UNITED STATES
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
For the fiscal year ended December 31, 2012
[ ] TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 000-53586
THE PULSE BEVERAGE CORPORATION
(Exact name of registrant as specified in its charter)
| Nevada | 36-4691531 |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
11678 N Huron St, Northglenn, CO
80234
(Address of
principal executive offices, including zip code)
(720) 382-5476
(Telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.00001 per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act.
Yes [ ] No [X]
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 [X] No [ ]
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site,
if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
Yes [ ] No [X]
As of the last business day of the second fiscal quarter, June 30, 2012, the aggregate market value of such common stock held by non-affiliates was approximately $16,839,000 using the closing price on that day of $0.58.
As of March 29, 2013, there were 51,280,268 shares of the Company’s common stock issued and outstanding.
Documents Incorporated by Reference: None.
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This Annual Report on Form 10-K (“Report”) contains a number of forward-looking statements that reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this Report other than statements of historical fact, including statements that address operating performance, the economy, events or developments that management expects or anticipates will or may occur in the future, including statements related to potential strategic transactions, distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, cash flows and financing, our ability to continue as a going concern, statements regarding future operating results and non-historical information, are forward-looking statements. In particular, the words such as “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “can,” “plan,” “predict,” “could,” “future,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking.
Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions and apply only as of the date of this Report. Our actual results, performance or achievements could differ materially from historical results as well the results expressed in, anticipated or implied by these forward-looking statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
In particular, our business, including our financial condition and results of operations may be impacted by a number of factors, including, but not limited to, the following:
For a discussion of some of the factors that may affect our business, results and prospects, see “Item 1A. Risk Factors” Readers are also urged to carefully review and consider the various disclosures made by us in this Report and in our other reports we file with the Securities and Exchange Commission, including our periodic reports on Form 10-Q and current reports on Form 8-K, and those described from time to time in our press releases and other communications, which attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.
REFERENCES
As used in this annual report: (i) the terms “we”, “us”, “our”, “Pulse” and the “Company” mean The Pulse Beverage Corporation; (ii) “SEC” refers to the Securities and Exchange Commission; (iii) “Securities Act” refers to the United States Securities Act of 1933, as amended; (iv) “Exchange Act” refers to the United States Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.
THE PULSE BEVERAGE CORPORATION
ANNUAL REPORT ON FORM 10K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012
Table of Contents
PART I
ITEM 1. BUSINESS
Our Business
We are based in Northglenn, Colorado and formed in 2010 by senior beverage industry veterans for the purpose of exploiting niche markets in the beverage industry. We developed two beverage products: Cabana™ 100% Natural Lemonade and PULSE® brand of functional beverages and now produce, market, sell and distribute these brands through a diverse regional and international distribution system.
Overview
Our mission is to be one of the market leaders in the development and marketing of nutritional/functional beverage products that provide real health benefits to a significant segment of the population and are convenient and appealing to consumers. We have an experienced management team of beverage industry executives that have successfully launched and/or managed the distribution for more than twenty-five major brands over the past twenty years. They have strong relationships with distributors and buyers who supply thousands of retail outlets, supermarkets and convenience stores.
Products
Our initial commercial product is Cabana™ 100% Natural Lemonade. Our second, flagship product is PULSE® brand of functional beverages (“PULSE®”) in three health platforms: PULSE® Heart Health Formula™, PULSE® Women’s Health Formula™, PULSE® Men’s Health Formula™. We presently manufacture, through co-packers, distribute and market both products.
In early 2011 we developed and then, on September 23, 2011, produced and distributed our Cabana™ 100% Natural Lemonade. We launched our lemonade product ahead of PULSE® in order to establish a comprehensive nationwide and international distribution system. Lemonades are widely considered to be an easily understood product as compared to a highly nutritional product such as PULSE® which requires more education at the distribution and retail level.
To ensure that the flavor profiles and nutritional platforms of our products meet the needs of consumers’ taste, health and life-style, we contract the services of Catalyst Development Inc. (“Catalyst”), a highly respected beverage product development firm located in Burnaby, BC, Canada. Catalyst developed the formulations for PULSE® under license, for Baxter Healthcare Corporation. Catalyst’s owner, Ron Kendrick, is our Chief of Product Development and Operations and oversees our beverage development, inventory supply chain, and quality assurance through his team of three. Our product development team has ensured PULSE® is a lower calorie, great tasting functional beverage that provides the benefits we claim on PULSE® labels. We use a hot-fill process of production to allow the PULSE® product to have all natural ingredients without the use of preservatives.
PULSE® brand of functional beverages (“PULSE®”)
PULSE® is formulated and aimed at specific health platforms, providing all natural functional ingredients without preservatives in a low calorie format. PULSE® offers consumers the nutrients they need in a 16oz glass bottle containing a great tasting functional beverage. Our packaging is vibrant and convenient and is water-based which gives rise to our trademark: “PULSE: Nutrition Made Simple®.” The nutrients contained in PULSE® are backed by research and are scientifically demonstrated to promote health in each targeted health platform. The nutritional ingredients were specifically selected to provide the nutrition necessary to achieve targeted health benefits using patented liposome nano-dispersion technology that introduces the ingredients into PULSE® in a format that allows the body to absorb the nutrients. We own all the formulations, rights and trademarks relating to the PULSE® brand of functional beverages and specifically we own the right to use the following Side Panel Statement for PULSE® Heart Health Formula™, PULSE® Women’s Health Formula™, PULSE® Men’s Health Formula™: “Formulation developed under license from Baxter Healthcare Corporation”. This right is in perpetuity without royalties. All PULSE® labels contain structure/function claims that are followed by an * disclosing the following disclaimer: This statement has not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease.
PULSE® is not an emerging growth beverage brand as it is a few years ahead in development due to significant development and test marketing costs spent by a major healthcare company several years prior.
PULSE® is comprised of five flavours in three functional health platforms:
PULSE® - Heart Health Formula™ contains safe and effective levels of a number of important heart and cardiovascular health friendly nutrients in a great tasting “Pear Peach” flavored beverage. It contains vitamin C and selenium, both of which are considered important nutrients to help maintain heart health. Heart Health Formula™ is an excellent source of soluble fiber which supports cardiovascular health and assists in buffering sugar response;
PULSE® - Men’s Health Formula™ is a unique combination of nutritional ingredients that include a variety of antioxidants that may reduce free radicals in our bodies. It is offered in two great tasting flavor profiles: stawberry/grapefruit and pomegranate/blackberry. Free radicals are generally associated with aging, cardiovascular problems, cancer and many health concerns for men. While it is designed to support health in particular areas, such as prostate health, the combination of green tea catechins, Vitamins E & C, lycopene and selenium may help men maintain an ongoing counter attack in the battle against free radical damage to our bodies;
PULSE® - Women’s Health Formula™ is a convenient nutritional beverage designed specifically for women offered in two great tasting flavor profiles: blueberry and white grape/cucumber. Women’s Health Formula™ contains meaningful levels of the key ingredients that work in concert to enhance bone health – calcium, magnesium and Vitamin D. Additionally, these ingredients coupled with folic acid and other B vitamins, may help women prepare for pregnancy while soy isoflavones may help buffer symptoms of menopause.
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Target Market - PULSE® is targeted towards adults who want to feel young and healthful for the rest of their lives. PULSE® brand mission and concept is supported by a growing consumer link between nutrition and wellness and the ever growing need for convenient solutions to rehydrate and to combat obesity. This fact ensures that PULSE® does not just attract the "baby boomer" category but includes all consumers who want health conscious beverages.
Beverage Segment - Non-carbonated beverages divide into a number of categories including energy and sports drinks, teas, juices, lemonades, bottled water, and functional beverages. These beverage categories include a host of products that are fortified with vitamins, minerals and dietary supplements. PULSE® is targeted at the functional/nutritional beverage segment. Our goal is to evolve the functional/nutritional beverage category into more of a focus on providing true and meaningful health and wellness benefits in a convenient and good tasting format. Wise nutritional decisions make for better health. Better health makes for a better quality of longer life.
Market Environment – there is a societal shift away from carbonated, diet and high sugar-content beverages that contain artificial sweeteners and preservatives. PULSE® is supported by a growing consumer link between nutrition and wellness in convenient solutions. There is an emergence of new product categories in the area of energy and sports drinks, teas, juices, flavored waters, lemonades and functional/nutritional beverages. Populations are aging which influences the food and beverage industry, affecting everything from packaging and taste profiles to calories and contents.
Competitive Landscape
Glaceau Vitamin Water® - Numerous beverages/flavors, zero calories, mostly trace amounts of vitamins and elements.
Function® Drinks - Three beverages/seven flavors, emphasis on detox/weight loss/energy, various antioxidants, mostly trace amounts of vitamins and elements.
Neuro® - Eight beverages/formulations/flavors, lightly carbonated, proprietary blends and vitamins, small amounts of vitamins and elements.
POM Wonderful® - pomegrante based beverage with claims to have heart and other health benefits – FDA has requested they remove those claims from their labels.
Competitive Differentiators – PULSE® is proprietary formulated and scientifically effective in the recommended serving sizes as part of a daily health regimen. PULSE® formulas include functional ingredients that are widely considered to be critical to adult health including anti-oxidants, vitamins, minerals, soluble fiber and soy isoflavones. PULSE® uses patented liposome nano-dispersion technology that introduces the ingredients into the beverage in a format that allows the body to absorb the nutrients at a high rate.
Cabana™ 100% Natural Lemonade (“Cabana™”)
Cabana™ is a line-up of refreshing, all-natural, “good-for-you”, ready-to-drink lemonades in a 20oz glass bottle in six distinct and great tasting flavors: Regular Lemonade, Blueberry Lemonade, Cherry Lemonade, Strawberry Lemonade, Mango Lemonade and Island Spice Lemonade. Cabana™ offers reduced calories compared to our competitors, without the use of artificial sweeteners or coloring. There is only one other all-natural lemonade in the marketplace that is offered in a smaller 16oz glass format. We are positioning Cabana™ as natural complements to food in an effort to broaden its appeal. We believe that the lemonade market is well established and that there is an immediate demand in North America and internationally. Cabana™, being all-natural, lower calorie, and “good for you”, are in-line with our corporate mission to reach a large demographic by aiming to be the healthiest, all-natural lemonade in the marketplace.
Target Market - Cabana™ targets lemonade and fruit juice beverage drinkers of all ages, in particular the beverage consumers desiring a lower calorie, all natural, thirst quenching beverage for enjoyment and rehydration.
Beverage Segment - Non-carbonated beverages divide into a number of categories including energy and sports drinks, teas, juices, lemonades, bottled water, and functional beverages. Cabana™ is targeted at the lemonade beverage segment.
Competive Landscape
Simply Lemonade® - one flavor in a 13.5oz plastic bottle using natural lemon juice and high in calories.
Calypso® – many flavors,20oz glass bottle, artificial coloring, high in calories, artificial sweeteners.
Arizona® Iced Tea – a lemonade/tea known as “Arnold Palmer” in a 24oz can.
Country Time Lemonade® - One flavor in a 12oz can, high in calories.
Hubert’s Lemonade® – all natural lemonade in a 16oz glass bottle.
Competitive Differentiators - Nationally, only a handful of companies market ready-to-drink lemonades and there is only one other major brand containing all natural ingredients: Hubert’s Lemonade® in a smaller 16oz glass bottle. Cabana™ has competitive advantages over existing lemonade brands as follows: Cabana™ is offered in a large format 20oz glass bottle, has 55 calories per 8oz. serving compared to over 100 calories in most competitors and is made of 100% all natural ingredients. The fact that Cabana™ contains no preservatives or artificial sweeteners means that it can be sold in health food stores such as Whole Foods, GNC Live Well, Vitamin Cottage and Sunflower.
Business Value Drivers
We believe that the key value drivers of our business include the following:
Profitable Growth – We believe “functional”, “image-based” and/or “better-for-you” brands properly supported by marketing and innovation, targeted to a broad consumer base, drive profitable growth. We are focused on maintaining and improving profit margins and believe that tailored branding, packaging, pricing and distribution channel strategies help achieve profitable growth. We are implementing these strategies with a view to continuing profitable growth.
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International market development – The development and profitable introduction of Cabana™ internationally together with the introduction, in April, 2013, of PULSE® remains a key value driver for our corporate growth.
Cost Management – The principal focus of cost management will continue to be on reducing input supply and production costs on a per-case basis, including raw material costs and co-packing fees. The reduction of accounts receivable and inventory days on hand also remains a further key area of focus.
Efficient Capital Structure – Our capital structure is intended to optimize our working capital to finance expansion, both domestically and internationally. We believe our strong capital position currently provides us with a competitive advantage.
We believe that, subject to increases in the costs of certain raw materials being contained, these value drivers, when properly implemented in the United States and internationally, will result in: (1) maintaining and increasing our product gross profit margins; (2) providing additional leverage over time through reduced expenses as a percentage of net operating revenues; and (3) optimizing our cost of capital. The ultimate measure of success is and will be reflected in our current and future results of operations.
Gross and net sales, gross profits, operating income, net income and net income per share represent key measurements of the above value drivers. These measurements will continue to be a key management focus in 2013. See “Results of Operations” for a complete discussion of our current and future business.
Growth Strategy
Our growth strategy includes:
| - | securing additional distributors in the United States and internationally; |
| - | increasing brand awareness of PULSE® in 2013; |
| - | securing additional chain, convenience and key account store listings for our products across United States and internationally; |
| - | providing online shopping in 2013; |
| - | expanding our PULSE® brand by developing new proprietary formulations; |
| - | completing the development of a third branded product closely associated with the PULSE® health platforms; and |
| - | obtaining a NASDAQ or NYSE MKT listing for our shares. |
Keys to Success
The over-riding key to our short-term and long-term success is to obtain the necessary financing to: build our distribution network, increase inventory levels, increase sales of both beverage brands and to support resulting receivables. As of December 31, 2012, we had $744,906 in cash and, as a result of an offering that we recently completed, as of March 29, 2013 we had in excess of $3.9 million in cash, which is sufficient to finance our short-term and long-term growth strategy. This cash position allows us to rapidly grow both beverage products and support rapid growth in inventory and receivables.
Another key to our success is to continue development and expansion of our distribution network both in the United States and internationally, in particular Asia, and to continue to obtain chain store listings for our products. Management has the contacts to rapidly build such a distribution network and to continue to obtain chain store listings. We have distribution for Cabana™ in Canada, Mexico, Panama, Bermuda and 43 US states. A key to any successful beverage company is its ability to develop a critical-mass nationwide distribution system to support chain store distribution. In that regard, we spent 2012 focused on the establishment of a high quality extensive distribution system using Cabana™ as our introductory product and then, during the latter part of 2012, approached and secured listings with regional and national grocery and convenience chain stores. Currently we have obtained listings for Cabana™ in over 11,000 regional and national grocery and convenience chain stores. Our distribution network includes over 80% Class “A” distributors such as United Natural Foods, Inc. and distributors for Anheuser Busch, Miller Coors, Pepsi, Coca-Cola, RC/7-Up and Cadbury Schweppes.
Milestones
Milestones reached and building blocks set in place during 2012:
| - | we cost efficiently and methodically built a beverage company from the ground up and have overcome difficulties associated with start-up beverage companies relating to financing and product development and acceptance; |
| - | we completed contracts with co-packers in three strategic locations: Oregon, Virginia and Texas, which has allowed us to produce and distribute our products nationwide cost efficiently; |
| - | we have built a nationwide distribution system with 90+ distributors servicing 43 US states, Canada, Panama, Bermuda and Mexico. Once this “critical mass” of distributors was established we then approached, and secured listings for Cabana™, with large grocery and convenience store chains resulting in approved listings to date totaling over 11,000 retail outlets. We are starting to deliver Cabana™ to many of these retail outlets and increasing production of Cabana™ to deliver to all of these outlets during the remainder of Q1 2013 and into Q2 2013. We expect to add at least another 9,000 listings during the remainder of 2013 based on discussions we have underway; |
| - | our distribution infrastructure has been developed without large capital outlays yet we have gained rapid market acceptance for our Cabana™ brand where taste, calories, and all natural ingredients, rather than price, are the major rationale for a consumer purchase; |
| - | we completed the re-design and flavor profiles of PULSE® and completed our initial commercial production in February, 2013. The result from our product and flavor testing was that PULSE® nutritional claims held up and packaging and flavors were exceptional. Now that we have established a substantial portion of our distribution system, we will readily be able to introduce PULSE® into our existing distribution system through United Natural Food, Inc. and Nature’s Best, the two largest natural food distributors. Existing distributors and chain stores have been made aware of the health benefits and introduction of PULSE®. Introduction to begin in April, 2013. |
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Segment Information
We have one operating segment: Non-carbonated beverages; and one geographic segment: North America.
Industry Background
Non-alcoholic beverages are among the most widely distributed food products in the world and are being sold through more than 400,000 retailers in the United States, our core market. The United States has more than 2,600 beverage companies and 500 bottlers of beverage products. Collectively they account for more than $100 billion in annual sales. It is estimated that globally more than $300 billion worth of non-alcoholic beverages are sold annually. The beverage market is controlled by two giants, The Coca-Cola Company (“Coke”) and PepsiCo, combining for over 70% of the non-alcoholic beverage market. Carbonated beverage sales are slipping, while non-carbonated beverage sales are growing. Experts predict that beverage companies that only offer carbonated beverages will have to work hard to off-set flagging demand. Industry watchers believe that growth will be largely confined to non-carbonated beverages and will chiefly affect functional drinks. Functional, sports and energy drinks are expected to be the principal beneficiaries of this trend.
Industry watchers are particularly confident about the prospect for drinks that are functional and that offer therapeutic benefit and as such capitalize on the public’s growing interest in products that promise to improve health. Although we will face competition in our bid for market share, we believe, based on market research that our products, strong packaging, unique formulations and promotions will induce early trial and in the course of two years build a widespread and loyal following. We also believe that our products will have strong appeal in Europe and the Pacific Rim, in particular, China, a country with which we have long standing relationships. Key drivers of the Chinese beverage market include rising inflows of foreign direct investment, growing levels of consumer spending power, an increasingly health conscious consuming public and the Chinese government’s market-focused economic policy. We believe our products will be accepted in China because of China’s growing desire for healthy products and its growing middle class and its interest in brands that come from North America.
Distribution Systems
Our distribution systems are comprised of the following types of distributors:
Direct Store Delivery (“DSD”)
DSDs primarily distribute beverages, chips, snacks and milk and provide pre-sales, delivery and merchandising services to their customers. Service levels are daily and weekly and they require 25% to 30% gross profit from sales to their customers. As of the date of this Report, we maintain a network of more than 90 distributors in over 43 states in America, nine provinces in Canada, Panama, Mexico, and Bermuda. We grant these independent distributors the exclusive right in defined territories to distribute finished cases of one or more of our products through written agreements. These agreements typically include compensation to those distributors in the event we provide product directly to one of our regional retailers located in the distributor’s region. We are also obligated to pay termination fees for cancellations of most of these written distributor agreements, which have terms generally ranging from one to three years. We have chosen, and will continue to choose, our distributors based on their perceived ability to build our brand franchise in convenience stores and grocery stores.
We do not have any DSD distributors who account for more than 10% of sales.
Direct to Retail Channel (“DTR”)
We have secured listings with large retail convenience store and grocery store chains where we ship direct to the chain stores warehousing system. Retailers must have warehousing and delivery capabilities. Services to retailer are provided by an assigned broker, approved by us, to oversee all needs which provide some pre-sale and merchandising services. Our direct to retail channel of distribution is an important part of our strategy to target large national or regional restaurant chains, retail accounts, including mass merchandisers and premier food-service businesses. Through these programs, we negotiate directly with the retailer to carry our products, and the account is serviced through the retailer’s appointed distribution system. These arrangements are terminable at any time by these retailers or us, and contain no minimum purchase commitments.
We do not have any DTR distributors who account for more than 10% of sales.
Production Facilities
We outsource the manufacturing and warehousing of our products to third party bottlers and independent contract manufacturers (“co-packers”). We purchase our raw materials from North American suppliers which deliver to our third party co-packers. We currently use three co-packers located in Forest Grove, Oregon, Marion, Virginia and Coppell, Texas to manufacture and package our products. Having three strategically located co-packers reduces our shipping rates and transport times. We intend to identify co-packers in Canada, Europe, and Asia to support the expansion of our products in those markets. Once our products are manufactured, we store the finished product in a warehouse adjacent to each co-packer or in third party warehouses. Our co-packers were chosen on the basis of their proximity to markets covered by our distributors. Most of the ingredients used in the formulation of our products are off-the-shelf and thus readily available. No ingredient has a lead time greater than two weeks. Other than minimum case volume requirements per production run for most co-packers, we do not have annual minimum production commitments with our co-packers. Our co-packers may terminate their arrangements with us at any time, in which case we could experience disruptions in our ability to deliver products to our customers. We continually review our contract packing needs in light of regulatory compliance and logistical requirements and may add or change co-packers based on those needs.
Raw Materials
Substantially all of the raw materials used in the preparation, bottling and packaging of our products are purchased by us or by our contract manufacturers in accordance with our specifications. The raw materials used in the preparation and packaging of our products consist primarily of
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juice concentrates, natural flavors, stevia, pure cane sugar, bottles, labels, trays and enclosures. These raw materials are purchased from suppliers selected by us or by our contract manufacturers. We believe that we have adequate sources of raw materials, which are available from multiple suppliers.
Currently, we purchase our flavor concentrate from four flavor concentrate suppliers. Generally, all natural flavor suppliers own the proprietary rights to the flavors. In connection with the development of new products and flavors, independent suppliers bear a large portion of the expense for product development, thereby enabling us to develop new products and flavors at relatively low cost. We anticipate that for future flavors and additional products, we may purchase flavor concentrate from other flavor houses with the intention of developing other sources of flavor concentrate for each of our products. If we have to replace a flavor supplier, we could experience disruptions in our ability to deliver products to our customers, which could have a material adverse effect on our results of operations.
Quality Control
We are committed to building products that meet or exceed the quality standards set by the U.S. and Canadian governments. Our products are made from high quality all natural ingredients. We ensure that all of our products satisfy our quality standards. Contract manufacturers are selected and monitored by our own quality control representatives in an effort to assure adherence to our production procedures and quality standards. Samples of our products from each production run undertaken by each of our contract manufacturers are analyzed and categorized in a reference library. The manufacturing process steps include source selection, receipt and storage, filtration, disinfection, bottling, packaging, in-place sanitation, plant quality control and corporate policies affecting quality assurance. In addition, we ensure that each bottle is stamped with a production date, time, and plant code to quickly isolate problems should they arise.
For every run of product, our contract manufacturer undertakes extensive testing of product quality and packaging. This includes testing levels of sweetness, taste, product integrity, packaging and various regulatory cross checks. For each product, the contract manufacturer must transmit all quality control test results to us for reference following each production run. Testing also includes microbiological checks and other tests to ensure the production facilities meet the standards and specifications of our quality assurance sample submission to Catalyst Development Inc. for microbiological checks and other tests to ensure the production facilities meet the standards and specifications of our quality assurance program. Water quality is ensured through activated carbon and particulate filtration as well as alkalinity adjustment when required. Flavors are pre-tested before shipment to contract manufacturers from the flavor manufacturer. We are committed to ongoing product improvement with a view toward ensuring the high quality of our product through a stringent contract packer selection and training program.
Regulation
The production and marketing of our proprietary beverages are subject to the rules and regulations of various federal, provincial, state and local health agencies, including in particular Health Canada, Agriculture and Agri-Food Canada (AAFC) and the U.S. Food and Drug Administration (FDA). The FDA and AAFC also regulate labeling of our products. From time to time, we may receive notifications of various technical labeling or ingredient reviews with respect to our licensed products. We believe that we have a compliance program in place to ensure compliance with production, marketing and labeling regulations.
Packagers of our beverage products presently offer non-refillable, recyclable containers in the U.S. and various other markets. Legal requirements have been enacted in jurisdictions in the U.S. and Canada requiring that deposits or certain eco-taxes or fees be charged for the sale, marketing and use of certain non-refillable beverage containers. The precise requirements imposed by these measures vary. Other beverage container related deposit, recycling, eco-tax and/or product stewardship proposals have been introduced in various jurisdictions in the U.S. and Canada. We anticipate that similar legislation or regulations may be proposed in the future at local, state and federal levels, both in the U.S. and Canada.
New Product Development
Our product philosophy will continue to be based on developing products in those segments of the market that offer the greatest chance of success such as health, wellness and natural refreshment and we will continue to seek out underserved market niches. We believe we can quickly respond, given our technical and marketing expertise, to changing market conditions with new and innovative products. We are committed to developing products that are distinct, meet a quantifiable need, are proprietary, lend themselves to at least a 30% gross profit, projects a quality and healthy image, and can be distributed through existing distribution channels. We are identifying brands of other companies with a view to acquiring them or taking on the exclusive distributorship of their products.
Intellectual Property
We acquired all of the property and equipment, formulations, rights and trademarks associated with PULSE® from Health Beverage, LLC pursuant to an Asset Purchase Agreement that closed on January 31, 2011.
We own the following intellectual property:
| - | the right from Baxter Healthcare Corporation to use the following side panel (label) statement for PULSE® Heart Health Formula™, PULSE® Women’s Health Formula™, PULSE® Men’s Health Formula™ : “PRODUCT FORMULATION DEVELOPED UNDER LICENSE FROM BAXTER HEALTHCARE CORPORATION”; |
| - | water-based beverage formulations, specifications, manufacturing methods and related Canadian and US unregistered trademark for PULSE® - Heart Health™; PULSE® - Women’s Health™ and PULSE® - Men’s Health™. These trademarks are current in that they are being used currently and will not expire as long as we continue to use them; |
| - | registered trademarks: “PULSE” – USA & CANADA (a water-based beverage) U.S. No. 2698560, Canada: TMA 622,432 and “PULSE: NUTRITION MADE SIMPLE” – USA ONLY. U.S. No. 2819813. In general, trademark registrations expire 10 years from the filing date or registration date, with the exception in Canada, where trademark registrations expire 15 years from the registration date. All trademark registrations may be renewed for a nominal fee; |
| - | the trademark Cabana™ in connection with our Cabana™ 100% Natural Lemonade. |
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We consider our trademarks, trade secrets and the license right described above to be of considerable value and importance to our business.
Research and Development
We have not incurred any research and development expenses since February 15, 2011 except for product re-design and flavor profile modifications.
Seasonality
Our sales may have some seasonality and we may experience fluctuations in quarterly results due to many factors. We expect to generate a greater percentage of our revenues during the warm weather months of April through September. Timing of customer purchases will vary each year and sales can be expected to shift from one quarter to another. As a result, we believe that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results expected for the fiscal year.
Employees
As of December 31, 2012, we had fifteen employees, including Robert E. Yates, who serves as our President and Principal Executive Financial and Accounting Officer.
Corporate History
We were incorporated in Nevada as Darlington Mines Ltd. (“Darlington”) on August 23, 2006. From August 23, 2006 to February 15, 2011 we were first, an exploration stage company, and, up until September 23, 2011, did not have operating revenues and we were considered a development stage company. As of September 23, 2011, we began production and sales, and, from that day forth we are no longer considered a development stage company, as our planned principal business activities had begun.
On February 15, 2011 we closed a voluntary share exchange transaction with a private Colorado company, The Pulse Beverage Corporation (“Pulse”). The voluntary share exchange transaction was by and among Darlington, Pulse and the stockholders of Pulse (the “Pulse Stockholders”). At the Closing Date, our former President, Chief Executive Officer, Chief Financial Officer and Treasurer agreed to surrender 26,660,000 shares of common stock for cancellation. The Pulse Stockholders received 13,280,000 shares of our common stock in exchange for 100% of the issued and outstanding shares of Pulse representing approximately 46% of our outstanding shares of common stock. In order to better reflect our business operations and to change our name, subsequent to the acquisition of Pulse, effective February 16, 2011, we changed our name to “The Pulse Beverage Corporation” and we were issued a new stock symbol - OTCQB:PLSB. For accounting purposes, the acquisition of Pulse was accounted for as a purchase of the assets of Pulse by Darlington under the purchase method for business combinations. Consequently, the historical financial statements of Darlington continued as our historical financial statements and the operations of Pulse have been included from February 15, 2011, being the date of acquisition.
ITEM 1A. RISK FACTORS
An investment in our common stock is risky. You should carefully consider the following risks, as well as the other information contained in this Form 10-K, before investing. If any of the following risks actually occurs, our business, business prospects, financial condition, cash flow and results of operations could be materially and adversely affected. In this case, the trading price of our common stock could decline, and you might lose part or all of your investment. We may amend or supplement the risk factors described below from time to time by other reports we file with the SEC in the future.
Risk Factors Relating to Our Company and Our Business
We rely on key members of management, the loss of whose services could adversely affect our success and development.
Our success depends to a certain degree upon certain key members of the management. These individuals are a significant factor in our growth and ability to meet our business objectives. We have an experienced management team of beverage industry executives that have successfully launched and/or managed the distribution for more than twenty-five major brands over the past twenty years. They have strong relationships with distributors and buyers who supply thousands of retail outlets, supermarkets and convenience stores. The loss of our key management personnel could slow the growth of our business, or it may cease to operate at all, which may result in the total loss of an investor's investment.
Because we do not have long term contractual commitments with our distributors, our business may be negatively affected if we are unable to maintain these important relationships and distribute our products.
Our marketing and sales strategy depends in large part on the availability and performance of our independent distributors. We will continue our efforts to reinforce and expand our distribution network by partnering with new distributors and replacing underperforming distributors. We have entered into written agreements with many of our distributors in the U.S. and Canada, with terms ranging from one to three years. We currently do not have, nor do we anticipate in the future that we will be able to establish, long-term contractual commitments from some of our distributors. In addition, despite the terms of the written agreements with many of our top distributors, there are no minimum levels of purchases required under some of those agreements, and most of the agreements may be terminated at any time by us, generally with a termination fee. We may not be able to maintain our current distribution relationships or establish and maintain successful relationships with distributors in new geographic distribution areas. Moreover, there is the additional possibility that we may have to incur additional expenditures to attract and maintain key distributors in one or more of our geographic distribution areas in order to profitably exploit our geographic markets.
Our inability to maintain our distribution network or attract additional distributors will likely adversely affect our revenues and financial results.
Because we rely on our distributors, retailers and brokers that distribute our competitors’ products along with our own products, we have little control in ensuring our product reaches customers, which could cause our sales to suffer.
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Our ability to establish a market for our products in new geographic areas, as well as maintain and expand our existing markets, is dependent on our ability to establish and maintain successful relationships with reliable distributors, retailers and brokers strategically positioned to serve those areas. Most of our distributors, retailers and brokers sell and distribute competing products, including non-alcoholic and alcoholic beverages, and our products may represent a small portion of their business. To the extent that our distributors, retailers and brokers are distracted from selling our products or do not employ sufficient efforts in managing and selling our products, including re-stocking retail shelves with our products, our sales and results of operations could be adversely affected. Our ability to maintain our distribution network and attract additional distributors, retailers and brokers will depend on a number of factors, some of which are outside our control. Some of these factors include: the level of demand for our brands and products in a particular distribution area; our ability to price our products at levels competitive with those of competing products; and our ability to deliver products in the quantity and at the time ordered by distributors, retailers and brokers.
If any of the above factors work negatively against us, our sales will likely decline and our results of operations will be adversely affected.
Because our distributors are not required to place minimum orders with us, we need to manage our inventory levels, and it is difficult to predict the timing and amount of our sales.
Our independent distributors are not required to place minimum monthly or annual orders for our products. In order to reduce inventory costs, independent distributors endeavor to order products from us on a “just in time” basis in quantities, and at such times, based on the demand for the products in a particular distribution area. Accordingly, there is no assurance as to the timing or quantity of purchases by any of our independent distributors or that any of our distributors will continue to purchase products from us in the same frequencies and volumes as they may have done in the past. In order to be able to deliver our products on a timely basis, we need to maintain adequate inventory levels of the desired products, but we cannot predict the number of cases sold by any of our distributors. If we fail to meet our shipping schedules, we could damage our relationships with distributors and/or retailers, increase our shipping costs or cause sales opportunities to be delayed or lost, which would unfavorably impact our future sales and adversely affect our operating results. In addition, if the inventory of our products held by our distributors and/or retailers is too high, they will not place orders for additional products, which would also unfavorably impact our future sales and adversely affect our operating results.
Our business plan and future growth is dependent in part on our distribution arrangements with retailers and regional retail accounts. If we are unable to establish and maintain these arrangements, our results of operations and financial condition could be adversely affected.
We currently have distribution arrangements with a few regional retail accounts to distribute our products directly through their venues. However, there are several risks associated with this distribution strategy. First, we do not have long-term agreements in place with any of these accounts and thus, the arrangements are terminable at any time by these retailers or us. Accordingly, we may not be able to maintain continuing relationships with any of these national accounts. A decision by any of these retailers, or any large retail accounts we may obtain, to decrease the amount purchased from us or to cease carrying our products could have a material adverse effect on our reputation, financial condition or results of operations. In addition, we may not be able to establish additional distribution arrangements with other national retailers.
Second, our dependence on national and regional retail chains may result in pressure on us to reduce our pricing to them or seek significant product discounts. Any increase in our costs for these retailers to carry our product, reduction in price, or demand for product discounts could have a material adverse effect on our profit margin.
Finally, our DTR distribution arrangements may have an adverse impact on our existing relationships with our independent regional distributors, who may view our DTR accounts as competitive with their business, making it more difficult for us to maintain and expand our relationships with independent distributors.
We rely on independent contract manufacturers of our products, and this dependence could make management of our marketing and distribution efforts inefficient or unprofitable.
We do not own the plants or the equipment required to manufacture and package our beverage products, and do not directly manufacture our products but instead outsource the manufacturing process to third party bottlers and independent contract manufacturers (co-packers). We do not anticipate bringing the manufacturing process in-house in the future. Currently, our products are prepared, bottled and packaged by two primary co-packers. Our ability to attract and maintain effective relationships with contract manufacturers and other third parties for the production and delivery of our beverage products in a particular geographic distribution area is important to the success of our operations within each distribution area. Competition for contract manufacturers’ business is intense, especially in the western U.S., and this could make it more difficult for us to obtain new or replacement manufacturers, or to locate back-up manufacturers, in our various distribution areas, and could also affect the economic terms of our agreements with our manufacturers. Our contract manufacturers may terminate their arrangements with us at any time, in which case we could experience disruptions in our ability to deliver products to our customers. We may not be able to maintain our relationships with current contract manufacturers or establish satisfactory relationships with new or replacement contract manufacturers, whether in existing or new geographic distribution areas. The failure to establish and maintain effective relationships with contract manufacturers for a distribution area could increase our manufacturing costs and thereby materially reduce profits realized from the sale of our products in that area. In addition, poor relations with any of our contract manufacturers could adversely affect the amount and timing of product delivered to our distributors for resale, which would in turn adversely affect our revenues and financial condition.
As is customary in the contract manufacturing industry for comparably sized companies, we are expected to arrange for our contract manufacturing needs sufficiently in advance of anticipated requirements. We continually evaluate which of our contract manufacturers to utilize based on the cost structure and forecasted demand for the particular geographic area where our contract manufacturers are located. To the extent demand for our products exceeds available inventory or the production capacity of our contract manufacturing arrangements, or orders are not submitted on a timely basis, we will be unable to fulfill distributor orders on demand. Conversely, we may produce more product than warranted by actual demand, resulting in higher storage costs and the potential risk of inventory spoilage. Our failure to accurately predict and manage our contract manufacturing requirements may impair relationships with our independent distributors and key accounts, which, in turn, would likely have a material adverse effect on our ability to maintain effective relationships with those distributors and key accounts.
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Our business and financial results depend on the continuous supply and availability of raw materials.
The principal raw materials we use include glass bottles, labels, closures, flavorings, stevia, pure cane sugar and other natural ingredients. The costs of our ingredients are subject to fluctuation. If our supply of these raw materials is impaired or if prices increase significantly, our business would be adversely affected. Certain of our contract manufacturing arrangements allow such contract manufacturers to increase their charges based on certain of their own cost increases. While certain of our raw materials, like glass, are based on a fixed-price purchase commitment, the prices of any of the above or any other raw materials or ingredients may continue to rise in the future and we may not be able to pass any cost increases on to our customers.
We may not correctly estimate demand for our products. Our ability to estimate demand for our products is imprecise, particularly with new products, and may be less precise during periods of rapid growth, particularly in new markets. If we materially underestimate demand for our products or are unable to secure sufficient ingredients or raw materials including, but not limited to, glass, labels, flavors, and natural sweeteners, or sufficient packing arrangements, we might not be able to satisfy demand on a short-term basis. Moreover, industry-wide shortages of certain concentrates, supplements and sweeteners have been experienced and could, from time to time in the future, be experienced, which could interfere with and/or delay production of certain of our products and could have a material adverse effect on our business and financial results.
Rising raw material, fuel and freight costs as well as freight capacity issues may have an adverse impact on our sales and earnings.
The recent volatility in the global oil markets has resulted in rising fuel and freight prices, which many shipping companies are passing on to their customers. Our shipping costs, and particularly fuel surcharges charged by our freight carriers, have been increasing and we expect these costs may continue to increase. Energy surcharges on our raw materials may continue to increase. Due to the price sensitivity of our products, we do not anticipate that we will be able to pass all of these increased costs on to our customers.
At the same time, the economy appears to be returning to pre-recession levels resulting in the rise of freight volumes which is exacerbated by carrier failures to meet demands and fleet reductions due to fewer drivers in the market. We may be unable to secure available carrier capacity at reasonable rates, which could have a material adverse effect on our operations.
We rely upon our ongoing relationships with our key flavor suppliers. If we are unable to source our flavors on acceptable terms from our key suppliers, we could suffer disruptions in our business.
Currently, we purchase our flavor concentrate from three suppliers, and we anticipate that we will purchase flavor concentrate from others with the intention of developing other sources of flavor concentrate for each of our products. The price of our concentrates is determined by our flavor houses, and may be subject to change. Generally, flavor suppliers hold the proprietary rights to their flavors. Consequently, we do not have the list of ingredients or formulas for our flavors and concentrates and we may be unable to obtain these flavors or concentrates from alternative suppliers on short notice. If we have to replace a flavor supplier, we could experience disruptions in our ability to deliver products to our customers or experience a change in the taste of our products, all of which could have a material adverse effect on our results of operations.
If we are unable to maintain brand image and product quality, or if we encounter other product issues such as product recalls, our business may suffer.
Our success depends on our ability to maintain brand image for our existing products and effectively build up brand image for new products and brand extensions. There can be no assurance, however, that additional expenditures and our advertising and marketing will have the desired impact on our products’ brand image and on consumer preferences. Product quality issues, real or imagined, or allegations of product contamination, even when false or unfounded, could tarnish the image of the affected brands and may cause consumers to choose other products.
In addition, because of changing government regulations; or their implementation, or allegations of product contamination, we may be required from time to time to recall products entirely or from specific markets. Product recalls could affect our profitability and could negatively affect brand image.
The inability to attract and retain key personnel would directly affect our efficiency and results of operations.
Our success depends on our ability to attract and retain highly qualified employees in such areas as distribution, sales, marketing and finance. We compete to hire new employees, and, in some cases, must train them and develop their skills and competencies. Our operating results could be adversely affected by increased costs due to increased competition for employees, higher employee turnover or increased employee benefit costs. Any unplanned turnover, particularly involving our key personnel, could negatively impact our operations, financial condition and employee morale.
Our inability to protect our trademarks and trade secrets may prevent us from successfully marketing our products and competing effectively.
Failure to protect our intellectual property could harm our brand and our reputation, and adversely affect our ability to compete effectively. Further, enforcing or defending our intellectual property rights, including our trademarks, copyrights, licenses and trade secrets, could result in the expenditure of significant financial and managerial resources. We regard our intellectual property, particularly our trademarks and trade secrets to be of considerable value and importance to our business and our success. We rely on a combination of trademark and trade secrecy laws, confidentiality procedures and contractual provisions to protect our intellectual property rights. We are pursuing the registration of additional trademarks in the U.S., Canada and internationally. There can be no assurance that the steps taken by us to protect these proprietary rights will be adequate or that third parties will not infringe or misappropriate our trademarks, trade secrets or similar proprietary rights. In addition, there can be no assurance that other parties will not assert infringement claims against us, and we may have to pursue litigation against other parties to assert our rights. Any such claim or litigation could be costly. In addition, any event that would jeopardize our proprietary rights or any claims of infringement by third parties could have a material adverse effect on our ability to market or sell our brands or profitably exploit our products.
As part of the licensing strategy of our brands, we enter into licensing agreements under which we grant our licensing partners certain rights to use our trademarks and other designs. Although our agreements require that the licensing partner’s use of our trademarks and designs is subject to our control and approval, any breach of these provisions, or any other action by any of our licensing partners that is harmful to our brands, goodwill and overall image, could have a material adverse impact on our business.
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If we are unable to maintain effective disclosure controls and procedures and internal control over financial reporting, our stock price and investor confidence in us could be materially and adversely affected.
We are required to maintain both disclosure controls and procedures and internal control over financial reporting that are effective. Because of its inherent limitations, internal control over financial reporting, however well designed and operated, can only provide reasonable, and not absolute, assurance that the controls will prevent or detect misstatements. Because of these and other inherent limitations of control systems, there is only the reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions. The failure of controls by design deficiencies or absence of adequate controls could result in a material adverse effect on our business and financial results.
Because we have a limited operating history and losses since inception, it is difficult to evaluate your investment in our stock.
We have been operating since February 15, 2011 and in production since September 22, 2011 and have not yet achieved positive cash flow from operations or profitability. Evaluation of our business will be difficult because we have a limited operating history. We have generated start-up losses to date while we build our distribution network which could adversely affect our stock price. For the period from inception through December 31, 2012, we have accumulated losses in excess of $4.5 million. We face a number of risks encountered by early-stage companies, including our need to develop infrastructure to support growth and expansion; our need to obtain long-term sources of financing; our need to establish our marketing, sales and support organizations; and our need to manage expanding operations. Our business strategy may not be successful, and we may not successfully address these risks. If we are unable to obtain profitable operations, investors may lose their entire investment in us.
We may not be able to successfully manage growth of our business.
Our future success will be highly dependent upon our ability to successfully manage the anticipated expansion of our operations. Our ability to manage and support growth effectively will be substantially dependent on our ability to implement adequate financial and management controls, reporting systems and other procedures, and attract and retain qualified technical, sales, marketing, financial, accounting, and administrative and management personnel.
Our future success also depends upon our ability to address potential market opportunities while managing expenses to match our ability to finance our operations. This need to manage our expenses will place a significant strain on our management and operational resources. If we are unable to manage our expenses effectively, our business, results of operations and financial condition will be materially and adversely affected.
Risks associated with acquisitions
Although we do not presently intend to do so, as part of our business strategy in the future, we could acquire beverage brands and related assets complementary to our core business operations. Any acquisitions by us would involve risks commonly encountered in acquisitions of assets. These risks would include, among other things, the following:
Risks Related to our Common Stock
Penny Stock” rules may make buying or selling our securities difficult.
Trading in our securities is subject to the SEC’s “penny stock” rules and it is anticipated that trading in our securities will continue to be subject to the penny stock rules for the foreseeable future. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from recommending transactions in our securities, which could limit the liquidity and adversely affect the market price for our common stock.
Our securities are traded on the Pink OTC Markets as a QB issuer, which may not provide us much liquidity for our investors as more recognized senior exchanges such as the NYSE MKT and NASDAQ.
Our securities are quoted on the Pink OTC Markets under the QB tier (“the OTC markets”). The OTC markets are inter-dealer, over-the-counter markets that provide significantly less liquidity than the NASDAQ Stock Market or other national or regional exchanges. Securities traded on these OTC markets are usually thinly traded, highly volatile, have fewer market makers and are not followed by analysts. The SEC’s order
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handling rules, which apply to NASDAQ-listed securities, do not apply to securities quoted on the OTC markets. Quotes for stocks included on the OTC markets are not listed in newspapers. Therefore, prices for securities traded solely on the OTC markets may be difficult to obtain and holders of our securities may be unable to resell their securities at or near their original acquisition price, or at any price.
A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could fall.
Any future equity or debt issuances by us may have dilutive or adverse effects on our existing shareholders.
We may issue additional shares of common due to warrants or options being exercised that could dilute your ownership in our company. Moreover, any issuances by us of equity securities may be at or below the prevailing market price of our common stock and in any event may have a dilutive impact on our shareholders, which could cause the market price of our common stock to decline.
We have not paid dividends in the past and do not expect to pay dividends in the future. Any returns on investment may be limited to the value of our common stock.
We have never paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us. If we do not pay dividends, our common stock may be less valuable.
Our stock price is volatile and you may not be able to sell your shares for more than what you paid.
Our stock price has been subject to significant volatility, and you may not be able to sell shares of common stock at or above the price you paid for them. The trading price of our common stock has been subject to fluctuations in the past. During the year ended December 31, 2012, our common stock traded at prices as low as $0.36 per share and as high as $0.73 per share.
The market price of the common stock could continue to fluctuate in the future in response to various factors, including, but not limited to:
The stock market in general has continued to experience volatility which may further affect our stock price.
Risk Factors Relating to Our Industry
We compete in an industry that is brand-conscious, so brand name recognition and acceptance of our products are critical to our success.
Our business is substantially dependent upon awareness and market acceptance of our products and brands by our target market. In addition, our business depends on acceptance by our independent distributors and retailers of our brands as beverage brands that have the potential to provide incremental sales growth.
Competition from traditional non-alcoholic beverage manufacturers may adversely affect our distribution relationships and may hinder development of our existing markets, as well as prevent us from expanding our markets.
The beverage industry is highly competitive. Due to our small size, it can be assumed that many of our competitors have significantly greater financial, technical, marketing and other competitive resources. We compete against giant names like The Coca-Cola Company (“Coke”) and PepsiCo, which combine for over 70% of the non-alcoholic beverage market. We compete with other beverage companies not only for consumer acceptance but also for shelf space in retail outlets and for marketing focus by our distributors, all of whom also distribute other beverage brands. Our products compete with a wide range of drinks produced by a relatively large number of manufacturers, most of which have substantially greater financial, marketing and distribution resources than ours.
Increased competitor consolidations, market-place competition, particularly among branded beverage products, and competitive product and pricing pressures could impact our earnings, market share and volume growth. If, due to such pressure or other competitive threats, we are unable to sufficiently maintain or develop our distribution channels, we may be unable to achieve our current revenue and financial targets. Competition, particularly from companies with greater financial and marketing resources than ours, could have a material adverse effect on our existing markets, as well as on our ability to expand the market for our products.
We compete in an industry characterized by rapid changes in consumer preferences and public perception, so our ability to continue developing new products to satisfy our consumers’ changing preferences will determine our long-term success.
Failure to introduce new brands, products or product extensions into the marketplace as current ones mature and to meet our consumers’ changing preferences could prevent us from gaining market share and achieving long-term profitability. Product lifecycles can vary and consumers’ preferences change over time. Although we try to anticipate these shifts and develop new products to introduce to our consumers, there is no guarantee that we will succeed.
Our business is subject to many regulations and noncompliance is costly.
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The production, marketing and sale of our beverages, including contents, labels, caps and containers, are subject to the rules and regulations of various federal, provincial, state and local health agencies. If a regulatory authority finds that a current or future product or production run is not in compliance with any of these regulations, we may be fined, or production may be stopped, thus adversely affecting our financial condition and results of operations. Similarly, any adverse publicity associated with any noncompliance may damage our reputation and our ability to successfully market our products. Furthermore, the rules and regulations are subject to change from time to time and while we closely monitor developments in this area, we have no way of anticipating whether changes in these rules and regulations will impact our business adversely. Additional or revised regulatory requirements, whether labeling, environmental, tax or otherwise, could have a material adverse effect on our financial condition and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
Our principal executive offices are located at 11678 N Huron Street, Northglenn, Colorado 80234. We lease these facilities on a month-to-month basis at a cost of $4,000 per month. We also sub-lease product development space located at Unit # 22 – 8980 Fraserwood Court, Burnaby, BC, Canada V5J 5H7 at a cost of $1,400 per month. We believe these facilities are suitable for our current needs.
ITEM 3. LEGAL PROCEEDINGS
Antonio Jose Loureiro (the “Plaintiff”) filed a Notice of Civil Claim against us and two former directors of our company in the Supreme Court of British Columbia, Canada on March 5, 2012. The Supreme court of British Columbia has no jurisdiction against us and we have never been served. The claim alleges that these former directors breached certain oral and/or written agreements relating to the sale of certain securities of our company and that our company induced such former directors to do so. The relief sought by the Plaintiff is the specific performance of such former directors to sell such securities to him or that our company issues such securities to him and, further or alternatively, unspecified damages against our company and such former directors. On January 18, 2013, even though we have never been legally served, we filed a Response to the Notice of Civil Claim in the Supreme Court of British Columbia. We are of the view that the claim is completely without merit and we intend to vigorously defend against any and all claims under this lawsuit. Any potential judgment against us and awarded to the Plaintiff is expected to be immaterial.
ITEM 4. MINE SAFETY DISCLOSURE
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Prior to April 5, 2011, there was no public trading market for our securities. On April 5, 2011, our common stock was quoted under the symbol “PLSB” on the OTCBB operated by the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the OTCQB operated by OTC Markets Group, Inc.
The following table sets forth the range of high and low bid prices for our common stock for each applicable quarterly period. The table reflects inter-dealer prices without retail mark-up, mark-down or commissions and may not represent actual transactions.
Fiscal Year Ended December 31, 2012:
| High($) | Low($) | |
| First Quarter | .73 | .36 |
| Second Quarter | .62 | .43 |
| Third Quarter | .57 | .47 |
| Fourth Quarter | .73 | .45 |
Fiscal Year Ended December 31, 2011:
| High($) | Low($) | |
| First Quarter | n/a | n/a |
| Second Quarter | 1.37 | .95 |
| Third Quarter | 1.28 | .46 |
| Fourth Quarter | .78 | .32 |
The shares quoted are subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the Exchange Act"), commonly referred to as the "penny stock" rule.
The SEC generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions.
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For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such securities and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, the monthly statements must be sent disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. Consequently, these rules may restrict the ability of broker dealers to trade and/or maintain a market in the company’s common stock and may affect the ability of shareholders to sell their shares.
Number of Shareholders
As of March 29, 2013 there were 51,280,268 shares of our common stock issued and outstanding and approximately 3,000 shareholders. The transfer agent of our common stock is Holladay Stock Transfer, Inc. 2939 North 67th Place, Scottsdale, Arizona 85251.
Dividends
We have never paid cash dividends or distributions to our equity owners. We do not expect to pay cash dividends on our common stock, but instead, intend to utilize available cash to support the development and expansion of our business. Any future determination relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including but not limited to, future operating results, capital requirements, financial condition and the terms of any credit facility or other financing arrangements we may obtain or enter into, future prospects and in other factors our Board of Directors may deem relevant at the time such payment is considered. There is no assurance that we will be able or will desire to pay dividends in the near future or, if dividends are paid, in what amount.
Stock Repurchases
There were no shares repurchased during the fourth quarter of 2012.
Securities Issued in Unregistered Transactions
During the quarter ended December 31, 2012, we issued the following securities in unregistered transactions:
On October 22, 2012, we issued 10,000 common shares and on December 21, 2012 we issued 10,000 common shares all having a market value of $11,100 pursuant to an Advisory Board Agreement. We relied on exemptions from registration under Section 4(2) of the Securities Act and/or by Rule 506 of Regulation D promulgated under the Securities Act.
On October 22, 2012 we issued 225,000 Units at $0.40 per Unit to three US accredited investors for cash proceeds of $90,000. Each Unit contained one common share and a three year common share purchase warrant to purchase one additional common share at an exercise price of $0.65 per common share. We relied on exemptions from registration under Section 4(2) of the Securities Act and/or by Rule 506 of Regulation D promulgated under the Securities Act.
On December 21, 2012 we issued 480,000 common shares having a fair value of $249,600 pursuant to our 2011 Equity Incentive Plan pursuant to the 200,000 cases sold milestone provided therein. A total of 240,000 of these common shares were issued to two officer/directors and 240,000 common shares were issued to three consultants, all of whom are foreign “accredited investors” as such term is defined in Rule 501(a) under the Securities Act in offshore transactions (as defined in Rule 902 under Regulation S of the Securities Act), based upon representation made by such investors.
On December 21, 2012 we issued 50,000 common shares having a fair value of $25,000 pursuant to a services agreement. We relied on exemptions from registration under Section 4(2) of the Securities Act and/or by Rule 506 of Regulation D promulgated under the Securities Act.
On December 21, 2012, members of the advisory board and a director elected to convert a total of $71,667 in unpaid advisory and director fees into 179,167 Units at $0.40 per Unit. Each Unit contained one common share and a three year common share purchase warrant to purchase one additional common share at an exercise price of $0.65 per common share. We relied upon Rule 506 of Regulation D and/or Regulation S of the Securities Act.
On December 21, 2012 we issued 2,875,000 Units at $0.40 per Unit pursuant to subscription agreements with seven US accredited investors and six foreign accredited investors for cash proceeds of $1,150,000. Each Unit contained one common share and a three year common share purchase warrant to purchase one additional common share at an exercise price of $0.65 per common share. For the seven US accredited investors we relied on exemptions from registration under the Securities Act provided by Rule 506 for U.S. accredited investors. For the six foreign accredited investors we relied upon Rule 506 of Regulation D and/or Regulation S of the Securities Act as these securities were issued to foreign investors who are “accredited investors,” as such term is defined in Rule 501(a) under the Securities Act in offshore transactions (as defined in Rule 902 under Regulation S of the Securities Act), based upon representation made by such investors.
Subsequent Sales of Unregistered Securities
Subsequent to December 31, 2012, we issued the following securities in unregistered transactions:
On February 22, 2013, members of the advisory board and a director elected to convert a total of $23,333 in unpaid advisory and director fees into 58,333 Units at $0.40 per Unit. Each Unit contained one common share and a three year common share purchase warrant to purchase one additional common share at an exercise price of $0.65 per common share. We relied upon Rule 506 of Regulation D and/or Regulation S of the Securities Act.
On February 22, 2013 we issued 133,783 common shares having a fair value of $99,000 pursuant to a services agreement. We relied on exemptions from registration under Section 4(2) of the Securities Act and/or by Rule 506 of Regulation D promulgated under the Securities Act.
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On February 22, 2013 and March 22, 2013 we issued 10,556,750 Units at $0.40 per Unit pursuant to subscription agreements with fourteen US accredited investors and fifty-five foreign accredited investors for cash proceeds of $4,222,700. Each Unit contained one common share and a three year common share purchase warrant to purchase one additional common share at an exercise price of $0.65 per common share. For the fourteen US accredited investors we relied on exemptions from registration under the Securities Act provided by Rule 506 for U.S. accredited investors. For the fifty-five foreign accredited investors we relied upon Rule 506 of Regulation D and/or Regulation S of the Securities Act as these securities were issued to foreign investors who are “accredited investors,” as such term is defined in Rule 501(a) under the Securities Act in offshore transactions (as defined in Rule 902 under Regulation S of the Securities Act), based upon representation made by such investors.
On February 22, 2013 we issued 275,000 common share purchase warrants to acquire one additional common share at $0.65 expiring three years from date of purchase. These warrants were issued as compensation to our placement agent. We relied on exemptions from registration under Section 4(2) of the Securities Act and/or by Rule 506 of Regulation D promulgated under the Securities Act.
On March 24, 2013 we issued 30,000 common shares having a fair value of $18,900 pursuant to a services agreement. We relied on exemptions from registration under Section 4(2) of the Securities Act and/or by Rule 506 of Regulation D promulgated under the Securities Act.
On March 24, 2013 we issued 100,000 common shares having a fair value of $142,000 pursuant to a services agreement. We relied on exemptions from registration under Section 4(2) of the Securities Act and/or by Rule 506 of Regulation D promulgated under the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR RESULTS OF OPERATIONS
The discussion that follows is derived from our audited balance sheets as of December 31, 2012 and 2011 and the audited statements of operations and cash flows for the years ended December 31, 2012 (‘2012”) and 2011 (“2011”).
For the year ended December 31, 2012, our net loss, after adjustments to bring generally accepted accounting principles (GAAP) to adjusted net loss before corporation income taxes, depreciation and amortization, stock-based compensation and one-time charges (Adjusted EBITDA) was $1,770,448. This loss was, for the most part, an investment in the establishment of our extensive distribution system. This loss is relatively low considering 2012 was our first full year of operations. Most emerging growth beverage companies incur significantly larger losses in the first few years of operations after commencing product launches and do not reach one million in annual case sales until the fourth year after product launch.
As an example, Honest Tea, which was sold to Coca-Cola in 2011 for a reported $400 million, was launched in 1998 and had sales of $250,000 in its first year of operation. It took five years for Honest Tea to reach $4.6 million in sales and nine years to reach $13.5 million in sales. When Coca-Cola purchased Honest Tea it was doing a reported 1.4 million in annual case sales.
We have been in operation with our first product, Cabana™ 100% Natural Lemonade, for just over one year and we expect to reach the annualized one million case sale threshold by the end of Q2 2013. We have generated significant operating revenue in a relatively short period of time on just over $4 million of financing raised to December 31, 2012. Of the $4 million in financing to that date we maintained working capital of just over $1.4 million. These sales attainment levels within a relatively short period of time combined with marginal start-up losses reflects the fact that we have employed our existing capital well. During the Q1 of 2013 we raised an additional $4.1 million in equity capital without incurring any debt, and, as at March 29, 2013 have approximately $3.9 million in cash and $4.8 million in working capital.
During April, 2013 we will begin the introduction of our flagship PULSE® product into our already well-established extensive distribution system. We anticipate that our PULSE® brand of functional beverages will attain the annualized one million case sale threshold in 2014.
Statement of Operations – GAAP adjusted to EBITDA
Our net loss for 2012 was $3,505,783 or $0.10 per share (2011 - $914,758 or $0.03 per share). Our loss has increased by $2,591,025 due mainly to increases in non-cash items such as amortization and depreciation, stock-based compensation and asset impairment charges all increasing by $1,647,450. The remaining increase in net loss of $943,575 is mainly due to transitioning into a fully operational business from a development stage company prior to September 22, 2011. We planned increases in all expense categories. Under the metrics employed by management to evaluate the underlying business explained below, Adjusted EBITDA, that underlying loss was reduced by $1,738,336 to $1,770,448 or $0.05 per share (2011 – reduced by $90,886 to $823,872 or $0.00 per share). We define Adjusted EBITDA as operating income before depreciation, amortization of intangible assets, stock-based compensation, and impairment charges. We use Adjusted EBITDA to evaluate the underlying performance of our business, and a summary of Adjusted EBITDA, reconciling GAAP amounts (i.e., items reported in accordance with U.S. Generally Accepted Accounting Principles) to Adjusted EBITDA amounts (i.e., items included within Adjusted EBITDA as defined directly above) for the fiscal years ended December 31, 2012 and 2011 follows:
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Year Ended December 31, 2012
| GAAP $ |
Adjustments $ |
Adjusted EBITDA $ |
|||||||
| Net Sales | 2,295,840 | 2,295,840 | |||||||
| Cost of Sales | 1,540,668 | 1,540,668 | |||||||
| Gross Profit | 755,172 | 755,172 | |||||||
| Expenses | |||||||||
| Advertising, samples and displays | 176,289 | 176,289 | |||||||
| Freight-out | 249,243 | 249,243 | |||||||
| General and administration | 802,294 | (37,408 | ) | 764,886 | |||||
| Salaries and benefits and broker/agent’s fees | 887,857 | 887,857 | |||||||
| Stock-based compensation (Note 11) | 1,217,719 | (1,217,719 | ) | - | |||||
| Shareholder, broker and investor relations | 459,130 | 459,130 | |||||||
| Total Operating Expenses | 3,789,532 | (1,255,127 | ) | 2,537,405 | |||||
| Net Loss Before Other Income | (3,034,360 | ) | 1,255,127 | (1,782,233 | ) | ||||
| Other Income (Expense) | |||||||||
| Asset impairment | (483,209 | ) | 483,209 | - | |||||
| Forgiveness of debt | 9,971 | 9,971 | |||||||
| Interest income, net | 1,814 | 1,814 | |||||||
| Total Other Income (Expense) | (471,423 | ) | 483,209 | 11,785 | |||||
| Net Loss | (3,505,783 | ) | 1,738,336 | (1,770,448 | ) | ||||
| Net Loss Per Share – Basic and Diluted | $ | (0.10 | ) | $ | 0.05 | $ | (0.05 | ) |
Year Ended December 31, 2011
| GAAP $ |
Adjustments $ |
Adjusted EBITDA $ |
|||||||
| Net Sales | 108,418 | 108,418 | |||||||
| Cost of Sales | 80,079 | 80,079 | |||||||
| Gross Profit | 28,339 | 28,339 | |||||||
| Expenses | |||||||||
| Advertising, samples and displays | 37,417 | 37,417 | |||||||
| Freight-out | 8,103 | 8,103 | |||||||
| General and administration | 461,898 | (10,886 | ) | 451,012 | |||||
| Salaries and benefits and broker/agent’s fees | 280,742 | 280,742 | |||||||
| Shareholder, broker and investor relations | 116,806 | 116,806 | |||||||
| Total Operating Expenses | 904,966 | (10,886 | ) | 894,080 | |||||
| Net Loss Before Other Income | (876,627 | ) | 10,886 | (865,741 | ) | ||||
| Other Income (Expense) | |||||||||
| Asset impairment | (80,000 | ) | 80,000 | - | |||||
| Forgiveness of debt | 36,018 | 36,018 | |||||||
| Interest income, net | 5,851 | 5,851 | |||||||
| Total Other Income (Expense) | (38,131 | ) | 80,000 | 41,869 | |||||
| Net Loss | (914,758 | ) | 90,886 | (823,872 | ) | ||||
| Net Loss Per Share – Basic and Diluted | $ | (0.03 | ) | $ | 0.00 | $ | (0.03 | ) |
Net Sales
Prior to September 23, 2011 we were a development stage company as we had no operating revenues. Production and sales of our Cabana™ 100% Natural Lemonade started on September 23, 2011 and since, as principal business activities have begun and we are generating significant revenues, we are no longer considered a development stage company. All of our growth is organic growth from sales of Cabana™. During 2011 and 2012 our product development team completed the re-design, testing and flavor profiles of PULSE® in three health platforms: Men’s Health Formula™, Women’s Health Formula™, and Heart Health Formula™. During February 2013 we completed our first commercial production of PULSE® at our Coppell, Texas co-packer and have begun shipping PULSE®, on a limited basis, into our distribution system.
Sales from PULSE® began in February, 2013. We expect 2013 revenues to be significantly higher than 2012 revenues due to regional and national chain and convenience store listings secured for Cabana™ and the rollout of PULSE® into many of the same stores. Recently, we secured world-wide distribution for Cabana™ and PULSE® through a key account. Our distribution system reached nationwide ‘critical-mass’ during the latter part of 2012. Centralized purchasing for large grocery and convenience store chains has resulted in the implementation of shelf-settings and product placements to Q1 of 2013. These factors allowed us to approach and secure listings for our Cabana™ from US national and regional grocery and convenience store chains. During the latter part of 2012 and to March 29, 2013we have approached and secured listings with regional and national grocery and convenience chain stores, and have secured listings for Cabana™ in over 11,000 stores. We expect to add at least an additional 9,000 listings during the remainder of 2013 based on discussions we have underway. On a twelve month from delivery-to-store basis we estimate US Cabana™ case sales in excess of 2,500,000 and international Cabana™ case sales in excess of 500,000 based on secured and targeted listings to date.
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We recognize revenue when delivery has occurred, the sales price is fixed and collectability is reasonably assured. Ownership and title of our products pass to customers upon delivery of the products to customers. We record revenues, net of sales discounts.
During 2012 our gross revenues, on sale of 226,869 cases (2011 – 9,670 cases) of Cabana™, before slotting fees and other promotional allowances, was $2,503,566 (2011 - $110,253), and net sales were $2,295,840 (2011 - $108,418) after slotting fees and other promotional allowances of $205,726 (2011 - $1,835). This increase in case sales and revenues was accomplished during, what is considered, the initial beverage company start-up and product roll-out phase indicating a strong brand and strong consumer acceptance of Cabana™. We expect gross sales, net sales and slotting fees and promotional allowances to increase due to large chain and convenience store listings secured for Cabana™ to date and expected to secure during 2013 for Cabana™ and PULSE®.
Cost of Sales
Our cost of sales for 2012 increased by $1,460,589 to $1,540,668 (2011 – $80,079) due to an increase in Cabana™ case sales from 9,670 to 226,869. As a % of net revenue our costs of sales for 2012 was 67% (2011 – 74%). The decrease is due to higher volumes and better efficiencies at our co-packers. Cost of sales includes raw materials, co-packing services and lab testing. We expect all cost variables to decrease as we source raw materials at a lower cost because of volume discounts; ship our product within a 500 mile radius of our co-packers and due to lower cost glass from a mid-west supplier.
Gross Profit
Our gross profit for 2012 increased by $726,833 to $755,172 (2011 - $28,339) due to increased sales. Our gross profit for 2012 was 33% (2011 – 26%). Cost of our initial production runs was high due to: production techniques and variables we were testing and improving; higher than normal freight costs; higher raw material costs due to low volume purchasing; high cost of glass. We expect gross profits to normalize at 35% in the near-term and 40% in the long-term when PULSE® has a higher weighting of sales.
Advertising, samples and displays
During 2012 we incurred $176,289 (2011 - $37,417) in advertising, samples and displays. This expense includes magazine advertising, samples shipped to distributors, display racks and ice barrels, sell sheets, shelf strips and door decals. We expect this expense to increase in proportion to increase in sales as we increase our sales budget due to the introduction of PULSE in March, 2013 and an overall increase in distribution reach both in the United States and internationally.
Freight-out
During 2012 we incurred $249,243 or $1.10 per case (2011 - $8,103 or $0.84 per case). Freight per case rose during the first half of 2012 and have come back down below $1.00 per case due to shipping out of three co-packing facilities strategically placed closer to our shipping points.
General and administrative
General and administration expenses for the fiscal year ended December 31, 2012 and 2011, both on a GAAP and on an Adjusted EBITDA basis, consist of the following:
| 2012 GAAP $ |
2012 Adjust- ments $ |
Adjusted EBITDA $ |
2011 GAAP $ |
2011 Adjustments $ |
Adjusted EBITDA $ |
|||||||||||||
| General and administration | ||||||||||||||||||
| Advisory and director fees | 114,437 | 114,437 | 59,179 | 59,179 | ||||||||||||||
| Amortization and depreciation | 37,408 | (37,408 | ) | - | 10,886 | (10,886 | ) | - | ||||||||||
| Consulting fees | 85,750 | 85,750 | 63,000 | 63,000 | ||||||||||||||
| Legal and professional | 121,731 | 121,731 | 160,722 | 160,722 | ||||||||||||||
| Office expenses | 113,542 | 113,543 | 31,736 | 31,736 | ||||||||||||||
| Regulatory fees | 17,416 | 17,416 | 31,556 | 31,556 | ||||||||||||||
| Rent | 55,390 | 55,390 | 36,734 | 36,734 | ||||||||||||||
| Telephone | 19,446 | 19,446 | 7,684 | 7,684 | ||||||||||||||
| Tradeshows | 24,305 | 24,305 | 20,770 | 20,770 | ||||||||||||||
| Travel and meals | 212,869 | 212,869 | 39,631 | 39,631 | ||||||||||||||
| Total general and administration | 802,294 | 802,294 | 461,898 | (10,886 | ) | 451,012 |
During 2012 we incurred $802,294 in general and administration expenses (2011 - $461,898), an increase of $340,396. The largest increase was in travel which increased by $173,238 to $212,869. This increase was due to adding salespeople throughout the year and more travel by all salespeople and executives. Office expense increased by $81,806 to $113,542. This was due to higher office rent, insurance and general office expenses. Advisory and director fees increased by $55,258 to $114,437. This was due to a full year of fees compared to a partial year in 2011. Legal and professional fees decreased by $38,991 to $121,731. This was due to not incurring costs associated with the Share Exchange Transaction and other legal financing fees that became defunct.
We expect general and administrative expenses to moderately increase in 2013.
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Salaries and benefits and broker/agent’s fees
Salaries and benefits and broker/agent’s fees increased by $607,115 to $887,857. This was due to an overall increase in personnel and a full year of salaries compared to a part year in 2011. We expect to double this cost during 2013 as we hire regional and district managers and additional staff for the introduction of PULSE®. Commissions are expected to be part of regional and district managers’ salaries in 2013. During 2012 commissions were $6,701. We also plan to pay commissions to part-time and full-time brokers. During 2012 and2011 we mainly relied on our senior management and brokers to develop our distribution system and sell product into it.
Shareholder, broker and investor relations
Shareholder, broker and investor relations increased by $342,324 to $459,130. This increase was due to an agreement with consulting firm to introduce our company into the brokerage community. We paid this consulting firm $5,000 per month and issued them 417,571 common shares valued at $203,000 for total compensation of $258,000.
Other Income (Expense)
During 2012 we incurred an asset impairment charge of $483,209 for bottle molds we are not using. During 2011 we incurred an asset impairment charge of $80,000. During 2012 we recognized a forgiveness of debt gain of $9,971 (2011 - $36,018).
LIQUIDITY AND CAPITAL RESOURCES
Overview
During 2012 we increased our cash position from $87,918 in 2011 to $744,906 as of December 31, 2012. Subsequent to December 31, 2012 we received a further $4.1 million pursuant to our $0.40 Unit offering and as at March 29, 2013 we have approximately $3.9 million in cash.
As at December 31, 2012, we had working capital of $1,417,441 which included cash of $744,906, customer accounts receivable of $202,255, inventories of $715,517 (including finished product of $407,560, glass bottles of $42,257 and other raw materials of $265,700) and other current assets of $101,842. We have no debt other than accounts payable of $250,948 and accrued expenses of $96,630. We have no long-term debt.
As at March 29, 2013 our working capital increased to more than $4.8 million. We believe this working capital is sufficient to fund short-term operating losses, until we achieve profitability, and to fund the expected growth of inventory/accounts receivable due to expected 2013 case sale levels of our Cabana™ and PULSE® beverage products. We believe we have enough working capital to bring both products to profitability and we expect to be operationally cash flow positive and profitable during 2013.
During 2012 our net loss, after adjustments to bring GAAP to adjusted EBITDA as discussed above, was $1,770,448. Our view of this loss is as an investment in our distribution system which, into 2013, allows us to distribute our product nationwide and into regional and national chain stores as well as internationally in Canada, Mexico, Panama and Bermuda. During 2012 we did not have the critical mass to secure chain store listings. It wasn’t until the latter part of 2012 that we were in a position to obtain such listings for product to be delivered in early 2013. As at March 29, 2013 we have secured more than 11,000 chain store listings for Cabana™.
The following table sets forth the major sources and uses of cash for our last two fiscal years ended December 31, 2012 and 2011:
| 2012 $ |
2011 $ |
|||||
| Net cash used in operating activities | (1,681,044 | ) | (999,297 | ) | ||
| Net cash used in investing activities | (273,580 | ) | (392,399 | ) | ||
| Net cash provided by financing activities | 2,611,612 | 1,479,614 | ||||
| Net increase (decrease) in cash | 656,988 | (87,918 | ) |
Cash Used in Operating Activities
During 2012 we used $1,681,044 (2011 - $999,297) in operating activities. This was made up of our net loss of $3,505,783 (2011 - $914,758) less adjustments for non-cash items such as: an asset impairment charge of $483,208 (2011 - $80,000), shares and options issued for services of $1,646,736 (2011 - $86,434), amortization and depreciation of $37,407 (2011 - $10,886) and forgiveness of debt of $9,971 (2011 - $36,018) all totaling $2,157,380 (2011 - $141,302). After non-cash items our net loss was $1,348,403 ($773,456) or approximately $112,000 per month (2011 - $64,000). We also used $332,643 (2011 - $225,841) in net increases in operating assets and liabilities. We used $181,453 (2011 $21,302) due to an increase in our customer accounts receivable and $355,257 (2011 - $370,968) due to increases in inventory levels, both due to a significant increase in our sales. We received $183,418 (2011 - $188,746) due to an increase in accounts payable and accrued expenses mainly due to credit extended by our suppliers.
Cash Used in Investing Activities
During 2012 we used $273,580 (2011 - $392,399) in investing activities. We loaned $63,000 to our co-packer in Texas to allow them to acquire a specific piece of equipment to run our PULSE® product in February, 2013. This loan is being repaid on a per-case reduction in co-packing fees and is expected to be fully repaid at some point in 2013. We also spent $116,479 on bottle molds, tray cutting dies and printing aids for 20oz glass Cabana™ bottles and trays and 16oz glass PULSE® bottles and trays. We spent $9,944 on computer and warehouse equipment. We spent $28,784 on formulation costs associated with bringing PULSE® into commercial production. These costs were associated with third party lab testing and consultants to document and review our PULSE® formulas. A total of $12,691 was spent on a test run which was required prior to commercial production in February 2013. We also spent $47,567 advancing our trademarks and packaging.
During 2011 we loaned $200,000 to Catalyst Development Inc. (a related party) pursuant to a Letter Agreement of which $2,761 was repaid during 2011 and $4,885 repaid during 2012.
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Cash Provided by Financing Activities
During 2012, we received $2,611,612 (2011 - $1,479,614) from financing activities. We received a $250,000 loan from an unrelated third party, which carried a 6% interest rate, and was converted into equity. In addition we received $2,361,612, net of $164,688 of share issuance costs, and issued 7,231,666 common shares and 7,231,666 common share purchase warrants.
During 2011 we received $1,545,000 and issued 2,025,000 common shares and 1,000,000 common share purchase warrants. We also received a $20,000 loan and repaid this loan and other short-term loans of $65,442 of short-term loans.
Additional Capital
We have in excess of $4.8 million in working capital as at March 29, 2013, as such, we do not need additional capital to finance the growth of our operations. We also have in excess of 19,000,000 warrants outstanding at an average exercise price of $0.62 per common share which could, if exercised, raise us in excess of $12,000,000. We have no assurance, however, that we will ever see this additional money as the warrant holders must first choose to exercise their warrants.
OFF BALANCE-SHEET ARRANGEMENTS
We have not had, and at December 31, 2012, do not have, any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements that have been prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). This preparation requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. US GAAP provides the framework from which to make these estimates, assumption and disclosures. We choose accounting policies within US GAAP that management believes are appropriate to accurately and fairly report our operating results and financial position in a consistent manner. Management regularly assesses these policies in light of current and forecasted economic conditions. While there are a number of significant accounting policies affecting our financial statements, we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments:
Revenue Recognition
Revenue is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Ownership and title of our products pass to customers upon delivery of the products to customers. Certain of our distributors may also perform a separate function as a co-packer on our behalf. In such cases, ownership of and title to our products that are co-packed on our behalf by those co-packers who are also distributors, passes to such distributors when we are notified by them that they have taken transfer or possession of the relevant portion of our finished goods. Net sales have been determined after deduction of discounts, slotting fees and other promotional allowances in accordance with ASC 605-50.
Stock Based Compensation
We account for stock-based payments to employees in accordance with ASC 718, “Stock Compensation” (“ASC 718”). Stock-based payments to employees include grants of stock, grants of stock options and issuance of warrants that are recognized in the consolidated statement of operations based on their fair values at the date of grant.
We account for stock-based payments to non-employees in accordance with ASC 718 and Topic 505-50, “Equity-Based Payments to Non-Employees.” Stock-based payments to non-employees include grants of stock, grants of stock options and issuances of warrants that are recognized in the consolidated statement of operations based on the value of the vested portion of the award over the requisite service period as measured at its then-current fair value as of each financial reporting date.
We calculate the fair value of option grants and warrant issuances utilizing the Black-Scholes pricing model. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. ASC 718 requires forfeitures to be estimated at the time stock options are granted and warrants are issued to employees and non-employees, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock option or warrant. The Company estimates forfeiture rates for all unvested awards when calculating the expense for the period. In estimating the forfeiture rate, the Company monitors both stock option and warrant exercises as well as employee termination patterns.
The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight-line basis over the requisite service period of the award.
Use of Estimates
The preparation of financial statements in accordance with United States generally accepted accounting principles requires us 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 revenue and expenses in the reporting period. We regularly evaluate estimates and assumptions related to the useful life and recoverability of
19
long-lived assets, stock-based compensation, and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
There have been no recently issued Accounting Pronouncements that impact us.
ITEM 7. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Article 8 of Regulation S-X follow:
2011 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
The Pulse Beverage Corporation
Westminster, Colorado
We have audited the accompanying balance sheets of The Pulse Beverage Corporation (the “Company”) as of December 31, 2011 and 2010, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the years ended December 31, 2011 and 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We have conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Pulse Beverage Corporation as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years ended December 31, 2011 and 2010 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the accompanying financial statements, the Company has suffered start-up losses and is dependent upon the sale of its securities or obtaining debt financing to meet its obligations and sustain its operations, which raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Weaver, Martin & Samyn, LLC
Kansas City, MO
March 16, 2012
20
2012 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
The Pulse Beverage Corporation
Northglenn, Colorado
We have audited the accompanying balance sheet of The Pulse Beverage Corporation (the “Company”) as of December 31, 2012, and the related statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2012. The Pulse Beverage Corporation’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Pulse Beverage Corporation as of December 31, 2012, and the results of its operations and its cash flows for the year ended December 31, in conformity with accounting principles generally accepted in the United States of America.
/s/ L.L.Bradford & Company, LLC
Las Vegas, Nevada
March 29, 2013
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The Pulse Beverage Corporation
Balance Sheets
As of December 31, 2012 and 2011
|
2012 $ |
2011 $ |
|||||
| ASSETS | ||||||
| Current Assets | ||||||
| Cash | 744,906 | 87,918 | ||||
| Accounts receivable (Note 3) | 202,755 | 21,302 | ||||
| Inventories (Note 4) | 715,517 | 370,968 | ||||
| Other current assets | 101,842 | 51,792 | ||||
| Total Current Assets | 1,765,020 | 531,980 | ||||
| Property and equipment, net of accumulated depreciation of $24,663 and $2,577, respectively (Note 6) | 482,874 | 858,536 | ||||
| Other assets | ||||||
| Loan receivable, net of current portion – related party (Note 5) | 188,030 | 193,114 | ||||
| Intangible assets, net of accumulated amortization of $23,631 and $8,309 (Note 6 ) | 1,104,948 | 1,031,228 | ||||
| Total Other Assets | 1,292,978 | 1,224,342 | ||||
| Total Assets | 3,540,872 | 2,614,858 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Current Liabilities | ||||||
| Accounts payable and accrued expenses | 347,579 | 209,875 | ||||
| Total Current Liabilities | 347,579 | 209,875 | ||||
| Stockholders’ Equity | ||||||
| Preferred Stock, 1,000,000 shares authorized, $0.001 par value, none issued | - | - | ||||
| Common Stock, 100,000,000 shares authorized, $0.00001 par value 40,701,402 and 31,011,667 issued and outstanding, respectively (Note 8) | 407 | 310 | ||||
| Additional Paid-in Capital | 7,817,539 | 3,403,543 | ||||
| Subscriptions | - | 120,000 | ||||
| Accumulated Deficit | (4,624,653 | ) | (1,118,870 | ) | ||
| Total Stockholders’ Equity | 3,193,293 | 2,404,983 | ||||
| Total Liabilities and Stockholders’ Equity | 3,540,872 | 2,614,858 |
(See Notes to Financial Statements)
22
The Pulse Beverage Corporation
Statements Operations
Years Ended December 31, 2012 and 2011
|
2012 $ |
2011 $ |
|||||
| Net Sales | 2,295,840 | 108,418 | ||||
| Cost of Sales | 1,540,668 | 80,079 | ||||
| Gross Profit | 755,172 | 28,339 | ||||
| Expenses | ||||||
| Advertising, samples and displays | 176,289 | 37,417 | ||||
| Freight-out | 249,243 | 8,103 | ||||
| General and administration | 802,294 | 461,898 | ||||
| Salaries and benefits and broker/agent’s fees | 887,857 | 280,742 | ||||
| Stock-based compensation (Note 11) | 1,217,719 | - | ||||
| Shareholder, broker and investor relations | 459,130 | 116,806 | ||||
| Total Operating Expenses | 3,789,532 | 904,966 | ||||
| Net Operating Loss | (3,034,360 | ) | (876,627 | ) | ||
| Other Income (Expense) | ||||||
| Asset impairment | (483,209 | ) | (80,000 | ) | ||
| Forgiveness of debt | 9,971 | 36,018 | ||||
| Interest income, net | 1,814 | 5,851 | ||||
| Total Other Income (Expense) | (471,423 | ) | (38,131 | ) | ||
| Net Loss | (3,505,783 | ) | (914,758 | ) | ||
| Net Loss Per Share – Basic and Diluted | ($0.10 | ) | ($0.03 | ) | ||
| Weighted Average Shares Outstanding – Basic and Diluted | 34,762,000 | 29,834,000 |
(See Notes to Financial Statements)
23
The Pulse Beverage Corporation
Statements of Cash Flows
Years Ended December 31, 2012 and 2011
|
2012 $ |
2011 $ |
|||||
| Operating Activities | ||||||
| Net loss | (3,505,783 | ) | (914,758 | ) | ||
| Less non-cash items: | ||||||
| Amortization and depreciation | 37,407 | 10,886 | ||||
| Asset impairment | 483,208 | 80,000 | ||||
| Shares and options issued for services | 1,646,736 | 86,434 | ||||
| Forgiveness of debt | (9,971 | ) | (36,018 | ) | ||
| Changes in operating assets and liabilities: | ||||||
| (Increase) in accounts receivable | (181,453 | ) | (21,302 | ) | ||
| Decrease (increase) in prepaid expenses | 20,649 | (22,317 | ) | |||
| (Increase) in inventories | (355,257 | ) | (370,968 | ) | ||
| Increase in accounts payable and accrued expenses | 183,418 | 188,746 | ||||
| Net Cash Used in Operating Activities | (1,681,044 | ) | (999,297 | ) | ||
| Investing Activities | ||||||
| Investment in loan receivable | (63,000 | ) | - | |||
| Investment in note receivable - related party | - | (200,000 | ) | |||
| Repayment of note receivable - related party | 4,885 | 2,761 | ||||
| Acquisition of property and equipment | (126,423 | ) | (126,113 | ) | ||
| Acquisition of intangible assets | (89,042 | ) | (69,047 | ) | ||
| Net Cash Used in Investing Activities | (273,580 | ) | (392,399 | ) | ||
| Financing Activities | ||||||
| Cash received in acquisition | - | 56 | ||||
| Proceeds from short-term loans | 250,000 | 20,000 | ||||
| Repayment of short-term loans | - | (85,442 | ) | |||
| Proceeds from the sale of common stock, net of costs | 2,361,612 | 1,545,000 | ||||
| Net Cash Provided by Financing Activities | 2,611,612 | 1,479,614 | ||||
| Increase in Cash | 656,988 | 87,918 | ||||
| Cash - Beginning of Year | 87,918 | - | ||||
| Cash - End of Year | 744,906 | 87,918 | ||||
| Non-cash Financing and Investing Activities: | ||||||
| Acquisition of assets for common shares | - | 1,618,020 | ||||
| Short-term loans and payables assumed in acquisition | - | 167,165 | ||||
| Shares issued for services, debt and prepaid expenses | 768,446 | 86,434 | ||||
| Supplemental Disclosures: | ||||||
| Interest paid | - | 203 | ||||
| Income taxes paid | - | - |
(See Notes to Financial Statements)
24
The Pulse Beverage Corporation
Statement of Stockholders’ Equity
Years Ended December 31, 2012 and 2011
| Shares # |
Amount $ |
Additional Paid-in Capital $ |
Deficit $ |
Total $ |
||||||
| Balance – December 31, 2010 | 3,515,000 | 35 | 149,015 | (204,112 | ) | (55,062 | ) | |||
| Shares issued as dividend | 38,665,000 | 387 | (387 | ) | - | - | ||||
| Cancellation of shares | (26,660,000 | ) | (267 | ) | 267 | - | - | |||
| Shares issued for asset acquisition | 13,280,000 | 133 | 1,617,887 | - | 1,618,020 | |||||
| Shares issued for cash at $1.00 per share | 1,025,000 | 10 | 1,024,990 | - | 1,025,000 | |||||
| Shares issued for services at $0.60 per share | 186,667 | 2 | 111,781 | - | 111,783 | |||||
| Shares issued for cash at $0.50 per share | 1,000,000 | 10 | 499,990 | - | 500,000 | |||||
| Subscriptions for cash at $0.30 per share | - | - | 120,000 | - | 120,000 | |||||
| Net loss | - | - | - | (914,758 | ) | (914,758 | ) | |||
| Balance – December 31, 2011 | 31,011,667 | 310 | 3,523,543 | (1,118,870 | ) | 2,404,983 | ||||
| Shares issued at $0.30 – 2011 subscriptions | 400,000 | 4 | (4 | ) | - | - | ||||
| Shares issued for cash at $0.30 per share | 2,856,666 | 28 | 856,972 | - | 857,000 | |||||
| Shares issued for cash at $0.40 per share | 4,675,000 | 47 | 1,869,953 | - | 1,870,000 | |||||
| Shares issued for services at $0.44 per share | 1,278,069 | 13 | 568,132 | - | 568,145 | |||||
| Shares issued for incentives at $0.52 per share | 480,000 | 5 | 249,595 | - | 249,600 | |||||
| Share issuance costs | - | - | (164,688 | ) | - | (164,688 | ) | |||
| Stock-based compensation | - | - | 914,036 | - | 914,036 | |||||
| Net loss | - | - | - | (3,505,783 | ) | (3,505,783 | ) | |||
| Balance – December 31, 2012 | 40,701,402 | 407 | 7,817,539 | (4,624,653 | ) | 3,193,293 |
(See Notes to Financial Statements)
25
The Pulse Beverage Corporation
Notes to Financial Statements
| 1. | Nature of Operations |
| Darlington Mines Ltd. (“Darlington”) was incorporated in the State of Nevada on August 23, 2006. From August 23, 2006 to February 15, 2011 it was first, an exploration stage company. On February 15, 2011 Darlington Mines Ltd. closed a voluntary share exchange transaction with a private Colorado company, The Pulse Beverage Corporation (“Pulse”) by and among us, Pulse and the stockholders of Pulse. Pulse became a wholly-owned subsidiary. On February 16, 2011 Darlington’s name was changed to “The Pulse Beverage Corporation”. The Pulse Beverage Corporation manufactures and distributes Cabana™ 100% Natural Lemonade and PULSE® brand of functional beverages. |
| 2. | Summary of Significant Accounting Policies |
| Reclassification |
| Certain reclassifications have been made to make 2011 amounts conform to 2012 classifications for comparative purposes. |
| Use of Estimates |
| The preparation of financial statements in accordance with United States generally accepted accounting principles requires us 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 revenue and expenses in the reporting period. We regularly evaluate estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation, and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. |
| Cash and Cash Equivalents |
| Cash and cash equivalents include cash on deposit in overnight deposit accounts and investments in money market accounts. |
| Accounts receivable |
| We evaluate the collectability of our trade accounts receivable based on a number of factors. In circumstances where we become aware of a specific customer’s inability to meet its financial obligations to us, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount we believe will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on our bad debt loss history and an overall assessment of past due trade accounts receivable outstanding. Accounts receivable is reported as the customers’ outstanding balances less any allowance for doubtful accounts. We records an allowance for doubtful accounts receivable based on specifically identified amounts that are believed to be uncollectible. After all attempts to collect a receivable have failed, the account receivable is written-off against the allowance. The allowance for doubtful accounts was $nil at December 31, 2012 and 2011. |
| Inventory |
| Inventories are stated at the lower of cost to manufacture the inventory or the current estimated market value of the inventory. We regularly review our inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand, production availability and/or our ability to sell the product(s) concerned. Demand for our products can fluctuate significantly. Factors that could affect demand for our products include unanticipated changes in consumer preferences, general market and economic conditions or other factors that may result in cancellations of advance orders or reductions in the rate of reorders placed by customers and/or continued weakening of economic conditions. Additionally, our estimates of future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and obsolete inventory. |
| Property and Equipment |
| Property and equipment includes bottle molds, manufacturing equipment, office equipment, warehouse equipment and display coolers which are all stated at historical cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets which range from three to five years. |
| Long-Lived Assets |
| We account for long-lived assets in accordance with ASC Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. We assess recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. As of December 31, 2012 and 2011, we recognized an impairment of $483,208 and $80,000, respectively. |
| Intangible Assets |
| Intangible assets are comprised primarily of the cost of formulations of our products and of trademarks that represent our exclusive ownership of Cabana™, PULSE® and PULSE: Nutrition Made Simple®, all used in connection with the manufacture, sale and distribution of our beverages. We evaluate our trademarks annually for impairment or earlier if there is an indication of impairment. If there is an indication of impairment of identified intangible assets not subject to amortization, we compare the estimated fair value with the carrying amount of the |
26
| asset. An impairment loss is recognized to write-down the intangible asset to its fair value if it is less than the carrying amount. The fair value is calculated using the income approach. However, preparation of estimated expected future cash flows is inherently subjective and is based on our best estimate of assumptions concerning expected future conditions. Based on our impairment analysis performed for the year ended December 31, 2012, the estimated fair values of trademarks and other intangible assets exceeded their respective carrying values. |
| Revenue Recognition |
| Revenue is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Ownership and title of our products pass to customers upon delivery of the products to customers. Certain of our distributors may also perform a separate function as a co-packer on our behalf. In such cases, ownership of and title to our products that are co-packed on our behalf by those co-packers who are also distributors, passes to such distributors when we are notified by them that they have taken transfer or possession of the relevant portion of our finished goods. Net sales have been determined after deduction of discounts, slotting fees and other promotional allowances in accordance with ASC 605-50. |
| Allowance for Doubtful Accounts |
| We record an allowance for doubtful accounts based on specifically identified amounts that are believed to be uncollectible. An additional allowance is recorded based on certain percentages of aged receivables, which are determined based on historical experience and assessment of the general financial conditions affecting our customer base. If actual collections experience changes, revisions to the allowance may be required. After all attempts to collect a receivable have failed, the receivable is written-off against the allowance. The allowance for doubtful accounts was $nil and $nil at December 31, 2012 and 2011, respectively. |
| Fair Value |
| We complies with the provisions of ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements required under other accounting pronouncements. See Note 14. |
| Financial Instruments |
| We have financial instruments whereby the fair value of the financial instruments could be different from that recorded on a historical basis. Our financial instruments consist of cash, accounts and loans receivables, accounts payable and accrued expenses. The carrying amounts of our financial instruments approximate their fair values as of December 31, 2012 and 2011 due to their short-term nature. |
| Income Taxes |
| We follow ASC subtopic 740-10 for recording the provision for income taxes. ASC 740-10 requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. |
| Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. |
| Concentration of Business and Credit Risk |
| Financial instruments and related items, which potentially subject us to concentrations of credit risk, consist primarily of cash and receivables. We place our cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. As of December 31, 2012 and 2011, we exceeded insurance limits by $494,906 and $nil. |
| We review a customer’s credit history before extending credit. As at and for the year ended December 31, 2012 there was one individual customer with a balance in excess of 10% of the accounts receivable totaling 29% of accounts receivable and there were no customers in excess of 10% of net sales. |
| Stock-based Compensation |
| We account for stock-based payments to employees in accordance with ASC 718, “Stock Compensation” (“ASC 718”). Stock-based payments to employees include grants of stock, grants of stock options and issuance of warrants that are recognized in the consolidated statement of operations based on their fair values at the date of grant. |
| We account for stock-based payments to non-employees in accordance with ASC 718 and Topic 505-50, “Equity-Based Payments to Non-Employees.” Stock-based payments to non-employees include grants of stock, grants of stock options and issuances of warrants that are recognized in the consolidated statement of operations based on the value of the vested portion of the award over the requisite service period as measured at its then-current fair value as of each financial reporting date. |
| We calculate the fair value of option grants and warrant issuances utilizing the Black-Scholes pricing model. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. ASC 718 requires forfeitures to be estimated at the time stock options are granted and warrants are issued to employees and non-employees, and |
27
| revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock option or warrant. The Company estimates forfeiture rates for all unvested awards when calculating the expense for the period. In estimating the forfeiture rate, the Company monitors both stock option and warrant exercises as well as employee termination patterns. |
| The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight-line basis over the requisite service period of the award. |
| Basic and Diluted Net Income (Loss) Per Share |
| Net loss per share is computed in accordance with ASC subtopic 260-10. We present basic loss per share (“EPS”) and diluted EPS on the face of our statements of operations. Basic EPS is computed by dividing reported earnings by the weighted average shares outstanding. Diluted EPS is computed by adding to the weighted average shares the dilutive effect if common stock was issued upon the exercise of stock options and warrants. For the years ended December 31, 2012 and 2011, the denominator in the diluted EPS computation is the same as the denominator for basic EPS due to the anti-dilutive effect of outstanding warrants on our net loss. Total potentially dilutive common share equivalents relating to stock purchase warrants and options granted or issued, as at December 31, 2012 and 2011, is 10,647,213 and 1,116,667, respectively. |
| Recent Pronouncements |
| In July 2012, the FASB issued ASU 2012-02, "Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment" ("ASU 2012-02"), which permits an entity to make a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit's indefinite-lived intangible asset is less than the asset's carrying value before applying the two-step goodwill impairment model that is currently in place. If it is determined through the qualitative assessment that the fair value of a reporting unit's indefinite-lived intangible asset is more likely than not greater than the asset's carrying value, the remaining impairment steps would be unnecessary. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. ASU 2012-02 is effective for us for annual and interim indefinite-lived intangible asset impairment tests performed beginning October 1, 2012; however, early adoption is permitted. We believe the adoption of ASU 2012-02 will not have a material impact on our financial statements. |
| We continually assess any new accounting pronouncements to determine their applicability to us. Where it is determined that a new accounting pronouncement affects our financial reporting, we undertake a study to determine the consequence of the change to our financial statements and assure that there are proper controls in place to ascertain that our financial statements properly reflect the change. |
| 3. | Accounts Receivable |
| Accounts receivable consist of the following as of December 31: |
|
2012 $ |
2011 $ |
||||||
| Trade accounts receivable | 202,255 | 21,302 | |||||
| Employee advances | 500 | - | |||||
| Less: Allowance for doubtful accounts | - | - | |||||
| 202,755 | 21,302 | ||||||
| 202,755 | 21,302 |
| 4. | Inventory |
| Inventory consists of the following as of December 31: |
|
2012 $ |
2011 $ |
||||||
| Finished goods | 407,560 | 107,559 | |||||
| Work in process | - | 3,061 | |||||
| Raw Materials | 307,957 | 260,348 | |||||
| 715,517 | 370,968 | ||||||
| 715,517 | 370,968 |
| 5. | Loan Receivable – Related party |
| Pursuant to a Letter Agreement dated December 24, 2010 between us and Catalyst Development Inc., (“Catalyst”) a company owned by our Chief of Product Development, we loaned $200,000 to Catalyst. The loan bears interest at a rate of 4% per annum, is amortized over 25 years and matures on May 16, 2016 with a balloon payment due in the amount of $174,000. Catalyst repays this loan on a monthly basis at $1,055 principal and interest. As of December 31, 2012, the remaining principal balance due is $193,114 of which $5,084 is current and included in Other Current Assets. |
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| 6. | Property and Equipment and Intangible Assets |
| Property and equipment consists of the following as of December 31: |
2012 $ |
2011 $ |
|||||
| Manufacturing and warehouse equipment and molds | 230,779 | 590,000 | |||||
| Display equipment - Coolers | 122,187 | 120,000 | |||||
| Office equipment and computers | 29,570 | 26,113 | |||||
| Mobile display unit | 125,000 | 125,000 | |||||
| Less: depreciation | (24,663 | ) | (2,577 | ) | |||
| Total Property and Equipment | 482,874 | 858,536 |
| Intangible assets consists of the following as of December 31: |
2012 $ |
2011 $ |
|||||
| Formulations and manufacturing methods | 761,963 | 720,488 | |||||
| Trademarks | 159,706 | 112,139 | |||||
| Side panel statement rights | 125,000 | 125,000 | |||||
| Patents | 50,160 | 50,160 | |||||
| Website | 31,750 | 31,750 | |||||
| Less: amortization | (23,631 | ) | (8,309 | ) | |||
| Total Intangible Assets | 1,104,948 | 1,031,228 |
| 7. | Short-term Loan |
| Pursuant to the acquisition of Pulse we assumed short-term loans of $165,442. A total of $65,442 was repaid in cash and $100,000 was converted into $0.50 Units. |
| On January 31, 2011 a loan of $36,018 was forgiven and a gain of $36,018 was recognized in 2011. |
| On July 17, 2012 we received $250,000 pursuant to a short-term bridge loan from an unrelated party. This loan bore interest at 6% per annum and was unsecured and due on demand. On December 21, 2012 the principal portion of this loan was converted into $0.40 Units. Each unit contained one common share and one share purchase warrant exercisable at $0.65 expiring December 21, 2015. Accrued interest of $6,486 is included in accrued expenses. |
| 8. | Common Stock |
| During the year ended December 31, 2011 we: |
| a) | approved a 12:1 forward stock split by way of stock dividend (the “Split”). A dividend of twelve common shares was issued for each one share of common stock issued and outstanding as of February 4, 2011. The stock dividend increased the number of our issued and outstanding common shares to 42,180,000 from 3,515,000. The stock dividend did not affect the number of authorized common stock, which remained at 100,000,000. On February 15, 2011 our former President, Chief Executive Officer, Chief Financial Officer and Treasurer, agreed to surrender 26,660,000 shares of our common stock to us for cancellation; |
| b) | issued to Pulse shareholders a total of 13,280,000 common shares having a fair value of $1,618,020, in exchange for 100% of the outstanding common shares of Pulse. We also assumed a short-term loan of $100,000 pursuant to the acquisition of Pulse. Between August 29, 2011 and September 15, 2011 we received a further $400,000 from the same lender. On September 15, 2011 we issued 1,000,000 units at $0.50 per Unit (“$0.50 Unit”) to settle this debt. Each Unit consisted of one common share and one common share purchase warrant to acquire one additional common share at $0.75 per share expiring September 15, 2016; |
| c) | issued 1,025,000 common shares to foreign accredited investors at $1.00 per share for total proceeds of $1,025,000; |
| d) | issued 30,000 common shares having a fair value of $32,400 as compensation pursuant to an Advisory Board Agreement. This amount was recorded as a prepaid expense to be amortized over a two year period ending June 15, 2013. On September 15, 2011 we issued 10,000 common shares having a fair value of $10,548 pursuant to this Advisory Board Agreement; |
| e) | issued 116,667 $0.50 Units to settle $58,335 in advisory fees owing to Advisory Board members and a director; |
| f) | issued 30,000 common shares, having a fair value of $10,500, pursuant to an agreement for services to be rendered from January 1, 2012 to June 30, 2012. This amount was charged to operations during 2012; |
| During the year ended December 31, 2012 we: |
| g) | issued a total of 400,000 $0.30 Units pursuant to $120,000 received prior to December 31, 2011; |
| h) | received $857,000 pursuant to a $0.30 Unit offering and issued a total of 2,856,666 $0.30 Units. Each $0.30 Unit consisted of one common share and one common share purchase warrant to acquire one additional common share at $0.45 for a period of five years; |
29
| i) | received $1,870,000 pursuant to a $0.40 Unit offering and issued a total of 4,675,000 $0.40 Units. Each Unit consisted of one common share and one common share purchase warrant to acquire one additional common share at $0.60 per share as to 1,250,000 $0.40 Units and at $0.65 per common share as to 3,425,000 $0.40 Units, all expiring three years from date of purchase; |
| j) | issued a total of 309,664 $0.30 Units and 179,167 $0.40 Units, all having a fair value of $164,566 in advisory and business consulting fees owing to Advisory Board members, a director, and an employee. A total of $29,166 was to settle amounts owing at December 31, 2011 and $135,400 was for services owing for the year ended December 31, 2012. Each $0.30 Unit consisted of one common share and one common share purchase warrant to acquire one common share at $0.45 for a period of five years. Each $0.40 Unit consisted of one common share and one common share purchase warrant to acquire one common share at $0.65 for a period of three years; |
| k) | issued a total of 81,667 common shares, having a fair value of $46,279, pursuant to an Advisory Board Agreement. A total of $6,579 was to settle accrued amounts owing at December 31, 2011, $31,588 was for services rendered during the year and $8,112 was prepaid for services to June 15, 2013; |
| l) | issued a total of 707,571 common shares, having a fair value of $357,300, pursuant to agreements for services rendered. A total of $348,967 was charged to operations and $8,333 was prepaid for services to January 31, 2013; |
| m) | issued 480,000 common shares on December 21, 2012 pursuant to our 2011 Equity Incentive Plan pursuant to the 200,000 cases sold milestone provided therein. These shares had a fair value of $249,600. A total of 240,000 of these common shares were issued to two directors and senior officers. |
| 9. | Preferred Stock |
| Pursuant to a Special Meeting of Shareholders held on July 29, 2011, the Shareholders resolved to amend our Articles of Incorporation to authorize the issuance of 1,000,000 shares of preferred stock, par value $0.001, issuable in series with rights, preferences and limitations to be determined by the Board of Directors from time to time. As of December 31, 2012 and 2011, there have been no issuances of preferred stock. |
| 10. | Warrants |
| As at December 31, 2012 and 2011 we had 9,161,393 and 1,116,667 common share purchase warrants outstanding, respectively. As at December 31, 2012 the common share purchase warrants have an average exercise price of $0.58 per common share and having an average expiration date of 3.5 years. |
| 11. | Stock-based Compensation |
| On July 29, 2011, we adopted the 2011 Equity Incentive Plan (the “2011 Plan") under which we are authorized to grant up to a total of 4,500,000 shares of common stock. Further, the 2011 Plan authorizes our Board of Directors to grant options, restricted stock awards, performance stock awards and stock appreciation rights as compensation for services rendered. |
| On April 27, 2012 we granted performance equity compensation awards to certain officers, directors and consultants (the “Performance Equity Recipients”). We are to issue 600,000 shares to Performance Equity Recipients on the basis of 480,000 common shares for each 200,000 cases of any of our products sold to a maximum of 2,400,000 common shares issuable. As at September 28, 2012 we had sold 200,000 cases of product and thus, our Performance Equity Recipients earned, and were issued on December 21, 2012, 480,000 common shares having a fair value of $249,600. This amount was charged to operations as share based compensation. As of December 31, 2012 the Performance Equity Recipients have earned a further 93,000 common shares having a fair value of $51,083 which has been recorded as accrued expenses as at December 31, 2012. |
| On April 27, 2012 we granted stock options under the 2011 Plan to certain officers, directors, employees and consultants to purchase 3,100,000 common shares at $0.50 per common share on or before April 30, 2017. A total of 25% vested immediately with a further 25% vested on October 31, 2012 with a further 25% vesting on each of April 30, 2013 and October 31, 2013. |
| On July 31, 2012 we granted a stock option to a consultant to purchase 100,000 common shares at $0.50 per common share on or before July 30, 2017. A total 25% vested immediately with a further 25% vesting on each of January 31, 2013, July 30, 2013 and January 31, 2014. |
| During the year ended December 31, 2012, we recorded stock-based compensation of $914,036. |
| The fair values of stock options granted were estimated at the date of grant using the Black-Scholes option-pricing model and the weighted average grant date fair values of stock options granted and vested during the year ended December 31, 2012 was $0.37 per share as to 3,100,000 stock options and $0.33 as to 100,000 stock options. |
| The weighted average assumptions used for each of the years ended December 31, 2012 and 2011 are as follows: |
| 2012 | 2011 | |||||||
| Expected dividend yield | 0% | – | ||||||
| Risk-free interest rate | 0.27% | – | ||||||
| Expected volatility | 104% | – | ||||||
| Expected option life (in years) | 5.00 | – |
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| The following table summarizes the continuity of our stock options: |
| Number of Options |
Weighted Average Exercise Price |
Weighted-Average Remaining Contractual Term |
Aggregate Intrinsic Value |
||||||||||
| $ | (years) | $ | |||||||||||
| Outstanding, December 31, 2011 | – | – | – | – | |||||||||
| Granted | 3,200,000 | 0.50 | |||||||||||
| Outstanding, December 31, 2012 | 3,200,000 | 0.50 | 4.34 | 432,000 | |||||||||
| Exercisable, December 31, 2012 | 1,575,000 | 0.50 | 4.34 | 212,625 |
| A summary of the status of our non-vested stock options outstanding as of December 31, 2012, and changes during the year ended December 31, 2012 is presented below: |
| Non-vested stock options | Number of Options |
Weighted Average Grant Date Fair Value |
|||||
| $ | |||||||
| Non-vested at December 31, 2011 | – | – | |||||
| Granted | 3,200,000 | 0.37 | |||||
| Vested | (1,575,000 | ) | 0.37 | ||||
| Non-vested at December 31, 2012 | 1,625,000 | 0.37 |
| As at December 31, 2012, there was $273,811 of unrecognized compensation cost related to non-vested stock option agreements expected to be recognized over a weighted average period of 0.56 years. |
| 12. | Related Party Transactions and Balances |
| On December 29, 2010, we loaned $200,000 to a company controlled by our Chief of Product Development (See Note 5). During the year we received $4,885 (2011 - $2,761) as a principal repayment and $7,831 of interest (2011 - $5,417). |
| On March 15, 2011, we entered into a Director’s Agreement with a director. The director’s Agreement has a term of one year and is cancellable at any time with a 30-day written notice and provides for a fee of $5,000 per quarter. During the year the director elected to convert unpaid fees of $25,833, including $5,833 owing from 2011, into 47,222 $0.30 Units and 29,167 $0.40 Units. Each Unit consisted of one common share and one common share purchase warrant to acquire 76,389 common shares at an average exercise price of $0.53 expiring January 25, 2015 to December 21, 2015. |
| 13. | Income Taxes |
| Deferred income tax assets and liabilities are computed annually for differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. |
| The effective tax rate on the net loss before income taxes differs from the U.S. statutory rate as follows: |
| December 31, | |||||||
| 2012 | 2011 | ||||||
| U.S statutory rate | 34 % | 34 % | |||||
| Less valuation allowance | (34% | ) | (34% | ) | |||
| Effective tax rate | 0 % | 0 % | |||||
| The significant components of deferred tax assets and liabilities are as follows: |
| December 31, | |||||||
| Deferred tax assets | 2012 | 2011 | |||||
| Stock based compensation | $ | 1,217,719 | $ | 42,700 | |||
| Net operating losses | 882,950 | 269,300 | |||||
| Asset impairment | 483,209 | 80,000 | |||||
| 2,583,878 | 392,000 | ||||||
| Deferred tax liability | |||||||
| Depreciation expense | (14,657 | ) | (2,517 | ) | |||
| Net deferred tax assets | 2,569,221 | 389,483 | |||||
| Less valuation allowance | (2,569,221 | ) | (389,483 | ) | |||
| Deferred tax asset - net valuation allowance | $ | - | $ | - | |||
| The net change in the valuation allowance for the year ended December 31, 2012 was $(2,179,738). |
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| We have a net operating loss carryover of approximately $4,600,000 available to offset future income for income tax reporting purposes, which will expire in various years through 2032, if not previously utilized. However, our ability to use the carryover net operating loss may be substantially limited or eliminated pursuant to Internal Revenue Code Section 382. |
| We adopted the provisions of ASC 740-10-50, formerly FIN 48, and “Accounting for Uncertainty in Income Taxes”. We had no material unrecognized income tax assets or liabilities for the years ended December 31, 2012 and 2011. |
| The Company’s policy regarding income tax interest and penalties is to expense those items as general and administrative expense but to identify them for tax purposes. During the years ended December 31, 2012 and 2011, there was no income tax or related interest and penalty items in the income statement, or liabilities on the balance sheet. We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are no longer subject to U.S. federal income tax examinations by tax authorities for years beginning October 1, 2008 or state income tax examination by tax authorities for years beginning October 1, 2009. We are not currently involved in any income tax examinations. |
| 14. | Fair Value Measurements |
| ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability. The three levels of the fair value hierarchy under ASC Topic 820-10 are described below: |
| Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. |
| Level 2 – Valuations based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. |
| Level 3 – Valuations based on inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability. We have no level 3 assets or liabilities. |
| The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis as of December 31, 2012: |
| Level 1 $ |
Level 2 $ |
Level 3 $ |
Total $ |
||||||||||
| Assets: | |||||||||||||
| Note receivable | - | 188,030 | - | 188,030 | |||||||||
| Liabilities: |
| The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis as of December 31, 2011: |
| Level 1 $ |
Level 2 $ |
Level 3 $ |
Total $ |
||||||||||
| Assets: | |||||||||||||
| Note receivable | - | 193,114 | - | 193,114 | |||||||||
| Liabilities: |
| 15. | Business Combination |
| On February 15, 2011 we acquired 100% of the issued and outstanding shares of The Pulse Beverage Corporation (“Pulse”). Pulse shareholders were issued 13,280,000 common shares in exchange for 100% of the issued and outstanding common shares of Pulse for a total purchase price of $1,618,020. For accounting purposes, the acquisition of Pulse was accounted for utilizing the equity method by us under acquisition method for business combinations. Pursuant to ASC 805, we recognized identifiable assets acquired and financial liabilities assumed as follows: |
| Consideration: | $ | |||
| Equity Instruments (13,280,000 common shares) | 1,618,020 | |||
| Recognized amounts of identifiable assets acquired and liabilities assumed: | ||||
| Cash | 56 | |||
| Property and equipment (See Note 5) | 815,000 | |||
| Identifiable intangible assets (See Note 5) | 970,488 | |||
| Financial liabilities | (167,524 | ) | ||
| Total identifiable net assets | 1,618,020 |
32
| The fair value of the 13,280,000 common shares issued as consideration paid for 100% of the issued shares of The Pulse Beverage Corporation was determined on the basis of the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. |
| 16. | Subsequent Events |
| The Company has evaluated all subsequent events through the date these financial statements were issued and determined that there are no subsequent events to record and the following subsequent events to disclose: |
| a) | we received a further $4,102,700 pursuant to our $0.40 Unit offering.. Pursuant to subscription agreements received and accepted we issued a total of 10,256,750 $0.40 Units. Each $0.40 Unit consisted of one common share and one common share purchase warrant to acquire one additional share at $0.65 expiring three years from date of purchase; |
| b) | we settled $23,333 of debt owing to two Advisory Board Members and a director by issuing 58,333 $0.40 Units; |
| c) | we issued 133,783 common shares, having a fair value of $0.74 per share, pursuant to a professional services agreement, as compensation for services rendered and to be rendered for the period from January 25, 2013 to April 25, 2013; |
| d) | we issued 30,000 common shares, having a fair value of $0.63 per share, pursuant to a letter agreement, as compensation for services to be rendered from January 1, 2013 to June 30, 2013; |
| e) | in connection with our $0.40 Unit offering and pursuant to an Agency Agreement we issued 275,000 common share purchase warrants to acquire one additional common share at $0.65 expiring three years from date of purchase. In addition we issued 100,000 common shares, having a fair value of $1.42 per share, as compensation for introduction of an investor. |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the last two fiscal years, we have had no disagreements with our accountants on accounting and financial disclosure.
On February 1, 2013, our board of directors approved the engagement of L.L. Bradford & Company, LLC, as our new independent registered public accounting firm and on January 31, 2013 we dismissed Weaver, Martin & Samyn , LLC, our former independent registered public accounting firm. The engagement of L.L. Bradford & Company, LLC and dismissal of Weaver, Martin & Samyn , LLC was previously reported in the Current Report on Form 8-K filed with the SEC on February 4, 2013.
ITEM 9a. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Robert E. Yates, who is both our chief executive officer and our chief financial officer, is responsible for establishing and maintaining our disclosure controls and procedures. Disclosure controls and procedures means controls and other procedures that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to ensure that information required to be disclosed by us in those reports is accumulated and communicated to the our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our chief executive officer and chief financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2012. Based on that evaluation it was concluded that our disclosure controls and procedures were effective as of December 31, 2012.
Changes in internal controls
There were no changes in our internal controls over financial reporting that occurred during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the SEC, internal control over financial reporting is a process designed by, or under the supervision of our principal executive officer and principal financial officer and implemented by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements in accordance with U.S. generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that:
33
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of December 31, 2012 we conducted an evaluation, under the supervision and with the participation of our chief executive officer (our principle executive officer) and our chief financial officer (also our principal financial and accounting officer) of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Framework. Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls.
Based upon this assessment, management concluded that our internal control over financial reporting was effective.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officers and Directors
The names, ages, and respective positions of our directors, executive officers, and key employees are set forth below.
| Name | Age | Present Positions with Company |
| Robert E. Yates | 68 | President, Chief Executive Financial and Accounting Officer and Director |
| Francis Chiew | 51 | Secretary and Director |
| Parley (Paddy) Sheya | 57 | Director |
Robert E. Yates - President, Chief Executive, Financial and Accounting Officer and Director
Mr. Yates is the current president, chief executive officer, chief financial officer and treasurer and has served in those positions since February 15, 2011. Mr. Yates has also been a director of the Company since February 15, 2011.
Mr. Yates is a seasoned business executive with experience in growing and managing businesses as exemplified by efforts on behalf of Vancol Industries. From 2006 to 2009, Mr. Yates served as a General Manager of Mobility Works, in Cincinnati, Ohio, a company engaged in providing specialty equipment and handicapped accessible vehicles in support of disabled populations. From 1993 to 2005, Mr. Yates was in charge of a start-up operation for Vancol with his areas of responsibility: product development, plant production and the distribution of Vancol’s many products in both the United States and Canada. Under his guidance, Vancol’s sales rose from less than $10 million to $50 million in three years. Over the last twenty years Mr. Yates’ beverage portfolio has included such brands as Monster; AriZona Tea; Rock Star, Vitamin Water, Perrier, Everfresh Juices, Ocean Spray, Miller Beer, Honest Tea and Fiji Water. In addition, Mr. Yates successfully launched his own brand, Quencher, which he built into a 2 million case brand in two years. Mr. Yates completed a management course at Oglethorpe University in Atlanta, Georgia, and has an associate’s degree in business administration from Highland Park College, in Highland Park, Michigan and completed a Professional Personnel Management Course with the US Air Force.
Parley Sheya – Director
Mr. Sheya has been a director of the Company since July 1, 2011.
Mr. Sheya brings over twenty-nine years of international executive sales and distribution management experience in the beverage industry. He has an extensive track record in the development of brands and in building beverage brand sales and distribution systems from the ground up to multi-million case sales. He was sales manager for a beverage brand called Kwencher® . Mr. Sheya has managed a broad range of beverage brands including: Jolt Cola®, Hires Root Beer®; Crush® Soda; Bubble-Up®; Country Time Lemonade®; Hansen’s Natural Sodas and Juices; New York Seltzer® and Evian Water®. From 2007 to 2008 Mr. Sheya was a self-employed beverage consultant and from 2008 to 2009 was the key account manager for New Leaf Brands Inc. managing national sales for Inspiration Beverage and from 2010 to June 2011 was sales manager for Bing Energy Drink.
Francis Chiew – Secretary and Director
Effective on October 14, 2009, Francis Chiew was appointed as President, Secretary, Chief Executive Officer, Chief Financial Officer and a director of the Company. On February 15, 2011 Mr. Chiew resigned all of his officer positions and remains as a director and secretary. Since February 2006 to present, Mr. Chiew has served as the Managing Director of Lightship Asia Pacific, LLC (USA) ("LAP") and as a director and the General Manager of two of LAP's joint ventures - China Lightship Leasing Co. (HK) Ltd. ("CLLC") and Beijing Lightship Advertising Co. Ltd ("BLAC"). LAP, CLLC and BLAC were formed to establish advertising opportunities using airships. From 2004 to January 2006, Mr. Chiew served as a director of FBV Corporation Pte Ltd., a private company with varying business interests, including electronic product delivery and payment solutions. From 2002 to May 2004, Mr. Chiew served as the Director of Business Development - Asia for EPOSS Limited (formerly ROK Group). EPOSS Limited, which subsequently became a subsidiary of Western Union, First Data Corporation, U.S.A., was primarily involved with the development of prepayment solutions and systems within the banking and telecommunications industries.
34
Our directors serve until our next annual stockholders meeting or until their successors are duly elected and qualified. Officers hold their positions at the will of the board of directors.
Mr. Chiew is an independent director, as that term is defined by Rule 10A-3 of the Exchange Act. None of our directors qualifies as a “financial expert” as defined by Section 407 of the Sarbanes-Oxley Act of 2002.
Committees
We do not have an audit, nominating or compensation committee. We intend, however, to establish an audit committee and a compensation committee of our Board of Directors in the future, once we have sufficient independent directors. We envision that the audit committee will be primarily responsible for reviewing the services performed by our independent auditor, evaluating our accounting policies and our system of internal controls. The compensation committee will be primarily responsible for reviewing and approving our salary and benefits policies (including stock options) and other compensation of our executive officers.
Involvement in Certain Legal Proceedings
In December, 2006 Robert E. Yates filed for personal bankruptcy in Federal Bankruptcy Court in Denver, Colorado. His personal bankruptcy was finalized in February, 2007. In May, 2005 Vancol Industries filed for bankruptcy under Chapter 7 of the Bankruptcy Code. Mr. Yates resigned his position as an executive officer of Vancol Industries in 2005.
Other than as set forth above, no director, executive officer, significant employee or control person of the Company has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent beneficial shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To the best of our knowledge based solely on a review of Forms 3, 4, and 5 (and any amendments thereof) received by us during or with respect to the year ended December 31, 2012, the following persons have failed to file, on a timely basis, the identified reports required by Section 16(a) of the Exchange Act during fiscal year ended December 31, 2012:
| Name and principal position |
Number of
late reports |
Transactions not timely reported |
Known failures to file a required form |
| Robert Yates - President, Chief
Executive, Financial and Accounting Officer and Director |
0 | 1 | 0 |
| Parley Sheya – Director |
0 | 0 | 0 |
| Francis Chiew – Secretary and Director |
0 | 1 | 0 |
Code of Ethics
We have not adopted a formal code of ethics that applies to our directors, officers or employees since we only have fifteen employees including our two officers.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation earned by Executive Officers during the last two fiscal years.
| Name and Principal Position | Year |
Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan
Compensation ($) |
Nonqualified Deferred
Compensation Earnings ($) |
All Other Comp-
ensation ($) |
Total ($) |
| Robert
E. Yates President, Chief Executive Officer, Treasurer and Chief Financial Officer |
2012 | 102,000 | 10,000 | 83,200 | 289,370 | Nil | Nil | Nil | 484,570 |
| 2011 | 89,250 | Nil | Nil | Nil | Nil | Nil | Nil | 89,250 | |
| Parley
Sheya VP and National Sales Manager |
2012 | 104,166 | 5,000 | 41,600 | 130,216 | Nil | Nil | Nil | 280,982 |
| 2011 | 50,404 | Nil | Nil | Nil | Nil | Nil | Nil | 50,404 |
Performance Awards
On April 27, 2012 we granted performance equity compensation awards to certain officers, directors and consultants (the “Performance Equity Recipients”). We are to issue 2,400,000 common shares to Performance Equity Recipients on the basis of 480,000 common shares for
35
each 200,000 cases of any of our products sold to a maximum of 2,400,000 common shares issuable. As at September 28, 2012 we had sold 200,000 cases of product and thus, our Performance Equity Recipients earned, and were issued on December 21, 2012, 480,000 common shares having a fair value of $249,600 of which 160,000 common shares, valued at $83,200, were issued to our Chief Executive Officer, Robert E. Yates, and 80,000 common shares, valued at $41,600, were issued to Parley Sheya. There are outstanding equity awards for 1,920,000 common shares to be issued upon another 800,000 cases of product being sold. As at December 31, 2012 the Performance Equity Recipients have earned a further 93,000 common shares having a fair value of $51,083 which has been recorded as accrued expenses as at December 31, 2012.
We do not maintain any plans in respect of the retirement of our directors and executive officers.
Stock Incentive Plan
Pursuant to a Special Meeting of Shareholders of our company, held n July 29, 2011, we adopted the 2011 Equity Incentive Plan (the “2011 Plan") under which we are authorized to grant up to a total of 4,500,000 shares of common stock. Further, the 2011 Plan authorizes our Board of Directors to grant options, restricted stock awards, performance stock awards and stock appreciation rights as compensation for services rendered.
On April 27, 2012 we granted stock options under the 2011 Plan. In total, 3,200,000 stock options have been awarded of which 1,575,000 have vested and 1,625,000 have not vested.
On April 27, 2012 we granted stock options under the 2011 Plan to two senior officer/directors to purchase 1,450,000 common shares at $0.50 per common share expiring on or before April 30, 2017. A total of 1,000,000 stock options were awarded to our Chief Executive Officer, Robert E. Yates, which were valued at $370,608 of which $289,370 was recorded as stock-based compensation and $81,238 is unrecognized as at December 31, 2012. A total of 450,000 stock options were awarded to our Vice President, Parley Sheya, which were valued at $166,774 of which $130,216 was recorded as stock-based compensation and $36,558 is unrecognized as at December 31, 2012.
On April 27, 2012 we granted stock options under the 2011 Plan to our independent director, Francis Chiew, to purchase 100,000 common shares at $0.50 per common share expiring on or before April 30, 2017. These options were valued at $37,061 of which $28,937 was recorded as stock-based compensation and $8,124 is unrecognized as at December 31, 2012.
On April 27, 2012 we granted stock options under the 2011 Plan to an employee and three consultants to purchase 1,550,000 common shares at $0.50 per common share expiring on or before April 30, 2017. These options were valued at $594,215 of which $586,091 was recorded as stock-based compensation and $8,124 is unrecognized as at December 31, 2012.
On July 31, 2012 we granted a stock option to a consultant to purchase 100,000 common shares at $0.50 per common share on or before July 30, 2017. A total 25% vested immediately with a further 25% vesting on each of January 31, 2013, July 30, 2013 and January 31, 2014. These options were valued at $19,190 of which $8,153 was recorded as stock-based compensation and $11,037 is unrecognized as at December 31, 2012.
No stock options have been exercised as at December 31, 2012.
The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of December 31, 2012.
| OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END |
|||||||||
| OPTION AWARDS |
STOCK AWARDS |
||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested (#) |
Market Value of Shares or Units of Stock That Have Not Vested ($) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
| Robert Yates | 500,000 | 500,000 | - | 0.50 | - | - | - | - | - |
| Parley Sheya | 225,000 | 225,000 | - | 0.50 | - | - | - | - | - |
36
Compensation of Directors
The table below summarizes all compensation of our directors as of December 31, 2012.
| DIRECTOR COMPENSATION | |||||||
| Name | Fees Earned or Paid in Cash ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity
Incentive Plan Compensation ($) |
Non-Qualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) |
| Francis Chiew | - | - | 37,061 | - | - | - | - |
We did not pay our directors, who also act as senior management/officers any fees or other compensation for acting as a director during our fiscal year ended December 31, 2012.
We paid Francis Chiew $5,000 per quarter as an independent director. On April 27, 2012 we granted stock options under the 2011 Plan to our independent director, Francis Chiew, to purchase 100,000 common shares at $0.50 per common share expiring on or before April 30, 2017. These options were valued at $37,061 of which $28,937 was recorded as stock-based compensation and $8,124 is unrecognized as at December 31, 2012.
Our directors are reimbursed for reasonable travel and other out-of-pocket expenses incurred in attending meetings of the board.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of March 29, 2013 by: (i) each person (including any group) known to us to own more than 5% of any class of our voting securities, (ii) each of our directors, (iii) each of our officers and (iv) our officers and directors as a group. Except as otherwise indicated, each shareholder listed possess sole voting and investment power with respect to the shares shown.
| Name and address |
Amount and nature of beneficial ownership |
Percent of class | ||
| Robert E. Yates of 11580 Quivas Way, Westminster, CO 80234 | 2,711,333 | 5.29% | ||
| Francis Chiew of 902, B1, KangBao Huayuan, #8 Gongren Tiyuchang Donglu, Chaoyand District, Beijing, PRC 100020 | 3,097,928 | 6.04% | ||
| Parley Sheya of 11678 N Huron St, Northglenn, CO 80234 | 113,333 | .02% | ||
| All executive officers and directors as a group (3 persons) | 5,922,594 | 11.35% | ||
A total of 51,333 common shares are held of record by Jonni K. Yates, the wife of Mr. Robert E. Yates.
Securities Authorized For Issuance under Compensation Plans
The table set forth below present’s information relating to our equity compensation plans as of the date of December 31, 2012:
| Plan Category |
Number
of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) |
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) |
Number
of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding column (a)) |
| 2011 Equity Incentive Plan | 3,200,000 | $0.50 | 1,300,000 |
| Equity compensation plans not approved by security holders |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
On December 29, 2010, we loaned $200,000 to a company controlled by our Chief of Product Development. During the year we received $4,885 (2011 - $2,761) as a principal repayment and $7,831 of interest (2011 - $5,417).
On March 15, 2011, we entered into a Director’s Agreement with a director. The director’s Agreement has a term of one year and is cancellable at any time with a 30-day written notice and provides for a fee of $5,000 per quarter. During the year the director elected to convert unpaid fees of $25,833, including $5,833 owing from 2011, into 47,222 $0.30 Units and 29,167 $0.40 Units. Each Unit consisted of one common share and one common share purchase warrant to acquire 76,389 common shares at an average exercise price of $0.53 expiring January 25, 2015 to December 21, 2015.
37
Review, Approval and Ratification of Related Party Transactions
Our Board of Directors has responsibility for establishing and maintaining guidelines relating to any related party transactions between us and any of our officers or directors. Any conflict of interest between a director or officer and us must be referred to the non-interested directors, if any, for approval. We intend to adopt written guidelines for the board of directors which will set forth the requirements for review and approval of any related party transactions.
Director Independence
We periodically review the independence of each director. Pursuant to this review, our directors and officers, on an annual basis, are required to complete a detailed questionnaire to determine if there are any transactions or relationships between any of the directors or officers (including immediate family and affiliates) and us. If any transactions or relationships exist, we then consider whether such transactions or relationships are inconsistent with a determination that the director is independent.
Conflicts Relating to Officers and Directors
To date, we do not believe that there are any conflicts of interest involving our officers or directors. With respect to transactions involving real or apparent conflicts of interest, we have adopted policies and procedures which require that: (i) the fact of the relationship or interest giving rise to the potential conflict be disclosed or known to the directors who authorize or approve the transaction prior to such authorization or approval, (ii) the transaction be approved by a majority of our disinterested outside directors, and (iii) the transaction be fair and reasonable to us at the time it is authorized or approved by our directors.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following is a summary of the fees billed to us by L.L. Bradford & Company, LLC during 2012 and by our former independent auditors, Weaver, Martin & Samyn LLC, during 2011 for professional services rendered for the fiscal years ended December 31, 2012 and 2011:
| Fee Category |
2012 Fees |
2011 Fees |
||||
| Audit Fees | $ | $ | ||||
| L.L. Bradford & Company, LLC | - | - | ||||
| Weaver, Martin & Samyn, LLC | 19,000 | 29,750 | ||||
| Audit-Related Fees | - | - | ||||
| Tax Fees | - | - | ||||
| All Other Fees | - | - | ||||
| Total Fees | $ | 19,000 | $ | 29,750 |
Audit Fees consist of fees billed for professional services rendered for the audit of our company’s financial statements and review of our interim financial statements included in quarterly reports and services that are normally provided by our auditors in connection with statutory and regulatory filings or engagements.
Audit Related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under "Audit Fees".
Tax Fees consist of fees billed for professional services for tax compliance, tax advice and tax planning.
All Other Fees consist of fees for products and services other than the services reported above. There were no management consulting services provided in fiscal 2012 or 2011.
Pre-Approval Policies and Procedures
We currently do not have a designated Audit Committee, and accordingly, our Board of Directors' policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the our Board of Directors regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. Our Board of Directors may also pre-approve particular services on a case-by-case basis.
Our Board of Directors has considered whether the provision of non-audit services is compatible with maintaining the principal accountant's independence.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Documents filed as part of this Report are as follows:
38
1) Financial Statements: The financial statements, related notes and report of independent registered public accounting firm are included in Item 8 of Part II of this 2012 Annual Report on Form 10-K.
2) Financial Statement Schedules: All schedules have been omitted because they are not applicable or not required, or the required information is included in the financial statements or notes thereto.
3) Exhibits: The required exhibits are included at the end of this Report and are described in the exhibit index.
EXHIBIT INDEX
| Exhibit No. | Description of Exhibit |
| 2.1(1) | Share Exchange Agreement dated February 15, 2011 |
| 3.1(1) | Articles of Merger dated February 17, 2011 |
| 3.2(2) | Articles of Incorporation including all amendments to date |
| 3.3(2) | Bylaws |
| 10.4 | Form of $1.00 Share Private Placement Subscription Agreement |
| 10.5 | Form of $0.50 Unit Private Placement Subscription Agreement |
| 10.6 | Form of $0.30 Unit Private Placement Subscription Agreement |
| 10.7 | Form of $0.40 Unit Private Placement Subscription Agreement |
| 10.8(3) | The Pulse Beverage Corporation 2011 Equity Incentive Plan |
| 10.9 | Form of Stock Option Agreement and Grant Notice |
| 10.10 | Form of Stock Bonus Agreement |
| 10.11 | Form of Warrant Certificate |
| 31.1 | Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) |
| 31.2 | Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 |
| (1) | Incorporated by reference from our current report on Form 8K filed February 22, 2011 |
| (2) | Incorporated by reference from our Current Report on Form 8-K as filed with the SEC on February 6, 2007 |
| (3) | Incorporated by reference from our Current Report on Form 8-K as filed with the SEC on July 31, 2012 |
39
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 29, 2013
The Pulse Beverage Corporation
By: /s/
Robert E. Yates
Name:
Robert E. Yates
Title:
Chief Executive Officer (principal executive officer)
In accordance with the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date |
|
/s/ Robert E. Yates Robert E. Yates |
President, Chief Executive Officer, Chief Financial Officer, Treasurer and Director | March 29, 2013 |
|
/s/ Francis Chiew Francis Chiew |
Secretary and Director | March 29, 2013 |
|
/s/ Parley Sheya Parley Sheya |
Director | March 29, 2013 |
__________
|
SUBSCRIPTION AGREEMENT |
Between:
DARLINGTON MINES LTD.
And:
THE UNDERSIGNED SUBSCRIBER
Darlington Mines Ltd.
__________
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
SIGNATURE PAGE/SUBSCRIBER STATEMENT
TO
THE $1.00 POST-SPLIT PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT
OF DARLINGTON
MINES LTD.
SUBSCRIBER’S STATEMENT – the undersigned subscriber (the “Subscriber”) is a sophisticated investor, the Subscriber has sought such independent counsel as the Subscriber considers necessary and the Subscriber has read the attached “$1.00 Post-split Private Placement Subscription Agreement” (the “Agreement”) carefully and accepts, agrees and acknowledges the representations and terms thereof in full and without exception and agrees that such Agreement constitutes the entire agreement between Darlington Mines Ltd. (the “Company”) and the Subscriber and that there are no collateral representations or agreements between the same.
The Company is contemplating a stock-split on a 12 new for 1 old basis and is currently offering, on a private placement basis, post-split common shares of the Company (each a “Post-split Share”), at a subscription price of U.S. $1.00, The within private placement offering by the Company is not subject to any minimum subscription. The Company offers, and the Subscriber accepts, the Post-split Shares on the terms and conditions as set forth in this Agreement.
Number of Post-split Shares subscribed for at U.S. $1.00: Post-split Shares.
Total Subscription Price payable: U.S. $1.00 x # of Post-split Shares = U.S. $ .
Dated at __________, __________, on this _____ day of December, 2010.
Name
of Subscriber - please print
By:
Official
Capacity or Title - please print
Signature
of Subscriber
Please
print name of individual whose signature appears above if different than the
Subscriber
| Subscriber’s Address: | |
| Subscriber’s Telephone Number: |
| Subscriber’s E-mail address: |
IF THE SUBSCRIBER IS NOT A U.S. RESIDENT, THE SUBSCRIBER MUST COMPLETE AND SIGN ATTACHMENT “I” IMMEDIATELY FOLLOWING THIS SIGNATURE PAGE/SUBSCRIBER STATEMENT AND COMPLETE THE MISSING
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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INFORMATION AND CIRCLE THE APPLICABLE CATEGORY(IES) (A) THROUGH (P) AS SET FORTH IN SECTION 3.4(af)(i) OF THE ATTACHED AGREEMENT.
Acceptance by the Company:
DARLINGTON MINES LTD. hereby accepts the above subscription by the Subscriber on this _____ day of __________, 2011.
| TheCOMMON SEAL of | ) |
| DARLINGTON MINES LTD., | ) |
| the Company herein, | ) |
| was hereunto affixed in the presence of: | ) (C/S) |
| ) |
| ) |
| Authorized Signatory | ) |
__________
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
Attachment “I”
TO
THE $1.00 POST-SPLIT PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT
OF DARLINGTON
MINES LTD.
SUBSCRIBER’S CERTIFICATE
In addition to the covenants, representations and warranties contained in the “$1.00 Post-split Private Placement Subscription Agreement” of the Company, to which this Attachment “I” – “Subscriber’s Certificate” is attached, the undersigned Subscriber covenants, represents and warrants to the Company that the Subscriber is purchasing the Post-split Shares as principal, that the Subscriber is resident in the jurisdiction set out on the signature page thereof and that the Subscriber:
| 1. | is an “accredited investor”, as defined in National Instrument 45-106 –Prospectus and Registration Exemptions by virtue of being {please check the appropriate category or categories where applicable}: |
| [ ] | (a) | any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government; |
| [ ] | (b) | an individual who, either alone or with a spouse, beneficially owns, directly or indirectly, financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds $1,000,000; |
| [ ] | (c) | an individual whose net income before taxes exceeded $200,000 in each of the two most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the two most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year; |
| [ ] | (d) | an individual who, either alone or with a spouse, has net assets of at least $5,000,000; |
| [ ] | (e) | a person, other than an individual or investment fund, that has net assets of at least $5,000,000 as shown on its most recently prepared financial statements; |
| [ ] | (f) | an investment fund that distributes or has distributed its securities only to |
| (i) | a person that is or was an accredited investor at the time of the distribution; |
| (ii) | a person that acquires or acquired securities in the circumstances referred to in sections 2.10 [Minimum amount investment] and 2.19 of National Instrument 45-106 –Prospectus and Registration Exemptions [Additional investment in investment funds]; or |
| (iii) | a person described in paragraph (i) or (ii) that acquires or acquired securities under section 2.18 of National Instrument 45-106 –Prospectus and Registration Exemptions [Investment fund reinvestment]; |
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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| [ ] | (g) | a person in respect of which all of the owners of interests, direct, indirect or beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors; |
| [ ] | (h) | an investment fund that is advised by a person registered as an adviser or a person that is exempt from registration as an adviser; or |
Dated at __________, __________, on this _____ day of December, 2010.
Name
of Subscriber - please print
By:
Official
Capacity or Title - please print
Signature
of Subscriber
Please
print name of individual whose signature appears above if different than the
Subscriber
| Subscriber’s Address: | |
| Subscriber’s Telephone Number: |
| Subscriber’s E-mail address: |
__________
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
$1.00 POST-SPLIT PRIVATE PLACEMENT
SUBSCRIPTION AGREEMENT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE LAWS OF ANY STATE, AND ARE BEING ISSUED IN RELIANCE UPON REGULATION S PROMULGATED UNDER THE ACT. THESE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF REGISTRATION, THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION OR COMPLIANCE WITH REGULATION S. THE STOCK TRANSFER AGENT HAS BEEN ORDERED TO EFFECTUATE TRANSFERS ONLY IN ACCORDANCE WITH THE ABOVE INSTRUCTIONS.
UNIT PRIVATE PLACEMENT OFFERING
| To: | DARLINGTON MINES LTD. (the “Company”), with an address for notice and delivery located at 20A, Time Centre 33-55 Hollywood Road, Central Hong Kong. |
The Company is offering (collectively, the “Offering”), on a private placement basis, Post-split Shares of the Company to eligible investors (each such an investor who subscribes to this Offering by this document is hereinafter referred to as the “Subscriber”), at a subscription price of U.S. $1.00. The Company offers, and the Subscriber accepts, the Post-split Shares on the terms and conditions as set forth in this subscription agreement (the “Agreement”).
Article 1
SUBSCRIPTION FOR POST-SPLIT SHARES
1.1 Subscription for Post-split Shares. Based upon the hereinafter terms, conditions, representations, warranties and covenants given by each party to the other, the Subscriber hereto hereby irrevocably subscribes for and agrees to purchase the number of Post-split Shares of the Company set forth on the Signature Page at the beginning of this Agreement at a subscription price of U.S. $1.00, for aggregate consideration (the “Subscription Price”) as set forth on the Signature Page at the beginning of this Agreement.
1.2 Acceptance of subscription. The Company, upon acceptance by its Board of Directors (the “Board”) of all or part of this subscription Agreement, agrees to issue the accepted number of Post-split Shares, as fully paid and non-assessable, and as consideration for the Subscriber’s subscription, and to refund any excess subscription monies of the Subscription Price of any non-accepted portion of this subscription Agreement.
1.3 Subscriber’s eligibility for subscription. The Subscriber acknowledges and warrants (and has made diligent inquiries to so determine or has the sophistication and knowledge to know the Subscriber’s status without concern of error), on which the Company relies, that the Subscriber is purchasing the Post-split Shares on a private basis and without infraction of or impedance by his domicile laws due to one or more of the following:
| (a) | the Subscriber is an eligible and exempt investor under the laws of the Subscriber’s domicile by either being a person who complies with exemptions from prospectus requirements or is otherwise exempt by virtue of the Subscriber’s wealth, income and investment knowledge or capacity; or |
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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| (b) | the Subscriber is subscribing for a value in Post-split Shares constituting an exempt investment under the laws of the Subscriber’s domicile; or |
| (c) | the Subscriber’s domicile laws do not restrict investment; and |
| (d) | where the Subscriber has completed the appropriate portions of this Agreement and its related Appendices and the completion of the same, whether signed or not, constitute a true and accurate statement by the Subscriber. |
For the purposes of this Agreement it is hereby acknowledged and agreed that “Securities” is hereinafter collectively defined to mean the Post-split Shares.
1.4 Risks of subscription. The Subscriber acknowledges that no party independent of the Company has made or will make any opinion or representations on the merits or risks of an investment in any of the Securities unless sought out by the Subscriber; which the Subscriber is encouraged to do. The Subscriber is aware that this investment is a speculative and risky investment, the Subscriber warrants that it could tolerate the full loss of the investment without significant or material impact on the Subscriber’s financial condition.
Article 2
METHOD OF SUBSCRIPTION AND ACCEPTANCE BY THE COMPANY
2.1 Method of subscription. It is hereby acknowledged and agreed by the parties hereto that any subscription for Post-split Shares shall be made by the Subscriber) by emailing to the Company’s counsel, Mark Lee of Greenberg Traurig (the “Company’s Counsel”), at leema@gtlaw.com, a completed and executed copy of this Agreement together with all applicable Appendices hereto. Funds are to be wired pursuant to wiring instructions attached to this subscription agreement as Exhibit “A”.
In this regard, and should the Subscriber’s subscription and/or Subscription Price payment be submitted to the Company’s Counsel, in trust or otherwise (as above in respect to the wire transfer), then the Subscriber agrees that the Company’s Counsel shall have no accountability to the Subscriber whatsoever and acknowledges that the Company’s Counsel is merely a recipient for the Company and has no obligation of any nature to the Subscriber. Under no circumstances shall the Company’s Counsel be considered to be giving legal or other advice or services to the Subscriber and no communication between the Subscriber and the Company’s Counsel shall be considered advice (at the most only administrative subscription assistance on behalf of the Company) but the Subscriber shall rely solely and exclusively on the Subscriber’s own judgment and the advice of the Subscriber’s own counsel.
2.2 Acceptance of subscription or return of Subscription Price by the Company. The Subscriber acknowledges that the Company will be accepting subscriptions for Post-split Shares on a first come, first serve, basis. As a consequence the Company, upon acceptance by its Board of all or part of this subscription Agreement (the “Acceptance”), hereby agrees to issue the accepted number of Post-split Shares, as fully paid and non-assessable, and as consideration for the Subscriber’s subscription, and to promptly refund any excess subscription monies of the Subscription Price of any non-accepted portion of this subscription Agreement. In this regard the Subscriber acknowledges that, although Post-split Shares may be issued to other subscribers concurrently with the Company’s Acceptance of all or part of this subscription Agreement, there may be other sales of Post-split Shares by the Company, some or all of which may close before or after the Acceptance herein. The Subscriber further acknowledges that there is a risk that insufficient funds may be raised by the Company upon the Company’s Acceptance of all or part of this subscription Agreement to fund the Company’s objectives and that further closings may not take place after Acceptance herein.
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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2.3 Use of funds before and after Acceptance. The Company agrees that the Subscription Price will be held by the Company’s Counsel for the benefit of the Subscriber to reserve the Subscriber’s subscription and, prior to Acceptance, such funds shall not be considered a loan and shall not bear interest but shall constitute solely a reservation of subscription. The Subscriber shall not demand return of its Subscription Price monies unless the Post-split Shares have not been issued for a period in excess of 90 calendar days from the date of this subscription and such demand may be fulfilled by Acceptance and delivery of subscribed Post-split Shares or return of funds at the Company’s sole and absolute discretion. The Subscriber acknowledges that the funds to be raised from all Post-split Shares are to be employed for the business of the Company in accordance with management’s determination as to the best use of the same for the Company’s business plans. Notwithstanding any disclosure document or offering memorandum or prospectus provided concurrent with this subscription, the Company reserves the right at any time to alter its business plans in accordance with management’s appreciation of the market for the goods and services of the Company and the best use of the Company’s funds to advance its business, whether present or future.
2.4. Securities issued at different prices and characteristics. The Subscriber acknowledges that the Company will issue its securities at different prices which may occur sequentially, from time-to-time, or at the same time and prices in the future may be lower than now. The Company will also issue offerings which have warrants, or other benefits, attached and some offerings which do not. Not all subscribers will receive common shares, or other share classes, of the Company at the same price and such may be issued at vastly different prices to that of the Subscriber. For example, however, without limitation, the Company will or may issue securities at nominal prices as ‘founders shares’ (which may or will constitute millions of securities, as determined solely by the Board) or for developmental assets (which cannot be valued and so may be assigned a nominal value on the Company’s books) or for services or to attract expertise or management talent or other circumstances considered advisable by the Board. Such issuance at different prices are made by the Board in its judgment as to typical structuring for a company such as the Company, to incentivise, reward and to provide a measure of developmental control, to acquire assets or services which the Board considers necessary or advisable for the Company’s development and success and other such considerations in the Board’s judgment. The Company may or will acquire debt and/or equity financings in the future required or advisable, as determined by the Board, in the course of the Company’s business development. The Subscriber acknowledges these matters, understands that the Subscriber’s investment is not necessarily the most advantageous investment in the Company and authorizes the Board now and hereafter to use its judgment to make such issuances whether such issuances are at a lesser, equal or greater price than that of the Subscriber and whether such is prior to, concurrent with or subsequent to the Subscriber’s investment herein.
2.5 Delivery of Shares. The Company, promptly after the Acceptance by its Board of all or part of this subscription Agreement, agrees to deliver to the Subscriber a Share certificate for the accepted number of Post-split Shares purchased by the Subscriber under this subscription Agreement and registered in the name of the Subscriber.
Article 3
INVESTMENT SUBSCRIPTION TERMS, CORPORATE DISCLOSURE AND
GENERAL SUBSCRIBER ACKNOWLEDGEMENTS AND WARRANTIES
3.1 Description of the Post-split Shares. The Company is issuing Post-split Shares at a price of U.S. $1.00. The Post-split Shares are a part of the common shares of the Company presently authorized. Copies of the constating documents of the Company describing the common shares and the rights of shareholders are available upon request.
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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3.2 Release of liability and indemnity. The Subscriber acknowledges and agrees that, in consideration, in part, of the Company’s within Acceptance of this subscription, the Subscriber hereby does hereby release, remise and forever discharge each of the Company and its respective subsidiaries, directors, officers, employees, attorneys, agents, executors, administrators, successors and assigns and the Company’s Counsel, of and from all manner of action and actions, causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, claims, damages and demands, whether known or unknown, suspected or unsuspected and whether at law or in equity, which against either of the Company and/or any of its respective subsidiaries, directors, officers, employees, attorneys, agents, executors, administrators, successors and assigns and the Company’s Counsel, the Subscriber ever had, now has, or which any of the Subscriber’s respective successors or assigns, or any of them hereafter can, shall or may have by reason of any matter arising from the within subscription or the use of funds or the operation of the Company (collectively, the “Release”) except only for gross negligence or fraud (and such shall constitute only objective willful act of objective material wrongdoing). The Subscriber shall hold harmless and indemnify the Company from and against, and shall compensate and reimburse the same for, any loss, damage, claim, liability, fee (including reasonable attorneys’ fees), demand, cost or expense (regardless of whether or not such loss, damage, claim, liability, fee, demand, cost or expense relates to a third-party claim) that is directly or indirectly suffered or incurred by the Company, or to which the Company becomes subject, and that arises directly or indirectly from, or relates directly or indirectly to, any inaccuracy in or breach of any representation, warranty, covenant or obligation of the Subscriber contained in this Agreement. This Release is irrevocable and will not terminate in any circumstances.
3.3 The Subscriber’s understandings and acknowledgments. The Subscriber hereby acknowledges and agrees that:
| (a) | Further financings: the Company may issue further offerings in the future similar to the within Offering which may be at higher or lower prices (as determined by the Company in accordance with its appreciation of market conditions). The Company may, and will, acquire debt and/or equity financings in the future required or advisable in the course of the Company’s business development; |
| (b) | Withdrawal or revocation: this Agreement is given for valuable consideration and shall not be withdrawn or revoked by the Subscriber once tendered to the Company with the Subscription Price; |
| (c) | Agreement to be bound: the Subscriber hereby specifically agrees to be bound by the terms of this Agreement as to all particulars hereof and hereby reaffirms the acknowledgments, representations and powers as set forth in this Agreement; |
| (d) | Reliance on Subscriber’s representations: the Subscriber understands that the Company will rely on the acknowledgments, representations and covenants of the Subscriber contained herein in determining whether a sale of the Post-split Shares to the Subscriber is in compliance with applicable securities laws. The Subscriber warrants that all acknowledgments, representations and covenants are true and accurate; and |
| (e) | Waiver of pre-emptive rights: the Subscriber hereby grants, conveys and vests unto the President of the Company, or unto such other nominee or nominees of the President of the Company as the President of the Company may determine, from time to time, in the President’s sole and absolute discretion, as the Subscriber’s power of attorney solely for the purpose of waiving any prior or pre-emptive rights which the Subscriber may have to further issues of equity by the Company under applicable corporate and securities laws. |
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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3.4 The Subscriber’s representations and warranties. The Subscriber hereby represents and warrants that:
| (a) | Not a U.S. Person: if the Subscriber is not a resident of the United States, the Subscriber: (i) is not a U.S. Person (as defined in Rule 902 of Regulation S (“Regulation S”) under the U.S. Act, which definition includes, but is not limited to, any natural person resident in the United States, any corporation or partnership incorporated or organized under the laws of the United States or any estate or trust of which any executor, administrator or trustee is a U.S. Person; (ii) is not purchasing any of the Securities for the account or benefit of any U.S. Person or for offering, resale or delivery for the account or benefit of any U.S. Person or for the account of any person in any jurisdiction other than the jurisdiction set out in the name and address of the Subscriber set forth hereinbelow; and (iii) was not offered any Post-split Shares in the United States and was outside the United States at the time of execution and delivery of this Agreement; |
| (b) | No registration and sales under Regulation S: if the Subscriber is not a resident of the United States: (i) the Subscriber acknowledges that the Securities have not been registered under the U.S. Act; (ii) the Subscriber agrees to resell the Securities only in accordance with the provisions of Regulation S, pursuant to a registration under the U.S. Act or pursuant to an available exemption from such registration, and that hedging transactions involving the Securities may not be conducted unless in compliance with the U.S. Act; (iii) the Subscriber understands that any certificate representing the Securities may bear a legend setting forth the foregoing restrictions; and (iv) the Subscriber understands that the Securities are restricted within the meaning of “Rule 144” promulgated under the U.S. Act; that the exemption from registration under Rule 144 will not be available in any event for at least one year from the date of purchase and payment of the Securities by the Subscriber, and even then will not be available unless (i) a public trading market then exists for the common stock of the Company, (ii) adequate information concerning the Company is then available to the public and (iii) other terms and conditions of Rule 144 are complied with; and that any sale of the Securities may be made by the Subscriber only in limited amounts in accordance with such terms and conditions; |
| (c) | No U.S. beneficial interest: if the Subscriber is not a resident of the United States, no U.S. Person, either directly or indirectly, has any beneficial interest in any of the Securities acquired by the Subscriber hereunder, nor does the Subscriber have any agreement or understanding (written or oral) with any U.S. Person respecting: |
| (i) | the transfer or any assignment of any rights or interest in any of the Securities; |
| (ii) | the division of profits, losses, fees, commissions or any financial stake in connection with this subscription; or |
| (iii) | the voting of the Securities; |
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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| (d) | Experience: the Subscriber has the requisite knowledge and experience in financial and business matters for properly evaluating the risks of an investment in the Company; |
| (e) | Information: the Subscriber has received all information regarding the Company reasonably requested by the Subscriber; |
| (f) | Risk: the Subscriber understands that an investment in the Company involves certain risks of which the Subscriber has taken full cognizance, and which risks the Subscriber fully understands; |
| (g) | Adequacy of information: the Subscriber has been given the opportunity to ask questions of, and to receive answers from, the Company concerning the terms and conditions of the Offering and to obtain additional information necessary to verify the accuracy of the information contained in the information described in paragraph (e) above, or such other information as the Subscriber desired in order to evaluate an investment in the Company; |
| (h) | Residency: the residence of the Subscriber as set forth hereinbelow is the true and correct residence of the Subscriber and the Subscriber has no present intention of becoming a resident or domiciliary of any other jurisdiction; |
| (i) | Independent investigation: in making a decision to invest in the Company the Subscriber has relied solely upon independent investigations made by the Subscriber; |
| (j) | Principal: the Subscriber is purchasing the Post-split Shares as principal for the Subscriber’s own account and not for the benefit of any other person, except as otherwise stated herein, and not with a view to the resale or distribution of all or any of the Post-split Shares; |
| (k) | Decision to purchase: the decision of the Subscriber to enter into this Agreement and to purchase Post-split Shares pursuant hereto has been based only on the representations of this Agreement. It is not made on other information relating to the Company and not upon any oral representation as to fact or otherwise made by or on behalf of the Company or any other person. The Subscriber agrees that the Company assumes no responsibility or liability of any nature whatsoever for the accuracy, adequacy or completeness of any business plan information which has been created based upon the Company’s management experience. In particular, and without limiting the generality of the foregoing, the decision to subscribe for Post-split Shares has not been influenced by: |
| (i) | newspaper, magazine or other media articles or reports related to the Company or its business; |
| (ii) | promotional literature or other materials used by the Company for sales or marketing purposes; or |
| (iii) | any representations, oral or otherwise, that the Company will become a listed company, that any of the Securities will be repurchased or have any guaranteed future realizable value or that there is any certainty as to the success of the Company or the liquidity or value of any of the Securities; |
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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| (l) | Advertisements: the Subscriber acknowledges that the Subscriber has not purchased Post-split Shares as a result of any general solicitation or general advertising, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising; |
| (m) | Information not received: the Subscriber has not received, nor has the Subscriber requested, nor does the Subscriber have any need to receive, any offering memorandum or any other document (other than financial statements or any other document the content of which is prescribed by statute or regulation) describing the business and affairs of the Company which has been prepared for delivery to, and review by, prospective subscribers in order to assist them in making an investment decision in respect of the Post-split Shares, and the Subscriber has not become aware of any advertisement in printed media of general and regular paid circulation, radio or television with respect to the distribution of the Post-split Shares; |
| (n) | Information received: the Subscriber has had access to such additional information, if any, concerning the Company as the Subscriber has considered necessary in connection with the Subscriber’s investment decision to acquire the Post-split Shares; |
| (o) | Satisfaction with information received: the Subscriber acknowledges that, to the Subscriber’s satisfaction: |
| (i) | the Subscriber has either had access to or has been furnished with sufficient information regarding the Company and the terms of this investment transaction to the Subscriber’s satisfaction; |
| (ii) | the Subscriber has been provided the opportunity to ask questions concerning this investment transaction and the terms and conditions thereof and all such questions have been answered to the Subscriber’s satisfaction; and |
| (iii) | the Subscriber has been given ready access to and an opportunity to review any information, oral or written, that the Subscriber has requested concurrent with or as a part of this Agreement; |
| (p) | Economic risk: the Subscriber has such knowledge and experience in financial and business affairs as to be capable of evaluating the merits and risks of the Subscriber’s investment in and to the Securities, and the Subscriber is able to bear the economic risk of a total loss of the Subscriber’s investment in and to any of the Securities; |
| (q) | Speculative investment: the Subscriber understands that an investment in the Securities is a speculative investment and that there is no guarantee of success of the Company’s management’s plans. Management’s plans are an effort to apply present knowledge and experience to project a future course of action which is hoped will result in financial success employing the Company’s assets and with the present level of management’s skills and of those whom the Company will need to attract (which cannot be assured). Additionally, all plans are capable of being frustrated by new or unrecognized or unappreciated present or future circumstances which can typically not be accurately, or at all, predicted; |
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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| (r) | Address: the Subscriber is resident as set out on the last page of this Agreement as the “Subscriber’s Address”, and the address as set forth on the last page of this Agreement is the true and correct address of the Subscriber; |
| (s) | Risk and resale restriction: the Subscriber is aware of the risks and other characteristics of the Securities and of the fact that the Subscriber will not be able to resell the Securities except in accordance with the applicable securities legislation and regulatory policy; |
| (t) | Representations as to resale: no person has made to the Subscriber any written or oral representations: |
| (i) | that any person will resell or repurchase any of the Securities; |
| (ii) | that any person will refund the purchase of any of the Securities; |
| (iii) | as to the future price or value of any of the Securities; or |
| (iv) | that any of the Securities will be listed and posted for trading on any stock exchange, over-the-counter or bulletin board market, or that application has been made to list and post any of the Securities for trading on any stock exchange, over-the-counter or bulletin board market; and |
| the Subscriber will not resell any of the Securities except in accordance with the provisions of applicable securities legislation and stock exchange, over-the-counter and/or bulletin board market rules; |
| (u) | Reports and undertakings: if required by applicable securities legislation, policy or order or by any securities commission, stock exchange or other regulatory authority, the Subscriber will execute and otherwise assist the Company in filing such reports, undertakings and other documents as may be reasonably required with respect to the issue of the Post-split Shares; |
| (v) | Resale restrictions: the Subscriber has been independently advised as to the applicable hold period imposed in respect of the Securities by securities legislation in the jurisdiction in which the Subscriber’s resides and confirms that no representation has been made respecting the applicable hold periods for the Securities and is aware of the risks and other characteristics of the Securities and of the fact that the Subscriber may not be able to resell the Securities except in accordance with the applicable securities legislation and regulatory policy; |
| (w) | Age of majority: the Subscriber, if an individual, has attained the age of majority and is legally competent to execute this Agreement and to take all actions required pursuant hereto; |
| (x) | Authorization and formation of Subscriber: the Subscriber, if a corporation, partnership, trust or other form of business entity, is authorized and otherwise duly qualified to purchase and hold the Securities, and such entity has not been formed for the specific purpose of acquiring Securities in this issue. If the Subscriber is one of the aforementioned entities it hereby agrees that, upon request of the Company, it will supply the Company with any additional written information that may be requested by the Company. In addition, the entering into of this Agreement and the transactions contemplated hereby will not result in the violation of any of the terms of and provisions of any law applicable to, or the constating documents, if a corporation, of, the Subscriber or of any agreement, written or oral, to which the Subscriber may be a party or by which the Subscriber may be bound; |
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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| (y) | Legal obligation: this Agreement has been duly and validly authorized, executed and delivered by and constitutes a legal, valid, binding and enforceable obligation of the Subscriber; |
| (z) | Legal and tax consequences: the Subscriber acknowledges that an investment in the Securities of the Company may have tax consequences to the Subscriber under applicable law, which the Subscriber is solely responsible for determining, and the Subscriber also acknowledges and agrees that the Subscriber is responsible for obtaining its own legal and tax advice; |
| (aa) | Compliance with applicable laws: the Subscriber knows of no reason (and is sufficiently knowledgeable to determine the same or has sought legal advice) why the delivery of this Agreement, the acceptance of it by the Company and the issuance of the Post-split Shares to the Subscriber will not comply with all applicable laws of the Subscriber’s jurisdiction of residence or domicile, and all other applicable laws, and the Subscriber has no reason to believe that the Subscriber’s subscription hereby will cause the Company to become subject to or required to comply with any disclosure, prospectus or reporting requirements or to be subject to any civil or regulatory review or proceeding. In addition, the Subscriber will comply with all applicable securities laws and will assist the Company in all reasonable manner to comply with all applicable securities laws; |
| (ab) | Encumbrance or transfer of Securities: while the Company is a non-reporting company in Canada, the Subscriber will not sell, assign, gift, pledge or encumber in any manner whatsoever any of the Securities herein subscribed for in Canada without the prior written consent of the Company and in accordance with applicable securities legislation; |
| (ac) | Regulation S: if the Subscriber is not a resident of the United States, the Subscriber further represents and warrants that the Subscriber was not specifically formed to acquire any of the Securities subscribed for in this Agreement in violation of the provisions of Regulation S; |
| (ad) | Finders’ fees: the Subscriber has not retained, employed or introduced any broker, finder or other person who would be entitled to a brokerage commission or finder’s fee arising out of the transactions contemplated hereby; |
| (ae) | Additional Subscriber acknowledgements: the Subscriber also acknowledges (on its own behalf and, if applicable, on behalf of those for whom the Subscriber is contracting hereunder) as set forth below: |
| (i) | it has been furnished with all information, financial and otherwise, concerning the business, affairs and financial position of the Company necessary to make an informed decision to purchase the Post-split Shares and the Subscriber agrees that such information has not been furnished pursuant to any form of written material which is, or may be construed as, an offering memorandum as that term is defined in the securities legislation of any State of the United States, the securities legislation in the jurisdictions in which the Company is incorporated and conducts business and the securities legislation in the jurisdiction in which the Subscriber is resident (collectively, the “Applicable Securities Legislation” herein) as such legislation is from time to time amended, and the regulations and rules prescribed thereto; |
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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| (ii) | the issue of the Post-split Shares will be made pursuant to exemptions from the registration and prospectus requirements of the Applicable Securities Legislation and therefore: |
| (A) | the Subscriber may be restricted from using certain of the civil remedies available under such legislation and certain protections, rights and remedies provided in such legislation, including statutory rights of rescission or damages, may not be available to the Subscriber; |
| (B) | the Subscriber may not receive information that might otherwise be required to be provided to the Subscriber under such legislation; |
| (C) | the Company may be relieved from certain obligations that would otherwise apply under such legislation; |
| (D) | no securities commission or similar regulatory authority has reviewed or passed on the merits of the Securities; |
| (E) | there is no government or other insurance covering the Securities; and |
| (F) | there are risks associated with the purchase of the Securities; |
| (iii) | no prospectus has been filed by the Company with any regulatory authority in connection with the issuance of the Securities and the Company has already issued or may issue Post-split Shares or shares for significantly lesser consideration per unit or share than is being paid by the Subscriber for Post-split Shares hereunder; |
| (iv) | this subscription forms part of a larger Offering and is subject only to the Company’s Acceptance of this subscription Agreement and the Subscription Price therefore; |
| (v) | the sale and delivery of the Post-split Shares to the Subscriber or to any subscriber on whose behalf the Subscriber is contracting is conditional upon such sale being exempt from the requirement to file a prospectus or to prepare and deliver an offering memorandum under any applicable legislation relating to the sale of the Post-split Shares or upon the issuance of such orders, consents or approvals as may be required to permit such sale without the requirement of filing a prospectus or preparing and delivering an offering memorandum; |
| (vi) | the Company may be required to provide applicable securities regulatory authorities with a list setting forth the identities of the beneficial purchasers of the Post-split Shares and the Subscriber acknowledges and agrees that the Subscriber will provide, on request, particulars as to the identity of such beneficial purchasers as may be required by the Company in order to comply with the foregoing; and |
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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| (vii) | the Subscriber (or others for whom the Subscriber is contracting hereunder) has been advised to consult its own legal advisors with respect to the merits and risks of an investment in the Securities and with respect to applicable resale restrictions and the Subscriber (or others for whom the Subscriber is contracting hereunder) is solely responsible, and the Company is not in any way responsible, for compliance with applicable resale restrictions; |
| (af) | Additional Subscriber representations and warranties under Applicable Securities Legislation: if the Subscriber is not a resident of the United States, the Subscriber further represents and warrants to the Company and acknowledges and agrees that the Company will also rely upon the following representations and warranties in determining whether or not to accept this subscription under all Applicable Securities Legislation: |
| (i) | the Subscriber is purchasing the Post-split Shares as principal for its own account, not for the benefit of any other person and not with a view to the resale or distribution of all or any of the Post-split Shares and, by signing and returning the attached Attachment “I” – “Subscriber’s Certificate”, certifies that it {please circle at least one of the following categories and complete the missing information as appropriate}: |
| (A) | is an “accredited investor” as defined in National Instrument 45-106 –Prospectus and Registration Exemptions (“NI 45-106”); or |
| (B) | is resident in an “International Jurisdiction” (being a jurisdiction outside of Canada and the United States) and: |
| (I) | the Subscriber is knowledgeable of, or has been independently advised as to, the Applicable Securities Legislation of such International Jurisdiction which would apply to this Agreement; |
| (II) | the Subscriber is purchasing the Post-split Shares pursuant to an applicable exemption from any prospectus, registration or similar requirements under the Applicable Securities Legislation of such International Jurisdiction, or, if such is not applicable, the Subscriber is permitted to purchase the Post-split Shares under the Applicable Securities Legislation of the International Jurisdiction without the need to rely on exemptions; and |
| (III) | the Applicable Securities Legislation of the International Jurisdiction do not require the Company to make any filings or seek any approvals of any kind whatsoever from any regulatory authority of any kind whatsoever in the International Jurisdiction; |
| (ii) | the Subscriber has not relied upon the Company or its directors and officers, or the Company’s Counsel or advisors, for investment, legal or tax advice, including advice with respect to the hold period and resale restrictions imposed upon the Securities by the securities legislation in the jurisdiction in which the Subscriber resides, and has, if desired, in all cases sought the advice of the Subscriber’s own personal investment advisor, legal counsel and tax advisors, and the Subscriber is either experienced in or knowledgeable with regard to the affairs of the Company or, either alone or with its professional advisors, is capable by reason of knowledge and experience in financial and business matters in general, and investments in particular, of evaluating the merits and risks of an investment in the Securities, and it is able to bear the economic risk of an investment in the Securities and can otherwise be reasonably assumed to have the capacity to protect its own interest in connection with the investment; and |
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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| (iii) | the Subscriber understands and acknowledges that the Company is not currently a reporting issuer or reporting company in every applicable jurisdiction and as a result the hold period to which the Securities are subject may be indefinite in certain jurisdictions in which the Securities are issued until the Company becomes a reporting issuer or reporting company in such jurisdiction. The Subscriber further understands that the certificates representing the Securities will bear a legend describing the resale restrictions and the Subscriber agrees to comply with such resale restrictions; and |
| (ag) | Additional Subscriber covenants and agreements: the Subscriber further covenants and agrees that the Company will also rely upon the following covenants and agreements in determining whether or not to accept this subscription under all Applicable Securities Legislation: |
| (i) | the Subscriber acknowledges and consents to the collection and retention by the Company of certain information, including personal information, regarding the Subscriber and the Subscriber’s subscription, including the Subscriber’s name, address, telephone number and e-mail address, the number of Securities purchased and any control persons of the Subscriber. The Subscriber acknowledges and agrees that this information will be retained on the share register of the Company which may be available for inspection by the public. The Subscriber further consents and agrees to the release of this information to the securities regulatory authorities as required by law and regulatory policies; and |
| (ii) | the Subscriber agrees that this Agreement will in no way restrict the Company from obtaining further funds through the sale of equity securities of the Company or otherwise. |
3.5 Company Confidential Information. The Subscriber acknowledges that the Company is presently not actively engaged in any business, however, and with proposed acquisition and merger with The Pulse Beverage Corporation, proposes to be engaged in the manufacture, sale and distribution of the “Pulse” brand of nutraceutical beverages. The Subscriber recognizes the importance of protecting the Company’s trade secrets, confidential information and other proprietary information and related rights acquired through the Company’s expenditure of time, effort and money. Therefore, in consideration of the Company permitting the Subscriber to submit this subscription and have access to Company information and/or Company confidential information otherwise coming to the Subscriber, the Subscriber agrees to be bound by the following terms and conditions:
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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| (a) | Definitions: for all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following words and phrases shall have the following meanings: |
| (i) | “Confidential Information” includes any of the following: |
| (A) | any and all versions of the trade names, trade-mark, business plans, products, software, all Developments (as defined below) and all other matters owned or marketed by the Company; |
| (B) | information regarding the Company’s business operation, methods and practices, including marketing strategies, product pricing, margins and hourly rates for staff and information regarding the financial affairs of the Company; |
| (C) | the names of the Company’s clients and the names of the suppliers to the Company, and the nature of the Company’s relationships with these clients and suppliers; and |
| (D) | any other trade secret or confidential or proprietary information in the possession or control of the Company; |
| however, Confidential Information does not include information which is or becomes generally available to the public without the Subscriber’s fault; and |
| (ii) | “Developments” include all the following related to the products or business of the Company: |
| (A) | copyright works, software, documentation, data, designs, scripts, photographs, music, reports, flowcharts, trade-marks, specifications, source codes, product designs or formula and any related works, including any enhancements, modifications or additions to the products owned, marketed or used by the Company; and |
| (B) | inventions, devices, discoveries, concepts, ideas, algorithms, formulae, know-how, processes, techniques, systems and improvements, whether patentable or not; |
| developed, created, acquired, generated or reduced to practice by the Company or any person by or for the Company, including the Subscriber; |
| (b) | Maintaining confidentiality: at all times the Subscriber shall keep in strictest confidence and trust the Confidential Information. The Subscriber shall take all necessary precautions against unauthorized disclosure of the Confidential Information, and, except as required by applicable law, judicial process or regulatory investigation, the Subscriber shall not, directly or indirectly disclose, allow access to, transmit or transfer the Confidential Information to a third party, nor shall the Subscriber use, copy or reproduce the Confidential Information except as may be reasonably required for the Subscriber with the permission of the Company; |
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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| (c) | Return of Confidential Information: at the request of the Company the Subscriber shall immediately return to the Company all materials, including all copies in whatever form, containing the Confidential Information which are in the Subscriber’s possession or under the Subscriber’s control; and |
| (d) | No rights to Confidential Information: the Subscriber acknowledges and agrees that the Subscriber shall not acquire any right, title or interest in or to the Confidential Information. Should any interest in the Confidential Information come into the possession of the Subscriber by any means, other than specific written transfer by the Company, the Subscriber hereby assigns and transfers, now and in the future, to the Company, and agrees that the Company shall be the exclusive owner of, all of the Subscriber’s right, title and interest to any such throughout the world, including all trade secrets, patent rights, copyrights and all other intellectual property rights therein. The Subscriber further agrees to cooperate fully at all times with respect to signing further documents and doing such acts and other things required by the Company to confirm such transfer of ownership of rights. The Subscriber agrees that the obligations in this section shall continue beyond the issue of any Securities hereunder, beyond the ownership of any Securities acquired hereunder and beyond the termination of the Subscriber’s employment, engagement or association with the Company, for a period of five years from the date that the Subscriber delivers this Agreement to the Company. |
3.6 Reliance on Subscriber’s representations and warranties and indemnification. The Subscriber understands that the Company will rely on the representations and warranties of the Subscriber herein in determining whether a sale of the Post-split Shares to the Subscriber is in compliance with federal and applicable state and provincial securities laws. The Subscriber hereby agrees to indemnify the Company and its affiliates and hold the Company and its affiliates harmless from and against any and all liability, damage, cost or expense (including reasonable attorney’s fees) incurred on account of or arising out of: (i) any inaccuracy in the Subscriber’s acknowledgements, representations or warranties set forth in this Agreement; (ii) the disposition of any of the Securities which the Subscriber will receive, contrary to the Subscriber’s acknowledgements, representations or warranties in this Agreement or otherwise; (iii) any suit or proceeding based upon the claim that such acknowledgments, representations or warranties were inaccurate or misleading or otherwise cause for obtaining damages or redress from the Company or its affiliates; and (iv) the Subscriber’s failure to fulfill any or all of the Subscriber’s obligations herein.
3.7 Change in Subscriber’s representations and warranties. All of the information set forth hereinabove with respect to the Subscriber and including, without limitation, the acknowledgements, representations and warranties set forth hereinabove, is correct and complete as of the date hereof and, if there should be any material change in such information prior to the acceptance of this subscription Agreement by the Company, the Subscriber will immediately furnish the revised or corrected information to the Company.
3.8 The Company’s representations and warranties. The Company hereby represents and warrants as follows and hereby acknowledges and agrees that the Subscriber will rely on the following representations and warranties in effecting the subscription contemplated hereby:
| (a) | Organization and Qualification of the Company: the Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a material adverse effect on the business, operations or condition (financial or otherwise) of the Company; |
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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| (b) | Authority: the Company has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the Offering and the other transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary action on the party of the Company, and no further consent or action is required; |
| (c) | Enforceability: this Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligations of the Company enforceable against the Company in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors’ rights generally; |
| (d) | No Conflicts: the execution, delivery and performance of this Agreement by the Company and the consummation of the Offering by the Company do not and will not conflict with or violate (i) any provision of the Articles of Incorporation or bylaws of the Company, as amended, or (ii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company, except where such conflict or violation would not have a material adverse effect on the business, operations or condition (financial or otherwise) of the Company. No material consent, waiver, approval order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or commission or any third party, including a party to any material agreement with the Company, is required in connection with the execution, delivery and performance of this Agreement or the consummation of the Offering by the Company; |
| (e) | The Shares: The Post-split Shares been duly authorized, and when issued and paid for in accordance with this Agreement. The Post-split Shares have not been issued in violation of, and are not subject to, any preemptive or subscription rights; |
| (f) | SEC Filings: the Company has filed all reports required to be filed by it under the U.S. Act and under the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), including pursuant to Section 13(a) or 15(d) thereof, for the 18 months preceding the date hereof (collectively, the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing. At the time they were filed, the SEC Reports complied in all material respects with the requirements of the U.S. Act and the Exchange Act and the rules and regulations promulgated thereunder. At the time when they were filed, none of the SEC Reports contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein in light of the circumstances under which they were made, not misleading. The financial statements of the Company contained in the SEC Reports comply in all material respects with all applicable accounting requirements of the United States Securities and Exchange Commission (the “SEC”), were prepared in accordance with generally accepted accounting principles, and fairly present in all material respects the financial condition of the Company as of the dates thereof. The number and type of all authorized, issued and outstanding shares of capital stock of the Company is as set forth in the SEC Reports; and |
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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| (g) | Absence of Certain Changes: Since the date of the last audited financial statement contained in the SEC Reports, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), or results of operations of the Company, except as disclosed in the SEC Reports. |
Article 4
Omitted
Article 5
RESTRICTED SECURITIES AND REGISTRATION
5.1 No initial registration. The Subscriber acknowledges and understands that neither the sale of the Post-split Shares which the Subscriber is acquiring nor any of the Securities themselves have been registered under any Applicable Securities Legislation and, furthermore, that the Securities must be held indefinitely unless subsequently registered under Applicable Securities Legislation or an exemption from such registration is available.
5.2 Legending of the Securities. The Subscriber also acknowledges and understands that the certificates representing the Securities will be stamped with the following legend (or substantially equivalent language) restricting transfer in the following manner:
“These securities have not been registered under the United States Securities Act of 1933, as amended, or the laws of any state, and are being issued pursuant to an exemption from registration pertaining to such securities and pursuant to a representation by the security holder named hereon that said securities have been acquired for purposes of investment and not for purposes of distribution. These securities may not be offered, sold, transferred, pledged or hypothecated in the absence of registration, or the availability of an exemption from such registration. The stock transfer agent has been ordered to effectuate transfers only in accordance with the above instructions.”
(or)
“These securities have not been registered under the United States Securities Act of 1933, as amended (the “Act”), or the laws of any state, and are being issued in reliance upon Regulation S promulgated under the Act. These securities may not be offered, sold, transferred, pledged or hypothecated in the absence of registration, the availability of an exemption from such registration or compliance with Regulation S. The stock transfer agent has been ordered to effectuate transfers only in accordance with the above instructions.
The Subscriber hereby consents to the Company making a notation on its records or giving instructions to any transfer agent of the Securities in order to implement the restrictions on transfer set forth and described hereinabove.
5.3 Disposition under Rule 144. The Subscriber also acknowledges and understands that:
| (a) | the Securities are restricted securities within the meaning of Rule 144 promulgated under the U.S. Act; |
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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| (b) | the exemption from registration under Rule 144 will not be available in any event for at least one year from the date of purchase and payment of the Securities by the Subscriber, and even then will not be available unless (i) adequate information concerning the Company is then available to the public and (ii) other terms and conditions of Rule 144 are complied with; and |
| (c) | any sale of the Securities may be made by the Subscriber only in limited amounts in accordance with such terms and conditions. |
In this regard the Subscriber further acknowledges and understands that, without in anyway limiting the acknowledgements and understandings as set forth hereinabove, the Subscriber agrees that the Subscriber shall in no event make any disposition of all or any portion of the Securities which the Subscriber is acquiring hereunder unless and until:
| (a) | there is then in effect a “Registration Statement” under the U.S. Act covering such proposed disposition and such disposition is made in accordance with said Registration Statement; or |
| (b) | (i) the Subscriber shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (ii) the Subscriber shall have furnished the Company with an opinion of the Subscriber’s own counsel to the effect that such disposition will not require registration of any such Securities under the U.S. Act and (iii) such opinion of the Subscriber’s counsel shall have been concurred in by counsel for the Company and the Company shall have advised the Subscriber of such concurrence. |
Article
6
GENERAL PROVISIONS
6.1 Address for delivery. Each notice, demand or other communication required or permitted to be given under this Agreement shall be in writing and shall be sent by delivery (electronic or otherwise) or prepaid registered mail deposited in a post office addressed to the Subscriber or the Company at the address specified in this Agreement. The date of receipt of such notice, demand or other communication shall be the date of delivery thereof if delivered, or, if given by registered mail as aforesaid, shall be deemed conclusively to be the fifth calendar day after the same shall have been so mailed, except in the case of interruption of postal services for any reason whatsoever, in which case the date of receipt shall be the date on which the notice, demand or other communication is actually received by the addressee. Either party may at any time and from time to time notify the other party in writing of a change of address and the new address to which notice shall be given to it thereafter until further change.
6.2 Severability and construction. Each Article, section, sub-section, paragraph, sub-paragraph, term and provision of this Agreement, and any portion thereof, shall be considered severable, and if, for any reason, any portion of this Agreement is determined to be invalid, contrary to or in conflict with any applicable present or future law, rule or regulation, that ruling shall not impair the operation of, or have any other effect upon, such other portions of this Agreement as may remain otherwise intelligible (all of which shall remain binding on the parties and continue to be given full force and agreement as of the date upon which the ruling becomes final).
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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6.3 Gender and number. This Agreement is to be read with all changes in gender or number as required by the context.
6.4 Governing law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, U.S.A., and the federal laws of the United States applicable therein. Any dispute regarding matters as between the Subscriber and the Company, whether as a subscriber or shareholder and whether arising under this Agreement or pursuant to shareholder rights pursuant to the constating documents of the Company or applicable law, shall be adjudicated in the Courts of the State of Nevada, U.S.A., unless the Company shall permit otherwise.
6.5 Representation and costs. It is hereby acknowledged by each of the parties hereto that the Company’s Counsel acts solely for the Company, and, correspondingly, that the Subscriber has been required by each of the Company’s Counsel and the Company to obtain independent legal advice with respect to the Subscriber’s review and execution of this Agreement. In addition, it is hereby further acknowledged and agreed by the parties hereto that the Company’s Counsel, and certain or all of its principal owners or associates, from time to time, may have both an economic or shareholding interest in and to the Company and/or a fiduciary duty to the same arising from either a directorship, officership or similar relationship arising out of the request of the Company for certain of such persons to act in a similar capacity while acting for the Company as counsel. Correspondingly, and even where, as a result of this Agreement, the consent of each party hereto to the role and capacity of the Company’s Counsel and its principal owners and associates, as the case may be, is deemed to have been received, where any conflict or perceived conflict may arise, or be seen to arise, as a result of any such capacity or representation, each party hereto acknowledges and agrees to, once more, obtain independent legal advice in respect of any such conflict or perceived conflict and, consequent thereon, the Company’s Counsel, together with any such principal owners or associates, as the case may be, shall be at liberty at any time to resign any such position if it or any party hereto is in any way affected or uncomfortable with any such capacity or representation. The Company will bear and pay its and the Subscriber’s costs, legal and otherwise, in connection with their respective preparation, review and execution of this Agreement and the preparation, review, filing, and maintenance of effectiveness of the Registrations Statement and, in particular, that the costs involved in the preparation of this Agreement, and all documentation necessarily incidental thereto, by the Company’s Counsel, shall be at the cost of the Company.
6.6 Survival of representations and warranties. The covenants, representations and warranties contained herein shall survive the closing of the transactions contemplated hereby.
6.7 Counterparts. This Agreement may be signed by the parties hereto in as many counterparts as may be necessary, each of which so signed shall be deemed to be an original, and such counterparts together shall constitute one and the same instrument and notwithstanding the date of execution will be deemed to bear the execution date as set forth in this Agreement. This Agreement may also be executed and exchanged by facsimile and such facsimile copies shall be valid and enforceable agreements.
6.8 Entire Agreement and amendments. This Agreement constitutes the only agreement between the parties with respect to the subject matter hereof and shall supersede any and all prior negotiations and understandings. There are no collateral agreements or understandings hereto and this Agreement, and the documents contemplated herein, constitutes the totality of the parties’ agreement. This Agreement may be amended or modified in any respect by written instrument only.
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
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6.9 Corrections. The Subscriber hereby authorizes the Company to correct any minor errors in, or complete any minor information missing from, any of this Agreement and each of Attachment “I” – “Subscriber’s Certificate” to this Agreement, which may be required to be completed and executed by the Subscriber and delivered to the Company in accordance with the terms and conditions of this Agreement.
6.10 Successors and assigns. The terms and provisions of this Agreement shall be binding upon and enure to the benefit of the Subscriber, the Company and their respective successors and lawfully permitted assigns; provided that, except as herein provided, this Agreement shall not be assignable by any party without the written consent of the other. Notwithstanding the foregoing proviso, the benefit and obligations of this Agreement, insofar as they extend to or affect the Subscriber, shall pass with any sale, assignment or transfer of any of the Post-split Shares, the Shares, the Warrants or the Warrant Shares in accordance with the terms of this Agreement.
IN WITNESS WHEREOF the parties hereto have hereunto set their respective hands and seals in the presence of their duly authorized signatories effective as at the dates as set forth in the Signature Page/Subscriber Statement at the beginning of this Agreement.
End of $1.00 Post-split Private Placement Subscription Agreement
__________
| -- $1.00t Post-split Private Placement Subscription Agreement -- -- Darlington Mines Ltd. -- |
____________________
|
SUBSCRIPTION AGREEMENT
|
Between:
THE PULSE BEVERAGE CORPORATION
And:
THE UNDERSIGNED SUBSCRIBER
The
Pulse Beverage Corporation
12195
Mariposa Street, Westminster, CO, USA 80234
__________
-- $0.50 Unit Private Placement Subscription Agreement -- |
SIGNATURE PAGE/SUBSCRIBER STATEMENT
TO
THE $0.50 UNIT PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT
OF THE
PULSE BEVERAGE CORPORATION
SUBSCRIBER’S STATEMENT – the undersigned subscriber (the “Subscriber”) is a sophisticated investor, the Subscriber has sought such independent counsel as the Subscriber considers necessary and the Subscriber has read the attached “$0.50 Unit Private Placement Subscription Agreement” (the “Agreement”) carefully and accepts, agrees and acknowledges the representations and terms thereof in full and without exception and agrees that such Agreement constitutes the entire agreement between The Pulse Beverage Corporation (the “Company”) and the Subscriber and that there are no collateral representations or agreements between the same.
The Company is offering (collectively, the “Offering”), on a private placement basis, units of the Company (each a “Unit”), at a subscription price of U.S. $0.50 per Unit, with each Unit consisting of one share of common stock of the Company and one non-transferable common stock share purchase warrant of the Company (each a “Warrant”), and with each such Warrant entitling the Subscriber to purchase one additional common share of the Company (each a “Warrant Share”), for the period commencing upon the date of issuance of the within Units by the Company and ending on the day which is two years from the date of issuance of the Units, at an exercise price of U.S. $0.75 Per Warrant Share. The within private placement Offering of Units by the Company is not subject to any minimum subscription. The Company offers, and the Subscriber accepts, the Units on the terms and conditions as set forth in this Agreement.
Number of Units subscribed for at U.S. $0.50 per Unit: Units.
Total Subscription Price payable: U.S. $0.50 x number of Units = U.S. $ .
Dated at _______________ on this ___ day of ____________, 2011.
Name
of Subscriber - please print
By:
Official
Capacity or Title - please print
Signature
of Subscriber
Please
print name of individual whose signature appears above if different than the
Subscriber
| Subscriber’s Address: |
| Subscriber’s Telephone Number: |
| Subscriber’s E-mail address: |
-- $0.50 Unit Private Placement Subscription Agreement -- |
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IF THE SUBSCRIBER IS NOT A U.S. RESIDENT, THE SUBSCRIBER MUST CIRCLE THE APPLICABLE CATEGORY(IES) (A) THROUGH (P) AS SET FORTH IN SECTION 3.4(af)(i) OF THE ATTACHED AGREEMENT.
Acceptance by the Company:
THE PULSE BEVERAGE CORPORATION hereby accepts the above subscription by the Subscriber on this _____ day of ___________, 2011.
| The COMMON SEAL of | ) |
| THE PULSE BEVERAGE CORPORATION, | ) |
| the Company herein, | ) |
| was hereunto affixed in the presence of: | ) (C/S) |
| ) |
| ) |
| ) |
| Authorized Signatory | ) |
__________
-- $0.50 Unit Private Placement Subscription Agreement -- |
$0.50 UNIT PRIVATE PLACEMENT
SUBSCRIPTION AGREEMENT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR THE LAWS OF ANY STATE, AND ARE BEING ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION PERTAINING TO SUCH SECURITIES AND PURSUANT TO A REPRESENTATION BY THE SECURITY HOLDER NAMED HEREIN THAT SAID SECURITIES HAVE BEEN ACQUIRED FOR PURPOSES OF INVESTMENT AND NOT FOR PURPOSES OF DISTRIBUTION. THESE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION. THE STOCK TRANSFER AGENT HAS BEEN ORDERED TO EFFECTUATE TRANSFERS ONLY IN ACCORDANCE WITH THE ABOVE INSTRUCTIONS.
(OR)
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE LAWS OF ANY STATE, AND ARE BEING ISSUED IN RELIANCE UPON REGULATION S PROMULGATED UNDER THE ACT. THESE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF REGISTRATION, THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION OR COMPLIANCE WITH REGULATION S. THE STOCK TRANSFER AGENT HAS BEEN ORDERED TO EFFECTUATE TRANSFERS ONLY IN ACCORDANCE WITH THE ABOVE INSTRUCTIONS.
(AND, IF APPLICABLE)
UNLESS PERMITTED UNDER APPLICABLE SECURITIES LEGISLATION, THE HOLDER OF THE SECURITIES REPRESENTED HEREBY SHALL NOT TRADE THE SECURITIES IN CANADA BEFORE THE EARLIER OF (I) THE DATE THAT IS FOUR MONTHS AND A DAY AFTER THE DATE THE COMPANY FIRST BECAME A REPORTING ISSUER IN ANY OF ALBERTA, BRITISH COLUMBIA, MANITOBA, NOVA SCOTIA, ONTARIO, QUEBEC AND SASKATCHEWAN, IF THE COMPANY IS A SEDAR FILER, AND (II) THE DATE THAT IS FOUR MONTHS AND A DAY AFTER THE LATER OF (A) THE DISTRIBUTION DATE, AND (B) THE DATE THE COMPANY BECAME A REPORTING ISSUER IN THE LOCAL JURISDICTION OF THE SUBSCRIBER OF THE SECURITIES THAT ARE THE SUBJECT OF THE TRADE.
(AND)
UNLESS OTHERWISE PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY IN OR FROM BRITISH COLUMBIA UNLESS THE CONDITIONS IN SECTION 12(2) OF BC INSTRUMENT 51-509 ISSUERS QUOTED IN THE U.S. OVER-THE-COUNTER MARKET ARE MET.
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UNIT PRIVATE PLACEMENT OFFERING
| To: | THE PULSE BEVERAGE CORPORATION (the “Company”), with an address for notice and delivery located at 12195 Mariposa Street, Westminster, CO, USA 80234. |
The Company is offering (collectively, the “Offering”), on a private placement basis, units of the Company (each a “Unit”) to eligible investors (each such an investor who subscribes to this Offering by this document is hereinafter referred to as the “Subscriber”), at a subscription price of U.S. $0.50 per Unit, with each Unit consisting of one share of common stock of the Company (each a “Share”) and one non-transferable common stock share purchase warrant of the Company (each a “Warrant”). The within private placement Offering of Units by the Company is not subject to any minimum subscription. The Company offers, and the Subscriber accepts, the Units on the terms and conditions as set forth in this subscription agreement (the “Agreement”).
Article 1
SUBSCRIPTION FOR UNITS
1.1 Subscription for Units. Based upon the hereinafter terms, conditions, representations, warranties and covenants given by each party to the other, the Subscriber hereto hereby irrevocably subscribes for and agrees to purchase the number of Units of the Company set forth on the Signature Page/Subscriber Statement at the beginning of this Agreement at a subscription price of U.S. $0.50 per Unit, for aggregate consideration (the “Subscription Price”) as set forth on the Signature Page/Subscriber Statement at the beginning of this Agreement.
1.2 Acceptance of subscription. The Company, upon acceptance by its Board of Directors (the “Board”) of all or part of this subscription Agreement, agrees to issue the accepted number of Units, as fully paid and non-assessable, and as consideration for the Subscriber’s subscription, and to refund any excess subscription monies of the Subscription Price of any non-accepted portion of this subscription Agreement.
1.3 Warrants and exercise of Warrants. The Warrants forming part of the Units will be registered in the name of the Subscriber and will be non-transferable except in compliance with the United States Securities Act of 1933, as amended (the “U.S. Act”), and each such Warrant will entitle the Subscriber to purchase one additional common share of the Company (each a “Warrant Share”), for the period commencing upon the date of issuance of the within Units by the Board and ending at 5:00 p.m. (Westminster, CO, time) on the day which is two years from the date of issuance of the within Units (such time period being the “Warrant Exercise Period” herein), at an exercise price of U.S. $0.75 Per Warrant Share during the Warrant Exercise Period.
1.4 Warrant certificates. The terms and conditions which govern the Warrants will be referred to on the certificates representing the Warrants in the form attached hereto as Exhibit “A” and will contain, among other things, anti-dilution provisions and provisions for the appropriate adjustment in the class, number and price of the Warrant Shares issuable on the exercise of the Warrants upon the occurrence of certain events including any subdivision, consolidation or reclassification of the common shares, the payment of stock dividends and the amalgamation of the Company.
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1.5 Other financings. The issue and terms of the Warrants will not restrict or prevent the Company from obtaining any other financing or from issuing additional securities or rights during the period within which the Warrants are exercisable.
1.6 Replacement Warrant certificates. If the Subscriber exercises any Warrants the Company will issue to the Subscriber the number of Warrant Shares equal to the number of Warrants exercised and deliver to the Subscriber a certificate representing the Warrant Shares.
1.7 Subscriber’s eligibility for subscription. The Subscriber acknowledges and warrants (and has made diligent inquiries to so determine or has the sophistication and knowledge to know the Subscriber’s status without concern of error), on which the Company relies, that the Subscriber is purchasing the Units on a private basis and without infraction of or impedance by his domicile laws due to one or more of the following:
| (a) | the Subscriber is an eligible and exempt investor under the laws of the Subscriber’s domicile by either being a person who complies with exemptions from prospectus requirements or is otherwise exempt by virtue of the Subscriber’s wealth, income and investment knowledge or capacity; or |
| (b) | the Subscriber is subscribing for a value in Units constituting an exempt investment under the laws of the Subscriber’s domicile; or |
| (c) | the Subscriber’s domicile laws do not restrict investment; and |
| (d) | where the Subscriber has completed the appropriate portions of this Agreement and its related Appendices and the completion of the same, whether signed or not, constitute a true and accurate statement by the Subscriber. |
For the purposes of this Agreement it is hereby acknowledged and agreed that “Securities” is hereinafter collectively defined to mean the Units, the Shares, the Warrants and the Warrant Shares.
1.8 Risks of subscription. The Subscriber acknowledges that no party independent of the Company has made or will make any opinion or representations on the merits or risks of an investment in any of the Securities unless sought out by the Subscriber; which the Subscriber is encouraged to do. The Subscriber is aware that this investment is a speculative and risky investment, the Subscriber warrants that it could tolerate the full loss of the investment without significant or material impact on the Subscriber’s financial condition.
Article 2
METHOD OF SUBSCRIPTION AND ACCEPTANCE BY THE COMPANY
2.1 Method of subscription. It is hereby acknowledged and agreed by the parties hereto that any subscription for Units shall be made by the Subscriber by faxing to the Company a completed and executed copy of the signature pages to this Agreement and delivering a check, payable to The Pulse Beverage Corporation.
-- $0.50 Unit Private Placement Subscription Agreement -- |
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2.2 Acceptance of subscription or return of Subscription Price by the Company. The Subscriber acknowledges that the Company will be accepting subscriptions for Units on a first come, first serve, basis. As a consequence the Company, upon acceptance by its Board of all or part of this subscription Agreement (the “Acceptance”), hereby agrees to issue the accepted number of Units, as fully paid and non-assessable, and as consideration for the Subscriber’s subscription, and to promptly refund any excess subscription monies of the Subscription Price of any non-accepted portion of this subscription Agreement. In this regard the Subscriber acknowledges that, although Units may be issued to other subscribers concurrently with the Company’s Acceptance of all or part of this subscription Agreement, there may be other sales of Units by the Company, some or all of which may close before or after the Acceptance herein. The Subscriber further acknowledges that there is a risk that insufficient funds may be raised by the Company upon the Company’s Acceptance of all or part of this subscription Agreement to fund the Company’s objectives and that further closings may not take place after Acceptance herein.
2.3 Use of funds before and after Acceptance. The Company agrees that the Subscription Price will be held by the Company or by the Company’s Counsel for the benefit of the Subscriber to reserve the Subscriber’s subscription and, prior to Acceptance, such funds shall not be considered a loan and shall not bear interest but shall constitute solely a reservation of subscription. The Subscriber shall not demand return of its Subscription Price monies unless the Units have not been issued for a period in excess of 90 calendar days from the date of this subscription and such demand may be fulfilled by Acceptance and delivery of subscribed Units or return of funds at the Company’s sole and absolute discretion. The Subscriber acknowledges that the funds to be raised from all Units are to be employed for the business of the Company in accordance with management’s determination as to the best use of the same for the Company’s business plans. Notwithstanding any disclosure document or offering memorandum or prospectus provided concurrent with this subscription, the Company reserves the right at any time to alter its business plans in accordance with management’s appreciation of the market for the goods and services of the Company and the best use of the Company’s funds to advance its business, whether present or future.
2.4. Securities issued at different prices and characteristics. The Subscriber acknowledges that the Company will issue its securities at different prices which may occur sequentially, from time-to-time, or at the same time and prices in the future may be lower than now. The Company will also issue offerings which have warrants, or other benefits, attached and some offerings which do not. Not all subscribers will receive common shares, or other share classes, of the Company at the same price and such may be issued at vastly different prices to that of the Subscriber. For example, however, without limitation, the Company will or may issue securities at nominal prices as ‘founders shares’ (which may or will constitute millions of securities, as determined solely by the Board) or for developmental assets (which cannot be valued and so may be assigned a nominal value on the Company’s books) or for services or to attract expertise or management talent or other circumstances considered advisable by the Board. Such issuance at different prices are made by the Board in its judgment as to typical structuring for a company such as the Company, to incentivise, reward and to provide a measure of developmental control, to acquire assets or services which the Board considers necessary or advisable for the Company’s development and success and other such considerations in the Board’s judgment. The Company may or will acquire debt and/or equity financings in the future required or advisable, as determined by the Board, in the course of the Company’s business development. The Subscriber acknowledges these matters, understands that the Subscriber’s investment is not necessarily the most advantageous investment in the Company and authorizes the Board now and hereafter to use its judgment to make such issuances whether such issuances are at a lesser, equal or greater price than that of the Subscriber and whether such is prior to, concurrent with or subsequent to the Subscriber’s investment herein.
-- $0.50 Unit Private Placement Subscription Agreement -- |
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2.5 Delivery of Share and Warrant certificates. The Company, promptly after the Acceptance by its Board of all or part of this subscription Agreement, agrees to deliver to the Subscriber a Share certificate and a Warrant certificate for the accepted number of Units purchased by the Subscriber under this subscription Agreement and registered in the name of the Subscriber.
Article 3
INVESTMENT SUBSCRIPTION TERMS, CORPORATE DISCLOSURE AND
GENERAL SUBSCRIBER ACKNOWLEDGEMENTS AND WARRANTIES
3.1 Description of the Units. The Company is issuing Units at a price of U.S. $0.50 per Unit. The Shares forming part of the Units, together with the Warrant Shares which are issuable upon the exercise of the Warrants, are a part of the common shares of the Company presently authorized. Copies of the constating documents of the Company describing the common shares and the rights of shareholders are available upon request.
3.2 Release of liability and indemnity. The Subscriber acknowledges and agrees that, in consideration, in part, of the Company’s within Acceptance of this subscription, the Subscriber hereby does hereby release, remise and forever discharge each of the Company and its respective subsidiaries, directors, officers, employees, attorneys, agents, executors, administrators, successors and assigns and the Company’s Counsel, of and from all manner of action and actions, causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, claims, damages and demands, whether known or unknown, suspected or unsuspected and whether at law or in equity, which against either of the Company and/or any of its respective subsidiaries, directors, officers, employees, attorneys, agents, executors, administrators, successors and assigns and the Company’s Counsel, the Subscriber ever had, now has, or which any of the Subscriber’s respective successors or assigns, or any of them hereafter can, shall or may have by reason of any matter arising from the within subscription or the use of funds or the operation of the Company (collectively, the “Release”) except only for gross negligence or fraud (and such shall constitute only objective willful act of objective material wrongdoing). The Subscriber shall hold harmless and indemnify the Company from and against, and shall compensate and reimburse the same for, any loss, damage, claim, liability, fee (including reasonable attorneys’ fees), demand, cost or expense (regardless of whether or not such loss, damage, claim, liability, fee, demand, cost or expense relates to a third-party claim) that is directly or indirectly suffered or incurred by the Company, or to which the Company becomes subject, and that arises directly or indirectly from, or relates directly or indirectly to, any inaccuracy in or breach of any representation, warranty, covenant or obligation of the Subscriber contained in this Agreement. This Release is irrevocable and will not terminate in any circumstances.
3.3 The Subscriber’s understandings and acknowledgments. The Subscriber hereby acknowledges and agrees that:
| (a) | Further financings: the Company may issue further offerings in the future similar to the within Offering which may be at higher or lower prices (as determined by the Company in accordance with its appreciation of market conditions). The Company may, and will, acquire debt and/or equity financings in the future required or advisable in the course of the Company’s business development; |
| (b) | Withdrawal or revocation: this Agreement is given for valuable consideration and shall not be withdrawn or revoked by the Subscriber once tendered to the Company with the Subscription Price; |
-- $0.50 Unit Private Placement Subscription Agreement -- |
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| (c) | Agreement to be bound: the Subscriber hereby specifically agrees to be bound by the terms of this Agreement as to all particulars hereof and hereby reaffirms the acknowledgments, representations and powers as set forth in this Agreement; |
| (d) | Reliance on Subscriber’s representations: the Subscriber understands that the Company will rely on the acknowledgments, representations and covenants of the Subscriber contained herein in determining whether a sale of the Units to the Subscriber is in compliance with applicable securities laws. The Subscriber warrants that all acknowledgments, representations and covenants are true and accurate; and |
| (e) | Waiver of pre-emptive rights: the Subscriber hereby grants, conveys and vests unto the President of the Company, or unto such other nominee or nominees of the President of the Company as the President of the Company may determine, from time to time, in the President’s sole and absolute discretion, as the Subscriber’s power of attorney solely for the purpose of waiving any prior or pre-emptive rights which the Subscriber may have to further issues of equity by the Company under applicable corporate and securities laws. |
3.4 The Subscriber’s representations and warranties. The Subscriber hereby represents and warrants that:
| (a) | Not a U.S. Person: if the Subscriber is not a resident of the United States, the Subscriber: (i) is not a U.S. Person (as defined in Rule 902 of Regulation S (“Regulation S”) under the U.S. Act, which definition includes, but is not limited to, any natural person resident in the United States, any corporation or partnership incorporated or organized under the laws of the United States or any estate or trust of which any executor, administrator or trustee is a U.S. Person; (ii) is not purchasing any of the Securities for the account or benefit of any U.S. Person or for offering, resale or delivery for the account or benefit of any U.S. Person or for the account of any person in any jurisdiction other than the jurisdiction set out in the name and address of the Subscriber set forth hereinbelow; and (iii) was not offered any Units in the United States and was outside the United States at the time of execution and delivery of this Agreement; |
| (b) | No registration and sales under Regulation S: if the Subscriber is not a resident of the United States: (i) the Subscriber acknowledges that the Securities have not been registered under the U.S. Act; (ii) the Subscriber agrees to resell the Securities only in accordance with the provisions of Regulation S, pursuant to a registration under the U.S. Act or pursuant to an available exemption from such registration, and that hedging transactions involving the Securities may not be conducted unless in compliance with the U.S. Act; (iii) the Subscriber understands that any certificate representing the Securities may bear a legend setting forth the foregoing restrictions; and (iv) the Subscriber understands that the Securities are restricted within the meaning of “Rule 144” promulgated under the U.S. Act; that the exemption from registration under Rule 144 will not be available in any event for at least one year from the date of purchase and payment of the Securities by the Subscriber, and even then will not be available unless (i) a public trading market then exists for the common stock of the Company, (ii) adequate information concerning the Company is then available to the public and (iii) other terms and conditions of Rule 144 are complied with; and that any sale of the Securities may be made by the Subscriber only in limited amounts in accordance with such terms and conditions; |
-- $0.50 Unit Private Placement Subscription Agreement -- |
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| (c) | No U.S. beneficial interest: if the Subscriber is not a resident of the United States, no U.S. Person, either directly or indirectly, has any beneficial interest in any of the Securities acquired by the Subscriber hereunder, nor does the Subscriber have any agreement or understanding (written or oral) with any U.S. Person respecting: |
| (i) | the transfer or any assignment of any rights or interest in any of the Securities; |
| (ii) | the division of profits, losses, fees, commissions or any financial stake in connection with this subscription; or |
| (iii) | the voting of the Securities; |
| (d) | Experience: the Subscriber has the requisite knowledge and experience in financial and business matters for properly evaluating the risks of an investment in the Company; |
| (e) | Information: the Subscriber has received all information regarding the Company reasonably requested by the Subscriber; |
| (f) | Risk: the Subscriber understands that an investment in the Company involves certain risks of which the Subscriber has taken full cognizance, and which risks the Subscriber fully understands; |
| (g) | Adequacy of information: the Subscriber has been given the opportunity to ask questions of, and to receive answers from, the Company concerning the terms and conditions of the Offering and to obtain additional information necessary to verify the accuracy of the information contained in the information described in paragraph (e) above, or such other information as the Subscriber desired in order to evaluate an investment in the Company; |
| (h) | Residency: the residence of the Subscriber as set forth hereinbelow is the true and correct residence of the Subscriber and the Subscriber has no present intention of becoming a resident or domiciliary of any other jurisdiction; |
| (i) | Independent investigation: in making a decision to invest in the Company the Subscriber has relied solely upon independent investigations made by the Subscriber; |
| (j) | Principal: the Subscriber is purchasing the Units as principal for the Subscriber’s own account and not for the benefit of any other person, except as otherwise stated herein, and not with a view to the resale or distribution of all or any of the Units; |
| (k) | Decision to purchase: the decision of the Subscriber to enter into this Agreement and to purchase Units pursuant hereto has been based only on the representations of this Agreement. It is not made on other information relating to the Company and not upon any oral representation as to fact or otherwise made by or on behalf of the Company or any other person. The Subscriber agrees that the Company assumes no responsibility or liability of any nature whatsoever for the accuracy, adequacy or completeness of any business plan information which has been created based upon the Company’s management experience. In particular, and without limiting the generality of the foregoing, the decision to subscribe for Units has not been influenced by: |
-- $0.50 Unit Private Placement Subscription Agreement -- |
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| (i) | newspaper, magazine or other media articles or reports related to the Company or its business; |
| (ii) | promotional literature or other materials used by the Company for sales or marketing purposes; or |
| (iii) | any representations, oral or otherwise, that the Company will become a listed company, that any of the Securities will be repurchased or have any guaranteed future realizable value or that there is any certainty as to the success of the Company or the liquidity or value of any of the Securities; |
| (l) | Advertisements: the Subscriber acknowledges that the Subscriber has not purchased Units as a result of any general solicitation or general advertising, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising; |
| (m) | Information not received: the Subscriber has not received, nor has the Subscriber requested, nor does the Subscriber have any need to receive, any offering memorandum or any other document (other than financial statements or any other document the content of which is prescribed by statute or regulation) describing the business and affairs of the Company which has been prepared for delivery to, and review by, prospective subscribers in order to assist them in making an investment decision in respect of the Units, and the Subscriber has not become aware of any advertisement in printed media of general and regular paid circulation, radio or television with respect to the distribution of the Units; |
| (n) | Information received: the Subscriber has had access to such additional information, if any, concerning the Company as the Subscriber has considered necessary in connection with the Subscriber’s investment decision to acquire the Units; |
| (o) | Satisfaction with information received: the Subscriber acknowledges that, to the Subscriber’s satisfaction: |
| (i) | the Subscriber has either had access to or has been furnished with sufficient information regarding the Company and the terms of this investment transaction to the Subscriber’s satisfaction; |
| (ii) | the Subscriber has been provided the opportunity to ask questions concerning this investment transaction and the terms and conditions thereof and all such questions have been answered to the Subscriber’s satisfaction; and |
| (iii) | the Subscriber has been given ready access to and an opportunity to review any information, oral or written, that the Subscriber has requested concurrent with or as a part of this Agreement; |
| (p) | Economic risk: the Subscriber has such knowledge and experience in financial and business affairs as to be capable of evaluating the merits and risks of the Subscriber’s investment in and to the Securities, and the Subscriber is able to bear the economic risk of a total loss of the Subscriber’s investment in and to any of the Securities; |
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| (q) | Speculative investment: the Subscriber understands that an investment in the Securities is a speculative investment and that there is no guarantee of success of the Company’s management’s plans. Management’s plans are an effort to apply present knowledge and experience to project a future course of action which is hoped will result in financial success employing the Company’s assets and with the present level of management’s skills and of those whom the Company will need to attract (which cannot be assured). Additionally, all plans are capable of being frustrated by new or unrecognized or unappreciated present or future circumstances which can typically not be accurately, or at all, predicted; |
| (r) | Address: the Subscriber is resident as set out on the last page of this Agreement as the “Subscriber’s Address”, and the address as set forth on the last page of this Agreement is the true and correct address of the Subscriber; |
| (s) | Risk and resale restriction: the Subscriber is aware of the risks and other characteristics of the Securities and of the fact that the Subscriber will not be able to resell the Securities except in accordance with the applicable securities legislation and regulatory policy; |
| (t) | Representations as to resale: no person has made to the Subscriber any written or oral representations: |
| (i) | that any person will resell or repurchase any of the Securities; |
| (ii) | that any person will refund the purchase of any of the Securities; |
| (iii) | as to the future price or value of any of the Securities; or |
| (iv) | that any of the Securities will be listed and posted for trading on any stock exchange, over-the-counter or bulletin board market, or that application has been made to list and post any of the Securities for trading on any stock exchange, over-the-counter or bulletin board market; and |
| the Subscriber will not resell any of the Securities except in accordance with the provisions of applicable securities legislation and stock exchange, over-the-counter and/or bulletin board market rules; |
| (u) | Reports and undertakings: if required by applicable securities legislation, policy or order or by any securities commission, stock exchange or other regulatory authority, the Subscriber will execute and otherwise assist the Company in filing such reports, undertakings and other documents as may be reasonably required with respect to the issue of the Units; |
| (v) | Resale restrictions: the Subscriber has been independently advised as to the applicable hold period imposed in respect of the Securities by securities legislation in the jurisdiction in which the Subscriber’s resides and confirms that no representation has been made respecting the applicable hold periods for the Securities and is aware of the risks and other characteristics of the Securities and of the fact that the Subscriber may not be able to resell the Securities except in accordance with the applicable securities legislation and regulatory policy; |
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| (w) | Age of majority: the Subscriber, if an individual, has attained the age of majority and is legally competent to execute this Agreement and to take all actions required pursuant hereto; |
| (x) | Authorization and formation of Subscriber: the Subscriber, if a corporation, partnership, trust or other form of business entity, is authorized and otherwise duly qualified to purchase and hold the Securities, and such entity has not been formed for the specific purpose of acquiring Securities in this issue. If the Subscriber is one of the aforementioned entities it hereby agrees that, upon request of the Company, it will supply the Company with any additional written information that may be requested by the Company. In addition, the entering into of this Agreement and the transactions contemplated hereby will not result in the violation of any of the terms of and provisions of any law applicable to, or the constating documents, if a corporation, of, the Subscriber or of any agreement, written or oral, to which the Subscriber may be a party or by which the Subscriber may be bound; |
| (y) | Legal obligation: this Agreement has been duly and validly authorized, executed and delivered by and constitutes a legal, valid, binding and enforceable obligation of the Subscriber; |
| (z) | Legal and tax consequences: the Subscriber acknowledges that an investment in the Securities of the Company may have tax consequences to the Subscriber under applicable law, which the Subscriber is solely responsible for determining, and the Subscriber also acknowledges and agrees that the Subscriber is responsible for obtaining its own legal and tax advice; |
| (aa) | Compliance with applicable laws: the Subscriber knows of no reason (and is sufficiently knowledgeable to determine the same or has sought legal advice) why the delivery of this Agreement, the acceptance of it by the Company and the issuance of the Units to the Subscriber will not comply with all applicable laws of the Subscriber’s jurisdiction of residence or domicile, and all other applicable laws, and the Subscriber has no reason to believe that the Subscriber’s subscription hereby will cause the Company to become subject to or required to comply with any disclosure, prospectus or reporting requirements or to be subject to any civil or regulatory review or proceeding. In addition, the Subscriber will comply with all applicable securities laws and will assist the Company in all reasonable manner to comply with all applicable securities laws; |
| (ab) | Encumbrance or transfer of Securities: while the Company is a non-reporting company in Canada, the Subscriber will not sell, assign, gift, pledge or encumber in any manner whatsoever any of the Securities herein subscribed for in Canada without the prior written consent of the Company and in accordance with applicable securities legislation; |
| (ac) | Regulation S: if the Subscriber is not a resident of the United States, the Subscriber further represents and warrants that the Subscriber was not specifically formed to acquire any of the Securities subscribed for in this Agreement in violation of the provisions of Regulation S; |
| (ad) | Finders’ fees: the Subscriber has not retained, employed or introduced any broker, finder or other person who would be entitled to a brokerage commission or finder’s fee arising out of the transactions contemplated hereby; |
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| (ae) | Additional Subscriber acknowledgements: the Subscriber also acknowledges (on its own behalf and, if applicable, on behalf of those for whom the Subscriber is contracting hereunder) as set forth below: |
| (i) | it has been furnished with all information, financial and otherwise, concerning the business, affairs and financial position of the Company necessary to make an informed decision to purchase the Units and the Subscriber agrees that such information has not been furnished pursuant to any form of written material which is, or may be construed as, an offering memorandum as that term is defined in the securities legislation of any Province of Canada or any State of the United States, the securities legislation in the jurisdictions in which the Company is incorporated and conducts business and the securities legislation in the jurisdiction in which the Subscriber is resident (collectively, the “Applicable Securities Legislation” herein) as such legislation is from time to time amended, and the regulations and rules prescribed thereto; |
| (ii) | the issue of the Units will be made pursuant to exemptions from the registration and prospectus requirements of the Applicable Securities Legislation and therefore: |
| (A) | the Subscriber may be restricted from using certain of the civil remedies available under such legislation and certain protections, rights and remedies provided in such legislation, including statutory rights of rescission or damages, may not be available to the Subscriber; |
| (B) | the Subscriber may not receive information that might otherwise be required to be provided to the Subscriber under such legislation; |
| (C) | the Company may be relieved from certain obligations that would otherwise apply under such legislation; |
| (D) | no securities commission or similar regulatory authority has reviewed or passed on the merits of the Securities; |
| (E) | there is no government or other insurance covering the Securities; and |
| (F) | there are risks associated with the purchase of the Securities; |
| (iii) | no prospectus has been filed by the Company with any regulatory authority in connection with the issuance of the Securities and the Company has already issued or may issue units or shares for significantly lesser consideration per unit or share than is being paid by the Subscriber for Units hereunder; |
| (iv) | any Subscription Price monies paid by the Subscriber for the Units are not subject to any restrictions pertaining to the use thereof by the Company and may be used immediately by the Company upon the Company’s Acceptance; |
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| (v) | this subscription forms part of a larger Offering and is subject only to the Company’s Acceptance of this subscription Agreement and the Subscription Price therefore; |
| (vi) | the sale and delivery of the Units to the Subscriber or to any subscriber on whose behalf the Subscriber is contracting is conditional upon such sale being exempt from the requirement to file a prospectus or to prepare and deliver an offering memorandum under any applicable legislation relating to the sale of the Units or upon the issuance of such orders, consents or approvals as may be required to permit such sale without the requirement of filing a prospectus or preparing and delivering an offering memorandum; |
| (vii) | the Company may be required to provide applicable securities regulatory authorities with a list setting forth the identities of the beneficial purchasers of the Units and the Subscriber acknowledges and agrees that the Subscriber will provide, on request, particulars as to the identity of such beneficial purchasers as may be required by the Company in order to comply with the foregoing; and |
| (viii) | the Subscriber (or others for whom the Subscriber is contracting hereunder) has been advised to consult its own legal advisors with respect to the merits and risks of an investment in the Securities and with respect to applicable resale restrictions and the Subscriber (or others for whom the Subscriber is contracting hereunder) is solely responsible, and the Company is not in any way responsible, for compliance with applicable resale restrictions; |
| (af) | Additional Subscriber representations and warranties under Applicable Securities Legislation: if the Subscriber is not a resident of the United States, the Subscriber further represents and warrants to the Company and acknowledges and agrees that the Company will also rely upon the following representations and warranties in determining whether or not to accept this subscription under all Applicable Securities Legislation: |
| (i) | the Subscriber is purchasing the Units as principal for its own account, not for the benefit of any other person and not with a view to the resale or distribution of all or any of the Units and certifies that it{please circle at least one of the following categories and complete the missing information as appropriate}: |
| (A) | is an “accredited investor” as defined in National Instrument 45-106 –Prospectus and Registration Exemptions (“NI 45-106”); or |
| (O) | is an employee, executive officer, director or consultant as defined in NI 45-106 of the Company, of a related entity of the Company or of a permitted assign of one of those persons and the purchase of the Units is voluntary; or |
| (P) | is resident in an “International Jurisdiction” (being a jurisdiction outside of Canada and the United States) and: |
| (I) | the Subscriber is knowledgeable of, or has been independently advised as to, the Applicable Securities Legislation of such International Jurisdiction which would apply to this Agreement; |
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| (II) | the Subscriber is purchasing the Units pursuant to an applicable exemption from any prospectus, registration or similar requirements under the Applicable Securities Legislation of such International Jurisdiction, or, if such is not applicable, the Subscriber is permitted to purchase the Units under the Applicable Securities Legislation of the International Jurisdiction without the need to rely on exemptions; and |
| (III) | the Applicable Securities Legislation of the International Jurisdiction do not require the Company to make any filings or seek any approvals of any kind whatsoever from any regulatory authority of any kind whatsoever in the International Jurisdiction; |
| (ii) | the Subscriber has not relied upon the Company or its directorsand officers, or the Company’s Counsel or advisors, for investment, legal ortax advice, including advice with respect to the hold period and resalerestrictions imposed upon the Securities by the securities legislation in the jurisdiction inwhich the Subscriber resides, and has, if desired, in all cases sought theadvice of the Subscriber’s own personal investment advisor, legal counsel andtax advisors, and the Subscriber is either experienced in or knowledgeable withregard to the affairs of the Company or, either alone or with its professionaladvisors, is capable by reason of knowledge and experience in financial andbusiness matters in general, and investments in particular, of evaluating themerits and risks of an investment in the Securities, and it is able to bear the economic riskof an investment in the Securities and can otherwise be reasonably assumed to have thecapacity to protect its own interest in connection with the investment; and |
| (iii) | the Subscriber understands and acknowledges that the Company is not currently a reporting issuer or reporting company in every applicable jurisdiction and as a result the hold period to which the Securities are subject may be indefinite in certain jurisdictions in which the Securities are issued until the Company becomes a reporting issuer or reporting company in such jurisdiction. The Subscriber further understands that the certificates representing the Securities will bear a legend describing the resale restrictions and the Subscriber agrees to comply with such resale restrictions; and |
| (ag) | Additional Subscriber covenants and agreements: the Subscriber further covenants and agrees that the Company will also rely upon the following covenants and agreements in determining whether or not to accept this subscription under all Applicable Securities Legislation: |
| (i) | the Subscriber acknowledges and consents to the collection and retention by the Company of certain information, including personal information, regarding the Subscriber and the Subscriber’s subscription, including the Subscriber’s name, address, telephone number and e-mail address, the number of Securities purchased and any control persons of the Subscriber. The Subscriber acknowledges and agrees that this information will be retained on the share register of the Company which may be available for inspection by the public. The Subscriber further consents and agrees to the release of this information to the securities regulatory authorities as required by law and regulatory policies; and |
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| (ii) | the Subscriber agrees that this Agreement will in no way restrict the Company from obtaining further funds through the sale of equity securities of the Company or otherwise. |
3.5 Company Confidential Information. The Subscriber acknowledges that the Company is presently engaged in the business of. The Subscriber recognizes the importance of protecting the Company’s trade secrets, confidential information and other proprietary information and related rights acquired through the Company’s expenditure of time, effort and money. Therefore, in consideration of the Company permitting the Subscriber to submit this subscription and have access to Company information and/or Company confidential information otherwise coming to the Subscriber, the Subscriber agrees to be bound by the following terms and conditions:
| (a) | Definitions: for all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following words and phrases shall have the following meanings: |
| (i) | “Confidential Information” includes any of the following: |
| (A) | any and all versions of the trade names, trade-mark, business plans, products, software, all Developments (as defined below) and all other matters owned or marketed by the Company; |
| (B) | information regarding the Company’s business operation, methods and practices, including marketing strategies, product pricing, margins and hourly rates for staff and information regarding the financial affairs of the Company; |
| (C) | the names of the Company’s clients and the names of the suppliers to the Company, and the nature of the Company’s relationships with these clients and suppliers; and |
| (D) | any other trade secret or confidential or proprietary information in the possession or control of the Company; |
| however, Confidential Information does not include information which is or becomes generally available to the public without the Subscriber’s fault; and |
| (ii) | “Developments” include all the following related to the products or business of the Company: |
| (A) | copyright works, software, documentation, data, designs, scripts, photographs, music, reports, flowcharts, trade-marks, specifications, source codes, product designs or formula and any related works, including any enhancements, modifications or additions to the products owned, marketed or used by the Company; and |
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| (B) | inventions, devices, discoveries, concepts, ideas, algorithms, formulae, know-how, processes, techniques, systems and improvements, whether patentable or not; |
| developed, created, acquired, generated or reduced to practice by the Company or any person by or for the Company, including the Subscriber; |
| (b) | Maintaining confidentiality: at all times the Subscriber shall keep in strictest confidence and trust the Confidential Information. The Subscriber shall take all necessary precautions against unauthorized disclosure of the Confidential Information, and, except as required by applicable law, judicial process or regulatory investigation, the Subscriber shall not, directly or indirectly disclose, allow access to, transmit or transfer the Confidential Information to a third party, nor shall the Subscriber use, copy or reproduce the Confidential Information except as may be reasonably required for the Subscriber with the permission of the Company; |
| (c) | Return of Confidential Information: at the request of the Company the Subscriber shall immediately return to the Company all materials, including all copies in whatever form, containing the Confidential Information which are in the Subscriber’s possession or under the Subscriber’s control; and |
| (d) | No rights to Confidential Information: the Subscriber acknowledges and agrees that the Subscriber shall not acquire any right, title or interest in or to the Confidential Information. Should any interest in the Confidential Information come into the possession of the Subscriber by any means, other than specific written transfer by the Company, the Subscriber hereby assigns and transfers, now and in the future, to the Company, and agrees that the Company shall be the exclusive owner of, all of the Subscriber’s right, title and interest to any such throughout the world, including all trade secrets, patent rights, copyrights and all other intellectual property rights therein. The Subscriber further agrees to cooperate fully at all times with respect to signing further documents and doing such acts and other things required by the Company to confirm such transfer of ownership of rights. The Subscriber agrees that the obligations in this section shall continue beyond the issue of any Securities hereunder, beyond the ownership of any Securities acquired hereunder and beyond the termination of the Subscriber’s employment, engagement or association with the Company, for a period of five years from the date that the Subscriber delivers this Agreement to the Company. |
3.6 Reliance on Subscriber’s representations and warranties and indemnification. The Subscriber understands that the Company will rely on the representations and warranties of the Subscriber herein in determining whether a sale of the Units to the Subscriber is in compliance with federal and applicable state and provincial securities laws. The Subscriber hereby agrees to indemnify the Company and its affiliates and hold the Company and its affiliates harmless from and against any and all liability, damage, cost or expense (including reasonable attorney’s fees) incurred on account of or arising out of: (i) any inaccuracy in the Subscriber’s acknowledgements, representations or warranties set forth in this Agreement; (ii) the disposition of any of the Securities which the Subscriber will receive, contrary to the Subscriber’s acknowledgements, representations or warranties in this Agreement or otherwise; (iii) any suit or proceeding based upon the claim that such acknowledgments, representations or warranties were inaccurate or misleading or otherwise cause for obtaining damages or redress from the Company or its affiliates; and (iv) the Subscriber’s failure to fulfill any or all of the Subscriber’s obligations herein.
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3.7 Change in Subscriber’s representations and warranties. All of the information set forth hereinabove with respect to the Subscriber and including, without limitation, the acknowledgements, representations and warranties set forth hereinabove, is correct and complete as of the date hereof and, if there should be any material change in such information prior to the acceptance of this subscription Agreement by the Company, the Subscriber will immediately furnish the revised or corrected information to the Company.
3.8 The Company’s representations and warranties. The Company hereby represents and warrants as follows and hereby acknowledges and agrees that the Subscriber will rely on the following representations and warranties in effecting the subscription contemplated hereby:
| (a) | Organization and Qualification of the Company: the Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a material adverse effect on the business, operations or condition (financial or otherwise) of the Company; |
| (b) | Authority: the Company has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the Offering and the other transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary action on the party of the Company, and no further consent or action is required; |
| (c) | Enforceability: this Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligations of the Company enforceable against the Company in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors’ rights generally; |
| (d) | No Conflicts: the execution, delivery and performance of this Agreement by the Company and the consummation of the Offering by the Company do not and will not conflict with or violate (i) any provision of the Articles of Incorporation or bylaws of the Company, as amended, or (ii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company, except where such conflict or violation would not have a material adverse effect on the business, operations or condition (financial or otherwise) of the Company. No material consent, waiver, approval order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or commission or any third party, including a party to any material agreement with the Company, is required in connection with the execution, delivery and performance of this Agreement or the consummation of the Offering by the Company; |
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| (e) | The Shares: The Shares and the Warrant Shares been duly authorized, and when issued and paid for in accordance with this Agreement and the Warrant, will be duly and validly issued, fully paid and non-assessable. The Company has reserved from its duly authorized capital stock the number of Warrant Shares issuable upon exercise of the Warrant. The Shares have not been issued in violation of, and are not subject to, any preemptive or subscription rights; |
| (f) | SEC Filings: the Company has filed all reports required to be filed by it under the U.S. Act and under the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), including pursuant to Section 13(a) or 15(d) thereof, for the 18 months preceding the date hereof (collectively, the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing. At the time they were filed, the SEC Reports complied in all material respects with the requirements of the U.S. Act and the Exchange Act and the rules and regulations promulgated thereunder. At the time when they were filed, none of the SEC Reports contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein in light of the circumstances under which they were made, not misleading. The financial statements of the Company contained in the SEC Reports comply in all material respects with all applicable accounting requirements of the United States Securities and Exchange Commission (the “SEC”), were prepared in accordance with generally accepted accounting principles, and fairly present in all material respects the financial condition of the Company as of the dates thereof. The number and type of all authorized, issued and outstanding shares of capital stock of the Company is as set forth in the SEC Reports; and |
| (g) | Absence of Certain Changes: Since the date of the last audited financial statement contained in the SEC Reports, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), or results of operations of the Company, except as disclosed in the SEC Reports. |
Article 4
UNITED STATES DECLARATIONS
(Omitted)
Article 5
RESTRICTED SECURITIES AND REGISTRATION
5.1 No initial registration. The Subscriber acknowledges and understands that neither the sale of the Units which the Subscriber is acquiring nor any of the Securities themselves have been registered under any Applicable Securities Legislation and, furthermore, that the Securities must be held indefinitely unless subsequently registered under Applicable Securities Legislation or an exemption from such registration is available.
5.2 Legending of the Securities. The Subscriber also acknowledges and understands that the certificates representing the Securities will be stamped with the following legend (or substantially equivalent language) restricting transfer in the following manner:
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“These securities have not been registered under the United States Securities Act of 1933, as amended, or the laws of any state, and are being issued pursuant to an exemption from registration pertaining to such securities and pursuant to a representation by the security holder named hereon that said securities have been acquired for purposes of investment and not for purposes of distribution. These securities may not be offered, sold, transferred, pledged or hypothecated in the absence of registration, or the availability of an exemption from such registration. The stock transfer agent has been ordered to effectuate transfers only in accordance with the above instructions.”
(or)
“These securities have not been registered under the United States Securities Act of 1933, as amended (the “Act”), or the laws of any state, and are being issued in reliance upon Regulation S promulgated under the Act. These securities may not be offered, sold, transferred, pledged or hypothecated in the absence of registration, the availability of an exemption from such registration or compliance with Regulation S. The stock transfer agent has been ordered to effectuate transfers only in accordance with the above instructions.
(and, if applicable)
“Unless permitted under applicable securities legislation, the holder of the securities represented hereby shall not trade the securities in Canada before the earlier of (i) the date that is four months and a day after the date the company first became a reporting issuer in any of Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec and Saskatchewan, if the company is a sedar filer, and (ii) the date that is four months and a day after the later of (a) the distribution date, and (b) the date the company became a reporting issuer in the local jurisdiction of the subscriber of the securities that are the subject of the trade.
(and)
“Unless otherwise permitted under securities legislation, the holder of this security must not trade the security in or from British Columbia unless the conditions in section 12(2) of BC Instrument 51-509 Issuers Quoted in the U.S. Over-the-Counter Market are met.”.
The Subscriber hereby consents to the Company making a notation on its records or giving instructions to any transfer agent of the Securities in order to implement the restrictions on transfer set forth and described hereinabove.
5.3 Disposition under Rule 144. The Subscriber also acknowledges and understands that:
| (a) | the Securities are restricted securities within the meaning of Rule 144 promulgated under the U.S. Act; |
| (b) | the exemption from registration under Rule 144 will not be available in any event for at least one year from the date of purchase and payment of the Securities by the Subscriber, and even then will not be available unless (i) adequate information concerning the Company is then available to the public and (ii) other terms and conditions of Rule 144 are complied with; and |
| (c) | any sale of the Securities may be made by the Subscriber only in limited amounts in accordance with such terms and conditions. |
In this regard the Subscriber further acknowledges and understands that, without in anyway limiting the acknowledgements and understandings as set forth hereinabove, the Subscriber agrees that the Subscriber shall in no event make any disposition of all or any portion of the Securities which the Subscriber is acquiring hereunder unless and until:
| (a) | there is then in effect a “Registration Statement” under the U.S. Act covering such proposed disposition and such disposition is made in accordance with said Registration Statement; or |
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| (b) | (i) the Subscriber shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (ii) the Subscriber shall have furnished the Company with an opinion of the Subscriber’s own counsel to the effect that such disposition will not require registration of any such Securities under the U.S. Act and (iii) such opinion of the Subscriber’s counsel shall have been concurred in by counsel for the Company and the Company shall have advised the Subscriber of such concurrence. |
Article
6
GENERAL PROVISIONS
6.1 Address for delivery. Each notice, demand or other communication required or permitted to be given under this Agreement shall be in writing and shall be sent by delivery (electronic or otherwise) or prepaid registered mail deposited in a post office addressed to the Subscriber or the Company at the address specified in this Agreement. The date of receipt of such notice, demand or other communication shall be the date of delivery thereof if delivered, or, if given by registered mail as aforesaid, shall be deemed conclusively to be the fifth calendar day after the same shall have been so mailed, except in the case of interruption of postal services for any reason whatsoever, in which case the date of receipt shall be the date on which the notice, demand or other communication is actually received by the addressee. Either party may at any time and from time to time notify the other party in writing of a change of address and the new address to which notice shall be given to it thereafter until further change.
6.2 Severability and construction. Each Article, section, sub-section, paragraph, sub-paragraph, term and provision of this Agreement, and any portion thereof, shall be considered severable, and if, for any reason, any portion of this Agreement is determined to be invalid, contrary to or in conflict with any applicable present or future law, rule or regulation, that ruling shall not impair the operation of, or have any other effect upon, such other portions of this Agreement as may remain otherwise intelligible (all of which shall remain binding on the parties and continue to be given full force and agreement as of the date upon which the ruling becomes final).
6.3 Gender and number. This Agreement is to be read with all changes in gender or number as required by the context.
6.4 Governing law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, U.S.A., and the federal laws of the United States applicable therein. Any dispute regarding matters as between the Subscriber and the Company, whether as a subscriber or shareholder and whether arising under this Agreement or pursuant to shareholder rights pursuant to the constating documents of the Company or applicable law, shall be adjudicated in the Courts of the State of Nevada, U.S.A., unless the Company shall permit otherwise.
6.5 Representation and costs. It is hereby acknowledged by each of the parties hereto that the Company’s Counsel acts solely for the Company, and, correspondingly, that the Subscriber has been required by each of the Company’s Counsel and the Company to obtain independent legal advice with respect to the Subscriber’s review and execution of this Agreement. In addition, it is hereby further acknowledged and agreed by the parties hereto that the Company’s Counsel, and certain or all of its principal owners or associates, from time to time, may have both an economic or shareholding interest in and to the Company and/or a fiduciary duty to the same arising from either a directorship, officership or similar relationship arising out of the request of the Company for certain of such persons to act in a similar capacity while acting for the Company as counsel. Correspondingly, and even where, as a result of this Agreement, the consent of each party hereto to the role and capacity of the Company’s Counsel and its principal owners and associates, as the case may be, is deemed to have been received, where any conflict or perceived conflict may arise, or be seen to arise, as a result of any such capacity or representation, each party hereto acknowledges and agrees to, once more, obtain independent legal advice in respect of any such conflict or perceived conflict and, consequent thereon, the Company’s Counsel, together with any such principal owners or associates, as the case may be, shall be at liberty at any time to resign any such position if it or any party hereto is in any way affected or uncomfortable with any such capacity or representation. The Company will bear and pay its and the Subscriber’s costs, legal and otherwise, in connection with their respective preparation, review and execution of this Agreement, and, in particular, that the costs involved in the preparation of this Agreement and all documentation necessarily incidental thereto, by the Company’s Counsel, shall be at the cost of the Company.
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6.6 Survival of representations and warranties. The covenants, representations and warranties contained herein shall survive the closing of the transactions contemplated hereby.
6.7 Counterparts. This Agreement may be signed by the parties hereto in as many counterparts as may be necessary, each of which so signed shall be deemed to be an original, and such counterparts together shall constitute one and the same instrument and notwithstanding the date of execution will be deemed to bear the execution date as set forth in this Agreement. This Agreement may also be executed and exchanged by facsimile and such facsimile copies shall be valid and enforceable agreements.
6.8 Entire Agreement and amendments. This Agreement constitutes the only agreement between the parties with respect to the subject matter hereof and shall supersede any and all prior negotiations and understandings. There are no collateral agreements or understandings hereto and this Agreement, and the documents contemplated herein, constitutes the totality of the parties’ agreement. This Agreement may be amended or modified in any respect by written instrument only.
6.9 Corrections. The Subscriber hereby authorizes the Company to correct any minor errors in, or complete any minor information missing from this Agreement which may be required to be completed and executed by the Subscriber and delivered to the Company in accordance with the terms and conditions of this Agreement.
6.10 Successors and assigns. The terms and provisions of this Agreement shall be binding upon and enure to the benefit of the Subscriber, the Company and their respective successors and lawfully permitted assigns; provided that, except as herein provided, this Agreement shall not be assignable by any party without the written consent of the other. Notwithstanding the foregoing proviso, the benefit and obligations of this Agreement, insofar as they extend to or affect the Subscriber, shall pass with any sale, assignment or transfer of any of the Units, the Shares, the Warrants or the Warrant Shares in accordance with the terms of this Agreement.
IN WITNESS WHEREOF the parties hereto have hereunto set their respective hands and seals in the presence of their duly authorized signatories effective as at the dates as set forth in the Signature Page/Subscriber Statement at the beginning of this Agreement.
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Exhibit “A”
TO
THE $0.50 UNIT PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT
OF THE
PULSE BEVERAGE CORPORATION
FORM OF WARRANT CERTIFICATE
Attached is the form of Warrant certificate which is referred to in section 1.4 of the “$0.50 Unit Private Placement Subscription Agreement” of the Company to which this is Exhibit “A”.
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End of $0.50 Unit Private Placement Subscription Agreement
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-- $0.50 Unit Private Placement Subscription Agreement -- |
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|
SUBSCRIPTION AGREEMENT |
Between:
THE PULSE BEVERAGE CORPORATION
And:
________________________________________
[Name
of Subscriber]
The
Pulse Beverage Corporation
12195
Mariposa Street, Westminster, CO, USA 80234
__________
-- $0.30 Unit Private Placement Subscription Agreement -- |
SIGNATURE PAGE/SUBSCRIBER STATEMENT
TO THE $0.30 UNIT
PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT
OF THE PULSE BEVERAGE
CORPORATION
SUBSCRIBER’S STATEMENT – the undersigned subscriber (the “Subscriber”) is a sophisticated investor, the Subscriber has sought such independent counsel as the Subscriber considers necessary and the Subscriber has read the attached “$0.30 Unit Private Placement Subscription Agreement” (the “Agreement”) carefully and accepts, agrees and acknowledges the representations and terms thereof in full and without exception and agrees that such Agreement constitutes the entire agreement between The Pulse Beverage Corporation (the “Company”) and the Subscriber and that there are no collateral representations or agreements between the same.
The Company is offering (collectively, the “Offering”), on a private placement basis, units of the Company (each a “Unit”), at a subscription price of U.S. $0.30 per Unit, with each Unit consisting of one share of common stock of the Company and one non-transferable common stock share purchase warrant of the Company (each a “Warrant”), and with each such Warrant entitling the Subscriber to purchase one additional common share of the Company (each a “Warrant Share”), for the period commencing upon the date of issuance of the within Units by the Company and ending on the day which is five years from the date of issuance of the Units, at an exercise price of U.S. $0.45 Per Warrant Share. The within private placement Offering of Units by the Company is not subject to any minimum subscription. The Company offers, and the Subscriber accepts, the Units on the terms and conditions as set forth in this Agreement.
Number of Units subscribed for at U.S. $0.30 per Unit:_______________________Units.
Total Subscription Price payable: U.S. $0.30 x number of Units = U.S. $______________________.
Dated at ________________________,______________, on this ______day of _____________, 2012.
Subscriber’s Name: ___________________________________________________________
Subscriber’s Official Capacity or Title: ___________________________________________________
Subscriber’s Signature: ___________________________________________________________
Name of individual whose signature
appears above if different than the Subscriber: __________________________________________________
Subscriber’s Address: ___________________________________________________________
Subscriber’s Telephone Number: ___________________________________________________________
Subscriber’s Email Address: ___________________________________________________________
THE SUBSCRIBER MUST CHECK THE APPROPRIATE BOX(ES) SET FORTH IN SECTION 4.1.
Acceptance by the Company:
THE PULSE BEVERAGE CORPORATION hereby accepts the above subscription by the
Subscriber on this _______day of ______________, 2012.
_______________________________
Robert
E. Yates, CEO and Director
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0.30 UNIT PRIVATE PLACEMENT
SUBSCRIPTION AGREEMENT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR THE LAWS OF ANY STATE, AND ARE BEING ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION PERTAINING TO SUCH SECURITIES AND PURSUANT TO A REPRESENTATION BY THE SECURITY HOLDER NAMED HEREIN THAT SAID SECURITIES HAVE BEEN ACQUIRED FOR PURPOSES OF INVESTMENT AND NOT FOR PURPOSES OF DISTRIBUTION. THESE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION. THE STOCK TRANSFER AGENT HAS BEEN ORDERED TO EFFECTUATE TRANSFERS ONLY IN ACCORDANCE WITH THE ABOVE INSTRUCTIONS.
UNIT PRIVATE PLACEMENT OFFERING
| To: | THE PULSE BEVERAGE CORPORATION (the “Company”), with an address for notice and delivery located at 12195 Mariposa Street, Westminster, CO, USA 80234. |
The Company is offering (collectively, the “Offering”), on a private placement basis, units of the Company (each a “Unit”) to eligible investors (each such an investor who subscribes to this Offering by this document is hereinafter referred to as the “Subscriber”), at a subscription price of U.S. $0.30 per Unit, with each Unit consisting of one share of common stock of the Company (each a “Share”) and one non-transferable common stock share purchase warrant of the Company (each a “Warrant”). The within private placement Offering of Units by the Company is not subject to any minimum subscription. The Company offers, and the Subscriber accepts, the Units on the terms and conditions as set forth in this subscription agreement (the “Agreement”).
Article 1
SUBSCRIPTION FOR UNITS
1.1 Subscription for Units. Based upon the hereinafter terms, conditions, representations, warranties and covenants given by each party to the other, the Subscriber hereto hereby irrevocably subscribes for and agrees to purchase the number of Units of the Company set forth on the Signature Page/Subscriber Statement at the beginning of this Agreement at a subscription price of U.S. $0.30 per Unit, for aggregate consideration (the “Subscription Price”) as set forth on the Signature Page/Subscriber Statement at the beginning of this Agreement.
1.2 Acceptance of subscription. The Company, upon acceptance by its Board of Directors (the “Board”) of all or part of this subscription Agreement, agrees to issue the accepted number of Units, as fully paid and non-assessable, and as consideration for the Subscriber’s subscription, and to refund any excess subscription monies of the Subscription Price of any non-accepted portion of this subscription Agreement.
1.3 Warrants and exercise of Warrants. The Warrants forming part of the Units will be registered in the name of the Subscriber and will be non-transferable except in compliance with the United States Securities Act of 1933, as amended (the “U.S. Act”), and each such Warrant will entitle the Subscriber to purchase one additional common share of the Company (each a “Warrant Share”), for the period commencing upon the date of issuance of the within Units by the Board and ending at 5:00 p.m. (Westminster, CO, time) on the day which is five years from the date of issuance of the within Units (such time period being the “Warrant Exercise Period” herein), at an exercise price of U.S. $0.45 Per Warrant Share during the Warrant Exercise Period.
1.4 Warrant certificates. The terms and conditions which govern the Warrants will be referred to on the certificates representing the Warrants in the form attached hereto as Exhibit “A” and will contain, among other things, anti-dilution provisions and provisions for the appropriate adjustment in the class, number and price of the Warrant Shares issuable on the exercise of the Warrants upon the occurrence of certain events including any subdivision, consolidation or reclassification of the common shares, the payment of stock dividends and the amalgamation of the Company.
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1.5 Other financings. The issue and terms of the Warrants will not restrict or prevent the Company from obtaining any other financing or from issuing additional securities or rights during the period within which the Warrants are exercisable.
1.6 Replacement Warrant certificates. If the Subscriber exercises any Warrants the Company will issue to the Subscriber the number of Warrant Shares equal to the number of Warrants exercised and deliver to the Subscriber a certificate representing the Warrant Shares.
1.7 Subscriber’s eligibility for subscription. The Subscriber acknowledges and warrants (and has made diligent inquiries to so determine or has the sophistication and knowledge to know the Subscriber’s status without concern of error), on which the Company relies, that the Subscriber is purchasing the Units on a private basis and without infraction of or impedance by his domicile laws due to one or more of the following:
| (a) | the Subscriber is an eligible and exempt investor under the laws of the Subscriber’s domicile by either being a person who complies with exemptions from prospectus requirements or is otherwise exempt by virtue of the Subscriber’s wealth, income and investment knowledge or capacity; or |
| (b) | the Subscriber is subscribing for a value in Units constituting an exempt investment under the laws of the Subscriber’s domicile; or |
| (c) | the Subscriber’s domicile laws do not restrict investment; and |
| (d) | where the Subscriber has completed the appropriate portions of this Agreement and its related Appendices and the completion of the same, whether signed or not, constitute a true and accurate statement by the Subscriber. |
For the purposes of this Agreement it is hereby acknowledged and agreed that “Securities” is hereinafter collectively defined to mean the Units, the Shares, the Warrants and the Warrant Shares.
1.8 Risks of subscription. The Subscriber acknowledges that no party independent of the Company has made or will make any opinion or representations on the merits or risks of an investment in any of the Securities unless sought out by the Subscriber; which the Subscriber is encouraged to do. The Subscriber is aware that this investment is a speculative and risky investment, the Subscriber warrants that it could tolerate the full loss of the investment without significant or material impact on the Subscriber’s financial condition.
Article 2
METHOD
OF SUBSCRIPTION AND ACCEPTANCE BY THE COMPANY
2.1 Method of subscription. It is hereby acknowledged and agreed by the parties hereto that any subscription for Units shall be made by the Subscriber by faxing to the Company at (604) 646-1571, a completed and executed copy of the signature pages to this Agreement and wiring funds directly to the Company as follows:
Benefiary:
The Pulse Beverage Corporation
Address: 12180 Mariposa St,
Westminster, Colorado, USA 80234
Bank:
JP Morgan Chase
Address:
13260 Orchard Parkway, Westminster, Colorado, USA 80020
2.2 Acceptance of subscription or return of Subscription Price by the Company. The Subscriber acknowledges that the Company will be accepting subscriptions for Units on a first come, first serve, basis. As a consequence the Company, upon acceptance by its Board of all or part of this subscription Agreement (the “Acceptance”), hereby agrees to issue the accepted number of Units, as fully paid and non-assessable, and as consideration for the Subscriber’s subscription, and to promptly refund any excess subscription monies of the Subscription Price of any non-accepted portion of this subscription Agreement. In this regard the Subscriber acknowledges that, although Units may be issued to other subscribers concurrently with the Company’s Acceptance of all or part of this subscription Agreement, there may be other sales of Units by the Company, some or all of which may close before or after the Acceptance herein. The Subscriber further acknowledges that there is a risk that insufficient funds may be raised by the Company upon the Company’s Acceptance of all or part of this subscription Agreement to fund the Company’s objectives and that further closings may not take place after Acceptance herein.
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2.3 Use of funds before and after Acceptance. The Company agrees that the Subscription Price will be held by the Company or by the Company’s Counsel for the benefit of the Subscriber to reserve the Subscriber’s subscription and, prior to Acceptance, such funds shall not be considered a loan and shall not bear interest but shall constitute solely a reservation of subscription. The Subscriber shall not demand return of its Subscription Price monies unless the Units have not been issued for a period in excess of 90 calendar days from the date of this subscription and such demand may be fulfilled by Acceptance and delivery of subscribed Units or return of funds at the Company’s sole and absolute discretion. The Subscriber acknowledges that the funds to be raised from all Units are to be employed for the business of the Company in accordance with management’s determination as to the best use of the same for the Company’s business plans. Notwithstanding any disclosure document or offering memorandum or prospectus provided concurrent with this subscription, the Company reserves the right at any time to alter its business plans in accordance with management’s appreciation of the market for the goods and services of the Company and the best use of the Company’s funds to advance its business, whether present or future.
2.4. Securities issued at different prices and characteristics. The Subscriber acknowledges that the Company will issue its securities at different prices which may occur sequentially, from time-to-time, or at the same time and prices in the future may be lower than now. The Company will also issue offerings which have warrants, or other benefits, attached and some offerings which do not. Not all subscribers will receive common shares, or other share classes, of the Company at the same price and such may be issued at vastly different prices to that of the Subscriber. For example, however, without limitation, the Company will or may issue securities at nominal prices as ‘founders shares’ (which may or will constitute millions of securities, as determined solely by the Board) or for developmental assets (which cannot be valued and so may be assigned a nominal value on the Company’s books) or for services or to attract expertise or management talent or other circumstances considered advisable by the Board. Such issuance at different prices are made by the Board in its judgment as to typical structuring for a company such as the Company, to reward and to provide a measure of developmental control, to acquire assets or services which the Board considers necessary or advisable for the Company’s development and success and other such considerations in the Board’s judgment. The Company may or will acquire debt and/or equity financings in the future required or advisable, as determined by the Board, in the course of the Company’s business development. The Subscriber acknowledges these matters, understands that the Subscriber’s investment is not necessarily the most advantageous investment in the Company and authorizes the Board now and hereafter to use its judgment to make such issuances whether such issuances are at a lesser, equal or greater price than that of the Subscriber and whether such is prior to, concurrent with or subsequent to the Subscriber’s investment herein.
2.5 Delivery of Share and Warrant certificates. The Company, promptly after the Acceptance by its Board of all or part of this subscription Agreement, agrees to deliver to the Subscriber a Share certificate and a Warrant certificate for the accepted number of Units purchased by the Subscriber under this subscription Agreement and registered in the name of the Subscriber.
Article 3
INVESTMENT
SUBSCRIPTION TERMS, CORPORATE DISCLOSURE AND GENERAL
SUBSCRIBER
ACKNOWLEDGEMENTS AND WARRANTIES
3.1 Description of the Units. The Company is issuing Units at a price of U.S. $0.30 per Unit. The Shares forming part of the Units, together with the Warrant Shares which are issuable upon the exercise of the Warrants, are a part of the common shares of the Company presently authorized. Copies of the con-stating documents of the Company describing the common shares and the rights of shareholders are available upon request.
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3.2 Release of liability and indemnity. The Subscriber acknowledges and agrees that, in consideration, in part, of the Company’s within Acceptance of this subscription, the Subscriber hereby does hereby release, remise and forever discharge each of the Company and its respective subsidiaries, directors, officers, employees, attorneys, agents, executors, administrators, successors and assigns and the Company’s Counsel, of and from all manner of action and actions, causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, claims, damages and demands, whether known or unknown, suspected or unsuspected and whether at law or in equity, which against either of the Company and/or any of its respective subsidiaries, directors, officers, employees, attorneys, agents, executors, administrators, successors and assigns and the Company’s Counsel, the Subscriber ever had, now has, or which any of the Subscriber’s respective successors or assigns, or any of them hereafter can, shall or may have by reason of any matter arising from the within subscription or the use of funds or the operation of the Company (collectively, the “Release”) except only for gross negligence or fraud (and such shall constitute only objective willful act of objective material wrongdoing). The Subscriber shall hold harmless and indemnify the Company from and against, and shall compensate and reimburse the same for, any loss, damage, claim, liability, fee (including reasonable attorneys’ fees), demand, cost or expense (regardless of whether or not such loss, damage, claim, liability, fee, demand, cost or expense relates to a third-party claim) that is directly or indirectly suffered or incurred by the Company, or to which the Company becomes subject, and that arises directly or indirectly from, or relates directly or indirectly to, any inaccuracy in or breach of any representation, warranty, covenant or obligation of the Subscriber contained in this Agreement. This Release is irrevocable and will not terminate in any circumstances.
3.3 The Subscriber’s understandings and acknowledgments. The Subscriber hereby acknowledges and agrees that:
| (a) | Further financings: the Company may issue further offerings in the future similar to the within Offering which may be at higher or lower prices (as determined by the Company in accordance with its appreciation of market conditions). The Company may, and will, acquire debt and/or equity financings in the future required or advisable in the course of the Company’s business development; |
| (b) | Withdrawal or revocation: this Agreement is given for valuable consideration and shall not be withdrawn or revoked by the Subscriber once tendered to the Company with the Subscription Price; |
| (c) | Agreement to be bound: the Subscriber hereby specifically agrees to be bound by the terms of this Agreement as to all particulars hereof and hereby reaffirms the acknowledgments, representations and powers as set forth in this Agreement; |
| (d) | Reliance on Subscriber’s representations: the Subscriber understands that the Company will rely on the acknowledgments, representations and covenants of the Subscriber contained herein in determining whether a sale of the Units to the Subscriber is in compliance with applicable securities laws. The Subscriber warrants that all acknowledgments, representations and covenants are true and accurate; and |
| (e) | Waiver of pre-emptive rights: the Subscriber hereby grants, conveys and vests unto the President of the Company, or unto such other nominee or nominees of the President of the Company as the President of the Company may determine, from time to time, in the President’s sole and absolute discretion, as the Subscriber’s power of attorney solely for the purpose of waiving any prior or pre-emptive rights which the Subscriber may have to further issues of equity by the Company under applicable corporate and securities laws. |
3.4 The Subscriber’s representations and warranties. The Subscriber hereby represents and warrants that:
| (a) | Not a U.S. Person: if the Subscriber is not a resident of the United States, the Subscriber: (i) is not a U.S. Person (as defined in Rule 902 of Regulation S (“Regulation S”) under the U.S. Act, which definition includes, but is not limited to, any natural person resident in the United States, any corporation or partnership incorporated or organized under the laws of the United States or any estate or trust of which any executor, administrator or trustee is a U.S. Person; (ii) is not purchasing any of the Securities for the account or benefit of any U.S. Person or for offering, resale or delivery for the account or benefit of any U.S. Person or for the account of any person in any jurisdiction other than the jurisdiction set out in the name and address of the Subscriber set forth hereinbelow; and (iii) was not offered any Units in the United States and was outside the United States at the time of execution and delivery of this Agreement; |
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| (b) | No registration and sales under Regulation S: if the Subscriber is not a resident of the United States: (i) the Subscriber acknowledges that the Securities have not been registered under the U.S. Act; (ii) the Subscriber agrees to resell the Securities only in accordance with the provisions of Regulation S, pursuant to a registration under the U.S. Act or pursuant to an available exemption from such registration, and that hedging transactions involving the Securities may not be conducted unless in compliance with the U.S. Act; (iii) the Subscriber understands that any certificate representing the Securities may bear a legend setting forth the foregoing restrictions; and (iv) the Subscriber understands that the Securities are restricted within the meaning of “Rule 144” promulgated under the U.S. Act; that the exemption from registration under Rule 144 will not be available in any event for at least six months from the date of purchase and payment of the Securities by the Subscriber, and even then will not be available unless (i) a public trading market then exists for the common stock of the Company, (ii) adequate information concerning the Company is then available to the public and (iii) other terms and conditions of Rule 144 are complied with; and that any sale of the Securities may be made by the Subscriber only in limited amounts in accordance with such terms and conditions; |
| (c) | No U.S. beneficial interest: if the Subscriber is not a resident of the United States, no U.S. Person, either directly or indirectly, has any beneficial interest in any of the Securities acquired by the Subscriber hereunder, nor does the Subscriber have any agreement or understanding (written or oral) with any U.S. Person respecting: |
| (i) | the transfer or any assignment of any rights or interest in any of the Securities; |
| (ii) | the division of profits, losses, fees, commissions or any financial stake in connection with this subscription; or |
| (iii) | the voting of the Securities; |
| (d) | Experience: the Subscriber has the requisite knowledge and experience in financial and business matters for properly evaluating the risks of an investment in the Company; |
| (e) | Information: the Subscriber has received all information regarding the Company reasonably requested by the Subscriber; |
| (f) | Risk: the Subscriber understands that an investment in the Company involves certain risks of which the Subscriber has taken full cognizance, and which risks the Subscriber fully understands; |
| (g) | Adequacy of information: the Subscriber has been given the opportunity to ask questions of, and to receive answers from, the Company concerning the terms and conditions of the Offering and to obtain additional information necessary to verify the accuracy of the information contained in the information described in paragraph (e) above, or such other information as the Subscriber desired in order to evaluate an investment in the Company; |
| (h) | Residency: the residence of the Subscriber as set forth hereinbelow is the true and correct residence of the Subscriber and the Subscriber has no present intention of becoming a resident or domiciliary of any other jurisdiction; |
| (i) | Independent investigation: in making a decision to invest in the Company the Subscriber has relied solely upon independent investigations made by the Subscriber; |
| (j) | Principal: the Subscriber is purchasing the Units as principal for the Subscriber’s own account and not for the benefit of any other person, except as otherwise stated herein, and not with a view to the resale or distribution of all or any of the Units; |
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| (k) | Decision to purchase: the decision of the Subscriber to enter into this Agreement and to purchase Units pursuant hereto has been based only on the representations of this Agreement. It is not made on other information relating to the Company and not upon any oral representation as to fact or otherwise made by or on behalf of the Company or any other person. The Subscriber agrees that the Company assumes no responsibility or liability of any nature whatsoever for the accuracy, adequacy or completeness of any business plan information which has been created based upon the Company’s management experience. In particular, and without limiting the generality of the foregoing, the decision to subscribe for Units has not been influenced by: |
| (i) | newspaper, magazine or other media articles or reports related to the Company or its business; |
| (ii) | promotional literature or other materials used by the Company for sales or marketing purposes; or |
| (iii) | any representations, oral or otherwise, that the Company will become a listed company, that any of the Securities will be repurchased or have any guaranteed future realizable value or that there is any certainty as to the success of the Company or the liquidity or value of any of the Securities; |
| (l) | Advertisements: the Subscriber acknowledges that the Subscriber has not purchased Units as a result of any general solicitation or general advertising, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising; |
| (m) | Information not received: the Subscriber has not received, nor has the Subscriber requested, nor does the Subscriber have any need to receive, any offering memorandum or any other document (other than financial statements or any other document the content of which is prescribed by statute or regulation) describing the business and affairs of the Company which has been prepared for delivery to, and review by, prospective subscribers in order to assist them in making an investment decision in respect of the Units, and the Subscriber has not become aware of any advertisement in printed media of general and regular paid circulation, radio or television with respect to the distribution of the Units; |
| (n) | Information received: the Subscriber has had access to such additional information, if any, concerning the Company as the Subscriber has considered necessary in connection with the Subscriber’s investment decision to acquire the Units; |
| (o) | Satisfaction with information received: the Subscriber acknowledges that, to the Subscriber’s satisfaction: |
| (i) | the Subscriber has either had access to or has been furnished with sufficient information regarding the Company and the terms of this investment transaction to the Subscriber’s satisfaction; |
| (ii) | the Subscriber has been provided the opportunity to ask questions concerning this investment transaction and the terms and conditions thereof and all such questions have been answered to the Subscriber’s satisfaction; and |
| (iii) | the Subscriber has been given ready access to and an opportunity to review any information, oral or written, that the Subscriber has requested concurrent with or as a part of this Agreement; |
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| (p) | Economic risk: the Subscriber has such knowledge and experience in financial and business affairs as to be capable of evaluating the merits and risks of the Subscriber’s investment in and to the Securities, and the Subscriber is able to bear the economic risk of a total loss of the Subscriber’s investment in and to any of the Securities; |
| (q) | Speculative investment: the Subscriber understands that an investment in the Securities is a speculative investment and that there is no guarantee of success of the Company’s management’s plans. Management’s plans are an effort to apply present knowledge and experience to project a future course of action which is hoped will result in financial success employing the Company’s assets and with the present level of management’s skills and of those whom the Company will need to attract (which cannot be assured). Additionally, all plans are capable of being frustrated by new or unrecognized or unappreciated present or future circumstances which can typically not be accurately, or at all, predicted; |
| (r) | Address: the Subscriber is resident as set out on the last page of this Agreement as the “Subscriber’s Address”, and the address as set forth on the last page of this Agreement is the true and correct address of the Subscriber; |
| (s) | Risk and resale restriction: the Subscriber is aware of the risks and other characteristics of the Securities and of the fact that the Subscriber will not be able to resell the Securities except in accordance with the applicable securities legislation and regulatory policy; |
| (t) | Representations as to resale: no person has made to the Subscriber any written or oral representations: |
| (i) | that any person will resell or repurchase any of the Securities; |
| (ii) | that any person will refund the purchase of any of the Securities; |
| (iii) | as to the future price or value of any of the Securities; or |
| (iv) | that any of the Securities will be listed and posted for trading on any stock exchange, over-the-counter or bulletin board market, or that application has been made to list and post any of the Securities for trading on any stock exchange, over-the-counter or bulletin board market; and |
| the Subscriber will not resell any of the Securities except in accordance with the provisions of applicable securities legislation and stock exchange, over-the-counter and/or bulletin board market rules; |
| (u) | Reports and undertakings: if required by applicable securities legislation, policy or order or by any securities commission, stock exchange or other regulatory authority, the Subscriber will execute and otherwise assist the Company in filing such reports, undertakings and other documents as may be reasonably required with respect to the issue of the Units; |
| (v) | Resale restrictions: the Subscriber has been independently advised as to the applicable hold period imposed in respect of the Securities by securities legislation in the jurisdiction in which the Subscriber’s resides and confirms that no representation has been made respecting the applicable hold periods for the Securities and is aware of the risks and other characteristics of the Securities and of the fact that the Subscriber may not be able to resell the Securities except in accordance with the applicable securities legislation and regulatory policy; |
| (w) | Age of majority: the Subscriber, if an individual, has attained the age of majority and is legally competent to execute this Agreement and to take all actions required pursuant hereto; |
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| (x) | Authorization and formation of Subscriber: the Subscriber, if a corporation, partnership, trust or other form of business entity, is authorized and otherwise duly qualified to purchase and hold the Securities, and such entity has not been formed for the specific purpose of acquiring Securities in this issue. If the Subscriber is one of the aforementioned entities it hereby agrees that, upon request of the Company, it will supply the Company with any additional written information that may be requested by the Company. In addition, the entering into of this Agreement and the transactions contemplated hereby will not result in the violation of any of the terms of and provisions of any law applicable to, or the constating documents, if a corporation, of, the Subscriber or of any agreement, written or oral, to which the Subscriber may be a party or by which the Subscriber may be bound; |
| (y) | Legal obligation: this Agreement has been duly and validly authorized, executed and delivered by and constitutes a legal, valid, binding and enforceable obligation of the Subscriber; |
| (z) | Legal and tax consequences: the Subscriber acknowledges that an investment in the Securities of the Company may have tax consequences to the Subscriber under applicable law, which the Subscriber is solely responsible for determining, and the Subscriber also acknowledges and agrees that the Subscriber is responsible for obtaining its own legal and tax advice; |
| (aa) | Compliance with applicable laws: the Subscriber knows of no reason (and is sufficiently knowledgeable to determine the same or has sought legal advice) why the delivery of this Agreement, the acceptance of it by the Company and the issuance of the Units to the Subscriber will not comply with all applicable laws of the Subscriber’s jurisdiction of residence or domicile, and all other applicable laws, and the Subscriber has no reason to believe that the Subscriber’s subscription hereby will cause the Company to become subject to or required to comply with any disclosure, prospectus or reporting requirements or to be subject to any civil or regulatory review or proceeding. In addition, the Subscriber will comply with all applicable securities laws and will assist the Company in all reasonable manner to comply with all applicable securities laws; |
| (ab) | Encumbrance or transfer of Securities: while the Company is a non-reporting company in Canada, the Subscriber will not sell, assign, gift, pledge or encumber in any manner whatsoever any of the Securities herein subscribed for in Canada without the prior written consent of the Company and in accordance with applicable securities legislation; |
| (ac) | Regulation S: if the Subscriber is not a resident of the United States, the Subscriber further represents and warrants that the Subscriber was not specifically formed to acquire any of the Securities subscribed for in this Agreement in violation of the provisions of Regulation S; |
| (ad) | Finders’ fees: the Subscriber has not retained, employed or introduced any broker, finder or other person who would be entitled to a brokerage commission or finder’s fee arising out of the transactions contemplated hereby; |
| (ae) | Additional Subscriber acknowledgements: the Subscriber also acknowledges (on its own behalf and, if applicable, on behalf of those for whom the Subscriber is contracting hereunder) as set forth below: |
| (i) | it has been furnished with all information, financial and otherwise, concerning the business, affairs and financial position of the Company necessary to make an informed decision to purchase the Units and the Subscriber agrees that such information has not been furnished pursuant to any form of written material which is, or may be construed as, an offering memorandum as that term is defined in the securities legislation of any Province of Canada or any State of the United States, the securities legislation in the jurisdictions in which the Company is incorporated and conducts business and the securities legislation in the jurisdiction in which the Subscriber is resident (collectively, the “Applicable Securities Legislation” herein) as such legislation is from time to time amended, and the regulations and rules prescribed thereto; |
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| (ii) | the issue of the Units will be made pursuant to exemptions from the registration and prospectus requirements of the Applicable Securities Legislation and therefore: |
| (A) | the Subscriber may be restricted from using certain of the civil remedies available under such legislation and certain protections, rights and remedies provided in such legislation, including statutory rights of rescission or damages, may not be available to the Subscriber; |
| (B) | the Subscriber may not receive information that might otherwise be required to be provided to the Subscriber under such legislation; |
| (C) | the Company may be relieved from certain obligations that would otherwise apply under such legislation; |
| (D) | no securities commission or similar regulatory authority has reviewed or passed on the merits of the Securities; |
| (E) | there is no government or other insurance covering the Securities; and |
| (F) | there are risks associated with the purchase of the Securities; |
| (iii) | no prospectus has been filed by the Company with any regulatory authority in connection with the issuance of the Securities and the Company has already issued or may issue units or shares for significantly lesser consideration per unit or share than is being paid by the Subscriber for Units hereunder; |
| (iv) | any Subscription Price monies paid by the Subscriber for the Units are not subject to any restrictions pertaining to the use thereof by the Company and may be used immediately by the Company upon the Company’s Acceptance; |
| (v) | this subscription forms part of a larger Offering and is subject only to the Company’s Acceptance of this subscription Agreement and the Subscription Price therefore; |
| (vi) | the sale and delivery of the Units to the Subscriber or to any subscriber on whose behalf the Subscriber is contracting is conditional upon such sale being exempt from the requirement to file a prospectus or to prepare and deliver an offering memorandum under any applicable legislation relating to the sale of the Units or upon the issuance of such orders, consents or approvals as may be required to permit such sale without the requirement of filing a prospectus or preparing and delivering an offering memorandum; |
| (vii) | the Company may be required to provide applicable securities regulatory authorities with a list setting forth the identities of the beneficial purchasers of the Units and the Subscriber acknowledges and agrees that the Subscriber will provide, on request, particulars as to the identity of such beneficial purchasers as may be required by the Company in order to comply with the foregoing; and |
| (viii) | the Subscriber (or others for whom the Subscriber is contracting hereunder) has been advised to consult its own legal advisors with respect to the merits and risks of an investment in the Securities and with respect to applicable resale restrictions and the Subscriber (or others for whom the Subscriber is contracting hereunder) is solely responsible, and the Company is not in any way responsible, for compliance with applicable resale restrictions; |
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| (af) | Additional Subscriber covenants and agreements: the Subscriber further covenants and agrees that the Company will also rely upon the following covenants and agreements in determining whether or not to accept this subscription under all Applicable Securities Legislation: |
| (i) | the Subscriber acknowledges and consents to the collection and retention by the Company of certain information, including personal information, regarding the Subscriber and the Subscriber’s subscription, including the Subscriber’s name, address, telephone number and e-mail address, the number of Securities purchased and any control persons of the Subscriber. The Subscriber acknowledges and agrees that this information will be retained on the share register of the Company which may be available for inspection by the public. The Subscriber further consents and agrees to the release of this information to the securities regulatory authorities as required by law and regulatory policies; and |
| (ii) | the Subscriber agrees that this Agreement will in no way restrict the Company from obtaining further funds through the sale of equity securities of the Company or otherwise. |
3.5 Company Confidential Information. The Subscriber acknowledges that the Company is presently engaged in the business of beverage manufacturing and sales. The Subscriber recognizes the importance of protecting the Company’s trade secrets, confidential information and other proprietary information and related rights acquired through the Company’s expenditure of time, effort and money. Therefore, in consideration of the Company permitting the Subscriber to submit this subscription and have access to Company information and/or Company confidential information otherwise coming to the Subscriber, the Subscriber agrees to be bound by the following terms and conditions:
| (a) | Definitions: for all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following words and phrases shall have the following meanings: |
| (i) | “Confidential Information” includes any of the following: |
| (A) | any and all versions of the trade names, trade-mark, business plans, products, software, all Developments (as defined below) and all other matters owned or marketed by the Company; |
| (B) | information regarding the Company’s business operation, methods and practices, including marketing strategies, product pricing, margins and hourly rates for staff and information regarding the financial affairs of the Company; |
| (C) | the names of the Company’s clients and the names of the suppliers to the Company, and the nature of the Company’s relationships with these clients and suppliers; and |
| (D) | any other trade secret or confidential or proprietary information in the possession or control of the Company; |
| however, Confidential Information does not include information which is or becomes generally available to the public without the Subscriber’s fault; and |
| (ii) | “Developments” include all the following related to the products or business of the Company: |
| (A) | copyright works, software, documentation, data, designs, scripts, photographs, music, reports, flowcharts, trade-marks, specifications, source codes, product designs or formula and any related works, including any enhancements, modifications or additions to the products owned, marketed or used by the Company; and |
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| (B) | inventions, devices, discoveries, concepts, ideas, algorithms, formulae, know-how, processes, techniques, systems and improvements, whether patentable or not; |
| developed, created, acquired, generated or reduced to practice by the Company or any person by or for the Company, including the Subscriber; |
| (b) | Maintaining confidentiality: at all times the Subscriber shall keep in strictest confidence and trust the Confidential Information. The Subscriber shall take all necessary precautions against unauthorized disclosure of the Confidential Information, and, except as required by applicable law, judicial process or regulatory investigation, the Subscriber shall not, directly or indirectly disclose, allow access to, transmit or transfer the Confidential Information to a third party, nor shall the Subscriber use, copy or reproduce the Confidential Information except as may be reasonably required for the Subscriber with the permission of the Company; |
| (c) | Return of Confidential Information: at the request of the Company the Subscriber shall immediately return to the Company all materials, including all copies in whatever form, containing the Confidential Information which are in the Subscriber’s possession or under the Subscriber’s control; and |
| (d) | No rights to Confidential Information: the Subscriber acknowledges and agrees that the Subscriber shall not acquire any right, title or interest in or to the Confidential Information. Should any interest in the Confidential Information come into the possession of the Subscriber by any means, other than specific written transfer by the Company, the Subscriber hereby assigns and transfers, now and in the future, to the Company, and agrees that the Company shall be the exclusive owner of, all of the Subscriber’s right, title and interest to any such throughout the world, including all trade secrets, patent rights, copyrights and all other intellectual property rights therein. The Subscriber further agrees to cooperate fully at all times with respect to signing further documents and doing such acts and other things required by the Company to confirm such transfer of ownership of rights. The Subscriber agrees that the obligations in this section shall continue beyond the issue of any Securities hereunder, beyond the ownership of any Securities acquired hereunder and beyond the termination of the Subscriber’s employment, engagement or association with the Company, for a period of five years from the date that the Subscriber delivers this Agreement to the Company. |
3.6 Reliance on Subscriber’s representations and warranties and indemnification. The Subscriber understands that the Company will rely on the representations and warranties of the Subscriber herein in determining whether a sale of the Units to the Subscriber is in compliance with federal and applicable state and provincial securities laws. The Subscriber hereby agrees to indemnify the Company and its affiliates and hold the Company and its affiliates harmless from and against any and all liability, damage, cost or expense (including reasonable attorney’s fees) incurred on account of or arising out of: (i) any inaccuracy in the Subscriber’s acknowledgements, representations or warranties set forth in this Agreement; (ii) the disposition of any of the Securities which the Subscriber will receive, contrary to the Subscriber’s acknowledgements, representations or warranties in this Agreement or otherwise; (iii) any suit or proceeding based upon the claim that such acknowledgments, representations or warranties were inaccurate or misleading or otherwise cause for obtaining damages or redress from the Company or its affiliates; and (iv) the Subscriber’s failure to fulfill any or all of the Subscriber’s obligations herein.
3.7 Change in Subscriber’s representations and warranties. All of the information set forth hereinabove with respect to the Subscriber and including, without limitation, the acknowledgements, representations and warranties set forth hereinabove, is correct and complete as of the date hereof and, if there should be any material change in such information prior to the acceptance of this subscription Agreement by the Company, the Subscriber will immediately furnish the revised or corrected information to the Company.
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3.8 The Company’s representations and warranties. The Company hereby represents and warrants as follows and hereby acknowledges and agrees that the Subscriber will rely on the following representations and warranties in effecting the subscription contemplated hereby:
| (a) | Organizationand Qualification of the Company: the Company is a corporation duly organized,validly existing and in good standing under the laws of the State of Nevada andhas the requisite corporate power to own its properties and to carry on itsbusiness as now being conducted. The Company is duly qualified as a foreigncorporation to do business and is in good standing in each jurisdiction wherethe nature of the business conducted or property owned by it makes suchqualification necessary, other than those jurisdictions in which the failure toso qualify would not have a material adverse effect on the business, operationsor condition (financial or otherwise) of the Company; |
| (b) | Authority: the Company hasthe requisite corporate power and authority to execute and deliver thisAgreement and to consummate the Offering and the other transactionscontemplated hereby. The execution and delivery of this Agreement by theCompany and the consummation by the Company of the transactions contemplatedhereby have been duly authorized by all necessary action on the party of theCompany, and no further consent or action is required; |
| (c) | Enforceability: this Agreement hasbeen duly executed and delivered by the Company and constitutes the valid andbinding obligations of the Company enforceable against the Company inaccordance with its terms, subject as to enforceability to general principlesof equity and to bankruptcy, insolvency, moratorium, and other similar lawsaffecting the enforcement of creditors’ rights generally; |
| (d) | NoConflicts:the execution, delivery and performance of this Agreement by the Company andthe consummation of the Offering by the Company do not and will not conflictwith or violate (i) any provision of the Articles of Incorporation or bylaws ofthe Company, as amended, or (ii) any judgment, order, decree, statute, law,ordinance, rule or regulation applicable to the Company, except where suchconflict or violation would not have a material adverse effect on the business,operations or condition (financial or otherwise) of the Company. No materialconsent, waiver, approval order or authorization of, or registration,declaration or filing with, any court, administrative agency or commission orother federal, state, county, local or foreign governmental authority,instrumentality, agency or commission or any third party, including a party toany material agreement with the Company, is required in connection with theexecution, delivery and performance of this Agreement or the consummation ofthe Offering by the Company; |
| (e) | TheShares:The Shares and the Warrant Shares been duly authorized, and when issued andpaid for in accordance with this Agreement and the Warrant, will be duly andvalidly issued, fully paid and non-assessable. The Company has reserved fromits duly authorized capital stock the number of Warrant Shares issuable uponexercise of the Warrant. The Shares have not been issued in violation of, andare not subject to, any preemptive or subscription rights; |
| (f) | SECFilings:the Company has filed all reports required to be filed by it under the U.S. Actand under the United States Securities Exchange Act of 1934, as amended(the “Exchange Act”), including pursuant to Section 13(a) or 15(d)thereof, for the 18 months preceding the date hereof (collectively, the “SECReports”) on a timely basis or has received a valid extension of such timeof filing. At the time they were filed, the SEC Reports complied in allmaterial respects with the requirements of the U.S. Act and the Exchange Actand the rules and regulations promulgated thereunder. At the time when theywere filed, none of the SEC Reports contained any untrue statement of amaterial fact or omitted to state any material fact required to be statedtherein or necessary to make the statements made therein in light of thecircumstances under which they were made, not misleading. The financialstatements of the Company contained in the SEC Reports comply in all materialrespects with all applicable accounting requirements of the United StatesSecurities and Exchange Commission (the “SEC”), were prepared inaccordance with generally accepted accounting principles, and fairly present inall material respects the financial condition of the Company as of the datesthereof. The number and type of all authorized, issued and outstanding sharesof capital stock of the Company is as set forth in the SEC Reports; and |
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| (g) | Absenceof Certain Changes:Since the date of the last audited financial statement contained in the SECReports, there has been no material adverse change and no material adversedevelopment in the business, properties, operations, condition (financial orotherwise), or results of operations of the Company, except as disclosed in theSEC Reports. |
Article 4
UNITED STATES DECLARATIONS
4.1 Subscriber’s declarations as an “Accredited Investor” if resident in the United States. If applicable and the Subscriber is a resident of the United States, the undersigned Subscriber also warrants and certifies that the Subscriber is an “Accredited Investor”, as that term is defined in “Rule 501” of “Regulation D” promulgated under Section 4(2) of the U.S. Act, by virtue of the Subscriber’s qualification under one or more of the following categories {please check the appropriate category or categories where applicable}:
The Subscriber is a natural person whose individual net worth, or joint net worth with that person’s spouse, exceeds U.S. $1,000,000.
| [ ] | The Subscriber is a natural person who had an individual income in excess of U.S. $200,000 in each of the two most recent years or joint income with the Subscriber’s spouse in excess of U.S. $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year. |
| [ ] | The Subscriber is a corporation, organization described in section 501(c)(3) of the United States Internal Revenue Code, Massachusetts, or similar business trust or partnership, not formed for the specific purpose of acquiring the Post-split Shares, with total assets in excess of U.S. $5,000,000. |
| [ ] | The Subscriber is a trust, with total assets in excess of U.S. $5,000,000, not formed for the specific purpose of acquiring the Post-split Shares, whose purchase is directed by a sophisticated person. |
| [ ] | The Subscriber is a director or executive officer of the Company. |
| [ ] | The Subscriber is a “private business development company” as that term is defined in section 202(a)(22) of the United States Investment Advisers Act of 1940. |
| [ ] | The Subscriber is an entity in which all of the equity owners are accredited investors under one or more of the categories set forth hereinabove. |
In this regard the Subscriber hereby acknowledges and agrees that one of the requirements of the above-referenced exemption is that the Company and the persons involved in the offering and sale of the relevant securities; and in this case the Shares; must have reasonable grounds to believe and, in fact, believe that the Subscriber, whether alone or together with the Subscriber’s representative, if any, has such knowledge and experience in financial and business matters that the Subscriber is capable of evaluating the merits and risks of the prospective investment. As a result, and in order to be assured that the offer and sale of Post-split Shares to the Subscriber as an Accredited Investor will not result in violation of that certain exemption from the registration and prospectus delivery requirement of the U.S. Act specified by the provisions of Rule 501 and “Rule 506” of Regulation D promulgated under Section 4(2) of the U.S. Act.
Article 5
RESTRICTED
SECURITIES AND REGISTRATION
5.1 No initial registration. The Subscriber acknowledges and understands that neither the sale of the Units which the Subscriber is acquiring nor any of the Securities themselves have been registered under any Applicable Securities Legislation and, furthermore, that the Securities must be held indefinitely unless subsequently registered under Applicable Securities Legislation or an exemption from such registration is available.
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5.2 Legending of the Securities. The Subscriber also acknowledges and understands that the certificates representing the Securities will be stamped with the following legend (or substantially equivalent language) restricting transfer in the following manner:
“These securities have not been registered under the United States Securities Act of 1933, as amended, or the laws of any state, and are being issued pursuant to an exemption from registration pertaining to such securities and pursuant to a representation by the security holder named hereon that said securities have been acquired for purposes of investment and not for purposes of distribution. These securities may not be offered, sold, transferred, pledged or hypothecated in the absence of registration, or the availability of an exemption from such registration. The stock transfer agent has been ordered to effectuate transfers only in accordance with the above instructions.”
(or)
“These securities have not been registered under the United States Securities Act of 1933, as amended (the “Act”), or the laws of any state, and are being issued in reliance upon Regulation S promulgated under the Act. These securities may not be offered, sold, transferred, pledged or hypothecated in the absence of registration, the availability of an exemption from such registration or compliance with Regulation S. The stock transfer agent has been ordered to effectuate transfers only in accordance with the above instructions.
(and, if applicable)
“Unless permitted under applicable securities legislation, the holder of the securities represented hereby shall not trade the securities in Canada before the earlier of (i) the date that is four months and a day after the date the company first became a reporting issuer in any of Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec and Saskatchewan, if the company is a sedar filer, and (ii) the date that is four months and a day after the later of (a) the distribution date, and (b) the date the company became a reporting issuer in the local jurisdiction of the subscriber of the securities that are the subject of the trade.
(and)
“Unless otherwise permitted under securities legislation, the holder of this security must not trade the security in or from British Columbia unless the conditions in section 12(2) of BC Instrument 51-509 Issuers Quoted in the U.S. Over-the-Counter Market are met.”.
The Subscriber hereby consents to the Company making a notation on its records or giving instructions to any transfer agent of the Securities in order to implement the restrictions on transfer set forth and described hereinabove.
5.3 Disposition under Rule 144. The Subscriber also acknowledges and understands that:
| (a) | the Securitiesare restricted securities within themeaning of Rule 144 promulgated under the U.S. Act; |
| (b) | the exemption from registration under Rule144 will not be available in any event for at least six months from the date ofpurchase and payment of the Securitiesby the Subscriber, and even then will notbe available unless (i) adequate information concerning the Company is thenavailable to the public and (ii) other terms and conditions of Rule 144 arecomplied with; and |
| (c) | any sale of the Securities may be made by the Subscriber only in limitedamounts in accordance with such terms and conditions. |
In this regard the Subscriber further acknowledges and understands that, without in anyway limiting the acknowledgements and understandings as set forth hereinabove, the Subscriber agrees that the Subscriber shall in no event make any disposition of all or any portion of the Securities which the Subscriber is acquiring hereunder unless and until:
| (a) | thereis then in effect a “Registration Statement” under the U.S. Act coveringsuch proposed disposition and such disposition is made in accordance with saidRegistration Statement; or |
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| (b) | (i) the Subscriber shall have notified the Company of the proposed disposition andshall have furnished the Company with a detailed statement of the circumstancessurrounding the proposed disposition, (ii) the Subscriber shall have furnishedthe Company with an opinion of the Subscriber’s own counsel to the effect thatsuch disposition will not require registration of any such Securitiesunder the U.S. Act and (iii) such opinionof the Subscriber’s counsel shall have been concurred in by counsel for theCompany and the Company shall have advised the Subscriber of such concurrence. |
Article
6
GENERAL
PROVISIONS
6.1 Address for delivery. Each notice, demand or other communication required or permitted to be given under this Agreement shall be in writing and shall be sent by delivery (electronic or otherwise) or prepaid registered mail deposited in a post office addressed to the Subscriber or the Company at the address specified in this Agreement. The date of receipt of such notice, demand or other communication shall be the date of delivery thereof if delivered, or, if given by registered mail as aforesaid, shall be deemed conclusively to be the fifth calendar day after the same shall have been so mailed, except in the case of interruption of postal services for any reason whatsoever, in which case the date of receipt shall be the date on which the notice, demand or other communication is actually received by the addressee. Either party may at any time and from time to time notify the other party in writing of a change of address and the new address to which notice shall be given to it thereafter until further change.
6.2 Severability and construction. Each Article, section, sub-section, paragraph, sub-paragraph, term and provision of this Agreement, and any portion thereof, shall be considered severable, and if, for any reason, any portion of this Agreement is determined to be invalid, contrary to or in conflict with any applicable present or future law, rule or regulation, that ruling shall not impair the operation of, or have any other effect upon, such other portions of this Agreement as may remain otherwise intelligible (all of which shall remain binding on the parties and continue to be given full force and agreement as of the date upon which the ruling becomes final).
6.3 Gender and number. This Agreement is to be read with all changes in gender or number as required by the context.
6.4 Governing law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, U.S.A., and the federal laws of the United States applicable therein. Any dispute regarding matters as between the Subscriber and the Company, whether as a subscriber or shareholder and whether arising under this Agreement or pursuant to shareholder rights pursuant to the con-stating documents of the Company or applicable law, shall be adjudicated in the Courts of the State of Nevada, U.S.A., unless the Company shall permit otherwise.
6.5 Representation and costs. It is hereby acknowledged by each of the parties hereto that the Company’s Counsel acts solely for the Company, and, correspondingly, that the Subscriber has been required by each of the Company’s Counsel and the Company to obtain independent legal advice with respect to the Subscriber’s review and execution of this Agreement. In addition, it is hereby further acknowledged and agreed by the parties hereto that the Company’s Counsel, and certain or all of its principal owners or associates, from time to time, may have both an economic or shareholding interest in and to the Company and/or a fiduciary duty to the same arising from either a directorship, officer-ship or similar relationship arising out of the request of the Company for certain of such persons to act in a similar capacity while acting for the Company as counsel. Correspondingly, and even where, as a result of this Agreement, the consent of each party hereto to the role and capacity of the Company’s Counsel and its principal owners and associates, as the case may be, is deemed to have been received, where any conflict or perceived conflict may arise, or be seen to arise, as a result of any such capacity or representation, each party hereto acknowledges and agrees to, once more, obtain independent legal advice in respect of any such conflict or perceived conflict and, consequent thereon, the Company’s Counsel, together with any such principal owners or associates, as the case may be, shall be at liberty at any time to resign any such position if it or any party hereto is in any way affected or uncomfortable with any such capacity or representation. The Company will bear and pay its and the Subscriber’s costs, legal and otherwise, in connection with their respective preparation, review and execution of this Agreement, and, in particular, that the costs involved in the preparation of this Agreement and all documentation necessarily incidental thereto, by the Company’s Counsel, shall be at the cost of the Company.
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6.6 Survival of representations and warranties. The covenants, representations and warranties contained herein shall survive the closing of the transactions contemplated hereby.
6.7 Counterparts. This Agreement may be signed by the parties hereto in as many counterparts as may be necessary, each of which so signed shall be deemed to be an original, and such counterparts together shall constitute one and the same instrument and notwithstanding the date of execution will be deemed to bear the execution date as set forth in this Agreement. This Agreement may also be executed and exchanged by facsimile and such facsimile copies shall be valid and enforceable agreements.
6.8 Entire Agreement and amendments. This Agreement constitutes the only agreement between the parties with respect to the subject matter hereof and shall supersede any and all prior negotiations and understandings. There are no collateral agreements or understandings hereto and this Agreement, and the documents contemplated herein, constitutes the totality of the parties’ agreement. This Agreement may be amended or modified in any respect by written instrument only.
6.9 Corrections. The Subscriber hereby authorizes the Company to correct any minor errors in, or complete any minor information missing from this Agreement which may be required to be completed and executed by the Subscriber and delivered to the Company in accordance with the terms and conditions of this Agreement.
6.10 Successors and assigns. The terms and provisions of this Agreement shall be binding upon and enure to the benefit of the Subscriber, the Company and their respective successors and lawfully permitted assigns; provided that, except as herein provided, this Agreement shall not be assignable by any party without the written consent of the other. Notwithstanding the foregoing proviso, the benefit and obligations of this Agreement, insofar as they extend to or affect the Subscriber, shall pass with any sale, assignment or transfer of any of the Units, the Shares, the Warrants or the Warrant Shares in accordance with the terms of this Agreement.
IN WITNESS WHEREOF the parties hereto have hereunto set their respective hands and seals in the presence of their duly authorized signatories effective as at the dates as set forth in the Signature Page/Subscriber Statement at the beginning of this Agreement.
__________
|
SUBSCRIPTION AGREEMENT |
Between:
THE PULSE BEVERAGE CORPORATION
And:
[SUBSCRIBER]
The
Pulse Beverage Corporation
11678
N Huron Street, Northglenn, CO, USA 80234
__________
-- $0.40 Unit Private Placement Subscription Agreement – [Subscriber] -- |
SIGNATURE PAGE/SUBSCRIBER STATEMENT
TO THE $0.40 UNIT
PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT
OF THE PULSE BEVERAGE
CORPORATION
SUBSCRIBER’S STATEMENT – the undersigned subscriber (the “Subscriber”) is a sophisticated investor, the Subscriber has sought such independent counsel as the Subscriber considers necessary and the Subscriber has read the attached “$0.40 Unit Private Placement Subscription Agreement” (the “Agreement”) carefully and accepts, agrees and acknowledges the representations and terms thereof in full and without exception and agrees that such Agreement constitutes the entire agreement between The Pulse Beverage Corporation (the “Company”) and the Subscriber and that there are no collateral representations or agreements between the same.
The Company is offering (collectively, the “Offering”), on a private placement basis, units of the Company (each a “Unit”), at a subscription price of U.S. $0.40 per Unit, with each Unit consisting of one share of common stock of the Company and one non-transferable common stock share purchase warrant of the Company (each a “Warrant”), and with each such Warrant entitling the Subscriber to purchase one additional common share of the Company (each a “Warrant Share”), for the period commencing upon the date of issuance of the within Units by the Company and ending on the day which is three years from the date of issuance of the Units, at an exercise price of U.S. $0.65 Per Warrant Share. The within private placement Offering of Units by the Company is not subject to any minimum subscription. The Company offers, and the Subscriber accepts, the Units on the terms and conditions as set forth in this Agreement.
Number of Units subscribed for at U.S. $0.40 per Unit: _____________ Units.
Total Subscription Price payable: U.S. $0.40 x number of Units = U.S. _____________.
Dated at ________________________, on this ___ day of February, 2013.
Subscriber’s Name: __________________________
Subscriber’s Signature:__________________________
Subscriber’s Address: ___________________________________________
Subscriber’s Telephone Number:____________________________
Subscriber’s Email Address:______________________________________
THE SUBSCRIBER MUST CHECK THE APPROPRIATE BOX(ES) SET FORTH IN SECTION 4.1.
Acceptance by the Company:
THE PULSE BEVERAGE CORPORATION hereby accepts the above subscription by the
Subscriber on this __day of February, 2013.
_______________________________
Robert
E. Yates, CEO and Director
-- $0.40 Unit Private Placement Subscription Agreement – [Subscriber] -- |
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$0.40 UNIT PRIVATE PLACEMENT
SUBSCRIPTION AGREEMENT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR THE LAWS OF ANY STATE, AND ARE BEING ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION PERTAINING TO SUCH SECURITIES AND PURSUANT TO A REPRESENTATION BY THE SECURITY HOLDER NAMED HEREIN THAT SAID SECURITIES HAVE BEEN ACQUIRED FOR PURPOSES OF INVESTMENT AND NOT FOR PURPOSES OF DISTRIBUTION. THESE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION. THE STOCK TRANSFER AGENT HAS BEEN ORDERED TO EFFECTUATE TRANSFERS ONLY IN ACCORDANCE WITH THE ABOVE INSTRUCTIONS.
UNIT PRIVATE PLACEMENT OFFERING
| To: | THE PULSE BEVERAGE CORPORATION (the “Company”), with an address for notice and delivery located at 11678 N Huron Street, Northglenn, CO, USA 80234. |
The Company is offering (collectively, the “Offering”), on a private placement basis, units of the Company (each a “Unit”) to eligible investors (each such an investor who subscribes to this Offering by this document is hereinafter referred to as the “Subscriber”), at a subscription price of U.S. $0.40 per Unit, with each Unit consisting of one share of common stock of the Company (each a “Share”) and one non-transferable common stock share purchase warrant of the Company (each a “Warrant”). The within private placement Offering of Units by the Company is not subject to any minimum subscription. The Company offers, and the Subscriber accepts, the Units on the terms and conditions as set forth in this subscription agreement (the “Agreement”).
Article 1
SUBSCRIPTION FOR UNITS
1.1 Subscription for Units. Based upon the hereinafter terms, conditions, representations, warranties and covenants given by each party to the other, the Subscriber hereto hereby irrevocably subscribes for and agrees to purchase the number of Units of the Company set forth on the Signature Page/Subscriber Statement at the beginning of this Agreement at a subscription price of U.S. $0.40 per Unit, for aggregate consideration (the “Subscription Price”) as set forth on the Signature Page/Subscriber Statement at the beginning of this Agreement.
1.2 Acceptance of subscription. The Company, upon acceptance by its Board of Directors (the “Board”) of all or part of this subscription Agreement, agrees to issue the accepted number of Units, as fully paid and non-assessable, and as consideration for the Subscriber’s subscription, and to refund any excess subscription monies of the Subscription Price of any non-accepted portion of this subscription Agreement.
1.3 Warrants and exercise of Warrants. The Warrants forming part of the Units will be registered in the name of the Subscriber and will be non-transferable except in compliance with the United States Securities Act of 1933, as amended (the “U.S. Act”), and each such Warrant will entitle the Subscriber to purchase one additional common share of the Company (each a “Warrant Share”), for the period commencing upon the date of issuance of the within Units by the Board and ending at 5:00 p.m. (Westminster, CO, time) on the day which is three years from the date of issuance of the within Units (such time period being the “Warrant Exercise Period” herein), at an exercise price of U.S. $0.65 Per Warrant Share during the Warrant Exercise Period.
1.4 Warrant certificates. The terms and conditions which govern the Warrants will be referred to on the certificates representing the Warrants in the form attached hereto as Exhibit “A” and will contain, among other things, anti-dilution provisions and provisions for the appropriate adjustment in the class, number and price of the Warrant Shares issuable on the exercise of the Warrants upon the occurrence of certain events including any subdivision, consolidation or reclassification of the common shares, the payment of stock dividends and the amalgamation of the Company.
-- $0.40 Unit Private Placement Subscription Agreement – [Subscriber] -- |
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1.5 Other financings. The issue and terms of the Warrants will not restrict or prevent the Company from obtaining any other financing or from issuing additional securities or rights during the period within which the Warrants are exercisable.
1.6 Replacement Warrant certificates. If the Subscriber exercises any Warrants the Company will issue to the Subscriber the number of Warrant Shares equal to the number of Warrants exercised and deliver to the Subscriber a certificate representing the Warrant Shares.
1.7 Subscriber’s eligibility for subscription. The Subscriber acknowledges and warrants (and has made diligent inquiries to so determine or has the sophistication and knowledge to know the Subscriber’s status without concern of error), on which the Company relies, that the Subscriber is purchasing the Units on a private basis and without infraction of or impedance by his domicile laws due to one or more of the following:
| (a) | the Subscriber is an eligible and exempt investor under the laws of the Subscriber’s domicile by either being a person who complies with exemptions from prospectus requirements or is otherwise exempt by virtue of the Subscriber’s wealth, income and investment knowledge or capacity; or |
| (b) | the Subscriber is subscribing for a value in Units constituting an exempt investment under the laws of the Subscriber’s domicile; or |
| (c) | the Subscriber’s domicile laws do not restrict investment; and |
| (d) | where the Subscriber has completed the appropriate portions of this Agreement and its related Appendices and the completion of the same, whether signed or not, constitute a true and accurate statement by the Subscriber. |
For the purposes of this Agreement it is hereby acknowledged and agreed that “Securities” is hereinafter collectively defined to mean the Units, the Shares, the Warrants and the Warrant Shares.
1.8 Risks of subscription. The Subscriber acknowledges that no party independent of the Company has made or will make any opinion or representations on the merits or risks of an investment in any of the Securities unless sought out by the Subscriber; which the Subscriber is encouraged to do. The Subscriber is aware that this investment is a speculative and risky investment, the Subscriber warrants that it could tolerate the full loss of the investment without significant or material impact on the Subscriber’s financial condition.
Article 2
METHOD
OF SUBSCRIPTION AND ACCEPTANCE BY THE COMPANY
2.1 Method of subscription. It is hereby acknowledged and agreed by the parties hereto that any subscription for Units shall be made by the Subscriber by faxing to the Company at (604) 646-1571, a completed and executed copy of the signature pages to this Agreement and wiring funds directly to the Company as follows:
Benefiary:
The Pulse Beverage Corporation
Address: 11678 N Huron Street, Northglenn,
Colorado, USA 80234
Bank:
JP Morgan Chase
Address:
13260 Orchard Parkway, Westminster, Colorado, USA 80020
2.2 Acceptance of subscription or return of Subscription Price by the Company. The Subscriber acknowledges that the Company will be accepting subscriptions for Units on a first come, first serve, basis. As a consequence the Company, upon acceptance by its Board of all or part of this subscription Agreement (the “Acceptance”), hereby agrees to issue the accepted number of Units, as fully paid and non-assessable, and as consideration for the Subscriber’s subscription, and to promptly refund any excess subscription monies of the Subscription Price of any non-accepted portion of this subscription Agreement. In this regard the Subscriber acknowledges that, although Units may be issued to other subscribers concurrently with the Company’s Acceptance of all or part of this subscription Agreement, there may be other sales of Units by the Company, some or all of which may close before or after the Acceptance herein. The Subscriber further acknowledges that there is a risk that insufficient funds may be raised by the Company upon the Company’s Acceptance of all or part of this subscription Agreement to fund the Company’s objectives and that further closings may not take place after Acceptance herein.
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2.3 Use of funds before and after Acceptance. The Company agrees that the Subscription Price will be held by the Company or by the Company’s Counsel for the benefit of the Subscriber to reserve the Subscriber’s subscription and, prior to Acceptance, such funds shall not be considered a loan and shall not bear interest but shall constitute solely a reservation of subscription. The Subscriber shall not demand return of its Subscription Price monies unless the Units have not been issued for a period in excess of 90 calendar days from the date of this subscription and such demand may be fulfilled by Acceptance and delivery of subscribed Units or return of funds at the Company’s sole and absolute discretion. The Subscriber acknowledges that the funds to be raised from all Units are to be employed for the business of the Company in accordance with management’s determination as to the best use of the same for the Company’s business plans. Notwithstanding any disclosure document or offering memorandum or prospectus provided concurrent with this subscription, the Company reserves the right at any time to alter its business plans in accordance with management’s appreciation of the market for the goods and services of the Company and the best use of the Company’s funds to advance its business, whether present or future.
2.4. Securities issued at different prices and characteristics. The Subscriber acknowledges that the Company will issue its securities at different prices which may occur sequentially, from time-to-time, or at the same time and prices in the future may be lower than now. The Company will also issue offerings which have warrants, or other benefits, attached and some offerings which do not. Not all subscribers will receive common shares, or other share classes, of the Company at the same price and such may be issued at vastly different prices to that of the Subscriber. For example, however, without limitation, the Company will or may issue securities at nominal prices as ‘founders shares’ (which may or will constitute millions of securities, as determined solely by the Board) or for developmental assets (which cannot be valued and so may be assigned a nominal value on the Company’s books) or for services or to attract expertise or management talent or other circumstances considered advisable by the Board. Such issuance at different prices are made by the Board in its judgment as to typical structuring for a company such as the Company, to reward and to provide a measure of developmental control, to acquire assets or services which the Board considers necessary or advisable for the Company’s development and success and other such considerations in the Board’s judgment. The Company may or will acquire debt and/or equity financings in the future required or advisable, as determined by the Board, in the course of the Company’s business development. The Subscriber acknowledges these matters, understands that the Subscriber’s investment is not necessarily the most advantageous investment in the Company and authorizes the Board now and hereafter to use its judgment to make such issuances whether such issuances are at a lesser, equal or greater price than that of the Subscriber and whether such is prior to, concurrent with or subsequent to the Subscriber’s investment herein.
2.5 Delivery of Share and Warrant certificates. The Company, promptly after the Acceptance by its Board of all or part of this subscription Agreement, agrees to deliver to the Subscriber a Share certificate and a Warrant certificate for the accepted number of Units purchased by the Subscriber under this subscription Agreement and registered in the name of the Subscriber.
Article 3
INVESTMENT
SUBSCRIPTION TERMS, CORPORATE DISCLOSURE AND GENERAL
SUBSCRIBER
ACKNOWLEDGEMENTS AND WARRANTIES
3.1 Description of the Units. The Company is issuing Units at a price of U.S. $0.40 per Unit. The Shares forming part of the Units, together with the Warrant Shares which are issuable upon the exercise of the Warrants, are a part of the common shares of the Company presently authorized. Copies of the con-stating documents of the Company describing the common shares and the rights of shareholders are available upon request.
3.2 Release of liability and indemnity. The Subscriber acknowledges and agrees that, in consideration, in part, of the Company’s within Acceptance of this subscription, the Subscriber hereby does hereby release, remise and forever discharge each of the Company and its respective subsidiaries, directors, officers, employees, attorneys, agents, executors, administrators, successors and assigns and the Company’s Counsel, of and from all manner of action and actions, causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, claims, damages and demands, whether known or unknown, suspected or unsuspected and whether at law or in equity, which against either of the Company and/or any of its respective subsidiaries, directors, officers, employees, attorneys, agents, executors, administrators, successors and assigns and the Company’s Counsel, the Subscriber ever had, now has, or which any of the Subscriber’s respective successors or assigns, or any of them hereafter can, shall or may have by reason of any matter arising from the within subscription or the use of funds or the operation of the Company (collectively, the “Release”) except only for gross negligence or fraud (and such shall constitute only objective willful act of objective material wrongdoing). The Subscriber shall hold harmless and indemnify the Company from and against, and shall compensate and reimburse the same for, any loss, damage, claim, liability, fee (including reasonable attorneys’ fees), demand, cost or expense (regardless of whether or not such loss, damage, claim, liability, fee, demand, cost or expense relates to a third-party claim) that is directly or indirectly suffered or incurred by the Company, or to which the Company becomes subject, and that arises directly or indirectly from, or relates directly or indirectly to, any inaccuracy in or breach of any representation, warranty, covenant or obligation of the Subscriber contained in this Agreement. This Release is irrevocable and will not terminate in any circumstances.
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3.3 The Subscriber’s understandings and acknowledgments. The Subscriber hereby acknowledges and agrees that:
| (a) | Further financings: the Company may issue further offerings in the future similar to the within Offering which may be at higher or lower prices (as determined by the Company in accordance with its appreciation of market conditions). The Company may, and will, acquire debt and/or equity financings in the future required or advisable in the course of the Company’s business development; |
| (b) | Withdrawal or revocation: this Agreement is given for valuable consideration and shall not be withdrawn or revoked by the Subscriber once tendered to the Company with the Subscription Price; |
| (c) | Agreement to be bound: the Subscriber hereby specifically agrees to be bound by the terms of this Agreement as to all particulars hereof and hereby reaffirms the acknowledgments, representations and powers as set forth in this Agreement; |
| (d) | Reliance on Subscriber’s representations: the Subscriber understands that the Company will rely on the acknowledgments, representations and covenants of the Subscriber contained herein in determining whether a sale of the Units to the Subscriber is in compliance with applicable securities laws. The Subscriber warrants that all acknowledgments, representations and covenants are true and accurate; and |
| (e) | Waiver of pre-emptive rights: the Subscriber hereby grants, conveys and vests unto the President of the Company, or unto such other nominee or nominees of the President of the Company as the President of the Company may determine, from time to time, in the President’s sole and absolute discretion, as the Subscriber’s power of attorney solely for the purpose of waiving any prior or pre-emptive rights which the Subscriber may have to further issues of equity by the Company under applicable corporate and securities laws. |
3.4 The Subscriber’s representations and warranties. The Subscriber hereby represents and warrants that:
| (a) | Not a U.S. Person: if the Subscriber is not a resident of the United States, the Subscriber: (i) is not a U.S. Person (as defined in Rule 902 of Regulation S (“Regulation S”) under the U.S. Act, which definition includes, but is not limited to, any natural person resident in the United States, any corporation or partnership incorporated or organized under the laws of the United States or any estate or trust of which any executor, administrator or trustee is a U.S. Person; (ii) is not purchasing any of the Securities for the account or benefit of any U.S. Person or for offering, resale or delivery for the account or benefit of any U.S. Person or for the account of any person in any jurisdiction other than the jurisdiction set out in the name and address of the Subscriber set forth hereinbelow; and (iii) was not offered any Units in the United States and was outside the United States at the time of execution and delivery of this Agreement; |
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| (b) | No registration and sales under Regulation S: if the Subscriber is not a resident of the United States: (i) the Subscriber acknowledges that the Securities have not been registered under the U.S. Act; (ii) the Subscriber agrees to resell the Securities only in accordance with the provisions of Regulation S, pursuant to a registration under the U.S. Act or pursuant to an available exemption from such registration, and that hedging transactions involving the Securities may not be conducted unless in compliance with the U.S. Act; (iii) the Subscriber understands that any certificate representing the Securities may bear a legend setting forth the foregoing restrictions; and (iv) the Subscriber understands that the Securities are restricted within the meaning of “Rule 144” promulgated under the U.S. Act; that the exemption from registration under Rule 144 will not be available in any event for at least six months from the date of purchase and payment of the Securities by the Subscriber, and even then will not be available unless (i) a public trading market then exists for the common stock of the Company, (ii) adequate information concerning the Company is then available to the public and (iii) other terms and conditions of Rule 144 are complied with; and that any sale of the Securities may be made by the Subscriber only in limited amounts in accordance with such terms and conditions; |
| (c) | No U.S. beneficial interest: if the Subscriber is not a resident of the United States, no U.S. Person, either directly or indirectly, has any beneficial interest in any of the Securities acquired by the Subscriber hereunder, nor does the Subscriber have any agreement or understanding (written or oral) with any U.S. Person respecting: |
| (i) | the transfer or any assignment of any rights or interest in any of the Securities; |
| (ii) | the division of profits, losses, fees, commissions or any financial stake in connection with this subscription; or |
| (iii) | the voting of the Securities; |
| (d) | Experience: the Subscriber has the requisite knowledge and experience in financial and business matters for properly evaluating the risks of an investment in the Company; |
| (e) | Information: the Subscriber has received all information regarding the Company reasonably requested by the Subscriber; |
| (f) | Risk: the Subscriber understands that an investment in the Company involves certain risks of which the Subscriber has taken full cognizance, and which risks the Subscriber fully understands; |
| (g) | Adequacy of information: the Subscriber has been given the opportunity to ask questions of, and to receive answers from, the Company concerning the terms and conditions of the Offering and to obtain additional information necessary to verify the accuracy of the information contained in the information described in paragraph (e) above, or such other information as the Subscriber desired in order to evaluate an investment in the Company; |
| (h) | Residency: the residence of the Subscriber as set forth hereinbelow is the true and correct residence of the Subscriber and the Subscriber has no present intention of becoming a resident or domiciliary of any other jurisdiction; |
| (i) | Independent investigation: in making a decision to invest in the Company the Subscriber has relied solely upon independent investigations made by the Subscriber; |
| (j) | Principal: the Subscriber is purchasing the Units as principal for the Subscriber’s own account and not for the benefit of any other person, except as otherwise stated herein, and not with a view to the resale or distribution of all or any of the Units; |
| (k) | Decision to purchase: the decision of the Subscriber to enter into this Agreement and to purchase Units pursuant hereto has been based only on the representations of this Agreement. It is not made on other information relating to the Company and not upon any oral representation as to fact or otherwise made by or on behalf of the Company or any other person. The Subscriber agrees that the Company assumes no responsibility or liability of any nature whatsoever for the accuracy, adequacy or completeness of any business plan information which has been created based upon the Company’s management experience. In particular, and without limiting the generality of the foregoing, the decision to subscribe for Units has not been influenced by: |
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| (i) | newspaper, magazine or other media articles or reports related to the Company or its business; |
| (ii) | promotional literature or other materials used by the Company for sales or marketing purposes; or |
| (iii) | any representations, oral or otherwise, that the Company will become a listed company, that any of the Securities will be repurchased or have any guaranteed future realizable value or that there is any certainty as to the success of the Company or the liquidity or value of any of the Securities; |
| (l) | Advertisements: the Subscriber acknowledges that the Subscriber has not purchased Units as a result of any general solicitation or general advertising, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising; |
| (m) | Information not received: the Subscriber has not received, nor has the Subscriber requested, nor does the Subscriber have any need to receive, any offering memorandum or any other document (other than financial statements or any other document the content of which is prescribed by statute or regulation) describing the business and affairs of the Company which has been prepared for delivery to, and review by, prospective subscribers in order to assist them in making an investment decision in respect of the Units, and the Subscriber has not become aware of any advertisement in printed media of general and regular paid circulation, radio or television with respect to the distribution of the Units; |
| (n) | Information received: the Subscriber has had access to such additional information, if any, concerning the Company as the Subscriber has considered necessary in connection with the Subscriber’s investment decision to acquire the Units; |
| (o) | Satisfaction with information received: the Subscriber acknowledges that, to the Subscriber’s satisfaction: |
| (i) | the Subscriber has either had access to or has been furnished with sufficient information regarding the Company and the terms of this investment transaction to the Subscriber’s satisfaction; |
| (ii) | the Subscriber has been provided the opportunity to ask questions concerning this investment transaction and the terms and conditions thereof and all such questions have been answered to the Subscriber’s satisfaction; and |
| (iii) | the Subscriber has been given ready access to and an opportunity to review any information, oral or written, that the Subscriber has requested concurrent with or as a part of this Agreement; |
| (p) | Economic risk: the Subscriber has such knowledge and experience in financial and business affairs as to be capable of evaluating the merits and risks of the Subscriber’s investment in and to the Securities, and the Subscriber is able to bear the economic risk of a total loss of the Subscriber’s investment in and to any of the Securities; |
| (q) | Speculative investment: the Subscriber understands that an investment in the Securities is a speculative investment and that there is no guarantee of success of the Company’s management’s plans. Management’s plans are an effort to apply present knowledge and experience to project a future course of action which is hoped will result in financial success employing the Company’s assets and with the present level of management’s skills and of those whom the Company will need to attract (which cannot be assured). Additionally, all plans are capable of being frustrated by new or unrecognized or unappreciated present or future circumstances which can typically not be accurately, or at all, predicted; |
-- $0.40 Unit Private Placement Subscription Agreement – [Subscriber] -- |
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| (r) | Address: the Subscriber is resident as set out on the last page of this Agreement as the “Subscriber’s Address”, and the address as set forth on the last page of this Agreement is the true and correct address of the Subscriber; |
| (s) | Risk and resale restriction: the Subscriber is aware of the risks and other characteristics of the Securities and of the fact that the Subscriber will not be able to resell the Securities except in accordance with the applicable securities legislation and regulatory policy; |
| (t) | Representations as to resale: no person has made to the Subscriber any written or oral representations: |
| (i) | that any person will resell or repurchase any of the Securities; |
| (ii) | that any person will refund the purchase of any of the Securities; |
| (iii) | as to the future price or value of any of the Securities; or |
| (iv) | that any of the Securities will be listed and posted for trading on any stock exchange, over-the-counter or bulletin board market, or that application has been made to list and post any of the Securities for trading on any stock exchange, over-the-counter or bulletin board market; and |
| the Subscriber will not resell any of the Securities except in accordance with the provisions of applicable securities legislation and stock exchange, over-the-counter and/or bulletin board market rules; |
| (u) | Reports and undertakings: if required by applicable securities legislation, policy or order or by any securities commission, stock exchange or other regulatory authority, the Subscriber will execute and otherwise assist the Company in filing such reports, undertakings and other documents as may be reasonably required with respect to the issue of the Units; |
| (v) | Resale restrictions: the Subscriber has been independently advised as to the applicable hold period imposed in respect of the Securities by securities legislation in the jurisdiction in which the Subscriber’s resides and confirms that no representation has been made respecting the applicable hold periods for the Securities and is aware of the risks and other characteristics of the Securities and of the fact that the Subscriber may not be able to resell the Securities except in accordance with the applicable securities legislation and regulatory policy; |
| (w) | Age of majority: the Subscriber, if an individual, has attained the age of majority and is legally competent to execute this Agreement and to take all actions required pursuant hereto; |
| (x) | Authorization and formation of Subscriber: the Subscriber, if a corporation, partnership, trust or other form of business entity, is authorized and otherwise duly qualified to purchase and hold the Securities, and such entity has not been formed for the specific purpose of acquiring Securities in this issue. If the Subscriber is one of the aforementioned entities it hereby agrees that, upon request of the Company, it will supply the Company with any additional written information that may be requested by the Company. In addition, the entering into of this Agreement and the transactions contemplated hereby will not result in the violation of any of the terms of and provisions of any law applicable to, or the constating documents, if a corporation, of, the Subscriber or of any agreement, written or oral, to which the Subscriber may be a party or by which the Subscriber may be bound; |
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| (y) | Legal obligation: this Agreement has been duly and validly authorized, executed and delivered by and constitutes a legal, valid, binding and enforceable obligation of the Subscriber; |
| (z) | Legal and tax consequences: the Subscriber acknowledges that an investment in the Securities of the Company may have tax consequences to the Subscriber under applicable law, which the Subscriber is solely responsible for determining, and the Subscriber also acknowledges and agrees that the Subscriber is responsible for obtaining its own legal and tax advice; |
| (aa) | Compliance with applicable laws: the Subscriber knows of no reason (and is sufficiently knowledgeable to determine the same or has sought legal advice) why the delivery of this Agreement, the acceptance of it by the Company and the issuance of the Units to the Subscriber will not comply with all applicable laws of the Subscriber’s jurisdiction of residence or domicile, and all other applicable laws, and the Subscriber has no reason to believe that the Subscriber’s subscription hereby will cause the Company to become subject to or required to comply with any disclosure, prospectus or reporting requirements or to be subject to any civil or regulatory review or proceeding. In addition, the Subscriber will comply with all applicable securities laws and will assist the Company in all reasonable manner to comply with all applicable securities laws; |
| (ab) | Encumbrance or transfer of Securities: while the Company is a non-reporting company in Canada, the Subscriber will not sell, assign, gift, pledge or encumber in any manner whatsoever any of the Securities herein subscribed for in Canada without the prior written consent of the Company and in accordance with applicable securities legislation; |
| (ac) | Regulation S: if the Subscriber is not a resident of the United States, the Subscriber further represents and warrants that the Subscriber was not specifically formed to acquire any of the Securities subscribed for in this Agreement in violation of the provisions of Regulation S; |
| (ad) | Finders’ fees: the Subscriber has not retained, employed or introduced any broker, finder or other person who would be entitled to a brokerage commission or finder’s fee arising out of the transactions contemplated hereby; |
| (ae) | Additional Subscriber acknowledgements: the Subscriber also acknowledges (on its own behalf and, if applicable, on behalf of those for whom the Subscriber is contracting hereunder) as set forth below: |
| (i) | it has been furnished with all information, financial and otherwise, concerning the business, affairs and financial position of the Company necessary to make an informed decision to purchase the Units and the Subscriber agrees that such information has not been furnished pursuant to any form of written material which is, or may be construed as, an offering memorandum as that term is defined in the securities legislation of any Province of Canada or any State of the United States, the securities legislation in the jurisdictions in which the Company is incorporated and conducts business and the securities legislation in the jurisdiction in which the Subscriber is resident (collectively, the “Applicable Securities Legislation” herein) as such legislation is from time to time amended, and the regulations and rules prescribed thereto; |
| (ii) | the issue of the Units will be made pursuant to exemptions from the registration and prospectus requirements of the Applicable Securities Legislation and therefore: |
| (A) | the Subscriber may be restricted from using certain of the civil remedies available under such legislation and certain protections, rights and remedies provided in such legislation, including statutory rights of rescission or damages, may not be available to the Subscriber; |
| (B) | the Subscriber may not receive information that might otherwise be required to be provided to the Subscriber under such legislation; |
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| (C) | the Company may be relieved from certain obligations that would otherwise apply under such legislation; |
| (D) | no securities commission or similar regulatory authority has reviewed or passed on the merits of the Securities; |
| (E) | there is no government or other insurance covering the Securities; and |
| (F) | there are risks associated with the purchase of the Securities; |
| (iii) | no prospectus has been filed by the Company with any regulatory authority in connection with the issuance of the Securities and the Company has already issued or may issue units or shares for significantly lesser consideration per unit or share than is being paid by the Subscriber for Units hereunder; |
| (iv) | any Subscription Price monies paid by the Subscriber for the Units are not subject to any restrictions pertaining to the use thereof by the Company and may be used immediately by the Company upon the Company’s Acceptance; |
| (v) | this subscription forms part of a larger Offering and is subject only to the Company’s Acceptance of this subscription Agreement and the Subscription Price therefore; |
| (vi) | the sale and delivery of the Units to the Subscriber or to any subscriber on whose behalf the Subscriber is contracting is conditional upon such sale being exempt from the requirement to file a prospectus or to prepare and deliver an offering memorandum under any applicable legislation relating to the sale of the Units or upon the issuance of such orders, consents or approvals as may be required to permit such sale without the requirement of filing a prospectus or preparing and delivering an offering memorandum; |
| (vii) | the Company may be required to provide applicable securities regulatory authorities with a list setting forth the identities of the beneficial purchasers of the Units and the Subscriber acknowledges and agrees that the Subscriber will provide, on request, particulars as to the identity of such beneficial purchasers as may be required by the Company in order to comply with the foregoing; and |
| (viii) | the Subscriber (or others for whom the Subscriber is contracting hereunder) has been advised to consult its own legal advisors with respect to the merits and risks of an investment in the Securities and with respect to applicable resale restrictions and the Subscriber (or others for whom the Subscriber is contracting hereunder) is solely responsible, and the Company is not in any way responsible, for compliance with applicable resale restrictions; |
| (af) | Additional Subscriber covenants and agreements: the Subscriber further covenants and agrees that the Company will also rely upon the following covenants and agreements in determining whether or not to accept this subscription under all Applicable Securities Legislation: |
| (i) | the Subscriber acknowledges and consents to the collection and retention by the Company of certain information, including personal information, regarding the Subscriber and the Subscriber’s subscription, including the Subscriber’s name, address, telephone number and e-mail address, the number of Securities purchased and any control persons of the Subscriber. The Subscriber acknowledges and agrees that this information will be retained on the share register of the Company which may be available for inspection by the public. The Subscriber further consents and agrees to the release of this information to the securities regulatory authorities as required by law and regulatory policies; and |
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| (ii) | the Subscriber agrees that this Agreement will in no way restrict the Company from obtaining further funds through the sale of equity securities of the Company or otherwise. |
3.5 Company Confidential Information. The Subscriber acknowledges that the Company is presently engaged in the business of beverage manufacturing and sales. The Subscriber recognizes the importance of protecting the Company’s trade secrets, confidential information and other proprietary information and related rights acquired through the Company’s expenditure of time, effort and money. Therefore, in consideration of the Company permitting the Subscriber to submit this subscription and have access to Company information and/or Company confidential information otherwise coming to the Subscriber, the Subscriber agrees to be bound by the following terms and conditions:
| (a) | Definitions: for all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following words and phrases shall have the following meanings: |
| (i) | “Confidential Information” includes any of the following: |
| (A) | any and all versions of the trade names, trade-mark, business plans, products, software, all Developments (as defined below) and all other matters owned or marketed by the Company; |
| (B) | information regarding the Company’s business operation, methods and practices, including marketing strategies, product pricing, margins and hourly rates for staff and information regarding the financial affairs of the Company; |
| (C) | the names of the Company’s clients and the names of the suppliers to the Company, and the nature of the Company’s relationships with these clients and suppliers; and |
| (D) | any other trade secret or confidential or proprietary information in the possession or control of the Company; |
| however, Confidential Information does not include information which is or becomes generally available to the public without the Subscriber’s fault; and |
| (ii) | “Developments” include all the following related to the products or business of the Company: |
| (A) | copyright works, software, documentation, data, designs, scripts, photographs, music, reports, flowcharts, trade-marks, specifications, source codes, product designs or formula and any related works, including any enhancements, modifications or additions to the products owned, marketed or used by the Company; and |
| (B) | inventions, devices, discoveries, concepts, ideas, algorithms, formulae, know-how, processes, techniques, systems and improvements, whether patentable or not; |
| developed, created, acquired, generated or reduced to practice by the Company or any person by or for the Company, including the Subscriber; |
| (b) | Maintaining confidentiality: at all times the Subscriber shall keep in strictest confidence and trust the Confidential Information. The Subscriber shall take all necessary precautions against unauthorized disclosure of the Confidential Information, and, except as required by applicable law, judicial process or regulatory investigation, the Subscriber shall not, directly or indirectly disclose, allow access to, transmit or transfer the Confidential Information to a third party, nor shall the Subscriber use, copy or reproduce the Confidential Information except as may be reasonably required for the Subscriber with the permission of the Company; |
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| (c) | Return of Confidential Information: at the request of the Company the Subscriber shall immediately return to the Company all materials, including all copies in whatever form, containing the Confidential Information which are in the Subscriber’s possession or under the Subscriber’s control; and |
| (d) | No rights to Confidential Information: the Subscriber acknowledges and agrees that the Subscriber shall not acquire any right, title or interest in or to the Confidential Information. Should any interest in the Confidential Information come into the possession of the Subscriber by any means, other than specific written transfer by the Company, the Subscriber hereby assigns and transfers, now and in the future, to the Company, and agrees that the Company shall be the exclusive owner of, all of the Subscriber’s right, title and interest to any such throughout the world, including all trade secrets, patent rights, copyrights and all other intellectual property rights therein. The Subscriber further agrees to cooperate fully at all times with respect to signing further documents and doing such acts and other things required by the Company to confirm such transfer of ownership of rights. The Subscriber agrees that the obligations in this section shall continue beyond the issue of any Securities hereunder, beyond the ownership of any Securities acquired hereunder and beyond the termination of the Subscriber’s employment, engagement or association with the Company, for a period of three years from the date that the Subscriber delivers this Agreement to the Company. |
3.6 Reliance on Subscriber’s representations and warranties and indemnification. The Subscriber understands that the Company will rely on the representations and warranties of the Subscriber herein in determining whether a sale of the Units to the Subscriber is in compliance with federal and applicable state and provincial securities laws. The Subscriber hereby agrees to indemnify the Company and its affiliates and hold the Company and its affiliates harmless from and against any and all liability, damage, cost or expense (including reasonable attorney’s fees) incurred on account of or arising out of: (i) any inaccuracy in the Subscriber’s acknowledgements, representations or warranties set forth in this Agreement; (ii) the disposition of any of the Securities which the Subscriber will receive, contrary to the Subscriber’s acknowledgements, representations or warranties in this Agreement or otherwise; (iii) any suit or proceeding based upon the claim that such acknowledgments, representations or warranties were inaccurate or misleading or otherwise cause for obtaining damages or redress from the Company or its affiliates; and (iv) the Subscriber’s failure to fulfill any or all of the Subscriber’s obligations herein.
3.7 Change in Subscriber’s representations and warranties. All of the information set forth hereinabove with respect to the Subscriber and including, without limitation, the acknowledgements, representations and warranties set forth hereinabove, is correct and complete as of the date hereof and, if there should be any material change in such information prior to the acceptance of this subscription Agreement by the Company, the Subscriber will immediately furnish the revised or corrected information to the Company.
3.8 The Company’s representations and warranties. The Company hereby represents and warrants as follows and hereby acknowledges and agrees that the Subscriber will rely on the following representations and warranties in effecting the subscription contemplated hereby:
| (a) | Organization and Qualification of the Company: the Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a material adverse effect on the business, operations or condition (financial or otherwise) of the Company; |
| (b) | Authority: the Company has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the Offering and the other transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary action on the party of the Company, and no further consent or action is required; |
-- $0.40 Unit Private Placement Subscription Agreement – [Subscriber] -- |
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| (c) | Enforceability: this Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligations of the Company enforceable against the Company in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors’ rights generally; |
| (d) | No Conflicts: the execution, delivery and performance of this Agreement by the Company and the consummation of the Offering by the Company do not and will not conflict with or violate (i) any provision of the Articles of Incorporation or bylaws of the Company, as amended, or (ii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company, except where such conflict or violation would not have a material adverse effect on the business, operations or condition (financial or otherwise) of the Company. No material consent, waiver, approval order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or commission or any third party, including a party to any material agreement with the Company, is required in connection with the execution, delivery and performance of this Agreement or the consummation of the Offering by the Company; |
| (e) | The Shares: The Shares and the Warrant Shares been duly authorized, and when issued and paid for in accordance with this Agreement and the Warrant, will be duly and validly issued, fully paid and non-assessable. The Company has reserved from its duly authorized capital stock the number of Warrant Shares issuable upon exercise of the Warrant. The Shares have not been issued in violation of, and are not subject to, any preemptive or subscription rights; |
| (f) | SEC Filings: the Company has filed all reports required to be filed by it under the U.S. Act and under the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), including pursuant to Section 13(a) or 15(d) thereof, for the 18 months preceding the date hereof (collectively, the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing. At the time they were filed, the SEC Reports complied in all material respects with the requirements of the U.S. Act and the Exchange Act and the rules and regulations promulgated thereunder. At the time when they were filed, none of the SEC Reports contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein in light of the circumstances under which they were made, not misleading. The financial statements of the Company contained in the SEC Reports comply in all material respects with all applicable accounting requirements of the United States Securities and Exchange Commission (the “SEC”), were prepared in accordance with generally accepted accounting principles, and fairly present in all material respects the financial condition of the Company as of the dates thereof. The number and type of all authorized, issued and outstanding shares of capital stock of the Company is as set forth in the SEC Reports; and |
| (g) | Absence of Certain Changes: Since the date of the last audited financial statement contained in the SEC Reports, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), or results of operations of the Company, except as disclosed in the SEC Reports. |
Article 4
UNITED STATES
DECLARATIONS
4.1 Subscriber’s declarations as an “Accredited Investor” if resident in the United States. If applicable and the Subscriber is a resident of the United States, the undersigned Subscriber also warrants and certifies that the Subscriber is an “Accredited Investor”, as that term is defined in “Rule 501” of “Regulation D” promulgated under Section 4(2) of the U.S. Act, by virtue of the Subscriber’s qualification under one or more of the following categories {please check the appropriate category or categories where applicable}:
| [ ] | The Subscriber is a natural person whose individual net worth, or joint net worth with that person’s spouse, exceeds U.S. $1,000,000. |
-- $0.40 Unit Private Placement Subscription Agreement – [Subscriber] -- |
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| [ ] | The Subscriber is a natural person who had an individual income in excess of U.S. $200,000 in each of the two most recent years or joint income with the Subscriber’s spouse in excess of U.S. $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year. |
| [ ] | The Subscriber is a corporation, organization described in section 501(c)(3) of the United States Internal Revenue Code, Massachusetts, or similar business trust or partnership, not formed for the specific purpose of acquiring the Post-split Shares, with total assets in excess of U.S. $5,000,000. |
| [ ] | The Subscriber is a trust, with total assets in excess of U.S. $5,000,000, not formed for the specific purpose of acquiring the Post-split Shares, whose purchase is directed by a sophisticated person. |
| [ ] | The Subscriber is a director or executive officer of the Company. |
| [ ] | The Subscriber is a “private business development company” as that term is defined in section 202(a)(22) of the United States Investment Advisers Act of 1940. |
| [ ] | The Subscriber is an entity in which all of the equity owners are accredited investors under one or more of the categories set forth hereinabove. |
In this regard the Subscriber hereby acknowledges and agrees that one of the requirements of the above-referenced exemption is that the Company and the persons involved in the offering and sale of the relevant securities; and in this case the Shares; must have reasonable grounds to believe and, in fact, believe that the Subscriber, whether alone or together with the Subscriber’s representative, if any, has such knowledge and experience in financial and business matters that the Subscriber is capable of evaluating the merits and risks of the prospective investment. As a result, and in order to be assured that the offer and sale of Post-split Shares to the Subscriber as an Accredited Investor will not result in violation of that certain exemption from the registration and prospectus delivery requirement of the U.S. Act specified by the provisions of Rule 501 and “Rule 506” of Regulation D promulgated under Section 4(2) of the U.S. Act.
Article 5
RESTRICTED
SECURITIES AND REGISTRATION
5.1 No initial registration. The Subscriber acknowledges and understands that neither the sale of the Units which the Subscriber is acquiring nor any of the Securities themselves have been registered under any Applicable Securities Legislation and, furthermore, that the Securities must be held indefinitely unless subsequently registered under Applicable Securities Legislation or an exemption from such registration is available.
5.2 Legending of the Securities. The Subscriber also acknowledges and understands that the certificates representing the Securities will be stamped with the following legend (or substantially equivalent language) restricting transfer in the following manner:
“These securities have not been registered under the United States Securities Act of 1933, as amended, or the laws of any state, and are being issued pursuant to an exemption from registration pertaining to such securities and pursuant to a representation by the security holder named hereon that said securities have been acquired for purposes of investment and not for purposes of distribution. These securities may not be offered, sold, transferred, pledged or hypothecated in the absence of registration, or the availability of an exemption from such registration. The stock transfer agent has been ordered to effectuate transfers only in accordance with the above instructions.”
(or)
“These securities have not been registered under the United States Securities Act of 1933, as amended (the “Act”), or the laws of any state, and are being issued in reliance upon Regulation S promulgated under the Act. These securities may not be offered, sold, transferred, pledged or hypothecated in the absence of registration, the availability of an exemption from such registration or compliance with Regulation S. The stock transfer agent has been ordered to effectuate transfers only in accordance with the above instructions.
The Subscriber hereby consents to the Company making a notation on its records or giving instructions to any transfer agent of the Securities in order to implement the restrictions on transfer set forth and described hereinabove.
-- $0.40 Unit Private Placement Subscription Agreement – [Subscriber] -- |
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5.3 Disposition under Rule 144. The Subscriber also acknowledges and understands that:
| (a) | the Securities are restricted securities within the meaning of Rule 144 promulgated under the U.S. Act; |
| (b) | the exemption from registration under Rule 144 will not be available in any event for at least six months from the date of purchase and payment of the Securities by the Subscriber, and even then will not be available unless (i) adequate information concerning the Company is then available to the public and (ii) other terms and conditions of Rule 144 are complied with; and |
| (c) | any sale of the Securities may be made by the Subscriber only in limited amounts in accordance with such terms and conditions. |
In this regard the Subscriber further acknowledges and understands that, without in anyway limiting the acknowledgements and understandings as set forth hereinabove, the Subscriber agrees that the Subscriber shall in no event make any disposition of all or any portion of the Securities which the Subscriber is acquiring hereunder unless and until:
| (a) | there is then in effect a “Registration Statement” under the U.S. Act covering such proposed disposition and such disposition is made in accordance with said Registration Statement; or |
| (b) | (i) the Subscriber shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, (ii) the Subscriber shall have furnished the Company with an opinion of the Subscriber’s own counsel to the effect that such disposition will not require registration of any such Securities under the U.S. Act and (iii) such opinion of the Subscriber’s counsel shall have been concurred in by counsel for the Company and the Company shall have advised the Subscriber of such concurrence. |
Article
6
GENERAL
PROVISIONS
6.1 Address for delivery. Each notice, demand or other communication required or permitted to be given under this Agreement shall be in writing and shall be sent by delivery (electronic or otherwise) or prepaid registered mail deposited in a post office addressed to the Subscriber or the Company at the address specified in this Agreement. The date of receipt of such notice, demand or other communication shall be the date of delivery thereof if delivered, or, if given by registered mail as aforesaid, shall be deemed conclusively to be the fifth calendar day after the same shall have been so mailed, except in the case of interruption of postal services for any reason whatsoever, in which case the date of receipt shall be the date on which the notice, demand or other communication is actually received by the addressee. Either party may at any time and from time to time notify the other party in writing of a change of address and the new address to which notice shall be given to it thereafter until further change.
6.2 Severability and construction. Each Article, section, sub-section, paragraph, sub-paragraph, term and provision of this Agreement, and any portion thereof, shall be considered severable, and if, for any reason, any portion of this Agreement is determined to be invalid, contrary to or in conflict with any applicable present or future law, rule or regulation, that ruling shall not impair the operation of, or have any other effect upon, such other portions of this Agreement as may remain otherwise intelligible (all of which shall remain binding on the parties and continue to be given full force and agreement as of the date upon which the ruling becomes final).
6.3 Gender and number. This Agreement is to be read with all changes in gender or number as required by the context.
6.4 Governing law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, U.S.A., and the federal laws of the United States applicable therein. Any dispute regarding matters as between the Subscriber and the Company, whether as a subscriber or shareholder and whether arising under this Agreement or pursuant to shareholder rights pursuant to the con-stating documents of the Company or applicable law, shall be adjudicated in the Courts of the State of Nevada, U.S.A., unless the Company shall permit otherwise.
-- $0.40 Unit Private Placement Subscription Agreement – [Subscriber] -- |
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6.5 Representation and costs. It is hereby acknowledged by each of the parties hereto that the Company’s Counsel acts solely for the Company, and, correspondingly, that the Subscriber has been required by each of the Company’s Counsel and the Company to obtain independent legal advice with respect to the Subscriber’s review and execution of this Agreement. In addition, it is hereby further acknowledged and agreed by the parties hereto that the Company’s Counsel, and certain or all of its principal owners or associates, from time to time, may have both an economic or shareholding interest in and to the Company and/or a fiduciary duty to the same arising from either a directorship, officer-ship or similar relationship arising out of the request of the Company for certain of such persons to act in a similar capacity while acting for the Company as counsel. Correspondingly, and even where, as a result of this Agreement, the consent of each party hereto to the role and capacity of the Company’s Counsel and its principal owners and associates, as the case may be, is deemed to have been received, where any conflict or perceived conflict may arise, or be seen to arise, as a result of any such capacity or representation, each party hereto acknowledges and agrees to, once more, obtain independent legal advice in respect of any such conflict or perceived conflict and, consequent thereon, the Company’s Counsel, together with any such principal owners or associates, as the case may be, shall be at liberty at any time to resign any such position if it or any party hereto is in any way affected or uncomfortable with any such capacity or representation. The Company will bear and pay its and the Subscriber’s costs, legal and otherwise, in connection with their respective preparation, review and execution of this Agreement, and, in particular, that the costs involved in the preparation of this Agreement and all documentation necessarily incidental thereto, by the Company’s Counsel, shall be at the cost of the Company.
6.6 Survival of representations and warranties. The covenants, representations and warranties contained herein shall survive the closing of the transactions contemplated hereby.
6.7 Counterparts. This Agreement may be signed by the parties hereto in as many counterparts as may be necessary, each of which so signed shall be deemed to be an original, and such counterparts together shall constitute one and the same instrument and notwithstanding the date of execution will be deemed to bear the execution date as set forth in this Agreement. This Agreement may also be executed and exchanged by facsimile and such facsimile copies shall be valid and enforceable agreements.
6.8 Entire Agreement and amendments. This Agreement constitutes the only agreement between the parties with respect to the subject matter hereof and shall supersede any and all prior negotiations and understandings. There are no collateral agreements or understandings hereto and this Agreement, and the documents contemplated herein, constitutes the totality of the parties’ agreement. This Agreement may be amended or modified in any respect by written instrument only.
6.9 Corrections. The Subscriber hereby authorizes the Company to correct any minor errors in, or complete any minor information missing from this Agreement which may be required to be completed and executed by the Subscriber and delivered to the Company in accordance with the terms and conditions of this Agreement.
6.10 Successors and assigns. The terms and provisions of this Agreement shall be binding upon and enure to the benefit of the Subscriber, the Company and their respective successors and lawfully permitted assigns; provided that, except as herein provided, this Agreement shall not be assignable by any party without the written consent of the other. Notwithstanding the foregoing proviso, the benefit and obligations of this Agreement, insofar as they extend to or affect the Subscriber, shall pass with any sale, assignment or transfer of any of the Units, the Shares, the Warrants or the Warrant Shares in accordance with the terms of this Agreement.
IN WITNESS WHEREOF the parties hereto have hereunto set their respective hands and seals in the presence of their duly authorized signatories effective as at the dates as set forth in the Signature Page/Subscriber Statement at the beginning of this Agreement.
-- $0.40 Unit Private Placement Subscription Agreement – [Subscriber] -- |
THE PULSE BEVERAGE CORPORATION
2011 EQUITY INCENTIVE PLAN
STOCK OPTION GRANT NOTICE
The Pulse Beverage Corporation (the “Company”) hereby grants to you an Option (the “Option”) to purchase shares of the Company’s Common Stock, $0.00001 par value (“Shares”) under the Company’s 2011 Equity Incentive Plan (the “Plan”). The Option is subject to all the terms and conditions set forth in this Stock Option Grant Notice (this “Grant Notice”), in the Stock Option Agreement and the Plan, which are attached to and incorporated into this Grant Notice in their entirety.
| Participant: | |
| Grant Date: | |
| Vesting Commencement Date: | |
| Number of Shares Subject to Option: | |
| Exercise Price (per Unit): | $ |
| Option Expiration Date: | ______________________ (subject to earlier termination in accordance with the terms of the Plan and the Stock Option Agreement) |
| Type of Option: | [ ] Incentive Stock Option* [ ] Nonqualified Stock Option |
| Vesting and Exercisability Schedule: | Vesting shall be as follows: __________ shares – immediately __________ shares – __________ __________ shares – __________ |
Additional Terms/Acknowledgement: You acknowledge receipt of, and understand and agree to, this Grant Notice, the Stock Option Agreement and the Plan. You further acknowledge that as of the Grant Date, this Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between you and the Company regarding the Option and supersede all prior oral and written agreements on the subject.
| THE PULSE BEVERAGE CORPORATION By: ____________________________________ Robert E.Yates, Chief Executive Officer |
PARTICIPANT __________________________________ ______________ |
|
Attachments: 1. Stock Option Agreement 2. 2011 Equity Incentive Plan |
Address: ______________________________ ______________________________ Taxpayer ID: ___________________________ |
* See Sections 3 and 4 of the Stock Option Agreement.
THE PULSE BEVERAGE CORPORATION
2011 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
Pursuant to your Stock Option Grant Notice (the “Grant Notice”) and this Stock Option Agreement (this “Agreement”), The Pulse Beverage Corporation has granted you an Option under its 2011 Equity Incentive Plan (the “Plan”) to purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice (the “Shares”) at the exercise price indicated in your Grant Notice. Capitalized terms not defined in this Agreement but defined in the Plan have the same definitions as in the Plan.
The details of the Option are as follows:
1. Vesting and Exercisability. Subject to the limitations contained herein, the Option will vest and become exercisable as provided in your Grant Notice, provided that vesting will cease upon your Termination of Service and the unvested portion of the Option will terminate.
2. Securities Law Compliance. Notwithstanding any other provision of this Agreement, you may not exercise the Option unless the Shares issuable upon exercise are registered under the Securities Act or, if such Shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of the Option must also comply with other applicable laws and regulations governing the Option, and you may not exercise the Option if the Company determines that such exercise would not be in material compliance with such laws and regulations.
3. Incentive Stock Option Qualification. If so designated in your Grant Notice, all or a portion of the Option is intended to qualify as an Incentive Stock Option under federal income tax law, but the Company does not represent or guarantee that the Option qualifies as such.
If the Option has been designated as an Incentive Stock Option and the aggregate Fair Market Value (determined as of the grant date) of the Shares subject to the portions of the Option and all other Incentive Stock Options you hold that first become exercisable during any calendar year exceeds $100,000, any excess portion will be treated as a Nonqualified Stock Option, unless the Internal Revenue Service changes the rules and regulations governing the $100,000 limit for Incentive Stock Options. A portion of the Option may be treated as a Nonqualified Stock Option if certain events cause exercisability of the Option to accelerate.
4. Notice of Disqualifying Disposition. To the extent the Option has been designated as an Incentive Stock Option, to obtain certain tax benefits afforded to Incentive Stock Options, you must hold the Shares issued upon the exercise of the Option for two years after the Grant Date and one year after the date of exercise. You may be subject to the alternative minimum tax at the time of exercise. By accepting the Option, you agree to promptly notify the Company if you dispose of any of the Shares within one year from the date you exercise all or part of the Option or within two years from the Grant Date.
5. Independent Tax Advice. You should obtain tax advice when exercising the Option and prior to the disposition of the Shares. By accepting the Option, you agree to promptly notify the Company if you dispose of any of the Shares within one year from the date you exercise all or part of the Option or within two years from the Grant Date.
6. Method of Exercise. You may exercise the Option by giving written notice to the Company (or other Company-approved party), in form and substance satisfactory to the Company, which will state your election to exercise the Option and the number of Shares for which you are exercising the Option. The written notice must be accompanied by full payment of the exercise price for the number of Shares you are purchasing. You may make this payment in any combination of the following: (a) by cash; (b) by check acceptable to the Company; (c) if permitted by the Committee for Nonqualified Stock Options, by having the Company withhold Shares that would otherwise be issued on exercise of the Option that have a Fair Market Value on the date of exercise of the Option equal to the exercise price of the Option; (d) if permitted by the Committee, by using Shares you already own; (e) if the Shares are registered under the Exchange Act and to the extent permitted by law, by instructing a broker to deliver to the Company the total payment required, all in accordance with the regulations of the Federal Reserve Board; or (f) by any other method permitted by the Committee.
7. Treatment upon Termination of Employment or Service Relationship. The unvested portion of the Option will terminate automatically and without further notice immediately upon your Termination of Service. You may exercise the vested portion of the Option as follows:
(a) General Rule. You must exercise the vested portion of the Option on or before the earlier of (i) three months after your Termination of Service and (ii) the Option Expiration Date;
(b) Retirement or Disability. In the event of your Termination of Service due to Retirement or Disability, you must exercise the vested portion of the Option on or before the earlier of (i) one year after your Termination of Service and (ii) the Option Expiration Date;
(c) Death. In the event of your Termination of Service due to your death, the vested portion of the Option must be exercised on or before the earlier of (i) one year after your Termination of Service and (ii) the Option Expiration Date. If you die after your Termination of Service but while the Option is still exercisable, the vested portion of the Option may be exercised until the earlier of (x) one year after the date of death and (y) the Option Expiration Date; and
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(d) Cause. The vested portion of the Option will automatically expire at the time the Company first notifies you of your Termination of Service for Cause, unless the Committee determines otherwise. If your employment or service relationship is suspended pending an investigation of whether you will be terminated for Cause, all your rights under the Option likewise will be suspended during the period of investigation. If any facts that would constitute termination for Cause are discovered after your Termination of Service, any Option you then hold may be immediately terminated by the Committee.
Notwithstanding the foregoing, if exercise of the vested portion of the Option following your Termination of Service would be prohibited solely because the issuance of Shares upon exercise of the Option would violate the registration requirements under the Securities Act or the Company’s insider trading policy requirements, then the Option will remain exercisable until the earlier of (i) the Option Expiration Date and (ii) expiration of a period of three months after your Termination of Service during which exercise of the Option would not be in violation of the Securities Act or the Company’s insider trading policy requirements (provided that in the event of Retirement, Disability or death, this additional three-month period will apply only following an initial election by a Participant or his or her estate or beneficiary to exercise the Option and will serve only to extend, not shorten, the one year post-termination exercise periods set forth in subsections 7(b) and 7(c) above).
The Option must be exercised within three months after termination of employment for reasons other than death or Disability and one year after termination of employment due to Disability to qualify for the beneficial tax treatment afforded Incentive Stock Options.
It is your responsibility to be aware of the date the Option terminates.
8. Limited Transferability. During your lifetime only you can exercise the Option. The Option is not transferable except by will or by the applicable laws of descent and distribution. The Plan provides for exercise of the Option by a beneficiary designated on a Company-approved form or the personal representative of your estate. Notwithstanding the foregoing and to the extent permitted by Section 422 of the Internal Revenue Code of 1986, the Committee, in its sole discretion, may permit you to assign or transfer the Option, subject to such terms and conditions as specified by the Committee.
9. Withholding Taxes. As a condition to the exercise of any portion of the Option, you must make such arrangements as the Company may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such exercise.
10. Option Not an Employment or Service Contract. Nothing in the Plan or this Agreement will be deemed to constitute an employment contract or confer or be deemed to confer any right for you to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate your employment or other relationship at any time, with or without Cause.
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11. No Right to Damages. You will have no right to bring a claim or to receive damages if you are required to exercise the vested portion of the Option within three months (one year in the case of Retirement, Disability or death) of your Termination of Service or if any portion of the Option is cancelled or expires unexercised. The loss of existing or potential profit in the Option will not constitute an element of damages in the event of your Termination of Service for any reason even if the termination is in violation of an obligation of the Company or a Related Company to you.
12. Binding Effect. This Agreement will inure to the benefit of the successors and assigns of the Company and be binding upon you and your heirs, executors, administrators, successors and assigns.
13. Section 409A Compliance. Notwithstanding any provision in the Plan or this Agreement to the contrary, the Committee may, at any time and without your consent, modify the terms of the Option as it determines appropriate to avoid the imposition of interest or penalties under Section 409A of the Code; provided, however, that the Committee makes no representations that the Option will be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to the Option.
|
THE PULSE BEVERAGE CORPORATION
By:_____________________________________ PARTICIPANT: |
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THE PULSE BEVERAGE CORPORATION
2011 EQUITY INCENTIVE PLAN
STOCK BONUS AGREEMENT
Unless otherwise defined herein, capitalized terms used in this Stock Bonus Agreement (this “Stock Bonus Agreement”) shall have the meanings ascribed in the The Pulse Beverage Corporation 2011 Stock Incentive Plan (the “Plan”).
I. NOTICE OF STOCK BONUS GRANT
_________________________________
_________________________________
_________________________________
[Participant’s Name and Address]
The Company is pleased to inform you that, subject to the terms and conditions of the Plan and this Stock Bonus Agreement, you have been granted bonus shares of Common Stock
(“Bonus Shares”), as follows:
| Grant Number: | _________________________________ |
| Date of Grant: | _________________________________ |
| Number of Bonus Shares: | _________________________________ |
Vesting Schedule: The Bonus Shares shall be vested immediately upon the date of grant set forth above.
II. AGREEMENT
| A. Grant of Bonus Shares. |
The Board hereby grants to the Participant named in the Notice of Grant contained in Part I of this Stock Bonus Agreement (the “Notice of Grant”) the Bonus Shares set forth in the Notice of Grant, subject to the terms and conditions of the Plan, which is incorporated herein by reference. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Stock Bonus Agreement, the terms and conditions of the Plan shall prevail.
| B. Stock Certificates. |
| (a) Concurrently herewith, the Company shall issue one or more stock certificates in the Participant’s name evidencing the Bonus Shares. The Participant agrees to execute such further instruments and to take such further actions as the Board may deem necessary or advisable for purposes of facilitating the enforcement of this Stock Bonus Agreement. |
| C. Tax Obligations. |
| (a) The Participant shall be solely responsible for the payment of any and all federal, state and other taxes that may be imposed on the Participant by reason of the acquisition of the Bonus Shares. |
| (b) The Participant agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining the Participant) for the satisfaction of all Federal, state, local and foreign income and employment tax withholding requirements applicable to the receipt of the Bonus Shares. The Participant acknowledges and agrees that the Company may refuse to issue the Bonus Shares if such withholding amounts are not delivered. |
| D. Entire Agreement; Governing Law. |
The Plan and this Stock Bonus Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Participant with respect to the subject matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the Company and the Participant. This Stock Bonus Agreement is governed by the internal substantive laws, but not the choice of law rules, of Nevada.
| E. NO GUARANTEE OF CONTINUED SERVICE. |
THE PARTICIPANT ACKNOWLEDGES AND AGREES THAT THIS STOCK BONUS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREUNDER DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH THE PARTICIPANT’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE THE PARTICIPANT’S SERVICE AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company’s representative below, you and the Company agree that the Bonus Shares are granted under and governed by the terms and conditions of the Plan and this Stock Bonus Agreement. By your signature below, you acknowledge and agree that you have reviewed the Plan and this Stock Bonus Agreement in their entirety, have had an opportunity to obtain the advice of counsel prior to executing this Stock Bonus Agreement and fully understand all provisions of the Plan and this Stock Bonus Agreement. You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions relating to the Plan and this Stock Bonus Agreement. You further agree to notify the Company upon any change in the residence address indicated below.
This Stock Bonus Agreement may be executed by facsimile and in counterparts, each of which shall be deemed an original, but both of which shall constitute one and the same instrument.
PARTICIPANT:
_______________________
Signature
_______________________
Print
Name
Residence Address:
_______________________
_______________________
_______________________
THE PULSE BEVERAGE CORPORATION
____________________________
By:
Name:
Title:
Warrant certificate No
THE PULSE BEVERAGE CORPORATION
$0.xx SHARE PURCHASE WARRANT CERTIFICATE
WARRANTS FOR UP TO ________SHARES OF COMMON STOCK
THE WARRANTS REPRESENTED HEREBY ARE NON-TRANSFERABLE EXCEPT IN ACCORDANCE WITH APPLICABLE SECURITIES LAWS AND WILL BE VOID AND OF NO VALUE UNLESS EXERCISED ON OR BEFORE 5:00 P.M. MST ON _______________
SHARE PURCHASE WARRANTS (the “Warrants”)
THIS IS TO CERTIFY THAT, for value received, _________________(the “Holder”), is entitled to purchase up to a total of ___________ fully paid and non-assessable shares of the common stock (each a “Warrant Share”) of THE PULSE BEVERAGE CORPORATION (the “Company”) for the period commencing upon the date of issuance of the within Warrants by the Company; and ending at 5:00 p.m. (Northglenn, Colorado, U.S.A., time) on ___________ (such time period being the “Warrant Exercise Period” and the final such day of such Warrant Exercise Period being the “Time of Expiry” herein), at an exercise price of U.S. $0.xx per Warrant Share (the “Warrant Exercise Price”) during the Warrant Exercise Period.
This Warrant is subject to the terms and conditions contained hereinbelow together with the terms and conditions which are attached to this Warrant as Schedule “A”.
The aforesaid right to purchase Warrant Shares may be exercised by the Holder at anytime and from time to time prior to the Time of Expiry (i) by duly completing in the manner indicated and executing the subscription form attached hereto, (ii) by surrendering this Warrant to the Company at its executive office located in Northglenn, Colorado, U.S.A., and (iii) by paying the requisite Warrant Exercise Price for the Warrant Shares subscribed by wiring requisite funds to the Company pursuant to wire instructions contained in under Article 2 of the subscription form attached hereto. Upon said surrender and payment the Company will issue to the Holder of the subscription form the number of Warrant Shares subscribed for and said Holder will become a shareholder or shareholders of the Company in respect of the Warrant Shares as of the date of such surrender and payment. Subject to the terms and conditions of this Warrant, the Company will, as soon as practicable after said surrender and payment, mail to the person or persons at the address or addresses specified in the subscription form a certificate or certificates evidencing the Warrant Shares subscribed for. If the Holder of this Warrant subscribes for a lesser number of Warrant Shares than the number of Warrant Shares referred to in this Warrant, the Holder shall be entitled to receive a further Warrant in respect of Warrant Shares not subscribed for.
The Holder of this Warrant may surrender this Warrant to the Company at its executive office located in Northglenn, Colorado, U.S.A., in exchange for new certificates representing this Warrant entitling the Holder to purchase in the aggregate the same number of Warrant Shares referred to in this Warrant.
The Holder hereof and the Company, by acceptance and issuance of this Warrant, agree that this Warrant and all rights hereunder may not be transferred or assigned.
Nothing contained herein shall confer any right upon the Holder hereof or any other person to subscribe for or purchase any Warrant Shares at any time subsequent to the Time of Expiry and, from and after such time, this Warrant and all rights hereunder shall be void and of no value.
This Warrant shall not constitute the holder a stockholder of the Company.
Time shall be of the essence hereof.
IN WITNESS WHEREOF THE PULSE BEVERAGE CORPORATION has caused its common seal to be affixed and this Warrant to be signed by its authorized representative effective on this _____day of ______________201_.
THE PULSE BEVERAGE CORPORATION,
Robert E. Yates, CEO and Director
Exhibit 31.1
CERTIFICATIONS
I, Robert E. Yates, hereby certify that:
(1) I have reviewed this annual report on Form 10-K for the period ended December 31, 2012 (the “report”) of The Pulse Beverage Corporation;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Dated: March 29, 2013 | /s/ Robert E. Yates |
| Robert
E. Yates Chief Executive Officer (principal executive officer) |
Exhibit 31.2
CERTIFICATIONS
I, Robert E. Yates, hereby certify that:
(1) I have reviewed this annual report on Form 10-K for the period ended December 31, 2012 (the “report”) of The Pulse Beverage Corporation;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Dated: March 29, 2013 | /s/ Robert E. Yates |
| Robert
E. Yates Chief Financial Officer (principal financial and accounting officer) |
Exhibit 32
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of The Pulse Beverage Corporation, a Nevada corporation (the "Company"), does hereby certify, to the best of his knowledge, that:
1. The Annual Report on Form 10-K for the period ending December 31, 2012 (the "Report") of the Company complies in all material respects with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Robert
E. Yates
Robert
E. Yates,
Chief
Executive Officer
(principal
executive officer, and principal financial and accounting officer)
Date: March 29, 2013
|
Warrants (Details Narrative) (USD $)
|
Dec. 31, 2012
|
Dec. 31, 2011
|
|---|---|---|
| Other Liabilities Disclosure [Abstract] | ||
| Warrants Outstanding | $ 9,161,393 | $ 1,116,667 |
| Average Exercise Price | 0.58 | |
| Average Expiration Date | 3.5 years |
|
Business Combination - Identifiable Assets Acquired and Financial Liabilities Assumed (Details) (USD $)
|
Feb. 15, 2011
|
|---|---|
| Business Combinations [Abstract] | |
| Equity Instruments (13,280,000 common shares) | $ 1,618,020 |
| Cash | 56 |
| Property and equipment | 815,000 |
| Identifiable intangible assets | 970,488 |
| Financial liabilities | (167,524) |
| Total identifiable net assets | $ 1,618,020 |
|
Income Taxes (Details Narrative) (USD $)
|
12 Months Ended |
|---|---|
|
Dec. 31, 2012
|
|
| Income Tax Disclosure [Abstract] | |
| net operating loss carryover | $ 4,600,000 |
|
Loan Receivable - Related party (Details Narrative) (USD $)
|
12 Months Ended |
|---|---|
|
Dec. 31, 2011
|
|
| Receivables [Abstract] | |
| Loan Receivable - Related party | $ (200,000) |
| Interest Per Year | 4.00% |
| Ballon Payment | 174,000 |
| Principal and Interest (paid monthly) | 1,055 |
| Remaining Pricipal Balance | $ 194,114 |
|
Inventory (Tables)
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Dec. 31, 2012
|
|||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory |
|
|
Stock-based Compensation - Non-Vested Stock Options (Details) (USD $)
|
Dec. 31, 2012
|
Dec. 31, 2011
|
|---|---|---|
|
Granted
|
||
| Number of Options | 3,200,000 | |
| Weighted Average Grant Date Fair Value | $ 0.37 | |
|
Vested
|
||
| Number of Options | (1,575,000) | |
| Weighted Average Grant Date Fair Value | $ 0.37 | |
|
Non-Vested
|
||
| Number of Options | 1,625,000 | 0 |
| Weighted Average Grant Date Fair Value | $ 0.37 | $ 0 |
|
Fair Value Measurements - Reconciliation of all Assets and Liabilities Measured at Fair Value (Details) (USD $)
|
Dec. 31, 2012
|
Dec. 31, 2011
|
|---|---|---|
|
Level 1
|
||
| Note receivable | ||
|
Level 2
|
||
| Note receivable | 188,030 | 193,114 |
|
Level 3
|
||
| Note receivable | ||
|
Total
|
||
| Note receivable | $ 188,030 | $ 193,114 |
|
Accounts Receivable
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Dec. 31, 2012
|
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| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Receivable |
|