees fit.
4.12 Notice of Meeting
(1) Notice of the time and place of each meeting of the board shall be
given to each director not less than 48 hours before the time when the meeting
is to be held.
<PAGE>
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(2) Notice may be given orally, personally or by telephone, or in writing
personally or by delivery through the post or by telecopier, or any other means
of communication in common usage. When written notice of a meeting is given to a
director, it shall be addressed to him at his registered address.
(3) Where the board has established a fixed time and place for the holding
of its meetings, no notice of meetings to be held at such fixed time and place
need be given to any director.
(4) A notice of a meeting of directors need not specify the purpose of or
the business to be transacted at the meeting except where the Act requires such
purpose or business to be specified, including, if required by the Act, any
proposal to:
(a) submit to the shareholders any question or matter requiring approval
of the shareholders;
(b) fill a vacancy among the directors or in the office of auditor;
(c) issue securities;
(d) declare dividends;
(e) purchase, redeem or otherwise acquire shares issued by the
Corporation;
(f) pay a commission for the sale of shares;
(g) approve a management proxy circular;
(h) approve a take-over bid circular or directors' circular,
(i) approve any annual financial statements; or
(j) adopt, amend or repeal by-laws.
(5) A director entitled to notice of any directors' meetings may in any
manner waive or reduce the period of notice of or otherwise consent to a meeting
of the board, and may give such waiver before, during or after the meeting.
(6) Any director of the Corporation who may be absent temporarily from the
province in which the registered office of the Corporation is maintained may
file at the registered office of the Corporation a waiver of notice, which may
be by letter, telegram, telex or cable, of meetings of the board or any
committees thereof and may, at any time, withdraw the waiver and until the
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waiver is withdrawn, no notice of meetings shall be sent to that director; and
any and all meetings of the board or any committee thereof, notice of which has
not been given to that director, shall, provided a quorum of the directors is
present, be valid and effective.
4.13 First Meeting of New Board
Provided a quorum of directors is present, each newly elected board may
without notice hold its first meeting immediately following the meeting of
shareholders at which such board is elected.
4.14 Adjourned Meeting
Notice of an adjourned meeting of the board is not required if the time and
place of the adjourned meeting is announced at the original meeting.
4.15 Regular Meetings
The board may appoint a day or days in any month or months for regular
meetings of the board at a place and hour to be named. A copy of any resolution
of the board fixing the place and time of such regular meetings shall be sent to
each director forthwith after being passed, but no other notice shall be
required for any such regular meeting except where the Act requires the purpose
thereof or the business to be transacted thereat to be specified.
4.16 Chairman
The chairman of any meeting of the board shall be the first mentioned of
such of the following officers as have been appointed and who is a director and
is present at the meeting: Chairman of the Board, President or a Vice-President.
If no such officer is present within 15 minutes after the time appointed for
holding the meeting, the directors present shall choose one of their number to
be chairman of the meeting.
4.17 Votes to Govern
At all meetings of the board every question shall be decided by a majority
of the votes cast on the question. In case of an equality of votes the chairman
of the meeting shall not be entitled to a second or casting vote.
4.18 Conflict of Interest
(1) A director or officer who is a party to, or who is a director or
officer of or has a material interest in any person who is a party to, a
material contract or proposed material contract with the Corporation shall
disclose the nature and extent of his interest at the time and in the
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manner provided by the Act. Any such contract or proposed contract shall be
referred to the board or shareholders for approval even if such contract is one
that in the ordinary course of the Corporation's business would not require
approval by the board or shareholders, and a director interested in a contract
so referred to the board shall not vote on any resolution considered by the
board to approve the same except as provided by the Act.
(2) An interested director is to be counted in a quorum at a meeting of
directors or committee of directors notwithstanding his interest.
(3) A director of the Corporation may be or become a director or other
officer of, or otherwise interested in, any company promoted by the Corporation
or in which the Corporation may be interested, as a member or otherwise, and
subject to the provisions of the Act and these by-laws, no such director shall
be accountable to the Corporation for any remuneration or other benefit received
by him as a director or officer of, or from his interest in, such other company
unless the Corporation otherwise directs.
(4) A director may hold any other office or place of profit in the
Corporation in conjunction with his office of director (other than auditor) for
such period and on such terms, as to remuneration and otherwise, as the board
may determine and no director or intending director shall be disqualified by his
office from contracting with the Corporation either with regard to his tenure of
any such other office or place of profit or as vendor, purchaser or arrangement
entered into by or on behalf of the Corporation in which otherwise, nor shall
any such contract, or any contract or any director is in any way interested, be
liable to be avoided, nor shall any director so contracting or being so
interested be liable to account to the Corporation for any profit realized by
any such contract or arrangement by reason of such director holding that office
or of the fiduciary relation thereby established, subject at all times to the
provisions of the Act.
(5) Any director may act by himself or his firm in a professional capacity
for the Corporation, and he or his firm shall be entitled to remuneration for
professional services as if he were not a director.
4.19 Remuneration and Expenses
(1) Subject to the articles or any unanimous shareholder agreement, the
directors shall be paid such remuneration for their services as the board may
from time to time determine. The directors shall also be entitled to be
reimbursed for travelling and other expenses properly incurred by them in
attending meetings of the board, any committee thereof or of the shareholders of
the Corporation or otherwise in respect of the performance by them of their
duties as the board may from time to time determine.
(2) The directors on behalf of the Corporation may pay a gratuity or
pension or allowance on retirement to any director who has held any other
salaried office or place of profit
<PAGE>
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with the Corporation or to his widow or dependents and may make contributions to
any fund and pay premiums for the purchase or provision of any such gratuity,
pension or allowance, subject at all times to the provisions of the Act.
4.20 Alternate Directors
(1) A director (the "appointor") may appoint as his alternate any person
who is not disqualified to be a director, and an alternate need not hold any
shares of the Corporation.
(2) An appointment of an alternate shall not be effective until an
instrument in writing declaring the appointment and signed by the appointor is
delivered to the registered office of the Corporation.
(3) An appointor may revoke an appointment of his alternate by notice in
writing, by cable, telegram or other writing, delivered to the Corporation.
(4) The appointment of an alternate terminates if his appointor ceases to
be a director or if the alternate director sustains any of the disabilities
referred to in the Act.
(5) The Corporation is not obligated to remunerate any alternate or to
reimburse an alternate for any expense incurred in carrying out his function.
(6) An alternate shall be entitled to notice of meetings of the board or
any committee of which the appointor is a member, and in the absence from any
meeting of the appointor, to attend, speak, act and vote thereat as a director,
and may sign or concur in resolutions.
(7) A director or other person may act as alternate for more than one
director and at any meeting of the board or any committee of which the appointor
is a member, shall be counted as one director in determining the quorum and be
entitled to cast one vote for each director for whom he is the alternate, in
addition to being counted and voting as a director in his own right.
4.21 Attorney of Corporation
The directors may from time to time and at any time by power of attorney
appoint any company, firm or person or body of persons, whether nominated
directly or indirectly by the directors, to be the attorney or attorneys of the
Corporation for such purposes and with such powers, authorities and discretions,
not exceeding those vested in or exercisable by the directors under these
Articles, and for such period and subject to such conditions as they may think
fit, and any such powers of attorney may contain such provisions for the
protection and convenience of persons dealing with any such attorney as the
directors may think fit and may also authorize any such attorney to delegate all
or any of the powers, authorities and discretions vested in him.
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4.22 No Irregularity
All acts done by the board, or a committee of the board, or by any person
acting as a director or officer of the Corporation shall notwithstanding that it
is afterwards discovered that there was some irregularity in his election or
appointment, or a defect in his qualification, be as valid as if every such
person were qualified and had been duly appointed.
4.23 Resolutions
(1) No resolution proposed at a meeting of the board or at a meeting of a
committee of the board need be seconded and the chairman of any meeting shall be
entitled to move or propose a resolution.
(2) A resolution in writing, signed by each director or his alternate, or
if there is only one director, by that one director, shall be as valid and
effectual as if it had been passed at a meeting of the board or any committee
thereof duly convened and held.
(3) A resolution in writing may be in one or more counterparts each of
which may be signed by one or more directors or alternates, and which together
shall be deemed to constitute a resolution in writing.
4.24 Committee of Directors
(1) The board may appoint a committee of directors, however designated, and
delegate to such committee any of the powers of the board except those which
pertain to items which, under the Act, a committee of directors has no authority
to exercise. A majority of the members of such committee shall be resident
Canadians except where permitted by Section 115(2) of the Act.
(2) The powers of a committee of directors may be exercised by a meeting at
which a quorum is present or by resolution in writing signed by all members of
such committee who would have been entitled to vote on that resolution at a
meeting of the committee. Meetings of such committee may be held in any manner
provided in this by-law for meeting of the board and may be held at any place in
or outside of Canada.
(3) The board may from time to time appoint such other committees as it may
deem advisable, but the functions of any such other committees shall be advisory
only.
(4) Unless otherwise determined by the board, each committee shall have
power to fix its quorum at not less than a majority of its members, to elect its
chairman and to regulate its procedure.
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4.25 Audit Committee
If the Corporation's securities have been distributed to the public the
board shall elect an audit committee annually from among its members to be
composed of not fewer than three directors of whom a majority shall not be
officers or employees of the Corporation or its affiliates. The audit committee
shall have the powers and duties provided in the Act.
Section Five
SUBMISSION OF CONTRACTS
OR TRANSACTIONS TO SHAREHOLDERS FOR APPROVAL
5.01 The board in its discretion may submit any contract, act or transaction for
approval or ratification at any annual meeting of the shareholders or at any
special meeting of the shareholders called for the purpose of considering the
same and, subject to the Act, any such contract, act or transaction that shall
be approved or ratified or confirmed by a resolution passed by a majority of the
votes cast at any such meeting (unless any different or additional requirement
is imposed by the Act or by the articles or any other by-law) shall be as valid
and as binding upon the Corporation and upon all the shareholders as though it
had been approved, ratified or confirmed by every shareholder of the
Corporation.
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Section Six
OFFICERS
6.01 Appointment
Subject to any unanimous shareholder agreement, the board may from time to
time appoint a President, one or more Vice-Presidents (to which title may be
added words indicating seniority or function) a Secretary, a Treasurer and such
other officers as the board may determine, including one or more assistants to
any of the officers so appointed. The board may specify the duties of and, in
accordance with this by-law and subject to the provisions of the Act, delegate
to such officers powers to manage the business and affairs of the Corporation.
Other than the Chairman of the Board, an officer may but need not be a director
and one person may hold more than one office.
6.02 Chairman of the Board
The board may from time to time also appoint a Chairman of the Board who
shall be a director. If appointed the board may assign to him any of the powers
and duties that are by any provisions of this by-law assigned to the Managing
Director or to the President, and he shall, subject to the provisions of the
Act, have such other powers and duties as the board may specify. During the
absence or disability of the Chairman of the Board, his duties shall be
performed and his powers exercised by the President.
6.03 President
The President shall be the Chief Executive Officer and Chief Operating
Officer and, subject to the authority of the board, shall have general
supervision of the business of the Corporation and such other powers and duties
as the board may specify.
6.04 Vice-President
A Vice-President shall have such powers and duties as the board or the
Chief Executive Officer may specify.
6.05 Secretary
The Secretary shall attend and be the secretary of all meetings of the
board, shareholders and committees of the board and shall enter or cause to be
entered in records kept for that purpose minutes of all proceedings thereat; he
shall give or cause to be given as and when instructed all notices to
shareholders, directors, officers, auditors and members of committees of the
board; he shall be the custodian of the stamp or mechanical device generally
used for affixing
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the corporate seal of the Corporation and of all books, papers, records,
documents and instruments belonging to the Corporation, except when some other
office or agent has been appointed for that purpose, and he shall have such
other powers and duties as the board or the Chief Executive Officer may specify.
6.06 Treasurer
The Treasurer shall keep proper accounting records in compliance with the
Act and shall be responsible for the deposit of money, the safekeeping of
securities and the disbursement of the funds of the Corporation; he shall render
to the board whenever required an account of all his transactions as Treasurer
and of the financial position of the Corporation; and he shall have such other
powers and duties as the board or the Chief Executive Officer may specify.
6.07 Powers and Duties of Other Officers
The powers and duties of all other officers shall be such as the terms of
their engagement call for or as the board or the chief executive officer may
specify. Any of the powers and duties of an officer to whom an assistant has
been appointed may be exercised and performed by such assistant, unless the
board or the chief executive officer otherwise directs.
6.08 Variation of Powers and Duties
The board may from time to time and subject to the provisions of the Act,
vary, add to or limit the powers and duties of any officer.
6.09 Term of Office
The board, in its discretion, may remove any officer of the Corporation,
without prejudice to such officer's rights under any employment contract.
Otherwise each officer appointed by the board shall hold office until his
successor is appointed, or until his earlier resignation.
6.10 Terms of Employment and Remuneration
The terms of employment and the remuneration of an officer appointed by the
board shall be settled by it from time to time.
6.11 Conflict of Interest
An officer shall disclose his interest in any material contract or proposed
material contract with the Corporation in accordance with the provisions of this
by-law.
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6.12 Agents and Attorneys
The board shall have power from time to time to appoint agents or attorneys
for the Corporation in or outside Canada with such powers of management or
otherwise (including the powers to subdelegate) as may be thought fit.
6.13 Fidelity Bonds
The board may require such officers, employees and agents of the
Corporation as the board deems advisable to furnish bonds for the faithful
discharge of their powers and duties, in such form and with such surety as the
board may from time to time determine.
Section Seven
PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
7.01 Limitation of Liability
Every director and officer of the Corporation in exercising his powers and
discharging his duties shall act honestly and in good faith with a view to the
best interests of the Corporation and exercise the care, diligence and skill
that a reasonably prudent person would exercise in comparable circumstances.
Subject to the foregoing, no director or officer shall be liable for the acts,
receipts, neglects or defaults of any other director or officer or employee, or
for joining in any receipt or other act for conformity, or for any loss, damage
or expense happening to the Corporation through the insufficiency or deficiency
of title to any property acquired for or on behalf of the Corporation, or for
the insufficiency or deficiency of any security in or upon which any of the
monies of the Corporation shall be placed out or invested, or for any loss or
damage arising from the bankruptcy, insolvency or tortious act of any person
with whom any of the money, securities, or effects of the Corporation shall be
deposited, or for any loss conversion, misapplication, misappropriation of or
any damage resulting from any dealings with any money, securities or assets
belonging to the Corporation occasioned by any error of judgment or oversight on
his part, or for any other loss, execution of the duties of his office or trust
or in relation thereto; provided that nothing herein shall relieve any director
or officer from the duty to act in accordance with the Act and the regulations
thereunder or from liability for any breach thereof.
7.02 Indemnity of Directors and Officers
Subject to the limitations contained in the Act, the Corporation shall
indemnify a director or officer, a former director or officer, or a person who
acts or acted at the Corporation's request as a director or officer of a body
corporate of which the Corporation is or was a
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shareholder or creditor, and his heirs and legal representatives against all
costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, reasonably incurred by him in respect of any civil, criminal
or administrative action or proceeding to which he is made a party by reason of
being or having been a director or officer of the Corporation or such body
corporate, if:
(a) he acted honestly and in good faith with a view to the best interests
of the Corporation; and
(b) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, he had reasonable grounds for
believing that his conduct was lawful.
The Corporation shall also indemnify such person in such other
circumstances as the Act permits or requires.
7.04 Indemnity of Employees and Agents
The Corporation shall indemnify any person other than a director or officer
in respect of any loss, damage, cost or expense whatsoever incurred by him while
acting as an employee or agent for the Corporation unless such loss, damage,
cost or expense shall arise out of failure to comply with instructions, wilful
act or default or fraud by such person in any of which events the Corporation
shall only indemnify such person if the board, in its absolute discretion, so
decides or the Corporation by ordinary resolution so directs.
7.05 Indemnity of Secretary
In addition to the foregoing, the Corporation shall indemnify the Secretary
or an Assistant Secretary of the Corporation (if he shall not be a full time
employee of the Corporation and notwithstanding that he is also a director) and
his respective heirs and legal representatives against all costs, charges and
expenses whatsoever incurred by him or them and arising out of the functions
assigned to the Secretary by the Act or this by-law, shall, on being appointed,
be deemed to have contracted with the Corporation on the terms of the foregoing
indemnity.
7.06 Indemnity not Exclusive
(1) The indemnification provided by this by-law shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any valid and lawful agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall enure to the benefit of the heirs, executors and administrators
of such person.
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(2) The indemnification provided by this by-law shall not be exclusive of
any powers, rights, agreement or undertakings which may be legally permissible
or authorized by or under any applicable law.
(3) Notwithstanding any other provisions set forth in this by-law, the
indemnification authorized by these by-laws shall be applicable only to the
extent that any such indemnification shall not duplicate indemnity or
reimbursement which that person has received or shall receive otherwise than
pursuant to this by-law.
7.07 Other Indemnities
The board is authorized from time to time to cause the Corporation to give
indemnities to any director, officer, employee, agent or other person who has
undertaken or is about to undertake any liability on behalf of the Corporation
or any corporation controlled by it.
7.08 Reliance Upon Experts
Directors may rely upon financial statements represented by an
officer of the Corporation in a written report of the auditor of the Corporation
fairly to reflect the financial condition of the Corporation; and may rely upon
a report of a lawyer, accountant, engineer, geologist, appraiser or other person
whose profession lends credibility to a statement made by him. A director shall
not be responsible or held liable for any loss or damage resulting from acting
in good faith upon any such statement or report.
Section Eight
SHARES
8.01 Allotment and Issuance
(1) Subject to the articles and any unanimous shareholders' agreement, the
board may from time to time allot or grant options, warrants or rights to
purchase the whole or any part of the authorized and unissued shares of the
Corporation at such times and to such persons and for such consideration as the
board shall determine but:
(a) no share shall be issued until it is fully paid as provided by the
Act; and
(b) if the articles so provide, no shares of a class shall be issued
unless the shares have first been offered to the shareholders holding
shares of that class, and those shareholders have a preemptive right
to acquire the offered
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shares in proportion to their holdings of the shares of that class, at
such price and on such terms as those shares are to be offered to
others.
(2) Shareholders shall not have any preemptive right in respect of shares
to be issued:
(a) for a consideration other than money;
(b) as a share dividend; or
(c) pursuant to the exercise of conversion privileges, options or rights
previously granted by the Corporation.
8.02 Commission
The board may from time to time authorize the Corporation to pay a
commission to any person in consideration of his purchasing or agreeing to
purchase shares of the Corporation, whether from the Corporation or from any
other person, or procuring or agreeing to procure purchasers for any such
shares.
8.03 Registration of Transfers
Subject to the provisions of the Act, no transfer of shares shall be
registered in a securities register except upon presentation of the certificate
representing such shares with an endorsement, which complies with the Act, made
thereon or delivered therewith duly executed by an appropriate person as
provided by the Act, together with such reasonable assurance that the
endorsement is genuine and effective as the board may from time to time
prescribe, upon payment of all applicable taxes and any fees prescribed by the
board, upon compliance with such restrictions on transfer as are authorized by
the articles and upon satisfaction of any lien referred to in this section.
8.04 Transfer Agents and Registrars
The board may from time to time appoint one or more agents to maintain, in
respect of each class of securities of the Corporation issued by it in
registered form, a central securities register and one or more branch securities
registers. Such a person may be designated as transfer agent or registrar
according to his functions and one person may be designated both registrar and
transfer agent. The board may at any time terminate such appointment.
8.05 Lien for Indebtedness
If the articles provide that the Corporation shall have a lien on shares
registered in the name of a shareholder indebted to the Corporation, such lien
may be enforced, subject to any
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other provision of the articles and to any unanimous shareholder agreement, by
the sale of the shares thereby affected or by any other action, suit, remedy or
proceeding authorized or permitted by law or by equity and, pending such
enforcement, the Corporation may refuse to register a transfer of the whole or
any part of such shares.
8.06 Non-Recognition of Trusts
Subject to the provisions of the Act, the Corporation may treat as absolute
owner of any share the person in whose name the share is registered in the
securities register as if that person had full legal capacity and authority to
exercise all rights of ownership, irrespective of any indication to the contrary
through knowledge or notice or description in the Corporation's records or on
the share certificate.
8.07 Share Certificate
Each holder of one or more shares of the Corporation shall be entitled, at
his option to a share certificate, or to a non-transferable written
acknowledgement of his right to obtain a share certificate, stating the number
and class or series of shares held by him as shown on the securities register.
Share certificates and acknowledgments of a shareholder's right to a share
certificate, respectively, shall be in such form as the board shall from time to
time approve. Any share certificate shall be signed in accordance with the
provisions of this by-law and need not be under the corporate seal but, unless
the board otherwise determines, certificates representing shares in respect of
which a transfer agent or registrar has been appointed shall not be valid unless
countersigned by or on behalf of such transfer agent or registrar. The signature
of one of the signing officers or, in the case of share certificates which are
not valid unless countersigned by or on behalf of a transfer agent or registrar,
the signatures of both signing officers, may be printed or mechanically
reproduced in facsimile upon share certificates. Every such facsimile signature
shall for all purposes be deemed to be the signature of the officer whose
signature it reproduces and shall be binding upon the Corporation. A share
certificate executed as aforesaid shall be valid notwithstanding that one or
both of the officers whose facsimile signature appears thereon no longer holds
office at the date of issue of the certificate.
8.08 Replacement of Share Certificates
The board or any officer or agent designated by the board may in its or his
discretion direct the issue of a new share certificate in lieu of and upon
cancellation of a share certificate that has been mutilated or in substitution
for a share certificate claimed to have been lost, destroyed or wrongfully taken
on such terms as to indemnity and reimbursement of expenses and evidence of loss
and of title as the board may from time to time prescribe, whether generally or
in any particular case.
8.09 Joint Shareholders
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If two or more persons are registered as joint holders of any share, the
Corporation shall not be bound to issue more than one certificate in respect
thereof, and delivery of such certificate to one of such persons shall be
sufficient delivery to all of them. Joint holders shall be required to provide
one address only which may be the recorded address of all such joint holders.
Any one of such persons may give effectual receipts for the certificate issued
in respect thereof or for any dividend, bonus, return of capital or other money
payable or warrant issuable in respect of such share.
8.10 Deceased Shareholders
In the event of the death of a holder, or of one of the joint
holders, of any share, the Corporation shall not be required to make any entry
in the securities register in respect thereof or to make payment of any
dividends thereon except upon production of all such documents as may be
required by law and upon compliance with the reasonable requirements of the
Corporation and its transfer agents.
Section Nine
DIVIDENDS AND RIGHTS
9.01 Dividends
(1) Subject to the provisions of the Act, the board may from time to time
declare dividends payable to the shareholders according to their respective
rights and interest in the Corporation, and to fix the date of record therefor
and the time for payment thereof.
(2) Dividends may be paid in money or property or by issuing fully paid
shares of the Corporation. A resolution declaring a dividend may direct payment
of the dividend wholly or partly by the distribution of specific assets or if
paid-up shares, bonds, debentures or debenture stock of the Corporation, or in
any one or more of such ways, and where any difficulty arises in regard to the
distribution, the board may settle the same as it thinks expedient, and in
particular may fix the value for distribution of specific assets, and may
determine that cash payments shall be made to a shareholder upon the footing of
the value so fixed or in lieu of fractional shares, bonds, debentures or
debenture stock, in order to adjust the rights of all parties, and may vest any
such specific assets in trustees upon such trusts, for the person entitled as
may seem expedient to the board.
(3) Dividends may be declared to be payable out of the retained earnings,
profits or other income of the Corporation in respect of any period or out of
any surplus of the Corporation whether created on the issuance or exchange or
conversion of shares or securities of the Corporation, or as otherwise permitted
by law. The Corporation may retain any dividend or other
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monies payable on or in respect of a share on which the Corporation has a lien,
and may apply the same in or towards satisfaction of the debts, liabilities or
engagements in respect of which the lien exists.
(4) If shares of the Corporation are issued in payment of a dividend, the
value of the dividend stated as an amount in money shall be added to the stated
capital account maintained or to be maintained for the shares of the class or
series issued in payment of the dividend.
(5) No dividend shall bear interest against the Corporation.
(6) Should any dividend result in any shareholder being entitled to a
fractional part of a share of the Corporation, the board shall have the right to
pay such shareholder in lieu of that fractional share, the cash equivalent
thereof, calculated on the stated capital thereof, and shall have the further
right and complete discretion to carry out such distribution and to adjust the
rights of the shareholders with respect thereto on as practical and equitable a
basis as possible including the right to arrange through a fiscal agent or
otherwise for the sale, consolidation or other disposition of those fractional
shares on behalf of those shareholders of the Corporation.
(7) If any share is issued on terms providing that it shall rank for
dividends as and from a particular date, such share shall rank for dividend
accordingly.
(8) The board may deduct from any dividend payable to any shareholders, all
sums of money, if any, then payable by such shareholder to the Corporation.
9.02 Dividend Cheques
A dividend payable in cash shall be paid by cheque drawn on the
Corporation's bankers or one of them to the order of each registered holder of
shares of the class or series in respect of which it has been declared and
mailed by prepaid ordinary mail to such registered holder at his recorded
address, unless such holder otherwise directs. In the case of joint holders the
cheque shall, unless such joint holders otherwise direct, be payable to the
order of all of such joint holders and mailed to them at their recorded address.
The mailing of such cheque as aforesaid, unless the same is not paid on due
presentation, shall satisfy and discharge the liability for the dividend to the
extent of the sum represented thereby plus the amount of any tax which the
Corporation is required to and does withhold in respect of such dividend.
9.03 Non-Receipt of Cheques
In the event of non-receipt of any dividend cheque by the person to whom it
is sent as aforesaid, the Corporation shall issue to such person a replacement
cheque for a like amount on such terms as to indemnity, reimbursement of
expenses and evidence of non-receipt and of title as the board may from time to
time prescribe, whether generally or in any particular case.
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9.04 Record Date for Dividends and Rights
The board may fix in advance a date, preceding by not more than 50 days the
date for the payment of any dividend or the date for the issue of any warrant or
other evidence of the right to subscribe for securities of the Corporation, as a
record date for the determination of the persons entitled to receive payment of
such dividend or to exercise the right to subscribe for such securities, and
notice of any such record date shall be given not less than 10 days before such
record date in the manner provided by the Act. If no record date is so fixed,
the record date for the determination of the persons entitled to receive payment
of any dividend or to exercise the right to subscribe for securities of the
Corporation shall be at the close of business on the day on which the resolution
relating to such dividend or right to subscribe is passed by the board.
9.05 Unclaimed Dividends
Any dividend unclaimed after a period of six years from the date on which
the same has been declared to be payable shall be forfeited and shall revert to
the Corporation.
Section Ten
MEETING OF SHAREHOLDERS
10.01 Annual Meetings
The annual meeting of shareholders shall be held at such time in each year
and at such place as the board, the Chairman of the Board or the President may,
subject to this section, determine, for the purpose of considering the financial
statements and reports required by the Act to be placed before the annual
meeting, electing directors, appointing an auditor and for the transaction of
such other business as may properly be brought before the meeting.
10.02 Special Meetings
The board, the Chairman of the Board, or the President shall have power to
call a special meeting of shareholders at any time.
10.03 Place of Meetings
Meetings of shareholders shall be held at the registered office of the
Corporation or elsewhere in the municipality in which the registered office is
situate or, if the board shall so determine, at some other place in Canada or,
if all the shareholders entitled to vote at the meeting so agree, at some place
outside Canada.
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10.04 Notice of Meetings
Notice of the time and place of each meeting of shareholders shall be given
not less than 21 nor more than 50 days before the date of the meeting to each
director, to the auditor and to each shareholder who at the close of business on
the record date for notice is entered in the securities register as the holder
of one or more shares carrying the right to vote at the meeting. Notice of a
meeting of shareholders called for any purpose other than consideration of the
financial statements and auditor's report, election of directors and
reappointment of the incumbent auditor shall state the nature of such business
in sufficient detail to permit the shareholder to form a reasoned judgment
thereon and shall state the text of any special resolution to be submitted to
the meeting. A shareholder and any other person entitled to attend a meeting of
shareholders may in any manner waive notice of or otherwise consent to a meeting
of shareholders.
10.05 List of Shareholders Entitled to Notice
For every meeting of shareholders, the Corporation shall prepare a list of
shareholders entitled to receive notice of the meeting, arranged in alphabetical
order and showing the number of shares held by each shareholder entitled to vote
at the meeting. If a record date for the meeting is fixed, the shareholders
listed shall be those registered at the close of business on such record date.
If a record date is not fixed, the shareholders listed shall be those registered
at the close of business on the day immediately preceding the day on which
notice of the meeting is given, or where no such notice is given, the day on
which the meeting is held. The list shall be available for examination by any
shareholder during usual business hours at the registered office of the
Corporation or at the place where the central securities register is maintained
and at the meeting for which the list was prepared. Where a separate list of
shareholders has not been prepared, the names of persons appearing in the
securities register at the requisite time as the holder of one or more shares
carrying the right to vote at the meeting shall be deemed to be a list of
shareholders.
10.06 Record Date for Notice
The board may fix in advance a date, preceding the date of any meeting of
shareholders by not more than 50 days and not less than 21 days, as a record
date for the determination of the shareholders entitled to notice of the
meeting, and notice of any such record date shall be given not less than seven
days before the record date, by newspaper advertisement in the manner provided
in the Act. If no record date is so fixed, the record date for the determination
of the shareholders entitled to notice of the meeting shall be at the close of
business on the day immediately preceding the day on which the notice is given
or, if no notice is given, the day on which the meeting is held.
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10.07 Meetings Without Notice
(1) A meeting of shareholders may be held without notice at any time and
place permitted by the Act if:
(a) all the shareholders entitled to vote thereat are present in person or
represented by proxy or if those not present or represented by proxy
waive notice of or otherwise consent to such meeting being held, and
(b) the auditors and the directors are present or waive notice of or
otherwise consent to such meeting being held,
so long as such shareholders, auditors or directors present are not attending
for the express purpose of objecting to the transaction of any business on the
grounds that the meeting is not lawfully called.
(2) At a meeting held without notice any business may be transacted which
the Corporation at the meeting of shareholders may transact. If the meeting is
held at a place outside Canada, shareholders not present or represented by
proxy, but who have waived notice of or otherwise consented to such meeting,
shall also be deemed to have consented to the meeting being held at such place.
10.08 Chairman, Secretary and Scrutineers
The chairman of any meeting of shareholders shall be the first mentioned of
such of the following officers as have been appointed and who is present at the
meeting: Chairman of the Board, President or a Vice-President. If no such
officer is present within 15 minutes from the time fixed for holding the
meeting, the persons present and entitled to vote shall choose one of their
number to be chairman. If the Secretary of the Corporation is absent, the
Chairman shall appoint some person, who need not be a shareholder, to act as
Secretary of the meeting. If desired, one or more scrutineers, who need not be
shareholders, may be appointed by a resolution or by the Chairman with the
consent of the meeting.
10.09 Persons Entitled to be Present
The only persons entitled to be present at a meeting of shareholders shall
be those entitled to vote thereat, the directors and auditor of the Corporation
and others who, although not entitled to vote are entitled or required under any
provision of the Act or the articles or by-laws to be present at the meeting.
Any other person may be admitted only on the invitation of the chairman of the
meeting or with the consent of the meeting.
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10.10 Quorum
A quorum for the transaction of business at any meeting of shareholders
shall be one member present in person or by proxy holding not less than
one-third of the issued and outstanding voting shares of the Corporation. If a
quorum is present at the opening of any meeting of shareholders, the
shareholders present or represented by proxy may proceed with the business of
the meeting. If a quorum is not present at the opening of any meeting of
shareholders, the meeting will be adjourned to the same time of the adjourned
meeting on the day seven days following the date of the meeting at which meeting
the quorum for the transaction of business shall be reduced to one member
present in person or by proxy holding at least one voting share.
10.11 Right to Vote
Subject to the provisions of the Act as to authorized representatives of
any other body corporate or association, at any meeting of shareholders for
which the Corporation has prepared the list of shareholders entitled to receive
notice of the meeting, every person who is named in such list shall be entitled
to vote the shares shown opposite his name except to the extent that, where the
Corporation has fixed a record date in respect of such meeting, such person has
transferred any of his shares after such record date and the transferee, having
produced properly endorsed certificates evidencing such shares or having
otherwise established that he owns such shares, has demanded not later than 10
days before the meeting that his name be included in such list. In any such case
the transferee shall be entitled to vote the transferred shares of the meeting.
At any meeting of shareholders for which the Corporation has not prepared the
list of shareholders entitled to notice, every person shall be entitled to vote
at the meeting who at the time is entered in the securities register as the
holder of one or more shares carrying the right to vote at such meeting.
10.12 Proxies
(1) Every shareholder is entitled to vote at a meeting of shareholders may
appoint a proxyholder, or one or more alternate proxyholders, who need not be
shareholders, to attend and act at the meeting in the manner and to the extent
authorized and with the authority conferred by the proxy. A proxy shall be in
writing executed by the shareholder or his attorney and shall conform with the
requirements of the Act. A proxy signed by or on behalf of a corporation need
not be under seal.
(2) If the shareholder is a body corporate or association it may authorize
by resolution of its directors or governing body an individual to represent it
at a meeting of shareholders and that individual may exercise on the
shareholder's behalf all the powers it could exercise if it were an individual
shareholder. The authority of such an individual shall be established by the
deposit with the Corporation of a certified copy of the resolution, or in such
other manner as may be
<PAGE>
- 31 -
satisfactory to the secretary of the Corporation or the chairman of the meeting.
Any such proxyholder or representative need not be a shareholder. The proxy
shall be signed on behalf of the corporation by its duly authorized officer or
officers.
10.13 Time for Deposit of Proxies
The board may specify in a notice calling a meeting of shareholders a time,
preceding the time of such meeting by not more than 48 hours exclusive of
non-business days, before which time proxies to be used at such meeting must be
deposited. A proxy shall be acted upon only if, prior to the time so specified,
it shall have been deposited with the Corporation or an agent thereof specified
in such notice or, if no such time is specified in such notice, unless it has
been received by the Secretary of the Corporation or by the chairman of the
meeting or any adjournment thereof prior to the time of voting.
10.14 Joint Shareholders
If two or more persons hold shares jointly, any one of them present in
person or represented by proxy at a meeting of shareholders may, in the absence
of the other or others, vote the shares; but if two or more of those are present
in person or represented by proxy and vote, they shall vote as one the shares
jointly held by them.
10.15 Votes to Govern
At any meeting of shareholders every question shall, unless otherwise
required by the articles or by-laws or by law, be determined by a majority of
the votes cast on the question. In case of an equality of votes either upon a
show of hands or upon a poll, the chairman of the meeting shall not be entitled
to a second or casting vote.
10.16 Show of Hands
Subject to the provisions of the Act, any question at a meeting of
shareholders shall be decided by a show of hands unless a ballot thereon is
required or demanded as hereinafter provided. Upon a show of hands every person
who is present and entitled to vote shall have one vote. Whenever a vote by show
of hands shall have been taken upon a question, unless a ballot thereon is so
required or demanded, a declaration by the chairman of the meeting that the vote
upon the question has been carried or carried by a particular majority or not
carried and an entry to that effect in the minutes of the meeting shall be prima
facie evidence of the fact without proof of the number or proportion of the
votes recorded in favour of or against any resolution or other proceeding in
respect of the said question, and the result of the vote so taken shall be the
decision of the shareholders upon the said question.
<PAGE>
- 32 -
10.17 Ballots
On any question proposed for consideration at a meeting of shareholders,
and whether or not a show of hands has been taken thereon, any shareholder or
proxyholder entitled to vote at the meeting may require or demand a ballot. A
ballot so required or demanded shall be taken in such manner as the chairman
shall direct. A requirement or demand for a ballot may be withdrawn at any time
prior to the taking of the ballot. If a ballot is taken each person present
shall be entitled, in respect of the shares which he is entitled to vote at the
meeting upon the question, to that number of votes provided by the Act or the
articles, and the result of the ballot so taken shall be the decision of the
shareholders upon the said question.
10.18 Adjournment
The chairman at a meeting of shareholders may, with the consent of the
meeting and subject to such conditions as the meeting may decide, adjourn the
meeting from time to time and from place to place. If a meeting of shareholders
is adjourned for less than 30 days, it shall not be necessary to give notice of
the adjourned meeting, other than by announcement at the earliest meeting that
is adjourned. If a meeting of shareholders is adjourned by one or more
adjournments for an aggregate of 30 days or more, notice of the adjourned
meeting shall be given as required by this by-law for an original meeting.
10.19 Resolution in Writing
A resolution in writing signed by all the shareholders entitled to vote on
that resolution at a meeting of shareholder is as valid as if it had been passed
at a meeting of the shareholders unless a written statement with respect to the
subject matter of the resolution is submitted by a director or the auditors in
accordance with the Act.
10.20 Only One Shareholder
Where the Corporation has only one shareholder or only one holder of any
class or series of shares, the shareholder present in person or by proxy
constitutes a meeting.
Section Eleven
DOCUMENTS, RECORDS, ACCOUNTING
11.01 Documents and Records
(1) The board shall cause minutes to be duly entered in the books provided
for the purposes of recording:
<PAGE>
- 33 -
(a) all appointments of officers;
(b) the names of the directors or their alternates or substitutes present
at each meeting of directors and of any committee of directors;
(c) all orders made by the directors or committee of directors; and
(d) all resolutions and proceedings of general meetings of the Corporation
and all meetings of the board and of committees of directors, and any
such minutes as aforesaid, if purporting to be signed by the chairman
of such meeting or by the chairman of the next succeeding meeting
shall be receivable as prima facie evidence of the matters stated in
such minutes.
(2) The board shall cause the Corporation to keep at its registered office
or at such other place as the Act may permit or require, the documents, copy
documents, registers, minutes and records which the Corporation is required by
the Act to keep at its registered office or at such other place, and appoint
such agent or agents to keep such records and enter into such agreements and pay
such remuneration or fee to such agents as the directors shall, from time to
time, determine.
11.02 Accounts
(1) The board shall cause records and books of accounts to be kept as
necessary to record properly the financial affairs and condition of the
Corporation and to comply with the provisions of the Act.
(2) The board may, subject to the provisions of the Act, determine whether
and to what extent, and at what times and places, and on what conditions, the
records and books of account of the Corporation, or any of them, shall be open
to the inspection of the shareholders or members of the public, and no
shareholder shall have any right to inspect any record or book of account or
document of the Corporation except as conferred by statute or as authorized by
the board or by ordinary resolution whether previous notice has been given
thereof or not.
(3) The board shall determine the place at which the accounting records of
the Corporation shall be kept and those records shall be open to the inspection
of any director during normal business hours of the Corporation.
(4) The board shall cause to be prepared and shall send to the shareholders
and place before the shareholders in general meeting the financial statements
and reports of the auditors of the Corporation at the times and in the manner
prescribed by the Act.
<PAGE>
- 34 -
(5) If the Corporation is required, by the Act, to appoint auditors,
auditors shall be appointed for the Corporation and their duties regulated
according to the provisions of the Act.
Section Twelve
NOTICES
12.01 Method of Giving Notices
Any notice (which term includes any communication or document) to be given
(which term includes sent, delivered or served) pursuant to the Act, the
regulations thereunder, the articles, the by-laws or otherwise to a shareholder,
director, officer, auditor or member of a committee of the board shall be
sufficiently given unless any other manner is specifically provided or permitted
in this or any other by-law of the Corporation for the giving of any notice, if
delivered personally to the person to whom it is to be given or if delivered to
his recorded address or if mailed to him at his recorded address by prepaid
ordinary or air mail or if sent to him at his recorded address by telecopier or
by any means of prepaid transmitted or recorded communication. A notice so
delivered shall be deemed to have been given when it is delivered personally or
to the recorded address; a notice so mailed shall be deemed to have been given
on the first non-business day after the day when deposited in a post office or
public letter box; and a notice so sent by any means of transmitted or recorded
communication shall be deemed to have been given when telecopied or, if sent by
any other means, when dispatched or delivered to the appropriate communication
company or agency or its representative for dispatch. The Secretary may change
or cause to be changed the recorded address of any shareholder, director,
officer, auditor or member of a committee of the board in accordance with any
information believed by him to be reliable.
12.02 Notice to Joint Shareholders
If two or more persons are registered as joint holders of any share, any
notice shall be addressed to all of such joint holders but notice to one of such
persons shall be sufficient notice to all of them.
12.03 Computation of Time
In computing the date when notice must be given under any provision
requiring a specified number of days' notice of any meeting or other event, the
date of giving the notice shall be excluded and the date of the meeting or other
event shall be included.
<PAGE>
- 35 -
12.04 Undelivered Notices
If any notice given to a shareholder is returned on three consecutive
occasions because he cannot be found, the Corporation shall not be required to
give any further notices to such shareholder until he informs the Corporation in
writing of his new address.
12.05 Omissions and Errors
The accidental omission to give any notice to any shareholder, director,
officer, auditor or member of a committee of the board or the non-receipt of any
notice by any such person or any error in any notice not affecting the substance
thereof shall not invalidate any action taken at any meeting held pursuant to
such notice or otherwise founded thereon.
12.06 Persons Entitled by Death or Operation of Law
Every person who, by operation of law, transfer, death of a shareholder or
any other means whatsoever, shall become entitled to any share, shall be bound
by every notice in respect of such share which shall have been duly given to the
shareholder from whom he derives his title to such share prior to his name and
address being entered on the securities register whether such notice was given
before or after the happening of the event upon which he became so entitled and
prior to his furnishing to the Corporation the proof of authority or evidence of
his entitlement prescribed by the Act.
12.07 Waiver of Notice
Any shareholder (or his duly appointed proxyholder), director, officer,
auditor or member of a committee of the board may at any time waive any notice,
or waive or abridge the time for any notice, required to be given to him under
any provision of the Act, the regulations thereunder, the articles, the by-laws
or otherwise and such waiver or abridgment, whether given before or after the
meeting or other event of which notice is required to be given, shall cure any
default in the giving or in the time of such notice, as the case may be. Any
such waiver or abridgment shall be in writing except a waiver of notice of a
meeting of shareholders or of the board or of a committee of the board which may
be given in any manner.
<PAGE>
- 36 -
Section Thirteen
EFFECTIVE DATE
13.01 Effective Date
This by-law shall come into force when made by the board in accordance with
the Act.
13.02 Repeal
All previous by-laws of the Corporation and the by-laws, articles or
regulations governing the affairs of the Corporation prior to the issuance of
its articles of incorporation under the Act, are repealed as of the coming into
force of this by-law. The repeal shall not affect the previous operation of any
by-law, article or regulation as aforesaid, so repealed or affect the validity
of any act done or right, privilege, obligation or liability acquired or
incurred under or the validity of any contract or agreement made pursuant to any
such by-law prior to its repeal. All officers and persons acting under any
by-law, articles or regulation so repealed shall continue to act as if appointed
under the provisions of this by-law and all resolutions of shareholders or the
board or a committee of the board with continuing effect passed under any
repealed by-law, article or regulation shall continue in full force and effect,
until amended or repealed, except to the extent that it is inconsistent with
this by-law.
MADE AND ENACTED by the Board of Directors as of the * day of *, 199*.
______________________________ C/S
*
Secretary
*The foregoing by-laws are hereby consented to and passed as evidenced by the
signature of all the directors of the Corporation pursuant to the provisions of
the Canada Business Corporations Act.
DATED as of the * day of *, 199*.
- ------------------------------ ------------------------------
* *
EXHIBIT 2.a
Incorporated in the Province of British Columbia
TURBODYNE TECHNOLOGIES INC.
NUMBER SHARES
02842 SPECIMEN
CUSIP 899905103
THIS CERTIFIES THAT SPECIMEN
is the registered holder of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES WITHOUT PAR VALUE
in the Capital of the above named Company subject to the Memorandum and Articles
of the Company transferable on the books of the Company by the registered holder
in person or by Attorney duly authorized in writing upon surrender of this
Certificate properly endorsed.
This Certificate is not valid unless countersigned by the Transfer Agent and
Registrar of the Company.
IN WITNESS WHEREOF the Company has caused this Certificate to be signed on its
behalf by the facsimile signatures of its duly authorized officers at Vancouver,
British Columbia.
DATED
____________________________ Countersigned and registered
President Montreal Trust Company of Canada
Vancouver Transfer Agent and
Registrar
_____________________________ By SPECIMEN
Secretary -----------------------------
Authorized Officer
The Shares represented by this Certificate are transferable at the
offices of Montreal Trust Company of Canada, Vancouver, B.C.
EXHIBIT 3(i)
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 8th day of March, 1994.
BETWEEN: CLEAR VIEW VENTURES INC., a British Columbia company
210 - 890 West Pender Street
Vancouver, B.C.
V6C 1J9
PARTY OF THE FIRST PART
TURBODYNE SYSTEMS, INC., a Nevada Corporation
1050 Cindy Lane
Carpinteria, CA 93013
(the "Subsidiary")
PARTY OF THE SECOND PART
(the Parent and the Subsidiary are hereinafter collectively called the
"Company")
AND: EDWARD M. HALIMI
546 B San Ysidro Road
Santa Barbara, CA 93108
(hereinafter called "the Employee")
PARTY OF THE THIRD PART
WHEREAS the Company carries on the business of developing and manufacturing
a product known as the "Turbodyne System";
AND WHEREAS the Company wishes to employ the Employee as its President and
Chief Executive Officer of both the Parent and the Subsidiary, and the Employee
has agreed to such employment, on the terms and subject to the conditions herein
set forth.
AND WHEREAS the parties wish to formally record the terms of employment fo
the Employee and his responsibilies, remuneration and other benefits;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
premises and mutual covenants herein and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged by both parties, the
parties hereby covenant and agree with each other as follows:
<PAGE>
1.0 EMPLOYMENT
1.01 The Company agrees to employ and to continue to employ the Employee and the
Employee agrees to serve the Company (and its associates or affiliates if so
requested by the Company) in the capacity of President and Chief Executive
Officer during the term if this agreement.
1.02 The employment of the Employee under this Agreement shall commence on
_________________ and continue for a period of five years thereafter or until
termination as hereinafter provided.
1.03 The Employee shall report to and be directly resonsible to the Board of
Directors of the Company. The Employee shall perform, observe and conform to
such duties and instructions as from time to time are reasonably consistent with
the employment and status of the Employee as President and Chief Executive
Officer of the Company, and shall make reports to the Board of Directors as may
be necessary to fully and properly inform the Board of Directors of the matters
of business of the Company as well as such additional reports as the Board of
Directors may from time to time reasonably request.
1.04 The Employee agrees to serve as a Director of the Company if so requested
by the Board of Directors. The Employee further agrees to serve as a Director
and/or an officer of associated or affiliated companies if so requested by the
Directors as long as this Agreement remains in force.
2.0 COMPENSATION
2.01 The Company agrees to pay the Employee and the Employee agrees to accept as
remuneration for services hereunder an annual salary in the amount of U.S.
$60,000.00 payable by equal semi-monthly installments, exclusive of any other
benefits referred to herein. The parties agree that the Company will review the
said salary from time to time and will make any adjustments it determines are
reasonable in the sole opinion of the Directors, who may take into account (but
are not limited to) the Employee's performance and the financial and operating
success of the Company. In no case will the annual salary be reduced unless by
mutual agreement, such agreement to be in writing. For greater certainty, annual
salary as referred to herein shall not include any other payments such as
bonuses, share options, benefit, etc.
2.02 The Employee shall be entitled to participate in all employee benefit
programs maintained by the Company, including, without limiting the generality
of the foregoing, any pension plan, group and disability insurance plan, and
medical and dental plans.
2.03 In the event that the Employee should at any time be prevented by illness
or accident from performing all of his duties and provided that he furnishes
satisfactory evidence of such incapicity and the cause thereof, the Employee
shall receive such benefits as may be available under the Company's long term
disability program; and for a period of up to 12 months the Company will pay to
the Employee semi-monthly, the difference between the amount of
<PAGE>
disability benefits received by him, and his salary. It is understood and
acknowledged that the benefits under the Company's long term disability program
are governed by the terms of the policy of insurance in force and the Company
assumes no liabibility to provide such benefits to the extent they are not
available under such insurance policy, except as otherwise expressly provided
for herein. If the Employee shall be incapacitated for a period longer than 24
months, the Company reserves the option to terminate the Employee's employment
and the Employee shall have no further claim for compensation as an employee
from the Company whatsoever.
2.04 (a) The Employee shall be entitled to participate in any incentive
programs, including, without limiting the generality of the foregoing, share
option plans, share purchase plans, share bonus plans or financial assistance
plans, in accordance with and on terms and conditions determined by the
Directors in their sole discretion. The Employee acknowledges that his
participation in these plans or programs will be to such extent and in such
amounts as the Directors in their sole discretion may decide from time to time.
(b) Any amount which the Employee may be entitled to under any such plan or
program shall not, for the purposes of this Agreement, be treated as salary.
(c) Upon completion of a financing by way of a Statement of Material Facts
by the Parent subsequent to the date hereof, the Employee shall, subject to
regulatory approval, be granted an incentive stock option on the following
terms:
(i) the number of shares subject to option shall be equal to 5% of the then
issued shares of the Parent:
(ii) the exercise price of the stock option shall be the minimun price
permitted by the Vancouver Stock Exchange; and
(iii) the option shall have a term of five years from the date of grant.
2.05 The Company shall provide the Employee with the use of a suitable vehicle
up to a maximum value of U.S. $30,000.00 to carryout the performance of his
duties, and the parties will endeavor to do this in the most tax-effective
manner. All costs of operation and maintenance thereof and the cost of parking
the same at or in proximity to the business premises of the Company shall be
paid by the Company. The Company shall not be obliged to reimburse or otherwise
make allowance to the Employee in respect of any amount brought into the
Employee's income for income tax purposes by virtue of the provision to and use
by the Employee of such vehicle.
2.06 The Employee shall be entitled to four weeks vacation, without reduction in
salary, each calendar year, at such time or times as shall be convenient to him
and the Company, during which times he shall be entitled to the use of the
vehicle referred to above in paragraph 2.05. No travel allowance shall be paid
to the Employee during such vacation time.
<PAGE>
2.07 The Employee shall be reimbursed by the Company for all out of pocket
expenses actually, necessarily, and properly incurred by him in the discharge of
this duties for the Company. The Employee agrees that such reimbursements shall
be due only after he has rendered an itemized expense account, together with
receipts where applicable, showing all moneys actually expended on behalf of the
Company and such other information as may reasonably be required and requested
by the Company.
3.0 DUTIES OF THE EMPLOYEE
3.01 The Employee will diligently and faithfully devote his reasonable best
efforts to advance the Company's interest throughout the term of this Agreement.
The Employee agrees that, provided he is elected a Director, he will serve as a
Director or as a member of any committee of the Board of Directors of the
Company or any associated or affiliated Company to which he may be appointed.
3.02 During the term of this Agreement, the parties acknowledge and agree that
the Employee shall devote 90% of his working time, attention, and energies to
the business of the Company and 10% to Biosonics Corporation, an R&D company
owned by the Employee. Without the prior consent of the Directors, the Employee
shall not, during the term of this Agreement, directly or indirectly engage in
any business which is competitive with that of the Company or its associates or
affiliates or accept employment with or render services to any other company,
firm or individual, whether a competitor or otherwise, or take any other action
inconsistent with the fiduciary relationship a senior executive officer has to
his corporation.
Notwithstanding the above, the Employee may serve, with or without
compensation, on the boards of such industry associations, or on such government
or other public boards or committees (domestic or international) as the Employee
may determine, provided that the objectives of such boards or committee are not,
in the opinion of the Directors, inimical to the interests of the Company and
may devote such reasonable amount of the Employee's time (including time during
business hours) to the affairs of such boards of committees as the Employee, in
consultation with the Directors, may determine.
3.03 The Employee will not, at any time or in any manner during the continuance
of his employment hereunder, or at any time within one year after the
termination of his employment, divulge any of the confidential affairs or
secrets of the Company to any person or persons, without the previous consent in
writing of the Directors, and will not use or attempt to use any information
which he may acquire in the course of his employment for his own benefit,
directly or indirectly.
3.04 The Employee agrees to communicate at once to the Company all business
opportunities, inventions and improvements in the Turbodyne System which, while
his employment continues, me may conceive, make or discover, become aware of,
directly or indirectly, or have presented to him in any manner, that relate in
any way to the Turbodyne System, either as it is now or as it may develop, and
such business oppurtunies, inventions and improvements shall become the
exclusive property of the Company without any obligation on the part of the
Company to make
<PAGE>
any payment therefore in addition to the salary and benefits described herein to
the Employee. It is expressly acknowledged by the parties that the Employee has
over fifty inventions in fields other than the elimination of turbolag in
turbocharged vehicles and that any and all such present or future inventions
which do not involve the technology of turbolag elimination are the sole and
separate property of the Employee, and the Company hereby disclaims any rights
to or interest in such patents, inventions or technologies.
4.0 TERMINATION
4.01 The Employee may terminate this Agreement and his employment by giving the
Company at least three months' written notice.
4.02 The Company shall not be entitled to terminate the employment of the
Employee except for "cause" as determined by applicable employment law and only
after the Employee has been provided a reasonable opportunity to remedy such
"cause" and the Employee fails to do so within 90 days of receipt of written
notice of such "cause". If upon expiration of such 90 day period the Employee
fails to remedy such "cause", the Employee shall be entitled to all accrued and
unpaid compensation under this Agreement plus four months' salary and upon
payment of same, the Company's obligations hereunder shall, except as otherwise
provided, terminate.
4.03 Any termination by the Company pursuant to paragraph 4.02 shall be
communicated by written Notice of Termination. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision of this Agreement relied upon and shall set forth in
reasonable details the facts circumstances claimed to provide a basis for
termination of the Employee's employment. For purposes of this Agreement, no
such purported termination shall be effective without such notice and right to
remedy.
4.04 Upon termination by the Company pursuant to paragraph 4.02, the Employee
shall continue to be entitled to participate, at the expense of the Company, in
the Company's health and medical plans for management personnel, until the
earlier of the Employee obtaining alternate coverage under the terms of any new
employment or six months after the termination date. If such participation is
not permitted under any such plan, the Company shall pay to the Employee, in
addition to all other amount payable hereunder, a sum sufficient to enable the
Employee to obtain individual health and medical insurance coverage equivalent
to that at the time afforded under such plans.
4.05 On the termination of his employment for any reason, the Employee agrees to
deliver up to the Company all documents, financial statements, records, plans,
drawings and papers of every nature any way relating to the affairs of the
Company and its associates or affiliated companies which may be in his
possession or under his control.
4.06 If the Employee should die during the period of his employment hereunder,
termination of his employment shall be deemed to have been effected by the
Company and the provisions of paragraph 4.02 shall apply and any payment to be
made to the Employee pursuant to this Agreement shall be paid to the legal
representative of the Employee.
<PAGE>
4.07 The Employee shall not be required to mitigate the amount of any payments
provided for under any paragraph of this Section by seeking other employment or
otherwise nor shall the amount of any payment provided for in this Section be
reduced by any compensation earned by the Employee as the result of employment
by another employer after the date of termination or otherwise.
5.0 SUCCESSORS OR ASSIGNS
50.1 The rights and obligations of the Company under this Agreement shall inure
to the benefit of and be binding upon the successors or assigns of the Company.
The Company will require any successor (whether direct or indirect, by
purchase, amalgamation, consilidation or otherwise) to all or substantially all
of the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place,
provided that, if the Employee agrees, an express agreement may not be required
if such results by operation of law. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement. As used in this Agreement, "Company" shall mean the Company has
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
paragraph 5.01 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
6.0 MISCELLANEOUS
6.01 This Agreement and the employment of the Employee shall be governed,
interpreted, construed and enforced according to the law of the State of
California.
6.02 This Agreement shall inure to the benefit of and be enforceable by the
Employee's legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any amount
are still payable to him hereunder, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to such
legal representives, executors, administrators, successors, heirs, distrubutees,
devisees and legatees or, if there be no such designee, to his estate.
6.03 References herein to "associates" or "affiliates" shall mean associates and
affiliates as defined in the Canada Business Corporations Act.
6.04 This Agreement represents the entire Agreement between the Employee and the
Company concerning the subject matter hereof and supersedes any previous oral or
written communications, representations, understandings or agreeements with the
Company or any officer or agent thereof.
<PAGE>
6.05 Any notice, acceptance or other document required or permitted hereunder
shall be considered and deemed to have been duly given if delivered by hand or
mailed by postage (Special Delivery) prepaid and addressed as follows:
To: Employee
Edward M. Halimi
546 B San Yaidro Road
Santa Barbara, CA 93108
To the Company:
Clear View Ventures, Inc.
210 - 890 West Pender Street
Vancouver, B.C.
V6C 1J9
AND
Turbodyne Systems, Inc.
1050 Cindy Lane
Carpinteria, CA 93103
or to such other address as any party may specify in writing to the other and
shall be deemed to have been received, if delivered, on the date of delivery and
if mailed as aforesaid, then on the second business day following the date of
mailing thereof provided that if there shall be, at the time of mailing or
within two business days thereof, a strike, slowdown or other labor dispute
which might affect delivery of notice by the mails then the notice shall only be
effective if actually delivered.
6.06 The waiver by the Employee or by the Company of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by the Company or by the Employee.
6.07 Time shall be of the essence of this Agreement.
6.08 All references herein to dollar amount shall be deemed to refer to United
States funds.
6.09 The agreement and covenants of the entities comprising the Company shall be
joint as well as several.
7.0 AGREEMENT VOLUNTARY AND EQUITABLE
7.01 The Company and the Employee further acknowledge and declare that they each
have carfully considered and understand the terms of employment contained in
this Agreement including but without limiting the generality of the foregoing,
the Employee's rights upon
<PAGE>
termination and the restrictions on the Employee after termination, and
acknowledge and agree that the said terms of employment and rights and
restrictions upon termination are mutually fair and equitable, and that they
executed this Agreement voluntarily and of their own free will.
8.0 BOARD APPROVAL
By execution of this Agreement, the Company certifies that both respective
Boards of Directors have approved the terms of this Agreement.
IN WITNESS WHEREOF the Company has caused its corporate seal to be hereunto
affixed by and in the presence of its duly authorized officers on that behalf
and the Employee has hereunto set his hand and seal as of the day and year first
above written.
TURBODYNE SYSTEMS, INC.
The Corporate Seal of )
was )
hereunto affixed in the presence of:)
)
)
)
CLEAR VIEW VENTURES, INC.
The Corporate Seal of )
was )
hereunto affixed in the presence of:)
)
)
SIGNED, SEALED AND DELIVERED by )
)
in the presence of: )
)
) /s/ Edward M. Halimi
- ---------------------------------- ---------------------
Name ) Edward M. Halimi
)
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Address )
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Occupation )
EXHIBIT 3(ii)
MANAGEMENT AGREEMENT
THIS AGREEMENT dated for reference the 1st day of August, 1994.
BETWEEN:
TURBODYNE TECHNOLOGIES INC., a body corporate, having an
office located at #210 -890 West Pender Street,
Vancouver, B.C. V6C 1J9
(hereinafter the "Company")
OF THE FIRST PART
AND:
SEEDS INVESTMENT CORPORATION a body corporate, having an
office located at #210 - 890 West Pender Street,
Vancouver, B.C. V6C 1J9
(hereinafter "Seeds")
OF THE SECOND PART
WHEREAS:
A. The Company is a reporting issuer in British Columbia engaged in the
business of developing and marketing technology for the elimination of the
phenomenon known as turbo lag.
B. Seeds has engaged Leon Nowek, a director of the Company who is experienced
in the management of reporting issuers.
C. The Company is desirous of engaging Seeds to provide management services to
the Company.
NOW THEREFORE in consideration of the foregoing and of the mutual covenants and
agreements hereafter provided the parties have agreed and hereby agree as
follows:
1. The Company engages Seeds to provide management services to the Company
including and following:
<PAGE>
(a) supervising and managing the Company's head office in Vancouver;
(b) attending to the filing of all documents required to be filed with
regulatory bodies;
(c) representing the Company at meetings with shareholders and investors;
(d) providing liaison with the Company's legal and accounting advisors;
and
(e) representing the Company at meetings with regulatory bodies.
2. In consideration of the services to be provided by Seeds the Company will
pay to Seeds a management fee of $2,500 per month payable on the first day
of each month during the currency of this Agreement.
3. The Company agrees to reimburse Seeds and its employees for all
out-of-pocket expenses reasonably incurred by Seeds in connection with the
performance of its duties hereunder.
4. Seeds agrees to perform its duties in accordance with the directions of the
Board of Directors of the Company.
5. This Agreement may be terminated by any party hereto on 30 days written
notice to the other party.
6. Any notice required to be given under this Agreement will be deemed to have
been duly and effectively given if signed by or on behalf of the party
giving notice and mailed by prepaid post to the address of the party to
which it is given set out above.
7. This Agreement shall be subject to approval of the Vancouver Stock
Exchange.
8. This Agreement shall enure to the benefit of and be binding upon the
parties hereto, their successors and assigns.
IN WITNESS whereof the parties have executed this Agreement as and from the date
first noted above.
THE COMMON SEAL OF TURBODYNE )
TECHNOLOGIES INC. was hereunto )
affixed in the presence of: )
)
/s/ Leon Nowek ) c/s
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Authorized Signatory )
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______________________________ )
Authorized Signatory )
<PAGE>
THE COMMON SEAL OF SEEDS )
INVESTMENT CORPORATION was )
hereunto affixed in the )
presence of: )
)
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/s/ Leon Nowek ) c/s
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Authorized Signatory )
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______________________________ )
Authorized Signatory )
EXHIBIT 3(iii)
J.C. MARTIN COMPANY
INVESTMENT REAL ESTATE
1738 Calle Cerro
Santa Barbara, CA 93101
(80) 682-9377
Fax (805) 682-3497
SUBLEASE AGREEMENT
1. PARTIES.
This Sublease, dated December 1, 1994, is made between John E. and Carole D.
King ("Sublessor"), and American Appliance, Inc., a Nevanda corportion
("Sublessee").
2. MASTER LEASE.
Sublessor is the lessee under a written lease dated September 1, 1989, wherein
Co-trustees of the Preissman and May Trusts ("Lessor") leased to Sublessor the
real property in the City of Carpinteria, County of Santa Barbara, State of
California, described as approximately 46,812 square feet along with storage and
garage buildings on approximately 3.17 acres of land commonly known as 6155
Carpinteria Avenue, Carpinteria, California to include all rights to use road
easements to the property ("Master Premises"). Said lease has been amended by
the following amendments:
See ADDENDUM attached hereto and made a part hereof.
said lease and amendments are herein collectively referred to as the "Master
Lease" and are attached hereto as Exhibit "A" and all terms of the "Master
Lease" and related amendments are to be considered an integral part of this
Sub-lease. In addition, the "Master Lease" shall dictate any conflicts.
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set forth in
this Sublease the following portion of the Master Premises ("Premises") the
entire property including buildings and exclusive use of all the land and all
rights to easements.
<PAGE>
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents to Sublessee that the Master Leases has not
been amended or modified except as expressly set forth herein, that Sublessor is
not now, and as of the commencement of the Term hereof will not be, in default
or breach of any of the provisions of the Master Lease, and that Sublessor has
no knowledge of any claim by Lessor that Sublessor is in default or breach of
any of the provisions of the Master Lease.
5. TERM.
The term of this Sublease shall commence on December 1, 1994, ("Commencement
Date"), or when Lessor consents to this Sublease (if such consent is required
under the Master Lease), whichever shall last occur, and end on January 30, 2005
("Termination Date"), unless otherwise sooner terminated in accordance with the
provisions of this Sublease.
6. RENT.
6.1 Minimum Rent. Sublessee shall pay to Sublessor as minimum rent, without
deduction, setoff, notice or demand, at 290 Pismo Street, San Luis Obispo, CA
93401, or at such other place as Sublessor shall designate from time to time by
notice to Sublessee, the sum of Fifteen Thousand and no/100 Dollars ($15,000.)
per month, in advance on the first day of each month of the first year of the
Term. Sublessee shall pay to Sublessor upon execution of this Sublease the sum
of fifteen Thousand and no/100 Dollars ($15,000) as rent for January 1, 1995 to
January 31, 1995.
If the Term begins or ends on a day other than the first or last day of a month,
the rent for the partial months shall be prorated on a per diem basis.
Additional provisions:
See ADDENDUM attached hereto and made a part hereof.
For year two and thereafter Sublessee's rent shall be based upon a current base
rental figure of $.59 per sq. ft. for the entire 46,812 sq. ft. of the premises,
which includes the 37,549 sq. ft. of the main building, the 6,113 sq. ft. of the
storage area attached to the main building and the 3,150 sq. ft. small building
to the rear of the property. For year two and thereafter the base rental figure
shall be $27,619 monthly based upon the current value of money in United States
dollars plus any additional cost of living increases outlined in the ADDENDUM,
Item #3.
6.2 Operating Costs. Therefore, the Master Lease requires Sublessor to pay to
Lessor all or a portion of the expenses of operating the building and/or project
of which the Premises are a part ("Operating Costs"), including but not limited
to taxes, utilities, or Insurance, then Sublessee shall pay to Sublessor as
additional rent One Hundred percent (100%) of the amounts payable by Sublessor
for Operating Costs incurred during the Term. Such additional
<PAGE>
rent shall be payable as and when Operating Costs are payable by Sublessor to
Lessor. If the Master Lease provides for the payment by Sublessor of Operating
Costs on the basis of an estimate hereof, then as and when adjustments between
estimated and actual Operating Costs are made under the Master Lease, the
obligations of Sublessor and Sublessee hereunder shall be adjusted in a like
manner; and if any such adjustment shall occur after the expiration or earlier
termination of the Terms, then the obligations of Sublessor and Sublessee under
this Subsection 6.2 shall survive such expiration or termination. Sublessor
shall, upon request by Sublessee, furnish Sublessee with copies of all
statements submitted by Lessor of actual or estimated Operation Costs during the
Term (1993-94 Property Taxes - $21,492.14, Insurance - $6,382).
6.1 Late Charge. If Sublessor does not receive payment within ten (10) days of
the date in which the rent is due, Sublessee shall pay a late charge equal to
ten percent (10%) of the overdue amount.
7. SECURITY DEPOSIT.
Sublessee shall deposit with Sublessor upon execution of this Sublease the sum
of Twenty Seven Thousand Six Hundred Nineteen Dollars ($27,619*)
* (The initial deposit of $20,000 shall be increased to $27,619 before the
expiration of the first year.)
as security for Sublessee's faithful performance of Sublessee's obligations
hereunder ("Security Deposit"). If Sublessee fails to pay rent or other charges
when due under this Sublease, or fails to perform any of its other obligations
hereunder, Sublessor may use or apply all or any portion of the Security Deposit
for the payment of any rent or other amount then due thereunder and unpaid, for
the payment of any other sum for which Sublessor may become obligated by reason
of Sublessee's default or breach, or for any loss or damage sustained by
Sublessor as a result of Sublessee's default or breach. If Sublessor so uses any
portion of the Security Deposit, Sublessee shall, within ten (10) days after
written demand by Sublessor, restore the Security Deposit to the full amount
originally deposited, and Sublessee's failure to do so shall constitute a
deault. Under this Sublease, Sublessor shall not be required to keep the
Security Deposit separate from its general accounts, and shall have no
obligation or liability for payment of Interest on the Security Deposit. In the
event Sublessor assigns its interest in this Sublease, Sublessor shall deliver
to its assignee so much of the Security Deposit as is then held by Sublessor.
Within ten (10) days after the Term has expired, or Sublessee has vacated the
Premises, or any final adjustment pursuant to Subsection 6.2 hereof has been
made, whichever shall last occur, and provided Sublessee is not then in default
of any of its obligations hereunder, the Security Deposit, or so much thereof as
had not theretofore been applied by Sublessor, shall be returned to Sublessee or
to the last assignee, if any, of Sublessee's interest hereunder.
<PAGE>
8. USE OF PREMISES.
The Premises shall be used and occupied only for The Corporate Headquarters and
related function of a research and development and manufacturing company and for
no other use or purpose.
8.01 Manner of Use. Lessee shall not cause or permit the Property to be used in
any way which constitutes a violation of any law, ordinance or governmental
regulation or order, which annoys or interferes with the rights of other tenants
or Sublessor, or which constitutes a nuisance or waste.
8.02 Hazardous Materials. Sublessee shall not cause or permit any hazardous
material to be generated, produced, brought upon, used, stored, treated or
disposed of in or about the Property by Sublessee, its agents, employees,
contractors, sub-sub-lessees, or invitees without the prior written consent of
the Sublessor.
8.03 Alterations, Additions and Improvements. Sublessee shall not make any
alterations, additions or improvements to the Property without Sublessor's prior
written consent.
8.04 Condition Upon Termination. Upon termination of the Sublease, Sublessee
shall surrender the property to the Sublessor, broom clean and in the same
condition as received except for ordinary wear and tear.
9. DAMAGE OR DESTRUCTION.
9.01 Partial Damage to Property
a. Sublessee shall notify Sublessor in writing immediately upon any damage
to the Property. If the Property is only partially damaged (i.e., less than 50%)
or remains tenantable (less than 50% of Sublessee's operations are materially
impaired) and if the insurance proceeds received by Sublessor (or Lessor) from
the insurance policies for the Property are sufficient to pay for the necessary
repairs, this Sublease shall remain in effect and Sublessor (or Lessor) shall
repair the damage as soon as reasonably possible.
b. If the insurance proceeds received by Sublessor (or Lessor) are not
sufficient to pay the entire cost of repair, or if the cause of the damage is
not covered by the insurance policies which Sublessor (or Lessor) maintains,
Sublessor may elect either to (i) repair the damage as soon as is reasonably
possible, in which case this Sublease shall remain in full force and effect or
(ii) terminate this Sublease as of the date the damage occurred. Sublessor shall
notify Sublessee within thirty (30) days of the receipt of notice of the
occurrence of the damage whether Sublessor elects to repair the damage or
terminate the Sublease.
<PAGE>
c. Substantial or Total Destruction. If the Property is substantially or
totally destroyed by any cause whatsoever (i.e., the damage to the Property is
greater than partial damage) and regardless whether Sublessor (or Lessor)
receives any insurance proceeds, this Sublease shall terminate as of the date
the destruction occurred. Notwithstanding the preceding sentence, if the
property can be rebuilt within six (6) months after the date of destruction,
Sublessor (or Lessor) may elect to rebuild the property at Sublessor's (or
Lessor's) own expense.
10. CONDEMNATION.
10.01 If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"condemnation") this Sublease shall terminate as to the part taken or sold on
the date the condemning authority takes title or possession, whichever occurs
first.
11. DEFAULTS; REMEDIES
11.01 Covenants and Conditions. Sublessee's performance of each of Sublessee's
obligations under this Sublease is a condition as well as a covenant.
Sublessee's right to continue in possession is conditions upon such performance.
11.02 Defaults. Sublessee shall be in material default under the Sublease:
a. If Sublessee abandons the premises or if Sublessee's absence from the
property results in the cancellation of any insurance policies for the Property.
b. If Sublessee fails to pay rent or any other charge when due.
c. If Sublessee fails to perform any of Sublessee's non-monetary
obligations under this Sublease for a period of thirty (30) days after written
notice from Sublessor.
d. If Sublessee makes a general assignment or general arrangement for the
benefit of creditors; or if a petition for adjudication of bankruptcy or for
reorganization is filed by or against the Sublessee and is not dismissed within
thirty (30) days; or if a trustee or receiver is appointed to take possession of
substantially all of Sublessee's assets located at the Property or of
Sublessee's interest in this Sublease and possession of substantially all of
Sublessee's assets located at the Property or of Sublessee's interest in this
Sublease and possession is not restored within thirty (30) days; or if
substantially all of Sublessee's assets located at the Property or of
Sublessee's interest in this Sublease is subjected to attachment, execution or
other judicial seizure which is not discharged within thirty (30) days. If a
court of competent jurisdiction determines that any of the acts described in
this possession (or if Sublessee remains a debtor in possession) and such
trustee or Sublessee transfers Sublessee's interest hereunder, then
<PAGE>
Sublessor shall receive, as Additional Rent, the excess, if any of the rent (or
any consideration) paid in connection with such assignment or sub-sublease over
the rent payable by Sublessee under this Sublease.
11.03 Remedies. On the occurrence of any material default by Sublessee,
Sublessor may at any time hereafter, with or without notice or demand and
without limiting Sublessor in the exercise of any right or remedy which
Sublessor may have:
(a) Terminate Sublessee's right to possession of the Property by any lawful
means, in which case this Sublease shall terminate and Sublessee shall
immediately surrender possession of the Property to the Sublessor. In such event
Sublessor shall be entitled to recover from Sublessee all damages incurred by
Sublessor by reason of Sublessee's default, including (i) the worth at the time
of the award of the Base Rent, Additional Rent and other charges which Sublessor
had earned at the time of the termination; (ii) the worth at the time of the
award of the amount by which the unpaid Base Rent, Additional Rent and other
charges which Sublessor would have earned after termination; until the time of
the award exceeds the amount of such rental loss that Sublessee proves Sublessor
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Sublessee would have paid for the balance of the Sublease Term after the time of
the award exceeds the amount of such rental loss that Sublessee proves Sublessor
could have reasonably avoided; and (iv) any other amount necessary to compensate
Sublessor for all the detriment proximately caused by Sublessee's failure to
perform its obligations under the Sublease or which in the ordinary course of
things would be likely to result therefrom, including, but not limited to, any
costs or expenses Sublessor incurs in maintaining or preserving the Property
after such default, the cost of recovering possession of the Property, expenses
or reletting, including necessary renovation or alteration of the Property,
Sublessor's reasonable attorney's fees incurred in connection therewith, and any
real estate commission paid or payable. Lessor's exercise of any right or remedy
shall not prevent it from exercising any other right or remedy.
12. ASSIGNMENT AND SUBLETTING
Sublessee shall not assign this Sublease or further sublet all or any part of
the Premises without the prior written consent of Sublessor (and the consent of
Lessor, if such is required under the terms of the Master Lease). Consent shall
not be unreasonably withheld. No assignment of the Sublease shall release
Sublessee or change Sublessee's primary responsibility to pay the rent, to
perform all other obligations of Sublessee under this Sublease or relieve
Sublessee of liability under this Sublease.
<PAGE>
13. OTHER TERMS OF SUBLEASE
All applicable terms and conditions of the Master Lease are incorporated into
and made a part of this Sublease as if Sublessor were the lessor thereunder,
Sublessee the lessee thereunder, and the Premises the Master Premises, except
for the following:
See ADDENDUM attached hereto and made a part hereof.
Sublessee assumes and agrees to perform the lessee's obligations under the
Master Lease during the Terms to the extent that such obligations are applicable
to the Premises, except that the obligation to pay rent to Lessor under the
Master Lease shall be considered performed by Sublessee to the extent and in the
amount rent is paid to Sublessor in accordance with Section 6 of this Sublease.
Sublessee shall not commit or suffer any act or omission that will violate any
of the provisions of the Master Lease. Sublessor shall exercise due diligence in
attempting to cause Lessor to perform its obligations under the Master Lease for
the benefit of Sublessee. If the Master Lease terminates, this Sublease shall
terminate and the parties shall be relieved of any further liability or
obligation under this Sublease, provided however, that if the Master Lease
terminates as a result of a default or breach by Sublessor or Sublessee under
this Sublease and/or the Master Lease, then the defaulting party shall be liable
to the non defaulting party for the damage suffered as a result of such
termination. Notwithstanding the foregoing, if the Master Lease gives Sublessor
any right to terminate the Master Lease in the event of a partial or total
damage, destruction, or condemnation of the Master Premises or the building or
project of which the Master Premises are a part, the exercise of such right by
Sublessor shall not constitute a default or breach hereunder.
14. BROKER PARTICIPATION
Sublessor and Sublessee warrant and represent that they have dealt with no real
estate broker in connection with this Sublease other than J. C. Martin Company
("Broker") and that no other broker is entitled to any commission on account of
this Sublease.
15. ATTORNEY'S FEES
If Sublessor, Sublessee, or Broker shall commence an action against the other
arising out of or in connection with this Sublease, the prevailing party shall
be entitled to recover its costs of suit and reasonable attorney's fees.
<PAGE>
16. BROKER REPRESENTATION
Sublessor, Sublessee, or Broker shall commence an action against the other
arising out of or in connection with this Sublease, the prevailing party shall
be entitled to recover its costs of suit and reasonable attorney's fees.
17. COMMISSION
Deleted.
18. INSURANCE POLICIES
(a) Liability Insurance. During the sublease term, Sublessee shall maintain
a policy of commercial general liability insurance (sometimes known as broad
form general liability insurance) insuring Sublessee against liability for
bodily injury, property damage (including loss of property) and personal injury
arising out of the operation, use or occupancy of the Property. Sublessee shall
name Sublessor and Landlord as additionally insured under such policy. The
initial amount of such insurance shall be Five Million Dollars ($5,000,000) per
occurrence and shall be subject to periodic increase in an amount determined by
Sublessor and/or Landlord in Sublessor's and/or Landlord's reasonable discretion
based upon inflation, increased liability awards, recommendation of Sublessor's
or Landlord's professional insurance advisers and other relevant factors. The
liability insurance obtained by Sublessee under this Paragraph shall (i) be
primary and non-contributing; (ii) contain cross-liability performance under
Section 5.05 of the Master Lease (Indemnity). The amount and coverage of such
insurance shall not limit Sublessee's liability nor relieve Sublessee of any
other obligation under his Sublease. Sublessor and/or Landlord may also obtain
comprehensive public liability insurance in an amount and with coverage
determined by Sublessor and/or Landlord insuring Sublessor and/or Landlord
against liability arising out of ownership, operation, use or occupancy of the
Property. The policy obtained by Sublessor and/or Landlord shall not be
contributory and shall not provide primary insurance.
(b) Property and Rental Income Insurance. During the Sublease term
Sublessor and/or Landlord shall maintain policies of insurance covering loss of
or damage to the Property in the full amount of its replacement value. Such
policy shall contain an Inflation Guard Endorsement and shall provide protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, special extended perils (all risk),
sprinkler leakage and any other perils which Sublessor and/or Landlord deems
reasonably necessary. Sublessor and/or Landlord shall not obtain insurance for
Sublessee's fixtures or equipment or building improvements installed by
Sublessee on the property. During the Sublease Term, Sublessor and/or Landlord
shall not obtain insurance for Sublessee's fixtures or equipment or building
improvements installed by Sublessee on the property. During the Sublease Term,
Sublessor and/or Landlord shall also maintain a rental
<PAGE>
income insurance policy with loss payable to Sublessor and/or Landlord, in an
amount equal to one year's Base Rent, plus estimated real property taxes and
insurance premiums. Sublessee shall be liable for the payment of any deductible
amount under Sublessor and/or Landlord's or Sublessee's insurance policies
maintained pursuant to this Section in an amount not to exceed Ten Thousand
Dollars ($10,000). Sublessee shall not do or permit anything to be done which
invalidates any such insurance policies.
(c) Payment of Premiums. Sublessee shall pay all premiums for the insurance
policies described in this Paragraph and (whether obtained by Landlord,
Sublessor or Sublessee) within fifteen (15) days after Sublessee's receipt of a
copy of the premium statement or other evidence of the amount due, except
Sublessor and/or Landlord shall pay all premiums for non-primary comprehensive
public liability insurance which Sublessor and/or Landlord elects to obtain as
provided in this Paragraph. If insurance policies maintained by Sublessor and/or
Landlord cover improvements on real property other than the Property, Sublessor
and/or Landlord shall deliver to Sublessee a statement of the premium applicable
to the Property showing in reasonable detail how Sublessee's share of the
premium was computed. If the Sublease Term expires before the expiration of an
insurance policy maintained by Sublessor and/or Landlord, Sublessee shall be
liable for Sublessee's prorated share of the insurance premiums. Before the
Commencement Date, Sublessee shall deliver to Sublessor and/or Landlord a copy
of any policy of insurance which Sublessee is required to maintain under this
Section. At least thirty (30 days prior to the expiration of any such policy,
Sublessee shall deliver to Sublessor and/or Landlord a renewal of such policy.
As an alternative to providing a policy of insurance, Sublessee shall have the
right to provide a certificate of insurance, executed by an authorized officer
of the insurance company, showing that the insurance which Sublessee is required
to maintain under this Section is in full force and effect and containing such
other information which Sublessor and/or Landlord reasonably requires.
(d) General Insurance Provisions.
(i) Any insurance which Sublessee is required to maintain under this
Sublease shall include a provision which requires the insurance carrier to give
Sublessor and Landlord 30 days' written notice prior to any cancellation or
modification of such coverage.
(ii) If Sublessee fails to deliver any policy, certificate or renewal to
Sublessor and Landlord required under this Sublease within the prescribed time
period or if any such policy is cancelled or modified during the Sublease Term
without Sublessor's and Landlord's consent, Sublessor and/or Landlord may obtain
such insurance, in which case Sublessee shall reimburse Sublessor or Landlord
for the cost of such insurance within fifteen (15) days after receiving a
statement that indicates the cost of such insurance.
(iii) Sublessee shall maintain all insurance required under this Sublease
with companies holding a "General Policy Rating" of A-12 or better, as set forth
in the most current issue of "Best Key Rating Guide". Neither Sublessor nor
Landlord makes no representation as to the adequacy of such insurance to protect
Landlord's, Sublessor's or
<PAGE>
Sublessee's interests. Therefore, Sublessee shall obtain any additional property
or liability insurance which Sublessee deems necessary to protect Landlord,
Sublessor and Sublessee.
(iv) Unless prohibited under any applicable insurance policies maintained,
Landlord, Sublessor and Sublessee each hereby waive any and all rights of
recovery against the other(s), or against the officers, employees, agents or
representatives of the other for loss or damage to its property of the others
under its control, is such loss or damage is covered by any insurance policy in
force (whether or not described in this Sublease) at the time of such loss or
damage. Upon obtaining the required policies of insurance, Landlord, Sublessor
and Sublessee shall give notice to the insurance carriers of this mutual waiver
of subrogation.
19. NOTICES
All notices and demands which may or are to be required or permitted to be given
by either party on the other hereunder shall be in writing. All notices and
demands by the Sublessor to Sublessee shall be sent by United States Mail,
postage prepaid, addressed to the Sublessee at the Premises, and to the address
herein below, or to such other place as Sublessee may from time to time
designate in a notice to the Sublessor. All notices and demands by the Sublessee
to Sublessor shall be sent by United States Mail, postage prepaid, addressed to
the Sublessor at the address set forth herein, and to such other person or place
as the Sublessor may from time to time designate in a notice to the Sublessee.
To Sublessor: King Ventures, 290 Pismo St., San Luis Obispo, CA 93401
To Sublessee: American Appliance, Inc. c/o Turbodyne, Inc., 6155 Carpinteria
Avenue, Carpinteria, CA 93013
20. CONSENT BY LESSOR
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR
WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS REQUIRED UNDER THE
TERMS OF THE MASTER LEASE.
Date: __________________________ Date: _________________________
Sublessor: /s/ King Ventures Sublessee: ____________________
----------------------
By: /s/ John E. King By: ___________________________
--------------------------
Title: _________________________ Title: ________________________
By: ____________________________ By: ___________________________
Title: _________________________ Title: ________________________
<PAGE>
LESSOR'S CONSENT TO SUBLEASE
The undersigned ("Lessor"), lessor under the Master Lease, hereby consents to
the foregoing Sublease and addendum without waiver of any restriction in the
Master Lease concerning further assignment or subletting. Lessor certifies that,
as of the date of Lessor's execution hereof, Sublessor is not in default or
breach of any of the provisions of the Master Lease, and that the Master Lease
has not been amended or modified except as expressly set forth in the foregoing
Sublease.
Date: _______________________________
Lessor: _____________________________
By: _________________________________
Title: ______________________________
By: _________________________________
Title: ______________________________
CONSULT YOUR ADVISORS - This document has been prepared for approval by
your attorney. No representation or recommendation is made by J.C.
Martin Company as of the legal sufficiency or tax consequences of this
document or the transaction to which it relates. These are questions for
your attorney.
In any real estate transaction, it is recommended that you consult with
a professional, such as a civil engineer, industrial hygienist or other
person, with experience in evaluating the condition of the property,
including the possible presence of asbestos, hazardous materials and
underground storage tanks.
<PAGE>
ADDENDUM TO THAT CERTAIN SUBLEASE DATED December 1, 1994 BY AND BETWEEN JOHN E.
KING AND CAROLE D. KING, SUBLESSOR, AND American Appliance, Inc., SUBLESSEE, FOR
THE PROPERTY COMMONLY KNOWN AS 6155 CARPINTERIA AVE, CARPINTERIA, CALIFORNIA.
The "Master Lease" between Sublessor, as Lessee, and the owners of the building
in their capacity as Lessor is incorporated in its entirety by this sublease
except as follows:
1. The Sublessee shall be given occupancy of the premises on December 1,
1994. Sublessee shall assume all of the responsibilities of the
"Master Lease" and Sublease. Sublessee shall pay no rent for the first
month of the Sublease. Monthly Sublease payments shall begin January
1, 1995.
2. The Sublease shall be for ten (10) years and two months (concurrent
with the "Master Lease").
3. The base rent payable under this Sublease shall be adjusted, upward
only, on December 1st of each year for years two through five of the
Master Lease by one-half of the annual percentage increase of the U.S.
Department of Labour Bureau of Labour Statistic, CPI for all Urban
Consumers over the index year 1982-84-100. For years six through ten
of the Sublease the base rent payable under this Sublease shall be
adjusted upward only, by three-fourths of the annual percentage
increase of the above mentioned Consumer Price Index.
4. Sublessee agrees to assume full responsibility of the buildings and
premises except for the foundations and the structural portion of all
exterior walls. Sublessee shall be responsible for the roof as
required in the Master Lease and the roof of the attached storage
area. When the roof is repaired in 1995, Sublessee to be responsible
for up to $35,000. of the re-roofing costs for the portion of the roof
that needs to be re-roofed. Sublessor to pay for any costs in excess
of $35,000. Sublessee to provide cost estimates to Sublessor for his
review and approval if the estimates exceed $35,000. Sublessor's
approval is not to be unreasonably withheld.
5. Sublessee and its agents shall be held harmless by Sublessor and incur
no responsibility for any and all hazardous materials that may be
discovered on or in the property and building which occurred prior to
Sublessee's occupance of the site.
<PAGE>
6. Sublessee acknowledges that it is aware that the truck access to the
rear of the property is over an easement on the adjoining property.
Sublessee further acknowledges that it is aware of the requirements of
the Master Lease in the event the easement is lost for any reason.
Therefore, Sublessee and Sublessor agree to the following. In the
event the easement is lost for any reason, Sublessor shall immediately
undertake to provide alternative access to the rear of the property.
Sublessee shall cooperate fully with Sublessor in this effort and
shall pay one-half of the cost, if any, to construct said alternative
access. Sublessor shall be responsible for said construction of an
alternative access and shall provide to Sublessee evidence of the
construction cost for Sublessee's review. In the event Sublessor does
not immediately undertake to provide said alternative access then
Sublessee may, upon thirty (30) days written notice, assume
construction responsibilities and charge Sublessor for one hundred
(100%) percent of the necessary improvement costs.
<PAGE>
J.C. MARTIN COMPANY
INVESTMENT REAL ESTATE
1738 Callee Cerro
Santa Barbara, CA 93101
(805) 682-9377
Fax (805) 682-3497
May 18, 1995
SECOND ADDENDUM TO THAT CERTAIN SUBLEASE DATED December 1, 1994 BETWEEN JOHN E.
AND CAROLE D. KING, SUBLESSOR, AND AMERICAN APPLIANCE, INC., SUBLESSEE, FOR THE
PROPERTY COMMONLY KNOWN AS 6155 CARPINTERIA AVE, CARPINTERIA, CALIFORNIA
The "Master Lease" between Sublessor as Lessee, and the owners of the building
in their capacity as Lessor is incorporated in its entirety by this sublease
except as follow:
1. Beginning June 1, Sublessee shall pay rental for the period for June 1
until June 19, 1996, a total of $9,500. The rent shall thereafter become due on
the twentieth (20th) day of each month. Sublessee shall then make each month's
rental payment for the period from the twentieth day of that particular month
(for example June 20) until the nineteenth of the following month (for example
July 19). The same ten percent (10%) late charge shall be paid by the Sublessee
if the rent is ten days or more late as is now contained in the current Sublease
agreement between the two parties.
Sublessor Sublessee
/s/ John E. King
- ---------------- _________________________
John E. King American Appliance, Inc.
/s/ Carole D. King
- ------------------
Carole D. King
EXHIBIT 3 (iv)
EXCLUSIVE DISTRIBUTOR AGREEMENT
Agreement made effective as of the 12th day of June, 1996, between TURBODYNE
SYSTEMS, INC. hereinafter called "TURBODYNE", whose principal place of business
is located at 6155 Carpinteria Avenue, CARPINTERIA, CALIFORNIA, 93013, USA and
GRANATELLI PERFORMANCE TECHNOLOGIES, INC. hereinafter called "GRANATELLI", a
Corporation with principle offices located at 1270 Avenida A Caso, Unit G,
Camarillo, California 93012, USA.
WHEREAS, GRANATELLI has expressed a desire to engage in the distribution of
TURBODYNE's "Turbopac" for the automotive and motorcycle aftermarket in
designated territories and,
WHEREAS, TURBODYNE has agreed to appoint GRANATELLI to act as such, but only on
the terms and conditions set forth in this Agreement; and
WHEREAS, the parties recognize that the relationship between them can be
enduring and successful only if both parties conduct themselves in accordance
with the following declaration of purpose and principle:
a) It is essential that the integrity of the Trademarks under which
"Turbopac" products are sold and serviced be upheld by GRANATELLI and that
GRANATELLI not engage in any act or practice which might tarnish or impair the
reputation of TURBODYNE.
b) The parties affirm that the relationship between them must be courteous,
cooperative and amicable at all times and in every respect, and that this
relationship will provide the means for the sale and service of TURBODYNE
products in a manner that will best serve the interests of the consumer as well
as those of GRANATELLI and TURBODYNE.
NOW, THEREFORE, in consideration of the agreements herein contained, TURBODYNE
and GRANATELLI agree as follows:
TURBODYNE appoints GRANATELLI as an authorized TURBODYNE "Turbopac" distrubutor
and GRANATELLI accepts this appointment.
<PAGE>
GRANATELLI will promptly report to TURBODYNE any change in its corporate
structure, name or trading style and any change in its articles of
incorporation, by-laws or similar documents which could affect the relationship
between the parties created by this Agreement and the course of dealings
contemplated by it.
1. PRODUCT
Subject to the terms and conditions of purchase orders, TURBODYNE will sell to
GRANATELLI during the continuance of this Agreement on the terms and conditions
hereinafter set forth Turbodyne's Electronic Demand Charger or "Turbopac", spare
parts and ancillary products, hereinafter collectively called "products". All
orders are subject to acceptance by TURBODYNE.
TURBODYNE may install any equipment or accessories required by law on any
"Turbopac" ordered by GRANATELLI whether or not such items are included in
GRANATELLI's order.
2. PRICES AND TERMS
TURBODYNE will sell products to GRANATELLI at its established master distrubutor
price list prices. This price includes the following:
- a complete compressor housing and impeller wheel,
- brushless DC motor,
- electronic controller,
- wiring harnesses and sensors,
- instructions and installation manual.
GRANATELLI will be notified 30 days in advance of any changes. Any orders placed
by GRANATELLI and received by TURBODYNE, prior to such notification of change,
shall remain subject to the prevailing prices, terms and conditions in effect
prior to such notification of change.
GRANATELLI agrees that while TURBODYNE may suggest retail prices for TURBODYNE
products, GRANATELLI has no obligation to follow such suggestions and GRANATELLI
remains the sole judge of the price at which it will sell TURBODYNE products.
3. AREA OF RESPONSIBILITY
TURBODYNE grants GRANATELLI the exclusive right to purchase TURBODYNE "Turbopac"
products from TURBODYNE for resale service to consumers and dealers in the
following Area of Responsibility:
"Worldwide Automotive and Motorcycle Gasoline Engine Performance Aftermarket".
4. ADDITIONAL DISTRIBUTORS
<PAGE>
TURBODYNE reserves the right to appoint additional distributors in such markets
as other aftermarket applications and Original Engine Manufacturers.
5. DELIVERY
TURBODYNE will ship all products at GRANATELLI's agreed upon distribution site.
GRANATELLI shall be responsible for all costs of shipping and insurance from
TURBODYNE's nominated distribution point. If diversions are made at GRANATELLI's
request, or made as a result of GRANATELLI's failure or refusal to accept
delivery, all costs of such diversion and any restocking charges shall be for
GRANATELLI's account and shall be paid when due.
6. TITLE
Title to all TURBODYNE products will pass to GRANATELLI upon shipment from the
TURBODYNE plant.
It is the full responsibility of GRANATELLi to arrange for full insurance
coverage of all products before the date of transfer of title.
TURBODYNE or its insurance carriers will not be responsible for any loss or
damage to the product after transfer of title.
7. WARRANTY
TURBODYNE offers a limited fifty thousand (50,000) mile warranty upon sale and
delivery of its products, for, defects in materials and workmanship, with
limitations on TURBODYNE's obligation. This warranty covers up to fifty thousand
(50,000) miles of use. The warranty guarantees replacement of a defective unit
up to fifty thousand (50,000) miles. After fifty thousand (50,000) miles,
TURBODYNE products become the sole responsiblity of the owner. The warranty is
for a period of two (2) years from the date of purchase by the end user or fifty
thousand (50,000) miles, whichever is sooner.
The exact terms and conditions of such limited warranties are reflected in a
certificate of limited warranty issued with the sale of each product and such
certificate is the total extent of TURBODYNE's obligation.
Any form of competition use voids all warrantees.
"Except as expressly stated in TURBODYNE's standard warranty. TURBODYNE
makes no warranties whatsoever, expressed or implied, as to performance,
characteristics, specifications, or condition of TURBODYNE products to be
supplied by it to GRANATELLI, including, but not limited to, the
merchantability or fitness for any particular purpose and assumes to no
liability whatsoever for direct, indirect, or consequential damages, or in
any other way in connection with such performance,
<PAGE>
characteristics specifications or conditions and TURBODYNE's maximum
liability is to repair or at TURBODYNE's option, replace the TURBODYNE
product, excluding installation labor."
TURBODYNE, hereby expressly agrees to maintain at all times qualified personnel
and the requisite inventory of spare parts, and to perform expeditiously
warranty work, service, and repairs at TURBODYNE facilities on any TURBODYNE
product which GRANATELLI is an authorized distributor of. With reference to the
warranty work to be performed by TURBODYNE, it is expressly agreed that all such
work, is for repair of product at TURBODYNE plant only and all installation and
labor charges are excluded from the warranty, and are the responsibility of
user.
8. SERVICE AND PARTS
The parties recognize that TURBODYNE products exemplify quality performance,
quality, technical sophistication. Exemplary after-sales service of the products
and courteous, efficient treatment of the buyers is in an area in which
TURBODYNE allows no compromise. TURBODYNE takes the position that the area of
after-sales and service and treatment of buyers, not only ensures preservation
of TURBODYNE's reputation in the field, but is critical in both TURBODYNE's and
GRANATELLI's successful future sales.
To this end, TURBODYNE will extend its full cooperation to GRANATELLI whenever
essential.
9. PROMOTION
TURBODYNE will make available to GRANATALLI advertising and promotional
literature, signs and other advertising, material or equipment as may from time
to time be available and which are designed to assist GRANATELLI in promoting
the sale and service of the products.
GRANATELLI will initiate and maintain product advertising, promotion, and sales
to the end user and provide immediate follow-up on inquiries as to the products,
whether originated by GRANATELLI or supplied by TURBODYNE.
GRANATELLI will not advertise or promote TURBODYNE products in a manner
detrimental to TURBODYNE or TURBODYNE products in general and will correct,
modify or withdraw, as required, any advertisement or promotional which
TURBODYNE reasonably determines to be objectionable.
10. TRADEMARKS AND INTELLECTUAL PROPERTY
TURBODYNE will allow GRANATELLI to use TURBODYNE trade names and trademarks in
signs and advertising displayed by GRANATELLI in connection with the promotion,
sales and service of TURBODYNE products during the time of this agreement only.
<PAGE>
GRANATELLI agrees not to use any word, symbol or abbreviation which is similar
to, or may be confused with TURBODYNE's trademark.
The Parties agree to cooperate with each other in preventing any acts of
trademark infringement or patent and intellectual property or misuse, including
new registrations on behalf of TURBODYNE in the territory.
GRANATELLI agrees to take such action as TURBODYNE may request with respect to
registration of any trademark or any trade name used in connection with the
products provided GRANATELLI shall not be required to expend any of its funds in
carrying out such action.
Upon termination of this Agreement, GRANATELLI shall forthwith discontinue
using, and shall cease and desist from the use of TURBODYNE's trade names and
trademarks and agrees to take such action and execute such documents as may be
necessary to fully effectuate the reconveyance to TURBODYNE of such trade names
and trademarks including th elimination from GRANATELLI's business of all signs,
advertising and other material bearing the trade names and trademarks.
GRANATELLI agrees not to manufacture or have manufactured by third parties any
TURBODYNE Product which may or may not be protected by patents or trademarks.
11. INDEMNIFICATION BY GRANATELLI
GRANATELLI will indemnify and hold harmless against any judgment which may be
rendered against TURBODYNE, including court costs and reasonable attorney's
fees, less any offset recovered by TURBODYNE in any litigation commenced by
third parties seeking monetary damages, naming TURBODYNE as a defendent
concerning:
a) a failure by GRANATELLI to comply in whole or in part with any
obligation assumed by GRANATELLI pursuant to this Agreement.
b) GRANATELLI's negligent sale or service of a TURBODYNE Product, including
the use of non-genuine TURBODYNE spare parts.
c) GRANATELLI's breach of any agreement between GRANATELLI and GRANATELLI's
customer; or
d) GRANATELLI's misrepresentation or misleading statement to any customer
or prospective customer of GRANATELLI.
GRANATELLI agrees to carry a policy of general liability insurance with a
minimun of two million dollars ($2,000,000.00) in coverage, and name TURBODYNE
as a co-insured. TURBODYNE agrees to add GRANATELLI to its general liability
policy and its product liability insurance policy at no cost to GRANATELLI.
<PAGE>
12. MINIMUM SALES
GRANATELLI agrees to purchase a minimum of 15,000 units during the calendar year
1996, and a minumum of 50,000 units in each calendar year thereafter, provided
however, this Agreement will not be terminated by TURBODYNE as a result of
GRANATELLI's failure to obtain the minimal levels if GRANATELLI has been
diligent in promoting the sales of the units.
13. VESTED RIGHTS
GRANATELLI neither has nor may it acquire by performance under the terms of this
agreement any vested right in the sales and service assigned to it. Any
investments made or actions taken by GRANATELLI in the performance hereof are
made with the knowledge that this agreement may expire and not be renewed or be
terminated as herein provided.
14. TERM OF AGREEMENT
This agreement shall be in effect for three (3) years from the effective date
hereof, unless terminated at an earlier date. The term of this agreement shall
be extended for an additional two (2) years without action by either party and
continue to be extended at each termination date.
15. INVENTORY
GRANATELLI will maintain on hand and display at least one (1) TURBODYNE Product
at all times as a demonstration and display unit, and agrees to maintain
additional units, based on the size of the territory and mutual agreement of the
parties, as reflected by the orders received by various customers.
16. TERMINATION OF AGREEMENT
This Agreeement may be terminated by either party on ninety (90) days prior
written notice to other party with cause or by mutual agreement of both parties.
This Agreement may be terminated by TURBODYNE upon the occurrence of the
following events, which shall define the term "with cause".
a) Withdrawal of TURBODYNE from the market area disignated as GRANATELLI's
Area of Responsibility.
b) GRANATELLI's relocation of GRANATELLI's premises without the prior
written notice to TURBODYNE.
c) GRANATELLI's attempted assignment or transfer of the Agreement without
notice to TURBODYNE.
<PAGE>
d) The purported transfer of any GRANATELLI's ownership interest, in excess
of fifty (50) percent of existing outstanding shares, without notice to
TURBODYNE.
e) Cancellation, suspension or revocation of any license, permit, etc.
necessary for the operation of GRANATELLI's business of GRANATELLI's
failure to secure or renew such licenses, permit, etc.
f) Conviction of GRANATELLI or any individual named in GRANATELLI's
employment of any criminal offense which, in the reasonable opinion of
TURBODYNE harms the business image of TURBODYNE or adversely affects
GRANATELLI's operations.
g) The failure of GRANATELLI to provide the level of representation,
promotion, and sales of TURBODYNE Products or service required and
satisfactory to TURBODYNE and GRANATELLI's customers.
h) GRANATELLI's use of deceptive or misleading practices in the sale of
TURBODYNE Product and use of unauthorized advertising.
i) The existence of any dispute among GRANATELLI's owners and/or management
personnel which, in TURBODYNE's reasonable opinion may impair or has
impaired the operations of GRANATELLI with consequences adverse materially
effect on relations with customers of TURBODYNE Products.
j) Any breach of another material obligation of this Agreement, including
Article 12.
The filing of bankruptcy, reorganization or insolvency proceedings, either
voluntarily or involuntarily, or with the appointment of a receiver of
GRANATELLI or GRANATELLI's premises which is not removed within the sixty (60)
days of such appointment, or any act acknowledging the insolvency or bankruptcy
of GRANATELLI, or any assignment for the benefit of creditors will automatically
terminate this Agreement without the necessity of a notice.
Upon the date on which termination of the Agreement becomes effective, or at the
end of them of this Agreement, GRANATELLI shall forthwith cease all use of any
of the Trademarks and return to the company all parts books, service manuals,
signs, illustration products bearing any of the trademarks and all the other
items and advertising material supplied by TURBODYNE.
GRANATELLI will promptly remove at its own expense all signs bearing any of the
trademarks and will destroy all letterheads, stationery and other forms used by
GRANATELLI. GRANATELLI will forthwith discontinue representing itself to be an
authorized TURBODYNE Distributor in any way, provided however GRANATELLI shall
have the right to sell any inventory in stock on the date of termination.
<PAGE>
17. OBLIGATION OF DISTRIBUTOR
GRANATELLI acknowledges an obligation to maintain and to safeguard the interest
of TURBODYNE and to refrain from any conduct which would lessen the prestige of
TURBODYNE.
GRANATELLI will use its best efforts establish and maintain an effective
GRANATELLI organization and to diligently promote the sale and service of
products to TURBODYNE's satisfaction.
18. ASSIGNMENT
Neither party may assign this Agreement or any of its interests herein, without
the written consent of the other party, which consent shall not be unreasonably
withheld, except that TURBODYNE may assign this Agreement without such consent
to any person, firm, or corporatin succeeding to its business and also to any
subsidiary or affiliated company of TURBODYNE.
19. ARBITRATION
Any dispute, controversy or claim arising out of or relating to this Agreement,
or any breach thereof, including without limitation any claim that this
Agreement, or any part hereof, is invalid, illegal or otherwise violable or
void, shall at the request of either party be submitted to binding arbitration
by a Judicial Arbitration and Mediation Service/Endispute arbitrator, or such
other arbitrator as may be agreed upon by the parties. Hearings on such
arbitration shall be conducted in Anaheim, California. Any such controversy
shall be arbitrated by a single arbritrator. The arbitrator shall hear and
determine the controversy in accordance with applicable law and the intention of
the parties as expressed in this Agreement, upon the evidence produced at an
arbitration hearing scheduled at the request of either party. Such
prearbitration discovery shall be permitted as is authorized under California
law applicable to arbitration proceedings, including without limitation the
provisions of Title 9 of Part 3 of the California Code of Civil Procedure,
including Section 1283.05, and successor statutes, permitting expanded discovery
proceedings.
The award shall be made within ninety (90) days from the date the arbitration
proceedings are initiated, and shall include attorney's fees and costs to the
prevailing party , unless the arbitrator for good cause determines otherwise.
Costs and fees of the arbitrator shall be borne by the nonprevailing party,
unless the arbitrator for good cause determines otherwise. Judgment on the award
of the arbitrator may be entered in any court having jurisdiction.
20. RELATIONSHIP OF PARTIES
GRANATELLI is, for all purposes of the Agreement, an independent contractor and
GRANATELLI is not the agent or representative of TURBODYNE. Neither GRANATELLI
nor any of its officers, agents or employees is granted any express or implied
right or authority to assume or create any obligation on behalf of or in the
name of TURBODYNE or to bind
<PAGE>
TURBODYNE in any manner whatsoever.
This Agreement shall not be deemed to create any agency on the part of
GRANATELLI, or a joint venture between the parties.
GRANATELLI acknowledges and agrees that TURBODYNE does not, directly or
indirectly, require or accept any fee or charge for the right to enter into or
conduct business under the Agreement or for the right to sell or distribute
products. GRANATELLI further acknowledges and agrees that payments by GRANATELLI
to TURBODYNE for products or otherwise as provided in this Agreement do not
constitute such fee or charge.
21. NOTICES
All notices and other communicationss required by this Agreement shall be in
writing and unless otherwise specifically provided for herein, shall be duly
given if personally delivered or deposited in the mail, postage prepaid and
addressed to the parties hereto at their respective principal place of business
as herein above set forth, or as may otherwise be directed in writing.
22. FORCE MAJEURE
Performance by each party of their respective obligations under this Agreement
is subject to those contingencies which are beyond the reasonable control of the
parties, including labor disputes or work stoppage, product delivery delays,
governmental action or inaction, civil strife, disturbance, acts of God, and
events of Force Majeure and like causes. The obligation of the party prevented
from performing by virtue of the above shall be suspended during such
contingency without liability to the other for any direct or indirect damage and
without extending the term of the Agreement.
23. WAIVER
Any failure of either party to this Agreement to require performance by the
other party of any provision herein shall in no way affect the right of such
party to require such performance at any time thereafter, nor shall any waiver
by either party of a breach of any provision herein constitute a waiver of any
succeeding breach of the same or any other provision, not constitute a waiver of
the provision itself.
24. SEVERABILITY
In the event any provision of this Agreement is declared unenforceable under any
laws of jurisdiction at the time of the execution of this Agreement, the
offending provision shall be reformed in a manner consistent with such law to
the minimum extent required which reflects the allocation of risks and
obligations of the parties hereto. Such declaration shall not impair of affect
the validity and of any provisions in this Agreement and all such other
provisions shall be remain valid and full force and effect.
<PAGE>
25. GOVERNING LAW
This Agreement and the right and obligations arising thereunder shall be
governed by and construed according to the laws of the State of California in
the United States of America.
26. ENTIRE AGREEMENT
This Agreement supersedes all prior agreements between the parties relating to
the purchase, sale or service of the products, except as to payments due or to
become due from GRANATELLI under any prior agreement. This document constitutes
the entire agreement between TURBODYNE and GRANATELLI with respect to the
subject matter hereof, and no amendment or modification of this Agreement shall
be binding on the parties unless made in writing and duly executed by both
parties. There are no oral implied agreements or representations and no oral or
implied warranties between the parties hereto other than those expressed herein.
Having read and understood the above and having discusses and explained the
obligations and responsibilities to the management personnel of GRANATELLI's
organization, GRANATELLI hereby affirms the representations made above and
commits to abide by the responsibilities and adhere to the standards described
herein.
27. INDEMNIFICATION OF TURBODYNE
TURBODYNE will indemnify and hold harmless against any judgement which may be
rendered against GRANATELLI, including court costs and reasonable attorney's
fees, less any offset recovered by GRANATELLI in any litigation commenced by
third parties seeking monetary damanges, naming GRANATELLI as a defendent
concerning:
a) a failure by TURBODYNE to comply in whole or in part with any obligation
assumed by TURBODYNE pursuant to this Agreement;
b) TURBODYNE's negligent design, manufacturing, or service of a TURBODYNE
Product;
c) TURBODYNE's breach of any agreement between it and GRANATELLI's
customer;
d) TURBODYNE's misrepresentation or misleading statement to any customer or
prospective customer of GRANATELLI; or
e) Any litigation respecting infringement of trademarks and/or patents as a
result of any third-party claim of suit concerning TURBODYNE Products.
TURBODYNE agrees to add GRANATELLI to its general liability policy with a
minimum of Two Million Dollars ($2,000,000.00) in coverage and its product
liability insurance policy at no cost to GRANATELLI.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be executed
as of the Commencement Date set forth above.
TURBODYNE SYSTEMS, INC.
Signature: /s/ Edward M. Halimi
-----------------------------
Name: Edward M. Halimi
-----------------------------------
Title: President
----------------------------------
Date: June 12, 1996
-----------------------------------
GRANATELLI PERFORMANCE TECHNOLOGIES, INC.
Signature: /s/ George Fungl
-----------------------------
Name: George Fungl
----------------------------------
Title: Vice President
---------------------------------
Date: June 12, 1996
----------------------------------
Exhibit 3 (v)
ACQUISITION AGREEMENT
THIS AGREEMENT is made as of the 15th day of March, 1996
AMONG:
LENNART RENBERG
MICHAEL JOYCE
SADAYAPPA DURAIRAJ FAMILY TRUST
NARESH SAXENS
MUGERDISH BALABANIAN
(hereinafter called the "Principal Shareholders")
OF THE FIRST PART
AND:
TURBODYNE TECHNOLOGIES INC., a company organized
pursuant to the laws of the Province of British
Columbia and having a place of business at Suite
510, 1090 West Pender Street, Vancouver, British
Columbia, V6E 2N7
(hereinafter called "Turbodyne")
OF THE SECOND PART
AND:
PACIFIC BAJA LIGHT METALS HOLDING, INC., a
corporation organized pursuant to the laws of the
state of California and having its principal place
of business at 15300 Valley View Avenue, La
Mirada, California, 90838
(hereinafter called "Pacific Baja")
OF THE THIRD PART
<PAGE>
2
WHEREAS:
A. Turbodyne is a company organized and existing under the laws of the
Province of British Columbia, Canada;
B. The Principal Shareholders are the owners of a majority of the issued and
outstanding shares of Pacific Baja, a corporation organized and existing under
the laws of the State of California, and a majority of the outstanding options
to acquire shares in Pacific Baja;
C. Turbodyne will be the owner of all of the issued and outstanding shares of
Pacific Baja Acquisition Corporation ("Newco"), a corporation to be organized
and to exist under the laws of the State of Wyoming.
D. Turbodyne wishes to acquire Pacific Baja by way of a merger of Pacific Baja
and Newco in which the shareholders of Pacific Baja will receive cash and
publicly traded stock in Turbodyne on the terms and conditions of this
Agreement.
E. The Principal Shareholders have each agreed to accept cash and publicly
traded stock in Turbodyne in consideration for the acquisition of Pacific Baja
by Turbodyne via Newco by way of a merger of Pacific Baja and Newco on the terms
and conditions of this Agreeement.
F. Turbodyne and Pacific Baja, acting by their respective boards of directors,
have determined that it is advisable and in the best interests of their
shareholders that Pacific Baja and Newco be merged on the terms and conditions
of this Agreement.
G. The parties intend that the stock portion this transaction qualify as a
tax-free reorganization for the shareholders of Pacific Baja under the tax laws
of the United States of America, and specifically that it qualify as a statutory
merger within the meaning of the Internal Revenue Code Section 368 (a)(1)(A) or
a forward triangular merger within the meaning of Internal Revenue Code Sections
368(a)(2)(D) and 368(a(1)(A).
H. In order to record the terms and conditions of the agreement among them the
parties wish to enter into this agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the foregoing,
and the mutual covenants and agreements contained herein, the parties hereto
agree each with the other as follows:
1. INTERPRETATION
<PAGE>
3
1.1 Where used herein or in any amendments or Schedules hereto, the following
terms shall have the following meanings:
(a) "Accountants" mean McGladrey Pullen, LLP, Certified Public
Accountants;
(b) "Business" means the business in which Pacific Baja and the
Subsidiaries are engaged, namely:
i) manufacturing and distribution of after market automotive wheels,
compressor housings, and manifolds to wholesale distributors and
original equipment manufacturers in the United States and abroad,
ii) manufacturing castings prepared to customer specifications on a
contract basis,
iii) any other enterprise that is directly related to the foregoing;
(c) "Capital Budget of Pacific Baja" means the capital budget of Pacific
Baja and the Subsidiaries for 1996, as set forth in Schedule M;
(d) "Closing Date" means the business day following the Effective Date of
the Merger;
(e) "Effective Date" means the effective date of the Merger, as defined in
the Merger Agreement;
(f) "Exchange Price" means the $5.85 (U.S.) per Turbodyne Share;
(g) "Merger" means the statutory merger of Pacific Baja and Newco on the
terms and conditions of the Merger Agreement, as contemplated in
Section 2.1 of this Agreement;
(h) "Merger Agreement" means the merger agreement in the form attached
hereto as Schedule A to be entered into between Pacific Baja and Newco
on the terms and conditions of this Agreement;
(i) "Pacific Baja" means Pacific Baja Light Metals Holding, Inc.;
(j) "Pacific Baja Financial Statements" means those consolidated financial
statements of Pacific Baja and the Subsidiaries, including the
financial statements attached hereto as Schedule C and including the
following:
i) the unaudited financial statements at December 31, 1994 reviewed
by the Accountants;
<PAGE>
4
ii) the unaudited interim financial statements of Pacific Baja as at
June 30, 1995 reviewed and commented upon by the Accountants; and
iii) the audited financial statements of Pacific Baja as at December
31, 1995 audited by the Accountants;
iv) the unaudited interim financial statements of Pacific Baja to the
most recent month prior to Closing;
(k) "Pacific Baja Optionees" means Lennert Renberg, Michael Joyce, George
Kitkowski, Tom Zastera and Robert Davidson;
(l) "Pacific Baja Options" means the options of the following persons to
acquire shares in Pacific Baja:
Optionee Option Price Option Shares
-------- ------------ -------------
Lennart Renberg $1.00 75,000
Michael Joyce $3.00 100,000
George Kitkowski $7.50 10,000
Tom Zastera $3.33 9,000
Robert Davidson $7.00 5,000
Robert Davidson $3.00 3,000
(m) "Pacific Baja Shares" means all of the issued and outstanding shares
of Pacific Baja;
(n) "Pacific Baja Shareholders" means the Principal Shareholders and the
Non- Principal Shareholders;
(o) "Non-Principal Shareholders" means each of the shareholders of Pacific
Baja, with the exception of the Principal Shareholders;
(p) "Principal Shareholders" means the following of the shareholders in
Pacific Baja:
Lennart Renberg
Michael Joyce
Sadayappa Durairaj Family Trust
Naresh Saxens
Mugerdish Balabanian
(q) "Subsidiaries" means the following wholly owned subsidiaries of
Pacific Baja:
i) Optima Wheels Inc.;
ii) Baja Pacific, Inc.; and
<PAGE>
5
iii) Baja Oriente S.A. de C.V.;
(r) "Turbodyne Financial Statements" means the financial statements of
Turbodyne, including financial statements of Turbodyne attached hereto
as Schedule B and including the following financial statements of
Turbodyne:
i) the audited financial statements of Turbodyne as at December 31,
1994;
ii) the unaudited financial statements of Turbodyne as at September
30, 1995;
iii) the audited financial statements of Turbodyne as at December 31,
1995;
iv) the unaudited interim financial statements of Turbodyne to the
most recent quarter prior to Closing;
(s) "Turbodyne Shares" means those fully paid and non-assessable common
shares of Turbodyne to be issued to the Pacific Baja Shareholders by
Turbodyne pursuant to this agreement;
(t) "Transfer Agent" means Montreal Trust Company at its head office in
Vancouver, British Columbia;
(u) "Wyoming Act" means the Business Corporations Act of the State of
Wyoming.
1.2 All dollar amounts referred to in this agreement are in United States funds,
unless expressly stated otherwise.
1.3 This Agreement shall be interpretated to give effect to the intention of the
parties that the stock portion of this transaction qualify as a tax-free
reorganization pursuant to Internal Revenue Code Sections 368(a)(1)(A) and
368(a)(2)(D), and regulations promulgated thereunder.
1.4 The following schedules are attached to and form part of this agreement:
Schedule A - Agreement and Plan of Merger
Schedule B - Turbodyne Financial Statements
Schedule C - Pacific Baja Financial Statements
Schedule D - Material Agreements
Schedule E - Employment, Service & Pension Agreements
of Pacific Baja
Schedule F - Real Property & Leases of Pacific Baja
Schedule G - Encumbrances on Pacific Baja's Assets
Schedule H - Company Litigation
Schedule I - Registered Trademarks, Trade Names & Patents of Pacific
Baja
Schedule J - Registered Trademarks, Trade Names & Patents of Turbodyne
Schedule K - Turbodyne Options and Warrants
Schedule L - Turbodyne Litigation
<PAGE>
6
Schedule M - Capital Budget of Pacific Baja
2. AGREEMENT TO MERGE
2.1 Turbodyne and Pacific Baja hereby agree that Pacific Baja will be merged
into Newco, as the surviving corporation, on the terms and conditions of this
Agreement and the Merger Agreement to be executed by Pacific Baja and Newco
pursuant to Article 3 of this Agreement (the "Merger").
2.2 Subject to Section 2.3, the Pacific Baja Shares owned by the Pacific Baja
Shareholders will be exchanged on the Closing Date for total consideration in
the amount of $30,000,670.44, being $22.50 per Pacific Baja Share, to be paid by
Turbodyne to the Pacific Baja Shareholders in consideration for the Merger as
follows:
(a) $12,000,670.44, being $9.00 per Pacific Baja Share, to be paid to the
Pacific Baja Shareholders pro rata in accordance with the number of
Pacific Baja Shares owned by each Pacific Baja Shareholder as of the
Closing Date.
(b) the balance of $18,000,000, being $13.50 per Pacific Baja Share, by
the issuance of a number of common shares of Turbodyne (the "Turbodyne
Shares") as shall be equal to $18,000,000 divided the Exchange Price,
to be issued as fully paid and nonassessable shares of the capital
stock of Turbodyne to the Pacific Baja Shareholders pro rata in
accordance with the number of Pacific Baja Shares owned by each
Pacific Baja Shareholder as of the Closing Date.
2.3 The cash and Turbodyne Shares to be delivered to the Vendors on Closing will
be allocated such that any Principal Shareholder receiving less than $100,000
(Cdn.) as consideration for its Pacific Baja Shares will receive all cash and no
Turbodyne Shares. The balance of the Turbodyne Shares will be allocated among
those Pacific Baja Shareholders owning more than $100,000 (Cdn.) of Pacific Baja
Shares. The Pacific Baja Shareholders may allocate the cash and the Turbodyne
Shares between themselves in such allocations as they may agree upon, provided
that in the event of disagreement each Pacific Baja Shareholder will receive a
pro rata share of the cash and Turbodyne Shares, except as required by this
Section 2.3.
2.4 Joyce and Rennberg will exercise all of their Pacific Baja Options, and
Pacific Baja will use its best efforts to cause the balance of the Pacific Baja
Optionees to exercise all of their Pacific Baja Options, prior to the Closing
Date and pay for all Pacific Baja Shares to be issued pursuant to the Pacific
Baja Options, provided that:
(a) Pacific Baja may loan funds to the Pacific Baja Optionees in amounts
required to enable the Pacific Baja Optionees to exercise the Pacific
Baja Options (the "Option Loans");
<PAGE>
7
(b) the Option Loans will be repaid by the Pacific Baja Optionees on or
prior to Closing.
Pacific Baja will issue shares in Pacific Baja in accordance with the Pacific
Baja Options upon exercise in accordance with the terms of the Pacific Baja
Options.
2.5 Turbodyne will deliver to Pacific Baja and the Vendors audited financial
statements of Turbodyne as of December 31, 1995 within 30 days of the execution
of this Agreement, which financial statements will not be materially adversely
different form the most recent financial statements of Turbodyne attached in
Schedule B. Pacific Baja will deliver to Turbodyne audited balance sheets of
Pacific Baja as of December 31, 1995 within 30 days of execution of this
Agreement, which balance sheets will not be materially adversely different form
the most recent financial statements of Pacific Baja attached in Schedule C.
3. PLAN OF MERGER
3.1 The Merger will be effected by a statutory merger between Pacific Baja and
Newco to be completed on the following basis, with the intention that this
transaction qualify as a tax-free reorganization pursuant to Internal Revenue
Code Sections 368(a)(1)(A) and 368(a)(2)(D):
(a) Turbodyne will continue into the State of Wyoming as a Wyoming
corporation pursuant to Article 17-16-1710 of the Wyoming Act;
(b) Each of Turbodyne, Newco and Pacific Baja will as early as possible
following the execution of this Agreement submit this Agreement and
the Merger Agreement to the shareholders of each corporation in the
manner provided by applicable law at a meetings of the shareholders
and will use its best efforts to obtain the approval of the
shareholders by April 30, 1996;
(c) Newco and Pacific Baja will enter into the Merger Agreement upon:
i) the completion of the continuation of Turbodyne into Wyoming
pursuant to Section 3.1(a);
ii) the satisfaction by Turbodyne of all conditions precedent with
respect to the NASDAQ Listing pursuant to Section 4.2;
iii) the satisfaction of each condition precedent in Section 9.1 of
this Agreement;
(d) Upon execution of the Merger Agreement, Pacific Baja and Newco will do
all things as required to complete the Merger on the terms and
conditions of the
<PAGE>
8
Merger Agreement and Turbodyne will cause Newco to do all things as
required to complete the Merger on the terms and conditions of the
Merger Agreement;
(e) The Effective Date of the Merger will be the effective date of the
Merger as provided by the Merger Agreement;
(f) Each of the Principal Shareholders will vote its Pacific Baja Shares
in favour of the Merger at any meeting of the shareholders of Pacific
Baja required in order to obtain the shareholders approval of the
Merger as required by the applicable laws of the State of Wyoming and
the State of California;
(g) the Merger will be completed on the Closing Date by the surrender of
the Pacific Baja Shares in consideration for cash and the Turbodyne
Shares as contemplated in the closing arrangements described in
Article 10. of this Agreement.
4. SECURITIES MATTERS
4.1 Turbodyne will within 60 days after execution of this Agreement commence
application for a NASDAQ National Market Listing for the common stock of
Turbodyne (the "NASDAQ Listing") and will pursue the NASDAQ Listing with due
diligence and in good faith, including the filing of the registration document
required under the Securities Act (1934). The Pacific Baja Shareholders and
Pacific Baja acknowledge and agree that Turbodyne will not meet the requirements
for the NASDAQ Listing prior to the acquisition of Pacific Baja as contemplated
by this Agreement and that any approval of NASDAQ obtained prior to the Closing
Date will be a conditional approval. Accordingly, Turbodyne will not be required
to obtain the NASDAQ Listing as a precedent to the obligations of the Pacific
Baja Shareholders and Pacific Baja to complete their obligations under this
agreement. Upon the completion of the acquisition of Pacific Baja, Turbodyne
will forthwith proceed with due diligence and in good faith to obtain the NASDAQ
Listing. Pacific Baja and the Principal Shareholders will assist Turbodyne and
will at all times comply with all reasonable requests made by Turbodyne in
connection with the application for the NASDAQ Listing in good faith and in a
timely manner. In particular, Pacific Baja will forthwith and prior to the
filing of the NASDAQ Listing prepare audited financial statements as of December
31, 1995 as required in order to prepare the pro-forma financial statement
required for the application for the NASDAQ Listing.
4.2 The obligations of Pacific Baja and the Principal Shareholders to complete
the Merger will be conditional upon:
(a) Turbodyne having filed an appropriate registration form under U.S.
Federal Securities Act of 1934 with respect to Turbodyne's common
shares;
(b) Turbodyne making application for the NASDAQ Listing subsequent to the
filing of the registration form and prior to Closing Date, provided
that Pacific Baja and
<PAGE>
9
the Principal Shareholders acknowledge that Turbodyne will at best
only be able to obtain a conditional approval of the NASDAQ listing
prior to effectiveness of the registration form filed with the
Securities and Exchange Commission;
(c) Turbodyne being able to satisfy the listing requirements for the
NASDAQ Listing upon the completion of the acquisition of Pacific Baja
on the terms and conditions of this Agreement;
(d) Turbodyne will have delivered to Pacific Baja and the Principal
Shareholders prior to the Closing Date an opinion of Turbodyne's U.S.
securities legal counsel that:
i) the application for the NASDAQ Listing filed by Turbodyne is in a
complete and proper form; and
ii) based on the pro-forma financial statements submitted with the
application for the NASDAQ Listing and subject to the condition
that Turbodyne's share price remains above $3.00 U.S. and that
there are at least 300 shareholders of Turbodyne, it is more
likely than not that Turbodyne will meet the requirements for the
NASDAQ Listing upon completion of the acquisition of Pacific Baja
on the terms and conditions of this Agreement.
4.3 Pacific Baja and the Principal Shareholders acknowledge that the
registration form to be filed by Turbodyne pursuant to Section 4.2(a) will
require audited financial statements of Pacific Baja for the past three fiscal
years. Accordingly, Pacific Baja will use its best efforts forthwith and no
later than 60 days from the date of execution of this Agreement prepare and
deliver to Turbodyne audited financial statements for Pacific Baja and the
Subsidiaries for the fiscal years ending December 31, 1993, December 31, 1994
and December 31, 1995. Pacific Baja represents and warrants that these financial
statements will not materially differ from the Pacific Baja Financial Statements
delivered to Turbodyne on execution of this Agreement and attached to this
Agreement in Schedule C. In the event that audited financial statements are not
delivered within 60 days, then Turbodyne's obligation to proceed with the filing
of a registration statement and the application for the NASDAQ Listing will be
extended by until such time as audited financial statements are delivered. In
the event that the Accountant's advise that it is not possible to prepare the
audited financial statements, Pacific Baja will use its best efforts to prepare
balance sheets and financial statements which will be satisfactory to the
Securities and Exchange Commission for the filing of the registration statement
by Turbodyne pursuant to Section 4.1.
4.4 The Principal Shareholders acknowledge that the issuance of Turbodyne Shares
shall be made in reliance of an exemption from the registration and prospectus
requirements of the Securities Act (British Columbia) and that the sale of such
shares in British Columbia will be restricted for a period of one year (the
"Hold Period") from the date of their issuance. The Principal Shareholders agree
to hold such shares and not to deal with the shares in British Columbia until
the expiration of the Hold Period and to abide by any hold requirements imposed
under any application securities laws of any other jurisdiction. In addition,
the Turbodyne Shares issued to the Pacific Baja Shareholders will be subject to
a Rule 144 two year non-transferability period under U.S. Law.
<PAGE>
10
4.5 Turbodyne will file a registration statement under the U.S. Federal
Securities Act of 1933 within a two year period of the Closing Date which will
apply to the Turbodyne Shares issued to the Pacific Baja Shareholders upon
Closing. The registration statement will be filed at Turbodyne's expense.
4.6 If at any time after 90 days of the Closing Turbodyne shall determine to
register any of its shares of stock, Turbodyne will:
(a) Promptly give to the Pacific Baja Shareholders written notice thereof;
and
(b) Include in such registration all the Turbodyne Shares issued to the
Pacific Baja Shareholders on Closing.
All registration expenses incurred in connection with the registration pursuant
to this Section 4.6 shall be at Turbodyne's expense.
5. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SHAREHOLDERS AND
PACIFIC BAJA
The Principal Shareholders and Pacific Baja jointly and severally covenant
with and represent and warrant to Turbodyne as follows, and acknowledge that
Turbodyne is relying upon such covenants, representations and warranties in
connection with the Merger of Newco and Pacific Baja:
5.1 Pacific Baja and each of the Subsidiaries:
(a) have been duly incorporated and organized, are validly existing and
are in good standing under the laws of the State of California, or
Mexico in the case of Baja Oriente S.A. de C.V.;
(b) have the corporate power to own or lease their property and to carry
on the Business;
(c) are duly qualified as a corporation to do business and are in good
standing with respect thereto in each jurisdiction in which the nature
of the Business or the property owned or leased by it makes such
qualification necessary;
(d) have or will have on the Closing Date all necessary licenses, permits,
authorizations and consents to operate their Business.
5.2 The authorized capital of Pacific Baja and each of the Subsidiaries is as
follows:
<PAGE>
11
Corporation Authorized Capital
----------- ------------------
Pacifc Baja 1,500,000 common shares
Optima Wheel, Inc.
Baja Pacific, Inc.
Baja Oriente S.A. de C.V.
5.3 The following shares in each of Pacific Baja and the Subsidiaries have been
duly issued and are outstanding as fully paid and non-assessable shares:
Corporation Issued Capital
----------- --------------
Pacifc Baja 1,131,247 common shares
Optima Wheel, Inc.
Baja Pacific, Inc.
Baja Oriente S.A. de C.V.
5.4 The Pacific Baja Shares owned by the Principal Shareholders are owned by
them as the beneficial and recorded owners with a good and marketable title
thereto, free and clear of all mortgages, liens, charges, security interests,
adverse claims, pledges, encumbrances and demands whatsoever as follows:
Number of Percentage
Company of Issued
Name of Principal Shareholder Shares Pacific Baja Shares
- ----------------------------- ------ -------------------
Lennart Renberg 83,800 7.41%
Michael Joyce 85,000 7.51%
Sadayappa Durairaj Family Trust 236,070 20.88%
Naresh Saxens 149,267 13.19%
Mugerdish Balabanian 150,975 13.34%
5.5 The issued and outstanding shares of Pacific Baja consists of 1,131,247
shares duly issued and validly outstanding as follows:
Number of Percentage
Company of Issued
Name of Pacific Baja Shareholder Shares Pacific Baja Shares
- --------------------------------- ------ -------------------
Lennart Renberg 83,800 7.41%
<PAGE>
12
Michael Joyce 85,000 7.51%
Sadayappa Durairaj Family Trust 236,070 20.88%
Citizens Bank Custodian FBO -
Sadayappa Durairaj, MD Pension 48,000 4.24%
Muthiah 10,000 0.88%
Naresh Saxens 149,267 13.19%
Naresh Saxens MD Pension Plan 48,000 4.24%
Mugerdish Balabanian 150,975 13.34%
Jeganath Naidu 39,257 3.47%
Mysore Nagaraja 60,125 5.32%
Ermanno Mariani 20,928 1.85%
Trans World Bank Custodian FBO -
Frank Martorella MD Pension Plan 24,250 2.14%
Stephan Bass 10,000 0.88%
Trans World Bank Custodian FBO -
Stephan Bass MD Pension Plan 19,000 1.69%
Robert Skelton 5,000 0.44%
Robert Skelton MD Pension Plan 5,400 0.47%
Thomas Fell, Jr. 5,000 0.44%
Thomas Fell MD, Professional Corp. 5,400 0.47%
Krishnakumar 6,000 0.53%
Jeffrey Milman 24,000 2.12%
Ram Pathak 10,625 0.94%
Arthur D. Vatz 13,400 1.19%
Ramalingam Balamoban 10,000 0.88%
William Magier 2,000 0.18%
V. Subramanian 3,000 0.27%
Tom Zastera 1,800 0.16%
Heriberito Victor 3,600 0.32%
G. Venkureddy 30,000 2.65%
Narayan Rao 8,600 0.76%
Kamleshwar Gunsagar 2,000 0.18%
Sheila Bjorklund 500 0.04%
Jay Roseberry 500 0.04%
Tim Shaffer 500 0.04%
John Jackson 750 0.06%
Tony Perez 500 0.04%
Javier Alcala 500 0.04%
Vikram Singh 5000 0.44%
Narayan Zad 2500 0.22%
5.6 Pacific Baja is the owner of all of the issued and outstanding shares in
each of the Subsidiaries (the "Subsidiary Shares") as the beneficial and
recorded owner with a good and
<PAGE>
13
marketable title thereto, free and clear of all mortgages, liens, charges,
security interests, adverse claims, pledges, encumbrances and demands
whatsoever.
5.7 No person, firm or corporation has any agreement or option or any right or
privilege (whether by law, pre-emptive or contractual) capable of becoming an
agreement or option for the purchase from the Principal Shareholders of any of
Pacific Baja Shares held by any of them or for the purchase from Pacific Baja of
any of the Subsidiary Shares.
5.8 With the exception of the Pacific Baja Options, no person, firm or
corporation has any agreement or option, including convertible securities,
warrants or convertible obligations of any nature, or any right or privilege
(whether by law, pre-emptive or contractual) capable of becoming an agreement or
option for the purchase, subscription, allotment or issuance of any of the
unissued shares in the capital of any of Pacific Baja or the Subsidiaries or of
any securities of any of Pacific Baja or the Subsidiaries.
5.9 Pacific Baja will not, without the prior written consent of Turbodyne, issue
any additional shares from and after the date hereof to the Closing Date or
create any options, warrants or rights for any person to subscribe for or
acquire any unissued shares in the capital of Pacific Baja.
5.10 Except as provided in Schedule D, neither Pacific Baja nor any of the
Subsidiaries is party to or bound by any agreement or guarantee, warranty,
indemnification, assumption or endorsement or any other like commitment of the
obligations, liabilities (contingent or otherwise) or indebtedness of any other
person, firm or corporation, or of any products related to the Business.
5.11 The books and records of Pacific Baja and each of the Subsidiaries fairly
and correctly set out and disclose in all material respects, in accordance with
generally accepted accounting principles, the financial position of Pacific Baja
and the Subsidiaries as at the date hereof, and all material financial
transactions of Pacific Baja and the Subsidiaries relating to the Business have
been accurately recorded in such books and records.
5.12 Pacific Baja Financial Statements present fairly the assets, liabilities
(whether accrued, absolute, contingent or otherwise) and the financial condition
of Pacific Baja and the Subsidiaries as at the date thereof and there will not
be, prior to the Closing Date, any increase in such liabilities other than in
the ordinary course of business.
5.13 The entering into of this agreement and the consummation of the
transactions contemplated hereby will not result in the violation of any of the
terms and provisions of the articles of incorporation or bylaws of Pacific Baja
or any of the Subsidiaries or of any indenture, instrument or agreement, written
or oral, to which Pacific Baja, any of the Subsidiaries or the Principal
Shareholders may be a party. The Pacific Baja Shares are not subject to any
stocktransfer restrictions imposed by agreement, including any shareholders
agreement, or by statute,
<PAGE>
14
including restrictions imposed under the California Code.
5.14 The entering into of this agreement and the consummation of the
transactions contemplated hereby will not, to the best of the knowledge of
Pacific Baja and the Principal Shareholders, result in the violation of any law
or regulation of the United States of America or of any states in which they are
resident or in which the Business is or at the Closing Date will be carried on
or of any municipal bylaw or ordinance to which Pacific Baja, any of the
Subsidiaries or the Business may be subject.
5.15 This agreement has been duly authorized, validly executed and delivered by
Pacific Baja and the Principal Shareholders.
5.16 The Business has been carried on in the ordinary and normal course by
Pacific Baja and the Subsidiaries since the date of Pacific Baja Financial
Statements and will be carried on by Pacific Baja and the Subsidiaries in the
ordinary and normal course after the date hereof and up to the Closing Date.
5.17 No capital expenditures, either individually or cumulatively, have been
made or authorized by Pacific Baja or the Subsidiaries since the date of Pacific
Baja Financial Statements, other than in accordance with the Capital Budget of
Pacific Baja, and no capital expenditures will be made or authorized by Pacific
Baja after the date hereof and up to the Closing Date other than in accordance
with the Capital Budget of Pacific Baja without the prior written consent of
Turbodyne, provided that any deviations by Pacific Baja or the Subsidiaries from
the Capital Budget which are within 5% of the capital expenditures in the
Capital Budget will be deemed for the purposes of this Agreement to be a capital
expenditure within the Capital Budget.
5.18 Schedule E sets forth a fully and complete list of all of the employees of
Pacific Baja and the Subsidiaries, together with an accurate description of the
employment and length of employment of each employee of Pacific Baja and the
Subsidiaries. Except as disclosed in Schedule E, Pacific Baja is not a party to
any written or oral employment, service or pension agreement.
5.19 Except as disclosed in the Pacific Baja Financial Statements, Pacific Baja
and the Subsidiaries do not have outstanding any bonds, debentures, mortgages,
notes or other indebtedness, and neither Pacific Baja nor any of the
Subsidiaries is under any agreement to create or issue any bonds, debentures,
mortgages, notes or other indebtedness.
5.20 Except as disclosed in Schedule F, Pacific Baja is not the owner, lessee or
under any agreement to own or lease any real property.
5.21 Except as disclosed in Schedule G, Pacific Baja and the Subsidiaries each
own, possess and have good and marketable title to their undertaking, property
and assets, and without restricting the generality of the foregoing, all those
assets described in the balance sheet included
<PAGE>
15
in Pacific Baja Financial Statements, free and clear of any and all mortgages,
liens, pledges, charges, security interests, encumbrances, actions, claims or
demands of any nature whatsoever or howsoever arising.
5.22 Each of Pacific Baja and the Subsidiaries has its property insured against
loss or damage by all insurable hazards or risks on a replacement cost basis and
such insurance coverage will be continued in full force and effect to and
including the Closing Date; to the best of the knowledge of Pacific Baja and the
Principal Shareholders, neither Pacific Baja nor any of the Subsidiaries is in
default with respect to any of the provisions contained in any such insurance
policy and has not failed to give any notice or present any claim under any such
insurance policy in due and timely fashion.
5.23 Except as disclosed in Schedule D, Pacific Baja does not have any
outstanding material agreements (including employment agreements) contracts or
commitment, whether written or oral, of any nature or kind whatsoever, except:
(a) agreements, contracts and commitments in the ordinary course of
business;
(b) service contracts on office equipment;
(c) the employment, services and pension agreements described in the
Schedules hereto; and
(d) the lease described in the Schedules hereto.
5.24 Except as provided in Schedule H, there are no actions, suits or
proceedings (whether or not purportedly on behalf of Pacific Baja), pending or
threatened against or affecting Pacific Baja, any of the Subsidiaries or
affecting the Business, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign and neither Pacific Baja nor the Principal
Shareholders are aware of any existing ground on which any such action, suit or
proceeding might be commenced with any reasonable likelihood of success.
5.25 Neither Pacific Baja nor any of the Subsidiaries is in material default or
breach of any contracts, agreements, written or oral, indentures or other
instruments to which it is a party and there exists no state of facts which
after notice or lapse of time or both which would constitute such a default or
breach, and all such contracts, agreements, indentures or other instruments are
now in good standing and Pacific Baja is entitled to all benefits thereunder.
5.26 Pacific Baja has the right to use all of the registered trade marks, trade
names and patents, both domestic and foreign, in relation to the Business as set
out in the Schedules hereto.
<PAGE>
16
5.27 To the best of the knowledge of Pacific Baja and the Principal
Shareholders, the conduct of the Business does not infringe upon the patents,
trade marks, trade names or copyrights, domestic or foreign, of any other
person, firm or corporation.
5.28 To the best of the knowledge of Pacific Baja and the Principal
Shareholders, Pacific Baja and the Subsidiaries are conducting and will conduct
the Business in compliance with all applicable laws, rules and regulations of
each jurisdiction in which the Business is or will be carried on, neither
Pacific Baja nor any of the Subsidiaries is in material breach of any such laws,
rules or regulations and is or will be on the Closing Date fully licensed,
registered or qualified in each jurisdiction in which it owns or leases property
or carries on or proposes to carry on the Business to enable the Business to be
carried on as now conducted and its property and assets to be owned, leased and
operated, and all such licenses, registrations and qualifications are or will be
on the Closing Date valid and subsisting and in good standing and that none of
the same contains or will contain any provision, condition or limitation which
has or may have a materially adverse effect on the operation of the Business.
5.29 All facilities and equipment owned or used by Pacific Baja and the
Subsidiaries in connection with the Business are in good operating condition and
are in a state of good repair and maintenance.
5.30 Neither Pacific Baja nor any of the Subsidiaries has any loans or
indebtedness outstanding which have been made to directors, former directors,
officers, shareholders and employees of Pacific Baja or any of the Subsidiaries
or to any person or corporation not dealing at arm's length with any of the
foregoing.
5.31 Pacific Baja has made full disclosure to Turbodyne of all material aspects
of the Business and has made all of its facilities, books and records available
to the representatives of Turbodyne in order to assist Turbodyne in the
performance of its due diligence searches and no material facts in relation to
the Business have been concealed by Pacific Baja or the Principal Shareholders.
Turbodyne has not relied on any covenant, representation, warranty or disclosure
not in writing and signed by a duly authorized agent of Pacific Baja in
connection with this transaction, but rather has relied solely upon the
covenants, representations and warranties contained in this Agreement and other
written documents executed by duly authorized agents of Pacific Baja, as well as
Turbodyne's independent investigation of Pacific Baja.
5.32 There are no material liabilities of Pacific Baja of any kind whatsoever,
whether or not accrued and whether or not determined or determinable, in respect
of which Pacific Baja or Turbodyne may become liable on or after the
consummation of the transaction contemplated by this agreement, other than
liabilities which may be reflected on Pacific Baja Financial Statements,
liabilities disclosed or referred to in this agreement or in the Schedules
attached hereto, or liabilities incurred in the ordinary course or business and
attributable to the period since the date of Pacific Baja Financial Statements,
none of which has been materially adverse to the
<PAGE>
17
nature of the Business, results of operations, assets, financial condition or
manner of conducting the Business.
5.33 Pacific Baja has filed all required California and U.S. income tax returns
for all years to and including the fiscal year end of Turbodyne ended December
31, 1994, has paid all income taxes in respect of such tax returns and has
received no notice of assessment from any tax authority in respect of the filing
of such returns and payment of such taxes.
5.34 The Articles, bylaws and other incorporation documents of Pacific Baja in
effect with the appropriate corporate authorities as at the date of this
agreement will remain in full force and effect without any changes thereto as at
the Closing Date.
5.35 The directors and officers of Pacific Baja are as follows:
Name Position
---- --------
Sadayappa Durairaj C.E.O. & Director
Lennart Renberg Director
Naresh Saxana Director/ Secretary/ Treasurer
Michael Joyce Director/ President
Mugerdish Balabanian Director
5.36 No more than 35 of the Pacific Baja Shareholders are not "Accredited
Investors", as that term is defined in Rule 501(a) of Regulation D promulgated
under the United States Federal Securities Act of 1933, as amended. Each
Principal Shareholder who is an "Accredited Investor" agrees to execute and
deliver on closing a statement setting forth the factual basis as to their
qualification as an "Accredited Investor".
5.37 No claim shall be made by Turbodyne against Pacific Baja or the Principal
Shareholders as a result of any misrepresentation or as a result of the breach
of any covenant or warranty herein contained unless the aggregate loss or damage
to Turbodyne exceeds $10,000.
5.38 The representations and warranties of each party contained herein, and
agreements contained herein, and in any certificates or documents delivered in
connection with the transactions contemplated hereby shall be true at and as of
the Closing as though such representations, warranties and agreements were made
at and as of the Closing and shall survive the Closing, and the merger herein
contemplated.
6. DELETED
<PAGE>
18
7. COVENANTS, REPRESENTATIONS AND WARRANTIES OF TURBODYNE
Turbodyne covenants with and represents and warrants to the Principal
Shareholders and Pacific Baja as follows and acknowledges that the Principal
Shareholders are relying upon such covenants, representations and warranties in
entering into this agreement:
7.1 Turbodyne has been duly incorporated and organized and is validly subsisting
under the laws of the Province of British Columbia; it is a reporting issuer
under the Securities Act (British Columbia) and a reporting company under
Company Act (British Columbia) and is in good standing with respect to all
filings required to be made under such statutes with the Registrar of Companies,
the Vancouver Stock Exchange and the British Columbia Securities Commission; it
has the corporate power to own or lease its properties and to carry on its
business as now being conducted by it; and it is duly qualified as a corporation
to do business and is in good standing with respect thereto in each jurisdiction
in which the nature of its business or the property owned or leased by it makes
such qualification necessary.
7.2 The authorized capital of Turbodyne consists of 300,000,000 shares divided
into 100,000,000 common shares without par value, 100,000,000 Class "A"
Preference shares with a par value of $10 each, and 100,000,000 Class "B"
Preference shares with a par value of $50 each, of which 19,168,600 common
shares are currently issued and outstanding as fully paid and non-assessable, of
which 4,150,000 common shares are held in escrow to be released on the basis of
cash flow of Turbodyne in accordance with the policies of the British Columbia
Securities Commission and the Vancouver Stock Exchange.
7.3 As of February 1, 1996, no person, firm or corporation has any agreement or
option, including convertible securities, warrants or convertible obligations of
any nature, or any right or privilege (whether by law, pre-emptive or
contractual) capable of becoming an agreement or option for the purchase,
subscription, allotment or issuance of any of the unissued shares in the capital
of Turbodyne or of any securities of Turbodyne except as set forth in Schedule
K. Turbodyne represents and warrants the options and warrants listed in Schedule
K are not dependent in any way on the performance of Turbodyne.
7.4 The directors and officers of Turbodyne are as follows:
Name Position
---- --------
EDWARD HALIMI President & Director
LEON E. NOWEK Director
DANIEL GERONAZZO Director
WENDELL ANDERSON Director
RICHARD W. DONALDSON Secretary
<PAGE>
19
7.5 Turbodyne Financial Statements present fairly the assets, liabilities
(whether accrued, absolute, contingent or otherwise) and the financial condition
of Turbodyne as at the respective dates thereof and there will not be, prior to
the Closing Date, any increase in such liabilities.
7.6 There have been no material adverse changes in the financial position or
condition of Turbodyne or damage, loss or destruction materially affecting the
business or property of Turbodyne since the date of audited Turbodyne Financial
Statements.
7.7 Turbodyne has made full disclosure to Pacific Baja of all material aspects
of Turbodyne's business and has made all of its books and records available to
the representatives of Pacific Baja in order to assist Pacific Baja in the
performance of its due diligence searches and no material facts in relation to
Turbodyne's business have been concealed by Turbodyne. Pacific Baja and the
Principal Shareholders have not relied on any covenant, representation, warranty
or disclosure not in writing and signed by a duly authorized agent of Turbodyne
in connection with this transaction, but rather have relied solely upon the
covenants, representations and warranties contained in this Agreement and other
written documents executed by duly authorized agents of Turbodyne, as well as
Pacific Baja's independent investigation of Turbodyne.
7.8 Except as may be set forth in the Turbodyne Financial Statements, Turbodyne
is not a party to or bound by any agreement or guarantee, warranty,
indemnification, assumption or endorsement or any other like commitment of the
obligations, liabilities (contingent or otherwise) or indebtedness or any other
person, firm or corporation.
7.9 Except as disclosed in the Schedules attached hereto, there are no actions,
suits or proceedings (whether or not purportedly on behalf of Turbodyne),
pending or threatened against or affecting Turbodyne or affecting Turbodyne's
business, at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign and Turbodyne is not aware of any existing
ground on which any such action, suit or proceeding might be commenced with any
reasonable likelihood of success.
7.10 Turbodyne's common shares are listed, posted and called for trading on the
Vancouver Stock Exchange and Turbodyne is not in breach of any regulation,
by-law or policy of, or any of the terms and conditions of its listing on, the
Exchange applicable to Turbodyne or its operations.
7.11 With the exception of shares held by "Control Persons" as defined in the
Securities Act (British Columbia), the one-year hold period required under the
Securities Act (British Columbia) is the only transfer restriction applicable to
Turbodyne's shares under the laws of British Columbia and Canada and there is no
known restriction under any court order or regulatory order in Canada or the
United States.
<PAGE>
20
7.12 Turbodyne is not party to any collective agreements with any labour unions
or other association of employees.
7.13 As of the Closing, Turbodyne will have filed all required Canadian income
tax returns for all years to and including the fiscal year end of Turbodyne
ended December 31, 1994, have paid all federal and provincial income taxes in
respect of such tax returns and have received no notice of assessment from any
tax authority in respect of the filing of such returns and payment of such
taxes. Turbodyne has not been required under U.S. law to file any U.S. tax
return for any previous taxation year up to and including 1995.
7.14 Turbodyne is not indebted to any of its directors or officers nor are any
of Turbodyne's directors or officers indebted to Turbodyne.
7.15 Turbodyne has good and marketable title to its properties and assets as set
out in Turbodyne Audited Financial Statements and Turbodyne Interim Financial
Statements and such properties and assets are not subject to any mortgages,
pledges, liens, charges, security interests, encumbrances, actions, claims or
demands of any nature whatsoever or howsoever arising.
7.16 The Articles, Memorandum and any other constating documents of Turbodyne in
effect with the appropriate corporate authorities as at the date of this
agreement will not have been materially changed as at the Closing Date other
than to effect the continuation of Turbodyne as a Wyoming Corporation.
7.17 There are no material liabilities of Turbodyne of any kind whatsoever,
whether or not accrued and whether or not determined or determinable, in respect
of which Turbodyne or Pacific Baja may become liable on or after the
consummation of the transaction contemplated by this agreement, other than
liabilities which may be reflected on Turbodyne Financial Statements,
liabilities disclosed or referred to in this agreement or in the Schedules
attached hereto, or liabilities incurred in the ordinary course or business and
attributable to the period since the date of Turbodyne Financial Statements,
none of which has been materially adverse to the nature of Turbodyne's business,
results of operations, assets, financial condition or manner of conducting
Turbodyne's business.
7.18 The entering into of this agreement and the consummation of the
transactions contemplated hereby will not result in the violation of any of the
terms and provisions of the constating documents or bylaws of Turbodyne or of
any indenture, instrument or agreement, written or oral, to which Turbodyne may
be a party;
7.19 The entering into of this agreement and the consummation of the
transactions contemplated hereby will not, to the best of the knowledge of
Turbodyne, result in the violation of any law or regulation of Canada or of
British Columbia or of any municipal bylaw or ordinance to which Turbodyne or
Turbodyne's business may be subject;
<PAGE>
21
7.20 This agreement has been duly authorized, validly executed and delivered by
Turbodyne.
7.21 Turbodyne is the sole owner of the patent described in Schedule J in the
name of Edward M. Halimi and is the beneficial owner of the patent applications
described in Schedule J attached subject to royalty payments which will in the
aggregate not in any event exceed 5% of gross revenue. The patent and the patent
applications described in Schedule J constitute all patents required in
connection with the manufacture and sale of the Turbodyne System and the Turbo
Pac product, and, to the best of Turbodyne's knowledge, no other parties claim
an ownership interest in the foregoing patents and there are no infringement
actions threatened or filed, and Turbodyne has not received any notice by any
party of any claimed infringement. The patent set forth in Schedule J is owned
by Turbodyne, is validly issued and in full force, and in the case of patent
applications, the applications are beneficially owned by Turbodyne and have been
properly filed and, as of closing, Turbodyne has not been informed of any
negative action.
7.22 Turbodyne via Newco is acquiring Pacific Baja for its own account for
investment and not with a view to or for sale in connection with any
distribution of any security representing ownership of Pacific Baja.
7.23 Except as provided in Schedule L, there are no actions, suits or
proceedings (whether or not purportedly on behalf of Turbodyne), pending or
threatened against or affecting Turbodyne, any of the Subsidiaries or affecting
the Business, at law or in equity, or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign and neither Turbodyne nor the Principal
Shareholders are aware of any existing ground on which any such action, suit or
proceeding might be commenced with any reasonable likelihood of success.
7.24 No claims shall be made by Pacific Baja or the Principal Shareholders
against Turbodyne as a result of any misrepresentation or as a result of the
breach of any covenant or warranty herein contained unless the aggregate loss or
damage to Pacific Baja or the Principal Shareholders exceeds $10,000.
7.25 The representations and warranties of Turbodyne contained herein, and
agreements contained herein, and in any certificates or documents delivered in
connection with the transactions contemplated hereby shall be true at and as of
the Closing as though such representations, warranties and agreements were made
at and as of the Closing and shall survive the Closing, and the merger herein
contemplated.
<PAGE>
22
8. ACTS IN CONTEMPLATION OF CLOSING
In addition to the covenants contained in this Agreement, Turbodyne and
Pacific Baja covenant and agree with each other and the Principal Shareholders
to do or cause to be done the following prior to or on the Closing Date:
8.1 Turbodyne will:
(a) call an extraordinary general meeting of its shareholders, to be held
prior to or on May 31, 1996, to seek approval of:
i) the acquisition of all of of the issued and outstanding shares of
Pacific Baja in exchange for the Purchase Price in accordance
with the terms and conditions of this Agreement;
ii) the execution and delivery of this Agreement;
iii) the continuation of Turbodyne as a Wyoming corporation pursuant
to the Wyoming Act; and
iv) the application by Turbodyne for the NASDAQ Listing.
(b) incorporate Newco as a Wyoming corporation pursuant to the Wyoming
Act.
(c) cause Newco to enter into the Merger Agreement and cause Newco to
perform the obligations of Newco pursuant to the Merger Agreement.
(d) ensure that its board of directors consists of five directors and
prior to or concurrently with closing a meeting of the board shall be
held at which time one of the directors of Turbodyne shall resign and
either Joyce or Renberg shall be appointed, with the result being that
Pacific Baja shall have appointed one of the five directors on the
board.
(e) forthwith apply for the approval of the terms of this agreement by the
Vancouver Stock Exchange.
(f) use its best efforts and act in good faith in assisting the Principal
Shareholders and Pacific Baja to obtain the consent of Wells Fargo
Bank, Tramell Crow and Timco to the acquisition of the Pacific Baja
Shares by Turbodyne.
<PAGE>
23
(g) permit Pacific Baja to review in advance any press releases to be
issued by Turbodyne relating to Pacific Baja, provided that this will
not in any way restrict Turbodyne from complying with any statutory
disclosure requirements.
8.2 The Principal Shareholders and Pacific Baja will promptly:
(a) call an extraordinary general meeting of its shareholders, to be held
prior to or on April 15, 1996, to seek approval of:
i) the execution and delivery of this Agreement;
ii) the execution and delivery by Pacific Baja of the Merger
Agreement.
(b) pursue in good faith the execution of a lease for Baja Oriente S.A. de
C.V. for the Mexico plant on terms and conditions acceptable to
Turbodyne.
(c) comply with all reasonable conditions and requirements of the
Vancouver Stock Exchange in order to obtain the approval of the
Vancouver Stock Exchange to this Agreement;
(d) apply to the Department of Corporations of the State of California for
a permit qualifiying the issue the Turbodyne Shares to the Pacific
Baja Shareholders in consideration for the Pacific Baja Shares;
(e) seek the consent of Wells Fargo Bank, Tramell Crow and Timco to the
acquisition of the Pacific Baja Shares by Turbodyne.
9. CONDITIONS OF CLOSING
9.1 This agreement is subject to the approval, prior to July 31, 1996, of:
(a) the shareholders of Turbodyne;
(b) the shareholders of Pacific Baja; and
(c) all securities regulatory authorities as may have jurisdiction,
including the Vancouver Stock Exchange and the Department of
Corporations of the State of California as required by the California
Code.
<PAGE>
24
Turbodyne will provide to Pacific Baja and the Principal Shareholders by no
later than the date 30 days from the execution of this Agreement one of the
following:
(a) written confirmation of the Vancouver Stock Exchange that the
Vancouver Stock Exchange has approved the Agreement in principle,
subject to shareholders approval; or
(b) the written opinion of Turbodyne's Canadian solicitors that Turbodyne
has made application to the Vancouver Stock Exchange for approval of
this Agreement and that, subject to the approval of the shareholders
of Turbodyne, it is more likely than not that the VSE will approve
this Agreement.
In the event the condition precedents in this Section 9.1 have not been
satisfied by the date specified, this Agreement shall automatically terminate as
of such date and be rendered of no further force or effect. Each party agrees to
use its best efforts to obtain the approvals required pursuant to this Section
9.1 as early as possible. The parties may extend the time within which such
approvals must be obtained by mutual agreement in writing.
In the event that the Vancouver Stock Exchange, Superintendent of Brokers for
the British Columbia, the Department of Corporations of the State of California
or any other regulatory authority having jurisdiction shall prevent the closing
of the transactions contemplated in this agreement, neither Turbodyne nor its
directors, officer, legal counsel, servants or agents shall in any way be liable
to any of the Principal Shareholders or Pacific Baja in respect of any damages
or losses suffered by them as a result of such failure to give their approval
provided that Turbodyne has, with all due diligence and in good faith, used its
best efforts to obtain the approval of such regulatory authorities.
9.2 All obligations of Turbodyne under this agreement are subject to the
fulfilment, at or prior to the Closing Date, of the following conditions:
(a) Except as affected by the completion of the acts set out in Article 8
and the completion of the Merger and except as provided in the Pacific
Baja Financial Statements, the respective representations and
warranties of the Principal Shareholders and Pacific Baja contained in
this agreement, the Merger Agreement or in any Schedule hereto or
certificate or other document delivered to Turbodyne pursuant hereto
shall be substantially true and correct as of the date hereof and as
of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of such date,
regardless of the date as of which the information in this agreement
or any such Schedule or certificate is given, and Turbodyne shall have
received on the Closing Date certificates dated as of the Closing
Date, in forms satisfactory to counsel for Turbodyne and signed under
seal by the respective Principal Shareholders and by two senior
officers of Pacific Baja to the effect that their respective
representations and warranties
<PAGE>
25
referred to above are true and correct on and as of the Closing Date
with the same force and effect as though made on and as of such date,
provided that the acceptance of such certificates and the closing of
the transaction herein provided for shall not be a waiver of the
respective representations and warranties contained in Articles 5 and
6, the Merger Agreement or in any Schedule hereto or in any
certificate or document given pursuant to this agreement which
covenants, representations and warranties shall continue in full force
and effect for the benefit of Turbodyne;
(b) Pacific Baja shall have caused to be delivered to Turbodyne either a
certificate of an officer of Pacific Baja or, at Turbodyne's election,
an opinion of legal counsel acceptable to Turbodyne's legal counsel,
in either case, in form and substance satisfactory to Turbodyne, dated
as of the Closing Date, to the effect that:
i) Pacific Baja and its subsidiaries have been duly incorporated and
organized and are validly existing under the laws of the State of
California or Mexico as the case may be, they have the corporate
power to own or lease its properties and to carry on its business
that is now being conducted by them and are in good standing with
respect to filings with the appropriate governmental authorities;
ii) the issued and authorized capital of Pacific Baja is as set out
in this agreement and all of the issued and outstanding shares
have been validly issued as fully paid and non-assessable;
iii) all necessary approvals and all necessary steps and corporate
proceedings have been obtained or taken to permit Pacific Baja
Shares to be duly and validly transferred to and registered in
the name of Turbodyne; and
iv) the consummation of the Merger contemplated by this agreement,
and specifically the surrender of Pacific Baja Shares to
Turbodyne, will not be in breach of any laws of California, the
United States of America, or Mexico and, in particular but
without limiting the generality of the foregoing, the execution
and delivery of this agreement by the Principal Shareholders and
Pacific Baja has not breached and the consummation of the merger
contemplated hereby will not be in breach of any laws of
California, or the United States or of any state or country in
which a Vendor is resident or Pacific Baja carries on business;
and, without limiting the generality of the foregoing, that all
corporate proceedings of Pacific Baja, its shareholders and directors
and all other matters which, in the reasonable opinion of counsel for
Turbodyne, are material in connection with the
<PAGE>
26
transaction of Merger contemplated by this agreement, have been taken
or are otherwise favourable to the completion of such transaction.
(c) At the Closing Date there shall have been no materially adverse change
in the affairs, assets, liabilities, or financial condition of Pacific
Baja or the Business (financial or otherwise) from that shown on or
reflected in Pacific Baja Financial Statements.
(d) No substantial damage by fire or other hazard to the Business shall
have occurred prior to the Closing Date.
(e) Pacific Baja shall have completed or be able to complete on the
Closing Date those acts required to have been done in contemplation of
closing as set out in Article 8 and Article 3.
(f) Baja Oriente S.A. de C.V. shall have entered into a lease for the
Mexica plant on terms and conditions satisfactory to Turbodyne.
(g) Each of the Joyce and Renberg entering into employment agreements with
Newco with a term of three years on terms and conditions acceptable to
Turbodyne, provided that the salary of each Joyce and Renberg will
equal $150,000 plus bonuses and benefits which are to be substantially
equal to the bonuses and benefits Renberg and Joyce are currently
entitled to under their existing employment agreements with Pacific
Baja.
(h) The Merger shall have completed in accordance with the terms and
conditions of the Merger Agreement.
(i) The Pacific Baja Optionees will have exercised the Pacific Baja
Options and the Option Loans shall have been repaid or will be repaid
at or before the Closing Date.
(j) Pacific Baja will have delivered within 60 days of this Agreement the
audited financial statements for the years ending December 31, 1993,
1994, 1995 and such financial statements will not be materially
adversely different from the financial statements attached to this
Agreement as Schedule C.
9.3 In the event any of the foregoing conditions contained in paragraph 9.2
hereof are not fulfilled or performed at or before the Closing Date to the
reasonable satisfaction of Turbodyne, Turbodyne may terminate this agreement by
written notice to the Principal Shareholders and in such event Turbodyne shall
be released from all further obligations hereunder but any of such conditions
may be waived in writing in whole or in part by Turbodyne without
<PAGE>
27
prejudice to its rights of termination in the event of the non-fulfilment of any
other conditions or conditions.
9.4 All obligations of the Principal Shareholders and Pacific Baja under this
agreement are subject to the fulfilment, at or prior to the Closing Date, of the
following conditions:
(a) Except as affected by the completion of the acts set out in Article 8
and the completion of the Merger, the representations and warranties
of Turbodyne contained in this agreement, the Merger Agreement or in
any Schedule hereto or certificate or other document delivered to
Pacific Baja and the Principal Shareholders pursuant hereto shall be
substantially true and correct as of the date hereof and as of the
Closing Date with the same force and effect as though such
representations and warranties had been made on and as of such date,
regardless of the date as of which the information in this agreement
or any such Schedule or certificate is given, and the Principal
Shareholders shall have received on the Closing Date a certificate
dated as of the Closing Date, in form satisfactory to the Principal
Shareholders and signed under seal by two senior officers of
Turbodyne, to the effect that such representations and warranties
referred to above are true and correct on and as of the Closing Date
with the same force and effect as though made on and as of such date,
provided that the acceptance of such certificate and the closing of
the transaction herein provided for shall not be a waiver of the
representations and warranties contained in Article 7, the Merger
Agreement or in any Schedule hereto or in any certificate or document
given pursuant to this agreement which covenants, representations and
warranties shall continue in full force and effect for the benefit of
the Principal Shareholders.
(b) Turbodyne shall have caused to be delivered to the Principal
Shareholders either a certificate of an officer of Turbodyne or, at
thePrincipal Shareholders' election, an opinion of legal counsel
acceptable to counsel to the Principal Shareholders, in either case,
in form and substance satisfactory to the Principal Shareholders,
dated as of the Closing Date, to the effect that:
i) Turbodyne has been duly continued as a Wyoming corporation and is
validly subsisting under the laws of the State of Wyoming, it has
the corporate power to own or lease its properties and to carry
on its business that is now being conducted by it and is in good
standing with respect to all filings with the appropriate
corporate authorities in the State of Wyoming and with respect to
all annual and quarterly filings with the Vancouver Stock
Exchange and the British Columbia Securities Commission;
ii) the issued and authorized capital of Turbodyne is as set out in
this agreement and all issued shares have been validly issued as
fully paid and non-assessable;
<PAGE>
28
iii) all necessary approvals and all necessary steps and corporate
proceedings have been obtained or taken to permit Turbodyne
Shares to be duly and validly allotted and issued to and
registered in the name of the Pacific Baja Shareholders;
iv) the consummation of the merger contemplated by this agreement,
and specifically the issuance and delivery of Turbodyne Shares to
the Pacific Baja Shareholders in consideration of the purchase of
Pacific Baja Shares, will not be in breach of any laws of the
State of Wyoming, Canada or the U.S.A. and, in particular but
without limiting the generality of the foregoing, the execution
and delivery of this agreement by Turbodyne has not breached and
the consummation of the merger contemplated hereby will not be in
breach of any securities laws of British Columbia or Canada;
v) the meeting of the board of directors of Turbodyne contemplated
by clause 8.1 was properly constituted and one of the five
members of the board of directors of Turbodyne who is a nominee
of Pacific Baja is validly appointed director;
and, without limiting the generality of the foregoing, that all
corporate proceedings of Turbodyne, its shareholders and directors and
all other matters which, in the reasonable opinion of counsel for
Pacific Baja, are material in connection with the transaction of
merger contemplated by this agreement, have been taken or are
otherwise favourable to the completion of such transaction.
(c) At the Closing Date there shall have been no materially adverse change
in the affairs, assets, liabilities, financial condition or business
(financial or otherwise) of Turbodyne from that shown on or reflected
in Turbodyne Financial Statements.
(d) Turbodyne shall have completed or be able to complete on the Closing
Date those acts required to have been done in contemplation of closing
as set out in Article 8, Article 3 and Article 4.
(e) The Vancouver Stock Exchange shall have approved the issuance of
Turbodyne Shares free and clear of any escrow requirements and subject
only to the one year hold required within the Securities Act (British
Columbia).
(f) The Merger shall have completed in accordance with the terms and
conditions of the Merger Agreement.
(g) No action shall have been initiated by the Vancouver Stock Exchange
which would have, as a potential consequence, the delisting of the
Turbodyne common shares, and no governmental investigation shall have
been commenced which questions the
<PAGE>
29
adequacies of Turbodyne's disclosures or which would adversely affect
the purchase price of Turbodyne's common shares.
(h) On or before May 31, 1996, Turbodyne will have received a minimum of
$1,000,000 of confirmed purchase orders for Turbodyne's diesel power
enhancement product for which a valid U.S. patent is issued or an
application for patent is pending from one or more credit-worthy
customers approved by Pacific Baja for delivery within six months of
the Closing Date on terms and at prices consistent with Turbodyne's
normal sales practices. Such orders shall remain in effect at Closing.
(i) No patent or patent application of Turbodyne listed in Schedule H
shall have been declared invalid or be the subject of litigation
challenging its validity, and no patent application listed in Schedule
H shall have been denied.
(j) Turbodyne shall immediately prior to closing have raised sufficient
funds to pay the cash portion of the Purchase Price, provided that the
release of these funds or any portion of the funds to Turbodyne may be
conditional upon the Closing.
(k) Wells Fargo Bank, Tramell Crow and Timco shall each have consented to
the acquisition of the Pacific Baja shares by Turbodyne and shall have
agreed to release each of the Principal Shareholders who are
guarantors of the obligations of Pacific Baja from their respective
guarantees upon Closing.
(l) Turbodyne shall have delivered within 30 days of this Agreement its
audited financial statements as of December 31, 1995 and such
financial statement shall not be materially adversely different from
the financial statements attached hereto as Schedule B.
(m) Turbodyne will have obtained assignments of the patents and patent
applications listed in Schedule J from the inventors, will have filed
such assignments with the U.S. Patent Office and such assignments
shall have been recorded in the U.S. Patent Office.
9.5 In the event that any of the conditions contained in paragraph 9.4 hereof
shall not be fulfilled or performed at or before the Closing Date to the
reasonable satisfaction of the Principal Shareholders and Pacific Baja, then the
Principal Shareholders and Pacific Baja may terminate this agreement by written
notice to Turbodyne and in such event the Principal Shareholders and Pacific
Baja shall be released from all further obligations hereunder but any of such
conditions may be waived in writing in whole or in part by the Principal
Shareholders and Pacific Baja without prejudice to its rights of termination in
the event of the non-fulfilment of any other conditions or conditions. For the
purposes of this Section 9.5, Pacific Baja may waive any such condition on
behalf of the Principal Shareholders and each Principal Shareholder consents
<PAGE>
30
to such waiver by Pacific Baja and grants to Pacific Baja the right and
authority to make such waiver.
10. CLOSING ARRANGEMENTS
10.1 The closing shall take place on the Closing Date at the offices of O'Neill
& Company, Barristers and Solicitors.
10.2 On the Closing Date, upon fulfilment of all the conditions set out in
Article 9 which have not been waived in writing by Turbodyne, Pacific Baja or by
the Principal Shareholders, as the case may be, then:
(a) Pacific Baja and the Principal Shareholders shall deliver to
Turbodyne:
i) certificates representing all Pacific Baja Shares duly endorsed
in blank for transfer or with a stock power of attorney (in
either case with the signature guaranteed by the appropriate
official) with all eligible security transfer taxes paid;
ii) the certificates and officer's certificate or opinion referred to
in Section 9.2;
iii) evidence satisfactory to Turbodyne and its legal counsel of the
completion by Pacific Baja and the Principal Shareholders of
those acts referred to in Section 8.2;
iv) employment agreements executed in favour of Newco by each of
Joyce and Renberg;
v) statements executed by each of the Pacific Baja Shareholders who
is an "Accredited Investor" setting forth the factual basis as to
each Pacific Baja Shareholders' qualification as an "Accredited
Investor" as that term is defined in Rule 501(a) of Regulation D
promulgated under the United States Federal Securities Act of
1933, as amended.
(b) Turbodyne shall deliver to Pacific Baja and the Principal
Shareholders:
i) bank drafts or certified cheques for the cash portion of the
Purchase Price;
ii) share certificates representing the Turbodyne Shares duly
endorsed with legends, acceptable to Turbodyne's counsel,
respecting restrictions on transfer as required by or necessary
under the applicable securities
<PAGE>
31
legislation of Canada or the United States, including the
non-transferability of such shares for a period of two years from
the Closing Date;
iii) the certificates and officer's certificate or opinion referred to
in paragraph 9.4; and
iv) evidence satisfactory to the Principal Shareholders and their
legal counsel of the completion by Turbodyne of those acts
referred to in paragraph 8.1.
11. GENERAL PROVISIONS
11.1 Time shall be of the essence of this agreement.
11.2 This agreement contains the whole agreement between the parties hereto in
respect of the acquisition of Pacific Baja by Turbodyne and there are no
warranties, representations, terms, conditions or collateral agreements
expressed, implied or statutory, other than as expressly set forth in this
agreement.
11.3 Any dispute or controversy arising under, out of, in connection with or in
relation to this agreement, any amendments hereof or any breach hereof shall be
dtermined and settled by arbitrtaion to be held in Los Angeles County,
California, in accordance with the Commercial Arbitration Rules of the American
Arbtiration Associateion, or such other organization as may act as arbitrator if
the parties agree to use a different organization. In the event the amount in
controversy exceeds $100,000, the parties shall have all rights to discovery as
if the case were pending in the United States District Court for the Central
District of California. The Arbitrator shall make its decision and award
according to the terms and provisions of the Agreement and applicable
amendments. Judgment on the awared may be entered in an appropriate Superior
Court of the State of California.
11.4 The representations and warranties contained herein, and agreements
contained herein, and in any certificates or documents delivered in connection
with the transactions contemplated hereby shall be true at and as of the Closing
as though such representations, warranties and agreements were made at and as of
the Closing and shall survive the Closing, and the purchase and sale herein
contemplated.
11.5 This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. Turbodyne
may not assign this agreement without the consent of Pacific Baja which consent
may be unreasonably withheld.
11.6 Any notice to be given under this agreement shall be duly and properly
given if made in writing and by delivering or telecopying the same to the
addressee at the address as set out on page one of this agreement. Any notice
given as aforesaid shall be deemed to have been
<PAGE>
32
given or made on, if delivered, the date on which it was delivered or, if
telecopied, on the next business day after it was telecopied. Any party hereto
may change its address for notice from time to time by notice given to the other
parties hereto in accordance with the foregoing.
11.7 This agreement may be executed in one or more counter-parts, each of which
so executed shall constitute an original and all of which together shall
constitute one and the same agreement.
11.8 This agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the State of California,
and each of the parties hereto irrevocably attorns to the jurisdiction of the
Courts of the State of California.
IN WITNESS WHEREOF the parties hereto have executed this agreement as of the day
and year first above written.
PACIFIC BAJA LIGHT METALS HOLDINGS INC.
by its authorized signatories:
/s/ Dr. Sadayappa Durairaj
- --------------------------------
Director
________________________________
Director
TURBODYNE TECHNOLOGIES INC.
by its authorized signatories:
/s/ Leon Nowek
- --------------------------------
Director
/s/ Edward M. Halimi
- --------------------------------
Director
<PAGE>
33
SIGNED, SEALED AND DELIVERED )
BY LENNART RENBERG in the )
presence of: )
)
/s/ Karen Davenport )
- ------------------- )
Signature )
) /s/ Lennart Renberg
) -----------------------
Karen Davenport ) LENNART RENBERG
- ------------------- )
Name )
)
44469 Baden Ct )
- ------------------------------------
Address )
)
Palm Desert, CA 92260 )
- ------------------------------------
SIGNED, SEALED AND DELIVERED )
BY MICHAEL JOYCE in the )
presence of: )
)
/s/ Thomas J. Zastera )
- ---------------------- )
Signature )
) /s/ Michael Joyce
) -----------------
Thomas J. Zastera ) MICHAEL JOYCE
- ---------------------- )
Name )
)
950 S. Pine Crest Dr. )
- ---------------------- )
Address )
)
Anahein Hills, CA 92807 )
- ----------------------
SADAYAPPA DURAIRAJ FAMILY TRUST
by its authorized signatories:
/s/ Sadayappa Durairaj
- --------------------------------
Trustee
/s/ Jaria Kammad Durairaj
- --------------------------------
Trustee
Presence of:
/s/ Vijay Krishnan
- --------------------------------
19015 Braemore Rd.
- --------------------------------
Address
North Ridge 91326
- --------------------------------
<PAGE>
34
SIGNED SEALED AND DELIVERED )
BY NARESH SAXENS in the )
presence of: )
)
)
)
/s/ Lydia Herrera )
- ------------------------ )
)
Signature )
) /s/ Naresh Saxens
) -----------------
________________________ ) NARESH SAXENS
Name )
)
44449 Eisenhower Dr. )
- ------------------------------------
Address )
)
La Quinta, CA 92 )
- ------------------------------------
SIGNED SEALED AND DELIVERED )
BY MUGERDISH BALABANIAN in the )
presence of: )
)
)
/s/ Teresa Lopez )
- -------------------------- )
Signature )
) /s/ Mugurdich Balabanian
) ------------------------
Teresa Lopez ) MUGURDISH BALABANIAN
- -------------------------- )
Name )
)
9543 [illedgible] AVE
- ------------------------------------
Address )
)
[illedgible] CA 91331 )
- ------------------------------------
<PAGE>
SCHEDULE "A"
to that Acquisition Agreement dated as of March 15, 1996
Merger Agreement
[ATTACHED]
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT OF MERGER made as of the * day of *, 1996
BETWEEN:
PACIFIC BAJA LIGHT METALS HOLDING, INC., a
corporation organized pursuant to the laws of the
state of California and having its principal place
of business at 15300 Valley View Avenue, La
Mirada, California, 90838
("Pacific Baja")
OF THE FIRST PART
AND: PACIFIC BAJA ACQUISITION CORP., a corporation
organized pursuant to the laws of the state of
Wyoming and having its principal place of business
at 6155 Carpinteria Avenue, Carpenteria,
California 93013
("Acquisition")
OF THE SECOND PART
WHEREAS:
A. Pacific Baja is a corporation duly organized and existing under the laws of
the State of California, with its principal office located at 15300 Valley View
Avenue, La Mirada, California 90838.
B. Acquisition is a corporation organized duly organized and existing under the
laws of the State of Wyoming, with its principal office located at 6155
Carpinteria Avenue, Carpenteria, California 93013.
C. Turbodyne Technologies, Inc. ("Turbodyne") is the owner of all of the issued
and outstanding shares of Acquisition.
<PAGE>
2
D. Pacific Baja and Acquisition, acting by their respective boards of directors,
have determined that it is advisable and in the best interests of their
shareholders that Pacific Baja and Acquisition be merged on the terms and
conditions of this Agreement.
E. The boards of directors of each of Pacific Baja and Acquisition have, in each
case by the affirmative vote of a majority of the full board of directors,
authorized and approved this Agreement and the merger provided for herein, and
the said Merger is authorized under the laws of the State of California and the
state of Wyoming.
F. It is the intent of Pacific Baja and Acquisition that this merger qualify as
a tax-free reorganization for the Pacific Baja Shareholders under the tax laws
of the United States of America, and specifically that it qualify as a statutory
merger within the meaning of the Internal Revenue Code Section 368 (a)(1)(A) or
a forward triangular merger within the meaning of Internal Revenue Code Sections
368(a)(2)(D) and 368(a(1)(A).
G. The parties wish to enter into this agreement in order to record the terms
and conditions of the agreement among them;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants, and subject to the terms and conditions hereinafter set forth, the
parties hereto agree as follows:
12. INTERPRETATION
12.1 Where used herein or in any amendments or Schedules hereto, the following
terms shall have the following meanings:
(a) "Acquisition Agreement" means the acquisition agreement between the
Principal Shareholders, Pacific Baja and Turbodyne dated as of the
15th day of March, 1996;
(b) "Business" means the business in which Pacific Baja is engaged,
namely:
i) manufacturing and distribution of after market automotive wheels,
compressor housings, and manifolds to wholesale distributors and
original equipment manufacturers in the United States and abroad,
ii) manufacturing castings prepared to customer specifications on a
contract basis,
<PAGE>
3
iii) any other enterprise that is directly related to the foregoing;
(c) "California Code" means the Corporations Code of the State of
California;
(d) "Closing Date" means the business day following the Effective Date;
(e) "Pacific Baja Shares" means all of the issued and outstanding shares
of Pacific Baja;
(f) "Constituent Corporations" means Acquisition and Pacific Baja;
(g) "Effective Date" means the effective date of the Merger, as
contemplated in Section 3.2;
(h) "Exchange Price" means the price of $5.85 (U.S.) per Turbodyne Share;
(i) "Merger" means the merger of Acquisition and Pacific Baja, as
contemplated by Section 2.1 of this Agreement;
(j) "Pacific Baja Shareholders" means the all of shareholders of Pacific
Baja as of the Closing Date;
(k) "Principal Shareholders" means the following of the shareholders in
Pacific Baja:
Lennart Renberg
Michael Joyce
Sadayappa Durairaj Family Trust
Naresh Saxens
Mugerdish Balabanian;
(l) "Surviving Corporation" means Acquisition as of and subsequent to the
Effective Date of the Merger;
(m) "Turbodyne" means Turbodyne Technologies Inc., a corporation duly
continued into Wyoming and existing under the Wyoming Act;
(n) "Turbodyne Shares" means those fully paid and non-assessable common
shares of Turbodyne to be delivered to the Pacific Baja Shareholders
by Acquisition pursuant to this agreement;
(o) "Wyoming Act" means the Business Corporations Act of the State of
Wyoming.
<PAGE>
4
1.2 All dollar amounts referred to in this agreement are in United States funds,
unless expressly stated otherwise.
1.3 This Agreement shall be interpretated to give effect to the intention of the
parties that this transaction qualify as a tax-free reorganization pursuant to
Internal Revenue Code Sections 368(a)(1)(A) and 368(a)(2)(D), and regulations
promulgated thereunder.
2. PLAN OF MERGER
2.1 On the Effective Date, Pacific Baja will be merged into Acquisition as the
Surviving Corporation in the manner and with the effect provided by the laws of
the State of California and the State of Wyoming.
2.2 Upon completion of the Merger, the separate existence of Pacific Baja will
cease, Pacific Baja and Acquisition will become a single corporation which shall
be Acquisition, as the Surviving Corporation, which shall survive such Merger,
and Acquisition will continue to exist by virtue of and shall be governed by the
laws of the State of Wyoming.
3. SHAREHOLDER APPROVAL
3.1 This Agreement shall be submitted for filing forthwith upon execution of
this Agreement as follows:
(a) a certified copy of this Agreement, together with an officers
certificated executed by an officer of each of the Constituent
Corporations, shall be filed with the Secretary of State of California
pursuant to the California Code;
(b) articles of merger will be executed by Acquisition and submitted to
the Secretary of State of Wyoming in accordance with the Wyoming Act,
which articles of merger will include:
i) the plan of merger set forth in this Merger Agreement;
ii) confirmation of the approval of the shareholders of the Merger
and this Merger Agreement by each of the Constituent Corporations
in the manner provided for in the Wyoming Act.
3.2 The time of effectiveness of the Merger (the "Effective Date") will be the
effective date of the Merger as determined in accordance with the Wyoming Act.
<PAGE>
5
4. EFFECT OF MERGER
4.1 On the Effective Date, the Surviving Corporation will:
(a) possess all the powers, rights, priveleges, goodwill, immunities and
franchises, as well of a public as of a private nature, of each of the
Constituent Corporations;
(b) possess all property, real, personal and mixed, and all debts due on
whatever account and subscriptions to shares and all other thing in
action and every other interest of and belonging to or due to each of
the Constituent Corporations, each of which shall be taken and deemed
to be transferred to and vest in the Surviving Corporation without
further act;
(c) be responsible and liable for all debts, liabilities and obligations
of each of the Constituent Corporations, and all rights of creditors
and all liens upon the property of the Constituent Corporations shall
not be impaired by the Merger, and all debts, liabilities and duties
of the Constituent Corporations shall attach to the Surviving
Corporation and may be enforced against it to the same extent as if
said debts, liabilies and duties had been incurred or contracted by
it.
4.2 Any claim existing or action or proceeding pending by or against either of
the Constituent Corporations may be prosecuted to judgment as if the Merger had
not taken place, or the Surviving Corporation may be proceeded against or
substituted in its place.
4.3 The corporate name, entity and separate existence of Pacific Baja, except
insofar as the same shall continue by requirements of statute, shall terminate,
and such corporation shall cease to be a corporation organied and existing under
the laws of the State of California, and the Surviving Corporation shall be a
corporation organized and existing under the laws of the State of Wyoming.
5. CONVERSION OF SHARES
5.1 Upon the Effective Date, the shares of capital stock and other securities of
the Surviving Corporation then issued and outstanding shall remain unchanged by
reason of the Merger and shall continue to be issued shares of the Surviving
Corporation.
5.2 Upon the Closing Date, the Pacific Baja Shareholders will surrender the
Pacific Baja Shares for the following consideration to be delivered by
Acquisition:
(a) $12,000,670 to be paid to the Pacific Baja Shareholders pro rata in
accordance with the number of Pacific Baja Shares owned by each
Pacific Baja Shareholder as of the Closing Date.
<PAGE>
6
(b) the balance of $18,000,000 to be paid to the Pacific Baja Shareholders
by the issuance of a number of common shares of Turbodyne (the
"Turbodyne Shares") as shall be equal to $18,000,000 divided the
Exchange Price, to be issued as fully paid and nonassessable shares of
the capital stock of Turbodyne to the Pacific Baja Shareholders pro
rata in accordance with the number of Pacific Baja Shares owned by
each Pacific Baja Shareholder as of the Closing Date.
6. SURVIVING CORPORATION
6.1 The name of the Surviving Corporation shall upon completion of the merger
be "Pacific Baja Light Metals Corporation".
6.2 The Surviving Corporation shall have its principal place of business at
15300 Valley View Avenue, La Mirada, California 90838.
6.3 The purposes of the Surviving Corporation shall be, without limitation, to
continue and carry on the Business and to do all things permitted by and in
accordance with the by-laws of the Surviving Corporation.
6.4 The authorized capital stock of the Surviving Corporation shall be
1,000,000 shares of common stock without par value. The rights and restrictions
of the common stock shall be as set forth in the by-laws of the Surviving
Corporaion.
6.5 The articles of incorporation of the Surviving Corporation shall continue
in full force as the articles of the Surviving Corporation until further
amended, altered, or repealed, or as provided by law.
6.6 The by-laws of the Surviving Corporation shall continue to be its bylaws
following the effective date of the Merger.
6.7 The directors and officers of the Surviving Corporation on the Effective
Date shall continue as the directors and officers of the Surviving Corporation
for the full unexpired term of their offices and until their successors be
chosen or appointed according to law or according to the By-laws of the
Surviving Corporation.
7. COVENANTS, REPRESENTATIONS AND WARRANTIES
7.1 Pacific Baja covenants with and represents and warrants to Acquisition that
each of the representations and warrants of Pacific Baja delivered to Turbodyne
in the Acquisition Agreement are true and correct in all material respects as of
the date of execution of this Agreement and will be true and correct in all
material respects as of the Closing Date, and
<PAGE>
7
acknowledges that Acquisition is relying upon such covenants, representations
and warranties in connection with the execution of this Agreement.
7.2 Acquisition covenants with and represents and warrants to Pacific Baja as
follows and acknowledges that Pacific Baja is relying upon such covenants,
representations and warranties in entering into this agreement:
(a) Turbodyne has been duly incorporated and organized and is validly
subsisting under the laws of the Province of British Columbia; it is a
reporting issuer under the Securities Act (British Columbia) and a
reporting company under the Company Act (British Columbia) and is in
good standing with respect to all filings required to be made under
such statutes with the Registrar of Companies, the Vancouver Stock
Exchange and the British Columbia Securities Commission; it has the
corporate power to own or lease its properties and to carry on its
business as now being conducted by it; and it is duly qualified as a
corporation to do business and is in good standing with respect
thereto in each jurisdiction in which the nature of its business or
the property owned or leased by it makes such qualification necessary.
(b) The authorized capital of Turbodyne consists of 300,000,000 shares
divided into 100,000,000 common shares without par value, 100,000,000
Class "A" Preference shares with a par value of $10 each, and
100,000,000 Class "B" Preference shares with a par value of $50 each,
of which 16,675,388 common shares are currently issued and outstanding
as fully paid and non-assessable, of which 4,150,000 common shares are
held in escrow to be released on the basis of cash flow of Turbodyne
in accordance with the policies of the British Columbia Securities
Commission and the Vancouver Stock Exchange.
(c) Acquisition has been duly incorporated and organized, is validly
existing and is in good standing under the laws of the State of
Wyoming.
(d) The authorized capital of Acquisition consists of 1,000,000 common
shares of which 1000 are currently outstanding as fully paid and
non-assessable.
(e) Turbodyne is the owner of all of the issued and outstanding common
shares of Acquisition.
(f) The Turbodyne Shares shall be duly issued and outstanding as fully
paid and non-assessable shares in the capital of Turbodyne, free and
clear of any liens, charges, security interests and encumbrances
whatsoever.
<PAGE>
8
8 8. GENERAL PROVISIONS
8.1 Time shall be of the essence of this agreement.
8.2 This agreement may be executed in one or more counter-parts, each of which
so executed shall constitute an original and all of which together shall
constitute one and the same agreement.
8.3 This agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the State of Wyoming,
and each of the parties hereto irrevocably attorns to the jurisdiction of the
Courts of the State of Wyoming.
IN WITNESS WHEREOF the parties hereto have executed this agreement as of the day
and year first above written.
PACIFIC BAJA LIGHT METALS HOLDINGS INC.
by its authorized signatories:
________________________________
Director
________________________________
Director
PACIFIC BAJA ACQUISITION CORPORATION
by its authorized signatories:
________________________________
Director
________________________________
Director
EXHIBIT 3(vi)
AMENDMENT AGREEMENT
THIS AGREEMENT is made as of the 15th day of July, 1996
AMONG:
LENNERT RENBERG
MICHAEL JOYCE
SADAYAPPA DURAIRAJ FAMILY TRUST
NARESH SAXENA
MUGURDICH BALABANIAN
(hereinafter called the "Principal Shareholders")
OF THE FIRST PART
AND:
TURBODYNE TECHNOLOGIES INC., a company organized pursuant to the
laws of the Province of British Columbia and having a place of
business at Suite 510, 1090 West Pender Street, Vancouver,
British Columbia, V6E 2N7
(hereinafter called "Turbodyne")
OF THE SECOND PART
AND:
PACIFIC BAJA LIGHT METALS HOLDING INC., a corporation organized
pursuant to the laws of the state of California and having its
principal place of business at 15300 Valley View Avenue, La
Mirada, California, 90838
(hereinafter called "Pacific Baja")
OF THE THIRD PART
<PAGE>
2
WHEREAS:
A. Turbodyne, Pacific Baja and the Principal Shareholders entered into an
acquisition agreement dated March 15, 1995 (the "Acquisition Agreement") whereby
Turbodyne agreed to acquire all of the issued and outstanding shares in Pacific
Baja from the shareholders of Pacific Baja (the "Pacific Baja Shareholders") in
consideration for cash and publicly traded stock in Turbodyne.
B. It was an obligation of Turbodyne and a condition precedent to Pacific Baja
and the Pacific Baja Shareholders being obligated to close under the Acquisition
Agreement that Turbodyne continue into the State of Wyoming in order that the
Pacific Baja Shareholders would receive shares in a U.S. corporation on closing.
C. The requirement that Turbodyne be a U.S. corporation on closing arose from
the understanding of the parties that Turbodyne was required to be a U.S.
corporation on closing in order for the Pacific Baja Shareholders to take the
benefit of a tax-free reorganization within the meaning of Internal Revenue Code
Sections 368(a)(1)(A) and 368(a)(2)(D).
D. Turbodyne has received the opinion of its U.S. tax counsel that under
Internal Revenue Code Section 367(1) and the regulations thereunder it is not a
requirement that Turbodyne be a U.S. corporation on closing in order for the
Pacific Baja Shareholders to take the benefit of a tax-free reorganization
within the meaning of Internal Revenue Code Sections 368(a)(1)(A) and
368(a)(2)(D).
E. The parties have agreed to amend the Acquisition Agreement on the terms and
conditions of this Agreement to remove the requirement that Turbodyne continue
into Wyoming.
F. The parties have also agreed to amend the Acquisition Agreement on the terms
and conditions of this Agreement to extend the time for requirement of Turbodyne
to make application for a NASDAQ Listing to August 15, 1996.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the foregoing,
in consideration of the payment by Turbodyne to each of Pacific Baja and the
Principal Shareholders of the sum of $10.00 and in consideration of the mutual
covenants and agreements contained herein, the receipt and sufficiency of which
consideration is hereby acknowledged, the parties hereto agree each with the
other as follows:
1. INTERPRETATION
1.1 Where used herein or in any amendments or Schedules hereto, the following
terms shall have the following meanings:
<PAGE>
3
(a) "Acquisition Agreement" means the acquisition agreement dated March
15, 1996 between Pacific Baja, Turbodyne and the Principal
Shareholders;
(b) "Pacific Baja" means Pacific Baja Light Metals Holding Inc.;
(c) "Principal Shareholders" means the following of the shareholders in
Pacific Baja:
Lennert Renberg
Michael Joyce
Sadayappa Durairaj Family Trust
Naresh Saxena
Mugerdish Balabanian;
(d) "Turbodyne" means Turbodyne Technologies Inc.
1.2 All other capital terms used herein shall have the meaning ascribed to them
in the Acquisition Agreement, unless the context dictates a contrary meaning.
2. AMENDMENT TO REMOVE REQUIREMENT OF CONTINUATION
2.1 The Acquisition Agreement is hereby amended to remove the requirement that
Turbodyne continue into the State of Wyoming by the amendment of the Acquisition
Agreement as follows:
(a) Section 3.1(a) of the Acquisition Agreement is hereby deleted;
(b) Section 3.1(c)(i) of the Acquisition Agreement is hereby deleted;
(c) Section 7.16 of the Acquisition Agreement is deleted and replaced with
the following as Section 7.16:
"7.16 The Articles, Memorandum and any other constating documents of
Turbodyne in effect with the appropriate corporate authorities as at
the date of this agreement will not have been materially changed as at
the Closing Date.";
(d) Section 8.1(a)(iii) of the Acquisition Agreement is hereby deleted;
(e) Section 9.4(b)(i) of the Acquisition Agreement is hereby deleted.
<PAGE>
4
3. AMENDMENT TO EXTEND TIME FOR NASDAQ FILING
3.1 The Acquisition Agreement is hereby amended to extend the time for the
requirement of Turbodyne to make application for the NASDAQ Listing to August
15, 1996 by deletion of the first sentence of Section 5.1 of the Acquisition
Agreement and addition of the following as the first sentence of Section 5.1:
"Turbodyne will by no later than August 15, 1996 commence application for a
NASDAQ National Market Listing for the common stock of Turbodyne (the
"NASDAQ Listing") and will pursue the NASDAQ Listing with due diligence and
in good faith, including the filing of the registration document required
under the Securities Act (1934)."
The balance of Section 5.1 following the first sentence remains unamended and in
full force and effect.
4. APPOINTMENT OF DR. DURAIRAJ AS DIRECTOR OF TURBODYNE
4.1 Turbodyne agrees to appoint Dr. Sadayappa Durairaj as a director of
Turbodyne within 90 days of the Closing of the Acquisition Agreement, as opposed
to appointing either Michael Joyce or Lennert Renberg prior to Closing as
originally contemplated by Section 8.1(d) of the Acquisition Agreement.
4.2 Section 8.1(d) of the Acquisition Agreement is hereby deleted.
5. EXTENSION OF DEADLINE FOR $1.0 MILLION TURBODYNE ORDER
5.1 The parties agree to extend the deadline for Turbodyne's $1.0 Million order
to July 31, 1996 by deleting the reference to May 31, 1996 in Section 9.4(h) of
the Acquisition Agreement and replacing it with a reference to July 31, 1996.
6. QUALIFICATION OF TURBODYNE SHARES
6.1 Subject to Section 6.2, Turbodyne agrees to qualify 25% of the Turbodyne
Shares to be issued to the Pacific Baja Shareholders on the Closing Date (the
"Qualified Turbodyne Shares") by the filing of a prospectus in British Columbia
such that the Qualified Turbodyne Shares are qualified for re-sale in British
Columbia by November 1, 1996.
6.2 The agreement of Turbodyne to qualify the Qualified Turbodyne Shares will be
subject to the agreement of the Pacific Baja Shareholders not sell more than 20%
of the Qualified Turbodyne Shares in any month, commencing with November, 1996.
<PAGE>
5
7. ACQUISITION AGREEMENT IN FULL FORCE AND EFFECT
7.1 Except as expressly amended by this Agreement, the Acquisition Agreement
remains in full, force and effect without further modification or amendment.
8. GENERAL PROVISIONS
8.1 This agreement shall enure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns.
8.2 This agreement may be executed in one or more counter-parts, each of which
so executed shall constitute an original and all of which together shall
constitute one and the same agreement.
8.3 This agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the State of California,
and each of the parties hereto irrevocably attorns to the jurisdiction of the
Courts of the State of California.
IN WITNESS WHEREOF the parties hereto have executed this agreement as of the day
and year first above written.
PACIFIC BAJA LIGHT METALS HOLDING INC.
by its authorized signatories:
/s/ Michael Joyce
- --------------------------------
President
/s/ Mugurdich Balabanian
- --------------------------------
Secretary
TURBODYNE TECHNOLOGIES INC.
by its authorized signatories:
/s/ Edward M. Halimi
- --------------------------------
Director
________________________________
Director
<PAGE>
6
SIGNED, SEALED AND DELIVERED )
BY LENNERT RENBERG in the )
presence of: )
)
/s/ Tom Zastera )
- -----------------------------------
Signature )
) /s/ Lennert Renberg
----------------------------------
Tom Zastera ) LENNERT RENBERG
- -----------------------------------
Name )
)
950 S. Pine Crescent Dr. )
- -----------------------------------
Address )
)
Anaheim Hills, CA 92807 )
- -----------------------------------
SIGNED, SEALED AND DELIVERED )
BY MICHAEL JOYCE in the )
presence of: )
)
/s/ Michael R. Hinshaw )
- -----------------------------------
Signature )
) /s/ Michael Joyce
----------------------------------
Michael R. Hinshaw ) MICHAEL JOYCE
- ------------------------------------
Name )
)
14746 Costa Mesa Dr. )
- -----------------------------------
Address )
)
La Mirada, CA 90638 )
- -----------------------------------
SADAYAPPA DURAIRAJ FAMILY TRUST by
its authorized signatories:
/s Sadayappa Durairaj
- -----------------------------------
Trustee
- -----------------------------------
Trustee
<PAGE>
7
SIGNED SEALED AND DELIVERED )
BY NARESH SAXENA in the )
presence of: )
)
/s/ Mary Schmidt )
- -----------------------------------
Signature )
) /s/ Naresh Saxena
----------------------------------
Mary Schmidt ) NARESH SAXENA
- -----------------------------------
Name )
)
1482814 Chatsevar Dr. )
- -----------------------------------
Address )
)
Mission Hills, CA 91345 )
- -----------------------------------
SIGNED SEALED AND DELIVERED )
BY MUGURDICH BALABANIAN in the )
presence of: )
)
c/o Mugurdich Balabanian )
- -----------------------------------
Signature )
) /s/ Mugurdich Balabanian
----------------------------------
22316 S. Summit Ridge ) MUGURDICH BALABANIAN
- -----------------------------------
Name )
)
)
___________________________________
Address )
)
)
___________________________________
