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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended 31 JANUARY 1997 ("FISCAL 1997")
Commission file number 0-18163 EDGAR Filing Number 000-18163
CUSIP number 738908102 SEDAR Project Number 00004997
POWER PLUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(the "REGISTRANT", or the "COMPANY", or "POWER PLUS")
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| PROVINCE OF ALBERTA, CANADA 52-1976897 |
| (JURISDICTION OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER) |
| |
| 7850 WOODBINE AVENUE, SUITE 201, |
| MARKHAM, ONTARIO, CANADA L3R 0B9 |
| (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP/POSTAL CODE) |
| |
| 905-479-5683 |
| 800-769-3733 (800-POWERED) 905-479-8911 |
| (TELEPHONE NUMBERS) (FAX NUMBER) |
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(TITLE OF CLASS)
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/
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes / / No /X/
As of 18 July 1997, the aggregate market value of the voting stock of the
registrant held by non-affiliates was approximately $11,341,095 based upon
the closing price of the shares on The Alberta Stock Exchange of $1.50 per
share. As of such date, 7,620,730 common shares (the "Common Shares") of the
Registrant's Common Stock were outstanding. (Please refer to ITEM 7 --
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS concerning the reorganization and consolidation of the Company's
stock on the basis of 20 to 1.)
DOCUMENTS INCORPORATED BY REFERENCE
None.
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FORM 10-K
Fiscal Year End 1997
Page 2
BASIS OF PRESENTATION
The Company prepares its consolidated financial statements in Canadian
dollars. In this report all references to "$" are to Canadian dollars,
unless otherwise noted.
EXCHANGE RATES
Based on the noon buying rates for cable transfers in New York City,
certified for customs purposes by the Federal Reserve Bank of New York, the
exchange rate on 18 July 1997 was C$1 = US$1.37. For additional information
on exchange rates see ITEM 6 -- SELECTED FINANCIAL DATA - EXCHANGE RATES.
PART I
ITEM 1 -- BUSINESS
A. GENERAL DEVELOPMENT OF BUSINESS
1. TODAY
On 31 July 1996, the Company changed its name to Power Plus
Corporation, signifying a new beginning and the launch of
POWERFUL STUFF, a unique specialty niche retailing concept
focused on wireless communication products and services
(beepers/pagers, cellular phones, Personal Communications
Systems (PCS) and related service contracts) together with
portable electronics (the latest in hand-held electronic
communications, entertainment, business and lifestyle
products). This bold move represents a broad departure from
the Company's past.
As of 18 July 1997, the active companies in the Power Plus
Group include: Power Plus Corporation, Power Plus USA, Inc.,
Power Plus Canada, Inc. and First Olympia Holdings, Inc.
(collectively "Power Plus" or the "Company").
[Corporate Organization Chart]
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2. REORGANIZING, RESTRUCTURING, REFINANCING AND REBUILDING
On 1 February 1996, the Company announced its Reorganization
Plan which was disclosed in detail in the former FORM 10-K
registration statement for Fiscal 1996 dated 19 June 1996.
In overview, the Reorganization Plan is subdivided into two
parts: PLAN 2000, the Company's 5-year business plan
prescribing how the Company proposes to build its business
to in excess of 1000 stores by the end of the Year 2000;
and, the Financing Plan which sets out the manner in which
the Company proposes to provide a total of $49.1 million
over the initial 3 years of PLAN 2000 to finance its
requirements -- $33.7 million of which remains over the next
2 years.
The Reorganization Plan and the related Plan of Arrangement
proposed by new management received shareholder, regulatory
and court approval in July 1996. Among other matters, the
Company's proposal included:
- Changing the Company's name to POWER PLUS
CORPORATION.
- Reorganizing and consolidating the outstanding
share capital, requiring a reverse-split on the
basis of every twenty shares before consolidation
being reorganized and consolidated into one
consolidated share plus an exchange right.
- Funding the Company's Reorganization Plan and
PLAN 2000 by implementing its Financing Plan.
- Consolidating corporate headquarters into offices
in Toronto, Canada.
- Establishing new retail operations in the US
and Canada.
- Putting new management in place.
PLAN 2000 is the blueprint providing the foundation for the
Company's launch of POWERFUL STUFF in late Fiscal 1997.
The POWERFUL STUFF specialty retail chain is conceived to be
a branded North American distribution channel focused on
PORTABLE LIFESTYLE COMMUNICATIONS, WEARABLE FASHION
ELECTRONICS and PALM-TOP BUSINESS TECHNOLOGY -- to meet the
expanding demand for wireless communication products and
services plus portable electronics. Power Plus has combined
these distinct merchandising segments into a single retail
store -- POWERFUL STUFF! The pagers/beepers and cell phones
featured at POWERFUL STUFF stores are a source of
significant per transaction revenue, contributing additional
strong secondary margins through accessory and airtime sales
plus activation fees, and generating recurring revenues from
customer airtime and renewals. The fashion electronics and
palm-top business technology segments of the business, plus
accessories and batteries, also contribute complementary
revenues.
PLAN 2000 envisions a 5-year expansion program to over 1000
stores by rolling out new stores in a district cluster
marketing approach throughout seven geographic North
American regions -- the Southeast, Mid-Atlantic, Northeast,
North Central, Northwest, Southwest and South Central
regions. The Company is currently in the second year of
implementing PLAN 2000. At the end of Fiscal 1997, the
Company operated 51 retail stores under the trade name
POWERFUL STUFF, this marking the conclusion of the first
year of PLAN 2000. With its Corporate Office now
established in Toronto and its North American Operations
Office in Sarasota, the Company expects approximately 85% of
its POWERFUL STUFF stores to be in the US. As of 18 July 1997,
the Company has 36
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locations open in the US and 19 in Canada, totaling 55. The stores,
operating from leased premises ranging from 150 to 700 square feet
and averaging 300 square feet, are located in major enclosed shopping
malls in the US and Canada.
The Company's Reorganization Plan incorporates a related $49.1 million
Financing Plan over the first 3 years of PLAN 2000, providing the
framework for the capital projected to be required to rapidly increase
the number of POWERFUL STUFF stores to the level of critical mass
necessary to expeditiously achieve economies of scale and operating
efficiencies. During the first year of PLAN 2000, the Company received
$15.4 million in proceeds from the Financing Plan. (See ITEM 7 --
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS for a discussion of the Financing Plan and ITEM 7 -
Section C (4) SUMMARY OF CHANGES TO SHARES AND SHARE CAPITAL.) Long-term
debt and new equity capital are the sources of funding for both future
growth and the operating losses incurred during this expansion stage.
While the Company has made and will make every effort to raise the capital
provided for under the Financing Plan, differences in timing and the
amounts of proceeds actually received will impact the pace of the future
rollout, and no assurances can be given the financing will be completed
as planned. Management, projecting that the Company must expand to the
125 store level before it will attain profitable operations, anticipates
reaching critical mass by the end of calendar 1997 based upon the funding
being received as planned.
POWERFUL STUFF'S Canadian division launched in July 1996 in the Northeast
Region with its first store in Toronto. Since then, 18 new locations have
been opened in Ontario and a number of additional locations are currently
under negotiation. This division's immediate expansion thrust is expected
to be concentrated primarily in Ontario. Several store locations in
British Columbia and Alberta, in the Northwest Region, are under
consideration for 1997's expansion. Business options for further expansion
into other provinces will be considered once the business has been firmly
established in the initial targeted markets. (See ITEM 1 - Section C
LOCATION, DESIGN AND CONSTRUCTION OF STORES, below, for more information
of the approach to store rollout and definition of the Regions.)
POWER PLUS USA, INC. also launched in July 1996 commencing in the Northeast
Region (Pittsburgh - a total of four locations by year end), and following
in the Southeast Region (Florida, Georgia, Mississippi, North Carolina and
Tennessee). The Southeast expansion is a blend of new POWERFUL STUFF
stores being opened, combined with 13 retail locations acquired in Florida
in September.
Effective 1 September 1996, Power Plus launched its wireless airtime
rebilling business -- its POWERFUL CONNECTIONS division -- with the
purchase of over 20,000 existing pager customers under contract and the
entitlement to the related future wireless (pager/beeper airtime) rebilling
revenue, plus the 13 above-referenced Florida retail locations. These were
purchased from CONSUMER ELECTRONICS SPECIALTY STORES, INC. ("CESS"),
located in Sarasota, Florida (see ITEM 7(B) - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, The Southeast
Region). POWERFUL STUFF, in implementing PLAN 2000, expects to become
significant in the retail sales of pager and other wireless hardware,
accessories and related services, by firmly establishing POWERFUL
CONNECTIONS as a reseller business in both the US and Canada.
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3. BACKGROUND AND HISTORY
Power Plus Corporation was incorporated under the BUSINESS CORPORATIONS
ACT, ALBERTA, Canada, on 15 December 1986 under the name "Caio Capital
Company." However, prior to the 1 May 1988 acquisition of all of the
issued and outstanding shares of Battery One-Stop International Inc., a
company incorporated under the BUSINESS CORPORATIONS ACT, CANADA on 6
March 1985 ("BOSI"), the Company had not conducted any significant
operations. In connection with its acquisition of BOSI, the Company
changed its name to "Battery One-Stop Inc." and continued to develop the
specialty retail business, begun by BOSI, of marketing and selling
batteries and certain battery-powered products in Canada and the United
States. On 8 November 1994 the Company changed its name to Battery One,
Inc.
In November 1992, the Company formed two new US wholly-owned
subsidiaries, First Olympia Holdings Inc., a US limited liability company
which has been inactive in the business since incorporation and Batteries
Etc., Inc. ("Etc."). Effective 25 November 1992, Etc. purchased from
One-Stop Battery, Inc., an unrelated privately-held company, certain of
its assets including inventory, kiosks, fixtures and related equipment
and office furnishings through these subsidiaries. The acquisition
included 40 operating locations in the United States and the leases
therefor.
The Company's former business was primarily the retail sales of
over 400 types of dry cell batteries, including common and specialized
cells, plus battery-powered and battery-related products through
Company-owned stores. The Company's products were sold principally from
kiosks or inline stores situated in high traffic areas of major shopping
centers and transportation hubs. During most of Fiscal 1996, the Company
operated 18 retail locations in Canada and 33 locations in the United
States.
By the last quarter of Fiscal 1996 (the year ended 31 January 1996), it
had become apparent to then management that on the basis of the Company's
share capitalization, and considering the continued non-profitability of
Etc. which formerly operated the business in the US, notwithstanding
its best efforts, the Company was not able to complete the financing of
its turnaround program on the basis contemplated. The poor performance of
Etc. resulted from a number of unproductive stores situated in secondary
locations committed to by prior management. In fact, during this period
Etc.'s cash flow was subsidized by BOSI which formerly operated the
business in Canada, to BOSI's serious detriment. (Etc. and BOSI are
referred to collectively as the "Former Subsidiaries".)
In December 1995, BOSI made a voluntary assignment into bankruptcy pursuant
to the CANADIAN BANKRUPTCY AND INSOLVENCY ACT. In December 1995, Etc. made
a voluntary petition seeking protection under Chapter 11 of the US
BANKRUPTCY CODE, which in January 1996 was then converted to a Chapter 7
filing. The Company is the largest creditor of the Former Subsidiaries
but does not expect to receive any recovery of substance upon the winding
up of these bankruptcies expected during Fiscal 1998. (See ITEM 7 --
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.)
All of the Company's then operations were conducted through the Former
Subsidiaries and all of its capital assets were owned by the Former
Subsidiaries. Accordingly, at 31 January 1996 the Company had no ongoing
retail operations.
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Power Plus Corporation, however, as the parent company, maintained
continuous operations and remained in good standing. The Company continued
its ongoing statutory reporting requirements, making all the required
disclosures to shareholders, raising new capital for the purpose of
restructuring and reorganizing its operations, and trimming its overhead,
leaving a committed executive management team dedicated to turning the
business around.
B. PRINCIPAL PRODUCTS AND SERVICES
1. THE WIRELESS COMMUNICATIONS -- PAGERS, CELLULAR TELEPHONES AND
AIRTIME REBILLING
While the reseller distribution channel is an established concept in the US,
it is a new concept for Canada. The distribution chain for paging and
cellular services starts with the carriers or airtime providers that own
regional and national networks. Telephone companies control some airtime
providers and often partner with the leading independents to offer expanded
coverage and service. Most paging carriers have large direct sales forces
selling primarily to businesses, but they rely on indirect retail channels
and resellers for small business and consumer sales.
A reseller buys wireless services from carriers at discounts and then
packages these services, sells and bills them to its own customers, collects
the payments and provides customer service. To the customers, the RESELLER
IS the paging or cellular company. Resellers aim to create long-term
customer relationships.
For paging services, the monthly service bill is usually fixed, and priced
competitively to the local market (which is usually defined by technology,
by the radio frequency of the pager). With up-front and properly timed
payment schedules for pagers customers, there is limited risk for carrying
receivables for the reseller.
Cellular airtime reselling is similar to that of paging reselling although
there is a major difference because it is both rate and usage (including
particular time of usage) sensitive. As each person uses a phone
differently, the monthly per customer revenue is variable, ranging from 4 to
10 TIMES more than that of a pager customer. So, in addition to the cost of
funding marketing and sales efforts, the cellular airtime reseller must
be able to finance, manage and collect receivables. Satisfied cellular
customers typically remain active with a carrier for 5 years or more.
A reseller that is also a retailer has the advantage of being able to
combine equipment sales with service sales to maximize company margins
where the retail margin on the equipment alone is limited. Providing easy
access to high quality service at low rates is critical to switching
customers from other carriers and then keeping them.
i. BEEPERS / PAGERS
a.) Equipment
The beeper department is a new merchandise category in
POWERFUL STUFF stores. Depending on the store location, the
sale of pagers, accessories and the attendant service
packages, is expected to account for between 30% to 80% of
stores sales. Merchandise margin on equipment is highly
competitive and something of a loss-leader, whereas the
margins made on activation fees and recurring paging service
and renewals are higher. High margin fashion
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sensitive paging accessories are included with most purchases,
then continually purchased, to modify and personalize a pager.
Pagers are typically sold near cost. (Selling, giving away
or leasing pagers at cost, in extreme situations, can be a
requirement for selling the service. This marketing ploy is
analogous to giving away razors in order to sell blades.)
While numeric pagers are the most affordable for the younger
market, it is planned that stores will carry a broad range
of pagers, including some with advanced features such as
alpha-numeric message, 2-way message and voice mail.
POWERFUL STUFF stores will maintain a breadth and depth of
pager and accessories inventories in each store. It is
planned that all the brightly colored beepers, airbrushed
cases and accessories catch the shopper's eye and draw
customers to the store. Sales representatives are trained
to make minor service repairs and accessory customization at
the store.
b.) Market Overview
From various sources researched by management, it appears
that the paging industry in the US has grown from less than
2 million subscribers in 1981 to more than 34 million by the
end of 1995. At the end of 1995, the top 22 paging
providers in the US were servicing roughly 25 million
subscribers. Penetration in the US is currently approaching
15% and, for comparison, in Hong Kong about 20%.
The less developed paging market in Canada is believed to
proffer even more room for growth. The 1.2 million paging
customers in Canada (3.5% market penetration) is expected to
double in the next 5 years according to industry analysis.
US companies building networks with Canadian partners will
accelerate this growth and introduce aggressive marketing.
Lower prices for equipment and paging service has shifted
the growth in paging from the business sector to the
consumer marketplace. The average monthly service fees for
the leading paging providers has dropped from a range of
US$10 to US$15 in 1994 to the US$7 to US$10 range in 1996,
and according to Motorola, consumer demand increased
dramatically.
Power Plus' target customer market for pagers is the under
30 year olds -- particularly the 15 to 25 year old group --
for the following reasons:
- The segment is under-served, retailers having concentrated
efforts on business customers.
- Young people are in the malls.
- This segment represents an exploding market in paging.
- It is the targeted media group for fashion electronics.
- Enhances the value of the Company's retail distribution chain.
This market buys pagers in every conceivable color or custom
design as a fashion statement and status symbol, as well as
to be in touch with peers and sometimes even their parents.
For the 15 to 25 year olds, pagers are a status symbol and,
for many, provides them with the independence of their own
private phone number.
As the consumer demand increased, there has been a shift in
distribution channels from direct (business to business)
sales by carriers to sales by retail
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stores. This marketing shift is responsive to the retail
customer becoming a target market, versus commercial accounts.
Today, about 71% of pager customers prefer a retail store to
make their purchase as opposed to directly from the carrier.
The Company's research also indicates that paging customers
are among the best prospects to buy cell phones.
ii. CELLULAR
a.) Equipment
Cellular telephones provide a product migration for pager
customers. While cellular equipment margins are expected to
be small, as with pager equipment, it is the activation and
service contracts, renewals, repairs and accessories that
yield substantial dollar volume and margin. Power Plus will
focus evolving this category as an agent and reseller for
cellular carriers.
An agent earns a fee paid by the carrier for its marketing
and sales efforts that culminate in a cellular contract with
a customer. However, the agent is often required to provide
the customer with a FREE or highly subsidized cellular
phone. POWERFUL STUFF, in the future, intends to offer the
consumer a choice of the carrier's plan with phone included,
or a resellers plan with lower per minute charges. The
latter will be priced to attract more customers and create a
reasonable return while eliminating subscriber churn.
Conversely, selling cellular telephones to new customers
requires carrying high cost merchandise inventory and this
can be costly in both real dollar terms and in opportunity
cost when valuing the limited retail shelf space in a kiosk
which is normally dedicated to faster-turning merchandise.
Power Plus will attempt to make special merchandise
distribution arrangements with selected phone manufacturers.
Possibilities should increase for these relationships as
manufacturers see the scope of the distribution channel
being created. POWERFUL STUFF intends to test new ways of
selling cellular services, acquiring customers and building
a significant profit center.
b.) Market Overview
Research indicates that the wireless telecommunications
market in North America has reached mass-market proportions.
In 1995, 9.6 million customers signed up for cellular
service, a record in the US. According to CTIA's industry
survey in the US, wireless phone customers number 33.8
million at the end of 1995 -- a 40% increase. Total sales
in the US topped $19 billion, a 34% annual increase that is
projected to continue.
The number of new cell sites in the US, the building blocks
of a wireless system, increased 26% to a total of 22,663 in
1995. This excludes the build-out of the new PCS network.
New cells increase capacity, improve voice quality and
reduce power (broadcasting) needs. With the industry's
growth and expansion into the consumer marketplace, the
average monthly customer bill dropped to $51 in 1995 from an
average of almost $100 in 1987.
Research indicates that a typical cellular telecommunications
customer is a male over age 30. The industry has significantly
penetrated the business market, particularly professionals,
executives, and outside sales and
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management people. Penetration of the consumer marketplace is
accelerating as networks expand, as competitors enter the market
and as new products are developed. The transformation from an
analog to a digital service will also open new product
opportunities.
Many current subscribers own their cell phones and
have passed the initial contract expiry dates locking them into
specific carriers. Currently the industry entices these
customers to switch to alternative carriers with new
promotion offers. Another reason that customers will shop
around results from technological innovation that, in fact,
has reduced the carrier's capital investment. Over the next
few years many consumers who are paying 50CENTS to 60CENTS
per prime time minute will be converting to lower group
rates -- the CONVERSION MARKET. Switching a customer's
cellular phone from one cellular service to another is a
relatively simple task which can be done at the sales
counter of any store by knowledgeable sales representatives.
Selling an alternative carrier's airtime package to an
existing cellular customer whose contract recently expired
with a different carrier -- SWITCHING SERVICES -- is a new
opportunity that requires little investment in inventory by
the agent since customers will already own their phone. The
Company believes there is a large number of cellular
customers who now own their own phones with service
commitments expiring shortly.
New limited calling products are beginning to appear in the
marketplace which will make cell phones more accessible to
young people, the Company's target market for pagers. The
fact that pager customers often become cellular customers
means that Power Plus is well positioned to capture some
portion of this burgeoning new market. To service both this
and the CONVERSION MARKET, POWERFUL STUFF intends to build a
distribution channel to service these customers in a
convenient mall location.
2. PORTABLE ELECTRONICS
Consumers love to see and try leading-edge products and live
the fashion statement they make -- the latest in hand-held
electronics, communications, entertainment, business and
lifestyle products to be featured at POWERFUL STUFF stores.
These products range from low-priced impulse items to more
expensive products that must be explained or demonstrated
and include: calculators, translators, data and voice
recorders and organizers, PDAs (personal digital
assistants), pointers and palm-top computers; as well as
audio/video products, radios, Walkmans, CD players,
miniature TVs, remote controllers, flashlights and hand-held
games for young people and adults.
3. BATTERY ACCESSORIES
All pagers, cellular phones and portable electronic products
require the batteries needed to power them (sometimes common
cells and oftentimes specialty batteries), which will be
made available at POWERFUL STUFF stores. Annual battery
sales in the US exceed $9 billion representing an annual
consumption of over 7 billion batteries. Growth has been
about 12% per year and is expected to continue. At least 90%
of all households maintain and use one or more battery-
powered product.
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4. MERCHANDISE AND SERVICE
It is important to note that the merchandise and service mix
for a store -- or cluster of stores -- can be sensitive to
unique regional market conditions. Within the key
merchandise categories, it is planned that each store will
offer innovative products (new items), opportunity items
(special prices) and continuity products and services
(repeat purchases and recurring sales). To keep merchandise
fresh and exciting, it is planned that all stores will have
new, just-in items and this week's specials. While wireless
communications and related services are a key factor in the
new business thrust envisioned by the Company, merchandising
flexibility enables POWERFUL STUFF to adapt to a specific
location and regional market. In locations where paging and
cellular cannot play the dominant merchandise role, batteries
and battery-related products will be emphasized to a greater
degree in order to maintain acceptable sales levels. For
instance, at the AirMall in the Pittsburgh International
Airport where shoppers include many business travelers and at
Florida Mall in Orlando where many shoppers are tourists,
portable electronic products plus batteries will be the emphasis.
5. SOURCES AND AVAILABILITY OF PRODUCTS
To meet its anticipated merchandise and inventory
requirements, the Company will attempt to forge strategic
vendor-partner relationships with key suppliers. Such
partnerships should recognize the importance of both parties
to each other's plans and success. These vendor-partnerships
do not normally occur at start up unless the supplier is
actually an equity or contracted partner in the business.
As a new entrant, it is expected that POWERFUL STUFF must
demonstrate its potential and its ability to achieve its
vision in order to include suppliers in the vision.
In the short-term, most brand name products are available
from distributors, if not on a direct basis. In some cases,
vendors prefer to support their distributors and will sell
exclusively through distributors until the retailer reaches
substantial volume commitments.
POWERFUL STUFF plans to sell brand name merchandise to the
extent possible. However, this does not always mean the
NUMBER ONE brand. Vendors of the NUMBER TWO brand might be
more receptive and flexible than brand leaders. It is also
common practice in the industry that as a retail chains
grows merchandise suppliers (whether agents or direct)
become eager to ensure that the important chains have access
to new product and ample supply of normal merchandise.
Consequently, the Company is not dependent upon a single or
limited source of supply for the vast majority of its
merchandise or services. Moreover, many manufacturers make
the same products in different countries. Hence, if one
supplier is short of product, another supplier can be called
upon to fill the Company's needs. The Company believes that
an adequate supply of all types of merchandise, batteries
and battery-powered products is available.
6. MARKETING OF PRODUCTS
While most retailers in the mall draw from traffic in the
mall, POWERFUL STUFF has developed a business model which
the Company believes, in certain circumstances, actually
draws customers to the mall. The POWERFUL STUFF business
system plans to
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utilize targeted media advertising, primarily radio to paging
and cellular subscribers, at the stores as well as to position
and create an image for the business.
Acquiring new customers, rather than just selling
merchandise, is a key part of the POWERFUL STUFF business
model and operating plan. By design, a significant portion
of POWERFUl STUFF'S advertising will be measurable, direct-
response advertising rather than general retail support
advertising. POWERFUL STUFF plans to advertise to capture
new paging customers. Advertising, will be measured to
determine incremental benefit and cost per new customer.
Advertising, in combination with the LOOK AND FEEL of the
stores and an effective sales staff, will attempt to
establish POWERFUL STUFF'S image to its core market.
The media-market approach to clustering the stores enhances
the effectiveness, efficiency and economy of advertising.
The Company believes that radio advertising, itself both
highly MARKET- and AUDIENCE-SPECIFIC by nature, will raise
the target customers' awareness and image of POWERFUL
STUFF'S stores. Accordingly, the potential to use radio
advertising is a criteria in selecting new store locations.
In addition to broadcast media advertising to acquire new
customers at the store, direct customer promotions may be
employed by including promotional offers in the invoices
mailed for paging and cellular rebilling airtime and related
services. As each store can capture customer and
transaction data, it can also create a database for targeted
promotions and follow-on direct marketing. In retail,
customer lists are an important asset.
Finally, because of the particular locations of the kiosks,
the Company believes that marketing its merchandise and
services enjoy a competitive advantage compared to other
retail and chain stores. The merchandise is displayed
prominently in its stores, which are located primarily in
shopping malls.
C. LOCATION, DESIGN AND CONSTRUCTION OF STORES
The selection of the best locations and the appearance is
vital for long-term profitability. High volume shopping
malls are key to POWERFUL STUFF'S growth strategy. Over
1000 specific mall locations have been identified in the US
and Canada that meet Power Plus' criteria. The rollout plan
focuses on the top 20 developers who, between them, manage
an aggregate of over 900 shopping malls. The Company's PLAN
2000 targets opening 1000 stores over a 5 year period.
POWERFUL STUFF stores are either 150 square foot kiosks or
small inline stores of 300 to 700 square feet. The kiosk
and small store model has proven successful for a number of
companies, for example Sunglass Hut. One of Power Plus'
primary real estate strategies is to pattern itself after
the Sunglass Hut model, including acquiring locations near
proven Sunglass Hut stores.
The Company's rollout plan foresees clustering POWERFUL
STUFF stores in regional markets, opening a minimum of 5
stores in a district but each district must have the
capacity to add at least 10 more stores over the next 3
years to be viable economically. A District Manager can
then be responsible for the operations and performance of
between 15 and 20 stores.
<PAGE>
Page 12
Clustering stores within media areas creates an economically viable opportunity
to advertise effectively and efficiently.
In order to meet the demands anticipated by the rapid pace of the rollout
program, the Company has developed a modularized attack to the build out
program that is particularly adapted when employed in a clustering approach.
1. CLUSTERING FOR RAPID, MANAGED GROWTH
A Region at maturity may contain up to 8 districts of 15 to 20
stores extending from a metropolitan area, which has as its nucleus
6 to 8 stores within the radius of the city. The rest of the stores
are selected in suburban or smaller cities within close proximity
to the metro area. This allows POWERFUL STUFF to reach an economic
critical mass in a cluster rapidly, as opposed to spreading
resources to isolated locations across the continent.
At the maturity of Plan 2000, POWERFUL STUFF expects to be
positioned throughout the 7 geographic Regions listed below, each
typically comprised of approximately 8 Districts which themselves each
comprise between 15 and 20 stores on average, making the typical Region
in the 160 store range.
- Northeast Region
- Mid-Atlantic Region
- Southeast Region
- North Central Region
- South Central Region
- Northwest Region
- Southeast Region
Clustering also enables POWERFUL STUFF to maximize marketing dollars,
control turnover, minimize training and recruiting costs, and reduce
financial risks because of more frequent supervision by District
Managers.
2. TARGET LOCATIONS
The dominant form of retail space in North America is the suburban
shopping center which is identified by the following characteristics.
i. Shopping centers are typically defined by their dominant anchor
tenants and their gross leasible area ("GLA"), and to some extent by
population or trade area that they serve.
ii. Shopping malls are rated according to customer traffic and annual
sales per square foot standard measurements. Shopping malls under
consideration should have annual sales in the range of $300 to $500
per square foot. Other measures are the upscale versus mass market
characteristics, the ethnic demographics of the customers and the
experience of other retailers in the mall. A key consideration for
targeting cities will be to identify areas where the wireless
communications market is under-served, presenting an opportunity for
POWERFUL CONNECTIONS to be a dominant provider.
<PAGE>
Page 13
Seven types of shopping centers exist: super regional mall, regional
mall, airport, downtown retail, off-price, transportation and festival
locations. The majority of POWERFUL STUFF stores will be in the first
two categories with a few opportunistic stores in other types of
locations.
3. SITE CHARACTERISTICS
i. Population 200,000 people in a primary trading area of a
town ranging from a three to five mile radius
ii. Mall Site 500,000 square feet GLA with two fashion anchors
iii. Location in Mall Main mall with adjacencies to record stores and
teen fashion apparel tenants.
4. NEAR-TERM LOCATIONS
Power Plus opened 51 retail stores by the end of 1996, against a target
of 40, and plans to open about 75 during 1997 and about 300 for each of
the next three years, subject to the timing and amounts of capital
injections. The focus is on opening clusters, not just opening stores.
The Company will aggressively pursue opportunities to expand in cities
where POWERFUL STUFF can offer pager and cellular telephone service as a
reseller in addition to portable electronics.
Currently being targeted for the rollout thrust are the Northeast,
Mid-Atlantic, Southeast and Northwest Regions.
5. TOP 20 DEVELOPERS
As noted earlier, PLAN 2000 envisions a 1000 store rollout plan. Power
Plus has identified that the Company's criteria will play into the top
20 developers, such as Rousse, Simon/DeBartolo and Urban Retail Group,
portfolios of mall properties in a complimentary fashion. Most of the
developers have properties that are regionalized in certain geographic
areas throughout North America, a factor which may also make it easier
for Power Plus to cluster locations.
The Company anticipates that over time, developer relationships
established in one market will benefit others. This advantage can
create a snowball effect, and may assist the Company in attaining a
significant number of locations in a short duration.
Power Plus plans to focus on the top 20 developers list since they have
many of the best centers. Between them, these developers could account
for 90% of Power Plus's location requirements.
<PAGE>
Page 14
6. DESIGN
In partnership with award-winning architectural retail designer Michel
Dubuc Concept, Power Plus has created a store which has put a bold new
twist on the traditional electronics niche, and in so doing has set its
sights on changing the face of this specialty niche retail marketplace.
Michel Dubuc, the founder of Michel Dubuc Concept, has agreed to stand
for election to Power Plus' Board of Directors (see ITEM 10 - A(2) for
further background on Michel Dubuc Concept and detail of Mr. Dubuc's
pending appointment.) POWERFUL STUFF stores combine design elements
which have mass appeal across age, gender and ethnic boundaries,
addressing today's retailers needs to ensure market longevity and
flexibility. From the elliptical lines encircling the brand name and the
bold lifestyle posters, to the graphic computer circuit boards on the
walls, this futuristic. hi-tech design, with it's rich colors and
textures has redefined what it means to sell electronic products.
By bringing a fashion dimension to the store design, POWERFUL STUFF has
created a few portable electronic lifestyle niche in the marketplace.
This is a store that doesn't just grab the attention of today's
consumers, but one that genuinely appeals to their emotions, senses and
mind.
POWERFUL STUFF stores are not only dramatic, but are fun places to go.
Unlike some novelty stores, the design doesn't engulf the product, but
brings it to life. All of the palm-top products are presented in 3 easy
to shop lifestyle concepts within the store: FUN TECH - presented on the
whimsical hi-tech computer graphic wall; COMMUNICATIONS TECH -
presented against a colorful street map illustrating the prominence of
communications in our lives; and BUSINESS TECH - presented in sleek,
energetic and futuristic cases for the discerning and hurried business
customer.
POWERFUL STUFF stores grasp the basic premise of retail mass appeal by
creating a compelling design that humanizes technology, thereby
connecting with consumers again and again because we understand their
purchase will have more memorable appeal, and will take on more
significance when it is purchased at a POWERFUL STUFF store.
The standard kiosk is 150 square feet, rectangular in shape with mitered
corners. Every inch of space is maximized to emphasize merchandise
under the Company's banner and colors.
With the exception of hands-on merchandise, the 360 degrees of product
display is either under glass or out of normal reach of customers, thus
limiting the potential of shrinkage while still keeping product close to
the customer. Merchandise displayed on the center island may be hung on
slot-boards or similar displays. The hands-on merchandise is secured to
the counter but easily removable and stored in one of the lockable
drawers for night security.
Inline stores, typically in the 300 to 700 square feet range, are designed
specifically to match the space, provide comfortable selling area and
attract customer traffic in the mall.
The capital investment, excluding inventory, per location ranges from
$28,000 to $115,000.
<PAGE>
Page 15
7. CONSTRUCTION
With all materials on site it takes 2 days to manufacture a kiosk. The
modular design facilitates shipping to its destination. The
mechano-approach installation enables the Company to retain local
contractors to install the kiosk in the malls, which usually takes less
than 8 hours -- a cost saving compared to shipping the installation team
with the kiosk. In this way, it will be possible for one local
contractor to install all the kiosks in a large but local geographic
area, as required. By using the same contractor, in addition to the
efficiency gains, the Company is building a base of resources that can
also be called upon to perform usual maintenance or repairs in the future.
Display cases are constructed of predominantly plastic laminate and
either tempered or laminate safety glass. The glass shelving inside
each case (glass so that the maximum amount of merchandise may be viewed
by customers) can be adjusted for height or removed to enable special
merchandise display units. Indeed, with the modular approach
incorporated in the new store design, any display case can be removed
and replaced with a special-purpose case.
The size of the case goods means that the Company can place orders for
multiple units at one time -- even build a small inventory of them --
thus obtaining volume price concessions. By limiting variations,
adopting a modular approach and specifying building and material
standards, it is possible for the Company to tender for the supply of
its casegoods. There are more than 500 casegoods manufacturers in North
America and it will be possible for the Company to select suitable ones
proximate to the specific areas the Company plans to roll into next,
thereby saving shipping costs.
Power Plus has developed a modular approach to remodeling inline
locations for POWERFUL STUFF stores. The same size and style for
casegoods as used in kiosks are also employed to fixture the store.
Since installation crews are handling the same casegoods, the cost of
installation benefit from the mechano-approach and the Company is able
to employ consistently its standard colors and appearance.
The importance of a well-run construction department is easily
understood in the context of the demands of meeting the rigorous pace
of the rollout. The Company prefers to use local contractors to install
kiosks or build inlines, in order to control construction costs (cost of
roving installation team versus local contractors) and have them
nearby for future routine repair and maintenance. As well, often local
contractors can obtain permits and approvals, if only because they know
the local rules and processes better.
General contractors are selected via a bidding process (against
architectural drawings supplied by the Company) and once selected will
report to one of the Company's Store Construction Project Managers. The
bidding process requires, among other matters, that the general
contractor demonstrate it has suitable insurance coverage.
<PAGE>
Page 16
D. EMPLOYEES
As of 18 July 1997 the Company employs: 1 Regional Manager, 7 District
Managers, 54 Store Managers, 82 Full time associates, 64 Part time associates
and 71 Administrative, Customer Service, Distribution and Warehouse personnel
- -- a total in all of 288 employees including senior officers and executive
management.
POWERFUL STUFF stores are opened and managed regionally. POWERFUL STUFF will
attract talent from all areas of the wireless communications and retail
industries. By implementing a planned growth through a geographic clustering
approach, and the creation of a responsive supervisory and training plan, the
Company is fast approaching self-sufficiency.
However, the Company's PROMOTE FROM WITHIN PHILOSOPHY will be periodically
supplemented by outside hires for the purpose of keeping its perspective
fresh and ideas innovative.
1. ECONOMIC GROWTH MODEL - GEOGRAPHIC CLUSTERING
POWERFUL STUFF is deploying the rapid growth model used similarly by
some of the industry's most successful retail companies - GEOGRAPHIC
CLUSTERING.
Geographic clustering is managed growth by establishing and
penetrating specific geographic markets with multiple stores, usually a
minimum of 5 in the first year of opening any new district. This
approach assures operational overhead efficiencies, brand identity and
rapid market dominance. Clustering also creates a productive stable and
well-trained sales and management team, from which Power Plus can pull
resources to transplant and seed the next cluster.
2. FIELD SUPERVISORY STRUCTURE
The clustering approach is being implemented to create a streamlined and
efficient field supervisory infrastructure, assuring each store is
operating to its maximum potential.
i. REGIONAL MANAGER
A Regional Manager will supervise approximately 8 District
Managers who will oversee 15 to 20 Store Managers within
their districts, or up to 160 stores in total. Each
region functions as its own OPERATING UNIT to promote
bottom-line accountability and to focus on the specific
product assortment needed to capture its unique market
niche. At the maturity of PLAN 2000, POWERFUL STUFF expects
to have 7 Regional Managers overseeing the 7 Regions, each
typically comprising approximately 8 districts of 15 to 20
stores.
ii. DISTRICT MANAGER
A District Manager is the PROFIT CENTER MANAGER overseeing
the profitability of each district by assuring: sales
growth, recruiting personnel, opening new stores, training,
customer service, fine-tuning merchandise assortment
tailored to the local market, and operating profit.
District Managers will supervise 15 to 20 stores.
iii. MANAGER TRAINER
Each district will have one to two senior store managers called
Manager Trainers. Manager Trainers are the most senior and
experienced store managers who are placed in higher volume stores,
generally centralized within the district. Store
<PAGE>
Page 17
Managers must become Manager Trainers
before becoming eligible for promotion to a District
Manager. A Manager Trainer serves multiple purposes --
preparing and overseeing the training of new store managers,
communicating with and motivating the store teams within
their market area, and recruiting new sales associates.
The Manager Trainer is the key mentor to the seeding of new
clusters with quality, well-trained personnel.
iv. STORE MANAGER
POWERFUL STUFF Store Managers are incentivised for and have as their
primary focus 3 main responsibilities:
a.) Producing sales
Because stores, at an average of 300 sq. ft., are
operationally easy to manage, and because a high percentage of
store sales are produced by the Manager, POWERFUL STUFF Store
Managers are incentivised for their personal sales as well as
their store sales productivity -- training and motivating --
of their sales team.
b.) Controlling non-fixed expenses
Store Managers will be held accountable for controlling
non-fixed expenses including labor costs, shrinkage due to
cash and merchandise losses, and supplies and material costs.
c.) Maintaining a visually appealing and properly merchandised store
Store Managers will be held accountable for the
professionalism of their staff and for ensuring each store is
clean and maintained to corporate visual merchandising
standards, and that the product mix is appropriate for the
need of the local market for that store.
3. STORE STAFFING AND COMPENSATION
The total projected selling and non-selling hours for store labor at a
retail mall location is 110 hours per week, a standard 120 hours
annualized over a year, taking into account 4th quarter seasonality.
This is the equivalent of 2 full-time and 1 to 2 part-time people per
store except in peak seasons. POWERFUL STUFF, through its years of
rapid growth, will emphasize full-time employees to the extent possible,
in order to maximize staff coverage in metro areas and to feed
new-location growth with well-trained associates.
POWERFUL STUFF employs a PAY FOR PERFORMANCE compensation plan which
maximizes sales productivity through personal and team incentives.
Store associates will receive an hourly rate and percentage of sales
based on specific categories of merchandise which will promote sales
without eroding margins. Contributions from merchandise and service
vendor partners will allow POWERFUL STUFF to maximize sales productivity
in promotional periods through special contests and spiffs.
Store Managers will also participate in a monthly incentive program on
overall store sales based on hitting a budgeted sales target, and
will be able to earn an annual bonus by maximizing store sales
performance and controlling expenses. Opportunities to increase
compensation will be earned by increasing store sales and through
promotions to higher-volume stores.
<PAGE>
Page 18
4. TRAINING AND DEVELOPMENT
POWERFUL STUFF will be relying heavily on POWERFUL UNIVERSITY which will
be deployed as its 6 month, 3 segment training and development program.
Consisting of a self-study workbook for each segment, there will be a
written training curriculum that must be completed by all full-time
associates before the individual earns the right to run their own
POWERFUL STUFF store. Each segment must be reviewed and signed off by
the District and Regional Manager for that store.
Each segment is divided into 4 main areas with a lesson each week.
- Sales and Customer Service
- Store Operations
- Product Knowledge
- Leadership and Management
Associates will be tested both orally and in written format before
receiving their Graduation Certificate.
POWER U is supplemented by a NEW HIRE ORIENTATION program and PART-TIME
PARTNER training program. The Company believes training is most
effective when driven down to front-line levels of accountability,
therefore most training will be executed by District Managers and
Manager Trainers who will be assisted by Vendor Partners for
product-specific training. POWERFUL STUFF will also schedule periodic
classroom and market training conducted by regional training
coordinators, for those areas that are more complex, required by law, or
critical to the well-being of the organization, such as performance
appraisals, sexual harassment and diversity training.
POWERFUL STUFF currently communicates to Store Associates through a
Weekly Sales Bulletin featuring the top sales performances by the
district team, store team, and individual performances. This bulletin
also communicates new product information and other news from the Home
Office Team.
POWERFUL STUFF will also utilize multi-media devices such as video for
training and communications to ensure consistency from store to store
and as a mechanism to drive the values and mission of the company to the
field associates.
E. COMPETITION
The Company has not identified a major US competitor that, on a national
scale, is positioning itself to be the dominant provider of paging products
and services to the youth market. The Company's strategy is to take a
pre-emptive position to the extent possible. In part, this will depend on
its ability to target and open large numbers of stores quickly. Competition
must be evaluated on a market by market basis. There maybe a number of
markets where paging penetration and the number of resellers may be
sufficiently high (New York City, Miami) such that POWERFUL STUFF will
carefully consider whether or not to enter that market.
A potential competitor, Simply Wireless, being rolled out by Century Cellular
Network, Inc. is a kiosk STORE-WITHIN-A-STORE concept for supermarkets, as
opposed to shopping malls.
<PAGE>
Page 19
Simply Wireless has targeted expansion into 9 states and anticipates growing
to 250 locations.
While not a kiosk-type store chain, Radio Shack is by far the largest
competitor in key merchandise categories as the largest volume retailer of
batteries and the largest seller of cellular phones in the US. It is also a
competitor in Canada where, in addition to their own stores, Radio Shack has
a co-venture with Cantel, a leading Canadian cellular and cable company, to
open over 100 small stores. Fortunately, for a large portion of POWERFUL
STUFF'S target market, Radio Shack is not the image or store of choice.
In the overall market arena, the primary competition will be from large
discount chains, price clubs, and electronic stores, including WalMart,
Sam's, Circuit City and Future Shop, among others. These companies drive
down the prices and margins on many items. In addition, there will be many
local companies selling paging to businesses, installation of phones, radar
detectors and alarms in cars, etc.
There may be significant competition for a limited amount of prime space in
shopping malls. Some malls limit the number of kiosks, often at the request
of lead tenants. When kiosk locations are not available, POWERFUL STUFF may
utilize small inline stores. Malls and retailers exploit the USE CLAUSE in
leases to control competition in the mall. In some locations POWERFUL STUFF
may be restricted from offering some merchandise lines such as telephones,
cellular, watches or cameras due to the existing USE CLAUSE of another tenant
retailer. In extreme situations, this might eliminate a location from
consideration.
F. TRADEMARKS
The Company presently holds two service marks registered on the Principal
Register of the United States Patent and Trademark Office. Registrations are
for the mark BATTERY ONE-STOP and design BATTERY 1-STOP in connection with
battery and battery-powered store services. Both service marks cover the use
of the name BATTERY ONE-STOP in connection with the sale or advertising of
its services in the United States.
The Company also holds a Certificate of Registration from the Registrar of
Trade Marks, Consumer and Corporate Affairs, Canada, covering the stylized
use of the name BATTERY ONE-STOP in the operation of its business in Canada.
In addition, the Company has registered the name BATTERY ONE-STOP in the
United Kingdom.
The Company has applied for registration of other trade marks in Canada and
the United States. The trade marks for which applications have been made are
POWERFUL STUFF, POWERFUL STUFF! design, POWERFUL CONNECTIONS and
1-800-POWERED. These applications are still pending. The Company had
previously filed applications, which are still pending, to register the
service marks using the name BATTERY ONE in the United States and Canada.
<PAGE>
Page 20
G. GOVERNMENTAL REGULATION
Various national, state and local governments have adopted, and may in the
future adopt, laws and regulations regulating contamination of the
environment. These laws and regulations may impact the Company's disposal of
spent batteries which contain toxic compounds and impose liabilities for
pollution resulting from improper disposal.
The Company monitors the adoption of orders, rules, regulations and laws
related to the Company's operations and advises all store managers and
regional managers of any new requirement or change in the law by way of
weekly mailings. The Company believes that all of its store managers are
currently complying, and will continue to comply with, in all material
respects with all orders, the rules, regulations and laws applicable to the
Company's operations. To the Company's best knowledge, there have been no
material violations of any such requirements. The Company has not incurred
significant costs in the past to comply with environmental regulations and
does not anticipate incurring significant costs in the future. However, the
Company cannot predict the effect of any future changes in applicable
regulations on its operations or capital expenditure requirements.
H. CERTAIN GEOGRAPHIC INFORMATION
The Company's sales, operating losses and total assets in Canada and the US
for Fiscal 1997, Fiscal 1996, the transition year ended 31 January 1995 are
set forth below:
CANADA UNITED STATES TOTAL
--------- ------------ -----------
1997
-----------------------------------------
Sales $503,429 $3,577,169 $4,080,598
Net loss $3,595,000 $2,092,427 $5,687,427
Total assets $7,422,843 $3,621,011 $11,043,854
-----------------------------------------
1996
-----------------------------------------
Sales $1,749,393 $3,625,836 $5,375,229
Net loss $1,076,324 $3,465,227 $4,541,551
Total assets $330,035 -- $330,035
-----------------------------------------
1995
-----------------------------------------
Sales $2,414,991 $6,132,982 $8,547,973
Net loss $498,134 $991,282 $1,489,416
Total assets $1,505,984 $3,676,695 $5,182,679
-----------------------------------------
-----------------------------------------
<PAGE>
Page 21
ITEM 2 -- PROPERTIES
The Company's Corporate Office is at 7850 Woodbine Avenue, Suite 201,
Markham, Ontario, L3R 0B9. Leased on a month-to-month basis, these offices
are approximately 3,250 square feet, at a monthly occupancy cost of
approximately $3,200. For the operations of Power Plus Canada, Inc., the
Company has arranged leasing of office and warehousing space of approximately
2,500 square feet strategically located proximate at 7780 Woodbine Avenue,
Markham, Ontario, including store front and administration offices. Leased
on an annual basis, the monthly occupancy costs for these warehousing
premises are approximately $2,300.
Power Plus USA, Inc. has leased office space totaling 6,800 square feet at
1575 Main Street, in Sarasota at a monthly occupancy cost of approximately
US$5,500, plus 2,600 additional square feet at 1614 - 1618 Ringling Road, in
Sarasota at a monthly occupancy cost of approximately US$2,500. Together,
these two locations comprise the Company's North American Operations Office
and the offices of Power Plus USA, Inc. In addition, Power Plus USA, Inc.
also leases a pager repair facility comprised of 2,650 square feet at 4005
North Tamiami Trail, in Sarasota, on a month-to-month basis, at a monthly
occupancy cost of approximately US$1,650, and 5,000 square feet at 1195
Talvest Road, in Sarasota at a monthly occupancy cost of approximately
US$2,400 for its warehouse.
As at 18 July 1997, the Company operated 19 stores in Ontario, Canada and 36
stores in the US, totaling 55. The Company's locations in the US are located
in the following States:
REGION STATE NUMBER OF LOCATIONS
------ ----- -------------------
Southeast Florida 20
Southeast Alabama 5
Southeast Georgia 3
Southeast Mississippi 1
Southeast Tennessee 1
Southeast North Carolina 2
Northeast Pennsylvania 4
--
Total 36
--
--
Of the stores in Ontario, 16 stores, which opened primarily in Quarter 4 of
Fiscal 1997, were open by the end of Fiscal 1997. Similarly, of the stores
in the US, 35 stores, which were opened primarily in Quarter 4 of Fiscal
1997, were open at the end of Fiscal 1997.
Subject to availability and timing of financing proposed under the Financing
Plan, PLAN 2000 provides for the opening of 950 new stores over the next 3
1/2 years in a MARKET CLUSTER APPROACH and aims to create critical mass in
certain target areas that offer particular advantages to the Company, such as
under-developed or under-serviced markets, for paging and cellular wireless
communications or under an umbrella of radio advertising. PLAN 2000
establishes a target of over 1000 stores by the end of the Year 2000. (See
<PAGE>
Page 22
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS for a discussion of the Reorganization and related
Financing Plan.)
In general, the terms of the Company's lease agreements have provided for:
(i) a rentable area for each store of 150 to 700 square feet; (ii) a lease
term normally of three, five or eight years; and, (iii) either a fixed annual
rent, payable monthly or quarterly (ranging from a low of $12,144 in the
first year of the least expensive lease to a high of $72,924 in the last year
of the most expensive lease) and either together with (or, in some cases, in
lieu of the annual rent) payments equal to a percentage, ranging from 6% to
17%, of a store's adjusted gross sales during the year, or, alternatively in
some cases, a variable annual rent equal of up to 10% of adjusted annual
gross sales, net of sales taxes, plus rental taxes, if any. The current
rental market appears equally as favorable as in the past. Accordingly, the
Company expects to enter into future leases on economically viable and
commercially reasonable terms.
ITEM 3 -- LEGAL PROCEEDINGS
None
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
Page 23
PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
A. COMMON STOCK DATA
Commensurate with the approvals and implementation of the Company's
Reorganization Plan and the related renaming of the Company, new stock
trading symbols were adopted. The Common Stock is listed on The Alberta
Stock Exchange, Province of Alberta, Canada, and is traded under the symbol
"PPC". The former symbols were "BTB" and "BATT". The Company is a reporting
issuer in the Provinces of Alberta and British Columbia, in Canada, and the
US.
Prior to January 1992, the Common Stock was included in the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"),
trading NASDAQ small cap under the symbol "BATTF". The Common Stock was
delisted from NASDAQ small cap trading in January 1992 due to the Company's
failure to satisfy certain minimum capital requirements.
Effective 19 December 1994, the Company resumed trading in the US on the
NASDAQ OTC Bulletin Board under its old symbol BATTF. No trades were
reported for the period 31 December 1994 through 28 February 1995. Beginning
24 April 1995, the trading symbol was changed to "BATT" when the Company's
application to qualify as an exempt foreign issuer was accepted by NASDAQ.
Effective with the Company's name change to Power Plus Corporation, the new
symbol for trading on the NASDAQ OTC Bulletin Board became "PPCO".
As part of the Company's Reorganization Plan, approval was obtained to
reorganize and consolidate its capitalization on the basis of 20
pre-consolidation shares for 1 post-consolidation share plus 1 exchange
right, that is to 2,238,281 POST-CONSOLIDATION shares from the existing
44,765,613 PRE-CONSOLIDATION shares.
After receiving shareholder approval in July 1996, final court and regulatory
approval as required was obtained and the reorganization and consolidation
(20:1 reverse-split) occurred effective 1 November 1996 and the Exchange
Rights were issued accordingly. (See also ITEM 7 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS concerning
management's Reorganization Plan as it concerns the Common Shares, and recent
sales of unregistered securities by the Company.)
The following table sets forth the reported high and low bid prices for the
Common Shares as quoted by The Alberta Stock Exchange for each full quarterly
period within the fiscal years ended 31 January 1997, 1996 and 1995,
respectively, restated for the impact of the 20:1 reverse-split and expressed
in Canadian dollars:
<PAGE>
Page 24
<TABLE>
<CAPTION>
FISCAL 1997(1) FISCAL 1996(1) FISCAL 1995(1, 2)
----------- ----------- -----------
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $2.80 $2.30 $8.00 $7.20 $7.60 $3.20
2nd Quarter $3.80 $2.80 $6.60 $6.40 $9.60 $5.20
3rd Quarter $7.20 $4.00 $6.00 $5.60 $8.20 $5.00
4th Quarter $4.20 $2.75 $6.60 $6.00 n/a n/a
</TABLE>
(1) The Common Shares were subject to a reverse-split consolidation on
the basis of 20 old shares for one (new) Common Share, effective 1 November
1996. All amounts reported in prior periods in the table have been restated
for comparative purposes. (See also ITEM 7 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS concerning
management's Reorganization Plan as it concerns the Common Shares.)
(2) Fiscal 1995 was a transition year of only nine months, and covered the
period from 1 May 1994 to 31 January 1995.
(3) The Common Shares began trading under the symbol PPC. Previously, the
shares traded under the symbol BTB AND BAT.
The following table sets forth the reported high and low bid prices for the
Common Shares as quoted by NASDAQ - OTC for each full quarterly period within
the fiscal years ended 31 January 1997, 1996 and 1995, respectively, restated
for the impact of the 20:1 reverse split and EXPRESSED IN US DOLLARS:
<TABLE>
<CAPTION>
FISCAL 1997(1) FISCAL 1996(1) FISCAL 1995(1,2,3)
----------- ----------- -----------
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $1.80 $0.90 $6.00 $5.63 n/a n/a
2nd Quarter $2.60 $1.50 $6.25 $4.38 n/a n/a
3rd Quarter $4.60 $1.88 $5.00 $1.80 n/a n/a
4th Quarter $2.88 $2.13 $3.60 $0.60 n/a n/a
</TABLE>
(1) The Common Shares were subject to a reverse-split consolidation on the
basis of 20 old shares for one (new) Common Share, effective 1 November
1996. All amounts in prior periods reported in the table have been restated
for comparative purposes. (See also ITEM 7 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS concerning
management's Reorganization Plan as it concerns the Common Shares.)
(2) Fiscal 1995 was a transition year of only nine months, and covered the
period from 1 May 1994 to 31 January 1995.
(3) The Common Shares did not begin trading on the NASDAQ OTC Bulletin Board
until April 1995 which was Quarter 1 of Fiscal 1996.
(4) The Common Shares began trading under the symbol PPCO. Previously, the
shares traded under the symbol BATT and BATTF.
Because a substantial number of Common Shares that are held by agents in
"street name", the Company is unaware of exactly how many of the outstanding
Common Shares are held by residents of the United States. As of 18 July
1997, there is a total of approximately 2,500 beneficial holders of the
7,620,730 issued and outstanding Common Shares.
Under the terms of the Company's current Special Notes convertible debt
debentures financing, while this debt remains outs standing the Company is
prohibited from making any distribution to its shareholders or declaring and
paying any dividends on its Common Shares. To date, the Company has not paid
dividends on its Common Shares. (See ITEM 7 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Section C(1)(iv.)
SPECIAL NOTES CONVERTIBLE DEBT FINANCING.)
<PAGE>
Page 25
B. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
Acquisitions of control of businesses or corporations in Canada are regulated
by the Investment Canada Act (the "Investment Act"). The Investment Act
created an agency known as Investment Canada. In certain circumstances, an
investment to acquire control of a Canadian business is reviewable by said
agency. In other cases, only notice need be given to said agency and, in
many cases, no action need be taken at all. The Investment Act does not
apply to the acquisition of securities such as shares of the Company where
the acquisition does not constitute an acquisition of "control" within the
meaning of said term in the Investment Act. Generally, the term "control"
means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of voting securities, by contract or otherwise. Under the
Investment Act, the acquisition of more than 50% of the voting shares of a
corporation is deemed to be an acquisition of control of such corporation,
and the acquisition of one-third or more of the voting shares of a
corporation is presumed to be an acquisition of control of such corporation
unless it can be established that the acquirer does not control the
corporation through the ownership of one-third or more of the voting shares.
The acquisition of less than one-third of the voting shares of a corporation
is deemed not to be an acquisition of control of such entity.
The Company is aware of no Canadian governmental laws, decrees or regulations
nor any foreign exchange controls which restrict the import or export of
capital or which affect the remittance of dividends, interest or other
payments of non-resident holders of the Company's securities, except as
discussed in ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The Company knows of no limitation on the rights of nonresident or foreign
owners to hold or vote the Common Shares imposed by foreign laws and there
are no provisions in the Company's charter or by-laws which restrict
ownership of securities or prescribe restrictions on the payment of
dividends, interest or other payments to shareholders.
C. TAXATION
Dividends and other distributions deemed to be dividends paid or deemed to be
paid by a Canadian resident corporation to a non-resident of Canada generally
are subject to non-resident withholding tax equal to 25% of the gross amount
of the dividend or deemed dividend. Also, a non-resident of Canada is
subject to tax in Canada at the rates generally applicable to residents of
Canada on any "taxable capital gain" arising on the disposition of the shares
of a Canadian public corporation if such non-resident, together with persons
with whom he does not deal at arm's length, owned 25% or more of the issued
shares of any class of the capital stock of the Canadian public corporation
at any time in the five years immediately preceding the date of disposition
of the shares. The taxable portion of the capital gain is three-quarters of
the actual gain from the disposition of the shares.
Canadian taxation of dividend and deemed dividend payments to and gains
realized by non-residents of Canada who are residents of the United States
are subject to the 1980 Canada-United States Income Tax Convention (the "1980
Convention"). Under the 1980 Convention, the rate of Canadian non-resident
withholding tax on dividends or deemed dividends paid to a United States
resident may not exceed 15%, and in the case of a United States corporation
that beneficially owns at least 10% of the voting stock of the corporation
paying the dividend may not exceed 10% of the dividend or deemed dividend.
<PAGE>
Page 26
On March 17, 1995, the United States and Canada signed a protocol to the 1980
Convention (the "1995 Protocol").
Ratified on 9 November 1995, the 1995 Protocol reduces the withholding rate
on dividends from 15% to 10%, and, in the case of a dividend paid to a United
States corporation that owns at least 10% of the voting stock of the payor
corporation, to 7% for dividends paid in 1995, 6% for dividends paid in 1996,
and 5% for dividends paid after 1996. Where the dividends are received by a
United States person carrying on business in Canada through a Canadian
permanent establishment and the shares in respect of which the dividends or
deemed dividends are paid are effectively connected with that permanent
establishment, the dividends or deemed dividends are generally subject to
Canadian tax as business profits, generally without limitation under the 1980
Convention.
The 1980 Convention also provides that gains realized by a United States
resident on the disposition of shares of a Canadian corporation may not
generally be taxed in Canada unless the value of the Canadian corporation is
derived principally from real property situated in Canada or the shares form
part of the business property of a permanent establishment which the United
States shareholder has or had in Canada within the twelve month period
preceding the date of disposition.
Subject to certain limitations, generally Canadian income taxes paid or
accrued by a United States resident to Canada on account of dividends or
deemed dividends paid by the Canadian corporation and gains from the
disposition of the Canadian corporation's shares are eligible for foreign tax
credit treatment in the United States.
D. RECENT SALES OF UNREGISTERED SECURITIES
See ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS Section C(1) FINANCIAL CONDITION, LIQUIDITY AND CAPITAL
RESOURCES.
ITEM 6 SELECTED FINANCIAL DATA
A. SUMMARY DATA
The following selected financial data of the Company is presented for, and as
of the end of Fiscal 1997, Fiscal 1996, Transition Fiscal 1995, and each of
the former 12 month fiscal years ended 30 April 1994 and 1993. (During
Fiscal 1995, the Company changed its fiscal year end to 31 January from 30
April.) This information should be read in conjunction with ITEM 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS and the Consolidated Financial Statements and the Notes thereto,
included elsewhere herein. The Company's Consolidated Financial Statements
and related information have been prepared according to Canadian Generally
Accepted Accounting Principles (CGAAP), however, these financial statements
comply, in all material respects, with United States Generally Accepted
Accounting Principles, except as described in Note 12 to the Company's
Consolidated Financial Statements.
<PAGE>
Page 27
<TABLE>
<CAPTION>
FYE 31 JANUARY TRANSITION FYE 30 APRIL
----------------------- FYE ENDED ----------------------
31 JANUARY
1997 1996(2) 1995(2) 1994(2) 1993(1)
------ ------- ---------- ------- -------
-
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue $4,080,598 $5,375,229 $8,547,973 $10,223,192 $4,311,591
Net (loss) $(5,687,427) $(4,541,551) $(1,489,416) $(2,063,707) $(727,154)
Net (loss) per share (3) (4)
POST REVERSE-SPLIT $(2.54) $(2.50) $(0.94) $(1.40) $(0.60)
AS ORIGINALLY REPORTED $(0.13) $(0.05) $(0.07) $(0.03)
BALANCE SHEET DATA:
Total assets $11,043,854 $330,035 $5,182,679 $4,739,604 $4,326,026
Working capital $4,033,127 $(422,159) $611,868 $161,473 $873,069
Long-term liabilities $4,740,000 NIL NIL NIL NIL
Total liabilities $7,455,813 $507,208 $2,152,401 $2,015,312 $743,587
Common shareholders'
equity/deficiency (5) $3,588,041 $(177,173) $3,030,278 $2,724,292 $3,582,439
</TABLE>
(1) Consolidated results of the Company and its Former
Subsidiaries, including the acquisition of the US business
in November 1992.
(2) Consolidated results of the Company and its Former Subsidiaries.
(3) The Common Shares were subject to a reverse-split consolidation on
the basis of 20 old shares for 1 (new) Common Shares, effective 1
November 1996, during Quarter 4 of Fiscal 1997. The comparative
amounts for reported periods prior to Fiscal 1997 have been
restated on the same basis. The Common Share characteristics and
entitlements are the same as the old shares. (See also ITEM 7
--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS for more discussion concerning management's
Reorganization Plan as it concerns the Common Shares.)
(4) To date, the Company has not paid dividends on its Common Shares.
(See ITEM 5(A), above.)
(5) In accordance with the Reorganization Plan and the Plan of
Arrangement, the stated capital amount and accumulated deficiency
in earnings were both reduced by $26,670,825, to better reflect the
financial repositioning of the Company. (See also ITEM 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS for more discussion concerning Stated Capital
Reduction.)
B. EXCHANGE RATES
The following table sets forth, for the periods and dates indicated, certain
information concerning exchange rates of United States and Canadian Dollars.
All figures shown represent noon buying rates for cable transfers in New York
City, certified for customs purposes by the Federal Reserve Bank of New York.
The sources of this data are the Federal Reserve Bulletin and the
International Financial Statistics prepared by the Bureau of Statistics of
the International Monetary Fund.
<TABLE>
<CAPTION>
C$ HIGH C$ LOW AVERAGE FISCAL YEAR END
-------- ------- ------- ---------------
C/US US/C C/US US/C C/US US/C C/US US/C
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $1.38 $0.73 $1.33 $0.75 $1.36 $0.74 $1.37 $0.73
1996 $1.36 $0.74 $1.28 $0.78 $1.32 $0.77 $1.32 $0.77
1995 $1.42 $0.70 $1.34 $0.74 $1.37 $0.72 $1.40 $0.71
1994 $1.26 $0.79 $1.40 $0.72 $1.32 $0.76 $1.38 $0.72
1993 $1.18 $0.85 $1.29 $0.78 $1.23 $0.81 $1.27 $0.79
1992 $1.29 $0.78 $1.14 $0.88 $1.21 $0.83 $1.27 $0.79
</TABLE>
<PAGE>
Page 28
ITEM 7 -- MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto, which follow
elsewhere herein.
The audited Consolidated Financial Statements for Fiscal 1997 reflect a
period of fundamental change for Power Plus. The Company, renamed Power Plus
Corporation, has literally shed its past by reorganizing and redirecting its
business operations.
A. THE BUSINESS IN EVOLUTION
Power Plus has combined two merchandising segments -- wireless communication
products and services (beepers/pagers, cellular phones, Personal
Communications Systems (PCS) and related airtime service contracts), PLUS
portable electronics (the latest in hand-held electronics, communications,
entertainment, business and lifestyle products). Management has researched,
planned and is implementing its NEW wireless communications business, called
POWERFUL CONNECTIONS tangentially with the launch of its new POWERFUL STUFF
retail chain throughout the US and Canada. The distinction between them is
that POWERFUL CONNECTIONS is the reseller of pager and cellular airtime and
services, while POWERFUL STUFF is a chain of retail stores that sells the
merchandise and makes the initial sales of the pager or cellular airtime
service contract to the retail consumer.
1. 1 + 1 = 3 -- SYNERGISM AT WORK
The synergy and potential mutual benefits for the two merchandising
segments are noteworthy. In POWERFUL STUFF stores, the pagers (beepers)
and accessories generate higher average per transaction revenues and
earn strong secondary margins through related airtime and activation
sales. The sale of the portable electronic products is complementary
and the related battery business provides particularly high margins from
specialty batteries and installation services, plus strong positioning
for the sale of innovative portable battery-powered products.
The initial sales of contracts for wireless airtime and services
generates recurring revenues from customer subscriber fees and renewals
for POWERFUL CONNECTIONS.
The priority of the POWERFUL STUFF retail chain is increasing the number
of stores and the sales productivity per store, while maintaining a
strong gross margin. POWERFUL CONNECTIONS, on the other hand, will focus
on providing the creative packaging and pricing of airtime, building a
loyal customer base for its rebilling business while maintaining a
strong gross margin.
There are differences, however, in the key business fundamentals.
POWERFUL STUFF focuses on its working capital -- turning inventory -- to
produce a return on its capital investment in fixed assets and
leaseholds, while POWERFUL CONNECTIONS' focus is on building a
utility-like cash flow from an increasing and loyal customer base. On
one hand, POWERFUL STUFF requires capital to expand -- the timing and
amounts of capital injections determines the rate of the chain's growth
-- while, on the other hand,
<PAGE>
Page 29
POWERFUL CONNECTIONS can expand with marginal capital investment.
POWERFUL CONNECTIONS' growth will, however, be highly dependent on the
expansion of the POWERFUL STUFF chains.
In adding the wireless communications business, Power Plus enhances the
value of the POWERFUL STUFF retail chain and its opportunity to build
its own loyal customer franchise. Sales staff in POWERFUL STUFF stores
will be the principal sales force for the wireless communications
products and services. As POWERFUL CONNECTIONS' customer list grows
from 20,000 to over 1 million, as foreseen in PLAN 2000, all of these
customers will initially contract and pay for these services at a
POWERFUL STUFF store. In fact, counting customers lost through normal
attrition over time, the stores will likely actually sign up more than 2
million new customers -- all of whom may purchase their pagers and
accessories, and perhaps other merchandise, at POWERFUL STUFF stores.
For that reason, POWERFUL STUFF stores will earn an agent's fee on the
sales of POWERFUL CONNECTIONS' airtime rebilling contracts, as well as
the normal margins on the sale of pagers and accessories.
But the connection between the customer and the Company doesn't end
there. Considering that the average airtime billing cycle is every three
months, coupled with the fact that about 60% of the pager customers pay
their bills at a POWERFUL STUFF store, the pager business will improve
customer loyalty and their shopping frequency for the retail chain.
POWERFUL STUFF will be able to include "stuffers" that advertise special
promotions with the POWERFUL CONNECTIONS bills which are mailed on
average 4 times a year to all of its customers. This inexpensive
targeted advertising may also help increase future sales at each
POWERFUL STUFF store.
2. WIRELESS BUSINESS
While the business of a reseller distribution channel is reasonably
established in the US, it is relatively new to Canada. Cantel and Bell
Mobility do not currently have resellers; they sell direct and use
agents and retailers. PageMart and PageNet are major new entrants to the
paging business in Canada and both are in the process of setting up
reseller programs in Canada based on the models employed by their parent
companies in the US.
The carrier, whether a pager or cellular network, provides service to
POWERFUL CONNECTIONS at highly attractive rates for the airtime. In
turn, POWERFUL CONNECTIONS will repackage, sell, bill and service
customers IT attracts through the POWERFUL STUFF retail chains. For the
carrier, therefore, POWERFUL CONNECTIONS is a source of revenue. The
carrier is incentivized to maximize the growth of POWERFUL CONNECTIONS
-- if only to improve its own return on capital investment. In addition
to the variable cost of providing the airtime -- whether costed on a per
minute or per month basis, both are only incurred ONCE SOLD -- POWERFUL
CONNECTIONS also incurs the costs of acquiring customers commissions
paid to POWERFUL STUFF, advertising, billing, collecting, servicing and
accounting. Some of these costs are variable and others are fixed.
A paging carrier can provide service for approximately $2 per month per
customer to a reseller. The reseller might sell this service for
anywhere from $4 to $15 per number per month. A cellular company might
make its network available to a reseller for a price ranging between
10CENTS and 20CENTS per minute (depending on the time of day), plus
charges for the telephone number, activation, etc. The reseller obtains
a markup on this time.
<PAGE>
Page 30
The potential for profit increases as more customers are added --
because the volume discount increases as more customers are added and
much of the cost of the computerized backoffice overhead is fixed --
better overhead leverage.
Typically, the reseller must perform certain functions, most of which
are computerized:
- Marketing to the customer, contracting and activating the service,
providing ongoing technical support and retaining the customer.
- Credit screening and acceptance of credit risk, if any, and the
assumption of the risk for bad debts.
- Billing and collecting accounts receivables.
- Financing the customer receivables and paying the carrier
according to contracted schedules and terms.
- Blocking customers who do not pay their bills or terminating their
service. Some of these are reactivated.
The business experiences a normal customer attrition rate, on average,
of between 5% and 10% per month. Therefore, to avoid incurring ongoing
service costs, POWERFUL CONNECTIONS must be vigilant about the timing of
billing and collecting amounts due, and blocking and terminating
non-paying customers. POWERFUL CONNECTIONS pays the carrier on a
monthly basis in arrears and must either collect from its customer (in
the same month) or terminate the service from the supply side in order
to cut future costs for which the Company will get paid.
An important aspect of the reseller/retailer business is that POWERFUL
CONNECTIONS' customers receive periodic service invoices by mail which
can also include sales incentives for merchandise available at POWERFUL
STUFF stores. A portion of the pager customers return to the store to
pay their bills in cash. Their action enables the reseller/retailer to
keep in touch, reduces subscriber churn and provides an opportunity to
sell other merchandise --accessories are particularly high margin items.
Most cellular customers pay their bills directly by mail.
By combining pager reseller and cellular services with retailing,
POWERFUL STUFF will work to obtain competitive advantages in the
marketplace.
- A reseller determines its own packaging of airtime and pricing,
and other enticements to attract new customers.
- The reseller is able to establish a direct service relationship
with customers who identify with the retail store -- not some
face-less carrier.
- Highly targeted advertising about accessories and new merchandise
at POWERFUL STUFF stores can be included with bills mailed to
customers.
- Over time, a reseller can build a highly refined customer list
into a tangible valued asset.
With the many advances in communication products and services, new
product opportunities to combine reselling with retailing should emerge.
Management believes that POWERFUL STUFF is advantageously positioned to
attract new wireless customers for POWERFUL CONNECTIONS.
The limited amount of capital investment required to build the pager
airtime rebilling business, compared to the cellular airtime rebilling
business, has caused management
<PAGE>
Page 31
to prioritize accordingly. In addition, the billing cycle
management proposes to utilize will actually produce increasing amounts
of positive cash flow over time, which amounts can be deployed to help
fund the POWERFUL STUFF store chain rollout program.
B. RESULTS OF OPERATIONS
1. FISCAL 1997
i. BUILDING THE BUSINESS
Power Plus Corporation, with its Corporate Office now in Toronto,
Canada, and its North American Operations Office in Sarasota,
Florida, is building a branded chain of specialty niche retail
stores which sells wireless telecommunications products and
portable fashion electronics. The Company expects approximately 85%
of its stores to be in the US. Through its wholly-owned
subsidiaries, Power Plus USA, Inc. and Power Plus Canada, Inc.,
Power Plus operated 51 retail stores by the end of Fiscal 1997
under the trade name POWERFUL STUFF. The majority of these stores
were opened in the last four months of Fiscal 1997. The stores,
operating from leased premises ranging from 150 to 700 square feet
in major enclosed shopping malls in the US and Canada, sell
wireless communication products and services (beepers, cellular
phones, personal communication systems and related service
contracts), and portable electronics (hand-held electronic
communications, entertainment, business and lifestyle products).
Through POWERFUL CONNECTIONS, the Company is building it wireless
airtime and service reselling business and a customer list that
will include all parties that were or are airtime customers of the
Company.
At the beginning of Fiscal 1997, the Company was being restructured
and reorganized from its former self, then known as Battery One,
Inc. Prior to the end of Fiscal 1996 the Company's Former
Subsidiaries were assigned into bankruptcy. All of the Company's
operations through the end of Fiscal 1996, which had consisted
primarily of the sale of batteries and battery-related products to
consumers via Company-owned retail stores in Canada and the United
States, were conducted through the Former Subsidiaries and all of
its capital assets were owned by the Former Subsidiaries.
Accordingly, at the end of Fiscal 1996, the Company had no ongoing
retail operations and the comparative Consolidated Statements of
Operations for Fiscal 1996 and Fiscal 1995 present the results of
its former business.
The Consolidated Financial Statements included with these materials
reflect that during the first two quarters of Fiscal 1997 the
Company acquired assets, operated only one store in Canada and
opened its first US store in July 1996. During Quarters 3 and 4 of
Fiscal 1997, Power Plus opened 36 new locations and acquired a
chain of 13 retail locations in Florida, bringing the number of
locations opened in total to 51, against PLAN 2000's target of 40,
by the end of Fiscal 1997. In fact, most stores were opened in
mid- December. The timing of the store openings meant that revenues
were skewed to Quarter 4 which was, to the extent the stores were
fully operational, also favorably impacted by the peak Christmas
selling season. As of 18 July 1997, the Company has 36 locations
open in the US and 19
<PAGE>
Page 32
in Canada, totaling 55. At the end of Fiscal 1997, the
Company had 51 locations open.
On 1 February 1996, the Company announced its Reorganization Plan
subdivided into two parts: PLAN 2000, the Company's 5-year business
plan prescribing the manner in which the Company would relaunch and
build its business to in excess of 1000 stores by the end of the
Year 2000; and, the Financing Plan which prescribed how the Company
would finance PLAN 2000's funding requirements. The Reorganization
Plan, which incorporated a related Plan of Arrangement, was
approved by the Company's shareholders at Fiscal 1996's Annual and
Special Meeting of Common Shareholders held on 24 July 1996. The
Plan of Arrangement was approved by the regulators and court
immediately thereafter.
Among other matters, shareholders approved as part of the
Reorganization Plan the Company's proposal to: change its name;
reduce its stated capital by all or virtually all of the
accumulated deficit; reorganize and consolidate its capitalization
on the basis of 20 pre-consolidation shares for 1
post-consolidation share plus 1 exchange right -- that is to
2,238,281 post-consolidation shares from then record date number of
44,765,613 pre-consolidation shares; and, refinance in accordance
with the Financing Plan.
The Company's Reorganization Plan incorporated a related 3-year
Financing Plan, formerly approximately $42 million and recently
increased to $49.1 million. The Company had received $15.4 million
as of the end of Fiscal 1997, providing the capital needed to fund
the first year implementation of PLAN 2000 and the related store
rollout program designed to achieve critical mass expeditiously and
economies of scale and operating efficiencies. (Please refer to the
table in Section C(4) - FINANCIAL CONDITION, LIQUIDITY AND CAPITAL
RESOURCES, below.)
During Fiscal 1997, the Company invested $3,486,592 in capital
operating assets, compared to $-nil last year. Of this amount,
$1,200,500 was invested in capital operating assets acquired and
$2,286,092 was added by purchasing or constructing capital
operating assets over the course of the year. At the end of Fiscal
1997, the Company had non-merchandise inventory valued at $247,439
comprised of store furniture and fixtures and POS computer hardware
not yet put into service which was included in working capital and
that was not amortized. These fixed assets will be deployed as new
stores are opened during Fiscal 1998. Since the majority of stores
were opened in the last four months of Fiscal 1997 and because of
the limited time these fixed assets were deployed in the year, the
Company did not amortize its capital investment in those fixed
assets this year.
During Fiscal 1997, the business grew by entering into store
leases, buying furniture and fixtures, purchasing equipment and
constructing/renovating store locations, and by acquiring
businesses.
<PAGE>
Page 33
a.) POWER PLUS CANADA
On 8 March 1996, the Company closed a purchase transaction with the
Trustee responsible for the realization of the assets BOSI whereby
it acquired the inventory, furniture and equipment, kiosks, and
certain lease entitlements and proprietary interests of its former
Canadian subsidiary, including an operating store location at
Toronto's Square One, for cash consideration of $200,000.
During an interim period, the Company employed the inventory,
certain lease entitlements and trademarks in its skeletal
operations. However, because the longer term redirection
of the business operations called for a new
appearance and substantial change to merchandise mix, the other
assets acquired were sold in the ordinary course of business.
The Canadian POWERFUL STUFF chain was launched in July 1996. Since
then 18 new locations have been opened in Ontario, in the Northeast
Region, representing a capital investment of $1,109,932. Total
capital investment in operating assets deployed in the business in
Canada amounted to $1,309,932 compared to $-nil last year.
(The $330,035 amount in assets reported last year pertained to the
parent company and were not deployed as operating assets.)
b.) POWER PLUS USA
On 17 May 1996, Power Plus USA, Inc., acquired the strategic
Pittsburgh Airport AirMall location lease, formerly held by Etc.,
from the Trustee upon approval of the Western District of New York
Bankruptcy Court for cash consideration of $110,000 (US$70,000).
The US POWERFUL STUFF chain also launched in July 1996, starting
in the Northeast Region (Pittsburgh), and then in the Southeast
Region (Florida, Georgia, Mississippi, North Carolina and Tennessee).
- The Northeast Region
The US operations commenced with the opening of the Pittsburgh
Airport AirMall store at the end of July 1996, ideally situated in
the largest airport shopping center in North America, providing
POWERFUL STUFF with a flagship store in one of the premier US
transportation centers and the foundation for expansion in this
Region. Three additional locations were opened during Quarters 3
and 4 of Fiscal 1997, to flesh-out the Pittsburgh District cluster.
More locations are planned for the Pittsburgh District and a new
District is planned for Detroit in Fiscal 1998.
- The Southeast Region
The Southeast Region's expansion is a blend of new POWERFUL STUFF
stores combined with the 13 retail locations acquired in Florida.
On 17 June 1996, Power Plus USA agreed to purchase certain assets,
lease entitlements and the business of PORTRONICS, a specially US
retailer, from Consumer Electronics Specialty Stores, Inc. ("CESS"),
located in Sarasota, Florida. The acquisition, which closed
effective 1 September 1996, included 10 leased stores in Florida,
inventories, two rented warehouse/retail facilities and pager
repair facilities, one office/retail location (for a total of 13
retail locations) and CESS's proprietary interests. An integral
component of the assets purchased also included over 20,000 existing
pager customers under
<PAGE>
Page 34
contract and the sole right of the Company to the related future
rebilling revenue.
Total consideration of $1,232,066, of which the final installment
was paid during the first half of Fiscal 1998, was paid in a
combination of cash and the assumption of certain trade liabilities
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assets acquired were: Consideration therefor was:
Merchandise inventory $341,566 Cash, on closing $599,189
Furniture, fixtures & equipment 205,500 Current liabilities assumed 119,178
Customer list 685,000 Amount paid subsequent to Fiscal 1997 513,699
------- -------
$1,232,066 $1,232,066
---------- ----------
---------- ----------
</TABLE>
In addition, Power Plus opened a total of 22 new locations in
Georgia, North Carolina, Alabama, Tennessee and Mississippi
by year end, representing an incremental capital investment in
operating assets of $1,286,160.
On 12 August 1996, the Company announced an agreement in principle
to enter into a joint venture with C-Con Acquisition Company Inc. of
Florida to resell cellular telephone services through POWERFUL STUFF
retail stores. In light of priorities otherwise, it was determined
to abort this transaction at no cost or expense to the Company
ii. MANAGEMENT PRIORITY FOR FISCAL 1997 WAS PLANNING FOR THE FUTURE
During the first half of Fiscal 1997 in the early start up phase, the
Company had only 1 store open, 20 by the end of Quarter 3 and 51 by
the end of the year. The weighted average number of months that
stores were open during the year was only 3 -- substantially less
than break-even, which is estimated to be 125 stores.
In this context, and as was expected, the administrative and overhead
costs, including specialty legal and accounting fees for restructuring
and reorganizing the Company following the bankruptcies of the Former
Subsidiaries, were substantial. Also, new management invested
significant time researching and planning for the Company's future,
for which the administrative and overhead costs have also been
substantial in context of the start up operations. For most of
the year, the Company's management was occupied in laying the
foundations for the building process which began only late in Fiscal
1997.
In addition, the Company, in anticipation of the planned future growth
of the business, made the strategic decision to hire an experienced
and proven senior management team which may appear to some to be more
than is required for current business needs -- but, is in fact
considered necessary to prepare for delivering the growth
contemplated in PLAN 2000. Hiring in anticipation of need represents
a form of insurance -- to both accomplish the goals set out in
PLAN 2000, and to prudently drive and manage the planned rapid growth
process. This, therefore, is another reason administrative and
overhead expenses for Fiscal 1997 appear higher than they would
be otherwise for a mature operation. The
Company intends to continue its pre-hiring policy for the next two
years as planned to provide and train the management required to
accomplish its goals and objectives.
<PAGE>
Page 35
While management did have the option of capitalizing certain of these
expenditures, which represented a substantial amount in the aggregate,
the decision was made to expense them in the period incurred so that
the future results of the new business would not be tarnished by any
amount of amortization from these non-recurring expenses in future
periods.
The long-term business of the Company is building and operating the
POWERFUL STUFF retail store chains and POWERFUL CONNECTIONS wireless
reseller business. The transition from the planning to the operating
phase is being marked by the building of an experienced operating team
and, accordingly, management foresees that administrative and overhead
expenses will come into line with industry standards, and ultimately
become suitably leveraged as the future numbers of stores and wireless
customers increase.
iii.CONSIDERATION OF FISCAL 1997 BUSINESS RESULTS
The following table sets forth certain items reflected in the
Company's consolidated statement of operations expressed as
percentages of sales:
<TABLE>
PERCENTAGE OF SALES
----------------------------------
TRANSITION FYE
FYE 31 JANUARY 31 JANUARY
------------------ ----------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cost of sales 58.5% 42.4% 49.1%
Operating, occupancy & administrative expenses n/a 133.3% 66.2%
Net loss n/a 84.9% 17.4%
</TABLE>
(1) Operating and administrative expenses included write-off of assets
abandoned in 1996.
Cost of sales as a percentage of total sales for the period
reported on herein was 58.5%, reflecting certain inefficiencies
which management believes are short-term. These include the cost
of writing off inventory, restructuring the merchandise mix and
the negative impact of less than optimal purchasing power facing
a small chain lacking sufficient credit support from vendors.
Management expects the Cost of Sales to decrease over time as a
percentage of sales once the Company reaches critical mass and
settles on its merchandise mix. In addition, the Company has
recently began developing and nurturing new relationships with
vendors and expects this will lead to a better gross
profit, benefiting from lower merchandise costs in the future
and other cost abatement inducements from vendors.
Fiscal 1997's operating and administration expenses, are not
comparable to Fiscal 1996, principally because pursuant and
subsequent to the bankruptcies of the Former Subsidiaries,
the Company was initially focused on reorganizing, restructuring
and planning for the future. Fiscal 1996 expenses also included
the loss on the abandonment of assets in Fiscal 1996. In the
long-term, the Company's administration is expected to be
structured so that a number of new stores can be
<PAGE>
Page 36
added without a corresponding increase in administrative overhead,
thus leveraging on the fixed overhead expenses.
The amount of amortization for the period increased in comparison
to Fiscal 1996 because the Company had acquired assets during the
year and had capitalized certain intangible assets (deferred costs
of issuing Special Notes and deferred issuing costs of warrant
financings), and was amortizing the discount on the Special Notes
at the rate of $70,000 per quarter.
No corporate income taxes were payable in Fiscal 1997. Management
expects the amount of accrued income tax losses being carried forward
and available for sheltering future business income is
approximately $20 million. This amount is not reported in the
Consolidated Balance Sheet.
2. FISCAL 1996
By the final quarter of Fiscal 1996, it had become apparent to then
management that on the basis of the Company's share capitalization, and
in consideration of the continued non-profitability of Etc., the
Company, notwithstanding its best efforts, was not able to complete the
financing of former management's turnaround program on the basis
contemplated. The poor performance of Etc. resulted from a number of
unproductive stores situated in secondary locations committed to by
prior management, which were subsidized by BOSI to its serious detriment.
In December 1995, BOSI made a voluntary assignment into bankruptcy
pursuant to the CANADIAN BANKRUPTCY AND INSOLVENCY ACT. In December
1995, Etc. made a voluntary petition seeking protection under Chapter 11
of the US BANKRUPTCY CODE, which in January 1996 was converted to a
Chapter 7 filing. The Company is the largest creditor of the Former
Subsidiaries but does not expect to receive any recovery of substance
upon the winding up of these bankruptcies expected during Fiscal 1998.
The Company is not directly nor indirectly liable for any debt or
liability of the Former Subsidiaries and has no outstanding guarantees
or undertakings with respect to any third party claim against the Former
Subsidiaries.
All of the Company's operations, which consisted primarily of the sale
of batteries and battery-powered products to consumers via Company-owned
retail stores in Canada and the United States, were conducted through
the Former Subsidiaries and all of its capital assets were owned by the
Former Subsidiaries. As at 31 January 1996, the Company, therefore, had
no ongoing retail operations.
The Consolidated Statements of Operations for Fiscal 1996 reflect the
decline in operations experienced by the Former Subsidiaries, as
compared to Fiscal 1995. The loss from operations reported in the
Company's Consolidated Financial Statements is $4.4 million. In
addition, the loss on abandonment of Former Subsidiaries in the amount
of $118,767, increased the net loss to $4.5 million.
The Consolidated Financial Statements for Fiscal 1996 and 1995 include
the accounts of the Battery One, Inc., BOSI and Etc. All significant
intercompany accounts and transactions between the parent company and
the Former Subsidiaries were eliminated.
No corporate income taxes were payable in Fiscal 1996. Management
expects the amount of accrued income tax losses, being carried forward
and available for sheltering
<PAGE>
Page 37
future business income, is approximately $15 million. This amount is
not reported in the Consolidated Balance Sheet.
3. TRANSITION FISCAL 1995
The Company sustained substantial operating losses while attempting to
turn around the US operation during the latter part of Fiscal 1995 and
which continued into Fiscal 1996. The plan, designed to improve
operating efficiencies, strengthen management depth and upgrade the
corporate image with customers, over time proved to be too little too
late. During Fiscal 1995, the Company changed its fiscal year end to be
more consistent with other retailers, redesigned its standard kiosks and
added new directors and executive officers.
As a result of the fiscal year end change, sales volume for Fiscal 1995
declined to $8.6 million from $10.2 million for Fiscal 1994. Sales
volume increased $600,000, or 8% over the same nine-month period last
year. Fiscal 1995's net loss was $1.5 million, compared to $2.1 million
loss reported at the end of prior year.
The US operations contributed $6.1 million sales to Transition Fiscal
Year 1995's consolidated sales (71.7% of the total), compared with $7.2
million in sales to the Fiscal 1994 consolidated results (70.1% of the
total). The fractionation in sales approximates the proportion of
locations in the US and Canada. Throughout Fiscal 1995, the Company
operated 68 stores -- 49 in the US (72% of the total) and 19 in Canada.
Operating expenses as a percentage of sales decreased in Fiscal 1995
compared to Fiscal 1994. Operating expenses as a percentage of sales
were 66.2% in Transition Fiscal 1995 compared to 75.3% in Fiscal 1994.
The decrease in 1995 reflects the ongoing benefits flowing from
consolidating the administrative functions into one location and
streamlining.
The Company's consolidated net loss for 1995 (no taxes were payable in
Fiscal 1995) was $1.5 million compared to $2.1 million in Fiscal 1994.
The US operations accounted for about 66.6% of the 1995 net loss,
compared to 66% of the 1994 net loss. The 1995 and 1994 losses equated
to losses per share of $0.05 and $0.07 on an increased weighted average
number of common shares outstanding of 34,694,521 compared to
31,806,154. The comparable losses per share, restated for the effect of
the 20:1 reverse-split, equate to $1.00 and $1.40, respectively.
C. Financial Condition, Liquidity and Capital Resources
The Company's Reorganization Plan approved last year incorporated a 3-year
$42 million Financing Plan which was recently increased to $49.1 million.
The Financing Plan provides the framework to fund the initial growth and
related interim working capital shortfall. This is the period according to
PLAN 2000 before the Company becomes self-sustaining, that is when future
growth can be self-financed from internally generated cash flows. Management
projects that the Company must expand to the 125 store level before it will
attain profitable operations. Management anticipates reaching critical mass
by the end of calendar 1997. It is expected that long-term debt and new
equity capital will provide the necessary funding for future growth and the
operating losses incurred during this growth stage, although no assurances
can be given that this funding will be completed as planned. As at Fiscal
1997 year end, the Company had raised the equity capital and long-term debt
it had forecasted.
<PAGE>
Page 38
For an overview of both completed financings and planned financings, please
refer to the table in Section C(4) - SUMMARY OF CHANGES TO SHARES AND SHARE
CAPITAL, below.
Management estimates that the Company will attain the ability to fund its
future rate of growth from internally generated cash flows at approximately
the 600 store-level. Subject to the timing and amounts received, management
estimates that the Company can become self-sustaining by the end of Fiscal
1999. The current Financing Plan calls for $49.1 million, needed to meet the
rapid pace set by management of the rollout program. The change in the
amount relates to the additional costs of reorganizing and planning phases,
the impact of the deviation in the timing of the receipt of capital proceeds
from the Exchange Rights which was originally forecasted for early December
1996 (theoretically in time for merchandise purchases for the Christmas
season but since this amount was received at the end of January 1997, it was
too late to be deployed to boost Christmas sales), and the acquisition of the
13 retail locations in Florida in September 1996.
1. FINANCIAL INSTRUMENTS DEPLOYED BY THE FINANCING PLAN
The financing-related securities, including the Special Warrants and the
Special Notes which are convertible into Common Shares, were sold by
private placement to ACCREDITED INVESTORS. These securities were issued
pursuant to the applicable securities laws in the governing
jurisdictions and were not registered or sold principally in the US.
Sales of the securities in the US were made in reliance upon the
exemption form registration contained in Section 4(2) of the SECURITIES
ACT OF 1933, as amended. (Please also refer to the table in Section C(4)
- SUMMARY OF CHANGES TO SHARES AND SHARE CAPITAL, below.)
i. FISCAL ADVISOR ENGAGED FOR FISCAL 1997
The Company engaged C.M. Oliver & Company Limited of Toronto (the
"Agent") effective 1 March 1996 as its fiscal advisor and agent for
a one-year term. The term was not extended. The Agent assisted the
Company on a best efforts basis in raising the capital required for
its Reorganization Plan, in accordance with the Financing Plan.
The Agent's compensation includes a warrant to purchase up to 4.5
million pre-consolidation shares of the Company at 10 CENTS per
share (225,000 post-consolidation Common Shares at $2.00 per
share). This share purchase option considered on a
post-consolidation basis represents potential dilution of up to
675,000 Common Shares, and the possibility of up to $1.2 million in
the aggregate in additional capital. During Fiscal 1997, 205,219
Common Shares were issued to the Agent for $410,438. The balance
of up to 19,781 Common Shares, representing potential additional
capital proceeds of up to $39,562 are expected to be exercised in
September 1997.
As well, the Agent's compensation included a 8% commission for
certain capital amounts raised. During Fiscal 1997, the Company
paid a total of $752,000 in cash and 45,000 Common Shares as a
payment in kind on account of commission and finder's fees.
<PAGE>
Page 39
ii. 1996 SPECIAL WARRANT PRIVATE PLACEMENT FINANCING
During Fiscal 1997, the Company completed the 1996 Special Warrant
Private Placement Financing (the "1996 Special Warrants") of $4.5
million representing an aggregate of 45 million 1996 Special
Warrants. The closings of the first and second tranches took place
on 1 March and 2 April 1996, representing 38.5 million 1996 Special
Warrants, which were issued at a purchase price of 10 CENTS per
Special Warrant (or 2.25 million 1996 Special Warrants at $2.00 on
a post-consolidation basis), for gross proceeds of $3.85 million,
of which $1.1 million had been received prior to 31 January 1996.
An additional 6.5 million 1996 Special Warrants representing gross
proceeds of $650,000 were issued prior to the end of September
1996, completing the 1996 Special Warrant Financing in its entirety.
Each 1996 Special Warrant was converted effective 31 January 1997
at no additional consideration into 1 Common Share plus 1 Class B
Warrant which consists of two entitlements: firstly, entitling
holders to acquire up to an aggregate of 2.25 million Common Shares
at an exercise of $2.00 per share (equivalent to 45,000,000 shares
at 10 CENTS per share on a pre-consolidated basis), on or before 30
September 1997, representing additional potential future capital to
the Company in the aggregate of up to $4.5 million; and, secondly,
and subject to the exercise of the Class B Warrant, a collateral
Class BB Warrant, entitling holders to acquire up to an aggregate
of a further 2.25 million Common Shares at an exercise purchase
price of $2.50 per share (equivalent to 45,000,000 old shares at
12.5 CENTS per share on a pre-consolidated basis), on or before 1
March 1998, representing additional potential future capital in the
aggregate of up to $5.6 million. The aggregate future capital
injection potentially to be derived from the Class B and BB
Warrants on a fully exercised basis is $10.1 million.
The 1996 Special Warrant financing terms provided that the Company
would incur a 10% penalty payable by the issuance of additional
1996 Special Warrants to the holders of the 1996 Special Warrants,
that is a further 4.5 million 1996 Special Warrants on a
pre-consolidation basis in prescribed circumstances, representing
additional dilution of 225,000 Common Shares. Those prescribed
circumstances required the Company to file a prospectus in Ontario
and Alberta by 14 June 1996 to qualify the 1996 Special Warrants as
free-trading to be lawfully offered to the public, and to obtain a
final prospectus receipt by 26 July 1996, failing which the penalty
would be invoked. The Company was unable to meet such obligations
and the penalty has therefore been incurred. The entitlements
attached to these penalty 1996 Special Warrants are the same as the
1996 Special Warrants.
Holders of the penalty 1996 Special Warrants will not be required
to pay to receive the Common Shares included therein, but the Class
B and BB Warrants attached thereto will include the same exercise
price required to be paid for them to be acquired, that is $2.00
per Common Share for the Class B Warrant and $2.50 per Common Share
for the Class BB Warrant. The penalty 1996 Special Warrants
represent up to an aggregate of 450,000 additional Common Shares in
dilution, and the potential of up to an aggregate of $1 million in
additional capital on a fully diluted basis.
<PAGE>
Page 40
None of the Class B Warrants, Class BB Warrants, Penalty Class B
Warrants or Penalty Class BB Warrants were exercised prior to year
end. As of 18 July 1997, 550,000 Class B Warrants have been
exercised providing $1.1 million gross proceeds.
On 30 June 1997, the Company announced by news release that it has
received approval for a three-month extension of the expiry date of
the outstanding Class B Warrants and Class B Penalty Warrants from
30 June 1997 to 30 September 1997. All other terms and conditions
remained the same.
iii. SHARE CAPITAL REORGANIZATION AND CONSOLIDATION AND EXCHANGE RIGHTS
ENTITLEMENTS
The reorganization and consolidation of the Company's outstanding
share capital occurred pursuant to a Plan of Arrangement under
Section 86 of the BUSINESS CORPORATIONS ACT, ALBERTA, which had
received shareholder, court and regulatory approval. In general
terms, the Company reorganized and consolidated all of its issued
old shares (of which 44,765,613 pre-consolidation shares had been
issued and outstanding as of 1 November 1996) on the basis of every
20 old shares before consolidation being reorganized and
consolidated into 1 Common Share (that is, after consolidation
there would be 2,238,281 issued post-consolidated Common Shares)
plus 1 Exchange Right. Under the terms of this consolidation,
respecting the loyalty of the Company's long-term shareholders and
seeking their continuing support on an equal footing with the
Special Warrant holders, and considering the Company's capital
requirements, each consolidated Common Share had attached to it 1
exchange entitlement (the "Exchange Rights") to purchase 1 unit of
the Company's equity (the "Exchange Rights Units") on or by 31
January 1997.
The Exchange Rights entitled holders to purchase up to an aggregate
of 2,238,281 Exchange Rights Units of the Company at an exercise
price of $2.00 per unit (equal to 10 CENTS per unit on a
pre-consolidation basis), on or before 31 January 1997.
Each Exchange Rights Unit consisted of one Common Share plus one
purchase warrant, hereinafter referred to as the Class A Warrants.
The Class A Warrants shall consist of two entitlements: firstly,
entitling holders to purchase 2,238,281 Common Shares of the
Company at an exercise price of $2.00 per Common Share (equivalent
of 10 CENTS per share on a pre-consolidation basis), on or before 30
September 1997, representing additional potential future capital to
the Company up to an aggregate of $4.5 million (less the amount
exercised during Fiscal 1997); and, secondly, conditional upon the
exercise of the Class A Warrant, a collateral warrant, hereinafter
referred to as the Class AA Warrant, entitling holders to purchase
up to an aggregate of a further 2,238,281 Common Shares of the
Company at an exercise price of $2.50 per Common Share (equivalent
of 12.5 CENTS per share on a PRE-CONSOLIDATION basis), on or before
1 March 1998, representing additional potential future capital to
the Company in the amount of up to an aggregate of $5.6 million
(less the amount already exercised). The potential capital
injection that may be derived from the Exchange Rights on a fully
diluted basis is $10.1 million in the aggregate.
Effective 31 January 1997, all the Exchange Rights, which entitled
the holder to purchase 1 (post-consolidation) Common Share for
$2.00 and receive 1 Class A
<PAGE>
Page 41
share purchase warrant, were converted into 2,238,281 Common Shares
and the Company received $4,476,562 in new capital.
Prior to the end of Fiscal 1997, 30,525 Class A Warrants and 1,475
Class AA Warrants were exercised, representing dilution of 31,000
Common Shares and providing $64,737 additional capital. As of 18
July 1997, 422,443 Class A and 4,225 Class AA Warrants have been
exercised providing approximately $855,000 proceeds.
On 30 June 1997, the Company announced by news release that it has
received approval for a three-month extension of the expiry date of
the outstanding Class A Warrants from 30 June 1997 to 30 September
1997. All other terms and conditions remained the same.
iv. SPECIAL NOTES CONVERTIBLE DEBT FINANCING
The Company initially received approval for a $6 million, 5-year
10% Special Note private placement financing offering. The Company
has recently obtained conditional regulatory approval to increase
this Offering by $5 million, making it now up to $11 million, in
the aggregate, with the same terms and conditions. During Fiscal
1997, the Company completed the $6 million placement in two
closings. Each $1,000 principal amount of Special Notes may be
converted into an equivalent principal amount of 5-year, 10%
convertible fixed and floating secured debentures, currently
representing potential future dilution of up to 2.4 million Common
Shares. This convertible debt is fully secured by all the assets of
Power Plus Corporation.
At any time on or after the third anniversary date of the issuance
of the Special Notes, the Company has the right, upon reasonable
notice, to compel holders to convert all or any part of the
indebtedness into Common Shares at $2.50 per Common Share, on the
condition that the Common Shares have traded at a weighted average
price of $4.00 per Common Share or greater during the preceding 10
trading days. Failing conversion by holders in the circumstances of
such notice, the Company has the right to repay the whole or any
part of the indebtedness, on a PRO RATA basis.
Interest is payable on the Special Notes semi-annually, on the 31st
days of January and July, respectively. Interest paid on the
Special Notes during Fiscal 1997 was $251,100.
The $5 million increase to the Special Notes financing represents
the potential of additional dilution of up to 2 million Common
Shares, thereby making it 4.4 million Common Shares in the
aggregate. Management anticipates completing the private placement
of this additional $5 million Special Notes during August 1997 but
since this is a best efforts financing, again, no assurances can be
given as to its completion.
<PAGE>
Page 42
v. 1997 SPECIAL WARRANT PRIVATE PLACEMENT FINANCING
The Company has recently obtained conditional regulatory approval
to a Special Warrant Private Placement Financing (the "1997 Special
Warrants Offering") of $3 million comprised of 1,714,286 Special
Warrants, each having a purchase price of $1.75. Each Special
Warrant is convertible into 1 Common Share plus 1 share purchase
warrant entitling the holder to purchase, for up to one year period
thereafter, 1 additional Common Share for $2.00, representing up to
$3.4 million in potential additional capital. The Company,
therefore, could issue up to 3,428,572 Common Shares over the next
year for aggregate proceeds of up to $6.4 million pursuant to this
1997 Special Warrants Offering.
Management anticipates completing this 1997 Special Warrants
Offering during August 1997, although since it is a best efforts
financing no assurances can be given either as to the timing or the
amount to be completed.
2. FUTURE POTENTIAL FUNDING FROM THE FINANCING PLAN
In addition to the foregoing amounts aggregating $15.4 already received
by the Company at the end of Fiscal 1997, the 3-year Financing Plan
supporting PLAN 2000 as modified now provides future potential funding
of up to $33.7 million, summarized by year as follows:
i. FISCAL 1998
To satisfy the projected requirements for calendar 1997 or Year 2
of PLAN 2000, the Financing Plan provides for the projected
completion of the 1997 Special Warrants and the completion of the
$5 million Special Notes, both during August 1997, plus the Class A
Warrants attached to the post-consolidated Common Shares and the
Class B Warrants attached to the 1996 Special Warrants which are
projected to be exercised on or before 30 September 1997. While no
assurances can be given that such financings will be completed in
full or on time as planned to meet the financial requirements for
calendar 1997, if completed then additional aggregate capital will
be available to the Company as follows:
Class A Warrants (1,2) $5 million
Class B Warrants (3) $5 million
1997 Special Warrants, first tranche $3 million
Special Notes, convertible debt $5 million
----------
Total $18 million
-----------
-----------
(1) Includes maximum proceeds from Agent's Option Class A
Warrants.
(2) The amount has been adjusted for proceeds received in
Fiscal 1997.
(3) Includes maximum proceeds derived from the Penalty Class B
Warrants.
ii. FISCAL 1999
To satisfy the Company's financial requirements for calendar 1998
or Year 3 of PLAN 2000, the Financing Plan provides for: the
two-year Class AA Warrants attached to the Common Shares and the
two-year Class BB Warrants attached to the 1996 Special Warrants,
which are both projected to be exercised on or before 1
<PAGE>
Page 43
March 1998; as well as the share purchase warrants attached to the
1997 Special Warrants projected to be exercised during August 1998.
While no assurances can be given that these warrants will be
exercised, the Class AA and BB Warrants and 1997 Special Warrants
share purchase warrants will provide additional aggregate capital
as follows:
Class AA Warrants $6.1 million
Class BB Warrants $6.2 million
1997 Special Warrants, second tranche $3.4 million
------------
Total $15.7 million
-------------
-------------
iii. FISCAL 2000 AND BEYOND
PLAN 2000's Financing Plan provides the framework for potential
sources of new capital in the aggregate of up to $49.1 million
during Calendar Years 1996, 1997 and 1998 to fund the
implementation of PLAN 2000. Long-term debt and new equity capital
are the sources of funding for both future growth and the operating
losses incurred during this growth stage. As at Fiscal 1997 year
end, the Company had raised both the equity capital and long-term
debt envisioned in the Financing Plan. Subject to the availability
of the funding, the Company's management anticipates reaching
critical mass by the end of calendar 1997 and financial
self-sufficiency, in accordance with PLAN 2000 assumptions,
including the rollout of new stores, after the total number of
stores opened exceeds 600.
On the basis of the successful completion of the Financing Plan
through Year 3 of PLAN 2000, and subject to PLAN 2000 performing on
target, the Company would, in the opinion of management, have
sufficient resources to repay the Special Notes during Year 4 of
PLAN 2000 (if not by then converted), if desirable and required to
do so, as well as to complete the rollout of PLAN 2000 as proposed
for Years 4 and 5, without the Company being required to raise
additional capital and incur further equity dilution. The Company,
however, can give no assurances that this will in fact be the case.
3. SUMMARY OF CHANGES TO SHARES AND SHARE CAPITAL
The following table presents the potential impact on share
capitalization from the realization of the Financing Plan, as currently
revised, as of 18 July 1997, reflecting transactions completed in Fiscal
1997. The table sets out those components of the Financing Plan already
fully completed and the estimated timing applicable to other components.
The information is presented on a fully diluted basis and does not
account for the portions of the Class A, AA and B Warrants exercised to
date.
While no assurances can be given that any or all of the future events
will be completed in full in accordance with the estimated timing, as
set out in the Financing Plan, if all elements were completed and
exercised in full prior to their respective expiry dates, as the case
may be, then the number of Common Shares and the fully diluted share
capital, exclusive of allowable management incentive options reserves,
would be as follows:
<PAGE>
Page 44
<TABLE>
<CAPTION>
SHARES CAPITAL TIMING
---------- ------- ------
$ amounts are expressed in Canadian Dollars in millions; assumes maximum dilution) COMPLETED ESTIMATED
--------- ---------
<S> <C> <C> <C> <C>
i CONSOLIDATED, BEGINNING SHARE CAPITALIZATION (from 44,765,613 shares on 20:1 basis):
a.) Post-consolidation number of Common Shares and equivalent number of 2,238,281 $0.0 Nov. 1996
Exchange Rights Units
b.) Potential dilution and capital raised from Exchange Right Units and included
Class A & AA Warrants:
i) One Exchange Rights Unit to receive one Common Share at $2.00 and one 2,238,281 $4.5 Jan. 1997
Class A Warrant
ii) One Class A Warrant to purchase one Common Share at $2.00 and receive 2,238,281 $4.5 Sep. 1997
one Class AA Warrant (note: 30,525 Class A Warrants were exercised
prior to Fiscal 1997 year end.)
iii) One Class AA Warrant to purchase one Common Share at $2.50 2,238,281 $5.6 Mar. 1998
(note: 1,475 Class AA Warrants exercised prior to Fiscal 1997 year end.)
iv) Agent's Option to purchase 225,000 Common Shares at $2.00 and receive 225,000 $0.5 Dec. 1996
equal number of Agent's Option Class A Warrants
v) Agent's Option Class A Warrants to purchase up to 225,000 Common Shares 225,000 $0.5 Mar. 1997
at $2.00 and receive equal number of Agent's Option Class AA Warrants
vi) Agent's Option Class AA Warrants to purchase up to 225,000 Common 225,000 $0.6 Mar. 1998
Shares at $2.50
ii 1996 SPECIAL WARRANT PRIVATE PLACEMENT FINANCING
a.) Special Warrants for $2.00 that were exchanged during first quarter of Fiscal 2,250,000 $4.5 Mar. 1996
1998 for Common Shares and an equivalent number off Class B Warrants
b.) One Class B Warrant to purchase one Common Share at $2.00 and receive 2,250,000 $4.5 Sep. 1997
one Class BB Warrant
c.) One Class BB Warrant to purchase one Common Share at $2.50 2,250,000 $5.6 Mar. 1998
d.) Penalty Special Warrants to receive 225,000 Common Shares at no cost and 225,000 $0.0 Jan. 1997
255,000 Class B Penalty Warrants
e.) Class B Penalty Warrants to purchase up to 225,000 Common Shares at $2.00 225,000 $0.5 Sep. 1997
and receive equal number of Class BB Penalty Warrants
f.) Class BB Penalty Warrants to purchase up to 225,000 Common Shares at $2.50 225,000 $0.6 Mar. 1998
iii SPECIAL NOTES: CONVERTIBLE INTO COMMON SHARES AT $2.50 PER SHARE
a.) $6 million - first and second tranche 2,400,000 $6.0 Sep. 1996
b.) $5 million - third tranche 2,000,000 $5.0 Aug. 1997
iv 1997 SPECIAL WARRANT PRIVATE PLACEMENT FINANCING
a.) Special Warrants purchase warrants for $1.75 to purchase Common Shares 1,714,285 $3.0 Aug. 1997
b.) Special Warrants share purchase warrants to purchase Common Shares for $2.00 1,714,285 $3.4 Aug. 1998
--------- ----
v NUMBER OF SHARES, FULLY DILUTED (1) 24,881,694
----------
----------
vi CAPITAL AVAILABLE, ASSUMING FULL DILUTION $49.1
-----
Less amounts already received:
during Fiscal 1997 $14.3
during Fiscal 1996 $1.1
-----
vii POTENTIAL CAPITAL DERIVED FROM EXISTING FINANCING INSTRUMENTS $33.7
-----
-----
(1) Excludes amount of allowable management incentive options. There are no such options issued.
</TABLE>
<PAGE>
Page 45
4. STATED CAPITAL REDUCTION
In accordance with the Plan of Arrangement incorporated in the
Reorganization Plan, the Company reduced both the stated capital amount
for the Common Shares and the accumulated deficit by $26,670,825,
effective 31 July 1996. It is management's opinion, after making the
adjustment, that the balance sheet better represents the financial
repositioning of the Company resulting from the reorganization and
restructuring, and the appropriate current financial condition of the
Company as it proceeds to implement its 5-year business plan.
5. PRIOR TO FISCAL 1997
Over the several years prior to Fiscal 1997, the Company experienced
significant operating losses and was required to meet ongoing cash flow
requirements by selling shares on a private placement basis. The Company
raised approximately $1.8 million during the 9-month period ended 31
January 1995. On 29 July 1994, 3 million share purchase warrants were
exercised and the Company issued 3 million shares for cash proceeds of
$660,000. In addition, on 29 July 1994 the Company completed a private
placement financing of special warrants. The Company issued 6,363,636
special warrants at 22CENTS each, for cash proceeds of $1.4 million.
Each special warrant entitled the holder to convert the special warrant
at no further consideration into one common share and one-half of one
regular warrant. One regular warrant entitled the holder to purchase
one share of common stock at $1.00 per share on a pre-consolidation
basis or $20.00 per share post-consolidation. During Fiscal 1996,
4,498,454 special warrants were exchanged, 1,279,000 special warrants
were exchanged during Fiscal 1995 and the remainder in February 1996
were exchanged for common shares. No regular warrant, which has now
expired, was exercised.
D. OUTLOOK
Last year, the Company estimated that it could open 40 stores by year end --
it accomplished 51 -- and today has 55 stores opened compared to only 1 a
year ago. Last year, the Company estimated that it would raise $13 million
for funding for the reorganization and restructuring, and for planning and
commencing operations in accordance with PLAN 2000. In fact, the Company
received $15.4 million. Last year, the Company was planning for opening a
chain of retail stores, whereas now the chain is a North American reality.
POWERFUL STUFF stores incorporate a distinctive and appealing look that
landlords, vendors and staff are enthusiastic about -- and POWERFUL
CONNECTIONS is a new, complementary wireless airtime rebilling business that
has the ability to produce increasing and substantial cash flow with minimal
capital investment. Last year, the Company was preoccupied with
restructuring and reorganizing, but this year management is busy building the
future business. This represents a dramatic change. Management estimates,
subject to the availability and timing of planned financing, that by the end
of Fiscal 1998 the Company can achieve critical mass by opening 125 stores --
the break even point.
Until the Company reaches critical mass, however, it will be dependent on the
timing and availability of external financings to sustain its operations in
the start up mode and for expansion capital. As the pace of the rollout is
responsive to management control, it can,
<PAGE>
Page 46
within the short-term, be adjusted to conform to the financing risk. But,
until the Company exceeds critical mass and can rely on the cash flow from
normal operations to sustain those operations, it is, in the meantime,
required to rely on the timing and availability of financings. At its current
size, the Company can be responsive and flexible, but until it exceeds the
estimated 125 store break-even point, the business will not generate surplus
cash. Accordingly, when the timing and availability of financings deviates
from the assumptions in PLAN 2000, the business may be also adversely
impacted. In the short-term, the Company can responsibly conserve cash by
controlling merchandise purchases resulting, however, in a temporary sales
decline.
ITEM 7a-- QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8 -- FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The financial statements and schedules listed in Item 14(a) hereof are
incorporated herein by reference and are filed as a part of this report.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During Fiscal 1997, there were no changes in nor disagreements with the
Company's auditors concerning accounting and financial disclosure.
During Fiscal 1996, the Company's Board of Directors changed the Company's
auditors to BDO Dunwoody, Chartered Accountants, of Toronto, Canada,
effective 16 April 1996, on the recommendation of the Company's Audit
Committee and in accordance with the National Policy No. 31 of the CANADIAN
SECURITIES ADMINISTRATION, replacing Price Waterhouse LLP, Certified Public
Accountants, of Pittsburgh, Pennsylvania, which appointment was approved at
the Company's last annual general meeting of shareholders. By written
acknowledgment dated 15 April 1996, Price Waterhouse LLP advised the Company
of its determination that it was no longer in a position to continue its
audit engagement. The resignation arose out of circumstances surrounding the
relocation of the Company's executive offices from the United States to
Toronto, Canada, and the related application of that accounting firm's
governing corporate policies in such circumstances. During the Company's two
most recent fiscal years and the subsequent interim period preceding the
resignation, there were no disagreements with Price Waterhouse LLP on any
matter of accounting principles or practices, financial statement disclosure,
nor auditing scope or procedures.
<PAGE>
Page 47
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
The following table sets forth the names of all directors and executive
officers of the Company as of 18 July 1997, all positions and offices held by
each such person with the Company or each such person's principal occupation
or employment, the name and principal business of any organization by which
such person has been employed for the past five fiscal years, and the period
during which such person has served as such.
A. DIRECTORS AND EXECUTIVE OFFICERS
At Fiscal 1996's Annual and Special Meeting of Common Shareholders held on 24
July 1996, the shareholders adopted a special resolution to amend the
Articles and By-Laws of the Company to provide for the election and
retirement of the directors in rotation, and for the terms governing the
removal of directors. The amendments divided the Board of Directors into
three classes, as nearly equal in number as the then total number of
directors may permit. At Fiscal 1996's meeting, J. Douglas Elliott and R.
Bruce Freeman were elected as directors and agreed to stand, each for a term
of office expiring at the third succeeding annual meeting of shareholders.
Eric D. Sigurdson was elected a director and agreed to stand for a term of
office expiring at the second succeeding annual meeting of shareholders. The
Company's Board of Directors is currently comprised as follows:
<TABLE>
<CAPTION>
COMMENCEMENT CONCLUSION OF
NAME AGE POSITION OF SERVICE CURRENT TERM
---- --- -------- ---------- ------------
<S> <C> <C> <C> <C>
J. Douglas Elliott 45 Director of the Company since 1994 and Chairman, 19 August July 1999
CEO and President of the Company since December 1994
1995; Lawyer by background; President of Elliott &
Associates, Inc. 1987 to present; Elliott & Associates
provides consulting services to the investment and
financial services industries specializing in the
structuring, financing and management of investment
opportunities, and financial public relations.
R. Bruce Freeman 44 Director of the Company since 1989, Vice Chairman 13 January July 1999
of the Company since 1993 and CFO and Treasurer 1989
since September 1995; Chartered Accountant by
background, with joint degree in accounting and law;
Managing Partner of Freeman & Associates which
provides consulting services to corporations and
individuals in the investment and financial services
industries specializing in the structuring, financing and
management of special projects; Prior to May 1991,
Vice-President and Chief Financial Officer of
Magnasonic Canada, Inc., a corporation which held
major interests in Sanyo Canada, Inc., Major Video
Super Stores and holds an interest in Magnasonic
Lloyds Company, Inc.
</TABLE>
<PAGE>
Page 48
<TABLE>
<CAPTION>
COMMENCEMENT CONCLUSION OF
NAME AGE POSITION OF SERVICE CURRENT TERM
---- --- -------- ---------- ------------
<S> <C> <C> <C> <C>
Eric D. Sigurdson 45 Director of the Company since 1995, a Chartered 1 March July 1998
Accountant by background, and the principal of 1995
Keystone International, involved in management
consulting and business development, emphasizing
mergers & acquisitions and strategic direction. Mr.
Sigurdson is currently rolling out the aggressively
expanding Krispy Kreme specialty doughnut store
chain in the St. Louis and Chicago markets for which
he acquired the regional development rights. Mr.
Sigurdson was formerly employed by The Horsham
Corporation and its US subsidiary, Clark Refining &
Marketing Inc., as its Executive Vice President and
Chief Financial Officer. Prior to his employment with
Horsham, Mr. Sigurdson was President and a Director
of Toronto Dominion Real Estate Inc., a real estate
investment banking venture of Toronto Dominion
Bank, and Director of Mergers & Acquisitions of
Toronto Dominion Securities Inc. Mr. Sigurdson also
serves as a member of the Company's Audit and
Advisory Compensation Committees.
</TABLE>
To strengthen the Company's new operations, the Board of Directors has
resolved to increase its membership from three (3) to seven (7) members and
to seek the election of the following new members for the following terms at
the upcoming 12 September 1997 Annual General Meeting of Common Shareholders.
1. JOHN S. BRONSON - Mr. Bronson has agreed to stand for election to the
Company's Board of Directors for a term of office expiring at the third
succeeding annual meeting of shareholders. Mr. Bronson, the Chairman of
the Company's Advisory Council and Compensation Committee, is the
Executive Vice President of Human Resources of Pepsi-Cola Worldwide
Beverage Co. of Somers, New York. Mr. Bronson brings a depth of
multiple unit retail organizational experience and marketing background
with his commitment to the Company. Amongst other responsibilities with
PepsiCo, Mr. Bronson headed up the Human Resources strategy and
implementation for 6,000+ Kentucky Fried Chicken, Pizza Hut and Taco
Bell units in over 80 countries.
2. MICHEL DUBUC - Mr. Dubuc has agreed to stand for election to the
Company's Board of Directors for a term of office expiring at the first
succeeding annual meeting of shareholders. Mr. Dubuc is a member of the
Company's Advisory Council. An Architect Associate AIA for over 25
years, Mr. Dubuc is the principal of the renowned, award-winning Michel
Dubuc Concept, a specialty firm he founded bringing together a full-time
staff of 45 Architects, Interior Designers and Graphic Artists to offer
innovative and market-sensitive design solutions for individual and
chain retailers. Mr. Dubuc's firm has been responsible for the
conceptualization of numerous retail store prototypes and the design of
over 1,200 projects with the emphasis on the US retail marketplace. Mr.
Dubuc and his firm were commissioned by Power Plus to assist in the
development of the company's new generation of POWERFUL STUFF stores.
3. HARLEY MINTZ - Mr. Mintz has agreed to stand for election to the
Company's Board of Directors for a term of office expiring at the third
succeeding annual meeting of shareholders. Mr. Mintz, a Chartered
Accountant, has been Managing Partner of Mintz
<PAGE>
Page 49
& Partners, Chartered Accountants, of Toronto, Canada, since 1982.
Mintz & Partners is the 15th largest accounting firm in Canada. As a
member of NEXIA International, Mintz & Partners is also part of the 15th
largest accounting organization in the world, with affiliates in 7
Canadian cities and more than 80 countries. Mr. Mintz serves as a
member of the Advisory Council and Compensation Committee of Power Plus.
4. DAVID A. WILLIAMS - Mr. Williams has agreed to stand for election to the
Company's Board of Directors for a term of office expiring at the second
succeeding annual meeting of shareholders. Mr. Williams is a member of
the Company's Advisory Council. Mr. Williams, the principal of
Roxborough Holdings Limited, is now an active private investor who,
amongst his diverse financial interests, seeks out special situation
small cap opportunities such as Power Plus, committing capital, time and
experience to companies he invests in to assist such companies during
their high-growth phase of development. Mr. Williams was formerly the
President and Chairman of Beutel, Goodman, a highly regarded Canadian
investment counseling firm, during a period of extraordinary growth when
that firm expanded to over $11.6 billion under management.
There is no arrangement nor understanding known to the Company between any
person named above, other than as disclosed herein. (See ITEM 13 -- CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.) There are no family relationships
between any director or executive officer and any other director or executive
officer of the Company.
During Fiscal 1997, the Board of Directors held sixteen (16) meetings, of
which all meetings were attended by all members of the Board of Directors.
The minutes of such meetings together with all other consent resolutions of
the Board of Directors were distributed to all directors for signature and
approval. The Company's Corporate Secretary appointed by the Board of
Directors is Michael J. Perkins. Mr. Perkins, the Managing Partner of
Ogilvie & Co., Barristers & Solicitors, of Calgary, Alberta, is also the
Company's specialty Canadian securities counsel. With a multi-dimensional law
practice, Mr. Perkins has an accomplished reputation advising public
companies, specializing in organizational matters, statutory compliance and
venture capital/corporate finance.
The Company is required to have an AUDIT COMMITTEE which currently consists
of R. Bruce Freeman (Chairman), J. Douglas Elliott and Eric D. Sigurdson.
The general function of the Audit Committee is to review the overall audit
plan and system of internal controls of the Company, to review the results of
the external audit and to resolve any problems with the Company's auditors.
During Fiscal 1997, the Audit Committee held six (6) meetings at which all
members attended. Upon Messrs. Bronson and Mintz being elected and standing
to the Board of Directors, it has been resolved by the Board of Directors
that they will be appointed members of the Audit Committee.
The Company's Board of Directors has also established a MANAGEMENT COMMITTEE
which consists of J. Douglas Elliott and R. Bruce Freeman, the constitution
and membership of which has been approved by the shareholders. The
Management Committee, during the intervals between meetings of the Board of
Directors, is entitled to exercise all powers of the Board of Directors in
respect of the management and direction of the business and affairs of the
Company (save and except only those specified in Section111 of the BUSINESS
CORPORATIONS ACT ALBERTA, in all cases in which specific direction shall not
have been given by the Board of Directors). The Management Committee meets
as required to fulfill its mandate.
<PAGE>
Page 50
The Company has no other standing Committees of the Board of Directors.
The Company has formed an ADVISORY COMPENSATION COMMITTEE which currently
consists of John S. Bronson (Chairman), Harley Mintz and Eric Sigurdson. The
general function of the Advisory Compensation Committee is to review the
Company's overall compensation policy and to ensure an independent review of
compensation. None of the Company's officers participated in any decisions
concerning the compensation of officers. Upon Messrs. Bronson and Mintz
standing as directors, it has been resolved by the Company's Board of
Directors that the Advisory Compensation Committee will then be duly
constituted as a standing committee of the Board going forward.
The Company has also formed an ADVISORY COUNCIL composed of a number of
diversified and accomplished business executives, experienced and acclaimed
in their respective fields of endeavor. Mr. John S. Bronson is currently
Chairman of the Advisory Council and Managing Advisor, International
Relations. The general function of the Advisory Council is to act as an
action-oriented, think-tank resource group to assist and support the
Corporation's Board of Directors and its management team to execute and
expand upon the strategic corporate business plan. In some circumstances,
the Advisory Council will serve as a forum for certain members to be
considered for future directorships, as in the case of Messrs. Bronson,
Mintz, Williams and Dubuc, all of whom are now standing for election to the
Board of Directors of the Corporation (see ITEM 10 B. (i), (ii), (iii) &
(iv), above). Areas of targeted expertise include marketing, merchandising,
real estate, franchising, human resources, public relations, finance and
international affairs. The Directors will augment the membership of the
Advisory Council from time-to-time, but currently its members include John S.
Bronson, Frederick Ley (human resources), Harley Mintz (corporate
structuring and taxation), Stephen Mamarchev (market research), David A.
Williams (strategic planning) and Michel Dubuc (store design). Upon Messrs.
Bronson, Mintz, Williams and Dubuc being elected and standing as directors,
they will no longer serve as members of the Advisory Council.
On 29 September 1994, in the US District Court for the Northern District of
California, the US Securities and Exchange Commission ("SEC") issued a
complaint for injunctive and other relief against J. Douglas Elliott,
Chairman, CEO and President of the Company, in a matter unrelated to the
Company. The complaint alleges that in various periods during 1990 and 1991,
Mr. Elliott, while an officer and director of Dimples Group Inc. ("Dimples"),
a Canadian corporation engaged in the manufacture and distribution of
diapers, violated Section 10(b) of the SECURITIES EXCHANGE ACT OF 1934 and
Rule 10b-5 thereunder in connection with a general solicitation of US
investors in the United States to purchase Dimples securities. The SEC
complaint alleged that Mr. Elliott, among other things, wrote press releases
that were materially misleading in that they included revenue projections and
statements regarding the test-marketing of Dimples' diaper product, Dimples'
financing efforts and information on production and sales figures that did
not have a reasonable basis in fact.
Mr. Elliott has informed the Registrant as follows in regard to the SEC
complaint:
He denies the SEC's allegations and considers that they are
themselves without any reasonable basis in fact. He disputes that
the SEC has any jurisdiction in respect of Dimples and its
management. He will vigorously
<PAGE>
Page 51
pursue legal remedies available to him in the circumstances as
required and advised.
Mr. Elliott has also advised the Company that he believes the SEC
complaint resulted from an investigation undertaken by the SEC
arising out of unfounded allegations made by former management of
Dimples to the SEC in 1991. Mr. Elliott has advised that these
complaints of former management were the subject of legal and
administrative proceedings in Canada, in which, according to Mr.
Elliott, these allegations were found to be without merit and to be
an abuse of process, the proceedings having been determined in
favor of Dimples and Mr. Elliott. Mr. Elliott has indicated that
he, Dimples and its management rely upon these findings in their
defense.
This complaint is not expected to have any material impact on future operating
results or the financial conditions of the Company.
B. EXECUTIVE OFFICERS
The Company's officers are chosen by and serve at the pleasure of the Board
of Directors. In addition to certain Directors who are also executive
officers of the Company, set forth below is certain background information
regarding other executive officers of the Company appointed by the Directors
to strengthen the Company's new operations. Hiring and developing the human
resources to propel POWERFUL STUFF to 1000+ stores and a $500+ million
business is a major challenge facing Power Plus. To meet PLAN 2000's
objectives, all senior management of the Company must be experienced and
proven executives WHO HAVE DONE IT BEFORE. The strategy is to hire
professionals who bring with them the experience and discipline of
successfully implementing the policies, procedures and programs required to
manage multi-unit retail operations, with numerous employees, in
decentralized locations, and to make them profitable.
1. PAUL BRUNETTE, SENIOR VICE PRESIDENT, MERCHANDISING AND RETAIL SERVICES
- Mr. Brunette was formerly with the Incredible Universe division of
Tandy Corporation as Merchandise Manager for consumer electronics.
Previously, Mr. Brunette was responsible for the development and
implementation of national merchandising and marketing programs as
National Category Manager for Circuit City Stores. Prior to his National
Category assignment, he held a number of progressive merchandise
positions within Circuit City. Mr. Brunette will be responsible for the
strategic direction of POWERFUL STUFF merchandising, including buying,
merchandising promotions and vendor relations, as well as customer
services and warehousing and distribution.
2. REBECCA L. HARVEY, SENIOR VICE PRESIDENT, RETAIL OPERATIONS - Ms.
Harvey was formerly Vice President, Sales/Human Resources Administrator
of Champs Sports, where she had responsibility for human resource
functions, store operations, and training programs during the period
when Champs grew from 40 to over 500 stores. Ms. Harvey previously
worked in training and development for Joske's of Texas Department
Stores (Allied Stores) and Maas Brothers Department Stores. Ms. Harvey
was also Director, National Accounts, for AEI Music Network where she
was responsible for creating enhanced audio and media environments for
major retail chains. Ms. Harvey will be responsible for POWERFUL
STUFF's operations and the
<PAGE>
Page 52
Company's marketing strategy, as well as for recruiting and training of
the 4000 POWERFUL STUFF people needed to achieve PLAN 2000's objectives.
3. KENNETH C. MARINO, SENIOR VICE PRESIDENT, REAL ESTATE - Mr. Marino was
formerly Director of Real Estate for Sunglass Hut International, Inc.
During a period of exceptional growth and multiple unit rollout, Mr.
Marino played a key role in Sunglass Hut's expansion to over 2000 stores
in shopping centers across North America. Mr. Marino will be
responsible for POWERFUL STUFF's real estate rollout program.
4. RONALD K. SCHMIDT, VICE PRESIDENT, CONSTRUCTION - Mr. Schmidt has
extensive retail construction background, working with national tenants
and contractors in a project management capacity with various
developers, including Rouse, Federated Stores Realty and Prime Group.
In addition to construction his responsibilities, Mr. Schmidt has been
responsible for overseeing tenant coordination programs while working on
mall developments, including Town Center in Boca Raton, Tampa Bay
Center, Foot Hills Mall in Tucson and Sherway Gardens Mall in Toronto.
Mr. Schmidt will employ his 20 years of retail construction experience
to build Power Plus' construction division to support the development of
250+ POWERFUL STUFF stores a year.
C. MANAGEMENT ORGANIZATION CHART
[MANAGEMENT ORGANIZATION CHART]
<PAGE>
Page 53
D. FORMER SIGNIFICANT EMPLOYEES
The Company no longer maintains employment associations with:
i. Mr. G. Thomas Alison, formerly acting Chief Operating Officer;
ii. Mr. Chuck Rogers, formerly Vice President, Retail Operations;
iii. Ms Sandra Porter, formerly Vice President, Finance and Administration;
iv. Mr. Kenneth Levin, formerly Senior Vice-President, Wireless Division;
and,
v. Mr. Joseph Adler, formerly Vice President, Construction.
E. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
None of the Company's officers or directors have filed reports on Forms 3, 4
& 5 with the Securities and Exchange Commission. Officers and directors file
similar insider reports with The Alberta Stock Exchange as required.
ITEM 11 -- EXECUTIVE COMPENSATION
1. During Fiscal 1997, the Company employed a total of ten (10) executive
officers. The aggregate cash compensation (including salaries, fees,
commissions, bonuses paid for services rendered during the most recently
completed fiscal year, bonuses paid during the most recently completed
fiscal year for services rendered in a previous fiscal year, and any
compensation other than bonuses earned during the most recently
completed fiscal year the payment of which was deferred) paid to such
executive officers by the Company and its subsidiaries for services
rendered during Fiscal 1997 was approximately $766,438.
2. There were no amounts set aside nor accrued by the Company during Fiscal
1997 to provide pension, retirement or similar benefits for the officers
and directors of the Company, pursuant to any existing plan, contract,
authorization or arrangement provided or contributed to by the Company.
3. The directors of the Company are entitled to but have not received a fee
for attending meetings and are reimbursed for travel and other expenses
properly incurred while attending meetings of the Board of Directors or
any committee thereof or in the performance of their duties as directors
of the Company. The directors are eligible to receive stock options
pursuant to the Company's Incentive Stock Option Plan, as described
below.
4. INCENTIVE STOCK OPTION PLAN
i. Pursuant to a resolution of the Board of Directors of the Company
dated 20 June 1996, the Company established a stock option plan for
the Board of Directors, management, employees, consultants and
associates of the Company (the "Stock Option Plan"). The
shareholders approved and ratified the adoption of the Stock Option
Plan at Fiscal 1996's Annual General and Special Meeting of Common
Shareholders. The purpose of the Stock Option Plan is to afford
persons who provide services to the Company, whether as directors,
management, employees or otherwise, an opportunity to obtain a
proprietary interest in the Company by
<PAGE>
Page 54
permitting them to purchase Common Shares and to aid in attracting,
as well as retaining and encouraging, the continuing involvement of
such persons with the Company. Subject to the terms of the Stock
Option Plan, the Board of Directors have full authority to
administer the Stock Option Plan upon such terms as the Board of
Directors, in their sole discretion, shall determine, provided no
option shall be granted under the Stock Option Plan after 10 July
2001. Up to ten percent (10%) of the issued and outstanding Common
Shares of the Company, from time-to-time on a non-diluted basis,
have been reserved and set aside for issuance upon exercise of
options which may be granted pursuant to the Stock Option Plan.
ii. A copy of the Stock Option Plan may be obtained at no charge by
each shareholder of the Company upon written request being made to
the Chief Financial Officer of the Company, at the executive
offices of the Company.
iii. No stock options were granted to executive officers or directors
during Fiscal 1997.
iv. There are no stock options issued and outstanding as at the date
hereof. However, the Board of Directors of the Company has
resolved, subject to regulatory approval, to reserve for issuance
up to and until 30 September 1997, stock options to purchase up to
and including 950,000 Common Shares for granting to the Company's
directors, officers, employees, advisors and consultants, at an
exercise price of $1.25. This resolve is a matter of business for
the resolve of the Company's shareholders at Fiscal 1997's upcoming
Annual General Meeting of Common Shareholders on 12 September 1997.
5. OTHER PLANS
i. The Company does not have any pension or retirement plans.
ii. There is no plan or arrangement in respect of compensation received
or that may be received by executive officers or directors in the
most recently completed fiscal year with a view of compensating
those officers in the event of their termination of employment or a
change of responsibilities following a change of control.
iii. Other than as herein set forth, the Company did not pay any
additional compensation to the executive officers or directors
(including personal benefits and securities or properties paid or
distributed which compensation was not offered on the same terms to
all full-time employees), during Fiscal 1997.
6. Other than as herein set forth, no director, executive officer nor any
of their respective associates or affiliates is or has been at any time
since the beginning of the last completed fiscal year indebted to the
Company or any of its subsidiaries.
7. There are no material interests, direct or indirect, of the current
directors, executive officers, and shareholders who beneficially own,
directly or indirectly, more than five percent (5%) of the outstanding
Common Shares or any known associate or affiliates of such persons, in
any transaction which has materially affected the Company other than as
hereinafter set forth.
None of the Company's executive officers participated in any decisions
concerning the compensation of executive officers, this being expressly the
responsibility of the Company's Advisory Compensation Committee.
<PAGE>
Page 55
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the amount of Common Shares beneficially owned
by directors and executive officers of the Company and each person known by
the Company to be beneficial owner of more than five percent of the Common
Shares as of 18 July 1997.
A. DIRECTORS AND OFFICERS SHAREHOLDINGS
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS (2)
------------------------ ------------------------ ------------
<S> <C> <C>
J. Douglas Elliott NIL NIL
R. Bruce Freeman 15,000 Less than 1%
John Bronson 75,000 Less than 1%
Paul Brunette NIL NIL
Rebecca Harvey NIL NIL
Kenneth C. Marino NIL NIL
Harley Mintz 70,000 Less than 1%
Eric D. Sigurdson 10,000 Less than 1%
David A. Williams 710,000 9.3%
------- -----
All executive officers and directors as a group 880,000 11.5%
------- -----
------- -----
</TABLE>
B. OTHER SHAREHOLDINGS EXCEEDING FIVE PERCENT (5%)
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS (2)
------------------------ ------------------------ ------------
<S> <C> <C>
AGF Management Limited 526,890 7%
BPI Canadian Opportunities Fund 926,890 12%
------- ---
Total 1,453,780 19%
--------- ---
--------- ---
1 Securities beneficially owned include: securities which the named person has the right to acquire
within 60 days as of the date hereof, such as through the exercise of any option, warrant or right;
securities directly or indirectly held by the named person or by certain members of his family for
which the named person has sole or shared voting or investment power.
2 Percent of class based on 7,620,730 Common Shares outstanding as of the date hereof. Common
Shares which an individual or group has the right to acquire within 60 days pursuant to the exercise
of options are deemed to be outstanding for the purpose of computing the percentage ownership of
such individual or group, but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other individual or group shown in the table.
3 Elliott & Associates, Inc. (which provides the services of J. Douglas Elliott as the Chairman, CEO
and President of the Company) and R. Bruce Freeman are expected to have the opportunity to derive
material benefit from the potential of participation in the Company's Stock Option Plan (see ITEM 11
(4) - EXECUTIVE COMPENSATION) and from the Management Services Agreement (see ITEM 13 (1) -
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS).
</TABLE>
<PAGE>
Page 56
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
1. The Company's Advisory Compensation Committee and Board of Directors
agreed to enter into a 5-year Management Services Agreement made between
the Company and a private Management Company beneficially owned and
controlled by Elliott & Associates, Inc. (which provides the services of
J. Douglas Elliott as the Chairman, CEO and President of the Company)
and R. Bruce Freeman, the Vice Chairman, CFO and Treasurer of the
Company. The Board of Directors and the Advisory Compensation Committee
consider that the general terms of the Management Services Agreement, as
proposed, provide for an appropriate and complete incentive-based
compensation package in terms comparable to normal industry standards,
designed to ensure the ongoing care and management of the Company while
providing reasonable compensation for the executive officers critical to
the turnaround and reorganization of the Company's business and to its
future success. The entering into of the Management Services Agreement
has been approved by the Company's shareholders. Subject to the final
approval of the Advisory Compensation Committee and Board of Directors
as to the details of the Management Services Agreement and final
regulatory approval, this Agreement includes the following general terms
and conditions:
i. a term expiring on 31 January 2000;
ii. the reimbursement of the Management Company's unpaid historical
services provided to the Company together with expenses incurred
from 1 September 1994, up to and including 29 February 1996, by the
issuance of 200,000 Common Shares of the Company;
iii. the payment of an annual management fee to be determined by the
Advisory Compensation Committee and approved by the Board of
Directors; plus industry standard benefits and the reimbursement of
all reasonable out-of-pocket expenses incurred by the Management
Company on behalf of the Company; and,
iv. the issuance of up to and including 400,000 post-consolidated
Common Shares of the Company at a zero cost base, issuable over the
term of the Management Services Agreement upon achieving certain
performance thresholds during each of the periods ended 31 January
1997, 31 January 1998, 31 January 1999, and 31 January 2000, the
particulars of which performance thresholds are to be determined by
the Advisory Compensation Committee and the Board of Directors.
2. The Company retains Ogilvie & Company, Barristers & Solicitors, of which
Michael J. Perkins is a partner, to perform specialty securities work
and for corporate organizational matters for which the Company incurred
fees of $152,955 in Fiscal 1997. Mr. Perkins is Corporate Secretary of
the Company.
<PAGE>
Page 57
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF POWER PLUS CORPORATION F-1
Auditors' Report dated 19 June 1997 F-2
Consolidated Balance Sheets for the fiscal years ended
31 January 1997 and 1996 F-3
Consolidated Statements of Operations for the fiscal
years ended 31 January 1997, 1996 and 1995 F-4
Consolidated Statements of Deficit for the fiscal years
ended 31 January 1997, 1996 and 1995 F-5
Consolidated Statements of Changes in Financial Position
for the fiscal years ended 31 January 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
2. INDEX OF FINANCIAL STATEMENT SCHEDULES
None
3. EXHIBITS
The exhibits listed on the accompanying index of exhibits
are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
1. Form 8K dated 31 October 1996, filed with the Securities and
Exchange Commission on 1 November 1996 reporting the
Company's 1-for-20 reverse stock split and the Company's
new trading symbols.
<PAGE>
Page 58
(c) Index of Exhibits
EXHIBIT DESCRIPTION
-----------
NUMBER
------
*3.1 Certificate of Incorporation, as amended, of the Company.
**3.2 By-laws of the Company.
**4.1 Specimen Common Share Certificate.
**4.2 Incentive Stock Option Plan.
4.3 Form of Special Note
***16 Letter regarding change in the Company's Auditors from
Price Waterhouse, LLP, of Pittsburgh, Pennsylvania, to
BDO Dunwoody, Chartered Accountants, of Toronto, Canada.
27 Financial Data Schedule (EDGAR purposes only)
______________________________
* A complete copy of the Company's Articles of Incorporation, as they
existed before the amendment filed as an exhibit to this document, were
previously filed as an exhibit to the Company's Annual Report on Form
20-F with the Securities and Exchange Commission for the fiscal year
ended 12 April 1990 and incorporated herein by reference thereto.
** Previously filed as an exhibit to the Company's Annual Report on Form
20-F with the Securities and Exchange Commission for the fiscal year
ended 12 April 1990 and incorporated herein by reference thereto.
*** Previously filed as an exhibit to the Company's Form 8-K filed dated 15
April 1996 and incorporated herein by reference thereto.
<PAGE>
Page 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the SECURITIES
EXCHANGE ACT OF 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
POWER PLUS CORPORATION
Date: 7 August 1997 By: /s/ J. Douglas Elliott
-----------------------
J Douglas Elliott
Chief Executive Officer
Pursuant to the requirements of the SECURITIES EXCHANGE ACT OF 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of the 7th day of August 1997.
/s/ J. Douglas Elliott
---------------------------------
J Douglas Elliott
Chairman, CEO and President
(Principal Executive Officer)
/s/ R. Bruce Freeman
---------------------------------
R Bruce Freeman
Vice Chairman, CFO
(Principal Financial and Accounting
Officer)
/s/ Eric D. Sigurdson
---------------------------------
Eric D.Sigurdson
<PAGE>
Page F - 1
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Auditors' Report dated 19 June 1997 F-2
Consolidated Balance Sheets for the fiscal years ended
31 January 1997 and 1996 F-3
Consolidated Statements of Operations for the fiscal years
ended 31 January 1997, 1996 and 1995 F-4
Consolidated Statements of Deficit for the fiscal years
ended 31 January 1997, 1996 and 1995 F-5
Consolidated Statements of Changes in Financial Position
for the fiscal years ended 31 January 1997, 1996
and 1995 F-6
Notes to Consolidated Financial Statements F-7
<PAGE>
Page F - 2
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
The management of Power Plus Corporation is responsible for the preparation
of the accompanying financial statements and the preparation and presentation
of all information in the Annual Report. The consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in Canada and are considered by management to present
fairly the financial position and operating results of the Company.
The Company maintains various systems of internal control to provide
reasonable assurance that transactions are appropriately authorized and
recorded, that assets are safeguarded, and that financial records are
properly maintained to provide accurate and reliable financial statements.
The Company's audit committee meets periodically with the Company's
management and independent auditors to review financial reporting matters and
internal controls and to review the consolidated financial statements and the
independent auditors' report. The audit committee reported its findings to
the Board of Directors who have approved the consolidated financial
statements.
The Company's independent auditors, BDO Dunwoody, Chartered Accountants, have
examined the financial statements and their report follows.
J. Douglas Elliott R. Bruce Freeman
Chairman, CEO & President Vice Chairman, CFO & Treasurer
-------------------------------------------------------------------
AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF POWER PLUS CORPORATION:
We have audited the consolidated balance sheet of Power Plus Corporation as
at 31 January 1997 and 1996 and the consolidated statements of operations,
deficit and changes in the financial position for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at 31 January
1997 and 1996 and the results of its operations and the changes in its
financial position for the years then ended in accordance with generally
accepted accounting principles.
The consolidated financial statements as at 31 January 1995 and for the
period then ended were audited by other auditors who expressed an opinion
without reservation thereon in their report dated 16 June 1996.
___________________________
BDO Dunwoody
Chartered Accountants
Toronto, Canada
19 June 1997
<PAGE>
Page F - 3
POWER PLUS CORPORATION
CONSOLIDATED BALANCE SHEETs
as at 31 January
($-AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS)
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $4,341,243 $1,288
Accounts receivable 202,319 64,001
Inventory 1,809,529 0
Prepaid expenses 395,849 19,760
------- ------
6,748,940 85,049
Capital assets, net - SEE NOTE 5 2,652,157 0
Deferred charges, net - SEE NOTE 6 705,120 244,986
Other assets, net - SEE NOTE 6 937,637 0
------- -
$11,043,854 $330,035
----------- --------
----------- --------
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities $2,715,813 $507,208
Special Notes - SEE NOTE 7 4,740,000 0
--------- -
7,455,813 507,208
--------- -------
SHAREHOLDERS' EQUITY / (DEFICIENCY)
Share capital - SEE NOTE 8
Authorized at no par value:
An unlimited number of common shares
An unlimited number of preferred shares
Issued: 4,508,562 common shares
(1996 - 39,192,975 PRE-CONSOLIDATION
COMMON SHARES) 7,398,300 26,016,484
Convertible component of Special Notes
- SEE NOTE 7 1,400,000
Deficit - SEE NOTE 8 (5,210,259) (26,193,657)
----------- ------------
3,588,041 (177,173)
--------- ---------
$11,043,854 $330,035
----------- --------
----------- --------
<PAGE>
Page F - 4
POWER PLUS CORPORATION
Consolidated Statements of Operations
31 January 1997, 1996 and 1995
($-AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
- SEE NOTES 2 & 4 - SEE NOTES 2 & 4
<S> <C> <C> <C>
SALES $4,080,598 $5,375,229 $8,547,973
Cost of sales 2,389,115 2,268,678 4,199,471
--------- --------- ---------
Gross profit 1,691,483 3,106,551 4,348,502
--------- --------- ---------
EXPENSES
Operating and administration 7,105,723 7,229,637 5,637,840
Amortization 273,187 299,698 200,078
------- ------- -------
LOSS FROM OPERATIONS 5,687,427 4,422,784 1,489,416
Loss from abandonment of Former
Subsidiaries 0 118,767 0
- ------- -
NET LOSS FOR PERIOD $5,687,427 $4,541,551 $1,489,416
---------- ---------- ----------
---------- ---------- ----------
LOSS PER SHARE - SEE NOTE 8
NET LOSS PER SHARE $2.54 $2.50 $0.94
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,238,281 1,814,534 1,590,307
(RESTATED ON A POST-CONSOLIDATION
BASIS FOR 1996 AND 1995)
</TABLE>
<PAGE>
Page F - 5
POWER PLUS CORPORATION
Consolidated Statements of Deficit
31 January 1997, 1996 and 1995
($-AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
- SEE NOTES 2 & 4 - SEE NOTES 2 & 4
<S> <C> <C> <C>
Deficit, beginning of period $26,193,657 $21,652,106 $20,162,690
Net loss for period 5,687,427 4,541,551 1,489,416
Less: Stated capital reduction
- SEE NOTE 8 26,670,825 0 0
---------- - -
Deficit, end of period $5,210,259 $26,193,657 $21,652,106
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<PAGE>
Page F - 6
POWER PLUS CORPORATION
Consolidated Statements of Changes in Financial Position
31 January 1997, 1996 and 1995
($-AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
- SEE NOTES 2 & 4 - SEE NOTES 2 & 4
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
Loss for period $(5,687,427) $(4,541,551) $(1,489,416)
Items not affecting cash
Loss on abandonment of Former
Subsidiaries 0 118,767
Amortization 273,187 299,698 200,078
------- ------- -------
(5,414,240) (4,123,086) (1,289,338)
Changes in non cash operating items
Accounts receivable (138,318) 92,089 (126,329)
Inventory (1,809,529) 2,086,443 (237,347)
Prepaid expenses (376,089) 171,721 (75,396)
Accounts payable and accrued liabilities 2,208,605 (1,600,936) 142,832
On abandonment of Former Subsidiaries 0 1,964,066 0
- --------- -
(5,529,571) (1,409,703) (1,585,578)
----------- ----------- -----------
CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES
Issue of common shares and warrants 8,052,641 1,334,100 1,795,402
Notes payable 0 (44,257) (5,743)
Special Notes - SEE NOTE 7 6,000,000 0 0
--------- - -
14,052,641 1,289,843 1,789,659
---------- --------- ---------
CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES
Purchase of capital assets - SEE NOTE 3 (2,671,310) 0 (19,889)
Deferred charges (550,573) (209,106) (35,780)
Purchase of other assets - SEE NOTE 3 (961,232) 0 0
--------- - -
(4,183,115) (209,106) (55,669)
----------- --------- --------
Increase (decrease) in cash during period 4,339,955 (328,966) 148,412
Cash, beginning of period 1,288 330,254 181,842
----- ------- -------
CASH, END OF PERIOD $4,341,243 $1,288 $330,254
---------- ------ --------
---------- ------ --------
</TABLE>
<PAGE>
Page F - 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Power Plus Corporation is building a specialty chain of niche retail
stores throughout North America. Power Plus Corporation, through its
wholly-owned subsidiaries Power Plus USA, Inc. and Power Plus Canada,
Inc., (collectively, "Power Plus" or the "Company"), operated 51 retail
stores at the conclusion of the fiscal year ended 31 January 1997 ("Fiscal
1997") under the trade name POWERFUL STUFF! The majority of these stores
were opened in the last four months of Fiscal 1997. The stores, operating
from leased premises in major enclosed shopping malls in the US and Canada
and ranging from 150 to 700 square feet (averaging approximately 300
square feet), sell wireless communication products and services (beepers,
cellular phones, personal communication systems and related service
contracts), and hand-held electronic communications, entertainment,
business and lifestyle products.
The Company has not yet reached the 125 store level at which point
management estimates it will attain profitable operations. Both long-term
debt and new equity capital will be necessary to fund future expansion and
the operating losses incurred during its growth phase. The Company's
Reorganization Plan, and related Financing Plan, approved by both
shareholders and regulators in July 1996, and the Plan of Arrangement
approved by the Court, contemplates this reality and provides the
structure to accommodate these requirements. As at the end of Fiscal
1997, the Company had received both the equity capital and long-term debt
amounts called for in the plan, although the timing of the receipts was in
arrears of that projected. Management anticipates reaching critical mass
by the end of calendar 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
a.) BASIS OF PRESENTATION
Power Plus Corporation was incorporated on 15 December 1986 under the
BUSINESS CORPORATIONS ACT, ALBERTA. Power Plus Canada, Inc. was
incorporated on 21 July 1988 and was acquired on 13 January 1989,
although it remained inactive until July 1996 when it became the
entity operating the Canadian chain of retail stores. Power Plus USA,
Inc. was incorporated on 27 February 1996 and is the entity operating
the US chain of retail stores. Effective 1 September 1996, Power Plus
USA, Inc. acquired certain business assets, including lease
entitlements, from Consumer Electronics Specialty Stores, Inc.
("CESS"), a privately-owned Florida-based retail chain and wireless
reseller. SEE ALSO NOTE 3.
In addition, Power Plus Corporation also owns two other subsidiaries:
First Olympia Holdings, Inc. and 554618 Alberta, Inc., the latter
being inactive.
These consolidated financial statements are prepared in accordance
with generally accepted accounting principles in Canada and are
expressed in Canadian dollars.
<PAGE>
Page F - 8
b.) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements for Fiscal 1997 include the
accounts of Power Plus Corporation, Power Plus Canada, Inc., Power
Plus USA, Inc. and First Olympia Holdings, Inc.
During the year ended 31 January 1996 ("Fiscal 1996") and the 9-month
period ended 31 January 1995, Power Plus Corporation (then named
Battery One, Inc.) conducted all of its business through its then
wholly-owned subsidiaries, Battery One-Stop International Inc.
("BOSI") and Batteries Etc., Inc. ("Etc."), (collectively, the "Former
Subsidiaries"). During Fiscal 1996 the Former Subsidiaries were
assigned into bankruptcy, management ceased to control their affairs
and they were abandoned. Accordingly, the Company's net investment in
BOSI and Etc. was written off and it ceased to consolidate their
accounts and operating results on 14 December 1995 and on 8 December
1995, respectively. The comparative consolidated financial statements
include the accounts of the Battery One, Inc., BOSI and Etc. SEE ALSO
NOTE 4.
All significant intercompany accounts and transactions between the
Company and its subsidiaries have been eliminated.
c.) INVENTORY
Inventory consists entirely of finished goods held for resale and is
carried at the lower of cost or estimated net realizable value. Cost
was determined using the first-in, first-out inventory valuation
method.
d.) PREPAID EXPENSES
Prepaid expenses consist of amounts paid before the accounting period
when such amounts will become expenses and matched to the results of
the expenditure. Such amounts include utility, rent and construction
deposits.
e.) FOREIGN CURRENCY TRANSLATION
Operations of the Company's US subsidiary are considered to be
integrated with the Company and accordingly it accounts for the
translation of foreign currency transactions and related financial
statement items using the temporal method. Under this method, monetary
items are translated at the rate of exchange in effect at the balance
sheet date, non-monetary items are translated at historical exchange
rates, and revenue and expense items are translated at average rates
of exchange for the period in which they occur. Exchange gains and
losses are included in the determination of net income.
f.) CAPITAL ASSETS
Capital assets are recorded at cost. The provision for amortization
is calculated on a straight-line basis on the original cost over the
following estimated useful lives:
Leasehold improvements 10 years
Store furniture and fixtures and kiosks 5 years
Office and warehouse equipment 5 years
Computer software and hardware 5 years
Store design and set-up costs 3 years
Costs capitalized for new stores and kiosks include all design,
delivery, installation and construction costs.
<PAGE>
Page F - 9
g.) DEFERRED CHARGES
Deferred charges are recorded at cost. These costs include patent and
trademark filing costs, intellectual properties, cost of raising
capital and such other costs that are properly deferred to be matched
against the result of the expenditure. The long-term amounts are
subject to amortization where the short-term amounts are expensed in
the period when the event is completed. The provision for
amortization is calculated on a straight-line basis on the original
cost over the following four years. Costs of raising capital are
deferred until such time as the related transactions are completed and
the cost of issuing the Special Notes is amortized over the life of
the Special Notes.
The provision for amortization is calculated on a straight-line basis
on the original cost over the following estimated useful lives:
Trade marks, trade names, intellectual
properties 10 years
Customer list 10 years
Deferred cost of raising equity capital until transaction
completed
Costs for issuing Special Notes over five-year life of
Special Notes
h.) FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable and accrued
liabilities and special notes. Approximately $35,000 of financial
assets and $1,672,000 of financial liabilities are denominated in
United States Dollars and the Company is exposed to currency risk
accordingly. It is management's opinion that the Company is not
exposed to interest rate or credit risks arising from these financial
instruments. The fair values of these financial instruments
approximate their carrying values, unless otherwise noted.
i.) ACCOUNTING 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 at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimated.
3. PURCHASE OF CERTAIN BUSINESS ASSETS
On 1 October 1996, Power Plus USA, Inc. completed the purchase of certain
assets, lease entitlements and the business called PORTRONICS, from CESS.
The acquisition, which was effective 1 September 1996, included 13 leased
retail locations in Florida, inventories, two rented warehouse/retail
facilities and pager repair facilities, one office location and CESS's
proprietary interests.
<TABLE>
<CAPTION>
<S> <C> <S> <C>
Assets acquired were: Consideration therefor was:
Merchandise inventory $341,566 Cash, on closing $599,189
Furniture, fixtures & equipment 205,500 Current liabilities assumed 119,178
Customer list 685,000 Amount paid subsequent to Fiscal 1997 513,699
------- -------
$1,232,066 $1,232,066
---------- ----------
---------- ----------
</TABLE>
<PAGE>
Page F - 10
4. CESSATION OF CONTROL OF THE FORMER SUBSIDIARIES
In December 1995, BOSI made a voluntary assignment into bankruptcy
pursuant to the CANADIAN BANKRUPTCY AND INSOLVENCY ACT. Also in December
1995, Etc. made a voluntary petition seeking protection under Chapter 11
of the US BANKRUPTCY CODE, which in January 1996, was converted to a
Chapter 7 filing. The Company was the largest creditor of the Former
Subsidiaries.
The Company is not directly nor indirectly liable for any debt or
liability of the Former Subsidiaries and has no outstanding guarantees or
undertakings with respect to any claim against the Former Subsidiaries.
5. CAPITAL ASSETS
31 JANUARY 1997
---------------------------------
ACCUMULATED
COST AMORTIZATION NET
---- ------------ ---
Store furniture and fixtures
and kiosks $381,112 $0 $381,112
Leasehold improvements 771,794 0 771,794
Office and warehouse equipment 350,104 19,153 330,951
Computer software and hardware 1,029,633 0 1,029,633
Store design and set-up costs 138,667 0 138,667
------- - -------
$2,671,310 $19,153 $2,652,157
---------- ------- ----------
---------- ------- ----------
The majority of stores were opened in the last four months of Fiscal 1997
and because of the limited time these assets were deployed in the year,
the Company did not amortize its capital investment.
The Company did not own any Capital Assets as at the end of Fiscal 1996.
<PAGE>
Page F - 11
6. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges consist of the deferred cost of raising capital for the
Company, where the transaction is still pending, costs including fees paid
to the Company's fiscal agent for raising the funding for the Special
Notes, and certain restructuring and reorganizing costs.
31 JANUARY 1996
------------------------------------
ACCUMULATED
COST AMORTIZATION NET
---- ------------ ---
Deferred issuing cost of
capital and long-term debt $256,946 $11,960 $244,986
-------- ------- --------
-------- ------- --------
31 JANUARY 1997
-----------------------------------
ACCUMULATED
COST AMORTIZATION NET
---------- ------------ ---------
Trade marks, trade names
and intellectual properties $276,232 $23,595 $252,637
Customer list 685,000 0 685,000
------- - -------
Other assets 961,232 23,595 937,637
Deferred issuing cost of
capital and long-term debt 795,560 90,440 705,120
------- ------ -------
$1,756,792 $114,035 $1,642,757
---------- -------- ----------
---------- -------- ----------
Included in deferred charges in Fiscal 1996 are amounts pertaining to the
cost of raising capital for the Company, which transactions closed in
March 1996.
The deferred issuing cost of capital is charged to the cost of issuing
shares when issued. The deferred issuing costs of long-term debt are
amortized as financing charges over the term of the debt.
The Company did not amortize the customer list during Fiscal 1997 because
of the limited time between its acquisition and the year end.
7. SPECIAL NOTES
The Company completed a $6 million Special Notes 5-year 10% convertible
fixed and floating charge debentures private placement debt financing
during Fiscal 1997, in accordance with the Financing Plan. The Special
Notes are convertible, in whole or in part, into Common Shares of the
Company at any time, at $2.50 per share, representing potential future
dilution of up to 2.4 million Common Shares, and are secured by all the
assets of Power Plus Corporation.
At any time on or after the third anniversary date from their date of
issue, the Company has the right, upon reasonable notice, to compel
holders of the Special Notes to convert all or any part of the
indebtedness into Common Shares for $2.50 per share, on the condition that
the shares have traded at a weighted average price of $4.00 per share or
greater during the preceding 10 trading days. Failing conversion by
holders of the Special Notes in the circumstances of such notice, the
Company has the right to repay the whole or any part of the Special Notes,
on a PRO RATA basis.
<PAGE>
Page F - 12
Interest is payable on the Special Notes semi annually, on the 31st day of
January and July. Interest paid on the Special Notes during Fiscal 1997
was $251,100.
In the opinion of management, the convertible feature of the Special Notes
had an assignable fair value of $1,400,000 at the date of issuance, which
amount has been classified as a component of shareholders' equity.
Correspondingly, the liability component of the Special Notes had an
assignable fair value of $4,600,000 at the date of issuance and the
difference between this amount and their face value is being amortized on
a straight-line basis over their term. For Fiscal 1997, this
amortization amounted to $140,000.
8. SHARE CAPITAL
The Company arranges the private placement of warrant financings from time
to time and records the proceeds as equity upon the receipt thereof. As
and when the warrants are exchanged for Common Shares, the Company records
the issuance of shares. During Fiscal 1997, the Company reorganized its
share capital and raised new equity, in accordance with the Financing Plan
and Plan of Arrangement, as follows:
a.) Effective 1 November 1996, the Company's 44,765,613 issued and
outstanding common shares were reorganized on the basis of a 20 for 1
consolidation. Each 20 pre-consolidation shares were exchanged for 1
post-consolidation share and 1 exchange right ("Exchange Right").
Each Exchange Right entitled the holder to purchase for $2.00 one
exchange right unit consisting of 1 Common Share and 1 Class A
Warrant. Each Class A Warrant entitles the holder to purchase prior to
30 September 1997, 1 Common Share for $2.00 and receive 1 Class AA
Warrant. Each Class AA Warrant, in turn, entitles the holder to
purchase prior to 1 March 1998, 1 Common Share for $2.50. By the end
of Fiscal 1997, 2,238,281 Exchange Rights had been exchanged for an
equal number of Common Shares and Class A Warrants. In addition,
30,525 Class A and 1,475 Class AA Warrants were exercised.
b.) The Company reduced both the stated capital amount for Common Shares
and the accumulated deficit by $26,670,825 in order to better present
its financial repositioning.
c.) During Fiscal 1997, the Company completed a Special Warrant private
placement equity financing comprised of 2.25 million Special Warrants
(originally 45 million Special Warrants pre-consolidation) for $4.5
million. Of this amount, $1.1 million was received in the Quarter 3
of Fiscal 1996. Each Special Warrant entitled the holder to receive 1
Common Share and 1 Class B Warrant. Each Class B Warrant entitles the
holder to purchase, prior to 30 September 1997, 1 Common Share for
$2.00 and receive 1 Class BB Warrant which, in turn, entitles the
holder to purchase, prior to 1 March 1998, 1 Common Share for $2.50.
None of the Class B Warrants and Class BB Warrants were exercised by
Fiscal 1997 year end.
As the Special Warrants were not qualified for trading prior to 26
July 1996, the Company was obliged to issue for no consideration 1
Penalty Special Warrant, having the same rights and entitlements, for
every 10 Special Warrants. This resulted in the issuance of 225,000
Penalty Special Warrants. All Special Warrants are convertible into
common shares, for no additional consideration, one year after their
date of their issue.
<PAGE>
Page F - 13
d.) The following table sets out the changes to the stated capital and
Common Shares.
SHARES DOLLARS
---------- -----------
31 JANUARY 1995 BALANCE 33,914,521 $24,682,384
---------- -----------
Shares issued for cash 780,000 $244,100
Warrants exchanged for shares 4,498,454
Advances in consideration of
Special Warrant issue 1,100,000
Cost of issuing (10,000)
---------- -----------
31 JANUARY 1996 BALANCE 39,192,975 $26,016,484
---------- -----------
PRE-CONSOLIDATION
Shares issued for payment in kind 900,000
Warrants issued for cash 3,773,125
Warrants exchanged for shares 4,672,638
---------
Total pre-consolidation
old shares outstanding 44,765,613
----------
----------
STOCK CONSOLIDATION AT 20:1 RATIO 2,238,281
POST-CONSOLIDATION
Exchange rights exercised for shares 2,238,281 4,476,561
Warrants issued for cash and
exchanged for shares 32,000 80,738
Cost of issuing (277,783)
STATED CAPITAL REDUCTION (26,670,825)
---------- ------------
31 JANUARY 1997 BALANCE 4,508,562 $7,398,300
--------- ----------
--------- ----------
<PAGE>
Page F - 14
e.) The following table summarizes the steps both completed and
contemplated by the Financing Plan.
<TABLE>
<CAPTION>
$-AMOUNTS ARE EXPRESSED INMILLIONS; ASSUMING MAXIMUM DILUTION) SHARES CAPITAL TIMING
------ ------- ------
<S> <C> <C> <C> <C>
i. CURRENT SHARE CAPITALIZATION (from 44,765,613 shares on 20:1 basis):
a.) POST-CONSOLIDATION common shares and equal number of Exchange Rights Units 2,238,281 $0.0 completed
Nov. 1996
b.) POTENTIAL DILUTION AND CAPITAL DERIVED FROM EXCHANGE RIGHT UNITS:
i) One Exchange Rights Unit to receive one common share at $2.00 and one 2,238,281 $4.5 completed
Class A Warrant Jan. 1997
ii) One Class A Warrant to purchase one common share at $2.00 and receive one 2,238,281 $4.5 estimated
Class AA Warrant Sep. 1997
(note: 30,525 Class A Warrants were exercised prior to Fiscal 1997 year
end.)
iii) One Class AA Warrant to purchase one common share at $2.50 2,238,281 $5.6 estimated
(note: 1,475 Class AA Warrants were exercised prior to Fiscal 1997 year Mar. 1998
end.)
iv) Agent's Option to purchase up to 225,000 common shares at $2.00 and 225,000 $0.4 completed
receive the equivalent number of Agent's Option Class A Warrants Dec. 1996
v) Agent's Option Class A Warrants to purchase up to 225,000 common shares at 225,000 $0.4 estimated
$2.00 and receive the equivalent number of Agent's Option Class AA Warrants Sep. 1997
vi) Agent's Option Class AA Warrants to purchase up to 225,000 common shares 225,000 $0.6 estimated
at $2.50 Mar. 1998
ii. SPECIAL WARRANT PRIVATE PLACEMENT FINANCING:
a.) Special Warrants at $2.00, exchanged during first quarter of Fiscal 1998, for 2,225,000 $4.5 completed
common shares and an equal number of Class B Warrants Mar. 1996
b.) One Class B Warrant to purchase one common share at $2.00 and receive one 2,225,000 $4.5 estimated
Class BB Warrant Sep. 1997
c.) One Class BB Warrant to purchase one common share at $2.50 2,225,000 $4.6 estimated
Mar. 1998
d.) Penalty Special Warrants to receive 225,000 common shares at no cost and 225,000 $0.0 completed
255,000 Class B Penalty Warrants Jan. 1997
e.) Class B Penalty Warrants to purchase up to 225,000 common shares at $2.00 and 225,000 $0.5 estimated
receive the equal number of Class BB Penalty Warrants Sep. 1997
f.) Class BB Penalty Warrants to purchase up to 225,000 common shares at $2.50 225,000 $0.6 estimated
Mar. 1998
iii SPECIAL NOTES: CONVERTIBLE INTO COMMON SHARES AT $2.50 PER SHARE
a.) $6 million - first tranche 2,400,000 $6.0 completed
Sep. 1996
b.) $5 million - second tranche 2,000,000 $5.0 estimated
Aug. 1997
iv 1997 SPECIAL WARRANT PRIVATE PLACEMENT FINANCING
a.) Special Warrants purchase warrants for $1.75 to purchase common shares 1,714,285 $3.0 estimated
Aug. 1997
b.) Special Warrants purchase warrants to purchase common shares for $2.00 1,714,285 $3.4 estimated
--------- ---- Aug. 1998
v NUMBER OF SHARES, FULLY DILUTED (1) 24,881,694
----------
vi CAPITAL AVAILABLE ---------- $49.1
LESS amounts already received:
during Fiscal 1997 $14.3
during Fiscal 1996 $1.1
----
vii POTENTIAL CAPITAL remaining available from maximum dilution of existing $33.7
financing instruments outstanding. -----
-----
(1) Excludes amount of allowable management incentive options. There are no such options issued.
</TABLE>
<PAGE>
Page F - 15
On 29 July 1994, 3,000,000 share purchase warrants were exercised and the
Company issued 3,000,000 pre-consolidation common shares for cash proceeds
of $660,000. In addition, on 29 July 1994, the Company completed a private
placement financing of special warrants whereby it issued 6,363,636
special warrants at $0.22 each for cash proceeds of $1,400,000. Each
special warrant entitled the holder to convert the special warrant into
one pre-consolidation common share and one-half of one regular warrant.
One regular warrant entitled the holder to purchase one share of
pre-consolidation common share at $1.00 per share. During Fiscal 1996,
4,498,454 special warrants were exchanged and during the 9- month period
ended 31 January 1995, 1,297,000 special warrants were exchanged for
pre-consolidation common shares. The remaining 568,182 special warrants
were exchanged in February 1996.
The Company has neither issued nor had any stock options outstanding for
the past two years.
9. INCOME TAXES
During the year ended 31 January 1997 the Company incurred losses
aggregating $3,455,000 for Canadian Income Tax purposes, which expire in
2004, and losses of $2,092,000 for United States Income Tax purposes.
In addition, the Company had incurred losses as of 31 January 1996 of
$14,982,000 (1995 - $10,900,000) as a result of the bankruptcy of the
Former Subsidiaries during Fiscal 1996, the bankruptcy of a subsidiary
during Fiscal 1992 and business losses from operations. These losses have
not been recognized for accounting purposes. The loss carry-forwards
expire from 1998 to 2003 fiscal years although the ultimate extent to
which these losses may be applied against Canadian source earnings from
operations is yet to be determined. Losses from the operations of Former
Subsidiaries have been excluded from the foregoing. SEE ALSO NOTE 4.
10.CONTRACTUAL COMMITMENTS
The Company is committed to minimum annual lease payments under operating
commercial leases, under terms and conditions typical for retail space,
for store locations with initial terms in excess of one year, as follows:
Fiscal Year
-----------
1998 $1,960,609
1999 1,815,120
2000 1,668,157
2001 1,389,474
2002 2,074,868
---------
$8,908,228
----------
----------
<PAGE>
Page F - 16
11.SEGMENTED INFORMATION
The extent of the Company's operations in Canada and the United States for
the years ended 31 January 1997 and 1996, and the 9 months ended 31
January 1995, was as follows:
CANADA UNITED STATES TOTAL
------ ------------- -----
1997
----
Sales $503,429 $3,577,169 $4,080,598
Net loss $3,595,000 $2,092,427 $5,687,427
Total assets $7,422,843 $3,621,011 $11,043,854
1996
----
Sales $1,749,393 $3,625,836 $5,375,229
Net loss $1,076,324 $3,465,227 $4,541,551
Total assets $330,035 -- $330,035
1995
----
Sales $2,414,991 $6,132,982 $8,547,973
Net loss $498,134 $991,282 $1,489,416
Total assets $1,505,984 $3,676,695 $5,182,679
12.US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada. Except as set
out below, these financial statements also comply, in all material
respects, with accounting principles generally accepted in the United
States and the accounting rules and regulations of the Securities and
Exchange Commission.
a.) INCOME TAXES
In the United States, under the Financial Accounting Standards Board
SFAS 109, Accounting for Income Taxes, the Company would have used the
asset and liability method of accounting for income taxes, instead of
the deferral method. Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax
consequence attributable to temporary differences between the carrying
values of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Under SFAS 109, the Company would have tax assets as a result of
losses carried forward but would have chosen to provide an allowance
against these of 100 percent. Accordingly, its adoption would not
have had a material effect on the financial position or results of
operations of the Company.
<PAGE>
Page F - 17
b.) FOREIGN CURRENCY TRANSLATION
The Company accounts for the translation of its US subsidiaries
financial statements using the temporal method, as discussed in Note
2. In the United States under SFAS 52, all assets and liabilities
would be translated at the rate of exchange in effect at the balance
sheet date and the translation adjustments arising would be reflected
as a separate component of shareholders equity on the balance sheet.
The adoption of SFAS 52 would have had no material effect on the
financial position or results of operations of the Company.
c.) LONG-LIVED ASSETS
In the United States, under SFAS 121, the Company would be required to
review its long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that
the carrying value may not be recoverable, and, if deemed impaired,
measure and record an impairment loss based on the fair value of the
assets.
The adoption of SFAS 121 would have had no material effect on the
financial position or results of operations of the Company.
<PAGE>
SPECIAL NOTE INDENTURE
Dated as of August 8, 1996 and made effective
as of July 31, 1996
BETWEEN
BATTERY ONE, INC.
- and -
MONTREAL TRUST COMPANY OF CANADA
Providing for the Issue of a Series of up to
$6,000,000 10% Convertible Fixed and Floating Charge Secured Special Promissory
Notes
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
INTERPRETATION
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Gender and Number. . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Interpretation not Affected by Headings, etc.. . . . . . . . . . 5
1.4 Day not a Business Day . . . . . . . . . . . . . . . . . . . . . 5
1.5 Time of the Essence. . . . . . . . . . . . . . . . . . . . . . . 5
1.6 Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.7 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.8 Meaning of "Outstanding" . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 2
ISSUE OF SPECIAL NOTES
2.1 Principal Amount . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Form and Signature of Special Notes. . . . . . . . . . . . . . . 6
2.3 Issue of Special Notes . . . . . . . . . . . . . . . . . . . . . 6
2.4 Certification. . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Debentures to Rank Pari Passu. . . . . . . . . . . . . . . . . . 7
2.6 Registration and Transfer of Special Notes . . . . . . . . . . . 7
2.7 Persons Entitled to Payment. . . . . . . . . . . . . . . . . . . 7
2.8 Mutilation, Loss, Theft or Destruction . . . . . . . . . . . . . 8
2.9 Exchanges of Special Notes . . . . . . . . . . . . . . . . . . . 8
2.10 Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.11 Option of Holder as to Place of Payment. . . . . . . . . . . . . 8
2.12 Trustee Not Bound to Make Enquiries. . . . . . . . . . . . . . . 9
2.13 Noteholder Not a Shareholder . . . . . . . . . . . . . . . . . . 9
2.14 Exercise Terms of Special Notes. . . . . . . . . . . . . . . . . 9
ARTICLE 3
REPAYMENT
3.1 Covenant to Pay. . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Deemed Exercise. . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Order of Repayment . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 4
SECURITY FOR PAST, PRESENT AND FUTURE INDEBTEDNESS
4.1 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Mortgaged Property . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.4 Obligation to Pay. . . . . . . . . . . . . . . . . . . . . . . . 11
4.5 Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.6 Partial Release. . . . . . . . . . . . . . . . . . . . . . . . . 12
4.7 Proviso for Possession Until Default . . . . . . . . . . . . . . 12
<PAGE>
ii
ARTICLE 5
EXERCISE OF SPECIAL NOTES
5.1 Method of Exercise of Special Notes. . . . . . . . . . . . . . . 12
5.2 Effect of Exercise of Special Notes. . . . . . . . . . . . . . . 13
5.3 Partial Exercise of Special Notes; Fractions . . . . . . . . . . 14
5.4 Expiration of Special Notes. . . . . . . . . . . . . . . . . . . 14
5.5 Cancellation of Surrendered Special Notes. . . . . . . . . . . . 14
5.6 Accounting and Recording . . . . . . . . . . . . . . . . . . . . 14
5.7 Exercise by Trustee . . . . . . . . . . . . . . . . . . . . . . 14
5.8 Securities Restrictions. . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 6
INDEBTEDNESS
6.1 Covenant to Pay. . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Terms and Conditions of Special Notes. . . . . . . . . . . . . . 15
ARTICLE 7
RIGHTS OF THE CORPORATION AND COVENANTS
7.1 Optional Purchases by the Corporation. . . . . . . . . . . . . . 16
7.2 General Covenants. . . . . . . . . . . . . . . . . . . . . . . . 16
7.3 Trustee's Remuneration and Expenses. . . . . . . . . . . . . . . 17
7.4 Securities Qualification Requirements. . . . . . . . . . . . . . 17
7.5 Performance of Covenants by Trustee. . . . . . . . . . . . . . . 17
ARTICLE 8
ENFORCEMENT
8.1 Suits by Noteholders . . . . . . . . . . . . . . . . . . . . . . 17
8.2 Immunity of Shareholders, etc. . . . . . . . . . . . . . . . . . 18
8.3 Limitation of Liability. . . . . . . . . . . . . . . . . . . . . 18
8.4 Waiver of Default. . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 9
MEETINGS OF NOTEHOLDERS
9.1 Right to Convene Meetings. . . . . . . . . . . . . . . . . . . . 18
9.2 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.3 Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.4 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.5 Power to Adjourn . . . . . . . . . . . . . . . . . . . . . . . . 19
9.6 Show of Hands. . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.7 Poll and Voting. . . . . . . . . . . . . . . . . . . . . . . . . 20
9.8 Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.9 Corporation and Trustee May be Represented . . . . . . . . . . . 21
9.10 Powers Exercisable by Extraordinary Resolution . . . . . . . . . 21
9.11 Meaning of Extraordinary Resolution. . . . . . . . . . . . . . . 22
<PAGE>
iii
9.12 Powers Cumulative. . . . . . . . . . . . . . . . . . . . . . . . 22
9.13 Minutes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.14 Instruments in Writing . . . . . . . . . . . . . . . . . . . . . 23
9.15 Binding Effect of Resolutions. . . . . . . . . . . . . . . . . . 23
9.16 Holdings by Corporation Disregarded. . . . . . . . . . . . . . . 23
ARTICLE 10
SUPPLEMENTAL INDENTURES
10.1 Provision for Supplemental Indentures for Certain Purposes . . . 23
10.2 Successor Corporations . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 11
CONCERNING THE TRUSTEE
11.1 Trust Indenture Legislation. . . . . . . . . . . . . . . . . . . 24
11.2 Rights and Duties of Trustee . . . . . . . . . . . . . . . . . . 24
11.3 Evidence, Experts and Advisers . . . . . . . . . . . . . . . . . 25
11.4 Documents, Monies, etc. Held by Trustee. . . . . . . . . . . . . 25
11.5 Actions by Trustee to Protect Interest . . . . . . . . . . . . . 26
11.6 Trustee Not Required to Give Security. . . . . . . . . . . . . . 26
11.7 Protection of Trustee. . . . . . . . . . . . . . . . . . . . . . 26
11.8 Replacement of Trustee; Successor by Merger. . . . . . . . . . . 26
11.9 Conflict of Interest . . . . . . . . . . . . . . . . . . . . . . 27
11.10 Indemnity of Trustee . . . . . . . . . . . . . . . . . . . . . . 27
11.11 Acceptance of Trust. . . . . . . . . . . . . . . . . . . . . . . 27
11.12 Trustee Not to be Appointed Receiver . . . . . . . . . . . . . . 27
ARTICLE 12
GENERAL
12.1 Notice to the Corporation and the Trustee. . . . . . . . . . . . 28
12.2 Notice to Noteholders. . . . . . . . . . . . . . . . . . . . . . 28
12.3 Ownership of Special Notes . . . . . . . . . . . . . . . . . . . 29
12.4 Evidence of Ownership. . . . . . . . . . . . . . . . . . . . . . 29
12.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.6 Satisfaction and Discharge of Indenture. . . . . . . . . . . . . 29
12.7 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
12.8 Sole Benefit of Parties and Noteholders. . . . . . . . . . . . . 30
12.9 Common Shares or Special Notes Owned by the Corporation or its
Subsidiaries - Certificate to be Provided. . . . . . . . . . . . 30
<PAGE>
THIS SPECIAL NOTE INDENTURE dated the 8th day of August, 1996 and made effective
as of the 31st day of July, 1996
BETWEEN:
BATTERY ONE, INC., a corporation incorporated under the laws of the
Province of Alberta, having an office in the City of Toronto, in the
Province of Ontario (hereinafter referred to as the "Corporation")
OF THE FIRST PART
AND
MONTREAL TRUST COMPANY OF CANADA, a trust company incorporated under
the laws of Canada and authorized to carry on business in all
provinces of Canada (hereinafter referred to as the "Trustee")
OF THE SECOND PART
WHEREAS:
A. the Corporation is proposing to issue Special Notes in the manner
herein set forth;
B. the Special Notes shall, subject to adjustment, entitle the holder
thereof to acquire Debentures at no additional cost upon the terms and
conditions herein set forth;
C. all acts and deeds necessary have been done and performed to make
the Special Notes, when issued as provided in this Indenture, legal, valid and
binding upon the Corporation with the benefits and subject to the terms of this
Indenture;
D. the foregoing recitals are made as representations and statements of
fact by the Corporation and not the Trustee; and
E. the Trustee has agreed to act as trustee for the Noteholders on the
terms and conditions herein set forth.
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Indenture, including the recitals and schedules hereto, and in
all indentures supplemental hereto:
(a) "Agency Agreement" means the agency agreement dated August 8, 1996 and
made effective as of the 31st day of July, 1996 between the Corporation
and the Agent relating to the offering of Special Notes;
(b) "Agent" means C.M. Oliver & Company Limited;
<PAGE>
2
(c) "Applicable Legislation" means the provisions of the Statutes of Canada
and its provinces, and the regulations under those statutes, relating to
trust indentures or to the rights, duties and obligations of trustees and
of corporations under trust indentures, to the extent that such
provisions are at the time in force and applicable to this Indenture;
(d) "Business Day" means a day which is not Saturday or Sunday or a legal
holiday in the City of Calgary, Alberta;
(e) "Common Shares" means fully paid and non-assessable common shares of the
Corporation as presently constituted;
(f) "Corporation's Auditors" means a firm of chartered accountants duly
appointed as auditors of the Corporation;
(g) "Counsel" means a barrister or solicitor or a firm of barristers and
solicitors retained by the Trustee or retained by the Corporation and
acceptable to the Trustee;
(h) "Debentures" means the series of up to $6,000,000 10% convertible fixed
and floating charge secured debentures of the Corporation issuable
pursuant to the Debenture Trust Indenture;
(i) "Debenture Trust Indenture" means the debenture indenture, dated August
8, 1996 and made effective as of July 31, 1996, between the Corporation
and the Trustee providing for the creation and issuance of the
Debentures, as amended or supplemented from time to time;
(j) "director" means a director of the Corporation for the time being and,
unless otherwise specified herein, reference to action "by the directors"
means action by the directors of the Corporation as a board or, whenever
duly empowered, action by any committee of such board;
(k) "Effective Date" means the 31st day of July, 1996;
(l) "Exercise Date" means, with respect to any Special Note, the date on
which the Note Certificate representing such Special Note is surrendered
for exercise, or otherwise deemed exercised, in accordance with Article
3;
(m) "Expiry Date" means the earlier of:
(i) the sixth business day after the day upon which a receipt for a
Prospectus or an Order has been obtained by each of the Securities
Commissions; and
(ii) July 31, 1997;
(n) "extraordinary resolution" has the meaning set forth in section 9.11;
(o) "Filing Jurisdictions" means each of the provinces of Alberta, British
Columbia and Ontario;
(p) "Issue Date" means the date hereof;
(q) "Mortgaged Property" shall have the meaning ascribed thereto in section
4.2 hereof, including, without limitation, all of the undertaking,
property and assets, both present and future, of the Corporation, of
whatsoever nature and kind and wheresoever situated, that are from time
to time subject to any mortgage, lien, assignment, transfer, hypothec,
pledge or charge created under or secured by this Debenture Trust
Indenture or by any indenture supplementary hereto;
<PAGE>
3
(r) "Negotiable Instruments" means cash and all negotiable instruments
including, without limitation, promissory notes, cheques, drafts and
bills of exchange;
(s) "Net Proceeds" means any Subscription Funds less all amounts paid to the
Agent and the Agent's Counsel pursuant to the terms of the Agency
Agreement;
(t) "Note Agency" means the principal office of the Trustee in the City of
Calgary or such other place as may be designated in accordance with
subsection 5.1(c);
(u) "Note Certificate" means a certificate issued on or after the Effective
Date to evidence Special Notes;
(v) "Noteholders", or "holders" without reference to Common Shares, means the
persons who are registered holders of Special Notes;
(w) "Noteholders' Request" means an instrument signed in one or more
counterparts by Noteholders entitled to acquire in the aggregate not less
than 25% of the aggregate principal amount of Debentures which could be
acquired pursuant to all Special Notes then unexercised and outstanding,
requesting the Trustee to take some action or proceeding specified
therein;
(x) "Note Register" means the register maintained by the Trustee for the
Special Notes;
(y) "Order" means an order of a Securities Commission in a Filing
Jurisdiction that permits the Debentures and Common Shares issuable upon
the exercise of the Debentures to be tradeable in such Filing
Jurisdiction without being subject to the prospectus requirement of or
any "hold period" under, the Applicable Legislation in such Filing
Jurisdiction;
(z) "Permitted Encumbrances" means, as of any date, any of the following:
(i) liens for taxes, assessments or governmental charges:
(A) not at such date due or delinquent; or
(B) the validity of which the Corporation shall be contesting
in good faith and in respect of which:
(1) an amount in cash sufficient to pay such taxes,
assessments or charges shall have been deposited
with a court, a taxing or assessing authority or the
Noteholder; or
(2) a surety bond, satisfactory to the Noteholder, for
such amount shall have been deposited with the
Noteholder;
(ii) the lien of any judgment rendered, or of any claim filed, against
the Corporation which the Corporation shall be contesting in good
faith and in respect of which:
(A) an amount in cash sufficient to pay such judgment or claim
shall have been deposited with a court or the Noteholder;
or
(B) a surety bond, satisfactory to the Noteholder, for such
amount, shall have been deposited with the Noteholder;
(iii) undetermined or inchoate liens incidental to construction or
current operations which have not as such date been filed pursuant
to law against the Mortgaged Property or
<PAGE>
4
against the Corporation or which relate to obligations not at
such date due or delinquent;
(iv) easements, rights of way, servitudes or other similar rights in
property (including, without limitation, rights of way and
servitudes for railways, sewers, drain, pipelines, gas and water
mains, electric light, power, telephone, telegraph or cable
television conduits, poles, wires and cables) granted to or
reserved or taken by other persons which in the aggregate do not
materially detract from the value of such property or materially
detract from the value of such property or materially impair its
use in the operation of the business of the Corporation;
(v) security given by the Corporation to a public utility, any
municipality, governmental or other public authority when required
by such utility, municipality or authority in the ordinary course
of the business of the Corporation; and
(vi) any other lien, the validity of which is being contested in good
faith and where the Corporation has deposited:
(A) with the court of the Noteholder, an amount in cash
sufficient to pay the same in full;
(B) with the Noteholder, a surety bond, satisfactory to the
Noteholder, for such amount;
(aa) "person" means an individual, body corporate, partnership, trust,
trustee, executor, administrator, legal representative or any
unincorporated organization;
(ab) "Prospectus" means a final prospectus in respect of the distribution of
Debentures upon the exercise of Special Notes;
(ac) "Shareholder" means a holder of record of one or more Common Shares;
(ad) "Securities Commissions" means, collectively, the securities commissions
or similar regulatory authorities in the Filing Jurisdictions;
(ae) "Security Interest" means any assignment, mortgage, charge, pledge, lien,
encumbrance or security interest whatsoever, howsoever, created or
arising, whether absolute or contingent, fixed or floating, perfected or
not, but does not include set-off or any right of set-off;
(af) "Special Notes" means the series of up to $6,000,000 10% convertible
first fixed and floating charge secured special promissory notes issued
and certified hereunder and for the time being outstanding entitling the
holder to acquire Debentures;
(ag) "Special Note Indenture", "Indenture", "herein", "hereby", "hereof" and
similar expressions mean and refer to this indenture and any other
indenture, deed or instrument supplemental hereto, and the expressions
"Article", "section", "subsection" and "paragraph" followed by a number,
letter or both mean and refer to the specified article, section,
subsection or paragraph of this Indenture;
(ah) "Subsidiary" or "Subsidiary of the Corporation" means any corporation of
which more than 50% of the outstanding Voting Shares are owned, directly
or indirectly, by or for the Corporation, provided that the ownership of
such shares confers the right to elect at least a majority of the board
of directors of such corporation and includes any corporation in like
relation to a Subsidiary;
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(ai) "Time of Expiry" means 5:00 p.m. (Calgary time) on the Expiry Date;
(aj) "Trading Day" means, with respect to a stock exchange, a day on which
such exchange is open for the transaction of business and, with respect
to the over-the-counter market, means a day on which The Alberta Stock
Exchange is open for the transaction of business;
(ak) "Trustee" means Montreal Trust Company of Canada or its successors from
time to time in the trust hereby created;
(al) "written order of the Corporation", "written request of the Corporation",
"written consent of the Corporation" and "certificate of the Corporation"
mean, respectively, a written order, request, consent and certificate
signed in the name of the Corporation by its Chairman, President or a
Vice-President, and may consist of one or more instruments so executed.
1.2 GENDER AND NUMBER
Unless herein otherwise expressly provided or unless the context
otherwise requires, words importing the singular include the plural and VICE
VERSA and words importing gender include all genders.
1.3 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this Indenture into articles and sections, the provision
of a table of contents and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Indenture.
1.4 DAY NOT A BUSINESS DAY
In the event that any day on or before which any action is required to be
taken hereunder is not a Business Day, then such action shall be required to be
taken at or before the requisite time on the next succeeding day that is a
Business Day.
1.5 TIME OF THE ESSENCE
Time shall be of the essence of this Indenture.
1.6 CURRENCY
Except as otherwise stated, all dollar amounts herein are expressed in
Canadian currency.
1.7 APPLICABLE LAW
This Indenture and the Note Certificates shall be construed in accordance
with the laws of the Province of Alberta and the federal laws of Canada
applicable therein and shall be treated in all respects as Alberta contracts.
1.8 MEANING OF "OUTSTANDING"
Every Special Note represented by a Note Certificate countersigned by the
Trustee and delivered to the holder is deemed to be outstanding until it is
cancelled, deemed to be cancelled, delivered to the Trustee for cancellation or
until it expires at the Time of Expiry. Where a new Note Certificate has been
issued pursuant to section 2.8, to replace one which has been mutilated, lost,
stolen or destroyed, the Special Notes represented by only one of such Note
Certificates are counted for the purpose of determining the aggregate number of
Special Notes outstanding.
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6
ARTICLE 2
ISSUE OF SPECIAL NOTES
2.1 PRINCIPAL AMOUNT
The aggregate principal amount of Special Notes authorized to be issued
under this Indenture, shall consist of and be limited to six million
($6,000,000) dollars in lawful money of Canada. The Special Notes shall be
designated as "$6,000,000 10% convertible fixed and floating charge secured
special promissory notes" and shall be dated as of the Issue Date.
2.2 FORM AND SIGNATURE OF SPECIAL NOTES
The Special Notes shall be issued only as fully registered Special Notes
in the denomination of $1,000 and integral multiples of $1,000. The Special
Notes and the certificate of the Trustee endorsed thereon shall be substantially
in the form set forth in Schedule "A" hereto. The Special Notes shall be dated
as of the Issue Date and shall bear such distinguishing letters and numbers as
the Trustee may approve.
The Special Notes may be engraved, printed or lithographed, or be partly
in one form and partly in another, as the Corporation may determine.
The Special Notes shall be under the seal of the Corporation (or a
reproduction thereof which shall be deemed to be the seal of the Corporation)
and shall be signed (either manually or by facsimile signature) by any one
officer or director of the Corporation. A facsimile signature upon any of the
Special Notes shall for all purposes of this Indenture be deemed to be the
signature of the person whose signature it purports to be and to have been
signed at the time such facsimile signature is reproduced and notwithstanding
that any person whose signature, either manual or in facsimile, may appear on
the Special Notes is not, at the date of this Indenture or at the date of the
Special Notes or at the date of the certifying and delivery thereof, the holder
of the office indicated, any such Special Notes shall be valid and binding upon
the Corporation and entitled to the benefits of this Indenture.
2.3 ISSUE OF SPECIAL NOTES
From time to time, and at any time, upon the written direction of the
Corporation signed by any one of its directors or officers, the Trustee shall
issue and register the Special Notes in the names and denominations as specified
in such direction, and will certify and deliver the same in accordance with such
direction.
Special Notes in the aggregate principal amount not exceeding six
million ($6,000,000) dollars in lawful money of Canada shall be executed by the
Corporation and, forthwith after such execution, shall be delivered to the
Trustee and shall be certified by the Trustee and delivered to, or to the order
of, the Corporation pursuant to a written direction of the Corporation without
the Trustee receiving any consideration therefore.
2.4 CERTIFICATION
No Special Note shall be issued or, if issued, shall be obligatory or
shall entitle the holder to the benefits of this Indenture, until it has been
certified by or on behalf of the Trustee substantially in the form set out in
Schedule "A" hereto or in some other form approved by the Trustee. Such
certification on any Special Note shall be conclusive evidence that such Special
Note is duly issued, is a valid obligation of the Corporation and that the
holder is entitled to the benefits hereof.
The certificate of the Trustee signed on the Special Notes shall not be
construed as a representation or warranty by the Trustee as to the validity of
this Indenture or of the Special Notes or as to the issuance of the Special
Notes, and the Trustee shall in no respect be liable or answerable for the use
made
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7
of the Special Notes or any of them or the proceeds thereof. The certificate
of the Trustee signed on the Special Notes, shall, however, be a
representation and warranty by the Trustee that the Special Notes have been
duly certified by or on behalf of the Trustee pursuant to the provisions of
this Indenture.
2.5 SPECIAL NOTES TO RANK PARI PASSU
The Special Notes may be issued in such amounts, to such persons and on
such terms not inconsistent with the provisions of this Indenture, as the
directors may determine. Each Special Note as soon as issued or negotiated
shall, subject to the terms hereof, be equally and proportionately entitled to
the benefits hereof as if all of the Special Note had been issued and negotiated
simultaneously.
2.6 REGISTRATION AND TRANSFER OF SPECIAL NOTES
The Corporation shall, at all times while any Special Notes are
outstanding, cause to be kept by and at the principal office of the Trustee
in the City of Calgary and in such other place or places as the Corporation with
the approval of the Trustee may designate, registers in which shall be entered
the names and addresses of the holders of Special Notes and particulars of the
Special Notes held by them respectively. The registers referred to in this
section shall at all reasonable times be open for inspection by the Corporation,
the Trustee and any Noteholder.
THE SPECIAL NOTES ARE SUBJECT TO RESALE RESTRICTIONS AND MAY NOTE BE SOLD
OR OTHERWISE TRADED OR TRANSFERRED.
The Corporation and the Trustee will deem and treat the registered owner
of any Special Note as the beneficial owner thereof for all purposes and neither
the Corporation nor the Trustee shall be effected by any notice to the contrary.
Subject to the provisions of this Indenture, and applicable law, the
Noteholder shall be entitled to the rights and privileges attached to the
Special Notes and the issuance of Debentures upon exercise of the Special Notes
by any Noteholder in accordance with the terms and conditions herein contained
shall discharge all responsibilities of the Corporation and the Trustee with
respect to such Special Notes (subject to any outstanding obligations owing by
the Corporation to any Noteholder under Article 6 hereof) and neither the
Corporation nor the Trustee shall be bound to inquire into the title of any such
holder.
Neither the Trustee, the Corporation nor any registrar shall be charged
with notice of or be bound to see to the execution of any trust, whether
expressed, implied or constructive, in respect of any Special Note.
Except in the case of the register required to be kept at the City of
Calgary, the Corporation shall have power at any time to close any register upon
which the registration of any Special Note appears and in that event it shall
transfer the records thereof to another existing register or to a new register
and thereafter such Special Notes shall be deemed to be registered on such
existing or new register, as the case may be.
2.7 PERSONS ENTITLED TO PAYMENT
The person in whose name any Special Note shall be registered shall be
deemed and regarded as the owner thereof for all purposes of this Indenture and
payment of or on account of the principal amount of such Special Note and the
interest payable thereon shall be made only to or upon the order in writing of
such holder thereof. Such payment shall be a good and sufficient discharge to
the Trustee and any registrar and to the Corporation and any paying agent for
the amounts so paid.
The holder for the time being of any Special Note shall be entitled to
the principal monies, free from all equities and rights of set-off or counter
claim between the Corporation and the original or any intermediate holder
thereof, and all persons may act accordingly.
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8
Delivery to the Corporation by a Noteholder of a Special Note or the
receipt of such holder for the principal monies shall be a good and sufficient
discharge to the Corporation, which shall not be bound to enquire into the title
of such holder, save as ordered by some court of competent jurisdiction or as
required by statute. Neither the Corporation, the Trustee nor any registrar
shall be charged with notice of or be bound to see to the execution of any
trust, whether express, implied or constructive, in respect of any Special Note
nor be affected by notice of any equity that may be subsisting in respect
thereof.
Where Special Note are registered in more than one name the principal
monies may be paid by cheque payable to the order of all such holders, failing
written instruction from them to the contrary, and such payment shall be a good
and sufficient discharge to the Trustee and any registrar and to the Corporation
and any paying agent.
In the case of the death of one or more joint holders, the principal
monies may be paid to the survivor or survivors of such holders whose receipt
therefor shall constitute a good and sufficient discharge to the Trustee and any
registrar and to the Corporation and paying agent.
2.8 MUTILATION, LOSS, THEFT OR DESTRUCTION
In case any of the Special Notes issued hereunder shall become mutilated
or be lost, stolen or destroyed, the Corporation, in its discretion, may issue,
and thereupon the Trustee shall certify and deliver, a new Special Note upon
surrender and cancellation of the mutilated Special Note, or in the case of a
lost, stolen or destroyed Special Note, in lieu of and in substitution for the
same, and the substituted Special Note shall be in a form approved by the
Trustee and shall be entitled to the benefits of this Indenture equally with all
other Special Notes issued or to be issued hereunder without preference or
priority one over another. In case of loss, theft or destruction the applicant
for a substituted Special Note shall furnish to the Corporation and to the
Trustee such evidence of such loss, theft or destruction as shall be
satisfactory to them in their discretion and shall also furnish indemnity
satisfactory to them in their discretion. The applicant shall pay all
reasonable expenses incidental to the issuance of any substituted Special Note.
2.9 EXCHANGES OF SPECIAL NOTES
Special Notes of any denomination may be exchanged for Special Notes of
any other authorized denomination or denominations for an equivalent aggregate
principal amount. Any exchange of Special Notes may be made at the offices of
the Trustee or at the offices of any registrar or registrars where registers are
maintained for the Special Notes pursuant to the provisions of section 2.6. Any
Special Notes tendered for exchange shall be surrendered to the Trustee or
appropriate registrar and shall be cancelled.
2.10 CHARGES
Except as herein otherwise provided and subject to the terms hereof, upon
any exchange of Special Notes of any denomination for other Special Notes, the
Corporation or the Trustee may make a sufficient charge to reimburse it for any
stamp or security transfer taxes or other governmental charge required to be
paid and, in addition, a reasonable charge for its services, and payment of the
said charge shall be made by the party requesting such exchange as a condition
precedent thereto.
2.11 OPTION OF HOLDER AS TO PLACE OF PAYMENT
Except as herein otherwise provided, all sums which may at any time
become payable, whether at maturity or otherwise, on account of any Special
Notes shall be payable at the option of the holder at any of the places at which
the principal of such Special Notes are payable.
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9
2.12 TRUSTEE NOT BOUND TO MAKE ENQUIRIES
The Trustee, prior to the certification and delivery of any Special Notes
under any of the provisions of this Article, shall not be bound to make any
enquiry or investigation as to the correctness of the matters set out in any of
the resolutions, opinions, certificates or other documents required by the
provisions of this Indenture, but shall be entitled to accept and act upon the
said resolutions, opinions, certificates and other documents. The Trustee may
nevertheless, in its discretion, require further proof in cases where it deems
further proof desirable.
2.13 NOTEHOLDER NOT A SHAREHOLDER
Nothing in this Indenture or in the holding of a Special Note or
otherwise, shall, in itself, confer or be construed as conferring upon a
Noteholder any right or interest whatsoever as a shareholder or as any other
shareholder of the Corporation, including, but not limited to, the right to vote
at, to receive notice of, or to attend, meetings of shareholders or any other
proceedings of the Corporation, or the right to receive dividends or other
distributions.
2.14 EXERCISE TERMS OF SPECIAL NOTES
Each Special Note authorized to be issued hereunder shall entitle the
holder thereof, upon exercise, or upon the exercise of the Special Notes by the
Trustee on behalf of the Noteholders as provided for in section 5.7, to acquire
Debentures on the basis of $1,000 principal amount of Debentures per $1,000
principal amount of Special Notes, at any time after the Effective Date and
until the Time of Expiry at no additional cost to the holder.
ARTICLE 3
REPAYMENT
3.1 COVENANT TO PAY
Except in the event that the Special Notes or any part thereof is
exercised into Debentures of the Corporation as hereinafter provided, the
Corporation, for value received, acknowledges and confirms itself to be indebted
to the Noteholders and promises to pay the Noteholders the principal amount of
Special Notes outstanding from time to time, in the manner and the priority as
hereinafter set forth, or on such earlier date as the principal amount hereby
secured may be payable and in the meantime promises to pay interest on the
principal amount at the rate and times as hereinafter set forth, and should the
Corporation at any time make default of its obligations or in the payment of any
part or all of the principal amount or interest, then to pay interest on the
amount in default both before and after judgment at the same rate and like money
at the same place on the same date.
3.2 DEEMED EXERCISE
Where the Special Notes are exercised into Debentures as hereinafter
provided, the Special Notes shall, subject to the terms of the Debenture Trust
Indenture, be deemed to have been fully paid and expired on the date of such
exercise.
3.3 INTEREST
Except in the event that the Special Notes or any part thereof is
converted into Debentures of the Corporation as hereinafter provided, interest
shall be payable on the outstanding balance of the principal amount of the
Special Notes at a rate of ten (10%) percent per annum and payable after as well
as before maturity, default and judgment with interest payable on overdue
interest at the same rate.
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10
Interest shall accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from the date of the execution of
this Special Note Indenture. Interest will be computed on the basis of a 365
day year. As interest becomes due hereunder, the Corporation shall pay such
interest at the holder's office as contemplated in section 2.6 and section 2.7
hereof.
The Corporation will pay interest semi-annually on the last day of each
calendar month of such half year during the term of the Special Notes (June 30
and December 31), from the date of execution of this Indenture, with the first
payment of interest to commence on December 31, 1996.
Where the Special Notes are exercised into Debentures as hereinafter
provided, the accrued interest to the date of the exercise of the Special Notes
shall carry over to the Debentures with the accrued interest under the Special
Note paid in accordance with the terms of the Debenture Trust Indenture.
3.4 ORDER OF REPAYMENT
The holders shall, and the Corporation hereby irrevocably authorizes the
holders, to apply all payments made by the Corporation against the principal
amounts of the Special Notes, interest thereon and other monies which are
payable by the Corporation under the Special Notes in the following order: (a)
all expenses and other monies from time to time secured hereunder; (b) interest
payable hereunder; and (c) the principal amount of the Special Notes.
ARTICLE 4
SECURITY FOR PAST, PRESENT AND FUTURE INDEBTEDNESS
4.1 SECURITY
The mortgages, pledges and charges created herein shall take effect
forthwith upon the execution hereof and shall secure any and all indebtedness
now or hereafter owing by the Corporation to the holders hereunder; and provided
further, without restricting the generality of the foregoing, the Corporation
may reduce the principal amount outstanding from time to time, without notice,
bonus or penalty, and the holders, if they are so willing, and in their sole
discretion, may provide further advances to the Corporation to the extent that
the balance outstanding may be increased, reduced and varied from time to time;
and provided further, without restricting the generality of the foregoing, the
indebtedness secured by the mortgages, pledges and charges created herein shall
include the following:
(a) Any sums advanced by the holders on behalf of the Corporation or expenses
or costs incurred by the holders, or the Trustee appointed hereunder,
which are made or incurred pursuant to, or permitted by, the terms
hereof, from the date of the advances or the incurring of such expenses
or costs until reimbursed;
(b) Any and all other indebtedness of the Corporation to the holders now or
hereafter owing, regardless of how evidenced or arising, including but
without limitation, any and all Special Notes issued hereunder; and
(c) Any extensions or renewals of all such indebtedness described herein.
4.2 MORTGAGED PROPERTY
In consideration of the premises herein contained and one ($1.00) dollar
paid by the Trustee to the Corporation, the receipt and sufficiency whereof is
hereby acknowledged, and to secure the due payment of the principal amount of
the Special Notes from time to time issued and certified hereunder and all other
monies, if any, for the time being and from time to time owing on the security
of this Special Note Indenture and the due performance of the obligations of the
Corporation herein contained and in pursuance of the power
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and authority hereinbefore recited and of every other power and authority it
thereunto enables, and subject to the Permitted Encumbrances, the Corporation
hereby grants, assigns, transfers, mortgages, pledges, charges and grants a
Security Interest to and in favour of the Trustee, as trustee on behalf of
the Noteholders, a first fixed and floating charge over and in respect of all
of its undertaking and all of the property and assets of the Corporation for
the time being, both present and future of whatsoever nature including,
without restricting the generality of the foregoing, any real and personal,
moveable and immoveable property, of whatsoever nature and kind and
wheresoever situate, both present and future (except to the extent that the
Personal Property Security Act, Alberta, is not applicable to a security
interest in such personal property, and to the exception as to leaseholds, as
set forth in section 4.3 hereof) and, without in any way limiting the
generality of the foregoing, its uncalled capital and all present and future
incomes, monies, sources of money, rights, powers, privileges, franchises,
easements, agreements, leases, shares, bonds, debentures, book debts,
accounts receivable, negotiable and non-negotiable instruments, judgments,
chooses in actions, securities and all other property and things of value,
tangible or intangible, legal or equitable of which the Corporation may be
possessed or entitled to or which may at any time hereafter be acquired by
the Corporation (all of such undertaking, property and assets being
mortgaged, pledged and charged being herein collectively called the
"Mortgaged Property").
4.3 EXCEPTIONS
The Corporation shall not, without the prior consent of holders of not
less than sixty-six and two-thirds (66-2/3%) in principal amount of Debentures
then outstanding first had and obtained, be at liberty to and shall not, (i)
except in respect of Permitted Encumbrances, create or incur or suffer to be
created or incurred any mortgage, pledge, hypothec, lien, charge, encumbrance,
assignment or other security of any kind whatsoever upon the Mortgaged Property
or any part thereof ranking or purporting to rank in priority or pari passu to
this Special Note Indenture or the charges created and secured hereby, or (ii)
sell, assign, transfer, lease or otherwise dispose of the Mortgaged Property or
any part thereof otherwise than in the ordinary course of business of the
Corporation as it is presently conducted; provided always that the last day of
the term of any lease, verbal or written, or any agreement therefor, now held or
hereafter acquired by the Corporation or any renewal thereof, is hereby and
shall be excepted out of the mortgage, pledge and charge created hereby or by
any other instrument supplemental hereto and does not and shall not form part of
the Mortgaged Property, but the Corporation shall stand possessed of the
reversionary interest remaining in the Corporation of any leasehold interest
forming part of the Mortgaged Property, upon trust to assign and dispose thereof
as the Noteholder shall direct, and upon any sale of a leasehold interest or any
part thereof, the Holder, for the purposes of vesting the aforesaid reversionary
interest of any such term or any renewal thereof in any purchaser or purchasers
thereof shall be entitled by deed or writing to appoint such purchaser or
purchasers or any other person or persons a new trustee or trustees of the
aforesaid reversion in the place of the Corporation and to vest the same
accordingly in the new trustee or trustees so appointed, freed and discharged
from any obligation respecting the same.
4.4 OBLIGATION TO PAY
Nothing contained in this Special Note Indenture or the Special Notes, is
intended to or shall impair, as between the Corporation, its creditors, and the
holders, the obligation of the Corporation, which is absolute and unconditional,
to pay to the holders the principal amount and other indebtedness of the
Corporation to the holders, as and when the same shall become due and payable in
accordance with the terms hereof, or affect the relative rights of the holders,
nor shall anything herein prevent the Trustee, on behalf of the holders, from
exercising all remedies otherwise permitted by applicable law or equity under
this Special Note Indenture and the Special Notes.
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4.5 DEFEASANCE
Upon (i) payment by the Corporation to the holders of the total principal
amount of the Special Notes and all other money secured by this Special Note
Indenture and provided the security herein constituted shall not have become
enforceable; or (ii) the exercise of all of the Special Notes to Debentures as
provided herein, then the Mortgaged Property shall, subject to the terms of the
Debenture Trust Indenture, revert and revest in the Corporation without any
release, acquittance, reconveyance, re-entry or other act or formality
whatsoever, but the Trustee shall nevertheless, within thirty (30) days of being
requested in writing by the Corporation to do so, deliver up this Special Note
Indenture to the Corporation and execute, acknowledge or deliver to the
Corporation a full release and reconveyance of the Mortgaged Property or such
parts thereof as shall not have been disposed under the powers herein contained
and such further and other documents reasonably requested by the Corporation.
4.6 PARTIAL RELEASE
Except as herein specifically provided, no postponement or partial
release or discharge of the Security Interest, created under and secured by this
Indenture in respect of all or any part of the Mortgaged Property shall in any
way operate or be construed so as to release and discharge the security hereby
constituted in respect of the Mortgaged Property, provided, or so as to release
or discharge the Corporation from its liability to the holders to fully pay and
satisfy the principal amount of the Special Notes and all other monies due or
remaining unpaid by the Corporation to the holders from time to time as provided
herein.
4.7 PROVISO FOR POSSESSION UNTIL DEFAULT
Until the security hereby created shall become enforceable and the
Trustee on behalf of the Noteholders hereof shall have determined to enforce the
same, the Corporation shall be permitted in the same manner and to the same
extent as if this Indenture had not been executed, but subject to the express
terms hereof, to possess, operate, manage, use and enjoy its Mortgaged Property
in the ordinary course of business of the Corporation and for the purpose of
carrying on the same, and for such purpose, to take and use the rents, income,
profits and issues thereof, including dividends, profits and interest upon or in
respect of any shares, bonds or other securities, claims and demands in judgment
or otherwise at any time forming part of the Mortgaged Property.
ARTICLE 5
EXERCISE OF SPECIAL NOTES
5.1 METHOD OF EXERCISE OF SPECIAL NOTES
(a) The holder of any Special Note may exercise the right conferred on such
holder to acquire Debentures by surrendering, after the Effective Date
and prior to the Time of Expiry, to the Note Agency the Note Certificate
with a duly completed and executed exercise form.
A Note Certificate with the duly completed and executed exercise form
referred to in this subsection shall be deemed to be surrendered only
upon personal delivery thereof or, if sent by mail or other means of
transmission, upon actual receipt thereof at, in each case, the Note
Agency.
(b) Any exercise form referred to in subsection 5.1(a) shall be signed by the
Noteholder or by the duly appointed legal representative thereof or a
duly authorized attorney, with evidence of
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authority of any such legal representative or attorney attached thereto,
and, if required by the exercise form, with such signature properly
guaranteed, and shall specify:
(i) the aggregate equal number of principal amount of Debentures which
the holder wishes to acquire (being not more than those which the
holder is entitled to acquire pursuant to the Note Certificate(s)
surrendered);
(ii) the person or persons in whose name or names such Debentures are
to be issued;
(iii) the address or addresses of such person(s); and
(iv) the aggregate number of Debentures to be issued to each such
person if more than one is so specified.
If any of the Debentures subscribed for are to be issued to a person or
persons other than the Noteholder, the Noteholder shall pay to the
Corporation or the Note Agency on behalf of the Corporation, all
applicable transfer or similar taxes and the Corporation shall not be
required to issue or deliver certificates evidencing Debentures unless or
until such Noteholder shall have paid to the Corporation, or the Note
Agency on behalf of the Corporation, the amount of such tax or shall have
established to the satisfaction of the Corporation that such tax has been
paid or that no tax is due.
(c) In connection with the exchange of Note Certificates and exercise of
Special Notes and in compliance with such other terms and conditions
hereof as may be required, the Corporation has appointed the principal
offices of the Trustee in Calgary as the agency at which Note
Certificates may be surrendered for exchange or at which Special Notes
may be exercised. The Corporation may from time to time designate
alternate or additional places as the Note Agency and shall give written
notice to the Trustee of any change of the Note Agency.
5.2 EFFECT OF EXERCISE OF SPECIAL NOTES
(a) Upon compliance by the holder of any Note Certificate with the provisions
of section 5.1 or upon the exercise of the Special Notes by the Trustee
on behalf of the Noteholder of Special Notes pursuant to section 5.7, and
subject to section 5.3, the Debentures subscribed for shall be deemed to
have been issued and the person or persons to whom such Debentures are to
be issued shall be deemed to have become the holder or holders of record
of such Debentures on the Exercise Date unless the transfer registers of
the Corporation shall be closed on such date, in which case the
Debentures subscribed for shall be deemed to have been issued, and such
person or persons deemed to have become the holder or holders of record
of such Debentures, on the date on which such transfer registers are
reopened.
(b) Within five Business Days after the Exercise Date with respect to a
Special Note, the Corporation shall cause to be mailed to the person or
persons in whose name or names the Debentures so subscribed for have been
issued, as specified in the subscription, at the address specified in
such subscription or, if so specified in such subscription, cause to be
delivered to such person or persons at the Note Agency where the Note
Certificate was surrendered, a certificate or certificates for the
appropriate number of Debentures subscribed for. In the absence of
instructions to the contrary, such certificates shall be issued in the
name of the registered holder of the surrendered Note Certificate and
shall be mailed by first class mail to the address of such Noteholder
appearing on the Note Register.
(c) In the event of the exercise of Special Notes prior to the Corporation
obtaining a receipt for the Prospectus from each of the Securities
Commissions and delivering a copy of the Prospectus to such Special
Noteholder, the Corporation may, on the advice of Counsel and if required
by
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14
applicable law, legend the certificates representing the Debentures
issued on such exercise to the effect the such shares are subject to
trading restrictions under applicable securities legislation, and prior
to the issuance of any such certificates the Trustee shall consult with
the Corporation to determine whether such endorsing or legending is
required.
5.3 PARTIAL EXERCISE OF SPECIAL NOTES; FRACTIONS
(a) The holder of any Special Notes may acquire a principal amount of
Debentures less than the principal amount of Special Notes which the
holder is entitled to acquire pursuant to the surrendered Note
Certificate(s). In the event of any exercise of a principal amount of
Special Notes less than the principal amount which the holder is entitled
to exercise, the holder of the Special Notes upon such exercise shall
also be entitled to receive, without charge therefor, a new Note
Certificate(s) in respect of the balance of the principal amount of
Special Notes represented by the surrendered Note Certificate(s) not then
exercised. In the absence of instructions to the contrary, such
certificate shall be issued in the name of the registered holder of the
surrendered Note Certificate and shall be mailed by first class mail to
the address of such Noteholder appearing on the Note Register.
(b) Notwithstanding anything herein contained, the Corporation shall not be
required, upon the exercise of any Special Notes, to issue Debentures or
to distribute certificates which evidence Debentures in denominations
other than $1,000 of principal amount or integral multiples thereof.
5.4 EXPIRATION OF SPECIAL NOTES
Subject to section 5.7, immediately after the Time of Expiry, all rights under
any Special Note in respect of which the right of acquisition herein and therein
provided for shall not have been exercise shall cease and terminate and such
Special Note shall be void and of no further force or effect.
5.5 CANCELLATION OF SURRENDERED SPECIAL NOTES
All Note Certificates surrendered or deemed to be surrendered to the Note Agency
pursuant to the terms hereof, shall be returned to the Trustee for cancellation
and, after the expiry of any period of retention prescribed by law, destroyed by
the Trustee. Upon request by the Corporation, the Trustee shall furnish to the
Corporation a destruction certificate identifying the Note Certificates so
destroyed and the number of Special Notes evidenced thereby.
5.6 ACCOUNTING AND RECORDING
(a) The Trustee shall promptly account to the Corporation with respect to the
Special Notes exercised. Any securities or other instruments from time
to time received by the Trustee shall be received in trust for, and shall
be segregated and kept apart by the Trustee in trust for, the
Corporation.
(b) The Trustee shall record the particulars of Special Notes exercised which
shall include the names and addresses of the persons who become holders
of Debentures on exercise and the Exercise Date. Within five Business
Days of each Exercise Date, the Trustee shall provide such particulars in
writing to the Corporation.
5.7 EXERCISE BY TRUSTEE
Immediately prior to the Time of Expiry, the rights of all holders of
Special Notes not then exercised to acquire Debentures shall be exercised by the
Trustee on behalf of the Noteholders and the Debentures issuable thereby shall
be deemed to be issued to the Noteholders at such time.
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The Corporation shall cause to be mailed or, if so specified in the exercise
form, cause to be delivered at the Note Agency where the Note Certificate was
surrendered, to the person or persons specified in the exercise form a debenture
certificate or debenture certificates for the appropriate number of Debentures
upon receipt at the Note Agency of the Note Certificate with the duly completed
and executed exercise form specifying the matters referred to in paragraphs
5.1(b)(ii), 5.1(b)(iii) and 5.1(b)(iv) together with any payment of the nature
referred to in subsection 5.1(b).
5.8 SECURITIES RESTRICTIONS
Notwithstanding anything herein contained, Debentures will only be issued
pursuant to any Special Note in compliance with the securities laws of any
applicable jurisdiction and, without limiting the generality of the foregoing,
in the event that Special Notes are exercised pursuant to section 5.1 prior to
the issuance of a receipt for the Prospectus by the Securities Commissions in
each of the Filing Jurisdictions, the certificates representing the Debentures
issued thereby will bear such legend as may, in the opinion of counsel of the
Corporation, be necessary in order to avoid a violation of any securities laws
of any province in Canada or of the United States or to comply with the
requirements of any stock exchange on which the Debentures are listed, provided
that, if at any time, in the opinion of counsel to the Corporation, such legends
are no longer necessary in order to avoid a violation of any such laws, or the
holder of any such legended certificate, at the holder's expense, provides the
Corporation with evidence satisfactory in form and substance to the Corporation
(which may include an opinion of counsel satisfactory to the Corporation) to the
effect that such holder is entitled to sell or otherwise transfer such
Debentures in a transaction in which such legends are not required, such
legended certificate may thereafter be surrendered to the Corporation in
exchange for a certificate which does not bear such legend.
ARTICLE 6
INDEBTEDNESS
6.1 COVENANT TO PAY
The Corporation, for value received, acknowledges and confirms itself to
be indebted to the holders and promises to pay the holders the principal amount
of Special Notes and the interest payable thereon outstanding from time to time,
in the manner and the priority as hereinafter set forth, or on such earlier date
as the principal amount hereby secured may be payable and in the meantime
promises to pay interest on the principal amount at the rate and times as
hereinafter set forth, should the Corporation at any time make default of its
obligations in the payment of any part or all of the principal amount or
interest, then to pay interest on the amount in default both before and after
judgment at the same rate and like money at the same place on the same date.
6.2 TERMS AND CONDITIONS OF SPECIAL NOTES
The terms and conditions of the Special Notes as herein created, relating
to the payment of the principal amount, maturity, calculation and payment of
interest, order or repayment, security for past, present and future
indebtedness, security, mortgaged property, defeasance, covenants, insurance,
negative covenants, provisions relating to default, notice of default and
enforcement of repayment of indebtedness, satisfaction and discharge shall in
all respects be identical to the terms and conditions of the Debentures set
forth and prescribed in the Debenture Trust Indenture and the provisions of the
Debentures and the Debenture Trust Indenture as same relate to the foregoing,
shall apply MUTATIS MUTANDIS with respect to the Special Notes, as if such terms
and conditions were more fully set forth herein, and including but without
limiting the generality of the foregoing, such provisions shall include
Article 3, Article 4, Article 5, Article 6, Article 7 and Article 8, inclusive,
of the Debenture Trust Indenture. Where inconsistencies, if any, exist in
respect of the foregoing provisions between this Special Note Indenture and the
Debenture Trust Indenture, the applicable provisions of the Debenture Trust
Indenture shall govern.
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ARTICLE 7
RIGHTS OF THE CORPORATION AND COVENANTS
7.1 OPTIONAL PURCHASES BY THE CORPORATION
The Corporation may from time to time purchase, by private contract or
otherwise, any of the Special Notes. Any such purchase shall be made at the
lowest price or prices at which, in the opinion of the directors, such Special
Notes are then obtainable, plus reasonable costs of purchase, and may be made in
such manner, from such persons and on such other terms as the Corporation, in
its sole discretion, may determine. Any Note Certificates representing the
Special Notes purchased pursuant to this section shall forthwith be delivered to
and cancelled by the Trustee. No Special Notes shall be issued in replacement
thereof.
7.2 GENERAL COVENANTS
The Corporation covenants with the Trustee that so long as any Special
Notes remain outstanding:
(a) it shall reserve and keep available a sufficient number of Debentures for
the purpose of enabling it to satisfy its obligations to issue Debentures
upon conversion of the Special Notes;
(b) it shall cause the Debentures and the certificates representing the
Debentures acquired pursuant to the exercise of the Special Notes to be
duly issued and delivered in accordance with the Note Certificates and
the terms hereof;
(c) all Debentures which shall be issued upon exercise of the right to
acquire provided for herein and in the Note Certificates shall be issued
as fully paid and non-assessable;
(d) it shall maintain its corporate existence;
(e) it shall use its best efforts to ensure that all Common Shares
outstanding or issuable from time to time (including without limitation
the Common Shares issuable on the conversion of the Debentures) are
listed and posted for trading on The Alberta Stock Exchange;
(f) it shall make all requisite filings under applicable Canadian securities
legislation including those necessary to remain a reporting issuer not in
default in each of the Filing Jurisdictions and those necessary to report
the exercise of the right to acquire Debentures pursuant to Special Notes
and the issuance of Common Shares pursuant to the conversion of the
Debentures;
(g) it shall use its best efforts to obtain a receipt for the Prospectus or
obtain an Order, as soon as practicable, from each of the Securities
Commissions so that the resale of the Debentures, issuable upon the
exercise of the Special Notes and Common Shares issuable upon the
conversion of the Debentures will not be subject to the prospectus
requirements nor any "hold period" under applicable securities
legislation in such Filing Jurisdictions;
(h) it shall give written notice to the Trustee and to each registered holder
of Special Notes of the issuance of the receipts for a Prospectus or an
Order, together with a commercial copy of the Prospectus or a copy of an
Order, as soon as practicable but, in any event, not later than three
Business Days after the issuance of such receipts; and
(i) generally, it will well and truly perform and carry out all of the acts
or things to be done by it as provided in this Indenture or as the
Trustee may reasonably require for the better accomplishing and effecting
of the intentions and provisions of this Indenture.
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7.3 TRUSTEE'S REMUNERATION AND EXPENSES
The Corporation covenants that it will pay to the Trustee from time
to time reasonable remuneration for its services hereunder and will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in the
administration or execution of the trusts hereby created (including the
reasonable compensation and the disbursements of its Counsel and all other
advisers and assistants not regularly in its employ) both before any default
hereunder and thereafter until all duties of the Trustee hereunder shall be
finally and fully performed, except any such expense, disbursement or advance
as may arise out of or result from the Trustee's negligence, wilful
misconduct or bad faith.
7.4 SECURITIES QUALIFICATION REQUIREMENTS
(a) If, in the opinion of counsel, any instrument (not including a
prospectus except the Prospectus required to be filed with the
Securities Commissions under subsection 7.2(g) is required to be
filed with, or any permission is required to be obtained from, any
governmental authority in Canada or any other step is required
under any federal or provincial law of Canada before any Debentures
or Common Shares which a Noteholder is entitled to acquire pursuant
to the exercise of any Special Note may properly and legally be
issued upon due exercise thereof and thereafter traded, without
further formality or restriction, the Corporation covenants that it
will take such required action.
(b) The Corporation or, if required by the Corporation, the Trustee
will give notice of the issue of Debentures pursuant to the
exercise of Special Notes, in such detail as may be required, to
the Securities Commission in each of the Filing Jurisdictions in
which there is legislation or regulation permitting or requiring
the giving of any such notice in order that such issue of
Debentures and the subsequent disposition of the Debentures so
issued will not be subject to the prospectus qualification
requirements of such legislation or regulation.
7.5 PERFORMANCE OF COVENANTS BY TRUSTEE
If the Corporation shall fail to perform any of its covenants
contained in this Indenture, the Trustee may notify the Noteholders of such
failure on the part of the Corporation or may itself perform any of the
covenants capable of being performed by it but, subject to section 11.2,
shall be under no obligation to perform such covenants or to notify the
Noteholders of such performance by it. All sums expended or advanced by the
Trustee in so doing shall be repayable as provided in section 7.3. No such
performance, expenditure or advance by the Trustee shall relieve the
Corporation of any default hereunder or of its continuing obligations under
the covenants herein contained.
ARTICLE 8
ENFORCEMENT
8.1 SUITS BY NOTEHOLDERS
Subject to section 8.4, all or any of the rights conferred upon any
Noteholder by any of the terms of the Note Certificates or the Indenture or
both may be enforced by the Noteholder by appropriate proceedings but without
prejudice to the right which is hereby conferred upon the Trustee to proceed
in its own name to enforce each and all of the provisions herein contained
for the benefit of the Noteholders.
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8.2 IMMUNITY OF SHAREHOLDERS, ETC.
The Trustee and, by the acceptance of the Note Certificates and as
part of the consideration for the issue of the Special Notes, the Noteholders
hereby waive and release any right, cause of action or remedy now or
hereafter existing in any jurisdiction against any incorporator or any past,
present or future shareholder, director, officer, employee or agent of the
Corporation or any successor corporation on any covenant, agreement,
representation or warranty by the Corporation contained herein or in the Note
Certificates.
8.3 LIMITATION OF LIABILITY
The obligations hereunder are not personally binding upon, nor shall
resort hereunder be had to, the private property of any of the past, present
or future directors or shareholders of the Corporation or any successor
corporation or any of the past, present or future officers, employees or
agents of the Corporation or any successor corporation, but only the property
of the Corporation or any successor corporation shall be bound in respect
hereof.
8.4 WAIVER OF DEFAULT
Upon the happening of any default of any covenant or obligation of
the Corporation provided for herein:
(a) the holders of not less than 66 2/3% of the aggregate number of
Special Notes then outstanding shall have power (in addition to the
powers exercisable by extraordinary resolution as provided in
section 9.10) by requisition in writing to instruct the Trustee to
waive any default hereunder and the Trustee shall thereupon waive
the default upon such terms and conditions as shall be prescribed
in such requisition; or
(b) the Trustee shall have power to waive any default hereunder upon
such terms and conditions as the Trustee may deem advisable, if, in
the Trustee's opinion, the same shall have been cured or adequate
provision made therefor;
provided that no delay or omission of the Trustee or of the Noteholders to
exercise any right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver of any such default or
acquiescence therein and provided further that no act or omission either of
the Trustee or of the Noteholders in the premises shall extend to or be taken
in any manner whatsoever to affect any subsequent default hereunder of the
rights resulting therefrom.
ARTICLE 9
MEETINGS OF NOTEHOLDERS
9.1 RIGHT TO CONVENE MEETINGS
The Trustee may at any time and from time to time, and shall on
receipt of a written request of the Corporation or of a Noteholders' Request
and upon being indemnified to its reasonable satisfaction by the Corporation
or by the Noteholders signing such Noteholders' Request against the cost
which may be incurred in connection with the calling and holding of such
meeting, convene a meeting of the Noteholders. In the event of the Trustee
failing to so convene a meeting within seven days after receipt of such
written request of the Corporation or such Noteholders' Request and indemnity
given as aforesaid, the Corporation or such Noteholders, as the case may be,
may convene such meeting. Every such meeting shall be held in the City of
Calgary or at such other place as may be approved or determined by the
Trustee and approved by the Corporation, acting reasonably.
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9.2 NOTICE
At least ten days prior notice of any meeting of Noteholders shall
be given to the Noteholders in the manner provided for in section 12.2 and a
copy of such notice shall be sent by mail to the Trustee (unless the meeting
has been called by the Trustee) and to the Corporation (unless the meeting
has been called by the Corporation). Such notice shall state the time when
and the place where the meeting is to be held, shall state briefly the
general nature of the business to be transacted thereat and shall contain
such information as is reasonably necessary to enable the Noteholders to make
a reasoned decision on the matter, but it shall not be necessary for any such
notice to set out the terms of any resolution to be proposed or any of the
provisions of this Article 9.
9.3 CHAIRMAN
An individual (who need not be a Noteholder) designated in writing
by the Trustee shall be chairman of the meeting and if no individual is so
designated, or if the individual so designated is not present within 15
minutes from the time fixed for the holding of the meeting, the Noteholders
present in person or by proxy shall choose an individual present to be
chairman.
9.4 QUORUM
Subject to the provisions of section 9.11, at any meeting of the
Noteholders a quorum shall consist of Noteholders present in person or by
proxy and entitled to purchase at least 25% of the aggregate principal amount
of Debentures which could be acquired pursuant to all the then outstanding
Special Notes, provided that at least two persons entitled to vote thereat
are personally present. If a quorum of the Noteholders shall not be present
within 30 minutes from the time fixed for holding any meeting, the meeting,
if summoned by Noteholders or on a Noteholders' Request, shall be dissolved;
but in any other case the meeting shall be adjourned to the same day in the
next week (unless such day is not a Business Day, in which case it shall be
adjourned to the next following Business Day) at the same time and place and
no notice of the adjournment need be given. Any business may be brought
before or dealt with at an adjourned meeting which might have been dealt with
at the original meeting in accordance with the notice calling the same. No
business shall be transacted at any meeting unless a quorum be present at the
commencement of business. At the adjourned meeting the Noteholders present
in person or by proxy shall form a quorum and may transact the business for
which the meeting was originally convened.
9.5 POWER TO ADJOURN
The chairman of any meeting at which a quorum of the Noteholders is present
may, with the consent of the meeting, adjourn any such meeting, and no notice
of such adjournment need be given except such notice, if any, as the meeting
may prescribe.
9.6 SHOW OF HANDS
Every question submitted to a meeting shall be decided in the first
place by a majority of the votes given on a show of hands except that votes
on an extraordinary resolution shall be given in the manner hereinafter
provided. At any such meeting, unless a poll is duly demanded as herein
provided, a declaration by the chairman that a resolution has been carried or
carried unanimously or by a particular majority or lost or not carried by a
particular majority shall be conclusive evidence of the fact.
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9.7 POLL AND VOTING
On every extraordinary resolution, and on any other question
submitted to a meeting and after a vote by show of hands when demanded by the
chairman or by one or more of the Noteholders acting in person or by proxy
and entitled to acquire in the aggregate at least 5% of the aggregate
principal amount of Debentures which could be acquired pursuant to all the
Special Notes then outstanding, a poll shall be taken in such manner as the
chairman shall direct. Questions other than those required to be determined
by extraordinary resolution shall be decided by a majority of the votes cast
on the poll.
On a show of hands, every person who is present and entitled to vote,
whether as a Noteholder or as proxy for one or more absent Noteholders, or
both, shall have one vote. On a poll, each Noteholder present in person or
represented by a proxy duly appointed by instrument in writing shall be
entitled to one vote in respect of each one ($1.00) dollar of Debenture which
he is entitled to acquire pursuant to the Special Note or Special Notes then
held or represented by it. A proxy need not be a Noteholder. The chairman
of any meeting shall be entitled, both on a show of hands and on a poll, to
vote in respect of the Special Notes, if any, held or represented by him.
9.8 REGULATIONS
The Trustee, or the Corporation with the approval of the Trustee,
may make and vary such regulations as it shall think fit for:
(a) the setting of the record date for a meeting for the purpose of
determining Noteholders entitled to receive notice of and to vote
at the meeting;
(b) the issue of voting certificates by any bank, trust company or
other depositary satisfactory to the Trustee stating that the Note
Certificates specified therein have been deposited with it by a
named person and will remain on deposit until after the meeting,
which voting certificate shall entitle the persons named therein to
be present and vote at any such meeting and at any adjournment
thereof or to appoint a proxy or proxies to represent them and vote
for them at any such meeting and at any adjournment thereof in the
same manner and with the same effect as though the persons so named
in such voting certificates were the actual bearers of the Note
Certificates specified therein;
(c) the deposit of voting certificates and instruments appointing
proxies at such place and time as the Trustee, the Corporation or
the Noteholders convening the meeting, as the case may be, may in
the notice convening the meeting direct;
(d) the deposit of voting certificates and instruments appointing
proxies at some approved place or places other than the place at
which the meeting is to be held and enabling particulars of such
instruments appointing proxies to be mailed, cabled or telegraphed
before the meeting to the Corporation or to the Trustee at the
place where the same is to be held and for the voting of proxies so
deposited as though the instruments themselves were produced at the
meeting;
(e) the form of the instrument of proxy; and
(f) generally for the calling of meetings of Noteholders and the conduct
of business thereat.
Any regulations so made shall be binding and effective and the votes given in
accordance therewith shall be valid and shall be counted. Save as such
regulations may provide, the only persons who shall be recognized at any
meeting as a Noteholder, or be entitled to vote or be present at the meeting
in respect thereof (subject to section 9.9), shall be Noteholders or their
Counsel, or proxies of Noteholders.
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9.9 CORPORATION AND TRUSTEE MAY BE REPRESENTED
The Corporation and the Trustee, by their respective directors and
officers, and the Counsel for the Corporation and for the Trustee may attend
any meeting of the Noteholders, but shall not be entitled to vote thereat,
whether in respect of any Special Notes held by them or otherwise.
9.10 POWERS EXERCISABLE BY EXTRAORDINARY RESOLUTION
In addition to all other powers conferred upon them by any other
provisions of this Indenture or by law, the Noteholders at a meeting shall,
subject to the provisions of section 9.11, have the power, exercisable from
time to time by extraordinary resolution:
(a) to agree to any modification, abrogation, alteration, compromise or
arrangement of the rights of Noteholders or the Trustee in its
capacity as trustee hereunder or on behalf of the Noteholders
against the Corporation, whether such rights arise under this
Indenture or the Note Certificates or otherwise;
(b) to amend, alter or repeal any extraordinary resolution previously
passed or sanctioned by the Noteholders;
(c) to direct or to authorize the Trustee to enforce any of the
covenants on the part of the Corporation contained in this
Indenture or the Note Certificates or to enforce any of the rights
of the Noteholders in any manner specified in such extraordinary
resolution or to refrain from enforcing any such covenant or right;
(d) to waive, and to direct the Trustee to waive, any default on the
part of the Corporation in complying with any provisions of this
Indenture or the Note Certificates either unconditionally or upon
any conditions specified in such extraordinary resolution;
(e) to restrain any Noteholder from taking or instituting any suit,
action or proceeding against the Corporation for the enforcement of
any of the covenants on the part of the Corporation in this
Indenture or the Note Certificates or to enforce any of the rights
of the Noteholders;
(f) to direct any Noteholder who, as such, has brought any suit, action
or proceeding to stay or to discontinue or otherwise to deal with
the same upon payment of the costs, charges and expenses reasonably
and properly incurred by such Noteholder in connection therewith;
(g) to assent to any change in or omission from the provisions
contained in the Note Certificates and this Indenture or any
ancillary or supplemental instrument which may be agreed to by the
Corporation, and to authorize the Trustee to concur in and execute
any ancillary or supplemental indenture embodying the change or
omission;
(h) with the consent of the Corporation, to remove the Trustee or its
successor in office and to appoint a new trustee or trustees to
take the place of the Trustee so removed;
(i) to assent to any compromise or arrangement with any creditor or
creditors or any class or classes of creditors, whether secured or
otherwise, and with holders of any shares or other securities of
the Corporation; and
(j) to sanction any scheme for the reconstruction or reorganization of
the Corporation or for the consolidation, amalgamation or merger of
the Corporation with any other corporation or for the sale,
leasing, transfer or other disposition of all or substantially all
the property and assets of the Corporation.
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9.11 MEANING OF EXTRAORDINARY RESOLUTION
(a) The expression "extraordinary resolution" when used in this
Indenture means, subject as hereinafter provided in this section
and in section 9.14, a resolution proposed at a meeting of
Noteholders duly convened for that purpose and held in accordance
with the provisions of this Article 7 at which there are present in
person or by proxy Noteholders entitled to acquire at least 25% of
the aggregate principal amount of Debentures which may be acquired
pursuant to all the then outstanding Special Notes and passed by
the affirmative votes of Noteholders entitled to acquire not less
than 66 2/3% of the aggregate principal amount of Debentures which
may be acquired pursuant to all the then outstanding Special Notes
represented at the meeting and voted on the poll upon such
resolution.
(b) If, at the meeting at which an extraordinary resolution is to be
considered, Noteholders entitled to acquire at least 25% of the
aggregate principal amount of Debentures which may be acquired
pursuant to all the then outstanding Special Notes are not present
in person or by proxy within 30 minutes after the time appointed
for the meeting, then the meeting, if convened by Noteholders or on
a Noteholders' Request, shall be dissolved; but in any other case
it shall stand adjourned to such day, being not less than 15 or
more than 60 days later, and to such place and time as may be
appointed by the chairman. Not less than ten days' prior notice
shall be given of the time and place of such adjourned meeting in
the manner provided for in section 12.2. Such notice shall state
that at the adjourned meeting the Noteholders present in person or
by proxy shall form a quorum but it shall not be necessary to set
forth the purposes for which the meeting was originally called or
any other particulars. At the adjourned meeting the Noteholders
present in person or by proxy shall form a quorum and may transact
the business for which the meeting was originally convened and a
resolution proposed at such adjourned meeting and passed by the
requisite vote as provided in subsection 9.11(a) shall be an
extraordinary resolution within the meaning of this Indenture
notwithstanding that Noteholders entitled to acquire at least 25%
of the aggregate principal amount of Debentures which may be
acquired pursuant to all the then outstanding Special Notes are not
present in person or by proxy at such adjourned meeting.
(c) Votes on an extraordinary resolution shall always be given on a poll
and no demand for a poll on an extraordinary resolution shall be
necessary.
9.12 POWERS CUMULATIVE
Any one or more of the powers or any combination of the powers in
this Indenture stated to be exercisable by the Noteholders by extraordinary
resolution or otherwise may be exercised from time to time and the exercise
of any one or more of such powers or any combination of powers from time to
time shall not be deemed to exhaust the right of the Noteholders to exercise
such power or powers or combination of powers then or thereafter from time to
time.
9.13 MINUTES
Minutes of all resolutions and proceedings at every meeting of
Noteholders shall be made and duly entered in books to be provided from time
to time for that purpose by the Trustee at the expense of the Corporation,
and any such minutes as aforesaid, if signed by the chairman or the secretary
of the meeting at which such resolutions were passed or proceedings had shall
be PRIMA FACIE evidence of the matters therein stated and, until the contrary
is proved, every such meeting in respect of the proceedings of which minutes
shall have been made shall be deemed to have been duly convened and held, and
all resolutions passed thereat or proceedings taken shall be deemed to have
been duly passed and taken.
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9.14 INSTRUMENTS IN WRITING
All actions which may be taken and all powers that may be exercised
by the Noteholders at a meeting held as provided in this Article 9 may also
be taken and exercised by Noteholders entitled to acquire at least 66 2/3% of
the aggregate principal amount of Debentures which may be acquired pursuant
to all the then outstanding Special Notes by an instrument in writing signed
in one or more counterparts by such Noteholders in person or by attorney duly
appointed in writing, and the expression "extraordinary resolution" when used
in this Indenture shall include an instrument so signed.
9.15 BINDING EFFECT OF RESOLUTIONS
Every resolution and every extraordinary resolution passed in
accordance with the provisions of this Article 7 at a meeting of Noteholders
shall be binding upon all the Noteholders, whether present at or absent from
such meeting, and every instrument in writing signed by Noteholders in
accordance with section 7.14 shall be binding upon all the Noteholders,
whether signatories thereto or not, and each and every Noteholder and the
Trustee (subject to the provisions for indemnity herein contained) shall be
bound to give effect accordingly to every such resolution and instrument in
writing.
9.16 HOLDINGS BY CORPORATION DISREGARDED
In determining whether Noteholders holding Note Certificates
evidencing the entitlement to acquire the required principal amount of
Debentures are present at a meeting of Noteholders for the purpose of
determining a quorum or have concurred in any consent, waiver, extraordinary
resolution, Noteholders' Request or other action under this Indenture,
Special Notes owned legally or beneficially by the Corporation or any
Subsidiary of the Corporation shall be disregarded in accordance with the
provisions of section 12.9.
ARTICLE 10
SUPPLEMENTAL INDENTURES
10.1 PROVISION FOR SUPPLEMENTAL INDENTURES FOR CERTAIN PURPOSES
From time to time the Corporation (when authorized by action of the
directors) and the Trustee may, subject to the provisions hereof, and they
shall, when so directed in accordance with the provisions hereof, execute and
deliver by their proper officers, indentures or instruments supplemental
hereto, which thereafter shall form part hereof, for any one or more or all
of the following purposes:
(a) adding to the provisions hereof such additional covenants and
enforcement provisions as, in the opinion of Counsel, are necessary
or advisable in the circumstances, provided that the same are not
in the opinion of the Trustee prejudicial to the interests of the
Noteholders;
(b) giving effect to any extraordinary resolution passed as provided in
Article 9;
(c) making such provisions not inconsistent with this Indenture as may
be necessary or desirable with respect to matters or questions
arising hereunder or for the purpose of obtaining a listing or
quotation of the Special Notes on any stock exchange, provided that
such provisions are not, in the opinion of the Trustee, prejudicial
to the interests of the Noteholders;
(d) adding to or altering the provisions hereof in respect of the
transfer of Special Notes, making provision for the exchange of
Note Certificates, and making any modification in the form of the
Note Certificates which does not affect the substance thereof;
(e) modifying any of the provisions of this Indenture, including
relieving the Corporation from any of the obligations, conditions
or restrictions herein contained, provided that such modification or
<PAGE>
24
relief shall be or become operative or effective only if, in the
opinion of the Trustee, such modification or relief in no way
prejudices any of the rights of the Noteholders or of the Trustee,
and provided further that the Trustee may in its sole discretion
decline to enter into any such supplemental indenture which in its
opinion may not afford adequate protection to the Trustee when the
same shall become operative; and
(f) for any other purpose not inconsistent with the terms of this
Indenture, including the correction or rectification of any
ambiguities, defective or inconsistent provisions, errors, mistakes
or omissions herein, provided that in the opinion of the Trustee
the rights of the Trustee and of the Noteholders are in no way
prejudiced thereby.
10.2 SUCCESSOR CORPORATIONS
In the case of the consolidation, amalgamation, merger or transfer of
all or substantially all of the undertaking or assets of the Corporation to
another corporation ("Successor Corporation"), the Successor Corporation
resulting from such consolidation, amalgamation, merger or transfer (if not
the Corporation) shall expressly assume, by supplemental indenture
satisfactory in form to the Trustee and executed and delivered to the
Trustee, the due and punctual performance and observance of each and every
covenant and condition of this Indenture to be performed and observed by the
Corporation.
ARTICLE 11
CONCERNING THE TRUSTEE
11.1 TRUST INDENTURE LEGISLATION
(a) If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with a mandatory requirement of Applicable
Legislation, such mandatory requirement shall prevail.
(b) The Corporation and the Trustee agree that each will, at all times
in relation to this Indenture and any action to be taken hereunder,
observe and comply with and be entitled to the benefits of
Applicable Legislation.
11.2 RIGHTS AND DUTIES OF TRUSTEE
(a) In the exercise of the rights and duties prescribed or conferred by
the terms of this Indenture, the Trustee shall exercise that degree
of care, diligence and skill that a reasonably prudent trustee
would exercise in comparable circumstances. No provision of this
Indenture shall be construed to relieve the Trustee from liability
for its own negligent action, its own negligent failure to act, or
its own wilful misconduct or bad faith.
(b) The obligation of the Trustee to commence or continue any act,
action or proceeding for the purpose of enforcing any rights of the
Trustee or the Noteholders hereunder shall be conditional upon the
Noteholders furnishing, when required by notice by the Trustee,
sufficient funds to commence or to continue such act, action or
proceeding and an indemnity reasonably satisfactory to the Trustee
to protect and to hold harmless the Trustee against the costs,
charges and expenses and liabilities to be incurred thereby and any
loss and damage it may suffer by reason thereof. None of the
provisions contained in this Indenture shall require the Trustee to
expend or to risk its own funds or otherwise to incur financial
liability in the performance of any of its duties or in the
exercise of any of its rights or powers unless indemnified as
aforesaid.
(c) The Trustee may, before commencing or at any time during the
continuance of any such act, action or proceeding, require the
Noteholders, at whose instance it is acting, to deposit with the
<PAGE>
25
Trustee the Note Certificates held by them, for which Note
Certificates the Trustee shall issue receipts.
(d) Every provision of this Indenture that by its terms relieves the
Trustee of liability or entitles it to rely upon any evidence
submitted to it, is subject to the provisions of Applicable
Legislation, this section 11.2 and of section 11.3.
11.3 EVIDENCE, EXPERTS AND ADVISERS
(a) In addition to the reports, certificates, opinions and other
evidence required by this Indenture, the Corporation shall furnish
to the Trustee such additional evidence of compliance with any
provision hereof, and in such form, as may be prescribed by
Applicable Legislation or as the Trustee may reasonably require by
written notice to the Corporation.
(b) In the exercise of its rights and duties hereunder, the Trustee
may, if it is acting in good faith, rely as to the truth of the
statements and the accuracy of the opinions expressed in statutory
declarations, opinions, reports, written requests, consents, or
orders of the Corporation, certificates of the Corporation or other
evidence furnished to the Trustee pursuant to any provision hereof
or of Applicable Legislation or pursuant to a request of the
Trustee, provided that such evidence complies with Applicable
Legislation and that the Trustee complies with Applicable
Legislation and that the Trustee examines such evidence and
determines that such evidence complies with the applicable
requirements of this Indenture.
(c) Whenever it is provided in this Indenture or under Applicable
Legislation that the Corporation shall deposit with the Trustee
resolutions, certificates, reports, opinions, requests, orders or
other documents, it is intended that the trust, accuracy and good
faith on the effective date thereof and the facts and opinions
stated in all such documents so deposited shall, in each and every
such case, be conditions precedent to the right of the Corporation
to have the Trustee take the action to be based thereon.
(d) Proof of the execution of an instrument in writing, including a
Noteholders' Request, by any Noteholder may be made by the
certificate of a notary public, or other officer with similar
powers, that the person signing such instrument acknowledged to him
the execution thereof, or by an affidavit of a witness to such
execution or in any other manner which the Trustee may consider
adequate.
(e) The Trustee may employ or retain such Counsel, accountants,
appraisers or other experts or advisers as it may reasonably
require for the purpose of discharging its duties hereunder and may
pay reasonable remuneration for all services so performed by any of
them, and shall not be responsible for any misconduct or negligence
on the part of any such experts or advisers who have been appointed
with due care by the Trustee.
11.4 DOCUMENTS, MONIES, ETC. HELD BY TRUSTEE
Any securities, documents of title or other instruments that may at
any time be held by the Trustee subject to the trusts hereof may be placed in
the deposit vaults of the Trustee or of any Canadian chartered bank or
deposited for safekeeping with any such bank. Unless herein otherwise
expressly provided, any monies held pending the application or withdrawal
thereof under any provisions of this Indenture may be deposited in the name
of the Trustee in the deposit department of the Trustee or in any Canadian
chartered bank at the rate of interest (if any) then current on similar
deposits or, with the consent or at the written direction of the Corporation,
may be: (i) deposited in the deposit department of the Trustee or any other
loan or trust company authorized to accept deposits under the laws of Canada
or a province thereof; or (ii) invested in securities issued or guaranteed by
the Government of Canada or a province thereof or of any Canadian chartered
bank or loan or trust company, provided that the securities shall not have a
maturity date of more
<PAGE>
26
than 60 days from the date of investment. Unless the Corporation shall be in
default hereunder or unless otherwise specifically provided herein, all
interest or other income received by the Trustee in respect of such deposits
and investments shall belong to the Corporation.
11.5 ACTIONS BY TRUSTEE TO PROTECT INTEREST
The Trustee shall have power to institute and to maintain such
actions and proceedings as it may consider necessary or expedient to
preserve, protect or enforce its interests and the interests of the
Noteholders.
11.6 TRUSTEE NOT REQUIRED TO GIVE SECURITY
The Trustee shall not be required to give any bond or security in
respect of the execution of the trusts and powers of this Indenture or
otherwise in respect of the premises.
11.7 PROTECTION OF TRUSTEE
By way of supplement to the provisions of any law for the time being
relating to trustees, it is expressly declared and agreed as follows:
(a) the Trustee shall not be liable for or by reason of any statements
of fact or recitals in this Indenture or in the Note Certificates
(except the representations contained in section 11.9 and in the
certificate of the Trustee on the Note Certificates) or be required
to verify the same, but all such statements or recitals are and
shall be deemed to be made by the Corporation;
(b) nothing herein contained shall impose any obligation on the Trustee
to see to or to require evidence of the registration or filing (or
renewal thereof) of this Indenture or any instrument ancillary or
supplemental hereto;
(c) the Trustee shall not be bound to give notice to any person or
persons of the execution hereof; and
(d) the Trustee shall not have any liability or responsibility whatever
or be in any way responsible for the consequence of any breach on
the part of the Corporation of any of the covenants herein
contained or of any acts of any directors, officers, employees,
agents or servants of the Corporation.
11.8 REPLACEMENT OF TRUSTEE; SUCCESSOR BY MERGER
(a) The Trustee may resign its trust and be discharged from all further
duties and liabilities hereunder, subject to this section 11.8, by
giving to the Corporation not less than 90 days' prior notice in
writing or such shorter prior notice as the Corporation may accept
as sufficient. The Noteholders by extraordinary resolution shall
have power at any time to remove the existing Trustee and to
appoint a new Trustee. In the event of the Trustee resigning or
being removed as aforesaid or being dissolved, becoming bankrupt,
going into liquidation or otherwise becoming incapable of acting
hereunder, the Corporation shall forthwith appoint a new trustee
unless a new trustee has already been appointed by the Noteholders;
failing such appointment by the Corporation, the retiring Trustee
or any Noteholder may apply to a justice of the Court of Queen's
Bench of the Province of Alberta on such notice as such justice may
direct, for the appointment of a new trustee; but any new trustee
so appointed by the Corporation or by the Court shall be subject to
removal as aforesaid by the Noteholders. Any new trustee appointed
under any provision of this section 11.8 shall be a corporation
authorized to carry on the business of a trust company in the
Province of Alberta and, if required by the Applicable Legislation
for any other provinces, in such other provinces. On any such
appointment the new trustee shall be
<PAGE>
27
vested with the same powers, rights, duties and responsibilities as
if it had been originally named herein as Trustee hereunder.
(b) Upon the appointment of a successor trustee, the Corporation shall
promptly notify the Noteholders thereof in the manner provided for
in section 12.2 hereof.
(c) Any corporation into or with which the Trustee may be merged or
consolidated or amalgamated, or any corporation resulting therefrom
to which the Trustee shall be a party, or any corporation
succeeding to the trust business of the Trustee shall be the
successor to the Trustee hereunder without any further act on its
part or any of the parties hereto, provided that such corporation
would be eligible for appointment as a successor trustee under
subsection 11.8(a).
(d) Any Note Certificates certified but not delivered by a predecessor
trustee may be certified by the successor trustee in the name of
the predecessor or successor trustee.
11.9 CONFLICT OF INTEREST
(a) The Trustee represents to the Corporation that at the time of
execution and delivery hereof no material conflict of interest
exists between its role as a trustee hereunder and its role in any
other capacity and agrees that in the event of a material conflict
of interest arising hereafter it will, within 90 days after
ascertaining that it has such material conflict of interest, either
eliminate the same or assign its trust hereunder to a successor
trustee approved by the Corporation and meeting the requirements
set forth in subsection 11.8(a). Notwithstanding the foregoing
provisions of this subsection 11.9(a), if any such material
conflict of interest exists or hereafter shall exist, the validity
and enforceability of this Indenture and the Note Certificate shall
not be affected in any manner whatsoever by reason thereof.
(b) Subject to subsection 11.9(a), the Trustee, in its personal or any
other capacity, may buy, lend upon and deal in securities of the
Corporation and generally may contract and enter into financial
transactions with the Corporation or any Subsidiary of the
Corporation without being liable to account for any profit made
thereby.
11.10 INDEMNITY OF TRUSTEE
The Corporation hereby indemnifies the Trustee from any and all
costs, charges, expenses, liabilities or damages which may be incurred or
suffered by the Trustee in respect of the performance of its duties under
this Indenture except for such costs, charges, expenses, liabilities or
damages attributable to the negligence or wilful misconduct of the Trustee.
11.11 ACCEPTANCE OF TRUST
This Indenture is entered into with the Trustee for the benefit of,
and the Trustee declares that it holds this Indenture and all rights,
interests and benefits of this Indenture for, such persons, firms and
corporations, and each of them, who are from time to time Noteholders. The
Trustee hereby accepts the trusts in this Indenture declared and provided for
and agrees to perform the same upon the terms and conditions herein set forth.
11.12 TRUSTEE NOT TO BE APPOINTED RECEIVER
The Trustee and any person related to the Trustee shall not be
appointed a receiver, a receiver and manager or liquidator of all or any part
of the assets or undertaking of the Corporation.
<PAGE>
28
ARTICLE 12
GENERAL
12.1 NOTICE TO THE CORPORATION AND THE TRUSTEE
(a) Unless herein otherwise expressly provided, any notice to be given
hereunder to the Corporation or the trustee shall be deemed to be validly
given if delivered or if sent by registered letter, postage prepaid:
If to the Corporation:
Battery One, Inc.
7850 Woodbine Avenue, Suite 201
Markham, Ontario
L3R 0B9
ATTENTION: PRESIDENT
If to the Trustee:
Montreal Trust Company of Canada
Suite 600, 530 - 8th Avenue S.W.
Calgary, Alberta
T2P 3S8
Attention: MANAGER, CORPORATE TRUST DEPARTMENT
and any such notice delivered in accordance with the foregoing shall be
deemed to have been received on the date of delivery or, if mailed, on
the fifth Business Day following the date of the postmark on such notice.
(b) The Corporation or the Trustee, as the case may be, may notify the other
in the manner provided in subsection 12.1(a) of a change of address
which, from the effective date of such notice and until changed by like
notice, shall be the address of the Corporation or the Trustee, as the
case may be, for all purposes of this Indenture.
(c) If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Trustee or to the Corporation hereunder could reasonably be considered
unlikely to reach its destination, such notice shall be valid and
effective only if it is delivered to the named officer of the party to
which it is addressed or, if it is delivered to such party at the
appropriate address provided in subsection 12.1(a), by cable, telegram,
telecopy or other means of prepaid, transmitted and recorded
communication.
12.2 NOTICE TO NOTEHOLDERS
(a) Any notice to the Noteholders under the provisions of this Indenture
shall be valid and effective if sent by telegram, telex or telecopier or
letter or circular through the ordinary post addressed to such holders at
their post office addresses appearing on the register hereinbefore
mentioned and shall be deemed to have been effectively given on the date
of delivery or, if mailed, five Business Days following actual posting of
the notice.
(b) If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Noteholders hereunder could reasonably be considered unlikely to reach
its destination, such notice shall be valid and effective only if it is
delivered
<PAGE>
29
personally to such Noteholders or if delivered to the address
for such Noteholders contained in the register of Special Notes
maintained by the Trustee, by cable, telegram, telex or other means of
prepaid transmitted and recorded communication.
12.3 OWNERSHIP OF SPECIAL NOTES
The Corporation and the Trustee may deem and treat the registered
owner of any Special Notes as the absolute owner thereof for all purposes and
the Corporation and the Trustee shall not be affected by any notice or
knowledge to the contrary except where the Corporation or the Trustee is
required to take notice by statute or by order of a court of competent
jurisdiction. A Noteholder shall be entitled to the rights evidenced by its
Note Certificate free from all equities or rights of set off or counterclaim
between the Corporation and the original or any intermediate holder of the
Special Notes and all persons may act accordingly and the receipt of any such
Noteholder for the Debentures which may be acquired pursuant thereto shall be
a good discharge to the Corporation and the Trustee for the same and neither
the Corporation nor the Trustee shall be bound to inquire into the title of
any such holder except where the Corporation or the Trustee is required to
take notice by statute or by order of a court of competent jurisdiction.
12.4 EVIDENCE OF OWNERSHIP
(a) Upon receipt of a certificate of any bank, trust company or other
depositary satisfactory to the Trustee stating that the Special Notes
specified therein have been deposited by a named person with such bank,
trust company or other depositary and will remain so deposited until the
expiry of the period specified therein, the Corporation and the Trustee
may treat the person so named as the owner, and such certificate as
sufficient evidence of the ownership by such person of such Special Note
during such period, for the purpose of any requisition, direction,
consent, instrument or other document to be made, signed or given by the
holder of the Special Note so deposited.
(b) The Corporation and the Trustee may accept as sufficient evidence of the
fact and date of the signing of any requisition, direction, consent,
instrument or other document by any person: (i) the signature of any
officer of any bank, trust company, or other depositary satisfactory to
the Trustee as witness of such execution, (ii) the certificate of any
notary public or other officer authorized to take acknowledgments of
deeds to be recorded at the place where such certificate is made that the
person signing acknowledged to him the execution thereof, or (iii) a
satisfactory declaration of a witness of such execution.
12.5 COUNTERPARTS
This Indenture may be executed in several counterparts, each of which
when so executed shall be deemed to be an original and such counterparts
together shall constitute one and the same instrument and notwithstanding
their date of execution they shall be deemed to be dated as of the date
hereof.
12.6 SATISFACTION AND DISCHARGE OF INDENTURE
Upon the earlier of:
(a) the date by which there shall have been delivered to the Trustee for
exercise or destruction all Note Certificates theretofore certified
hereunder; or
(b) the Time of Expiry;
and if all certificates representing Debentures required to be issued in
compliance with the provisions hereof have been issued and delivered
hereunder and if all payments required to be made pursuant to Article 4 have
been made in accordance therewith, this Indenture shall cease to be of
further effect and the Trustee, on demand of and at the cost and expense of
the Corporation and upon delivery to the Trustee of a certificate
<PAGE>
30
of the Corporation stating that all conditions precedent to the satisfaction
and discharge of this Indenture have been complied with, shall execute proper
instruments acknowledging satisfaction of and discharging this Indenture.
Notwithstanding the foregoing, the indemnities provided to the Trustee by the
Corporation hereunder shall remain in full force and effect and survive the
termination of this Indenture.
12.7 SUCCESSORS
All the covenants and provisions of this Indenture by or for the
benefit of the Corporation or the Trustee shall bind and enure to the benefit
of their respective successors and assigns hereunder.
12.8 SOLE BENEFIT OF PARTIES AND NOTEHOLDERS
Nothing in this Indenture or in the Note Certificates, expressed or
implied, shall give or be construed to give to any person other than the
parties hereto and the Noteholders, as the case may be, any legal or
equitable right, remedy or claim under this Indenture, or under any covenant
or provision herein or therein contained, all such covenants and provisions
being for the sole benefit of the parties hereto and the Noteholders.
12.9 COMMON SHARES OR SPECIAL NOTES OWNED BY THE CORPORATION OR ITS
SUBSIDIARIES - CERTIFICATE TO BE PROVIDED
For the purpose of disregarding any Special Notes owned legally or
beneficially by the Corporation or any Subsidiary of the Corporation in
section 9.16, the Corporation shall provide to the Trustee, from time to
time, a certificate of the Corporation setting forth as at the date of such
certificate:
(a) the names (other than the name of the Corporation) of the registered
holders of Special Notes which, to the knowledge of the Corporation, are
owned by or held for the account of the Corporation or any Subsidiary of
the Corporation; and
(b) the number of Special Notes owned legally or beneficially by the
Corporation or any Subsidiary of the Corporation;
and the Trustee, in making the computations in section 9.16, shall be
entitled to rely on such certificate without any additional evidence.
IN WITNESS WHEREOF the parties hereto have executed this Indenture
under their respective corporate seals and the hands of their proper officers
in that behalf.
BATTERY ONE, INC.
Per:
---------------------------------
J. Douglas Elliott
Chief Executive Officer
MONTREAL TRUST COMPANY OF CANADA
Per: /s/ [illegible]
--------------------------------
Per: [illegible]
--------------------------------
<PAGE>
SCHEDULE "A"
To the annexed Special Note Indenture dated as of August 8, 1996 between
Battery One, Inc. and Montreal Trust Company of Canada, as Trustee.
(Form of Special Note)
BATTERY ONE, INC.
(Incorporated under the laws of Alberta)
No. $
--------------------------------- --------------------------
$6,000,000 10% CONVERTIBLE FIXED AND
FLOATING CHARGE SECURED SPECIAL PROMISSORY NOTE
Battery One, Inc. (hereinafter referred to as the "Corporation") for
value received hereby promises to pay to______________________________________
_______________________________________________, the registered holder hereof
on or before the Time of Expiry (as hereinafter defined), on presentation and
surrender of this Special Note (as hereinafter defined), the sum of __________
______________________ ($____________________) Dollars as represented by the
Debentures (as hereinafter defined), together with such further amount, if any,
as may be payable in accordance with the provisions of the Indenture.
Interest shall be payable on the outstanding balance of the principal
amount of this Special Note at a rate of ten (10%) percent per annum and
payable after as well as before maturity, default and judgment with interest
payable on overdue interest at the same rate.
The Corporation will pay interest semi-annually on the last day of
each calendar month of such half year during the term of the promissory note
(June 30 and December 31), from the date of execution of the Indenture, with
the first payment of interest to commence on December 31, 1996.
This Special Note is one of a series of up to $6,000,000 10%
convertible fixed and floating charge secured special notes (herein referred
to as the "Special Notes") in the maximum aggregate principal amount of six
million ($6,000,000) dollars in lawful money of Canada issued under a special
note indenture (herein referred to as the "Indenture") dated as of August 8,
1996 and made effective as of July 31, 1996 made between the Corporation and
Montreal Trust Company of Canada (the "Trustee"), as trustee, to which the
Indenture and all instruments supplemental thereto or in implementation
thereof reference is hereby made for a description of the rights of the
holders of the said Special Notes, of the Corporation and of the Trustee and
of the terms and conditions upon which the Special Notes are issued and held,
all to the same effect as if the provisions of the Indenture and such
instruments supplemental thereto or in implementation thereof were herein set
forth, to all of which provisions the holder of this Special Note, by
acceptance hereof, assents.
<PAGE>
2
The Special Notes are issuable as fully registered promissory notes in
denominations of one thousand ($1,000) dollars and any integral multiples of
one thousand ($1,000) dollars. The Special Notes of any authorized
denomination may be exchanged, as provided in the Indenture, for Debentures
of an equal aggregate principal amount in any other authorized denomination
or denominations.
Each principal amount of $1,000 represented hereby entitles the holder
thereof to acquire, for no additional payment to the Corporation, in the
manner and subject to the restrictions and adjustments set forth in the
Indenture, at any time and from time to time until 5:00 p.m. (Calgary time)
(the "Time of Expiry") which is the earlier of (i) six (6) business days
after the date of a receipt (or an Order of the nature described in the
Indenture) has been obtained from the securities commission or similar
regulatory authority in each of the Province of Alberta, British Columbia and
Ontario (the "Filing Jurisdictions") relating to the distribution of
Debentures upon the exercise of Special Notes; and (ii) July 31, 1997,
Debentures on the basis of $1,000 of principal amount of Debentures per
$1,000 of principal amount of Special Notes. Each Debenture shall be created
and issuable under a Debenture Trust Indenture, dated as of August 8, 1996
and made effective as of July 31, 1996, between the Corporation and the
Trustee.
The right to acquire Debentures hereunder may only be exercised by the
holder within the time set forth above by: (a) duly completing and executing
the Exercise Form attached hereto; and (b) surrendering the Special Note to
the Trustee at the principal office of the Trustee in the City of Calgary, in
the Province of Alberta.
This Special Note shall be deemed to be surrendered only upon personal
delivery hereof or, if sent by mail or other means of transmission, upon
actual receipt thereof by the Trustee at the office referred to above.
Upon surrender of this Special Note, the person or persons in whose
name or names the Debentures issuable upon exercise of this Special Notes are
to be issued shall be deemed for all purposes (except as provided in the
Indenture) to be the holder or holders of record of such Debentures and the
Corporation has covenanted that it will (subject to the provisions of the
Indenture) cause a certificate or certificates representing such Debentures
to be delivered or mailed to the person or persons at the address or
addresses specified in the Exercise Form within five (5) business days.
Immediately prior to the Time of Expiry, the Trustee shall exercise
the Special Note on behalf of the holder, if not already actually exercised,
and the certificates representing the Debentures issued thereby may be
obtained upon duly completing and executing the Exercise Form attached hereto
and surrendering this Special Note to the Trustee at the principal office of
the Trustee in the City of Calgary.
The Indenture contains provisions for the holding of meetings of
holders of Special Notes (the "Noteholders") and rendering resolutions passed
at such meetings and instruments in writing signed by the holders of a
specified majority of the Special Notes outstanding binding upon all
Noteholders, subject to the provisions of the Indenture.
This Special Note shall not become obligatory for any purpose until it
shall have been certified by the Trustee under the Indenture.
Nothing in the holding of this Special Note or the Indenture or
otherwise, shall in itself, confer or be construed as conferring upon a
Noteholder any right or interest whatsoever as a shareholder of the
Corporation, including, but not limited to, the right to vote or receive
notice of, or to attend meetings of shareholders or any other proceedings of
the Corporation, or the right to receive dividends or other distributions.
<PAGE>
3
THIS SPECIAL NOTE IS SUBJECT TO RESALE RESTRICTIONS AND MAY NOT BE
SOLD OR OTHERWISE TRADED OR TRANSFERRED.
IN WITNESS WHEREOF the Corporation has caused its corporate seal to be
hereunto affixed and this Special Note to be signed by its proper officers in
that behalf as of August 8, 1996 and made effective as of July 31, 1996.
BATTERY ONE, INC.
Per:
---------------------------
Per:
---------------------------
<PAGE>
4
(FORM OF TRUSTEE'S CERTIFICATE)
This Special Note is one of the $6,000,000 10% Convertible
Fixed and Floating Charge Secured Special Notes referred to in the Indenture
within mentioned.
MONTREAL TRUST COMPANY OF CANADA
Per:
--------------------------------
<PAGE>
5
EXERCISE FORM
$_______________ IN PRINCIPAL AMOUNT OF SPECIAL NOTES
TO: BATTERY ONE, INC. AND
MONTREAL TRUST COMPANY OF CANADA
The undersigned hereby exercises the above noted principal amount of
Special Notes to receive Debentures of Battery One, Inc. as constituted on
July 31, 1996 (or such number of other securities or property to which such
Special Notes entitle the undersigned in lieu thereof or in addition thereto
under the provisions of the Indenture referred to in the accompanying Special
Note Certificate) in accordance with and subject to the provisions of such
Indenture.
The Debentures (or other securities or property) issuable upon the
exercise the Special Notes are to be issued as follows:
Name:
------------------------------------------------------------------
(print clearly)
Address in full:
-------------------------------------------------------
-----------------------------------------------------------------------
Social Insurance Number:
----------------------------------------------
Principal Amount:
-----------------------------------------------------
Note: If further nominees intended, please attach (and initial) schedule
giving these particulars.
Such securities (please check one):
(a) __________ should be sent by first class mail to the following
address:
---------------------------------------------------------
---------------------------------------------------------
OR
(b) __________ should be held for pick up at the office of the Trustee at
which this Special Note Certificate is deposited.
If the principal amount of Special Notes exercised are less
than the principal amount of Special Notes represented hereby, the
undersigned requests that the new Special Note Certificate representing the
balance of the Special Notes be registered in the name of
- ------------------------------------------------------------------------------
<PAGE>
6
whose address is
-------------------------------------------------------------
Such securities (please check one):
(a) __________ should be sent by first class mail to the following
address:
---------------------------------------------------------
---------------------------------------------------------
OR
(b) __________ should be held for pick up at the office of the Trustee at
which this Special Note Certificate is deposited.
In the absence of instructions to the contrary, the securities
or other property will be issued in the name of or to the holder hereof and
will be sent by first class mail to the last address of the holder appearing
on the register maintained for the Special notes.
DATED this ____ day of __________, 199__.
- ----------------------------------- ---------------------------------
Signature Guaranteed (Signature of Special Noteholder)
--------------------------------
Print full name
--------------------------------
--------------------------------
Print full address
INSTRUCTIONS:
1. The registered holder may exercise its right to receive Debentures by
completing this form and surrendering this form and the Special Note
Certificate representing the Special Notes being exercised to Montreal
Trust Company of Canada at its principal office at Suite 600, 530 - 8th
Avenue S.W., Calgary, Alberta. Certificates for Debentures will be
delivered or mailed within five business days after the exercise of the
Special Notes.
<PAGE>
7
2. If the Exercise Form indicates that Debentures are to be issued to a
person or persons other than the registered holder of the Certificate,
the signature of such holder of the Exercise Form MUST be guaranteed by
an authorized officer of a chartered bank, trust company or an investment
dealer who is a member of a recognized stock exchange.
3. If the Exercise Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person
acting in a judiciary or representative capacity, the certificate must be
accompanied by evidence of authority to sign satisfactory to the Trustee
and the Corporation.
4. IF THE REGISTERED HOLDER EXERCISES ITS RIGHT TO RECEIVE DEBENTURES PRIOR
TO A RECEIPT FOR A PROSPECTUS BEING ISSUED BY THE APPLICABLE SECURITIES
COMMISSION THE DEBENTURES WILL BE SUBJECT TO A HOLD PERIOD AND MAY BE
ISSUED WITH A LEGEND REFLECTING SUCH HOLD PERIOD.
OFFICE OF THE TRUSTEE
Montreal Trust Company of Canada
Suite 600, 530 - 8th Avenue S.W.
Calgary, Alberta
T2P 3S8
Telephone: (403) 267-6510
<PAGE>
DEBENTURE TRUST INDENTURE
Dated as of the 8th day of August, 1996 and made
effective as of July 31, 1996
Between
BATTERY ONE, INC.
and
MONTREAL TRUST COMPANY OF CANADA
Providing for the Issue of a Series of up to
$6,000,000 10% Convertible Fixed and Floating Charge Secured Debentures
Due July 31, 2001
<PAGE>
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TABLE OF CONTENTS
Page
----
ARTICLE 1
INTERPRETATION. . . . . . . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Gender. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.3 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . 6
1.5 Enurement . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.6 Meaning of "Outstanding". . . . . . . . . . . . . . . . . . . 7
ARTICLE 2
THE DEBENTURES. . . . . . . . . . . . . . . 7
2.1 Principal Amount. . . . . . . . . . . . . . . . . . . . . . . 7
2.2 Form and Signature of Debentures. . . . . . . . . . . . . . . 8
2.3 Issue of Debentures . . . . . . . . . . . . . . . . . . . . . 8
2.4 Certification . . . . . . . . . . . . . . . . . . . . . . . . 8
2.5 Debentures to Rank Pari Passu . . . . . . . . . . . . . . . . 9
2.6 Registration and Transfer of Debentures . . . . . . . . . . . 9
2.7 Persons Entitled to Payment . . . . . . . . . . . . . . . . . 10
2.8 Mutilation, Loss, Theft or Destruction. . . . . . . . . . . . 11
2.9 Exchanges of Debentures . . . . . . . . . . . . . . . . . . . 11
2.10 Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.11 Option of Holder as to Place of Payment . . . . . . . . . . . 12
2.12 Trustee Not Bound to Make Enquiries . . . . . . . . . . . . . 12
2.13 Debentureholder Not a Shareholder . . . . . . . . . . . . . . 12
ARTICLE 3
REPAYMENT. . . . . . . . . . . . . . . . 12
3.1 Covenant to Pay . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.3 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.4 Order of Repayment. . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 4
SECURITY FOR PAST, PRESENT AND FUTURE INDEBTEDNESS. . . . . . 13
4.1 Security. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Mortgaged Property. . . . . . . . . . . . . . . . . . . . . . 14
4.3 Exceptions. . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.4 Obligation to Pay . . . . . . . . . . . . . . . . . . . . . . 15
4.5 Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.6 Partial Release . . . . . . . . . . . . . . . . . . . . . . . 15
4.7 Proviso for Possession Until Default. . . . . . . . . . . . . 16
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ARTICLE 5
COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE CORPORATION . . . 16
5.1 Representations and Warranties. . . . . . . . . . . . . . . . 16
5.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.4 Negative Covenants. . . . . . . . . . . . . . . . . . . . . . 20
5.5 Defend Mortgaged Property . . . . . . . . . . . . . . . . . . 20
5.6 Supplemental Instruments. . . . . . . . . . . . . . . . . . . 21
5.7 To Pay Trustee's Remuneration . . . . . . . . . . . . . . . . 21
5.8 Trustee May Perform Covenants . . . . . . . . . . . . . . . . 22
ARTICLE 6
DEFAULT . . . . . . . . . . . . . . . . 22
6.1 Acceleration of Maturity. . . . . . . . . . . . . . . . . . . 22
6.2 Notice of Events of Default . . . . . . . . . . . . . . . . . 23
6.3 Waiver of Default . . . . . . . . . . . . . . . . . . . . . . 23
6.4 Enforcement by the Trustee. . . . . . . . . . . . . . . . . . 24
6.5 No Suits by Debentureholders. . . . . . . . . . . . . . . . . 28
6.6 Application of Monies by Trustee. . . . . . . . . . . . . . . 28
6.7 Distribution of Proceeds. . . . . . . . . . . . . . . . . . . 29
6.8 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . 29
6.9 Judgment Against the Corporation. . . . . . . . . . . . . . . 29
6.10 Immunity of Shareholders and Others . . . . . . . . . . . . . 29
6.11 Trustee Appointed Attorney. . . . . . . . . . . . . . . . . . 30
ARTICLE 7
SATISFACTION AND DISCHARGE. . . . . . . . . . . . 30
7.1 Cancellation and Destruction. . . . . . . . . . . . . . . . . 30
7.2 Non-Presentation of Debentures. . . . . . . . . . . . . . . . 30
7.3 Repayment of Unclaimed Monies or Common Shares. . . . . . . . 30
ARTICLE 8
SUCCESSOR CORPORATIONS. . . . . . . . . . . . . 31
8.1 Certain Requirements. . . . . . . . . . . . . . . . . . . . . 31
8.2 Vesting of Powers in Successor. . . . . . . . . . . . . . . . 31
ARTICLE 9
MEETINGS OF DEBENTUREHOLDERS . . . . . . . . . . . 32
9.1 Right to Convene Meeting. . . . . . . . . . . . . . . . . . . 32
9.2 Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . 32
9.3 Chairman. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.4 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.5 Power to Adjourn. . . . . . . . . . . . . . . . . . . . . . . 33
9.6 Show of Hands . . . . . . . . . . . . . . . . . . . . . . . . 33
9.7 Poll. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.8 Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.9 Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.10 Persons Entitled to Attend Meetings . . . . . . . . . . . . . 34
9.11 Powers Exercisable by Extraordinary Resolution. . . . . . . . 34
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9.12 Meaning of "Extraordinary Resolution" . . . . . . . . . . . . 36
9.13 Powers Cumulative . . . . . . . . . . . . . . . . . . . . . . 36
9.14 Minutes . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.15 Instruments in Writing. . . . . . . . . . . . . . . . . . . . 37
9.16 Binding Effect of Resolutions . . . . . . . . . . . . . . . . 37
9.17 Evidence of Rights of Debentureholders. . . . . . . . . . . . 37
ARTICLE 10
NOTICES . . . . . . . . . . . . . . . . 38
10.1 Notice to Corporation . . . . . . . . . . . . . . . . . . . . 38
10.2 Notice to Debentureholders. . . . . . . . . . . . . . . . . . 38
10.3 Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 11
CONCERNING THE TRUSTEE. . . . . . . . . . . . . 39
11.1 No Conflict of Interest . . . . . . . . . . . . . . . . . . . 39
11.2 Replacement of Trustee. . . . . . . . . . . . . . . . . . . . 39
11.3 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . 40
11.4 Reliance Upon Declarations. . . . . . . . . . . . . . . . . . 40
11.5 Evidence of Compliance to Trustee . . . . . . . . . . . . . . 40
11.6 Officers' Certificate as Evidence . . . . . . . . . . . . . . 42
11.7 Experts, Advisors and Agents. . . . . . . . . . . . . . . . . 42
11.8 Trustee May Deal in Debentures. . . . . . . . . . . . . . . . 42
11.9 Investment of Monies Held by Trustee. . . . . . . . . . . . . 43
11.10 Trustee Not Ordinarily Bound. . . . . . . . . . . . . . . . . 43
11.11 Trustee Not Required to Give Security . . . . . . . . . . . . 43
11.12 Trustee Not to be Appointed Receiver. . . . . . . . . . . . . 44
11.13 Trustee Not Bound to Act on Corporation's Request . . . . . . 44
11.14 Protection of Trustee . . . . . . . . . . . . . . . . . . . . 44
11.15 Conditions Precedent to Trustee's Obligations to Act
Hereunder . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.16 Authority to Carry on Business. . . . . . . . . . . . . . . . 45
11.17 Acceptance of Trust . . . . . . . . . . . . . . . . . . . . . 45
11.18 Direction of Trustee's Actions by Holders . . . . . . . . . . 45
11.19 Environmental Indemnity . . . . . . . . . . . . . . . . . . . 45
ARTICLE 12
CONVERSION OF DEBENTURES . . . . . . . . . . . . 46
12.1 Conversion. . . . . . . . . . . . . . . . . . . . . . . . . . 46
12.2 Manner of Exercise of Right to Convert. . . . . . . . . . . . 47
12.3 Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . 49
12.4 No Requirement to Issue Fractional Shares . . . . . . . . . . 50
12.5 Corporation to Reserve Shares . . . . . . . . . . . . . . . . 50
12.6 Taxes and Charges on Conversion . . . . . . . . . . . . . . . 51
12.7 Cancellation of Converted Debentures. . . . . . . . . . . . . 51
12.8 Certificate as to Adjustment. . . . . . . . . . . . . . . . . 51
12.9 Notice of Special Matters . . . . . . . . . . . . . . . . . . 51
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ARTICLE 13
SUPPLEMENTAL INDENTURES . . . . . . . . . . . . 52
13.1 Supplemental Indentures . . . . . . . . . . . . . . . . . . . 52
ARTICLE 14
EXECUTION AND FORMAL DATE. . . . . . . . . . . . 52
14.1 Execution . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.2 Formal Date . . . . . . . . . . . . . . . . . . . . . . . . . 53
<PAGE>
THIS INDENTURE dated the 8th day of August, 1996 and made effective as of the
31st day of July, 1996.
BETWEEN:
BATTERY ONE, INC., a corporation incorporated under the laws
of the Province of Alberta and having its head office in the
City of Calgary, in the Province of Alberta
(hereinafter called the "Corporation")
OF THE FIRST PART
- and -
MONTREAL TRUST COMPANY OF CANADA, a trust company
incorporated under the laws of Canada and authorized to
carry on business in all provinces of Canada
(hereinafter called the "Trustee")
OF THE SECOND PART
WHEREAS:
1. The Corporation has agreed to issue a minimum of $2,500,000 and a
maximum of $6,000,000 in principal amount of Special Notes pursuant to the
Special Note Indenture;
2. The Special Notes entitle the holders thereof to acquire Debentures of
the Corporation, each Special Note exercisable to acquire Debentures on the
basis of $1,000 principal amount of Special Notes per $1,000 principal amount of
Debentures;
3. The Corporation has deemed it necessary for its corporate purposes to
create and issue the Debentures upon exercise of the Special Notes as herein
provided;
4. The Corporation, under the laws relating thereto, is duly authorized
to create and issue the Debentures to be issued as herein provided;
5. All necessary by-laws and resolutions of the Corporation have been
duly enacted, passed, and/or confirmed and other proceedings taken and
conditions complied with to make the creation and issue of the Debentures
proposed to be issued hereunder and this Indenture and the execution thereof
legal, valid and binding on the Corporation in accordance with the laws relating
to the Corporation;
6. The Trustee has agreed to act as trustee on behalf of the
Debentureholders (and not as agent for the Corporation) in the manner and upon
the terms hereinafter set forth; and
7. The foregoing recitals are made as representations and statements of
fact by the Corporation and not by the Trustee.
NOW THEREFORE it is hereby witnessed, covenanted, agreed and declared as
follows:
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ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Indenture and in the Debentures, unless there is something in
the subject matter or context inconsistent therewith, the following expressions
shall mean as follows:
(a) "Agency Agreement" means the agency agreement, dated August 8, 1996
and made effective as of the 31st day of July, 1996 between the
Corporation and the Agent relating to the offering of the Debentures;
(b) "Agent" means C.M. Oliver & Company Limited;
(c) "this Indenture", "this Debenture Trust Indenture", "hereto",
"herein", "hereby", "hereunder", "hereof" and similar expressions
refer to this indenture and not to any particular article, clause,
subclause, subdivision or other portion hereof and, include any and
every instrument supplemental or ancillary hereto;
(d) "Applicable Law" means, in relation to any person, transaction or
event, all applicable provisions (or mandatory applicable provisions,
if so specified) of laws, statutes, rules, regulations, official
directives and orders of all governmental bodies (whether
administrative, legislative, executive or otherwise) and judgments,
orders and decrees of all courts, arbitrators, commissions or bodies
exercising similar functions having jurisdiction over the person,
transaction or event in question;
(e) "Business Day" means a day which is not Saturday or Sunday or a legal
holiday in the City of Calgary, Alberta;
(f) "Common Shares" means fully paid and non-assessable common shares of
the Corporation as presently constituted, provided that in the event
of an adjustment pursuant to clause 12.3, then "Common Share" shall
thereafter mean a share or other security or property purchasable upon
exercise of a Debenture as a result of any such adjustment;
(g) "Conversion Date" means, with respect to any Debenture, the date on
which the Debenture Certificate representing such Debenture is
surrendered for conversion into Common Shares as contemplated in
clause 12.2 hereof;
(h) "Conversion Price" means the price at which the principal amount of
the Debentures are convertible into Common Shares of the Corporation
as described in clause 12.1(a) or 12.1(b), as the case may be;
(i) "Corporation" means the party of the first part hereunder and includes
any successor corporation to or of the Corporation which shall have
complied with the provisions of Article 8;
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(j) "Corporation's Auditors" or "Auditors of the Corporation" means an
independent firm of chartered or certified public accountants duly
appointed as auditors of the Corporation;
(k) "Counsel" means a barrister or solicitor or firm of barristers or
solicitors retained or employed by the Trustee or retained or employed
by the Corporation;
(l) "Debenture Certificate" means a certificate issued on or after the
Issue Date to evidence Debentures;
(m) "Debentures" means the series of $6,000,000 10% convertible fixed and
floating charge secured debentures of the Corporation issued or to be
issued hereunder and for the time being outstanding;
(n) "Debentureholders" or "holders" means the several persons for the time
being entered in the registers hereinafter mentioned as holders of
Debentures;
(o) "director" means a director of the Corporation for the time being and
"directors" or "board of directors" means the board of directors of
the Corporation or, if duly constituted and whenever duly empowered,
the executive committee of the board of directors of the Corporation
for the time being, and reference to action by the directors means
action by the directors of the Corporation as a board or action by the
said executive committee as such committee;
(p) "dollars" or "$" means, unless otherwise stated, Canadian dollars and
all reference to cash or money shall mean dollars as so defined;
(q) "Effective Date" means the 31st day of July, 1996;
(r) "Event of Default" means any event specified in clause 6.1, continued
for the period of time, if any, therein designated;
(s) "Filing Jurisdiction" means each of the Provinces of Alberta, British
Columbia and Ontario;
(t) "Issue Date" means the date upon which the Debentures are issued;
(u) "Mortgaged Property" shall have the meaning ascribed thereto in
clause 4.2 hereof, including, without limitation, all of the
undertaking, property and assets, both present and future, of the
Corporation, of whatsoever nature and kind and wheresoever situated,
that are from time to time subject to any mortgage, lien, assignment,
transfer, hypothec, pledge or charge created under or secured by this
Indenture or by any indenture supplementary hereto;
(v) "Negotiable Instruments" means cash and all negotiable instruments
including, without limitation, promissory notes, cheques, drafts and
bills of exchange;
(w) "Note Agency" means the principal office of the Trustee in the City of
Calgary, or such place as may be designated in accordance with
clause 2.6 hereof;
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(x) "Officer's Certificate" means a certificate signed by the Chairman,
President, Vice-President or by the Secretary of the Corporation;
(y) "Order" means an order of a Securities Commission in a Filing
Jurisdiction that permits the Debentures and Common Shares issuable
upon the exercise of Debentures to be tradeable in such Filing
Jurisdiction without being subject to the prospectus requirement nor
any "hold period" under the Applicable Legislation in such Filing
Jurisdiction;
(z) "Permitted Encumbrances" means, as of any date, any of the following:
(i) liens for taxes, assessments or governmental charges:
(1) not at such date due or delinquent; or
(2) the validity of which the Corporation shall be
contesting in good faith and in respect of which:
(A) an amount in cash sufficient to pay such taxes,
assessments or charges shall have been deposited
with a court, a taxing or assessing authority or
the Debentureholder; or
(B) a surety bond, satisfactory to the
Debentureholder, for such amount shall have been
deposited with the Debentureholder;
(ii) the lien of any judgment rendered, or of any claim filed,
against the Corporation which the Corporation shall be
contesting in good faith and in respect of which:
(1) an amount in cash sufficient to pay such judgment or
claim shall have been deposited with a court or the
Debentureholder; or
(2) a surety bond, satisfactory to the Debentureholder, for
such amount, shall have been deposited with the
Debentureholder;
(iii) undetermined or inchoate liens incidental to construction or
current operations which have not at such date been filed
pursuant to law against the Mortgaged Property or against the
Corporation or which relate to obligations not at such date due
or delinquent;
(iv) easements, rights of way, servitudes or other similar rights in
property (including, without limitation, rights of way and
servitudes for railways, sewers, drains, pipelines, gas and
water mains, electric light, power, telephone, telegraph or
cable television conduits, poles, wires and cables) granted to
or reserved or taken by other persons which in the aggregate do
not materially detract from the value of such property or
<PAGE>
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materially impair its use in the operation of the business of
the Corporation;
(v) security given by the Corporation to a public utility, any
municipality, governmental or other public authority when
required by such utility, municipality or authority in the
ordinary course of the business of the Corporation; and
(vi) any other lien, the validity of which is being contested in
good faith and where the Corporation has deposited:
(1) with the court of the Debentureholder, an amount in cash
sufficient to pay the same in full;
(2) with the Debentureholder, a surety bond, satisfactory to
the Holder, for such amount;
(aa) "person" means an individual, corporation, company, partnership,
association or trust;
(ab) "principal" or "principal amount" means the principal sum of up to and
including $6,000,000 or part thereof which remains outstanding and
unpaid from time to time;
(ac) "Prospectus" means a final prospectus in respect of the distribution
of Debentures and Common Shares upon the exercise of the Debentures;
(ad) "receiver" means the receiver appointed pursuant to clause 6.4(g)
hereof and includes a receiver manager;
(ae) "Securities Commissions" means, collectively, the securities
commissions or similar regulatory authorities in the Filing
Jurisdictions;
(af) "Security Interest" means any assignment, mortgage, charge, pledge,
lien, encumbrance or security interest whatsoever, howsoever, created
or arising, whether absolute or contingent, fixed or floating,
perfected or not, but does not include set-off or any right of set-
off;
(ag) "Special Note Indenture" means the special note trust indenture, dated
August 8, 1996 and made effective as of July 31, 1996, between the
Corporation and the Trustee providing for the issuance of the Special
Notes, as amended or supplemented from time to time;
(ah) "Special Notes" means the special notes issued and certified under the
Special Note Indenture;
(ai) "Subsidiary" or "Subsidiary Company" means any corporation of which
more than fifty (50%) percent of the outstanding voting shares are
owned, directly or indirectly, by or for the Corporation, provided
that the ownership of such
<PAGE>
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voting shares confers the right to elect at least a majority of the
board of directors of such corporation and includes any corporation
in like relation to a subsidiary;
(aj) "Trustee" means the party of the second part hereunder or its
successor or successors for the time being as trustee hereunder;
(ak) "Voting Shares" means shares of capital stock of any class of any
corporation carrying voting rights under all circumstances, provided
that, for the purposes of such definition, shares which only carry the
right to vote conditionally on the happening of an event shall not be
considered voting shares, whether or not such event shall have
occurred, nor shall any shares be deemed to cease to be voting shares
solely by reason of a right to vote accruing to shares of another
class or classes by reason of the happening of such event; and
(al) "written direction of the Corporation" means an instrument in writing
signed by the Chairman, President, Vice-President or by the Secretary
of the Corporation.
1.2 GENDER
Words importing the singular number shall also include the plural and
vice versa, and words importing any of the masculine, feminine or neuter genders
shall include the others.
1.3 HEADINGS
The division of this Indenture into Articles and Clauses, the
provision of a table of contents and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Indenture or the Debentures.
1.4 APPLICABLE LAW
This Indenture and the Debentures shall be construed in accordance
with the laws of the Province of Alberta and shall be treated in all respects as
Alberta contracts.
1.5 ENUREMENT
This Indenture and the Debentures shall enure to the benefit of and be
binding upon in respect of successors, heirs, executors, administrators and
permitted assigns of the Corporation, the Trustee and the holders.
1.6 MEANING OF "OUTSTANDING"
Every Debenture certified and delivered by the Corporation and Trustee
hereunder shall be deemed to be outstanding until it shall be cancelled or
delivered to the Trustee for cancellation or monies for the payment or
conversion thereof shall have been set aside under clause 7.2, as the case may
be, provided that:
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(a) Debentures which have been partially converted shall be deemed to be
outstanding only to the extent of the unconverted part of the
principal amount thereof;
(b) when a new Debenture has been issued in substitution for a Debenture
which has been lost, stolen or destroyed, only one of such Debentures
shall be counted for the purpose of determining the aggregate
principal amount of Debentures outstanding; and
(c) for the purposes of any provision of this Indenture entitling holders
of outstanding Debentures to vote, sign consents, requisitions or
other instruments or take any other action under this Indenture,
Debentures owned directly or indirectly, legally or equitably by the
Corporation or any Subsidiary shall be disregarded except that:
(i) for the purpose of determining whether the Trustee shall be
protected in relying on any such vote, consent, requisition or
other instrument or action, only the Debentures which the
Trustee knows are so owned shall be so disregarded; and
(ii) Debentures so owned which have been pledged in good faith other
than to the Corporation or a Subsidiary shall not be so
disregarded if the pledgee shall establish to the satisfaction
of the Trustee the pledgee's right to vote such Debentures in
his discretion free from the control of the Corporation or any
Subsidiary.
ARTICLE 2
THE DEBENTURES
2.1 PRINCIPAL AMOUNT
The aggregate principal amount of Debentures authorized to be issued
under this Indenture shall consist of and be limited to six million ($6,000,000)
dollars in lawful money of Canada.
The Debentures shall be designated as "$6,000,000 10% Convertible
Fixed and Floating Charge Secured Debentures" and shall be dated as of the Issue
Date.
2.2 FORM AND SIGNATURE OF DEBENTURES
The Debentures shall be issued only as fully registered Debentures in
the denomination of $1,000 and integral multiples of $1,000. The Debentures and
the certificate of the Trustee endorsed thereon shall be substantially in the
form set forth in Schedule "A" hereto. The Debentures shall be dated as of the
Issue date and shall bear such distinguishing letters and numbers as the Trustee
may approve.
The Debentures may be engraved, printed or lithographed, or be partly
in one form and partly in another, as the Corporation may determine.
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The Debentures shall be under the seal of the Corporation (or a
reproduction thereof which shall be deemed to be the seal of the Corporation)
and shall be signed (either manually or by facsimile signature) by any one
officer or director of the Corporation. A facsimile signature upon any of the
Debentures shall for all purposes of this Indenture be deemed to be the
signature of the person whose signature it purports to be and to have been
signed at the time such facsimile signature is reproduced and notwithstanding
that any person whose signature, either manual or in facsimile, may appear on
the Debentures is not, at the date of this Indenture or at the date of the
Debentures or at the date of the certifying and delivery thereof, the holder of
the office indicated, any such Debentures shall be valid and binding upon the
Corporation and entitled to the benefits of this Indenture.
2.3 ISSUE OF DEBENTURES
The Debentures shall be issued from time to time upon the holders of
Special Notes duly exercising the Special Notes pursuant to the Special Note
Indenture.
Debentures in the aggregate principal amount not exceeding six million
($6,000,000) dollars in lawful money of Canada shall be executed by the
Corporation and, forthwith after such execution, shall be delivered to the
Trustee and shall be certified by the Trustee and delivered to or to the order
of the Corporation pursuant to a written direction of the Corporation without
the Trustee receiving any consideration therefor.
2.4 CERTIFICATION
No Debenture shall be issued or, if issued, shall be obligatory or
shall entitle the holder to the benefits of this Indenture, until it has been
certified by or on behalf of the Trustee substantially in the form set out in
Schedule "A" hereto or in some other form approved by the Trustee. Such
certification on any Debenture shall be conclusive evidence that such Debenture
is duly issued, is a valid obligation of the Corporation and is entitled to the
benefits hereof.
The certificate of the Trustee signed on the Debentures shall not be
construed as a representation or warranty by the Trustee as to the validity of
this Indenture or of the Debentures or as to the issuance of the Debentures, and
the Trustee shall in no respect be liable or answerable for the use made of the
Debentures or any of them or the proceeds thereof. The certificate of the
Trustee signed on the Debentures, shall, however, be a representation and
warranty by the Trustee that the Debentures have been duly certified by or on
behalf of the Trustee pursuant to the provisions of this Indenture.
2.5 DEBENTURES TO RANK PARI PASSU
The Debentures may be issued in such amounts, to such persons and on
such terms not inconsistent with the provisions of this Indenture, as the
directors may determine. Each Debenture as soon as issued or negotiated shall,
subject to the terms hereof, be equally and proportionately entitled to the
benefits hereof as if all of the Debentures had been issued and negotiated
simultaneously.
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2.6 REGISTRATION AND TRANSFER OF DEBENTURES
The Corporation shall, at all times while any Debentures are
outstanding, cause to be kept by and at the principal office of the Trustee
in the City of Calgary and in such other place or places as the Corporation
with the approval of the Trustee may designate, registers in which shall be
entered the names and addresses of the holders of Debentures and particulars
of the Debentures held by them respectively and of all transfers of
Debentures. The registers referred to in this clause shall at all reasonable
times be open for inspection by the Corporation, the Trustee and any
Debentureholder.
The Debentures are subject to resale restrictions and may not be
sold or otherwise traded or transferred except in accordance with the
provisions of applicable securities legislation. Compliance with the
securities laws of any jurisdiction to which the Debentureholder or
transferee is subject is the responsibility of the Debentureholder or its
transferee.
Except in the case of the register required to be kept at the City
of Calgary, the Corporation shall have power at any time to close any
register upon which the registration of any Debenture appears and in that
event it shall transfer the records thereof to another existing register or
to a new register and thereafter such Debentures shall be deemed to be
registered on such existing or new register, as the case may be.
The Debentures may only be transferred on the registers as herein
contemplated by the holder or its legal representatives or its attorney duly
appointed by an instrument in writing in form and execution satisfactory to
the Trustee only upon surrendering to the Trustee of the Debenture
Certificate or Debenture Certificates representing the Debentures to be
transferred, with the transfer form thereon duly completed and executed,
signed by the Debentureholder or by the duly appointed legal representative
thereof or a duly authorized attorney, together with evidence of authority of
any such legal representative or attorney and, if required by the transfer
form, with such signature properly guaranteed, and upon compliance with (i)
the conditions herein; (ii) any reasonable requirements as the Trustee may
prescribe; and (iii) all applicable securities legislation and requirements
of regulatory authorities relating to the transferability of the Debentures
or restrictions thereon; and such transfer shall be duly noted in the
registers of the Debentures as herein contemplated by the Trustee. Upon
compliance with such requirements, the Trustee shall issue to the transferee
a Debenture Certificate representing the Debentures transferred. Such new
Debenture Certificate shall be sent by first class mail or held for pick-up
by the transferee in accordance with the instructions given on the transfer
form and, if no such instructions are given, shall be sent by first class
mail to the address of the transferee appearing on the form of transfer. If
less than all of the Debenture represented by a Debenture Certificate are
transferred, the Trustee shall issue a new Debenture Certificate representing
the Debentures not transferred in the same name as the name appearing on the
Debenture Certificate surrendered for transfer. Such new Debenture
Certificate shall be sent by first class mail or held for pick-up in
accordance with instructions given on the transfer form, and, if no
instructions are given, shall be sent by first class mail to the address of
the holder of the Debenture surrendered for transfer appearing on the
register of the Debentures as herein contemplated.
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The Corporation and the Trustee will deem and treat the registered
owner of any Debenture as the beneficial owner thereof for all purposes and
neither the Corporation nor the trustee shall be effected by any notice to
the contrary.
Subject to the provisions of this Indenture, and applicable law,
the Debentureholder shall be entitled to the rights and privileges attached
to the Debentures and the issuance of Common Shares upon conversion of the
Debentures by any Debentureholder in accordance with the terms and conditions
herein contained shall discharge all responsibilities of the Corporation and
the Trustee with respect to such Debentures and neither the Corporation nor
the Trustee shall be bound to inquire into the title of any such holder.
Notwithstanding the foregoing, neither the Corporation nor the
Trustee shall be required to transfer or exchange any Debentures on any
payment date or during a period of seven (7) Business Days immediately
preceding any such date.
Neither the Trustee, the Corporation nor any registrar shall be
charged with notice of or be bound to see to the execution of any trust,
whether expressed, implied or constructive, in respect of any Debenture, and
the Trustee or the Corporation may transfer any Debenture on the direction of
the holder thereof, whether named as trustee or otherwise, as though that
person were the beneficial owner thereof.
2.7 PERSONS ENTITLED TO PAYMENT
The person in whose name any Debenture shall be registered shall be
deemed and regarded as the owner thereof for all purposes of this Indenture
and payment of or on account of the principal amount of such Debenture shall
be made only to or upon the order in writing of such holder thereof. Such
payment shall be a good and sufficient discharge to the Trustee and any
registrar and to the Corporation and any paying agent for the amounts so paid.
The holder for the time being of any Debenture shall be entitled to
the principal monies, free from all equities and rights of set-off or counter
claim between the Corporation and the original or any intermediate holder
thereof, and all persons may act accordingly. A transferee of a Debenture
shall, after an appropriate form of transfer is lodged with the Trustee or
other registrar and upon compliance with all other conditions in that behalf
required by this Indenture or by any conditions contained in such Debenture
or by law, be entitled to be entered on any of the appropriate registers as
the owner of such Debenture free from all equities and rights of set-off or
counterclaim between the Corporation and his 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.
Delivery to the Trustee by a Debentureholder of a Debenture or the
receipt of such holder for the principal monies shall be a good and
sufficient discharge to the Corporation (subject to any outstanding
obligations owing by the Corporation to any Debentureholder pursuant to
Articles 3, 4, 5, 6, 7 and 8 herein), which shall not be bound to enquire
into the title of such holder, save as ordered by some court of competent
jurisdiction or as required by statute. Neither the Corporation, the Trustee
nor any registrar shall be charged with notice of or be bound to see to the
execution of any trust, whether express, implied or constructive,
<PAGE>
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in respect of any Debenture nor be affected by notice of any equity that may
be subsisting in respect thereof.
Where Debentures are registered in more than one name the principal
monies may be paid by cheque payable to the order of all such holders,
failing written instruction from them to the contrary, and such payment shall
be a good and sufficient discharge to the Trustee and any registrar and to
the Corporation (subject to any outstanding obligations owing by the
Corporation to any Debentureholder pursuant to Articles 3, 4, 5, 6, 7 and 8
herein) and any paying agent.
In the case of the death of one or more joint holders, the
principal monies may be paid to the survivor or survivors of such holders
whose receipt therefor shall constitute a good and sufficient discharge to
the Trustee and any registrar and to the Corporation and paying agent.
2.8 MUTILATION, LOSS, THEFT OR DESTRUCTION
In case any of the Debentures issued hereunder shall become
mutilated or be lost, stolen or destroyed, the Corporation, in its
discretion, may issue, and thereupon the Trustee shall certify and deliver, a
new Debenture upon surrender and cancellation of the mutilated Debenture, or
in the case of a lost, stolen or destroyed Debenture, in lieu of and in
substitution for the same, and the substituted Debenture shall be in a form
approved by the Trustee and shall be entitled to the benefits of this
Indenture equally with all other Debentures issued or to be issued hereunder
without preference or priority one over another. In case of loss, theft or
destruction the applicant for a substituted Debenture shall furnish to the
Corporation and to the Trustee such evidence of such loss, theft or
destruction as shall be satisfactory to them in their discretion and shall
also furnish indemnity satisfactory to them in their discretion. The
applicant shall pay all reasonable expenses incidental to the issuance of any
substituted Debenture.
2.9 EXCHANGES OF DEBENTURES
Debentures of any denomination may be exchanged for Debentures of
any other authorized denomination or denominations for an equivalent
aggregate principal amount. Any exchange of Debentures may be made at the
offices of the Trustee or at the offices of any registrar or registrars where
registers are maintained for the Debentures pursuant to the provisions of
clause 2.6. Any Debentures tendered for exchange shall be surrendered to the
Trustee or appropriate registrar and shall be cancelled.
2.10 CHARGES
Except as herein otherwise provided and subject to the terms
hereof, upon any exchange of Debentures of any denomination for other
Debentures and upon any transfer of Debentures, the Corporation or the
Trustee may make a sufficient charge to reimburse it for any stamp or
security transfer taxes or other governmental charge required to be paid and,
in addition, a reasonable charge for its services, and payment of the said
charge shall be made by the party requesting such exchange or transfer as a
condition precedent thereto.
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2.11 OPTION OF HOLDER AS TO PLACE OF PAYMENT
Except as herein otherwise provided, all sums which may at any time
become payable, whether at maturity or otherwise, on account of any Debenture
shall be payable at the option of the holder at any of the places at which
the principal of such Debentures are payable.
2.12 TRUSTEE NOT BOUND TO MAKE ENQUIRIES
The Trustee, prior to the certification and delivery of any
Debentures under any of the provisions of this Article, shall not be bound to
make any enquiry or investigation as to the correctness of the matters set
out in any of the resolutions, opinions, certificates or other documents
required by the provisions of this Indenture, but shall be entitled to accept
and act upon the said resolutions, opinions, certificates and other
documents. The Trustee may nevertheless, in its discretion, require further
proof in cases where it deems further proof desirable.
2.13 DEBENTUREHOLDER NOT A SHAREHOLDER
Nothing in this Indenture or in the holding of a Debenture or
otherwise, shall, in itself, confer or be construed as conferring upon a
Debentureholder any right or interest whatsoever as a shareholder or as any
other shareholder of the Corporation, including, but not limited to, the
right to vote at, to receive notice of, or to attend, meetings of
shareholders or any other proceedings of the Corporation, or the right to
receive dividends or other distributions.
ARTICLE 3
REPAYMENT
---------
3.1 COVENANT TO PAY
The Corporation, for value received, acknowledges and confirms
itself to be indebted to the holders and promises to pay the holders the
principal amount of Debentures outstanding from time to time, in the manner
and the priority as hereinafter set forth, or on such earlier date as the
principal amount hereby secured may be payable and in the meantime promises
to pay interest on the principal amount at the rate and times as hereinafter
set forth, and should the Corporation at any time make default of its
obligations or in the payment of any part or all of the principal amount or
interest, then to pay interest on the amount in default both before and after
judgment at the same rate and like money at the same place on the same date.
3.2 MATURITY
The Debentures shall mature and become payable on July 31, 2001.
<PAGE>
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3.3 INTEREST
Except in the event that the Debentures or any part thereof is
converted into Common Shares of the Corporation as hereinafter provided,
interest shall be payable on the outstanding balance of the principal amount of
the Debentures at a rate of ten (10%) percent per annum and payable after as
well as before maturity, default and judgment with interest payable on overdue
interest at the same rate.
Interest shall accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of the
execution of this Indenture. Interest will be computed on the basis of a 365
day year. As interest becomes due hereunder, the Corporation shall pay such
interest at the holder's office as contemplated in clause 2.6 and clause 2.7
hereof.
The Corporation will pay interest semi-annually on the last day of
each calendar month of such half year during the term of the Debentures (June
30 and December 31), from the date of execution of this Indenture, with the
first payment of interest to commence on December 31, 1996.
3.4 ORDER OF REPAYMENT
The holders shall, and the Corporation hereby irrevocably
authorizes the holders, to apply all payments made by the Corporation against
the principal amounts of the Debentures, interest thereon and other monies
which are payable by the Corporation under the Debentures in the following
order: (a) all expenses and other monies from time to time secured
hereunder; (b) interest payable hereunder; and (c) the principal amount of
the Debentures.
ARTICLE 4
SECURITY FOR PAST, PRESENT AND FUTURE INDEBTEDNESS
--------------------------------------------------
4.1 SECURITY
The mortgages, pledges and charges created herein shall take effect
forthwith upon the execution hereof and shall secure any and all indebtedness
now or hereafter owing by the Corporation to the holders hereunder; and
provided further, without restricting the generality of the foregoing, the
Corporation may reduce the principal amount outstanding from time to time,
without notice, bonus or penalty, and the holders, if they are so willing,
and in their sole discretion, may provide further advances to the Corporation
to the extent that the balance outstanding may be increased, reduced and
varied from time to time; and provided further, without restricting the
generality of the foregoing, the indebtedness secured by the mortgages,
pledges and charges created herein shall include the following:
(a) Any sums advanced by the holders on behalf of the Corporation or
expenses or costs incurred by the holders, or the Trustee appointed
hereunder, which are made or incurred pursuant to, or permitted by,
the terms hereof, from the date of the advances or the incurring of
such expenses or costs until reimbursed;
<PAGE>
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(b) Any and all other indebtedness of the Corporation to the holders now
or hereafter owing, regardless of how evidenced or arising, including
but without limitation, any and all Debentures issued hereunder; and
(c) Any extensions or renewals of all such indebtedness described herein.
4.2 MORTGAGED PROPERTY
In consideration of the premises herein contained and one ($1.00)
dollar paid by the Trustee to the Corporation, the receipt and sufficiency
whereof is hereby acknowledged, and to secure the due payment of the
principal amount of the Debentures from time to time issued and certified
hereunder and all other monies, if any, for the time being and from time to
time owing on the security of this Indenture and the due performance of the
obligations of the Corporation herein contained and in pursuance of the power
and authority hereinbefore recited and of every other power and authority it
thereunto enables, and subject to the Permitted Encumbrances, the Corporation
hereby grants, assigns, transfers, mortgages, pledges, charges and grants a
Security Interest to and in favour of the Trustee, as trustee on behalf of
the Debentureholders, a first fixed and floating charge over and in respect
of all of its undertaking and all of the property and assets of the
Corporation for the time being, both present and future of whatsoever nature
including, without restricting the generality of the foregoing, any real and
personal, moveable and immoveable property, of whatsoever nature and kind and
wheresoever situate, both present and future, except to the extent that the
Personal Property Security Act, Alberta, is not applicable to a security
interest in such personal property, and to the exception as to leaseholds, as
set forth in clause 4.3 hereof and, without in any way limiting the
generality of the foregoing, its uncalled capital and all present and future
incomes, monies, sources of money, rights, powers, privileges, franchises,
easements, agreements, leases, shares, bonds, debentures, book debts,
accounts receivable, negotiable and non-negotiable instruments, judgments,
chooses in actions, securities and all other property and things of value,
tangible or intangible, legal or equitable of which the Corporation may be
possessed or entitled to or which may at any time hereafter be acquired by
the Corporation (all of such undertaking, property and assets being
mortgaged, pledged and charged being herein collectively called the
"Mortgaged Property").
4.3 EXCEPTIONS
The Corporation shall not, without the prior consent of holders of
not less than sixty-six and two-thirds (66-2/3%) in principal amount of
Debentures then outstanding first had and obtained, be at liberty to and
shall not, (i) except in respect of Permitted Encumbrances, create or incur
or suffer to be created or incurred any mortgage, pledge, hypothec, lien,
charge, encumbrance, assignment or other security of any kind whatsoever upon
the Mortgaged Property or any part thereof ranking or purporting to rank in
priority or pari passu to this Indenture or the charges created and secured
hereby, or (ii) sell, assign, transfer, lease or otherwise dispose of the
Mortgaged Property or any part thereof otherwise than in the ordinary course
of business of the Corporation as it is presently conducted; provided always
that the last day of the term of any lease, verbal or written, or any
agreement therefor, now held or hereafter acquired by the Corporation or any
renewal thereof, is hereby and shall be excepted out of the mortgage, pledge
and charge created hereby or by any other instrument supplemental hereto and
does not and shall not form part of the Mortgaged Property, but the
Corporation shall stand possessed of the reversionary interest remaining in
<PAGE>
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the Corporation of any leasehold interest forming part of the Mortgaged
Property, upon trust to assign and dispose thereof as the Holder shall
direct, and upon any sale of a leasehold interest or any part thereof, the
Holder, for the purposes of vesting the aforesaid reversionary interest of
any such term or any renewal thereof in any purchaser or purchasers thereof
shall be entitled by deed or writing to appoint such purchaser or purchasers
or any other person or persons a new trustee or trustees of the aforesaid
reversion in the place of the Corporation and to vest the same accordingly in
the new trustee or trustees so appointed, freed and discharged from any
obligation respecting the same.
4.4 OBLIGATION TO PAY
Nothing contained in this Indenture or the Debentures, is intended
to or shall impair, as between the Corporation, its creditors and the
holders, the obligation of the Corporation, which is absolute and
unconditional, to pay to the holders the principal amount and other
indebtedness of the Corporation to the holders, as and when the same shall
become due and payable in accordance with the terms hereof, or affect the
relative rights of the holders, nor shall anything herein prevent the
Trustee, on behalf of the holders, from exercising all remedies otherwise
permitted by applicable law or equity under this Indenture and the Debentures.
4.5 DEFEASANCE
Upon payment by the Corporation to the holders of the total
principal amount of the Debentures and all other money secured by this
Indenture and provided the security herein constituted shall not have become
enforceable, then the Mortgaged Property shall revert and revest in the
Corporation without any release, acquittance, reconveyance, re-entry or other
act or formality whatsoever, but the Trustee shall nevertheless, within
thirty (30) days of being requested in writing by the Corporation to do so,
deliver up this Indenture to the Corporation and execute, acknowledge or
deliver to the Corporation a full release and reconveyance of the Mortgaged
Property or such parts thereof as shall not have been disposed under the
powers herein contained and such further and other documents reasonably
requested by the Corporation.
4.6 PARTIAL RELEASE
No postponement or partial release or discharge of the Security
Interest, created under and secured by this Indenture in respect of all or
any part of the Mortgaged Property shall in any way operate or be construed
so as to release and discharge the security hereby constituted in respect of
the Mortgaged Property except as herein specifically provided, or so as to
release or discharge the Corporation from its liability to the holders to
fully pay and satisfy the principal amount of the Debentures and all other
monies due or remaining unpaid by the Corporation to the holders from time to
time as provided herein.
<PAGE>
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4.7 PROVISO FOR POSSESSION UNTIL DEFAULT
Until the security hereby created shall become enforceable and the
Trustee on behalf of the Debentureholders hereof shall have determined to
enforce the same, the Corporation shall be permitted in the same manner and
to the same extent as if this Indenture had not been executed, but subject to
the express terms hereof, to possess, operate, manage, use and enjoy its
Mortgaged Property in the ordinary course of business of the Corporation and
for the purpose of carrying on the same, and for such purpose, to take and
use the rents, income, profits and issues thereof, including dividends,
profits and interest upon or in respect of any shares, bonds or other
securities, claims and demands in judgment or otherwise at any time forming
part of the Mortgaged Property.
ARTICLE 5
COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
------------------------------------------------------------
5.1 REPRESENTATIONS AND WARRANTIES
The Corporation represents and warrants to the Trustee for the
benefit of the Trustee and the Debentureholders as follows:
(a) the Corporation is a corporation duly organized, legally existing and
in good standing under the laws of the Province of Alberta and is
duly authorized to do business in each other jurisdiction where a
failure so to qualify would have a materially adverse effect on the
business or operations of the Corporation;
(b) the Corporation is duly authorized and empowered to execute, deliver
and perform its obligations under this Indenture and all corporate
action on the part of the Corporation for the due execution, delivery
and performance by the Corporation of this Indenture has been duly
and effectively taken;
(c) this Indenture and the Debentures constitute valid and binding
obligations of the Corporation, enforceable in accordance with their
terms (except that such enforcement may be subject to any applicable
bankruptcy, insolvency or similar laws generally affecting the
enforcement of creditors' rights and that specific performance and
other equitable remedies are subject to the discretion of the courts
before which such remedies are sought and the provisions of the
Interest Act, (Canada).
5.2 COVENANTS
The Corporation covenants and agrees with the Trustee for the
benefit of the Trustee and the Debentureholders as follows:
(a) so long as any Debentures remain outstanding:
(i) it shall reserve and keep available a sufficient number of
Common Shares for the purpose of enabling it to satisfy its
obligations to issue Common Shares upon the conversion of the
Debentures;
<PAGE>
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(ii) it shall cause the Common Shares and the certificates
representing the Common Shares acquired pursuant to the
conversion of the Debentures to be duly issued and delivered
in accordance with the Debenture Certificates and the terms
hereof;
(iii) all Common Shares which shall be issued upon conversion of
Debentures as provided for herein and in the Debenture
Certificate shall be issued as fully paid and non-assessable;
(iv) it shall maintain its corporate existence;
(v) it shall use its best efforts to ensure that all Common Shares
outstanding or issuable from time to time (including without
limitation the Common Shares issuable on the conversion of the
Debentures) are listed and posted for trading on The Alberta
Stock Exchange;
(vi) it shall make all requisite filings under applicable Canadian
securities legislation including those necessary to remain a
reporting issuer not in default in each of the Filing
Jurisdictions and those necessary to report the issuance of
Common Shares pursuant to the conversion of the Debentures;
(vii) it shall use its best efforts to obtain a receipt for the
Prospectus or obtain an Order, as soon as practicable, from
each of the Securities Commissions so that the resale of the
Debentures and Common Shares issuable upon the conversion of
the Debentures will not be subject to the prospectus
requirements nor any "hold period" under applicable securities
legislation in such Filing Jurisdictions;
(viii) it shall give written notice to the Trustee and to each
registered Debentureholder of the issuance of the receipts for
a Prospectus or an Order, as soon as practicable but, in any
event, not later than three Business Days after the issuance
of such receipts; and
(ix) generally, it will well and truly perform and carry out all of
the acts, or things, to be done by it as provided in this
Indenture or as the Trustee may reasonably require for the
better accomplishing and effecting of the intentions and
provisions of this Indenture;
(b) to forever defend all and singular the Mortgaged Property unto the
Trustee against every person whomsoever lawfully claiming or
attempting to claim the same or any part thereof;
(c) to punctually and duly pay the principal amount, interest on each of
the Debentures and other monies hereby secured, together with other
appurtenant charges thereon, in accordance with the terms of this
Indenture;
(d) to carry on and continuously conduct its business in respect of the
Mortgaged Property in a lawful, efficient, diligent and businesslike
manner;
<PAGE>
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(e) to keep and maintain proper books of account and records accurately
covering all aspects of the business affairs of the Corporation and
its Subsidiaries relating to the Mortgaged Property and to permit
authorized officers, employees or agents of the Trustee to inspect
the same during regular business hours;
(f) to furnish annually to the Trustee within one hundred forty (140)
days after the end of each fiscal year of the Corporation audited
financial statements of the Corporation together with the report
of its auditors thereon;
(g) to furnish to the Trustee within sixty (60) days after the end of
each quarter of its fiscal year unaudited financial statements of the
Corporation for such quarter containing such information as the
Trustee may reasonably require;
(h) to furnish to the Trustee any financial or operating statements or
reports relating to the business or affairs of the Corporation as the
Trustee may reasonably request;
(i) to fully pay and discharge as and when the same become due and
payable all taxes (including local improvement rates), rates, duties
and assessments that may be levied, rated, charged or assessed
against the Corporation, or the Mortgaged Property, or any part
thereof unless same is being contested in good faith, and if the
Corporation fails to pay any of such taxes, rates, duties or
assessments and if it is not in good faith contesting the same,
the Trustee may pay, but shall not be obligated to pay, the same
and any amounts so paid by the Trustee shall become and form part
of the principal amount secured hereby and shall bear interest at
the rate aforesaid until paid;
(j) to at all times promptly observe, perform, execute and comply with
all applicable laws, rules, requirements, orders, directions,
by-laws, ordinances, work orders and regulations of every
governmental authority and agency whether federal, provincial,
municipal or otherwise, including, without limiting the generality
of the foregoing, those dealing with fire, access, the environment
(whether for its protection, preservation, clean-up or otherwise),
toxic materials or other environmental hazards, public health and
safety, and all private covenants and restrictions affecting the
Mortgaged Property or any portion thereof, and from time to time,
upon request of the Trustee, to provide to the Trustee evidence of
such observance and compliance and at the Corporation's expense make
any and all improvements thereon or alterations to the Mortgaged
Property and to take all such other action as may be required at
any time by any such present or future law, rule, requirement,
order, direction, by-law, ordinance, work order or regulation;
(k) to give notice to the Trustee promptly of any Event of Default or of
any event which with notice or lapse of time, or both, would
constitute an Event of Default hereunder;
(l) to execute such further assurances of the Mortgaged Property as may
be reasonably required by the Trustee;
<PAGE>
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(m) where the Corporation's interest in any of the Mortgaged Property,
real or personal, is that of a purchaser under an agreement or option
to purchase, the mortgage, pledge and charge hereby created shall
extend to the entire estate or interest from time to time of the
Corporation in such property, including in the case of real property
the fee simple when the real property is conveyed in fee simple to
the Corporation.
5.3 INSURANCE
(a) The Corporation covenants that, at all times during the continuation
of this Indenture, it will keep such of the Mortgaged Property that
are of an insurable nature and are of a character usually insured by
companies owning or operating the same or similar premises insured
with responsible insurers, against loss, or damage by fire and other
causes customarily insured against by similar premises in Canada and
within limits of coverage reasonably acceptable to the Trustee.
Unless otherwise agreed to in writing by the Trustee, the losses
under all such insurances shall be payable firstly to the
Debentureholders hereunder.
(b) The Corporation agrees that so long as it remains indebted to the
Debentureholders, it will, unless otherwise requested in writing by
the Trustee, maintain with reputable insurers third party public
liability and property damage insurance covering all operations of
the Corporation within limits of coverage usually carried by others
owning or operating the same or a similar type and size of business
as that being conducted by the Corporation.
(c) The Corporation will, upon the request of the Trustee, deliver to the
Trustee certified copies of all policies or contracts of insurance
being carried by the Corporation pursuant to the terms hereof,
together with such certificates of insurance as the Trustee may
reasonably require and evidence that the premiums on all such
insurance have been paid.
(d) If the Corporation should fail to take out or maintain all or any of
the insurance required to be carried by the Corporation pursuant to
the terms hereof, the Trustee may, but shall not be obligated to,
take out some or all of such insurance and all sums expended by the
Trustee in effecting such insurance shall forthwith become due and be
payable by the Corporation to the Trustee and until paid shall form
part of the principal amount secured hereby.
(e) In the event of loss under any of the insurance referred to in
clause 5.3(a) hereof, the Trustee, at its option, may apply the
insurance proceeds on account of the principal amount secured hereby
or may apply the same to rebuilding, repairing and restoring the
Mortgaged Property, or may at its sole discretion apply the same
partly for one purpose and partly for the other purpose.
<PAGE>
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5.4 NEGATIVE COVENANTS
The Corporation shall not, and covenants with the Trustee on behalf
of the Trustee and the Debentureholders, that it will not, without the
consent of holders of not less than sixty-six and two-thirds (66-23%) percent
of the principal amount of Debentures outstanding first had and received:
(a) sell, exchange, transfer, assign or dispose of any part of the
Mortgaged Property, except in the ordinary and normal course of
business of the Corporation as such business is currently being
carried out;
(b) create or suffer to be created any mortgage, hypothec, lien, charge,
encumbrance or security interest of whatsoever nature upon the
Mortgaged Property ranking in priority to or pari passu with the lien
hereof except for Permitted Encumbrances;
(c) incur or become liable for any indebtedness when it is in default
under this Indenture, except for current indebtedness incurred in the
ordinary course of business of the Corporation;
(d) guarantee the debts, liabilities or obligations of any Person or
become the endorser on any note or other obligation when it is in
default under the terms of this Indenture;
(e) reduce its capital or make any distribution otherwise than out of
surplus of its assets, or redeem, purchase or otherwise retire or pay
off any of the issued and outstanding shares for the time being of
the Corporation;
(f) lend money to any person, when it is in default under this Indenture;
(g) make any capital expenditures when it is in default under this
Indenture; or
(h) make any distribution to its shareholders or any of them or declare
or pay any dividends.
5.5 DEFEND MORTGAGED PROPERTY
(a) The Corporation at its own cost will protect the Mortgaged Property
against all liabilities of any nature, including all claims of
workmen or materialmen that might arise from the administration or
operation of any part of the Mortgaged Property or from the
Corporation's operations; and will pay or cause to be paid all such
liabilities and all charges for labour, materials and equipment
incurred in such administration and operation unless same is being
contested in good faith; will indemnify and hold the Trustee free and
clear of any liens, charges and security interest or attempted liens,
charges or security interests upon the Mortgaged Property.
(b) If a lien hereof, or the title to, or the rights of the Trustee in or
to the Mortgaged Property or any part thereof, shall be endangered or
shall be attacked directly
<PAGE>
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or indirectly, or if any legal proceedings are instituted against the
Corporation or the Trustee with respect thereto, the Corporation
will promptly give written notice thereof to the Trustee and the
Corporation, at its sole cost and expense, and will diligently cure
any defect that may be developed or validly claimed, and will take
all necessary and proper steps for the defence of the title to the
Mortgaged Property and the lien of this Indenture thereon and will
take such action as is reasonably appropriate to the defence of any
such legal proceedings including, but not limited to, the
employment of counsel, for the prosecution or defence of litigation
and the release or discharge of claims made against the title to
the Mortgaged Property or the lien of this Indenture. If the
Trustee shall deem it necessary or expedient, a defence of such
title, mortgage lien or charge, the Corporation hereby authorizes
the Trustee, at the Corporation's sole expense, to take all
additional steps deemed by the Debentureholder reasonably necessary
or advisable for the defence of such title, mortgage, lien or
charge including, but not limited to, the employment of independent
counsel, for the prosecution or defence of litigation and the
compromise or discharge of any adverse claims made with respect
thereto.
5.6 SUPPLEMENTAL INSTRUMENTS
The Corporation, at its cost and expense, will duly execute and
deliver all such supplementary and corrective instruments and other
instruments and assurances as the Trustee may reasonably require in order to
render all of the Mortgaged Property now owned and hereinafter acquired by
the Corporation, subject to the specific lien, charge and security interest
hereof or as the Trustee deems necessary or advisable for the perfection and
protection of the mortgages, liens, charges and assignments created or
intended to be created hereby and the rights conferred or intended to be
conferred upon the Trustee under this Indenture. The Corporation, at its
cost and expense, will cause this Indenture and all such supplementary and
corrective instruments and other instruments and assurances to be properly
filed and re-filed, registered and re-registered and deposited and
re-deposited in such manner, at such offices and places and at such times and
as often as may be required by law or as may be necessary or desirable to
perfect and preserve the mortgage, liens, charges and assignments created or
intended to be created hereby and the rights conferred or intended to be
conferred upon the Trustee under this Indenture, and will cause to be
furnished promptly to the Trustee evidence satisfactory to the Trustee of
such filing, registering and depositing, all at the cost and expense of the
Corporation.
5.7 TO PAY TRUSTEE'S REMUNERATION
The Corporation will pay the Trustee reasonable remuneration for
its services as Trustee hereunder and will repay to the Trustee on demand all
monies which shall have been paid by the Trustee in and about the execution
of the trusts hereby created, and such monies shall be payable out of any
funds coming into the possession of the Trustee in priority to any of the
Debentures. The said remuneration shall continue payable until the trusts
hereof be finally wound up and whether or not the trusts of this Indenture
shall be in course of administration by or under the direction of the court.
<PAGE>
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5.8 TRUSTEE MAY PERFORM COVENANTS
If the Corporation shall fail to perform any covenant on its part
herein contained, the Trustee may in its discretion, but (subject to clause
6.2) need not, notify the Debentureholders of such failure or itself may
perform any of said covenants capable of being performed by it and, if any
such covenant requires the payment or expenditure of money, it may make such
payment or expenditure with its own funds, or with money borrowed by or
advanced to it for such purposes, but shall be under no obligation so to do.
All sums so expended or advanced shall be repayable by the Corporation in the
manner provided in clause 5.7, but no such performance or payment shall be
deemed to relieve the Corporation from any default hereunder.
ARTICLE 6
DEFAULT
6.1 ACCELERATION OF MATURITY
Upon the happening of any one or more of the following events, namely:
(a) if the Corporation makes default in payment of any principal amount
due on any Debentures and any such default continues for a period of
seven (7) Business Days;
(b) if a decree or order of a court having jurisdiction in the premises is
entered adjudging the Corporation a bankrupt or insolvent under the
BANKRUPTCY & INSOLVENCY ACT (Canada) or any other bankruptcy,
insolvency or analogous laws, or issuing sequestration or process of
execution against, or against any substantial part of the property of,
the Corporation, or appointing a receiver of, or of any substantial
part of the property of, the Corporation or ordering the winding-up or
liquidation of its affairs, and any such decree or order continues
unstayed and in effect for a period of thirty (30) days;
(c) if a resolution is passed for the winding-up or liquidation of the
Corporation except in the course of carrying out or pursuant to a
transaction in respect of which the conditions of clause 8.1 are duly
observed and performed or if the Corporation institutes proceedings to
be adjudicated a bankrupt or insolvent, or consents to the institution
of bankruptcy or insolvency proceedings against it under the
BANKRUPTCY & INSOLVENCY ACT (Canada) or any other bankruptcy,
insolvency or analogous laws, or consents to the filing of any such
petition or to the appointment of a receiver of, or of any substantial
part of the property of, the Corporation or makes a general assignment
for the benefit of creditors, or admits in writing its inability to
pay its debts generally as they become due or takes corporate action
in furtherance of any of the aforesaid purposes;
(d) if an encumbrancer shall take possession of the property of the
Corporation or any part thereof which is, in the opinion of the
Trustee, a substantial part thereof, or if a distress or execution or
any similar process be levied or enforced
<PAGE>
-23-
there against and remain unsatisfied for such period as would permit
such property or such part thereof to be sold thereunder; or
(e) if the Corporation shall neglect to observe or perform any other
covenant or condition herein contained on its part to be observed or
performed and, after notice in writing has been given by the Trustee
to the Corporation specifying such default and requiring the
Corporation to put an end to the same (which said notice may be given
by the Trustee, in its discretion, and shall be given by the Trustee
upon receipt of a request in writing signed by the holder of not less
than sixty-six and two-thirds (66-2/3%) percent in the principal
amount of the Debentures then outstanding), the Corporation shall fail
to make good such default within a period of thirty (30) days, unless
the Trustee (having regard to the subject matter of the default) shall
have agreed to a longer period, and in such event, within the period
agreed to by the Trustee;
then in each and every such event the Trustee shall upon consent of holders
of not less than sixty-six and two-thirds (66-2/3%) percent in principal
amount of the Debentures then outstanding, (subject to the provisions of
clause 6.3), by notice in writing to the Corporation declare the principal
amount of all Debentures then outstanding and all other monies outstanding
hereunder to be due and payable and the same shall forthwith become
immediately due and payable to the Trustee, anything therein or herein to the
contrary notwithstanding, and the Trustee may proceed to enforce such payment
and the Security Interest created hereunder, and subject to the other terms
hereof, the Corporation shall forthwith pay to the Trustee for the benefit of
the Debentureholders the principal amount of and such other monies from the
date of the said declaration until payment is received by the Trustee. Such
payment when made shall be deemed to have been made in discharge of the
Corporation's obligations hereunder, and any monies so received by the
Trustee shall be applied in the manner provided in clause 6.6.
6.2 NOTICE OF EVENTS OF DEFAULT
If an Event of Default shall occur and be continuing the Trustee
shall, within thirty (30) days after it becomes aware of the occurrence of
such Event of Default, give notice of such Event of Default to the
Debentureholders in the manner provided in clause 10.2, provided that,
notwithstanding the foregoing, unless the Trustee shall have been requested
to do so by the holders of at least sixty-six and two-thirds (66-2/3%)
percent of the principal amount of the Debentures then outstanding, the
Trustee shall not be required to give such notice if the Trustee in good
faith shall have determined that the withholding of such notice is in the
best interests of the Debentureholders and shall have so advised the
Corporation in writing.
6.3 WAIVER OF DEFAULT
Upon the happening of any Event of Default hereunder:
(a) the holders of sixty-six and two-thirds (66-2/3%) percent of the
principal amount of the Debentures then outstanding shall have the
power (in addition to the powers exercisable by extraordinary
resolution as hereinafter provided) by requisition in writing to
instruct the Trustee to waive any Event of Default
<PAGE>
-24-
and to cancel any declaration made by the Trustee pursuant to
clause 6.1 and the Trustee shall thereupon waive the Event of Default
and cancel such declaration, or either, upon such terms and conditions
as shall be prescribed in such requisition; and
(b) the Trustee, so long as it has not become bound to declare the
principal of the Debentures then outstanding to be due and payable, or
to obtain or enforce payment of the same, shall have power to waive
any Event of Default if, in the Trustee's opinion, the same shall have
been cured or adequate satisfaction made therefor, and in such event
to cancel any such declaration theretofore made by the Trustee in the
exercise of its discretion, upon such terms and conditions as the
Trustee may deem advisable;
provided that no act or omission either of the Trustee or of the
Debentureholders in the premises shall extend to or be taken in any manner
whatsoever to affect any subsequent Event of Default or the rights resulting
therefrom.
6.4 ENFORCEMENT BY THE TRUSTEE
(a) Subject to the provisions of clause 6.3 and to the provisions of any
extraordinary resolution that may be passed by the Debentureholders,
the Trustee may in its discretion and shall upon receiving the consent
of holders of not less than sixty-six and two-thirds (66-2/3%) percent
in principal amount of the Debentures then outstanding and upon being
indemnified to its reasonable satisfaction against all costs, expenses
and liabilities to be incurred, proceed in its name as Trustee
hereunder to enforce the Security Interest created hereunder and to
obtain or enforce payment of the principal amount of all the
Debentures then outstanding together with any other amounts due
hereunder by such proceedings authorized by this Indenture or by law
or equity as the Trustee in such request shall have been directed to
take, or if such request contains no such direction, or if the Trustee
shall act without such request, then by such proceedings authorized by
this Indenture or by suit at law or in equity as the Trustee shall
deem expedient.
(b) The Trustee shall be entitled and empowered, either in its own name or
as trustee of an express trust, or as attorney-in-fact for the holders
of the Debentures, or in any one or more of such capacities, to file
such proof of debt, amendment of proof of debt, claim, petition or
other document as may be necessary or advisable in order to have the
claims of the Trustee and of the holders of the Debentures allowed in
any insolvency, bankruptcy, liquidation or other judicial proceedings
relating to the Corporation or its creditors or relating to or
affecting its property. The Trustee is hereby irrevocably appointed
(and the successive respective holders of the Debentures by taking and
holding the same shall be conclusively deemed to have so appointed the
Trustee) the true and lawful attorney-in-fact of the respective
holders of the Debentures with authority to make and file in the
respective names of the holders of the Debentures or on behalf of the
holders of the Debentures as a class, subject to deduction from any
such claims of the amounts of any claims filed by any of the holders
of the Debentures themselves, any proof of debt, amendment of
<PAGE>
-25-
proof of debt, claim, petition or other document in any such
proceedings and to receive payment of any sums becoming distributable
on account thereof, and to execute any such other papers and documents
and to do and perform any and all such acts and things for and on
behalf of such holders of the Debentures, as may be necessary or
advisable in the opinion of the Trustee, in order to have respective
claims of the Trustee and of the holders of the Debentures against
the Corporation or its property allowed in any such proceeding, and
to receive payment of or on account of such claims; provided, however,
that nothing contained in this Indenture shall be deemed to give to
the Trustee, unless so authorized by extraordinary resolution, any
right to accept or consent to any plan or reorganization or otherwise
by action of any character in such proceeding to waive or change in
any way any right of any Debentureholder.
(c) In the event the Security Interest hereby constituted shall have
become enforceable, then the Trustee, to the extent permitted by law,
in its discretion and subject to Permitted Encumbrances, may enter
upon and/or take possession of the Mortgaged Property or any part
thereof and may in the like discretion sell, call in, collect and
convert into money the same or any part thereof with full power to
sell any of the Mortgaged Property either together or in parcels and
either by public auction or private contract and either for a lump sum
or for a sum payable by instalments or for a sum on account and a
mortgage or charge for the balance and with full power upon every such
sale to make any special or other stipulations as to title or evidence
of commencement of title or otherwise which the Trustee shall deem
proper and with full power to buy in or rescind or vary any contract
for sale of the said premises or any part thereof and to resell the
same without being responsible for any loss which may be occasioned
thereby and with full power to compromise and effect compositions and
for the purposes of the aforesaid, or any of them, to execute and do
all such assurances and things as it shall think fit.
(d) Upon any such sale, calling-in, collection or conversion as aforesaid,
the receipt of the Trustee for the purchase money of the premises sold
and for any other monies paid to it shall effectually discharge the
purchaser or purchasers or other person or persons paying the same
therefrom and from being concerned to see to the application or being
answerable for the loss or misapplication thereof. Any such sale,
calling-in, collection or conversion shall be a perpetual bar, both in
law and in equity, against the Corporation and all other persons
claiming the Mortgaged Property sold or any part thereof by, through
or under the Corporation.
(e) The Trustee shall hold and apply monies which arise from any sale,
calling-in, collection or conversion against the principal amount and
other monies which are secured hereby in such order and to such
indebtedness of the Corporation to the Trustee as the Trustee may
determine in its sole and absolute discretion from time to time and as
prescribed by law.
(f) The Trustee shall out of the rents and profits and income of the
Mortgaged Property, pay and discharge the expenses incurred in and
about the carrying on
<PAGE>
-26-
and management of the assets or in the exercise of any of the
powers under the last preceding clauses hereof or otherwise in
respect of the premises and all outgoings which it shall think
fit to pay and shall pay and apply the residue of the said
rents, profits, income and monies in the same manner as is
hereinbefore provided.
(g) Subject to Permitted Encumbrances, the Trustee at any time after the
security hereby constituted becomes enforceable may, by writing
appoint or a court of competent jurisdiction, on application of the
Trustee, may appoint a receiver or receivers or receiver-manager of
the Mortgaged Property or any part thereof and remove any receiver or
receivers or receiver-manager so appointed and appoint another in his
stead and the following provisions shall have effect:
(i) Such appointment may be made either before or after the Trustee
shall have entered into or taken possession of the Mortgaged
Property or any part thereof;
(ii) Such receiver may be vested by the Trustee with such powers and
discretions as the Trustee may think expedient;
(iii) Unless otherwise directed by the Trustee, such receiver may
exercise all the powers and authorities vested in the Trustee
by this Indenture;
(iv) Such receiver shall, in the exercise of his powers, authorities
and discretions, conform to the regulations and directions from
time to time made and given by the Trustee;
(v) The Trustee may from time to time fix the remuneration of such
receiver and direct payment thereof out of the Mortgaged
Property;
(vi) The Trustee may from time to time and at any time require any
such receiver to give security for the due performance of his
duties as such receiver and may fix the nature and the amount
of the security to be so given, but the Trustee shall not be
bound in any case, to require any such security;
(vii) Save so far as otherwise directed by the Trustee, all monies
from time to time received by such receiver shall be paid in
trust for and over to the Trustee;
(viii) The Trustee may pay over to such receiver, any monies
constituting part of the Mortgaged Property to the intent that
the same may be applied for the purposes hereof by such
receiver, and the Trustee may from time to time determine what
funds the receiver shall be at liberty to keep in hand with a
view to the performance of his duties as such receiver; and
(ix) The receiver shall be the agent of the Corporation and the
Corporation shall be solely responsible for his acts and
defaults (including negligence,
<PAGE>
-27-
misconduct or misfeasance on the part of any such receiver)
and for his remuneration.
(h) The receiver appointed hereunder by the Trustee may be any person,
whether an officer or officers or employee or employees of the Trustee
or not, and the Trustee may appoint another or others in his or their
stead.
(i) The rights and powers conferred herein, in regard to appointment and
powers of the receiver, are in supplement to and not in substitution
for any rights or powers the Trustee may from time to time have as the
Trustee of this Indenture and every such receiver may, in the
discretion of the Trustee, be vested with all or any of the rights and
powers of the Trustee.
(j) After the security hereby created shall have become enforceable and
the Trustee shall have determined or become bound to enforce the same,
the Corporation will from time to time, execute and do all such
assurances and things as the Trustee may reasonably require for
facilitating the realization of the Mortgaged Property and for
exercising all the powers, authorities and discretions hereby
conferred upon the Trustee and for confirming to any purchaser of any
of the Mortgaged Property, whether sold by the Trustee hereunder or by
judicial proceedings, the title to the property so sold, and that it
will give all notices and directions which the registered holder
hereof may consider expedient; provided that for said purposes the
Corporation does hereby irrevocably appoint the Trustee to be the
attorney of the Corporation in the name and on behalf of it to execute
and do any deeds, transfers, conveyances, assignments, assurances and
things which the Corporation ought to execute and do under the
covenants and provisions herein contained, and generally, to use the
name of the Corporation in the exercise of all or any of the powers
hereby conferred on the Trustee.
(k) The Trustee shall not nor shall any receiver as aforesaid by reason of
the Trustee or such receiver entering into possession of the Mortgaged
Property or any part thereof be liable to account as mortgagee in
possession or for anything or be liable for any loss upon realization
or for any default or omission for which a mortgagee in possession
might be liable.
(l) The Trustee shall also have power at any time and from time to time to
institute and to maintain such suits and proceedings as it may be
advised shall be necessary or advisable to preserve and protect its
interests and the interests of the Debentureholders.
(i) All rights of action hereunder including the realization of the
Security Interest granted hereunder may be enforced by the Trustee
without the possession of any of the Debentures or the production
thereof on the trial or other proceedings related thereto. Any such
suit or proceeding instituted by the Trustee shall be brought in the
name of the Trustee as trustee of an express trust, and any recovery
of judgment shall be for the rateable benefit of the holders of the
Debentures subject to the provisions of this Indenture. In any
proceeding brought by the Trustee (and also any proceeding in which a
<PAGE>
-28-
declaratory judgment of a court may be sought as to the interpretation
or construction of any provision of this Indenture, to which the
Trustee shall be a party) the Trustee shall be held to represent all
the holders of the Debentures, and it shall not be necessary to make
any holders of the Debentures parties to any such proceeding.
6.5 NO SUITS BY DEBENTUREHOLDERS
No holder of any Debenture shall have any right to institute any
action, suit or proceeding at law or in equity for the purpose of enforcing
its Security Interest and payment of the principal of the Debentures or any
other monies payable hereunder or for the execution of any trust or power
hereunder or for the appointment of a liquidator or receiver or for a
receiving order under the BANKRUPTCY & INSOLVENCY ACT (Canada) to have the
Corporation wound up or to file or prove a claim in any liquidation or
bankruptcy proceeding or for any other remedy hereunder, unless:
(a) such holder shall previously have given to the Trustee written notice
of the happening of an Event of Default hereunder;
(b) the Debentureholders by extraordinary resolution (as hereinafter
defined) or consent of holders of not less than sixty-six and two-
thirds (66-2/3%) percent in principal amount of the Debentures then
outstanding shall have made a request to the Trustee and the Trustee
shall have been afforded reasonable opportunity either itself to
proceed to exercise the powers hereinbefore granted or to institute an
action, suit or proceeding in its name and for such purpose.
(c) the Debentureholders or any of them shall have furnished to the
Trustee, when so requested by the Trustee, sufficient funds and
security and indemnity satisfactory to it against the costs, expenses
and liabilities to be incurred therein or thereby; and
(d) the Trustee shall have failed to act within a reasonable time after
such notification, request and provision of indemnity and such
notification, request and provision of indemnity are hereby declared
in every such case, at the option of the Trustee, to be conditions
precedent to any such proceeding.
6.6 APPLICATION OF MONIES BY TRUSTEE
Except as herein otherwise expressly provided any monies received by
the Trustee from the Corporation pursuant to the foregoing provisions or as a
result of legal or other proceedings or from any receiver, trustee in bankruptcy
or liquidator of the Corporation, shall be applied, together with any other
monies in the hands of the Trustee available for such purpose, as follows:
(a) first, in payment or in reimbursement to the Trustee of its
compensation, costs, charges, expenses, borrowings, advances and other
monies furnished or provided by or at the instance of the Trustee in
or about the execution of its trusts under, or otherwise in relation
to, this Indenture, with interest thereon as herein provided;
<PAGE>
-29-
(b) second, in payment, rateably and proportionately to the holders of
Debentures (taking into consideration any sums received directly by
one or more of the Debentureholders), of the principal amount of the
Debentures in the specific order of priority and to such specific
indebtedness as set forth in clause 3.4 and clause 3.5 hereof; and
(c) third, in payment of the surplus, if any, of such monies to the
Corporation or its assigns;
provided, however, that no payment shall be made pursuant to subclause (b) above
in respect of the principal amount due on any Debenture held, directly or
indirectly, by or for the benefit of the Corporation or any Subsidiary (other
than any Debenture pledged for value and in good faith to a person other than
the Corporation or any Subsidiary but only to the extent of such person's
interest therein) except subject to the prior payment in full of the principal
due on all Debentures which are not so held.
6.7 DISTRIBUTION OF PROCEEDS
Payments to Debentureholders pursuant to subclause (b) of clause 6.6
shall be made at least seven (7) Business Days' notice of every such payment
shall be given in the manner provided in clause 10.2 specifying the time when
and the place or places where the Debentures are to be presented and the amount
of the payment and the application thereof.
6.8 REMEDIES CUMULATIVE
No remedy herein conferred upon or reserved to the Trustee, or upon or
to the holders of Debentures 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 by statute.
6.9 JUDGMENT AGAINST THE CORPORATION
The Corporation covenants and agrees with the Trustee that in case of
any judicial or other proceedings to enforce the rights of the Debentureholders,
judgment may be rendered against it in favour of the Debentureholders or in
favour of the Trustee, as trustee for the Debentureholders, for any amount which
may remain due in respect of the Debentures and any other monies owing
hereunder.
6.10 IMMUNITY OF SHAREHOLDERS AND OTHERS
Subject to section 8.1, the Debentureholders and the Trustee hereby
waive and release any right, cause of action or remedy now or hereafter existing
in any jurisdiction against any past, present or future incorporator,
shareholder, director or officer of the Corporation or of any successor company
for the payment of the principal amount on any of the Debentures or on any
covenant, agreement, representation or warranty by the Corporation herein or in
the Debentures contained.
<PAGE>
-30-
6.11 TRUSTEE APPOINTED ATTORNEY
The Corporation hereby irrevocably appoints the Trustee to be the
attorney of the Corporation in the name and on behalf of the Corporation to
execute any instruments and do any acts and things which the Corporation ought
to execute and do, and has not executed or done, under the covenants and
provisions contained in this Indenture and generally to use the name of the
Corporation in the exercise of all or any of the powers hereby conferred on the
Trustee, with full powers of substitution and revocation.
ARTICLE 7
SATISFACTION AND DISCHARGE
7.1 CANCELLATION AND DESTRUCTION
All Debentures shall forthwith after payment or conversion thereof be
delivered to the Trustee and cancelled by it. All Debentures cancelled or
required to be cancelled under this or any other provision of this Indenture
shall be destroyed by the Trustee and if required by the Corporation the Trustee
shall furnish to it a destruction certificate setting out the designating
numbers of the Debentures so destroyed.
7.2 NON-PRESENTATION OF DEBENTURES
In case the holder of any Debenture shall fail to present the same for
payment or conversion on the date on which the principal thereof becomes payable
either at maturity or otherwise:
(a) the Corporation shall be entitled to pay the principal amount, if any,
or deliver Common Shares to the Trustee and direct it to set aside; or
(b) in respect of monies in the hands of the Trustee which may or should
be applied to the payment of the Debentures, the Corporation shall be
entitled to direct the Trustee to set aside;
such amounts or Common Shares, in trust to be paid or delivered to the holder of
such Debenture upon due presentation or surrender thereof in accordance with the
provisions of this Indenture; and thereupon the principal monies payable on or
represented by each Debenture in respect whereof such monies have been set aside
shall be deemed to have been paid and the holder thereof shall thereafter have
no right in respect thereof except that of receiving payment of the monies or
Common Shares so set aside by the Trustee upon due presentation and surrender
thereof, subject always to the provisions of clause 7.3.
7.3 REPAYMENT OF UNCLAIMED MONIES OR COMMON SHARES
Any monies or Common Shares set aside under clause 7.2 and not claimed
by and paid or delivered to Debentureholders as provided in clause 7.2 within
two (2) years after the date of such setting aside shall be repaid or re-
delivered to the Corporation by the Trustee on demand and thereupon the Trustee
shall be released from all further liability with respect to such monies.
Thereafter the holders of the Debentures in respect of which such monies
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or Common Shares were so repaid or delivered to the Corporation shall have no
rights in respect thereof except to obtain payment of the monies or Common
Shares due thereon from the Corporation up to such time as the right to
proceed against the Corporation for recovery of such monies has become
statute barred under the laws of the Province of Alberta.
ARTICLE 8
SUCCESSOR CORPORATIONS
8.1 CERTAIN REQUIREMENTS
The Corporation shall not enter into any transaction (including by way
of reconstruction, reorganization, consolidation, amalgamation, merger,
liquidation, transfer, sale or otherwise) whereby all or substantially all of
its undertakings, property and assets would become the property of any other
person, or, in the case of any such amalgamation, of the continuing corporation
resulting therefrom, unless:
(a) such other person or continuing corporation (herein called the
"Successor Corporation") is a corporation incorporated under the laws
of Canada or one of its provinces;
(b) the Successor Corporation shall execute, prior to or contemporaneously
with the consummation of such transaction, such instruments, if any,
as are in the opinion of Counsel to the Trustee necessary or advisable
to evidence the assumption by the Successor Corporation of liability
for the due and punctual payment of all the Debentures, interest
thereon and all other monies payable hereunder, the covenant of the
Successor Corporation to observe and perform all the covenants and
obligations of the Corporation under this Indenture;
(c) such transaction, in the opinion of Counsel to the Trustee, shall be
upon such terms as to substantially preserve and not impair any of the
rights and powers of the Trustee or the Debentureholders hereunder;
and
(d) no condition or event shall exist in respect of the Successor
Corporation at the time of such transaction or after giving full
effect thereto which constitutes or would constitute an Event of
Default hereunder;
provided however, that the provisions hereof shall not apply in respect of any
reorganization, reconstruction, amalgamation, merger, liquidation, transfer,
sale or otherwise involving the Corporation and its Subsidiaries whereby there
is no effective change in control or effective ownership of the assets,
undertakings and property of the Corporation or its Subsidiaries.
8.2 VESTING OF POWERS IN SUCCESSOR
Whenever the conditions of clause 8.1 have been duly observed and
performed, the Successor Corporation shall possess and from time to time may
exercise each and every right and power of the Corporation under this Indenture
in the name of the Corporation or otherwise and any act or proceeding by any
provision of this Indenture required to be done or
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performed by any directors or officers of the Corporation may be done and
performed with like force and effect by the directors or officers of such
Successor Corporation.
ARTICLE 9
MEETINGS OF DEBENTUREHOLDERS
9.1 RIGHT TO CONVENE MEETING
The Trustee may at any time and from time to time and the Trustee
shall on receipt of a written request of the Corporation or a written request
signed by the holders of not less than sixty-six and two-thirds (66-2/3%)
percent in principal amount of the Debentures then outstanding and upon being
indemnified to its reasonable satisfaction by the Corporation or by the
Debentureholders signing such request against the costs which may be incurred in
connection with the calling and holding of such meeting, convene a meeting of
the Debentureholders. In the event of the Trustee failing within fifteen (15)
Business Days after receipt of any such request and such indemnity to give
notice convening a meeting, the Corporation or such Debentureholders, as the
case may be, may convene such meeting. Every such meeting shall be held in the
City of Calgary or at such other place as may be approved or determined by the
Trustee.
9.2 NOTICE OF MEETINGS
At least fifteen (15) Business Days' notice of any meeting shall be
given to the Debentureholders in the manner provided in clause 10.2. A copy of
the notice shall be sent by post to the Trustee, unless the meeting has been
called by it. Such notice shall state the time when and the place where the
meeting is to be held and shall state briefly the general nature of the business
to be transacted thereat. It shall not be necessary for any such notice to set
out the terms of any resolution to be proposed or any of the provisions of this
Article. The accidental omission to give notice of a meeting to any holder of
Debentures shall not invalidate any resolution passed at any such meeting.
9.3 CHAIRMAN
Some person, who need not be a Debentureholder, nominated in writing
by the Trustee shall be chairman of the meeting and if no person is so
nominated, or if the person so nominated is not present within fifteen (15)
minutes from the time fixed for the holding of the meeting, the Debentureholders
present in person or by proxy shall choose some person present to be chairman.
9.4 QUORUM
Subject to the provisions of clause 9.12, at any meeting of the
Debentureholders a quorum shall consist of Debentureholders present in person or
by proxy and representing at least sixty-six and two-thirds (66-2/3%) percent in
principal amount of the outstanding Debentures. If a quorum of the
Debentureholders shall not be present within thirty (30) minutes from the time
fixed for holding any meeting, the meeting, if summoned by the Debentureholders
or pursuant to a request of the Debentureholders, shall be dissolved; but in any
other case the meeting shall be adjourned to the same day in the next week
(unless such
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day is a non-business day in which case it shall be adjourned to the next
following business day thereafter) at the same time and place and no notice
shall be required to be given in respect of such adjourned meeting. At the
adjourned meeting the Debentureholders present in person or by proxy shall
form a quorum and may transact the business for which the meeting was
originally convened notwithstanding that they may not represent fifty one
(51%) percent of the principal amount of the outstanding Debentures. Any
business may be brought before or dealt with at an adjourned meeting which
might have been brought before or dealt with at the original meeting in
accordance with the notice calling the same. No business shall be transacted
at any meeting unless the required quorum is present at the commencement of
business.
9.5 POWER TO ADJOURN
The chairman of any meeting at which a quorum of the Debentureholders
is present may with the consent of the holders of a majority in principal amount
of the Debentures represented thereat adjourn any such meeting, and no notice of
such adjournment need be given except such notice, if any, as the meeting may
prescribe.
9.6 SHOW OF HANDS
Every question submitted to a meeting shall, subject to clause 9.7, be
decided in the first place by a majority of the votes given on a show of hands.
At any such meeting, unless a poll is duly demanded as herein provided, a
declaration by the chairman that a resolution has been carried or carried
unanimously or by a particular majority or lost or not carried by a particular
majority shall be conclusive evidence of the fact. The chairman of any meeting
shall be entitled, both on a show of hands and on a poll, to vote in respect of
the Debenture, if any, held by him.
9.7 POLL
On every extraordinary resolution, and on any other question submitted
to a meeting, when demanded by the chairman or by one or more Debentureholders
or proxies for Debentureholders, a poll shall be taken in such manner and either
at once or after an adjournment as the chairman shall direct. Questions other
than extraordinary resolutions shall, if a poll be taken, be decided by the
votes of the holders of a majority in principal amount of the Debentures
represented at the meeting and voted on the poll.
9.8 VOTING
On a show of hands every person who is present and entitled to
vote, whether as a Debentureholder or as proxy for one or more
Debentureholders or both, shall have one vote. On a poll each
Debentureholder present in person or represented by a proxyholder duly
appointed by an instrument in writing shall be entitled to one vote in
respect of each $1,000 principal amount of Debentures of which he shall then
be the holder. A proxyholder need not be a Debentureholder. In the case of
joint registered holders of a Debenture, any one of them present in person or
by proxy at the meeting may vote in the absence of the other or others; but
in case more than one of them be present in person or by proxy, they shall
vote together in respect of the Debentures of which they are joint registered
holders.
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9.9 REGULATIONS
The Trustee, or the Corporation with the approval of the Trustee, may
from time to time make, vary or revoke such regulations as it shall think fit
providing for and governing:
(a) the form of the instrument appointing a proxy, which shall be in
writing, the manner in which the same shall be executed and the
production of the authority of any person signing on behalf of a
Debentureholder;
(b) the deposit of instruments appointing proxies at such place as the
Trustee, the Corporation or the Debentureholder convening the meeting,
as the case may be, may, in the notice convening the meeting, direct
and the time, if any, before the holding of the meeting or any
adjournment thereof by which the same be deposited; and
(c) the deposit of instruments appointing proxies at some approved place
or places other than the place at which the meeting is to be held and
enabling particulars of such instruments appointing proxies to be
mailed, cabled, telegraphed or sent by telex before the meeting to the
Corporation or to the Trustee at the place where the same is to be
held and for the voting of proxies so deposited as though the
instruments themselves were produced at the meeting.
Any regulations so made shall be binding and effective and the votes given in
accordance therewith shall be valid and shall be counted. Save as such
regulations may provide, the only persons who shall be recognized at any meeting
as the holders of any Debentures, or as entitled to vote or be present at the
meeting in respect thereof, shall be Debentureholders and persons whom
Debentureholders have by instrument in writing duly appointed as their proxies.
9.10 PERSONS ENTITLED TO ATTEND MEETINGS
The Corporation and the Trustee, by their respective officers and
directors, and the legal advisors of each of the Corporation and the Trustee may
attend any meeting of the Debentureholders, but none of such persons shall have
a vote as such.
9.11 POWERS EXERCISABLE BY EXTRAORDINARY RESOLUTION
In addition to the powers conferred upon them by any other provisions
of this Indenture or by law, a meeting of the Debentureholders shall have the
following powers exercisable from time to time by extraordinary resolution:
(a) power to sanction and agree to any modification, abrogation,
alteration, compromise or arrangement of the rights of the
Debentureholders or the Trustee against the Corporation, whether such
rights arise under this Indenture or the Debentures or otherwise;
(b) power to assent to any modification of or change in or addition to or
omission from the provisions contained in this Indenture or any
Debenture which shall be agreed to by the Corporation and to authorize
the Trustee to concur in and
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execute any indenture supplemental hereto embodying any
such modification, change, addition or omission;
(c) power to sanction any scheme for the reconstruction or reorganization
of the Corporation or for the consolidation, amalgamation or merger of
the Corporation with any other corporation or for the sale, leasing,
transfer or other disposition of the undertaking, property and assets
of the Corporation or any part thereof. provided that no such sanction
shall be necessary in respect of any such transaction if the
provisions of clause 8.1 shall have been complied with;
(d) power to direct or authorize the Trustee to exercise any power, right,
remedy or authority given to it by this Indenture in any manner
specified in any such extraordinary resolution or to refrain from
exercising any such power, right, remedy or authority;
(e) power to waive and direct the Trustee to waive any default hereunder
to cancel any declaration made by the Trustee pursuant to clause 6.1
either unconditionally or upon any condition specified in such
extraordinary resolution;
(f) power to direct any Debentureholder who, as such, has brought any
action, suit or proceeding to stay or discontinue or otherwise deal
with the same upon payment, if the taking of such suit, action or
proceeding shall have been permitted by clause 6.5, of the costs.
charges and expenses reasonably and properly incurred by such
Debentureholder in connection therewith;
(g) power to assent to any compromise or arrangement with any creditor or
creditors or any class or classes of creditors, whether secured or
otherwise, and with holders of any shares or other securities of the
Corporation;
(h) power to remove the Trustee from office and to appoint a new Trustee
or Trustees;
(i) power to sanction the exchange of the Debentures for or the conversion
thereof into shares, bonds, debentures or other securities or
obligations of the Corporation or of any corporation formed or to be
formed;
(j) power, notwithstanding clause 5.6, to authorize the Corporation and
the Trustee to grant extensions of time for payment of interest on any
of the Debentures, whether or not the interest the payment in respect
of which is extended, is at the time due or overdue; and
(k) power to amend, alter or repeal any extraordinary resolution
previously passed or sanctioned by the Debentureholders.
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9.12 MEANING OF "EXTRAORDINARY RESOLUTION"
(a) The expression "extraordinary resolution" when used in this Indenture
means, subject as hereinafter in this Article provided, a resolution
proposed to be passed as an extraordinary resolution at a meeting of
Debentureholders (including an adjourned meeting) duly convened for
the purpose and held in accordance with the provisions of this Article
at which the holders of not less than sixty-six and two-thirds (66-
2/3%) percent in principal amount of the Debentures then outstanding
are present in person or by proxy and passed by the favourable votes
of the holders of not less than sixty-six and two-thirds (66-2/3%)
percent of the principal amount of Debentures represented at the
meeting and voted on a poll upon such resolution.
(b) If, at any such meeting, the holders of not less than sixty-six and
two-thirds (66-2/3%) percent in principal amount of the Debentures
outstanding are not present in person or by proxy within thirty (30)
minutes after the time appointed for the meeting, then the meeting, if
convened by or on the requisition of the Debentureholders, shall be
dissolved; but in any case it shall stand adjourned to such date,
being not less than seven (7) nor more than sixty (60) days later, and
to such place and time as may be appointed by the chairman. Not less
than ten (10) days' notice shall be given of the time and place of
such adjourned meeting in the manner provided in clause 10.2. Such
notice may be given prior to the convening of the original meeting, in
anticipation of no quorum being present thereat, in which event it
shall state that it is to have effect only if the original meeting is
adjourned for lack of a quorum. Such notice shall state that at the
adjourned meeting the Debentureholders present in person or by proxy
shall form a quorum but it shall not be necessary to set forth the
purposes for which the meeting was originally called or any other
particulars. At the adjourned meeting the Debenture-holders present
in person or by proxy shall form a quorum and may transact the
business for which the meeting was originally convened. A resolution
proposed at such adjourned meeting and passed by the requisite vote as
provided in clause 9.12(a) shall be an extraordinary resolution within
the meaning of this Indenture, notwithstanding that the holders of not
less than fifty-one (51%) percent in principal amount of the
Debentures then outstanding are not present in person or by proxy at
such adjourned meeting.
(c) Votes on an extraordinary resolution shall always be given on a poll,
and no demand for a poll on an extraordinary resolution shall be
necessary.
9.13 POWERS CUMULATIVE
It is hereby declared and agreed that any one or more of the powers in
this Indenture stated to be exercisable by the Debentureholders by extraordinary
resolution or otherwise may be exercised from time to time and the exercise of
any one or more of such powers from time to time shall not be deemed to exhaust
the rights of the Debentureholders to exercise the same or any other such power
or powers thereafter from time to time.
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9.14 MINUTES
Minutes of all resolutions and proceedings at every meeting as
aforesaid shall be made and duly entered in books to be from time to time
provided for that purpose by secretary of the meeting, and any such minutes
as aforesaid, if signed by the chairman of the meeting at which such
resolutions were passed or proceedings had, or by the chairman of the next
succeeding meeting of the Debentureholders, shall be prima facie evidence of
the matters therein stated. Until the contrary is proved, every such
meeting, in respect of the proceedings of which minutes shall have been made,
shall be deemed to have been duly held and convened, and all resolutions
passed thereat or proceedings taken thereat to have been duly passed and
taken.
9.15 INSTRUMENTS IN WRITING
All actions which may be taken and all powers that may be exercised
by the Debentureholders at a meeting held as hereinbefore in this Article
provided may also be taken and exercised by the holders of sixty-six and
two-thirds (66-2/3%) percent of the principal amount of all the outstanding
Debentures, by an instrument in writing signed in one or more counterparts
and the expression "extraordinary resolution" when used in this Indenture
shall include an instrument so signed.
9.16 BINDING EFFECT OF RESOLUTIONS
Every resolution and every extraordinary resolution passed in
accordance with the provisions of this Article at a meeting of
Debentureholders shall be binding upon all the Debentureholders, whether
present at or absent from such meeting, and every instrument in writing
signed by Debentureholders in accordance with clause 9.15 shall be binding
upon all the Debentureholders, whether signatories thereto or not, and each
and every Debentureholder and the Trustee (subject to the provisions for its
indemnity herein contained) shall be bound to give effect accordingly to
every such resolution, extraordinary resolution and instrument in writing.
9.17 EVIDENCE OF RIGHTS OF DEBENTUREHOLDERS
Any request, direction, notice, consent or other instrument which
this Indenture may require or permit to be signed or executed by the
Debentureholders may be in any number of concurrent instruments of similar
tenor and may be signed or executed by such Debentureholders in person or by
attorney duly appointed in writing. Proof of the execution of any such
request or other instrument or of a writing appointing any such attorney or
(subject to the provisions of this Article with regard to voting at meetings
of Debentureholders) of the holding by any person of Debentures shall be
sufficient for any purpose of this Indenture if made in the following manner,
namely, the fact and date of execution by any person of such request or other
instrument or writing may be proved by the certificate of any notary public,
or other officer authorized to take acknowledgements of deeds to be recorded
at the place where such certificate is made, that the person signing such
request or other instrument in writing acknowledged to him the execution
thereof, or by an affidavit of a witness of such execution or in any other
manner which the Trustee may consider adequate.
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The Trustee may, nevertheless, in its discretion require further
proof in cases where it deems further proof desirable or may accept such
other proof as it shall consider proper.
ARTICLE 10
NOTICES
10.1 NOTICE TO CORPORATION
Any notice to the Corporation under the provisions of this
Indenture shall be valid and effective if given by registered letter, postage
prepaid, addressed to the Corporation at:
Battery One, Inc.
7850 Woodbine Avenue, Suite 201
Markham, Ontario
L3R 0B9
Attention: The President
and shall be deemed to have been effectively given from the time when in the
ordinary course of post the said letter should have reached its destination.
The Corporation may from time to time notify the Trustee in writing of a
change of address which thereafter, until changed by like notice, shall be
the address of the Corporation for all purposes of this Indenture.
If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Corporation hereunder could reasonably be considered unlikely to reach its
destination, such notice shall be valid and effective only if it is delivered
to the named officer of the party to which it is addressed or, if it is
delivered to such party at the appropriate address as provided above, by
cable, telegram, telecopy or other means of prepaid, transmitted and recorded
communication.
10.2 NOTICE TO DEBENTUREHOLDERS
All notices to be given hereunder with respect to the Debentures
shall be deemed to be validly given to the holders thereof if sent by mail,
postage prepaid, by letter or circular addressed to such holders at their
post office addresses appearing in any of the registers hereinbefore
mentioned and shall be deemed to have been given on the day of mailing.
Accidental error or omission in giving notice or accidental failure to mail
notice to any Debentureholder or the inability of the Corporation to give or
mail any notice due to anything beyond the reasonable control of the
Corporation shall not invalidate any action or proceeding founded thereon.
All notices with respect to any Debenture may be given to whichever
one of the holders thereof (if more than one) is named first in the registers
hereinbefore mentioned, and any notice so given shall be sufficient notice to
all holders of and persons interested in such Debenture.
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If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Debentureholders or to the Corporation hereunder could reasonably be
considered unlikely to reach its destination, such notice shall be valid and
effective only if it is delivered personally to such Debentureholders or if
delivered to the address for such Debentureholders contained in the register
of Debentures maintained by the Trustee, by cable, telegram, telex or other
means of prepaid transmitted and recorded communication.
10.3 NOTICE TO TRUSTEE
Any notice to the Trustee under the provisions of this Indenture
shall be valid and effective if given by registered letter, postage prepaid,
addressed to the Trustee at Suite 710, 530 - 8th Avenue S.W., Calgary,
Alberta, T2P 3S8, Attention: Corporate Trust Department and shall be deemed
to have been effectively given from the time when in the ordinary course of
post the said letter should have reached its destination.
If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the Trustee
hereunder could reasonably be considered unlikely to reach its destination,
such notice shall be valid and effective only if it is delivered to the named
officer of the party to which it is addressed or, if it is delivered to such
party at the appropriate address as provided above, by cable, telegram,
telecopy or other means of prepaid, transmitted and recorded communication.
ARTICLE 11
CONCERNING THE TRUSTEE
11.1 NO CONFLICT OF INTEREST
The Trustee represents to the Corporation that at the date of
execution and delivery by it of this Indenture there exists no material
conflict of interest in the role of the Trustee as a fiduciary hereunder.
11.2 REPLACEMENT OF TRUSTEE
The Trustee may resign its trust and be discharged from all further
duties and liabilities hereunder by giving to the Corporation three (3)
months' notice in writing or such shorter notice as the Corporation may
accept as sufficient. If at any time a material conflict of interest exists
in the Trustee's role as a fiduciary hereunder the Trustee shall, within
ninety (90) days after ascertaining that such a material conflict of interest
exists, either eliminate such material conflict of interest or resign in the
manner and with the effect specified in this clause. The validity and
enforceability of this Indenture and of the Debentures issued hereunder shall
not be affected in any manner whatsoever by reason only that such material
conflict of interest exists. In the event of the Trustee resigning or being
removed or being dissolved, becoming bankrupt, going into liquidation or
otherwise becoming incapable of acting hereunder, the Corporation shall
forthwith appoint a new Trustee unless a new Trustee has already been
appointed by the Debentureholders; failing such appointment by the
Corporation, the retiring Trustee or any Debentureholder may apply to a Judge
of the Court of Queen's Bench of Alberta, on such notice as such Judge may
direct, for the appointment of a new
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Trustee; but any new Trustee so appointed by the Corporation or by the Court
shall be subject to removal as aforesaid by the Debentureholders. Any new
Trustee appointed under any provision of this clause shall be a corporation
authorized to carry on business of a trust company in the Province of
Alberta. On any new appointment the new Trustee shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named herein as Trustee.
Upon the written request of the successor Trustee or of the
Corporation, the Trustee ceasing to act shall execute and deliver an
instrument assigning and transferring to such successor Trustee, upon the
trusts herein expressed, all the rights, powers and trusts of the Trustee so
ceasing to act, and shall duly assign, transfer and deliver all property and
money held by such Trustee to the successor Trustee so appointed in its
place. Should any deed, conveyance or instrument in writing from the
Corporation be required by any new Trustee for more fully and certainly
vesting in and confirming to it such estates' properties, rights, powers and
trusts, then any and all such deeds, conveyances and instruments in writing
shall on request of said new Trustee, be made, executed, acknowledged and
delivered by the Corporation. Notwithstanding the foregoing, any company
into which the Trustee may be merged or with which it may be consolidated or
amalgamated or any company resulting from any merger, consolidation or
amalgamation to which the Trustee shall be a party, shall be the successor
Trustee under this Indenture without the execution of any instrument or any
further act.
11.3 DUTIES OF TRUSTEE
In the exercise of the rights, duties and obligations prescribed or
conferred by the terms of this Indenture, the Trustee shall exercise that
degree of care, diligence and skill that a reasonably prudent trustee would
exercise in comparable circumstances.
11.4 RELIANCE UPON DECLARATIONS
In the exercise of its rights, duties and obligations hereunder the
Trustee may, if acting in good faith, rely, as to the truth of the statements
and accuracy of the opinions expressed therein, upon statutory declarations,
opinions, reports or certificates furnished pursuant to any covenant,
condition or requirement of this Indenture or required by the Trustee to be
furnished to it in the exercise of its rights and duties hereunder, if the
Trustee examines such statutory declarations, opinions, reports or
certificates and determines that they comply with clause 11.5, if applicable,
and with any other applicable requirements of this Indenture.
11.5 EVIDENCE OF COMPLIANCE TO TRUSTEE
The Corporation shall furnish to the Trustee evidence of compliance
with the conditions precedent provided for in this Indenture relating to any
action or step required or permitted to be taken by the Corporation or the
Trustee under this Indenture or as a result of any obligation imposed under
this Indenture. including without limitation, the certification and delivery
of Debentures hereunder, the satisfaction and discharge of this Indenture and
the taking of any other action to be taken by the Trustee at the request of
or on the application of the Corporation, forthwith if and when:
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(a) such evidence is required by any other clause of this Indenture to be
furnished by the Trustee in accordance with the terms of this
clause 11.5; or
(b) the Trustee, in the exercise of its rights and duties under this
Indenture, gives the Corporation written notice requiring it to
furnish such evidence in relation to any particular action or
obligation specified in such notice.
Such evidence shall consist of:
(a) a certificate made by any officer of the Corporation stating that any
such condition precedent has been complied with in accordance with the
terms of this Indenture;
(b) in the case of a condition precedent compliance with which is, by the
terms of this Indenture, made subject to review or examination by a
solicitor, an opinion of Counsel that such condition precedent has
been complied with in accordance with the terms of this Indenture; and
(c) in the case of any such condition precedent compliance with which is
subject to review or examination by auditors or accountants, an
opinion or report of the Auditors of the Corporation whom the Trustee
for such purposes hereby approves, that such condition precedent has
been complied with in accordance with the terms of this Indenture.
Whenever such evidence relates to a matter other than the
certification and delivery of Debentures and the satisfaction and discharge
of this Indenture, and except as otherwise specifically provided herein, such
evidence may consist of a report or opinion of any solicitor, auditor,
accountant, engineer or appraiser or any other person whose qualifications
give authority to a statement made by him, provided that if such report or
opinion is furnished by a director, officer or employee of the Corporation it
shall be in the form of a statutory declaration. Such evidence shall be, so
far as appropriate, in accordance with the immediately preceding paragraph of
this Article.
Each certificate, opinion or report with respect to compliance with
a condition precedent provided for in this Indenture shall include:
(a) a statement by the person giving the evidence that he has read and is
familiar with those provisions of this Indenture relating to the
condition precedent in question;
(b) a brief statement of the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
evidence are based;
(c) a statement that, in the belief of the person giving such evidence, he
has made such examination or investigation as is necessary to enable
him to make the statements or give the opinions contained or expressed
therein; and
(d) a statement whether in the opinion of such person the conditions
precedent in question have been complied with or satisfied.
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The Corporation shall furnish to the Trustee annually, and at any
other reasonable time if the Trustee so requires, a certificate signed by an
officer of the Corporation certifying that the Corporation has complied with
all covenants, conditions or other requirements contained in this Indenture,
the non-compliance with which would, with the giving of notice or the lapse
of time, or both, or otherwise, constitute an Event of Default, or if such is
not the case, specifying the covenant, condition or other requirement which
has not been complied with and giving particulars of such non-compliance.
The Corporation shall, whenever the Trustee so requires, furnish the Trustee
with evidence by way of statutory declaration, opinion, report or certificate
as specified by the Trustee as to any action or step required or permitted to
be taken by the Corporation or as a result of any obligation imposed by this
Indenture.
11.6 OFFICERS' CERTIFICATE AS EVIDENCE
Except as otherwise specifically provided or prescribed by this
Indenture, whenever in the administration of the provisions of this Indenture
the Trustee shall deem it necessary or desirable that a matter be proved or
established prior to taking or omitting any action hereunder, the Trustee, if
acting in good faith, may rely upon an Officers' Certificate.
11.7 EXPERTS, ADVISORS AND AGENTS
The Trustee may:
(a) in relation to these presents act on the opinion or advice of or
information obtained from any solicitor, auditor, valuer, engineer,
surveyor, appraiser or other expert, whether obtained by the Trustee
or by the Corporation, or otherwise, and may employ such assistants as
may be necessary to the proper discharge of its duties and may pay
proper and reasonable compensation for all such legal and other advice
or assistance as aforesaid; and
(b) employ such agents and other assistants as it may reasonably require
for the proper discharge of its duties hereunder, and may pay
reasonable remuneration for all services performed for it (and shall
be entitled to receive reasonable remuneration for all services
performed by it) in the discharge of the trusts hereof and
compensation for all disbursements, costs and expenses made or
incurred by such agents or other assistants in the discharge of the
Trustee's duties hereunder and in the management of the trusts
hereof. Any solicitors employed or consulted by the Trustee may,
but need not be, solicitors for the Corporation.
11.8 TRUSTEE MAY DEAL IN DEBENTURES
Subject to clause 11.2, the Trustee may, in its personal or other
capacity, buy, sell, lend upon and deal in the Debentures and generally
contract and enter into financial transactions with the Corporation or
otherwise, without being liable to account for any profits made thereby.
<PAGE>
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11.9 INVESTMENT OF MONIES HELD BY TRUSTEE
Unless otherwise provided in this Indenture, any monies held by the
Trustee which under the trusts of this Indenture may or ought to be invested
or which may be on deposit with the Trustee or which may be in the hands of
the Trustee may be invested and reinvested in the name or under the control
of the Trustee in securities in which, under the laws of the Province of
Alberta, trustees are authorized to invest trust monies, provided that such
securities are expressed to mature within one (1) year after their purchase
by the Trustee, and unless and until the Trustee shall have declared the
principal of the Debentures to be due and payable, the Trustee shall so
invest such monies at the request of the Corporation.
Pending the investment of any monies as hereinbefore provided, such
monies may be deposited in the name of the Trustee in any chartered bank of
Canada or, with the consent of the Corporation, in the deposit department of
the Trustee or any other loan or trust company authorized to accept deposits
under the laws of Canada or any Province thereof at the rate of interest then
current on similar deposits.
Unless and until the Trustee shall have declared the principal of
the Debentures to be due and payable, the Trustee shall pay over to the
Corporation all interest received by the Trustee in respect of any
investments or deposits made pursuant to the provisions of this clause.
11.10 TRUSTEE NOT ORDINARILY BOUND
Except as provided in clause 6.2 and as otherwise specifically
provided herein, the Trustee shall not, subject to clause 11.3, be bound to
give notice to any person of the execution hereof, nor to do, observe or
perform or see to the observance or performance by the Corporation of any of
the obligations herein imposed upon the Corporation or of the covenants on
the part of the Corporation herein contained, nor in any way to supervise or
interfere with the conduct of the Corporation's business, unless the Trustee
shall have been required to do so in writing by the holders of not less than
fifty-one (51%) percent of the aggregate principal amount of the Debentures
then outstanding or by any extraordinary resolution of the Debentureholders
passed in accordance with the provisions contained in Article 9, and then
only after it shall have been indemnified to its satisfaction against all
actions, proceedings, claims and demands to which it may render itself liable
and all costs, charges, damages and expenses which it may incur by so doing.
11.11 TRUSTEE NOT REQUIRED TO GIVE SECURITY
The Trustee shall not be required to give any bond or security in
respect of the execution of the trusts and powers of this Indenture or
otherwise in respect of the premises.
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11.12 TRUSTEE NOT TO BE APPOINTED RECEIVER
The Trustee and any person related to the Trustee shall not be
appointed a receiver or receiver and manager or liquidator of all or any part
of the assets or undertaking of the Corporation.
11.13 TRUSTEE NOT BOUND TO ACT ON CORPORATION'S REQUEST
Except as in this Indenture otherwise specifically provided, the
Trustee shall not be bound to act in accordance with any direction or request
of the Corporation or of the directors until a duly authenticated copy of the
instrument or resolution containing such direction or request shall have been
delivered to the Trustee, and the Trustee shall be empowered to act upon any
such copy purporting to be authenticated and believed by the Trustee to be
genuine.
11.14 PROTECTION OF TRUSTEE
Subject to clause 11.3, the Trustee:
(a) shall not at any time be under any duty or responsibility to any
Debentureholder to determine whether any facts exist which may require
any adjustment in the conversion formula, or with respect to the
nature or extent of any such adjustment when made, or with respect to
the method employed in making the same;
(b) shall not be accountable with respect to the validity or value (or the
kind or amount) of any Common Shares or of any shares or other
securities or property which may at any time be issued or delivered
upon the conversion of any Debenture; and
(c) shall not be responsible for any failure of the Corporation to make
any cash payment or to issue, transfer or deliver Common Shares or
share certificates upon the surrender of any Debenture for the purpose
of conversion, or to comply with any of the covenants contained in
this Article.
11.15 CONDITIONS PRECEDENT TO TRUSTEE'S OBLIGATIONS TO ACT HEREUNDER
The obligation of the Trustee to commence or continue any act,
action or proceeding for the purpose of enforcing the rights of the Trustee
and of the Debentureholders hereunder shall be conditional upon the
Debentureholders furnishing, when required by notice in writing by the
Trustee' sufficient funds to commence or continue to such act, action or
proceeding and indemnity reasonably satisfactory to the Trustee to protect
and hold harmless the Trustee against the costs, charges, expenses and
liabilities to be incurred thereby and any loss and damage it may suffer by
reason thereof.
None of the provisions contained in this Indenture shall require
the Trustee to expend or risk its own funds or otherwise incur financial
liability in the performance of any of its duties or in the exercise of any
of its rights or powers unless indemnified as aforesaid.
<PAGE>
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The Trustee may, before commencing or at any time during the
continuance of any such act, action or proceeding, require the
Debentureholders at whose instance it is acting to deposit with the Trustee
the Debentures held by them for which Debentures the Trustee shall issue
receipts.
11.16 AUTHORITY TO CARRY ON BUSINESS
The Trustee represents to the Corporation that at the date of
execution and delivery by it of this Indenture it is authorized to act as
trustee hereunder.
11.17 ACCEPTANCE OF TRUST
The Trustee hereby accepts the trusts in this Indenture declared and
provided for and agrees to perform the same upon the terms and conditions herein
set forth and to hold all rights, privileges and benefits conferred hereby and
by law in trust for the various persons who shall from time to time be
Debentureholders, subject to all the terms and conditions herein set forth.
11.18 DIRECTION OF TRUSTEE'S ACTIONS BY HOLDERS
If and so long as the Trustee shall not have received notice from any
holder of Debentures of an Event of Default hereunder then, notwithstanding any
other provision hereof to the contrary, the Trustee shall only perform such non-
discretionary duties as are specifically set forth in this Indenture but shall
not be obligated to take any other action hereunder except as may be requested
from time to time in writing by the holders of not less than sixty-six and two-
thirds (66-2/3%) percent in principal amount of the Debentures at the time
outstanding; the making of any decision or judgment, giving of any approval or
consent, or exercise of any power, which would otherwise be within the
discretion of the Trustee under the provisions hereof to make, give or exercise,
or not to make, give or exercise, shall only be done upon the written
instructions of the holders of not less than sixty five (65%) percent in
principal amount of the Debentures at the time outstanding. Copies of all
certificates, notices, reports and other communications given by the Corporation
to the Trustee shall be given to each Debentureholder. The Trustee shall not be
required to examine any such certificate, notice, report or other communication
or be on notice of the contents thereof.
11.19 ENVIRONMENTAL INDEMNITY
The Corporation hereby agrees and by these presents does hereby
indemnify the Trustee, its directors, officers, employees, and agents, and all
of their successors and assigns (collectively the "Indemnified Parties") against
any loss, expense, claim liability or asserted liability (including strict
liability and including costs and expenses of abatement and remediation of
spills or releases or releases of contaminants and including liabilities of the
Indemnified Parties to third parties (including governmental agencies) in
respect of bodily injuries, property damage, damage to or impairment of the
environment or any other injury or damage and including liabilities of the
Indemnified Parties to third parties for the third parties' foreseeable and
unforeseeable consequential damages) incurred as a result of:
(a) the administration of the trust created hereby;
<PAGE>
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(b) the exercise by the Trustee of any rights hereunder or under any
mortgage or charge created hereunder;
which result from or relate, directly or indirectly, to:
(c) the presence or release of any contaminants, by any means or for any
reason, on the Mortgaged Property, whether or not release or presence
of the contaminants was under the control, care or management of the
Corporation, or of a previous owner, or of a tenant;
(d) any contaminant present on or released from any contiguous property to
the Mortgaged Property; or
(e) the breach or alleged breach of any environmental laws by the
Corporation.
For purposes of this clause, "liability" shall include (i) liability
of an Indemnified Party for costs and expenses of abatement and remediation of
spills and releases of contaminants, (ii) liability of an Indemnified Party to a
third party to reimburse the third party for bodily injuries, property damages
and other injuries or damages which the third party suffers, including (to the
extent, if any, that the Indemnified Party is liable therefor) foreseeable and
unforeseeable consequential damages suffered by the third party and (iii)
liability for the Indemnified Party for damage to or impairment of the
environment.
In no event shall the Corporation be liable to indemnify an
Indemnified Party against any loss, expense, claims, liability or asserted
liability to the extent resulting from the gross negligence or wilful misconduct
of the Indemnified Party.
The obligations of the Corporation to the Indemnified Parties under
this clause shall be joint and several.
ARTICLE 12
CONVERSION OF DEBENTURES
12.1 CONVERSION
(a) Upon and subject to the provisions and conditions of this Article 12,
the holders of Debentures shall have the right, at their option, at
any time during the term hereof, in denominations of one thousand
($1,000) dollars principal amount, to convert the whole or, in the
case of a Debenture having a denomination in excess of one thousand
($1,000) dollars, any part which is one thousand ($1,000) dollars or
an integral multiple thereof, the principal amount payable by the
Corporation to the holder as herein provided into fully paid and non-
assessable Common Shares of the Corporation at the Conversion Price as
hereinafter set forth.
Such right of conversion shall extend only to the maximum number of
whole Common Shares into which the aggregate principal amount of the
Debenture or Debentures surrendered for conversion at any one time by
the holder thereof
<PAGE>
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may be converted in accordance with the foregoing provisions of
this clause. Fractional interests in Common Shares shall be
adjusted for in the manner provided in clause 12.4.
Subject to the provisions and conditions of this Article 12, the
Conversion Price for conversion of the whole or any part of a
Debenture, at the option of a holder hereunder shall be $0.125 per
Common Share.
(b) If at any time after the third anniversary date of the date of this
Indenture, the Current Market Price per Common Share of the
Corporation is equal to or greater than $0.20 per Common Share, the
Corporation shall have the right, at its option, upon giving not less
than fifteen (15) Business Days prior notice in writing to the holders
in the manner herein provided, in denominations of one thousand
($1,000) dollars principal amount, to convert the whole, or in the
case of a Debenture having a denomination in excess of one thousand
($1,000) dollars, any part which is one thousand ($1,000) dollars or
an integral multiple thereof, the principal amount into fully paid and
non-assessable Common Shares of the Corporation at a Conversion Price
of $0.125 per Common Share.
(c) For the purposes of this Article 12, the "Current Market Price" per
Common Share shall be the weighted average closing price of the
Corporation's Common Shares for ten (10) consecutive trading days
commencing not more than twenty (20) trading days before such date on
the principal stock exchange on which the Common Shares, or if the
Common Shares are not listed on any stock exchange, then on the
principal over-the-counter market on which the Common Shares are
traded. If there is no market for the Common Shares for the period
during which the Current Market Price thereof would otherwise be
determined, the Current Market Price in respect of the Common Shares
shall be determined by the board of directors of the Corporation
acting in good faith. The weighted average price shall be determined
by dividing the aggregate sale price of all Common Shares sold on the
said stock exchange or market, as the case may be, during the said ten
(10) consecutive trading days by the total number of Common Shares so
sold.
12.2 MANNER OF EXERCISE OF RIGHT TO CONVERT
(a) The holder of a Debenture desiring to convert such Debenture in whole
or in part into Common Shares, or in the alternative, the holder who
is required to convert such Debenture in whole or in part into Common
Shares in accordance with clause 12.1(b) hereof shall surrender such
Debenture to the Trustee at its principal office in the City of
Calgary together with the conversion form on the back of such
Debenture or any other written notice in a form satisfactory to the
Corporation, in either case duly executed by the holder or his
executors or administrators or other legal representatives or his or
their attorney duly appointed by an instrument in writing in a form
and executed in a manner satisfactory to the Corporation, exercising
his right or obligation to convert such Debenture in accordance with
the provisions of this Article. Thereupon such Debentureholder or,
subject to payment of all applicable stamp or security transfer taxes
or other governmental charges and compliance with all
<PAGE>
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reasonable requirements of the Trustee, his nominee(s) or
assignee(s) shall be entitled to be entered in the books of the
Corporation as at the date of conversion (or the date as is
specified in the notice as contemplated in clause 12.2(b)) as the
holder of the number of Common Shares into which such Debenture is
convertible in accordance with the provisions of this Article and,
as soon as practicable thereafter, the Corporation shall deliver to
such Debentureholder or, subject as aforesaid, his nominee(s) or
assignee(s) a certificate or certificates for such Common Shares.
(b) For the purposes of Article 12, a Debenture shall be deemed to be
surrendered for conversion by the holder on the date on which it is so
surrendered by the holder in accordance with the provisions of this
Article and, in the case of a Debenture so surrendered by post or
other means of transmission, on the date on which it is received by
the Trustee at its office specified herein or on the date in the
notice given by the Corporation under clause 12.1(b) hereof, whichever
is the first to occur (herein referred to as the "Conversion Date");
provided that if a Debenture is surrendered for conversion on a day on
which the register of Common Shares is closed, the person or persons
entitled to receive Common Shares shall become the holder or holders
of record of such Common Shares as at the date on which such registers
are next reopened.
(c) Any part, being one thousand ($1,000) dollars or an integral multiple
thereof, of a Debenture of a denomination in excess of one thousand
($1,000) dollars may be converted as provided in this Article and all
references in this Indenture to conversion of Debentures shall be
deemed to include conversion of such parts.
(d) The holder of any Debenture of which part only is converted shall
surrender the said Debenture to the Trustee, and the Trustee shall
cancel the same and shall without charge forthwith certify and deliver
to the holder a new Debenture or Debentures in an aggregate principal
amount equal to the unconverted part of the principal amount of the
Debenture so surrendered.
(e) The holder of a Debenture surrendered for conversion in accordance
with Article shall rank only in respect of dividends declared in
favour of shareholders of record on and after the Conversion Date or
such later date as such holder shall become the holder of record of
such Common Shares pursuant to this Article, from which applicable
date they will for all purposes be and be deemed to be issued and
outstanding as fully paid and non-assessable Common Shares.
(f) The forwarding of Common Shares by the Trustee or the Corporation to
the holders of the Debenture upon conversion of the Debentures as
provided in this Article 12 shall satisfy and discharge the
Corporation and the Trustee of their obligations hereunder, provided
that in the event of non-receipt of certificates representing such
Common Shares by the holder, or the loss or destruction thereof, the
Corporation, upon being furnished with reasonable evidence of such
non-receipt, loss or destruction and indemnity reasonably satisfactory
to it, shall issue to such holder a replacement certificate or
certificates.
<PAGE>
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(g) In the event the principal amount of a Debenture, or any portion
thereof, is converted into Common Shares pursuant to the terms hereof,
then same shall be applied in the reverse order of payment of
indebtedness as is set forth in clause 3.4 hereof.
12.3 ADJUSTMENT
The Conversion Price as provided for in clause 12.1(a) or 12.1(b)
hereof in effect at any date shall be subject to adjustment from time to time as
follows:
(a) If and whenever at any time prior to the Conversion Date, the
Corporation shall:
(i) subdivide or redivide the outstanding Common Shares into a
greater number of shares;
(ii) reduce, combine or consolidate the outstanding Common Shares
into a smaller number of shares; or
(iii) issue Common Shares of the Corporation to the holders of all or
substantially all of the outstanding Common Shares by way of a
stock dividend;
the Conversion Price in effect on the effective date of such
subdivision, redivision, reduction, combination or consolidation or on
the record date for such issue of Common Shares by way of a stock
dividend, as the case may be, shall in the case of the events referred
to in (i) and (iii) above be decreased in proportion to the number of
outstanding Common Shares resulting from such subdivision, redivision
or dividend, or shall, in the case of the events referred to in (ii)
above, be increased in proportion to the number of outstanding Common
Shares resulting from such reduction, combination or consolidation.
Such adjustment shall be made successively whenever any event referred
to in this subsection (a) shall occur; any such issue of Common Shares
by way of a stock dividend shall be deemed to have been made on the
record date for the stock dividend for the purpose of calculating the
number of outstanding Common Shares under this clause 12.3(a).
(b) In the case of any reclassification or change (other than a change
resulting only from consolidation or subdivision) of the Common Shares
or in case of any 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, the applicable
Conversion Price shall be adjusted so that each Debenture shall, after
such reclassification, change, amalgamation, consolidation, merger or
sale, be exercisable for the number of shares or the number, kind or
amount of other securities or property of the Corporation,, or such
continuing, successor or purchaser corporation, as the case may be,
which the holder thereof would have been entitled to receive as a
result of such reclassification, change, amalgamation, consolidation,
merger or sale if on the effective date thereof he had been the holder
of the number of Common Shares into which the Debenture
<PAGE>
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was convertible prior to the effective date of such
reclassification, change, amalgamation, consolidation, merger or
sale. No such reclassification, change, amalgamation,
consolidation, merger or sale shall be carried into effect unless,
in the opinion of the board of directors acting in good faith, all
necessary steps shall have been taken to ensure that the holders
shall thereafter be entitled to receive such number of shares or
other securities or property of the Corporation, or such
continuing, successor or purchasing corporation, as the case may
be, subject to adjustment thereafter in accordance with provisions
similar, as nearly as may be, to those contained in this clause
12.12.
(c) The adjustments provided for in this clause 12.3 are cumulative and
shall apply to successive subdivisions, redivisions, reductions,
combinations, consolidations, distributions, issues or other events
resulting in any adjustment under the provisions of this Article.
(d) For the purpose of calculating the number of Common Shares of the
Corporation outstanding, Common Shares owned by or for the benefit of
the Corporation or its Subsidiaries shall be counted.
(e) In the event of any question arising with respect to the adjustments
provided in this clause 12.3, such question shall be conclusively
determined by a firm of chartered accountants appointed by the
Corporation and acceptable to the Trustee (who may be Auditors of the
Corporation); such accountants shall have access to all necessary
records of the Corporation and such determination shall be binding
upon the Corporation, the Trustee, and the Debentureholders.
12.4 NO REQUIREMENT TO ISSUE FRACTIONAL SHARES
The Corporation shall not be required to issue fractional Common
Shares upon the conversion of Debentures pursuant to this Article. If more than
one Debenture shall be surrendered for conversion at one time by the same
holder, the number of whole Common Shares issuable upon conversion thereof shall
be computed on the basis of the aggregate principal amount of such Debentures to
be converted. If any fractional interest in a Common Share would, except for
the provision of this Article, be deliverable upon the conversion of any
principal amount of Debentures, the Corporation shall, in lieu of delivering any
certificate of such fractional interest, satisfy such fractional interest by
issuing such additional or lesser number of Common Shares, rounding up or down,
as the case may be, to the next whole number of Common Share.
12.5 CORPORATION TO RESERVE SHARES
The Corporation covenants with the Trustee that it will at all times
reserve and keep available out of its authorized Common Shares, solely for the
purpose of issue upon conversion of Debentures as in this Article provided, and
conditionally allot to Debentureholders who may exercise their conversion rights
hereunder, such number of Common Shares as shall then be issuable upon the
conversion of all outstanding Debentures. The Corporation covenants with the
Trustee that all Common Shares which shall be so issuable shall be duly and
validly issued as fully paid and non-assessable.
<PAGE>
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12.6 TAXES AND CHARGES ON CONVERSION
The Corporation will from time to time promptly pay or make provision
satisfactory to the Trustee for the payment of any and all taxes and charges
which may be imposed by the laws of Canada or any province thereof (except
income tax or security transfer tax, if any) which shall be payable with respect
to the issuance or delivery to the holders of Debentures, upon the exercise of
their right of conversion or automatic conversion, as the case may be, of Common
Shares of the Corporation pursuant to the terms of the Debentures and of this
Indenture.
12.7 CANCELLATION OF CONVERTED DEBENTURES
All Debentures converted in whole or in part under the provisions of
this Article shall be forthwith delivered to and cancelled by the Trustee and,
subject to the provisions of clause 12.2(d), no Debenture shall be issued in
substitution therefor.
12.8 CERTIFICATE AS TO ADJUSTMENT
The Corporation shall from time to time immediately after the
occurrence of any event which requires an adjustment or readjustment as provided
in clause 12.3, deliver an Officers' Certificate to the Trustee specifying the
nature of the event requiring the same and the amount of the adjustment
necessitated thereby and setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based, which
certificate and the amount of the adjustment specified therein shall be verified
by an opinion of a firm of chartered accountants appointed by the Corporation
and acceptable to the Trustee (who may be the Auditors of the Corporation) and,
when approved by the Trustee shall be conclusive and binding on all parties in
interest. When so approved, the Corporation shall, except in respect of any
subdivision, redivision, reduction, combination or consolidation of the Shares,
forthwith give notice to the Debentureholders in the manner provided in
clause 10.2 specifying the event requiring such adjustment or readjustment and
the results thereof, including the resulting applicable Conversion formula;
provided that, if the Corporation has given notice under clause 12.9 covering
all the relevant facts in respect of such event and if the Trustee approves, no
such notice need be given under this clause 12.8.
12.9 NOTICE OF SPECIAL MATTERS
The Corporation covenants with the Trustee that so long as any
Debenture remains outstanding, it will give notice to the Trustee, and to the
Debentureholders in the manner provided in clause 10.2, of its intention to fix
a record date for the payment of a stock dividend which may give rise to an
adjustment in the applicable conversion formula, and such notice shall specify
the particulars of such event and the record date and the effective date for
such event; provided that the Corporation shall only be required to specify in
such notice such particulars of such event as shall have been fixed and
determined on the date on which such notice is given. Such notice shall be
given not less than fourteen (14) days in each case prior to such applicable
record date.
<PAGE>
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ARTICLE 13
SUPPLEMENTAL INDENTURES
13.1 SUPPLEMENTAL INDENTURES
From time to time the Trustee and, when authorized by a resolution of
the directors, the Corporation may, and they shall when required by this
Indenture, execute, acknowledge and deliver by their proper officers deeds or
indentures supplemental hereto. which thereafter shall form part hereof, for any
one or more of the following purposes:
(a) adding to the covenants of the Corporation herein contained for the
protection of the holders of the Debentures or providing for Events of
Default in addition to those herein specified;
(b) making such provisions not inconsistent with this Indenture as may be
necessary or desirable with respect to matters or questions arising
hereunder, including the making of any modifications in the form of
the Debentures which do not affect the substance thereof and which, in
the opinion of the Trustee. It may be expedient to make, provided
that the Trustee shall be of the opinion that such provisions and
modifications will not be prejudicial to the interests of the
Debentureholders;
(c) evidencing the succession, or successive successions, of other
companies to the Corporation and the covenants of and obligations
assumed by any such successor in accordance with the provisions of
this Indenture;
(d) giving effect to any extraordinary resolution passed as provided in
Article 9;
(e) for any other purpose not inconsistent with the terms of this
Indenture.
The Trustee may also, without the consent or concurrence of the
Debentureholders, by supplemental indenture or otherwise, concur with the
Corporation in making any changes or corrections to this Indenture which it
shall have been advised by Counsel are required for the purpose of curing or
correcting any ambiguity or defective or inconsistent provisions or clerical
omissions or mistakes or manifest errors contained herein or in any deed or
indenture supplemental or ancillary hereto, provided that in the opinion of the
Trustee the rights of the Trustee and of the Debentureholders are in no way
prejudiced thereby.
ARTICLE 14
EXECUTION AND FORMAL DATE
14.1 EXECUTION
This Indenture may be simultaneously executed in several counterparts,
each of which when so executed shall be deemed to be an original and such
counterparts together shall constitute one and the same instrument.
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14.2 FORMAL DATE
For the purpose of convenience this Indenture may be referred to as
bearing formal date of July 31, 1996, irrespective of the actual date of
execution hereof.
IN WITNESS WHEREOF the parties hereto have executed these presents
under their respective corporate seals and the hands of their proper officers in
that behalf.
BATTERY ONE, INC.
Per: /s/ illegible
----------------------------
Per:
----------------------------
MONTREAL TRUST COMPANY OF CANADA
Per: /s/ [illegible]
----------------------------
Per:
----------------------------
<PAGE>
SCHEDULE "A"
To the annexed Debenture Trust Indenture dated as of August 8, 1996 and made
effective as of July 31, 1996 between Battery One, Inc. and Montreal Trust
Company of Canada, as Trustee.
(Form of Debenture)
BATTERY ONE, INC.
(Incorporated under the laws of Alberta)
No. $
-------------- --------------------
$6,000,000 10% CONVERTIBLE FIXED AND FLOATING CHARGE SECURED DEBENTURE
DUE JULY 31, 2001
Battery One, Inc. (hereinafter referred to as the "Corporation")
for value received hereby promises to pay
to_____________________________________, the registered holder hereof on or
before July 31, 2001, or on such earlier date as the principal amount hereof
may become due in accordance with the provisions of the Indenture (as
hereinafter defined), on presentation and surrender of this Debenture, the
sum of _______________________ ($____________________) Dollars in lawful
money of Canada, together with such further amount, if any, as may be payable
in accordance with the provisions of the Indenture.
Interest shall be payable on the outstanding balance of the principal
amount of this Debenture at a rate of ten (10%) percent per annum and payable
after as well as before maturity, default and judgment with interest payable on
overdue interest at the same rate.
The Corporation will pay interest semi-annually on the last day of
each calendar month of such half year during the term of this Debenture (June 30
and December 31), from the date of execution of this certificate, with the first
payment of interest to commence on December 31, 1996.
This Debenture is one of a series of $6,000,000 10% Convertible Fixed
and Floating Charge Secured Debentures (herein referred to as the "Debentures")
in the maximum aggregate principal amount of six million ($6,000,000) dollars in
lawful money of Canada issued under an Indenture (herein referred to as the
"Indenture") dated as of August 8, 1996 and made effective as of July 31, 1996
and made between the Corporation and Montreal Trust Company of Canada (the
"Trustee"), as trustee, to which Indenture and all instruments supplemental
thereto or in implementation thereof reference is hereby made for a description
of the rights of the holders of the said Debentures, of the Corporation and of
the Trustee and of the terms and conditions upon which the Debentures are issued
and held, all to the same effect as if the provisions of the Indenture and such
instruments supplemental thereto or in implementation thereof were herein set
forth, to all of which provisions the holder of this Debenture, by acceptance
hereof, assents.
<PAGE>
-2-
The Debentures are issuable as fully registered Debentures in
denominations of one thousand ($1,000) dollars and any integral multiples of one
thousand ($1,000) dollars. The Debentures of any authorized denomination may be
exchanged, as provided in the Indenture, for Debentures of an equal aggregate
principal amount in any other authorized denomination or denominations.
The principal hereof may also become or be declared due before stated
maturity on the conditions, in the manner, with the effect and at the time set
forth in the Indenture.
This Debenture may be converted into Common Shares of the Corporation
at the option of the Holder, on the terms and conditions set out in the
Indenture.
The Indenture contains provisions for the holding of meetings of
Debentureholders and rendering resolutions passed at such meetings and
instruments in writing signed by the holders of a specified majority of the
Debentures outstanding binding upon all Debentureholders, subject to the
provisions of the Indenture.
This Debenture may only be transferred upon compliance with the
conditions prescribed in the Indenture, on the registers to be kept at the
office of the Trustee in the City of Calgary and at such other place or places,
if any, as the Corporation with the approval of the Trustee may designate, by
the registered holder hereof or his executors or administrators or other legal
representatives or his or their attorney duly appointed by an instrument in
writing in form and execution satisfactory to the Trustee, and upon compliance
with such reasonable requirements as the Trustee may prescribe.
This Debenture shall not become obligatory for any purpose until it
shall have been certified by the Trustee under the Indenture.
THIS DEBENTURE IS SUBJECT TO RESALE RESTRICTIONS AND MAY NOT BE SOLD
OR OTHERWISE TRADED OR TRANSFERRED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
APPLICABLE SECURITIES LEGISLATION. COMPLIANCE WITH THE SECURITIES LAWS OF ANY
JURISDICTION TO WHICH THE DEBENTUREHOLDER OR TRANSFEREE IS SUBJECT IS THE
RESPONSIBILITY OF THE DEBENTUREHOLDER OR ITS TRANSFEREE.
IN WITNESS WHEREOF the Corporation has caused its corporate seal to be
hereunto affixed and this Debenture to be signed by its proper officers in that
behalf as of August 8, 1996.
BATTERY ONE, INC.
Per:
-----------------------------------
Per:
-----------------------------------
<PAGE>
-3-
(FORM OF TRUSTEE'S CERTIFICATE)
This Debenture is one of the $6,000,000 10% Convertible Fixed and
Floating Charge Secured Debentures referred to in the Indenture within
mentioned.
MONTREAL TRUST COMPANY OF CANADA
Per:
-----------------------------------
<PAGE>
TRANSFER FORM
FOR VALUE RECEIVED the undersigned sells, assigns and transfers unto:
----------------------------------
(Print name of assignee)
----------------------------------
(Print address of assignee)
----------------------------------
----------------------------------
the within Debenture of Battery One, Inc. and hereby irrevocably constitutes and
appoints
-------------------------------- Attorney to
transfer the said Debenture on the registers of the Corporation, with full power
of substitution in the premises.
DATED:
-------------------------
- ----------------------- --------------------------
(SIGNATURE GUARANTEED) (SIGNATURE OF TRANSFEROR)
The signature of the
registered holder of the
within Debenture to the
foregoing assignment must be
guaranteed by a chartered
bank, by a trust company or by
a member firm of a Canadian
Stock Exchange.
TRANSFER AGENT
Montreal Trust Company of Canada
Suite 600, 530 - 8th Avenue S.W.
Calgary, Alberta
T2P 3S8
<PAGE>
BATTERY ONE, INC.
CONVERSION FORM
TO: BATTERY ONE, INC.
The undersigned registered holder of the within Debenture hereby
irrevocably elects to convert said Debenture (or $________________ principal
amount thereof*) into Common Shares of Battery One, Inc. in accordance with the
terms of the Indenture referred to in said Debenture and directs that the Common
Shares issuable and deliverable upon the conversion be issued and delivered to
the person indicated below. (If Common Shares are to be issued in the name of a
person other than the holder, all requisite transfer taxes must be tendered by
the undersigned.)
* If less than the full principal amount of the within Debenture is to
be converted, indicate in the space provided the principal amount (which must be
$10,000 or integral multiples thereof) to be converted.
- --------------------- ---------------------------------------------------
SIGNATURE GUARANTEED (SIGNATURE OF REGISTERED HOLDER) If shares are to be
issued in the name of a person other than the holder,
the signature must be guaranteed by a chartered bank, by
a trust company, or by a member firm of a Canadian Stock
Exchange.
Name:
--------------------------------------
-------------------------------------------
(Address) (City and Province)
(Print name in which Common Shares issued on conversion are to be
issued, delivered and registered)
TRANSFER AGENT
Montreal Trust Company of Canada
Suite 600, 530 - 8th Avenue S.W.
Calgary, Alberta
T2P 3S8
<PAGE>
CORPORATE ACCESS NUMBER
20358149
[logo]
BUSINESS CORPORATIONS ACT
CERTIFICATE
OF
AMENDMENT
POWER PLUS CORPORATION
AMENDED ITS ARTICLES ON AUGUST 1, 1996.
/s/ [illegible]
[seal] ----------------------------------
Registrar of Corporations
<PAGE>
BUSINESS CORPORATIONS ACT FORM 4
(SECTION 27 OR 171)
ALBERTA
CONSUMER AND CORPORATE AFFAIRS ARTICLES OF AMENDMENT
- -------------------------------------------------------------------------------
1. NAME OF CORPORATION: 2. CORPORATE ACCESS NUMBER:
BATTERY ONE, INC. 20358149
- -------------------------------------------------------------------------------
3. THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED IN ACCORDANCE
WITH THE BUSINESS CORPORATION ACT AS FOLLOWS:
(1) Pursuant to Section 167(1) of the BUSINESS CORPORATIONS ACT
(Alberta), Item 1 is hereby amended by changing the name of
the Corporation to "Power Plus Corporation".
(2) Pursuant to Section 36(1) of the BUSINESS CORPORATIONS ACT
(Alberta), the stated capital of the Corporation is hereby reduced
by deducting from the stated capital account from the common shares
of the Corporation an amount equal to $26,670,824. Item 2
(3) Pursuant to Section 167(1) of the BUSINESS CORPORATIONS ACT
(Alberta), Item 6 is hereby amended by the addition of the
provisions as set forth in Schedule "A" attached hereto and made a
part hereof.
- -------------------------------------------------------------------------------
4. DATE SIGNATURE TITLE
July 25, 1996 /s/ [illegible] President
- -------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY FILED
<PAGE>
SCHEDULE "A"
ATTACHED TO AND FORMING PART OF THE
ARTICLES OF AMENDMENT OF BATTERY ONE, INC.
DATED JULY 25, 1996
The following provisions apply to the the Corporation:
(I) ROTATING BOARD
(A) As used in this paragraph (1), the term "whole board of
directors" means the total number of directors which the
Corporation would have if there were no vacancies.
(B) The board of directors shall be divided into 3 classes, as
nearly equal in number as the then total number of directors
constituting the whole board of directors permits, with the term
of office of one class expiring at the annual meeting of
shareholders of each year.
(C) At the annual meeting of shareholders held in 1996 directors of
the first class shall be elected to hold office for a term
expiring at the next succeeding annual meeting of shareholders,
directors of the second class shall be elected to hold office
for a term expiring at the second succeeding annual meeting of
shareholders and directors of the third class shall be elected
to hold office for a term expiring at the third succeeding
annual meeting of shareholders.
(D) At each annual meeting of shareholders the successors to the
class of directors whose term shall then expire shall be elected
to hold office for a term expiring at the third succeeding
annual meeting of shareholders.
(II) VACANCIES
(A) A quorum of the directors may appoint a person to fill any
vacancy among the directors except a vacancy
(1) resulting from an increase in the number of minimum number
of directors,
(2) resulting from a failure by the shareholders to elect the
number of minimum number of directors required by the
articles, or
(3) which is filed by the shareholders as provided in section 4
of this paragraph (1).
(B) A director elected or appointed to fill a vacancy among the
directors shall hold office for the unexpired term of his
predecessor.
<PAGE>
- 2 -
(III) REMOVAL OF DIRECTORS
(A) The shareholders may only remove a director from office by
ordinary resolution at a special meeting of shareholders at
which the holders of 70% or more of the outstanding shares in
the capital of the Corporation entitled to vote generally for
the election of directors are present in person or represented
by proxy.
(B) No director may be removed from office by an ordinary
resolution of shareholders at a general or special meeting of
shareholders at which at the time time the vote on the ordinary
resolution takes place the holders of 70% or more of the
outstanding shares in the capital of the Corporation entitled to
vote generally in the election of directors are not present in
person or represented by proxy.
(C) Where a director is removed from office in accordance with this
section, the shareholders may by ordinary revolution at such
special meeting elect a person to fill the vacancy created by the
removal of such director, failing which it may be filled by the
directors.
(D) A resolution to remove a director from office may not be made at
any meeting of shareholders unless prior notice in writing of
the resolution has been given to the Corporation, delivered or
mailed by first-class mail, postage prepaid, and received by the
Secretary of the Corporation not less than 14 days nor more than
50 days prior to such meeting of shareholders.
(IV) NOMINATIONS FOR THE ELECTION OF DIRECTORS
(A) Nominations for the election of directors may be made by the
board of directors or by any shareholder entitled to vote for
the election of directors.
(B) Such nominations must be made by notice in writing to the
Corporation, delivered or mailed by first-class mail, postage
prepaid, and received by the Secretary not less than 14 days nor
more than 50 days prior to any meeting of the shareholders
called for the election of directors.
(C) Each notice under this subparagraph 4 shall set forth
(1) the name, age, business address and residence address of
each nominee proposed in such notice,
(2) the principal occupation or employment of such nominee for
the preceding 5 years,
(3) the number of shares in the capital of the Corporation
which are beneficially owned by such nominee, and
(4) a declaration by each such nominator and nominee that such
nominee has not been found by a court in Canada or
elsewhere to be of unsound mind and does not have the
status of bankrupt.
<PAGE>
- 3 -
(D) The Chairman of the meeting may, in his sole discretion,
determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedure, and if he
should so determine, he shall so declare to the meeting and the
defective nomination shall be disregarded.
(V) AMENDMENT OF ARTICLE 6 AND BY-LAW NO. 3
(A) Notwithstanding any other provisions of the Corporation's
articles or by-laws (and notwithstanding the fact that some
lesser percentage may be specified by law, the Corporation's
articles or by-laws), the affirmative vote of the holders of 70%
or more of the outstanding shares in the capital of the
Corporation entitled to vote shall be required to amend, alter,
change or repeal this Article 6 of the Corporation's articles as
in effect upon filing of the Articles of Amendment and receipt
of the Certificate of Amendment under the BUSINESS CORPORATIONS
ACT (Alberta), in respect hereto or By-law No. 3 of the
Corporation's by-laws.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM POWER PLUS
CORPORATION FOR THE 1997 FISCAL YEAR ENDED 31 JANUARY 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<EXCHANGE-RATE> 1.37
<CASH> 4,341,243
<SECURITIES> 0
<RECEIVABLES> 202,319
<ALLOWANCES> 0
<INVENTORY> 1,809,529
<CURRENT-ASSETS> 6,748,940
<PP&E> 2,671,310
<DEPRECIATION> 19,153
<TOTAL-ASSETS> 11,043,854
<CURRENT-LIABILITIES> 2,715,813
<BONDS> 4,740,000<F4>
0
0
<COMMON> 7,398,300<F1><F2>
<OTHER-SE> 1,400,000<F3>
<TOTAL-LIABILITY-AND-EQUITY> 11,043,854
<SALES> 4,080,598
<TOTAL-REVENUES> 4,080,598
<CGS> 2,389,115
<TOTAL-COSTS> 2,389,115
<OTHER-EXPENSES> 6,854,623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 391,100
<INCOME-PRETAX> (5,687,427)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,687,427)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,687,427)
<EPS-PRIMARY> ($2.54)
<EPS-DILUTED> ($2.54)
<FN>
<F1>COMMON SHARES WERE SUBJECT TO REVERSE-SPLIT OF 1 FOR 20 EFFECTIVE 1 NOV. 1996.
<F2>STATED CAPITAL WAS REDUCED BY $26,670,825.
<F3>AMOUNT OF EQUITY VALUE ARISING FROM CONVERTIBLE FEATURE IN L-T DEBT.
<F4>FACE AMOUNT IS $6 MILLION - SEE (F3).
</FN>
</TABLE>
<PAGE>
REPORT TO SHAREHOLDERS:
The reorganizational challenges of Fiscal 1997 which was completed
January 31st are behind us. The Company's operations are successfully
re-positioned as POWER PLUS CORPORATION, and our unique and exciting
POWERFUL STUFF venture is launched.
We are pleased to report that 55 new POWERFUL STUFF RETAIL STORES are now
open in North America. The initial 51 locations were opened primarily during
the last quarter of Fiscal 1997, exceeding the planned target for the year of
40 stores. Although the time during which these stores were fully operational
was limited, very encouraging annual sales of $4.1 million were achieved in
that short period. The Company's audited Consolidated Financial Statements
for Fiscal 1997 are incorporated as part of this Annual Report to
shareholders, and the unaudited Fiscal 1998 First Quarter Report for the
three-month period ended April 30, 1997 prepared by management is separately
enclosed. (ALL DOLLAR AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS UNLESS
OTHERWISE DENOTED.)
POWERFUL STUFF'S NICHE
POWERFUL STUFF is a new specialty retailing concept launched through Power
Plus Corporation. Power Plus' mission is TO BE THE FIRST TO OFFER THE LATEST
IN PORTABLE ELECTRONIC SOLUTIONS FOR PERSONAL COMMUNICATION AND ENTERTAINMENT
NEEDS -- PRODUCTS AND SERVICES RESPONSIVE TO CONSUMER DEMAND FOR PERSONAL
FREEDOM WHILE STAYING CONNECTED. With Power Plus' Corporate Office
established in Toronto, Canada, and its North American Operations Office in
Sarasota, Florida, the Company is developing a broad network of
corporate-owned POWERFUL STUFF stores across North America. This is POWERFUL
STUFF's branded distribution channel, focused on portable lifestyle
communications, wearable fashion electronics and palm top business
technology, to meet the expanding demand for wireless communication products
and services (beepers/pagers, cellular phones, Personal Communications
Systems (PCS) and related service contracts), together with portable
electronics (the latest in hand-held electronic communications,
entertainment, business and lifestyle products). Power Plus has combined
these distinct merchandising segments into a single retail store -- POWERFUL
STUFF! The pagers/beepers and cell phones featured at POWERFUL STUFF stores
are a source of significant per transaction revenue, contributing additional
strong secondary margins through accessory and airtime sales plus activation
fees, and generating recurring revenues from customer airtime and renewals.
The fashion electronics and palm top business technology segments of the
business also contribute complementary revenues.
With approximately 85% of the Company's stores targeted for the US, the
Company's POWERFUL CONNECTIONS division will be a major reseller of wireless
pager communications services in North America through POWERFUL STUFF stores.
Resellers buy wireless services from carriers at a deep discount and provide
a high volume of new customers through their own distribution channel. This
represents significant recurring income potential for the company -- Power
Plus' airtime royalty income stream.
Page 1
<PAGE>
NEW GENERATION POWERFUL STUFF STORE
In partnership with the award-winning North American retail design
group, Michel Dubuc Concept, Power Plus has created its new generation store
which puts a bold and unique twist on the traditional electronics niche.
POWERFUL STUFF stores combine design elements which have mass appeal across
age, gender and ethnic boundaries, addressing today's retailers' need to
ensure market longevity and flexibility. From the elliptical lines encircling
the brand name and the bold lifestyle posters, to the graphic computer circuit
boards on the walls, this futuristic hi-tech design with its rich colors and
textures has redefined what it means to sell electronic products.
By bringing a fashion dimension to the store design, POWERFUL STUFF has
created a new portable electronic lifestyle niche in the marketplace. This is
a store that doesn't just grab the attention of today's customers, but one
that genuinely appeals to their emotions, senses and mind. POWERFUL STUFF
stores are not only dramatic but are fun places to go. Unlike some novelty
stores, the design doesn't engulf the product but brings it to life. All of
the palm-top products are presented in 3 easy to shop lifestyle concepts
within the store: FUN TECH -- presented on the whimsical high tech computer
graphic wall; COMMUNICATIONS TECH -- presented against a colorful street map
illustrating the prominence of communications in our lives; and BUSINESS TECH
- -- presented in sleek, energetic, and futuristic cases for the discerning and
hurried business customer.
POWERFUL STUFF stores grasp the basic premise of retail mass appeal by
creating a compelling design that humanizes technology, thereby connecting
with consumers again and again because we understand their purchase will have
more memorable appeal, and will take on more significance when it is
purchased at a POWERFUL STUFF store.
POWERFUL STUFF'S PLAN 2000
POWER PLUS is in the second year of implementing its 5-Year Business Plan --
PLAN 2000 -- the blueprint for the Company's business and operating strategy
for the future, positioning POWERFUL STUFF as: THE RETAIL LEADER IN
INNOVATIVE PORTABLE LIFESTYLE COMMUNICATION AND ENTERTAINMENT TECHNOLOGY. In
establishing its distinctive retail identity. POWERFUL STUFF is the FIRST in
the retail marketplace to capture the lucrative and untapped ELECTRONICS
LIFESTYLE youth market...the 15-25 year olds who define the trends and want
the neatest, coolest, hottest stuff. POWERFUL STUFF's marketing strategy is
to position stores primarily in major regional malls, in sync with where the
primary core customer, the 15-25 year old, and the secondary customer, the
25-30 year old, spend their time and disposable income. Our core customer
group, teenagers, is growing nearly twice as fast as the general population
and is expected to number some 30 million in the US by the year 2005 -- teens
hanging out in malls and each spending, on average, $3,000 a year. Teens make
nearly 40% more trips to the malls than other shoppers, spend more time in
malls than other age groups, and spend an average of $38.55 per trip to the
mall.
Page 2
<PAGE>
PLAN 2000 forecasts 1000+ compact POWERFUL STUFF stores, of which
approximately 60% are planned to be kiosks averaging 150 sq. ft., with the
remaining 40% to be inline stores averaging 500 sq. ft. With the average
store of 300 sq. ft. initially projected at annualized sales of $400,000,
Power Plus' PLAN 2000 anticipates the business can grow by the 5th year to
over the 1000 store threshold, representing only some 300,000 sq. ft. in the
aggregate under management, and producing $500+ million in annual sales,
generating substantial after-tax profit. In addition to the 55 POWERFUL STUFF
stores currently open, the Company has new locations planned for this year
for the US in Michigan, Ohio, Missouri, Oregon and Washington, as well as
Alabama, Florida, North Carolina and Pennsylvania, and for Canada in Ontario,
Alberta and British Columbia. These planned store openings meet the Company's
revised goal to be +125 POWERFUL STUFF stores open by this November for the
strategic holiday season. For the final three years of PLAN 2000,
approximately 295 additional stores are called for in each of 1998, 1999 and
2000 to meet the goal of 1000+ stores.
The Company's rollout plan is founded in the clustering of POWERFUL STUFF
stores in geographic markets, developing District marketing clusters within
Regions. At the maturity of PLAN 2000, the Company expects to be throughout 7
North American Regions -- the Southeast, Mid-Atlantic, Northeast, North
Central, Southwest and South Central Regions. By the year 2000, the typical
Region is planned to be 160 stores comprised of an average of 8 District
clusters at 20 stores per District. A typical District will open with a
minimum of 5 stores and grow to 20. A District Manager -- a retailing expert
responsible for a PROFIT CENTER that may produce more than $7 million in
annual sales -- can then be responsible for the growing operations and
performance of between 5 and 20 stores. Clustering stores within media areas
also creates a viable opportunity to advertise effectively and economically
(see Appendix 1 summarizing PLAN 2000's District clustering and Regional
rollout program).
BUILDING FOR POWERFUL STUFF'S FUTURE
To achieve PLAN 2000, a proven senior management team, experienced in
profitable multi-unit operations, has been recruited. These are professionals
who have been there and who have done it before (see Appendix 2 entitled:
"Management Profiles"). Also, to facilitate and support effective management,
the Company is implementing an advanced inventory, transaction processing and
information management system to empower employees and serve customers, as
well as facilitating efficient and effective management of the Company.
Page 3
<PAGE>
The biggest challenge, however, now facing the Company in its drive to
achieve its goals and objectives is in the timing and availability of
financing. When 125 POWERFUL STUFF stores are opened and operating to Plan,
the Company can expect to attain critical mass and break even on an
annualized basis. Until then, the Company remains dependent upon the raising
of external capital -- and when the timing and availability of financing
deviates materially from the assumptions in PLAN 2000, the overall business
and sales are impacted and adjustments must be made. Accordingly, management
must be flexible and act responsibly during this period, and be responsive to
those matters which it controls, including the pace and timing of the rollout
of stores and its commitments to merchandise inventory.
The Company's original Financing Plan forming part of its 1996 Reorganization
Plan, and incorporated in PLAN 2000, provided the initial framework to raise
up to $42 million in an orderly manner as needed over the first three years
of the Plan. During the first year, 1996, $15.4 million was received as
expected, but later than planned. This year, faced with unforeseen adverse
junior capital markets, the Company has encountered difficulty raising all of
the capital it had forecasted on the time lines projected. After adjusting
the rollout of stores as required, management modified the Financing Plan. On
the basis of this revised Plan, the structure is now in place to raise up to
an additional $33.7 million over the next two years as follows:
<TABLE>
<CAPTION>
$-MILLIONS
----------
<S> <C> <C>
* 1996 Equity Financing Class A Warrants @ $2.00 $ 5.0 September '97
* 1996 Financing Class B Warrants @ $2.00 $ 5.0 September '97
* 1996 Financing Class AA Warrants @ $2.50 $ 6.2 March '98
* 1996 Financing Class BB Warrants @ $2.50 $ 6.1 March '98
* 1997 Additional Convertible Debt @ $2.50 $ 5.0 August '97
* 1997 Equity Financing Common Shares @ $1.75 $ 3.0 August '97
* 1997 Equity Financing Purchase Options @ $2.00 $ 3.4 August '98
-----
Capital Available Up To $33.7
-----
-----
</TABLE>
For further particulars on the Financing Plan and details of its impact on
the Company's share capitalization, see Note 8 to Fiscal 1997's audited
Consolidated Financial Statements which follow.
Subject to the availability of these funds and the timing of their receipt,
management estimates that the Company will be able to finance its future
growth from internally generated cashflow at approximately the 600 store
threshold, making the Company self-sustaining by the end of Fiscal 1999
according to Plan.
Page 4
<PAGE>
Having arrived in North America, POWERFUL STUFF is distinctively conceived to
change the face of this specialty marketplace and is strategically poised to
capitalize on this burgeoning retail niche -- a niche benefiting from the
dynamic growth in and demand for the convenience and independence of personal
portable lifestyle communications products and the individuality of fashion
electronics and palm top technology.
Concentrating on reality and deliverables, management is focused and working
diligently to achieve PLAN 2000 in the long term. The ongoing support of the
Company's shareholders is essential and appreciated, and your input is
invited. Please feel free to call us with any of your thoughts and ideas,
toll-free in North America at 1-800-POWERED (769-3733).
On behalf of the Board of Directors
J. Douglas Elliott, Chairman
July 28, 1997
Page 5
