UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ------ to ---------------
Commission File Number 33-3358-NY
CENTRAXX, INC.
-------------------------
(Name of small business issuer in its charter)
Nevada 88-0224219
------------------------ ------------------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 Argentia Road, Suite #1000
Mississauga, Ontario Canada L5N 5V4
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (905) 826-9988
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the Company was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
(1) Yes [x] No [ ] (2) Yes [x] No [ ]
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of outstanding shares of each of the Issuer's classes of
common equity, as of the latest practicable date:
June 30, 1999
common - 17,906,965 shares
Transitional Small Business Disclosure Format (Check One) : Yes [x] No [ ]
Item 1. Financial Statements
The consolidated financial statements of the Company required to be filed
with this Form 10-QSB Quarterly Report were prepared by management and
commence on the following page, together with related Notes. In the opinion
of management, these Consolidated Financial Statements faily present the
financial condition of the Company.
<TABLE>
CENTRAXX, INC.
BALANCE SHEET
AS AT JUNE 30, 1999
<CAPTION>
(in US$ and US GAAP)
June 30, December 31, June 30,
1999 1998 1998
(unaudited) (audited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current
Cash 142 12,720
Prepaid Expenses 6,922 20,109 8,563
6,922 20,251 21,283
Capital assets (note 4) 242,205 263,362 358,121
Patent costs (note 1) 16,734 15,401 15,401
258,939 278,764 373,522
265,861 299,014 394,805
LIABILITIES
Current
Bank Overdraft 6,802
Accounts payable and accrued
costs 511,581 325,226 417,704
518,382 325,226 417,704
SHAREHOLDERS' EQUITY
Paid up share capital (note 5) 2,284,889 1,629,063 649,039
Deficit (2,537,410) (1,655,275) (671,937)
(252,521) (26,212) (22,989)
265,861 299,014 394,806
</TABLE>
<TABLE>
CENTRAXX, INC.
STATEMENT OF OPERATIONS AND DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(unaudited)
<CAPTION>
(in US$ and US GAAP)
Cumulative
from
inception
6 months 6 months 3 months 3 months to
June 30, June 30, June 30, June 30, June 30,
1999 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C>
Revenue 0 0 0 0 0
General and Administrative
costs
Marketing 67,328 0 42,280 0 183,811
Management fees 89,964 60,264 45,583 30,132 261,495
Professional fees 31,727 7,852 463 2,009 148,761
Rent 49,651 58,255 25,077 26,617 199,823
Loss on write down of
investment in subsidiary 0 36,493 0 0 53,800
Salaries and other
administration 253,643 80,506 136,533 81,374 469,036
492,313 243,371 249,935 140,131 1,316,725
Research and product
development costs
Manpower 273,130 31,787 140,608 23,913 722,706
Materials 27,152 39,702 9,258 31,935 133,885
Expenses 55,912 67,875 25,777 19,749 245,423
356,194 139,363 175,643 75,597 1,102,014
Loss for the period before
amortization 848,507 382,734 425,579 215,728 2,418,739
Amortization 33,628 34,018 16,927 17,010 118,671
Loss for the period 882,135 416,752 442,506 232,738 2,537,410
Deficit, at the beginning
of the period 1,655,275 255,185 2,094,904 439,199 0
Deficit, at the end of
the period 2,537,410 671,937 2,537,410 671,937 2,537,410
Basic loss per share
(note 2d) $0.06 $0.03 $0.03 $0.02
# of weighted average
shares 16,024,044 12,315,672 16,024,044 12,315,672
</TABLE>
<TABLE>
CENTRAXX, INC.
STATEMENT OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(unaudited)
<CAPTION>
(in US$ and US GAAP)
6 months 6 months 3 months 3 months
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Operating Activities
Loss for the period (882,135) (416,752) (442,506) (232,738)
Add back non cash outlays:
Amortization of capital assets 33,628 34,018 16,927 17,010
Loss on write-down of investment
in subsidiary 36,493
(848,507) (346,241) (425,579) (215,728)
Changes in working capital items:
(Increase) Decrease in Prepaid
Expenses 13,186 (7,876) 23,454 (5,472)
Increase (Decrease) in Accounts
Payable 186,354 371,471 177,869 247,869
Cash Generated (Used) in
Operating Activities (648,966) 17,354 (224,256) 26,669
Financing Activities
Issuance of common shares (net) 655,826 51,834 229,057 0
Cash Generated by Financing
Activities 655,826 51,834 229,057 0
Investing Activities
Capital assets (acquired) sold (12,471) (53,995) (12,471) (10,002)
Patent costs (1,333) (3,774) (1,333) (3,774)
Cash (Used) Provided by Investing
Activities (13,804) (57,769) (13,804) (13,776)
Increase (Decrease) in cash for the
period (6,944) 11,420 (9,002) 12,892
Cash (Overdraft) at the Beginning of
the year 142 1,300 2,200 (172)
Cash (Overdraft) at the end of the
period (6,802) 12,720 (6,802) 12,720
</TABLE>
CENTRAXX, Inc.
Notes to the Financial Statements
For the six months ended June 30, 1999
Note 1 Organization and Description of Business
The Company, incorporated as SRS Technical Inc. under the laws of the State of
Nevada on January 15, 1986, changed its name to Composite Design Inc.
following its purchase of Composite Design Corporation on May 29, 1997. On May
18, 1999, the Company purchased all of the outstanding shares of Centraxx
Corp. through an exchange of one of its shares for each share of Centraxx
Corp. following which the Company changed its name on May 19, 1999 to
Centraxx, Inc.
Centraxx Corp., incorporated under the laws of the Province of Ontario of
Canada on August 8, 1997, is a wireless data communications company
specializing in providing location technology solutions. The Company is
developing a proprietary radio location two-way land-based system utilizing
single-point tracking ("UNI-POINT TM" technology) which can be deployed to
provide effective solutions for numerous safety, security and location
information needs in multiple network and stand-alone applications.
Note 2 Significant Accounting Policies
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States. Significant accounting
policies are outlined below:
a) Basis of presentation
On May 18, 1999, the Company, formerly Composite Design Inc. purchased
all of the outstanding shares of Centraxx Corp. through an exchange of one of
its shares for each share of Centraxx Corp. (the "Transaction"). As a result
of the Transaction, the shareholders of Centraxx Corp. owned approximately 85%
of the outstanding shares of the Company and, accordingly, the purchase of
Centraxx Corp. by the Company is accounted for as a reverse takeover
transaction under generally accepted accounting principles.
Under the principles of reverse takeover accounting, the consolidated
financial statements of the Company, the legal parent, are presented as a
continuation of the financial position and results from operations of Centraxx
Corp., the legal subsidiary. Application of reverse takeover accounting
results in the following:
(i) The consolidated financial statements of the combined entity
are issued under the name of the legal parent, Centraxx Inc, but are
considered a continuation of the financial statements of the legal subsidiary,
Centraxx Corp.;
(ii) As Centraxx Corp. is deemed to be the acquirer for
accounting purposes, its assets and liabilities are included in the
consolidated financial statements at their historical carrying values;
(iii) Any comparative numbers are those of Centraxx Corp.; and,
(iv) For purposes of the accounting for the Transaction, control
of the net assets and operations of the Company is deemed to have been
acquired by Centraxx Corp. effective April 30,1999. Accordingly, the net
asset value of the Company in the amount of -$12,024 plus $ 52,000 of
transaction costs has been applied to reduce the share capital of the Company
immediately prior to the reverse takeover.
b) Capital assets
Capital assets are recorded at the lower of cost less accumulated
amortization and net recoverable amount. All capital assets are amortized
over 5 years on a straight-line basis.
c) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
d) Basic Loss Per Common Share
Basic loss per common share has been calculated based on the weighted
average number of common stock outstanding during the period.
e) Research and Product Development Costs
Research and product development costs are expensed as they are
incurred.
f) Patent Costs
Costs incurred for filing for patents are being capitalized and no
amortization is taken until all steps necessary to establish the patent have
been taken.
g) Monetary Assets
Monetary assets and liabilities denominated in currencies other than the
US dollar are translated at the rate of exchange in effect at the end of the
period. Expense items are translated at the rate of exchange in effect on the
dates they occur. Exchange gains and losses are reflected in operations
immediately.
h) Accounting for Leases
A lease that transfers substantially all the benefits and risks incident
to ownership of property is treated as a capital lease, otherwise the lease is
accounted for as an operating lease.
Note 3 Capital Assets
Capital assets comprise the following:
Cost Accumulated Net Book Net Book
Amortization Value Value
June 30, December 31,
1999 1998
Research and Development $310,672 $103,417 $207,255 $223,796
General Office 33,133 11,424 21,709 24,866
Other 17,684 6,614 11,070 12,755
$361,489 $121,455 $240,034 $261,416
Note 4 Commitments
The Company has the following commitments for equipment:
Operating Leases
1999 44,442
2000 88,883
2001 73,011
2002 8,133
2003 0
Note 5 Share Capital
(a) Authorized and Issued Share Capital
Authorized common shares 200,000,000
At par value of $0.001
Issued 1999 17,906,965
The number of issued and outstanding shares of the Company prior to the
Transaction (see note 2a) was 1,069,020, an amount which had not changed since
December 31, 1996. This amount was increased, immediately preceding the
closing of the Transaction, on the basis of 2.5-for-one to 2,672,550 shares. A
further 15,234,415 shares were then issued as part of the Transaction, on a
post-split basis, in exchange for all of the outstanding securities of
Centraxx Corp., resulting in an aggregate of 17,906,965 outstanding shares of
the Company.
(b) Stock Option Plan
The Company has provided a means for Directors and employees to be granted
Options to purchase common shares of the Company or to receive a cash amount
that is equivalent of the opportunity to exercise an Option. The Stock Option
Plan provides that a maximum of 20% of the Company's issued common shares can
be granted unless approved by the shareholders of the Company. Options may be
exercised over a period not to exceed 5 years from the date they are granted.
The price at which each Option can be exercised can not be less than the
market price of the common share at the time the Options are granted. As at
June 30, 1999, the total number of Options which were granted at an exercise
price of $0.70 totaled 1,365,000 of which 546,747 were vested.
Note 6 Income Taxes
For tax purposes, the Company has loss carry forwards of approximately $2.7
million available to reduce future taxable income in Canada subject to
qualified investment tax credits. If not utilized, these losses will expire in
the year 2004, 2005 and 2006. In addition, amortization for tax purposes in
the approximate amount of $110,000 may be filed with the tax authorities. The
potential future tax benefits which may result from the application of these
loss carry forwards have not been recorded in these financial statements.
Note 7 Subsequent Event
The Company entered into a $2,000,000 funding arrangement with Frankopan and
Co. Inc., on August 10, 1999, to be advanced in the minimum monthly amounts
as follows:
August 15, 1999 $100,000
September 15, 1999 $150,000
October 15, 1999 $200,000
November 15, 1999 $200,000
December 15, 1999 $200,000
January 15, 2000 $200,000
February 15, 2000 $350,000
March 31, 2000 $600,000
$2,000,000
Advances are in the form of an 8% debenture on the assets of the Company
together with a guarantee by the Company's subsidiary. The debenture provides
for a deferment of interest for 2 years, thereafter to be paid quarterly, and
a conversion to stock privilege at any time at the rate of $2.00 per share.
Note 8 Risks and Uncertainties
As a development stage company the business of Centraxx Inc., entails risks
and uncertainties that affect its outlook and eventual results of its business
and commercialization plan. The primary risks relate to meeting its product
development and commercialization milestones which require that the Company's
products exhibit the cost, durability and performance required in a commercial
product. There is also a risk that market acceptance might take longer to
develop than anticipated. The Company's business plan recognizes and, to the
extent possible, attempts to manage these risks by pursuing diverse end
markets for "UNI-POINT TM" technology. Within these markets the Company's
commercialization plan is focused on products that it believes have a
competitive advantage. Further, the plan for product and market development
is to work closely with potential strategic partners and key customers who
together have the capability and understanding of their specific markets to
develop products that incorporate Centraxx's UNI-POINT TM technology to meet
consumer requirements.
Item 2. Management's Discussion and Analysis or Plan or Operation.
Plan of Operation
- -----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This is the first report to stockholders following the acquisition (the
"Transaction") on May 18, 1999 by the Company of all of the outstanding and
issued shares of Centraxx Corp., a corporation organized under the laws of the
Province of Ontario, Canada. Following the Transaction, Centraxx Corp. became
a wholly owned subsidiary of the Company. As stated in note 2(a) to the
financial statements, for accounting purposes, Centraxx Corp. is deemed to be
the acquirer under a reverse takeover transaction; accordingly, all figures
including comparatives are those of the legal subsidiary.
Because of the Company's focus on research and development of its UNI-POINT
technology, which technology is still under development, the Company has not
yet generated any revenues.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 compared to June 30, 1998.
The Company generated a gross loss of ($442,506) during the second quarter
compared to the corresponding 1998 second quarter loss of ($232,738). The
Company's general and administrative costs increased $110,000 primarily as a
result of increased sales, marketing and administrative personnel and related
infrastructure costs.
The Company's research and product development costs increased $100,000 during
the second quarter compared to the corresponding prior year period primarily
as a result of increased manpower expenditures in order to assist in the
development of its technology.
Amortization incurred was not materially changed between the respective
3-month periods.
Six Months Ended June 30, 1999 compared to June 30, 1998.
The cumulative current 6 months gross loss was ($882,135) compared to
($416,752) for the corresponding 1998 period. The Company's general and
administrative costs increased $249,000 primarily as a result of increased
sales, marketing and administrative personnel and related infrastructure
costs.
The Company's research and product development costs increased $217,000 during
the six-month period ended June 30, 1999 as compared to the prior years
period. The primary reasons are the increase in manpower expenditures of
$241,000 as the Company hired a significant number of additional personnel to
assist in the development of its technology together with a decrease in
materials and expenses directly related to the technology development during
this period.
Amortization incurred was not materially changed between the respective
6-month periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company entered into a financing arrangement on August 10, 1999 with
Frankopan & Co. Inc., a corporation subject to significant influence by one of
the Company's directors, to facilitate ongoing monthly funding to a total
amount of $2 million. A schedule of the monthly advances is included in note 7
of the financial statements. The amount advanced is in the form of a
convertible 8% debenture. The Company's obligations under the debenture have
been guaranteed by Centraxx Corp. Pursuant to the terms of the debenture,
interest is to be deferred for 2 years. The principal amount of the debenture
and all accrued interest is convertible in whole or in part at any time and
from time to time into shares of the Company's common stock at a conversion
price, subject to adjustment, of $2.00 per share. The Company expects to
utilize the funds received from such financing for the continuation of the
development of its UNI-POINT TM technology and for general operating purposes.
The Company anticipates that it will require further financing to effectuate
its business plan and to continue its operations for the next twelve months.
During the balance of the current fiscal year, the Company expects that its
operating capital requirements will be $3.3 million. The Company has engaged
Ernst and Young Corporate Finance Inc. to assist it with a private equity
placement of up to $10,000,000. The planned use from such offering will be
for the implementation of the Company's UNI-POINT TM technology in the
corporate markets of Southern Ontario, Canada and Southern California as well
as for the Company's operating capital requirements. Thereafter, the Company
expects that it will need to seek additional capital through one or more
public or private offerings of debt or equity. There can be no assurance that
the Company will be successful in obtaining any such funds on terms acceptable
to it, if at all.
The Company is in the process of searching for a President who it expects will
be hired in the last quarter of the current fiscal year. In the interim,
overall management of the Company is being provided by Mr. Michael Ivezic,
the Managing Director of Frankopan & Co., Inc. Significant increases in the
number of employees, primarily in manufacturing and distribution, are
anticipated by Q1/ 2000 when the Company's products are expected to be ready
for market launch and the Southern Ontario network is expected to be
established.
RISKS AND UNCERTANTIES
As of the date of this Quarterly Report, the Company anticipates that its
technology will not be available for sale or distribution for at least the
next two quarters. There can be no assurance that the Company will be able to
complete the development of its technology as of that time, or at any time, or
that the Company will be able to sell or distribute its UNI-POINT TM
technology to generate profitable operations at that time or in the
foreseeable future. There can be no assurance that the technology will be
successfully released to the market or that the Company will profit therefrom.
Year 2000
- ---------
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar problems
may arise in some systems which use certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 Issue may be
experienced before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failures which could affect an entity's ability to conduct
normal business operations. It is not possible to be certain that all aspects
of the Year 2000 Issue affecting the entity, including those related to the
efforts of customers, suppliers, or other third parties. will be fully
resolved.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None, not applicable.
Item 2. Changes in Securities.
None, not applicable.
Item 3. Defaults Upon Senior Securities.
None, not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security holders
during the three month period ended June 30, 1999.
Item 5. Other Information.
None, not applicable.
Item 6. Exhibits and Other Reports on Form 8-K.
(a) Exhibits.
10.1 Letter of Intent regarding Debenture
10.2 Debenture
27 Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter ended June 30, 1999, the Company filed
an 8-K Current Report dated May 18, 1999, reflecting the
Share Exchange Agreement with Centraxx Corp.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CENTRAXX, INC.
Date: 8/16/99 /s/Michael Ivezic
-------------- -----------------------------
Michael Ivezic, President and
Director
Pursuant to the requirements of the Securities and Exchange Act of 1934,
as amended, this Report has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates indicated:
CENTRAXX, INC.
Date: 8/16/99 /s/Michael Ivezic
-------------- -----------------------------
Michael Ivezic, President and
Director
Date: 8/16/99 /s/Stewart Somers
--------------- -----------------------------
Stewart Somers
Chief Financial Officer
August 10, 1999
Centraxx, Inc.
Dear Sirs:
Re: 8% Convertible Debenture
This letter sets out the terms of our agreement with respect to advancing
funds to Centraxx, Inc. ("Centraxx") pursuant to the terms of the 8%
Convertible Debenture ("Debenture") attached hereto as Schedule "A". We agree
that the Debenture shall be read subject to the terms hereof.
1. Frankopan & Co. Inc. ("Frankopan") commits and agrees to advance an
aggregate of $2,000,000 (U.S.) on or before the following dates and in the
following minimum amounts and you agree to issue Debentures to us in respect
of each advance, all of which shall rank pari passu:
Date of Advance
(to be on or before the following dates) Amount of Advance
(i) On August 15, 1999 $100,000 (U.S.)
(ii) September 15, 1999 $150,000 (U.S.)
(iii)October 15, 1999 $200,000 (U.S.)
(iv) November 15, 1999 $200,000 (U.S.)
(v) December 15, 1999 $200,000 (U.S.)
(vi) January 15, 2000 $200,000 (U.S.)
(vii)February 15, 2000 $350,000 (U.S.)
(viii)March 31, 2000 $600,000 (U.S.)
Frankopan acknowledges that each such Debenture will be one of a series
of like debentures of Centraxx to be issued evidencing a principal amount not
exceeding in aggregate $2,000,000 (U.S.), all of which debentures are to rank
pari passu.
2. Frankopan's obligation to advance funds will cease in the event Centraxx
is in default of any of its material obligations hereunder or under the
Debenture.
3. Frankopan's right to advance funds will cease on ten (10) days notice
from Centraxx in the event Frankopan fails to advance funds on or before any
date as required in paragraph 1 above in circumstances where Centraxx is not
in default of any material obligation hereunder or under the Debenture. In
such event, the security granted for any replacement financing to a maximum of
the amount not yet advanced as required in paragraph 1 above shall rank in
priority to the security provided for in the Debenture or Debentures held by
Frankopan, and Frankopan agrees to postpone the charge of its security
accordingly in such event. In addition, for the purposes only of clause 4.3.2
of the Debenture, Frankopan shall not be considered to be in default of its
obligations by reason only of Frankopan having failed to timely advance all or
part of the funds as required in subparagraph 1(v) or (viii) above if
Frankopan has timely advanced all of the funds as required in subparagraphs
1(i) to (iv), both inclusive, above.
4. Frankopan and all other Debenture holders agree to postpone the charge of
their security to arm's length borrowing from a commercial lender for
operating line purposes on normal commercial terms acceptable to a majority of
them calculated by principal amount, acting reasonably.
5. Each of Frank Gerlach and Brian DeChamplain or any entity beneficially
owned or controlled by either or both of them shall have the right, by giving
Frankopan five (5) business days notice, to advance funds pursuant to this
commitment and pursuant to the terms of the Debenture on the following basis:
(a) up to $200,000.00 (U.S.) each by each taking up a maximum of
$50,000.00 (U.S.) of each advance set out in subparagraph 1(v) to 1(viii)
above;
(b) in addition, any amount which Frankopan fails to advance as required
in paragraph 1 above, and in such event, Frankopan shall not be considered to
be in default to the extent of such amount actually advanced.
In the event any of Frank Gerlach, Brian DeChamplain or any entity
beneficially owned or controlled by either or both of them exercises any such
right, then they shall be required as a condition of such exercise to execute
an agreement with Centraxx and Frankopan to be bound hereby as debenture
holders, provided that their debentures may be registered in their name or
names.
6. In the event Centraxx requires from time to time term borrowing (whether
by way of another debenture or debentures or otherwise) in addition to the
funds committed hereby, then Frankopan and all other Debenture holders agree
that the security granted for such additional financing from time to time
shall rank pari passu with the security provided for in the Debentures.
7. Frankopan's obligations to advance funds pursuant to this commitment are
subject to us being reasonably satisfied that the charge contained in the
Debenture will rank as a first charge security and otherwise in accordance
with its terms.
8. All reasonable out of pocket costs and expenses of the Debenture holders
in negotiating this commitment and the attached debenture and in implementing
such loans and complying with the terms of this commitment shall be for the
account of Centraxx.
9. Upon acceptance of this commitment by Centraxx, we will proceed to
finalize the documentation and attend to all necessary security filings.
10. In the event Centraxx is able to raise additional financing on better
terms and conditions as mentioned in above paragraphs, Frankopan & Co. agrees
to waive their right or to cancel the last two installments of the debenture
(item vii and item viii).
Please indicate your acceptance by signing and returning the enclosed
duplicate copy of this commitment.
Yours truly,
FRANKOPAN & CO. INC.
By:
Michael Ivezic, President
We acknowledge and agree to the above.
Dated this day of , 1999
CENTRAXX, INC.
By:
(Duly Authorized Officer)
By:
(Duly Authorized Officer)
SCHEDULE "A"
CENTRAXX, INC.
8% CONVERTIBLE DEBENTURE
DUE -------, 2004
Centraxx, Inc. (herein call the "Corporation"), FOR VALUE RECEIVED,
hereby acknowledges itself indebted and promises to pay to FRANKOPAN & CO.
INC. (the "Holder") on -------, 2004, or on such earlier date as the principal
amount hereof becomes payable in accordance with the provisions hereof, the
principal amount of -------- DOLLARS ($------ ) in lawful money of the
United States of America upon presentation and surrender of this Debenture, at
the registered office of the Corporation, and to pay interest on such
principal amount in like money at the rate of eight percent (8%) per annum
compounded annually, which interest shall accrue and be calculated quarterly,
not in advance on the outstanding principal amount of this Debenture and
accrued interest from time to time from and including the date hereof and
shall be payable on the earlier of the same time as the principal amount may
be paid or payable and -------, 2001 both after as well as before maturity,
default and judgment with interest on overdue interest at the same rate,
until paid in full. Thereafter, interest shall accrue and be paid quarterly
on the last day of the month of March, June, September and December in each
year.
This Debenture is one of a series of like debentures of the Corporation
issued and to be issued evidencing a principal amount not exceeding in
aggregate TWO MILLION UNITED STATES DOLLARS ($2,000,000 U.S.) and having
attached thereto the Terms and Conditions attached to and forming part of this
Debenture. All debentures of the said series are to rank pari passu according
to their tenor without discrimination, preference or priority.
This Debenture is subject to the terms and conditions attached hereto
and forming part of this Debenture.
The Holder shall execute and deliver the Confidentiality Undertaking
attached hereto as a condition of this Debenture. This Debenture is subject
to the terms of a letter agreement dated May 13, 1999 between the Corporation
and Frankopan & Co. Inc.
IN WITNESS WHEREOF the Corporation has caused this Debenture to be
sealed with its corporate seal and to be signed by its duly authorized
officers in that respect this -------- day of May, 1999.
CENTRAXX
Per:
(Duly Authorized Officer)
Per:
(Duly Authorized Officer)
THESE ARE THE TERMS AND CONDITIONS REFERRED TO IN THE FOREGOING
DEBENTURE
1. Interpretation
1.1 Definitions
Where used in this Debenture, the following words and phrases
shall, unless there is something in the context otherwise
inconsistent therewith, have the following meanings:
1.1.1 "Accounts", "Chattel Paper","Documents of Title",
"Equipment","Goods", "Instrument",
"Intangible","Inventory",
"Money", "Proceeds" and "Security" have the meanings given
to them in the PPSA.
1.1.2 "Books and Records" means all books, records, files,papers,
disks, documents and other repositories of data recording
in any form or medium, evidencing or relating to the
Collateral which are at any time owned by the Corporation
or to which the Corporation (or any Person on the
Corporation's behalf) has access.
1.1.3 "business day" means a day other than a Saturday, Sunday,
statutory holiday or any other day on which the Main Branch
of Royal Bank of Canada in Toronto is closed.
1.1.4 "close of business" means 5:00 o'clock in the afternoon
(Toronto time).
1.1.5 "Collateral" means all of the present and future
undertaking, Personal Property of the Corporation and all
Proceeds thereof, wherever located.
1.1.6 "Conversion Price" means the dollar amount for which each
Share may be issued from time to time upon the conversion
of the Debenture in accordance with Section 4.
1.1.7 "Debenture" means the debentures of the Corporation issued
by the Corporation in this series of like debentures and
designated as a "8% Convertible Debenture" and for the time
being outstanding.
1.1.8 "director" means a director of the Corporation for the time
being and "directors" or "board of directors" means the
board of directors of the Corporation or, if duly
constituted and empowered, the executive committee of the
board of directors of the Corporation for the time being,
and reference, without further elaboration, to action by
the directors means action by the directors of the
Corporation as a board or action taken by the said
executive committee as such committee;
1.1.9 "herein", "hereto", "hereunder", "hereof", "hereby" and
similar expressions mean or refer to these conditions of
the Debenture and not to any particular Section, clause,
subclause, subdivision or portion hereof, and the
expressions "Section, "clause", and "subclause" followed by
a number or a letter mean and refer to the specified
Section, clause or subclause hereof;
1.1.10 "holder", "registered holder", or "debenture holder"
means initially Frankopan & Co. Inc. or any other
person or persons from time to time being entered in
the register or registers hereinafter mentioned as
holders of this Debenture;
1.1.11 "Liabilities" means all present and future
indebtedness, liabilities and obligations of the
Corporation to the Holder hereunder.
1.1.12 "Obligations" means the Liabilities and all covenants,
agreements and obligations of the Corporation to the
Holder hereunder.
1.1.13 "PPSA" means the Personal Property Security Act(Ontario),
(or such legislation providing for security
on personal property in any jurisdiction in which
Collateral is located from time to time) as such
legislation may be amended, renamed or replaced from
time to time (and includes all regulations from time
to time made under such legislation).
1.1.14 "Permitted Encumbrances" means those security
interests or other encumbrances particularized in
Schedule "A" to this Debenture;
1.1.15 "Person" means an individual, a partnership, a
corporation, a trust, an unincorporated organization,
a government or any department or agency thereof and
the heirs, executors, administrators or other legal
representatives of an individual and words importing
persons have a similar meaning.
1.1.16 "Purchase Money Mortgage" means any mortgage or other
encumbrance securing any indebtedness in respect of
the purchase price of property acquired by the
Corporation or a Subsidiary after the date hereof
which is assumed or incurred to provide a portion of
such purchase price, which is limited to the property
acquired in the transaction or real property on which
fixed improvements are installed or construction in
connection with which such indebtedness was incurred
or assumed and which is created, issued or assumed
substantially concurrently with the acquisition of
such property, including, without limitation, a
finance lease and any mortgage or encumbrance issued
by the Corporation or a Subsidiary which extends,
renews, refunds or replaces any such mortgage or
encumbrance provided that amount of the indebtedness
which is secured is not increased as a result of such
extension, renewal, refund or replacement and does not
exceed the original amount secured.
1.1.17 "Security Interest" means any mortgage, charge,
pledge, hypothecation, lien (statutory or otherwise),
assignment, title retention agreement or arrangement,
security interest or other encumbrance under this
Debenture or under any other security agreement or
arrangement creating in favour of any creditor a right
in respect of a particular property.
1.1.18 "Shares" means fully paid and non-assessable common
shares in the capital of the Corporation as
constituted on the date hereof; provided that in the
event of a change, reclassification, subdivision,
reduction or consolidation thereof, or successive such
changes, reclassifications, subdivisions, reductions
or consolidations, then, subject to adjustments, if
any, having been made in accordance with the
provisions of clause 4.3, "Shares" shall thereafter
mean the shares resulting from such change,
reclassification, subdivision, reduction or
consolidation; and
1.1.19 "Subsidiary" means, with respect to any person, any
corporation of which more than fifty percent (50%) of
the outstanding voting shares (or a lesser percentage
of shares accompanied by the right to elect a majority
of the directors of the corporation) are beneficially
owned for the time being, directly or indirectly, by
or for that person or by or for one or more
Subsidiaries of that person and includes any
corporation in like relation to a Subsidiary, but
shall not include any corporation which is operated
jointly with a local shareholder for the purpose of
developing the business of the corporation in a
specific territory.
1.2 Gender, etc.
Words importing the singular number only include the plural and
vice versa and words importing any gender include all genders.
1.3 Currency
All dollar amounts referred to herein shall be in lawful money of
the United States of America.
1.4 Headings
The division of this Debenture into Sections, clauses, subclauses
or other subdivisions and the insertion of headings are for
convenience of reference only and shall not affect the
construction or interpretation hereof.
1.5 Business Day
In the event that any date upon which any principal or interest is
payable by the Corporation, or upon or by which any other action
is required to be taken by the Corporation hereunder is not a
business day, then such principal or interest shall be payable or
such other action shall be required to be taken on or by the next
succeeding day which is a business day.
2. Prepayment and Security Interest
2.1 Prepayment
The Corporation shall have the right to prepay, in whole or part,
first the accrued interest, and secondly the outstanding principal
of all Debentures outstanding from time to time. Prepayments
shall be in a minimum amount of Fifty Thousand United States
Dollars ($50,000 U.S.) or in multiples thereof. Prepayments may
only be made on ten (10) days prior written notice within which
time the Holder shall have the option to exercise its right to
convert all or part of the amount to be prepaid to common shares
pursuant to Section 4.
2.2 Grant
As general and continuing collateral security for the due payment
and performance of the Obligations, the Corporation:
2.2.1 mortgages, charges and assigns and grants to the Holder a
first priority security interest in the Collateral, subject
to the Permitted Encumbrances; and
2.2.2 charges as and by way of a floating charge the whole of the
undertaking of the Corporation.
2.3 Limitations on Grant of Security Interest
The Security Interests created by this Debenture do not extend to
the last day of the term of any lease for any leasehold property.
Such last day will be held by the Corporation in trust for the
Holder and, on the exercise by the Holder of any of its rights
under this Debenture following Default, will be assigned by the
Corporation as directed by the Holder.
2.4 Attachment: No Obligation to Advance
The Corporation confirms that value has been given by the Holder
to the Corporation, that the Corporation has rights in the
Collateral (other than after-acquired property) and that the
Corporation and the Holder have not agreed to postpone the time
for attachment of the Security Interests created by this Debenture
to any of the Collateral. The Security Interests created by this
Debenture will have effect and be deemed to be effective whether
or not the Liabilities or any part thereof are owing or in
existence before or after or upon the date of this Debenture.
3. Transfers and Exchanges
3.1 Register
The register for the transfer and registration of Debentures will
be kept at the registered office of the Corporation in Toronto,
Ontario. Upon presentation and surrender at the registered office
of the Corporation, Debentures in any denominations may be
exchanged for Debentures in any other authorized denominations of
the same aggregate principal amount and Debentures accompanied by
a proper instrument of transfer or assignment may be transferred
by the registered holder in person or by attorney duly appointed
in writing, in which case a new Debenture registered in the name
of the transferee will be issued.
3.2 No Right of Set-Off
The registered holder for the time being of any Debenture shall be
entitled to the principal moneys evidenced by such instrument,
free from all equities or rights of set-off or counter-claim
between the Corporation and the original or any intermediate
holder thereof, and all persons may act accordingly and a
transferee of a Debenture shall, after the appropriate form of
transfer is lodged with the Corporation and upon compliance with
the provisions hereof and all other reasonable conditions, be
entitled to be entered on the register as the owner of such
Debenture free from all equities or rights of set-off or
counter-claim between the Corporation and the transferor or any
previous holder thereof, save in respect of equities of which the
Corporation is required to take notice by statute or by order of a
court of competent jurisdiction.
3.3 Replacement of Debentures
If any Debenture is mutilated, lost, destroyed or stolen, it may
be replaced at the registered office of the Corporation in
Toronto, Ontario on payment by the claimant of such costs as may
be incurred in connection therewith and on such terms as to
evidence, indemnity and otherwise as the Corporation may require.
A mutilated Debenture must be surrendered before a new Debenture
will be issued.
4. Conversion
4.1 Conversion Privilege and Conversion Price
4.1.1 Upon and subject to the provisions and conditions of
this Section 4, the holder of a Debenture shall have
the right, at his option, to convert, at any time and
from time to time the whole or any part of the
principal amount of a Debenture and accrued interest
into Shares at the Conversion Price in effect on the
Date of Conversion (as defined in clause 4.2.2).
4.1.2 For each Share to be issued upon the conversion of
this Debenture, the Conversion Price, subject to
adjustment in the manner provided in clause 4.3,
shall be Two United States Dollars ($2.00 U.S.).
4.2 Conversion Procedure for Optional Conversion
4.2.1 The holder of a Debenture desiring to convert such
Debenture shall surrender this Debenture to the
Corporation at its registered office from time to
time, together with the conversion form attached to
this Debenture or any other proper written notice, in
either case duly executed by the registered holder or
his legal representatives or his attorney duly
appointed by a proper instrument in writing,
exercising his right to convert the Debenture or a
stated portion thereof in accordance with the
provisions of this Section. The holder of the
Debenture shall also specify the name or names, with
addresses in which the certificate or certificates
representing the Shares issuable upon conversion
shall be registered. Thereupon and subject to
payment of all applicable transfer taxes and
compliance with all reasonable requirements of any
transfer agent, the debenture holder or his nominee
or assignee, shall be entitled to be entered in the
books of the Corporation as at the Date of Conversion
(as hereinafter defined) as the holder of the number
of Shares into which all or any part, as the case may
be, of the Debenture is converted in accordance with
the provisions of this Section.
4.2.2 For the purposes of this Section, a Debenture shall
be deemed to be surrendered for conversion on the
date (herein called the "Date of Conversion") on
which it is so surrendered in accordance with the
provisions of this Section and, in case a Debenture
is surrended by post or other means of transmission,
on the date on which it is received by the
Corporation at its offices specified in clause 4.2.1.
4.2.3 Any part, being Ten Thousand United States Dollars
($10,000 U.S.) or an integral multiple thereof, of
this Debenture of a denomination in excess of Ten
Thousand United States Dollars ($10,000 U.S.) may be
converted as provided in this Section and all
references in this Debenture to conversion shall be
deemed to include conversion of such parts.
4.2.4 The holder of this Debenture of which part only is
converted shall, upon the exercise of his right of
conversion, surrender this Debenture to the
Corporation and the Corporation shall make a notation
on the Debenture of the principal amount so converted
and cancelled and the principal amount of this
Debenture which is thereafter outstanding and the
Corporation shall forthwith return the Debenture to
the said holder.
4.2.5 The Shares issued upon such conversion shall rank
only in respect of dividends declared in favour of
shareholders of record on and after the Date of
Conversion or such later date as such holder shall
become the holder of record of such Shares, from
which applicable date they will for all purposes be
and be deemed to be issued and outstanding as fully
paid and non-assessable Shares.
4.3 Adjustment of Conversion Price
The Conversion Price in effect at any date shall be subject
to adjustment from time to time as follows:
4.3.1 If and whenever at any time after the date the
Corporation shall: (i) subdivide the outstanding
Shares into a greater number of Shares, or (ii)
consolidate the outstanding Shares into a lesser
number of Shares, (any of such events being called a
"Share Reorganization"), the Conversion Price shall
be adjusted effective immediately after the effective
date or record date, as the case may be, on which the
holders of Shares are determined for the purpose of
the Share Reorganization by multiplying the
Conversion Price in effect immediately prior to such
effective date or record date by a fraction, the
numerator of which shall be the number of Shares
outstanding on such effective date or record date
before giving effect to such Share Reorganization and
the denominator of which shall be the number of
Shares outstanding immediately after giving effect to
such Share Reorganization including, in the case
where securities exchangeable for or convertible into
Shares are distributed, the number of Shares that
would have been outstanding had such securities been
exchanged for or converted into Shares on such record
date.
4.3.2 If after the date hereof, the Corporation shall issue
or sell Shares (or securities convertible into or
exchangeable for Shares ("Convertible Securities") at
a price per share (or at an exercise price in the
case of Convertible Securities) less than the
Conversion Price on the date of such issue or sale
and the Holder is not in default of its obligations,
then the Conversion Price shall be adjusted
immediately after such date so that it shall equal
the lowest price per share at which such Shares were
issued or sold (or the lowest exercise price in the
case of Convertible Securities). This clause shall
not apply to (i) the exercise price of any
Convertible Securities to which the Corporation is
committed at the date hereof, (ii) any debentures
previously converted, and (iii) the exercise price of
any Convertible Securities issued to
any directors or senior officers of the Corporation
pursuant to a stock option plan approved by the board
of directors of the Corporation, even if they are
issued after the date hereof.
4.3.3 In case, after the date hereof, of any
reorganization, amalgamation, consolidation or merger
of the Corporation with or into any other
corporation, or in the case of any sale of the
properties and assets of the Corporation as, or
substantially as, an entirety to any other
corporation, this Debenture shall, after such
reorganization, amalgamation, consolidation, merger
or sale, be convertible into the number of Shares or
other securities or property of the Corporation, as
the case may be, that such holder
would have been entitled to receive as a result
thereof, if on the effective date thereof, he had
been the holder of the number of Shares to which he
was theretofore entitled upon conversion. The board
of directors may, and if required by a holder of
Debentures shall retain a firm of independent
chartered accountants, who may be the auditors of the
Corporation, to make any computation required for
such adjustment. If the firm of independent
chartered accountants retained by the board of
directors to make the computation are not the
Corporation's auditors, the auditors so retained must
be acceptable to the holders of not less than a
majority of the debenture holders determined by value
of their debentures. Such firm of independent
chartered accountants may as to a
question of law, request and rely upon an opinion of
independent counsel, who may be counsel to the
Corporation. Any such determination shall be
conclusive and binding on the Corporation and the
holder.
4.3.4 In the case, after the date hereof, of any
reclassification of, or other change in, the
outstanding Shares or securities convertible or
exchangeable into Shares of the Corporation other
than a Share Reorganization, the Conversion Price may
be adjusted. The board of directors may, and if
required by a holder of Debentures shall retain a
firm of independent chartered accountants, who may be
the auditors of the Corporation, to make any
computation required for such adjustment. If the
firm of independent chartered accountants retained by
the board of directors to make the computation are
not the Corporation's auditors, the auditors so
retained must be acceptable to the holders of not
less than a majority of the debenture holders
determined by value of their debentures. Such firm
of independent chartered accountants may as to a
question of law, request and rely upon an opinion of
independent counsel, who may be counsel to the
Corporation. Any such determination shall be
conclusive and binding on the Corporation and the
holder.
4.3.5 In any case in which section 4.3 shall require that
an adjustment shall become effective immediately
after a record date for an event referred to herein,
the Corporation may defer, until the occurrence of
such event issuing to the holder of this Debenture
which is converted after such record date and before
the occurrence of such event the additional Shares
issuable upon such conversion by reason of the
adjustment required by such event before giving
effect to such adjustment; provided, however, that
the Corporation shall deliver to such holder an
appropriate instrument evidencing such holder's
right to receive such additional Shares upon the
occurrence of the event requiring such adjustment and
the right to receive any distributions made on such
additional Shares declared in favour of holders of
record of Shares on and after the Date of Conversion
or such later date as such holder would, but for the
provisions of this clause 4.3.5, have become the
holder of record of such additional Shares pursuant
to section 4.3.
4.3.6 The adjustments provided for herein are cumulative;
shall, in the case of adjustments to the Conversion
Price, be computed to the nearest cent; and shall
apply (without duplication) to successive
subdivisions, reductions, consolidations,
distributions, issues or other events resulting in a
any adjustment under the provisions hereof; provided
that, notwithstanding any other provision hereof, no
adjustment of the Conversion Price shall be required
unless such adjustment would require an increase or
decrease of at least one percent (1%) in the
Conversion Price then in effect; provided however,
that any adjustments which by reason of this
subclause 4.3.6 are not required to be made shall be
carried forward and taken into account in any
subsequent adjustment.
4.3.7 When any action is taken which requires an adjustment
of the Conversion Price to be made under section 4.3,
the Corporation shall forthwith prepare and deliver
to the holder of this Debenture, a certificate signed
by two senior officers of the Corporation setting
forth the details of the actions taken, the
Conversion Price before adjustment and the details of
the computation of the adjusted Conversion Price.
4.4 Regulatory Approvals and Filing In Connection with
Conversion
If any Shares of the Corporation, allotted or to be allotted
for the purpose of conversion of this Debenture require
registration with or approval of any governmental or other
authority under any Canadian, American or provincial or
state law before such shares may be validly issued upon
conversion and traded on any stock exchange or
over-the-counter market on which the Shares are then listed
and posted for trading, the Corporation will, at its
expense, take such reasonable action as may be necessary to
secure such registration or approval, as the case may be.
5. Debenture Register
A register shall be kept by the Corporation at its registered office and
any other offices required by law wherein shall be entered the name and
address of the registered holder or holders of this Debenture and the
outstanding principal amount of the Debenture held by it.
6. Exclusive Benefit
The registered holder of this Debenture or his legal personal
representative will be regarded as exclusively entitled to the
benefit of this Debenture and all persons may act accordingly and
the Corporation shall not be bound to enter in the register notice
of any trust or, except as may be required by some court of
competent jurisdiction having so ordered, to recognize any trust
or equity affecting the title to this Debenture.
7. Transfer of Debenture
Every transfer of this Debenture must be in writing under the hand
of the registered holder or his legal personal representative or
the attorney authorized in writing of such registered holder or
the legal personal representative of such registered holder. Any
such transfer accompanied by this Debenture must be delivered at
the offices of the Corporation as specified in Section 3 together
with such evidence of identity or title as the Corporation may
reasonably require, whereupon the transfer will be registered and
duly noted by endorsement hereon signed by the Secretary or
Assistant Secretary of the Corporation. No transfer hereof shall
be effective if the transfer is to a Person who is known by the
transferor to be directly or indirectly, or is affiliated or
associated with a Person who is directly or indirectly engaged in
or involved in the business of wireless communications,
geographical information systems, location information or location
technology. If such a transfer should occur without the knowledge
of the transferor, then notwithstanding anything contained in this
Debenture to the contrary, the transferee shall not be entitled to
any information in any form which the Corporation considers in its
sole and unfettered discretion to be confidential. It shall be a
condition of any transfer hereof that the transferee agree with
the Corporation to be bound by the confidentiality obligations as
provided in the form attached hereto and by the terms of the side
letter of even date herewith between the Corporation and Frankopan
& Co. Inc.
8. Joint holders
In case of joint registered holders the principal moneys and
interest owing hereunder shall be deemed to be owing to such
holders upon a joint account.
9. Default
9.1 Events of Default
Each of the following events is herein sometimes referred to
as an "Event of Default":
9.1.1 if the Corporation shall fail to pay the principal or
other amount owing under any Debenture which shall
have become due and payable and such default continues
for a period of ten (10) business days;
9.1.2 if an order is made or a resolution is passed for the
winding-up, dissolution or liquidation of the
Corporation or if a petition is filed or other process
taken for the winding-up, dissolution or liquidation
of the Corporation and is not disputed by the
Corporation in good faith;
9.1.3 if the Corporation commits or threatens to commit an
act of bankruptcy or become insolvent or go into
liquidation or make a general assignment for the
benefit of its creditors or otherwise acknowledge its
insolvency or if a bankruptcy petition is filed or
presented against the Corporation and is not contested
in good faith and discharged within one hundred and
twenty (120) days after it is filed or presented or if
a custodian or sequestrator or a receiver or receiver
and manager or any other officer with similar powers
is appointed for such Corporation or for any part of
its property which, in the reasonable opinion of the
holder, is a substantial part;
9.1.4 if the Corporation makes an assignment for the benefit
of its creditors or a bulk sale of all or
substantially all of its property and assets;
9.1.5 if any proceedings with respect to the Corporation are
taken with respect to a compromise arrangement under
the Bankruptcy and Insolvency Act, the United States
Bankruptcy Code, the Companies Creditors Arrangement
Act (or any Act substituted therefor) or similar
legislation of any other jurisdiction in Canada, the
United States or any province or state thereof;
9.1.6 if an encumbrancer takes possession of any substantial
part of the property of the Corporation or if a
distress or execution or any similar process is
enforced against such property;
9.1.7 if any representation or warranty contained herein or
made in any certificate or other document delivered to
the holder shall have been found to be false or is
incorrect in any material respect (except any such
representation and warranty as is already qualified by
the term material which representation and warranty
shall be true and correct in all respects) as of its
date of making;
9.1.8 if the Corporation shall cease to carry on in the
ordinary course, its business or a substantial part
thereof; and
9.1.9 if the Corporation fails to observe or perform any
other material, term, covenant or condition on the
part of the Corporation contained herein for a period
of thirty (30) days after the date on which written
notice of such failure, requiring the Corporation to
remedy the same, shall be received by the Corporation
by a debenture holder.
9.2 Rights on Default. Upon the occurrence of an Event of
Default, the security constituted by this Debenture will
become enforceable and the Holder may do any one or more of
the following in each case in accordance with applicable
law:
9.2.1 Rights under PPSA, etc. Exercise all of the rights
and remedies granted to secured parties under the PPSA
and any other applicable statute, or otherwise
available to the Holder at law or in equity.
9.2.2 Demand Possession. Demand possession of any or all of
the Collateral, in which event the Corporation will,
at the expense of the Corporation, immediately cause
the Collateral designated by the Holder to be
assembled and made available and/or delivered to the
Holder at any place designated by the Holder.
9.2.3 Take Possession. Enter on any premises where any
Collateral is located and take possession of, disable
or remove such Collateral.
9.2.4 Deal with Collateral. Seize, collect, receive,
enforce or otherwise deal with any Collateral in such
manner, on such terms and conditions and at such times
as the Holder, acting reasonably, deems advisable.
9.2.5 Use of Collateral. Hold, store and keep idle, or
operate, lease, repair, modify or complete or
otherwise use or permit the use of, any or all of the
Collateral for such time and on such terms as the
Holder may reasonably determine, and demand, collect
and retain all earnings and other sums due or to
become due from any Person in respect of any of the
Collateral.
9.2.6 Carry on Business. Carry on, or concur in
carrying on of, any or all of the business
undertaking of the Corporation and enter on, occupy
and use (without charge by the Corporation) any of the
premises, buildings, plant and undertaking of, or
occupied or used by, the Corporation.
9.2.7 Dispose of Collateral. Realize on any or all of the
Collateral and sell, lease, assign, give options to
purchase, or otherwise dispose of and deliver any or
all of the Collateral (or contract to do any of the
above), in one or more parcels at any public or
private sale, at any exchange, broker's board or
office of the Holder or elsewhere, on such terms and
conditions as the Holder may deem advisable and at
such prices as it may deem best, for cash or on credit
or for future delivery.
9.2.8 Appoint Receiver. By instrument in writing appoint
any Person as a Receiver of all or any part of the
Collateral. The Holder may from time to time remove or
replace a Receiver, or make application to any court
of competent jurisdiction for the appointment of a
Receiver. Any Receiver appointed by the Holder will
(for purposes relating to responsibility for the
Receiver's acts or omissions) be considered to be the
Corporation's agent and the Receiver may do anything
that the Holder may do.
9.3 Remedies Cumulative
No remedy of the holder of this Debenture is intended to be
exclusive of any other remedy but each and every such remedy
shall be cumulative and shall be in addition to every other
remedy given hereunder or now existing or hereafter to exist
by law or statute.
9.4 No Merger, Etc.
Neither the taking of any judgment nor the exercise of any
power of seizure or sale shall operate to extinguish the
liabilities of the Corporation to make payment of the
principal sum hereby secured or interest thereon nor shall
such operate as a merger of any covenant or affect the right
of the holder to interest calculated as hereinbefore
provided, nor shall the acceptance of any payment or
alternative security constitute or create any novation, and
it is further agreed that the taking of a judgment or
judgments under any of the covenants herein contained shall
not operate as a merger of any of said covenants or affect
the rights of the holder to interest at the rate as herein
provided.
9.5 Waiver of Default
Upon the happening of an Event of Default, the holders shall
have power to waive in writing their rights hereunder
provided that no act or omission of the holders in the
premises shall extend to or be taken in any manner
whatsoever to affect any subsequent Default hereunder or the
rights resulting therefrom.
9.6 Aggregate Default
Default under this or any other Debenture shall be deemed to
be default under all debentures.
10. Covenants of the Corporation
10.1 Payment of Principal and Interest
The Corporation will well, duly and punctually pay or cause
to be paid to the holder the principal of, and interest on,
the Debenture on the dates, at the places, in the moneys,
and in the manner mentioned herein.
10.2 Payment of Costs
The Corporation will pay all reasonable costs, charges and
expenses of and incidental to the creation of the Debentures
and generally in any proceedings taken to enforce the
remedies under the Debentures or by reason of non-payment or
procuring payment of the moneys owing under the Debentures.
All costs, charges and expenses shall bear interest at the
rate provided for herein and shall be payable on a
solicitor-client basis.
10.3 Insurance
The Corporation will insure and keep insured its buildings,
plant, equipment, inventory and stock in trade and any other
insurable property and assets against such perils and in
such amounts as may be usual and prudent with companies
carrying on a similar business or holding similar assets.
10.4 Corporate Existence and Good Standing
The Corporation is and will maintain its status as a
corporation duly and validly incorporated, organized and
subsisting under the laws of the State of Nevada has all
necessary corporate power and authority to own its
properties and carry on its business as presently carried
on; and is duly qualified as a corporation to do business or
own or lease property in each jurisdiction where the nature
of its business or the property owned or leased by it makes
such qualification necessary.
10.5 Corporate Authority
The Corporation has full corporate power, legal right and
authority to issue the Debentures and has such power, legal
right and authority to do all such acts and things as are
required hereunder to be done, observed and performed by it,
subject to and in accordance with the terms hereof.
10.6 Laws
The Corporation will, and will cause each of its
Subsidiaries to, comply with all applicable statues,
regulations, orders and restrictions of any government and
of any agencies and instrumentalities of government, and of
all other governmental authorities, in respect of the
conduct of their respective properties, except such as are
being contested in good faith by appropriate legal or
administrative proceedings, by or on behalf of the
Corporation, and except for isolated instances of
non-compliance, if any, which in each case, and as to all
thereof in the aggregate have no material and adverse
effect.
10.7 Negative Covenants
The Corporation covenants and agrees that so long as any
Debentures are outstanding, except with the written approval
of the holders (which will not be unreasonably withheld and
which, if not objected to in writing within three clear
business days, shall be deemed to have been approved in
writing), and except as provided for in an annual business
plan prepared by management of the Corporation and approved
(but only as it relates to the subject matter of Section
10.7) by its board of directors and not less than the
holders of a majority determined by value of 8% Convertible
Debenture by principal amount:
10.7.1 The Corporation will not nor will it permit a
Subsidiary to convey, sell, lease, transfer or
otherwise dispose of out of the ordinary course
of business, in any one transaction any asset
having a value in excess of $100,000 or in any
fiscal year assets in a series of transactions
with an aggregate value in excess of $250,000.
10.7.2 The Corporation will not declare or pay any
dividends in cash, kind or shares or make any
other distributions to shareholders or redeem or
otherwise retire any Shares.
10.7.3 The Corporation will not, nor will it permit any
Subsidiary to, guarantee or otherwise become
liable for any debts or obligations of any
Person other than of the Corporation or a
Subsidiary. In addition the Corporation will
not permit any Person to increase the amount of
any existing guarantee relating to any secured
indebtedness of the Corporation.
10.7.4 The Corporation will not, nor will it permit any
Subsidiary to, enter into any material
transaction out of the ordinary course of
business.
10.7.5 The Corporation will not, nor will it permit any
Subsidiary to, enter into any material
transaction in which any director, officer,
shareholder or employee of the Corporation or of
any Subsidiary or any associate (as such term is
defined in the Securities Act of Ontario) or
affiliate of any such Person has a material
interest out of the ordinary course of the
Corporation's or such Subsidiary's business.
10.7.6 The Corporation will not, nor will it permit a
Subsidiary to mortgage or otherwise encumber any
of its assets to secure any obligation provided
that this covenant will not apply to nor operate
to prevent the following:
(a) security granted by a Subsidiary to the
Corporation to any other Subsidiary;
(b) creation or assumption by the Corporation or a
Subsidiary of Purchase Money Mortgages;
(c) security granted by the Corporation or a
Subsidiary to secure its debt for operating
lines of credit to a financial institution or
other bona fide arm's length lender in the
ordinary course of business; and
(d) liens arising by operation of law in the
ordinary course of business or incidental to the
ownership of property or assets.
10.7.7 The Corporation will not without the prior
consent of the holders hereof amalgamate with or
merge into any other corporation (other than an
amalgamation with a wholly owned subsidiary) or
enter into any corporate transaction (whether by
way of reconstruction, reorganization,
consolidation, amalgamation, merger, sale, lease
or otherwise) whereby all or substantially all
of its undertaking, property or assets or any
portion thereof, would become the property of
any other person or in the case of any such
amalgamation or merger, the property of the
continuing corporation resulting therefrom.
10.7.8 The Corporation will not, nor will it permit any
Subsidiary to, purchase, lease or otherwise
acquire, in any one transaction any asset having
a value in excess of $250,000 , or in any fiscal
year of the Corporation assets having an
aggregate value in excess of $500,000, except
for acquisitions made in the ordinary course of
business.
Notwithstanding any provisions of this Debenture to the contrary,
the following transactions are permitted and therefore do not
constitute a default by the Corporation (i) the share exchange
transaction between Corporation and Centraxx Corp., and (ii) any
transfer of assets between or among the Corporation and one or
more of the Corporation's wholly owned (directly or indirectly)
Subsidiaries provided that any such Subsidiary which is a
transferee of assets shall provide its guarantee (in form and
substance satisfactory to the Holder acting reasonably) of the
Liabilities.
11. Notices
11.1 Any notice to the Corporation under the provisions of this
Debenture shall be in writing and may be given by registered
mail, postage prepaid and mailed in Canada or delivering the
same to the Corporation at 2700 Argentia Road, Suite 1000,
Mississauga, Ontario, L5N 5V4. Any notice to the holder of
the Debenture under the provisions of this Debenture shall
be in writing and may be given by registered mail, postage
prepaid and mailed in Canada or delivering the same to the
holder at its address appearing in the register as
contemplated in Section 3 hereof.
11.2 Any notice if delivered shall be deemed to have been given
or made on the date on which it was delivered or if given by
registered mail mailed in Canada shall be deemed to have
been given or made on the third business day following the
day on which it was mailed.
11.3 In the event of any disruption of mail service which may
affect delivery of any notice given pursuant to clause 11.1
by registered mail after the mailing of such notice and
before the date upon which such notice is deemed to have
been given or made pursuant to clause 11.2, such notice
shall be deemed not to have been given and must be given or
made by delivering the same. In the event of any disruption
of mail service which may affect delivery of any notice,
Debenture, share certificate, cheque or other writing by
registered mail or ordinary mail before the mailing of any
of the foregoing, such notice, Debenture, share certificate,
cheque or other writing shall be delivered by hand in lieu
of mailing the same.
12. Amendment
This Debenture may be amended only by agreement in writing
executed by the Corporation and the holders of this Debenture at
the date of such amendment.
13. Governing Law
This Debenture shall be governed by the laws of the Province of
Ontario except the conflict of interest laws and the parties
hereby irrevocably attorn to the exclusive jurisdiction of the
Courts of the Province of Ontario in respect of the subject matter
hereof.
14. Time of the Essence
Time shall be of the essence.
15. Binding Effect
The terms and provisions of this Debenture shall enure to the
benefit of and be binding upon the registered holders hereof,
their heirs, executors, administrators, successors and permitted
assigns to the extent provided herein and shall enure to the
benefit of and be binding upon the Corporation and its respective
successors and permitted assigns.
<PAGE>
TRANSFER FORM
FOR VALUE RECEIVED the undersigned sells, assigns and transfers unto
(name and address of assignee)
the within
(principal amount of the Debenture assigned)
Debenture of Centraxx, Inc. (the "Corporation") and hereby irrevocably
constitutes and appoints
as Attorney to transfer the said Debenture with full power of substitution in
the premises.
Dated
SIGNATURE OF TRANSFEROR
<PAGE>
CONVERSION FORM
TO: CENTRAXX
The undersigned owner of the within Convertible Debenture hereby
irrevocably elects to convert said Debenture (or $ principal
amount thereof) into Shares of Centraxx, Inc. in accordance with the terms of
the said Debenture and directs that the certificates representing the Shares
issuable and deliverable upon the conversion be issued and delivered to the
person indicated below.
If less than the full principal amount of the within Debenture is to be
converted, indicate in the space provided above the principal amount to be
converted.
Dated:
(SIGNATURE OF OWNER)
Name:
(ADDRESS) (CITY AND PROVINCE)
(PRINT NAME IN WHICH SHARES ISSUED ON CONVERSION ARE TO BE ISSUED, DELIVERED
AND REGISTERED)
<PAGE>
CONVERSION OF DEBENTURE
Date Amount of Unpaid Pricipal Name of Officer Signature of
Principal Balance of of Corporation Officer Making
Converted Debenture Making Notation
Notation
<PAGE>
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0
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